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FORM 10-KSB/A
The following items were the subject of a Form 12b-25
and are included herein:
Part II, Items 6 and 7 and portions of Part III, Item 13
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
(State or other jurisdiction of incorporation of organization) (I.R.S. Identification Number)
633 North State Street, Suite 200, Jackson, Mississippi 39202-7817
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (601-352-7817)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. Yes (X ) No ( )
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES ( X ) NO ()
Issuer's revenues for the most recent fiscal year: $3,122,910
Aggregate market value of equity held by non-affiliates: To the issuer's knowledge there has
never been a sale of its common stock or any bid or asked prices of such stock.
Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as
of the latest practicable date.
Class Outstanding at March 27, 2000
Common stock, $1.00 par value 503,384 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Not Applicable
In addition to historical information, this report contains statements which constitute forward-looking statements and information which are based on management's beliefs, plans, expectations and assumptions and on information currently available to management. The words "may," "should," "expect," "anticipate," "intend," "plan," "continue," "believe," "seek," "estimate," and similar expressions used in this report that do not relate to historical facts are intended to identify forward-looking statements. These statements appear in a number of places in this report, including, but not limited to, statements found in Item 1 "Description of Business" and in Item 6 "Management's Discussion and Analysis." All phases of the Company's operations are subject to a number of risks and uncertainties. Investors are cautioned that any such forward- looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projections in the forward-looking statements. Among the factors that could cause actual results to differ materially are the risks and uncertainties discussed in this report, including, without limitation, the portions referenced above, and the uncertainties set forth from time to time in the Company's other public reports and filings and public statements, many of which are beyond the control of the Company, and many of which, or a combination of which, could materially affect the results of the Company's operations and whether forward-looking statements made by the Company ultimately prove to be accurate.
Stoneville Insurance Company (the "Company") is a Mississippi domestic property and casualty insurer formed December 13, 1996. The Company was licensed by the Mississippi Department of Insurance on January 1, 1998 to write workers' compensation insurance in the State of Mississippi. The Company's home office is located in Jackson, Mississippi.
The Company was formed to become the successor of Delta Agricultural and Industrial Trust, which was a Mississippi workers' compensation self insurance trust (the "Trust") formed in 1991 by members of the Delta Council of Stoneville, Mississippi, as a response to the unavailability of workers' compensation insurance at reasonable prices. Pursuant to a Plan and Agreement of Reorganization and Conversion of the Trust (the "Plan") which was effective at the close of business on December 31, 1997: (i) the Trust transferred substantially all its assets and liabilities (other than insurance liabilities) to the Company; (ii) in exchange for the contribution of the such assets and liabilities by the Trust to the Company, the Company issued shares of common stock of the Company to the Trust; and (iii) the Trust liquidated and distributed to former members of the Trust one (1) share of the Company's common stock for each trust unit ($4.00 of value of Trust equity) allocable to such former member.
The Company currently operates as a reinsurer for certain direct commercial writers of workers' compensation insurance in the State of Mississippi. The Company also writes direct workers' compensation insurance for small employers in Mississippi.
In May 1999, the Company acquired all of the outstanding stock of American Colonial Insurance Company, an Arkansas property and casualty insurance company. Immediately after the acquisition, the name was changed to Stoneville Insurance Company of Arkansas. In September 1999, the Company began writing small premium workers' compensation insurance in Arkansas. The Company has only written a small
amount of this insurance in Arkansas. The Company also began duplicating its Mississippi workers’ compensation programs in Arkansas through Stoneville Insurance Company of Arkansas in the third quarter of 1999. The Company plans to provide claims administration and program management services for these insurance programs through its Arkansas subsidiary.
The Company has entered into an agreement to provide full workers' compensation claims administration and risk control services to the commercial insurers that it reinsures in Mississippi and Arkansas. The Company also provides full workers' compensation claims administration and risk control services for the Company's direct workers' compensation insurance written in Mississippi. In January 1999, the Company formed Stoneville Service Company as a wholly owned subsidiary of the Company to conduct claims administration and risk control business. Stoneville Service Company is a Mississippi corporation. It has been authorized in Arkansas to provide workers' compensation claims administration services. Stoneville Service Company has established an office in Little Rock, Arkansas, and currently provides workers' compensation claims administration services for self insured employer accounts in Arkansas. It is anticipated that Stoneville Service Company also will provide workers compensation claims administration services in Mississippi. Stoneville Service Company also maintains a third party administrator license in the State of Georgia because one of its customers has a plant in the State of Georgia.
The Company currently has two reinsurance programs whereby the Company reinsures certain direct commercial writers of workers' compensation insurance. The main program is with Continental Casualty Company ("Continental") and is operated pursuant to the terms of a Quota Share Reinsurance Agreement (the "Quota Share Agreement"). The Quota Share Agreement provides for the Company to reinsure a twenty-five percent (25%) quota share of certain workers' compensation insurance written by Continental in Mississippi and Arkansas. The Company's liability under the Quota Share Agreement is limited to twenty-five percent (25%) of up to $200,000 (until January 1999 this amount was $100,000) (each occurrence, each policy) for the Mississippi insurance business and twenty-five percent (25%) of up to $200,000 (each occurrence, each policy) for the Arkansas business. The Company is required to collateralize the agreement with a letter of credit totaling $100,000 per $1,000,000 of gross premium written under the program. As of December 31, 1999, the Company is required to collateralize the agreement with a letter of credit in an amount equal to the Company's unearned premiums plus case reserves plus IBNR (incurred but not reported).
The second reinsurance program is a one-time reinsurance arrangement with Continental pursuant to a March 20, 1997, Assumption Reinsurance Agreement (the "Assumption Reinsurance Agreement"). The Assumption Reinsurance Agreement was subsequently amended effective September 5, 1997. Under the Assumption Reinsurance Agreement, Continental assumed the Trust's insurance liabilities for the period through July 1, 1996, when the Trust ceased writing workers compensation insurance. Under the terms of the Assumption Reinsurance Agreement, the Company had the option to reinsure Continental with respect to the insurance which Continental directly assumed. On February 13, 1998, the Company exercised this option by providing written notice to Continental.
In addition to the reinsurance programs discussed above, the Company entered into an Assumption Reinsurance Agreement dated March 21, 2000, whereby the Company assumed all of the workers' compensation and employers' liability insurance business written by Mississippi Physicians Insurance Company, a Mississippi insurer. The assumption of this business was effective January 1, 2000. Pursuant
to the Assumption Reinsurance Agreement, the Company received approximately $4,800,000 as consideration for assuming the insurance policy obligations of Mississippi Physicians Insurance Company. In connection with the assumption, the Company entered into two (2) indemnity reinsurance arrangements with General Reinsurance Corporation (“GenRe”) whereby the Company ceded to GenRe one hundred percent (100%) of the insurance obligations of the policies assumed and transferred to GenRe approximately $4,500,000. As a result of this transaction, the Company retained approximately $266,000 for administration and servicing fees.
In addition to these programs, the Company may develop workers' compensation insurance programs with other large carriers. It is anticipated that these programs will be structured in a manner similar to the programs described above, and the Company would participate as a reinsurer of the business written by the commercial carriers and provide claims administration and risk control services.
In early 1998, management of the Company identified a need in the State of Mississippi for workers' compensation insurance for small employers. The Company began writing direct workers' compensation insurance in the fall of 1998. This program is known as the Small Employer Workers' Compensation Program (the "Small Comp Program"). The target annual premium for the Small Comp Program is $750 to $10,000 with the annual premium generally being less than $4,000. Morgan-White Underwriters, Inc. ("Morgan-White Underwriters") handles the marketing and sales of the direct insurance (this arrangement is discussed below) and the Company handles all claims and administration services through its claims and risk control group (discussed below).
In an effort to minimize its liability from the Small Comp Program, the Company has entered into two reinsurance arrangements. The first of these reinsurance arrangements is with Trenwick America Reinsurance Corporation ("Trenwick"). The terms of this arrangement are set forth in a Quota Share Reinsurance Agreement with Trenwick whereby Trenwick reinsures a fifty percent (50%) quota share of up to $200,000 (each occurrence). As of September 1, 1999, the amount Trenwick reinsures was increased to ninety percent (90%) pursuant to an amendment to the Quota Share Reinsurance Agreement, dated September 1, 1999. The Company's second reinsurance arrangement is with Continental and the terms of this arrangement are set forth in an Agreement of Reinsurance whereby Continental assumes liability for the Company's ultimate net loss (each occurrence) in excess of $200,000.
The Company has entered into an agreement to provide full workers' compensation claims administration and risk control services to the commercial insurers that it reinsures in Mississippi and Arkansas. The Company also provides full workers' compensation claims administration and risk control services for the Company's direct workers' compensation insurance written in Mississippi.
In January 1999, the Company formed Stoneville Service Company as a wholly owned subsidiary of the Company to conduct the claims administration and risk control business for self-funded groups. Stoneville Service Company is a Mississippi corporation. It has been authorized in Arkansas to provide workers' compensation claims administration and risk control services. Stoneville Service Company has established an office in Little Rock, Arkansas, and currently provides workers' compensation claims administration services for self insured employer accounts in Arkansas.
On July 1, 1998, the Company entered into a Service Agreement (the "Service Agreement") with Continental whereby the Company provides complete claims administration services for workers' compensation insurance written by Continental and subject to the reinsurance arrangement between the Company and Continental. The term of the Service Agreement is from July 1, 1998 through June 30, 1999, with one year automatic renewal terms unless terminated by either party not later than sixty (60) days prior to the then current period.
On July 1, 1997, the Company entered into a Loss Control Agreement (the "Loss Control Agreement") with Continental whereby the Company performs certain risk control services for Continental in connection with workers' compensation insurance written by Continental and subject to the reinsurance arrangement between the Company and Continental. These services include: (i) providing conferences to certain agricultural clients of Continental to assist them in preventing industry specific injuries; (ii) conducting annual safety surveys and providing Continental with loss prevention recommendations; and (iii) conducting hazardous employment surveys for clients selected by Continental. The term of the Loss Control Agreement is continuous until terminated upon the sixty (60) days written notice of either party.
While the Company intends to continue its business activities of providing workers' compensation for businesses in the agricultural and industrial sectors in Mississippi and Arkansas, the Company intends to focus more of its attention on increasing its claims and management services business. On September 1, 1999, the Company amended the Quota Share Reinsurance Agreement with Trenwick to increase the amount Trenwick reinsures to ninety percent (90%). By increasing the amount Trenwick reinsures, the Company has decreased the amount of risk it will retain allowing the Company to shift its focus to claims and management services.
The Company plans to continue focusing its direct workers' compensation insurance business on "small premium" policies with premiums in the $750 to $10,000 range with the annual premium generally being less than $4,000.
The Company also plans to continue its reinsurance business with Continental and will continue to pursue options to enter into reinsurance agreements with other direct writers of workers' compensation insurance. In addition to expanding its reinsurance business, the Company plans to expand its claims administration and risk control services in the State of Mississippi and Arkansas and will continue to consider options to expand these services into other states.
The Company has leased and installed a computer accounting system which is fully integrated with Morgan-White Underwriters so that no duplicate data entry will be required. Once Morgan-White Underwriters enters the data into the system, the Company is able to use the data to handle billing and customer service. In addition to this accounting system, the Company has a computer system which assists the Company and Stoneville Service Company in offering complete claims administration services.
On September 1, 1998, the Company entered into a Program Management Agreement (the "Program Management Agreement") with Morgan-White Underwriters. Under the terms of the Program Management Agreement, Morgan-White Underwriters has the exclusive right to receive and accept proposals for insurance for the Company for the Approved Programs as defined in the Program Management Agreement. The Approved Programs include one hundred sixty eight (168) workers' compensation risk categories and are limited by various underwriting guidelines set forth in the Program Management Agreement. Pursuant to the Program Management Agreement, the Company and Morgan-White Underwriters are jointly responsible for promotional activities for the Approved Programs and the Company is responsible for the issuance of quotations, binders and policies and claims administration. The term of the Program Management Agreement is ten (10) years, with automatic one year renewals unless one hundred eighty (180) days prior written notice is given by either party.
Management of the Company's portfolio of investments is a significant part of the Company's business. The Company's investments are limited by statutes and other regulations which restrict a large portion of such investments to specific categories. The Company is expected to invest in securities and other investments authorized by applicable state laws and regulations and receive income from such investments in the form of interest, dividends and capital gains. The Company expects to follow an investment policy designed to maximize yield to the extent consistent with liquidity requirements and preservation of assets. The Company has retained Earnest Partners (formerly Investek Capital Management, Inc.) as its investment advisor. Earnest Partners currently manages over $1 billion and has substantial experience in investing funds of insurance companies.
The insurance industry is characterized by competition primarily on the basis of price. However, availability and quality of products, quality and speed of service (including claims service), financial strength, distribution systems and technical expertise are also important elements of competition. Many of the Company's competitors are larger and have greater resources than the Company.
The Company and its subsidiaries currently have a total of fifteen (15) employees, thirteen (13) of whom are full-time employees. Ten (10) of the employees are employed in Mississippi and the remaining five (5) employees are employed in Arkansas.
The Company is subject to regulation by the Mississippi Department of Insurance (the "Department of Insurance") although control over the delivery of benefits is generally under the purview of the Workers' Compensation Commission. The primary purpose of regulation by the Department of Insurance is to provide
safeguards for policyholders rather than to protect the interests of shareholders. The Department of Insurance has broad administrative powers relating to the licensing of insurers and their agents, the regulation of trade practices, transactions with affiliates, investments, deposits of securities, the form and content of financial statements, accounting practices, reporting requirements, sales literature, insurance policy forms and the maintenance of specified reserves and capital and surplus.
Workers' compensation insurers such as the Company must maintain reasonable ratios between net written premiums and statutory surplus in order to be consistent with sound underwriting practices and requirements of insurance regulators and rating agencies. Accordingly, an insurance company's volume of net written premiums is limited by the amount of its statutory surplus. As the premium volume of the Company grows, its statutory surplus must also increase so that the ratio of net written premiums to statutory surplus does not become too high. The Company's objective is to maintain the ratio of net written premiums to statutory surplus within the maximum guidelines of the National Association of Insurance Commissioners.
Insurance companies are required by law to maintain reserves for claims. These reserves are intended to cover the probable ultimate cost of settling all claims incurred and unpaid, including those not yet reported. Reserves are determined by the Company in accordance with applicable law. Reserves are monitored by the Company using a variety of techniques for analyzing claim cost and frequency data and other economic factors. Among other techniques, the Company periodically compares estimated and actual expenses for settled claims and adjusts its reserve estimates, if necessary, on the basis of such comparisons. Claim reserves are estimates only, and it is possible that ultimate liability may exceed or be less than such estimates.
Under Mississippi law, workers' compensation insurers must maintain a reserve for losses as well as a reserve for unearned premiums. The assets constituting the unearned premium reserve must be withdrawn from use by the Company for its general purposes and are gradually released over the life of the policy.
Upon being licensed by the Department of Insurance, the Company automatically became a member of the Mississippi Insurance Guaranty Association (the "Guaranty Association"). The purpose of the Guaranty Association is to provide a mechanism for the payment of claims made by insureds against an insolvent insurer. The Guaranty Association may assess insurers to pay the obligations of the Guaranty Association in accordance with a statutory formula based on net direct premiums written.
Upon being authorized by the Department of Insurance to write workers compensation insurance in Mississippi, the Company was required to be a member of the Mississippi Workers' Compensation Assigned Risk Pool (the "Pool") and to participate in the Mississippi Workers' Compensation Assigned Risk Plan (the "Assigned Risk Plan"). The purpose of the Pool is to be a reinsurance mechanism for the Assigned Risk Plan. The Pool may assess insurers to pay the obligations of the Pool in proportion to the insurers' direct net workers' compensation premium writings in Mississippi.
The year 2000 computer issue was of concern to companies because computer programs were written using two digits rather than four to identify the applicable year and since most older application software only contains the two digits, many computer systems will identify January 1, 2000 as January 1, 1900.
The Company determined that no significant year 2000 remedial work was required because the Company purchased all of its computer software and hardware in 1997 and 1998 and all of the purchased
equipment was represented to be Year 2000 compliant. The Company’s system did not experience any significant problems with the transition from 1999 to 2000.
During 1999, the Company identified two companies whose failure to be Year 2000 compliant could have a material impact on the Company. These companies were Continental, which acts as a fronting company under several reinsurance arrangements where the Company acts as a reinsurer and Trustmark National Bank, which provides the Company with routine banking services. The Company did not experience any significant problems with these companies' computer systems with the transition from 1999 to 2000.
In 1999, the Company spent approximately $5,000 on Year 2000 issues.The Company leases it's principal executive offices located at 633 North State Street, Suite 200, Jackson, Mississippi. The Company also leases its Arkansas office which is located at 124 West Capital Avenue, Little Rock, Arkansas. Management believes the offices are in good condition and adequate for the Company's foreseeable needs.
The Company is, from time to time, involved in litigation arising in the normal course of business. Management of the Company, based on the advice of counsel, is of the opinion that the Company's ultimate liability, if any, which may result from the litigation, will not have a material adverse effect on the financial condition of the Company.
There is no established public trading market for the Company's shares. Management of the Company is not aware of any trades of Company stock.
The Company has paid no dividends since its inception and there are no present plans to pay dividends. Under Mississippi law, the Company may pay cash dividends only from actual net surplus determined on a statutory basis. In addition, "extraordinary dividends" or "extraordinary distributions" may not be paid until thirty (30) days after the Commissioner of Insurance has received notice of the declaration thereof and has not within such period disapproved such payment, or the Commissioner has approved such payment within such thirty (30) day period. Extraordinary dividends or distributions are defined as any dividend or distribution of cash or other property whose fair market value together with that of other dividends or distributions made within the preceding twelve months exceeds the lesser of (i) ten percent (10%) of the Company's surplus as regards policyholders as of the December 31 next preceding, or (ii) the net income of such insurer, not including realized capital gains, for the twelve month period ending the December 31 next preceding, but shall not include pro-rata distributions of any class of the insurer's own securities. In determining whether a dividend or distribution is extraordinary, an insurer may carry forward net income from the previous two (2) calendar years that has not already been paid out as dividends.
The following selected financial data reflect operations of the Company since January 1, 1997 and have been derived from the financial statements audited by Deloitte and Touche LLP, independent certified public accountants whose report with respect thereto appears elsewhere in this report.
1999 1998 1997
---------- ---------- ----------
Earned Premium (net of ceded amount of $ 1,902,583 $ 1,691,374 ---
approximately $634,000 in 1999 and $75,000 in 1998)
Investment Income 95,128 79,619 $ 193,465
Administrative and Management Fees 1,087,111 243,477
Net Realized Losses on Trading Securities (19,057)
Other 38,088 59,507 228,871
---------- ---------- ----------
Total revenues $ 3,122,910 $ 2,073,977 $ 403,279
=========== =========== ===========
Loss Before Income Taxes $ (189,355) $ (158,256) $ (759,459)
=========== =========== ===========
Net Loss $ (103,709) $ (96,536) $ (474,439)
=========== =========== ===========
Total Assets $ 4,538,246 $ 4,502,602 $ 2,122,588
=========== =========== ===========
Total Liabilities $ 2,753,168 $ 2,587,549 $ 118,482
=========== =========== ===========
The Company's total shareholders' equity decreased by $129,975 or 6.8% from $1,915,053 at December 31, 1998 to $1,785,078 at December 31, 1999. This decrease was caused by a net loss from operations for the year of $103,709 and a decrease in unrealized gain on securities available-for-sale of $26,266.
Total assets increased by $35,644 or.08% at December 31,1999 compared to December 31,1998. This increase is due primarily to an increase in premiums and fees receivable as a result of increased volume. Cash and investments decreased a total of $364,516 during 1999 due largely to the purchase of American Colonial Insurance Company and the formation of Stoneville Service Company, a wholly owned subsidiary of Stoneville Insurance Company, and the associated start-up costs with that operation.
Total liabilities increased by $165,619 or 6.4% at December 31, 1999 compared to December 31, 1998. This increase was due partially to the receipt of certain quota share reinsurance agreement payments prior to the time such payments were earned. Additionally, with the increase in premium written and assumed during 1999, unearned premium increased by $371,876.
The Company took steps in 1999 to more fully develop its fee based service income and reduce its insurance related risks by ceding a greater percentage of the premium and loss associated with direct written policies beginning in September, 1999. Management believes that this shift in focus will provide greater net income and add stability to the Company's operations. As a result of this shift, administrative services revenue increased by $843,634 or 346.5% during 1999. Management believes that the administrative services area will continue to provide consistent revenues and improved net income for the Company during the next few years.
The Company experienced a net loss of $103,709 during 1999 compared to a net loss of $96,536 during 1998. This loss is due primarily to the costs associated with the operation of Stoneville Service Company, a claims administration subsidiary which began operations in early 1999. Stoneville Service Company provides claims services to third party self-funded workers' compensation programs. The Company has recently acquired and continues to acquire additional customers which it believes will significantly improve the net operating income of the Company. It is anticipated that Stoneville Service Company will begin generating an operating profit during the second quarter of 2000.
As a result of increased workers' compensation premium written and assumed, net earned premium during 1999 was $1,902,583 compared to $1,691,374 in 1998. Losses and loss adjustment expenses were $1,121,216 during 1999 compared to $1,269,134 in 1998. Other expenses directly associated with the Company's insurance programs totaled $495,619 in 1999 compared to $224,702 in 1998. The increase in expenses directly related to insurance programs was due to increased business written in 1999.
Beginning September 1, 1999, the Company reduced the amount of risk retained on direct written insurance business from 50% to 10%. This will reduce the potential exposure of the Company to future losses.
Investment income of the Company increased slightly from $79,619 in 1998 to $95,128 in 1999. The decrease in cash as a result of the start-up costs of Stoneville Service Company was offset by an increase in the Company's return on investment.
General expenses increased from $738,397 in 1998 to $1,611,912 in 1999. This increase is due primarily to expenses in the claims administration operation which did not exist during most of 1998. As a part of the development of the claims and program administration segment of the Company, significant costs were incurred to provide the resources necessary to provide such administrative services. While these costs are expected to continue the Company believes that these costs are necessary for the further enhancement of the administrative fee revenue of the Company.
The Company recorded an income tax benefit for 1999 in the amount of $85,646 compared to $61,720 during 1998. The increase in tax benefit is due to an increase in the net loss sustained by the Company in 1999 compared to 1998.
Due to the fact that workers' compensation claims are paid over a long period of time, it is anticipated that cash flows from premiums collected will be sufficient to pay any insurance claims that arise during 2000 and the foreseeable future. Additionally, fees from claims and administrative services are expected to continue to provide significant current revenue that is available to pay current operating expenses.
As a workers' compensation insurance carrier licensed in the State of Mississippi, the Company is subject to certain minimum capital and surplus requirements. In order to stay in compliance with these minimum requirements, the Company cannot sustain significant operating losses without raising additional capital from other sources. The Company anticipates that its increased customer base will generate an operating net income in 2000, thus satisfying any regulatory capital and surplus requirements. However, if such operating results are not attained, the Company may have to seek other sources of capital to allow it to maintain an adequate capital structure. The Company is not assured that such capital alternatives will be available if and when they are needed.
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Stoneville Insurance Company:
We have audited the accompanying consolidated balance sheets of
Stoneville Insurance Company and subsidiaries as of December 31, 1999 and 1998
and the related statements of operations and comprehensive losses, changes in
shareholders’ equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. 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, such consolidated financial statements present
fairly, in all material respects, the consolidated financial position of
Stoneville Insurance Company and subsidiaries as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Jackson, Mississippi
April 10, 2000
STONEVILLE INSURANCE COMPANY AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS 1999 1998
Investments:
Securities available for sale at fair value - amortized
cost of $967,000 (1999) and $1,139,000 (1998) $ 961,939 $ 1,175,757
Short-term investments, at cost which approximates market 351,692 342,358
------------- -------------
Total investments 1,313,631 1,518,115
------------- -------------
Cash and cash equivalents 1,062,290 1,222,322
Premiums receivable 622,228 420,902
Accounts receivable (no allowance deemed necessary) 309,081
Refundable income taxes 211,063 68,618
Reinsurance recoverable 573,676 1,023,532
Equipment and software, net of accumulated depreciation
of $59,000 (1999) and $27,000 (1998) 183,807 84,598
Deferred tax assets 62,849 134,715
Intangible assets, net of amortization of $30,000 (1999) 170,000
Other 29,621 29,800
------------- -------------
TOTAL ASSETS $ 4,538,246 $ 4,502,602
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Reserve for losses and loss adjustment expenses $ 1,258,463 $ 1,780,687
Unearned premium 846,982 475,106
Funds held by ceding insurer 443,015
Accounts payable and accrued expenses 197,755 323,415
Capital lease obligations 6,953 8,341
------------- ------------
Total liabilities 2,753,168 2,587,549
COMMITMENTS AND CONTINGENCIES (Notes 5 and 12)
SHAREHOLDERS' EQUITY:
Common stock ($1 par value; 10,000,000 shares authorized;
503,384 shares issued and outstanding) 503,384 503,384
Retained earnings 1,284,625 1,388,334
Accumulated other comprehensive income (loss) -
Unrealized gains (losses) on securities available for sale, net of
income taxes (benefit) of $(2,000) (1999) and $14,000 (1998) (2,931) 23,335
------------- ------------
Total shareholders' equity 1,785,078 1,915,053
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,538,246 $ 4,502,602
============= =============
See notes to consolidated financial statements.
1999 1998
REVENUES:
Net premiums earned (less ceded amount of
approximately $634,000 in 1999 and $75,000 in 1998) $ 1,902,583 $ 1,691,374
Administrative and management fees 1,087,111 243,477
Investment income - net of expenses 95,128 79,619
Net realized investment gains 6,388
Other 31,700 59,507
------------- ------------
Total revenues 3,122,910 2,073,977
EXPENSES:
Loss and loss adjustment expenses 1,204,734 1,269,134
Policy acquisition fees 141,243 53,502
Program administration fees 251,339 107,377
Regulatory fees 103,037 63,823
General expenses 1,611,912 738,397
------------- ------------
Total expenses 3,312,265 2,232,233
------------- ------------
LOSS BEFORE INCOME TAX BENEFIT (189,355) (158,256)
INCOME TAX BENEFIT (85,646) (61,720)
------------- ------------
NET LOSS (103,709) (96,536)
OTHER COMPREHENSIVE INCOME (LOSS),
net of income tax effect:
Increase (decrease) in unrealized gain (loss)
on investments in securities (22,050) 7,483
Reclassification of gains included in net loss (4,216) 0
------------- ------------
COMPREHENSIVE LOSS $ (129,975) $ (89,053)
============= =============
NET LOSS PER SHARE $ (0.21) $ (0.19)
============= =============
See notes to consolidated financial statements.
Accumulated
Other Total
Common Stock Retained Comprehensive Shareholders'
--------------------------
Shares Amount Earnings Income (Loss) Equity
BALANCE AT JANUARY 1, 1998 503,384 $ 503,384 $ 1,484,870 $ 15,852 $ 2,004,106
Net loss (96,536) (96,536)
Net increase in unrealized appreciation
of securities available for sale 7,483 7,483
--------- --------- ------------ --------- ------------
BALANCE AT DECEMBER 31, 1998 503,384 503,384 1,388,334 23,335 1,915,053
Net loss (103,709) (103,709)
Net decrease in unrealized gain (loss)
on securities available for sale (26,266) (26,266)
--------- --------- ------------ --------- ------------
BALANCE AT DECEMBER 31, 1999 503,384 $ 503,384 $ 1,284,625 $ (2,931) $ 1,785,078
========= ========= ============ ========= ============
See notes to consolidated financial statements.
STONEVILLE INSURANCE COMPANY AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
OPERATING ACTIVITIES:
Premiums collected $ 2,522,989 $ 1,743,321
Other income 819,532 302,984
Losses and loss adjustment expenses paid (1,729,958) (511,979)
General insurance and administrative expenses paid (1,751,068) (737,438)
Income tax refund received 30,827 166,943
Investment income received 94,976 103,909
Interest paid (1,043) (716)
------------- ------------
Net cash provided by (used in) operating activities (13,745) 1,067,024
INVESTING ACTIVITIES:
Proceeds from sales and maturities of securities available-for-sale 552,175 65,179
Purchase of American Colonial Insurance Company, net
of cash acquired (131,414)
Purchase of securities available-for-sale (284,635)
Purchase of intangible asset (150,000)
Capital expenditures (131,024) (82,628)
------------- ------------
Net cash used in investing activities (144,898) (17,449)
FINANCING ACTIVITIES -
Principal payments under capital lease obligations (1,389) (2,489)
------------- ------------
Net cash used in financing activities (1,389) (2,489)
------------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (160,032) 1,047,086
CASH AND CASH EQUIVALENTS:
AT BEGINNING OF YEAR 1,222,322 175,236
------------- ------------
AT END OF YEAR $ 1,062,290 $ 1,222,322
================ ===============
SUPPLEMENTAL SCHEDULE OF NON-CASH
FINANCING AND INVESTING ACTIVITIES -
Capital leases incurred $ 9,575
===============
(Continued)
STONEVILLE INSURANCE COMPANY AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss $ (103,709) (96,536)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization expense 61,816 14,894
Deferred income tax expense (benefit) 88,562 (61,720)
Decrease (increase) in income taxes receivable (143,381) 166,943
Decrease (increase) in premiums and reinsurance receivables 248,530 (1,446,690)
Decrease (increase) in receivables and other assets (310,570) 25,894
Increase (decrease) in unpaid losses and loss
adjustment expenses (525,224) 1,780,687
Increase in unearned premiums 371,876 475,106
Increase in accounts payable, accrued expenses and funds held 298,355 208,446
------------- -------------
Net cash provided by (used in)
operating activities $ (13,745) $ 1,067,024
================ ===============
See notes to consolidated financial statements. (Concluded)
STONEVILLE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
The consolidated financial statements include the accounts of Stoneville Insurance Company and
its wholly-owned subsidiaries, Stoneville Service Company, Inc. and Stoneville Insurance
Company of Arkansas (collectively, "the Company"). All material intercompany profits,
transactions and balances have been eliminated.
Stoneville Insurance Company was formed to become the successor to Delta Agricultural and
Industrial Trust, (the Trust), a self-funded workers' compensation trust. The Company entered
the workers' compensation market in the first quarter of 1998 as a reinsurer and began direct
writing of workers' compensation insurance in the fourth quarter of 1998. The Company also
provides claims and risk control services as well as program management services to the
insurance programs being reinsured by the Company and to self-funded workers' compensation
groups. The Company is domiciled in Mississippi and operates in Mississippi and Arkansas.
The accompanying consolidated financial statements have been prepared in conformity with
generally accepted accounting principles which vary in some respects from accounting practices
prescribed or permitted by the Insurance Department of the State of Mississippi. Prescribed
statutory accounting practices include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations, and general administrative
rules. Permitted statutory accounting practices encompass all accounting practices not so
prescribed (see Note 9).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Use of Estimates - The consolidated financial statements are prepared in conformity with
generally accepted accounting principles which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
b. Investments - Debt securities are considered available for sale and reported at fair value,
adjusted for other than temporary declines in fair value, with unrealized gains and losses
excluded from losses and reported as a separate component of other comprehensive income
(loss). Realized gains and losses are determined on the specific identification method.
c. Cash Equivalents - For the purpose of reporting cash flows, cash equivalents include all
highly liquid investments with a maturity of three months or less when purchased. Cash
and cash equivalents include $789,000 of interest-bearing deposits in 1999.
d. Premium Revenue Recognition - Insurance premiums are recognized as revenue on a pro
rata basis over the policy term. The portion of premiums that will be earned in the future
are deferred and reported as unearned premiums.
e. Reinsurance - In the normal course of business, the Company seeks to reduce the loss that
may arise from catastrophes or other events that cause unfavorable underwriting results by
reinsuring certain levels of risk in various areas of exposure with other insurance
enterprises or reinsurers. Amounts recoverable from reinsurers are estimated in a manner
consistent with the reinsured policy. Amounts due from reinsurers are shown as reinsurance
receivables, net of uncollectible amounts on the consolidated balance sheets. Liabilities for
losses and loss adjustment expenses are not reduced by the amounts receivable from
reinsurers. Amounts ceded to reinsurers are shown as a reduction of earned premium on
the consolidated statements of operations and comprehensive losses.
The Company uses specific and aggregate excess policies to limit losses. These limits
range from $20,000 to $50,000 per claim ($25,000 to $100,000 for business written prior to
September 1, 1999), depending on the type of claim filed. Reinsurance contracts do not
relieve the Company from its primary obligation to policyholders. Failure of any reinsurer
to honor its obligations could result in losses to the Company.
f. Capitalization, Depreciation and Amortization - The cost of equipment and software is
depreciated by the straight-line method over the estimated useful life of five years.
Equipment under capital leases is recorded at the lower of fair value or the present value of
future minimum lease payments and is amortized by the straight-line method over its
primary lease term. In addition, licenses and other intangible assets are amortized by the
straight-line method over five years. At each balance sheet date the Company evaluates the
recoverability of long-term assets based upon expectations of nondiscounted cash flows and
operating income. Depreciation and amortization expense is included in "General
Expenses".
g. Policy Acquisition Costs - Substantially all policy acquisition costs are paid as the related
premiums are earned. Consequently, there were ordinarily no unamortized policy
acquisition costs capitalized at December 31.
h. Insurance Liabilities - The liability for losses and loss-adjustment expenses include an
amount determined from loss reports and individual cases and an undiscounted amount,
based on past experience, for losses incurred but not reported. Such liabilities are
necessarily based on estimates and, while management believes that the amount is
adequate, the ultimate liability may be in excess of or less than the amounts provided. The
methods for making such estimates and for establishing the resulting liabilities are
continually reviewed, and any adjustments are reflected in the consolidated statements of
operations and comprehensive losses.
i. Income Taxes - Deferred tax liabilities and assets are determined based on the differences
between the financial statement and tax bases of assets and liabilities using enacted tax
rates in effect in the years in which the differences are expected to reverse.
j. Accounting Standard to be Adopted in the Future - In June, 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which is
effective, after amendment, for fiscal years beginning after June 15, 2000. SFAS 133
requires, among other things, that derivatives be recorded on the consolidated balance sheet
at fair value. Changes in the fair value of derivatives may, depending on circumstances, be
recognized in earnings or deferred as a component of shareholders' equity until a hedged
transaction occurs. The Company has not determined what impact, if any, the adoption of
SFAS 133 will have on its financial position or results of operations.
k. Net Loss Per Share - Net loss per share is based on net loss and the weighted average
number of shares outstanding during each period. The number of shares used in computing
net loss per share was 503,384 in 1999 and 1998.
l. Reclassifications - Certain reclassifications have been made in the 1998 consolidated
financial statements to conform to the method of presentation used in 1999.
3. FORMATION OF SUBSIDIARY AND ACQUISITION
In January 1999, the Company formed Stoneville Service Company, Inc., a Mississippi
corporation owned entirely by Stoneville Insurance Company. Stoneville Service Company, Inc.
provides claims and risk control services primarily to Arkansas groups that are self-funded for
workers' compensation purposes.
In May 1999, the Company acquired all of the outstanding stock of American Colonial Insurance
Company, an Arkansas property and casualty insurance company. Immediately after the
acquisition, the name was changed to Stoneville Insurance Company of Arkansas. The Company
has begun to write small premium workers' compensation insurance in Arkansas and will
reinsure other workers' compensation carriers on a limited risk basis. The Company also plans
to provide claims administration and program management services for these insurance
programs through its Arkansas subsidiary.
The acquisition was accounted for by the purchase method of accounting. The ultimate purchase
price, net of cash acquired of $188,000, has been allocated to the assets acquired and liabilities
assumed based upon the fair values at the date of acquisition, as follows:
Short-term investments $ 100,000
Jurisdictional license 50,000
Unearned premium, accounts payable and accrued expenses (19,000)
------------
Purchase price, net of cash aquired $ 131,000
============
the Company's consolidated financial statements subsequent to the date of acquisition. However,
the consolidated results of operations would not materially differ if the subsidiary's results of
operations prior to the acquisition were included in the consolidated financial statements.
4. SECURITIES AVAILABLE FOR SALE
The aggregate fair value, gross unrealized gains and losses, and amortized cost of securities
available-for-sale by major security type at December 31, 1999 and 1998 are as follows:
Gross Gross
Amortized Unrealized Unrealized
1999 Cost Gains Losses Fair Value
Obligations of U. S. Government
corporations and agencies $ 201,306 $ 985 $ 200,321
Obligations of states and political
subdivision 349,077 116 348,961
Mortgage-backed securities 416,379 3,722 412,657
------------ ------------ ------------
Total $ 966,762 $ - $ 4,823 $ 961,939
============ ============ ============ ============
1998
Obligations of U. S. Government
corporations and agencies $ 378,124 $ 19,139 $ 397,263
Obligations of states and political
subdivision 610,917 11,527 622,444
Mortgage-backed securities 150,311 5,739 156,050
------------ ------------ ------------
Total $ 1,139,352 $ 36,405 $ - $ 1,175,757
============ ============ ============ ============
The scheduled maturities of securities available-for-sale at December 31, 1999 were as follows:
Amortized Fair
Cost Value
Due after one year through five years $ 401,306 $ 400,321
Due after five years through ten years 149,077 148,961
----------- -----------
550,383 549,282
Mortgage-backed securities 416,379 412,657
----------- -----------
Total $ 966,762 $ 961,939
============ ============
Actual maturities may differ from contractual maturities because of the borrower's right to call or
prepay obligations.
Major categories of investment income are summarized as follows:
1999 1998
Securities available for sale $ 73,103 $ 84,280
Short-term investments 34,025 9,698
----------- -----------
107,128 93,978
Less: investment expenses (12,000) (14,359)
----------- -----------
$ 95,128 $ 79,619
============ ============
5. ASSETS PLEDGED
Approximately $1,383,000 in cash and investments are pledged as collateral for a letter of credit
issued to an insurer that the Company reinsures. The letter of credit secures the payment of
claims being administered by the Company.
Investments with an approximate carrying value of $252,000 in 1999 were pledged to the State
of Mississippi for the security and benefit of policyholders. At December 31, 1999, assets on
deposit met minimum statutory requirements.
6. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The reserve for losses and loss adjustment expenses consisted of the following:
1999 1998
Case basis reserves $ 467,996 $ 656,895
Incurred but unreported claims 216,791 100,260
----------- -----------
Total reserves, net of reinsurance recoverable $ 684,787 $ 757,155
============ ============
Activity in the reserve for losses and loss adjustment expenses is summarized as follows:
1999 1998
Balance at January 1 $ 1,780,687 $ 0
Less reinsurance recoverable 1,023,532
------------
Net balance at January 1 757,155
Incurred related to -
Current year 1,313,687 1,269,134
Prior years (108,953) 0
------------ ------------
Total incurred 1,204,734 1,269,134
Paid related to -
Current year 628,900 511,979
Prior years 648,202 0
------------ ------------
Total paid 1,277,102 511,979
------------ ------------
Net balance at December 31 684,787 757,155
Plus reinsurance recoverable 573,676 1,023,532
------------ ------------
Balance at December 31 $ 1,258,463 $ 1,780,687
============ ============
7. INCOME TAXES
The benefit from income taxes consisted of the following:
1999 1998
Current $ (174,208) $ 0
Deferred 88,562 (61,720)
------------ ------------
$ (85,646) $ (61,720)
============ ============
The effective income tax benefit varied from the U. S. Federal statutory rate of 35% as follows:
1999 1998
Federal income tax benefit at statutory rates $ (66,274) $ (55,389)
Tax-exempt interest (10,500) (10,000)
State income tax benefit (7,881) (5,222)
Other (991) 8,891
------------ ------------
Benefit from income taxes $ (85,646) $ (61,720)
============ ============
The Company had capital loss carryforwards at December 31, 1999 of approximately $657,000.
These capital loss carryforwards will expire as follows:
2000 $ 170,000
2001 460,000
2002 27,000
------------
$ 657,000
============
These loss carryforwards can only be utilized if the Company experiences future capital gains.
Because the Company's investment strategy is to emphasize ordinary income rather than capital
gains, a valuation allowance has been provided for substantially all of the capital loss carryforward.
Refundable income taxes in 1999 represent overpaid estimated income taxes of approximately
$38,000 and net operating loss carrybacks of approximately $173,000.
The valuation allowance decreased approximately $152,000 in 1999 to reflect the expiration of
capital losses that are no longer carried as a deferred tax asset.
The components of the net deferred tax asset were as follows:
1999 1998
Deferred tax assets (liabilities):
Charitable contributions $ 9,325 $ 9,325
Unamortized reorganization costs 28,326 45,321
Capital loss carryforward 245,081 396,892
Unrealized loss (gain) on securities 1,744 (13,882)
Net operating loss carryforward 0 84,916
Other 6,341 (8,078)
------------ ------------
290,817 514,494
Valuation allowance (227,968) (379,779)
------------ ------------
Net deferred tax assets $ 62,849 $ 134,715
============ ============
8. RELATED PARTY TRANSACTIONS
An officer and director of the Company is also an officer and director of Morgan White
Underwriters, Inc. ("MWU"). As the marketing director of the workers compensation commercial program, MWU received
compensation based on a percentage of collected premium from the
commercial program of $66,000 (1999) and $25,000 (1998).
MWU also received commissions from Continental Casualty Company for the placement of the
Assumption Reinsurance Agreement between the Company and Continental.
9. STATUTORY FINANCIAL INFORMATION
Generally accepted accounting principles differ in certain respects from the accounting practices
prescribed or permitted by insurance regulatory authorities (statutory basis). A reconciliation
between net loss and shareholders' equity as reported under generally accepted accounting
principles (GAAP basis) and statutory net loss and shareholders' equity of the Company follows:
1999 1998
------------------------------------ -----------------------------------
Net Shareholders' Net Shareholders'
Income (Loss) Equity Loss Equity
GAAP basis $ (103,709) $ 1,785,078 $ (96,536) $ 1,915,053
Adjustments to:
Non-admitted assets (572,117) (94,758)
Subsidiary operations 89,225 89,225
Income taxes 4,569 4,569
** Deferred income taxes 75,758 (3,526) (61,720) (134,715)
Unrealized loss on
invested securities 4,823 (37,127)
Other (248) (90)
------------- ------------- ------------- -------------
Statutory basis $ 65,843 $ 1,308,052 $ (158,504) $ 1,648,363
============= ============= ============= =============
Pursuant to the laws and regulations of the State of Mississippi, the Company is required to
maintain minimum capital of $400,000 and additional minimum surplus of $600,000.
In order to stay in compliance with these minimum requirements, the Company cannot sustain significant
operating losses without raising additional capital from other sources. Stockholders' dividends are payable
out of statutory surplus.
The NAIC measures the adequacy of a company's capital by its risk-based capital ratio (the ratio
of its total capital, as defined, to its risk-based capital). The requirements provide a
measurement of minimum capital appropriate for an insurance company to support its overall
business operations based upon its size and risk profile which considers (i) asset risk, (ii)
insurance risk, (iii) interest rate risk, and (iv) business risk. An insurance company's risk-based
capital is calculated by applying a defined factor to various statutory-based assets, premiums,
and reserve items, wherein the factor is higher for items with greater underlying risk.
The NAIC has provided levels of progressively increasing regulatory action for remedies when
an insurance company's risk-based capital ratio falls below a ratio of 2:1. As of December 31,
1999, the Company was in the Company Action Level with regard to the minimum capital
requirements as follows:
Total adjusted capital $ 1,308,052
Authorized control level risk-based capital as reported to the State 739,972
Ratio of adjusted capital to risk based capital 1.77:1
10. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of certain financial instruments have been determined by the
Company using available market information and appropriate valuation methodologies.
However, considerable judgment is necessarily required to interpret market data to develop the
estimates of fair value.
The estimated fair values are significantly affected by assumptions used, principally the timing
of future cash flows, the discount rate, judgments regarding current economic conditions, risk
characteristics of various financial instruments and other factors. Because assumptions are
inherently subjective in nature, the estimated fair values cannot be substantiated by comparison
to independent quotes and, in many cases, the estimated fair values could not necessarily be
realized in an immediate sale or settlement of the instrument. Potential tax ramifications related
to the realization of unrealized gains and losses that would be incurred in an actual sale and/or
settlement have not been taken into consideration. The aggregate fair value amounts presented
are not intended to represent the underlying aggregate fair value of the Company.
The methods and assumptions used to estimate fair value are as follows:
o Fair value for securities is determined from quoted market prices, where available. For
securities not actively traded, fair value is estimated using quoted market prices for
similar securities. See fair values disclosed in Note 4.
o Fair value for short-term investments, accrued investment income, receivables, unearned
premium income and accounts payable and accrued expenses approximates the carrying
amount, as the assets are readily redeemable and the liabilities are short-term in nature.
o Fair value for the reserve for losses and loss adjustment expenses approximates the
carrying amount.
11. OPERATING SEGMENT DISCLOSURE
In 1999 the Company focused on and significantly developed its fee-based services provided to
defined client groups and their members. The focus on fee-based operations (risk control
services, program management services, claims handling and administration) influenced the
Company in deciding to increase its level of reinsurance on worker's compensation policies,
thereby reducing both the exposure for claims losses as well as net premium income from those
policies. For both fee-based and insurance operations, the Company monitors both revenue and
expenses directly related to such revenue but does not monitor assets by operating segment.
Therefore, the Company reports segment information for both its fee-based services and its
worker's compensation insurance operations, as follows:
1999 1998
Fee-based Insurance Fee-based Insurance
Services Operations Services Operations
Revenues from external services $ 1,087,111 $ 1,902,583 $ 243,477 $ 1,691,374
Net margin per segment 835,772 556,606 136,100 368,738
A reconciliation follows of amounts reported as segment information to totals reported in the
consolidated financial statements:
1999 1998
Total revenues for segments reported $ 2,989,694 $ 1,934,851
Investment and other income not 133,216 139,126
allocated ------------- -------------
Total consolidated revenues $ 3,122,910 $ 2,073,977
============= =============
Total net margins for segments reported $ 1,392,378 $ 504,838
Investment and other income not 133,216 139,126
allocated
Unallocated regulatory fees (103,037) (63,823)
Unallocated general expenses (1,611,912) (738,397)
------------- -------------
Consolidated loss before income tax $ (189,355) $ (158,256)
benefit ============= =============
12. COMMITMENTS AND CONTINGENCIES
The Company is required to participate in certain guaranty funds and involuntary pools of
insurance and is therefore exposed to undeterminable future assessments resulting from the
insolvency of other insurers.
The Company leases office space under a month-to-month lease arrangement and has non-
cancelable lease arrangements for computer and other equipment. Expenses incurred under all
operating leases approximated $144,000 in 1999 and $15,000 in 1998. Future minimum lease
commitments under non-cancelable operating leases are as follows:
2000 $ 117,000
2001 116,000
2002 30,000
2003 6,000
-------------
Total non-cancelable operating commitments $ 269,000
=============
The Company is involved in litigation incurred in the normal course of business. Management of
the Company, based upon the advice of legal counsel, is of the opinion that the Company's ultimate
liability, if any, which may result from the litigation, will not have a material adverse effect on the
financial condition or results of operations of the Company.
* * * * * *
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
A report on Form 8-K was filed on February 25, 1999 disclosing Deloitte & Touche LLP as the
Company's new auditors. There has been no other change in or disagreements with accountants within
the two (2) year period ended December 31, 1999.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The names of the executive officers and directors of the Company and their respective ages and
positions with the Company are set forth as follows:
Name Age Position
William L. Kennedy 48 Chairman of the Board of
Directors, Chief Executive
Officer
Harry E. Vickery 64 President, Director
David R. White 50 Secretary, Treasurer, Vice
President, Director
Richard L. Eaton 42 Chief Financial Officer
William L. Kennedy resides in Inverness, Mississippi. He holds a BS degree in Entomology from Mississippi State University. He has worked with Duncan Gin, Inc. since 1972 and currently serves as President and Chief Operating Officer of Duncan Gin, Inc. Duncan Gin, Inc. is a multiline agricultural marketing entity and is the largest cotton ginning operation in Mississippi. He served from inception on the Board of Trustees of the Trust until the conversion became effective at which time Mr. Kennedy became a Director of the Company.
Harry Vickery resides in Jackson, Mississippi. From 1962-1993, Mr. Vickery was involved in the automobile business in Greenville, Mississippi. Mr. Vickery was one of the original members of the Board of Trustees of the Trust from inception until 1993 when he became Administrator. Mr. Vickery became a Director of the Company in 1998. Mr. Vickery was President and a director of Vickery Chevrolet Oldsmobile Co., Inc. which filed a Chapter 11 bankruptcy petition in 1993. All assets of Vickery Chevrolet Oldsmobile Co., Inc. were sold and the bankruptcy case was subsequently dismissed.
David R. White resides in Jackson, Mississippi. Mr. White became a Director of the Company in 1998. He holds a BS degree from the University of Mississippi in Accounting and Business Administration. He has been involved in the insurance business since 1987 and has served as President and Chief Operating Officer of Morgan-White Underwriters, Inc. since that date. He holds a number of
awards in the insurance field and has served as president of insurance associations both on the local and state level.
Richard L. Eaton resides in Jackson, Mississippi. He holds a BBA degree from Marshall University and received his Certified Public Accountancy certification in 1982. He has been in private practice with Richard L. Eaton, CPA, since 1988 and served as the Trust’s independent auditor from 1993 through 1997.
All directors hold office until the next annual meeting of shareholders of the Company or until their successors have been elected and qualified. Unless changed by the action of the Board of Directors, the number of directors shall be no fewer than three (3) nor more than seven (7). Officers serve at the discretion of the Board of Directors. Mr. White’s wife and Mr. Eaton’s wife are sisters. There are no other family relationships between the directors and officers.
Because its stock is not registered under Section 12 of the Securities Exchange Act of 1934, the Company is not subject to Section 16 of the Securities Exchange Act of 1934.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------
Awards Payouts
------ -------
Securities
----------
Restricted Under-
---------- ------
Stock lying LTIP All Other
----- ----- ---- ---------
Name and Principal Bonus Other Annual Award(s) Options/ Payouts Compensation
------------------ ----- ------------ -------- -------- ------- ------------
Position Year Salary ($) ($) Compensation ($) SARS (#) ($) ($)
-------- ---- ---------- --- ------------ --- -------- --- ---
William L. Kennedy, 1999 $ 3,000(1) 0 0 0 0 0 0
CEO
Harry E. Vickery, 1999 $ 96,000 0 0 0 0 0 0
President
Richard L. Eaton, 1999 $109,250 0 0 0 0 0 0
CFO
(1) Mr. Kennedy received no compensation other than $3,000 in directors fees.
The following table sets forth information as of March 27, 2000 as to persons beneficially owning more than five percent (5%) of the Company’s Common Stock.
Nature Percentage of
of Beneficial Outstanding
Name Ownership Common Stock
Danskin, Inc. 39,567 7.86%
305 State Street
York, PA 17403
The following table sets forth information as of March 27, 2000, as to the number of shares of
Company Common Stock owned by the Company's directors and executive officers.
Amount and
Nature Percentage of
of Beneficial Outstanding
Name Ownership Common Stock
William L. Kennedy (1) 7,123 0.65%
Harry E. Vickery 0 0.00%
David R. White (2) 49 0.00%
4 Executive Officers and 7,172 0.65%
Directors as a group
(1) Mr. Kennedy shares voting and investment power with respect to these shares.
(2) Mr. White shares voting and investment power with respect to these shares.
On September 1, 1998, the Company entered into a Program Management Agreement with Morgan-White Underwriters. David R. White, an officer and director of the Company, is a shareholder, officer and director of Morgan-White Underwriters.
Pursuant to the terms of the Program Management Agreement, Morgan-White Underwriters has the exclusive right to receive and accept proposals for insurance for the Company for the Approved Programs as defined in the Program Management Agreement. The Approved Programs include one hundred sixty eight (168) workers compensation risk categories and are limited by various underwriting guidelines set forth in the Program Management Agreement. Pursuant to the Program Management Agreement, the Company and Morgan-White Underwriters are jointly responsible for promotional activities for the Approved Programs and the Company is responsible for the issuance of quotations, binders and policies and claims administration. The term of the Program Management Agreement is ten (10) years, with automatic one year renewals unless one hundred eighty (180) days prior written notice is given by either party. The Company does not currently have the capability to perform the
services provided by Morgan-White Underwriters pursuant to this arrangement. In the event that the Program Management Agreement is terminated, the Company would either have to enter into an agreement with another company to provide these services, or the Company would be required to hire personnel and otherwise set up the capabilities to internally provide these services. For the program management services rendered by Morgan-White Underwriters pursuant to the Program Management Agreement, Morgan-White Underwriters was paid approximately $66,000 in 1999 and $25,000 in 1998 by the Company. Morgan-White Underwriters also receives commissions from Continental for the placement of the Assumption and Reinsurance Agreement between the Company and Continental.
Richard L. Eaton, CPA Mr. Eaton's accounting firm, Richard L. Eaton, CPA was paid $35,054 in 1999 and $10,174 in 1998 for accounting services performed for the Company.ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
A-1. Financial Statement Schedules.
Independent Auditors' Report on Schedules
Schedule IV - Reinsurance
Schedule V - Valuation and Qualifying Accounts
A-2. Exhibits. The following exhibits are furnished or incorporated by reference as a part of
this Form 10-KSB:
Exhibit Number Description
3.1* Articles of Incorporation of the Company
3.2* Bylaws of the Company
6.1* Assumption Reinsurance Agreement dated as of March 20, 1997
between the Trust, Continental, and the Company
6.2* Amendment Number One dated September 5, 1997 to
Assumption Reinsurance Agreement between the Trust,
Continental, and the Company included as Exhibit 10.5 to the
Registration Statement on Form S-4, as amended (File No. 333-
24739), filed September 16, 1997.
6.3** Program Management Agreement dated September 1, 1998
between Morgan-White Underwriters and the Company
8.1* Plan and Agreement of Reorganization and Conversion of the
Trust, as amended September 11, 1997.
8.2 Stock Purchase Agreement, dated May 3, 1999 between the
Company and Rebsamen Insurance, Inc.
8.3 Assumption Reinsurance Agreement, dated March 21, 2000
between the Company, The Mississippi State Medical
Association and Mississippi Physicians Insurance Company.
27 Financial Data Schedule.
* Previously filed as Exhibits to the Company's Registration Statement on Form S-4 (File No. 333-
24739) and incorporated by reference herein.
** Previously filed as an Exhibit to the Company's 10-KSB filed March 31, 1999 (File No. 333-24739)
and incorporated by reference herein.
B. Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the fiscal quarter ended December 31,
1999.
STONEVILLE INSURANCE COMPANY
By: /s/
Harry E. Vickery, President
Date: April 13, 2000
By: /s/
Richard L. Eaton, Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
Date: April 13, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date: April 13, 2000 By: /s/
William L. Kennedy, Director
(Principal Executive Officer)
Date: April 13, 2000 By: /s/
Harry E. Vickery, Director
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
To the Board of Directors and Stockholders of
Stoneville Insurance Company:
We have audited the consolidated financial statements of Stoneville Insurance Company and
subsidiaries as of December 31, 1999 and 1998, and for the years then ended, and have issued our
report thereon dated March 28, 2000; such report is included elsewhere in this Form 10-K. Our audits
also included the financial statement schedules of Stoneville Insurance Company, listed in Item 14.
These financial statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Jackson, Mississippi
April 10, 2000
Article 7. Schedule
IV - Reinsurance
Col. A. Col. B Col. C Col. D Col. E Col. F
Description Gross Ceded to Assumed Net Amount
Amount Other from Other Amount Assumed as
Companies Companies (2) % of Net
1999
Premiums - property and
liability insurance $ 1,246,000 $ 634,000 $ 1,291,000 $ 1,903,000 68%
1998
Premiums - property and
liability insurance $ 1,092,000 $ 75,000 $ 674,000 $ 1,691,000 40%
Article 7. Schedule V - Valuation and Qualifying Accounts
Col. A. Col. B Col. C Col. D Col. E
Description Balance at Additions Deductions -- Balance at
---------------------------------------
---------------------------------------
Beginning End of
of Period (1) (2) Period
Charged Charged
to Costs to Other
and Accounts --
Expenses Describe
1999
Valuation allowance for
deferred tax assets $ 379,779 $ 151,811 $ 227,968
1998
Valuation allowance for
deferred tax assets $ 379,779 $ 0 $ 379,779
EXHIBIT 8.2
This Stock Purchase Agreement (the “Agreement”) is made and entered into as of the day and year written below between Stoneville Insurance Company (the “Purchaser”) and Rebsamen Insurance, Inc. (the “Seller”).
Seller desires to sell, and Purchaser desires to purchase, all of the issued and outstanding capital stock of American Colonial Insurance Company (the “Company”) for the consideration and on the terms set forth in this Agreement.
Sale and Purchase of Stock
--------------------------
1. 1. Closing. The sale and purchase contemplated in this Article 1 shall be
-------
consummated at a closing to be held at 11:00 a.m. on May 3, 1999 (hereinafter referred
to as the "Closing"), at the offices of Seller, or at such other place, date and time as
may be mutually agreed. The date on which the Closing shall take place shall
hereinafter be referred to as the "Closing Date".
1.2. Sale and Purchase. Subject to the terms and conditions hereof, at the
-----------------
Closing, the Seller shall sell, assign, transfer, convey and deliver to the Purchaser, and
the Purchaser shall purchase from the Seller, all of the issued and outstanding capital
stock of the Company owned by the Seller, all such capital stock consisting of an
aggregate of Four Hundred (400) shares of Common Stock, no par value per share,
representing a one hundred percent (100%) ownership interest in the Company (such
shares being hereinafter referred to as the "Stock"). The sale shall be evidenced by the
delivery to the Purchaser of stock certificates representing the Stock, duly endorsed in
blank or accompanied by duly executed stock powers.
1.3. Purchase Price. The purchase price for the Stock shall be an amount equal
--------------
to Fifty Thousand Dollars ($50,000) more than the amount of capital and surplus of the
Company at the close of business on April 30, 1999, but in no event shall the purchase
price exceed $325,000 ("Purchase Price").
1.4. Documents Delivered By the Seller. At the Closing, the Seller shall deliver
---------------------------------
to the Purchaser (unless previously delivered) the following:
(a) Certificates representing all the Stock, duly endorsed or accompanied by
stock powers duly executed in blank.
(b) The opinions of counsel to the Seller referred to in Section 5.8 hereof.
(c) A copy of (1) the Bylaws of the Company, certified by the Secretary or
Assistant Secretary of the Company, and (2) the Articles of Agreement and
Incorporation, certified by the appropriate official in the state of incorporation as of a
date no more than 30 days prior to the Closing Date.
(d) Certificates from appropriate authorities, dated not more than 5 days prior
to the Closing Date, as to the good standing of, authority to transact insurance business
and payment of taxes by, the Company in the state in which it is incorporated.
(e) Such written resignations, effective at the time of Closing, of officers,
directors, agents or other persons authorized to act on behalf of the Company as the
Purchaser shall have requested.
(f) Certificates and other documents required by Sections 5.1, 5.2, 5.3, 5.4,
5.5 and 5.6 hereof.
(g) Such other documents or certificates as shall be reasonably required by
the Purchaser or its counsel.
1.5. Documents Delivered By the Purchaser. At the Closing, the Purchaser
------------------------------------
shall deliver to the Seller (unless previously delivered) the following:
(a) Certified check or other cash equivalent in the amount of the Purchase
Price payable to the Seller.
(b) The opinion of counsel to the Buyer referred to in 6.5 hereof.
(c) Certificate from the appropriate authority, dated not more than 5 days
prior to the Closing Date, as of the good standing of the Purchaser in the state in which
it is incorporated.
(d) Certificates or documents required by Sections 6.1 and 6.2 hereof.
(e) Such other documents or certificates as shall be reasonably required by
Seller or its counsel.
ARTICLE 2
---------
Representation and Warranties of Purchaser
------------------------------------------
The Purchaser represents and warrants to the Seller that:
2.1. Organization and Standing. The Purchaser is a corporation, validly
-------------------------
organized, existing and in good standing under the laws of the State of Mississippi. The
Purchaser has the power and authority to own its properties and to transact its business
where and as now conducted, and to own, lease, use and operate its properties.
2.2. Power and Authority. The Purchaser has the power to enter into this
-------------------
Agreement and to carry out its obligations hereunder. When duly executed and
delivered by the parties hereto, this Agreement will constitute a valid and legally binding
obligation of the Purchaser and will be enforceable against it in accordance with its
terms, subject to bankruptcy, insolvency, reorganization or other laws relating to or
affecting the enforcement of the rights of creditors generally and general equitable
principles.
2.3. Brokerage. No broker, finder or similar agent has been engaged or
---------
employed by or on behalf of the Purchaser and the Purchaser is not obligated to pay
any broker's, finder's or similar fee in connection with the subject matter of this
Agreement.
2.4. Investment Intent. The Stock is not being purchased with a view to the
-----------------
resale, distribution, subdivision or fractionalization thereof. In addition, Purchaser
hereby represents and warrants that it is an "accredited investor" within the meaning of
Regulation D under the Securities Act of 1933 as amended (the "Securities Act") and is
acquiring the Stock to be issued to it pursuant to this Agreement for purposes of
investment with no present intent to sell or view to distribute the same. Purchaser
understands that the Stock has not been registered under the Securities Act or the
"blue sky" laws of appropriate jurisdictions, in reliance upon exemptions from
registration and qualification thereunder, and that such exemptions are in part
dependent on the representations made herein. Purchaser represents and warrants
that it has such knowledge and experience that it is capable of evaluating the merits
and risks of this investment and protecting its own interest in connection with this
investment and that its financial condition is such that it is in a financial position to hold
the Stock for an indefinite period of time and to bear the economic risk of, and
withstand a complete loss of, the investment represented thereby. Purchaser hereby
acknowledges that the Stock must be held indefinitely unless subsequently registered
under the Securities Act or unless an exemption from such registration is available.
Purchaser understands that no public market now exists for any of the securities issued
by the Company and that Seller has made no assurances that a public market will ever
exist for the Company securities.
ARTICLE 3
---------
Representations and Warranties of Seller
----------------------------------------
The Seller represents and warrants to the Purchaser that:
3.1. Power and Authority. The Seller has the power to enter into this Agreement
-------------------
and to carry out its obligations hereunder. When duly executed and delivered by the
parties hereto, this Agreement will constitute a valid and legally binding obligation of the
Seller and will be enforceable against it in accordance with its terms, subject to
bankruptcy, insolvency, reorganization or other laws relating to or affecting the
enforcement of the rights of creditors generally and general equitable principles. Neither
the execution and delivery of this Agreement, nor the consummation and performance
of the transactions contemplated hereby, nor compliance by the Seller with any of the
provisions hereof, will:
(a) violate, or conflict with, or require a consent, waiver or approval under, or
result in a material breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or give to others any interest or right of termination, cancellation or
acceleration in or with respect to, or accelerate the performance required by, or result in
the creation of any lien, security interest, charge or encumbrance upon any of the
assets of the Company under, any of the terms, conditions or provisions of the Articles
of Association or the Bylaws of the Company or any agreement or other instrument or
obligation of any nature whatsoever affecting the Company or to which the Company is
a party, or by which any of the Company's properties or assets may be bound or
affected; or
(b) violate any order, writ, injunction, decree, or any statute, rule or regulation,
applicable to the assets of, or business currently conducted by the Company.
Except for the approval of the Arkansas Department of Insurance, no consent,
waiver or approval by any third party is required in connection with the execution and
delivery by the Seller of this Agreement or the consummation and performance of the
transactions contemplated hereby.
3.2. Contracts, Agreements and Arrangements. Neither the Company, the
--------------------------------------
Seller, nor any of their affiliates, are parties to any contracts, agreements or
arrangements with respect to the Company except for the following:
(a) Approximately five hundred (500) Notary Public Bonds and License and
Permit Bonds entered into by the Company, as Surety, in the ordinary course of
business (collectively, the "'Bonds").
(b) Agency Agreement between the Company and Linda Frey ("Frey Agent
Agreement").
(c) Absolute Assignment of Commissions dated July 30, 1993 by and
between Linda Frey and Seller.
The Company or the Seller, as the case may be, had authority to enter into each
of these agreements when entered; each is in full force and effect without default.
Upon consummation and performance of the transactions contemplated hereby the
Bonds will be fully enforceable by the Purchaser or its assignees.
3.3. Organization and Standing. The Company is a corporation, validly
-------------------------
organized, existing and in good standing under the laws of the State of Arkansas. The
Company has the power and authority to own its properties and to transact its business
where and as now conducted, and to own, lease, use and operate its properties.
3.4. Company as Licensed Insure . The Company is a stock insurance company
--------------------------
licensed to write all casualty and property lines of insurance including but not limited to
workers' compensation insurance by the Commissioner of Insurance of the State of
Arkansas (the "Commissioner") and is not licensed to write insurance in any other
jurisdiction. All licenses are in full force and effect, and the Company is in compliance in
all material respects with all the statutes, rules and regulations under which it operates
and is in compliance in all material respects with any rules, regulations, requests,
orders and decrees that may apply to it issued by the Arkansas Department of
Insurance and the Commissioner.
3.5 Capitalization and Ownership of Stock. The Company's authorized capital
-------------------------------------
stock consists of Two Hundred Thousand (200,000) shares of Common Stock, no par
value per share, Four Hundred (400) of which shares of Common Stock are issued and
outstanding and Five Thousand (5,000) shares of Preferred Stock, $100 par value per
share, none of which are issued and outstanding. Each of the shares of the capital
stock has been duly authorized and validly issued and is fully paid and nonassessable,
and was not issued in violation of the preemptive right of any shareholder, and there
are no voting trust agreements, voting agreements, proxies or other contracts,
agreements or arrangements restricting voting or dividend rights or transferability with
respect to the capital stock except for the Bylaws of the Company. The Seller owns
beneficially and of record, and has good, valid and marketable title to, Four Hundred
(400) shares of the capital stock of the Company which constitutes one hundred
percent (100%) of the issued and outstanding capital stock of Company. The Seller
owns the Stock free and clear of all liens, encumbrances, pledges, claims, options,
charges and assessments of any nature whatsoever, other than pursuant to this
Agreement and the Bylaws of the Company, with full right and lawful authority to
transfer the Stock to the Purchaser. At the Closing, the Stock will be conveyed to the
Purchaser, free and clear of all liens, encumbrances, pledges, claims, options, charges
and assessments of any nature whatsoever. There are no outstanding subscriptions,
options, warrants, rights, convertible securities, calls, commitments, privileges or other
arrangements, preemptive or contractual, calling for or requiring the acquisition of, or
the issuance, transfer, sale or other disposition of, any shares of capital stock of the
Company, either in all events or upon the occurrence of a contingency, or calling for or
requiring the issuance of any securities or rights convertible into or exchangeable for
shares of capital stock of the Company.
3.6. Financial Statements. The financial statements of the Company for the
--------------------
period ending December 31, 1998 (the "Financial Statements") which have been
furnished to Purchaser correctly reflect in all material respects the financial condition of
Company for the periods indicated and have been prepared in all material respects in
accordance with statutory accounting principles applied on a consistent basis.
3.7. Absence of Undisclosed Liabilities and Guaranties. To the knowledge,
-------------------------------------------------
information and belief of Seller, the Company is not liable for or subject to any liability or
obligation of any nature (whether absolute, accrued, fixed, contingent or otherwise, and
whether due or to become due), except for liabilities adequately and specifically
reserved for or against in the Financial Statements, liabilities incurred in the ordinary
course of business of the Company since the date of the Financial Statements, and a
Fraud Trust Month Assessment for the period ending December 31, 1998 in the amount
of $400 which is due June 30, 1999. There is no oral or written guarantee by the
Company of any obligation of any person or entity other than the Company for the
borrowing of money and those related to the Bonds, for the payment of any monetary
obligation of any nature whatsoever (whether due or to become due), or for the
performance of any obligation of any nature whatsoever or otherwise.
3.8. Conduct of Business. Since December 31, 1998, the Company has not:
-------------------
(a) incurred any liability or obligation (absolute or contingent), including,
without limitation, purchases on a credit or installment basis, other than current liabilities
incurred in the ordinary course of business consistent with past practice;
(b) failed to pay or discharge any current liability when it became due and
payable;
(c) sold, transferred or otherwise disposed of, mortgaged, pledged or
subjected to lien or any other encumbrance, any of its assets;
(d) suffered any material adverse change in or to its condition (financial or
other), results of operations, assets, liabilities, business or prospects or suffered any
substantial damage to, or loss of assets used in, any of its business, which damage or
loss is not fully covered by insurance (including business interruption insurance), or
canceled any debt or released any claim, or failed to pursue consistent with prior
practice any cause of action against any person or entity, or otherwise waived any right
of value;
(e) declared or paid a dividend of any nature;
(f) issued, sold or otherwise disposed of any stock, stock option, bonds,
notes or other securities; or
(g) agreed, orally or in writing, or granted any other person or entity an option,
to do any of the things specified in subsections (a) through (f) above.
3.9. Compliance with Applicable Laws, Rulings, Regulations and Approvals.
-------------------------------------------------------------------
The business of the Company is being conducted in conformity in all material respects
with (i) all applicable laws, ordinances, regulations, decrees or orders of any court or
governmental entity, the non-compliance with which could materially adversely affect
the business or financial condition of the Company; and (ii) all orders, decrees,
agreements and approvals issued by any state insurance department, including all
applications and other documents containing or referring to any representations or
undertakings of the Company. The Company has filed all statements, annual or
otherwise, required to be filed with the Arkansas Department of Insurance, and all
permits, licenses, approvals and authorizations issued to Company for its current
operations are valid and presently in full force and effect and no revocation,
cancellation or withdrawal thereof has been effected or, to the knowledge, information
and belief of Seller, threatened.
3.10. Relations with Insurance Department. The last examination of the
-----------------------------------
Company by the Arkansas Department of Insurance was for the period ending
December 31, 1998. The Company has not received any notification as a result of said
examination nor is the Company otherwise aware that its admitted assets, capital or
surplus, market conduct compliance program or any other activities are inadequate to
maintain the Company's good standing and qualification as a stock insurance
corporation.
3.11. No Litigation. There is no pending or, to the best knowledge, information
-------------
and belief of Seller, seriously threatened litigation (including appeals of lower court
decisions), action, suit, arbitration, claim or other legal proceeding or governmental or
other investigation by or against or affecting either the Company or its business, or any
of its assets, properties or prospects, at law or in equity or otherwise, before or by any
court or governmental agency or body, domestic or foreign, or before an arbitrator of
any kind. There is no pending or, to the best knowledge, information and belief of
Seller, seriously threatened litigation, action, suit, arbitration, claim or other legal
proceeding or governmental or other investigation by or against or affecting either the
Seller or its business, which is likely to result in the restraint, prohibition or the obtaining
of damages or other relief in connection with the consummation of the transactions
contemplated hereby.
3.12. Officers and Directors and Certain Authorized Persons. Schedule 3.12-A
-----------------------------------------------------
sets forth a complete and accurate list of:
(a) the names of all directors of the Company;
(b) the names and offices of all officers of the Company; and
(c) the names of all persons authorized to borrow money or incur or
guarantee indebtedness on behalf of the Company.
3.13. Taxes.
-----
(a) The Company has timely filed all federal, state, local and foreign tax
returns and tax reports required to be filed. Each of such returns and reports are true,
correct and complete in all material respects. The Company has paid all income, profits,
franchise, sales, use, occupation, property, excise and all other taxes, fees and
governmental charges (including interest and penalties, if any) with respect to present
and prior periods to the extent they have become due.
(b) There are no claims, or, to the best knowledge, information and belief of
the Seller, tax investigations pending or threatened, against the Company for past due
taxes, governmental fees or charges. The Company has not waived any applicable
statute of limitation or extended the time for the assessment of any tax, fee or
governmental charge.
c) The December 31, 1998 Financial Statements provide adequate reserves
as of the period ended December 31, 1998 for unpaid sales, use, payroll and any and
all other taxes.
3.14 Brokerage. No broker, finder or similar agent has been engaged or
---------
employed by or on behalf of the Seller, and no person or entity is entitled to any
brokerage commission, finder's fee or any similar compensation from the Seller, the
Company or the Purchaser in connection with this Agreement or the transactions
contemplated hereby.
ARTICLE 4
---------
Pre-Closing Covenants of Seller
-------------------------------
Subsequent to the date hereof and prior to the Closing Date:
4.1. Continuation of Operation. Except as specifically consented to in writing by
-------------------------
the Purchaser or otherwise provided in this Agreement, Seller shall use their best
efforts to cause:
(a) the business of the Company to be conducted diligently and in
substantially the same manner as heretofore and specifically in such a manner as to
comply with the provisions of Section 3.8(a) through (g) hereof, and will not make or
institute any changes in the operations which are unusual or outside the ordinary
course of business for the Company;
(b) all actions reasonably necessary and appropriate to preserve and protect
the assets of the Company, and the value and utility thereof, to be taken; and
(c) the preservation of the Company's relationships with customers, lenders,
regulatory authorities and others with whom it has business relations.
4.2. Contracts and Commitments. Except as specifically consented to in writing
-------------------------
by the Purchaser, the Seller shall use its best efforts to cause the Company not to:
(a) enter into any forward contract, commitment or transaction, or enter into
any other contract or commitment, or engage in any other transaction not in the
ordinary course of business consistent with past practice;
(b) purchase or enter into any leases for any capital equipment; or
(c) do any act or omit to do any act, or permit any act or omission, which will
cause a breach of any contract, commitment or obligation relating to the Company or by
which any of its assets or properties may be bound or affected.
4.3. Disposition Of Assets. Seller shall use its best efforts to cause the
---------------------
Company not to sell or transfer any of its assets other than in the ordinary course of
business and consistent with past practices.
4.4. Compliance with Laws. Seller shall, and shall use its commercially
--------------------
reasonable efforts to cause the Company to, duly comply with all applicable laws as
may be required for the valid and effective sale and transfer of the Stock, and for the
performance of all other acts and things contemplated by this Agreement.
4.5. Notice of Breach. In the event of, and promptly after, the taking of any
----------------
action or the impending or threatened occurrence of any event, the taking or
occurrence of which would make untrue, inaccurate or misleading, or would constitute
or result in a breach or violation of, any of the representations, warranties, covenants or
agreements of Seller set forth herein, or would, if it had occurred prior to the date
hereof, make any representation or warranty made by Seller herein, untrue, inaccurate
or misleading, Seller shall promptly give detailed written notice thereof to the Purchaser.
Seller shall promptly correct in writing any representation or warranty and shall use its
best efforts to prevent or remedy promptly any such breach, and, in any event shall
promptly complete or correct in writing any information affected by any such breach.
4.6. Consents. Seller shall actively assist the Purchaser in obtaining the
--------
consent, waiver or approval of each person or entity or governmental authority whose
consent or approval is required for the consummation and performance of the
transactions contemplated hereby.
4.7. Access and Investigation. Seller shall cooperate with the Purchaser so that
------------------------
the Purchaser and its accountants, counsel and other representatives are provided with
full access, during working hours on business days, to the offices, properties, books,
records and accounts of every kind relating to the Company, and furnished with such
financial and operating data, documents and other information with respect to the
business operations, personnel, licenses, contracts and properties of the Company, as
may be required herein or as the Purchaser and its accountants, counsel and other
representatives shall from time to time request, and the Purchaser and its accountants,
counsel and other representatives shall be entitled to consult with the representatives,
officers, employees and agents of the Seller and the Company. No investigation made
by or on behalf of the Purchaser shall affect the representations, warranties, covenants
and agreements made by the Seller herein and each such representations, warranties,
covenants and agreements shall survive any such investigation.
4.8. No Mergers. Seller shall use its best efforts not to permit the Company to
----------
merge or consolidate with any other corporation or insurer, sell all or substantially all of
its assets, or acquire any stock or, except in the ordinary course of business consistent
with past practice, any property or assets of any other person, firm, association,
corporation or other business organization, or enter into any contract or agreement or
other commitment (whether written or oral) to effect any of the foregoing. Seller shall
not, nor shall it permit the Company to, solicit from any other person or entity any offer
or expression of interest in or with respect to any offer for an acquisition of the Stock of
the Seller or acquisition, combination, sale of assets or similar transaction involving the
Company, negotiate any such acquisition, combination, sale of assets or similar
transaction with any other person or entity, or do any other act or thing which would be
inconsistent with the consummation of the transactions contemplated hereby. Should
the Seller or the Company receive any unsolicited offer or expression of interest with
respect to any such acquisition, combination, sale of assets or similar transaction,
Seller shall promptly inform Purchaser of the existence of such offer or expression of
interest.
ARTICLE 5
---------
Conditions Precedent to Purchaser's Obligations
-----------------------------------------------
The obligations of the Purchaser to consummate and effect the transactions
contemplated hereby are subject to the satisfaction on or before the Closing Date of
each of the following conditions (unless waived by the Purchaser in writing as provided
in Section 10.6 hereof):
5.1. Representations and Warranties. The representations and warranties of the
------------------------------
Seller contained in this Agreement or on any schedule, list, certificate or document
delivered pursuant to the provisions hereof shall be true on and as of the Closing Date
(except to the extent such representations and warranties speak of a particular date) as
though such representations and warranties were made on and as of the Closing Date,
and the Seller shall have delivered to the Purchaser a certificate or certificates dated
the Closing Date and signed by the Seller to such effect.
5.2. Regulatory Approval. The Purchaser shall have received all required
-------------------
regulatory approvals from the Arkansas Department of Insurance and any other
governmental authority, such approvals shall be in writing and satisfactory to the
Purchaser in its sole discretion.
5.3. Contracts, Agreements and Arrangements. The Purchaser shall have
--------------------------------------
received documentation sufficient to indicate that the Absolute Assignment of
Commissions and the Frey Agent Agreement set forth in Section 3.2 hereof have been
terminated with respect to Company with no cost, expense or termination fee to either
the Company or the Purchaser.
5.4. Transfer of Business. The Seller shall have transferred to the Purchaser all
--------------------
information and documents reasonably necessary to adequately manage and operate
the Company and to service the Company's business.
5.5. Compliance with Agreements. The Seller shall have performed and
--------------------------
complied with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing, and the Seller shall have
delivered to the Purchaser a certificate or certificates dated the Closing Date and
signed by the Seller to such effect.
5.6. Adverse Change. There shall have been no material adverse change in the
--------------
condition (financial or otherwise), results of operations, assets, liabilities, business or
prospects of the Company from December 31, 1998 to the Closing, the assets of the
Company at the Closing shall consist solely of cash or other assets acceptable to the
Purchaser in its sole discretion, and none of the business, operations, properties,
assets or prospects of the Company shall have been and shall not be threatened to be
materially adversely affected in any way and the Seller shall have delivered to the
Purchaser a certificate or certificates dated the Closing Date and signed by the Seller to
such effect.
5.7. Legal Proceedings. No suit, action, investigation or legal or administrative
-----------------
proceeding shall be seriously threatened or pending before any court or governmental
agency which is likely to result in the restraint, prohibition or the obtaining of damages
or other relief in connection with the consummation of the transactions contemplated
hereby.
5.8. Opinion of Counsel for Seller. The Purchaser shall have received an
-----------------------------
opinion of counsel for the Seller, dated the Closing Date in the form attached hereto as
Exhibit "A".
5.9. Closing Documents. The Purchaser shall have received from the Seller
-----------------
each of the documents, instruments or other items referred to in Section 1.4 hereof.
ARTICLE 6
---------
Conditions Precedent to Seller's Obligations
--------------------------------------------
The obligations of the Seller to consummate and effect the transactions
contemplated hereby are subject to the satisfaction on or before the Closing Date of
each of the following conditions (unless waived by the Seller in writing as provided in
Section 10.6 hereof):
6.1. Representations and Warranties. The representations and warranties of
------------------------------
the Purchaser contained in this Agreement or on any schedule, list, certificate or
document delivered pursuant to the provisions hereof shall be true on and as of the
Closing Date as though such representations and warranties were made on and as of
the Closing Date, except as specifically consented to in writing by the Seller, and the
Purchaser shall have delivered to the Seller a certificate or certificates dated the
Closing Date and signed by the Purchaser to such effect.
6.2. Compliance With Agreements. The Purchaser shall have performed and
--------------------------
complied with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing, and the Purchaser shall have
delivered to the Seller a certificate or certificates dated the Closing Date and signed by
Purchaser to such effect.
6.3. Legal Proceedings. No suit, action, investigation or legal or administrative
-----------------
proceeding shall be seriously threatened or pending before any court or governmental
agency which is likely to result in the restraint, prohibition or the obtaining of damages
or other relief in connection with the consummation of the transactions contemplated
hereby.
6.4. Tender of Purchase Price. On the Closing Date, Buyer shall have tendered
------------------------
to Seller the Purchase Price as provided in Section 1.3.
6.5. Opinion of Buyer's Counsel. Seller shall have received an opinion of
--------------------------
counsel of the Buyer, dated the Closing Date, in form and substance satisfactory to
Seller, as to matters covered by Sections 2.1 and 2.2.
6.6. Consents. Any approvals required under any applicable laws, rules or
--------
regulations in order to legally consummate the transactions contemplated by this
Agreement shall have been obtained.
6.7. Closing Documents. The Seller shall have received from the Purchaser the
-----------------
documents, instruments or other items referred to in Section 1.5.
Termination
-----------
7.1. Termination. Anything herein or elsewhere to the contrary notwithstanding,
-----------
this Agreement may be terminated by written notice of termination as follows:
(a) by the mutual consent of the Purchaser and the Seller; or
(b) by either the Purchaser or the Seller if Closing has not occurred by June
30, 1999.
7.2. Effect of Termination. The power of termination. provided in Section 7.1
---------------------
hereof, when exercised as therein provided, shall be effective upon delivery to the other
party of a notice in writing of such exercise signed by the terminating party or parties. In
the event of the termination and abandonment hereof pursuant to the provisions of
Section 7.1 hereof, this Agreement shall become void and have no effect, without any
liability on the part of either party in respect of this Agreement. Notwithstanding the
foregoing, however, if such termination be due to the misrepresentation or breach of
warranty or non-fulfillment of any covenant or agreement contrary to the provisions
hereof on the part of either party hereto, such party shall be liable, in addition to and
without limiting any other remedy available to any party hereto pursuant to the
provisions hereof, or at law or in equity, to the other party or parties hereto to the extent
of the expenses (including attorneys' fees) incurred by such other party or parties in
connection with this Agreement and the transactions contemplated hereby.
ARTICLE 8
---------
Post-Closing Obligations of Parties
-----------------------------------
Each party shall use commercially reasonable efforts to cause the occurrence of
the events contained in Article 5 and Article 6, respectively, to be satisfied at or before
the Closing, to the extent the occurrence of such events is within the control of any such
party. Each party shall execute and deliver, at its own expense, such further
instruments of transfer and conveyance, documents and certificates as may be
reasonably required for it to consummate all of the matters contemplated by this
Agreement.
ARTICLE 9
---------
Indemnification
---------------
9.1. Indemnification of Purchaser. Subject to the provisions hereof for a period
----------------------------
of three (3) years from and after the Closing Date the Seller shall defend, indemnify and
hold harmless the Purchaser against and in respect of any and all direct or indirect
damages, claims, losses, liabilities, deficiencies, costs and other expenses (including,
without limitations, attorneys fees) incurred by the Purchaser which arise out of or result
from:
(a) any misrepresentation, breach of warranty, or nonfulfillment of any of the
Seller's obligations hereunder or any claim which, if true, would constitute such a
misrepresentation, breach of warranty, or nonfulfillment of any obligation by the Seller
to the Purchaser under this Agreement or any misrepresentation in or omission of
information called for by any certificate or schedule or other instrument, furnished or to
be furnished by the Seller to the Purchaser under this Agreement; and
(b) any and all actions, suits, proceedings, claims, demands, assessments,
investigations, audits, tax deficiencies, judgments, fines, costs and other expenses of
any nature whatsoever (including, without limitation, attorneys' fees and costs of
investigation) arising out of, resulting from or incident to any of the foregoing, or the
enforcement by any of such means of a valid right of indemnity pursuant hereto.
Purchaser acknowledges that the indemnification of Seller herein is specifically
limited to the foregoing and does not include any claims with respect to liabilities or
obligations reflected on the Effective Date financial statements of the Company or with
respect to li abilities, including those arising with respect to the Bonds, which have been
adequately and specifically reserved for or against in the Effective Date financial
statements of the Company.
9.2. Indemnification of Seller. Subject to the provisions- hereof for a period of
-------------------------
three (3) years from and after the Closing Date the Purchaser shall defend, indemnify
and hold harmless the Seller against and in respect of any and all direct or indirect
damages, claims, losses, liabilities, deficiencies, costs and other expenses (including,
without limitations, attorneys' fees) incurred by the Seller which arise out of or result
from:
(a) any misrepresentation, breach of warranty, or, nonfulfillment of any of the
Purchaser's obligations hereunder or any claim which, if true, would constitute such a
misrepresentation, breach of warranty, or nonfulfillment of any obligation by the
Purchaser to the Seller under this Agreement or any misrepresentation in or omission
of information called for by any certificate or schedule or other instrument, furnished or
to be furnished by the Purchaser to the Seller under this Agreement; and
(b) any and all actions, suits, proceedings, claims, demands, assessments,
investigations, audits, tax deficiencies, judgments, fines, costs and other expenses of
any nature whatsoever (including, without limitation, attorneys' fees and costs of
investigation) arising out of, resulting from or incident to any of the foregoing or the
enforcement by any of such means of a valid right of indemnity pursuant hereto.
9.3. Notice and Defense of Claims. The Seller shall have the right to written
----------------------------
notice of any third party claims for which indemnification may be sought under this
Article 9 within thirty (30) days after the Purchaser receives notice of such claims (but
not more than five (5) days after Purchaser's receipt of a lawsuit filed in a court of
competent jurisdiction). The Seller shall have the right to employ attorneys of its own
selection to defend any such claims and the sole authority for the direction of the
defense, and shall, to the extent of its obligations under this Article 9, be the sole judge
of the acceptability of any compromise or settlement of such claims, all at its own
expense.
9.4. Payments. Any amounts owing to either party pursuant to the provisions of
--------
this Article 9 shall be due and payable on the fifth business day following the other's
receiving notice of a claim thereunder by giving notice as provided in Section 10.1
hereof.
ARTICLE 10
----------
Miscellaneous
-------------
10.1. Notices. Any notices or other communications required or permitted
-------
hereunder shall be sufficiently given when actually received by the party for whom the
notice is intended, or three (3) days after being deposited in the United States mails,
certified or registered, return receipt requested, postage prepaid, addressed as follows:
If to the Seller: Allen J. McDowell
President
Rebsamen Insurance, Inc.
Post Office Box 3198
Little Rock, Arkansas 72203-3198
If to the Purchaser: Harry E. Vickery
President
Stoneville Insurance Company
Post Office Box 16461
Jackson, Mississippi 39236
with a copy to: David L. Martin, Esquire
Watkins Ludlam Winter & Stennis, P.A.
633 North State Street
Post Office Box 427
Jackson, Mississippi 39205
10.2. Expenses. Except as provided in Article 9 hereof or hereinafter, each party
--------
shall bear the expenses incurred by that party incident to this Agreement and the
transactions contemplated hereby, including all fees and disbursements of counsel and
accountants and all fees of brokers, finders or other such agents, whether or not such
transactions shall be consummated.
10.3. Entire Agreement. This Agreement, including the Exhibits, Schedules,
----------------
lists, and other documents and writings referred to herein or delivered pursuant hereto,
which form a part hereof, contains the entire agreement among the parties hereto with
respect to the transactions contemplated hereby. There are no agreements,
restrictions, promises, representations, warranties, covenants or undertakings, written
or oral, other than those expressly set forth herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to the transactions
contemplated hereby. This Agreement may only be amended by a writing duly executed
by each of the parties hereto.
10.4. Assignment; Binding Effect. This Agreement shall extend to and be
--------------------------
binding upon each party and upon their respective heirs, successors, assigns and legal
representatives. This Agreement shall not be assignable or transferable by either party
hereto except by written consent and nothing herein expressed or implied is intended to
confer upon any person, other than the parties hereto and said successors, assigns,
heirs or legal representatives, any rights, remedies, or obligations under or by reason of
this Agreement.
10.5. Survival. The warranties, representations, covenants and agreements
--------
contained in this Agreement shall survive the execution and delivery of this Agreement
and the Closing of the transactions contemplated hereby. Notwithstanding any
investigation made by or on behalf of the Purchaser, whether before or after the
Closing, the Purchaser shall be entitled to rely upon the respective representations and
warranties given or made by the Seller in consummating the transactions contemplated
hereby.
10.6. Modifications and Waiver. No modification or waiver of any provisions of
------------------------
this Agreement, and no consent by either party to any departure therefrom by other,
shall be effective unless such modification or waiver shall be in writing and signed by
each party hereto, and the same shall then be effective only for the period and on the
conditions and for the specific instances and purposes specified in such writing. No
notice to or demand on either party in any case shall entitle it to any other or further
notice or demand in similar or other circumstances.
10.7. Choice of Law. This Agreement, and all instruments delivered pursuant
-------------
hereto or incorporated herein, shall be construed in accordance with and governed by
the laws of the State of Arkansas.
10.8. Captions. The captions of the various sections and articles of this
--------
Agreement have been inserted only for the purposes of convenience; such captions are
not a part of this Agreement and shall not be deemed in any manner to modify, explain,
enlarge or restrict any of the provisions of this Agreement.
10.9. Counterparts. This Agreement may be executed by the parties in one or
------------
more counterparts, each of which shall be an original and all of which together shall
constitute but one and the same instrument.
10.10. Confidential Information. This Agreement, the terms of the transactions
------------------------
contemplated hereby and any confidential information heretofore or hereafter disclosed
or obtained in connection with this Agreement concerning the business operations,
affairs or financial condition of the parties hereto or the Company shall be kept
confidential, except to the extent it is or hereafter becomes lawfully obtainable from
other sources not under obligations of confidentiality or to the extent that such duty as
to confidentiality is waived in writing by the party to whom the confidential information
relates or, with respect to the Purchaser,, to the extent the Purchaser discloses any
terms hereof to its lenders. Such obligations as to confidentiality shall survive
termination or abandonment of this Agreement.
IN WITNESS WHEREOF, the undersigned parties hereto have duly executed
this Agreement as of the 3rd day of May, 1999.
STONEVILLE INSURANCE COMPANY
By: /s/ Harry E. Vickery
---------------------
Harry Vickery
President
REBSAMEN INSURANCE, INC.
By: /s/ William R. Stringfellow
---------------------------
Name: William R. Stringfellow
Title: Executive Vice President and General Counsel
SCHEDULE 3.12-A
TO
STOCK PURCHASE AGREEMENT
1. Directors.
---------
Mary R. Wohlleb
Ruth R. Remmel
Raymond R. Remmel
Allen McDowell
Philip Herrington
H. Maurice Mitchell
William R. Stringfellow
2. Officers.
--------
William R. Stringfellow President
Allen McDowell Vice President
Patty Ann Glover Secretary
Linda Hogg Treasurer
3. Persons Authorized to Borrow Money.
----------------------------------
William R. Stringfellow
Allen McDowell
Patty Ann Glover
Linda Hogg
EXHIBIT 8.3
THIS ASSUMPTION REINSURANCE AGREEMENT (the "Agreement") is made and
entered into as of this 21st day of March, 2000, by and between Mississippi Physicians Insurance
Company (the "Company"), The Mississippi State Medical Association ("State Medical
Association"), the ultimate controlling entity of the Company and Stoneville Insurance Company
(the "Reinsurer").
WITNESSETH
----------
WHEREAS, subject to approval by the Commissioner of Insurance of the State of
Mississippi (the "Commissioner"), Company desires to cede to Reinsurer, and Reinsurer desires
to assume all rights and obligations pertaining to Workers' Compensation and Employers'
Liability Business written by Mississippi Physicians Insurance Company from January 1, 1991,
until closing of this Agreement, which is defined as insurance which is classified in the NAIC
form of annual statement as workers' compensation (including employers' liability), with respect
to operations in the State of Mississippi (the "Transferred Policies"), including the right and
obligation to provide administration and claims handling services with respect to the Transferred
Policies;
NOW, THEREFORE, in consideration of the foregoing premises and the covenants,
provisions and agreements set forth herein, the parties agree as follows:
1. Effective Date and Closing Date. The Effective Date of this Agreement shall be
12:01 a.m., Central Standard Time, January 1, 2000. This Agreement shall become effective
only upon the satisfaction of the conditions precedent as set forth in Section 12. The closing of
this Agreement ("Closing") shall occur after the transfer of the files, data and information
discussed in Section 3(b). If the Closing does not occur prior to March 31, 2000, this Agreement
shall be of no effect, and any obligations of the parties hereto shall terminate.
2. Reinsurance Obligations of Reinsurer.
(a) Subject to approval by the Commissioner, as provided in Section 12 and as of the
Effective Date, Company does hereby transfer and cede to Reinsurer the Transferred Policies,
and Reinsurer does hereby assume, reinsure, and guarantee all of the insurance risks of Company
under the Transferred Policies. Reinsurer does hereby agree to pay all valid legal liabilities and
obligations arising or accruing under the Transferred Policies in accordance with the terms and
conditions thereof. Reinsurer agrees to administer all claims on the Transferred Policies and to
service and otherwise handle the Transferred Policies in accordance with the terms and
conditions of the Transferred Policies and state laws and regulations. Subject to the terms and
conditions of this Agreement, Reinsurer shall succeed to all defenses that Company had, still has,
or may have in connection with any benefits or claims for which Reinsurer is or may be liable.
(b) Reinsurer is assuming only those insurance risks of Company provided for herein,
to include 100% of Losses in Excess of Policy Limits and 100% of Extra Contractual
Obligations. However, the Reinsurer shall not be liable for more than $10,000,000.00 of Losses
in Excess of Policy Limits arising out of any one occurrence nor more than $10,000,000.00 of
Extra Contractual Obligations arising out of any one occurrence.
The term "Loss in Excess of Policy Limits" shall mean a payment made to a third party
claimant in excess of the policy limit which Company is or was legally obligated to pay resulting
from an action taken by the insured or assignee arising from a third party claimant being awarded
an amount in excess of Company's policy limit as a result of Company's failure to settle within
the policy limit or of Company's alleged or actual negligence or bad faith in rejecting an offer of
the preparation or prosecution of an appeal consequent upon such action. The term “Extra Contractual Obligation” shall mean a loss which Company is legally obligated to pay, which is not covered under any other provision of this Agreement and which arises from Company’s handling of any claim on the business reinsured hereunder. Reinsurer is not assuming any other extra-contractual liability nor any other liabilities or obligations of Company not specifically provided for herein. Reinsurer does not assume any loss, liability or assessments arising out of Company’s obligations to or participation in the Mississippi Insurance Guaranty Association, Mississippi Life and Health Insurance Guaranty Association, Workers’ Compensation Assigned Risk Pool or Workers’ Compensation Assigned Risk Plan or any other underwriting association whatsoever.
(c) The date on which a Loss in Excess of Policy Limits or an Extra Contractual Obligation is incurred by Company shall be deemed, in all circumstances, to be the date of the original occurrence. There shall be no coverage hereunder where the Loss in Excess of the Policy Limit or the Extra Contractual Obligation has been incurred due to the fraud or criminal conduct of a member of the Board of Directors, a corporate officer of Company, or any other employee of Company, acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the investigation, defense or settlement of any claim covered hereunder.
3. Assignment by Company of Transferred Policies.(a) Company does hereby, as of the Effective Date, transfer, assign, cede and convey unto Reinsurer all of its right, title and interest in and to the Transferred Policies. As of the Closing of this Agreement, Company does hereby transfer, assign and convey to Reinsurer the
servicing on all claims arising out of the Transferred Policies.
(b) Company warrants to Reinsurer that there are no third party administrator
agreements or other agreements, including without limitation any agreements with
AmFed Companies, LLC, which would prevent Reinsurer from providing
administration of the Transferred Policies and undertaking and handling all
claims arising out of the Transferred Policies. Company agrees to turn over or
cause to be turned over to Reinsurer all policy owner service, underwriting and
other files and all supplies now on hand which may be needed by Reinsurer in the
continuation of the business, and Company further agrees to turn over such
records and record books as may be necessary for carrying on of the business,
including records relating to accounts receivables, premiums, collections,
administration, servicing and claims handling and all such permanent records of
Company necessary to Reinsurer to continue in force and effect the business and
Transferred Policies.
(c) Company agrees that it is responsible for all costs associated with transferring
electronic data and files relating to administration and servicing and claims
handling of the Transferred Policies to Reinsurer in a form acceptable to
Reinsurer.
4. Treatment of Claims.
(a) All claims under the Transferred Policies resulting from occurrences taking place
during the period from January 1, 1991 through Closing shall be the
responsibility of Reinsurer.
(b) Company shall provide to Reinsurer at Closing a complete listing of claims that
have been paid on or since the Effective Date until Closing. Company shall
likewise provide to Reinsurer a complete listing of all reinsurance payments and
other recoveries, including without limitation all recoveries from subrogation
claims, which shall identify the claim file on which
said recovery was received. All amounts paid by Company on claims after the Effective Date
shall be credited to Company against the amount specified in Section 5(a), provided, however,
that all payments on claims arising on or after the Effective Date shall be reduced by the amount
of any recovery paid or owed to Company.
(c) Company shall remain liable for any claims or damages arising from any liability
of Company not specifically assumed by Reinsurer under this Agreement.
5. Payment, Transfer of Assets and Closing Adjustments.
(a) At Closing and as of the Effective Date, the Transferred Policies shall be
transferred to Reinsurer, and Company shall deliver by certified funds or wire transfer to
Reinsurer the amount of $4,198,500.00. The amount specified herein will be subject to
modification or change due to Closing adjustments required because of claims paid after the
Effective Date and prior to Closing of this Agreement and any other credits which may be due to
either Company or Reinsurer under the terms of this Agreement.
(b) The Company shall pay to the Reinsurer 100% of the Company's unearned
premium, as it becomes earned in accordance with Appendix A attached hereto, for the business
reinsured hereunder and any amount earned as of Closing shall be paid to Reinsurer at Closing
by certified funds or wire transfer.
Such reinsurance premiums payable shall be after deduction of the portion paid for all
Other Reinsurance as defined in Section 9 of this Agreement. Company shall cause a Letter of
Credit to be issued by Trustmark National Bank in favor of Reinsurer in the form attached hereto
as Exhibit "1", to secure payment of Unearned Premiums and any amounts Reinsurer is entitled
to under Article 9 of this Agreement.
(c) At Closing, Company shall execute a promissory note in favor of Reinsurer in the
principal amount of $146,000.00 ("Promissory Note") and in the form attached hereto as
Exhibit "2". Company's obligations under the Promissory Note shall be guaranteed by State
Medical Association. State Medical Association agrees to enter into a guaranty in the form
attached hereto as Exhibit "3", which shall be delivered to Reinsurer no later than Closing of this
Agreement.
6. Consideration for Reinsurance. The consideration for this Agreement on the
part of Reinsurer is hereby agreed to be the assumption hereunder by Reinsurer of the liabilities
and obligations with respect to the Transferred Policies and the administration and servicing of
the Transferred Policies and claims thereon.
7. Indemnity. Company and State Medical Association agree to hold harmless
Reinsurer from any and all claims, liabilities and obligations arising from Company and/or State
Medical Association's failure to perform any obligations under this Agreement or any breach of
any warranty or representation by Company and/or State Medical Association. Company and
State Medical Association agree to hold harmless Reinsurer from any and all claims by any
shareholders, vendors and contractors of Company and/or other third parties to ownership, claims
to possession, options to acquire or the rights thereto of any of the rights transferred by Company
relating to administration, claims handling and servicing of the Transferred Policies and any
funds or securities to be transferred to Reinsurer under this Agreement and specifically Section 5
hereof. Reinsurer agrees to hold harmless Company from any and all liabilities and obligations
arising out of the Transferred Policies which Reinsurer has assumed hereunder, provided
however, that Reinsurer shall be entitled to assert any defenses at law or in equity that could have
been asserted by Company.
8. Assumption Certificate. Within thirty (30) days after the Closing, Reinsurer
shall issue and send by first-class mail an Assumption Certificate in substantially the form as set
forth on Exhibit "4" to each of Company's insureds as shown on the books and records of
Company.
9. Other Reinsurance. Company warrants that it has in force and effect reinsurance
for all claims which Reinsurer is assuming hereunder including all claims under the Transferred
Policies resulting from occurrences taking place during the period from January 1, 1991, until
Closing ("Other Reinsurance"). Attached hereto as Exhibit "5" are all policies and certificates
that evidence said Other Reinsurance. Company does hereby transfer, convey and assign to
Reinsurer the rights to payments from and coverage under the Other Reinsurance. Company
warrants that it has the authority to assign the Other Reinsurance and that said Other Reinsurance
is fully assignable. Company agrees to deliver to Reinsurer at Closing all such policies and
certificates which evidence such Other Reinsurance. At Closing, Company shall provide written
acknowledgment and consent from each reinsurer in the form attached hereto as Exhibit "6"
which acknowledges that such reinsurers agree to the assignment of the Other Reinsurance to
Stoneville and acknowledging that Stoneville shall be entitled to all rights and obligations of the
reinsurers under the contracts of reinsurance evidencing said Other Reinsurance. Company
agrees that it shall pay all premiums due on such Other Reinsurance including but not limited to
any amounts that may be due as a result of payroll audits. Company warrants and represents that
it has either paid the premiums under the Other Reinsurance in full or that Company has
adequately reserved funds to pay said amounts when they become due and owing. In the event
that any company issuing any of the Other Reinsurance amounts on claims paid prior to Closing
seeks to offset or recoup such amount from Reinsurer, Reinsurer shall immediately be entitled to
entitled to execute on the Letter of Credit issued by Trustmark
National Bank and which is referred to in Article 5(b) of this Agreement.
10. Arbitration. In the event of any dispute hereunder, such dispute shall be
settled by arbitration in accordance with the commercial arbitration rules of
the American Arbitration Association then in effect. Upon the occurrence of a
dispute, the parties shall choose a panel of three arbitrators in the following
manner: one of the arbitrators shall be appointed by Reinsurer, the second by
Company and the third is to be selected by those two arbitrators before the
beginning of the arbitration. Should one of the parties decline to appoint an
arbitrator for a period of thirty (30) days after being requested to do so by
the other party, or should the two arbitrators be unable to agree upon the
choice of a third, within thirty (30) days after their appointment, the
appointment shall be made by the American Arbitration Association. The
arbitrators shall decide by a majority of votes and the award of such
arbitrators shall be final and may be entered in any court of competent
jurisdiction. All costs and expenses of such arbitration, including legal
expenses, shall be paid solely by the party against whom the award is directed,
or as directed by the arbitrators. The arbitration proceedings shall convene and
be held in the City of Jackson, Mississippi, or such other city mutually agreed
upon by the parties. All such arbitrators shall be disinterested, not under the
control of any party to this Agreement, and shall not have any conflict of
interest.
11. Taxes and Workers' Compensation Commission Assessments. Company shall
be liable for all premium taxes incurred or assessed for any period with regard to the Transferred
Policies. If Reinsurer becomes liable for any such premium taxes, Company agrees to reimburse
Reinsurer for said amount. Company agrees that it shall also be responsible for the Annual
Assessment of the Mississippi Workers' Compensation Commission (the "Commission") for the
Commission's expenses for the year ending December 31, 2000. Company agrees that it shall be
responsible for the Mississippi Insurance Department Annual Assessment for the year ending
December 31, 1999. Company warrants and represents that it has either paid the taxes and
assessments described herein or that Company has adequately reserved funds to pay said
amounts when they become due and owing. Company agrees and acknowledges that all
reporting requirements, if any, required of Company by any governmental entity subsequent to
the Closing of this Agreement are the responsibility of the Company.
12. Conditions Precedent. This Agreement shall not become effective and Closing
shall not occur until the satisfaction of the following conditions: (1) the rights to provide
administrative and claims handling services with respect to the Transferred Policies have been
assigned to Reinsurer, (2) Company has paid the funds and fully performed all obligations as
required under Section 5 hereof, (3) Company provides written consents in the form attached
hereto as Exhibit "6" executed by the issuers of the Other Reinsurance, (4) Company and State
Medical Association provide an opinion of their independent legal counsel to Reinsurer in the
form attached hereto as Exhibit "7", (5) this Agreement has been approved in writing by the
Commissioner, (6) Closing of this Agreement is effectuated no later than March 31, 2000, (7)
Company and State Medical Association provide such evidence as may be reasonably requested
by Reinsurer that Company and State Medical Association are duly authorized to execute and
enter into this Agreement and that they are authorized to perform their obligations thereunder, (8)
State Medical Association posts all such letters of credit and guarantees required hereunder, (9)
MPIC executes the Promissory Note required hereunder, and (10) Gen Re executes and enters
into Workers' Compensation Loss Portfolio Agreement of Reinsurance No. 8723 between
Stoneville Insurance Company and General Reinsurance Corporation and Workers
Compensation Run-off Agreement of Reinsurance No. 8724 between Stoneville Insurance
Company and General Reinsurance Corporation both in forms acceptable to Reinsurer.
13. Additional Company Representations.
(a) Company warrants that it is a corporation duly organized as an insurance
company, validly existing and in good standing under the laws of the State of Mississippi with
the power and authority to conduct the business in which it is engaged, and has complete and
unrestricted power to enter into and consummate this Agreement. Company has full power and
authority to enter into this Agreement and carry out the transactions contemplated hereby and all
necessary corporate action has been taken by Company to authorize the execution and delivery of
this Agreement and the performance of the transactions contemplated hereby.
(b) Company warrants that it has all licenses, permits and registrations necessary
under the laws of State of Mississippi to issue the Transferred Policies and that said Transferred
Policies are validly issued in accordance with the laws of the State of Mississippi.
(c) Company warrants that there are no outstanding, pending or threatened orders,
writs, lawsuits, injunctions, or decrees of any court, governmental agency, or other tribunal
affecting the ability of Company to enter into this Agreement or perform as required herein or
relating to the solvency of Company.
(d) Except as otherwise specifically addressed herein, Company warrants that it has
paid all taxes, assessments and fees arising out of or related to the Transferred Policies.
Company warrants that there are no pending or unpaid assessments due to the Mississippi
Insurance Guaranty Association, Workers' Compensation Assigned Risk Pool or Workers'
Compensation Assigned Risk Plan.
(e) Company warrants and represents that the policy form attached hereto as
Exhibit "8" is the policy form used by Company on all policies which are the subject of this
Agreement.
14. Additional Reinsurer Representations.
(a) Reinsurer warrants that it is a duly organized Mississippi insurance company,
validly existing and in good standing under the laws of the State of Mississippi with the power
and authority to conduct the business in which it is engaged, and has complete and unrestricted
power to enter into and consummate this Agreement. Reinsurer has full power and authority to
enter into this Agreement and carry out the transactions contemplated hereby and all necessary
corporate action has been taken by Reinsurer to authorize the execution and delivery of this
Agreement and the performance of the transactions contemplated hereby.
(b) Reinsurer has all licenses, permits and registrations necessary under the laws of
the State of Mississippi to perform the transactions contemplated herein and there are no
outstanding, pending or threatened orders, writs, lawsuits, injunctions, or decrees of any court,
governmental agency, or other tribunal affecting the ability of Reinsurer to enter into this
Agreement or provide the services described herein.
(c) Reinsurer is and shall remain in compliance with all federal and state laws,
regulations, and policies pertaining to the provision of assumption reinsurance and there are no
outstanding, pending or threatened orders, writs, injunctions, or decrees of any court,
governmental agency, or other tribunal affecting the ability of Reinsurer to enter into this
Agreement or provide the services described herein or relating to the solvency of Reinsurer.
15. Accuracy of Information. To the best of their respective knowledge, Company
and Reinsurer warrant that all information provided by Company and Reinsurer to each other in
connection with this Agreement and the negotiation thereof, including financial and actuarial
statements, is accurate and complete.
16. Surrender of Company's Insurance License. Prior to April 15, 2000, Company
agrees that it will surrender its license to engage in the business of insurance to the Mississippi
Insurance Department.
17. Notices. Any notices required or permitted to be given hereunder shall be
deemed to be given if delivered by hand or if mailed by certified mail, postage prepaid, return
receipt requested, or by postal or a commercial express document delivery service which issues
an individual delivery or receipt, or by facsimile with reasonable evidence of receipt, to the
following addresses:
If to Company: William F. Roberts
408 West Parkway Place
Ridgeland, Mississippi 39158
If to Reinsurer: Stoneville Insurance Company
633 North State Street, Suite 200
Jackson, Mississippi 39202
Attn: Harry Vickery
Facsimile: (601) 355-7822
And with copy to: David L. Martin, Esq.
Watkins Ludlam Winter & Stennis, P.A.
P. O. Box 427
Jackson, MS 39205-0427
18. Expenses. All expenses of the preparation of this Agreement shall be borne by
the respective parties incurring such expense.
19. Entire Agreement. This Agreement and the Exhibits delivered pursuant hereto
constitute the entire contract between the parties hereto pertaining to the subject matter hereof
and supersede all prior and contemporaneous agreements, understandings, negotiations and
discussions, whether written or oral, of the parties.
20. Commissions. As of December 31, 1999, Company was owed premiums under
the Transferred Policies in the amount of $135,836.43. Company shall be entitled to collect and
retain said uncollected premiums. Nothing contained in this Section 20 shall, however, alter,
change or modify Company's obligations under Section 5 hereof. Company agrees that it is
liable for and will pay all commissions that may be or become due and owing on the premiums
describe hereinabove. Reinsurer does not assume hereby any legal obligation of Company with
respect to commissions, service fees and/or producer compensation under third party,
independent contractor, producer agent or broker commission or administrative contracts
between Company and third persons in connection with premiums paid or to be paid on the
Transferred Policies or administration for the Transferred Policies.
21. Governing Law. The validity and construction of this Agreement shall be
governed by the laws of the State of Mississippi.
22. Section Headings. The section headings are for reference only and shall not limit
or control the meaning of any provision of this Agreement.
23. Waiver. No delay or omission on the part of any party hereto in exercising any
right hereunder shall operate as a waiver of such right or any other right under this Agreement.
24. Amendments. This Agreement may be amended, but only in writing, signed by
the parties hereto.
25. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall compromise one and the same
instrument.
prevailing party in such action shall be entitled to recover its costs and reasonable attorneys' fees
in addition to any other relief granted.
The parties have duly executed this Agreement as of the day and year first above written.
COMPANY: REINSURER:
MISSISSIPPI PHYSICIANS INSURANCE
STONEVILLE INSURANCE COMPANY
COMPANY
By: /s/ By: /s/
------------------------------------ ---------------------------
William K. Roberts, Secretary-Treasurer Harry E. Vickery, President
MISSISSIPPI STATE
MEDICAL ASSOCIATION
By: /s/
-------------------------------------
Helen R. Turner, M.D. Secretary-Treasurer
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