-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VBPpIo8tjlpPHKoIM95VYFoQvuWyGDFeuHS8sXZb7ByA/473HVqLxH2Y1ee9/X15 vfIk+7g1u7V2wI6LkLkP2g== 0000950134-96-006269.txt : 19961120 0000950134-96-006269.hdr.sgml : 19961120 ACCESSION NUMBER: 0000950134-96-006269 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19961114 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITIZENS INC CENTRAL INDEX KEY: 0000024090 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 840755371 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-16163 FILM NUMBER: 96666828 BUSINESS ADDRESS: STREET 1: P O BOX 149151 CITY: AUSTIN STATE: TX ZIP: 78714 BUSINESS PHONE: 5128377100 MAIL ADDRESS: STREET 1: P O BOX 149151 CITY: AUSTIN STATE: TX ZIP: 78714 FORMER COMPANY: FORMER CONFORMED NAME: CONTINENTAL INVESTORS LIFE INC DATE OF NAME CHANGE: 19881222 S-4 1 FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 1996 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------- CITIZENS, INC. (Exact name of registrant as specified in its charter) COLORADO 6311 84-0755371 (State or other jurisdiction of (Primary standard industrial (I.R.S. Employer incorporation or organization) classification code number) Identification No.)
400 EAST ANDERSON LANE AUSTIN, TEXAS 78752 (512) 837-7100 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) -------------------- HAROLD E. RILEY, CHAIRMAN OF THE BOARD 400 EAST ANDERSON LANE AUSTIN, TEXAS 78752 (512) 837-7100 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------------- COPIES TO: REID A. GODBOLT, ESQ. FRANK G. NEWMAN, ESQ. JONES & KELLER, P.C. NEWMAN & DAVENPORT, P.C. 1625 BROADWAY, SUITE 1600 2050 ALLIANZ FINANCIAL CENTRE LB135 DENVER, COLORADO 80202 2323 BRYAN STREET (303) 573-1600 DALLAS, TEXAS 75201 (214) 754-0025 -------------------- Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this Registration Statement If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. / / CALCULATION OF REGISTRATION FEE
====================================================================================================================== Title of each class of Amount to Proposed maximum Proposed Amount of securities to be be registered offering price maximum aggregate registration registered per share offering price fee - ---------------------------------------------------------------------------------------------------------------------- Class A Common Stock, 133,212(1) $9.00(2) $1,198,908(2) $364 No Par Value shares ======================================================================================================================
(1) Represents the maximum number of shares of the Registrant's Class A Common Stock to be issued in connection with the merger described herein. (2) Estimated pursuant to Rule 457. ================================================================================ 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. -------------------- 2 CITIZENS, INC. Cross-Reference Sheet For Registration Statement on Form S-4 and Prospectus-Proxy Statement
Form S-4 Item No. Item Caption Heading in Prospectus - --------- ------------ --------------------- 1 Forepart of Registration Statement Outside Front Cover and Outside Front Cover Page of Prospectus 2 Inside Front and Outside Back Cover Inside Front Cover; The Merger Pages of Prospectus 3 Risk Factors, Ratio of Earnings to Summary; Risk Factors; The Fixed Charges and Other Information Merger 4 Terms of the Transaction Summary; The Merger; Comparison of Rights of Securityholders; Certain Federal Income Tax Consequences 5 Pro Forma Financial Information Not applicable 6 Material Contacts with the Registrant Summary; The Merger 7 Additional Information Required for Not applicable Reoffering by Persons and Parties Deemed to be Underwriters 8 Interests of Named Experts and Not applicable Counsel 9 Disclosure of Commission Position Not applicable on Indemnification for Securities Act Liabilities 10 Information with Respect to S-3 Incorporation of Certain Documents Registrants by Reference; Risk Factors 11 Incorporation of Certain Information Incorporation of Certain Documents by Reference by Reference 12 Information with Respect to S-2 or Not applicable and S-3 Registrant 13 Incorporation of Certain Information Not applicable by Reference
ii 3 14 Information with Respect to Not applicable Registrants Other Than S-2 or S-3 Registrants 15 Information with Respect to S-3 Not applicable Companies 16 Information with Respect to S-2 or Not applicable S-3 Companies 17 Information with Respect to Summary; Business of First American; Companies Other than S-2 or Management's Discussion and S-3 Companies Analysis - First American 18 Information if Proxies, Consents Not applicable or Authorizations are to be Solicited 19 Information if Proxies, Consents or Summary; The Special Meeting Authorizations Are Not to be Solicited
iii 4 FIRST AMERICAN INVESTMENT CORPORATION 400 EAST ANDERSON LANE AUSTIN, TEXAS 78752 (512) 837-7100 _______, 1996 Dear Shareholder: Enclosed please find an Information Statement-Prospectus relating to approval by the holders of a majority of the outstanding shares of First American Investment Corporation Common Stock, $.001 par value ("First American Stock"), relating to (i) the sale of all or substantially all of the assets of First American Investment Corporation ("First American") to an unaffiliated third party pursuant to a Stock Purchase Agreement dated October 18, 1996 and (ii) an Agreement and Plan of Merger dated October 31, 1996 ("Merger Agreement") by and among First American, Citizens Insurance Company of American, Inc. (a wholly-owned subsidiary of Citizens, Inc. and referred to herein as "CICA") and CICA Acquisition, Inc. ("Acquisition," a wholly-owned subsidiary of CICA). Upon consummation of the Merger Agreement each outstanding share of First American Stock will be converted into .1111 shares of Citizens, Inc. Class A Common Stock as described in the Information Statement-Prospectus. The enclosed Information Statement-Prospectus provides a description of the proposed sale of assets and Merger, as well as information concerning First American and Citizens, Inc. The Board of Directors has unanimously approved the proposed sale of assets and the Merger Agreement. Your Board believes the proposed sale of assets and Merger Agreement and the consideration to be provided to the shareholders is fair and in the best interest of First American shareholders other than Citizens, Inc. and its subsidiaries. DISSENTING SHAREHOLDERS WHO COMPLY WITH THE PROCEDURAL REQUIREMENTS OF THE BUSINESS CORPORATION LAW OF LOUISIANA WILL BE ENTITLED TO RECEIVE PAYMENT OF THE FAIR CASH VALUE OF THEIR SHARES. A COPY OF PART XIII OF THE LOUISIANA BUSINESS CORPORATION LAW, WHICH SETS FORTH THE RIGHTS OF DISSENTERS IS ATTACHED TO THIS INFORMATION STATEMENT-PROSPECTUS AS APPENDIX C. ENCLOSED IS A LETTER OF TRANSMITTAL AND INSTRUCTIONS FOR SUBMISSION OF YOUR SHARE CERTIFICATES. SHAREHOLDERS WHO PLAN TO DISSENT FROM THE MERGER SHOULD NOT SUBMIT THEIR CERTIFICATES WITH THE LETTER OF TRANSMITTAL. Very truly yours, /s/ Harold E. Riley Harold E. Riley President and Chairman of the Board Enclosures 5 FIRST AMERICAN INVESTMENT CORPORATION ---------- NOTICE OF ACTION BY HOLDERS OF 94.5% OF THE SHARES OF COMMON STOCK, $.001 PAR VALUE ON NOVEMBER 5, 1996 NOTICE IS HEREBY GIVEN that pursuant to Louisiana law, 94.5% of the holders of record of shares as of November 5, 1996 owning the $.001 par value common stock ("First American Stock"), entitled to vote have approved (i) a Stock Purchase Agreement dated October 18, 1996 by and between First American Investment Corporation ("First American") and Funeral Services International, Inc. ("Funeral Services"), attached hereto as Appendix B, under which Funeral Services will acquire all of the outstanding stock of a wholly-owned subsidiary of First American, Funeral Homes of Louisiana, Inc. ("Funeral Homes"), such agreement providing for the sale of all or substantially all of the assets of First American outside the ordinary course of business and (ii) an Agreement and Plan of Merger dated October 31, 1996 ("Merger Agreement") by and among First American, Citizens Insurance Company of American, Inc. (a wholly-owned subsidiary of Citizens, Inc. referred to herein as "CICA") and CICA Acquisition, Inc. ("Acquisition," a wholly-owned subsidiary of CICA). Upon consummation of the Merger, each outstanding share of First American Stock (other than shares held by Citizens, Inc., CICA, First American, and their subsidiaries) will be converted into .1111 shares of Citizens, Inc. Class A Common Stock, no par value ("Citizens Class A Stock"), as described in the Information Statement-Prospectus. No fractional shares of Citizens Class A Stock will be issued in the Merger; rather, share fractions will evidence the right to receive a cash value of $9.00 per share per fractional share of Citizens Class A Stock. ---------- NO PROXY IS BEING SOLICITED HEREBY AND YOU ARE NOT REQUESTED TO SEND A PROXY. ---------- 2 6 FIRST AMERICAN INVESTMENT CORPORATION INFORMATION STATEMENT ---------- CITIZENS, INC. PROSPECTUS CLASS A COMMON STOCK, NO PAR VALUE UP TO 133,212 SHARES ---------- This Information Statement-Prospectus is furnished by the Board of Directors of First American Investment Corporation ("First American") to holders of shares of First American Common Stock, $.001 par value ("First American Stock"), in connection with the sale of all or substantially all of the assets of First American to an unaffiliated party, through a Stock Purchase Agreement, and with the Merger Agreement as discussed below. This Prospectus pertains to the number of shares of Class A Common Stock, no par value ("Citizens Class A Stock"), of Citizens, Inc. ("Citizens") to be issued in connection with an Agreement and Plan of Merger dated October 31, 1996 ("Merger Agreement") by and among First American, Citizens Insurance Company of America, Inc. (a wholly-owned subsidiary of Citizens referred to herein as "CICA") and CICA Acquisition, Inc. ("Acquisition," a wholly-owned subsidiary of CICA). Upon consummation of the Merger, each outstanding share of First American Stock will be converted into .1111 shares of Citizens Class A Stock, as described in this Information Statement-Prospectus, and Acquisition will be merged into First American, with First American becoming a wholly-owned subsidiary of CICA. No fractional shares of Citizens Class A Stock will be issued in the Merger; rather, share fractions will evidence the right to receive a cash value of $9.00 per share per fractional share of Citizens Class A Stock. The approximate date of mailing of this Information Statement-Prospectus to shareholders of First American is __________, 1996. ------------- This Information Statement-Prospectus and the material which accompany it were mailed to First American shareholders on or about _________, 1996. ------------- The Citizens Class A Stock is listed on the American Stock Exchange under the symbol "CIA." On _________, 1996, the closing price of Citizens Class A Stock was $_______ per share. ------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORY AUTHORITY OF ANY STATE, NOR HAS THE COMMISSION OR ANY STATE REGULATORY AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------- AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES SIGNIFICANT RISKS. SEE "RISK FACTORS." ------------- No person is authorized to give any information or to make any representation not contained in this Information Statement-Prospectus, and if given or made, such information or representation should not be relied upon as having been authorized. This Information Statement-Prospectus does not constitute an offer to exchange or sell, or a solicitation of an offer to exchange or purchase, the securities offered 3 7 hereby, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. Neither the delivery of this Information Statement-Prospectus nor any distribution of the securities to which this Information Statement-Prospectus relates shall, under any circumstances, create an implication that there has been no change in the affairs of Citizens, CICA, Acquisition, or First American. This Information Statement-Prospectus does not cover any resales of shares of the securities offered hereby to be received by shareholders of First American upon consummation of the Merger Agreement. No person is authorized to use this Information Statement-Prospectus in connection with such resales, although such securities may be traded without use of this Information Statement-Prospectus by those shareholders of First American not deemed to be "affiliates" of either First American or Citizens. ------------- The principal executive offices of First American, Citizens, CICA and Acquisition are located at 400 East Anderson Lane, Austin, Texas 78752, telephone (512) 837-7100. ------------- The date of this Information Statement-Prospectus is ___________, 1996. 4 8 TABLE OF CONTENTS
PAGE ---- AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . 8 SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 The Parties to the Merger . . . . . . . . . . . . . . . . . . . . 11 Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . 11 Consideration of the Merger by the First American Board . . . . . 11 Consideration of the Merger by the Citizens Board . . . . . . . . 12 Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . 12 Comparative Rights of Shareholders . . . . . . . . . . . . . . . . 12 The Parties to the Stock Exchange Agreement . . . . . . . . . . . 12 The Stock Purchase Agreement - Sale of Substantially All of the Assets of First American . . . . . . . . . . . . . 13 Market Prices . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 14 RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 FIRST AMERICAN VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF . . . . . . 19 THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Background and Reasons for the Merger . . . . . . . . . . . . . . 20 Consideration of the Merger by the First American Board . . . . . 20 Consideration of the Merger by the Citizens Board . . . . . . . . 21 Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . 21 Stock Exchange Listing . . . . . . . . . . . . . . . . . . . . . . 22 Terms of the Merger Agreement . . . . . . . . . . . . . . . . . . 22 Receipt of Citizens Shares . . . . . . . . . . . . . . . . . . . . 22 Other Conditions to Consummation of the Merger . . . . . . . . . . 22 Termination or Amendment of the Merger Agreement . . . . . . . . . 23 Expenses and Liability for Termination . . . . . . . . . . . . . . 23 Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . 23 INFORMATION CONCERNING CITIZENS . . . . . . . . . . . . . . . . . . . . . . 26 CERTAIN SECURITY OWNERSHIP OF CITIZENS . . . . . . . . . . . . . . . . . . 27 MANAGEMENT OF CITIZENS . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . 31 Executive Officer and Director Compensation . . . . . . . . . . . 32 BUSINESS OF FIRST AMERICAN . . . . . . . . . . . . . . . . . . . . . . . . 34 MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - FIRST AMERICAN . . . . . . . . . . . 35 Results of Operations . . . . . . . . . . . . . . . . . . . . . . 35
5 9 Six Months ended June 30, 1996 and 1995 . . . . . . . . . 35 Three Months ended June 30, 1996 and 1995. . . . . . . . . 35 Liquidity and Capital Resources . . . . . . . . . . . . . . . . . 35 COMPARISON OF RIGHTS OF SECURITYHOLDERS . . . . . . . . . . . . . . . . . . 37 Authorized Shares . . . . . . . . . . . . . . . . . . . . . . . . 37 Dividend Rights . . . . . . . . . . . . . . . . . . . . . . . . . 37 Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . 38 Liability of Directors . . . . . . . . . . . . . . . . . . . . . . 38 Liquidation Rights . . . . . . . . . . . . . . . . . . . . . . . . 38 CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . 39 SOURCE OF CITIZENS SHARES . . . . . . . . . . . . . . . . . . . . . . . . . 40 EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . 41 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES . . . . . . 41
6 10 AVAILABLE INFORMATION Citizens is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith file reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). Those reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC at the 13th Floor, 7 World Trade Center, New York, New York 10048, and Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such materials can be obtained at prescribed rates from the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Also, the SEC maintains a worldwide web site that contains such materials of Citizens at "http://www.sec.gov." In addition, such reports, proxy statements and other information concerning Citizens may be inspected at the offices of the American Stock Exchange, 86 Trinity Place, New York, New York 10006-1881. Citizens has filed with the SEC a Registration Statement on Form S-4 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the shares of Citizens Class A Stock to be issued in connection with the transactions described herein. This Information Statement-Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. For further information with respect to Citizens and the Citizens stock, reference is made to the Registration Statement, including the exhibits thereto. Statements contained herein concerning the provisions of certain documents are not necessarily complete, and in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the SEC. Each such statement is qualified in its entirety by such reference. 7 11 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, which have been filed by Citizens with the SEC pursuant to the Exchange Act (File No. 0-16509), are incorporated by reference into this Information Statement-Prospectus and are deemed to be a part hereof: (a) Citizens' Annual Report on Form 10-K for the year ended December 31, 1995; (b) the description of the Citizens' Class A Common Stock contained in its Registration Statement on Form 8-A declared effective by the SEC on April 14, 1994; and (c) Citizens' Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 1996. All documents filed by Citizens pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Information Statement-Prospectus, and until the later of consummation or termination of the Merger, shall be deemed to be incorporated by reference into this Information Statement-Prospectus and to be part hereof from the date of the filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein will be deemed to be modified or superseded for purposes of this Information Statement-Prospectus to the extent that a statement contained herein or in any subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed to constitute a part of this Information Statement-Prospectus, except as so modified or superseded. THIS INFORMATION STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS (EXCLUDING EXHIBITS THERETO, UNLESS SUCH EXHIBITS ARE INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE TO EACH PERSON TO WHOM THIS PROSPECTUS IS SENT, UPON WRITTEN OR ORAL REQUEST. REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO MARK A. OLIVER, SECRETARY, FIRST AMERICAN INVESTMENT CORPORATION, 400 EAST ANDERSON LANE, AUSTIN, TEXAS 78752. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY ___________, 1996. NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT-PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CITIZENS OR FIRST AMERICAN. THIS INFORMATION STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS INFORMATION STATEMENT-PROSPECTUS NOR ANY EXCHANGE OR SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CITIZENS OR FIRST AMERICAN SINCE THE DATE AS OF WHICH INFORMATION IS FURNISHED OR THE DATE HEREOF. 8 12 SUMMARY The following is a summary of certain information contained elsewhere in this Information Statement-Prospectus. Reference is made to, and this Summary is qualified in its entirety by, the more detailed information contained elsewhere in this Information Statement-Prospectus, the exhibits hereto and, the documents incorporated by reference herein. Each holder of First American Stock should read carefully this Information Statement-Prospectus and the appendix hereto in their entirety. THE PARTIES TO THE MERGER Citizens Insurance Company of America, Inc. ("CICA"), a Colorado corporation, is a wholly-owned subsidiary of Citizens, Inc. ("Citizens"), a Colorado corporation. CICA is an insurance company. Citizens is an insurance holding company. The principal executive offices of CICA and Citizens are located at 400 East Anderson Lane, Austin, Texas 78752, and the telephone number at such office is (512) 837-7100. CICA Acquisition, Inc. ("Acquisition," a wholly-owned subsidiary of CICA) and was formed solely to effectuate the Merger. Acquisition has the same principal executive office as Citizens. First American is a Louisiana corporation which acts as a holding company of a subsidiary engaged in the operation of a funeral home in Louisiana. As used herein the term "First American" refers to First American Investment Corporation and its subsidiaries, unless the context otherwise requires. The principal executive offices of First American are located at 400 East Anderson Lane, Austin, Texas 78752, and its telephone number at that address is (512) 837-7100. THE MERGER AGREEMENT SUMMARY OF THE MERGER CICA, Acquisition and First American have entered into an Agreement and Plan of Merger dated October 31, 1996 ("Merger Agreement") in which Acquisition will merge with and into First American and First American shareholders (other than First American, Citizens, CICA, Acquisition, and their subsidiaries) will receive shares of Citizens Class A Stock (the "Merger"). CONSIDERATION FOR EACH SHARE OF FIRST AMERICAN Pursuant to the Merger Agreement, First American shareholders will receive .1111 shares of Citizens Class A Stock for each one share of First American Stock held. Fractional shares will not be issued in the Merger; rather, such fractional shares shall evidence the right to receive a cash value per fractional share of Citizens Class A Stock equal to $9.00 per share. See "The Merger--Receipt of Citizens Shares." 9 13 CLOSING DATE The Merger Agreement provides that the actions contemplated thereby will be completed at closing ("Closing") on a closing date ("Closing Date") which shall be as soon as possible after First American shareholder approval is obtained and shall become effective on or as soon as possible after the Closing Date. It is anticipated that the Closing will occur and the Merger will be effective on or shortly after shareholder approval is obtained. DISSENTERS' RIGHTS Under the Louisiana Business Corporation Law, shareholders of First American have the right to dissent from the Merger and demand payment of the value of their shares in cash. See "Rights of First American Dissenting Shareholders To Receive Payment For Shares" and Appendix C which sets forth the relevant Louisiana statutes concerning rights of dissenting shareholders. CONDITIONS PRECEDENT TO THE MERGER The Merger is subject to the satisfaction of a number of conditions including (1) the performance by each party of its respective obligations under the Merger Agreement, (2) the absence of any legal proceedings relating to the transactions contemplated by the Merger Agreement, and (3) the continued material accuracy of representations made by each party. See "The Merger--Other Conditions to Consummation of the Merger." CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO Citizens believes that the HOLDERS OF FIRST AMERICAN STOCK following federal income tax consequences are expected to result from the Merger: (1) each First American shareholder will recognize gain or loss upon the receipt by him or her of shares of Citizens Class A Stock in exchange for his or her shares of First American Stock pursuant to the Merger. Such gain or loss will be capital gain or loss, provided that such shares of First American Stock are held as a capital asset at the time of the consummation of the Merger, and would be long-term capital gain or loss if the First American Stock had been held for longer than one year; and (2) a shareholder's basis in the Citizens Class A Stock received pursuant to the Merger will be the fair market value of the Citizens Class A Stock on the date of the Merger, and the shareholder's holding period for such shares will begin on such date. See "Certain Federal Income Tax Consequences." REGULATORY APPROVALS Citizens is not aware of any federal or state regulatory approvals required in connection with the Merger. 10 14 ACCOUNTING TREATMENT The Merger will be accounted for as a "purchase" transaction for accounting and financial reporting purposes. REASONS FOR THE MERGER First American was incorporated under Louisiana law in November 1984. It conducted no operations until the late 1980's, when it determined to undertake a public offering of its stock on an intrastate basis only in Louisiana. The purpose of the offering was to organize and finance two funeral home subsidiaries and a Louisiana life insurance company. Through December 31, 1995, 1,197,900 shares of First American Stock had been issued pursuant to the public offering. No efforts were made to continue to sell the public offering after that time. In 1992, First American began its funeral home operations through a subsidiary with the construction of its only funeral home. First American was unable to raise sufficient capital to form an insurance subsidiary or commence operating a second funeral home. Virtually all of the shareholders of First American who bought First American Stock in its public offering are the shareholders to whom the Citizens Class A Stock will be received in the Merger. The funeral operations of First American have resulted in continuous losses since operations began in 1992. In 1994 and 1995 funeral home revenues were approximately $259,000 and $273,000, respectively, and the net loss from operations in each year was approximately $118,000. In September 1995, the parent of First American, American Liberty Financial Corporation, was acquired by Citizens. At that time, all of the officer and director positions of First American were filled by officers and directors of Citizens. Thereafter, Citizens conducted an in depth review of the operations of First American. Citizens believes that First American, after several years of losses in the funeral home business and without significant prospects for growth, should wind up its business. In this regard, the Stock Purchase Agreement with Funeral Services was executed. However, Citizens desires to extend the opportunity to First American shareholders to participate in the ongoing ownership of Citizens through ownership of Citizens Class A Stock. Accordingly, Citizens determined to propose the Merger, under which it would, through a subsidiary, acquire approximately 5.5% of First American Stock held by persons other than Citizens or its subsidiaries. There is no trading market for the First American Stock. Citizens Class A Stock is traded on the American Stock Exchange. CONSIDERATION OF THE MERGER BY THE FIRST AMERICAN BOARD The terms of the Merger reflect negotiations between the Citizens Board and the First American Board. It should be noted that all of the First American Board members are also either directors or full-time employees of Citizens and, therefore, are faced with conflicts of interest in their decision to recommend the Merger. See "Conflicts of Interest" below. The First American Board has been advised by independent legal counsel but has not retained an independent investment banking firm with respect to deliberations concerning the Merger. Notwithstanding the foregoing, the First American Board has determined that the Merger is fair and to the best interests of First American shareholders (other than Citizens and its subsidiaries). In reaching its determination, the First American Board considered numerous factors, including, in particular, the near and future term prospects of First American, including the potential liquidation value of First American, the lack of outside financing alternatives available to First American, the history of losses 11 15 of First American, the nondiversification of the business of First American and the lack of any trading market for the First American Stock. The First American Board believes that the proposed consideration to be paid by Citizens is substantially in excess of a liquidation or going concern value of First American and substantially greater in value than any other potential offer to acquire First American because the value of $1.00 per share for First American Stock proposed to be purchased is substantially greater than any reasonable value that could be achieved for First American. For example, the book value per share of First American Stock as of June 30, 1996 was approximately $.02 per share. Also, assuming the sale of the stock of Funeral Homes is completed, the book value per share of First American Stock will not increase significantly. The First American Board did not attach a relative weight to the factors it considered in reaching its decision but, considering all factors discussed herein, determined that the Merger is fair to and in the best interests of the First American shareholders. See "The Merger--Consideration of the Merger by the First American Board." CONSIDERATION OF THE MERGER BY THE CITIZENS BOARD The Board of Directors of Citizens (the "Citizens Board") has concluded that the Merger is the appropriate mechanism for accomplishing the proposed acquisition of the shares of First American that Citizens or its subsidiaries does not own. The Merger affords First American shareholders the opportunity to maintain an ownership interest in Citizens through the ownership of a security with substantially greater liquidity. At present, there is virtually no market for First American Stock. The Citizens Board believes that the Merger will provide First American shareholders consideration approximately in equal value to the purchase price of their investment in the public offering of First American. See "The Merger--Background and Reasons for the Merger." CONFLICTS OF INTEREST The terms of the Merger were negotiated between the Citizens Board and the First American Board and the exchange ratio was finalized at .1111 per share. Citizens has fiduciary duties to the public shareholders of First American that conflict with the duties of the Citizens Board to Citizens and its shareholders. The First American Board members who are also affiliates of Citizens have conflicts of interest with regard to their obligations to the shareholders of Citizens and First American. See "The Merger--Conflicts of Interest." COMPARATIVE RIGHTS OF SHAREHOLDERS The rights of First American shareholders are currently governed by Louisiana law, the First American Articles of Incorporation and the Bylaws of First American. First American shareholders will become shareholders of Citizens pursuant to the Merger. The rights of Citizens shareholders are governed by Colorado law, the Citizens Articles of Incorporation, as amended, and the Bylaws of Citizens. There are various differences between the rights of First American shareholders and the rights of Citizens shareholders, including, among others, dividend rights and voting rights. See "Description of First American Stock--Comparison with Rights of Citizens Class A Stock." THE PARTIES TO THE STOCK EXCHANGE AGREEMENT First American is a Louisiana corporation which acts as a holding company of a subsidiary engaged in the operation of a funeral home in Louisiana. As used herein the term "First American" refers to First American Investment Corporation and its subsidiaries, unless the context otherwise requires. The principal executive offices of First American are located at 400 East Anderson Lane, Austin, Texas 78752, and its telephone number at that address is (512) 837-7100. 12 16 Funeral Services International, Inc. ("Funeral Services") is a Louisiana corporation recently formed to engage in the business of acting as the home operator. Funeral Services is not affiliated with First American, Citizens, CICA, or any of their affiliates. Funeral Services is owned by L. Roth ("Roth") and Eddie McCallum ("McCallum") of whom have been involved in the management and operation of the business of First American. THE STOCK PURCHASE AGREEMENT - SALE OF SUBSTANTIALLY ALL OF THE ASSETS OF FIRST AMERICAN The Stock Purchase Agreement dated October 18, 1996 is by and between First American and Funeral Services and is attached hereto as Appendix B. First American owns all of the outstanding capital stock of Funeral Homes and Funeral Services desires to purchase Funeral Homes. The agreed upon purchase price is $700,000 which will consist of payment in full of the existing mortgage on the funeral homes of Funeral Homes (which as of June 30, 1996 was approximately $80,000, along with a cash payment of approximately $620,000). The closing of the Stock Purchase Agreement is anticipated to occur no later than December 16, 1996. The Board of First American determined that the offer for the stock of Funeral Homes is fair and reasonable and in the best interests of First American and its shareholders. MARKET PRICES Citizens Class A Stock is traded on the American Stock Exchange ("AMEX") under the symbol "CIA." The high and low prices per share as supplied by the AMEX Monthly Statistical Report are as follows. Prior to April, 1994, Citizens Class A Stock was traded over the counter on the Nasdaq National Market System and the prices were supplied by the NASDAQ Monthly Statistical Report.
1996 1995 1994 --------------- ---------------- ---------------- QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW ----- ----- ----- ----- ----- ----- March 31 $9.25 $8.25 $9.25 $7.13 $8.00 $7.75 June 30 8.94 5.13 9.69 8.25 8.25 8.12 September 30 8.13 5.88 15.63 7.25 8.38 7.63 December 31 -- -- 9.88 8.06 9.13 7.63
As of October 31, 1996, the approximate number of record owners of Citizens Class A Stock was 15,000. Citizens has not paid a cash dividend and does not expect to pay cash dividends in the foreseeable future. There is no trading market for the First American Stock. 13 17 SELECTED FINANCIAL DATA The tables below set forth, in summary form, selected financial data of Citizens and First American. This data, which is not covered in the report of the independent auditors, should be read in conjunction with the consolidated financial statements and notes which are included elsewhere herein (amounts in thousands except per share amounts). CITIZENS, INC. (in thousands, except per share amounts)
Six Months Ended June 30, 1996 1993 1992 1991 (Unaudited) 1995 1994 (As Restated) (As Restated) (As Restated) ------------ ----------- ----------- ------------ ------------ ------------ NET OPERATING REVENUES $ 29,180 $ 53,271 $ 49,157 $ 42,761 $ 33,134 $ 27,086 NET INCOME $ 666 $ 2,750 $ 4,175 $ 5,526 $ 3,907 $ 4,720 NET INCOME PER SHARE $ 0.04 $ .16 $ .25 $ .34 $ .24 $ .31 TOTAL ASSETS $ 208,953 $ 205,486 $ 149,798 $ 134,105 $ 116,230 $ 76,482 TOTAL LIABILITIES $ 143,265 $ 140,773 $ 114,742 $ 106,090 $ 93,442 $ 63,282 TOTAL SHAREHOLDERS' EQUITY $ 65,688 $ 64,713 $ 35,056 $ 28,015 $ 22,787 $ 13,083 BOOK VALUE PER SHARE $ 3.26 $ 3.24 $ 1.99 $ 1.68 $ 1.37 $ .83
FIRST AMERICAN INVESTMENT CORPORATION (in thousands, except per share amounts)
Six Months Ended June 30, 1996 (Unaudited) 1995 1994 1993 ------------- ----------- ----------- ----------- NET OPERATING REVENUES $ 177 $ 216 $ 195 $ 238 NET INCOME (LOSS) $ 35 $ (171) $ (155) $ (47) NET INCOME (LOSS) PER SHARE $ 0.002 $ (0.01) $ (0.01) $ (0.002) TOTAL ASSETS $ 1,115 $ 1,078 $ 1,316 $ 1,401 TOTAL LIABILITIES $ 652 $ 649 $ 717 $ 647 TOTAL SHAREHOLDERS' EQUITY $ 463 $ 429 $ 599 $ 754 BOOK VALUE PER SHARE $ 0.02 $ 0.02 $ 0.03 $ 0.04
14 18 RISK FACTORS The following risk factors, in addition to those discussed elsewhere in this Information Statement-Prospectus, should be considered carefully in evaluating Citizens and its business. SIGNIFICANT MARKET OVERHANG. A registration statement of Citizens on Form S-3 with the SEC is in effect relating to the public offer and sale by certain holders of Citizens Class A Stock, including Harold E. Riley, Chairman of the Board of Citizens. The registration statement relates to approximately 6,099,657 shares of Class A Common Stock or approximately 30% of the Citizens Class A Stock outstanding. It may be assumed that sales of significant amounts of these shares in the public market could have a depressive effect on the price of the Citizens Class A Stock. Further, the prospect, even without the actual sales, of such significant amounts of shares being offered into the public market place may have a depressive effect on the price of the Citizens Class A Stock. SALE OF SHARES AND EFFECT THEREOF. On October 27, 1994, Citizens completed an offering of 916,375 shares of its Class A Stock under an exemption from registration under the Securities Act of 1933. The offering was made under Regulation S, which generally provides that shares which are offered outside of the United States to non-United States persons pursuant to certain specific guidelines may be resold in the United States by persons who are not an issuer, underwriter or dealer following the expiration of a 40-day period after the close of the offering period. The offering price per share was $7.00. Gross proceeds raised were $6,414,625 and net proceeds were approximately $5,400,000. On December 21, 1994, Citizens contributed $5,200,000 in capital to its wholly-owned life insurance subsidiary. The subsequent resale of the Citizens Class A Stock sold in this offering into the public market could adversely affect the price of the Citizens Class A Stock and it may be assumed that overseas investors would have more of an incentive to sell their Class A common shares because the price they paid for such stock was $7.00 per share. PROPOSED OFFERING OF 3,500,000 SHARES OF CITIZENS CLASS A STOCK OUTSIDE THE UNITED STATES AND EFFECT THEREOF. In May 1995, Citizens began an offering of up to 3,500,000 shares of Class A Stock outside the United States pursuant to a safe harbor rule relating to an exemption from registration under the Securities Act of 1933. Citizens has restricted the transfer of such shares for a period of three years following the initial purchase, and a legend to such effect will be placed on each certificate for such shares. The offering price is $7.50 per share. Management is unable to determine how successful the offering will be. As of June 30, 1996, 125,450 shares had been sold with gross proceeds of approximately $940,875. Subsequent resale of these shares in the United States could have a depressive effect upon the price of the Class A common shares, and it may be assumed that overseas investors would have more of an incentive to sell their Class A common shares because the price they paid for such stock will probably be lower than the trading price of the Class A Common Stock. ACQUISITION. On September 14, 1995, Citizens acquired First American, a Baton Rouge, Louisiana based life insurance holding company, and former parent of First American. Under the First American agreement, First American shareholders received 1.10 shares of Citizens Class A Stock for each share of First American Stock owned and 2.926 shares of Citizens Class A Stock for each share of First American Preferred Stock owned. Citizens issued approximately 2.3 million Class A shares in connection with the transaction, which was accounted for as a purchase. The subsequent sale of shares issued in this transaction could have a depressive effect on the market price of the Class A shares. DEPENDENCE ON CITIZENS' CHAIRMAN. Citizens relies heavily on the active participation of its Chairman of the Board, Harold E. Riley. The loss of Mr. Riley's services would likely create a significant adverse effect on Citizens. Citizens does not have an employment agreement with Mr. Riley, but does have "key man" life 15 19 insurance on him totaling $1.25 million of which Citizens is the beneficiary. Citizens has no disability insurance regarding Mr. Riley. CONTROL. The shares of outstanding Citizens Class B Common Stock ("Citizens Class B Stock"), 100% of which is owned indirectly by Harold E. Riley, Chairman of the Board of Citizens (through the Harold E. Riley Trust), have the right to elect a simple majority of the Board of Directors of Citizens. This right may make it more difficult and time consuming for a third party to acquire control of Citizens or to change the Board of Directors of Citizens. Additionally, Mr. Riley is the largest Class A shareholder. As a practical matter, Mr. Riley has veto power over significant corporate transactions. INABILITY TO ELECT DIRECTORS. The Citizens Class A Stock being offered hereby represents a minority interest in Citizens. As cumulative voting of shares is not permitted by the Articles of Incorporation of Citizens, the minority shareholders of Citizens cannot through their votes alone elect any of Citizens' directors or otherwise control Citizens. Also, the Citizens Class B Stock elects a simple majority of the Citizens' Board. Therefore, as a practical matter, control of Citizens lies outside the Class A shareholders. See "Comparison of Rights of Security Holders." CONCENTRATION OF BUSINESS FROM PERSONS RESIDING IN THIRD WORLD COUNTRIES. For the years ended December 31, 1995 and 1994, approximately 92.0% and 91.8%, respectively, of Citizens' total insurance premium revenue was derived from policies issued on the lives of Latin Americans. The policies issued to such persons are ordinary, whole-life policies with an average face amount of $60,000 and are marketed by independent marketing firms primarily to heads of households which are in the top 3% to 5% income bracket of such countries. Virtually all of the new business of Citizens' present life insurance subsidiary comes from Latin America as well. There is a risk of loss of a significant portion of sales to Latin Americans should adverse events occur in the countries from which Citizens receives applications. To minimize inherent risk, Citizens is not chartered as an insurance company in any foreign country, maintains no assets or employees in foreign countries, accepts only applications and premiums remitted directly to its main office in United States currency drawn on U.S. banks, and includes various limitations to coverage which are designed to minimize exposure to loss caused by social, economic and political conditions. Citizens is not aware of any adverse trends in these countries which would have a material adverse impact on Citizens' business. Furthermore, management believes that political or economic instability in these countries would likely have a favorable impact on Citizens' business since such instability would generally strengthen the demand for U.S. dollar-denominated policies. NO DIVIDENDS. To date, Citizens has not paid cash dividends in respect of its common stock and its current policy is to retain earnings for use in the operations and expansion of its business. Hence, it is highly unlikely that cash dividends will be paid in the near future. Also, the Citizens Class A Stock has a right to twice the cash dividends of the Citizens Class B Stock. Because the Class B shareholders control Citizens, there is little economic incentive for the Class B shareholders to determine that cash dividends should be paid when they will receive only one-half of the per share cash dividends of the Class A common shares, except that the beneficiaries and trustee of the Harold E. Riley Trust, which holds the Citizens Class B Stock, are also the largest holders of Citizens Class A Stock. PERSISTENCY. Persistency is the extent to which policies sold remain in-force. Policy lapses over those actuarially anticipated could have an adverse effect on the financial performance of Citizens. Policy sales costs are deferred and recognized over the life of a policy. Excess policy lapses, however, cause the immediate expensing or amortizing of deferred policy sales costs. As long as Citizens maintains its lapse and surrender rate within its pricing assumptions for its insurance policies, Citizens believes that its present lapse and surrender rate should not have a material adverse effect on its financial results. For the years ended December 31, 1995, 1994 and 1993, the Citizens' lapse ratio on ordinary business was 5.1%, 6.7% and 6.5%, respectively. 16 20 COMPETITION. The life insurance business is highly competitive and consists of a number of companies, many of which have greater financial resources, longer business histories, and more diversified lines of insurance coverage than Citizens. Such companies also generally have larger sales forces. Citizens also faces competition from companies located within foreign countries that conduct marketing in person and have direct mail sales campaigns. Citizens may be at a competitive disadvantage in competing with these entities although management believes the products of Citizens purchased by its policyholders are competitive in the marketplace. Competition in the market in which Citizens competes is from three sources. First, Citizens competes with companies which are formed and operated within a particular country. These types of companies are subject to risks of currency fluctuations and generally use mortality tables which are based on the experience of the local population as a whole. As a result, their prospects of providing an economic return to policyholders are more uncertain than for U.S. dollar-based policies, and their statistical cost of insurance is much higher than Citizens because they use mortality tables that are based on significantly shorter life spans than those that Citizens uses. The second source of competition is from companies which are not formed within a given country but are using local currencies. Again, the use of local-based currencies entails greater risks of uncertainty, due to fluctuations of local currencies and perceived instability and weakness of local currencies. Management has observed that these first two types of companies tend to sell universal life and annuities versus whole life, which is the predominant type of life insurance sold by Citizens. Finally, Citizens faces competition from companies which operate in the same mode as Citizens. Management believes that Citizens' competitive advantages include a history of performance, its sales force and its product, which has consistently paid a cash dividend on the policies issued. REGULATION. Insurance companies are subject to comprehensive regulation in the jurisdictions in which they do business under statutes and regulations administered by state insurance commissioners. Such regulation relates to, among other things, prior approval of the acquisition of a controlling interest in an insurance company; standards of solvency which must be met and maintained; licensing of insurers and their agents; nature of and limitations on investments; deposits of securities for the benefit of policyholders; approval of policy forms and premium rates; triennial examinations of insurance companies; annual and other reports required to be filed on the financial condition of insurers or for other purposes; and requirements regarding reserves for unearned premiums, losses and other matters. Citizens is subject to this type of regulation in any state in which it is licensed to do business. Such regulation could involve additional costs and restrict operations. Citizens is currently subject to regulation in Colorado under the Colorado Insurance Holding Company Act. Intercorporate transfers of assets and dividend payments from Citizens' life insurance subsidiaries are subject to prior notice and approval if they are deemed "extraordinary" under these statutes. Citizens is required under Colorado insurance laws to file detailed annual reports with the Colorado Division of Insurance and all of the states in which it is licensed. The business and accounts of life insurance subsidiaries of Citizens are subject to examination by the Colorado Division of Insurance. The most recent triennial examination of Citizens' life insurance subsidiary was for the year ended December 31, 1994, although Citizens has been advised by the Colorado Division of Insurance that an examination as of December 31, 1996 will commence in early 1997. Citizens is currently not subject to regulation in the various countries in which its independent agents sell insurance policies, because it provides persons insurance that is not available in the country in which such persons reside and does not conduct business in such countries. However, there can be no assurance that such lack of regulation will continue. Management is not able to predict the effect of any such regulation of the business of Citizens. UNINSURED CASH BALANCES. Citizens maintains average cash balances in its primary depository, Texas Commerce Bank, Austin, Texas, that are significantly in excess of Federal Deposit Insurance Corporation coverage. If this depository were to cease business, Citizens would likely lose a substantial 17 21 amount of its cash. At September 30, 1996, Citizens had approximately $3 million in Texas Commerce Bank. However, management monitors the solvency of all depositories and does not believe a material risk of loss exists since both institutions are currently above the federally mandated levels of capital and liquidity. Management utilizes short-term U.S. Treasury securities as well as top-rated commercial paper issues as vehicles for managing temporary excess cash balances, and expects to continue the practice during 1996. INTEREST RATE VOLATILITY; INVESTMENT SPREAD RISKS. Profitability in the insurance industry is affected by fluctuations in interest rates. Of prime importance in achieving profitability is an insurance company's ability to invest premiums at a higher interest rate than the interest rate credited to existing policies. Rapid decreases or increases in interest rates may affect an insurance company's ability to maintain a positive spread between the yield on invested assets and the assumed interest rate credited to policy reserves. Rapid interest rate changes could cause increased lapses of policies in-force, although management believes the effect of such rate changes would be minimal since Citizens does not issue interest sensitive or universal life insurance policies and has only a small block of annuity business. 18 22 FIRST AMERICAN VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF The following table sets forth, as of the date of this Information Statement-Prospectus, the shares of First American Stock held by each person who is known to First American to be the beneficial owner of more than 5% of the First American Stock.
Name and Address Amount and Nature of Percent Title of Class of Beneficial Owner Beneficial Ownership of Class - -------------- ------------------- --------------------------------- -------- Common Stock, Citizens, Inc. Beneficial(1) 20,500,000 94.5% $.001 par value 400 East Anderson Lane Austin, Texas 78752 - ----------
(1) Held of record by CICA, a wholly-owned subsidiary of Citizens. 19 23 THE MERGER BACKGROUND AND REASONS FOR THE MERGER First American was incorporated under Louisiana law in November 1984. It conducted no operations until the late 1980's, when it determined to undertake a public offering of its stock on an intrastate basis only in Louisiana. The purpose of the offering was to organize and finance two funeral home companies and a Louisiana life insurance company. In 1989 First American, through a subsidiary, opened its first funeral home, which has incurred losses in each year of operations. Through December 31, 1995, 1,198,900 shares of First American Stock had been issued in the First American public offering. No efforts were made afterwards to sell more stock in the offering. First American did not raise sufficient capital to form an insurance subsidiary. The funeral operations in 1994 and 1995 resulted in sales of $259,000 and $273,000, respectively, but also resulted in net losses from operations in each of those two years of approximately $118,000. In September 1995, the parent of First American, American Liberty Life Insurance Company, was acquired by Citizens. Thereafter, Citizens conducted an in depth review of the operations of First American. Citizens believes that after several years in the funeral home business without significant prospects for growth, and therefore, achievement of net income, that the funeral business of First American is uneconomic and should be liquidated. First American recently entered into an agreement to sell Funeral Homes to an unaffiliated party. See "Summary--The Stock Purchase Agreement - Sale of Substantially All of the Assets of First American." However, Citizens would like to offer the opportunity to shareholders of First American to participate in the ongoing ownership of Citizens through ownership of Citizens Class A Stock. Accordingly, Citizens decided to propose the Merger. The Citizens Board believes that the First American shareholders who participate in the Merger will receive shares in a company that has achieved significant growth, has a much larger capitalization than First American, has a history of earnings and whose Class A Stock trades on the American Stock Exchange. CONSIDERATION OF THE MERGER BY THE FIRST AMERICAN BOARD The terms of the Merger reflect negotiations between the Citizens Board and the First American Board. It should be noted that the First American Board members are also either directors or full-time employees of Citizens and are, therefore, faced with conflicts of interest. See "Conflicts of Interest" below. The First American Board has been advised by independent legal counsel but has not retained an independent investment banking firm with respect to deliberations concerning the Merger. Notwithstanding the foregoing, the First American Board has determined that the Merger is fair and to the best interest of First American shareholders (other than Citizens and its subsidiaries). The First American Board met on October 11, 1996 and discussed the offer of Citizens. At that meeting, the entire First American Board determined that, after several years of attempting to establish a profitable funeral home business, it would be better for the First American shareholders if they were able to exchange their First American Stock for a security which has a trading market, as well as own the stock of a corporation that has demonstrated significant growth in its business and net income. The First American Board did not receive a cash offer for the minority shares and did not consider such offer; however, the First American Board believes that the offer by Citizens herein described is substantially greater than if First American were to attempt to sell or liquidate its business and dispose of its other assets and distribute the proceeds to shareholders pro rata. At those meetings the Board also discussed the near term and future prospects for First American. In analyzing the exchange ratio, the First American Board reviewed the market price history of the Citizens Class A Stock, along with the financial statements of Citizens for the Year Ended December 31, 1995 and the financial statements of Citizens for the six months ended June 30, 1996. The First American Board also directed management to pursue a sale of the funeral home operations of First 20 24 American, which resulted in the agreement to sell Funeral Homes to an unaffiliated party. See "Summary--The Stock Purchase Agreement - Sale of Substantially All of the Assets of First American." Of significant importance to the First American Board was the willingness of Citizens to offer the First American shareholders Citizens Class A Stock, which values the First American minority shares at $1.00 per share, or the price each First American minority shareholder paid for his or her stock in the First American public offering. From a valuation standpoint, on a per share basis, this gives First American a value which is substantially greater than any value it might achieve if it otherwise attempted to maximize the value to its shareholders through a merger, sale of assets, liquidation or other significant transaction. In light of the continued losses of First American, and the diminution of shareholders' equity of First American, the First American Board believes that the Citizens offer is fair to the First American shareholders who are not affiliates of Citizens or its subsidiaries. In reaching its determination, the First American Board considered numerous factors, including, in particular, the near and future term prospects of First American, including the potential liquidation value of First American, the lack of outside financing alternatives available to First American, the history of losses of First American, the nondiversification of the business of First American and the lack of any trading market for the First American Stock. The First American Board believes that the proposed consideration to be paid by Citizens is substantially in excess of a liquidation or going concern value of First American and substantially greater in value than any offer to acquire First American. For example, assuming that the sale of Funeral Homes is completed, First American will only have a book value per share of approximately $.054 per share, and the assets of First American will be mostly cash. The First American Board did not attach a relative weight to the factors it considered in reaching its decision but, considering all factors discussed herein, determined that the Merger is fair to and in the best interests of the First American shareholders. THE BOARD OF DIRECTORS OF FIRST AMERICAN HAS DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE FIRST AMERICAN SHAREHOLDERS. CONSIDERATION OF THE MERGER BY THE CITIZENS BOARD The Board of Directors of Citizens (the "Citizens Board") has concluded that the Merger is the appropriate mechanism for accomplishing the proposed acquisition of the shares of First American that Citizens and its subsidiaries do not own. The Merger affords First American shareholders the opportunity to maintain an ownership interest in Citizens through the ownership of a security with substantially greater liquidity. At present, there is virtually no market for First American Stock, while the Citizens Class A Stock trades on the American Stock Exchange ("AMEX"). The Citizens Board believes that the Merger will provide First American shareholders consideration approximately in equal value to the purchase price of their investment in the public offering of First American. See "The Merger--Background and Reasons for the Merger." CONFLICTS OF INTEREST Citizens, as a majority shareholder of First American, and the directors of Citizens are accountable to the minority shareholders of First American as fiduciaries. At the same time, the directors and officers of Citizens owe a fiduciary duty to Citizens and its shareholders to manage Citizens and its investments for the benefit of Citizens and its shareholders. Because Citizens owns a majority of the shares of First American Stock, it has the power to control the First American Board through the election of the directors of First American. Accordingly, as the Merger constitutes a transaction in which Citizens and the Citizens Board have 21 25 a conflict of interest. Also, all of the members of the First American Board are either full-time employees or members of the Citizens Board. Thus, such persons have conflicts of interest in the Merger. The terms of the exchange ratio were established after negotiations between Citizens and the First American management and Board of Directors. There is no assurance that the terms of the Merger are as favorable as could be obtained in one or more transactions with an unrelated party. STOCK EXCHANGE LISTING The Citizens Class A Stock is listed on the AMEX, and the additional shares of Citizens Class A Stock issuable upon consummation of the Merger have been approved for listing on the AMEX upon official notice of issuance. TERMS OF THE MERGER AGREEMENT The discussion below contains a summary of the Merger Agreement attached hereto as Appendix A. The Merger Agreement provides that at the effective time of the Merger each outstanding share of First American Stock shall be converted in .1111 shares of Citizens Class A Stock, except for shares held by First American, Citizens, CICA, and any of their subsidiaries, all of which shares shall be canceled. Neither certificates nor scrip for fractional shares of Citizens Class A Stock will be issued, but in lieu thereof, each holder of shares of First American Stock who would otherwise have been entitled to a fraction of a share of Citizens Class A Stock, upon surrender of all the certificates representing shares of First American Stock registered in the name of such holder, will be paid the cash value of such fraction based on the price of $9.00 per whole share of Citizens Class A Stock. RECEIPT OF CITIZENS SHARES Enclosed herewith is a "Letter of Transmittal" to the exchange agent, American Stock Transfer and Trust Company (the "Exchange Agent"). After the Merger becomes effective and after receiving a properly completed Letter of Transmittal and the associated certificates from First American shareholders involved, the Exchange Agent will distribute the Citizens Class A Stock to the First American shareholders. The instructions accompanying the Letter of Transmittal provide details with respect to the surrender of certificates for First American shares and the procedure for obtaining certificates for Citizens Class A Stock, including instructions for obtaining certificates for Citizens Class A Stock for lost or destroyed certificates of First American shares. After the date the Merger becomes effective, there will be no transfers on the stock transfer books of First American of First American shares which were issued and outstanding immediately prior to the date the Merger becomes effective. If after the date the Merger becomes effective, certificates representing First American shares are properly presented to First American, they will be canceled and exchanged for certificates representing Citizens Class A Stock in the ratio set forth above. OTHER CONDITIONS TO CONSUMMATION OF THE MERGER The obligations of CICA and First American to consummate the Merger are subject to the satisfaction (or waiver by the party entitled to benefit thereof) of a number of conditions, including: 1. The performance by each party of its respective obligations; 2. The absence of any proceedings instituted or threatened to restrain or prohibit the transactions contemplated by the Merger Agreement; 22 26 3. The continued accuracy in all material respects of the representations and warranties made by each party in the Merger Agreement; 4. Any party to the Merger Agreement may decline to proceed with the Merger if the effective date of the Merger does not occur by March 31, 1997. Any party may waive any conditions to its obligations to complete the Merger, except those which are required by law (such as shareholder and regulatory approval). TERMINATION OR AMENDMENT OF THE MERGER AGREEMENT The Merger Agreement may be amended upon approval of the Board of Directors of each party provided that the number of shares of Citizens Class A Stock issuable cannot be amended without approval of the shareholders of First American. The Merger Agreement may be terminated and abandoned at any time (whether before or after the approval and adoption by First American shareholders) prior to the effective date of the Merger by unanimous consent of CICA, Acquisition and First American, unless the matter has been satisfied or waived; by any party if any suit, action, or other proceeding is pending or threatened before any court or governmental agency in which it is sought to restrain, prohibit or otherwise affect the consummation of the transactions contemplated by the Merger Agreement; or by any party if the effective date of the Merger does not occur by March 31, 1997. EXPENSES AND LIABILITY FOR TERMINATION Each of the parties to the Merger Agreement will pay its own fees and expenses incurred in connection with the transaction contemplated by the Merger Agreement, including costs incurred in connection with the termination of the Merger Agreement. DISSENTERS' RIGHTS HOLDERS OF FIRST AMERICAN STOCK HAVE DISSENTERS' RIGHTS AS A RESULT OF THE MERGER AND STOCK PURCHASE AGREEMENTS. PURSUANT TO PART XIII OF THE BCL, THE SURVIVING CORPORATION IS REQUIRED TO NOTIFY EACH OF THE STOCKHOLDERS ENTITLED TO DISSENTERS' RIGHTS THAT THE DISSENTERS' RIGHTS ARE AVAILABLE, AND TO INCLUDE IN SUCH NOTICE A COPY OF PART XIII OF THE BCL. THE STATUTORY RIGHT OF DISSENT GRANTED BY PART XIII OF THE BCL IS SUBJECT TO STRICT COMPLIANCE WITH THE PROCEDURES SET FORTH IN PART XIII OF THE BCL. FAILURE TO FOLLOW ANY OF SUCH PROCEDURES MAY RESULT IN A TERMINATION OR WAIVER OR DISSENTERS' RIGHTS UNDER PART XIII OF THE BCL. A COPY OF PART XIII OF THE BCL IS ATTACHED HERETO AS APPENDIX C AND INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING IS A SUMMARY OF THE MATERIAL PROVISIONS OF PART XIII OF THE BCL AND DOES NOT PURPORT TO BE COMPLETE. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS. In order for a shareholder to exercise dissenters' rights and receive payment for such shareholder's shares, the shareholder must comply exactly with the requirements explained below and in Part XIII of the BCL. The corporation (First American) is required to send a copy of the certificate of merger issued by the Louisiana Secretary of State to the First American stockholders within 20 days after such certificate is filed. Thereafter, the shareholder must demand in writing the "fair cash value" of the shares within 20 days after receiving a copy of the certificate of merger. If the corporation disagrees and does not pay such amount, it must within a certain time notify the shareholder in writing and state the fair value of the shares which it will agree to pay. If the corporation and shareholder 23 27 cannot agree upon a fair value, the shareholder must bring a lawsuit within a specified time, or else the shareholder will be bound by the corporation's offer as to fair value or a contention by the corporation that it owes no payment at all. The statute does not specify a particular time that payment, after the termination of fair value, becomes due, but rather requires the shareholder to bring an action to collect the amount with five years after several specified events. FULL AND EXACT COMPLIANCE WITH THE STATUTORY REQUIREMENTS IS ESSENTIAL FOR A SHAREHOLDER TO EXERCISE DISSENTERS' RIGHTS SUCCESSFULLY. SHAREHOLDERS ARE URGED TO READ AND UNDERSTAND THE DISCUSSION BELOW AND THE STATUTORY PROVISIONS ATTACHED AS APPENDIX C TO THIS PROSPECTUS. A shareholder of First American who wishes to assert dissenters' rights must file with First American a written demand for the cash value of his or her shares within 20 days after receiving a copy of the certificate of merger filed with the Louisiana Secretary of State. Each such shareholder may, within 20 days after the mailing of such notice, but not thereafter, file with First American a demand in writing for the fair cash value of his or her shares as of the day before such vote was taken. The shareholder must state in writing the value demanded, and give a post office address to which the reply of First American may be sent. At the same time the dissatisfied shareholder must deposit in escrow in a chartered bank or trust company located in East Baton Rouge Parish (the parish of the registered office of First American), the certificate representing his or her shares, duly endorsed and transferred to First American upon the sole condition that said certificates shall be delivered to First American upon payment of the value of the shares determined in accordance with the provisions of this Section 131 of Part XIII of the BCL. The shareholder must also deliver to First American, the written acknowledgment of such bank or trust company that it so holds his or her certificates of stock. UNLESS THE OBJECTION, DEMAND AND ACKNOWLEDGMENT MENTIONED IN THE PARAGRAPH ABOVE IS MADE AND DELIVERED BY THE SHAREHOLDER WITHIN THE NECESSARY PERIOD, HE OR SHE SHALL CONCLUSIVELY BE PRESUMED TO HAVE ACQUIESCED TO THE MERGER. If First American does not agree to the value stated and demanded by the shareholder, or does not agree that a payment is due, it shall, within 20 days after receipt of the shareholder's demand and acknowledgment, notify in writing the shareholder, at the designated post office address, of First American's disagreement, and shall state in such notice the value it will agree to pay if a payment should be held to be due; otherwise First American will be liable for, and shall pay to the dissatisfied shareholder, the value demanded by him or her for the shares. JUDICIAL APPRAISAL OF SHARES. If First American and the shareholder cannot agree upon the fair cash value or whether any payment is due, the dissatisfied shareholder must, within 60 days after receipt of notice in writing of First American's disagreement, file suit against First American, in the district court of East Baton Rouge Parish (the parish in which First American has its registered office). The shareholder must request the court to fix and decree the fair cash value of the dissatisfied shareholder's shares as of the day before the Merger occurred. The court shall determine whether any payment is due, and if so, award such cash value and render judgment accordingly. Any shareholder entitled to file such suit may, within 60 days but not thereafter, intervene as a plaintiff in such suit filed by another shareholder, and recover therein judgment against First American for the fair cash value of his or her shares. No order or decree shall be made by the court staying the Merger, and the Merger may be carried to completion notwithstanding any such suit. FAILURE OF THE SHAREHOLDER TO BRING SUIT, OR TO INTERVENE IN SUCH A SUIT WITHIN 60 DAYS AFTER RECEIPT OF NOTICE OF DISAGREEMENT BY FIRST AMERICAN SHALL CONCLUSIVELY BIND THE SHAREHOLDER (1) BY FIRST AMERICAN'S STATEMENT THAT NO PAYMENT IS DUE, OR (2) IF FIRST AMERICAN DOES NOT CONTEND THAT NO PAYMENT IS DUE, TO ACCEPT THE VALUE OF HIS OR HER SHARES AS FIXED BY FIRST AMERICAN IN ITS NOTICE OF DISAGREEMENT. 24 28 A shareholder will have only five years from the below applicable date in which to bring an action to recover the value of the shareholder's stock: (1) the date the fair value of the shares has been agreed upon by the shareholder and First American; (2) the date First American becomes liable for the value demanded by the shareholder due to First American's failure to give notice of disagreement as to value; or (3) the date the shareholder become bound by First American's valuation of the stock due to the shareholder's failure to bring suit within 60 days after receipt of notice of First American's disagreement as to value. In the event that a dissatisfied shareholder rejects First American's offer to pay the amount in cash deemed by First American to be the fair cash value for the shares, First American shall deposit, in the registry of the court the amount of money it had offered the dissatisfied shareholder. This amount shall remain in the court's registry until a final determination on the cause is made. If the amount finally awarded such a dissatisfied shareholder, exclusive of interest and costs, is more than the amount offered and deposited by First American, the costs of the court proceedings shall be borne by First American. HOWEVER IF THE AMOUNT FINALLY AWARDED SUCH A DISSATISFIED SHAREHOLDER, EXCLUSIVE OF INTEREST AND COSTS IS LESS THAN THE AMOUNT OFFERED AND DEPOSITED BY FIRST AMERICAN, THEN THE COSTS OF THE PROCEEDING SHALL BE BORNE BY SUCH A SHAREHOLDER. Under Section 131(H) of Part XIII of the BCL, a shareholder, upon filing a demand for the value of his or her shares, shall cease to have any of the rights of a shareholder except as described above in that section. Such a demand may be withdrawn by the shareholder at any time before First American gives notice of disagreement. However, after such notice of disagreement is given, withdrawal of notice of the election will require the written consent of First American. If a notice of election is withdrawn or the proposed Merger is abandoned or rescinded, or a court determines that the shareholder is not entitled to receive payment for his or her shares, or the shareholder otherwise loses his or her dissenter's rights, then that dissenter will not have the right to receive payments for his or her shares, and the share certificates will be returned or new certificates will be issued upon request. Additionally, the dissatisfied shareholder will then be reinstated to all rights as a shareholder as of the filing of the demand for value. If any such rights shall have expired or any dividends or distributions, other than cash, have been completed, the dissatisfied shareholder may receive at the election of First American, the fair cash value as determined by the board of directors of First American as of the time of such expiration or completion, but without prejudice otherwise to any First American proceeding that may have been taken in the interim. 25 29 INFORMATION CONCERNING CITIZENS Citizens is a Colorado corporation which is an insurance holding company. The principal executive office of Citizens is located at 400 East Anderson Lane, Austin, Texas 78752, and the telephone number at such office is (512) 837-7100. Specific information on Citizens is contained in its Annual Report on Form 10-K for the Year Ended December 31, 1995, as amended, which is incorporated herein by reference. 26 30 CERTAIN SECURITY OWNERSHIP OF CITIZENS The following table sets forth information regarding the persons known to Citizens to be the beneficial owners of more than 5% of Citizens Class A and Class B Stock as of the date of this Information Statement-Prospectus.
Shares Owned and Name and Address Nature of Ownership Percent of Class - ---------------- ------------------- ---------------- Harold E. Riley 5,536,086 Class A 28.4% P.O. Box 149151 direct and indirect(1) Austin, TX 621,049 Class B indirect(1) 100.0% Marjorie D. Riley 1,120,000 Class A direct(2) 5.7% 3410 Tripp Amarillo, TX
- ---------- (1) See footnote (1) in the table immediately below. (2) In record name. The following table sets forth information as of the date of this Information Statement-Prospectus with regard to the beneficial ownership of Citizens common shares by each director, the named executive officers and by the executive officers and directors as a group.
Shares Owned and Name and Address Nature of Ownership Percent of Class - ---------------- ------------------- ---------------- Harold E. Riley 5,536,086 Class A direct and indirect (1) 28.4% 621,049 Class B indirect (1) 100.0 Rick D. Riley 338,321 Class A direct and indirect (2) 1.7 Randall H. Riley 111,311 Class A direct and indirect (4) (3) Timothy T. Timmerman 47,237 Class A direct (3) Charles E. Broussard 37,041 Class A direct (3) Flay F. Baugh 34,459 Class A direct and indirect (5) (3) Joe R. Reneau, M.D. 32,652 Class A direct (3) T. Roby Dollar 30,612 Class A direct and indirect (6) (3) Ralph M. Smith, Th.D. 15,389 Class A direct and indirect (7) (3) Steven F. Shelton 1,886 Class A direct (3)
27 31
Shares Owned and Name and Address Nature of Ownership Percent of Class (continued) - ---------------- ------------------- ---------------- Clayton D. Dunham -0- (3) All executive officers 6,184,994 Class A direct and indirect 31.7 and directors as a group 621,049 Class B direct 100.0 (15 persons)
- ------------- (1) Owns 5,280,599 shares of Class A Stock directly and spouse owns 255,487 shares of Class A Stock. The Harold E. Riley Trust, of which Mr. Riley is the controlling Trustee, owns all of the 621,049 issued and outstanding shares of Class B Stock. (2) Son of Harold E. Riley. Owns 260,093 shares of Class A Stock directly, 11,700 shares of Class A Stock as joint tenant with spouse, and 66,528 shares of Class A Stock indirectly as trustee for minor children. (3) Less than one percent (1%). (4) Son of Harold E. Riley. Owns 102,032 shares of Class A Stock directly, 2,000 shares of Class A Stock as joint tenant with spouse, and 5,958 shares of Class A Stock indirectly as trustee for minor children; spouse owns 1,321 shares of Class A Stock. (5) Owns 8,873 shares of Class A Stock directly and 25,586 shares of Class A Stock as joint tenant with spouse. (6) Owns 15,612 shares of Class A Stock directly and spouse owns 15,000 shares of Class A Stock. (7) Owns 9,285 shares of Class A Stock directly and spouse owns 6,104 shares of Class A Stock. Citizens is not aware of any arrangement, including any pledge by any person of securities of Citizens, the operation of which may at a subsequent date result in a change in control of Citizens. 28 32 MANAGEMENT OF CITIZENS DIRECTORS The following table sets forth certain information regarding the directors of Citizens.
Principal Director Name Age Occupation Since - ---- --- ---------- -------- Flay F. Baugh 82 Investments 1989 Temple, Texas Charles E. Broussard 70 Rancher/Farmer 1996 Kaplan, Louisiana Steven F. Shelton 40 Farmer/Rancher 1993 Lamar, Colorado Timothy T. Timmerman 35 President, Texas Cable Systems 1989 Inc., TCSI-Huntsville and Timmerman Investments, Inc. Round Rock, Texas T. Roby Dollar 58 Vice Chairman, Chief 1993 Actuary of Citizens Austin, Texas Joe R. Reneau, M.D. 64 Physician, Medical Consultant 1989 Austin, Texas Harold E. Riley 67 Chairman of the Board of Citizens 1987 Austin, Texas Randall H. Riley (1) 41 Vice Chairman, Chief Operating 1993 Officer of Citizens Austin, Texas Rick D. Riley (1) 42 Executive Vice President, 1989 Electronic Systems of Citizens Austin, Texas Ralph M. Smith, Th.D. 65 Pastor Emeritus 1993 Hyde Park Baptist Church Austin, Texas
- --------- (1) Son of Harold E. Riley. There are no other family relationships between or among Board members and the Executive Officers of Citizens. 29 33 FLAY F. BAUGH, Investments; President, Baugh's Inc., Temple, Texas, a company engaged in shoe manufacturing, from 1954 to present; Director of Citizens Insurance Company of America, former parent of Citizens, from 1978 to 1988. Director of Citizens from 1989 to present. CHARLES F. BROUSSARD, rancher and farmer; Director of American Liberty Financial Corporation and American Liberty Life Insurance Company from 1977 and 1978, respectively, to present; Director of Universal Fabricators, Inc. a company engaged in steel fabrication, from 1980 to present; President of Inexpo, LA Livestock Sanitary Board Commission from 1988 to present; Director for Acadian District Livestock Show from 1992 to present; Member of the Wetlands Task Force from 1992 to present; and Vice President of the Midwinter Fair Association from 1993 to present. Director of Citizens from 1996 to present. T. ROBY DOLLAR, Vice Chairman, Chief Actuary of Citizens and its affiliates from 1994 to present; President of Citizens and its affiliates from 1992 to 1994; Executive Vice President and Chief Actuary of Citizens and its affiliates from 1987 to 1992. JOE R. RENEAU, M.D., Physician - Medical Consultant, Abbott Laboratories, Austin, Texas, from 1987 to present and IBM, Austin, Texas, from 1992 to present; Medical Director of Citizens and its affiliates from 1987 to present. HAROLD E. RILEY, controlling shareholder of Citizens; Chairman of Citizens Board and its affiliates from 1994 to present; Chairman of the Board and Chief Executive Officer of Citizens and its affiliates from 1992 to present; Chairman of the Board, Chief Executive Officer and President of Citizens and its affiliates, from 1987 to 1992; Chairman of the Board, President and Chief Executive Officer, Continental Investors Life Insurance Company from 1989 to 1992. RANDALL H. RILEY, Vice Chairman and Chief Operating officer of Citizens from 1995 to present; Vice Chairman and Chief Executive Officer of Citizens and its affiliates from 1994 to 1995; Vice Chairman and Marketing Director of Citizens, from 1993 to present; General Manager, Negocios Savoy, S.A. from 1989 to 1993. Director of Citizens from 1993 to present. RICK D. RILEY, Executive Vice President of Citizens from 1995 to present; Executive Vice President and Chief Operating Officer of Citizens from September 1995 to October 1995; Chief Administrative Officer of Citizens and its affiliates from 1994 to June 1995, and President thereafter until September 1995; Executive Vice President and Chief Operating Officer of Citizens and its affiliates from 1990 to 1991 and 1992 to 1994; President, Computing Technology, Inc. from 1991 to 1992; Executive Vice President, Data Processing, of Citizens and its affiliates from 1987 to 1991; Executive Vice President, CILIC from 1989 to 1992. STEVEN F. SHELTON, Rancher and farmer from 1974 to present; Director, First Centennial Corporation, from January to October 1989 and August 1990 to 1992. Director of Citizens from 1993 to present. RALPH M. SMITH, Th.D., Pastor Emeritus, Hyde Park Baptist Church, Austin, Texas, from 1960 to March 1996. Director of Citizens from 1989 to 1990 and 1993 to present; Advisory Director of Citizens from 1991 to 1993. 30 34 TIMOTHY T. TIMMERMAN, President, Texas Cable Systems, Inc.; President, TCSI-Huntsville; President, Northeast Cablevision, Inc.; President, Timmerman Investments Inc., Round Rock, Texas, from 1984 to present. Director of Citizens from 1989 to present. No director of Citizens is a director of any other company with a class of securities registered under the Securities Exchange Act of 1934 or any investment company registered under the Investment Company Act of 1940. EXECUTIVE OFFICERS The following table sets forth certain information concerning the executive officers of Citizens. Executive officers are elected annually by the Citizens Board at the first meeting of the Citizens Board following the Annual Meeting of Shareholders of Citizens:
Name Age Position(s) - ---- --- ----------- Harold E. Riley (1) 68 Chairman of the Board and Chief Executive Officer Randall H. Riley (2) 41 Vice Chairman and Chief Operating Officer T. Roby Dollar (1) 57 Vice Chairman, Chief Actuary and Assistant Treasurer Rick D. Riley (3) 42 Executive Vice President Mark A. Oliver (1) 38 Executive Vice President, Chief Financial Officer and Secretary/Treasurer Clayton D. Dunham (4) 52 Senior Vice President and Director of Marketing James C. Mott (5) 67 Senior Vice President and Executive Assistant to Chairman John K. Drisdale, Jr. (6) 41 Vice President and Chief Counsel William P. Barnhill (7) 45 Vice President and Controller
- --------------- (1) Messrs. H. Riley, Dollar, and Oliver have served since 1987. They hold similar positions in affiliated subsidiaries. Messrs. H. Riley and Oliver are also members of the First American Board. (2) Randall H. Riley has served since September 1993 and holds similar positions in affiliated subsidiaries. Prior to 1993, he served as General Manager for Negocios Savoy, S.A., a marketing company. He is also a member of the First American Board. 31 35 (3) Rick D. Riley has served from 1987 to 1991 and 1992 to present and holds similar positions in affiliated subsidiaries. From 1991 to 1992, he was President of Computing Technology, Inc. He is also a member of the First American Board. (4) Clayton D. Dunham was named Senior Vice President and Director of Marketing of Citizens and its affiliates in November 1994. From 1990 to 1994, he served as President of DIA International. From 1987 through 1990, he was General Manager of Negocios Savoy, S.A. (5) James C. Mott has served as Senior Vice President and Executive Assistant to the Chairman since January 1996. During 1991, he served as Coordinator in the Marketing Department of Citizens Insurance Company of America, a subsidiary of Citizens. From 1992 through 1994, Mr. Mott supervised the Customer Service Department of Citizens Insurance Company of America. He took partial retirement in 1995 until activated to his current position. He is also a member of the First American Board. (6) John K. Drisdale, Jr., joined Citizens in December 1995 as Vice President and Chief Counsel. From 1987 to 1992, he was Vice President and General Counsel of Exeter Holdings Corp., an acquisition and investments company. In 1992, Mr. Drisdale entered private law practice as a partner in Forman, Perry, Watkins & Krutz. In 1993, he started the law firm of Drisdale & Lindstrom PLLC from which he joined Citizens. (7) William P. Barnhill has served as Vice President and Controller of Citizens since June 1996. From 1975 to 1981 he was Manager of Central Disbursing of American General Insurance Company. From 1981 until joining Citizens, he was Senior Vice President and Treasurer of Western General Life Insurance Company. EXECUTIVE OFFICER AND DIRECTOR COMPENSATION The following table presents the aggregate compensation which was earned by the Chairman and the Chief Executive Officer of Citizens for each of the past three years, and for such other officers whose aggregate compensation exceeded $100,000 in 1995. No other employee of Citizens earned total annual salary and bonus in excess of $100,000 prior to 1994. There has been no compensation awarded to, earned by or paid to any employee required to be reported in any table or column in any fiscal year, other than what is set forth in the table below.
Summary of Compensation Table ------------------------------------ Long Term Compensation ----------------------------- Annual Compensation Awards Payouts ------------------------------------ -------------------- ------- Restricted Other Annual Stock Options LTIP All Other Name and Principal Position Year Salary Bonus Compensation Award(s) SARs Payout Compensation - --------------------------- ---- ------ ----- ------------ -------- ---- ------ ------------ Harold E. Riley, Chairman 1995 $312,700 N/A N/A N/A N/A N/A $3,761 (1) 1994 $260,616 N/A N/A N/A N/A N/A $6,691 (1) 1993 $250,200 N/A N/A N/A N/A N/A N/A Randall H. Riley, CEO 1995 $161,431 N/A N/A N/A N/A N/A $4,415 (1) 1994 $150,200 N/A N/A N/A N/A N/A N/A Clayton Dunham, Senior VP and Director of Marketing 1995 $120,200 N/A N/A N/A N/A N/A N/A Steve Rekedal (2) 1995 $120,200 N/A N/A N/A N/A N/A N/A
- ---------- (1) Profit-sharing plan allocation made in year indicated for the preceding year. (2) Mr. Rekedal, formerly Executive Vice President, resigned effective December 31, 1995. 32 36 Messrs. R.H. Riley and Clayton Dunham have employment contracts with Citizens terminable by either party on 30 days or less notice without severance pay or similar benefits. Harold E. Riley does not have an employment contract with Citizens. All employees of Citizens are covered under a non-contributory profit-sharing plan. Under the terms of the Plan, all employees who have completed one year of service are eligible to participate. Vesting begins following completion of two years' service and employees become fully vested after several years' service. During 1993, no contributions to the plan were made. Citizens made $50,000 annual contributions to the plan in 1994 and 1995. Messrs. H.E. Riley, R.H. Riley, Dunham and Rekedal had $55,831, $4,415, $0 and $0, respectively, vested under the plan as of December 31, 1994, the last allocation date. The members of Citizens Board who are not officers of Citizens are paid $300 per meeting, while Committee members who are not officers are paid $150. Total directors' fees paid during 1995 were $4,500. In 1995, Messrs. Reneau and Smith were paid $15,000 and $1,800, respectively, in 1995 for services performed as consultants to Citizens. 33 37 BUSINESS OF FIRST AMERICAN First American, through a subsidiary, owns and operates a funeral home in Louisiana. The funeral home performs all personal and professional services relating to funerals, including preparation and embalming, securing necessary vital statistical information, preparing and filing death certificates and other forms, attention to funeral service details, use of funeral establishment facilities, and the use of funeral service motor vehicles and equipment. In addition, the funeral home also retails certain funeral merchandise such as caskets, burial vaults, outside grave liners, cremation receptacles, flowers and burial garments. First American has no employees, as the three employees of the operation are provided by its parent corporation. The services of the First American funeral home are available to the general public, and it faces competition from other funeral home operators in its area of operations. Competitive factors in First American's funeral home operations include price, quality of services and location. There are other funeral homes that have larger operations, histories of earnings and significantly greater customer bases than First American. The funeral home industry is characterized by a large number of independent operations, the vast majority of which are locally owned and operated. Some firms operate both funeral homes and cemeteries. There are in excess of 20,000 funeral homes operating in the United States and Canada. The operations of most of these funeral homes and of the individual locations of multi-home corporations are limited to the local geographic areas in which they are located. The First American funeral home must compete with the other firms in the same general area. In order to compete successfully the funeral home must maintain competitive prices and a good reputation and high professional standards, due in part to the high incidence of business derived from families previously served. The operations of the First American funeral home are subject to regulations, supervision and licensing under various state and local statutes, ordinances and regulations and certain regulations of the Federal Trade Commission. To date, compliance with such regulations has not had a significant impact on the operations of First American. In the late 1980's, First American commenced a public offering of its shares on a "best efforts" basis to bona fide residents of Louisiana. Total gross proceeds raised through December 31, 1995 were $1,198,900. The First American funeral home was completed and open for business in September 1992. In September 1995, the parent of First American, American Liberty Financial Corporation was acquired by Citizens. After a thorough review of the business of First American, Citizens determined that it would be in the best interests of First American to wind up its business. It has not achieved a profit since operations commenced in 1989. There is no trading market for the securities of First American, and it has never paid a dividend and has no plans to pay a dividend. Citizens, through a subsidiary, owns 94.5% of the outstanding First American Stock. There are no other persons who own more than 5% of the outstanding First American Stock. No officer or director of First American owns any First American Stock. 34 38 MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - FIRST AMERICAN RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 AND 1995 Net income for the six months ended June 30, 1996 was $34,654, up from the same period in 1995 when net income was $18,607. An increase in funeral home sales was the primary reason for the improvement in net income. Total revenues for the period were $177,148, a 24.7% increase over 1995 when revenues were $142,109. Funeral home sales were $220,491 compared to $172,198 for the first six months of 1995, a 28.1% increase. Gross profit on these sales was $153,227 in 1996, a margin of 69.5% while in 1995, gross profit was $127,311 with a margin of 73.9%. Funeral business through June was up compared to the prior year. During the first five months of 1996, First American's funeral home in Baker, Louisiana held more services than all of 1994 and was within five of performing as many as the entire previous year. The lower gross margin reflects some revenues that involved embalming and transporting bodies as well as cremations that offer lower margins than full services. General expenses increased significantly during 1996 to $131,001 from $105,352 in the prior year. Part of the increase is due to the addition of health insurance benefits for the employees of the funeral home. Additionally, due to the increased volume of funerals, additional staff was added for the early part of the year. The hearse and limousine utilized in the funeral operation were several years old and as such, First American's maintenance expenses for the vehicles were approaching a point of diminishing returns given the age and condition of them. THREE MONTHS ENDED JUNE 30,1996 AND 1995 Net income for the quarter ended June 30, 1996 was $47,865, compared to a loss of $346 for the same period in 1995. Increased revenues coupled with decreased operating expenses contributed to the improvement in profitability. Revenues for the quarter were $97,525, compared to $64,305 in the prior year. Funeral home sales increased more than 46% during the quarter, reaching $112,439 from $76,760. A significant increase in funeral activity was the reason for the increase. Additionally, interest income on cash increased to $ 17,830 from $7,577 due to management's decision to invest First American's excess cash in high grade commercial paper instruments as opposed to bank savings accounts. The result of this move was to add an additional 2-4% to the return on cash. Expenses declined compared to the previous year, to $44,391 from $57,777. The decline is attributable to the method in which the current management of the funeral home operations has managed the overhead in light of the increase in volume of funerals. LIQUIDITY AND CAPITAL RESOURCES Recent consolidations in the funeral home industry have made it extremely difficult for the small, independent funeral home to operate. Several large, national and international firms dominate the industry, and due to their capital base, their ability to attract outside capital and their economies of scale, they 35 39 present a significant impediment to the successful development and operation of funeral homes such as the one operated by First American. Management had previously planned on building and operating a second funeral home in another suburb of Baton Rouge, Louisiana, along the same operating philosophy as the existing facility; however, given the startup costs experienced in the Baker facility and the drain on capital created by its operations in its early years, management decided to suspend plans to proceed with the second facility. First American currently has a significant amount of indebtedness--approximately $80,000 on a mortgage loan on its Baker facility as well as $520,000 in operating capital loans made by an affiliate. Although the operations are experiencing growth under current management, the task of expanding First American's capital base and its ability to repay this significant debt create concerns about the long term viability of the operations. Management has been working to explore the possibility of the sale of the Baker funeral home. Although this operation is currently cash flowing itself, any downturn in business or the economy could create a situation where additional capital would need to be infused. Additionally, management has been in discussion with its parent company, Citizens, Inc. about a possible sale or merger. 36 40 COMPARISON OF RIGHTS OF SECURITYHOLDERS The holders of issued and outstanding First American Stock will receive Citizens Class A Stock. The rights of the holders of Citizens shares are governed by Citizens' Articles of Incorporation, bylaws and Colorado law, while the rights of holders of First American Stock are governed by First American's Articles of Incorporation, bylaws and Louisiana law. In most respects, the rights of holders of Citizens Class A Stock and holders of First American Stock are similar. The following is a brief comparison of the rights of the holders of First American Stock with those of Citizens Class A Stock. AUTHORIZED SHARES The aggregate number of shares which Citizens is authorized to issue is 50,000,000 shares of Class A Stock with no par value and 1,000,000 shares of Class B Stock , with no par value; of which 21,069,411 shares of such Class A Stock and 621,049 shares of Class B Stock are issued and outstanding, fully paid and non-assessable. These numbers do not include treasury shares. The aggregate number of shares which First American is authorized to issue is 40,500,000 shares of Common Stock with par value of $.001 per share of which 21,698,900 shares are issued and outstanding, fully paid and non-assessable. These numbers do not include treasury shares. DIVIDEND RIGHTS The cash dividends paid upon each share of Citizens Class A Stock is twice the cash dividends paid on each share of Citizens Class B Stock. Because First American has only one class of Common Stock, no such difference exist in the dividend rights of its Common Stock. VOTING RIGHTS The voting rights of Citizens Class A Stock and Class B Stock are equal in all respects except that the holders of Class B Stock have the exclusive right to elect a simple majority of the members of Citizens' Board of Directors, and the holders of the Class A Stock have the exclusive right to elect the remaining directors. The holders of First American Stock are entitled to one vote for each share of stock held. Neither the holders of First American Stock or Citizens Class A Stock have cumulative voting rights in the election of directors. The Articles of Incorporation of Citizens provide that when, with respect to any action to be taken by Citizens shareholders the Colorado Business Corporation Act requires the affirmative vote of the holders of two-thirds of the outstanding shares entitled to vote thereon, or of any class or series, such action may be taken by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote on such action. The power to amend the Articles of Incorporation, approve mergers and approve extraordinary asset transfers are all subject to this requirement. First American's Articles of Incorporation provide that, with respect to any action to be taken by First American shareholders including, but not limited to shareholder approval of amendments, mergers, consolidations, or asset transfers, such action may be taken by the affirmative vote of a majority of the voting shareholders present or represented at a meeting duly called and held on due notice, at which a quorum is present or represented. 37 41 First American's bylaws provide that, subject to repeal or change by action of First American's shareholders, the power to alter, amend, or repeal First American's bylaws or to adopt new bylaws is vested in the Board of Directors. Citizens' Articles of Incorporation provide that Citizens' Board of Directors has the power to enact, alter, amend and repeal Citizens' bylaws not inconsistent with the laws of Colorado or Citizens' Articles of Incorporation, as the Board of Directors deems best for the management of Citizens; however, Colorado statutes give shareholders the right to amend and repeal bylaws even if not so provided for in the bylaws themselves. Special meetings of First American shareholders may be called by First American's President, its Board of Directors, or the holders of one fifth (1/5) or more of all the First American shares entitled to vote. Special meetings of Citizens' shareholders may be called by the Chairman of its Board, the Board of Directors, or the holders of 10% or more of all the Citizens shares entitled to vote. A majority of the shares of the outstanding capital stock entitled to vote constitutes a quorum of shareholders under the bylaws of First American. The bylaws of Citizens provide that one-third (1/3) of the votes entitled to be cast on a matter by a voting group shall constitute a quorum of that voting group. The bylaws of Citizens provide that shareholders can take action without a meeting provided that all the shareholders of the corporation entitled to vote have consented to the action in writing. First American's Articles of Incorporation provide that written consents signed by a majority of the voting shares outstanding shall be sufficient to authorize an action without a meeting. PREEMPTIVE RIGHTS Authorized First American and Citizens shares may be issued at any time, and from time to time, in such amounts and for such consideration as may be fixed by the Board of Directors of First American and Citizens, respectively. No holder of Citizens or First American shares has any preemptive or preferential right to purchase or to subscribe for any shares of capital stock or other securities which may be issued by Citizens or First American. LIABILITY OF DIRECTORS As authorized by Colorado law, Citizens' Articles of Incorporation contain a provision to the effect that no director of Citizens shall be personally liable to Citizens or any of its shareholders for damages for any breach of duty as a director except to the extent limited by law. The Articles of Incorporation of First American contain no such provision. LIQUIDATION RIGHTS In the event of any liquidation, dissolution, or winding up of Citizens, whether voluntary or involuntary, the holders of Citizens common shares are entitled to share, on a share-for-share basis, any of the assets or funds of Citizens which are distributable to its shareholders upon such liquidation, dissolution, or winding up. In the event of any liquidation, dissolution, or winding up of First American, whether voluntary or involuntary, First American common shareholders will be entitled to share, on a share-for-share basis, any of the remaining amounts or funds of First American which are distributable to its shareholders upon such liquidating, dissolution or winding up. The Citizens Class A Stock to be issued upon consummation of the Merger will be fully paid and non-assessable. First American shares, for which full consideration has been paid, are deemed to the fully paid and non-assessable. 38 42 CERTAIN FEDERAL INCOME TAX CONSEQUENCES GENERAL The following summary is for general information only. It is based on the current provisions of the Internal Revenue Code of 1986 (the "Code"), the applicable U.S. Treasury Regulations, judicial authority and administrative rulings and practice, all of which are subject to change. The tax treatment of a First American shareholder may vary depending upon such shareholder's particular situation and certain shareholders (including insurance companies, tax-exempt organizations, financial institutions, broker-dealers, and persons who are not citizens or residents of the United States or who are as to the United States foreign corporations, foreign partnerships and foreign estates or trusts) may be subject to special rules not discussed below. Citizens believes that the exchange of shares of Citizens Class A Stock for shares of First American Stock pursuant to the Merger will be as set forth below. Since no ruling from the Internal Revenue Service ("IRS") has been or will be sought with respect to any aspect of the Merger, there can be no assurance that the IRS will not take a contrary view as to the tax consequences described herein. Furthermore, future legislative, judicial or administrative changes or interpretations, which may or may not be retroactive, could alter or modify the statements and conclusions set forth herein and could affect the tax consequences to First American's shareholders described herein. CONSEQUENCES Citizens believes that the following federal income tax consequences are expected to result: (1) Each First American shareholder will recognize gain or loss upon the receipt by him or her of shares of Citizens Class A Stock in exchange for his or her shares of First American Stock pursuant to the Merger. Such gain or loss will be capital gain or loss, provided that such shares of First American Stock are held as a capital asset at the time of the consummation of the Merger, and would be long-term capital gain or loss if the First American Stock had been held for longer than one year. (2) A shareholder's basis in the Citizens Class A Stock received pursuant to the Merger will be fair market value of the Citizens Class A Stock on the date of the Merger, and the shareholder's holding period for such shares will begin on such date. (3) Neither Citizens nor First American will recognize any taxable income, gain or loss as a result of the consummation of the Merger; however, a subsidiary of Citizens will recognize taxable gain as a result of the Merger because it will be distributing Citizens Class A Stock it holds to complete the Merger without a very limited basis in such stock. Citizens management expects that the tax effect will be significant to Citizens on a consolidated basis. THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. FIRST AMERICAN SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS FOR MORE SPECIFIC AND DEFINITIVE ADVICE AS TO THE FEDERAL INCOME TAX CONSEQUENCES TO THEM OF THE MERGER OF THEIR SHARES OF FIRST AMERICAN STOCK PURSUANT TO THE MERGER, AS WELL AS ADVICE AS TO THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS AND POSSIBLE AMENDMENTS TO SUCH LAWS. 39 43 SOURCE OF CITIZENS SHARES The Citizens Class A Stock which will be issuable in the Merger will be Class A Stock held by a Citizens wholly-owned subsidiary, CICA. Citizens has 50,000,000 Class A Common shares authorized. CICA is obligated to reserve sufficient shares of its Class A Stock to enable it to perform its obligations under the Merger Agreement. The Citizens shares have been duly authorized and validly issued, and fully paid and non-assessable. EXPERTS The consolidated financial statements of Citizens, Inc. and subsidiaries as of December 31, 1995 and 1994 and for each of the years in the three-year period ended December 31, 1995 have been incorporated by reference, and the consolidated financial statements of First American Investment Corporation and subsidiaries as of December 31, 1995 and 1994 and for each of the years then ended included herein and in the registration statement in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference or appearing elsewhere herein, and upon the authority of such firm as experts in accounting and auditing. LEGAL MATTERS The legal status of the Citizens Class A Stock to be distributed pursuant to the Merger will be passed upon by Jones & Keller, P.C., Denver, Colorado. 40 44 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1 Consolidated Balance Sheets as of December 31, 1995 and 1994 . . . . . . . . . . . . . . F-2 Consolidated Statements of Operations for the Years Ended December 31, 1995 and 1994 . . F-4 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995 and 1994 . . F-6 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-7 Consolidated Balance Sheets as of June 30, 1996 (unaudited) and December 31, 1995 . . . . F-14 Consolidated Statements of Operations for the Six Months Ended June 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-16 Consolidated Statements of Operations for the Three Months Ended June 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . F-17 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . F-18 Consolidated Statements of Cash Flows for the Three Months Ended June 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . F-19 Notes to Consolidated Financial Statements (unaudited) . . . . . . . . . . . . . . . . . F-20
41 45 INDEPENDENT AUDITORS' REPORT The Board of Directors First American Investment Corporation Baton Rouge, Louisiana: We have audited the accompanying consolidated balance sheet of First American Investment Corporation and subsidiaries as of December 31, 1995, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The accompanying financial statements of First American Investment Corporation and subsidiaries as of December 31, 1994 and for the year then ended, were audited by other auditors whose report thereon dated February 27, 1995 expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of First American Investment Corporation and subsidiaries as of December 31, 1995, and the consolidated results of their operations and their consolidated cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP March 8, 1996 F-1 46 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1995 and 1994
Assets 1995 1994 ------ ---- ---- Current assets: Cash $ 530,744 519,380 Accounts receivable: Trade, net of allowance of $4,000 in 1995 and 8,395 59,278 $2,665 in 1994 Other - 11,295 Inventory 13,861 13,872 ---------- -------- Total current assets 553,000 603,825 ---------- -------- Restricted cash 17,266 16,867 Agents' accounts receivable, net of allowance for advances in excess of commissions earned of $-0- in 1995 and $147,138 in 1993 - 36,116 Property and equipment, at cost, net of accumulated depreciation of $115,496 in 1995 and $100,773 in 1994 507,244 530,159 Deferred tax asset - 53,503 Other assets, net of accumulated amortization of $75,632 - 75,910 in 1995 and $3,248 in 1994 Total $1,077,510 1,316,380 ========== =========
See accompanying notes to consolidated financial statements. F-2 47
Liabilities and Stockholders' Equity 1995 1994 ------------------------------------ ---- ---- Current liabilities: Accounts payable and other accrued liabilities $ 1,516 49,877 Current portion of mortgage payable 10,732 9,811 ---------- --------- Total current liabilities 12,248 59,688 ---------- --------- Payable to affiliates 534,941 544,905 Mortgage payable 85,988 96,721 Deferred credit, sales proceeds collected from public offering of stock, net of subscriptions receivable 15,750 15,351 ---------- --------- Total liabilities 648,927 716,665 ---------- --------- Stockholders' equity: Common stock, par value $.001; 40,500,000 shares authorized; 21,698,900 shares in 1995 and 1994 issued and outstanding 21,699 21,699 Additional paid-in capital 978,421 978,421 Treasury stock, 400 shares, at cost (400) (400) Accumulated deficit (571,137) (400,005) Total stockholders' equity 428,583 599,715 Total $1,077,510 1,316,380 ========== =========
F-3 48 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations Years ended December 31 ,1995 and 1994
1995 1994 --------- --------- Income: Interest $ 17,654 17,385 Funeral home sales 273,092 258,702 Cost of goods sold (74,305) (80,733) --------- --------- 216,441 195,354 --------- --------- Expenses: Advances in excess of commissions earned -- 17,892 General and administrative 316,743 271,140 Taxes, licenses and fees 8,593 21,048 --------- --------- Total expenses 325,336 310,080 Other income (expense): Miscellaneous income 456 6,941 Interest expense (9,190) (10,031) --------- --------- Total other expenses (8,734) (3,090) --------- --------- Loss from operations before provision for income taxes (117,629) (117,816) --------- --------- Provision for income taxes: Current -- -- Deferred 53,503 36,644 --------- --------- Total provision for income taxes 53,503 36,644 --------- --------- Net loss $(171,132) (154,460) ========= =========
See accompanying notes to consolidated financial statements. F-4 49 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Years ended December 31, 1995 and 1994
Additional Total Common Treasury paid-in Accumulated stockholders' stock stock capital deficit equity -------- ------- -------- ----------- ------------- Balances at December 31, 1993 $ 21,699 (400) 978,421 (245,545) 754,175 Net loss -- -- -- (154,460) (154,460) -------- ------ -------- -------- -------- Balances at December 31, 1994 21,699 (400) 978,421 (400,005) 599,715 Net loss -- -- -- (171,132) (171,132) -------- ------ -------- -------- -------- Balances at December 31, 1995 $ 21,699 (400) 978,421 (571,137) 428,583 ======== ====== ======== ======== ========
See accompanying notes to consolidated financial statements. F-5 50 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 1995 and 1994
1995 1994 ---- ---- Cash flows from operating activities: Net loss $(171,132) (154,460) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation of property and equipment 25,232 38,327 Amortization 72,384 2,836 Advances in excess of commissions earned 36,116 18,855 Decrease in deferred tax assets 53,503 36,644 Change in operating assets and liabilities: Decrease (increase) in accounts receivable, trade 50,883 (15,857) (Increase) in accounts receivable, other 11,295 (5,444) Decrease in inventory 11 935 Increase (decrease) in accounts payable (48,361) 34,739 Decrease in other assets 3,526 1,231 (Decrease) increase in payable to affiliates (9,964) 64,070 --------- --------- Net cash used by operating activities 23,493 21,876 --------- --------- Cash flows from investing activities: Purchase of property and equipment (2,317) (2,807) Organization costs -- (959) --------- --------- Net cash used in investing activities (2,317) (3,766) --------- --------- Cash flows from financing activities: Deferred offering costs incurred -- (1,039) Increase in payable for costs of public stock offering -- 44 Sales proceeds collected from public offering of stock 399 1,700 Principal payments on mortgage (9,812) (8,970) --------- --------- Net cash provided by financing activities (9,413) (8,265) --------- --------- Increase in cash and restricted cash 11,763 9,845 Cash and restricted cash at beginning of year 536,247 526,402 --------- --------- Cash and restricted cash at end of year $ 548,010 536,247 ========= ========= Supplemental disclosure of cash flow information - interest paid $ 9,190 10,031 ========= =========
See accompanying notes to consolidated financial statements. F-6 51 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1995 and 1994 (1) Summary of Significant Accounting Policies The following is a summary of certain significant accounting policies followed in the preparation of these consolidated financial statements. (a) Nature of Business The accompanying consolidated financial statements include the accounts and operations of First American Investment Corporation (FAIC), incorporated in the State of Louisiana on November 8, 1984 and its wholly owned subsidiaries, Funeral Homes of America, Inc. and Funeral Homes of Louisiana, Inc. FAIC and its subsidiaries are collectively referred to as "the "Company." All significant intercompany accounts and transactions have been eliminated. FAIC is a 94.48%-owned subsidiary of American Liberty Life Insurance Company (ALLIC), a wholly owned subsidiary of American Liberty Financial Corp. (ALFC). In September 1995, ALFC was acquired by Citizens, Inc., the ultimate majority stockholder at December 31, 1995. The Company's primary operations include a funeral home located in Louisiana. (b) Cash Equivalents For the purposes of cash flows, the Company considers cash and cash equivalents (Continued) F-7 52 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements to be composed of noninterest-bearing cash accounts and restricted cash, and cash in escrow related to the public offering of stock. (c) Deferred Income Taxes Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. (d) Inventory Inventory consists of caskets held by the funeral homes and is recorded at cost. (e) Depreciation Depreciation is computed using the double-declining and straight-line methods at rates estimated to recover the cost of the related assets over their expected useful lives. The range of such lives is from 5 to 31.5 years. (f) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (Continued) F-8 53 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (2) Related Party Transactions Amounts payable to affiliates represents funds advanced to the Company to satisfy certain operating expenses and debt requirements during 1995 and 1994 by the majority stockholder and its subsidiaries. Mortgage loan payable to affiliate at December 31, 1995 and 1994 is as follows: 1995 1994 ---- ---- Mortgage to American Liberty Life Insurance $ 96,720 106,532 Company, dated October 27, 1992, original amount $125,000, payable in 120 monthly installments of $1,583.45 including interest at 9% annually. Payments commenced November 1, 1992. Secured by first mortgage on funeral home in Baker, Louisiana Less current portion (10,732) (9,811) -------- ------- $ 85,988 96,721 ======== ======= (Continued) F-9 54 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements According to the terms of the agreement, the principal repayments are as follows: 1996 $ 10,732 1997 11,739 1998 12,840 1999 14,045 2000 15,361 Thereafter 32,003 (3) Income Taxes The Company files its federal income tax return on a consolidated basis with American Liberty Financial Corporation and its subsidiaries prior to the acquisition of ALFC by Citizens, Inc. and files a separate consolidated return which includes its operations and its two wholly owned subsidiaries for the period subsequent to the acquisition. (Continued) F-10 55 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The tax effect of temporary difference, primarily net operating loss carryforwards, that gives rise to the deferred tax asset at December 31, 1995 and 1994 is presented below:
1995 1994 ---- ---- Deferred tax asset $ 97,970 119,985 Deferred tax asset valuation account (97,970) (66,482) -------- ------- $ - 53,503 ======== =======
A reconciliation of actual tax expense for 1995 and 1994 to the "expected" tax expense (benefit) computed by applying the U.S. federal corporate rate of 34% to loss before provision for federal income taxes is as follows:
1995 1994 ---- ---- Federal income tax statutory rate on taxable income $(39,994) (40,057) Write off of capitalized offering costs 72,397 -- Rate brackets and other -- 22,803 Valuation account 24,524 53,898 Other (3,424) -- -------- ------- $ 53,503 36,644 ======== =======
(Continued) F-11 56 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (4) Public Offering of Stock The offering of shares of the Company to the public (only to bona fide residents of Louisiana) on a best efforts basis consists of 20,000,000 shares of common stock at a price of $1.00 per share or maximum gross proceeds of $20,000,000. The cumulative sales proceeds for 1,214,250 shares had been collected at December 31, 1995 and 1994. Through December 31, 1995, 1,198,900 shares of common stock of FAIC had been issued. In 1993, $500,000 was released from escrow to organize Funeral Homes of America, Inc. In accordance with the 1989 issue of 562,150 shares, $500,000 was released from escrow to organize Funeral Homes of Louisiana, Inc. The funeral home was completed and opened for business in September 1992. Upon the issuance of the above shares of stock, American Liberty Financial Corporation's ownership percentage of the outstanding stock of the Company was reduced from 100% to 94.4%. Deferred offering costs included in other assets of $69,087 in 1994 represent commissions, costs, and expenses directly attributable to the marketing of these securities. These costs were fully amortized at December 31, 1995 as the offering was suspended in 1995 and management does not anticipate reactivating. (5) Agents' Accounts Receivable Agents' accounts receivable in the amount of $36,116 at December 31, 1994 are collectible only to the extent of future commission earnings. Such amounts were written off during 1995. (Continued) F-12 57 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (6) Lease Agreement Funeral Homes of Louisiana, Inc. has a 50 year noncancellable land lease on 3.41 acres with the City of Baker, Louisiana. This lease is renewable for two successive twenty-four year periods at the option of the Company. The initial cost of the lease is $1,000 per acre annually and is subject to adjustment at the end of each five year period based on change in the Consumer Price Index. At the end of the lease period, the lessee retains the rights to all leasehold improvements. Lease expense for 1995 and 1994 was $3,411. Future minimum lease payments, based on current contract terms, are as follows: 1996 $ 3,411 1997 3,411 1998 3,411 1999 3,411 2000 3,411 Thereafter 139,851 F-13 58 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND DECEMBER 31, 1995
1996 ASSETS (UNAUDITED) 1995 ------------ ------------ CURRENT ASSETS: Cash $ 539,394 $ 530,744 Accounts receivable, net of allowance of $4,000 in 1996 and 1995 69,271 8,395 Inventory 0 13,861 ------------ ------------ TOTAL CURRENT ASSETS 608,665 553,000 ------------ ------------ Restricted cash 9,910 17,266 Property and equipment, at cost net of accumulated depreciation of $126,587 in 1996 and $115,496 in 1995 496,233 507,244 ------------ ------------ TOTAL $ 1,114,808 $ 1,077,510 ============ ============
See accompanying notes to consolidated financial statements. F-14 59 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND DECEMBER 31, 1995
1996 LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) 1995 ------------ ------------- CURRENT LIABILITIES: Accounts payable and other accrued liabilities $ 24,804 $ 1,516 Current portion of mortgage payable 11,739 10,732 ------------ ------------- TOTAL CURRENT LIABILITIES 36,543 12,248 ------------ ------------- Payable to affiliates 519,541 534,941 Mortgage payable 79,737 85,988 Deferred credit, sales proceeds collected from public offering of stock, net of subscriptions receivable 15,750 15,750 ------------ ------------- TOTAL LIABILITIES 651,571 648,927 SHAREHOLDERS' EQUITY: Common stock, par value $.001; 40,500,000 shares authorized; 21,700,900 shares issued in 1996 and 1995 and 21,700,500 shares outstanding in 1996 and 1995 21,699 21,699 Additional paid-in capital 978,421 978,421 Treasury stock, 400 shares, at cost (400) (400) Accumulated deficit (536,483) (571,137) ------------ ------------- TOTAL SHAREHOLDERS' EQUITY 463,237 428,583 ------------ ------------- TOTAL $ 1,114,808 $ 1,077,510 ============ =============
See accompanying notes to consolidated financial statements. F-15 60 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
1996 1995 -------- --------- INCOME: Funeral home sales $220,491 $ 172,198 Cost of goods sold (67,264) (44,887) Interest 23,921 14,798 -------- --------- TOTAL REVENUES 177,148 142,109 EXPENSES: General and administrative 131,001 105,352 Taxes, licenses and fees 6,567 12,718 -------- --------- TOTAL EXPENSES 137,568 118,070 OTHER INCOME (EXPENSE): Interest expense (4,926) (5,432) -------- --------- TOTAL OTHER EXPENSES (4,926) (5,432) INCOME FROM OPERATIONS BEFORE FEDERAL INCOME TAXES 34,654 18,607 Federal income tax 0 0 -------- --------- NET INCOME $ 34,654 $ 18,607 ======== ========= PER SHARE OF COMMON STOCK $ 0.002 $ 0.001 ======== =========
See accompanying notes to consolidated financial statements. F-16 61 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
1996 1995 -------- -------- INCOME: Funeral home sales $112,439 $ 76,760 Cost of goods sold (32,744) (20,032) Interest 17,830 7,577 -------- -------- TOTAL REVENUES 97,525 64,305 EXPENSES: General and administrative 44,391 57,777 Taxes, licenses and fees 2,443 4,429 -------- -------- TOTAL EXPENSES 46,834 62,206 OTHER INCOME (EXPENSE): Interest expense (2,826) (2,445) -------- -------- TOTAL OTHER EXPENSES (2,826) (2,445) INCOME (LOSS) FROM OPERATIONS BEFORE FEDERAL INCOME TAXES 47,865 (346) Federal income tax 0 0 -------- -------- NET INCOME (LOSS) $ 47,865 $ (346) ======== ======== PER SHARE OF COMMON STOCK $ 0.002 $ 0.000 ======== ========
See accompanying notes to consolidated financial statements. F-17 62 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
1996 1995 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 34,654 $ 18,607 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation of property and equipment 11,091 16,198 (Increase) decrease in accounts receivable (60,876) 338 Decrease in inventory 13,861 53 Decrease in other assets 0 6,823 Increase (decrease) in accounts payable 23,288 16,620 (Decrease) in payable to affiliates (15,400) (23,801) Other, net (80) (3,815) ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 6,538 31,023 ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on mortgage (5,244) (4,796) ---------- ---------- NET CASH (USED) BY FINANCING ACTIVITIES (5,244) (4,796) ---------- ---------- Increase in cash and restricted cash 1,294 26,227 Cash and restricted cash at beginning of year 548,010 544,265 ---------- ---------- CASH AND RESTRICTED CASH AT END OF PERIOD $ 549,304 $ 570,492 ========== ========== Supplemental disclosure of cash flow information - - interest paid $ 4,240 $ 5,116 ========== ==========
See accompanying notes to consolidated financial statements. F-18 63 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 47,865 $ (346) Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation of property and equipment 11,091 6,368 (Increase) decrease in accounts receivable (60,876) 23,683 Decrease in inventory 13,861 (716) (Increase) in other assets 0 (3,290) Increase (decrease) in accounts payable (21,905) (7,682) (Decrease) in payable to affiliates -- (189) Other, net (80) 0 ----------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (10,044) 17,828 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on mortgage (5,647) (2,425) ----------- ----------- NET CASH (USED) BY FINANCING ACTIVITIES (5,647) (2,425) ----------- ----------- Increase (decrease) in cash and restricted cash (15,691) 15,403 Cash and restricted cash at beginning of period 564,995 555,089 ----------- ----------- CASH AND RESTRICTED CASH AT END OF PERIOD $ 549,304 $ 570,492 =========== =========== Supplemental disclosure of cash flow information - - interest paid $ 2,826 $ 2,987 =========== ===========
See accompanying notes to consolidated financial statements. F-19 64 FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 (UNAUDITED) (1) FINANCIAL STATEMENTS The following is a summary of certain significant accounting policies followed in the preparation of these consolidated financial statements. The accompanying consolidated financial statements include the accounts and operations of First American Investment Corporation ("FAIC"), incorporated in the State of Louisiana on November 8, 1984 and its wholly owned subsidiaries, Funeral Homes of America, Inc. and Funeral Homes, FAIC and its subsidiaries are collectively referred to as "First American." All significant intercompany accounts and transactions have been eliminated. FAIC is a 94.48%-owned subsidiary of American Liberty Life Insurance Company, a wholly-owned subsidiary of American Liberty Financial Corp. ("First American"). In September 1995, First American was acquired by Citizens, Inc., the ultimate majority shareholder at December 31, 1995. First American's primary operations include a funeral home located in Louisiana. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. The balance sheet for June 30, 1996, the statements of operations for the three- and six- month periods ended June 30, 1996 and 1995 and the statements of cash flows for the three- and six- month periods then ended have been prepared by First American without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows at June 30, 1996, and for comparative periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. It is suggested that these financial statements and notes thereto included in the audited financial statements as of December 31, 1995. The results of operations for the period ended June 31, 1996 are not necessarily indicative of the operating results for the full year. F-20 65 APPENDIX A AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated October 31, 1996, among Citizens Insurance Company of America, Inc., a Colorado corporation ("CICA"), CICA Acquisition, Inc., a Louisiana corporation ("Subsidiary"), and First American Investment Corporation, a Louisiana corporation ("First"). WITNESSETH: WHEREAS, the respective Boards of Directors of CICA, Subsidiary (all of the outstanding stock of which is owned by CICA), and First deem it advisable to merge Subsidiary into First (the "Merger") pursuant to this Agreement and a Certificate of Merger to be executed by First and Subsidiary; WHEREAS, CICA is a wholly-owned subsidiary of Citizens, Inc. ("Citizens") and holds shares of Citizens Class A Common Stock; WHEREAS, CICA and Citizens own directly or indirectly approximately 94.5% of the outstanding shares of capital stock of First ("First Common Stock"), consisting of 20,500,000 shares of First Common Stock, $.001 par value per share; NOW THEREFORE, in consideration of the mutual benefits to be derived from this Agreement and of the representations, warranties, conditions and promises hereinafter contained, CICA, Subsidiary, and First hereby adopt this Agreement, whereby at the effective time of the Merger (as defined in Section 1.1 hereof) Subsidiary shall be merged into First and the outstanding shares of First Common Stock shall be exchanged for shares of Citizens, Inc. ("Citizens") Class A Common Stock held by CICA, on the basis, terms and conditions contained herein and, in connection herewith, agree as follows: ARTICLE I GENERAL 1.1 Execution of Certificate of Merger. Subject to the provisions of this Agreement, a Certificate of Merger to effectuate the terms of this Agreement shall be executed and acknowledged by each of Subsidiary and First and thereafter delivered to the Secretary of State of the State of Louisiana for filing and recording in accordance with applicable law as soon as practicable on or after the Closing Date (as defined in Article VI hereof). The Merger shall become effective upon the filing of the Certificate of Merger with the Secretary of State of the State of Louisiana as provided by law ("the effective time of the Merger"). At the effective time of the Merger the separate existence of Subsidiary shall cease and Subsidiary shall be merged with and into First (Subsidiary and First are sometimes referred to herein as the "Constituent Corporations" and First, the corporation designated in the Certificate of Merger as the surviving corporation, is sometimes referred to herein as the "Surviving Corporation"). 1.2 Transfer of Citizens Shares Held by CICA. CICA agrees that at the effective time of the Merger it will transfer the shares of Citizens Class A Common Stock to the extent set forth in, and in accordance with the terms of, this Agreement. 1.3 Taking of Necessary Action. CICA, Subsidiary, and First, respectively, shall take all such action as may be necessary or appropriate in order to effectuate the transactions contemplated hereby. In case at any time after the effective time of the Merger any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full title to all A-1 66 properties, assets, rights, approvals, immunities and franchises of either First or Subsidiary, the officers and directors of such corporation at the expense of the Surviving Corporation, shall take all such necessary action. ARTICLE II EFFECT OF MERGER ON CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS AND ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION 2.1 Conversion of Stock of First and Subsidiary. (a) At the effective time of the Merger, each outstanding share of First Common Stock shall be converted into .1111 shares of Citizens Class A Common Stock, except for shares held by Dissenting First Shareholders, First, Citizens, CICA, and any of their subsidiaries, all of which shares shall be canceled. (b) At the effective time of the Merger, each share of Common Stock of Subsidiary which shall be issued and outstanding shall remain outstanding and unchanged. 2.2 Exchange of Certificate. (a) After the effective time of the Merger and within two days after receiving a list of holders of record of First Common Stock at the effective time of the Merger, CICA shall deliver to American Stock Transfer & Trust Company (the "Exchange Agent") one or more certificates representing a number of shares of Citizens Class A Common Stock equal to the aggregate number of shares of Citizens Class A Common Stock to be exchanged for the outstanding shares of First Common Stock pursuant to Section 2.1 hereof (net of the sum of (i) the number of shares of First Common Stock then owned by First, Citizens, CICA, or any subsidiary of such corporations, and which are to be canceled, and (ii) the number of shares of First Common Stock to which shareholders of First who shall have filed with First written objection to the Merger in the manner provided by the Louisiana Business Corporation Law (the "Dissenting First Shareholders") would have been entitled except for such dissents. Such certificate shall thereafter be divided into certificates of such denominations and registered in such names as the Exchange Agent may request, but under no circumstances shall CICA be required to issue certificates for fractional shares. (b) After the effective time of the Merger, each holder of a certificate theretofore evidencing outstanding shares of First Common Stock (other than shares referred to in clauses (i) and (ii) of Section 2. 2(a) hereof), upon surrender of the same to the Exchange Agent or such other agent or agents as shall be appointed by the CICA, shall be entitled to receive in exchange therefor a certificate or certificates representing the number of full shares of Citizens Class A Common Stock for which the shares of First Common Stock theretofore represented by the certificate or certificates so surrendered shall have been exchanged as provided in this Article II. As soon as possible after the effective time of the Merger, the Exchange Agent will send a notice and transmittal form to each holder of an outstanding certificate which immediately prior to the effective time of the Merger evidenced shares of First Common Stock, advising such shareholder of the terms of the exchange effected by the Merger and the procedure for surrendering to the Exchange Agent (which may appoint forwarding agents) such certificate for exchange into one or more certificates evidencing Citizens Class A Common Stock. Until so surrendered, each outstanding certificate which, prior to the effective time of the Merger, represented First Common Stock (except shares referred to in clauses (i) and (ii) of Section 2.2(a) hereof) will be deemed for all corporate A-2 67 purposes of CICA to evidence ownership of the number of full shares of Citizens Class A Common Stock for which the shares of First Common Stock represented thereby were exchanged; provided, however, until such outstanding certificates formerly representing First Common Stock are so surrendered, no dividend payable to holders of record of Citizens Class A Common Stock as of any date subsequent to the effective time of the Merger shall be paid to the holder of such outstanding certificates in respect thereof. After the effective time of the Merger there shall be no further registry of transfers on the records of First of shares of First Common Stock and, if a certificate representing such shares is presented to the Surviving Corporation, it shall be canceled and exchanged for a certificate representing shares of Citizens Class A Common Stock as herein provided. Upon surrender of certificates of First Common Stock there shall be paid to the record holder of the certificates of Citizens Class A Common Stock issued in exchange therefor (i) the amount of dividends, if any, theretofore paid with respect to such full shares of Citizens Class A Common Stock as of any date subsequent to the effective time of the Merger and (ii) at the appropriate payment date the amount of dividends, if any, with a record date after the effective time of the Merger but prior to surrender and a payment date subsequent to surrender. No interest shall be payable with respect to the payment of such dividends on surrender of outstanding certificates. 2.3 No Fractional Shares. Neither certificates nor scrip for fractional shares of Citizens Class A Common Stock will be issued, but in lieu thereof each holder of shares of First Common Stock who would otherwise have been entitled to a fraction of a share of Citizens Class A Common Stock, upon surrender of all the certificates representing shares of First Common Stock registered in the name of such holder, will be paid the cash value of such fraction based upon the price of $9.00 per whole share of Citizens Class A Common Stock. 2.4 Certificates in Other Names. If any certificate evidencing shares of Citizens Class A Common Stock is to be issued in a name other than that in which the certificate surrendered in exchange therefor is registered, it shall be a condition of the issuance thereof that the certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange pay to the Exchange Agent any transfer or other taxes required by reason of the issuance of a certificate for shares of Citizens Class A Common Stock in any name other than that of the registered holder of the certificate surrendered or establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable. 2.5 Dissenting First Shareholders. First shall give CICA (i) prompt notice of any demands received from Dissenting First Shareholders for payment for their shares of First Common Stock and (ii) the opportunity to participate in all negotiations and proceedings with respect to any such demands. First shall not, except with the prior written consent of CICA, voluntarily make any payment with respect to, or settle or offer to settle, any such demands for payment. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of First. First represents and warrants to CICA and Subsidiary as follows: (a) Authority. Subject to the approval of this Agreement by the shareholders of First as contemplated by Section 4.1 hereof, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of First, and this Agreement is a valid and binding obligation of First. Neither the execution and delivery of this Agreement nor the consummation of A-3 68 the transactions contemplated hereby nor compliance by First with any of the provisions hereof will (i) conflict with or result in a breach of any provision of its Articles of Incorporation or Bylaws, (ii) result in a material default (or give rise to any right of termination, cancellation, or acceleration) under any of the terms, conditions or provisions of any agreement or other instrument or obligation to which First or any corporation of which First owns, directly or indirectly, more than 50% of the outstanding voting securities (a "First Subsidiary") is a party, by which they or any of their properties or assets may be bound, or (iii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to First, any First Subsidiary or any of their properties or assets. No consent or approval by any governmental authority, other than compliance with applicable federal and state securities laws, is required in connection with the execution and delivery by First of this Agreement and the Certificate of Merger or the consummation by First of the transactions contemplated hereby. 3.2 Representations and Warranties of CICA and Subsidiary. CICA and Subsidiary represent and warrant to First as follows: (a) Organization, Standing and Power. CICA and Subsidiary are corporations duly organized, validly existing and in good standing under the laws of the States of Colorado and Louisiana, respectively, have all requisite corporate power and authority to own, lease and operate their properties and to carry on their businesses as now being conducted. (b) Authority. The execution and delivery by CICA and Subsidiary of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of CICA and Subsidiary and this Agreement is a valid and binding obligation of CICA and Subsidiary. Neither the execution and delivery by CICA and Subsidiary of this Agreement nor the consummation of the transactions contemplated hereby nor compliance by CICA and Subsidiary with any of the provisions hereof will (i) conflict with or result in a breach of any provision of their respective Articles of Incorporation or Bylaws, (ii) result in a material default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions, or provisions of any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which CICA or Subsidiary is a party or by which they or any of their properties or assets may be bound, or (iii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to CICA or Subsidiary or any of their properties or assets. No consent or approval by any governmental authority, other than compliance with applicable federal and state securities laws, is required in connection with the execution and delivery by CICA or Subsidiary of this Agreement and the execution and filing of the Certificate of Merger by Subsidiary or the consummation by CICA or Subsidiary of the transactions contemplated hereby. ARTICLE IV CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME OF MERGER 4.1 Shareholder Authorization. First agrees to submit this Agreement to its shareholders for authorization as soon as reasonably practical. 4.2 Registration Statement. As soon as practicable hereafter CICA will cause to be filed with the Securities and Exchange Commission the Registration Statement for the purpose of registering the shares of Citizens Class A Common Stock to be exchanged for the shares of First Common Stock pursuant to Article II of this Agreement. A-4 69 4.3 Adjustment of Conversion Ratio. If at any time from the date hereof until the effective time of the merger, Citizens shall increase or reduce the number of shares of Citizens Class A Common Stock outstanding by change in par value, split-up, reverse split, reclassification, or distribution of stock dividends, the number of shares of Citizens Class A Common Stock into which each outstanding share of First Common Stock shall be converted shall be proportionately and equitably adjusted to the satisfaction of First. ARTICLE V CONDITIONS OF MERGER 5.1 Conditions of Obligations of CICA and Subsidiary. The obligations of CICA and Subsidiary to perform this Agreement are subject to the satisfaction of the following conditions unless waived by CICA and Subsidiary. (a) Representations and Warranties. The representations and warranties of First set forth in Section 3.1 hereof shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except as otherwise contemplated by this Agreement. (b) Performance of Obligations of First. First shall have performed all oblations required to be performed by it under this Agreement prior to the Closing Date. (c) Authorization of Merger. All action necessary to authorize the execution, delivery and performance of this Agreement by First, CICA and Subsidiary and the consummation of the transactions contemplated hereby shall have been duly and validly taken by the Boards of Directors of First, CICA, and Subsidiary respectively, and the shareholders of First and Subsidiary. (d) The Registration Statement. The Registration Statement contemplated hereby shall be effective under the Securities Act of 1933, as amended, and shall not be subject to a stop order or any threatened stop order. 5.2 Conditions of Obligation of First. The obligation of First to perform this Agreement is subject to the satisfaction of the following conditions unless waived by First: (a) Representations and Warranties. The representations and warranties of CICA and Subsidiary set forth in Section 3.2 hereof shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except as otherwise contemplated by this Agreement. (b) Performance of Obligations of CICA and Subsidiary. CICA and Subsidiary shall have performed all obligations required to be performed by them under this Agreement prior to the Closing Date. (c) Authorization of Merger. All action necessary to authorize the execution, delivery and performance of this Agreement by CICA, Subsidiary, and First and the consummation of the transactions contemplated hereby shall have been duly and validly taken by the Boards of Directors of CICA, Subsidiary, and First respectively, and the shareholders of First and Subsidiary. 5.3 Condition of Obligations of CICA, Subsidiary, and First. The obligations of CICA, Subsidiary, and First to perform this Agreement unless waived by CICA, Subsidiary, and First, are subject A-5 70 to the condition that prior to the special meeting of shareholders of First to authorize the Merger written objection to this Agreement shall not have been filed with First by the holders of 1% of more of the outstanding shares of First Common Stock pursuant to the provisions of the Louisiana Business Corporation Law relating to the rights of dissenting shareholders. ARTICLE VI CLOSING DATE The closing for the consummation of the transactions contemplated by this Agreement shall, unless another date or place is agreed to in writing by the parties hereto, take place at the offices of Jones & Keller, P.C. in Denver, Colorado, on the date (the "Closing Date") which is the second business day after the date the shareholders of First shall have given the approval referred to in Section 4.1 hereof. ARTICLE VII TERMINATION, SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS: WAIVER AND AMENDMENT 7.1 Termination. This Agreement shall be terminated, and the Merger abandoned, if the shareholders of First shall not have authorized this Agreement as required by Section 4.1 hereof. Notwithstanding approval by such shareholders, this Agreement may be terminated at any time prior to the effective time of the Merger, by: (a) the unanimous consent of CICA, Subsidiary, and First; (b) CICA and Subsidiary or First at any time after March 31, 1997; (c) if events occur which render impossible the compliance one or more of the conditions set forth in Section 5.1 hereof and are not waived by CICA and Subsidiary or if events occur which render impossible of compliance one or more of the conditions set forth in Section 5.2 hereof and are not waived by First or if events occur which render impossible of compliance the condition set forth in Section 5.3 hereof and are not waived by CICA, Subsidiary, and First; or (d) CICA or First if the Board of Directors of either CICA or First shall have determined in its sole discretion exercised in good faith that the Merger contemplated by this Agreement has become inadvisable or impracticable by reason of the threat or the institution of any litigation or proceeding or the institution of a formal investigation, in either case to restrain or prohibit the consummation of the transactions contemplated by this Agreement or to obtain other relief in connection with this Agreement. 7.2 Effect of Termination. In the event of the termination and abandonment of this Agreement and the Merger, this Agreement shall become void and have no effect, without any liability on the part of any party or its directors, officers or shareholders. 7.3 Survival of Representations, Warranties and Covenants. The respective representations and warranties, obligations, covenants and agreements of First, CICA and Subsidiary contained herein (other than those contained in Sections 1.2, 1.3, Article II and Section 8.1 hereof) shall expire with, and be terminated and extinguished by, the effectiveness of the Merger and shall not survive the effective time of the Merger. The sole right and remedy arising from a misrepresentation or breach of warranty, from the failure to perform any promise or discharge any obligation not specified in the preceding sentence, from A-6 71 a failure to comply with obligations hereunder or from the failure of any of the conditions to be met shall be the termination of this Agreement by the aggrieved party. 7.4 Waiver and Amendment. Any term or provision of this Agreement may be waived at any time by the party which is, or whose shareholders are, entitled to the benefits thereof and this Agreement may be amended or supplemented at any time, whether before or after the special meeting of First shareholders referred to in Section 4.1 hereof; provided, however, that the ratio at which shares of First Common Stock will be exchanged for shares of Citizens Class A Common Stock as provided in Section 2.1 hereof, may not be waived or amended after final adjournment of such special meeting of First shareholders. ARTICLE VIII MISCELLANEOUS 8.1 Expenses. If the Merger becomes effective, each of CICA, Subsidiary and the Surviving Corporation shall pay their respective expenses in connection therewith, and any expenses incurred by the shareholders of Subsidiary or First shall be borne by them. If the Merger shall not become effective or shall be abandoned, then CICA, Subsidiary and First shall each bear their expenses separately incurred in connection therewith. 8.2 Entire Agreement. This Agreement contains the entire agreement among CICA, Subsidiary and First with respect to the Merger and the related transactions and supersedes all prior arrangements or understandings with respect thereto. 8.3 Descriptive Headings. Descriptive headings are for convenience only and shall not control or effect the meaning or construction of any provision of this Agreement. 8.4 Notices. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered personally or sent by registered or certified mail, postage prepaid, addressed as follows: 8.5 Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. A-7 72 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf and its corporate seal to be hereunto affixed and attested by its officers thereunto duly authorized, all as of the day and year first above written. CITIZENS INSURANCE COMPANY OF AMERICA, INC. By:/s/ Harold E. Riley ---------------------------------------- Attest:/s/ Mark A. Oliver Title: President ------------------------ CICA ACQUISITION, INC. By:/s/ Harold E. Riley ---------------------------------------- Attest:/s/ Mark A. Oliver ------------------------ FIRST AMERICAN INVESTMENT CORPORATION By:/s/ Harold E. Riley ---------------------------------------- Title: President Attest:/s/ Mark A. Oliver ------------------------ A-8 73 APPENDIX B STOCK PURCHASE AGREEMENT This Agreement is entered into as of October 18, 1996, by and among FIRST AMERICAN INVESTMENT CORPORATION, a Louisiana corporation ("Seller"), and FUNERAL SERVICES INTERNATIONAL, INC., a Louisiana corporation ("Buyer"). Buyer and Seller are referred to collectively herein as the "Parties." RECITALS: WHEREAS; Seller owns all of the outstanding capital stock of Funeral Homes of Louisiana, Inc., a Louisiana corporation ("FHLI"); WHEREAS, Buyer is a Louisiana corporation whose sole shareholders are Gary L. Roth ("Roth") and Eddie McCallum ("McCallum"), both of whom have been involved in the management and operation of the business of FHLI prior to and after the acquisition of FHLI by Seller; and WHEREAS, this Agreement contemplates a transaction in which Buyer will purchase from Seller, and Seller will sell to Buyer, all of the outstanding capital stock of FHLI in return for cash and discharge of indebtedness to American Liberty Life Insurance Company ("ALLIC") secured by certain assets of FHLI. NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, the Parties agree as follows. 1. PURCHASE AND SALE OF FHLI SHARES. (a) Basic Transaction. On and subject to the terms and conditions of this Agreement, Buyer agrees to purchase from Seller, and Seller agrees to sell to Buyer, all of its FHLI Shares for the consideration specified in this Section 1. (b) Purchase Price. Buyer agrees to pay $700,000 (the "Purchase Price") at Closing by (i) delivery of evidence satisfactory to Seller of payment in full (the "Payoff Balance") of the Mortgage Loan, and (ii) wire transfer of cash equal to the difference between the Purchase Price and the Payoff Balance to an account designated in writing to Buyer by Seller. (c) The Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place on November 1, 1996, or such other date as Buyer and Seller may mutually determine (the "Closing Date"). (d) Deliveries at the Closing. The Parties shall deliver the certificates, instruments and documents required by this Agreement to Escrow Agent to be held in escrow until released at Closing in accordance with written instructions from the party delivering same. The stock certificates representing the FHLI Shares shall be endorsed in blank or accompanied by duly executed assignment documents upon delivery to Escrow Agent by Seller. 2. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Buyer that, to its Knowledge, the following statements contained in this Section 2 are correct and complete as of the date of this Agreement and, except as otherwise notified pursuant to Section 4(e), will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 2). B-1 74 (a) Organization of Seller. Seller and FHLI are duly organized, validly existing, and in good standing under the laws of the jurisdiction of their incorporation. (b) Authorization of Transaction. At Closing, Seller will have full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder, and this Agreement will constitute the valid and legally binding obligation of Seller, enforceable in accordance with its terms and conditions. Except as may be required under applicable securities laws, Seller is not required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. (c) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any provision of its charter or bylaws or any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Seller is subject, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any contract, lease, license, instrument, or other agreement to which Seller is a party or by which it is bound or to which any of its assets is subject. (d) Brokers' Fees. Seller has no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which Buyer or FHLI could become liable or obligated. (e) FHLI Shares. Seller holds of record and owns beneficially all of the outstanding FHLI Shares, free and clear of any restrictions on transfer (other than any restrictions under the Securities Act and state securities laws), security interests, options, warrants, purchase rights, contracts, commitments, equities and claims. Except for this Agreement, neither Seller nor FHLI is a party to any option, warrant, purchase right, or other contract or commitment that could require Seller or FHLI to sell, transfer, or otherwise dispose of any capital stock of FHLI. Neither Seller nor FHLI is a party to any voting trust, proxy, or other agreement with respect to the voting of any capital stock of FHLI. (f) Trial Balances. The Current Trial Balance is, and except as otherwise noted thereon the Closing Trial Balance will be, (i) prepared from information provided by the McCallum and Roth as management of the funeral home, (ii) relied on by Seller and the directors of FHLI for decisions concerning FHLI, and (iii) fair presentations of the financial condition of FHLI as of the date thereof. (g) Leasehold Premises. The Lease, a complete copy of which has been furnished to Buyer, is valid and enforceable subject to equitable principles or the effect of bankruptcy or creditors' rights laws. The Premises constitute all of the immovable property used or necessary for the lawful operation of FHLI as presently conducted. There are no encroachments upon the Premises by any buildings, structures, or improvements located on adjoining real estate. None of the buildings, structures or improvements that are constructed on the Premises and used in the present operation of FHLI encroaches upon adjoining real estate, and all such buildings, structures, and improvements are constructed in conformity with all "set-back" lines, easements and other restrictions or rights of record, and all applicable building or safety codes and zoning ordinances. There are no pending or threatened condemnation or eminent domain proceedings that may affect the Premises. There are no structural defects in the buildings, structures and other improvements located on the Premises. 3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller that the following statements contained in this Section 3 are correct and complete as of the date of this Agreement and, except as B-2 75 otherwise notified pursuant to Section 4(e), will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3). (a) Organization of Buyer. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Louisiana. (b) Authorization of Transaction. Buyer has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of Buyer, enforceable in accordance with its terms and conditions. Buyer is not required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. (c) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any provision of the charter, bylaws or other organizational documents of Buyer or any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Buyer is subject, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Buyer is a party or by which it is bound or to which any of its assets are subject. (d) Brokers' Fees. Buyer has no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which Seller could become liable or obligated. (e) Investment. Buyer (i) understands that the FHLI Shares have not been, and will not be, registered under the Securities Act or under any state securities laws, and are being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering, (ii) is acquiring the FHLI Shares solely for its own account for investment purposes, and not with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act, (iii) is a sophisticated investor with knowledge and experience in business and financial matters, (iv) has received certain information concerning FHLI and has had the opportunity to obtain additional information as desired in order to evaluate the merits and the risks inherent in holding the FHLI Shares, and (v) is able to bear the economic risk and lack of liquidity inherent in holding the FHLI Shares. (f) "AS IS" Sale. Buyer acknowledges that (i) Seller is not making any representations or warranties to Buyer except as expressly contained in this Agreement; (B) Roth and McCallum have been involved in the operations of FHLI and, as a result, are in a better position than Seller to know or have the opportunity to become aware of all material facts concerning FHLI, its assets, liabilities and business. Accordingly, Buyer is not relying on any warranty or representation of Seller except to the extent that neither Roth and McCallum are aware, nor in the exercise of reasonable diligence, should have been aware of the matters relating to such representation or warranty. (g) Investigations. Buyer has exercised and will continue to exercise, directly or indirectly through Roth and McCallum (each of whom shall be deemed an agent of Buyer for all purposes of this Agreement including any transaction contemplated hereby) and other agents, the right to inspect the assets, books, records, contracts, premises and all other matters relating to FHLI. Buyer (A) is relying solely on such inspections and on the individuals conducting same; (B) has completed or prior to Closing will complete an inspection of all tangible assets owned or used by FHLI and the physical condition thereof, including accessibility and location of utilities, use or disposal of hazardous materials by, on, from or in connection B-3 76 with such operations or assets, all matters with respect to taxes, assessments, income and expense data, bonds, permissible uses, zoning, covenants, conditions and restrictions, and other matters which might affect or influence Buyer's intended purposes or Buyer's willingness to enter into this Agreement; and (C) understands that Seller would not sell FHLI except on an "AS IS" basis. 4. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing. (a) General. Subject to any applicable fiduciary duties, each of the Parties will use its commercially reasonable efforts to take all action and to do all things necessary in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Section 6). (b) Notices and Consents. Each of the Parties will (and Seller will cause FHLI to) give any notices to, make any filings with, and use its commercially reasonable efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies as may be requested by the other Party to this Agreement and necessary to consummate the transactions contemplated by this Agreement. (c) Restrictions on Recapitalization or Material Changes. Seller will not cause or permit FHLI to declare, set aside, or pay any dividend or make any distribution with respect to its capital stock or redeem, purchase, or otherwise acquire any of its capital stock.. Without the prior written consent of Buyer, Seller will not directly or indirectly take or cause to be taken any action which would have a materially adverse effect on FHLI or its assets or business. (d) Full Access. Seller will permit, and Seller will cause FHLI to permit, agents and representatives of Buyer to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of FHLI, to all premises, properties, personnel, books, records (including tax records), contracts, and documents of or pertaining to FHLI. (e) Notice of Developments. In the event either party to this Agreement discovers information indicating that facts or circumstances exist which would give rise to a breach of a representation or warranty either by the discovering party or the other party to this Agreement, the discovering party shall promptly give written notice thereof to the other party. If such notice of breach is given on or before Closing, the party ("Nonbreaching Party") who is not in breach or potential breach of the representation or warranty described in the written notice may elect to (i) proceed to Closing, in which case such breach shall be waived if not caused by the willful or negligent acts or omission of the other party ("Breaching Party"), (ii) subject to the consent of the Breaching Party, extend the Closing Date up to thirty (30) days, or (iii) terminate the Agreement. (f) Trial Balance. Seller will furnish Buyer a FHLI trial balance as of a date no more than thirty (30) days before Closing. 5. POST-CLOSING COVENANT. If any further action is necessary after Closing to carry out the purposes of this Agreement, each Party will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole cost and expense of the requesting Party. Seller acknowledges and agrees that from and after the Closing Buyer will be entitled to possession of all documents, books, records (including tax records), agreements, and financial data of any sort relating solely to FHLI. B-4 77 6. CONDITIONS TO OBLIGATION TO CLOSE. (a) Conditions to Obligation of Buyer. The obligation of Buyer to consummate the transactions to be performed by Buyer in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties of Seller shall be true and correct in all material respects at and as of the Closing Date; (ii) Seller shall have performed and complied with all of its covenants hereunder in all material respects through the Closing; (iii) no action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, (C) affect adversely the right of Buyer to own FHLI Shares and to control FHLI, or (D) affect adversely the right of FHLI to own its assets and to operate its businesses (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); (iv) Seller shall have delivered to Buyer a certificate to the effect that, to its Knowledge, each of the conditions specified in Section 6(a)(i)-(iii) is satisfied in all respects; (v) On or before the Closing, Buyer shall (A) have concluded all investigations described in Section 3(g) and shall be satisfied with the results thereof, (B) have obtained financing on terms and conditions satisfactory to Buyer and in an amount sufficient to consummate the transactions contemplated hereby, and (C) be satisfied that there are no material adverse changes in the business or condition of FHLI since the Current Trial Balance; (vi) the Parties shall have received all authorizations, consents, and approvals of governments and governmental agencies required to consummate the transactions contemplated by this Agreement; (vii) Buyer shall have received the resignations, effective as of the Closing, of each director and officer of FHLI; (viii) all actions to be taken by Seller in connection with consummation of the transactions contemplated hereby and all certificates, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to Buyer; (ix) a release of the mortgage and encumbrance securing the Mortgage Loan, in form and substance reasonably satisfactory to counsel to Buyer, shall be delivered to Escrow Agent for delivery to Buyer upon Buyer's payment in full of the Mortgage Loan by wire transfer; and (x) Buyer shall have received an estoppel certificate from the City of Baker, Louisiana confirming that all past due rent under the Lease has been paid and that, to its knowledge, the Lease is valid and enforceable. Buyer may waive any condition specified in this Section 6(a) if it executes a writing so stating at or prior to the Closing. B-5 78 (b) Conditions to Obligation of Seller. The obligation of Seller to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties of Buyer shall be true and correct in all material respects at and as of the Closing Date; (ii) Buyer shall have performed and complied with all of its covenants hereunder in all material respects through the Closing; (iii) no action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement, or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect) or (C) result in any fine, penalty or adverse effect against any Affiliate of FHLI; (iv) Buyer shall have delivered to Seller a certificate to the effect that each of the conditions specified in Section 6(b)(i), (ii) and, to its Knowledge, (iii) is satisfied in all respects; (v) On or before the Closing, Buyer shall confirm in writing to Seller that Buyer (A) has concluded all investigations described in Section 3(g) and is satisfied with the results thereof, and (B) has obtained financing on terms and conditions satisfactory to Buyer and in an amount sufficient to consummate the transactions contemplated hereby; (vi) the Parties shall have received all authorizations, consents, and approvals of governments and governmental agencies required to consummate the transactions contemplated by this Agreement; (vii) all actions to be taken by Buyer in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to Seller; and (viii) this Agreement and the transactions contemplated hereby shall be approved by the requisite vote of the Seller's Board of Directors and shareholders on or before the Closing. Seller may waive any condition specified in this Section 6(b) if it executes a writing so stating at or prior to the Closing. 7. REMEDIES FOR BREACHES OF THIS AGREEMENT. (a) Survival of Representations and Warranties. The representations and warranties of the Parties contained in Sections 2(d)-(f), inclusive, and Sections 3(d)-(g), inclusive, shall survive the Closing. None of the other representations and warranties of the Parties shall survive the Closing. (b) Exclusivity. The representations, warranties and covenants contained in this Agreement, subject to the limitations contained herein, are the sole and exclusive representations and warranties relating to the transactions contemplated by this Agreement and are in derogation of all statutory, equitable, and other common or civil law rights or remedies. B-6 79 8. TERMINATION. (a) Termination of Agreement. This Agreement may be terminated as provided below: (i) Buyer and Seller may terminate this Agreement by mutual written consent at any time prior to the Closing; (ii) if the conditions of Sections 6(a)(v) or 6(b)(v) are not satisfied on or before the Closing, Seller or Buyer may terminate this Agreement by giving written notice to the other; (iii) Buyer may terminate this Agreement by giving written notice to Seller at any time prior to the Closing (A) in the event Seller has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Buyer has notified Seller of the breach, and the breach has continued without cure for a period of 10 days after the notice of breach, or (B) if the Closing shall not have occurred on or before November 1, 1996, by reason of the failure of any condition precedent under Section 6(a) hereof (unless the failure results primarily from breach by Buyer of any representation, warranty, or covenant contained in this Agreement); and (iv) Seller may terminate this Agreement by giving written notice to Buyer at any time prior to the Closing (A) in the event Buyer has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Seller has notified Buyer of the breach, and the breach has continued without cure for a period of 10 days after the notice of breach, or (B) if the Closing shall not have occurred on or before November 1, 1996, by reason of the failure of any condition precedent under Section 6(b) hereof (unless the failure results primarily from Seller breaching any representation, warranty, or covenant contained in this Agreement). (b) Effect of Termination. If any Party terminates this Agreement pursuant to Section 8(a) , all rights and obligations of the Parties hereunder shall terminate without any liability of any Party to any other Party. 9. DEFINITIONS. "Accredited Investor" has the meaning set forth in Regulation D promulgated under the Securities Act. "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act. "Closing" and "Closing Date" have the meanings set forth in Section 1(c). "Code" means the Internal Revenue Code of 1986, as amended. "Confidential Information" means any information concerning the businesses and affairs of FHLI that is not already generally available to the public. "Closing Trial Balance" means the FHLI trial balance to be delivered pursuant to Section 4(f). "Current Trial Balance" means the FHLI trial balance as of September 30, 1996 attached as Exhibit A hereto. "Escrow Agent" means Schaneville & Barringer, 918 Government Street, Baton Rouge, Louisiana 70802-6095, Attn: Donald M. Meltzer, Tel: 504-383-9953, Fax: 504-387-3198. B-7 80 "FHLI Share" means any share of capital stock of FHLI. "Knowledge" means actual knowledge of the officer executing this Agreement on behalf of the subject entity without investigation or imputation of notice or knowledge from any other person or entity. "Lease" means the Land Lease dated July 29, 1991 between the City of Baker, Louisiana, as Lessor, and FHLI. "Mortgage Loan" means the indebtedness owed by FHLI to ALLIC and secured by certain assets of FHLI. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Premises" means the funeral home facilities located on the real property described in the Lease. "Purchase Price" has the meaning set forth in Section 1(b). "Securities Act" means the Securities Act of 1933, as amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. 10. MISCELLANEOUS. (a) Confidentiality. Buyer will maintain the confidentiality of all Confidential Information, refrain from using any of the Confidential Information except in connection with this Agreement, and deliver promptly to Seller or destroy, at the request and option of Seller, all tangible and intangible copies, reproductions, extracts, summaries and analyses of or derived from, in whole or in part, the Confidential Information which are in its possession. In the event that Buyer is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, that Buyer will notify Seller promptly of the request or requirement so that Seller may seek an appropriate protective order or waive compliance with these provisions. If, in the absence of a protective order or the receipt of a waiver hereunder, Buyer is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, Buyer may disclose the Confidential Information to the tribunal; provided, however, that Buyer shall use its best efforts to obtain, at the request of Seller, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as the Buyer shall designate. The foregoing provisions shall not apply to any Confidential Information which is generally available to the public immediately prior to the time of disclosure through no fault, in whole or in part, of Buyer. The provisions of this Section 10(a) shall survive any termination of this Agreement. (b) No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any individual or entity other than the Parties and their respective successors and permitted assigns. (c) Entire Agreement. This Agreement (including any documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof. B-8 81 (d) Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or its rights, interests, or obligations hereunder. (e) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. (f) Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (g) Notices. All notices or other communications made pursuant hereto shall be in writing, addressed to the Parties at their respective addresses set forth below, and shall be deemed properly delivered, given or served on (i) personal delivery against receipt copy signed by the recipient, (ii) facsimile transmission with written confirmation of receipt by the recipient, (iii) the third business day after being mailed by certified or registered mail, postage prepaid, or (iv) one business day after being sent via Federal Express or other recognized overnight service: If to Seller: First American Investment Corporation Attn: Mark A. Oliver P.O. Box 149151 Austin, Texas, 78714-9151 Tel: 512-837-7100 Fax: 512-836-9334 If to Buyer: Funeral Services International, Inc. Attn: Gary L. Roth or Eddie McCallum 6401 Groom Road Baker, Louisiana 70714 Tel: 504-775-1991 Fax: 504-775-2095 Any Party may send any notice or other communication hereunder to the intended recipient at the address set forth above using any other means including telex, ordinary mail, or electronic mail, but no such notice or other communication shall be deemed to have been duly given unless and until it is actually received by the intended recipient. Any Party may change the address to which notices or other communications hereunder are to be delivered by giving the other Party notice in the manner herein set forth. (h) Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Louisiana without giving effect to any choice or conflict of law provision or rule (whether of the State of Louisiana or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Louisiana. (i) Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by Buyer and Seller. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. (j) Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. B-9 82 (k) Expenses. Each of the Parties will bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. FHLI will not bear Seller's costs and expenses (including Seller's legal fees and expenses) incurred in connection with this Agreement or any of the transactions contemplated hereby. (l) Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. (m) Incorporation of Exhibits. Any exhibits identified in this Agreement are incorporated herein by reference and made a part hereof. * * * * * * * IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. SELLER: FIRST AMERICAN INVESTMENT CORPORATION By:/s/ Mark A. Oliver ------------------------------------------ Title: Executive Vice President and Treasurer BUYER: FUNERAL SERVICES INTERNATIONAL, INC. By:/s/ Eddie McCallum ------------------------------------------ Title: President and Chief Executive Officer Each of the undersigned hereby agrees and certifies that, as of the date of this Agreement and as of Closing, (A) he is not aware of (i) any breach, or any facts or circumstances which could lead to a breach, of any representation, warranty or covenant of Seller contained in this Agreement, (ii) any untrue statement of a material fact or omission to state any material fact necessary in order to make the statements and information contained in any representation or warranty of Seller not misleading, and (B) he will notify Seller immediately if he should become aware, whether by the occurrence of any event, additional knowledge or otherwise, of any breach or possible breach of his certification in clause (A) of this paragraph. Each of the undersigned further agrees to be personally bound by the provisions of Section 10(a) as if his name were substituted for each reference to Buyer therein. /s/ Gary L. Roth /s/ Eddie McCallum - ------------------------- ------------------------- Gary L. Roth Eddie McCallum B-10 83 EXHIBIT A TO STOCK PURCHASE AGREEMENT Current Trial Balance FEDERAL HOMES OF LOUISIANA, INC. ACCOUNTING TRIAL BALANCE - 9/30/96 13856 INV RE-6401 GROOM RD, BAKER LA, FUNERAL HOME 477,130.14 13857 INV RE-6401 GROOM RD, BAKER LA - ENCUMBRANCES (88,762.25) 13858 INV RE-6401 GROOM RD, BAKER LA - ACCUM DEPRE (62,046.86) 15101 CASH-HOME OFF ACCTG DEPT PETTY CASH 303.28 15204 CKNG-HANCOCK BANK-BATON ROUGE LA 20,009.03 15213 CKNG-HANCOCK BANK (BAKER FH IMPREST) BTR LA 1,581.67 15605 SVNG-MERRILL LYNCH GOVT RESERVES 0.00 17501 FURNITURE & EQUIPMENT 88,170.92 17501 FURNITURE & EQUIPMENT-ACCUM DEPR (24,755.69) 17550 ACCOUNTS RECEIVABLE 58,496.06 17611 VEHICLES 112,370.83 17613 VEHICLES-ACCUM DEPR (60,314.83) 17621 INVENTORY-CASKETS 0.00 17622 INVENTORY-BURIAL GARMENTS 0.00 ----------- TOTAL ASSETS 522,182.30 28325 SALES TAX PAYABLE (542.83) 28710 SUSPENSEN-CONVERSION ACCTG DISCREPANCIES 0.00 28711 SUSPENSEN-MISC GENERAL ACCOUNTING 3,380.24 28720 CLEARING-BOND 0.00 29300 NOTES PAYABLE 0.00 ----------- TOTAL LIABILITIES 2,837.41 31101 CAPITAL PAID UP (63,000.00) 33101 GROSS PAID IN & CONTRIBUTED SURPLUS (525,000.33) 33301 UNASSIGNED SURPLUS FUNDS/RETAINED EARNINGS 81,092.72 ----------- TOTAL NET ASSETS (506,907.61) 57730 INV EXP-REAL ESTATE DEPRECATION EXPENSE 15,228.48 57740 INV EXP-SURPLUS NOTE, DEB. INT 6,277.96 59000 FH INC-PROFESSIONAL SERVICES-REGULAR (38,759.06) 59002 FH INC-PROFESSIONAL SERVICES-CREMATION 0.00 59004 FH INC-VIEWING FACILITIES USE-REGULAR (10,705.00) 59006 FH INC-VIEWING FACILITIES USE-CREMATION 0.00 59007 FH INC-VIEWING FACILITIES USE-CHILD 0.00 59010 FH INC-VIEWING FACILITIES USE-REGULAR ADULT (23,470.00) 59013 FH INC-SERVICES FACILITIES USE-CHILD 0.00 59017 FH INC-OTHER FACILITIES USE-CREMATION 0.00 59019 FH INC-EMBALMING-REGULAR ADULT (14,070.00) 59021 FH INC-EMBALMING-CREMATION 0.00 59022 FH INC-EMBALMING-CHILD 0.00 59023 FH INC-BODY PREPARATION (8,725.00) 59024 FH INC-CASKETS (136,300.25) 59025 FH INC-OUTER CONTAINERS-VAULT (24,344.00) 59026 FH INC-OUTER CONTAINERS-OTHER 0.00
B-11 84 59027 FH INC-ALTERNATIVE CONTAINER (505.00) 59028 FH INC-CREMATION URNS 0.00 59030 FH INC-BURIAL GARMENTS (487.00) 59031 FH INC-REGISTER BOOKS (875.00) 59032 FH INC-ACKNOWLEDGEMENT CARDS (745.00) 59033 FH INC-SERVICE FOLDER (300.00) 59034 FH INC-TRANSFER OF REMAINS (6,005.00) 59035 FH INC-HEARSE TRANSPORTATION (3,670.00) 59036 FH INC-LIMO TRANSPORTATION (935.00) 59037 FH INC-SERVICES/UTILITY TRANSPORTATION (1,535.00) 59038 FH INC-MILEAGE CHARGES (1,124.00) 59040 FH INC-CEMETERY CHARGES (2,574.00) 59041 FH INC-CREMATORY CHARGES (1,310.00) 59042 FH INC-FLOWERS 0.00 59043 FH INC-OBITUARY NOTICES (4,901.65) 59044 FH INC-CERTIFIED COPIES (2,815.00) 59045 FH INC-PUBLIC TRANSPORTATION (358.00) 59046 FH INC-OUTSIDE FUNERAL DIRECTORS (1,730.00) 59047 FH INC-HAIRDRESSING (760.00) 59048 FH INC-PREMITS (120.00) 59900 FH INC-MISCELLANEOUS INCOME (13,889.26) ----------- TOTAL INCOME (279,505.78) 69000 FH EXP-CASKETS 35,956.98 69001 FH EXP-OUTER CONTAINERS-VAULT 16,935.16 69004 FH EXP-CREMATION URNS 1,282.32 69006 FH EXP-BURIAL GARMENTS 648.91 69007 FH EXP-BOOKS, CARDS, ETC. 1,390.34 69009 FH EXP-CEMETARY CHARGES 760.00 69010 FH EXP-CREMATION CHARGES 575.00 69011 FH EXP-FLOWERS 96.04 69012 FH EXP-OBITUARY NOTICES 6,093.80 69013 FH EXP-CERTIFIED COPIES 2,370.00 69014 FH EXP-PUBLIC TRANSPORTATION 12,690.81 69015 FH EXP-OUTSIDE FUNERAL DIRECTORS 755.00 69017 FH EXP-HAIRDRESSING 760.00 69018 FH EXP-PERMITS, LICENSES AND FEES 115.00 69019 FH EXP-ALLOWANCES 1,116.58 69020 FH EXP-EMBALMING AND FUNERAL SUPPLIES 3,638.16 69030 FH EXP-REAL ESTATE LEASE PAYMENT 0.00 ----------- TOTAL FUNERAL HOME EXPENSES 85,184.10 72005 SALARIES & WAGES-OTHER (ACTUAL) 0.00 72045 SALARIES & WAGES ON CONTRACT LABOR (ACTUAL) 5,177.67 73115 CONTRIBUTION FOR EMPLOYEE BENEFIT PLANS 0.00 73315 OTHER EMPLOYEE WELFARE (ACTUAL) 881.84 73409 MANAGEMENT SERVICE FEE EXP 88,363.55 74125 LEGAL FEES & EXPENSES OTHER 0.00 74405 PUBLIC ACCOUNTANT & ACTUARY FEES (20.00) 72125 TRAVEL EXPENSE-OTHER (ACTUAL) 2,900.04 72165 ENTERTAINMENT EXPENSE-OTHER (ACTUAL) 1,074.65
B-12 85 72205 ADVERTISING/PUBLIC RELATIONS EXPENSE (ACTUAL) 10,978.35 75305 POSTAGE EXPENSE (ACTUAL) 1,027.76 75335 TELEGRAPH AND TELEPHONE 4,955.57 75405 PRINTING-STATIONERY EXPENSE (ACTUAL) 1,109.13 75425 OFFICE SUPPLIES EXPENSE (ACTUAL) 1,287.02 75515 DEPRECIATION-VEHICLES (ACTUAL) 5,300.00 75525 DEPRECIATION-FURNITURE & EQUIPMENT (ACTUAL) 11,090.98 75605 EQUIPMENT-RENTAL (ACTUAL) 1,296.87 75615 EQUIPMENT-MAINTENANCE & REPAIR (ACTUAL) 927.76 75725 DATA PROCESSING-RIBBONS, SUPPLIES, ETC. EXP 0.00 76105 BOOKS & PERIODICALS (ACTUAL) 1,242.64 76205 BUREAU & ASSOCIATION DUES 1,260.94 76305 INSURANCE, EXCEPT ON REAL ESTATE 94.00 76405 MISCELLANEOUS LOSSES 15,617.24 76505 COLLECTION AND BANK SERVICE CHARGES 22.03 76615 SUNDRY-CONTRIBUTIONS & DONATIONS 1,030.00 76635 SUNDRY-MISCELLANEOUS (ACTUAL) 9,105.75 79125 REAL ESTATE-MAINT & REPAIR (ACTUAL) 2,631.03 79155 REAL ESTATE-SERV & SUPPLIES (ACTUAL) 3,270.08 79165 REAL ESTATE-UTILITIES (ACTUAL) 6,347.27 ----------- TOTAL GENERAL EXPENSES 176,972.14 81009 STATE TAX-REAL ESTATE 0.00 84005 STATE TAX-SUTA (ACTUAL) 0.00 84019 STATE TAX-OTHER (762.56) 85005 FEDERAL TAX-FICA (ACTUAL) 0.00 86005 FEDERAL TAX-FUTA (ACTUAL) 0.00 ----------- TOTAL STATE TAX EXPENSE (762.56) 94000 FEDERAL INCOME TAXES 0.00 ----------- TOTAL FEDERAL INCOME TAXES 0.00
B-13 86 AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT This Amendment No. 1 ("Amendment") is entered into as of November 1, 1996, by and among FIRST AMERICAN INVESTMENT CORPORATION, a Louisiana corporation ("Seller"), and FUNERAL SERVICES INTERNATIONAL, INC., a Louisiana corporation ("Buyer"). RECITALS: WHEREAS, Seller and Buyer entered into a Stock Purchase Agreement as of October 18, 1996 ("Stock Purchase Agreement") which contemplates a Closing Date of November 1, 1996; and WHEREAS, Buyer has requested an extension of the Closing Date to December 16, 1996. NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, Buyer and Seller agree as follows: 1. AMENDMENT OF STOCK PURCHASE AGREEMENT. The Stock Purchase Agreement is amended as follows: (a) Section 1(c) is hereby amended in its entirety to read as follows: "(c) The Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place on December 16, 1996, or such other date as Buyer and Seller may mutually determine (the "Closing Date")." (b) Section 8(a)(iii) is hereby amended in its entirety to read as follows: "(iii) Buyer may terminate this Agreement by giving written notice to Seller at any time prior to the Closing (A) in the event Seller has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Buyer has notified Seller of the breach, and the breach has continued without cure for a period of 10 days after the notice of breach, or (B) if the Closing shall not have occurred on or before December 16, 1996, by reason of the failure of any condition precedent under Section 6(a) hereof (unless the failure results primarily from breach by Buyer of any representation, warranty, or covenant contained in this Agreement); and" (c) Section 8(a)(iv) is hereby amended in its entirety to read as follows: "(iv) Seller may terminate this Agreement by giving written notice to Buyer at any time prior to the Closing (A) in the event Buyer has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Seller has notified Buyer of the breach, and the breach has continued without cure for a period of 10 days after the notice of breach, or (B) if the Closing shall not have occurred on or before December 16, 1996, by reason of the failure of any condition precedent under Section 6(b) hereof (unless the failure results primarily from Seller breaching any representation, warranty, or covenant contained in this Agreement)." 2. MISCELLANEOUS. The use of capitalized terms not defined in this Amendment shall have the same meaning as defined in the Stock Purchase Agreement. Except as expressly amended in Section 1 above, the Stock Purchase Agreement shall remain in full force and effect as originally executed without any modification thereof. B-14 87 IN WITNESS WHEREOF, Buyer and Seller have executed this Amendment as of the date first above written. SELLER: FIRST AMERICAN INVESTMENT CORPORATION By:/s/ Mark A. Oliver ------------------------------------------ Title: Executive Vice President and Treasurer BUYER: FUNERAL SERVICES INTERNATIONAL, INC. By:/s/ Eddie McCallum ------------------------------------------ Title: President and Chief Executive Officer Each of the undersigned hereby agrees and certifies that, as of the date of this Amendment and as of Closing, (A) he is not aware of (i) any breach, or any facts or circumstances which could lead to a breach, of any representation, warranty or covenant of Seller contained in the Stock Purchase Agreement, (ii) any untrue statement of a material fact or omission to state any material fact necessary in order to make the statements and information contained in any representation or warranty of Seller not misleading, and (B) he will notify Seller immediately if he should become aware, whether by the occurrence of any event, additional knowledge or otherwise, of any breach or possible breach of his certification in clause (A) of this paragraph. Each of the undersigned further agrees to be personally bound by the provisions of Section 10(a) of the Stock Purchase Agreement as if his name were substituted for each reference to Buyer therein. /s/ Gary L. Roth /s/ Eddie McCallum - --------------------- ------------------------ Gary L. Roth Eddie McCallum B-15 88 APPENDIX C LOUISIANA BUSINESS CORPORATION LAW PART XIII. DISSENTING SHAREHOLDERS' RIGHTS, FAIR PRICE PROTECTION, AND CONTROL SHARE ACQUISITION 12:130 DEFINITIONS.--(1) "Safeguard period" shall mean the twenty-four month period immediately following any merger, consolidation or any other change in majority voting ownership of a corporation covered by this Chapter. (2) "Safeguarded entity" shall mean any pension plan, retirement system, or any other fund that inures to the benefit of the employees of a corporation covered under this Chapter. (3) "interested person" shall mean any member, participant, regular or disability retiree, beneficiary, or creditor of any safeguarded entity. (4) "Intentional misconduct" shall mean the intentional conduct of any person which occurs during the safeguard period and which has the effect of deleting, depleting or otherwise diminishing the assets being held in trust by any safeguarded entity in a manner that is adverse to any interested person as defined by R.S. 12: 130(3). 12:130.1 STANDARD OF CARE; REVIEW.--A. Any conduct which violates the provisions of this Part which occurs during the safeguard period shall give rise to the presumption that such conduct is intentional misconduct. B. Any transaction that is executed during the safeguard period which involves the assets of a safeguarded entity shall be subject to judicial review under the standard of strict scrutiny. 12:130.2 INTENTIONAL MISCONDUCT; INJUNCTIVE RELIEF; CIVIL PENALTY.--A. Any person who is found by a court to be liable for intentional misconduct under this Part shall be subject to the penalties of this Section, regardless of whether the person is or is not involved in the administration of the safeguarded entity. Person as referred to in this Section includes any individual, partnership, unincorporated association of individuals, joint stock company, or corporation. B. Any interested person may petition a court for injunctive relief on the basis of another person's intentional misconduct, provided that he can show the intentional misconduct will cause irreparable harm to the interested person or to the safeguarded entity. C. Any person whose intentional misconduct causes the insolvency of a safeguarded entity shall oblige the person by whose misconduct caused the insolvency to restore the safeguarded entity to a condition of solvency. If such intentional misconduct causes damage to any interested person, the person whose conduct caused the damage shall be obliged to repair it, as ordered by any court, including the payment of prejudgment interest and reasonable attorney's fees. D. Jurisdiction for the enforcement of this Section shall be in accordance with the provisions contained in Article 42 of the Louisiana Code of Civil Procedure. 12:131 RIGHTS OF SHAREHOLDER DISSENTING FROM CERTAIN CORPORATE ACTIONS.--A. Except as provided in subsection B of this Section, if a corporation has, by vote of its shareholders, authorized a sale, lease or exchange of all of its assets, or has, by vote of its shareholders, become a party to a merger or consolidation, then, unless such authorization or action shall have been given or approved C-1 89 by at least eighty per cent of the total voting power, a shareholder who voted against such corporate action shall have the right to dissent. If a corporation has become a party to a merger pursuant to R.S. 12:112(G), the shareholders of any subsidiaries party to the merger shall have the right to dissent without regard to the proportion of the voting power which approved the merger and despite the fact that the merger was not approved by vote of the shareholders of any of the corporations involved. B. The right to dissent provided by this Section shall not exist in the case of: (1) A sale pursuant to an order of a court having jurisdiction in the premises. (2) A sale for cash on terms requiring distribution of all or substantially all of the net proceeds to the shareholders in accordance with their respective interests within one year after the date of the sale. (3) Shareholders holding shares of any class of stock which, at the record date fixed to determine shareholders entitled to receive notice of and to vote at the meeting of shareholders at which a merger or consolidation was acted on, were listed on a national securities exchange, or were designated as a national market system security on an inter-dealer quotation system by the National Association of Securities Dealers, unless the articles of the corporation issuing such stock provide otherwise or the shares of such shareholders were not converted by the merger or consolidation solely into shares of the surviving or new corporation. C. Except as provided in the last sentence of this subsection, any shareholder electing to exercise such right of dissent shall file with the corporation, prior to or at the meeting of shareholders at which such proposed corporate action is submitted to a vote, a written objection to such proposed corporate action, and shall vote his shares against such action. If such proposed corporate action be taken by the required vote, but by less than eighty per cent of the total voting power, and the merger, consolidation or sale, lease or exchange of assets authorized thereby be effected, the corporation shall promptly thereafter give written notice thereof, by registered mail, to each shareholder who filed such written objection to, and voted his shares against, such action, at such shareholder's last address on the corporation's records. Each such shareholder may, within twenty days after the mailing of such notice to him, but not thereafter, file with the corporation a demand in writing for the fair cash value of his shares as of the day before such vote was taken; provided that he state in such demand the value demanded, and a post office address to which the reply of the corporation may be sent, and at the same time deposit in escrow in a chartered bank or trust company located in the parish of the registered office of the corporation, the certificates representing his shares, duly endorsed and transferred to the corporation upon the sole condition that said certificates shall be delivered to the corporation upon payment of the value of the shares determined in accordance with the provisions of this Section. With his demand the shareholder shall deliver to the corporation, the written acknowledgment of such bank or trust company that it so holds his certificates of stock. Unless the objection, demand and acknowledgment aforesaid be made and delivered by the shareholder within the period above limited, he shall conclusively be presumed to have acquiesced in the corporate action proposed or taken. In the case of a merger pursuant to R.S. 12:112(G), the dissenting shareholder need not file an objection with the corporation nor vote against the merger, but need only file with the corporation, within twenty days after a copy of the merger certificate was mailed to him, a demand in writing for the cash value of his shares as of the day before the certificate was filed with the Secretary of State, state in such demand the value demanded and a post office address to which the corporation's reply may be sent, deposit the certificates representing his shares in escrow as hereinabove provided, and deliver to the corporation with his demand the acknowledgment of the escrow bank or trust company as hereinabove prescribed. D. If the corporation does not agree to the value so stated and demanded, or does not agree that a payment is due, it shall, within twenty days after receipt of such demand and acknowledgment, notify C-2 90 in writing the shareholder, at the designated post office address, of its disagreement, and shall state in such notice the value it will agree to pay if any payment should be held to be due; otherwise it shall be liable for, and shall pay to the dissatisfied shareholder, the value demanded by him for his shares. E. In the case of disagreement as to such fair cash value, or as to whether any payment is due, after compliance by the parties with the provisions of subsections C and D of this Section, the dissatisfied shareholder, within sixty days after receipt of notice in writing of the corporation's disagreement, but not thereafter, may file suit against the corporation, or the merged or consolidated corporation, as the case may be, in the district court of the parish in which the corporation or the merged or consolidated corporation, as the case may be, has its registered office, praying the court to fix and decree the fair cash value of the dissatisfied shareholder's shares as of the day before such corporate action complained of was taken, and the court shall, on such evidence as may be adduced in relation thereto, determine summarily whether any payment is due, and, if so, such cash value, and render judgment accordingly. Any shareholder entitled to file such suit may, within such sixty-day period but not thereafter, intervene as a plaintiff in such suit filed by another shareholder, and recover therein judgment against the corporation for the fair cash value of his shares. No order or decree shall be made by the court staying the proposed corporate action, and any such corporate action may be carried to completion notwithstanding any such suit. Failure of the shareholder to bring suit, or to intervene in such a suit, within sixty days after receipt of notice of disagreement by the corporation shall conclusively bind the shareholder (1) by the corporation's statement that no payment is due, or (2) if the corporation does not contend that no payment is due, to accept the value of his shares as fixed by the corporation in its notice of disagreement. F. When the fair value of the shares has been agreed upon between the shareholder and the corporation, or when the corporation has become liable for the value demanded by the shareholder because of failure to give notice of disagreement and of the value it will pay, or when the shareholder has become bound to accept the value the corporation agrees is due because of his failure to bring suit within sixty days after receipt of notice of the corporation's disagreement, the action of the shareholder to recover such value must be brought within five years from the date the value was agreed upon, or the liability of the corporation became fixed. G. If the corporation or the merged or consolidated corporation, as the case may be, shall, in its notice of disagreement, have offered to pay to the dissatisfied shareholder on demand an amount in cash deemed by it to be the fair cash value of his shares, and if, on the institution of a suit by the dissatisfied shareholder claiming an amount in excess of the amount so offered, the corporation, or the merged or consolidated corporation, as the case may be, shall deposit in the registry of the court, there to remain until the final determination of the cause, the amount so offered, then, if the amount finally awarded such shareholder, exclusive of interest and costs, be more than the amount offered and deposited as aforesaid, the costs of the proceeding shall be taxed against the corporation, or the merged or consolidated corporation, as the case may be; otherwise the costs of the proceeding shall be taxed against such shareholder. H. Upon filing a demand for the value of his shares, the shareholder shall cease to have any of the rights of a shareholder except the rights accorded by this Section. Such a demand may be withdrawn by the shareholder at any time before the corporation gives notice of disagreement, as provided in subsection D of this Section. After such notice of disagreement is given, withdrawal of a notice of election shall require the written consent of the corporation. If a notice of election is withdrawn, or the proposed corporate action is abandoned or rescinded, or a court shall determine that the shareholder is not entitled to receive payment for his shares, or the shareholder shall otherwise lose his dissenter's rights, he shall not have the right to receive payment for his shares, his share certificates shall be returned to him (and, on his request, new certificates shall be issued to him in exchange for the old ones endorsed to the C-3 91 corporation), and he shall be reinstated to all his rights as a shareholder as of the filing of his demand for value, including any intervening preemptive rights, and the right to payment of any intervening dividend or other distribution, or, if any such rights have expired or any such dividend or distribution other than in cash has been completed, in lieu thereof, at the election of the corporation, the fair value thereof in cash as determined by the board as of the time of such expiration or completion, but without prejudice otherwise to any corporate proceedings that may have been taken in the interim. 12:132 DEFINITIONS. -- The following terms as used in R.S. 12:133 and R.S. 12:134 shall have the following meanings (1) "Affiliate," including the term "affiliated person," means a person that directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with a specified person. (2) "Associate," when used to indicate a relationship with any person, means the following: (a) Any corporation or organization other than the corporation or a subsidiary of the corporation, of which such person is an officer, director, or partner or is, directly or indirectly, the beneficial owner of ten percent or more of any class of equity securities. (b) Any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity. (c) Any relative or spouse of such person, or any relative of such spouse, who has the same home as such person or who is a director or officer of the corporation or any of its affiliates. (3) "Beneficial owner," when used with respect to any voting stock, means any of the following: (a) A person who individually or with any of its affiliates or associates beneficially owns voting stock, directly or indirectly. (b) A person who individually or with any of its affiliates or associates has either of the following rights: (i) To acquire voting stock, whether such right is exercisable immediately or only after the passage of time, pursuant to any agreement, arrangement, or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise. (ii) To vote voting stock pursuant to any agreement, arrangement, or understanding. (c) A person who has any agreement, arrangement, or understanding for the purpose of acquiring, holding, voting, or disposing of voting stock with any other person who beneficially owns or whose affiliates beneficially own, directly or indirectly, such shares of voting stock. (4) "Business combination" means any of the following: (a) Unless the merger, consolidation, or share exchange does not alter the contract rights of the stock as expressly set forth in the articles or change or convert in whole or in part the outstanding shares of the corporation, any merger, consolidation, or share exchange of the corporation or any subsidiary with: C-4 92 (i) Any interested shareholder, or (ii) Any other corporation, whether or not itself an interested shareholder, which is, or after the merger, consolidation, or share exchange would be, an affiliate of an interested stockholder that was an interested shareholder prior to the transaction. (b) Any sale, lease, transfer, or other disposition, other than in the ordinary course of business, in one transaction or a series of transactions in any twelve-month period to any interested shareholder or any affiliate of any interested shareholder, other than the corporation of any of its subsidiaries, of any assets of the corporation or any subsidiary having, measured at the time the transaction or transactions are approved by the board of directors of the corporation, an aggregate book value as of the end of the corporation's most recently ended fiscal quarter of ten percent or more of the total market value of the outstanding stock of the corporation or of its net worth as of the end of its most recently ended fiscal quarter. (c) The issuance or transfer by the corporation or any subsidiary, in one transaction or a series of transactions, of any equity securities of the corporation or any subsidiary which has an aggregate market value of five percent or more of the total market value of the outstanding stock of the corporation, to any interested shareholder or any affiliate of any interested shareholder, other than the corporation or any of its subsidiaries, except pursuant to the exercise of warrants or rights to purchase securities offered pro rata to all holders of the corporation's voting stock or any other method affording substantially proportionate treatment of the holders of voting stock. (d) The adoption of any plan or proposal for the liquidation or dissolution of the corporation in which anything other than cash will be received by an interested shareholder or any affiliate of any interested shareholder. (e) Any reclassification of securities including any reverse stock split or recapitalization of the corporation or any merger, consolidation, or share exchange of the corporation with any of its subsidiaries which has the effect, directly or indirectly, in one transaction or a series of transactions, of increasing by five percent or more of the total number of outstanding shares the proportionate amount of the outstanding shares of any class of equity securities of the corporation or any subsidiary which is directly or indirectly owned by any interested shareholder or any affiliate of any interested shareholder. (5) "Common stock" means any stock other than preferred or preference stock. (6) "Control," including the terms "controlling," "controlled by," and "under common control with" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise. The beneficial ownership of ten percent or more of the votes entitled to be cast by a corporation's voting stock creates a presumption of control. (7) "Corporation" means any corporation which has been granted a certificate of incorporation by the state of Louisiana. (8) "Equity security" means any of the following: (a) Any stock or similar security, certificate of interest, or participation in any profit sharing agreement, voting trust certificate, or certificate of deposit for an equity security. C-5 93 (b) Any security convertible, with or without consideration, into an equity security, or any warrant or other security carrying any right to subscribe to or purchase an equity security. (c) Any put, call, straddle, or other option or privilege of buying an equity security from or selling an equity security to another without being bound to do so. (9)(a) "Interested shareholder" means any person other than the corporation or any subsidiary or any of the corporation's employee plans or related trusts that is either of the following: (i) The beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting stock of the corporation. (ii) An affiliate of the corporation who at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding voting stock of the corporation. (b) For the purpose of determining whether a person is an interested shareholder, the number of shares of voting stock deemed to be outstanding shall include shares deemed owned by the person through application of Subsection (3) of this Section, but may not include any other shares of voting stock which may be issuable pursuant to any agreement, arrangement, or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (10) "Market value" means the following: (a) In the case of stock, the highest closing sale price during the thirty-day period immediately preceding the date in question of a share of such stock on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the thirty-day period preceding the date in question on the National Association of Securities Dealers, Inc., Automated Quotations Systems or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the board of directors of the corporation in good faith. (b) In the case of property other than cash or stock, the fair market value of such property on the date in question as determined by the board of directors of the corporation in good faith. (11) "Subsidiary" means any corporation of which voting stock having a majority of the votes entitled to be cast is owned, directly or indirectly, by the corporation. (12) "Voting stock" means shares of capital stock of a corporation entitled to vote generally in the election of directors. 12:133 VOTE REQUIRED IN BUSINESS COMBINATIONS.--In addition to any vote otherwise required by law or the charter of the corporation, a business combination shall be recommended by the board of directors and approved by the affirmative vote of at least each of the following: (1) Eighty percent of the votes entitled to be cast by outstanding shares of voting stock of the corporation voting together as a single voting group. C-6 94 (2) Two-thirds of the votes entitled to be cast by holders of voting stock other than voting stock held by the interested shareholder who is or whose affiliate is a party to the business combination or an affiliate or associate of the interested shareholder, voting together as a single voting group. 12:134 WHEN VOTING REQUIREMENTS NOT APPLICABLE. A. For purposes of Subsection (B) of this Section, the following terms shall have the meanings ascribed to them: (1) "Announcement date" means the first general public announcement of the proposal or intention to make a proposal of the business combination or its first communication generally to shareholders of the corporation, whichever is earlier. (2) "Determination date" means the date on which an interested shareholder first became an interested shareholder. (3) "Valuation date" means the following: (a) For a business combination voted upon by shareholders, the latter of the date prior to the date of the shareholders vote or the day twenty days prior to the consummation of the business combination. (b) For a business combination not voted upon by shareholders, the date of the consummation of the business combination. B. The vote required by R.S. 12:133 of this Chapter does not apply to a business combination as defined in R.S. 12:132(4)(a) if each of the following conditions is met: (1) The aggregate amount of the cash and the market value as the valuation date of consideration other than cash to be received per share by holders of common stock in such business combination is at least equal to the highest of the following: (a) The highest per share price, including any brokerage commission, transfer taxes, and soliciting dealers' fees, paid by the interested shareholders for any shares of common stock of the same class or series acquired by it: (i) Within the two-year period immediately prior to the announcement date of the proposal of the business combination; or (ii) In the transaction in which it became an interested stockholder, whichever is higher; or (b) The market value per share of common stock of the same class or series on the announcement date or on the determination date, whichever is higher; or (c) The price per share equal to the market value per share of common stock of the same class or series determined pursuant to Subparagraph (b) of this Paragraph, multiplied by the fraction of: (i) The highest per share price, including any brokerage commissions, transfer taxes, and soliciting dealers' fees, paid by the interested shareholder for any shares of common stock of the same class or series acquired by it within the two-year period immediately prior to the announcement date, over (ii) The market value per share of common stock of the same class or series on the first day in such two-year period on which the interested shareholder acquired any shares of common stock. C-7 95 (2) The aggregate amount of the cash and the market value as of the valuation date of consideration other than cash to be received per share by holders of shares of any class or series of outstanding stock other than common stock is at least equal to the highest of the following, whether or not the interested shareholder has previously acquired any shares of a particular class or series of stock: (a) The highest per share price, including any brokerage commissions, transfer taxes, and soliciting dealers' fees, paid by the interested shareholder for any shares of such class of stock acquired by it: (i) Within the two-year period immediately prior to the announcement date of the proposal of the business combination; or (ii) In the transaction in which it became an interested stockholder, whichever is higher; or (b) The highest preferential amount per share to which the holders of shares of such class of stock are entitled in the event of any voluntary or involuntary liquidation, dissolution, or winding up of the corporation; or (c) The market value per share of such class of stock on the announcement date or on the determination date, whichever is higher; or (d) The price per share equal to the market value per share of such class of stock determined pursuant to Subparagraph (c) of this Paragraph, multiplied by the fraction of: (i) The highest per share price, including any brokerage commissions, transfer taxes, and soliciting dealers' fees, paid by the interested shareholder for any shares of any class of voting stock acquired by it within the two-year period immediately prior to the announcement date, over (ii) The market value per share of the same class of voting stock on the first day in such two-year period on which the interested shareholder acquired any shares of the same class of voting stock. (3) The consideration to be received by holders of any class or series of outstanding stock is to be in cash or in the same form as the interested shareholder has previously paid for shares of the same class or series of stock. If the interested shareholder has paid for shares of any class of stock with varying forms of consideration, the form of consideration for such class of stock shall be either cash or the form used to acquire the largest number of shares of such class or series of stock previously acquired by it. (4)(a) After the interested stockholder has become an interested shareholder and prior to the consummation of such business combination: (i) There shall have been no failure to declare and pay at the regular date therefor any full periodic dividends, cumulative or not, on any outstanding preferred stock of the corporation; (ii) There shall have been: (aa) No reduction in the annual rate of dividends paid on any class or series of stock of the corporation that is not preferred stock except as necessary to reflect any subdivision of the stock; and C-8 96 (bb) An increase in such annual rate of dividends as necessary to reflect any reclassification, including any reverse stock split, recapitalization, reorganization, or any similar transaction which has the effect of reducing the number of outstanding shares of the stock; and (iii) The interested shareholder did not become the beneficial owner of any additional shares of stock of the corporation except as part of the transaction which resulted in such interested shareholder's becoming an interested shareholder or by virtue of proportionate stock splits or stock dividends. (b) The provisions of (i) and (ii) of Subparagraph (a) shall not apply if no interested shareholder or an affiliate or associate of the interested shareholder voted as a director of the corporation in a manner inconsistent with (i) and (ii), and the interested shareholder, within ten days after any act or failure to act inconsistent with such Sub-subparagraphs, notifies the board of directors of the corporation in writing that the interested shareholder disapproves thereof and requests in good faith that the board of directors rectify such act or failure to act. (5) After the interested stockholder has become an interested shareholder, the interested stockholder may not have received the benefit, directly or indirectly, except proportionately as a shareholder, of any loans, advances, guarantees, pledges, or other financial assistance, or any tax credits, or other tax advantages provided by the corporation or any of its subsidiaries, whether in anticipation of or in connection with such business combination or otherwise. C.(1) Whether or not such business combinations are authorized or consummated in whole or in part after January 1, 1985, or after the interested shareholder became an interested stockholder, the requirements of R.S. 12:133 shall not apply to business combinations that specifically, generally, or generally by types, as to specifically identified or unidentified existing or future interested shareholders or their affiliates, have been approved or exempted therefrom by resolution of the board of directors of the corporation: (a) Prior to January 1, 1985, or such earlier date as may be irrevocably established by resolution of the board of directors; or (b) If involving transactions with a particular interested shareholder or its existing or future affiliates, at any time prior to the time that the interested shareholder first became an interested shareholder. (2) Unless by its terms a resolution adopted under this Subsection is made irrevocable, it may be altered or repealed by the board of directors, but this shall not affect any business combinations that have been consummated or are the subject of an existing agreement entered into prior to the alteration or repeal. D.(1) Unless the articles or bylaws of the corporation specifically provide otherwise, the requirements of R.S. 12:133 shall not apply to business combinations of a corporation that on January 1, 1985, had an existing interested shareholder, whether a business combination is with the existing shareholder or with any other person that becomes an interested shareholder after January 1, 1985, or their present or future affiliates unless at any time after January 1, 1985, the board of directors of the corporation elects by resolution to be subject, in whole or in part, specifically, generally, or generally by types as to specifically identified or unidentified interested shareholders to the requirements of R.S. 12:133. (2) The articles or bylaws of the corporation may provide that if the board of directors adopts a resolution under Subsection (D)(1) of this Section, the resolution shall be subject to approval of the shareholders in the manner and by the vote specified in the articles or the bylaws. C-9 97 (3) An election under this Subsection may be added to but may not be altered or repealed except by an amendment to the articles adopted by a vote of shareholders meeting the requirements of Subsection (E)(1)(b) of this Section. (4) If a corporation elects under this Subsection to be included within the provisions of R.S. 12:132, R.S. 12:133, and R.S. 12:134 generally, without qualification or limitation, it shall file with the secretary of state articles supplementary including a copy of the resolution making the election and a statement describing the manner in which the resolution was adopted. The articles supplementary shall be executed in the manner required by R.S. 12:32 of the Chapter. The articles supplementary constitute articles of amendment under R.S. 12:31 of this Chapter. E.(1) Unless the articles of the corporation provide otherwise, the requirements of R.S. 12:133 shall not apply to any business combination of any of the following: (a) A corporation having fewer than one hundred beneficial owners of its stock. (b) A corporation whose original articles of incorporation have a provision, or whose shareholders adopt an amendment to its articles after January 1, 1985, by a vote of at least eighty percent of the votes entitled to be cast by outstanding shares of voting stock of the corporation, voting together as a single voting group and two-thirds of the votes entitled to be cast by persons who are not interested shareholders of the corporation, voting together as a single voting group, expressly electing not to be governed by R.S. 12:132, R.S. 12:133 and R.S. 12:134. (c) An investment company registered under the Investment Company Act of 1940. (2) For purposes of Subparagraph (1) of this Subsection, all shareholders of a corporation that have executed an agreement to which the corporation is an executing party governing the purchase and sale of stock of the corporation or a voting trust agreement governing stock of the corporation shall be considered a single beneficial owner of the stock covered by the agreement. F. A business combination of a corporation that has a provision in its articles permitted by R.S. 12:112 or R.S. 12:121(B), which allows for reduction of the vote required for the transactions described therein is subject to the voting requirements of R.S. 12:133 unless one of the requirements or exemptions of Subsection (B), (C), (D), or (E) of this Section have been met. 12:135 DEFINITIONS.--As used in R.S. 12:135 through 140.2: (1) "Control shares" means shares that, except for the provisions of R.S. 12:135 through 140.2, would have voting power with respect to shares of an issuing public corporation that, when added to all other shares of the issuing public corporation owned by a person or in respect to which that person may exercise or direct the exercise of voting power, would entitle that person, immediately after acquisition of the shares, directly or indirectly, alone or as a part of a group, to exercise or direct the exercise of the voting power of the issuing public corporation in the election of directors within any of the following ranges of voting power: (a) One-fifth or more but less than one-third of all voting power. (b) One-third or more but less than a majority of all voting power. (c) A majority or more of all voting power. C-10 98 (2)(a) "Control share acquisition" means the acquisition, directly or indirectly, by any person of ownership of, or the power to direct the exercise of voting power with respect to, issued and outstanding control shares. (b) For purposes of this Paragraph, shares acquired within ninety days or shares acquired pursuant to a plan to make a control share acquisition are considered to have been acquired in the same acquisition. (c) For purposes of this Paragraph, a person who acquires shares in the ordinary course of business for the benefit of others in good faith and not for the purpose of circumventing the provisions of R.S. 12:135 through 140.2 has voting power only of shares in respect of which that person would be able to exercise or direct the exercise of votes without further instruction from others. (d) The acquisition of any shares of an issuing public corporation does not constitute a control share acquisition if the acquisition is consummated in any of the following circumstances: (i) Before May 4, 1987. (ii) Pursuant to a contract existing before May 4, 1987 or pursuant to a tender offer or exchange offer made in writing before May 4, 1987 for any securities of an issuing public corporation whether the time for acceptance is extended on or after May 4, 1987, whether the offeror waives any conditions of the offer on or after May 4, 1987, and whether the transaction is closed on or after May 4, 1987. (iii) Pursuant to the laws of successions, descent, and distribution. (iv) Pursuant to the satisfaction of a pledge or other security interest created in good faith and not for the purpose of circumventing the provisions of R.S. 12:135 through 140.2. (v) Pursuant to a merger, consolidation, or share exchange effected in compliance with Part XI of this Chapter if the issuing public corporation, or a wholly-owned subsidiary thereof, is a party to the agreement of merger or consolidation or the plan of exchange. (vi) By an employee benefit plan or related trust of the issuing public corporation. (e) The acquisition of shares of an issuing public corporation in good faith and not for the purpose of circumventing the provisions of R.S. 12:135 through 140.2 by or from: (i) Any person whose voting rights had previously been authorized by shareholders in compliance with the provisions of R.S. 12:135 through 140.2; or (ii) Any person whose previous acquisition of shares of an issuing public corporation would have constituted a control share acquisition but for Subparagraph (d) of this Paragraph does not constitute a control share acquisition, unless the acquisition entitles any person, directly or indirectly, alone or as a part of a group, to exercise or direct the exercise of voting power of the corporation in the election of directors in excess of the range of the voting power otherwise authorized. (3) "interested shares" means the shares of an issuing public corporation in respect of which any of the following persons may exercise or direct the exercise of the voting power of the corporation in the election of directors: C-11 99 (a) An acquiring person or member of a group with respect to a control share acquisition. (b) Any officer of the issuing public corporation. (c) Any employee of the issuing public corporation who is also a director of the corporation. (4) "Issuing public corporation" means a corporation that has: (a) One hundred or more shareholders; (b) Its principal place of business, its principal office, or substantial assets, whether owned directly or through one or more wholly-owned subsidiaries, within Louisiana; and (c) One or more of the following: (i) More than ten percent of its shareholders reside in Louisiana. (ii) More than ten percent of its shares owned by Louisiana residents. (iii) Ten thousand shareholders reside in Louisiana. (5) The residence of a shareholder is presumed to be the address appearing in the records of the corporation. Shares held by banks, except when held as trustee, guardian, or tutor, by brokers, or by nominees shall be disregarded for purposes of calculating the percentages or numbers described in Paragraph (4). (6) For purposes of Paragraph (4): (a) "Substantial assets" means assets having a value of at least five million dollars; (b) "Value" means: (i) in the case of assets other than cash or securities, the value of the property as determined in good faith by the board of directors of the corporation; and (ii) In the case of securities, the highest closing sale price during the thirty day period immediately preceding the date in question of a security on the composite tape for New York Stock Exchange listed securities or, if the securities are not quoted on the composite tape or not listed on the New York Stock Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended, on which the securities are listed or, if the securities are not listed on any such exchange, on the National Association of Securities Dealers, Inc., Automated Quotations National Market System or, if the securities are not quoted on the National Association of Securities Dealers, Inc., Automated Quotations National Market System, the highest closing bid quotation during the thirty day period preceding the date in question of a security on the National Association of Securities Dealers, Inc., Automated Quotations System or any system then in use or, if no such quotation is available, the fair market value on the date in question of a security determined in good faith by the board of directors of the corporation; and C-12 100 (c) "Within Louisiana" means: (i) In a case of corporeal property, the presence of such corporeal property within Louisiana; (ii) In the case of incorporeal property represented by a written instrument, the presence of such written instrument within Louisiana; and (iii) In the case of incorporeal property not represented by a written instrument, the presence of the commercial domicile of the corporation within Louisiana. 12:136 LAW APPLICABLE TO CONTROL SHARE VOTING RIGHTS.--Unless the corporation's articles of incorporation or bylaws, as in effect before a control share acquisition has occurred, provide that the provisions of R.S. 12:135 through 140.2 do not apply to control share acquisitions of shares of the corporation, control shares of an issuing public corporation acquired in a control share acquisition have only such voting rights as are conferred by R.S. 12:140. 12:137 NOTICE OF CONTROL SHARE ACQUISITION.--A. Any person who proposes to make or has made a control share acquisition may at the person's election deliver an acquiring person statement to the issuing public corporation at the issuing public corporation's registered office. B. However, if any of the shares to be acquired are being held in a trust account or any other type of account or fund on behalf of a safeguarded entity as defined in R.S. 12:130(2), the acquiring person statement shall be mandatory and shall be provided to the chairman of the board of trustees of the safeguarded entity or the administrator, or the corporate employee who is responsible for managing the entity. The trustee, administrator, or manager shall upon receipt of such statement distribute copies to all interested persons as defined in R.S. 12:130(3). C. The acquiring person statement shall set forth all of the following: (1) The identity of the acquiring person and each other member of any group of which the person is a part for purposes of determining control shares. (2) A statement that the acquiring person statement is given pursuant to this Section. (3) The number of shares of the issuing public corporation owned, directly or indirectly, by the acquiring person and each other member of the group. (4) The range of voting power under which the control share acquisition falls or would, if consummated, fall. (5) If the control share acquisition has not taken place: (a) A description in reasonable detail of the terms of the proposed control share acquisition; and (b) Representations of the acquiring person. together with a statement in reasonable detail of the facts upon which they are based, that the proposed control share acquisition, if consummated, will not be contrary to law, and that the acquiring person has the financial capacity to make the proposed control share acquisition. C-13 101 12:138 SHAREHOLDER MEETING TO DETERMINE CONTROL SHARE VOTING RIGHTS.--A. (1) If the acquiring person so requests at the time of delivery of an acquiring person statement and gives an undertaking to pay the corporation's expenses of a special meeting, within ten days thereafter, the directors of the issuing public corporation shall call a special meeting of shareholders of the issuing public corporation for the purpose of considering the voting rights to be accorded the shares acquired or to be acquired in the control share acquisition. (2) The directors of the issuing public corporation shall not be required to call such special meeting of shareholders with respect to a proposed control share acquisition unless such acquisition will be lawful and the acquiring person has obtained, and shall have furnished to the corporation, copies of commitments for financing of any cash portion of the consideration to be paid with respect to the acquisition or otherwise has demonstrated that the acquiring person has the financial capacity to make the acquisition. B. Unless the acquiring person agrees in writing to another date, the special meeting of shareholders shall be held within fifty days after receipt by the issuing public corporation of the request or, if the issuing public corporation is subject to Section 14(a) of the Securities Exchange Act of 1934, as amended, the date on which definitive proxy materials (within the meaning of such act and the regulations thereunder) related to the special meeting on behalf of the acquiring person and the board of directors of the issuing public corporation have been filed with the Securities and Exchange Commission, which shall be done as promptly as practicable following receipt of the request. C. If no request is made, the voting rights to be accorded the shares acquired in the control share acquisition shall be presented to the next special or annual meeting of shareholders. D. If the acquiring person so requests in writing at the time of delivery of the acquiring person statement, the special meeting shall not be held sooner than thirty days after receipt by the issuing public corporation of the acquiring person statement. 12:139 NOTICE OF SHAREHOLDER MEETING. -- A. If a special meeting is requested, notice of the special meeting of shareholders shall be given as promptly as reasonably practicable by the issuing public corporation to all shareholders of record as of the record date set for the meeting, whether or not entitled to vote at the meeting. B. Notice of the special or annual shareholder meeting at which the voting rights are to be considered shall include or be accompanied by both of the following: (1) A copy of the acquiring person statement delivered to the issuing public corporation pursuant to R.S. 12:137. (2) A statement by the board of directors of the corporation, authorized by its directors, of its position or recommendation, or that it is taking no position or making no recommendation, with respect to the proposed control share acquisition. 12:140 RESOLUTION GRANTING CONTROL SHARE VOTING RIGHTS.-- A. Control shares acquired in a control share acquisition have the same voting rights as were accorded the shares before the control share acquisition only to the extent granted by resolution approved by the shareholders of the issuing public corporation. B. To be approved under this Section, the resolution shall be approved by: C-14 102 (1) Each voting group entitled to vote separately on the proposal by a majority of all the votes entitled to be cast by that voting group, with the holders of the outstanding shares of a class being entitled to vote as a separate voting group if the proposed control share acquisition would, if fully carried out, result in any of the changes described in R.S. 12:31(C); and (2) Each voting group entitled to vote separately on the proposal by a majority of all the votes entitled to be cast by that group, excluding all interested shares. 12:140.1 REDEMPTION OF CONTROL SHARES,-- A. If authorized in a corporation's articles of incorporation or bylaws before a control share acquisition has occurred, control shares acquired in a control share acquisition with respect to which no acquiring person statement has been filed with the issuing public corporation may, at any time during the period ending sixty days after the last acquisition of control shares by the acquiring person, be subject to redemption by the corporation at the fair value thereof pursuant to the procedures adopted by the corporation. B. Control shares acquired in a control share acquisition are not subject to redemption after an acquiring person statement has been filed unless the shares are not accorded full voting rights by the shareholders as provided in R.S. 12:140. 12:140.2 RIGHTS OF DISSENTING SHAREHOLDERS.--A. Unless otherwise provided in a corporation's articles of incorporation or bylaws before a control share acquisition has occurred, in the event control shares acquired in a control share acquisition are accorded full voting rights and the acquiring person has acquired control shares with a majority or more of all voting power, all shareholders of the issuing public corporation have dissenters' rights as provided in this Section. B. As soon as practicable after such events have occurred, the board of directors shall cause a notice to be sent to all shareholders of the corporation advising them of the facts and that they have dissenters' rights to receive the fair cash value of their shares. C. As used in this Section, "fair cash value" means a value not less than the highest price paid per share by the acquiring person in the control share acquisition. D. As used in this Section, "dissenters' rights" means the right to require the issuing public corporation to purchase shares at fair cash value. C-15 103 FIRST AMERICAN INVESTMENT CORPORATION - CITIZENS, INC. LETTER OF TRANSMITTAL ATTENTION SHAREHOLDER: Please read carefully the instructions on the reverse side and complete the form below. This Transmittal Letter Relates to the Following Certificates of Common Stock of First American Investment Corporation
Certificate Number Number(s)(1) of Shares(1) ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
(1) Attach additional schedule, if necessary. NOTE: The above securities must be attached to this form when submitted. American Stock Transfer and Trust Company Attn: Isaac Freilich 40 Wall Street, 46th Floor New York, New York 10005 Gentlemen: Pursuant to the Information Statement-Prospectus dated __________, 1996 relating to First American Investment Corporation and Citizens Insurance Company of America, Inc., the undersigned herewith surrenders the certificate(s) identified above representing shares of First American Investment Corporation stock in exchange for Citizens, Inc. Class A Common Stock. Please issue the stock in the name of the undersigned at the address given above, except as indicated below. 1 104 - -------------------------- FILL IN ONLY IF THE NEW CERTIFICATE IS TO BE MAILED TO OTHER THAN THE ADDRESS AS SHOWN ABOVE *SPECIAL MAILING INSTRUCTIONS* MAIL TO: Name ----------------------- Address -------------------- Please check appropriately: This is a permanent change of address ----- OR A special address to be used only to mail the new certificate ----- (MUST BE SIGNED BY REGISTERED OWNER EXACTLY AS NAME APPEARS ON STOCK CERTIFICATES.) Date: , 1996 X -------------------- --------------------------- Area Code (____) Tel. No. X ---------- --------------------------- Signature(s) of Registered Owner(s) or Authorized Agent (IT IS MANDATORY THAT YOU COMPLETE THE ENCLOSED W-9 FORM.) Social Security/Tax ID No. --------------- NOTE: QUESTIONS REGARDING THIS FORM MAY BE DIRECTED TO AMERICAN STOCK TRANSFER AND TRUST COMPANY, ATTN: ISAAC FREILICH, 40 WALL STREET, 46TH FLOOR, NEW YORK, NEW YORK 10005, (718) 921-8259. IF YOU HAVE ANY QUESTIONS CONCERNING THE COMPANY, PLEASE CONTACT IT DIRECTLY. 2 105 TRANSMITTAL INSTRUCTIONS 1) GENERAL - This Letter of Transmittal must be properly filled in, dated, and signed, and submitted WITH the existing stock certificate(s) listed on the face hereof to American Stock Transfer and Trust Company, Attn: Isaac Freilich, 40 Wall Street, 46th Floor, New York, New York 10005, the Exchange Agent. If sent by mail, the Letter of Transmittal and the existing certificate(s) should be sent to American Stock Transfer and Trust Company, Attn: Isaac Freilich, 40 Wall Street, 46th Floor, New York, New York 10005. The Letter of Transmittal and certificate(s) may also be hand delivered to the Exchange Agent at 40 Wall Street, 46th Floor, New York, New York 10005. IF YOU MAIL THE LETTER OF TRANSMITTAL AND THE CERTIFICATE(S), IT IS RECOMMENDED THAT YOU INSURE THEM, AND USE REGISTERED MAIL, RETURN RECEIPT REQUESTED. YOU BEAR ALL RISK OF LOSS OR DELAY IN THE MAILS. NEITHER THE COMPANY NOR THE EXCHANGE AGENT WILL HAVE ANY RESPONSIBILITY FOR CERTIFICATES NOT ACTUALLY RECEIVED BY THE EXCHANGE AGENT. The signature on the Letter of Transmittal should correspond with the name on the face of your existing certificate(s), which is reflected on the label affixed to the face of the Letter of Transmittal. If there is insufficient space on the face of the Letter of Transmittal to list all of your existing certificates, please attach a separate list. If shares of stock owned by you are registered differently on several certificates, it will be necessary for you to complete, sign, and submit as many separate Letters of Transmittal as there are different registrations of your shares. 2) ISSUANCE OF NEW CERTIFICATE; SIGNATURE GUARANTEE - A) If the new certificate(s) is to be issued in the same name as appears on the existing certificate(s), the surrendered certificate(s) need not be endorsed. B) If the new certificate is to be issued in a name different from that which appears on the surrendered certificate(s), the surrendered certificates must be endorsed or accompanied by an appropriate stock power, and, in either case, your signature must be guaranteed by a commercial bank or trust company, or by a member of the Midwest, Pacific, American, or New York Stock Exchange. In case of joint ownership, all joint owners must sign. Endorsements of trustees, executors, administrators, guardians, officers of corporations, attorneys-in-fact, or others acting in a representative capacity, must include the full title of the endorser in such capacity and must be accompanied by proper evidence of the signer's authority to act. If a name on any existing certificate(s) surrendered is (are) not exactly the same as the name in which the new certificate(s) is to be issued (but they are one and the same person), the incorrect certificate(s) should be signed twice -- once exactly as the name appears on the face thereof, and again exactly as the name should appear on the new certificate(s) to be issued. Such signatures must be signature guaranteed as specified in the preceding paragraph. 3) SPECIAL MAILING INSTRUCTIONS AND CHANGE OF ADDRESS - If the new certificate(s) is (are) to be mailed to an address other than that shown as the registered owner, as reflected on the label affixed to the face of the Letter of Transmittal, please complete the Special Mailing Instructions at the end of the Letter of Transmittal. These instructions should be completed even though the new certificate is to be issued in the same name as the registered owner of the existing certificate(s). Please indicate whether the address given in the Special Mailing Instructions reflects a change of address which should be made on the shareholder records of the Company, or is to be used only for mailing the new certificate. 3 106 4) NUMBER OF CERTIFICATES - Unless the Exchange Agent is otherwise instructed, each shareholder will receive one certificate for all of the certificates surrendered with the Letter of Transmittal. If you wish to have more than one certificate issued, please give complete instructions to the Exchange Agent with the Letter of Transmittal. 5) QUESTIONS - If you have any questions concerning the Letter of Transmittal or any other matter relating to the exchange, please contact the Research Department of the Exchange Agent by mail at the address given on the face of the Letter of Transmittal or questions by telephone should be directed to the Exchange Agent at (718) 921-8259. 4 107 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Article 109 of Title Seven of the Colorado Revised Statutes enables a Colorado corporation to indemnify its officers, directors, employees and agents against liabilities, damages, costs and expenses for which they are liable if: (i) in their Official Capacities (as defined by this statute) if they acted in good faith and had no reasonable basis to believe their conduct was not in the best interest of the Registrant; (ii) in all other cases, that their conduct was at least not opposed to the Registrant's best interests; and (iii) in the case of any criminal proceeding, they had no reasonable cause to believe their conduct was unlawful. The Registrant's Articles of Incorporation limit the liability of directors to the full extent provided by Colorado law. The Registrant's Bylaws provide indemnification to officers, directors, employees and agents to the fullest extent provided by Colorado law. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS Exhibit Number Description of Exhibits - -------------- ------------------------ 2.2 Plan and Agreement of Merger - American Liberty Financial Corporation, American Liberty Life Insurance Company, Citizens, Inc. and Citizens Acquisition, Inc., dated December 8, 1994(e) 2.21 Plan and Agreement of Merger and Exchange(f) 3.1 Articles of Incorporation, as amended(a) 3.2 Bylaws(e) 5.1 Opinion and consent of Jones & Keller, P.C. as to the legality of Citizens, Inc. Common Stock(c) 10.5 Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement between Citizens Insurance Company of America and The Centennial Life Insurance Company dated March 1, 1982(b) 10.6 Summary of Coinsurance Agreement between Citizens Insurance Company of America and Alabama Reassurance Company dated December 31, 1985(b) 10.7 International Marketing Agreement - Citizens Insurance Company of America and Negocios Savoy, S.A.(b) 10.8 Self-Administered Automatic Reinsurance Agreement - Citizens Insurance Company of America and Riunione Adriatica di Sicurta, S.p.A.(c) II-1 108 10.9 Plan and Agreement of Exchange - Citizens Insurance Company of America and American Investment Network, Inc.(c) 10.11 Agreement and Plan of Merger dated March 31, 1996 - Citizens Insurance Company of America, Inc., CICA Acquisition, Inc., and First American Investment Corporation (see Appendix A)(c) 10.12 Stock Purchase Agreement dated October 18, 1996 by and between First American Investment Corporation and Funeral Services International, Inc. (see Appendix B)(c) 11 Statement re: Computation of per share earnings(d) 22 Subsidiaries of the Registrant(d) 23.1 Consent of Jones & Keller, P.C. (see Exhibit 5.1) 23.2 Consent of KPMG Peat Marwick LLP(c) 25 Power of Attorney (see signature page) - ---------------- (a) Filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated by reference. (b) Filed with the Registrant's Amendment No. 1 to Registration Statement on Form S-4, Registration No. 33- 4753, filed with the Commission on or about June 19, 1992. (c) Filed herewith. (d) Filed with the Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1994, and incorporated herein by reference. (e) Filed with the Registrant's Registration Statement on Form S-4, Registration No. 33-59039, filed with the Commission on May 2, 1995. (f) Filed with the Registrant's Registration Statement on Form S-4, Registration No. 33-63275, filed with the Commission on October 6, 1995. (b) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES. See "Financial Statements." ITEM 22. UNDERTAKINGS The Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, as amended (the "1933 Act"), each filing of The Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended), that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The Registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable II-2 109 registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. The Registrant hereby undertakes that every prospectus (i) that is filed pursuant to the paragraph immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the 1933 Act and is used in connection with an offering of securities subject to Rule 415, will be filed as part of an amendment to the Registration Statement and will not be used until such amendment is effective; and that, for purposes of determining any liability under the 1933 Act, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the Effective Time of the Registration Statement through the date of responding to the request. The Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired, that was not the subject of and included in the Registration Statement when it became effective. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question 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. The Registrant hereby undertakes: (1) To file, during any period in which offers or 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 Time of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. II-3 110 Provided, however, that paragraphs (1)(i) and (1)(ii), above, do not apply if the Registration Statement is on Form S-3 or Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed 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. II-4 111 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Austin, State of Texas, on November 12, 1996. CITIZENS, INC. By: /s/ HAROLD E. RILEY ------------------------------------------ Harold E. Riley, Chairman of the Board KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers or directors of the Registrant, by virtue of their signatures to this Registration Statement appearing below, hereby constitute and appoint Harold E. Riley and Mark A. Oliver, attorneys-in-fact in their names, place, and stead to execute any and all amendments to this Registration Statement in the capacities set forth opposite their names and hereby ratify all that said attorneys-in-fact may do by virtue hereof. 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 date indicated.
Signatures Title Date - ---------- ----- ---- /s/ HAROLD E. RILEY Chairman of the Board November 12, 1996 - --------------------- Harold E. Riley /s/ RANDALL H. RILEY Vice Chairman, Chief Executive November 12, 1996 - ----------------------- Officer and Director Randall H. Riley /s/ T. ROBY DOLLAR Vice Chairman, Chief Actuary November 12, 1996 - ----------------------- and Assistant Secretary T. Roby Dollar /s/ RICK D. RILEY President, Chief Administrative November 12, 1996 - ----------------------- Officer and Director Rick D. Riley /s/ MARK A. OLIVER Executive Vice President, November 12, 1996 - ----------------------- Secretary/Treasurer and Mark A. Oliver Chief Financial Officer /s/ WILLIAM P. BARNHILL Vice President and Controller November 12, 1996 - ----------------------- William P. Barnhill Director November 12, 1996 - ----------------------- Flay F. Baugh
112 /s/ JOE R. RENEAU, M.D. Director November 12, 1996 - ------------------------ Joe R. Reneau, M.D. Director November 12, 1996 - ------------------------ Steven F. Shelton /s/ RALPH M. SMITH, TH.D. Director November 12, 1996 - ------------------------ Ralph M. Smith, Th.D. /s/ TIMOTHY T. TIMMERMAN Director November 12, 1996 - ------------------------ Timothy T. Timmerman Director November 12, 1996 - ------------------------ Charles E. Broussard
113 INDEX TO EXHIBITS
Exhibit Number Description Page - ------ ----------- ---- 5.1 Opinion and consent of Jones & Keller, P.C. as to the legality of Citizens, Inc. Common Stock Filed herewith 10.8 Self-Administered Automatic Reinsurance Agreement - Citizens Insurance Company of America and Riunione Adriatica di Sicurta, S.p.A. Filed herewith 10.9 Plan and Agreement of Exchange - Citizens Insurance Company of America and American Investment Network, Inc. Filed herewith 10.11 Agreement and Plan of Merger dated March 31, 1996 - Citizens Insurance Company of America, Inc., CICA Acquisition, Inc., and First American Investment Corporation (see Appendix A) 10.12 Stock Purchase Agreement dated October 18, 1996 by and between First American Investment Corporation and Funeral Services International, Inc. (see Appendix B) 11 Statement re: Computation of per share earnings (see "Financial Statements") 23.1 Consent of Jones & Keller, P.C. (see Exhibit 5.1) 23.2 Consent of KPMG Peat Marwick LLP Filed herewith 25 Power of Attorney (see Signature Pages)
EX-5.1 2 OPINION & CONSENT OF JONES & KELLER 1 EXHIBIT 5.1 AND 23.1 JONES & KELLER, P.C. ATTORNEYS AT LAW 1625 BROADWAY, SUITE 1600 DENVER, COLORADO 80202 TELEPHONE: (303) 573-1600 FACSIMILE: (303) 573-0769 November 12, 1996 Citizens, Inc. 400 East Anderson Lane Austin, Texas 78714-9151 Gentlemen: We have acted as special counsel for Citizens, Inc. ("Citizens") in connection with a Registration Statement on Form S-4, to be filed by Citizens under the Securities Act of 1933 with the Securities and Exchange Commission. The Registration Statement relates to the proposed issuance of up to 133,212 shares of Common Stock, no par value, to be issued in connection with the Merger relating to First American Investment Corporation. The Registration Statement and exhibits thereto to be filed with the Securities and Exchange Commission under such Act are referred to herein as the "Registration Statement". This letter is governed by, and shall be interpreted in accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law (1991). We have examined the Articles of Incorporation of Citizens as filed with the Colorado Secretary of State, the Bylaws of Citizens, and the minutes of the meetings and records of proceedings of the Board of Directors of Citizens, the applicable laws of the State of Colorado and a copy of the Registration Statement. Based upon the foregoing, and having regard for such legal considerations as we deemed relevant, we are of the opinion that the above-referenced 133,212 shares of Common Stock of Citizens are legally issued, fully paid and non- assessable. We hereby consent to the use of this opinion as part of the Registration Statement and to the reference to our name under the heading "Legal Matters" in this Information Statement-Prospectus constituting a part of the Registration Statement. Very truly yours, /s/ Jones & Keller, P.C. Jones & Keller, P.C. EX-10.8 3 AUTOMATIC REINSURANCE AGREEMENT 1 EXHIBIT 10.8 Self-Administered Automatic Reinsurance Agreement Effective between Citizens Insurance Company of America Denver, Colorado (hereinafter referred to-as the "Ceding Company") and Riunione Adriatica di Sicurta', S.p.A. Trieste, Italy (hereinafter referred to as the "Reinsurer") 2
Table of Contents Page ----------------- ---- Article I Basis of Reinsurance 3 Article II Mode of Notification and Cession 4 Article III Liability of Reinsurer 4 Article IV Plan of Reinsurance 5 Article V Reinsurance Premiums 5 Article VI Premium Taxes and Policy Expenses 6 Article VII Automatic Reinsurance Coverage after Policy Change 6 Article VIII Information to Reinsurer after Policy Change 8 Article IX Recapture 8 Article X Claims 9 Article XI List of Risks Reinsured and List of Amendments 10 Article XII Accounting 10 Article XIII Errors and Omissions 11 Article XIV Inspection of Records 12 Article XV Insolvency 12 Article XVI Arbitration 13 Article XVII Parties to Agreement 13 Article XVIII Duration of Agreement; Termination 14 Article XIX Effective Date; Execution 14 Exhibit I SAR Reinsurance Premiums 15 Exhibit II Retention Limits of the Ceding Company 23 Exhibit III Limits and Special Conditions for the First Excess 24 Exhibit IV Calculation of the Net Amount at Risk Reinsured 25 Exhibit V List of Risks Reinsured 26 Exhibit VI List of Amendments 27 Exhibit VII Preliminary Surplus Advice Exhibit VIII Automatic Cession Notification Appendix I International Guidelines 28 Appendix I-A Foreign National Business 29 Appendix I-B Conditional Receipt 31
2 3 Article I Basis of Reinsurance 1. On and after the effective date of this Agreement, the Ceding Company shall cede to Reinsurer, subject to the limitations outlined in Exhibit III, its entire (100%) First Excess, i.e., the amount of new direct agency Standard and Substandard individual issues of Life Insurance policies and Waiver of Premium Disability benefits in excess of the Ceding Company's regular retention for such benefits as shown in Exhibit II. Reinsurer shall automatically accept such First Excess within the limits indicated in Exhibit III, provided that the Ceding Company has applied its normal underwriting rules and retains its regular retention. 2. The term "new direct agency issues" as used in this Article shall include issues on the lives of U.S. Citizens and non-U.S. Citizens as stipulated in Appendix I-A. It shall not include brokerage business, reinsurance business, or except as provided herein, issues of conversions. 3. If the Ceding Company is already on the risk for its regular retention under policies previously issued, reinsurance up to the limits indicated in Exhibit III will be accepted automatically in accordance with Paragraph 1 above, provided the Ceding Company has assessed the risk under the new application by applying the same underwriting rules it would have applied had the new policy fallen completely within its regular retention. 4. Any risk which falls within the automatic coverage granted by this Agreement may nevertheless be submitted to Reinsurer for its underwriting opinion. If such risk is acceptable for coverage, it shall automatically be reinsured under- this Agreement. Any other risk ineligible for automatic coverage hereunder, or which the Ceding Company desires to reinsure facultatively, may be submitted to Reinsurer for facultative underwriting by forwarding to Reinsurer copies of the original applications, all medical examinations or reports, inspection reports and all other information which the Ceding Company may have pertaining to the insurability of the risk. Any such risk shall, upon acceptance by the Ceding Company of Reinsurer's underwriting decision, be reinsured under this Agreement. 5. The reinsurance under this Agreement shall be maintained in force as long as the original policy carried by the Ceding Company remains in force, except as provided in Articles VII Automatic Reinsurance Coverage after Policy Change, IX Recapture, and XVIII Duration of Agreement; Termination. 6. Notwithstanding any provision to the contrary in Article I Basis of Reinsurance of said Agreement, Reinsurer shall be automatically bound under any claim for which the Ceding Company is liable under a conditional receipt issued in respect of business reinsured automatically or submitted exclusively to Reinsurer under said Article I. Reinsurer's liability on standard retention on the policy applied-for. In no event, however, shall Reinsurer's liability on any one life, 3 4 including previous reinsurance ceded to Reinsurer, by the Ceding Company, exceed the automatic acceptance limits provided by this Agreement. The Ceding Company's conditional receipt is attached hereto and the Ceding Company shall be obligated to advise Reinsurer of any changes or modifications of such receipt. Article II Mode of Notification Ceding and Cession 1. If (a) the First Excess as defined in Exhibit m herein is greater than $300,000 of life Insurance and (b) the Ceding Company automatically cedes to Reinsurer as herein provided and the total amount ceded to Reinsurer on the same life, including previous cessions, exceeds either of the foregoing specified amounts, then the Ceding Company shall notify Reinsurer: a. within forty-eight (48) hours after underwriting approval of the risk by mailing a Preliminary Surplus Advice (Exhibit VII), and either b. within five (5) working days after the policy issued on such application has been delivered and paid for, by mailing a copy of the Preliminary Surplus Advice indicating the actual amount ceded hereunder, or c. within sixty (60) working days after underwriting approval of the risk if the policy issued on such application was refused or remains undelivered, by mailing a copy of the Preliminary Surplus Advice marked "Canceled" and indicating date of cancellation. 2. For risks automatically ceded and not subject to the notification requirements of Paragraph 1. The first notice to Reinsurer regarding any such automatic cession will be sent to Reinsurer on the first of each month following the Issue Month. The notification will be a copy of Citizen's Underwriter Worksheet (see Exhibit VIII). 3. For risks to be reinsured facultatively hereunder in accordance with Article I, Paragraph 4, the Ceding Company shall forward to Reinsurer a Preliminary Surplus Advice marked "Facultative" within five (5) working days after the original policy has been reported delivered and paid for. Article III Liability of Reinsurer 1. The liability of Reinsurer shall begin and terminate simultaneously with that of the Ceding Company, provided that, in the case of a facultative submission, Reinsurer has notified the Ceding Company of its acceptance of the risk and the Ceding Company has mail Advice in accordance with Paragraph 3 of Article II Mode of Notification and Cession. 4 5 2. Reinsurer has no liability under this Agreement for any policy amount or benefit not expressly referred to in Article I Basis of Reinsurance, or in any Addendum to this Agreement relating to reinsurance of other benefits. 3. The Ceding Company will provide Reinsurer with copies of its policy and rider forms, rate schedules and underwriting rules for the business eligible fr reinsurance under this Agreement and shall keep Reinsurer informed of any changes therein. 4. Reinsurer shall not be liable for any amount paid by the Ceding Company for punitive, exemplary, or compensatory damages awarded to the beneficiary of an insured, arising out of the conduct of the Ceding Company in the investigation, trial, or settlement of any claim, or the failure to pay or a delay to pay any benefits under any policy unless Reinsurer was informed of the circumstances and participated in the decision which resulted in such liability. Article IV Plan of Reinsurance l. Life reinsurance shall be ceded on the Risk Premium basis for the Net Amount at Risk reinsured. For the purpose of this Agreement, the Net Amount at Risk reinsured during any calendar year is defined as the difference between the First Excess (as defined in Article I and Exhibit III) and the reserve thereon at the end of the prior calendar year. Such reserve shall be determined as the statutory mean reserve based on the Ceding Company's reserve standard unless an approximate method of determination is applicable as shown in Exhibit IV. In either case, reserves shall be rounded to the nearer dollar. 2. For original policies issued on a level term plan for twenty (20) years or less or on a reducing term plan for any period of years, the Net Amount at Risk reinsured during all years shall be for the amount of the First Excess reinsured and reserves shall be disregarded. 3. Except as otherwise provided in Exhibit IV hereof, or by Addendum to this Agreement, the Net Amount at Risk reinsured will be level during any calendar year. 4. Reinsurance of Waiver of Premium Disability benefits shall be in accordance with the original policy terms of the Ceding Company subject to the limitations in Exhibit III. Article V Reinsurance Premiums 1. The reinsurance premiums for Life reinsurance shall consist of a basic rate per thousand of Net Amount at Risk reinsured in accordance with the schedule of rates attached hereto (Exhibit I). Rates for females at ages 15 and higher are equal to the rates for a male four years younger. For females aged 11-14, males age 10 rates are used. Male and female rates for ages 0-10 are identical. 2. For purposes of premium calculation, based on the table of rates contained in Exhibit I, the attained age shall be taken as the issue 5 6 age (nearest or last birthday as appropriate),-plus the difference between the respective calendar year and the calendar year at issue 3. The reinsurance premiums for Waiver of Premium Disability benefits shall be as shown in Exhibit I. 4. Except as otherwise provided in Exhibit m, for all new reinsurance originating without current evidence of insurability (conversions, options, etc.) calendar years for entering the premium table, Exhibit I will be counted starting with the calendar year of the last check of insurability. 5. All reinsurance premiums payable by the Ceding Company to Reinsurer under this Agreement shall be paid on the calendar year basis in advance regardless of the mode of premium payment of the policies reinsured. Reinsurance premiums shall be payable as long as the reinsurance remains in force. Should any reinsurance be reduced or terminated within any calendar year, the proportionate part of the reinsurance premium paid shall be refunded at the beginning of the calendar year next following the reduction or termination provided, however, that for policies reduced or terminated during the second calendar year after issue the refund shall not exceed 50% of the reinsurance premium paid. 6. For technical reasons relating to the uncertain status of deficiency reserve requirements by the various state insurance departments, the Life reinsurance premiums contained herein cannot be guaranteed for more than one year. For all reinsurance ceded at these rates, however, Reinsurer shall continue to accept premiums no lower than those arrived at based on these rate schedules. Article VI Premium Taxes and Policy Expenses 1. When Reinsurer is not required to pay state premium taxes on reinsurance premiums received from the Ceding Company, it shall reimburse the Ceding Company for any such taxes the latter may be required to pay with respect to the part of the premium received under the Ceding Company's original policies which is remitted to Reinsurer as reinsurance premium. 2. The Ceding Company shall bear the expense of all medical examinations, inspection fees, and other charges incurred in connection with the issuance of any policy reinsured hereunder. Article VII Automatic Reinsurance Coverage after Policy Change l. Reinsurer will continue to grant automatic reinsurance coverage in accordance with the provisions of this Agreement after renewal, conversion or amendment of any policy reinsured hereunder provided that the amounts and benefits to be reinsured following the change do not exceed the amounts and benefits initially reinsured hereunder in respect of such policy. The following rules will apply for 6 7 the recalculation of the amounts reinsured with Reinsurer after a policy change. 2. If an original policy is reduced, the Ceding Company will retain the same Net Amount at Risk and the same other benefits on that life that it had before the reduction. The reduction shall be applied first to the reinsurance based on the original policy or policies reduced or terminated. If further reduction in reinsurance is required, the policies for which reinsurance is to be terminated or reduced shall be determined by the chronological order in which they were issued, the first issued being the first terminated or reduced, and so on. If the reinsurance required to be reduced under this Article is shared among Reinsurer and other reinsurers, the reduction shall be pro-rated among all reinsurers in proportion to the amount of reinsurance carried by each. If the amount of reinsurance remaining is less than the amount of the minimum cession specified in Exhibit II, such reinsurance shall be canceled. 3. If any policy reinsured hereunder is changed to extended term insurance, Reinsurer's proportion of the amount of insurance under such policy shall remain unchanged. 4. Should any change or conversion of any policy reinsured hereunder increase the et Amount at Risk or other benefits insured, Reinsurer's proportion of the amount of insurance and benefits under such policy shall remain unchanged unless the limits provided under Paragraph 1 are exceeded. In the event that the limits under Paragraph 1 are exceeded, Reinsurer will accept both the excess and any additional amounts required to be reinsured in order to keep the Ceding Company's retention within the limits stated in Exhibit II, provided that the total Net Amount at Risk reinsured after the increase does not exceed the limitations of automatic Coverage (Exhibit III), and provided further that such increase is underwritten in accordance with Article I Basis of Reinsurance, Paragraph 3. Premiums for the amended cessions will be calculated in accordance with Article V Reinsurance Premiums, Paragraph 4. 5. If after any reinsured policy has been terminated, changed to reduced paid-up insurance or changed to extended- term insurance, such policy is reinstated according to the general reinstatement rules of the Ceding Company, the-reinsurance hereunder shall be restored with the same Net Amount at Risk and other benefits reinsured as if no change had occurred. 6. Policies issued because of options exercised under provisions of Guaranteed Insurability benefits are not included under this Agreement, and shall be added by Addendum if such benefits are to be reinsured. Article VIII Information to Reinsurer after Policy Change 1. All amendments and terminations of reinsurance under this Agreement occurring during any calendar year will be shown in the 7 8 List of Amendments prepared for such calendar year in accordance with Article XI List of Risks Reinsured and List of Amendments. 2. If any policy change increases the Net Amount at Risk or other benefits reinsured hereunder by more than 10%, the Ceding Company will notify Reinsurer within two (2) weeks after such change becomes effective by submitting a Preliminary Surplus Advice (Exhibit VII) marked "Amended." Article IX Recapture 1. At intervals of five (5) years, the Ceding Company is entitled to recapture reinsurance on all cessions which have been in force under this Agreement for at least five (5) years. The first recapture date is the end of the seventh (7th) full calendar year following the effective date of this Agreement. Subsequent recapture dates will follow at intervals of five (5) full calendar years. 2. In order to effect recapture, the Ceding Company will reduce each cession eligible under this Agreement by an amount which will increase the Net Amount at Risk for life insurance or other benefit retained by the Ceding Company to its then regular retention. Any recapture reducing the Net Amount at Risk reinsured below the amount of the minimum cession according to Exhibit II will result in complete recapture of the reinsurance on that life. 3. Before recapturing on a cession according to this provision, the Ceding Company will proceed with all recaptures allowed for policies previously issued on the same life and for all other reinsurance cessions on the same policy, whoever the reinsurer may be. 4. The Ceding Company may waive recapture on any recapture date, but only if such waiver applies to all reinsurance then eligible for recapture hereunder. 5. The Ceding Company shall notify Reinsurer at least sixty (60) days prior to each recapture date of its intended recapture action. Any questions of recapture eligibility or procedure will then be resolved during such sixty (60) day period. 6. If recapture is effected, the List of Risks Reinsured for the calendar year following recapture will identify the risks involved and show the new reinsurance amounts applicable. In the event recapture results in cancellation of any cession, such cancellation will be shown on the List of Amendments for the calendar year of recapture. 7. It is hereby agreed and understood that risks of which no part is retained by the Ceding Company or where the Ceding Company does not retain its regular retention limit at issue, shall be considered not subject to recapture. Article X Claims 1. In the event any policy is terminated by death while reinsured under this Agreement, Reinsurer shall pay to the Ceding Company the Net 8 9 Amount at Risk reinsured with respect to such policy during the calendar year of death. 2. In the event Waiver of Premium Disability benefits are validly claimed under any policy reinsured for such benefits hereunder, Reinsurer shall pay the Ceding Company annually during the continuance of disability the yearly gross premium (exclusive of the premiums for the Waiver benefit itself) due under such policy for the reinsured portion of the Waiver benefit. In suitable cases, the Ceding Company and Reinsurer may agree to replace the annual payments of Reinsurer by the payment of a lump sum. If disability terminates, a refund, if appropriate, will be made by the Ceding Company to Reinsurer. The payment of reinsurance premiums in accordance with Article V Reinsurance Premiums for the other benefits still reinsured will continue during the disability claim period. 3. In the event any policy reinsured hereunder becomes a claim before such policy has appeared on any List of Risks Reinsured, the Ceding Company will calculate the amount payable by Reinsurer in accordance with this Agreement and will submit to Reinsurer all papers necessary to demonstrate that the risk involved was covered automatically hereunder. In addition, the Ceding Company will inform Reinsurer of all other reinsurance, if any, ceded on the same policy. 4. For any claim incurred after the policy affected has appeared on a List of Risks Reinsured, Reinsurer will pay the Net Amount at Risk or other benefits reinsured, as appropriate, shown in the List of Risks Reinsured applicable to the calendar year of incurral, unless the benefits reinsured were amended according to Article VII Automatic Reinsurance Coverage after Policy Change, but not reflected in such List. In such case, Reinsurer will pay the Net Amount at Risk or other benefits reinsured which would appear in the List of Amendments for the calendar year of incurral, and the Ceding Company shall furnish proof that the amended Net Amount at Risk and other benefits reinsured are in accordance with the provisions of this Agreement. 5. In the event less than the full amount insured is paid as a claim or if any special expenses are incurred in the settlement of a claim (such as attorney's fees, court and arbitration costs, special investigations, etc., but excluding salaries of employees), Reinsurer and the Ceding Company shall share in the amount of such reduction or special expenses in proportion to their respective Net Amounts at Risk under the policy affected. 6. Reinsurer and the Ceding Company shall share in any increase or reduction resulting from the Insured's misstatement of his age in proportion to their respective Net Amounts at Risk under the policy affected. 7. Notice will be faxed to the Reinsurer of any claim reinsured under this agreement. In every case of loss, proofs acceptable to the Ceding Company shall likewise be taken as sufficient by Reinsurer. 9 10 The Ceding Company shall fax Reinsurer copies of death certificates. 8. At the end of each calendar quarter, a copy of the checks showing payment of all claims and claim expenses paid by the Ceding Company during the quarter and reinsured by the Reinsurer under this agreement will be faxed to the Reinsurer and paid within ten days of receipt by the Reinsurer. Should-the total amount of claims and claim expenses paid by the Ceding Company exceed $250,000 prior to the end of any quarter, proof of such payments will be faxed to the Reinsurer and paid within ten days of receipt by the Reinsurer. Article XI Lists of Risks Reinsured and List of Amendments 1. Before January 15 of each calendar year following the date of this Agreement, the Ceding Company will provide Reinsurer with the List of Risks Reinsured for the current calendar year. This List will include all reinsurance in force under this Agreement at the beginning of the calendar year and contain information as outlined in Exhibit V. 2. Before January 15 of each calendar year, beginning with the second year following the date of this Agreement, the Ceding Company will provide Reinsurer, for adjustment of coverage and premium, with the List of Amendments for the preceding calendar year. This List will include all cessions amended during the preceding calendar year in accordance with Article VII Automatic Reinsurance Coverage after Policy Change, exclusive of (a) amendments occurring during the calendar year of issue of any policy, and (b) certain corrections referred to in Article XIII Errors and Omissions. In detail, the List will contain information as outlined in Exhibit VI. Article XII Accounting and Nondisclosure of Confidential Information 1. The Ceding Company shall remit the total of the reinsurance premiums shown - in the List of Risks Reinsured simultaneously with the List. 2. Should the balance of changes in reinsurance premiums for the preceding calendar year shown in the List of Amendments be in favor of Reinsurer, the Ceding Company shall remit said balance, increased by 2% for interest, simultaneously with the List. Should this balance be in favor of the Ceding Company, Reinsurer shall remit said balance, increased by 2% for interest, within ten (10) working days of receipt of the List. 3. Reinsurer is entitled to ask for correction of any of the Lists within ninety (90) days after their receipt. The amount of any correction in reinsurance premiums is due immediately after agreement between the Ceding Company and Reinsurer. 4. Failure of the Ceding Company to pay any of the reinsurance premiums shown in the List of Risks Reinsured by March 31 of the 10 11 calendar year covered by such List shall automatically terminate the liability of Reinsurer under this Agreement as of midnight on that date. Payment of only a portion of this premium by said March 31 shall reduce the liability of Reinsurer under this Agreement as of midnight on that date. The reduced liability will be determined by applying to the total liability under this Agreement the ratio of the reinsurance premiums paid to the total of the reinsurance premiums due. Payment of a portion or of the total of the outstanding premiums and interest, if any, after said March 31 shall reinstate a proportionate part of the total liability of Reinsurer effective on and after the date of receipt of the payment at Reinsurer's home office. 5. All amounts due under Paragraphs 1, 2, and 3 preceding and not paid by March 31 of the respective calendar year, are subject to 0.5% additional interest for each full month after March 31. 6. Since reinsurance coverage and premium payments are on the calendar year basis, Reinsurer, will not hold any reserves, other than claims reserves, for the reinsurance covered by this Agreement at the end of the calendar year. 7. During the course of business necessary under this agreement, CICA may reveal to RAS certain confidential or proprietary information which includes but is not limited to the following: various trade secrets, data processing methods, marketing concepts, programs, formulas, pattens, devices, inventions, processes, policy forms and identities of customers, sales agents, managing agents, associates and employees of CICA RAS shall not disclose, directly or indirectly, to others, Including corporate subsidiaries and affiliates, any confidential or proprietary information of CICA except as may be specifically authorized in writing by an officer of CICA. RAS will also do all things necessary to prevent any of its employees, representatives and agents from disclosing any such information. RAS *er agrees to use any confidential or proprietary information of CICA solely for the purpose of reinsurance under this agreement. Article XIII Errors and Omissions 1. The List of Risks Reinsured is the basis for the reinsurance coverage provided by Reinsurer for the respective calendar year on the reinsurance in force at the beginning of that year. Any unintentional clerical error or omission in the amounts reinsured shall not be corrected during the current calendar year but will be reflected in the List of Risks Reinsured for the subsequent calendar year, unless by such error or omission a. any risk not eligible for reinsurance under this Agreement is shown as reinsured, or b. the amount retained by the Ceding Company exceeds its retention at issue (Exhibit II) by more than $5,000 or 11 12 c. the benefits reinsured by Reinsurer and other reinsurers exceed the benefits insured under the policy less the Ceding Company's retention thereon, if any, or d. the amount of any benefit reinsured by Reinsurer exceeds 125% of the corresponding amount during the preceding calendar year, or e. the amount of any benefit reinsured by Reinsurer exceeds the Automatic Coverage (Exhibit III). 2. In those cases described in Paragraph 1, Reinsurer shall be notified in writing and the reinsurance shall be corrected retroactively. Correction of the reinsurance premium will be accounted for in the List of Amendments applicable to the calendar year in which the error was discovered. The Ceding Company shall also check its entire reinsured portfolio for similar discrepancies. 3. Any other failure of either party to comply with any provision of this Agreement, if shown to be unintentional and the result of misunderstanding or oversight, shall be corrected by restoring both parties to the positions they would have occupied had no such error or oversight occurred. Article XIV Inspection of Records Reinsurer shall have the right, at any reasonable time, to inspect, at the office of the Ceding Company, all books, records and documents relating to the reinsurance under this Agreement. Article XV Insolvency 1. In the event of insolvency of the Ceding Company, all reinsurance shall be payable directly to the liquidator, receiver or statutory successor of said Ceding Company, without diminution because of the insolvency of the Ceding Company. 2. In the event of insolvency of the Ceding Company, the liquidator, receiver or statutory successor shall give Reinsurer written notice of the pendency of a claim on a policy reinsured hereunder within a reasonable time after such claim is filed in the insolvency proceeding. During the pendency of any such claim, Reinsurer may investigate such claim and interpose in the name of the Ceding Company (its liquidator, receiver or statutory successor), but at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses which Reinsurer may deem available to the Ceding Company or its liquidator, receiver or statutory successor. 3. The expense thus incurred by Reinsurer shall be chargeable, subject to court approval, against the Ceding Company as part of the expense of it liquidation to the extent of a proportionate share of the benefit which may accrue to the Ceding Company solely as a result of the defense undertaken by Reinsurer. Where two r more reinsures are participating in the same claim and a majority in 12 13 interest elect to interpose a defense or defenses to any such claim, the expense shall be apportioned in accordance with the terms of the respective reinsurance agreements as though such expense had been incurred by the Ceding Company. 4. In the event of insolvency of the CEDING COMPANY, the arbitration provisions of this agreement shall also be subject to the laws of the State of Colorado. Article XVI Arbitration 1. All disputes and differences between the two contracting parties upon which an amicable understanding cannot be reached are to be decided by arbitration. The arbitrators shall regard this Agreement rather from the standpoint of practical business and equity than from that of the strict law, for the purpose of carrying out its evident intent. 2. The court of arbitration, which is to be held in the city in which the Executive office of the Ceding Company is located, shall consist of three arbitrators who must be executive officers of life insurance companies, other than the two parties to this Agreement, familiar with the reinsurance business. One of the arbitrators is to be appointed by the Ceding Company, the second by Reinsurer, and the third is to be selected by these two representatives before the beginning of the arbitration. Should the two arbitrators be unable to agree upon the choice of a third, the appointment shall be left to the President of the American Council of Life Insurance. or its successor organization. 3. The arbitrators shall decide by a majority of votes and from their written decision there can be no appeal. The cost of arbitration, including the fees of the arbitrators, shall be borne by the losing party unless the arbitrators shall decide otherwise. Article XVII Parties to Agreement Colorado Law This is an agreement solely between the Ceding Company and Reinsurer. The acceptance of reinsurance hereunder shall not create any right or legal relation whatever between Reinsurer and the insured or the beneficiary under any policy of the Ceding Company which may be reinsured hereunder. All provisions of this reinsurance agreement other than the arbitration provisions are subject to the laws of the State of Colorado. Reinsurer agrees to maintain continuous qualification as a reinsurer in the State of Colorado during the continuance of any insurance contracts under this Agreement. Article XVIII Duration of Agreement: Termination 1. This Agreement shall be unlimited as to its duration, but may be terminated at any time, for new reinsurance only, by either party giving not less than ninety (90) days notice of termination in writing 13 14 to the other party and the Colorado Insurance Department by registered mail stating the Termination Date. Reinsurer shall continue to accept reinsurance during the ninety (90) days aforesaid and shall remain liable on all reinsurance already placed in force under the terms of this Agreement until such contracts are terminated between the original insured and the Ceding Company. 2. In the event of non-payment of any amounts due hereunder by either party within three (3) months of the respective due dates, except as provided by Article XIII Errors and Omissions, Paragraph 2, the other party shall have the right to cancel all reinsurance in force under this Agreement by giving thirty (30) days written notice. Payment of the amounts due, with interest according to Article XII Accounting, Paragraph 5, during such thirty (30) days will nullify the cancellation. Article XIX Effective Date; Execution The said Citizens Insurance Company of America, Denver, Colorado, and the said Reinsurer, declare that this Agreement and all its terms shall be effective as of January 1, 1995, and shall apply to eligible policies applied for on and after such date, notwithstanding that such policies may have been backdated for up to six (6) months to save age. In witness whereof they have by their respective officers executed and delivered this Agreement in duplicate. Citizens Insurance Company of America By:/s/ Roby Dollar ------------------------------------ Title: President Date: October 4, 1994 Riunione Adriatica di Sicurta', S.p.A. By:/s/ Lino Loer ------------------------------------ Title: Manager Date: October 4, 1994 14 15 Exhibit 1 SAR Reinsurance Premiums 1. Reinsurance premiums under this Agreement for the first calendar year (from the effective date of the policy to the net December 31) are, with certain exceptions noted below, zero. 2. Life reinsurance premiums for standard risks shall be calculated by multiplying the Net Amount at Risk reinsured during the calendar year by the appropriate premium rate for such year from the appropriate schedule shown in this Exhibit: Age Nearest Birthday SAR NR ANB Age Last Birthday SAR NR ALB Rates for females shall be in accordance with the respective rate schedule applicable. 3. Life reinsurance premiums for substandard risks accepted subject to a Table Rating shall be calculated by multiplying the corresponding standard risk life reinsurance premiums by the appropriate Mortality Factor from the table:
Table Rating Mortality Factor** ------------ --------- ------ A (1) 1.25 AA (1 1/2) 1.375 B (2) 1.50 BB (2 1/2) 1.625 C (3) 1.75 D (4) 2.00 E (5) 2.25 F (6) 2.50 G (7) 2.75 H (8) 3.00 I (9) 3.25 J (10) 3.50 L (12) 4.00 P (16) 5.00
** Substandard reinsurance premiums for the second calendar year only shall be 150% of the premiums calculated from the table. 15 16 Exhibit I (continued) 4. Life reinsurance premiums for substandard risks accepted subject to a flat extra premium shall be the sum of a. The applicable standard or substandard reinsurance premiums, calculated from Paragraphs 2 and 3 above, and b. The following percentages of the policy annual flat extra premiums applicable to the initial amount of reinsurance hereunder on such risks:
Term of Flat Second Subsequent Extra Premium Calendar Year Calendar Years ------------- ------------- --------------- More than five years 102.5% 90% Five years or less 135.0% 90%
5. Reinsurance premiums for Waiver of Premium Disability benefits payable for the second and later calendar years shall be equal to 90% of the policy annual premiums for such benefits applicable to the amount of such benefits reinsured hereunder. If premiums for the Waiver of Premium Disability benefit are automatically included in the gross Life Insurance premiums under any policy reinsurance hereunder, then reinsurance premiums for the Waiver of Premium Disability benefit, for second and later calendar years, shall be 100% of the Ceding Company's net annual premiums for the reinsured amount of such benefit. 6. For standard risks only, the reinsurance premium for the excess over $1,500,000 on any one life reinsured under this Agreement for the first calendar year (from the effective date of the policy to the net December 31) shall be based on the second calendar year rate for the issue age. Such first year premium shall be prorated over the year of issue as follows: First year prorated premium = n/360 (tabular rate), where n is the number of days from the issue date to December 31, assuming 30-day months, and the tabular rate is the second calendar-year rate for the age at issue. 7. The Life reinsurance premiums for reinsurance of Joint Whole Life policies at Standard or Substandard rates shall for each insured be 85% of the premium applicable for an individual life shown in Exhibit I of the Agreement. Such rate shall be applied to the Net Amount at Risk for each individual. In case of reinsurance under a Joint Whole Life Policy where the Joint Insureds die simultaneously or within 60 days of each other, thus requiring the Ceding Company to pay twice the amount of Life Insurance insured under the Joint Whole Life Policy, Reinsurer shall for each of the joint lives reinsured pay the net amount at risk plus 50% of the terminal reserve used in calculating the net amount at risk in accordance with Article IV, Paragraph 1, relating to the amount reinsured on the respective life. 16 17 Exhibit I (Continued) Self-Administered Automatic Reinsurance Premiums Per $1,000
Standard Non-Refund Age Last Birthday Appendix 2 Calender Year Issue Age 1 2 3 4 5 6 7 8 9 0 0.00 3.41 1.65 1.34 1.19 1.10 1.04 0.99 0.95 1 0.00 1.65 1.34 1.19 1.10 1.04 0.99 0.95 0.91 2 0.00 1.34 1.19 1.10 1.04 0.99 0.95 0.91 0.90 3 0.00 1.19 1.10 1.04 0.99 0.95 0.91 0.90 0.90 4 0.00 1.10 1.04 0.99 0.95 0.91 0.90 0.90 0.94 5 0.00 1.04 0.99 0.95 0.91 0.90 0.90 0.94 1.03 6 0.00 0.99 0.95 0.91 0.90 0.90 0.94 1.03 1.17 7 0.00 0.95 0.91 0.90 0.90 0.94 1.03 1.17 1.34 8 0.00 0.91 0.90 0.90 0.94 1.03 1.17 1.34 1.52 9 0.00 0.90 0.90 0.94 1.03 1.17 1.34 1.52 1.69 10 0.00 0.90 0.94 1.03 1.17 1.34 1.52 1.69 1.84 11 0.00 0.94 1.03 1.17 1.34 1.52 1.69 1.84 1.94 12 0.00 1.12 1.23 1.37 1.53 1.68 1.82 1.93 1.98 13 0.00 1.36 1.46 1.57 1.70 1.81 1.89 1.96 1.99 14 0.00 1.53 1.62 1.70 1.81 1.89 1.93 1.96 1.97 15 0.00 1.64 1.71 1.78 1.86 1.91 1.93 1.93 1.93 16 0.00 1.69 1.76 1.81 1.87 1.90 1.89 1.89 1.88 17 0.00 1.70 1.77 1.82 1.86 1.87 1.85 1.84 1.83 18 0.00 1.67 1.74 1.78 1.81 1.81 1.79 1.78 1.77 19 0.00 1.60 1.67 1.71 1.74 1.73 1.71 1.70 1.71 20 0.00 1.52 1.58 1.64 1.65 1.64 1.63 1.63 1.65 21 0.00 1.44 1.51 1.57 1.58 1.57 1.57 1.58 1.62 22 0.00 1.38 1.45 1.52 1.53 1.52 1.53 1.56 1.61 23 0.00 1.33 1.42 1.49 1.50 1.49 1.52 1.56 1.62 24 0.00 1.29 1.39 1.46 1.47 1.48 1.51 1.57 1.64 25 0.00 1.26 1.37 1.45 1.47 1.48 1.53 1.60 1.70 26 0.00 1.25 1.37 1.45 1.48 1.51 1.57 1.66 1.78 27 0.00 1.27 1.39 1.48 1.51 1.57 1.64 1.76 1.90 28 0.00 1.32 1.43 1.53 1.58 1.65 1.74 1.87 2.05 29 0.00 1.37 1.49 1.59 1.66 1.72 1.79 1.89 2.04 30 0.00 1.43 1.56 1.67 1.76 1.82 1.85 1.93 2.07 31 0.00 1.49 1.63 1.76 1.88 1.96 2.01 2.12 2.29 32 0.00 1.54 1.69 1.86 2.00 2.11 2.19 2.33 2.52 33 0.00 1.57 1.76 1.95 2.13 2.27 2.38 2.55 2.77 34 0.00 1.60 1.83 2.06 2.28 2.44 2.59 2.79 3.04 Standard Non-Refund Age Last Birthday Appendix 2 Calender Year Issue Attained Age 10 11 12 13 14 15 16+ Age 0 0.91 0.90 0.91 0.96 1.06 1.21 1.39 15 1 0.90 0.90 0.95 1.05 1.20 1.39 1.59 16 2 0.90 0.94 1.04 1.19 1.38 1.58 1.77 17 3 0.94 1.04 1.18 1.37 1.56 1.76 1.92 18 4 1.03 1.18 1.36 1.55 1.74 1.91 2.03 19 5 1.17 1.35 1.54 1.73 1.89 2.02 2.07 20 6 1.34 1.53 1.71 1.88 2.00 2.06 2.05 21 7 1.52 1.69 1.86 1.98 2.04 2.04 2.02 22 8 1.69 1.84 1.96 2.02 2.02 2.01 1.99 23 9 1.84 1.95 2.00 2.00 1.99 1.98 1.97 24 10 1.94 1.98 1.98 1.97 1.96 1.96 1.95 25 11 1.97 1.96 1.95 1.94 1.94 1.94 1.93 26 12 1.97 1.94 1.94 1.94 1.94 1.94 1.93 27 13 1.97 1.94 1.93 1.94 1.95 1.96 1.98 28 14 1.95 1.92 1.91 1.93 1.96 2.00 2.03 29 15 1.91 1.88 1.88 1.92 1.98 2.03 2.09 30 16 1.86 1.84 1.85 1.91 1.98 2.05 2.13 31 17 1.82 1.81 1.83 1.90 1.97 2.06 2.15 32 18 1.77 1.78 1.81 1.89 1.97 2.08 2.19 33 19 1.73 1.75 1.80 1.89 2.00 2.12 2.26 34 20 1.69 1.73 1.80 1.91 2.04 2.20 2.86 35 21 1.67 1.73 1.83 1.96 2.12 2.30 2.50 36 22 1.67 1.76 1.88 2.04 2.23 2.44 2.67 37 23 1.70 1.81 1.96 2.15 2.37 2.62 2.89 38 24 1.74 1.88 2.06 2.29 2.55 2.84 3.14 39 25 1.82 1.97 2.18 2.44 2.74 3.08 3.42 40 26 1.92 2.10 2.34 2.63 2.96 3.34 3.72 41 27 2.06 2.27 2.54 2.86 3.23 3.63 4.05 42 28 2.24 2.47 2.78 3.13 3.53 3.97 4.43 43 29 2.22 2.46 2.80 3.18 3.61 4.09 4.72 44 30 2.22 2.48 2.85 3.27 3.73 4.25 5.05 45 31 2.48 2.77 3.19 3.64 4.14 4.71 5.56 46 32 2.75 3.08 3.54 4.04 4.61 5.24 6.15 47 33 3.03 3.41 3.92 4.49 5.14 5.85 6.84 48 34 3.34 3.77 4.33 4.99 5.73 6.55 7.63 49
Female Rates: Ages 0-10 same as male rates ages 0-10; ages 11-14 same as male rate age 10; Ages 15 & over same as male rates ages 4 years younger. 17 18 Exhibit I (Continued) Self-Administered Automatic Reinsurance Premiums Per $1,000
Standard Non-Refund Age Last Birthday Appendix 2 Calender Year Issue Age 1 2 3 4 5 6 7 8 9 35 0.00 1.64 1.91 2.18 2.44 2.64 2.83 3.06 3.33 36 0.00 1.70 2.02 2.34 2.63 2.87 3.10 3.36 3.67 37 0.00 1.80 2.17 2.53 2.85 3.13 3.41 3.71 4.06 38 0.00 1.94 2.36 2.76 3.11 3.43 3.76 4.10 4.49 39 0.00 2.10 2.57 3.02 3.39 3.76 4.15 4.53 4.97 40 0.00 2.28 2.80 3.29 3.70 4.12 4.57 4.99 5.49 41 0.00 2.45 3.04 3.58 4.03 4.50 5.01 5.48 6.03 42 0.00 2.62 3.27 3.87 4.37 4.89 5.46 5.99 6.58 43 0.00 2.78 3.50 4.17 4.74 5.30 5.92 6.51 7.14 44 0.00 2.95 3.73 4.48 5.12 5.73 6.40 7.06 7.72 45 0.00 3.12 3.98 4.81 5.52 6.20 6.93 7.67 8.36 46 0.00 3.31 4.26 5.17 5.96 6.70 7.52 8.35 9.09 47 0.00 3.52 4.58 5.57 6.42 7.25 8.21 9.15 9.96 48 0.00 3.74 4.93 6.00 6.89 7.85 9.00 10.07 10.96 49 0.00 3.99 5.31 6.46 7.38 8.48 9.85 11.06 12.05 50 0.00 4.25 5.71 6.95 7.92 9.15 10.73 12.09 13.18 51 0.00 4.52 6.13 7.48 8.51 9.85 11.62 13.13 14.31 52 0.00 4.78 6.55 8.03 9.13 10.54 12.47 14.11 15.38 53 0.00 5.04 6.95 8.60 9.78 11.24 13.27 15.02 16.37 54 0.00 5.31 7.37 9.19 10.47 11.97 14.08 15.94 17.37 55 0.00 5.65 7.90 9.93 11.33 12.85 15.04 17.00 18.54 56 0.00 6.11 8.57 10.87 12.41 13.97 16.20 18.28 19.97 57 0.00 6.66 9.37 11.99 13.74 15.29 17.50 19.69 21.62 58 0.00 7.31 10.31 13.33 15.32 16.83 18.92 21.22 23.45 59 0.00 8.05 11.36 14.82 17.09 18.54 20.49 22.87 25.46 60 0.00 8.89 12.53 16.42 18.99 20.43 22.25 24.71 27.69 61 0.00 9.86 13.83 18.11 20.99 22.49 24.25 26.82 30.16 62 0.00 1098 15.25 19.79 22.96 24.67 26.50 29.18 32.84 Standard Non-Refund Age Last Birthday Appendix 2 Calender Year Issue Attained Age 10 11 12 13 14 15 16+ Age 35 3.68 4.15 4.79 5.53 6.36 7.28 8.47 50 36 4.06 4.58 5.28 6.09 7.00 8.01 9.30 51 37 4.49 5.06 5.82 6.69 7.68 8.78 10.17 52 38 4.97 5.59 6.41 7.37 8.44 9.65 11.15 53 39 5.49 6.16 7.06 8.12 9.32 10.65 12.29 54 40 6.04 6.76 7.77 8.97 10.33 11.84 13.63 55 41 6.62 7.41 8.53 9.90 11.46 13.17 15.14 56 42 7.22 8.07 9.32 10.87 12.63 14.57 16.75 57 43 7.81 8.74 10.12 11.86 13.84 16.01 18.43 58 44 8.43 9.45 10.97 12.89 15.10 17.51 20.16 59 45 9.12 10.23 11.89 14.00 16.42 19.08 21.98 60 46 9.92 11.12 12.93 15.24 17.90 20.81 23.98 61 47 10.86 12.17 14.13 16.68 19.60 22.81 26.26 62 48 11.96 13.37 15.49 18.32 21.56 25.11 28.87 63 49 13.16 14.68 16.98 20.12 23.73 27.66 31.75 64 50 14.42 16.06 18.57 22.05 26.06 30.40 34.86 65 51 15.69 17.49 20.22 24.06 28.49 33.27 38.16 66 52 16.89 18.87 21.87 26.10 30.98 36.25 41.59 67 53 18.03 20.21 23.50 28.13 33.47 39.24 45.09 68 54 19.17 21.59 25.18 30.21 36.00 42.28 48.64 69 55 20.53 23.17 27.06 32.53 38.85 45.71 52.67 70 56 22.21 25.13 29.31 35.24 42.19 49.75 57.38 71 57 24.15 27.49 32.12 38.43 45.94 54.21 62.55 72 58 26.33 30.16 35.43 42.27 50.21 59.08 68.17 73 59 28.74 33.14 39.12 46.72 55.33 64.71 74.40 74 60 31.41 36.44 43.24 51.71 61.31 71.48 81.89 75 61 34.39 40.12 47.79 57.25 67.99 79.31 90.78 76 62 37.65 44.14 52.76 63.35 75.36 87.99 100.67 77
Female Rates: Ages 0-10 same as male rates ages 0-10; ages 11-14 same as male rate age 10; Ages 15 & over same as male rates ages 4 years younger. 18 19 Exhibit I (Continued) Self-Administered Automatic Reinsurance Premiums Per $1,000
Standard Non-Refund Age Last Birthday Appendix 2 Calender Year Issue Age 1 2 3 4 5 6 7 8 9 63 0.00 12.24 16.78 21.44 24.89 26.95 28.98 31.77 35.71 64 0.00 13.65 18.45 23.17 26.91 29.42 31.74 34.66 38.85 65 0.00 15.19 20.30 25.11 29.18 32.19 34.85 37.94 42.42 66 0.00 16.86 22.36 27.37 31.84 35.38 38.41 41.73 46.56 67 0.00 18.67 24.63 29.96 34.90 39.00 42.45 46.07 51.30 68 0.00 20.63 27.14 32.89 38.36 43.04 46.96 50.94 56.65 69 0.00 22.73 29.91 36.25 42.34 47.60 52.02 56.44 62.74 70 0.00 24.78 32.71 39.83 46.61 52.38 57.26 62.19 69.12 Standard Non-Refund Age Last Birthday Appendix 2 Calender Year Issue Attained Age 10 11 12 13 14 15 16+ Age 63 41.16 48.50 58.13 69.97 83.41 97.49 111.52 78 64 45.01 53.26 63.95 77.10 92.01 107.63 123.12 79 65 49.34 58.57 70.32 84.74 101.11 118.25 135.26 80 66 54.29 64.54 77.41 93.12 110.96 129.67 148.26 81 67 59.89 71.20 85.26 102.30 121.79 142.18 162.49 82 68 66.13 78.56 93.96 112.73 134.01 156.33 178.48 83 69 73.14 86.73 103.68 124.51 148.10 172.69 196.76 84 70 80.40 95.06 113.60 136.70 162.80 189.74 217.22 85 237.80 86 258.16 87 278.86 88 297.29 89 311.99 90 324.11 91 337.40 92 356.94 93 383.45 94 409.92 95 431.40 96 451.12 97 471.61 98 492.50 99
Female Rates: Ages 0-10 same as male rates ages 0-10; ages 11-14 same as male rate age 10; Ages 15 & over same as male rates ages 4 years younger. 19 20 Exhibit I (Continued) Self-Administered Automatic Reinsurance Premiums Per $1,000
Standard Non-Refund Age Nearest Birthday Appendix 2 Calender Year Issue Age 1 2 3 4 5 6 7 8 9 0 0.00 4.96 1.86 1.43 1.24 1.13 1.07 1.01 0.97 1 0.00 1.86 1.43 1.24 1.13 1.07 1.01 0.97 0.92 2 0.00 1.43 1.24 1.13 1.07 1.01 0.97 0.92 0.90 3 0.00 1.24 1.13 1.07 1.01 0.97 0.92 0.90 0.89 4 0.00 1.13 1.07 1.01 0.97 0.92 0.90 0.89 0.90 5 0.00 1.07 1.01 0.97 0.92 0.90 0.89 0.90 0.97 6 0.00 1.01 0.97 0.92 0.90 0.89 0.90 0.97 1.09 7 0.00 0.97 0.92 0.90 0.89 0.90 0.97 1.09 1.25 8 0.00 0.92 0.90 0.89 0.90 0.97 1.09 1.25 1.43 9 0.00 0.90 0.89 0.90 0.97 1.09 1.25 1.43 1.60 10 0.00 0.89 0.90 0.97 1.09 1.25 1.43 1.60 1.77 11 0.00 0.90 0.97 1.09 1.25 1.43 1.60 1.77 1.90 12 0.00 0.97 1.09 1.25 1.43 1.60 1.77 1.90 1.97 13 0.00 1.26 1.36 1.48 1.63 1.76 1.86 1.95 1.99 14 0.00 1.46 1.55 1.65 1.77 1.86 1.92 1.97 1.98 15 0.00 1.60 1.68 1.75 1.84 1.91 1.94 1.95 1.95 16 0.00 1.67 1.74 1.80 1.87 1.91 1.91 1.91 1.90 17 0.00 1.70 1.77 1.82 1.87 1.89 1.87 1.86 1.85 18 0.00 1.70 1.77 1.81 1.84 1.84 1.82 1.81 1.80 19 0.00 1.64 1.71 1.75 1.78 1.77 1.75 1.74 1.74 20 0.00 1.56 1.62 1.67 1.69 1.68 1.66 1.66 1.67 21 0.00 1.47 1.54 1.60 1.61 1.60 1.59 1.60 1.63 22 0.00 1.40 1.47 1.53 1.55 1.54 1.54 1.56 1.61 23 0.00 1.35 1.43 1.50 1.51 1.50 1.52 1.56 1.61 24 0.00 1.31 1.40 1.47 1.48 1.48 1.51 1.56 1.62 25 0.00 1.27 1.37 1.45 1.46 1.47 1.51 1.58 1.66 26 0.00 1.25 1.36 1.44 1.47 1.49 1.54 1.62 1.73 27 0.00 1.25 1.37 1.45 1.48 1.53 1.60 1.70 1.83 28 0.00 1.29 1.41 1.50 1.54 1.60 1.68 1.81 1.97 29 0.00 1.34 1.45 1.55 1.61 1.69 1.80 1.93 2.12 30 0.00 1.40 1.52 1.62 1.70 1.75 1.78 1.84 1.96 31 0.00 1.46 1.59 1.71 1.81 1.88 1.92 2.02 2.17 Standard Non-Refund Age Nearest Birthday Appendix 2 Calender Year Issue Attained Age 10 11 12 13 14 15 16+ Age 0 0.92 0.90 0.90 0.92 0.99 1.12 1.29 15 1 0.90 0.89 0.91 0.99 1.12 1.29 1.49 16 2 0.89 0.91 0.98 1.11 1.28 1.48 1.68 17 3 0.90 0.97 1.10 1.27 1.47 1.67 1.85 18 4 0.97 1.10 1.26 1.46 1.65 1.84 1.99 19 5 1.09 1.25 1.45 1.64 1.82 1.98 2.07 20 6 1.25 1.44 1.63 1.81 1.96 2.06 2.07 21 7 1.43 1.61 1.79 1.94 2.04 2.06 2.03 22 8 1.60 1.77 1.92 2.02 2.04 2.02 2.00 23 9 1.77 1.91 2.00 2.02 2.00 1.99 1.98 24 10 1.90 1.98 2.00 1.98 1.97 1.97 1.96 25 11 1.97 1.98 1.96 1.95 1.95 1.95 1.94 26 12 1.97 1.94 1.93 1.93 1.93 1.93 1.91 27 13 1.97 1.94 1.94 1.94 1.94 1.94 1.95 28 14 1.96 1.93 1.92 1.93 1.95 1.98 2.00 29 15 1.93 1.90 1.90 1.93 1.97 2.01 2.05 30 16 1.88 1.85 1.86 1.91 1.98 2.05 2.12 31 17 1.84 1.83 1.84 1.90 1.97 2.05 2.13 32 18 1.79 1.79 1.82 1.89 1.96 2.06 2.16 33 19 1.75 1.76 1.80 1.88 1.98 2.09 2.21 34 20 1.70 1.73 1.79 1.89 2.01 2.15 2.30 35 21 1.67 1.72 1.81 1.93 2.07 2.24 2.42 36 22 1.66 1.74 1.85 1.99 2.16 2.36 2.57 37 23 1.68 1.77 1.91 2.09 2.29 2.52 2.77 38 24 1.71 1.84 2.00 2.21 2.45 2.72 3.00 39 25 1.77 1.91 2.11 2.36 2.64 2.95 3.27 40 26 1.86 2.03 2.25 2.52 2.84 3.20 3.56 41 27 1.98 2.17 2.42 2.73 3.08 3.47 3.87 42 28 2.14 2.36 2.65 2.99 3.37 3.79 4.23 43 29 2.33 2.58 2.91 3.27 3.68 4.14 4.62 44 30 2.10 2.34 2.69 3.09 3.53 4.03 4.81 45 31 2.34 2.62 3.01 3.44 3.92 4.46 5.29 46
Female Rates: Ages 0-10 same as male rates ages 0-10; ages 11-14 same as male rate age 10; Ages 15 & over same as male rates ages 4 years younger. 20 21 Exhibit I (Continued) Self-Administered Automatic Reinsurance Premiums Per $1,000
Standard Non-Refund Age Nearest Birthday Appendix 2 Calender Year Issue Age 1 2 3 4 5 6 7 8 9 32 0.00 1.52 1.66 1.81 1.94 2.03 2.10 2.22 2.40 33 0.00 1.55 1.72 1.90 2.06 2.18 2.28 2.43 2.64 34 0.00 1.58 1.79 2.00 2.20 2.35 2.48 2.66 2.90 35 0.00 1.61 1.86 2.11 2.35 2.53 2.70 2.91 3.17 36 0.00 1.66 1.95 2.25 2.52 2.75 2.95 3.20 3.49 37 0.00 1.74 2.08 2.42 2.73 2.99 3.24 3.52 3.85 38 0.00 1.86 2.25 2.63 2.97 3.27 3.57 3.90 4.26 39 0.00 2.01 2.46 2.88 3.24 3.59 3.95 4.30 4.72 40 0.00 2.19 2.68 3.15 3.54 3.93 4.35 4.75 5.22 41 0.00 2.36 2.92 3.43 3.86 4.30 4.78 5.23 5.75 42 0.00 2.53 3.15 3.72 4.19 4.69 5.23 5.73 6.30 43 0.00 2.70 3.38 4.02 4.55 5.08 5.68 6.25 6.85 44 0.00 2.86 3.61 4.32 4.92 5.51 6.15 6.77 7.42 45 0.00 3.03 3.85 4.63 5.31 5.95 6.65 7.35 8.02 46 0.00 3.21 4.11 4.98 5.73 6.44 7.21 7.98 8.70 47 0.00 3.41 4.41 5.36 6.18 6.96 7.83 8.71 9.48 48 0.00 3.62 4.74 5.78 6.65 7.54 8.58 9.587 10.43 49 0.00 3.86 5.11 6.22 7.12 8.15 9.41 10.55 11.49 50 0.00 4.11 5.50 6.69 7.64 8.80 10.29 11.57 12.61 51 0.00 4.38 5.92 7.20 8.20 9.49 11.17 12.61 13.75 52 0.00 4.65 6.34 7.75 8.81 10.20 12.06 13.64 14.87 53 0.00 4.91 6.75 8.31 9.45 10.88 12.87 14.57 15.88 54 0.00 5.17 7.15 8.88 10.10 11.59 13.67 15.47 16.86 55 0.00 5.45 7.59 9.50 10.83 12.34 14.49 16.40 17.87 56 0.00 5.85 8.20 10.36 11.82 13.36 15.58 17.60 19.20 57 0.00 6.36 8.93 11.37 13.00 14.57 16.81 18.95 20.74 58 0.00 6.96 9.811 12.61 14.47 16.01 18.18 20.43 22.49 59 0.00 7.65 10.80 14.04 16.16 17.64 19.66 22.00 24.40 60 0.00 8.44 11.91 15.59 18.01 19.44 21.31 23.73 26.51 61 0.00 9.34 13.15 17.25 19.97 21.42 23.18 25.69 28.86 62 0.00 10.38 14.51 18.97 22.00 23.56 25.31 27.94 31.46 Standard Non-Refund Age Nearest Birthday Appendix 2 Calender Year Issue Attained Age 10 11 12 13 14 15 16+ Age C> 32 2.61 2.92 3.36 3.83 4.36 4.95 5.83 47 33 2.88 3.24 3.72 4.25 4.85 5.52 6.47 48 34 3.18 3.58 4.11 4.73 5.42 6.18 7.21 49 35 3.50 3.95 4.55 5.25 6.04 6.91 8.05 50 36 3.85 4.35 5.02 5.80 6.67 7.64 8.89 51 37 4.26 4.81 5.53 6.37 7.32 8.37 9.71 52 38 4.71 5.31 6.10 7.01 8.04 9.19 10.63 53 39 5.22 5.86 6.71 7.72 8.84 10.10 11.67 54 40 5.76 6.45 7.40 8.52 9.793 11.20 12.90 55 41 6.32 7.07 8.13 9.42 10.87 12.47 14.35 56 42 6.92 7.74 8.92 10.38 12.04 13.86 15.93 57 43 7.51 8.40 9.712 11.35 13.22 15.27 17.57 58 44 8.11 9.08 10.53 12.36 14.46 16.75 19.28 59 45 8.75 9.823 11.40 13.42 15.73 18.26 21.04 60 46 9.49 10.64 12.37 14.58 17.11 19.89 22.92 61 47 0.34 11.60 13.48 15.90 18.68 21.73 25.03 62 48 1.38 12.74 14.77 17.45 20.52 23.89 27.49 63 49 2.54 14.00 16.21 19.18 22.60 26.33 30.25 64 50 3.78 15.35 17.75 21.06 24.86 28.98 33.24 65 51 5.06 16.77 19.38 23.04 27.26 31.81 36.48 66 52 6.32 18.20 21.05 25.08 29.72 34.73 39.83 67 53 7.46 19.54 22.68 27.12 32.24 37.76 43.35 68 54 8.59 20.88 24.31 29.14 34.70 40.72 46.82 69 55 9.75 22.30 26.05 31.27 37.30 43.83 50.46 70 56 1.31 24.04 28.06 33.78 40.40 47.59 54.87 71 57 3.11 26.22 30.56 36.69 43.98 51.90 59.88 72 58 5.18 28.75 33.68 40.17 47.89 56.52 65.22 73 59 7.47 31.57 37.17 44.36 52.52 61.64 71.12 74 60 0.00 34.70 41.07 49.07 58.14 67.77 77.67 75 61 2.82 38.18 45.40 54.34 64.48 75.19 86.10 76 62 5.96 42.05 50.18 60.16 71.49 83.42 95.46 77
Female Rates: Ages 0-10 same as male rates ages 0-10; ages 11-14 same as male rate age 10; Ages 15 & over same as male rates ages 4 years younger. 21 22 Exhibit I (Continued) Self-Administered Automatic Reinsurance Premiums Per $1,000
Standard Non-Refund Age Nearest Birthday Appendix 2 Calender Year Issue Age 1 2 3 4 5 6 7 8 9 63 0.00 11.57 15.98 20.61 23.92 25.78 27.68 30.41 34.22 64 0.00 12.91 17.57 22.27 25.86 28.12 30.28 33.13 37.19 65 0.00 14.38 19.32 24.07 27.96 30.72 33.20 36.19 40.51 66 0.00 15.99 21.27 26.14 30.39 33.66 36.50 39.69 44.33 67 0.00 17.72 23.44 28.59 33.28 37.09 40.32 43.77 48.79 68 0.00 19.61 25.82 31.11 36.52 40.90 44.58 48.36 53.81 69 0.00 21.64 28.45 34.44 40.20 45.17 49.34 53.51 59.49 70 0.00 23.82 31.36 38.05 44.48 50.03 54.70 59.37 65.98 Standard Non-Refund Age Nearest Birthday Appendix 2 Calender Year Issue Attained Age 10 11 12 13 14 15 16+ Age 63 39.33 46.23 55.34 66.53 79.23 92.56 105.88 78 64 42.98 50.76 60.91 73.41 87.58 102.42 117.16 79 65 47.04 55.76 66.98 80.78 96.441 112.83 129.07 80 66 51.64 61.37 73.66 88.70 105.78 123.67 141.44 81 67 56.94 67.70 81.15 97.540 116.13 135.66 155.08 82 68 62.83 74.69 89.37 107.21 127.44 148.69 169.89 83 69 69.42 82.43 98.55 118.25 140.58 163.96 187.07 84 70 76.86 91.03 108.80 130.77 155.62 181.41 206.44 85 227.99 86 247.60 87 268.72 88 289.00 89 305.57 90 318.41 91 329.80 92 344.99 93 368.89 94 398.01 95 421.82 96 440.97 97 461.26 98 481.96 99
Female Rates: Ages 0-10 same as male rates ages 0-10; ages 11-14 same as male rate age 10; Ages 15 & over same as male rates ages 4 years younger. 22 23 Exhibit II Retention Limits of the Ceding Company The retention limits of the Ceding Company on any one life for the benefits reinsured hereunder are as follows: Life Insurance
Issue Ages Standard Substandard ----- -------- ----------- Tables 1 Tables 5 through 4 through 16 --------- ---------- All Ages 75,000 75,000 None to be accepted Minimum Cession: $1,000
Waiver of Premium Disability Benefits Same as for Life Insurance Accidental Death Benefits None 23 24 Exhibit III Limits and Special Conditions for the First Excess 1. Overall Limits Automatic coverage of any risk for Life Insurance with or without Waiver of Premium Disability benefits shall be granted under this Agreement only if, according to the Ceding Company's papers, the overall sum in force and applied for on the same life with all insurance companies does not exceed 1,500.000 of Life Insurance with or without Waiver of Premium Disability benefits. 2. First Excess The First Excess of the Ceding Company to be automatically covered under this Agreement, including previous reinsurance ceded to Reinsurer by the Ceding Company on the same life, is defined as follows: a. Life Insurance 1. Issue ages up to 65 years. 2. Standard and Substandard risks rated up to and including Table 16 (500% total mortality) written by the Ceding Company on any U.S. citizen through duly licensed agents contracted with the Ceding Company. Issues also include non-U.S. Citizens in countries stipulated in Appendix I-A. 3. United States of America Risks: 600% of the retention of the Ceding Company, but not more than $300,000 on any one life. International Risks: 400% of the retention of the Ceding Company, but not more than $300,000 on any one life. The minimum cession will be $1,000. If the total First Excess is less than such minimum, the Ceding Company will increase its retention to the full amount insured on that life. b. Waiver of Premium Disability benefits Same as for Life insurance, subject to age and substandard issue limits imposed by the Ceding Company on such risks. 3. Supplementary Benefit Forms Supplementary benefits to be covered automatically under this Agreement shall be those provided in the following policy forms issued by the Ceding Company: a. Waiver of Premium Disability benefits, Form Nos. B11172S, B11372S, B11472S, B11572S, B11972E, B12172E, B12272E. b. Increasing Term Death Benefit in amount of Premium Coverage. 100% reinsurance shall be provided for an amount equal to or greater than $5,000 with respect to each person. c. No Accidental Death supplemental benefits are covered under this Agreement. 24 25 Exhibit IV Calculation of the Net Amount at Risk Reinsured For calculate Net Amount at Risk according to Article IV Plan of Reinsurance, Paragraph 1, the Ceding Company will use the following approximate procedure: * Subtract Tabular Benefit Decreases * Subtract Decreases in Commuted Value * Add Tabular Benefit Increases * Add Built-In Return Premium Benefit Increases * Subtract Accumulated Statutory Mean Reserves 25 26 Exhibit V List of Risks Reinsured The List of Risks Reinsured will be prepared at the beginning of each calendar year in accordance with Article X and will include, for each cession in force at that time, the following information for the applicable reinsurance, in policy number order: 1. Basic a. Policy Number b. Name of Insured (last name first) c. Plan code d. Sex e. Date of birth (month, day, year) f. Effective date of issue (month, day, year) g. Age at issue h. Business code (new, new with issue effective before preceding calendar year, converted, reinstated, unchanged, amended by change of direct policy, amended by recapture). 2. Life Insurance a. Rating (Table and/or Flat Extra) b. Total Gross Life Amount Insured on this policy c. Amount of First Excess reinsured d. Attained age for the current calendar year e. Life Net Amount at Risk reinsured for the current calendar-year f. Life reinsurance Premium for the current calendar year. 3. Waiver of Premium Disability benefits a. Rating b. Insured Code (Insured, Payor) c. Benefit Code d. Life Amount reinsured for WPD e. WPD reinsurance premium for the current calendar year. A policy count and subtotals for new issues and renewals along with grand totals should be provided for items in Sub-paragraphs 2d, 2e, 2f, 3d, and 3e. 26 27 Exhibit VI List of Amendments The List of Amendments will be prepared as of the end of each calendar year in accordance with Article XI, and will include, for each cession which is amended during that calendar year because of policy change (Article VII) or because of certain errors and omissions (Article XIII), the following information for the applicable reinsurance: 1. Basic a. Policy Number b. Name of insured (last name first) c. Sex d. Date of birth (month, day, year) e. Attained age for the calendar year f. Amendment Code g. Effective date of amendment (month, day, year) h. Number of days from date of amendment through December 1 of the calendar year (for business amended in the second calendar year not more than 183 days). 2. Life Insurance a. Rating Table and/or Flat Extra) b. Life Net Amount at Risk reinsured on last List of Risks Reinsured or prior to amendment c. New Life Net Amount at Risk reinsured d. Adjustment to life reinsurance premium for the calendar year. 3. Waiver of Premium Disability benefits a. Rating b. Life amount reinsured for WPD on last List of Risks Reinsured or prior to amendment c. New Life amount reinsured for WPD d. Adjustment to WPD reinsurance premium for the calendar year. A policy count and subtotals by Amendment Code along with a grand total should be provided for items in Sub-paragraphs 2b, 2c, 2d, 3b, 3c, and 3d. The List of Amendments will also include policies with issue dates in the previous calendar year which failed to appear on the List of Risks Reinsured applicable to the current calendar year. 27 28 APPENDIX I CITIZEN'S INTERNATIONAL GUIDELINES 1. Must be in U.S. Currency. 2. Minimum issue amount is $50,000 3. Amount over $375,000 will be sent facultative to _______________ and they will consider on an individual basis. 4. Application and Medical Papers must be written in English or Spanish. 5. Attending Physician's Statement required on all applicants. 6. Supplemental benefits will be offered only on rider forms that contain special protective exceptions. (see attached examples) 7. We will not consider applications on: A. Political or Military figures or their families. B. Private pilots or crew members without an aviation exclusion. C. Children under the age of 14 for an amount exceeding $150,000. (includes in force and applied for) D. Children age 15-20 for an amount exceeding 250,000. (includes in force and applied for) E. Applicant over Age 65. F. Applicants with coronary artery disease or insulin dependent diabetic. G. Will not issue with rating over Table four. H. Substandard risks rated higher than Table 4. 8. Medical examinations by an MD. required on all applications. (see other medical requirements attached) 9. We will use appointed examiners or, when available, Embassy Affiliated doctors. 10. Inspection Requirements: Inspection reports are made by investigative firms with H. O. approval. Inspection Report required on all amounts. 11. We will keep our full retention on each risk. (In force coverage and current application combined) 28 29 Appendix IA Any of the countries listed below upon mutual agreement between Ceding Company and Reinsurer. NORTH AMERICA Ukraine Djibouti Uzbekistan Egypt Canada Equatorial Guinea Ethiopia ASIA Gabon MIDDLE AMERICA Gambia Afghanistan Ghana Antigua and Barbuda Bahrain Guinea Aruba Bangladesh Guinea-Bissau Anguilla Bhutan Kenya Cayman Islands Brunei Lesotho British Virgin Islands Cambodia Liberia Montserrat China Libya Turks and Caicos Islands Cyprus, Northern Madagascar Cuba India Malawi Dominica Indonesia Mali Guadeloupe Iran Mauritania Martinique Iraq Mauritius Haiti Israel Morocco Nicaragua Japan Mozambique St. Kitts and Nevis Jordan Namibia Korea, North Niger Korea, South Nigeria SOUTH AMICA Kuwait Reunion Laos Rwanda Falkland Islands Lebanon St. Helena Suriname Malaysia Sao Tome and Principe Maldives Senegal Mongolia Seychelles EUROPE Myanmar Sierra Leone Nepal Somalia Albania Oman South Africa Andorra Pakistan Sudan Armenia Gatar Swaziland Azerbaijan Saudi Arabia Tanzania Belarus Sri Lanka Togo Bosnia and Herzegovina Syria Tunisia Bulgaria Taiwan Uganda Croatia Thailand. Zaire Czechoslovakia Turkey Zambia Estonia United Arab Emirates Zimbabwe Georgia Vietnam Gibraltar Yemen Greece OCEANIA Hungary Kazakhstan AFRICA Fiji Kyrgyzstan Kiribati Latvia Algeria Marshall Islands Lithuania Angola Micronesia
29 30 Malta Benin Nauru Macedonia Botswana Northern Mariana Islands Moldova Burkina Faso Palau Monaco Burundi Papua New Guinea Poland Cameroon Pitcairn Islands Romania Cape Verde Solomon Islands Russia Central African Republic Tonga San Marino Chad Tuvalu Slovenia Comoros Vanuatu Tajikistan Congo Western Samoa Turkmenistan Cote D' Ivoire
30 31 Appendix 1B - -------------------------------------------------------------------------------- RECEIPT DO NOT DETACH UNLESS FULL FIRST PREMIUM IS PAID WITH APPLICATION No. 007258 RECEIVED FROM ___________________________ THE SUM OF $____________ for the full first premium specified in the application for insurance in the Citizens Insurance Company of America which bears the same number and date as this receipt. The insurance under the policy for which application is made shall be effective on the date of this receipt or the date of completion of the medical examination (if and when required by the Company) whichever is the later date, if the Proposed insured is on this date in good health and if, in the opinion of the authorized Officers of the Company, at its offices in Austin, Texas, the Proposed insured is a risk insurable and acceptable for insurance under the Company's underwriting rules and practices on the plan of insurance for the amount of insurance and at the premium rate set forth in the application, exclusive of any amendments in the space for "Home Office Endorsement." However, even if the Proposed insured is so insurable and acceptable, the maximum liability of the Company's under this receipt shall be $50,000 or the amount of the application, whichever is the lesser, insurance under this receipt shall terminate upon issuance and delivery to the applicant to the policy applied for. If the Proposed Insured is not now in good health and is not so insurable and acceptable the Company has no liability under this receipt and the above payment will be returned by the Company's check, upon surrender of this receipt. This receipt shall be void if given for check or draft which is not honored on presentation. The Company shall have 60 days from the date of application to consider and act upon said application. Either an affirmative declination of the application by the Company or failure of the Company to offer a policy within such 60 days shall be deemed a declination of the application, and this receipt shall be void as of the date of such declination. DATE: ______, 19____ AGENTS SIGNATURE _________________________ - -------------------------------------------------------------------------------- P.O. BOX 149151, AUSTIN, TEXAS 78714-9151 TELEPHONE: 512-837-7100 - -------------------------------------------------------------------------------- AGREEMENT CONTAINED IN APPLICATION: I hereby declare that all statements and answers herein and on the reverse side of this application and attachments hereto are complete and true and made by me to obtain the policy applied for and I agree that: (1) the Company shall not be bound by any promise or statement made by or to any salesman or other person, unless same be in writing and approved by the Company; (2) my acceptance of any contract issued hereon shall constitute a ratification of any changes noted by the Company in the space for "Home Office Endorsement"; (3) if within sixty (60) days from the date of this application a policy is not received by me, or if I am not notified of its approval or declination within that period, this application will be declined; (4) should I obtain this insurance as a result of false, misleading, omitted, or incomplete statements in the application and death should occur due to a cause directly or indirectly related to such statements or directly or indirectly form bodily injury intentionally or unintentionally inflicted by another person, or from (i) any activity that is illegal or criminal in nature, or the association with person involved in such activity; (ii) the commission of an assault or crime by or against the insured; (iii) involvement with or use of illegal or controlled chemicals, drugs or substances; (iv) war or any act of war, declared or undeclared, or nation against nation, state against state or faction against faction including but not limited to the use of military or police forces or any other governmental agency to protect the public; (v) involvement in or as a result of any riot, insurgency or insurrection; (vi) service in police or military forces or political or judicial positions of any country, combination or countries or international organization; (vii) voluntary exposure to hazards which result in bodily injury; (viii) failure to exercise the care that a prudent person would employ in the operation or use of any vehicle, tool, or machine; (ix) any immunological disorder or any infection resulting form the disease AIDS (Acquired Immune Deficiency Syndrome) and/or ARC (AIDS Related Complex); or if coverage would not have been issued, for any reason, for the amount applied for due to such stats, the liability under this policy shall be limited to the premiums paid hereon; (5) unless the initial premium is paid in cash with this application, there shall be no insurance contract until a policy has been delivered to me during the good health of the Proposed Insured, and while the habits and occupation remain as described in this application. The owner of the policy, if other than the Proposed Insured, adopts as his own all statements and answers made in this application. - -------------------------------------------------------------------------------- ABOVE REFERENCED IN SPANISH WITH RECEIPT No. 116404 31 32 AMENDMENT TO SELF ADMINISTERED AUTOMATIC REINSURANCE AGREEMENT between Citizens Insurance company of America (CICA) Denver, Colorado (Ceding Company) and Riunione Adriatics di Sicurta', S.p.A. (RAS) Trieste, Italy (Reinsurer) By the Amendment, it is hereby mutually agreed and understood that Addendum No. 1, Intermediary Clause, is deleted from this agreement prior to its effective date and that all transactions under this agreement are to be direct transactions between the ceding company and the Reinsurer. All other terms and conditions remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed in triplicate by their duly authorized officers. In Austin, Texas this 29th day of December, 1994. Citizens Insurance Company of America /s/ Roby Dollar /s/ Charles Melgar - ------------------------------- ---------------------- By: Roby Dollar, Vice Chairman Charles Melgar, V.P. and in Trieste, Italy this 30th day of December, 1994. Riunione Adriatica di Sicurta', S.p.A. By:/s/ Lino Loer Title: Manager ---------------- 32 33 ADDENDUM NO. 1 INTERMEDIARY CLAUSE to Self-Administered Automatic Reinsurance Agreement between Citizens Insurance Company of America (CICA) Denver, Colorado (Ceding Company) and Riunione Adriatica di Sicurta', S.p.A. (RAS) Trieste, Italy (Reinsurer) Ballantyne, McKean & Sullivan, Ltd. (BMS) London, England, is hereby recognized as the Intermediary negotiating this Agreement for all business hereunder. All communications (including but not limited to notice, statements, premiums, return premiums, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating thereto shall be transmitted to CICA or RAS through BMS. Payments by CICA to BMS shall be deemed to constitute payment to RAS. Payments by RAS to BMS shall be deemed only to constitute payment to CICA to the extent that such payments are actually received by CICA. All other terms and conditions remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed in triplicate by their duly authorized officers. In Austin, Texas this 4th day of October, 1994. CITIZENS INSURANCE COMPANY OF AMERICA /s/ Roby Dollar Title: President - ----------------------- By: Roby Dollar and in Austin this 4th day of October, 1994. Riunione Adriatica di Sicurta', S.p.A. /s/ Lino Loer Title: Manager - ----------------------- 33 34 AMENDMENT TO SELF ADMINISTERED AUTOMATIC REINSURANCE AGREEMENT between Citizens Insurance Company of America (CICA) Denver, Colorado (Ceding Company) and Riunione Adriatica di Sicurta', S.p.A. (RAS) Trieste, Italy (Reinsurer) By this Amendment, it is hereby mutually agreed and understood that Addendum No. 1, Intermediary Clause, is deleted from this agreement prior to its effective date and that all transactions under this agreement are to be direct transactions between the ceding company and the Reinsurer. All other terms and conditions remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed in triplicate by their duly authorized officers. In Austin, Texas this 29th day of December, 1994. Citizens Insurance Company of America /s/ Roby Dollar /s/ Charles Melgar - ------------------------------ --------------------- By: Roby Dollar, Vice Chairman Charles Melgar, V.P. and in Trieste, Italy this 4th day of January, 1995 Riunione Adriatica di Sicurta', S.p.A. By:/s/ Dario Schiller Title: Manager --------------------- Dario Schiller /s/ Enrico Stokelj Proxyholder - ------------------------ Enrico Stokelj 34 35 AMENDMENT NO. 3 to the SELF-ADMINISTERED AUTOMATIC REINSURANCE AGREEMENT dated January 1, 1995 between CITIZENS INSURANCE COMPANY OF AMERICA DENVER, COLORADO (hereinafter referred to as the CEDING COMPANY) and RIUNIONE ADRIATICA DI SICURTA' S.P.A. TRIESTE, ITALY (hereinafter referred to as the REINSURER) 35 36 Effective April 13, 1995, this agreement shall be amended as follows: Paragraph 9 shall be added to Article X "Claims",: CLAIMS 9. The REINSURER agrees to reimburse the CEDING COMPANY for each claim with respect to which this agreement affords indemnity within 90 days after the REINSURER receives proof which is satisfactory to the REINSURER that the CEDING COMPANY has paid the claim. Article XVII, shall be amended as follows: PARTIES TO AGREEMENT; COLORADO LAW This is an agreement solely between the Ceding Company and Reinsurer. The acceptance of reinsurance hereunder shall not create any right or legal relation whatever between Reinsurer and the insured or the beneficiary under any policy of the Ceding Company which may be reinsured hereunder. All provisions of this reinsurance agreement including the arbitration provisions are subject to the laws of the State of Colorado. Reinsurer agrees to maintain continuous qualification as a reinsurer in the State of Colorado during the continuance of any insurance contracts under this Agreement. This Agreement shall constitute the entire agreement between the parties with respect to the business being reinsured hereunder. There are no other understandings between the parties other than as expressed in this agreement. Any change or modification to this agreement shall be null and void unless made by amendment to this agreement and signed by both parties. This Amendment shall be attached to and form a part of the Self-Administered Automatic Reinsurance Agreement between the Ceding Company and Riunione Adriatica di Sicurta', S.p.A., effective January l, 1995. IN WITNESS WHEREOF, the said Citizens Insurance Company of America, Denver, Colorado, and the said Riunione Adriatica di Sicurta', Trieste, Italy, have by their respective officers executed and delivered this Amendment in duplicate. CITIZENS INSURANCE COMPANY OF AMERICA /s/ Roby Dollar Vice Chairman ---------------- --------------- signature title /s/ Mark A. Oliver EVP ------------------- --------------- signature title Date: June 5, 1995 ------------- RIUNIONE ADRIATICA DI SICURTA', S.P.A. By:/s/ Dario Schiller Manager ------------------- --------- By:/s/ Lino Loer Manager -------------- --------- signature title Date: Trieste, May 18, 1995 ---------------------- 36 37 ADDENDUM NO. 1 SELF ADMINISTERED AUTOMATIC REINSURANCE AGREEMENT dated January 1, 1995 between CITIZENS INSURANCE COMPANY OF AMERICA Denver, Colorado - - Hereinafter referred to as CEDING COMPANY AND RIUNIONE ADRIATICA DI SICURTA', S.p.A. Trieste, Italy - - hereinafter referred to as the REINSURER Ballantyne, McKean & Sullivan Ltd. Latham House, 16 Minories, London, EC3N 1AX, is hereby recognized as the Intermediary under this Life Insurance Treaty for all business hereunder. All communications (including but not limited to notices, statements, premiums, return premiums, commissions, taxes, losses, loss adjustment expenses, salvages and loss settlements) relating thereto shall be transmitted to the CEDING COMPANY or the REINSURER through Ballantyne, McKean & Sullivan Ltd. Payments made by the CEDING COMPANY to the Intermediary shall be deemed to constitute payment to the REINSURER. Payments by the REINSURER to the Intermediary shall be deemed only to constitute payment to the CEDING COMPANY to the extent that such payments are actually received by the CEDING COMPANY. Made in duplicate to one effect only. London, TRIESTE O9 AGO. 1995 THE CEDING COMPANY THE REINSURER CITIZENS INSURANCE COMPANY OF RIUNIONE ADRIATICA DI SICURTA' AMERICA /s/ Roby Dollar /s/ Dario Schiller - ---------------- ------------------- Vice Chairman /s/ Mark A. Oliver - ------------------- Executive Vice President 37 38 BMS TERMS OF ENGAGEMENT This contract defines the basis of trading between Ballantyne, McKean and Sullivan Limited (hereinafter referred to as "BMS") and Citizens Insurance Company of America, Denver, Colorado (hereinafter referred to as the Client). 1. FUNDAMENTAL PRINCIPLES. As a Lloyd's Broker BMS is governed by Lloyd's Regulations. In addition the Lloyd's Code of Practice defines a recognized standard of professional conduct for all members of the Lloyd's community and this is followed within BMS. Many of the recommendations of this Code are included within these Terms of Engagement and a full copy is attached for your information. Our principles of operation are as follows: 1.1 BMS will at all times conduct its business with utmost good faith and integrity. 1.2 BMS will comply with the written standards established by the Client for the cession or retrocession of all risks. 2. INITIAL ADVICE/FIRM ORDER 2.1 BMS will provide objective and independent advice relating to the stated reinsurance requirements of the Client. 2.2 The Client will provide BMS with written instructions to procure a reinsurance contract on his behalf and comply with the reasonable requests of BMS made in connection with the procurement of the reinsurance contract. 2.3 Upon receipt of written instructions to proceed BMS will provide the Client with copy of the Placing Slip. This information should be reviewed by the Client. 2.4 During the placing of the reinsurance contract, BMS will keep the Client advised of progress made on a timely basis. 3. DISCLOSURE OF INFORMATION. 3.1 It is the duty of the Client to disclose all material information. Failure to disclose such information may result in the reinsurance contract and/or a claim being rescinded and/or not paid. 3.2 Upon request from the Client BMS shall disclose the amount of brokerage and where practicable the nature and amount of commission or other remuneration BMS receives as a result of effecting reinsurances for the Client. 4. CONFIDENTIALITY OF INFORMATION. 4.1 Any information acquired by BMS from the Client will not be used or disclosed except in the normal course of negotiating, maintaining or renewing a contract of reinsurance for that Client or unless the consent of the Client has been obtained 38 39 5. CHOICE OF REINSURERS. 5.1 BMS will exercise reasonable skill and care in the selection of security. 5.2 BMS will select Reinsurers objectively in the best interests of the Client. 5.3 BMS will regularly review the Reinsurers used and will advise the Client of any significant changes in status. 5.4 BMS will select security in accordance with its current Security and Evaluation Procedures. 5.5 BMS does not warrant or guarantee the performance of the contract between the Client and the Reinsurers. 5.6 BMS will disclose any relationship with any reinsurer to which business will be ceded or retroceded. 6. BOOKS AND RECORDS. 6.1 BMS will at all times comply with Section 10-2-905 of the Colorado Insurance Laws (Books and records - reinsurance intermediary-producers) a copy of which is attached hereto). 6.2 The Client will have access to and the right to copy and audit all accounts and records maintained by BMS related to the business BMS transacts on the Client's behalf. Such accounts and records will be kept in a form which is usable by the Client. 7. ACCOUNTING. 7.1 BMS will render accounts accurately detailing all material transactions, including information necessary to support all commissions, charges, and other fees received by, or owing to BMS. Any funds due to the Client will be remitted as quickly as possible but nevertheless within 15 days of receipt by BMS. 7.2 All funds collected for the Client's account will be held in a fiduciary capacity in a bank which is a U.S. financial institution acceptable to the Insurance Commissioner of the State of Colorado. 8. CLAIMS. 8.1 The Client must notify BMS promptly of all claims affecting the reinsurance contract and disclose all material facts. Should the claim require a collection to be made from Reinsurers reasonable evidence will be required that the original claim has been paid. 8.2 BMS will advise Reinsurers of all claims notified by the Client and will co-ordinate all further negotiations. 8.3 Where required by the contract BMS will arrange for Funding Securities to be established in respect of loss and unearned premium reserves at the end of each year. 9. TRANSFER OF BUSINESS. 9.1 Should the Client wish to transfer business to another Broker, BMS will make available all such documentation to which the Client is entitled and which is reasonably necessary for the new Broker to discharge his duties to the Client. 39 40 10. GENERAL SERVICING. 10.1 BMS shall be responsible for and will provide any relevant service requested by the Client in relation to any reinsurance contract placed for the Client by BMS notwithstanding the expiry of the contract, unless BMS is satisfied that the Client has instructed a new broker to assume such responsibilities and that the new broker has accepted such instructions. 11. COMPLAINTS. 11.1 Any complaints regarding the service provided by BMS should be made in writing to the Chairman of Ballantyne, McKean & Sullivan Ltd and in the event that the Client fails to obtain satisfaction from BMS he should appeal to the Council of Lloyd's as regulators of Lloyd's Brokers. 12. STATEMENT OF FINANCIAL CONDITION. 12.1 Upon request BMS will provide the Client with a copy of the latest audited accounts. 12.2 Upon request BMS will provide the client with details of its current E & O coverage. 12.3 BMS will notify the Client in writing if it fails to meet the Lloyd's Solvency requirements, fails to comply with any Lloyd's Rules or enters into any disputes with the Council of Lloyd's. 13. COMPLIANCE WITH. APPLICABLE LAW 13.1 Where appropriate BMS will comply with all applicable law regarding the operations of reinsurance intermediaries. 14. TERMINATION. 14.1 The Client may terminate this agreement at any time, with or without cause, by giving BMS 10 days notice in writing. 15. CONTACTS. 15.1 This document applies to all contracts of reinsurance placed by BMS for the Client. 16. GOVERNING LAW. 16.1 This agreement shall be construed, interpreted and enforced in accordance with the Law of the State of Colorado in the United States of America. SIGNED: /s/ Roger Cooke DATED: July 17, 1995 ---------------- --------------- on behalf of Ballantyne, McKean and Sullivan Ltd. SIGNED: /s/ Mark A. Oliver DATED: August 17, 1995 ------------------- ----------------- /s/ Roby Dollar ---------------- on behalf of Citizens Insurance Company of America 40 EX-10.9 4 PLAN AND AGREEMENT OF EXCHANGE 1 EXHIBIT 10.9 PLAN AND AGREEMENT OF EXCHANGE This Plan and Agreement of Exchange ("Agreement") is entered into between and among CITIZENS INSURANCE COMPANY OF AMERICA, a Colorado-domiciled insurance company ("CICA") and AMERICAN INVESTMENT NETWORK, INC., a Mississippi corporation ("American"). WITNESSETH WHEREAS, CICA, which was chartered on February 13, 1968 in Colorado as Continental Investors Life Insurance Company, Inc. ("CILIC"), and by Articles of Merger filed with the Secretary of State of Colorado on August 31, 1988, CILIC changed its corporate name to Citizens Insurance Company of America is a wholly owned subsidiary of Citizens, Inc., a Colorado corporation ("Citizens"); and WHEREAS, American, which was chartered in 1987 in the State of Mississippi as Great American Investment Network, Inc., and in 1995 changed its name to American Investment Network, Inc., owns all of the issued and outstanding capital stock of United Security Life Insurance Company, a Mississippi-domiciled stock insurance company ("USLI"), which was chartered in 1967 in the State of Mississippi as American Empire Life Insurance Company, which name was changed in 1973 to Financial Security Life of Mississippi, which was in 1994 merged with United Security Life Insurance Company, a corporation chartered in 1987 in the State of Mississippi, and at which time the name of the merged corporation was changed to United Security Life Insurance Company; and WHEREAS, CICA and American desire to effect a share exchange pursuant to Mississippi Code Ann. 79-4-11.01 et seq. and 83-19-99 et seq. (together the "Exchange Act") in which all the outstanding shares of Class "A" Common Stock and Class "B" Common Stock of American will be exchanged for shares of Class A Common Stock of Citizens owned and held by CICA; NOW, THEREFORE, it is agreed among the parties as follows: ARTICLE I The Exchange 1.1 Subject to the terms and conditions set forth herein, the transactions contemplated by this Agreement shall be completed at a closing ("Closing") on a closing date ("Closing Date") to occur as soon as possible after all regulatory approvals and shareholder approvals are obtained in accordance with law and as required by this Agreement. On the Closing Date, all of the documents to be furnished to American and CICA, including the documents to be furnished pursuant to Article VII of this Agreement, shall be delivered to Jones & Keller, P.C., counsel to CICA ("Jones & Keller") to be held in escrow until the Effective Date or the date of termination of this Agreement, whichever first occurs and thereafter shall be promptly distributed to the parties as their interests may appear. 1.2 The terms of the Exchange shall be: (i) The Exchange shall be effective ("Effective Date") as of the filing of the Certificate of Exchange by American and CICA with the Secretary of State and the Commissioner of Insurance of the State of Mississippi or, if later, the date specified therein. (ii) At and as of the Effective Date: 1 2 (a) each shareholder of American prior to the Effective Date shall cease to be a shareholder of American; (b) The ownership of all issued and outstanding stock of American (other than shares for which dissenter's rights are perfected in accordance with the Exchange Act) shall vest in CICA automatically without any physical transfer or deposit of the certificates representing such shares, and CICA will become the sole shareholder of American; (c) the holders of each issued and outstanding share of American Class A or Class B Common Stock prior to the Effective Date (other than any shares for which dissenter's rights are perfected in accordance with the Exchange Act) shall have the right to receive from CICA in accordance with Article II of the Agreement one (1) share of Citizens Class A common stock, no par value, for each seven and two-tenths (7.2) shares of American Class A or Class B Common Stock prior to the Effective Date, provided, however, that all consideration to be received shall be subject to equitable adjustment in the event of any stock split, stock dividend, reverse stock split, or other change in the number of American shares outstanding; and (d) the holders of each issued and outstanding share of American Class A or Class B Common Stock prior to the Effective Date for which dissenter's rights are perfected in accordance with the Exchange Act shall have the right to receive from American payment therefor in accordance with the Exchange Act. (iii) The directors and officers of American shall be removed as of the Effective Date, and the directors and officers of CICA shall become the directors and officers of American as of the Effective Date. (iv) The Exchange shall have the effect set forth in the Exchange Act. 1.3 On the Closing Date, American and CICA will file with the Secretaries of State of Mississippi and Colorado Articles of Share Exchange in the forms attached hereto as Exhibit A. ARTICLE II Exchange of Shares 2.1 At the Effective Date, the shares of Citizens Class A common stock to be exchanged as provided in Section 1.2 shall be distributed by CICA to shareholders of American (other than those shares as to which dissenters' rights have been perfected in accordance with the Exchange Act). 2.2 The stock transfer books of American shall be closed on the Effective Date, and thereafter no transfers of the stock of American shall be made. CICA shall appoint an exchange agent ("Exchange Agent"), which is expected to be Citizens' then stock transfer agent ("Stock Transfer Agent"), to accept surrender of the certificates representing the shares of American and to deliver for such surrendered certificates, shares of Class A common stock of Citizens. If outstanding certificates for shares of American are not surrendered or the payment for them is not claimed prior to such date on which such payments would otherwise escheat to or become the property of any governmental unit or agency, the unclaimed items shall, to the extent permitted by abandoned property and other applicable law, become the property of CICA (and to the extent not in its possession shall be paid over to it), free and clear of all claims 2 3 or interest of any persons previously entitled to such items. Notwithstanding the foregoing, neither the Exchange Agent nor any party to this Agreement shall be liable to any holder of American shares for any amount paid to any governmental unit or agency having jurisdiction of such unclaimed item pursuant to the abandoned property or other applicable law of such jurisdiction. 2.3 No fractional shares of Citizens stock shall be exchanged as a result of the Agreement; rather, such shares shall evidence the right to receive a cash value per fractional share of Citizens Class A common stock which shall be the average closing price of the Class A common stock of Citizens as reported on the American Stock Exchange for the five trading days prior to the Effective Date. In the event the exchange of shares results in any shareholder being entitled to a fraction less than a whole share of Citizens stock, such shareholder shall be given a cash payment by American for such fractional share at the rate per share as calculated in the previous sentence. 2.4 At the Effective Date, each holder of a certificate or certificates representing shares of American, upon presentation and surrender of such certificate or certificates to the Exchange Agent, shall be entitled to receive the consideration set forth herein, except that holders of those shares as to which dissenters' rights shall have been asserted and perfected pursuant to the Exchange Act shall not be converted into shares of Citizens Class A common stock, but shall represent only such dissenters' rights. Upon such presentation, surrender, and exchange as provided in this Section 2.4, certificates representing shares of American previously held shall be canceled. Until so presented and surrendered, each certificate or certificates which represented issued and outstanding shares of American at the Effective Date shall be deemed for all purposes to evidence the right to receive the consideration set forth in Section 1.2 of this Agreement. If the certificates representing shares of American have been lost, stolen, mutilated or destroyed, the Exchange Agent shall require the submission of an indemnity agreement and may require the submission of a bond in lieu of such certificate. ARTICLE III Representations, Warranties and Covenants of CICA No representations or warranties are made by any director, officer, employee or shareholder of CICA as individuals, except as and to the extent stated in this Agreement or in a separate written statement (the "CICA Disclosure Statement"). CICA hereby represents, warrants and covenants to American, except as stated in the CICA Disclosure Statement, as follows: 3.1 Citizens and CICA are, respectively, a corporation and an insurance company, each duly organized, validly existing and in good standing under the laws of the State of Colorado, and each have the corporate power and authority to own or lease its properties and to carry on its business as it is now being conducted. The Articles of Incorporation and Bylaws of Citizens and CICA, copies of which have been delivered to American, are complete and accurate, and the minute books of Citizens and CICA contain a record, which is complete and accurate in all material respects, of all meetings, and all corporate actions of the shareholders and Board of Directors of Citizens and CICA. 3.2 The aggregate number of shares which Citizens is authorized to issue is 50,000,000 shares of Class A common stock, no par value, and 1,000,000 shares of Class B common stock, no par value; of which 21,651,161 shares of such Class A common stock are issued and 19,572,614 shares are outstanding, fully paid and nonassessable and 621,049 shares of Class B common stock are issued and outstanding, fully paid and nonassessable. There are 1,955,457 shares of Class A common stock of Citizens owned and held by CICA that will be used to satisfy the exchange obligations of CICA under the Agreement. Citizens has no outstanding options, warrants, or other rights to purchase, or subscribe to, or securities convertible into or exchangeable for any shares of capital stock, except an option for 3 4 76,000 shares of Class A common stock. The two (2) classes of stock of Citizens are equal in all respects, except (a) the Class B common stock elects a simple majority of the Board of Directors of Citizens, and the Class A common stock elects the remaining directors; and (b) each Class A share receives twice the cash dividends paid on a per share basis to the Class B common stock. 3.3 CICA has complete and unrestricted power to enter into and, upon the appropriate approvals as required by law, to consummate the transactions contemplated by this Agreement. None of Citizens, and its subsidiaries have any liability or obligation to pay any fee or commission to any broker, agent or finder with respect to the transaction contemplated hereby except to Merger & Acquisition Profiles, Inc. 3.4 Neither the making of nor the compliance with the terms and provisions of this Agreement and consummation of the transactions contemplated herein by CICA will conflict with or result in a breach or violation of the Articles of Incorporation or Bylaws of CICA. 3.5 The execution, delivery and performance of this Agreement have been duly authorized and approved by the Board of Directors of CICA. 3.6 CICA has delivered to American consolidated financial statements of Citizens and its subsidiaries, dated December 31, 1995 and June 30, 1996. All such statements, herein sometimes called "Citizens Financial Statements," are complete and correct in all material respects and, together with the notes to these financial statements, present fairly the financial position and results of operations of Citizens and its subsidiaries for the periods included. The December 31, 1995 and June 30, 1996 Citizens consolidated financial statements have been prepared in accordance with generally accepted accounting principles. 3.7 Since the dates of the Citizens Financial Statements there have not been any material adverse changes in the business or condition, financial or otherwise, of Citizens. Citizens and its subsidiaries do not have any material liabilities or obligations, secured or unsecured (whether accrued, absolute, contingent or otherwise) except as disclosed in the Citizens Financial Statement. 3.8 CICA has delivered to American a list and description of all pending legal proceedings involving Citizens, none of which will materially adversely affect it, and, except for these proceedings, there are no legal proceedings or regulatory proceedings involving material claims pending, or to the knowledge of the officers of Citizen, threatened against Citizens or affecting any of its assets or properties, and Citizens is not in any material breach or violation of or default under any contract or instrument to which Citizens is a party, and no event has occurred which with the lapse of time or action by a third party could result in a material breach or violation of or default by Citizens under any contract or other instrument to which Citizens is a party or by which it or any of its properties may be bound or affected, or under its respective Articles of Incorporation or Bylaws, nor is there any court or regulatory order pending, applicable to Citizens or its subsidiaries. 3.9 Citizens shall not enter into or consummate any transactions prior to the Effective Date other than (i) in the ordinary course of business or (ii) business acquisitions, combinations and exchanges. Citizens will not pay any dividend or, except in the ordinary course of business, enter into an agreement or transaction which would adversely affect its financial condition. 3.10 Neither CICA nor Citizens is a party to any contract performable in the future except insurance policies, customary agent contracts, normal reinsurance agreements, agreements with subsidiaries, and those which will not adversely affect it. 4 5 3.11 The representations and warranties of CICA shall be true and correct as of the date hereof and as of the Effective date. 3.12 CICA has delivered, or will deliver within two weeks of the date of this Agreement, to American true and correct copies of Citizens Annual Report to Shareholders for the years ended December 31, 1995 and 1994. CICA will also deliver to American on or before the Closing Date any reports relating to the financial and business condition of Citizens which are filed with the SEC after the date of this Agreement and any other reports sent generally to its shareholders after the date of this Agreement. Citizens has duly filed all reports required to be filed by it under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the "Federal Securities Laws"). No such reports, or any reports sent to the shareholders of Citizens generally as of their respective dates, contained any untrue statement of material fact or omitted to state any material fact required to be stated therein or necessary to make the statements in such reports, in light of the circumstances under which they were made, not misleading. 3.13 CICA has delivered to American a copy of each of the consolidated federal income tax returns of Citizens and its subsidiaries for the year ended December 31, 1994 and for any additional open years. The provisions for taxes paid by Citizens are believed by Citizens to be sufficient for payment of all accrued and unpaid federal, state, county and local taxes of Citizens (including any penalties or interest payable) whether or not disputed for the periods then ended and for all prior fiscal periods. All returns and reports or other information required or requested by federal, state, county, and local tax authorities have been filed or supplied in a timely fashion, and all such information is true and correct in all material respects. Provision has been made for the payment of all taxes due to date by Citizens. 3.14 Citizens has no employee benefit plan, except for a noncontributory, qualified profit-sharing plan and a group accident and health insurance plan. 3.15 No representation or warranty by CICA in this Agreement, the CICA Disclosure Statement or any certificate delivered pursuant hereto contains any untrue statement of a material fact or omits to state any material fact necessary to make such representation or warranty not misleading. ARTICLE IV Representations, Warranties and Covenants of American No representations or warranties are made by any director, officer, employee or shareholder of American as individuals, except as and to the extent stated in this Agreement or in a separate written statement (the "American Disclosure Statement"). American hereby represents, warrants and covenants to CICA, except as stated in the American Disclosure Statement, as follows: 4.1 American and USLI are, respectively, a corporation and an insurance company duly organized, validly existing and in good standing under the laws of the State of Mississippi, each having the corporate power and authority to own or lease its properties and to carry on its business as it is now being conducted. The Articles of Incorporation and Bylaws of American and USLI, copies of which have been delivered to CICA, are complete and accurate, and the minute books of American and USLI contain a record, which is complete and accurate in all material respects, of all meetings, and all corporate actions of the shareholders and Board of Directors of American and USLI. 4.2 The aggregate number of shares which American is authorized to issue is 15,000,000 shares of Class A common stock, participating, no par value, and 2,500 shares of Class B Common Stock, 5 6 participating (by virtue of a 1994 amendment to the Articles of Incorporation), $1.00 par value; of which 5,025,490 shares of such Class A Common Stock are issued and 5,021,764 are outstanding, fully paid and nonassessable and 2,500 shares of Class B Common Stock are issued and outstanding, fully paid and nonassessable. American has no outstanding options, warrants or other rights to purchase or subscribe to, or securities convertible into or exchangeable for any shares of capital stock, except as shown on the American Disclosure Statement attached to and made a part of this Agreement. There are 3,726 shares of Class A common stock owned and held by USLI. The aggregate number of shares which USLI is authorized to issue is 4,000 shares of Common Stock, participating, $500.00 par value, of which 2,000 shares are issued and outstanding, fully paid and nonassessable. USLI has no outstanding options, warrants or other rights to purchase or subscribe to, or securities convertible into or exchangeable for any shares of capital stock. All issued and outstanding shares of USLI stock are owned and held by American. The subsidiaries of American are each an association, corporation, or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or association; each has the power and authority to lease its properties and to carry on its business as now being conducted and is qualified to do business; and each holds or shall hold all licenses, franchises, permits or other governmental authorizations required to enable it to conduct its business or own its properties in every jurisdiction in which it currently conducts business or owns property and where the failure to do so would have a material adverse effect on the business of the subsidiary. All outstanding shares of capital stock of each subsidiary are duly and validly authorized and issued, fully paid and nonassessable. American directly or indirectly owns all of the issued and outstanding capital stock of such subsidiaries, including USLI. There are no outstanding options, warrants or other rights to purchase or subscribe to, or securities convertible into or exchangeable for any shares of capital stock of any subsidiary of American or USLI, except as shown on the American Disclosure Statement. 4.3 American and USLI each have complete and unrestricted power to enter into and, upon the appropriate approvals as required by law, to consummate the transactions contemplated by this Agreement. None of American and its subsidiaries have any liability or obligation to pay any fee or commission to any broker, agent or finder with respect to the transactions contemplated hereby. 4.4 Neither the making of nor the compliance with the terms and provisions of this Agreement and consummation of the transaction contemplated herein by American will conflict with or result in a breach or violation of any Articles of Incorporation or Bylaws of American or its subsidiaries. 4.5 The execution of this Agreement has been duly authorized and approved by American's Board of Directors. 4.6 American has delivered to CICA consolidated financial statements of American and its subsidiaries, dated December 31, 1995 and June 30, 1996, and the annual and quarterly convention statements of USLI as of December 31, 1995 and the six months ended June 30, 1996, as filed with the Mississippi Department of Insurance. All such statements, herein sometimes called "American Financial Statements," are complete and correct in all material respects and, together with the notes to these financial statements, present fairly the financial position and results of operations of American and USLI for the periods indicated. The December 31, 1995 and June 30, 1996 American consolidated financial statements have been prepared in accordance with generally accepted accounting principles and the December 31, 1995 and June 30, 1996 convention statements have been prepared in accordance with statutory accounting practices. 6 7 4.7 Since the dates of the American Financial Statements there have not been any material adverse changes in the business or condition, financial or otherwise, of American or any of its subsidiaries. None of American or its subsidiaries have any material liabilities or obligations, secured or unsecured (whether accrued, absolute, contingent or otherwise), except as disclosed in the American Financial Statements 4.8 American has delivered to CICA a list and description of all pending legal proceedings involving American or any of its subsidiaries, all of which are listed on the American Disclosure Statement, none of which will materially adversely affect American or such subsidiary, and, except for these proceedings, there are no legal proceedings or regulatory proceedings involving material claims pending, or to the knowledge of the officers of American, threatened against American or USLI or affecting any of its assets or properties, and American and USLI are not in any material breach or violation of or default under any contract or instrument to which American or USLI is a party, and no event has occurred which with the lapse of time or action by a third party could result in a material breach or violation of or default by American or USLI under any contract or other instrument to which American or USLI is a party or by which either of them or any of their respective properties may be bound or affected, or under their respective Articles of Incorporation or Bylaws, nor is there any court or regulatory order pending, applicable to American or USLI. 4.9 Neither American nor USLI shall enter into or consummate any transactions prior to the Effective Date other than in the ordinary course of business and will pay no dividend, or increase the compensation of officers and will not enter into any agreement or transaction which would adversely affect their financial condition in a material manner. 4.10 The assets of USLI had admissible values at least equal to those attributed to them on its December 31, 1995 or June 30, 1996 convention statements. 4.11 Neither American nor USLI nor any subsidiary of American or USLI is a party to any contract performable in the future except insurance policies, customary agent contracts, normal reinsurance agreements and those which will not adversely affect them, except as set out on the American Disclosure Statement attached to this Agreement. 4.12 All policy and claim reserves of USLI have been properly provided for and are adequate to comply with all regulatory requirements regarding same. 4.13 The representations and warranties of American shall be true and correct as of the date hereof and as of the Effective Date. 4.14 American has delivered, or will deliver within two weeks of the date of this Agreement, to CICA true and correct copies of American's Annual Report to Shareholders for the years ended December 31, 1995 and 1994 and each of its other reports to shareholders and filings with the Securities and Exchange Commission ("SEC") for the years ended December 31, 1995, 1994 and 1993. American will also deliver to CICA on or before the Closing Date any reports relating to the financial and business condition of American which are filed with the SEC after the date of this Agreement and any other reports sent generally to its shareholders after the date of this Agreement. American has duly filed all reports required to be filed by it under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the "Federal Securities Laws"). No such reports, or any reports sent to the shareholders of American generally, contained any untrue statement of material fact or omitted to state any material fact required to be stated therein or necessary to make the statements in such report, in light of the circumstances under which they were made, not misleading. 7 8 4.15 American has delivered to CICA a copy of each of the federal income tax returns of American for the years ended December 31, 1995, 1994 and 1993 and for any additional open years. The provisions for taxes paid by American are believed by American to be sufficient for payment of all accrued and unpaid federal, state, county and local taxes of American (including any penalties or interest payable) whether or not disputed for the periods then ended and for all prior fiscal periods. All returns and reports or other information required or requested by federal, state, county and local tax authorities have been filed or supplied in a timely fashion, and all such information is true and correct in all material respects. Provision has been made for the payment of all taxes due to date by American. 4.16 Neither American nor USLI have any employee benefit plans, except for a noncontributory 401K plan and a group accident, health and life insurance plans. 4.17 No representation or warranty by American in this Agreement, the American Disclosure Statement or any certificate delivered pursuant hereto contains any untrue statement of a material fact or omits to state any material fact necessary to make such representation or warranty not misleading. ARTICLE V Obligations of the Parties Pending the Effective Date 5.1 This Agreement shall be duly submitted to the shareholders of American for the purpose of considering and acting upon this Agreement in the manner required by law at a meeting of shareholders on a date selected by American, such date to be the earliest practicable date after the proxy statement may first be sent to American shareholders without objection by applicable governmental authorities. CICA will furnish to American the information relating to Citizens required by the Federal Securities Laws to be included in the proxy statement. CICA represents and warrants that at the time of the American shareholders' meeting, the proxy statement, insofar as it relates to Citizens and contains information furnished by CICA specifically for use in such proxy statement, (a) will comply in all material respects with the provisions of the Federal Securities Laws; and (b) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Board of Directors of American, subject to its fiduciary obligations to shareholders, shall use its best efforts to obtain the requisite approval of American shareholders of this Agreement and the transactions contemplated herein. American and CICA shall take all reasonable and necessary steps and actions to comply with and to secure American shareholders approval of this Agreement and the transactions contemplated herein as may be required by the statutes, rules and regulations of such states. 5.2 At all times prior to the Effective Date, during regular business hours each party will permit the other to examine its books and records and the books and records of any subsidiaries and will furnish copies thereof on request. It is recognized that, during the performance of this Agreement, each party may provide the other parties with information which is confidential or proprietary information. During the term of this Agreement, and for four years following the termination of this Agreement, the recipient of such information shall protect such information from disclosure to persons, other than members of its own or affiliated organizations and its professional advisors in the same manner as it protects its own confidential or proprietary information from unauthorized disclosure, and not use such information to the competitive detriment of the disclosing party. In addition, if this Agreement is terminated for any reason, each party shall promptly return or cause to be returned all documents or other written records of such confidential or proprietary information, together with all copies of such writings and, in addition, shall either furnish or cause to be furnished, or shall destroy, or shall maintain with such standard of care as is exercised with respect to its own confidential or proprietary information, all copies of all documents or other written records developed or prepared by such party on the basis of such confidential or proprietary information. 8 9 No information shall be considered confidential or proprietary if it is (a) information already in the possession of the party to whom disclosure is made; (b) information acquired by the party to whom the disclosure is made from other sources; or (c) information in the public domain or generally available to interested persons or which at a later date passes into the public domain or becomes available to the party to whom disclosure is made without any wrongdoing by the party to whom the disclosure is made. 5.3 American and CICA shall promptly provide each other with information as to any significant developments in the performance of this Agreement, and shall promptly notify the other if it discovers that any of its representations, warranties and covenants contained in this Agreement or in any document delivered in connection with this Agreement was not true and correct in all material respects or became untrue or incorrect in any material respect. 5.4 All parties to this Agreement shall take all such action as may be reasonably necessary and appropriate and shall use their best efforts in order to consummate the transactions contemplated hereby as promptly as practicable. ARTICLE VI Procedure for Exchange 6.1 As soon as practical and in any event within 30 days after the Execution of this Agreement, the parties shall file with the Insurance Commissioner of Mississippi all of the documents required by Mississippi law. ARTICLE VII Conditions Precedent to the Consummation of the Exchange The following are conditions precedent to the consummation of the Agreement on or before the Effective Date: 7.1 CICA and American shall have performed and complied with all of their respective obligations hereunder which are to be complied with or performed on or before the Effective Date and American and CICA shall provide one another at the Closing with a certificate to the effect that such party has performed each of the acts and undertakings required to be performed by it on or before the Closing Date pursuant to the terms of this Agreement. 7.2 This Agreement and the transactions contemplated herein shall have been duly and validly authorized, approved and adopted, at a meeting of the shareholders of American duly and properly called for such purposes in accordance with the applicable laws. 7.3 This Agreement is in all things subject to the provisions of the applicable insurance laws and the regulations promulgated thereunder, and shall not become effective until all necessary approvals are obtained from the Commissioners of Insurance of the States of Colorado and Mississippi in accordance with the provisions of the laws of said states. CICA and American as soon as practical after the execution and delivery of this Agreement, agree to file and to use their best efforts to obtain such approvals of the transactions contemplated by this Agreement. Neither CICA nor American shall be obligated to file a suit or to appeal from any Commissioner's adverse ruling, nor shall CICA or American be obligated to make any material changes in any lawful, good faith management policy in order to gain such approval. In the event either approval is denied, this Agreement shall terminate. 9 10 7.4 No action, suit or proceeding shall have been instituted or shall have been threatened before any court or other governmental body or by any public authority to restrain, enjoin or prohibit the transactions contemplated herein, or which might subject any of the parties hereto or their directors or officers to any material liability, fine, forfeiture or penalty on the grounds that the transactions contemplated hereby, the parties hereto or their directors or officers, have violated any applicable law or regulation, or have otherwise acted improperly in connection with the transactions contemplated hereby, and the parties hereto have been advised by counsel that, in the opinion of such counsel, such action, suit or proceeding raises substantial questions of law or fact which could reasonably be decided adversely to any party hereto or its directors or officers. 7.5 All actions, proceedings, instruments and documents required to carry out this Agreement and the transactions contemplated hereby and the form and substance of all legal proceedings and related matters shall have been approved by counsel for CICA and American. 7.6 The representations and warranties by CICA and American in this Agreement shall be true as though such representations and warranties had been made or given on and as of the Effective Date, except to the extent that such representations and warranties may be untrue on and as of the Effective Date because of (1) changes caused by transactions suggested or approved in writing by CICA; or (2) events or changes (which shall not in the aggregate, have materially and adversely affected the business, assets, or financial condition of American or Citizens) during or arising after the date of this Agreement. 7.7 American shall have furnished CICA with: (1) a certified copy of a resolution or resolutions duly adopted by the Board of Directors of American approving this Agreement and the transactions contemplated by it in accordance with applicable law and directing the submission thereof to a vote of the shareholders of American; (2) a certified copy of a resolution or resolutions duly adopted by the shareholders of American approving this Agreement and the transactions contemplated by it in accordance with applicable law; (3) an opinion of Spencer, Tyra & Crecink, counsel for American, dated as of the Closing Date as set forth in "Exhibit B" attached hereto; (4) an agreement from each "affiliate" of American as defined in the rules adopted under the Securities Act of 1933, as amended, to the effect that (a) the affiliate is familiar with SEC Rule 144; (b) none of the shares of Citizens Class A common stock will be transferred by or through the affiliate in violation of the Federal Securities Laws; (c) the affiliate will not sell or in any way reduce his risk relative to any Citizens Class A common stock received pursuant to this Agreement until such time as financial results covering at least 30 days of post-closing date combined operations shall have been published by Citizens on SEC Form 10-Q or otherwise. 7.8 CICA shall furnish American with: (1) a certified copy of a resolution or resolutions duly adopted by the Board of Directors approving this Agreement and the transactions contemplated by it; and 10 11 (2) an opinion dated the Effective Date of Jones & Keller, P.C., counsel for CICA, as set forth in "Exhibit C" attached hereto. ARTICLE VIII Termination and Abandonment 8.1 Anything contained in this Agreement to the contrary notwithstanding, the Agreement may be terminated and abandoned at any time (whether before or after the approval and adoption thereof by the shareholders of American and/or CICA) prior to the Effective date. (a) By mutual consent of the Boards of Directors of CICA and American: (b) By CICA or American, if any condition set forth in Article VII relating to the other party has not been satisfied or has not been waived; (c) By CICA or American, if any suit, action or other proceeding shall be pending or threatened by the federal or a state government before any court or governmental agency, in which it is sought to restrain, prohibit or otherwise affect the consummation of the transactions contemplated hereby; (d) By any party, if there is discovered any material error, misstatement or omission in the representations and warranties of another party; or (e) By CICA, if dissenters' rights are perfected in accordance with the Exchange Act for more than 2.5 of the outstanding shares of American; or (f) By either party if the Effective Date does not occur within ninety (90) days from the date hereof. (g) By any party, if it is determined by counsel of either party that the transaction will not constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. 8.2 Any of the terms or conditions of the Agreement may be waived at any time by the party which is entitled to the benefit thereof, by action by its Board of Directors; provided, however, that such action shall be taken only if, in the judgment of the Board of Directors taking the action, such waiver will not have a materially adverse effect on the benefits intended under this Agreement to the party waiving such term or condition. ARTICLE IX Termination of Representation and Warranties and Certain Agreements 9.1 The respective representations and warranties of the parties hereto shall expire with, and be terminated and extinguished by consummation of the Agreement; provided, however, that the covenants and agreements of the parties hereto shall survive in accordance with their terms. 11 12 ARTICLE X Miscellaneous 10.1 This Agreement embodies the entire agreement between the parties, and there have been and are no agreements, representations or warranties among the parties other than those set forth herein or those provided for herein. 10.2 To facilitate the execution of this Agreement, any number of counterparts hereof may be executed, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one instrument. 10.3 Each of the parties hereto will pay its own fees and expenses incurred in connection with the transactions contemplated by this Agreement. Except as otherwise disclosed in their respective Disclosure Statements, CICA and American each represent to the other that it has not employed any investment bankers, brokers, finders, or intermediaries in connection with the transaction contemplated hereby who might be entitled to any fee or other payment from American or Citizens or any of their respective subsidiaries upon consummation of the transactions contemplated by this Agreement. 10.4 All parties to this Agreement agree that if it becomes necessary or desirable to execute further instruments or to make such other assurances as are deemed necessary, the party requested to do so will use its best efforts to provide such executed instruments or do all things necessary of proper to carry out the purpose of this Agreement. 10.5 This Agreement may be amended upon approval of the Board of Directors of each party provided that the share exchange ratio hereunder shall not be amended without approval of the requisite shareholders of American. 10.6 Any notices, requests, or other communications required or permitted hereunder shall be delivered personally or sent by overnight courier service, fees prepaid, addressed as follows: To CICA, Inc.: and to American: Citizens Insurance Company American Investment Network, Inc. of America United Security Life Insurance Post Office Box 149151 Company Austin, Texas 78714-9159 660 Lakeland East Drive Attn: Harold E. Riley Flowood, Mississippi 39208 Chairman Attn: John S. Camara, President Phone: (512) 837-7100 Phone: (601) 936-2090 Fax: (512) 836-9334 Fax: (691) 939-4372 with copies to: with copies to: Jones & Keller, P.C. Spencer, Tyra & Crecink 1625 Broadway, Ste 1600 660 Lakeland East Drive, Ste 100 Denver, Colorado 80202 Jackson, Mississippi 39208 Attn: Reid A. Godbolt, Esq. Attn: Ernest O. Spencer, III, Esq. Phone: (303) 573-1600 Phone: (601) 939-9193 Fax: (303) 573-0769 Fax: (601) 939-9195
12 13 or such other addresses as shall be furnished in writing by any party, and any such notice or communication shall be deemed to have been given as of the date received. 10.7 No press release or public statement will be issued relating to the transactions contemplated by this Agreement without prior approval of CICA and American. However, either CICA or American may issue at any time any press release or other public statement it believes on the advise of its counsel it is obligated to issue to avoid liability under the law relating to disclosures to itself or any of its affiliates, but the party issuing such press release or public statement shall make a reasonable effort to give the other party prior notice of and opportunity to participate in h release or statement. 10.8 The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Any references to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context otherwise requires. The word "including" shall mean including without limitation. 10.9 The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. 10.10 This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Mississippi without giving effect to any choice or conflict of law provision or rule (whether of the State of Mississippi or any other jurisdiction) that would cause the application of the laws or any jurisdiction other than the State of Mississippi. IN WITNESS WHEREOF, the parties have set their hands and seals this 28th day of October, 1996. CITIZENS INSURANCE COMPANY AMERICAN INVESTMENT NETWORK, OF AMERICA INC. By:/s/ Mark A. Oliver By:/s/ John S. Camara ------------------- ------------------- Mark A. Oliver John S. Camara, President Executive Vice-President and Treasurer
13 14 EXHIBIT A OFFICE OF THE MISSISSIPPI SECRETARY OF STATE P.O. BOX 136, JACKSON, MS 39205-0135, (601) 359-1333 ARTICLES OF MERGER OR SHARE EXCHANGE PROFIT CORPORATION The undersigned corporation pursuant to Section 79-1-1.05, as amended, hereby executes the following document and sets forth: 1. Name of Corporation 1: American Investment Network, Inc. 2. Name of Corporation 2: Citizens Insurance Company of America. 3. Name of Corporation 3: 4. The future effective date is January 1, 1997. 5. The plan of merger or share exchange (attach page). 6. Mark appropriate box. (a) Shareholder approval of the plan of merger or share exchange - ------ was not required. X (b) If approval of the shareholders of one or more corporations - ------ party to the merger or share exchange was required (i) the designation, number of outstanding shares, and number of votes entitled to be cast by each class entitled to vote separately on the plan as to each corporation were
Name of corporation Designation No. of outstanding shares No. of votes entitled to be cast - ------------------------------------------------------------------------------------------------------------------------------------ American Investment Class A Common Network, Inc. Stock 5,021,764 5,021,764 American Investment Class B Common Network, Inc. Stock 2,500 2,500 AND the total number of votes cast for and against the plan by each class entitled to vote separately on the plan was Name of corporation Class Total No. of votes cast for plan No. of votes cast against plan - ------------------------------------------------------------------------------------------------------------------------------------ American Investment Class A Common Network, Inc. Stock American Investment Class B Common Network, Inc. Stock
and the number of votes cast for the plan by each class was sufficient for approval by that class. 14 15 Name of Corporation 1 AMERICAN INVESTMENT NETWORK, INC. By:/s/ John S. Camara - -------------------------------------- President Name of Corporation 2 AMERICAN INVESTMENT NETWORK, INC. By:/s/ Mark A. Oliver - -------------------------------------- Executive Vice President and Treasurer 15 16 ATTACHMENT TO ARTICLES OF SHARE EXCHANGE OF AMERICAN INVESTMENT NETWORK, INC. AND CITIZENS INSURANCE COMPANY OF AMERICA In accordance with Mississippi Code Ann. 79-4-11.01 et seq. and 83-19-99 et. seq. (together the "Exchange Act"), a plan and agreement of exchange ("Plan of Exchange") has been approved, adopted and executed by American Investment Network, Inc. and Citizens Insurance Company of America as follows: 1. The Exchange shall be effective as of January 1, 1997 ("Effective Date"). 2. At and as of the Effective Date: (a) each shareholder of American prior to the Effective Date shall cease to be a shareholder of American: (b) the ownership of all issued and outstanding stock of American (other than shares for which dissenter's rights are perfected in accordance with the Exchange Act) shall vest in CICA automatically without any physical transfer or deposit of the certificates representing such shares, and CICA will become the sole shareholder of American; (c) the holders of each issued and outstanding share of American Class A or Class B Common Stock prior to the Effective Date (other than any shares for which dissenter's rights are perfected in accordance with the Exchange Act) shall have the right to receive from CICA in accordance with Article II of the Plan of Exchange one (1) share of Citizens Class A common stock, no par value, for each seven and two-tenths (7.2) shares of American Class A or Class B Common Stock; provided, however, that all consideration to be received shall be subject to equitable adjustment in the event of any stock split, stock dividend, reverse stock split, or other change in the number of American shares outstanding; and (d) the holders of each issued and outstanding share of American Class A or Class B Common Stock prior to the Effective Date for which dissenter's rights are perfected in accordance with the Exchange Act shall have the right to receive from American payment therefor in accordance with the Exchange Act. 3. The Exchange shall have the effect set forth in the Exchange Act. 4. The Plan of Share Exchange has been approved by the Shareholders of American. No shareholder approval by the shareholders CICA, Colorado stock insurance company, was required, pursuant to Section 7-111-103(7) of the Colorado Business Corporation Act and Sections 79-4-11.01 et seq. of the Mississippi Code of 1972, as amended. 16 17 ARTICLES OF SHARE EXCHANGE Pursuant to the provisions of the Colorado Business Corporation Act, AMERICAN INVESTMENT NETWORK, INC., a Mississippi corporation ('American"), and CITIZENS INSURANCE COMPANY OF AMERICA, a stock insurance company organized under the laws of the State of Colorado ("CICA"), adopt the following articles of share exchange: FIRST: The plan of share exchange (the "Plan of Exchange") is summarized as follows: At and as of the effective time set forth below (the "Effective Date"): (a) each shareholder of American Prior to the Effective Date shall cease to be a shareholder of American; (b) the ownership of all issued and outstanding stock of American (other than shares for which dissenter's rights are perfected in accordance with applicable law) shall vest in CICA automatically without any physical transfer or deposit of the certificates representing such shares, and CICA will become the sole shareholder of American; (c) the holders of each issued and outstanding share of American Class A or Class B Common Stock prior to the Effective Date (other than any shares for which dissenter's rights are perfected in accordance with applicable law) shall have the right to receive form CICA in accordance with Article II of the Plan of Exchange one (1) share of Citizens Class A common stock, no par value, for each seven and two-tenths (7.2) shares of American Class A or Class B Common Stock; provided, however, that all consideration to be received shall be subject to equitable adjustment in the event of any stock split, stock dividend, reverse stock split, or other change in the number of American shares outstanding; and (d) the holders of each issued and outstanding share of American Class A or Class B Common Stock prior to the Effective Date for which dissenter's rights are perfected in accordance with applicable law shall have the right to received from American payment therefor in accordance with applicable law. SECOND: The plan of share exchange was approved by the shareholders of American. Approval by the shareholders of CICA was not required. THIRD: As to American, whose shareholders were required to vote for approval, the number of votes cast for the plan by each voting group entitled to vote separately on the share exchange was sufficient for approval by that voting group. FOURTH: These articles are to become effective on January 1, 1997 at 12:01 a.m., unless prior to the effective date they are abandoned and a statement of abandonment if filed prior to the effective date. Dated: __________, 1996 AMERICAN INVESTMENT NETWORK, INC. CITIZENS INSURANCE COMPANY OF AMERICA, INC. By: By: ------------------------------ -------------------------------- Title: President Title: Executive Vice President and Treasurer 17 18 EXHIBIT B Opinion of Counsel for American At the Closing, American shall deliver to CICA an opinion, in form and substance satisfactory to CICA and its counsel, dated the Closing Date, of Spencer, Tyra & Crecink, counsel to American, to the effect that: (i) The execution, delivery, and performance of the Agreement by American shall not result in a breach of, or constitute a default (or an event which, with or without notice or lapse of time or both, would constitute a default) under any contract, commitment, agreement, indenture, mortgage, pledge agreement, note, bond, license, or other instrument or obligation to which American is a party or by which American is bound or the charter or bylaws of American or other governing instruments of American (ii) The Agreement has been duly authorized, executed and delivered by American and is a legal, valid and binding obligation of American enforceable against American in accordance with its terms (subject to the applicability of equitable principles or the effect of bankruptcy or creditors' rights laws on the enforceability of the Agreement); (iii) American and USLI are, respectively, a corporation and a stock insurance company duly organized, validly existing and in good standing under the laws of the State of Mississippi; (iv) American has full corporate power and authority to enter into Agreement and to carry out the transactions contemplated by the Agreement; (v) To such counsel's knowledge, after due inquiry, there are no civil or criminal actions, suits, arbitrations, administrative or other proceedings or governmental investigations pending or threatened against American or its subsidiaries which will constitute a breach of the representations, warranties or covenant under the Agreement or will prevent American from consummating the transactions contemplated by the Agreement; (vi) The authorized and outstanding capital stock of American and USLI are as stated in Section 4.2 of the Agreement, and such shares have been duly authorized, are fully paid and nonassessable and were not issued in violation of the preemptive rights of any party; (vii) To such counsel's knowledge, after due inquiry, except as set forth in the Agreement, there are no outstanding subscriptions, options, warrants, rights, convertible securities, calls, commitments, privileges or other arrangements, preemptive or contractual, calling for or requiring the acquisition of, or the issuance, transfer, sale, or other disposition of any shares of the capital stock of American or USLI, or calling for or requiring the issuance of any securities or rights convertible into or exchangeable for shares of capital stock of American or USLI, except as disclosed in the Agreement; and (viii) The execution, delivery, and performance of the Agreement, and the performance by American of its obligations thereunder, is not in contravention of any law, ordinance, rule, or regulation, or contravene any order, writ, judgment, injunction, decree, determination, or award of any court or other authority having jurisdiction, will not cause the suspension or revocation of any authorization, consent, approval, or license, presently in effect, which affects or binds, American, USLI or any of their material properties. 18 19 EXHIBIT C Opinion of Counsel for CICA At the Closing, CICA shall deliver to American, an opinion, in form and substance satisfactory to American and its counsel, dated the Closing Date, of Jones & Keller, P.C., counsel to CICA, to the effect that: (i) The execution, delivery, and performance of the Agreement by CICA shall not result in a breach of, or constitute a default (or an event which, with or without notice or lapse of time or both, would constitute a default) under any contract, commitment, agreement, indenture, mortgage, pledge agreement, note, bond, license, or other instrument or obligation to which CICA is a party or by which CICA is bound or the charter or bylaws of CICA or other governing instruments of CICA; (ii) The Agreement has been duly authorized, executed and delivered by CICA and is a legal, valid and binding obligation of CICA enforceable against CICA in accordance with its terms (subject to the applicability of equitable principles or the effect of bankruptcy or creditors' rights laws on the enforceability of the Agreement); (iii) Citizens and CICA respectively are a corporation and a stock insurance company, duly organized, validly existing and in good standing under the laws of the State of Colorado; (iv) CICA has full corporate power and authority to enter into the Agreement and to carry out the transactions contemplated by the Agreement; (v) To such counsel's knowledge, after due inquiry, there are no civil or criminal actions, suits, arbitrations, administrative or other proceedings or governmental investigations pending or threatened against CICA which will constitute a breach of the representations, warranties or covenants under the Agreement or will prevent CICA from consummating the transactions contemplated by the Agreement; (vi) The authorized and outstanding capital stock of Citizens is as stated in Section 3.2 of the Agreement, and each of the shares of Class A common stock to be issued pursuant to the agreement has been duly authorized and when issued pursuant to the terms of the Agreement shall be validly issued and fully paid and non-assessable and issued in violation of the preemptive rights of any party; (vii) To such counsel's knowledge, after due inquiry, except as set forth in the Agreement or CICA's Disclosure Statement, there are no outstanding subscriptions, options, warrants, rights, convertible securities, calls, commitments, privileges or other arrangements, preventive or contractual, calling for or requiring the acquisition of, or the issuance, transfer, sale, or other disposition of any shares of the capital stock of Citizens, or calling for or requiring the issuance of any securities or rights convertible into or exchangeable for shares of capital stock of Citizens; (viii) The execution, delivery, and performance of the Agreement, and the performance by CICA of its obligations thereunder, is not in contravention of any law, ordinance, rule, or regulation, or contravene any order, writ, judgment, injunction, decree, determination, or award of any court or other authority having jurisdiction, will not cause the suspension or revocation of any authorization, consent, approval, or license presently in effect, which affects or binds CICA or any of its subsidiaries or any of its or their material properties; 19 20 (xi) Consummation of the transaction in accordance with the terms of the Agreement will constitute a reorganization within the meaning of the Internal Revenue Code of 1986, as amended (the "Code"); American and CICA will each be a party to the reorganization; no gain or loss will be recognized pursuant to the Code by American as a consequence of the transactions contemplated hereby; CICA will succeed to and take into account the items of American described in the Code; when a American shareholder receives solely Citizens Class A common stock in accordance with the transactions contemplated hereby, such American shareholder will not recognize gain or loss; the basis for the Citizens Class A common stock to be received by American shareholders will be the same as the basis for the shares of American stock they surrender in connection with the transactions contemplated hereby; the holding period for any American shareholder of the Citizens Class A common stock received in the transactions contemplated hereby will include the period during which the shares of the American stock surrendered were held provided that the American stock was a capital asset in the hands of such American shareholder on the Effective Date; and the payment of cash to any American shareholder in lieu of a fractional share of Citizens Class A common stock will be treated as received as a distribution and redemption of the fractional share interest, subject to the limitations of Section 302 of the Code; and (x) The exchange of Citizens Class A common stock for shares of American stock is exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 3(a)(10) thereof and, with respect to state securities laws and the securities laws of other applicable jurisdictions, if any, is either exempt from qualification or registration thereunder or such qualification or registration requirements have been satisfied. 20 21 CICA DISCLOSURE STATEMENT Pursuant to the provisions of Article III of the Plan and Agreement of Exchange between and among CICA and American, CICA hereby makes the following disclosures respecting the similarly numbered sections in the Plan and Agreement of Exchange: 3.3 At the Effective Date, brokerage commissions will be owed to Merger & Acquisition Profiles, Inc. 3.7 Citizens has the liabilities disclosed in the Citizens Financial Statements and those incurred thereafter in the ordinary course of business. 3.10 Computer Maintenance Agreement between Computing Technology, Inc. and Wang Laboratories, effective 7/1/91 and amended 8/26/91. 21 22 AMERICAN DISCLOSURE STATEMENT Pursuant to the provisions of Article IV of the Plan and Agreement of Exchange between and among CICA and American, American hereby makes the following disclosures respecting the similarly numbered sections in the Plan and Agreement of Exchange: 4.2 Outstanding warrants, options, or other rights to purchase or subscribe to, or securities convertible into, or exchangeable for, shares of capital stock of American: (1) Stock Incentives issued to certain key employees of Great American Investment Network, Inc. and USLI pursuant to the 1994 Stock Incentive Plan, adopted by the Board of Directors on November 30, 1994, and approved by the Shareholders on May 3, 1994. 4.7 American has liabilities disclosed in their financial statements and those incurred thereafter in the ordinary course of business. 4.8 Pending litigation: As of the date of execution hereof, the following litigation against American and/or USLI was ending: (1) David Anderson and Marty Stanford, D/B/A Premiere Insurance Agency, and Chiropractic National Association, Plaintiffs, versus United Security Life Insurance Company, Defendant, Civil Action No. 96-002(r)L, in the Circuit Court of Lee County, Mississippi. (2) Donald and Karen Mayo, Plaintiffs, versus United Security Life Insurance Company, Defendant, Civil Action No. 95-268(f)L, in the Circuit Court of Lee County, Mississippi. 4.11 American is subject to the following contracts and agreements which are, or may be, performable in the future, copies of which have heretofore been furnished to CICA: (1) Settlement Agreement dated March 2, 1995, among Robert Tillman and Tillman Insurance Agency, Inc. ("Plaintiffs"), and The Gain Agency, Inc., Great American Investment Network, Inc., Walter L. Shelton and Jesse Byrd (Defendants). (2) Executive Compensation Plan and Agreement adopted November 11, 1994 by the Directors, and approved by the Shareholders on May 2, 1995, between Great American Investment Network, Inc. and Walter L. Shelton and Jesse L. Byrd. (3) Employment Agreement dated August 23, 1996, between, American, USLI and John S. Camara. (4) Employment Agreement dated August 23, 1996, between, American, USLI and H. Harold Crumpler. (5) Employment Agreement dated August 23, 1996, between, American, USLI and Phillip E. Faller. (6) Employment Agreement dated August 23, 1996, between, American, USLI and Linda M. Pepper. 22 23 (7) Contract Agreements between Great American Investment Network, Inc. and the individual members of Magnolia Consulting Group, an unincorporated (8) Promissory Note dated December 19, 1994, in favor of Merchants and Farmers Bank, in the original principal amount of $535,562.62, with a final maturity date of December 15, 1999. The Promissory Note is secured by a Deed of Trust between the parties dated as of the same date, and recorded in the Office of the Chancery Clerk of Rankin County, Mississippi in Book 1018 at Page 89. (9) Second Deed of Trust dated March 2, 1995, securing the Settlement Agreement referenced as Item No. (1), above, among Great American Investment Network, Inc., Mark T. Davis as Trustee, and Dale Hubbard, Tillman Insurance Agency, Inc. and Robert Tillman, beneficiaries. This instrument is recorded in the Office of the Chancery Clerk of Rankin County, Mississippi in Book 1031 at Page 649. 23 EX-23.2 5 CONSENT OF KPMG PEAT MARWICK 1 EXHIBIT 23.2 [KPMG LOGO] The Board of Directors Citizens, Inc.: We consent to the use of our reports incorporated herein by reference and to the reference to our Firm under the heading "Experts" in the Form S-4. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Dallas, Texas November 12, 1996 -----END PRIVACY-ENHANCED MESSAGE-----