-----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, KW4xlVs86Tw+WssZkWBSWTVBzZ+/ZMzCABxjiCStvrht4TKaYb2sTrZECbela1O8 d+1ERj/WmwN8IvCt3WYq5g== 0000950144-96-003838.txt : 19960701 0000950144-96-003838.hdr.sgml : 19960701 ACCESSION NUMBER: 0000950144-96-003838 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19960628 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BANKERS INSURANCE GROUP INC CENTRAL INDEX KEY: 0000350571 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 591985922 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-07209 FILM NUMBER: 96588669 BUSINESS ADDRESS: STREET 1: 11222 QUAIL ROOST DR CITY: MIAMI STATE: FL ZIP: 33157 BUSINESS PHONE: 3052532244 MAIL ADDRESS: STREET 1: 11222 QUAIL ROOST DR CITY: MIAMI STATE: FL ZIP: 33157 S-3 1 AMERICAN BANKERS INSURANCE GROUP FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1996 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM S-3 REGISTRATION STATEMENT UNDER SECURITIES ACT OF 1933 --------------------- AMERICAN BANKERS INSURANCE GROUP, INC. (Exact name of Registrant as Specified in Charter) FLORIDA 59-1985922 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.)
11222 QUAIL ROOST DRIVE MIAMI, FLORIDA 33157-6596 (305) 253-2244 (Address including zip code, telephone number, including area code, of Registrant's principal executive offices) LEONARDO GARCIA SECRETARY 11222 QUAIL ROOST DRIVE MIAMI, FLORIDA 33157-6596 (305) 253-2244 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- COPY TO: JOSEPHINE CICCHETTI, ESQ. JONATHAN L. FREEDMAN, ESQ. JORDEN BURT BERENSON & JOHNSON LLP DEWEY BALLANTINE 777 BRICKELL AVENUE, SUITE 500 1301 AVENUE OF THE AMERICAS MIAMI, FLORIDA 33131-2803 NEW YORK, NEW YORK 10019-6092 (305) 371-2600 (212) 259-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. / / CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- PROPOSED PROPOSED MAXIMUM MAXIMUM AGGREGATE AMOUNT OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION TITLE OF SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE - ----------------------------------------------------------------------------------------------------------- Convertible Preferred Stock............... 2,300,000 shares $50.00 $115,000,000 $39,655.17 - ----------------------------------------------------------------------------------------------------------- Common Stock, par value $1.00(3).......... $-0-(4) - ----------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------
(1) Includes 300,000 shares covered by Underwriters' over-allotment option. (2) Estimated in accordance with Rule 457 solely for purposes of calculating the registration fee. (3) An indeterminate number of and dollar amount of shares of Common Stock issuable upon, or in connection with, the conversion of the Convertible Preferred Stock. (4) No registration fee pursuant to Rule 457(i). --------------------- 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 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED JUNE 28, 1996 2,000,000 Shares [AMERICAN BANKERS INSURANCE GROUP LOGO] $ Series B Cumulative Convertible Preferred Stock (liquidation preference $50 per share) Dividends payable , , , and ------------------ The annual dividend for each share of $ Series B Cumulative Convertible Preferred Stock (the "Convertible Preferred Stock") of American Bankers Insurance Group, Inc. ("American Bankers" or the "Company") offered hereby is . The Convertible Preferred Stock is convertible at the option of the holder, unless previously redeemed, into shares of Common Stock, par value $1.00 per share (the "Common Stock"), of the Company at a rate (subject to adjustment in certain events) of shares of Common Stock for each share of Convertible Preferred Stock, equivalent to a conversion price of $ for each share of Common Stock. On June 26, 1996, the last reported sale price of the Common Stock on the Nasdaq Stock Market's National Market (the "Nasdaq National Market") (symbol "ABIG") was $42 5/8 per share. The Convertible Preferred Stock is not redeemable prior to , 2000. On or after such date, the Company may redeem the Convertible Preferred Stock, in whole or in part, at $ per share for the period ending , 2001, and declining ratably annually to $50 per share on or after , 2006, plus, in each case, accrued and unpaid dividends. Dividends on the Convertible Preferred Stock are cumulative from the date of issuance and are payable quarterly in arrears commencing , 1996. See "Description of Capital Stock -- Convertible Preferred Stock." Application has been made to list the Convertible Preferred Stock on the Nasdaq National Market under the symbol "ABIGP." ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD- EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting Price to Discounts and Proceeds to Public(1) Commissions Company(1)(2) ------------- ------------- ------------- Per Share.................................... $ $ $ Total(3)..................................... $ $ $
(1) Plus accrued dividends, if any, from , 1996. (2) Before deducting expenses payable by the Company estimated at $ . (3) American Bankers has granted the Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase a maximum of 300,000 additional shares of Convertible Preferred Stock to cover over-allotments of Convertible Preferred Stock. If the option is exercised in full, the total Price to Public will be $ , Underwriting Discounts and Commissions will be $ and Proceeds to Company will be $ . See "Underwriting." ------------------ The shares of the Convertible Preferred Stock are offered by the several Underwriters when, as and if issued by the Company, delivered to and accepted by the Underwriters, and subject to their right to reject orders in whole or in part. It is expected that delivery of the Convertible Preferred Stock will be made on or about , 1996. CS First Boston Donaldson, Lufkin & Jenrette Securities Corporation Furman Selz McDonald & Company Securities, Inc. The date of this Prospectus is , 1996 3 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CONVERTIBLE PREFERRED STOCK OR THE COMMON STOCK OF THE COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP MEMBERS) AND THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNT OR FOR THE ACCOUNTS OF OTHERS IN THE CONVERTIBLE PREFERRED STOCK OR THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES 10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934. THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED OF THIS OFFERING NOR HAS THE COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. THE LAWS OF THE STATE OF FLORIDA PROHIBIT ANY PERSON FROM DIRECTLY OR INDIRECTLY ACQUIRING CONTROL OF THE COMPANY WITHOUT THE PRIOR APPROVAL OF THE FLORIDA INSURANCE COMMISSIONER. ANY HOLDER OF 5% OR MORE OF THE OUTSTANDING VOTING STOCK OF THE COMPANY IS PRESUMED TO HAVE ACQUIRED CONTROL OF THE COMPANY AND ITS SUBSIDIARIES UNLESS THE FLORIDA INSURANCE COMMISSIONER, UPON APPLICATION, DETERMINES OTHERWISE. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, (the "Exchange Act") and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by the Company, may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at 500 West Madison Street, Chicago, Illinois 60604 and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such material may also be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates and at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. The Company has filed with the Commission a Registration Statement on Form S-3 (herein, together with all amendments and exhibits referred to as the "Registration Statement") of which this Prospectus is a part, under the Securities Act of 1933, as amended (the "Securities Act") with respect to the shares of Convertible Preferred Stock offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information, reference is hereby made to the Registration Statement. The Registration Statement may be inspected and copied at the public reference facilities maintained by the Commission at the addresses set forth in the preceding paragraph and may be obtained upon payment of the fee prescribed by the Commission. Statements contained herein concerning the provisions of any documents are not necessarily complete and, in each instance, reference is made to the copy of such documents filed as an exhibit to the Registration Statement or otherwise filed with the Commission. Each such statement is qualified in its entirety by such reference. 2 4 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed by the Company with the Commission under the Exchange Act are incorporated herein by reference: 1. Annual Report on Form 10-K for the fiscal year ended December 31, 1995, dated March 29, 1996. 2. Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996, dated May 10, 1996. 3. Proxy Statement for the Annual Meeting of Shareholders held May 22, 1996, dated April 19, 1996. 4. The description of Common Stock contained in the Company's registration statement filed pursuant to the Exchange Act on Form 8-A, filed on April 20, 1981. All documents filed by the Company after the date of this Prospectus pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the termination of the offering are incorporated by reference and such documents shall be deemed to be a part hereof from the date of filing such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein, modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom a copy of this Prospectus has been delivered, upon the written or oral request of such person, a copy of any or all of the documents referred to above which have been or may be incorporated by reference in this Prospectus, other than exhibits to such documents. Requests for such copies should be directed to Bruce Camacho, Investor Relations, 11222 Quail Roost Drive, Miami, Florida 33157-6596, (305) 253-2244, ext. 2421. 3 5 PROSPECTUS SUMMARY The following summary information is qualified in its entirety by the more detailed information and financial statements appearing elsewhere in this Prospectus or incorporated herein by reference. Except as otherwise noted, all information in this Prospectus assumes no exercise of the Underwriters' over-allotment option. Except as otherwise indicated, all financial information regarding the Company and its insurance subsidiaries has been prepared in accordance with generally accepted accounting principles ("GAAP") rather than statutory accounting principles ("SAP"). THE COMPANY American Bankers Insurance Group, Inc. ("American Bankers" or the "Company") is a specialty insurer providing primarily credit-related insurance products and extended service contracts in the U.S. and Canada as well as in Latin America, the Caribbean and the United Kingdom. During 1995, the Company incorporated a wholly owned insurance subsidiary in Mexico, and opened branch operations in Jamaica and Bahrain. The majority of the Company's gross collected premiums are derived from credit-related insurance products sold through financial institutions and other entities which provide consumer financing as a regular part of their businesses. The Company had gross collected premiums of $2.3 billion in 1995, and had total assets and stockholders' equity of $3.1 billion and $524.7 million, respectively, at March 31, 1996. The Company's credit-related insurance products consist primarily of life, accidental death and dismemberment ("AD&D"), unemployment, disability and property insurance products issued in connection with the financing of consumer purchases. Credit-related insurance products generally offer a consumer a convenient option to insure a credit card or loan balance so that the amount of coverage purchased equals the amount of outstanding debt. Coverage is generally available to all consumers with few of the underwriting conditions that apply to ordinary term insurance, such as medical examinations and medical history reports. The Company's life and AD&D insurance products generally provide payment in full of the outstanding debt balance in the event of the insured's death. The unemployment and disability products satisfy the minimum monthly loan payment for a specified duration in the event of unemployment or disability. The Company's property insurance products pay the loan balance or the cost of repairing or replacing the insured's merchandise in the event of a loss due to a covered event. The Company's extended service contract products pay the cost of repairing or replacing the insured's merchandise in the event of damages due to a covered event. The Company avoids lines of insurance characterized by long loss payout periods, such as workers' compensation and most general liability coverages. The Company markets its credit-related insurance products and extended service contracts on a wholesale basis through a network of clients that consist primarily of major financial institutions, retailers and other entities which provide consumer financing as a regular part of their businesses. American Bankers enters into contracts, typically with terms of three to five years, with its corporate clients pursuant to which such clients market the Company's insurance products to their customers. In return, these clients receive expense reimbursements or commissions and are thus able to recover costs associated with the marketing of the insurance and generate incremental revenues. The majority of the Company's business utilizes contracts which afford the Company's clients the opportunity to participate in the underwriting results of policies they market to their customers. For example, the "Retro Plan" contract links a client's overall commission to the claims experience on policies marketed to its customers, so that low loss ratios result in higher commissions for the client and high loss ratios result in lower commissions. Another form of participation is a profit sharing contract under which the client participates in up to 50% of the profits generated from its insurance business. The Company also cedes premiums generated by clients to the clients' own captive insurance companies or to reinsurance subsidiaries in which clients have an equity interest. American Bankers also writes non-credit-related insurance products in markets where it believes it has less competition from other insurers. For example, the Company sells group life and disability products through Blue Cross and Blue Shield plans and HMOs. In addition, the Company acts as an administrator for 4 6 the National Flood Insurance Program, for which it earns a fee for collecting premiums and processing claims. The Company does not assume any underwriting risk with respect to this program. The Company's business strategy is to continue developing distribution channels which provide access to large numbers of potential insureds in markets not traditionally served by other insurance companies. In pursuing this strategy, the Company emphasizes long-term relationships and the development of insurance programs designed to meet individual client needs. An essential part of the Company's strategy is to invest in technology which enables American Bankers to accommodate a large group of clients and their customers while simultaneously offering customized insurance programs. American Bankers has been able to develop a diverse client base. The Company's largest clients include Chase, First Card, Norwest, The Associates and Bank of New York. The Company distributes its products through nine markets or distribution channels involving over one thousand clients. Its business is generally not concentrated and the ten largest unrelated clients represented 26% of the Company's gross collected premiums in 1995. During this period, no single client accounted for more than 6% of the Company's total premiums. American Bankers' life and property insurance subsidiaries jointly market products and programs within each distribution channel, and the Company believes that such cross-marketing achieves economies of scale, thus lowering administrative costs. By combining its service and marketing activities, the Company centralizes the processing of its products and avoids duplication of administrative functions. The Company also provides management services and marketing support to its clients. Management services include administration of captive insurance companies and other participating programs for clients. American Bankers provides comprehensive administrative support in claims, accounting, tax, data processing and actuarial matters. In addition, the Company develops and packages credit-related insurance programs to meet a client's particular needs and provides the marketing assistance to implement these programs. Marketing support includes a full range of marketing materials, direct mail and telemarketing services and personnel training programs. At March 31, 1996, 82% of the Company's investment portfolio consisted of fixed income securities, of which 86% was rated "A" or higher by Standard & Poor's Corporation ("S&P") and 54% was represented by obligations of the U.S. government or its agencies. Direct mortgage loans and real estate investments constituted less than 1% of the investment portfolio. The Company has experienced strong growth in recent years. Gross collected premiums have increased from $960.8 million in 1991 to $2.3 billion in 1995, a compound annual growth rate of 24.2%. Total revenues have increased from $768.4 million in 1991 to $1.4 billion in 1995, a compound annual growth rate of 15.4%. Net operating income (net income excluding cumulative effect of change in accounting; gain on insurance settlement, net of tax; and realized investment gains (losses), net of tax) has increased from $38.0 million in 1991 to $71.8 million in 1995, a compound annual growth rate of 17.2%. 5 7 SUMMARY FINANCIAL INFORMATION The following summary consolidated financial data have been derived from the Consolidated Financial Statements of the Company and should be read in conjunction with the Consolidated Financial Statements of the Company and the notes thereto incorporated by reference herein, and "Management's Discussion and Analysis of Results of Operations and Financial Condition" appearing elsewhere in this Prospectus. The balance sheet data as of March 31, 1996 and 1995 and the income statement data for the three months ended March 31, 1996 and 1995 are derived from unaudited financial statements of the Company. In the opinion of management, the unaudited information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for such periods. Operating results for the three months ended March 31, 1996 are not necessarily indicative of operating results to be expected for the fiscal year ending December 31, 1996.
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ----------------------- ----------------------------------------------------------- 1996 1995 1995 1994 1993(1) 1992 1991 --------- --------- --------- --------- --------- --------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS) INCOME STATEMENT DATA: Gross Collected Premiums.... $ 604.6 $ 469.1 $2,286.6 $1,761.1 $1,427.2 $1,120.4 $ 960.8 Net Premiums Earned......... 341.9 284.6 1,240.7 1,094.3 882.0 733.0 691.4 Net Investment Income....... 27.4 21.8 99.4 74.4 70.4 67.5 68.9 Total Revenues.............. 375.7 309.8 1,360.9 1,186.8 973.3 812.1 768.4 Net Income.................. 20.6 14.9 72.3 56.5 52.3 42.3 37.4 Net Operating Income(2)..... 20.0 15.7 71.8 54.8 46.2 40.4 38.0 BALANCE SHEET DATA (PERIOD END): Investments................. $1,775.9 $1,390.4 $1,688.4 $1,264.9 $1,110.9 $ 982.1 $ 912.6 Total Assets................ 3,121.9 2,501.9 2,987.7 2,432.5 2,160.5 1,404.3 1,297.4 Notes Payable............... 256.5 202.3 236.0 197.8 158.9 139.6 177.0 Stockholders' Equity(3)..... 524.7 433.4 513.0 405.9 399.3 268.4 216.1 PER SHARE DATA: Primary Net Income.......... $ 0.99 $ 0.72 $ 3.48 $ 2.74 $ 2.80 $ 2.57 $ 2.55 Fully Diluted Net Income.... 0.99 0.72 3.48 2.74 2.73 2.39 2.22 Fully Diluted Net Operating Income Per Share(2)....... 0.95 0.76 3.45 2.66 2.39 2.19 2.04 Cash Dividends.............. 0.19 0.18 0.75 0.71 0.68 0.60 0.60 Book Value -- Period End(3).................... 25.74 21.50 25.34 20.15 19.87 16.38 14.50 OTHER DATA: Ratio of Earnings to Fixed Charges(4)................ 7.4 x 6.2 x 6.7 x 6.9 x 8.5 x 6.3 x 5.2 x Return on Equity(5)......... 16.1% 15.4% 15.7 % 14.1 % 15.7 %(6) 17.4 % 19.0 % Property/Casualty Subsidiaries Combined Ratio(7).................. 97.1% 95.8% 93.8 % 96.0 % 94.1 % 95.7 % 99.9 % Property/Casualty Industry Composite Combined Ratio(8).................. 106.7% 103.8% 106.4 % 108.4 % 106.9 % 115.7 % 108.8 % Insurance Subsidiaries Statutory Policyholders' Capital and Surplus....... $ 490.3 $ 419.9 $ 460.4 $ 399.0 $ 391.8 $ 272.6 $ 261.8
- --------------- (1) During the first quarter of 1993, the Company adopted, on a prospective basis, Statement of Financial Accounting Standards ("SFAS") 109 "Accounting for Income Taxes" and SFAS 113 "Accounting and Reporting of Reinsurance for Short-Duration and Long-Duration Insurance Contracts." Accordingly, certain amounts presented for prior periods may not be comparable. (2) Net operating income is computed as net income excluding cumulative effect of change in accounting; gain on insurance settlement, net of tax; and realized investment gains (losses), net of tax. (3) During the first quarter of 1994, the Company adopted, on a prospective basis, SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities." At March 31, 1996, stockholders' equity and book value per share excluding the effect of SFAS 115 were $525.6 million and $25.79, respectively. 6 8 (4) For purposes of computing the ratio of earnings to fixed charges, earnings include pre-tax earnings before interest expense and the interest portion of rent expense, which the Company estimates is equivalent to one-third of total rent expense. Fixed charges include interest expense and the interest portion of rent expense. (5) Return on equity is calculated for each period based on aggregate net income for the four quarters in the 12 months then ended divided by average stockholders' equity during the period. (6) Before the effect of adopting SFAS 109. (7) The sum of the ratio of losses incurred to earned premium and the ratio of commissions and underwriting expenses incurred to net premium written determined in accordance with SAP and expressed as a percentage. A combined ratio below 100% generally indicates profitable underwriting prior to the consideration of investment income. (8) As reported by A.M. Best Company, an independent insurance rating organization ("A.M. Best"), except for the three months ended March 31, 1996 and 1995, which is as reported by the Insurance Services Organization ("I.S.O."), an independent organization providing various advisory services to the insurance industry. THE OFFERING Securities Offered............ 2,000,000 shares of $ Series B Cumulative Convertible Preferred Stock. Dividends..................... Annual cumulative dividends of $ per share of Convertible Preferred Stock are payable quarterly out of funds legally available therefor on each , when, as and if declared by the Board of Directors. Liquidation Preference........ $50 per share of Convertible Preferred Stock, plus accrued and unpaid dividends. Conversion Rights............. Each share of Convertible Preferred Stock will be convertible at any time at the option of the holders thereof into shares of Common Stock of the Company, subject to adjustment in certain events, including a Fundamental Change (as defined herein). See "Description of Capital Stock -- Convertible Preferred Stock -- Conversion Rights." Optional Redemption........... The Convertible Preferred Stock will not be redeemable prior to , 2000. On and after such date, the Convertible Preferred Stock will be redeemable, in whole or in part, at the option of the Company, at $ per share of Convertible Preferred Stock during the period from and declining ratably annually to $50 per share of Convertible Preferred Stock on or after , 2006, plus in each case accrued and unpaid dividends to the redemption date. Voting Rights................. The holders of Convertible Preferred Stock will not have any voting rights, except as provided by applicable law and except that, among other things, holders will be entitled to vote as a separate class (with the holders of shares of any other series of preferred stock of the Company having similar rights) to elect two directors of the Company if the equivalent of six quarterly dividends payable on the Convertible Preferred Stock are in arrears. In addition, except as expressly required by applicable law, the Company will not, without the affirmative vote or consent of the holders of the Company's preferred stock (voting separately as a single class without regard to series), take certain actions so as adversely to 7 9 affect any rights and preferences of the preferred stock, and the Company will not, without the affirmative vote or consent of the holders of at least 66 2/3% of the outstanding Convertible Preferred Stock, voting separately as a series, take certain actions so as adversely to affect the relative rights and preferences of the Convertible Preferred Stock. Each share of Convertible Preferred Stock will be entitled to one vote on matters on which holders of such shares are entitled to vote. Shares of Common Stock Outstanding(1).............. 20,942,028 Use of Proceeds............... American Bankers will use the net proceeds from the offering for the funding of investments in insurance subsidiaries of the Company (including the repayment of $80 million of short-term indebtedness from borrowings after March 31, 1996, under the Company's short-term credit facility, which were previously used for such purposes) and for general corporate purposes. See "Use of Proceeds." Nasdaq National Market Symbols: Convertible Preferred Stock......................... ABIGP(2) Common Stock............. ABIG - --------------- (1) Unless otherwise indicated herein to the contrary, all share and per share information does not give effect to: (i) shares issuable upon conversion of the 2,300,000 shares of Convertible Preferred Stock offered hereby (including the over-allotment option for 300,000 shares of Convertible Preferred Stock) to shares of Common Stock; and (ii) 1,007,535 shares of Common Stock reserved for issuance under the Company's various option and debenture plans (except for shares acquirable upon the exercise of options which are exercisable within 60 days). See Note 9 to the Consolidated Financial Statements incorporated by reference herein. (2) Proposed. 8 10 THE COMPANY American Bankers is a specialty insurer providing primarily credit-related insurance products and extended service contracts in the U.S. and Canada as well as in Latin America, the Caribbean and the United Kingdom. During 1995, the Company incorporated a wholly owned insurance subsidiary in Mexico, and opened branch operations in Jamaica and Bahrain. The majority of the Company's gross collected premiums are derived from credit-related insurance products sold. The Company had gross collected premiums of $2.3 billion in 1995, and had total assets and stockholders' equity of $3.1 billion and $524.7 million, respectively, at March 31, 1996. The Company's credit-related insurance products consist primarily of life, AD&D, unemployment, disability and property insurance products issued in connection with the financing of consumer purchases. Credit-related insurance products generally offer a consumer a convenient option to insure a credit card or loan balance so that the amount of coverage purchased equals the amount of outstanding debt. Coverage is generally available to all consumers with few of the underwriting conditions that apply to ordinary term insurance, such as medical examinations and medical history reports. The Company's life and AD&D insurance products generally provide payment in full of the outstanding debt balance in the event of the insured's death. The unemployment and disability products satisfy the minimum monthly loan payment for a specified duration in the event of unemployment or disability. The Company's property insurance products pay the loan balance or the cost of repairing or replacing the insured's merchandise in the event of a loss due to a covered event. The Company's extended service contract products pay the cost of repairing or replacing the insured's merchandise in the event of damages due to a covered event. The Company avoids lines of insurance characterized by long loss payout periods, such as workers' compensation and most general liability coverages. The Company markets its credit-related insurance products and extended service contracts on a wholesale basis through a network of clients that consist primarily of major financial institutions, retailers and other entities which provide consumer financing as a regular part of their businesses. American Bankers enters into contracts, typically with terms of three to five years, with its corporate clients pursuant to which such clients market the Company's insurance products to their customers. In return, these clients receive expense reimbursements or commissions and are thus able to recover costs associated with the marketing of the insurance and generate incremental revenues. The majority of the Company's business utilizes contracts which afford the Company's clients the opportunity to participate in the underwriting results of policies they market to their customers. For example, the "Retro Plan" contract links a client's overall commission to the claims experience on policies marketed to its customers, so that low loss ratios result in higher commissions for the client and high loss ratios result in lower commissions. Another form of participation is a profit sharing contract under which the client participates in up to 50% of the profits generated from its insurance business. The Company also cedes premiums generated by clients to the clients' own captive insurance companies or to reinsurance subsidiaries in which clients have an equity interest. American Bankers also writes non-credit-related insurance products in markets where it believes it has less competition from other insurers. For example, the Company sells group life and disability products through Blue Cross and Blue Shield plans and HMOs. In addition, the Company acts as an administrator for the National Flood Insurance Program, for which it earns a fee for collecting premiums and processing claims. The Company does not assume any underwriting risk with respect to this program. The Company's business strategy is to continue developing distribution channels which provide access to large numbers of potential insureds in markets not traditionally served by other insurance companies. In pursuing this strategy, the Company emphasizes long-term relationships and the development of insurance programs designed to meet individual client needs. An essential part of the Company's strategy is to invest in technology which enables American Bankers to accommodate a large group of clients and their customers while simultaneously offering customized insurance programs. 9 11 American Bankers has been able to develop a diverse client base. The Company's largest clients include Chase, First Card, Norwest, The Associates and Bank of New York. The Company distributes its products through nine markets or distribution channels involving over one thousand clients. Its business is generally not concentrated and the ten largest unrelated clients represented 26% of the Company's gross collected premiums in 1995. During this period, no single client accounted for more than 6% of the Company's total premiums. American Bankers' life and property insurance subsidiaries jointly market products and programs within each distribution channel, and the Company believes that such cross-marketing achieves economies of scale, thus lowering administrative costs. By combining its service and marketing activities, the Company centralizes the processing of its products and avoids duplication of administrative functions. The Company also provides management services and marketing support to its clients. Management services include administration of captive insurance companies and other participating programs for clients. American Bankers provides comprehensive administrative support in claims, accounting, tax, data processing and actuarial matters. In addition, the Company develops and packages credit-related insurance programs to meet a client's particular needs and provides the marketing assistance to implement these programs. Marketing support includes a full range of marketing materials, direct mail and telemarketing services and personnel training programs. At March 31, 1996, 82% of the Company's investment portfolio consisted of fixed income securities, of which 86% was rated "A" or higher by S&P and 54% was represented by obligations of the U.S. government or its agencies. Direct mortgage loans and real estate investments constituted less than 1% of the investment portfolio. The Company has experienced strong growth in recent years. Gross collected premiums have increased from $960.8 million in 1991 to $2.3 billion in 1995, a compound annual growth rate of 24.2%. Total revenues have increased from $768.4 million in 1991 to $1.4 billion in 1995, a compound annual growth rate of 15.4%. Net operating income (net income excluding cumulative effect of change in accounting; gain on insurance settlement, net of tax; and realized investment gains (losses), net of tax) has increased from $38.0 million in 1991 to $71.8 million in 1995, a compound annual growth rate of 17.2%. The Company's insurance subsidiaries with ratings from A.M. Best include:
LIFE INSURANCE PROPERTY AND CASUALTY INSURANCE - ------------------------------------ ------------------------------------ American Bankers Life Assurance American Bankers Insurance Company Company of Florida (ABLAC)........ "A (Excellent)" of Florida (ABIC)................. "A- (Excellent)" Caribbean American Life Assurance American Reliable Insurance Company Company (CALAC)................... "A (Excellent)" (ARIC).............................. "A- (Excellent)" Voyager Life Insurance Company Voyager Indemnity Insurance Company (VLIC)............................ "B+ (Very Good)" (VIIC).............................. "A- (Excellent)" Voyager Life and Health Insurance Voyager Property and Casualty Company (VLHIC)................... "B+ (Very Good)" Insurance Company (VPCIC)......... "A- (Excellent)"
In evaluating a company's financial and operating performance, A.M. Best reviews the company's profitability, leverage and liquidity as well as the value of its assets, the adequacy of its reserves and the experience and competency of its management. A.M. Best's ratings are based upon factors relevant to policyholders, agents, insurance brokers, and intermediaries and are not directed to the protection of investors. The Company's executive offices are located at 11222 Quail Roost Drive, Miami, Florida 33157-6596. Its telephone number is (305) 253-2244. 10 12 USE OF PROCEEDS American Bankers will use the net proceeds from the offering of approximately $ (approximately $ if the Underwriters' over-allotment option is exercised in full) for the funding of investments in insurance subsidiaries of the Company (including the repayment of $80 million of short-term indebtedness from borrowings after March 31, 1996 under the Company's short-term credit facility, which were previously used for such purposes) and for general corporate purposes. See Note 7 to the Consolidated Financial Statements incorporated by reference herein. PRICE RANGE OF COMMON STOCK AND DIVIDENDS The Common Stock is listed on the Nasdaq National Market under the symbol "ABIG." The following table sets forth the price range of the Common Stock and the cash dividends declared per share for the periods shown. The Common Stock prices are the last sale price as reported on the Nasdaq National Market.
PRICE RANGE --------------- CASH HIGH LOW DIVIDENDS ------ ------ --------- 1994 First Quarter....................................................... $26 3/4 $22 1/4 $0.17 Second Quarter...................................................... 23 3/4 21 1/8 0.18 Third Quarter....................................................... 24 1/2 20 3/8 0.18 Fourth Quarter...................................................... 25 3/8 19 0.18 1995 First Quarter....................................................... 30 5/8 23 1/2 0.18 Second Quarter...................................................... 32 1/4 26 5/8 0.19 Third Quarter....................................................... 37 1/4 30 7/8 0.19 Fourth Quarter...................................................... 39 34 7/8 0.19 1996 First Quarter....................................................... 39 5/8 33 1/2 0.19 Second Quarter (through June 26, 1996).............................. 43 7/8 32 7/8 0.20
The last sale price per share of the Common Stock on June 26, 1996, as reported by Nasdaq National Market, was $42 5/8. The Company's Board of Directors currently intends to continue to declare a quarterly cash dividend on each share of the Common Stock. The amount of such dividends is intended to be based on the Company's net income and cash flow. The Company currently intends that the quarterly dividends will continue at the rate of $.20 per share. Each declaration of dividends will be reviewed by the Board of Directors quarterly and will be determined, at the discretion of the Board of Directors, in light of the Company's results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant at that time by the Company's Board of Directors. As an insurance holding company, the Company depends on dividends and other permitted payments from its subsidiaries to pay cash dividends to stockholders. The payment of dividends and such other payments by the insurance subsidiaries are restricted by the laws of each insurance subsidiary's state of domicile. State insurance regulators have authority in certain circumstances to block payments of dividends and other amounts by the insurance subsidiaries that would otherwise be permitted without regulatory approval. The Company is also subject to restrictions on dividend payments (including dividend payments on the Convertible Preferred Stock) pursuant to the terms of certain of its financing arrangements. See "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources" and "Business -- Government Regulation -- Dividend Regulation." 11 13 CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1996, and as adjusted to reflect the Company's borrowings under its short-term credit facility after March 31, 1996, and as further adjusted to reflect the net proceeds from the sale by the Company of 2,000,000 shares of Convertible Preferred Stock at an offering price of $50 per share (assuming the Underwriters' over-allotment option is not exercised) and the repayment of such borrowings.
AT MARCH 31, 1996 -------------------------------------- AS AS FURTHER ACTUAL ADJUSTED(1) ADJUSTED(2) -------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES) Indebtedness: Commercial Paper......................................... $108,000 $ 188,000 $ 108,000(3) Global Fixed Rate Note Due May 3, 1999................... 75,000 75,000 75,000 Global Floating Rate Note Due April 12, 2000............. 50,000 50,000 50,000 Other Indebtedness....................................... 23,450 23,450 23,450 -------- ----------- ----------- Total Indebtedness............................... 256,450 336,450 256,450 -------- ----------- ----------- Stockholders' Equity: Preferred Stock; 3,500 shares authorized: Series A Participating Preferred Stock; 350 reserved for issuance; none outstanding...................... -- -- -- Convertible Preferred Stock........................... -- -- 100,000 Common Stock, $1.00 par value; 35,000 shares authorized; 20,476 issued and outstanding; 1,473 reserved for issuance.............................................. 20,476 20,476 20,476 Additional Paid-in-Capital............................... 216,283 216,283 213,056 Net Unrealized Investment and Foreign Exchange (Losses).............................................. (891) (891) (891) Retained Earnings........................................ 299,557 299,557 299,557 Treasury Stock at Cost -- 93 shares...................... (1,426) (1,426) (1,426) Unamortized Restricted Stock............................. (3,406) (3,406) (3,406) Collateralization of Loan to LESOP(4).................... (5,844) (5,844) (5,844) -------- ----------- ----------- Total Stockholders' Equity....................... 524,749 524,749 621,522 -------- ----------- ----------- Total Capitalization............................. $781,199 $ 861,199 $ 877,972 ======== ========= ========= Debt as a Percentage of Total Capitalization............. 32.8% 29.2% ======== ========= Book Value per share of Common Stock..................... $ 25.74 $ 25.59 ======== =========
- --------------- (1) Reflects the Company's borrowing under its short-term credit facility, incurred subsequent to March 31, 1996. (2) Reflects the application of the net proceeds from the offering. (3) Reflects repayment of the borrowings under the Company's short-term credit facility. (4) Leveraged Employee Stock Ownership Plan. 12 14 SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA The following summary data should be read in conjunction with the Company's Consolidated Financial Statements and "Management's Discussion and Analysis of Results of Operations and Financial Condition." The annual income statement and balance sheet data set forth below for the years 1991 through 1995 have been derived from the Consolidated Financial Statements audited by Price Waterhouse LLP, independent accountants. The unaudited financial information as of and for the three months ended March 31, 1996 and 1995 has been derived from unaudited financial statements which include, in the Company's opinion, all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the interim results. Interim results are not necessarily indicative of the results to be expected for the full year.
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ----------------------- ----------------------------------------------------------- 1996 1995 1995 1994 1993(1) 1992 1991 --------- --------- --------- --------- --------- --------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS) INCOME STATEMENT DATA: Gross Collected Premiums.... $ 604.6 $ 469.1 $2,286.6 $1,761.1 $1,427.2 $1,120.4 $ 960.8 Net Premiums Earned......... 341.9 284.6 1,240.7 1,094.3 882.0 733.0 691.4 Net Investment Income....... 27.4 21.8 99.4 74.4 70.4 67.5 68.9 Total Revenues.............. 375.7 309.8 1,360.9 1,186.8 973.3 812.1 768.4 Net Income.................. 20.6 14.9 72.3 56.5 52.3 42.3 37.4 Net Operating Income(2)..... 20.0 15.7 71.8 54.8 46.2 40.4 38.0 BALANCE SHEET DATA (PERIOD END): Investments................. $1,775.9 $1,390.4 $1,688.4 $1,264.9 $1,110.9 $ 982.1 $ 912.6 Total Assets................ 3,121.9 2,501.9 2,987.7 2,432.5 2,160.5 1,404.3 1,297.4 Notes Payable............... 256.5 202.3 236.0 197.8 158.9 139.6 177.0 Stockholders' Equity(3)..... 524.7 433.4 513.0 405.9 399.3 268.4 216.1 PER SHARE DATA: Primary Net Income.......... $ 0.99 $ 0.72 $ 3.48 $ 2.74 $ 2.80 $ 2.57 $ 2.55 Fully Diluted Net Income.... 0.99 0.72 3.48 2.74 2.73 2.39 2.22 Fully Diluted Net Operating Income Per Share(2)....... 0.95 0.76 3.45 2.66 2.39 2.19 2.04 Cash Dividends.............. 0.19 0.18 0.75 0.71 0.68 0.60 0.60 Book Value -- Period End(3).................... 25.74 21.50 25.34 20.15 19.87 16.38 14.50 OTHER DATA: Ratio of Earnings to Fixed Charges(4)................ 7.4 x 6.2 x 6.7 x 6.9 x 8.5 x 6.3 x 5.2 x Return on Equity(5)......... 16.1% 15.4% 15.7 % 14.1 % 15.7 %(6) 17.4 % 19.0 % Property/Casualty Subsidiaries Combined Ratio(7).................. 97.1% 95.8% 93.8 % 96.0 % 94.1 % 95.7 % 99.9 % Property/Casualty Industry Composite Combined Ratio(8).................. 106.7% 103.8% 106.4 % 108.4 % 106.9 % 115.7 % 108.8 % Insurance Subsidiaries Statutory Policyholders' Capital and Surplus....... $ 490.3 $ 419.9 $ 460.4 $ 399.0 $ 391.8 $ 272.6 $ 261.8
- --------------- (1) During the first quarter of 1993, the Company adopted, on a prospective basis, SFAS 109 and SFAS 113. Accordingly, certain amounts presented for prior periods may not be comparable. (2) Net operating income is computed as net income excluding cumulative effect of change in accounting; gain on insurance settlement, net of tax; and realized investment gains (losses), net of tax. (3) During the first quarter of 1994, the Company adopted, on a prospective basis, SFAS 115. At March 31, 1996, stockholders' equity and book value per share, excluding the effect of SFAS 115 were $525.6 million and $25.79, respectively. (4) For purposes of computing the ratio of earnings to fixed charges, earnings include pre-tax earnings before interest expense and the interest portion of rent expense, which the Company estimates is equivalent to one-third of total rent expense. Fixed charges include interest expense and the interest portion of rent expense. (5) Return on equity is calculated for each period based on aggregate net income for the four quarters in the 12 months then ended divided by average stockholders' equity during the period. (6) Before the effect of adopting SFAS 109. 13 15 (7) The sum of the ratio of losses incurred to earned premium and the ratio of commissions and underwriting expenses incurred to net premium written determined in accordance with SAP and expressed as a percentage. A combined ratio below 100% generally indicates profitable underwriting prior to the consideration of investment income. (8) As reported by A.M. Best except for the three months ended March 31, 1996 and 1995, which is as reported by the I.S.O. 14 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OVERVIEW The property and casualty industry experienced higher earnings in 1995, as a result of fewer major catastrophes, reductions in loss costs and an increase in investment income. Also, the reinsurance market has witnessed some softening in prices, so during 1995 insurance companies generally renewed their coverages at prior year levels without incurring additional cost. Unprecedented catastrophe losses in recent years have prompted insurers to more aggressively limit their exposures to catastrophes. Such actions have in turn created insurance availability problems in certain areas. In response to this environment, some activity at the state level has occurred. During 1995, the California legislature authorized the establishment of the California Earthquake Authority, which will provide an alternative facility to California consumers for obtaining insurance to cover the earthquake peril. A similar situation exists in Florida where a state-sponsored insurance facility has accepted a significant number of insureds as insurance companies have continued to limit the amount of their Florida business. Litigation continues to be a major industry concern. In Alabama, the insurance industry has been targeted in litigation. The legal environment in Alabama has received national news coverage and the Alabama legislature is considering tort reform. Changes, if any, in the current environment cannot be predicted. In the meantime, Alabama litigation represents a significant issue to the industry. The federal government, commercial companies and the insurance industry continue to work together toward Superfund reform and dealing with the cleanup of pollution sites. Among issues pending are the determinations of retroactive liability and a proposed insurer-specific tax. Recently national banks were found to have the authority to sell life insurance. While this highly publicized development may adversely impact traditional life insurance companies, the Company believes that this should not adversely impact the Company in that its major products do not include traditional life insurance and its major products are typically sold through financial institutions including banks. Accordingly, this development may result in additional products or services being sold through the Company's bank distribution channel. In other recent developments, the Company has become aware that some financial institutions have, in connection with a loan, begun to issue debt cancellation agreements. These agreements provide that upon the death of the borrower, the lender will deem the loan paid-in-full and provide protection to the borrower that is similar to the Company's credit life and credit disability products. Various state insurance and financial institutions regulators are examining these agreements to determine whether they should be regulated as insurance. RESULTS OF OPERATIONS -- QUARTERS ENDED MARCH 31, 1995 AND MARCH 31, 1996 Gross collected premiums increased $135.5 million or 29% to $604.6 million for the three months ended March 31, 1996, from $469.1 million for the same period of 1995. The Company's unemployment products continued to perform well, contributing 22% or $30.3 million of the increase in gross collected premium. Also contributing to the increase was the Company's extended service contract products that accounted for $50.2 million, representing 8% of the Company's gross collected premium for the three months. During the three months ended March 31, 1996, total premiums and other revenues were $375.7 million, an increase of $65.9 million over total premiums and other revenues of $309.8 million for the same period in 1995. The increase included a $57.3 million increase in net premiums earned resulting generally from the premium growth experienced by the Company's existing clients. Despite the lower interest rate environment, the increase also included $5.6 million of additional investment income during the first quarter of 1996 as compared to the same period of 1995, due to the overall growth in invested assets. The benefits and claims ratio increased to 43% for the three months ended March 31, 1996, compared to the ratio of 37% for the same period of 1995. However, this adverse movement was offset by a reduction in the commissions ratio from 42% for the three months ended March 31, 1995, to 37% for the same period of 1996. 15 17 The effective tax rate increased from 31.2% for the three months ended March 31, 1995, compared to 33.2% for the same period of 1996. The increased rate was primarily attributable to the increased proportion of profits derived from the Company's U.S. business, which is taxed at the statutory rate of 35%. The increase in interest expense from $3.5 million to $4.1 million reflected the effects of higher debt levels ($256.5 million at March 31, 1996, versus $202.3 million at March 31, 1995). RESULTS OF OPERATIONS -- 1993 THROUGH 1995 Net income for 1995 increased to $72.3 million from $56.5 million in 1994, representing an increase of 28%. The Company's largest financial distribution channels continue to produce strong overall premium growth contributing to the increase in net income. The 1995 results included, on an after-tax basis, an increase of $16.2 million in net investment income, net investment gains of $.5 million and a $3.8 million charge on the settlement of the final portion of the credit bond litigation described below. The 1994 results included, on an after-tax basis, $1.7 million in net investment gains and a $2.9 million charge on the final settlement of the credit bond litigation initiated by bondholders. The 1993 results included, on an after-tax basis, $4.6 million in net losses attributable to adverse development of claims from Hurricane Andrew and losses incurred from a March winter storm which affected the Northeastern United States. Pre-tax operating income before realized gains (losses) by industry segment was as follows:
INCOME REALIZED INCOME EXCLUDING GAINS BEFORE LIFE GAINS (LOSSES) (LOSSES) TAXES -------------- -------- ------- ------------------------------------------------------ (IN THOUSANDS) 1995.................................................. $ 43,469 $ 1,262 $44,731 1994.................................................. 30,434 1,586 32,020 1993.................................................. 21,767 6,397 28,164 PROPERTY AND CASUALTY 1995.................................................. $ 83,971 $ 3,386 $87,357 1994.................................................. 66,023 670 66,693 1993.................................................. 60,531 (1,839) 58,692
These segment results exclude interest and other corporate activity. The 1993 winter storm and credit bond losses are included in the property and casualty segment. See Note 12 to the Consolidated Financial Statements incorporated by reference herein. Revenues The Company's total revenues in 1995 increased by 15%, primarily due to the increases in net earned premiums of $146.4 million and investment income of $25.0 million. The Company continued to show its biggest growth in the property and casualty segment where revenues increased by $158.9 million compared to the life segment increase of $23.0 million. A significant portion of the increase in the property and casualty segment was from net earned premiums on the Company's unemployment products. The Company's total revenues in 1994 increased by 22% over that of 1993 primarily due to increase in net earned premiums. The majority of the growth in the Company's business came from its Credit A&H and Credit Unemployment products. Gross collected premiums increased more than $500 million or approximately 30% from $1.8 billion in 1994 to $2.3 billion in 1995. The majority of the increase was generated from three of the Company's products. 16 18 Gross collected premiums for the selected three products were:
YEAR ENDED DECEMBER 31, ------------------------------ PRODUCT 1995 1994 INCREASE ------------------------------------------------------- -------- -------- -------- (IN THOUSANDS) Credit Unemployment.................................... $410,800 $269,800 $141,000 Credit A&H............................................. 349,000 244,500 104,500 Extended Service Contracts............................. 129,500 19,300 110,200 -------- -------- -------- Total........................................ $889,300 $533,600 $355,700 ======== ======== ========
The Company expects its premium growth to continue at recent historic rates depending on the acquisition of new clients, introduction of new products to its existing accounts and pursuit of opportunities as other insurance companies withdraw from the credit insurance market. The cost of reinsurance to cover catastrophe losses increased by $3.1 million to $9.5 million in 1995. The Company continuously reviews its exposure to catastrophe losses and, in 1995, increased its coverage which accounted for the majority of the increase in cost. The cost had remained relatively flat from 1993 to 1994 at $6.7 million and $6.4 million, respectively. The unusually large number of major catastrophe losses recently experienced by the industry had caused the reinsurance market capacity to be limited and more costly; however, the reinsurance market showed signs of stabilizing in 1995, and, consequently, costs for similar coverages are expected to remain at current levels in the foreseeable future. Investment income increased significantly to $99.4 million in 1995 from $74.4 million in 1994, representing a 34% increase. The increase was mainly due to the higher interest rate environment experienced during the early part of 1995 and the overall increase in invested assets of $423.5 million due primarily to premium growth. The increase in 1994 from 1993 was 6%. The Company's investment yield was 6.7% in 1995, 6.3% in 1994 and 6.7% in 1993. The Company's tax strategy of investing in tax-favored investments, such as low-income housing tax credit investments, also affected the overall pre-tax investment returns. Gross collected premiums increased 23% in 1994 and 27% in 1993. Net earned premiums increased 24% in 1994 and 20% in 1993. Total net premiums earned by industry segment were as follows:
YEAR ENDED DECEMBER 31, ---------------------------- INDUSTRY SEGMENT 1995 1994 1993 ---------------------------------------------------------- -------- -------- ------ (IN MILLIONS) Life...................................................... $ 377.1 $ 360.1 $305.1 Property and Casualty..................................... 863.6 734.2 576.9 -------- -------- ------ Total........................................... $1,240.7 $1,094.3 $882.0 ======= ======= ======
Claims and Commissions The Company enjoyed continuing improvement of its underwriting results in 1995. Through the Company's extensive use of adjustable commission arrangements based on claims experience, it has been able to generate business with improved underwriting results. The overall loss ratio for the Company (excluding credit bond losses) was 36.7% in 1995 compared to 39.7% in 1994 and 39.6% in 1993. The commission expense ratios for the same periods were 42.4% for 1995, 40.0% for 1994 and 40.6% for 1993, resulting in combined claims and commissions ratio of 79.1%, 79.7% and 80.2% for 1995, 1994 and 1993, respectively. The net retained underwriting profit (premiums less benefits, claims including credit bond and commissions) was 20% in 1995, 19.7% in 1994 and 19.5% in 1993. A few of the Company's products such as Mobilehome Physical Damage and Homeowners are affected by seasonal changes during the year, causing the profitability in those lines and for the Company to fluctuate throughout the year. 17 19 The Company's experience in the property and casualty segment has been better than industry experience, according to A.M. Best, for the last three years, as demonstrated by the following combined statutory ratios:
YEAR ENDED DECEMBER 31, ---------------------- COMBINED STATUTORY RATIOS 1995 1994 1993 ---------------------------------------------------------------- ---- ---- ---- American Bankers................................................ 94 % 96 % 94 % Industry........................................................ 106 108 107
In 1995, the Company completed a settlement of the only remaining lawsuit related to its discontinued credit bond insurance product line which resulted in an after-tax charge of $3.8 million. Credit bond pre-tax losses and expenses amounted to $11.5, $6.6 and $3.0 million in 1995, 1994 and 1993, respectively. The losses included reserves and partial litigation settlements of $5.8 million in 1995 and $4.5 million in 1994. There were no credit bond settlements in 1993. The Company anticipates no significant future expenses or losses associated with the remaining policies in force. The Company's adverse loss reserve development includes the effects from losses experienced from excess casualty reinsurance pools in which the Company discontinued participation effective in or prior to 1981. The Company reported pre-tax losses from these pools of $7.3 million in 1995, $4.2 million in 1994 and $3.0 million in 1993. The 1995 results included reserve additions of $3.0 million, made throughout the year to existing claims. The business is long-tail in nature and losses continue to exceed both Company and industry expectations. Most of these losses result from asbestos related and environmental pollution claims. The Company's exposure is only through participation in excess casualty pools. These pools typically involve high layer coverages that are applicable only after primary insurance coverage and, in many cases, reinsurance coverages have been exhausted. The Company's experience can differ significantly from that of other insurers which wrote the primary coverages directly. The Company establishes loss reserves on known claims as recommended by the various pool managers. Additional reserves to compensate for those claims that have not yet been reported are established which, when added to reported claim reserves, produce a total survival ratio of approximately 8.5 years. Management expects that reinsurance pool losses will continue in the current environment but will not have a material adverse effect on the Company's operations. It is difficult, however, to make a reasonable estimate of the Company's ultimate liability due to a general absence of reliable predictive data and of a generally accepted actuarial methodology for these exposures, significant unresolved legal issues including coverage issues, policy definitions and evolving theories and arguments. Additionally, the determination of ultimate damages and the final allocation of such damages to financially responsible parties is complex and uncertain. Operating and Interest Expenses Operating expenses (excluding interest expense) were $248.4 million in 1995, $217.2 million in 1994 and $179.2 million in 1993. Operating expenses as a percentage of net earned premiums have remained constant at 20%. Included in the expense is the cost of a new processing system being implemented for the property and casualty segment, which totaled $4.9 million in 1995 and $3.6 million in 1994. Similar expense levels are expected to continue through 1997. New processing systems are also being implemented for certain products in the life segment; however, the costs are not significant. Interest expense was $15.6 million, $11.2 million and $8.1 million in 1995, 1994 and 1993, respectively. The increase in interest expense was due in part to an increase in interest rates and increases in debt ($38.2 million in 1995 and $38.9 million in 1994). The increase in the interest rate environment, which benefits the Company in additional investment income, was partly offset by the increase in interest expense. Debt financing was utilized principally to support the continued growth of the Company's insurance subsidiaries. Interest expense in 1993 included $.6 million for the 5 3/4% convertible subordinated debentures, which were converted into Common Stock during the year. 18 20 Taxes and Other The effective tax rate was 31% in 1995, 29% in 1994 and 31% in 1993. The majority of the increase in 1995 from 1994 was caused by operating losses from the Company's United Kingdom insurance subsidiary, which did not provide any current tax benefit to the Company. In 1993, adoption of SFAS 109 "Accounting for Income Taxes" resulted in an additional tax charge of $1 million. The Company continues to take advantage of investing in tax exempt securities and tax credit investments to minimize its income tax expense. The Company is subject to various consumer initiatives including Proposition 103, passed in California in 1988, which are directed toward companies writing certain insurance coverages in that state. Proposition 103 required the Company to refund or roll back premiums to California policyholders if favorable underwriting experience exceeded certain guidelines. In 1995, the Company reached an agreement with the California Insurance Department whereby the Company rebated $4.1 million to affected policyholders. Previously established reserves satisfied this settlement. The Company is not aware of any other consumer initiatives which will have a material effect on results. FINANCIAL CONDITION Total assets at March 31, 1996, and December 31, 1995, were $3.1 billion and $3.0 billion, respectively. Invested assets at the same date were $1.8 billion and $1.7 billion, respectively. As of March 31, 1996, mortgage loans and investment in real estate pertaining to Florida properties were $8.8 million (excluding the home office complex), which represents 67% of the total mortgage loans and real estate portfolio. Liabilities were $2.6 billion and $2.5 billion at March 31, 1996 and at December 31, 1995, respectively, and were primarily comprised of insurance liabilities of $1.9 billion. Stockholders' equity increased $11.7 million from $513.0 million at December 31, 1995, to $524.7 million at March 31, 1996. The contribution of net income after dividends of $16.8 million was the primary cause for the increase. This was offset partially by a decrease in the unrealized investment gains recorded by the Company. This decrease was a result of the impact of the increasing interest rate environment on the market values of the Company's investment portfolio. LIQUIDITY AND CAPITAL RESOURCES On March 31, 1996, $1.8 billion of securities, short-term investments and cash comprised 57% of the Company's total assets. The securities were principally readily marketable and did not include any significant concentration in private placements. The Company does not hold significant investments in equity securities; consequently, market changes in the equity securities markets do not significantly affect the investment portfolio. The Company expects to continue its policy of paying regular cash dividends; however, future dividends are dependent on the Company's future earnings, capital requirements and financial condition. In addition, the payment of dividends is subject to the restrictions described in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Further, if there is a default under the Company's short-term credit facility, the Company will be prohibited from paying any dividends or making any distributions on account of any of its shares of capital stock. The increase in notes payable of $20.5 million was mostly attributable to the use of the Company's $250 million short-term credit facility. At March 31, 1996, the Company had $108 million outstanding related to this agreement. Capital expenditures planned for 1996 are not expected to be significant compared to the Company's overall liquidity and cash flow. The headquarters will be expanded at a cost of approximately $4.5 million. The one million share stock buy back program is not expected to significantly impact the Company's liquidity or cash flow in any one financial reporting period. 19 21 The Company does not concentrate in policy coverages under which policyholders may control, on a discretionary basis, access to cash benefits through policy surrender and withdrawals. Payment of dividends to the Company by its insurance subsidiaries is dependent on regulations dictated by statutory authorities in each state in which they are domiciled. The National Association of Insurance Commissioners ("NAIC") has introduced standards which would treat dividends in excess of the lesser of 10% of surplus or net income as extraordinary dividends requiring insurance department approval. While some states have adopted the standards, others have not. See "Business -- Government Regulation -- Dividend Regulation" and Note 8 to the Consolidated Financial Statements incorporated by reference herein. PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 -- SAFE HARBOR CAUTIONARY STATEMENT Except for historical information provided in this Prospectus, statements made throughout this document, including in this Management's Discussion and Analysis, are forward-looking and, as such, actual results could differ materially from those expected by the Company. The actual results of the Company may be affected by (i) adverse catastrophe experience in certain of the Company's property and casualty products; (ii) significant changes in interest rates; (iii) increased competition causing reduction in product margin or loss of a significant client; (iv) adverse loss development on property and casualty prior years' claims or the excess casualty reinsurance pools; (v) premium growth expectation not met because of the loss of a significant client; (vi) outcome of litigation and other state regulatory issues; and (vii) general economic conditions. In addition, the actual results of forward-looking statements are also subject to the specific factors which may be included with a particular forward-looking statement. 20 22 BUSINESS GENERAL American Bankers Insurance Group, Inc. is a specialty insurer providing primarily credit-related insurance products and extended service contracts in the U.S. and Canada as well as in Latin America, the Caribbean and the United Kingdom. During 1995, the Company incorporated a wholly owned insurance subsidiary in Mexico, and opened branch operations in Jamaica and Bahrain. The majority of the Company's gross collected premiums are derived from credit-related insurance products sold through financial institutions and other entities which provide consumer financing as a regular part of their businesses. The Company had gross collected premiums of $2.3 billion in 1995, and had total assets and stockholders' equity of $3.1 billion and $524.7 million, respectively, at March 31, 1996. The Company's credit-related insurance products consist primarily of life, AD&D, unemployment, disability and property insurance issued in connection with the financing of consumer purchases. Credit-related insurance products generally offer a consumer a convenient option to insure a credit card or loan balance so that the amount of coverage purchased equals the amount of outstanding debt. Coverage is generally available to all consumers with few of the underwriting conditions that apply to ordinary term insurance, such as medical examinations and medical history reports. The Company's life and AD&D insurance products generally provide payment in full of the outstanding debt balance in the event of the insured's death. The unemployment and disability products satisfy the minimum monthly loan payment for a specified duration in the event of unemployment or disability. The Company's property insurance products pay the loan balance or the cost of repairing or replacing the insured's merchandise in the event of a loss due to a covered event. The Company's extended service contract products pay the cost of repairing or replacing the insured's merchandise in the event of damages due to a covered event. The Company avoids lines of insurance characterized by long loss payout periods, such as workers' compensation and most general liability coverages. The Company markets its products on a wholesale basis through a network of clients that consist primarily of major financial institutions, retailers and other entities which provide consumer financing as a regular part of their businesses. American Bankers enters into contracts, typically with terms of three to five years, with its corporate clients pursuant to which such clients market the Company's insurance products to their customers. In return, these clients receive expense reimbursements or commissions and are thus able to recover costs associated with the marketing of the insurance and generate incremental revenues. The Company's clients typically share in the profitability of business written through them. American Bankers also writes non-credit-related insurance in markets where it believes it has less competition from other insurers. For example, the Company sells group life and disability products through Blue Cross and Blue Shield plans and HMOs. In addition, the Company acts as an administrator for the National Flood Insurance Program, for which it earns a fee for collecting premiums and processing claims. The Company does not assume any underwriting risk with respect to this program. The Company's business strategy is to continue developing distribution channels which provide access to large numbers of potential insureds in markets not traditionally served by other insurance companies. In pursuing this strategy, the Company emphasizes long-term relationships and the development of insurance programs designed to meet individual client needs. An essential part of the Company's strategy is to invest in technology which enables American Bankers to accommodate a large group of clients and their customers while simultaneously offering customized insurance programs. American Bankers has been able to develop a diverse client base. The Company's largest clients include Chase, First Card, Norwest, The Associates and Bank of New York. The Company distributes its products through nine markets or distribution channels involving over one thousand clients. Its business is generally not concentrated and the ten largest unrelated clients represented 26% of the Company's gross collected premiums in 1995. During this period, no single client accounted for more than 6% of the Company's total premiums. American Bankers' life and property insurance subsidiaries jointly market products and programs within each distribution channel, and the Company believes that such cross-marketing achieves economies of scale, 21 23 thus lowering administrative costs. By combining its service and marketing activities, the Company centralizes the processing of its products and avoids duplication of administrative functions. The Company also provides management services and marketing support to its clients. Management services include administration of captive insurance companies and other participating programs for clients. American Bankers provides comprehensive administrative support in claims, accounting, tax, data processing and actuarial matters. In addition, the Company develops and packages credit-related insurance programs to meet a client's particular needs and provides the marketing assistance to implement these programs. Marketing support includes a full range of marketing materials, direct mail and telemarketing services and personnel training programs. The majority of the Company's business utilizes contracts which afford the Company's clients the opportunity to participate in the underwriting results of policies they market to their customers. For example, the "Retro Plan" contract links a client's overall commission to the claims experience on policies marketed to its customers, so that low loss ratios result in higher commissions for the client and high loss ratios result in lower commissions. Another form of participation is a profit sharing contract under which the client participates in up to 50% of the profits generated from its insurance business. The Company also cedes premiums generated by clients to the clients' own captive insurance companies or to reinsurance subsidiaries in which clients have an equity interest. The inter-relationship between the ratio of the Company's benefits, claims, losses and settlement expenses to net premiums earned and the ratio of commissions to net premiums earned is illustrated in the table below, with a higher level of benefits, claims, losses and settlement expenses generally resulting in lower commissions and generally stable profit margins. OPERATING RATIOS
QUARTER ENDED MARCH 31, YEAR ENDED DECEMBER 31, ------------- ---------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- ---- As a Percentage of Net Premiums Earned: Benefits, Claims, Losses, and Settlement Expenses................. 43.1% 37.0% 37.6% 40.3% 40.0% 41.4% 41.8% Commissions............................ 37.4 42.0 42.4 40.0 40.6 39.5 40.3 ---- ---- ---- ---- ---- ---- ---- Total.......................... 80.5% 79.0% 80.0% 80.3% 80.6% 80.9% 82.1% ==== ==== ==== ==== ==== ==== ==== Net Income as a Percentage of Total Revenues (Profit Margin)............... 5.5% 4.8% 5.3% 4.8% 5.4% 5.2% 4.9% ==== ==== ==== ==== ==== ==== ====
22 24 PRODUCTS The following table sets forth the gross collected premiums of the Company's major insurance products: GROSS COLLECTED PREMIUMS MAJOR INSURANCE PRODUCTS
QUARTER ENDED MARCH 31, YEAR ENDED DECEMBER 31, --------------- -------------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ------ ------ -------- -------- -------- -------- ------ (IN MILLIONS) Credit Unemployment.............. $114.1 $ 83.8 $ 410.8 $ 269.8 $ 172.9 $ 127.9 $110.3 Credit Property.................. 87.2 89.6 367.7 354.2 268.6 187.2 174.2 Credit A&H....................... 91.9 65.3 349.0 244.5 182.8 174.0 116.6 Credit Life...................... 76.1 50.0 287.2 211.7 165.5 152.1 113.6 Mobilehome Physical Damage....... 33.0 28.4 137.3 121.4 100.1 41.6 47.5 Extended Service Contracts....... 50.2 5.4 129.5 19.3 12.0 10.7 10.9 Homeowners....................... 20.2 23.8 101.1 87.0 85.6 91.5 91.8 Mortgage Disability.............. 15.5 13.5 53.3 49.1 44.3 37.4 36.6 Livestock Mortality.............. 11.3 10.6 40.8 48.6 51.9 29.6 22.9 Group A&H........................ 13.2 12.4 39.6 26.4 27.7 22.4 22.7 All Other(1)..................... 91.9 86.3 370.3 329.1 315.8 246.0 213.7 ------ ------ -------- -------- -------- -------- ------ Total.................. $604.6 $469.1 $2,286.6 $1,761.1 $1,427.2 $1,120.4 $960.8 ====== ====== ======= ======= ======= ======= ======
- --------------- (1) "All Other" represents a large number of products, approximately 50 to 60 each year. The most significant in 1995 and 1994 were the Flood and Surety products. The Company's business can be divided into two principal types of products: (1) Financial Market Products, consisting primarily of credit-related insurance, and (2) Personal Insurance Lines, consisting of non-credit-related products and services. Financial Market Products Property Insurance. The Company writes a variety of property insurance which includes homeowners' and coverages for comprehensive physical damage of mobilehomes, automobiles, furniture, fixtures and other consumer goods. In the event of a loss due to a covered event, the Company will either pay off the loan balance or replace or repair the merchandise. The terms of the Company's property policies range from 30 days to multiple years. Multiple year policies generally coincide with the term of the financing for the insured property. For example, a consumer purchasing an automobile and financing the purchase over a three-year period can purchase a three-year physical damage policy at the inception of the loan for a single premium. An increasing proportion of gross collected premiums are monthly premiums received in connection with credit card purchases. Such premiums are based on the average outstanding credit card balance. Life and Disability Insurance. The Company writes life, AD&D and disability insurance primarily on consumer loans, mortgages and credit card balances. This life insurance and AD&D forms of decreasing term life insurance written generally without medical examination of the borrower. Premiums are received either in a single payment at the time the policy is written or monthly along with the borrower's regular payment. It is normally written for the term of the installment debt and retires all or a portion of the indebtedness in the event of the insured's death. Disability insurance covers a borrower for payments coming due on an installment loan, mortgage loan or revolving charge account while the borrower is disabled. Credit Unemployment Insurance. The Company writes unemployment insurance on credit card balances in conjunction with life, disability and property coverages. This unemployment insurance provides for 23 25 the payment of the minimum monthly loan payment for a specified duration while the insured is involuntarily out of work. Premiums for this coverage are based on the average outstanding credit card balance. Extended Service Contracts. Extended service contract business is currently being built through the Company's retail distribution channel, targeting electronic and appliance retailers. It is one of the Company's high growth products. To augment the Company's position in the extended warranty market, American Bankers acquired Federal Warranty Service Corporation, a warranty administrator, in late 1993. The Company will continue the expansion of this product line not only to retailers, but also through other emerging distribution channels such as utilities. Of the Company's top ten products by premiums, as depicted on the chart above, eight are associated with the Financial Market Products. Personal Insurance Lines The Company also derives revenues from non-credit-related insurance products and services. These products and services principally consist of: (i) group life and group disability sold through Blue Cross and Blue Shield plans and HMOs, (ii) individual life and disability products sold through employer-sponsored payroll deduction programs, (iii) administration fees earned in connection with the National Flood Insurance Program, (iv) livestock mortality insurance, (v) individual life insurance and annuity products sold principally in Latin America and the Caribbean, and (vi) surety coverages. UNDERWRITING The Company has over 40 years of experience in providing credit life and credit property insurance and therefore maintains an extensive actuarial database for its major lines of business. This database enables the Company to better identify and quantify the expected loss experience and is employed in the design of coverage and the establishment of premium rates. American Bankers uses this information in monitoring the loss experience of individual clients. A distinct characteristic of the Company's credit-related insurance products is that the majority of these products represent relatively low policy values since policy size is equal to the size of the installment purchase or credit card balance. Thus, loss severity for most of the Company's business is low relative to other insurance companies writing more traditional lines of business. For those product lines where exposure to catastrophe loss is higher (Homeowners and Mobilehome Physical Damage) the Company closely monitors and manages its aggregate risk by geographic area and has entered into reinsurance treaties to control its exposure to catastrophe losses. With respect to the Company's non-credit-related products, the Company utilizes traditional underwriting techniques. The Company seeks to ensure the quality of its business by maintaining strict underwriting standards. In underwriting individual life policies, the Company employs medical questionnaires, medical examinations, and current reports from the Medical Information Bureau. To the extent allowed by law, group underwriting takes into account demographic factors such as age, gender and occupation of members of the groups. The Company also seeks to reduce its risk exposure by avoiding lines of insurance characterized by long loss payout periods, such as workers' compensation and most general liability coverages. MARKETING American Bankers markets its credit-related insurance programs as a wholesale distributor through several defined distribution channels: Commercial Banks, Retailers, Consumer Finance Companies, Mortgage Bankers and Savings Institutions, and Manufactured Housing, Travel Trailer and Equipment Manufacturers, Dealers and Lenders. These distribution channels constitute the Company's Financial Market distribution channel. The distribution channels for the Company's Personal Insurance Lines include Blue Cross and Blue Shield plans, HMOs and Independent Agents. The Company continually seeks to develop new distribution channels for its products. It has recently established relationships with several utility clients, and continues to pursue opportunities with electric, gas and telephone utilities. 24 26 At March 31, 1996, the Company had 51 salaried sales representatives and 6 sales managers located in 15 regional sales centers throughout the U.S., Canada, Puerto Rico and the United Kingdom. Employees in the regional sales offices solicit potential new clients and service existing clients. These sales personnel typically have work experience in the client's industry and have received extensive sales and product training from the Company. The Company's sales personnel provide ongoing service and advice to clients to assist them in marketing the Company's insurance products and attempt to gain new clients by illustrating how the client can provide a value-added service to its customers and at the same time enhance the client's profitability by marketing the Company's products. Specifically, the Company's sales personnel approach each potential client with a structured four-call process: (i) initial contact, (ii) gathering information and analyzing the prospect's needs, (iii) presenting a program tailored to those needs, and (iv) agreeing to and implementing a program that is satisfactory to both the client and the Company. Products are individual programs underwritten by the insurance subsidiaries or "packages" which are a combination of products from various subsidiaries. These products can also be sold through more than one distribution channel. Product cross-over is commonplace within the Company's system, which facilitates streamlined administration and processing, as well as product development. For example, the Company's "Chargegard" product is a combination of life, disability, unemployment and property insurance coverage and is marketed through the Commercial Banks, Retailers, Consumer Finance Companies, and Mortgage Bankers and Savings Institutions distribution channels. DISTRIBUTION CHANNELS The following is a discussion of the distribution channels for the Financial Market Products: Commercial Banks The Company markets its installment loan and credit card related insurance products through commercial banks, bank holding companies and their non-bank subsidiaries and other issuers of general purpose credit cards. Increases in gross collected premiums have resulted primarily from the marketing of insurance programs in connection with credit cards. American Bankers tries to expand the business written by its clients in this area by assisting them in implementing direct mail and telemarketing programs. Retailers The Company is a major provider of credit-related insurance products and extended service contracts to the retail industry. This client base includes department and specialty stores, home furnishings and home improvement stores, appliance and electronic stores, general merchandise and automotive chains, jewelry stores, catalogs and rental companies. To further enhance its market position in this area, the Company develops customized direct mail and telemarketing programs for these clients. Premiums are generated from mailings included in monthly credit card statements or are generated at the point of sale. Consumer Finance Companies The client base consists of consumer and commercial finance companies, leasing and second mortgage institutions, and mortgage brokers. Because many major consumer finance companies have their own captive insurance companies, approximately half of the premiums written historically have been ceded to these captive insurance companies. Therefore, a substantial portion of the income in this area is derived from the management fees paid by clients' captive companies for processing and servicing this insurance. Mortgage Bankers and Savings Institutions The client base consists of mortgage bankers, savings institutions and home builders. Through these clients, the Company markets life, AD&D, disability and property insurance products to residential and consumer borrowers as well as to depositors. 25 27 Manufactured Housing and Travel Trailer Manufacturers, Dealers and Lenders The Company provides property insurance to purchasers of mobilehomes and travel trailers. The Company's policy is to deal exclusively with large dealers and manufacturers. These products are distributed primarily through manufactured housing, motor home and travel trailer manufacturers, dealers and lenders. Equipment Manufacturers and Dealers Manufacturers and dealers revenues are derived from credit life, disability, physical damage and warranty insurance products sold through agricultural and other equipment manufacturers. The following is a discussion of the distribution channels for the Personal Insurance Lines: Blue Cross and Blue Shield Plans and HMOs The Company utilizes the sales representatives of these organizations to offer its group life, AD&D, short-term and long-term disability, and dependent life coverages to employers that are providing group health benefits to their employees. These organizations share in the profitability of these product sales with the Company. Independent Agents The Company markets individual life insurance and annuity policies to the public through a network of independent agents. In the agency market, the Company competes with many large nationwide companies. As a result, the Company has made the decision to control the growth of this segment by de-emphasizing the U.S. market and focusing on the Caribbean and Latin American markets where loss experience has been favorable and the competition is less vigorous. Another product sold through agents is livestock insurance which primarily covers animal mortality. Agents also produce the flood premium that the Company administers on behalf of the National Flood Insurance Program. The Company acts as administrator and does not assume any underwriting risk with respect to this program. INVESTMENTS The functions of the investment department are an integral part of any insurance company's operations. The Company's investment department is guided by strategic objectives established by the Finance Committee of the Board of Directors. The major investment objectives are: (i) to ensure adequate safety of investments and to protect and enhance capital; (ii) to maximize risk-adjusted, after-tax return on investments; (iii) to make prudent investment decisions based on the current market environment; and (iv) to provide sufficient liquidity to meet cash requirements with minimum sacrifice of investment returns. In seeking to achieve these objectives, the Company invests predominantly in fixed income securities of the U.S. Government or its agencies, collateralized mortgage obligations ("CMOs") and investment grade corporate bonds. Protection against default risk is a primary consideration. Approximately 93% of the Company's CMO portfolio is composed of tightly structured Planned Amortization Class securities ("PACs") which are tested for volatility prior to purchase. Interest rate risk is controlled by matching the average duration of invested assets with the average duration of the policy liabilities. Investment department personnel work closely with the Company's actuaries to ensure that this balance is maintained. Private investments are made selectively to support the insurance business. These investments comprise about 3% of the fixed maturities portfolio. While these Company underwritten investments are non-rated, a careful evaluation of creditworthiness is performed before an investment is made. This analysis helps to ensure that prudent investment standards are maintained, even in the non-rated portfolio holdings. 26 28 The Company's equity portfolio is managed by outside investment advisors who are monitored on a regular basis against established performance benchmarks. It is the Company's practice to purchase fixed maturity investment grade securities. The following sets forth the consolidated carrying value of the Company's bond portfolio at March 31, 1996 by quality ratings:
AT MARCH 31, 1996 --------------------------- CARRYING QUALITY OF FIXED MATURITIES VALUE PERCENTAGE - ------------------------------------------------------------------ ---------- ---------- (IN THOUSANDS, EXCEPT PERCENTAGES) AAA............................................................... $ 940,734 64.7% AA................................................................ 82,366 5.7 A................................................................. 224,267 15.4 BBB............................................................... 143,113 9.8 BB/NR............................................................. 16,150 1.1 Private Placement................................................. 47,919 3.3 ---------- ---------- Total................................................... $1,454,549 100.0% ========= =========
- --------------- (1) Bonds are classified according to the rating assigned by S&P. Bonds not rated by S&P are classified according to the rating assigned to them by the NAIC as follows: for the purposes of the table, NAIC Class 1 is included in the "A" rating; Class 2, "BBB-;" Class 3, "BB-;" and Classes 4-6, "B and below." The scheduled maturities of the Company's consolidated fixed maturity investments as of March 31, 1996 were as follows:
AT MARCH 31, 1996 --------------------------- CARRYING MATURITY OF FIXED MATURITIES VALUE PERCENTAGE - ------------------------------------------------------------------ ---------- ---------- (IN THOUSANDS, EXCEPT PERCENTAGES) 0-1 Years......................................................... $ 128,958 8.9% 1-5 Years......................................................... 1,045,994 71.9 5-10 Years........................................................ 230,011 15.8 10-20 Years....................................................... 38,592 2.6 Over 20 Years..................................................... 10,994 0.8 ---------- ---------- Total................................................... $1,454,549 100.0% ========= =========
27 29 The consolidated GAAP carrying value of the investments held by the Company at March 31, 1996 and December 31, 1995 was as follows:
AT MARCH 31, 1996 AT DECEMBER 31, 1995 ----------------------- ----------------------- CARRYING CARRYING VALUE(1) PERCENTAGE VALUE PERCENTAGE ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PERCENTAGES) Fixed Maturities Corporate -- Fixed Rate.......................... $ 425,300 23.9% $ 346,000 20.5% Corporate -- Adjustable Rate..................... 16,300 0.9 15,000 0.9 Corporate -- Convertible......................... 5,000 0.3 6,000 0.4 State and Municipal.............................. 128,300 7.2 123,500 7.3 U.S. Government.................................. 787,500 44.4 817,900 48.4 Foreign Government and Jurisdiction.............. 75,900 4.3 61,900 3.7 Installment Loans................................ 16,300 0.9 17,300 1.0 ---------- ---------- ---------- ---------- 1,454,600 81.9 1,387,600 82.2 ---------- ---------- Equity Securities Preferred -- Fixed Rate.......................... 33,200 1.9 38,400 2.3 Preferred -- Convertible......................... 800 0.1 700 0.0 Common........................................... 80,700 4.5 73,900 4.4 ---------- ---------- ---------- ---------- 114,700 6.5 113,000 6.7 ---------- ---------- ---------- ---------- Mortgage Loans..................................... 11,600 0.7 11,800 0.7 Policy Loans....................................... 7,900 0.4 7,800 0.4 Real Estate........................................ 3,100 0.2 3,100 0.2 Short-Term and Other Investments (principally invested cash)................................... 184,000 10.3 165,100 9.8 ---------- ---------- ---------- ---------- 206,600 11.6 187,800 11.1 ---------- ---------- ---------- ---------- Total Investments........................... $1,775,900 100.0% $1,688,400 100.0% ========= ======== ========= ========
REINSURANCE The Company's insurance subsidiaries reinsure that portion of risk in excess of $250,000 under an ordinary life policy, $150,000 on a group life policy and $500,000 under a property policy. In addition, excess of loss coverage is obtained for the Company's property business as protection against catastrophic losses. This coverage is mainly related to the Company's homeowner, Mobilehome Physical Damage and credit property products. Following Hurricane Andrew in 1992, there has been a significant increase in the cost of catastrophe reinsurance. As a result, the Company restructured its catastrophe coverage, into three parts. First, the Company reinsures 50% of its homeowners coverage on a proportional basis. In addition, the Company has excess of loss catastrophe reinsurance providing coverage per catastrophe on property losses of $20 million excess of a $20 million retention exclusive of any recoveries from the proportional reinsurance described above. Finally, additional coverage is provided through excess of loss coverage if the net loss ratio (after deducting all other reinsurance) exceeds 36.1% in any one year. The Company believes that its catastrophe reinsurance coverage continues to be adequate. The reinsurance market showed signs of stabilization in 1995 and 1996. The Company's reinsurance receivable and prepaid reinsurance premiums at March 31, 1996 totaled $667.3 million. The Company's reinsurance was placed with numerous reinsurers including the following significant reinsurers: (i) American Re-Insurance Company, (ii) Transatlantic Reinsurance Company, (iii) Constitution Reinsurance Company, and (iv) Munich Reinsurance Company. The Company historically has not experienced any material losses in collection of reinsurance receivables. As part of the Company's reinsurance purchasing process, it routinely measures and analyzes its catastrophe exposures. In addition to the use of reinsurance, the Company will modify products, coverages and marketing practices to address excessive exposures. The Company's stated goal is to contain the net cost of any one catastrophe within the retention on its reinsurance program. 28 30 GOVERNMENT REGULATION The Company and its insurance subsidiaries are subject to regulation and supervision by the states in which the Company's insurance subsidiaries transact business. The laws of the various states establish regulatory agencies with broad administrative powers to grant and revoke licenses to transact business, regulate trade practices, establish guaranty associations, license agents, require approval of policy forms and premium rates on certain business prior to use, establish reserve requirements, determine the form and content of required financial statements, determine reasonableness and adequacy of capital and surplus and prescribe the types of permitted investments and the maximum concentrations of certain classes of investments. As part of their routine regulatory oversight process, approximately once every three to five years state insurance departments conduct periodic detailed examinations of the books, records and accounts of insurance companies domiciled in their states. This state regulation and supervision is designed primarily to ensure the financial stability of insurance companies and to protect policyholders, rather than stockholders or creditors. A substantial portion of the business written by the Company's insurance subsidiaries is credit-related insurance. Most states have enacted laws which regulate credit-related insurance to a greater extent than they regulate other forms of insurance including maximum premiums which may be charged and commissions which may be paid. In addition, certain states have enacted or are considering regulations which similarly attempt to limit profitability based upon underwriting experience. The NAIC has proposed a model law and regulation relating to creditor placed property insurance which is insurance purchased by a creditor in the event that a borrower fails to provide the insurance required under the loan agreement. The Company believes that the adoption of the proposal will not adversely affect its business operations. The Company issues creditor placed insurance coverage on mobilehomes and residential real property. The NAIC also took action in 1995 on credit life insurance by adopting an alternative approach to strict loss ratio based rate making which allows state regulators to take into account factors other than losses in determining the reasonableness of credit insurance rates. The investments of the insurance subsidiaries are limited as to type and amount by the insurance laws of the state of domicile; however, the NAIC is developing a Model Investment Law which would standardize these limitations. Additionally, investment policies are reviewed by the Board of Directors. In the property insurance industry, large catastrophe losses in recent years have led to federal initiatives that could affect purchasers of catastrophe insurance and reinsurance, such as the Company. The federal government, commercial companies, and the insurance industry continue to work together toward Superfund reform and dealing with the cleanup of pollution sites. Among issues pending are the determination of retroactive liability and a proposed insurer specific tax. Other federal initiatives may also affect various segments of the insurance industry. No prediction can be made as to whether any such initiatives will ultimately result in legislation, or the form that any such legislation might take. Insurance companies are required to file detailed annual and quarterly statements with the state insurance regulators in each of the states in which they do business, and their business and accounts are subject to examination by such agencies at any time. Applicable state insurance laws, rather than federal bankruptcy laws, apply to the liquidation or the reorganization of insurance companies. Financial Regulation The Company's insurance subsidiaries are required to comply with a minimum risk-based capital (RBC Standards), developed by the NAIC. Under the RBC standards -- risk specific for each company -- areas such as asset risk, insurance risk, interest risk, and business risk are evaluated and compared to the Company's capital and surplus to determine relative solvency margins. Standards for the RBC formula were approved by regulators and effective for 1993 statutory financial statements for life companies and in 1994 for property and casualty companies. The industry is still gaining experience in the use of the RBC standards, which have experienced formula adjustments each year since adoption. All of the Company's insurance subsidiaries meet the minimum risk-based capital requirements and no action is required based on the criteria described above. 29 31 Dividend Regulation The Company is a legal entity separate and distinct from its subsidiaries. As a holding company with no other business operations, its primary sources of cash needed to meet its obligations are dividends and other payments from its insurance subsidiaries. The Company's insurance subsidiaries are subject to various regulatory restrictions on the maximum amount of payments, including loans or cash advances, that they may make to the Company without obtaining prior regulatory approval. As Florida domiciled insurance companies, ABIC and ABLAC are subject to Florida requirements that insurance company dividends must receive prior regulatory approval unless, either (i) such dividends do not exceed the larger of: (a) the lesser of 10% of surplus or net gain from operations (ABLAC) or net income (ABIC), not including realized capital gains, plus a 2-year carry forward for ABIC; (b) 10% of surplus, with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains; or (c) the lesser of 10% of surplus or net investment income (net gain before capital gains for ABLAC) plus a 3-year carryforward (2-year carryforward for ABLAC) with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains; or (ii) the dividend is equal to or less than the greater of: (a) 10% of the insurer's surplus as to policyholders derived from realized net operating profits on its business and net realized capital gains; or the insurer's entire net operating profits and realized net capital gains derived during the immediately preceding calendar year; and (b) the insurer will have surplus as to policyholders equal to or exceeding 115% of the minimum required statutory surplus as to policyholders after the dividend is made. As an Arizona domiciled insurance company, ARIC must receive prior regulatory approval unless such dividends do not exceed the lesser of either 10% of surplus as regards policyholders or the net investment income. The Puerto Rico domiciled companies, including CALAC, shall not pay any cash dividend to stockholders except out of that part of its unassigned surplus funds which is derived from any realized net profits on its business. The Company's New York domiciled company is required to provide notice of its intention to declare dividends and file with the superintendent the amount of the proposed dividend. The Voyager insurance companies are domiciled in Georgia and South Carolina. Georgia and South Carolina require prior regulatory approval for dividends in excess of the greater of (i) 10% of a company's surplus as regards policyholders or (ii) net gain from operations for life companies, or net income, not including realized capital gains, for non-life companies, as of the preceding year end. In 1986, the NAIC adopted a Model Insurance Holding Company Systems Regulatory Act which contains dividend payment restrictions like those currently in place in Georgia and South Carolina, except that the NAIC model statute only allows an insurer to pay dividends without prior regulatory approval up to the "lesser of", instead of the "greater of", the two benchmarks. In connection with its accreditation of states to conduct periodic company examinations, the NAIC has encouraged states to adopt the model NAIC law on the payment of dividends. No prediction can be made as to whether any legislative proposals relating to a change in dividend limits will be enacted in the future. If insurance regulators determine that payment of a dividend or any other payment to an affiliate (such as a payment under a tax allocation agreement or for employee or other services or pursuant to a surplus debenture) would, because of the financial condition of the paying insurance company or otherwise, be hazardous to such insurance company's policyholders or creditors, the regulators may block payment of such dividends or such other payment to the affiliates that would otherwise be permitted without prior approval. See Note 8 to the Consolidated Financial Statements. Change of Control Regulation The states in which the Company's insurance subsidiaries are domiciled have enacted legislation or adopted administrative regulations affecting the acquisition of control of insurance companies as well as transactions between insurance companies and persons controlling them. Most states require administrative approval of the acquisition of control of an insurance company incorporated in the state or the acquisition of control of an insurance holding company whose insurance subsidiary is incorporated in the state. In Florida, the acquisition of 5% of such shares is generally deemed to be the acquisition of "control" for the purpose of the holding company statutes and requires not only the filing of detailed information concerning the acquiring 30 32 parties and the plan of acquisition, but also administrative approval prior to the acquisition. In the other states in which the Company's insurance subsidiaries are domiciled, however, an acquisition of 10% of such shares is generally deemed to be the acquisition of control. In many states, the insurance authority may find that "control" in fact does or does not exist in circumstances in which a person owns or controls either a lesser or a greater amount of securities. COMPETITION The competitors of the Company consist of both stock and mutual insurance companies. Some competing companies, both stock and mutual, have been in business for a longer time, are more widely known by reason of such factors as age and size, and have greater financial resources than the Company. However, due to the specialized nature of the markets served and products offered, the Company's competitors differ among the different geographic locations and market segments in which the Company conducts business. The Company's strategy is to establish profitable insurance underwriting and to service business in distribution channels that are relatively free of competition. In keeping with this strategy, the Company markets non-traditional insurance products through non-traditional distribution channels. LEGAL PROCEEDINGS The Company and certain of its insurance subsidiaries are presently parties to a number of individual consumer and class action lawsuits pending in Alabama involving premium, rate and policy coverage issues. As has been widely reported in the news media, the insurance and finance industries have been targeted in Alabama by plaintiffs' lawyers who enjoy a favorable judicial climate. The Company typically has been named as a co-defendant with one or several retailer or finance companies who have sold the Company's product to a consumer. A number of other credit insurers are named as co-defendants in many of the suits. Although these lawsuits generally involve relatively small amounts of actual or compensatory damages, they typically assert claims requesting substantial punitive awards. The Company denies any wrongdoing in any of these suits and believes that it has not engaged in any conduct that would warrant an award of punitive damages. The Company has been advised by legal counsel that it has meritorious defenses to all claims being asserted against it. While no one case is necessarily significant in terms of financial risk to the Company, the judicial climate in Alabama is such that the outcome of these cases is extremely unpredictable. Without admitting any wrongdoing, the Company has settled a number of these suits, but there are still a significant number of cases pending, and it is expected that more suits alleging essentially the same causes of action are likely to continue to be filed during 1996. The Company intends to continue to defend itself vigorously against all such suits and believes, based on information currently available, that any liabilities that could result are not expected to have a material effect on the Company's financial position. The Company is involved with a number of cases in the ordinary course of business relating to insurance matters or, more infrequently, general business matters. Generally, the Company's liability is limited to specific amounts relating to insurance or policy coverage for which provision has been made in the financial statements. Other cases involve general corporate matters which generally do not represent significant contingencies for the Company. DESCRIPTION OF CAPITAL STOCK GENERAL The following description of the capital stock of the Company is qualified in its entirety by reference to the Company's Second Amended and Restated Articles of Incorporation, as amended (the "Restated Articles"), which has been filed with and is available from the offices of the Commission as referred to under "Available Information." 31 33 The Restated Articles authorized the issuance of 38,500,000 shares of capital stock of which 3,500,000 shares are designated preferred stock, no par value ("Preferred Stock"), and 35,000,000 shares are designated common stock, par value $1.00 per share. As of March 31, 1996, there were 350,000 shares of Series A Preferred Stock reserved for issuance as Convertible Participating Preferred Stock issuable under the Company's Shareholder Rights Plan ("Rights Plan"). As of March 31, 1996, no shares of Convertible Preferred Stock and 20,383,602 shares of the Common Stock were outstanding. Additionally, at March 31, 1996, 1,472,586 shares of Common Stock were reserved for issuance, for the exercise of stock options and the conversion of certain debt securities of the Company. See "Prospectus Summary -- The Offering." All outstanding shares of Common Stock are fully paid and nonassessable and shares of Series A Preferred Stock offered hereby will, upon full payment of the purchase price therefor, be fully paid and nonassessable, and Common Stock issuable upon conversion or redemption thereof will be fully paid and nonassessable. Under the Restated Articles, the Board of Directors of the Company may provide for the issuance of Preferred Stock in one or more series and the Board of Directors is authorized to fix the designation, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof, including, without limitation, the voting powers, if any, the dividend rate, conversion rights, redemption price, or liquidation preference of any series of shares of preferred stock, pursuant to a certificate of designation, without any further vote or action by the Company's stockholders. The description set forth below of the Convertible Preferred Stock, the Series A Preferred Stock and Common Stock are qualified in their entirety by reference to the Restated Articles, for the Convertible Preferred Stock, the proposed Articles of Amendment to the Restated Articles, and for the Series A Preferred Stock, the certificate of designation relating to such series (collectively, with such Articles of Amendment, the "Designation"). CONVERTIBLE PREFERRED STOCK The Convertible Preferred Stock has been authorized as a new series of preferred stock, consisting of 2,300,000 shares. Dividends Holders of shares of Convertible Preferred Stock will be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefor, cash dividends at an annual rate of per share, payable quarterly in arrears on of each year, commencing (with respect to the period from the date of initial issuance of such shares of Convertible Preferred Stock to such date), except that if any such date is a Saturday, Sunday or legal holiday then such dividend will be payable on the next day that is not a Saturday, Sunday or legal holiday. Dividends will accrue and be cumulative from such date of initial issuance and will be payable to holders of record as they appear on the stock transfer books on such record dates as are fixed by the Board of Directors (provided that no record date shall be later than (a) the sixth business day prior to the date fixed for any redemption of the Convertible Preferred Stock or, (b) in the case of the dividend payment date occurring on , the tenth business day prior to such date). The Convertible Preferred Stock will have priority as to dividends over the Common Stock and, when and if issued, the Series A Preferred Stock described below under "-- Series A Preferred Stock" and any other series or class of the Company's stock hereafter issued that ranks junior as to dividends to the Convertible Preferred Stock, when and if issued (collectively, "Junior Dividend Stock"), and no dividend (other than dividends payable solely in stock that is Junior Dividend Stock and that ranks junior to the Convertible Preferred Stock as to distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary (such stock that is junior as to liquidation rights, "Junior Liquidation Stock") (the Common Stock and any other capital stock of the Company that is both Junior Dividend Stock and Junior Liquidation Stock, "Junior Stock")) may be paid on any Junior Dividend Stock, and no payment may be made on account of the purchase, redemption, retirement, or other acquisition of Junior Dividend Stock or Junior Liquidation Stock (other than such acquisitions pursuant to employee or 32 34 director incentive or benefit plans or arrangements, or in exchange solely for Junior Stock), unless all accrued and unpaid dividends on the Convertible Preferred Stock for all dividend payment periods ending on or before the date of payment of such dividends on Junior Dividend Stock, or such payment for such Junior Dividend Stock or Junior Liquidation Stock, as the case may be, have been paid or declared and set apart for payment. The Company may not pay dividends on the Convertible Preferred Stock unless it has paid or declared and set apart for payment or contemporaneously pays or declares and sets apart for payment all accrued and unpaid dividends for all dividend payment periods on any class or series of stock having parity with the Convertible Preferred Stock as to dividends ("Parity Dividend Stock") ratably, so that the amount of dividends declared and paid per share on the Convertible Preferred Stock and such Parity Dividend Stock will bear to each other and the same ratio that the accrued and unpaid dividends to the date of payment on Convertible Preferred Stock and such Parity Dividend Stock bear each other. No payment may be made on account of the purchase, redemption, retirement or other acquisition of shares of Junior Stock, Parity Dividend Stock or other class or series of the Company's capital stock ranking on a parity with the Convertible Preferred Stock as to distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary (such stock that has parity with the Convertible Preferred Stock as to liquidation rights, "Parity Liquidation Stock") (other than such acquisitions pursuant to employee or director or incentive or benefit plans or arrangements, or in exchange solely for Junior Stock) unless all accrued and unpaid dividends on the Convertible Preferred Stock for all dividend payment periods ending on or before the date of payment on account of such acquisition of such Parity Dividend Stock or Parity Liquidation Stock shall have been paid or declared and set apart for payment. The amount of dividends payable per share of Convertible Preferred Stock for each quarterly dividend period will be computed by dividing the annual dividend amount by four. The amount of dividends payable for the initial period and for any period shorter than a full quarterly dividend period will be computed on the basis of a 360-day year of twelve 30-day months. No interest will be payable in respect of any dividend payment on the Convertible Preferred Stock which may be in arrears. Under Florida law, no dividend or distribution to holders of capital stock may be made if, after giving effect to such dividend or distribution, the Company would not be able to pay its debts as they become due in the usual course of business, or the Company's total assets would be less than the sum of its total liabilities plus the amount that would be needed if the Company were to be dissolved at the time of the payment of such dividend or distribution, to satisfy the preferential rights upon dissolution of holders of Senior Liquidation Stock (as defined below). As the Company is a holding company with no business operations, its primary source of cash are dividends and other payments from its insurance subsidiaries. Its insurance subsidiaries' ability to pay dividends without prior regulatory approval is limited by applicable laws and regulations. The Company is also subject to restrictions on dividend payments (including dividend payments on the Convertible Preferred Stock) pursuant to the terms of certain of its financing arrangements. See "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources" and "Business -- Government Regulation -- Dividend Regulation." Liquidation Rights In the case of the voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of shares of Convertible Preferred Stock are entitled to receive the liquidation preference of $50 per share, plus an amount equal to any accrued and unpaid dividends to the payment date, before any payment or distribution is made to the holders of Common Stock or any Junior Liquidation Stock, but the holders of the shares of the Convertible Preferred Stock will not be entitled to receive the liquidation preference of such shares until the liquidation preference of any other series or class of stock hereafter issued that ranks senior as to liquidation rights to the Convertible Preferred Stock ("Senior Liquidation Stock") has been paid in full. The holders of Convertible Preferred Stock and all series or classes of stock hereafter issued that rank on a parity as to distributions of assets upon such liquidation, dissolution or winding up of the Company with the Convertible Preferred Stock are entitled to share ratably, in accordance with the respective preferential amounts payable on such stock, in any distribution (after payment of the liquidation preference of the Senior Liquidation Stock) which is not sufficient to pay in full the aggregate of the amounts payable thereon. After payment in 33 35 full of the liquidation preference of the shares of the Convertible Preferred Stock, the holders of such shares will not be entitled to any further participation in any distribution of assets by the Company. Neither a consolidation nor merger of the Company with another corporation nor a sale or transfer of all or substantially all of the Company's property or assets will be considered a liquidation, dissolution or winding up of the Company. Voting Rights The holders of the Convertible Preferred Stock will not have voting rights except as described below or as required by law. In exercising any such vote, each outstanding share of Convertible Preferred Stock will be entitled to one vote, excluding shares held by any entity controlled by the Company, which shares shall have no voting rights. Whenever dividends on the Convertible Preferred Stock or any outstanding shares of Parity Dividend Stock have not been paid in an aggregate amount equal to at least six quarterly dividends on such shares (whether or not consecutive), the number of members of the Company's Board of Directors will be increased by two, and the holders of the Convertible Preferred Stock, voting separately as a class with the holders of Parity Dividend Stock on which like voting rights have been conferred and are exercisable, will be entitled to elect such two additional directors who shall continue to serve so long as such dividends remain in arrears. Such voting rights will terminate when all such dividends accrued and unpaid have been declared and paid or set apart for payment. The term of office of all directors so elected will terminate immediately upon the termination of such voting rights and the number of members of the Board of Directors will be reduced by two. In addition, so long as any shares of the Company's preferred stock are outstanding, the Company will not, without the affirmative vote or consent of the holders of at least 66 2/3% of all outstanding shares of preferred stock, voting or consenting (as the case may be) separately as a class without regard to series, (A) create any class of stock ranking prior to the Company's preferred stock as to dividends or upon liquidation or increase the authorized number of shares of any such class of (B) alter or change any of the provisions of the Restated Articles so as adversely to affect the relative rights and preferences of the Company's preferred stock or (C) increase the authorized number of shares of the Company's preferred stock. So long as any shares of the Company's preferred stock are outstanding, the Company will not, without the affirmative vote or consent of the holders of at least 66 2/3% of the outstanding shares of Convertible Preferred Stock, voting or consenting (as the case may be) separately as a series, alter or change any provision of the Restated Articles so as adversely to affect the relative rights and preferences of the Convertible Preferred Stock. Redemption at Option of the Company The Convertible Preferred Stock may not be redeemed prior to , 2000. On or after such date, the Convertible Preferred Stock may be redeemed by the Company, at its option, in whole or in part at any time, subject to the limitations, if any, imposed by applicable law, at a cash redemption price of $ per share, plus accrued and unpaid dividends to but excluding the redemption date, if redeemed prior to , 2001, and at the following redemption prices per share, if redeemed during the 12-month period ending :
REDEMPTION PRICE YEAR PER SHARE ---------------------------------------------------------------- --------- 2002............................................................ $ 2003............................................................ 2004............................................................ 2005............................................................ 2006............................................................
34 36 and thereafter at $50 per share plus, in each case, accrued and unpaid dividends to but excluding the redemption date. If fewer than all the outstanding shares of Convertible Preferred Stock are to be redeemed, the Company will select those shares to be redeemed pro rata or by lot or in such other manner as the Board of Directors may determine to be fair. There is no mandatory redemption or sinking fund obligation with respect to the Convertible Preferred Stock. If at any time dividends on the Convertible Preferred Stock are in arrears, the Company may not redeem less than all of the then outstanding shares of the Convertible Preferred Stock until all accrued dividends for all past dividend periods have been paid in full. Notice of redemption will be mailed at least 30 days but not more than 90 days before the date fixed for redemption to each holder of record of shares of Convertible Preferred Stock to be redeemed at the address shown on the stock transfer books. No fractional shares of Convertible Preferred Stock will be issued upon a redemption of less than all of the Convertible Preferred Stock, but in lieu thereof, an appropriate amount will be paid in cash based on the value for the shares of Convertible Preferred Stock as determined in good faith by the Board of Directors. After the date fixed for redemption, dividends will cease to accrue on the shares of Convertible Preferred Stock called for redemption and other rights of the holders of such shares will terminate, except the right to receive the redemption price without interest, and all conversion privileges will terminate on the fifth business day prior to the date fixed for redemption. Conversion Rights The holder of any shares of Convertible Preferred Stock will have the right, at the holder's option, to convert any or all shares into Common Stock at any time at the conversion rate (subject to adjustment as described below) of shares for each share of Convertible Preferred Stock, equivalent to an initial conversion price of $ for each share of Common Stock, except that if the Convertible Preferred Stock is called for redemption, the conversion right will terminate at 5:00 p.m. New York City time on the business day prior to the date fixed for such redemption and if not exercised prior to such date, such conversion right will be lost, unless the Company defaults in making the payment due upon redemption. Except as provided in the next paragraph, no payment or adjustment will be made upon any conversion of any share of Convertible Preferred Stock or on account of any dividends on the Common Stock issued upon conversion (except that if a converting holder of Convertible Preferred Stock is eligible for a dividend on both the Convertible Preferred Stock and the Common Stock issued upon conversion, the holder is entitled to the higher of such dividend amounts). Following conversion, the holder will no longer have any right to payment of dividends on the shares surrendered for conversion. No fractional shares of Common Stock will be issued upon conversion but, in lieu thereof, an appropriate amount will be paid in cash based on the reported last sale price for the shares of Common Stock on the Nasdaq National Market on the day of such conversion. If the Company, by dividend or otherwise, declares or makes a distribution on its Common Stock referred to in clause (iv) or (v) of the next following paragraph, the holders of the Convertible Preferred Stock, upon the conversion thereof subsequent to the close of business on the date fixed for the determination of shareholders entitled to receive such distribution and prior to the effectiveness of the conversion price adjustment in respect of such distribution, will be entitled to receive for each share of Common Stock into which each such share of Convertible Preferred Stock is converted the portion of the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash and assets so distributed applicable to one share of Common Stock; provided, however, that the Company may, with respect to all holders so converting, in lieu of distributing any portion of such distribution not consisting of cash or securities of the Company, pay such holder cash equal to the fair market value thereof (as determined by the Board of Directors). The conversion price will be subject to adjustment in certain events including, without duplication: (i) dividends (and other distributions) payable in Common Stock on any class of capital stock of the Company; (ii) the issuance to all holders of Common Stock of rights or warrants, or the occurrence of an event under the Rights Agreement, entitling holders of such rights or warrants to subscribe for or purchase Common Stock at less than the then current market price (as defined); (iii) subdivisions and combinations of Common Stock; (iv) distributions to all holders of Common Stock of evidences of indebtedness of the Company, shares of capital stock, cash or assets (including securities, but excluding those rights, warrants, 35 37 dividends and distributions referred to above and dividends and distributions paid exclusively in cash); and (v) distributions consisting of cash, excluding (A) cash that is part of a distribution referred to in (iv) above, and (B) any cash representing an amount per share of Common Stock of any quarterly cash dividend to the extent it does not exceed the amount per share of Common Stock of the next preceding quarterly cash dividend (as adjusted to reflect any of the events referred to in clauses (i) through (v) of this sentence) or all of any such quarterly cash dividends if the amount thereof per share of Common Stock multiplied by four does not exceed 15% of the current market price (as defined) of Common Stock on the trading day (as defined) next preceding the date of declaration of such dividend. Following certain adjustments to the conversion price, notice of such event will be mailed to the holders of the Convertible Preferred Stock. The foregoing adjustments to the conversion price are designed to compensate the holders of the Convertible Preferred Stock for the value of the cash, securities or other assets that they would have otherwise received had they converted their Convertible Preferred Stock into shares of Common Stock prior to such distribution. Such adjustment would generally result in a reduced conversion price, which would entitle the holders of Convertible Preferred Stock to receive a greater number of shares of Common Stock upon conversion of the Convertible Preferred Stock into Common Stock. The Company from time to time may reduce the conversion price by an amount for any period of time of at least 20 days, in which case the Company shall give at least 15 days' notice of such reduction, if the Board of Directors of the Company has made a determination that such reduction would be in the best interest of the Company, which determination shall be conclusive. In the event that the Company is a party to any transaction (including, without limitation, a merger, consolidation, sale of all or substantially all of the Company's assets, recapitalization or reclassification of the Common Stock (each of the foregoing being referred to as a "Company Transaction")), in each case (except in the case of a Common Stock Fundamental Change (as defined)) as a result of which shares of Common Stock shall be converted into the right to receive securities, cash or other property, each share of the Convertible Preferred Stock shall thereafter be convertible into the kind and amount of securities, cash and other property receivable upon the consummation of such Company Transaction by a holder of that number of shares of Common Stock into which one share of the Convertible Preferred Stock was convertible immediately prior to such Company Transaction (or in the case of a Common Stock Fundamental Change, common stock of the kind received by the holders of Common Stock as a result of such Common Stock Fundamental Change) (but after giving effect to any adjustment discussed in the next paragraph relating to a Fundamental Change (as defined) if such Company Transaction constitutes a Fundamental Change, and subject to funds being legally available for such purpose under applicable law at the time of such conversion). Notwithstanding any other provision in the preceding paragraphs to the contrary, if any Fundamental Change occurs, then the conversion price in effect will be adjusted immediately after such Fundamental Change as described below. In addition, in the event of a Common Stock Fundamental Change, each share of the Convertible Preferred Stock shall be convertible solely into common stock of the kind received by holders of Common Stock as the result of such Common Stock Fundamental Change. For purposes of calculating any adjustment to be made pursuant to this paragraph in the event of a Fundamental Change, immediately after such Fundamental Change: (i) in the case of a Non-Stock Fundamental Change (as defined), the conversion price of the Convertible Preferred Stock will thereupon become the lower of (A) the conversion price in effect immediately prior to such Non-Stock Fundamental Change, but after giving effect to any other prior adjustments, and (B) the result obtained by multiplying the greater of the Applicable Price (as defined) or the then applicable Reference Market Price (as defined) by a fraction of which the numerator will be $50 and the denominator will be the then current redemption price per share (or, for periods prior to ,2000, an amount per share determined in accordance with the Designation); and (ii) in the case of a Common Stock Fundamental Change, the conversion price of the Convertible Preferred Stock in effect immediately prior to such Common Stock Fundamental Change, but after giving effect to any other prior adjustments, will thereupon be adjusted by multiplying such conversion price by a fraction, of which the numerator will be the Purchaser Stock Price (as defined) and the 36 38 denominator will be the Applicable Price; provided, however, that in the event of a Common Stock Fundamental Change in which (A) 100% of the value of the consideration received by a holder of Common Stock is common stock of the successor, acquiror or other third party (and cash, if any, is paid with respect to any fractional interests in such common stock resulting from such Common Stock Fundamental Change) and (B) all of the Common Stock will have been exchanged for, converted into, or acquired for, common stock (and cash with respect to fractional interests) of the successor, acquiror or other third party, the conversion price of the Convertible Preferred Stock in effect immediately prior to such Common Stock Fundamental Change will thereupon be adjusted by multiplying such conversion price by a fraction, of which the numerator will be one (1) and the denominator will be the number of shares of common stock of the successor, acquiror, or other third party received by a holder of one share of Common Stock as a result of such Common Stock Fundamental Change. The foregoing conversion price adjustments in the event of a Non-Stock Fundamental Change will apply in situations whereby all or substantially all of the Common Stock is acquired in a transaction in which 50% or less of the value received by holders of Common Stock consists of common stock that has been admitted for listing on a national securities exchange or quoted on the Nasdaq National Market. If the market price of the Common Stock immediately prior to a Non-Stock Fundamental Change is lower than the applicable conversion price of the Convertible Preferred Stock then in effect, the conversion price will be adjusted as described in (i) above and the holders of the Convertible Preferred Stock will be entitled to receive the amount and kind of consideration that would have been received if the Convertible Preferred Stock had been converted into Common Stock prior to the Non-Stock Fundamental Change after giving effect to such adjustment. The foregoing conversion price adjustments in the event of a Common Stock Fundamental Change will apply in situations whereby more than 50% of the value received by holders of Common Stock consists of common stock of another company that has been admitted for listing on a national securities exchange or quoted on the Nasdaq National Market, in which case the Convertible Preferred Stock will become convertible into shares of common stock of the other company. If consideration for the Common Stock consists partly of common stock of another company and partly of other securities, cash or property, each share of Convertible Preferred Stock will be convertible solely into a number of shares of such common stock determined so that the initial value of such shares (measured as described in the definition of Purchaser Stock Price below) equals the value of the shares of Common Stock into which such share of Convertible Preferred Stock Price below) equals the value of the shares of Common Stock into which such share of Convertible Preferred Stock was convertible immediately before the Transaction (measured as described in the definition of Applicable Price below). If consideration for Common Stock is solely common stock of another company, each share of Convertible Preferred Stock will be convertible into the same number of shares of such common stock receivable by a holder of the number of shares of Common Stock into which such share of Convertible Preferred Stock was convertible immediately before such transaction. Depending upon whether the Fundamental Change is a Non-Stock Fundamental Change or Common Stock Fundamental Change, a holder may receive significantly different consideration upon conversion. In the event of a Non-Stock Fundamental Change, the holder has the right to convert each share of the Convertible Preferred Stock into the kind and amount of shares of stock and other securities or property or assets receivable by a holder of the number of shares of Common Stock issuable upon conversion of such share of the Convertible Preferred Stock immediately prior to such Non-Stock Fundamental Change, but after giving effect to the adjustment described above. However, in the event of a Common Stock Fundamental Change in which less than 100% of the value of the consideration received by a holder of Common Stock is common stock of the acquiror or other third party, a holder of a share of the Convertible Preferred Stock who converts a share following the Common Stock Fundamental Change will receive consideration in the form of such common stock only, whereas a holder who has converted his share prior to the Common Stock Fundamental Change will receive consideration in the form of common stock as well as any other securities or assets (which may include cash) receivable thereupon by a holder of the number of shares of Common Stock issuable upon conversion of such share of Convertible Preferred Stock immediately prior to such Common Stock Fundamental Change. 37 39 The term "Applicable Price" means (i) in the event of a Non-Stock Fundamental Change in which the holders of the Common Stock receive only cash, the amount of cash received by the holder of one share of Common Stock and (ii) in the event of any other Non-Stock Fundamental Change or any Common Stock Fundamental Change, the average of the Closing Prices (as defined) for the Common Stock during the ten trading days (as defined) prior to and including the record date for the determination of the holders of Common Stock entitled to receive cash, securities, property or other assets in connection with such Non- Stock Fundamental Change or Common Stock Fundamental Change, or, if there is no such record date, the date upon which the holders of the Common Stock shall have the right to receive such cash, securities, property or other assets, in each case, as adjusted in good faith by the Board of Directors or the Company to appropriately reflect any of the events referred to in clauses (i) through (v) of the third paragraph of this Conversion Rights subsection. The term "Closing Price" of any common stock means on any day the last reported sale price regular way on such day or in case no sale takes place on such day, the average of the reported closing bid and asked prices regular way in each case on the Nasdaq National Market or, if the common stock is not quoted on such system, on the principal national securities exchange or quotation system on which such stock is listed or admitted to trading or quoted, or, if not listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices in the over-the-counter market on such day as reported by the National Quotation Bureau Incorporated, or a similarly generally accepted reporting service, or, if not so available in such manner, as furnished by any New York Stock Exchange Member firm selected by the Company for that purpose. The term "Common Stock Fundamental Change" means any Fundamental Change in which more than 50% of the value (as determined in good faith by the Board of Directors of the Company) of the consideration received by holders of Common Stock consists of common stock that for each of the ten consecutive trading days referred to in the second preceding paragraph has been admitted for listing or admitted for listing subject to notice of issuance on a national securities exchange or quoted on the Nasdaq National Market, provided, however, that a Fundamental Change shall not be a Common Stock Fundamental Change unless either (i) the Company continues to exist after the occurrence of such Fundamental Change and the outstanding shares of Convertible Preferred Stock continue to exist as outstanding Convertible Preferred Stock, or (ii) not later than the occurrence of such Fundamental Change, the outstanding shares of Convertible Preferred Stock are converted into or exchanged for shares of Convertible Preferred Stock of a corporation succeeding to the business of the Company, which Convertible Preferred Stock has powers, preferences and relative, participating, optional or other rights, and qualifications, limitations and restrictions, substantially similar to those of the Convertible Preferred Stock. The term "Fundamental Change" means the occurrence of any transaction or event in connection with a plan pursuant to which all or substantially all of the Common Stock shall be exchanged for, converted into, acquired for or constitute solely the right to receive cash, securities, property or other assets (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise) provided, in the case of a plan involving more than one such transaction or event, for purposes of adjustment of the conversion price, such Fundamental Change shall be deemed to have occurred when substantially all of the Common Stock of the Company shall be exchanged for, converted into, or acquired for or constitute solely the right to receive cash, securities, property or other assets, but the adjustment shall be based upon the highest weighted average per share consideration which a holder of Common Stock could have received in such transactions or events as a result of which more than 50% of the Common Stock of the Company shall have been exchanged for, converted into, or acquired for or constitute solely the right to receive cash, securities, property or other assets. The term "Non-Stock Fundamental Change" means any Fundamental Change other than a Common Stock Fundamental Change. The term "Purchaser Stock Price" means, with respect to any Common Stock Fundamental Change, the average of the Closing Prices for the common stock received in such Common Stock Fundamental Change for the ten consecutive trading days prior to and including the record date for the determination of the holders of 38 40 Common Stock entitled to receive such common stock, or if there is no such record date, the date upon which the holders of the Common Stock shall have the right to receive such common stock, in each case, as adjusted in good faith by the Board of Directors to appropriately reflect any of the events referred to in clauses (i) through (v) of the third paragraph of this subsection; provided, however, that if no such Closing Prices exist, the Purchaser Stock Price shall be set at a price determined in good faith by the Board of Directors of the Company. The term "Reference Market Price" shall mean $ (which is an amount equal to 66 2/3% of the reported last sale price for the Common Stock on the Nasdaq National Market on , 1996) and in the event of any adjustment to the conversion price other than as a result of a Fundamental Change, the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the conversion price after giving effect to any such adjustment shall always be the same ratio of $ to the initial conversion price specified in the first sentence of this subsection. Notwithstanding the foregoing provisions, the issuance of any shares of Common Stock pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Company and the investment of additional optional amounts in shares of Common Stock under any such plan, and the issuance of any shares of Common Stock or options or rights to purchase such shares pursuant to any employee benefit plan or program of the Company or pursuant to any option, warrant, right or exercisable, exchangeable or convertible security outstanding as of the date the Convertible Preferred Stock was first designated (other than the occurrence of certain events under the Rights Agreement or successor thereto), and any issuance of Rights (as defined) shall not be deemed to constitute an issuance of Common Stock or exercisable, exchangeable or convertible securities by the Company to which any of the adjustment provisions described above applies. There shall also be no adjustment of the conversion price in case of the issuance of any stock (or securities convertible into or exchangeable for stock) of the Company, except as specifically described above. If any action would require adjustment of the conversion price pursuant to more than one of the provisions described above, only one adjustment shall be made and such adjustment shall be the amount of adjustment which has the highest absolute value to holders of the Convertible Preferred Stock. No adjustment in the conversion price will be required unless such adjustment would require an increase or decrease of at least 1% of the conversion price, but any adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment. Lack of Established Market for the Convertible Preferred Stock There is currently no public market for the Convertible Preferred Stock. Although an application has been made for the listing of the Convertible Preferred Stock on the Nasdaq National Market, there can be no assurance that an active market for the Convertible Preferred Stock will develop. Future trading prices for the Convertible Preferred Stock will depend on many factors, including, among others, the Company's financial results, the market for similar securities and the volume of trading activity in the Convertible Preferred Stock. Rights Agreement Shares of Common Stock issued upon conversion of the Convertible Preferred Stock, and prior to any Distribution Date (as defined in the Rights Agreement) and the redemption or expiration of the Rights will also be issued with Rights in accordance with the terms and conditions of the Rights Agreement referred to below. See "-- Series A Preferred Stock." Transfer Agent The transfer agents, conversion agents and redemption agents of the Convertible Preferred Stock will be . The dividend disbursing agents for the Convertible Preferred Stock will be . The registrar of the Convertible Preferred Stock will be . 39 41 SERIES A PREFERRED STOCK The Series A Preferred Stock is issuable pursuant to purchase rights( the "Rights") attributable to each outstanding share of Common Stock under the Rights Agreement between the Company and the Chase Bank (the "Rights Agreement"). Under certain conditions, each right may be exercised to purchase 1/100th of a share of Series A Preferred Stock for $31.00, subject to adjustment. The rights are not exercisable or transferable apart from the Common Stock until the "Distribution Date" which would occur on the earlier of the following: (i) ten days after the date of a public announcement that a person or a group has become the beneficial owner of 15% or more of the shares of the Common Stock then outstanding (an "Acquiring Person") or (ii) ten business days after a public announcement by a person or group of a tender offer which would result in such person or group beneficially owning 15% or more of the shares of Common Stock then outstanding. Upon the occurrence of a "Flip In Event," each Right, other than those held by an Acquiring Person causing such occurrence, will entitle the holder to purchase Common Stock or, in certain circumstances, cash, property or other securities having value equal to two times the purchase price of the right. A Flip In Event occurs if: (i) the Company is the surviving corporation in a merger with an Acquiring Person and the Company's Common Stock remains outstanding and unchanged; (ii) an Acquiring Person is or becomes the beneficial owner of 15% or more of the then outstanding shares of the Company's Common Stock, except as set forth in the Rights Agreement; (iii) an Acquiring Person engages in one or more "self-dealing" transactions as set forth in the Rights Agreement; or (iv) there is an recapitalization, reclassification or similar transaction involving the Company, which has the effect of increasing by more than 1% of an Acquiring Person's proportionate share of the beneficial ownership of the outstanding shares of any class of equity securities or securities exercisable for or convertible into equity securities of the Company or any of the Company's subsidiaries. If at any time on or after the Distribution Date (i) the Company is acquired in a merger or other business combination transaction in which the Company is not the surviving corporation (or is the surviving corporation but the Company's Common Stock is changed or exchanged), or (ii) more than 50% of the Company's assets or earning power is sold or transferred, then each holder of a Right, except the Acquiring Person, shall thereafter have the right to receive, upon exercise of the Right, Common Stock of the acquiring entity having a value equal to two times the Purchase Price of the Right. The Rights, which do not have voting privileges, are subject to adjustment to prevent dilution, expire on March 10, 1998 and may be redeemed by the Company at a price of one cent per right at any time until ten days following the Distribution Date. See "-- Common Stock -- Limitation on Changes in Control." COMMON STOCK Dividends and Voting Rights Subject to the dividend preferences of any outstanding shares of Preferred Stock, all shares of Common Stock are entitled to participate in such dividends as may be declared by the Board of Directors of the Company out of assets available for the payment thereof. See "Business Government Regulation -- Dividend Regulation." The holders of the Common Stock are entitled to one vote for each share held on all matters submitted to stockholders. Provisions of the Restated Articles and Bylaws The Restated Articles provides for a classified Board of Directors, consisting of three classes as nearly equal in size as practicable. Each class holds office until the third annual stockholders' meeting electing directors following the most recent election of such class. A director may only be removed with the consent or vote of the holders of 75% of all classes of stock entitled to vote at an election of directors. Vacancies on the Board of Directors may be filled only by a majority vote of the directors in the class in which such vacancy occurs, if none so remain, by a majority vote of the directors of the other two classes. 40 42 Under the Restated Articles, the vote of holders of 85% of the voting stock of the Company (including the affirmative vote of at least 50% of the shares entitled to vote other than those of any 30% shareholder) is required for approval upon (i) a merger or consolidation of the Company with or into another corporation; (ii) a sale or lease exchange, mortgage, pledge, transfer or other disposition of all of the assets of the Company or any majority subsidiaries having an aggregate fair market value of $5,000,000 or more to another corporation, person or entity; and (iii) an issuance or transfer by the Company or certain subsidiaries of the Company of securities of the Company or such subsidiary having an aggregate fair market value of $5,000,000 or more, in each case where the other party to the transaction is a beneficial owner, directly or indirectly, of 30% or more of the outstanding shares of any class or series of voting stock of the Company with certain exceptions. Any amendment to the Restated Articles which would amend the foregoing requirements requires the same affirmative vote unless the amendment was recommended to the shareholders by at least a majority of the entire Board of Directors and by at least two-thirds of the continuing directors. Continuing directors or those directors who were members of the Board of Directors elected by the public holders prior to the date as of which any 30% shareholder acquires in excess of 5% of the then outstanding Common Stock, or persons designated as continuing directors by a majority of the continuing directors. Section 607.0901 of the Florida Business Corporation Act The Company is a Florida corporation subject to Section 607.0901 of the Florida Business Corporation Act. Generally, Section 607.0901 prohibits a publicly held Florida corporation from engaging in an "affiliated transaction" with an "interested stockholder" unless: (i) the affiliated transaction is approved by the affirmative vote of the holders of two-thirds of the voting shares not including shares beneficially owned by the interested shareholder; (ii) the affiliated transaction has been approved by a majority of the disinterested directors; (iii) the interested shareholder has been the beneficial owner of at least 80 percent of the corporation's outstanding voting shares for at least 5 years preceding the announcement date; (iv) the interested shareholder is the beneficial owner of at least 90 percent of the outstanding voting shares of the corporation, exclusive of shares acquired directly from the corporation in a transaction not approved by a majority of the disinterested directors; or (v) in the affiliated transaction, consideration paid to the holders of each class or series of voting shares would satisfy the requirements of Section 601.0901. An "affiliated transaction" includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns 10% or more of the corporation's outstanding voting stock. Limitation on Changes in Control Certain of the above provisions of the Restated Articles and the Convertible Preferred Stock and Section 607.0901 could have the effect of delaying, deferring or preventing a change in control of the Company or the removal of existing management or deterring potential acquirors from making an offer to stockholders of the Company. This could be the case notwithstanding that a majority of the stockholders might benefit from such a change in control or offer. In addition, the issuance of shares of Preferred Stock, or the issuance of rights to purchase such shares, could be used to discourage an unsolicited acquisition proposal. See "Business -- Government Regulation -- Change of Control Regulation." CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following discussion is a summary of certain Federal income tax considerations relevant to the purchase, ownership and disposition of the Convertible Preferred Stock, but it does not purport to be a complete analysis of all Federal income tax considerations that may affect persons investing in the Convertible Preferred Stock. The discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations, and IRS rulings and judicial decisions now in effect, all of which are subject to change at any time, possibly with retroactive effect. The following information is directed to purchasers of the Convertible Preferred Stock on original issue who are U.S. citizens or residents (or U.S. corporations) and who will hold the Convertible Preferred Stock as 41 43 a "capital asset" within the meaning of Section 1221 of the Code. The following summary assumes that the Convertible Preferred Stock and the Company's Common Stock will at all time be regularly traded on an established securities market, within the meaning of applicable Treasury regulations. The summary does not address certain rules applicable to holders subject to special treatment under Federal income tax laws, such as dealers in securities, banks, insurance companies and tax-exempt organizations, and it does not discuss state, local or foreign tax law. The summary also does not discuss all aspects of Federal income taxation that may be relevant to a particular holder in light of his or its individual investment circumstances. The Company has not sought, nor does it intend to seek, a ruling from the IRS as to any of the matters covered by the discussion, and there can be no assurance that the IRS will not successfully challenge certain of the conclusions reached in the discussion. BECAUSE THE U.S. FEDERAL INCOME TAX CONSEQUENCES DISCUSSED BELOW DEPEND UPON EACH HOLDER'S PARTICULAR TAX STATUS , AND DEPEND FURTHER UPON U.S. FEDERAL TAX LAWS, REGULATIONS, RULINGS AND DECISIONS THAT ARE SUBJECT TO CHANGE (WHICH CHANGES MAY BE RETROACTIVE IN EFFECT), PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF AN INVESTMENT IN THE CONVERTIBLE PREFERRED STOCK, INCLUDING, BUT NOT LIMITED TO, THE APPLICATION AND EFFECT OF ANY STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, AS WELL AS THE CONSEQUENCES OF ANY RECENT, PENDING OR PROPOSED CHANGES IN APPLICABLE LAWS. DIVIDENDS ON CONVERTIBLE PREFERRED STOCK Dividends paid on the Convertible Preferred Stock will be taxable to a holder as ordinary dividend income to the extent paid out of current or accumulated earnings and profits of the Company, as determined for Federal income tax purposes. To the extent that a distribution on the Convertible Preferred Stock to a holder is not made out of the Company's current or accumulated earnings and profits, such distribution will first be treated as a return of capital that will reduce the holder's adjusted tax basis in such Convertible Preferred Stock, and then, to the extent that the distribution exceeds the holder's adjusted tax basis in such Convertible Preferred Stock, the excess will be taxed as a capital gain. Such gain will be long-term capital gain if the holder's holding period for such Convertible Preferred Stocks is more than one year. The Company believes that its current and accumulated earnings and profits should be sufficient to cause distributions on the Convertible Preferred Stock to be taxable as dividend income, but no assurance can be given as to such treatment. Subject to certain limitations described below, corporations holding Convertible Preferred Stock that receive dividends paid out of the company's current or accumulated earnings and profits will be eligible for a dividends-received deduction. The deduction will equal 70% of the dividends received if the corporation receiving the dividend owns less than 20% (in voting power or value) of the stock of the Company. Prospective corporate investors in the Convertible Preferred Stock should consider the effect of (i) Section 246A of the Code, which reduces the dividends-received deduction allowed to a corporate stockholder that has incurred indebtedness that is "directly attributable" to an investment in portfolio stock such as the Convertible Preferred Stock, (ii) Section 246(c) of the Code, which, among other things, disallows the dividends-received deduction in respect of any dividend on a share of stock that is held for less than the minimum holding period (which generally must include at least 46 days, but which may exclude in certain instances periods during which the holder's risk of loss is diminished), and (iii) Section 1059 of the Code, which, under certain circumstances and subject to certain limitations, requires a corporate holder to reduce (but not below zero) the adjusted basis of any stock it holds for purposes of calculating gain or loss upon any subsequent disposition of the share of Convertible Preferred Stock by the "nontaxed portion" of any "extraordinary dividend." Where the basis reduction would otherwise reduce the tax basis of Convertible Preferred Stock below zero, the holder must also recognize gain to that extent upon any disposition of such stock. Generally, the nontaxed portion of an extraordinary dividend is the amount excluded from income under the dividends-received deduction. An extraordinary dividend on preferred stock, such as the Convertible 42 44 Preferred Stock, is a dividend that (i) equals or exceeds five percent of the holder's adjusted tax basis in the stock (taking into account any prior reduction in basis under Section 1059 as a result of any prior extraordinary dividend), treating all dividends having ex-dividend dates within an 85-day period as one dividend, or (ii) exceeds 20 percent of the holder's adjusted tax basis in the stock, treating all dividends having ex-dividend dates within a 365-day period as one dividend. An extraordinary dividend would also include any amount treated as a dividend in the case of a redemption that is either non-pro rata as to all stockholders or in partial liquidation of the Company, regardless of the relative amount of the dividend and regardless of the corporate holder's holding period for the Convertible Preferred Stock. For purposes of the corporate alternative minimum tax, alternative minimum taxable income is increased by 75% of the amount by which a corporation's adjusted current earnings in a taxable year exceeds its alternative minimum taxable income computed without regard to such item. The amount of any dividend that is included in adjusted current earnings generally will not be reduced by an 70% dividends-received deduction otherwise allowed with respect to the dividend. REDEMPTION PREMIUM Pursuant to the Treasury regulations issued under Section 305 of the Code, if the redemption price of preferred stock exceeds its issue price by more than a reasonable premium, all or a portion of such redemption premium will be treated as resulting in constructive distributions over time that would be generally taxable as dividends to the extent of the Company's current or accumulated earnings and profits. A redemption premium is considered to be reasonable if as long as (i) it is in the nature of a penalty for premature redemption and (ii) such premium does not exceed the amount that the issuer would be required to pay for such redemption right under market conditions existing at the time of issuance of the preferred stock. The Company believes that the redemption premium on the Convertible Preferred Stock is reasonable under this standard and, therefore, will not be treated as resulting in taxable stock dividends. SALE OR EXCHANGE OF CONVERTIBLE PREFERRED STOCK Upon a sale or exchange of Convertible Preferred Stock (other than an exchange made for Common Stock pursuant to the conversion privilege provided for under the terms of the Convertible Preferred Stock) a holder will generally recognize gain or loss for Federal income tax purposes in an amount equal to the difference between (i) the amount of cash plus the fair market value of any property received upon such sale or exchange and (ii) the holder's adjusted tax basis in the stock being sold. Such gain or loss will be long-term capital gain or loss if the stock has been held by the holder for more than one year. REDEMPTION OF CONVERTIBLE PREFERRED STOCK A redemption of the Convertible Preferred Stock will be a taxable event. Such a redemption will be treated as a sale of such Convertible Preferred Stock by the holder if the redemption (i) results in a "complete termination" of the holder's stock interest in the Company under Section 302(b)(3) of the Code, (ii) is "substantially disproportionate" with respect to the holder under Section 302(b)(2) of the Code, or (iii) is "not essentially equivalent to a dividend" with respect to the holder under Section 302(b)(1) of the Code. In determining whether any of these tests has been met, shares of stock considered to be owned by the holder by reason of certain constructive ownership rules set forth in Section 318 of the Code, as well as shares actually owned, generally must be taken into account. A holder of shares of Convertible Preferred Stock that are redeemed in a redemption pursuant to the terms of the Convertible Preferred Stock that meets one of the tests described above will recognize taxable gain or loss equal to the difference between (A) the amount of cash received by the holder (less any portion thereof attributable to accumulated and declared but unpaid dividends, which generally would be taxed as ordinary income) and (B) that holder's tax basis in the Convertible Preferred Stock redeemed. Such gain or loss will be capital gain or loss and will be long-term or short-term depending on the holder's holding period for the Convertible Preferred Stock redeemed. Under current law, if a redemption does not meet any of the tests described above, the cash and the fair market value of property (except, in some circumstances, stock of the Company or a successor thereto) 43 45 received by the holder will be taxed as a dividend to the extent paid out of the Company's current or accumulated earnings and profits. If a redemption of the Convertible Preferred Stock is treated as a distribution that is taxable as a dividend, the holder's basis in the redeemed Convertible Preferred Stock will be transferred to the holder's remaining shares of the Company's stock (if any). CONVERSION OF CONVERTIBLE PREFERRED STOCK No gain or loss will generally be recognized for Federal income tax purposes on conversion of the Convertible Preferred Stock solely into Common Stock. However, if the conversion takes place when there is a dividend arrearage on the Convertible Preferred Stock, it is possible that a portion of the Common Stock received might be treated as a taxable dividend to the extent of such dividend arrearage. Except for any Common Stock treated as payment of a dividend, the tax basis for the Common Stock received upon conversion (including any fractional share deemed received) will be the tax basis of the convertible Preferred Stock converted, and the holding period of the Common Stock received upon conversion (including any fractional share deemed received) will include the holding period of the Convertible Preferred Stock converted into such Common Stock. The receipt of cash in lieu of a fractional share upon conversion of Convertible Preferred Stock to Common Stock will, upon receipt of cash, generally be treated as a sale of such fractional share of Common Stock in which the holder will recognize taxable gain or loss equal to the difference between the amount of cash received and the holder's tax basis in the fractional share redeemed. Such gain or loss will be capital gain or loss and will be long-term or short-term depending on the holder's holding period for the fractional share redeemed. ADJUSTMENTS TO CONVERSION PROVISIONS Treasury regulations issued under Section 305 of the Code treat certain adjustments to conversion provisions of stock such as the Convertible Preferred Stock as constructive distributions of stock with respect to preferred stock. Such constructive distributions of stock would be taxable to holders of Convertible Preferred Stock as described above under the caption "Dividends on Convertible Preferred Stock." Any adjustment increasing the number of shares of Common Stock into which the Convertible Preferred Stock can be converted could constitute a constructive distribution of stock to holders of Convertible Preferred Stock unless made pursuant to a bona fide, reasonable adjustment formula that has the effect of preventing dilution of the interest of the holders of Convertible Preferred Stock. Any adjustment in the conversion price to compensate for taxable distributions of cash or property on any of the outstanding Common Stock of the Company will be treated as a constructive distribution of stock to holders of Convertible Preferred Stock. The Company is unable to predict whether any such adjustment will be made. BACKUP WITHHOLDING Certain non-corporate holders of the Convertible Preferred Stock may be subject to backup withholding at the rate of 31% with respect to dividends paid on, or the proceeds of a sale or exchange of, the Convertible Preferred Stock or Common Stock. Generally, backup withholding applies only when the taxpayer (i) fails to furnish or certify his correct taxpayer identification number to the payor in the manner required, (ii) is notified by the IRS that he has failed to report payments of interest and dividends properly or (iii) under certain circumstances, fails to certify that he has not been notified by the IRS that he is subject to backup withholding for failure to report interest and dividend payments. Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against a holder's U.S. Federal income tax liability, provided such holder furnishes the required information to the IRS. 44 46 UNDERWRITING Under the terms and subject to the conditions contained in an Underwriting Agreement dated , 1996 (the "Underwriting Agreement"), the Underwriters named below (the "Underwriters"), for whom CS First Boston Corporation, Donaldson, Lufkin & Jenrette Securities Corporation, Furman Selz LLC and McDonald & Company Securities, Inc. are acting as representatives (the "Representatives"), have severally but not jointly agreed to purchase from the Company the following respective numbers of shares of Convertible Preferred Stock:
NUMBER OF SHARES OF CONVERTIBLE PREFERRED UNDERWRITER STOCK ------------------------------------------------------------------ ----------- CS First Boston Corporation....................................... Donaldson, Lufkin & Jenrette Securities Corporation............... Furman Selz LLC................................................... McDonald & Company Securities, Inc................................ ----------- Total................................................... 2,000,000 ========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will be obligated to purchase all of the Convertible Preferred Stock offered hereby (other than those shares of Convertible Preferred Stock covered by the over-allotment option described below) if any are purchased. The Underwriting Agreement provides that, in the event of a default by an Underwriter, in certain circumstances the purchase commitments of non-defaulting Underwriters may be increased or the Underwriting Agreement may be terminated. American Bankers has granted the Underwriters an option, expiring at the close of business on the 30th day after the date of this Prospectus, to purchase up to 300,000 additional shares of Convertible Preferred Stock at the initial public offering price less the underwriting discounts and commissions, all as set forth on the cover page of this Prospectus. Such option may be exercised only to cover over-allotments in sale of shares of Convertible Preferred Stock. To the extent such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares of Convertible Preferred Stock as it was obligated to purchase pursuant to the Underwriting Agreement. The Company has been advised by the Representatives that the Underwriters propose to offer the Convertible Preferred Stock to the public initially at the public offering price set forth on the cover page of this Prospectus and, through the Representatives, to certain dealers at such price less a concession of $ per share of Convertible Preferred Stock and the Underwriters and such dealers may allow a discount of $ per share of Convertible Preferred Stock on sales to certain other dealers. After the initial public offering, the public offering price and concession and discount to dealers may be changed by the Representatives. During the period commencing , 1996 and continuing for 90 days, the Company and its directors and certain executive officers have agreed that, without CS First Boston Corporation's written permission, they will not offer, sell, or contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Commission a registration statement under the Securities Act relating to, any additional shares of Convertible Preferred Stock or Common Stock or securities convertible into or exchangeable or exercisable for any shares of Convertible Preferred Stock or Common Stock or publicly disclose of its intention to make any offer, sale, pledge, disposal or filing except for 30,000 shares of Common Stock acquired under one of the Company's stock option plans. 45 47 The Company has agreed to indemnify the Underwriters against certain liabilities, including civil liabilities under the Securities Act, or contribute to payments which the Underwriters may be required to make in respect thereof. Eugene M. Matalene, Jr., a director of the Company, is a Managing Director of Corporate Finance at Furman Selz LLC, a managing underwriter of this Offering. The Company has engaged and intends in the future to engage Furman Selz LLC in connection with such financial matters as it deems appropriate. Certain of the Underwriters and their affiliates have from time to time performed, and continue to perform, various investment banking and commercial banking services for the Company for which they have received customary compensation. NOTICE TO CANADIAN RESIDENTS RESALE RESTRICTIONS The distribution of the Convertible Preferred Stock in Canada is being made only on a private placement basis exempt from the requirement that the Company prepare and file a prospectus with the securities regulatory authorities in each province where trades of Convertible Preferred Stock are affected. Accordingly, any resale of the Convertible Preferred Stock in Canada must be made in accordance with applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with available statutory exemptions or pursuant to a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the Convertible Preferred Stock. REPRESENTATIONS OF PURCHASERS Each purchaser of Convertible Preferred Stock in Canada who receives a purchase confirmation will be deemed to represent to the Company and the dealer from whom such purchase confirmation is received that (i) such purchaser is entitled under applicable provincial securities laws to purchase such Convertible Preferred Stock without the benefit of a prospectus qualified under such securities laws, (ii) where required by law, that such purchaser is purchasing as principal and not as agent, and (iii) such purchaser has reviewed the text above under "Resale Restrictions." RIGHTS OF ACTION AND ENFORCEMENT The securities being offered are those of a foreign issuer and Ontario purchasers will not receive the contractual right of action prescribed by section 32 of the Regulation under the Securities Act (Ontario). As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights for damages or recission or rights of action under the civil liability provisions of the U.S. federal securities laws. All of the issuer's directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Ontario purchasers to effect service of process within Canada upon the issuer or such persons. All or a substantial portion of the assets of the issuer and such persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the issuer or such persons in Canada or to enforce a judgment obtained in Canadian courts against such issuer or persons outside of Canada. NOTICE TO BRITISH COLUMBIA RESIDENTS A purchaser of Convertible Preferred Stock to whom the Securities Act (British Columbia) applies is advised that such purchaser is required to file with the British Columbia Securities Commission a report within ten days of the sale of any Convertible Preferred Stock acquired by such purchaser pursuant to this offering. Such report must be in the form attached to British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained from the Company. Only one such report must be filed in 46 48 respect of the Convertible Preferred Stock acquired on the same date and under the same prospectus exemption. LEGAL MATTERS The validity of the Convertible Preferred Stock and any American Bankers Common Stock issuable upon conversion of such Convertible Preferred Stock will be passed upon for American Bankers by Jorden Burt Berenson & Johnson LLP and certain matters will be passed upon or on behalf of the Underwriters by Dewey Ballantine. Dewey Ballantine will rely upon the opinion of Jorden Burt Berenson & Johnson LLP with respect to certain matters regarding Florida law. James F. Jorden, a director of the Company, is a partner in the law firm of Jorden Burt Berenson & Johnson LLP, which law firms serves as the Company's general counsel. Mr. Jorden owns directly and indirectly 2,850 shares of Common Stock and holds options to acquire 3,000 shares of Common Stock under the Company's Non-Employee Directors' Stock Option Plan. EXPERTS The Consolidated Financial Statements of the Company as of December 31, 1995 and 1994, and for each of the three years in the period ended December 31, 1995, incorporated in this Prospectus by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 have been so incorporated in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 47 49 - ------------------------------------------------------ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE. ------------------ TABLE OF CONTENTS
PAGE ---- Available Information................. 2 Incorporation of Certain Documents by Reference........................... 3 Prospectus Summary.................... 4 The Company........................... 9 Use of Proceeds....................... 11 Price Range of Common Stock and Dividends........................... 11 Capitalization........................ 12 Selected Historical Consolidated Financial and Operating Data........ 13 Management's Discussion and Analysis of Results of Operations and Financial Condition................. 15 Business.............................. 21 Description of Capital Stock.......... 31 Certain United States Federal Income Tax Considerations.................. 41 Underwriting.......................... 45 Notice to Canadian Residents.......... 46 Legal Matters......................... 47 Experts............................... 47
- ------------------------------------------------------ - ------------------------------------------------------ LOGO AMERICAN BANKERS INSURANCE GROUP 2,000,000 Shares $ Series B Cumulative Convertible Preferred Stock (liquidation preference $50 per share) PROSPECTUS CS First Boston Donaldson, Lufkin & Jenrette Securities Corporation Furman Selz McDonald & Company Securities, Inc. - ------------------------------------------------------ 50 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses in connection with the issuance and distribution of the securities being registered are as follows: Securities and Exchange Commission Registration Fee....................... $ 39,655 Nasdaq National Market Listing Application Fee............................ 11,500 NASD Filing Fee........................................................... 12,000 Accounting Fees and Expenses.............................................. 50,000 Transfer Agent and Registrar Fees......................................... 12,000 Blue Sky Fees and Expenses................................................ 15,000 Legal Fees and Expenses................................................... 155,000 Printing and Engraving.................................................... 80,000 Fees of Rating Agencies................................................... 102,000 -------- Total........................................................... $477,155 ========
All expenses other than the Securities and Exchange Commission Registration Fee, NASD Filing Fee and Nasdaq Listing Application Fee are estimated. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Reference is made to Section 607.0850 of the Florida Business Corporation Act under whose laws the registrant is incorporated, which provides for indemnification of directors and officers in certain circumstances. Article VI of the Articles of Incorporation of the registrant provides for the indemnification of directors and officers to the fullest extent provided by Florida law. The Underwriting Agreement filed as Exhibit 1 to this Registration Statement provides for the indemnification by the Underwriters of the Company, and by the Company of the Underwriter, against certain liabilities under the Securities Act of 1933, as amended. The Company has obtained liability insurance of up to $5,000,000 on behalf of the directors and officers of the Company for certain losses arising from claims or charges made against them while acting in their capacities as directors or officers of the Company. The Company's deductible for each loss relating to any one director or officer is $______ and will not exceed $______ for any loss involving multiple directors and officers. Losses due to any litigation prior to or pending prior to the inception of the policy, any action between directors or officers, or any loss due to regulatory penalties are not covered by the policy. ITEM 16. EXHIBITS. The following Exhibits are filed as part of this Registration Statement: 1 -- Form of Underwriting Agreement 4 -- Amended and Restated Articles of Incorporation (including the designation for the Convertible Preferred Stock)* 5 -- Opinion of Jorden Burt Berenson & Johnson LLP* 7.1 -- Opinion of Jorden Burt Berenson & Johnson LLP relating to liquidation preference of Convertible Preferred Stock* 12 -- Schedule of Computation of Ratio of Earnings to Fixed Charges 23.1 -- Consent of Price Waterhouse LLP 23.2 -- Consent of Jorden Burt Berenson & Johnson LLP (included in Exhibit 5)* 24 -- Power of Attorney (included in signature page) 27 -- Financial Data Schedule(1) 28 -- Information from reports furnished to State Insurance regulatory authorities(2)
- --------------- * To be filed by amendment (1) Incorporated by reference herein from the Registrant's Form 10-Q for March 31, 1996. (2) Incorporated by reference herein from the Registrant's Form 10-K for December 31, 1995. II-1 51 ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 15 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act, and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus 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. II-2 52 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable ground to believe that it meets all requirements for filing on Form S-3 and has duly caused this Form S-3 Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Miami, State of Florida on the 28th day of June, 1996. AMERICAN BANKERS INSURANCE GROUP, INC. By: /s/ R. KIRK LANDON ------------------------------------ R. Kirk Landon Chairman of the Board POWER OF ATTORNEY The undersigned directors and officers of American Bankers Insurance Group, Inc. hereby constitute and appoint Gerald N. Gaston and Floyd G. Denison, and each of them individually, with full power to act without the other and with full power of substitution and resubstitution, our true and lawful attorneys-in-fact with full power to execute in our name and behalf in the capacities indicated below any and all amendments (including post-effective amendments and amendments thereto) to this Registration Statement (and, in addition, any registration statement filed pursuant to Rule 462(b) under the Securities Act for the offering of the securities to which this Registration Statement relates) and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and hereby ratify and confirm all that such attorneys-in-fact, or their substitutes shall lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Form S-3 Registration Statement has been signed by the following persons in the capacities indicated on June 28, 1996.
SIGNATURE TITLE - --------------------------------------------- ---------------------------------------------- /s/ R. KIRK LANDON Chairman of the Board - --------------------------------------------- R. Kirk Landon /s/ GERALD N. GASTON Vice Chairman of the Board, Chief Executive - --------------------------------------------- Officer & President Gerald N. Gaston /s/ ARTHUR W. HEGGEN Chief Accounting Officer, Chief Financial - --------------------------------------------- Officer, Vice President and Treasurer Arthur W. Heggen /s/ WILLIAM H. ALLEN, JR. Director - --------------------------------------------- William H. Allen, Jr. /s/ NICHOLAS A. BUONICONTI Director - --------------------------------------------- Nicholas A. Buoniconti /s/ ARMANDO M. CODINA Director - --------------------------------------------- Armando M. Codina /s/ PETER J. DOLARA Director - --------------------------------------------- Peter J. Dolara
II-3 53
SIGNATURE TITLE - --------------------------------------------- ---------------------------------------------- /s/ JAMES F. JORDEN Director - --------------------------------------------- James F. Jorden /s/ JACK F. KEMP Director - --------------------------------------------- Jack F. Kemp /s/ MALCOLM G. MACNEILL Director - --------------------------------------------- Malcolm G. MacNeill /s/ EUGENE M. MATALENE, JR. Director - --------------------------------------------- Eugene M. Matalene, Jr. /s/ ALBERT H. NAHMAD Director - --------------------------------------------- Albert H. Nahmad /s/ NICHOLAS J. ST. GEORGE Director - --------------------------------------------- Nicholas J. St. George /s/ ROBERT C. STRAUSS Director - --------------------------------------------- Robert C. Strauss /s/ GEORGE E. WILLIAMSON Director - --------------------------------------------- George E. Williamson
II-4 54 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ------------------------------------------------------------------------------------ 1 -- Form of Underwriting Agreement 4 -- Amended and Restated Articles of Incorporation (including designation for the Convertible Preferred Stock)* 5 -- Opinion of Jorden Burt Berenson & Johnson LLP* 7.1 -- Opinion of Jorden Burt Berenson & Johnson LLP relating to liquidation preference of Convertible Preferred Stock* 12 -- Schedule of Computation of Ratio of Earnings to Fixed Charges 23.1 -- Consent of Price Waterhouse LLP 23.2 -- Consent of Jorden Burt Berenson & Johnson LLP (included in Exhibit 5)* 24 -- Power of Attorney (included in signature page)* 27 -- Financial Data Schedule(1) 28 -- Information from reports furnished to State Insurance regulatory authorities(2)
- --------------- * To be filed by amendment (1) Incorporated by reference herein from the Registrant's Form 10-Q for March 31, 1996. (2) Incorporated by reference herein from the Registrant's Form 10-K for December 31, 1995. EX-1 2 UNDERWRITING AGREEMENT 1 EXHIBIT 1 DB DRAFT 6/26/96 _______________ SHARES AMERICAN BANKERS INSURANCE GROUP, INC. $_____SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK (Liquidation preference $50 per share) UNDERWRITING AGREEMENT _________, 1996 CS FIRST BOSTON CORPORATION DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION FURMAN SELZ LLC MCDONALD & COMPANY SECURITIES, INC. As Representatives of the Several Underwriters c/o CS First Boston Corporation, Park Avenue Plaza, New York, N.Y. 10055 Dear Sirs: 1. Introductory. American Bankers Insurance Group, Inc., a Florida corporation (the "Company"), proposes to issue and sell __________ shares ("Firm Securities") of its $___________ series B cumulative convertible preferred stock (liquidation preference $50 per share) ("Securities") and also proposes to issue and sell to the Underwriters, at the option of the Underwriters, an aggregate of not more than ___________________ additional shares ("Optional Securities") of the Securities as set forth below. The Firm Securities and the Optional Securities are herein collectively called the "Offered Securities". This Underwriting Agreement, as amended, supplemented or modified from time to time is referred to herein as "this Agreement". The Company hereby agrees with the several Underwriters named in Schedule A hereto ("Underwriters") as follows: 2. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the several Underwriters that: (a) A registration statement on Form S-3 (No. 333- ) relating to the Offered Securities and the shares of common stock, $1 par value (the "Common Stock"), of the Company into which the Securities are convertible (the 1 2 "Underlying Securities"), including a form of prospectus, has been filed with the Securities and Exchange Commission ("Commission") and either (i) has been declared effective under the Securities Act of 1933, as amended ("Act"), and is not proposed to be amended or (ii) is proposed to be amended by amendment or post- effective amendment. If such registration statement ("initial registration statement") has been declared effective, either (i) an additional registration statement ("additional registration statement") relating to the Offered Securities and the Underlying Shares into which the Securities are convertible may have been filed with the Commission pursuant to Rule 462(b) ("Rule 462(b)") under the Act and, if so filed, has become effective upon filing pursuant to such Rule and the Offered Securities and such Underlying Shares all have been duly registered under the Act pursuant to the initial registration statement and, if applicable, the additional registration statement or (ii) such an additional registration statement is proposed to be filed with the Commission pursuant to Rule 462(b) and will become effective upon filing pursuant to such Rule and upon such filing the Offered Securities and such Underlying Shares will all have been duly registered under the Act pursuant to the initial registration statement and such additional registration statement. If the Company does not propose to amend the initial registration statement or if an additional registration statement has been filed and the Company does not propose to amend it, and if any post-effective amendment of either such registration statement has been filed with the Commission prior to the execution and delivery of this Agreement, the most recent amendment (if any) to each such registration statement has been declared effective by the Commission or has become effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act or, in the case of the additional registration statement, Rule 462(b). For purposes of this Agreement, "Effective Time" with respect to the initial registration statement or, if filed prior to the execution and delivery of this Agreement, the additional registration statement means (i) if the Company has advised the Representatives that it does not propose to amend such registration statement, the date and time as of which such registration statement, or the most recent post-effective amendment thereto (if any) filed prior to the execution and delivery of this Agreement, was declared effective by the Commission or has become effective upon filing pursuant to Rule 462(c), or (ii) if the Company has advised the Representatives that it proposes to file an amendment or post-effective amendment to such registration statement, the date and time as of which such registration statement, as amended by such amendment or post-effective amendment, as the case may be, is declared effective by the Commission. If an additional registration statement has not been filed prior to the execution and delivery of this Agreement but the Company has advised the Representatives that it proposes to file one, "Effective Time" with respect to such additional registration statement means the date and time as of which such registration statement is filed and becomes effective pursuant to Rule 462(b). "Effective Date" with respect to the initial registration statement or the 2 3 additional registration statement (if any) means the date of the Effective Time thereof. The initial registration statement, as amended at its Effective Time, including all information contained or incorporated by reference in the additional registration statement (if any) and deemed to be part of the initial registration statement as of the Effective Time of the additional registration statement pursuant to the General Instructions of the Form on which it is filed and including all information (if any) deemed to be a part of the initial registration statement as of its Effective Time pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is hereinafter referred to as the "Initial Registration Statement". The additional registration statement, as amended at its Effective Time, including the contents of the initial registration statement incorporated by reference therein and including all information (if any) deemed to be part of the additional registration statement as of its Effective Time pursuant to Rule 430A(b), is hereinafter referred to as the "Additional Registration Statement". The Initial Registration Statement and the Additional Registration Statement are herein referred to collectively as the "Registration Statements" and individually as a "Registration Statement". The form of prospectus relating to the Offered Securities, as first filed with the Commission pursuant to and in accordance with Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is required) as included in a Registration Statement, including all material incorporated by reference in such prospectus, is hereinafter referred to as the "Prospectus". No document has been or will be prepared or distributed in reliance on Rule 434 under the Act. (b) If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement; (i) on the Effective Date of the Initial Registration Statement, the Initial Registration Statement conformed in all respects to the requirements of the Act and the rules and regulations of the Commission ("Rules and Regulations") and did not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) on the Effective Date of the Additional Registration Statement (if any), each Registration Statement conformed, or will conform, in all respects to the requirements of the Act and the Rules and Regulations and did not include, or will not include, any untrue statement of a material fact and did not omit, or will not omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) on the date of this Agreement, the Initial Registration Statement and, if the Effective Time of the Additional Registration Statement is prior to the execution and delivery of this Agreement, the Additional Registration Statement each conforms, and at the time of filing of the Prospectus pursuant to Rule 424(b) or (if no such filing is required) at the Effective Date of the Additional Registration Statement in which the Prospectus is included, each Registration Statement and the Prospectus will conform, in all respects to the requirements of the Act and the Rules and Regulations, and 3 4 neither of such documents includes, or will include, any untrue statement of a material fact or omits, or will omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading. If the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement: on the Effective Date of the Initial Registration Statement, the Initial Registration Statement and the Prospectus will conform in all respects to the requirements of the Act and the Rules and Regulations, neither of such documents will include any untrue statement of a material fact or will omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and no Additional Registration Statement has been or will be filed. The two preceding sentences do not apply to statements in or omissions from a Registration Statement or the Prospectus based upon written information furnished to the Company by any Underwriter through the Representatives specifically for use or incorporation by reference therein, it being understood and agreed that the only such information is that described as such in Section 7(b). (c) All financial statements, proxy statements, schedules or reports (i) required to be filed by the Company with the Commission pursuant to the Securities Exchange Act of 1934, as amended ("Exchange Act"), or (ii) incorporated by reference into the Registration Statements ("Incorporated Documents") when filed with the Commission, or when amended, as appropriate, complied with the applicable requirements of the Exchange Act, and the applicable rules and regulations thereunder ("1934 Act Rules and Regulations"), and did not include at the time of filing or as of the time of any subsequent amendment any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading. (d) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Florida, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification. (e) Each subsidiary of the Company has been duly incorporated and is an existing corporation in good standing under the laws of the jurisdiction of its incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; and each subsidiary of the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification; all of 4 5 the issued and outstanding capital stock of each subsidiary of the Company has been duly authorized and validly issued and is fully paid and nonassessable and is owned directly or indirectly by the Company; and the capital stock of each subsidiary owned by the Company, directly or through subsidiaries, is owned free from liens, encumbrances and defects. (f) The Offered Securities have been duly authorized; when the Offered Securities have been delivered and paid for in accordance with this Agreement on each Closing Date (as defined below), such Offered Securities will have been validly issued, fully paid and nonassessable and will conform to the description thereof contained in the Prospectus. (g) When the Offered Securities are delivered and paid for pursuant to this Agreement on each Closing date, such Offered Securities will be convertible into the Underlying Shares of the Company in accordance with their terms; the Underlying Shares initially issuable upon conversion of such Offered Securities have been duly authorized and reserved for issuance upon such conversion and, when issued upon such conversion, will be validly issued, fully paid and nonassessable; the outstanding shares of Common Stock have been duly authorized and validly issued, are fully paid and nonassessable and conform to the description thereof contained in the Prospectus; and no holder of any security of the Company has any preemptive rights with respect to the Offered Securities or the Underlying Shares. (h) Other than as contemplated by this Agreement or as except as disclosed in the Prospectus, there are no contracts, agreements or understandings between the Company and any person which would give rise to a valid claim against the Company or any Underwriter for a brokerage commission, finder's fee or other like payment. (i) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to a Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Act. (j) No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement in connection with the issuance and sale of the Offered Securities by the Company, except such as have been obtained and made under the Act, the Rules and Regulations, the Exchange Act, the 1934 Rules and Regulations, and the by-laws of the National Association of 5 6 Securities Dealers, Inc. (the "NASD") and such as may be required under state or foreign securities laws. (k) This Agreement has been duly authorized, executed and delivered by the Company and constitutes the valid and binding obligation of the Company enforceable in accordance with its terms (except as may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws affecting creditors' rights generally, except that the remedies of specific performance and injunctive and other forms of equitable relief are subject to the discretion of the court before which any proceeding therefor may be brought and except with respect to the obligations of the Company regarding indemnification and contribution as provided in Section 7 below). (l) The execution, delivery and performance of this Agreement, and the issuance and sale of the Offered Securities and compliance with the terms and provisions thereof (including without limitation the issuance of the Underlying Securities upon conversion of the Offered Securities) will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any subsidiary of the Company or any of their properties, or any agreement or instrument to which the Company or such subsidiary is a party or by which the Company or any such subsidiary is bound or to which any of the properties of the Company or any such subsidiary is subject, or the charter or by-laws of the Company or any such subsidiary, and the Company has full power and authority to authorize, issue and sell the Offered Securities and to consummate the transactions contemplated by this Agreement (including without limitation the issuance of the Underlying Securities upon conversion of the Offered Securities). (m) Except as disclosed in the Prospectus, the Company and its subsidiaries have good and marketable title to all real properties and all other properties and assets owned by them, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or to be made thereof by them; and except as disclosed in the Prospectus, the Company and its subsidiaries hold any leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or to be made thereof by them. (n) The Company, and each of its subsidiaries, hold all licenses, certificates and permits from governmental authorities (including, without limitation, insurance licenses from the Insurance Departments of the various states in which the subsidiaries write insurance business (the "Insurance 6 7 Licenses") which are necessary to the conduct of their businesses; the Company's subsidiaries have fulfilled and performed all obligations necessary to maintain their respective Insurance Licenses, and no event or events have occurred which may be reasonably expected to result in the impairment, modification, termination or revocation of such Insurance Licenses. (o) Except as disclosed in the Prospectus, there are no pending actions, suits or proceedings (including, without limitation, any proceeding to revoke or deny renewal of any Insurance License) against or affecting the Company and any of its subsidiaries or any of their respective properties that, if determined adversely to the Company and any of its subsidiaries, would individually or in the aggregate have a material adverse effect on the condition (financial or other), business, prospects or results of operations of the Company and its subsidiaries taken as a whole, or would materially and adversely affect the ability of the Company to perform its obligations under this Agreement (including without limitation the issuance of the Underlying Securities upon conversion of the Offered Securities), or which are otherwise material in the context of the sale of the Offered Securities and the issuance of the Underlying Securities; and no such actions, suits or proceedings (including, without limitation, any proceeding to revoke or deny renewal of any Insurance License) are threatened or, to the Company's knowledge, contemplated. (p) The financial statements included or incorporated by reference in each Registration Statement and the Prospectus present fairly the financial position of the Company and its consolidated subsidiaries as of the dates shown and their results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis; and the schedules included or incorporated by reference in each Registration Statement present fairly the information required to be stated therein. (q) Except as disclosed in the Prospectus, since the date of the latest audited financial statements included or incorporated by reference in the Prospectus there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties, prospects or results of operations of the Company and its subsidiaries taken as a whole, and, except as disclosed in, incorporated by reference in or contemplated by the Prospectus, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its respective common or preferred securities or capital stock. (r) The Company is not, and after giving effect to the offering and sale of the Offered Securities and the issuance of the Underlying Securities upon converson of the offerred Securities and the application of the proceeds thereof 7 8 as described in the Prospectus, will not be an "investment company" as defined in the Investment Company Act of 1940. (s) Neither the Company nor any of its respective affiliates does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Section 517.075, Florida Statutes and the Company agrees to comply with such Section if prior to the completion of the distribution of the Offered Securities it commences doing such business. (t) The statutory financial statements of each of the Company's insurance subsidiaries, from which certain ratios and other statistical data contained or incorporated by reference in the Registration Statement have been derived, have for each relevant period been prepared in accordance with accounting practices prescribed or permitted by the National Association of Insurance Commissioners ("NAIC"), and with respect to each insurance subsidiary, the appropriate Insurance Department of the state of domicile of such subsidiary; and such accounting practices have been applied on a consistent basis throughout the periods involved, except as disclosed therein. (u) The Offered Securities will have been approved for listing on the Nasdaq Stock Market's National Market ("Nasdaq National Market")subject to notice of issuance and registered under the Exchange Act in accordance with the 1934 Rules and Regulations prior to or concurrently with the effectiveness of the Registration Statement; the Underlying Securities have been approved for listing on the Nasdaq National Market prior to or concurrently with this the effectiveness of this Registration Statement. 3. Purchase, Sale and Delivery of Offered Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Underwriters, and the Underwriters agree, severally and not jointly, to purchase from the Company, at a purchase price of $_____ per share plus accumulated dividends from _________ to the First Closing Date (as hereinafter defined) the respective numbers of shares of Firm Securities set forth opposite the names of the Underwriters in Schedule A hereto. The Company will deliver the Firm Securities to the Representatives for the accounts of the Underwriters, against payment of the purchase price in New York Clearing House (next day) funds by certified or official check or checks or wire transfer drawn to the order of the Company at the office of Dewey Ballantine, at ________ A.M., New York time, on _________, 1996 or at such other time not later than seven full business days thereafter as CS First Boston Corporation ("CS First Boston") and the Company determine, such time being herein referred to as the "First Closing Date". For purposes of Rule 15c6-1 under the Securities Exchange Act of 8 9 1934, the First Closing Date (if later than the otherwise applicable settlement date) shall be the settlement date for payment of funds and delivery of securities for all the Offered Securities sold pursuant to the Offering. The certificates for the Firm Securities so to be delivered will be in definitive form, in such denominations and registered in such names as CS First Boston requests and will be made available for checking and packaging at the office of CS First Boston at least 24 hours prior to the First Closing Date. In addition, upon written notice from CS First Boston given to the Company from time to time not more than 30 days subsequent to the date of the Prospectus, the Underwriters may purchase all or less than all of the Optional Securities at the purchase price per Security (including any accumulated dividends thereon to the related Option Closing Date) to be paid for the Firm Securities. The Company agrees to sell to the Underwriters the number of shares of Optional Securities specified in such notice and the Underwriters agree, severally and not jointly, to purchase such Optional Securities. Such Optional Securities shall be purchased for the account of each Underwriter in the same proportion as the number of shares of Firm Securities set forth opposite such Underwriter's name bears to the total number of shares of Firm Securities (subject to adjustment by CS First Boston to eliminate fractions) and may be purchased by the Underwriters only for the purpose of covering over-allotments made in connection with the sale of the Firm Securities. No Optional Securities shall be sold or delivered unless the Firm Securities previously have been, or simultaneously are, sold and delivered. The right to purchase the Optional Securities or any portion thereof may be exercised from time to time and to the extent not previously exercised may be surrendered and terminated at any time upon notice by CS First Boston to the Company. Each time for the delivery of and payment for the Optional Securities, being herein referred to as an "Optional Closing Date," which may be the First Closing Date (the First Closing Date and each Optional Closing Date, if any, being sometimes referred to as a "Closing Date"), shall be determined by CS First Boston but shall be not later than five full business days after written notice of election to purchase Optional Securities is given. The Company will deliver the Optional Securities being purchased on each Optional Closing Date to the Representatives for the accounts of the several Underwriters, against payment of the purchase price therefor by a certified or official bank check or checks in New York Clearing House (next day) funds drawn to the order of the Company, at the office of CS First Boston. The certificates for the Optional Securities being purchased on each Optional Closing Date will be in definitive form, in such denominations and registered in such names as CS First Boston requests upon reasonable notice prior to such Optional Closing Date and will be made available for checking and packaging at the office of CS First Boston at a reasonable time in advance of such Optional Closing Date. 9 10 4. Offering by Underwriters. It is understood that the several Underwriters propose to offer the Offered Securities for sale to the public as set forth in the Prospectus. 5. Certain Agreements of the Company. The Company agrees with the several Underwriters that: (a) If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, the Company will file the Prospectus with the Commission pursuant to and in accordance with subparagraph (1) or (2) (as consented to by CS First Boston) of Rule 424(b) not later than the second business day following the execution and delivery of this Agreement or, if applicable and if consented to by CS First Boston, subparagraph (4) or (5) of Rule 424(b). The Company will advise CS First Boston promptly of any such filing pursuant to Rule 424(b). If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement and an additional registration statement is necessary to register a portion of the Offered Securities under the Act but the Effective Time thereof has not occurred as of such execution and delivery, the Company will file the additional registration statement or, if filed, will file a post-effective amendment thereto with the Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00 P.M., New York time, on the date of this Agreement or, if earlier, on or prior to the time the Prospectus is printed and distributed to any Underwriter, or will make such filing at such later date as shall have been consented to by CS First Boston. (b) The Company will advise CS First Boston promptly of any proposal to amend or supplement the initial or any additional registration statement as filed or the related prospectus or the Initial Registration Statement, the Additional Registration Statement (if any) or the Prospectus and will not effect such amendment or supplementation without CS First Boston's consent; and the Company will also advise CS First Boston promptly of the effectiveness of each Registration Statement (if its Effective Time is subsequent to the execution and delivery of this Agreement) and of any amendment or supplementation of a Registration Statement or the Prospectus and of the institution by the Commission of any stop order proceedings in respect of a Registration Statement and will use its best reasonable efforts to prevent the issuance of any such stop order and to obtain as soon as possible its lifting, if issued. (c) If, at any time when a prospectus relating to the Offered Securities is required to be delivered under the Act in connection with the sales by any 10 11 Underwriter or dealer, any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Act, the Company will promptly notify CS First Boston of such event and will promptly prepare and file with the Commission, at its own expense, an amendment or supplement which will correct such statement or omission or an amendment which will effect such compliance with the Act. Neither CS First Boston's consent to, nor the Underwriters' delivery of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6. (d) As soon as practicable, but not later than the Availability Date (as defined below), the Company will make generally available to its securityholders an earnings statement covering a period of at least 12 months beginning after the Effective Date of the Initial Registration Statement (or, if later, the Effective Date of the Additional Registration Statement) which will satisfy the provisions of Section 11(a) of the Act. For the purpose of the preceding sentence, "Availability Date" means the 45th day after the end of the fourth fiscal quarter following the fiscal quarter that includes such Effective Date, except that, if such fourth fiscal quarter is the last quarter of the Company's fiscal year, "Availability Date" means the 90th day after the end of such fourth fiscal quarter. (e) The Company will furnish to the Representatives hard copies of each Registration Statement (four of which will be signed and will include all exhibits), copies of each EDGAR filing of each Registration Statement (and confirmations for each EDGAR filing of each Registration Statement), each related preliminary prospectus, and, so long as delivery of a prospectus relating to the Offered Securities is required to be delivered under the Act in connection with sales by any Underwriter or dealer, the Prospectus and all amendments and supplements to such documents in each case in such quantities as CS First Boston reasonably requests. The Prospectus shall be so furnished on or prior to 3:00 P.M., New York time, on the business day following the later of the execution and delivery of this Agreement or the Effective Time of the Initial Registration Statement. All other documents shall be so furnished as soon as available. The Company will pay the expenses of printing and distributing to the Underwriters all such documents. (f) The Company will arrange for the qualification of the Offered Securities for sale and the determination of their eligibility for investment under the laws of such jurisdiction as CS First Boston designates and will continue such qualifications in effect so long as required for the distribution. 11 12 (g) During the period of ten years hereafter, the Company will furnish to the Representatives, and, upon request, to each of the other Underwriters, as soon as practicable after the end of each fiscal year, a copy of its annual report to stockholders for such year; and the Company will furnish to the Representatives (i) as soon as available, a copy of each report and any definitive proxy statement of the Company filed with the Commission under the Exchange Act or mailed to stockholders, and (ii) from time to time, such other information concerning the Company as CS First Boston may reasonably request. (h) The Company will pay all expenses incident to the performance of its obligations under this Agreement and will reimburse the Underwriters (if and to the extent incurred by them) for any filing fees and other expenses (including fees and disbursements of counsel) incurred by them in connection with qualification of the Offered Securities for sale under the laws of such jurisdictions as CS First Boston designates and the printing of memoranda relating thereto, for the filing fee of the NASD relating to the Offered Securities, for any travel expenses of the Company officers and employees and any other expenses of the Company in connection with attending or hosting meetings with prospective purchasers of the Offered Securities and for expenses incurred in distributing preliminary prospectuses and the Prospectus (including any amendments and supplements thereto) to the Underwriters. (i) The Company will notify CS First Boston of any material adverse change affecting any of its representations, warranties, agreements and indemnities herein at any time prior to payment to the Company on the First Closing Date or any Optional Closing Date. (j) The Company will use the net proceeds received by it from the sale of the Offered Securities, in the manner specified in the Prospectus under the caption "Use of Proceeds." (k) The Company will use its best efforts to list the Offered Securities and the Underlying Securities on the Nasdaq National Market subject to notice of issuance and to register the Offered Securities under the Exchange Act in accordance with the 1934 Rules and Regulations. (l) During the period commencing on the date hereof and continuing for 90 days, without CS First Boston's written permission, neither the Company nor the Company's directors or executive officers will offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Commission a registration statement under the Act relating to, any additional shares of its Securities or Common Stock or securities convertible into or exchangeable or exercisable for any shares of its Securities or Common Stock, 12 13 or publicly disclose of its intention to make any such offer, sale, pledge, disposal or filing. 6. Conditions of the Obligations of the Underwriters. The obligations of the several Underwriters to purchase and pay for the Firm Securities on the First Closing Date and the Optional Securities to be purchased on each Optional Closing Date will be subject to the accuracy of the representations and warranties on the part of the Company herein to the accuracy of the statements of the Company's officers made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions precedent: (a) The Representatives shall have received a letter, dated the date of delivery thereof (which, if the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, shall be on or prior to the date of this Agreement or, if the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement, shall be prior to the filing of the amendment or post-effective amendment to the registration statement to be filed shortly prior to such Effective Time), of Price Waterhouse LLP confirming that they are independent public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating to the effect that: (i) in their opinion the financial statements and schedules audited by them and included or incorporated by reference in the Registration Statements comply as to form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations; (ii) they have performed the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information as described in Statement of Auditing Standards No. 71, Interim Financial Information, in the unaudited financial statements included or incorporated by reference in the Registration Statements; (iii) on the basis of the review referred to in clause (ii) above, a reading of the latest available interim financial statements of the Company, inquiries of officials of the Company who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that: (A) the unaudited financial statements included or incorporated by reference in the Registration Statements do not comply as to form in all material respects with the applicable 13 14 accounting requirements of the Act and the related published Rules and Regulations or any material modifications should be made to such unaudited financial statements for them to be in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements in the Prospectus; (B) at the date of the latest available balance sheet read by such accountants, or at a subsequent specified dated not more than five days prior to the date of this Agreement, there was any change in the capital stock (other than as a result of the exercise of employee stock options in the ordinary course of business) or any increase in short-term indebtedness or long- term debt of the Company and its consolidated subsidiaries, or, at the date of the latest available balance sheet read by such accountants, there was any decrease in total assets or stockholder's equity as compared with amounts shown on the latest balance sheet included or incorporated by reference in the Prospectus; or (C) for the period from the closing date of the latest income statement included or incorporated by reference in the Prospectus to the closing date of the latest available income statement read by such accountants there were any decreases, as compared with the corresponding period for the previous year, in the total or per share amounts of consolidated income before extraordinary items, gross collected premiums, net income or in the ratio of earnings to fixed charges and preferred stock dividends combined; except in all cases set forth in clauses (B) and (C) above for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (iv) they have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained or incorporated by reference in the Registration Statements (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of the Company and its subsidiaries subject to the internal controls of the Company's accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages 14 15 and other financial information to be in agreement with such results, except as otherwise specified in such letter; and (v) they have examined the statutory financial statements of each of the Company insurance subsidiaries listed on Schedule B hereto, from which certain ratios and other statistical data contained or incorporated by reference in the Registration Statement have been derived, and in their opinion such statements, with respect to each such insurance subsidiary, have for each relevant period been prepared in accordance with accounting practices prescribed or permitted by the appropriate Insurance Department of the state of domicile of such subsidiary, except as disclosed therein. For purposes of this subsection, (i) if the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement, "Registration Statements" shall mean the initial registration statement as proposed to be amended by the amendment or post-effective amendment to be filed shortly prior to its Effective Time, (ii) if the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement but the Effective Time of the Additional Registration Statement is subsequent to such execution and delivery, "Registration Statements" shall mean the Initial Registration Statement and the additional registration statement as proposed to be filed or as proposed to be amended by the post-effective amendment to be filed shortly prior to its Effective Time, and (iii) "Prospectus" shall mean the prospectus included in the Registration Statements. All financial statements and schedules included in material incorporated by reference into the Prospectus shall be deemed included in the Registration Statements for purposes of this subsection. (b) If the Effective Time of the Initial Registration Statement is not prior to the execution and delivery of this Agreement, such Effective Time shall have occurred not later than 10:00 P.M., New York time, on the date of this Agreement or such later date as shall have been consented to by CS First Boston. If the Effective Time of the Additional Registration Statement (if any) is not prior to the execution and delivery of this Agreement, such Effective Time shall have occurred not later than 10:00 P.M., New York time, on the date of this Agreement or, if earlier, at the time the Prospectus is printed and distributed to any Underwriter, or shall have occurred at such later date as shall have been consented to by CS First Boston. If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, the Prospectus shall have been filed with the Commission in accordance with the Rules and Regulations and Section 5(a) of this Agreement. Prior to such Closing Date, no stop order suspending the effectiveness of a Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or, to the knowledge of the Company or the Representatives, shall be contemplated by the Commission. 15 16 (c) Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) any change, or any development or event involving a prospective change, in the conditions (financial or other), business, properties, prospects or results of operations of the Company or its subsidiaries which, in the judgment of a majority in interest of the Underwriters including the Representatives, is material and adverse and makes it impractical or inadvisable to proceed with completion of the public offering or the sale of and payment for the Offered Securities; (ii) any downgrading in the rating of any debt securities or preferred securities of the Company by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities or preferred securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating) or any downgrading of the financial and operating performance of the Company's insurance subsidiaries by A.M. Best Company; (iii) any suspension or limitation of trading in securities generally on the New York Stock Exchange or the Nasdaq National Market, or any setting of minimum prices for trading on such exchange or system, or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (iv) any banking moratorium declared by U.S. Federal or New York authorities; or (v) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of a majority in interest of the Underwriters including the Representatives the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the public offering or the sale of and payment for the Offered Securities. (d) The Representatives shall have received an opinion, dated such Closing Date, of Jorden Burt Berenson & Johnson LLP, counsel for the Company to the effect that: i) Each of the Company and the subsidiaries listed on Schedule C hereto (the "Material Subsidiaries") has been duly incorporated and is an existing corporation in good standing under the laws of the state of its incorporation, with power and authority (corporate and otherwise) to own its properties and conduct its business as described in the Prospectus; and each of the Company and its Material Subsidiaries is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification except where the failure to be so qualified would not individually or in the aggregate have a material adverse effect on the consolidated financial position, 16 17 stockholders' equity or results of the operations of the Company and its subsidiaries, taken as a whole; all of issued and outstanding capital stock of each Material Subsidiary of the Company has been duly authorized and validly issued, and is fully paid and nonassessable; and all the capital stock of the Material Subsidiaries is owned by the Company (directly or through subsidiaries); and the capital stock of each Material Subsidiary owned by the Company, directly or through Material Subsidiaries, is owned free from liens, encumbrances and defects; ii) The Offered Securities delivered on such Closing Date have been duly authorized and validly issued, are fully paid and nonaccessable and conform to the description thereof contained in the Prospectus; iii) The Offered Securities delivered on such Closing Date are convertible into the Underlying Shares of the Company in accordance with their terms; the Underlying Shares initially issuable upon conversion of such Offered Securities have been duly authorized and reserved for issuance upon such conversion and, when issued upon such conversion, will be validly issued, fully paid and nonassessable; the outstanding shares of Common Stock have been duly authorized and validly issued, are fully paid and nonassessable and conform to the description thereof contained in the Prospectus; and no holder of any security of the Company has any preemptive rights with respect to the Securities or the Underlying Shares; iv) There are no contracts, agreements or understandings known to such counsel between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Act. v) No consent, approval, authorization or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement in connection with the issuance or sale of the Offered Securities by the Company, except such as have been obtained and made under the Act and such as may be required under state securities laws; vi) The execution, delivery and performance of this Agreement and the issuance and sale of the Offered Securities and compliance with the terms and provisions thereof (including without limitation the 17 18 issuance of the Underlying Securities upon conversion of the Offered Securities) will not result in a breach or violation of any of any of the terms and provisions of, or constitute a default under, any statute, any rule, regulation or order of any governmental agency or body or any court having jurisdiction over the Company or any subsidiary of the Company or any of their properties, or any agreement or instrument to which the Company or any such subsidiary is a party or by which the Company or any such subsidiary is bound or to which any of the properties of the Company or any such subsidiary is subject, or the charter or by-laws of the Company or any such subsidiary and the Company has full power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement (including without limitation the issuance of the Underlying Shares upon conversion of the offered Securities). vii) The Initial Registration Statement was declared effective under the Act as of the date and time specified in such opinion, the Additional Registration Statement (if any) was filed and became effective under the Act as of the date and time (if determinable) specified in such opinion, the Prospectus either was filed with the Commission pursuant to the subparagraph of Rule 424(b) specified in such opinion on the date specified therein or was included in the Initial Registration Statement or the Additional Registration Statement (as the case may be), and, to the best of the knowledge of such counsel, no stop order suspending the effectiveness of a Registration Statement or any part thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Act, and each Registration Statement and the Prospectus, and each amendment or supplement thereto, as of their respective effective or issue dates, complied as to form in all material respects with the requirements of the Act and the Rules and Regulations; such counsel has no reason to believe that any part of a Registration Statement or any amendment thereto, as of its effective date or as of such Closing Date, contained or incorporated by reference any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto, as of its issue date or as of such Closing Date, contained or incorporated by reference any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; the descriptions in the Registration Statements and Prospectus of statutes, legal and governmental proceedings and contracts and other documents are accurate and fairly present the information required to be shown; and such counsel does not 18 19 know of any legal or governmental proceedings required to be described in a Registration Statement or the Prospectus which are not described as required or any contracts or documents of a character required to be described in a Registration Statement or the Prospectus or to be filed as exhibits to a Registration Statement which are not described and filed as required; it being understood that such counsel need express no opinion as to the financial statements or other financial data contained or incorporated by reference in the Registration Statement or the Prospectus; and viii) The Incorporated Documents when filed with the Commission, or when amended, as appropriate, complied with the applicable requirements of the 1934 Act Rules and Regulations, and did not include at the time of filing or as of the time of any subsequent amendment any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein in light of the circumstances under which they were made, not misleading; and ix) This Agreement has been duly authorized, executed and delivered by the Company and constitutes the valid and binding obligations of the Company enforceable in accordance with its terms (except as may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws affecting creditors' rights generally, except that the remedies of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and the discretion of the court before which any proceeding therefor may be brought, and except that no opinion need be expressed with respect to the obligations of the Company regarding indemnification and contribution as provided in Section 7 below); x) The Company and each of the Material Subsidiaries hold all licenses, certificates and permits from all governmental authorities (including, without limitation, Insurance Licenses) which are necessary to the conduct of their respective businesses; to such counsel's knowledge, the Material Subsidiaries have fulfilled and performed all obligations necessary to maintain their respective Insurance Licenses, and, to such counsel's knowledge, no event or events have occurred which may be reasonably expected to result in the material impairment, modification, termination or revocation of such Insurance Licenses; xi) No consent, approval, authorization or order of, or filing with, any governmental agency or body or to such counsel's knowledge any court is required for the consummation of the transactions 19 20 contemplated by this Agreement in connection with the issuance or sale of the Offered Securities by the Company, except such as have been obtained and made under the Act, the Rules and Regulations, the Exchange Act, the 1934 Act Rules and Regulations, or the by-laws of the NASD and such as may be required under state or foreign securities laws; (x) The statements in the Prospectus under the captions "Description of Capital Stock- Convertible Preferred Stock" insofar as they purport to constitute a summary of the terms of the securities therein described, and under the caption "Underwriting" (other than statements based on information furnished by an Underwriter expressly for use or incorporation by reference therein), insofar as they purport to constitute summaries of the terms of the documents referred to therein, and the statements in the Prospectus under "Business-Government Regulation" insofar as the support to constitute descriptions of laws, rules, regulations or NAIC model laws, fairly summarize the terms of such documents or laws, rules, regulations or NAIC model laws as the case may be; and xii) All statements contained in the Registration Statement under the heading "Certain Federal Income Tax Consequences" are true and correct in all material respects. xiii) The Company is not, and after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Prospectus, will not be an "investment company" or an entity "controlled" by and "investment company" required to be registered under the Investment Company Act of 1940. xiv) The Offered Securities have been approved for listing on the Nasdaq National Market subject to notice of issuance and registered under the Exchange Act; the Underlying Securities have been approved for listing on the Nasdaq National Market. In rendering the foregoing opinions, such counsel may rely as to matters of fact upon certificates of the officers of the Company and its subsidiaries, as to matters involving good standing, authorization to do business and other matters within their knowledge, upon certificates of public officials, and, as to matters involving the application of laws of any jurisdiction other than the State of Florida or the United States, upon opinions of local counsel shall state that they believe both you and they are justified in relying upon such certificates and opinions. 20 21 (e) The Representatives shall have received from Dewey Ballantine, counsel for the Underwriters, such opinion or opinions, dated such Closing Date, with respect to the incorporation of the Company, the validity of the Offered Securities delivered on such Closing Date, the Registration Statements, the Prospectus and other related matters as the Representatives may require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. In rendering such opinion, Dewey Ballantine may rely as matters governed the laws of the State of Florida upon the opinions of Jorden Burt Berenson & Johnson LLP referred to above. (f) The Representatives shall have received a certificate, dated such Closing Date, of the President or any Vice-President and a principal financial or accounting officer of the Company in which such officers, to the best of their knowledge after reasonable investigation, shall state that: the representations and warranties of the Company in this Agreement are true and correct; the Company complied in all material respects with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to such Closing Date, and that, to their knowledge, no stop order suspending the effectiveness of any Registration Statement has been issued and no proceedings for that purpose have been instituted or are contemplated by the Commission; the Additional Registration Statement (if any) satisfying the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule 462(b), including payment of the applicable filing fee in accordance with Rule 111(a) or (b) under the Act, prior to the time the Prospectus was printed and distributed to any Underwriter; and, subsequent to the date of the most recent financial statements in the Prospectus, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties, prospects or results of operations of the Company and its subsidiaries taken as a whole except as set forth in or contemplated by the Prospectus or as described in such certificate. (g) The Representatives shall have received a letter, dated such Closing Date, from Price Waterhouse LLP which meets the requirements of subsection (a) of this Section, except that the specified date referred to in such subsection will be a date not more than five days prior to such Closing Date for the purposes of this subsection. (j) The Offered Securities to be sold by the Company at the Closing Date shall have been duly listed on the Nasdaq National Market subject to notice of issuance and shall have been registered under the Exchange Act in accordance with the 1934 Rules and Regulations; the Underlying Securities at the Closing Date shall have been approved for listingon the Nasdaq National Market. 21 22 The Company will furnish the Representatives with such conformed copies of such opinions, certificates, letters and documents as the Representatives may reasonably request. CS First Boston may in its sole discretion waive on behalf of the Underwriters compliance with any conditions to the obligations of the Underwriters hereunder, whether in respect of an Optional Closing Date or otherwise. 7. Indemnification and Contribution. (a) The Company will, severally and jointly, indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained or incorporated by reference in any Registration Statement, the Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives specifically for use or incorporation by reference therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in subsection (b) below. Insofar as the foregoing indemnity agreement, or the representations and warranties contained in Section 2(b), may permit indemnification for liabilities under the Act of any person who is an Underwriter or a partner or controlling person of an Underwriter within the meaning of Section 15 of the Act and who, at the date of this Agreement, is a director, officer or controlling person of the Company, the Company has been advised that in the opinion of the Commission such provisions may contravene Federal public policy as expressed in the Act and may therefore be unenforceable. In the event that a claim for indemnification under such agreement or such representations and warranties for any such liabilities (except insofar as such agreement provides for the payment by the Company of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such a person, the Company will submit to a court of appropriate jurisdiction (unless in the opinion of counsel for the Company the matter has already been settled by controlling precedent) the question of whether or not indemnification by it for such liabilities is against public policy as expressed in the Act and therefore unenforceable, and the Company will be governed by the final adjudication of such issue. 22 23 (b) Each Underwriter will severally and not jointly indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained or incorporated by reference in any Registration Statement, the Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives specifically for use or incorporation by reference therein, and will reimburse any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Underwriter consists of (i) the following information in the Prospectus furnished on behalf of each Underwriter: the last paragraph at the bottom of the cover page concerning the terms of the offering by the Underwriters, the legend concerning over-allotments and stabilizing on the inside front cover page, and the concession and reallowance figures appearing in the paragraph under the caption "Underwriting"; and (ii) the following information furnished on behalf of Furman Selz: Eugene M. Matalene, Jr., a director of the Company, is a managing Director of Corporate Finance at Furman Selz, LLC, a managing underwriter of this offering. The Company has engaged and intends to in the future engage Furman Selz, LLC in connection with such financial matters as it deems appropriate. (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) above. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election to or assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified 23 24 party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action. (d) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. 24 25 (e) The obligations of the Company under this Section shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions to each officer of the Company, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each director of the Company, to each officer of the Company who has signed a Registration Statement and to each person, if any, who controls the Company within the meaning of the Act. 8. Default of Underwriters. If any Underwriter or Underwriters default in their obligations to purchase Offered Securities hereunder on either the First or any Optional Closing Date or any Optional Closing Date and the aggregate number of shares of Offered Securities that such defaulting Underwriter or Underwriters agreed, but failed, to purchase does not exceed 10% of the total number of Offered Securities that the Underwriters are obligated to purchase on such Closing Date, CS First Boston may make arrangements satisfactory to the Company for the purchase of such Offered Securities by other persons, including any of the Underwriters, but if no such arrangements are made by such Closing Date, the non-defaulting Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Offered Securities that such defaulting Underwriters agreed but failed to purchase on such Closing Date. If any Underwriter or Underwriters so default and the aggregate number of shares of Offered Securities with respect to which such default or defaults occur exceeds 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on such Closing Date and arrangements satisfactory to CS First Boston and the Company for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company, except as provided in Section 9 (provided that if such default occurs with respect to Optional Securities after the First Closing Date, this Agreement will not terminate as to the Firm Securities or any Optional Securities purchased prior to such termination). As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default. 9. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties and other statements of the Company or and its officers and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Offered Securities. If this Agreement is terminated pursuant to Section 8 or if for any reason the purchase of the Offered Securities by the Underwriters is not consummated, 25 26 the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 5 and the respective obligations of the Company and the Underwriters pursuant to Section 7 shall remain in effect, and if any Offered Securities have been purchased hereunder, the representations and warranties in Section 2 and all obligations under Section 5 shall also remain in effect. If the purchase of the Offered Securities by the Underwriters is not consummated for any reason other than solely because of the termination of this Agreement pursuant to Section 8 or the occurrence of any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company will reimburse the Underwriters for all out-of-pocket expenses (including fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Offered Securities. 10. Notices. All communications hereunder will be in writing and, if sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed to the Representatives, c/o CS First Boston Corporation, 55 E. 52nd Street, Park Avenue Plaza, New York, N.Y. 10055, Attention: Investment Banking Department--Transactions Advisory Group, or, if sent to the Company will be mailed, delivered or telegraphed and confirmed to it at American Bankers Insurance Group, Inc., 11222 Quail Roost Drive, Miami, FL 33157-6596, Attention: Leonardo Garcia and with a copy to Jorden Burt Berenson & Johnson LLP, 777 Brickwell Avenue, Suite 500, Miami, Florida 33131-2803, Attention: Josephine Cicchetti; provided, however, that any notice to an Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed and confirmed to such Underwriter. 11. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder. 12. Representation of Underwriters. The Representatives will act for the several Underwriters in connection with this financing, and any action under this Agreement taken by the Representative jointly or by CS First Boston will be binding upon all the Underwriters. 13. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. 14. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflicts of laws. 26 27 The Company hereby submits to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. 27 28 If the foregoing is in accordance with the Representatives' understanding of our agreement, kindly sign and return to the Company one of the counterparts hereof, whereupon it will become a binding agreement between the Company and the several Underwriters in accordance with its terms. Very truly yours, AMERICAN BANKERS INSURANCE GROUP, INC. By . . . . . . . . . . . . . . . . . . . Name: Title: The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. CS FIRST BOSTON CORPORATION DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION FURMAN SELZ LLC MCDONALD & COMPANY SECURITIES, INC. By CS FIRST BOSTON CORPORATION By . . . . . . . . . . . . . . Name: Title: 28 29 SCHEDULE A
Underwriter Number of Firm Securities - ----------- ------------------------- CS First Boston Corporation Donaldson, Lufkin & Jenrette Securities Corporation Furman Selz LLC McDonald & Company Securities, Inc. Total 2,000,000 ----------
29 30 SCHEDULE B [TO COME] 30 31 SCHEDULE C [Material Subsidiaries] 31 EX-12 3 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 American Bankers Insurance Group Schedule of Computation of Ratio of Earnings to Fixed Charges
March 31, March 31, 1991 1992 1993 1994 1995 1995 1996 ------- ------- ------- ------- --------- --------- --------- Pre-Tax Income $52,158 $59,446 $75,680 $79,816 $104,195 $ 21,632 $ 30,887 Add: Interest expense, including amortization of debt expenses 10,408 9,573 8,108 11,168 15,579 3,503 4,101 Interest portion of total rent expense(1) 777 747 1,266 1,732 2,195 506 584 Interest portion of LESOP expense(2) 1,240 855 728 598 585 156 122 ------- ------- ------- ------- -------- -------- -------- Earnings $64,583 $70,621 $85,780 $93,314 $122,554 $ 25,797 $ 35,694 ======= ======= ======= ======= ======== ======== ======== Fixed Charges: Interest expense, including amortization of debt expenses 10,408 9,573 8,108 11,168 15,579 3,503 4,101 Interest portion of total rent expense(1) 777 747 1,266 1,732 2,195 506 584 Interest portion of LESOP expense(2) 1,240 855 726 598 585 156 122 ------- ------- ------- ------- -------- -------- -------- $12,425 $11,175 $10,100 $13,498 $ 18,359 $ 4,165 $ 4,807 ======= ======= ======= ======= ======== ======== ======== Ratio of Earnings to Fixed Charges 5.2:1 6.3:1 8:5:1 6.9:1 6.7:1 6.2:1 7.4:1
(1) For purposes of computing the ratio of earnings to fixed charges, the Company estimates that the interest portion of rent expense is approximately one-third of total rent expense. (2) Leveraged Employee Stock Ownership Plan. EX-23.1 4 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement on Form S-3 of our report dated March 8, 1996 appearing on page 37 of American Bankers Insurance Group, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1995. We also consent to the reference to us under the headings "Experts" and "Selected Historical Consolidated Financial and Operating Data" in such Prospectus. PRICE WATERHOUSE LLP Miami, Florida June 27, 1996 -----END PRIVACY-ENHANCED MESSAGE-----