1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 1, 2001
REGISTRATION NO. 333-
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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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FINANCIAL INDUSTRIES CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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TEXAS 6719 74-2126975
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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JAMES M. GRACE
VICE PRESIDENT AND TREASURER
6500 RIVER PLACE BLVD., BUILDING ONE 6500 RIVER PLACE BLVD., BUILDING ONE
AUSTIN, TEXAS 78730 AUSTIN, TEXAS 78730
(512) 404-5000 (512) 404-5000
(Address, Including Zip Code, and Telephone (Name, Address, Including Zip Code, and
Number, Telephone
Including Area Code, of Registrant's Principal Number, Including Area Code, of Agent for
Executive Offices) Service)
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Copies To:
GLENN D. WEST, ESQ. THEODORE A. FLERON
WEIL, GOTSHAL & MANGES LLP VICE PRESIDENT AND ASSISTANT SECRETARY
100 CRESCENT COURT, SUITE 1300 6500 RIVER PLACE BLVD., BUILDING ONE
DALLAS, TEXAS 75201 AUSTIN, TEXAS 78730
(214) 746-7700 (512) 404-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon the effective time of the merger described in this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(3) REGISTRATION FEE(3)
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Common Stock, par value $0.20 per
share............................... 5,894,914 $10.281 $60,605,613 $15,152
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(1) Represents the maximum number of shares of Financial Industries Corporation
common stock to be issued in the merger described in this Registration
Statement based upon (i) 5,209,013 shares of ILCO common stock issued as of
January 30, 2001 (and not cancelled or retired or held directly by Financial
Industries Corporation or InterContinental Life Corporation, which will be
cancelled in connection with the merger described in this Registration
Statement) and (ii) 150,000 shares of ILCO common stock issuable upon the
exercise of options that are expected to be exercisable prior to the
effective time of the merger, each exchanged at an exchange ratio of 1.1.
(2) Represents the quotient obtained by dividing the proposed maximum aggregate
offering price by the number of shares of Financial Industries Corporation
common stock registered hereby.
(3) Estimated in accordance with Rule 457(c) and (f), solely for the purpose of
determining the registration fee.
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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[FIC LOGO]
, 2001
Dear Financial Industries Corporation shareholder,
The boards of directors of Financial Industries Corporation and
InterContinental Life Corporation have approved, and the parties have entered
into, a merger agreement that, subject to each company's shareholder approval,
will result in ILCO Acquisition Company, a wholly-owned subsidiary of Financial
Industries Corporation, being merged with and into InterContinental Life
Corporation. The merger agreement provides that InterContinental Life
Corporation shareholders will receive 1.1 shares of Financial Industries
Corporation common stock for each share of InterContinental Life Corporation
common stock that they own immediately before the merger.
AFTER CAREFUL CONSIDERATION, AND UPON THE RECOMMENDATION OF A SPECIAL
COMMITTEE OF THE BOARD OF DIRECTORS CONSISTING OF DISINTERESTED DIRECTORS, YOUR
BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER ON SUBSTANTIALLY
THE TERMS AND CONDITIONS SET FORTH IN THE MERGER AGREEMENT AMONG FINANCIAL
INDUSTRIES CORPORATION, INTERCONTINENTAL LIFE CORPORATION AND ILCO ACQUISITION
COMPANY IS ADVISABLE AND IS FAIR TO, AND IN THE BEST INTERESTS OF, FINANCIAL
INDUSTRIES CORPORATION AND ITS SHAREHOLDERS. YOUR BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" APPROVAL OF THE ISSUANCE OF THE SHARES OF COMMON STOCK IN THE MERGER
AND THE RELATED AMENDMENT TO FINANCIAL INDUSTRIES CORPORATION'S ARTICLES OF
INCORPORATION.
The merger cannot be completed unless the holders of at least a majority of
the outstanding shares of common stock of Financial Industries Corporation vote
to approve the amendment to our articles of incorporation and a majority of the
votes cast on the issuance of shares of common stock in the merger approve such
issuance. We have scheduled a special meeting for you to vote on the
merger-related proposals. YOUR VOTE IS VERY IMPORTANT.
The meeting will be held on , , 2001 at 10:00 a.m., local
time, at the principal offices of Financial Industries Corporation, 6500 River
Place Blvd., Building One, Austin, Texas 78730.
Whether or not you plan to attend the meeting, please take the time to vote
by completing and mailing the enclosed proxy card. If you sign, date and mail
your proxy card without indicating how you wish to vote, your proxy will be
voted in favor of the issuance of shares of common stock in the merger and the
amendment to the articles of incorporation. Your failure to return your proxy
card will be considered a vote against the issuance of shares of common stock in
the merger and the related amendment to Financial Industries Corporation's
articles of incorporation. Returning the proxy does NOT deprive you of your
right to attend the meeting and to vote your shares in person.
The enclosed joint proxy statement/prospectus provides you with detailed
information about the proposed merger. We encourage you to read this entire
document carefully. IN PARTICULAR, YOU SHOULD CONSIDER CAREFULLY THE DISCUSSION
IN THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 16 OF THE ENCLOSED
JOINT PROXY STATEMENT/PROSPECTUS. You may also obtain information about
Financial Industries Corporation and InterContinental Life Corporation from
documents that they have filed with the Securities and Exchange Commission. Some
of these documents are incorporated by reference into the enclosed joint proxy
statement/prospectus.
Thank you for your cooperation.
Sincerely,
Roy F. Mitte
Chairman, President and Chief
Executive Officer
3
[ILCO LOGO]
, 2001
Dear InterContinental Life Corporation shareholder,
The boards of directors of Financial Industries Corporation and
InterContinental Life Corporation have approved, and the parties have entered
into, a merger agreement that, subject to each company's shareholder approval,
will result in ILCO Acquisition Company, a wholly-owned subsidiary of Financial
Industries Corporation, being merged with and into InterContinental Life
Corporation. The merger agreement provides that InterContinental Life
Corporation shareholders will receive 1.1 shares of Financial Industries
Corporation common stock for each share of InterContinental Life Corporation
common stock that they own immediately before the merger.
AFTER CAREFUL CONSIDERATION, AND UPON THE RECOMMENDATION OF A SPECIAL
COMMITTEE OF THE BOARD OF DIRECTORS CONSISTING OF DISINTERESTED DIRECTORS, YOUR
BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER ON SUBSTANTIALLY
THE TERMS AND CONDITIONS SET FORTH IN THE MERGER AGREEMENT AMONG FINANCIAL
INDUSTRIES CORPORATION, INTERCONTINENTAL LIFE CORPORATION AND ILCO ACQUISITION
COMPANY IS ADVISABLE AND IS FAIR TO, AND IN THE BEST INTERESTS OF,
INTERCONTINENTAL LIFE CORPORATION AND ITS SHAREHOLDERS. YOUR BOARD OF DIRECTORS
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT
YOU VOTE "FOR" APPROVAL OF THE PLAN OF MERGER CONTAINED IN THE MERGER AGREEMENT.
The merger cannot be completed unless the holders of at least two-thirds of
the outstanding shares of InterContinental Life Corporation common stock
entitled to vote on such plan of merger approve it. We have scheduled a special
meeting for you to vote on the plan of merger. YOUR VOTE IS VERY IMPORTANT.
The meeting will be held on , , 2001 at 11:00 a.m., local
time, at the principal offices of InterContinental Life Corporation, 6500 River
Place Blvd., Building One, Austin, Texas 78730.
Whether or not you plan to attend the meeting, please take the time to vote
by completing and mailing the enclosed proxy card. If you sign, date and mail
your proxy card without indicating how you wish to vote, your proxy will be
voted in favor of approval of the plan of merger. Your failure to return your
proxy card will be considered a vote against approval of the plan of merger.
Returning the proxy does NOT deprive you of your right to attend the meeting and
to vote your shares in person.
The enclosed joint proxy statement/prospectus provides you with detailed
information about the proposed merger and about Financial Industries
Corporation. We encourage you to read this entire document carefully. IN
PARTICULAR, YOU SHOULD CONSIDER CAREFULLY THE DISCUSSION IN THE SECTION ENTITLED
"RISK FACTORS" BEGINNING ON PAGE 16 OF THE ENCLOSED JOINT PROXY
STATEMENT/PROSPECTUS. You may also obtain information about Financial Industries
Corporation and InterContinental Life Corporation from documents that they have
filed with the Securities and Exchange Commission. Some of these documents are
incorporated by reference into the enclosed joint proxy statement/prospectus.
Thank you for your cooperation.
Sincerely,
Roy F. Mitte
Chairman, President and Chief
Executive Officer
4
FINANCIAL INDUSTRIES CORPORATION
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
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TO BE HELD , , 2001
To the Shareholders of Financial Industries Corporation:
A Special Meeting of Shareholders of Financial Industries Corporation, a
Texas corporation, will be held on , , 2001 at 10:00 a.m., local
time, at the principal offices of Financial Industries Corporation, 6500 River
Place Blvd., Building One, Austin, Texas 78730, to consider and to vote upon the
following proposals:
1. To consider and to vote on a proposal to approve the issuance of
shares of Financial Industries Corporation common stock pursuant to the
Agreement and Plan of Merger, dated as of January 17, 2001, by and among
Financial Industries Corporation, a Texas corporation, InterContinental
Life Corporation, a Texas corporation, and ILCO Acquisition Company, a
Texas corporation and a wholly-owned subsidiary of Financial Industries
Corporation, pursuant to which, among other things, (i) ILCO Acquisition
Company will be merged with and into InterContinental Life Corporation,
with InterContinental Life Corporation surviving the merger as a
wholly-owned subsidiary of Financial Industries Corporation, (ii) each
share of InterContinental Life Corporation's common stock, $0.22 par value
per share, issued (and not cancelled or retired) immediately prior to the
effective time of the merger will be converted into the right to receive
1.1 shares of the common stock, $0.20 par value per share, of Financial
Industries Corporation, other than (a) fractional shares which will be paid
in cash and (b) shares held directly by Financial Industries Corporation
and InterContinental Life Corporation, which will be cancelled without
additional consideration, and (iii) each option to purchase shares of the
common stock of InterContinental Life Corporation outstanding immediately
prior to the merger will be assumed by Financial Industries Corporation and
thereafter be deemed to be an option to purchase shares of Financial
Industries Corporation common stock in such amount and at such exercise
price as is set forth in the merger agreement.
2. To consider and to vote on a proposal to approve an amendment to
Financial Industries Corporation's articles of incorporation, as amended,
to increase its number of authorized shares of common stock from 10,000,000
to 25,000,000.
3. Such other business as may properly come before the Special Meeting
or any postponement or adjournment thereof.
These items of business are described in the enclosed joint proxy
statement/prospectus. The Board of Directors has fixed the close of business on
, 2001 as the record date for determining the shareholders entitled to
notice of and to vote at the Special Meeting.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE SPECIAL MEETING IN CASE
YOU ARE NOT PERSONALLY PRESENT, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED
PROXY CARD AND RETURN IT PROMPTLY IN THE ACCOMPANYING ADDRESSED ENVELOPE. NO
POSTAGE NEED BE AFFIXED IF MAILED IN THE U.S.
By order of the Board of Directors,
Steven P. Schmitt
Vice President and Secretary
6500 River Place Blvd., Building One
Austin, Texas 78730
, 2001
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INTERCONTINENTAL LIFE CORPORATION
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
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TO BE HELD , , 2001
To the Shareholders of InterContinental Life Corporation:
A Special Meeting of Shareholders of InterContinental Life Corporation, a
Texas corporation, will be held on , , 2001 at 11:00 a.m., local
time, at the principal offices of InterContinental Life Corporation, 6500 River
Place Blvd., Building One, Austin, Texas 78730, to consider and to vote upon the
following proposals:
1. To consider and to vote on a proposal to approve the plan of merger
set forth in the Agreement and Plan of Merger, dated as of January 17,
2001, by and among Financial Industries Corporation, a Texas corporation,
InterContinental Life Corporation, a Texas corporation, and ILCO
Acquisition Company, a Texas corporation and a wholly-owned subsidiary of
Financial Industries Corporation, pursuant to which, among other things,
(i) ILCO Acquisition Company will be merged with and into InterContinental
Life Corporation, with InterContinental Life Corporation surviving the
merger as a wholly-owned subsidiary of Financial Industries Corporation,
(ii) each share of InterContinental Life Corporation's common stock, $0.22
par value per share, issued (and not cancelled or retired) immediately
prior to the effective time of the merger will be converted into the right
to receive 1.1 shares of the common stock, $0.20 par value per share, of
Financial Industries Corporation, other than (a) fractional shares which
will be paid in cash and (b) shares held directly by Financial Industries
Corporation and InterContinental Life Corporation, which will be cancelled
without additional consideration, and (iii) each option to purchase shares
of the common stock of InterContinental Life Corporation outstanding
immediately prior to the merger will be assumed by Financial Industries
Corporation and thereafter be deemed to be an option to purchase shares of
Financial Industries Corporation common stock in such amount and at such
exercise price as is set forth in the merger agreement.
2. Such other business as may properly come before the Special Meeting
or any postponement or adjournment thereof.
These items of business are described in the enclosed joint proxy
statement/prospectus. The Board of Directors has fixed the close of business on
, 2001 as the record date for determining the shareholders entitled to
notice of and to vote at the Special Meeting.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE SPECIAL MEETING IN CASE
YOU ARE NOT PERSONALLY PRESENT, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED
PROXY CARD AND RETURN IT PROMPTLY IN THE ACCOMPANYING ADDRESSED ENVELOPE. NO
POSTAGE NEED BE AFFIXED IF MAILED IN THE U.S.
By order of the Board of Directors,
Steven P. Schmitt
Vice President and Secretary
6500 River Place Blvd., Building One
Austin, Texas 78730
, 2001
6
The information in this joint proxy statement/prospectus is not complete
and may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange Commission
is effective. This joint proxy statement/prospectus is not an offer to
buy these securities in any state where the offer or sale is not
permitted.
THIS JOINT PROXY STATEMENT/PROSPECTUS, DATED FEBRUARY 1, 2001, IS SUBJECT TO
COMPLETION AND AMENDMENT
JOINT PROXY STATEMENT/PROSPECTUS
[FIC LOGO] [ILCO LOGO]
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MERGER PROPOSED -- YOUR VOTE IS IMPORTANT
The boards of directors of Financial Industries Corporation, a Texas
corporation, referred to herein as FIC, InterContinental Life Corporation, a
Texas corporation, referred to herein as ILCO, and ILCO Acquisition Company, a
Texas corporation, referred to herein as Merger Sub, have approved, and the
parties have entered into, a merger agreement pursuant to which Merger Sub will
merge with and into ILCO, with ILCO surviving the merger as a wholly-owned
subsidiary of FIC.
In connection with the proposed merger, (1) FIC will amend its articles of
incorporation immediately prior to the effective time of the merger to increase
the number of its authorized shares of common stock, and (2) shareholders of
ILCO (other than FIC) will receive 1.1 shares of common stock of FIC for each
share of ILCO common stock that they own at the time of the merger. All shares
of ILCO held by FIC will be cancelled as a result of the merger. FIC
shareholders will continue to hold their shares of FIC common stock after the
merger. If the merger is completed, ILCO shareholders (other than subsidiaries
of ILCO or FIC) will collectively own or be entitled to receive an aggregate of
approximately % of the outstanding shares of FIC following the merger.
This joint proxy statement/prospectus is being sent to shareholders of each
of FIC and ILCO in connection with the solicitation of proxies by their
respective boards of directors for use at the special meetings of FIC and ILCO
shareholders, each to be held on , 2001, to consider and to vote
upon the merger-related proposals described in this joint proxy
statement/prospectus. This joint proxy statement/prospectus also constitutes a
prospectus with respect to the shares of FIC common stock to be issued to ILCO
shareholders in the merger, including shares that may be issued in connection
with the exercise of outstanding ILCO stock options prior to the merger.
The merger cannot be completed prior to the receipt by FIC and ILCO of
certain government approvals and unless the shareholders of ILCO approve the
plan of merger and the shareholders of FIC approve the other matters relating to
the merger described in this joint proxy statement/prospectus. As of the date of
this joint proxy statement/prospectus, FIC beneficially owns approximately 48%
of the outstanding shares of ILCO common stock.
After careful consideration of the recommendation and advice of their
respective financial advisors and special committees of disinterested directors,
the boards of directors of each of FIC and ILCO have determined that the merger
on substantially the terms and conditions set forth in the merger agreement is
advisable and is fair to, and in the best interests of, their shareholders and
recommends that their respective shareholders vote in favor of approval of the
merger-related proposals described in this joint proxy statement/prospectus.
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Financial Industries Corporation common stock is currently quoted on the
Nasdaq Stock Market's SmallCap Market under the symbol "FNIN." FIC intends to
have the shares of FIC common stock offered to ILCO shareholders in connection
with the merger approved for quotation on the Nasdaq Stock Market's National
Market System.
WE URGE YOU TO CAREFULLY REVIEW THE RISK FACTORS DESCRIBED IN THIS JOINT
PROXY STATEMENT/PROSPECTUS BEGINNING ON PAGE 16.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS JOINT PROXY STATEMENT/ PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated , 2001, and was first
mailed to the shareholders of Financial Industries Corporation and
InterContinental Life Corporation on or about , 2001.
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SOURCES OF ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates important business and
financial information about FIC and ILCO from documents that are not included in
or delivered with this document. This information is available to you without
charge upon your written or oral request. You can obtain documents incorporated
by reference in this joint proxy statement/prospectus, other than some of the
exhibits to those documents, by requesting them in writing or by telephone at
the following addresses or telephone numbers:
Financial Industries Corporation InterContinental Life Corporation
Attention: Investor Relations Attention: Investor Relations
6500 River Place Blvd., Building 6500 River Place Blvd., Building
One One
Austin, Texas 78730 Austin, Texas 78730
(512) 404-5000 (512) 404-5000
If you would like to request documents, please do so by , 2001
in order to receive them before the special meetings of FIC and ILCO
shareholders.
Also see the sections entitled "Incorporation by Reference to Other
Documents" on pages 69 and 71, "Where You Can Find More Information About
Financial Industries Corporation" on page 69 and "Where You Can Find More
Information About InterContinental Life Corporation" on page 71 of this joint
proxy statement/prospectus.
FIC HAS SUPPLIED ALL OF THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS RELATING TO FIC AND MERGER SUB AND ILCO HAS SUPPLIED ALL OF
THE INFORMATION RELATING TO ILCO.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OR IN THE DOCUMENTS INCORPORATED BY REFERENCE. NEITHER FIC
NOR ILCO HAS AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ABOUT EITHER THE MERGER OR THE OTHER TRANSACTIONS THAT ARE
DISCUSSED IN THIS JOINT PROXY STATEMENT/PROSPECTUS OTHER THAN THE INFORMATION
CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE. IF YOU ARE GIVEN ANY INFORMATION ABOUT THESE MATTERS
THAT IS NOT DISCUSSED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, YOU MUST NOT RELY ON THAT INFORMATION.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY LOCATION WHERE OR TO ANY
PERSON TO WHOM FIC IS NOT PERMITTED TO OFFER OR TO SELL SECURITIES UNDER
APPLICABLE LAW.
THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS OR THE COMMON STOCK
OF FIC OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT, UNDER ANY
CIRCUMSTANCE, MEAN THAT THERE HAS NOT BEEN A CHANGE IN THE AFFAIRS OF FIC OR
ILCO SINCE THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS. IT ALSO DOES NOT
MEAN THAT THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS CORRECT
AFTER THIS DATE OR THAT THE INFORMATION IN THE DOCUMENTS INCORPORATED BY
REFERENCE IS CORRECT AFTER THE RESPECTIVE DATES OF THOSE DOCUMENTS.
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TABLE OF CONTENTS
PAGE
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ANSWERS TO FREQUENTLY ASKED QUESTIONS ABOUT THE MERGER...... 1
SUMMARY..................................................... 3
SELECTED HISTORICAL FINANCIAL DATA OF FINANCIAL INDUSTRIES
CORPORATION............................................... 9
SELECTED HISTORICAL FINANCIAL DATA OF INTERCONTINENTAL LIFE
CORPORATION............................................... 10
COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION........... 11
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA.................. 13
COMPARATIVE PER SHARE DATA.................................. 15
RISK FACTORS................................................ 16
FIC and ILCO officers and directors have conflicts of
interest that may influence them to support or
recommend the approval of the merger-related proposals
described in this joint proxy statement/prospectus..... 16
The exchange ratio is fixed and does not give effect to
possible fluctuations in FIC's stock price before the
closing of the merger.................................. 16
We may not be able to compete with larger, more
established insurance companies........................ 17
The passage of the Financial Services Modernization Act
may adversely affect FIC's insurance subsidiaries'
current sales methods.................................. 17
In certain circumstances, regulatory authorities may place
the insurance subsidiaries of FIC and ILCO under
regulatory control..................................... 17
The insurance subsidiaries of FIC and ILCO may be required
to pay assessments to fund policyholder losses or
liabilities; this may have a material adverse effect on
the results of operations of FIC and ILCO.............. 18
FIC's and ILCO's insurance subsidiaries are subject to
regulation by state insurance departments.............. 18
The federal government may seek to regulate the insurance
industry............................................... 18
FIC and ILCO are a holding companies and rely on dividends
from their insurance subsidiaries; state insurance laws
may restrict the ability of these subsidiaries to pay
dividends.............................................. 19
Interest rate volatility may adversely affect our
profitability.......................................... 19
FIC and ILCO shareholders should not place undue reliance
on forward-looking information......................... 20
FINANCIAL INDUSTRIES CORPORATION UNAUDITED PRO FORMA
FINANCIAL INFORMATION..................................... 21
THE SPECIAL MEETINGS........................................ 27
The FIC Special Meeting................................... 27
General................................................ 27
Matters to Be Considered at the FIC Special Meeting.... 27
Date, Time and Place................................... 28
Record Date; Quorum.................................... 28
Votes Required......................................... 28
Voting by FIC's Executive Officers and Directors....... 28
Voting of Proxies; Revocability of Proxies............. 28
Solicitation of Proxies................................ 29
The ILCO Special Meeting.................................. 29
General................................................ 29
Matters to Be Considered at the ILCO Special Meeting... 29
Date, Time and Place................................... 30
Record Date; Quorum.................................... 30
Votes Required......................................... 30
Voting by ILCO's Executive Officers and Directors...... 30
Voting by FIC.......................................... 30
Voting of Proxies; Revocability of Proxies............. 31
Solicitation of Proxies................................ 31
ii
9
PAGE
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THE MERGER.................................................. 32
Background................................................ 32
FIC's Reasons for the Merger.............................. 36
Recommendation of the Board of Directors of FIC........... 37
Opinion of the Financial Advisor to the FIC Special
Committee.............................................. 37
ILCO's Reasons for the Merger............................. 41
Recommendation of the Board of Directors of ILCO.......... 42
Opinion of the Financial Advisor to the ILCO Special
Committee.............................................. 42
Summary of Wise & Associates Actuarial Analysis........... 46
Interests of Certain Persons in the Merger................ 47
No Dissenters' Appraisal Rights........................... 47
Accounting Treatment...................................... 48
Federal Securities Laws Consequences...................... 48
Comparison of Rights of Shareholders of FIC and ILCO...... 48
Material U.S. Federal Income Tax Consequences of the
Merger................................................. 51
Regulatory Matters........................................ 53
Litigation Relating to the Merger......................... 54
THE MERGER AGREEMENT........................................ 55
General................................................... 55
Completion and Effectiveness of the Merger................ 55
Conversion of Shares of ILCO Common Stock................. 55
Treatment of ILCO Stock Options........................... 56
Exchange Procedures....................................... 56
Directors and Officers.................................... 57
Articles of Incorporation and Bylaws...................... 57
Representations and Warranties............................ 57
Conduct of Business before Completion of the Merger....... 59
Conditions to the Completion of the Merger................ 63
Additional Covenants of FIC and ILCO...................... 65
Termination of the Merger Agreement....................... 67
Indemnification of ILCO's Directors and Officers.......... 68
Amendment of the Merger Agreement......................... 68
Extension and Waiver...................................... 68
BUSINESS OF FIC............................................. 69
General................................................... 69
Incorporation by Reference to Other Documents............. 69
Where You Can Find More Information About FIC............. 69
BUSINESS OF ILCO............................................ 71
General................................................... 71
Incorporation by Reference to Other Documents............. 71
Where You Can Find More Information About ILCO............ 71
DESCRIPTION OF CAPITAL STOCK OF FIC......................... 72
General................................................... 72
The Common Stock.......................................... 72
LEGAL MATTERS............................................... 72
EXPERTS..................................................... 72
SHAREHOLDER PROPOSALS FOR FIC'S 2001 ANNUAL MEETING OF
SHAREHOLDERS.............................................. 73
SHAREHOLDER PROPOSALS FOR ILCO'S 2001 ANNUAL MEETING OF
SHAREHOLDERS IF THE MERGER IS NOT CONSUMMATED............. 73
ANNEX A -- Agreement and Plan of Merger..................... A-1
ANNEX B -- Opinion of Philo Smith Capital Corporation....... B-1
ANNEX C -- Opinion of P.W. Mattingly & Co. Inc. ............ C-1
iii
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ANSWERS TO FREQUENTLY ASKED QUESTIONS ABOUT THE MERGER
Q: When do you expect the merger to be completed?
A: We are working toward completing the merger as quickly as possible. For
the merger to be completed, the FIC and ILCO shareholders must each
approve their respective merger-related proposals at the special meetings
of FIC and ILCO shareholders, respectively. We expect to complete the
merger promptly following the FIC and ILCO special meetings.
Q: What will ILCO shareholders receive in the merger?
A: For each share of ILCO common stock you own, you will receive 1.1
shares of FIC common stock.
Q: When will ILCO shareholders receive shares of FIC common stock?
A: Shortly following the merger you will receive a letter of transmittal
to complete and return along with your ILCO stock certificates. Once you
have done so, FIC will issue you shares of FIC common stock.
Q: What are the U.S. federal income tax consequences of the merger to ILCO
shareholders?
A: In general, holders of ILCO common stock will not recognize gain or loss
for U.S. federal income tax purposes on the exchange of their shares in
the merger, except with respect to any cash they receive in lieu of
fractional shares of FIC common stock.
Q: What percentage of FIC will ILCO shareholders own following the merger?
A: Based on the number of shares of ILCO common stock and FIC common stock
outstanding as of the record date, ILCO shareholders (not including
shares of ILCO currently owned by subsidiaries of either FIC or ILCO)
will collectively own approximately % of the outstanding shares of FIC
common stock following the merger.
Q: Following the merger, will there be a difference between the number of
shares issued and outstanding and the number of shares which are entitled
to receive dividend distributions from FIC?
A: Yes. Following the merger, the life insurance subsidiaries of FIC and
ILCO will collectively own shares (approximately % of the common
stock of FIC). For accounting and financial reporting purposes, these
shares will be treated as issued, but not outstanding. However, the
shares owned by the life insurance subsidiaries of FIC will be entitled
to all other rights of shareholders, including the right to receive
dividend distributions declared by FIC, on the same basis as other
shareholders of FIC.
Q: What should FIC and ILCO shareholders do now?
A: After you have carefully read this joint proxy statement/prospectus,
indicate how you want to vote by completing and signing the enclosed
proxy card. After completing the proxy card, sign and mail it in the
enclosed prepaid return envelope marked "Proxy" as soon as possible so
that your shares may be represented and voted at the respective special
meeting. ILCO shareholders should NOT send ILCO stock certificates with
their proxy card. After the merger is completed, ILCO shareholders will
receive written instructions for exchanging their stock certificates.
Since shares of FIC common stock will remain outstanding and will be
unaffected by the merger, FIC shareholders will not need to do anything
with their shares of FIC common stock following the merger.
If you sign and send your proxy card and do not indicate how you want to
vote, we will count your proxy as a vote in favor of approval of the
merger-related proposals. If you abstain from voting or do not vote, it
will have the effect of a vote against approval of the merger-related
proposals.
Each of the special meetings will take place on , 2001. Even
if you have signed and mailed your proxy card,
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Q: Can FIC and ILCO shareholders change their votes after mailing signed
proxy cards?
A: Yes. There are three ways in which you may revoke your proxy before it is
exercised and change your vote:
- First, you may send a written notice revoking your proxy to the
Secretary of FIC or ILCO, as applicable.
- Second, you may complete and submit a new, later-dated proxy card.
- Third, you may attend the FIC and/or ILCO special meeting and vote your
shares in person.
Simply attending the FIC or ILCO special meeting, however, will not
revoke your proxy.
Q: If my FIC or ILCO shares are held in "street name" by my broker, will my
broker vote my shares for me?
A: Your broker will vote your FIC or ILCO shares only if you provide your
broker with instructions on how to vote. You should follow the directions
provided to you by your broker regarding how to instruct your broker to
vote your shares. Without instructions, your shares will not be voted,
which will have the effect of a vote against approval of the
merger-related proposals in this joint proxy statement/prospectus.
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SUMMARY
This brief summary highlights selected information from this joint proxy
statement/prospectus. It does not contain all of the information that may be
important to you in deciding how to vote. We urge you to read carefully the
entire joint proxy statement/prospectus and the other documents to which this
joint proxy statement/prospectus refers for further information about the
merger. To learn how to obtain more information about FIC, see page 69 of this
joint proxy statement/prospectus. To learn how to obtain more information about
ILCO, see page 71 of this joint proxy statement/prospectus. Each item in this
summary includes a page reference directing you to a more complete description
of that item.
THE COMPANIES
FINANCIAL INDUSTRIES CORPORATION (See page 69)
6500 RIVER PLACE BLVD., BUILDING ONE
AUSTIN, TEXAS 78730
(512) 404-5000
Financial Industries Corporation, or FIC, is a holding company primarily
engaged in the life insurance business through its ownership of 100% of Family
Life Insurance Company and its approximate 48% beneficial interest in
InterContinental Life Corporation, or ILCO. Through 1984, FIC's principal
business was the sale and underwriting of life and health insurance, mainly in
the Midwestern and Southwestern United States. During the period of 1985 to
1987, FIC acquired its equity interest in ILCO. The acquisition of Family Life
in 1991 has provided FIC with direct participation in the marketing and
underwriting of life insurance. Family Life sells life insurance to customers
who are primarily mortgage borrowers from financial institutions where Family
Life has marketing relationships. FIC was organized as an Ohio corporation in
1968 and was reincorporated in Texas in 1980.
INTERCONTINENTAL LIFE CORPORATION (See page 71)
6500 RIVER PLACE BLVD., BUILDING ONE
AUSTIN, TEXAS 78730
(512) 404-5000
ILCO is a holding company principally engaged, through its subsidiaries, in
administering existing portfolios of life insurance policies and annuity
products. ILCO's insurance subsidiaries are also engaged in the business of
marketing and underwriting individual life insurance and annuity products in 49
states and the District of Columbia. FIC beneficially owns approximately 48% of
ILCO's common stock. ILCO was originally incorporated in 1969 under the laws of
the State of New Jersey and subsequently transferred its domicile in 1997 from
New Jersey to Texas.
THE FIC SPECIAL MEETING (See page 27)
FIC will hold a special meeting of its shareholders at its principal
offices at 6500 River Place Blvd., Building One, Austin, Texas 78730, at 10:00
a.m., local time, on , 2001. At the special meeting, FIC is asking
the holders of its common stock to:
- approve the issuance of shares of FIC common stock in the merger; and
- approve an amendment to FIC's articles of incorporation, increasing the
number of authorized shares of FIC common stock.
THE ILCO SPECIAL MEETING (See page 29)
ILCO will hold a special meeting of its shareholders at its principal
offices at 6500 River Place Blvd., Building One, Austin, Texas 78730, at 11:00
a.m., local time, on , 2001. At the special meeting, ILCO is asking
the holders of its common stock to approve the plan of merger contained in the
merger agreement.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF FIC (See page 37)
After careful consideration, and acting on the recommendation of a special
committee of disinterested directors, the FIC board of directors has determined
that the merger on substantially the terms and conditions set forth in the
merger agreement is advisable and is fair to, and in the best interests of, FIC
and its shareholders. The FIC board of directors has unanimously approved the
merger and the merger agreement and unanimously recommends that FIC shareholders
vote "for" approval of the issuance of shares of FIC common stock in the merger
and the amendment to FIC's articles of incorporation.
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OPINION OF THE FINANCIAL ADVISOR TO THE FIC SPECIAL COMMITTEE (See page 37)
Philo Smith Capital Corporation, independent financial advisor, delivered
an opinion to the special committee of FIC's board of directors that, subject to
the considerations described in the opinion, the exchange ratio in the plan of
merger is fair, from a financial point of view, to FIC's shareholders. The
complete opinion of Philo Smith Capital is attached as Appendix B to this joint
proxy statement/prospectus. We urge you to read the opinion in its entirety.
FIC SHAREHOLDER APPROVAL (See page 28)
The approval of the issuance of shares of FIC common stock in the merger
requires the affirmative vote of at least a majority of the shares of FIC common
stock voted either in person or by proxy at the special meeting. The approval of
the amendment to FIC's articles of incorporation requires the affirmative vote
of at least a majority of the shares of FIC common stock outstanding on
, 2001, the record date for the FIC special meeting. The approval
of the amendment to the FIC articles of incorporation is a condition of FIC's
obligation to complete the merger. You are entitled to cast one vote per share
of FIC common stock you owned as of the record date.
As of the record date for the FIC special meeting, directors and executive
officers of FIC beneficially owned and were entitled to vote shares of FIC
common stock representing approximately % of the total voting power of all
outstanding shares of FIC common stock. The directors and executive officers of
FIC have indicated that they intend to vote the FIC common stock owned by them
"for" approval of the issuance of shares of FIC common stock in the merger and
the amendment to FIC's articles of incorporation.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF ILCO(See page 42)
After careful consideration, and acting on the recommendation of a special
committee of disinterested directors, the ILCO board of directors has determined
that the merger on substantially the terms and conditions set forth in the
merger agreement is advisable and is fair to, and in the best interests of, ILCO
and its shareholders. The ILCO board of directors has unanimously approved the
merger and the merger agreement and unanimously recommends that ILCO
shareholders vote "for" approval of the plan of merger contained in the merger
agreement.
OPINION OF THE FINANCIAL ADVISOR TO THE ILCO SPECIAL COMMITTEE (See page 42)
P.W. Mattingly & Co. Inc., independent financial advisor, delivered an
opinion to the special committee of ILCO's board of directors that, subject to
the considerations described in the opinion, the merger is fair, from a
financial point of view, to ILCO's shareholders. The complete opinion of
Mattingly & Co. is attached as Appendix C to this joint proxy
statement/prospectus. We urge you to read the opinion in its entirety.
ILCO SHAREHOLDER APPROVAL (See page 30)
The approval of the plan of merger contained in the merger agreement
requires the affirmative vote of at least two-thirds of the shares of ILCO
common stock outstanding on , 2001, the record date for the ILCO
special meeting, and entitled to vote thereon. You are entitled to cast one vote
per share of ILCO common stock you owned as of the record date.
As of the record date for the ILCO special meeting, directors and executive
officers of ILCO beneficially owned and were entitled to vote shares of ILCO
common stock representing approximately % of the total voting power of all
outstanding shares of ILCO common stock (not including shares held by FIC and
deemed beneficially owned by them). In addition, FIC beneficially owned and was
entitled to vote shares of ILCO common stock representing an additional
approximate 48% of the total voting power of all outstanding shares of ILCO
common stock. The directors and executive officers of ILCO have each indicated
that they intend to vote the ILCO common stock owned by them "for" approval of
the plan of merger. FIC has agreed to vote all shares of ILCO common stock owned
by FIC or its subsidiaries either "for" or "against" the plan of merger in the
same manner as the prevailing majority of the shares of ILCO common stock (other
than shares held of record by FIC and its subsidiaries) voted in person or by
proxy.
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PROCEDURE FOR CASTING YOUR VOTE (See pages 28 and 31)
Please mail your signed proxy card in the enclosed return envelope as
described on the proxy card enclosed with this joint proxy statement/
prospectus, as soon as possible so that your shares of FIC and/or ILCO common
stock, as applicable, may be represented and voted at the special meeting. If
you do not include instructions on how to vote your proxy, your shares will be
voted "for" approval of the respective merger-related proposals.
PROCEDURE FOR CASTING YOUR VOTE IF YOUR SHARES ARE HELD BY YOUR BROKER IN
"STREET NAME" (See pages 29 and 31)
Your broker will vote your shares only if you provide instructions on how
to vote by following the instructions provided to you by your broker. If you do
not provide your broker with voting instructions, your shares will not be voted
at the FIC or ILCO special meeting, as applicable, and it will have the same
effect as if you voted against approval of the respective merger-related
proposals.
PROCEDURE FOR CHANGING YOUR VOTE (See pages 29 and 31)
If you want to change your vote you may do any of the following:
- send a later-dated, signed proxy card;
- attend the applicable special meeting and vote your shares in person; or
- revoke your proxy by sending written notice to the Secretary of FIC or
ILCO, as applicable, before the special meeting.
PROCEDURE FOR ILCO SHAREHOLDERS EXCHANGING STOCK CERTIFICATES (See page 30)
After the merger is completed, ILCO shareholders will receive written
instructions for exchanging ILCO stock certificates for FIC stock certificates.
ILCO shareholders should NOT send their ILCO stock certificates now.
THE MERGER AGREEMENT
The merger agreement is attached to this joint proxy statement/prospectus
as Annex A. Please read the merger agreement in its entirety. It is the document
that governs the terms of the merger.
CONDITIONS TO COMPLETION OF THE MERGER (See page 63)
FIC's and ILCO's obligations to complete the merger are subject to a number
of conditions, including the following:
- approval of the plan of merger by the ILCO shareholders and approval of
the issuance of shares of common stock in the merger and the amendment to
FIC's articles of incorporation by FIC's shareholders;
- the expiration or early termination of the waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976;
- the receipt of all authorizations, consents or other approvals of any
governmental entity required in connection with the merger; and
- no injunction or restraining order being entered by a court of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the merger shall be in effect.
ILCO's obligation to complete the merger is also subject to the following
additional conditions:
- the representations and warranties made by FIC and Merger Sub in the
merger agreement are accurate in all material respects;
- FIC and Merger Sub have performed or complied with all conditions to the
consummation of the merger contained in the merger agreement;
- ILCO has received an opinion of its tax counsel, Fulbright & Jaworski
L.L.P., to the effect that the merger will qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code; and
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- no material adverse change shall have occurred in the business of FIC and
its subsidiaries.
FIC's and Merger Sub's obligations to complete the merger are also subject
to the following additional conditions:
- the representations and warranties made by ILCO in the merger agreement
are accurate in all material respects;
- ILCO has performed or complied with all conditions to the consummation of
the merger contained in the merger agreement;
- FIC has received an opinion of its tax counsel, Weil, Gotshal & Manges
LLP, to the effect that the merger will qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code; and
- no material adverse change shall have occurred in the business of ILCO
and its subsidiaries.
In the event FIC or ILCO determines to waive compliance with any of these
conditions, they will seek the advice of counsel with respect to whether this
joint proxy statement/prospectus should be revised and recirculated to their
shareholders to reflect the waiver.
TERMINATION OF THE MERGER AGREEMENT (See page 67)
As summarized below, the merger agreement may be terminated under certain
circumstances at any time before the completion of the merger.
The merger agreement may be terminated by mutual consent of FIC and ILCO,
whether before or after the vote by FIC and ILCO shareholders.
The merger agreement may also be terminated under any of the following
circumstances:
- by FIC or ILCO, if the ILCO shareholder approval shall not have been
obtained;
- by FIC or ILCO, if the FIC shareholder approval shall not have been
obtained;
- by FIC or ILCO, if the merger is not completed by June 1, 2001;
- by FIC or ILCO, if any final and non-appealable order, decree or ruling
prohibits the completion of the merger;
- by ILCO, if, pursuant to the terms and conditions of the merger
agreement, the ILCO board of directors authorizes ILCO to enter into a
binding agreement relating to an unsolicited proposal by a third party to
acquire ILCO on terms determined by the ILCO board of directors to be
more favorable than the terms of the merger with FIC and ILCO shall have
concurrently executed a binding agreement with such third party;
- by FIC, if ILCO has breached any representation, warranty, covenant or
agreement in the merger agreement that cannot be cured within the time
period specified in the merger agreement and such breach meets the other
conditions set forth therein; or
- by ILCO, if FIC has breached any representation, warranty, covenant or
agreement in the merger agreement that cannot be cured within the time
period specified in the merger agreement and such breach meets the other
conditions set forth therein.
NO DISSENTERS' APPRAISAL RIGHTS (See page 47)
Because FIC's common stock will be held by more than 2,000 record holders
and/or traded on the Nasdaq Stock Market's National Market System after the
merger and ILCO's common stock is currently traded on the Nasdaq Stock Market,
holders of ILCO common stock who do not vote in favor of approval and adoption
of the plan of merger will not be entitled under the Business Corporation Act of
the State of Texas to dissenting shareholders' appraisal rights with respect to
their shares of ILCO common stock.
ACCOUNTING TREATMENT (See page 48)
The merger is intended to be accounted for as a purchase by FIC for
accounting and financial reporting purposes.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (See page 51)
The merger is intended to qualify as a nontaxable transaction and we expect
that the exchange of your shares of ILCO common stock for shares of FIC common
stock will generally not cause you to recognize any gain or loss for U.S.
federal income tax purposes. You will, however, have to recognize income or gain
in connection with any cash you receive in lieu of fractional shares of FIC
common stock.
Because the shares of FIC common stock will remain outstanding and will be
unchanged by virtue of the merger, FIC shareholders should not experience any
tax consequences as a result of the merger.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. ILCO SHAREHOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES
OF THE MERGER TO THEM.
REGULATORY MATTERS (See page 53)
The merger is subject to antitrust laws in the U.S. FIC and ILCO have made
the required filings with the U.S. Department of Justice and the Federal Trade
Commission. FIC and ILCO expect the termination of the applicable waiting period
under such U.S. antitrust laws to expire on February 20, 2001. Even in the event
of termination of the applicable waiting periods under U.S. antitrust laws,
however, we cannot assure you that the U.S. Department of Justice or the Federal
Trade Commission, appropriate state regulatory agencies or others will not
challenge the merger at any time before or after its completion.
The insurance laws of the domiciliary states of ILCO's life insurance
subsidiaries provide that a transaction which would result in a change in
control of a domestic insurance company is subject to the prior approval by the
commissioner of insurance. If a change in control is deemed to exist, these laws
provide that the person intending to acquire control of a domestic insurer is
required to file an application for approval of the transaction and the
commissioner of insurance may require a public hearing on the proposal.
Investors Life Insurance Company of North America is domiciled in the State of
Washington and Investors Life Insurance Company of Indiana is domiciled in the
State of Indiana. FIC and ILCO have submitted a memorandum to the departments of
insurance in Washington and Indiana, which requested a ruling that the proposed
merger does not constitute a change in control within the meaning of the
applicable insurance law and regulation. The Washington Department of Insurance
has confirmed that the proposed merger would not result in a change in control
and that it will not require any filings or other approvals in connection with
the merger transaction. The Indiana Department of Insurance is currently
reviewing the ruling request that was submitted. If the Indiana Department of
Insurance should issue a ruling similar to that provided by the Washington
Department of Insurance, no insurance regulatory approvals would be required.
However, if the Indiana Department of Insurance does not issue the requested
ruling, FIC would be required to submit such applications for approval of the
merger transaction as are required by the Department. The approval of any such
required application is a condition to the closing of the merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (See page 47)
In considering the recommendation of each of the FIC and ILCO board of
directors with respect to the merger and the transactions contemplated by the
merger agreement, shareholders of FIC and ILCO should be aware that some members
of management and the board of directors of each of FIC and ILCO have particular
interests in the merger that are different from, or in addition to, the
interests of FIC and ILCO shareholders generally.
As of the date of this joint proxy statement/ prospectus, FIC beneficially
owns approximately 48% of the outstanding shares of ILCO common stock. In
addition, Roy F. Mitte is the Chairman, President and Chief Executive Officer of
each of FIC and ILCO, and FIC and ILCO have substantially identical senior
management and a majority of the directors of each company serve on the board of
directors of both FIC and ILCO. Finally, Mr. Mitte beneficially owns
approximately 30.7% of the outstanding common stock of FIC and controls,
directly and through his beneficial
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ownership interest in FIC and its subsidiaries, approximately 49.2% of the
outstanding common stock of ILCO. As a result of these ownership interests and
potential conflicts of interest, each of FIC and ILCO established a special
committee of its disinterested directors to consider the merger and make a
recommendation to the full board of directors of each company. Each of the
members of the FIC Special Committee owns shares of FIC common stock, and each
of the members of the ILCO Special Committee owns shares of ILCO common stock.
One of the members of the ILCO Special Committee owns shares of FIC common stock
and two of the members of the FIC Special Committee own shares of ILCO common
stock. Each of these ownership interests is less than one percent of the
outstanding capital stock of the respective companies.
RISK FACTORS (See page 16)
Shareholders of FIC and ILCO are urged to consider the items under the
section entitled "Risk Factors" beginning on page 16 of this joint proxy
statement/prospectus in determining whether to vote in favor of the
merger-related proposals described in this joint proxy statement/ prospectus.
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SELECTED HISTORICAL FINANCIAL DATA OF FINANCIAL INDUSTRIES CORPORATION
Set forth below is selected financial data for Financial Industries
Corporation for and as of the periods indicated. This selected historical
financial data is only a summary and we urge you to read this summary in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes to
those financial statements contained in FIC's annual report on Form 10-K for the
year ended December 31, 1999, and quarterly report on Form 10-Q for the quarter
ended September 30, 2000.
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
IN THOUSANDS, EXCEPT PER-SHARE DATA
INCOME STATEMENT DATA:
Operating Revenues........................ $ 61,541 $ 59,928 $ 63,343 $ 53,607 $ 47,313 $ 36,144 $ 33,769
-------- -------- -------- -------- -------- -------- --------
Income before Federal Income Tax and
Equity in Net Earnings of Affiliate..... $ 10,394 $ 9,791 $ 13,411 $ 8,973 $ 7,013 $ 5,422 $ 4,496
-------- -------- -------- -------- -------- -------- --------
Income Before Equity in Net Earnings of
Affiliate............................... $ 7,966 $ 7,145 $ 9,870 $ 6,605 $ 5,839 $ 4,468 $ 3,662
Equity in Net Earnings of Affiliate....... $ 2,051 $ 9,012 $ 6,458 $ 2,613 $ 3,310 $ 2,077 $ 2,924
-------- -------- -------- -------- -------- -------- --------
Net Income........................ $ 10,017 $ 16,157 $ 16,328 $ 9,218 $ 9,149 $ 6,545 $ 6,586
======== ======== ======== ======== ======== ======== ========
Common Stock and Common Stock
Equivalents............................. 5,540 5,568 5,589 5,557 5,200 5,202 5,163
-------- -------- -------- -------- -------- -------- --------
Net Income Per Share:
Basic................................... $ 1.85 $ 2.98 $ 3.01 $ 1.71 $ 1.81 $ 1.29 $ 1.30
======== ======== ======== ======== ======== ======== ========
Diluted................................. $ 1.81 $ 2.90 $ 2.92 $ 1.66 $ 1.76 $ 1.26 $ 1.28
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA(AT PERIOD END):
Total Assets...................... $287,678 $287,730 $304,324 $301,738 $294,054 $296,503 $295,890
======== ======== ======== ======== ======== ======== ========
Long Term Obligations............. $ 67,989 $ 59,940 $ 53,792 $ 47,645 $ 41,497 $ 43,035 $ 36,886
======== ======== ======== ======== ======== ======== ========
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SELECTED HISTORICAL FINANCIAL DATA OF INTERCONTINENTAL LIFE CORPORATION
Set forth below is selected financial data for InterContinental Life
Corporation for and as of the periods indicated. This selected historical
financial data is only a summary and we urge you to read this summary in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes to
those financial statements contained in ILCO's annual report on Form 10-K for
the year ended December 31, 1999, and quarterly report on Form 10-Q for the
quarter ended September 30, 2000.
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1995 1996 1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ---------- ---------- ----------
IN THOUSANDS, EXCEPT PER-SHARE DATA
INCOME STATEMENT DATA:
Revenues....................... $ 122,390 $ 138,244 $ 127,683 $ 109,462 $ 104,205 $ 78,262 $ 78,300
Benefits and Expenses.......... 105,907 96,801 96,081 91,876 85,466 64,482 63,156
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from Operations......... 16,483 41,443 31,602 17,586 18,739 13,780 15,144
---------- ---------- ---------- ---------- ---------- ---------- ----------
Provision for Federal Income
Taxes........................ 5,769 14,505 11,062 6,467 5,974 5,057 5,551
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income............. $ 10,714 $ 26,938 $ 20,540 $ 11,119 $ 12,765 $ 8,723 $ 9,593
========== ========== ========== ========== ========== ========== ==========
Common Stock and Common Stock
Equivalents.................. 8,684 8,882 8,738 8,924 8,800 8,817 8,415
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income Per Share:
Basic........................ $ 1.29 $ 3.18 $ 2.37 $ 1.27 $ 1.45 $ .99 $ 1.14
========== ========== ========== ========== ========== ========== ==========
Diluted...................... $ 1.24 $ 3.04 $ 2.35 $ 1.25 $ 1.45 $ .99 $ 1.14
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA (AT PERIOD
END):
Total Assets........... $1,315,293 $1,263,942 $1,321,653 $1,350,248 $1,321,199 $1,316,780 $1,314,790
========== ========== ========== ========== ========== ========== ==========
Long Term Debt......... $ 59,385 $ 24,944 $ 10,964 $ 0 $ 0 $ 0 $ 0
========== ========== ========== ========== ========== ========== ==========
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COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION
COMPARATIVE MARKET PRICE DATA
The following table presents trading information for FIC common stock and
ILCO common stock on the Nasdaq Stock Market's SmallCap Market on January 17,
2001 and January 31, 2001. January 17, 2001 was the last full trading day prior
to our announcement of the signing of the merger agreement. January 31, 2001 was
the last trading day for which it was practicable to include information in this
joint proxy statement/prospectus. YOU ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR THE FIC COMMON STOCK AND THE ILCO COMMON STOCK.
FIC COMMON STOCK ILCO COMMON STOCK
------------------------- -----------------------------
HIGH LOW CLOSE HIGH LOW CLOSE
------ ------- ------ ------- -------- --------
January 17, 2001............ $10.25 $9.9375 $10.25 $10.875 $ 10.75 $ 10.75
January 31, 2001............ 9.125 9.121 9.125 10.25 10.125 10.125
Equivalent Share Price Based
on Exchange Ratio
January 17, 2001..................................... 11.9625 11.825 11.825
January 31, 2001..................................... 11.275 11.1375 11.1375
On , 2001 there were approximately holders of record
of FIC common stock and holders of record of ILCO common stock.
HISTORICAL MARKET PRICE DATA FOR FIC
FIC common stock is currently traded on the Nasdaq Stock Market's SmallCap
Market under the symbol "FNIN." The table below sets forth for each of the
calendar quarters indicated, the high and low closing prices per share of FIC
common stock as reported by Nasdaq and the dividends per share paid on FIC
common stock.
CALENDAR QUARTER
---------------------------------------
1ST 2ND 3RD 4TH
------- ------- ------- -------
Stock prices:
2001 High............................................ $ 10.50(1)
Low............................................ 9.125(1)
2000 High............................................ $11.250 $10.500 $ 9.500 $10.000
Low............................................ 6.750 7.875 7.875 8.500
1999 High............................................ 17.375 14.000 15.500 10.750
Low............................................ 12.000 7.625 8.000 9.250
1998 High............................................ 21.250 20.500 20.250 19.500
Low............................................ 16.375 17.750 12.500 13.625
Dividends:
2001(1)............................................ -0- -- -- --
2000............................................... -0- 0.18 -0- -0-
1999............................................... -0- -0- -0- -0-
1998............................................... -0- -0- -0- -0-
- ---------------
(1) Through January 31, 2001.
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HISTORICAL MARKET PRICE DATA FOR ILCO
ILCO common stock is currently traded on the Nasdaq Stock Market's SmallCap
Market under the symbol "ILCO." The table below sets forth for each of the
calendar quarters indicated, the high and low closing prices per share of ILCO
common stock as reported by Nasdaq and the dividends per share paid on ILCO
common stock.
CALENDAR QUARTER
---------------------------------------
1ST 2ND 3RD 4TH
------- ------- ------- -------
Stock prices:
2001 High............................................ $ 11.00(1)
Low............................................ 9.3125(1)
2000 High............................................ 10.500 $10.063 $ 9.938 $10.625
Low............................................ 8.250 7.750 8.6250 9.000
1999 High............................................ 10.000 9.875 11.500 10.500
Low............................................ 8.250 7.000 9.250 9.188
1998 High............................................ 11.500 13.906 13.500 10.500
Low............................................ 9.375 11.000 9.750 8.625
Dividends:
2001(1)............................................ -0- -- -- --
2000............................................... -0- -0- -0- -0-
1999............................................... (2) -0- -0- -0-
1998............................................... -0- -0- -0- -0-
- ---------------
(1) Through January 31, 2001.
(2) A 1 for 1 stock dividend was paid on March 17, 1999.
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FINANCIAL INDUSTRIES CORPORATION
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
The following unaudited pro forma financial information gives effect to the
merger and the pro forma adjustments described in the accompanying notes. The
unaudited pro forma combined financial information should be read in conjunction
with the audited historical consolidated financial statements and related notes
of FIC and ILCO, which are incorporated by reference into this joint proxy
statement/ prospectus.
The unaudited pro forma balance sheet gives effect to the merger as if it
had occurred on the balance sheet date. The unaudited pro forma consolidated
statements of income give effect to the merger as if it had occurred at the
beginning of the earliest period presented. The transaction is being accounted
for on a purchase basis.
The unaudited pro forma financial information is presented for illustrative
purposes only and does not purport to be indicative of the operating results or
financial position that would have actually occurred if the merger had been in
effect on the dates indicated, nor is it necessarily indicative of future
operating results or financial position of the merged companies. The pro forma
adjustments are based on the information and assumptions available as of the
date of this joint proxy statement/prospectus. The unaudited pro forma financial
statements do not give effect to any cost savings or synergies which may result
from the integration of FIC's and ILCO's operations.
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FINANCIAL INDUSTRIES CORPORATION
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA -- (CONTINUED)
(IN THOUSANDS)
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
INCOME STATEMENT DATA:(1)
REVENUES:
Premium................................................... $ 45,090 $ 34,012
Net Investment Income..................................... 53,258 40,431
Earned Insurance Charges.................................. 45,199 32,378
Other..................................................... 3,647 2,545
-------- ----------
Total Revenues.................................... 147,194 109,366
BENEFITS AND EXPENSES:
Policyholder Benefits..................................... 45,941 34,390
Interest Expense on Contract Holder Deposit Funds......... 32,132 23,590
Operating Expenses........................................ 28,769 21,299
Other Expenses............................................ 12,504 8,645
-------- ----------
Total Benefits and Expenses....................... 119,346 87,924
-------- ----------
Income before Federal Income Taxes................ 27,848 21,442
Provision for Federal Income Taxes................ 8,269 7,250
-------- ----------
Net Income........................................ $ 19,579 $ 14,192
======== ==========
BALANCE SHEET DATA (AT PERIOD END):(1)
ASSETS:
Total Invested Assets..................................... $ 770,997
Separate Account Assets................................... 461,789
Other Assets.............................................. 224,464
----------
$1,457,250
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Policyholder Liabilities.................................. $ 773,052
Separate Account Liabilities.............................. 454,233
Other Liabilities......................................... 63,026
----------
Total Liabilities................................. 1,290,311
Shareholders' Equity.............................. 166,939
----------
Total Liabilities and Shareholders' Equity........ $1,457,250
==========
- ---------------
(1) See notes to unaudited pro forma financial statements contained elsewhere in
this joint proxy statement/prospectus.
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COMPARATIVE PER SHARE DATA
We have summarized below the per share information of FIC and ILCO on a
historical, pro forma combined and pro forma equivalent basis. The information
should be read in conjunction with the historical financial statements and
related notes to those financial statements of FIC and ILCO that are
incorporated by reference in this joint proxy statement/prospectus. For
information on where you can find more information about FIC and ILCO, see pages
69 and 71 of this joint proxy statement/prospectus.
You should be aware that this pro forma information may not be indicative
of what actual results will be in the future or what the results would have been
for the periods presented.
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
FIC Historical
Income Per Common Share, Basic............................ $ 1.81 $ 1.30
Income Per Common Share, Diluted.......................... $ 1.76 $ 1.28
Cash Dividends Declared Per Share......................... $ 0 $ .18
Book Value Per Share(1)................................... $22.97 $24.41
ILCO Historical
Income Per Common Share, Basic............................ $ 1.45 $ 1.14
Income Per Common, Diluted................................ $ 1.45 $ 1.14
Cash Dividends Declared Per Share......................... $ 0 $ 0
Book Value Per Share(1)................................... $17.18 $19.33
FIC Pro Forma Combined
Income Per Common Share, Basic............................ $ 1.91 $ 1.50
Income Per Common Share, Diluted.......................... $ 1.91 $ 1.50
Cash Dividends Declared Per Share......................... $ 0 $ 0.18
Book Value Per Share...................................... $15.24 $17.62
ILCO Per Share Equivalent(2)
Income Per Common Share, Basic............................ $ 2.15 $ 1.65
Income Per Common Share, Diluted.......................... $ 2.15 $ 1.65
Cash Dividends Declared Per Share......................... $ 0 $ 0.20
Book Value Per Share...................................... $16.76 $19.38
- ---------------
(1) Historical book value per share is computed by dividing shareholders' equity
by the number of shares of common stock outstanding at the end of each
period.
(2) ILCO Per Share Equivalent is computed by multiplying the FIC Pro Forma
Combined information by the exchange ratio of 1.1.
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RISK FACTORS
We urge you to carefully consider the risk factors set forth below, as well
as the other information set forth in this joint proxy statement/prospectus,
before voting in favor of approval of the merger-related proposals described in
this joint proxy statement/prospectus. In addition, you are strongly urged to
consider the risk factors set forth elsewhere in this joint proxy
statement/prospectus. This joint proxy statement/prospectus contains
forward-looking statements which involve risks and uncertainties. FIC's actual
results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause these differences include,
but are not limited to, the risk factors set forth below.
RISKS RELATING TO THE MERGER
FIC AND ILCO OFFICERS AND DIRECTORS HAVE CONFLICTS OF INTEREST THAT MAY
INFLUENCE THEM TO SUPPORT OR RECOMMEND THE APPROVAL OF THE MERGER-RELATED
PROPOSALS DESCRIBED IN THIS JOINT PROXY STATEMENT/ PROSPECTUS.
As of the date of this joint proxy statement/prospectus, FIC beneficially
owns approximately 48% of the outstanding shares of ILCO common stock. In
addition, Roy F. Mitte is the Chairman, President and Chief Executive Officer of
each of FIC and ILCO and beneficially owns approximately 30.7% of the
outstanding shares of FIC common stock and controls, directly or through his
beneficial ownership interest in FIC and its subsidiaries, approximately 49.2%
of the outstanding shares of ILCO common stock. The other members of senior
management of FIC also serve in the same or similar positions with ILCO. A
majority of the members of FIC's board of directors also serve as a majority of
the members of ILCO's board of directors. Each of the members of the FIC Special
Committee owns shares of FIC common stock, and each of the members of the ILCO
Special Committee owns shares of ILCO common stock. One of the members of the
ILCO Special Committee owns shares of FIC common stock and two of the members of
the FIC Special Committee own shares of ILCO common stock. Each of these
ownership interests is less than one percent of the outstanding capital stock of
the respective companies. Finally, FIC and the surviving corporation have agreed
to indemnify the officers and directors of ILCO, Merger Sub and FIC for their
acts and omissions as officers and directors of ILCO, Merger Sub and FIC,
respectively, to the maximum extent permitted by Texas law. See the section
entitled "The Merger -- Interests of Certain Persons in the Merger" on page 47
for more information.
As a result of these interests, these officers and directors could be more
likely to support or recommend the approval of the merger-related proposals
described in this joint proxy statement/prospectus than if they did not have
these interests. FIC and ILCO shareholders should consider whether these
interests may have influenced these officers and directors to support or
recommend the approval of the merger-related proposals described in this joint
proxy statement/prospectus.
THE EXCHANGE RATIO IS FIXED AND DOES NOT GIVE EFFECT TO POSSIBLE FLUCTUATIONS
IN FIC'S STOCK PRICE BEFORE THE CLOSING OF THE MERGER.
The ratio of the number of shares of FIC common stock to be received in
exchange for shares of ILCO common stock is expressed as a fixed ratio in the
merger agreement. Accordingly, the ratio will not be adjusted in the event of
any increase or decrease in the price of FIC common stock. As an example, on the
date the merger agreement was signed, the closing sales price of FIC's common
stock was $10.25 per share, making each share of ILCO common stock worth
approximately $11.275 in the merger. As of , 2001, the closing sales
price of FIC common stock was $ per share, which would make each share of
ILCO common stock worth approximately $ at current market prices. In
addition, the price of FIC common stock at the time the merger is completed may
vary from its price at the date of this joint proxy statement/prospectus and the
date of the FIC and ILCO special meetings, possibly by a large amount. Any
variation may be the result of one or more of the following factors:
- changes in the business, operations or prospects of FIC;
- market assessments of the likelihood that the merger will be consummated;
16
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- regulatory considerations; and
- general market and economic conditions, many of which may be beyond the
control of FIC and ILCO.
RISKS RELATING TO FIC (INCLUDING ILCO AFTER COMPLETION OF THE MERGER)
WE MAY NOT BE ABLE TO COMPETE WITH LARGER, MORE ESTABLISHED INSURANCE
COMPANIES.
There are many life and health insurance companies in the U.S. Agents
placing insurance business with FIC's and ILCO's insurance subsidiaries are
compensated on a commission basis. However, some companies may pay higher
commissions and charge lower premium rates and many companies have more
substantial resources than we do. In addition, consolidations of insurance and
banking institutions, which are permitted under recently-enacted federal
legislation, may adversely affect the ability of FIC's insurance subsidiaries to
expand their customer referral relationships with mortgage lending and servicing
institutions. The principal cost and competitive factors that affect the ability
of FIC's and ILCO's insurance subsidiaries to sell their insurance products on a
profitable basis are:
- the general level of premium rates for comparable products;
- the extent of individual policyholders services required to service each
product category;
- general interest rate levels;
- competitive commission rates and related marketing costs;
- legislative and regulatory requirements and restrictions;
- the impact of competing insurance and other financial products; and
- the condition of the regional and national economies.
THE PASSAGE OF THE FINANCIAL SERVICES MODERNIZATION ACT MAY ADVERSELY AFFECT
FIC'S INSURANCE SUBSIDIARIES' CURRENT SALES METHODS.
On November 12, 1999, the Financial Services Modernization Act was signed
into law, effective March 12, 2000. In general, the act provides that financial
institutions have certain obligations with respect to the maintenance of the
privacy of customer information, so as to insure the security and
confidentiality of customer records and information, to protect against any
anticipated threats or hazards to the security or integrity of these records and
to protect against unauthorized access or use of these records or information
which could result in substantial harm or inconvenience to any customer. In
addition, the act places new restrictions on disclosure of nonpublic personal
information to third party institutions seeking to utilize such information in
connection with the sale of products or services. A financial institution may
disseminate certain types of customer information to nonaffiliated third parties
if the institution provides clear and conspicuous disclosure of the
institution's privacy policy and the customer authorizes the release of certain
information to third parties. Where the customer permits the release of the
information, the act restricts disclosure of information that is non-public in
nature but does not prohibit the release of information which can be obtained
from public sources such as the Internet. Since FIC's insurance subsidiaries
have traditionally used leads from financial institutions to find new customers,
the passage of the act may adversely affect these subsidiaries' ability to use
such sales method. In addition, regulations are expected to be adopted that
implement the purposes of the act. Because these regulations have not been
finalized, FIC is unable to determine whether the final regulations will impact
the ability of financial institutions to supply FIC's insurance subsidiaries
with lead information.
IN CERTAIN CIRCUMSTANCES, REGULATORY AUTHORITIES MAY PLACE THE INSURANCE
SUBSIDIARIES OF FIC AND ILCO UNDER REGULATORY CONTROL.
FIC's and ILCO's insurance subsidiaries are subject to risk-based capital
requirements imposed by the National Association of Insurance Commissioners. If
an insurer's risk-based capital falls below
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27
specified levels, the insurer would be subject to different degrees of
regulatory action depending upon the magnitude of the deficiency. Possible
regulatory actions range from requiring the insurer to propose actions to
correct the risk-based capital deficiency to placing the insurer under
regulatory control.
THE INSURANCE SUBSIDIARIES OF FIC AND ILCO MAY BE REQUIRED TO PAY ASSESSMENTS
TO FUND POLICYHOLDER LOSSES OR LIABILITIES; THIS MAY HAVE A MATERIAL ADVERSE
EFFECT ON THE RESULTS OF OPERATIONS OF FIC AND ILCO.
The solvency or guaranty laws of most states in which an insurance company
does business may require that company to pay assessments (up to certain
prescribed limits) to fund policyholder losses or liabilities of insurance
companies that become insolvent. Recent insolvencies of insurance companies
increase the possibility that these assessments may be required. These
assessments may be deferred or forgiven under most guaranty laws if they would
threaten an insurer's financial strength and, in certain instances, may be
offset against future premium taxes. The likelihood and amount of future
assessments cannot be estimated by FIC or ILCO. Any future assessments may have
a material adverse effect on the results of operations of FIC and ILCO.
FIC'S AND ILCO'S INSURANCE SUBSIDIARIES ARE SUBJECT TO REGULATION BY STATE
INSURANCE DEPARTMENTS.
FIC's and ILCO's insurance subsidiaries are subject to regulation and
supervision by the states in which they are licensed to do business. This
regulation is designed primarily to protect policy owners. Although the extent
of regulation varies by state, the respective state insurance departments have
broad administrative powers relating to the granting and revocation of licenses
to transact business, licensing of agents, the regulation of trade practices and
premium rates, the approval of form and content of financial statements and the
type and character of investments.
These laws and regulations require FIC's and ILCO's insurance subsidiaries
to maintain certain minimum surplus levels and to file detailed periodic reports
with the supervisory agencies in each of the states in which they do business,
and their business and accounts are subject to examination by these agencies at
any time. The insurance laws and regulations of the domiciliary states of FIC's
and ILCO's insurance subsidiaries require that these subsidiaries be examined at
specified intervals. Family Life Insurance Company is domiciled in the State of
Washington. Investors Life Insurance Company of North America and Investors Life
Insurance Company of Indiana are domiciled in the states of Washington and
Indiana, respectively.
A number of states regulate the manner and extent to which insurance
companies may test for Acquired Immune Deficiency Syndrome (AIDS) antibodies in
connection with the underwriting of life insurance policies. To the extent
permitted by law, FIC's and ILCO's insurance subsidiaries consider AIDS
information in underwriting coverages and establishing premium rates. An
evaluation of the financial impact of future AIDS claims is extremely difficult,
due in part to insufficient and conflicting data regarding the incidence of the
disease in the general population and the prognosis for the probable future
course of the disease.
THE FEDERAL GOVERNMENT MAY SEEK TO REGULATE THE INSURANCE INDUSTRY.
Although the federal government generally does not directly regulate the
insurance industry, federal initiatives often have a direct impact on the
insurance business. Congress and certain federal agencies are investigating the
current condition of the insurance industry in the U.S. in order to decide
whether some form of federal regulation of insurance companies would be
appropriate. Congress is currently conducting a variety of hearings relating in
general to the solvency of insurers. We are unable to predict the outcome of any
such congressional activity nor the potential effects that federal regulation
would have on FIC's or ILCO's insurance subsidiaries.
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FIC AND ILCO ARE HOLDING COMPANIES AND RELY ON DIVIDENDS FROM THEIR INSURANCE
SUBSIDIARIES; STATE INSURANCE LAWS MAY RESTRICT THE ABILITY OF THESE
SUBSIDIARIES TO PAY DIVIDENDS.
FIC and ILCO are insurance holding companies whose assets consist primarily
of the outstanding capital stock of their respective insurance subsidiaries. FIC
and ILCO depend primarily on dividends from their insurance subsidiaries to
satisfy their financial obligations, pay operating expenses and pay dividends to
their shareholders. In addition, the principal source of cash for Family Life
Corporation, a subsidiary of FIC, to make payments of principal and interest on
the loan obligations of Family Life Corporation are payments under the surplus
debenture of Family Life Insurance Company, a subsidiary of Family Life
Corporation. The surplus debenture was issued by Family Life Insurance Company
in connection with the 1991 acquisition of Family Life by FIC. The insurance
subsidiaries of FIC and ILCO are subject to regulation under the insurance and
insurance company holding laws and regulations of the states of Indiana and
Washington. These statutes require prior regulatory agency approval or prior
notice of certain material intercompany transactions, including the payment of
dividends.
Under current Washington law applicable to Family Life Insurance Company
and Investors Life Insurance Company of North America, any proposed payment of a
dividend or distribution which, together with dividends or distributions paid
during the preceding 12 months, exceeds the greater of:
- 10% of statutory surplus as of the preceding December 31 or
- statutory net gain from operations for the preceding calendar year,
is an "extraordinary dividend" and may not be paid until either it has been
approved, or a 60-day waiting period has passed during which it has not been
disapproved, by the Washington Insurance Commissioner. In addition, prior
notification of a proposed dividend must be given to the Washington Insurance
Commissioner and any cash dividends may be paid only from earned surplus. Family
Life Insurance Company does not presently have earned surplus as defined by the
regulations and, therefore, is not presently permitted to pay cash dividends.
However, since this law applies only to the payment of dividends, the ability of
Family Life Insurance Company to make principal and interest payments under the
surplus debenture is not affected. Investors Life Insurance Company of North
America, a subsidiary of ILCO, had earned surplus of $52.9 million as of
September 30, 2000.
Under the Indiana insurance code applicable to Investors Life Insurance
Company of Indiana, a domestic insurer may make dividend distributions upon
proper notice to the Department of Insurance, as long as the distribution is
reasonable in relation to adequate levels of policyholder surplus and quality of
earnings. In addition, the dividend may only be paid from earned surplus.
Extraordinary dividend approval would be required where a dividend exceeds the
greater of 10% of surplus or the net gain from operations for the prior fiscal
year. Investors Life Insurance Company of Indiana, a subsidiary of ILCO, had
earned surplus of $20.86 million at September 30, 2000.
INTEREST RATE VOLATILITY MAY ADVERSELY AFFECT OUR PROFITABILITY.
Changes in interest rates affect many aspects of our business and can
significantly affect our profitability. In periods of increasing interest rates,
withdrawals of life insurance policies and fixed annuity contracts, including
policy loans and surrenders, and transfers to separate account variable options
may increase as policyholders choose to forego insurance protection and seek
higher investment returns. Obtaining cash to satisfy these obligations may
require us to liquidate fixed income investment assets at a time when the market
prices for those assets are depressed because interest rates have increased.
This may result in realized investment losses. Regardless of whether we realize
an investment loss, these cash payments would result in a decrease in total
invested assets, and a decrease in net income. Premature withdrawals may cause
us to accelerate amortization of policy acquisition costs, which would also
reduce our net income.
Conversely, during periods of declining interest rates, life insurance and
annuity products may be relatively more attractive to consumers, resulting in
increased premium payments on products with flexible premium features, repayment
of policy loans and increases in persistency, or a higher percentage of
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insurance policies remaining in force from year to year. During such a period,
our investment earnings will be lower because the interest earnings on our fixed
income investments likely will be more likely to be prepaid or redeemed as
borrowers seek to borrow at lower interest rates, and we may be required to
reinvest the proceeds in securities bearing lower interest rates. Accordingly,
during periods of declining interest rates, our profitability may suffer as the
result of a decrease in the spread between interest rates credited to
policyholders and returns on our investment portfolio.
The profitability of our spread-based business depends in large part upon
our ability to manage interest rate spreads, and the credit and other risks
inherent in our investment portfolio. We cannot guarantee, however, that we will
manage successfully our interest rate spreads or the potential negative impact
of those risks.
FIC AND ILCO SHAREHOLDERS SHOULD NOT PLACE UNDUE RELIANCE ON FORWARD-LOOKING
INFORMATION.
Information contained in this joint proxy statement/prospectus may contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which can be
identified by the use of forward-looking terminology like "may," "will,"
"expect," "intend," "anticipate," "believe," "estimate," "continue" or "pro
forma" or the negative or other variations of those words or comparable
terminology.
All forward-looking statements contained in this joint proxy
statement/prospectus are expressly qualified in their entirety by the cautionary
statements set forth in this joint proxy statement/prospectus and the documents
incorporated by reference. Shareholders of FIC and ILCO are cautioned not to
place undue reliance on these forward-looking statements which speak only as of
the date of this joint proxy statement/prospectus and the date of the documents
incorporated herein by reference. Neither FIC nor ILCO undertakes any
responsibility to update you on the occurrence of any anticipated events which
may cause actual results to differ from those expressed or implied by the
forward-looking statements contained in this joint proxy statement/prospectus or
in documents incorporated by reference to this joint proxy statement/prospectus.
We urge you to carefully consider the important factors set forth under
"Risk Factors" and elsewhere in this joint proxy statement/prospectus that could
cause actual results to differ materially from the expectations of FIC or its
management.
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FINANCIAL INDUSTRIES CORPORATION
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information gives effect to the
merger and the pro forma adjustments described in the accompanying notes. The
unaudited pro forma combined financial information should be read in conjunction
with the audited historical consolidated financial statements and related notes
of FIC and ILCO, which are incorporated by reference into this joint proxy
statement/ prospectus.
The unaudited pro forma balance sheet gives effect to the merger as if it
had occurred on the balance sheet date. The unaudited pro forma consolidated
statements of income give effect to the merger as if it had occurred at the
beginning of the earliest period presented. The transaction is being accounted
for on a purchase basis.
The unaudited pro forma financial information is presented for illustrative
purposes only and does not purport to be indicative of the operating results or
financial position that would have actually occurred if the merger had been in
effect on the dates indicated, nor is it necessarily indicative of future
operating results or financial position of the merged companies. The pro forma
adjustments are based on the information and assumptions available as of the
date of this joint proxy statement/prospectus. The unaudited pro forma financial
statements do not give effect to any cost savings or synergies which may result
from the integration of FIC's and ILCO's operations.
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FINANCIAL INDUSTRIES CORPORATION AND
INTERCONTINENTAL LIFE CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL
----------------- PRO FORMA PRO FORMA
FIC ILCO ADJUSTMENTS COMBINED
------- ------- ----------- ---------
REVENUES:
Premium......................................... $25,347 $ 8,665 $ 34,012
Net Investment Income........................... 5,220 37,914 (2,703)(a) 40,431
Earned Insurance Charges........................ 3,196 29,182 32,378
Other........................................... 6 2,539 2,545
------- ------- ------- --------
Total Revenues........................ 33,769 78,300 (2,703) 109,366
BENEFITS AND EXPENSES:
Policyholder Benefits........................... 10,749 23,641 34,390
Interest Expense on Contractholder Deposit
Funds......................................... 1,555 22,035 23,590
Operating Expenses.............................. 8,612 12,687 21,299
Interest Expense................................ 1,513 -- (1,412)(a) 101
Other Operating Expenses........................ 6,844 4,793 (3,093)(d) 8,544
------- ------- ------- --------
Total Benefits and Expenses........... 29,273 63,156 (4,505) 87,924
------- ------- ------- --------
Income before Federal Income Taxes and Equity in
Net Earnings of Affiliates.................... 4,496 15,144 1,802 21,442
Provision for Federal Income Taxes.............. 834 5,551 865(d) 7,250
------- ------- ------- --------
Income before Equity in Net Earnings of
Affiliates.................................... 3,662 9,593 937 14,192
Equity in Net Earnings of Affiliates............ 2,924 -- (2,924)(a) --
------- ------- ------- --------
Net Income............................ $ 6,586 $ 9,593 $(1,987) $ 14,192
======= ======= ======= ========
Weighted Average Shares Outstanding:
Basic......................................... 5,055 8,408 4,610 9,475(e)
------- ------- ------- --------
Diluted....................................... 5,163 8,415 4,610 9,482(e)
------- ------- ------- --------
Net Income Per Share:
Basic......................................... $ 1.30 $ 1.14 $ 1.50
======= ======= ========
Diluted....................................... $ 1.28 $ 1.14 $ 1.50
======= ======= ========
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FINANCIAL INDUSTRIES CORPORATION AND
INTERCONTINENTAL LIFE CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL PRO PRO
------------------ FORMA FORMA
FIC ILCO ADJUSTMENTS COMBINED
------- -------- ----------- --------
REVENUES:
Premium.................................................. $33,958 $ 11,132 $ 45,090
Net Investment Income.................................... 7,557 50,025 (4,324)(a) 53,258
Earned Insurance Charges................................. 4,752 40,447 45,199
Other.................................................... 1,046 2,601 3,647
------- -------- ------- --------
Total Revenues.................................. 47,313 104,205 (4,324) 147,194
BENEFITS AND EXPENSES:
Policyholder Benefits.................................... 13,940 32,001 45,941
Interest Expense on Contractholder Deposit Funds......... 1,903 30,229 32,132
Operating Expenses....................................... 11,740 17,029 28,769
Interest Expense......................................... 2,374 -- (2,392)(a) (18)
Other Operating Expenses................................. 10,343 6,207 (4,028)(d) 12,522
------- -------- ------- --------
Total Benefits and Expenses..................... 40,300 85,466 (6,420) 119,346
------- -------- ------- --------
Income before Federal Income Taxes and Equity in Net
Earnings
of Affiliates.......................................... 7,013 18,739 2,096 27,848
Provision for Federal Income Taxes....................... 1,174 5,974 1,121(d) 8,269
------- -------- ------- --------
Income before Equity in Net Earnings of Affiliates....... 5,839 12,765 975 19,579
Equity in Net Earnings of Affiliates..................... 3,310 -- (3,310)(a) --
------- -------- ------- --------
Net Income...................................... $ 9,149 $ 12,765 $(2,335) $ 19,579
======= ======== ======= ========
Weighted Average Shares Outstanding:
Basic.................................................. 5,055 8,796 5,384 10,249(e)
------- -------- ------- --------
Diluted................................................ 5,200 8,800 5,384 10,252(e)
------- -------- ------- --------
Net Income Per Share:
Basic.................................................. $ 1.81 $ 1.45 $ 1.91
======= ======== ========
Diluted................................................ $ 1.76 $ 1.45 $ 1.91
======= ======== ========
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FINANCIAL INDUSTRIES CORPORATION AND
INTERCONTINENTAL LIFE CORPORATION
PRO FORMA COMBINED CONDENSED BALANCED SHEET
SEPTEMBER 30, 2000
(UNAUDITED) (IN THOUSANDS)
HISTORICAL PRO PRO
--------------------- FORMA FORMA
FIC ILCO ADJUSTMENTS COMBINED
-------- ---------- ----------- ----------
ASSETS
Total Invested Assets...................... $ 99,890 $ 672,822 (1,708)(a) $ 770,997
(7)(c)
Investment in Affiliate.................... 75,681 0 (75,681)(a) 0
Notes Receivable from Affiliates........... 0 36,886 (36,886)(a) 0
Intangible Assets.......................... 75,572 75,276 (38,841)(c) 111,700
(307)(a)
Separate Account Assets.................... 0 461,789 0 461,789
Other Assets............................... 44,747 68,017 0 112,764
-------- ---------- --------- ----------
Total Assets..................... $295,890 $1,314,790 $(153,430) $1,457,250
======== ========== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Policyholder Liabilities................... $108,361 $ 661,576 3,115 (c) $ 773,052
Subordinated Notes Payable to Affiliate.... 36,886 0 (36,886)(a) --
Deferred Federal Income Taxes.............. 23,200 23,151 (13,597)(c) 32,754
Other Liabilities.......................... 4,031 15,817 0 19,848
Excess of Net Assets Acquired Over Cost.... 0 0 10,424 (c) 10,424
Separate Account Liabilities............... 0 457,267 (3,034)(c) 454,233
-------- ---------- --------- ----------
Total Liabilities................ 172,478 1,157,811 (39,978) 1,290,311
Minority Interest.......................... 0 0 81,606 (a) 0
(81,606)(a)
Shareholders' Equity:
Common Stock............................... 1,169 2,388 (2,388)(a) 2,314
1,145 (b)
Additional Paid in Capital................. 7,225 4,526 (4,526)(a) 62,240
55,015 (b)
Accumulated Other Comprehensive Income..... (838) (1,215) 1,215 (a) (838)
Retained Earnings.......................... 123,231 161,525 (161,525)(a) 123,231
Treasury Stock............................. (7,375) (10,245) 8,537 (a) (20,008)
(10,925)(b)
-------- ---------- --------- ----------
Total Shareholders' Equity....... 123,412 156,979 (113,452) 166,939
-------- ---------- --------- ----------
Total Liabilities and
Shareholders' Equity........... $295,890 $1,314,790 $(153,430) $1,457,250
======== ========== ========= ==========
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FINANCIAL INDUSTRIES CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
On January 17, 2001, Financial Industries Corporation and InterContinental
Life Corporation entered into a merger agreement that will result in a
wholly-owned subsidiary of Financial Industries Corporation being merged with
and into InterContinental Life Corporation. The merger agreement provides that
InterContinental Life Corporation shareholders will receive 1.1 shares of
Financial Industries Corporation common stock for each share of InterContinental
Life Corporation common stock that they owned immediately before the merger.
The pro forma combined condensed balance sheet assumes that the merger took
place September 30, 2000 and combines Financial Industries Corporation's
consolidated balance sheet and InterContinental Life Corporation's consolidated
balance sheet as of September 30, 2000.
The pro forma combined condensed statement of operations assumes the merger
took place as of the beginning of the period presented and combines Financial
Industries Corporation's consolidated statement of operations for the year ended
December 31, 1999 and the nine months ended September 30, 2000 and
InterContinental Life Corporation's consolidated statement of operations for the
year ended December 31, 1999 and the nine months ended September 30, 2000.
(a) Adjustment reflects the consolidation of Financial Industries
Corporation and InterContinental Life Corporation prior to the merger resulting
in the elimination of the following items (in thousands):
9/30/00 12/31/99
-------- --------
Summary of Operations:
Interest income from affiliates........................... $ 2,703 $4,324
Interest expense to affiliate............................. 1,412 2,392
Equity in net earnings of affiliate....................... 2,924 3,310
Balance Sheet:
Investment in FIC common stock by ILCO.................... $ 1,708
Investment in ILCO by FIC................................. 75,681
Notes receivable from affiliate........................... 36,886
Intangible assets......................................... 307
Notes payable to affiliate................................ 36,886
Common stock of ILCO...................................... 2,388
Paid in capital of ILCO................................... 4,526
Accumulated other comprehensive income of ILCO............ (1,215)
Retained earnings of ILCO................................. 161,525
Treasury stock of ILCO.................................... (8,537)
For consolidation purposes minority interest of $81,606,000 was generated
in the consolidation entry and eliminated in the acquisition entry.
(b) Adjustment reflects the components of the consideration paid in the
form of 1.1 shares of FIC stock for each share of ILCO stock. FIC will issue
approximately 5,723,000 shares of which 4,610,000 are to outside shareholders
and 1,113,000 are to insurance subsidiaries of FIC and ILCO and will be treated
as treasury stock after the transaction. The market price of FIC common stock
used in the pro forma statements is $9.8125 a share which calculates a net
purchase price of $45,235,000. The components of the purchase price are as
follows (in thousands):
Common stock.............................................. $ 1,145
Additional paid in capital................................ 55,015
Treasury stock............................................ (10,925)
--------
$ 45,235
========
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(c) Adjustment reflects the allocation of the purchase price to 51.59% of
ILCO's assets and liabilities which represents those assets and liabilities
acquired and assumed, as follows (in thousands):
ALLOCATION OF CARRYING
PURCHASE PRICE VALUE ADJUSTMENTS
-------------- -------- -----------
Invested Assets.................................. $347,102 $347,109 $ (7)
Intangible Assets................................ -- 38,841 (38,841)
Notes Receivable from Affiliates................. 19,029 19,029 --
Separate Account Assets.......................... 238,237 238,237 --
Other Assets..................................... 35,090 35,090 --
Policyholder Liabilities......................... 344,422 341,307 3,115
Deferred Income Taxes............................ (1,653) 11,944 (13,597)
Excess of Net Assets Acquired Over Cost.......... 10,424 -- 10,424
Other Liabilities................................ 8,160 8,160 --
Separate Account Liabilities..................... 232,870 235,904 (3,034)
--------
$ 45,235
========
Note that the above table reflects the net effect of an entry to offset negative goodwill
calculated against the Present Value of Future Profits calculated (net of tax).
Also note that the remaining 48.41% of ILCO's net assets already owned by FIC will
continue to be carried at cost.
(d) Adjustment reflects reduction in amortization expense resulting from
the elimination of Deferred Acquisition Costs and Present Value of Future
Profits to the extent these assets were acquired and the increase in income due
to the amortization of the excess of net assets acquired over cost as follows
(in thousands):
9/30/00 12/31/99
------- --------
Deferred Acquisition Costs.................................. $ 970 $1,224
Present Value of Future Profits............................. 1,502 1,977
Excess of Net Assets Acquired Over Cost..................... 621 827
------ ------
$3,093 $4,028
------ ------
Federal Income Tax.......................................... $ 865 $1,121
------ ------
(e) Pro forma weighted average common shares outstanding for all periods
presented are based on FIC and ILCO's combined historical weighted average
shares, after adjustment of ILCO's historical number of shares by the exchange
ratio of 1.1.
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THE SPECIAL MEETINGS
THE FIC SPECIAL MEETING
GENERAL
We are furnishing this joint proxy statement/prospectus to FIC shareholders
in connection with the solicitation of proxies by the FIC board of directors for
use at the FIC special meeting of shareholders. This joint proxy
statement/prospectus, the attached notice of special meeting of shareholders and
the enclosed proxy card are first being mailed to the shareholders of FIC on or
about , 2001.
MATTERS TO BE CONSIDERED AT THE FIC SPECIAL MEETING
At the FIC special meeting, FIC shareholders will consider and vote on the
following proposals:
FIC Proposal No. 1: to approve the issuance of shares of FIC common
stock pursuant to the merger agreement; and
FIC Proposal No. 2: to approve an amendment to the FIC articles of
incorporation, as amended, to increase the number of authorized shares of
common stock from 10,000,000 to 25,000,000.
Based upon the number of shares of ILCO common stock outstanding on the
date of this joint proxy statement/prospectus, as well as outstanding options to
purchase shares of ILCO common stock, FIC expects to issue up to
shares of FIC common stock in the merger. A copy of the merger agreement is
attached as Annex A to this joint proxy statement/prospectus. We urge you to
read carefully the merger agreement, as it is the document that governs the
terms of the merger.
Under the rules of The Nasdaq National Market, FIC is required to seek
shareholder approval for any issuance of shares of its common stock in
connection with the acquisition of another company if its common stock to be
issued in the transaction exceeds 20% of the issued and outstanding shares of
its common stock and of its outstanding voting power. The shares of FIC common
stock to be issued to ILCO shareholders in the merger are equal to, in the
aggregate, approximately % of the currently issued and outstanding shares of
FIC common stock and of its outstanding voting power as of , 2001.
Therefore, FIC is seeking shareholder approval of the issuance of shares of its
common stock in the merger.
Additionally, FIC is seeking shareholder approval to the amendment of its
articles of incorporation to increase the number of authorized shares of its
common stock from 10,000,000 to 25,000,000. As of , 2001, FIC had
shares of common stock issued and outstanding, and shares reserved for
issuance under outstanding options. Accordingly, FIC needs to authorize
additional shares of common stock under its articles of incorporation in order
to have sufficient authorized shares to issue to the holders of ILCO common
stock in the merger and upon the exercise of ILCO stock options assumed in the
merger. The approval of the FIC Proposal No. 2 to amend its articles of
incorporation is a condition to the consummation of the merger. In addition, the
increase in the number of authorized shares of FIC common stock under the
amended articles of incorporation will provide future flexibility should the
board of directors of FIC determine that a stock dividend, primary equity
offering(s), or acquisition or other transactions involving the use of FIC
common stock are in the best interests of FIC and its shareholders. Shares of
FIC common stock may be issued for cash, property, services rendered or
cancellation of indebtedness, or in any combination thereof, and at such price
or prices and on such terms as the board of directors of FIC determines to be
reasonable in its business judgment consistent with Texas law. Shares of FIC
common stock may generally be issued by the board of directors of FIC without
authorization from its shareholders, although requirements of The Nasdaq Stock
Market or any national securities exchange on which FIC's common stock is then
listed may require shareholder approval of the issuance of FIC common stock in
certain circumstances.
AFTER CAREFUL CONSIDERATION, AND UPON THE RECOMMENDATION OF A SPECIAL
COMMITTEE OF THE FIC BOARD OF DIRECTORS CONSISTING OF DISINTERESTED DIRECTORS,
THE FIC BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED
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THAT THE MERGER ON SUBSTANTIALLY THE TERMS AND CONDITIONS SET FORTH IN THE
MERGER AGREEMENT IS ADVISABLE AND IS FAIR TO, AND IN THE BEST INTERESTS OF, FIC
AND ITS SHAREHOLDERS. THE FIC BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
MERGER AND THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF FIC
COMMON STOCK VOTE "FOR" THE APPROVAL OF THE ISSUANCE OF SHARES OF FIC COMMON
STOCK IN THE MERGER, AND "FOR" THE APPROVAL OF THE AMENDMENT TO FIC'S ARTICLES
OF INCORPORATION.
DATE, TIME AND PLACE
The FIC special meeting is scheduled to be held at 10:00 a.m., local time,
on , , 2001, at the principal offices of Financial
Industries Corporation, 6500 River Place Blvd., Building One, Austin, Texas
78730.
PLEASE COMPLETE THE ENCLOSED PROXY CARD AND MAIL IT IN THE ENCLOSED PREPAID
RETURN ENVELOPE AS SOON AS POSSIBLE SO THAT YOUR SHARES MAY BE REPRESENTED AND
VOTED AT THE SPECIAL MEETING.
RECORD DATE; QUORUM
The FIC board of directors has fixed the close of business on
, 2001 as the record date for the determination of the
shareholders entitled to notice of, and to vote at, the FIC special meeting. On
that date, FIC had shares of common stock outstanding. The holders of these
shares will be entitled to one vote per share on the issuance of shares of FIC
common stock in the merger and the amendment to FIC's articles of incorporation.
A quorum is present at a special meeting if a majority of the shares of FIC
common stock issued and outstanding and entitled to vote at the meeting is
represented in person or by proxy. Shares of FIC common stock represented at the
special meeting, but for which the holders have abstained from voting, will be
treated as present at the special meeting for purposes of determining the
presence or absence of a quorum for the transaction of business.
VOTES REQUIRED
The issuance of shares of FIC common stock in the merger will be approved
if at least a majority of the shares voted either in person or by proxy at the
FIC special meeting vote in favor of approval of such issuance. The proposal to
amend the FIC articles of incorporation will be approved if the holders of
shares representing at least a majority of the votes that may be cast by the
holders of all of the outstanding shares of FIC common stock vote in favor
thereof. The merger may not be completed unless the FIC shareholders also
approve the amendment to FIC's articles of incorporation.
VOTING BY FIC'S EXECUTIVE OFFICERS AND DIRECTORS
As of the record date, FIC's executive officers and directors owned and
held the power to vote shares of FIC common stock, representing
approximately % of the voting power of FIC common stock outstanding, and have
each indicated their present intention to vote, or cause to be voted, such
shares in favor of approval of the issuance of shares of FIC common stock in the
merger and the amendment to the FIC articles of incorporation.
VOTING OF PROXIES; REVOCABILITY OF PROXIES
Shares of FIC common stock represented by properly executed proxies
received in advance of the special meeting will, unless these proxies have been
properly revoked, be voted in accordance with the instructions indicated on such
proxies or, if no instructions have been indicated, will be voted in favor of
approval of the issuance of shares of FIC common stock in the merger and the
amendment to the FIC articles of incorporation, and, in the discretion of the
individuals named in the accompanying proxy card, on any other matters which may
properly come before the FIC special meeting. Abstentions may be specified with
respect to the approval of the issuance of shares of FIC common stock in the
merger and/or
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the amendment to the FIC articles of incorporation by properly marking the
"ABSTAIN" box on the proxy card for the appropriate proposal for which
abstention is sought.
Any proxy may be revoked by the shareholder giving it, at any time prior to
its being exercised, by filing a notice of revocation with the Secretary of FIC
at the address given on the notice of shareholders' meeting accompanying this
joint proxy statement/prospectus or by submitting a duly executed proxy card
bearing a later date than an earlier submitted proxy. Any proxy may also be
revoked by the shareholder's attendance at the FIC special meeting and voting in
person. A notice of revocation need not be on any specific form, but must be in
writing.
Only shares affirmatively voted for the approval of the issuance of shares
of FIC common stock in the merger and/or the amendment to the FIC articles of
incorporation, including properly executed proxies that do not contain voting
instructions, will be counted as favorable votes for that proposal. If an FIC
shareholder abstains from voting or does not vote on a proposal, either in
person or by proxy, it will have the same effect as if that FIC shareholder had
voted against that proposal. Brokers who hold shares of FIC common stock in
street name for customers who are the beneficial owners of such shares may not
authorize a proxy to vote those customers' shares in the absence of specific
instructions from those customers. These non-voted shares are referred to as
"broker non-votes" and have the effect of votes against the applicable
proposals.
The persons named as proxies by a shareholder may propose and vote for one
or more adjournments of the special meeting, including adjournments to permit
further solicitations of proxies. No proxy voted against the proposal to issue
shares of FIC common stock in the merger and/or the amendment to FIC's articles
of incorporation will be voted in favor of any such adjournment or postponement.
FIC does not expect that any matter other than the proposals to approve the
issuance of shares of FIC common stock in the merger and to amend the FIC
articles of incorporation will be brought before the special meeting. If,
however, the FIC board of directors properly presents other matters, the persons
named as proxies will vote in accordance with their discretion.
SOLICITATION OF PROXIES
Proxies are being solicited by and on behalf of the FIC board of directors.
FIC will bear the costs relating to the solicitation of proxies. In addition to
solicitation by mail, FIC's directors, officers and employees, without
additional remuneration, may solicit proxies by telephone, facsimile machine and
personal interviews, and FIC reserves the right to retain outside agencies for
the purpose of soliciting proxies, which may be paid customary fees for
performing those services.
THE ILCO SPECIAL MEETING
GENERAL
We are furnishing this joint proxy statement/prospectus to ILCO
shareholders in connection with the solicitation of proxies by the ILCO board of
directors for use at the ILCO special meeting of shareholders. This joint proxy
statement/prospectus, the attached notice of special meeting of shareholders and
the enclosed proxy card are first being mailed to the shareholders of ILCO on or
about , 2001.
MATTERS TO BE CONSIDERED AT THE ILCO SPECIAL MEETING
At the ILCO special meeting, ILCO shareholders will consider and vote on
the proposal to approve the plan of merger upon the terms and conditions set
forth in the merger agreement.
A copy of the merger agreement is attached as Annex A to this joint proxy
statement/prospectus. We urge you to read carefully the merger agreement, as it
is the document that governs the terms of the merger.
AFTER CAREFUL CONSIDERATION, AND UPON THE RECOMMENDATION OF A SPECIAL
COMMITTEE OF THE ILCO BOARD OF DIRECTORS CONSISTING OF DISINTERESTED DIRECTORS,
THE ILCO BOARD OF DIRECTORS HAS UNANIMOUSLY
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39
DETERMINED THAT THE MERGER ON SUBSTANTIALLY THE TERMS AND CONDITIONS SET FORTH
IN THE MERGER AGREEMENT IS ADVISABLE AND IS FAIR TO, AND IN THE BEST INTERESTS
OF, ILCO AND ITS SHAREHOLDERS. THE ILCO BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AND THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT
HOLDERS OF ILCO COMMON STOCK VOTE "FOR" THE APPROVAL OF THE PLAN OF MERGER
CONTAINED IN THE MERGER AGREEMENT.
DATE, TIME AND PLACE
The ILCO special meeting is scheduled to be held at 11:00 a.m., local time,
on , , 2001, at the principal offices of InterContinental Life
Corporation, 6500 River Place Blvd., Building One, Austin, Texas 78730.
PLEASE COMPLETE THE ENCLOSED PROXY CARD AND MAIL IT IN THE ENCLOSED PREPAID
RETURN ENVELOPE AS SOON AS POSSIBLE SO THAT YOUR SHARES MAY BE REPRESENTED AND
VOTED AT THE SPECIAL MEETING.
You should NOT send your ILCO stock certificates with your proxy. A
transmittal form with instructions for the surrender of your ILCO common stock
certificates will be mailed to you as soon as practicable after completion of
the merger.
RECORD DATE; QUORUM
The ILCO board of directors has fixed the close of business on
, 2001 as the record date for the determination of the
shareholders entitled to notice of, and to vote at, the ILCO special meeting. On
that date, ILCO had shares of common stock outstanding. The holders of
these shares will be entitled to one vote per share on the plan of merger
contained in the merger agreement.
A quorum is present at a special meeting if a majority of the shares of
ILCO common stock entitled to vote at the meeting is represented in person or by
proxy. Shares of ILCO common stock represented at the special meeting, but for
which the holders have abstained from voting, will be treated as present at the
special meeting for purposes of determining the presence or absence of a quorum
for the transaction of business.
VOTES REQUIRED
The plan of merger will be approved if the holders of shares representing
at least two-thirds of the votes that may be cast by the holders of all of the
outstanding shares of ILCO common stock vote in favor of approval of the plan of
merger contained in the merger agreement.
VOTING BY ILCO'S EXECUTIVE OFFICERS AND DIRECTORS
As of the record date, ILCO's executive officers and directors owned and
held the power to vote shares of ILCO common stock, representing
approximately % of the voting power of ILCO common stock outstanding, and have
each indicated their present intention to vote, or cause to be voted, such
shares in favor of approval of the plan of merger.
VOTING BY FIC
As of the record date, FIC beneficially owned and held the power to vote
3,932,692 shares of ILCO common stock, representing approximately 48% of the
voting power of ILCO common stock outstanding. FIC has agreed to vote all shares
of ILCO common stock owned by FIC and its subsidiaries either "for" or "against"
the plan of merger in the same manner as the prevailing majority of the shares
of ILCO common stock (other than shares held of record by FIC and its
subsidiaries) voted in person or by proxy (it being understood that for such
determination, only votes "for" and "against" the plan of merger will be
counted).
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40
VOTING OF PROXIES; REVOCABILITY OF PROXIES
Shares of ILCO common stock represented by properly executed proxies
received in advance of the special meeting will, unless these proxies have been
properly revoked, be voted in accordance with the instructions indicated on such
proxies or, if no instructions have been indicated, will be voted in favor of
approval of the plan of merger, and, in the discretion of the individuals named
in the accompanying proxy card, on any other matters which may properly come
before the ILCO special meeting. Abstentions may be specified with respect to
the approval of the plan of merger by properly marking the "ABSTAIN" box on the
proxy card for such proposal.
Any proxy may be revoked by the shareholder giving it, at any time prior to
its being exercised, by filing a notice of revocation with the Secretary of ILCO
at the address given on the notice of shareholders' meeting accompanying this
joint proxy statement/prospectus or by submitting a duly executed proxy card
bearing a later date than an earlier submitted proxy. Any proxy may also be
revoked by the shareholder's attendance at the ILCO special meeting and voting
in person. A notice of revocation need not be on any specific form, but must be
in writing.
Only shares affirmatively voted for the approval of the plan of merger,
including properly executed proxies that do not contain voting instructions,
will be counted as favorable votes for that proposal. If an ILCO shareholder
abstains from voting or does not vote, either in person or by proxy, it will
have the same effect as if that ILCO shareholder had voted against the approval
of the plan of merger. Brokers who hold shares of ILCO common stock in street
name for customers who are the beneficial owners of such shares may not
authorize a proxy to vote those customers' shares in the absence of specific
instructions from those customers. These non-voted shares are referred to as
"broker non-votes" and have the effect of votes against the approval of the plan
of merger.
The persons named as proxies by a shareholder may propose and vote for one
or more adjournments of the special meeting, including adjournments to permit
further solicitations of proxies. No proxy voted against the proposal to approve
the plan of merger will be voted in favor of any such adjournment or
postponement.
ILCO does not expect that any matter other than the proposal to approve and
adopt the plan of merger will be brought before the special meeting. If,
however, the ILCO board of directors properly presents other matters, the
persons named as proxies will vote in accordance with their discretion.
SOLICITATION OF PROXIES
Proxies are being solicited by and on behalf of the ILCO board of
directors. ILCO will bear the costs relating to the solicitation of proxies. In
addition to solicitation by mail, ILCO's directors, officers and employees,
without additional remuneration, may solicit proxies by telephone, facsimile
machine and personal interviews, and ILCO reserves the right to retain outside
agencies for the purpose of soliciting proxies, which may be paid customary fees
for performing those services.
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41
THE MERGER
BACKGROUND
In late summer 2000, management of FIC and ILCO began discussing the mutual
benefits of a possible combination of the two companies. Wise & Associates,
Inc., an actuarial consulting firm that FIC had previously hired to perform
other actuarial services, was hired by FIC to perform an actuarial appraisal of
Family Life Insurance Company, an indirect subsidiary of FIC, and Investors Life
Insurance Company of North America and Investors Life Insurance Company of
Indiana, direct and indirect subsidiaries of ILCO, respectively.
On October 13, 2000, at a regularly scheduled meeting of the FIC board of
directors, the FIC board discussed the actuarial appraisal prepared by Wise &
Associates and the possibility of a merger between FIC and ILCO. Following such
discussion, the FIC board determined that it would be advisable to establish a
special committee of independent directors, referred to as the FIC Special
Committee, comprised of John D. Barnett, Joseph F. Crowe, Jerome H. Supple and
Frank Parker, to advise the FIC board on the fairness of a potential merger of
FIC and ILCO. FIC then filed a press release announcing the formation of the FIC
Special Committee to explore a potential merger with ILCO.
On October 13, 2000, at a regularly scheduled meeting of the ILCO board of
directors, the ILCO board discussed the actuarial appraisal prepared by Wise &
Associates and the possibility of a merger between FIC and ILCO. Following such
discussion, the ILCO board determined that it would be advisable to establish a
special committee of independent directors, referred to as the ILCO Special
Committee, comprised of W. Lewis Gilcrease, and Richard A. Kosson, and Elizabeth
T. Nash, to advise the ILCO board on the fairness of a potential merger of FIC
and ILCO. ILCO then filed a press release announcing the formation of the ILCO
Special Committee to explore a potential merger with FIC.
On the day of the public announcement of the formation of the special
committees, two class action lawsuits were filed against FIC, ILCO and the
officers and directors of ILCO (some of whom are also officers and directors of
FIC). The actions allege that a cash consideration in the proposed merger is
unfair to the shareholders of ILCO, that it would prevent the ILCO shareholders
from realizing the true value of ILCO, and that FIC and the named officers and
directors had material conflicts of interest in approving the transaction. At
the time the lawsuits were filed, no merger terms or consideration, either cash
or stock, had been proposed or discussed by either of the special committees.
For more information, see the section entitled Litigation Relating to the
Merger.
On October 25, 2000, the ILCO Special Committee met with a representative
from Wise & Associates to discuss the actuarial appraisal previously prepared by
Wise & Associates. At the request of the ILCO Special Committee, the meeting was
also attended by James M. Grace, Vice President and Treasurer of ILCO and FIC,
and Eugene E. Payne, a director of ILCO and a retired Vice President of ILCO and
FIC. Mr. Grace and Dr. Payne were available to answer questions. At the meeting
the ILCO Special Committee discussed the methodology used by Wise & Associates
in the appraisal and the results of the appraisal.
On October 27, 2000, the members of the FIC Special Committee, other than
Mr. Crowe, met with a representative from Wise & Associates to discuss the
actuarial appraisal previously prepared by Wise & Associates. At the request of
the FIC Special Committee, the meeting was also attended by Mr. Grace. Mr. Grace
was available to answer questions. At the meeting, the FIC Special Committee
discussed the methodology used by Wise & Associates in the appraisal and the
results of the appraisal.
On November 13, 2000, the ILCO Special Committee met to discuss how to
proceed with their analysis of a proposed merger with FIC. At the meeting the
ILCO Special Committee appointed Fulbright & Jaworski L.L.P. as its independent
legal counsel.
On November 21, 2000, the FIC Special Committee held a meeting at which it
appointed Mr. Crowe to act as chairman and interviewed and engaged Weil, Gotshal
& Manges LLP as its legal counsel.
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On November 21, 2000, the ILCO Special Committee met to consider the
recommendation from ILCO management that it retain P.W. Mattingly & Co. Inc. as
its independent financial advisor. After a discussion of the role of the
financial advisor and of the ILCO Special Committee, it was determined that
proposals from additional financial advisors should be considered before a
decision was made. In addition, Dr. Gilcrease was appointed chairman of the ILCO
Special Committee at the meeting.
On November 27, 2000, the FIC Special Committee held a meeting at which it
hired Philo Smith Capital Corporation as its financial advisor after full
discussion and review of written materials presented to the FIC Special
Committee by several investment banking firms. Subsequent to the meeting, a
formal engagement letter was executed by FIC.
On November 29, 2000, the ILCO Special Committee met to consider written
proposals from three potential financial advisors. After a thorough discussion,
Mattingly & Co. was appointed independent financial advisor to the ILCO Special
Committee, subject to the acceptance by Mattingly & Co. of certain modifications
to its proposed form of engagement letter. Subsequent to the meeting, the
engagement letter was modified, and Mattingly & Co. was engaged as independent
financial advisor to the ILCO Special Committee.
On November 29, 2000, Mr. Grace provided to Mattingly & Co. various
information and materials which had been requested by Mattingly & Co. in order
to assist in its work for the ILCO Special Committee.
On November 30, 2000, a representative of Philo Smith Capital met with Mr.
Crowe, Mr. Grace, Theodore A. Fleron, Vice President and Assistant Secretary of
FIC and ILCO, and a representative of Weil Gotshal to obtain information and
material pertaining to FIC and ILCO to assist Philo Smith Capital in its work
for the FIC Special Committee.
On December 5, 2000, a representative of Mattingly & Co. met with Roy F.
Mitte, Chairman, President and Chief Executive Officer of FIC and ILCO, Mr.
Fleron, Steven P. Schmitt, a Vice President of ILCO and FIC, and a
representative of Fulbright & Jaworski to review and discuss information
received and, among other things, each of FIC's and ILCO's business, operations,
assets, financial condition and future prospects and requested additional
material needed by Mattingly & Co. in order for it to perform its work for the
ILCO Special Committee. Following these meetings, ILCO provided additional
materials and information in accordance with the request.
On December 14, 2000, the ILCO board of directors signed a unanimous
written consent that, among other things, authorized the ILCO Special Committee
to negotiate with FIC with respect to a merger proposal. The FIC board of
directors signed a similar unanimous written consent with respect to the FIC
Special Committee that same day.
On December 15, 2000, the FIC Special Committee met with representatives of
Philo Smith Capital and Weil Gotshal where a representative from Philo Smith
Capital presented a detailed analysis of Philo Smith Capital's valuation of FIC
and ILCO to the FIC Special Committee. After a full and lengthy discussion
between the members of the FIC Special Committee and representatives of Philo
Smith Capital and Weil Gotshal, the FIC Special Committee approved a motion to
orally propose an exchange ratio of 0.9 of a share of FIC common stock for each
share of ILCO common stock to the ILCO Special Committee. After consultation
with the Chairman of the FIC Special Committee, Weil Gotshal then sent a draft
of a summary term sheet to the ILCO Special Committee, which reflected the
proposed exchange ratio of 0.9 to 1 and the other material terms of the proposed
merger.
On December 15, 2000, the ILCO Special Committee met with a representative
of Mattingly & Co. to receive its preliminary analysis of the value of FIC and
ILCO. At this meeting, as a result of further analysis of the ILCO Special
Committee's independence, Dr. Gilcrease informed the ILCO Special Committee that
although he does not have a personal financial interest in FIC, he is a director
of The Roy F. Mitte and Joann Cole Mitte Foundation, which as a result of a
donation in the summer of 2000 is now the largest shareholder of FIC. Dr.
Gilcrease stated that he had decided to resign so that there would not be any
question that the ILCO Special Committee was independent. Mr. Kosson was then
elected
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chairman. During the meeting, the ILCO Special Committee was made aware of the
verbal offer from the FIC Special Committee of an exchange ratio of 0.9 to 1.
After a thorough discussion, the ILCO Special Committee directed is legal
counsel to request a written offer from the FIC Special Committee in order that
the proposed exchange ratio could be evaluated in the context of a specific
transaction. The ILCO Special Committee also authorized its financial advisor to
explore with FIC's financial advisor the basis and rationale for the proposed
exchange ratio.
On December 18, 2000, the ILCO board of directors signed a unanimous
written consent confirming that the ILCO Special Committee would consist only of
Mr. Kosson and Ms. Nash and amending the ILCO bylaws to provide that only two
members of the board of directors are required in order to constitute a
committee of the board of directors.
On December 19, 2000, the ILCO Special Committee met to receive Mattingly &
Co.'s report concerning the term sheet presented by FIC's Special Committee.
Although a thorough discussion occurred, Mattingly & Co. stated that additional
information was needed in order to analyze the pro forma effect on the combined
company of the proposed exchange ratio. The ILCO Special Committee requested
that its financial advisor undertake additional analysis so that it could
appropriately respond to the FIC Special Committee proposal. The ILCO Special
Committee also considered a real estate appraisal prepared at its request
concerning the value of the primary real estate development owned by ILCO.
On December 20, 2000, the ILCO Special Committee met in order to receive
the report of its financial advisor. Mattingly & Co.'s report included
quantitative analysis, valuation issues, qualitative issues, and other
transactional issues. After a thorough discussion, the ILCO Special Committee
decided to respond to the outstanding offer of the FIC Special Committee in a
conference call with representatives of the FIC Special Committee in order to
make a counter proposal of an exchange ratio of 1.25 to 1. Fulbright & Jaworski
was directed to prepare comments to the proposed term sheet reflecting the ILCO
Special Committee's position with respect to other issues for delivery after the
conference call.
On December 21, 2000, the FIC Special Committee and its advisors had a
telephonic meeting with the ILCO Special Committee and its advisors where the
Chairman of the ILCO Special Committee made an oral counter proposal of 1.25
shares of FIC common stock for every share of ILCO common stock to the FIC
Special Committee. The FIC Special Committee members and its advisors questioned
Mattingly & Co. at length about the methodologies used to reach such counter
proposal. The ILCO Special Committee then sent a revised summary term sheet to
the FIC Special Committee, which reflected their proposed exchange ratio of 1.25
to 1 and their comments to the other material terms of the proposed merger. The
FIC Special Committee then discussed the counter offer at length and directed a
representative of Philo Smith Capital to meet with Mattingly & Co. to further
discuss the valuation methodologies used in determining the ILCO Special
Committee's counter proposal.
On January 2, 2001, the FIC Special Committee met with a representative of
Philo Smith Capital and Weil Gotshal. The representative of Philo Smith Capital
reported his conversation with Mattingly & Co. to the members of the FIC Special
Committee. Based on such conversation, the FIC Special Committee discussed
alternative forms of merger consideration in addition to a stock for stock
exchange ratio. After a full and lengthy discussion, the FIC Special Committee
approved a motion to propose a counter offer to the ILCO Special Committee of an
exchange ratio of one share of FIC common stock for each share of ILCO common
stock, together with a warrant to buy 1/10 of a share of FIC common stock at an
exercise price of $10 per whole share and expiring in two years. The FIC Special
Committee then further discussed the ILCO Special Committee's comments to the
summary term sheet.
On January 2, 2001, the ILCO Special Committee met to receive a report from
Mattingly & Co. concerning its conversations with Philo Smith Capital. During
the meeting, the ILCO Special Committee received the proposal from the FIC
Special Committee of an exchange ratio of 1 to 1, plus a two-year warrant to
purchase one share of FIC stock for each ten shares of ILCO's stock at $10.00
per share. The ILCO Special Committee decided that the new offer, while an
improvement, was not equivalent to the 1.25 to 1 exchange ratio that it had
requested. The ILCO Special Committee reported its conclusion to Philo Smith
Capital.
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On January 3, 2001, the FIC Special Committee met with its advisors to
further discuss the ILCO Special Committee's position and to discuss alternative
structures to a stock for stock merger. The FIC Special Committee also
authorized a representative of Philo Smith Capital to have another meeting with
Mattingly & Co. Several informal discussions then took place between the
Chairman of the FIC Special Committee and Mr. Mitte, and between representatives
of Philo Smith Capital, Weil Gotshal and the Chairman of the FIC Special
Committee. It was determined not to provide the ILCO Special Committee with a
counter offer.
On January 3, 2001, the ILCO Special Committee met to receive a report from
its financial advisor concerning the recent developments in the negotiations. It
was reported that the FIC Special Committee had not made a further counter offer
and that, therefore, the negotiations had terminated.
On the morning of January 4, 2001, Mr. Grace had a telephone conversation
with Mattingly & Co. to better understand the basis for the difference between
the proposals made by the FIC Special Committee and the ILCO Special Committee.
In the course of that conversation, Mattingly & Co. stated that it could render
a fairness opinion at an exchange ratio of 1.1 shares of FIC common stock for
every share of ILCO common stock. Later that afternoon, Mr. Grace reported to
the Chairman of the FIC Special Committee concerning Mattingly & Co.'s position.
It was recommended that the ILCO Special Committee be provided with a revised
summary term sheet reflecting this exchange ratio and the FIC Special
Committee's comments to the summary term sheet proposed by the ILCO Special
Committee on December 21, 2000.
On the afternoon of January 4, 2001, the FIC Special Committee met with its
advisors to discuss the proposal and questioned a representative of Philo Smith
Capital at length regarding the fairness of the proposed exchange ratio to the
FIC shareholders. Philo Smith Capital indicated that based on its analysis, the
proposed exchange ratio was fair to the FIC shareholders and that Philo Smith
Capital would render a fairness opinion to the FIC Special Committee at that
exchange ratio. At the request of the FIC Special Committee, Weil Gotshal then
sent a revised summary term sheet to the ILCO Special Committee which reflected
an exchange ratio of 1.1 to 1.
On the evening of January 4, 2001, the ILCO Special Committee met in order
to respond to the revised term sheet from the FIC Special Committee. The ILCO
Special Committee undertook, with its legal counsel and financial advisor, an
analysis of the new term sheet. After a thorough discussion, and upon advice
from its financial advisor, the ILCO Special Committee approved the term sheet,
subject to acceptance by the FIC Special Committee of certain modifications of
the term sheet. Legal counsel was directed to prepare comments to the term sheet
reflecting the ILCO Special Committee's conditions.
From January 5, 2001 to January 17, 2001, the FIC Special Committee and
Weil Gotshal drafted and negotiated the terms of the merger agreement with the
ILCO Special Committee and its legal advisors.
On January 17, 2001, the FIC Special Committee met with its financial and
legal advisors. At this meeting, a representative of Philo Smith Capital orally
informed the FIC Special Committee of Philo Smith Capital's opinion that the
proposed exchange ratio was fair, from a financial point of view, to the
shareholders of FIC and responded to various questions raised by members of the
FIC Special Committee regarding Philo Smith Capital's opinion. Weil Gotshal
updated the FIC Special Committee on the result of recent negotiations and the
final terms of the merger agreement. After considering the terms of the merger
agreement and the opinion of Philo Smith Capital, the FIC Special Committee
determined that the merger is advisable and in the best interests of FIC and its
shareholders. The FIC Special Committee then unanimously approved the merger on
substantially the terms and conditions contained in the merger agreement and
unanimously voted to recommend that the FIC board approve and adopt the merger
agreement. At a meeting of the FIC board of directors on the afternoon of
January 17, 2001, the FIC Special Committee reported its conclusions and
recommendations to the FIC board. The FIC board then approved and adopted the
merger agreement and recommended approval of the issuance of shares pursuant to
the merger agreement and related amendment to FIC's articles of incorporation to
the shareholders of FIC.
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On January 17, 2001, the ILCO Special Committee met to consider a report
from its legal counsel concerning the details of the merger agreement and to
receive a final report from its financial advisor. Upon receipt of Mattingly &
Co.'s opinion that, subject to the considerations set forth in the opinion, the
proposed merger is fair to the ILCO shareholders from a financial point of view,
the ILCO Special Committee unanimously adopted a resolution recommending to the
ILCO board of directors the merger pursuant to the form of merger agreement
presented to the ILCO Special Committee prior to the meeting.
On January 17, 2001, the ILCO board of directors received a report from the
ILCO Special Committee. The ILCO board approved the form, terms, and provisions
of the merger agreement and unanimously recommended approval of the plan of
merger contained in the merger agreement by the shareholders of ILCO.
Following the approval of the merger by the FIC board and the ILCO board,
FIC, ILCO and Merger Sub executed and delivered the merger agreement. Philo
Smith Capital subsequently confirmed in writing its oral opinion delivered to
the FIC Special Committee that the proposed exchange ratio in the plan of merger
was fair, from a financial point of view, to the FIC shareholders.
On January 18, 2001, FIC and ILCO issued a joint press release announcing
the execution of the merger agreement.
FIC'S REASONS FOR THE MERGER
In making its determination that the plan of merger on substantially the
terms and conditions set forth in the merger agreement is advisable and to
recommend approval of the issuance of shares of FIC common stock in the merger,
the full FIC board of directors relied primarily on the recommendation of the
FIC Special Committee, including the presentation of the financial advisor to
the FIC Special Committee, that the exchange ratio contained in the merger
agreement was fair, from a financial point of view, to FIC shareholders. Because
of the ownership interest of FIC in ILCO and the fact that the senior officers
of FIC are also senior officers of ILCO and a majority of the FIC directors also
serve as members of the ILCO board of directors, the board of directors of FIC
established the FIC Special Committee, consisting of disinterested directors, to
consider and to evaluate a potential merger with ILCO. The FIC Special Committee
consulted with FIC's management team, its financial advisor and outside legal
counsel and independently considered the proposed merger agreement and the
transactions contemplated by the merger agreement. The FIC Special Committee
considered a number of factors, including:
- the stock ownership relationship between FIC and ILCO is considered by
some analysts to be difficult for some investors to understand;
- a significant portion of FIC's earnings were generated by an equity
interest in another entity;
- the expected increased financial strength of the combined companies would
enhance the ability of FIC to pursue new acquisitions;
- elimination of the double regulatory reporting requirements and
associated cost savings;
- the projected increase in FIC's earnings per share;
- the terms and conditions of the merger agreement, including closing
conditions and the exchange ratio;
- information relating to the business, assets, management, competitive
position, performance and prospects of each of FIC and ILCO, as well as
current industry, market and economic conditions;
- the complimentary nature of the business of the insurance subsidiaries of
ILCO and FIC;
- the shareholders of FIC would increase their participation in the real
estate investments being made by ILCO's subsidiary from 48% to 100%;
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- the expected qualification of the merger as a reorganization under
Section 368(a) of the Internal Revenue Code; and
- the opinion of FIC's financial advisor, Philo Smith Capital that, as of
the date of the merger agreement and subject to the considerations set
forth in Philo Smith Capital's opinion addressed to the FIC Special
Committee, the exchange ratio set forth in the merger agreement is fair,
from a financial point of view, to FIC shareholders.
The FIC Special Committee also considered potentially negative factors
relating to the merger, including:
- the projected dilution to FIC's book value; and
- the risk that potential benefits of the merger might not be fully
realized.
The FIC Special Committee believed that some of the negative factors listed
above were unlikely to occur, that FIC and ILCO could avoid or mitigate others,
and that, overall, any risks were outweighed by the potential benefits of the
merger.
In view of the variety of factors considered in connection with its
evaluation of the merger agreement and the merger, the FIC Special Committee
considered the factors as a whole and did not find it practicable to, and did
not quantify or otherwise assign relative weight to, the specific factors
considered in reaching its determination. In addition, individual members of the
FIC Special Committee may have given different weight to different factors.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF FIC
After careful consideration, and upon the recommendation of the FIC Special
Committee, the FIC board of directors has unanimously determined that the terms
of the merger agreement and the merger on substantially the terms and conditions
set forth in the merger agreement are advisable and are fair to, and in the best
interests of, FIC and its shareholders. The FIC board of directors has approved
the merger agreement and the merger on substantially the terms and conditions
set forth in the merger agreement and unanimously recommends that the
shareholders of FIC vote "for" the approval of the issuance of shares of FIC
common stock in the merger and "for" the approval of the amendment to FIC's
articles of incorporation.
OPINION OF THE FINANCIAL ADVISOR TO THE FIC SPECIAL COMMITTEE
Philo Smith Capital was engaged to assist the FIC Special Committee in
connection with the examination and evaluation of a potential merger with ILCO.
The FIC Special Committee selected Philo Smith Capital to act as financial
advisor based on its reputation and experience in the insurance industry. Philo
Smith Capital focuses on providing merger and acquisition advisory services to
insurance companies. In this capacity, Philo Smith Capital is continually
engaged in valuing these businesses and maintains an extensive database of
insurance company mergers and acquisitions for comparative purposes. At the
meeting of the FIC Special Committee on January 17, 2001, Philo Smith Capital
rendered its oral opinion that, as of January 17, 2001, based upon and subject
to the various factors and assumptions described in the Philo Smith Capital
opinion, the exchange ratio provided in the merger agreement was fair, from a
financial point of view, to FIC shareholders. On January 18, 2001, Philo Smith
Capital confirmed its oral opinion in writing, delivered to the FIC Special
Committee.
PHILO SMITH CAPITAL'S OPINION, WHICH DESCRIBES THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY PHILO SMITH
CAPITAL, IS ATTACHED AS APPENDIX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS. FIC
SHAREHOLDERS ARE URGED TO, AND SHOULD, READ THE PHILO SMITH CAPITAL OPINION
CAREFULLY AND IN ITS ENTIRETY. THE PHILO SMITH CAPITAL OPINION IS DIRECTED TO
THE FIC SPECIAL COMMITTEE AND ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE RATIO,
FROM A FINANCIAL POINT OF VIEW, TO THE HOLDERS OF SHARES OF FIC COMMON STOCK AS
OF THE DATE OF THE OPINION. THE PHILO SMITH CAPITAL OPINION
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DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF FIC COMMON STOCK AS TO HOW TO VOTE AT THE FIC
SPECIAL MEETING. THE SUMMARY OF THE PHILO SMITH CAPITAL OPINION SET FORTH IN
THIS JOINT PROXY STATEMENT/PROSPECTUS, ALTHOUGH MATERIALLY COMPLETE, IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
Philo Smith Capital has reviewed the fairness, from a financial point of
view, of the exchange ratio in the proposed merger to the FIC Shareholders.
Philo Smith Capital provided advice to the FIC Special Committee during the
course of transaction negotiations. FIC did not provide specific instructions
to, or place any limitations on, Philo Smith Capital with respect to the
procedures to be followed or factors to be considered by it in performing or
providing its opinion.
In arriving at its opinion, Philo Smith Capital:
- reviewed certain publicly available financial statements and other
information of FIC and ILCO;
- reviewed certain internal financial statements and other financial and
operating data concerning ILCO and FIC prepared by the management of ILCO
and FIC;
- reviewed certain financial projections prepared by the management of FIC;
- discussed the past and current operations and financial condition and the
prospects of ILCO and FIC, including information relating to certain
strategic, financial and operational benefits anticipated from the merger
with senior executives of FIC;
- reviewed with senior executives of FIC the pro forma impact of the merger
on FIC's earnings per share, consolidated capitalization and financial
ratios;
- reviewed the reported prices and trading activity for FIC common stock
and ILCO common stock;
- compared the financial performance of FIC and the prices and trading
activity of FIC common stock with the financial performance of ILCO and
the prices and trading activity of ILCO common stock;
- compared the financial performance of FIC and the prices and trading
activity of FIC common stock and ILCO common stock with the S&P Life
Index and the NASDAQ Insurance index over the last two and five year
periods;
- reviewed the results of a net present value analysis of FIC and ILCO
prepared in conjunction with and based on projections provided by FIC and
ILCO;
- reviewed an actuarial report prepared by Wise & Associates, which
included actuarial valuations of FIC and ILCO;
- reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
- participated in discussions and negotiations among representatives of FIC
and ILCO and their financial and legal advisors;
- reviewed a draft of the merger agreement and certain related documents;
and
- performed such other analyses and considered such other factors as Philo
Smith Capital deemed appropriate.
In connection with the performance of its analysis, Philo Smith Capital
requested from FIC and ILCO copies of financial and other information relating
to FIC and ILCO's operations. Philo Smith Capital has reviewed financial and
other information provided in response to the foregoing request. Philo Smith
Capital has not interviewed representatives of FIC's legal counsel, actuarial
consultants and auditors. Philo Smith Capital has not made an independent
appraisal of the assets of ILCO or interviewed any customers of ILCO. Philo
Smith Capital has relied, without independent verification, on the accuracy,
completeness and fairness of all information provided to it.
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For the purposes of this valuation, Philo Smith Capital has assumed that
ILCO will continue to operate as a going concern, without major changes in
management, business practices, markets or scope. As such, Philo Smith Capital
has made no assumptions to reflect potential acquisitions, divestitures, or
restructurings, nor has it estimated the amount a potential buyer would pay due
to real or perceived operating synergies or temporarily inflated currency
values. Philo Smith Capital has not conducted an actuarial valuation of ILCO's
reserves, nor has it commissioned such a study from any third party. Philo Smith
Capital, in conducting its analysis, has made numerous assumptions regarding
industry performance, general business, economic, market and financial
conditions, which may be beyond the control of Philo Smith Capital, FIC and
ILCO.
In addition, Philo Smith Capital did not express any opinion as to the
price that or range of prices at which FIC common stock may trade subsequent to
the announcement or consummation of the merger. Philo Smith Capital's opinion
was based on economic, market and other conditions, and the information made
available to Philo Smith Capital, as of the date of the opinion. Philo Smith
Capital assumes no responsibility for updating or revising its opinion based on
circumstances or events occurring after that date.
Earnings and Book Value Accretion/Dilution Based on GAAP Accounting
Using pro forma balance sheet and income statements prepared in accordance
with generally accepted accounting principles ("GAAP") for FIC provided by FIC,
which show the effect of FIC's acquisition of ILCO in a transaction accounted
for as a purchase, Philo Smith Capital analyzed the effect that the proposed
exchange ratio would have on the accretion and dilution to both earnings per
share and book value per share of FIC.
PERCENTAGE ACCRETION IN EARNINGS PER SHARE
PRICE PER ILCO SHARE
---------------------------------
$9.00 $10.00 $11.00 $10.50*
----- ------ ------ -------
25% 20% 18% 19%
PERCENTAGE DILUTION IN BOOK VALUE PER SHARE
PRICE PER ILCO SHARE
---------------------------------
$9.00 $10.00 $11.00 $10.50*
----- ------ ------ -------
29% 27% 25% 26%
- ---------------
* January 12, 2001 Market Price
(Pro forma balance sheet and income statements provided by FIC)
Comparable Merger and Acquisition Transactions
Philo Smith Capital also reviewed the financial terms and implied valuation
multiples of selected transactions involving life insurance companies. Philo
Smith Capital developed a comprehensive list of recent acquisitions of life
insurers and the relevant financial information for each transaction.
Philo Smith Capital chose transactions comparable to the proposed
transaction based solely on the following criteria:
- Recent transactions (transactions that took place in 1997, 1998 and 1999
and 2000);
- A transaction size of between $20 million and $600 million for which
adequate financial data is available;
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- Targets must have predominantly life insurance business and not have
significant non-life business; and
- Targets must not be books of business.
From a list of 166 possible transactions, Philo Smith Capital derived a
list of 35 transactions that it feels are reasonably comparable based only on
the above criteria and have adequate public data for comparability purposes.
Philo Smith Capital derived from the comparable transaction group, the
median values for the acquisition price multiples of Price to GAAP Book Value
("P/B"), Price to GAAP LTM Earnings ("P/E") and Price to Statutory Capital &
Surplus ("P/SS"). For the group, the median P/B was 1.32 times, the median P/E
was 14.68 times and the median P/SS was 2.08 times.
Philo Smith Capital used an average of the 30 trading days closing price
prior to the announcement of the merger for valuation purposes. For FIC, that
average price is $9.59. At the proposed exchange ratio, the per share
consideration for ILCO is $10.55, or $9.59 multiplied by the exchange ratio of
1.1. Based on ILCO's September 30, 2000 GAAP book value per share of $14.46, the
P/B for the proposed transaction is 0.73 times. The P/E multiple for the
proposed transaction, based on ILCO's LTM Earnings per share of $1.60, is 6.59
times. The P/SS for the proposed transaction, based on year-end 1999 ILCO
capital and surplus of $75 million, is 1.14 times.
Public Life Companies
Philo Smith Capital compiled a list of publicly traded life insurance
companies for comparison. The FIC and ILCO transaction involves two companies
that, individually, are smaller and more controlled than the combined entity.
Philo Smith Capital endeavored to analyze the relationship between size and
public market valuations and control and public market valuations. The analysis
supports the view that, all other things being equal, controlled companies, tend
to trade for lower valuations than companies that are independent. Also,
companies that are smaller, all other things being equal, will trade for lower
valuations than companies that are larger.
For the purposes of this analysis, controlled companies were defined as
companies that were not more than 31% directly controlled by a parent company or
individual and independent companies were companies with less than 31% control.
Additionally, small companies were defined as companies with GAAP book value of
less than $120 million and large companies were companies with GAAP book values
over $120 million. The combined entity after the merger would fall into the
large and independent categories.
Philo Smith Capital compiled data on the price as of January 12, 2001 to
LTM operating earnings and price to GAAP book value for each company. The median
value of each data set is as follows:
MEDIAN VALUES
-------------------------
PRICE/LTM
PRICE/GAAP OPERATING
BOOK VALUE EPS
(JUNE 2000) (JUNE 2000)
----------- -----------
Large Life Companies........................................ 1.35 11.38
Small Life Companies........................................ 0.60 11.83
Independent Life Companies.................................. 1.85 14.74
Controlled Life Companies................................... 0.85 9.61
based on January 12, 2001 stock prices
Analysis of Net Present Value
The basis of this analysis is a five-year projection of free cash flows
based on statutory net income, provided by the management of FIC, for FIC and
ILCO. Income projections for FIC did not include the
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added income realized by FIC's investment in ILCO. A risk adjusted discount rate
of 13% was used for valuation purposes, although 11% and 15% rates are shown for
comparative purposes. Philo Smith Capital discounted five years of cash flow for
both FIC and ILCO to derive the net present value of those cash flows. Philo
Smith Capital also derived a terminal value based on a multiple of GAAP net
income in year five, which was provided by management of FIC. A terminal
multiple of 14 times was used.
DISCOUNT RATE FIC* FIC** ILCO
- ------------- ----- ------ ------
($ MILLION)
11.0%....................................................... $62.7 $130.7 $140.4
13.0%....................................................... $58.3 $120.4 $128.4
15.0%....................................................... $54.4 $111.4 $117.8
- ---------------
* excludes FIC's 48.4% ownership interest in ILCO
** includes FIC's 48.4% ownership interest in ILCO
The analyses set forth above should not be viewed as independent
recommendations or opinions. Philo Smith Capital does not recommend that each
analysis be taken into consideration without the consideration of all analyses
as a whole. Philo Smith Capital did not consider whether each analysis as an
independent method either supported or failed to support the opinion of the
transaction, rather the combination of each analysis in the aggregate is needed
to determine an accurate assessment of the proposed transaction. Philo Smith
Capital also did not attribute weight to any specific analysis over another. The
analysis performed by Philo Smith Capital was for the purpose of determining
whether the exchange ratio set forth in the merger agreement is fair, from a
financial point of view, to the FIC shareholders. The analysis supports Philo
Smith Capital's opinion of the fairness, from a financial point of view, of the
exchange ratio to the shareholders of FIC.
ILCO'S REASONS FOR THE MERGER
The board of directors of the ILCO, based upon the unanimous recommendation
of the ILCO Special Committee, determined that the terms of the proposed merger
are fair to and in the best interests of ILCO's shareholders and unanimously
approved the merger agreement and the merger and recommended that the merger
agreement be submitted for approval at a special meeting of ILCO's shareholders.
In arriving at its decision, the board of directors of ILCO gave careful
consideration to a number of factors, including the opinion of Mattingly & Co.,
financial advisor to the ILCO Special Committee.
The board's approval and recommendation to ILCO's shareholders and the ILCO
Special Committee's recommendation to the ILCO board of directors were based
upon a number of factors, including:
- the stock ownership relationship between FIC and ILCO is considered by
some analysts to be difficult for some investors to understand;
- elimination of the double regulatory reporting requirements and
associated cost savings;
- shareholders of ILCO will exchange stock of a company that is
approximately 48% owned by one entity for stock of a company whose major
shareholder will own approximately 17% of that entity;
- shareholders of ILCO will become shareholders of a company with more
shares outstanding and with a greater public float;
- the ability of shareholder's receiving FIC common stock to participate in
the growth of the combined entity resulting from the merger and to share
in the benefits of the projected increase in FIC's earnings per share;
- the complementary nature of the business of the insurance subsidiaries of
ILCO and FIC;
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- information with respect to the financial condition, results of
operations and business of ILCO and FIC, on both a historical and a
prospective basis, and the influence of current industry, economic and
market conditions;
- the structure of the merger and the terms of the merger agreement,
including the fact that the merger is intended to qualify as a tax-free
reorganization under Section 368(a) of the Internal Revenue Code;
- the regulatory approvals required to consummate the merger and the
prospects for receiving all such approvals; and
- the presentation by Mattingly & Co. with respect to the transaction and
its opinion that, as of January 17, 2001, the merger was fair to the
shareholders of ILCO, from a financial point of view.
The ILCO Special Committee also considered potentially negative factors
relating to the merger, including that the potential benefits of the merger may
not be fully realized.
In reaching their determination to approve and recommend the merger
agreement, the ILCO Special Committee and ILCO's board of directors did not
assign any relative or specific weights to the foregoing factors and individual
members of the ILCO Special Committee and ILCO's board of directors may have
given differing weights to different factors.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF ILCO
After careful consideration, and upon the recommendation of the ILCO
Special Committee, the ILCO board of directors has unanimously determined that
the terms of the merger agreement and the merger on substantially the terms and
conditions set forth in the merger agreement are advisable and are fair to, and
in the best interests of, ILCO and its shareholders. The ILCO board of directors
has approved the merger agreement and the merger on substantially the terms and
conditions set forth in the merger agreement and unanimously recommends that the
shareholders of ILCO vote "for" the approval of the plan of merger contained in
the merger agreement.
OPINION OF THE FINANCIAL ADVISOR TO THE ILCO SPECIAL COMMITTEE
Pursuant to a letter agreement dated as of November 29, 2000, Mattingly &
Co. was engaged to advise the ILCO Special Committee as to possible terms of a
merger and as to possible exchange ratios and to provide an opinion concerning
the fairness of a merger to the shareholders of ILCO from a financial point of
view. The ILCO Special Committee selected Mattingly & Co. to act as financial
advisor based on its reputation and experience in the insurance industry. At the
meeting of the ILCO Special Committee on January 17, 2001, Mattingly & Co.
delivered its opinion that, as of January 17, 2001, based upon and subject to
the various factors and assumptions described in the Mattingly & Co. opinion,
the merger was fair, from a financial point of view, to ILCO shareholders.
THE FULL TEXT OF THE WRITTEN OPINION OF MATTINGLY & CO. DATED JANUARY 17,
2001, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS CONTAINED IN ANNEX C TO
THIS JOINT PROXY STATEMENT/PROSPECTUS. MATTINGLY & CO. PROVIDED ITS FINANCIAL
ADVISORY SERVICES AND ITS OPINION FOR THE INFORMATION AND ASSISTANCE OF THE ILCO
SPECIAL COMMITTEE IN CONNECTION WITH ITS CONSIDERATION OF THE TRANSACTION. IT IS
NOT A RECOMMENDATION TO ANY HOLDER OF ILCO COMMON STOCK CONCERNING HOW SUCH
HOLDER SHOULD VOTE WITH RESPECT TO THE PLAN OF MERGER. SHAREHOLDERS OF ILCO ARE
URGED TO READ SUCH OPINION IN ITS ENTIRETY.
In connection with its opinion, Mattingly & Co. reviewed, among other
things:
- certain publicly available GAAP and statutory financial statements of
ILCO and of FIC;
- stock price and trading activity for shares of ILCO, FIC, and certain
other life/health insurance companies that it deemed comparable;
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- the financial terms of certain other transactions that it deemed
comparable;
- actuarial appraisals of the life insurance subsidiaries of ILCO and FIC
and a related report on valuation;
- a draft merger agreement among FIC, ILCO and Merger Sub and assumed that
all terms and provisions of that draft agreement remain unchanged; and
- an appraisal of ILCO's major real estate assets.
Mattingly & Co. also met with members of the management of FIC and ILCO to
review and discuss such information and, among other things, each of FIC's and
ILCO's business, operations, assets, financial condition and future prospects.
Mattingly & Co. also participated in discussions and negotiations among
representatives of ILCO and FIC. In addition, Mattingly & Co. performed such
other analyses and reviewed such other documents as it deemed appropriate.
Mattingly & Co. also took the following facts into consideration:
- that FIC and its subsidiaries beneficially own approximately 48% of
ILCO's shares outstanding and eligible to vote;
- the statement by Mr. Mitte, that FIC had no current intention of
considering selling its ownership interest in ILCO; and
- the fact that the merger would qualify as tax-free exchange for ILCO
shareholders.
Mattingly & Co. reviewed and considered the financial terms of certain
insurance industry transactions in which a significant shareholder of a public
insurance company had purchased the interests held by other shareholders.
Mattingly & Co. relied upon and assumed without independent verification
the accuracy, completeness and fairness of all the financial and other
information that was available to it from public sources or that was provided to
it by ILCO, FIC, or their respective representatives. Mattingly & Co. did not
assume any responsibility for making an independent evaluation of any of the
information reviewed by it. In addition, Mattingly & Co. assumed and relied upon
the reasonableness and accuracy of the financial projections, forecasts and
analyses provided to it, and assumed that such projections, forecasts and
analyses were reasonably prepared in good faith and on bases reflecting the best
currently available judgments and estimates of ILCO's and FIC's management. It
expresses no opinion with respect to such projections, forecasts and analyses or
the assumptions upon which they are based. Mattingly & Co. is not an actuarial
firm, and its work did not include actuarial determinations or evaluations or an
attempt to evaluate actuarial assumptions. In addition, Mattingly & Co. did not
review any of the internal books and records of ILCO or FIC, or assume any
responsibility for conducting a physical inspection of the properties or
facilities of ILCO or FIC, or for making or obtaining an independent valuation
or appraisal of the assets or liabilities or adequacy of the reserves of ILCO or
FIC. Mattingly & Co.'s opinion is necessarily based on general economic, market,
and monetary conditions and other circumstances as they existed and could be
evaluated by it as of the date of its opinion. Mattingly & Co. is not expressing
any opinion as to the prices at which any securities of ILCO or FIC will
actually trade at any time.
In the context of its engagement by the ILCO Special Committee, Mattingly &
Co. was not authorized to solicit, and did not solicit, interest from any party
with respect to the acquisition of ILCO, any portion of its shares, or any of
its assets.
The following is a summary of the material financial analyses used by
Mattingly & Co. in connection with providing services and its January 17, 2001
written opinion to the ILCO Special Committee.
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Comparative Market Performance
Mattingly & Co. reviewed the historic market performance of the common
stock of ILCO and FIC, as well as the performance of certain market indices and
other life/health insurance companies that it viewed as being generally
comparable to ILCO and FIC.
Mattingly & Co. noted that ILCO and FIC had each underperformed general
market averages for the period from January 1, 1996 through January 4, 2001. In
this period of just over five years, ILCO's common stock price had increased
approximately 48% and FIC's common stock price had increased approximately 38%.
These increases compared with an increase of approximately 115% for the S&P 500
Index and approximately 130% for the Dow Jones Insurance Index over the same
time period.
Mattingly & Co. also noted that the relative stock value of ILCO and FIC as
measured by P/E and P/B were significantly below life/health insurance stocks in
general and a selected group of seven life insurance companies that Mattingly &
Co. felt were relatively comparable to ILCO and FIC. This data is summarized in
the table below:
AT JANUARY 4, 2001 P/E P/B
- ------------------ ---- ------
ILCO........................................................ 5.9 49.1%
FIC......................................................... 5.6 40.7%
Seven company average....................................... 9.2 97.8%
Seven company medium........................................ 8.4 101.5%
SNL Life/Health Index median of 52 companies................ 15.2 105.0%
In particular, Mattingly & Co. noted the P/E ratios of ILCO and FIC were
only 37-39% of the median P/E ratio for the 52 life/health companies tracked by
SNL. The P/B ratios of ILCO and FIC were 39-47% of the median P/B ratio for the
52 life/health insurance companies tracked by SNL. Mattingly & Co. concluded
that in its judgement the blocking position of one major shareholder, the
complex financial and share ownership structure, and the relatively small number
of shares available for public trading, were significant factors negatively
affecting the market prices of both ILCO and FIC.
Comparative Actuarial Values
Mattingly & Co. reviewed the present value of future cash flows reflected
by an actuarial appraisal of the life insurance subsidiaries of ILCO and FIC and
a related report on value per share of the two companies prepared by Wise &
Associates. The Wise report indicated that as of June 30, 2000, the two
companies had about the same per share value. As measured by Wise & Associates,
ILCO had a value of $25.44 per share and FIC had a per share value of $25.29.
Mattingly & Co. also conducted sensitivity tests of the financial model used in
the report and made adjustments to the model that it considered appropriate.
After adjustments to the Wise & Associates financial model by Mattingly & Co.,
the financial model still showed that ILCO had a value of $25.71 per share and
FIC had a per share value of $25.56. Mattingly & Co. noted that in its
experience, the evaluation of insurance company merger/acquisition transactions
for companies of the size and type of ILCO and FIC is based upon actuarial
analyses of the present value of future cash flows more than any other factor.
Merger of Equals Framework
Mattingly & Co. considered whether the proposed transaction should be
considered as a merger of equals and noted that considerable reasons existed to
view the proposed transaction as such. It noted that both companies have
substantially the same management teams, operating philosophy and headquarters
location.
Increase in Relative Value
Mattingly & Co. also reviewed the impact of the merger on the claim of ILCO
shareholders on the present value of future cash flows per share as measured by
the Wise report. In addition it reviewed a
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GAAP purchase accounting model provided by management and studied the impact on
earnings and book value attributable to shareholders of each of FIC and ILCO at
various exchange ratios. It noted that at a 1.1 to 1.0 exchange ratio the merger
would provide relatively more benefit to ILCO shareholders than to FIC
shareholders.
FIC SHAREHOLDER ILCO SHAREHOLDER
--------------- ----------------
Change in present value of future cash flows per
share................................................ (5)% +4%
Change in operating earnings per share................. +11.5% +39.9%
Change in book value per share......................... (27.8)% +0.3%
Share Ownership/Financial Structure
Mattingly & Co. reviewed the ILCO share ownership and noted that Roy Mitte
and The Roy F. and Joann Cole Mitte Foundation (the "Mitte Interests") control,
directly or through their ownership interest in FIC and its subsidiaries, 49.2%
of the ILCO shares outstanding and eligible to vote. Mattingly & Co. noted that
in its judgement the Mitte Interests' large position effectively precluded any
other party from acquiring ILCO without Mr. Mitte's approval, which he had
stated he had no current intention of granting. Also, shares held by
shareholders other than the Mitte Interests and officers and directors of FIC
represented only 48.7% of shares outstanding, or approximately 3.9 million
shares.
Mattingly & Co. noted that at a 1.1 to 1.0 exchange ratio, the Mitte
Interests' ownership of the combined company would be reduced to approximately
17.2% of shares outstanding and that the remaining shares held by shareholders
other than officers and directors of FIC would nearly double to 7.6 million
shares, representing approximately 80.6% of shares outstanding and eligible to
vote.
Mattingly & Co. also noted that the merger would simplify the ownership and
financial structure of ILCO by eliminating or reducing intercompany loans,
charges, and ownership for consolidated GAAP financial reporting and would also
eliminate any perception of a conflict of interest between the management of
ILCO and FIC.
Premium to Market
Mattingly & Co. reviewed transactions in which an insurance/financial
services company with a major ownership interest in another insurance company
had acquired the public shares outstanding. Based on the market price one day
prior to the announcement of a transaction, the premium to market averaged 12%.
The premium to market averaged 23% based on the price 30 days prior to the
announcement. Based on the ILCO and FIC closing prices on January 4, 2001, the
exchange ratio of 1.1 to 1.0 represented a 22% premium to both the ILCO closing
price on January 4, 2001 and to the 30-day average of closing prices ended
January 4, 2001, the last trading day prior to acceptance of the terms of the
merger.
General
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Mattingly & Co.'s opinion. In arriving at its fairness determination,
Mattingly & Co. considered the results of each of these analyses in their
totality. No company or transaction used in the above analyses as a comparison
is directly comparable to ILCO, FIC, or the merger. The analyses were prepared
solely for purposes of Mattingly & Co.'s providing its opinion to the ILCO
Special Committee as to the fairness, from a financial point of view, of the
merger to the holders of ILCO's common stock and do not purport to be appraisals
or necessarily reflect the prices at which businesses or securities actually may
be sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by those analyses. Because these analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their advisors, Mattingly & Co. assumes no
responsibility if future results are materially different from those forecast.
As described above, Mattingly & Co.'s opinion to the ILCO Special Committee was
one of the factors taken into consideration by the ILCO Special Committee in
making its determination to
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approve the merger. This summary is not a complete description of the analysis
performed by Mattingly & Co.
SUMMARY OF WISE & ASSOCIATES ACTUARIAL ANALYSIS
In late summer 2000, FIC engaged Wise & Associates, Inc., consulting
actuaries, to provide certain valuation information of the life company's
subsidiaries and affiliates of FIC. Wise & Associates was retained by FIC's
management based upon its experience and reputation in actuarial valuation of
life insurance companies. Following an initial cash flow analysis, management
asked Wise & Associates to expand its valuation to provide appraisal values of
the FIC and ILCO life insurance subsidiaries. In order to assist in using such
valuations, certain information was assembled by management with respect to the
assets and liabilities at the non-insurance companies within the structure and
adjustments to the insurance company values on a global basis. Using such
information, Wise & Associates provided an overview of the relative values of
each of FIC and ILCO. The following is a brief summary of the procedures,
assumptions and conclusions of the Wise & Associates valuation report. The
foregoing summary should not be considered by shareholders of FIC or ILCO as a
recommendation of the merger or related transactions described in this joint
proxy statement/prospectus.
Wise & Associates provided FIC with values and value per share for each of
FIC, ILCO, Family Life Corporation and a merged FIC/ILCO entity. The value of
FIC is dependent on the value of Family Life Corporation and its subsidiaries,
and on ILCO and its subsidiaries. The value of Family Life Corporation is
dependent on the value of ILCO, and the value of ILCO is dependent on the value
of Family Life Corporation and FIC. The values used for the insurance
subsidiaries were arrived at using a 9% discount rate and were calculated using
the business currently in force plus adjusted capital and surplus. No value was
given for future life insurance business. An additional important assumption
used in the appraisal was the unit expense assumption, which was set at an
assumed marginal rate that a prospective buyer would use in making a bid in a
competitively bid situation.
Based upon the assumptions described above, Wise & Associates provided the
following values for each of FIC, ILCO and an assumed merged FIC/ILCO entity:
TOTAL VALUE VALUE PER SHARE
------------ ---------------
FIC..................................................... $148,070,722 $25.29
ILCO.................................................... 236,427,095 25.44
Family Life Corporation................................. 60,224,635 N/A
FIC/ILCO................................................ 279,788,654 25.36
The values in the table set forth above were based upon the various assumptions
and values described above and more fully set forth in the actuarial reports
delivered to FIC. In particular,
- the value of FIC included: all of the value of Family Life Corporation;
FIC's percentage ownership of ILCO based on the per share value of ILCO;
a receivable from ILCO relating to the exercise of a stock option held by
one of its subsidiaries; other non-insurance related assets provided by
FIC's management; and reduced by debt owed by FIC to a subsidiary of
ILCO;
- the value of ILCO included: the appraisal value of ILCO's life insurance
subsidiaries based upon a 9% discount rate, after adjustment for taxes; a
market value adjustment to certain shares of ILCO and FIC common stock
held by its life insurance subsidiaries; $4,800,000 in overfunded pension
plan contributions; and other non-insurance related assets provided by
FIC's management;
- the value of Family Life Corporation included: the appraisal based upon a
9% discount rate, after adjustment for taxes; a market value adjustment
to certain shares of ILCO and FIC common stock owned by Family Life
Insurance Company; other non-insurance related assets provided by FIC's
management; and other non-insurance-related assets provided by FIC's
management, and reduced by debt owed by Family Life Corporation to a
subsidiary of ILCO; and
- the value of a merged FIC/ILCO entity included each of the foregoing on a
fully-diluted basis, assuming a 1 to 1 stock exchange ratio.
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The foregoing summary of the Wise & Associates appraisal reports is not complete
and is qualified in its entirety to the more detailed information and analysis
contained in such report. In addition, the preparation of any such analysis is
subject to inherent uncertainties, and may not represent the actual values that
may be realized by FIC, ILCO or any of their respective shareholders.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the FIC and ILCO boards of directors
to approve and to adopt the merger, shareholders of FIC and ILCO should be aware
that some members of the management and the board of directors of FIC and ILCO
have interests in the merger that are different from, or in addition to, the
interests of shareholders of FIC and ILCO generally.
Ownership of ILCO Common Stock
As of the date of this joint proxy statement/prospectus, FIC beneficially
owns approximately 48% of the outstanding shares of ILCO common stock. In
addition, Roy F. Mitte, the Chairman, President and Chief Executive Officer of
each of FIC and ILCO, controls directly and through his beneficial ownership
interest in FIC and its subsidiaries, approximately 49.2% of the outstanding
common stock of ILCO.
Potential Conflicts of Interest of FIC and ILCO Directors and Officers
Roy F. Mitte is the Chairman, President and Chief Executive Officer of each
of FIC and ILCO. In addition, FIC and ILCO have substantially identical senior
management and a majority of the directors of each company serve on the board of
directors of both FIC and ILCO. In addition to Mr. Mitte's control of 49.2%
ownership interest in ILCO, Mr. Mitte also beneficially owns approximately 30.7%
of the outstanding FIC common stock.
As a result of these ownership interests and potential conflicts of
interest, each of FIC and ILCO established a special committee of disinterested
directors to consider the merger and to make a recommendation to the full board
of directors of each company. Each of the members of the FIC Special Committee
owns shares of FIC common stock, and each of the members of the ILCO Special
Committee owns shares of ILCO common stock. One of the members of the ILCO
Special Committee owns shares of FIC common stock and two of the members of the
FIC Special Committee own shares of ILCO common stock. Each of these ownership
interests is less than one percent of the outstanding capital stock of the
respective companies.
Indemnification of Officers and Directors
The surviving corporation and FIC have agreed to indemnify the officers and
directors of ILCO, Merger Sub and FIC for their acts and omissions as officers
and directors of ILCO, Merger Sub and FIC, respectively, to the maximum extent
permitted by Texas law. Merger Sub also agreed that for six years after the
merger, the articles of incorporation and bylaws of the surviving corporation
will contain provisions with respect to indemnification at least as favorable as
those currently contained in ILCO's articles of incorporation and bylaws.
NO DISSENTERS' APPRAISAL RIGHTS
Because FIC's common stock will be held of record by more than 2,000
holders and/or traded on the Nasdaq Stock Market's National Market System
following the merger and the ILCO common stock will be traded on the Nasdaq
Stock Market immediately prior to the consummation of the merger, holders of
ILCO common stock who do not vote in favor of approval of the plan of merger
will not be entitled under the Business Corporation Act of the State of Texas to
exercise dissenting shareholders' appraisal rights with respect to their shares
of ILCO common stock.
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ACCOUNTING TREATMENT
The merger will be accounted for as a purchase of ILCO by FIC for
accounting and financial reporting purposes in accordance with generally
accepted accounting principles. After the effective time of the merger, the
results and operations of ILCO will be included in the consolidated financial
statements of FIC. The cost of ILCO to FIC will be based upon the value of FIC
common stock issued in exchange for ILCO common stock, the value of stock
options assumed by FIC in the merger and direct costs of the merger. The
aggregate cost of ILCO, as so determined, will be allocated to the assets
acquired and liabilities assumed by FIC based upon their respective fair values.
FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of FIC common stock received by ILCO shareholders in the merger
will be freely transferable, except that shares of FIC common stock received by
persons who are deemed to be "affiliates," as such term is defined under the
Securities Act, of ILCO prior to the merger may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act or as otherwise permitted under the Securities Act. Persons
who are affiliates of ILCO generally include individuals or entities that
control, are controlled by, or are under common control with, ILCO and may
include certain officers and directors of ILCO as well as principal shareholders
of ILCO. All current "affiliates" of ILCO have delivered to FIC a letter
agreement to the effect that he or she will not offer or sell or otherwise
dispose of any of the shares of FIC common stock issued to him or her in or in
connection with the merger in violation of the Securities Act or the rules and
regulations promulgated by the Securities and Exchange Commission under such
act.
COMPARISON OF RIGHTS OF SHAREHOLDERS OF FIC AND ILCO
If the merger is consummated, ILCO shareholders will receive shares of FIC
common stock, and the rights of such shareholders will be governed by FIC's
articles of incorporation, as amended, including the amendment to the FIC
articles of incorporation described in this joint proxy statement/prospectus
that is expected to become effective immediately prior to the merger, and its
bylaws, as amended. The following is a summary of material differences between
the rights of holders of FIC common stock and the rights of holders of ILCO
common stock. Since each of FIC and ILCO is organized under the laws of the
State of Texas, these differences arise primarily from various provisions of the
FIC articles of incorporation and FIC bylaws and the articles of incorporation
and bylaws of ILCO.
The following is a summary of the material differences between the rights
of the holders of ILCO common stock and the rights of holders of FIC common
stock.
The following summary does not purport to be a complete statement of the
rights of FIC shareholders under Texas law, the FIC articles of incorporation
and bylaws as compared with the rights of the ILCO shareholders under ILCO's
articles of incorporation and bylaws and does not purport to be a complete
description of the specific provisions referred to below. The identification of
specific differences is not meant to indicate that other equally or more
significant differences do not exist. This summary is qualified in its entirety
by reference to the governing corporate instruments of FIC and ILCO incorporated
by reference to the registration statement of which this joint proxy
statement/prospectus is a part, to which shareholders are referred. The material
terms of FIC common stock are described under the heading "Description of
Capital Stock of FIC" on page 72.
Authorized Capital
ILCO. The authorized capital stock of ILCO consists of 15,000,000 shares
of common stock, par value $0.22 per share, 20,000,000 shares of preferred
stock, par value $1.00 per share, of which 5,000,000 shares are designated as
series A preferred stock and 15,000,000 shares are designated as series B
preferred stock. As of the record date, shares of common stock and no
shares of preferred stock were issued (and not cancelled or retired) and
5,000,000 shares of series A preferred stock,
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15,000,000 shares of series B preferred stock and 2,732,407 shares of common
stock were held as treasury shares by ILCO or a subsidiary of ILCO.
FIC. As of the date of this joint proxy statement/prospectus, the
authorized capital stock of FIC consists of 10,000,000 shares of common stock,
par value $0.20 per share, of which there were shares outstanding as of the
record date and 790,639 shares held in treasury by FIC or a subsidiary of FIC.
Immediately prior to the merger, FIC's articles of incorporation will be amended
to increase its authorized capital stock to 25,000,000 shares of common stock,
par value $0.20 per share.
Voting Requirements and Quorums of Shareholder Meetings
ILCO. The ILCO bylaws provide that the holders of a majority of the shares
of stock issued and outstanding and entitled to vote, present in person or by
proxy, will constitute a quorum and further specify that the affirmative vote of
a majority of the shares present at a meeting of shareholders will decide any
matter submitted to such meeting, unless the matter is one upon which the vote
of a greater number is required by law or express provision of the ILCO articles
of incorporation or bylaws.
FIC. The FIC bylaws provide that the holders of a majority of the shares
of stock issued and outstanding and entitled to vote, present in person or by
proxy, will constitute a quorum and further specify that the affirmative vote of
a majority of the shares present at a meeting of shareholders will decide any
matter submitted to such meeting, unless the matter is one upon which the vote
of a greater number is required by law or express provision of the FIC articles
of incorporation or FIC bylaws.
Election of Directors
ILCO. Cumulative voting by shareholders in the election of directors is
expressly denied by the ILCO articles of incorporation.
FIC. The FIC articles of incorporation permit its shareholders to cumulate
their votes in the election of directors. Under cumulative voting, a shareholder
may multiply the number of shares owned by the number of directors to be
elected, and cast that total number of votes in proportion among as many
nominees as the shareholder desires.
Filling Vacancies on the Board of Directors
ILCO. The ILCO bylaws provide that any vacancy in the board of directors,
including any vacancy caused by an increase in the number of directors, may be
filled by the affirmative vote of a majority of the remaining directors, even
though less than a quorum of the board of directors, or by a sole remaining
director. Because the ILCO articles of incorporation and bylaws are silent with
respect to the right of the shareholders to fill vacancies arising on the board
of directors, the Business Corporation Act of the State of Texas permits the
shareholders of ILCO to fill such vacancies.
FIC. The FIC bylaws provide that any vacancy occurring in the board of
directors, including any vacancy caused by an increase in the number of
directors, may be filled by the affirmative vote of the remaining directors,
even though less than a quorum of the board of directors, or by a sole remaining
director. Because the FIC articles of incorporation and bylaws are silent with
respect to the right of the shareholders to fill vacancies arising on the board
of directors, the Business Corporation Act of the State of Texas permits the
shareholders of FIC to fill such vacancies.
Number of Directors
ILCO. The ILCO bylaws provide that the number of directors which shall
constitute the entire board of directors must be at least three and not more
than 25, as authorized by vote of a majority of the entire board of directors at
any regular or special meeting.
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FIC. The FIC bylaws provide that the number of directors which shall
constitute the entire board of directors must be at least three and not more
than 25, as authorized by a vote of a majority of the entire board of directors
at any regular or special meeting.
Removal of Directors
ILCO. The ILCO bylaws provide that the board of directors has the power to
remove directors for cause and to suspend directors pending a final
determination that cause exists for removal.
FIC. The FIC bylaws provide that any director may be removed either for or
without cause by a majority vote at any special meeting of shareholders duly
called and held for such purpose.
Special Voting Requirements
ILCO. The ILCO articles of incorporation provide that if, with respect to
any action taken by the shareholders, other than a plan of merger or
consolidation, any provision of the Business Corporation Act of the State of
Texas would require the vote or concurrence of the holders of shares having more
than a majority of the votes entitled to be cast, the vote or concurrence of the
holders of shares having only a majority of the votes entitled to be cast, shall
be required with respect to any such action.
FIC. The FIC articles of incorporation provide that if, with respect to
any action taken by the shareholders, other than a plan of merger or
consolidation, any provision of the Business Corporation Act of the State of
Texas would require the vote or concurrence of the holders of shares having more
than a majority of the votes entitled to be cast, the vote or concurrence of the
holders of shares having only a majority of the votes entitled to be cast, shall
be required with respect to any such action.
Amendment of Bylaws
ILCO. The ILCO bylaws provide that the bylaws may be amended, altered or
repealed by the shareholders or the board of directors. The ILCO bylaws further
provide that any bylaw adopted, amended or repealed by the shareholders may be
amended or repealed by the board of directors unless the resolution of the
shareholders adopting such bylaw expressly reserves to the shareholders the
right to amend or repeal it.
FIC. The FIC bylaws provide that the bylaws may be altered, amended or
repealed or new bylaws may be adopted by the shareholders at any regular or
special meeting or by a majority of the whole board of directors at any regular
or special meeting, upon notice given at least 10 days prior to the meeting and
stating the purpose thereof.
Shareholder Action Without a Meeting
ILCO. The ILCO bylaws provide that any action required to be taken at a
meeting of the shareholders may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
FIC. The FIC bylaws provide that any action required to be taken at a
meeting of the shareholders may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
Limitation of Liability and Indemnification of Directors and Officers
ILCO. The ILCO bylaws provide that any present or future director or
officer of ILCO and any present or future director or officer of any other
corporation serving as such at the request of ILCO because of ILCO's interest in
such other corporation, or the legal representative of any such director or
officer, shall be indemnified by ILCO against reasonable costs, expenses
(exclusive of any amount paid to ILCO in settlement) and counsel fees paid or
incurred in connection with any action, suit or proceeding to which any such
director of officer or his legal representative may be made a party by reason of
his being
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or having been such director or officer and shall otherwise be accorded the
fullest benefits contemplated by Texas law.
FIC. The FIC bylaws provide that FIC will indemnify any person who was, is
or is threatened to be made a named defendant or respondent in a proceeding
because the person is or was a director or officer of FIC or while a director or
officer of FIC, is or was serving at the request of FIC as a director, officer,
partner, venturer, proprietor, trustee, employee, agent or similar functionary
of another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise, to the fullest
extent that a corporation may grant indemnification to a person serving in such
capacity under the Business Corporation Act of the State of Texas. This right to
indemnification is a contract right and includes the right to be paid by FIC for
all expenses incurred in defending any proceeding in advance of its final
disposition to the maximum extent permitted under the Business Corporation Act
of the State of Texas. In addition, FIC may indemnify any person covered by the
grant of mandatory indemnification to such further extent as is permitted by law
and may indemnify any other person to the fullest extent permitted by law.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a discussion of the material anticipated U.S. federal
income tax consequences of the merger. The discussion is based on the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury regulations promulgated
thereunder, and existing administrative rulings and court decisions in effect as
of the date of this joint proxy statement/prospectus, all of which are subject
to change at any time, possibly with retroactive effect. It is assumed that ILCO
shareholders hold ILCO common stock as a capital asset within the meaning of
Section 1221 of the Code, that is, generally for investment. This discussion
does not address all aspects of U.S. federal income taxation that may be
relevant to a particular ILCO shareholder in light of his or her circumstances
or to ILCO shareholders subject to special treatment under U.S. federal income
tax law, including, without limitation:
- financial institutions, insurance companies or mutual funds;
- dealers in securities, traders in securities who elect to apply a
mark-to-market method of accounting, or shareholders who hold ILCO common
stock as part of a hedge, straddle, or other risk reduction, constructive
sale or conversion transaction;
- tax-exempt entities;
- foreign persons (e.g., shareholders who or which are not citizens or
residents of the U.S. or are not domestic entities) or persons who have a
functional currency other than the U.S. dollar;
- shareholders subject to the alternative minimum tax provisions of the
Code;
- the tax treatment of FIC fractional interests of persons who actually or
constructively own one percent (1%) or more of FIC after the merger or
who otherwise exercise control over the affairs of FIC or ILCO;
- persons who hold their ILCO common stock in a partnership or other
pass-through entity; and
- shareholders who acquired their shares of ILCO common stock pursuant to
the exercise of an employee stock option or right or otherwise as a
compensation.
In addition, not discussed are the potential affects of the merger under
applicable foreign, state or local tax laws.
In General
Weil, Gotshal & Manges LLP and Fulbright & Jaworski L.L.P. have delivered
to FIC and ILCO, respectively, opinions, dated as of the date of this joint
proxy statement/prospectus, which opinions were based upon facts,
representations and assumptions that were set forth or referred to in their
opinions and are expected to exist at the effective time of the merger, and upon
representations contained in certificates
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of officers of FIC and ILCO. Subject to these facts, representations and
assumptions, Weil Gotshal and Fulbright & Jaworski each have opined that, for
U.S. federal income tax purposes, the merger will constitute a reorganization
within the meaning of Section 368(a) of the Code; and FIC, Merger Sub and ILCO
will each be a party to the reorganization under Section 368(b) of the Code.
In addition, Weil Gotshal has separately opined that, for U.S. federal
income tax purposes, no gain or loss will be recognized by FIC, Merger Sub, or
ILCO by reason of the merger.
Consequences to ILCO Shareholders
Subject to the above-described facts, representations, and assumptions,
Fulbright & Jaworski has separately opined that, for U.S. federal income tax
purposes, no gain or loss will be recognized by ILCO shareholders upon the
receipt of FIC common stock in exchange for ILCO common stock pursuant to the
merger, except with respect to any cash received in lieu of fractional shares of
FIC common stock.
In the event the merger so qualifies as a reorganization within the meaning
of Section 368(a) of the Code, the following additional consequences for an ILCO
shareholder will result:
- the aggregate tax basis of the shares of FIC common stock received by an
ILCO shareholder will equal the aggregate tax basis of the shares of ILCO
common stock he or she surrendered in exchange for that FIC common stock,
reduced by the tax basis of any fractional share interest in FIC common
stock for which the ILCO shareholder receives cash;
- the holding period of the FIC common stock received in the merger will
include the holder's holding period in the ILCO common stock surrendered
in exchange for that FIC common stock; and
- the receipt of cash by an ILCO shareholder in lieu of a fractional share
interest in FIC common stock will be treated as a taxable disposition of
that fractional share interest for cash, and such ILCO shareholder will
recognize taxable gain or loss for U.S. federal income tax purposes
measured by the difference between the amount of cash received and his or
her tax basis in that fractional share interest. This capital gain or
loss will be a long-term capital gain or loss if the holding period in
the ILCO shareholder's surrendered ILCO common stock is greater than one
year at the time of the merger. In the case of non-corporate former ILCO
shareholders (including, without limitation, individuals), any long-term
capital gain will be taxed at a maximum 20% capital gains rate, assuming
the shareholder is not subject to the alternative minimum tax. The
deductibility of capital losses is subject to limitations.
The obligations of FIC and ILCO to consummate the merger are conditioned
upon the receipt of further opinions of their respective counsel, Weil Gotshal
and Fulbright & Jaworski, dated as of the closing date and consistent with the
state of facts existing at the effective time of the merger basically to the
same effect as the opinions such counsel delivered as of the date of this joint
proxy statement/prospectus. None of the opinions delivered or to be delivered to
the parties in connection with the merger as described in this document,
however, are binding on the Internal Revenue Service or the courts.
Consequences to FIC Shareholders
Because the shares of FIC common stock remain outstanding and will be
unchanged by virtue of the merger and because the merger is between ILCO and
Merger Sub (rather than FIC itself), FIC shareholders should not experience any
tax consequences as a result of the merger.
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Backup Withholding
Some non-corporate ILCO shareholders may be subject to backup withholding
at a 31% rate on cash payments received in lieu of fractional shares of FIC
common stock in the merger unless they:
- furnish a correct taxpayer identification number and certify that they
are not subject to backup withholding on the substitute Form W-9 or
successor form included in the letter of transmittal to be delivered to
the former ILCO shareholders following the date of completion of the
merger; or
- are otherwise exempt from backup withholding.
Reporting Requirements
An ILCO shareholder who receives FIC common stock as a result of the merger
may be required to retain records related to that holder's ILCO common stock,
and file with his or her U.S. federal income tax return a statement setting
forth facts relating to the merger.
THIS DISCUSSION DOES NOT ADDRESS U.S. FEDERAL INCOME TAX CONSEQUENCES THAT
MAY VARY WITH, OR ARE CONTINGENT UPON, INDIVIDUAL CIRCUMSTANCES. MOREOVER, THE
DISCUSSION DOES NOT ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL
TAX CONSEQUENCES OF THE ACQUISITION. ACCORDINGLY, YOU ARE STRONGLY URGED TO
CONSULT WITH YOUR TAX ADVISOR TO DETERMINE THE PARTICULAR U.S. FEDERAL, STATE,
LOCAL AND ANY APPLICABLE FOREIGN INCOME OR OTHER TAX CONSEQUENCES TO YOU OF THE
MERGER.
REGULATORY MATTERS
Antitrust Regulation
The Antitrust Division of the Department of Justice, the Federal Trade
Commission and others may challenge the merger on antitrust grounds either
before or after the expiration of the applicable waiting periods. Accordingly,
at any time before or after the completion of the merger, the Antitrust Division
of the Department of Justice the Federal Trade Commission or others could take
action under the applicable antitrust laws as they deem necessary or desirable
in the public interest, including, without limitation, seeking to enjoin the
consummation of the merger or permitting such consummation subject to certain
regulatory concessions or conditions. There can be no assurance that a challenge
to the merger will not be made or that, if a challenge is made, that such
challenge will not prevail.
The merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules promulgated
thereunder by the Federal Trade Commission (the "HSR Act"), which prevent
certain transactions from being completed until required information and
materials are furnished to the Antitrust Division of the Department of Justice
and the Federal Trade Commission and waiting periods end or expire. On January
31, 2001, the parties filed the necessary applications under the HSR Act. The
termination of the applicable waiting period under the HSR Act is expected on
February 20, 2001, although there can be no assurance that the Department or
Justice or Federal Trade Commission will not request an extension of such time
period. The expiration or early termination of the applicable waiting periods
under the HSR Act is a condition to the closing of the merger.
Insurance Regulation
The insurance laws of the domiciliary states of ILCO's life insurance
subsidiaries provide that a transaction which would result in a change in
control of a domestic insurance company is subject to the prior approval by the
commissioner of insurance. If a change in control is deemed to exist, these laws
provide that the person intending to acquire control of a domestic insurer is
required to file an application for approval of the transaction and the
commissioner of insurance may require a public hearing on the proposal.
Investors Life Insurance Company of North America is domiciled in the State of
Washington and Investors Life Insurance Company of Indiana is domiciled in the
State of Indiana. FIC and ILCO have submitted a memorandum to the departments of
insurance in Washington and Indiana, which requested a ruling that the proposed
merger does not constitute a change in control within the meaning of
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the applicable insurance law and regulation. The Washington Department of
Insurance has confirmed that the proposed merger would not result in a change in
control and that it will not require any filings or other approvals in
connection with the merger transaction. The Indiana Department of Insurance is
currently reviewing the ruling request that was submitted. If the Indiana
Department of Insurance should issue a ruling similar to that provided by the
Washington Department of Insurance, no insurance regulatory approvals would be
required. However, if the Indiana Department of Insurance does not issue the
requested ruling, FIC would be required to submit such applications for approval
of the merger transaction as are required by the Department. The approval of any
such required application is a condition to the closing of the merger.
LITIGATION RELATING TO THE MERGER
On the day of the public announcement of the formation of the ILCO Special
Committee and FIC Special Committee to evaluate the potential merger, two class
action lawsuits were filed against FIC, ILCO and the officers and directors of
ILCO (some of whom are also officers and directors of FIC). The actions allege
that a cash consideration in the proposed merger is unfair to the shareholders
of ILCO, that it would prevent the ILCO shareholders from realizing the true
value of ILCO, and that FIC and the named officers and directors had material
conflicts of interest in approving the transaction.
In their initial pleadings, the plaintiffs sought certification of the
cases as class actions and the named plaintiffs as class representatives, and
among other relief, requested that the merger be enjoined (or, if consummated,
rescinded and set aside) and that the defendants account to the class members
for their damages.
As of the date the registration statement was filed (of which this joint
proxy statement/prospectus is a part), the plaintiffs have not taken any further
action with respect to the litigation. The defendants believe that the lawsuits
are without merit and intend to vigorously contest the lawsuits. Management is
unable to determine the impact, if any, that the lawsuits will have on the
results of operations of FIC or ILCO.
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement, dated as of January 17, 2001, between Financial Industries
Corporation, InterContinental Life Corporation and ILCO Acquisition Company, a
copy of which is attached as Annex A to this joint proxy statement/prospectus
and incorporated by reference. FIC and ILCO shareholders should read carefully
the merger agreement. The following summary is qualified in its entirety by
reference to the text of the merger agreement.
GENERAL
The merger agreement provides that, following the approval of the plan of
merger by the shareholders of ILCO and the approval of the issuance of shares of
FIC common stock and amendment to FIC's articles of incorporation by the
shareholders of FIC and the satisfaction or waiver of the other conditions to
the merger:
- Merger Sub will merge with and into ILCO; and
- Merger Sub will cease to exist and ILCO will continue as the surviving
corporation and as a wholly-owned subsidiary of FIC following the merger.
As a result of the merger, and as of the effective time of the merger, ILCO
will succeed to and assume all of the rights and obligations of Merger Sub in
accordance with the Business Corporation Act of the State of Texas.
COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger agreement provides that, subject to the requisite approval of
the shareholders of FIC and ILCO and the satisfaction or waiver of other
conditions, the merger will be consummated by the filing of articles of merger
and any other appropriate documents in accordance with the relevant provisions
of the Business Corporation Act of the State of Texas with the Secretary of
State of the State of Texas.
CONVERSION OF SHARES OF ILCO COMMON STOCK
Upon the consummation of the merger:
- each share of ILCO common stock issued and outstanding immediately prior
to the merger, other than shares of ILCO common stock held as treasury
shares by ILCO (but excluding shares of ILCO common stock held by any of
ILCO's subsidiaries, whether or not treated as treasury shares of ILCO on
a consolidated basis under generally accepted accounting principles) or
shares of ILCO common stock held by FIC, will be converted into the right
to receive 1.1 shares of FIC common stock. However, in the event of any
change in FIC common stock and/or ILCO common stock prior to the merger,
such as a stock split, stock dividend, subdivision, reclassification,
recapitalization, combination, exchange of shares or the like, the number
and class of shares of FIC common stock to be issued and delivered in the
merger in exchange for each outstanding share of ILCO common stock will
be adjusted so as to maintain the relative proportionate interests of the
holders of ILCO common stock and FIC common stock;
- each share of ILCO common stock, series A preferred stock and series B
preferred stock of ILCO, in each case which is held as treasury shares by
ILCO prior to the merger (excluding shares of ILCO common stock held by
any of ILCO's subsidiaries, whether or not treated as treasury shares of
ILCO on a consolidated basis under generally accepted accounting
principles), and each share of ILCO common stock which is held by FIC
(excluding any shares of ILCO common stock owned by any of FIC's
subsidiaries) prior to the merger, will be cancelled and retired;
- each share of common stock of Merger Sub issued and outstanding
immediately prior to the merger will be converted into one share of
common stock of ILCO and such shares will represent all of the issued and
outstanding capital stock of ILCO following the merger; and
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- shares of FIC common stock outstanding immediately prior to the merger
(including shares of FIC common stock held by any subsidiary of FIC or
ILCO) will remain outstanding and will be unaffected by the merger.
No fractional shares of FIC common stock will be issued in the merger. A
holder of ILCO common stock who would otherwise be entitled to receive
fractional shares of FIC common stock as a result of the merger will receive, in
lieu of fractional shares, cash in an amount equal to the average closing price
per share of FIC common stock for the 30 trading days immediately prior to the
merger multiplied by the fraction to which the holder would otherwise be
entitled. FIC will make available to First Union National Bank, as exchange
agent, from time to time sufficient cash amounts to satisfy payment for
fractional shares and First Union will distribute such proceeds, without
interest, to the holders of the fractional interests.
TREATMENT OF ILCO STOCK OPTIONS
Upon the consummation of the merger, subject to certain conditions and
limitations contained in the merger agreement, each outstanding option to
purchase shares of ILCO common stock will be assumed by FIC and converted into
an option to purchase the number of shares of FIC common stock, rounded up to
the nearest 1/100 of a share, equal to the number of shares of ILCO common stock
subject to the original option multiplied by 1.1. The exercise price per share
of FIC common stock under the new option will be equal to the former exercise
price per share of ILCO common stock under the option immediately prior to the
merger divided by 1.1, and rounded to the nearest penny. In accordance with the
terms of the ILCO stock option plan under which the options were issued, any
fractional shares resulting from the foregoing adjustments will be eliminated.
All other terms of the options, including the vesting schedule, will remain
unchanged.
The conversion of any option to purchase shares of ILCO common stock that
is deemed to be an "incentive stock option" for U.S. federal income tax purposes
may involve an adjustment of the exchange ratio for the conversion to comply
with certain U.S. federal income tax laws.
EXCHANGE PROCEDURES
Promptly after the merger, but in no event more than five business days
thereafter, First Union will mail a letter of transmittal and instructions to
each record holder of certificates that, immediately prior to the merger,
represented shares of ILCO common stock that were converted to FIC common stock
in the merger. After receipt of the transmittal form, each holder should
surrender their ILCO stock certificates to First Union, together with the letter
of transmittal duly executed and completed in accordance with the instructions
provided by First Union. Upon surrender of the certificates to and acceptance of
the certificates by First Union, each holder will be entitled to receive:
- certificates of FIC common stock evidencing the whole number of shares of
FIC common stock to which the holder is entitled; and
- a check in the amount equal to the cash that the holder has the right to
receive pursuant to the merger agreement, including cash in lieu of
fractional shares.
If any shares of FIC common stock or a check issued in lieu thereof are to
be to any person other than the person whose name the certificates representing
the shares of ILCO common stock surrendered in exchange for shares of FIC common
stock is registered, the certificates surrendered must be properly endorsed or
otherwise be in proper form for transfer and the person requesting the exchange
must pay to First Union any applicable stock transfer taxes or must establish to
the satisfaction of First Union that the taxes have been paid or are not
applicable. No interest will be paid on any merger consideration.
After the merger, no holder of a certificate which, immediately prior to
the merger, represented shares of ILCO common stock will be entitled to receive
any dividend or other distribution from FIC until the holder surrenders its ILCO
stock certificate for a certificate representing shares of FIC common stock.
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Upon surrender, the holder will receive the amount of any dividends or other
distributions that, after the consummation of the merger, became payable with
respect to the number of whole shares of FIC common stock into which the shares
of ILCO common stock were converted. No interest will be paid on the dividends
or other distributions.
Any portion of the merger consideration, including any certificates of FIC
common stock, any dividends or distributions, or any cash owed in lieu of
fractional shares of FIC common stock, that has not been distributed to the
holders of ILCO common stock within 240 days after the merger will be delivered
to the surviving corporation. At the end of that 240 day period, any holders who
have not surrendered their certificates in accordance with the relevant
provisions of the merger agreement may look only to FIC for payment of their
claims for any merger consideration and any dividends or distributions with
respect to the shares of FIC common stock to which they are entitled.
Neither the surviving corporation nor First Union will be liable in respect
of any merger consideration delivered to a public official under applicable
abandoned property, escheat or similar law.
ILCO SHAREHOLDERS SHOULD NOT SEND THEIR ILCO STOCK CERTIFICATES TO FIC OR
ILCO. ILCO STOCK CERTIFICATES WILL ONLY BE EXCHANGED FOR CERTIFICATES OF SHARES
OF FIC COMMON STOCK FOLLOWING THE CONSUMMATION OF THE MERGER IN ACCORDANCE WITH
INSTRUCTIONS WHICH ILCO OR FIRST UNION WILL SEND TO ILCO SHAREHOLDERS AFTER THE
MERGER.
FIC SHAREHOLDERS ARE NOT REQUIRED TO EXCHANGE SHARES OF FIC COMMON STOCK
HELD BY THEM PRIOR TO THE MERGER OR TAKE ANY OTHER ACTION WITH RESPECT TO SHARES
OF FIC COMMON STOCK AS A RESULT OF THE MERGER. ACCORDINGLY, FIC SHAREHOLDERS
SHOULD NOT SEND CERTIFICATES REPRESENTING SHARES OF FIC COMMON STOCK TO FIC,
ILCO OR FIRST UNION FOR ANY REASON RELATING TO THE MERGER.
DIRECTORS AND OFFICERS
The board of directors of the surviving corporation after the merger will
consist of the directors of Merger Sub immediately prior to the merger. The
officers of the surviving corporation after the merger will be the officers of
Merger Sub immediately prior to the merger.
Each director and officer of the surviving corporation will hold office
from the effective time of the merger until his or her respective successor is
duly elected or appointed and qualified in the manner provided in the articles
of incorporation or bylaws of the surviving corporation, or as otherwise
provided by applicable law.
ARTICLES OF INCORPORATION AND BYLAWS
The articles of incorporation of Merger Sub in effect immediately prior to
the merger will be the articles of incorporation of the surviving corporation
until they are amended in accordance with their terms or as provided by
applicable law. The bylaws of Merger Sub in effect immediately prior to the
merger will be the bylaws of the surviving corporation until they are amended in
accordance with their terms or as provided by applicable law.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various customary representations and
warranties of ILCO relating to, among other things:
- its organization, standing and similar corporate matters;
- its capital structure and the capital structure of its subsidiaries;
- authorization, execution, delivery, performance and enforceability of the
merger agreement;
- documents filed by ILCO with the Securities and Exchange Commission and
financial statements;
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- the absence of any material violation of the charter, bylaws, any
material agreement or any law, rule or regulation entered by a
governmental entity, which violation would prevent or materially delay
the performance of the merger agreement by ILCO or would reasonably be
expected to have a material adverse effect on ILCO or its subsidiaries,
taken as a whole;
- the absence of material changes or events relating to ILCO and its
subsidiaries;
- regulatory consents or approvals required in connection with the merger;
- the absence of extraordinary payments or changes in benefits for ILCO's
employees;
- the voting requirement relating to the merger;
- exemption of the transaction from any state takeover statute;
- the absence of any broker's, finder's or investment banker's fees owed in
connection with the merger, except for that of Mattingly & Co.;
- compliance with applicable laws;
- the absence of undisclosed liabilities of ILCO or any of its
subsidiaries;
- the absence of any pending or threatened litigation against ILCO or any
of its subsidiaries;
- transactions with affiliates;
- labor matters;
- employee arrangements and benefit plans;
- tax matters;
- intellectual property;
- environmental matters;
- material contracts;
- tangible property;
- receipt by the ILCO Special Committee of an opinion from Mattingly & Co.,
its financial advisor;
- insurance business;
- liabilities and reserves; and
- ILCO registered broker/dealers.
The merger agreement also contains various representations and warranties
of FIC relating to, among other things:
- its organization, standing and similar corporate matters;
- the capital structure of FIC and its subsidiaries;
- authorization, execution, delivery, performance and enforceability of the
merger agreement;
- the absence of any material violation of the charter, bylaws, any
material agreement or any law, rule or regulation entered by a
governmental entity, which violation would prevent or materially delay
the performance of the merger agreement by FIC or would reasonably be
expected to have a material adverse effect on FIC or its subsidiaries,
taken as a whole;
- documents filed by FIC with the Securities and Exchange Commission and
financial statements;
- the absence of material changes or events relating to FIC and its
subsidiaries;
- the absence of extraordinary payments or changes in benefits for FIC's
employees;
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- the voting requirement relating to the merger;
- exemption of the transaction from any state takeover statute;
- the absence of any broker's, finder's or investment banker's fees owed in
connection with the merger, except for that of Philo Smith Capital;
- receipt by the FIC Special Committee of an opinion from Philo Smith
Capital, its financial advisor;
- compliance with applicable laws;
- the absence of undisclosed liabilities of FIC or any of its subsidiaries;
- the absence of any pending or threatened litigation against FIC or any of
its subsidiaries;
- transactions with affiliates;
- the FIC common stock issued in the merger;
- employee arrangements and benefit plans;
- tax matters;
- intellectual property;
- environmental matters;
- labor matters;
- material contracts;
- tangible property;
- insurance business; and
- liabilities and reserves.
The merger agreement also contains various representations and warranties
of Merger Sub relating to, among other things:
- its organization, standing and similar corporate matters;
- the capital structure of Merger Sub;
- authorization, execution, delivery, performance and enforceability of the
merger agreement; and
- the absence of any prior activities.
CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
During the period from the date of the merger agreement until the merger,
ILCO has agreed to:
- conduct its operations in the ordinary and usual course of business
consistent with past practice; and
- use its commercially reasonable efforts to:
(1) preserve intact its current business organizations;
(2) keep available the service of its current officers and employees; and
(3) preserve the goodwill of those having material business dealings with
it.
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Further, ILCO has agreed that, among other things and subject to various
conditions and exceptions, it and its subsidiaries will not, without the prior
written consent of FIC:
- declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of
its or its subsidiaries' outstanding capital stock (except dividends and
distributions by a direct or indirect wholly owned subsidiary of ILCO to
its parent);
- split, combine or reclassify any of its outstanding capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its outstanding capital stock;
- except in connection with the termination of the employment of any
employees, purchase, redeem or otherwise acquire any shares of
outstanding capital stock or any rights, warrants or options to acquire
any such shares;
- issue, sell, grant, pledge or otherwise encumber any shares of its
capital stock, any other equity securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares,
equity securities or convertible securities (other than (A) upon the
exercise of ILCO stock options outstanding on the date of the merger
agreement or issued under clause (C) below, (B) pursuant to employment
agreements or other contractual arrangements in effect on the date of the
merger agreement and (C) issuances of stock of any direct or indirect
wholly owned subsidiary of ILCO to its parent);
- amend its articles of incorporation, bylaws or other comparable charter
or organizational documents;
- acquire any business (including the assets thereof) or any corporation,
partnership, joint venture, association or other business organization or
division thereof;
- sell, mortgage or otherwise encumber or subject to any lien (other than
mechanics liens filed in connection with the development of real property
by Investors Life Company of North America) or otherwise dispose of any
of its properties or assets that are material to ILCO and its
subsidiaries, taken as whole;
- other than working capital borrowings in the ordinary course of business
and consistent with past practices, incur any indebtedness for borrowed
money or guarantee any such indebtedness of another person, other than
indebtedness owing to or guarantees of indebtedness owing to ILCO or any
of its direct or indirect wholly-owned subsidiaries;
- make any material loans or advances to any other person, other than to
ILCO or any of its direct or indirect wholly-owned subsidiaries and other
than routine advances to employees consistent with past practices;
- make any tax election or settle or compromise any tax liability that
could reasonably be expected to be material to ILCO and its subsidiaries,
taken as a whole, or change its tax or accounting methods, policies,
practice or procedures, except as required by law or generally accepted
accounting principles;
- pay, discharge, settle or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the most recent consolidated financial statements
(or the notes thereto) of ILCO included in documents filed with the
Securities and Exchange Commission or incurred since the date of such
financial statements in the ordinary course of business consistent with
past practice;
- make any material commitments or agreements for capital expenditures or
capital additions or betterments except as materially consistent with the
budget for capital expenditures as of the date of the merger agreement,
in the ordinary course of business consistent with past practices;
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- except as may be required by law:
- other than in the ordinary course of business and consistent with past
practices, make any representation or promise, oral or written, to any
employee or former director, officer or employee of ILCO or any of its
subsidiaries which is inconsistent with the terms of any agreement,
arrangement or policy (written or oral) relating to employment,
severance, change of control, termination, stock options, stock
purchases, compensation, deferred compensation, fringe benefits or other
employee benefits currently in effect;
- other than in the ordinary course of business, make any change to, or
amend in any way, the contracts, salaries, wages, or other compensation
of any director, employee or any agent or consultant of ILCO or any of
its subsidiaries other than routine changes or amendments that are
required under existing contracts;
- except for renewals in the ordinary course of business consistent with
past practices, adopt, enter into, amend, alter or terminate, partially
or completely, any agreement, arrangement or policy (written or oral)
relating to employment, severance, change of control, termination, stock
options, stock purchases, compensation, deferred compensation, fringe
benefits or other employee benefits currently in effect, or any election
made pursuant to the provisions thereof, to accelerate any payments,
obligations or vesting schedules under any agreement, arrangement or
policy (written or oral) relating to employment, severance, change of
control, termination, stock options, stock purchases, compensation,
deferred compensation, fringe benefits or other employee benefits
currently in effect; or
- other than in the ordinary course of business consistent with past
practices, approve any general or company-wide pay increases for
employees;
- except in the ordinary course of business, modify, amend or terminate any
material agreement, permit, concession, franchise, license or similar
instrument to which ILCO or any of its subsidiaries is a party or waive,
release or assign any material rights or claims thereunder; or
- authorize any of, or commit or agree to take any of, the foregoing
actions.
During the period from the date of the merger agreement until the merger,
FIC has agreed to:
- conduct its operations in the ordinary and usual course of business
consistent with past practice; and
- use its commercially reasonable efforts to:
(1) preserve intact its current business organizations;
(2) keep available the service of its current officers and employees; and
(3) preserve the goodwill of those engaged in material business
relationships with them.
Further, FIC has agreed that, among other things and subject to various
conditions and exceptions, it and its subsidiaries will not, without the prior
written consent of ILCO:
- declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of
its or its subsidiaries' outstanding capital stock (except dividends and
distributions by a direct or indirect wholly owned subsidiary of FIC to
its parent);
- split, combine or reclassify any of its outstanding capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its outstanding capital stock;
- except in connection with the termination of the employment of any
employees, purchase, redeem or otherwise acquire any shares of
outstanding capital stock or any rights, warrants or options to acquire
any such shares;
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- issue, sell, grant, pledge or otherwise encumber any shares of its
capital stock, any other equity securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares,
equity securities or convertible securities (other than (A) upon the
exercise of FIC stock options outstanding on the date of the merger
agreement or issued under clause (C) below, (B) pursuant to employment
agreements or other contractual arrangements in effect on the date of the
merger agreement and (C) issuances of stock of any direct or indirect
wholly owned Subsidiary of FIC to its parent);
- amend its articles of incorporation, bylaws or other comparable charter
or organizational documents;
- acquire any business (including the assets thereof) or any corporation,
partnership, joint venture, association or other business organization or
division thereof;
- sell, mortgage or otherwise encumber or subject to any lien (other than
mechanics liens filed in connection with the development of real property
by Investors Life Company of North America) or otherwise dispose of any
of its properties or assets that are material to FIC and its
subsidiaries, taken as whole;
- other than working capital borrowings in the ordinary course of business
and consistent with past practices, incur any indebtedness for borrowed
money or guarantee any such indebtedness of another person, other than
indebtedness owing to or guarantees of indebtedness owing to FIC or any
of its direct or indirect wholly-owned subsidiaries;
- make any material loans or advances to any other person, other than to
FIC or any of its direct or indirect wholly-owned subsidiaries and other
than routine advances to employees consistent with past practices;
- make any tax election or settle or compromise any tax liability that
could reasonably be expected to be material to FIC and its subsidiaries,
taken as a whole, or change its tax or accounting methods, policies,
practice or procedures, except as required by law or generally accepted
accounting principles;
- pay, discharge, settle or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the most recent consolidated financial statements
(or the notes thereto) of FIC included in documents filed with the
Securities and Exchange Commission or incurred since the date of such
financial statements in the ordinary course of business consistent with
past practice;
- make any material commitments or agreements for capital expenditures or
capital additions or betterments except as materially consistent with the
budget for capital expenditures as of the date of the merger agreement,
in the ordinary course of business consistent with past practices;
- except as may be required by law:
- other than in the ordinary course of business and consistent with past
practices, make any representation or promise, oral or written, to any
employee or former director, officer or employee of FIC or any of its
subsidiaries which is inconsistent with the terms of any agreement,
arrangement or policy (written or oral) relating to employment,
severance, change of control, termination, stock options, stock
purchases, compensation, deferred compensation, fringe benefits or other
employee benefits currently in effect;
- other than in the ordinary course of business, make any change to, or
amend in any way, the contracts, salaries, wages, or other compensation
of any director, employee or any agent or consultant of FIC or any of
its subsidiaries other than routine changes or amendments that are
required under existing contracts;
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- except for renewals in the ordinary course of business consistent with
past practices, adopt, enter into, amend, alter or terminate, partially
or completely, any agreement, arrangement or policy (written or oral)
relating to employment, severance, change of control, termination, stock
options, stock purchases, compensation, deferred compensation, fringe
benefits or other employee benefits currently in effect, or any election
made pursuant to the provisions thereof, to accelerate any payments,
obligations or vesting schedules under any agreement, arrangement or
policy (written or oral) relating to employment, severance, change of
control, termination, stock options, stock purchases, compensation,
deferred compensation, fringe benefits or other employee benefits
currently in effect; or
- other than in the ordinary course of business consistent with past
practices, approve any general or company-wide pay increases for
employees;
- except in the ordinary course of business, modify, amend or terminate any
material agreement, permit, concession, franchise, license or similar
instrument to which ILCO or any of its subsidiaries is a party or waive,
release or assign any material rights or claims thereunder; or
- authorize any of, or commit or agree to take any of, the foregoing
actions.
CONDITIONS TO THE COMPLETION OF THE MERGER
The respective obligations of FIC and ILCO to consummate the merger are
subject to the satisfaction or waiver of certain conditions, including that:
- the approval of the shareholders of both ILCO and FIC shareholders shall
have been obtained;
- all required consents, approvals, permits and authorizations to the
consummation of the merger shall be obtained from any governmental entity
whose consent, approval, permission or authorization is required by
reason of a change in law after the date of the merger agreement, unless
the failure to obtain such consent, approval, permission or authorization
could not reasonably be expected to have a material adverse effect on the
business, properties, results of operations, or condition (financial or
otherwise) of ILCO and its subsidiaries, considered as a whole, or to
materially and adversely affect the validity or enforceability of the
merger agreement;
- the waiting period (and any extension thereof) applicable to the merger
under the HSR Act shall have been terminated or shall have otherwise
expired;
- no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the merger shall
be in effect;
- the shares of FIC common stock issuable pursuant to the merger shall have
been approved for quotation in the Nasdaq Stock Market's Small Cap
Market; and
- the registration statement of which this joint proxy statement/prospectus
is a part shall have become effective under the Securities Act of 1933
and shall not be the subject of any stop order or proceedings seeking a
stop order.
The obligation of ILCO to effect the merger is further subject to the
following conditions:
- the representations and warranties of FIC and Merger Sub contained in the
merger agreement shall have been true and correct on the date of the
merger agreement and shall be true and correct at and as of the closing
of the merger as though made at and as of such time (except to the extent
that any such representations and warranties expressly relate only to an
earlier time, in which case they shall have been true and correct at such
earlier time) and FIC and Merger Sub shall each have delivered to ILCO a
certificate dated as of the closing of the merger, signed by a senior
executive officer of FIC and Merger Sub to such effect;
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- each of FIC and Merger Sub shall have performed in all material respects
all obligations required to be performed by it under the merger agreement
at or prior to the closing of the merger, and ILCO shall have received a
certificate signed on behalf of each of FIC and Merger Sub by a senior
executive officer to such effect;
- ILCO shall have received an opinion of Fulbright & Jaworski, dated as of
the closing of the merger, to the effect that:
- the merger will constitute a reorganization under Section 368(a) of the
Code;
- FIC, Merger Sub and ILCO will each be a party to the reorganization
under Section 368(b) of the Code; and
- no gain or loss will be recognized by the shareholders of ILCO upon the
receipt of FIC common stock in exchange for ILCO common stock pursuant
to the merger except with respect to any cash received in lieu of
fractional shares of FIC common stock;
- the opinion of Mattingly & Co., financial advisor to the ILCO Special
Committee, to the effect that the merger is fair, from a financial point
of view, to the shareholders of ILCO, shall not have been modified,
withdrawn or revoked as of the date and time of mailing of this joint
proxy statement/prospectus to the shareholders of ILCO;
- FIC shall have obtained the consent or approval of any person required
under any material contract of FIC, if any, to consummate the
transactions contemplated by the merger agreement; and
- there shall not have occurred any change in the business of FIC and its
subsidiaries since the date of the merger agreement or any other event or
circumstance that could reasonably be expected to have a material adverse
effect on the business, properties, results of operations, or condition
(financial or otherwise) of FIC and its subsidiaries, considered as a
whole.
The obligations of FIC and Merger Sub to effect the merger are further
subject to the following conditions:
- The representations and warranties of ILCO contained in the merger
agreement shall have been true and correct on the date of the merger
agreement and shall be true and correct at and as of the closing of the
merger as though made at and as of such time (except to the extent that
any such representations and warranties expressly relate only to an
earlier time, in which case they shall have been true and correct at such
earlier time); and ILCO shall have delivered to FIC and Merger Sub a
certificate dated as of the closing of the merger, signed by a senior
executive officer of ILCO to such effect;
- ILCO shall have performed in all material respects all obligations
required to be performed by it under the merger agreement at or prior to
the closing of the merger, and FIC and Merger Sub shall have received a
certificate signed on behalf of ILCO by a senior executive officer of
ILCO to such effect;
- FIC shall have received an opinion of Weil Gotshal, dated as of the
closing of the merger, to the effect that:
- the merger will constitute a reorganization under Section 368(a) of the
Code;
- FIC, Merger Sub and ILCO will each be a party to the reorganization
under Section 368(b) of the Code; and
- no gain or loss will be recognized by FIC, Merger Sub or ILCO by reason
of the merger;
- ILCO shall have obtained the consent or approval of any person required
under any material contract, if any, to consummate the transactions
contemplated by the merger agreement.
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- the opinion of Philo Smith Capital, financial advisor to the FIC Special
Committee, to the effect that the exchange ratio is fair, from a
financial point of view, to the shareholders of FIC, shall not have been
modified, withdrawn or revoked as of the date and time of mailing of the
joint proxy statement/prospectus to the shareholders of FIC.
- FIC shall have received an executed copy of the amendment to the
Investors-NA Option Agreement, and such agreement, as amended, shall be
in full force and effect; and
- there shall not have occurred any change in the business of ILCO and its
subsidiaries since the date of the merger agreement or any other event or
circumstance that could reasonably be expected to have a material adverse
effect on the business, properties, results of operations, or condition
(financial or otherwise) of ILCO and its subsidiaries, considered as a
whole.
ADDITIONAL COVENANTS OF FIC AND ILCO
Each of FIC and ILCO has also agreed, among other things and subject to
various conditions and exceptions, that:
- as soon as practicable following the date of the merger agreement, FIC
and ILCO will jointly prepare this joint proxy statement/prospectus in
connection with the vote of the shareholders of FIC and ILCO in respect
of the merger and FIC will file with the Securities and Exchange
Commission a registration statement, of which this joint proxy
statement/prospectus is a part, in connection with the registration under
the Securities Act of the shares of FIC common stock to be issued in
connection with the merger;
- ILCO will use its commercially reasonable efforts to cause
PricewaterhouseCoopers LLP to deliver a customary "comfort" letter dated
the date on which the registration statement filed by FIC will become
effective and addressed to FIC;
- FIC will use its commercially reasonable efforts to cause
PricewaterhouseCoopers to deliver a customary "comfort" letter dated the
date on which the registration statement will become effective and
addressed to ILCO;
- ILCO will:
- hold a special meeting of its shareholders as soon as practicable after
the date of the merger agreement for the purpose of voting on the
approval of the plan of merger contained in the merger agreement; and
- the ILCO Special Committee and ILCO's board of directors will recommend
to its shareholders that they vote in favor of the approval and adoption
of the plan of merger in accordance with the terms of the merger
agreement;
- FIC will:
- hold a special meeting of its shareholders as soon as practicable after
the date of the merger agreement for the purpose of voting on the
issuance of shares of FIC common stock in the merger and the amendment
to FIC's articles of incorporation; and
- the FIC Special Committee and FIC's board of directors will recommend to
its shareholders that they vote in favor of such proposals;
- each of FIC and ILCO agree that they will consult with each other before
issuing, and will provide each other the opportunity to review and
comment upon, any press release or other public statements with respect
to the merger;
- FIC and ILCO will make and cause their respective subsidiaries and, to
the extent necessary, their other affiliates to make all necessary
filings, including, without limitation, those required under the
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HSR Act, applicable state insurance laws, the Securities Act of 1933 and
the Exchange Act of 1934 in order to facilitate the prompt consummation
of the merger;
- prior to the merger, ILCO will deliver to FIC a letter identifying all
persons who, at the time the merger is submitted for approval to the
shareholders of both ILCO and FIC, may be deemed to be an "affiliate" of
such party for purposes of Rule 145 under the Securities Act of 1933 and
ILCO will use its commercially reasonable efforts to cause each such
person to deliver to FIC prior to the merger a written statement
acknowledging of the effect of Rule 145 on any shares of FIC common stock
issued to such person;
- ILCO will use its best efforts to cause Investors Life Company of North
America to enter into an agreement with FIC whereby the terms and
provisions of the agreement, dated March 21, 1991, which agreement grants
to Investors Life Company of North America an option to purchase up to
9.9% of the outstanding shares of FIC common stock, are modified so as to
provide Investors Life Company of North America an option to purchase up
to 500,411 shares of FIC common stock; and
- FIC will, and will cause its subsidiaries to, vote all shares of ILCO
common stock held of record by FIC or its subsidiaries either "for" or
"against" the merger in the same manner as the prevailing majority of the
shares of ILCO common stock (other than shares held of record by FIC or
any of its subsidiaries) voted in person or by proxy (it being understood
that for such determination, only votes "for" and "against" the plan of
merger will be counted).
ILCO has also further agreed not to, and not to permit its subsidiaries to,
nor authorize or permit any officer, director or employee of or any investment
banker, attorney, accountant or other advisor or representative of FIC or any of
its subsidiaries to, directly or indirectly:
- solicit, initiate or encourage the submission of any Acquisition Proposal
(as defined below); or
- participation in any discussions or negotiations regarding, or furnish to
any person any information in respect of, or take any other action to
facilitate, any Acquisition Proposal or any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to lead to,
any Acquisition Proposal.
However, in response to an unsolicited Acquisition Proposal, ILCO and its
board of directors may take any of the actions described in the second bullet
above if, and only to the extent that the ILCO board of directors or any special
committee thereof:
- is advised by its financial advisor that such third party making an
unsolicited Acquisition Proposal has the financial wherewithal to be
reasonably capable of consummating such an Acquisition Proposal and the
board of directors of ILCO determines in good faith:
- after receiving advice from such financial advisor, that such potential
acquiror has submitted to ILCO an Acquisition Proposal which is a
Superior Proposal (as defined below);
- based upon advice of outside legal counsel, that the failure to
participate in such discussions or negotiations or to furnish such
information or approve an Acquisition Proposal would violate the ILCO
board of directors' fiduciary duties under applicable law; and
- any non-public information furnished by ILCO to a potential acquiror
will be pursuant to a confidentiality agreement containing
confidentiality and standstill provisions.
In the event that ILCO shall determine to provide any information as
described above, or shall receive any Acquisition Proposal, it shall promptly
inform FIC in writing as to the fact that information is to be provided and
shall furnish FIC the identity of the recipient of such information and/or the
potential acquiror and the terms of such Acquisition Proposal. ILCO will inform
FIC promptly of any material changes or amendment to the essential terms of any
such Acquisition Proposal.
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ILCO has also agreed to terminate any existing activities, discussions or
negotiations with any parties conducted before the merger in respect of any
possible Acquisition Proposal.
Subject to certain exceptions, neither ILCO's board of directors nor any
special committee thereof will:
- withdraw or modify, or propose to withdraw or modify, in a manner adverse
to FIC, its approval or recommendation of the merger;
- approve or recommend, or propose to approve or recommend, any Acquisition
Proposal; or
- cause ILCO to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement related to any
Acquisition Proposal,
unless ILCO's board of directors or any committee thereof withdraws or modifies
their approval or recommendation of the merger agreement and approves or
recommends an Acquisition Proposal in the event that the board determines in
good faith:
- after receiving advice from its financial advisor, that such Acquisition
Proposal is a Superior Proposal (as defined below); and
- based upon advice of outside legal counsel, that the failure to take such
action would violate the board's or any such committee's fiduciary duties
under applicable law.
"Acquisition Proposal" means any proposal or offer from any person (other
than FIC or any of its subsidiaries) for a tender or exchange offer, merger,
consolidation, other business combination, recapitalization, liquidation,
dissolution or similar transaction involving ILCO or any of its subsidiaries, or
any proposal to acquire in any manner a substantial equity interest in, or an
substantial portion of the assets of, ILCO or any of its subsidiaries.
"Superior Proposal" means any bona fide proposal to acquire, directly or
indirectly (by way of tender offer, share purchase, merger or otherwise), all of
the outstanding shares of capital stock of ILCO (including options and other
derivative securities exercisable for or convertible into capital stock of ILCO)
for consideration consisting of cash and/or securities, on terms which the board
of directors of ILCO determines in good faith to be more favorable to ILCO and
its shareholders than the merger (based upon advice of the financial advisor of
the board of directors of ILCO or any committee thereof that the value of the
consideration provided for in such proposal is superior to the value of the
merger consideration), for which financing, to the extent required, is then
committed or which, in the good faith reasonable judgment of the board of
directors of ILCO, after receiving advice from its financial advisor, is
reasonably capable of being financed by such third party.
TERMINATION OF THE MERGER AGREEMENT
Termination by either FIC or ILCO
The merger agreement may be terminated, and the merger abandoned, at any
time prior to the merger by mutual written consent of FIC and ILCO. The merger
agreement may also be terminated by either FIC or ILCO if:
- the merger is not consummated by June 1, 2001;
- the required approval of the shareholders of FIC or ILCO has not been
obtained;
- any order, decree or ruling permanently restraining, enjoining or
otherwise prohibiting the consummation of the merger has become final and
non-appealable; or
- in the event of a breach by the other party of any representation,
warranty, covenant or other agreement contained in the merger agreement
which (A) would give rise to the failure of a condition precedent to the
completion of the merger as specified in the merger agreement, and
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(B) cannot be or has not been cured within 30 days after the giving of
written notice to the breaching party of such breach, provided that the
terminating party is not then in breach of any material representation,
warranty, covenant or other agreement contained in the merger agreement.
Termination by ILCO
The merger agreement may be terminated, and the merger abandoned, by ILCO
at any time prior to the merger if a third party shall have made an Acquisition
Proposal that is a Superior Proposal and ILCO shall have concurrently executed a
definitive agreement with such third party.
Termination by FIC
The merger agreement may be terminated, and the merger abandoned, by FIC at
any time prior to the merger if there is a breach by ILCO of the requirements of
the merger agreement regarding Acquisition Proposals.
Effect of Termination
If FIC or ILCO terminates the merger agreement pursuant to the any of the
foregoing, except a material breach by the other party or a provision which
allows for unilateral termination by either FIC or ILCO, the merger agreement
will become void and have no effect, without any liability or obligation on the
part of FIC or ILCO, subject to the conditions contained in the merger
agreement.
If the merger agreement is terminated unilaterally by either FIC or by
ILCO, ILCO will promptly reimburse FIC for all substantiated out-of-pocket costs
and expenses incurred by it in connection with the merger, including, without
limitation, costs and expenses of accountants, attorneys and financial advisors.
If the merger agreement is terminated by either FIC or ILCO pursuant to a
material breach by the other party, the non-breaching party may seek damages or
any other appropriate remedy in law or in equity.
INDEMNIFICATION OF ILCO'S DIRECTORS AND OFFICERS
FIC and the surviving corporation have agreed to indemnify the present and
former directors and officers of ILCO and its subsidiaries, Merger Sub and FIC
against all losses, claims, damages, expenses, liabilities or amounts paid in
settlement arising out of threatened, pending or completed actions, or other
proceedings, whether criminal, civil, administrative or investigative or other
type whatsoever, occurring prior to or after the merger, in whole or in part,
based on or arising out of the fact that such person is or was a director or
officer of such party.
AMENDMENT OF THE MERGER AGREEMENT
The merger agreement may be amended at any time in writing signed by all
parties to the merger agreement before or after the approval of the merger by
the FIC and ILCO shareholders but, after their approval, the merger agreement
may not be amended without the approval of the FIC or ILCO shareholders if their
approval is required under any applicable law.
EXTENSION AND WAIVER
At any time before the merger, each party to the merger agreement may
extend the time for performance of any obligation or act of another party, waive
any inaccuracies in the representations and warranties of another party or waive
compliance by the other party with any of the agreements or conditions contained
in the merger agreement.
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BUSINESS OF FIC
GENERAL
FIC is a holding company primarily engaged in the life insurance business
through its ownership of 100% of Family Life Insurance Company and its
approximate 48% interest in ILCO. Through 1984, FIC's principal business was the
sale and underwriting of life and health insurance, mainly in the Midwestern and
Southwestern United States. During the period from 1985 to 1987, FIC acquired
its equity interest in ILCO. The acquisition of Family Life in 1991 has provided
FIC with direct participation in the marketing and underwriting of life
insurance. Family Life sells life insurance to customers who are primarily
mortgage borrowers from financial institutions where Family Life has marketing
relationships. FIC was organized as an Ohio corporation in 1968 and was
reincorporated in Texas in 1980.
INCORPORATION BY REFERENCE TO OTHER DOCUMENTS
As allowed by the rules of the Securities and Exchange Commission, this
joint proxy statement/ prospectus does not contain all of the information you
can find in the registration statement or the exhibits to the registration
statement. Specifically, the Securities and Exchange Commission allows FIC to
"incorporate by reference" information into this joint proxy
statement/prospectus, which means that FIC can disclose important information to
you by referring you to another document filed separately by it with the
Securities and Exchange Commission. The information incorporated in this joint
proxy statement/ prospectus by reference is deemed to be part of this joint
proxy statement/prospectus, except for any information superseded by information
that we include in this joint proxy statement/prospectus. This joint proxy
statement/prospectus incorporates by reference the documents set forth below
that have previously been filed with the Securities and Exchange Commission.
These documents contain important information about FIC and its finances.
DOCUMENT FILED PERIOD OR DATE FILED
- -------------- --------------------
Annual Report on Form 10-K for Fiscal Year ended December
31, 1999.................................................. Filed on March 30, 2000
Quarterly Reports on Form 10-Q for three months ended March
31, 2000, June 30, 2000 and September 30, 2000............ Filed on May 15, 2000, August 14,
2000 and November 14, 2000
Current Reports on Form 8-K................................. Filed on January 22, 2001
Sections of Annual Meeting Proxy Statement on Schedule 14A
under headings "Election of Directors," "Executive
Officers," "Compensation of Executive Officers and
Directors," "Certain Relationships and Related
Transactions" and "Security Ownership of Certain
Beneficial Owners and Management"......................... Filed on April 19, 2000
FIC is also incorporating by reference any additional documents that it may
file with the Securities and Exchange Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 between the date of
this joint proxy statement/prospectus and the date of the special meetings of
FIC and ILCO shareholders.
WHERE YOU CAN FIND MORE INFORMATION ABOUT FIC
FIC (Commission File No. 0-4690) files annual, quarterly and current
reports, proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements and other information
filed by FIC at the Securities and Exchange Commission's public reference room,
at 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at public
reference rooms in New York, New York, and Chicago, Illinois. Please call (800)
SEC-0330 for further information on the public reference rooms. FIC's filings
are also available to the public from commercial document
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retrieval services and at the Internet web site maintained by the Securities and
Exchange Commission at http://www.sec.gov.
FIC has filed a registration statement on Form S-4 to register with the
Securities and Exchange Commission the FIC common stock to be issued to
shareholders of ILCO in the merger. This joint proxy statement/prospectus is
part of that registration statement and constitutes a prospectus of FIC in
addition to being a proxy statement of both FIC and ILCO for their special
meetings of shareholders.
FIC has supplied all information contained or incorporated by reference in
this joint proxy statement/ prospectus relating to FIC and Merger Sub.
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BUSINESS OF ILCO
GENERAL
ILCO is principally engaged, through its subsidiaries, in administering
existing portfolios of life insurance policies and annuity products. ILCO's
insurance subsidiaries are also engaged in the business of marketing and
underwriting individual life insurance and annuity products in 49 states and the
District of Columbia. These products are marketed through independent,
non-exclusive general agents. FIC beneficially owns approximately 48% of ILCO's
common stock. ILCO was originally incorporated in 1969 under the laws of the
State of New Jersey and subsequently transferred its domicile in 1997 from New
Jersey to Texas.
INCORPORATION BY REFERENCE TO OTHER DOCUMENTS
As allowed by the rules of the Securities and Exchange Commission, this
joint proxy statement/ prospectus does not contain all of the information you
can find in the registration statement or the exhibits to the registration
statement. Specifically, the Securities and Exchange Commission allows ILCO to
"incorporate by reference" information into this joint proxy
statement/prospectus, which means that ILCO can disclose important information
to you by referring you to another document filed separately by it with the
Securities and Exchange Commission. The information incorporated in this joint
proxy statement/ prospectus by reference is deemed to be part of this joint
proxy statement/prospectus, except for any information superseded by information
that we include in this joint proxy statement/prospectus. This joint proxy
statement/prospectus incorporates by reference the documents set forth below
that have previously been filed with the Securities and Exchange Commission.
These documents contain important information about ILCO and its finances.
DOCUMENT FILED PERIOD OR DATE FILED
- -------------- --------------------
Annual Report on Form 10-K for Fiscal Year ended December
31,
1999...................................................... Filed on March 30, 2000
Quarterly Reports on Form 10-Q for three months ended March
31, 2000, June 30, 2000 and September 30, 2000............ Filed on May 15, 2000, August 14,
2000 and November 14, 2000
Current Reports on Form 8-K................................. Filed on January 22, 2001
Sections of Annual Meeting Proxy Statement on Schedule 14A
under headings "Election of Directors," "Executive
Officers," "Compensation of Executive Officers and
Directors," "Certain Relationships and Related
Transactions" and "Security Ownership of Certain
Beneficial Owners and Management"......................... Filed on April 19, 2000
FIC is also incorporating by reference any additional documents that ILCO
may file with the Securities and Exchange Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 between the date of
this joint proxy statement/prospectus and the date of the special meetings of
FIC and ILCO shareholders.
WHERE YOU CAN FIND MORE INFORMATION ABOUT ILCO
ILCO (Commission File No. 0-7288) files annual, quarterly and current
reports, proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements and other information
filed by ILCO at the Securities and Exchange Commission's public reference room,
at 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at public
reference rooms in New York, New York, and Chicago, Illinois. Please call (800)
SEC-0330 for further information on the public reference rooms. ILCO's filings
are also available to the public from commercial document retrieval services and
at the Internet web site maintained by the Securities and Exchange Commission at
http://www.sec.gov.
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ILCO has supplied all information contained or incorporated by reference in
this joint proxy statement/prospectus relating to ILCO.
DESCRIPTION OF CAPITAL STOCK OF FIC
GENERAL
After giving effect to the amendment to the FIC articles of incorporation
described in this joint proxy statement/prospectus, the authorized capital stock
of FIC consists of 25,000,000 shares of common stock, $0.20 par value per share.
As of , 2001, there were shares of common stock issued and
outstanding. The following summary of the terms of FIC's capital stock does not
purport to be complete and is qualified in its entirety by reference to the
applicable provisions of Texas law and FIC's articles of incorporation, as
amended (including the amendment to the FIC articles of incorporation described
in this joint proxy statement/prospectus).
THE COMMON STOCK
The holders of FIC common stock are entitled to receive dividends when and
as declared by the board of directors. The holders of FIC common stock have one
vote per share on all matters submitted to a vote of shareholders, other than
the election of directors in which case holders are entitled to cumulate votes,
and holders of fractional shares are entitled to a like fraction of a vote. The
holders of FIC common stock are also entitled to share pro rata in the net
assets of FIC in dissolution after payment of any amounts due to creditors.
Holders of FIC common stock are not entitled to any preemptive rights. All
outstanding shares of FIC common stock are fully paid and nonassessable.
FIC is authorized to issue additional shares of FIC common stock without
further shareholder approval, except as may be required by applicable law or by
the Nasdaq Stock Market or any stock exchange regulations of which the FIC
common stock may subsequently be traded.
The transfer agent and registrar for FIC common stock is FIC, 6500 River
Place Blvd., Building One, Austin, Texas 78730.
LEGAL MATTERS
The validity of the shares of FIC common stock to be issued in the merger
will be passed upon for FIC by Sheryl Kinlaw, Special Counsel of FIC, and
material U.S. federal income tax consequences of the merger will be passed upon
for FIC by Weil, Gotshal & Manges LLP, Dallas, Texas and New York, New York.
Material U.S. federal income tax consequences of the merger will be passed
upon for ILCO by Fulbright & Jaworski L.L.P., Austin, Texas.
EXPERTS
The financial statements incorporated in this joint proxy
statement/prospectus by reference to FIC's Annual Report on Form 10-K for the
year ended December 31, 1999 have been so incorporated in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The financial statements incorporated in this joint proxy
statement/prospectus by reference to ILCO's Annual Report on Form 10-K for the
year ended December 31, 1999 have been so incorporated in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
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SHAREHOLDER PROPOSALS FOR FIC'S 2001 ANNUAL MEETING OF SHAREHOLDERS
FIC's management knows of no matters other than the proposal to issue
shares of FIC common stock in the merger and the proposed amendment to FIC's
articles of incorporation that may properly be, or which are likely to be,
brought before the special meeting of FIC's shareholders.
Under the rules and regulations of the Securities and Exchange Commission,
shareholder proposals intended to be presented at the FIC 2001 Annual Meeting of
Shareholders and included in FIC's proxy statement and form of proxy must have
been received by FIC at its principal executive offices no later than December
20, 2000 to be considered for inclusion in FIC's proxy statement and proxy cards
for that meeting.
In accordance with the rules and regulations of the Securities and Exchange
Commission, FIC's management will have discretionary authority to vote on any
proposal raised by a shareholder at the 2001 Annual Meeting if the proponent of
such proposal fails to notify FIC on or before March 5, 2001.
All notices of proposals by shareholders, whether or not included in FIC's
proxy materials, should be sent to Financial Industries Corporation, 6500 River
Place Blvd., Building One, Austin, Texas 78730, Attention: Secretary.
SHAREHOLDER PROPOSALS FOR ILCO'S 2001 ANNUAL MEETING
OF SHAREHOLDERS IF THE MERGER IS NOT CONSUMMATED
ILCO's management knows of no matters other than the merger proposal that
may properly be, or which are likely to be, brought before the special meeting
of ILCO shareholders.
The ILCO 2001 Annual Meeting of Shareholders will be held only if the
merger is not consummated. If the merger is not consummated, under the rules and
regulations of the Securities and Exchange Commission, shareholder proposals
intended to be presented at the ILCO 2001 Annual Meeting of Shareholders and
included in ILCO's proxy statement and form of proxy must have been received by
ILCO at its principal executive offices no later than December 20, 2000 to be
considered for inclusion in ILCO's proxy statement and proxy cards for that
meeting.
In accordance with the rules and regulations of the Securities and Exchange
Commission, ILCO's management will have discretionary authority to vote on any
proposal raised by a shareholder at the 2001 Annual Meeting if the proponent of
such proposal fails to notify ILCO on or before March 5, 2001.
All notices of proposals by shareholders, whether or not included in ILCO's
proxy materials, should be sent to InterContinental Life Corporation, 6500 River
Place Blvd., Building One, Austin, Texas 78730, Attention: Secretary.
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ANNEX A
SECTION 5.9(b) OF THIS AGREEMENT CONTAINS PROVISIONS WITH RESPECT TO THE
INDEMNIFICATION OF OFFICERS AND DIRECTORS OF FINANCIAL INDUSTRIES CORPORATION,
ILCO ACQUISITION COMPANY AND INTERCONTINENTAL LIFE CORPORATION.
AGREEMENT AND PLAN OF MERGER
AMONG
FINANCIAL INDUSTRIES CORPORATION,
ILCO ACQUISITION COMPANY
AND
INTERCONTINENTAL LIFE CORPORATION
DATED AS OF JANUARY 17, 2001
84
TABLE OF CONTENTS
PAGE
----
Article I THE MERGER.................................................. A-2
1.1 The Merger.................................................. A-2
1.2 Closing..................................................... A-2
1.3 Effective Time.............................................. A-2
1.4 Articles of Incorporation................................... A-2
1.5 Bylaws...................................................... A-2
1.6 Directors................................................... A-2
1.7 Officers.................................................... A-2
1.8 Effect on ILCO Capital Stock................................ A-3
(a) Outstanding ILCO Common Stock........................... A-3
(b) Treasury Shares; FIC-Owned Shares....................... A-3
(c) Impact of Stock Splits, etc............................. A-3
1.9 Effect on FIC Capital Stock................................. A-3
1.10 Effect on Merger Sub Capital Stock.......................... A-3
1.11 Exchange of Certificates.................................... A-3
(a) Paying Agent............................................ A-3
(b) Exchange Procedures..................................... A-4
(c) Letter of Transmittal................................... A-4
(d) Distributions with Respect to Unexchanged Shares........ A-4
(e) No Further Ownership Rights in ILCO Common Stock........ A-4
(f) No Fractional Shares.................................... A-5
(g) Termination of Payment Fund............................. A-5
(h) No Liability............................................ A-5
(i) Withholding of Tax...................................... A-5
Article II REPRESENTATIONS AND WARRANTIES OF ILCO...................... A-6
2.1 Organization, Standing and Corporate Power.................. A-6
2.2 Capital Structure........................................... A-6
2.3 Authority; Noncontravention................................. A-7
2.4 ILCO SEC Documents; Financial Statements.................... A-8
2.5 Absence of Certain Changes or Events........................ A-8
2.6 No Extraordinary Payments or Change in Benefits............. A-9
2.7 Voting Requirements......................................... A-9
2.8 State Takeover Statutes..................................... A-9
2.9 Brokers..................................................... A-9
2.10 Compliance with Applicable Laws............................. A-9
2.11 Absence of Undisclosed Liabilities.......................... A-9
2.12 Litigation.................................................. A-9
2.13 Transactions with Affiliates................................ A-10
2.14 Labor Matters............................................... A-10
2.15 Employee Arrangements and Benefit Plans..................... A-10
2.16 Tax Matters................................................. A-11
2.17 Intellectual Property....................................... A-12
2.18 Environmental Matters....................................... A-13
2.19 Material Contracts.......................................... A-13
2.20 Tangible Property........................................... A-14
2.21 Fairness Opinion............................................ A-14
2.22 Insurance Business.......................................... A-14
2.23 Liabilities and Reserves.................................... A-15
2.24 ILCO Broker/Dealers......................................... A-15
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TABLE OF CONTENTS
PAGE
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Article III REPRESENTATIONS AND WARRANTIES OF FIC....................... A-16
3.1 Organization, Standing and Corporate Power.................. A-16
3.2 Capital Structure........................................... A-16
3.3 Authority; Noncontravention................................. A-17
3.4 FIC SEC Documents........................................... A-18
3.5 Absence of Certain Changes or Events........................ A-18
3.6 No Extraordinary Payments or Change in Benefits............. A-19
3.7 Voting Requirements......................................... A-19
3.8 Brokers..................................................... A-19
3.9 Fairness Opinion............................................ A-19
3.10 Compliance with Applicable Laws............................. A-19
3.11 Absence of Undisclosed Liabilities.......................... A-19
3.12 Litigation.................................................. A-19
3.13 Transactions with Affiliates................................ A-20
3.14 FIC Common Stock............................................ A-20
3.15 Employee Arrangements and Benefit Plans..................... A-20
3.16 Tax Matters................................................. A-20
3.17 Intellectual Property....................................... A-22
3.18 Environmental Matters....................................... A-22
3.19 State Takeover Statutes..................................... A-22
3.20 Labor Matters............................................... A-22
3.21 Material Contracts.......................................... A-23
3.22 Tangible Property........................................... A-23
3.23 Insurance Business.......................................... A-23
3.24 Liabilities and Reserves.................................... A-24
Article IV REPRESENTATIONS AND WARRANTIES OF MERGER SUB................ A-24
4.1 Organization, Standing and Corporate Power.................. A-24
4.2 Capital Structure........................................... A-24
4.3 Authority; Noncontravention................................. A-25
4.4 No Prior Activities......................................... A-25
Article V ADDITIONAL AGREEMENTS....................................... A-25
5.1 Preparation of Form S-4 and Joint Proxy
Statement/Prospectus;
Information Supplied...................................... A-25
5.2 Shareholder Approval........................................ A-26
5.3 Access to Information; Confidentiality...................... A-27
5.4 Public Announcements........................................ A-27
5.5 Acquisition Proposals....................................... A-27
5.6 Consents, Approvals and Filings............................. A-29
5.7 Affiliate Letters........................................... A-29
5.8 Nasdaq Listing.............................................. A-29
5.9 INDEMNIFICATION OF OFFICERS AND DIRECTORS................... A-29
5.10 Letter of FIC's Accountants................................. A-30
5.11 Letter of ILCO's Accountants................................ A-30
5.12 FIC Stock Option Held by Investors-NA....................... A-30
5.13 Vote of Shares of ILCO Common Stock by FIC.................. A-30
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TABLE OF CONTENTS
PAGE
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Article VI COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER... A-31
6.1 Conduct of Business of ILCO................................. A-31
6.2 Conduct of Business of FIC.................................. A-32
6.3 Stock Options............................................... A-33
6.4 Other Actions............................................... A-34
Article VII CONDITIONS PRECEDENT........................................ A-34
7.1 Conditions to Each Party's Obligation to Effect the
Merger.................................................... A-34
(a) Shareholder Approval.................................... A-34
(b) Governmental and Regulatory Consents.................... A-34
(c) HSR Act................................................. A-35
(d) No Injunctions or Restraints............................ A-35
(e) Nasdaq Listing.......................................... A-35
(f) Form S-4................................................ A-35
7.2 Conditions to Obligations of ILCO........................... A-35
(a) Representations and Warranties.......................... A-35
(b) Performance of Obligations of FIC and Merger Sub........ A-35
(c) Tax Opinion............................................. A-35
(d) Fairness Opinion........................................ A-35
(e) Consent................................................. A-35
(f) No Material Adverse Change.............................. A-36
7.3 Conditions to Obligations of FIC............................ A-36
(a) Representations and Warranties.......................... A-36
(b) Performance of Obligations of ILCO...................... A-36
(c) Tax Opinion............................................. A-36
(d) Consents................................................ A-36
(e) Fairness Opinion........................................ A-36
(f) Investors-NA Option Agreement........................... A-36
(g) No Material Adverse Change.............................. A-36
Article VIII TERMINATION, AMENDMENT AND WAIVER........................... A-37
8.1 Termination................................................. A-37
8.2 Effect of Termination....................................... A-37
8.3 Amendment................................................... A-38
8.4 Extension; Consent; Waiver.................................. A-38
8.5 Procedure for Termination, Amendment, Extension, Consent or
Waiver.................................................... A-38
Article IX SURVIVAL OF PROVISIONS...................................... A-38
9.1 Survival.................................................... A-38
Article X NOTICES..................................................... A-38
10.1 Notices..................................................... A-38
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TABLE OF CONTENTS
PAGE
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Article XI MISCELLANEOUS............................................... A-39
11.1 Entire Agreement............................................ A-39
11.2 Expenses.................................................... A-39
11.3 Counterparts................................................ A-39
11.4 No Third Party Beneficiary.................................. A-39
11.5 Governing Law............................................... A-40
11.6 Assignment; Binding Effect.................................. A-40
11.7 Headings, Gender, Etc....................................... A-40
11.8 Invalid Provisions.......................................... A-40
11.9 No Recourse Against Others.................................. A-40
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88
DEFINED TERMS
PAGE
----
Acquisition Proposal........................................ A-28
Actions..................................................... A-13
Agreement................................................... A-1
Assumed Stock Options....................................... A-34
breaches.................................................... A-7
Closing..................................................... A-2
Closing Date................................................ A-2
Code........................................................ A-1
Effective Time.............................................. A-2
Employment Arrangements..................................... A-10
Environmental Laws.......................................... A-13
Environmental Liabilities................................... A-13
ERISA....................................................... A-10
Exchange Act................................................ A-8
Exchange Ratio.............................................. A-3
Family Life................................................. A-23
FIC......................................................... A-1
FIC Actuarial Analyses...................................... A-23
FIC Benefit Plans........................................... A-19
FIC Common Stock............................................ A-1
FIC Disclosure Letter....................................... A-18
FIC Fairness Opinion........................................ A-19
FIC Financial Statements.................................... A-18
FIC Material Adverse Effect................................. A-16
FIC Material Contracts...................................... A-23
FIC SEC Documents........................................... A-18
FIC Shareholders Approval................................... A-17
FIC Shareholders Meeting.................................... A-27
FIC Special Committee....................................... A-19
FIC Stock Options........................................... A-16
FIC-Owned Shares............................................ A-3
Financial Statements........................................ A-8
Form S-4.................................................... A-25
Form S-8.................................................... A-34
Fractional Shares........................................... A-5
GAAP........................................................ A-8
Governmental Entity......................................... A-7
Hazardous Materials......................................... A-13
HSR Act..................................................... A-7
ILCO........................................................ A-1
ILCO Actuarial Analyses..................................... A-14
ILCO Benefit Plans.......................................... A-9
ILCO Broker/Dealer.......................................... A-15
ILCO Common Stock........................................... A-1
ILCO Disclosure Letter...................................... A-8
ILCO Fairness Opinion....................................... A-14
ILCO Insurance Companies.................................... A-14
ILCO Material Adverse Effect................................ A-6
ILCO SEC Documents.......................................... A-8
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89
DEFINED TERMS
PAGE
----
ILCO Shareholders Approval.................................. A-7
ILCO Special Committee...................................... A-14
ILCO Stock Option Plan...................................... A-6
ILCO Stock Options.......................................... A-6
Indemnified Parties......................................... A-29
Indemnified Party........................................... A-29
Intellectual Property....................................... A-12
Investors-IN................................................ A-14
Investors-NA................................................ A-14
Investors-NA Option Agreement............................... A-30
IRS......................................................... A-10
Liens....................................................... A-6
Material Breach............................................. A-37
Material Contracts.......................................... A-14
Merger...................................................... A-2
Merger Consideration........................................ A-3
Merger Sub.................................................. A-1
Paying Agent................................................ A-3
Payment Fund................................................ A-3
Permits..................................................... A-9
Potential Acquiror.......................................... A-28
Proxy Statement/Prospectus.................................. A-25
Representatives............................................. A-27
SEC......................................................... A-8
Securities Act.............................................. A-8
Subsidiary.................................................. A-6
Superior Proposal........................................... A-28
Surviving Corporation....................................... A-2
Tax Return.................................................. A-12
Taxes....................................................... A-12
Texas Code.................................................. A-2
Texas Secretary of State.................................... A-2
Treasury Shares............................................. A-3
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of January 17, 2001, by and among Financial Industries Corporation, a
Texas corporation ("FIC"), ILCO Acquisition Company, a Texas corporation and
wholly-owned subsidiary of FIC ("Merger Sub"), and InterContinental Life
Corporation, a Texas corporation ("ILCO").
RECITALS
WHEREAS, FIC currently owns approximately 48% of the common stock, par
value $0.22 per share of ILCO ("ILCO Common Stock");
WHEREAS, it is proposed that FIC acquire all of the issued and outstanding
shares of ILCO Common Stock not owned by FIC by way of a merger of Merger Sub
with and into ILCO, with ILCO surviving the merger as a wholly-owned subsidiary
of FIC;
WHEREAS, FIC, ILCO and Merger Sub believe it is in the best interests of
their respective shareholders to consummate the merger of Merger Sub with and
into ILCO in accordance with the terms and subject to the conditions of this
Agreement;
WHEREAS, upon the terms and subject to the conditions set forth herein, the
Board of Directors of FIC, upon the unanimous recommendation of a duly
authorized special committee thereof (consisting solely of independent
directors), has approved the Agreement, the merger of Merger Sub with and into
ILCO and the issuance of shares of common stock, par value $0.20 per share (the
"FIC Common Stock"), of FIC in connection therewith and has recommended the
approval of the issuance of shares of common stock under this Agreement by FIC's
shareholders;
WHEREAS, upon the terms and subject to the conditions set forth herein, the
Board of Directors of ILCO, upon the unanimous recommendation of a duly
authorized special committee thereof (consisting solely of independent
directors), has approved such merger and has recommended approval of this
Agreement by ILCO's shareholders;
WHEREAS, the Board of Directors of Merger Sub has approved the merger and
has recommended approval of this Agreement by FIC, as its sole shareholder;
WHEREAS, it is the intention of FIC, ILCO and Merger Sub that such merger
will qualify as a tax-free reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, FIC, ILCO and Merger Sub desire to make certain representations,
warranties, covenants and agreements in connection with such merger and also to
prescribe various conditions to such merger.
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91
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined in Section 1.3), Merger Sub shall
merge with and into ILCO (the "Merger") in accordance with the Texas Business
Corporation Act (the "Texas Code"). At the Effective Time, the separate
corporate existence of Merger Sub shall cease and ILCO shall continue as the
surviving corporation of the Merger (the "Surviving Corporation") under the laws
of the State of Texas and with all the rights, privileges, properties,
franchises, immunities and powers, and subject to all the duties and
liabilities, of a corporation organized under the Texas Code. The Merger shall
have the effects set forth in the Texas Code (including, without limitation,
Article 5.06 of the Texas Code).
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
8.1, and subject to the satisfaction or waiver of the conditions set forth in
Article VII, the closing of the Merger (the "Closing") will take place at 10:00
a.m., Austin, Texas time, on the second business day following the date on which
the last to be fulfilled or waived of the conditions set forth in Article VII
shall be fulfilled or waived in accordance with this Agreement (the "Closing
Date"), at the offices of FIC, 6500 River Place Blvd., Austin, Texas 78730,
unless another date, time or place is agreed to by the parties hereto.
1.3 Effective Time. The parties hereto shall file with the Secretary of
State of the State of Texas (the "Texas Secretary of State") on the Closing Date
(or on such other date as the parties may agree) articles of merger or other
appropriate documents, executed in accordance with the relevant provisions of
the Texas Code, and make all other filings or recordings required under the
Texas Code in connection with the Merger. The Merger shall become effective upon
the filing of the articles of merger with the Texas Secretary of State, or at
such later time specified in such articles of merger (the "Effective Time").
1.4 Articles of Incorporation.
(a) The Articles of Incorporation of Merger Sub in effect immediately
prior to the Merger shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended in accordance with their terms and as
provided by the Texas Code.
(b) Concurrently with the execution and delivery of this Agreement,
the Board of Directors of FIC has adopted a resolution setting forth and
approving an amendment to the Articles of Incorporation of FIC in the form
set forth as Annex I hereto (the "Charter Amendment"), and directing that
the Charter Amendment be considered by the shareholders of FIC at the FIC
Shareholders Meeting (as defined in Section 5.2(b)), all in accordance with
the provisions of the Texas Code. Prior to the Effective Time of the
Merger, FIC shall file the Charter Amendment with the Texas Secretary of
State.
1.5 Bylaws. The Bylaws of Merger Sub in effect immediately prior to the
Merger shall be the bylaws of the Surviving Corporation until thereafter amended
in accordance with their terms and as provided by applicable law.
1.6 Directors. The directors of Merger Sub immediately prior to the
Effective Time shall, from and after the Effective Time, be the directors of the
Surviving Corporation until their successors shall have been duly elected or
appointed or qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Articles of Incorporation and
Bylaws.
1.7 Officers. The officers of Merger Sub immediately prior to the
Effective Time shall, from and after the Effective Time, be the officers of the
Surviving Corporation until their successors shall have been
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92
duly elected or appointed or qualified or until their earlier death, resignation
or removal in accordance with the Surviving Corporation's Articles of
Incorporation and Bylaws.
1.8 Effect on ILCO Capital Stock.
(a) Outstanding ILCO Common Stock. Each share of ILCO Common Stock
issued (and not cancelled or retired) immediately prior to the Effective
Time (other than shares of ILCO Common Stock held as treasury shares by
ILCO (but excluding shares of ILCO Common Stock held by any of ILCO's
subsidiaries, whether or not treated as treasury shares of ILCO on a
consolidated basis under GAAP) or shares of ILCO Common Stock held by FIC)
shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into the right to receive 1.1 validly issued,
fully paid and nonassessable shares of FIC Common Stock. The ratio of the
shares of FIC Common Stock to be issued in exchange for each whole share of
ILCO Common Stock is referred to as the "Exchange Ratio." The shares of FIC
Common Stock to be issued to holders of ILCO Common Stock in accordance
with this Section 1.8(a), and any cash to be paid in accordance with
Section 1.11(f) in lieu of fractional shares of FIC Common Stock, are
referred to as the "Merger Consideration."
(b) Treasury Shares; FIC-Owned Shares. Each share of (i) ILCO Common
Stock and (ii) series A preferred stock and series B preferred stock of
ILCO, in each case which is held as treasury shares by ILCO at the
Effective Time ("Treasury Shares") (excluding shares of ILCO Common Stock
held by any of ILCO's subsidiaries, whether or not treated as treasury
shares of ILCO on a consolidated basis under GAAP), and each share of ILCO
Common Stock which is held by FIC (excluding any shares of ILCO Common
Stock owned by any of FIC's subsidiaries) at the Effective Time ("FIC-Owned
Shares"), shall, by virtue of the Merger and without any action on the part
of ILCO or FIC, be cancelled and retired and cease to exist, without any
conversion thereof.
(c) Impact of Stock Splits, etc. In the event of any change in FIC
Common Stock and/or ILCO Common Stock between the date of this Agreement
and the Effective Time of the Merger in accordance with the terms of this
Agreement by reason of any stock split, stock dividend, subdivision,
reclassification, recapitalization, combination, exchange of shares or the
like, the number and class of shares of FIC Common Stock to be issued and
delivered in the Merger in exchange for each outstanding share of ILCO
Common Stock as provided in this Agreement shall be appropriately adjusted
so as to maintain the relative proportionate interests of the holders of
ILCO Common Stock and FIC Common Stock.
1.9 Effect on FIC Capital Stock. Each share of FIC Common Stock issued
and outstanding immediately prior to the Effective Time (including, without
limitation, shares of FIC Common Stock held by any subsidiary of FIC or ILCO)
shall remain outstanding and shall be unaffected by the Merger.
1.10 Effect on Merger Sub Capital Stock. Each share of common stock,
$0.01 par value, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into one share of common stock, $0.01 par
value, of the Surviving Corporation and such shares shall, collectively,
represent all of the issued and outstanding capital stock of the Surviving
Corporation.
1.11 Exchange of Certificates.
(a) Paying Agent. Immediately following the Effective Time, FIC shall
deposit with its transfer agent and registrar (the "Paying Agent"), for the
benefit of the holders of ILCO Common Stock (other than Treasury Shares and
FIC-Owned Shares), certificates representing the shares of FIC Common Stock
to be issued to such holders pursuant to Section 1.8 (such certificates,
together with any dividends or distributions with respect to the shares
represented by such certificates and any cash paid in lieu of fractional
shares of FIC Common Stock pursuant to Section 1.11(f), being hereinafter
referred to collectively as the "Payment Fund").
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93
(b) Exchange Procedures. As soon as practicable after the Effective
Time, each holder of a certificate or certificates (which have not been
cancelled or retired) which prior thereto represented shares of ILCO Common
Stock shall, upon surrender to the Paying Agent of such certificate or
certificates and acceptance thereof by the Paying Agent, be entitled to a
certificate representing that number of whole shares of FIC Common Stock
which the aggregate number of shares of ILCO Common Stock previously
represented by such certificate or certificates surrendered shall have been
converted into the right to receive pursuant to Section 1.8 of this
Agreement, as the case may be, plus any cash to be received in lieu of
fractional shares, as provided in Section 1.11(f) below. The Paying Agent
shall accept such certificates upon compliance with such reasonable terms
and conditions as the Paying Agent may impose to effect an orderly exchange
thereof in accordance with its normal exchange practices. If the Merger
Consideration (or any portion thereof) is to be delivered to any person
other than the person in whose name the certificate or certificates
representing the shares of ILCO Common Stock surrendered in exchange
therefor is registered, it shall be a condition to such exchange that the
certificate or certificates so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the person requesting
such exchange shall pay to the Paying Agent any transfer or other Taxes (as
defined in Section 2.16) required by reason of the payment of such
consideration to a person other than the registered holder of the
certificate(s) surrendered, or shall establish to the satisfaction of the
Paying Agent that such Tax has been paid or is not applicable. After the
Effective Time, there shall be no further transfer on the records of ILCO
or its transfer agent of certificates representing shares of ILCO Common
Stock, and if such certificates are presented to the Surviving Corporation,
they shall be cancelled against delivery of the Merger Consideration as
hereinabove provided. Until surrendered as contemplated by this Section
1.11(b), each certificate representing shares of ILCO Common Stock (other
than certificates representing Treasury Shares and FIC-Owned Shares to be
cancelled in accordance with the terms of this Agreement), shall be deemed
at any time after the Effective Time to represent only the right to receive
upon such surrender the Merger Consideration without any interest thereon,
as contemplated by Section 1.8.
(c) Letter of Transmittal. Promptly after the Effective Time (but in
no event more than five business days thereafter), FIC shall require the
Paying Agent to mail to each record holder of certificates that immediately
prior to the Effective Time represented shares of ILCO Common Stock, which
have been converted pursuant to Section 1.8, a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title shall pass, only upon proper delivery of certificates
representing shares of ILCO Common Stock to the Paying Agent, and which
shall be in such form and have such provisions as FIC reasonably may
specify) and instructions for use in surrendering such certificates and
receiving the Merger Consideration to which such holder shall be entitled
therefor pursuant to Section 1.8.
(d) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to FIC Common Stock with a record date
after the Effective Time shall be paid to the holder of any certificate
that immediately prior to the Effective Time represented shares of ILCO
Common Stock which have been converted pursuant to Section 1.8, until the
surrender for exchange of such certificate in accordance with this Article
I. Following surrender for exchange of any such certificate, there shall
be paid to the holder of such certificate, without interest, (i) at the
time of such surrender, the amount of dividends or other distributions with
a record date after the Effective Time theretofore paid with respect to the
number of whole shares of FIC Common Stock into which the shares of ILCO
Common Stock represented by such certificate immediately prior to the
Effective Time were converted pursuant to Section 1.8, and (ii) at the
appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time, but prior to such surrender,
and with a payment date subsequent to such surrender, payable with respect
to such whole shares of FIC Common Stock.
(e) No Further Ownership Rights in ILCO Common Stock. The Merger
Consideration paid upon the surrender for exchange of certificates
representing shares of ILCO Common Stock in
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accordance with the terms of this Article I shall be deemed to have been
issued and paid in full satisfaction of all rights pertaining to the shares
of ILCO Common Stock theretofore represented by such certificates, subject,
however, to FIC's obligation (if any) to pay any dividends or make any
other distributions with a record date prior to the Effective Time which
may have been declared by ILCO on the shares of ILCO Common Stock in
accordance with the terms of this Agreement or prior to the date of this
Agreement and which remain unpaid at the Effective Time.
(f) No Fractional Shares. No certificates or scrip representing
fractional shares of FIC Common Stock shall be issued upon the surrender
for exchange of certificates that immediately prior to the Effective Time
represented shares of ILCO Common Stock which have been converted pursuant
to Section 1.8, and such fractional share interests will not entitle the
owner thereof to vote or any rights of a shareholder of FIC. In lieu of any
such fractional shares, the Paying Agent shall, on behalf of all holders of
fractional shares of FIC Common Stock, aggregate all such fractional
interests (collectively, the "Fractional Shares") and such Fractional
Shares shall be sold by the Paying Agent as agent for the holders of such
Fractional Shares at the then prevailing price on the Nasdaq Stock Market's
Small Cap Market, all in the manner provided herein. Until the net proceeds
of such sale or sales have been distributed to the holders of Fractional
Shares, the Paying Agent shall retain such proceeds in trust for the
benefit of such holders as part of the Payment Fund. All commissions,
transfer Taxes and other out-of-pocket transaction costs, including
reasonable expenses and compensation of the Paying Agent shall be charged
against the proceeds from the sale of the Fractional Shares. The sale of
the Fractional Shares shall be executed on the Nasdaq Stock Market's Small
Cap Market or through one or more member firms of the Nasdaq Stock Market
and will be executed in round lots, to the extent practicable. The Paying
Agent will determine the portion, if any, of the net proceeds of such sale
or sales to which each holder of Fractional Shares is entitled, by
multiplying the amount of the aggregate net proceeds of the sale of the
Fractional Shares by a fraction, the numerator of which is the amount of
Fractional Shares to which such holder is entitled and the denominator of
which is the aggregate amount of Fractional Shares to which all holders of
Fractional Shares are entitled; provided, however, that in lieu of the
foregoing, at the sole option of FIC, FIC may instead satisfy payment with
respect to such Fractional Shares by delivering to the Paying Agent
reasonably promptly following the Effective Time cash (without interest) in
an amount equal to the aggregate amount of all such Fractional Shares
multiplied by the average closing price per share of FIC Common Stock on
the Nasdaq Stock Market's Small Cap Market for the thirty (30) trading days
immediately prior to the Effective Time.
(g) Termination of Payment Fund. Any portion of the Payment Fund
which remains undistributed to the holders of certificates representing
shares of ILCO Common Stock for 240 days after the Effective Time shall be
delivered to FIC, upon demand, and any holders of shares of ILCO Common
Stock who have not theretofore complied with this Article I shall
thereafter look only to FIC and only as general creditors thereof for
payment of their claims for any Merger Consideration and any dividends or
distributions with respect to FIC Common Stock to which they are entitled
pursuant to this Article I.
(h) No Liability. Neither the Surviving Corporation nor the Paying
Agent shall be liable to any person in respect of any cash, shares,
dividends or distributions payable from the Payment Fund delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. If any certificates representing shares of ILCO Common Stock
shall not have been surrendered prior to five years after the Effective
Time (or immediately prior to such earlier date on which any Merger
Consideration in respect of such certificate would otherwise escheat to or
become the property of any Governmental Entity (as defined in Section
2.3)), any such cash, shares, dividends or distributions payable in respect
of such certificate shall, to the extent permitted by applicable law,
become the property of Surviving Corporation, free and clear of all claims
or interest of any person previously entitled thereto.
(i) Withholding of Tax. FIC shall be entitled to deduct and withhold
from the Merger Consideration otherwise payable pursuant to this Agreement
to any former holder of ILCO Common
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Stock such amount as FIC (or any affiliate thereof) or the Paying Agent is
required to deduct and withhold with respect to the making of such payment
under the Code or state, local or foreign Tax law. To the extent that
amounts are so withheld by FIC, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the former holder of
ILCO Common Stock in respect of which such deduction and withholding was
made by FIC.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ILCO
ILCO hereby represents and warrants to FIC and Merger Sub as follows:
2.1 Organization, Standing and Corporate Power. Each of ILCO and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized and has the
requisite corporate power and authority to carry on its business as now being
conducted. Each of ILCO and its subsidiaries is duly qualified to do business
and is in good standing in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification
necessary, except where the failure to be so qualified could not reasonably be
expected to have a material adverse effect on the business, properties, results
of operations, or condition (financial or otherwise) of ILCO and its
subsidiaries, considered as a whole (an "ILCO Material Adverse Effect"). ILCO
has delivered or made available to FIC true, correct and complete copies of its
Articles of Incorporation and Bylaws, as amended to the date of this Agreement.
For purposes of this Agreement, a "subsidiary" of any person shall mean any
other entity at least a majority of the equity interests in which is
beneficially owned, directly or indirectly, by the specified person.
2.2 Capital Structure. (a) The authorized capital stock of ILCO consists
of (i) 15,000,000 shares of ILCO Common Stock and (ii) 30,000,000 shares of
preferred stock, par value $1.00 per share, of which 5,000,000 shares are
designated as series A preferred stock and 15,000,000 shares are designated as
series B preferred stock. At the close of business on January 15, 2001, none of
such shares of preferred stock are issued and outstanding, 5,000,000 of such
shares of series A preferred stock and 15,000,000 of such shares of series B
preferred stock are held as treasury shares by ILCO or a subsidiary of ILCO,
8,127,071 shares of ILCO Common Stock were issued and outstanding, 388,000
shares of ILCO Common Stock were reserved for issuance pursuant to options to
purchase ILCO Common Stock ("ILCO Stock Options") which have been granted
pursuant to the ILCO 1999 Employee Stock Option Plan (the "ILCO Stock Option
Plan"), and 2,732,407 shares of ILCO Common Stock were held as treasury shares
by ILCO or a subsidiary of ILCO. Except as set forth above, at the close of
business on January 15, 2001, no shares of capital stock or other equity
securities of ILCO were authorized, issued, reserved for issuance or
outstanding. All outstanding shares of ILCO Common Stock are, and all shares
which may be issued pursuant to the ILCO Stock Option Plan, or upon the exercise
of outstanding ILCO Stock Options will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to any preemptive rights.
No bonds, debentures, notes or other indebtedness of ILCO or any subsidiary of
ILCO having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which the shareholders of
ILCO or any subsidiary of ILCO may vote are issued or outstanding. All the
outstanding shares of capital stock or other equity interests of each subsidiary
of ILCO have been validly issued and are fully paid and nonassessable and are
owned by ILCO, by one or more wholly-owned subsidiaries of ILCO or by ILCO and
one or more such wholly-owned subsidiaries, free and clear of all pledges,
claims, liens, charges, encumbrances and security interests of any kind or
nature whatsoever (collectively, "Liens"). Except as set forth above, neither
ILCO nor any subsidiary of ILCO has any outstanding option, warrant,
subscription or other right, agreement or commitment that either (i) obligates
ILCO or any subsidiary of ILCO to issue, sell or transfer, repurchase, redeem or
otherwise acquire or vote any shares of the capital stock of ILCO or any
subsidiary of ILCO or (ii) restricts the transfer of ILCO Common Stock. Since
the close of business on January 15, 2001, neither ILCO nor any subsidiary of
ILCO has issued any capital stock or securities or other rights
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convertible into or exercisable or exchangeable for shares of such capital
stock, other than shares of ILCO Common Stock issued upon the exercise of ILCO
Stock Options outstanding on January 15, 2001.
(b) ILCO has good and marketable title to all of the issued and
outstanding shares of capital stock of each of its subsidiaries, in each
case free and clear of all Liens, and ILCO has no independent assets,
operations or liabilities other than the ownership of the capital stock of
its subsidiaries. InterContinental Growth Plans, Inc. has good and
marketable title to all of the outstanding capital stock of
InterContinental Life Agency, Inc., free and clear of all Liens.
2.3 Authority; Noncontravention. ILCO has the requisite corporate power
and authority to enter into this Agreement and, subject to the approval of its
shareholders as set forth in Section 5.2(a) with respect to the approval of this
Agreement (the "ILCO Shareholders Approval"), to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
ILCO and the consummation by ILCO of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of ILCO,
subject, in the case of the Merger, to the ILCO Shareholders Approval. This
Agreement has been duly executed and delivered by ILCO and, assuming this
Agreement constitutes the valid and binding agreement of FIC and Merger Sub,
constitutes a valid and binding obligation of ILCO, enforceable against it in
accordance with its terms except that the enforcement thereof may be limited by
(a) bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights and remedies generally and (b)
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity). The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions hereof will not, (i) conflict with
any of the provisions of the Articles of Incorporation or Bylaws of ILCO or the
comparable documents of any of its subsidiaries, (ii) except as set forth in the
ILCO Disclosure Letter and subject to the governmental filings and other matters
referred to in the following sentence, conflict with, result in a breach of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of a material benefit under, or require the consent of any person under,
any indenture or other agreement, permit, concession, franchise, license or
similar instrument or undertaking to which ILCO or any of its subsidiaries is a
party or by which ILCO or any of its subsidiaries or any of their assets is
bound or affected, (iii) result in an obligation by ILCO, the Surviving
Corporation, FIC, or any of their respective subsidiaries to redeem, repurchase
or retire (or offer to redeem, repurchase or retire) any indebtedness of ILCO or
any of its subsidiaries outstanding as of the date hereof or equity security of
ILCO or any of its subsidiaries outstanding as of the date hereof, or (iv)
subject to the governmental filings and other matters referred to in the
following sentence, contravene any law, rule or regulation of any state or of
the United States or any political subdivision thereof or therein, or any order,
writ, judgment, injunction, decree, determination or award currently in effect,
except, in the cases of the foregoing clauses (ii) through (iv), for conflicts,
breaches, defaults or other consequences (collectively, "breaches") that,
individually or in the aggregate, could not reasonably be expected to have an
ILCO Material Adverse Effect or to materially hinder ILCO's ability to
consummate the transactions contemplated by this Agreement. No consent, approval
or authorization of, or declaration or filing with, or notice to, any
governmental agency or regulatory authority (a "Governmental Entity") which has
not been received or made, is required by or with respect to ILCO or any of its
subsidiaries in connection with the execution and delivery of this Agreement by
ILCO or the consummation by ILCO of the transactions contemplated hereby, except
for (i) the filing of premerger notification and report forms under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), with respect to the Merger and the termination or earlier expiration of
the applicable waiting period thereunder, (ii) the filing of appropriate
documents with, and, to the extent necessary, approval of, the respective
Commissioners of Insurance of the States of Washington and Indiana and such
notices and consents as may be required under the insurance laws of any
jurisdiction in which ILCO, FIC or any of their respective subsidiaries is
domiciled or does business, (iii) the Joint Proxy Statement/Prospectus to be
filed with the SEC by ILCO relating to ILCO Shareholders Approval, (iv) the
filing of such reports under the Exchange Act as may be required in connection
with this Agreement and the transactions contemplated by
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this Agreement, (v) the filing of the articles of merger with the Texas
Secretary of State and appropriate documents with the relevant authorities of
other states in which ILCO is qualified to do business, (vi) such filings and
consents as may be required under any environmental, health or safety law or
regulation pertaining to any notification, disclosure or required approval
triggered by the Merger or the other transactions contemplated by this
Agreement, and (vii) such filings as may be required in connection with
statutory provisions and regulations relating to real property transfer gains
Taxes and real property transfer Taxes.
2.4 ILCO SEC Documents; Financial Statements. (a) Since January 1, 1997,
ILCO and its subsidiaries have filed with the Securities and Exchange Commission
("SEC") all forms, reports, schedules, statements and other documents required
to be filed by it with the SEC pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), and the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (any such documents filed prior to the date hereof
being collectively referred to as the "ILCO SEC Documents"). The ILCO SEC
Documents, including the financial statements or schedules included therein, at
the time filed, or in the case of registration statements on their respective
effective dates, (i) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, and
(ii) did not at the time filed (or in the case of registration statements, at
the time of effectiveness), contain 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 made therein, in light of the circumstances under
which they were made, not misleading. The financial statements included in the
ILCO SEC Documents (the "Financial Statements"), (i) have been prepared from and
are in accordance with, the books and records of ILCO and its subsidiaries, (ii)
complied in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto, (iii)
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis ("GAAP") during the periods involved and (iv)
fairly present the consolidated financial position and the consolidated results
of operations and cash flows of ILCO and its subsidiaries as of the times and
for the periods referred to therein, except that any such Financial Statements
that are unaudited, interim financial statements are subject to normal and
recurring year-end adjustments.
(b) ILCO has previously delivered or made available to FIC, in the
form filed with the SEC (including any amendments thereto), (i) its Annual
Reports on Form 10-K for each of the three fiscal years ended December 31,
1999, 1998 and 1997, (ii) all definitive proxy statements relating to
ILCO's meetings of shareholders (whether annual or special) held since
January 1, 1997 and (iii) all other reports or registration statements
filed by ILCO with the SEC since January 1, 1997.
2.5 Absence of Certain Changes or Events. Except as disclosed in the ILCO
SEC Documents or as disclosed in writing by ILCO to FIC in a disclosure letter
(the "ILCO Disclosure Letter"), or as otherwise agreed to in writing after the
date hereof by FIC, or as expressly permitted by this Agreement, since December
31, 1999, ILCO and its subsidiaries have conducted their business only in the
ordinary course, and there has not been (a) any change which could reasonably be
expected to have an ILCO Material Adverse Effect (including as a result of the
consummation of the transactions contemplated by this Agreement), (b) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of ILCO's outstanding
capital stock, (c) any split, combination or reclassification of any of its
outstanding capital stock or any issuance or the authorization of any issuance
of any other securities in respect of, in lieu of or in substitution for shares
of its outstanding capital stock, (d) (i) any granting by ILCO or any of its
subsidiaries to any director, officer or other employee or independent
contractor of ILCO or any of its subsidiaries of any increase in compensation or
acceleration of benefits, except in the ordinary course of business consistent
with prior practice or as was required under employment agreements in effect on
December 31, 1999, (ii) any granting by ILCO or any of its subsidiaries to any
director, officer or other employee or independent contractor of any increase
in, or acceleration of benefits in respect of, severance or termination pay, or
pay in connection with any change of control of ILCO, except in the ordinary
course of business consistent with prior practice or as was required under any
employment, severance or termination agreements in
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effect on December 31, 1999, or (iii) any entry by ILCO or any of its
subsidiaries into any employment, severance, change of control, or termination
or similar agreement with any director, executive officer or other employee or
independent contractor other than in the ordinary course of business consistent
with past practices, or (e) any change in accounting methods, principles or
practices by ILCO or any of its subsidiaries materially affecting its assets,
liabilities or business, except insofar as may have been required by a change in
GAAP.
2.6 No Extraordinary Payments or Change in Benefits. Except as set forth
in the ILCO Disclosure Letter, no current or former director, officer, employee
or independent contractor of ILCO or any of its subsidiaries is entitled to
receive any payment under any agreement, arrangement or policy (written or oral)
relating to employment, severance, change of control, termination, stock
options, stock purchases, compensation, deferred compensation, fringe benefits
or other employee benefits currently in effect (collectively, the "ILCO Benefit
Plans"), nor will any benefit received or to be received by any current or
former director, officer, employee or independent contractor of ILCO or any of
its subsidiaries under any ILCO Benefit Plan be accelerated or modified, as a
result of or in connection with the execution and delivery of, or the
consummation of the transactions contemplated by, this Agreement.
2.7 Voting Requirements. The affirmative vote of at least two-thirds of
the outstanding shares of ILCO Common Stock entitled to vote with respect to the
approval of the Merger is the only vote of the holders of any class or series of
ILCO's capital stock necessary to approve this Agreement and the transactions
contemplated by this Agreement.
2.8 State Takeover Statutes. No state takeover statute or similar statute
or regulation applies or purports to apply to the Merger, this Agreement or any
of the transactions contemplated by this Agreement and no provision of the
Articles of Incorporation, Bylaws or other governing instrument of ILCO or any
of its subsidiaries would, directly or indirectly, restrict or impair the
ability of ILCO to consummate the transactions contemplated by this Agreement.
2.9 Brokers. Except as set forth in the ILCO Disclosure Letter, no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated hereby
based upon arrangements made by or on behalf of ILCO. A true, correct and
complete copy of the engagement letter of P.W. Mattingly & Co. Inc. has been
provided to FIC.
2.10 Compliance with Applicable Laws. Each of ILCO and its subsidiaries
has in effect all federal, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises, licenses, notices, permits
and rights (collectively, "Permits") necessary for it to own, lease or operate
its properties and assets and to carry on its business as now conducted, other
than such Permits the absence of which could not, individually or in the
aggregate, reasonably be expected to have an ILCO Material Adverse Effect, and
there has occurred no default under any such Permit other than such defaults
which, individually or in the aggregate, could not reasonably be expected to
have an ILCO Material Adverse Effect. ILCO and its subsidiaries are in
compliance with all applicable statutes, laws, ordinances, rules orders and
regulations of any Governmental Entity, including without limitation, all
applicable federal, state and local statutes and regulations regulating the
business and products of insurance, except for such noncompliance which
individually or in the aggregate could not reasonably be expected to have an
ILCO Material Adverse Effect.
2.11 Absence of Undisclosed Liabilities. Except for liabilities disclosed
in the ILCO SEC Documents, liabilities contemplated by this Agreement and
liabilities set forth in the ILCO Disclosure Letter, ILCO and its subsidiaries
do not have any material indebtedness, obligations or liabilities of any kind
(whether accrued, absolute, contingent or otherwise) (a) required by GAAP to be
reflected on a consolidated balance sheet of ILCO and its consolidated
subsidiaries or in the notes, exhibits or schedules thereto or (b) which
reasonably could be expected to have an ILCO Material Adverse Effect.
2.12 Litigation. Except as disclosed in the ILCO SEC Documents or as set
forth in the ILCO Disclosure Letter, as of the date hereof, there is no
litigation, administrative action, arbitration or other proceeding pending
against ILCO or any of its subsidiaries or, to the knowledge of ILCO, threatened
that,
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individually or in the aggregate, could reasonably be expected to (a) have an
ILCO Material Adverse Effect or (b) prevent, or significantly delay the
consummation of the transactions contemplated by this Agreement. Except as set
forth in the ILCO Disclosure Letter, as of the date hereof, there is no
judgment, order, injunction or decree of any Governmental Entity outstanding
against ILCO or any of its subsidiaries that, individually or in the aggregate,
could reasonably be expected to have any effect referred to in the foregoing
clauses (a) and (b) of this Section 2.12.
2.13 Transactions with Affiliates. Other than the transactions
contemplated by this Agreement, or except to the extent disclosed in the ILCO
SEC Documents or as set forth in the ILCO Disclosure Letter, there have been no
transactions, agreements, arrangements or understandings between ILCO or its
subsidiaries, on the one hand, and ILCO's affiliates (other than subsidiaries of
ILCO) or any other person, on the other hand, that would be required to be
disclosed under Item 404 of Regulation S-K under the Securities Act.
2.14 Labor Matters. Except as set forth in the ILCO SEC Documents or in
the ILCO Disclosure Letter, (a) neither ILCO nor any of its subsidiaries is a
party to any labor or collective bargaining agreement, and no employees of ILCO
or any of its subsidiaries are represented by any labor organization, (b) to the
knowledge of ILCO, there are no material representation or certification
proceedings, or petitions seeking a representation proceeding, pending or
threatened to be brought or filed with the National Labor Relations Board or any
other labor relations tribunal or authority and (c) to the knowledge of ILCO,
there are no material organizing activities involving ILCO or any of its
subsidiaries with respect to any group of employees of ILCO or its subsidiaries.
2.15 Employee Arrangements and Benefit Plans. (a) ILCO has previously
delivered or made available to FIC (i) all ILCO Benefit Plans, including all
employee benefit plans within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and (ii) all
written employment, severance, termination, change-of-control, or
indemnification agreements (collectively, the "Employment Arrangements"), in
each case under which ILCO or any of its subsidiaries has any obligation or
liability (contingent or otherwise), except for any Employment Arrangement which
provides for annual compensation (excluding benefits) of $100,000 or less.
Except as set forth in the ILCO SEC Documents or in the ILCO Disclosure Letter
and except as could not, individually or in the aggregate, reasonably be
expected to have an ILCO Material Adverse Effect: (A) each ILCO Benefit Plan has
been administered and is in compliance with the terms of such plan and all
applicable laws, rules and regulations, (B) no "reportable event" (as such term
is used in section 4043 of ERISA) (other than those events for which the 30 day
notice has been waived pursuant to the regulations), "prohibited transaction"
(as such term is used in section 406 of ERISA or section 4975 of the Code) or
"accumulated funding deficiency" (as such term is used in section 412 or 4971 of
the Code) has heretofore occurred with respect to any ILCO Benefit Plan and (C)
each ILCO Benefit Plan intended to qualify under Section 401(a) of the Code has
received a favorable determination from the United States Internal Revenue
Service ("IRS") regarding its qualified status, or remedial amendment period
under Section 401(b) of the Code will not have expired prior to the Closing
Date, and no notice has been received from the IRS with respect to the
revocation of such qualification.
(b) As of the date hereof, there is no litigation or administrative or
other proceeding involving any ILCO Benefit Plan or Employment Arrangement
nor has ILCO or any of its subsidiaries received written notice that any
such proceeding is threatened, in each case where an adverse determination
could reasonably be expected to have an ILCO Material Adverse Effect.
Except as set forth in the ILCO Disclosure Letter, neither ILCO nor any of
its subsidiaries has contributed to any "multiemployer plan" (within the
meaning of section 3(37) of ERISA) and neither ILCO nor any of its
subsidiaries has incurred, nor is reasonably likely to incur, any
withdrawal liability under Section 4201 of ERISA which remains unsatisfied
in an amount which could reasonably be expected to have an ILCO Material
Adverse Effect. The termination of, or withdrawal from, any ILCO Benefit
Plan or multiemployer plan to which ILCO or its subsidiaries contributes,
on or prior to the Closing Date, will not subject ILCO or any of its
subsidiaries to any liability under Title IV of ERISA that could reasonably
be expected to have an ILCO Material Adverse Effect.
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2.16 Tax Matters. (a) ILCO and each of its subsidiaries have timely filed
(or been included in a consolidated, combined or unitary Tax Return that has
been timely filed) with the appropriate Governmental Entities all material Tax
Returns (as defined below) required to be filed through the date hereof and will
timely file any such material Tax Returns required to be filed on or prior to
the Closing Date (except those under valid extension) and all such Tax Returns
are and will be true and correct in all material respects.
(b) all material Taxes (as defined below) of ILCO and each of its
subsidiaries have been or will be timely paid or adequately reserved for in
accordance with GAAP in the Financial Statements.
(c) ILCO and its subsidiaries have complied in all material respects
with all applicable laws, rules and regulations relating to the withholding
of Taxes.
(d) Except as set forth in the ILCO Disclosure Letter:
(i) no material deficiencies for any Taxes have been proposed,
asserted or assessed against ILCO or any of its subsidiaries that have
not been fully paid or adequately provided for in the appropriate
financial statements of ILCO and its subsidiaries, and no material
issues relating to Taxes have been raised in writing by any Governmental
Entity during any presently pending audit or examination;
(ii) ILCO and its subsidiaries are not now subject to audit by any
Governmental Entity and no waivers of statutes of limitation with
respect to the Tax Returns have been given by or requested in writing
from ILCO or any of its subsidiaries;
(iii) there are no material Liens for Taxes (other than for Taxes
not yet due and payable) on any assets of ILCO or any of its
subsidiaries;
(iv) neither ILCO nor any of its subsidiaries is a party to or
bound by (nor will any of them become a party to or bound by) any Tax
indemnity, Tax sharing, Tax allocation, or similar agreement,
arrangement or practice with respect to Taxes, except among themselves;
(v) neither ILCO nor any of its subsidiaries has ever been a member
of an affiliated group of corporations within the meaning of Section
1504 of the Code, other than the affiliated group of which ILCO is the
common parent;
(vi) neither ILCO nor any of its subsidiaries has agreed to make,
nor is any required to make, any adjustment under Section 481(a) of the
Code or any similar provision of state, local or foreign law by reason
of a change in accounting method or otherwise;
(vii) neither ILCO nor any of its subsidiaries has received a Tax
ruling from any Governmental Entity, or entered into a closing agreement
with any Governmental Entity, that would have a continuing material
effect after the Closing Date; and
(viii) neither ILCO nor any of its subsidiaries is a party to any
contract, agreement or other arrangement which would result in the
payment of amounts that could be nondeductible by reason of Sections
280G or 162(m) of the Code.
(e) No portion of either ILCO or any of its subsidiaries is or has
ever been, a "taxable mortgage pool" as defined in Section 7701(i) of the
Code.
(f) For the taxable period ending on the Closing Date and for all
prior taxable periods for which the statute of limitations has not expired,
Investors-NA and Investors-IN (i) qualifies (and qualified) as an
"insurance company" within the meaning of Treasury Regulation Section
1.801-3(a) (under former Section 801 of the Code) and as a "life insurance
company" within the meaning of Section 816(a) of the Code, and (ii) are
(and were) subject to taxation under Subchapter L of the Code.
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(g) The insurance reserves and unearned premiums with respect to ILCO
and each of its subsidiaries set forth in all their federal Tax Returns as
to which the statute of limitations has not expired were determined in all
material respects in accordance with Section 807 of the Code.
(h) The unpaid losses with respect to ILCO and each of its
subsidiaries set forth in all of their federal Tax Returns as to which the
statute of limitations has not expired were based upon reasonable
estimations and were discounted in all material respects in accordance with
Section 846 of the Code.
(i) Each life insurance policy and annuity contract issued, sold or
administered by ILCO or any of its subsidiaries, at all relevant times,
satisfied, and does satisfy, the requirements of, and/or has qualified, and
does qualify, under, Sections 72, 264, 401(a),403(a), 403(b), 817, 7702,
7702A of the Code and the Treasury Regulations thereunder, as applicable,
except to the extent that failures to satisfy or qualify in the aggregate,
were such failures tripled, would not result in any ILCO Material Adverse
Effect.
(j) ILCO has not constituted either a "distributing corporation" or a
"controlled corporation" (within the meaning of Section 355(a)(1)(A) of the
Code) in a distribution of stock qualifying for tax-free treatment under
Section 355 of the Code (i) in the two years prior to the date of this
Agreement or (ii) in a distribution which could otherwise constitute part
of a "plan" or "series of related transactions" (within the meaning of
Section 355(e) of the Code) in conjunction with the Merger.
(k) Neither ILCO nor any of its subsidiaries knows of any fact, plan
or circumstance that is reasonably likely to prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Code.
As used in this Agreement, "Tax Return" shall mean any return, report,
claim for refund, estimate, information return or statement or other similar
document relating to or required to be filed with any Governmental Entity with
respect to Taxes, including any schedule or attachment thereto, and including
any amendment thereof. As used in this Agreement, "Taxes" shall mean taxes of
any kind, including but not limited to those measured by or referred to as
income, franchise, gross receipts, sales, use, ad valorem, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
value added, property or windfall profits taxes, customs, duties or similar
fees, assessments or charges of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts imposed by any
Governmental Entity, domestic or foreign and shall include any transferee or
successor liability in respect of Taxes (whether by contract or otherwise) and
any several liability in respect of any Tax as a result of being a member of any
affiliated, consolidated, combined, unitary or similar group.
2.17 Intellectual Property. Except as set forth in the ILCO Disclosure
Letter and except to the extent of any inaccuracy of any of the following (or
the circumstances giving rise to such inaccuracy) which, individually or in the
aggregate, could not reasonably be expected to have an ILCO Material Adverse
Effect: (a) ILCO and each of its subsidiaries owns, or is licensed to use (in
each case, free and clear of any Liens), all Intellectual Property (as defined
below) used in or necessary for the conduct of its business as currently
conducted; (b) the use of any Intellectual Property by ILCO and its subsidiaries
does not infringe on or otherwise violate the rights of any person and is in
accordance with any applicable license pursuant to which ILCO or any subsidiary
acquired the right to use any Intellectual Property; (c) to the knowledge of
ILCO, no person is challenging, infringing on or otherwise violating any right
of ILCO or any of its subsidiaries with respect to any Intellectual Property
owned by and/or licensed to ILCO or its subsidiaries; and (d) neither ILCO nor
any of its subsidiaries has received any written notice of any pending claim
with respect to any Intellectual Property used by ILCO and its subsidiaries and
to its knowledge no Intellectual Property owned and/or licensed by ILCO or its
subsidiaries is being used or enforced in a manner that would result in the
abandonment, cancellation or unenforceability of such Intellectual Property.
For purposes of this Agreement, "Intellectual Property" shall mean
trademarks, service marks, brand names and other indications of origin, the
goodwill associated with the foregoing and registrations in any
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jurisdiction of, and applications in any jurisdiction to register, the
foregoing, including any extension, modification or renewal of any such
registration or application; inventions, discoveries and ideas, whether
patentable or not, in any jurisdiction; patents, applications for patents
(including, without limitation, divisions, continuations, continuations in part
and renewal applications), and any renewals, extensions or reissues thereof, in
any jurisdiction; nonpublic information, trade secrets and confidential
information and rights in any jurisdiction to limit the use or disclosure
thereof by any person; writings and other works, whether copyrightable or not,
in any jurisdiction; registrations or applications for registration of
copyrights in any jurisdiction, and any renewals or extensions thereof; any
similar intellectual property or proprietary rights; and any claims or causes of
action arising out of or relating to any infringement or misappropriation of any
of the foregoing.
2.18 Environmental Matters. Except as disclosed in the ILCO SEC Documents
or as set forth in the ILCO Disclosure Letter and except as could not reasonably
be expected to have an ILCO Material Adverse Effect: (a) the operations of ILCO
and its subsidiaries have been and are in compliance with all Environmental Laws
(as defined below) and with all Permits required by Environmental Laws, (b)
there are no pending or, to the knowledge of ILCO, threatened, actions, suits,
claims, investigations or other proceedings (collectively, "Actions") under or
pursuant to Environmental Laws against ILCO or its subsidiaries or involving any
real property currently or, to the knowledge of ILCO, formerly owned, operated
or leased by ILCO or its subsidiaries, (c) ILCO and its subsidiaries are not
subject to any Environmental Liabilities (as defined below), and, to the
knowledge of ILCO, no facts, circumstances or conditions relating to, arising
from, associated with or attributable to any real property currently or, to the
knowledge of ILCO, formerly owned, operated or leased by ILCO or its
subsidiaries or operations thereon that could reasonably be expected to result
in Environmental Liabilities, (d) all real property owned and, to the knowledge
of ILCO, all real property operated or leased by ILCO or its subsidiaries is
free of contamination from Hazardous Material (as defined below) and (e) there
is not now, nor, to the knowledge of ILCO, has there been in the past, on, in or
under any real property owned, leased or operated by ILCO or any of its
predecessors (i) any underground storage tanks, above-ground storage tanks,
dikes or impoundments containing Hazardous Materials, (ii) any
asbestos-containing materials, (iii) any polychlorinated biphenyls, or (iv) any
radioactive substances.
As used in this Agreement, "Environmental Laws" means any and all federal,
state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decisions, injunctions, orders, decrees, requirements of any
Governmental Entity, any and all common law requirements, rules and bases of
liability regulating, relating to or imposing liability or standards of conduct
concerning pollution, Hazardous Materials or protection of human health or the
environment, as currently in effect and includes, but is not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
sec. 9601 et seq., the Hazardous Materials Transportation Act 49 U.S.C.
sec. 1801 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
sec. 6901 et seq., the Clean Water Act, 33 U.S.C. sec. 1251 et seq., the Clean
Air Act, 33 U.S.C. sec. 2601 et seq., the Toxic Substances Control Act, 15
U.S.C. sec. 2601 et seq., the Federal Insecticide, Fungicide and Rodenticide
Act, 7 U.S.C., sec. 136 et seq., and the Oil Pollution Act of 1990, 33 U.S.C.
sec. 2701 et seq., as such laws have been amended or supplemented, and the
regulations promulgated pursuant thereto, and all analogous state or local
statutes. As used in this Agreement, "Environmental Liabilities" with respect to
any person means any and all liabilities of or relating to such person or any of
its subsidiaries (including any entity which is, in whole or in part, a
predecessor of such person or any of such subsidiaries), whether vested or
unvested, contingent or fixed, actual or potential, known or unknown, which (i)
arise under or relate to matters covered by Environmental Laws and (ii) relate
to actions occurring or conditions existing on or prior to the Closing Date. As
used in this Agreement, "Hazardous Materials" means any hazardous or toxic
substances, materials or wastes, defined, listed, classified or regulated as
such in or under any Environmental Laws which includes, but is not limited to,
petroleum, petroleum products, friable asbestos, urea formaldehyde and
polychlorinated biphenyls.
2.19 Material Contracts. (a) Except as set forth in the ILCO Disclosure
Letter, all contracts and agreements of ILCO and its subsidiaries that are
required to be described in the ILCO SEC Documents
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or to be filed as exhibits thereto are described in the ILCO SEC Documents or
filed as exhibits thereto ("Material Contracts"), respectively, and are in full
force and effect and, upon consummation of the transactions contemplated hereby,
shall continue in full force and effect without penalty, acceleration,
termination, repurchase right or other adverse consequence. ILCO has previously
delivered or made available to FIC, true, correct and complete copies of all
such Material Contracts. Neither ILCO nor any of its subsidiaries, nor to the
knowledge of ILCO, any other party is in breach of or in default under any such
Material Contract and no event has occurred that with the lapse of time or the
giving of notice or both would constitute a default thereunder by ILCO or, to
the knowledge of ILCO, any other party thereto, in any such case in which such
default or event could reasonably be expected to have an ILCO Material Adverse
Effect. Neither ILCO nor any subsidiary of ILCO has received any written notice
(or to the knowledge of ILCO any other notice) of default or termination under
any Material Contract, and to the knowledge of ILCO, there exists no basis for
any assertion of a right of default or termination under such Material
Contracts.
2.20 Tangible Property. All of the assets of ILCO and its subsidiaries
are in good operating condition, reasonable wear and tear excepted, and usable
in the ordinary course of business, except where the failure to be in such
condition or so usable could not, individually or in the aggregate, reasonably
be expected to have an ILCO Material Adverse Effect.
2.21 Fairness Opinion. The special committee of ILCO's Board of Directors
(the "ILCO Special Committee") has received an opinion of P.W. Mattingly & Co.
Inc., financial advisor to the ILCO Special Committee, (the "ILCO Fairness
Opinion"), to the effect that the Merger is fair, from a financial point of
view, to the shareholders of ILCO.
2.22 Insurance Business.
(a) Except as otherwise could not, individually or in the aggregate,
reasonably be expected to have an ILCO Material Adverse Effect, all
policies, binders, slips, certificates, guaranteed insurance contracts,
annuity contracts and participation agreements and other agreements of
insurance, whether individual or group, in effect as of the date hereof
(including all applications, supplements, endorsements, riders and
ancillary agreements in connection therewith) that are issued by Investors
Life Company of North America ("Investors-NA") and Investors Life Insurance
Company of Indiana ("Investors-IN" and, collectively with Investors-NA, the
"ILCO Insurance Companies") or any predecessor of the ILCO Insurance
Companies, and any and all marketing materials, are, to the extent required
under applicable law, on forms approved by applicable insurance regulatory
authorities or which have been filed and not objected to by such
authorities within the period provided for objection, and such forms and
marketing materials comply in all material respects with the insurance
statutes, regulations and rules applicable thereto.
(b) ILCO has delivered or made available to FIC a true, correct and
complete copy of all actuarial reports prepared by ILCO's actuaries, and
any actuarial reports prepared by other actuaries, independent or
otherwise, with respect to any ILCO Insurance Company since January 1,
1998, and all attachments, addenda, supplements and modifications thereto
(the "ILCO Actuarial Analyses"). To the knowledge of ILCO, the information
and data furnished by ILCO or any ILCO Insurance Company to its independent
actuaries in connection with the preparation of the ILCO Actuarial Analyses
were accurate in all material respects. Furthermore, each ILCO Actuarial
Analysis was based upon an accurate inventory of policies in force for the
ILCO Insurance Companies, at the relevant time of preparation, was prepared
using appropriate modeling procedures accurately applied and in conformity
with generally accepted actuarial standards consistently applied, and the
projections contained therein were properly prepared in accordance with the
assumptions stated therein.
(c) To the knowledge of ILCO, except as set forth in the ILCO
Disclosure Letter or as reserved for or disclosed in the ILCO SEC
Documents, or as could not, individually or in the aggregate, reasonably be
expected to have an ILCO Material Adverse Effect, all amounts recoverable
under reinsurance, coinsurance or other similar contracts to which any ILCO
Insurance Company is a party (including, but not limited to, amounts based
on paid and unpaid losses) are fully collectible.
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(d) ILCO has delivered or made available to FIC true, correct and
complete copies of all analyses, reports and other data prepared by ILCO or
any ILCO Insurance Company or submitted by ILCO or any ILCO Insurance
Company to any insurance regulatory authority or received by ILCO or any
ILCO Insurance Company relating to risk-based capital calculations or IRIS
ratios of the years ended December 31, 1999 and 1998.
(e) ILCO has delivered or made available to FIC a true, correct and
complete list on a per risk and aggregate basis of the maximum underlying
retentions (net of all reinsurance maintained) on all insurance and
reinsurance policies written or entered into by any ILCO Insurance Company
since December 31, 1999.
(f) Except as could not, individually or in the aggregate, reasonably
be expected to have an ILCO Material Adverse Effect, all annuity contracts
and life insurance policies issued by an ILCO Insurance Company meet all
definitional or other requirements for qualification under the Code section
applicable (or intended to be applicable) to such annuity contracts or life
insurance policies.
(g) Except as set forth the ILCO Disclosure Letter, there are no
material "hold harmless" indemnification agreements respecting the Tax
qualification or treatment of any product or plan sold, issued, entered
into or administered by the ILCO Insurance Companies, and there have been
no claims asserted by any person under such "hold harmless" indemnification
agreements.
2.23 Liabilities and Reserves.
(a) Except as set forth in the ILCO Disclosure Letter, the reserves
carried on the books of each ILCO Insurance Company for future insurance
policy benefits, losses, claims and similar purposes were, as of the
respective dates of such ILCO financial statements required to be submitted
to the appropriate regulatory authorities of the jurisdictions in which the
ILCO Insurance Companies are domiciled on forms prescribed or permitted by
such authority in compliance in all material respects with the requirements
for reserves established by the insurance departments of the state of
domicile of such ILCO Insurance Company, were determined in all material
respects in accordance with generally accepted actuarial standards
consistently applied, and were fairly stated in all material respects in
accordance with sound actuarial and statutory accounting principles. ILCO
has delivered or made available to FIC true, correct and complete copies of
the Annual Statements delivered to the insurance department of the
domiciliary state of each ILCO Insurance Company for the years ended
December 31, 1999 and 1998. ILCO has delivered or made available to FIC
copies of all work papers used as the basis for establishing the reserves
for the ILCO Insurance Companies at December 31, 1999 and December 31,
1998, respectively, as well as all reports with respect to the adequacy of
such reserves.
(b) Except for regular periodic assessments in the ordinary course of
business or as reserved for or disclosed in the ILCO SEC Documents, no
claim or assessment is pending nor, to the knowledge of ILCO, threatened
against any ILCO Insurance Company by any state insurance guaranty
associations in connection with such association's fund relating to
insolvent insurers which if determined adversely, could, individually or in
the aggregate, reasonably be expected to have an ILCO Material Adverse
Effect.
2.24 ILCO Broker/Dealers.
(a) ILCO operates its broker/dealer operations exclusively through ILG
Securities Corporation (the "ILCO Broker/Dealer"). The ILCO Broker/Dealer
is registered as a broker-dealer with the SEC and has been since January 1,
1997 in full compliance with all applicable laws, except for any failures
to register or comply which could not, individually or in the aggregate,
reasonably be expected to have an ILCO Material Adverse Effect. The ILCO
Broker/Dealer is a member organization in good standing of the National
Association of Securities Dealers, Inc. except such failures to be in good
standing which could not, individually or in the aggregate, reasonably be
expected to have an ILCO Material Adverse Effect.
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(b) Except as could not, individually or in the aggregate, reasonably
be expected to have an ILCO Material Adverse Effect, the ILCO Broker/Dealer
is not, nor is any "associated person" of it, subject to a "statutory
disqualification" (as such terms are defined in the Exchange Act) or
subject to a disqualification that would be a basis for censure,
limitations on the activities, functions or operations of, or suspension or
revocation of the registration of the ILCO Broker Dealer as broker-dealer
under Section 15, Section 15B or Section 15C of the Exchange Act and, to
ILCO's knowledge, there are no proceedings or investigations pending by any
Governmental Entity or self-regulatory organization that is reasonably
likely to result in any such censure, limitations, suspension or
revocation.
(c) Except as could not, individually or in the aggregate, reasonably
be expected to have an ILCO Material Adverse Effect, since its inception,
the ILCO Broker/Dealer has had net capital (as such term is defined in Rule
15c3-1 under the Exchange Act) that satisfies the minimum net capital
requirements of the Exchange Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIC
FIC represents and warrants to ILCO as follows:
3.1 Organization, Standing and Corporate Power. Each of FIC and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated and has
the requisite corporate power and authority to carry on its business as now
being conducted. Each of FIC and its subsidiaries is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except where the failure to be so qualified could not reasonably be
expected to have a material adverse effect on the business, properties, results
of operations, or condition (financial or otherwise) of FIC and its
subsidiaries, considered as a whole (an "FIC Material Adverse Effect"). FIC has
previously delivered or made available to ILCO true, correct and complete copies
of its Articles of Incorporation and Bylaws, as amended to the date of this
Agreement.
3.2 Capital Structure. (a) The authorized capital stock of FIC consists
of 10,000,000 shares of FIC Common Stock. At the close of business on January
15, 2001, 5,054,661 shares of FIC Common Stock were issued and outstanding,
500,411 shares of FIC Common Stock were reserved for issuance pursuant to
outstanding options or warrants to purchase FIC Common Stock which have been
granted to Investors-NA ("FIC Stock Options"), and 790,639 shares of FIC Common
Stock were held as treasury shares by FIC or a subsidiary of FIC. Except as set
forth above, at the close of business on January 15, 2001, no shares of capital
stock or other equity securities of FIC were authorized, issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of FIC are, and
all shares which may be issued pursuant to FIC's stock option plans, as amended
to the date hereof, or upon the exercise of outstanding FIC Stock Options will
be, when issued, duly authorized, validly issued, fully paid and nonassessable
and not subject to any preemptive rights. No bonds, debentures, notes or other
indebtedness of FIC or any subsidiary of FIC having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which the shareholders of FIC or any subsidiary of FIC may vote
are issued or outstanding. All the outstanding shares of capital stock of each
subsidiary of FIC have been validly issued and are fully paid and nonassessable
and are owned by FIC, by one or more wholly-owned subsidiaries of FIC or by FIC
and one or more such wholly-owned subsidiaries, free and clear of all Liens,
except for Liens that, individually or in the aggregate, could not reasonably be
expected to have an FIC Material Adverse Effect. Except as set forth above,
neither FIC nor any subsidiary of FIC has any outstanding option, warrant,
subscription or other right, agreement or commitment that either (i) obligates
FIC or any subsidiary of FIC to issue, sell or transfer, repurchase, redeem or
otherwise acquire or vote any shares of the capital stock of FIC or any of its
subsidiaries or (ii) restricts the transfer of FIC Common Stock. Since the close
of business on January 15, 2001, neither FIC nor any subsidiary of FIC has
issued any capital stock or securities or other rights convertible into or
exercisable or
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exchangeable for shares of such capital stock, other than shares of FIC Common
Stock issued upon the exercise of FIC Stock Options outstanding on January 15,
2001.
(b) FIC has good and marketable title to all of the issued and
outstanding shares of capital stock of each of its subsidiaries, in each
case free and clear of all Liens, and FIC has no independent assets,
operations or liabilities other than the ownership of the capital stock of
its subsidiaries.
3.3 Authority; Noncontravention. FIC has the requisite corporate power
and authority to enter into this Agreement and, subject to the approval of its
shareholders as set forth in Section 5.2(b) with respect to the approval of (i)
the issuance of shares of FIC Common Stock contemplated by this Agreement and
(ii) the Charter Amendment (the "FIC Shareholders Approval"), to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by FIC and the consummation by FIC of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of FIC, subject, in the case of the issuance of shares of FIC Common Stock in
the Merger and the Charter Amendment, to the FIC Shareholders Approval. This
Agreement has been duly executed and delivered by FIC and, assuming this
Agreement constitutes the valid and binding agreement of ILCO, constitutes a
valid and binding obligation of FIC, enforceable against it in accordance with
its terms except that the enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditors' rights and remedies generally and (b) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity). The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated by this Agreement and
compliance with the provisions hereof will not, (i) conflict with any of the
provisions of the Articles of Incorporation or Bylaws of FIC or the comparable
documents of any subsidiary of FIC, (ii) except as set forth in the FIC
Disclosure Letter (as defined below in Section 3.5 hereof) and subject to the
governmental filings and other matters referred to in the following sentence,
conflict with, result in a breach of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under, or require
the consent of any person under, any indenture or other agreement, permit,
concession, franchise, license or similar instrument or undertaking to which FIC
or any of its subsidiaries is a party or by which FIC or any of its subsidiaries
or any of their assets is bound or affected, (iii) result in an obligation by
FIC or any of its subsidiaries to redeem, repurchase or retire (or offer to
redeem, repurchase or retire) any indebtedness of FIC or any of its subsidiaries
outstanding as of the date hereof or equity security of FIC or any of its
subsidiaries outstanding as of the date hereof, or (iv) subject to the
governmental filings and other matters referred to in the following sentence,
contravene any law, rule or regulation of any state or of the United States or
any political subdivision thereof or therein, or any order, writ, judgment,
injunction, decree, determination or award currently in effect, except, in the
cases of the foregoing clauses (ii) through (iv), for breaches that,
individually or in the aggregate, could not reasonably be expected to have an
FIC Material Adverse Effect or to materially hinder FIC's ability to consummate
the transactions contemplated by this Agreement. No consent, approval or
authorization of, or declaration or filing with, or notice to, any Governmental
Entity which has not been received or made, is required by or with respect to
FIC or any of its subsidiaries in connection with the execution and delivery of
this Agreement by FIC or the consummation by FIC of the transactions
contemplated hereby, except for (i) the filing of premerger notification and
report forms under the HSR Act with respect to the Merger and the termination or
earlier expiration of the applicable waiting period thereunder, (ii) the filing
of appropriate documents with, and, to the extent necessary, approval of, the
respective Commissioners of Insurance of the States of Washington and Indiana
and such notices and consents as may be required under the insurance laws of any
jurisdiction in which ILCO, FIC or any of their respective subsidiaries is
domiciled or does business, (iii) the filing of a registration statement under
the Securities Act and any other filings required by any state blue sky laws
with respect to the issuance of shares of FIC Common Stock in the Merger, (iv)
the Joint Proxy Statement/Prospectus (as defined in Section 5.1(a)) to be filed
with the SEC by FIC relating to the FIC Shareholders Approval, (v) any filing
required by the Nasdaq Stock Market with respect to the issuance of shares of
FIC Common Stock in the Merger and upon exercise of Assumed Stock Options (as
defined in Section 6.3(a)), (vi) the filing of
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such reports under the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated by this Agreement, (vii) such
filings and consents as may be required under any environmental, health or
safety law or regulation pertaining to any notification, disclosure or required
approval triggered by the Merger or the other transactions contemplated by this
Agreement, and (viii) such filings as may be required in connection with
statutory provisions and regulations relating to real property transfer gains
Taxes and real property transfer Taxes.
3.4 FIC SEC Documents. (a) Since January 1, 1997, FIC and its
subsidiaries have filed with the SEC all forms, reports, schedules, statements
and other documents required to be filed by it with the SEC pursuant to the
Securities Act and the Exchange Act (any such documents filed prior to the date
hereof being collectively referred to as the "FIC SEC Documents"). The FIC SEC
Documents, including the financial statements or schedules included therein, at
the time filed, or in the case of registration statements on their respective
effective dates, (i) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, and
(ii) did not at the time filed (or in the case of registration statements, at
the time of effectiveness), contain 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 made therein, in light of the circumstances under
which they were made, not misleading. The financial statements included in the
FIC SEC Documents (the "FIC Financial Statements"), (i) have been prepared from
and are in accordance with, the books and records of FIC and its subsidiaries,
(ii) complied in all material respects with applicable accounting requirements
and with the published rules and regulations of the SEC with respect thereto,
(iii) have been prepared in accordance with GAAP during the periods involved and
(iv) fairly present the consolidated financial position and the consolidated
results of operations and cash flows of FIC and its subsidiaries as of the times
and for the periods referred to therein, except that any such FIC Financial
Statements that are unaudited, interim financial statements are subject to
normal and recurring year-end adjustments.
(b) FIC has previously delivered or made available to ILCO, in the
form filed with the SEC (including any amendments thereto), (i) its Annual
Reports on Form 10-K for each of the three fiscal years ended December 31,
1999, 1998 and 1997, (ii) all definitive proxy statements relating to FIC's
meetings of shareholders (whether annual or special) held since January 1,
1997 and (iii) all other reports or registration statements filed by FIC
with the SEC since January 1, 1997.
3.5 Absence of Certain Changes or Events. Except as disclosed in the FIC
SEC Documents or as disclosed in writing by FIC to ILCO in a disclosure letter
(the "FIC Disclosure Letter"), or as otherwise agreed to in writing after the
date hereof by ILCO, or as expressly permitted by this Agreement, since December
31, 1999, FIC and its subsidiaries have conducted their business only in the
ordinary course, and there has not been (a) any change which could reasonably be
expected to have an FIC Material Adverse Effect (including as a result of the
consummation of the transactions contemplated by this Agreement), (b) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of FIC's currently
outstanding capital stock, (c) any split, combination or reclassification of any
of its outstanding capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its outstanding capital stock, (d) (i) any granting by FIC or any
of its subsidiaries to any director, officer or other employee or independent
contractor of FIC or any of its subsidiaries of any increase in compensation or
acceleration of benefits, except in the ordinary course of business consistent
with prior practice or as was required under employment agreements in effect on
December 31, 1999, (ii) any granting by FIC or any of its subsidiaries to any
director, officer or other employee or independent contractor of any increase
in, or acceleration of benefits in respect of, severance or termination pay, or
pay in connection with any change of control of FIC, except in the ordinary
course of business consistent with prior practice or as was required under any
employment, severance or termination agreements in effect on December 31, 1999
or (iii) any entry by FIC or any of its subsidiaries into any employment,
severance, change of control, or termination or similar agreement with any
director, executive officer or other employee or independent contractor other
than in the ordinary course of business consistent with past practices, or (e)
any change
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in accounting methods, principles or practices by FIC or any of its subsidiaries
materially affecting its assets, liabilities or business, except insofar as may
have been required by a change in GAAP.
3.6 No Extraordinary Payments or Change in Benefits. Except as disclosed
in the FIC Disclosure Letter, no current or former director, officer, employee
or independent contractor of FIC or any of its subsidiaries is entitled to
receive any payment under any agreement, arrangement or policy (written or oral)
relating to employment, severance, change of control, termination, stock
options, stock purchases, compensation, deferred compensation, fringe benefits
or other employee benefits currently in effect (collectively, the "FIC Benefit
Plans"), nor will any benefit received or to be received by any current or
former director, officer, employee or independent contractor of FIC or any of
its subsidiaries under any FIC Benefit Plan be accelerated or modified, as a
result of or in connection with the execution and delivery of, or the
consummation of the transactions contemplated by, this Agreement.
3.7 Voting Requirements. The affirmative vote of at least a majority of
the outstanding shares of FIC Common Stock entitled to vote with respect to the
approval of the Charter Amendment, and the affirmative vote of at least a
majority of the shares of FIC Common Stock present (in person or by proxy) at
the FIC Shareholders Meeting with respect to the issuance of shares of FIC
Common Stock in the Merger, are the only votes of the holders of any class or
series of FIC's capital stock necessary to approve the transactions contemplated
by this Agreement.
3.8 Brokers. Except as set forth in the FIC Disclosure Letter, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of FIC. A true, correct and complete copy of
the engagement letter of Philo Smith & Co., Inc. has been delivered to ILCO.
3.9 Fairness Opinion. The special committee of FIC's Board of Directors
(the "FIC Special Committee") has received an opinion of Philo Smith & Co.,
Inc., financial advisor to the FIC Special Committee, (the "FIC Fairness
Opinion"), to the effect that the Merger is fair, from a financial point of
view, to the shareholders of FIC.
3.10 Compliance with Applicable Laws. Each of FIC and its subsidiaries
has in effect all Permits necessary for it to own, lease or operate its
properties and assets and to carry on its business as now conducted, other than
such Permits the absence of which could not, individually or in the aggregate,
reasonably be expected to have an FIC Material Adverse Effect, and there has
occurred no default under any such Permit other than such defaults which,
individually or in the aggregate, could not reasonably be expected to have an
FIC Material Adverse Effect. FIC and its subsidiaries are in compliance with all
applicable statutes, laws, ordinances, rules orders and regulations of any
Governmental Entity, including without limitation, all applicable federal, state
and local statutes and regulations regulating the business and products of
insurance, except for such noncompliance which individually or in the aggregate
could not reasonably be expected to have an FIC Material Adverse Effect.
3.11 Absence of Undisclosed Liabilities. Except for liabilities disclosed
in the FIC SEC Documents, liabilities contemplated by this Agreement and
liabilities set forth in the FIC Disclosure Letter, FIC and its subsidiaries do
not have any material indebtedness, obligations or liabilities of any kind
(whether accrued, absolute, contingent or otherwise) (i) required by GAAP to be
reflected on a consolidated balance sheet of FIC and its consolidated
subsidiaries or in the notes, exhibits or schedules thereto or (ii) which
reasonably could be expected to have an FIC Material Adverse Effect.
3.12 Litigation. Except as disclosed in the FIC SEC Documents or in the
FIC Disclosure Letter, there is no litigation, administrative action,
arbitration or other proceeding pending against FIC or any of its subsidiaries
or, to the knowledge of FIC, threatened that, individually or in the aggregate,
could reasonably be expected to (i) have an FIC Material Adverse Effect or (ii)
prevent, or significantly delay the consummation of the transactions
contemplated by this Agreement. Except as set forth in the FIC SEC Documents,
there is no judgment, order, injunction or decree of any Governmental Entity
outstanding against FIC or any of its subsidiaries that, individually or in the
aggregate, could reasonably be expected to have any effect referred to in the
foregoing clauses (i) and (ii) of this Section 3.12.
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3.13 Transactions with Affiliates. Other than the transactions
contemplated by this Agreement or except to the extent disclosed in the FIC SEC
Documents or as set forth in the FIC Disclosure Letter, there have been no
transactions, agreements, arrangements or understandings between FIC or its
subsidiaries, on the one hand, and FIC's affiliates (other than subsidiaries of
FIC) or any other person, on the other hand, that would be required to be
disclosed under Item 404 of Regulation S-K under the Securities Act.
3.14 FIC Common Stock. The shares of FIC Common Stock to be issued in the
Merger will be, upon delivery against receipt of the shares of ILCO Common Stock
for which such shares will be issued in accordance with Section 1.8 of this
Agreement, duly authorized, validly issued, fully paid and nonassessable. The
shares of FIC Common Stock to be issued upon exercise of the Assumed Stock
Options (as defined in Section 6.2(a)) will be, upon delivery of the exercise
price therefor in accordance with the terms of the ILCO Stock Option Plan and
agreements pursuant to which such Assumed Stock Options were issued, duly
authorized, validly issued, fully paid and nonassessable.
3.15 Employee Arrangements and Benefit Plans. (a) Except as set forth in
the FIC SEC Documents or in the FIC Disclosure Letter and except as could not,
individually or in the aggregate, reasonably be expected to have an FIC Material
Adverse Effect: (i) each FIC Benefit Plan has been administered and is in
compliance with the terms of such plan and all applicable laws, rules and
regulations, (ii) no "reportable event" (as such term is used in section 4043 of
ERISA) (other than those events for which the 30 day notice has been waived
pursuant to the regulations), "prohibited transaction" (as such term is used in
section 406 of ERISA or section 4975 of the Code) or "accumulated funding
deficiency" (as such term is used in section 412 or 4971 of the Code) has
heretofore occurred with respect to any FIC Benefit Plan and (iii) each FIC
Benefit Plan intended to qualify under Section 401(a) of the Code has received a
favorable determination from the IRS regarding its qualified status, or the
remedial amendment period under Section 401(b) of the Code will not have expired
prior to the Closing Date, and no notice has been received from the IRS with
respect to the revocation of such qualification.
(b) There is no litigation or administrative or other proceeding
involving any FIC Benefit Plan or Employment Arrangement nor has FIC or its
subsidiaries received written notice that any such proceeding is
threatened, in each case where an adverse determination could reasonably be
expected to have an FIC Material Adverse Effect. Neither FIC nor any of its
subsidiaries has incurred, nor, to the best of FIC's knowledge, is
reasonably likely to incur any withdrawal liability under Section 4201 of
ERISA with respect to any "multiemployer plan" (within the meaning of
section 3(37) of ERISA) which remains unsatisfied in an amount which could
reasonably be expected to have an FIC Material Adverse Effect. The
termination of, or withdrawal from, any FIC Benefit Plan or multiemployer
plan to which FIC or its subsidiaries contributes, on or prior to the
Closing Date, will not subject FIC or any of its subsidiaries to any
liability under Title IV of ERISA that could reasonably be expected to have
an FIC Material Adverse Effect.
3.16 Tax Matters. (a) FIC and each of its subsidiaries have timely filed
(or been included in a consolidated, combined or unitary Tax Return that has
been timely filed) with the appropriate Governmental Entities all material Tax
Returns required to be filed through the date hereof and will timely file any
such material Tax Returns required to be filed on or prior to the Closing Date
(except those under valid extension) and all such Tax Returns are and will be
true and correct in all material respects.
(a) all material Taxes of FIC and each of its subsidiaries have been
or will be timely paid or adequately reserved for in accordance with GAAP
in the Financial Statements.
(b) FIC and its subsidiaries have complied in all material respects
with all applicable laws, rules and regulations relating to the withholding
of Taxes.
(c) Except as set forth in the FIC Disclosure Letter:
(i) no material deficiencies for any Taxes have been proposed,
asserted or assessed against FIC or any of its subsidiaries that have
not been fully paid or adequately provided for in the
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appropriate financial statements of FIC and its subsidiaries, and no
material issues relating to Taxes have been raised in writing by any
Governmental Entity during any presently pending audit or examination;
(ii) FIC and its subsidiaries are not now subject to audit by any
Governmental Entity and no waivers of statutes of limitation with
respect to the Tax Returns have been given by or requested in writing
from FIC or any of its subsidiaries;
(iii) there are no material Liens for Taxes (other than for Taxes
not yet due and payable) on any assets of FIC or any of its
subsidiaries;
(iv) neither FIC nor any of its subsidiaries is a party to or bound
by (nor will any of them become a party to or bound by) any Tax
indemnity, Tax sharing, Tax allocation, or similar agreement,
arrangement or practice with respect to Taxes, except among themselves;
(v) neither FIC nor any of its subsidiaries has ever been a member
of an affiliated group of corporations within the meaning of Section
1504 of the Code, other than the affiliated group of which FIC is the
common parent;
(vi) neither FIC nor any of its subsidiaries has agreed to make,
nor is any required to make, any adjustment under Section 481(a) of the
Code or any similar provision of state, local or foreign law by reason
of a change in accounting method or otherwise;
(vii) neither FIC nor any of its subsidiaries has received a Tax
ruling from any Governmental Entity, or entered into a closing agreement
with any Governmental Entity, that would have a continuing material
effect after the Closing Date; and
(viii) neither FIC nor any of its subsidiaries is a party to any
contract, agreement or other arrangement which would result in the
payment of amounts that could be nondeductible by reason of Sections
280G or 162(m) of the Code.
(e) No portion of either FIC or any of its subsidiaries is or has ever
been, a "taxable mortgage pool" as defined in Section 7701(i) of the Code.
(f) For the taxable period ending on the Closing Date and for all
prior taxable periods for which the statute of limitations has not expired,
Family Life (i) qualifies (and qualified) as an "insurance company" within
the meaning of Treasury Regulation Section 1.801-3(a) (under former Section
801 of the Code) and as a "life insurance company" within the meaning of
Section 816(a) of the Code, and (ii) are (and were) subject to taxation
under Subchapter L of the Code.
(g) The insurance reserves and unearned premiums with respect to FIC
and each of its subsidiaries set forth in all their federal Tax Returns as
to which the statute of limitations has not expired were determined in all
material respects in accordance with Section 807 of the Code.
(h) The unpaid losses with respect to FIC and each of its subsidiaries
set forth in all of their federal Tax Returns as to which the statute of
limitations has not expired were based upon reasonable estimations and were
discounted in all material respects in accordance with Section 846 of the
Code.
(i) Each life insurance policy and annuity contract issued, sold or
administered by FIC or any of its subsidiaries, at all relevant times,
satisfied, and does satisfy, the requirements of, and/or has qualified, and
does qualify, under, Sections 72, 264, 401(a), 403(a), 403(b), 817, 7702,
7702A of the Code and the Treasury Regulations thereunder, as applicable,
except to the extent that failures to satisfy or qualify in the aggregate,
were such failures tripled, would not result in any FIC Material Adverse
Effect.
(j) FIC has not constituted either a "distributing corporation" or a
"controlled corporation" (within the meaning of Section 355(a)(1)(A) of the
Code) in a distribution of stock qualifying for tax-free treatment under
Section 355 of the Code (i) in the two years prior to the date of this
Agreement or (ii) in a distribution which could otherwise constitute part
of a "plan" or "series of
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related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.
(k) Neither FIC nor any of its subsidiaries knows of any fact, plan or
circumstance that is reasonably likely to prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Code.
3.17 Intellectual Property. Except as set forth in the FIC Disclosure
Letter and except to the extent of any inaccuracy of any of the following (or
the circumstances giving rise to such inaccuracy) which, individually or in the
aggregate, could not reasonably be expected to have an FIC Material Adverse
Effect: (a) FIC and each of its subsidiaries owns, or is licensed to use (in
each case, free and clear of any Liens), all Intellectual Property used in or
necessary for the conduct of its business as currently conducted; (b) the use of
any Intellectual Property by FIC and its subsidiaries does not infringe on or
otherwise violate the rights of any person and is in accordance with any
applicable license pursuant to which FIC or any subsidiary acquired the right to
use any Intellectual Property; and (c) to the knowledge of FIC, no person is
challenging, infringing on or otherwise violating any right of FIC or any of its
subsidiaries with respect to any Intellectual Property owned by and/or licensed
to FIC or its subsidiaries; and (d) neither FIC nor any of its subsidiaries has
received any written notice of any pending claim with respect to any
Intellectual Property used by FIC and its subsidiaries and to its knowledge no
Intellectual Property owned and/or licensed by FIC or its subsidiaries is being
used or enforced in a manner that would result in the abandonment, cancellation
or unenforceability of such Intellectual Property.
3.18 Environmental Matters. Except as disclosed in the FIC SEC Documents
or as set forth in the FIC Disclosure Letter and except as could not reasonably
be expected to have an FIC Material Adverse Effect (a) the operations of FIC and
its subsidiaries have been and are in compliance with all Environmental Laws and
with all Permits required by Environmental Laws, (b) there are no pending or, to
the knowledge of FIC, threatened, Actions under or pursuant to Environmental
Laws against FIC or its subsidiaries or involving any real property currently
or, to the knowledge of FIC, formerly owned, operated or leased by FIC or its
subsidiaries, (c) FIC and its subsidiaries are not subject to any Environmental
Liabilities, and, to the knowledge of FIC, no facts, circumstances or conditions
relating to, arising from, associated with or attributable to any real property
currently or, to the knowledge of FIC, formerly owned, operated or leased by FIC
or its subsidiaries or operations thereon that could reasonably be expected to
result in Environmental Liabilities, (d) all real property owned, and to the
knowledge of FIC, all real property operated or leased by FIC or its
subsidiaries is free of contamination from Hazardous Material and (e) there is
not now, nor, to the knowledge of FIC, has there been in the past, on, in or
under any real property owned, leased or operated by FIC or any of its
predecessors (i) any underground storage tanks, above-ground storage tanks,
dikes or impoundments containing Hazardous Materials, (ii) any
asbestos-containing materials, (iii) any polychlorinated biphenyls, or (iv) any
radioactive substances.
3.19 State Takeover Statutes. No state takeover statute or similar
statute or regulation applies or purports to apply to the Merger, this Agreement
or any of the transactions contemplated by this Agreement and no provision of
the Articles of Incorporation, Bylaws or other governing instrument of FIC or
any of its subsidiaries would, directly or indirectly, restrict or impair the
ability of FIC to consummate the transactions contemplated by this Agreement.
3.20 Labor Matters. Except as set forth in the FIC SEC Documents or in
the FIC Disclosure Letter, (a) neither FIC nor any of its subsidiaries is a
party to any labor or collective bargaining agreement, and no employees of FIC
or any of its subsidiaries are represented by any labor organization, (b) to the
knowledge of FIC, there are no material representation or certification
proceedings, or petitions seeking a representation proceeding, pending or
threatened to be brought or filed with the National Labor Relations Board or any
other labor relations tribunal or authority and (c) to the knowledge of FIC,
there are no material organizing activities involving FIC or any of its
subsidiaries with respect to any group of employees of FIC or its subsidiaries.
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3.21 Material Contracts. Except as set forth in the FIC Disclosure
Letter, all contracts and agreements of the FIC and its subsidiaries that are
required to be described in the FIC SEC Documents or to be filed as exhibits
thereto are described in the FIC SEC Documents or filed as exhibits thereto
("FIC Material Contracts"), respectively, and are in full force and effect and,
upon consummation of the transactions contemplated hereby, shall continue in
full force and effect without penalty, acceleration, termination, repurchase
right or other adverse consequence. FIC has previously delivered or made
available to ILCO, true, correct and complete copies of all such FIC Material
Contracts. Neither FIC nor any of its subsidiaries, nor to the knowledge of FIC,
any other party is in breach of or in default under any such FIC Material
Contract and no event has occurred that with the lapse of time or the giving of
notice or both would constitute a default thereunder by FIC or, to the knowledge
of FIC, any other party thereto, in any such case in which such default or event
could reasonably be expected to have an FIC Material Adverse Effect. Neither FIC
nor any subsidiary of FIC has received any written notice (or to the knowledge
of FIC any other notice) of default or termination under any FIC Material
Contract, and to the knowledge of FIC, there exists no basis for any assertion
of a right of default or termination under such FIC Material Contracts.
3.22 Tangible Property. All of the assets of FIC and its subsidiaries are
in good operating condition, reasonable wear and tear excepted, and usable in
the ordinary course of business, except where the failure to be in such
condition or so usable could not, individually or in the aggregate, reasonably
be expected to have an FIC Material Adverse Effect.
3.23 Insurance Business.
(a) Except as otherwise could not, individually or in the aggregate,
reasonably be expected to have an FIC Material Adverse Effect, all
policies, binders, slips, certificates, guaranteed insurance contracts,
annuity contracts and participation agreements and other agreements of
insurance, whether individual or group, in effect as of the date hereof
(including all applications, supplements, endorsements, riders and
ancillary agreements in connection therewith) that are issued by Family
Life Insurance Company ("Family Life") or any predecessor of Family Life,
and any and all marketing materials, are, to the extent required under
applicable law, on forms approved by applicable insurance regulatory
authorities or which have been filed and not objected to by such
authorities within the period provided for objection, and such forms and
marketing materials comply in all material respects with the insurance
statutes, regulations and rules applicable thereto.
(b) FIC has delivered or made available to ILCO a true, correct and
complete copy of all actuarial reports prepared by FIC's actuaries, and any
actuarial reports prepared by other actuaries, independent or otherwise,
with respect to Family Life since January 1, 1998, and all attachments,
addenda, supplements and modifications thereto (the "FIC Actuarial
Analyses"). To the knowledge of FIC, the information and data furnished by
FIC or Family Life to its independent actuaries in connection with the
preparation of the FIC Actuarial Analyses were accurate in all material
respects. Furthermore, each FIC Actuarial Analysis was based upon an
accurate inventory of policies in force for Family Life, at the relevant
time of preparation, was prepared using appropriate modeling procedures
accurately applied and in conformity with generally accepted actuarial
standards consistently applied, and the projections contained therein were
properly prepared in accordance with the assumptions stated therein.
(c) To the knowledge of FIC, except as set forth in the FIC Disclosure
Letter or as reserved for or disclosed in the FIC SEC Documents, or as
could not, individually or in the aggregate, reasonably be expected to have
an FIC Material Adverse Effect, all amounts recoverable under reinsurance,
coinsurance or other similar contracts to which Family Life is a party
(including, but not limited to, amounts based on paid and unpaid losses)
are fully collectible.
(d) FIC has delivered or made available to ILCO true, correct and
complete copies of all analyses, reports and other data prepared by FIC or
Family Life or submitted by FIC or Family Life to any insurance regulatory
authority or received by FIC or Family Life relating to risk-based capital
calculations or IRIS ratios of the years ended December 31, 1999 and 1998.
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(e) FIC has delivered or made available to ILCO a true, correct and
complete list on a per risk and aggregate basis of the maximum underlying
retentions (net of all reinsurance maintained) on all insurance and
reinsurance policies written or entered into by Family Life since December
31, 1999.
(f) Except as could not, individually or in the aggregate, reasonably
be expected to have an FIC Material Adverse Effect, all annuity contracts
and life insurance policies issued by Family Life meet all definitional or
other requirements for qualification under the Code section applicable (or
intended to be applicable) to such annuity contracts or life insurance
policies.
(g) Except as set forth the FIC Disclosure Letter, there are no
material "hold harmless" indemnification agreements respecting the Tax
qualification or treatment of any product or plan sold, issued, entered
into or administered by Family Life, and there have been no claims asserted
by any person under such "hold harmless" indemnification agreements.
3.24 Liabilities and Reserves.
(a) Except as set forth in the FIC Disclosure Letter, the reserves
carried on the books of Family Life for future insurance policy benefits,
losses, claims and similar purposes were, as of the respective dates of
such FIC financial statements required to be submitted to the appropriate
regulatory authority of the jurisdiction in which Family Life is domiciled
on forms prescribed or permitted by such authority in compliance in all
material respects with the requirements for reserves established by the
insurance department of the state of domicile of Family Life, were
determined in all material respects in accordance with generally accepted
actuarial standards consistently applied, and were fairly stated in all
material respects in accordance with sound actuarial and statutory
accounting principles. FIC has delivered or made available to ILCO true,
correct and complete copies of the Annual Statements delivered to the
insurance department of the domiciliary state of Family Life for the years
ended December 31, 1999 and 1998. FIC has delivered or made available to
ILCO copies of all work papers used as the basis for establishing the
reserves for Family Life at December 31, 1999 and December 31, 1998,
respectively, as well as all reports with respect to the adequacy of such
reserves.
(b) Except for regular periodic assessments in the ordinary course of
business or as reserved for or disclosed in the FIC SEC Documents, no claim
or assessment is pending nor, to the knowledge of FIC, threatened against
Family Life by any state insurance guaranty associations in connection with
such association's fund relating to insolvent insurers which if determined
adversely, could, individually or in the aggregate, reasonably be expected
to have an FIC Material Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
FIC and Merger Sub represent and warrant to ILCO as follows:
4.1 Organization, Standing and Corporate Power. Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas and has the requisite corporate power and authority to
carry on its business as now being conducted. Merger Sub is duly qualified to do
business and in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties would make such
qualification necessary, except where the failure to be so qualified could not
reasonably be expected to have a FIC Material Adverse Effect.
4.2 Capital Structure. The authorized capital stock of Merger Sub
consists of 1,000 shares of common stock, $0.01 par value, all of which are
issued and outstanding and owned of record and beneficially by FIC, free and
clear of all Liens. All outstanding shares of capital stock of Merger Sub are
duly authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Merger Sub has no outstanding options, warrants,
subscriptions or other rights, agreements or commitments that obligates it to
issue, sell or transfer, repurchase, redeem or otherwise acquire or vote any
shares of the capital stock of Merger Sub.
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4.3 Authority; Noncontravention. Merger Sub has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by Merger Sub and the consummation by it of the transactions
contemplated by this Agreement, have been duly authorized by all necessary
corporate action on the part of Merger Sub, including all necessary stockholder
approval. This Agreement has been duly executed and delivered by Merger Sub,
and, assuming this Agreement constitutes the valid and binding agreement of FIC
and ILCO, constitutes a valid and binding obligation of Merger Sub enforceable
against it in accordance with its terms except that the enforcement thereof may
be limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect relating to creditor's rights generally and (b)
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity). The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement will not, (i)
conflict with any of the provisions of the Articles of Incorporation or Bylaws
of Merger Sub, or (ii) subject to the governmental filings and other matters
referred to in the following sentence, contravene any law, rule or regulation of
any state or of the United States or any political subdivision thereof or
therein, or any order, writ, judgment, injunction, decree, determination or
award currently in effect. No consent, approval or authorization of, or
declaration or filing with, or notice to, any Governmental Entity which has not
been received or made is required by or with respect to Merger Sub in connection
with the execution and delivery of this Agreement by it or the consummation by
it of any of the transactions contemplated by this Agreement, except for (i) the
filing of premerger notification and report forms under the HSR Act with respect
to the Merger and the termination or earlier expiration of the applicable
waiting periods thereunder and (ii) the filing of articles of merger with the
Texas Secretary of State.
4.4 No Prior Activities. Except for this Agreement, Merger Sub (i) was
recently formed, (ii) has not entered into any agreements or arrangements with
any person and (iii) is not subject to or bound by any obligation or
undertaking. Except as contemplated by this Agreement, Merger Sub has not
engaged, directly or indirectly, in any business activities of any type or kind.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Form S-4 and Joint Proxy Statement/Prospectus;
Information Supplied.
(a) As soon as practicable following the date of this Agreement, (i)
FIC and ILCO shall prepare and file with the SEC a preliminary Joint Proxy
Statement/Prospectus ("Joint Proxy Statement/Prospectus") and (ii) FIC
shall prepare and file with the SEC a Registration Statement on Form S-4
(the "Form S-4") with respect to the registration of the issuance of shares
of FIC Common Stock in the Merger, of which the Joint Proxy
Statement/Prospectus will form a part. FIC shall use its commercially
reasonable efforts to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing. Each of FIC
and ILCO shall use their commercially reasonable efforts to cause the Joint
Proxy Statement/Prospectus to be mailed to FIC's shareholders and ILCO's
shareholders as promptly as practicable after the Form S-4 is declared
effective under the Securities Act. FIC shall also take any action (other
than qualifying to do business in any jurisdiction in which it is not now
so qualified or take any action that would subject it to the service of
process in suits, other than as to matters and transactions relating to the
Form S-4, in any jurisdiction where it is not so subject) required to be
taken under any applicable state securities laws in connection with the
issuance of the FIC Common Stock in the Merger and ILCO shall furnish all
information concerning itself and the holders of shares of ILCO Common
Stock as may be reasonably requested in connection with any such action.
(b) ILCO agrees and represents and warrants that the information
supplied or to be supplied by it specifically for inclusion or
incorporation by reference in the (i) Form S-4 will not, at the time the
Form S-4 is filed with the SEC, at any time it is amended or supplemented
or at the time it becomes
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effective under the Securities Act, contain any untrue statement of a
material fact or omit 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 are made, not misleading, or (ii) the
Joint Proxy Statement/Prospectus will not, at the date it is first mailed
to FIC's shareholders or at the time of the FIC Shareholders Meeting,
contain any statement which, at the time and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact, or omits to state any material fact necessary in order to make the
statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of
a proxy for the same meeting or subject matter thereof which has become
false or misleading. ILCO agrees that the Joint Proxy Statement/Prospectus
will comply as to form in all material respects with the requirements of
the Exchange Act and the rules and regulations promulgated thereunder,
except in each case with respect to statements made or incorporated by
reference in the Joint Proxy Statement/Prospectus supplied by FIC
specifically for inclusion or incorporation by reference therein as to
which ILCO assumes no responsibility.
(c) FIC agrees and represents and warrants that the information
supplied or to be supplied by it specifically for inclusion or
incorporation by reference in (i) the Form S-4 will not, at the time the
Form S-4 is filed with the SEC, at any time it is amended or supplemented
or at the time it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit 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 are made, not
misleading, or (ii) the Joint Proxy Statement/Prospectus will not, at the
date it is first mailed to ILCO's shareholders or at the time of the ILCO
Shareholders Meeting, contain any statement which, at the time and in light
of the circumstances under which it is made, is false or misleading with
respect to any material fact, or omits to state any material fact necessary
in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication with
respect to the solicitation of a proxy for the same meeting or subject
matter thereof which has become false or misleading. FIC agrees that the
Form S-4 will comply as to form in all material respects with the
requirements of the Securities Act and the rules and regulations
promulgated thereunder and FIC agrees that the Joint Proxy
Statement/Prospectus will comply as to form in all material respects with
the requirements of the Exchange Act and the rules and regulations
promulgated thereunder, except in each case with respect to statements made
or incorporated by reference in the Form S-4 or the Joint Proxy
Statement/Prospectus supplied by ILCO specifically for inclusion or
incorporation by reference therein as to which FIC assumes no
responsibility.
5.2 Shareholder Approval. (a) ILCO agrees that it will take all action
necessary in accordance with applicable law and its Articles of Incorporation
and Bylaws to convene a meeting of its shareholders (the "ILCO Shareholders
Meeting") to submit this Agreement, together (subject to Section 5.5(b) below)
with the affirmative recommendation of the ILCO Special Committee and ILCO's
Board of Directors, to ILCO's shareholders so that they may consider and vote
upon the approval of this Agreement and the Merger. ILCO will use its
commercially reasonable efforts to hold the ILCO Shareholders Meeting and obtain
the ILCO Shareholders Approval as soon as practicable after the date hereof and,
so long as the recommendation of the ILCO Special Committee or the Board of
Directors of ILCO has not been withdrawn or modified in accordance with Section
5.5(b), to obtain the favorable votes of its shareholders. Except as may
otherwise be permitted by Section 5.5(b), the ILCO Special Committee and the
Board of Directors of ILCO shall recommend to its shareholders that they vote in
favor of the approval and adoption of this Agreement and the Merger. Without
limiting the generality of the foregoing, ILCO agrees that, unless this
Agreement is first terminated in accordance with Section 8.1, its obligations
pursuant to the first two sentences of this Section 5.2(a) shall not be affected
by (i) the commencement, public proposal, public disclosure or communication to
ILCO of any Acquisition Proposal (as defined in Section 5.5(c) below) or (ii)
the withdrawal or modification by the Board of Directors of ILCO of its approval
or recommendation of this Agreement or the Merger, except with respect to a
withdrawal or
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modification of the affirmative recommendation of the ILCO Special Committee or
the Board of Directors of ILCO in accordance with Section 5.5(b).
(b) FIC agrees that it will take all action necessary in accordance
with applicable law and its Articles of Incorporation and Bylaws to convene
a meeting of its shareholders (the "FIC Shareholders Meeting") to submit
the issuance of shares of FIC Common Stock pursuant to this Agreement and
the Charter Amendment, together with the affirmative recommendation of
FIC's Board of Directors, to the FIC's shareholders so that they may
consider and vote upon the approval of the issuance of shares of FIC Common
Stock in the Merger and the Charter Amendment. FIC will use its
commercially reasonable efforts to hold the FIC Shareholders Meeting as
soon as practicable after the date hereof and to obtain the favorable votes
of its shareholders. The Board of Directors of FIC shall recommend to its
shareholders that they vote in favor of the approval of the issuance of
shares of FIC Common Stock in the Merger and the Charter Amendment.
5.3 Access to Information; Confidentiality. Upon reasonable notice, each
of FIC and ILCO shall, and shall cause each of their respective subsidiaries to,
afford to the other parties hereto and to their respective officers, employees,
counsel, financial advisors and other representatives reasonable access during
normal business hours during the period prior to the Effective Time to all its
properties, books, contracts, commitments, personnel and records and, during
such period, each of FIC and ILCO shall, and shall cause each of their
respective subsidiaries to, furnish as promptly as practicable to the other
parties hereto such information concerning its business, properties, financial
condition, operations and personnel as such parties may from time to time
reasonably request. Except as required by law or the rules of regulations of the
Nasdaq Stock Market or any national stock exchange, each of FIC and ILCO agree
that, until the earlier of (i) two years from the date of this Agreement and
(ii) the Effective Time, each of FIC and ILCO and their respective subsidiaries
will not, and will cause its respective directors, officers, partners,
employees, agents, accountants, counsel, financial advisors and other
representatives and affiliates (collectively, "Representatives") not to,
disclose any nonpublic information obtained from FIC or ILCO, as the case may
be, to any other person, in whole or in part, other than to its Representatives
in connection with an evaluation of the transactions contemplated by this
Agreement, and each of FIC and ILCO and their respective subsidiaries will not,
and will cause its respective Representatives not to, use any of such nonpublic
information to directly or indirectly divert or attempt to divert any business,
customer or employee of the other.
5.4 Public Announcements. Each of FIC and ILCO agree that they will
consult with each other before issuing, and will provide each other the
opportunity to review and comment upon, any press release or other public
statements with respect to the transactions contemplated by this Agreement,
including the Merger, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
applicable law, court process or by obligations pursuant to rules of any
national securities exchange or The Nasdaq Stock Market (to the extent
applicable to them). Notwithstanding the foregoing, each of FIC and ILCO shall,
before the opening of business on the day after the execution of this Agreement,
issue a press release describing the terms and conditions of the Merger;
provided, that the form and content of any such press release is acceptable to
both FIC and ILCO, which acceptance shall not be unreasonably withheld or
delayed.
5.5 Acquisition Proposals.
(a) From and after the date hereof, without the prior written consent
of FIC, ILCO shall not, and shall not authorize or permit any of its
subsidiaries to, and shall direct and use its best efforts to cause its and
its subsidiaries' Representatives not to, (i) directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information
or assistance) or take any other action to facilitate any inquiries or the
making of any proposal which constitutes or may reasonably be expected to
lead to an Acquisition Proposal (as defined below) or (ii) enter into or
participate in any discussions or negotiations regarding any Acquisition
Proposal. ILCO shall immediately cease and terminate any existing
solicitation, initiation, encouragement, activity, discussion or
negotiation with
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any persons conducted heretofore by it or its Representatives with respect
to the foregoing. Notwithstanding the foregoing and anything to the
contrary contained in this Section 5.5 or in any other provision of this
Agreement, ILCO and its Board of Directors may participate in discussions
or negotiations (including, as a part thereof, making any counterproposal)
with or furnish information to any third party making an unsolicited
Acquisition Proposal (a "Potential Acquiror") or approve an unsolicited
Acquisition Proposal if the Board of Directors of ILCO or any special
committee thereof is advised by its financial advisor that such Potential
Acquiror has the financial wherewithal to be reasonably capable of
consummating such an Acquisition Proposal, and the Board of Directors of
ILCO determines in good faith (A) after receiving advice from such
financial advisor, that such third party has submitted to ILCO an
Acquisition Proposal which is a Superior Proposal (as defined in Section
5.5(d) below), and (B) based upon advice of outside legal counsel, that the
failure to participate in such discussions or negotiations or to furnish
such information or approve an Acquisition Proposal would violate the
Board's fiduciary duties under applicable law. ILCO agrees that any non-
public information furnished to a Potential Acquiror will be pursuant to a
confidentiality agreement containing confidentiality and standstill
provisions. In the event that ILCO shall determine to provide any
information as described above, or shall receive any Acquisition Proposal,
it shall promptly inform FIC in writing as to the fact that information is
to be provided and shall furnish FIC the identity of the recipient of such
information and/or the Potential Acquiror and the terms of such Acquisition
Proposal. ILCO will inform FIC promptly of any material changes or
amendment to the essential terms of any such Acquisition Proposal. ILCO
expressly agrees and acknowledges that (i) nothing contained in this
Section 5.5 shall in any way be construed to be an authorization by FIC of
the acceptance of any Superior Proposal, it being understood that FIC
expressly disclaims any implication that FIC may be deemed to have
consented to the acceptance of a Superior Proposal by virtue of the
provisions of this Section 5.5 and (ii) the sole purpose of this Section
5.5 is to permit the termination of this Agreement by ILCO in accordance
with Section 8.1(b)(vii) in the event the conditions set forth in this
Section 5.5 are satisfied.
(b) Neither the Board of Directors of ILCO nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to FIC, the approval or recommendation by such Board of Directors
or committee thereof of this Agreement or the Merger, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal or
(iii) cause ILCO to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement related to any
Acquisition Proposal; provided, however, that the Board of Directors or any
committee thereof may withdraw or modify their approval or recommendation
of this Agreement or the Merger and approve or recommend an Acquisition
Proposal in the event that the Board determines in good faith (A) after
receiving advice from its financial advisor, that such Acquisition Proposal
is a Superior Proposal and (B) based upon advice of outside legal counsel,
that the failure to take such action would violate the Board's or any such
committee's fiduciary duties under applicable law.
(c) For purposes of this Agreement, an "Acquisition Proposal" means
any proposal or offer from any person (other than FIC or any of its
subsidiaries) for a tender or exchange offer, merger, consolidation, other
business combination, recapitalization, liquidation, dissolution or similar
transaction involving ILCO or any of its subsidiaries, or any proposal to
acquire in any manner a substantial equity interest in, or an substantial
portion of the assets of, ILCO or any of its subsidiaries.
(d) The term "Superior Proposal" means any bona fide proposal to
acquire, directly or indirectly (by way of tender offer, share purchase,
merger or otherwise), all of the outstanding shares of capital stock of
ILCO (including options and other derivative securities exercisable for or
convertible into capital stock of ILCO) for consideration consisting of
cash and/or securities, on terms which the Board of Directors of ILCO
determines in good faith to be more favorable to ILCO and its shareholders
than the Merger (based upon advice of the financial advisor of the Board of
Directors of ILCO or any committee thereof that the value of the
consideration provided for in such proposal is superior to the value of the
Merger Consideration), for which financing, to the extent required, is then
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committed or which, in the good faith reasonable judgment of the Board of
Directors of ILCO, after receiving advice from its financial advisor, is
reasonably capable of being financed by such third party.
5.6 Consents, Approvals and Filings. FIC and ILCO will make and cause
their respective subsidiaries and, to the extent necessary, their other
affiliates to make all necessary filings, including, without limitation, those
required under the HSR Act, applicable state insurance laws, the Securities Act
and the Exchange Act in order to facilitate the prompt consummation of the
Merger and the other transactions contemplated by this Agreement. In addition,
FIC and ILCO will each use their respective commercially reasonable efforts, and
will cooperate fully and in good faith with each other, (a) to comply as
promptly as practicable with all governmental requirements applicable to the
Merger and the other transactions contemplated by this Agreement, and (b) to
obtain as promptly as practicable all necessary permits, orders or other
consents of Governmental Entities and consents of all third parties necessary
for the consummation of the Merger and the other transactions contemplated by
this Agreement. Each of FIC and ILCO shall use their respective commercially
reasonable efforts to promptly provide such information and communications to
Governmental Entities as such Governmental Entities may reasonably request. Each
of the parties hereto shall provide to the other parties copies of all
applications in advance of filing or submission of such applications to
Governmental Entities in connection with this Agreement and shall make such
revisions thereto as reasonably requested by each other party hereto. Each of
the parties hereto shall provide to the other parties the opportunity to
participate in all meetings and material conversations with Governmental
Entities with respect to the matters contemplated by this Agreement.
5.7 Affiliate Letters. Prior to the Closing Date, ILCO shall deliver to
FIC a letter identifying all persons who, at the time the Merger is submitted
for approval to the shareholders, may be deemed to be an "affiliate" of such
party for purposes of Rule 145 under the Securities Act. ILCO shall use its
commercially reasonable efforts to cause each such person to deliver to FIC on
or prior to the Closing Date a written agreement substantially in the form
attached as Exhibit A hereto.
5.8 Nasdaq Listing. FIC shall use its commercially reasonable efforts to
cause the shares of FIC Common Stock to be issued in the Merger and upon the
exercise of the Assumed Stock Options (as defined in Section 6.3(a)) to be
approved for quotation in the Nasdaq Stock Market's Small Cap Market.
5.9 INDEMNIFICATION OF OFFICERS AND DIRECTORS.
(a) The Articles of Incorporation and Bylaws of the Surviving
Corporation shall contain the provisions with respect to indemnification at
least as favorable as those contained in the Articles of Incorporation and
Bylaws of ILCO, as in effect on the date hereof, and none of such
provisions shall be amended, repealed or otherwise modified for a period of
six years after the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who at any time prior to the
Effective Time were directors or officers of ILCO or any of its respective
subsidiaries in respect of actions or omissions occurring at or prior to
the Effective Time (including, without limitation, the transactions
contemplated by this Agreement), unless such modification is required by
law.
(b) TO THE EXTENT, IF ANY, NOT PROVIDED BY AN EXISTING RIGHT OF
INDEMNIFICATION OR OTHER AGREEMENT OR POLICY (AND IN ADDITION TO THE
AGREEMENTS SET FORTH IN Section 5.9(a) ABOVE), FROM AND AFTER THE EFFECTIVE
TIME, FIC AND THE SURVIVING CORPORATION, JOINTLY AND SEVERELY SHALL, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, INDEMNIFY, DEFEND AND HOLD
HARMLESS EACH PERSON WHO IS NOW, OR HAS BEEN AT ANY TIME PRIOR TO THE DATE
HEREOF, OR WHO BECOMES PRIOR TO THE DATE HEREOF, OR WHO BECOMES PRIOR TO
THE EFFECTIVE TIME, (i) AN OFFICER OR DIRECTOR OF ILCO OR ANY OF ITS
SUBSIDIARIES (INCLUDING WITHOUT LIMITATION, MEMBERS OF THE ILCO SPECIAL
COMMITTEE), (ii) AN OFFICER OR DIRECTOR OF MERGER SUB OR (iii) AN OFFICER
OR DIRECTOR OF FIC, INCLUDING WITHOUT LIMITATION, MEMBERS OF THE FIC
SPECIAL COMMITTEE, (AND EACH SUCH PERSON'S HEIRS, EXECUTORS AND
ADMINISTRATORS) (EACH AN "INDEMNIFIED PARTY" AND COLLECTIVELY THE
"INDEMNIFIED PARTIES") AGAINST ALL LOSSES, EXPENSES (INCLUDING REASONABLE
ATTORNEY'S FEES AND EXPENSES), CLAIMS, DAMAGES OR LIABILITIES OR, SUBJECT
TO THE WRITTEN CONSENT OF FIC OR THE SURVIVING CORPORATION (WHICH SHALL NOT
BE UNREASONABLY WITHHELD), AMOUNTS PAID IN SETTLEMENT, INCLUDING THE
ADVANCEMENT OF EXPENSES RELATING THERETO, ARISING OUT OF
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THREATENED, PENDING OR COMPLETED ACTIONS, SUITS OR OTHER PROCEEDINGS,
WHETHER CIVIL, CRIMINAL, ADMINISTRATIVE OR INVESTIGATIVE OR OTHER TYPE
WHATSOEVER, OCCURRING PRIOR TO, AT OR AFTER THE EFFECTIVE TIME THAT ARE, IN
WHOLE OR IN PART, BASED ON OR ARISING OUT OF THE FACT THAT SUCH PERSON IS
OR WAS A DIRECTOR OR OFFICER OF SUCH PARTY.
(c) The provisions of this Section 5.9 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his heirs
and his personal representatives and shall be binding on all successors and
assigns of FIC, the Surviving Corporation and ILCO.
5.10 Letter of FIC's Accountants. FIC shall use its commercially
reasonable efforts to cause to be delivered to ILCO a letter of
PricewaterhouseCoopers LLP, FIC's independent public accountants, and any other
independent public accountants whose report would be required to be included in
the Form S-4 pursuant to the rules and regulations under the Securities Act,
each dated a date within two business days before the date on which the Form S-4
shall become effective and an additional letter from each of them dated a date
within two business days before the Closing Date, each addressed to such party,
in form and substance reasonably satisfactory to ILCO and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
5.11 Letter of ILCO's Accountants. ILCO shall use its commercially
reasonable efforts to cause to be delivered to FIC a letter of
PricewaterhouseCoopers LLP, ILCO's independent public accountants, and any other
independent public accountants whose report would be required to be included in
the Form S-4 pursuant to the rules and regulations under the Securities Act,
each dated a date within two business days before the date on which the Form S-4
shall become effective and an additional letter from each of them dated a date
within two business days before the Closing Date, each addressed to such party,
in form and substance reasonably satisfactory to FIC and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
5.12 FIC Stock Option Held by Investors-NA. ILCO covenants and agrees
that it will use its best efforts to cause Investors-NA to enter into an
agreement with FIC whereby the terms and provisions of the agreement, dated
March 21, 1991 (which agreement grants to Investors-NA an option to purchase up
to 9.9% of the outstanding shares of FIC Common Stock) (the "Investors-NA Option
Agreement"), are modified so as to provide Investors-NA an option to purchase up
to 500,411 shares of FIC Common Stock (such amount being 9.9% of the outstanding
shares of FIC Common Stock as of the date of this Agreement). The amendment to
the Investors-NA Option Agreement described in this Section 5.12 shall be
effective as of the Effective Time.
5.13 Vote of Shares of ILCO Common Stock by FIC. FIC covenants and agrees
that, at the ILCO Shareholders Meeting, FIC shall, and shall cause its
subsidiaries to, vote all shares of ILCO Common Stock held of record by FIC or
its subsidiaries either "for" or "against" the Merger in the same manner as the
prevailing majority of the shares of ILCO Common Stock (other than shares held
of record by FIC or any of its subsidiaries) voted (in person or by proxy) (it
being understood that, for purposes of this Section 5.13, FIC and its
subsidiaries will vote 100% of the shares held by them collectively either "for"
or "against" the Merger, and abstentions and broker non-votes shall not be
counted for purposes of determining the prevailing majority of the shares of
ILCO Common Stock voting on the Merger).
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ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
6.1 Conduct of Business of ILCO. Except as expressly contemplated by this
Agreement, during the period from the date of this Agreement to the Effective
Time, ILCO shall, and shall cause its subsidiaries to, act and carry on their
respective businesses in the ordinary course of business and, to the extent
consistent therewith, use commercially reasonable efforts to preserve intact
their current business organizations, keep available the services of their
current officers and employees and preserve the goodwill of those engaged in
material business relationships with them. Without limiting the generality of
the foregoing, during the period from the date of this Agreement to the
Effective Time and except as set forth in the ILCO SEC Documents or as set forth
in the ILCO Disclosure Letter, ILCO shall not, and shall not permit any of its
subsidiaries to, without the prior consent of FIC:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of
its or its subsidiaries' outstanding capital stock (except dividends and
distributions by a direct or indirect wholly owned subsidiary of ILCO to
its parent), (ii) split, combine or reclassify any of its outstanding
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its outstanding
capital stock, (iii) except in connection with the termination of the
employment of any employees, purchase, redeem or otherwise acquire any
shares of outstanding capital stock or any rights, warrants or options to
acquire any such shares, or (iv) issue, sell, grant, pledge or otherwise
encumber any shares of its capital stock, any other equity securities or
any securities convertible into, or any rights, warrants or options to
acquire, any such shares, equity securities or convertible securities
(other than (A) upon the exercise of ILCO Stock Options outstanding on the
date of this Agreement or issued under clause (C) below, (B) pursuant to
employment agreements or other contractual arrangements in effect on the
date of this Agreement and (C) issuances of stock of any direct or indirect
wholly owned Subsidiary of ILCO to its parent);
(b) amend its Articles of Incorporation, Bylaws or other comparable
charter or organizational documents;
(c) acquire any business (including the assets thereof) or any
corporation, partnership, joint venture, association or other business
organization or division thereof;
(d) sell, mortgage or otherwise encumber or subject to any Lien (other
than mechanics liens filed in connection with the development of real
property by Investors NA) or otherwise dispose of any of its properties or
assets that are material to ILCO and its subsidiaries, taken as whole;
(e) (i) other than working capital borrowings in the ordinary course
of business and consistent with past practices, incur any indebtedness for
borrowed money or guarantee any such indebtedness of another person, other
than indebtedness owing to or guarantees of indebtedness owing to ILCO or
any of its direct or indirect wholly-owned subsidiaries or (ii) make any
material loans or advances to any other person, other than to ILCO or any
of its direct or indirect wholly-owned subsidiaries and other than routine
advances to employees consistent with past practices;
(f) make any Tax election or settle or compromise any Tax liability
that could reasonably be expected to be material to ILCO and its
subsidiaries, taken as a whole, or change its Tax or accounting methods,
policies, practice or procedures, except as required by law or GAAP;
(g) pay, discharge, settle or satisfy any material claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of ILCO included in the ILCO SEC Documents or incurred since
the date of such financial statements in the ordinary course of business
consistent with past practice;
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(h) make any material commitments or agreements for capital
expenditures or capital additions or betterments except as materially
consistent with the budget for capital expenditures as of the date of this
Agreement, in the ordinary course of business consistent with past
practices;
(i) except as may be required by law:
(A) other than in the ordinary course of business and consistent
with past practices, make any representation or promise, oral or
written, to any employee or former director, officer or employee of ILCO
or any of its subsidiaries which is inconsistent with the terms of any
ILCO Benefit Plan;
(B) other than in the ordinary course of business, make any change
to, or amend in any way, the contracts, salaries, wages, or other
compensation of any director, employee or any agent or consultant of
ILCO or any of its subsidiaries other than routine changes or amendments
that are required under existing contracts;
(C) except for renewals in the ordinary course of business
consistent with past practices, adopt, enter into, amend, alter or
terminate, partially or completely, any ILCO Benefit Plan, or any
election made pursuant to the provisions of any ILCO Benefit Plan, to
accelerate any payments, obligations or vesting schedules under any ILCO
Benefit Plan; or
(D) other than in the ordinary course of business consistent with
past practices, approve any general or company-wide pay increases for
employees;
(j) except in the ordinary course of business, modify, amend or
terminate any material agreement, permit, concession, franchise, license or
similar instrument to which ILCO or any of its subsidiaries is a party or
waive, release or assign any material rights or claims thereunder; or
(k) authorize any of, or commit or agree to take any of, the foregoing
actions.
6.2 Conduct of Business of FIC. Except as expressly contemplated by this
Agreement, during the period from the date of this Agreement to the Effective
Time, FIC shall, and shall cause its subsidiaries to, act and carry on their
respective businesses in the ordinary course of business and, to the extent
consistent therewith, use commercially reasonable efforts to preserve intact
their current business organizations, keep available the services of their
current officers and employees and preserve the goodwill of those engaged in
material business relationships with them. Without limiting the generality of
the foregoing, during the period from the date of this Agreement to the
Effective Time and except as set forth in the FIC SEC Documents or as set forth
in the FIC Disclosure Letter, FIC shall not, and shall not permit any of its
subsidiaries to, without the prior consent of ILCO:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of
its or its subsidiaries' outstanding capital stock (except dividends and
distributions by a direct or indirect wholly owned subsidiary of FIC to its
parent), (ii) split, combine or reclassify any of its outstanding capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its outstanding capital
stock, (iii) except in connection with the termination of the employment of
any employees, purchase, redeem or otherwise acquire any shares of
outstanding capital stock or any rights, warrants or options to acquire any
such shares, or (iv) issue, sell, grant, pledge or otherwise encumber any
shares of its capital stock, any other equity securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, equity securities or convertible securities (other than (A) upon
the exercise of FIC Stock Options outstanding on the date of this Agreement
or issued under clause (C) below, (B) pursuant to employment agreements or
other contractual arrangements in effect on the date of this Agreement and
(C) issuances of stock of any direct or indirect wholly owned Subsidiary of
FIC to its parent);
(b) amend its Articles of Incorporation, Bylaws or other comparable
charter or organizational documents;
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(c) acquire any business (including the assets thereof) or any
corporation, partnership, joint venture, association or other business
organization or division thereof;
(d) sell, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of any of its properties or assets that are material to
FIC and its subsidiaries, taken as whole;
(e) (i) other than working capital borrowings in the ordinary course
of business and consistent with past practices, incur any indebtedness for
borrowed money or guarantee any such indebtedness of another person, other
than indebtedness owing to or guarantees of indebtedness owing to FIC or
any of its direct or indirect wholly-owned subsidiaries or (ii) make any
material loans or advances to any other person, other than to FIC or any of
its direct or indirect wholly-owned subsidiaries and other than routine
advances to employees consistent with past practices;
(f) make any Tax election or settle or compromise any Tax liability
that could reasonably be expected to be material to FIC and its
subsidiaries, taken as a whole, or change its Tax or accounting methods,
policies, practice or procedures, except as required by law or GAAP;
(g) pay, discharge, settle or satisfy any material claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of FIC included in the FIC SEC Documents or incurred since
the date of such financial statements in the ordinary course of business
consistent with past practice;
(h) make any material commitments or agreements for capital
expenditures or capital additions or betterments except as materially
consistent with the budget for capital expenditures as of the date of this
Agreement, in the ordinary course of business consistent with past
practices;
(i) except as may be required by law:
(A) other than in the ordinary course of business and consistent
with past practices, make any representation or promise, oral or
written, to any employee or former director, officer or employee of FIC
or any of its subsidiaries which is inconsistent with the terms of any
FIC Benefit Plan;
(B) other than in the ordinary course of business, make any change
to, or amend in any way, the contracts, salaries, wages, or other
compensation of any director, employee or any agent or consultant of
ILCO or any of its subsidiaries other than routine changes or amendments
that are required under existing contracts;
(C) except for renewals in the ordinary course of business
consistent with past practices, adopt, enter into, amend, alter or
terminate, partially or completely, any FIC Benefit Plan, or any
election made pursuant to the provisions of any FIC Benefit Plan, to
accelerate any payments, obligations or vesting schedules under any FIC
Benefit Plan; or
(D) other than in the ordinary course of business consistent with
past practices, approve any general or company-wide pay increases for
employees;
(j) except in the ordinary course of business, modify, amend or
terminate any material agreement, permit, concession, franchise, license or
similar instrument to which FIC or any of its subsidiaries is a party or
waive, release or assign any material rights or claims thereunder; or
(k) authorize any of, or commit or agree to take any of, the foregoing
actions.
6.3 Stock Options. (a) At the Effective Time, each ILCO Stock Option that
is outstanding and unexercised immediately prior to the Effective Time shall be
deemed to have been assumed by FIC, without further action by FIC, the Surviving
Corporation or the holders of such options, and shall thereafter be deemed to be
an option to acquire shares of FIC Common Stock in such amount and at the
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exercise price provided below and otherwise having the same terms and conditions
as are in effect immediately prior to the Effective Time (except to the extent
that such terms and conditions may be altered in accordance with their terms as
a result of the transactions contemplated hereby) (such ILCO Stock Options
assumed by FIC being the "Assumed Stock Options"):
(i) the number of shares of FIC Common Stock to be subject to the
new option shall be equal to the product of (x) the number of shares of
ILCO Common Stock subject to the original option and (y) the Exchange
Ratio (rounded to the nearest 1/100 of a share);
(ii) the exercise price per share of FIC Common Stock under the new
option shall be equal to (x) the exercise price per share of ILCO Common
Stock under the original option divided by (y) the Exchange Ratio
(rounded to the nearest $0.01); and
(iii) in accordance with the terms of the ILCO Stock Option Plan
under which the ILCO Stock Options were issued, fractional shares of any
Assumed Stock Options resulting from the adjustments set forth in this
Section 6.3(a)shall be eliminated.
(b) At the Effective Time, FIC shall assume the ILCO Stock Option
Plan, with such changes thereto as may be necessary to reflect the
consummation of the transactions contemplated hereby. Nothing in this
Section 6.3(b) shall be construed to prevent FIC in any way from
terminating or freezing the benefits under any such plans (subject to the
rights of the holders of the Assumed Stock Options thereunder) and adopting
one or more new stock option plans, as approved by the Board of Directors
of FIC following the Effective Time.
(c) Promptly following the Effective Time, FIC shall use its
commercially reasonable efforts to file with the SEC a Registration
Statement on Form S-8 (or an amendment to any such form of FIC currently on
file with the SEC that is available therefor) (the "Form S-8") for the
purpose of registering the shares of FIC Common Stock issuable upon the
exercise of the Assumed Stock Options, and FIC shall use its commercially
reasonable efforts to have the Form S-8 (or any post-effective amendment
thereto) declared effective under the Securities Act as soon as practicable
after such filing.
6.4 Other Actions. Subject to Section 5.5(b), neither FIC nor ILCO shall,
and neither of them shall permit any of their respective subsidiaries to, take
any action that would, or that could reasonably be expected to, (a) prevent the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code or (b) otherwise result in any of the conditions of the Merger set
forth in Article VII not being satisfied.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Shareholder Approval. The ILCO Shareholders Approval and FIC
Shareholders Approval shall have been obtained.
(b) Governmental and Regulatory Consents. All required consents,
approvals, permits and authorizations to the consummation of the Merger
shall be obtained from any Governmental Entity whose consent, approval,
permission or authorization is required by reason of a change in law after
the date of this Agreement, unless the failure to obtain such consent,
approval, permission or authorization could not reasonably be expected to
have an ILCO Material Adverse Effect, or to materially and adversely affect
the validity or enforceability of this Agreement or the Merger.
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(c) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have otherwise expired.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect; provided, however, that
the party invoking this condition shall use its commercially reasonable
efforts to have any such order or injunction vacated.
(e) Nasdaq Listing. The shares of FIC Common Stock issuable pursuant
to the Merger shall have been approved for quotation in the Nasdaq Stock
Market's Small Cap Market.
(f) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
7.2 Conditions to Obligations of ILCO. The obligation of ILCO to effect
the Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of FIC and Merger Sub contained in this Agreement shall have
been true and correct on the date of this Agreement and shall be true and
correct at and as of the Closing Date as though made at and as of such time
(except to the extent that any such representations and warranties
expressly relate only to an earlier time, in which case they shall have
been true and correct at such earlier time); provided, however, that this
condition shall be deemed to have been satisfied unless the individual or
aggregate impact of all inaccuracies of such representations and warranties
(without regard to any materiality or FIC Material Adverse Effect
qualifier(s) contained in any individual representation or warranty) could
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise) of FIC and its subsidiaries, considered as a
whole, and except to the extent that any inaccuracies of such
representations and warranties are a result of changes in the United States
financial markets generally or in national, regional or local economic
conditions generally, or are a result of matters arising after the date
hereof that affect the insurance industry generally. FIC and Merger Sub
shall each have delivered to ILCO a certificate dated as of the Closing
Date, signed by a senior executive officer of FIC and Merger Sub, to the
effect set forth in this Section 7.2(a).
(b) Performance of Obligations of FIC and Merger Sub. Each of FIC and
Merger Sub shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the
Closing Date, and ILCO shall have received a certificate signed on behalf
of each of FIC and Merger Sub by a senior executive officer to such effect.
(c) Tax Opinion. ILCO shall have received an opinion of Fulbright &
Jaworski L.L.P., dated as of the Closing Date, to the effect that (i) the
Merger will constitute a reorganization under Section 368(a) of the Code,
(ii) FIC, Merger Sub and ILCO will each be a party to the reorganization
under Section 368(b) of the Code, and (iii) no gain or loss will be
recognized by the shareholders of ILCO upon the receipt of FIC Common Stock
in exchange for ILCO Common Stock pursuant to the Merger except with
respect to any cash received in lieu of Fractional Shares. In rendering
such opinion, Fulbright & Jaworski L.L.P. shall receive and may rely upon
representations, contained in certificates of FIC, Merger Sub and ILCO,
that are standard for tax-free reorganizations similar to the Merger.
(d) Fairness Opinion. The ILCO Fairness Opinion shall not have been
modified, withdrawn or revoked as of the date and time of mailing of the
Joint Proxy Statement/Prospectus to the shareholders of ILCO.
(e) Consent. FIC shall have obtained the consent or approval of any
person required under any FIC Material Contract, if any, to consummate the
transactions contemplated by this Agreement.
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(f) No Material Adverse Change. There shall not have occurred any
change in the business of FIC and its subsidiaries since the date of this
Agreement or any other event or circumstance that could reasonably be
expected to have an FIC Material Adverse Effect.
7.3 Conditions to Obligations of FIC. The obligations of FIC and Merger
Sub to effect the Merger are further subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of ILCO contained in this Agreement shall have been true and
correct on the date of this Agreement and shall be true and correct at and
as of the Closing Date as though made at and as of such time (except to the
extent that any such representations and warranties expressly relate only
to an earlier time, in which case they shall have been true and correct at
such earlier time); provided, however, that this condition shall be deemed
to have been satisfied unless the individual or aggregate impact of all
inaccuracies of such representations and warranties (without regard to any
materiality or ILCO Material Adverse Effect qualifier(s) contained in any
individual representation or warranty) could reasonably be expected to have
a material adverse effect on the condition (financial or otherwise) of ILCO
(or, following the Effective Time, the Surviving Corporation) and its
subsidiaries, considered as a whole, and except to the extent that any
inaccuracies of such representations and warranties are a result of changes
in the United States financial markets generally or in national, regional
or local economic conditions generally, or are a result of matters arising
after the date hereof that affect the insurance industry generally. ILCO
shall have delivered to FIC and Merger Sub a certificate dated as of the
Closing Date, signed by a senior executive officer of ILCO, to the effect
set forth in this Section 7.3(a).
(b) Performance of Obligations of ILCO. ILCO shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and FIC and Merger Sub
shall have received a certificate signed on behalf of ILCO by a senior
executive officer of ILCO to such effect.
(c) Tax Opinion. FIC shall have received an opinion of Weil, Gotshal
& Manges LLP, dated as of the Closing Date, to the effect that (i) the
Merger will constitute a reorganization under Section 368(a) of the Code,
(ii) FIC, Merger Sub and ILCO will each be a party to the reorganization
under Section 368(b) of the Code, and (iii) no gain or loss will be
recognized by FIC, Merger Sub or ILCO by reason of the Merger. In rendering
such opinion, Weil, Gotshal & Manges LLP shall receive and may rely upon
representations, contained in certificates of FIC, Merger Sub and ILCO,
that are standard for tax-free reorganizations similar to the Merger.
(d) Consents. ILCO shall have obtained the consent or approval of any
person required under any Material Contract, if any, to consummate the
transactions contemplated by this Agreement.
(e) Fairness Opinion. The FIC Fairness Opinion shall not have been
modified, withdrawn or revoked as of the date and time of mailing of the
Joint Proxy Statement/Prospectus to the shareholders of FIC.
(f) Investors-NA Option Agreement. FIC shall have received an
executed copy of the amendment to the Investors-NA Option Agreement, as
described in Section 5.12, and such agreement, as amended, shall be in full
force and effect.
(g) No Material Adverse Change. There shall not have occurred any
change in the business of ILCO and its subsidiaries since the date of this
Agreement or any other event or circumstance that could reasonably be
expected to have an ILCO Material Adverse Effect.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated and the Merger
abandoned as follows:
(a) at any time prior to the Effective Time, whether before or after
approval of this Agreement and the Merger by the shareholders of ILCO or
FIC, by mutual written consent of FIC and ILCO;
(b) at any time prior to the Effective Time, whether before or after
approval of this Agreement and the Merger by the shareholders of ILCO or
FIC:
(i) by FIC or ILCO if the ILCO Shareholders Approval shall not have
been obtained after submission by the Board of Directors of ILCO of this
Agreement and the Merger for approval by the shareholders of ILCO at a
special meeting called for such purpose or by written consent of such
shareholders in accordance with Section 5.2(a);
(ii) by FIC or ILCO if the FIC Shareholders Approval shall not have
been obtained after submission by the Board of Directors of FIC of the
issuance of shares of FIC Common Stock in the Merger and the Charter
Amendment for approval by the common shareholders of FIC at a special
meeting called for such purpose in accordance with Section 5.2(b);
(iii) by FIC or ILCO if the Merger shall not have been consummated
on or before June 1, 2001, unless the failure to consummate the Merger
is the result of a willful and material breach of this Agreement by the
party seeking to terminate this Agreement;
(iv) by FIC or ILCO if any Governmental Entity shall have issued an
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and nonappealable;
(v) by FIC or ILCO in the event of a breach by the other party of
any representation, warranty, covenant or other agreement contained in
this Agreement which (A) would give rise to the failure of a condition
set forth in Section 7.2(a) or (b) or Section 7.3(a) or (b), as
applicable, and (B) cannot be or has not been cured within 30 days after
the giving of written notice to the breaching party of such breach (a
"Material Breach"), provided that the terminating party is not then in
Material Breach of any representation, warranty, covenant or other
agreement contained in this Agreement;
(vi) by FIC if ILCO shall have breached the requirements of Section
5.5 hereof, unless FIC shall at such time be in Material Breach of any
representation, warranty, covenant or other agreement contained in this
Agreement; or
(vii) by ILCO if a third party shall have made an Acquisition
Proposal that is a Superior Proposal and ILCO shall have concurrently
executed a definitive agreement with such third party in respect of such
Superior Proposal.
8.2 Effect of Termination. (a) In the event that FIC or ILCO terminates
this Agreement as provided in Section 8.1(a), 8.1(b)(i), 8.1(b)(ii), 8.1(b)(iii)
or 8.1(b)(iv), this Agreement shall forthwith become void and have no effect,
without any liability or obligation on the part of FIC or ILCO, other than the
last sentence of Section 5.3 and Sections 2.9, 3.8, 5.9, 8.2, 10.1, 11.2 and
11.8.
(b) In the event that this Agreement is terminated by FIC pursuant to
Section 8.1(b)(vi) or by ILCO pursuant to Section 8.1(b)(vii), ILCO shall
promptly reimburse FIC for all substantiated out-of-pocket costs and
expenses incurred by them in connection with this Agreement and the
transactions contemplated hereby, including, without limitation, costs and
expenses of accountants, attorneys and financial advisors. This Agreement
shall not be deemed to have been validly terminated until all payments
contemplated by this Section 8.2(b) shall have been made in full.
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(c) In the event that this Agreement is terminated by either FIC or
ILCO pursuant to Section 8.1(b)(v), the non-breaching party may seek
damages or any other appropriate remedy in law or in equity.
8.3 Amendment. Subject to the applicable provisions of the Texas Code, at
any time prior to the Effective Time, the parties hereto may modify or amend
this Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties; provided, however, that after the ILCO
Shareholders Approval has been obtained, no amendment shall be made which
reduces the consideration payable in the Merger or adversely affects the rights
of ILCO's shareholders hereunder without the approval of such shareholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties.
8.4 Extension; Consent; Waiver. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) subject
to Section 8.3, waive compliance with any of the agreements or conditions of the
other parties contained in this Agreement or consent to any action requiring
consent pursuant to this Agreement. Any agreement on the part of a party to any
such extension, waiver or consent shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of any party
to this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights.
8.5 Procedure for Termination, Amendment, Extension, Consent or Waiver. A
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3 or an extension, consent or waiver pursuant to
Section 8.4 shall, in order to be effective, require in the case of FIC or ILCO,
action by its Board of Directors or a duly authorized committee of its Board of
Directors.
ARTICLE IX
SURVIVAL OF PROVISIONS
9.1 Survival. The representations and warranties of FIC, Merger Sub and
ILCO made in this Agreement, or in any certificate, respectively, delivered by
any of them pursuant to this Agreement, will not survive the Closing.
ARTICLE X
NOTICES
10.1 Notices. All notices and other communications under this Agreement
must be in writing and will be deemed to have been duly given if delivered,
telecopied or mailed, by certified mail, return receipt requested, first-class
postage prepaid, to the parties at the following addresses:
If to FIC or Merger Sub, to:
Financial Industries Corporation
6500 River Place Blvd., Building One
Austin, Texas 78730
Attention: James M. Grace
Facsimile: (512) 404-5051
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with copies to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Glenn D. West
Facsimile: (214) 746-7777
If to ILCO, to:
InterContinental Life Corporation
6500 River Place Blvd., Building One
Austin, Texas 78730
Attention: Theodore A. Fleron
Facsimile: (512) 404-5051
with a copy to:
Fulbright & Jaworski, L.L.P.
600 Congress Avenue, Suite 2400
Austin, Texas 78701
Attention: Walter Earl Bissex
Facsimile: (512) 536-4598
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Article X will, if delivered personally,
be deemed given upon delivery, will, if delivered by telecopy, be deemed
delivered when confirmed and will, if delivered by mail in the manner described
above, be deemed given on the third business day after the day it is deposited
in a regular depository of the United States mail. Any party from time to time
may change its address for the purpose of notices to that party by giving a
similar notice specifying a new address, but no such notice will be deemed to
have been given until it is actually received by the party sought to be charged
with the contents thereof.
ARTICLE XI
MISCELLANEOUS
11.1 Entire Agreement. Except for the documents executed by FIC, Merger
Sub and ILCO pursuant hereto, this Agreement supersedes all prior discussions
and agreements between the parties with respect to the subject matter of this
Agreement, and this Agreement (including the exhibits hereto and other documents
delivered in connection herewith) contains the sole and entire agreement between
the parties hereto with respect to the subject matter hereof.
11.2 Expenses. Except as provided in Section 8.2, whether or not the
Merger is consummated, each of FIC, Merger Sub and ILCO will pay its own costs
and expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the transactions contemplated hereby. In the
event of any lawsuit or other judicial proceeding brought by either party to
enforce any of the provisions of this Agreement, the losing party in such
proceeding shall reimburse the prevailing party's fees and expenses incurred in
connection therewith, including the fees and expenses of its attorneys.
11.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which will
constitute one and the same instrument and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.
11.4 No Third Party Beneficiary. Except for Section 5.9, the terms and
provisions of this Agreement are intended solely for the benefit of the parties
hereto, and their respective successors or
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assigns, and it is not the intention of the parties to confer third-party
beneficiary rights upon any other person.
11.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
11.6 Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties, and any such assignment that is
not consented to shall be null and void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by,
the parties and their respective successors and assigns.
11.7 Headings, Gender, Etc. The headings used in this Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender are deemed to include each
other gender; (b) words using the singular or plural number also include the
plural or singular number, respectively; (c) the terms "hereof," "herein,"
"hereby," "hereto," and derivative or similar words refer to this entire
Agreement; (d) the terms "Article" or "Section" refer to the specified Article
or Section of this Agreement; (e) all references to "dollars" or "$" refer to
currency of the United States of America; (f) the term "person" shall include
any natural person, corporation, limited liability company, general partnership,
limited partnership, or other entity, enterprise, authority or business
organization; and (g) the term "or" is not exclusive.
11.8 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of ILCO, Merger Sub or FIC under this Agreement will not
be materially and adversely affected thereby, (a) such provision will be fully
severable; (b) this Agreement will be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part hereof; and (c)
the remaining provisions of this Agreement will remain in full force and effect
and will not be affected by the illegal, invalid, or unenforceable provision or
by its severance herefrom.
11.9 No Recourse Against Others. No past, present or future director,
officer, employee, shareholder, incorporator or partner, as such, of FIC, Merger
Sub, ILCO or the Surviving Corporation shall have any liability for any
obligations of FIC, Merger Sub, ILCO or the Surviving Corporation under this
Agreement or for any claim based on, in respect of or by reason of such
obligations or their creation.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of FIC, Merger Sub and ILCO effective as of the
date first written above.
FINANCIAL INDUSTRIES CORPORATION
By: /s/ ROY F. MITTE
--------------------------------
Name: Roy F. Mitte
Title: Chairman, President
and Chief Executive
Officer
ILCO ACQUISITION COMPANY
By: /s/ ROY F. MITTE
--------------------------------
Name: Roy F. Mitte
Title: President
INTERCONTINENTAL LIFE CORPORATION
By: /s/ ROY F. MITTE
--------------------------------
Name: Roy F. Mitte
Title: Chairman, President
and Chief Executive
Officer
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ANNEX I
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
FINANCIAL INDUSTRIES CORPORATION
The undersigned, Mr. Roy F. Mitte and Mr. James M. Grace, certify that:
1. They are the President and Secretary, respectively, of Financial
Industries Corporation (the "Corporation").
2. At a duly held Special Meeting of the Board of Directors of the
Corporation, held on , 2001, the Board of Directors adopted the
following resolution approving the following amendment to the Articles of
Incorporation of the Corporation:
Paragraph 1 of Article IV is amended to read as follows:
"The aggregate number of shares which the Corporation shall have the
authority to issue is twenty-five million (25,000,000) shares of
common stock, par value $0.20 per share."
3. The shareholders of the Corporation adopted and approved the same
amendment by resolution at a special meeting held at the offices of the
Corporation in Austin, Texas, on , 2001, by the required vote of
shareholders as prescribed by Article VII of the Corporation's Articles of
Incorporation and Articles 4.02 and 2.28 of the Texas Business Corporation Act.
4. The number of shares outstanding is . The number of shares
entitled to vote on or consent to the amendment is .
5. The number of shares voted in favor of the amendment was , or
%, which exceeded the required vote, which is a majority under Article VII of
the Corporation's Articles of Incorporation. The number of shares voted against
was .
6. The undersigned have executed these Articles of Amendment and affixed
the corporate seal on , 2001.
- ----------------------------------------------------- -----------------------------------------------------
Roy F. Mitte, President James M. Grace, Secretary
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EXHIBIT A
, 2001
Financial Industries Corporation
6500 River Place Blvd., Building One
Austin, Texas 78730
Ladies and Gentlemen:
Reference is made to the provisions of the Agreement and Plan of Merger,
dated as of January , 2001 (together with any amendments thereto, the "Merger
Agreement"), among InterContinental Life Corporation, a Texas corporation (the
"Company"), Financial Industries Corporation, a Texas corporation ("Parent"),
and ILCO Acquisition Company, a Texas corporation and a wholly owned subsidiary
of Parent ("Merger Sub"), pursuant to which Merger Sub will be merged with and
into the Company, with the Company continuing as the surviving corporation (the
"Merger"). This letter constitutes the undertakings of the undersigned
contemplated by the Merger Agreement, and is being furnished pursuant to Section
5.7 thereto.
I understand that I may be deemed to be an "affiliate" of the Company, as
such term is defined for purposes of paragraphs (c) and (d) of Rule 145 ("Rule
145") promulgated under the Securities Act of 1933, as amended (the "Securities
Act"). Execution of this letter shall not be construed as an admission of
"affiliate" status nor as a waiver of any rights that I may have to object to
any claim that I am an "affiliate" on or after the date of this letter.
If in fact I were to be deemed an "affiliate" of the Company under
paragraphs (c) and (d) of Rule 145, my ability to sell, transfer or otherwise
dispose of any shares of the common stock, par value $0.20 per share, of Parent
(the "Parent Shares") received by me in exchange for any shares of ILCO Common
Stock (as defined in the Merger Agreement) pursuant to the Merger or received
upon the exercise of any stock options may be restricted.
I hereby represent, warrant and covenant to Parent that I will not sell,
pledge, transfer, or otherwise dispose of any of the Parent Shares except (i)
pursuant to an effective registration statement under the Securities Act, or
(ii) as permitted by, and in accordance with, Rule 145 or another applicable
exemption under the Securities Act and the rules and regulations promulgated
thereunder.
I hereby acknowledge that, except as otherwise provided in the Merger
Agreement, Parent is under no obligation to register the sale, transfer, pledge,
or other disposition of the Parent Shares or to take any other action necessary
for the purpose of making an exemption from registration available.
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I understand that Parent will issue stop transfer instructions to its
transfer agents with respect to the Parent Shares and that a restrictive legend
will be placed on certificates delivered to me evidencing the Parent Shares in
substantially the following form:
This certificate and the shares represented hereby have been issued
pursuant to a transaction governed by Rule 145 ("Rule 145")
promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be sold or otherwise disposed of unless
registered under the Securities Act pursuant to a Registration
Statement in effect at the time or unless the proposed sale or
disposition can be made in compliance with Rule 145 or without
registration in reliance on another exemption therefrom.
The term Parent Shares as used in this letter shall mean and include not
only the common stock of Parent as presently constituted, but also any other
stock which may be issued in exchange for, in lieu of, or in addition to, all or
any part of such Parent Shares.
I agree that, from time to time, at Parent's reasonable request and without
further consideration, I shall execute and deliver such additional documents and
shall use my reasonable best efforts to take all such further lawful action as
may be reasonably necessary or desirable to consummate and make effective, in
the most expeditious manner practicable, the transactions contemplated by the
Merger Agreement.
Very truly yours,
------------------------------------
Name:
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ANNEX B
[Philo Smith Capital Corporation Letterhead]
January 17, 2001
Special Committee of the Board of Directors
Financial Industries Corporation
6500 River Place Boulevard, Building One
Austin, TX 78730
Gentlemen:
Financial Industries Corporation ("FIC") retained Philo Smith Capital
Corporation ("PSCC") to act as its Financial Advisor in connection with a
proposed merger with InterContinental Life Corporation ("ILCO"). It is proposed
that FIC acquire all of the issued and outstanding shares of ILCO common stock,
par value $0.22 per share ("ILCO Common Stock"), not owned by FIC, by way of a
merger of a wholly-owned subsidiary of FIC with and into ILCO, with ILCO
surviving the merger as a wholly-owned subsidiary of FIC (the "Merger").
Pursuant to the Merger, each share of ILCO common stock issued (and not
cancelled or retired), immediately prior to the effective time of the Merger,
shall be converted into the right to receive 1.1 shares of FIC common stock, par
value $0.20 per share ("FIC Common Stock"). The ratio of the shares of FIC
common stock to be issued in exchange for each whole share of ILCO common stock
is referred to as the "Exchange Ratio." The shares of FIC common stock to be
issued to holders of ILCO common stock are referred to as the "Merger
Consideration."
In connection with its engagement, FIC requested that PSCC evaluate the
fairness from a financial point of view, of the Exchange Ratio set forth in the
Agreement and Plan of Merger dated as of January 17, 2001, among FIC, ILCO and
ILCO Acquisition Company (the "Merger Agreement"), to the shareholders of FIC.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of FIC and ILCO;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning ILCO and FIC prepared by the
management of ILCO and FIC;
(iii) reviewed certain financial projections prepared by the
management of FIC;
(iv) discussed the past and current operations and financial condition
and the prospects of ILCO and FIC, including information relating to
certain strategic, financial and operational benefits anticipated from the
Merger, with senior executives of FIC;
(v) reviewed with senior executives of FIC the pro forma impact of the
Merger on FIC's earnings per share, consolidated capitalization and
financial ratios;
(vi) reviewed the reported prices and trading activity for FIC common
stock and the ILCO Common Stock;
(vii) compared the financial performance of FIC and the prices and
trading activity of the FIC Common Stock with the financial performance of
ILCO and the prices and trading activity of ILCO Common Stock;
(viii) compared the financial performance of FIC and the prices and
trading activity of the FIC Common Stock and ILCO Common Stock with the S&P
Life Index and the NASDAQ Insurance index over the last two and five year
periods;
(ix) reviewed the results of a net present value analysis of FIC and
ILCO prepared in conjunction with and based on projections provided by FIC
and ILCO;
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135
(x) reviewed an actuarial report prepared by Wise & Associates, which
included actuarial valuations of FIC and ILCO;
(xi) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(xii) participated in discussions and negotiations among
representatives of FIC and ILCO and their financial and legal advisors;
(xiii) reviewed a draft of the Merger Agreement and certain related
documents; and
(xiv) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, including information
relating to certain strategic, financial and operational benefits anticipated
from the Merger, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
future financial performance of FIC and ILCO of the strategic, financial and
operational benefits expected to result from the Merger. In addition, we have
assumed that the Merger will be consummated in accordance with the terms set
forth in the Merger Agreement, including, among other things, that the Merger
will be treated as a tax-free reorganization and/or exchange pursuant to the
Internal Revenue Code of 1986, as amended, and that the Merger will not be
effected in a manner that would cause FIC to incur any material obligations. We
have not made any independent valuation or appraisal of the assets or
liabilities of FIC or ILCO, nor have we been furnished with any such appraisals.
Further, PSCC has not conducted an actuarial valuation of ILCO's reserves, nor
has it commissioned such a study from any third party. Our opinion is
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to us, as of the date hereof.
We have acted as financial advisor to the Special Committee Board of
Directors of FIC in connection with this transaction and will receive a fee for
our services, including possibly fees for providing financing services in
connection with this transaction. In addition, PSCC may have provided advisory
services to FIC or ILCO in the past and may have received fees for providing
such services.
It is understood that this letter is for the information of the Special
Committee of the Board of Directors of FIC and may not be used for any other
purpose without our prior written consent, except that this letter may be
included in its entirety in any filing with the Securities and Exchange
Commission and any proxy statement required to be circulated to the shareholders
of FIC and ILCO.
In addition, this opinion does not in any manner address the prices at
which the FIC Common Stock will trade following consummation of the Merger, and
PSCC expresses no opinion or recommendation as to how shareholders of FIC or
ILCO should vote at their respective shareholders' meetings to be held in
connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio provided for pursuant to the Merger Agreement is
fair, from a financial point of view, to the shareholders of FIC
Very truly yours,
/s/ PHILO SMITH CAPITAL CORPORATION
PHILO SMITH CAPITAL CORPORATION
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136
ANNEX C
[P.W. Mattingly & Co. Inc. Letterhead]
January 17, 2001
Special Committee of the Board of Directors
InterContinental Life Corporation
6500 River Place Blvd.
Austin, TX 78730
Members of the Special Committee of the Board
We understand that InterContinental Life Corporation (the "Company"),
Financial Industries Corporation ("Financial Industries") and a wholly owned
subsidiary of Financial Industries ("Buyer") propose to enter into a transaction
(the "Transaction") which will provide, among other things: (i) that the Company
will merge with Buyer; and (ii) that each share of common stock of the Company
issued and outstanding prior to the Transaction (other than shares of the
Company's common stock held as treasury shares by the Company (but excluding
shares of the Company's common stock held by any of the Company's subsidiaries,
whether or not treated as treasury shares of the Company on a consolidated basis
under generally accepted accounting principles) or shares of the Company's
common stock held by Financial Industries) will be converted into the right to
receive 1.1 validly issued, fully paid and non-assessable shares of Financial
Industries common stock. The transaction is intended to qualify as a "tax free"
reorganization for Federal income tax purposes. We further understand that
Financial Industries and its subsidiaries beneficially own 3,932,692 shares of
the Company's common stock constituting approximately 48% of shares outstanding
and eligible to vote.
You have asked for our opinion as to whether the Transaction is fair to the
stockholders of the Company from a financial point of view.
In arriving at our opinion we have: (i) reviewed certain publicly available
GAAP and statutory financial statements of the Company and of Financial
Industries; (ii) reviewed stock price and trading activity for shares of the
Company, Financial Industries, and certain other life health companies that we
deemed comparable; (iii) reviewed the financial terms of certain other
transactions that we deemed comparable; (iv) participated in discussions and
negotiations among representatives of the Company and Financial Industries; (v)
reviewed actuarial appraisals of the life insurance subsidiaries of the Company
and Financial Industries and a related report on valuation; (vi) reviewed a
draft merger agreement among Financial Industries, the Buyer and the Company and
assumed that all terms and provisions of that draft agreement remain unchanged;
(vii) reviewed an appraisal of the Company's major real estate assets; and
(viii) performed such other analyses and reviewed such other documents as we
deemed appropriate.
In rendering our opinion we have relied upon and assumed without
independent verification the accuracy, completeness and fairness of all the
financial and other information that was available to us from public sources or
that was provided to us by the Company, Financial Industries, or their
respective representatives. We did not assume any responsibility for making an
independent evaluation of any of the information reviewed by us. We are not
actuaries and our work did not include actuarial determinations or evaluations
by us, or an attempt to evaluate actuarial assumptions.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of the Company,
any portion of its shares, or any of its assets.
We have acted as financial advisor to the Special Committee in connection
with the Transaction and will receive a fee for our services.
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137
Based upon the foregoing and such other factors as we deem relevant,
including our assessment of general economic, market and monetary conditions, we
are of the opinion that as of the date hereof the Transaction is fair to the
stockholders of the Company from a financial point of view.
Very truly yours,
P. W. Mattingly & Co. Inc.
By: /s/ PETER W. MATTINGLY
----------------------------------
Managing Director
C-2
138
PART II
INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
FIC's Bylaws require FIC to indemnify officers and directors of FIC to the
fullest extent permitted by Article 2.02-1 of the Business Corporation Act of
the State of Texas (the "TBCA"). The Bylaws of FIC, as amended, are filed as
Exhibits 3.3, 3.4 and 3.5 to the Registration Statement. Generally, Article
2.02-1 of the TBCA permits a corporation to indemnify a person who was, is, or
is threatened to be made a named defendant or respondent in a proceeding because
the person was or is a director or officer if it is determined that such person
(i) conducted himself in good faith, (ii) reasonably believed (a) in the case of
conduct in his official capacity as a director or officer of the corporation,
that his conduct was in the corporation's best interests, and/or (b) in other
cases, that his conduct was at least not opposed to the corporation's best
interests, and (iii) in the case of any criminal proceeding, had no reasonable
cause to believe that his conduct was unlawful.
In addition, the TBCA requires a corporation to indemnify a director or
officer for any action that such director or officer is wholly successfully in
defending on the merits. Texas law does not permit exculpation of liability in
the case of (i) a breach of the director's duty of loyalty to the corporation or
its shareholders, (ii) an act or omission not in good faith that constitutes a
breach of duty of the director to the corporation or that involves intentional
misconduct or a knowing violation of the law, (iii) a transaction from which a
director received an improper benefit, whether or not the benefit resulted from
an action taken within the scope of the director's office or (iv) an act or
omission for which the liability of the director is expressly provided by
statute. FIC may provide liability insurance for each director and officer for
certain losses arising from claims or changes made against them while acting in
their capabilities as directors or officers of FIC, whether or not FIC would
have the power to indemnify such person against such liability, as permitted by
law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit List
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.1 -- Agreement and Plan of Merger dated as of January 17,
2001, by and among FIC, ILCO and Merger Sub.(1)
3.1 -- Articles of Incorporation of FIC.(2)
3.2 -- Certificate of Amendment to the Articles of Incorporation
of FIC, dated November 12, 1996.(3)
3.3 -- Bylaws of FIC.(2)
3.4 -- Amendment to Bylaws of FIC dated February 29, 1992.*
3.5 -- Amendment to Bylaws of FIC dated June 16, 1992.*
5.1 -- Opinion of FIC regarding the validity of the shares of
FIC common stock.+
8.1 -- Opinion of Weil, Gotshal & Manges LLP regarding certain
tax matters.+
8.2 -- Opinion of Fulbright & Jaworski L.L.P. regarding certain
tax matters.+
10.1 -- Stock Purchase Agreement, dated as of March 19, 1991, as
amended, by and among Merrill Lynch Insurance Group,
Inc., Family Life Insurance Company, Family Life
Corporation, Family Life Insurance Investment Company and
FIC.(4)
II-1
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EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
10.2 -- Note, dated June 12, 1991, in the original principal
amount of $2.5 million made by FIC in favor of Investors
Life Insurance Company of California (Investors-CA) and
transferred to Investors Life Insurance Company of North
America (Investors-NA) in connection with the merger as
of December 31, 1992 of Investors-CA into
Investors-NA.(4)
10.3 -- Credit Agreement, dated as of June 12, 1991, among Family
Life Corporation, the Lenders named therein and the Agent
named therein.(4)
10.4 -- Note, dated June 12, 1991, in the original principal
amount of $22.5 million made by Family Life Corporation
in favor of Investors Life Insurance Company of North
America.(4)
10.5 -- Note, dated June 12, 1991, in the original principal
amount of $2.5 million made by FIC in favor of Investors
Life Insurance Company of California.(5)
10.6 -- Option Agreement, dated as of June 12, 1991, among FIC,
Investors Life Insurance Company of North America and
Investors Life Insurance Company of California.(4)
10.7 -- Surplus Debenture, dated as of June 12, 1991, in the
original principal amount of $97.5 million made by Family
Life Insurance Company in favor of Family Life
Corporation.(5)
10.8 -- Note, dated July 30, 1993, in the original principal
amount of $30 million made by Family Life Corporation in
favor of Investors Life Insurance Company of North
America.(5)
10.9 -- Note, dated July 30, 1993, in the original principal
amount of $4.5 million made by Family Life Insurance
Investment Company in favor of Investors Life Insurance
Company of North America.(5)
10.10 -- Amendment No. 1 to Note, dated July 30, 1993, between
Family Life Corporation and Investors Life Insurance
Company of North America.(5)
10.11 -- Amendment No. 1 to Note, dated July 30, 1993, between
Family Life Insurance Company and Family Life
Corporation.(5)
10.12 -- Guaranty Agreement, dated July 30, 1993, between FIC and
Investors Life Insurance Company of North America.(5)
10.13 -- Guaranty Agreement, dated July 30, 1993, between FIC and
Investors Life Insurance Company of North America.(5)
10.14 -- Data Processing Agreement, dated as of November 30, 1994,
between ILCO and FIC Computer Services, Inc.(6)
10.15 -- Data Processing Agreement, dated as of November 30, 1994,
between Investors Life Insurance Company of North America
and FIC Computer Services, Inc.(6)
10.16 -- Data Processing Agreement, dated as of November 30, 1994,
between Family Life Insurance Company and FIC Computer
Services, Inc.(6)
10.17 -- Amendment No. 2, dated December 12, 1996, effective June
12, 1996 to the note dated June 12, 1991 in the original
principal amount of $22.5 million made by Family Life
Corporation in favor of Investors Life Insurance Company
of North America.(7)
10.18 -- Amendment No. 1, dated December 12, 1996, effective June
12, 1996 to the note dated June 12, 1991 in the original
principal amount of $2.5 million made by FIC in favor of
Investors Life Insurance Company of California.(7)
II-2
140
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
10.19 -- Amendment No. 1, dated December 12, 1996, effective June
12, 1996 to the note dated June 12, 1991 in the original
principal amount of $2.5 million made by FIC in favor of
Investors Life Insurance Company of North America.(7)
10.20 -- Amendment No. 1, dated December 12, 1996, effective June
12, 1996 to the note dated July 30, 1993 in the original
principal amount of $30 million made by FIC in favor of
Investors Life Insurance Company of North America.(7)
10.21 -- Amendment No. 1, dated December 12, 1996, effective June
12, 1996 to the note dated July 30, 1993 in the original
principal amount of $4.5 million made by Family Life
Insurance Investment Company in favor of Investors Life
Insurance Company of North America.(7)
10.22 -- Amendment Agreement, dated December 12, 1996 amending the
Option Agreement among FIC, Investors Life Insurance
Company of North America and Investors Life Insurance
Company of California.(7)
10.23 -- Assignment Agreement, dated December 23, 1998, between
Family Life Insurance Investment Company and FIC.(8)
21.1 -- Subsidiaries of Registrant.(9)
23.1 -- Consent of PricewaterhouseCoopers LLP.*
23.2 -- Consent of PricewaterhouseCoopers LLP.*
23.3 -- Consent of Special counsel to FIC (included in exhibit
5.1).
23.4 -- Consent of Weil, Gotshal & Manges LLP (included in
exhibit 8.1).
23.5 -- Consent of Fulbright & Jaworski L.L.P. (included in
exhibit 8.2).
23.6 -- Consent of Philo Smith Capital Corporation (included in
the opinion of Philo Smith Capital Corporation attached
as Annex B to the joint proxy statement/ prospectus).
23.7 -- Consent of P.W. Mattingly & Co. Inc.*
23.8 -- Consent of Wise & Associates, Inc.*
24.1 -- Powers of Attorney (included on the signature pages to
this registration statement).
99.1 -- Form of Proxy Card to be sent to the shareholders of
FIC.*
99.2 -- Form of Proxy Card to be sent to the shareholders of
ILCO.*
- ---------------
* Filed herewith.
+ To be filed by amendment.
(1) Incorporated by reference to the Exhibits filed with FIC's Current Report
on Form 8-K dated January 23, 2001.
(2) Incorporated by reference to the Exhibits filed with FIC's Annual Report on
Form 10-K for 1985.
(3) Incorporated by reference to the Exhibits filed with FIC's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996.
(4) Incorporated by reference to the Exhibits filed with FIC's Current Report
on Form 8-K dated June 25, 1991.
(5) Incorporated by reference to the Exhibits filed with FIC's Annual Report on
Form 10-K for 1993.
(6) Incorporated by reference to the Exhibits filed with FIC's Annual Report on
Form 10-K for 1994.
(7) Incorporated by reference to the Exhibits filed with FIC's Annual Report on
Form 10-K for 1996.
(8) Incorporated by reference to the Exhibits filed with FIC's Current Report
on Form 10-K for 1998.
(9) Incorporated by reference to the Exhibits filed with FIC's Annual Report on
Form 10-K for 1999.
II-3
141
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) 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.
(b) (1) 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.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and
is used in connection with an offering of securities subject to Rule 415,
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 Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the provisions described under Item 20 above, or
otherwise, the registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expense 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 against the registrant by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(d) 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.
(e) 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.
II-4
142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Austin, Texas, on
February 1, 2001.
FINANCIAL INDUSTRIES CORPORATION
By: /s/ ROY F. MITTE
----------------------------------
Roy F. Mitte
Chairman, President and Chief
Executive Officer
POWER OF ATTORNEY
Know all those by these presents, that each person whose signature appears
below constitutes and appoints each of Roy F. Mitte and James M. Grace, or any
of them, each acting alone, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for such person and in his name,
place and stead, in any and all capacities, in connection with the Registration
Statement on Form S-4 of Financial Industries Corporation under the Securities
Act of 1933, as amended, including, without limitation of the generality of the
foregoing, to sign the Registration Statement in the name and on behalf of
Financial Industries Corporation, or on behalf of the undersigned as a director
or officer of Financial Industries Corporation, and any and all amendments or
supplements to the Registration Statement, including any and all stickers and
post-effective amendments to the Registration Statement, and to sign any and all
additional Registration Statements relating to the same offering of Securities
as the Registration Statement that are filed pursuant to Rule 462 under the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ JOHN D. BARNETT Director February 1, 2001
- -----------------------------------------------------
John D. Barnett
/s/ JOSEPH F. CROWE Director February 1, 2001
- -----------------------------------------------------
Joseph F. Crowe
/s/ JEFFREY H. DEMGEN Vice President; Director February 1, 2001
- -----------------------------------------------------
Jeffrey H. Demgen
/s/ THEODORE A. FLERON Vice President and Assistant February 1, 2001
- ----------------------------------------------------- Secretary; Director
Theodore A. Fleron
/s/ JAMES M. GRACE Vice President and February 1, 2001
- ----------------------------------------------------- Treasurer; Director
James M. Grace
II-5
143
SIGNATURES TITLE DATE
---------- ----- ----
/s/ MICHAEL S. MITTE Director February 1, 2001
- -----------------------------------------------------
Michael S. Mitte
/s/ ROY F. MITTE Chairman; President; Chief February 1, 2001
- ----------------------------------------------------- Executive Officer;
Roy F. Mitte Director
/s/ FRANK PARKER Director February 1, 2001
- -----------------------------------------------------
Frank Parker
/s/ THOMAS C. RICHMOND Director February 1, 2001
- -----------------------------------------------------
Thomas C. Richmond
/s/ STEVEN P. SCHMITT Vice President; Secretary; February 1, 2001
- ----------------------------------------------------- Director
Steven P. Schmitt
/s/ JEROME H. SUPPLE Director February 1, 2001
- -----------------------------------------------------
Jerome H. Supple
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144
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.1 -- Agreement and Plan of Merger dated as of January 17,
2001, by and among FIC, ILCO and Merger Sub.(1)
3.1 -- Articles of Incorporation of FIC.(2)
3.2 -- Certificate of Amendment to the Articles of Incorporation
of FIC, dated November 12, 1996.(3)
3.3 -- Bylaws of FIC.(2)
3.4 -- Amendment to Bylaws of FIC dated February 29, 1992.*
3.5 -- Amendment to Bylaws of FIC dated June 16, 1992.*
5.1 -- Opinion of FIC regarding the validity of the shares of
FIC common stock.+
8.1 -- Opinion of Weil, Gotshal & Manges LLP regarding certain
tax matters.+
8.2 -- Opinion of Fulbright & Jaworski L.L.P. regarding certain
tax matters.+
10.1 -- Stock Purchase Agreement, dated as of March 19, 1991, as
amended, by and among Merrill Lynch Insurance Group,
Inc., Family Life Insurance Company, Family Life
Corporation, Family Life Insurance Investment Company and
FIC.(4)
10.2 -- Note, dated June 12, 1991, in the original principal
amount of $2.5 million made by FIC in favor of Investors
Life Insurance Company of California (Investors-CA) and
transferred to Investors Life Insurance Company of North
America (Investors-NA) in connection with the merger as
of December 31, 1992 of Investors-CA into
Investors-NA.(4)
10.3 -- Credit Agreement, dated as of June 12, 1991, among Family
Life Corporation, the Lenders named therein and the Agent
named therein.(4)
10.4 -- Note, dated June 12, 1991, in the original principal
amount of $22.5 million made by Family Life Corporation
in favor of Investors Life Insurance Company of North
America.(4)
10.5 -- Note, dated June 12, 1991, in the original principal
amount of $2.5 million made by FIC in favor of Investors
Life Insurance Company of California.(4)
10.6 -- Option Agreement, dated as of June 12, 1991, among FIC,
Investors Life Insurance Company of North America and
Investors Life Insurance Company of California.(4)
10.7 -- Surplus Debenture, dated as of June 12, 1991, in the
original principal amount of $97.5 million made by Family
Life Insurance Company in favor of Family Life
Corporation.(5)
10.8 -- Note, dated July 30, 1993, in the original principal
amount of $30 million made by Family Life Corporation in
favor of Investors Life Insurance Company of North
America.(5)
10.9 -- Note, dated July 30, 1993, in the original principal
amount of $4.5 million made by Family Life Insurance
Investment Company in favor of Investors Life Insurance
Company of North America.(5)
10.10 -- Amendment No. 1 to Note, dated July 30, 1993, between
Family Life Corporation and Investors Life Insurance
Company of North America.(5)
10.11 -- Amendment No. 1 to Note, dated July 30, 1993, between
Family Life Insurance Company and Family Life
Corporation.(5)
10.12 -- Guaranty Agreement, dated July 30, 1993, between FIC and
Investors Life Insurance Company of North America.(5)
145
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
10.13 -- Guaranty Agreement, dated July 30, 1993, between FIC and
Investors Life Insurance Company of North America.(5)
10.14 -- Data Processing Agreement, dated as of November 30, 1994,
between ILCO and FIC Computer Services, Inc.(6)
10.15 -- Data Processing Agreement, dated as of November 30, 1994,
between Investors Life Insurance Company of North America
and FIC Computer Services, Inc.(6)
10.16 -- Data Processing Agreement, dated as of November 30, 1994,
between Family Life Insurance Company and FIC Computer
Services, Inc.(6)
10.17 -- Amendment No. 2, dated December 12, 1996, effective June
12, 1996 to the note dated June 12, 1991 in the original
principal amount of $22.5 million made by Family Life
Corporation in favor of Investors Life Insurance Company
of North America.(7)
10.18 -- Amendment No. 1, dated December 12, 1996, effective June
12, 1996 to the note dated June 12, 1991 in the original
principal amount of $2.5 million made by FIC in favor of
Investors Life Insurance Company of California.(7)
10.19 -- Amendment No. 1, dated December 12, 1996, effective June
12, 1996 to the note dated June 12, 1991 in the original
principal amount of $2.5 million made by FIC in favor of
Investors Life Insurance Company of North America.(7)
10.20 -- Amendment No. 1, dated December 12, 1996, effective June
12, 1996 to the note dated July 30, 1993 in the original
principal amount of $30 million made by FIC in favor of
Investors Life Insurance Company of North America.(7)
10.21 -- Amendment No. 1, dated December 12, 1996, effective June
12, 1996 to the note dated July 30, 1993 in the original
principal amount of $4.5 million made by Family Life
Insurance Investment Company in favor of Investors Life
Insurance Company of North America.(7)
10.22 -- Amendment Agreement, dated December 12, 1996 amending the
Option Agreement among FIC, Investors Life Insurance
Company of North America and Investors Life Insurance
Company of California.(7)
10.23 -- Assignment Agreement, dated December 23, 1998, between
Family Life Insurance Investment Company and FIC.(8)
21.1 -- Subsidiaries of Registrant.(9)
23.1 -- Consent of PricewaterhouseCoopers LLP.*
23.2 -- Consent of PricewaterhouseCoopers LLP.*
23.3 -- Consent of Special Counsel to FIC (included in exhibit
5.1).
23.4 -- Consent of Weil, Gotshal & Manges LLP (included in
exhibit 8.1).
23.5 -- Consent of Fulbright & Jaworski L.L.P. (included in
exhibit 8.2).
23.6 -- Consent of Philo Smith Capital Corporation (included in
the opinion of Philo Smith Capital Corporation attached
as Annex B to the joint proxy statement/ prospectus).
23.7 -- Consent of P.W. Mattingly & Co. Inc.*
23.8 -- Consent of Wise & Associates, Inc.*
24.1 -- Powers of Attorney (included on the signature pages to
this registration statement).
99.1 -- Form of Proxy Card to be sent to the shareholders of
FIC.*
99.2 -- Form of Proxy Card to be sent to the shareholders of
ILCO.*
- ---------------
* Filed herewith.
+ To be filed by amendment.
146
(1) Incorporated by reference to the Exhibits filed with FIC's Current Report
on Form 8-K dated January 23, 2001.
(2) Incorporated by reference to the Exhibits filed with FIC's Annual Report on
Form 10-K for 1985.
(3) Incorporated by reference to the Exhibits filed with FIC's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996.
(4) Incorporated by reference to the Exhibits filed with FIC's Current Report
on Form 8-K dated June 25, 1991.
(5) Incorporated by reference to the Exhibits filed with FIC's Annual Report on
Form 10-K for 1993.
(6) Incorporated by reference to the Exhibits filed with FIC's Annual Report on
Form 10-K for 1994.
(7) Incorporated by reference to the Exhibits filed with FIC's Annual Report on
Form 10-K for 1996.
(8) Incorporated by reference to the Exhibits filed with FIC's Current Report on
Form 10-K for 1998.
(9) Incorporated by reference to the Exhibits filed with FIC's Annual Report on
Form 10-K for 1999.