<PAGE> 1
U. S. Securities and Exchange Commission
Washington, D. C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period
from.......................to........................
Commission File Number 1-8069
Investors Insurance Group, Inc.
(Exact name of small business issuer as specified in its charter)
Florida 13-2574130
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No)
342 Willowbrook Lane
West Chester, PA 19382
(Address of principal executive office) (Zip Code)
(610)-430-3900
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
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 [ ]
As of May 7, 1998, 2,836,582 shares of the issuer's common stock
were outstanding.
<PAGE> 2
Investors Insurance Group, Inc.
FORM 10-QSB
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION Page
Item 1: Consolidated Balance Sheets - March 31, 1998
and December 31, 1997 3
Item 1: Consolidated Statements of Operations - three months
ended March 31, 1998 and 1997 5
Item 1: Consolidated Statements Comprehensive Income - three
months ended March 31, 1998 and 1997 6
Item 1: Consolidated Statements of Cash Flows - three months
ended March 31, 1998 and 1997 7
Item 1: Notes to Consolidated Financial Statements 9
Item 2: Management's Discussion and Analysis 12
Part II. OTHER INFORMATION
Item 1: Legal Proceedings 14
Item 2: Changes in Securities 14
Item 3: Default Upon Senior Securities 14
Item 4: Submission of Matters to a Vote of Security Holders 14
Item 5: Other Information 14
Item 6: Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<PAGE> 3
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Investors Insurance Group, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
(Dollars in thousands)
ASSETS 1998 1997
----------- -----------
(unaudited)
Investments:
Fixed maturities held to maturity, at
amortized cost (market $9,223 in 1998
and $9,229 in 1997) $ 8,197 $ 8,198
Securities available for sale:
Fixed maturities, at market (amortized
cost $45,893 in 1998 and $47,835 in 1997) 46,780 48,616
Short-term investments 265 265
Mortgage loans on real estate 205 288
Policy loans 488 544
-------- --------
Total 55,935 57,911
Cash and cash equivalents 4,328 4,728
Investment in common stock of affiliate,
at market (cost $992 in 1998 and 1997) 1,955 1,996
Accrued investment income 461 421
Deferred acquisition costs 35,282 37,447
Reinsurance benefits receivable 4,203 1,792
Investment contract benefits recoverable 383,601 395,858
Reinsurance benefits recoverable 6,017 5,722
Cost in excess of net assets of businesses
acquired (less accumulated amortization
of $1,639 in 1998 and $1,568 in 1997) 3,043 3,112
Income tax recoverable 150 146
Other assets 290 706
------- -------
Total Assets $495,265 $509,839
======= =======
See accompanying notes to consolidated financial statements Investors
<PAGE> 4
Insurance Group, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
(Dollars in thousands)
LIABILITIES AND CAPITAL DEFICIT 1998 1997
-------- --------
Liabilities:
Future policy benefits and claims:
Investment contracts $436,984 $450,649
Life insurance reserves 10,818 10,602
Accident & health claim reserves 7 7
Unearned ceding commission (including
deferred gross profits of $6,978
in 1998 and $7,422 in 1997) 38,001 40,385
Note payable 8,000 8,000
Amounts due to reinsurer - 50
Accrued expenses 1,059 1,147
Other liabilities 2,638 1,450
-------- --------
Total Liabilities 497,507 512,290
-------- --------
Commitments & Contingencies
Capital Deficit:
Preferred Stock, no par, authorized 20,000,000
shares, none issued - -
Common Stock, $.50 par value; authorized
30,000,000 shares; issued 2,840,582 in
1998 and 1997; outstanding 2,836,582
in 1998 and 1997 1,420 1,420
Additional paid-in capital 3,656 3,656
Net unrealized investment gains 1,895 1,821
Accumulated deficit (9,205) (9,340)
Treasury stock, at cost (4,000 shares in
1998 and 1997) (8) (8)
-------- --------
(2,242) (2,451)
-------- --------
Total Liabilities and Capital Deficit $495,265 $509,839
======= =======
See accompanying notes to consolidated financial statements Investors
<PAGE> 5
Insurance Group, Inc. and Subsidiaries
Consolidated Statements of Operations (unaudited)
For the Three Months Ended March 31, 1998 and 1997
(Dollars in thousands, except per share data)
1998 1997
-------- --------
Revenue:
Net investment income $ 1,045 $ 1,230
Realized investment gains (losses) 23 (2)
Premium and policy fees 242 380
Commission and other income 690 1,076
-------- --------
Total revenue 2,000 2,684
Benefits and Expenses:
Current and future insurance benefits 115 213
Interest on investment contracts 674 831
Underwriting, acquisition and insurance expenses 1,029 1,257
Other expenses 70 230
-------- --------
Total benefits and expenses 1,888 2,531
-------- --------
Income before income tax benefit 112 153
Income tax benefit (23) (33)
-------- --------
Net income $ 135 $ 186
======== ========
Basic and fully diluted earnings per
share of common stock $ 0.05 $ 0.07
======== ========
Weighted average number of shares outstanding 2,836,282 2,836,282
========= =========
See accompanying notes to consolidated financial statements.
<PAGE> 6
Investors Insurance Group, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (unaudited)
For the Three Months Ended March 31, 1998 and 1997
(Dollars in thousands)
1998 1997
-------- --------
Net Income $ 135 $ 186
-------- --------
Other comprehensive income, before tax
Unrealized investment gains:
Current unrealized investment gains 87 1,481
Less: reclassification adjustment
for gains included in net income (23) 2
-------- --------
Net change in unrealized investment gains 64 1,483
-------- --------
Impact on DAC (136) (935)
Impact on UCC 146 992
-------- --------
Net impact of unrealized gains and losses
before income taxes 74 1,540
-------- --------
Income tax expense related to items of other
comprehensive income:
Deferred tax expense (45) (391)
Change in deferred tax valuation allowance 45 391
-------- --------
Net income tax impact 0 0
-------- --------
Other comprehensive income 74 1,540
-------- --------
Comprehensive income $ 209 $ 1,726
======== ========
See accompanying notes to consolidated financial statements Investors
<PAGE> 7
Insurance Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
For the Three Months Ended March 31, 1998 and 1997
(Dollars in thousands)
1998 1997
-------- --------
Cash flows from operating activities:
Net income $ 135 $ 186
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Net accretion of fixed maturities (53) (64)
Realized investment loss (gains) (23) 2
Amortization of costs in excess of
net assets of businesses acquired 76 70
Amortization of deferred acquisition costs 164 599
Amortization of unearned ceding commissions (319) (1,111)
Deferral of unearned ceding commission 225 751
Deferral of acquisition costs (279) (992)
Change in assets and liabilities:
Decrease (increase) in investment
contract benefits recoverable (4,760) 42,334
Increase (decrease) in insurance
reserves and interest on
investment contracts 5,447 (41,365)
Decrease (increase) in other
assets, net (2,255) 264
Increase (decrease) in other
liabilities, net 963 (2,781)
-------- --------
Net cash used in operating activities (679) (2,107)
-------- --------
See accompanying notes to consolidated financial statements.
<PAGE> 8
Investors Insurance Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited) (continued)
For the Three Months Ended March 31, 1998 and 1997
(Dollars in thousands)
1998 1997
-------- --------
Cash flows from investing activities:
Investment repayments:
Mortgage loans $ 83 $ 11
Policy loans, net 56 (4)
Investments sold:
Fixed maturities, available for sale 2,020 2,017
Investments in:
Fixed maturities, available for sale - (1,333)
Short-term investments, net - 40
-------- --------
Net cash provided by investing activities 2,159 731
-------- --------
Cash flows from financing activities:
Investment contract deposits 2,884 10,788
Investment contract withdrawals (21,780) (19,038)
Reinsurance contract deposits (2,014) (7,036)
Withdrawals recovered from reinsurance 19,031 16,359
-------- --------
Net cash provided by (used in)
financing activities (1,879) 1,073
-------- --------
Net decrease in cash and cash equivalents (399) (303)
Cash and cash equivalents, beginning of year 4,728 6,801
-------- --------
Cash and cash equivalents, end of year $ 4,329 $ 6,498
======== ========
Supplemental disclosure of cash flow information:
Cash paid (received) during the year for:
Interest - -
Income taxes $ (19) $ (750)
See accompanying notes to consolidated financial statements Investors
<PAGE> 9
Insurance Group, Inc. and Subsidiaries
Notes to consolidated Financial Statements
(unaudited)
1. Management Representation
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting only of normal recurring items) necessary
to present fairly the consolidated financial position of Investors Insurance
Group, Inc. ("IIG") and subsidiaries ("the Company"), IIC, Inc., Investors
Insurance Corporation ("Investors") and Investors Marketing Group, Inc.
("IMG"), as of March 31, 1998, and the results of operations, comprehensive
income and cash flows for the three month periods ended March 31, 1998 and
1997.
2. Reporting Standards
The Company files its financial statements in compliance with Regulation S-B
of the Securities and Exchange Commission.
3. Stock Options
The Agent's Stock Option Plan was not renewed by the Board in 1997 and no new
options have been granted. If unexercised, the outstanding options expire two
years after issue. During the three month period ended March 31, 1998,
15,600 share options expired.
4. Note Payable
In connection with its acquisition of IIC Inc. ("IIC"), which owns all the
outstanding shares of Investors, IIG issued an $8,000,000 subordinated note
payable which was due March 31, 1997, with interest at 8% payable quarterly
(IIG Note).
As discussed more fully in the Company's 1997 Form 10KSB, IIG has several
material outstanding claims against the IIG Note and the matter has been the
subject of litigation for some time. In April, 1998, IIG and the noteholder
executed a Settlement Agreement and Release (the "Agreement") for global
settlement of all the issues related to the IIG Note, dismissal of all related
litigation and mutual releases from further litigation. Under the terms of
this Agreement, IIG will receive $637,711 in cash, the rights to the full
federal tax refund from the 1997 federal tax return, and satisfaction of the
IIG Note and accrued interest. In return, the noteholder will receive all the
outstanding shares of IIC, Inc. (including Investors Insurance Corporation)
and IIG's option to purchase certain securities held by Investors Insurance
Corporation. Because the bondholder is in liquidation, the Agreement was
submitted to and has been approved by the Court of Chancery of the State of
Delaware, which has jurisdiction over the bondholder. The parties have agree
to now take whatever steps are necessary to dismiss, with prejudice, all
claims and counterclaims by or against the parties in the jurisdictions of
Delaware and Florida. It is expected that such dismissals shall be obtained
in a few weeks.
<PAGE> 10
5. Condensed Financial Information of the Parent Company
At the present time, the Parent company's liquid funds are insufficient to pay
its debts as they become due and, based on the expected level of expenditures,
there can be no assurance the Parent company will be able to pay its debts
without additional capital. The summary below presents the Parent
company's current financial results together with a pro forma balance sheet
based on the assumption the IIG Note was settled on the terms discussed above
as of March 31, 1998:
CONDENSED BALANCE SHEET
As of March 31, 1998
(in thousands)
ASSETS
Actual Pro Forma
-------- --------
Cash and cash equivalents $ - $ 638
Investments in affiliate and
wholly-owned subsidiary 6,801 -
Income taxes recoverable 150 150
Other assets 43 43
-------- --------
Total assets $ 6,994 $ 831
======== ========
LIABILITIES AND CAPITAL DEFICIT
Liabilities:
Note payable $ 8,000 $ -
Accrued interest on note payable 960 -
Due to affiliates 159 -
Other liabilities 117 117
-------- --------
Total liabilities 9,236 117
-------- --------
Capital Deficit:
Common stock 1,420 1,420
Additional paid-in capital 3,656 3,656
Net unrealized investment gains 1,895 -
Accumulated deficit (9,340) (4,354)
Treasury stock (8) (8)
-------- --------
Total Capital Deficit (2,242) 714
-------- --------
Total Liabilities and Capital Deficit $ 6,994 $ 831
======= =======
<PAGE> 11
7. Condensed Financial Information of the Parent Company (continued)
CONDENSED STATEMENT OF OPERATIONS
For the year to Date Period Ending March 31, 1998
(in thousands)
Actual
--------
Revenue $ -
Expenses 18
--------
Loss before equity in net income
of subsidiaries and income taxes (18)
Equity in net income of subsidiaries 121
--------
Income before income taxes 103
Income tax benefit 32
--------
Net Income $ 135
========
CONDENSED STATEMENT OF CASH FLOWS
For the year to Date Period Ending March 31, 1998
(in thousands)
Actual
--------
Cash flows from operating activities:
Net income $ 135
Adjustments to reconcile net income to net
cash used in operating activities:
Equity in net income of subsidiaries (121)
Change in other assets and other liabilities, net (53)
--------
Net cash used in operating activities (39)
Dividends received 39
--------
Net change in cash -
Cash and cash equivalents, beginning of year -
--------
Cash and cash equivalents as of March 31, 1998 $ -
========
<PAGE> 12
Item 2: Management Discussion and Analysis
General
The following discussion and analysis for Investors Insurance Group, Inc.
("Company") and its wholly-owned subsidiaries, primarily Investors Insurance
Corporation ("Investors"), updates the discussion and analysis contained in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997
and should be read in conjunction with that report and the Notes to
the March 31, 1998 financial statements presented under Item 1.
Results of Operations
In connection with its acquisition of IIC Inc. ("IIC"), which owns all the
outstanding shares of Investors, IIG issued an $8,000,000 subordinated note
payable which was due March 31, 1997, with interest at 8% payable quarterly
(IIG Note). Through March 31, 1998, Investors' new annuity business has
declined to $3 million from $11 million for the comparable period in 1997.
Management believes this decline is primarily the result of the negative
marketing environment created by the continued uncertainty surrounding the IIG
Note.
As discussed more fully in the Company's 1997 Form 10KSB, IIG has several
material outstanding claims against the IIG Note and the matter has been the
subject of litigation for some time. In April, 1998, IIG and the noteholder
executed a Settlement Agreement and Release (the "Agreement") for global
settlement of all the issues related to the IIG Note, dismissal of all related
litigation and mutual releases from further litigation. Under the terms of
this Agreement, IIG will receive $637,711 in cash, the rights to the full
federal tax refund from the 1997 federal tax return, and satisfaction of the
IIG Note and accrued interest. In return, the noteholder will receive all the
outstanding shares of IIC, Inc. (including Investors Insurance Corporation)
and IIG's option to purchase certain securities held by Investors Insurance
Corporation. Because the bondholder is in liquidation, the Agreement was
submitted to and has been approved by the Court of Chancery of the State of
Delaware, which has jurisdiction over the bondholder. The parties have agree
to now take whatever steps are necessary to dismiss, with prejudice, all
claims and counterclaims by or against the parties in the jurisdictions of
Delaware and Florida. It is expected that such dismissals shall be obtained
in a few weeks.
Surrenders and withdrawals have only modestly accelerated as a result of the
negative marketing environment. However, combined with the lower sales and
the additional reinsurance cessions in 1997 (see 1997 Form 10KSB), Investors'
retained block of business in force is declining. This decline is reflected
in both the income statement (lower Net investment income and lower
Interest on investment contracts) and the balance sheet (lower total
investments, Deferred acquisition costs, Investment contract benefits
recoverable, Unearned ceding commissions and liabilities for Investment
contracts).
As more fully discussed in the 1997 Form 10KSB, the decline in Commission and
other income is primarily the result of the 1997 novation of the block of
business ceded to New Era Life Insurance Company which increased the 1997
commission amortization by $400,293.
<PAGE> 13
In recognition of current negative marketing environment, Investors has
attempted to cut back on its Underwriting acquisition and insurance expenses.
Specifically, it has curtailed its promotional and marketing expenses and
reduced its utilization of outside support services. These steps reduced
the 1998 expense approximately $200,000.
The calculation of income tax expense results in a deferred tax asset which is
fully reserved. As more fully described in the Company's 1997 Form 10KSB, the
resulting income tax expense reflected in the Company's financial statements
is management's estimate of the amount it expects to pay or recover for the
current period. On a tax basis, the Company had losses in both 1998 and 1997.
The tax benefit reflected in its financial statements results from the
carryback of those losses to tax year 1996.
Liquidity and Capital Resources
Over the past few years, the Parent company has experienced on-going liquidity
problems. As discussed above, the issues related to the IIG Note are expected
to be resolved shortly. In the meantime, the Parent company's funds are not
adequate to pay its debts as they become due. In 1998, the Parent has
partially funded its debts from a dividend from its subsidiary. Later this
year, the Parent expects to receive an income tax refund. The Parent company
canceled its intercompany tax sharing agreement effective January 1, 1998 and
it expects to receive additional tax benefits for 1998.
Caution on Forward-Looking Statements
The 1995 Private Securities Litigation Reform Act provides issuers the
opportunity to make cautionary statements regarding forward-looking
statements. Accordingly, any forward-looking statement contained herein or in
any other oral or written statement by the Company or any of its officers,
director or employees is qualified by the fact that actual results of the
Company may differ materially from such statement due to the following
important factors, among other risks and uncertainties inherent in the
Company's business:
Prevailing interest rate levels, including any continuation of the
current relatively flat yield curve for short-term investments, which may
affect the ability of the Company to sell its products, the market value
of the Company's investments or the lapse rate of the Company's policies,
notwithstanding product design features intentioned to enhance
persistency of the Company's products.
Changes in the federal income tax laws and regulations which may affect
the relative tax advantage of the Company's products.
Changes in the regulation of financial services, including ban sales of
insurance products, which may affect the competitive environment for the
Company's products.
Regulatory requirements from any of the states in which Investors is
authorized to sell insurance.
The Parent company's access to sufficient funds to pay its obligations as
they become due.
<PAGE> 14
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
Pending in the United States District Court for the Middle District of Florida
is the Honorable Donna Lee Williams, Insurance Commissioner of the State of
Delaware as Receiver of National Heritage Life Insurance Company v. Investors
Insurance Group, Inc., U.S.D.C., M.D. Fla 97-773-CV-ORI-19. The Plaintiff
filed the lawsuit seeking to foreclose on an eight million dollar secured
subordinated debenture payable on March 31, 1997 with interest at eight (8)
percent payable quarterly ("IIG Note"). Plaintiff claims that she is the
owner of the IIG Note and that the note is in default. Defendant has disputed
Plaintiff's claim of ownership, has plead its claims of set-off based upon
misrepresentation made by Plaintiff's purposed predecessor and for conduct of
Plaintiff as the purported creditor.
In April 1998, the parties mutually agreed to amicably resolve their disputes
as to the ownership of the IIG Note pursuant to the terms of a Settlement
Agreement and Release (the "Agreement"). The Agreement was submitted to and
has been approved by the Court of Chancery of the State of Delaware,
which has jurisdiction over National Heritage Life Insurance Company. The
parties have agreed to now take whatever steps are necessary to dismiss, with
prejudice, all claims and counterclaims by or against the parties in the
jurisdictions of Delaware and Florida. It is expected that such dismissals
shall be obtained in a few weeks.
Item 2: Changes in Securities
No changes to report
Item 3: Defaults on Senior Securities
See discussion under Item 1 above
Item 4: Submissions of Matters to a Vote of Security Holders
None
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
a). Exhibits
Settlement Agreement and Release between National Heritage
Life Insurance Company in Liquidation and Investors Insurance
Group, Inc.
b). Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended March 31, 1998.
<PAGE> 15
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Investors Insurance Group, Inc.
(Registrant)
Date: May 15, 1998 /s/ Melvin C. Parker
______________________________
Melvin C. Parker
President, Chief Executive
Officer and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 8,197
<DEBT-CARRYING-VALUE> 46,780
<DEBT-MARKET-VALUE> 46,780
<EQUITIES> 0
<MORTGAGE> 205
<REAL-ESTATE> 0
<TOTAL-INVEST> 55,935
<CASH> 4,328
<RECOVER-REINSURE> 4,203
<DEFERRED-ACQUISITION> 35,282
<TOTAL-ASSETS> 495,265
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 7
<POLICY-OTHER> 10,818
<POLICY-HOLDER-FUNDS> 436,984
<NOTES-PAYABLE> 8,000
0
0
<COMMON> 1,420
<OTHER-SE> (3,662)
<TOTAL-LIABILITY-AND-EQUITY> 495,265
242
<INVESTMENT-INCOME> 1,045
<INVESTMENT-GAINS> 23
<OTHER-INCOME> 690
<BENEFITS> 115
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 1,029
<INCOME-PRETAX> 112
<INCOME-TAX> (23)
<INCOME-CONTINUING> 135
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 135
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<PAGE> 1
SETTLEMENT AGREEMENT AND RELEASE
BETWEEN
NATIONAL HERITAGE LIFE INSURANCE COMPANY IN LIQUIDATION
AND
INVESTORS INSURANCE GROUP, INC.
This SETTLEMENT AGREEMENT AND RELEASE ("Agreement") is made on this
_____________ day of April, 1998, by the parties, Donna Lee H. Williams,
Insurance Commissioner of the State of Delaware, in her capacity as Liquidator
(together with her Deputy Receiver(s)) of NATIONAL HERITAGE LIFE INSURANCE
COMPANY IN LIQUIDATION ("NHLIC"), for and on behalf of the Estate of NHLIC
("Statutory Liquidator of NHLIC") and NHLIC itself, and INVESTORS INSURANCE
GROUP, INC. ("IIG") a Florida Corporation, IIC, INC., an Oregon Corporation
("IIC"), and INVESTORS INSURANCE CORPORATION, a Delaware stock life insurance
company ("Investors")
RECITALS
WHEREAS, NHLIC is a Delaware life insurance company duly organized under the
laws of the State of Delaware, previously doing business under the auspices,
regulation and control of the Delaware Department of Insurance and now in
liquidation;
WHEREAS, IIG is a Florida Corporation, and the recorded owner of all the
issued and outstanding shares of IIC, which is the recorded owner of all the
issued and outstanding shares of Investors;
WHEREAS, IIG was formerly known as Gemco National, Inc. ("Gemco") and is the
successor to all obligations and liabilities of Gemco, including a certain
Debenture in the principal amount of Eight Million Dollars ($8,000,000.00)
(the "Debenture") issued to Corporate Life Insurance Company ("CLIC");
WHEREAS, on or about October 22, 1993 CLIC assigned and otherwise transferred
to NHLIC all right, title and interest to the Debenture and to the collateral
for the Debenture, including but not limited to the issued and outstanding
stock of IIC and Investors (the stock of IIC and Investors hereinafter
collectively referred to as the "Collateral");
WHEREAS, subsequent to the aforesaid assignment of the Debenture and
Collateral from CLIC to NHLIC, IIG refused to make payment of the quarterly
interest payments to the Statutory Liquidator of NHLIC under the Debenture,
claiming inter alia: that the assignment of the Debenture and Collateral from
CLIC to NHLIC was not valid; that the amount due under the Debenture was
subject to certain offsets, defenses, claims, and counterclaims arising from
the preassignment conduct of CLIC; that the amount due under the Debenture was
subject to certain offsets, defenses, claims and counterclaims arising from
the conduct of NHLIC; that the amount due under the Debenture was subject to
certain offsets, defenses, claims and counterclaims arising from the conduct
of the Delaware Department of Insurance and its representatives and; that the
Collateral was not pledged for the Debenture;
<PAGE> 2
WHEREAS, the disputes between the parties are and have been the subject of
ongoing litigation between the parties including: Investors Insurance Group.
Inc. v. Insurance Commissioner of the Pennsylvania Department of Insurance as
Statutory Liquidator of Corporate Life Insurance Company and Insurance
Commissioner of the State of Delaware as Statutory Receiver and/or
Rehabilitator and/or Liquidator of National Heritage Life Insurance Company,
Commw. Ct., No. 518 MD, 1995 (the "Pennsylvania Litigation"); in the Matter of
the Liquidation of National Heritage Life Insurance Company, Delaware Court of
Chancery C.A. No. 13530 (the "Delaware Litigation"); and The Honorable Donna
Lee H. Williams. Commissioner of Insurance of the State of Delaware as
Receiver of National Heritage Life Insurance Company v. Investors Insurance
Group. Inc., successor to Gemco National Inc. United States District Court,
Middle District of Florida, Orlando Division, No. 97-773-CV-ORL-19 (the
"Florida Litigation");
WHEREAS, Statutory Liquidator of NHLIC and IIG desire to amicably resolve
their disputes as to ownership of the Debenture; the amount due on the
Debenture; the right to dispose of the Collateral for the Debenture; and the
right to the proceeds of the Collateral;
WHEREAS, Statutory Liquidator of NHLIC and IIG further desire to resolve
amicably and settle all claims that they have or could ever have against the
other so that all claims between the Statutory Liquidator of NHLIC and IIG are
fully and finally resolved;
NOW, THEREFORE, in consideration of the promises, covenants and agreements set
forth below, and for such other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, and intending to be legally
bound, the parties hereby agree as follows:
TERMS AND CONDITIONS
1. OWNERSHIP OF DEBENTURE AND COLLATERAL. IIG, by this representation
contained in this Agreement and by such additional representations
contained in documents as NHLIC shall in its sole discretion require,
agrees that: (a) NHLIC is the sole legal, equitable, and beneficial
transferee and owner of the Debenture; (b) the transfer of the ownership of
the aforesaid Debenture to NHLIC occurred and was effective on October 22,
1993; (c) NHLIC has the exclusive right, power and authority to transfer
the Stock of IIC and Investors as satisfaction for the Debenture under such
terms and conditions, and for such consideration, as NHLIC in its sole
discretion deems appropriate; (d) in satisfaction of the amount due on the
Debenture, NHLIC is entitled to the entire proceeds from the disposition of
the Collateral.
2. PAYMENTS TO IIG. Upon 45 days following the execution of this Agreement,
or upon Court approval as described in Paragraph 17 of this Agreement,
whichever is later, NHLIC shall pay or cause to be paid to IIG the sum of
$637,711.00.
3. TRANSFER OF COLLATERAL TO NHLIC. Contemporaneous with the payment
set forth in Paragraph 2 of this Agreement, IIG, IIC, and Investors cause
all shares of stock of IIG and Investors Insurance Corporation to be
transferred to NHLIC, together with such other documents as NHLIC shall
reasonably require confirming the transfer to NHLIC or its assignee all
right title and interest to IIC and Investors.
<PAGE> 3
4. DOCUMENTS TO BE PRESENTED BY IIG UPON EXECUTION. Contemporaneous with
execution of this Agreement IIG shall present to NHLIC a certified
resolution of its Board of Directors, authorizing IIG to execute this
Agreement and directing IIG to take all steps necessary to effectuate
the terms of this Agreement. IIG shall further provide NHLIC with such
evidence as NHLIC shall require, including but not limited to opinion(s) of
counsel, confirming IIG's authority to enter this Agreement and to
effectuate its terms
5. DISMISSAL OF FLORIDA LITIGATION. Upon the mutual execution of this
Agreement by the parties, they shall jointly inform the Court that a
settlement is pending and request that the Florida Litigation be stayed
pending Court Approval as described in Paragraph 17 of this Agreement.
Contemporaneous with Court approval as more particularly described in
Paragraph 17 of this Agreement, the parties will take whatever steps as
are necessary to dismiss, with prejudice, all claims and counterclaims
asserted by or against the parties in the Florida Litigation.
6. DISMISSAL OF DELAWARE LITIGATION. Contemporaneous with the Court Approval
as more particularly described in paragraph 17 of this Agreement, the
parties will take whatever steps as are necessary to dismiss, with
prejudice, all claims and counterclaims asserted by or against the parties
in the Delaware Litigation.
7. WARRANTIES OF TITLE. IIG covenants, warrants and represents, to NHLIC and
its successors and assigns, that it is the beneficial and record owner of
all the issued and outstanding shares of stock of IIC, and that IIC is the
record and beneficial owner of all issued and outstanding shares of
Investors, and that the transfer of the shares of stock contemplated by
this Agreement will vest ownership of the shares of stock of IIC and
Investors in NHLIC, its successors and assigns, free and clear of any lien,
pledge, charge, security interest, encumbrance, title retention agreement,
adverse claim, option, proxy or voting trust agreement, and that 110 has
all necessary rights and authority to transfer the shares of stock
hereunder. IIG agrees to indemnify and hold harmless NHLIC and its
successors and assigns from and against any and all claims, demands, or
suits from any person, including but not limited to IIG, its stockholders,
directors, officers, employees, agents, successors, assigns, receivers,
trustees, involving or arising from the transfer of the shares of stock
contemplated by this Agreement
8. RELEASE BY NHLIC. Upon IIG's compliance with its obligations contained in
Paragraphs 1, 3, 4, 5 and 6, of this Agreement, The Receiver of NHLIC, for
and on behalf of the Estate of NHLIC and NHLIC itself, its successors,
appointees and assigns hereby agrees to release, acquit, and forever
discharge IIG, IIC, and Investors, their stockholders, directors, officers,
and representatives, from any and all causes of action, claims,
counterclaims, cross-claims, demands, damages, costs, expenses,
compensation, third party actions, suits at law or in equity, that NHLIC
has whether asserted or unasserted, against IIG, IIC, or Investors arising
out of the Debenture, including but not limited to all claims made or which
could have been made in the Pennsylvania Litigation, Delaware Litigation,
or Florida Litigation.
<PAGE> 4
9. RELEASE BY IIG. Upon the execution of this Agreement by the Parties
hereto, IIG, on behalf of itself, its stockholders, directors, officers,
representatives, agents, subsidiaries, affiliates, stockholders of
subsidiaries, directors of subsidiaries, officers of subsidiaries, agents
of subsidiaries, stockholders of affiliates, directors of affiliates,
officers of affiliates, agents of affiliates, successors and assigns of
itself, its subsidiaries and affiliates, hereby agrees to release,. acquit,
and forever discharge the Receiver of NHLIC together with her Deputy
Receivers, the Estate of NHLIC and NHLIC itself, the Department of
Insurance of the State of Delaware, the Insurance Commissioner of the State
of Delaware, together? with their representatives and agents (collectively
referred to as the "Released Parties") from any and all causes of action,
claims, counterclaims, cross-claims, demands, damages, costs, expenses,
compensation, third party actions, suits at law or in equity, that IIG or
its subsidiaries, affiliates, stockholders,. directors, officers, or agents
have, whether asserted or unasserted, against the released parties, arising
out of the Debenture, the regulation of Investors, including but not
limited to all claims made or which could have been made in the
Pennsylvania Litigation, Delaware Litigation, or Florida Litigation IIG, on
behalf of itself, IIG, Investors, and each of their stockholders,
directors, officers, agents and employees, agrees to indemnify and hold
harmless NHLIC and the Released Parties from and against any claim, damage,
loss and expense, including but not limited to attorneys' fees, arising
from any claim, action or defense asserted against the Released Parties by
IIG, IIC, Investors, or any of their stockholders, directors, officers,
agents, employees or assigns.
IIG, on behalf of itself, IIC, Investors, and each of their stockholders,
directors, officers, agents and employees, agrees to indemnify and hold
harmless NHLIC and the Released Parties from and against any claim, damage,
loss and expense, including but not limited to attorneys' fees, arising
from any claim, action or defense asserted against the Released Parties
arising from any inaccuracy in the statements set forth in Exhibit "A"
of this Agreement.
10. ASSIGNMENT BY IIG OF OPTION RIGHTS. For the consideration stated herein,
Ira assigns and transfers to NHLIC any and all rights that it may have in
and arising from a certain Stock Option Agreement ("Option") dated
September 13, 1991, and from a prior Stock Option Agreement dated March 28
1991, said Option(s) concerning 188,971 shares of stock of Adage, Inc.
IIG shall provide to NHLIC such documentation as NHLIC shall require
confirming and ratifying said assignment
11. IIG TO RETAIN TAX REFUND RIGHTS ON PRIOR FILED RETURNS. For the
consideration stated herein, NHLIC, agrees to cause Investors to assign to
IIG all Investors right title and interest to a certain federal tax refund
appearing on Page 2, Line 14, columns 2, 3, and 4 of the Annual Statement
of Investors Insurance Company for the Year Ended. December 31, 1997 filed
with the Department of Insurance of the state of Delaware.
<PAGE> 5
12. NOTICE OF AGREEMENT. The Statutory Liquidator of NHLIC shall have the
sole discretion to determine who, if anyone, shall receive notice of this
Agreement. IIG agrees that it will not give notice of this Agreement to
any third party without the prior written consent of the Statutory
Liquidator of NHLIC, provided, however, that IIG shall not be restricted
from disclosing this Agreement to the extent required by law, in which
event, NHLIC shall receive reasonable advance notice of such disclosure;
provided further however, that IIG may disclose this Agreement in response
to a lawful order, legal requirement or subpoena, after first, if
reasonably possible, giving reasonable notice thereof to the Statutory
Liquidator of NHLIC of intent to do so with the understanding that the
Statutory Liquidator of NHLIC may seek. to take lawful efforts to prevent
disclosure.
13. ASSIGNMENT. NHLIC may, without further consent or notice to any party to
this Agreement, assign its rights or delegate its duties under this
Agreement as NHLIC, in its sole discretion determines necessary to
effectuate this Agreement. However, such assignment or delegation by NHLIC
shall not relieve NHLIC of its responsibilities under this Agreement.
IIG, shall not assign or delegate its responsibilities or duties under
this Agreement without the express prior written consent of NHLIC. Such
assignment or delegation by IIG, shall, if consented to by NHLIC, not
relieve IIG or any other party to this Agreement of its responsibilities
under this Agreement.
14. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of NHLIC, its Receiver, Deputy Receivers, successors, appointees,
trustees, agents representatives, employees and assigns or any of their
heirs, executors, personal representatives and administrators; and IIG,
its stockholders, directors, officers, employees', agents and assigns, and
their respective heirs, executors, personal representatives and
administrators.
15. NON-WAIVER. Neither the failure nor any delay on the part of any party
hereto to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any
other or further exercise of the same or of any other right, remedy, power
or privilege, nor shall any waiver of any right, remedy, power or
privilege with respect to any occurrence be construed as a waiver of such
right, remedy, power or privilege with respect to any other occurrence.
16. GOVERNING LAW. It is agreed that this Agreement shall be governed by,
construed, and enforced in accordance with the laws of the State of
Delaware and that any actions, causes of action, suits, claims, cross-
claims, counterclaims, or third party actions related to or arising out of
this Agreement shall be brought before the Court of Chancery of the State
of Delaware in and for New Castle County ("Delaware Court") in the
liquidation proceedings of NHLIC.
<PAGE> 6
17. COURT APPROVAL. The parties expressly understand that this Agreement is
subject to the approval of the Delaware Court in the NHLIC liquidation
proceedings. Within five (5) business days of the full execution of this
Agreement, the Statutory Liquidator of NHLIC shall petition the. Delaware
Court, with notice to the National Association of Life and Health
Insurance Guaranty Associations, for an order approving this Settlement
Agreement and Release in its entirety and authorizing and directing the
Statutory Liquidator of NHLIC to render performance in accordance with the
terms and conditions of this Settlement Agreement and Release. IIG shall
assist the Statutory Liquidator of NHLIC and fully cooperate with the
filing of the motion. The Statutory Liquidator of NHLIC agrees to seek
expedited treatment of this petition by the Delaware Court.
18. MODIFICATION OF AGREEMENT. Any modification of this Agreement or
additional obligation assumed by the parties hereto in connection with
this Agreement shall be binding only if evidenced in writing signed by
each party hereto or an authorized representative of each party hereto and
approved by the Delaware Court.
19. NON-ADMISSION. Nothing contained. herein shall constitute an admission of
liability by any party as to any claim, cause of action, defense,
counterclaim or other statement made in the litigations, however; this
Agreement shall constitute an admission by IIG, its affiliates and
subsidiaries, and their respective stockholders, directors, officers,
employees and agents, of the truth of the statements contained in
paragraphs 1 and 7 of this Agreement.
20. SEVERABILITY. The provisions of this. Agreement are independent of, and
separable from, each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any
other or others of them may be invalid or unenforceable in whole or in
part unless the intent of the parties is significantly altered without the
invalid or unenforceable provision.
21. CAPTIONS The captions. used in this Agreement are inserted only as a
matter of convenience for reference, and they are not to be construed as
part of this Agreement. They in no way define, limit or describe the
scope or intent of this Agreement or any part hereof. Such captions shall
not affect this Agreement or any part hereof in any way.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of all of the parties reflected hereon
as the signatories.
<PAGE> 7
23. ENTIRE AGREEMENT. This Agreement shall constitute the entire agreement
between NHLIC, on the one part, and IIG, IIC and Investors, collectively,
on the second part. Any prior understanding or representation of any kind
preceding the date of this Agreement shall not be binding upon NHLIC
except to the extent incorporated in this Agreement. Each party to this
Agreement represents and warrants that sit has all requisite power and
authority to enter into this Agreement and to implement the transactions
contemplated herein, subject to the Court approval required by Paragraph
17 hereto, and that the signatories to this Agreement are duly authorized
to execute this Agreement on behalf of the respectively parties hereto.
Each party to this Agreement represents and warrants that this Agreement
has not been fraudulently induced either through active concealment of
material facts or nondisclosure of material facts.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on
the date set forth above.
DONNA LEE H. WILLIAMS, INSURANCE COMMISSIONER OF THE STATE OF DELAWARE, IN HER
CAPACITY AS THE STATUTORY LIQUIDATOR OF NATIONAL HERITAGE LIFE INSURANCE
COMPANY IN LIQUIDATION
BY:
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INVESTORS INSURANCE GROUP, INC.
ATTEST: BY:
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IIC, INC.
ATTEST: BY:
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IIC, INC.
ATTEST: BY:
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INVESTORS INSURANCE CORPORATION
ATTEST: BY:
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