AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1996
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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AMVESTORS FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
KANSAS
(State or other jurisdiction of incorporation or organization)
48-1021516
(IRS employer identification number)
415 Southwest Eighth Avenue
Topeka, Kansas 66603
(913) 232-6945
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
-----------------------------------
Mark V. Heitz
AmVestors Financial Corporation
415 Southwest 8th Avenue
Topeka, Kansas 66603
(913) 232-6945
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
J. Mark Klamer
Bryan Cave LLP
211 North Broadway, Suite 3600
St. Louis, Missouri 63102-2750
(314) 259-2000
-----------------------------------
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on the form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c) 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 delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Class of Amount to Proposed Maximum Proposed Maximum Amount of
Securities to be Registered be Registered Offering price Per Unit<F1> Aggregate Offering Price<F2> Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------
3% Convertible Subordinated Debentures $65,000,000 100%<F1> $65,000,000 $22,414
due 2003
Common Stock, par value $1.00 3,795,620<F2> NA NA <F3>
per share
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Total --- --- --- $22,414<F3>
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- ----------
<FN>
<F1> Estimated solely for purposes of calculating the registration fee.
<F2> Includes 3,795,620 shares of Common Stock initially issuable upon conversion of the Debentures plus such additional
indeterminate number of shares as may become issuable upon conversion of the Debentures being registered hereunder by means of
adjustment in the conversion price.
<F3> Pursuant to Rule 457(i) there is no filing fee with respect to the shares of Common Stock issuable upon conversion of the
Debentures because no additional consideration will be received in connection with the exercise of the conversion privilege.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Subject to Completion, Dated August __, 1996
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Information contained herein are subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities act of such state.
- --------------------------------------------------------------------------------
PROSPECTUS
AMVESTORS FINANCIAL CORPORATION
[LOGO]
$65,000,000 Principal Amount of
3% Convertible Subordinated Debentures due 2003
3,795,620 Shares of Common Stock
This Prospectus relates to $65,000,000 aggregate principal amount of 3%
Convertible Subordinated Debentures due 2003 (the "Debentures") of AmVestors
Financial Corporation (the "Company"), and 3,795,620 shares of common stock, par
value $1.00 per share (the "Common Stock"), of the Company which are initially
issuable from time to time upon conversion of the Debentures, plus such
additional indeterminate number of shares of Common Stock as may become issuable
upon conversion of the Debentures as a result of adjustments to the conversion
price (together the "Shares"). See "Description of the Debentures." The
Debentures and the Shares that are being registered hereby are to be offered for
the account of the holders thereof (the "Selling Securityholders"). The
Debentures were initially acquired from the Company on July 12, 1996 in
connection with a private offering (the "Private Offering") to non-"U.S.
persons" pursuant to Regulation S under the Securities Act.
The Debentures bear interest from the date of original issue, payable
semi-annually, in arrears, on June 15 and December 15 of each year, to holders
of record at the close of business on the preceding June 1 and December 1,
respectively, commencing December 15, 1996. The Debentures mature on July 12,
2003, unless previously converted or redeemed. The Debentures are redeemable, at
the Company's option, in whole, but not in part, on any date on or after June
30, 1999 (the "Company Call"), at the redemption prices set forth herein plus
Accrued Current Interest (as defined herein) and Accrued Deferred Interest (as
defined herein), to the date of such redemption. Any holder who converts
Debentures following notice of such redemption will receive in cash Accrued
Current Interest and Accrued Deferred Interest to the date of conversion. The
Debentures may be redeemed at the Company's option (the "European Call"), in
whole, but not in part, at their principal amount plus Accrued Current Interest
at any time after August 15, 1996, if for 20 consecutive trading days
immediately preceding the fifth day prior to notice of redemption, the average
closing sale price of the common stock of the Company ("Common Stock") has
equaled or exceeded 135% of the conversion price (the "Conversion Price") of
$17.125 per share (equivalent to a conversion rate of approximately fifty- eight
shares of Common Stock per $1,000 principal amount of Debentures). The
Debentures are redeemable, in whole or in part, at the option of the holders
thereof (the "Put Option"), on September 30, 2001 at 124.250% of their principal
amount (the "Redemption Price"), plus Accrued Current Interest.
The Debentures are convertible at the option of the holder into shares
of Common Stock at the Conversion Price which is subject to adjustment in
certain events, but is not adjusted for Accrued Current Interest or Accrued
Deferred Interest. The Common Stock is traded on the New York Stock Exchange
under the symbol AMV. The Debentures are unsecured obligations of the Company
subordinated to all existing and future Senior Indebtedness (as defined herein)
of the Company, of which $40.1 million was outstanding on March 31, 1996, and
are effectively subordinated in right of payment to all liabilities of the
Company's subsidiaries, which totaled approximately $3.0 billion at such date,
in each case giving effect to the acquisition of Financial Benefit Group, Inc.
on a pro forma basis as of such date. See "Description of the Debentures."
The Debentures and the Conversion Shares are being registered to permit
public secondary trading of the Debentures and, upon conversion, the underlying
Common Stock, by the holders thereof from time to time after the date of this
Prospectus. The Company has agreed, among other things, to bear all expenses
(other than legal fees and expenses, underwriting discounts, selling
commissions, messenger and delivery service charges and telephone expenses) of
the holders of the Debentures or the underlying Common Stock in connection with
the registration and sale of the Debentures and the underlying Common Stock
covered by this Prospectus.
The Debentures and the Shares may be offered in negotiated transactions
or otherwise, at market prices prevailing at the time of sale or at negotiated
prices. In addition, the Shares may be offered from time to time through
ordinary brokerage transactions on the New York Stock Exchange. To the extent
available, it is expected that certain trading information will be contained in
the "Yellow Sheets" for debt instruments of the National Quotation Bureau, Inc.
The Company will not be able to list the Debentures on the New York Stock
Exchange and does not intend to list the Debentures on the Nasdaq National
Market or any other U.S. or foreign exchange. See "Plan of Distribution." The
Debentures were issued with original issue discount which will have certain
federal income tax consequences for holders subject to U.S. tax laws. See
"Description of the Debentures" and "Certain United States Federal Income Tax
Considerations Applicable to U.S. Persons."
SEE "RISK FACTORS" FOR A DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS AUGUST __, 1996.
2
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
with the Exchange Act, the Company files reports, proxy statements and other
information with the Commission. The reports, proxy statements and other
information can be inspected and copied at the public reference facilities that
the Commission maintains at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices located at 7 World Trade Center,
13th Floor, New York, New York 10048, and Northwestern Atrium Center, Suite
1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of these
materials can be obtained at prescribed rates from the Public Reference Section
of the Commission at the principal offices of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission maintains a Web site (which can be
found at http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The Common Stock began trading on the NYSE under the symbol
"AMV" on November 30, 1994. Prior to that date, the Company Common Stock traded
on the Nasdaq National Market under the symbol "AVFC." Reports, proxy statements
and other information regarding the Company which were filed after November 30,
1994 may be inspected at the offices of the NYSE, 11 Wall Street, New York, New
York 10005.
The Company has filed with the Commission a registration statement on
Form S-3 (such registration statement, together with all amendments and exhibits
thereto, being hereinafter referred to as the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), for the
registration under the Securities Act of the Debentures and Shares offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Reference is hereby made to the
Registration Statement for further information with respect to the Company and
the securities offered hereby. Statements contained herein concerning the
provisions of documents filed as exhibits to the Registration Statement are
necessarily summaries of such documents, and each such statement is qualified in
its entirety by reference to the copy of the applicable document filed with the
Commission. Copies of the Registration Statement and the exhibits may be
inspected, without charge, at the offices of the Commission, or obtained at
prescribed rates from the Public Reference Section of the Commission at the
address set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company under
File No. 0-15330 pursuant to the Exchange Act are incorporated herein by
reference: the Company Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (filed March 16, 1996); the Company Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1996 (filed May 13, 1996); the
Company's Current Reports on Form 8-K dated August 13, 1996 and April 22, 1996;
and the description of the Company Common Stock contained in the registration
statement in the Company's Registration Statement on Form 8-A dated February 28,
1996, including any amendments or reports filed for the purpose of updating such
description.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the termination of the offering of any securities offered
hereby shall be deemed to be incorporated by reference into this Prospectus and
to be a part hereof from the date of filing of such documents. See "Available
Information." Any statement contained herein or in a document incorporated or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document incorporated or
deemed to be incorporated herein by reference, which statement is also
incorporated herein by reference, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. Copies of these documents (excluding
exhibits unless such exhibits are specifically incorporated by reference into
the information incorporated herein) will be provided by first class mail
without charge to each person to whom this Prospectus is delivered, including
any beneficial owner of Debentures or Shares, upon written or oral request by
such person as follows: to AmVestors Financial Corporation, 415 S.W. Eighth
Avenue, Topeka, Kansas 66603, Attention: Mr. Mark V. Heitz (telephone: (913)
295-4410).
3
RISK FACTORS
Prospective investors should carefully consider, among other things,
the following factors in evaluating the Company and its business before
investing in the Debentures offered hereby.
Original Issue Discount
The Debentures will be issued with original issue discount.
Consequently, purchasers of the Debentures should be aware that the amount of
original issue discount annually includible as interest income for federal
income tax purposes will be in advance of the receipt of the cash payments to
which such income is attributable. In addition, in certain circumstances, a
holder will not receive the cash payments attributable to the original issue
discount. These circumstances include: if the holder converts the Debentures
into Common Stock (other than following notice of a Company Call); if the
Company purchases the Debentures pursuant to a European Call; if the holder
elects to require the Company to repurchase such holder's Debentures in the
event of a Fundamental Change; or if the holder does not exercise the Put Option
(and the Company does not exercise the Company Call). See "Description of
Debentures." In such instances, such OID amounts will remain a part of the
holder's tax basis in the Debentures for purposes of determining gain or loss on
a disposition or redemption of the Debentures (or will become a part of the
holder's basis in the shares of Common Stock if the conversion privilege is
exercised). See "Certain United States Federal Tax Consequences - Sale or
Exchange of Debentures or Common Stock and "-- Conversion of Debentures."
If a bankruptcy case is commenced by or against the Company under the
U.S. Bankruptcy Code after the issuance of the Debentures, the claim of a holder
of the Debentures with respect to the principal amount thereof may be limited to
an amount equal to the sum of (i) the initial offering price, (ii) the stated
accrued but unpaid interest and (iii) that portion of the original issue
discount that is not deemed to constitute "unmatured interest" for purposes of
the U.S. Bankruptcy Code. Any original issue discount that was not amortized as
of any such bankruptcy filing would constitute "unmatured interest."
See "Certain United States Federal Tax Consequences" for a more
detailed discussion of the federal income tax consequences to the holders
regarding the purchase, ownership and disposition of the Debentures.
Competition
The market for annuities and other savings and retirement products is
highly competitive. The Company competes with individual companies and with
groups of affiliated companies with substantially greater financial resources,
higher A.M. Best Company or claims-paying ability ratings, greater market share,
and larger and more widespread agency and brokerage relationships, and a greater
variety of products. Competition in the industry is based on credited rate
levels and other product features, the perceived quality and stability of the
insurer generally as evidenced by industry ratings, commission structure,
marketing and services. The Company depends on the recruitment and retention of
productive independent agents for the sale of its products. The Company's
ability to recruit and retain agents is substantially affected by perceptions of
its financial condition and the ratings assigned to American and FBL by A.M.
Best Company, and other rating organizations. See "-- A.M. Best Company
Ratings." The Company's agents also represent other insurance companies and may
sell products which compete with those of the Company.
In addition to competing with other life insurance companies, the
Company also competes with financial institutions, including banks, stockbrokers
and mutual funds, which market annuities and other retirement savings products
and have substantially greater resources than the Company. Competition from
financial institutions may be increased as a result of a ruling by the United
States Supreme Court on January 18, 1995 in the case of NationsBank v. VALIC in
which the Court concluded that for purposes of Section 92 of the National Bank
Act, annuities are investment products rather than insurance products and that
national banks can therefore serve as agents for their customers in the purchase
and sale of both fixed and variable annuities.
A.M. Best Company Ratings
Ratings, particularly those issued by A.M. Best Company, are generally
considered important to an insurance company's ability to compete in the
insurance business, especially the annuity market. Insurance agents, others in
the insurance industry, and consumers of insurance products generally view an
4
insurance company's A.M. Best Company rating as an important factor when
determining whether to distribute or purchase, as the case may be, that
company's products.
As of August 12, 1996, American had an A.M. Best Company rating of `A-'
and FBL had an A.M. Best Company rating of `B+'. Such ratings are subject to
review and can be withdrawn or changed at any time by A.M. Best Company. A
downgrade by A.M. Best Company of either American's or FBL's rating could have a
material adverse effect on the business of the Company.
Increase in Surrenders
Surrenders of American's annuity products have increased in recent
years. Total surrender and death benefits paid by American amounted to $372.2
million, $246.6 million and $318.9 million for the years ended December 31,
1995, 1994 and 1993, respectively, and $93.8 million for the three months ended
March 31, 1996.
Surrenders of FBL annuity products have also increased in recent years.
Total surrender and death benefits paid amounted to $99.9 million, $145.4
million and $104.8 million for the years ended December 31, 1995, 1994 and 1993,
respectively, and $26.8 million for the three months ended March 31, 1996.
As of March 31, 1996, approximately $387.6 million, or 19% of the
Company's total annuity account value ($398.2 million or 16% including FBL on a
pro forma basis) contained no surrender charges. In addition, approximately
$226.8 million or 11% of the Company's total annuity account value ($254.0
million or 10% including FBL on a pro forma basis) contained a "bailout"
provision.
Management believes it will have adequate funds available to pay
surrenders from the respective amounts of cash provided by operations and from
premiums received. In the event that these funds are not adequate to pay
withdrawals, it would be necessary to sell investments at their then current
market price. Substantial future surrenders could have a material adverse effect
on the Company's financial condition and results of operations. In general,
withdrawal rates on annuity contracts increase as they approach maturity.
Lack of Product Diversification
The Company's business is dependent on fixed annuities, which account
for substantially all premiums received by the Company. If the demand for such
products were to decrease significantly for any reason, the Company's operations
and financial condition would be materially adversely affected.
Investment Performance; Effects of Changes in Interest Rates; Non-Investment
Grade Holdings
The results of operations and the financial condition of the Company
are significantly affected by the performance of its investments and by changes
in interest rates. During a period of declining interest rates, if its
investments are prematurely sold, called, prepaid or redeemed, the Company would
be unable to reinvest the proceeds in securities with comparable rates of
return. Also, decreases in interest rates could result in reductions to credited
rates, which in turn could cause increases in surrenders depending upon
competitive market conditions. During a period of rising interest rates,
surrender levels generally increase which in turn could cause the Company to be
required to sell investments at prices and times when the market values of such
investments are less than their book values. With the implementation of
Statement of Financial Accounting Standards ("SFAS") No. 115 on January 1, 1994
and the classification of substantially all investment assets as "Available for
Sale" in late 1995, the recorded value of the Company's assets and shareholder
equity may show greater volatility than in past periods.
Non-investment grade securities are subject to greater risk of default.
As of March 31, 1996, approximately 8% of the Company's debt securities
portfolios (8% including FBG on a pro forma basis) consisted of non-investment
grade securities and the remainder were investment grade. In addition, as of
that date approximately 29% of the Company's debt securities portfolios were
rated "Baa" (the lowest generic investment grade category) by Moody's or its
equivalent by the NAIC (28% including FBG on a pro forma basis). If a "Baa"
rated security, or any other security, is downgraded to non-investment grade,
the Company could experience investment losses due to sales or write-downs and
could be subject to additional scrutiny by both regulatory authorities and
rating agencies.
5
As of March 31, 1996, the Company owned bonds of 11 issuers in amounts
which exceeded 10% of stockholders' equity (4 issuers including FBG on a pro
forma basis). All of these bonds are rated investment grade. If any of the
foregoing issuers fails to pay the principal or interest when due, the Company
could sustain a loss that could materially adversely affect its results of
operations and financial condition.
Mortgage-backed securities are subject to certain prepayment risks. As
of March 31, 1996, approximately 32% of the Company's invested assets (33%
including FBG on a pro forma basis) consisted of mortgage-backed securities. As
of that date, approximately 21% of the Company's mortgage-backed securities
portfolios (22% including FBG on a pro forma basis), which constitutes 7% of the
Company's invested assets (7% including FBG on a pro forma basis) represented
interests in sequential classes and pass-through securities which are subject to
greater prepayment risks than planned amortization and targeted amortization
classes. Such mortgage-backed securities are subject to substantial prepayment
risks in a period of declining interest rates as the underlying mortgages are
repaid and refinanced to take advantage of lower rates. During such periods, the
Company generally will be unable to reinvest the proceeds of any such prepayment
at comparable yields. Should prepayments slow as a result of rising interest
rates the cash flows of sequential classes and pass-through securities would
lengthen. This would result in reduced market values. Rising interest rates
could also cause disintermediation and create the need for the Company to sell
such securities at a loss.
Leverage and Debt Service
The Company's long-term debt consists only of the Debentures. The
Company may incur additional indebtedness in the future, subject to certain
limitations imposed by law and contained in the instruments governing its
indebtedness, including the Indenture. See "Description of the Debentures."
The degree to which the Company is leveraged could have important
consequences to holders of the Debentures including, but not limited to, the
following: (i) the Company's ability to obtain additional financing in the
future for working capital, general corporate purposes or other purposes may be
limited or become impaired; (ii) such future borrowing could be at variable
rates of interest, which could result in higher interest expenses in the event
of increases in interest rates; and (iii) the instruments governing such
indebtedness may contain financial and restrictive covenants, the failure to
comply with which may result in an event of default which, if not cured or
waived, could have a material adverse effect on the Company. See "Description of
the Debentures."
The Debentures will mature July 12, 2003, the holders have an option to
require the Company to repurchase the Debentures in the event of a Repurchase
Event and the holders have the option to cause the Company to repurchase the
Debentures pursuant to the Put Option. The Company will have to either refinance
its obligations with respect to the Debentures, sell assets or raise equity
capital to pay the principal amount of the Debentures. The Company's ability to
make its principal payment under the Debentures, refinance its debt obligations,
sell assets or raise equity capital depends on its financial and operating
performance, which in turn, is subject to prevailing economic conditions, the
Company's insurance subsidiaries' A.M. Best Company ratings, regulatory
restrictions on Company asset levels and dividends, and to financial, business
and other factors, some of which are beyond its control. The Company's cash flow
from operations and borrowings have been sufficient to meet its historical
obligations under substantially less indebtedness than will exist after issuance
of the Debentures, and there can be no assurance that the Company's cash flow
from operations will continue to be sufficient or that future borrowing
facilities or other sources of funds will be available for the payment or
refinancing of the Debentures or the Company's other indebtedness. See
"Description of the Debentures."
Federal Income Tax Treatment of Annuities
Current U.S. federal income tax law generally permits the tax-deferred
accumulation of earnings by the policyholder on deferred annuity premiums
received by the Company. Taxes, if any, are payable by the policyowner on the
accumulated tax-deferred earnings when annuity benefits are actually paid out or
deemed to be paid. From time to time, there have been proposed changes to the
federal income tax laws that would eliminate this tax deferral for certain types
of annuity products. In addition, alternative federal income tax proposals have
been considered recently, including a "flat tax." If the federal income tax laws
are amended to eliminate or modify the existing tax treatment of deferred
annuity products or to defer, lessen or eliminate taxes on investment products,
demand for the Company's products would decline substantially. The operations
and future business prospects of the Company would be materially and adversely
affected by a material decrease in the demand for its annuity products.
6
Subordination
The Debentures are subordinated in right of payment to all existing and
future Senior Indebtedness (as defined herein) of the Company. Giving effect to
the acquisition of FBG, as of March 31, 1996, Senior Indebtedness totalled $40.1
million on a pro forma basis and the Debentures are effectively subordinated in
right of payment to all the liabilities of the Company's subsidiaries, which
totalled approximately $3.0 billion on a pro forma basis at such date. The
Company may in the future secure additional lines of credit. These additional
borrowings generally would be Senior Indebtedness as defined in the Indenture.
In the event of a bankruptcy, liquidation, reorganization, dissolution or other
winding up of the Company, the assets of the Company will be available to pay
obligations on the Debentures only after all Senior Indebtedness of the Company
has been paid in full, and there may not be sufficient assets remaining to pay
amounts due on the Debentures. In the event of a payment default with respect to
the current outstanding Senior Indebtedness of the Company, no payments may be
made on account of principal, premium, if any, or interest on, the Debentures
until such default has been cured or waived. In addition, under certain
circumstances, no payments may be made for a specified period with respect to
the Debentures if certain nonpayment defaults exist with respect to the current
outstanding Senior Indebtedness of the Company. See "Description of the
Debentures -- Subordination."
Federal Income Tax Deduction of Interest on the Debentures
The Debentures were issued with original issue discount ("OID") for
U.S. federal income tax purposes. Current U.S. federal income tax law generally
permits the issuer of a debt instrument to deduct OID as interest without regard
to any options to convert the debt instrument into stock or debt of the issuer.
Accordingly, the Company will deduct OID as interest on the Debentures as such
OID accrues, whether or not the Debentures are converted. However, the Fiscal
Year 1997 Budget Proposal submitted by the President to the Congress on March
19, 1996, contains a revenue provision that would defer interest deductions on
certain convertible debt until such time as the interest is paid. For this
purpose, payment would not include the conversion of the debt into equity of the
issuer. As presented by the President, this proposal would be effective for debt
issued on or after December 7, 1995, although certain Congressional leaders have
made assurances to the public markets that if such legislation is enacted, it
would have an effective date of the date of Congressional action. If this
proposal is enacted into law, the Company may not be entitled to deduct OID or
other interest on the Debentures until paid, and may never be entitled to
deductions for OID or unpaid interest with respect to Debentures that are
converted into shares of Common Stock. See "Certain United States Federal Tax
Consequences".
Holding Company Structure; Dividend Restrictions
As an insurance holding company, the Company's ability to service debt
and pay operating expenses and dividends on its capital stock depends largely on
the receipt of funds from its subsidiary companies. The inability of American or
FBL to pay dividends, commissions and fees in an amount sufficient to meet the
Company's obligations would have a material adverse effect on the Company. The
Company is subject to the insurance holding company regulations in Kansas and
Florida. The Company will have to either refinance its obligations with respect
to the Debentures, sell assets or raise equity capital to pay the principal
amount of the Debentures when due. The provisions of the applicable Kansas and
Florida statutes contain restrictions with respect to the payment of dividends
as well as with respect to certain intercompany transactions which could limit
the amount of funds the Company may receive from American or FBL. At April 30,
1996, the Company had $13.2 million available for dividends from American and
FBL which was not subject to regulatory restrictions on dividends.
Insurance Regulation
American and FBL are subject to significant regulation by the insurance
regulatory authorities in the jurisdictions in which they transact business. The
laws of the various states establish supervisory agencies with broad
administrative powers relative to granting and revoking licenses to transact
business, regulating trade practices, licensing agents, approving policy forms,
setting reserve requirements, determining the form and content of required
statutory financial statements, and prescribing the type and amount of
investments. This regulation and supervision is designed primarily to insure the
financial stability of insurance companies to protect policyowners, not
stockholders. The insurance regulatory structure has been subjected to increased
scrutiny in recent years by the National Association of Insurance Commissioners
(the "NAIC") and federal and state legislative bodies and state regulatory
authorities. Various new legislative and regulatory standards have been adopted
or proposed. No assurance can be given as to the effect of future legislative or
regulatory changes on the Company. See "Regulation."
7
Future Liquidity
Cash flow available to the Company may be influenced by a variety of
factors, including changes in the annuity market, surrender experience, the
insurance regulatory environment and general economic conditions. Consequently,
no assurance can be given as to whether the net cash provided by its operations
will provide sufficient funds for the Company to meet its long-term liquidity
needs. In the event cash flow from operations is insufficient to meet its
liquidity needs, the Company would need to sell securities at the then current
market prices or seek external sources of financing. There can be no assurance
that the market value of securities sold would exceed their book value or that
the Company will be able to raise additional funds through external financing.
Dependence upon Key Personnel
The Company business depends upon the efforts of its executive
officers, including Mr. Ralph W. Laster, Jr., Chairman and Chief Executive
Officer and Mr. Mark V. Heitz, President and General Counsel. The loss of any
one of the Company's executive officers could have a material adverse effect
upon the Company. The Company currently has employment agreements with Messrs.
Laster and Heitz which expire on May 31, 1997 and December 31, 1998,
respectively.
Litigation
A substantial number of civil jury verdicts have been returned against
insurance companies in the United States, including jurisdictions in which the
Company does business. Such verdicts have resulted from suits regarding sales
practices, alleged agent misconduct, failure to properly supervise agents, and
other matters. Increasingly these lawsuits have resulted in the award of
substantial judgments against insurance companies in the Unites States,
including material amounts of punitive damages that are disproportionate to the
actual damages. The Company and its subsidiaries, like other insurance
companies, in the ordinary course of business are involved in litigation.
Although the outcome of any litigation cannot be predicted with certainty, the
management of the Company believes that at the present time there are no pending
or threatened lawsuits that are reasonably likely to have a material adverse
effect on the Company's financial condition.
Acquisition of FBG
On April 8, 1996, the Company acquired FBG and its subsidiaries. This
acquisition was accounted for using the purchase method of accounting. The
financial information reflected in "Summary Pro Forma Financial Data" and in
"Pro Forma Combined Financial Information" incorporated by reference from the
Company's Current Report on Form 8-K dated August 13, 1996, contains certain
assumptions as to the value of FBG's assets and liabilities that are based upon
the utilization of the purchase method. These valuations are subject to further
adjustment based upon future events and to the final audit of the Company's 1996
fiscal year, which audit will occur after December 31, 1996. In addition, there
is no assurance that any cost savings and synergies will be realized as a result
of the acquisition.
Anti-Takeover Provisions
Certain provisions of the Company's Amended and Restated Articles of
Incorporation and of Kansas law may render more difficult or have the effect of
discouraging unsolicited takeover bids from third parties or the removal of
incumbent management including business combinations. These provisions include
"blank check" preferred stock, a classified board of directors and a two-thirds
majority voting requirement to approve certain corporate actions including
business combinations. The holding company law of Kansas may also delay or
impede an acquisition of, or business combination with, the Company. See
"Description of Capital Stock."
Absence of a Public Market For the Debentures
Prior to the Private Offering, there has been no public market for the
Debentures. The Debentures are not listed on the New York Stock Exchange, the
Nasdaq National Market or any other U.S. or foreign exchange. As a result of the
U.S. Federal Income Tax treatment laws on OID it may be unlikely that an active
market for the Debentures will develop in the United States. The sale of the
Debentures and Common Stock pursuant to this Registration Statement may be
suspended by the Company in certain circumstances. See "Plan of Distribution."
8
THE COMPANY
The Company is an insurance holding company which operates through
subsidiaries that are engaged in the development, underwriting, marketing and
servicing of fixed annuity products in the United States. Through its insurance
subsidiaries, American Investors Life Insurance Company, Inc. ("American") and
Financial Benefit Life Insurance Company ("FBL"), the Company offers a variety
of annuity products through approximately 9,100 agents in 47 states. As a result
of its recent acquisition of Financial Benefit Group, Inc. ("FBG"), the
Company's assets increased from approximately $2.5 billion to $3.2 billion,
stockholders' equity increased from $149.3 million to $187.0 million, and
annuities in force increased from approximately $2.1 billion to $2.6 billion, on
a pro forma basis as of March 31, 1996.
The acquisition was completed on April 8, 1996.
The Company's business is in the growing asset accumulation industry,
which offers financial products to the large market of middle-aged individuals
and senior citizens who are approaching or have reached retirement age. U.S.
Census Bureau statistics indicate that the 45 to 64 age group, which numbered
approximately 46.4 million people in 1990, is projected to grow to 61.0 million
by the year 2000 and 78.6 million by 2010. The Company targets individuals aged
50 and older, which in 1995 accounted for over 85% of premiums at American and
over 84% of premiums at FBL.
The Company believes that the growth in the fixed annuities market is
the result of several demographic trends including longer life expectancy,
rising per capita income, the aging population, declines in coverage from
corporate pension plans and concerns about the long-term viability of the social
security system. Fixed annuities involve a one-time deposit or periodic deposits
of cash into an account that, after an accumulation period specified by the
customer, entitles the customer to receive the principal value plus accumulated
interest in the form of a lump sum payment or through annuity payments over a
certain period or for life. Interest credited during the accumulation period is
generally not subject to federal or state income tax until withdrawn.
The Company's principal operating subsidiaries are American Investors
Life Insurance Company, Inc. (American), American Investors Sales Group, Inc.
("American Sales"), AmVestors Investment Group, Inc. ("AVIG"), Financial Benefit
Life Insurance Company (FBL), Annuity International Marketing Corporation
("AIMCOR") and The Insurancemart, Inc. ("TIM").
The Company, through its insurance subsidiaries, American and FBL
(formerly a wholly-owned subsidiary of FBG), acts principally as a developer,
underwriter and servicer of annuity products. Through American Sales and TIM,
the Company acts as a marketer of annuities for American and FBL and, through
AIMCOR it markets for other unaffiliated insurance companies with which AIMCOR
has long term marketing agreements on a royalty basis. TIM functions as a
wholesaler for FBL, American, all of the life companies with which AIMCOR has
marketing agreements and other unaffiliated carriers.
Deferred annuities accounted for approximately 96% of all premiums
received by American in 1995 and 96% for the three months ended March 31, 1996,
and 96% of all FBL premiums for each of the periods respectively. American and
FBL also offer single premium immediate annuities ("SPIAs") and, in the case of
American, flexible premium universal life ("FPULs") insurance. As of March 31,
1996, American had total annuity contracts in force of $2.1 billion at an
average credited rate of 5.9%, and FBL had total annuity contracts in force of
$512 million at an average credited rate of 4.9%. The average premium received
by American and FBL per annuity contract during 1995 was approximately $30,000
and $26,000, respectively. American and FBL market their annuity products
through their approximately 9,100 independent agents licensed in 47 states and
the District of Columbia. Agents are recruited through the Company's
wholly-owned subsidiaries, American Sales and TIM, as well as through various
other marketing organizations. The Company endeavors to attract agents to sell
its products by offering a selection of fixed annuity products with competitive
commissions, by providing timely, comprehensive services to agents and customers
and by continuing to specialize in annuity products.
American and FBL incorporate certain features in their annuity
contracts that are designed to reduce the occurrence and effect of premature
contract terminations and significant withdrawals. Such features include
surrender charges which decline over time and which apply, subject to certain
exceptions, to premature terminations during the first five to fourteen years of
an annuity contract. During the period a surrender charge is applicable, annual
withdrawals free of surrender charges are generally limited to 10% of an
annuity's accumulated account value. Certain of American's and FBL's annuities
also provide for deferred payments of the surrender value of the annuity over a
five year period or market value adjustments of surrender value which reflect
changes in interest rates. Certain annuity policies incorporate a `bailout'
feature, however, which generally allows policyowners to withdraw their account
9
balances for a limited period of time, free of surrender charges, if credited
rates fall below a specified level.
Founded in 1965, American has focused on the sale of single premium
annuity products since 1984. On May 9, 1995, A.M. Best Company, which rates
insurance companies based on factors of concern to policyowners, reaffirmed
American's "A-" (Excellent) rating. On April 14, 1996, Duff & Phelps reaffirmed
American's claims paying ability rating of "A+" (High). Founded in 1983, FBL
also has focused on the sale of single premium annuity products. FBL is rated
"B+" (Very Good) by A.M. Best Company.
The Company's principal executive offices are located at 415 S.W.
Eighth Avenue, Topeka, Kansas 66603 and its telephone number is (913) 295-4410.
10
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sales of the
Debentures of the Shares by the Selling Securityholders. See "Selling
Securityholders" for a list of those persons and entities receiving the proceeds
from the sale of the Debentures or the Shares.
11
RECENT DEVELOPMENTS
On April 8, 1996 the Company acquired Financial Benefit Group, Inc.
(FBG), a company that, through its wholly-owned subsidiary, FBL, engaged in
substantially similar lines of business to those of the Company. Based in Boca
Raton, Florida, FBG operated through three primary subsidiaries: FBL, AIMCOR and
TIM. FBL develops, markets, underwrites and services fixed annuities through
approximately 1,800 agents in 39 states. AIMCOR develops and markets fixed
annuities for FBL and other unaffiliated insurance companies for which it
receives royalty income from long-term marketing contracts. TIM functions as a
wholesaler for FBL, American, all of AIMCOR's client companies, and other
unaffiliated companies through its sales force of 5,400 independent agents. The
Company has maintained relationships with FBG since 1984, at which time it began
sales of deferred annuity products under a marketing arrangement with FBL. In
recent years, TIM has served as a national marketing organization for American's
products.
FBL has developed several annuity products that can be sold through
American's network of approximately 7,300 independent agents. AIMCOR, through
its royalty revenues obtained as a designer, developer and distributor of
annuities for unaffiliated insurance companies, provides a diversified earnings
stream to the Company. TIM, with its 5,400 independent agents, provides a large
and qualified marketing force for the Company's products.
Pursuant to a "Merger Agreement", the Company purchased the outstanding
common stock of FBG for consideration that was valued, pursuant to the Merger
Agreement, at $5.31 per FBG share (total equity consideration was similarly
valued at $49 million). FBG shareholders received for each FBG share $.35 in
cash, $4.65 in Company Common Stock (valued pursuant to the Merger Agreement)
and 9.3% of a warrant to purchase a share of Company Common Stock for $16.42 per
share valued pursuant to the Merger Agreement at $.31. The warrants are
exercisable until April 2, 2002. The total shares of Common Stock and warrants
issued by the Company in the acquisition were approximately 2,723,000 and
664,000, respectively.
Management expects to achieve cost savings by substantially
consolidating the investment, management information systems, legal and
accounting operations of FBG and the Company.
A full description of the business of the Company, ratios of earnings
to fixed charges, historical audited and proforma financial information
(including Management Discussion and Analysis of Financial Condition and Results
of Operations for both the Company and FBG) regarding FBG and its acquisition by
the Company, can be found in the Company Report on Form 8-K dated August 13,
1996.
12
DESCRIPTION OF THE DEBENTURES
The Debentures were issued under an Indenture, dated as of July 12,
1996 (the "Indenture"), between AmVestors Financial Corporation, as issuer, and
Boatmen's Trust Company, as trustee (the "Trustee"). The Company will provide
without charge to each person to whom this Prospectus is sent a copy of the
Indenture. The descriptions of the Debentures and the Indenture in this
Prospectus are summaries, do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all provisions of the
Indenture. Article and Section references appearing below refer to the
Indenture. Any capitalized term used but not defined herein shall have the
meaning set forth in the Indenture.
General
The Debentures are unsecured subordinated obligations of the Company,
are limited to an aggregate principal amount of $65,000,000, and will mature on
July 12, 2003. The Debentures bear interest at the rate per annum stated in
their title from the date of original issue, payable semi-annually on June 15
and December 15 of each year, commencing December 15, 1996, to each Holder in
whose name a Debenture (or any predecessor Debenture) is registered at the close
of business on the Regular Record Date for such interest payment, which shall be
June 1 or December 1 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date (unless, with certain exceptions, such
Debentures are converted or redeemed prior to such Interest Payment Date).
Interest on the Debentures will be calculated on a compound annual basis based
on a 360-day year consisting of twelve 30-day months (Sections 202 and 310). The
Debentures will be issued with original issue discount. See "Certain United
States Federal Tax Consequences." Principal of and premium, if any, and
interest on the Debentures is payable at the office or agency of the Company
maintained for that purpose in the City of Chicago, Illinois, the borough of
Manhattan, City of New York, New York, the City of St. Louis, Missouri or such
other office or agency of the Company as may be maintained for such purpose.
Debentures may be surrendered for transfer, exchange, repurchase, redemption or
conversion at any such agency or office maintained by the Company. Payment of
interest may, at the option of the Company, be made by check mailed to the
address of the Holder entitled thereto as it appears in the Debenture Register
(Sections 301, 305, 1002 and 1202).
The Debentures were issued in fully registered form, without coupons,
in denominations of $1,000 and any integral multiple thereof (Section 302). No
service charge will be made for any transfer or exchange of Debentures, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith (Section 305). The Company
is not required to transfer or exchange any Debenture (i) during a period
beginning at the opening of business 15 days before the date of the mailing of a
notice of redemption and ending at the close of business on the date of such
mailing or (ii) selected for redemption.
All moneys paid by the Company to the Trustee or any Paying Agent for
the payment of principal of and premium, if any, and interest on any Debenture
which remain unclaimed for two years after such principal, premium or interest
became due and payable may be repaid to the Company. Thereafter, the Holder of
such Debenture may, as an unsecured general creditor, look only to the Company
for payment thereof.
The Indenture does not contain any provisions that would provide
protection to Holders against a sudden and dramatic decline in credit quality of
the Company resulting from any takeover, recapitalization or similar
restructuring, except as described under "--Certain Rights to Require Repurchase
of Debentures."
The Indenture contains no covenants restricting the incurrence of
Indebtedness by the Company or any Subsidiary. Following the application of the
net proceeds of the Private Offering to repay amounts due under the Credit
Facility no Senior Indebtedness contained limitations on the incurrence by the
Company or its subsidiaries, although agreements in the future may contain
limitations on the incurrence of Indebtedness by the Company or its
Subsidiaries, such agreements may be amended or modified as may be provided
therein, may provide only incidental protection to Holders of Debentures, and
are not intended for the benefit of the Holders of the Debentures. In addition,
agreements under which Senior Indebtedness is outstanding contain, and
agreements under which future Senior Indebtedness may be outstanding may
contain, provisions which may require repayment of such Senior Indebtedness
prior to repayment of the Debentures upon, among other things, a Repurchase
Event.
13
Certain Definitions
Set forth below is a summary of certain defined terms contained in the
Indenture. Reference is made to the Indenture for the full definition of such
terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Subsidiary of the Company or assumed in connection
with the acquisition by the Company or a Subsidiary of the Company of assets
from such Person, and not incurred in connection with, or in anticipation of,
such Person becoming a Subsidiary of the Company or such acquisition.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Closing Price" on any Trading Day with respect to the per share price
of Common Stock means the last reported sales price or, in case no such reported
sale takes place on such Trading Day, the average of the reported closing bid
and asked prices on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or, if not listed or admitted to
trading on any national securities exchange, on the Nasdaq National Market or
the Nasdaq Small Capitalization Market, as the case may be, or, if the Common
Stock is not listed or admitted to trading on any national securities exchange
or quoted on the Nasdaq National Market or the Nasdaq Small Capitalization
Market, the closing bid price in the over-the-counter market as furnished by any
New York Stock Exchange member firm that is selected from time to time by the
Company for that purpose and is reasonably acceptable to the Trustee.
"Common Stock" includes any stock of any class of the Company which has
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the Company
and which is not subject to redemption by the Company. However, subject to the
provisions of Article Twelve, shares issuable on conversion of Debentures shall
include only shares of the class designated as Common Stock of the Company at
the date of the Indenture or shares of any class or classes resulting from any
reclassification or reclassifications thereof and which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and which are
not subject to redemption by the Company; provided, that if at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.
"Consolidated Total Assets" means, as of any date of determination, the
consolidated total assets of the Company and its subsidiaries, determined in
accordance with United States generally accepted accounting principles
consistently applied as in effect from time to time.
"Corporation" means a corporation, association, company, joint-stock
company or business trust.
"Holder" means a Person in whose name a Debenture is registered in the
Debenture Register.
"Indebtedness" means, with respect to any Person, (i) all liabilities,
contingent or otherwise, of such Person (a) for borrowed money (whether or not
the recourse of the lender is to the whole of the assets of such Person or only
to a portion thereof), (b) evidenced by bonds, notes, debentures or similar
instruments or letters of credit or representing the balance deferred and unpaid
of the purchase price of any property or services (except any such balance that
constitutes a trade payable in the ordinary course of business that is not
overdue by more than 90 days or is being contested in good faith), (c) evidenced
by bankers' acceptances or similar instruments issued or accepted by banks or
Interest Swap Obligations or (d) for the payment of money relating to a
Capitalized Lease Obligation; (ii) reimbursement obligations of such Person with
respect to letters of credit (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (i) above)
entered into in the ordinary course of business of such Person) to the extent
such letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the tenth Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit; (iii) all liabilities of other Persons of the kind described
in the preceding clause (i) or (ii) that such Person has guaranteed or that is
14
otherwise its legal liability; provided, that the amount of liability
attributable to such guarantee or other legal liability shall be deemed to be
the maximum amount for which such Person could be liable under such guarantee or
otherwise; (iv) all obligations evidenced by Liens to which the property
(including, without limitation, leasehold interests and any other tangible or
intangible property rights) of such Person is subject, whether or not the
obligations secured thereby shall have been assumed by or shall otherwise be
such Person's legal liability; provided, that if the obligations have not been
assumed or become the legal liability of such Person, the amount of the
liability shall be deemed to be an amount not to exceed the fair market value of
the property or properties to which the Liens relate, as determined by such
Person in good faith and as set forth in an Officer's Certificate delivered to
the Trustee); and (v) any and all deferrals, renewals, extensions, refinancings
and refundings (whether direct or indirect) of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (i) through (iv) whether or not between or among the same parties.
"Interest Payment Date" means June 15 or December 15 of each year, as
appropriate, and July 12, 2003 for any remaining Outstanding Debentures.
"Maturity," when used with respect to any Debenture, means the date on
which the principal of such Debenture becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"Minimum Net Worth" means $147.5 million plus the net proceeds to the
Company from any offering of Common Stock by the Company that is consummated
after the date of the Indenture.
"Net Worth" of a Person as of any date means the amount of equity of
the Holders of Capital Stock of such Person which would appear on the balance
sheet of such Person as of such date, determined in accordance with United
States generally accepted accounting principles consistently applied as in
effect on the date of the Indenture without giving effect to SFAS No. 115.
"Outstanding," when used with respect to Debentures, means, as of the
date of determination, all Debentures theretofore authenticated and delivered
under the Indenture, except:
(i) Debentures theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Debentures for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Debentures; provided, that if
such Debentures are to be redeemed, notice of such redemption has been
duly given pursuant to the Indenture or provision therefor satisfactory
to the Trustee has been made; and
(iii) Debentures which have been paid pursuant to Section 306
or in exchange for or in lieu of which other Debentures have been
authenticated and delivered pursuant to the Indenture, other than any
such Debentures in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such Debentures are held by a
bona fide purchaser in whose hands such Debentures are valid
obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Debentures have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Debentures owned
by the Company or any other obligor upon the Debentures or any Affiliate of the
Company such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Debentures which the Trustee knows to be so owned shall
be so disregarded. Debentures so owned which have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Debentures and that
the pledgee is not the Company or any other obligor upon the Debentures or any
Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Debentures on behalf of
the Company.
15
"Person" means any individual, Corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Redemption Date," when used with respect to any Debenture to be
redeemed, means the date fixed for such redemption by or pursuant to the
Indenture.
"Redemption Price," when used with respect to any Debenture to be
redeemed, means the price at which it is to be redeemed pursuant to the
Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the June 1 or December 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Senior Indebtedness of the Company" means (a) the principal of, and
premium, if any, and unpaid interest (whether accruing before or after filing of
any petition in bankruptcy or any similar proceedings by or against the Company
and whether or not allowed as a claim in bankruptcy or any similar proceeding),
and all amounts due on or in connection with the following, whether heretofore
or hereafter created, incurred, assumed or guaranteed: (i) all Indebtedness for
borrowed money, created, incurred, assumed or guaranteed by the Company (other
than Indebtedness evidenced by the Debentures and Indebtedness which by the
terms of the instrument creating or evidencing the same is specifically stated
to be not superior in right of payment to the Debentures); (ii) bankers'
acceptances and reimbursement obligations under letters of credit; (iii)
obligations of the Company under interest rate and currency swaps, caps, floors,
collars or similar agreements or arrangements intended to protect the Company
against fluctuations in interest or currency rates; (iv) any other Indebtedness
evidenced by a note or written instrument; and (v) obligations of the Company
under any agreement to lease, or lease of, any real or personal property, which
obligations are required to be capitalized on the books of the Company in
accordance with United States generally accepted accounting principles then in
effect (other than leases which by their terms are specifically stated to be not
superior in right of payment to the Debentures), or (vi) guarantees by the
Company of obligations of other Persons, which obligations are similar to those
described in clauses (i) through (vi) above; and (b) all deferrals,
modifications, renewals or extensions of such Indebtedness, and any debentures,
notes or other evidence of Indebtedness issued in exchange for such Indebtedness
or to refund, replace or refinance the same.
"Stated Maturity," when used with respect to any Debenture or any
installment of interest thereon, means the date specified in such Debenture as
the fixed date on which the principal or the installment of interest on such
Debenture is due and payable.
"Subsidiary" means a Corporation more than 50% of the outstanding
Voting Capital Stock of which is owned, directly or indirectly, by the Company
or by one or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "Voting Capital Stock" means
stock which originally has voting power for the election of directors, whether
at all times or only so long as no senior class of stock has such voting power
by reason of any contingency.
"Whole Subsidiary" or "Whole Subsidiaries" means a Subsidiary or
Subsidiaries which are wholly owned directly or indirectly by the Company.
Conversion Rights
The principal amount of the Debentures (or any portion thereof that is
an integral multiple of $1,000) are convertible into Common Stock at the option
of the Holders thereof at any time and from time to time prior to and including
the Maturity date unless a Debenture or a portion thereof shall have been called
for redemption, through redemption at the option of the holder, in which case it
is convertible if duly surrendered on or before the close of business on the
fifth day preceding the Redemption Date at the Conversion Price of $17.125
(subject to adjustment as described below).
The Conversion Price is subject to adjustment in certain events as more
fully described in the Indenture. No adjustment of the Conversion Price will be
required to be made until cumulative adjustments amount to 1% or more of the
Conversion Price as last adjusted (Section 1204). Holders have no rights or
preferences with respect to the proceeds from any sale of the Company's assets.
See "--Consolidation, Merger and Sale of Assets" and "Certain Rights to Require
Repurchase on Debentures" for a discussion of the rights of Holders of
Debentures in the case of a sale of 50% or more of the Company's assets.
16
In addition, the Company is permitted, but not required, to make such
reductions in the Conversion Price as it considers to be advisable in order that
any event treated for U.S. federal income tax purposes as a dividend of stock or
stock rights will not be taxable to the Holders of Common Stock (Section 1204).
Under certain circumstances, a decrease in the Conversion Price of the
Debentures may be considered as resulting in the distribution of a dividend to
Holders of the Debentures for United States federal income tax purposes.
Subject to any applicable right of the Holders of the Debentures to
cause the Company to purchase the Debentures upon a Repurchase Event (as
described below), in case of any consolidation or merger to which the Company is
a party, other than a transaction in which the Company is the continuing
Corporation, or in case of any sale or conveyance to another Corporation of the
property of the Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another Corporation or
other entity (including, without limitation, any exchange effected in connection
with a merger, consolidation or statutory exchange of a third Corporation or
other entity), there will be no adjustment of the Conversion Price, but the
Holder of each Debenture then Outstanding will have the right to convert such
Debenture only into the kind and amount of securities, cash or other property
which the Holder would have owned or have been entitled to receive immediately
after such consolidation, merger, statutory exchange, sale or conveyance had
such Debenture been converted immediately prior to the effective date of such
consolidation, merger, statutory exchange, sale or conveyance (Section 1211). In
the case of a cash merger of the Company with another Corporation or other
entity or any other cash transaction of the type mentioned above, the effect of
these provisions would be that the conversion features of the Debentures would
thereafter be limited to converting the Debentures at the Conversion Price then
in effect into the same amount of cash that such Holder would have received had
such Holder converted the Debentures into Common Stock immediately prior to the
effective date of such cash merger or transaction. Depending upon the terms of
such cash merger or transaction, the aggregate amount of cash so received on
conversion could be more or less than the principal amount of the Debentures.
Fractional shares of Common Stock will not be issued upon conversion,
but in lieu thereof, the Company will pay cash equal to the market value of such
fractional share computed with reference to the Closing Price of the Common
Stock on the last business day prior to conversion (Section 1203). Debentures
surrendered for conversion during the period from the close of business on any
Regular Record Date to the opening of business on the next succeeding Interest
Payment Date (except Debentures whose Maturity is prior to such Interest Payment
Date and Debentures called for redemption on a Redemption Date within such
period) must be accompanied by payment of an amount equal to the interest
thereon to be paid by the Company on such Interest Payment Date; provided,
however, that if the Company shall default in payment of such interest, such
payment shall be returned to the payor thereof. Except for Debentures
surrendered for conversion which must be accompanied by payment as described
above, no interest on converted Debentures will be payable by the Company on any
Interest Payment Date subsequent to the date of conversion (Section 1202).
Except as stated in Section 1204, the Conversion Price will not be
adjusted for the issuance of Common Stock or any securities convertible into or
exchangeable for Common Stock or for payment of dividends on the Common Stock or
any preferred stock of the Company.
The Company has covenanted under the Indenture to reserve and keep
available at all times out of its authorized but unissued Common Stock, for the
purpose of effecting conversions of Debentures, the full number of shares of
Common Stock deliverable upon the conversion of all Outstanding Debentures.
Exercise of Conversion Privilege
In order to exercise the conversion privilege, the Holder of any
Debenture to be converted shall surrender such Debenture, duly endorsed or
assigned to the Company or in blank, at the office or agency maintained by the
Company, accompanied by written notice to the Company at such office or agency
that the Holder elects to convert such Debenture or, if less than the entire
principal amount thereof is to be converted, the portion thereof to be
converted. Such notice shall also state the name or names (with address and
taxpayer identification number) in which the certificate or certificates for
such shares of Common Stock issuable on such conversion shall be issued. Each
Debenture surrendered for conversion shall, unless the shares issuable on
conversion are to be issued in the same name as the registration of such
Debenture, be accompanied by instruments of transfer, in form satisfactory to
the Company and to any person authorized by the Company to deliver Common Stock
on conversion of Debentures, duly executed by the Holder or his duly authorized
representative.
17
Certain Rights to Require Repurchase of Debentures
In the event of any Fundamental Change (as described below) affecting
the Company which constitutes a Repurchase Event occurring after the date of
issuance of the Debentures and on or prior to Maturity, each Holder of
Debentures will have the right, at the Holder's option, to require the Company
to repurchase all or any part of the Holder's Debentures on the date (the
"Repurchase Date") that is 30 days after the date the Company gives notice of
the Repurchase Event as described below at a price (the "Repurchase Price")
equal to 101% of the principal amount thereof, together with Accrued Current
Interest to, but not including, the Repurchase Date. On or prior to the
Repurchase Date, the Company shall deposit with the Trustee or a Paying Agent an
amount of money sufficient to pay the Repurchase Price of the Debentures which
are to be repurchased on or promptly following the Repurchase Date (Section
1403).
In the event the Company becomes obligated to repurchase some or all of
the Debentures, the Company anticipates that it would seek to finance the
Repurchase Price with its available cash and short-term investments, through
available bank credit facilities (if any), or through a public or private
issuance of debt or equity securities.
Failure by the Company to repurchase the Debentures when required as
described in the second preceding paragraph will result in an Event of Default
under the Indenture, whether or not such repurchase is permitted by the
subordination provisions of the Indenture (Section 501).
On or before the fifteenth day after the occurrence of a Repurchase
Event, the Company shall mail (or at its option cause the Trustee to mail) to
all Holders of record notice of the occurrence of such Repurchase Event, setting
forth, among other things, the date by which the repurchase right must be
exercised, the Repurchase Price and the procedures which the Holder must follow
to exercise this right. No failure of the Company to give such notice shall
limit any Holder's right to exercise a repurchase right (Section 1402). Failure
to give notice of the Repurchase Event in accordance with the terms of the
Indenture will result in an Event of Default. To exercise the repurchase right,
the Holder must deliver, on or before the fifteenth day prior to the Repurchase
Date, written notice to the Company (or an agent designated by the Company for
such purpose) of the Holder's exercise of such right, together with the
certificates evidencing the Debentures with respect to which the right is being
exercised, duly endorsed for transfer (Section 1402).
Such notice of exercise may be withdrawn by the Holder by delivery of a
written notice of withdrawal to the Trustee at any time prior to the close of
business on the fifth day prior to the Repurchase Date and thereafter only with
the consent of the Company (Section 1402).
The term "Fundamental Change" means the occurrence of (A) any
transaction or event in connection with which all or substantially all of the
Common Stock shall be exchanged for, converted into, acquired for or constitute
the right to receive consideration (whether by means of an exchange offer,
liquidation, tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which is not all or substantially all common
stock which is (or, upon consummation of or immediately following such
transaction or event, will be) listed on a national securities exchange or
approved for quotation in the Nasdaq National Market or any similar system of
automated dissemination of quotations of securities prices, or (B) any sale,
conveyance, transfer or other disposition ("Transfer") of 50% or more of the
Consolidated Total Assets during any twelve month period; provided, that this
subsection (B) shall not apply to any Transfer to a Whole Subsidiary; provided
further, that the ceding of assets pursuant to a reinsurance treaty, and the
granting of liens, charges or encumbrances shall not constitute a Transfer
subject to this subsection (B). For purposes of the definition of a "Fundamental
Change", (i) "substantially all of the Common Stock" shall mean at least 85% of
the Common Stock outstanding immediately prior to the transaction or event
giving rise to a Fundamental Change and (ii) consideration shall be
"substantially all common stock" if at least 80% of the fair value (as
determined in good faith by the Board of Directors) of the total consideration
is attributable to common stock.
A Repurchase Event shall have occurred if a Fundamental Change shall
have occurred unless (i) the Current Market Price of the Common Stock is at
least equal to the Conversion Price of the Debentures in effect immediately
preceding the time of such Fundamental Change or (ii) the consideration in the
transaction or event giving rise to such Fundamental Change to the holders of
Common Stock consists of cash, securities that are, or immediately upon issuance
will be, listed on a national securities exchange or quoted on the Nasdaq
National Market (or any similar system of automated dissemination of quotations
of securities prices), or a combination of cash and such securities, and the
aggregate fair market value of such consideration (which, in the case of such
securities, shall be equal to the average of the daily closing prices of such
securities during the 10 consecutive trading days commencing with the sixth
trading day following consummation of such transaction or event) is at least
18
105% of the Conversion Price of the Debentures in effect on the date immediately
preceding the closing date of such transaction or event.
The right to require the Company to repurchase the Debentures as a
result of the occurrence of a Repurchase Event could create an event of default
under Senior Indebtedness, as a result of which any repurchase could, absent a
waiver, be blocked by the subordination provisions of the Debentures. Failure by
the Company to repurchase the Debentures when required will result in an Event
of Default with respect to the Debentures, whether or not such repurchase is
permitted by the subordination provisions. The Company's ability to pay cash to
the Holders of the Debentures upon a repurchase may be limited by certain
financial covenants contained in the Senior Indebtedness. In the event a
Repurchase Event occurs and the Holders exercise their rights to require the
Company to repurchase Debentures, the Company intends to comply with tender
offer rules under the Exchange Act, including Rules 13e-4 and 14e-1, as then in
effect, if applicable, with respect to any such purchase. This right to require
repurchase would not necessarily afford Holders of the Debentures protection in
the event of highly leveraged or other transactions involving the Company that
may impair Holders of Debentures.
The effect of these provisions granting the Holders the right to
require the Company to repurchase the Debentures upon the occurrence of a
Repurchase Event may make it more difficult for any Person or group to acquire
control of the Company or to effect a business combination with the Company and
may discourage open market purchases of the Common Stock or a non-negotiated
tender or exchange offer for the Common Stock. Accordingly, such provisions may
limit a shareholder's ability to realize a premium over the market price of the
Common Stock in connection with any such transaction.
Redemption at Option of Holders (the Put Option)
The Debentures may be redeemed, in whole or in part, in increments of
$1,000 on a Redemption Date of September 30, 2001, at the option of Holders
thereof, at a Redemption Price of 124.250% of the principal amount to be
redeemed plus Accrued Current Interest to September 30, 2001 ("Put Option"). To
exercise the Put Option, a Holder must deliver his Debenture, on or before June
30, 2001 ("Put Date"), but not prior to April 30, 2001, at the office of one of
the paying and conversion agents designated in the Company Notice described
below. Along with the Debenture, a Holder must also deliver a duly completed
written notice, substantially in the form provided on the reverse side of the
Debenture, of such Holder's election to exercise the Put Option. The Company
will give one Notice, in the manner described in "Description of the Debentures
- -- Notices to Holders; Waiver" below, not less than 75 nor more than 100 days
prior to the Put Date, advising Holders of Debentures of such date and of the
identity and location of the paying and conversion agent(s) ("Company Notice").
Exercise of the Put Option by the Holder of a Debenture will be irrevocable.
However, Holders of Debentures who exercise the Put Option will retain the right
to convert such Debentures into Common Stock, provided, that notice to such
effect, in the form provided on the reverse side of the Debenture, and the
Holder's nontransferable receipt received from the paying and conversion agent
upon deposit of such Debentures, are delivered on or prior to June 30, 2001 to
the paying and conversion agent holding the Debentures to be converted, as
provided in the Indenture.
Subordination
The payment of the principal of, premium, if any, and interest on, the
Debentures is, to the extent set forth in the Indenture, subordinated in right
of payment to the prior payment in full of all Senior Indebtedness. Upon any
payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, or marshaling of assets, whether voluntary, involuntary or in
receivership, bankruptcy, insolvency or similar proceedings, the holders of all
Senior Indebtedness will be first entitled to receive payment in full in cash of
all amounts due or to become due thereon before any payment is made on account
of the principal of and premium, if any, or interest or any other amounts due on
the Indebtedness evidenced by the Debentures or on account of any other monetary
claims, including such monetary claims as may result from rights of repurchase,
redemption or rescission, under or in respect of the Debentures, before any
payment is made to acquire any of the Debentures for cash, property or
securities and before any distribution is made with respect to the Debentures of
any cash, property or securities. No payments on account of principal of, or
premium, if any, or interest on the Debentures shall be made, no Debentures
shall be redeemed or repurchased and no other payment or distribution of any
assets of the Company of any kind, whether in cash, properties or securities may
be made by the Company on account of the Debentures, if at the time thereof: (i)
there is a default in the payment of all or any portion of the obligations under
the Senior Indebtedness; or (ii) there shall exist a default in any covenant
with respect to the Senior Indebtedness (other than as specified in clause (i)
of this sentence), and, in such event, such default shall not have been cured or
waived or shall not have ceased to exist, the Trustee and the Company shall have
received written notice from any holder of such Indebtedness stating that no
payment shall be made with respect to the Debentures and such default would
19
permit the maturity of such Senior Indebtedness to be accelerated, provided,
that no such default will prevent any payment on, or in respect of, the
Debentures for more than 120 days unless the maturity of such Senior
Indebtedness has been accelerated (Section 1303).
The Holders will be subrogated to the rights of the holders of the
Senior Indebtedness to the extent of payments made on Senior Indebtedness upon
any distribution of assets in any such proceedings out of the distributive share
of the Debentures (Section 1302).
By reason of such subordination, in the event of insolvency, creditors
of the Company, who are not holders of Senior Indebtedness or of the Debentures,
may recover less, ratably, than holders of Senior Indebtedness but may recover
more, ratably, than the Holders.
The Debentures are obligations exclusively of the Company.
Substantially all of the operations of the Company are currently conducted
through its Subsidiaries. The Subsidiaries are separate distinct entities that
have no obligation, contingent or otherwise, to pay any amounts due pursuant to
the Debentures. In addition, the payment of dividends, interest and repayment of
certain loans and advances to the Company by the Subsidiaries may be subject to
certain statutory or contractual restrictions and are contingent upon the
earnings of such Subsidiaries.
The Debentures are effectively subordinated to all Indebtedness and
other liabilities and commitments (including lease obligations) of the
Subsidiaries. In addition, the right of the Company and, therefore, the right of
creditors of the Company (including Holders of Debentures) to receive assets of
any such Subsidiary upon the liquidation or reorganization of any such
Subsidiary or otherwise is effectively subordinated to the claims of the
Subsidiaries' creditors, except to the extent that the Company is itself
recognized as a creditor of such Subsidiary, in which case the claims of the
Company would still be subordinate to any secured claim on the assets of such
Subsidiary and any Indebtedness of such Subsidiary senior to that held by the
Company.
The Debentures are unsecured obligations of the Company and
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company, which totaled $40.1 million at March 31, 1996 giving effect to
the acquisition of FBG on a pro forma basis. The Debentures are also effectively
subordinated in right of payment to all existing and future liabilities of the
Company's subsidiaries, which were $3.0 billion at March 31, 1996 giving effect
to the acquisition of FBG on a pro forma basis. Giving effect to the use of
proceeds of the Private Offering and the acquisition of FBG on a pro forma
basis, Senior Indebtedness of the Company would have been $5.2 million at March
31, 1996. The Company expects that it and its Subsidiaries will from time to
time incur additional Indebtedness, including Senior Indebtedness. The Indenture
does not prohibit or limit the incurrence, assumption or guarantee by the
Company or its Subsidiaries of additional Indebtedness, including Senior
Indebtedness.
Events of Default
Events of Default under the Indenture are: (i) failure to pay principal
of, or premium, if any, on any Debenture when due, whether at Maturity, upon
redemption or acceleration, or otherwise, whether or not such payment is
prohibited by the subordination provisions of the Indenture; (ii) failure to pay
any interest on any Debenture when due or within 30 days thereafter, whether or
not such payment is prohibited by the subordination provisions of the Indenture;
(iii) failure to pay any Repurchase Price or any amounts due or payable pursuant
to the Put Option when due or within 10 days thereafter on any Debenture,
whether or not such payments are prohibited by the subordination provisions of
the Indenture; (iv) failure to perform any other covenant of the Company in the
Indenture, which default continues for 60 days after written notice to the
Company by the Trustee or to the Company and the Trustee by the Holders of not
less than 25% in aggregate principal amount of the Outstanding Debentures; (v)
default on any Indebtedness of the Company or the Subsidiaries in excess of
$1,000,000 for borrowed money or on any Senior Indebtedness resulting in such
Indebtedness being declared due and payable after the expiration of any
applicable grace period or becoming due and payable and the holders thereof
taking any action to collect such Indebtedness; and (vi) certain events in
bankruptcy, insolvency or reorganization of the Company or significant
Subsidiaries (Section 501). Subject to the provisions of the Indenture relating
to the duties of the Trustee in case an Event of Default shall occur and be
continuing, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
Holders, unless such Holders shall have offered to the Trustee reasonable
indemnity (Section 603). Subject to such provisions for the indemnification of
the Trustee, the Holders of a majority in principal amount of the Outstanding
Debentures will have the right to direct the time, method and place of
20
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee (Section 512).
If an Event of Default (other than those relating to certain events of
bankruptcy, insolvency and reorganization) shall occur and be continuing, either
the Trustee or the Holders of at least 25% in aggregate principal amount of the
Outstanding Debentures may by written notice to the Company and, if applicable,
to the Trustee, accelerate the Maturity of all Debentures; provided, however,
that after such acceleration, but before a judgment or decree based on
acceleration, the Holders of a majority in aggregate principal amount of
Outstanding Debentures may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the non-payment of accelerated
principal, have been cured or waived as provided in the Indenture (Section 502).
If an Event of Default occurs by reason of certain events in bankruptcy,
insolvency and reorganization, all principal and accrued and unpaid interest due
under the Debentures then Outstanding shall automatically become immediately due
and payable.
No Holder of any Debenture will have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
such Holder shall have previously given to the Trustee written notice of a
continuing Event of Default, the Holders of at least 25% in aggregate principal
amount of the Outstanding Debentures shall have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as trustee, the
Trustee shall not have received from the Holders of a majority in principal
amount of the Outstanding Debentures a direction inconsistent with such request
and the Trustee shall have failed to institute such proceeding within 60 days
after such notice (Section 507). Such limitations do not, however, apply to a
suit instituted by a Holder of a Debenture for the enforcement or payment of the
principal of, or premium, if any, or interest on such Debenture on or after the
respective due dates expressed in such Debenture or of the right to convert such
Debenture in accordance with the Indenture (Section 508).
The Indenture provides that the Trustee shall, within 90 days after a
Responsible Officer of the Trustee has actual knowledge of the occurrence of a
default (not including any grace period allowed), mail to the Holders of the
Debentures, as their names and addresses appear on the Debenture Register,
notice of all uncured defaults known to it; provided, however, that except in
the case of default in the payment of principal of, or premium, if any, or
interest on any of the Debentures, the Trustee shall be protected in withholding
such notice if it in good faith determines that the withholding of such notice
is in the interests of the Holders of the Debentures (Section 602).
The Company is required to furnish to the Trustee annually a
certificate with respect to its compliance with the terms, provisions and
conditions of the Indenture and as to any default with respect thereto (Section
1004).
Redemption at Option of the Company (the Company Call)
The Debentures are not redeemable prior to July 1, 1999, except
pursuant to the European Call. See "-- Redemption at the Option of the Company
(European Call)." The Debentures are redeemable, at the option of the Company,
in whole, but not in part, on any date on or after July 1, 1999 and prior to
Maturity at a Redemption Price (as expressed as a percentage of principal
amount) set forth below with respect to the indicated Redemption Date.
If redeemed during the twelve month period beginning July 1:
1999 103.00%
2000 102.25
2001 101.50
2002 100.75
on July 12, 2003 100.00
In addition, at the time of such redemption a Holder will receive
Accrued Current Interest and Accrued Deferred Interest to, but not including,
the date of such redemption. Any Holder who converts Debentures following notice
of redemption will receive Accrued Current Interest and Accrued Deferred
Interest to, but not including, the date of conversion. Accrued Current Interest
means interest on the principal amount of a Debenture calculated at the rate of
3% from the most recent interest payment date. Accrued Deferred Interest means
interest on the principal amount of a Debenture calculated at the rate of 4.25%
from the date of issuance of such Debenture. Accrued Current Interest and
Accrued Deferred Interest shall be calculated on a compound annual basis based
on a 360-day year consisting of twelve 30-day months.
21
Redemption at the Option of the Company (European Call)
The Debentures may be redeemed at the option of the Company, in whole,
but not in part, at their principal amount plus Accrued Current Interest to, but
not including, the date fixed for redemption at any time after August 15, 1996,
if for 20 consecutive trading days immediately preceding the fifth day prior to
notice of redemption, the average closing sale price of the Common Stock has
equaled or exceeded 135% of the Conversion Price.
Certain Covenants
The Indenture contains, among others, the following covenants:
Limitations on Dividends and Redemptions. The Indenture provides that
the Company will not (i) declare or pay any dividend or make any other
distribution on any Junior Securities (as described below), except dividends or
distributions payable in Junior Securities, or (ii) purchase, redeem or
otherwise acquire or retire for value any Junior Securities (other than Junior
Securities owned by the Company), except Junior Securities acquired upon
conversion thereof into other Junior Securities, or (iii) permit a Subsidiary to
purchase, redeem or otherwise acquire or retire for value any Junior Securities,
if, upon giving effect to such dividend, distribution, purchase, redemption,
retirement or other acquisition, a default in the payment of any principal of,
or premium, if any, or interest on any Debenture shall have occurred and be
continuing.
The term "Junior Securities" means (i) shares of Common Stock, (ii)
shares of any other class or classes of capital stock of the Company (iii) any
other non-debt securities of the Company (whether or not such other securities
are convertible into Junior Securities) and (iv) debt securities of the Company
(other than Senior Indebtedness and the Debentures) that are subordinated to the
Debentures pursuant to an express provision in either the instrument creating or
evidencing such debt securities or pursuant to which such debt securities are
outstanding.
Limitations on Restricting Subsidiary Dividends. The Indenture provides
that the Company shall not, and shall not permit, any Subsidiary of the Company
to, create or otherwise cause or suffer to become effective any consensual
encumbrance or restriction of any kind, on the ability of any Subsidiary of the
Company to (a) pay dividends or make any other distribution on its Capital
Stock, (b) pay any Indebtedness owed to the Company or any other Subsidiary of
the Company or (c) make loans, advances or capital contributions to the Company
or any other Subsidiary of the Company except (i) as set forth in the instrument
evidencing or the agreement governing Acquired Indebtedness of any acquired
entity which becomes a Subsidiary of the Company, provided, that any restriction
or encumbrance under such instrument or agreement existed at the time of
acquisition, was not put in place in anticipation of such acquisition, and is
not applicable to any Person, other than the Person or property or assets of the
Person so acquired; (ii) by agreements and transactions permitted under Section
1005; (iii) customary provisions restricting subletting or assignment of any
lease or license of the Company or any Subsidiary of the Company; (iv) any
encumbrance or restriction arising under applicable law; (v) any encumbrance or
restriction arising under any Indebtedness or other agreements existing on the
date of original issuance of the Debentures; (vi) any restrictions, with respect
to a Subsidiary of the Company imposed pursuant to an agreement that has been
entered into for the sale or disposition of the stock, business, assets or
properties of such Subsidiary; (vii) any encumbrance or restriction arising
under the terms of purchase money obligations, but only to the extent such
purchase money obligations restrict or prohibit the transfer of the property so
acquired; (viii) any encumbrance or restriction arising under customary
non-assignment provisions in installment purchase contracts; (ix) any
encumbrance or restriction on the ability of any Subsidiary to transfer any of
its property acquired after the date hereof to the Company or any Subsidiary
that is required by a lender to, or purchase of any Indebtedness of, such
Subsidiary in connection with a financing of the acquisition of such property
(including with respect to the purchase of Asset Portfolios and pursuant to the
underwriting or origination of mortgage loans) by such Subsidiary; (x) or with
respect to a special purpose subsidiary which is engaged in the securitization
of assets; and (xi) any encumbrance or restriction pursuant to any agreement
that extends, refinances, renews or replaces any agreement described in the
foregoing clauses (i) through (x). The foregoing provision is not intended to
prohibit or restrict the ability of the insurance subsidiaries to establish or
make changes in the reserves on the Company's annuity and life insurance
policies.
Maintenance of Net Worth. The Indenture provides that if, at the end of
each of any two consecutive fiscal quarters (the last day of such second fiscal
quarter being referred to as the "Acceleration Date"), the Company's Net Worth
is less than the Minimum Net Worth, then the Company shall make an irrevocable,
unconditional offer to all Holders (an "Offer") to acquire, on or before the
last day of the next following fiscal quarter or, if the Acceleration Date is
the last day of the Company's fiscal year, the forty-fifth day after the last
day of the next following fiscal quarter (the "Accelerated Payment Date"), the
22
aggregate principal amount of all Outstanding Debentures, plus Accrued Current
Interest and Accrued Deferred Interest, if any, to and including such
Accelerated Payment Date, which amounts or portion thereof upon acceptance of
such Offer by tender shall thereupon become due and payable (the "Accelerated
Payment").
For each fiscal quarter of the Company that its Net Worth is less than
or equal to the Minimum Net Worth, the Company shall deliver to the Trustee an
Officers' Certificate if such quarter is one of the first three quarters of any
fiscal year of the Company, within 45 days of the end of such quarter and, if
such quarter is the fourth quarter of any fiscal year of the Company, within 90
days of the end of such fiscal year, stating that the Minimum Net Worth has not
been achieved.
The Trustee shall notify the Holders that it has received such an
Officer's Certificate from the Company within 10 days after it receives such
notice.
Notice of an Offer shall be sent, by first-class mail, by the Company
to each Holder at its registered address, with a copy to the Trustee, not less
than 30 days nor more than 60 days before the Accelerated Payment Date. The
notice to the Holders shall contain all information, instructions and materials
required by applicable law or otherwise material to the decision of Holders
generally to tender Debentures pursuant to the Offer. The Offer shall remain
open from the time of mailing until five Business Days before the Accelerated
Payment Date. The notice shall be accompanied by a copy of the information
regarding the Company required to be contained in a quarterly Report on Form
10-Q (x) for the Company's first fiscal quarter if the Acceleration Date is the
end of the Company's second fiscal quarter, (y) for the Company's second fiscal
quarter if the Acceleration Date is the end of the Company's third fiscal
quarter or (z) for the Company's third fiscal quarter if the Acceleration Date
is the end of the Company's last fiscal quarter. If the Acceleration Date is the
end of the Company's first fiscal quarter, a copy of the information required to
be contained in an Annual Report to Shareholders pursuant to Rule 14a-3 under
the Exchange Act of the fiscal year ending immediately prior to such
Acceleration Date and in a quarterly Report on Form 10-Q for such first fiscal
quarter shall accompany the notice. If the Company is not subject to the filing
requirements of Section 13 or 15(d) of the Exchange Act at the Acceleration
Date, then the notice accompanying the Offer shall contain the correlative
information required to be furnished to the Holders pursuant to such provision.
The notice, which shall govern the terms of the Offer, shall state:
(1) that the Offer is being made pursuant to such notice and
Section 1010 of the Indenture;
(2) the amount of the Accelerated Payment, the purchase price
(including the amount of Accrued Current Interest and Accrued Deferred
Interest, if any) and the Accelerated Payment Date;
(3) that the Company has elected to credit against the
Accelerated Payment and has delivered to the Trustee for cancellation
the Debentures that are to be made the basis for such credit;
(4) that any Debenture or portion thereof not tendered or
accepted for payment will continue to accrue interest if interest is
then accruing;
(5) any Debenture, or portion thereof, accepted for payment
pursuant to the Offer shall cease to accrue all interest after the
Accelerated Payment Date;
(6) that Holders electing to have a Debenture, or portion
thereof, purchased pursuant to an Offer will be required to surrender
the Debenture to the Paying Agent at the address specified in the
notice prior to the close of business at least five Business Days prior
to the Accelerated Payment Date;
(7) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than five Business Days prior
to the Accelerated Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of the Debentures the Holder delivered for purchase
and a statement containing a facsimile signature that such Holder is
withdrawing his election to have such principal amount of Debentures
purchased;
(8) that Holders whose Debentures were purchased only in part
will be issued new Debentures equal in principal amount to the
unpurchased portion of the Debentures surrendered.
23
Any such Offer shall comply with all applicable provisions of federal
and state laws regulating tender offers, if applicable, and any provisions of
the Indenture that conflict with such laws shall be deemed to be superseded by
the provisions of such laws.
On or before the close of business St. Louis time on an Accelerated
Payment Date, the Company shall (i) accept for payment Debentures or portions
thereof properly tendered pursuant to the Offer, (ii) deposit with the Paying
Agent U.S. legal tender sufficient to pay the purchase price of all Debentures
or portions thereof so accepted or to be credited against the Accelerated
Payment and (iii) deliver to the Trustee Debentures so accepted together with an
Officers' Certificate stating the Debentures or portions thereof accepted for
payment by the Company. The Paying Agent shall promptly mail or deliver to
Holders of Debentures so accepted payment in an amount equal to the Accelerated
Payment for such Debentures, and the Company shall execute and the Trustee shall
promptly authenticate and mail or deliver to such Holders a new Debenture equal
in principal amount to any unpurchased portion of the Debenture surrendered. The
Company will publicly announce the results of the Offer on or as soon as
practicable after the Accelerated Payment Date.
Consolidation, Merger and Sale of Assets
The Company may, without the consent of the Holders of any of the
Debentures, consolidate with or merge into any other Person or convey, transfer,
sell or lease its assets substantially as an entirety to any Person, provided
that: (i) either (a) the Company is the continuing Corporation or (b) the
Corporation or other entity formed by such consolidation or into which the
Company is merged or the Person to which such assets are conveyed, transferred,
sold or leased is organized under the laws of the United States or any state
thereof or the District of Columbia and expressly assumes all obligations of the
Company under the Debentures and the Indenture; (ii) immediately after and
giving effect to such merger, consolidation, conveyance, transfer, sale or lease
no Event of Default, and no event which, after notice or lapse of time, would
become an Event of Default, under the Indenture shall have occurred and be
continuing; (iii) upon consummation of such consolidation, merger, conveyance,
transfer, sale or lease, the Debentures and the Indenture will be a valid and
enforceable obligation of the Company or such successor Person, Corporation or
other entity and (iv) the Company has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer, sale or lease complies with the provisions of the
Indenture (Sections 801 and 802).
Modification and Waiver
Modifications and amendments of the Indenture may be made by the
Company and the Trustee with the consent of the Holders of not less than a
majority in aggregate principal amount of the Outstanding Debentures; provided,
however, that no such modification or amendment may, without the consent of the
Holder of each Outstanding Debenture affected thereby, (i) change the Stated
Maturity of the principal of, or any installment of interest on, any Debenture,
(ii) reduce the principal amount of, or the premium on, if any, any Debenture or
reduce the rate or extend the time of payment of interest thereon, (iii) change
the place or currency of payment of principal of, or Repurchase Price or
premium, if any, or interest on, any Debenture, (iv) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Debenture, (v) adversely affect the right to convert Debentures, (vi) reduce the
percentage of the aggregate principal amount of Outstanding Debentures, the
consent of the Holders of which is necessary to modify or amend the Indenture,
or (vii) reduce the percentage of the aggregate principal amount of Outstanding
Debentures, the consent of the Holders of which is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults, (viii) modify the provisions of the Indenture with respect to the
subordination of the Debentures in a manner adverse to the Holders of the
Debentures or (ix) modify the provisions of the Indenture with respect to the
right to require the Company to repurchase Debentures in a manner adverse to the
Holders of the Debentures (Section 902).
The Holders of a majority in aggregate principal amount of the
Outstanding Debentures may, on behalf of all Holders of Debentures, waive any
past default under the Indenture or Event of Default, except a default in the
payment of principal, premium, if any, or interest on any of the Debentures or
in respect of a provision which under the Indenture cannot be modified without
the consent of the Holder of each Outstanding Debenture (Section 902).
Discharge
The Indenture provides that the Company may discharge its obligations
under the Indenture while Debentures remain Outstanding if (i) all Outstanding
Debentures will become due and payable at their scheduled Maturity within one
year or (ii) all Outstanding Debentures are scheduled for redemption within one
year, and in either case the Company has deposited with the Trustee an amount
24
sufficient to pay and discharge all Outstanding Debentures on the date of their
scheduled Maturity or scheduled redemption (Section 401).
Information Concerning the Trustee
The Holders of a majority in aggregate principal amount of the then
Outstanding Debentures issued under the Indenture will have the right to direct
the time, method and place of conducting any proceeding for exercising any
remedy available to the Trustee. The Indenture provides that in case an Event of
Default shall occur and is continuing, the Trustee will be required, in the
exercise of its power, to use the degree of care a prudent man would use in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or
powers under the Indenture at the request of any of the Holders of the
Debentures issued thereunder, unless they shall have offered to the Trustee
security or indemnity satisfactory to it.
Notices to Holders; Waiver
Where the Offering Memorandum provides for notice of any event to
Holders, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each such Holder affected by such event, at the address as it appears in the
Debenture Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to such Holders is given by mail, neither the failure to mail such
notice, nor any defect in and notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Any notice
which is mailed in the manner herein provided shall be conclusively presumed to
have been duly given or provided. Where the Offering Memorandum provides for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Company shall
constitute a sufficient notification for every purpose hereunder.
25
REGULATION
The Company and American are subject to the insurance laws and
regulations of Kansas, the domiciliary state of American; and the laws and
regulations of the other states in which American is licensed to do business.
The Company and FBL are also subject to the laws and regulations of Florida, the
domiciliary state of FBL, and the laws and regulations of the other states in
which FBL is licensed to do business. At present, American is licensed to
conduct business in 47 states and the District of Columbia and FBL is licensed
to conduct business in 39 states, the District of Columbia and the Virgin
Islands. The insurance laws and regulations, as well as the level of supervisory
authority that may be exercised by the various state insurance departments, vary
by jurisdiction, but generally grant broad powers to supervisory agencies or
state regulators to examine and supervise insurance companies and insurance
holding companies with respect to every significant aspect of the insurance
business. These laws and regulations generally require insurance companies to
meet certain solvency standards, to maintain minimum standards of business
conduct and to file certain reports with regulatory authorities, including
information concerning their capital structure, ownership and financial
condition.
American and FBL are each required to file annual statutory financial
statements and are subject to periodic examination by the insurance departments
of each of the jurisdictions in which they are licensed, authorized and
accredited. The Kansas Insurance Department completed its most recent
examination of American for the years ended December 31, 1990 through December
31, 1993. The results of this examination contained no material adverse
findings. The Florida Insurance Department completed its most recent examination
of FBL for the years ended December 31, 1989 through December 31, 1992. The
results of this examination contained no material adverse findings.
NAIC adopted an accreditation program in 1992 which requires the
Insurance Department of the various states to become accredited by the end of
1994 or cede certain control over their domestic companies. The program requires
certain model laws, model regulations and practices to be in effect. The Kansas
Insurance Department and the Florida Insurance Department are accredited under
the NAIC program.
Insurance Holding Company Regulations; Restrictions on Dividends and
Distributions. The Company and American are subject to regulation under the
insurance and insurance holding company statutes of Kansas. The Company and FBL
are also subject to regulations under the insurance and insurance holding
company statutes of Florida. The insurance holding company laws and regulations
vary from jurisdiction to jurisdiction, but generally require insurance and
reinsurance subsidiaries of insurance holding companies to register with the
applicable state regulatory authorities and to file with those authorities
certain reports describing, among other information, their capital structure,
ownership, financial condition, certain intercompany transactions and general
business operations. The insurance holding company statutes also require prior
regulatory agency approval or, in certain circumstances, prior notice of certain
material intercompany transfers of assets as well as certain transactions
between insurance companies, their parent companies and affiliates.
The Company is an insurance holding company and substantially all
income reflected in its Consolidated Statement of Operations is derived from the
operations of its insurance subsidiaries. The Company's assets consist primarily
of the stock of American, FBL and its other subsidiaries. Dividends, fees, rents
and commissions received from American and FBL, together with the Company's
retained funds and earnings thereon, and dividends from the insurance
subsidiaries will be the source of funds for the operations of the Company.
Insurance laws and regulations of Kansas and Florida, the respective states of
incorporation of American and FBL, restrict the flow of funds, including
dividends, from American and FBL to the Company. In addition, the payment of
dividends, fees, rents and commissions by the insurance subsidiaries reduces
their surplus and therefore may affect the amount of annuities they can issue.
Pursuant to the Kansas Insurance Holding Company Act, American may not,
without prior approval of the Kansas Insurance Department, pay dividends if the
amount of such dividends added to all other dividends or other distributions
made by American within the preceding twelve months exceeds the greater of (i)
its statutory net gain from operations for the prior calendar year or (ii) 10%
of statutory surplus at the end of the preceding calendar year. During the year
ended December 31, 1995, American had a statutory net gain from operations of
$5.7 million. As of December 31, 1995, 10% of American's statutory surplus was
$9.8 million. In addition, another provision of Kansas insurance law limits
dividends that American may pay to the Company to earned surplus calculated on a
statutory basis, which totalled $15.9 million as of March 31, 1996.
Under Florida insurance law and regulations, the aggregate dividends
that FBL may pay without prior regulatory approval is limited to the greater of
the sum of statutory net operating profits and net realized capital gains for
the preceding calendar year (provided there is available surplus from net
26
operating profits and net realized capital gains) or 10% of its available and
accumulated statutory surplus derived from net operating profits and net
realized capital gains.
After payment of a dividend, FBL must have 115% of required statutory surplus.
On December 31, 1995, FBL had accumulated statutory surplus derived
from net operating profits and net realized capital gains of $23.7 million. The
sum of statutory net profits and net realized capital gains for 1995 were $3.4
million. As of March 31, 1996, available surplus from net operating profits and
net realized capital gains was $3.4 million.
Under the Kansas and Florida insurance laws, unless (i) certain filings
are made with the applicable state insurance departments, (ii) certain
requirements are met, including a public hearing, and (iii) approval or
exemption is granted by the insurance commissioner, no person may acquire any
voting security or security convertible into a voting security of an insurance
holding company, which controls a Kansas or Florida insurance company, as the
case may be, or merge with such a holding company, if as a result of such
transaction such person would "control" the insurance holding company. "Control"
is presumed to exist if a person directly or indirectly owns or controls 10% or
more of the voting securities of another person, under Kansas law, and 5% or
more of the voting securities of another person under Florida law.
NAIC Regulatory Changes. The NAIC and insurance regulators are involved
in a process of re-examining existing laws and regulations and their application
to insurance companies. In particular, this re-examination has focused on
insurance company investment and solvency issues and, in some instances, has
resulted in new interpretations of existing law, the development of new laws and
the implementation of non-statutory guidelines. The NAIC has formed committees
and appointed advisory groups to study and formulate regulatory proposals on
such diverse issues as the use of surplus debentures, accounting for reinsurance
transactions and the adoption of risk-based capital rules. It is not possible to
predict the future impact of changing state and federal regulation on the
operations of the Company.
Regulations prescribed by the NAIC for periods ended prior to
January 1, 1992 require the establishment of an MSVR account designed to
stabilize a company's statutory capital and surplus against fluctuations in the
market value of stocks and bonds. In December 1991, the NAIC adopted changes to
its rules for establishing and maintaining reserve accounts for assets of
insurance companies in statutory financial statements. These changes became
effective as of January 1, 1992 for annual statements filed for the year ended
December 31, 1992 and thereafter. Under the new rules, the MSVR account was
replaced by an AVR account which consists of two main components: a "default
component," which provides for potential credit-related losses on debt
securities and an "equity component," which provides for potential losses on all
types of equity investments, including real estate. The new rules also required
the establishment of a new reserve called the IMR, which is credited with the
portion of realized investment gains and charged with losses net of tax from the
sale of fixed maturities attributable to changes in interest rates. Gains or
losses credited or charged to the IMR are required to be amortized into earnings
over the remaining period to maturity of the fixed maturities sold.
The NAIC has been considering the adoption of a model investment law
for several years. The current projection for adoption of a model investment law
is 1996, at the earliest. It is not yet determined whether the model investment
law would be added to the NAIC accreditation standards so that consideration of
the model for adoption in states would be required for the achievement or
continuation of any state's accreditation. It is not possible to predict the
impact of these activities on the Company's insurance subsidiaries.
Risk-Based Capital Requirements. The NAIC has adopted risk-based
capital ("RBC") requirements that require insurance companies to calculate and
report information under a risk-based formula that attempts to measure statutory
capital and surplus needs based on the risks in a company's mix of products and
investment portfolio. Under the formula, a company first determines its
Authorized Control Level risk-based capital ("ACL") by taking into account (i)
the risk with respect to the insurer's assets; (ii) the risk of adverse
insurance experience with respect to the insurer's liabilities and obligations;
(iii) the interest rate risk with respect to the insurer's business; and (iv)
all other business risks and such other relevant risks as are set forth in the
RBC instructions. A company's "Total Adjusted Capital" is the sum of statutory
capital and surplus and such other items as the RBC instructions may provide.
The formula is designed to allow state insurance regulators to identify
potential weakly capitalized companies.
The requirements provide for four different levels of regulatory
attention. The "Company Action Level" is triggered if a company's total Adjusted
Capital is less than 2.0 times its ACL but greater than or equal to 1.5 times
its ACL. At the Company Action Level, the Company must submit a comprehensive
plan to the regulatory authority which discusses proposed corrective actions to
improve the capital position. The "Regulatory Action Level" is triggered if a
27
company's Total Adjusted Capital is less than 1.5 times but greater than or
equal to 1.0 times its ACL. At the Regulatory Action Level, the regulatory
authority will perform a special examination of the company and issue an order
specifying corrective actions that must be followed. The "Authorized Control
Level" is triggered if a company's Total Adjusted Capital is less than 1.0 times
but greater than or equal to 0.7 times its ACL, and the regulatory authority may
take action it deems necessary, including placing the company under regulatory
control. The "Mandatory Control Level" is triggered if a company's Total
Adjusted Capital is less than 0.7 times its ACL, and the regulatory authority is
mandated to place the company under its control.
As of March 31, 1996 American's and FBL's Total Adjusted Capital
exceeded their respective ACL by more than 2.0 times.
Assessments Against Insurers. Under the guaranty fund laws of all
states in which American or FBL, as the case may be, operate, insurers can be
assessed for losses incurred by policyholders of insolvent insurance companies.
At present, most guaranty fund laws provide for assessments based upon the
amount of primary insurance underwritten in a given jurisdiction.
Federal Regulation. Although the federal government generally does not
directly regulate the insurance industry, federal initiatives often have an
impact on the business. It is not possible to predict the outcome of any such
initiatives or the potential effects thereof on the Company.
Congressional initiatives directed at repeal of the McCarran-Ferguson
Act (which exempts the "business of insurance" from most federal laws, including
the antitrust laws, to the extent it is subject to state regulation) and
judicial decisions narrowing the definition of "business of insurance" for
McCarran-Ferguson Act purposes may limit the ability of insurance and
reinsurance companies in general to share information with respect to
rate-setting, underwriting and claims management practices. For example, on June
28, 1993, the U.S. Supreme Court held in Hartford Fire Insurance Co. v.
California that a course of conduct by defendant commercial liability insurers
and reinsurers to change the terms of standard domestic general liability
insurance policies through an alleged refusal to engage in other unrelated
transactions with third parties (a boycott) is not immunized from federal
antitrust laws by the McCarran-Ferguson Act. Current and proposed federal
measures which may also significantly affect the insurance industry include
minimum solvency requirements and removal of barriers preventing banks from
engaging in the insurance business.
28
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, no par value, and 2,000,000 shares of Preferred Stock,
par value $1 per share. There are no shares of Preferred Stock outstanding.
Company Common Stock
All of the outstanding shares of Common Stock are fully paid and
non-assessable. The holders of shares of Common Stock are entitled to receive
such dividends as may be declared by the Company Board. As of July 31, 1996,
there were outstanding 13,048,679 shares of Common Stock, options to purchase
1,589,423 shares of Common Stock and warrants to purchase 663,708 shares Common
Stock.
Each holder of Common Stock is entitled to cumulative voting in the
election of directors, to one vote per share on all other matters submitted to a
vote of stockholders and to share ratably in all assets available for
distribution to holders of Common Stock upon liquidation or dissolution and
after satisfaction of any liquidation preference attributable to any outstanding
preferred stock. No holder of Common Stock has any preemptive right to subscribe
for any security of the Company. There are no conversion rights or redemption or
sinking fund provisions applicable to the Common Stock.
The Company Warrants
The Company Class A Common Stock Warrants (the "Warrants") are issued
in registered form under, governed by, and pursuant to the terms of a warrant
agreement between the Company and Boatmen's Trust Company, as Warrant Agent (the
"Warrant Agreement").
Each Company Warrant entitles the holder thereof to purchase one share
of Common Stock for $16.42. However, the Company Warrants are exercisable only
for whole shares; no fractional shares will be issued. The right to exercise
Company Warrants terminates April 2, 2002. The purchase price can be paid only
in lawful money of the United States.
The Warrant Agreement contains provisions that protect the Company
Warrant holders against dilution by adjustment of the exercise price and/or the
number of shares of the Company Common Stock exercisable pursuant to the Company
Warrant in certain events including, but not limited to, stock dividends, stock
splits, reclassifications, mergers or issuance of rights or options to subscribe
to Company Common Stock at a lower price than pursuant to the Company Warrants.
A Company Warrant holder possesses no rights as a stockholder of the
Company in connection with the Company Warrant. However, a Company Warrant
holder is entitled to receive merger or other consolidation consideration and
extraordinary dividends as if the Company Warrant holder had exercised the
Company Warrant prior to the transaction causing such a distribution.
Furthermore, upon the occurrence of an event triggering an anti-dilution
adjustment, or in certain events including, but not limited to, a merger, sale
of substantially all the assets, consolidation, extraordinary dividend
declaration and other special distributions, liquidation, and dissolution, the
Company will provide each holder of a Company Warrant with notice of such an
event.
At any time when the Company Warrants are exercisable and as a
condition to redemption of the Company Warrants, the Company is required to have
a current registration statement on file with the Commission and to register or
qualify under the laws and regulations of the states in which the holders of the
Company Warrants reside in order to comply with the applicable laws in
connection with the exercise of the Company Warrants.
Anti-Takeover Provisions
Classification of the Company Board. Article Seven of the Company's
Articles provides that the Company Board shall be divided into three classes,
effective as of the Annual Meeting of Stockholders in 1987. Each class shall
have a term of three years. Class I consists of four directors, each to hold
office for one year until the 1997 Annual Meeting of Stockholders; Class II
consists of four directors, each to hold office for two years until the 1998
Annual Meeting of Stockholders; and Class III consists of four directors, each
to hold office for three years until the 1999 Annual Meeting of Stockholders.
29
The staggered Board makes it more difficult for stockholders, including
those holding a majority of the Company Common Stock, to force an immediate
change in the composition of a majority of the Company Board. Since the terms of
only approximately one-third of the incumbent directors would expire each year,
assuming no resignations by or removal of directors, the time required to change
a majority of the Company Board is two years. Assuming no resignations by or
removal of directors, a two-thirds stockholder vote is required under the
Company Articles to amend Article Seven in order for stockholders to change a
majority of the directors at any annual meeting should they consider such a
change desirable.
Two-Thirds Majority Vote for Certain Corporate Actions. Under Article
Eight of the Company Articles, any merger or certain other business combinations
to be effected between the Company and an entity or affiliate of such entity
that owns 5% or more of the Company's outstanding stock ("acquiring entity")
must be approved by the holders of not less than two-thirds of the outstanding
shares of the Company's capital stock entitled to vote in the election of
directors or must be approved by a majority of the Company's directors who are
not affiliated with the acquiring entity or must be in compliance with certain
fair price provisions. This provision of the Articles of Incorporation cannot be
amended except by a vote of two-thirds of the Company's outstanding stock
entitled to vote in the election of directors.
The primary purpose of this provision is to discourage other
corporations or groups from attempting to acquire control of the Company through
the acquisition of a substantial number of shares of the Company capital stock
followed by a forced merger or sale of assets without negotiation with
management. This provision also may serve to reduce the danger of possible
conflicts of interest between a substantial stockholder on the one hand and the
Company and its other stockholders on the other. It should be noted that the
foregoing provisions could enable a minority of the Company's stockholders to
prevent a transaction favored by the majority of the stockholders.
Effect of Issuance of Preferred Stock. The shares of authorized but
unissued preferred stock are issuable in series with such rights, preferences,
privileges and restrictions as the Company Board may determine without any
further stockholder approval, including voting rights, redemption provisions,
dividend rates, liquidation preferences and conversion rights. The issuance of
such shares may adversely affect the voting power of the holders of the Company
Common Stock. Certain terms and conditions of the Company Preferred Stock could
have the effect of discouraging a takeover attempt of the Company.
Amendment of Charter. Amendments to the Company's Articles require the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Company stock.
Limitation on Liability of Directors and Indemnification of Officers
Section 1(d) of Article Seven of the Company's Articles provides that
any director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of a director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
under the Kansas statutory provision making directors personally liable, under a
negligence standard, for unlawful dividends or unlawful stock repurchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. This provision offers directors protection against
awards of monetary damages for negligence in the performance of their duties. It
does not affect the availability of equitable remedies such as an injunction or
recision based upon a director's breach of the duty of care or gross negligence.
In addition, the Company has agreed to indemnify the officers of the Company
against any losses and expenses arising out of any proceeding to which the
officer becomes a party, or is threatened to be made a party by reason of the
officer's affiliation with the Company. No indemnification is provided: (i) to
the extent coverage is provided by D&O insurance; (ii) on account of any claim
against the officer in connection with the purchase or sale of the Company's
securities pursuant to Section 16 of the Exchange Act or similar provisions of
state or federal law; (iii) if the officer's conduct is adjudged to have been
fraudulent, dishonest or have involved intentional misconduct; or (iv) if a
court determines that indemnification would violate public policy.
Transfer Agent
The transfer agent and registrar for the Company Common Stock and
Company Warrants is Boatmen's Trust Company, Corporate Trust Division, 510
Locust Street, Post Office Box 14737, St. Louis, MO 63178-4737.
30
SELLING SECURITYHOLDERS
The following table sets forth certain information as of July 12,
1996 (except as otherwise indicated) as to the security ownership of the Selling
Securityholders. Except as set forth below, none of the Selling Securityholders
has had a material relationship with the Company or any of its predecessors or
affiliates within the past three years.
---------------------
PRINCIPAL AMOUNT OF PRINCIPAL SHARES OF COMMON SHARES OF COMMON
DEBENTURES AMOUNT OF STOCK BENEFICIALLY STOCK UNDERLYING
BENEFICIALLY OWNED DEBENTURES OWNED PRIOR TO DEBENTURES SOLD
PRIOR TO OFFERING BEING SOLD OFFERING<F1>
--------------------- --------------------- ---------------------
NAME AMOUNT PERCENT NUMBER PERCENT NUMBER PERCENT
------------ ------- ------------ ------------ ------- ------------ -------
Zuger Kantonalbank, Zug ........................ 500,000 * 500,000 29,197 * 29,197 *
Lewco Securities (As custodian for.............. 600,000 * 600,000 35,036 * 35,036 *
Bank Paribas)
Chemical Bank (as nominee for................... 4,200,000 6.46 4,200,000 245,255 1.91 245,255 1.91
Bayerische Landesbank)
Cantrade Privatbank AG ......................... 4,000,000 6.15 4,000,000 233,577 1.82 233,577 1.82
Generale Bank (as nominee ...................... 1,000,000 1.54 1,000,000 58,394 * 58,394 *
for Cels Guigon Securities)
Egger & Co. (as nominee for Courcoux Bouvet).... 1,000,000 1.54 1,000,000 58,394 * 58,394 *
Bank of New York (as nominee for ............... 1,500,000 2.31 1,500,000 87,591 * 87,591 *
Credit Agricole)
Bank of New York, NY (as nominee for............ 2,000,000 3.08 2,000,000 116,788 * 116,788 *
Credit Communal)
Rush & Co. (as nominee for...................... 1,500,000 2.31 1,500,000 87,591 * 87,591 *
Credit Suisse - Carlo Koch)
Rush & Co. (as nominee for...................... 1,000,000 1.54 1,000,000 58,394 * 58,394 *
Credit Suisse - Roger Inglin)
Rush & Co. (as nominee for...................... 1,000,000 1.54 1,000,000 58,394 * 58,394 *
Credit Suisse - Camco AG)
Rush & Co. (as nominee for ..................... 500,000 * 500,000 29,197 * 29,197 *
Credit Suisse - Tarimco AG)
Rush & Co. (as nominee for 1,000,000 1.54 1,000,000 58,394 * 58,394 *
Credit Suisse - Schlagenhauf)
Darier Hentsch & Cie, Geneva.................... 2,000,000 3.08 2,000,000 116,788 * 116,788 *
De Maertelaere Lafferty and Cie SA,ZUG.......... 400,000 * 400,000 23,358 * 23,358 *
Banque OBC - Odier Bungener Courvoisier......... 200,000 * 200,000 11,679 * 11,679 *
Ferri SA (as nominee for E.B.P.F.).............. 300,000 * 300,000 17,518 * 17,518 *
Falck & Cie, Banquiers ......................... 1,500,000 2.31 1,500,000 87,591 * 87,591 *
France Finance IV .............................. 1,000,000 1.54 1,000,000 58,394 * 58,394 *
Egger & Co. Acct: Paribas, Paris P597182........ 700,000 1.08 700,000 40,876 * 40,876 *
Bank Leu, Zurich (as nominee for................ 250,000 * 250,000 14,599 * 14,599 *
HM Portfolio Management AG)
Handelsbanken Life ............................. 2,000,000 3.08 2,000,000 116,788 * 116,788 *
WASA Livforsakring Omsesidigt................... 2,000,000 3.08 2,000,000 116,788 * 116,788 *
Banque de Luxembourg S.A ....................... 300,000 * 300,000 17,518 * 17,518 *
Boyd & Co. (as custodian for.................... 500,000 * 500,000 29,197 * 29,197 *
IBJ Schroder Bank & Trust)
Jeffries International (Nominees) Ltd........... 8,400,000 12.92 8,400,000 490,511 3.81 490,511 3.81
Morgan Stanley Acct 5D-08017<F2>................ 30,000 * 30,000 1,752 * 1,752 *
Swiss American Securities, Inc.<F2> 335,000 * 335,000 19,562 * 19,562 *
Brown Brothers Harriman & Co.<F2>............... 50,000 * 50,000 2,920 * 2,920 *
Brown Brothers Harriman & Co.<F2>............... 30,000 * 30,000 1,752 * 1,752 *
Brown Brothers Harriman & Co.<F2>............... 20,000 * 20,000 1,168 * 1,168 *
31
---------------------
PRINCIPAL AMOUNT OF PRINCIPAL SHARES OF COMMON SHARES OF COMMON
DEBENTURES AMOUNT OF STOCK BENEFICIALLY STOCK UNDERLYING
BENEFICIALLY OWNED DEBENTURES OWNED PRIOR TO DEBENTURES SOLD
PRIOR TO OFFERING BEING SOLD OFFERING<F1>
--------------------- --------------------- ---------------------
NAME AMOUNT PERCENT NUMBER PERCENT NUMBER PERCENT
------------ ------- ------------ ------------ ------- ------------ -------
Brown Brothers Harriman & Co.<F2>............... 100,000 * 100,000 5,839 * 5,839 *
Brown Brothers Harriman & Co.<F2>............... 30,000 * 30,000 1,752 * 1,752 *
Brown Brothers Harriman & Co.<F2>............... 50,000 * 50,000 2,920 * 2,920 *
Brown Brothers Harriman & Co.<F2>............... 100,000 * 100,000 5,839 * 5,839 *
Brown Brothers Harriman & Co.<F2>............... 30,000 * 30,000 1,752 * 1,752 *
Brown Brothers Harriman & Co.<F2>............... 40,000 * 40,000 2,336 * 2,336 *
(as nominee for Schweizerlischer Bankverein,
Basel) Ref: 10-344746
Brown Brothers Harriman & Co. (as nominee for... 30,000 * 30,000 1,752 * 1,752 *
Schweizerlischer Bankverein, Basel) Ref:
34-347787<F2>
Chase Manhattan Bank (as nominee for:........... 55,000 * 55,000 3,212 * 3,212 *
Schweizerischer Bankgesellacaft) Liestal
REF: UBS Liestal 245-481859.51<F2>
Brown Brothers Harriman & Co. (as nominee for:.. 100,000 * 100,000 5,839 * 5,839 *
Bank Sarastin, Basel) Ref: 0.41687-7<F2>
Chemical Bank (as nominee for Lombard Odier).... 1,000,000 1.54 1,000,000 58,394 * 58,394 *
Maerki Bauman & Co. AG ......................... 300,000 * 300,000 17,518 * 17,518 *
Chemical Bank (as nominee....................... 1,000,000 1.54 1,000,000 58,394 * 58,394 *
for Merk Finck & Co. Munchen)
Spume & Co. (as nominee for..................... 600,000 * 600,000 35,036 * 35,036 *
Multiscor-Dolshares)
Bank Hofmann AG, Zurich (as nominee for......... 250,000 * 250,000 14,599 * 14,599 *
Nadig & Co.)
Kredietbank-Brussels (as ....................... 200,000 * 200,000 11,679 * 11,679 *
nominee for Ohra Leven NV)
Kredietbank-Brussels (as nominee for ........... 200,000 * 200,000 11,679 * 11,679 *
Antverpia Leven NV)
Kredietbank-Brussels (as nominee for ........... 200,000 * 200,000 11,679 * 11,679 *
DePoperingse Verzekering, NV)
Pictet Bank & Trust Nassau Ltd. ................ 300,000 * 300,000 17,518 * 17,518 *
Swiss American Securities, Inc. ................ 500,000 * 500,000 29,197 * 29,197 *
(as nominee for Rahn Bodmer Banquiers)
Prudential Bache Trade Corp. (as nominee for ... 250,000 * 250,000 14,599 * 14,599 *
Bankhaus Schelhammer and Schatterer)
Brown Brothers Harriman & Co. ................. 250,000 * 250,000 14,599 * 14,599 *
(as nominee for SCS Alliance)
Spar + Leihkasse in Bern........................ 500,000 * 500,000 29,197 * 29,197 *
Schweizerische Treuhandgesellschaft, Basel...... 250,000 * 250,000 14,599 * 14,599 *
Brown Brothers Harriman & Co. (as nominee for... 1,700,000 2.62 1,700,000 99,270 * 99,270 *
Bank Julius Baer & Co.)<F3>
Verwaltungs-und PrivatBank AG<F3>............... 400,000 * 400,000 23,358 * 23,358 *
Experta<F3>..................................... 2,100,000 3.23 2,100,000 122,628 * 122,628 *
Chase Manhattan Bank, New York (as nominee for.. 300,000 * 300,000 17,518 * 17,518 *
LGT Zurich)<F3>
Egger & Co. (as nominee for .................... 3,600,000 5.54 3,600,000 210,219 1.63 210,219 1.63
UBS Geneva Acct. UBS 2H PS 60378)
Bank of New York (as nominee for ............... 4,000,000 6.15 4,000,000 233,577 1.82 233,577 1.82
Vereins-und Westbank AG)
32
---------------------
PRINCIPAL AMOUNT OF PRINCIPAL SHARES OF COMMON SHARES OF COMMON
DEBENTURES AMOUNT OF STOCK BENEFICIALLY STOCK UNDERLYING
BENEFICIALLY OWNED DEBENTURES OWNED PRIOR TO DEBENTURES SOLD
PRIOR TO OFFERING BEING SOLD OFFERING<F1>
--------------------- --------------------- ---------------------
NAME AMOUNT PERCENT NUMBER PERCENT NUMBER PERCENT
------------ ------- ------------ ------------ ------- ------------ -------
Siegler & Co. (as nominee for .................. 5,750,000 8.85 5,750,000 335,766 2.61 335,766 2.61
Veritas SG Investment)
VPB Finanz AG .................................. 500,000 * 500,000 29,197 * 29,197 *
Weghsteen & Driege SA .......................... 500,000 * 500,000 29,197 * 29,197 *
TOTAL........................................... 65,000,000 100.00 65,000,000 3,795,620 29.50 3,795,620 29.50
- ----------
<FN>
* Less than one percent
<F1> Includes all common stock beneficially owned, including the Shares underlying the Debentures.
<F2> Krattiger Holzer & Partner, Asset Mgrs. Ltd. acted as agent for each purchase.
<F3> SP Investment Network Ltd. acted as agent for each purchase.
The preceding table has been prepared based upon information furnished
to the Company by Boatmen's Trust Company, trustee under the Indenture, and by
or on behalf of the Selling Securityholders.
Information concerning the Selling Securityholders may change from time
to time and will be set forth in Supplements to this Prospectus. As of the date
of this Prospectus, the aggregate principal amount of Debentures outstanding is
$65,000,000. Because the Selling Securityholders may offer all or some of the
Debentures and shares of Common Stock issued upon conversion thereof pursuant to
the offering contemplated by this Prospectus, and because there are currently no
agreements, arrangements or understandings with respect to the sale of any of
the Debentures or shares of Common Stock that will be held by the Selling
Securityholders after completion of this offering, no estimate can be given as
to the principal amount of Debentures or shares of Common Stock that will be
held by the Selling Securityholders after completion of this offering. See "Plan
of Distribution."
PLAN OF DISTRIBUTION
The Debentures and the Shares are being registered to permit public
secondary trading of such securities by the holders thereof from time to time
after the date of this Prospectus. The Company has agreed, among other things,
to bear all expenses (other than underwriting discounts, selling commissions and
fees and expenses of counsel and other advisors to holders of the Debentures and
the underlying Common Stock) in connection with the registration and sale of the
Debentures and the Shares covered by this Prospectus.
The Company will not receive any of the proceeds from the offering of
Debentures and the Shares by the Selling Securityholders. The Company has been
advised by the Selling Securityholders that the Selling Securityholders may sell
all or a portion of the Debentures and Shares beneficially owned by them and
offered hereby from time to time on any exchange on which the securities are
listed on terms to be determined at the times of such sales. The Selling
Securityholders may also make private sales directly or through a broker or
brokers. Alternatively, any of the Selling Securityholders may from time to time
offer the Debentures or Shares beneficially owned by them through underwriters,
dealers or agents, who may receive compensation in the form of underwriting
discounts, commissions or concessions from the Selling Securityholders and the
purchasers of the Debentures or Shares from whom they may act as agent. The
aggregate proceeds to the Selling Securityholders from the sale of the
Debentures or Shares offered by them hereby will be the purchase price of such
Debentures or Shares less discounts and commissions, if any.
The Debentures and the Shares may be sold from time to time in one or
more transactions at fixed offering prices, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices. Such prices will
be determined by the holders of such securities or by agreement between such
holders and underwriters or dealers who may receive fees or commissions in
connection therewith.
The outstanding Common Stock is listed for trading on the New York
Stock Exchange, and the Shares have been approved for listing on the New York
Stock Exchange. The Debentures are not listed on the New York Stock Exchange,
the Nasdaq National Market or any other U.S. or foreign exchange. Accordingly,
no assurance can be given as to the development of liquidity of any trading
market that may develop for the Debentures. See "Risk Factors--No Public Market
for the Debentures."
33
In order to comply with the securities laws of certain states, if
applicable, the Debentures and Shares will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
states the Debentures and Shares may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied with.
The Selling Securityholders and any broker and any broker-dealers,
agents or underwriters that participate with the Selling Securityholders in the
distribution of the Debentures or the Shares may be deemed to be "underwriters"
within the meaning of the Securities Act, in which event any commissions
received by such broker-dealers, agents or underwriters any profit on the resale
of the Debentures or the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
In addition, any securities covered by this Prospectus which qualify
for sale pursuant to Rule 144, Rule 144A or another exemption under the
Securities Act may be sold under Rule 144, Rule 144A or such other exemption
rather than pursuant to this Prospectus. There is no assurance that any Selling
Securityholder will sell any or all of the Debentures or Shares described
herein, and any Selling Securityholder may transfer, devise or gift such
securities by other means not described herein.
Registration Rights Agreement
Pursuant to the Registration Rights Agreement between the Company and
The Robinson-Humphrey Company, Inc., who acted as selling agent for the Company
in the Private Offering (the "Agent"), on behalf of the purchasers of the
Debentures (or underlying Common Stock), the Company has agreed to use its
reasonable efforts to keep this Registration Statement continuously effective
until the earlier of (i) a period of at least three years following the Closing
Date, or such lesser period of time as may be provided for in Rule 144(k) under
the Securities Act (which in essence allows unrestricted resales by any
non-affiliate); (ii) the time when all of the Debentures (and Common Stock into
which the Debentures have been converted) have been sold pursuant to this
Registration Statement, pursuant to Rule 144 under the Securities Act or have
been redeemed; or (iii) another exemption from the Securities Act exists (for
non-affiliates), as indicated in a published court decision or position of the
Commission (which addresses such matter adequately in the view of counsel to the
Company) or as otherwise stated in an opinion of counsel to the Company.
Under the Registration Rights Agreement, the Company agrees to
indemnify the purchaser of the Debentures (the "Purchaser") for any losses
resulting from any material misstatement or omission in the prospectus contained
in this Registration Statement, except those resulting from misstatements or
omissions in information provided by the Purchaser to the Company or resulting
from the failure of the Purchaser to deliver any prospectus required by the
Securities Act, which has been received by the Purchaser from the Company. The
Purchaser agrees to indemnify the Company for any losses resulting from any
material misstatement or omission in information provided by the Purchaser to
the Company, and for the failure to make delivery of any prospectus required by
the Securities Act, which has been received by the Purchaser from the Company.
Under the Registration Rights Agreement, each Purchaser agreed to
deliver each Prospectus, which will be provided by the Company to such Holder
(or underwriter or agent acting on its behalf), as required by the Securities
Act. Each Purchaser also agrees to otherwise comply with all applicable
requirements under the Securities Act and all applicable securities or blue sky
laws of U.S. jurisdictions.
Blocking Notice
At least ten (10) business days prior to any sale of the Debentures (or
underlying Common Stock) pursuant to the Registration Statement, the Holder
thereof shall advise the Company of the dates on which such disposition is
expected to commence and terminate, the number of securities expected to be
sold, the method of disposition, and such other information as the Company may
reasonably request in order to supplement this Prospectus in accordance with the
rules and regulations of the Commission. Such sale of securities under the
Registration Statement will not be allowed until such Holder has complied with
such request. The Company may suspend such sale under the Registration Statement
and notify such Holder intending to sell securities pursuant thereto, in
writing, that it may not sell any securities pursuant to the Registration
Statement or this Prospectus (a "Blocking Notice") if the Company's management
determines in its reasonable good faith judgment that the Company's obligation
to ensure that the Registration Statement and this Prospectus are current and
complete would require the Company to take actions that might reasonably be
expected to (i) have a detrimental effect on any proposal, negotiations or plan
34
by the Company or any of its subsidiaries to engage in any acquisition or
disposition of assets or any merger, consolidation, tender offer, reorganization
or similar transaction, provided, that such suspension may not exceed ninety
(90) days; (ii) have a detrimental effect on a public offering by the Company,
provided that such suspension may not exceed ninety (90) days, (iii) have a
detrimental effect on any other material corporate event contemplated by the
Company or any of its subsidiaries that would require the disclosure of
information, provided, that such suspension may not exceed ninety (90) days; or
(iv) occur on a date which, under the general rules and regulations of the SEC,
the inclusion therein by incorporation or by reference, of financial statements
of the Company contained in the annual or quarterly report of the Company most
recently filed with the SEC would not be permitted or advisable, provided, that
this exception shall not permit delay or suspension beyond the filing of the
next required annual or quarterly filing under the Exchange Act. In no event
shall the Company be able to suspend such a sale by such holder for more than a
continuous 90-day period from the date such holder initially indicated for the
commencement of such disposition without an intervening 30-day period for such
holder to make such sale, or the Company offering to buy such security from such
holder at the market price.
Following the effectiveness of this Registration Statement, and prior
to a sale of their resale pursuant to this Registration Statement, the
Debentures and the underlying Shares will include the following legend:
FOLLOWING THE REGISTRATION OF THIS SECURITY (AND THE COMMON STOCK INTO
WHICH IT MAY BE CONVERTED) THE OFFER, SALE, PLEDGE OR TRANSFER OF THIS
SECURITY AND THE COMMON STOCK INTO WHICH IT MAY BE CONVERTED IS SUBJECT
TO CERTAIN CONDITIONS AND RESTRICTIONS SET FORTH IN THE PURCHASE
AGREEMENT AND REGISTRATION RIGHTS AGREEMENT BETWEEN THE COMPANY AND THE
HOLDER, EACH DATED JULY 12, 1996.
As indicated above, the obligations of a Purchaser selling pursuant to
the Registration Statement include the obligation to deliver to the transferee a
current prospectus provided by the Company. The prospectus delivery requirement
normally can be satisfied by a Purchaser by disclosing to a selling broker the
existence of the requirement to sell shares in accordance with the registration
statement covering the Debentures or the shares of Common Stock underlying the
Debentures and making any arrangement with such broker to deliver a current
prospectus in connection with any such sale. Upon receipt of a written request
therefor, the Company has agreed, pursuant to the terms of the Registration
Agreement, to provide an adequate number of current prospectuses to each
Purchaser.
The Company has agreed to indemnify the Agent against certain
liabilities under the Securities Act.
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
and estate tax consequences of the ownership and disposition of Debentures and
the Common Stock receivable upon conversion of the Debentures. This summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"), and
existing, temporary and proposed Treasury Regulations, revenue rulings and
judicial decisions now in effect, all of which are subject to change at
any time perhaps retroactively in a manner adversely affecting holders of the
Debentures and Common Stock.
This discussion does not deal with all aspects of United States federal
income taxation that may be relevant to holders of the Debentures or shares of
Common Stock and does not deal with tax consequences arising under the laws of
any foreign, state or local jurisdiction. This discussion is for general
information only, and does not purport to address all of the tax consequences
that may be relevant to particular purchasers in light of their personal
circumstances, or to certain types of purchasers (such as certain financial
institutions, insurance companies, tax-exempt entities, dealers in securities or
persons who hold the Debentures or Common Stock in connection with a straddle)
who may be subject to special rules. This discussion assumes that each holder
holds the Debentures and the shares of Common Stock received upon conversion
thereof as capital assets.
For the purpose of this discussion, a "Non-U.S. Holder" refers to any
holder who is not a United States person. The term "United States person" means
a citizen or resident of the United States, a corporation or partnership created
or organized in the United States or any state thereof, or an estate or trust,
the income of which is includible in income for United States federal income tax
purposes regardless of its source.
35
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR PARTICIPATION IN
THIS OFFERING, OWNERSHIP AND DISPOSITION OF THE DEBENTURES, INCLUDING CONVERSION
OF THE DEBENTURES, AND THE EFFECT THAT THEIR PARTICULAR CIRCUMSTANCES MAY HAVE
ON SUCH TAX CONSEQUENCES.
Certain Federal Income Tax Considerations Applicable to U.S. Persons
Interest on Debentures. In general, interest (including original issue
discount, as discussed below) on a Debenture will be treated as ordinary
interest income to the holder of the Debenture at the time it accrues or is
received, in accordance with the holder's method of accounting for tax purposes,
or, in the case of original issue discount, specific United States federal
income tax provisions. The amount of original issue discount or market discount
(as discussed below) which is includible in income in respect of a Debenture
while held by a holder will be added to such holder's tax basis for such
Debenture, and such basis will be reduced by any amortized acquisition or other
premium (as discussed below) and amounts of other payments that do not
constitute qualified stated interest (as defined below).
Original Issue Discount. The Debentures were issued with original issue
discount ("OID") in an amount equal to the excess of the stated redemption price
at maturity over the issue price of the Debentures. The "issue price" of the
Debentures is the first price at which a substantial number of Debentures were
sold for money, excluding sales to underwriters, placement agents or
wholesalers. The "stated redemption price at maturity" is the sum of all
payments to be made on the Debentures other than "qualified stated interest" and
for purposes of the OID rules will include the redemption premium on the Put
Option whether or not exercised. The term "qualified stated interest" means,
generally, stated interest that is unconditionally payable in cash or in
property (other than debt instruments of the issuer) at least annually at a
single fixed rate or, subject to certain conditions, based on one or more
interest indices. Interest is payable at a single fixed rate only if the rate
appropriately takes into account the length of the interval between payments.
Holders of Debentures must, in general, include in income any OID
calculated on a constant-yield method in advance of any receipt of some or all
of the related cash payments. The amount of OID includible in income by an
initial holder of Debentures is the sum of the "daily portions" of OID with
respect to such Debentures for each day during the taxable year or portion of
the taxable year in which such holder held such Debentures ("Accrued OID"). The
daily portion is determined by allocating to each day in any "accrual period" a
pro rata portion of the OID allocable to that accrual period. The "accrual
period" for the Debentures may be of any length selected by the holder and may
vary in length over the term of the Debentures, provided that each accrual
period is no longer than one year and each scheduled payment of principal or
interest occurs on the first day or the final day of an accrual period. The
amount of OID allocable to any accrual period is an amount equal to the excess,
if any, of (a) the product of the Debenture's adjusted issue price at the
beginning of such accrual period and the yield to maturity of the Debenture
(determined on the basis of compounding at the close of each accrual period and
properly adjusted for the length of the accrual period) over (b) the sum of any
qualified stated interest allocable to the accrual period. OID allocable to the
final accrual period is the difference between the amount payable at maturity of
the Debenture (other than a payment of qualified stated interest) and the
Debenture's adjusted issue price at the beginning of the final accrual period.
Special rules will apply for calculating OID for an initial short accrual
period. The "adjusted issue price" of the Debentures at the beginning of any
accrual period is equal to its issue price increased by the Accrued OID for each
prior accrual period (determined without regard to the amortization of any
acquisition or bond premium, as described below) and reduced by any payments
made on such Debentures (other than qualified stated interest) on or before the
first day of the accrual period.
The original issue discount regulations contain rules for determining
the yield and maturity of debt instruments with unconditional options to require
payments to be made under an alternative payment schedule. Because the Company
may redeem the Debentures in certain circumstances and the Holders may cause the
Company to redeem the Debentures in certain circumstances pursuant to the terms
of the Debentures, under the original issue discount regulations, the Company
will be deemed to exercise or not exercise an option or combination of options
in a manner that minimizes the yield on the Debentures, and the Holders will be
deemed to exercise or not exercise an option or combination of options in a
manner that maximizes the yield on the Debentures. These rules are applied to
the options in the order that they may be exercised. Thus, the deemed exercise
of one option may eliminate other options that are later in time. Because
exercise of the Put Option would maximize the yield on the Debentures, such Put
Option will be treated as exercised for purposes of determining the yield to
maturity of the Debentures under these rules. If an option is presumed to be
36
exercised and such option is not in fact exercised, the Debenture would be
treated solely for original issue discount purposes as if it were reissued at
that time for an amount equal to its adjusted issue price.
In the event of a Fundamental Change, the Company will be required to
offer to redeem all of the Debentures. The original issue discount regulations
provide that the right of Holders to require redemption of the Debentures upon
the occurrence of a Fundamental Change will not affect the yield or maturity
date of the Debentures unless, based on all the facts and circumstances as of
the issue date, it is more likely than not that a Fundamental Change giving rise
to the redemption will occur. The Company has no present intention of treating
the right of the holders of the Debentures to require the Company to repurchase
Debentures upon a Fundamental Change as affecting the computation of the yield
to maturity of any Debenture.
Under the above-discussed OID rules, a holder will have to include in
income increasingly greater amounts of OID in successive accrual periods. The
Company has filed a form with the Internal Revenue Service (the "IRS")
indicating original issue discount at a rate of 4.25%, compounded annually,
until September 30, 2001. The Company is required to provide information returns
stating the amount of OID accrued on Debentures held of record by persons other
than corporations and other exempt holders. In addition to being required to
include yearly as interest income for federal income tax purposes an amount
equal to that year's OID for such holder's Debentures in advance of the receipt
of the cash attributable to such amount, in certain circumstances, a holder will
not receive any of the cash attributable to the OID. These circumstances
include: if the holder converts the Debentures into Common Stock (other than
following notice of a Company Call); if the Company purchases the Debentures
pursuant to a European Call; if the holder elects to require the Company to
repurchase such holder's Debentures in the event of a Fundamental Change; or if
the holder does not exercise the Put Option (and the Company does not exercise
the Company Call). See "Description of Debentures." In such instances, such OID
amounts will remain a part of the holder's tax basis in the Debentures for
purposes of determining gain or loss on a disposition or redemption of the
Debentures (or will become a part of the holder's basis in the shares of Common
Stock if the conversion privilege is exercised). See "--Sale or Exchange of
Debentures or Common Stock" and "--Conversion of Debentures."
Holders of the Debentures may elect to treat all interest on the
Debentures as OID and calculate the amount includible in gross income under the
constant yield method described above. For the purposes of this election,
interest includes stated interest, acquisition discount, OID, de minimis OID,
market discount, de minimis market discount and unstated interest, as adjusted
by any amortizable bond premium or acquisition premium. The election is to be
made for the taxable year in which the holder acquired Debentures, and may not
be revoked without the consent of the IRS. Holders should consult with their own
tax advisors regarding this election.
If a bankruptcy case is commenced by or against the Company under the
U.S. Bankruptcy Code after the issuance of the Debentures, the claim of a holder
of Debentures with respect to the principal amount thereof may be limited to an
amount equal to the sum of (i) the initial offering price and (ii) that portion
of the original issue discount that is not deemed to constitute "unmatured
interest" for purposes of the U.S. Bankruptcy Code. Any OID that was not
accrued as of any such bankruptcy filing would constitute "unmatured interest."
Constructive Distribution. Certain corporate transactions, such as
distributions of cash to holders of Common Stock, may cause a deemed
distribution to the holders of the Debentures if the conversion price or
conversion ratio of the Debentures is adjusted to reflect such corporate
transaction. Such deemed distributions will be taxable as a dividend, return of
capital, or capital gain in accordance with the earnings and profits rules
discussed under "Distributions on Shares of Common Stock."
Sale or Exchange of Debentures or Shares of Common Stock. In general, a
holder of a Debenture will recognize gain or loss upon the sale, redemption,
retirement or other disposition of the Debenture measured by the difference
between the amount of cash and the fair market value of any property received
(except to the extent attributable to the payment of accrued interest) and the
holder's adjusted tax basis in the Debenture. A holder's tax basis in a
Debenture generally will equal the cost of the Debenture to the holder increased
by the amount of Accrued OID and market discount, if any, previously taken into
income by the holder or decreased by any bond premium theretofore amortized by
the holder with respect to the Debenture. (For the basis and holding period of
shares of Common Stock, see "Conversion of Debentures.") In general, each holder
of Common Stock into which the Debentures have been converted will recognize
gain or loss upon the sale, exchange, redemption, or other disposition of the
Common Stock under rules similar to those applicable to the Debentures. Special
rules may apply to redemptions of Common Stock which may result in the amount
paid being treated as a dividend. Subject to the market discount rules discussed
below, the gain or loss on the disposition of the Debentures or shares of Common
Stock will be
37
capital gain or loss and will be long-term gain or loss if the Debentures or
shares of Common Stock have been held for more than one year at the time of such
disposition.
Market Discount. The purchase of a Debenture may be affected by the
"market discount" provisions of the Code. For this purpose, the market discount
on a Debenture will generally be equal to the amount, if any, by which the
"revised issue price" of the Debenture immediately after its acquisition (which
is generally equal to the original issue price plus all prior inclusions of OID
by all prior holders) exceeds the holder's tax basis in the debenture. Subject
to a de minimis exception, these provisions generally require a holder of a
Debenture acquired at a market discount to treat as ordinary income any gain
recognized on the disposition of such Debenture to the extent of the "accrued
market discount" on such Debenture at the time of disposition. In general,
market discount on a Debenture will be treated as accruing on a straight-line
basis over the term of such Debenture, or, at the election of the holder, under
a constant yield method.
In addition, any holder of a Debenture acquired at a market discount
may be required to defer the deduction of a portion of the interest on any
indebtedness incurred or maintained to purchase or carry the Debenture until the
Debenture is disposed of in a taxable transaction. The foregoing rule will not
apply if the holder elects to include accrued market discount in income
currently.
If a holder acquires the Debenture at a market discount and receives
Common Stock upon conversion of the Debenture, the amount of accrued market
discount with respect to the converted Debenture through the date of the
conversion will be treated as ordinary income on the disposition of the Common
Stock.
Premium. A holder that purchases Debentures for an amount that is
greater than the adjusted issue price of the Debentures but equal to or less
than the sum of all amounts payable on the Debentures after the purchase date
other than payments of qualified stated interest will be considered to have
purchased such Debentures at an "acquisition premium." Under the acquisition
premium rules, the amount of OID which such holder must include in its gross
income with respect to such Debentures for any taxable year will be reduced by
the portion of such acquisition premium properly allocable to such year.
A holder that purchases a Debenture for an amount greater than the sum
of all amounts payable on the Debenture after the purchase date, other than
payments of qualified stated interest, will be considered to have purchased such
Debenture with a "bond premium." The holder may elect, subject to certain
limitations, to deduct the allowable amortizable bond premium when computing
such holder's taxable income. Holders should consult with their tax advisors
regarding this election.
Conversion Of Debentures. A holder of a Debenture will not recognize
gain or loss on the conversion of the Debenture into shares of Common Stock,
except to the extent that the Common Stock issued upon the conversion is
attributable to accrued interest on the Debenture. The holder's aggregate tax
basis in the shares of Common Stock received upon conversion of the Debenture
will be equal to the holder's aggregate basis in the Debenture exchanged
therefor (less any portion thereof allocable to cash received in lieu of a
fractional share). The holding period of the shares of Common Stock received by
the holder upon conversion of the Debenture will include the period during which
the holder held the Debenture prior to the conversion.
Cash received in lieu of a fractional share of Common Stock should be
treated as a payment in exchange for such fractional share. Gain or loss
recognized on the receipt of cash paid in lieu of such fractional shares
generally will equal the difference between the amount of cash received and the
amount of tax basis allocable to the fractional shares.
Distributions on Shares of Common Stock. Distributions on shares of
Common Stock will constitute dividends for United States federal income tax
purposes to the extent of current or accumulated earnings and profits of the
Company as determined under United States federal income tax principles.
Dividends paid to holders that are United States corporations may qualify for
the dividends-received deduction. Individuals, partnerships, trusts, and certain
corporations, including certain foreign corporations, are not entitled to the
dividends-received deduction.
To the extent, if any, that a holder receives a distribution on shares
of Common Stock that would otherwise constitute a dividend for United States
federal income tax purposes but that exceeds current and accumulated earnings
and profits of the Company, such distribution will be treated first as a
non-taxable return of capital reducing the holder's basis in the shares of
Common Stock. Any such distribution in excess of the holder's basis in the
shares of Common Stock will be treated as a capital gain.
38
Backup Withholding and Information Reporting. In general, information
reporting requirements will apply to certain payments of principal, interest,
and premium paid on the Debentures and with respect to dividends paid on the
Common Stock, made to United States holders other than certain exempt recipients
(such as corporations). Information reporting will also be required upon a
payment of the proceeds of the sale (including a redemption) of a Debenture (or,
after Conversion, of the underlying Shares) to a United States holder other than
an exempt recipient. A 31% backup withholding tax may apply to such payments if
the United States holder fails to timely provide a taxpayer identification
number or certification of exempt status or fails to report in full dividend and
interest income.
Certain Federal Income Tax Considerations Applicable to Non-U.S. Persons
U.S. Income Taxation of Foreigners Generally. Items of income received
by a Non-U.S. Person that are effectively connected with the conduct of a trade
or business in the United States by such Non-U.S. Person or, if an income tax
treaty applies, attributable to a permanent establishment maintained by the
Non-U.S. Person in the United States ("Effectively Connected Income") are taxed
at the normal graduated rates applicable to U.S. citizens and residents (with a
current maximum rate of 39.6% for individuals and 35% for corporations). In
addition, Non-U.S. Persons generally will be subject to a 30% tax on certain
other items of income they receive from sources in the United States. Income
taxable under these provisions includes interest, original issue discount,
dividends, and other fixed or determinable annual or periodical ("FDAP") income
received from sources in the United States that are not Effectively Connected
Income. The tax liability for FDAP income is collected by withholding at the
source and may be eliminated in the case of interest and original issue discount
for Non-U.S. Persons that qualify for the "portfolio interest" exemption. In
addition, the 30% withholding tax may be eliminated or reduced for Non-U.S.
Persons that are entitled to the benefits of a bilateral income tax treaty
between the U.S. and the country in which the Non-U.S. Person is resident.
Interest on the Debentures. Under the portfolio interest exemption,
payments of interest and original issue discount on the Debentures made to any
Non-U.S. person who is a holder of Debentures ("Non-U.S. Holder") that are not
Effectively Connected Income with respect to the Non-U.S. Holder should not be
subject to withholding of United States federal income tax, provided, that (1)
the Non-U.S. Holder does not own actually or constructively (as defined in
Sections 318 and 871(h)(3)(C) of the Code) 10% or more of the total combined
voting power of all classes of stock of the Company entitled to vote (including
in such computation any Common Stock that would be acquired upon conversion);
(2) the Non-U.S. Holder is not a "controlled foreign corporation" (as defined in
Section 957 of the Code) that is related directly, indirectly or constructively
to the Company through stock ownership; (3) the Non-U.S. Holder is not a bank
with respect to which the payments are received on an extension of credit made
pursuant to a loan agreement entered into in the ordinary course of its trade or
business; and (4) either (A) the Non-U.S. Holder provides the payor with a Form
W-8 (or substitute form), certifying under penalties of perjury that it is not a
U.S. Person and setting forth the Non-U.S. Holder's name and address or (B) a
securities clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business and holds
a Debenture, certifies to the payor under penalties of perjury that a Form W-8
(or substitute form) has been received from the Non-U.S. Holder by it (or by
another financial institution acting on behalf of the Non-U.S. Holder) and
furnishes the payor with a copy of such Form W-8 (or substitute form).
Payments of interest on the Debentures that are Effectively Connected
Income to the Non-U.S. Holder will generally be subject to United States federal
income tax at normal graduated rates rather than the 30% withholding tax.
Payments of interest on the Debentures that are Effectively Connected Income to
a Non-U.S. Holder that is a corporation may also be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be applicable under
a bilateral income tax treaty.
Original Issue Discount. The Debentures were issued with original issue
discount for federal income tax purposes. See "--Certain Federal Income Tax
Considerations Applicable to U.S. Persons -- Original Issue Discount." A
Non-U.S. Holder who does not qualify for the portfolio interest exemption (see
"--Interest on the Debentures") generally will be subject to withholding of
United States federal income tax when receiving any payment on a Debenture with
respect to interest and any accrued original issue discount which is not
Effectively Connected Income. Thus, a payment of interest would be subject to a
30% withholding tax, plus a 30% withholding tax on any accrued and unpaid
original issue discount (not previously taxed), but the amount of the aggregate
withholding will not exceed the amount of the payment. A Non-U.S. Holder who
qualifies for the portfolio interest exemption will not be subject to the 30%
withholding tax on the original issue discount at any time.
39
The accrual of interest on the Debentures in the form of original issue
discount to a Non-U.S. Holder that is not Effectively Connected Income with
respect to the Non-U.S. Holder is not subject to any withholding tax at the time
such interest accrues. Any payment to the Non-U.S. Holder of interest on the
Debentures or on the sale or exchange of the Debentures will be subject to a
withholding tax in an amount not in excess of 30% of the accrued original issue
discount for which tax has not been previously withheld (in addition to any
other amounts otherwise required to be withheld). Any accrual of original issue
discount to a Non-U.S. Holder that is Effectively Connected Income with respect
to the Non-U.S. Holder is not subject to the 30% withholding tax, however, such
Non-U.S. Holder is required to include any accrued original issue discount in
their United States federal taxable income as discussed above.
The Company is required to furnish certain information to the IRS, and
will furnish annually to record holders of the Debentures, information with
respect to the original issue discount accruing during the calendar year (as
well as interest paid during that year). Because this information will be based
upon the adjusted issue price of the debt instrument as if the holder were the
original holder of such debt instrument, subsequent holders will be required to
determine for themselves the amount of discount, if any, they are required to
report.
Adjustment of Conversion Price. Adjustments, if any, in the conversion
price of the Debentures that have the effect of increasing the proportionate
interest of Holders in the assets or earnings of the Company in some
circumstances may result in constructive distributions taxable as dividends to a
Non-U.S. Holder.
Gain on Sale of the Debentures. Non-U.S. Holders generally will not be
subject to United States federal income tax in respect of gain (including any
premium) recognized on the sale, exchange or redemption of a Debenture
(including the receipt of cash in lieu of fractional shares upon conversion of a
Debenture), unless (1) such gain is Effectively Connected Income with respect to
the Non-U.S. Holder, (2) in the case of a Non-U.S. Holder who is an individual,
such individual is present in the United States for 183 days or more in the
taxable year of such sale, exchange or redemption, subject to certain
exceptions, (3) the Non-U.S. Holder is subject to tax pursuant to the provisions
of the United States federal income tax law applicable to certain United States
expatriates, or (4) the Non-U.S. Holder has elected to be treated as a resident
of the United States for federal income tax purposes.
Conversion of the Debentures. Generally, a Non-U.S. Holder will not
recognize any gain or loss upon the conversion of a Debenture into shares of
Common Stock. Upon such conversion, the Non-U.S. Holder's tax basis in such
shares for United States federal income tax purposes shall be equal to the
adjusted tax basis of the Debentures surrendered and its holding period will
include the period during which it held the Debentures. Any Non-U.S. Holder
which does not qualify for the portfolio interest exemption and which holds a
Debenture on which original issue discount has accrued, but has not been subject
to taxation by the United States, may be subject to the 30% tax imposed on such
accrued original issue discount at the time of conversion.
Dividends on Common Stock. In general, dividends paid to a Non-U.S.
Holder of Common Stock will be subject to withholding of United States federal
income tax at a 30% rate, unless such rate is reduced by an applicable income
tax treaty. Dividends that are Effectively Connected Income with respect to a
Non-U.S. Holder are generally subject to United States federal income tax at
regular graduated rates, but not the 30% withholding tax. Any dividends received
which are Effectively Connected Income may also, under certain circumstances, be
subject to an additional branch profits tax at a 30% rate or such lower rate as
may be applicable under an income tax treaty. Under certain circumstances, a
decrease in the Conversion Price of the Debentures may be considered as
resulting in the distribution of a dividend to Holders for United States federal
income tax purposes.
Disposition of Common Stock. Non-U.S. Holders generally will not be
subject to United States federal income tax in respect of gain recognized on a
disposition of Common Stock unless (1) such gain is Effectively Connected Income
with respect to the Non-U.S. Holder, (2) in the case of a Non-U.S. Holder who is
an individual, such holder is present in the United States for 183 or more days
in the taxable year of the disposition, subject to certain exceptions, (3) the
Non-U.S. Holder is subject to tax pursuant to the provisions of the United
States federal income tax law applicable to certain United States expatriates,
(4) the Non-U.S. Holder has elected to be treated as a resident of the United
States for tax purposes or (5) the Company is or has been a "U.S. real property
holding corporation" for United States federal income tax purposes and, provided
the Common Stock is "regularly traded on an established securities market"
(within the meaning of the relevant provisions of the Code), the Non-U.S. Holder
held, directly or indirectly, more than 5% of the Common Stock at any time
during the 5-year period ending on the date of disposition. The Company believes
it has not been, and does not anticipate becoming, a "U.S. real property holding
corporation" for United States federal income tax purposes.
40
Information Reporting and Backup Withholding. The Code has certain
reporting provisions that require a payor to report on Form 1099 (or similar
form) certain payments to certain persons. If these provisions apply, a Form
1099 is furnished both to the IRS and to the person receiving the payment. The
Code also requires a payor to "backup withhold" on certain payments where the
payee has not furnished appropriate information concerning the payee's identity
(or in certain other cases). The Form 1099 reporting provisions and the backup
withholding provisions operate in tandem in many cases. Information reporting
under the Form 1099 reporting provisions and backup withholding tax (which
generally is withheld at the rate of 31% on certain payments to persons that
fail to furnish the required information) should not apply to payments of
principal, interest or original issue discount on a Debenture made to Non-U.S.
Holders provided that the payee furnishes a Form W-8 (or substitute form) and
provided that the payor does not have actual knowledge that the payee is a U.S.
person. If a Form W-8 (or a substitute form) is not provided to the payor, 30%
withholding under sections 1441 or 1442 will generally apply to payments of
interest and accrued original issue discount made to a Non-U.S. Holder, but
backup withholding at 31% will not apply. However, under proposed Treasury
Regulations if no Form W-8 (or substitute form) is received by the payor from an
individual Non-U.S. Holder, then 31% backup withholding but not the 30%
withholding tax would apply to such payments. Because backup withholding does
not apply to payments of interest and accrued original issue discount to
corporations, corporate Non-U.S. Holders would only be subject to a maximum of
30% withholding where no W-8 is provided.
In the event that a Non-U.S. Holder converts a Debenture into Common
Stock, the Form 1099 reporting requirements and backup withholding will
generally not apply to dividends paid to that Non-U.S. Holder absent actual
knowledge by the payor that the payee is a U.S. person. However, under proposed
Treasury Regulations, a Non-U.S. Holder would be required to provide a Form W-8
(or substitute form) to the payor in order to avoid backup withholding on a
dividend payment with respect to the Common Stock.
Generally, the Company must report annually to the IRS and to each
Non-U.S. Holder on Form 1042-S the amount of FDAP income, including interest,
original issue discount and dividends paid to, and any tax withheld with respect
to, each Non-U.S. Holder. These reporting requirements apply regardless of
whether withholding was reduced or eliminated by an applicable income tax
treaty. Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities in the
country in which the Non-U.S. Holder resides.
Payments of the proceeds of the sale (including a redemption) of a
Debenture or of Common Stock to or through a broker by a Non-U.S. Holder
generally should not be subject to information reporting or backup withholding
if the Non-U.S. Holder certifies that it is an exempt foreign person within the
meaning of Treasury Regulation Section 1.6045-1(g)(1). Under proposed Treasury
Regulations, a Non-U.S. Holder would be able to make such a certification by
providing a Form W-8 (or substitute form). Currently, if a Non-U.S. Holder does
not provide certification of exempt foreign status to a broker, the Form 1099
information reporting provisions and backup withholding may apply.
U.S. Estate Taxation. Debentures held by an individual who is not a
domiciliary of the United States for United States federal estate tax purposes
at the time of such individual's death generally will not be subject to United
States federal estate tax with respect to a Debenture provided the individual
was exempt from United States income tax on the Debenture by reason of the
portfolio interest exemption or an estate tax treaty exempts the Debenture from
estate tax. Common Stock owned or treated as owned by an individual who is not a
domiciliary of the United States at the time of death will be considered to be
"situated" within the United States and subject to United States estate tax,
unless an applicable estate tax treaty provides otherwise.
GOVERNING LAW
The Debentures and the Indenture will be governed by, and construed in
accordance with, the laws of the State of Kansas, without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
LEGAL MATTERS
The validity of the Debentures and the underlying Shares offered hereby
will be passed upon for the Company by Bryan Cave LLP.
41
EXPERTS
The consolidated financial statements and related financial statement
schedules incorporated in this Registration Statement by reference from
AmVestors Financial Corporation's Annual Report on Form 10-K for the year ended
December 31, 1995 have been audited by Deloitte & Touche, LLP, independent
auditors, as stated in their reports, which are incorporated herein by
reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
42
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
TABLE OF CONTENTS
AVAILABLE INFORMATION........................................................ 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................. 4
RISK FACTORS................................................................. 5
THE COMPANY.................................................................. 10
USE OF PROCEEDS.............................................................. 12
RECENT DEVELOPMENTS.......................................................... 13
DESCRIPTION OF THE DEBENTURES................................................ 14
REGULATION................................................................... 27
DESCRIPTION OF CAPITAL STOCK................................................. 30
SELLING SECURITYHOLDERS...................................................... 32
PLAN OF DISTRIBUTION......................................................... 34
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES............................... 36
GOVERNING LAW................................................................ 42
LEGAL MATTERS................................................................ 42
EXPERTS...................................................................... 43
AmVestors Financial
Corporation
[LOGO]
---------------------
PROSPECTUS
---------------------
$65,000,000 Principal Amount of
3% Convertible Subordinated Debentures due 2003
and
3,795,620 Shares of Common Stock
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale of
the Debentures and the Common Stock being registered. All amounts are estimates
except the registration fee.
Securities and Exchange Commission Registration Fee............... $ 22,414
Printing expenses................................................. 20,000
Legal fees and expenses........................................... 40,000
Trustee fees (including counsel fees)............................. 12,800
Accounting fees and expenses...................................... 10,000
Miscellaneous..................................................... 3,000
--------------
Total............................................................. $ 108,214
==============
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 17-6305 of the General Corporation Code of the State of Kansas
permits a corporation, subject to the standards set forth therein, to indemnify
any person in connection with any threatened, pending, or completed action,
suit, or proceeding by reason of the fact that such person is or was a director,
officer, employee, or agent of the corporation. The Company's bylaws provide for
indemnification of officers and directors to the extent permitted by Section
17-6305. Pursuant to a policy of directors' and officers' liability insurance,
the Company's directors and officers are insured, subject to certain limits,
exceptions, and other terms and conditions of such policy, against loss arising
from certain claims made against them by reason of their serving as directors
and officers of the Company.
ITEM 16. EXHIBITS.
The following exhibits are filed herewith or incorporated by reference.
EXHIBIT NO. DESCRIPTION
2.1 Agreement and Plan of Merger by and among AmVestors Financial
Corporation and AmVestors Acquisition Subsidiary, Inc. and FBG dated
September 8, 1995, Amendment No., 1 thereto dated October 17, 1995,
Amendment No. 2 thereto dated December 28, 1995, and Amendment No. 3
thereto dated February 14, 1996 (incorporated herein by reference to
Exhibit 2.1 to Registration Statement on Form S-4, File No.
333-01309 dated March 1, 1996.)*
4.1 Indenture dated July 12, 1996 between AmVestors Financial
Corporation and Boatmen's Trust Company (incorporated by reference
to Exhibit 4.1 to the Company Report on Form 8-K, dated
August 13, 1996, File No. 0-15330).
4.2 Form of 3% Convertible Subordinated Debentures due 2003 (included in
Indenture incorporated by reference as Exhibit 4.1)
4.3 Registration Rights Agreement dated July 12, 1996 between AmVestors
Financial Corporation and The Robinson-Humphrey Company, Inc.
(incorporated by reference to Exhibit 4.3 to the Company Report
on Form 8-K, dated August 13, 1996, File No. 0-15330).
4.4 Purchase Agreement dated July 12, 1996 between AmVestors Financial
Corporation and purchasers of the 3% Convertible Subordinated
Debentures due 2003 (incorporated by reference to Exhibit 4.4 to
the Company Report on Form 8-K, dated August 13, 1996, File
No. 0-15330).
4.5 Custodial Agreement dated July 12, 1996 between Boatmen's Trust
Company and The Robinson-Humphrey Company, Inc. (incorporated by
reference to Exhibit 4.5 to the Company Report on Form 8-K, dated
August 13, 1996, File No. 0-15330).
II-1
4.6 Warrant Agreement by and between the Company and Boatmen's Trust
Company, as Warrant Agent (incorporated herein by reference to
Exhibit 4.3 to Registration Statement on Form S-4, File No. 333-
01309 dated March 1, 1996.)
4.7 Form of Warrant Certificate (incorporated herein by reference to
Exhibit 4.4 to Registration Statement on Form S-4, File No.
333-01309 dated March 1, 1996.)
4.8 AmVestors Financial Corporation 1989 Non-Qualified Stock Option Plan
(incorporated herein by reference to Exhibit 4.5 to Registration
Statement on Form S-4, File No. 333-01309 dated March 1, 1996.)
5.1 Opinion of Bryan Cave LLP.
23.1 Consent of Deloitte & Touche, LLP.
23.2 Consent of Deloitte & Touche, LLP.
23.3 Consent of Bryan Cave LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-4 hereof).
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of Boatmen's Trust Company.
- ----------
* The Company hereby agrees to furnish supplementally a copy of any omitted
schedules to this Agreement to the Securities and Exchange Commission upon its
request.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers and sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to the plan of
distribution previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the registrant pursuant to section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(b) 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 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
II-2
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, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Topeka, State of Kansas, on this 13th day of August,
1996.
AMVESTORS FINANCIAL CORPORATION
By: /s/ Ralph W. Laster, Jr.
------------------------------------
Ralph W. Laster, Jr.
Chairman of the Board, Chief
Executive Officer, Chief Financial
Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of AmVestors Financial Corporation
hereby severally and individually constitute and appoint Ralph W. Laster, Jr.
and Mark V. Heitz, and each of them, the true and lawful attorneys and agents of
each of us to execute in the name, place, and stead of each of us (individually
and in any capacity stated below) any and all amendments to this registration
statement on Form S-3 and all instruments necessary or advisable in connection
therewith and to file the same with the Securities and Exchange Commission, each
of said attorneys and agents to have the power to act with or without the others
and to have full power and authority to do and to perform in the name and on
behalf of each of the undersigned every act whatsoever necessary or advisable to
be done in the premises as fully and to all intents and purposes as any of the
undersigned might or could do in person, and we hereby ratify and confirm our
signatures as they may be signed by our said attorneys and agents and each of
them to any and all such amendments and instruments.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
- -------------------------- ----------------------------------- ---------------
/s/ Ralph W. Laster, Jr.
- -------------------------- Chairman of the Board, Chief August 13, 1996
Ralph W. Laster, Jr. Executive Officer Chief Financial
Officer and Director (Principal
Executive Officer, Principal
Accounting Officer, and Principal
Financial Officer)
/s/ Mark V. Heitz
- -------------------------- President, General Counsel, August 13, 1996
Mark V. Heitz and Director
/s/
- -------------------------- Director August __, 1996
Janis L. Andersen
/s/
- -------------------------- Director August __, 1996
Robert G. Billings
/s/ Jack H. Brier
- -------------------------- Director August 13, 1996
Jack H. Brier
II-4
/s/ Frank T. Crohn
- -------------------------- Director August 13, 1996
Frank T. Crohn
/s/ R. Rex Lee, M.D.
- -------------------------- Director August 13, 1996
R. Rex Lee, M.D.
/s/
- -------------------------- Director August __, 1996
Robert R. Lee
/s/
- -------------------------- Director August __, 1996
Robert T. McElroy, M.D.
/s/ Jack R. Manning
- -------------------------- Director August 13, 1996
Jack R. Manning
/s/
- -------------------------- Director August __, 1996
John F.X. Mannion
/s/ James V. O'Donnell
- -------------------------- Director August 13, 1996
James V. O'Donnell
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
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2.1 Agreement and Plan of Merger by and among AmVestors Financial
Corporation and AmVestors Acquisition Subsidiary, Inc. and FBG dated
September 8, 1995, Amendment No., 1 thereto dated October 17, 1995,
Amendment No. 2 thereto dated December 28, 1995, and Amendment No. 3
thereto dated February 14, 1996 (incorporated herein by reference to
Exhibit 2.1 to Registration Statement on Form S-4, File No.
333-01309 dated March 1, 1996.)*
4.1 Indenture dated July 12, 1996 between AmVestors Financial
Corporation and Boatmen's Trust Company (incorporated by reference
to Exhibit 4.1 to the Company Report on Form 8-K, dated August 13,
1996, File No. 0-15330).
4.2 Form of 3% Convertible Subordinated Debentures due 2003 (included in
Indenture incorporated by reference as Exhibit 4.1).
4.3 Registration Rights Agreement dated July 12, 1996 between AmVestors
Financial Corporation and The Robinson-Humphrey Company, Inc.
(incorporated by reference to Exhibit 4.3 to the Company Report on
Form 8-K, dated August 13, 1996, File No. 0-15330).
4.4 Purchase Agreement dated July 12, 1996 between AmVestors Financial
Corporation and purchasers of the 3% Convertible Subordinated
Debentures due 2003 (incorporated by reference to Exhibit 4.4 to
the Company Report on Form 8-K, dated August 13, 1996, File
No. 0-15330).
4.5 Custodial Agreement dated July 12, 1996 between Boatmen's Trust
Company and The Robinson-Humphrey Company, Inc. (incorporated by
reference to Exhibit 4.5 to the Company Report on Form 8-K, dated
August 13, 1996, File No. 0-15330).
4.6 Warrant Agreement by and between the Company and Boatmen's Trust
Company, as Warrant Agent (incorporated herein by reference to
Exhibit 4.3 to Registration Statement on Form S-4, File No. 333-
01309 dated March 1, 1996.)
4.7 Form of Warrant Certificate (incorporated herein by reference to
Exhibit 4.4 to Registration Statement on Form S-4, File No.
333-01309 dated March 1, 1996.)
4.8 AmVestors Financial Corporation 1989 Non-Qualified Stock Option Plan
(incorporated herein by reference to Exhibit 4.5 to Registration
Statement on Form S-4, File No. 333-01309 dated March 1, 1996.)
5.1 Opinion of Bryan Cave LLP.
23.1 Consent of Deloitte & Touche, LLP.
23.2 Consent of Deloitte & Touche, LLP.
23.3 Consent of Bryan Cave LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-4 hereof).
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of Boatmen's Trust Company.
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* The Company hereby agrees to furnish supplementally a copy of any omitted
schedules to this Agreement to the Securities and Exchange Commission upon its
request.
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