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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C
(RULE 14C-101)
Information Statement Pursuant to Section 14(c) of
the Securities Exchange Act of 1934
Check the appropriate box:
Preliminary Information Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2))
Definitive Information Statement
INDEPENDENCE HOLDING COMPANY
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
 
 
 
No fee required
Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
 
(1)
Title of each class of securities to which investment applies:
 
 
 
 
 
 
 
(2)
Aggregate number of securities to which investment applies:
 
 
 
 
 
 
 
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11: (set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
 
 
 
 
 
(4)
Proposed maximum aggregate value of transaction:
 
 
 
 
 
 
 
(5)
Total fee paid:
 
 
 
 
 
 
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
(1)
Amount Previously Paid:
 
 
 
 
(2)
Form, Schedule or Registration Statement No.:
 
 
 
 
(3)
Filing Party:
 
 
 
 
(4)
Date Filed:
 
 
 

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INDEPENDENCE HOLDING COMPANY
NOTICE OF APPROVAL
OF THE SALE OF MADISON NATIONAL LIFE INSURANCE COMPANY, INC.
BY WRITTEN CONSENT OF STOCKHOLDERS
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED TO NOT SEND US A PROXY
This Information Statement has been mailed on or about November 12, 2021 to the stockholders of record on October 21, 2021 (the “Record Date”) of Independence Holding Company, a Delaware corporation (the “Company”), in connection with certain actions taken by written consent, in lieu of a special meeting of stockholders, on October 18, 2021 by the holders of an aggregate of approximately 62% of the Company’s outstanding common stock, to sell all of the common stock of the Company’s indirect wholly owned subsidiary Madison National Life Insurance Company, Inc., a Wisconsin corporation (“Madison National Life”) (the “Sale”), pursuant to a stock purchase agreement, dated July 14, 2021 (the “Purchase Agreement”), by and among the Company, its wholly owned subsidiary Independence Capital Corp., a Delaware corporation (“ICC”), and Horace Mann Educators Corporation, a Delaware corporation (“Horace Mann”), a copy of which is attached as Annex A to this Information Statement.
The Sale may constitute the sale of “substantially all” of the Company’s assets within the meaning of Delaware law, which would require the consent of the holders of a majority of the outstanding shares of common stock of the Company.
As permitted by Delaware law, no meeting of stockholders of the Company is being held to vote on the approval of the Sale because such transaction has been approved by the requisite holders of a majority of the Company’s outstanding shares of common stock in an action by written consent of the stockholders of the Company. As a result, no further action by any stockholder is required under applicable law or under the Purchase Agreement (or otherwise) to adopt the Purchase Agreement or approve the Sale, and the Company will not be soliciting your vote for or consent to the adoption of the Purchase Agreement or the approval of the Sale.
When actions are taken by written consent of less than all of the stockholders entitled to vote on a matter, Section 228(e) of the Delaware General Corporation Law (“DGCL”) requires notice of the action to those stockholders who did not consent in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting. This notice and the accompanying Information Statement shall constitute notice from the Company to you of the written consent contemplated by Section 228(e) of the DGCL.
THIS IS NOT A NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS AND NO STOCKHOLDER MEETING WILL BE HELD TO CONSIDER ANY MATTER WHICH WILL BE DESCRIBED HEREIN.
 
By Order of the Board of Directors,
 
 
 
/s/ Loan Nisser
 
Loan Nisser
 
Vice President – Legal and Secretary
November 12, 2021

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INDEPENDENCE HOLDING COMPANY
INFORMATION STATEMENT

Introductory Statement
Independence Holding Company (the “Company,” “IHC” or “we,” “us” and “our”) is a Delaware corporation with its principal executive offices located at 96 Cummings Point Road, Stamford CT 06902. The Company’s telephone number is (203) 358-8000.
This Information Statement is being sent by the Board of Directors of the Company (the “Board”) to the Company’s stockholders to notify them of the action that the holders of an aggregate of approximately 62% of the Company’s outstanding shares of common stock have taken by written consent, in lieu of a special meeting of the stockholders. The action was taken on October 18, 2021.
Copies of this Information Statement are being mailed on or around November 12, 2021 to the holders of record as of October 21, 2021 of the outstanding shares of the Company’s common stock.
General Information
The following action was taken pursuant to the approval of the Board at a special meeting of the Board on July 12, 2021, and the written consent of the holders of an aggregate of approximately 62% of the outstanding shares of common stock of the Company on October 18, 2021, in lieu of a special meeting of the stockholders:
TO APPROVE THE SALE OF ALL OF THE SHARES OF COMMON STOCK OF MADISON NATIONAL LIFE INSURANCE COMPANY, INC., THE COMPANY’S WHOLLY OWNED INDIRECT SUBSIDIARY.
At a special meeting of the Board held on July 12, 2021, the Board approved the Stock Purchase Agreement, dated as of July 14, 2021 (the “Purchase Agreement”), by and among the Company, the Company’s wholly owned subsidiary Independence Capital Corp., a Delaware corporation (“ICC”), and Horace Mann Educators Corporation, a Delaware corporation (“Horace Mann”), to sell (the “Sale”) all of the shares of common stock of the Company’s wholly owned indirect subsidiary Madison National Life Insurance Company, Inc., a Wisconsin corporation (“Madison National Life”), which may constitute the sale of “substantially all” of the consolidated assets of the Company, for an expected gross sales price of $172.5 million, with the possibility of receiving an additional purchase price of up to $12.5 million if Madison National Life reaches certain financial targets in 2023. Specifically, the Company will indirectly receive through ICC a pro-rated amount of up to $12.5 million if Madison National Life has earnings in 2023 that surpass $15.25 million. If Madison National Life earnings in 2023 exceed $16.5 million, the Company will receive $12.5 million. However, it will not receive additional monies if earnings in 2023 are less than $15.25 million. If 2023 earnings exceed $15.25 million but not $16.5 million, the pro-rated amount is equal to the product of (i) the percentage derived by dividing the earnings exceeding $15.25 million by $1.25 million and (ii) $12.5 million. In addition, as part of the Sale, Horace Mann agreed to reinsure, through Madison National Life, the lines or classes of business other than pet insurance that will be acquired by Iguana Capital, Inc. (“Iguana Capital”) as part of the sale of Independence American Holdings Corp., namely vision, Medicare supplement, short term medical, limited medical benefit, dental, accidental death and disability, group gap, hospital indemnity, critical illness, expatriate accident and health, occupational accident and health, and other specialty health products written or assumed by Independence American Insurance Company, based on such policies that are in force at the closing of the acquisition by Iguana Capital of Independence American Holdings Corp., and through December 31, 2022, and renewal of such policies based on the contractual terms of such policies.
The Sale may be considered to be a sale of substantially all of the Company’s assets under Section 271 of the Delaware General Corporation Law (the “DGCL”).
The Board of Directors of ICC, the Company’s wholly owned direct subsidiary and Madison National Life’s sole direct parent, also approved the Purchase Agreement and the Sale by written consent dated July 14, 2021. The Board of Directors of Madison National Life approved the Purchase Agreement and the Sale by written consent dated July 14, 2021.
The Sale involves risks, including the existence of conditions or restrictions to complete the Sale, such as obtaining governmental approvals that must be obtained prior to the completion of the Sale.

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Geneve Holdings, Inc., through its wholly owned subsidiaries (collectively, “GHI”), is the record owner of approximately 62% of the outstanding shares of the Company’s common stock. On October 18, 2021, GHI executed a written consent approving the Purchase Agreement and the Sale in accordance with Section 228 of the DGCL. The action by written consent is sufficient to approve the Purchase Agreement and the Sale without any further action or vote of the stockholders of Company. Accordingly, no other actions are necessary to approve the Purchase Agreement and the Sale, and no such actions are being requested.
THIS IS NOT A REQUEST FOR YOUR VOTE OR A PROXY. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. THIS INFORMATION STATEMENT IS DESIGNED TO INFORM YOU OF THE SALE AND TO PROVIDE YOU WITH INFORMATION ABOUT THE SALE AND THE BACKGROUND TO THE SALE.
NEITHER THE SALE NOR THE PURCHASE AGREEMENT HAS BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERIT OF THE SALE OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OR STATEMENTS (OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT) REGARDING THE SALE OR THE OTHER MATTERS DISCUSSED HEREIN AND, IF GIVEN OR MADE, ANY SUCH REPRESENTATIONS OR INFORMATION PROVIDED MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED OR SANCTIONED BY THE COMPANY OR ANY OTHER PERSON.
This Information Statement is being furnished pursuant to Section 14(c) of the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder, to stockholders of record of the Company as of October 21, 2021 in connection with the Sale. You should not assume that the information contained herein is accurate as of any date other than the date hereof.
The date of the Information Statement is November 12, 2021

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INDEPENDENCE HOLDING COMPANY
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
MADISON NATIONAL LIFE INSURANCE COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF INDEPENDENCE CAPITAL CORP.)
(UNAUDITED) HISTORICAL FINANCIAL STATEMENTS
 
 
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SPECIAL CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Information Statement contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, regarding our assumptions, projections, expectations, intentions or beliefs about future events, which are subject to the “safe harbor” created by those sections. These statements may be identified by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “would,” “seeks,” “predicts,” “intends,” “plans,” “projects,” “estimates,” “anticipates” or the negative version of these words or other comparable words. These statements are based on assumptions and assessments made by our management, many of which are driven by factors beyond the Company’s control, in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Accordingly, there are, or will be, important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We caution you that these statements may and often do vary from actual results, and the differences between these statements and actual results can be material. Accordingly, we cannot assure you that actual results will not differ materially from those expressed or implied by the forward-looking statements. You should not place undue reliance on these forecasts or any other forward-looking statements in this Information Statement, which are likewise subject to numerous uncertainties. These forward-looking statements include, among others, statements concerning our financial position and results, ability to consummate the Sale, and the business strategy, plans, and objectives of management for future operations, including development plans and objectives relating to our business.
Forward-looking statements speak only as of the date of this Information Statement. We expressly disclaim any obligation or undertaking to release, publicly or otherwise, any updates or revisions to any forward-looking statement contained in this Information Statement to reflect any change in our expectations or any change in events, conditions, assumptions or circumstances on which any such statement is based unless so required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities Exchange Commission.
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SUMMARY
The following is a summary of information contained elsewhere in this Information Statement. Reference is made to, and this summary is qualified in its entirety by, the more detailed information contained elsewhere in this Information Statement and the Purchase Agreement attached as Annex A hereto. We urge you to read this Information Statement and the Purchase Agreement in its entirety for a more complete description of its terms and conditions because this summary is not complete.
The Parties involved in the Sale
The parties involved in the sale of all of the outstanding shares of common stock of Madison National Life (the “Sale”) are the Company, ICC, Madison National Life, and Horace Mann. GHI owns approximately 62% of the outstanding shares of common stock of the Company. ICC is a direct wholly owned subsidiary of the Company and sole owner of Madison National Life. See “Information about the Parties” for additional information.
Purchase Price
Under the Purchase Agreement, Horace Mann will pay to ICC for the Sale an expected gross sales price of $172.5 million (the “Purchase Price”), with the possibility of receiving an additional purchase price of up to $12.5 million if Madison National Life reaches certain financial targets in 2023. Specifically, the Company will indirectly receive through ICC a pro-rated amount of up to $12.5 million if Madison National Life has earnings in 2023 that surpass $15.25 million. If Madison National Life earnings in 2023 exceed $16.5 million, the Company will receive $12.5 million. However, it will not receive additional monies if earnings in 2023 are less than $15.25 million. If 2023 earnings exceed $15.25 million but not $16.5 million, the pro-rated amount is equal to the product of (i) the percentage derived by dividing the earnings exceeding $15.25 million by $1.25 million and (ii) $12.5 million. See “The Transaction” for additional information.
Conditions to Closing; Closing
The completion of the Sale depends upon the meeting of certain conditions, including the following:
The representations and warranties of IHC, ICC and Horace Mann (collectively, the “Parties”) in the Purchase Agreement being true and correct in all material respects at and as of the date of the closing of the Sale (the “Closing Date”);
The Parties having performed and complied with all of their respective covenants under the Purchase Agreement in all material respects on or prior to the Closing Date;
All required consents, approvals, or authorizations of, declarations or filings with, or notices to any governmental agency or authority, and any agency thereof, including, without limitation, that of the insurance regulatory authorities, being obtained without material conditions or made and in full force and effect prior to the Closing Date in connection with the Sale, and all waiting periods required under applicable law with respect thereto, including that with respect to this Information Statement, having expired or been terminated;
No law or order, judgment, injunction, decree or award or other legal restraint being entered or in effect that prohibits the consummation of the Sale;
No proceeding being pending or threatened before any governmental authority that could reasonably be expected to prevent the consummation of Sale, declare it unlawful, cause it to be rescinded, or materially and adversely affect Horace Mann or the right of Horace Mann to own, operate or conduct the business of Madison National Life;
Madison National Life having a RBC Ratio (defined as a ratio of Madison National Life’s total adjusted capital over its authorized control level risk based capital), as of the end of the calendar quarter immediately prior to the anticipated Closing Date, and as of the anticipated Closing Date, equal to or greater than 807%;
A reinsurance agreement with Independence American Insurance Company being entered into by Madison National Life; and
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Since the date of the Purchase Agreement, there being no event, occurrence, change, or condition occurring that has had, or which would, individually or in the aggregate with other such events, occurrences, changes, or conditions, reasonably be expected to have, a material adverse effect on the business, operations, assets, liabilities, results of operations or condition (financial or otherwise) of Madison National Life, taken as a whole.
The closing of the Sale (the “Closing”) will occur on the later of (i) the first business day of the calendar quarter immediately following the calendar quarter in which all of the closing conditions under the Purchase Agreement have been satisfied or waived (including, without limitation, the receipt of all government approvals for the sale of Madison National Life, including that of the Wisconsin Office of the Commissioner of Insurance (“OCI”)); providedhowever, that if such closing conditions are satisfied or waived less than thirty (30) days prior to the end of a calendar quarter, then, at Horace Mann’s sole option, the Closing shall take place on the first business day of the second calendar quarter immediately following the calendar quarter in which the closing conditions are satisfied or waived; and provided further that the Closing shall not occur before January 1, 2022, unless another date, time or place is agreed to in writing by the all of the Parties and (ii) the first business day following the twentieth (20th) calendar day after the date on which this Information Statement has been mailed to the stockholders pursuant to Rule 14c-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). See “The Transaction” for additional information.
Use of Proceeds
The proceeds from the Sale are indirectly payable solely to the Company. The stockholders of the Company will not receive any consideration directly if the Sale is consummated. The Board has not yet determined the use of proceeds from the Sale.
Required Stockholder Approval for the Sale
Since the Sale may be considered to be a sale of substantially all of the assets of the Company, the Company has elected to obtain stockholder approval of the Sale under Section 271 of the DGCL, which requires the approval of the holders of a majority of the outstanding shares of common stock. On October 18, 2021, GHI, which owns approximately 62% of the outstanding shares of common stock of the Company, executed a written consent approving the Purchase Agreement and the Sale in accordance with Section 228 of the DGCL. Under Section 271 of the DGCL and the Company’s organizational documents, the actions by written consent are sufficient to approve the Purchase Agreement and the Sale without any further action or vote of the stockholders of Company. Therefore, no further action by any other stockholders is required to adopt the Purchase Agreement or approve the Sale. As a result, the Company is not soliciting your vote for or consent to the adoption of the Purchase Agreement or the approval of the Sale and will not call a stockholders’ meeting for purposes of voting on the adoption of the Purchase Agreement or the approval of the Sale. See “The Transaction” for additional information.
When actions are taken by written consent of less than all of the stockholders entitled to vote on a matter, Section 228(e) of the DGCL requires notice of the action to those stockholders who did not consent in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting. This Information Statement and the notice attached hereto shall constitute notice from the Company to you of the written consent by the majority stockholders as required by Section 228(e) of the DGCL.
In accordance with Rule 14c-2 of the Exchange Act, the Sale may not be completed until twenty (20) calendar days after the date of mailing this Information Statement to the Company’s stockholders. Therefore, notwithstanding the execution and delivery of the written consent by the majority stockholders, the Sale will not occur until that time has elapsed and the other conditions to Closing have been satisfied or waived. See “The Transaction” for additional information.
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QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
The following questions and answers are presented for your convenience only and briefly address some commonly asked questions about the Sale. They may not contain all of the information that is important to you. We urge you to read carefully the entire Information Statement.
Q: Why am I receiving this Information Statement?
A: Applicable laws and securities regulations require us to provide you with notice of the written consent that was delivered to the Company by the stockholders holding a majority of the outstanding shares of common stock of the Company even though your vote or consent is neither required nor requested to adopt or authorize the Purchase Agreement or the Sale. The Board is providing this Information Statement to you pursuant to Section 14(c) of the Exchange Act, solely to inform you of, and provide you with information about, the Sale before it is consummated.
 
 
Q: Who is entitled to receive this Information Statement?
A: Stockholders of record as of October 21, 2021, the record date, are entitled to receive this Information Statement and the accompanying notice of stockholder action by written consent, which describes the corporate action that has been approved by the written consent of stockholders who collectively own approximately 62% of the Company's outstanding shares of common stock.
 
 
Q: Am I being asked to vote on the Sale?
A: No, we are not asking you to vote for approval of the Sale or to provide your written consent to the Sale. Your vote or written consent is not required for approval of the Sale because the Sale has been approved by written consent by stockholders holding a majority of the Company’s outstanding shares of common stock. Under Delaware corporate law, all the activities requiring stockholder approval may be taken by obtaining the written consent and approval of more than fifty percent (50%) of the holders of voting stock in lieu of a meeting of the stockholders. Therefore, no action by the minority stockholders in connection with the Sale is required.
 
 
Q: Did the Board approve and recommend the Purchase Agreement?
A: Yes. After careful consideration, the Board unanimously (i) determined and resolved that the Purchase Agreement and the consummation of the Sale are in the best interests of the Company and its stockholders and (ii) approved and adopted and recommended to the stockholders in all respects the Purchase Agreement and the Sale.
 
 
Q: Will there be a stockholder meeting to consider and approve the Sale?
A: No, a stockholder meeting will not be held to consider and approve the Sale. The Sale has already been approved by written consent of the stockholders holding a majority of the outstanding shares of common stock of the Company.
 
 
Q: Will any proceeds be distributed to me as a stockholder?
A: No. The proceeds from the Sale are payable solely to the Company’s subsidiary as the seller of Madison National Life. The holders of common stock of the Company will not receive any proceeds if the Sale is consummated.
 
 
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Q: Is the Sale subject to the satisfaction of any conditions?
A: Yes. Before the Sale can be consummated, certain closing conditions must be satisfied or waived, including, without limitation, the approval of the OCI. These conditions are described in “The Transaction” in this Information Statement. If these conditions are not satisfied or waived, then the Sale will not be consummated even though it has been approved by written consent by the holders of a majority of the outstanding shares of common stock of the Company.
 
 
Q: Am I entitled to exercise appraisal rights?
A: No. Appraisal rights are not available to the Company’s stockholders under Delaware law or the Company’s organizational documents in connection with the Sale.
 
 
Q: When do you expect the Sale to be consummated?
A: We intend to consummate the Sale on the later of (i) the first business day of the calendar quarter immediately following the calendar quarter in which all of the closing conditions under the Purchase Agreement have been satisfied or waived (including, without limitation, the receipt of all government approvals for the sale of Madison National Life, including that of the OCI); providedhowever, that if such closing conditions are satisfied or waived less than thirty (30) days prior to the end of a calendar quarter, then, at Horace Mann’s sole option, the Closing shall take place on the first business day of the second calendar quarter immediately following the calendar quarter in which the closing conditions are satisfied or waived; and provided further that the Closing shall not occur before January 1, 2022, unless another date, time or place is agreed to in writing by the all of the parties to the Purchase Agreement and (ii) the first business day following the twentieth (20th) calendar day after the date on which this Information Statement has been mailed to the stockholders pursuant to Rule 14c-2 under the Exchange Act.
 
 
Q: What are the U.S. federal income tax consequences of the Sale?
A: The Sale is not expected to result in any U.S. federal income tax consequences to the Company’s stockholders. The Sale is expected to be treated as a taxable sale by the Company, and the Company is expected to recognize taxable gain on the Sale.
 
 
Q: What should I do now?
A: No action by you is required. However, we urge you to read this Information Statement carefully.
 
 
Q: Who can help answer my questions?
A: If you have questions about the Sale or would like additional copies, without charge, of this Information Statement, then you should contact us as follows:
 
 
 
Independence Holding Company
Attn: Legal Department
96 Cummings Point Road
Stamford, CT 06902
Tel: (646) 509-2107
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THE TRANSACTION
Summary
On July 14, 2021, the Company, the Company’s wholly owned subsidiary ICC, and Horace Mann entered into a Purchase Agreement for the Sale of all of the outstanding shares of common stock of the Company’s wholly owned indirect subsidiary Madison National Life, which may constitute the sale of “substantially all” of the consolidated assets of the Company, for an expected gross sales price of $172.5 million (the “Purchase Price”), with the possibility of receiving an additional purchase price of up to $12.5 million if Madison National Life reaches certain financial targets in 2023. Specifically, the Company will indirectly receive through ICC a pro-rated amount of up to $12.5 million if Madison National Life has earnings in 2023 that surpass $15.25 million. If Madison National Life earnings in 2023 exceed $16.5 million, the Company will receive $12.5 million. However, it will not receive additional monies if earnings in 2023 are less than $15.25 million. If 2023 earnings exceed $15.25 million but not $16.5 million, the pro-rated amount is equal to the product of (i) the percentage derived by dividing the earnings exceeding $15.25 million by $1.25 million and (ii) $12.5 million.
The Board approved the Purchase Agreement and the Sale at a special meeting of the Board held on July 12, 2021. The Board of Directors of ICC, the sole direct parent of Madison National Life and, as stated above, the Company’s wholly owned direct subsidiary, also approved the Purchase Agreement and the Sale by written consent dated July 14, 2021. The Board of Directors of Madison National Life approved the Purchase Agreement and the Sale by written consent dated July 14, 2021. On October 18, 2021, GHI, the record owner of approximately 62% of the outstanding shares of the Company’s common stock, executed a written consent approving the Purchase Agreement and the Sale in accordance with Section 228 of the Delaware General Corporation Law (“DGCL”). The action by written consent is sufficient to approve the Purchase Agreement and the Sale without any further action or vote of the minority stockholders of Company.
The consummation of the Sale (the “Closing”) will take place on the later of (i) the first business day of the calendar quarter immediately following the calendar quarter in which all of the closing conditions under the Purchase Agreement have been satisfied or waived (including, without limitation, the receipt of all government approvals for the sale of Madison National Life, including that of the Wisconsin Office of the Commissioner of Insurance); provided, however, that if such closing conditions are satisfied or waived less than thirty (30) days prior to the end of a calendar quarter, then, at Horace Mann’s sole option, the Closing shall take place on the first business day of the second calendar quarter immediately following the calendar quarter in which the closing conditions are satisfied or waived; and provided further that the Closing shall not occur before January 1, 2022, unless another date, time or place is agreed to in writing by the all of the parties to the Purchase Agreement and (ii) the first business day following the twentieth (20th) calendar day after the date on which this Information Statement has been mailed to the stockholders pursuant to Rule 14c-2 under the Exchange Act (the “Closing Date”). On the Closing Date, Horace Mann will pay the Purchase Price, subject to estimated adjustments and settlements. Within one hundred twenty (120) days after the Closing, Horace Mann and the Company will calculate the adjustments and settlements to the Purchase Price. The rights of the stockholders of the Company will remain unchanged after the Closing.
As part of the Sale, Horace Mann agreed to reinsure, through Madison National Life, the lines or classes of business other than pet insurance that will be acquired by Iguana Capital as part of the sale of Independence American Holdings Corp., namely vision, Medicare supplement, short term medical, limited medical benefit, dental, accidental death and disability, group gap, hospital indemnity, critical illness, expatriate accident and health, occupational accident and health, and other specialty health products written or assumed by Independence American Insurance Company based on such policies that are in force at the closing of the acquisition by Iguana Capital of Independence American Holdings Corp., and through December 31, 2022, and renewal of such policies based on the contractual terms of such policies.
On the Closing Date, the Company and Horace Mann will enter into a transition services agreement pursuant to which IHC or its affiliates will provide transitional services as required or reasonably requested by Horace Mann for a period of time following the Closing, and Horace Mann (directly or through Madison National Life) will provide limited services to the Company.
Conditions to Closing of the Sale
The completion of the Sale depends upon the meeting of certain conditions, including the following:
The representations and warranties of IHC, ICC and Horace Mann (collectively, the “Parties”) in the Purchase Agreement being true and correct in all material respects at and as of the Closing Date;
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The Parties having performed and complied with all of their respective covenants under the Purchase Agreement in all material respects on or prior to the Closing Date;
All required consents, approvals, or authorizations of, declarations or filings with, or notices to, any governmental agency or authority, and any agency thereof, including, without limitation, that of the insurance regulatory authorities, being obtained without material conditions or made and in full force and effect prior to the Closing Date in connection with the Sale, and all waiting periods required under applicable law with respect thereto, including that with respect to this Information Statement, having expired or been terminated;
No law or order, judgment, injunction, decree or award or other legal restraint being entered or in effect that prohibits the consummation of the Sale;
No proceeding being pending or threatened before any governmental authority that could reasonably be expected to prevent the consummation of Sale, declare it unlawful, cause it to be rescinded, or materially and adversely affect Horace Mann or the right of Horace Mann to own, operate or conduct the business of Madison National Life;
Madison National Life having a RBC Ratio (defined as a ratio of Madison National Life’s total adjusted capital over its authorized control level risk based capital), as of the end of the calendar quarter immediately prior to the anticipated Closing Date, and as of the anticipated Closing Date, equal to or greater than 807%;
A reinsurance agreement with Independence American Insurance Company being entered into by Madison National Life; and
Since the date of the Purchase Agreement, there being no event, occurrence, change, or condition occurring that has had, or which would, individually or in the aggregate with other such events, occurrences, changes or conditions, reasonably be expected to have, a material adverse effect on the business, operations, assets, liabilities, results of operations or condition (financial or otherwise) of Madison National Life, taken as a whole.
Stockholder Consent
The Company's authorized capitalization consists of 23,100,000 shares, of which 23,000,000 are shares of common stock, par value $1.00 per share (“Common Stock”), and 100,000 are shares of preferred stock, par value $1.00 per share (“Preferred Stock”). As of October 21, 2021 (the “Record Date”), 14,674,936 shares of Common Stock were outstanding and no shares of Preferred Stock were outstanding. Each share of Common Stock entitles its holder to one vote on each matter submitted to the stockholders. Holders of Common Stock have equal non-cumulative voting rights, and no preemptive rights to acquire or subscribe to any additional unissued shares of Common Stock, and no preference, conversion, exchange or redemption rights.
Under Section 228 of the DGCL and the Company’s by-laws, any action required to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a written consent to that action is signed by the stockholders holding not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares were present and voted. Under the Company’s certificate of incorporation, the holders of a majority of the outstanding shares of the Company’s Common Stock can approve such actions by written consent. Accordingly, approval of the Sale requires the affirmative vote or written consent of a majority of the outstanding shares of the Company’s Common Stock. On October 18, 2021, holders of an aggregate of approximately 62% of the Company’s outstanding shares of Common Stock executed and delivered to the Secretary of the Company their consent approving the Purchase Agreement and the Sale. Therefore, the Company has obtained all necessary corporate approval in connection with the Sale and Purchase Agreement. In accordance with Section 228 of the DGCL, the Company is delivering this Information Statement to provide notice to all holders of the Company’s Common Stock as of the Record Date who did not participate in the action by written consent taken by the majority stockholders of the Company. The Company is not seeking written consent from any other stockholder, and the other stockholders will not be given an opportunity to vote with respect to the actions described in this Information Statement. This Information Statement is furnished solely for the purposes of advising stockholders of the action approved by written consent of the majority stockholders of the Company and giving stockholders notice of the Sale.
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The table below sets forth the actual number of shares of Common Stock over which the parties executing the written consent have voting authority and the percentage of the outstanding shares of Common Stock that voted in favor of the Sale.
Name
Number of Shares
Percent of Class
SIC Securities Corp.
3,610,859
24.6%
SMH Associates Corp.
3,554,367
24.2%
Argent Investors Management Corporation
1,980,000
13.5%
Accounting Treatment
It is anticipated that upon the consummation of the Sale, IHC will no longer operate any insurance carrier business. Madison National Life is a major part of the Company and its sale will constitute the disposal of more than 50% of the Company’s consolidated assets. As a result, the Sale represents a strategic shift that will have a major effect on IHC’s operations and financial results. The Sale qualifies for reporting as discontinued operations in the third quarter of 2021 upon the Board’s commitment to a plan for disposal.
Material United States Federal Income Tax Consequences
The following discussion is a summary of certain U.S. federal income tax consequences of the Sale. This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, applicable U.S. Department of the Treasury regulations promulgated thereunder, judicial opinions, and published positions of the Internal Revenue Service, all as in effect as of the date of this Information Statement. Such authorities are subject to change or differing interpretations at any time, possibly with retroactive effect, and any such change or interpretation could affect the accuracy of the statements in this Information Statement. This discussion does not address any U.S. federal tax considerations other than those relating to income tax (e.g., estate and gift taxes), nor does it address any state, local, or foreign tax considerations or any tax reporting requirements.
The Sale is not expected to result in any U.S. federal income tax consequences to the Company’s stockholders. The Sale is expected to be treated as a taxable sale by the Company, and the Company is expected to recognize taxable gain on the Sale.
Reports, Opinions and Appraisals
No report, opinion or appraisal was obtained in connection with the Sale.
REGULATORY APPROVALS
A condition to the consummation of the Sale is the receipt of governmental approvals, including that of the Wisconsin Office of the Commissioner of Insurance (“OCI”) which must be obtained prior to the completion of the Sale. Horace Mann has filed a Form A and made the other required filings with the OCI.
BACKGROUND OF THE TRANSACTION
Background
The Board regularly reviews the Company’s performance and evaluates strategic opportunities and alternatives available to the Company and each of its businesses to maximize stockholder value.
On or around August 5, 2020, Raymond James Financial, Inc. (“Raymond James”), the banker for Horace Mann, contacted David Kettig, the President and director of the Company at that time, regarding a preliminary interest in purchasing all of the shares of common stock of Madison National Life. Madison National Life was attractive to Horace Mann because it provides a new distribution channel that is entirely complementary to Horace Mann’s strengths in individual products.
On August 13, 2020, the Company and Horace Mann signed a nondisclosure agreement and the parties commenced preliminary due diligence shortly thereafter.
On September 15, 2020, the Company and Horace Mann executed a non-binding letter of intent to acquire all of the shares of common stock of Madison National Life (the “Sale”) for a purchase price of between $170 million and $200 million, subject to change as due diligence was performed.
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On September 16, 2020, the Board held a special meeting, at which time Mr. Kettig informed the Board of Horace Mann’s unsolicited expression of interest in acquiring Madison National Life and that the Company and Horace Mann have entered into a letter of intent. The directors discussed the pros and cons of the proposed offer and the makeup of the Company post-closing, but no approval of the Board was sought at that time. Subsequently, the transaction was put on pause at Horace Mann’s request and the letter of intent and exclusivity agreement therein was terminated via a letter to the Company dated October 19, 2020 stating that Horace Mann has decided to not proceed further with due diligence on Madison National Life.
In March, 2021, Horace Mann contacted the Company and restated its interest in acquiring all of the shares of common stock of Madison National Life. On March 23, 2021, the Company and Horace Mann amended the nondisclosure agreement and Horace Mann continued conducting due diligence.
On May 3, 2021, the Board held a special meeting, at which time Larry Graber, a director and Chief Life and Annuity Actuary and Senior Vice President of the Company, and, at that time, President of Madison National Life, informed the Board that after several rounds of negotiation, Horace Mann made an updated proposal and offered $172.5 million, subject to the completion of due diligence, and that the Company and Horace Mann would be entering into a non-binding letter of intent within the next couple of days. In addition, as part of the Sale, Horace Mann preliminarily agreed to reinsure, through Madison National Life, the lines of business written or assumed by Standard Security Life Insurance Company of New York (“Standard Security Life”) other than paid family leave coverage and New York Disability Benefit Law coverage (e.g., life and annuity and specialty health) (“SSL Reinsurance”) that will be acquired by Reliance Standard Life Insurance Company (“Reliance Standard”) as part of the sale of Standard Security Life. Representatives of Dentons, the Company’s legal advisors who were present by invitation of the Board, described the duties of the Board generally and with respect to transactions involving one or more of the Company’s substantial assets. A discussion followed regarding the proposed transaction, other potential transactions and considerations to maximize stockholder value. The discussion also included considerations relating to the Company having a controlling stockholder.
On May 5, 2021, the Company and Horace Mann entered into a non-binding letter of intent for the proposed Sale containing the terms above.
On May 6, 2021, the Board held a regular meeting of the Board. After ordinary course matters were settled, the non-management invitees, except for in-house legal counsel, were asked to depart the meeting, and representatives of Dentons and Raymond James joined the meeting. Mr. Graber informed the Board that the non-binding letter of intent dated May 5, 2021 has been signed and that Horace Mann was in the process of completing its due diligence. The Board then asked its outside advisors to comment on certain legal matters, including director fiduciary duties. The Board was not asked to take any action with respect to the proposed Sale.
On June 8, 2021, Horace Mann provided a draft of a stock purchase agreement. In such draft, Horace Mann reduced the purchase price to $164 million in cash, less approximately $2 million in expenses, resulting in a net purchase price of approximately $162 million. On June 11, 2021, the Company informed Horace Mann that it was rejecting the reduced purchase price and terminated discussions.
On or around June 12, 2021, Horace Mann again approached the Company and proposed the original purchase price of $172.5 million. In addition, Horace Mann agreed to provide the Company with the ability to receive an additional purchase price of up to $12.5 million if Madison National Life reached certain financial targets in 2023 (the “Earnout”). Specifically, the Company will indirectly receive through ICC a pro-rated amount of up to $12.5 million if Madison National Life has earnings in 2023 that surpass $15.25 million. If Madison National Life earnings in 2023 exceed $16.5 million, the Company will receive $12.5 million. However, it will not receive additional monies if earnings in 2023 are less than $15.25 million. If 2023 earnings exceed $15.25 million but not $16.5 million, the pro-rated amount is equal to the product of (i) the percentage derived by dividing the earnings exceeding $15.25 million by $1.25 million and (ii) $12.5 million. The Company and Horace Mann made an agreement in principle for the above terms and did not enter into a letter of intent. On June 17, 2021, Horace Mann provided to the Company a new draft of the stock purchase agreement containing the revised terms.
On July 12, 2021, the Board held a special meeting. Ms. Teresa Herbert, the Company’s current President but Senior Vice President and Chief Financial Officer at the time of the final negotiations with Horace Mann, provided a summary of the events that led to Horace Mann’s current offer to buy all of the outstanding shares of common stock of Madison National Life. She informed the Board that the current offer consisted of (i) $172.5 million purchase price plus the Earnout, if applicable, (ii) the SSL Reinsurance discussed at the May 3, 2021 special meeting of the Board,
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and (iii) the reinsurance, through Madison National Life, of the lines or classes of business other than pet insurance that will be acquired by Iguana Capital as part of the sale of Independence American Holdings Corp., namely vision, Medicare supplement, short term medical, limited medical benefit, dental, accidental death and disability, group gap, hospital indemnity, critical illness, expatriate accident and health, occupational accident and health, and other specialty health products written or assumed by Independence American Insurance Company. If Horace Mann had not agreed to provide reinsurance through Madison National Life, the Company would have had to create a Delaware entity to reinsure such business, which would have needed cash of $10 million to $15 million of surplus. In addition, Horace Mann indicated its desire to retain substantially all of Madison National Life’s employees and operations after the Closing. Subsequently, Reliance Standard agreed, pursuant to an amendment and restatement dated July 29, 2021 of its stock purchase agreement with Standard Security Life, to eliminate the need for the SSL Reinsurance.
The Board also discussed prior offers for the acquisition of Madison National Life, including an unsolicited offer early in 2020 for a significantly lower price that was later withdrawn. Another potential buyer in early 2021 also approached the Company and indicated that it might consider offering approximately the same price, but no official offer was made and the matter was dropped and no further action was taken. One of the directors asked whether there are ways to do a valuation of Madison National Life. Mr. Graber explained that for purposes of a valuation, there are no comparisons to other companies in the industry or past transactions because Madison National Life has a niche business. Therefore, valuation is best based on the two valuations made by the two potential buyers. Since the two separate companies in two different instances arrived at similar purchase prices, and the Company had received no other offers for Madison National Life, the Board determined, after further discussion, that Horace Mann’s purchase price and terms were fair to the Company’s stockholders.
A representative of Quarles & Brady LLP, Madison National Life’s outside counsel, was also present by invitation of the Board. The Board asked the representative of Quarles & Brady to comment on certain legal matters, including the Board’s fiduciary duties. Such representative explained to the directors their duty of care and responsibilities to the Company’s stockholders, and the business judgment rule. Such representative also informed the Board that it could consider factors other than price in its deliberations, including the fact that Horace Mann intends to keep in place substantially all of Madison National Life’s operations and employees. The directors asked such representative questions and had a robust discussion on these matters.
Ms. Herbert asked the Board to approve the Sale and the execution of the stock purchase agreement, to be dated July 14, 2021, by and among the Company, Independence Capital Corp., a wholly owned subsidiary of the Company and sole stockholder of Madison National Life (“ICC”), and Horace Mann attached as Annex A to this Information Statement, and issuance of a press release announcing the Sale. Ms. Herbert explained that the Sale is expected to be consummated after the receipt of all government approvals, including that of the OCI, which is estimated to take approximately three months from delivery of a Form A to the OCI. Madison National Life and Horace Mann agreed that in no event would the closing of the Sale occur earlier than January 1, 2022. Based on the foregoing, the Board found that the price offered by Horace Mann is the best reasonably available price for Madison National Life and that not selling Madison National Life was not reasonably likely to create greater value for the stockholders as compared to the value obtained for the stockholders pursuant to the Sale, and thus the Sale was in the best interest of the stockholders. Further, as a result of the extent of negotiations with Horace Mann, the Board believed that it obtained the highest consideration that Horace Mann was willing to pay or that the Company was likely to obtain from any other potential purchaser. Mr. Graber recused himself from voting because he would be receiving a financial benefit if, and payable when, the Sale is consummated, which will be disclosed in a Form 8-K at the appropriate time. All of the remaining eight directors voted in favor of the Sale and approved the execution of the Purchase Agreement.
On July 14, 2021, the board of directors of each of Madison National Life and ICC approved the Purchase Agreement and the Sale by written consent.
On July 14, 2021, the Purchase Agreement was signed and a press release was issued announcing the execution of the Purchase Agreement and the approval of the Sale.
On July 14, 2021, GHI, which is the holder of approximately 62% of the outstanding shares of the Company’s common stock, entered into a voting agreement with Horace Mann whereby it agreed to vote in favor of the Sale and the Purchase Agreement.
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On October 18, 2021, GHI approved the Sale and the Purchase Agreement by written consent in accordance with Section 228 of the DGCL. Since the action by written consent by the majority stockholders is sufficient to approve the Purchase Agreement and the Sale, no further action, approval or vote of the minority stockholders of Company was requested or required.
The Closing will occur on the later of (i) the first business day of the calendar quarter immediately following the calendar quarter in which all of the closing conditions under the Purchase Agreement have been satisfied or waived (including, without limitation, the receipt of all government approvals for the sale of Madison National Life, including that of the OCI); providedhowever, that if such closing conditions are satisfied or waived less than thirty (30) days prior to the end of a calendar quarter, then, at Horace Mann’s sole option, the Closing shall take place on the first business day of the second calendar quarter immediately following the calendar quarter in which the closing conditions are satisfied or waived; and provided further that the Closing shall not occur before January 1, 2022, unless another date, time or place is agreed to in writing by the all of the Parties and (ii) the first business day following the twentieth (20th) calendar day after the date on which this Information Statement has been mailed to the stockholders pursuant to Rule 14c-2 under the Exchange Act.
Reasons for the Sale
In the course of making the determinations about the Sale, the Board and management consulted with the Company’s legal and financial advisors. The Board also considered the following potentially positive factors, which are not intended to be exhaustive and are not presented in any relative order of importance:
Factors pertaining to the strategic rationale for the Sale, including the following:
The business prospects of Madison National Life’s business, including with its primary source distributor National Insurance Services (“NIS”), while owned by the Company;
A review of Madison National Life’s current and historical financial condition and results of operations, business prospects, management’s future projections and the risk of uncertainties involved in achieving such projections, and strategic alternatives;
The Company’s ability to focus on growing the remaining lines of business through organic growth; and
The unlikelihood of identifying an alternate transaction, or if an alternate transaction is identified, such alternate transaction resulting in an equivalent or higher price than what is proposed in the Sale because Horace Mann is a unique buyer in that it is in the education industry and has close ties to AssuredPartners, the parent company of NIS;
The support by the stockholders that collectively own a majority of the Company’s outstanding shares of common stock; and
The consideration for the Sale is not subject to any financing conditions and is all cash, which provides certainty and immediate liquidity and value to the Company and enables the Company to realize value that has been created while eliminating long-term business risk.
The Board also considered and balanced against the potentially positive factors a number of potentially negative factors, including the following factors:
The risks and costs to the Company, including the possibility that:
the Company’s relationships with its customers, distributors, suppliers and other partners will be damaged;
the Company’s business and operations will be disrupted and management’s attention will be distracted from day-to-day operations;
the Company will not be able to attract and retain key employees during the pendency of the Sale;
the Company will miss out on business opportunities that may arise during the pendency of the Sale; and
the conditions to closing that are beyond the Company’s control, such as government and regulatory approval, will not be satisfied and the market’s perception of the Company’s prospects will be adversely affected;
The Company’s stockholders will not participate in potential future growth and earnings, if any, of Madison National Life;
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The Company’s stockholders do not have appraisal rights or dissenters’ rights available to them under Delaware law or the Company’s organizational documents in connection with the Sale; and
Whether the remaining business will be successful and generate revenues and profit, and the Company’s ability to implement its business plan and the market acceptance of the Company’s proposed business and services.
After taking into account all of the factors set forth above, as well as others, the Board determined that the potentially positive factors outweighed the potentially negative factors. The Board reached the decision to approve the Purchase Agreement and the Sale in light of the factors described above and other factors the Board felt were appropriate. The foregoing discussion of the factors is not intended to be exhaustive, but summarizes the material information and factors considered by the Board in its consideration of the Sale. In view of the variety of factors and the quality and amount of information considered, the Board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination, and individual members of the Board may have given different weights to different factors. The Board conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, senior management of the Company and representatives of legal advisors, and considered the factors overall to be favorable to, and to support, its determinations. This explanation of the reasoning of the Board and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in “Special Cautionary Note Regarding Forward-Looking Statements”.
INFORMATION ABOUT THE PARTIES
Independence Holding Company
Independence Holding Company (the “Company,” “IHC” or “we,” “us” and “our”) is a Delaware corporation that is publicly traded on the New York Stock Exchange (NYSE: IHC). IHC is a holding company that, through its three carriers Independence American Insurance Company, Standard Security Life Insurance Company of New York and Madison National Life Insurance Company, Inc., underwrites and distributes health, group disability and life, New York State Disability Benefits and paid family leave, and pet insurance in all 50 states, Washington D.C., Puerto Rico and the U.S. Virgin Islands. It also distributes products nationally through multiple channels, including its agencies, call centers, advisors, direct and affinity relationships, Web Broker, and web properties, including www.healthedeals.com; www.healthinsurance.org; www.medicareresources.org; www.petplace.com and www.insxcloud.com. IHC has entered into stock purchase agreements to sell all of the issued and outstanding capital stock of Standard Security Life, Madison National Life and Independence American Holdings Corp., which includes Independence American Insurance Company and the remaining assets of IHC’s pet business after the sale of PetPartners, Inc., each of which is subject to regulatory approval. IHC and the purchaser received all necessary approvals for the sale of PetPartners and Pet Partners was sold on June 30, 2021. The Company’s principal executive offices are located at 96 Cummings Point Road, Stamford, CT 06902 and its telephone number is (203) 358-8000.
IHC currently sells, insures or reinsures the following lines of business:
Specialty health products, including:
short-term medical, vision, dental, supplemental products (including fixed indemnity limited benefit, critical illness, and hospital indemnity);
Pet insurance;
Group life and disability; and
New York State Disability Benefits.
In addition, IHC markets and sells Affordable Care Act major medical policies and Medicare supplement coverage through its carrier and for various unaffiliated insurers.
Geneve Holdings, Inc.
Geneve Holdings, Inc. is a private diversified financial holding company and member of a group consisting of itself and its affiliates SIC Securities Corp., Argent Investors Management Corporation and SMH Associates Corp., that together hold approximately 62% of the outstanding shares of common stock of IHC. Its address is 96 Cummings Point Road, Stamford, Connecticut 06902 and its telephone number is (203) 358-8000.
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Independence Capital Corp.
Independence Capital Corp. (“ICC”) was incorporated in Delaware on December 28, 1984 and is the sole owner of Madison National Life. It also wholly owns the Company’s other two carriers Independence American Insurance Company and Standard Security Life. All of IHC’s indirect subsidiaries are held by ICC. Its mailing address is 96 Cummings Point Road, Stamford, CT 06902 and its telephone number is (203) 358-8000.
Madison National Life Insurance Company, Inc.
Madison National Life was incorporated in Wisconsin on October 17, 1961. It is licensed in 49 states, specializes in group life and disability insurance, and focuses on public schools and the public sector. The Abacus Group, LLC, a Georgia limited liability company and wholly owned subsidiary of Madison National Life, is an agency group that writes worksite business for Madison National Life and other carriers. Its mailing address is 1241 John Q Hammons Drive, 5th Floor, Madison, Wisconsin, 53717 and its telephone number is (608) 830-2000.
Horace Mann Educators Corporation
Horace Mann is the largest financial services company focused on providing America's educators and school employees with insurance and retirement solutions and serves more than 4,100 school districts nationwide. Founded by Educators for Educators® in 1945, the company is headquartered in Springfield, Ill and is publicly traded on the New York Stock Exchange (NYSE HMN). Its mailing address is 1 Horace Mann Place, Springfield, IL 62715 and its telephone number is (800) 999-1030.
WHERE YOU CAN FIND MORE INFORMATION ABOUT THE COMPANY
The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. The Company’s SEC filings are made available electronically to the public at the SEC’s website located at www.sec.gov. The information provided on the Company’s website is not part of this Information Statement, and therefore is not incorporated herein by reference. The Company also maintains a website at www.ihcgroup.com. Its annual, quarterly and current reports, proxy statements and other information are also available, free of charge, through this website, as soon as reasonably practicable after they are filed with or furnished to the SEC.
The SEC allows the Company to “incorporate by reference” information that it files with the SEC in other documents into this Information Statement. This means that the Company may disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this Information Statement. This Information Statement and the information that the Company files later with the SEC may update and supersede the information incorporated by reference. Such updated and superseded information will not, except as so modified or superseded, constitute part of this Information Statement.
The Company incorporates by reference each document it files under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the initial filing of this Information Statement and before the filing of the Definitive Schedule 14C Information Statement. The Company also incorporates by reference in this Information Statement the following documents filed by it with the SEC under the Exchange Act:
Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed on March 16, 2021, as amended by Amendment No. 1 to Form 10-K filed on April 30, 2021
Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2021, June 30, 2021 and September 30, 2021, filed on May 7, 2021, August 9, 2021, and November 9, 2021, respectively
The Company undertakes to provide without charge to each person to whom a copy of this Information Statement has been delivered, upon request, by first class mail or other equally prompt means, a copy of any or all of the documents incorporated by reference in this Information Statement, other than the exhibits to those documents, unless the exhibits are specifically incorporated by reference into the information that this Information Statement incorporates. You may obtain documents incorporated by reference by requesting them in writing or by telephone at Independence Holding Company, 96 Cummings Point Road, Stamford, CT 06902, Attention: Legal Department, Telephone: (646) 509-2107.
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BUSINESS AFTER THE SALE
Summary
Following the closing of the pending sales of Madison National Life, Standard Security Life and Independence American Insurance Company, all of which are waiting to receive department of insurance approval, the Company intends to invest, develop and expand its agency operations into a much larger and profitable operation. The agency operations will be centered around INSXcloud.com (INSX), a CMS-approved Web Broker. The balance of the agency business includes W-2 Call Centers and a captive independent Advisors unit, both of which sell into the under/over age 65 health insurance markets. The Company’s Independence Brokerage Group recruits independent agents and agencies to sell via its platforms and contracts. The Company will also sell directly to consumers through leads generated by our web properties and affinity relationships. The Company will also hold a substantial amount of cash and investments, net of liabilities, and an interest in Iguana Capital.
Distribution
The Company will continue to sell and distribute the following insurance products for Independence American Insurance Company, Madison National Life and unaffiliated insurers:
Under/over age 65 health insurance products;
Major medical for individuals and families offered through certain third party carriers via state-based health exchanges and the INSX Cloud;
Health plans for small employer groups and Individual Coverage HRAs (ICHRA);
Individual and group term life and disability; and
Pet insurance.
Marketing/Administrative Companies Owned by IHC
IHC Specialty Benefits, Inc. (“Specialty Benefits”), an indirect wholly owned subsidiary of the Company, engages in sales and marketing of insurance products of Independence American Insurance Company and unaffiliated carriers through, without limitation, direct-to-consumer sales calls;
INSX Cloud, Inc., an indirect wholly owned subsidiary of the Company, provides a broker platform that enables brokers to quote, directly enroll and track applications on the Federally Facilitated Marketplace by generating quotes, providing plan comparisons, enrolling customers in plans, and inviting customers to enroll themselves in plans through its cloud-based web portal;
Independence Brokerage Group, Inc., an indirect wholly owned subsidiary of the Company, provides independent agents, general agents and white label partners access to individual and small group insurance products from Independence American Insurance Company; the agency also serves as an Independent Marketing Organization (IMO) for other insurance carriers and offers technology solutions for individual and group medical quoting and enrollment;
HealthInsurance.org, LLC (“HIO”), an indirect wholly owned subsidiary of the Company, is a lead generation agency. HIO generates leads for Specialty Benefits and non-affiliated entities, and monetizes traffic primarily through private exchange partners, web based entities and call centers that enroll subsidy-eligible individuals on exchanges managed by the federal and state governments; and
Torchlight Technology Group LLC, an indirect wholly owned subsidiary of the Company, is a lead generator and provides insurtech and martech services to companies in the insurance and specialty finance industries.
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INTEREST OF DIRECTORS AND EXECUTIVE OFFICERS IN THE PROPOSED SALE
None of the executive officers and directors of the Company have interests in the Sale that may be different from, or in addition to, the interests of the Company’s stockholders generally, except for Mr. Graber as described below. The Board was aware of these interests and considered them, among other matters, in approving the Purchase Agreement and the Sale.
On July 13, 2021, the Compensation Committee of the Board granted a $2 million bonus to Larry Graber, a director and Chief Life and Annuity Actuary and Senior Vice President of the Company and former President of Madison National Life, for his efforts and contribution to the sale of Madison National Life to Horace Mann. The bonus is also in recognition of Mr. Graber’s retirement at the end of 2021, termination of his employment agreement and service to Madison National Life throughout his tenure. The bonus would only be paid upon the closing of the Sale.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the number of shares of the Company’s common stock beneficially owned based on 14,674,936 outstanding shares of common stock as of October 21, 2021 (the “Record Date”) by: (i) any holder of more than five (5%) percent; (ii) each of the Company’s directors and named executive officers; and (iii) the Company's directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the Exchange Act. All share ownership figures include shares issuable upon exercise of options or warrants exercisable within sixty (60) days of the Record Date which are deemed outstanding and beneficially owned by such person for purposes of computing an entity’s or person’s percentage ownership, but not for purposes of computing the percentage ownership of any other entity or person.
Title of
Class
Name and Address
of Owner(1)
Amount Owned(2)
Percent of
Class
Percent of
Voting Stock
Common
SIC Securities Corp.
3,610,859
19.39%
24.61%
Common
SMH Associates Corp.
3,554,367
19.08%
24.22%
Common
Argent Investors Management Corporation
1,980,000
10.63%
13.49%
Common
Vincent Furfaro
40,000
*
*
Common
Teresa A. Herbert
151,888
*
1.03%
Common
Larry R. Graber
111,316
*
*
Common
Steven B. Lapin
122,162
*
*
Common
Allan C. Kirkman
37,026
*
*
Common
John L. Lahey
33,000
*
*
Common
Ronald I. Simon
48,900
*
*
Common
James G. Tatum
49,026
*
*
Common
David T. Kettig
111,989
*
*
Common
Roy T. K. Thung
366,352
2.00%
2.46%
 
All directors, and executive officers as a group
(11 persons)
1,141,355
6.13%
7.56%
*
Represents less than 1% of the outstanding shares of common stock of the Company.
(1)
The address of each individual named above is c/o Independence Holding Company at 96 Cummings Point Road, Stamford, CT 06902.
(2)
Information with respect to beneficial ownership is based upon information furnished by each stockholder or contained in filings made with the SEC. Unless otherwise indicated, beneficial ownership includes both sole investment and voting power.
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DISSENTER’S RIGHTS OF APPRAISAL
No dissenters' or appraisal rights are available to the stockholders for the sale of all or substantially all of the assets under the DGCL, or the Company's certificate of incorporation or its bylaws in connection with the Sale.
EFFECTS ON THE COMPANY IF THE SALE IS NOT COMPLETED
If the Sale is not completed, the Board, in discharging its fiduciary obligations to its stockholders, will evaluate other strategic alternatives that may be available, which alternatives may not be as favorable to the stockholders as the Sale.
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Independence Holding Company
Introduction to Pro Forma Condensed Consolidated Financial Statements
(Unaudited)
The following unaudited pro forma condensed consolidated financial statements are based upon our historical consolidated statements, adjusted to give effect to the proposed sale of our subsidiary Madison National Life, which may constitute substantially all of the assets of the Company, in accordance with the Purchase Agreement by and among the Company, ICC and Horace Mann. These unaudited pro forma condensed consolidated financial statements are derived from, and should be read in conjunction with, the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 as filed with the Securities and Exchange Commission. Because the proposed sale of Madison National Life, which may constitute substantially all of the assets of the Company, was not reflected as discontinued operations in the Company’s historical financial statements for the fiscal years ended December 31, 2020 and 2019 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, we have also provided the unaudited pro forma results of operations for the 2019 fiscal year to show its effect on discontinued operations in that year.
Unaudited pro forma financial information for IHC has been provided below to show what the significant effects on the historical financial information might have been had the proposed sale of Madison National Life, which may constitute substantially all of the assets of the Company, occurred at an earlier date. The unaudited pro forma condensed financial statements however are not necessarily indicative of the results of operations or related effects on financial position that would have been attained had the proposed sale of Madison National Life, which may constitute substantially all of the assets of the Company, actually occurred earlier. They also may not be useful in predicting the future financial condition and results of operations of the Company. The actual financial position and results of operations may differ significantly from the unaudited pro forma amounts reflected herein due to a variety of factors.
The pro forma adjustments related to the proposed sale of Madison National Life, which may constitute substantially all of the assets of the Company, is based on available information and assumptions that management believes are: (1) directly attributable to the sale of Madison National Life; (2) factually supportable; and (3) with respect to the unaudited pro forma condensed consolidated statements of income, expected to have continuing impact on the consolidated operating results. The most significant assumptions are set forth under the unaudited Notes to Pro Forma Condensed Consolidated Financial Statements.
Reclassifications for the effects of other operations that were discontinued in 2021 but not yet reflected in historical financial statements are presented separately in the following unaudited pro forma condensed consolidated financial statements to conform to the 2021 financial statement presentation. See Note 2 in the Notes to Pro Forma Condensed Consolidated Financial Statements for more information.
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INDEPENDENCE HOLDING COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data) (Unaudited)
SEPTEMBER 30, 2021
 
Historical
Sale of
Madison
National
Life
 
Pro Forma
Adjusted
ASSETS:
 
 
 
 
Investments:
 
 
 
 
Securities purchased under agreements to resell
$25,458
$
 
$25,458
Fixed maturities, available-for-sale
29,070
 
29,070
Other investments
2,050
 
2,050
Total investments
56,578
 
56,578
 
 
 
 
 
Cash and cash equivalents
7,946
172,500
a
180,446
Investment in Iguana Capital, Inc.
33,475
 
33,475
Funds held in escrow
78,263
 
78,263
Other assets
33,975
2,076
b
36,051
Assets attributable to discontinued operations
995,383
(607,229)
b,c
388,154
 
 
 
 
 
TOTAL ASSETS
$1,205,620
$(432,653)
 
$772,967
 
 
 
 
 
LIABILITIES AND EQUITY:
 
 
 
 
LIABILITIES:
 
 
 
 
Accounts payable, accruals and other liabilities
$39,817
$25,850
e
$65,667
Liabilities attributable to discontinued operations
601,253
(480,090)
b
121,163
 
 
 
 
 
TOTAL LIABILITIES
641,070
(454,240)
 
186,830
 
 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
 
 
STOCKHOLDERS' EQUITY:
 
 
 
 
Preferred stock $1.00 par value, 100,000 shares
authorized; none issued or outstanding
 
Common stock $1.00 par value: 23,000,000 shares
authorized; 18,625,458 shares issued; and 14,674,936 outstanding
18,625
 
18,625
Paid-in capital
125,357
 
125,357
Accumulated other comprehensive income
2,320
(1,162)
b
1,158
Treasury stock, at cost: 3,950,522 shares
(77,247)
 
(77,247)
Retained earnings
495,498
22,749
d
518,247
 
 
 
 
 
TOTAL IHC STOCKHOLDERS’ EQUITY
564,553
21,587
 
586,140
NONREDEEMABLE NONCONTROLLING
 
 
 
 
INTERESTS
(3)
 
(3)
 
 
 
 
 
TOTAL EQUITY
564,550
21,587
 
586,137
 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
$1,205,620
$(432,653)
 
$772,967
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements.
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INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data) (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
 
Historical
Sale of
Madison
National
Life
 
Pro Forma
Adjusted
REVENUES:
 
 
 
 
Net investment income
$430
$
 
$430
Fee income
20,291
 
20,291
Other income
1,660
10,178
f
11,838
Net realized investment gains
105
 
105
 
 
 
 
 
 
22,486
10,178
 
32,664
 
 
 
 
 
EXPENSES:
 
 
 
 
Selling, general and administrative expenses
53,028
2,229
f
55,257
 
 
 
 
 
Loss from continuing operations before taxes
(30,542)
7,949
 
(22,593)
Income tax (benefit)
(7,026)
1,669
f
(5,357)
 
 
 
 
 
Loss from continuing operations, net of tax
(23,516)
6,280
 
(17,236)
Loss from nonredeemable noncontrolling interests
2
 
2
 
 
 
 
 
NET LOSS FROM CONTINUING
OPERATIONS ATTRIBUTABLE TO IHC
$(23,514)
$6,280
 
$(17,234)
 
 
 
 
 
 
 
 
 
 
Basic loss per common share from continuing operations
$(1.61)
$.43
 
$(1.18)
 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
14,645
14,645
 
14,645
 
 
 
 
 
Diluted loss per common share from continuing operations
$(1.61)
$.43
 
$(1.18)
 
 
 
 
 
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING
14,645
14,645
 
14,645
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements.
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INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data) (Unaudited)
FOR THE YEAR ENDED DECEMBER 31, 2020
 
Historical
Other
Discontinued
Operations
 
Sale of
Madison
National
Life
 
Pro Forma
Adjusted
REVENUES:
 
 
 
 
 
 
Premiums earned
$397,530
$(205,530)
g
$(192,000)
b
$
Net investment income
11,777
(3,957)
g
(6,752)
b
1,068
Fee income
24,137
6,304
g
1,279
b
31,720
Other income
9,074
(1,084)
g
6,575
b,f
14,565
Net realized investment gains
1,346
(900)
g
(350)
b
96
 
 
 
 
 
 
 
 
443,864
(205,167)
 
(191,248)
 
47,449
 
 
 
 
 
 
 
EXPENSES:
 
 
 
 
 
 
Insurance benefits, claims and reserves
208,217
(124,458)
g
(83,759)
b
Selling, general and administrative expenses
205,797
(56,757)
g
(79,933)
b,f
69,107
 
 
 
 
 
 
 
 
414,014
(181,215)
 
(163,692)
 
69,107
 
 
 
 
 
 
 
Income (loss) from continuing operations before taxes
29,850
(23,952)
 
(27,556)
 
(21,658)
Income tax (benefit)
10,732
(5,540)
g
(6,061)
b,f
(869)
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
19,118
(18,412)
 
(21,495)
 
(20,789)
(Income) from nonredeemable noncontrolling interests
(28)
 
 
(28)
(Income) from redeemable noncontrolling interests
(209)
209
g
 
 
 
 
 
 
 
 
NET INCOME (LOSS) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO IHC
$18,881
$(18,203)
 
$(21,495)
 
$(20,817)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic income (loss) per common share from continuing operations
$1.28
$(1.23)
 
$(1.46)
 
$(1.41)
 
 
 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
14,733
14,733
 
14,733
 
14,733
 
 
 
 
 
 
 
Diluted income (loss) per common share from continuing operations
$1.28
$(1.23)
h
$(1.46)
h
$(1.41)
 
 
 
 
 
 
 
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING
14,791
14,733
h
14,733
h
14,733
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements.
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INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data) (Unaudited)
FOR THE YEAR ENDED DECEMBER 31, 2019
 
Historical
Other
Discontinued
Operations
 
Sale of
Madison
National
Life
 
Pro Forma
Adjusted
REVENUES:
 
 
 
 
 
 
Premiums earned
$338,741
$(136,952)
g
$(201,789)
b
$
Net investment income
15,643
(5,176)
g
(8,937)
b
1,530
Fee income
14,003
10,031
g
1,488
b
25,522
Other income
2,002
709
g
33
b
2,744
Net realized investment gains
4,705
(2,917)
g
(1,175)
b
613
Net impairment losses recognized in earnings
(646)
646
g
 
 
 
 
 
 
 
 
 
374,448
(133,659)
 
(210,380)
 
30,409
 
 
 
 
 
 
 
EXPENSES:
 
 
 
 
 
 
Insurance benefits, claims and reserves
174,121
(89,943)
g
(84,178)
b
Selling, general and administrative expenses
174,979
(25,320)
g
(86,261)
b
63,398
 
 
 
 
 
 
 
 
349,100
(115,263)
 
(170,439)
 
63,398
 
 
 
 
 
 
 
Income (loss) from continuing operations before taxes
25,348
(18,396)
 
(39,941)
 
(32,989)
Income taxes
12,659
(3,812)
g
(7,200)
b
1,647
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
12,689
(14,584)
 
(32,741)
 
(34,636)
(Income) from nonredeemable noncontrolling interests
(119)
 
 
(119)
(Income) from redeemable noncontrolling interests
(174)
174
g
 
 
 
 
 
 
 
 
NET INCOME (LOSS) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO IHC
$12,396
$(14,410)
 
$(32,741)
 
$(34,755)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic income (loss) per common share from continuing operations
$.83
$(.97)
 
$(2.20)
 
$(2.33)
 
 
 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
14,903
14,903
 
14,903
 
14,903
 
 
 
 
 
 
 
Diluted income (loss) per common share from continuing operations
$.83
$(.97)
h
$(2.20)
h
$(2.33)
 
 
 
 
 
 
 
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING
14,976
14,903
h
14,903
h
14,903
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements.
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Independence Holding Company
Notes to Pro Forma Condensed Consolidated Financial Statements
(Unaudited)
Note 1: Basis of Presentation
Independence Holding Company and its wholly owned subsidiary ICC entered into a Purchase Agreement to sell all of the issued and outstanding capital stock of Madison National Life, a Wisconsin insurance company wholly owned by ICC, which may constitute substantially all of the assets of the Company. The unaudited Pro Forma Condensed Consolidated Balance Sheet has been prepared as if the proposed sale of Madison National Life had been consummated on September 30, 2021. The unaudited Pro Forma Condensed Consolidated Statements of Income for the nine months ended September 30, 2021 and for the year ended December 31, 2020 have been prepared as if the proposed sale of Madison National Life occurred as of the beginning of each respective period; the unaudited Pro Forma Condensed Consolidated Statement of Income for the 2019 fiscal year has been prepared to present the effect of the proposed sale of Madison National Life in discontinued operations as of the beginning the period.
The unaudited pro forma condensed consolidated financial statements are based upon available information and certain assumptions that management believes are: (1) directly attributable to the sale of Madison National Life; (2) factually supportable; and (3) with respect to the unaudited Pro Forma Condensed Consolidated Statements of Income, expected to have continuing impact on the consolidated operating results. The estimated net gain resulting from the consummation of the proposed sale of Madison National Life is included as an adjustment to retained earnings on the unaudited Pro Forma Condensed Consolidated Balance Sheet at September 30, 2021 and is not reflected as an adjustment in the unaudited Pro Forma Condensed Consolidated Statements of Income in any period presented. In addition, the Company did not include a pro forma adjustment for investment income that could have been potentially earned on the net proceeds from the proposed sale transaction in such statements. However, the unaudited Pro Forma Condensed Consolidated Statements of Income do reflect pro forma adjustments for estimated federal and state income tax provisions, which may be subject to further adjustment based on the actual carrying value of net assets sold at the date of closing, among other considerations.
The unaudited pro forma condensed consolidated financial statements do not represent what the Company’s financial position would have been assuming the consummation of the proposed sale of Madison National Life had occurred on September 30, 2021 or what the Company’s consolidated statements of income would have been assuming the consummation of the proposed sale of Madison National Life had occurred prior to January 1, 2019, nor do they project the Company’s financial position or results of operations at any future date or for any future period. These unaudited pro forma condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 as filed with the Securities and Exchange Commission.
Note 2: Other Discontinued Operations
During the second quarter of 2021, the IHC Board of Directors committed to various plans for the disposal of several other business operations. Each plan represents a strategic shift that will have a major effect on the Company’s operations and financial results and as such, they each qualified for reporting as discontinued operations in 2021. The assets, liabilities, and related income and expenses associated with each disposal group are presented as discontinued operations in the historical column of the unaudited Pro Forma Condensed Consolidated Financial Statements as of September 30, 2021 and for the nine months then ended.
Refer to Note 4 below for certain pro forma adjustments to reflect the aggregate impact of these other discontinued operations on the Condensed Consolidated Statements of Income for the fiscal years ended December 31, 2020 and 2019 because they were not yet reflected in the Company’s historical financial statements for those periods.
Note 3: Sale of Madison National Life
In July 2021, the Board of Directors of IHC approved a plan to sell all of the issued and outstanding capital stock of Madison National Life, which may constitute substantially all of the assets of the Company, and subsequently, the Company entered into an agreement for its sale. In accordance with the Purchase Agreement, prior to the closing Madison National Life will enter into a reinsurance agreement with Independence American Insurance Company (“Independence American”), a wholly owned subsidiary of IHC, to reinsure Independence American’s specialty
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health business. The aggregate purchase price for Madison National Life is $172.5 million in cash and, in addition, if Madison National Life reaches specified financial targets in 2023, IHC will receive an additional purchase price of up to $12.5 million. The proposed sale transaction was approved by the Board of Directors of IHC, and IHC’s majority stockholders have entered into a voting agreement under which such majority stockholders agreed to approve the proposed sale transaction. The closing is expected no earlier than January 1, 2022. The proposed sale transaction is subject to customary closing conditions, including applicable regulatory approvals, one of which is the approval by the Wisconsin Office of the Commissioner of Insurance. The aforementioned disposal plan represents a strategic shift that will have a major effect on the Company’s operations and financial results and as such, qualifies for reporting as discontinued operations in the third quarter of 2021.
Note 4: Pro Forma Adjustments
a)
Reflects proceeds on the sale of Madison National Life.
b)
Reflects the elimination of assets and liabilities and corresponding income and expenses of Madison National Life, including those amounts associated with the reinsured specialty health business from Independence American.
c)
Includes goodwill allocated to the proposed sale of Madison National Life.
d)
Reflects the pro forma estimated gain of $22.7 million on the sale of Madison National Life, net of estimated expenses, and applicable income taxes had the transaction occurred on September 30, 2021.
e)
Includes estimated liabilities for transaction costs and estimated state and Federal income taxes on the pro forma estimated gain.
f)
Assuming Madison National Life reinsured the specialty health business from Independence American as of the beginning of the applicable period, the pro forma adjustment reflects the estimated net settlements related to the reinsured specialty health business from Madison National Life to IHC, and the pro forma impact of estimated fees payable by IHC to Independence American for the administration of its specialty health business, until the policies run off.
g)
Reflects the aggregate impact of other discontinued operations reported in the historical interim financial statements as of and for the nine months ended September 30, 2021 that were not yet presented as discontinued operations in the Company’s historical financial statements for the fiscal years ended December 31, 2020 and 2019.
h)
As a result of the pro forma adjustments above, there are losses from continuing operations, therefore diluted earnings per share is calculated using basic weighted average shares outstanding.
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MADISON NATIONAL LIFE INSURANCE COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF INDEPENDENCE CAPITAL CORP.)
(UNAUDITED) HISTORICAL FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
 
Page
FOR THE YEAR ENDED DECEMBER 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
 
 
 
 
 
 
 
 
 
 
 
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MADISON NATIONAL LIFE INSURANCE COMPANY, INC.
BALANCE SHEETS
(Unaudited) (In thousands, except share data)
 
December 31,
 
2020
2019
ASSETS:
 
 
Investments:
 
 
Short-term investments
$1,568
$50
Securities purchased under agreements to resell
9,076
15,066
Fixed maturities, available-for-sale
166,716
161,302
Equity securities
1,753
1,509
Other investments
1,894
Total investments
179,113
179,821
 
 
 
Cash and cash equivalents
14,708
6,091
Due and unpaid premiums
6,195
5,722
Due from reinsurers
343,527
347,860
Goodwill
4,223
Other assets
17,652
13,324
 
 
 
TOTAL ASSETS
$565,418
$552,818
 
 
 
LIABILITIES AND EQUITY:
 
 
LIABILITIES:
 
 
Policy benefits and claims
$102,100
$101,388
Future policy benefits
176,850
179,308
Funds on deposit
140,666
139,676
Unearned premiums
1,340
1,184
Other policyholders' funds
11,987
12,025
Due to reinsurers
2,093
1,890
Accounts payable, accruals and other liabilities
22,203
17,091
 
 
 
TOTAL LIABILITIES
457,239
452,562
 
 
 
Commitments and contingencies
 
 
 
 
 
STOCKHOLDER’S EQUITY:
 
 
Common stock $60,000 par value, 75 shares authorized;
60 shares issued and outstanding
3,600
3,600
Paid-in capital
67,363
67,363
Accumulated other comprehensive income
2,027
373
Retained earnings
35,189
28,920
 
 
 
TOTAL STOCKHOLDER’S EQUITY
108,179
100,256
 
 
 
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY
$565,418
$552,818
See the accompanying Notes to Financial Statements.
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MADISON NATIONAL LIFE INSURANCE COMPANY, INC.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited) (In thousands)
 
Year Ended December 31,
 
2020
2019
REVENUES:
 
 
Premiums earned
$107,334
$100,325
Net investment income
4,504
5,187
Other income
6,270
882
Net investment gains
350
1,175
Equity income in subsidiary
5,666
 
 
 
 
118,458
113,235
 
 
 
EXPENSES:
 
 
Insurance benefits, claims and reserves
53,364
48,572
Selling, general and administrative expenses
46,306
41,081
 
 
 
 
99,670
89,653
 
 
 
Income from operations before income taxes
18,788
23,582
Income taxes
4,219
2,575
 
 
 
NET INCOME
14,569
21,007
 
 
 
Other comprehensive income:
 
 
Unrealized gains on available-for-sale securities, pre-tax
2,094
4,756
Tax expense on unrealized gains on available-for-sale securities
440
999
Unrealized gains on available-for-sale securities, net of taxes
1,654
3,757
Equity in unrealized gains on available-for-sale securities of subsidiary
2,222
Other comprehensive income, net of tax
1,654
5,979
 
 
 
COMPREHENSIVE INCOME, NET OF TAX
$16,223
$26,986
See the accompanying Notes to Financial Statements.
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MADISON NATIONAL LIFE INSURANCE COMPANY, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
(Unaudited) (In thousands)
 
Common
Stock
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Stockholder’s
Equity
BALANCE AT DECEMBER 31, 2018
$3,600
$80,231
$(4,668)
$154,885
$234,048
 
 
 
 
 
 
Net income
 
 
 
21,007
21,007
Other comprehensive income, net of tax
 
 
5,979
 
5,979
Dividends
 
(12,237)
(938)
(146,972)
(160,147)
Other
(631)
(631)
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2019
$3,600
$67,363
$373
$28,920
$100,256
 
 
 
 
 
 
Net income
 
 
 
14,569
14,569
Other comprehensive income, net of tax
 
 
1,654
 
1,654
Dividends
(8,300)
(8,300)
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2020
$3,600
$67,363
$2,027
$35,189
$108,179
See the accompanying Notes to Financial Statements.
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MADISON NATIONAL LIFE INSURANCE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
 
Year Ended December 31,
 
2020
2019
CASH FLOWS PROVIDED BY (USED BY) OPERATING ACTIVITIES:
 
 
Net income
$14,569
$21,007
Adjustments to reconcile net income to net change in cash from operating activities:
 
 
Equity income in subsidiary
(5,666)
Amortization of deferred acquisition costs
809
182
Net amortization of purchased premium and discount in net investment income
1,848
1,388
Net investment gains
(350)
(1,175)
Depreciation and amortization
512