-----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, Nx7onW5SZpKmEmbwGopUeaGNbA1Z88aZ6WLdmSL9BRiq8LxxIHjdjSUVxA1GAke3 VyVLBX6Bq+24JluyJNihUA== 0001035704-98-000678.txt : 19981113 0001035704-98-000678.hdr.sgml : 19981113 ACCESSION NUMBER: 0001035704-98-000678 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19981110 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: SEC FILE NUMBER: 333-67091 FILM NUMBER: 98743686 BUSINESS ADDRESS: STREET 1: 400 EAST ANDERSON LANE CITY: AUSTIN STATE: TX ZIP: 78752 BUSINESS PHONE: 5128377100 MAIL ADDRESS: STREET 1: 400 EAST ANDERSON LANE CITY: AUSTIN STATE: TX ZIP: 78752 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 10, 1998 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) ---------- MARK A. OLIVER, PRESIDENT 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) ---------- COPY TO: REID A. GODBOLT, ESQ. JONES & KELLER, P.C. 1625 BROADWAY, SUITE 1600 DENVER, COLORADO 80202 (303) 573-1600 --------- 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, 611,000(1) $6.00(2) $3,666,000 $1,019 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(f)(1) and (2) solely for the purpose of calculating the registration fee based on the market value of the securities to be received by the Registrant as determined on November 5, 1998. 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 Pages of Prospectus 3 Risk Factors, Ratio of Earnings to Summary; Risk Factors; Proposed Fixed Charges and Other Information Merger; Management's Discussion of Financial Condition and Results of Operation 4 Terms of the Transaction Summary; Proposed Merger; Information Concerning First Investors Group, Inc. ("Investors"); Comparison of Rights of Securityholders; Certain Federal Income Tax Consequences 5 Pro Forma Financial Information Not applicable 6 Material Contracts with the Company Summary; Proposed Merger - Being Acquired Background and Reasons 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
ii 3
Form S-4 Item No. Item Caption Heading in Prospectus - --------- ---------------------------------------------------------------------------------- 10 Information with Respect to S-3 Available Information and Registrants Incorporation of Certain Documents by Reference; Risk Factors 11 Incorporation of Certain Information Available Information and by Reference Incorporation of Certain Documents by Reference 12 Information with Respect to S-2 or Not applicable and S-3 Registrants 13 Incorporation of Certain Information Not applicable by Reference 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; Summary Selected Companies Other than S-2 or Financial Data; The Special Meeting; S-3 Companies Proposed Merger; Information Concerning Investors; Management's Discussion of Financial Condition and Results of Operations; Financial Statements 18 Information if Proxies, Consents Summary; The Special Meetings; or Authorizations are to be Solicited Information Concerning Directors and Executive Officers; Rights of Dissenting Shareholders 19 Information if Proxies, Consents Not applicable or Authorizations Are Not To Be Solicited in an Exchange Offer
iii 4 NOTICE OF SPECIAL SHAREHOLDERS' MEETING WHAT: Special Shareholders' Meeting WHEN: ________, 1998 WHERE: ________, Bloomington, Illinois We are having a Special Shareholders' Meeting of First Investors Group, Inc. ("Investors") to: o Vote on a merger; and o Transact any other business that may properly come before the Meeting or any adjournment.
IF THE MERGER IS APPROVED WHO CAN VOTE o Investors' shareholders will exchange their Only Investors' shareholders at the close of shares for Citizens, Inc. ("Citizens") Class A business on _____, 1998, may vote at the Meeting. Common Stock as described in the accompanying document. o Investors will become a subsidiary of Citizens, Inc.
RIGHT TO DISSENT If you disagree with the Merger, you may seek payment for your Investors shares by strictly following the procedures described in Appendix B. Shareholders are cordially invited to attend the Meeting. Whether or not you plan to attend the Meeting, please fill in, date, sign, and return promptly the enclosed proxy card in the enclosed postage-prepaid envelope. With your proxy, your shares will be voted at the Meeting as instructed if you cannot attend in person. Even if you send in your proxy, you may reclaim your right to vote in person when you attend the Meeting. By Order of the Board of Directors H. Marie Dennis, Secretary Springfield, Illinois ____________, 1998 iv 5 FIRST INVESTORS GROUP, INC. PROXY STATEMENT FOR SPECIAL SHAREHOLDERS' MEETING TO BE HELD ________, 1998 [CITIZENS LOGO] CITIZENS, INC. PROSPECTUS CLASS A COMMON STOCK, NO PAR VALUE UP TO 611,000 SHARES This document: o is furnished by the Board of Directors of First Investors Group, Inc. ("Investors") to request a proxy for voting your Investors stock on the Plan and Agreement of Merger dated September 10, 1998 (the "Merger Agreement") between Investors, Citizens, Inc. ("Citizens") and Excalibur Acquisition, Inc. ("Acquisition"); and o registers the shares of Class A Common Stock of Citizens to be issued in exchange for Investors shares if the Merger occurs. ------------------------ THE MERGER If the Merger occurs, you will receive one share of Citizens Class A Common Stock for each 6.6836 shares of your Investors stock (whether Common or Preferred Stock) and cash for any fractional Citizens shares based on a negotiated value of $6.00 per Citizens Class A share. The Investors' Board Of Directors UNANIMOUSLY RECOMMENDS that shareholders APPROVE the Merger Agreement. Citizens Class A Common Stock is traded on the American Stock Exchange under the symbol "CIA." On November 5, 1998, the closing price of Citizens Class A Common Stock was $6.00 per share. If the Merger occurs, we will mail you instructions for exchanging your Investors shares for Citizens Class A Common Stock. ------------------------ Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus-proxy statement is truthful or complete. Any representation to the contrary is a criminal offense. ------------------------ THE SECURITIES INVOLVE SIGNIFICANT RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 10. ------------------------ The date of this Proxy Statement-Prospectus is___________________, 1998. v 6 TABLE OF CONTENTS
Page ---- AVAILABLE INFORMATION.....................................................................................................1 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...........................................................................1 FORWARD-LOOKING STATEMENTS................................................................................................2 SUMMARY .................................................................................................................3 THE PLAN AND AGREEMENT OF MERGER..........................................................................................5 SUMMARY SELECTED FINANCIAL DATA...........................................................................................8 COMPARATIVE PER SHARE DATA................................................................................................9 RISK FACTORS.............................................................................................................10 THE SPECIAL MEETING......................................................................................................14 PROPOSED MERGER..........................................................................................................17 INVESTORS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................................................24 CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................................................................................27 RIGHTS OF DISSENTING SHAREHOLDERS........................................................................................31 INFORMATION CONCERNING INVESTORS.........................................................................................34 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..........................................................................36 COMPARISON OF RIGHTS OF SECURITYHOLDERS..................................................................................37 EXPERTS ................................................................................................................39 LEGAL MATTERS............................................................................................................40 OTHER MATTERS............................................................................................................40 FINANCIAL STATEMENTS....................................................................................................F-1 APPENDIX A -- Plan and Agreement of Merger APPENDIX B -- Article XI, Sections 5/11.65 and 5/11.70, of the Illinois Business Corporation Act Governing Rights of Dissenting Shareholders of Investors
vi 7 AVAILABLE INFORMATION Citizens files annual, quarterly, and special reports, proxy statements and other information with the Securities and Exchange Commission ("SEC"). Those reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the SEC at the SEC's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549, telephone (800) SEC-0330, and at the regional offices of the SEC at 13th Floor, 7 World Trade Center, New York, New York 10048, and Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies 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. In addition, copies may be inspected at the offices of the American Stock Exchange, 86 Trinity Place, New York, New York 10006-1881 and on the SEC Internet website at http://www.sec.gov. 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"), for the shares of Citizens Class A Common Stock to be issued in connection with the transactions described herein. In accordance with SEC rules and regulations, this Proxy Statement-Prospectus does not contain all the information set forth in the Registration Statement. For further information, 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. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents have been filed by Citizens with the SEC pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act") (File No. 0-16509) and are incorporated by reference into this Proxy Statement-Prospectus: (a) Citizens' Annual Report on Form 10-K filed on March 31, 1998, for the year ended December 31, 1997; (b) the description of Citizens' Class A Common Stock contained in its Registration Statement on Form 8-A declared effective by the SEC on April 14, 1994; (c) Citizens' Quarterly Report on Form 10-Q filed on or about August 14, 1998, for the quarter ended June 30, 1998; and (d) Citizens' Current Report on Form 8-K filed on August 21, 1998. All documents filed by Citizens pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy Statement-Prospectus and prior to the Meeting are incorporated by reference into this Proxy Statement-Prospectus as a part hereof from the date of the filing of such documents. Any statement contained herein or in a document incorporated by reference herein will be deemed to be modified or superseded for purposes of this Proxy Statement-Prospectus to the extent that a statement contained herein or in any subsequently filed document that is also incorporated by reference herein modifies or supersedes such statement. The foregoing sentence does not apply to Investors or any of its affiliates. Any statement so modified or superseded shall not be deemed to constitute a part of this Proxy Statement-Prospectus, except as so modified or superseded. 1 8 THIS PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT CITIZENS THAT IS NOT INCLUDED OR DELIVERED WITH THIS DOCUMENT. YOU MAY OBTAIN THIS INFORMATION WITHOUT CHARGE BY REQUEST TO SECRETARY, CITIZENS, INC., P.O. BOX 149151, AUSTIN, TX 78714-9151; TELEPHONE (512) 837-7100. TO ENSURE TIMELY DELIVERY, ANY REQUEST SHOULD BE MADE AT LEAST FIVE BUSINESS DAYS BEFORE _____, 1998. FORWARD-LOOKING STATEMENTS Certain statements contained in this Proxy Statement/Prospectus are not statements of historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act (the "Act"), including, without limitation, statements specifically identified as forward-looking statements within this document. In addition, certain statements in future filings by Citizens with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with the approval of Citizens or Investors which are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements, include, but are not limited to: (i) projections of revenues, income or loss, earnings or loss per share, the payment or non-payment of dividends, capital structure, and other financial items, (ii) statements of plans and objectives of Citizens, Investors or either of their management or Boards of Directors including those relating to products or services, (iii) statements of future economic performance and (iv) statements of assumptions underlying such statements. Words such as "believes", "anticipates", "expects", "intends", "targeted", "may", "will" and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: (i) the strength of foreign and U.S. economies in general and the strength of the local economies in which operations are conducted; (ii) the effects of and changes in trade, monetary and fiscal policies and laws; (iii) inflation, interest rates, market and monetary fluctuations and volatility; (iv) the timely development of and acceptance of new products and services and perceived overall value of these products and services by existing and potential customers; (v) changes in consumer spending, borrowing and saving habits; (vi) concentrations of business from persons residing in third world countries; (vii) acquisitions; (viii) the persistency of existing and future insurance policies sold by subsidiaries of Citizens or Investors; (ix) the dependence of Citizens on its Chairman of the Board; (x) the ability to control expenses; (xi) the effect of changes in laws and regulations (including laws and regulations concerning insurance) with which Citizens, Investors and their subsidiaries must comply, (xii) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as the Financial Accounting Standards Board, (xiii) changes in the organization and compensation plans of Citizens or Investors; (xiv) the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; and (xv) the success of Citizens and Investors at managing the risks involved in the foregoing. Such forward-looking statements speak only as of the date on which such statements are made, and Citizens and Investors undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events. 2 9 SUMMARY This is a summary. Please read the entire Proxy Statement-Prospectus before you make an investment decision. PARTIES TO THE MERGER Citizens, a Colorado corporation, is a life insurance holding company. Citizens' principal executive office is located at 400 East Anderson Lane, Austin, Texas 78752, and its telephone number there is (512) 837-7100. Excalibur Acquisition, Inc. ("Acquisition"), an Illinois corporation, is a wholly-owned subsidiary of Citizens that was recently formed solely for this Merger. Acquisition has the same principal executive office as Citizens. Investors, an Illinois corporation, is an insurance holding company. Investors' principal executive office is located at 1709 South Fifth Street, Springfield, Illinois 62703-3116 and the telephone number there is (217) 528-4403. Excalibur Insurance Corporation ("Excalibur") is an Illinois-domiciled life insurance company. Excalibur has the same principal office as Investors. Neither Investors nor any of its officers or directors are affiliated with Citizens, nor are any officers or directors of Citizens affiliated with Investors. If the Merger is approved, Investors will become a subsidiary of Citizens. Neither class of Investors' stock is exchange-listed or traded regularly through security brokerage firms, and there is virtually no over-the-counter trading activity. Consequently, we are unable to determine a reliable market value for Investors' Common or Preferred Stock. For an explanation of the manner in which Citizens, Investors and Acquisition negotiated the share exchange ratios for the Merger, see "Proposed Merger -- Background and Reasons for Merger." PERSONS ENTITLED TO VOTE; RECORD DATE The Record Date is the close of business on _____, 1998. Only Investors shareholders as of the Record Date will be notified of, and entitled to vote at, the Special Meeting of Shareholders. DATE, TIME AND PLACE OF SPECIAL MEETING The Special Meeting of Investors shareholders will be held on ________, 1998 at ____ a.m., Central Time, at __________, Bloomington, Illinois. BUSINESS TO BE TRANSACTED At the Meeting, shareholders will be asked to vote upon a Merger Agreement under which Acquisition will merge into Investors. RECOMMENDATIONS OF THE BOARD OF DIRECTORS The Investors' Board of Directors has unanimously approved the Merger Agreement and RECOMMENDS that the shareholders vote FOR APPROVAL of the Merger. Two out of three directors have interests in the Merger that are in addition to their interests as shareholders of Investors. The other member of the Investors' Board,
3 10 who is also an officer of Investors, was aware of these interests and considered them in approving the Merger Agreement. The Investors' Board of Directors did not solicit or receive an outside fairness opinion with respect to the Merger. See "Proposed Merger -- Background and Reasons for the Merger--Recommendation of Investors' Board of Directors and --Interests of Certain persons in the Merger." INTERESTS OF CERTAIN PERSONS IN THE MERGER The Chief Executive Officer of Investors, Don Dennis, and his wife, H. Marie Dennis, Secretary and Treasurer of Investors, have interests in the Merger that are in addition to their interests as shareholders of Investors. Upon the closing of the Merger, Citizens will retain Mr. Dennis as a consultant for a 36 month period at $8,333 per month, or $100,000 per year, plus insurance commissions on certain business he obtains. H. Marie Dennis will be the beneficiary of amounts payable under the consulting contract in the event of the death of Mr. Dennis. Mr. and Mrs. Dennis are two out of three members of the Board of Directors of Investors. PROXY REVOCABILITY Proxies are revocable at any time prior to voting at the Meeting. See "The Special Meeting -- Revocability of Proxies." REQUIRED VOTE Approval of the Merger Agreement and the transactions contemplated thereby requires the affirmative vote of a majority of the outstanding Investors Common Stock and Preferred Stock, voting together as a group. See "The Special Meeting -- Voting Securities." No shareholder vote of Citizens is required by the Merger Agreement or applicable law. OUTSTANDING SHARES OF INVESTORS As of the Record Date there were outstanding 2,038,820 shares of Investors Common Stock and 2,038,820 shares of Investors Preferred Stock. As of the Record Date, Investors' directors, executive officers and their affiliates held 1,329,003 shares of Investors Common Stock and 32,750 shares of Investors Preferred stock or a total of 33.4% of the shares entitled to vote.
4 11 THE PLAN AND AGREEMENT OF MERGER CONSIDERATION FOR YOUR SHARES Under the Merger Agreement, Investors' shareholders will receive one share of Citizens Class A Common Stock for each 6.6836 shares of Investors Stock (Common or Preferred) held as of the Record Date. Fractional shares will not be issued. Instead, fractional share amounts will be purchased based on a cash value of $6.00 per Citizens Class A share. Any Investors shareholder who perfects dissenters' rights under Illinois law will receive cash in lieu of Citizens Class A Common Stock. See "Proposed Merger -- Receipt of Citizens Shares" and "Rights of Dissenting Shareholders." CLOSING DATE The parties believe that the Closing will occur and the Merger will become effective shortly after the conditions in the Merger Agreement (including shareholder approval) are satisfied. CONDUCT OF BUSINESS PRIOR TO CLOSING Investors has agreed that it and Excalibur Insurance Corporation ("Excalibur") will not: (1) enter into any transactions prior to the Merger other than in the ordinary course of business, (2) pay shareholder dividends or increase the compensation of officers, nor (3) enter into any agreement or transaction which will adversely affect their respective financial conditions. See "Proposed Merger -- Conduct of Business Pending the Merger; the Covenants of the Parties." DISSENTERS' RIGHTS Investors' shareholders may dissent from the Merger and demand payment of their share values in cash. If holders of more than 2.5% (approximately 100,000) of the outstanding shares of Investors perfect their dissenter's rights, Citizens may cancel the Merger. See "Rights of Dissenting Shareholders," "Proposed Merger -- Other Conditions to Consummation of the Merger," and Appendix B which contains copies of the Illinois statutes for dissenting shareholder procedures. CONDITIONS TO THE MERGER In addition to approval by Investors' shareholders, the Merger is subject to satisfaction of other conditions including: (1) the performance by each party of its obligations; (2) the absence of any legal proceeding relating to the transactions contemplated by the Merger Agreement; (3) the continued material accuracy of representations made by each party; and (4) the delivery of legal opinions. See "Proposed Merger -- Other Conditions."
5 12 OPERATIONS OF INVESTORS AFTER THE MERGER Following the Merger, Investors and its subsidiaries will continue to operate in their locations under a combined management team, with the consolidation of computer data processing in Citizens' system. Citizens will continue to evaluate the personnel, business practices and opportunities for Investors and its subsidiaries and may make such changes as it deems appropriate following the Merger. SUMMARY OF FEDERAL INCOME TAX CONSIDERATIONS The Merger is intended to be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and that, accordingly, for federal income tax purposes: (i) no material gain or loss will be recognized by Investors or Citizens as a result of the Merger; (ii) no gain or loss will generally be recognized by holders of Investors Common Stock and Investors Preferred Stock ("Investors Stock") on the exchange of their shares of Investors Stock for Citizens Class A Common Stock pursuant to the Merger; and (iii) the aggregate adjusted tax basis of Citizens Class A Common Stock received by an Investors shareholder in exchange for his Investors Stock will be the same as the basis of the Investors Stock surrendered in exchange therefor. Consummation of the Merger is conditioned upon receipt by Investors of an opinion of counsel substantially to such effect. However, a ruling from the Internal Revenue Service is not being sought in connection with the Merger. The opinion of counsel is not binding on the Internal Revenue Service. If the Merger were not to so qualify, the exchange of shares would be taxable. See "Certain Federal Income Tax Consequences." TERMINATION AND AMENDMENT OF THE MERGER The Merger Agreement may be terminated by either AGREEMENT party if it is not effective by April 1, 1999. See "Proposed Merger -- Other Conditions." The Merger Agreement may also be terminated at any time prior to becoming effective (1) by unanimous consent of the parties; (2) by any beneficiary of a condition precedent to the Merger if the condition has not been met or waived; (3) by any party if a suit, action, or proceeding threatens to prohibit the Merger; or (4) by any party who discovers a material error in the representations of another party.
6 13 OTHER MATTERS The Investors' Board knows of no other matters that will come before the Meeting. If any additional matters come before the Meeting, the proxies will be voted at the discretion of the proxy holders. FORWARD LOOKING STATEMENTS Certain statements contained or incorporated by reference in this Proxy Statement/Prospectus relate to future matters which are qualified in certain respects. See "Available Information and Incorporation of Certain Documents by Reference."
7 14 SUMMARY SELECTED FINANCIAL DATA The tables below set forth in summary certain selected financial data of Citizens and Investors. This data is not covered in the reports of the independent auditors but should be read in conjunction with the consolidated financial statements and notes which are included elsewhere herein or incorporated by reference herein.
CITIZENS, INC. (in thousands, except per share amounts) At or for the At or for the Year Ended Six Months Ended June 30, December 31, -------------------------- ------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- ---- ---- Revenues $ 34,623 $ 30,059 $ 65,027 $ 63,822 $ 53,130 $ 49,212 $ 42,761 Net income 312 399 3,426 2,214 2,750 4,175 5,526 Basis and diluted earnings per share 0.01 0.02 0.16 0.11 0.16 0.25 0.34 Total assets 250,979 229,792 249,519 218,277 209,308 149,798 134,105 Total liabilities 171,683 155,854 169,938 151,394 144,595 114,742 106,090 Total shareholders' equity 79,296 73,937 79,581 66,883 64,713 35,056 28,015 Book value per share 3.71 3.51 3.72 3.29 3.24 1.99 1.68
FIRST INVESTORS GROUP, INC. At or for the At or for the Year Ended Six Months Ended June 30, December 31, ------------------------- -------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- ---- ---- Revenues $ 114,112 $ 104,713 $ 283,518 $ 201,805 $ 134,039 $ 120,872 $ 53,753 Net income (loss) (40,005) (28,504) (7,714) 53,689 43,225 41,518 7,831 Net income (loss) per share(1) (0.02) (.01) (.00) .04 .03 .03 .01 Total assets 3,276,000 3,318,000 3,288,000 3,157,000 2,761,000 2,101,000 1,872,000 Total liabilities 44,000 54,000 16,000 43,000 73,000 57,000 69,000 Total shareholders' equity 3,232,000 3,264,000 3,272,000 3,115,000 2,688,000 2,044,000 1,803,000 Book value per preferred share(2) 1.59 1.60 1.60 1.59 1.53 1.47 1.49 Fully diluted book value per share(3) .81 0.82 0.82 0.83 0.88 0.70 1.02
- ----------- (1) Based on weighted average of preferred shares. (2) Based on preferred shares outstanding at end of period. (3) Based on total common and preferred shares outstanding at end of period. 8 15 COMPARATIVE PER SHARE DATA The following table compares the historical and pro forma per share data for Citizens and Investors. The pro forma data reflects the proposed Merger transaction as if it was accounted for as a purchase. The data contained in the table is based upon the historical financial statements appearing elsewhere herein or incorporated by reference herein.
Citizens Common Stock Investors Pro Forma ------------ --------- --------- Basic and diluted earnings per share: Year ended December 31, 1997 $.16 $.00 $.16 Six months ended June 30, 1998 .01 (.02) .01 Book value per share: December 31, 1997 3.72 .81 3.76 June 30, 1998 3.71 .82 3.75
9 16 RISK FACTORS You should read the entire Proxy Statement-Prospectus carefully in evaluating Citizens and its business. The following is a summary of risk factors particularly applicable to Citizens: SIGNIFICANT MARKET OVERHANG. Citizens filed in 1995 a registration statement with the SEC permitting the public offer and sale by certain holders of our Class A Common Stock, including Harold E. Riley, Chairman of our Board, who owns 4,553,211 shares of Class A Common Stock or approximately 22% of our outstanding Class A Common Stock. Sales of significant amounts of these shares in the public market could depress the price of our Class A Common Stock. Further, the prospect of such significant amounts of shares being offered into the public market may depress the price of our Class A Common Stock even without actual sales. DEPENDENCE ON CITIZENS' CHAIRMAN. We rely heavily on the active participation of our Chairman of the Board, Harold E. Riley. The loss of his services would likely have a significant adverse effect on us. We do not have an employment agreement with Mr. Riley, but we do have "key man" life insurance on Mr. Riley totaling $1.25 million of which Citizens is the beneficiary. CONTROL. Our outstanding Class B shares of Common Stock elects a majority of the Board of Directors. All of the Class B Common Stock is owned indirectly (through the Harold E. Riley Trust) by Harold E. Riley, our Chairman of the Board. As a result, it could be more difficult and time consuming for a third party to acquire control of us or to change our Board of Directors. Additionally, Mr. Riley is the largest Class A shareholder. As a practical matter, Mr. Riley has veto power over significant corporate transactions. CONCENTRATION OF BUSINESS FROM PERSONS RESIDING IN THIRD WORLD COUNTRIES. Approximately 83% of our total insurance premium revenue of our primary insurance subsidiary, Citizens Insurance Company of America, for the year ended December 31, 1997, and approximately 86% of such total insurance premium revenue for the year ended December 31, 1996 was derived from policies issued on the lives of Latin Americans. These policies are ordinary, whole-life policies with an average face amount of $70,000 and are marketed by independent marketing firms primarily to heads of households in the top 3% to 5% income bracket of such countries. There is a risk of loss of a significant portion of sales to Latin Americans should adverse events occur in the countries from which we receive applications. We include various limitations in our policies to minimize losses caused by social, economic and political conditions. We are not aware of any adverse trends in these countries which would have a material adverse impact on our business. INABILITY TO ELECT DIRECTORS. Our Class A Common Stock to be issued to Investors' shareholders if the Merger occurs represents a minority interest. Cumulative voting of shares is not permitted by our Articles of Incorporation. Our minority shareholders cannot elect any of our directors or otherwise control our policies. Since Class B Common Stock elects a majority of the Board, control of us lies outside the Class A shareholders. See "Comparison of Rights of Securityholders." NO DIVIDENDS. To date, we have not paid cash dividends and it is our current policy to retain earnings for use in the operations and expansion of our business. Hence, it is highly unlikely that cash dividends will be paid in the near future. Also, our Class A Common Stock has a right to twice the cash dividends of our Class B shares. Because our Class B shareholders control us, 10 17 there is little economic incentive for our Class B shareholders to decide that cash dividends should be paid when they will receive only one-half of the per share cash dividends of our Class A Common shares, except that the beneficiaries and trustee of the Harold E. Riley Trust, which holds our Class B Common shares, are also the largest holders of our Class A Common shares. PERSISTENCY. Persistency is the extent to which policies sold remain in-force. Policy lapses over those actuarially anticipated could adversely affect our financial performance. 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 we maintain our lapse and surrender rate within the pricing assumptions for its insurance policies, we believe that our lapse and surrender rates should not have a material adverse effect on our financial results. For the years ended December 31, 1997, 1996 and 1995, our lapse ratio on ordinary business was 4.3%, 4.6% and 4.1%, respectively. AMORTIZATION OF GOODWILL. Because of the slowdown in sales activity on the part of the agency operations previously associated with a recently acquired company, we are monitoring the excess of cost over net assets acquired associated with that acquisition (i.e. "goodwill"). Should future production levels be less than anticipated, a charge-off in the vicinity of $8,000,000 associated with such decline could be incurred. We are monitoring this situation and believe it will be the fourth quarter of 1998 before significant levels of production are obtained from these agents. In the event any such goodwill proves unrecoverable, a charge in the appropriate period will be booked. Based upon production during the first half of 1998, and assuming no further production, which management does not expect to occur, the amount of the potential charge would be approximately $8,000,000. 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 we have. Such companies also generally have larger sales forces. We also face competition from companies operating in foreign countries and marketing in person as well as with direct mail sales campaigns. Although we may be at a competitive disadvantage to these entities, we believe that our products are competitive in the marketplace. We experience competition in our markets primarily from the following sources: o Locally Operated Companies with Local Currency Policies. We compete with companies formed and operated in the country in which the policies are sold. Generally, these companies (1) are subject to risks of currency fluctuations, and (2) use mortality tables based on the experience of the local population as a whole. These mortality tables are typically based on significantly shorter life spans than those we use. As a result, the economic return of policies issued by locally operated companies is more uncertain than for U.S. dollar policies, and their statistical cost of insurance tends to be higher than ours. o Foreign Operated Companies with Local Currency Policies. Another group of competitors consists of foreign companies that use local currencies. Local currency policies entail risks of uncertainty due to local currency fluctuations as well as perceived instability and weakness of local currencies. We have observed that local currency policies (issued by either foreign or locally operated companies) tend to focus on universal life insurance and annuities instead of whole life insurance. In contrast, we sell primarily whole life insurance policies. 11 18 o Foreign Operated Companies with U.S. Dollar Policies. We face competition from companies that operate in the same manner as we do. We believe that our competitive advantages include a history of performance, our sales force and our products, which have consistently paid a cash dividend on the policies issued. REGULATION. Insurance companies are subject to extensive regulation in the jurisdictions where they do business. These regulations require, among other things, prior approval of acquisitions of controlling interest in an insurance company; certain solvency standards; licensing of insurers and their agents; investment limitations; securities deposits for the benefit of policyholders; approval of policy forms and premium rates; triennial examinations of insurance companies; annual and other reports concerning financial condition and other matters; reserves for unearned premiums, losses and other matters. We are subject to this type of regulation in each state in the U.S. in which we are licensed to do business. This regulation involves additional costs and restricts operations. We are regulated by the Colorado Division of Insurance under the Colorado Insurance Holding Company Act. Certain "extraordinary" intercorporate transfers of assets and dividend payments from our life insurance subsidiaries require prior approval by the Colorado Insurance Commissioner. We also file detailed annual reports with the Colorado Division of Insurance and all of the states in which we are licensed. The business and accounts of our life insurance subsidiaries are subject to examination by the Colorado Division of Insurance. The most recent examination of our life insurance subsidiary was for the five years ended December 31, 1996. Our principal insurance subsidiary is chartered as an insurance company only in the U.S. It does not have any assets or employees in foreign countries. We only accept at our main office in the U.S. applications together with and premiums in U.S. currency (including checks drawn on U.S. banks). We are not currently subject to regulation in the various foreign countries from which we receive applications by foreign citizens. Although we provide insurance to applicants who are foreign citizens, these applications are submitted by independent marketing firms (rather than through our employees to avoid "conducting business" in foreign countries). However, we are unable to predict if foreign regulation will be implemented and, if so, the effect of any such regulation on our business. UNINSURED CASH BALANCES. We maintain average cash balances in one bank, Chase Bank, Texas, that is significantly in excess of Federal Deposit Insurance Corporation coverage. If this bank were to fail, we would likely lose a substantial amount of our cash. At December 31, 1997, we had approximately $4.4 million in Chase Bank, Texas. We monitor the solvency of this bank and we do not believe a material risk of loss exists since this bank is currently above the federally mandated levels of capital and liquidity. We also invest in short-term U.S. Treasury securities and top-rated commercial paper issues to manage temporary excess cash balances. INTEREST RATE VOLATILITY; INVESTMENT SPREAD RISKS. Fluctuating interest rates affect the profitability of insurance companies. An insurance company's profitability depends, in large part, on investing premiums at a higher interest rate than the interest rate paid to existing policies. Rapid interest rate changes hamper an insurance company's ability to maintain this positive spread and also increase the lapse rates of policies in-force. We do not issue interest-sensitive or universal life insurance policies and we have only a small amount of annuity business. We do, however, have an investment portfolio that would likely be adversely affected in the event of material increases in interest rates. 12 19 TAX CONSEQUENCES. The transactions contemplated by the Merger Agreement are intended to be a tax-deferred exchange within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended. However, we have not obtained a ruling from the Internal Revenue Service concerning whether the transaction will in fact be treated as a tax-deferred exchange. We will, however, obtain an opinion of counsel which will support the conclusions contained in this prospectus-proxy statement regarding the material federal income tax consequences of the Merger Agreement and transactions contemplated thereby to Investors and its shareholders. You should understand that an opinion of counsel is not binding on the Internal Revenue Service. Furthermore, the conditions upon which our counsel's opinion is qualified may not continue to exist and the laws or regulations affecting the material federal income tax consequences of this Merger may change. In either event, the tax aspects of the Merger may be adversely affected, and such effect may be material. As a result, there can be no assurance that the Merger will be accorded the tax treatment intended and that recipients of Class A Common Stock of Citizens will realize the tax consequences described herein. See "Certain Federal Income Tax Consequences." 13 20 THE SPECIAL MEETING Date, Time and Place of Meeting A Special Meeting of Investors' Shareholders will be held on ________, 1998 at ___ a.m., Central Time, at _______________, Bloomington, Illinois. BUSINESS TO BE TRANSACTED AT THE SPECIAL MEETING We mailed you this Proxy Statement-Prospectus on ________, 1998 to solicit your proxy to vote for the Merger with Citizens. If the Merger is approved and closes, you will receive one share of Citizens for each 6.6836 shares of Common or Preferred Investors Stock which you hold. As of the date of this Proxy Statement-Prospectus, we know of no other business that will come before the Meeting. Should any other matter requiring a vote of shareholders arise, the proxies named in the enclosed form of proxy will vote the shares in their discretion with respect to any such matter. VOTING SECURITIES Only Investors' shareholders of record at the close of business on _____, 1998 will be entitled to vote at the Meeting. On that date, there were issued and outstanding 2,038,820 shares of Common Stock and 2,038,820 shares of Preferred Stock. Each share of stock (whether Common or Preferred Stock) is entitled to one vote per share with respect to the Merger, and the holders of Common Stock and Preferred Stock will vote together as a group. The affirmative vote of a majority of the combined outstanding Investors' Common and Preferred Stock is necessary to approve the Merger. INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS The following information is furnished with respect to each director and executive officer.
Year First elected as director Positions with Name of director Age of Investors Investors(1) - ----------------------------------------------------------------------------------------------------------------- Donald L. Dennis 63 1990 Chairman & President of Investors since 1990 H. Marie Dennis 54 1990 Secretary & Treasurer since 1990 Winona L. Drewes 50 1990 Assistant Secretary since 1990
- ----------- (1) The principal occupation of each individual for at least the last five years has been in the positions noted above with Investors. The full Board of Directors serves as the Audit Committee. 14 21 All directors and officers are elected for a term of one year or until their successors have been duly elected and qualified. Donald L. Dennis, Director, Chairman and President, is the husband of H. Marie Dennis, Director and Secretary & Treasurer. There are no other family relationships among the officers or directors listed, and there are no arrangements or understandings pursuant to which any of them were elected as officers or directors. There have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any director or executive officer during the past five years. EXECUTIVE COMPENSATION Current Officer's Compensation The following table sets forth compensation of the President of Investors and its subsidiaries. No executive officer of Investors or its subsidiaries received compensation exceeding $100,000 for any of the last three fiscal years. Neither Investors nor any of its subsidiaries have any restricted stock awards, stock appreciation rights or long-term incentive plans for its executive officers. SUMMARY COMPENSATION TABLE Annual Compensation
(a) (b) (c) (d) (e) Other Annual Name and Principal Position Year Salary Bonus Compensation - ------------------------------------------------------------------------------------------------------------------------------------ Donald L. Dennis, 1997 $-0- -0- $46,698(1) President (CEO) 1996 -0- -0- -0- 1995 -0- -0- -0- ====================================================================================================================================
- ---------- (1) Represents commissions paid to Mr. Dennis from the sale of stock of Investors in an intrastate offering. Compensation Through Plans and Other Compensation No employees are covered by a group insurance plan. No option has been granted to any employee to purchase securities from Investors or its subsidiaries. There are no pension or retirement benefit plans. Compensation of Directors For the last three years, the three Investors directors received $450 in director's fees from Investors as well as its subsidiaries. 15 22 VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF The following table sets forth, as of _____, 1998, the shares of Investors Common and Preferred Stock (i) beneficially owned by each director and officer, (ii) for all directors and officers as a group, and (iii) each person who is known to Investors to be the beneficial owner of more than 5% of the Investors Common and Preferred Stock, its only classes of voting securities.
Name and Address Nature and Amount Percent of Beneficial Owner of Ownership of Class - ------------------- ----------------- -------- Donald L. & H. Marie Dennis 1,359,428 shares(1) 33.3% 1709 South 5th Street Springfield, IL 62703-3116 Winona L. Drewes(2) 2,325 shares(3) * 1709 South 5th Street Springfield, IL 62703-3116 Directors and 1,361,753 shares 33.4% Officers as a Group (three persons)
- ----------------------------- * Less than one percent. (1) Consists of 32,500 shares of Preferred Stock and 1,326,928 shares of Common Stock held as joint tenants. (2) Held as joint tenant with David F. Drewes. Winona L. Drewes is a director and officer of Investors. (3) Consists of 250 shares of Preferred Stock and 2,075 shares of Common Stock. REVOCABILITY OF PROXIES Any proxy may be revoked before its exercise at the Meeting or any adjournment thereof by (1) giving written notice of revocation to the Secretary of Investors, H. Marie Dennis, prior to the Meeting; (2) giving written notice of revocation to the Secretary at the Meeting; or (3) signing and delivering a proxy bearing a later date. The mere presence of a shareholder at the Meeting will not revoke his or her proxy. However, being present at the Meeting allows a shareholder to vote in person and revoke any prior proxy. PROXY SOLICITATION Investors will pay the cost of soliciting proxies. Officers and employees of Investors may solicit proxies by telephone and personally, in addition to solicitation by mail. These persons will receive their regular salaries but no special compensation for soliciting proxies. Investors will reimburse brokers, custodians, nominees and other fiduciaries for their charges and expenses in forwarding materials to beneficial owners of Investors shares, which charges are not estimated to exceed $5,000 plus expenses. 16 23 PROPOSED MERGER BACKGROUND AND REASONS Introduced by a common business associate in March 1998, members of management of Investors and Citizens met in Springfield, Illinois in June 1998, after exchanging correspondence discussing the international insurance market for dollar-denominated whole life policies. Citizens has been an active writer of such policies for more than 30 years, and Investors' management had several contacts who had an interest in writing such business. From this discussion, it became apparent that the two management groups had common views of the market's potential, as well as a strong belief in whole life insurance as a product. Following the initial meeting, a subsequent meeting was held to further explore common interests of the companies. After this meeting, Citizens' management proposed to Investors' management that perhaps the best course of action would be for each party to consider joining forces through an acquisition of Investors by Citizens. This was appealing to Investors' management for several reasons. Although successful in raising more than $3 million in capital during its initial offering, Investors had not been successful in developing a market for its stock. Consequently, Investors shareholders had no readily available market to liquidate their interests and this was a concern to Investors' management. Since Citizens is listed on the American Stock Exchange, its shares offer liquidity to the shareholders of Investors. Further, association with a substantially larger company offered Investors opportunities to expand marketing activities without concern about a shortage of capital. In late June 1998, Citizens' management forwarded a proposed contract draft to the management of Investors. Due to the illness of Investors' President, final negotiations were delayed until the last week of July when the parties met and Investors made a counterproposal to Citizens. After revisions to the contract were made and after further discussions, the share exchange ratio was finalized. Investors and Citizens executed the contract in late August subject to various conditions including approval by Investors' shareholders. The valuation of the companies to the proposed transaction centered on a share exchange ratio. Management of Citizens and Investors recognized that, due to the lack of a readily ascertainable market for Investors' shares, an alternative valuation would be necessary. In contrast, the American Stock Exchange market for Citizens shares permitted the parties to select a closing price for Citizens shares prior to the contract execution date. Management of both companies reviewed carefully the assets and liabilities of Investors, and decided that determination of the exchange ratio value for Investors should use a book value basis of the company, adjusted to reflect values which are standard within the life insurance industry. Management of both companies also reviewed the capital and surplus of Investors' insurance subsidiary as well as its annual life insurance premium revenue valued at multiple factors depending upon the profitability of the product and paid-up policy reserves. State licenses, agency force, and non-admitted capital and surplus assets of life insurance subsidiaries were reviewed. These values are summarized in the table below, which was included in the application to the Illinois Department of Insurance for approval of the Merger. 17 24
Investors ----------------- Capital and surplus of subsidiaries, along with a securities valuation reserve and investment reserves $2,579,000 Life insurance in force as a multiple of annual premium revenue 66,000 State licenses 50,000 Agency force 50,000 Non-admitted capital and surplus assets of 915,000 subsidiaries and other miscellaneous values (Less outstanding obligations) (0) ---------- Total adjusted book value $3,660,000 ==========
For Investors, the adjusted book value per share was determined by dividing the Investors adjusted book value of $3,660,000 by the fully diluted number of common and preferred shares (4,077,640) for a result of $0.89772 per share. The resulting values were reviewed carefully by each party. Also discussed at length were how payment would be made to Investors shareholders, and the tax consequences of the proposed transactions. RECOMMENDATION OF INVESTORS' BOARD OF DIRECTORS The Investors' Board of Directors RECOMMENDS APPROVAL OF THE MERGER. The Board believes that the exchange ratio to the Investors shareholders is fair since the valuations were performed by the parties on a consistent and reasonable basis. Further, the Investors' Board of Directors believes that Citizens' goal to build a profitable, expanding life insurance holding company is consistent with the goals of Investors and its shareholders. The management and Board of Directors of Investors, after careful study and evaluation of the economic, financial, legal and market factors, also believe that the Merger will provide Citizens with increased opportunity for profitable expansion of its business, which in turn should benefit Investors shareholders who become shareholders of Citizens. Another advantage of affiliation with Citizens is that significant overhead savings are expected to be realized by Investors and Excalibur through a Service Agreement with Citizens, which was effective on November 1, 1998. Under the Service Agreement, Citizens will use its facilities and computer systems to provide certain services to Excalibur, including insurance administration, data processing, accounting, daily operating, policy administration, marketing and management consulting. The Service Agreement has an initial term of five years (although it can be canceled by Investors on 60 days notice) and renews thereafter on a month-to-month basis. Citizens receives a fee equal to 12.5% of the actual cost of providing the services. 18 25 The terms of the Merger Agreement were the result of arm's-length negotiations between representatives of Investors and Excalibur, on one hand, and Citizens on the other. Among the positive factors considered by the Boards of Directors of Investors and Excalibur in deciding to approve and recommend the Merger were: 1. The terms and conditions of the Merger Agreement, which the Investors' Board and management believes results in a fair price for the Investors shares; 2. The financial condition, business assets and liabilities and management of Citizens; 3. The financial and business prospects of Citizens; 4. The increased liquidity to Investors shareholders including: o the market on the American Stock Exchange for Citizens Class A Common Stock; o the lack of market for the Investors Common Stock; o the demographics of Investors' shareholder base and their expressed concerns regarding liquidity and estate settlement; o the ability to sell Citizens Class A Common stock for cash to satisfy obligations of a decedent's estate; 5. Economies of scale available in the event of combination of the companies including, in particular, reduction in the total number of regulatory filings; 6. Investors' Board of Directors familiarity with and review of the business, operations, financial condition, earnings and prospects of Investors; 7. The expectation that the Merger will generally be a tax-deferred transaction to Investors and its shareholders (see "Certain Federal Income Tax Considerations"); 8. The growth and liquidity potential to Investors shareholders as future holders of Citizens Class A Common Stock compared to the historical growth and liquidity of the Investors Common Stock and Preferred Stock; 9. The review by the Investors' Board of Directors of Citizens' business, operations, earnings and financial condition on a historical, prospective and pro forma basis, and the enhanced opportunities for growth that the Merger makes possible; 10. The current and prospective economic environment and competitive constraints facing small insurance companies, including Excalibur; 11. The Investors' Board of Directors' evaluation of the risks to consummation of the Merger, including the risk associated with obtaining necessary regulatory approvals; and 12. The possible alternatives to the Merger, the range of possible values to the Investors' shareholders of such alternatives, and the timing and likelihood of actually receiving, and risks and rewards associated with seeking to obtain, those values. The Investors' Board did not assign any specific or relative weight to these factors in its consideration. All of the above factors contributed in determining the consideration received. The Investors' Board of Directors considers the Merger particularly advantageous to Investors shareholders in that shareholders will receive a security which, in the opinion of the Investors Board, has the potential to achieve a greater growth and market value and which now has significantly greater market liquidity than the Investors' Common Stock and Preferred Stock. 19 26 The exchange of Investors shares solely for Citizens shares is also intended to be a tax-deferred exchange, thereby giving Investors' shareholders the equity participation in Citizens without initially incurring taxes. See "Certain Federal Income Tax Consequences." A conceivable detriment to the Investors' shareholders is the fact that the rate of growth in company size may be less for Citizens than for Investors because the same increase would be a greater rate of growth for Investors due to its smaller size. However, Investors' management believes that Citizens, under present circumstances, has better growth prospects than Investors. Management is unable to articulate other detriments of the Merger to Investors' shareholders. Citizens has indicated that in connection with future operations of Excalibur, Citizens intends to maintain capital and surplus of Excalibur above the required minimums under Illinois law. The Investors' Board of Directors made this determination without the assistance or cost of a financial adviser for a so-called "fairness opinion." The Investors' Board believes that it reviewed in sufficient depth the respective conditions of Investors, Citizens and their subsidiaries as well as the terms of the Merger Agreement. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the recommendation of Investors' Board with respect to the Merger Agreement, Investors shareholders should be aware that two executive officers and directors of Investors have interests in the Merger that are in addition to the interests of Investors shareholders generally. The other member of the Investors' Board was aware of these interests and considered them, among other matters, in approving the Merger Agreement and the transactions contemplated thereby. Don Dennis, the Chief Executive Officer of Investors, will enter into a consulting agreement with Citizens to be effective immediately after the effective time, which will provide compensation of $100,000 per year for three years. Under the terms of the consulting agreement, Mr. Dennis will serve as a consultant for 36 months at $8,333 per month, and perform services for no more than five hours per week. Mr. Dennis will agree not to render services in a commercial or business context, except those for certain companies relating to payroll deduction accounts, annuity products, long term health products and life insurance products offered by three other life insurance companies. The designated beneficiary of Mr. Dennis, H. Marie Dennis (who is the wife of Mr. Dennis and an officer and director of Investors), will receive the compensation or commissions that would have otherwise been payable to Mr. Dennis under the consulting agreement in the event of his demise. REGULATORY REQUIREMENTS The Merger is subject to approval of the Illinois Department of Insurance, which was received October 13, 1998. The parties do not believe the Merger is subject to any other insurance regulatory approval. Neither Citizens nor Investors is aware of any other governmental or regulatory approvals required for consummation of the Merger. 20 27 SUMMARY OF THE MERGER AGREEMENT This is a summary of the Merger Agreement, which is incorporated herein and attached hereto as Appendix A. You should read the Merger Agreement in addition to this Summary. See "Available Information and Incorporation of Certain Documents by References." Delivery of Citizens Class A Common Stock; Closing Date. If the Merger occurs, Citizens Class A Common Stock will be available for distribution at a closing ("Closing") on a closing date ("Closing Date") as soon as possible after all regulatory approvals and shareholder approvals are obtained in accordance with Illinois law. In order for the Merger to be consummated, the Merger Agreement must be approved by majority vote of the Investors Common and Preferred Stock, voting as a group. The Merger between Acquisition and Investors will become effective ("Effective Date") on or as soon after the Meeting as possible (assuming shareholder approval). It is presently anticipated that the Effective Date will occur on or before April 1, 1999, but there can be no assurance that the conditions to the Merger will be satisfied and that the Merger will be consummated on that date or any other date. The parties to the Merger Agreement have agreed to take all actions reasonably necessary to consummate the proposed transactions. Receipt of Citizens Shares - Procedures. If the Merger Agreement is approved at the Meeting, Investors shareholders who do not perfect dissenters' rights will be notified of the approval and furnished with a "Letter of Transmittal" to send to an exchange agent ("Exchange Agent") that will be identified in the Letter of Transmittal. DO NOT SUBMIT YOUR INVESTORS SHARES AT THIS TIME. If the Merger is completed: o a Letter of Transmittal will be sent to you; o you should send in your shares with the Letter of Transmittal; o the Exchange Agent will exchange your Investors shares for Citizens Class A Common Stock in the ratio set forth in the Merger Agreement after it receives your Letter of Transmittal and Investors stock certificates. Exchange Agent. Investors will appoint American Stock Transfer and Trust Company, New York, New York, (Citizens' current stock transfer agent) as Exchange Agent and may appoint one or more forwarding agents to accept delivery of the Investors' stock certificates for forwarding to the Exchange Agent. The instructions accompanying the Letter of Transmittal will provide details for surrendering certificates for Investors shares and the procedure for obtaining certificates for Citizens Class A Common Stock, including instructions for obtaining certificates for Citizens Class A Common Stock for lost or destroyed certificates of Investors shares. Authorization of the Exchange Agent may be terminated by Citizens at any time after six months following the Effective Date. If terminated, any shares and funds held by the Exchange Agent for Investors shareholders will be transferred to Citizens or its designee, who will thereafter serve as Exchange Agent. Shareholder Rights Prior to Share Exchange. The Exchange Agent will not be entitled to vote or exercise any rights of ownership of the Investors shares held by it prior to the issuance of Citizens Class A Common Stock to former holders of such shares, except that it will receive any distributions paid or distributed with respect to the Investors shares for the account of the persons exchanging such shares. No distributions are expected with respect to Citizens Class A Common Stock. 21 28 After the Effective Date, there will be no transfers on the Investors stock transfer books of shares which were issued and outstanding immediately prior to the Effective Date. If after the Effective Date certificates representing Investors shares are properly presented to the Exchange Agent or directly to Investors or Citizens, they will be canceled and exchanged for certificates representing Citizens Class A Common Stock in the ratio set forth in the attached Merger Agreement. Unclaimed Shares or Cash. If outstanding certificates for Investors shares or payment for any fractional or dissenting shares are not claimed, they may be turned over to a governmental authority in accordance with the respective abandoned property laws of the various jurisdictions. In Colorado (Citizens' state of incorporation) if an owner of stock cannot be located and does not come forward for a period of five years, and if the last known address of the shareholder is in Colorado, then the stock must be turned over to the state treasurer. If the last known address of the shareholder is in another state, the stock must be turned over to the other state if that state's laws so provide, otherwise the stock must be turned over to the state of Colorado. Abandoned property laws vary from state to state. However, to the extent it might be permitted by abandoned property and other applicable law, such unclaimed items shall become the property of Citizens (and to the extent not in its possession shall be paid over to it) free and clear of all claims or interest of any persons previously entitled to such items. Notwithstanding the foregoing, neither the Exchange Agent nor any party to the Merger Agreement will be liable to any Investors shareholder for amounts paid to any governmental authority having jurisdiction of such unclaimed item pursuant to abandoned property or other applicable laws of such jurisdiction. Fractional Shares. Fractional shares of Citizens stock will not be issued under Merger Agreement. Instead, fractional shares will be purchased based on a negotiated value of $6.00 per share of Citizens Class A Common Stock. Accounting. It is anticipated that the Merger will be accounted for as a purchase in accordance with generally accepted accounting principles. Other Conditions; Termination or Amendment of the Merger Agreement. In addition to Investors shareholder approval of the Merger Agreement, the obligations of Citizens, Investors, and Acquisition to complete the Merger are subject to the satisfaction of a number of closing conditions, including: o performance by each party to the Merger Agreement of its respective obligations; o approval of the Illinois Department of Insurance in accordance with the laws of Illinois, which approval was obtained October 13, 1998; o absence of any proceedings instituted or threatened to restrain or prohibit the transactions contemplated by the Merger Agreement; o continued accuracy in all material respects of the representations and warranties made by each party in the Merger Agreement; 22 29 o delivery of certain legal opinions and closing certificates; or o the Effective Date occurring before April 1, 1999. In addition, Citizens may decline to proceed with the Merger if dissenters' rights are perfected by more than 2.5% of the outstanding Investors shares (Common and Preferred Stock). Any party may waive its unsatisfied conditions to complete the Merger, except those which are required by law (such as shareholder and regulatory approval). The Merger Agreement may be terminated and abandoned at any time (whether before or after approval by the Investors shareholders) by unanimous consent of Citizens, Investors and Acquisition, or by any party for whose benefit a closing condition has not been satisfied or waived. Any terms or conditions of the Merger Agreement, except those required by law, may be waived by the Board of Directors of the party entitled to the benefit thereof. The Merger Agreement may be amended by mutual agreement of the Board of Directors of each party except that the number of shares of Citizens Class A Common Stock issuable cannot be changed without approval by the Investors shareholders. 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. Status Regarding Possible Waiver, Modification, or Termination of Agreement. As of the date of this Proxy Statement-Prospectus, to the best of the knowledge of the parties to the Merger Agreement, there are no conditions precedent which must be waived by any party in order for the Merger to be consummated, nor does any party intend to seek to modify or terminate the Merger Agreement based on existing circumstances. Conduct of Business Pending the Merger; Other Covenants of the Parties. Investors, on behalf of itself and Excalibur, agreed that neither of them will, prior to the Merger: o enter into any transactions except in the ordinary course of business; o pay any dividends nor increase the compensation of any officer or directors; or o enter into any transaction which would adversely affect its respective financial conditions. Each party has agreed to provide the others with information as to any significant corporate developments during the term of the Merger Agreement and to promptly notify the other parties if it discovers that any of its representations, warranties or covenants contained in the Merger Agreement or any document delivered in connection therewith was not true and correct in all material respects or became untrue or incorrect in any material respect. All of the parties to the Merger Agreement have agreed to take all such actions as may be reasonably necessary and appropriate in order to consummate the transactions contemplated by the Merger Agreement. 23 30 The Investors' Board of Directors, subject to its fiduciary obligations to its shareholders, has agreed to use its best efforts to obtain the requisite approval of Investors shareholders for the Merger Agreement and the transactions contemplated thereby. Operations of Investors after the Merger. Following the Merger, Investors and its subsidiaries will continue to operate in their locations under a combined management team, with the consolidation of computer data processing in Citizens' system. Citizens will continue to evaluate the personnel, business practices and opportunities for Investors and its subsidiaries and may make such changes as it deems appropriate following the Merger. Stock Transfer Restrictions Applicable to "Affiliates" of Investors and Excalibur. The Merger Agreement provides that any shareholder who is an "affiliate" of Investors, as defined in the rules adopted under the Securities Act of 1933, will enter into an agreement to not dispose of any Citizens shares received by him or her in violation of certain transfer restrictions under SEC Rules 144 and 145. INVESTORS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARY SELECTED FINANCIAL DATA
At or for the year ended December 31, 1997 ------------------------------------------------------------ Citizens Investors Citizens Percent Investors Percent Combined Amount of Total Amount of Total Total -------- -------- --------- --------- -------- (all amounts in 000's except per share amounts) Total assets $ 249,51 98% $ 3,288 2% $252,807 Stockholders' equity 79,581 96% 3,272 4% 82,853 Retained earnings 26,856 100% 90 * 26,946 Net income (loss) 3,426 100% (8) * 3,418 Book value per share (1) 3.72 .82
At or for the year ended June 30, 1998 ------------------------------------------------------------ Citizens Investors Citizens Percent Investors Percent Combined Amount of Total Amount of Total Total -------- -------- --------- --------- -------- (all amounts in 000's except per share amounts) Total assets $250,979 98% $ 3,276 2% $254,255 Stockholders' equity 79,296 96% 3,232 4% 82,528 Retained earnings (deficit) 27,168 100% 50 * 27,218 Net income (loss) 312 100% (40) * 272 Book value per share (1) 3.71 .81
- ----------- (1) Book value per share is based on numbers of shares set forth in Stockholders' Equity on the respective balance sheets -- for Citizens calculations, the numbers of Class A and Class B Common shares were added, and the total number was divided into Total Stockholders' Equity; for the Investors calculations, the common and preferred shares were added, and the total number was divided into Total Stockholders' Equity. * Less than one percent. 24 31 The following is a discussion by management of Investors which includes results consolidated with Excalibur Insurance Corporation ("Excalibur") and Consolidated Marketing Services, Inc. ("CMS"). Excalibur and CMS are wholly owned subsidiaries of Investors. CONSOLIDATED RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 During 1997, Investors, through Excalibur, began actively marketing and issuing policies with the first policy being issued in April. By the end of 1997, Excalibur had $2,270,698 of individual life insurance coverage in-force and premium income was $33,214. As a result of 1997 start up marketing expenses, Investors reported a consolidated loss of $7,714 in 1997 compared to gains of $53,689 in 1996 and $ 43,225 in 1995. Investment income increased $8,752 despite a softening in interest rates during the year. Investors has been in the process of rasing additional capital through a stock sale which accounts for past increases in investment income. Commission income was produced by CMS which sells life insurance products for other companies. Commission income increased to $79,021 from $30,031 in l996 and $12,321 in l995. As CMS shifts its marketing emphasis to Excalibur's products, a decline in commission income from other companies is expected. General expenses and commission expenses were significantly increased due to start up marketing expenses. The increase in life reserves was the result of Excalibur's initial policy sales. The receipt of Investors' first premium income, capitalization of deferred acquisition cost and commission income reduced the impact of these expense increases. Also, until mid-1997 Investors had been required to charge certain of its expenses to shareholders' equity as a result of its stock offering. The administrative personnel associated with the offering were reassigned to Excalibur and associated expenses became income statement items. LIQUIDITY AND CAPITAL RESOURCES Funds from premium income, interest income, and sales of Investors' stock were used to meet 1997 liquidity requirements and increase assets. The majority of investments are in interest earning accounts and investments which have a duration of three years or less. Investors' investments are primarily in U. S. Government issues or insured certificates of deposit. Although there are many factors, such as the health of the economy, the effects of regulation, inflation, interest rates, monetary markets, consumer spending or savings habits, and accounting changes, that affect Investors and its investments, Investors' liquidity position is not expected to change materially during 1998. On December 31, 1997, Investors had cash and invested assets totaling $3,193,142. These funds were made up of $370,596 in cash, U. S. Government Obligations of $1,602,425 and certificates of deposit of $1,220,121. The year end percentage distribution of cash and investments was comparable with that of year end 1996. The U. S. Government Obligations are placed with the Illinois Department of Insurance as required by the Illinois Deposit Law for life insurance companies. Funds placed in certificates of deposit have been limited to $100,000 in any one bank. Investors transferred $220,000 into the surplus account of its subsidiary, Excalibur, during the year. 25 32 The increase in assets reflected in the Consolidated Balance Sheet was primarily from sales of Investors' stock. The change in cash and investments was the result of increased investments in U. S. Government Obligations. Two new items, deferred policy acquisition costs of $41,078 and reserves for life policies of $13,859, were added to the balance sheet as a result of the start up of life insurance sales. Liabilities decreased with reduction of commissions payable. SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1997 Premium income for the first six months of 1998 increased by $21,805 over premium income in the first six months of 1997. The first six months of 1997 marked the beginning of Investors' entry, through its subsidiary Excalibur, into marketing its own life insurance products and the period ended with $744,650 of life insurance in force on its policyholders. By the end of the first six months of 1998, in-force life insurance was $3,462,269. Although Investors' marketing program was achieving growing results, the adoption of a controversial illustration regulation by the Illinois Department of Insurance threatened to add a significant cost increase to the sales of the current participating life insurance product. Development of a new product was completed by the end of the current quarter and the marketing of the product requiring an illustration was discontinued. The introduction of a new product required reorientation of currently contracted agents and redesigning recruiting practices, which resulted in a new start-up of Investors' marketing program. As a result of a continuing decline in interest rates, Investors' investment income decreased by $2,791. For the purpose of maintaining liquidity, Investors' investments are primarily limited to maturities of three years or less, but this does increase the sensitivity of investment income to interest rate fluctuations. In the first six months of 1998, Investors' was actively selling its own products which took the emphasis away from selling products for other companies through its agency operation, CMS. The result was a change from a commission income for the first six months of 1997 to a commission expense in the first six months of 1998. The beginning of the second policy year for the initial policyholders required the start of a new reserve for future dividends payable. There is no comparable period entry for this item. New sales and the start of the second policy year for in-force policies resulted in an increase for future life benefits. The provision for capitalization of deferred acquisition costs increased for 1998 because Investors' did not begin to market products until after the first three months of 1997. However, commission expense continued at high levels because most policies are monthly premium based; therefore, it will be several months before commissions on these products become lower. The increase in general expenses is primarily a result of the new product development that took place in 1998. This expense increase is expected to continue during the start-up phase of the new product. Taxes, licenses and fees remained relatively unchanged. LIQUIDITY AND CAPITAL RESOURCES During the past period, liquidity requirements were met by funds from premium income, interest income and certificates of deposit maturities. The majority of investments are in interest earning accounts and investments which have a duration of three years or less. Investments are primarily in U.S. Government issues or insured certificates of deposit. Although there are many factors, such as the health of the economy, the effects of regulation, inflation, interest rates, monetary markets, consumer spending or savings habits, and accounting changes, that influence Investors and its investments, its liquidity position is not expected to change materially during 1998. 26 33 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion summarizes the material federal income tax considerations relevant to the exchange of shares of Investors Common and Preferred Stock ("Investors Common Stock") for Citizens Class A Common Stock ("Citizens Class A Common Stock") pursuant to the Merger, that are generally applicable to holders of Investors Common Stock. This discussion is based on currently existing provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury Regulations thereunder and current administrative rulings and court decisions, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences to Citizens, Investors, or Investors' shareholders as described herein. There can be no assurance that such changes will not occur. Investors shareholders should be aware that this discussion does not deal with all federal income tax considerations that may be relevant to particular Investors shareholders in light of their particular circumstances, such as shareholders who are dealers in securities, who are financial institutions, who are foreign persons, who are real estate investment trusts, who are regulated investment companies, who are tax-exempt persons, who hold their Investors Stock as part of a position in or "straddle" or as part of a "hedging" or other integrated transaction, who do not hold their Investors Stock as capital assets, or who acquired their shares in connection with stock option or stock purchase plans or in other compensatory transactions. In addition, the following discussion does not address the tax consequences of the Merger under foreign, state or local tax laws, the tax consequences of transactions effectuated prior or subsequent to or concurrently with, the Merger (whether or not any such transactions are undertaken in connection with the Merger), including without limitation any transaction in which shares of Investors Stock are acquired or shares of Citizens Class A Common Stock are disposed of, or the tax consequences of the alternative minimum tax provisions of the Code. Accordingly, INVESTORS SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER. The Merger is intended to constitute a "reorganization" within the meaning of Section 368(a) of the Code (a "Reorganization"). As a Reorganization, subject to the limitations and qualifications referred to herein, the Merger will result in the following federal income tax consequences: (a) No gain or loss will be recognized by holders of Investors Stock solely upon their receipt in the Merger of Citizens Class A Common Stock in exchange therefor (except to the extent of cash received in lieu of a fractional share of Citizens Class A Common Stock). (b) The aggregate tax basis of Citizens Class A Common Stock received by Investors shareholders in the Merger (including any fractional share of Citizens Class A Common Stock not actually received) will be the same as the aggregate tax basis of the Investors Stock surrendered in exchange therefor. (c) The holding period of Citizens Class A Common Stock received by each Investors shareholder in the Merger will include the period for which the Investors Stock surrendered in exchange therefor was considered to be held, provided that the Investors Stock so surrendered is held as a capital asset at the time of the Merger. 27 34 (d) Cash payments received by holders of Investors Stock in lieu of a fractional share will be treated as if such fractional share of Citizens Class A Common Stock had been issued in the Merger and then redeemed by Citizens. An Investors shareholder receiving such cash will recognize gain or loss, upon such payment, measured by the difference (if any) between the amount of cash received and the basis in such fractional share. Provided the fractional share was held as a capital asset at the time of the redemption, such gain or loss will constitute capital gain or loss. Under recently enacted legislation, an individual Investors shareholder generally will be subject to tax on the net amount of his capital gain realized on the redemption at a maximum rate of 20% if the holding period for such share (taking into account the holding period of the Investors stock surrendered) was greater than one year. Special rules (and generally lower maximum rates) apply for individuals whose taxable income is below certain levels. It is possible that the distribution of cash may be treated as a dividend taxable as ordinary income if the Internal Revenue Service (the "IRS") determines that the distribution in redemption is essentially equivalent to a dividend. (e) Cash received by the Investors shareholders who properly exercise their dissenters' rights will be treated as having been received in redemption of the shares so cashed out, and may result in taxable gain or loss, measured by the difference (if any) between the amount of cash received and such shareholder's basis in the Investors Stock. Provided the shares were held as a capital asset at the time of the redemption, such gain or loss will constitute capital gain or loss. Under recently enacted legislation, an individual Investors shareholder generally will be subject to tax on the net amount of his capital gain realized on the redemption at a maximum rate of 20% if the holding period for such shares was greater than one year. Special rules (and generally lower maximum rates) apply for individuals whose taxable income is below certain levels. It is possible that for some shareholders, the distribution of cash may be treated as a dividend taxable as ordinary income. (f) Neither Citizens, Acquisition, nor Investors will recognize material amounts of gain solely as a result of the Merger. After the Merger, utilization of net operating losses or built-in losses, if any, of Investors, Excalibur and Consolidated Marketing Services will be subject to certain limitations contained in Section 382 of the Code. IRC Section 383 will similarly limit the utilization of excess credits, net capital losses, and foreign tax credits, if any. In addition, IRC Section 384 will limit the use of preacquisition losses to offset built-in gains, if any. Investors shareholders should also be aware that the IRS may examine transactions taking place before, contemporaneously with, or after a reorganization to determine whether reorganization treatment is appropriate, or in some cases to determine whether shareholders will be taxed on other economic benefits that are included as part of the overall transaction. Thus, loan transactions between parties, compensation arrangements, noncompete agreements, consulting arrangements and other transactions could be reviewed by the IRS and determined to constitute taxable income to specific parties to the Merger. Gain could also have to be recognized to the extent that an Investors shareholder was treated as receiving (directly or indirectly) consideration other than Citizens Class A Common Stock in exchange for the shareholder's Investors Stock. Furthermore, if the IRS were to establish as to some Investors shareholders that part of Citizens Class A Common Stock received in the Merger is severable from the Merger, resulting in a proportionally increased equity interest being received in the Merger by other Investors shareholders, the Investors shareholders whose equity interests were deemed to be constructively increased by the Merger may be treated as having received a taxable stock dividend. Thus, Investors shareholders should consult with their tax advisors as to the tax consequences to them of the Merger. 28 35 Under Section 3406 of the Code, Investors shareholders may be subject to "backup withholding" at the rate of 31% on "reportable payments", if any, to be received by them if they fail to furnish their correct taxpayer identification numbers to Citizens or for certain other reasons. Citizens will report to these persons and to the IRS for each calendar year the amount of any reportable payments during that year and the amount of tax withheld, if any, with respect to those reportable payments. The parties are not requesting and will not request a ruling from the IRS in connection with the Merger. Citizens and Investors, however, will receive an opinion from counsel for Citizens to the effect that the Merger constitutes a Reorganization (the "Tax Opinion"). Investors shareholders should be aware that the Tax Opinion does not bind the IRS or the courts. The IRS is not precluded from successfully asserting a contrary position. The Tax Opinion will not address the consequences of the Merger on the Investors shareholders under applicable foreign, state or local income tax laws. The Tax Opinion is subject to certain assumptions and qualifications, including but not limited to the truth and accuracy of certain representations made by Citizens and Investors, including representations in certain certificates to be delivered to counsel by the respective managements of Citizens and Investors. One of the requirements for tax-free reorganization treatment is that shareholders of the acquired corporation acquire a substantial and continuing interest in the acquiring corporation, i.e., have "continuity of interest." To satisfy the continuity of interest requirement, Investors shareholders must not dispose of, transfer or be deemed to dispose of or transfer so much of either (i) their Investors Stock in anticipation of the Merger or (ii) Citizens Class A Common Stock to be received in the Merger, to either Investors, Citizens, or an affiliate of either corporation (collectively, "Dispositions"), such that Investors shareholders, as a group, would no longer have a significant equity interest in the Investors business being conducted after the Merger. The Tax Opinion will be based on the assumption that the Investors shareholders will not engage in such Dispositions. No assurance can be made that the "continuity of interest" requirement will be satisfied, and if such requirement is not satisfied, the Merger would not be treated as a reorganization and would be subject to taxation. Although literal compliance with Code Section 368 is a prerequisite to nonrecognition of gain or loss, such compliance does not guarantee the desired result. Regulation Section 1.368-1 describes the purpose of the reorganization provisions as being to exempt from the general rule of taxation, specifically described exchanges incident to such readjustments of corporate structures made in one of the particular ways specified in the Code, as are required by business exigencies and which effect only a readjustment of continuing interests in property under modified corporate forms. A plan of reorganization having no business or corporate purpose will not constitute a qualified reorganization plan. The reasons for the reorganization set forth in "Proposed Merger--Background of and Reasons for the Merger" contained in this Proxy Statement-Prospectus provide several corporate business purposes. Based upon the disclosure contained in this Proxy Statement-Prospectus and on other considerations, Investors and Citizens management believe that valid business purposes exist for the transaction. Considered in conjunction with the business purpose test is the "continuity of business enterprise" requirement. Regulation Section 1.368-1(d)(1) provides the general rule that continuity of business enterprise requires the acquiring corporation (Citizens) to either (i) continue the acquired corporation's historic business or (ii) use a significant portion of 29 36 acquired corporation's historic business assets in a business. The application of this general rule to certain transactions, such as Mergers of holding companies, will depend on all facts and circumstances. The policy underlying the general rule, which is to ensure that reorganizations are limited to adjustments of continuing interests in property under modified corporate forms, provides the guidance necessary to make these facts and circumstances determinations. The historic business of a holding company generally comprises the business operations of its subsidiary. Revenue Ruling 85-197, 1985-2 C.B. 120, states that the continuity of business enterprise requirement is satisfied when a holding company is merged into its wholly owned operating subsidiary, because the historic business of the holding company is the business of its operating subsidiary. Revenue Ruling 81-247, 1981-2 C.B. 87, holds that where a significant portion of an acquired corporation's historical business assets, received by the acquiring corporation, remain with the acquiring corporation, or corporations directly controlled by the acquiring corporation, the continuity of business enterprise rules of Regulation Section 1.368-1(d) will be satisfied. These rulings indicate that the historic business of Investors is the business operated by its subsidiaries Excalibur and Consolidated Marketing Services. Although subject to challenge by the IRS, the continuity of business enterprise requirement should be satisfied because after the Merger, the historic business of Investors will be continued by Excalibur and Consolidated Marketing Services as second tier subsidiaries of Citizens. Pursuant to Section 1.368-3(b) of the Regulations, the shareholders of Investors must file with their income tax returns for the year in which the transaction is consummated, a statement which provides details pertinent to the nonrecognition of gain or loss on the exchange, including the cost or other basis of stock transferred in the exchange, the amount of stock received and liabilities, if any, assumed in the exchange. A successful IRS challenge to the reorganization status of the Merger (as a result of a failure of the "continuity of interest" requirement or otherwise) would result in Investors shareholders recognizing taxable gain or loss with respect to each share of Investors Stock surrendered equal to the difference between the shareholder's basis in such share and the fair market value, as of the Effective Time of the Merger, of Citizens Class A Common Stock received in exchange therefor. In such event, a shareholder's aggregate basis in Citizens Class A Common Stock so received would equal its fair market value, and the shareholder's holding period for such stock would begin the day after the Merger. 30 37 RIGHTS OF DISSENTING SHAREHOLDERS The following summary of dissenters' rights available to Investors shareholders identifies and discusses all of the material information necessary to perfect dissenters' rights. However, this summary is not intended to be a complete statement of applicable Illinois law and is qualified in its entirety by reference to Article XI, Sections 5/11.65 and 5/11.70, of the Illinois Business Corporation Act of 1983 (the "Act"), set forth in their entirety as Appendix B. CITIZENS HAS CONDITIONED THE MERGER ON, SUBJECT TO ITS RIGHT TO WAIVE, AND HAS RESERVED THE RIGHT TO ABANDON THE MERGER AGREEMENT IN THE EVENT THAT HOLDERS OF GREATER THAN 2.5% OF THE OUTSTANDING SHARES OF INVESTORS DISSENT FROM THE MERGER AND SEEK PAYMENT FOR THEIR SHARES IN ACCORDANCE WITH THE ACT. Right to Dissent. Shareholders of Investors are entitled to dissent and obtain payment of the fair value of their shares. A shareholder entitled to dissent and obtain payment for his or her shares under Article XI of the Act may not challenge the corporate action creating his or her entitlement unless the action is fraudulent with respect to the shareholder or the corporation or constitutes a breach of a fiduciary duty owed to the shareholder. Under Section 5/11.65(c) of the Act, a record owner of shares may assert dissenters' rights as to fewer than all the shares recorded in such person's name only if such person dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf the record owner asserts dissenters' rights. The rights of a partial dissenter are determined as if the shares as to which dissent is made and the other shares are recorded in the names of different shareholders. A beneficial owner of shares who is not the record owner may assert dissenters' rights as to shares held on such person's behalf only if the beneficial owner submits to the corporation the record owner's written consent to the dissent before or at the time the beneficial owner asserts dissenters' rights. 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 XI, Sections 5/11.65 and 5/11.70 of the Act. To briefly summarize, subject to certain other requirements, the shareholder must, before the vote is taken at the Meeting, demand in writing payment for the shares and must not vote in favor of the Merger. If the corporate action is approved, the corporation must within a certain time notify the shareholder in writing of its estimate of the fair value, and must provide other materials as well. The shareholder then has 30 days to demand, in writing, the shareholder's estimate of the fair value and interest due. Upon consummation of the Merger, the respective corporation must pay each dissenter its estimate of the fair value and interest due. If the corporation and shareholder cannot agree upon a fair value, the corporation must, within a specified time, either pay the difference between its estimate of fair value and the shareholder's demand, plus interest, or file suit for a court determination of fair value. The shareholder may also bring suit as permitted by law. FULL AND EXACT COMPLIANCE WITH THE STATUTORY REQUIREMENTS IS ESSENTIAL FOR A SHAREHOLDER TO SUCCESSFULLY EXERCISE DISSENTERS' RIGHTS. SHAREHOLDERS ARE URGED TO READ AND UNDERSTAND THE DISCUSSION BELOW AND THE STATUTORY PROVISIONS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT-PROSPECTUS. 31 38 The Notices accompanying this Proxy Statement-Prospectus state that shareholders of Investors are entitled to assert Dissenters' Rights under Article XI, Sections 5/11.65 and 5/11.70, of the Act. A shareholder may assert Dissenters' Rights only if the shareholder delivers to the corporation before the vote is taken a written demand for payment for his or her shares and the shareholder does not vote in favor of the Merger Agreement. A SHAREHOLDER WHO DOES NOT SATISFY THE FOREGOING REQUIREMENTS SHALL NOT BE ENTITLED TO DEMAND PAYMENT OF HIS OR HER SHARES UNDER ARTICLE XI, SECTIONS 5/11.65 AND 5/11.70, OF THE ACT. Under Section 5/11.70 of the Act, within 10 days after the date the corporate action giving rise to the dissent becomes effective or 30 days after the shareholder delivers to Investors the written demand for payment, whichever is later, Investors shall send each shareholder who has delivered a written demand for payment a statement setting forth the opinion of Investors as to as to the estimated fair value of the shares, the corporation's latest balance sheet as of the last fiscal year, together with statements of income for that year and the latest available interim financial statements, and a commitment to pay for the shares of the dissenting shareholder at the estimated fair value thereof upon transmittal to Investors of the certificates of the shares. A shareholder who makes written demand for payment under this Section retains all of the rights of a shareholder until those rights are canceled or modified by consummation of the Merger. Upon consummation of the Merger, Investors shall pay to each dissenter who transmits to the corporation the certificates for the shares the amount Investors estimates to be the fair value of the shares, plus accrued interest, accompanied by a written explanation of how the interest was calculated. If the dissenting shareholder does not agree with the opinion of Investors as to the estimated fair value of the shares or the amount of interest due, the shareholder must notify the corporation in writing, within 30 days from the delivery of the statement of value, the shareholder's estimated fair value and amount of interest due and demand payment for the difference between the shareholder's estimate of fair value and interest and the amount of payment by the Corporation. A DISSENTER WAIVES THE RIGHT TO DEMAND PAYMENT UNDER THIS PARAGRAPH UNLESS HE OR SHE CAUSES INVESTORS TO RECEIVE THE NOTICE REQUIRED WITHIN 30 DAYS AFTER INVESTORS MADE OR OFFERED PAYMENT FOR THE SHARES OF THE DISSENTERS. Judicial Appraisal of Shares. If, within 60 days from delivery to Investors of the shareholder notification of estimated fair value of the shares and interest due, Investors and the dissenting shareholder have not agreed in writing upon the fair value of the shares and interest due, Investors shall either pay the difference in value demanded by the shareholder with interest, or file a petition in the circuit court of Sangaman County (the county in which the registered office and the principal office of Investors is located), requesting the court to determine the fair value of the shares and interest due. Investors shall make all dissenters, whether or not residents of Illinois, whose demands remain unsettled, parties to the proceeding as an action against their shares and all parties shall be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law. Failure of Investors to commence an action pursuant to this section shall not limit or affect the right of the dissenting shareholders to otherwise commence an action as permitted by law. The jurisdiction of the court in which the proceeding is commenced under this section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on a question of fair value. The appraisers shall have the power described in the order appointing them. 32 39 Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds that the fair value of his or her shares, plus interest, exceeds the amount paid by Investors. The court shall determine all costs of the proceeding, including the reasonable compensation and expenses of the appraisers, if any, appointed by the court but shall exclude the fees and expenses of counsel and experts for the respective parties. If the fair value of the shares as determined by the court materially exceeds the amount which Investors estimated to be the fair value of the shares, then all or any part of the costs may be assessed against Investors. If the amount which any dissenter estimates to be the fair value of the shares materially exceeds the fair value of the shares as determined by the court, then all or any part of the costs may be assessed against the dissenter. The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable, as follows: 1. Against Investors and in favor of any and all dissenters if the court finds that Investors did not substantially comply with the requirements of Section 5/11.70 of the Act. 2. Against either Investors or a dissenter and in favor of any other party if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by Section 5/11.70 of the Act. If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated and that the fees for those services should not be assessed against Investors, the court may award to that counsel reasonable fees to be paid out of the amount awarded to the dissenters who are benefitted. Except as otherwise provided in this Section 5/11.70 of the act, the practice, procedure, judgment and costs are governed by the Illinois Code of Civil Procedure. "Fair value" is defined as the value of the shares immediately before the consummation of the Merger, excluding any appreciation or depreciation in anticipation of the proposed transactions, unless exclusion would be inequitable. "Interest" means interest from the Effective Date of the Merger until the date of payment, at the average rate currently paid by Investors on their principal bank loans, or if none, at a rate that is fair and equitable under all circumstances. 33 40 INFORMATION CONCERNING INVESTORS INVESTORS AND ITS SUBSIDIARIES Investors, incorporated in 1990, is a holding company managing and operating Excalibur Insurance Corporation ("Excalibur"), an Illinois life insurance company, incorporated June 27, 1996, and Consolidated marketing Services ("CMS"), an insurance agency, incorporated November 7, 1990. CMS was incorporated as an agency for the purpose of offering insurance products to be sold by independent producers, thereby producing commission income. Excalibur received a Permit from the Illinois Department of Insurance on June 27, 1996. Excalibur was then authorized and permitted to sell 1,180,000 of its Common Shares to Investors at a price of $2.00 per Common Share so that Excalibur would qualify to receive a Certificate of Authority to transact an insurance business in Illinois. A Certificate of Authority was issued by the Illinois Department of Insurance to Excalibur on August 7, 1996. Excalibur represents the major asset of Investors as follows:
Original No. of % of Voting Description Invested Cost Shares Securities Owned - ---------- ------------- ------ ---------------- Excalibur Insurance Corporation Common Stock $2,372,507 1,180,000 100%
After receiving a Certificate of Authority, and until the first Excalibur policy was issued in April of 1997, Excalibur was principally engaged in obtaining the regulatory approvals to sell certain insurance policies in Illinois and preparing sales material to be used in connection with offering such products for sale. Other than interest income from general investments, Investors has no source of revenue or income independent from its subsidiaries; therefore, it must rely primarily upon its operating subsidiaries. To date, Excalibur nor CMS have paid dividends to Investors. Investors and its subsidiaries, as of December 31, 1997, had in its employment three clerical personnel and two full-time salaried officers. In addition, commissioned agents were licensed for life and health insurance sales. The Illinois statutory deposit law requires Excalibur to maintain a trust deposit of US Government obligations with a market value of $1,500,000. At the end of 1997, the fair market value exceeded the required deposit. Over 95% of these obligations have maturities of less than five years. 34 41 The following tables in this section reflect information as to the life insurance business of Excalibur as of December 31, 1997. The presentation of Investors' consolidated operations and admitted assets is according to generally accepted accounting principles. As of December 31, 1997 New business (face amount) paid: Ordinary whole life $2,378,398 Ordinary term life 100,000 ---------- Total $2,478,398 ========== Life insurance in force: Ordinary whole life $2,270,698 Ordinary term life 100,000 ---------- Total $2,270,698 ========== Policy lapse (termination) ratio 8.38% Premium Income: First year $ 33,214 Single -- Renewal -- ---------- Total $ 33,214 ========== Net gain $ 7,856 ========== Total assets $2,626,107 ==========
All business of Investors is conducted through its two subsidiaries, Excalibur and CMS. CMS has a non-exclusive Agency contract with Excalibur to secure, train and supervise life insurance agents to sell policies of Excalibur. CMS' efforts to recruit agents have been curtailed in 1998 due to the adoption of the NAIC model illustration regulation by the Illinois Department of Insurance. Due to this regulation, it was determined that Excalibur would not continue to offer its participating whole life insurance policy. Excalibur developed and secured approval of a new product to market which is exempt from the illustration regulation. Additional training of agents was necessary, in addition to the development of sales and marketing materials. CMS and Excalibur have no salaried personnel, but reimburse Investors for the use of Investors' personnel through a service agreement. Investors owns six Gateway computers, printers, two copiers and miscellaneous office equipment which is used by Investors and its subsidiaries. PROPERTIES Investors and its two subsidiaries share an office building located at 1709 South Fifth Street, Springfield, Illinois. The lease for these offices is in the name of Investors. Investors and its subsidiaries each pay a portion of the total monthly rental of $1,875 for approximately 3,600 square feet of space. The space occupied by Excalibur was furnished with office furniture. 35 42 LEGAL PROCEEDINGS Investors is unaware of any pending litigation to which it or any of its subsidiaries are parties or to which any of their property is subject. MARKET FOR INVESTORS COMMON STOCK AND RELATED SECURITYHOLDER MATTERS Investors Preferred Stock is not listed or actively traded through security brokerage firms, and there is no over-the-counter trading activity. There have been no dividends paid since the inception of Investors. Approximate Number of Equity Securityholders
Title of Class Number of Record Holders -------------- ------------------------ Common Stock, $.01 par value 1,830 Preferred Stock, $.50 par value 1,821
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Investors has had no disagreements with its certified public accountants regarding accounting and financial matters required to be disclosed herein during the past two fiscal years. 36 43 COMPARISON OF RIGHTS OF SECURITYHOLDERS Upon consummation of the Merger, the holders of issued and outstanding Investors Common and Preferred Stock will receive Citizens Class A Common Stock. The rights of the holders of Citizens shares are governed by Citizens' Articles of Incorporation, its bylaws and Colorado law, while the rights of holders of Investors shares are governed by the Investors' Articles of Incorporation, its bylaws and Illinois law. In most respects, the rights of holders of Citizens Class A Common Stock and holders of Investors Common and Preferred Stock, and Citizens Class A Common Stock. AUTHORIZED SHARES The aggregate number of shares which Citizens is authorized to issue is 50,000,000 shares of Class A Common Stock with no par value and 1,000,000 shares of Class B Common Stock with no par value; of which 20,765,088 shares of such Class A Common Stock and 621,049 shares of Class B Common Stock are issued and outstanding, fully paid and non-assessable. The aggregate number of shares which Investors is authorized to issue is 40,000,000 shares of Common Stock with a par value of $.01 per share, and 40,000,000 shares of Preferred Stock with a par value of $.50 per share, of which 2,038,820 shares of such Investors Common Stock and 2,038,820 shares of Preferred Stock are issued and outstanding, fully paid and non-assessable. The foregoing numbers do not include treasury shares. DIVIDEND RIGHTS The cash dividends paid upon each share of Citizens Class A Common Stock is twice the cash dividends paid on each share of Citizens Class B Common Stock. The Investors Common shareholders are not entitled to any cash dividends unless and until Investors Preferred shareholders have received a total of $2.00 per share in dividends. Since the incorporation of Investors, no dividends have been paid to Investors shareholders. At such time, if any, Investors Preferred shareholders were to receive dividends totaling $2.00 per share, Preferred and Common shareholders would thereafter share equally on a share-for-share basis in any further dividends. VOTING RIGHTS Those who hold Investors Common and Preferred Stock on the date the Merger becomes effective will be entitled as a group to hold approximately 611,000 shares of Citizens Class A Common Stock, or approximately 2.9% of Citizens Class A shares that Citizens anticipates will then be outstanding. The voting rights of Citizens Class A Common Stock and Class B Common Stock are equal in all respects except that the holders of Class B Common 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 Common Stock have the exclusive right to elect the remaining directors. The holders of Citizens Common Stock do not have cumulative voting rights in the election of directors. 37 44 Each outstanding share of Investors Stock, whether Common or Preferred, is entitled to one vote upon each matter submitted to a vote of the shareholders. The Investors Common and Preferred shareholders do not 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 corporation Code (now superseded by 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. The Articles of Incorporation of Investors require the affirmative vote of a majority of the outstanding preferred shares and common shares to approve the same transactions. With respect to the Merger, the approval of a majority of the Investors shares entitled to vote is required. Each share of Investors Common and Preferred Stock is entitled to one vote, with respect to the Merger. The bylaws of Investors provide that the power to alter, amend, or repeal its bylaws or to adopt new bylaws is vested in the shareholders or 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 Investors shareholders may be called by Investors' President, its Board of Directors, or by the holders of not less than one-fifth of all outstanding shares of stock. Special meetings of Citizens' shareholders may be called by the Chairman of the Board, by the Board of Directors, or by the holders of 10% or more of all Citizens' shares entitled to vote. A majority of the shares of stock entitled to vote constitutes a quorum under the bylaws of Investors. The bylaws of Citizens provide that one-third 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 both Citizens and Investors provide that the shareholders may take action without a meeting. In Citizens' case, all shareholders entitled to vote must consent to the action in writing; in Investors' case, the written consent may be adopted by the shareholders having the minimum number of votes necessary to authorize such action at a meeting. PREEMPTIVE RIGHTS Authorized Investors 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 Boards of Directors of the respective corporations. No holder of Citizens or Investors shares has any pre-emptive or preferential right to purchase or to subscribe for any shares of capital stock or other securities which may be issued by Citizens or Investors. 38 45 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 this provision is limited by law. There is no such provision in the Articles of Incorporation of Investors; however, Investors' bylaws contain a provision. LIQUIDATION RIGHTS In the event of any liquidation, dissolution or winding up of Citizens, whether voluntary or involuntary, the holders of Citizens 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 voluntary or involuntary liquidation of Investors, the holders of Common Stock are not entitled to distributions of assets until the Preferred shareholders have received a distribution of assets valued at $2.00 per Preferred share. Thereafter, both Preferred and Common Stock classes are entitled to share equally and ratably on a share-for-share basis in all further distributions of assets. ASSESSMENT AND REDEMPTION Citizens shares to be issued upon consummation of the Merger will be fully paid and nonassessable. Investors shares are deemed to be fully paid and nonassessable. Neither Citizens' nor Investors' shares of stock of any class are subject to redemption, conversion nor further assessment. TRANSFER AGENT The transfer agent for Investors shares is Investors. The transfer agent for Citizens shares is American Stock Transfer and Trust Company, New York, New York. EXPERTS The consolidated financial statements included in this Proxy Statement-Prospectus of Investors as of December 31, 1997 and 1996 and for each of the years in the two-year period ended December 31, 1997, have been audited by Kerber, Eck & Braeckel, LLP, independent public accountants, as stated in their report appearing herein and have been so included in reliance upon such report given upon the authority of that firm as experts in accounting and auditing. The firm of Sikich Gardner & Co, LLP, independent public accountants, audited the consolidated financial statements of Investors as of December 31, 1995 and for the fiscal year ended December 31, 1995, as stated in their report included herein, and has been so included in reliance upon such report given upon the authority of that firm as experts in accounting and auditing. The consolidated financial statements of Citizens, Inc. and subsidiaries as of December 31, 1997 and 1996, and for each of the years in the three year period ended December 31, 1997, are incorporated herein by reference to Citizens, Inc.'s Annual Report on Form 10-K for the Year Ended December 31, 1997 and are so included herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing in such Annual Report on Form 10-K and upon the authority of such firm as experts in accounting and auditing. 39 46 LEGAL MATTERS The legality under Colorado law of Citizens Class A Common Stock to be issued pursuant to the Merger will be passed upon by Jones & Keller, P.C., Denver, Colorado. Jones & Keller, P.C. has also given the tax opinion referred to under "Certain Federal Income Tax Consequences." OTHER MATTERS The Investors' Board does not intend to bring any matters before the Meeting other than those specifically set forth in the notice of the Meeting accompanying this Proxy Statement-Prospectus and it does not know of any matters to be brought before the Meeting by others. If any other matters properly come before the Meeting, it is the intention of the persons named in the accompanying proxies to vote such proxies in accordance with the judgment of the Board. 40 47 FINANCIAL STATEMENTS FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Independent Auditors' Report F-3 Consolidated Balance Sheets - December 31, 1997 and 1996 F-4 Consolidated Statements of Operations - Years ended December 31, 1997 and 1996 F-5 Consolidated Statements of Changes in Stockholders' Equity - Years ended December 31, 1997 and 1996 F-6 Consolidated Statements of Cash Flows - Years ended December 31, 1997 and 1996 F-7 Notes to Consolidated Financial Statements F-8 Independent Auditors' Report F-13 Independent Auditors' Report F-14 Consolidated Balance Sheets - December 31, 1996 and 1995 F-15 Consolidated Statements of Earnings - Years ended December 31, 1996 and 1995, and for the period from January 26, 1990 (date of incorporation) through December 31, 1996 F-16 Consolidated Statements of Changes in Stockholder's Equity - Years ended December 31, 1996 and 1995, and for the period from January 26, 1990 (date of incorporation) through December 31, 1996 F-17 Consolidated Statements of Cash Flows - Years ended December 31, 1996 and 1995, and for the period from January 26, 1990 (date of incorporation) through December 31, 1996 F-18
F-1 48 Notes to Consolidated Financial Statements F-19 Financial Statements for Six Months Ended June 30, 1998 and 1997 F-23 Consolidated Balance Sheet--June 30, 1998 (unaudited) F-24 Consolidated Statements of Operations--June 30, 1998 and 1997 (unaudited) F-25 Consolidated Statements of Cash Flows--June 30, 1998 and 1997 F-26 Notes to Consolidated Financial Statements (unaudited) F-27
F-2 49 [KERBER, ECK & BRAECKEL LLP LETTERHEAD] Independent Auditors' Report Board of Directors and Stockholders First Investors Group, Inc. We have audited the accompanying consolidated balance sheet of First Investors Group, Inc. (an Illinois corporation) and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years 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 audits. 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 financial position of First Investors Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ Kerber, Eck & Braeckel LLP Springfield, Illinois April 14, 1998 F-3 50 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31 -------------------------- 1997 1996 ---------- ---------- ASSETS Investments Fixed maturities at amortized cost $2,724,724 $2,289,011 Short-term investments 97,822 191,428 Cash 370,596 623,505 Accounts receivable 357 -- Accrued interest receivable 30,006 33,379 Prepaid expense 8,482 947 Deferred policy acquisition costs 41,078 -- Equipment and furniture, net of accumulated depreciation of $32,474 in 1997 and $23,522 in 1996 14,725 19,072 ---------- ---------- Total assets $3,287,790 $3,157,342 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Reserves for life policies $ 13,859 $ -- Accounts payable 1,495 330 Commissions payable -- 39,542 Accrued payroll taxes -- 2,920 ---------- ---------- Total liabilities 15,354 42,792 Stockholders' equity Preferred stock - $.50 par value; authorized, 40,000,000 shares; issued and outstanding; 2,038,820 in 1997 and 1,954,320 in 1996 1,019,410 977,160 Common stock - $.01 par value; authorized, 40,000,000 shares; issued and outstanding; 1,976,352 in 1997 and 1,791,092 in 1996 19,764 17,911 Additional paid-in capital 2,142,866 2,021,369 Retained earnings 90,396 98,110 ---------- ---------- Total stockholders' equity 3,272,436 3,114,550 ---------- ---------- Total liabilities and stockholders' equity $3,287,790 $3,157,342 ========== ==========
The accompanying notes are an integral part of these statements. F-4 51 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31 ------------------------- 1997 1996 --------- --------- Revenue Premium income $ 33,214 $ -- Interest income 170,651 162,079 Commission income 79,021 30,031 Miscellaneous income 632 9,695 --------- --------- Total revenue 283,518 201,805 Expenses Increase in life reserves 13,620 -- Commission expense 66,043 14,801 Salaries expense 90,514 40,108 Increase in deferred acquisition costs (41,078) -- General and administrative 167,135 88,702 --------- --------- Total expenses 296,234 143,611 --------- --------- Earnings (loss) before income taxes (12,716) 58,194 Income taxes (5,002) 4,505 --------- --------- NET EARNINGS (LOSS) $ (7,714) $ 53,689 ========= ========= preferred share $ (.00406) $ .03704 ========= =========
The accompanying notes are an integral part of these statements. F-5 52 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Years ended December 31, 1997 and 1996
Additional Preferred Common Paid-In Retained Stock Stock Capital Earnings ----------- ----------- ----------- ----------- Balance at December 31, 1995 $ 877,860 $ 13,023 $ 1,752,152 $ 44,421 Issue of preferred and common stock 99,300 4,888 496,500 -- Less offering expenses -- -- (227,283) -- Net earnings -- -- -- 53,689 ----------- ----------- ----------- ----------- Balance at December 31, 1996 977,160 17,911 2,021,369 98,110 Issue of preferred and common stock 42,250 86 211,250 -- Stock sales to promoters -- 1,767 -- -- Less offering expenses -- -- (89,753) -- Net loss -- -- -- (7,714) ----------- ----------- ----------- ----------- Balance at December 31, 1997 $ 1,019,410 $ 19,764 $ 2,142,866 $ 90,396 =========== =========== =========== ===========
The accompanying notes are an integral part of these statements. F-6 53 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 ----------------------------- 1997 1996 ----------- ----------- Increase (decrease) in cash Cash flows from operating activities Net earnings (loss) $ (7,714) $ 53,689 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities Depreciation 8,952 4,900 Change in assets and liabilities (Increase) decrease in accounts and accrued interest receivable 3,016 (7,942) (Increase) decrease in prepaid expense (7,535) 116 (Increase) decrease in deferred policy acquisition costs (41,078) -- Decrease in accounts payable and accrued liabilities (27,438) (30,356) ----------- ----------- Net cash provided by (used in) operating activities (71,797) 20,407 Cash flows from investing activities Additions to property, plant and equipment (4,605) (14,798) Purchase of certificates of deposit (825,122) (1,156,052) Redemption of certificates of deposit 461,053 958,000 Investment in government obligations (628,037) (1,156,903) Redemption of government obligations 650,000 1,155,000 ----------- ----------- Net cash used in investing activities (346,711) (214,753) Cash flows from financing activities Proceeds from sale of common and preferred stock 253,586 600,688 Proceeds from stock sales to promoters 1,766 -- Payments on offering expenses (89,753) (227,283) ----------- ----------- Net cash provided by financing activities 165,599 373,405 ----------- ----------- Net increase (decrease) in cash (252,909) 179,059 Cash at beginning of year 623,505 444,446 ----------- ----------- Cash at end of year $ 370,596 $ 623,505 =========== =========== Cash paid for income taxes $ 3,493 $ 15,021 =========== ===========
The accompanying notes are an integral part of these statements. F-7 54 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1997 and 1996 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: 1. Nature of Operations First Investors Group, Inc. (the Company) was incorporated under the laws of the State of Illinois on January 26, 1990. Initial stock sales were in excess of $120,300 thus allowing for incorporation under the terms of the pre-incorporation offering. Subsequent to incorporation, the Company has engaged in raising additional funds through the sale of its securities to pursue one of its desired objectives of organizing an Illinois life insurance company. The life insurance company was organized on June 27, 1996, and began selling life insurance on April 2, 1997. The Company's primary revenue sources are premiums from life insurance sales, investment income related to the assets invested from the sale of its securities and commission income generated through its wholly owned insurance agency. The Company has formed and invested in two wholly-owned subsidiaries. Consolidated Marketing Services, Inc. (CMS) was incorporated November 7, 1990, and operates as an insurance agency and Excalibur Insurance Corporation (Excalibur). Excalibur was formed with an initial capital contribution of $2,372,507, which represented the book value of the assets transferred from the Company to Excalibur. Excalibur is a life insurance company domiciled and licensed to transact business in the State of Illinois. 2. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Consolidated Marketing Services, Inc. and Excalibur Insurance Corporation. All material intercompany transactions have been eliminated. 3. Basis of Presentation The financial statements of First Investor Group, Inc.'s life insurance subsidiary have been prepared in accordance with generally accepted accounting principles which differ from statutory accounting practices permitted by insurance regulatory authorities. 4. Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. 5. Investments Fixed maturities are carried at cost, adjusted for amortization of premium or discount and other than temporary declines. The amortized cost of such investments may differ from their market values; however, the Company has the ability and intent to hold these investments to maturity. Short-term investments are carried at cost, which approximates market value. F-8 55 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - continued December 31, 1997 and 1996 6. Recognition of Revenues and Related Expenses Premiums for traditional life insurance products consist principally of whole life and yearly renewable term are recognized as revenues when due. Benefits and related expenses associated with the premiums earned are charged to expense proportionately over the lives of the policies through a provision for reserves for life policies and through deferral and amortization of deferred policy acquisition costs. 7. Deferred Policy Acquisition Costs Commissions and other costs of acquiring life insurance products that vary with and are primarily related to the production of new business have been deferred. Traditional life insurance acquisition costs are being amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing policy benefit reserves. Deferred acquisition costs for each product are reviewed to determine if they are recoverable from future income, including investment income. If such costs are determined to be unrecoverable they are expensed at the time of determination. The following represents the amount of policy acquisition expenses deferred for the year ended December 31:
1997 1996 ------- -------- Balance at beginning of year $ -- $ -- Acquisition costs deferred 41,078 -- Amortized to expense during year -- -- ------- -------- Balance at end of year $41,078 $ -- ======= ========
8. Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the modified accelerated cost recovery method. Estimated useful lives range from 5 to 7 years. 9. Reserves for Life Policies Reserves for life policies account for future policy benefits for life insurance. Such liabilities are established in amounts adequate to meet the estimated future obligations of policies in force. The liabilities associated with traditional life insurance products are based upon estimates as to future investment yield, mortality and withdrawals that include provisions for adverse deviations. Future policy benefits for individual life insurance are computed using an interest rate of 4.5%. Mortality, morbidity and withdrawal assumptions for all policies are based on industry standards. F-9 56 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - continued December 31, 1997 and 1996 10. Income Taxes The Company accounts for income taxes on the liability method, as provided by Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. At December 31, 1997 and 1996, the Company has no significant temporary or permanent differences between its basis for taxation and generally accepted accounting principles; therefore, the consolidated statements of earnings bears a normal relationship to pre-tax income and the provision for income taxes on the consolidated statements of earnings consists of amounts currently due based on reported income and expenses. 11. Earnings Per Share Earnings per share computations are based on the weighted average number of preferred shares outstanding during the period. 12. Offering Expenses The expenses and direct costs of the capital stock offerings have been recorded as a reduction of additional paid-in capital. 13. Cash Equivalents The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. At December 31, 1997 and 1996, the Company held no cash equivalents. 14. Certain Reclassifications Certain reclassifications have been made to conform to the 1997 presentation. Such reclassifications had no effect on previously reported earnings, total assets, or shareholder's equity. NOTE B - INVESTMENTS Investments consisted of U.S. Treasury Notes, Special Revenue Bonds, and Certificates of Deposit. Below is a summary of the carrying value and market value of the Company's investments.
December 31, 1997 December 31, 1996 -------------------------- ------------------------- Carrying Market Carrying Market Value Value Value Value ---------- ---------- ---------- ---------- Fixed maturities (1-5 years) U.S. Treasury Notes $1,199,913 $1,200,000 $1,624,387 $1,618,750 Special Revenue Bonds 402,512 402,512 -- -- Certificates of Deposit 1,122,300 1,122,300 664,624 664,624 ---------- ---------- ---------- ---------- $2,724,725 $2,724,812 $2,289,011 $2,283,374 ========== ========== ========== ========== Short-term investments Certificates of deposit $ 97,821 $ 97,821 $ 191,428 $ 191,428 ========== ========== ========== ==========
F-10 57 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - continued December 31, 1997 and 1996 NOTE C - CAPITAL STOCK The common shares are not entitled to any dividends until such time, if ever, as the Company has paid dividends which total $2.00 per preferred share (in cash or property) to the holders of its initial preferred shares. Thereafter, the common shares have the same dividend rights per share as the holders of the preferred shares. The common shares have no rights upon liquidation until the holders of the preferred shares receive at least $2.00 per preferred share (cash or property) out of assets available for distribution. Thereafter, the common shares have the same liquidation rights per share as the holders of the preferred shares. The preferred and common shares have no conversion rights. Both the preferred and common shares are entitled to vote on general matters submitted to the vote of the shareholders and in all elections for directors. NOTE D - RELATED PARTY TRANSACTIONS The following expenses have been paid directly to certain officers of the Company.
Year Ended Year Ended December 31, December 31, 1997 1996 ------- ------- Office rent paid to shareholders $22,500 $20,925 ======= =======
In addition, at December 31, 1997 and 1996, $ 0 and $ 39,542 was owed to related parties for commissions. NOTE E - REINSURANCE In the normal course of business, the Company seeks to reduce the loss that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers. Reinsurance contracts do not relieve the Company of its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company's maximum retention is $22,499. Policies with face amounts $22,500 or greater are reinsured. The Company retains $17,500 and cedes the remainder. NOTE F - SHAREHOLDER DIVIDEND RESTRICTION The payment of cash dividends to shareholders is not legally restricted. However, insurance company dividend payments are regulated by the state insurance department where the company is domiciled. The Company is the ultimate parent of Excalibur. Illinois domiciled insurance companies require 30 days notice of the payment of dividends if the dividends exceed the greater of (a) prior year statutory earnings or (b) 10% of the insurance company's surplus at December 31 of the prior year. At December 31, 1997, Excalibur had a statutory loss of $22,436 and statutory surplus of $1,399,160. F-11 58 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - continued December 31, 1997 and 1996 NOTE G - STATUTORY EQUITY AND GAIN FROM OPERATIONS The Company's insurance subsidiary is domiciled in Illinois and prepares its statutory based financial statements in accordance with accounting practices prescribed or permitted by the Illinois Insurance Department. These principles differ significantly from generally accepted accounting principles. "Prescribed" statutory accounting practices include state laws, regulations, and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners (NAIC). "Permitted" statutory accounting practices encompass all accounting practices that are not prescribed; such practices may differ from state to state, from company to company within a state, and may change in the future. The NAIC currently is in the process of codifying statutory accounting practices, the result of which is expected to constitute the only source of "prescribed" statutory accounting practices. Accordingly, that project, which has not yet been completed, will likely change prescribed statutory accounting practices and may result in changes to the accounting practices that insurance enterprises use to prepare their statutory financial statements. Excalibur's total statutory shareholders' equity was $2,579,160 and $2,381,596 at December 31, 1997 and 1996, respectively. Excalibur had a reported statutory loss of $22,436 for 1997 and a statutory gain of $21,596 in 1996. F-12 59 [KERBER, ECK & BRAECKEL LLP LETTERHEAD] Independent Auditors' Report Board of Directors and Stockholders First Investors Group, Inc. We have audited the accompanying consolidated balance sheet of First Investors Group, Inc. (an Illinois corporation) and subsidiaries (a development stage enterprise) as of December 31, 1996, and the related consolidated statements of earnings, changes in stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated financial statements of First Investors Group, Inc. from inception (January 20, 1990) through December 31, 1995, were audited by other auditors whose report dated February 5, 1996, 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the December 31, 1996, consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Investors Group, Inc. and subsidiaries as of December 31, 1996, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ Kerber, Eck & Braeckel LLP Springfield, Illinois February 28, 1997 F-13 60 [SIKICH GARDNER & CO, LLP LETTERHEAD] Independent Auditors' Report To the Board of Directors and Stockholders of First Investors Group, Inc. We have audited the accompanying consolidated balance sheet of First Investors Group, Inc. and Subsidiary (a development stage enterprise) as of December 31, 1995, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 financial position of First Investors Group, Inc. and Subsidiary as of December 31, 1995, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ Sikich Gardner & Co, LLP Springfield, Illinois February 5, 1996 F-14 61 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES (A development stage enterprise) CONSOLIDATED BALANCE SHEETS
December 31 -------------------------- 1996 1995 ---------- ---------- ASSETS Investments Fixed maturities at amortized cost $2,289,011 $1,148,623 Short-term investments 191,428 1,131,861 Cash 623,505 444,446 Accrued interest receivable 33,379 25,437 Prepaid expense 947 1,063 Equipment and furniture, net of accumulated depreciation of $23,522 in 1996 and $18,622 in 1995 19,072 9,174 ---------- ---------- Total assets $3,157,342 $2,760,604 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 330 $ 39,860 Commissions payable 39,542 21,813 Accrued payroll taxes 2,920 1,213 Income taxes payable -- 10,262 ---------- ---------- Total liabilities 42,792 73,148 Stockholders' equity Preferred stock - $.50 par value; authorized, 40,000,000 shares; issued and outstanding; 1,954,320 in 1996 and 1,755,720 in 1995 977,160 877,860 Common stock - $.01 par value; authorized, 40,000,000 shares; issued and outstanding; 1,791,092 in 1996 and 1,302,284 in 1995 17,911 13,023 Additional paid-in capital 2,021,369 1,752,152 ---------- ---------- 3,016,440 2,643,035 Earnings accumulated during developmental stage 98,110 44,421 ---------- ---------- Total stockholders' equity 3,114,550 2,687,456 Total liabilities and stockholders' equity $3,157,342 $2,760,604 ========== ==========
The accompanying notes are an integral part of these statements. F-15 62 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES (A development stage enterprise) CONSOLIDATED STATEMENTS OF EARNINGS Years ended December 31, 1996 and 1995 and for the period from January 26, 1990 (Date of Incorporation) through December 31, 1996
January 26, Year Ended Year Ended 1990 Through December 31, December 31, December 31, 1996 1995 1996 ------------- ------------ ------------ Revenue Interest income $162,079 $120,062 $457,346 Commission income 30,031 12,321 89,356 Miscellaneous income 9,695 1,656 11,971 -------- -------- -------- Total revenue 201,805 134,039 558,673 Expenses General and administrative 143,611 80,552 445,542 -------- -------- -------- Earnings before income taxes 58,194 53,487 113,131 Income taxes Current 4,505 10,262 15,021 -------- -------- -------- NET EARNINGS $ 53,689 $ 43,225 $ 98,110 ======== ======== ======== Net earnings per preferred share $ .03 $ .03 ======== ========
The accompanying notes are an integral part of these statements. F-16 63 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES (A development stage enterprise) CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Years ended December 31, 1996 and 1995 and for the period from January 26, 1990 (Date of Incorporation) through December 31, 1996
Additional Preferred Common Paid-In Retained Stock Stock Capital Earnings ----------- ----------- ----------- ----------- Balance at December 31, 1994 $ 693,760 $ 11,676 $ 1,337,369 $ 1,196 Issue of preferred and common stock 184,100 1,347 661,801 -- Less offering expenses -- -- (247,018) -- Net earnings -- -- -- 43,225 ----------- ----------- ----------- ----------- Balance at December 31, 1995 877,860 13,023 1,752,152 44,421 Issue of preferred and common stock 99,300 4,888 496,500 -- Less offering expenses -- -- (227,283) -- Net earnings -- -- -- 53,689 ----------- ----------- ----------- ----------- Balance at December 31, 1996 $ 977,160 $ 17,911 $ 2,021,369 $ 98,110 =========== =========== =========== =========== Balance at January 26, 1990 $ -- $ -- $ -- $ -- Issue of preferred and common stock 978,410 17,914 3,243,331 -- Less offering expenses -- -- (1,218,212) -- Purchase of common and preferred stock for treasury (1,250) (3) (3,750) -- Net earnings -- -- -- 98,110 ----------- ----------- ----------- ----------- Balance at December 31, 1996 $ 977,160 $ 17,911 $ 2,021,369 $ 98,110 =========== =========== =========== ===========
The accompanying notes are an integral part of these statements. F-17 64 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES (A development stage enterprise) CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, 1996 and 1995 and for the period from January 26, 1990 (Date of Incorporation) through December 31, 1996
January 26, Year Ended Year Ended 1990 Through December 31, December 31, December 31, 1996 1995 1996 ----------- ----------- ----------- Increase (decrease) in cash Cash flows from operating activities Net earnings (loss) $ 53,689 $ 43,225 $ 98,110 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities Depreciation 4,900 6,476 27,922 Amortization of organization costs -- 41 999 Loss on assets -- -- 969 Change in assets and liabilities (Increase) decrease in accounts and accrued interest receivable (7,942) (12,347) (33,379) (Increase) decrease in prepaid expense 116 (22) (947) Increase (decrease) in accounts payable and accrued liabilities (30,356) 22,903 42,792 ----------- ----------- ----------- Net cash provided by operating 20,407 60,276 136,466 activities Cash flows from investing activities Organization costs -- -- (999) Insurance proceeds for equipment casualty loss -- 5,400 5,400 Additions to property, plant and equipment (14,798) (8,112) (53,363) Purchase of certificates of deposit (1,156,052) (658,000) (5,484,822) Redemption of certificates of deposit 958,000 389,222 4,628,770 Investment in government obligations (1,156,903) (48,396) (3,254,387) Redemption of government obligations 1,155,000 -- 1,630,000 ----------- ----------- ----------- Net cash used in investing activities (214,753) (319,886) (2,529,401) Cash flows from financing activities Proceeds from sale of common and preferred stock 600,688 847,248 4,239,655 Payments on offering expenses (227,283) (247,018) (1,218,212) Purchase of common and preferred stock for treasury -- -- (5,003) ----------- ----------- ----------- Net cash provided by financing activities 373,405 600,230 3,016,440 ----------- ----------- ----------- Net increase in cash 179,059 340,620 623,505 Cash at beginning of year and period 444,446 103,826 -- ----------- ----------- ----------- Cash at end of year and period $ 623,505 $ 444,446 $ 623,505 =========== =========== =========== Cash paid for income taxes $ 15,021 $ -- $ 15,021 =========== =========== =========== Cash paid for interest -- -- $ -- =========== =========== ===========
The accompanying notes are an integral part of these statements. F-18 65 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES (A development stage enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the period from January 26, 1990 (Date of Incorporation) through December 31, 1996 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: 1. Nature of Operations First Investors Group, Inc. (the Company), a development stage enterprise, was incorporated under the laws of the State of Illinois on January 26, 1990. Initial stock sales were in excess of $120,300 thus allowing for incorporation under the terms of the pre-incorporation offering. Subsequent to incorporation, the Company has engaged in raising additional funds through the sale of its securities to pursue one of its desired objectives of organizing an Illinois life insurance company. The life insurance company was organized on June 27, 1996, but has not commenced significant operations as of December 31, 1996. During the Company's development stage, its primary revenue sources are investment income related to the assets invested from the sale of its securities and commission income generated through its wholly owned insurance agency. The Company has formed and invested in two wholly-owned subsidiaries. Consolidated Marketing Services, Inc. was incorporated November 7, 1990, and operates as an insurance agency (CMS) and Excalibur Insurance Corporation (Excalibur) was incorporated on June 27, 1996, and has not commenced significant operations as of December 31, 1996. Excalibur was formed with an initial capital contribution of $2,372,507, which represented the book value of the assets transferred from the Company to Excalibur. Excalibur is a life insurance company domiciled and licensed to transact business in the State of Illinois. 2. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Consolidated Marketing Services, Inc. and Excalibur Insurance Corporation. All material intercompany transactions have been eliminated. 3. Organization Costs Organization costs are capitalized and amortized over a period not to exceed five years. 4. Income Taxes The Company accounts for income taxes on the liability method, as provided by Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. At December 31, 1996 and 1995, the Company has no significant temporary or permanent differences between its basis for taxation and generally accepted accounting principles; therefore, the consolidated statements of earnings bears a normal relationship to pre-tax income and the provision for income taxes on the consolidated statements of earnings consists of amounts currently due based on reported income and expenses. 5. Earnings Per Share Earnings per share computations are based on the weighted average number of preferred shares outstanding during the period. F-19 66 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES (A development stage enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued For the period from January 26, 1990 (Date of Incorporation) through December 31, 1996 6. Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the accelerated cost recovery method. Estimated useful lives range from 5 to 7 years. 7. Offering Expenses The expenses and direct costs of the capital stock offerings have been recorded as a reduction of additional paid-in capital. 8. Cash Equivalents The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. At December 31, 1996 and 1995, the Company held no cash equivalents. 9. Investments Fixed maturities are carried at cost, adjusted for amortization of premium or discount and other than temporary declines. The amortized cost of such investments may differ from their market values; however, the Company has the ability and intent to hold these investments to maturity. Short-term investments are carried at cost, which approximates market value. 10. Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. 11. Certain Reclassifications Certain reclassifications have been made to conform to the 1996 presentation. NOTE B - FINANCIAL STATEMENT PRESENTATION Development stage enterprises are required to present current period and cumulative financial information. The cumulative period represents activity from date of incorporation through December 31, 1996. It is the opinion of management that the financial statements reflect all adjustments necessary for fair statement of results for the periods presented. NOTE C- INVESTMENTS Investments consisted of U.S. Treasury Notes, U.S. Treasury Bills and Certificates of Deposit. Below is a summary of the carrying value and market value of the Company's investments. F-20 67 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES (A development stage enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued For the period from January 26, 1990 (Date of Incorporation) through December 31, 1996
December 31, 1996 December 31, 1995 -------------------------- -------------------------- Carrying Market Carrying Market Value Value Value Value ---------- ---------- ---------- ---------- Fixed maturities (1-5 years) U.S. Treasury Notes $1,624,387 $1,618 750 $ 773,623 $ 775,178 Certificates of Deposit 664,624 664,624 375,000 375,000 ---------- ---------- ---------- ---------- $2,289,011 $2,283,374 $1,148,623 $1,150,178 ========== ========== ========== ========== Short-term investments Certificates of deposit $ 191,428 $ 191,428 $ 283,000 $ 283,000 U.S. Treasury notes -- -- 599,912 599,969 U.S. Treasury bills -- -- 248,949 249,201 ---------- ---------- ---------- ---------- $ 191,428 $ 191,428 $1,131,861 $1,132,170 ========== ========== ========== ==========
NOTE D - CAPITAL STOCK The common shares are not entitled to any dividends until such time, if ever, as the Company has paid dividends which total $2.00 per preferred share (in cash or property) to the holders of its initial preferred shares. Thereafter, the common shares have the same dividend rights per share as the holders of the preferred shares. The common shares have no rights upon liquidation until the holders of the preferred shares receive at least $2.00 per preferred share (cash or property) out of assets available for distribution. Thereafter, the common shares have the same liquidation rights per share as the holders of the preferred shares. The preferred and common shares have no conversion rights. Both the preferred and common shares are entitled to vote on general matters submitted to the vote of the shareholders and in all elections for directors. F-21 68 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES (A development stage enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued For the period from January 26, 1990 (Date of Incorporation) through December 31, 1996 NOTE E - RELATED PARTY TRANSACTIONS The following expenses have either been paid directly to certain officers of the Company who are also shareholders of the Company or to corporations owned by these same officers. These corporations consist of the Lincoln Heritage Marketing Center, Inc. (Lincoln) and Pacesetter Management Corporation (Pacesetter).
Year Ended Year Ended January 26, December 31, December 31 1990 1996 1995 December 31 ------- ------- 1996 -------- Office rent pad to Lincoln $ -- $ -- $ 3,700 Secretarial fees -- -- 22,746 Office rent paid to shareholders 20,925 10,080 58,900 ------- ------- -------- Total $20,925 $10,080 $ 85,346 ======= ======= ========
In addition, at December 31, 1996, $ 39,542 was owed to related parties for commissions. At December 31, 1995, $ 49,240 was owed to related parties for commissions, travel and other expenses. F-22 69 FIRST INVESTORS GROUP, INC. FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 and 1997 Unaudited Consolidated Balance Sheet F-24 Unaudited Consolidated Statements of Operations F-25 Unaudited Consolidated Statements of Cash Flows F-26 Notes to Consolidated Financial Statements F-27
F-23 70 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEET
June 30, ---------- 1998 ---------- ASSETS Investments $2,924,426 Cash 223,562 Accrued investment income 36,993 Deferred acquisition costs 65,266 Furniture and equipment, at cost less accumulated 14,472 depreciation of $36,421 in 1988 and $32,474 in 1997 11,658 ---------- Other Assets Total Assets $3,276,377 ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Future and other policy benefits, life $ 29,197 Policyholders' funds 802 Other liabilities 13,923 ---------- Total liabilities 43,922 Stockholders' equity: Capital stock: Preferred 1,019,410 Common 19,788 Paid-In capital 2,142,866 Retained earnings 50,391 ---------- Total Stockholders' equity 3,232,455 Total Liabilities and Stockholders' equity $3,276,377 ==========
F-24 71 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES UNAUDITED - CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30, ----------------------------- Revenue 1998 1997 ----------- ----------- Life Insurance Premiums Net Investment Income $ 30,380 $ 8,575 Commission Income 83,792 86,583 9,555 ----------- ----------- Total revenue $ 114,172 $ 104,713 ----------- ----------- Benefits and Expenses: Policy Benefits: Dividends to policyholders 329 0 Increase (Decrease) in future life policy benefits 15,577 2,781 Provisions for deferred acquisition cost (24,188) (14,459) General insurance expenses 147,974 125,957 Commission Expense 8,713 0 Taxes, licenses and fees 5,772 4,978 ----------- ----------- Total Benefits and Expenses $ 154,177 $ 119,257 ----------- ----------- Loss from operations (40,005) (14,544) Income Taxes 0 1,400 ----------- ----------- Net Loss $ (40,005) $ (15,944) =========== =========== Net Loss per share $ (.01962) $ (.00782) =========== =========== Cash dividends per share none none Weighted average number of Preferred shares outstanding 2,038,820 2,038,820 =========== ===========
F-25 72 FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES UNAUDITED - CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended Six Months June 30, Ended June 30, --------- --------- 1998 1997 --------- --------- Cash flows from operating activities: Net Loss $ (40,005) $ (15,944) --------- --------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 3,947 4,016 Change in: Accrued investment income (6,987) (6,512) Deferred Acquisition Costs (24,188) (14,459) Other Assets (2,819) (418) Future life policy benefits 15,577 2,781 Policyholders' funds 695 -- Accrued commissions payable -- 9,166 Other liabilities 12,296 (587) Total Adjustments (1,479) (6,013) --------- --------- Net cash used by operating activities (41,484) (21,957) Cash flows from investing activities: Proceeds from maturity of investments 683,069 175,000 Purchase of investments (784,949) (583,424) Purchase of equipment (3,694) (5,402) --------- --------- Net cash provided from investing (105,574) (413,826) activities Cash flows from financing activities: Proceeds from sale of common and preferred stock 24 253,586 Proceeds from stock sales to promoters -- 1,766 Payments on offering expenses -- (89,752) Net cash provided by financing activities 24 165,600 Net increase (decrease) in cash (147,034) (270,183) Cash at beginning of period 370,596 623,505 --------- --------- Cash at end of period $ 223,562 $ 353,322 ========= =========
F-26 73 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The foregoing unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles and such principles were applied on a basis consistent with those reflected in the Consolidated Financial Statements and Independent Auditor's Report dated April 14, 1998 which are included elsewhere herein. The information furnished herein is unaudited and includes all adjustments and accruals consisting only of normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of results for the interim periods. 2. Earnings per share are computed on the basis of the number of Preferred shares outstanding at the end of the period. 3. The accompanying financial data should be read in conjunction with the notes contained in the Consolidated Financial Statements and Independent Auditor's Report dated April 14, 1998 which are included elsewhere herein. F-27 74 APPENDIX A PLAN AND AGREEMENT OF MERGER FIRST INVESTORS GROUP, INC. CITIZENS, INC. AND EXCALIBUR ACQUISITION, INC. This Plan and Agreement of Merger ("Agreement") is by and among First Investors Group, Inc. ("Investors"), Citizens, Inc. ("Citizens") and Excalibur Acquisition, Inc. ("Acquisition)". WITNESSETH: WHEREAS, Citizens is a corporation duly organized under the laws of the State of Colorado and Acquisition is a corporation duly organized under the laws of the State of Illinois; WHEREAS, Investors is a corporation duly organized under the laws of the State of Illinois; and WHEREAS, Citizens desires to acquire Investors through a merger of Acquisition into Investors under Illinois law; NOW, THEREFORE, it is agreed among the parties as follows: ARTICLE I THE MERGER 1.1 Subject to approval of this Agreement by the Insurance Commissioner of the State of Illinois, and subject to the conditions set forth herein on the "Effective Date" (as herein defined), Investors and Acquisition shall enter into and file Articles of Merger attached hereto as Exhibit A under which Investors shall be the surviving corporation, and shareholders of Investors who do not dissent to the Merger shall receive Class A common stock of Citizens as set forth in Section 1.2. The transaction contemplated by this Agreement shall be completed at a closing ("Closing") on a closing date ("Closing Date") which shall be as soon as possible after all regulatory approvals and shareholder approvals are obtained in accordance with law as set forth in this Agreement. On the Closing Date, all of the documents to be furnished to Investors and Citizens, including the documents to be furnished pursuant to Article VII of this Agreement, shall be delivered to Jones & Keller, P.C., counsel to Citizens, 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 On the Effective Date: Investors shareholders will receive one (1) share of Class A Common stock of Citizens, Inc. (a) for each 6.6836 shares of Investors Common stock issued and outstanding, and (b) for each 6.6836 shares of Investors Preferred stock issued and outstanding (collectively the "Exchange A-1 75 Rate"), said exchange based upon a market value of $6.00 per share for Citizens Class A shares and an adjusted book value of $.89772 for each Investors Common and Preferred share. Investors optionholders will be entitled to receive, upon due exercise within one year after the Effective Date, shares of Class A Common stock of Citizens, Inc. in lieu of shares of Investors, adjusted to reflect the Exchange Rate. 1.3 If this Agreement is duly adopted by the holders of the requisite number of shares, in accordance with the applicable laws and subject to the other provisions hereof, such documents as may be required by law to accomplish the Agreement shall be filed as required by law to effectuate same, and it shall become effective. The time of filing the last document required by law shall be the Effective Date for the Agreement. For accounting purposes, the Agreement shall be effective as of 12:01 a.m., on the last day of the month preceding the Effective Date. ARTICLE II ISSUANCE AND EXCHANGE OF SHARES 2.1 The shares of Citizens Class A common stock shall be distributed to Investors shareholders (other than those shares as to which dissenters' rights have been perfected in accordance with the Illinois law). 2.2 The stock transfer books of Investors shall be closed on the Effective Date, and thereafter no transfers of the stock of Investors shall be made. Investors 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 Investors, and to deliver in exchange for such surrendered certificates, shares of Class A common stock of Citizens. The authorization of the Exchange Agent may be terminated by Citizens after six months following the Effective Date. Upon termination of such authorization, any shares of Investors and funds held by the Exchange Agent for payment to Investors shareholders pursuant to this Agreement shall be transferred to Citizens or its designated agent who shall thereafter perform the obligations of the Exchange Agent. If outstanding certificates for shares of Investors 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 Citizens (and to the extent not in its possession shall be paid over to it), free and clear of all claims 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 Investors 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 issued as a result of the Agreement; rather, such shares shall evidence the right to receive $6.00 per share of Citizens Class A common stock. 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 of fractions thereof at the rate of $6.00 per share from Citizens for one share of Citizens Class A common stock. 2.4 At the Effective Date, each holder of a certificate or certificates representing shares of Investors, upon presentation and surrender of such certificate or certificates to the Exchange Agent, shall A-2 76 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 Illinois law 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 Investors previously held shall be canceled. Until so presented and surrendered, each certificate or certificates which represented issued and outstanding shares of Investors 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 Investors 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 CITIZENS No representations or warranties are made by any director, officer, employee or shareholder of Citizens, except as and to the extent stated in this Agreement or in a separate written statement (the "Citizens Disclosure Statement") attached hereto as Exhibit B. Citizens hereby represents, warrants and covenants to Investors, except as stated in Citizens Disclosure Statement, as follows: 3.1 Citizens is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado, and has 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, copies of which have been delivered to Investors, are complete and accurate, and the minute books of Citizens 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. 3.2 The aggregate number of shares which Citizens is authorized to issue is 50,000,000 shares of Class A common stock with no par value and 1,000,000 shares of Class B common stock with no par value; of which 20,765,488 shares of such Class A common stock (this number does not include treasury shares) and 621,049 shares of Class B common stock are issued and outstanding, fully paid and non-assessable as of June 15, 1998. 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. There are 123,490 shares of Class A common stock held as treasury stock of Citizens. The subsidiaries of Citizens 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 non-assessable. A-3 77 3.3 Citizens has complete and unrestricted power to enter into and, upon the appropriate approvals as required by law, to consummate the transaction contemplated by this Agreement. 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 Citizens will conflict with or result in a breach or violation of the Articles of Incorporation or Bylaws of Citizens. 3.5 The execution, delivery and performance of this Agreement has been duly authorized and approved by Citizens' Board of Directors. 3.6 Citizens has delivered to Investors consolidated financial statements of Citizens and its subsidiaries, dated December 31, 1997 and March 31, 1998 (unaudited), and the annual convention statement of Citizens Insurance Company of America for the year ended December 31, 1997 (as amended). 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 Citizens Insurance Company of America for the periods included. The December 31, 1997 and March 31, 1998 statements have been prepared in accordance with generally accepted accounting principles and the December 31, 1997 statement of Citizens Insurance Company of America has been prepared in accordance with statutory accounting principles. 3.7 Since the dates of Citizens Financial Statements there have not been any material adverse changes in the business or condition, financial or otherwise, of Citizens or Citizens Insurance Company of America. Citizens does not have any material liabilities or obligations secured or unsecured (whether accrued, absolute, contingent or otherwise). 3.8 Citizens has delivered to Investors a list and description of all pending legal proceedings involving Citizens or Citizens Insurance Company of American, none of which, in the opinion of management, will materially adversely affect them, 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 Citizens, threatened against Citizens or Citizens Insurance Company of America or affecting any of their assets, or properties and neither Citizens nor Citizens Insurance Company of America is in any material breach or violation of or default under any contract or instrument to which Citizens or Citizens Insurance Company of America 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 or Citizens Insurance Company of America under any contract or other instrument to which Citizens or Citizens Insurance Company of America is a party or by which they or any of their 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 Citizens or Citizens Insurance Company of America. 3.9 Neither Citizens nor Citizens Insurance Company of America 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 enter into no agreement or transaction which would adversely affect its financial condition. 3.10 The assets of Citizens Insurance Company of America have admissible values at least equal to the amounts attributed to them on its December 31, 1997 annual convention statement (as amended). A-4 78 3.11 Neither Citizens Insurance Company of America nor Citizens 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 it. 3.12 All policy and claim reserves of Citizens Insurance Company of America have been properly provided for and are adequate to comply with all regulatory requirements regarding same. 3.13 The representations and warranties of Citizens shall be true and correct as of the date hereof and as of the Effective Date. 3.14 Citizens has delivered, or will deliver within two weeks of the date of this Agreement, to Investors true and correct copies of Citizens Annual Report to Shareholders for the years ended December 31, 1996 and 1997 and each of its other reports to shareholders and filings with the Securities and Exchange Commission ("SEC") for the years ended December 31, 1995, 1996, and for 1997. Citizens will also deliver to Investors 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, 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. 3.15 Citizens has delivered to Investors a copy of each of the federal income tax returns of Citizens for the year ended December 31, 1996 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 of 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, including taxes for the current year ending December 31, 1998. No federal income tax return of Citizens is currently under audit. 3.16 Citizens has no employee benefit plans, except as disclosed in Citizens Financial Statements and for a group accident and health and dental plan for employees. 3.17 No representation or warranty by Citizens in this Agreement, Citizens 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. 3.18 Citizens agree that all rights to indemnification now existing in favor of the employees, agents, director or officers of Investors and its subsidiaries, as provided in the Articles of Incorporation or Bylaws or otherwise in effect on the date hereof shall survive the transactions contemplated hereby in accordance with their terms and Citizens expressly assumes such indemnification obligations of Investors. A-5 79 ARTICLE IV REPRESENTATION, WARRANTIES AND COVENANTS OF INVESTORS No representations or warranties are made by any director, officer, employee or shareholder of Investors, except as and to the extent stated in this Agreement or in a separate written statement (the "Investors Disclosure Statement") attached hereto as Exhibit C. Investors hereby represents, warrants and covenants to Citizens, except as stated in the Investors Disclosure Statement, as follows: 4.1 Investors and Excalibur Insurance Corporation ("Excalibur") are each a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois, and has 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 Investors and Excalibur, copies of which have been delivered to Citizens, are complete and accurate, and the minute books of Investors and Excalibur 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 Investors and Excalibur. 4.2 The aggregate number of shares which Investors is authorized to issue is 40,000,000 shares of common stock with a par value of $.01 per share and 40,000,000 shares of preferred stock with a par value of $0.50 per share of which 1,978,847 shares of such common stock, and 2,038,820 shares of such preferred stock are issued and outstanding, fully paid and non-assessable. The preferred stock is not convertible into common stock. Investors 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. The subsidiaries of Investors and Excalibur 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 non-assessable. Investors directly or indirectly owns all of the issued and outstanding capital stock of such subsidiaries. 4.3 Investors and Excalibur 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. 4.4 Neither the making of nor the compliance with the terms and provisions of this Agreement and consummation of the transactions contemplated herein by Investors and Excalibur will conflict with or result in a breach or violation of the Articles of Incorporation or Bylaws of Investors or Excalibur. 4.5 The execution of this Agreement has been duly authorized and approved by the Investors' and Excalibur's Board of Directors. A-6 80 4.6 Investors has delivered to Citizens consolidated financial statements of Investors and its subsidiaries, dated December 31, 1997 and March 31, 1998 (unaudited), and the annual convention statement of Excalibur as of December 31, 1997. All such statements, herein sometimes called "Investors Financial Statements" are (and will be) complete and correct in all material respects and, together with the notes to the financial statements, present fairly the financial position and results of operations of Investors and Excalibur of the periods indicated. The December 31, 1997 and March 31, 1998 financial statements of Investors have been prepared in accordance with generally accepted accounting principles and the December 31, 1997, annual convention statement of Excalibur is prepared in accordance with statutory principles. 4.7 Since the dates of the Investors Financial Statements there have not been any material adverse changes in the business or condition, financial or otherwise, of Investors or Excalibur. Investors and Excalibur do not have any material liabilities or obligations, secured or unsecured (whether accrued, absolute, contingent or otherwise). 4.8 Investors has delivered to Citizens a list and description of all pending legal proceedings involving Investors or Excalibur, none of which will materially adversely affect them, and, except for these proceedings, there are no legal proceedings or regulatory proceedings involving material claims pending, or, to the knowledge of other officers of Investors, threatened against Investors or Excalibur or affecting any of their assets or properties, and neither Investors nor Excalibur is in any material breach or violation of or default under any contract or instrument to which Investors or Excalibur 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 Investors or Excalibur under any contract or other instrument to which Investors or Excalibur is a party or by which they 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 Investors or Excalibur. 4.9 Neither Investors nor Excalibur 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. 4.10 The assets of Excalibur have admissible values at least equal to the amounts attributed to them on its March 31, 1998 statement and will have a values at least equal to those attributed to them on its December 31, 1997 annual convention statement. 4.11 Neither Excalibur nor Investors 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. 4.12 All policy and claim services of Excalibur have been properly provided for and are adequate to comply with all regulatory requirements regarding same. 4.13 The representations and warranties of Investors shall be true and correct as of the date hereof and as of the Effective Date. 4.14 Investors has delivered, or will deliver within two weeks of the date of this Agreement, to A-7 81 Citizens true and correct copies of Investors' Annual Report to Shareholders for the years ended December 31, 1995, 1996, and for 1997. Investors will also deliver to Citizens on or before the Closing Date any reports relating to the financial and business condition of Investors which are prepared after the date of this Agreement and any other reports sent generally to its shareholders after the date of this Agreement. Investors 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 Investors 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. 4.15 Investors has delivered to Citizens a copy of each of the federal income tax returns of Investors and Excalibur for the year ended December 31, 1997 and for any additional open years. The provisions for taxes paid by Investors and Excalibur are believed by Investors and Excalibur to be sufficient for payment of all accrued and unpaid federal, state, county and local taxes of Investors and Excalibur (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 Investors and Excalibur, including taxes for the current year ending December 31, 1998. No federal income tax return of Investors or Excalibur is currently under audit. 4.16 Investors and Excalibur have no employee benefit plans. 4.17 No representation or warranty by Investors in this Agreement, the Investors 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 Investors 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 Investors, such date to be the earliest practicable date after the proxy statement may first be sent to Investors shareholders without objection by applicable governmental authorities, provided that Investors will have at least 30 days to solicit proxies. Citizens will furnish to Investors the information relating to Citizens required by the Federal Securities Laws to be included in the proxy statement. Citizens represents and warrants that at the time of the Investors shareholders' meeting, the proxy statement, insofar as it relates to Citizens and contains information furnished by Citizens 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 Investors, subject to its fiduciary obligations to shareholders, shall use its best efforts to obtain the requisite approval of Investors shareholders of this Agreement and the transactions contemplated herein. Investors, Excalibur and Citizens shall take all reasonable and necessary steps and actions to comply with and to secure Investors shareholder approval of A-8 82 this Agreement and the transactions contemplated herein as may be required by the statues, 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 its 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 advisers, 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. 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 or any of its affiliates to whom the disclosure is made. 5.3 Investors and Citizens 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 MERGER 6.1 The parties shall file with the Insurance Commissioner of Illinois within 30 days from this date, all of the documents required by the Illinois Insurance Code. ARTICLE VII CONDITIONS PRECEDENT TO THE CONSUMMATION OF THE MERGER The following are conditions precedent to the consummation of the Agreement on or before the Effective Date: A-9 83 7.1 Citizens and Investors 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 Investors and Citizens 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, the transactions contemplated herein and the dissolution of Investors shall have been duly and validly authorized, approved and adopted, at a meeting of the shareholders of Investors duly and properly called for such purpose in accordance with the applicable laws. 7.3 This Agreement is in all things subject to the provisions of applicable insurance laws and the regulations promulgated thereunder, and shall not become effective until approval is obtained from the Commissioner of Insurance of the State of Illinois in accordance with the provisions of the laws of said state. Citizens and Investors, as soon as practical after the execution and delivery of this Agreement, agree to file and to use their best efforts to obtain such approval of the transactions contemplated by this Agreement. Neither Citizens, Investors nor any of their subsidiaries shall be obligated to file a suit or to appeal from any Commissioner's adverse ruling, nor shall Citizens, Investors nor any of their subsidiaries be obligated to make any material changes in any lawful, good faith management policy in order to gain such approval. In the event approval is denied, this Agreement shall terminate. 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 regulation, or have otherwise acted improperly in connection with the transaction 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 Citizens and Investors. 7.6 The representations and warranties made by Citizens and Investors 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 Citizens or (2) events or changes (which shall not, in the aggregate, have materially and adversely affected the business, assets, or financial condition of Investors, Excalibur or Citizens) during or arising after the date of this Agreement. 7.7 (1) The Merger will constitute a reorganization within the meaning of IRC Section 368(a)(2)(E) and Citizens and Investors will each be a "party to a reorganization" within the meaning of IRC Section 368(b). No gain or loss will be recognized by the Investors shareholders upon the exchange of their shares for shares of Citizens Class A Common Stock (except for cash received in lieu of a fractional share of Citizens Class A Common Stock). A-10 84 (2) The tax basis of the shares of Citizens Class A Common Stock received by a Investors shareholder (including any fractional share of Citizens Class A Common Stock not actually received) will be the same as the basis of the Investors shares surrendered by that shareholder in the Exchange. (3) The holding period for tax purposes of the shares of Citizens Class A Common Stock received by a Investors shareholder will include the period during which such shareholder held the Investors shares as a capital asset on the date of the consummation of the Exchange. (4) Cash received by Investors shareholders who properly exercise their dissenters' rights will be treated as having been received in redemption of the shares so cashed out, and may result in taxable gain or loss, measured by the difference (if any) between the amount of cash received and such shareholder's basis in the Investors stock. Provided the shares were held as capital assets at the time of the redemption, such gain or loss will constitute capital gain or loss, and such gain or loss will be taxed at varying federal tax rates depending upon the holding period for such shares. It is possible, that for some shareholders, the distribution of cash may be treated as a dividend taxable as ordinary income. (5) Cash payments received by Investors shareholders in lieu of fractional shares of Citizens Class A Common Stock will be treated as if such fractional share of Citizens Class A Common Stock has been issued in the Merger and then redeemed by Citizens. An Investors shareholder receiving such cash will recognize gain or loss, upon such payment, measured by the difference (if any) between the amount of cash received and the basis in such fractional share. Provided the fractional share was held as a capital asset at the time of the redemption, such gain or loss will constitute capital gain or loss, and such gain or loss will be taxed at varying federal tax rates depending upon the holding period for such share (taking into account the holding period of the Investors stock outstanding as described in (3) above). It is possible that the distribution of cash may be treated as a dividend taxable as ordinary income if the IRS determines that the distribution in redemption is essentially equivalent to a dividend. (6) No material gain or loss will be recognized by Citizens, Excalibur or Investors as a result of the Merger. 7.8 Investors shall have furnished Citizens with: (1) a certified copy of a resolution or resolutions duly adopted by the Board of Directors of Investors approving this Agreement and the transaction contemplated by it and directing the submission thereof to a vote of the shareholder of Investors; (2) a certified copy of a resolution or resolutions duly adopted by the requisite number and classes of outstanding shares of Investors capital stock approving this Agreement and the transactions contemplated by it in accordance with applicable law; (3) an opinion of Robert E. Wagner & Associates, P.C. dated as of the Closing Date as set forth in Exhibit D attached hereto; (4) an agreement from each "affiliate" of Investors 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 Rules 144 and A-11 85 145; and (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; and (c) the affiliate acknowledges that sales, transfers or dispositions of Citizens Class A common stock may only be made pursuant to Rules 144 and 145 during the two-year period following the Closing Date. (5) Investors will deliver to Citizens all of its assets, including but not limited to, all shares of stock of Excalibur, together with all assignments of such assets as Citizens may reasonably require. 7.9 Citizens shall furnish Investors with: (1) a certified copy of a resolution or resolutions duly adopted by the Board of Directors of Citizens, approving this Agreement and the transaction contemplated by it, and (2) an opinion dated the Effective Date of Jones & Keller, P.C., counsel for Citizens, as set forth in Exhibit E attached hereto. 7.10 Investors and Acquisition shall approve and file the Articles of Merger, consistent with this Agreement, for this transaction with the requisite governmental authorities. 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 Investors) prior to the Effective Date: (a) By mutual consent of Citizens, Excalibur and Investors; (b) By Citizens or Investors, if any condition set forth in Article VII relating to the other party has not been met or has not been waived; (c) By Citizens or Investors, 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 Citizens, if dissenters' rights are perfected in accordance with Illinois law for more than 2.5% of the outstanding shares of Investors; or (f) By any party if the Effective Date is not within 180 days from the date hereof. 8.2 Any of the terms or conditions of this Agreement may be waived at any time by the party A-12 86 which is entitled to the benefit thereof, by action taken 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. ARTICLE X MISCELLANEOUS 10.1 This Agreement embodies the entire agreement between the parties, and supersedes all prior 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. Citizens and Investors 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 Investors, Excalibur or Citizens or any subsidiary of any of them upon consummation of the transactions contemplated by this Agreement. 10.4 All parties to the 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 or 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 shares issuable hereunder shall not be amended without approval of the requisite shareholders of Investors. A-13 87 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 Citizens, Inc.: To Investors: Citizens, Inc. First Investors Group, Inc. P.O. Box 149151 1709 South Fifth Street Austin, Texas 78714 Springfield, Illinois 62703-3116 ATTN: Mark A. Oliver ATTN: Don Dennis President Chairman and President with copies to: with copies to: Jones & Keller, P.C. Robert E. Wagner & Associates, P.C. Suite 1600 133 S. 4th Street, Suite 306 1625 Broadway Springfield, Illinois 62701 Denver, Colorado 80202 ATTN: Robert E. Wagner ATTN: Reid Godbolt 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 transaction contemplated by this Agreement without prior approval of Citizens and Investors. However, either Citizens or Investors may issue at any time any press release or other public statement it believes on the advice of its counsel it is obligated to issue to avoid liability under the law relating to disclosures, 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 such release or statement. IN WITNESS WHEREOF, the parties have set their hands and seals as of September 10, 1998. CITIZENS, INC. By: /s/ Mark A. Oliver ------------------------- Mark A. Oliver, President FIRST INVESTORS GROUP, INC. By: /s/ Don Dennis ------------------------- Don Dennis, President EXCALIBUR ACQUISITION, INC. By: /s/ Mark A. Oliver ------------------------- Mark A. Oliver, President A-14 88 EXHIBIT A ARTICLES AND PLAN OF MERGER CITIZENS, INC. EXCALIBUR ACQUISITION, INC., AND FIRST INVESTORS GROUP, INC. THESE ARTICLES AND PLAN OF MERGER, dated this day ____ of _______, 199_, pursuant to Sections 5/11.05 and 5/11.25 of the Illinois Business Corporation Act (hereinafter referred to as the "Act"), is entered into, by and among Citizens, Inc. ("Citizens"), a Colorado corporation; Excalibur Acquisition, Inc. ("Acquisition"), an Illinois corporation wholly-owned by Citizens; and First Investors Group, Inc. ("Investors") or the "Surviving Corporation"), an Illinois corporation, with Investors and Acquisition sometimes being referred to herein as the "Constituent Corporation." WITNESSETH: WHEREAS, the respective Boards of Directors of the parties hereto deem it advisable that Acquisition be merged into Investors hereinafter specified; NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, and in order to prescribe the terms and conditions of the Merger, the mode of carrying the same into effect, the manner of converting the shares of each of the Constituent Corporations and such other details and provisions as are deemed desirable, the parties hereto agree as follows: FIRST: The Constituent Corporations have agreed to merge, and that the terms and conditions of said merger, the mode of carrying the same into effect and the manner and basis of converting or exchanging the shares of issued stock of each of the Constituent Corporations into different stock or other consideration, and the manner of dealing with any issued stock of the Constituent Corporations not to be so converted or exchanged, are and shall be as set forth herein. In connection with the merger described below, Citizens is agreeing, among other things, to furnish a sufficient number of shares of its authorized but unissued Class A Common Stock, no par value, to carry out the terms of the merger contemplated hereby. SECOND: The parties to these Articles and Plan of Merger are Acquisition, Investors and Citizens. THIRD: Investors shall be the surviving corporation of the merger between the Constituent Corporations. FOURTH: The principal office of Acquisition and Citizens, Inc. is 400 East Anderson Lane, Austin, Texas 78752. The principal office of Investors is 1709 South Fifth Street, Springfield, Illinois 62703-3116. FIFTH: The Boards of Directors of Acquisition and Citizens, on _____________, 1998, declared that a merger upon the terms and conditions set forth in these Articles and Plan of Merger was advised, authorized and approved, and the Board of Acquisition directed their submission to Citizens, the sole stockholder of Acquisition. A-15 89 EXHIBIT A The Board of Directors of Investors, on ________, 199__, by a duly adopted resolution, declared that a merger upon the terms and conditions set forth in these Articles and Plan of Merger was advised, authorized and approved, and directed their submission to the shareholders of Investors. These Articles and Plan of Merger were duly submitted to and approved by the affirmative vote of one hundred percent (100%) of all of the votes entitled to be cast thereon pursuant to an action by unanimous written consent of the sole shareholder of Acquisition, as permitted by the Articles of Incorporation of Acquisition and the laws of the State of Illinois. These Articles and Plan of Merger were duly submitted to and approved by the affirmative vote of ______ percent (____%) of all of the votes entitled to be cast thereon at a meeting of the shareholders of Investors held on ______ __, 199_, as permitted by the Articles of Incorporation of Investors and the laws of the State of Illinois. SIXTH: The Articles of Incorporation of Investors shall constitute the Articles of Incorporation of the Survivor. SEVENTH: Acquisition has authority to issue shares of one class of capital stock, namely ten thousand (10,000) shares of common stock, $.01 par value per share ("Acquisition Common Stock"). Citizens, Inc. has authority to issue shares of two classes of capital stock, namely 50,000,000 shares of Class A Common Stock, no par value per share ("Citizens Class A Common Stock"), and 1,000,000 shares of Class B Common stock, no par value per share. EIGHTH: Investors has authority to issue shares of two classes of capital stock, namely, 40,000,000 shares of Common stock, $.01 par value per share and 40,000,000 shares of Preferred stock, $.50 par value per share. NINTH: The manner and basis of converting or exchanging the issued and outstanding stock of each of the Constituent Corporations into different stock or other consideration and the treatment of any issued stock of the Constituent Corporations not to be so converted or exchanged on the Effective Date (as defined in Article Tenth below) of the merger contemplated hereby shall be as follows: (a) Except to the extent qualified in subparagraphs (b) and (c) immediately below On the Effective Date: Investors shareholders will receive one (1) share of Class A Common stock of Citizens, Inc. (a) for each 6.6836 shares of Investors Common stock issued and outstanding; and (b) for each 6.6836 shares of Investors Preferred stock issued and outstanding. (b) No script or fractional share certificates of Citizens Class A Common stock shall be issued as a result of the merger contemplated hereby, but in lieu of each fractional share, the shareholder of Investors entitled to a fractional share shall be paid by Citizens a cash payment at a rate of $6.00 per one share of Citizens Class A Common stock. (c) After the merger contemplated hereby shall have become effective, except as otherwise provided by the Act with respect to dissenting shareholders, each holder of an outstanding certificate or certificates A-16 90 EXHIBIT A theretofore representing Investors Common Stock or Preferred stock shall surrender the same to the Surviving Corporation and each such holder thereupon shall been entitled to receive in exchange therefor a certificate or certificates representing the number of shares of Citizens Common stock into which the Investors Common stock or Preferred stock represented by the certificate or certificates so surrendered shall have been converted or exchanged by the provisions hereof. Until such surrender, Investors Common stock or Preferred stock shall be deemed for all corporate purposes, other than the payment of dividends, to evidence ownership of the number of full shares of Citizens Class A Common stock to be delivered with respect to such shares. Unless and until any such outstanding certificates shall be so surrendered, no dividend payable to the holders of record of Investors Common stock or Preferred stock as of any date subsequent to the Effective Date shall be paid to the holders of such outstanding certificates, but upon surrender of any such certificate or certificates, there shall be paid to the record holder of the certificate or certificates of Investors Common or Preferred stock delivered with respect to the shares represented by the surrendered certificate or certificates, without interest, the amount of such dividends which shall have theretofore become payable to them with respect to such shares of Investors Common or Preferred stock. (d) Each share of Acquisition Common Stock, if any, which remains unissued and all Treasury shares of Acquisition on the Effective Date of the merger contemplated hereby shall be canceled. (e) Each share of Acquisition Common stock which is issued and outstanding on the Effective Date shall be converted into one share of Investors Common stock and shall not be deemed to be converted into shares of Class A Common stock of Citizens. TENTH: Upon the Effective Date: (a) the assets and liabilities of Acquisition shall be taken up on the books of the Surviving Corporation at the amount at which they shall at that time be carried on the books of Acquisition, and (b) all of the rights, privileges, immunities, powers, purposes, and franchises of Acquisition, and all property, real, personal and mixed, and all debts due to Acquisition on whichever account shall be vested in the Surviving Corporation, and all property rights, privileges, immunities, powers, purposes and franchises, and all and every other interest shall be thereafter as effectually the property of the Surviving Corporation as they were of Acquisition, and all debts, liabilities, obligations and duties of Acquisition shall thenceforth attach to the Surviving Corporation and may be enforced against it to the same extent as if said debts, liabilities, obligations and duties had been incurred or contracted by it. The merger provided for by these Articles and Plan of Merger shall become effective at __:__ p.m., Central Time, on _____ __, 199_, (the "Effective Date"), and the separate existence of Acquisition except insofar as continued by statute, shall cease on the date that these Articles and Plan of Merger, duly advised, approved, signed, acknowledged, sealed and verified by Citizens, Acquisition and Surviving Corporation, as required by the laws of the State of Illinois, are filed for record with the Secretary of State. ELEVENTH: The merger contemplated hereby may be terminated at any time prior to the time these Articles and Plan of Merger are filed in the office of the Secretary of State of Illinois (a) by consent of Citizens and the Constituent Corporations expressed by action of their respective Boards of Directors and A-17 91 EXHIBIT A without further shareholder action, whether or not theretofore adopted by the shareholders of the Constituent Corporations, but the filing of these Articles and Plan of Merger in the office of the Secretary of State of Illinois shall conclusively evidence that any such termination has not occurred and that any right of termination has not been exercised and has been waived. TWELFTH: The parties hereto may, by written agreement among them authorized by their respective Boards of Directors, amend these Articles and Plan of Merger at any time prior to the Effective Time, provided that, after the meeting of shareholders of Investors, no amendment shall be made which changes the terms of these Articles and Plan of Merger in a way which is materially adverse to the shareholders of Investors, unless such amendment is approved by the shareholders of Investors. Any condition to the performance of Citizens, Acquisition or Investors which may legally be waived at or prior to the Effective Time may be waived at any time by the party entitled to the benefit thereof by action taken or authorized by the Board of Directors of the waiving party. IN WITNESS WHEREOF, Citizens and each of the Constituent Corporations, pursuant to the approval and authority duly given by resolutions or unanimous written consents adopted by their respective Boards of Directors, have caused these Articles and Plan of Merger to be signed in their respective corporation names and their behalf by the respective Presidents and witnessed or attested by their respective Secretaries as of the ____ day of ________, 199_, each of whom affirms, under penalties of perjury, that the facts stated herein are true. FIRST INVESTORS GROUP, INC. ATTEST: By: - ----------------------------------- ----------------------------------- Secretary Don Dennis, Chairman and President EXCALIBUR ACQUISITION, INC. ATTEST: By: - ----------------------------------- ----------------------------------- John K. Drisdale, Jr., Secretary Mark A. Oliver, President CITIZENS, INC. ATTEST: By: - ----------------------------------- ----------------------------------- John K. Drisdale, Jr., Secretary Mark A. Oliver, President THE UNDERSIGNED, President of First Investors Group, Inc. who executed on behalf of said corporation the foregoing Articles and Plan of Merger, of which this Certificate is made a part, hereby acknowledges, in the name and on behalf of said corporation, the foregoing Articles and Plan of Merger to be the corporate act of said corporation and further certifies that, to the best of his knowledge, information A-18 92 EXHIBIT A and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury. ------------------------------------ Don Dennis, Chairman and President THE UNDERSIGNED, President of Excalibur Acquisition, Inc., who executed on behalf of said corporation the foregoing Articles and Plan of Merger, of which this Certificate is made a part, hereby acknowledges, in the name and on behalf of said corporation, the foregoing Articles and Plan of Merger to be the corporate act of said corporation and further certifies that, to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury. -------------------------------- Mark A. Oliver, President THE UNDERSIGNED, President of Citizens, Inc., who executed on behalf of said corporation the foregoing Articles and Plan of Merger, of which this Certificate is made a part, hereby acknowledges, in the name and on behalf of said corporation and further certifies that, to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury. -------------------------------- Mark A. Oliver, President A-19 93 EXHIBIT B CITIZENS' DISCLOSURE STATEMENT Pursuant to the provisions of Article III of the Plan and Agreement of Merger ("Merger Agreement") by and among Investors, Citizens, and Acquisition, Citizens hereby makes the following disclosures respecting the similarly numbered sections in the Merger Agreement: 3.7 Citizens has the liabilities disclosed in Citizens Financial Statements and those incurred thereafter in the ordinary course of business. 3.8 A description of certain legal proceedings involving Citizens and Citizens Insurance Company of America is contained in Item 3 - Legal Proceedings of Citizens' Form 10-K Annual Report and in the list of pending legal proceedings involving Citizens and its affiliates delivered to Investors on August 25, 1998. 3.11 (a) Computer Maintenance Agreement between Computing Technology, Inc. and Wang Laboratories, effective 7/1/91 and amended 8/26/91. (b) Marketing Consultant Agreement dated April 1, 1997 with Worldwide Professional Associates, Inc. A-20 94 EXHIBIT C INVESTORS' DISCLOSURE STATEMENT Pursuant to the provisions of Article IV of the Plan and Agreement of Merger ("Merger Agreement") by and among Investors, Citizens, and Acquisition, Investors hereby makes the following disclosures respecting the similarly numbered sections in the Merger Agreement: 4.7 Investors and Excalibur have the liabilities disclosed in the consolidated Investors Financial Statements and those incurred thereafter in the ordinary course of business. 4.8 A description of all pending legal proceedings involving Investors or Excalibur is described below: NONE 4.11 Excluding insurance policies, customary agent contracts, normal reinsurance agreements and those contracts which will not adversely affect either of them, Investors and Excalibur are parties to the following contracts performable in the future: NONE A-21 95 EXHIBIT E Citizens, Inc. First Investors Group, Inc. ______________, 1998 _____________, 1998 Citizens, Inc. Excalibur Acquisition, Inc. 400 East Anderson Lane Austin, Texas 78752 Re: Plan and Agreement of Merger among First Investors Group, Inc., Citizens, Inc. and Excalibur Acquisition, Inc. Ladies and Gentlemen: We have acted as counsel to First Investors Group, Inc. ("Investors") in connection with the above referenced agreement. This letter is provided to you pursuant to Paragraph 7.8(3) of the Plan and Agreement of Merger, dated as of September 10, 1998 (the "Agreement"), among Investors, Citizens, Inc. and Excalibur Acquisition, Inc. Except as otherwise indicated herein, capitalized terms used in this letter are defined as set forth in the Agreement or the Accord (see below). 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). As a consequence, it is subject to a number of qualifications, exceptions, definitions, limitations on coverage and other limitations, all as more particularly described in the Accord, and this letter should be read in conjunction therewith. In giving the opinion expressed below, insofar as such opinion relates to other than Federal law or the laws of jurisdiction other than the State of Illinois, we advise that our opinion is with respect to Federal law and the laws of the State of Illinois only and that, to the extent such opinion is derived from laws of other jurisdictions, the statements are based on examinations of relevant authorities and are believed to be correct, but we have obtained no legal opinions as to such matters from attorneys licensed to practice in such other jurisdictions. Accordingly, the law covered by the opinion expressed herein is limited to the Federal law of the United States and the law of the State of Illinois. We have relied upon factual representations made by Investors in Article IV of the Agreement and we have reviewed such documents and given consideration to such matters of law and fact as we have deemed appropriate to render this opinion. Based upon and subject to the foregoing, we are of the opinion that: 1. The execution, delivery and performance of the Agreement by Investors 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 Investors or Excalibur Insurance Corporation A-22 96 EXHIBIT E Citizens, Inc. First Investors Group, Inc. ______________, 1998 ("Excalibur") is a party or by which Investors or Excalibur is bound or the charter or bylaws of Investors or Excalibur or other governing instruments of Investors or Excalibur. 2. The Agreement has been duly authorized, executed and delivered by Investors and is a legal, valid and binding obligation of Investors enforceable against Investors 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); 3. Investors and Excalibur are Illinois corporations duly organized, validly existing and in good standing under the laws of the State of Illinois; 4. Investors has full corporate power and authority to enter into the Agreement and to carry out the transactions contemplated by the Agreement; 5. To our knowledge, after due inquiry, there are no civil or criminal actions, suits, arbitrations, administrative or other proceedings or governmental investigations pending or threatened against Investors which will constitute a breach of the representations, warranties or covenants under the Agreement or will prevent Investors from consummating the transactions contemplated by the Agreement; 6. The authorized and outstanding capital stock of Investors is as stated in Section 4.2 of the Agreement; 7. To our knowledge, after due inquiry, except as set forth in the Agreement or Investors' Disclosure Statement, 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 Investors or Excalibur, or calling for or requiring the issuance of any securities or rights convertible into or exchangeable for shares of capital stock of Investors or Excalibur; and 8. The execution, delivery, and performance of the Agreement, and the performance by Investors of its obligations thereunder, are not in contravention of any law, ordinance, rule or regulation of any State or political subdivision of the United States or of any applicable foreign jurisdiction, or contravene any order, writ, judgment, injunction, decree, determination, or award of any court or other authority having jurisdiction, and will not cause the suspension or revocation of any authorization, consent, approval, or license presently in effect, which affects or binds Investors or any of its subsidiaries or any of their material properties, and will not have a material adverse effect on the validity of the Agreement or on the validity of the consummation of the transactions contemplated by the Agreement or constitute grounds for the loss or suspension of any permits, licenses, or other authorizations used in the business of Investors or Excalibur. Very truly yours, ROBERT E. WAGNER & ASSOCIATES, P.C. A-23 97 EXHIBIT E Citizens, Inc. First Investors Group, Inc. ______________, 1998 _____________, 1998 First Investors Group, Inc. 1709 South Fifth St. Springfield, Illinois 62703 Re: Plan and Agreement of Merger among First Investors Group, Inc., Citizens, Inc. and Excalibur Acquisition, Inc. Ladies and Gentlemen: We have acted as counsel to Citizens, Inc. ("Citizens") in connection with the above referenced agreement. This letter is provided to you pursuant to Paragraph 7.9(2) of the Plan and Agreement of Merger, dated as of September 10, 1998 (the "Agreement"), among First Investors Group, Inc., Citizens and Excalibur Acquisition, Inc. Except as otherwise indicated herein, capitalized terms used in this letter are defined as set forth in the Agreement or the Accord (see below). 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). As a consequence, it is subject to a number of qualifications, exceptions, definitions, limitations on coverage and other limitations, all as more particularly described in the Accord, and this letter should be read in conjunction therewith. In giving the opinion expressed below, insofar as such opinion relates to other than Federal law or the laws of jurisdiction other than the State of Colorado, we advise that our opinion is with respect to Federal law and the laws of the State of Colorado only and that, to the extent such opinion is derived from laws of other jurisdictions, the statements are based on examinations of relevant authorities and are believed to be correct, but we have obtained no legal opinions as to such matters from attorneys licensed to practice in such other jurisdictions. Accordingly, the law covered by the opinion expressed herein is limited to the Federal law of the United States and the law of the State of Colorado. We have relied upon factual representations made by Citizens in Article III of the Agreement and we have reviewed such documents and given consideration to such matters of law and fact as we have deemed appropriate to render this opinion. Based upon and subject to the foregoing, we are of the opinion that: 1. The execution, delivery and performance of the Agreement by Citizens 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 Citizens is a party or by which Citizens is bound or the charter or bylaws of Citizens or other governing instruments of Citizens. A-24 98 EXHIBIT E Citizens, Inc. First Investors Group, Inc. ______________, 1998 2. The Agreement has been duly authorized, executed and delivered by Citizens and is a legal, valid and binding obligation of Citizens enforceable against Citizens 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); 3. Citizens is a Colorado corporation duly organized, validly existing and in good standing under the laws of the State of Colorado; 4. Citizens has full corporate power and authority to enter into the Agreement and to carry out the transactions contemplated by the Agreement; 5. To our knowledge, after due inquiry, there are no civil or criminal actions, suits, arbitrations, administrative or other proceedings or governmental investigations pending or threatened against Citizens which will constitute a breach of the representations, warranties or covenants under the Agreement or will prevent Citizens from consummating the transactions contemplated by the Agreement; 6. The authorized and outstanding capital stock of Citizens is as stated in Section 3.2 of the Agreement, and each of the shares of Citizens 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 not issued in violation of the preemptive rights of any party; 7. To our knowledge, after due inquiry, except as set forth in the Agreement or Citizens' Disclosure Statement, 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 Citizens, or calling for or requiring the issuance of any securities or rights convertible into or exchangeable for shares of capital stock of Citizens; and 8. The execution, delivery, and performance of the Agreement, and the performance by Citizens of its obligations thereunder, are not in contravention of any law, ordinance, rule or regulation of any State or political subdivision of the United States or of any applicable foreign jurisdiction, or contravene any order, writ, judgment, injunction, decree, determination, or award of any court or other authority having jurisdiction, and will not cause the suspension or revocation of any authorization, consent, approval, or license presently in effect, which affects or binds Citizens or any of its subsidiaries or any of their material properties, and will not have a material adverse effect on the validity of the Agreement or on the validity of the consummation of the transactions contemplated by the Agreement or constitute grounds for the loss or suspension of any permits, licenses, or other authorizations used in the business of Citizens. Very truly yours, JONES & KELLER, P.C. A-25 99 EXHIBIT E Citizens, Inc. First Investors Group, Inc. ______________, 1998 AMENDMENT TO PLAN AND AGREEMENT OF MERGER This Amendment to Plan and Agreement of Merger ("Amendment") is entered into by and among First Investors Group, Inc. ("Investors"), Citizens, Inc. ("Citizens") and Excalibur Acquisition, Inc. ("Acquisition"). WITNESSETH: WHEREAS, Investors, Citizens and Acquisition have heretofore entered into a Plan and Agreement of Merger dated September 10, 1998 ("Agreement"), to effect a merger between them under Illinois law, as provided in the Plan; and WHEREAS, Article X of the Agreement permits Investors, Citizens and Acquisition to amend the terms and conditions of the Agreement and the exhibits thereto; NOW THEREFORE, Investors, Citizens and Acquisition hereby agree that the Agreement should be and hereby is, amended as follows: 1. AMENDMENT OF SECTION 7.2. Section 7.2 is amended in its entirety to read as follows: "7.2 This Agreement and the transactions contemplated herein shall have been duly and validly authorized, approved and adopted, as a meeting of the shareholders of Investors duly and properly called for such purpose in accordance with the applicable laws." 2. DELETION OF SECTION 7.8(5). Section 7.8(5) is deleted. 3. SCOPE OF AMENDMENT. This Amendment embodies all of the changes to the Agreement as of the date hereof. Except as modified hereby, the Agreement remains in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment as of October 30, 1998. CITIZENS, INC. By: /s/ Mark A. Oliver ------------------------- Mark A. Oliver, President FIRST INVESTORS GROUP, INC. By: /s/ Don Dennis ------------------------- Don Dennis, President EXCALIBUR ACQUISITION, INC. By: /s/ Mark A. Oliver ------------------------- Mark A. Oliver, President A-26 100 APPENDIX B ILLINOIS BUSINESS CORPORATION ACT OF 1983 ARTICLE 11. MERGER AND CONSOLIDATION -- DISSENTERS' RIGHTS 5/11.65 RIGHT TO DISSENT. -- (a) A shareholder of a corporation is entitled to dissent from, and obtain payment for his or her shares in the event of any of the following corporate actions: (1) consummation of a plan of merger or consolidation or a plan of share exchange to which the corporation is a party if (i) shareholder authorization is required for the merger or consolidation or the share exchange by Section 11.20 or the articles of incorporation or (ii) the corporation is a subsidiary that is merged with its parent or another subsidiary under Section 11.30; (2) consummation of a sale, lease or exchange of all, or substantially all, of the property and assets of the corporation other than in the usual and regular course of business; (3) an amendment of the articles of incorporation that materially and adversely affects rights in respect of dissenter's shares because it: (i) alters or abolishes a preferential right of such shares; (ii) alters or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of such shares; (iii) in the case of a corporation incorporated prior to January 1, 1982, limits or eliminates cumulative voting rights with respect to such shares; or (4) any other corporate action taken pursuant to a shareholder vote if the articles of incorporation, by-laws, or a resolution of the board of directors provide that shareholders are entitled to dissent and obtain payment for their shares in accordance with the procedures set forth in Section 11.70 or as may be otherwise provided in the articles, by-laws or resolution. (b) A shareholder entitled to dissent and obtain payment for his or her shares under this Section may not challenge the corporate action creating his or her entitlement unless the action is fraudulent with respect to the shareholder or the corporation or constitutes a breach of a fiduciary duty owed to the shareholder. (c) A record owner of shares may assert dissenters' rights as to fewer than all the shares recorded in such person's name only if such person dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf the record owner asserts dissenters' rights. The rights of a partial dissenter are determined as if the shares as to which dissent is made and the other shares were recorded in the names of different shareholders. A beneficial owner of shares who is not the record owner may assert dissenters' rights as to shares held on such person's behalf only if the beneficial owner submits to the corporation the record owner's written consent to the dissent before or at the same time the beneficial owner asserts dissenters' rights. 5/11.70 PROCEDURE TO DISSENT. -- (a) If the corporate action giving rise to the right to dissent is to be approved at a meeting of shareholders, the notice of meeting shall inform the shareholders of their right to dissent and the procedure to dissent. If, prior to the meeting, the corporation furnishes to the shareholders material information with respect to the transaction that will objectively enable a shareholder to vote on the transaction and to determine whether or not to exercise dissenters' rights, a shareholder may assert dissenters' rights only if the shareholder delivers to the corporation before the vote B-1 101 is taken a written demand for payment for his or her shares if the proposed action is consummated, and the shareholder does not vote in favor of the proposed action. (b) If the corporate action giving rise to the right to dissent is not to be approved at a meeting of shareholders, the notice to shareholders describing the action taken under Section 11.30 or Section 7.10 shall inform the shareholders of their right to dissent and the procedure to dissent. If, prior to or concurrently with the notice, the corporation furnishes to the shareholders material information with respect to the transaction that will objectively enable a shareholder to determine whether or not to exercise dissenters' rights, a shareholder may assert dissenter's rights only if he or she delivers to the corporation within 30 days from the date of mailing the notice a written demand for payment for his or her shares. (c) Within 10 days after the date on which the corporate action giving rise to the right to dissent is effective or 30 days after the shareholder delivers to the corporation the written demand for payment, whichever is later, the corporation shall send each shareholder who has delivered a written demand for payment a statement setting forth the opinion of the corporation as to the estimated fair value of the shares, the corporation's latest balance sheet as of the end of a fiscal year ending not earlier than 16 months before the delivery of the statement, together with the statement of income for that year and the latest available interim financial statements, and either a commitment to pay for the shares of the dissenting shareholder at the estimated fair value thereof upon transmittal to the corporation of the certificate or certificates, or other evidence of ownership, with respect to the shares, or instructions to the dissenting shareholder to sell his or her shares within 10 days after delivery of the corporation's statement to the shareholder. The corporation may instruct the shareholder to sell only if there is a public market for the shares at which the shares may be readily sold. If the shareholder does not sell within that 10 day period after being so instructed by the corporation, for purposes of this Section the shareholder shall be deemed to have sold his or her shares at the average closing price of the shares, if listed on a national exchange, or the average of the bid and asked price with respect to the shares quoted by a principal market maker, if not listed on a national exchange, during that 10 day period. (d) A shareholder who makes written demand for payment under this Section retains all other rights of a shareholder until those rights are canceled or modified by the consummation of the proposed corporate action. Upon consummation of that action, the corporation shall pay to each dissenter who transmits to the corporation the certificate or other evidence of ownership of the shares the amount the corporation estimates to be the fair value of the shares, plus accrued interest, accompanied by a written explanation of how the interest was calculated. (e) If the shareholder does not agree with the opinion of the corporation as to the estimated fair value of the shares or the amount of interest due, the shareholder, within 30 days from the delivery of the corporation's statement of value, shall notify the corporation in writing of the shareholder's estimated fair value and amount of interest due and demand payment for the difference between the shareholder's estimate of fair value and interest due and the amount of the payment by the corporation or the proceeds of sale by the shareholder, whichever is applicable because of the procedure for which the corporation opted pursuant to subsection (c). (f) If, within 60 days from delivery to the corporation of the shareholder notification of estimate of fair value of the shares and interest due, the corporation and the dissenting shareholder have not agreed in writing upon the fair value of the shares and interest due, the corporation shall either pay the difference in value demanded by the shareholder, with interest, or file a petition in the circuit court of the county in which either the registered office or the principal office of the corporation is located, requesting the court to determine the fair value of the shares and interest due. The corporation shall make all dissenters, whether or not residents of this State, whose demands remain unsettled parties to the proceeding as an action against B-2 102 their shares and all parties shall be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law. Failure of the corporation to commence an action pursuant to this Section shall not limit or affect the right of the dissenting shareholders to otherwise commence an action as permitted by law. (g) The jurisdiction of the court in which the proceeding is commenced under subsection (f) by a corporation is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the power described in the order appointing them, or in any amendment to it. (h) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds that the fair value of his or her shares, plus interest, exceeds the amount paid by the corporation or the proceeds of sale by the shareholder, whichever amount is applicable. (i) The court, in a proceeding commenced under subsection (f), shall determine all costs of the proceeding, including the reasonable compensation and expenses of the appraisers, if any, appointed by the court under subsection (g), but shall exclude the fees and expenses of counsel and experts for the respective parties. If the fair value of the shares as determined by the court materially exceeds the amount which the corporation estimated to be the fair value of the shares or if no estimate was made in accordance with subsection (c), then all or any part of the costs may be assessed against the corporation. If the amount which any dissenter estimated to be the fair value of the shares materially exceeds the fair value of the shares as determined by the court, then all or any part of the costs may be assessed against that dissenter. The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable, as follows: (1) Against the corporation and in favor of any or all dissenters if the court finds that the corporation did not substantially comply with the requirements of subsections (a), (b), (c), (d), or (f). (2) Against either the corporation or a dissenter and in favor of any other party if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Section. If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated and that the fees for those services should not be assessed against the corporation, the court may award to that counsel reasonable fees to be paid out of the amounts awarded to the dissenters who are benefitted. Except as otherwise provided in this Section, the practice, procedure, judgment and costs shall be governed by the Code of Civil Procedure. (j) As used in this Section: (1) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the consummation of the corporate action to which the dissenter objects excluding any appreciation or depreciation in anticipation of the corporate action, unless exclusion would be inequitable. (2) "Interest" means interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances. B-3 103 PROXY FIRST INVESTORS GROUP, INC. THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS The undersigned shareholder of First Investors Group, Inc. ("Investors") acknowledges receipt of the Notice of Special Meeting of Shareholders, to be held on ________, 1998, at ___________________________, Bloomington, Illinois, at ____ a.m., Central Time, and hereby appoints Donald L. Dennis and H. Marie Dennis, each of them with the power of substitution, as attorneys and proxies to vote all the shares of the undersigned at said Special Meeting and at all adjournments thereof, hereby ratifying and confirming all that said attorneys and proxies may do or cause to be done by virtue hereof. The above-named attorneys and proxies are instructed to vote all of the undersigned's shares as follows: THE DIRECTORS RECOMMEND A VOTE FOR THE ITEMS INDICATED BELOW: 1. A proposal to approve and adopt the Plan and Agreement of Merger dated September 10, 1998 under which Excalibur Acquisition, Inc., a wholly-owned subsidiary of Citizens, Inc., will merge with and into Investors, with Investors being the survivor, and shareholders of Investors will receive shares of Citizens, Inc. Class A Common Stock for their Investors Common and Preferred shares as described in the accompanying Proxy Statement-Prospectus. FOR [ ] AGAINST [ ] ABSTAIN [ ] 2. To transact such other business as may properly come before the Special Meeting or any adjournment thereof. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1. Dated this ______ day of ________________, 199____. Number of Shares Voted* Common ------------------- ------------------------------- Signature Preferred ---------------- ------------------------------- Signature *If the number of shares voted is not indicated, all shares in your name on Investors' stock register will be voted for the Merger. Please sign your name exactly as it appears on your stock certificate(s). If shares are held jointly, each holder should sign. Executors, trustees, and other fiduciaries should so indicate when signing. Please sign, date and return this proxy immediately. B-4 104 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 - See Appendix A 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) 8.1 Opinion and Consent of Jones & Keller, P.C. re: tax matters(c) 10.12 Summary of Coinsurance Agreement between Citizens Insurance Company of America and Alabama Reassurance Company dated December 31, 1985(b) II-1 105 10.13 Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement between Citizens Insurance Company of America and The Centennial Life Insurance Company dated March 1, 1982(c) 10.14 Self-Administered Automatic Reinsurance Agreement between Citizens Insurance Company of America and Business Men's Assurance Company dated July 1, 1993(c) 11 Statement re: Computation of per share earnings(d) 22 Subsidiaries of the Registrant(d) 23.1 Consent of Jones & Keller, P.C.(c) 23.2 Consent of Jones & Keller, P.C.(c) 23.3 Consent of KPMG Peat Marwick LLP(c) 23.4 Consent of Kerber, Eck & Braeckel, LLP(c) 23.5 Consent of Sikich Gardner & Co, 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, 1997, 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. (B) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES. See "Financial Statements." II-2 106 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 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 II-3 107 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. 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-4 108 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 10, 1998. 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 10, 1998 - ------------------------------------- Harold E. Riley /s/ Mark A. Oliver President, Chief November 10, 1998 - ------------------------------------- Administrative Officer and Mark A. Oliver Director /s/ T. Roby Dollar Vice Chairman, Chief Actuary, November 10, 1998 - ------------------------------------- Assistant Secretary and Director T. Roby Dollar /s/ Rick D. Riley Vice Chairman - Administration November 10, 1998 - ------------------------------------- and Director Rick D. Riley /s/ James C. Mott Director November 10, 1998 - ------------------------------------- James C. Mott /s/ Joe R. Reneau Director November 10, 1998 - ------------------------------------- Joe R. Reneau, M.D. Director November 10, 1998 - ------------------------------------- Steven F. Shelton Director November 10, 1998 - ------------------------------------- Ralph M. Smith. Th.D. Director November 10, 1998 - ------------------------------------- Timothy T. Timmerman
109 INDEX TO EXHIBITS
Exhibit Number Description - ------ ----------- 2.21 Plan and Agreement of Merger (see Appendix A) 5.1 Opinion and consent of Jones & Keller, P.C. as to the legality of Citizens, Inc. Common Stock 8.1 Opinion and consent of Jones & Keller, P.C. re: tax matters 10.13 Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement between Citizens Insurance Company of America and The Centennial Life Insurance Company dated March 1, 1982 10.14 Self-Administered Automatic Reinsurance Agreement between Citizens Insurance Company of America and Business Men's Assurance Company dated July 1, 1993 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 Jones & Keller, P.C. (see Exhibit 8.1) 23.3 Consent of KPMG Peat Marwick LLP 23.4 Consent of Kerber, Eck & Braeckel LLP 23.5 Consent of Sikich Gardner & Co, LLP 25 Power of Attorney (see Signature Pages)
EX-5.1 2 OPINION AND CONSENT OF JONES & KELLER 1 EXHIBITS 5.1 AND 23.1 JONES & KELLER a Professional Corporation 1625 Broadway, Suite 1600 Denver, Colorado 80202 Phone: (303) 573-1600 Facsimile: (303) 573-0769 November 10, 1998 Citizens, Inc. 400 East Anderson Lane Austin, Texas 78714-9151 Gentlemen: We have acted as special counsel for Citizens, Inc. in connection with a Registration Statement on Form S-4, to be filed by the Company under the Securities Act of 1933 with the Securities and Exchange Commission. The Registration Statement relates to the proposed issuance of up to 611,000 shares of Class A Common Stock, no par value, to be issued in connection with the Plan and Agreement of Merger dated as of September 10, 1998 by and between First Investors Group, Inc., Citizens, Inc. (the "Company"), and Excalibur Acquisition, Inc. 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). As a consequence, it is subject to a number of qualifications, exceptions, definitions, limitations on coverage and other limitations, all as more particularly described in the Accord, and this letter should be read in conjunction therewith. We have examined the Articles of Incorporation of the Company as filed with the Colorado Secretary of State, the Bylaws of the Company, and the minutes of the meetings and records of proceedings of the Board of Directors of the Company, 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 when issued pursuant to the Registration Statement, the above-referenced 611,000 shares of Class A Common Stock of the Company shall have been 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 the Proxy Statement-Prospectus constituting a part of the Registration Statement. Very truly yours, /s/ Jones & Keller, P.C. Jones & Keller, P.C. EX-8.1 3 OPINION & CONSENT OF JONES & KELLER RE TAX MATTERS 1 EXHIBIT 8.1 AND 23.2 JONES & KELLER a Professional Corporation 1625 Broadway, Suite 1600 Denver, Colorado 80202 Phone: (303) 573-1600 Facsimile: (303) 573-0769 November 10, 1998 Citizens, Inc. P.O. Box 149151 Austin, Texas 78714-9151 Excalibur Acquisition, Inc. P.O. Box 149151 Austin, Texas 78714-9151 First Investors Group, Inc. Excalibur Investors Life Insurance Company 1709 South Fifth Street Springfield, Illinois 62703-3116 Gentlemen: Our opinions as expressed below are based solely upon: (1) the information contained in the Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on November 10, 1998 (hereafter "Registration Statement"); (2) relevant information provided by the principals and disclosed under the facts section of this letter; (3) the Internal Revenue Code of 1986, as amended (hereinafter "IRC"), the regulations promulgated thereunder, and the current administrative positions of the Internal Revenue Service ("IRS") contained in published Revenue Rulings and Revenue Procedures; and (4) existing judicial decisions. Any or all of the above are subject to change or modification by subsequent legislative, regulatory, administrative or judicial decisions which could adversely affect our opinions. 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). As a consequence, it is subject to a number of qualifications, exceptions, definitions, limitations on coverage and other limitations, all as more particularly described in the Accord, and this letter should be read in conjunction therewith. "Merger" refers to the transactions set forth in the Plan and Agreement of Merger ("Merger Agreement") dated September 10, 1998 between Citizens, Inc. ("Citizens"), Excalibur Acquisition, Inc. ("Acquisition") and First Investors Group, Inc. ("Investors"). Capitalized terms herein have the same meaning as in the Merger Agreement. Excalibur is a subsidiary of Investors. Acquisition is a subsidiary 8.1-1 2 of Citizens. The Common Stock of Investors is herein referred to as "Investors Common Stock"; the Preferred Stock of Investors is herein referred to as "Investors Preferred Stock"; and both are sometimes herein referred to as "Investors Stock". Shareholders residing or conducting business in foreign countries, states or municipalities having tax laws could be required to pay tax with respect to transactions in that country, state or municipality. We do not express any opinion as to foreign, state or local tax consequence. We do not express any opinion regarding alternative minimum tax consequences to any shareholder. The consequences described in this summary are not applicable to nonresident aliens, to foreign corporations, to debtors under the jurisdiction of a court in a case under Title 11 of the United States Code or in a receivership, foreclosure, or similar proceeding, to shareholders that are real estate investment trusts, to shareholders that are regulated investment companies, to shareholders that are tax exempt persons, to shareholders that are persons that hold their Investors Stock as part of a position in a "straddle" or as part of a "hedging" or other integrated transaction, to shareholders that are investment companies within the meaning of IRC Section 351(e), to shareholders who are dealers in securities, to shareholders who do not hold their common stock as capital assets, to shareholders who are financial institutions, or to shareholders who acquired their shares in connection with stock option or stock purchase plans or in other compensatory transactions. The principal reasons for the Merger can be summarized as follows: (1) to create a combined entity with greater financial strength and an enhanced competitive position as compared to the separate entities; (2) to achieve improved capitalization and economies of scale; (3) to consolidate the ownership and operation of the assets of the separate entities into an affiliated group of corporations having greater and more diversified reserves, properties and products; and (4) to provide greater liquidity and diversity to Investors shareholders. This letter is conditioned on the accuracy of the factual information, assumptions and representations contained in the Registration Statement and provided by Citizens, Acquisition and Investors, including the following: (1) that Citizens and Investors, in arriving at the method used to determine the number of shares of Citizens Common Stock to be received by each Investors shareholder, attempted in good faith to value the Investors Common Stock and Investors Preferred Stock to be transferred and to value Citizens Common Stock to be exchanged for such Investors Common Stock and Investors Preferred Stock in an effort to ensure that each shareholder receiving Citizens Common Stock pursuant to the Merger received a number of shares of such stock approximately equal in value to the Investors Common Stock and Investors Preferred Stock exchanged therefor; (2) that following the Merger, Investors will hold at least 90 percent of the Fair Market Value 8.1-2 3 of its Net Assets and at least 70 percent of the Fair Market Value of its Gross Assets and at least 90 percent of the Fair Market Value of Acquisition's Net Assets and at least 70 percent of the Fair Market Value of Acquisition's Gross Assets held immediately prior to the Merger. Amounts paid by Investors or Acquisition to dissenters, amounts paid by Investors or Acquisition to shareholders who receive cash or other property, amounts used by Investors or Acquisition to pay reorganization expenses, and all redemptions and distributions (except for regular, normal dividends) made by Investors will be included as assets of Investors or Acquisition, respectively, immediately prior to the Merger; (3) that prior to the Merger, Citizens will be in control of Acquisition within the meaning of IRC Section 368(c); (4) that Investors has no plan or intention to issue additional shares of its stock that would result in Citizens losing control of Investors within the meaning of IRC Section 368(c); (5) that Excalibur has no plan or intention to issue additional shares of its stock that would result in Investors losing control of Excalibur within the meaning of IRC Section 368(c); (6) that neither Citizens nor any affiliate of Citizens will redeem or otherwise reacquire, either directly or indirectly, any Citizens Class A Common Stock to be issued to Investors shareholders in the Merger; (7) that Citizens has no plan or intention to liquidate Investors; to merge Investors with or into another corporation; to sell or otherwise dispose of the stock of Investors except for transfers of stock to corporations controlled by Citizens; or to cause Investors to sell or otherwise dispose of any of its assets or any of the assets acquired from Acquisition, except for dispositions made in the ordinary course of business or transfers of assets to a corporation controlled by Investors; (8) that Investors and Citizens have no plan or intention to liquidate Excalibur; to merge Excalibur into another corporation; to cause Excalibur to sell or otherwise dispose of any of its assets, except for dispositions made in the ordinary course of business; (9) that Acquisition will have no liabilities assumed by Investors, and it will not transfer to Investors any assets subject to liabilities, in the Merger; (10) that neither Investors, Citizens nor any affiliate of either corporation will redeem or otherwise acquire, either directly or indirectly, any Investors Stock prior to the Merger; (11) that following the Merger, Investors will continue the historic business of Excalibur or use a significant portion of Excalibur's historic business assets in a business; (12) that Citizens, Acquisition and Investors will assume and pay their respective reorganization expenses, if any, incurred in connection with the Merger; (13) that there is no corporate indebtedness between Citizens or Investors or between Acquisition and Investors that was issued, acquired or will be settled at a discount; 8.1-3 4 (14) that in the Merger and on the effective date of the Merger, shares of Investors Stock representing control of Investors, as defined in IRC Section 368(c), will be exchanged solely for newly issued Citizens voting Class A Common Stock. Shares of Investors Stock exchanged for cash or other property originating with Citizens will be treated as outstanding Investors Stock on the effective date of the Merger; (15) that on the effective date of the Merger, Investors and Excalibur will not have outstanding any warrants, options, convertible securities, or any other type of right pursuant to which any person could acquire stock in Investors or Excalibur that, if exercised or converted, would affect retention of control of Investors or Investors retention of control of Excalibur, as defined in IRC Section 368(c); (16) that Citizens does not own, nor has it owned during the past five years, any shares of Investors or Excalibur Stock; (17) that neither Citizens, Acquisition, Investors nor Excalibur are investment companies as defined in IRC Section 368(a)(2)(F)(iii) and (iv); (18) that on the effective date of the Merger, the fair market value of the assets of Investors will equal or exceed the sum of its liabilities, plus the amount of liabilities, if any, to which the assets are subject; (19) that on the effective date of the Merger, the fair market value of the assets of Excalibur will equal or exceed the sum of its liabilities, plus the amount of liabilities, if any, to which the assets are subject; (20) that neither Citizens, Acquisition, Investors nor Excalibur are under the jurisdiction of a court in a Title 11 or similar case within the meaning of IRC Section 368(a)(3) (A); (21) that the Merger will be consummated in full compliance with Illinois law; (22) that the Investors Stock to be surrendered by each Investors shareholder will not be subject to any liability and neither Investors nor Citizens will assume liabilities with respect to the surrendered Investors Stock; (23) that the Merger will not be consummated in the event more than 2.5 percent of the shareholders of Investors dissent to the Merger; (24) that cash payments in lieu of fractional shares are simply a mathematical rounding-off for the purpose of simplifying corporate and accounting problems which would have been caused by the actual issuance of fractional shares, and such payments are not separately bargained for consideration; (25) that none of the shares of Citizens Class A Common Stock received by any shareholder will be separate consideration for, or allocable to, any employment agreement; and the compensation paid to any shareholder will be for services actually rendered and will be commensurate with amounts paid to third parties bargaining at arm's-length for similar services. In rendering an opinion on the federal income tax consequences of such transactions, reasonable steps have been taken to assure that all material tax issues are considered in light of the facts, and that all of such issues involving a reasonable possibility of challenge by the IRS are fully and fairly addressed. A 8.1-4 5 "material tax issue" includes any tax issue that could have a significant impact (either beneficial or adverse) on any Investors shareholder participating in the Merger under any reasonably foreseeable circumstances. The opinions expressed below are rendered only with respect to the specific matters described herein, and we express no opinion with respect to any other federal income tax aspects of the Merger. Should any of the facts, circumstances, or assumptions specified herein be subsequently determined incorrect or inaccurate, our conclusions may vary from those set forth below and such variance could be material. In addition, we do not opine as to the taxable or nontaxable status of any previous transactions not considered to be part of the Merger transaction. The tax issues that are material to the Merger concern tax consequences to Investors and its shareholders upon the merger of Acquisition into and with Investors in exchange for Citizens Class A Common Stock. The Merger of Acquisition into Investors will constitute a reorganization within the meaning of IRC Section 368(a)(1)(A) and IRC Section 368(a)(2)(E) and Citizens and Investors will each be a "party to a reorganization" within the meaning of IRC Section 368(b), provided that the Merger, as proposed in the Merger Agreement, qualifies as a statutory merger under the laws of the State of Illinois. Accordingly, in our opinion, the material tax consequences of the Merger are as follows: (1) No gain or loss will be recognized by the shareholders of Investors upon the exchange of their shares of Investors Common Stock and Investors Preferred Stock for shares of Citizens Class A Common Stock (except for cash received in lieu of a fractional share of Citizens Class A Common Stock). IRC Section 354(a). (2) The tax basis of the shares of Citizens Class A Common Stock received by a shareholder of Investors (including any fractional share of Citizens Common Stock not actually received) will be the same as the basis of the Investors Stock surrendered by that shareholder in the Merger. IRC Section 358(a), IRC Regulation Section 1.358-1(a). (3) The holding period of the shares of Citizens Class A Common Stock received by a shareholder of Investors will include the period during which such shareholder held the Investors Stock exchanged therefor, to the extent that the Investors Stock was held by the shareholder as a capital asset on the date of the consummation of the Merger. IRC Section 1223(1). (4) Cash received by the Investors shareholders who properly exercise their dissenters' rights will be treated as having been received in redemption of the shares so cashed out, and may result in taxable gain or loss, measured by the difference (if any) between the amount of cash received and such shareholder's basis in the Investors Stock. Provided the shares were held as capital assets at the time of the redemption, such gain or loss will constitute capital gain or loss. Under recently enacted legislation, an individual Investors shareholder generally will be subject to tax on the net amount of his capital gain realized on the redemption at a maximum rate of 20% if the holding period for such shares was greater than one year. Special rules (and generally lower maximum rates) apply for individuals whose taxable income is below certain levels. It is possible, that for some shareholders, the distribution of cash may be treated as a dividend taxable as ordinary income. See IRC Sections 302, 301. 8.1-5 6 (5) Cash payments received by Investors shareholders in lieu of fractional shares of Citizens Class A Common Stock will be treated as if such fractional share of Citizens Class A Common Stock has been issued in the Merger and then redeemed by Citizens. An Investors shareholder receiving such cash will recognize gain or loss, upon such payment, measured by the difference (if any) between the amount of cash received and the basis in such fractional share. Provided the fractional share was held as a capital asset at the time of the redemption, such gain or loss will constitute capital gain or loss. Under recently enacted legislation, an individual Investors shareholder generally will be subject to tax on the net amount of his capital gain realized on the redemption at a maximum rate of 20% if the holding period for such share (taking into account the holding period of the Investors Stock surrendered, as described in (3) above) was greater than one year. Special rules (and generally lower maximum rates) apply for individuals whose taxable income is below certain levels. It is possible that the distribution of cash may be treated as a dividend taxable as ordinary income if the IRS determines that the distribution in redemption is essentially equivalent to a dividend. See IRC Sections 356, 302. (6) No material gain or loss will be recognized by Investors, Citizens or Acquisition as a result of the Merger. IRC Sections 361 and 1032. The adjusted tax basis of Acquisition properties will carryover to Investors. IRC Section 362. (7) Section 382 limits the Net Operating Loss carryover of a company following an ownership change. Investors and Excalibur, as a group, will be deemed to have an ownership change. After an ownership change, the amount of income that a group may offset each year by Net Operating Losses that occurred before the change is generally limited to an amount determined by multiplying the value of the equity of the group immediately prior to this change by the federal long-term tax exempt rate in effect on the date of the change. Any unused limitation may be carried forward and added to the next year's limitation. To the extent Investors and Excalibur also have built-in losses as defined in IRC Section 382(h) as of the date of the Merger, IRC Section 382 limits the utilization of such losses after the ownership change. IRC Section 383 will similarly limit the utilization of excess credits, net capital losses, and foreign tax credits, if any, after the ownership change. In addition, IRC Section 384 limits the use of preacquisition losses to offset built-in gains, if any, after the ownership change. (8) Each shareholder of Investors must file pursuant to IRS Regulation 1.368-3(b), with his or her income tax return for the year in which the Merger is consummated, a statement which provides details relating to the property transferred, securities received and liabilities, if any, assumed in the exchange. The preceding discussion and opinions are based on our interpretations of the facts and assumptions. The discussion and opinions are also based on the IRC, the regulations thereunder and judicial and administrative interpretations thereof in effect on the date hereof, which are subject to change by subsequent regulatory, administrative, legislative, or judicial actions which could have an adverse effect on the validity of our opinions. Our opinions are effective as of the Effective Time for the Merger as described in the Merger Agreement. We do not express an opinion on the valuations of Investors or Citizens assets or stock or the ratio of exchange of Investors Stock for Citizens Class A Common Stock. We believe we have addressed all material tax issues in regards to the Merger. If the Merger is transacted as outlined in the facts given, the material tax issues addressed singularly and in the aggregate will more likely than not be upheld under challenge by the IRS. 8.1-6 7 Each Investors shareholder should consult his own qualified tax advisor to evaluate the tax effects of this exchange based on his personal facts and circumstances. 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 the Registration Statement constituting a part of the Registration Statement. Very truly yours, /s/ Jones & Keller, P.C. JONES & KELLER, P.C. 8.1-7 EX-10.13 4 AUTOMATIC YEARLY RENEWABLE TERM LIFE REINSURANCE 1 EXHIBIT 10.13 AUTOMATIC YEARLY RENEWABLE TERM (NR) LIFE REINSURANCE AGREEMENT #116A between CITIZENS INSURANCE COMPANY OF AMERICA of Austin, Texas (herein called the CEDING COMPANY) EFFECTIVE: March 1, 1982 and THE CENTENNIAL LIFE INSURANCE COMPANY Overland Park, Kansas (herein called the REINSURER) Changed to Puritan 6/1/86 Changed to ERC 1/1/87 10.13-1 2 TABLE OF CONTENTS (Auto-YRT Agreement) TITLE PAGE TABLE OF CONTENTS
ARTICLE PARAGRAPH TITLE - ------- --------------- - -- 0 Agreement Clause I AUTOMATIC REINSURANCE 1 Application of Agreement 2 Automatic Acceptance 3 Jumbo Risk Defined 4 Waiver of Premium Benefit 5 Accidental Death Benefit 6 Payor Benefit 7 Other Benefits 8 Multiple Policies on One Risk 9 Changes to Retention 10 Notification and Cession Procedures II FACULTATIVE REINSURANCE 11 Facultative Submission 12 Facultative Option 13 Submission Procedure 14 Cession Procedure III DURATION OF REINSURER'S LIABILITY 15 Initiation and Termination of Liability IV PLAN OF REINSURANCE 16 Basis of Agreement 17 Description of Business Reinsured - Policy Modifications 18 Plan Terms and Conditions 19 Policy Loans and Administration V CONSIDERATION 20 Life Reinsurance 20 a. Premiums Other Than Flat Extras 20 b. Permanent Flat Extras 20 c. Temporary Flat Extras 21 Waiver of Premium Coinsured
10.13-2 3 TABLE OF CONTENTS (Auto-YRT Agreement)
ARTICLE PARAGRAPH TITLE - ------- --------------- 22 Other Benefits 22 a. Accidental Death Benefit 22 b. Payor Benefits Coinsured 22 c. Interim Insurance 23 Mode of Premium Payment VI TAX CREDITS 24 Premium Taxes VII CONVERSIONS 25 Reinsurance of Converted Policies 26 Premium Calculation for Conversions VIII REINSURANCE PREMIUM DUE DATES 27 Billing Statement 28 Due Dates and Defaults 29 Refund of Unearned Premium IX ERRORS AND OMISSIONS 30 Unintentional Errors and Omissions X EXPENSE OF ORIGINAL POLICY 31 Policy Expenses XI RECAPTURE PRIVILEGE 32 Recapture Option 33 Proportional Reinsurance Reduction 34 "All or Nothing" and Timing XII CLAIMS 35 Reinsurer's Claim Liabilities 36 Lump Sum Reinsurance Settlement 37 Contested Claims
10.13-3 4 TABLE OF CONTENTS (Auto-YRT Agreement) TITLE PAGE TABLE OF CONTENTS
ARTICLE PARAGRAPH TITLE - ------- --------------- 38 Claims Notification and Authorization 39 Misstatement of Age and Sex 40 Waiver of Premium Claims 41 Conditional Receipt Claims 42 Other Claim XIII REINSTATEMENT 43 Automatic Reinsurance Reinstatement XIV INSOLVENCY 44 Insolvency Clause XV ARBITRATION 45 Interpretation of Reinsurance Agreement 46 Appointment of Arbitrators 47 Qualification of Arbitrators 48 Binding Arbitration XVI EXAMINATION OF RECORDS 49 Reinsurer's Examination of Records XVII PARTIES TO THE AGREEMENT 50 Exclusivity of the Relationship XVIII TERMINATION OF AGREEMENT 51 Effective Date of Termination 52 Reinsurance of In Force Business
EXECUTION PAGE INSOLVENCY CLAUSE EXHIBIT I RETENTION EXHIBIT II YRT RATES
10.13-4 5 TABLE OF CONTENTS (Auto-YRT Agreement)
ARTICLE PARAGRAPH TITLE - ------- --------------- EXHIBIT III CESSION FORMS EXHIBIT IV COINSURANCE COMMISSION EXHIBIT V DESCRIPTION OF BUSINESS REINSURED EXHIBIT VI ACCIDENTAL DEATH BENEFITS ADDENDUM #1 GUARANTEED INSURABILITY BENEFITS AND CONDITIONAL RECEIPT COVERAGE
10.13-5 6 The Centennial Life Insurance Company of Overland Park, Kansas (hereinafter called the REINSURER), in consideration of the mutual covenants contained herein agrees with Citizens Insurance Company of America of Austin, Texas (hereinafter called the CEDING COMPANY), as follows: ARTICLE I AUTOMATIC REINSURANCE 1. Application of Agreement This Agreement applies to international business written on risks whose surnames begin with the letters "A" through "L" and on all risks who are citizens of Argentina, Columbia, Honduras, and Nicaragua and which is reinsured by the CEDING COMPANY on or after the effective date of this Agreement for issue amounts in excess of the amounts shown at Exhibit I. 2. Automatic Acceptance Whenever, the CEDING COMPANY requires reinsurance for the excess over its retention of life insurance on a policy which is underwritten with the CEDING COMPANY's usual underwriting standards for individually selected risks and is not a group conversion or classified as a jumbo risk, the CEDING COMPANY will cede and the REINSURER will accept such reinsurance up to four times the retention of the CEDING COMPANY on any one risk whenever the CEDING COMPANY retains its maximum retention as indicated at Exhibit I. The initial minimum amount of life reinsurance under each cession shall be $1,000 unless otherwise mutually agreed to in writing. 3. Jumbo Risk Defined For the purpose of this Agreement, a jumbo risk is defined as one where the papers of the CEDING COMPANY indicate that the proposed insured I s total life insurance in force and applied for in all companies exceeds the following:
Insurance Age Total Line ------------- ---------- 0-14 $1,500,000 15-65 5,000,000 66-75 1,500,000
4. Waiver of Premium Benefit Waiver of premium reinsurance my be ceded automatically to the REINSURER in an amount equal to but not exceeding the life reinsurance. 5. Accidental Death Benefit Accidental Death coverage (Double Indemnity) my be ceded automatically concurrent with the base life coverage for amounts up to $250,000 on any one risk provided that the total amount of such benefits in force and applied for in all companies does not exceed $250,000. Amounts in excess of $250,000 may be submitted facultatively. 6. Payor Benefit The payor benefit my be ceded automatically on a coinsurance basis as a benefit on a child's contract reinsured. 10.13-6 7 7. Other Benefits Any other benefits not specifically described in this Article my be reinsured with the REINSURER subject to written agreement between both parties. 8. Multiple Policies on One Risk Whenever the CEDING COMPANY is already on the risk for its maximum retention under policies previously issued, the REINSURER will accept automatically additional amounts for reinsurance within the limits outlined above provided there has been no change affecting the insurability of the risk. Otherwise, the reinsurance shall be submitted on a facultative basis. 9. Changes to Retention The CEDING COMPANY will have the right to modify its limits affecting reinsurance by giving the REINSURER 14 days notice in writing. The amount of reinsurance to be ceded automatically to the REINSURER on any life after such new limits take effect will be determined by mutual agreement between the two companies. 10. Automatic Reinsurance Notification and Cession Procedures Whenever the CEDING COMPANY issues a policy on which automatic life reinsurance is to be ceded to the REINSURER, it will forward a preliminary notification form in substantial accord with Part A of Exhibit III. When a policy on which reinsurance is ceded automatically hereunder to the REINSURER is paid for, the CEDING COMPANY will forward a reinsurance cession form in substantial accord with Part B of Exhibit III together with, in the case of substandard reinsurance, copies of the original application, medical examiners' reports, inspection reports and all other papers bearing on the INSURABILITY of the risk. ARTICLE II FACULTATIVE REINSURANCE 11. Facultative Submission Whenever the CEDING COMPANY desires reinsurance on a risk not eligible for automatic cession under the provisions of Article I, the CEDING COMPANY may apply to the REINSURER for facultative reinsurance. 12. Facultative Option Other provisions of this Agreement not withstanding, the CEDING COMPANY may submit any risk facultatively to the REINSURER with or without retaining all or any part of its usual retention. 13. Facultative Submission Procedure Whenever the CEDING COMPANY applies to the REINSURER for facultative reinsurance, it will forward to the REINSURER an application form in substantial accord with Part A of Exhibit III together with copies of the original application, radical examiners' reports, inspection reports and all other papers bearing on the INSURABILITY of the risk. The REINSURER will examine the papers immediately upon receipt of such application and, as soon as possible, notify the CEDING COMPANY of its decision. 10.13-7 8 14. Facultative Cession Procedure When a policy on which facultative reinsurance has been obtained from the REINSURER is paid for, the CEDING COMPANY will forward to the REINSURER a reinsurance cessions form in substantial accord with Part B of Exhibit III. ARTICLE III DURATION OF REINSURER'S LIABILITY 15. Initiation and Termination of Liability The liability of the REINSURER shall begin and end simultaneously with that of the CEDING COMPANY provided that, in the case of a facultative submission, the REINSURER has notified the CEDING COMPANY of its acceptance of the risk and the CEDING COMPANY has mailed a reinsurance cession form in accordance with Part B of Exhibit III. ARTICLE IV PLAN OF REINSURANCE 16. Basis of Agreement Life reinsurance shall be ceded on the Yearly Renewable Term (YRT) rates at Exhibit II for the net amount at risk determined as the difference between the face amount and terminal reserves of the amount reinsured on the original policy issued by the CEDING COMPANY, unless another determination is mutually agreed upon in writing. For technical reasons relating to deficiency reserves, the YRT rates at Exhibit II are not guaranteed. However, any adjustment in those rates will not exceed CSO 58 3% YRT rates which are guaranteed. 17. Description of Business Reinsured - Policy Modifications Specimen copies of application, policy and rider forms, and any tables of rates and reserves which may be required for the proper administration of business reinsured under this Agreement shall be attached to this Agreement at Exhibit V. The CEDING COMPANY shall keep the REINSURER informed of any introduction of new rates or of any modification or new form which the CEDING COMPANY may adopt from time to time and under which reinsurance may be desired. New reinsurance terms and conditions shall be agreed upon whenever new premium rates are introduced or whenever any modification of the policy conditions, etc. entails an alteration of the risk for the REINSURER. 18. Reinsuring Plan Terms and Conditions Except as my be elsewhere stipulated by this Agreement, reinsurance shall be provided by the REINSURER to the CEDING COMPANY in accord with terms and conditions that are identical to the terms and conditions of insurance contained in the CEDING COMPANY'S policy or policies reinsured. 19. Policy Loans and Administration The REINSURER shall not participate in any policy loan or otherwise administer any of the other terms and conditions of the original policies reinsured under this Agreement. 10.13-8 9 ARTICLE V CONSIDERATION 20. Life Reinsurance The reinsurance consideration to be paid by the CEDING COMPANY to the REINSURER for the first year and each renewal year of life reinsurance shall be as follows: a. Standard and Substandard Premiums Other Than Flat Extras Reinsurance premiums for standard risks and for substandard risks charged a percentage extra reinsurance premium shall be based on the YRT rates shown at Exhibit II. b. Permanent Flat Extra Premiums Coinsured Reinsurance premiums for substandard risks charged a flat extra premium per $1,000 reinsured for more than five years (permanent flat extras) shall be the gross extra premium charged the insured for the initial face amount reinsured in. the first year less the following allowances:
Allowances Net Reinsurance Premium ---------- ----------------------- First Year 90% 10% of the First Year Permanent Flat Extra Renewal Years 25% 75% of the First Year Permanent Flat Extra
c. Temporary Flat Extra Premiums Coinsured Reinsurance premiums for substandard risks charged a f lat extra premium per $1, 000 reinsured for five years or less (temporary flat extras) shall be the gross extra premium charged the insured for the initial face amount reinsured in the first year less the following allowances:
Allowances Net Reinsurance Premium ---------- ----------------------- All Years 10% 90% of the First Year Temporary Flat Extra
21. Waiver of Premium Benefits Coinsured When ceded with life reinsurance, the waiver of premium benefits will be coinsured with the first year net reinsurance premium being zero. Renewal net reinsurance premiums shall equal 80% of the gross premium charged the insured on the original amount ceded. 22. Other Benefits a. Accidental Death Benefit Standard reinsurance premiums for this benefit shall be as stipulated in EXHIBIT VI. Substandard premiums are multiples of the standard reinsurance premiums and are based on the occupational classifications of the CEDING COMPANY as approved by the REINSURER. b. Payor Benefits Coinsured The reinsurance premium shall be the gross payor premiums charged the insured on the amount coinsured with a first year ceding commission of 75% and renewal ceding commissions of 10%. c. Interim Insurance - Preliminary Term 10.13-9 10 Whenever the CEDING COMPANY reinsures an interim or preliminary term life policy prior to the issue effective date of a policy reinsured under this Agreement, the reinsurance premium for such period shall be the pro rata YRT premium at the insured's current attained age found in the table at Exhibit II for the second policy year but without policy fee or other adjustments. 23. Mode of Reinsurance Premium Payment All reinsurance premiums payable by the CEDING COMPANY to the REINSURER under this Agreement shall be paid on an annual basis in advance regardless of the mode of premium payment of the particular policies reinsured. Should any reinsurance be reduced or lapsed in any policy year, the corresponding part of the reinsurance premium paid shall be refunded with adjustment for commission. ARTICLE VI TAX CREDITS 24. Premium Taxes When the 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 that part of the premium received under the CEDING COMPANY's original policies which is remitted to the REINSURER as reinsurance premium in accordance with Article V. ARTICLE VII CONVERSIONS 25. Reinsurance of Converted Policies If at any time a policy reinsured under this Agreement is converted at another plan of life insurance, the REINSURER shall receive the same proportion of reinsurance on this new policy that it has reinsured on the original policy before conversion provided that the minimum amount of converted reinsurance to be ceded shall be $2,000. 26. Reinsurance Premium Calculation for Converted Policies The reinsurance of the nod policy shall be upon a risk premium basis at attained age YRT rates, policy years for entering the premium table at Exhibit II to be counted starting with the year of the last check of INSURABILITY. ARTICLE VIII REINSURANCE PREMIUM DUE DATES 27. Billing Statement The REINSURER shall send to the CEDING COMPANY each month a statement in duplicate of all reinsurance premium falling due within the previous month. 28. Initial and Renewal Premium Due Dates and Defaults The initial reinsurance premiums shall be paid to the REINSURER not later than 75 days after the date when reinsurance first becomes effective. The renewal premiums shall be paid to the REINSURER not later than 60 days after the first day of the month following that in which reinsurance is renewed. If any premium is not paid as herein provided, the liability of the REINSURER shall cease as of the date when the reinsurance premium was due. 10.13-10 11 29. Refund of Unearned Premium In event of termination by the CEDING COMPANY of any reinsurance on which a premium has been paid to the REINSURER covering the risk beyond the date of such termination, the REINSURER shall return the unearned premium (not the policy fee, if any) to the CEDING COMPANY. ARTICLE X ERRORS AND OMISSIONS 30. Unintentional Errors and Omissions The REINSURER shall be bound as the CEDING COMPANY is bound, and it is expressly understood and agreed that, if non- payment of premium within the time specified or failure to comply with any terms of this Agreement is shown to be unintentional or the result of misunderstanding or oversight on the part of either the CEDING COMPANY or the REINSURER, both the CEDING COMPANY and the REINSURER shall be restored to the positions they would have occupied had no such error or overnight occurred. ARTICLE X EXPENSE OF ORIGINAL POLICY 31. Policy Expenses The CEDING COMPANY shall bear the expense of all medical examination and inspection fees and of all other charges incurred in connection with the original policy. ARTICLE XI RECAPTURE PRIVILEGE 32. Recapture Option If the CEDING COMPANY shall increase its maximum limit of retention for new business, a corresponding reduction may be made, at the option of the CEDING COMPANY, in the reinsurance in force under this Agreement provided that the reduction is not made before the end of the fifth policy year. The reinsurance in force shall be reduced pursuant to this Article only on those lives on which the CEDING COMPANY has maintained its maximum limit of retention for the plan, age and mortality classification of the risk as shown in Exhibit I at the time of issue. Special reduced limits for specific underwriting hazards or impairments shall not be considered to be maximum limits of retention. 33. Proportional Reinsurance Reduction The reduction in reinsurance on each risk shall be of such an amount as will increase the share of the CEDING COMPANY in the risk up to its new maximum retention limit. If there is reinsurance in other companies on any such life, the reduction of the reinsurance in the REINSURER shall not exceed that proportion of the total reduction which is equal to the proportion carried by the REINSURER of the total reinsurance on that life. 34. "All or Nothing" Provision and Recapture Timing If a reduction as provided by this Article is elected by the CEDING COMPANY, all reinsurance eligible for such reduction shall be similarly reduced. The CEDING COMPANY shall give written notice to the REINSURER within 10.13-11 12 90 days from the effective date of its increase in retention for new issues and the reinsurance in force shall then be reduced as provided herein upon the anniversary date next following or at the end of the fifth policy year. ARTICLE XII CLAIMS 35. Reinsurer's Claims Liabilities Upon the sending by the CEDING COMPANY of an automatic binding notice to the REINSURER for automatic cases or upon the written acceptance of the risk by the REINSURER for facultative cases, the REINSURER shall be liable to the CEDING COMPANY for the benefits covered by reinsurance hereunder to the same extent as the CEDING COMPANY is liable to the insured for such benefits; and, except as may be stipulated elsewhere in this Agreement, all reinsurance shall be subject to the terms and conditions of the particular form of policy under which the CEDING COMPANY is liable. 36. Lump Sum Reinsurance Claim Settlement Whenever a claim is made under a pol icy of the CEDING COMPANY which has been reinsured hereunder, it shall be taken and considered by the REINSURER to be a claim for the amount of reinsurance on such risk. Upon settlement, the REINSURER shall pay the full amount stipulated by the policy of reinsurance in one lump sum to the CEDING COMPANY regardless of the mode of settlement under the policy of the CEDING COMPANY. 37. Contested Claims - Settlement and Expenses Any suit or claim involving policies reinsured under this Agreement may be contested or compromised on the part of the CEDING COMPANY. In such event, the CEDING COMPANY shall promptly and fully disclose to the REINSURER all matters relating to the contest or compromise and the REINSURER at that time may either decline or agree to participate in such action. a. If the REINSURER declines participation, it shall settle with the CEDING COMPANY for the full amount of reinsurance on the contested or compromised policy and terminate reinsurance thereon. b. If the REINSURER agrees to participate in a contest or compromise and there is a reduction of the claim made upon the CEDING COMPANY, the REINSURER and the CEDING COMPANY shall participate in such reduction in proportion to their respective net liabilities. Any expense incurred by the CEDING COMPANY in defending or investigating any claim or taking up or rescinding any policy reinsured hereunder shall be shared in the same proportion. Compensation of salaried officers and employees of the CEDING COMPANY shall not be deemed a claim expense. 38. Claims Notification and Authorization The CEDING COMPANY shall promptly notify the REINSURER of all claims pending on policies reinsured hereunder. In every case of loss, copies of proofs obtained by the CEDING COMPANY shall likewise be taken as sufficient by the REINSURER and copies thereof together with a statement showing the amount paid on such claim by the CEDING COMPANY shall be furnished to the REINSURER before payment shall be demanded of it. It is agreed, however, that, if at least 90% of the life risk on any particular case is carried by the REINSURER or if the amount of disability or additional accidental death indemnity benefits carried by the REINSURER in connection with any claim for such benefits under a policy reinsured hereunder is in excess of the amount of such benefits retained by the CEDING COMPANY, all papers in connection with such claim shall be submitted to the REINSURER for its authorization before payment is made. 10.13-12 13 39. Misstatement of Age and Sex In the event of an increase or reduction in the amount of the CEDING COMPANY's insurance provided by any policy or policies reinsured hereunder because of a misstatement of age or sex being established after the death of the insured, the CEDING COMPANY and the REINSURER shall share in such increase or reduction in the ratio that each company's net liability bore to the total net liability under such policy or policies prior to the increase or reduction. The reinsurance policy or policies of the REINSURER shall be rewritten from commencement on the basis of the adjusted amounts using premiums and reserves at the correct age and sex and the proper adjustment for the difference in reinsurance premiums, without interest, shall be made. 40. Waiver of Premium Benefit Claims If a claim is approved under the waiver of premium benefits on a policy reinsured on the Yearly Renewable Term plan, the CEDING COMPANY shall continue to pay the premiums for the life insurance and the REINSURER shall pay its pro rata portion of the premium waived on the original policy. 41. Conditional Receipt Claims If, before having an opportunity to arrange the necessary reinsurance, the CEDING COMPANY shall become liable under a conditional receipt for a death claim on a standard risk for an amount which, together with the amount retained by the CEDING COMPANY under previously issued policies if any, exceeds its limits of retention as shown in Exhibit I, the REINSURER shall automatically accept a share of such liability not to exceed $150,000 less the retention of the CEDING COMPANY. 42. Other Claims Claims for other benefits on policies reinsured hereunder but not specifically described in Article I or reinsured under Article II and VII with amendments shall be subject to separate written agreements between the parties hereto. ARTICLE XIII REINSTATEMENT 43. Automatic Reinsurance Reinstatement If a policy reinsured hereunder lapses or is continued on the Paid-Up or Extended Term Insurance basis and is later approved for reinstatement by the CEDING COMPANY in accordance with its underwriting standards, reinsurance of the excess over the original retention of the CEDING COMPANY resulting from said reinstatement shall be automatically reinstated by the REINSURER for an amount not exceeding that part of said policy originally reinsured in the REINSURER. Notice of such reinstatement shall be given promptly to the REINSURER. THE CEDING COMPANY shall pay to the REINSURER the proportionate part of the reinsurance premium, based on the premium payable for the policy year of reinstatement, applicable to the period from the date of reinstatement to the policy anniversary date next following. Thereafter, reinsurance premiums shall be payable in accordance with the regular attained age and duration. 10.13-13 14 ARTICLE XIV INSOLVENCY 44. Insolvency Clause The attached Insolvency Clause is hereby made a part of this Agreement. ARTICLE XV ARBITRATION 45. Interpretation of Reinsurance Agreement Both the CEDING COMPANY and the REINSURER shall consider this contract from the standpoint of a "gentlemen's agreement" and not a legal document. The terminology used in this Agreement as well as any procedure either expressed or implied under its terms and conditions shall be construed according to the custom and usage of the business. 46. Appointment of Arbitrators Any disagreement between the CEDING COMPANY and the REINSURER shall be settled by arbitration. Each party shall appoint one arbitrator with a third to be selected by these two representatives. Should the two arbitrators not be able to agree on the choice of the third, then the appointment shall be left to the President of the American Council of Life Insurance. 47. Qualification of Arbitrators It is agreed that all three arbitrators must be officers of life insurance companies other than the two parties to this Agreement. 48. Binding Arbitration The written decision of the three arbitrators shall be binding on both the CEDING COMPANY and the REINSURER. The cost of arbitration shall be borne by the losing party unless the arbitrators decide otherwise. ARTICLE XVI EXAMINATION OF RECORDS 49. Reinsurer's Examination of Records At its own discretion, the REINSURER shall have the right, in the Home Office of the CEDING COMPANY or such place where the CEDING COMPANY's original records and files pertaining to the business reinsured hereunder are kept, to examine the original applications, reports, examinations and other such documents that pertain to the risks reinsured hereunder. 10.13-14 15 ARTICLE XVII PARTIES TO THE AGREEMENT 50. Exclusivity of the Relationship This is an agreement solely between the CEDING COMPANY and the REINSURER and reinsurance hereunder shall in no way create any right or legal relation whatever between the REINSURER and the original insured, the beneficiary or any other person. ARTICLE XVIII TERMINATION OF AGREEMENT 51. Effective Date of Termination This Agreement may be terminated at any time by either party giving 90 days I notice by registered mail, stating the termination date. The CEDING COMPANY shall continue to submit and the REINSURER shall continue to accept cases for reinsurance for the 90 day period following the date of written notice of termination. 52. Reinsurance of In Force Business For business previously reinsured and in force on the date of termination, the provisions of this Agreement shall continue to apply. 10.13-15 16 INSOLVENCY In the event of the insolvency of the CEDING COMPANY, all reinsurance shall be payable directly to the liquidator, receiver or statutory successor of the CEDING COMPANY without diminution because of the insolvency of the CEDING COMPANY. In the event of the insolvency of the CEDING COMPANY, the liquidator, receiver or statutory successor shall give the REINSURER written notice of the pendency of a claim on the policy reinsured within a reasonable tire after such claim is filed in the insolvency proceeding. During the pendency of any such claim, the REINSURER my 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. The expense thus incurred by the REINSURER shall be chargeable, subject to court approval, against the CEDING COMPANY as part of the expense of liquidation to the extent of a proportionate share of the which may accrue to the CEDING COMPANY solely as a result of the defense undertaken by the REINSURER. Where two or more reinsurers are participating in the same claim and a majority in interest elect to interpose a defense or defenses to any such claim, the expense shall be apportioned in accordance with the term of the reinsurance Agreement as if such expense has been incurred by the CEDING COMPANY. 10.13-16 17 IN WITNESS WHEREOF, this Agreement shall be effective as of March 1, 1982, and is hereby executed in good faith between CITIZENS INSURANCE COMPANY OF AMERICA of Austin, Texas, referred to as the CEDING COMPANY, and THE CENTENNIAL LIFE INSURANCE COMPANY of Overland Park, Kansas, referred to as the REINSURER, and duly signed by both parties' respective officers as follows: CEDING COMPANY /s/ Alice M. Hill --------------------------------------------- Signature Vice President - Chief Underwriter --------------------------------------------- Title Dallo --------------------------------------------- Signature President --------------------------------------------- Title 9/7/82 ------------------------ Date of Signature REINSURER J Donduty - ---------------------------------- Signature Vice President - Reinsurance - ---------------------------------- Title Albert E. Joens - ---------------------------------- Signature Asst. Vice President - Reinsurance - ---------------------------------- 6/16/82 - ------------------------ Date of Signatures 10.13-17 18 EXHIBIT I CEDING COMPANY'S MAXIMUM LIMITS OF RETENTION - MALE AND FEMALE CEDING COMPANY: Citizens Ins. Co. of America EFFECTIVE WITH POLICIES DATED: March 1, 1982 LIFE Show the limit of retention for all ages and all rate classifications. Show "NONE" in all categories where there will be no retention.
ISSUE SUBSTANDARD SUBSTANDARD SUBSTANDARD AGE STANDARD TABLE FLAT EXTRA TABLE FLAT EXTRA TABLE FLAT EXTRA - ------ -------- ----- ---------- ----- ---------- ----- ---------- 1 - 4 (See Am. 12) a. Domestic Business: ALL $50,000 $50,000 None b. International Business: ALL $75,000 $75,000 None
- -------------------------------------------------------------------------------- DISABILITY Is Disability (Waiver of Premium) retention the same as Life? Yes. If not, please explain. ACCIDENTAL DEATH (D.I.) $-0- Does D.I. retention apply to any D.I. rate classification assigned? N/A. Is D.I. retention in addition to Life amount above? N/A 10.13-18 19 EXHIBIT VI Reinsurance Premiums The annual reinsurance premiums payable hereunder in respect of any calendar year shall be calculated as follows: a. $.91 per $1,000 of reinsured ADB in force on January 1 of such year, plus (minus) b. $.455 per $1,000 of increase (decrease) of reinsured ADB in force from January 1 to December 31 of such year. In force January 1 of any year may be taken as in force December 31 of the preceding year. Premiums in a. and b. above include, respectively, $.08 and $.04 per $1,000 for Common Carrier benefits and $.08 and $.04 per $1,000 for Dismemberment benefits. For substandard ADB risks, increase total rate above by 35% for 1.5 times standard and by 70% for 2.0 times standard. 10.13-19 20 ADDENDUM #1 YEARLY RENEWABLE TERM (NR) LIFE REINSURANCE AGREEMENT between CITIZENS INSURANCE COMPANY OF AMERICA of Austin, Texas (herein called the CEDING COMPANY) EFFECTIVE: March 1, 1982 ADDENDUM EFFECTIVE: March 1, 1982 and THE CENTENNIAL LIFE INSURANCE COMPANY Overland Park, Kansas (herein called the REINSURER) 21 It is hereby agreed and understood between The Centennial Life Insurance Company of Overland Park, Kansas (hereinafter called the REINSURER) , and Citizens Insurance Company of America of Austin, Texas (hereinafter called the CEDING COMPANY), that this Addendum applies only to the reinsurance agreement. AUTOMATIC YEARLY RENEWABLE TERM (NR) LIFE REINSURANCE AGREEMENT Effective: March 1, 1982 as follows: 1. Application of Addendum This Addendum applies to so much of ARTICLES I, V and XI and ARTICLE XII, paragraph 41, as may be changed hereby. All other terms of the Agreement and any prior addenda remain in force and in effect. PART I GUARANTEED INSURABILITY BENEFITS 2. Application of Agreement Effective March 1, 1982, Guaranteed INSURABILITY Benefits issued by the Ceding Company to civilian U.S. risks only, under Form No. IN2563, shall be reinsured in accordance with the following provisions: ARTICLE A BASIS OF REINSURANCE 3. Automatic Acceptance The CEDING COMPANY shall automatically cede to the REINSURER the excess over its then applicable retention for standard risks whenever an insured purchases additional insurance in specified amounts and at specified times without being required to produce evidence of INSURABILITY under a Guaranteed INSURABILITY Rider attached to a life insurance policy issued as a standard risk and subject to automatic reinsurance under the Automatic Reinsurance Agreement between the CEDING COMPANY and the REINSURER. The REINSURER shall automatically accept such additional amounts up to $10,000.00. 4. Facultative Acceptance In case of Guaranteed INSURABILITY Riders attached to life insurance policies not subject to automatic reinsurance under the Automatic Reinsurance Agreement, the CEDING COMPANY my apply to the REINSURER for reinsurance which the CEDING COMPANY may require in the future for the excess over its then applicable retention for standard risks whenever an insured purchases additional insurance in specified amounts and at specified times without being required to produce evidence of INSURABILITY under a Guaranteed INSURABILITY Rider attached to a life insurance policy reinsured facultatively with the REINSURER under the Reinsurance Agreement to which this Addendum applies. As soon as possible after review of such application, the REINSURER shall notify the CEDING COMPANY of its underwriting decision. The CEDING COMPANY shall cede and the REINSURER shall automatically accept the excess resulting from issuance of all insurances whenever the insured exercises any option available to him on a policy accepted by the REINSURER in accordance with the aforesaid. Reinsurance resulting from an exercised option under a guaranteed INSURABILITY rider will, however, be accepted by the REINSURER automatically only if a portion of the original policy containing such rider had also been reinsured with the 10.13-2 22 REINSURER and provided that such reinsurance continues to be in full force. The reinsurance cession to the REINSURER on the original policy shall amount to at least $2,000. 5. Proportional Acceptance If the excess of the original policy containing such Rider over the CEDING COMPANY's retention has been divided amongst several reinsurers, the REINSURER shall accept automatically only such proportion of the excess arising out of an exercised option that corresponds to its proportion in the reinsurance of the original policy. ARTICLE B OTHER AGREEMENTS 6. Reinsuring Terms and Conditions Reinsurance of Guaranteed INSURABILITY Benefits shall be subject to all the provisions of this Addendum and terms of the Reinsurance Agreement to which this Addendum is attached, except as otherwise stated herein. ARTICLE C MODE OF NOTIFICATION AND CESSION 7. Procedures Reinsurance ceded and accepted under the terms of this Addendum shall be completed in the same manner as provided for cessions of other reinsurance under the Reinsurance Agreement to which this Addendum is attached. The reinsurance cession form shall be marked "GIR" to show that the reinsurance ceded is based on insurance issued pursuant to an election of a guaranteed INSURABILITY option by the insured. ARTICLE D REINSURANCE PREMIUMS 8. Consideration The consideration to be paid the REINSURER by the CEDING COMPANY for reinsurance of coverage issued under the exercise of an option provided by the Guaranteed INSURABILITY Rider shall be the "standard" annual premiums required by the Reinsurance Agreement to which this Addendum is attached, plus a single premium based on the rates in the schedule attached hereto and marked Exhibit A. No commission shall be granted on these single premiums and they shall not be subject to an experience refund nor to any other refund because the option policy is terminated or reduced after issue. ARTICLE E RIDER FORMS AND UNDERWRITING REGULATIONS 9. Preapproval The CEDING COMPANY shall furnish the REINSURER for review a copy of its Guaranteed INSURABILITY Rider along with a copy of its underwriting and issue rules. No liability for future risk under a Guaranteed INSURABILITY Rider is assumed by the REINSURER unless it has given its written approval of such Rider and rules. 10.13-3 23 ARTICLE F INCREASE IN RETENTION LIMITS 10. "All or Nothing" Provision In the event the CEDING COMPANY increases its regular limit of retention and elects to apply such increased limit of retention to reinsurance then in force pursuant to the provisions of the Reinsurance Agreement to which this Addendum is attached, the CEDING COMPANY shall also apply such election to the reinsurance then in force as a result of the exercise by an insured of an option available to him under the Guaranteed INSURABILITY Rider, even when the CEDING COMPANY has not retained its regular retention limit at issue on the original policy containing such rider in order to meet the minimum cession requirement of Article A, paragraph 4, of this Addendum. ARTICLE G TERMINATION 11. Addendum Termination Either the CEDING COMPANY or the REINSURER may, upon thirty (30) days' written notice to the other stating the effective date of termination, terminate this Addendum with respect to any Guaranteed INSURABILITY Rider issued thereafter. However, unless the Reinsurance Agreement has been terminated in accordance with Article XVIII, Paragraph 51, of that Agreement, such termination shall in no way affect the CEDING COMPANY's obligation to cede or the REINSURER's obligation to accept automatically the reinsurance in accordance with this Addendum of any risk resulting from exercised options under a Guaranteed INSURABILITY Rider that became reinsured under this Addendum on or before the effective date of such termination. PART II CONDITIONAL RECEIPT COVERAGE 12. Reinsurer's Liability The 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 the REINSURER under ARTICLE II of the Agreement. The REINSURER's liability in such case shall be for the amount of the conditional receipt claim less the CEDING COMPANY's standard retention on the policy applied for. In no event, however, shall the REINSURER's liability on any one life, including previous reinsurances ceded to the REINSURER by the CEDING COMPANY, exceed the automatic acceptance limits provided by the Agreement to which this Addendum is attached. 13. Description of Benefit The CEDING COMPANY's conditional receipt is attached hereto and the CEDING COMPANY shall be obligated to advise the REINSURER of any changes or modifications of such receipt. 10.13-4 24 IN WITNESS WHEREOF, this Agreement shall be effective as of March 1, 1982, and is hereby executed in good faith between CITIZENS INSURANCE COMPANY OF AMERICA of Austin, Texas, referred to as the CEDING COMPANY, and THE CENTENNIAL LIFE INSURANCE COMPANY of Overland Park, Kansas referred to as the REINSURER, and duly signed by both parties' respective officers as follows: REINSURER /s/ Ja D. M - ------------------------------ Signature Sr. VP/Actuary - ------------------------------ Title /s/ Carl J. Strunk - ------------------------------ Title Assistant Actuary - ------------------------------ Title 8/19/82 - ------------------------------ Date of Signatures 10.13-5 25 Exhibit A Single Premiums Per $1,000 Of Reinsurance Based On Coverage Issued Under A Guaranteed INSURABILITY Rider The single premiums shown in the attached table shall be payable per $1,000 of reinsurance on the opted policy issued under a guaranteed INSURABILITY rider. In case such rider provides, in addition to the basic life coverage, any of the features listed below, the respective single premium shall be increased as follows:
Increased of Single Premium in Percent - -------------------------------------------------------------------------------------------------------------------------- 1. Inclusion of Accidental Death Benefit in the opted policy without current evidence of INSURABILITY. 5% 2. Inclusion of Waiver of Premium Disability Benefit in the opted policy without current evidence of INSURABILITY. 10% 3. Inclusion of Waiver of Premium Disability Benefit in the opted policy without current evidence of INSURABILITY and simultaneous waiver of premiums at issue because of existing disability on the option date. 50% 4. Free term coverage for up to 90 days: (a) if coverage is limited to period following insured's marriage or birth or adoption of a child. 2% (b) if coverage is granted for period following all option dates, but exercise of an option available at marriage or birth or adoption of a child cancels the next scheduled option date. 10% (c) if coverage is granted for a period following all scheduled option dates as all options available at marriage or birth or adoption of a child. 12%
10.13-6 26 PURITAN LIFE INSURANCE COMPANY P.O. Box 2981 Overland Park, KS 66201 913-676-5950 June 30, 1986 CITIZENS INSURANCE COMPANY P.O. BOX 1547 AUSTIN, TEXAS 78767 You will notice that this billing has a PURITAN LIFE label and we want to let you know the reasons why. Employers Reinsurance Corporation is in the process of selling The Centennial Life Insurance Company, but the Life Reinsurance operations have moved virtually intact to PURITAN LIFE, a member of the General Electric Financial Services Group which also owns ERC. The billings, cession forms and other supplies are being changed as rapidly as possible. Please address your correspondence to and make all checks payable to PURITAN LIFE INSURANCE COMPANY. New reinsurance agreements and amendments will be issued in the name of PURITAN LIFE. Existing treaties are changed to PURITAN LIFE by your attaching a copy of this letter to each one. PURITAN LIFE has an A rating from A. M. Best Company and has over $180,000,000 in Surplus. While there may be further steps in more closely identifying us as a member of the ERC Group, this gives us even more financial strength while maintaining the same dedicated team to serve your total reinsurance needs. Enclosed also is a Directory of key PURITAN LIFE personnel along with telephone numbers and other communication links. Please circulate this mailing to all pertinent individuals in your company. TREATY ENDORSEMENT As respects policies in force on and issued to become effective on or after June 1, 1986, THE CENTENNIAL LIFE INSURANCE COMPANY is hereby elected from the reinsurance agreements in effect between Centennial and the company to which the foregoing letter is addressed and the PURITAN LIFE INSURANCE COMPANY is hereby substituted therefor. THE CENTENNIAL LIFE INSURANCE COMPANY PURITAN LIFE INSURANCE COMPANY /s/ Eugene P. Zaihuian /s/ Robert Cross - -------------------------------------- ------------------------------ President President 10.13-7 27 EMPLOYERS REASSURANCE CORPORATION AMENDMENT NO. 1 The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement of November 1, 1983, between THE CENTENNIAL LIFE INSURANCE COMPANY of Overland Park, Kansas and INSURANCE COMPANY OF AMERICA of Austin, Texas, is hereby amended as follows: I. As respects policies in force on and issued to become effective on or after July 1, 1986, THE CENTENNIAL LIFE INSURANCE COMPANY is hereby deleted from this agreement and PURITAN LIFE INSURANCE COMPANY is hereby substituted therefor. II. In order to acknowledge the December 31, 1986 merger of PURITAN LIFE INSURANCE COMPANY into EMPLOYERS REASSURANCE CORPORATION, a life insurance company formed and existing under the laws of the State of Kansas, this agreement is hereby amended effective as of December 31, 1986 to reflect the substitution of EMPLOYERS REASSURANCE CORPORATION for PURITAN LIFE INSURANCE COMPANY. In all other respects not inconsistent herewith, said agreement shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in duplicate. INSURANCE COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION for itself and on behalf of its predecessor, Puritan Life Insurance Company By: /s/ Alice M. Ellis By: /s/ Miles B. Mamula J - ------------------------- ---------------------------------------- Title: Vice President Title: Vice President ------------------- ------------------------------------- Date: 2/10/88 Date: 3/16/87 -------------------- -------------------------------------- THE CENTENNIAL LIFE INSURANCE COMPANY By: Eugene P. Zaihuian ---------------------- Title: President ------------------- Date: 3/23/87 -------------------- 10.13-8 28 CITIZEN'S INTERNATIONAL GUIDELINES APPENDIX 1 1. Must be in U.S. Currency. 2. Minimum issue amount is $50,000. 3. Amount over S2,000,000 will be sent facultative to Puritan and they will consider on an individual basis. 4 . Application and Medical Papers must be written in English or Spanish. 5. Foreign residence extra premium is charged where applicable. (see attached listing) 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 extra rate or 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, except on individual basis to age 70. (Ages 66-70 will be ceded facultative) F. Applicants with coronary artery disease or insulin dependent diabetic. G. Will not issue with rating over Table Four. 8. Medical examinations by an M.D. 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 Equifax where available. All other investigative firms used only with H.O. approval of firm. On amounts 50,001 to 300,000 require a confidential letter from Bank. (Except in Colombia where we require inspection report on all amounts) Amounts 300,000 and up we require Inspection Report. 11. We will keep our full retention on each risk. (In force coverage and current application combined) 10.13-9 29 L91-1985 agreement shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in triplicate. CITIZENS INSURANCE COMPANY EMPLOYERS REASSURANCE OF AMERICA CORPORATION By: /s/ Ph Dolb By: /s/ Robert J. Wutant -------------------------- ------------------------- Title: Exec. V.P. Title: Vice Pres. ----------------------- ---------------------- Date: 10/18/91 Date: 10/1/91 ------------------------ ----------------------- By: /s/ Jorge Hernand By: /s/ Jan D M -------------------------- ------------------------- Title: Ast. VP & Underwriter Title: SVP & Actuary ----------------------- ---------------------- Date: 10/18/91 Date: 10/7/91 ------------------------ ----------------------- 10.13-10 30 EMPLOYERS REASSURANCE COMPANY Appendix 3-A Foreign National Business FOREIGN STANDARD RATE Australia Germany Mexico *Samoa Austria Greenland Netherlands Antilles Singapore Bahamas Grenada Netherlands Spain Barbados *Guam New Zealand Sweden Belgium Hong Kong Norway Switzerland Bermuda Iceland Panama Taiwan Costa Rica Ireland Portugal Tobago Denmark Italy *Puerto Rico Trinidad Dominican Republic Japan St. Vincent United Finland Lichtenstein & the Grenadines Kingdom France Luxembourg Saint Lucia Venezuela *Virgin Islands
115% FOREIGN STD. RATE Argentina, Brazil, Chile, Ecuador, Jamaica, Paraguay, Uruguay 130% FOREIGN STD. RATE Belize, Bolivia, Colombia, Guatemala, Guiana (Pr, Br, Dutch) Honduras, Peru, Philippines. 160% FOREIGN STD. RATE El Salvador (San Salvador only) Changes in political and military climates occur constantly; therefore these classifications are subject to immediate change. Any country not listed will generally not be considered. *These countries are covered under this Foreign Agreement unless a Domestic Reinsurance Agreement is in effect with Employers Reassurance in which case these countries would be covered under the Domestic Agreement. 6/1/87 10.13-11 31 EMPL0YERS REASSURANCE E CORPORATION AMENDMENT NO. 3 The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A) of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park, Kansas and CITIZENS INSURANCE COMPANY OF AMERICA of Austin, Texas, is hereby amended as follows: As respects policies issued by the CEDING COMPANY to become effective on or after August 1, 1987, Appendix 3 (attached to Amendment No. 2) is hereby deleted from this agreement and the attached Appendix 3-A is hereby substituted therefor. In all other respects not inconsistent herewith, said agreement shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in duplicate. By By: Title: Date: By: CITIZENS INSURANCE EMPLOYERS COMPANY OF AMERICA REASSURANCE CORPORATION 5200 Metcalf o P.O. Box 2981 o Overland Park, KS 66201 o (913) 676-5950 o Telex 437024 10.13-12 32 EMPL0YERS REASSURANCE CORPORATION 5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201 A General Electric Financial Services Company AMENDMENT NO. 4 The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A) of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park, Kansas and CITIZENS INSURANCE COMPANY OF AMERICA of Austin, Texas, is hereby amended as follows: As respects policies issued by the CEDING COMPANY to become effective on or after April 1, 1988, this agreement shall not apply to any policy written without Endorsement form number B04871E (2/88) [Death Benefit Reduction for Certain Causes]. In all other respects not inconsistent herewith, said agreement shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in duplicate. CITIZENS INSURANCE COMPANY EMPLOYERS OF AMERICA REASSURANCE CORPORATION By: /s/ Alice M. Ellis By: /s/ Donna M. Owens --------------------------- ------------------------- Title: Vice President Title: Assistant Secretary ------------------------ ---------------------- Date: 4/18/89 Date: APR 25 1989 ------------------------ ----------------------- By: /s/ RF Dollar By: Ja D M h -------------------------- ------------------------ Title: Exec. VP Title: SVP & Actuary ------------------------ --------------------- Date: 4/18/89 Date: April 25, 1989 ------------------------- ---------------------- 10.13-13 33 EMPL0YERS REASSURANCE CORPORATION ENDORSEMENT Re: Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement of March 1, 1982 between Puritan Life Insurance Company and Citizens Insurance Company of America In order to acknowledge the December 31, 1986 merger of Puritan Life Insurance Company into Employers Reassurance Corporation, a life insurance company formed and existing under the laws of the State of Kansas, the captioned agreement is hereby amended effective as of December 31, 1986 to reflect the substitution of Employers Reassurance Corporation for Puritan Life Insurance Company. IN WITNESS WHEREOF, Employers Reassurance Corporation has caused this endorsement to be signed by an officer of the company. EMPLOYERS REASSURANCE CORPORATION By: Robert P. Cross ----------------------------- Title: President --------------------------- Date: 2/4/87 ---------------------------- 5200 Metcalf o P.O. Box 2981 o Overland Park, KS 66201 o (913) 676-5950 o Telex 437024 10.13-14 34 EMPL0YERS REASSURANCE CORPORATION 5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201 A General Electric Financial Services Company AMENDMENT NO. 5 The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A) of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park, Kansas and CITIZENS INSURANCE COMPANY OF AMERICA of Austin, Texas, is hereby amended as follows: Effective: January 1, 1988: A. CITIZENS INSURANCE COMPANY OF AMERICA of Austin, Texas is hereby deleted and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with offices in Austin, Texas is hereby substituted therefor. B. Article XVIII is hereby deleted and the following Article XVIII is hereby substituted therefor: ARTICLE XVIII TERMINATION. Either party may terminate this agreement by giving the other party and the Colorado Insurance Department not less than 90 days advance notice by registered mail stating the termination date. This agreement does not apply with respect to policies issued by the CEDING COMPANY to become effective on or after the termination date. The reinsurance afforded by this agreement applicable to each policy issued by the CEDING COMPANY to become effective prior to the termination date shall continue to apply thereto until the policy naturally expires. In all other respects not inconsistent herewith, said agreement shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused these presents to be executed in triplicate. CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION By: Alice M. Ellis By: /s/ D Michael ------------------------ -------------------------- Title: Vice President Title: Vice President ---------------------- ----------------------- Date: 6/27/90 Date: 6/1/90 ----------------------- ------------------------ By: /s/ R Doll By: Robert J. Wutant ------------------------- ------------------------- Title: Exec. Vice Pres Title: Vice Pres ---------------------- ----------------------- Date: 6/27/90 Date: 6/1/90 ---------------------- ------------------------ 10.13-15 35 EMPL0YERS REASSURANCE CORPORATION 5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201 A General Electric Financial Services Company AMENDMENT NO. 6 The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A) of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park, Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with offices in Austin, Texas, is hereby amended as follows: I. Effective March 1, 1982, Numbered Paragraph 5 is hereby deleted from Article I and the following paragraph is hereby substituted therefor: 5. Accidental Death Benefits Excluded. The REINSURER and CEDING COMPANY do hereby agree that accidental death benefits shall not be reinsured under this agreement. II. As respects policies issued by the CEDING COMPANY to become effective on or after January 1, 1983, this agreement shall apply to all individual life insurance policies written by the CEDING COMPANY (surnames commencing with any letter of the alphabet). III. For purposes of Part V of Amendment No. 2, the reporting procedures and rates specified in the Self- Administered Automatic Reinsurance Agreement of January 1, 1982 between the CEDING COMPANY and Munich American Reinsurance Company shall include, but are not limited to, the following items: A. The premium refund for policies reduced or terminated during the second calendar year after issue shall not exceed 50% of the reinsurance premium paid. B. Substandard reinsurance premium for the second calendar year only shall be 150% of the premiums calculated. C. The CEDING COMPANY shall pay to the REINSURER the following percentages of the flat extras applicable to the life insurance reinsured hereunder:
Net Premium By Year ------------------- Duration of Flat-Extra 1st 2nd Thereafter - ---------------------- --- --- ---------- More than 5 Years 0% 102.5% 90% 5 Years or Less 0% 135% 90%
D. The CEDING COMPANY shall pay to the REINSURER the following percentages of the waiver of premium charges applicable to the life insurance reinsured hereunder: 10.13-16 36
Net Reinsurance Policy Year Premium ----------- ------- 1st 0% Thereafter 90%
E. The REINSURER shall allow to the CEDING COMPANY the following commission on the payor benefit premium ceded hereunder:
Policy Year Commission ----------- ---------- 1st 100% Thereafter 10%
F. 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 as shown in Appendix 2 attached to Amendment No. 2 of this 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, the 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 of the above-described Munich treaty, relating to the amount reinsured on the respective life. In all other respects not inconsistent herewith, said agreement shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in triplicate. CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION By: Alice M. Ellis By: /s/ Robert J. Wutant ----------------------- ------------------------- Title: Vice President Title: Vice President -------------------- --------------------- Date: 6/27/90 Date: 7/16/90 --------------------- ----------------------- By: /s/ R Doll By: Jan D M gh ----------------------- ------------------------- Title: Exec. Vice Pres Title: SVP & Actuary -------------------- ---------------------- Date: 6/27/90 Date: July 16, 1990 --------------------- ----------------------- 10.13-17 37 EMPL0YERS REASSURANCE CORPORATION 5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201 A General Electric Financial Services Company AMENDMENT NO. 7 The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A) of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park, Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with offices in Austin, Texas, is hereby amended as follows: As respects claims incurred on or after July 1, 1990, this agreement shall apply with respect to the following policies, even though such policies were issued to become effective prior to the effective date of this agreement:
Insured Policy Number Policy Date Policy Face - ------- ------------- ----------- ----------- Barbara Vonfeldt 7200301404 November 19, 1980 $100,000 David Meyring 7200301946 October 12, 1981 $100,000 James Koti 7200301515 February 10, 1981 $100,000 James Domenico 7200301692 August 15, 1981 $150,000 7200301403 November 19, 1980 $250,000 Daniel Vonfeldt 7200301446 December 15, 1980 $100,000
The reinsurance premium pertaining to the foregoing policies shall be computed using the rates contained in Exhibit II on a point in scale basis. It is further agreed that Mr. Vonfelt's policies are rated at Table 4 and the other policies described in this amendment are standard ratings. Promptly after the execution of this amendment, the CEDING COMPANY shall pay to the REINSURER the unearned reinsurance premium hereunder as of July 1, 1990 applicable to the policies added to this agreement by this amendment. In all other respects not inconsistent herewith, said agreement shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in triplicate. CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION By: Alice M. Ellis By: /s/ Robert J. Wutant ------------------------ ---------------------------- Title: Vice President Title: Vice President --------------------- ------------------------- Date: 6/27/90 Date: 7/16/90 ---------------------- -------------------------- By: /s/ R Doll By: Jan D M gh ------------------------ ---------------------------- Title: Exec. Vice Pres Title: SVP & Actuary --------------------- ------------------------- Date: 6/27/90 Date: July 16, 1990 ---------------------- -------------------------- 10.13-18 38 EMPL0YERS REASSURANCE CORPORATION 5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201 A General Electric Financial Services Company AMENDMENT NO. 8 The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A) of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park, Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with offices in Austin, Texas, is hereby amended as follows: I. As respects insurance becoming effective on and after June 1, 1991, the reinsurance afforded by this agreement shall apply to Single Premium Adjustable Life Insurance Policies written by the CEDING COMPANY on form number B04372S (9/90) in accordance with its Option to Discontinue Premium Payments rider form number B02771E (12/86), provided that, as respects such policies: A. The reinsurance premium for each policy shall be payable to the REINSURER on an annual basis at the beginning of each calendar year, except as respects the calendar year during which the policy is issued to become effective, the premium for which shall be due the REINSURER as of the policy effective date. B . The net amount at risk shall be calculated as of each policy's effective date and as of each January 1st thereafter and shall remain unchanged until the following January 1st. C. International business shall be reinsured at the rates specified in Appendix 2 and shall be subject to the additional rating indicated by Appendix 3-A. D. Each policy shall be reinsured beginning at and continuing from the point-in-scale rate reached by the plan being discontinued. II. As respects policies newly issued by the CEDING COMPANY to become effective on or after June 1, 1991: A. The countries of Czechoslovakia and Poland are added to Appendix 3-A at 100% of the foreign standard rate. B. The Republic of South Africa and the republic of Israel are added to Appendix 3-A at 115% of the foreign standard rate. In all other respects not inconsistent herewith, said agreement shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in triplicate. CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION By: Alice M. Ellis By: /s/ Robert J. Wutant -------------------- ------------------------ Title: Vice President Title: Vice President ------------------- ----------------------- Date: 6/27/90 Date: 7/16/90 -------------------- ------------------------ By: /s/ R Doll By: Jan D M gh --------------------- ------------------------- Title: Exec. Vice Pres Title: SVP & Actuary ------------------- ----------------------- Date: 6/27/90 Date: July 16, 1990 -------------------- ------------------------ 10.13-19 39 EMPL0YERS REASSURANCE CORPORATION 5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201 (913) 676 5950 - Facsimile (913) 676-5221 A General Electric Financial Services Company AMENDMENT NO. 9 The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A) of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park, Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with offices in Austin, Texas, is hereby amended as follows: As respects policies newly issued by the CEDING COMPANY to become effective on or after September 1, 1991, the country of Nicaragua is added to Appendix 3-A at 130% of the foreign standard rate. In all other respects not inconsistent herewith, said agreement shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in triplicate. CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION By: F Dollar By: /s/ Robert J. Wutant -------------------------- ------------------------- Title: Exec. VP Title: Vice President ----------------------- ---------------------- Date: 2/3/92 Date: 1/22/92 ------------------------ ----------------------- By: /s/ R Doll By: Jan D M gh -------------------------- ------------------------ Title: Exec. Vice Pres Title: VP ----------------------- ---------------------- Date: 2/3/92 Date: 1/29/92 ------------------------ ----------------------- 10.13-20 40 L93-3625 EMPL0YERS REASSURANCE CORPORATION 5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201 (913) 676 5950 - Facsimile (913) 676-5221 A General Electric Financial Services Company AMENDMENT NO. 10 The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A) of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park, Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with offices in Austin, Texas, is hereby amended as follows: As respects policies issued by the CEDING COMPANY to become effective on or after July 1, 1993, the life retentions are deleted from Exhibit I, as amended by Amendment No. 2, and the following life retentions are substituted therefor:
Business Classification Life Retention -------------- -------------- Domestic $75,000 plus 30% of remainder International $75,000 plus 30% of remainder
The REINSURER acknowledges that the above specified 30% retention is being reinsured elsewhere. In all other respects not inconsistent herewith, said agreement shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in triplicate. CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION By: F Dollar By:/s/ Pamela J. Bennett ------------------------- ------------------------- Title: President Title: AVP ---------------------- ---------------------- Date: 9/6/93 Date: 8/25/93 ----------------------- ----------------------- By: /s/ Mark Oliver By: Cross ------------------------- ------------------------- Title: VP & Treas Title: Pres. ---------------------- ---------------------- Date: 9/6/93 Date: 8/27/93 ----------------------- ----------------------- 10.13-21 41 L93-4913 EMPL0YERS REASSURANCE CORPORATION 5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201 (913) 676 5950 - Facsimile (913) 676-5221 A General Electric Financial Services Company AMENDMENT NO. 11 The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A) of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park, Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with executive offices in Austin, Texas, is hereby amended as follows: Effective November 10, 1993: A. All provisions of this reinsurance agreement other than the arbitration provisions are subject to the laws of the State of Colorado. B. In the event of the insolvency of the CEDING COMPANY, the arbitration provisions of this agreement shall also be subject to the laws of the State of Colorado. C. The Insolvency Clause is deleted and the Insolvency Clause attached to this amendment is substituted therefor. In all other respects not inconsistent herewith, said agreement shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in triplicate. CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION By: F Dollar By: /s/ Pamela J. Bennett --------------------- ----------------------- Title: President Title: AVP ------------------ -------------------- Date: 9/6/93 Date: 8/25/93 ------------------- --------------------- By: /s/ Mark Oliver By: Cross --------------------- ----------------------- Title: VP & Treas Title: Pres. ------------------ -------------------- Date: 9/6/93 Date: 8/27/93 ------------------- --------------------- 10.13-22 42 INSOLVENCY CLAUSE The ceding insurer and the reinsurer agree that, in the event of the insolvency of the ceding insurer, as to all reinsurance made, ceded, renewed or otherwise becoming effective after the effective date of this agreement, the reinsurance shall be payable by the reinsurer on the basis of the amount of liability of the ceding insurer under the contract or contracts reinsured, without diminution because of the insolvency of the ceding insurer; furthermore, that such amount shall be paid directly to the ceding insurer or its liquidator, receiver or other statutory successor. It is understood and agreed, however, that the obligations of the ceding company as set forth in the reinsurance contract, including, among others, the duty to investigate, settle and defend all claims arising under policies with respect to which reinsurance is afforded by this agreement, shall remain unimpaired and unaffected by the insolvency of the ceding insurer and shall be assumed by the liquidator, receiver or statutory successor of the ceding insurer in the liquidation or receivership proceeding and that such liquidator, receiver or statutory successor shall give written notice to the reinsurer of the pendency of a claim against the ceding insurer on the policy reinsured within a reasonable time after such claim is filed in the insolvency proceeding and that during the pendency of such claim the reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses which it may deem available to the ceding insurer, its liquidator, receiver or statutory successor. The expense thus incurred by the reinsurer shall be chargeable, subject to court approval, against the insolvent ceding insurer as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the ceding insurer solely as the result of the defense undertaken or asserted by the reinsurers Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose a defense to such claim, the expense shall be apportioned in accordance with the terms of this reinsurance agreement as though such expense had been incurred by the ceding insurer. Nothing herein above set forth in this insolvency clause shall in any way change the relationship or status of the parties hereto, to wit, that of ceding insurer and reinsurers nor enlarge the obligations of either party to each other, except as specifically herein above provided, to wit, to pay the statutory successor on the basis of the amount of liability of the ceding insurer under the contract or contracts reinsured, rather than on the basis of the actual amount of loss (dividends) paid by the liquidator, receiver or statutory successor to allowed claimants, nor shall anything in this insolvency clause in any manner create any obligations or establish any rights against the reinsurer in favor of any third parties or any persons not parties to this reinsurance contract. LIFE (8/88) 10.13-23 43 Agreement No. 007 Amendment No. 012 AMENDMENT OF REINSURANCE AGREEMENT BETWEEN: CITIZENS INSURANCE COMPANY OF AMERICA (Ceding Company) and EMPLOYERS REASSURANCE CORPORATION (Assuming Company) Agreement Number 007 Amendment Number 12 Effective Date: 03/01/82 Date of Execution: 09/07/82 Effective Date of Amendment: 09/01/94 Date of Amendment Execution: 10/1 7/94 Type of Amendment: To change Table ratings acceptable as shown in Exhibit I Agreement Type: Self-Administered Reinsurance Underlying Risk: Ordinary Life Statement of whether or not a Reinsurance Intermediary is involved in this transaction: There is no Reinsurance Intermediary involved in this transaction. Statement of whether agreement meets the conditions of Section 10-3-805(4)(a)(III), C.R.S.: This amendment does not meet the conditions of Section 10-3-805(4)(a)(III), C.R.S. Statement as to whether agreement transfers existing in-force business: This amendment does not transfer in-force business. 10.13-24 44 L94-3467 EMPL0YERS REASSURANCE CORPORATION 5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201 (913) 676 5950 - Facsimile (913) 676-5221 A General Electric Financial Services Company AMENDMENT NO. 12 The Automatic Yearly Renewable Tenn (NR) Life Reinsurance Agreement (No. 116A) of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park, Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with executive offices in Austin, Texas, is hereby amended as follows: As respects policies issued by the CEDING COMPANY to become effective on or after September 1, 1994, the Table ratings applicable to both domestic and international business which the REINSURER will accept automatically are changed from "1 - 4", as specified in Exhibit I, to "1 - 6". In all other respects not inconsistent herewith, said agreement shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in triplicate. CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION By: F Dollar By: /s/ Robert J. Wutant ---------------------- ------------------------- Title: President Title: Vice Pres ------------------- ---------------------- Date: 10/17/94 Date: 9/28/94 -------------------- ----------------------- By: /s/ Mark Oliver By: Pamela J. Bennett ---------------------- ------------------------- Title: VP & Treas Title: Asst VP ------------------- ---------------------- Date: 10/17/94 Date: 10/11/94 -------------------- ----------------------- 10.13-25 45 L94-4225 EMPL0YERS REASSURANCE CORPORATION 5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201 (913) 676 5950 - Facsimile (913) 676-5221 A General Electric Financial Services Company AMENDMENT NO. 13 The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A) of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park, Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with executive offices in Austin, Texas, is hereby amended as follows: I. As respects policies newly issued by the CEDING COMPANY to become effective on or after January 1, 1995: A. The following countries are deleted from the 100% foreign standard classification contained in Appendix 3-A, as amended: Czechoslovakia Poland Taiwan B. The following countries are deleted from the 115% foreign standard classification contained in Appendix 3-A, as amended: Israel Paraguay Uruguay C. The following countries are deleted from the 130% foreign standard classification contained in Appendix 3-A, as amended: Bolivia Colombia Honduras Guatemala Guiana (Fr, Br, Dutch) Nicaragua Peru Philippines Malaysia D. El Salvador is deleted from the 160% foreign standard classification contained in Appendix 3-A, as amended. 10.13-26 46 II. In order to restate it as of January 1, 1995, Exhibit 3-A, as amended by Part I hereof, is deleted and the Exhibit 3-B attached to this amendment is substituted therefor. In all other respects not inconsistent herewith, said agreement shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in triplicate. CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION By: F Dollar By: /s/ Pamela J. Bennett ----------------------- ------------------------- Title: Vice Chairman Title: AVP -------------------- ---------------------- Date: 3/8/95 Date: 2/27/95 --------------------- ----------------------- By: /s/ Mark Oliver By: CJ Schneider ----------------------- ------------------------- Title: EVP Title: VP -------------------- ---------------------- Date: 3/8/95 Date: 3/1/95 --------------------- ----------------------- 10.13-27 47 L95-0780 EMPL0YERS REASSURANCE CORPORATION 5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201 (913) 676 5950 - Facsimile (913) 676-5221 A General Electric Financial Services Company AMENDMENT NO. 14 The Automatic Yearly Renewable Tenn (NR) Life Reinsurance Agreement (No. 116A) of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park, Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with executive offices in Austin, Texas, is hereby amended as follows: Effective January 1, 1995: A. The following sentence is added to numbered paragraph 38: The REINSURER agrees to reimburse the CEDING COMPANY for each claim with respect to which this agreement affords indemnity within 45 days after the REINSURER receives proof which is satisfactory to the REINSURER that the CEDING COMPANY has paid the claim. B. The following paragraph is added as Article XIX: ARTICLE XIX ENTIRE 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. In all other respects not inconsistent herewith, said agreement shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in triplicate. CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION By: F Dollar By: /s/ CJ Schnied -------------------- -------------------------- Title: Vice Chairman Title: VP ----------------- ----------------------- Date: 4/12/95 Date: 3/29/95 ------------------ ------------------------ By: /s/ Charles E. Melgar By: Pamela J. Bennett -------------------- -------------------------- Title: VP & Chief Title: AVP ----------------- ----------------------- Date: 4/12/95 Date: 4/1/95 ------------------ ------------------------ 10.13-28 48 L96-1835 EMPL0YERS REASSURANCE CORPORATION 5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201 (913) 676 5950 - Facsimile (913) 676-5221 A General Electric Financial Services Company AMENDMENT NO. 15 The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A) of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park, Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado Corporation with executive offices in Austin, Texas, is hereby amended as follows: As respects policies newly issued by the CEDING COMPANY to become effective on or after April 1, 1996, Appendix I (attached to Amendment No. 2) is deleted and Appendix I -A attached to this amendment is substituted therefor. In all other respects not inconsistent herewith, said agreement shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in triplicate. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in triplicate. CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION By: F Dollar By: /s/ Peter R ----------------------- ----------------------------- Title: Vice Chairman Title: Asst. VP -------------------- --------------------------- Date: 5/13/96 Date: 4/25/96 --------------------- ---------------------------- By: /s/ Mark Oliver By: John T Kirway ----------------------- ----------------------------- Title: Exec VP Title: VP -------------------- --------------------------- Date: 5/3/96 Date: 4/25/96 --------------------- ---------------------------- 10.13-29 49 L98-0283 AMENDMENT NO. 16 The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A) of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park, Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with executive offices in Austin, Texas, is hereby amended as follows: As respects policies newly issued by the CEDING COMPANY to become effective on or after January 1, 1998: A. The following countries are added to Exhibit 3 -B at II 5 % of the foreign standard rate: Bahrain Egypt Jordan Kuwait Oman Qatar United Arab Emirates B. The automatic reinsurance limit applicable to each person is increased from $300,000, as indicated in Item 4 of Appendix I -A (attached to Amendment No. 15), to $500,000. In all other respects not inconsistent herewith, said agreement shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in triplicate. CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION By: F Dollar By: /s/ Pamela J. Bennett -------------------------- ----------------------------- Title: Vice Chairman Title: AVP ----------------------- -------------------------- Date: 1/26/98 Date: 22 January 1998 ------------------------ --------------------------- By: /s/ Mark A. Oliver By: A.W. Bordon -------------------------- ------------------------------ Title: President Title: Assistant Vice President ----------------------- -------------------------- Date: 1/26/98 Date: January 15, 1998 ------------------------ --------------------------- 10.13-30 EX-10.14 5 SELF-ADMINISTERED AUTOMATIC REINSURANCE AGREEMENT 1 EXHIBIT 10.14 Colorado ID #045 Self-Administered Automatic Reinsurance Agreement Effective: July 1, 1993 between Citizens Insurance Company of America Denver, Colorado (hereinafter referred to as the "Ceding Company") and Business Men's Assurance Company Kansas City, Missouri (hereinafter referred to as the "Reinsurer") 10.14-1 2 Table of Contents Article I Article II Article III Article IV Article V Article VI Article VII Article VIII Article IX Article X Article XI Article XII Article XIII Article XIV Article XV Article XVI Article XVII Article XVIII Article XIX Exhibit I Exhibit II Exhibit III Exhibit IV Exhibit V Exhibit VI Exhibit VII Exhibit VIII Addendum #1 Addendum #2 10.14-2 3 Article I 1. On and after the effective date of this Agreement, the Ceding Basis of Reinsurance Company shall cede to Reinsurer, subject to the limitations outlined in Exhibit III, 30% of its 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 III. Reinsurer shall automatically accept such First Excess within the limits indicated in Exhibit 111, 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 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 Reinsurers 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 V-H Automatic Reinsurance Coverage after Policy Change, IX Recapture, and XVIII Duration of Agreement; Termination. Article II 1. If (a) the First Excess as defined in Exhibit III herein is greater than Mode of Notification $425,000 of life Insurance and (b) the Ceding Company automatically and Cession 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
10.14-3 4 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 Citizens'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 1. The liability of Reinsurer shall begin and terminate simultaneously Liability of Reinsure 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 mailed a Preliminary Surplus Advice in accordance with Paragraph 3 of Article II Mode of Notification and Cession. 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 other forms, rate schedules and underwriting rules for the business eligible for reinsurance under this Agreement and shall keep Reinsurer informed of any changes therein. Article IV 1. Life reinsurance shall be ceded on the Risk Premium basis for the Plan of Reinsurance 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 111) 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 ten-n 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.
10.14-4 5 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 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 1). Rate 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 1, the attained age shall be taken as the issue 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 1. 4. Except as otherwise provided in Exhibit III, for all new reinsurance originating without current evidence of insurability (conversions, options, etc.) calendars 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 those premiums less than ones based on the 1980 CSO Table at 4 1/2% interest, only the latter premiums can be guaranteed for renewal. Should BMA increase the reinsurance premium to the 1980 CSO table at 4 1/2% interest, then Citizens shall have the right to immediately recapture any business affected by such change. Article VI 1. When Reinsurer is not required to pay state premium taxes on reinsurance premiums Premium Taxes and received from the Ceding Company, it shall reimburse the Ceding Company for any such Policy Expenses 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 issuance of any policy reinsured hereunder. 3. The Ceding Company will take responsibility for paying all foreign or excise taxes. The Reinsurer will not be responsible to reimburse these taxes.
10.14-5 6 Article VII 1. Reinsurer will continue to grant automatic reinsurance coverage in accordance with the Automatic Reinsurance provisions of this Agreement after renewal, conversion or amendment of any Coverage after Policy policy reinsured hereunder provided that the amounts and benefits to be Change 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 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 that the amount of the minimum cession specified in Exhibit 11, 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 Net 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 I are exceeded. In the event that the limits under Paragraph I 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 11, 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 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.
10.14-6 7 Article VIII 1. All amendments and terminations of reinsurance under this Agreement occurring Information to Reinsurer during any calendar year will be shown after Policy Change in the 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 1. At intervals of five (5) years, the Ceding Company is entitled to Recapture recapture reinsurance on all cessions which have been in force under this Agreement for a 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 1. In the event any policy is terminated by death while reinsured under Claims this Agreement, Reinsurer shall pay to the Ceding Company the Net 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
10.14-7 8 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 of special expenses in proportion to their respective Net Amounts at Risk under the policy affected. 6. Reinsurer and 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. In every case of loss, proofs acceptable to the Ceding Company shall likewise be taken as sufficient by Reinsurer. The Ceding Company shall furnish Reinsurer with copies of proof of loss. It is agreed, however, that the Ceding Company shall give Reinsurer advance notice of any claim which is contestable in accordance with the policy provisions if at least 50% of the Life risk or Waiver of Premium Disability benefit claimed is reinsured by Reinsurer hereunder. On request by Reinsurer, all papers in connection with such claim shall be submitted to Reinsurer for its opinion before commitment or payment is made to the claimant. Article XI 1. Before January 15 of each calendar year following the date of this List of Risks Agreement, the Ceding Company will provide Reinsurer with the List Reinsured and List of Risks Reinsured for the current calendar year. This List will include
10.14-8 9 of Amendments 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 MH Errors and Omissions. In detail, the List will contain information as outlined in Exhibit VI. Article XII 1. The Ceding Company shall remit the total of the reinsurance Accounting 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 (IO) 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 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 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. Article XIII 1. The List of Risks Reinsured is the basis for the reinsurance coverage Errors and Omissions 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
10.14-9 10 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 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. 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 position they would have occupied had no such error or oversight occurred. Article XIV Reinsurer shall have the right, at any reasonable time to inspect, at Inspection of the office of the Ceding Company, all books, records and documents relating Records to the reinsurance under this Agreement. Article XV 1. In the event of insolvency of the Ceding Company, all reinsurance Insolvency 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.
10.14-10 11 3. The expense thus incurred by Reinsurer shall be chargeable, subject to court approval, against the Ceding Company as part of the expense of 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 or more reinsurers are participating in the same claim and a majority in 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 though such expense had been incurred by the Ceding Company. Article XVI 1. All disputes and differences between the two contracting parties Arbitration 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 where the home office of the Ceding Company is domiciled, 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 American Arbitration Association. Arbitration will be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association which are in effect on the date of delivery of demand for arbitration. 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 1. This is an agreement solely between the Ceding Company and Parties to Reinsurer. The acceptance of reinsurance hereunder shall not create Agreement 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. Article XVIII 1 . This Agreement shall be unlimited as to its duration, but may be Duration of Agreement terminated at any time, for new reinsurances only, by either party giving not less than ninety (90) days notice of termination in writing 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 the
10.14-11 12 reinsurance in force under this Agreement by giving thirty (30) days written notice. Payment of the amounts due, with interest according to Article MI Accounting, Paragraph 5, during such thirty (30) days will nullify the cancellation. Article XIX The said Citizens Insurance Company of America, Denver, Colorado, Effective Date; Execution and the said Reinsurer, declare that this Agreement and all its terms shall be effective as of July 1, 1993, 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/ Th Dollar ------------------------- Title: President ---------------------- Attest: /s/ Mark A. Oliver, VP Date: 7/21/93 -------------------------- ---------------------- Business Men's Assurance Company By: /s/ John M ------------------------- Title: Mrg Dir ---------------------- Attest: /s/ W.M. Crouch Date: 8/4/93 -------------------------- ----------------------- 10.14-12 13 Page 1 Exhibit I SAR Reinsurance Premiums 1. Reinsurance premiums under this Agreement for the first calendar year (from the effective date of the policy to the next December 3 1) 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. 10.14-13 14 Page 2 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 next December 3 1) 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. 10.14-14 15 ADDENDUM to the Automatic YRT Agreement dated July 1, 1993 between CITIZENS LIFE INSURANCE COMPANY OF AMERICA Denver, Colorado (hereinafter called the CEDING COMPANY) and BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA Kansas City, Missouri (hereinafter called the BMA) Purpose: To include the attached revised retention schedule for this agreement. 1. The attached retention schedule marked Exhibit II will replace the previous Exhibit II in the agreement. 2. THE EFFECTIVE DATE shall be September 1, 1994. Except as herein amended, the provisions of the said Reinsurance Agreement shall remain unchanged. IN WITNESS WHEREOF, this addendum is hereby executed in duplicate between the parties concerned, and is duly signed by both parties respective officers as follows: CEDING COMPANY /s/ R Dollar Pres -------------------- -------------- signature title /s/ Mark Oliver VP & Treas. -------------------- -------------- signature title 10/24/94 -------------- date BMA /s/ John Walker Managing Director Reinsurance - --------------- ----------------------------------------- signature title /s/ Bill Crouch Reinsurance Administrative Vice President - --------------- ----------------------------------------- signature title November 2, 1994 ----------------------------------------- 10.14-15 16 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 7 through 6 through 16 --------- ---------- All Ages $75,000 $75,000 -0- - ----
Minimum Cession: $1,000 Waiver of Premium Disability Benefits Same as for Life Insurance Accidental Death Benefits None 10.14-16 17 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 -0- - ---- Minimum Cession: $1,000
Waiver of Premium Disability Benefits Same as for Life Insurance Accidental Death Benefits None 10.14-17 18 Page 1 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 $3,000,000 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 70 years. 2. Standard and Substandard risks rated up to and including Table 4 (200% 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. Domestic Risks: 30% of $425,000 in excess of the Ceding Company's $75,000 retention. International Risks: 30% of $425,000 in excess of the Ceding Company's $75,000 retention. The minimum cession will be $5,000. 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. 10.14-18 19 Page 2 Exhibit III (Continued) 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, B I 1472S, B I 1572S, B I 1972E, B 12172E, B 12272E. 10.14-19 20 Exhibit IV Calculation of the Net Amount at Risk Reinsured For calculating the Net Amount at Risk according to Article IV Plan of Reinsurance, Paragraph 1, the Ceding Company will use the following approximate procedure: The calculation of the Net Amount At Risk at Issue Age x and year t is done as follows: t (NAAR)X = Face Amount At Issue - Decreases since issue on decreasing benefit coverage + Increases since issue on increasing benefit coverage - Mean Reserve 10.14-20 21 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 XI 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 YVTD 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. 10.14-21 22 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 31 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 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. 10.14-22 23 Page 1 Addendum #1 to the Self-Administered Automatic Reinsurance Agreement between Citizens Insurance Company of America Denver, Colorado (hereinafter referred to as the "Ceding Company") and Business Men's Assurance Company Kansas City, Missouri (hereinafter referred to as the "Reinsurer") Conditional Receipt Coverage 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 in such case shall be for the amount of the conditional receipt claim less the Ceding Company's standard retention on the policy applied for. In no event, however, shall Reinsurer's liability on any one life, including previous reinsurances ceded to Reinsurer, by the Ceding Company, exceed the automatic acceptance limits provided by the Agreement to which this Addendum is attached. 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. This Addendum is attached to and made a part of the Self-Administered Automatic Reinsurance Agreement between the Ceding Company and Reinsurer effective July 1, 1993. 10.14-23 24 Page 2 In Witness Whereof, the said Citizens Insurance Company of America, Denver, Colorado, and the said Business Men's Assurance Company have by their respective officers executed and delivered this Addendum in duplicate. Citizens Insurance Company of America By: /s/ T Dollar ------------------------------ Title: President --------------------------- Attest: /s/ Mark A. Oliver, VP Date: 7/21/92 ---------------------- ---------------------------- Business Men's Assurance Company By: /s/ John Walker ------------------------------ Title: Mgr Director --------------------------- Attest: /s/ W.M. Crouch Date: 8/6/93 ---------------------------- ---------------------------- 10.14-24 25 Addendum #2 NONDISCLOSURE OF CONFIDENTIAL INFORMATION During the course of business necessary under this agreement, CICA may reveal to BMA certain confidential or proprietary information which includes but is not limited to the following: various trade secrets, data processing methods, marketing concepts, programs, formulas, patterns, devices, inventions, processes, policy forms and identities of customers, sales agents, managing agents, associates and employees of CICA. BMA 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. BNIA will also do all things necessary to prevent any of its employees, representatives and agents from disclosing any such information. BMA further agrees to use any confidential or proprietary information of CICA solely for the purpose of reinsurance under this agreement. This Addendum is attached to and made a part of the Self-Administered Automatic Reinsurance Agreement between the Ceding Company and Reinsurer effective July 1, 1993. In Witness Whereof, the said Citizens Insurance Company of America, Denver, Colorado, and the said Business Men's Assurance Company have by their respective officers executed and delivered this Addendum in duplicate. Citizens Insurance Company of America By: /s/ T Dollar ------------------------------ Title: President --------------------------- Attest: /s/ Mark A. Oliver, VP Date: 7/21/93 ------------------------- ---------------------------- Business Men's Assurance Company By: /s/ John Walker ------------------------------ Title: Mgr Director --------------------------- Attest: /s/ W.M. Crouch Date: 8/6/93 ------------------------- ---------------------------- 10.14-25 26 AMENDMENT OF REINSURANCE AGREEMENT BETWEEN: CITIZENS INSURANCE COMPANY OF AMERICA (Ceding Company) and BUSINESS MEN'S ASSURANCE (Assuming Company) Agreement Number 045 Amendment Number 003 Effective Date: 07/01/93 Date of Execution: 08/06/93 Effective Date of Amendment: 12/31/93 Date of Amendment Execution: 02/22/94 Type of Amendment: To update treaty to comply with regulation 3-3-2. Agreement Type: SAR Underlying Risk: Ordinary Life Statement of whether or not a Reinsurance Intermediary is involved in this transaction: There is no Reinsurance Intermediary involved in this transaction. Statement of whether agreement meets the conditions of Section 10-3-805(4)(a)(111), C.R.S.: This amendment does not meet the conditions of Section 10-3-805(4)(a)(111), C.R.S. Statement as to whether agreement transfers existing in-force business: This amendment does not transfer in-force business. 10.14-26 27 Agreement No. 045 Agreement No. 003 ADDENDUM to the Automatic Yearly Renewable Term Agreement dated July 1, 1993 between CITIZENS INSURANCE COMPANY OF AMERICA Denver, Colorado (hereinafter called the CEDING COMPANY) and BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA Kansas City, Missouri (hereinafter. called the BMA) Purpose: To add verbiage to comply with Colorado State requirements. 1. All provisions of this reinsurance agreement other than the arbitration provisions are subject to the laws of the State of Colorado. 2. In the event of the insolvency of the CEDING COMPANY, the arbitration provisions of this agreement shall also be subject to the laws of the State of Colorado. 3. THE EFFECTIVE DATE shall be December 31, 1993. Except as herein amended, the provisions of the said Reinsurance Agreement shall remain unchanged. IN WITNESS WHEREOF, this addendum is hereby executed in duplicate between the parties concerned, and is duly signed by both parties respective officers as follows: CEDING COMPANY /s/ R Dollar Pres. ----------------------- --------- signature title /s/ Mark Oliver VP ----------------------- --------- signature title 10.14-27 28 BMA /s/ John Walker Managing Director Reinsurance - --------------- ----------------------------- signature title Reinsurance /s/ WM Crouch Administration Vice President - ------------- ----------------------------- signature title 2/17/94 ----------------------------- date 10.14-28 29 AMENDMENT OF REINSURANCE AGREEMENT BETWEEN: CITIZENS INSURANCE COMPANY OF AMERICA (Ceding Company) and BUSINESS MEN'S ASSURANCE (Assuming Company) Agreement Number 045 Amendment Number 004 Effective Date: 07/01/93 Date of Execution: 08/06/93 Effective Date of Amendment: 1/l/95 Date of Amendment Execution: 2/9/95 Type of Amendment: Revision of Retention Schedule Agreement Type: SAR Underlying Risk: Ordinary Life Statement of whether or not a Reinsurance Intermediary is involved in this transaction: There is no Reinsurance Intermediary involved in this transaction. Statement of whether agreement meets the conditions of Section 10-3-805(4)(a)(111), C.R.S.: This amendment does not meet the conditions of Section 10-3-805(4)(a)(111), C.R.S. Statement as to whether agreement transfers existing in-force business: This amendment does not transfer in-force business. 10.14-29 30 CEDING COMPANY /s/ R Dollar Vice Chairman ------------------ ------------- signature title /s/ Mark A. Oliver Executive VP ------------------ ------------- signature title 2/9/95 ------ date BMA /s/ John Walker Managing Director Reinsurance - --------------- ----------------------------- signature title Reinsurance /s/ Bill Crouch Administration Vice President - --------------- ----------------------------- signature title February 3, 1995 ----------------------------- date 10.14-30 31 Amendment 5 ADDENDUM to the Automatic Yearly Renewable Term Agreement dated July 1, 1993 between CITIZENS INSURANCE COMPANY OF AMERICA Denver, Colorado (hereinafter called the CEDING COMPANY) and BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA Kansas City, Missouri (hereinafter. called the BMA) Purpose: To transfer reinsurance coverage on Harold E. Riley, and Harold L. Hays to the July 1, 1993 reinsurance agreement on a point-in-scale basis. 1. BMA shall continue reinsurance of the in-force policies on Harold E. Riley, BMA #324-46-33, CEDING COMPANY's #7202250248; and Harold L. Hays, BMA #255-34-19, CEDING COMPANY'S #6301765401 under this agreement on a point-in-scale basis. 2. THE EFFECTIVE DATE shall be January 1, 1995. Except as herein amended, the provisions of the said Reinsurance Agreement shall remain unchanged. IN WITNESS WHEREOF, this addendum is hereby executed in duplicate between the parties concerned, and is duly signed by both parties respective officers as follows: CEDING COMPANY /s/ R Dollar Vice Chairman ----------------------- --------------- signature title /s/ Mark A. Oliver EVP ----------------------- --------------- signature title Oct. 5, 1995 --------------- date /s/ Albert F. Rodriguez Senior Vice President/Reinsurance - ----------------------- --------------------------------- signature title Vice President /s/ James N. Reinsurance Actuary - ----------------------- --------------------------------- signature title September 28, 1995 --------------------------------- date 10.14-31 32 ADDENDUM to the Automatic YRT Agreement dated July 1, 1993 between CITIZENS INSURANCE COMPANY OF AMERICA Denver, Colorado (hereinafter called the CEDING COMPANY) and BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA Kansas City, Missouri (hereinafter. called the BMA) Purpose: To include the Entire Contract provision. 1. The Agreement, Amendments, and Addenda to the Agreement shall constitute the entire agreement between the parties with respect to business being reinsured there under and that there are no understandings between the parties other than as expressed in this Agreement, Amendments, or Addenda to the Agreement. 2. Any change or modification of this Agreement shall be null and void unless made by addendum to the Agreement and signed by both parties. 3. THE EFFECTIVE DATE shall be May 17, 1995. Except as herein amended, the provisions of the said Reinsurance Agreement shall remain unchanged. IN WITNESS WHEREOF, this addendum is hereby executed in duplicate between the parties concerned, and is duly signed by both parties respective officers as follows: CEDING COMPANY /s/ R Dollar Vice Chairman -------------------- ----------------- signature title /s/ Mark Oliver EVP -------------------- ----------------- signature title 12/20/95 ----------------- date BMA /s/ Albert F. Rodriguez Senior Vice President/Reinsurance - ----------------------- --------------------------------- signature title Vice President /s/ James N. Reinsurance Actuary - ----------------------- --------------------------------- signature title 12/13/95 --------------------------------- date 10.14-32 33 ADDENDUM to the Automatic YRT Agreement dated July 1, 1993 between CITIZENS INSURANCE COMPANY OF AMERICA Denver, Colorado (hereinafter called the CEDING COMPANY) and BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA Kansas City, Missouri (hereinafter. called the BMA) Purpose: To up-date the International Underwriting Guidelines for this agreement. 1. The attached underwriting guidelines shall replace the current guidelines marked APPENDIX I. 2. THE EFFECTIVE DATE shall be April 1, 1996. Except as herein amended, the provisions of the said Reinsurance Agreement shall remain unchanged. IN WITNESS WHEREOF, this addendum is hereby executed in duplicate between the parties concerned, and is duly signed by both parties respective officers as follows: CEDING COMPANY /s/ R Dollar Vice Chairman -------------------- ----------------- signature title /s/ Mark Oliver Exec VP -------------------- ----------------- signature title 6/5/96 ----------------- date BMA /s/ Albert F. Rodriguez Senior Vice President/Reinsurance - ----------------------- --------------------------------- signature title Vice President /s/ James N. Reinsurance Actuary - ----------------------- --------------------------------- signature title 5/29/96 --------------------------------- date 10.14-33 34 ADDENDUM to the Automatic YRT Agreement dated July 1, 1993 between CITIZENS LIFE INSURANCE COMPANY OF AMERICA Denver, Colorado (hereinafter called the CEDING COMPANY) and BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA Kansas City, Missouri (hereinafter called the BMA) Purpose: To include a list of foreign countries from which business will be reinsured under this agreement. 1. BMA will reinsure business from the following list: Foreign National Business FOREIGN STANDARD RATE Australia Greenland Netherlands Spain Austria Grenada New Zealand Sweden Bahamas Guam Norway Switzerland Barbados Hong Kong Panama Tobago Belgium Iceland Poland Trinidad Bermuda Ireland Portugal United Kingdom Costa Rica Italy Puerto Rico Venezuela Denmark Japan St. Vincent & Virgin Islands Dominican Republic Lichtenstein the Grenadines Finland Luxembourg Saint Lucia France Mexico Samoa Germany Netherlands Antilles Singapore 115% FOREIGN STD. RATE ----------------------- Argentina Chile Jamaica Brazil Ecuado
2. THE EFFECTIVE DATE Shall be January 1, 1995 Except as herein amended, the provisions of the said Reinsurance Agreement shall remain unchanged. IN WITNESS WHEREOF, this addendum is hereby executed in duplicate between the parties concerned, and is duly signed by both parties respective officers as follows: 10.14-34 35 APPENDIX I (Approved 3/15/96 by H.E.R.) Effective 4/1/96 CITIZENS' INTERNATIONAL GUIDELINES 1. Must be in U.S. Currency, and checks from U.S. banks only. 2. Minimum issue amount is $50,000, except ages 66 to 75 where minimum issue is $10,000 and the maximum is $25,000. 3. We will keep our full retention on each risk. (In force coverage and current application combined.) 4. Amounts over 4 times our retention (including prior coverage) will be sent to Reinsurer on a Facultative basis. 5. Application and Medical Papers must be written in English or Spanish. 6. Supplemental benefits will be offered only on rider forms that contain special protective exceptions. 7. We will not consider applications on: a) Political or Military figures or their families. b) Private pilots or crew members without an extra rate or an aviation exclusion. c) Children. under the age of 18 for an amount exceeding $150,000 (includes in force and applied for). d) Applicant over age 65, except for special plans offered to age 75 with S25,000 maximum. e) Applicants with coronary artery disease or insulin dependent diabetic. f) Will not issue with rating over Table Six. 8. We will use appointed examiners or, when available, Embassy Affiliated doctors for all medical examinations. (See attached Medical Requirements per age and amount.) 9. Consumer Reports required on face amounts of $150,000 or more, except in Colombia, where it is required for all amounts. 10. Require APS on all children under the age of 5. 11. All questions on Part I and Part II of application must be answered, even if medical exam (Part III) has same question. 10.14-35 36 (Approved 3/15/96 by H.E.R.) INTERNATIONAL REQUIREMENTS 1. Inspection Report. Only Home Office approved commercial investigative firms are to be used. Required on face amount of $150,000 or more including prior coverage still in force with this Company. 2. Medical Requirements: A. Medical History Application Only ISSUE AGES AMOUNT APPLIED FOR ---------- ------------------ 0 through 39 Up to $150,000
B. Medical Examination, Urinalysis, Dried Blood Spot Profile
ISSUE AGES AMOUNT APPLIED FOR ---------- ------------------ 18 through 34 US $150,001 to US $500,000 35 through 40 US $150,001 to US $250,000 41 through 60 US $50,000 to US $100,000 61 through 65 Up to US $50,000
C. Medical Examination, Urinalysis, Dried Blood Spot Profile, 12 Lead ECG
ISSUE AGES AMOUNT APPLIED FOR ---------- ------------------ 18 through 34 $500,001 and over 35 through 40 $250,001 and over 41 through 60 $100,001 and over 61 through 65 $50,001 and over 66 through 75 Any Amount
3. Attending Physicians Statements: Required on all children Age 5 and under. Other APS's may be required by Underwriting. 10.14-36 37 ADDITIONAL REQUIREMENTS FOR ESTATE PLANNING - BUSINESS INSURANCE ALL AGES - $250,001 and UP: 1. Applicant must have annual income of at least $50,000. 2. Inspection Report required on all applicants of a business regardless of their position in the Company. 3. Inspection Report and Financial Statement required on sole proprietor and partnerships. 4. Key Men Insurance, where the owner is the business, a Financial Statement of the business or company is required. NOTICE TO UNDERWRITER We do not limit our Agents on submitting over $250,001, and we do not advise Agents of this. We just want to carefully underwrite those cases, and unless the above information is provided, we would offer only $250,000 or less. This is a decision made by Harold Riley, as most cases over $250,000 have been problem cases at claim time. If a problem occurs in future on these procedures, refer to Harold Riley. 10.14-37 38 GUIDELINES ON VARIOUS LIMITS EFFECTIVE 4/l/96 (WPPDOCF #1) I. NON-MEDICAL LIMITS INTERNATIONAL MARKET
Issue Ages Amounts ---------- ------- 0 through 39 Up to $150,000
II. BASIC LIFE COVERAGE LIMITS
Age Minimum Maximum --- ------- ------- 0-1 50,000 150,000 18-75 250,000 500,000
See Special Requirements on amounts $250,001 & Up III. WAIVER OF PREMIUM LIMITS INTERNATIONAL MARKET Same as Basic Life Coverage Limit for each plan. IV. ACCIDENTAL DEATH LIMITS INTERNATIONAL MARKET Equal to face amount of Basic Life Benefit not to exceed 150,000 on each person for all policies with all companies. V. RETURN OF PREMIUM LIMITS INTERNATIONAL MARKET Same as Basic Benefit limit. VI. SUBSTANDARD LIMITS INTERNATIONAL MARKET Table Ratings-Table 6 (250%) or less Flat Extra Ratings-No limit. 10.14-38 39 INTERNATIONAL AVIATION COVERAGE 1. For pilots or crew members of regularly scheduled airlines, the extra rate will be $2.40 per thousand. 2. For private pilots - non-commercial not for hire - the rate will be as follows: Annual at Flying Time: 150/hrs/less 150 to 250 hrs More than 250 hrs. ------------ -------------- ------------------ Age of Pilot Any age 27/hr 27/more 27/less 27/more --------------- ------------------ Rate/Thousand: $3.50 $3.50 $2.40 $3.50 $3.00
3. For commercial pilots who transport cargo, there is no fixed rate. These will be considered on an individual basil The rate will be determined by the cargo. If any aviation activity does not meet above rules then issue with in Aviation Exclusion Rider Attached to policy. 4. Supplemental Benefits: Waiver of Premium - NOT allowed Accidental Death - Allowed - ADB Riders Contain language excluding aviation coverage. 5. Pilots participating in crop dusting will be declined coverage. 6. Helicopter pilots will be granted coverage, with Aviation Exclusion attached to policy. 10.14-39 40 ADDENDUM to the Automatic Yearly Renewable Term Agreement dated July 1, 1993 between CITIZENS INSURANCE COMPANY OF AMERICA Denver, Colorado (hereinafter called the CEDING COMPANY) and BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA Kansas City, Missouri (hereinafter. called the BMA) Purpose: To increase the automatic binding limit. 1. The automatic binding limit shown in Exhibit III, Paragraph 2, Item #a.3., shall be amended to read as follows: Domestic Risks: 30% of 500,000 in excess of the company's 75,000 retention. International Risks: 30% of 500,000 in excess of the company's 75,000 retention. 2. THE EFFECTIVE DATE shall be May 1, 1998. Except as herein amended, the provisions of the said Reinsurance Agreement shall remain unchanged. IN WITNESS WHEREOF, this addendum is hereby executed in duplicate between the parties concerned, and is duly signed by both parties respective officers as follows: CEDING COMPANY /s/ M Bul VP New Business -------------------- ------------------- signature title /s/ R Dollar Vice Chair -------------------- ------------------- signature title 7/22/98 ------------------- date BMA /s/ Albert F. Rodriguez Senior Vice President/Reinsurance - ----------------------- --------------------------------- signature title Vice President /s/ James N. Reinsurance Actuary - ----------------------- --------------------------------- signature title July 6, 1998 --------------------------------- date 10.14-40 EX-23.3 6 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.3 [KPMG LOGO] The Board of Directors Citizens, Inc.: We consent to the use of our report on Citizens, Inc. 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 10, 1998 EX-23.4 7 CONSENT OF KERBER, ECK & BRAECKEL LLP 1 EXHIBIT 23.4 [Kerber, Eck & Braeckel LLP LOGO] Board of Directors First Investors Group, Inc. We hereby consent to the use of our reports dated April 14, 1998 and February 28, 1997 appearing in the Registration Statement on Form S-4 filed by Citizens, Inc. and to the reference to our firm under the section "Experts" therein. /s/ Kerber, Eck & Braeckel LLP Kerber, Eck & Braeckel LLP November 10, 1998 EX-23.5 8 CONEST OF SIKICH GARDNER 1 EXHIBIT 23.5 [Sikich Gardner & Co, LLP LOGO] Board of Directors First Investors Group, Inc. We hereby consent to the use of in this Registration Statement of Citizens, Inc. on Form S-4 of our report on the consolidated balance sheet of December 31, 1995 of First Investors Group, Inc. and Subsidiaries (a development stage enterprise), dated February 5, 1996, as appearing in the prospectus, which is a part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such prospectus. /s/ Sikich Gardner & Co., LLP Sikich Gardner & Co., LLP November 10, 1998 -----END PRIVACY-ENHANCED MESSAGE-----