PLAN AND AGREEMENT OF MERGER
First Alliance Corporation
Citizens, Inc.
and
Citizens Acquisition, Inc.
This Plan and Agreement of Merger ("this Agreement") is by and among First
Alliance Corporation ("First Alliance"), Citizens, Inc. ("Citizens") and
Citizens Acquisition, Inc. ("Acquisition").
WITNESSETH:
WHEREAS, Citizens is a corporation duly organized under the laws of the
State of Colorado and Acquisition is a corporation duly organized under the laws
of the State of Kentucky;
WHEREAS, First Alliance is a corporation duly organized under the laws of
the State of Kentucky; and
WHEREAS, Citizens desires to acquire First Alliance through a merger of
Acquisition into First Alliance under Kentucky law;
NOW, THEREFORE, it is agreed among the parties as follows:
ARTICLE I
The Merger
1.1 Subject to approval of this Agreement by the Insurance Commissioner
of the State of Kentucky, and subject to the conditions set forth herein on the
"Effective Date" (as herein defined), First Alliance and Acquisition shall enter
into and file Articles of Merger, attached hereto as Exhibit "A," under which
Acquisition shall merge with and into First Alliance (the "Merger"), and First
Alliance shall be the surviving corporation, and shareholders of First Alliance
that do not dissent to the Merger shall receive Class A common stock of Citizens
as set forth in Section 1.2. The transaction contemplated by this Agreement
shall be completed at a closing ("xxx Xxxxxxx") on a closing date ("the Closing
Date") which shall be as soon as possible after all regulatory approvals and
shareholder approvals are obtained in accordance with law as set forth in this
Agreement.
On the Closing Date, all of the documents to be furnished to First Alliance
and Citizens, including the documents to be furnished pursuant to Article VII of
this Agreement, shall be delivered to Xxxxx & Xxxxxx, P.C., counsel to Citizens,
to be held in escrow until the Effective Date or the date of termination of this
Agreement, whichever first occurs and thereafter shall be promptly distributed
to the parties as their interests may appear.
2.1
1.2 On the Effective Date, all shareholders of Alliance that do not
dissent shall receive as consideration shares of Citizens Class A common stock
equal in market value to the average closing price of such stock as reported by
the New York Stock Exchange for the 20 trading days preceding the Closing Date
for every share of Alliance owned based upon an embedded value of $3.02 per
share of the common stock of Alliance, as set forth in Section 2.2 hereof.
The offer and sale of the Citizens Class A common stock to be issued
hereunder shall be registered by Citizens pursuant to the Securities Act of
1933 and applicable state securities laws.
1.3 If this Agreement is duly adopted by the holders of the requisite
number of shares, in accordance with the applicable laws and subject to the
other provisions hereof, such documents as may be required by law to consummate
the Merger shall be filed as required by law to effectuate same, and it shall
become effective. The time of filing the last document required by law to
consummate the Merger shall be the "Effective Date" for this Agreement. For
accounting purposes, this Agreement shall be effective as of 12:01 a.m., on the
last day of the month preceding the Effective Date.
ARTICLE II
Issuance and Exchange of Shares
2.1 The shares of Citizens Class A common stock shall be distributed to
First Alliance shareholders (other than those shares as to which dissenters'
rights have been perfected in accordance with Kentucky law).
2.2 On the Effective Date, each holder of a certificate or certificates
representing shares of First Alliance, upon presentation and surrender of such
certificate or certificates to the Exchange Agent of Citizens, shall be entitled
to receive the consideration set forth herein, except that holders of those
shares as to which dissenters' rights shall have been asserted and perfected
pursuant to Kentucky law shall not be converted into shares of Citizens Class A
common stock, but shall represent only such rights as are permitted under the
Kentucky Business Corporation Act. Upon such presentation, surrender, and
exchange as provided in this Section 2.2, certificates representing shares of
First Alliance previously held shall be canceled. Until so presented and
surrendered, each certificate or certificates which represented issued and
outstanding shares of First Alliance at the Effective Date shall be deemed for
all purposes to evidence the right to receive the consideration set forth in
Section 1.2 of this Agreement. If a certificate or certificates representing
shares of First Alliance have been lost, stolen, mutilated or destroyed, the
Exchange Agent shall require the submission of an indemnity agreement and may
require the submission of a bond in lieu of such certificate.
10.7 No fractional shares of Citizens stock shall be issued as a result
of the Merger. In the event the issuance of shares of Citizens stock hereunder
results in any shareholder being entitled to a fraction of a whole share of
Citizens stock, the number of shares to be issued to such shareholder shall
be rounded up to the nearest whole share.
2.2
10.8 The stock transfer books of First Alliance shall be closed on the
Closing Date, and thereafter no transfers of the common stock of First Alliance
will be made.
ARTICLE III
Representations, Warranties and Covenants of Citizens
No representations or warranties are made by any director, officer,
employee or shareholder of Citizens, except as and to the extent stated in this
Agreement or in a separate written statement (the "Citizens Disclosure
Statement") attached hereto as Exhibit "B". Citizens hereby represents,
warrants and covenants to First Alliance, except as stated in the Citizens
Disclosure Statement, as follows:
3.1 Citizens is a corporation duly organized, validly existing and in
good standing under the laws of the State of Colorado, and has the corporate
power and authority to own or lease its properties and to carry on its business
as it is now being conducted. The Articles of Incorporation and Bylaws of
Citizens, copies of which have been delivered to First Alliance, are complete
and accurate, and the minute books of Citizens contain a record, which is
complete and accurate in all material respects, of all meetings, and all
corporate actions of the shareholders and board of directors of Citizens.
3.2 The aggregate number of shares which Citizens is authorized to
issue is 50,000,000 shares of Class A common stock with no par value and
1,000,000 shares of Class B common stock with no par value; of which 29,303,287
shares of such Class A common stock (not including treasury shares) and 817,696
shares of Class B common stock are issued and outstanding, fully paid and
non-assessable as of September 30, 2002. No shares of Preferred stock are
issued or outstanding. The two classes of stock of Citizens are equal in all
respects, except that (a) the Class B common stock elects a simple majority of
the Board of Directors of Citizens, and the Class A common stock elects the
remaining directors, and (b) the Class A common stock receives twice the cash
dividends on a per share basis compared to the Class B common stock. There were
161,663 shares of Class A common stock held as treasury stock of Citizens and
2,398,031 shares of Class A common stock owned by Citizens Insurance Company of
America and deemed to be treasury stock as of September 30, 2002. The shares of
Class A common stock to be issued pursuant to the Merger will, upon issuance, be
fully paid and non-assessable and listed with the New York Stock Exchange
The subsidiaries of Citizens are each an association, corporation, or other
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or association; each has the power and
authority to lease its properties and to carry on its business as now being
conducted; and each holds or shall hold all licenses, franchises, permits or
other governmental authorizations required to enable it to conduct its business
or own its properties in every jurisdiction in which it currently conducts
business or owns property where the failure to do so would have a material
2.3
adverse effect on the business of the subsidiary. All outstanding shares of
capital stock of each subsidiary are duly and validly authorized and issued,
fully paid and non-assessable.
3.3 Citizens has complete and unrestricted power to enter into and,
upon the appropriate approvals as required by law, to consummate the
transactions contemplated by this Agreement.
3.4 Neither the making of nor the compliance with the terms and
provisions of this Agreement and consummation of the transactions contemplated
herein by Citizens will conflict with or result in a breach or violation of the
Articles of Incorporation or Bylaws of Citizens.
3.5 The execution, delivery and performance of this Agreement has been
duly authorized and approved by Citizens' Board of Directors.
3.6 Citizens has delivered to First Alliance consolidated
financial statements of Citizens and its subsidiaries, dated December 31, 2001
and June 30, 2002 (unaudited), and the annual convention statement of Citizens
Insurance Company of America ("CICA") for the year ended December 31, 2001. All
such statements, herein sometimes called "Citizens Financial Statements", are
complete and correct in all material respects and, together with the notes to
these financial statements, present fairly the financial position and results of
operations of Citizens and Citizens Insurance Company of America for the periods
included. The December 31, 2001 and June 30, 2002 consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles, and the December 31, 2001 statement of Citizens Insurance Company of
America has been prepared in accordance with statutory accounting principles.
3.7 Since the dates of the Citizens Financial Statements there have not
been any material adverse changes in the business or condition, financial or
otherwise, of Citizens or CICA.
3.8 Citizens has delivered to First Alliance a list and description of
all pending legal and regulatory proceedings involving Citizens or CICA and,
except for these proceedings, there are no legal proceedings or regulatory
proceedings involving material claims pending, or to the knowledge of the
officers of Citizens, threatened against Citizens or CICA or adversely affecting
in any material respect any of their assets, or properties, and neither Citizens
nor CICA is in any material breach, violation, or default under any material
contract or instrument to which Citizens or CICA is a party, and no event has
occurred which with the lapse of time or action by a third party would result in
a material breach, violation, or default by Citizens or CICA under any material
contract or other instrument to which Citizens or CICA is a party or by which
they or any of their properties may be bound or affected, or under their
respective Articles of Incorporation or Bylaws.
2.4
3.9 The assets of CICA have admissible values at least equal to the
amounts attributed to them on its December 31, 2001 annual convention
statement.
3.10 In all material respects the policy and claim reserves of Citizens
Insurance Company of America have been properly provided for and are adequate to
comply with all regulatory requirements regarding same.
3.11 The representations and warranties of Citizens shall be true and
correct in all material respects as of the date hereof and as of the Effective
Date.
3.12 Citizens has delivered, or will deliver within two weeks of the
date of this Agreement, to First Alliance true and correct copies of Citizens
Annual Report to Shareholders for the years ended December 31, 2000 and 2001 and
each of its other reports to shareholders and filings with the Securities and
Exchange Commission ("SEC") for the years ended December 31, 1999, 2000, and
2001 and for 2002 year-to-date. Citizens will also deliver to First Alliance on
or before the Closing Date any reports relating to the financial and business
condition of Citizens which are filed with the SEC after the date of this
Agreement and any other reports sent generally to its shareholders after the
date of this Agreement.
Citizens has duly filed all reports required to be filed by it under the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended.
3.13 Citizens has delivered to First Alliance a copy of each of the
federal income tax returns of Citizens for the year ended December 31, 2001 and
for any additional open years. The provisions for taxes in Citizens accounting
records' are believed by Citizens to be sufficient for payment of all accrued
and unpaid federal, state, county and local taxes of Citizens (including any
penalties or interest payable) whether or not disputed for the periods then
ended and for all prior fiscal periods. All returns and reports of other
information required or requested by federal, state, county, and local tax
authorities have been filed or supplied in a timely fashion, and all such
information is true and correct in all material respects. Provision has been
made for the payment of all taxes due to date by Citizens, including taxes for
the current year ending December 31, 2002. No federal income tax return of
Citizens is currently under audit.
3.14 Citizens has no employee benefit plans, except as disclosed in the
Citizens Financial Statements and for a group accident and health and dental
plan for employees.
10.7 No representation or warranty by Citizens in this Agreement, the
Citizens Disclosure Statement or any certificate delivered pursuant hereto
contains any untrue statement of a material fact or omits to state any material
fact necessary to make such representation or warranty not misleading.
10.8 Citizens shall cause itself and its officers, directors and
affiliates to refrain from purchasing Class A common stock of Citizens for the
20 trading days preceding Closing.
2.5
ARTICLE IV
Representations, Warranties and Covenants of First Alliance
No representations or warranties are made by any director, officer,
employee or shareholder of First Alliance, except as and to the extent stated in
this Agreement or in a separate written statement (the "First Alliance
Disclosure Statement") attached hereto as Exhibit "C". First Alliance hereby
represents, warrants and covenants to Citizens, except as stated in the First
Alliance Disclosure Statement, as follows:
4.1 Each of First Alliance and First Alliance Insurance Company
("FAIC") is a corporation duly organized, validly existing and in good standing
under the laws of the State of Kentucky, and has the corporate power and
authority to own or lease its properties and to carry on its business as it is
now being conducted. The Articles of Incorporation and Bylaws of First Alliance
and FAIC, copies of which have been delivered to Citizens, are complete and
accurate, and the minute books of First Alliance and FAIC contain a record,
which is complete and accurate in all material respects, of all meetings and all
corporate actions of the shareholders and Boards of Directors of First Alliance
and FAIC.
4.2 The aggregate number of shares which First Alliance is authorized
to issue is 20,000,000 shares of Common Stock, no par value, and 1,000,000
shares of Preferred Stock of which 5,691,695 shares of Common Stock, and 0
shares of Preferred Stock are issued and outstanding, fully paid and
non-assessable. There are no outstanding options, warrants or other rights to
purchase, or subscribe to, or securities convertible into or exchangeable for
any shares of First Alliance capital stock. First Alliance owns all of the
outstanding shares of FAIC.
The subsidiaries of First Alliance and FAIC are each an association,
corporation, or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or association;
each has the power and authority to lease its properties and to carry on its
business as now being conducted; and each holds or shall hold all licenses,
franchises, permits or other governmental authorizations required to enable it
to conduct its business or own its properties in every jurisdiction in which it
currently conducts business or owns property and where the failure to do so
would have a material adverse effect on the business of the subsidiary. All
outstanding shares of capital stock of each subsidiary are duly and validly
authorized and issued, fully paid and non-assessable. First Alliance directly
or indirectly owns all of the issued and outstanding capital stock of such
subsidiaries.
4.3 First Alliance and FAIC each have complete and unrestricted power
to enter into and, upon the appropriate approvals as required by law, to
consummate the transactions contemplated by this Agreement.
2.6
4.4 Neither the making of nor the compliance with the terms and
provisions of this Agreement and consummation of the transactions contemplated
herein by First Alliance and FAIC will conflict with or result in a breach or
violation of the Articles of Incorporation or Bylaws of First Alliance or FAIC.
4.5 The execution of his Agreement has been duly authorized and
approved by the Board of Directors of First Alliance.
4.6 First Alliance has delivered to Citizens consolidated financial
statements of First Alliance and its subsidiaries, dated December 31, 2001 and
June 30, 2002 (unaudited), and the annual convention statement of FAIC as of
December 31, 2001. All such statements, herein sometimes called "First Alliance
Financial Statements" are (and will be) complete and correct in all material
respects and, together with the notes to the financial statements, present
fairly the financial position and results of operations of First Alliance and
FAIC of the periods indicated. The December 31, 2001and June 30, 2002
consolidated financial statements of First Alliance have been prepared in
accordance with generally accepted accounting principles and the December 31,
2001, annual convention statement of FAIC is prepared in accordance with
statutory principles.
4.7 Since the dates of the First Alliance Financial Statements there
have not been any material adverse changes in the business or condition,
financial or otherwise, of First Alliance or FAIC. First Alliance and FAIC do
not have any material liabilities or obligations, secured or unsecured (whether
accrued, absolute, contingent or otherwise) except as disclosed in the First
Alliance Financial Statements.
4.8 First Alliance has delivered to Citizens a list and description of
all pending legal and regulatory proceedings involving First Alliance or FAIC,
none of which will materially adversely affect them, and, except for these
proceedings, there are no legal proceedings or regulatory proceedings involving
material claims pending, or, to the knowledge of other officers of First
Alliance, threatened against First Alliance or FAIC or affecting any of their
assets or properties, and neither First Alliance nor FAIC is in any material
breach or violation of or default under any contract or instrument to which
First Alliance or FAIC is a party, and no event has occurred which with the
lapse of time or action by a third party could result in a material breach,
violation, or default by First Alliance or FAIC under any contract or other
instrument to which First Alliance or FAIC is a party or by which they or any of
their respective properties may be bound or affected, or under their respective
Articles of Incorporation or Bylaws.
4.9 Neither First Alliance nor FAIC shall enter into or consummate any
transactions prior to the Effective Date other than in the ordinary course of
business and will pay no dividend, or increase the compensation of officers and
will not enter into any agreement or transaction which would adversely affect
their financial condition.
4.10 The assets of FAIC have admissible values at least equal to the
amounts attributed to them on its June 30, 2002 statutory financial statement
and values at least equal to those attributed to them on its December 31, 2001
annual convention statement.
2.7
4.11 Neither FAIC nor First Alliance is a party to any contract
performable in the future except insurance policies, customary agent contracts,
normal reinsurance agreements and those which will not adversely affect FAIC or
First Alliance.
4.12 All policy and claim services of FAIC have been properly provided
for and are adequate to comply with all regulatory requirements regarding same.
4.13 The representations and warranties of First Alliance shall be true
and correct as of the date hereof and as of the Effective Date.
4.14 First Alliance has delivered, or will deliver within two weeks of
the date of this Agreement, to Citizens true and correct copies of First
Alliance' Annual Report to Shareholders for the years ended December 31, 1999,
2000, and for 2001. First Alliance will also deliver to Citizens on or before
the Closing Date any reports relating to the financial and business condition of
First Alliance which are prepared after the date of this Agreement and any other
reports sent generally to its shareholders after the date of this Agreement.
First Alliance has duly filed all reports required to be filed by it under
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended (the "Federal Securities Laws"). No such reports, or any reports
sent to the shareholders of First Alliance generally, contained any untrue
statement of material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements in such report, in light of
the circumstances under which they were made, not misleading.
4.15 First Alliance has delivered to Citizens a copy of each of the
federal income tax returns of First Alliance and FAIC for the year ended
December 31, 2001 and for any additional open years. The provisions for taxes
in First Alliance's and FAIC's accounting records are believed by First Alliance
and FAIC to be sufficient for payment of all accrued and unpaid federal, state,
county and local taxes of First Alliance and FAIC (including any penalties or
interest payable) whether or not disputed for the periods then ended and for all
prior fiscal periods. All returns and reports or other information required or
requested by federal, state, county, and local tax authorities have been filed
or supplied in a timely fashion, and all such information is true and correct in
all material respects. Provision has been made for the payment of all taxes due
to date by First Alliance and FAIC, including taxes for the current year ending
December 31, 2002. No federal income tax return of First Alliance or FAIC is
currently under audit.
4.16 First Alliance and FAIC have no employee benefit plans.
4.17 No representation or warranty by First Alliance in this Agreement,
the First Alliance Disclosure Statement or any certificate delivered pursuant
hereto contains any untrue statement of a material fact or omits to state any
material fact necessary to make such representation or warranty not misleading.
2.8
ARTICLE V
Obligations of the Parties Pending the Effective Date
5.1 This Agreement shall be duly submitted to the shareholders of First
Alliance for the purpose of considering and acting upon this Agreement in the
manner required by law at a meeting of shareholders on a date selected by First
Alliance, such date to be the earliest practicable date after the proxy
statement is first sent to First Alliance shareholders without objection by
applicable governmental authorities, provided that First Alliance will have at
least 30 days to solicit proxies. Citizens will furnish to First Alliance the
information relating to Citizens required by the Federal Securities Laws to be
included in the proxy statement. Citizens represents and warrants that at the
time of the First Alliance shareholders' meeting, the proxy statement, insofar
as it relates to Citizens and contains information furnished by Citizens
specifically for use in such proxy statement, (a) will comply in all material
respects with the provisions of the Federal Securities Laws and (b) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
5.1A First Alliance represents and warrants that at the time of the
First Alliance shareholder meeting, the proxy statement, insofar as it relates
to First Alliance and contains information furnished by First Alliance
specifically for use in such proxy statement, will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Board of
Directors of First Alliance, subject to its fiduciary obligations to
shareholders, shall use its best efforts to obtain the requisite approval of
First Alliance shareholders of this Agreement and the transactions contemplated
herein. First Alliance, FAIC and Citizens shall take all reasonable and
necessary steps and actions to comply with and to secure First Alliance
shareholder approval of this Agreement by a majority vote of the votes entitled
to be cast upon the transactions contemplated by this Agreement as may be
required by the statutes, rules and regulations of such states.
5.2 At all times prior to the Effective Date, during regular business
hours each party will permit the other to examine its books and records and the
books and records of its subsidiaries and will furnish copies thereof on
request. It is recognized that, during the performance of this Agreement, each
party may provide the other parties with information which is confidential or
proprietary information. During the term of this Agreement, and for four years
following the termination of this Agreement, the recipient of such information
shall protect such information from disclosure to persons, other than members of
its own or affiliated organizations and its professional advisers, in the same
manner as it protects its own confidential or proprietary information from
unauthorized disclosure, and shall not use such information to the competitive
detriment of the disclosing party. In addition, if this Agreement is terminated
for any reason, each party shall promptly return or cause to be returned all
documents or other written records of such confidential or proprietary
information, together with all copies of such writings.
2.9
No information shall be considered confidential or proprietary if it is (a)
information already in the possession of the party to whom disclosure is made,
(b) information acquired by the party to whom the disclosure is made from other
sources, or (c) information in the public domain or generally available to
interested persons or which at a later date passes into the public domain or
becomes available to the party to whom disclosure is made without any wrongdoing
by the party or any of its affiliates to whom the disclosure is made.
5.3 First Alliance and Citizens shall promptly provide each other with
information as to any significant developments in the performance of this
Agreement, and shall promptly notify the other if it discovers that any of its
representations, warranties or covenants contained in this Agreement or in any
document delivered in connection with this Agreement was not true and correct in
all material respects or became untrue or incorrect in any material respect.
5.4 As promptly as practicable after the execution of this Agreement,
Citizens will prepare and file with the SEC a registration statement on Form S-4
(the "Registration Statement") covering the issuance of Citizens shares in the
Merger. Each of Citizens and First Alliance will use all reasonable efforts to
have or cause the Registration Statement to become effective as promptly as
practicable, and will take any action required to be taken under any applicable
federal or state securities laws in connection with the issuance of shares of
Citizens Class A common stock in the Merger. Citizens will use all reasonable
efforts to cause the Registration Statement to remain effective through the
Effective Date. Citizens and First Alliance will furnish all information
concerning it and the holders of its capital stock as the other may reasonably
request in connection with such actions.
As promptly as practicable after the Registration Statement shall have
become effective, First Alliance will mail a notice of special meeting to its
stockholders entitled to notice of and to vote at the First Alliance
Stockholders' Meeting.
If at any time prior to the Effective Date any event or circumstance
relating to First Alliance or any of its Affiliates, or its or their respective
officers or directors should be discovered by First Alliance that should be set
forth in an amendment to the Registration Statement, First Alliance will
promptly inform Citizens, and Citizens will undertake to amend or supplement the
Registration Statement and the prospectus contained therein accordingly.
If at any time prior to the Effective Date any event or circumstance
relating to Citizens or any of its Affiliates, or to their respective officers
or directors, should be discovered by Citizens that should be set forth in an
amendment to the Registration Statement, Citizens will promptly inform First
Alliance, and Citizens will undertake to amend or supplement the Registration
Statement and the prospectus contained therein accordingly.
2.10
No amendment or supplement to the Registration Statement will be made by
Citizens without prior consultation with First Alliance. Citizens and First
Alliance each will advise the other, promptly after it receives notice thereof,
of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, the issuance of any stop order
suspending the effectiveness of the Registration Statement, the suspension of
the qualification of Citizens Class A common stock issuable in connection with
the Merger for offering or sale in any jurisdiction, any request by the staff of
the SEC for amendment of the Registration Statement or the Proxy Statement, the
receipt from the staff of the SEC of comments thereon or any request by the
staff of the SEC for additional information with respect thereto.
Citizens will use all reasonable efforts to cause the shares of Citizens
Class A common stock to be issued in the Merger to be approved for listing
(subject to official notice of issuance) on the New York Stock Exchange prior to
the Effective Date. To the knowledge of Citizens, there are no facts and
circumstances that would preclude Citizens Common Stock to be issued in the
Merger from being approved for listing on the New York Stock Exchange.
5.5 All parties to this Agreement shall take all such action as may be
reasonably necessary and appropriate and shall use their best efforts in order
to consummate the transactions contemplated hereby as promptly as practicable.
ARTICLE VI
Procedure for Merger
6.1 The parties shall file with the Insurance Commissioner of Kentucky
within 30 days from this date, all of the documents required by the Kentucky
Insurance Code and such other filings with Insurance regulatory authorities in
other states as may be required by the laws of such states.
ARTICLE VII
Conditions Precedent to the Consummation of the Merger
The following are conditions precedent to the consummation of the Agreement
on or before the Effective Date:
7.1 Citizens and First Alliance shall have performed and complied with
all of their respective obligations hereunder which are to be complied with or
performed on or before the Effective Date and First Alliance and Citizens shall
provide one another at the Closing with a certificate to the effect that such
party has performed each of the acts and undertakings required to be
performed by it on or before the Closing Date pursuant to the terms of
this Agreement.
2.11
7.2 This Agreement and the transactions contemplated herein shall have
been duly and validly authorized, approved and adopted, at a meeting of the
shareholders of First Alliance duly and properly called for such purpose in
accordance with the applicable laws.
7.3 This Agreement is subject to the provisions of applicable insurance
laws and the regulations promulgated thereunder, and shall not become effective
until approval is obtained from the Commissioner of Insurance of the State of
Kentucky and such other states in accordance with the provisions of the laws of
said states. Citizens and First Alliance, as soon as practical after the
execution and delivery of this Agreement, agree to file such forms and materials
as may be necessary or warranted in obtaining such approval and to use their
best efforts to obtain such approval of the transactions contemplated by this
Agreement. Neither Citizens, First Alliance nor any of their subsidiaries shall
be obligated to file a suit or to appeal from any Commissioner of Insurance's
adverse ruling, nor shall Citizens, First Alliance nor any of their subsidiaries
be obligated to make any material changes in any lawful, good faith management
policy in order to gain such approval. In the event approval is denied, this
Agreement shall terminate immediately and the parties shall have no further
liability hereunder.
7.4 No action, suit or proceeding shall have been instituted or shall
have been threatened before any court or other governmental body or by any
public authority to restrain, enjoin or prohibit the transactions contemplated
herein, or which might subject any of the parties hereto or their directors or
officers to any material liability, fine, forfeiture or penalty on the grounds
that the transactions contemplated hereby, the regulation, or have otherwise
acted improperly in connection with the transaction contemplated hereby, and the
parties hereto have been advised by counsel that, in the opinion of such
counsel, such action, suit or proceeding raises substantial questions of law or
fact which could reasonably be decided adversely to any party hereto or its
directors or officers.
7.5 All actions, proceedings, instruments and documents required to
carry out this Agreement and the transactions contemplated hereby and the form
and substance of all legal proceedings and related matters shall have been
approved by counsel for Citizens and First Alliance.
7.6 The representations and warranties made by Citizens and First
Alliance in this Agreement shall be true as though such representations and
warranties had been made or given on and as of the Effective Date, except to the
extent that such representations and warranties may be untrue on and as of the
Effective date because of (1) changes caused by transactions suggested or
approved in writing by Citizens or (2) events or changes (which shall not, in
the aggregate, have materially and adversely affected the business, assets, or
financial condition of First Alliance, FAIC or Citizens) during or arising after
the date of this Agreement.
2.12
7.7 The parties shall believe that: (1) The Merger will
constitute a reorganization within the meaning of Internal Revenue Code ("IRC")
Section 368(a)(2)(E), and Citizens and First Alliance will each be a "party to a
reorganization" within the meaning of IRC Section 368(b). No gain or loss will
be recognized by the First Alliance shareholders upon the exchange of their
shares for shares of Citizens Class A common stock.
(2) The tax basis of the shares of Citizens Class A common stock
received by a First Alliance shareholder will be the same as the basis of the
First Alliance shares surrendered by that shareholder in the Exchange.
(3) The holding period for tax purposes of the shares of Citizens Class
A common stock received by a First Alliance shareholder will include the period
during which such shareholder held the First Alliance shares as a capital asset
on the date of the consummation of the Exchange.
(4) Cash received by First Alliance shareholders who properly exercise
their dissenters' rights will be treated as having been received in redemption
of the shares so cashed out, and may result in taxable gain or loss, measured by
the difference (if any) between the amount of cash received and such
shareholder's basis in the First Alliance stock. Provided the shares were held
as capital assets at the time of the redemption, such gain or loss will
constitute capital gain or loss, and such gain or loss will be taxed at varying
federal tax rates depending upon the holding period for such shares. It is
possible, that for some shareholders, the distribution of cash may be treated as
a dividend taxable as ordinary income.
(5) No material gain or loss will be recognized by Citizens, FAIC or
First Alliance as a result of the Merger.
7.8(a) First Alliance shall have furnished Citizens with:
(1) a certified copy of a resolution or resolutions duly adopted by the
Board of Directors of First Alliance approving this Agreement and the
transactions contemplated by it and directing the submission thereof to a vote
of the shareholders of First Alliance;
(2) a certified copy of a resolution or resolutions duly adopted by the
requisite number and classes of outstanding shares of First Alliance capital
stock approving this Agreement and the transactions contemplated by it in
accordance with applicable law; and
(3) an opinion of Xxxxxxx X. Xxxxx, Esq. dated as of the Closing Date
as set forth in Exhibit "E" attached hereto; and
(4) an agreement from each "affiliate" of First Alliance as defined in
the rules adopted under the Securities Act of 1933, as amended, in the form
attached hereto as
2.13
Exhibit "D" to the effect that (a) the affiliate is familiar with SEC Rules 144
and 145; and (b) none of the shares of Citizens Class A common stock will be
transferred by or through the affiliate in violation of the Federal Securities
Laws; and (c) the affiliate acknowledges that sales, transfers or dispositions
of Citizens Class A common stock may only be made pursuant to Rules 144 and 145
during the two-year period following the Closing Date.
(b) First Alliance will deliver to Citizens management all of its
assets.
7.9 Citizens shall have furnished First Alliance with:
(1) a certified copy of a resolution or resolutions duly adopted by the
Board of Directors of Citizens, approving this Agreement and the transactions
contemplated by it, and
(2) opinions dated the Effective Date of Xxxxx & Xxxxxx, P.C., counsel
for Citizens, as set forth in Exhibits "F" and "G" attached hereto.
10.7 First Alliance and Acquisition shall approve and file the Articles
of Merger, consistent with this Agreement, for this transaction with the
requisite governmental authorities.
10.8 Citizens shall have obtained the authorization of the New York
Stock Exchange with respect to a listing of all of the shares of Citizens Class
A common stock to be issued pursuant to the Merger.
ARTICLE VIII
Termination and Abandonment
8.1 Anything contained in this Agreement to the contrary
notwithstanding, the Agreement may be terminated and abandoned at any time
(whether before or after the approval and adoption thereof by the shareholders
of First Alliance) prior to the Effective Date:
(a) By mutual consent of Citizens, FAIC and First Alliance; or
(b) By Citizens or First Alliance, if any condition set forth in Article
VII relating to the other party has not been met and has not been waived; or
(c) By Citizens or First Alliance, if any suit, action or other
proceeding shall be pending or threatened by the federal or a state government
before any court or
2.14
governmental agency, in which it is sought to restrain, prohibit or otherwise
affect the consummation of the transactions contemplated hereby; or
(d) By any party, if there is discovered any material error,
misstatement or omission in the representations and warranties of another party;
or
(e) By Citizens, if dissenters' rights are perfected in accordance with
Kentucky law for more than 2.5% of the outstanding shares of First Alliance; or
(f) By any party if the Effective Date is not within 180 days from the
date hereof; or
(g) If the Kentucky Commissioner of Insurance denies the application
for approval of the Merger, in which case this Agreement shall automatically be
terminated as provided in Section 7.3 unless the parties mutually agree to
contest such denial.
8.2 Any of the terms or conditions of this Agreement may be waived at
any time by the party which is entitled to the benefit thereof, by action taken
by its Board of Directors; provided, however, that such action shall be taken
only if, in the judgment of the Board of Directors taking the action, such
waiver will not have a materially adverse effect on the benefits intended under
this Agreement to the party waiving such term or condition.
ARTICLE IX
Termination of Representation and Warranties and Certain Agreements
9.1 The respective representations and warranties of the parties
hereto, shall expire with, and be terminated and extinguished by consummation of
the Agreement; provided, however, that the covenants and agreements of the
parties hereto shall survive in accordance with their terms.
ARTICLE X
Miscellaneous
10.1 This Agreement embodies the entire agreement between the parties,
and supersedes all prior agreements, representations or warranties among the
parties other than those set forth herein or those provided for herein.
10.2 To facilitate the execution of this Agreement, any number of
counterparts hereof may be executed, and each such counterpart shall be deemed
to be an original instrument, but all such counterparts together shall
constitute but one instrument.
2.15
10.3 Each of the parties hereto will pay its own fees and expenses
incurred in connection with the transactions contemplated by this Agreement.
Citizens and First Alliance each represent to the other that it has not employed
any investment bankers, brokers, finders, or intermediaries in connection with
the transaction contemplated hereby who might be entitled to any fee or other
payment from First Alliance, FAIC or Citizens or any subsidiary of any of them
upon consummation of the transactions contemplated by this Agreement, except for
Xxx Xxxxxx, whose fee shall be the responsibility of Citizens, and for such
investment banking firm as retained and paid by First Alliance for the purpose
of rendering a fairness opinion relating to the Merger.
10.4 All parties to the Agreement agree that if it becomes necessary or
desirable to execute further instruments or to make such other assurances as are
deemed necessary, the party requested to do so will use its best efforts to
provide such executed instruments or do all things necessary or proper to carry
out the purpose of this Agreement.
10.5 This Agreement may be amended upon approval of the Board of
Directors of each party provided that the number of shares issuable hereunder
shall not be amended without approval of the requisite shareholders of First
Alliance.
10.6 Any notices, requests, or other communications required or
permitted hereunder shall be delivered personally or sent by overnight courier
service, fees prepaid, addressed as follows:
To Citizens, Inc.: To First Alliance:
Citizens, Inc. First Alliance Corporation
000 Xxxx Xxxxxxxx Xxxx 0000 Xxxxxxxxx Xx., Xxxxx 000
Xxxxxx, Xxxxx 00000 Xxxxxxxxx, Xxxxxxxx 00000
ATTN: Xxxx X. Xxxxxx ATTN: Xxxxxxx X. Xxxx
President President
with copies to: with copies to:
Xxxxx & Xxxxxx, P.C. XXXXXXX X. XXXXX, ESQ.
Xxxxx 0000 Xxx Xxxxxxxxxxx, Xxxxx 000
1625 Broadway 00000 Xxxxxxxxxxx Xxxx
Xxxxxx, Xxxxxxxx 00000 Xxxxxxxxxx, Xxxxxxxx 00000
ATTN: Xxxx Xxxxxxx, Esq.
or such other addresses as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
received.
10.7 No press release or public statement will be issued relating to the
transaction contemplated by this Agreement without prior approval of Citizens
and First
2.16
Alliance. However, either Citizens or First Alliance may issue at any time
any press release or other public statement it believes on the advice of its
counsel it is obligated to issue to avoid liability under the law relating to
disclosures, but the party issuing such press release or public statement shall
make a reasonable effort to give the other party prior notice of and opportunity
to participate in such release or statement.
10.8 This Agreement shall be deemed to have been drafted by both
parties, and therefore the rule of construing ambiguities against the party
drafting a contract shall be inapplicable.
IN WITNESS WHEREOF, the parties have set their hands and seals as of
November 7, 2002.
CITIZENS, INC.
By:_________________________________
Xxxx X. Xxxxxx, President
FIRST ALLIANCE CORPORATION
By:_________________________________
Xxxxxxx X. Xxxx, President
CITIZENS ACQUISITION, INC.
By:_________________________________
Xxxx X. Xxxxxx, President
2.17
EXHIBIT A
ARTICLES OF MERGER
CITIZENS, INC.
CITIZENS ACQUISITION, INC., and
FIRST ALLIANCE CORPORATION
THESE ARTICLES OF MERGER, dated this day ____ of _______, 2002, pursuant to
Sections 271B.10 through .50 of the Kentucky Business Corporation Act
(hereinafter referred to as the "Act"), is entered into, by and among Citizens,
Inc. ("Citizens"), a Colorado corporation; Citizens Acquisition, Inc.
("Acquisition"), a Kentucky corporation wholly-owned by Citizens; and First
Alliance Corporation ("First Alliance" or the "Surviving Corporation"), a
Kentucky corporation, with First Alliance and Acquisition sometimes being
referred to herein as the "Constituent Corporations."
WITNESSETH:
WHEREAS, the respective Boards of Directors of the parties hereto deem it
advisable that Acquisition be merged into First Alliance (the "Merger"), as
hereinafter specified;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, and in order to prescribe the terms and conditions of the
Merger, the mode of carrying the same into effect, the manner of converting the
shares of each of the Constituent Corporations and such other details and
provisions as are deemed desirable, the parties hereto agree as follows:
FIRST: The Constituent Corporations have agreed to merge, and the terms
and conditions of said Merger, the mode of carrying the same into effect and the
manner and basis of converting or exchanging the shares of issued stock of each
of the Constituent Corporations into different stock or other consideration, and
the manner of dealing with any issued stock of the Constituent Corporations not
to be so converted or exchanged, are and shall be as set forth herein. In
connection with the Merger described below, Citizens is agreeing, among other
things, to furnish a sufficient number of shares of its authorized but unissued
Class A Common Stock, no par value, to carry out the terms of the Merger
contemplated hereby.
SECOND: The parties to these Articles of Merger are Acquisition, First
Alliance and Citizens.
THIRD: First Alliance shall be the surviving corporation (the "Surviving
Corporation") of the merger between the Constituent Corporations.
FOURTH: The principal office of Acquisition and Citizens, Inc. is 000 Xxxx
Xxxxxxxx Xxxx, Xxxxxx, Xxxxx 00000. The principal office of First Alliance is
0000 Xxxxxxxxx Xxxxx Xxxxx 000, Xxxxxxxxx, Xxxxxxxx 00000.
FIFTH: The Boards of Directors of Acquisition and Citizens, on
_____________, 2002, declared that a merger upon the terms and conditions set
forth in these Articles of Merger was advised, authorized and approved, and the
Board of Acquisition directed their submission to Citizens, the sole stockholder
of Acquisition, for approval.
The Board of Directors of First Alliance, on ________, 2002, by a duly
adopted resolution, declared that a merger upon the terms and conditions set
forth in these Articles of Merger was advised, authorized and approved, and
directed their submission to the shareholders of First Alliance, for approval.
2.18
These Articles of Merger were duly submitted to and approved by the
affirmative vote of one hundred percent (100%) of all of the votes entitled to
be cast thereon pursuant to an action by unanimous written consent of the sole
shareholder of Acquisition, as permitted by the Articles of Incorporation of
Acquisition and the laws of the State of Kentucky.
These Articles of Merger were duly submitted to and approved by the
affirmative vote of ______ percent (____%) of all of the votes entitled to be
cast thereon at a meeting of the shareholders of First Alliance held on ______
__, 2002, as permitted by the Articles of Incorporation of First Alliance and
the laws of the State of Kentucky.
SIXTH: The Articles of Incorporation of First Alliance shall constitute
the Articles of Incorporation of the Surviving Corporation.
SEVENTH: Acquisition has authority to issue shares of one class of capital
stock, namely ten thousand (10,000) shares of common stock, $.01 par value per
share ("Acquisition Common Stock"). Citizens, Inc. has authority to issue
shares of two classes of capital stock, namely 50,000,000 shares of Class A
Common Stock, no par value per share ("Citizens Class A Common Stock"), and
1,000,000 shares of Class B Common Stock, no par value per share.
EIGHTH: First Alliance has authority to issue shares of two classes of
capital stock, namely, ____________ shares of Common Stock, no par value and
_____________ shares of Preferred Stock, ______ par value per share.
NINTH: The manner and basis of converting or exchanging the issued and
outstanding stock of each of the Constituent Corporations into different stock
or other consideration and the treatment of any issued stock of the Constituent
Corporations not to be so converted or exchanged on the Effective Time (as
defined in Article Tenth below) of the Merger contemplated hereby shall be as
follows:
(a) Except to the extent qualified in subparagraphs (b) and (c)
immediately below, at the Effective Time, First Alliance shareholders will
receive one (1) share of Class A Common stock of Citizens, Inc. for each
___________ shares of First Alliance Common Stock issued and outstanding.
(b) No script or fractional share certificates of Citizens Class A Common
stock shall be issued as a result of the Merger contemplated hereby, but in lieu
of each fractional share, the shareholder of First Alliance entitled to a
fractional share shall have said fractional share rounded up to the next whole
share.
(c) After the Merger contemplated hereby shall have become effective,
except as otherwise provided by the Act with respect to dissenting shareholders,
each holder of an outstanding certificate or certificates theretofore
representing First Alliance Common Stock shall surrender the same to the
Exchange Agent of Citizens and each such holder thereupon shall be entitled to
receive in exchange therefor a certificate or certificates representing the
number of shares of Citizens Common Stock into which the First Alliance Common
Stock represented by the certificate or certificates so surrendered shall have
been converted or exchanged by the provisions hereof. Until such surrender,
First Alliance Common Stock shall be deemed for all corporate purposes, other
than the payment of dividends, to evidence ownership of the number of full
shares of Citizens
2.19
Class A Common Stock to be delivered with respect to such shares. Unless and
until any such outstanding certificates shall be so surrendered, no dividend
payable to the holders of record of First Alliance Common Stock as of any date
subsequent to the Effective Time shall be paid to the holders of such
outstanding certificates, but upon surrender of any such certificate or
certificates, there shall be paid to the record holder of the certificate or
certificates of First Alliance Common Stock delivered with respect to the shares
represented by the surrendered certificate or certificates, without interest,
the amount of such dividends which shall have theretofore become payable to them
with respect to such shares of First Alliance Common Stock.
(d) Each share of Acquisition Common Stock, if any, which remains unissued
and all Treasury shares of Acquisition on the Effective Time of the Merger
contemplated hereby shall be canceled.
(e) Each share of Acquisition Common Stock which is issued and outstanding
on the Effective Time shall be converted into one share of First Alliance Common
Stock and shall not be deemed to be converted into shares of Class A Common
Stock of Citizens.
TENTH: At the Effective Time:
(a) the assets and liabilities of Acquisition shall be taken up on the
books of the Surviving Corporation at the amount at which they shall at that
time be carried on the books of Acquisition, and
(b) all of the rights, privileges, immunities, powers, purposes, and
franchises of Acquisition, and all property, real, personal and mixed, and all
debts due to Acquisition on whichever account shall be vested in the Surviving
Corporation, and all property rights, privileges, immunities, powers, purposes
and franchises, and all and every other interest shall be thereafter as
effectually the property of the Surviving Corporation as they were of
Acquisition, and all debts, liabilities, obligations and duties of Acquisition
shall thenceforth attach to the Surviving Corporation and may be enforced
against it to the same extent as if said debts, liabilities, obligations and
duties had been incurred or contracted by it.
The Merger provided for by these Articles of Merger shall become effective
at __:__ p.m., Central Time, on _____ __, 2002, (the "Effective Time"), and the
separate existence of Acquisition except insofar as continued by statute, shall
cease on the date that these Articles of Merger, duly advised, approved, signed,
acknowledged, sealed and verified by Citizens, Acquisition and Surviving
Corporation, as required by the laws of the State of Kentucky, are filed for
record with the Secretary of State.
ELEVENTH: The Merger contemplated hereby may be terminated at any time
prior to the time these Articles of Merger are filed in the office of the
Secretary of State of Kentucky (a) by consent of Citizens and the Constituent
Corporations expressed by action of their respective Boards of Directors and
without further shareholder action, whether or not theretofore adopted by the
shareholders of the Constituent Corporations,
2.20
but the filing of these Articles of Merger in the office of the Secretary of
State of Kentucky shall conclusively evidence that any such termination has not
occurred and that any right of termination has not been exercised and has been
waived.
TWELFTH: The parties hereto may, by written agreement among them
authorized by their respective Boards of Directors, amend these Articles of
Merger at any time prior to the Effective Time, provided that, after the meeting
of shareholders of First Alliance, no amendment shall be made which changes the
terms of these Articles of Merger in a way which is materially adverse to the
shareholders of First Alliance, unless such amendment is approved by the
shareholders of First Alliance.
Any condition to the performance of Citizens, Acquisition or First Alliance
which may legally be waived at or prior to the Effective Time may be waived at
any time by the party entitled to the benefit thereof by action taken or
authorized by the Board of Directors of the waiving party.
IN WITNESS WHEREOF, Citizens and each of the Constituent Corporations,
pursuant to the approval and authority duly given by resolutions or unanimous
written consents adopted by their respective Boards of Directors, have caused
these Articles of Merger to be signed in their respective corporation names and
their behalf by the respective Presidents and witnessed or attested by their
respective Secretaries as of the ____ day of ________, 2002, each of whom
affirms, under penalties of perjury, that the facts stated herein are true.
FIRST ALLIANCE CORPORATION
ATTEST:
________________________________ By:_______________________________
Secretary Xxxxxxx X. Xxxx, President
CITIZENS ACQUISITION, INC.
ATTEST:
________________________________ By:_________________________________
Xxxxxx X. Xxxxxx, Secretary Xxxx X. Xxxxxx, President
ATTEST:
________________________________ By:_________________________________
Xxxxxx X. Xxxxxx, Secretary
2.21
THE UNDERSIGNED, President of First Alliance Corporation, who executed on
behalf of said corporation the foregoing Articles of Merger, of which this
Certificate is made a part, hereby acknowledges, in the name and on behalf of
said corporation, the foregoing Articles of Merger to be the corporate act of
said corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
____________________________________
Xxxxxxx X. Xxxx, President
THE UNDERSIGNED, President of Citizens Acquisition, Inc., who executed on
behalf of said corporation the foregoing Articles of Merger, of which this
Certificate is made a part, hereby acknowledges, in the name and on behalf of
said corporation, the foregoing Articles of Merger to be the corporate act of
said corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
____________________________________
XXXX X. XXXXXX, PRESIDENT
THE UNDERSIGNED, President of Citizens, Inc., who executed on behalf of
said corporation the foregoing Articles of Merger, of which this Certificate is
made a part, hereby acknowledges, in the name and on behalf of said corporation
and further certifies that, to the best of his knowledge, information and
belief, the matters and facts set forth therein with respect to the approval
thereof are true in all material respects, under the penalties of perjury.
____________________________________
2.22
EXHIBIT B
CITIZENS DISCLOSURE STATEMENT
Pursuant to the provisions of Article III of the Agreement of Merger
("Merger Agreement") by and among First Alliance, Citizens, and Acquisition,
Citizens hereby makes the following disclosures respecting the similarly
numbered sections in the Merger Agreement:
3.2 Citizens filed a Form S-3 ("Statement") Registration Statement
under the Securities Act of 1933 with the Securities and Exchange Commission
("SEC") which became effective on August 30, 2001. The Statement registers
2,000,000 shares of Citizens Class A Common Stock for sale to the public through
the Citizens, Inc. Stock Investment Plan ("the Plan"), the creation of which is
included in the Statement. Although the Statement by definition registers
shares for sale to the public, the activities of the Plan involve the
acquisition of Citizens Class A Common Stock through the public market, rather
than directly from the public. The Plan provides for the participation by
owners of insurance policies issued by the Citizens' subsidiaries, existing
holders of Citizens Class A common stock, employees of Citizens, Inc., members
of the marketing force of any of Citizens' subsidiaries, or any member of the
public in general who elects to participate. The Plan is sponsored by Citizens,
Inc. and will be administered by Mellon Bank.
3.8 Xxxxx Xxxxxxx Xxxxxxx, Xxxx Xxxxxx Xxxxx Xxxxxxx, Xxxxx Xxxxx
Xxxxxxx Xxxxxx, Xxxxx X. Xxxxxx and Xxxxxx X Xxxxxx, Xxxxxxx Xxxxxx Xxxxxxxx
Xxxxxxx, Xxxx Rberto Xxxxxxxx Xxxxxxxx, Xxxxxx Xxxxxx Xxxxxxx, and Xxxxxxxx
Xxxxx Daccach v. Citizens Insurance Company of America, Citizens, Inc., Negocios
Xxxxx, X.X., Xxxxxx X. Xxxxx, and Xxxx X. Xxxxxx, Cause Number 99-09099 Xxxxxx
County, Texas. On July 31, 2002, class action certification was granted by a
Xxxxxx County, Texas district court judge to the plaintiffs in a lawsuit filed
in 1999. The suit alleges that life insurance policies sold to certain non-U.S.
residents by Citizens Insurance Company of America are securities and were sold
in violation of the registration provisions of the Texas securities laws. The
suit seeks class action status naming as a class all non-U.S. residents who made
premium payments since August 1996 and assigned policy dividends to a trust for
the purchase of Citizens, Inc. Class A common stock. The remedy sought is
rescission of the insurance premium payments. An appeal of the class action
certification by the district court has been made to the Texas Court of Appeals.
Litigation counsel and defendants believe that the district court ruling is
significantly in error and that there are substantial grounds for reversal.
During the time of the appeal, the district court proceedings will be stayed.
In the event the case proceeds to a trial, the defendants intend to defend
vigorously against the claims.
2.23
Xxxxx X Xxxxx and Xxxxx Xxxxx v. Xxxxxx X. Xxxxx, Funeral Homes of
Louisiana, Inc. dba Xxxxx Funeral Home, Citizens, Inc., Lumbermens Mutual
casualty Company and Xxxxxx Insurance Companies, Cause number 468864 division M
in the 00xx Xxxxxxxx Xxxxx, Xxxxxx of East Baton Rouge, Louisiana. The funeral
home is a subsidiary of Citizens, Inc. Xxx. Xxxxx is making a claim for
injuries from a collision between a hearse driven by Xx. Xxxxx and her stalled
car. The hearse was insured with Lumbermens through Xxxxxx. Xx. Xxxxx also
claims that he suffered emotional distress because he observed the crash.
Xxxxxx X. Xxxxxxxx v. American Liberty Life Insurance Company, Case
number 94-1625. Originally filed in the Parish of Ouachita, Louisiana in
1994-re-filed in 1998. Xx. Xxxxxxxx had a hospitalization policy covering
cancer. He filed a claim for two hospital stays at a V. A. hospital, but did
not submit any bills from the hospital. The claim was denied because the policy
required that the hospital provide services " for compensation from its patients
.." There was no activity in the case, until July, 2001, when defendant received
a Request for Production of a certified copy of Xx. Xxxxxxxx'x policy.
Xxxxxxx Xxxx v. Citizens Insurance Company of America and Xxx Xxxxxxx,
Civil Action Number CV 99-190, Marengo County, Alabama. Xxx. Xxxx claims that
Xxx Xxxxxxx and Assured Investors Life Insurance Company misrepresented the
death benefit payable upon her husband's death. Following defendant's motion
for summary judgment the court dismissed all tort claims and left open only a
contract claim that the amount of the death benefit paid was incorrect. A
rehearing was granted, and parties are waiting for the courts final ruling on
motion for summary judgment.
Xxxxx Xxxxxxx v. United Security Life Insurance Company, Xxxx Xxxx, and
fictitious defendants. Filed as Cause Number 2001-142 in the Circuit Court of
Noxubee County, Mississippi and removed to the United States District Court for
the Southern District of Mississippi Eastern Division as Civil Action Number
4:01-CV-156LN. Remanded to County Court and all claims above $75,000 have been
dismissed with prejudice. Plaintiff alleges that she intended to purchase a
supplement to her major medical insurance coverage, but was sold a
hospitalization policy. Plaintiff alleges that the agent and the insurance
company engaged in a pattern and practice of misrepresentation and fraud as to
the benefits and coverage on policies sold to consumers in the State of
Mississippi. Plaintiff made claims under her policy for medication and for out
patient treatments all of which were denied because the policy covered
hospitalization. Plaintiff filed Interrogatories and Requests for Production
with her original complaint. No hearings have been set.
Xxxx Xxxx Xxxxxxxxxxx, Mayoda X. Xxxxxx, Xxxxxx X. Xxxxxxxx, Xxxxxxxx X.
Xxxxx, Xxxx Xxxxxxxxx Xxxxxx, and Xxxxx Xxxxxxxxx v. Citizens Insurance Company
Of America f/k/a United Security Life Insurance Company, American Investment
Network f/k/a Great American Investment Network, Xxxxx X. Xxxxxxxx, Xxxxxx
Styles, and Xxxxx X. Xxxx. Cause number 251-01-713civ, filed in the Circuit
Court of the First Judicial District of Xxxxx County, Mississippi. Plaintiffs
allege that the whole-life nature of the
2.24
insurance policies was misrepresented to them as an investment because the
policies would pay dividends. The plaintiff's allege fraud, negligent
misrepresentation, negligence, civil conspiracy, breach of contract, conversion,
and violation of Mississippi Securities laws.
Xxxxx Xxxxxx Xxxx vs. Lack's Valley Stores Ltd., xx.xx., Cause No.
C-1767-02-G; in the 370th Judicial District Court of Xxxxxxx County, Texas.
Plaintiffs initiated this suit in Xxxxxxx County, Texas seeking certification of
a class and seeking monetary damages. Citizens Insurance Company of America, as
successor in Interest to National Security Life and Accident Insurance Company,
and Citizens Insurance Company of America (collectively "Citizens") were named
as Defendants. Plaintiff's allege violations of consumer protection laws and
breaches of contract in the sale of credit life and disability insurance and
credit property insurance. Plaintiffs complain that an excess premium or policy
fee was charged. An agent fee, not a policy fee or excess premium, was
apparently charged to some members of the class, but not by Citizens. The case
has been removed from State District Court to the United States District Court,
Southern District of Texas. A pretrial and scheduling conference is set for
December 5, 2002. In addition to the Motion to Transfer Venue, Citizens has
filed an Answer and a Motion to Sever.
2.25
EXHIBIT C
FIRST ALLIANCE DISCLOSURE STATEMENT
Pursuant to the provisions of Article IV of the Plan and Agreement of
Merger ("Merger Agreement") by and among First Alliance, Citizens, and
Acquisition, First Alliance hereby makes the following disclosures respecting
the similarly numbered sections in the Merger Agreement:
4.2 The aggregate number of shares which First Alliance is authorized to
issue is 20,000,000 shares of Common Stock, no par value, of which 5,691,695 are
issued and outstanding, and 1,000,000 shares of Preferred Stock, no par value,
of which no shares are issued and outstanding.
First Alliance owns all of the outstanding shares of all of its
Subsidiaries with the exception of KYWIDE Insurance Management, Inc. of which
it owns ninety (90) percent. KYWIDE Insurance Management, Inc. is currently
inactive.
4.7 Since June 30, 2002, there have not been any material adverse changes
in the business or condition of First Alliance other than continued losses from
operations.
4.10 The assets of FAIC have admissible values at least equal to the
amounts attributed to them on its June 30, 2002 statutory financial statement
with the exception of market declines in equity investments.
4.11 First Alliance is contractually obligated to provide accounting and
administrative services for Mid American Alliance; Mid American Century Life
Insurance Company; Security Alliance Insurance Company; Integrity Capital
Corporation and Mid Atlantic Capital Corporation.
4.16 First Alliance provides employee benefits in the form of group
accident and health insurance; 401(k) retirement benefits; group life
insurance and a Section 125 plan.
2.26
EXHIBIT D
AFFILIATE AGREEMENT
Citizens, Inc.
000 Xxxx Xxxxxxxx Xxxx
Xxxxxx, Xxxxx 00000
Ladies and Gentlemen:
I have been advised that I have been identified as a possible "affiliate"
of First Alliance Insurance Company, a Kentucky corporation (the "Company"), as
that term is defined for purposes of paragraphs (c) and (d) of Rule 145 of the
General Rules and Regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933 (the
"Securities Act"), although nothing contained herein should be construed as an
admission of such fact.
Pursuant to the terms of that certain Plan and Agreement of Merger, dated
as of _______________, 2002 (the "Merger Agreement"), among the Company,
Citizens, Inc., a Colorado corporation ("Citizens"), and Citizens Acquisition,
Inc., a Kentucky corporation ("Acquisition"). Citizens shall acquire all of the
issued and outstanding common stock, no par value, of the Company ("Company
Stock") for shares of no par value Class A common stock of Citizens ("Citizens
Stock") pursuant to a merger (the "Merger"), in which Acquisition will merge
with and into First Alliance. As a result of the Merger, I will receive shares
of Citizens Stock in exchange for shares of Company Stock owned by me on the
Effective Date (as defined in the Merger Agreement) of the Merger as determined
pursuant to the Exchange Agreement.
A. In connection therewith, I represent, warrant and agree that:
1. I will not make any sale, transfer or other disposition of
Citizens Stock I receive as a result of the Exchange in violation of the
Securities Act or the Rules and Regulations.
2. I have been advised that the issuance of Citizens Stock to me
as a result of the Merger has been registered with the Commission under the
Securities Act on a Registration Statement on Form S-4. However, I have also
been advised that, because at the time the Merger was submitted for a vote of
the stockholders of the Company I may have been an "affiliate" of the Company,
and the distribution by me of the shares of Citizens Stock I receive as a result
of the Merger has not been registered under the Securities Act, such shares must
be held by me indefinitely unless (i) such distribution of such shares has been
registered under the Securities Act, (ii) a sale of such shares is made in
conformity with the provisions of Rule 145 promulgated by the Commission under
the Securities Act or (iii) such sale is pursuant to a transaction which, in the
opinion of counsel reasonably satisfactory to Citizens or as described in a
"no-action" or interpretive letter from the staff of the Commission, is not
required to be registered under the Securities Act.
2.27
3. I have carefully read this letter and the Merger Agreement and have
discussed the requirements of the Merger Agreement and other limitations upon
the sale, transfer or other disposition of the shares of Citizens Stock to be
received by me, to the extent I have felt necessary, with my counsel or with
counsel for the Company.
B. Furthermore, in connection with the matters set forth herein, I
understand and agree that:
1. Citizens is under no further obligation to register the sale,
transfer or other disposition of the shares of Citizens Stock received by me as
a result of the Merger or to take any other action necessary in order to make
compliance with an exemption from reg-istration available, except as set forth
in paragraph C below.
2. Stop transfer instructions will be given to the transfer agent
of Citizens with respect to the shares of Citizens Stock I will receive as a
result of the Merger, and there will be placed on the certificates representing
such shares, or any certificates deliv-ered in substitution therefore, a legend
stating in substance:
The shares represented by this certificate were issued in a transaction to which
Rule 145 under the Securities Act of 1933 applies. The shares represented by
this certificate may be transferred only in accordance with the terms of an
agreement dated __________________, 2002 between the registered holder hereof
and Citizens, Inc., a copy of which agreement is on file at the principal
offices of Citizens, Inc.
3. Unless the transfer by me of my shares of Citizens Stock is a
sale made in conformity with the provisions of Rule 145 of the Rules and
Regulations or made pursuant to a registration under the Securities Act,
Citizens reserves the right to put on the certificates issued to my transferee a
legend stating in substance:
The shares represented by this certificate have not been registered under the
Securities Act of 1933 and were acquired by the holder not with a view to, or
for resale in connection with, any distribution thereof within the meaning of
the Securities Act of 1933 and may not be sold, pledged or otherwise transferred
except pursuant to a registration statement or in accordance with an exemption
from the registration requirements of the Securities Act of 1933.
It is understood and agreed that the legends set forth above shall be
removed, and substitute certificates shall be delivered without any such legend,
and the transfer agent will be instructed to effectuate transfers of shares of
Citizens Stock if the undersigned delivers to Citizens a letter from the staff
of the Commission or an opinion of counsel in form and substance reasonably
satisfactory to Citizens to the effect that such legend is not required for the
purposes of the Securities Act.
2.28
C. Citizens hereby represents, warrants and agrees that: For as long as
resales of any shares of Citizens Stock owned by me are subject to Rule 145,
Citizens will use all reasonable efforts to make all filings of the nature
specified in paragraph (c)(1) of Rule 144 of the Rules and Regulations.
Very truly yours,
Date: ______________________ [Name of Affiliate]
ACCEPTED:
CITIZENS, INC.
By:_______________________________
Xxxx X. Xxxxxx, President
Date: ______________________
2.29
EXHIBIT E
_____________, 2002
Citizens, Inc.
Citizens Insurance Company of America
000 Xxxx Xxxxxxxx Xxxx
Xxxxxx, Xxxxx 00000
Re: Plan and Agreement of Merger among First Alliance Corporation, Citizens,
Inc., and Citizens Acquisition, Inc.
Ladies and Gentlemen:
We have acted as counsel to First Alliance Corporation ("First Alliance")
in connection with the above referenced agreement. This letter is provided to
you pursuant to Section 7.8(3) of the Plan and Agreement of Merger, dated as of
________________, 2002 (the "Agreement"), First Alliance, Citizens, Inc. and
Citizens Acquisition, Inc. Except as otherwise indicated herein, capitalized
terms used in this letter are defined as set forth in the Agreement or the
Accord (see below).
This letter is governed by, and shall be interpreted in accordance with,
the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this letter should be read in
conjunction therewith.
In giving the opinion expressed below, insofar as such opinion relates to
other than Federal law or the laws of jurisdiction other than the State of
Kentucky, we advise that our opinion is with respect to Federal law and the laws
of the State of Kentucky only and that, to the extent such opinion is derived
from laws of other jurisdictions, the statements are based on examinations of
relevant authorities and are believed to be correct, but we have obtained no
legal opinions as to such matters from attorneys licensed to practice in such
other jurisdictions. Accordingly, the law covered by the opinion expressed
herein is limited to the Federal law of the United States and the law of the
State of Kentucky.
We have relied upon factual representations made by First Alliance in Article IV
of the Agreement and we have reviewed such documents and given consideration to
such matters of law and fact as we have deemed appropriate to render this
opinion. We have been furnished with, and examined originals or copies,
certified or otherwise identified to our satisfaction, of all such records of
First Alliance, agreements and other instruments, certificates of officers and
representatives of First Alliance, certificates of public officials, and other
documents, as we have deemed necessary or desirable as a basis for the opinions
hereinafter expressed. As to questions of fact material to such opinions,we have
2.30
where relevant facts were not independently verified or established, relied
upon certificates of officers of First Alliance.
Based upon and subject to the foregoing and the other qualifications and
limitations stated in this letter, we are of the opinion that:
1. The execution, delivery and performance of the Agreement by First
Alliance shall not result in a breach of, or constitute a default (or an event
which, with or without notice or lapse of time or both, would constitute a
default) under any contract, commitment, agreement, indenture, mortgage, pledge
agreement, note, bond, license, or other instrument or obligation to which First
Alliance is a party or by which First Alliance is bound or the charter or bylaws
of First Alliance or other governing instruments of First Alliance;
2. The Agreement has been duly authorized, executed and delivered by
First Alliance and is a legal, valid and binding obligation of First Alliance
enforceable against First Alliance in accordance with its terms (subject to the
applicability of equitable principles or the effect of bankruptcy or creditors'
rights laws on the enforceability of the Agreement);
3. First Alliance is a Kentucky corporation validly existing and in
good standing under the laws of the State of Kentucky;
4. First Alliance has full corporate power and authority to enter into
the Agreement and to carry out the transactions contemplated by the Agreement;
5. To our knowledge, there are no civil or criminal actions, suits,
arbitrations, administrative or other proceedings or governmental investigations
pending or threatened against First Alliance which will constitute a breach of
the representations, warranties or covenants under the Agreement or will prevent
First Alliance from consummating the transactions contemplated by the Agreement;
6. The authorized and outstanding capital stock of First Alliance is as
stated in Section 4.2 of the Agreement;
7. To our knowledge, except as set forth in the Agreement or First
Alliance Disclosure Statement, there are no outstanding subscriptions, options,
warrants, rights, convertible securities, calls, commitments, privileges or
other arrangements, preemptive or contractual, calling for or requiring the
acquisition of, or the issuance, transfer, sale or other disposition of any
shares of the capital stock of First Alliance, or calling for or requiring the
issuance of any securities or rights convertible into or exchangeable for shares
of capital stock of First Alliance; and
2.31
8. The execution, delivery, and performance of the Agreement, and the
performance by First Alliance of its obligations thereunder, are not in
contravention of any law, ordinance, rule or regulation of Kentucky or of the
United States, and will not contravene any order, writ, judgment, injunction,
decree, determination, or award of any court or other authority having
jurisdiction, and will not cause the suspension or revocation of any
authorization, consent, approval, or license presently in effect, which affects
or binds First Alliance or any of its material properties, and will not have a
material adverse effect on the validity of the Agreement or on the validity of
the consummation of the transactions contemplated by the Agreement or constitute
grounds for the loss or suspension of any permits, licenses, or other
authorizations used in the business of First Alliance.
This opinion is limited to the matters stated herein and no opinion is
implied or may be inferred beyond the matters expressly stated. This opinion is
rendered pursuant to Section 7.8(3) of the Agreement and, to the extent, if any,
that the law of the State of Kentucky permits you to rely upon it, it is to be
limited in its use to reliance by you in consummating the transactions described
herein and no other person or entity may rely or claim reliance upon this
opinion.
This opinion is rendered as of the date hereof, and we undertake no, and
hereby disclaim any, obligation to advise you of any changes in or new
developments which might affect any matters or opinions set forth herein.
The use of the words "to our knowledge" means that during the course of our
current and past representation of First Alliance and our past representation of
First Alliance no information has come to the attention of the attorneys
involved in the transaction described herein that could give any such attorney
actual knowledge of the existence of the documents or facts so qualified.
Except as set forth herein, this Firm has not undertaken any investigation to
determine the existence of such documents or facts, and no inference as to our
knowledge thereof shall be drawn from the fact of our representation of any
party or otherwise.
Very truly yours,
Xxxxxxx X. Xxxxx, Esq.
2.32
EXHIBIT F
_____________, 2002
First Alliance Corporation
0000 Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxx 00000
Re: Plan and Agreement of Merger among First Alliance Corporation, Citizens,
Inc. and Citizens Acquisition, Inc.
Ladies and Gentlemen:
We have acted as counsel to Citizens, Inc. ("Citizens") in connection with
the above referenced agreement. This letter is provided to you pursuant to
Section 7.9(2) of the Plan and Agreement of Merger, dated as of
__________________, 2002 (the "Agreement") among First Alliance Corporation
("First Alliance"), Citizens and Citizens Acquisition, Inc. Except as otherwise
indicated herein, capitalized terms used in this letter are defined as set forth
in the Agreement or the Accord (see below).
This letter is governed by, and shall be interpreted in accordance with,
the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this letter should be read in
conjunction therewith.
In giving the opinion expressed below, insofar as such opinion relates to
other than Federal law or the laws of jurisdiction other than the State of
Colorado, we advise that our opinion is with respect to Federal law and the laws
of the State of Colorado only and that, to the extent such opinion is derived
from laws of other jurisdictions, the statements are based on examinations of
relevant authorities and are believed to be correct, but we have obtained no
legal opinions as to such matters from attorneys licensed to practice in such
other jurisdictions. Accordingly, the law covered by the opinion expressed
herein is limited to the Federal law of the United States and the law of the
State of Colorado.
We have relied upon factual representations made by Citizens in Article IV
of the Agreement and we have reviewed such documents and given consideration to
such matters of law and fact as we have deemed appropriate to render this
opinion. We have been furnished with, and examined originals or copies,
certified or otherwise identified to our satisfaction, of all such records of
Citizens, agreements and other instruments, certificates of officers and
representatives of Citizens, certificates of public officials, and other
documents, as we have deemed necessary or desirable as a basis for the opinions
hereinafter expressed. As to questions of fact material to such opinions, we
have, where relevant facts were not independently verified or established,
relied upon certificates of officers of Citizens.
2.33
Based upon and subject to the foregoing and the other qualifications and
limitations stated in this letter, we are of the opinion that:
1. The execution, delivery and performance of the Agreement by Citizens
will not result in a breach of, or constitute a default (or an event which, with
or without notice or lapse of time or both, would constitute a default) under
any contract, commitment, agreement, indenture, mortgage, pledge agreement,
note, bond, license, or other instrument or obligation to which Citizens is a
party or by which Citizens is bound or the charter or bylaws of Citizens or
other governing instruments of Citizens;
2. The Agreement has been duly authorized, executed and delivered by
Citizens and is a legal, valid and binding obligation of Citizens enforceable
against Citizens in accordance with its terms (subject to the applicability of
equitable principles or the effect of bankruptcy or creditors' rights laws on
the enforceability of the Agreement);
3. Citizens is a Colorado corporation validly existing and in good
standing under the laws of the State of Colorado;
4. Citizens has full corporate power and authority to enter into the
Agreement and to carry out the transactions contemplated by the Agreement;
5. To our knowledge, there are no civil or criminal actions, suits,
arbitrations, administrative or other proceedings or governmental investigations
pending or threatened against Citizens which will constitute a breach of the
representations, warranties or covenants under the Agreement or will prevent
Citizens from consummating the transactions contemplated by the Agreement;
6. The authorized and outstanding capital stock of Citizens is as
stated in Section 3.2 of the Agreement;
7. To our knowledge, except as set forth in the Agreement or Citizens'
Disclosure Statement, there are no outstanding subscriptions, options, warrants,
rights, convertible securities, calls, commitments, privileges or other
arrangements, preemptive or contractual, calling for or requiring the
acquisition of, or the issuance, transfer, sale or other disposition of any
shares of the capital stock of Citizens, or calling for or requiring the
issuance of any securities or rights convertible into or exchangeable for shares
of capital stock of Citizens; and
8. The execution, delivery, and performance of the Agreement, and the
performance by Citizens of its obligations thereunder, are not in contravention
of any law, ordinance, rule or regulation of Colorado or of the United States,
and will not contravene any order, writ, judgment, injunction,
2.34
decree, determination, or award of any court or other authority having
jurisdiction, and will not cause the suspension or revocation of any
authorization, consent, approval, or license presently in effect, which affects
or binds Citizens or any of its subsidiaries or any of their material
properties, and will not have a material adverse effect on the validity of the
Agreement or on the validity of the consummation of the transactions
contemplated by the Agreement or constitute grounds for the loss or suspension
of any permits, licensES, or other authorizations used in the business of
Citizens.
This opinion is limited to the matters stated herein and no opinion is
implied or may be inferred beyond the matters expressly stated. This opinion is
rendered pursuant to Section 7.9(2) of the Agreement and, to the extent, if any,
that the law of the State of Colorado permits you to rely upon it, it is to be
limited in its use to reliance by you in consummating the transactions described
herein and no other person or entity may rely or claim reliance upon this
opinion.
This opinion is rendered as of the date hereof, and we undertake no, and
hereby disclaim any, obligation to advise you of any changes in or new
developments which might affect any matters or opinions set forth herein.
The use of the words "to our knowledge" means that during the course of our
current and past representation of Citizens and our past representation of
Citizens no information has come to the attention of the attorneys involved in
the transaction described herein that could give any such attorney actual
knowledge of the existence of the documents or facts so qualified. Except as
set forth herein, this Firm has not undertaken any investigation to determine
the existence of such documents or facts, and no inference as to our knowledge
thereof shall be drawn from the fact of our representation of any party or
otherwise.
Very truly yours,
Xxxxx & Xxxxxx, P.C.
2.35
EXHIBIT G
________________________, 2002
Citizens, Inc.
000 Xxxx Xxxxxxxx Xxxx, 0xx Xxxxx
Xxxxxx, Xxxxx 00000
Re: Plan and Agreement of Merger among First Alliance Corporation, Citizens,
Inc. and Citizens Acquisition, Inc.
Ladies and Gentlemen:
Our opinions as expressed below are based solely upon: (1) the information
contained in the Proxy-Information Statement dated _______________, 2002
(hereafter "Proxy Statement") as filed with the Securities and Exchange
Commission; (2) the Plan and Agreement of Merger (the "Plan") dated
_____________, 2002, among First Alliance Corporation ("First Alliance"),
Citizens, Inc. ("Citizens") and Citizens Acquisition, Inc., together with
Exhibits thereto; (3) relevant information provided by the principals; (4) the
Internal Revenue Code of 1986, as amended (hereinafter "IRC"), the regulations
promulgated thereunder and the current administrative positions of the Internal
Revenue Service ("IRS") contained in published Revenue Rulings and Revenue
Procedures; and (5) existing judicial decisions. All of the above are subject
to change or modification by subsequent legislative, regulatory, administrative
or judicial decisions which could adversely affect our opinions.
This letter is governed by, and shall be interpreted in accordance with,
the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this letter should be read in
conjunction therewith.
"Merger" refers to the transaction set forth in the Plan. Capitalized
terms herein have the same meaning as in the Plan.
Shareholders residing or conducting business in foreign countries, states
or municipalities having tax laws could be required to pay tax with respect to
transactions in that country, state or municipality. We do not express any
opinion as to foreign, state or local tax consequences of the Merger. We do not
express any opinion regarding alternative minimum tax consequences of the Merger
to any shareholder, or as to any other income tax consequences to any
shareholder except as expressly provided herein.
The consequences described herein are not applicable to nonresident aliens,
To foreign corporations, to debtors under the jurisdiction of a court in a case
under Title 11 of the United States Code or in a receivership, foreclosure, or
similar proceeding, to shareholders that are real estate investment trusts, to
shareholders that are regulated
2.36
investment companies, to shareholders that are tax exempt persons, to
shareholders that are persons that hold their First Alliance Common Stock as
part of a position in a "straddle" or as part of a "hedging" or other integrated
transaction, to shareholders that are investment companies within the meaning of
IRC Section 351(e), to shareholders who are dealers in securities, to
shareholders who do not hold their common stock as capital assets, to
shareholders who are financial institutions, or to shareholders who acquired or
will acquire their shares in connection with stock option or stock purchase
plans or in other compensatory transactions.
The principal reasons for the Merger can be summarized as follows:
(1) to become part of a combined entity with greater financial strength
and an enhanced competitive position as compared to the separate entities;
(2) to achieve improved capitalization and economies of scale; and
(3) to provide greater liquidity and diversity to First Alliance
shareholders.
This letter is conditioned on the accuracy of the factual information,
assumptions and representations contained in the Proxy Statement and provided by
Citizens and First Alliance, including the principal reasons for the Merger
expressed above and the following:
(1) that Citizens and First Alliance, in arriving at the method used to
determine the number of shares of Citizens Class A Common Stock to be received
by each First Alliance shareholder, attempted in good faith to value the First
Alliance Common Stock to be transferred and to value the Citizens Class A Common
Stock to be exchanged for such First Alliance Common Stock in an effort to
ensure that each shareholder receiving Citizens Class A Common Stock pursuant to
the Merger received a number of shares of such stock approximately equal in
value to the First Alliance Common Stock exchanged therefor;
(2) that First Alliance has no plan or intention to issue additional
shares of its stock that would result in Citizens losing control of First
Alliance within the meaning of Section 368(c) of the IRC;
(3) that none of Citizens, First Alliance, any entity related thereto,
or shareholder thereof, have any plan or intention to redeem or otherwise
reacquire any Citizens Class A Common Stock to be issued to First Alliance
shareholders in the Merger, and will not so redeem or otherwise reacquire such
stock;
2.37
(4) that Citizens has no plan or intention to liquidate First
Alliance; to merge First Alliance with or into another corporation; to cause
First Alliance to sell or otherwise dispose of any of its assets, except for
dispositions made in the ordinary course of business; or to sell or otherwise
dispose of the stock of First Alliance except for transfers described in Section
368(a)(2)(C) of the IRC; preserving the nature of First Alliance's charter makes
avoidance of such transactions necessary;
(5) that following the Merger, Citizens will continue the historic
business of First Alliance or use a significant portion of its historic business
assets in a business;
(6) that Citizens and First Alliance will assume and pay their
respective reorganization expenses, if any, incurred in connection with the Plan
and Merger;
(7) that there is no corporate indebtedness between Citizens or First
Alliance that was issued, acquired or will be settled at a discount;
(8) that in the Merger, shares of First Alliance Common Stock will be
exchanged solely for Citizens Class A voting Common Stock, with Citizens thereby
obtaining control of First Alliance as defined in Section 368(c) of the IRC;
(9) that on the Effective Date of the Merger, First Alliance will not
have outstanding any warrants, options, convertible securities or any other type
of right pursuant to which any person could acquire stock in First Alliance
that, if exercised or converted, would affect Citizens' acquisition or retention
of control of First Alliance, as defined in Section 368(c) of the IRC;
(10) that Citizens does not own, nor has it owned during the past five
(5) years, directly or indirectly, any shares of First Alliance stock;
(11) that neither Citizens nor First Alliance are investment companies
as defined in Section 368(a)(2)(F)(iii) and (iv) of the IRC;
(12) that neither Citizens nor First Alliance are under the
jurisdiction of a court in a Title 11 or similar case within the meaning of IRC
Section 368(a)(3) (A);
2.38
(13) that the Merger will be consummated and qualify as a statutory
merger in full compliance with Kentucky law and will be consummated in
accordance with the terms of the Plan;
(14) that in the event more than 2.5 percent of the shareholders of
First Alliance dissent to the Merger, Citizens would exercise its option not to
proceed with the Merger (as permitted under the Plan) and the Merger
consequently would not be consummated;
(15) that no First Alliance Common Stock will be acquired for
consideration other than solely Citizens Class A Common Stock. For purposes of
this representation, First Alliance Common Stock redeemed for cash or other
property furnished by Citizens will be considered as acquired by Citizens.
Further, no liabilities of First Alliance or the First Alliance shareholders
will be assumed by Citizens, nor will any of the First Alliance Common Stock
be subject to any liabilities;
(16) that Citizens will not assume or repay any First Alliance debt
guaranteed by First Alliance shareholders nor will Citizens assume or repay any
outstanding loans between First Alliance and its shareholders;
(17) that no compensation or agreement for services received by any
shareholder of First Alliance, or any entity related to a First Alliance
shareholder, will be separate consideration for, or allocable to, any of their
shares of First Alliance Common Stock; no shares of Citizens Class A Common
Stock received by any First Alliance shareholder, or any entity related to any
First Alliance shareholder, will be separate consideration for, or allocable to,
any employment agreement or compensation agreement; and the compensation paid to
any First Alliance shareholder, or any entity related to a First Alliance
shareholder, will be for services actually performed and/or property actually
leased and will be commensurate with amounts paid to third parties bargaining at
arm's-length for similar services;
(18) that First Alliance will pay its dissenting shareholders the value
of their First Alliance Common Stock out of its own funds. No funds will be
supplied or are required to be supplied (by law or otherwise) for that purpose,
directly or indirectly, by Citizens, nor will Citizens, directly or indirectly,
reimburse First Alliance for any payments to dissenters;
(19) that on the Effective Date of the Merger, the fair market value of
the assets of First Alliance will exceed the sum of its liabilities plus the
liabilities, if any, to which its assets are subject;
We have relied on the truthfulness and accuracy of certificates of officers of
First Alliance and Citizens regarding the above factual information, assumptions
2.39
and representations. In the course of our representation of Citizens in
connection with the transaction described herein, no facts have come to our
attention that would give us actual knowledge that the certificates are not
accurate. However, we have not undertaken any independent investigation to
verify the accuracy of such factual information, assumptions and
representations, and no inference as to our knowledge thereof shall be drawn
from the fact of our representation of any party or otherwise.
In rendering an opinion on the federal income tax consequences of such a
transaction, reasonable steps have been taken to assure that all material tax
issues are considered in light of the facts, and that all of such issues
involving a reasonable possibility of challenge by the IRS are fully and fairly
addressed. A "material tax issue" includes any tax issue that could have a
significant impact (either beneficial or adverse) on any First Alliance
shareholder participating in the Merger under any reasonably foreseeable
circumstances.
The opinions expressed below are rendered only with respect to the specific
matters described herein, and we express no opinion with respect to any other
federal income tax aspects of the Merger. Should any of the facts, circumstances
or assumptions specified herein be subsequently determined incorrect or
inaccurate, our conclusions may vary from those set forth below and such
variance could be material. In addition, we do not opine as to the taxable or
nontaxable status of any previous transactions not considered to be part of the
Merger.
Accordingly, in our opinion, the material tax consequences of the Merger
are as follows:
(1) The Merger will constitute a reorganization within the meaning of
IRC Section 368(a)(2)(E) and Citizens and First Alliance will each be a "party
to a reorganization" within the meaning of IRC Section 368(b). No gain or loss
will be recognized by the shareholders of First Alliance upon the exchange of
their shares of First Alliance Common Stock for shares of Citizens Class A
Common Stock. IRC Section 354(a).
(2) The tax basis of the shares of Citizens Class A Common Stock
received by a shareholder of First Alliance will be the same as the basis of the
First Alliance Common Stock surrendered by that shareholder in the Merger. IRC
Section 358(a); IRC Regulation Section 1.358-1(a).
(3) The holding period of the shares of Citizens Class A Common Stock
received by a shareholder of First Alliance will include the period during which
such shareholder held the First Alliance Common Stock exchanged therefor, to the
extent that such stock was held by the shareholder as a capital asset on the
date of the consummation of the Merger. IRC Section 1223(1).
2.40
(4) Cash received by First Alliance shareholders who properly exercise
their dissenters' rights will be treated as having been received in redemption
of the shares so cashed out, and may result in taxable gain or loss, measured by
the difference (if any) between the amount of cash received and such
shareholder's basis in the First Alliance Common Stock. Provided the shares
were held as capital assets at the time of the redemption, such gain or loss
will constitute capital gain or loss, and such gain or loss will be long term
capital gain or loss if the holding period for such shares was greater than one
year. It is possible, that for some First Alliance shareholders, the
distribution of cash may be treated as a dividend taxable as ordinary income.
IRC Sections 302, 301.
(5) No material gain or loss will be recognized by Citizens or First
Alliance as a result of the Merger. IRC Sections 361 and 1032.
(6) Section 382 limits the Net Operating Loss carryover of a company
following an ownership change. First Alliance will be deemed to have an
ownership change. After an ownership change, the amount of income that a
corporation may offset each year by Net Operating Losses that occurred before
the change is generally limited to an amount determined by multiplying the value
of the equity of the corporation immediately prior to this change by the federal
long-term tax exempt rate in effect on the date of the change. Any unused
limitation may be carried forward and added to the next year's limitation,
subject to certain limitations. To the extent First Alliance also has built-in
losses as defined in IRC Section 382(h) as of the date of the Merger, IRC
Section 382 limits the utilization of such losses after the ownership change.
IRC Section 383 will similarly limit the utilization of excess credits, net
capital losses, and foreign tax credits, if any, after the ownership change. In
addition, IRC Section 384 limits the use of preacquisition losses to offset
built-in gains, if any, after the ownership change. Regulations under IRC
Sections 382 and 1502 implement the above restrictions.
(7) Each shareholder of First Alliance must file pursuant to IRS
Regulation 1.368-3(b), with his or her income tax return for the year in which
the Merger is consummated, a statement which provides details relating to the
property transferred and securities received in the Merger.
The preceding discussion and opinions are based on our interpretations of
the facts and assumptions, based on the IRC, the regulations thereunder and
judicial and administrative interpretations thereof, all of which are subject to
change by subsequent regulatory, administrative, legislative or judicial actions
which could have an adverse effect on the validity of our opinions. Our
opinions are effective as of the Effective Date for the Merger as described in
the Plan.
2.41
We do not express an opinion on the valuations of First Alliance or
Citizens assets or common stock or the ratio of exchange of First Alliance
Common Stock for Citizens Class A Common Stock.
If the Merger is transacted as outlined in the facts given, the material
tax issues addressed singularly and in the aggregate will more likely than not
be upheld under challenge by the IRS.
Each First Alliance shareholder should consult his own qualified tax
advisor to evaluate the tax effects of the Merger based on his personal facts
and circumstances.
Very truly yours,
XXXXX & XXXXXX, P.C.
2.42
