<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
--------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ------------------------
For the Quarter Ended September 30, 1996 Commission file number 2-40019.
----------------------- -------
SOUTHLAND NATIONAL INSURANCE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Alabama 63-0572745
- -------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1812 University Blvd., Tuscaloosa, AL 35401
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number, including area code) (205) 345-7410
--------------------------------
None
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $6 par value - 250,453
<PAGE> 2
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturities (amortized cost: 1996-
$25,237,693 1995-$20,879,649) $25,042,174 $21,704,485
Equity securities (cost: 1996-$3,019,094
1995-$3,501,948) 3,508,456 3,991,788
Mortgage loans on real estate 290,101 370,056
Policy loans 213,353 226,739
Student loans 142,255 198,392
Short-term investments 2,044,941 969,696
Restricted short-term investments 325,257 225,257
----------- -----------
Total Investments 31,566,537 27,686,413
Cash 1,556,104 870,166
Accrued Investment Income 429,701 358,503
Accounts Receivable:
Uncollected premium 19,655 26,549
Receivable from reinsurers 197,974 227,243
Other receivables and agents' balances (net of
$50,000 allowed for uncollectible accounts) 80,995 104,690
------- ----------- -----------
Total Accounts Receivable 298,624 358,482
Deferred Policy Acquisition Costs 2,576,431 2,588,049
Deferred Income Tax 65,577 ---
Property & Equipment(net) 564,191 584,032
Other 66,028 66,042
----------- -----------
TOTAL ASSETS $37,123,193 $32,511,687
=========== ===========
</TABLE>
<PAGE> 3
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Life insurance $27,257,220 $22,300,051
Accident and health 3,124 3,124
Accrued claims payable 199,265 300,197
Unearned Premiums 28,092 20,694
----------- -----------
Total Policy Liabilities and Accruals 27,487,701 22,624,066
Annuity deposits 1,040,651 1,017,394
Other Policyholders' funds 196,646 104,526
Income tax payable 5,519 17,580
Deferred Income Taxes -0- 112,456
Other liabilities 229,569 284,353
----------- -----------
Total Liabilities 28,960,086 24,160,375
----------- -----------
Stockholders' Equity:
Common Stock, $6 par value, 1,250,000 shares
authorized, 250,453 shares issued and
outstanding in 1996 and 1995 1,502,718 1,502,718
Capital in excess of par value 269,331 269,331
Unrealized investment gains (losses)-net of
deferred income taxes of $49,953 and
$223,495 at September 30, 1996 and December 31,
1995, respectively 243,890 1,091,181
Retained earnings 6,147,168 5,488,082
----------- -----------
Stockholders' Equity 8,163,107 8,351,312
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $37,123,193 $32,511,687
=========== ===========
</TABLE>
<PAGE> 4
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 1996 and the Year Ended December 31,
1995
<TABLE>
<CAPTION>
Common Stock Capital Net Unrealized
------------ Excess of Investments Retained
Shares Amount Par Value Gains/(Losses) Earnings Total
------ ------ --------- -------------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1,1995 250,453 $1,502,718 $269,331 $(829,626) $4,578,036 $5,520,459
Cash Dividends
($.09 per share) (22,541) (22,541)
Reclassification of held-
to-maturity investments to
available-for-sale, net of
deferred income taxes of
$71,531 349,240 349,240
Increase (Decrease) in
unrealized investments
gains or (losses), net
of deferred income taxes
of $321,887 1,571,567 1,571,567
Net Income for the year 932,587 932,587
------- ---------- -------- ---------- ---------- ----------
Balance, December 31,1995 250,453 $1,502,718 $269,331 $1,091,181 $5,488,082 $8,351,312
Increase (Decrease) in
unrealized investments
gains or (losses)-net of
deferred income taxes of
$(159,675) (847,291) (847,291)
Cash Dividends
($.10 per share) (25,045) (25,045)
Net Income for the nine
months ended Sept.30, 1996 684,131 684,131
------- ---------- -------- ---------- ---------- ----------
Balance, September 30, 1996 250,453 $1,502,718 $269,331 $ 243,890 $6,147,168 $8,163,107
======= ========== ======== ========== ========== ==========
</TABLE>
<PAGE> 5
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
Revenues:
Traditional life and other premiums $ 6,438,001 $ 3,076,914
Universal life policy charges 437,903 439,960
Net investment income 1,443,514 1,210,886
Other income:
Realized gains (losses) on investments 2,661 51,993
Claims administration fees 1,747,241 1,859,067
Miscellaneous income 94,112 24,493
----------- -----------
Total Revenues 10,163,432 6,663,313
Benefits, Losses and Expenses:
Benefits, claims, losses and settlement expenses:
Death and other benefits 1,448,236 1,114,334
Increase in future policy benefits 4,920,923 1,882,990
----------- -----------
6,369,159 2,997,324
Underwriting, acquisition and insurance expenses:
Amortization of deferred policy acquisition costs 257,262 278,883
Commissions 601,039 491,108
Other Operating expenses 2,048,375 1,744,229
----------- -----------
2,906,676 2,514,220
----------- -----------
Income before Income Tax Expense 887,597 1,151,769
Income Tax Expense (Benefit):
Currently 207,957 208,902
Deferred (4,491) (15,688)
----------- -----------
203,466 193,214
----------- -----------
NET INCOME $ 684,131 $ 958,555
=========== ===========
NET INCOME PER SHARE $ 2.73 $ 3.83
=========== ===========
Dividends Paid PER SHARE $ .10 $ .09
=========== ===========
</TABLE>
<PAGE> 6
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
Operating Activities:
Net income $ 684,131 $ 958,555
Adjustments to reconcile net income to net cash
provided by operating activities:
(Increase) Decrease in accrued investment income (72,683) (34,046)
(Increase) Decrease in accounts receivable and
agents balances, and reinsurance recoverable 59,858 115,752
Increase (Decrease) in future policy benefits 4,946,358 1,991,225
Increase (Decrease) in accrued claims (100,932) 51,578
Increase (Decrease) in other policyholders' funds 133,586 30,443
Increase (Decrease) in accrued expenses and other
liabilities (66,833) (25,702)
Policy acquisition costs deferred (245,644) (253,775)
Amortization of policy acquisition costs 257,262 278,883
Provision for depreciation 62,239 70,183
Provision for deferred income tax (4,491) (15,688)
Net realized (gains) losses on investments (2,661) (51,993)
---------- ----------
Net Cash Provided(Used) by Operation Activities 5,650,190 3,115,415
Investing Activities:
Purchases of investments and loans made (7,394,928) (8,648,915)
Sales, maturities and repayments of investments
and loans 3,673,365 6,080,715
Purchase of property and equipment (42,399) (34,047)
(Increase) Decrease in short term investments (1,175,245) (922,438)
---------- ----------
Net Cash (Used) by Investing Activities (4,939,207) (3,524,685)
Financing Activities:
Dividends to shareholders (25,045) (22,541)
---------- ----------
Net Cash Provided (Used) by Financing
Activities (25,045) (22,541)
---------- ----------
Increase (Decrease) in Cash 685,938 (431,811)
Cash at beginning of year 870,166 1,115,876
---------- ----------
Cash at end of period $1,556,104 $ 684,065
========== ==========
</TABLE>
<PAGE> 7
SOUTHLAND NATIONAL INSURANCE CORPORATION AND
SUBSIDIARIES Tuscaloosa,
Alabama
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Southland
National Insurance Corporation and subsidiaries are prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1996, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1995.
NOTE B -- CHANGES IN ACCOUNTING PRINCIPLES AND POLICIES
The amortized cost and estimated market values of the Company's investments are
shown on the following page.
Fair values are based on quoted market prices, where available. For securities
not actively traded or in the case of private placements, fair values are
estimated using values obtained from independent pricing services.
NOTE C -- SUBSEQUENT EVENTS
On October 3, 1996, Southland National Insurance Corporation ("Southland")
entered into a Deferred Compensation and Non- Compete Agreement ("Agreement")
with William H. Lanford, the President of Southland. The agreement provides
for payments to Mr. Lanford for the initial ten-year period following his
retirement, of $60,000 per year ($25,000 of which are attributable to Mr.
Lanford's covenant not to compete during such period) and, following such ten
year period, of $75,000 per year for the remainder of his life, with payments
to be made to Mrs. Lanford in the event of Mr. Lanford's death or disability.
Southland estimates a liability of approximately $500,000 will be necessary in
order to be able to discharge its obligations under the agreement. Exhibit
10(d) ,as filed as a part of this 10QSB, contains the Deferred Compensation and
Non-Compete Agreement in its entirety.
<PAGE> 8
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE B -- Continued
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale securities at
September 30, 1996:
Fixed maturity securities:
Corporate bonds $ 10,307,774 $ 162,886 $ (187,204) $ 10,283,456
U. S. Government bonds 7,928,787 31,047 (112,776) 7,847,058
State and municipal bonds 752,933 8,008 (6,481) 754,460
Public utility bonds 2,796,920 42,602 (48,364) 2,791,158
Mortgage-backed bonds 3,451,279 46,487 (131,724) 3,366,042
------------ ---------- ----------- ------------
Total 25,237,693 291,030 (486,549) 25,042,174
Equity securities:
Common stock 421,434 534,117 (31,628) 923,923
Preferred stock 2,597,660 36,313 (49,440) 2,584,533
------------ ---------- ----------- ------------
Total $ 28,256,787 $ 861,460 $ (567,617) $ 28,550,630
============ ========== =========== ============
Available-for-sale securities at
December 31, 1995:
Fixed maturity securities:
Corporate bonds $ 9,924,289 $ 472,530 $ (24,263) $ 10,372,556
U. S. Government bonds 4,774,146 112,811 (1,337) 4,885,620
State and municipal bonds 728,160 30,755 (677) 758,238
Public utility bonds 2,311,433 141,368 (3,309) 2,449,492
Mortgage-backed bonds 3,141,621 117,314 (20,356) 3,238,579
------------ ---------- ----------- ------------
Total 20,879,649 874,778 (49,942) 21,704,485
Equity securities:
Common stock 549,039 479,001 (53,931) 974,109
Preferred stock 2,952,909 96,661 (31,891) 3,017,679
------------ ---------- ----------- ------------
Total $ 24,381,597 $1,450,440 $ (135,764) $ 25,696,273
============ ========== =========== ============
</TABLE>
<PAGE> 9
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE PERIOD OF NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995.
The first nine months of 1996 produced a net profit of $684,131 compared to net
income of $958,555 for the first nine months of 1995. Although total revenues
increased 53%, total expenses increased 68% primarily because of increased
costs related to increasing market share as well as future policy benefits and
death benefits, resulting in lower profits.
Premium and policy fee revenues for the first nine months of 1996 increased
approximately 96% over the first nine months of 1995, due to increased
premiums in the pre-need line of business. Second quarter premium revenues
increased 45% over the first three months of 1996 due to increased sales as
both first year and renewal premium increased. This continued in the third
quarter as premium revenues increased 18% over the second quarter and 71% over
the first three months of 1996. The increased volume of business also relates
to increases in future policy benefits, commissions, and certain expenses.
Revenues attributable to TPA claim administration services provided by SIMA,
the Company's wholly owned subsidiary, increased approximately 4% to $545,582
from $526,048 for the nine months of 1996 and 1995, respectively. Claim
administration revenues related to the Company's agreement with the Public
Education Health Insurance Board ("PEHIP") decreased 10% to $1,201,659 from
$1,333,019 for the nine months of 1996 and 1995, respectively, as a result of
a new fee structure upon renewal of the contract in October 1995.
Total benefits, losses, and expenses increased approximately 68% to $9,275,835
from $5,511,544 for the first nine months of 1996 and 1995, respectively.
Death and other policy benefits increased 30% while future policy benefits
increased 101% and other operating expenses increased 16% as a result of an
increased volume of sales. Operating expenses for SIMA increased approximately
28% due primarily to increased marketing activities related to obtaining and
keeping market share. Management has made a conscious effort toincrease market
share. While this effort has started to result in increased business, expenses
in the short run have also increased. The Company has an application to do
business pending in North Carolina and South Carolina. These applications are
pending approval of the proposed merger of Southwide Life Insurance Corp. and
Southland National Insurance Corporation subsequent acquisition by Collateral
Investment Corp.
Net investment income increased approximately 19% as cash and invested assets
increased 12% for the nine month period from $27,241,903 at December 31, 1995
to $32,828,798 at September 30, 1996, before any adjustment to market value
as described in Note B of the Notes to Consolidated Financial Statements of the
Company and its subsidiaries, which appear elsewhere herein. Cash flow from
operations is adequate to fund current operating needs.
On October 4, 1996, Southland National Insurance Corporation (Southland) signed
an agreement providing for the acquisition of Southland by Collateral
Investment Corp. (CIC). The acquisition will be accomplished through a merger
of Southwide Life, a Birmingham, Alabama-based insurance company subsidiary of
CIC, into Southland. Southland will become a wholly owned subsidiary of CIC.
In the merger, each of the approximately 250,000 outstanding shares of
Southland common stock will be exchanged for $38.00 per share in cash.
<PAGE> 10
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
PART II
ITEM 6
(a) The following exhibits are being filed as exhibits to this report or are
incorporated herein by reference, as indicated below.
<TABLE>
<CAPTION>
Description of Exhibit
----------------------
<S> <C> <C>
* 2 Agreement and Plan of Merger among Southland National Insurance Corporation,
Southwide Life Insurance Corp., and Collateral Investment Corp., filed as an exhibit to Form 8-K
dated October 4, 1996.
* 3(a) Articles of Incorporation of the Company, filed as an exhibit to the Company's Annual
Report on Form 10-K, for the year ended December 31,1991.
* 3(b) Bylaws of the Company, filed as an exhibit to the Company's Annual Report on Form 10-K, for the year
ended December 31, 1991.
3(b)(i) Amendment to Bylaws of the Company regarding indemnification of Officers and Directors, dated
September 13, 1996.
* 3(c) Articles of Amendment to the Articles of Incorporation of the Company, dated as of July
27, 1991, filed as an exhibit to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1992.
* 3(d) Articles of Amendment to the Articles of Incorporation of the Company dated as of May 27,
1994, filed as an exhibit to the Company's Annual Report on Form 10-KSB for the year ended December 31,
1994.
* 10(a) Peoples Insurance Company Acquisition Letter Agreement dated November 23, 1993, filed as an exhibit
to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1993.
* 10(b) Administrative Services Contract dated October 1, 1995, between the Public Education Employees Health
Insurance Board and the Company.
10(d) Deferred Compensation and Non-Compete Agreement dated October 3, 1996, between William H. Lanford and
the Company.
* 16 Letter from Jamison, Money, Farmer & Co., P.C. regarding change in independent accountants, filed as
an exhibit to Form 8-K dated September 8, 1995.
* 21 List of Subsidiaries of the Company, filed as an exhibit to the Company's Annual Report on Form 10-
KSB for the year ended December 31, 1993.
27 Financial Data Schedule (for SEC use only)
</TABLE>
- --------------------
* Incorporated herein by reference.
(b) The Company has filed no current reports on Form 8K during the quarter for
which this report is filed.
<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHLAND NATIONAL INSURANCE CORPORATION
----------------------------------------
Date: 11/05/96 By: /s/ William H. Lanford
-------------------------- -------------------------------
W.H. Lanford
President
Date: 11/05/96 By: /s/ Ronald J. Koch
--------------------------- -------------------------------
Ronald J. Koch
Secretary
<PAGE> 1
EXHIBIT 3 (b)(i)
SOUTHLAND INDEMNIFICATION
Section 0.1 Definitions. For purposes of this Article
VI, the following terms have the following meanings:
(a) "Corporation" includes any domestic or foreign
predecessor entity of the corporation in a merger or other transaction in which
the predecessor's existence ceased upon consummation of the transaction.
(b) "Director" means an individual who is or was a
director of the corporation or an individual who, while a director of the
corporation, is or was serving at the corporation's request as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise. A director is considered to be serving an employee benefit plan at
the corporation's request if his or her duties to the corporation also impose
duties on, or otherwise involve services by, the director to the plan or to
participants in or beneficiaries of the plan. "Director" includes, unless the
context requires otherwise, the estate or personal representative of a
director.
(c) "Expenses" include counsel fees.
(d) "Liability" means the obligation to pay a judgment,
settlement, penalty, fine (including an excise tax assessed with respect to an
employee benefit plan), or reasonable expenses incurred with respect to a
proceeding.
(e) "Official capacity" means (i) when used with respect
to a director, the office of director in the corporation; and (ii) when used
with respect to an officer, employee, or agent, the office in a corporation
held by an officer or the employee or agency relationship undertaken by the
employee or agent on behalf of the corporation. "Official capacity" does not
include service for any foreign or domestic corporation or any partnership,
joint venture, trust, employee benefit plan, or other enterprise.
(f) "Party" includes an individual who was, is or is
threatened to be made a named defendant or respondent in a proceeding.
(g) "Proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative and whether formal or informal. [Section 10-2B-8.50]
Section 0.2 Indemnification in Actions Arising Out of
Capacity as Director. (a) Except as provided in subsection (d) of this Section
6.2, the corporation shall indemnify an individual made a party to a proceeding
because he or she is or was a director against liability incurred in the
proceeding if:
(i) The individual conducted himself or herself in good
faith; and
<PAGE> 2
(ii) The individual reasonably believed:
(A) In the case of conduct in his or her official
capacity with the corporation, that the conduct was in its
best interests; and
(B) In all other cases, that the conduct was at
least not opposed to its best interests; and
(iii) In the case of any criminal proceeding, the individual
had no reasonable cause to believe his or her conduct was unlawful.
(b) A director's conduct with respect to an employee
benefit plan for a purpose he or she reasonably believed to be in the interests
of the participants in, and beneficiaries of the plan is conduct that satisfies
the requirement of subsection (a)(ii)(B) of this Section 6.2.
(c) The termination of a proceeding by judgement, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent is
not, of itself, determinative that the director did not meet the standard of
conduct described in this Section 6.2.
(d) A corporation may not indemnify a director under this
Section 6.2:
(i) In connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the
corporation; or
(ii) In connection with any other proceeding charging
improper personal benefit to the director, whether or not involving
action in his or her official capacity, in which the director was
adjudged liable on the basis that personal benefit was improperly
received by him or her.
(e) Indemnification permitted under this Section 6.2 in
connection with a proceeding by or in the right of the corporation is limited
to reasonable expenses incurred in connection with the proceeding. [Section
10-2B- 8.51]
Section 0.3 Indemnification Against Certain Expenses.
The corporation shall indemnify a director who was successful, on the merits or
otherwise, in the defense of any proceeding, or of any claim, issue or matter
in such proceeding, where he or she was a party because he or she is or was a
director of the corporation, against reasonable expenses incurred in connection
therewith, notwithstanding that he or she was not successful on any other
claim, issue or matter in any such proceeding. [Section 10-2B-52]
Section 0.4 Advance for Expenses. (a) The
corporation shall pay for or reimburse the reasonable expenses incurred by a
director who is a party to a proceeding in advance of final disposition of the
proceeding if:
2
<PAGE> 3
(i) The director furnishes the corporation a written
affirmation of good faith belief that he or she has met the standard
of conduct described in Section 6.2;
(ii) The director furnishes the corporation a written
undertaking, executed personally or on the director's behalf, to repay
the advance if it is ultimately determined that the director did not
meet the standard of conduct, or is not otherwise entitled to
indemnification under Section 6.2(d), unless indemnification is
approved by a court of competent jurisdiction as provided under the
Alabama Business Corporation Act;
(iii) A determination is made that the facts then known to
those making the determination would not preclude indemnification
under this Article VI.
(b) The undertaking required by subsection (a)(ii) of
this Section 6.4 must be an unlimited general obligation of the director but
need not be secured and may be accepted without reference to financial ability
to make repayment.
(c) Determinations and authorizations of payments under
this Section shall be made in the manner specified in Section 6.5. [Section
10-2B-8.53]
Section 0.5 Determination and Authorization of
Indemnification. (a) The corporation may not indemnify a director under
Section 6.2 unless authorized in the specific case after a determination has
been made that indemnification of the director is permissible in the
circumstances because the director has met the standard of conduct set forth in
Section 6.2.
(b) The determination shall be made:
(i) By the board of directors by majority vote of a quorum
consisting of directors not at the time parties to the proceeding;
(ii) If a quorum cannot be obtained under subdivision (i), by
majority vote of a committee duly designated by the board of directors
(in which designation directors who are parties may participate)
consisting solely of two or more directors not at the time parties to
the proceeding;
(iii) By special legal counsel:
(A) Selected by the board of directors or its
committee in the manner prescribed in subdivision (i) or (ii);
or
(B) If a quorum of the board of directors cannot be
obtained under subdivision (i) and a committee cannot be
designated under subdivision (ii), selected by majority vote
of the full board of directors (in which selection directors
who are parties may participate); or
3
<PAGE> 4
(iv) By the shareholders, but shares owned by or voted under
the control of directors who are at the time parties to the proceeding
may not be voted on the determination. A majority of the shares that
are entitled to vote on the transaction by virtue of not being owned
by or under the control of such directors constitutes a quorum for the
purpose of taking action under this Section 6.5.
(c) Authorization of indemnification and evaluation as to
reasonableness of expenses shall be made in the same manner as the
determination that indemnification is permissible, except that if the
determination is made by special legal counsel, authorization of
indemnification and evaluation as to reasonableness of expenses shall be made
by those entitled under subsection (b)(iii) of this Section 6.5 to select
counsel.
Section 0.6 Insurance. The corporation may purchase and
maintain insurance, or furnish similar protection (including but not limited to
trust funds, self-insurance reserves, or the like), on behalf of an individual
who is or was a director, officer, employee, or agent of the corporation, or
who, while a director, officer, employee, or agent of the corporation, is or
was serving at the request of the corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture trust, employee benefit plan, or other enterprise,
against liability asserted against or incurred by such person in that capacity
or arising from such person's status as a director, officer, employee, or
agent, whether or not the corporation would have power to indemnify such person
against the same liability under Section 6.2 or Section 6.3. [Section
10-2B-8.57]
Section 0.7 Application of Indemnification Provisions.
(a) Any indemnification, or advance for expenses, authorized under this Article
VI shall not be deemed exclusive of and shall be in addition to that which may
be contained in the corporation's articles of incorporation, these bylaws, a
resolution of its shareholders or board of directors, or in a contract or
otherwise.
(b) This Article VI shall not limit the corporation's
power to pay or reimburse expenses incurred by a director in connection with
the director's appearance as a witness in proceeding at a time when he or she
has not been made a named defendant or respondent to the proceeding. [Section
10-2B-8.58]]
Section 0.8 Survival of Right. Any right to
indemnification or advancement of expenses provided by or granted pursuant to
this Article VI shall continue as to a person who has ceased to be a director,
officer, employee or agent or to serve as a director, officer, partner,
trustee, employee or agent of such other foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
and shall inure to the benefit of the heirs, executors, administrators and
personal representatives of such a person. Any repeal or modification of this
Article VI which serves to restrict or lessen the rights to indemnification or
advancement of expenses provided by this Article VI shall be prospective only
and shall not lessen the right to indemnification or advancement of expenses
existing at the time of such repeal or modification with respect to liabilities
arising out of claimed acts or omissions occurring prior to such repeal or
modification.
4
<PAGE> 1
EXHIBIT 10(d)
DEFERRED COMPENSATION AND
NON-COMPETE AGREEMENT
THIS DEFERRED COMPENSATION AND NON-COMPETE AGREEMENT (the
"Agreement"), dated this 3 day of October, 1996 is by and between William H.
Lanford ("Lanford"), and Southland National Insurance Corporation ("the
Company").
WHEREAS, Lanford is presently employed by the Company as its
President and Chief Executive Officer; and
WHEREAS, Lanford and the Board of Directors (the "Board") of
the Company had executed a longstanding prior employment agreement, which
provided for, among other things, payments to Lanford following cessation of
his active employment with the Company; and
WHEREAS, the prior employment agreement was rescinded at
Lanford's request in order to avoid the necessity of the Company accruing
certain of the deferred obligations under such employment agreement; and
WHEREAS, the Board desires to reinstate certain of the
provisions of that prior employment agreement; and
WHEREAS, the parties wish to evidence their agreement in
writing;
NOW, THEREFORE, in consideration of the premises, the prior
and future services of Lanford as President and Chief Executive Officer of the
Company, the agreement of Lanford not to compete with the Company in the
future, the mutual covenants of the parties, and One Dollar ($1.00) and other
good and valuable consideration paid by each to the other, the receipt and
sufficiency whereof is hereby acknowledged, the parties agree as follows:
1. DEFERRED COMPENSATION. The Company shall pay Lanford
on a periodic basis consistent with regular payroll payments of the Company,
upon Lanford's retirement (as that term is defined in Section 6) from his
positions as President and Chief Executive Officer of the Company, Thirty-five
Thousand and 00/100 Dollars ($35,000.00) per year to be paid for a period of
ten years, and following such ten year period, the Company shall pay Lanford
Seventy-five Thousand and 00/100 Dollars ($75,000.00) per year for the
remainder of his life.
The Company will provide to Lanford and his spouse
group health and life benefits that are offered to the officers of the Company,
provided Lanford is eligible for those benefits. In the event that the Company
does not provide to its officers any such benefits or Lanford does not qualify
to participate in such benefits, then Lanford shall receive health benefits
equivalent to those he is receiving immediately prior to his retirement.
Not withstanding any provisions in the previous
paragraph, any health reimbursement benefits will be provided to Lanford only
to the extent needed to supplement any other form of insurance Lanford may
have, including Medicare.
1
<PAGE> 2
2. COVENANT NOT TO COMPETE. For the ten (10) year
period described in the last paragraph of Section 2, Lanford shall not, either
as an individual on his own account; as a partner, joint venturer, employee,
agent, or salesman for any person; as an officer, director or stockholder
(other than a beneficial holder of not more than 5% of the outstanding voting
stock of a company having at least 250 holders of voting stock) of a
corporation; or otherwise, directly or indirectly;
(a) enter into or engage in, or render any
services for or on behalf of, any insurance business directly competitive with
that carried on by the Company within:
(i) any area of the United States in
which the Company is then doing business;
(ii) in the event that any court
determines that the area set forth in the preceding
subparagraph is too broad to be enforceable, the
States of Alabama, Tennessee and Mississippi; or
(iii) in the event that any court
determines that the area set forth in the preceding
subparagraphs is too broad to be enforceable, the
State of Alabama.
(b) solicit or attempt to solicit any of the
Company's customers or prospective customers with whom Lanford has had contact
during the period of his association with the Company with the intent or
purpose to perform for such customer the same or similar services that Lanford
performed for or sold to such customer during the period of his association
with the Company;
(c) solicit or recruit any person who is an
employee or agent of the Company either now or during such period, for
employment in the insurance business, or for the purpose of soliciting or
attempting to solicit any of the Company's customers or prospective customers
as prohibited by Section 2(b) above.
Notwithstanding the foregoing, Lanford and the
Company agree and acknowledge that in the event that Lanford breaches any of
the provisions of this paragraph 2, the period of restriction referenced above
shall be extended one day for each day that Lanford is in breach hereof.
Lanford and the Company agree and acknowledge any
breach by Lanford of the restrictive covenant contained herein would
immeasurably and irreparably damage the Company. the Company and Lanford agree
and acknowledge that the duration, scope and geographic areas applicable to the
non-competition covenants in this Section 2 are fair, reasonable and necessary
to protect legitimate business interests of the Company, and that adequate
compensation has been received by Lanford for such obligations.
In consideration for his agreement not to compete
with the Company, the Company agrees to pay Lanford on a periodic basis
consistent with regular payroll payments of the Company Twenty-five Thousand
and 00/100 Dollars ($25,000.00) per year for a period of ten (10)
2
<PAGE> 3
years, which payments shall begin upon Lanford's retirement from his position
as President and Chief Executive Officer of the Company. The above-described
payments shall cease in the event that Lanford violates any of the provisions
set forth in the preceding paragraph.
3. SURVIVOR BENEFITS. In the event of the death of
Lanford within eighteen (18) months from the date of Lanford's retirement the
Company shall pay to the spouse of Lanford or to such other person as he shall
designate in writing, the sum of Five Thousand and 00/100 Dollars ($5,000.00)
per month for a period of forty (40) months. In the event of the death of
Lanford at any time eighteen (18) months after Lanford's retirement but before
Lanford shall have attained the age of sixty-six (66) years, the Company shall
pay to the spouse of Lanford or to such other person as he shall designate in
writing the sum of Four Thousand and 00/100 Dollars ($4,000.00) per month for a
period of twelve (12) months from the date of Lanford's death. In the event of
Lanford's death after age sixty-six (66), the Company shall pay to his
surviving spouse or to such other person as he shall designate in writing Four
Thousand and 00/100 Dollars ($4,000.00) per month for a period of five (5)
months.
4. DISABILITY PAYMENTS. In addition to the payments in
Sections 1 and 2, in the event that Lanford becomes physically or mentally
unable to perform his duties as then exist at the time of such disability, and
if such disability occurs before age sixty-six (66), Lanford will receive Two
Thousand Five Hundred Eighty-three and 33/100 Dollars ($2,583.33) per month in
disability payments until the age of sixty-six (66) and after Lanford has
attained the age of sixty-six (66), then Lanford will receive One Thousand Two
Hundred Fifty and 00/100 Dollars ($1,250.00) per month until the age of
seventy-one (71). If Lanford becomes disabled after the age of sixty-six (66)
but before the age of seventy-one (71) Lanford will receive One Thousand Two
Hundred Fifty and 00/100 Dollars ($1,250.00) until the age of seventy-one (71).
No disability payment will be due to Lanford after Lanford attains the age of
seventy-one (71).
5. GROSS UP PROVISION.
(a) Notwithstanding anything to the contrary
herein, in the event it shall be determined that any fees, payment or
distribution by the Company or any subsidiary or affiliate of the Company, to
or for the benefit of Lanford, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended ("the Code"), or any interest or
penalties with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Lanford shall be entitled to receive an additional payment
(a "Gross-Up Payment") in an amount such that after payment by Lanford of all
taxes (including any interest or penalties imposed with respect to such taxes),
including any Excise Tax, imposed upon the Gross-Up Payment, Lanford retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) Lanford shall notify the Company in writing
of any claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten (10) business days after
Lanford knows of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is required to be paid. Lanford shall
not pay such claim prior to the expiration of the thirty (30) day period
following the date on which he gives such notice
3
<PAGE> 4
to the Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies Lanford in
writing prior to the expiration of such period that it desires to contest such
claim, Lanford shall:
(i) give the Company any information
reasonably requested by the Company relating to such
claim;
(ii) take such action in connection with
contesting such claim as the Company shall reasonably
request in writing from time to time, including,
without limitation, accepting legal representation
with respect to such claim by an attorney reasonably
selected by the Company;
(iii) cooperate with the Company in good
faith in order effectively to contest such claim; and
(iv) permit the Company to participate in
any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Lanford harmless, on an
after-tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as the result of such representation
and payment of costs and expenses. Without limitation of the foregoing
provisions of this paragraph 5(b), the Company shall control all proceedings
taken in connection with such contest and, in its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, in its
sole option, either direct Lanford to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and Lanford agrees to prosecute
such contest to a determination before any administrative tribunal, in a court
of initial jurisdiction, and in any one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs Lanford
to pay such claim and sue for a refund, the Company shall advance the amount of
such payment to Lanford, on an interest free basis, and shall indemnify and
hold Lanford harmless, on an after-tax basis, from any Excise Tax or income
tax, including interest or penalties with respect thereto, imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of Lanford with respect to
which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and Lanford shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other taxing
authority.
(c) If, after the receipt by Lanford of an amount
advanced by the Company pursuant to paragraph 5(b), Lanford becomes entitled to
receive any refund with respect to such claim, Lanford shall (subject to the
Company's compliance with the requirements of paragraph 5(b)), promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
Lanford of an amount advanced by the Company pursuant to paragraph 5(b), a
determination is made that Lanford shall
4
<PAGE> 5
not be entitled to any refund with respect to such claim and the Company does
not notify Lanford in writing of its intent to contest such denial or refund
prior to the expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
6. RETIREMENT. The term retirement as used in this
Agreement is defined to include Lanford's retirement from full-time employment
at the Company.
7. TERMINATION. Upon the death of Lanford the Survivor
Benefits in Section 3 shall be due, and any further payments in Sections 1 and
2 shall be terminated.
Notwithstanding the provisions of the previous
paragraph, any amounts owed to Lanford in Sections 1, 2, 4 or 5 shall remain
due and payable.
8. NO ASSIGNMENT. The Company shall not, including by
operation of law, assign any of the obligations under this Agreement without
the express written agreement of Lanford.
9. LEGAL FEES. The Company and Lanford agree that the
prevailing party in any litigation pertaining to or resulting from any dispute
arising out of or under this Agreement will be entitled to recover from the
other party, in addition to any other damages or relief such party may be
entitled to received, the costs and expenses of such party, including without
limitation, reasonable attorney's fees incurred by such prevailing party in
such dispute litigation.
10. MISCELLANEOUS.
Each of the parties hereto will execute such
additional instruments as may be reasonably required in order to carry out the
purposes and intent of this Agreement and to fulfill the obligations herein
stated.
The parties hereby agree that any number of
counterparts of this Agreement may be executed and that each counterpart shall
be deemed to be an original instrument, but all such counterparts taken
together shall constitute one Agreement.
This Agreement may not be amended, modified, altered,
or changed in any respect whatsoever, except by a further agreement in writing,
duly executed by the parties thereto.
This Agreement constitutes the entire agreement of
the parties and all understandings and agreements heretofore had between and
among the parties are merged in this Agreement, which alone, fully and
completely, expresses their understandings.
If any portion of this Agreement is deemed by a court
to be unenforceable or invalid then the remaining portions of the Agreement
shall be construed by a court to give maximum enforceability to the intention
of the parties.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have hereunto set their hands
and seals on this the 3 day October of 1996.
/s/ William H. Lanford
--------------------------------------
WILLIAM H. LANFORD
SOUTHLAND NATIONAL INSURANCE
CORPORATION
By: /s/ Ernest Williams
-----------------------------------
As Its: Chairman of the Board
-------------------------------
6
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1996 FORM 10QSB AND DECEMBER 31, 1995 FORM 10KSB AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORMS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 25,042,174
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 3,508,456
<MORTGAGE> 290,101
<REAL-ESTATE> 0
<TOTAL-INVEST> 31,566,537
<CASH> 1,566,104
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,576,431
<TOTAL-ASSETS> 37,123,193
<POLICY-LOSSES> 27,459,609
<UNEARNED-PREMIUMS> 28,092
<POLICY-OTHER> 1,040,651
<POLICY-HOLDER-FUNDS> 196,646
<NOTES-PAYABLE> 0
0
0
<COMMON> 1,502,718
<OTHER-SE> 6,660,389
<TOTAL-LIABILITY-AND-EQUITY> 37,123,193
6,875,904
<INVESTMENT-INCOME> 1,443,514
<INVESTMENT-GAINS> 2,661
<OTHER-INCOME> 1,841,353
<BENEFITS> 6,369,159
<UNDERWRITING-AMORTIZATION> 257,262
<UNDERWRITING-OTHER> 2,649,414
<INCOME-PRETAX> 887,597
<INCOME-TAX> 203,466
<INCOME-CONTINUING> 684,131
<DISCONTINUED> 0
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<EPS-PRIMARY> 2.73
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