SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUER
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
YADKIN VALLEY COMPANY
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
NORTH CAROLINA 56-1249566
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
POST OFFICE BOX 1729
RALEIGH, NORTH CAROLINA 27602
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(Address of principal executive offices) (Zip Code)
(919) 716-2266
--------------------------------------------------
Registrant's telephone number, including area code
Securities to be registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
NONE N/A
------------------- ------------------------------
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00 PAR VALUE PER SHARE
---------------------------------------
(Title of class)
<PAGE>
INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 1. DESCRIPTION OF BUSINESS.
Yadkin Valley Company (the "Registrant") was incorporated under the
laws of North Carolina during 1979. Its primary activity is the ownership of all
the outstanding capital stock, and serving as the parent holding company, of
Yadkin Valley Life Insurance Company ("Yadkin Valley Life") which is
incorporated under the laws of Arizona and is engaged in the business of
reinsuring credit life insurance policies.
Yadkin Valley Life's reinsurance activities currently are limited to
assuming risks associated with credit life insurance policies ("credit life
policies") up to a maximum risk of $25,000 on any one insured, issued only by
Triangle Life Insurance Company, Raleigh, North Carolina ("Triangle Life"), and
sold only in North Carolina by Southern Bank and Trust Company, Mount Olive,
North Carolina ("Southern"), The Fidelity Bank, Fuquay-Varina, North Carolina
("Fidelity") and The Heritage Bank, Lucama, North Carolina ("Heritage").
Triangle Life is a wholly-owned subsidiary of First-Citizens Bank & Trust
Company, Raleigh, North Carolina ("FCB"). Registrant is affiliated with
Southern, Fidelity, Heritage and FCB through certain common control
relationships. See "Item 7. Certain Relationships and Related Transactions." In
consideration of its assumption of risk, Yadkin Valley Life receives a portion
of the premium income on policies it reinsures, less the amount of claims paid.
Credit life policies are sold by Southern, Fidelity and Heritage
pursuant to Insurance Contracts between them and Triangle Life and pursuant to
which they each receive commissions from Triangle Life on policies sold. These
policies provide life insurance coverage, subject to the amount, age and other
limitations specified in the Insurance Contracts, and are written on the lives
of customers of Southern Fidelity and Heritage in connection with various
extensions of credit to those customers, including consumer and commercial loans
(installment and term), overdraft and equity lines of credit, and credit card
accounts. Policies are reinsured by Yadkin Valley Life pursuant to a Reinsurance
Agreement between it and Triangle Life which provides that Triangle Life will
automatically cede to Yadkin Valley Life, and Yadkin Valley Life will accept
from Triangle Life, 100% of the rights, obligations, liabilities and risks on
credit life policies up to a maximum of $25,000 of insurance in force on any one
life. At December 31, 1996, December 31, 1997 and August 31, 1998, respectively,
there were 5,217, 4,808 and 4,599 policies in force which were reinsured by
Yadkin Valley Life.
On a monthly basis, Triangle Life pays to Yadkin Valley Life, on a net
basis, the amount of premiums on reinsured credit life policies written, less
the amount of "reinsurance commissions" owed by Yadkin Valley Life pursuant to
the Reinsurance Agreement. Reinsurance commissions equal to 5% of the gross
premiums received on the reinsured policies, plus the amount of all (I) premium
taxes and regulatory charges which Triangle Life is required to pay on such
policies, (II) all commissions or service fees, including any contingent
compensation or other compensation, paid to creditors or agents with respect to
such policies, and (III) all guaranty association assessments or payments
attributable to such policies.
Claims on policies reinsured by Yadkin Valley Life are reported to
Triangle Life by Southern, Fidelity and Heritage as they arise and are
investigated and paid by the claims department of Triangle Life. Yadkin Valley
Life reimburses Triangle Life monthly for claims paid up to the limits of its
risk. Yadkin Valley Life maintains a reserve for claims, the amount of which is
set and changed from time to time by management. The reserve is reviewed
annually by a certified consulting actuary and adjusted based on industry
standard methodologies.
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<PAGE>
Neither Registrant nor Yadkin Valley Life employ any personnel. Subject
to the supervision and control of Registrant's Board of Directors, all
managerial, administrative and operational services necessary in carrying on
Registrant's insurance holding company business and Yadkin Valley Life's
reinsurance business are provided to Registrant and Yadkin Valley Life by
American Guaranty Insurance Company, Raleigh, North Carolina ("American
Guaranty"), another wholly-owned subsidiary of FCB, pursuant to Administration
Agreements (the "Agreements"). (See "Item 7. Certain Relationships and Related
Transactions.")
Registrant is not significantly affected by competition in that Yadkin
Valley Life does not seek to reinsure policies issued by any insurer other than
Triangle Life or sold by any other creditors. Also, premium rates for credit
life insurance sold in North Carolina are the prima facie rates promulgated by
the North Carolina Department of Insurance, and regulation of the terms of
credit life insurance policies results in the policies offered by various
issuers being substantially the same. The volume of Yadkin Valley Life's
business does vary from year to year based on the volume of loans originated by
the banks that are eligible for credit life insurance and the amount of those
loans on which the banks are able to write insurance, and, historically, Yadkin
Valley Life's reinsurance business has not demonstrated any seasonality nor
dependency on a few customers.
In addition to its investment in its subsidiary, Yadkin Valley Life, a
substantial amount of Registrant's assets are represented by investments it
holds in equity securities of (i) First Citizens BancShares, Inc. ("BancShares,"
a bank holding company headquartered in Raleigh, North Carolina); (ii) First
Citizens Bancorporation of South Carolina, Inc. ("Bancorporation," a bank
holding company headquartered in Columbia, South Carolina); and (iii) Heritage.
See "Item 7. Certain Relationships and Related Transactions." These investments
were made by Registrant beginning in 1986 and are deemed by Registrant's
management and directors to be prudent and sound investments for Registrant. The
following table lists the aggregate amounts of each of these investments, and
the percentages of Registrant's total assets represented by each such amount, at
the dates indicated.
<TABLE>
<CAPTION>
AT 12/31/96 AT 12/31/97 AT 6/31/98
------------------------ ------------------------- ------------------------
AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
BancShares.................. $1,589,557 16.9% $ 2,117,858 14.6% $ 2,259,669 13.8%
Bancorporation.............. 6,567,473 70.0 11,467,473 78.9 13,147,473 80.2
Heritage.................... 455,932 4.9 455,932 3.1 455,932 2.8
</TABLE>
Registrant and Yadkin Valley Life have three officers, none of whom are
compensated for their services as such, and no other employees. See " Item 5.
Directors, Executive Officers, Promoters and Control Persons."
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS. Registrant's main source of operating funds has
historically been from Yadkin Valley Life's operations. Revenue from Yadkin
Valley Life's operations has decreased for the years
3
<PAGE>
reported, primarily as a result of decreased premium writings by the company
from whom Yadkin Valley Life assumes business.
The primary outflows of Registrant's operating funds are for claim
payments and for commission payments. Incurred claims have increased for the
years reported. While abnormal policyholder mortality experience represents the
primary uncertainty of Yadkin Valley Life's operations, claim reserves have
historically been adequate to absorb death claims. The decline in commission
payments in 1997 versus 1996 is directly correlated to the decline in assumed
premiums written.
Registrant's consolidated financial statements for 1997 and 1996
reflect gains on the sale of equity securities. The gains are from the sales of
a specific stock and are not expected to reoccur in the coming year. Excluding
the gains on the sale of these equity securities, dividend and interest income
equaled $49,038 in 1997 and $59,047 in 1996.
During the year ended December 31, 1997 and 1996, Registrant's
investments in marketable equity securities that are accounted for in accordance
with SFAS No. 115 experienced significant growth in their fair values, resulting
in an increase in unrealized gains, net of taxes, of $985,576 in 1996 and
$3,235,200 in 1997. Substantially all of these unrealized gains arise from
investments in marketable equity securities issued by banking organizations.
Contributing to these increases was an increase throughout the financial
services industry in the market values of banking enterprises in general. There
can be no assurance that these increased values will be sustained in future
periods. Decreases in the fair values of these investments in future periods
will result in reductions of shareholder's equity. See further discussion of the
salability of these investments below.
LIQUIDITY. Management views liquidity as a key financial objective.
Management relies on the operations of Yadkin Valley Life as the principal
source of liquidity. Further, borrowings have allowed Registrant to fund
asset growth and maintain liquidity.
Management believes the liquidity of the Registrant to be adequate as
evidenced by a ratio of assets to liabilities of 2.71 at December 31, 1997 and
December 31, 1996. Additionally, investments in equity securities had a carrying
value at December 31, 1997 and December 31, 1996 of $14,041,263 and $8,760,962
respectively, substantially all of which are classified as available for sale
and portions of which could be sold as a source of cash. A factor which could
impact Registrant's financial position and liquidity are significant increases
or decreases in the market value of these equity securities. While management
considers these securities to be readily marketable, Registrant's ability to
sell a substantial portion of these investments may be inhibited by the limited
trading in most of these issuances, and, as a result, Registrant could realize
substantial losses on any such sales. In the event the need for additional
liquidity arises, management believes that, as an alternative to selling
investment securities, Registrant has the ability to borrow additional funds
from outside sources, using its investment securities as collateral if
necessary.
During 1997, total assets grew 55% from $9,381,257 at December 31,
1996, to $14,525,458 at December 31, 1997, primarily due to unrealized gains on
marketable equity securities. There were no other material changes in assets
during 1997.
During 1997, total liabilities increased from $3,554,140 at December
31, 1996, to $5,349,799 at December 31, 1997. The increase in deferred federal
income taxes on the unrealized gains on investments increased $2,066,821, while
total liabilities increased $1,796,659.
CAPITAL RESOURCES. There are no material commitments for capital
expenditures and none are anticipated. At December 31, 1997, Registrant had
outstanding borrowings of $745,069 secured by 35,000 shares of common stock in
First Citizens Bancorporation of South Carolina, Inc., with a fair market value
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<PAGE>
of approximately $11,725,000. Any funds needed to satisfy loan repayments will
be derived from dividends from Yadkin Valley Life and the sale of or
repositioning of investments.
ITEM 3. DESCRIPTION OF PROPERTY.
Registrant and Yadkin Valley Life own no properties. Their offices are
located at the offices of American Guaranty Insurance Company, Raleigh, North
Carolina, which, like Triangle Life, is a wholly-owned subsidiary of FCB and
which provides Registrant with certain managerial, administrative and
operational services. See "Item 7. Certain Relationships and Related
Transactions."
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of August 31, 1998, the following persons were known to management
of Registrant to own of record or beneficially more than 5% of Registrant's
outstanding common stock (which is Registrant's only class of voting
securities):
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENTAGE
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS (1)
------------------------------- --------------------- ------------
<S> <C> <C>
Peter M. Bristow
P.O. Box 29
Columbia, SC 29202............................. 15,367 (2) 8.37%
Hope Holding Connell
P.O. Box 29550
Raleigh, NC 27601.............................. 14,283 (3) 7.78%
Frank B. Holding, Jr.
P.O. Box 29549
Smithfield, NC 27626........................... 19,740 (4) 10.75%
Lewis R. Holding
P.O. Box 151
Raleigh, NC 27602.............................. 49,374 (5) 26.88%
</TABLE>
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(1) The percentage of class is based on the 183,692 shares issued and
outstanding as of August 31, 1998.
(2) Includes an aggregate of 10,736 shares as to which Mr. Bristow
exercises sole voting and investment power. Also includes an aggregate
of 4,631 shares held by or in trust for his spouse and as to which he
disclaims beneficial ownership..
(3) Includes an aggregate of 6,208 shares as to which Ms. Connell exercises
sole voting and investment power and 101 shares as to which she
exercises shared voting and investment power. Also includes an
aggregate of 7,974 shares held by her husband individually or as
custodian for their minor children and as to which she disclaims
beneficial ownership.
(4) Includes an aggregate of 13,688 shares as to which Mr. Holding
exercises sole voting and investment power and an aggregate of 1,948
shares as to which he exercises or may be deemed to exercise shared
voting and investment power (including 1,048 shares held by First
Citizens BancShares, Inc., and 799 shares held in various fiduciary
capacities by the Trust Department of First-Citizens Bank & Trust
Company, of which entities he is an executive officer and director, and
which shares also are included in the shares listed as
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<PAGE>
beneficially held by Lewis R. Holding). Also includes 4,098 shares held
by his spouse and as to which he disclaims beneficial ownership.
(5) Includes 45,349 shares as to which Mr. Holding exercises sole voting
and investment power and an aggregate of 2,841 shares as to which he
exercises or may be deemed to exercise shared voting and investment
power (including 1,048 shares held by First Citizens BancShares, Inc.,
799 shares held in various fiduciary capacities by the Trust Department
of First-Citizens Bank & Trust Company, and 994 shares held by the
Robert P. Holding Foundation, of which entities he is an executive
officer and/or director, and 1,847 of which shares also are included in
the shares listed as beneficially held by Frank B. Holding, Jr.). Also
includes an aggregate of 1,184 shares held by his spouse and adult
children and as to which he disclaims beneficial ownership.
As of August 31, 1998, Registrant's directors, and its directors and
executive officers as a group, beneficially owned the following numbers of
shares of Registrant's common stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENTAGE
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS (2)
------------------------------------------------------- ------------------------ ------------
<S> <C> <C> <C>
Hope Holding Connell......................... 14,283 (3) 7.78%
E. Thomas Lucas.............................. 4 (4)
David S. Perry............................... 346 (5) (4)
All directors and executive officers
as a group (the 3 persons listed above) ... 14,633 (6) 8.00%
</TABLE>
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(1) Except as otherwise noted, all shares shown as beneficially owned are,
to the best of management's knowledge, owned of record by the persons
named and such persons exercise sole voting and investment power with
respect to such shares.
(2) The percentage of class is based on the 183,692 shares issued and
outstanding as of August 31, 1998.
(3) For a description of the nature of Ms. Connell's beneficial ownership
of Registrant's common stock, see footnote (3) to the preceding table.
(4) Less than 1.0%.
(5) Mr. Perry exercises shared voting and investment power with respect to
all shares.
(6) Includes an aggregate of 447 shares as to which persons included in the
group exercise shared voting and investment power and 7,974 shares as
to which persons included in the group disclaim beneficial ownership.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
DIRECTORS. Registrant's Bylaws provide that the number of Registrant's
directors shall be set at three and that directors shall serve for one-year
terms or until their respective successors have been duly elected and qualified.
The following table sets forth information regarding Registrant's three current
directors.
6
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH YEAR PRINCIPAL OCCUPATION AND
NAME AND AGE REGISTRANT FIRST ELECTED BUSINESS EXPERIENCE FOR PAST FIVE YEARS
------------ --------------- ------------- ---------------------------------------------------
<S> <C>
Hope Holding Connell (35) Director 1998 Ms. Connell has served as Senior Vice President of
First-Citizens Bank & Trust Company, Raleigh, NC,
since October 1996. She previously served as Vice
President from 1991 to 1996. She also serves as a
Director of Southern BancShares (N.C.), Inc. (1) and
its subsidiary bank, Southern Bank and Trust
Company, Mount Olive, NC.
E. Thomas Lucas (69) Vice President, 1979 Mr. Lucas currently is retired. From 1977 until his
Secretary and Director retirement in June 1994, he served as President and
Chief Executive Officer of The Heritage Bank,
Lucama, NC, which he continues to serve as a Director.
David S. Perry (53) President, Treasurer 1988 Mr. Perry has served as President of American
and Director Guaranty Insurance Company, Raleigh, NC (property
and casualty insurer) since 1988, and as President of
Triangle Life Insurance Company, Raleigh, NC (credit
life and accident and health insurer) since 1988 (2)
</TABLE>
- -----------------
(1) Southern BancShares (N.C.), Inc. is a bank holding company which has a
class of equity securities which has been registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended.
(2) American Guaranty Insurance Company and Triangle Life Insurance Company
are wholly-owned subsidiaries of First-Citizens Bank & Trust Company,
Raleigh, North Carolina.
EXECUTIVE OFFICERS. Registrant's two executive officers are David S.
Perry, who has served as President and Treasurer since 1988, and E. Thomas
Lucas, who has served as Vice President and Secretary since 1982. Certain
information regarding the executive officers is included in their listings as
directors in the preceding table. Neither Registrant nor Yadkin Valley Life has
any other officers or employees, except Hope H. Connell, who has served as
Treasurer of Yadkin Valley Life since 1998.
ITEM 6. EXECUTIVE COMPENSATION.
Registrant's executive officers and directors receive no salaries, fees
or other benefits from Registrant for their services. See "Item 7. Certain
Relationships and Related Transactions."
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Registrant and Yadkin Valley Life each is party to an Administration
Agreement (the "Agreement") with American Guaranty Insurance Company, Raleigh,
North Carolina ("American Guaranty"), a wholly-owned subsidiary of FCB, which
provides for American Guaranty to provide managerial, administrative and
operational services necessary in carrying on the insurance holding company
business and reinsurance business of Registrant and Yadkin Valley Life,
respectively, subject to the supervision and control of Registrant's Board of
Directors. American Guaranty is compensated and reimbursed for services rendered
and expenses incurred which are reasonable and properly attributable, directly
or indirectly, to the management and conduct of Registrant's business affairs.
The Agreements may be terminated by either party at any time upon written notice
to the other. Aggregate fees paid by Registrant and Yadkin Valley Life to
American Guaranty pursuant to the Agreements during 1997 and 1996 were $16,107
and $15,261, respectively. Those fees did not exceed 5% of the consolidated
gross revenues of either Registrant or American Guaranty. David S. Perry, who is
President, Treasurer and a director of
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<PAGE>
Registrant, also serves as President and a director of American Guaranty, and
Frank B. Holding, Jr., a principal shareholder of Registrant, serves as Chairman
of American Guaranty's Board. Additionally, Frank B. Holding, Jr., Lewis R.
Holding and Hope Holding Connell, who are principal shareholders of Registrant,
also are principal shareholders of FCB's parent holding company, BancShares, and
Messrs. F. Holding, Jr. and L. Holding serve as directors and executive officers
of FCB and BancShares.
Registrant's reinsurance business consists solely of assuming risks,
through Yadkin Valley Life, on credit life insurance policies issued by Triangle
Life which is a wholly-owned subsidiary of FCB. Frank B. Holding, Jr., Lewis R.
Holding and Hope Holding Connell, who are principal shareholders of Registrant,
also are principal shareholders of FCB's parent holding company, BancShares, and
Messrs. F. Holding, Jr. and L. Holding also serve as directors and executive
officers of FCB and BancShares. Additionally, David S. Perry, who is President,
Treasurer and a director of Registrant, also serves as President and a director
of Triangle Life, and Frank B. Holding, Jr. serves as Chairman of the Board of
Triangle Life.
Yadkin Valley Life's business consists of reinsuring credit life
insurance policies issued by Triangle Life which are sold through Southern
Fidelity and Heritage. Each of these banks has an arrangement with Triangle Life
whereby it receives a commission on credit life insurance policies it sells to
its loan customers which are issued by Triangle Life (and which commissions are
paid from the premiums received on such policies). Hope H. Connell, who is a
director and principal shareholder of Registrant, also serves as a director of
Southern and its parent holding company and is a principal shareholder of
Heritage. Lewis R. Holding, a principal shareholder of Registrant, also is a
principal shareholder of Southern's and Fidelity's respective parent holding
company. E. Thomas Lucas, an executive officer and director of Registrant, also
is a director of Heritage. The dollar amounts of commissions received by
Southern, Fidelity and Heritage during 1997 and 1996, and through August 31,
1998, pursuant to this arrangement are reflected in the following table.
<TABLE>
<CAPTION>
BANK FOR 1996 FOR 1997 THROUGH 8/31/98
---- -------- -------- ---------------
<S> <C> <C> <C>
Southern..................... $58,267 $46,796 $25,054
Fidelity..................... 65,834 57,578 33,741
Heritage..................... 20,627 19,526 11,769
</TABLE>
A significant portion of Registrant's assets are represented by its
investments in equity securities of BancShares, Bancorporation and Heritage.
Registrant is affiliated with BancShares and Heritage as a result of the common
control relationships described above. Additionally, Lewis R. Holding, who is a
principal shareholder of Registrant, also is a principal shareholder of
Bancorporation.
ITEM 8. DESCRIPTION OF SECURITIES.
AUTHORIZED CAPITAL. Registrant's authorized capital stock consists of
500,000 shares of common stock, $1.00 par value per share, of which 183,692
shares were issued and outstanding as of August 31, 1998.
VOTING RIGHTS. Each holder of Registrant's common stock is entitled to
one vote per share held of record on all matters submitted to a vote of
shareholders. Under North Carolina law, Registrant's shareholders have the right
to vote cumulatively in the election of directors unless, on the record date for
the determination of shareholders entitled to vote, Registrant has a class of
securities registered under the Securities Exchange Act of 1934 (the "1934
Act"). Therefore, following registration of Registrant's common stock under the
1934 Act, Registrant's shareholders will not be entitled to vote cumulatively.
The North Carolina Control Share Acquisition Act, in general, provides
that shares of voting stock of a corporation (to which the Act applies) acquired
in a "control share acquisition" ("Control Shares") will
8
<PAGE>
have no voting rights unless such rights are granted by resolution adopted by
the holders of at least a majority of the outstanding shares of the corporation
entitled to vote in the election of directors, excluding shares held by the
person who has acquired or proposes to acquire the Control Shares and excluding
shares held by any officer or director who is also an employee of the
corporation. "Control Shares" are defined as shares of such a corporation
acquired by any person which, when added to the shares already owned by such
person, would entitle that person (except for the application of the Act) to
voting power in the election of directors equal to or greater than (i) one-fifth
of all voting power, (ii) one-third of all voting power, or (iii) a majority of
all voting power. "Control share acquisition" means the acquisition by any
person of beneficial ownership of Control Shares with certain exceptions,
including an acquisition pursuant to certain agreements of merger or
consolidation to which such corporation is a party, and purchases of shares
directly from such a corporation. Among other exclusions, shares acquired before
the corporation becomes subject to the Act are excluded by the Act from the
definition of "Control Shares."
Registrant's Articles of Incorporation and Bylaws contain
no"supermajority" voting requirements pertaining to any matter submitted to a
vote of shareholders. Therefore, except as otherwise provided under North
Carolina law, subject to the presence of a quorum at a meeting of Registrant's
shareholders at which any matter is submitted for voting, such matter will be
approved if the votes cast in favor of such matter exceed the votes cast against
it. The North Carolina Shareholder Protection Act requires the affirmative vote
of the holders of 95% of the outstanding shares of common stock (excluding
shares owned by an "interested shareholder") of a corporation (to which the Act
applies) to approve certain business combinations between the corporation and an
entity which owns more than 10% of the voting shares of such corporation.
DIVIDENDS. Holders of Registrant's common stock are entitled to
dividends when, as, and if declared by the Board of Directors out of funds
legally available therefor, whether in cash or in stock. See "Item 9. Market for
Common Equity and Related Stockholder Matters."
PREEMPTIVE RIGHTS. Holders of Registrant's common stock do not have any
preemptive or preferential rights to purchase or subscribe for any additional
shares of Registrant's common stock or any other securities that may be issued
by Registrant from time to time.
ASSESSMENT. The shares of Registrant's common stock currently
outstanding are non-assessable.
LIQUIDATION RIGHTS. In the event of liquidation, dissolution, or
winding-up of the affairs of Registrant, whether voluntary or involuntary, the
holders of Registrant's common stock would be entitled to share ratably in any
assets or funds available for distribution to shareholders after the
satisfaction of all liabilities, or after adequate provision is made therefor.
The form of distribution would depend upon the nature of the liquidation and the
assets of Registrant at that time.
MISCELLANEOUS. There are no redemption, conversion or sinking fund
provisions relating to Registrant's common stock.
9
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS
There is not an active market for Registrant's common stock. However,
the stock is traded over the counter and quotations for the stock are published
in the National Quotation Bureau, LLC's "pink sheets" which lists three brokers
as market makers for the stock.
Based on information supplied by the National Quotation Bureau, LLC,
the following table presents the high and low closing bid prices for
Registrant's common stock for the periods indicated. These bid prices should not
be taken as an indication of the existence of any established trading market.
<TABLE>
<CAPTION>
YEAR QUARTERLY PERIOD HIGH BID LOW BID
- ---------- ------------------------ ----------------- ------------
<S> <C> <C> <C>
1998 Third Quarter (through 8/31/98)........ $18.00 $18.00
Second Quarter......................... 18.00 18.00
First Quarter.......................... 18.00 18.00
1997 Fourth Quarter......................... 17.50 17.00
Third Quarter.......................... 17.00 16.50
Second Quarter......................... 16.50 16.50
First Quarter.......................... 16.50 16.50
1996 Fourth Quarter......................... 16.50 13.00
Third Quarter.......................... 16.50 16.00
Second Quarter......................... 16.50 16.00
First Quarter.......................... 16.00 13.00
</TABLE>
The above quotations represent prices between dealers and do no include
retail markup, markdown or commissions, and they do not represent actual
transactions.
Registrant has never paid cash dividends on its common stock and does
not anticipate any change in its existing dividend policy or practice.
Registrant is authorized to pay cash dividends as and when declared by its Board
of Directors, provided that no such distribution results in its insolvency on a
going concern or balance sheet basis.
Historically, the Registrant has been funded primarily by dividends
paid by Yadkin Valley Life. The amount of dividend payments by Yadkin Valley
Life during any 12-month period, without prior approval by the Arizona
Department of Insurance (the "Department"), is limited by statute to the lesser
of 10% of its capital and surplus or its gain from operations for the previous
fiscal year. Under that restriction, Yadkin Valley Life can not pay a cash
dividend to Registrant without prior approval of the Department until October
1998.
As of August 31, 1998, Registrant's outstanding common stock was held
by an aggregate of approximately 929 shareholders of record.
10
<PAGE>
ITEM 2. LEGAL PROCEEDINGS.
At August 31, 1998, Registrant was not a party to any legal proceeding
that is expected to have a material effect on its financial condition or results
of operations.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The North Carolina Business Corporation Act (the "NCBCA") provides for
the indemnification of directors and officers of corporations in the manner
described below.
PERMISSIBLE INDEMNIFICATION. The NCBCA allows a corporation, by
charter, bylaw, contract or resolution, to indemnify or agree to indemnify its
officers, directors, employees and agents and any person who is or was serving
at the corporation's request as a director, officer, employee or agent of
another entity or enterprise or as a trustee or administrator under an employee
benefit plan, against liability and expenses, including reasonable attorneys'
fees, in any proceeding (including without limitation a proceeding brought by or
on behalf of the corporation itself) arising out of their status as such or
their activities in any of the foregoing capacities as summarized herein. Any
provision in a corporation's charter or bylaws or in a contract or resolution
may include provisions for recovery from the corporation of reasonable costs,
expenses and attorneys' fees in connection with the enforcement of rights to
indemnification granted therein and may further include provisions establishing
reasonable procedures for determining and enforcing such rights.
The corporation may indemnify such person against expenses or
liability incurred only where such person conducted himself or herself in good
faith; reasonably believed (i) in the case of conduct in his or her official
corporate capacity, that his or her conduct was in the corporation's best
interests, and (ii) in all other cases, that his or her conduct was at least not
opposed to the corporation's best interests; and, in the case of a criminal
proceeding, he or she had no reasonable cause to believe his or her conduct was
unlawful; provided, however, that a corporation may not indemnify such person
either in connection with a proceeding by or in the right of the corporation in
which such person was adjudged liable to the corporation, or in connection with
any other proceeding charging improper personal benefit to such person (whether
or not involving action in an official capacity) in which such person was
adjudged liable on the basis that personal benefit was improperly received.
MANDATORY INDEMNIFICATION. Unless limited by the corporation's charter,
the NCBCA requires a corporation to indemnify a director or officer of the
corporation who is wholly successful, on the merits or otherwise, in the defense
of any proceeding to which such person was a party because he or she is or was a
director or officer of the corporation against reasonable expenses incurred in
connection with the proceeding.
ADVANCE FOR EXPENSES. Expenses incurred by a director, officer,
employee or agent of the corporation in defending a proceeding may be paid by
the corporation in advance of the final disposition of the proceeding as
authorized by the board of directors in the specific case, or as authorized by
the charter or bylaws or by any applicable resolution or contract, upon receipt
of an undertaking by or on behalf of such
11
<PAGE>
person to repay amounts advanced unless it ultimately is determined that such
person is entitled to be indemnified by the corporation against such expenses.
COURT-ORDERED INDEMNIFICATION. Unless otherwise provided in the
corporation's charter, a director or officer of the corporation who is a party
to a proceeding may apply for indemnification to the court conducting the
proceeding or to another court of competent jurisdiction. On receipt of an
application, the court, after giving any notice the court deems necessary, may
order indemnification if it determines either (i) that the director or officer
is entitled to mandatory indemnification as described above, in which case the
court also will order the corporation to pay the reasonable expenses incurred to
obtain the court-ordered indemnification, or (ii) that the director or officer
is fairly and reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not such person met the requisite standard of conduct
or was adjudged liable to the corporation in connection with a proceeding by or
in the right of the corporation or on the basis that personal benefit was
improperly received in connection with any other proceeding so charging (but if
adjudged so liable, indemnification is limited to reasonable expenses incurred).
PARTIES ENTITLED TO INDEMNIFICATION. The NCBCA defines "director" to
include ex-directors and the estate or personal representative of a director.
Unless its charter provides otherwise, a corporation may indemnify and advance
expenses to an officer, employee or agent of the corporation to the same extent
as to a director and also may indemnify and advance expenses to an officer,
employee or agent who is not a director to the extent, consistent with public
policy, as may be provided in its charter or bylaws, by general or specific
action of its board of directors, or by contract.
INDEMNIFICATION BY REGISTRANT. Registrant's Bylaws provide for
indemnification of its directors and officers to the fullest extent permitted by
North Carolina law, and require its Board of Directors to take all actions
necessary and appropriate to authorize such indemnification.
Under North Carolina law, a corporation also may purchase insurance on
behalf of any person who is or was a director or officer against any liability
arising out of his status as such. Registrant currently does not maintain a
directors' and officers' liability insurance policy.
PART F/S
The following are Registrant's consolidated balance sheets as of
December 31, 1997 and 1996, and its consolidated statements of income, changes
in shareholders' equity and cash flows, together with notes thereto and
independent auditors' report thereon.
12
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1997 and 1996
(With Independent Auditors' Report Thereon)
13
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1997 and 1996
Page
----
Independent Auditors' Report ......................................... 15
Consolidated Balance Sheets .......................................... 16
Consolidated Statements of Income .................................... 17
Consolidated Statements of Changes in Shareholders' Equity ........... 18
Consolidated Statements of Cash Flows ................................ 19
Notes to Consolidated Financial Statements ........................... 20 - 26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Yadkin Valley Company:
We have audited the accompanying consolidated balance sheets of Yadkin Valley
Company and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Yadkin Valley
Company and subsidiary as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
KPMG Peat Marwick
Raleigh, North Carolina
February 6, 1998
15
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Cash $ 45,061 69,498
Investments in equity securities (notes 2 and 3) 14,041,263 8,760,962
Certificates of deposit (notes 2, 4 and 6) 425,854 550,000
----------- -----------
14,512,178 9,380,460
Accrued investment income 3,148 697
Federal income taxes recoverable 6,029 --
State income taxes recoverable 4,003 --
Other assets 100 100
----------- -----------
Total assets $14,525,458 9,381,257
=========== ===========
Liabilities and Shareholders' Equity
Liabilities:
Life policy claims reserve (note 6) 30,121 15,881
Federal income taxes payable -- 225,982
State income taxes payable -- 55,127
Deferred income taxes (note 5) 4,569,027 2,502,206
Notes payable (note 3) 745,069 747,472
Other liabilities 5,582 7,472
----------- -----------
Total liabilities 5,349,799 3,554,140
Shareholders' equity (note 4):
Common stock, par value $1 per share; authorized 500,000
shares, issued and outstanding 184,180 shares in 1997
and 184,396 shares in 1996 184,180 184,396
Retained earnings 1,837,884 1,724,326
Net unrealized gain on marketable equity securities (note 2) 7,153,595 3,918,395
----------- -----------
Total shareholders' equity 9,175,659 5,827,117
----------- -----------
Total liabilities and shareholders' equity $14,525,458 9,381,257
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Consolidated Statements of Income
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C> <C>
Premiums and other revenue:
Life premiums (note 6) $ 326,054 380,859
Dividend income 23,715 29,669
Interest income 25,323 29,378
Gain on sale of equity securities 162,246 787,013
---------- ----------
537,338 1,226,919
---------- ----------
Benefits and expenses:
Death benefits (note 6) 104,405 72,799
Increase (decrease) in liability for life policy claims (note 6) 14,240 (3,211)
Operating expenses:
Commissions (note 6) 146,865 171,770
Interest 62,867 55,353
Professional fees 17,278 31,715
Management fees (note 6) 16,107 15,261
General, administrative and other 14,023 20,708
---------- ----------
375,785 364,395
---------- ----------
Income before income taxes 161,553 862,524
Income tax expense (note 5) 43,893 322,607
---------- ----------
Net income $ 117,660 539,917
========== ==========
Net income per share (note 1) $ 0.64 2.92
========== ==========
Weighted average shares outstanding 184,288 185,021
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Net unrealized
gain on
marketable Total
Common Retained equity shareholders'
stock earnings securities equity
----- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 185,289 1,198,216 2,932,819 4,316,324
Redemption of 893 shares of
common stock (893) (13,807) -- (14,700)
Net unrealized gains on marketable equity
securities, net of income taxes (note 2) -- -- 985,576 985,576
Net income -- 539,917 -- 539,917
----------- ---------- ---------- ----------
Balance at December 31, 1996 184,396 1,724,326 3,918,395 5,827,117
Redemption of 216 shares of
common stock (216) (4,102) -- (4,318)
Net unrealized gains on marketable equity
securities, net of income taxes -- -- 3,235,200 3,235,200
Net income -- 117,660 -- 117,660
----------- ---------- ---------- ----------
Balance at December 31, 1997 $ 184,180 1,837,884 7,153,595 9,175,659
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net income $ 117,660 539,917
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on sale of equity securities (162,246) (787,013)
Decrease in reserve for policy and contract claims 14,240 (3,211)
Decrease in amounts due to ceding company -- (5,857)
Increase in federal income taxes recoverable (6,029) --
Increase in state income taxes recoverable (4,003) --
Increase (decrease) in federal income taxes payable (225,982) 190,109
Increase (decrease) in state income taxes payable (55,127) 55,127
Decrease (increase) in premiums receivable -- 14,808
Decrease (increase) in accrued investment income (2,451) 5,570
Increase (decrease) in other liabilities (1,890) 2,540
----------- -----------
Net cash provided (used) by operating activities (325,828) 11,990
Investing activities:
Proceeds from sale of available-for-sale equity securities 183,966 972,793
Purchases of available-for-sale equity securities -- (1,032,807)
Purchases of other equity securities -- (358,526)
Purchases of certificates of deposit (87,614)
Maturities of certificates of deposit 211,760 2,395,747
----------- -----------
Net cash provided (used) by investing activities 308,112 (353,391)
----------- -----------
Financing activities:
Principal payments on notes payable (2,403) --
Proceeds from issuance of note payable -- 375,000
Purchases and retirement of common stock (4,318) (14,700)
----------- -----------
Net cash provided (used) by financing activities (6,721) 360,300
Net increase (decrease) in cash (24,437) 18,899
Cash at beginning of year 69,498 50,599
----------- -----------
Cash at end of year $ 45,061 69,498
=========== ===========
Cash payments for:
Interest $ 62,757 52,813
=========== ===========
Income taxes $ 335,034 77,371
=========== ===========
Non-cash investing and financing activities:
Increase in unrealized gain on marketable equity securities,
net of applicable income taxes of $2,066,821 and
$991,361, respectively $ 3,235,200 985,576
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(1) Significant Accounting Policies
Basis of Presentation: The consolidated financial statements include
the accounts and operations of Yadkin Valley Company (the Parent)
and its wholly-owned subsidiary, Yadkin Valley Life Insurance
Company, hereinafter collectively referred to as the Company.
Intercompany accounts and transactions have been eliminated. The
consolidated financial statements have been prepared in accordance
with generally accepted accounting principles which, as to the
insurance subsidiary, may vary in some respects from the statutory
accounting practices which are prescribed or permitted by the
Insurance Department of the State of Arizona. The variations between
generally accepted accounting principles and statutory accounting
practices are not significant to the accompanying consolidated
financial statements.
Line of Business: The Parent, which was organized as a North
Carolina holding company, manages the operations of Yadkin Valley
Life Insurance Company, which is in the business of assuming credit
life insurance. All reinsurance is assumed from Triangle Life
Insurance Company (TLIC), which is an affiliate through common
ownership. TLIC issues credit life insurance policies on loans made
by three banks located in North Carolina: Southern Bank and Trust,
The Heritage Bank ("Heritage") and The Fidelity Bank. The Company
and the three aforementioned banks are related through certain
common ownership.
Yadkin Valley Life Insurance Company's assumption limit, which has
been determined by management, is $25,000 per policy.
Recognition of Premium Revenues: Revenue is recognized based on
premiums collected from ceding companies. The premiums are received
monthly and are based on the reinsurance coverage provided for the
month. Since reinsurance coverage is provided prior to the receipt
of premiums, there is no deferral of revenue to future periods.
Liabilities for Policy and Contract Claims: The reserve for life
policy claims includes estimates of losses on reported claims and
claims incurred but not reported, based on information provided by
the ceding company and on the Company's historical experience.
Although management believes that the liability for life policy
claims is adequate, the ultimate amount of such claims may vary,
perhaps significantly, from the estimated amounts in the financial
statements.
20
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Significant Accounting Policies, Continued
Investments: Investments in equity securities with readily
determinable fair values are classified as available-for-sale and
are carried at fair value. The unrealized holding gains and losses
are reported as a separate component of shareholders' equity, net of
deferred income taxes. An equity security's fair value is considered
readily determinable if its price is quoted on a registered
securities exchange or in the over-the-counter market.
Equity securities which do not have readily determinable fair values
are carried at the lower of aggregate costs or market value. A
decline in the fair value of securities which is deemed to be other
than temporary is recognized in earnings. Estimates of fair value
for those equity securities which do not have readily determinable
market values are based on analysis of recent trades of those stocks
as provided by management of the investee.
Realized gains and losses on equity securities are recognized in net
income using the specific identification method.
Income Taxes: Income tax provisions are based on income reported for
financial statement purposes. Deferred federal income taxes are
recorded based on temporary differences between the financial
reporting basis and the tax basis of assets and liabilities at
enacted tax rates expected to be in effect when such amounts are
realized or settled.
Net Income Per Share: The Company adopted Statement of Financial
Accounting Standards 128 in 1997, which requires net income per
share to be calculated on both a basic and diluted basis. Net income
per share is computed based on the weighted average number of common
shares outstanding during the year and represents basic and diluted
net income per share for 1997 and 1996. Because the Company has no
potentially dilutive securities, restatement of 1996 net income per
share was not necessary.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities. Actual results could
differ from those estimates.
(2) Investments
Investments at December 31, 1997 and 1996, consisted of certificates
of deposit and equity securities. Certificates of deposit of
$425,854 and $550,000 at December 31, 1997 and 1996, respectively,
are carried at cost. These certificates of deposit have maturities
of less than one year. The cost of these securities approximates
fair value.
Investments in equity securities at December 31, 1997 and 1996 are
classified as follows:
1997 1996
------------- ---------
Available-for-sale, carried at fair value $ 13,233,267 7,952,966
Other, carried at cost 807,996 807,996
------------ --------
$ 14,041,263 8,760,962
========== =========
21
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Investments, Continued
At December 31, 1997 and 1996, the estimated fair value of
investments in equity securities carried at cost were $1,326,861 and
$1,173,919, respectively.
Equity securities classified as available-for-sale at December 31,
1997 consist of the following securities:
Number Unrealized Fair
Description of shares Cost gain value
----------- --------- ---- ---- -----
First Citizens Bancorporation
of South Carolina, Inc. -
voting common stock -
par value $5 per share 35,000 $ 455,000 10,745,000 11,200,000
First Citizens BancShares,
Inc. - Class A common
stock - par value $1
per share 19,545 1,055,644 977,623 2,033,267
--------------------- -----------
Total $1,510,644 11,722,623 13,233,267
========= ========== ==========
Equity securities classified as "other" and carried at cost at
December 31, 1997 consist of the following securities:
Number
Description of shares Cost
----------- --------- ----
First Citizens Bancorporation of South Carolina,
Inc. - non-voting common stock - par value $5
per share 5,631 $ 267,473
First Citizens BancShares, Inc. - Class B common
stock - par value $1 per share 1,900 84,591
The Heritage Bank - common stock -
par value $1 per share 7,401 455,932
-------
Total $ 807,996
=======
22
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Investments, Continued
Equity securities classified as available-for-sale at December 31,
1996 consist of the following securities:
Number Unrealized Fair
Description of shares Cost gain value
----------- --------- ---- ---- -----
First Citizens Bancorporation of
South Carolina, Inc. - voting
common stock - par value
$5 per share 35,000 $ 455,000 5,845,000 6,300,000
First Citizens BancShares, Inc. -
Class A common stock - par
value $1 per share 19,545 1,055,645 449,321 1,504,966
First Union Corporation - common
stock - par value $3.33 per
share 2,000 21,720 126,280 148,000
----------- ---------- ----------
Total $1,532,365 6,420,601 7,952,966
========= ========= =========
Equity securities classified as "other" and carried at cost at
December 31, 1996 consist of the following securities:
Number
Description of shares Cost
----------- --------- ----
First Citizens Bancorporation of South Carolina,
Inc. - non-voting common stock - par value $5 per
share 5,631 $ 267,473
First Citizens BancShares, Inc. - Class B common
stock - par value $1 per share 1,900 84,591
The Heritage Bank - common stock - par value $1 per
share 7,401 455,932
-------
Total $ 807,996
=======
23
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Notes Payable
Notes payable at December 31, 1997 and 1996 consist of the
following:
1997 1996
---- ----
Note payable on demand, interest payable
quarterly at prime rate $ 297,169 297,472
Note payable on demand, interest payable
quarterly at prime rate 72,900 75,000
Note payable due March 11, 1998,
renewable annually, interest at
prime rate less .5% 375,000 375,000
------- -------
$ 745,069 747,472
======= =======
The notes payable are secured by 35,000 common shares of First
Citizens Bancorporation of South Carolina, Inc., which have a
carrying value of $11,200,000 at December 31, 1997.
(4) Shareholders' Equity and Restrictions
Prior approval by state regulators is required for insurance
companies to pay dividends to their shareholders in excess of
certain limitations. In addition, shareholders' equity and minimum
capital requirements, as defined by statute are restricted and
cannot be distributed by insurance subsidiaries without approval of
the state insurance department. The amount which the insurance
subsidiary can pay in dividends during any twelve month period
without prior approval is limited by statute to the lesser of 10% of
statutory surplus, or statutory gain from operations of the previous
fiscal year. In 1997 and 1996, the subsidiary paid dividends to the
parent of $148,000 and $185,000, respectively.
Statutory surplus at December 31, 1997, and net income for the year
then ended of the insurance subsidiary, as computed in accordance
with statutory accounting practices, were $465,059 and $54,498,
respectively. Statutory surplus at December 31, 1996 and net income
for the year then ended were $556,515 and $106,627, respectively.
The insurance subsidiary has $100,000 of certificates of deposit on
deposit with the Arizona Department of Insurance.
24
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) Income Taxes
The Company has elected to file a consolidated federal income tax
return. Current income tax expense for the years ended December 31,
1997 and 1996 is comprised of the following:
1997 1996
---- ----
Federal $ 36,713 267,480
State 7,180 55,127
------- --------
$ 43,893 322,607
====== =======
There were no significant differences between the financial
reporting basis and the tax basis of assets and liabilities, except
for the excess of the financial reporting basis over the tax basis
for marketable equity securities with readily determinable fair
values.
At December 31, 1997 and 1996, deferred income taxes represent the
tax effect of the excess of the financial statement carrying value
over the income tax basis for marketable equity securities with
readily determinable fair values.
The reasons for the difference between total income tax expense and
the amount computed by applying the statutory federal income tax
rate of 34% to income before income taxes are as follows:
1997 1996
---- ----
Income tax expense at federal statutory rates $ 54,927 293,258
Deduct:
State income taxes, net of federal tax benefit 4,739 36,384
Effect of graduated tax rates (9,896) -
Effect of dividends received deduction
and other (5,877) (7,035)
------- -------
$ 43,893 322,607
====== =======
25
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(6) Related Parties
American Guaranty Insurance Company, a subsidiary of First Citizens
Bank & Trust Company ("FCB&T"), a subsidiary of First Citizens
BancShares, Inc. ("FCB"), provides management services to the
Company. Management fees were $16,107 in 1997 and $15,261 in 1996.
As described in note 1, Yadkin Valley Life Insurance Company
provides reinsurance to TLIC, a company affiliated through certain
common ownership. Amounts related to business assumed from TLIC for
1997 and 1996 are as follows:
1997 1996
---- ----
Premiums assumed $ 326,054 380,859
Death benefits assumed 104,405 72,799
Life policy claims reserve assumed 30,121 15,881
Commissions assumed 146,865 171,770
As described in note 2, the Company holds stock in FCB, First
Citizens Bancorporation of South Carolina, Inc. ("FCB-SC") and
Heritage. The Company, FCB, FCB-SC and Heritage are related through
certain common ownership. At December 31, 1997 and 1996, the Company
also had $325,854 and $450,000, respectively, invested in FCB&T
certificates of deposits.
An executive officer and director of the Company is also a director
of Heritage. As part of reinsurance commissions assumed, the Company
paid approximately $19,526 and $20,627 in commissions to Heritage in
1997 and 1996, respectively.
26
<PAGE>
PART III
ITEM 1. DESCRIPTION OF EXHIBITS
The following exhibits are filed as part of this Registration
Statement.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3(a) * Registrant's Restated Articles of Incorporation
3(b) * Registrant's Bylaws
10(a) * Administration Agreement between Registrant and
American Guaranty Insurance Company
10(b) Administration Agreement between Yadkin Valley Life
and American Guaranty Insurance Company
10(c) Reinsurance Agreement between Yadkin Valley Life
and Triangle Life Insurance Company
22 * Subsidiaries of Registrant
-----------------------
* Previously filed. Not being refiled.
27
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
Registrant caused this Amendment No. 1 to Registration Statement on Form 10-SB
to be signed on its behalf by the undersigned, thereunto duly authorized.
YADKIN VALLEY COMPANY
DATE: DECEMBER 9, 1998 BY: /s/ David S. Perry
--------------------------
David S. Perry, President
28
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
- ------ ----------- -----------
<S> <C> <C>
3(a) * Registrant's Restated Articles of Incorporation
3(b) * Registrant's Bylaws
10(a) * Administration Agreement between Registrant and
American Guaranty Insurance Company
10(b) Administration Agreement between Yadkin Valley Life
and American Guaranty Insurance Company
10(c) Reinsurance Agreement between Yadkin Valley Life
and Triangle Life Insurance Company
22 * Subsidiaries of Registrant
- --------------------
</TABLE>
* Previously filed. Not being refiled.
EXHIBIT 10(B)
STATE OF NORTH CAROLINA
COUNTY OF WAKE
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT ("Agreement") made and entered
into as of the 21st day of October, 1991 (the "Effective Date"), by and between
AMERICAN GUARANTY INSURANCE COMPANY, a North Carolina corporation with its
principal office in Raleigh, North Carolina ("American Guaranty"), party of the
first part; and YADKIN VALLEY LIFE INSURANCE COMPANY, an Arizona corporation
("Yadkin Valley"), party of the second part;
W I T N E S S E T H:
WHEREAS, American Guaranty is engaged in the insurance
business in North Carolina and maintains facilities, equipment, and services and
has employed experienced personnel with expertise in the insurance industry
necessary to manage and conduct such business;
WHEREAS, Yadkin Valley also is authorized and licensed to
engage in the insurance business and desires to utilize the expertise of the
personnel, and such of the facilities, equipment, and services of American
Guaranty as may be proper for the management and conduct of its business, and
desires to reimburse American Guaranty for the costs and expenses associated
with such assistance; and,
WHEREAS, American Guaranty has agreed to provide
administrative services necessary in carrying on the business of Yadkin Valley
in the manner and to the extent set forth hereinafter.
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants and agreements between the parties made, and for other good
and valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, American Guaranty and Yadkin Valley hereby agree as follows:
1. Yadkin Valley hereby contracts with and engages American
Guaranty to provide the administrative services necessary in carrying on the
insurance business of Yadkin Valley, subject at all times to the direction,
control, and authority of the Board of Directors of Yadkin Valley.
2. American Guaranty hereby accepts such employment by Yadkin
Valley and agrees to provide administrative services necessary in carrying on
the insurance business of Yadkin Valley in accordance with the generally
accepted practice of the insurance industry, subject to the direction, control,
instruction, and authority of the Board of Directors of Yadkin Valley.
3. The administrative services provided hereunder shall
include investment services. All investments by American Guaranty on behalf of
Yadkin Valley shall be made in accordance with applicable North Carolina
investments laws.
4. In providing administrative services necessary in carrying
on the business of Yadkin Valley, complete control of all of the operations and
functions of Yadkin Valley, except for the establishment of its business
policies, shall be vested in American Guaranty, which shall maintain all books,
records, and accounts of all business of Yadkin Valley in accordance with the
accepted practice of the insurance industry and shall furnish to the Board of
Directors of Yadkin Valley such periodic reports as the said Board of Directors
may request or designate.
<PAGE>
5. In consideration for the assistance provided to Yadkin
Valley by American Guaranty as authorized above, Yadkin Valley shall remunerate
and reimburse American Guaranty for services rendered and expenses incurred
which are reasonable and which directly or indirectly properly are attributed to
the management and conduct of the business of Yadkin Valley. Services and
expenses for which American Guaranty shall be entitled to remuneration and
reimbursement shall include, but not necessarily be limited to, the following
items:
a. Services by employees of American Guaranty that
properly may be attributed to the business of Yadkin;
b. General administrative and office expenses that
properly may be attributed to the business of Yadkin; and,
c. Travel and auto expenses that properly may be
attributed to the business of Yadkin Valley.
Such remuneration and reimbursement shall be paid by Yadkin
Valley to American Guaranty on a monthly basis within fourteen (14) calendar
days of presentation by American Guaranty of an itemized account of services
rendered and expenses incurred on behalf of Yadkin Valley during the monthly
period being billed.
6. The arrangement established by this Agreement may be
terminated by either party by written notice delivered to the other party. Any
such termination shall not, however, relieve Yadkin Valley of the requirement to
remunerate and reimburse American Guaranty for services and expenses incurred or
committed prior to the date of termination which properly are presented to the
Yadkin Valley in accordance with the terms of this Agreement.
7. In the event this Agreement is terminated by either party,
American Guaranty hereby agrees to assist Yadkin Valley in preparing any annual
report or reports required by any state insurance department for the last year
during which this Agreement is in effect. The services of American Guaranty in
assisting Yadkin Valley in preparing any such report or reports shall not
entitle American Guaranty to any remuneration therefor.
8. American Guaranty agrees to employ standard accounting
practices employed by the insurance industry in the operation and development of
the business of Yadkin Valley. This Agreement shall be construed in accordance
with the general practices and accounting methods of the insurance industry.
9. Yadkin Valley, upon reasonable request and during American
Guaranty's regular business hours, shall be permitted to examine such books and
records of American Guaranty as relate American Guaranty's services under this
Agreement.
10. American Guaranty shall permit the North Carolina
Commissioner of Insurance, upon reasonable request and during American
Guaranty's regular business hours, to examine and audit such books and records
of American Guaranty as relate to American Guaranty's services under this
Agreement.
11. This Agreement shall be performed primarily in the State
of North Carolina, and notwithstanding the principles of conflicts of law, the
internal laws of the State of North Carolina shall govern and control the
validity, interpretation, performance, and enforcement of this Agreement.
12. In the event any term or condition of this Agreement or
the application thereof to any circumstance or situation shall be invalid or
unenforceable in whole or in part, the remainder of such term or condition and
the application thereof to any other circumstance or situation shall not be
affected
<PAGE>
thereby; and each term and condition of this Agreement shall be valid and
enforceable to the full extent permitted by law.
13. This Agreement constitutes the entire agreement between
American Guaranty and Yadkin Valley with regard to the provision of
administrative services by American Guaranty to Yadkin Valley, and all prior
negotiations, understandings, terms, and conditions are merged herein. The terms
of this Agreement may not be changed or altered by parol statements made prior
to or subsequent to its execution, but may be modified only by an agreement in
writing signed by the parties hereto.
IN WITNESS WHEREOF, and in duplicate originals, American
Guaranty has caused this Agreement to be executed by its President, attested by
its Secretary, and its corporate seal to be hereto affixed, all effective as of
the Effective Date; and Yadkin Valley has caused this Agreement to be executed
by its President, attested by its Secretary, and its corporate seal to be hereto
affixed, all effective as of the Effective Date.
AMERICAN GUARANTY:
AMERICAN GUARANTY INSURANCE COMPANY
By: /S/ David S. Perry
--------------------------------
President
ATTEST:
/S/ Charles A. Cobb
- ---------------------------------
Secretary
[SEAL]
YADKIN VALLEY:
YADKIN VALLEY LIFE INSURANCE COMPANY
By: /S/ Frank B. Holding
--------------------------------
President
ATTEST:
/S/ E. Thomas Lucas
- ---------------------------------
Secretary
[SEAL]
STATE OF NORTH CAROLINA
COUNTY OF WAKE
REINSURANCE AGREEMENT
THE REINSURANCE AGREEMENT (the "Agreement"), made and entered
into as of the 1st day of August, 1994 (the "Effective Date"), by and
between TRIANGLE LIFE INSURANCE COMPANY, a North Carolina corporation
with its principal office in Raleigh, North Carolina ("Triangle"),
party of the first part; and YADKIN VALLEY LIFE INSURANCE COMPANY, an
Arizona corporation with its principal office in Phoenix, Arizona
("Yadkin");
W I T N E S S E T H :
WHEREAS, Triangle is licensed by the North Carolina Department
of Insurance to sell certain credit insurance policies and/or
certificates and/or plans (the "Policies"), which Policies are more
particularly described on Schedule A hereto;
WHEREAS, Triangle desires to reinsure the Policies with Yadkin,
subject to the terms of this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants between the parties made, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Triangle and Yadkin hereby agree as follows:
1. Automatic Reinsurance of Policies. On and after the Effective
Date, Triangle shall cede to Yadkin, and Yadkin shall accept from
Triangle, one hundred percent (100%) ("Yadkin's Share") of the rights,
obligations, liabilities, and risks (including underwriting risk and
timing risk) written and retained by Triangle on all applications for
the Policies signed on or after the Effective Date and considered by
Triangle to be paid; provided, however, that in the event the amount
of credit life insurance in force on any one life under one or more of
the Policies exceeds $25,000 at the time claims under said Policy or
Policies arise. Yadkin's Share of the liability to Triangle Life shall
be limited to $25,000. The liability of Yadkin on such reinsured
Policies (the "Reinsured Policies") shall commence and terminate at
the same time as that of Triangle.
2. Plan of Reinsurance. Reinsurance of the Reinsured Policies
shall be on a coinsurance basis according to Yadkin's Share, subject
to the terms and conditions of the original Policy form issued by
Triangle for the Reinsured Policies and to the North Carolina
Insurance Law. Reinsurance amounts shall be calculated in terms of
coverage on a "per policy" or "per certificate" basis.
No reduction or termination of a Reinsured Policy shall cause
Triangle to exceed its normal retention limits or affect the
reinsurance coverage of Triangle under arrangements other than this
Agreement. Any Reinsured Policy originally ceded under this Agreement
that is reduced, terminated, or lapsed and later is reinstated by
Triangle pursuant to Policy provisions shall be accepted by Yadkin up
to such amount as would be in force if such Reinsured Policy had not
been reduced, terminated, or lapsed. Yadkin shall share, according to
Yadkin's Share, in any adjustments to the amount of any Reinsured
Policy that result because of a misstatement of the age of the insured
thereunder.
Triangle shall hold a certificate of deposit in an amount no
less than any reserve established for Yadkin, as security for Yadkin's
performance of its obligations under this Agreement.
3. Notice of Verbal Inquiries. Upon receipt by Yadkin in any
manner of any and all telephone or verbal inquiries relating directly
or indirectly to the Reinsured Policies, Yadkin promptly shall notify
Triangle of same in accordance with the notice provisions of Paragraph
18 hereof.
4. Notice of Correspondence and Claims. Upon receipt by Triangle
of any and all correspondence or written communications relating
directly or indirectly to the Reinsured Policies, including
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<PAGE>
but not limited to notice of legal action or any claim under any of
the Reinsured Policies, Triangle promptly shall remit same to Yadkin
in accordance with the notice provisions set forth in Paragraph 18
hereof.
5. Claim Files. All claim files pertaining to the Reinsured
Policies shall be the joint property of Triangle and Yadkin. Such
claim files shall be maintained by Triangle, subject to the following:
(i) Triangle shall forward a copy of the claim file for
a given claim to Yadkin upon Yadkin's request
therefor or as soon as it becomes known by Triangle
that the claim either has the potential to exceed
the amount of the Policy, may exceed Triangle's
claims settlement authority of up to the amount of
the Policy, has been open for more than six (6)
months, or has been closed by payment of an amount
set by Yadkin.
(ii) Upon an order of liquidation of Triangle, all claim
files shall become the sole property of and shall be
delivered to Yadkin or its estate; provided,
however, that Triangle shall have reasonable access
to and the right to copy such claim files on a
timely basis.
6. Reports and Remittance by Triangle. On or before the
thirtieth (30) day of each month, Triangle shall render an accounting
to Yadkin detailing all of the previous month's transactions with
respect to the Policies and any claims made under the Policies (the
"Monthly Accounting"). At the time of the Monthly Accounting, Triangle
shall pay to Yadkin a reinsurance premium (the "Reinsurance Premium"),
which shall be calculated as follows:
(a) Business written as Single Premium will be paid
monthly on a written gross basis. Premiums written
on a Monthly Outstanding Basis will be paid on a
monthly written premium basis which shall be the
earned premium.
(b) Claims shall be paid when settled.
7. Reinsurance Commission. Yadkin shall pay to Triangle a
reinsurance commission (the "Reinsurance Commission") equal to:
(a) Five percent (5%) of the gross premium received by
Triangle on the Reinsured Policies.
(b) All premium tax and Regulatory Charge which Triangle
is required to pay on the Reinsured Policies.
(c) All commissions or service fees paid to creditors or
agents, including any contingent compensation or
other compensation paid on the Reinsured Policies.
(d) All Guaranty Association (or similar association)
assessments or payments made by Triangle
attributable to the Reinsured Policies.
Such Reinsurance Commission shall be deducted by Triangle from the
reinsurance premium due Yadkin under Paragraph 4 hereof as and when
such Reinsurance Commission shall become due.
8. Quarterly Reports. Within thirty (30) calendar days of the
end of each calendar quarter, each party shall report to the other all
such information as reasonably may be requested by such other party
for purposes of filing statutory financial statements and other
reports. Each party shall provide to the other all such other reports
as reasonably may be requested by such other party in connection with
this Agreement in a format that is mutually acceptable to both
Triangle and Yadkin
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<PAGE>
9. Policy Forms and Rates. Triangle shall file with Yadkin
copies of all applications, Policy forms, certificates, rates, and
marketing material used in connection with the Reinsured Policies. In
the event that new applications, Policy forms, certificates, rates, or
marketing material are published, or in the event that changes are
made in the items previously filed with Yadkin, Triangle promptly
shall file with Yadkin the new or revised copies of same.
10. Limitations and Authority. Notwithstanding other provisions
included in this Agreement, Triangle shall have no authority to:
a. Write insurance business on behalf of Yadkin;
b. Bind reinsurance or retrocession on behalf of
Yadkin, except as provided in this Agreement;
c. Commit Yadkin to participate in any insurance or
reinsurance syndicates;
d. Appoint any producer without assuring that such
producer is lawfully licensed to transact the type
of insurance for which the producer is appointed;
e. Pay or commit Yadkin to pay a claim over a specified
amount, net of reinsurance, which shall exceed the
amount of the Policy under which the claim is made,
without Yadkin's prior approval;
f. Collect any payment from a reinsurer or commit
Yadkin to pay any claim settlement with a reinsurer,
without Yadkin's prior approval.
11. Insolvency of Triangle.
a. Notice and Investigation of Claim. In the event of the
insolvency of Triangle, Triangle or its liquidator, receiver, or
statutory successor shall give written notice of any pending claim
against Triangle on any Reinsured Policy within fifteen (15) calendar
days after Triangle receives notice that such claim has been filed in
the insolvency proceedings. At its own expense, Yadkin shall be
entitled to investigate such claim while it is pending and to
interpose, in the proceedings where the claim is to be adjudicated,
any defenses that it may deem available to Triangle or its liquidator,
receiver, or statutory successor. Subject to court approval, the
expenses incurred by Yadkin in investigating and/or defending such
claims shall be charged against Triangle as an expense of liquidation,
to the extent of any proportionate share of the benefit accruing
Triangle as a result of such investigations and/or defenses by Yadkin.
b. Payment of Claims. All reinsurance under this Agreement
shall be paid by Yadkin directly to Triangle, or Triangle's
domiciliary receiver or statutory successor, as applicable, on the
basis of claims allowed against Triangle, without diminution because
of the insolvency of Triangle, unless Yadkin, with the consent of the
direct insured or insureds, shall have assumed the policy obligations
of Triangle as direct obligations of Yadkin to the payees under such
Reinsured Policies and in substitution for the obligations of Triangle
to such payees, prior to time such claims are allowed.
Any debits or credits, liquidated or unliquidated, which
are created as a result of the operation of this paragraph in favor of
or against either party on the date of entry of any receivership or
liquidation order shall be deemed mutual debits or credits, as the
case may be, and the balance only shall be allowed or paid.
Notwithstanding the fact that a claim on the part of either Yadkin or
Triangle against the other may be unliquidated or undetermined in
amount on the date of entry of a receivership or liquidation order,
such claim shall be deemed to be in existence as of such date, and any
existing credits or claims in favor of the other party may be offset
against such claim.
12. Records. Triangle and Yadkin shall maintain separate records
of all business written by Triangle and subject to this Agreement.
Both Triangle and Yadkin (and/or their duly authorized
representatives), during normal business hours, shall be permitted to
inspect and copy, in usable form, any and all books, records,
accounts, documents, or similar information of the other party
relating to or affecting the Reinsured Policies. The North Carolina
and Arizona Departments of Insurance also shall be permitted
3
<PAGE>
to inspect and copy, in usable form, such books, records, accounts,
documents, or similar information of Triangle and/or Yadkin as relate
to the services provided by Triangle pursuant to this Agreement.
13. Duration; Termination. This Agreement shall be effective as
of the Effective Date and shall continue in force unless terminated in
accordance with the following:
a. Without Cause. This Agreement may be terminated as to
all new reinsurance business, with or without cause:
(i) At any time by mutual consent of Triangle and
Yadkin; or,
(ii) By either Triangle or Yadkin as of the end of
any month by giving (30) days' notice to the
other party; provided, however, that Yadkin
shall continue to accept reinsurance during
the thirty (30) day notice period.
b. With Cause by Triangle. Triangle may terminate this
Agreement upon seven (7) days' written notice in the event that one or
more of the following occurs:
(i) Revocation of or failure by the North
Carolina Department of Insurance to renew
Triangle's license to sell the Policies;
(ii) Commission of a felony by Yadkin;
(iii) Commission of an unlawful business practice
by Yadkin;
(iv) Failure or refusal by Yadkin to perform any
obligation, duty, or responsibility imposed
under this Agreement;
(v) Any material change or transfer in the
ownership, management, or control of Yadkin,
or any transfer of any substantial part or
all of Yadkin's credit insurance business,
whether by sale of shares, sale of assets,
merger, reorganization, or otherwise, which
adversely impacts Yadkin's credit insurance
business and/or its ability to perform under
this Agreement;
(vi) Any conduct or proposed conduct by Yadkin not
authorized pursuant to this Agreement that
exposes or threatens to expose Triangle to
any liability or obligation, or to adverse
consequences under any provision of federal,
state or local law;
(vii) Appointment of a receiver for Yadkin or its
property;
(viii) Yadkin's becoming insolvent or unable to pay
its debts as they mature or ceasing to pay
its debts as they mature in the ordinary
course of business;
(ix) Yadkin making an assignment for the benefit
of its creditors;
(x) Commencement of any proceedings by or for
Yadkin under any bankruptcy, insolvency, or
debtor's relief law which are not vacated or
set aside within sixty (60) days from the
commencement thereof; or,
(xi) Liquidation of dissolution of Yadkin or
Yadkin's closing its doors or otherwise
ceasing to do business involving the
Reinsured Policies.
c. With Cause by Yadkin. Yadkin may terminate this Agreement
and/or Triangle's Settlement authority hereunder upon seven (7) days
written notice to Triangle in the event that one of the following
occurs:
(i) Triangle's Reinsurance Premium shall become
more than ninety (90) days in arrears;
(ii) Subject to the provisions of Paragraph 9
hereof, upon:
(a) Appointment of a receiver for Triangle
or its property;
(b) Triangle's becoming insolvent or unable
to pay its debts as they mature or
ceasing to pay its debts as they mature
in the ordinary course of business;
(c) Triangle's making of an assignment for
the benefit of its creditors;
4
<PAGE>
(d) Commencement of any proceedings by or
for Triangle under any bankruptcy,
insolvency, or debtor's relief law which
are not vacated or set aside within
sixty (60) days from the commencement
thereof; or,
(e) Liquidation or dissolution of Triangle
or Triangle's closing its doors or
otherwise ceasing to do business
involving the Reinsured Policies.
Yadkin may suspend the underwriting authority and/or settlement
authority of Triangle during the pendency of any dispute regarding the
cause of termination.
In the event of the termination of this Agreement by either
party as above herein provided, no further policies or certificates of
insurance shall be reinsured under the terms of this Agreement. With
respects to any Reinsured Policies existing as of the date of
termination of the Agreement: (1) Yadkin shall have no liability for
any claims or occurrences giving rise to claims which occur on or
after the effective date of such termination; (2) Yadkin shall not be
entitled to receive, and Triangle shall be entitled to retain all
premiums earned with respect to the period on and after such
termination; (3) Yadkin shall remain fully liable for all claims and
occurrences giving rise to claims which occur prior to the effective
date of such termination, including, but not limited to, all incurred
but unreported claims outstanding on such effective date. Yadkin also
shall remain fully liable for all Guaranty Association (or similar
association) assessments or payments made by Triangle attributable to
the Reinsured Policies incurred prior to the effective date of such
termination; and (4) No further Monthly Accountings and quarterly
reports and no further payments to Yadkin shall be required of
Triangle. Triangle shall advise Yadkin of any amounts due to Triangle
under the preceding item (3) and Yadkin shall promptly remit such
amount to Triangle.
14. Continued Reinsurance and Administration Upon Termination.
Notwithstanding the termination of this Agreement for any reason, the
reinsurance with Yadkin on all Reinsured Policies shall be maintained
in force as long as such reinstated Policies remain in force and the
reinsurance premiums therefor are paid when due, and Yadkin shall
remain liable thereon until the termination or expiration of the
Reinsured Policies in accordance with the terms of this Agreement. All
obligations of Yadkin and Triangle shall remain in force until the
termination or expiration of the Reinsured Policies.
15. Oversight; Clerical Errors. Notwithstanding anything to the
contrary herein, should Triangle fail to cede reinsurance that
otherwise would have been ceded pursuant to this Agreement, or should
Triangle or Yadkin fail to comply with any other terms of this
Agreement, and such failure is shown to have been unintentional and
the result of an inadvertent misunderstanding, oversight, or clerical
error on the part of either Triangle or Yadkin, such failure shall not
be deemed to be cause for termination of this Agreement; provided,
however, that both Triangle and Yadkin shall be restored promptly to
the same position that each would have occupied had the
miscommunication, oversight, or clerical error not occurred. Nothing
in this paragraph shall be construed to apply to errors which are not
inadvertent or to errors of judgment by either Triangle or Yadkin.
16. Indemnification. Triangle and Yadkin shall indemnify and
hold harmless each other and each other's directors, officers,
employees, representatives, agents, and attorneys from, against, and
in respect of any and all damages (including, without limitation,
amounts paid in settlement with the indemnifying party's consent,
which consent shall not be withheld unreasonably), losses,
obligations, liabilities, liens, deficiencies, costs, penalties,
fines, interest, monetary sanctions, and expenses, including, without
limitation, reasonable attorney's fees and costs incurred to comply
with injunctions and other court and agency orders, and other costs
and expenses incident to any lawsuit, action, investigation, claim, or
proceeding, or to establish such other party's or such other person's
right to indemnification under this Agreement, which has been
suffered, sustained, incurred, or required to be paid by any of them
by reason of any failure by the indemnifying party to observe or
perform its obligations as set forth in this Agreement.
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<PAGE>
17. Arbitration. Triangle and Yadkin intend that any dispute
between them under or with respect to this Agreement be resolved
without resort to litigation. Accordingly, Triangle and Yadkin will
negotiate diligently and in good faith to agree on a mutually
satisfactory resolution of any such dispute; provided, however, that
if any such dispute cannot be so resolved within sixty (60) calendar
days (or such longer period as Triangle and Yadkin may agree) after
the commencement of such negotiations, either Triangle or Yadkin shall
be entitled to initiate arbitration proceedings by providing the other
party with written notice of its intention to arbitrate (the "Notice
of Arbitration"), which Notice of Arbitration shall contain a
statement setting forth the nature of the dispute, the amount
involved, if any, and the remedy sought. The party initiating
arbitration ("Claimant") shall file three (3) copies of the Notice of
Arbitration and three (3) copies of this Agreement with the
appropriate regional office of American Arbitration Association
("AAA"), together with the filing fee therefor.
The arbitration hearing shall be conducted in Raleigh, North
Carolina, before a panel of two (2) arbitrators and one (1)
chairperson (collectively, the "Arbitration Panel"), in the manner
specified in this Agreement, unless otherwise agreed in writing by
Triangle and Yadkin. All arbitration proceedings shall be conducted in
accordance with the rules of AAA.
The Arbitration Panel shall consist of active or retired,
disinterested officials of insurance or reinsurance companies. Each
party shall appoint one (1) arbitrator by written notification to the
other party and AAA within thirty (30) calendar days after receipt of
the Notice of Arbitration by the party to which it is sent
("Respondent"). The appointed arbitrators shall appoint a chairperson
before instituting the arbitration hearing. If Respondent fails to
appoint its arbitrator within four (4) calendar weeks after receipt of
the Notice of Arbitration, Claimant shall be entitled to appoint the
second arbitrator. If the two (2) arbitrators fail to agree on the
appointment of a chairperson within four (4) calendar weeks after the
second arbitrator is appointed, the chairperson shall be appointed by
the manager of AAA and shall meet the qualifications set forth herein
for the Arbitration Panel.
Claimant shall submit its initial brief, if any, to the
Arbitration Panel within twenty (20) days from the appointment of the
chairperson. Respondent shall submit its brief, if any, to the
Arbitration Panel within twenty (20) days after the date of filing of
Claimant's initial brief. Claimant may submit a reply brief to the
Arbitration Panel within ten (10) days after the date of filing of
Respondent's brief.
Decisions of the Arbitration Panel shall be made with regard to
the customary usage of the insurance and reinsurance business. Each
decision (including without limitation each award) of the Arbitration
Panel shall be final and binding upon all parties to the arbitration
proceeding and shall be nonappealable. At the request of either
Triangle or Yadkin, any word of the Arbitration Panel may be confirmed
by a judgment entered by any court of competent jurisdiction.
Each party shall be responsible for paying all fees and expenses
charged by its appointed arbitrator and its counsel, accountants,
actuaries, and other representatives in connection with the
arbitration proceedings and shall be responsible for paying one-half
(1/2) of the fees and expenses charged by the chairperson. In the
event that Claimant appoints a second arbitrator due to Respondent's
failure to appoint an arbitrator within the time period specified in
this paragraph, Respondent shall be responsible for paying all fees
and expenses charged by such second arbitrator.
The arbitration provisions contained in this paragraph shall
survive the termination of this Agreement.
18. Notices. All notices, requests, instructions, or other
documents required or permitted to be given pursuant to this Agreement
shall be in writing and shall be delivered personally, sent by
facsimile, delivered by overnight express, or sent by registered or
certified United States mail, postage prepaid and return receipt
requested, addressed as follows:
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If to Triangle:
Triangle Life Insurance Company
Post Office Box 12637
625 Oberlin Road
Raleigh, North Carolina 27605
Attention: Jeanette C. Howell, Secretary/Treasurer
Facsimile No.: 919-755-7031
If to Yadkin:
Yadkin Valley Life Insurance Company
Post Office Box 10605
625 Oberlin Road
Raleigh, North Carolina 27605
Attention: David S. Perry, President
or such other address as hereafter may be furnished to the other party
in writing pursuant to this paragraph. All notices so given shall be
deemed received upon actual receipt or upon receipt and refusal, if
delivered in person or by overnight express; upon electronic
confirmation of delivery, if delivered by facsimile; or upon actual
receipt and refusal, as evidenced by the return receipt therefor, if
delivered by registered or certified United States mail.
19. DAC Tax. Either Triangle or Yadkin may make election as
provided in Section 1.848-2(f)(7) of the proposed Income Tax
Regulations issued November 12, 1991, under Section 848 of the
Internal Revenue Code of 1986, as amended. If either Triangle or
Yadkin makes the election, the other automatically agrees to abide by
the election and agrees to the treatment of such election as set forth
on Schedule B attached hereto.
20. Miscellaneous.
a. Offset. Any amount required under this Agreement to be
paid by either Triangle or Yadkin to the other party may be paid out
of any amount which is due and unpaid by that party under this
Agreement. The application of this paragraph shall not be deemed to
constitute diminution in the event of insolvency of either Triangle or
Yadkin.
b. Entire Agreement. This Agreement and the Schedules
attached hereto constitute the entire agreement between Triangle and
Yadkin with respect to the subject matter herein and supersede all
prior discussions and written and oral agreements with respect
thereto.
c. Amendment. This Agreement may be amended from time to
time by Triangle and Yadkin, but only by written agreement duly
executed by or on behalf of Triangle and Yadkin.
d. Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be
deemed an original, but all of which shall constitute one and the same
instrument.
e. Jurisdiction. This Agreement shall be performed in the
State of North Carolina, and, notwithstanding the principles of
conflicts of law, the internal laws of the State of North Carolina
shall govern and control the validity, interpretation, performance,
and enforcement of this Agreement.
f. Survival. This Agreement is binding upon and shall
inure to the benefit of Triangle and Yadkin and their respective
successors and assigns.
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g. Assignment. Neither Triangle nor Yadkin shall be
permitted to assign, in whole or part, any of its respective rights or
obligations hereunder.
h. Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not constitute
binding terms of this Agreement.
i. Invalid Provisions. In the event that any provision of
this Agreement is held to be illegal, invalid, or unenforceable under
any present or future law, and provided that the rights or obligations
of Triangle and Yadkin under this Agreement shall not be materially
and adversely affected thereby, such provision shall be fully
severable, and this Agreement shall be construed and enforced as if
such illegal, invalid, or unenforceable provision had not compromised
a part hereof, and the remaining provisions of this Agreement shall
remain in full force and effect and shall not be affected by such
illegal, invalid, or unenforceable provision or by its severance
herefrom. In lieu of any such illegal, invalid, or unenforceable
provision, there shall be added automatically as a part of this
Agreement a legal, valid, and enforceable provision as similar in
terms to such illegal, invalid, or unenforceable provision as is
possible.
IN WITNESS WHEREOF, Triangle and Yadkin have caused this
Agreement to be executed by their duly authorized officers and in such
form as to be binding, effective as of the Effective Date.
TRIANGLE LIFE INSURANCE COMPANY
By /s/ David S. Perry
-----------------------------------
Its President
-----------------------------------
YADKIN VALLEY LIFE INSURANCE COMPANY
By /s/ Frank B. Holding
-----------------------------------
Its President
-----------------------------------
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SCHEDULE A
Group Credit Insurance Non-Participating Insurance Policies
Policy Numbers
CL - 101
CL - 301
CL - 401
386 - 2
9
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SCHEDULE B
Triangle ("Reinsured") and Yadkin ("Reinsurer") hereby agree to the
following pursuant to 1.848-2(g)(8) of the IRS Regulation issued
December 1992:
1. The term "Party" will refer to either Reinsured or Reinsurer
as appropriate.
2. The terms used in this Schedule are defined by reference to
Regulation 1.848-2 in effect December 1992.
3. The party with net positive consideration for this Agreement
for each taxable year will capitalize specified policy
acquisition expenses with respect to this Agreement without
regard to the general deduction limitation of 848(c)(1).
4. Both parties agree to exchange information pertaining to the
amount of net consideration under this Agreement each year to
ensure consistency or as otherwise required by the IRS.
5. The exchange of information will follow the following
procedures:
a. By June 1 of each year, Reinsured will submit a
schedule to Reinsurer of its calculations of the net
consideration for the preceding calendar year. This
schedule of calculations will be accompanied by a
statement signed by an officer of Reinsured stating the
amount of net consideration Reinsured will report in its
tax return for the preceding calendar year.
b. Within 30 days of Reinsurer's receipt of Reinsured's
calculation, Reinsurer may contest such calculation by
providing an alternate calculation to Reinsured in
writing. If Reinsurer does not notify Reinsured, Reinsured
will report the net consideration as determined by
Reinsured in its tax return for the preceding year.
c. The Parties will act in good faith to reach an
agreement as to the correct amount within 30 days of the
date Reinsured receives any alternate calculation provided
by Reinsurer. If Reinsured and Reinsurer reach agreement
on the amount of net consideration, each party shall
report the applicable amount in their respective tax
returns for the preceding year.
6. For agreements administered by Reinsurer, the exchange of
information will follow the same procedures set forth in
paragraph 5, substituting Reinsured for Reinsurer and
substituting Reinsured for Reinsurer.
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