SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 1, 1998
RISCORP, INC.
(Exact name of registrant
as specified in its charter)
Florida 0-27462 65-0335150
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
One Sarasota Tower, Suite 608
Sarasota, Florida 34236
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (941) 366-5015
N/A
(Former name or former address, if changed since last report)
<PAGE>
This document contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended.
The words "believe", estimate", "intend", "anticipate", and similar expressions
and variations thereof identify certain of such forward-looking statements,
which speak only as of the dates on which they were made. The Company undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise. Readers are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those indicated in the forward-looking statements as a
result of various factors. Readers are cautioned not to place undue reliance on
these forward-looking statements.
Item 2. Acquisition or Disposition of Assets.
Pursuant to an Asset Purchase Agreement dated June 17, 1997, by and
among the Company, its subsidiaries, and Zenith Insurance Company ("Zenith"), a
wholly owned subsidiary of Zenith National Insurance Corp., the Company and its
subsidiaries sold substantially all their operating assets to Zenith. The
transaction was completed on April 1, 1998.
In accordance with the Asset Purchase Agreement, on April 2, 1998,
Zenith transferred $25.0 million to RISCORP and an additional $10.0 million into
an interest bearing escrow account as payment of the initial and minimum
purchase price. The final purchase price will be the excess, if any, of the book
value of the transferred assets over the transferred liabilities assumed by
Zenith at closing. On June 8, 1998, the Company's representative delivered to
Zenith a closing date balance sheet (the "Closing Balance Sheet") representing
the audited statement of transferred assets and transferred liabilities. The
Closing Balance Sheet indicated a final purchase price of approximately $141
million. The Closing Balance Sheet is subject to review by Zenith, and the
determination of the final purchase price is subject to a dispute resolution
process. Accordingly, the ultimate final purchase price has not yet been
determined, and may differ materially from the amount indicated by the Closing
Balance Sheet. The final purchase price, less the $35 million paid at closing,
will be payable in cash.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(b) Pro Forma Financial Information
The pro forma financial information required by this Item 7(b) is
incorporated herein by reference to Exhibit 99 hereto.
(c) Exhibits
2.1 Asset Purchase Agreement, dated June 17, 1997, among Zenith
Insurance Company and RISCORP, Inc., RISCORP Management
Services, Inc., RISCORP of Illinois, Inc., Independent
Association Administrators Incorporated, RISCORP Insurance
Services, Inc., RISCORP Management Care Services, Inc.,
CompSource, Inc., RISCORP Real Estate Holdings, Inc., RISCORP
Insurance Company, RISCORP West, Inc., RISCORP of Florida,
Inc., RISCORP Insurance Company, RISCORP Services, Inc.,
RISCORP Staffing Solutions Holding, Inc., RISCORP Staffing
Solutions, Inc. I, and RISCORP Staffing Solutions, Inc. II
(incorporated by reference to the Company's Proxy Statement
dated March 3, 1998).
99 Pro Forma Financial Information
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RISCORP, INC.
By: /s/ Walter E. Riehemann
Walter E. Riehemann
Secretary and Treasurer
Dated: June 15, 1998
<PAGE>
EXHIBIT INDEX
Number Description
2.1 Asset Purchase Agreement, dated June 17, 1997, among Zenith
Insurance Company and RISCORP, Inc., RISCORP Management
Services, Inc., RISCORP of Illinois, Inc., Independent
Association Administrators Incorporated, RISCORP Insurance
Services, Inc., RISCORP Management Care Services, Inc.,
CompSource, Inc., RISCORP Real Estate Holdings, Inc., RISCORP
Insurance Company, RISCORP West, Inc., RISCORP of Florida,
Inc., RISCORP Insurance Company, RISCORP Services, Inc.,
RISCORP Staffing Solutions Holding, Inc., RISCORP Staffing
Solutions, Inc. I, and RISCORP Staffing Solutions, Inc. II.
(incorporated by reference to the Company's Proxy Statement
dated March 3, 1998).
99 Pro Forma Financial Information
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma balance sheet estimates the pro forma effect
of the sale to Zenith as if the sale and the transactions contemplated in the
Asset Purchase Agreement had been consummated on March 31, 1998. The following
unaudited pro forma income statements estimate the pro forma income statements
based on the pro forma effects of the sale as if such sale had occurred on
January 1, 1997. The pro forma adjustments are described in the following notes
and are based upon available information and certain assumptions that the
Company believes are reasonable. The pro forma data may not be indicative of the
results of operations and financial position of the Company, as it may be in the
future or as it might have been had the transaction been consummated on the
respective dates assumed. The information should be read in conjunction with the
Company's historical financial statements and accompanying notes previously
filed in RISCORP's Form 10-K for the year ended December 31, 1997, the Proxy
Statement dated March 3, 1998 and the Form 10-Q/A for the three months ended
March 31, 1998.
The proposed purchase price of the Company reflected in the pro forma financial
information is the excess of the Transferred Assets over the Transferred
Liabilities (as such terms are defined in the Asset Purchase Agreement) of the
Company on the Closing Date as determined by the audited Proposed Business
Balance Sheet of the Company prepared in conformity with generally accepted
accounting principles which have been consistently applied. The actual purchase
price of the net assets of the Company and its subsidiaries acquired by Zenith
will be based on the Final Business Balance Sheet, as determined in accordance
with the terms of the Asset Purchase Agreement, subject to the minimum purchase
price of $35.0 million. The final purchase price is subject to review by Zenith
and a dispute resolution process; therefore, the final purchase price cannot be
determined at this time and may differ materially from the purchase price
reflected in the pro forma consolidated balance sheet presented below.
<PAGE>
<TABLE>
RISCORP, INC. AND SUBSIDIARIES
Pro Forma Consolidated Balance Sheet
March 31, 1998
(Unaudited)
<CAPTION>
Pro Forma
Adjustments for Pro Forma
Historical Assets Balances to
March 31, 1998 and Liabilities be Retained
ASSETS to be Sold by RISCORP
---------------- ----------------- -----------------
Investments:
<S> <C> <C> <C>
Fixed maturities, available for sale $ 117,589,939 $ 115,535,609 $ 2,054,330
Fixed maturities, available for sale -
restricted total 59,843,713 59,843,713 -
Fixed maturities, held to maturity 23,750,829 14,437,092 9,313,737
----------- ------------ ----------
Total investments 201,184,481 189,816,414 11,368,067
----------- ------------ ----------
Cash and cash equivalents 15,167,683 15,167,683 -
Cash and cash equivalents - restricted 14,385,010 14,141,010 244,000
Premiums receivable, net 83,556,333 83,556,333 -
Recoverable from Florida Special
Disability Trust Fund 44,552,000 44,552,000 -
Reinsurance recoverables 213,667,000 213,667,000 -
Prepaid reinsurance premiums 21,680,084 21,680,084 -
Prepaid managed care fees 6,182,364 6,182,364 -
Asset purchase receivable from Zenith - - 141,054,795
Accounts receivable - other 19,278,386 10,603,762 8,674,624
Accrued reinsurance commissions 38,669,647 38,669,647 -
Deferred income taxes 22,361,155 - 22,361,155
Property and equipment, net 25,545,984 25,221,907 324,077
Goodwill 14,068,754 14,068,754 -
Other assets
6,738,182 2,134,412 4,603,770
-------------- -------------- --------------
TOTAL ASSETS $ 727,037,063 $ 679,461,370 $ 188,630,488
============== ============== ==============
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
RISCORP, INC. AND SUBSIDIARIES
Pro Forma Consolidated Balance Sheet
March 31, 1998
(Unaudited)
<CAPTION>
Pro Forma
Adjustments for Pro Forma
Historical Assets Balances to
LIABILITIES AND March 31, 1998 and Liabilities be Retained
SHAREHOLDERS' EQUITY to be Sold by RISCORP
---------------- ----------------- -----------------
Liabilities:
<S> <C> <C> <C>
Losses and loss adjustment expenses $ 461,656,421 $ 461,656,421 $
-
Unearned premiums 43,177,363 43,177,363 -
Notes payable of parent company 15,527,203 15,197,019 330,184
Deposit balances payable 3,913,334 3,913,334 -
Net assets in excess of cost of businesses
acquired 5,543,563 5,543,563 -
Accrued expenses and other liabilities 42,409,097 8,918,875 33,490,222
--------------- --------------- --------------
Total liabilities 572,226,981 538,406,575 33,820,406
-------------- ------------- --------------
Shareholders' equity:
Common stock 128,184 - 128,184
Preferred stock 243,344 - 243,344
Additional paid-in capital 136,608,722 - 136,608,722
Net unrealized gains on investments 1,957,603 - 1,957,603
Retained earnings 15,873,355 - 15,873,355
Treasury stock
(1,126) - (1,126)
------ ------------- -----------
Total shareholders' equity 154,810,082 - 154,810,082
TOTAL LIABLITIES AND
SHAREHOLDERS' EQUITY $ 727,037,063 $ 538,406,575 $ 188,630,488
============= ============= =============
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RISCORP, INC. AND SUBSIDIARIES
ProForma Consolidated Statement of Operations
For the three months ended March 31, 1998
(Unaudited)
Pro Forma
Historical Adjustments for Pro Forma After
March 31, Proposed Sale to Proposed Sale to
1998 Zenith Zenith
---------------- ----------------- -----------------
Revenue:
<S> <C> <C> <C>
Premiums earned $ 25,818,960 $ 25,818,960 $ -
Fee and other income 5,723,333 5,723,333 -
Net investment income 4,766,657 4,595,117 171,540
-------------- -------------- --------------
Total revenue 36,308,950 36,137,410 171,540
------------- ------------- --------------
Expenses:
Losses and loss adjustment expenses 24,344,997 24,344,997 -
Unallocated loss adjustment expenses 2,231,893 2,231,893 -
Commissions, underwriting and administrative expenses 15,515,266 13,725,266 1,790,000
Interest 468,561 468,561 -
Depreciation and amortization 3,069,595 3,069,595 -
-------------- -------------- --------------
Total expenses 45,630,312 43,840,312 1,790,000
------------- ------------- --------------
Income (loss) before income taxes (9,321,362) (7,702,902) (1,618,460)
Income taxes - - -
Net income $ (9,321,362) $ (7,702,902) $ (1,618,460)
============= ============ ============
Net income per common share $ (0.25) $ (0.04)
=====
Weighted average common and common share
equivalents outstanding 36,868,114 36,868,114
============= ============
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
RISCORP, INC. AND SUBSIDIARIES
Pro Forma Consolidated Statement of Operations
For the year ended December 31, 1997
<CAPTION>
Pro Forma Pro Forma After
Historical Adjustments for Proposed Sale to
1997 Sale to Zenith Zenith
(Unaudited) (Unaudited)
Revenue:
<S> <C> <C> <C>
Premiums earned $ 179,728,868 $ 179,728,868 $ -
Fee and other income 20,369,557 20,369,557 -
Net investment income 17,992,982 17,306,822 686,160
--------------- --------------- ---------------
Total revenue 218,091,407 217,405,247 686,160
-------------- -------------- ---------------
Expenses:
Losses and loss adjustment expenses 104,051,528 104,051,528 -
Unallocated loss adjustment expenses 19,311,302 19,311,302 -
Commissions, underwriting and administrative expenses 70,801,253 51,421,253 19,380,000
Interest 1,918,563 1,918,563 -
Depreciation and amortization 7,422,515 7,422,515 -
-------------- -------------- -------------
Total expenses 203,505,161 184,125,161 19,380,000
-------------- -------------- -------------
Income (loss) before income taxes 14,586,246 33,280,086 (18,693,840)
Income taxes 7,300,000 16,646,920 (9,346,920)
------- --------------- -------------
Net income $ 7,286,246 $ 16,633,166 $ (9,346,920)
=============== ============== ============
Net income per common share $ 0.20 $ (0.25)
==== =====
Weighted average common and common share
equivalents outstanding 37,115,672 37,115,672
============== ============
See accompanying notes.
</TABLE>
<PAGE>
1. Pro Forma Balance Sheet Adjustments for Sale
The pro forma balance sheet reflects a receivable from Zenith at March 31,
1998 for the net receivable from the asset sale in the amount of
$141,054,795 based on the amounts contained on the audited Proposed
Business Balance Sheet. These proceeds from the sale will be allocated
among the Company and those subsidiaries also selling assets in connection
with the sale transaction. The proceeds from the sale are expected to be
received by RISCORP as follows:
$25.0 million was paid to the Company on the Closing Date, April
1, 1998.
$10.0 million was placed, on the Closing Date, in an interest
bearing escrow account.
Not later than 135 days after the Closing Date (August 13, 1998),
Zenith is required to pay in cash the remaining purchase price to
RISCORP, plus interest thereon of 6.13 percent from the Closing
Date through the final payment date, less the additional amount
required to be deposited into escrow. This final payment will be
based on the Final Business Balance Sheet and is subject to review
by Zenith and a dispute resolution process. The final purchase
price cannot be determined at this time and may differ materially
from the purchase price reflected in the pro forma consolidated
balance sheet presented above.
The additional amount to be escrowed from the remaining purchase
price will be that amount necessary to increase the escrow balance
to an amount equal to 15 percent of the purchase price as
determined by the Final Business Balance Sheet. The amount of cash
that is estimated to be held in escrow (excluding interest) is
$21.2 million based on the audited Proposed Business Balance
Sheet. The escrowed funds will be invested in United States
government debt obligations or in money market funds secured by
such debt obligations. Interest income on the escrowed funds will
be paid to the Company at the end of each calendar quarter. The
escrowed funds will be disbursed pursuant to the terms of the
Escrow Agreement and are expected to be paid to the Company
twenty-four (24) months from the Closing Date.
The Company will transfer all of its assets and liabilities from its
insurance operations and will retain certain assets and liabilities as
follows:
$141.1 million in receivable from Zenith from the sale.
Security investments adequate to meet the minimum capital and
surplus requirements of the insurance subsidiaries totaling
approximately $11.4 million.
$22.4 million of deferred tax assets that are currently expected
to be primarily recovered from the reversal of certain timing
differences that will occur as a result of the sale to Zenith. The
conversion of this deferred tax asset to cash is projected to
occur within 18 months after the date of the sale.
$8.7 million of insurance recoveries relating to certain
litigation settlements and other miscellaneous recoverables.
$5.1 million of prepaid items, fixed assets and restricted cash.
$12.3 million of employee related accruals, certain restructuring
accruals, accrued expenses for one time charges incurred in
connection with the sale, post closing expenses, notes payable and
taxes payable.
$21.5 million of accrued litigation settlements.
<PAGE>
1. Pro Forma Adjustment for the Statements of Operations
The pro forma income statements reflect adjustments as if the sale had
occurred on January 1, 1997. After the sale is consummated, the Company
will no longer have any insurance operations or other operating entities.
All activities will be focused on concluding the business of the Company,
the sale of the insurance subsidiaries, the defense of lawsuits filed
against the Company and the eventual liquidation of the assets to the
shareholders.
The Company is required to establish an escrow account in an amount equal
to 15% of the cash proceeds of the sale. These funds will be invested in
United States government debt obligations or in money market funds secured
by such debt obligations with a duration of up to two years from the
Closing Date, in accordance with the terms of the Escrow Agreement. The
Company projects it will realize a yield of 5.0% on the amounts placed in
the escrow account. The remaining 85% of the proceeds from the sale will be
invested in U.S. Treasury securities similar to those in the escrow
account. The Company projects it will realize a yield of 5.5% on the other
invested balances beginning 135 days after the Closing Date (see Note 1
above). Post closing, the Company will liquidate its investment portfolio
to the extent that operating and other costs exceed the investment income
generated by the invested assets.
The pro forma income statements reflect projected interest income on the
retained security investments noted in Note 1.
The Company expects that its statutory tax rates for the periods covered by
these pro forma statements will be zero due to tax benefits that will be
realized by the Company due to the sale transaction.
2. One Time Charges Incurred in Connection with the Asset Sale
The Company's estimate (in thousands) of certain one time charges resulting
from the sale are described below. These charges will be incurred at the
closing.
Fees to Smith Barney.......................... $1,500
Fees to Alex Brown............................ 900
Stock incentive............................... 2,973
Change in control payments to Mr. Dawson...... 1,096
Personnel costs relating to change in control. 2,435
Change in unrealized capital gains............ (1,958)
Legal fees...................................... 475
Accounting, auditing and actuarial fees....... 1,975
-------
$9,396
<PAGE>
3. Post Closing Expenses
The Company anticipates that the post closing expenses will be primarily
related to the ongoing administration of the three insurance subsidiaries,
the parent company and expenses to conclude the business of the Company as
discussed in Note 2.
The Company will have continued obligations in connection with the payment
of certain June 1997 restructuring costs through the post closing year, in
addition to the costs associated with the settlement of the various legal
proceedings.
<TABLE>
The estimated components of the post closing expenses are:
<CAPTION>
3 Months 12 Months
Ended Ended
3-31-98 12-31-97
------------- -----------
<S> <C> <C>
(1) Legal......................................$ 250,000 $ 933,000
(2) Finance, accounting & regulatory reporting. 300,000 1,200,000
(3) Audit & actuarial.......................... 110,000 435,000
(4) Salary & benefits.......................... 350,000 291,000
(5) General and administrative................. 750,000 2,929,000
(6) Computer equipment & maintenance........... 30,000 117,000
(7) Litigation settlements - net - 13,475,000
----------- -----------
$ 1,790,000 $19,380,000
=========== ===========
</TABLE>
The pro forma income statement for the year ended December 31, 1997
reflects estimated litigation settlements of $23.475 million and estimated
insurance recoveries of $10.0 million resulting in a net cost of $13.475
million. The settlements are more fully described in the Company's Form
10-K filed on March 27, 1998.
The Company has contracted with finance, accounting, legal, tax, audit and
actuarial professionals for their services to fulfill most of the post
closing functions. Audit and actuarial costs include cost estimates from
the Company's independent accountants and actuaries for the completion of
the audit and loss reserve certification of the Proposed Business Balance
Sheet.
As part of the closing, Zenith entered into an assumption and indemnity
reinsurance agreement with each of the Company's three insurance
subsidiaries. This form of reinsurance will not require the Company to have
any involvement in the insurance operations that were sold.
