<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 26, 1997
------------------
REALAMERICA CO.
---------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-6978 61-8623857
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
100 NW Second Street, Suite 312, Evansville, Indiana 47708
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (812) - 421-1376
----------------
2696 Richmond Road, Lexington, Kentucky 40509
- ---------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 1. Changes in Control:
Pursuant to an Agreement to Exchange Stock and Plan of Reorganization dated
February 26, 1997 (the "Exchange Agreement") by and between RealAmerica Co. (the
"Company"), Merrion Reinsurance Company Ltd. ("Merrion") and the Merrion
Stockholders, the Company issued a total of 5,273,000 newly issued shares of
its restricted Class B common stock (representing 51.1% of the issued and
outstanding Class B common stock) and 91,000 shares of its newly created Series
A Preferred stock (representing 100% of the issued and outstanding Series A
Preferred stock) to the Merrion Stockholders in exchange for 100% of the issued
and outstanding capital stock of Merrion. As a result of the Exchange Agreement,
(i) the Speed 5013 Foundation received 1,750,000 shares of Class B restricted
common stock (representing 17.0% of the issued and outstanding Class B shares )
and 30,000 shares of Series A Preferred stock (representing 33% of the Series A
Preferred shares issued and outstanding); (ii) the CUFF Foundation received
1,750,000 shares of Class B restricted common stock (representing 17.0% of the
issued and outstanding Class B shares) and 30,000 shares of Series A Preferred
stock (representing 33% of the issued and outstanding Series A shares); TAXAL
Foundation received 1,750,000 shares of Class B restricted common stock
(representing 17% of the issued and outstanding Class B shares) and 30,000
shares of Series A Preferred stock (representing 33% of the issued and
outstanding Series A shares) and Darren Thomas received 23,000 shares of Class
B restricted common stock (representing 0.2% of the issued and outstanding Class
B shares) and 1,000 shares of Series A Preferred stock (representing 1% of the
issued and outstanding Series A shares).
The Exchange Agreement was closed on February 26, 1997 with the effect that
Merrion Reinsurance Company Ltd. is now a wholly owned subsidiary of the
Company. Merrion is engaged in the financial services and reinsurance industry.
Prior to the closing of the Exchange Agreement, the Company had been inactive
for several years.
In connection with the closing of the Exchange Agreement, each member of the
Board of Directors of the Company resigned, and Darren Thomas, Francois
Verkaeren, Michael Glynos and Jeffrey T. Wilson were elected directors of the
Company. In addition the officers of the Company resigned and the Company's new
Board elected Darren Thomas as Chairman of the Board and Chief Executive Officer
and President and Jeffrey T. Wilson as Vice President and Secretary. The Board
of Directors further authorized a move of the Company's principal offices from
Lexington, Kentucky to Evansville, Indiana.
The preceding statements with respect to the Exchange Agreement are a brief
summary hereof. A copy of the Exchange Agreement is filed as an exhibit to this
Current Report on Form 8-K and is incorporated herein by reference.
<PAGE>
ITEM 2. Acquisition or Disposition of Assets:
Subsequent to the execution of the Exchange Agreement by and between the Company
and Merrion, Merrion entered into agreements to acquire an Italian property
portfolio of commercial and industrial sites and an Italian insurance company,
SIAC Assicurazioni, S.p.A. with combined assets totaling approximately $55.5
million and annual revenues of approximately $8.1 million (the "SIAC
Acquisition"). As a result of the SIAC Acquisition, SIAC became a wholly owned
subsidiary of Merrion. Merrion acquired the SIAC Acquisition from Geam S. A., an
Italian company, in exchange for the issuance of 49,105,000 shares of newly
issued Class A non-voting, restricted common stock of the Company. The shares
issued to Geam S. A. represent 100% of the issued and outstanding Class A shares
of the Company and represent 98.2% of the authorized Class A shares. The
consideration paid to Geam S.A. was based upon arms-length negotiations between
Merrion and Geam S.A. The acquisition was closed by Merrion on August 4, 1997.
The preceding statements with respect to the SIAC Acquisition are a brief
summary thereof. A copy of the SIAC Acquisition agreement is filed as an exhibit
to this Current Report on Form 8-K and is incorporated by reference.
ITEM 7. Financial Statements and Exhibits:
The Company is preparing the necessary financial statements in U.S GAAP format
to accurately reflect the transactions described above, however, the required
financial statements are not completed at this time. The Company intends to file
the required financial statements under cover of Form 8 not later than 60 days
after the date this Current Report on Form 8-K is filed. Pending such filing,
the Company is filing the following financial statements:
(a.) Merrion Reinsurance Company Ltd. Balance Sheets as of December 31, 1996 and
1995 and Statements of Income, Shareholder's Equity and Cash Flows for the
years ended December 31, 1996 and 1995 restated to US GAAP.
(b.) A copy of the letter of appraisal of the SIAC Acquisition properties.
(c.) A copy of the Acquisition Agreement by and between Merrion and Maria Luisa
Sarti and ASA Finanziaria S.P.A., collectively referred to as Geam S.A.
translated in English.
(d.) A copy of the most recent audited financial statements and annual report of
SIAC as of 12/31/96 as filed in Italy. A copy of these statements will be
filed as restated in US GAAP format as soon as they are available.
It is impractical for the Company to provide the pro forma financial statements
required with the initial filing of this Form 8-K. the Company is preparing
these statements in US GAAP form and intends to file the required statements
under cover of Form 8 not later than 60 days after the filing of this Current
Report on Form 8-K.
<PAGE>
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.
RealAmerica Co.
By: /s/Darren Thomas
---------------------------------
Darren Thomas, Chairman
And President
Dated: September 5, 1997
<PAGE>
Exhibits
99.A Annual Report of Merrion Reinsurance Company Ltd. for the year
ending June 30, 1996.
99.B Financial Statements for Merrion Reinsurance Company Ltd. for
the year ending June 30, 1996 restated in GAAP format.
99.C Agreement to Exchange Stock and Plan of Reorganization by and
between RealAmerica Co. and Merrion Reinsurance Company Ltd.
dated February 26, 1997.
99.D Letter of Appraisal of the Assets comprising the SIAC
Acquisition.
99.E Purchase and Sales Agreement by and between Maria Luisa Sarti
and ASA Finanziaria S.P.A. and Merrion Reinsurance Company
Ltd. for the purchase of the SIAC Acquisition.
99.F Financial Statements of SIAC Assicurazioni S.p.A. for the year
ending December 31, 1996 as filed in Italy.
99.G Selected Financial Statements of SIAC Assicurazioni S.p.A.
(translated to US dollars) for the years ending December 31,
1996 and 1995.
<PAGE>
EXHIBIT 99.A
MERRION REINSURANCE COMPANY LIMITED
[MERRION REINSURANCE COMPANY LIMITED LOGO APPEARS HERE]
ANNUAL REPORT 1995/96
<PAGE>
TABLE OF CONTENTS
CHAIRMAN'S STATEMENT 3
CURRENT OPERATIONS PROFILE 4
AUDITOR'S REPORT 5
STATEMENT OF DIRECTORS' RESPONSIBILITIES 6
GENERAL BUSINESS REVENUE ACCOUNT 7
PROFIT AND LOSS ACCOUNT 8
BALANCE SHEET 9
NOTES TO THE ACCOUNTS 11
FUTURE OPERATIONS PROFILE 13
BOARD OF DIRECTORS 14
COMPANY OFFICES 15
2
<PAGE>
CHAIRMAN'S STATEMENT
[CHAIRMAN'S PHOTO APPEARS HERE]
I would like to commence my report this year by once again thanking the many
people who have over the last year worked extremely hard to achieve the results
that are represented in this financial statement.
The Members of the Board of Directors have decided to seek a quotation on the
NASDAQ exchange and in this context I am pleased to report that filings with the
Securities and Exchange Commission are well under way and we anticipate the
matter being concluded before the end of 1996.
In addition to the many advantages of being a Public Quoted Stock Company, and
to meet the increasing demand, the Board of Directors have decided to increase
the capital of the Company to Twenty Five Million Dollars. In this respect all
necessary contractual arrangements are being made. It will of course allow a
greater amount of capacity to be made available. In addition it will allow us to
complete certain new products which we intend to market by the end of the year
and to concentrate on the continued development of new areas of business which
were commenced by this Company some six months ago. It is felt that the full
extent and benefit from this new business will not have worked through the
system for at least another six months, the full effect of which will be
reflected in the financial statement of next year. It is sufficient to say that
it is working and working well.
There will be some internal changes within the existing structure of the
Company. Regretfully, Mr. Samuel Pais is standing down as a Director for
personal reasons, effective the 16th of September. I feel that I can speak for
all who have known him in saying that he will be sadly missed.
Effective as of the 19th August the Company has appointed Mr. Francois
Verkaeren as an Executive Director of the Company, with the responsibility of
prospering the General Insurance Portfolio and exercising administrative control
of same. Mr. Verkaeren was a former Company Secretary and Manager of L'Etoile
1905 SA and was the Financial Controller of The Continental Insurance Company,
responsible for the Benelux Countries, Denmark and France.
In addition we have brought Mr. Alexander Balysz from being a Non Executive
Director to that of a full Executive Director effective as of the 19th August,
with the responsibility for extending a new product which we introduced some
four months ago.
Effective as of the 19th August we have also brought Mr. Michael Glynos from
being a Non Executive Director to a full Executive Director with the
responsibility for building a Marine Book.
We have made a further addition to our team in Mr. Ashley Gordon who will assume
the executive responsibility of furthering our South American Portfolio, as well
as becoming a Non Executive Director.
These changes are being made to strengthen the Board of the Company and to
ensure that sufficient direction and emphasis in relation to continued expansion
is maintained.
Finally, and with some regret, I am taking this opportunity to state that I am
standing down as Chairman of this Company effective as of the 16th September
1996 and from that date I will not hold any executive or managerial positions
with the Company or its affiliates. I have been in continuous employment for
over Fifty Two years and feel that with the continued expansion of the Company,
its direction is better served by younger people. Mr. Michael Glynos will act as
honorary Chairman effective as of that date until such time as the Company has
settled down into its new role as a Public Quoted Company. The experience of Mr.
Glynos, being a retired Vice President of the Bank of America will stand this
Company in good stead during the coming years.
Leslie G. Hursey,
Chairman.
<PAGE>
CURRENT OPERATIONS PROFILE
The change in emphasis that was highlighted during the last financial period,
wherein the operating structure lends itself to the provision of treaty
protections, has continued and has seen a further swing away from facultative
submissions. Whilst this has kept within the parameters set for the underwriting
team, it is intended that there should be continued effort on the facultative
book as this is an ideal introduction to some of the new markets that are being
opened by the Company.
The emphasis on Treaty business and the success in this area is shown by the
split of lines written during the year, wherein facultative business as a
percentage of the total bound dropped to just over a quarter as shown below.
[GRAPHIC DESCRIPTION TO COME]
As outlined above the intention is to open new markets to the Company and as
such the facultative book will figure more in the coming year. The split is
perceived to alter due to this enlargement of the Company's underwriting
capacity to the levels seen previously.
In pursuing the generation of new business there has been an emphasis on
restraint, as it is all too easy to merely expand in a market without regard to
the overall position of the business. This type of growth normally stems from
the diversification of the operating centres of a Company, and it is one of the
main areas that Merrion has tried to avoid in its pursuit of growth.
The overriding goal has been, and will continue to be, the maintenance of
balance, and spread, within the portfolio. The maintenance of such balance lends
itself to the ongoing profitability of the business and reinforces the Company's
position against swings in the business cycle that inevitably affect the growth
and profitability of all industry sectors let alone single Companies.
To this end, and as shown below, the Company's underwriting is designated to
provide a geographically balance book wherein such concerns are dealt with as a
whole.
[GRAPHIC DESCRIPTION TO COME]
The graphic portrays how the portfolio maintains a manageable concentration in
areas for which we have specific expertise, and in detail shows how the Company
is aware and takes action against possible areas of concentration and
unnecessary aggregation of risks as shown by the reduction of European
concentration. Of course if the portfolio were perfectly spread there would be
no more than a straight line, however such a panacea is impossible to achieve
and so there must be a coherent plan to protect the portfolio against the
overburden of any geographic or risk area.
4
<PAGE>
AUDITOR'S REPORT
To the shareholders of Merrion Reinsurance Company Limited
We have audited the financial statements on pages 7 to 10 which have been
prepared under the historical cost convention.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Company's Directors are responsible for the preparation of financial
statements. It is our responsibility to form an independent opinion, based on
our audit, on those statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing standards issued by the
Auditing Practices Board. An audit includes examination on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimated and judgements made by
the Directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of the company's affairs at 30th June 1996 and of its results for the year then
ended and have been properly prepared in accordance with the Companies Acts 1963
to 1990.
We have obtained all the information and exploration we consider necessary for
the purpose of our audit. In our opinion, proper books of account have been kept
by the company. The financial statement are in agreement with the books of
account.
In our opinion, the information given in the Directors' report on page 6 is
consistent with the financial statements.
The net assets of the company as stated in the balance sheet on page 9 are more
than half of the amount of its called up share capital and on that basis there
did not exist at 30th June 1996 a financial situation which under section 40(I)
of the Companies (Amendment) Act 1983, would require the convening of an
extraordinary general meeting of the company.
/s/ P.J. DUNNE & CO
------------------------------------
P.J. DUNNE & CO
CERTIFIED PUBLIC ACCOUNTANTS
REGISTERED AUDITORS
20, UPPER MERRION STREET
DUBLIN 2
26th August 1996.
<PAGE>
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the Directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that period. In preparing
those financial statements, the Directors are required to:
. select suitable accounting policies and then apply them consistently;
. make judgements and estimates that are reasonable and prudent;
. state whether applicable accounting standards have been followed, subject to
any material departures disclosed and explained in the financial statements;
. prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the financial statements comply with
the Companies act 1963-90. They are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
STATEMENT BY THE DIRECTORS:
We certify that the audit report set out on page 5 contains a true audit report
within the meaning of section 18 of the Companies (Amendment) Act of 1986.
/s/ (Signature illegible) Director
/s/ (Signature illegible) Director
26th August 1996
6
<PAGE>
GENERAL BUSINESS REVENUE ACCOUNT
YEAR ENDED 30TH JUNE 1996
<TABLE>
<CAPTION>
Note 1996 1995
$ $
<S> <C> <C> <C>
Gross Premium Income 1 18,835,580 15,808,790
Premium Retroceeded (50,000) -
---------- ----------
Net Premiums Written 18,785,580 15,808,790
Losses Paid (7,871,632) -
Commission and Brokerage (5,759,920) (3,991,603)
---------- ----------
Transfer to Profit and Loss Account 5,154,028 11,817,187
---------- ----------
</TABLE>
7
<PAGE>
PROFIT AND LOSS ACCOUNT
YEAR ENDED 30TH JUNE 1996
<TABLE>
<CAPTION>
Note 1996 1995
$ $
<S> <C> <C> <C>
Investment Gain 627,350 -
Transfer from General Business Revenue Account 5,154,028 11,817,187
Less Provision for Outstanding Losses (3,193,732) (6,828,296)
---------- ----------
2,587,646 4,988,891
Administration Expenses (478,720) (395,055)
Acquisition Costs - (196,048)
Loss on Exchange (40,541) (7,912)
Bad Debts - (210,000)
Depreciation (58,810) (75,513)
---------- ----------
Profit/(Loss) for the Financial Year 2,009,575 4,106,363
Sale of Shares 1,127,000 -
General Reserve (1,000,000) -
Distribution (700,000) -
Transfer to Insurance Fund 2 - (2,993,822)
Transfer to Capital Account (900,000) -
---------- ----------
536,575 1,112,481
Profits Brought Forward 1st July 1,112,481 -
---------- -----------
Profit Carried Forward 30th June 1,649,056 1,112,481
---------- ----------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET AS AT 30TH JUNE 1996
Note 1996 1995
$ $
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Tangible Assets 3 235,241 294,051
CURRENT ASSETS
Bank Balances and Deposits 7 910,128 962,579
Investments - Deposits 5 7,600,000 7,000,000
- Other 6 3,989,800 -
Amounts Receivable within
One Year:
Companies and Brokers 4 9,090,395 9,725,729
Loans outstanding 34,000 -
Debtors 1,127,000 -
Loss Reserves with Cedants 815,653 -
---------- ----------
23,475,796 17,688,308
CURRENT LIABILITIES
Amounts Payable within
One Year
Companies 8 (150,000) (43,700)
Other Creditors 9 (48,702) (4,000)
---------- ----------
(198,702) (47,700)
---------- ----------
Net Current Assets 23,277,274 17,640,608
---------- ----------
Total Assets Less Liabilities 23,512,515 17,934,659
---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Note 1996 1995
$ $
<S> <C> <C> <C>
CAPITAL AND RESERVES
Called up Share Capital 10 7,000,000 100,000
Share Premium Account - 1,000,000
General reserve 1,000,000 5,000,000
---------- ----------
8,000,000 6,100,000
Insurance Funds 2 13,863,459 10,722,178
Profit and Loss Account 11 1,649,056 1,112,481
---------- ----------
23,512,515 17,934,659
---------- ----------
</TABLE>
10
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
PERIOD ENDED 30TH JUNE 1996
1. ACCOUNTING POLICIES
The financial statements have been prepared under the historical cost
convention.
The premium income of the Company consists of all premiums payable and accruing
from lines written in the period. These premiums are expressed in US Dollars
though original currencies vary.
CURRENCY CONVERSION
Where practical, actual exchange rates have been used to convert transactions
during the period and rates of exchange ruling at date of the Balance Sheet.
PREMIUM INCOME
The premiums of the Company have two distinct areas of generation:
Treaty Lines 73.84%
Faculative Lines 26.16%
LOSS ON EXCHANGE
Loss on Exchange are losses incurred as a result of exchange from original
currency or charges related to same made by banks in relation to estimates on
the active hedging strategy.
2. INSURANCE FUND
The insurance fund adequacy is assessed by reference to the review of reported
and known claims, provisions of IBNRs together with projected premium
development and recoveries.
3. TANGIBLE ASSETS
These consist of fixtures and fittings, office equipment and communication
systems and has been written down at the rate of 20% based on depreciation over
a five year period.
4. COMPANIES AND BROKERS
This is the amount due from Companies and Brokers at the close of business on
30th June 1996.
5. INVESTMENTS
This represents Investment deposits, which are held by the Company's Bankers.
6. INVESTMENTS - OTHER
This represents holdings in listed and nonlisted Company shares, debentures, and
warrants.
11
<PAGE>
7. BALANCE AT BANK
This is the Bank Balance held to the Company's credit, including intra Company
balances held, by Bankers at 30th June 1996.
8. AMOUNTS PAYABLE WITHIN ONE YEAR
Is the premiums and commissions to Companies for the period.
9. OTHER CREDITORS
Audit fees due $ 4,650
Other creditors $44,052
10. SHARE CAPITAL
Authorised $ 7,000,000
Issued $ 7,000,000
The Directors have decided to increase the authorised and paid up share capital
to $25,000,000.00 and are at present waiting regulatory approval.
11. PROFIT AND LOSS ACCOUNT
This represents the retained profit for the period.
12. TAXATION
The Company is a non-resident Irish Company and is therefore not liable to tax.
<PAGE>
FUTURE OPERATIONS PROFILE
During the preceding year several trends that started in 1994 in the world-wide
reinsurance industry have continued and will no doubt be observed in the coming
year these range from;
. the importance of jurisdictions such as Bermuda which through the
introduction of new capital are a significant new competitive element in the
market, to;
. the creation of new captive entities, a sector which experienced somewhat of
a new boom in the recent past.
These have all lead to the establishment of higher retention levels in
businesses all over the world. This can also be seen in terms of the
consolidation in the industry whereby several large European and U.S. reinsurers
have been on acquisitive forays into each others markets.
These situations far from being a threat must be treated as new opportunities
for the Company, as it continues to specialise its activity and develop new
niches. These areas, of expertise and new niches, provide the possibility for
positive growth prospects in the future, particulary when viewed from the solid
base that the Company is providing.
This solid base can be viewed by a reference to the reserves of the Company, and
in particular their structure.
[GRAPHIC DESCRIPTION TO COME]
The chart demonstrates the level of reserves expressed in the accounts, and
unlike the previous figures takes full account of the increase in capital.
Though of course there is a further increase in capital that is currently
awaiting regulatory approval and as such cannot be fully reviewed in these
figures. Even so there is the demonstration of the Company's wish to provide a
high level of security to its cedants and generally engender confidence in its
abilities to brokers.
In particular the insurance funds of the Company have been increased by a
generous proportion, and again in accordance with our previous outlook the
greater part is allocated to claims reserves. These reserves are entirely
dedicated to the efficient settlement of accepted claims, which is an overriding
goal of the Company as service to cedants in a corner stone of the Company
ethos, and can only allow the Company to prosper its current portfolio and the
excellent relations with all parties with which it deals.
Following on from the trends perceived within the year there has been an impact
on the development of the 1996 renewal campaign in all markets. Particularly,
reductions were observed in rates, as well as restructuring of shares, and
reduction of limitations that were included in proportional agreements in
previous years. This may well be in general from a larger capacity supply,
though it is felt that with the increase in capital there will be a reversal of
this.
[GRAPHIC DESCRIPTION TO COME]
Again Merrion must, and will, focus on its specialist products and niche areas
where sustained growth can be maintained. The growth to date can be realised as
shown.
These factors, and in particular the current sustained growth, lead to the
Company's highly competitive stance and attitude in the market, which will exert
an influence in what is left of 1996, and in years to come being reflected in
constantly improved figures.
<PAGE>
THE BOARD OF DIRECTORS
[PICTURE OF MICHAEL GLYNOS APPEARS HERE]
Mr. Michael Glynos (American)
Honorary Chairman
[PICTURE OF DARREN THOMAS [PICTURE OF FRANCOIS VERKAEREN
APPEARS HERE] APPEARS HERE]
Mr. Darren Thomas (British) Mr. Francois Verkaeren (Belgian)
Managing
[PICTURE OF ALEXANDER BALYSZ [PICTURE OF ASHLEY GORDON
APPEARS HERE] APPEARS HERE]
Mr. Alexander Balysz (Polish) Mr. Ashley Gordon (British)
Non Executive
14
<PAGE>
THE REGISTERED AND MAIN ADMINISTRATIVE OFFICE IS SITUATED AT
20 Upper Merrion Street
Dublin 2
Ireland
Tel. No.: +353 (1) 676-1223
Fax No.: +353 (1) 676-3193
THE BELGIUM REPRESENTATIVE OFFICE IS SITUATED AT
300 Avenue Louise
1050 Brussels
Belgium
Tel. No.: +32 (2) 649-5040
Fax No.: +32 (2) 649-9120
THE LONDON REPRESENTATIVE OFFICE IS SITUATED AT
97A Chase Side
2nd Floor
Southgate
London N14 5BU
England
Tel. No.: +44 (181) 882-8988
Fax No.: +44 (181) 882-4105
POINTS OF CONTACT
All the board members are contactable through the main administrative office,
though in rotation they move between the various offices of the Company.
The Tied Agency with Financial Surety International Ltd., continues and they may
be contacted at:
97A Chase Side
Southgate
London N14 5BU
England
Tel. No.: +44 (181) 882-1078
Fax No.: +44 (181) 882-7075
Acknowledgements:
Mr. H. Kelly, Hugh Kelly Production, 0181-886 3172
West Lodge Park Hotel, Hadley Wood, 0181-440 8311
15
<PAGE>
EXHIBIT 99.B
FINANCIAL SUMMARY FOR MERRION REINSURANCE COMPANY LTD AS OF JUNE 30, 1996
RESTATED IN U.S. GAAP FORMAT
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
BALANCE SHEET
JUN-30
--------------- -------------
1996 1995
--------------- -------------
ASSETS
- ------
<S> <C> <C>
ASSETS:
Investments, available for sale $ 11,498,800 $ 7,000,000
Cash and cash equivalents 910,128 982,579
Premiums receivable 9,090,395 9,725,729
Loss reserves with cedants 815,653
Other assets 1,396,241 294,051
------------ ------------
TOTAL ASSETS 23,711,217 17,982,359
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Loss reserves $ 14,863,459 $ 15,722,178
Reinsurance premiums payable 150,000 43,700
Accounts payable and accrued expenses 48,702 4,000
------------ ------------
TOTAL LIABILITIES 15,062,161 15,769,878
============ ============
Contingencies
Stockholders' equity: 7,000,000 1,100,000
Retained earnings (deficit) 1,649,056 1,112,481
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 8,649,056 2,212,481
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY 23,711,217 17,982,359
============ ============
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
REVENUES:
Earned premiums assumed $ 18,835,580 $ 15,806,790
Ceded premiums (50,000) 0
------------- ------------
Net premiums 18,785,580 15,806,790
Realized gains on investments 627,350 0
Net investment income 0 0
-------------- ------------
Total revenues 19,412,930 15,808,790
-------------- ------------
EXPENSES:
Losses incurred (11,065,364) (5,828,296)
Net acquisition costs (5,759,920) (4,187,651)
Administrative expenses (537,530) (678,568)
Foreign currency exchange loss (40,541) (7,912)
Total expenses (17,403,355) (11,702,427)
--------------- ------------
Income before income taxes 2,009,575 4,106,363
Income taxes 0 0
--------------- ------------
Net income $ 2,009,575 $ 4,106,363
=============== ============
Net income per share $ 0.29 $ 41
Weighted average number of common
shares outstanding 7,000,000 100,000
=============== ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDER' EQUITY
<TABLE>
<CAPTION>
Common Stock Retained
----------------------------- Earnings
Shares Amount (Deficits) Total
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, June 30th, 1995 100,000 $ 100,000 $ 0 $ 100,000
Distributions 0 0 0 0
Net Income 0 0 1,112,481 1,112,481
---------- ---------- ----------- -----------
BALANCE, July 1, 1995 100,000 100,000 1,112,481 1,212,481
Distributions - - -700,000 -700,000
Recapitalization 6,900,000 6,900,000 - 6,900,000
Net Income - - 1,649,056 1,649,056
---------- ---------- ----------- -----------
BALANCE, June 30th, 1996 7,000,000 $7,000,000 $ 2,061,537 $ 9,061,537
========== ========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
June 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,587,646 $ 588,519
Adjustments to reconcile net income to net
cash flows from operating activities:
Foreign currency exchange loss 0 (7,912)
Realized (gains) on investments 627,350 0
Change in:
Deferred income taxes 0 0
Unearned premiums 0 0
Premiums receivable (635,334) (9,725,719)
Prepaid reinsurance 0 0
Loss reserves 3,141,281 9,822,178
Payables/receivables 219,190 285,513
Reinsurance premiums payable 0 0
Accrued expenses, accounts and
income taxes payable 0 0
Accrued interest receivable 0 0
Deferred acquisition costs 0 0
------------ ------------
Net cash flows from operating activities: 5,940,133 962,579
------------ ------------
Cash flows from investing activities:
Purchase of investments (10,898,800) 0
Sale of investments 7,600,000 0
Other assets 0 0
------------ ------------
Net cash flows from investing activities: (3,298,800) 0
Cash flows from financing activities:
Distributions (700,000) 0
------------ ------------
Effect of exchange rate changes on cash (16,175) 0
------------ ------------
Net change in cash and cash equivalents (52,451) 0
Cash and cash equivalents, beginning of period (962,579) 0
------------ ------------
Cash and cash equivalents, end of period $ 910,128 $ 962,579
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
3. REINSURANCE RESULTS
- -----------------------
<TABLE>
<CAPTION>
Short Term Total
------------ -----------
Periodic
Method
<S> <C> <C>
Written Premiums assumed 18,835,580 18,835,580
===========
Unearned premiums 0
-----------
Earned premiums assumed 18,835,580
Ceded premiums (50,000) (50,000)
----------- ===========
Net premiums 18,785,580
===========
Net acquisition costs (5,759,920) (5,759,920)
=========== ===========
Losses incurred (7,871,632) (7,871,632)
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
----------- 1995 -----------
<S> <C> <C>
Written premiums assumed 15,808,790 15,808,790
===========
Unearned premiums 0
-----------
Earned premiums assumed 15,808,790
Ceded premiums 0 0
----------- ===========
Net premiums 15,808,790
===========
Net acquisition costs (3,991,603) (3,991,603)
=========== ===========
Losses incurred 0 0
=========== ===========
</TABLE>
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
4. Investments
- ---------------
Major categories of net investment income are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash equivalents $ 910,128 $ 962,579
Marketable equity securities 7,600,000 7,000,000
Non marketable securities 3,932,800
$12,442,928 $ 7,962,579
=========== ===========
</TABLE>
The aggregate fair value, gross unrealised holding gains, gross unrealized
holding losses and cost investments are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Marketable securities:
Cost $ 7,000,000 $ 7,000,000
Gross unrealized holding gains 600,000 0
Gross unrealized holding losses 0 0
----------- -----------
Fair value 7,600,000 7,000,000
----------- -----------
Non marketable securities:
Cost 2,908,800 0
Gross unrealised holding gains 990,000
Gross unrealized holding losses 0 0
----------- -----------
Fair value 3,898,800 0
----------- -----------
Total investments $11,498,800 $ 7,000,000
=========== ===========
</TABLE>
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
5. LOSS RESERVES
- -----------------
Loss reserves consisted of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Balance at July 1 $10,772,178 $ 5,900,000
----------- -----------
Add-provision for losses incurred:
Current claim years 11,012,913 4,822,178
Prior claim years 0 0
11,012,913 4,822,178
----------- -----------
Less-paid losses:
Current claim years (7,871,632) 0
Prior claim years 0 0
----------- -----------
(7,871,632) 0
----------- -----------
Balance at June 30th $13,863,459 $10,722,178
=========== ===========
</TABLE>
Included in loss revenues in respect of transactions under the open year method
are the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Written premiums assumed $18,835,580 $15,808,790
Ceded premiums (50,000) 0
Acquisition costs (5,759,920) (3,991,603)
$13,025,660 $11,817,187
=========== ===========
</TABLE>
<PAGE>
6. INCOME TAXES:
- -----------------
At December 31, 1996, the income tax provision comprises the following:
<TABLE>
<CAPTION>
<S> <C>
Current: $ 0
Foreign
Federal, net of $2,000,000 foreign
tax credit 0
-----------
0
-----------
Deferred:
Federal 0
State 0
-----------
0
-----------
</TABLE>
text "The Company....United States"
The federal income tax expense for 1996 differs from the statutory rate of 35%
as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal income tax statutory rates 0
Increase (decrease) attributable to:
Operations for the period from
January 1, 1996 to May 10, 1996 0
State income taxes, net of federal benefit: 0
-----------
Total income tax expense 0
===========
</TABLE>
Amounts for deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Unearned premiums $ 0
Unrealised loss on investments 0
-----------
0
Less valuation allowance 0
Net deferred tax assets 0
Deferred tax liabilities:
Loss reserves 0
-----------
Deferred income taxes $ 0
===========
</TABLE>
For financial reporting purposes, earnings from continuing operations before
income taxes comprises the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Pretax income:
United States $ 0 $ 0
Foreign 0 0
----------- -----------
$ 0 $ 0
=========== ===========
</TABLE>
<PAGE>
EXHIBIT 99.C
AGREEMENT TO EXCHANGE STOCK
AND PLAN OF REORGANIZATION
--------------------------
THIS AGREEMENT TO EXCHANGE STOCK AND PLAN OF REORGANIZATION
(the "Agreement"), dated as of the 26th day of February 1997, by and between
RealAmerica Co, a Delaware corporation ("RealAmerica"), Merrion Reinsurance
Company Ltd, a corporation governed by the laws of the Republic of Ireland
("MERRION"), and those persons listed on Exhibit "A" attached hereto (such
-----------
persons listed on Exhibit "A" attached hereto are sometimes collectively
-----------
referred to herein as "MERRION Stockholders."
WHEREAS, the MERRION Stockholders and the Board of Directors of
RealAmerica deem it advisable and in the best interests of the MERRION
Stockholders and RealAmerica that RealAmerica acquire all of the issued and
outstanding capital stock of MERRION, in exchange for 5,273,002 newly-issued
shares of RealAmerica Class B common stock and 91,000 shares of RealAmerica
Series A Preferred stock pursuant to this Agreement and applicable provisions of
law (such transaction being hereinafter referred to as the "RealAmerica
Acquisition"); and
WHEREAS, the Board of Directors of RealAmerica has approved and adopted
this Agreement as a plan of reorganization within the provisions of Section 368
of the Internal Revenue Code of 1986, as amended; and
WHEREAS, the MARRION Stockholders own and have the right to sell,
transfer and exchange all of the issued and outstanding capital stock of MERRION
to RealAmerica in accordance with the terms of this Agreement and applicable
provisions of law.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, provisions and covenants herein contained, the parties hereto hereby
agree as follows.
1. Exchange of Common Stock
------------------------
1.01 Exchange. Subject to the terms and conditions herein set forth, at
--------
the time of closing set forth in Section 1.02 hereof, RealAmerica will issue and
------------
deliver or cause to be issued and delivered to the MERRION Stockholders a total
of 5,273,000 shares of RealAmerica authorized and unissued Class B common stock,
par value $0.001 per share (the "RealAmerica Shares"), and a total of 91,000
shares of RealAmerica authorized and unissued Series A Preferred stock, par
value $0.001 per share (as more fully described in the Certificate of
Designation of the Series A Preferred Stock attached hereto) in exchange for
the conveyance by the MERRION Stockholders to RealAmerica of a total of 100,000
ordinary shares of MERRION stock, par value $70.00 per share (the "MERRION
Shares"), representing all of the issued and outstanding common stock of
MERRION.
1.02 Closing. Subject to the terms and provisions of this Agreement,
-------
the closing of the RealAmerica Acquisition will be at 10:00 a.m. at the offices
of the company located at 100 NW Second Street, Suite 312-A, Evansville, Indiana
47708 on or before March 20, 1997, or at such earlier or later date or such
other place as shall be mutually agreed upon by RealAmerica and the MERRION
1
<PAGE>
Stockholders, such date and time sometimes being referred to herein as the
"Closing" or "Closing Date." By agreement of the Parties herein closing may
occur by facsimile transmission and overnight delivery of documents.
2. REPRESENTATIONS AND WARRANTIES OF THE
-------------------------------------
MERRION STOCKHOLDERS.
---------------------
Each of the MERRION Stockholders severally, and not jointly, represents
and warrants to RealAmerica that, with respect to the MERRION shares owned by
such MERRION Stockholder as set forth on Exhibit "A" attached hereto, the
-----------
statements contained in this Section 2 are correct and complete as of the date
---------
of this Agreement and will-be correct and complete as of the Closing Date as
through made then and as though the Closing Date were substituted for the date
of this Agreement throughout this Section 2.
---------
2.01 Authorization. The MERRION Stockholder has full power and
-------------
authority to execute and deliver this Agreement and to perform his obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of the MERRION Stockholder, enforceable in accordance with its terms and
conditions. The MERRION Stockholder need not give any notice to, make any filing
with, or obtain any authorization, consent or approval of any government,
governmental agency, or other person in order to consummate the transactions
contemplated by this Agreement.
2.02 Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge or other restriction of any government, governmental agency
or court to which the MERRION Stockholder is subject or conflict with, result in
a breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or require
any notice under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, security interest, or other arrangement to which the MERRION
Stockholder is a party or by which he is bound or to which any of his assets are
subject.
2.03 Ownership. The MERRION Stockholder holds of record and owns
---------
beneficially the number of MERRION Shares set forth opposite his name as set
forth on Exhibit "A" attached hereto. The MERRION Stockholder holds his MERRION
Shares free and clear of any restrictions on transfer (other than restrictions
under federal and state securities laws), claims, taxes, security interests,
options, warrants, rights, contracts, calls, commitments, equities and demands.
The MERRION Stockholder is not a party to any option, warrant, contract, call,
put or other agreement or commitment providing for the disposition or
acquisition of any capital stock of MERRION (other than this Agreement). The
MERRION Stockholder is not a party to any voting trust, proxy or other agreement
or understanding with respect to the voting of any capital stock of MERRION.
2.04 Speculative Nature and Risk. The MERRION Stockholders each
---------------------------
understand and acknowledge the speculative nature of and substantial risk of
loss associated with an investment in the RealAmerica Shares which may be
subject to substantial dilution. The MERRION Stockholders each represent and
warrant that the RealAmerica Shares constitute an investment which is suitable
and consistent with their respective financial conditions and that they are each
able to bear the risks of this investment for an undefinite period of time,
which may include the total loss of their investment in RealAmerica. The MERRION
Stockholders each further represent that they have adequate means of providing
for their respective current financial needs and corporate and personal
contingencies and no need
2
<PAGE>
for liquidity in their investment in RealAmerica and that they each have
sufficient financial and business experience to evaluate the merits and risks of
an investment in RealAmerica.
2.05 Federal or State Securities laws. The MERRION Stockholders each
--------------------------------
understand and acknowledge that the RealAmerica Shares have not been, and will
not be, registered under the Securities Act of 1933, as amended (the "1933
Act"), or applicable state securities laws and MERRION Stockholders are each
aware that no federal or state agency has made any review, finding or
determination of the RealAmerica Shares as an investment, and the MEPRION
Stockholders must each forego the security, if any, that such a review would
provide.
2.06 Acquisition for Own Account. The MERRION Stockholders each
---------------------------
understand and acknowledge that the RealAmerica Shares are being offered and
sold under exemptions from registration provided by the Act and exemptions
provided by applicable state securities laws and the MERRION Stockholders each
warrant and represent that the RealAmerica Shares are being acquired by them
solely for their own account, for investment purposes only, and not with a view
to or for the resale, distribution, subdivision or fractionalization thereof.
The MERRION Stockholders each represent and warrant that they have no agreement
or other arrangement, formal or informal, with any person to sell, transfer or
pledge any part of the RealAmerica Shares or which would guarantee them any
profit or protect them against any loss part of the RealAmerica Shares or which
would guarantee them any profit or protect them against any loss with respect to
the RealAmerica Shares. Further, the MERRION Stockholders have no plans to enter
into any such agreement or arrangement, and consequently, they must each bear
the economic risk of an investment in the RealAmerica Shares for an indefinite
period of time.
2.07 Limitations on Resale or Transfer. The MERRION Stockholders each
---------------------------------
understand and acknowledge that the RealAmerica Shares will be "restricted" as
defined in Rule 144 under the Act and that therefore they cannot offer to sell,
sell or otherwise transfer or distribute the RealAmerica Shares without
registration thereof, which RealAmerica is not obligated to do, under both the
Act and any applicable state securities laws, or unless an exemption is, in the
opinion of RealAmerica's counsel, available to them under the Act and any
applicable state securities laws. Such exemption is not now available and it is
not anticipated that any such exemption will become available in the future. The
MERRION Stockholders each further understand and acknowledge that the
restrictions on the transfer of the RealAmerica Shares will be noted on the
books of RealAmerica and that the stock certificate representing the RealAmerica
Shares will bear a written legend setting forth the restriction on the
transferability of the RealAmerica Shares in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED FOR VALUE IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION OF THEM UNDER THE SECURITIES ACT OF 1933,
OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT.
2.08 Independent Investigation of RealAmerica. The MERRION Stockholders
----------------------------------------
confirm that it has received, reviewed, understands and has fully considered
(including, without limitation, the financial statements contained herein and
the general financial condition of RealAmerica) for purposes of its acquisition
of the RealAmerica Shares. The MERRION Stockholders acknowledge that (i)
RealAmerica has limited financial resources and will need additional sources of
capital to implement its current business plan, the availability of which is
uncertain and cannot be assured, (ii) RealAmerica is in non-compliance with
certain state and federal agencies as a result of its delinquent filings which
may influence its ability to
3
<PAGE>
affect a market in its securities, and (iii) The RealAmerica Shares are a highly
speculative investment with a high degree of risk of loss by the MERRION
Stockholders of its investment therein. The MERRION Stockholders represent and
warrant that in making its decision to acquire the RealAmerica Shares, it has
relied upon its own independent investigation of RealAmerica and the independent
investigations by its representatives, including its own professional legal, tax
and business advisors, and that the MERRION Stockholders have been given the
opportunity to examine all relevant documents and to ask questions of and to
receive answers from RealAmerica, or person(s) acting on behalf, concerning the
terms and conditions of the acquisition of the RealAmerica Shares and any other
matters concerning an investment in RealAmerica, and to obtain any additional
information the MERRION Stockholders deem necessary to verify the accuracy of
the information provided.
2.09 Disclosure. The representations and warranties contained in this
----------
Section 2 do not contain any untrue statement of a fact or omit to state any
fact necessary in order to make the statements and information contained in this
Section 2 not misleading.
3. Representations and Warranties
----------------------------------
Concerning MERRION
------------------
MERRION represents and warrants to RealAmerica that the statements
contained in this Section 3 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date except as set
forth in the disclosure schedule delivered by MERRION to RealAmerica on the date
hereof and initialed by the parties (the "MERRION Disclosure Schedule"). Nothing
in the MERRION Disclosure Schedule shall be deemed adequate to disclose an
exception to a representation or warranty made herein, however, unless the
MERRION Disclosure Schedule identifies the exception with reasonable
particularity and describes the relevant facts in reasonable detail. Without
limiting the generality of the foregoing, the mere listing (or inclusion of a
copy) of a document or other item shall not be deemed adequate to disclose an
exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
items itself). The MERRION Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
-------
3.
- -
3.01 Good Standing. MERRION is corporation duly organized, validly
-------------
existing and in good standing under the laws of the Republic of Ireland with
full corporate power to own and operate its properties and to carry on its
business as and in places where such properties are owned, operated and
conducted.
3.02 Capitalization. The entire authorized capital stock of MERRION
--------------
consists of 100,000 ordinary stock, par value $70.00 per share, of which 100,000
ordinary shares are issued and outstanding. All of the issued and outstanding
shares of MERRION common stock have been duly authorized, are validly issued,
fully paid, and nonassessable.
3.03 Financial Statements. Attached as Section 3.03 of the MERRION
-------------------- ------------
Disclosure Schedule are the following financial statements (collectively, the
"MERRION Financial Statements"): (i) audited balance sheets of MERRION as of
June 30, 1994, 1995 and 1996 ("Most Recent MERRION Balance Sheet"), and (ii)
audited statements of operations, retained earnings and cash flows for the years
ended June 30, 1994, 1995 and 1996. The MERRION Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered
4
<PAGE>
thereby, are correct and complete and are consistent with the books and records
of MERRION which books and records are correct and complete.
3.04 Undisclosed Liabilities. Except to the extent reflected or
-----------------------
reserved against in the Most Recent MERRION Balance Sheet on the dates shown, or
as set forth in Section 3.04 of the MERRION Disclosure Schedule, as of those
------------
dates, MERRION had no liabilities or obligations of any material nature, whether
accrued, absolute, contingent or otherwise and, as of such dates, knows nor has
reasonable grounds to know any basis for the assertion against MERRION of any
liability of any nature or in any amount not fully reflected or reserved against
in the Most Recent MERRION Balance Sheet.
3.05 Events Subsequent. Subsequent to the Most Recent MERRION Balance
-----------------
Sheet and except as set forth in Section 3.05 of the MERRION Disclosure
------------
Schedule, MERRION has not (i) incurred any material liabilities or obligations,
absolute or contingent, except current liabilities and obligations under
contracts entered into in the ordinary course of business; (ii) declared or made
any payment or distribution to stockholders or purchased or redeemed any of its
capital stock; (iii) mortgaged or pledged or subjected to lien, charge or any
other encumbrance, any of its assets, tangible or intangible, excepting
extensions or renewals of liens for liabilities set forth on the Most Recent
MERRION Balance Sheet; (iv) sold or transferred any of its tangible assets or
canceled any debts or claims except in each case in the ordinary course of
business; (v) made any capital expenditures other than in the ordinary course of
business; or (vi) incurred any material or adverse losses or damages, to be
involved in strikes, or other labor disputes.
3.06 Litigation. Except as set forth in Section 3.06 of the MERRION
---------- ------------
Disclosure Schedule, there are no actions, suits or proceedings at law or in
equity pending or, to the knowledge of MERRION, threatened against MERRION
seeking damages nor are there any suits threatened or pending before any
federal, state or municipal government or any board, department or agency
thereof involving MERRION. To the best of MERRION's knowledge, MERRION has no
pending violation proceedings relating to state or federal environmental
regulations.
3.07 Employment Matters. MERRION is not a party to any employment
------------------
contract with any officer, director or other employee. MERRION is not bound by
a contract with a labor union, pension or profit share plan or employee benefit
plan, other than as listed in Section 3.07 of the MERRION Disclosure Schedule.
------------
3.08 Subsidiaries. Except as listed in the MERRION Disclosure
------------
Schedule, MERRION has no subsidiaries.
3.09 Tax Matters. MERRION has no knowledge or any reasonable grounds
-----------
to know of any tax deficiencies which might be asserted against MERRION. Since
the date of the MERRION Financial Statements, MERRION has paid or has provided
for payment of all federal and state withholding and unemployment insurance
taxes and has filed all federal, state and local tax returns and reports when
due.
3.10 Properties. Section 3.10 of the MERRION Disclosure Schedule sets
---------- ------------
forth a true and complete list of all material leases, contracts,
understandings, commitments, plans or mortgages now in effect, to which MERRION
is a party, or under which it is obligated, or which materially affect its
properties. MERRION has complied with all material provisions of such leases,
contracts, understandings, commitments, plans and mortgages and is not in
material default with respect to any thereof.
3.11 Adverse Changes. There has been no material adverse change in the
---------------
condition, financial or otherwise, of MERRION from that set forth in the Most
Recent MERRION Balance Sheet. To the best of
5
<PAGE>
MERRION's knowledge, MERRION is not aware of any facts that might result in any
actions, suit or other proceeding that would result in any adverse change in the
financial condition of MERRION. The business, properties and assets reflected in
the MERRION Financial Statements have not been materially and adversely affected
as result of any fire, explosion, earthquake, accident, strike, lockout,
requisition or taking of property by any government or agency thereof, flood,
drought, embargo, riot, activities of armed forces or act of God or the public.
3.12 Books and Records. All of the minute books, stock certificate
-----------------
books and stock transfer ledgers of MERRION are complete and accurate in all
material respects.
4. Representations and Warranties of RealAmerica
---------------------------------------------
RealAmerica represents and warrants to the MERRION Stockholders and
-----------
MERRION that the statements contained in this Section 4 are correct and complete
---------
as of the date of this Agreement and will be correct and complete as of the
Closing Date except as set forth in the disclosure schedule delivered by
RealAmerica to the MERRION Stockholders and MERRION on the date hereof and
- ----------- -------
initialed by the parties (the "RealAmerica Disclosure Schedule"). Nothing in the
-----------
RealAmerica Disclosure Schedule shall be deemed adequate to disclose an
- -----------
exception to a representation or warranty made herein, however, unless the
RealAmerica Disclosure Schedule identifies the exception with reasonable
- -----------
particularity and describes the relevant facts in reasonable detail. Without
limiting the generality of the foregoing, the mere listing (or inclusion of a
copy) of a document or other item shall not be deemed adequate to disclose an
exception to a representation or warranty made herein (unless the representation
or warranty has to do with the existence of the document or other items itself).
The RealAmerica Disclosure Schedule will be arranged in paragraphs corresponding
-----------
to the lettered and numbered paragraphs contained in this Section 4.
---------
4.01 Organization, Qualification and Corporate Power. RealAmerica is a
------------ --------------------------- ----- -----------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. RealAmerica is duly authorized to conduct business and
-----------
is in good standing under the laws of each jurisdiction in which the nature of
its business or the ownership or leasing of its properties requires such
qualification. RealAmerica has full corporate power and authority to carry on
-----------
the business in which it is engaged and to own and use the properties owned and
used by it. Section 4.01 of the RealAmerica Disclosure Schedule lists the
------------ -----------
directors and officers of RealAmerica. RealAmerica has delivered to the MERRION
----------- -----------
Stockholders correct and complete copies of the Certificate of Incorporation and
Bylaws of RealAmerica (as amended to date). The minute books containing the
-----------
records of meetings of the stockholders, the Board of Directors and any
committees of the Board of Directors, the stock certificate books and the stock
record books of RealAmerica are correct and complete. RealAmerica is not in
----------- -----------
default under or in violation of any provision of its Certificate of
Incorporation or Bylaws.
4.02 Capitalization. The entire authorized capital stock of RealAmerica
-------------- -----------
consists of (i) 50,000,000 shares of Class A common stock, par value $0.001 per
share, of which no shares are issued and outstanding and no shares are held in
treasury and (ii) 10,500,000 shares of Class B common stock, par value $0.001
per share, of which 5,048,000 shares are issued and outstanding and (iii)
15,000,000 shares of preferred stock, par value $0.001 per share, of which no
shares are issued and outstanding. All of the issued and outstanding shares
have been duly authorized, are validly issued, fully paid, and nonassessable and
are held of record by the respective RealAmerica shareholders as set forth in
-----------
RealAmerica's stock record books. There are no outstanding or authorized
- -------------
options, warrants, rights, contracts, calls, puts, rights to subscribe,
conversion rights or other agreements or commitments to which RealAmerica is a
-----------
party or which are binding upon RealAmerica providing for the issuance,
-----------
disposition or
6
<PAGE>
acquisition of any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock or similar rights with respect to RealAmerica.
-----------
There are no voting trusts, proxies or any other agreements or understandings
with respect to the voting of the capital stock of RealAmerica. Upon issuance,
-----------
the RealAmerica Shares to be issued to the MERRION Stockholders pursuant to this
-----------
Agreement will be duly authorized, validly issued, fully paid and nonassessable.
4.03 Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge or other restriction of any government, governmental agency
or court to which the RealAmerica is subject or provision of its Certificate of
-----------
Incorporation or Bylaws of RealAmerica or (ii) any conflict with, result in a
-----------
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel or require any
notice under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, security interest or other arrangement to which RealAmerica is a
-----------
party or by which it is bound or to which any of its assets is subject or result
in the imposition of any security interest upon any of its assets. RealAmerica
-----------
is not required to give any notice to, make filing with, or obtain any
authorization, consent or approval of any government, governmental agency or
other person in order for RealAmerica to consummate the transactions
-----------
contemplated by this Agreement.
4.04 Subsidiaries. RealAmerica has no subsidiaries and, except as set
------------ -----------
forth in Section 4.04 of the RealAmerica Disclosure Schedule, does not own,
------------ -----------
directly or indirectly, any capital stock, security, partnership interest or
other interest of any kind in any corporation, partnership, joint venture,
association or other entity.
4.05 Common Stock Trading Market. The common stock of RealAmerica is
--------------------------- -----------
eligible for quotation and is quoted on the National Association of Securities
Dealers ("NASD") OTC Bulletin Board in accordance with the applicable rules of
the NASD and Securities and Exchange Commission ("SEC"). RealAmerica is not in
-----------
compliance with applicable NASD and SEC rules for continuing quotation on the
NASDAQ Bulletin Board. RealAmerica has furnished each broker-dealer effecting
-----------
transactions in the Company's common stock with all information required by the
SEC Rule 15c2-11 as requested. RealAmerica, its officers, directors and
-----------
affiliates have fully complied with any and all requests for information by the
broker-dealers, whether or not acting in the capacity of a market-maker,
pursuant to SEC Rule 15c2-11. Any and all information provided by RealAmerica to
-----------
the broker-dealers, whether or not acting in the capacity of a market-maker,
was, at the time it was furnished, accurate in all material respects.
4.06 Financial Statements. Attached as Section 4.06 of the RealAmerica
-------------------- ------------ -----------
Disclosure Schedule are the following RealAmerica financial statements
-----------
(collectively, the "RealAmerica Financial Statements"): (i) audited consolidated
-----------
balance sheets as of the fiscal years ended November 30, 1993 and 1994, and (ii)
audited consolidated statements of income, changes in stockholders' equity and
cash flow as of and for the fiscal years ended November 30, 1993 and 1994.
RealAmerica has provided an unaudited compilation of its financial statements
- -----------
for fiscal year end 1995 and for fiscal year end 1996 (the "Most Recent
RealAmerica Fiscal Year End"). RealAmerica is completing its audited financial
- ----------- -----------
statements for fiscal years 1995 and 1996 which are unavailable at the present
time. The RealAmerica Financial Statements have been prepared in accordance with
-----------
generally accepted accounting principles applied on a consistent basis
throughout the periods covered thereby, are correct and complete and are
consistent with the books
7
<PAGE>
and records of RealAmerica which books and records are correct and complete;
provided, however, that the Interim RealAmerica Financial Statements are subject
-----------
to normal year-end adjustments (which will not be material) and lack complete
footnotes and other presentation items.
4.07 Events Subsequent. Since the Most Recent RealAmerica Fiscal Year
----------------- -----------
End, there has not been any adverse change in the assets, liabilities, business,
financial condition, operations, results of operations or future prospects of
RealAmerica. Without limiting the generality of the foregoing, since that date:
- -----------
(a) Except as set forth in Section 4.07 (a) of the RealAmerica
------------ -----------
Disclosure Schedule, RealAmerica has not sold, leased, transferred or
-----------
assigned any of its assets, tangible or intangible, other than for a
fair consideration in the ordinary course of business;
(b) Except as set forth in Section 4.07 (b) of the RealAmerica
------------ -----------
Disclosure Schedule, RealAmerica has not entered into any contract,
-----------
agreement, lease, sublease, license or sublicense (or series of related
contracts, agreements, leases, subleases, licenses and sub-licenses)
either involving more than $20,000 or outside the ordinary course of
business;
(c) No party (including RealAmerica) has accelerated, terminated,
-----------
modified or canceled any contract, agreement, lease, sublease license or
sublicense (or series of related contracts, agreements, leases,
subleases, licenses and sub-licenses) involving more than $20,000 to
which RealAmerica is a party or by which any of its asset are bound;
-----------
(d) Except as set forth in Section 4.07 (b) of the RealAmerica
------------ -----------
Disclosure Schedule, RealAmerica has not granted or imposed any security
-----------
interest upon any of its assets, tangible or intangible;
(e) RealAmerica has not made any capital expenditure (or series
-----------
of related capital expenditures) either involving more than $20,000 or
outside the ordinary course of business;
(f) RealAmerica has not made any capital investment in, any loan
-----------
to, or any acquisition of the securities or assets of any other person
either involving more than $20,000 or outside the ordinary course of
business;
(g) RealAmerica has not created, incurred, assumed or guaranteed
-----------
any indebtedness (including capitalized lease obligations) either
involving more than $20,000 singly or $40,000 in the aggregate or
outside the ordinary course of business;
(h) RealAmerica has not delayed or postponed (beyond its normal
-----------
practice) the payment of accounts payable and other liabilities;
(i) RealAmerica has not canceled, compromised, waived or released
-----------
any right or claim (or series of related rights and claims) either
involving more than $20,000 or outside the ordinary course of business;
(j) There has been no change made or authorized in the
Certificate of Incorporation or Bylaws of RealAmerica;
-----------
8
<PAGE>
(k) RealAmerica has not issued, sold or otherwise disposed of any
-----------
of its capital stock or granted any options, warrants or other rights to
purchase or obtain (including upon conversion or exercise) any of its
capital stock;
(l) RealAmerica has not declared, set aside or paid any dividend
-----------
or distribution with respect to its capital stock or redeemed, purchased
or otherwise acquired any of its capital stock;
(m) RealAmerica has not experienced any damage, destruction or
-----------
loss (whether or not covered by insurance) to its property;
(n) RealAmerica has not made any loan to or entered into any
-----------
other transaction with, any of its directors, officers and employees
outside the ordinary course of business giving rise to any claim or
right on its part against the person or on the part of the person
against it;
(o) RealAmerica has not entered into any employment contract or
-----------
collective bargaining agreement, written or oral, or modified the terms
of any existing such contract or agreement;
(p) RealAmerica has not granted any increase in the base
-----------
compensation of any of its directors, officers and employees;
(q) RealAmerica has not adopted any (i) bonus, (ii)
-----------
profit-sharing, (iii) incentive compensation, (iv) pension, (v)
retirement, (vi) medical, hospitalization, life or other insurance,
(vii) severance, or (viii) other plan, contract or commitment for any of
its directors, officers and employees or modified or terminated any
existing such plan, contract or commitment;
(r) RealAmerica has not made any other change in employment terms
-----------
for any of its directors, officers and employees;
(s) RealAmerica has not made or pledged to make any charitable or
-----------
other capital contribution;
(t) There has not been any other occurrence, event, incident,
action, failure to act or transaction outside the ordinary course of
business involving RealAmerica; and
-----------
(u) RealAmerica has not committed to any of the foregoing.
-----------
4.08 Undisclosed Liabilities. RealAmerica has no liability (and there
----------------------- -----------
is no basis for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim or demand against it giving rise to
any liability), except for (i) liabilities set forth on the face of the
RealAmerica Financial Statements (rather than in any notes thereto) and (ii)
- -----------
liabilities which have arisen after the Most Recent RealAmerica Fiscal Year End
-----------
in the ordinary course of business, none of which relates to any breach of
contract, breach of warranty, tort, infringement or violation of law or arose
out of any charge, complaint, action, suit, proceeding, hearing investigation,
claim or demand.
4.09 Tax Matters.
-----------
(a) RealAmerica has filed all federal, state and local tax
-----------
returns that it is required to file. All such tax returns were correct and
complete in all respects. All federal, state and local taxes owed by RealAmerica
-----------
(whether or not shown on any tax return) including, without limitation, income,
withholding, excise, ad valorem, social security, unemployment, occupation,
transfer,
9
<PAGE>
sales, use and property taxes, have been paid. RealAmerica is not
-----------
currently the beneficiary of any extension of time within which to file any
tax return. No claim has ever been made by an authority in a jurisdiction
where RealAmerica does not file tax returns that it is or may be subject
-----------
to taxation by that jurisdiction. There are no security interests or liens
on any of the assets of RealAmerica that arose in connection with any
-----------
failure (or alleged failure) by RealAmerica to pay any federal, state or
local tax.
(b) RealAmerica has withheld and paid all taxes required to have been
-----------
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor or other third party.
(c) No director or officer (or employee responsible for tax matters)
of RealAmerica expects any federal, state or local authority to assess any
-----------
additional taxes for any period for which tax returns have been filed.
There is no dispute or claim concerning any federal, state or local tax
liability either (i) claimed or raised by any authority in writing, or (ii)
as to which any of the directors and officers (and employees responsible
for tax matters) of RealAmerica has knowledge based upon personal contact
-----------
with any agent of such authority. Section 4.09(c) of the RealAmerica
--------------- -----------
Disclosure Schedule lists all federal, state and local income tax returns
filed with respect to RealAmerica for taxable periods ended on or after
-----------
July 31, 1987 which indicates those tax returns that have been audited and
indicates those tax returns that currently are the subject of audit.
RealAmerica has delivered to the MERRION Stockholders correct and complete
-----------
copies of all federal, state and local income tax returns, examination
reports and statements of deficiencies assessed against or agreed to by
RealAmerica since November 30, 1990.
(d) RealAmerica has not waived any statute of limitations in respect
-----------
of federal, state or local taxes or agreed to any extension of time with
respect to a tax assessment or deficiency.
(e) RealAmerica is not a party to any tax allocation or sharing
-----------
agreement.
4.10 Title to Properties. RealAmerica has good and marketable title to, or
-------------------- -----------
valid leasehold interests in, all its properties and assets, real, personal and
intangible, including without limitation, the assets reflected in the
RealAmerica Financial Statements (except as since sold or otherwise disposed of
- -----------
in the ordinary course of business) free and clear of all mortgages, pledges,
conditional sales agreements, claims, liens, security interests and
encumbrances, except (i) as referred to or reflected in the Interim RealAmerica
-----------
Financial Statements or in the notes thereto, and (ii) statutory liens for taxes
not yet due and payable. RealAmerica has not received notice of violation of any
-----------
applicable law, ordinance, regulation, order or requirement relating to such
properties or assets. All leases pursuant to which RealAmerica leases any real
-----------
or personal property are valid and effective in accordance with their respective
terms and there is not, under any of such leases, any existing default or event
of default or event which, with notice or lapse of time, or both, would
constitute a default which has been noticed to RealAmerica or of which
-----------
RealAmerica is aware.
4.11 Real Property Leases. RealAmerica is not a party to any lease or
----------------------------------
sublease of real property.
10
<PAGE>
4.12 Intellectual Property.
---------------------
(a) RealAmerica does not own any Intellectual Property and is not a
-----------
party to any license, sublicense, agreement, or permission with respect to
any Intellectual Property (as defined below) necessary for the operation of
its business as presently conducted and as presently proposed to be
conducted. RealAmerica has not interfered with, infringed upon,
-----------
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the directors and officers
(and employees with responsibility for Intellectual Property matters) of
RealAmerica have ever received any charge, complaint, claim, or notice
-----------
alleging any such interference, infringement, misappropriation, or
violation.
(b) As used herein, "Intellectual Property" means all (i) patents,
patent applications, patent disclosures, and improvements thereto, (ii)
trademarks, service marks, trade dress, logos, trade names, and corporate
names and registrations and applications for registration thereof, (iii)
copyrights and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration
thereof, (v) computer software, data, and documentation, (vi) trade secrets
and confidential business information (including ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or
not reduced to practice), know-how, manufacturing and production processes
and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable
works, financial, marketing, and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists
and information), (vii) other proprietary rights, and (viii) copies and
tangible embodiments thereof (in whatever form or medium).
4.13 Tangible Assets. Except as set forth on the RealAmerica Financial
--------------- -----------
Statements, RealAmerica does not own or lease any tangible assets of any kind or
-----------
nature.
4.14 Inventory. RealAmerica has no inventory of products, raw materials or
--------- -----------
other supplies.
4.15 Contracts. Except as set forth in Section 4.15 of the RealAmerica
--------- ------------ -----------
Disclosure Schedule, RealAmerica is not a party and none of RealAmerica's assets
-----------
are subject to any of the following contracts, agreements and other written or
oral arrangements.
(a) any written or oral agreements (or group of related written
agreements) for the lease of personal property from or to third parties;
(b) any written or oral agreement (or group of related written
agreements) for the purpose or sale of raw materials, commodities,
supplies, products or other personal property including, without
limitation, crude oil and refined petroleum products or for the furnishing
or receipt of services;
(c) any written or oral agreement concerning a partnership or joint
venture;
(d) any written or oral agreement (or group of related written or
oral agreements) under which it has created, incurred, assumed, or
guaranteed (or may create, incur, assume or guarantee) indebtedness
(including capitalized lease obligations) or under which it has imposed (or
may impose) a security interest on any of its assets, tangible or
intangible;
11
<PAGE>
(e) any written or oral agreement concerning confidentiality or
noncompetition;
(f) any written or oral agreement involving any of the RealAmerica
-----------
shareholders and their affiliates;
(g) any written or oral agreement with any of its directors and
employees in the nature of a collective bargaining agreement, employment
agreement or severance agreement;
(h) any written or oral agreement under which the consequences of a
default or termination could have an adverse effect on the assets,
liabilities, business, financial condition, operations, results of
operations or future prospects of RealAmerica;
-----------
(i) any written or oral agreement with any federal, state or local
government or any department, agency or division thereof; or
(j) any other written or oral agreement (or group of related written
or oral agreements) either involving more than $20,000 or not entered into
in the ordinary course of business.
4.16 Notes and Accounts Receivable. Except as set forth on the RealAmerica
----------------------------- -----------
Financial Statements, RealAmerica holds no notes or accounts receivable of any
-----------
kind or nature.
4.17 Powers of Attorney. There are no outstanding powers of attorney
------------------
executed on behalf of RealAmerica.
-----------
4.18 Insurance. Section 4.18 of the RealAmerica Disclosure Schedule sets
--------- ------- -----------
forth the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which RealAmerica is or has been a
-----------
party, a named insured, or otherwise the beneficiary of coverage at any time
within the past five years:
(a) the name, address and telephone number of the agent;
(b) the name of the insurer, the name of the policy holder and the
name of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including as indication of whether the coverage was on
a claims made, occurrence or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and With respect to each such insurance policy: (i) the policy is
legal, valid, binding and enforceable and in full force and effect; (ii)
the policy will continue to be legal, valid, binding and enforceable and in
full force and effect on identical terms following the Closing Date; (iii)
neither RealAmerica nor any other party to the policy is in breach or
-----------
default (including with respect to the payment of premiums or the giving of
notices), and no vent has occurred which, with notice or the lapse of time,
would constitute such a breach or default or permit termination,
modification or acceleration under the policy; and (iv) no party to the
policy has repudiated any provision thereof. RealAmerica has been covered
-----------
during the past five years by insurance in scope and amount customary and
reasonable for the business in which it has engaged
12
<PAGE>
during such period. Section 4.18 of the RealAmerica Disclosure Schedule
------------ -----------
describes any self-insurance arrangements affecting RealAmerica.
-----------
4.19 Litigation. RealAmerica (i) is not subject to any unsatisfied
---------- -----------
judgment, order, decree, stipulation, injunction or charge, and (ii) is a not
party and, to the knowledge of any of the directors and officers (and employees
with responsibility for litigation matters) of RealAmerica, is not threatened to
-----------
be made a party to any charge, complaint, action, suit, proceeding, hearing, or
investigation of or in any court or quasi-judicial or administrative agency of
any federal, state, local or foreign jurisdiction or before any arbitrator.
4.20 Labor, Employment Contract and Employee Benefits. RealAmerica is not a
------------------------------------------------ -----------
party to any collective bargaining agreement or employment agreement and
RealAmerica is not a party to any pending or threatened labor dispute.
- -----------
RealAmerica has not accrued, earned and unpaid benefits (including any vacation
- -----------
or sick leave benefits) to which any of their employees would be entitled on the
Closing Date, if said employees were terminated on the Closing Date. RealAmerica
-----------
has complied with all applicable federal, state and local laws and regulations
relating to the employment of labor, including but not limited to the provisions
thereof relative to wages, hours and payment of social security taxes, and
RealAmerica is not liable for any arrears of wages or any taxes or penalties for
- -----------
failure to comply with any of the foregoing. There is no employee of RealAmerica
-----------
whose employment is not terminable at will, or on notice of 10 days or less,
without liability to RealAmerica. RealAmerica has not maintained or adopted any
----------- -----------
employee pension benefit plan or any employee welfare benefit plan (as such
terms are defined at 3(2) and 3(3), respectively, of the Employee Retirement
Income Security Act of 1974, as amended ("ERISAII) whether qualified or non-
qualified.
4.21 Guaranties. RealAmerica is not a guarantor or otherwise is liable for
-----------
any liability or obligation (including indebtedness) of any other person.
4.22 Environment, Health and Safety.
------------------------------
(a) RealAmerica and its respective predecessors and affiliates have
-----------
each complied with all laws (including rules and regulations thereunder) of
federal, state and local governments (and all agencies thereof) concerning
the environment, public health and safety and employee health and safety,
and no charge, complaint, action, suit, proceeding, hearing, investigation,
claim, demand or notice has been filed or commenced against any of them
alleging any failure to comply with any such law or regulation.
(b) RealAmerica has no liability (and there is no basis related to
-----------
the past or present operations, properties or facilities of RealAmerica and
-----------
its respective predecessors and affiliates) for any present or future
charge, complaint, action, suit, proceeding, hearing, investigation, claim
or demand against RealAmerica giving rise to any liability under the
-----------
Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Resource Conservation and Recovery Act of 1976, the Federal Water
Pollution Control Act of 1972, the Clean Air Act of 1970, the Safe Drinking
Water Act of 1974, the Toxic Substances Control Act of 1976, the Refuse Act
of 1899, or the Emergency Planning and Community Right-to-Know Act of 1986
(each as amended), or any other law (or rule or regulation thereunder) of
any federal, state or local government (or agency thereof), concerning
release or threatened release of hazardous substances, public health and
safety, or pollution or protection of the environment.
13
<PAGE>
(c) RealAmerica has no liability and none of RealAmerica or its
----------- -----------
respective predecessors and affiliates has handled or disposed of any
substance, arranged for the disposal of any substance or owned or operated
any property or facility in any manner that could form the basis for any
present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim or demand (under the common law or pursuant to any
statute) against giving rise to any liability for damage to any site,
location, or body of water (surface or subsurface) or for illness or
personal injury.
(d) RealAmerica has no liability and there is no basis for any
-----------
present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against RealAmerica giving rise to any
-----------
liability under the Occupational Safety and Health Act, as amended, or any
other law (or rule or regulation thereunder) of any federal, state or local
government (or agency thereof) concerning employee health and safety.
(e) RealAmerica has no liability and RealAmerica has not exposed any
-----------
employee to any substance or condition that could form the basis for any
present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand (under the common law or pursuant to
statute) against RealAmerica giving rise to any liability for any illness
-----------
of or personal injury to any employee.
(f) RealAmerica has obtained and been in compliance with all of the
-----------
terms and conditions of all permits, licenses and other authorizations
which are required under, and has complied with all other limitations,
restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables which are contained in, all federal,
state and local laws (including rules, regulations, codes, plans,
judgments, orders, decrees, stipulations, injunctions and charges
thereunder) relating to public health and safety, worker health and safety
and pollution or protection of the environment, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or
wastes into ambient air, surface water, ground water, or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants or
chemical, industrial, hazardous, or toxic materials or wastes.
(g) All properties and equipment used in the business of RealAmerica
-----------
have been free of asbestos, PCB'S, methylene chloride, trichloroethylene,
1,2 trans-dichloroethylene, dioxins, dibenzofurans, and other hazardous
substances.
(h) All product labeling of RealAmerica has been in conformity with
-----------
applicable laws (including rules and regulations thereunder).
(i) No pollutant, contaminant, or chemical, industrial, hazardous, or
toxic material or waste ever has been buried, stored, spilled, leaked,
discharged, emitted, or released on any real property that RealAmerica owns
-----------
or ever has owned or that RealAmerica leases or ever has leased.
-----------
4.23 Legal Compliance.
----------------
(a) RealAmerica has complied with all laws (including rules and
-----------
regulations thereunder) of federal, state and local governments (and all
agencies thereof), an no charge, complaint, action, suit, proceeding,
hearing, investigation, claim, demand, or notice has been filed
14
<PAGE>
or commenced against RealAmerica alleging any failure to comply with any
-----------
such law or regulation.
(b) RealAmerica has complied with all applicable laws (including
-----------
rules and regulations thereunder) relating to the employment of labor,
employee civil rights, and equal employment opportunities.
(c) RealAmerica has not violated in any respect or received a notice
-----------
or charge asserting any violation of the Sherman Act, the Clayton Act, the
Robinson-Patman Act, or the Federal Trade Commission Act, each as amended.
(d) RealAmerica has not:
-----------
(i) made or agreed to make any contribution, payment or gift
of funds or property to any governmental official, employee, or agent
where either the contribution, payment or gift or the purpose thereof
was illegal under the laws of any federal, state, local or foreign
jurisdiction;
(ii) established or maintained any unrecorded fund or asset for
any purpose or made any false entries on any books or records for any
reason; or
(iii) made or agreed to make any contribution made by any other
person, to any candidate for federal, state, local or foreign public
office;
(e) RealAmerica has filed in a timely manner all reports, documents,
-----------
and other materials it was required to file (and the information contained
therein was correct and complete in all respects) under all applicable laws
(including rules and regulations thereunder).
(f) RealAmerica has possession of all records and documents it was
-----------
required to retain under all applicable laws (including rules and
regulations thereunder).
4.24 Certain Business Relationships with RealAmerica. None of the MERRION
-----------------------------------------------
shareholders and their affiliates has been involved in any business arrangement
or relationship with RealAmerica within the past 36 months, and none of the
-----------
MERRION shareholders and their affiliates owns any property or right, tangible
or intangible, which is used in the business of RealAmerica.
-----------
4.25 Independent Investigation of MERRION. RealAmerica confirms that it
------------------------------------
has received, reviewed, understands and has fully considered (including, without
limitation, the financial statements contained therein) for purposes of its
acquisition of the MERRION Shares. RealAmerica acknowledges that (i) MERRION
has limited financial resources and will need additional sources of capital to
implement its current business plan, the availability of which is uncertain and
cannot be capital to implement its current business plan, the availability of
which is uncertain and cannot be assured, and (ii) the MERRION Shares are a
highly speculative investment with a high degree of risk of loss by RealAmerica
of its investment therein. RealAmerica represents and warrants that in making
the decision to acquire the MERRION Shares, it has relied upon its own
independent investigation of MERRION and the independent investigations by its
representatives, including its own professional legal, tax and business
advisors, and that RealAmerica and its representatives have been given the
opportunity to examine all relevant documents and to ask questions of and to
receive answers from MERRION, or person(s) acting on its behalf, concerning the
terms and conditions of acquisition by RealAmerica of the
15
<PAGE>
MERRION shares and any other matters concerning an investment in MERRION, and to
obtain any additional information RealAmerica deems necessary to verify the
accuracy of the information provided.
4.26 Disclosure. The representations and warrants contained in this
----------
Section 4 do not contain any untrue statement of a fact or omit to state any
fact necessary in order to make the statements and information contained in this
Section 4 not misleading.
- -------
5. Survival and Indemnity.
----------------------
5.01 Survival. All of the representations and warranties of the parties
--------
contained in this Agreement shall survive the Closing Date, even if the damaged
party knew or had reason to know of any misrepresentation or breach of warranty
at the time of the Closing Date, and shall continue in full force and effect for
a period of one year thereafter.
5.02 Indemnification for Benefit of the MERRION Stockholders. In the event
-------------------------------------------------------
RealAmerica breaches any of its representations, warranties and covenants
contained herein, and provided that any MERRION Stockholder or MERRION makes a
written claim for indemnification against RealAmerica pursuant to Section 10.02
-------------
then RealAmerica agrees to and does hereby indemnify MERRION and the MERRION
Stockholders from and against the entirety of any Adverse Consequences it may
suffer through and after the date of the claim for indemnification (including
any Adverse Consequences that MERRION or the MERRION Stockholders may suffer
after the end of the applicable survival period) resulting from, arising out of,
relating to, in the nature of, or caused by the breach.
5.03 Indemnification for Benefit of RealAmerica. In the event any of the
------------------------------------------
MERRION Stockholders breach any of their respective representations, warranties
and covenants contained herein, and provided that RealAmerica makes a written
-----------
claim for indemnification against the MERRION Stockholder in breach pursuant to
Section 10.02 then the MERRION Stockholders severally, and not jointly, agree to
- -------------
indemnify RealAmerica from and against the entirety of any Adverse Consequences
-----------
RealAmerica may suffer through and after the date of the claim for
- -----------
indemnification resulting from, arising out of, relating to, in the nature of,
or caused by the breach.
5.04 Matters Involving Third Parties. If any third party shall notify any
-------------------------------
party to this Agreement (the "Indemnified Party") with respect to any matter
which may give rise to a claim for indemnification against any other party (the
"Indemnifying Party") under this Section 5, then the Indemnified Party shall
notify each Indemnifying Party thereof promptly; provided however, that no delay
on the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any liability or obligation hereunder unless
(and then solely to the extent) the Indemnifying Party thereby is damaged. In
the event any Indemnifying Party notifies the Indemnified party within 10 days
after the Indemnified party has given notice of the matter that the Indemnifying
Party is assuming the defense thereof, (i) the Indemnifying Party will defend
the Indemnified Party against the matter with counsel of its choice reasonably
satisfactory to the Indemnified Party, (ii) the Indemnified Party may retain
separate co-counsel at its sole cost and expense (except that the Indemnifying
Party will be responsible for the fees and expenses of the separate co-counsel
to the extent the Indemnified Party concludes reasonably that the counsel the
Indemnifying Party has selected has a conflict of interest), (iii) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the matter without the written consent of the
Indemnifying Party not to be withheld unreasonably, and (iv) the Indemnifying
Party will not consent to the entry of any judgment with respect to the matter,
or enter into any settlement which does not include a provision whereby the
plaintiff or claimant in the matter releases the Indemnified Party for all
liability with respect thereto, without the written consent of the Indemnified
Party not to be
16
<PAGE>
withheld unreasonably. In the event no Indemnifying Party notifies the
Indemnified Party with 10 days after the Indemnified Party has given notice of
the matter that the Indemnifying Party is assuming the defense thereof, however,
the Indemnified Party may defend against, or enter into any settlement with
respect to, the matter in any manner it reasonably may deem appropriate.
5.05 Determination of Loss. The parties shall make appropriate adjustment
---------------------
for tax benefits and insurance proceeds (reasonably certain of receipt and
utility in each case) and for the time cost of money in determining the amount
of loss for purposes of this Section 5.
---------
5.06 Other Indemnification Provisions. The foregoing indemnification
--------------------------------
provisions are in addition to, and not in derogation of, any statutory or common
law remedy any party may have for breach of representation, warranty or
covenant.
5.07 Definition of Adverse Consequences. As used in this Section 5,
---------------------------------- -------
"Adverse Consequences" means all charges, complaints, actions, suits,
proceedings, hearings, investigations, claims, demands, judgments, orders,
decrees, stipulations, injunctions, damages, dues, penalties, fines, costs,
(including costs incurred to comply with applicable rules and regulations of the
National Association of Securities Dealers and the Securities and Exchange
Commission) amounts paid in settlement, liabilities, obligations, taxes, liens,
losses, expenses and fees, including all attorneys' fees, accountants' fees and
court costs.
6. Conduct and Transactions Prior to Closing.
-----------------------------------------
6.01 Investigation: Operation of Business of MERRION. Between the date of
-----------------------------------------------
this Agreement and the Closing Date:
(a) MERRION agrees to give RealAmerica, its agents and
-----------
representatives, full access to all of MERRION's premises and books and
records, and to cause MERRION's officers to furnish RealAmerica with such
-----------
financial and operating data and other information with respect to its
business and properties as RealAmerica shall from time to time request.
-----------
Provided, however, that any such investigation shall not affect any of the
representations and warranties of MERRION hereunder and provided further,
that any such investigation shall be conducted in such manner as not to
interfere unreasonably with the operation of the business of MERRION. In
the event of termination of this Agreement, RealAmerica will return to
-----------
MERRION all documents, work papers, and other material obtained from
MERRION in connection with the transactions contemplated hereby and will
keep confidential any information obtained pursuant to this Agreement
unless such information is ascertainable from public or published
information or trade sources.
(b) Except as set forth in the MERRION Disclosure Schedule, MERRION,
to the extent required for continued operation of the business of MERRION
without impairment, will use reasonable efforts to preserve substantially
intact the business organization of MERRION, to keep available the services
of the present officers and employees of MERRION, and to preserve the
present relationships of MERRION with persons having significant business
relationships with MERRION.
(c) Except as set forth on the MERRION Disclosure Schedule, prior to
Closing, MERRION will conduct its business only in the ordinary course and,
by way of amplification and not limitation, MERRION will not, without the
prior written consent of RealAmerica (i) issue any capital stock, or (ii)
-----------
grant any stock options or warrants or other rights to purchase or
otherwise acquire any shares of MERRION capital stock or issue any
securities convertible into shares of
17
<PAGE>
MERRION capital stock, or (iii) adopt any employee benefit plans or modify
or alter any existing employee benefit plan, or (iv) declare, set aside, or
pay any dividend or distribution with respect to the capital stock of
MERRION, or (v) directly or indirectly redeem, purchase or otherwise
acquire any capital stock of MERRION, or (vi) effect a split or
reclassification of any capital stock of MERRION or a recapitalization of
-------
MERRION, or (vii) amend or change the Certificate of Incorporation or
Bylaws of MERRION or, (viii) grant any increase in the compensation payable
or to become payable by MERRION to officers or salaried employees of
MERRION or any increase regardless of amount, in any bonus, insurance,
pension or other benefit plan, program, payment or arrangement made to, for
or with any officers or employees, or (ix) borrow or agree to borrow any
funds, or guarantee or agree to guarantee the obligations of other except
in the ordinary course of business, or (x) waive any rights of substantial
value, or (xi) except in the ordinary course of business, enter into an
agreement, contract or commitment.
6.02 Investigation: Operation of Business of RealAmerica. Between the date
---------------------------------------------------
of this agreement and the Closing Date:
(a) RealAmerica agrees to give to the MERRION Stockholders, their
agents and representatives, full access to all premises and books and
records, and to cause RealAmerica's officers to furnish the MERRION
Stockholders with such financial and operating data and other information
with respect to the business and properties of RealAmerica as the MERRION
Stockholders shall from time to time request. Provided, however, that any
such investigation shall not affect any of the representations and
warranties of RealAmerica hereunder; and provided further, that any such
investigation shall be conducted in such manner as not to interfere
unreasonably with the operation of the business of RealAmerica. In the
event of termination of this Agreement, the MERRION Stockholders will
return to RealAmerica all documents, work papers and other material
obtained from RealAmerica in connection with the transactions contemplated
hereby and will use all reasonable efforts to keep confidential any
information obtained pursuant to this Agreement unless such information is
ascertainable from public or published information or trade sources.
(b) RealAmerica, to the extent required for continued operation of
the business of RealAmerica without impairment, will use reasonable efforts
to preserve substantially intact the business organization of RealAmerica,
to keep available the services of the present officers and employees of
RealAmerica, and to preserve the present relationships of RealAmerica with
persons having significant business relationships to RealAmerica.
(c) Prior to Closing, RealAmerica will cause RealAmerica to, conduct
its business only in the ordinary course and, by way of amplification and
not limitation, RealAmerica will not, without the prior written consent of
the MERRION Stockholders, (i) issue any capital stock, or (ii) grant any
-------
stock options or warrants or other rights to purchase or otherwise acquire
any shares of RealAmerica capital stock or issue any securities convertible
into shares of RealAmerica capital stock, or (iii) adopt any employee
benefit plans or modify or alter any existing employee benefit plan, or
(iv) declare, set aside, or pay any dividend or distribution with respect
to the capital stock of RealAmerica, or (v) directly or indirectly redeem,
purchase or otherwise acquire any capital stock of RealAmerica, or (vi)
effect a split or reclassification of any capital stock of RealAmerica or a
recapitalization of RealAmerica, or (vii) amend or change the Certificate
of Incorporation or Bylaws of RealAmerica, or, (viii) grant any increase in
the compensation payable or to become payable by RealAmerica to officers or
salaried employees of RealAmerica or any increase regardless of amount, in
any bonus, insurance, pension or other benefit plan program, payment or
arrangement made to, for or with any officers or employees, or (ix) borrow
or agree to borrow any
18
<PAGE>
funds, or guarantee or agree to guarantee the obligations of others
except in the ordinary course of business, or (x) waive any rights of
substantial value, or (xi) except in the ordinary course of business, enter into
an agreement, contract or commitment.
7. Consents.
--------
Prior to Closing, the MERRION Stockholders and RealAmerica shall each
use his or its respective reasonable efforts to obtain the consent or approval
of each person whose consent or approval shall be required in order to permit
the MERRION Stockholders or RealAmerica, as the case may be, to consummate the
RealAmerica Acquisition.
8. Conditions to Closing.
---------------------
8.1 General Conditions. The obligations of the parties to effect the
------------------
RealAmerica Acquisition shall be subject to the following conditions:
- -----------
(a) The Board of Directors and, to the extent required by law,
the shareholders of RealAmerica, shall have approved this Agreement in
accordance with applicable provisions of state law.
(b) No action, suit or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling,
filing or charge would (i) prevent consummation of any of the
transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (iii) affect adversely the right of RealAmerica to acquire
and own the MERRION Shares, (iv) affect adversely the right of the
MERRION Stockholders to acquire and own the RealAmerica Shares; or (v)
affect adversely the right of either RealAmerica or MERRION to own its
assets and to operate its businesses (and no such injunction, judgment,
order, decree, ruling or charge shall be in effect).
(c) All governmental approvals, the absence of which would have a
materially adverse effect on RealAmerica or MERRION, respectively, on a
consolidated basis, after the Closing Date, shall have been received.
8.02 Conditions of obligations of RealAmerica. The obligation of
----------------------------------------
RealAmerica to effect the RealAmerica Acquisition and to proceed with the
Closing on the Closing Date shall at all times be subject to the following
conditions precedent, any of which may be waived by Realamerica in writing:
(a) (i) the representations and warranties of the MERRION
Stockholders and MERRION contained herein shall be true and correct in
all material respects at the Closing Date with the same effect as though
made at such time, and (ii) the MERRION Stockholders shall have each
performed all material obligations and complied with all material
covenants required by this Agreement to be performed or complied with by
him or it prior to the Closing Date.
(b) The MERRION Stockholders shall have each obtained and
delivered to RealAmerica consents to the transactions contemplated by
this Agreement from the parties to all material contracts referred to in
the MERRION Disclosure Schedule attached hereto in accordance with this
Agreement, which require such consent.
19
<PAGE>
(c) There shall not have occurred (i) any material adverse
change, since the Most Recent MERRION Fiscal Year End, in the business,
properties, results of operations or financial condition of MERRION, or
(ii) any loss or damage to any of the properties or assets (whether or
not covered by insurance) of MERRION which will materially affect or
impair the ability of MERRION to conduct after the RealAmerica
Acquisition the business now being conducted by RealAmerica.
(d) All statutory requirements for the valid consummation by the
MERRION Stockholders of the transactions contemplated by this Agreement
shall have been fulfilled and all authorization, consents and approvals
of all federal, state or local governmental agencies and authorities
required to be obtained in order to permit consummation by the MERRION
Stockholders of the transactions contemplated by this Agreement and to
permit the business presently carried on by MERRION to continue
unimpaired to any material degree immediately following the Closing Date
shall have been obtained. Between the date of this Agreement and the
Closing Date, no governmental agency, whether federal, state or local,
shall have instituted (or threatened to institute in a writing directed
to the MERRION Stockholders, MERRION, RealAmerica or any of their
subsidiaries or affiliates) an investigation which is pending at the
Closing Date relating to the RealAmerica Acquisition and between the
date of this Agreement and the Closing Date no action or proceeding
shall have been instituted or, to the knowledge of the MERRION
Stockholders, shall have been threatened by any party (public or
private) before a court or other governmental body to restrain or
prohibit the transactions contemplated by this Agreement or to obtain
damages in respect thereof.
(e) The stockholders of MERRION shall have each acknowledged to
RealAmerica in writing (i) that the shares of RealAmerica common stock
to be issued to them pursuant to the RealAmerica Acquisition will be
issued without registration under the Securities Act of 1933, as amended
(the "Securities Act"), or the securities laws of any state in reliance
upon available exemptions from the registration requirements thereof;
(ii) that all such shares of RealAmerica common stock will be subject to
restrictions on transferability and may not be offered for sale, sold or
otherwise transferred unless subsequently registered under the
Securities Act and all other applicable securities laws or unless
exemptions from the registration requirements of the Securities Act and
all other applicable securities laws are available, as established to
the satisfaction of RealAmerica, and (iii) the certificates evidencing
such RealAmerica common stock will bear an appropriate legend evidencing
the above referenced restrictions on transferability.
(f) MERRION shall have furnished RealAmerica with a certificate,
dated the Closing Date, stating that the respective representations and
warranties of MERRION contained in Section 3 are true and correct on the
---------
Closing Date in all material respects as if then made.
(h) all papers, documents, agreements and other items require to
be delivered at Closing pursuant to Section 9.03 shall be delivered at
------------
Closing.
8.03 Conditions of Obligation of the MERRION Stockholders. The
----------------------------------------------------
obligation of the MERRION Stockholders to effect the RealAmerica Acquisition and
to proceed with the Closing on the Closing Date shall at all times be subject to
the following conditions precedent, any of which may be waived by the MERRION
Stockholders in writing:
20
<PAGE>
(a) on or before the Closing Date, RealAmerica shall have paid
all indebtedness of RealAmerica to any officer, director, shareholder or
other affiliate and RealAmerica shall have no liability for indebtedness
of any kind or nature to any such person whether due, not yet due, past
due, contingent, liquidated or otherwise. As used herein, the term
"affiliate" means any person or company or other business entity which
directly or indirectly (a) owns or controls RealAmerica or (b) is owned
or controlled by RealAmerica or by any person or company or other
business entity which, directly or indirectly, owns or controls
RealAmerica.
(b) on or before the Closing Date, RealAmerica shall have
exchanged all issued and outstanding shares of preferred stock
(including, without limitation, all classes and series of preferred
stock) for shares of RealAmerica common stock and RealAmerica shall have
no issued and outstanding shares of preferred stock.
(e) MERRION shall have received the written resignations of each
member of RealAmerica's Board of Directors who, prior to their
resignations, shall have duly elected five nominees designated by
MERRION to RealAmerica's Board of Directors, and MERRION shall have
received the written resignations of each officer of RealAmerica.
(f) The newly constituted Board of Directors of RealAmerica shall
have adopted resolutions authorizing the relocation of RealAmerica's
corporate offices to a location identified by the Board of Directors.
(g) RealAmerica shall have furnished the MERRION Stockholders
with (i) certified copies of resolutions duly adopted by its Board of
Directors and, to the extent required by law, the shareholders of
RealAmerica, authorizing all necessary and proper corporate action to
enable RealAmerica to comply with terms of this Agreement and approving
the execution, delivery and performance of this Agreement, including the
issuance of the RealAmerica Shares, and (ii) an Incumbency Certificate
for the appropriate officers of RealAmerica.
(h) (i) the representations and warranties of RealAmerica herein
shall be true in all material respects at the Closing Date with the same
effect as though made at such time; and (ii) RealAmerica shall have
performed all material obligations and complied with all material
covenants required by this Agreement to be performed or complied with by
it prior to the Closing Date.
(i) RealAmerica shall have obtained and delivered to the MERRION
Stockholders consents to the transactions contemplated by this Agreement
from the parties to all material contracts, referred to in the
RealAmerica Disclosure Schedule attached hereto in accordance with this
Agreement, which require such consent.
(j) There shall not have occurred (i) any material adverse change
since the Most Recent RealAmerica Fiscal Year End in the business,
properties, results of operations or financial condition of RealAmerica,
or (ii) any loss or damage to any of the properties or assets (whether
or not covered by insurance) of RealAmerica which will materially affect
or impair the ability of RealAmerica to conduct, after the RealAmerica
Acquisition, the business now being conducted by RealAmerica.
(k) All statutory requirements for the valid consummation by
RealAmerica of the transactions contemplated by this Agreement shall have been
fulfilled and all authorizations,
21
<PAGE>
consents and approvals of all federal, state, local and foreign
governmental agencies and authorities required to be obtained in order to
permit consummation by RealAmerica of the transactions contemplated by this
Agreement shall have been obtained. Between the date of this Agreement and
the Closing Date, no governmental agency, whether federal, state or local,
shall have instituted (or threatened to institute in a writing directed to
the MERRION Stockholders, MERRION, RealAmerica or any of their subsidiaries
or affiliates) an investigation which is pending at the Closing Date
relating to the RealAmerica Acquisition and between the date of this
Agreement and the Closing Date no action or proceeding shall have been
instituted or, to the knowledge of RealAmerica shall have been threatened
by any party (public or private) before a court or other governmental body
to restrain or prohibit the transaction contemplated by this Agreement or
to obtain the damages in respect thereof.
(1) RealAmerica shall have furnished MERRION with a certificate, dated
the Closing Date, stating that the representations and warranties of
RealAmerica contained in Section 4 are true and correct on the Closing Date
---------
in all material respects as if then made.
(n) all papers, documents, agreements and other items required to
be delivered at Closing pursuant to Section 9.02 shall have been delivered
------------
at Closing.
9. Actions at Closing
------------------
9.01 Actions at the Closing. At the Closing, RealAmerica and the MERRION
----------------------
Stockholders will each deliver, or cause to be delivered to the other, the
securities to be exchanged in Accordance with Section 1.01 of this Agreement,
------------
and each party shall pay any and all federal and state taxes required to be paid
in connection with the issuance of delivery of their own securities.
Certificates representing the RealAmerica Shares shall be issued and delivered
as set forth on Exhibit "A" attached hereto. Certificates representing the
-----------
MERRION shares shall be duly endorsed by each of the MERRION Stockholders for
transfer to RealAmerica or in blank, or have appropriately executed powers of
attorney attached, and signatures shall be witnesses.
9.02 Deliveries by RealAmerica. At Closing, RealAmerica will deliver to
-------------------------
the MERRION Stockholders:
(a) certificates for the RealAmerica Shares as provided by Section
9.01 hereof;
(b) certified copies of corporate resolutions and other corporate
proceedings taken by RealAmerica to authorize the execution, delivery and
performance of this Agreement;
(c) the indemnification agreement as provided by Section 5.03;
------------
(d) a certificate of Incumbency and signatures of officers of
RealAmerica dated as of the date of this Agreement;
(e) all RealAmerica files and records, including without limitation,
bank records, stock records, corporate records, financial records,
contracts, agreements, assignments, receipt deeds, leases and
correspondence and other documents or files which in any way relate to the
current or former operations of RealAmerica and/or any of its predecessors.
22
<PAGE>
9.03 Deliveries by the MERRION Stockholders. At Closing, the MERRION
--------------------------------------
Stockholders shall deliver to RealAmerica:
(a) certificates for the MERRION Shares as provided by Section 9.01
------------
hereof;
10. Termination
-----------
10.01 Termination of the Agreement. The parties may terminate this
----------------------------
Agreement as provided below:
(a) RealAmerica, MERRION and the MERRION Stockholders may terminate
this Agreement by mutual written consent at any time prior to the Closing;
(b) the MERRION Stockholders may terminate this Agreement by giving
written notice to RealAmerica on or before the Closing Date if the MERRION
Stockholders are not satisfied with the results of their continuing
business, legal and accounting due diligence regarding RealAmerica;
(c) MERRION and/or the MERRION Stockholders may terminate this
Agreement by giving written notice to RealAmerica at any time prior to the
Closing (i) in the event RealAmerica has breached any representation,
warranty or covenant contained in this Agreement in any material respect.
MERRION and/or the MERRION Stockholders has notified RealAmerica of the
breach and the breach has continued without cure for a period of 10 days
after the notice of breach, or (ii) if the Closing shall not have occurred
on or before March 30, 1997, or such later date as may be agreed to by
MERRION, the MERRION Stockholders and RealAmerica, in writing, by reason
of the failure of any condition precedent under Section 8.03 hereof (unless
the failure results primarily from MERRION or the MERRION Stockholders
themselves breaching any representation, warranty or covenant contained in
this Agreement); and
(d) RealAmerica may terminate this Agreement by giving written
notice to MERRION and the MERRION Stockholders at any time prior to the
Closing (i) in the event MERRION or any MERRION Stockholder has breached
any representation, warranty or covenant contained in this Agreement in any
material respect. RealAmerica has notified MERRION and the MERRION
Stockholders of the breach and the breach has continued without cure for a
period of 10 days after the notice of breach or (ii) if the Closing shall
not have occurred on or before March 20, 1997, or such later date as may be
agreed to by MERRION, the MERRION Stockholders and RealAmerica in writing,
by reason of the failure of any condition precedent under Section 8.02
hereof (unless the failure results primarily from RealAmerica itself
breaching any representation, warranty or covenant contained in this
Agreement).
10.02 Effect of Termination. If either MERRION and/or the MERRION
---------------------
Stockholders or RealAmerica terminates this Agreement pursuant to Section 10.01
-------------
above, the rights and obligations of the parties hereunder shall terminate
without any liability of any party to any other party.
23
<PAGE>
11. General
-------
11.01 Brokers and Finders. Each party hereto represents that no
-------------------
broker, agent, finder or other party has been retained by either Party, and no
brokerage or finder's fees or agent's commissions or other like payment have
been agreed to be paid by him or it in connection with this Agreement or on
account of the transactions contemplated by this Agreement. Each Party agrees to
indemnify and hold harmless the other parties from and against any and every
claim arising by breach of the aforesaid representation and warranty and all
costs and expenses, legal or otherwise, which any such party may incur as the
result of any such claim.
11.02 Press Release and Public Announcements. No Party shall issue
--------------------------------------
any press release or make any public announcement relating to the subject matter
of this Agreement without the prior written approval of the other Parties.
Provided however, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
--
concerning its publicly-traded securities (in which case the disclosing Party
will use its reasonable efforts to advise the other Party prior to making the
disclosure).
11.03. Schedules. The MERRION and RealAmerica Disclosure Schedules
---------
delivered pursuant to the terms of this Agreement shall be bound together,
initialed by RealAmerica and MERRION and deemed attached hereto and made a part
hereof.
11.04 Survival of Covenants, Representations and Warranties. Except
-----------------------------------------------------
as otherwise specifically provided, the covenants, representations and
warranties contained herein shall expire and be terminated and extinguished at
the Closing Date.
11.05 Governing Law. This Agreement and the legal relations between
-------------
the parties shall be governed by and construed in accordance with the laws of
the State of Delaware.
11.06 Notices. Any notices or other communications required or
-------
permitted hereunder shall be sufficiently given if sent by registered mail or
certified mail, postage prepaid if addressed as follows:
If to RealAmerica:
RealAmerica Co.
100 NW Second Street, Suite 312
Evansville, Indiana 47708
Attn: Mr. Jeffrey T. Wilson, President
If to MERRION:
Merrion Reinsurance Company, Ltd.
20 Upper Merrion Street
Dublin 2
Ireland
Attn: Mr. Darren Thomas
Managing Director
24
<PAGE>
If to the MERRION Stockholders:
The Sargom Company Limited
97A Chase Side
Southgate
London N14 5BU
Attn: The Secretary
11.7 No Assignment. This Agreement may not be assign by operation of law or
-------------
otherwise and, in the event of an attempted assignment, this Agreement shall
terminate.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first
REALAMERICA Co.
/s/ JEFFREY T. WILSON
By:
Jeffrey T. Wilson
President
Merrion Reinsurance Company Ltd.
/s/ DARREN THOMAS
By:
Darren Thomas
Managing Director
THE MERRION SHAREHOLDERS
/s/ signature illegible
By:
The Secretary
The Sargom Company Ltd.
<PAGE>
EXHIBIT "A"
-----------
The Sargom Company Ltd.,
C/o 97a Chase Side,
Southgate,
London,
N14 5BU.
As 100% holder of the issued share capital of Merrion, hereinafter referred as
the "Merrion Stockholders", hereby nominates those listed below as recipients of
its entitlement to stock in Real America as per the holdings nominated below in
relation to common and preferred shares.
1 SPEED 5013 FOUNDATION,
C/o Administral Anstalt
Postfach 183,
Austrasse 27,
FL-9490 Vaduz,
Liechtenstein.
1,750,000 class "B" shares
30,000 preference shares
2 CUFF FOUNDATION,
C/o Administral Anstalt
Postfach 183,
Austrasse 27,
FL-9490 Vaduz,
Liechtenstein.
1,750,000 class "B" shares
30,000 preference shares
3 TAXAL FOUNDATION,
C/o Administral Anstalt
Postfach 183,
Austrasse 27,
FL-9490 Vaduz,
Liechtenstein.
1,750,000 class "B" shares
30,000 preference shares
The addresses above are the registered addresses for the Foundations as should
be noted on any and all share registers, however, the share certificates are to
be forwarded to The Sargom Company Ltd.
4 Mr. D. Thomas,
40 Southwick Street,
London,
W2 IJQ.
23,000 class "B" shares
1,000 preference shares
<PAGE>
MERRION REINSURANCE COMPANY LTD
DISCLOSURE SCHEDULE
Section Description
- ------- -----------
3.03 Attached hereto,
1. Financial Statement as at 27 July 1994,
2. Annual Report for the year ended 30th of June 1995, and
3. Annual Report for the period ended 30th of June 1996
In relation to which in the two annual reports, specific detail
with regard to the company's operations and future development
are outlined.
3.04 None.
3.05 A Subsidiary of Merrion is moving to offices in the City of
London in order that it may enhance both its image and its
proximity to the main insurance and reinsurance markets. In
order that the subsidiary may acquire these offices, Merrion
has been requested to acquire the lease directly. Attached are
copies of memorandums of Heads of Terms in relation to a lease
for property in the City of London that the company will acquire
during the course of the coming quarter.
Merrion in line with its philosophy of diversification, is
entering into the field of the underwriting of public Share
issues. The first of these in the sum of Thirteen Million
Australian Dollars is to be floated on the Australian stock
exchange, and relates to the operation of Burger King
franchises, and the attendant back up operation such as meat
processing. Attached is a draft of an underwriting agreement
entered into by Merrion, together with sub-underwriting
agreements in relation to the floatation of Beekay Ltd on the
Australian stock exchange. This transaction is serving as a
bench mark for the establishment of a full time operating
subsidiary specifically concerned with the underwriting of such
floatations.
Attached are various agreements with Russian entities in
relation to a pilot scheme for the marketing of life assurance
products, wherein the company acting as a broker would undertake
the administration of such a long term program.
<PAGE>
Attached is a copy agreement wherein the company has entered
into the purchase of SIAC Assicurazioni S.p.A, an Italian direct
insurer. This transaction is subject to satisfactory due
diligence by Merrion, and subsequent acceptance of Merrion by
ISVAP, the State regulator.
Attached are various contracts, wherein the company has changed
it's current asset and capital base, and has contracted in
relation to the purchase of various land assets. The purpose of
this being to add value to the underlying asset base of the
company. As a result of these the capital base of Merrion has
altered from being predominately investments in subsidiaries and
other investment deposits to a predominately real estate base.
This change in stance has been adopted in order to benefit from
the substantial incentives which are provided to companies
investing in various areas in the European union.
In addition to which and as part of an ongoing program, further
contracts, as attached, have been signed and are in the process
of being registered wherein the capital base of the company will
be increased to Circa 60 Million Dollars. The majority of these
transactions are share exchanges wherein the company will issue
new stock in order to acquire the real estate assets.
Attached there are various agreement with Suresale Systems
Australasia PTY Ltd, a subsidiary of Merrion, this includes a
list of the guarantees issued by the company since its
inception. The trading of this company has been adversely
effected by a series of disputes with clients wherein adverse
media publicity has damaged its trading ability. In addition to
which complaints have been made to the Office of Fair Trading in
Perth, Western Australia with regard to the disputes currently
ongoing. In relation to the activities of Suresale, there are
several matters that have come to light with regard to the
actions of several professional advisors to the company.
Currently legal advice is being sought with regard to taking an
action against the professional advisors for professional
misconduct.
3.06 None.
3.07 Contracts of employment are in place for each of the following;
<PAGE>
Alex Balysz
Ian Craigie
Michael Glynos
Ashley Gordon
Paul Reynolds
John Sotiropoulos
Darren Thomas
Francois Verkaeren
In addition to the above there are other administrative staff
that will be added to the company who currently work under sub-
contract agreements.
All of the above will be subject to the terms and conditions of
contract as per the attached drafts.
3.08 The subsidiary holdings of the company are as follows.
1. Tower Risk Management Ltd
38 Fitzwilliam Square
Dublin 2
Ireland
Percentage owned: 100%
2. Suresale Systems Australasia PTY Ltd
126 Weaponess Road
Wembley Downs
Western Australia
Percentage owned: 60%
3. Genmac Pty Ltd
1177 Logan Road
Holland Park
Queensland
Australia
Percentage owned: 7%
4. Quest Reinsurance Company S.A
300 Avenue Louise
Brussels 1050
Belgium
Percentage owned: 100%
<PAGE>
5. Merrion Life Assurance, a sole proprietorship and trading
name;
20 Upper Merrion Street
Dublin 2
Ireland
3.09 None
3.10 Attached find schedule of all material leases, contracts,
understanding, commitments, plans and mortgages now in effect
with regard to Merrion properties.
3.11 None.
<PAGE>
EXHIBIT 99.D
LETTER OF APPRAISAL OF THE ASSETS
COMPRISING THE SIAC AACQUISITION
<PAGE>
[LETTERHEAD OF MANFREDINI, LASCARI, ORSENIGO & PARTNERS APPEARS HERE]
Milano, 19th March 1997
via telefax Messrs MERRION REINSURANCE Co. Ltd.
LONDON
Attn Mr. Darren Thomas
Dear Sirs,
re: Evaluation of real estate in Italy and Belgium
- --------------------------------------------------
Further your request we confirm that the valuations of the properties in Italy
and Belgium are to the amount of 83 (Eighty Three) Billion Lira, following the
expert's report copies in our hands.
Best Regards
/s/ Allessandro Manfredini
Aw. Alessandro Manfredini
<PAGE>
EXHIBIT 99.E
PURCHASE AND SALES AGREEMENT BY AND BETWEEN
MARIA LUISA SARTI AND ASA FINANZIARIA S.P.A. AND MERRION
REINSURANCE COMPANY LTD. FOR THE PURCHASE OF THE
SIAC ACQUISITION
(ORIGINAL IN ITALIAN AND ENGLISH TRANSLATION)
<PAGE>
Between the undersigned:
. MARIA LUISA SARTI, born in Sesto San Giovanni (MI) on 5 May 1947 and resident
in Monza, Via Andrea Doria n. 13 - fiscal code SRT MLS 47E45 I69OW
. ASA FINANZIARIA S.P.A., with head office in Milan, Via Fabio Filzi n. 2 -
fiscal code 04509770154, and company capital of L. 2.000.000.000 (deposited),
represented by its President SERGIO SEREGNI
. MERRION REINSURANCE COMPANY LTD, with head office in Dublin, Ireland, 20
Upper Merrion Street, represented by DAVID GRAHAM DA COSTA, born in London on 6
December 1962 - with power of attorney _______________________, fiscal code 971
9117 0154.
Considering that:
1. "SIAC ASSICURAZIONI S.p.A." is running with office in Milan, Via Fabio Filzi
2 - F.C. 01651520155, with a company capital of L. 5.000.000.000, a limited
underwriting of L. 2.500.000.000, and a deposited sum of L. 1.560.000.000,
registered at the Milan Tribunal n. 143167/3565/17 and C.C.I.A. n. 4028 of the
register of companies;
2. the company capital of "SIAC ASSICURAZIONI S.p.A." is held jointly by MARIA
LUISA SARTI and ASA FINANZIARIA in the reason of 50% each;
3. the balance sheets relating to the 1993-1994-1995 statements, complete with
report on management and auditing report, as well as photocopies of the
authorisations for insurance work on some classes, have been assigned to
MERRION;
4. it is MERRION intention, upon authorisation from ISVAP, to buy the shares
representing 100% of SIAC ASSICURAZIONI's company capital;
5. the present shareholders of "SIAC ASSICURAZIONI", upon authorisation from
ISVAP, intend to cede their shares;
<PAGE>
The following is agreed and stipulated:
A) MARIA LUISA SARTI and ASA FINANZIARIA undertake to sell to MERRION who in
turn undertakes to buy the shares representing 100% of the company capital of
SIAC ASSICURAZIONI on the following conditions:
. the cedant guarantees that the balance sheet of 31/12/1995 corresponds with
the criteria foreseen in arts. 2423 and ss. civil code, for the drawing up and
valuation, and also guarantees that the variations between the balance sheet
values of 31/12/1995 to the present day are merely correct management procedure
in keeping with the civil code and the law on insurance.
. the sum is stipulated at L. 5.040.000.000 (4.100.000.000 + 940.000.000
capital increase) to be paid within 30 days from the authorisation given by
ISVAP, simultaneously with the endorsement of the shares.
B) MERRION, on request from ISVAP, undertakes to pay the sum of L. 940.000.000
to the current shareholders of SIAC, towards the payment of the remaining
undersigned capital, with an obligatory refund by the sellers with a guarantee,
in the event that ISVAP does not authorise the payment of the remaining capital
undersigned.
This amount, on authorisation from ISVAP, will be considered a part of the
purchase price.
C) This agreement is subject to the essential condition that ISVAP consents to
the cession of the shares - consent that MERRION is willing to obtain as her
responsibility and at her charge - by presenting a formal request by 15 January
1997, as according to the Decree of 10 July 1991 by the Ministry of Industry
published in the G.U. n. 161 of 11 July 1991 and subsequent modifications.
D) All the fiscal charges taxes, costs and contributions relating to this
agreement will be the complete and sole responsibility of MERRION.
E) The parties expressly agree that for any controversy the Milan Court of
Justice will be solely responsible.
<PAGE>
Milan, 4 December 1996
/s/ MARIA LUISA SARTI
- --------------------------------
Maria Luisa Sarti
/s/ SERGIO SEREGNI
- --------------------------------
Asa Finanziaria S.p.A.
/s/ DAVID GRAHAM DA COSTA
- --------------------------------
Merrion Reinsurance Company Ltd.
N.75.369
I the undersigned, dott. Carlo Corso, Notary resident in Milan, registered with
the Notary College of Milan, and with my previous expressed and agreed renounce,
with my consent, and without any testimony, hereby certify to the assistance of
the following:
SARTI MARIA LUISA, born in Sesto San Giovanni (MI) on 15 May 1947, resident in
Monza, via Andrea Doria n. 13, insurer;
SERGIO SEREGNI, born in Sesto San Giovanni (MI) on 17 August 1935, resident in
Milan, via Fabio Filzi n. 2, a businessman, and president of the company "ASA
FINANZIARIA SPA", with office in Milan, via Fabio Filzi 2, having the required
power;
DAVID GRAHAM DA COSTA born in London on 6 December 1962, resident in Milan, via
Santa Cecilia 2, Director and attorney for "MERRION REINSURANCE COMPANY LTD."
with head office in Dublin, Ireland at 20 Upper Merrion Street, having the
required power;
of whose personal identity I am certain, and who have signed the above purchase
agreement in my presence.
Milan, Piazza San Babila 1, fourth December nineteen ninety six.
<PAGE>
EXHIBIT 99.F
FINANCIAL STATEMENTS OF SIAC ASSICURAZIONI S.p.A.
(AS OF 12/31/96)
(AS FILED IN ITALY)
<PAGE>
SIAC ASSICURAZIONI S.P.A.
Via F. Filzi,2
20124 MILANO
BALANCE SHEET
31.12.96
MANAGEMENT REPORT
Dear shareholders,
During 1996 your company continued its re-organisation following the plan of
action set out in the report from the previous statement, by re-balancing the
portfolio and gradually eliminating the risks not connected to the agricultural
sector, as well as giving priority to the development of risks connected with
hail.
The results obtained in 1996 show compatibility with the above objectives, both
from the point of view of improvement of loss premiums, and from that of the
significant increase in company products.
The subdivision of premiums from direct work, compared with that of the previous
statement, is shown below. Indirect premiums under the sub-heading 'hail'
disappeared in 1996, following the decisions taken by Antitrust to dissolve
CIRAS.
- --------------------------------------------------------------------------------
SUB-HEADINGS 1996 1995 DIFFERENCE
- --------------------------------------------------------------------------------
Injury 105.924.557 138.511.859 - 32.587.302
Illness 11.377.350 15.509.369 - 4.132.019
Car risks various 423.661.957 781.004.811 - 357.342.854
Transport 1.277.820 9.106.192 - 7.828.372
Fire 105.233.226 178.941.648 - 73.708.422
Other damage 1.133.808.468 1.316.644.616 - 182.836.148
Judiciary protection 19.106.793 22.374.411 - 3.267.618
Theft 90.703.653 220.535.423 - 129.831.770
Assistance 2.716.917 927.220 + 1.789.697
Hail 10.540.817.958 8.127.779.092 + 2.413.138.866
- --------------------------------------------------------------------------------
TOTAL DIRECT
PREMIUMS 12.434.628.699 10.811.334.641 + 1.623.294.058
INDIRECT PREMIUMS
HAIL - 6.178.587.031 - 6.178.587.031
TOTAL 12.434.628.699 16.989.921.672 - 4.555.292.973
- --------------------------------------------------------------------------------
1
<PAGE>
Compared with the last statement, there is a percentage increase of 15,01%
(9,76% in the last statement).
Analizing this result more closely, the obtained increase can be attributed to
the sub-heading 'Hail', and in part to that of 'Assistance', whilst all the
other sub-headings have a sudden increase.
The technical result of the statement shows a negative balance of 1.507 million
lire, which shows on further analysis of the various components a positive
technical result for the sub-headings of 'Damage' and 'Livestock', of 747
million, against a negative balance of 2.254 million under 'hail'.
The company has concentrated its attention mainly on the agricultural sector,
and especially 'hail' and relative risks, taking into account the development of
previously-tested guarantees (also in foreign markets), whilst trying to
maintain a balance in production in the livestock sector.
Despite uncertainties, the budget is based on company continuity - compared with
the last statement, a further improvement of coverage in reinsurance has been
realised.
As far as reinsurance is concerned, the sub-headings fire, theft, injury and car
risks various benefit from a quota protection, together with a further coverage
in the clause of 'Excess of loss' for the company quota of 'retention'.
The branches 'livestock' and 'hail' have been reinsured in quota, and a treaty
in 'Stop-loss' has been drawn up for hail.
During the special meeting held in June 1995 an increase in company capital up
to 5 billion Lire was deliberated.
The company team intends to underwrite and deposit the remaining part of the
company capital decided upon in the terms of the D.Lgs. 175/1995.
During 1996 the age-old dispute with Toro Assicurazioni was settled. The
maximum sentence from the Turin Tribunal was, however, appealed against by the
other side We remain convinced of a positive outcome, even at this stage in the
sentence.
As with the previous statement, the Directors continued with the elimination of
higher-risk loss policies, which brought about a reduction (of about 790 million
Lire) in the premiums issued.
HAIL
- ----
Due to the delay in establishing a norm for the sector, the insurance campaign
for hail in 1996 was carried out in the absence of any specific reference.
To allow the agents to carry out the insurance covers (hedges), whilst waiting
for the new norm to be issued, MIRAFF disclosed a letter indicating the
adversities, which would nevertheless have been contributed for the stipulation
of insurance contracts. The Defence Consortium would be invited to locate the
most favourable market conditions for their own insureds, with appropriate
2
<PAGE>
clauses and, on conclusion of these, the insurance hedges would be entrusted to
one or more companies by each Defence Consortium.
The new rules for freedom to compete (issued by the Market Guarantor
Authorities) brought about the cession of CIRAS, in this way putting an end to
the type of coinsurance through which the re-aligning of losses could also be
obtained.
In these hard conditions, your company nevertheless managed to increase the
premiums to 22,9%, compared with the last statement (6,57% in 1995).
The atmospheric misfortunes of a few areas, usually non-risk zones, caused
enormous damage that produced a negative effect, even on the production of the
following years.
The bearing of loss premiums for the financial year is 179,80% (84,9% in 1995).
The autonomous management of the branch, that has being going on now for three
years, has allowed us to start saving loss management costs, which would rise
in the event of extra activities.
The acquisition, production and organisation costs have an impact on the
statement's premiums of 15,85% (15,63% in 1995).
The branch closes with a negative technical balance of 2.254 lire, compared with
a positive result of 343 million lire in 1995.
INJURY
- ------
The class 'injury' shows a decrease of premiums by 30,8%, compared with the last
statement.
In 1996 the affect of the FGCI policy stipulated in 1994 (that resulted in being
burdensome from the point of view of both losses and management), disappeared
completely. The relationship of paid/reserved losses with reference to premiums
is equivalent to 29,10% (89,05% in 1995). The improvement in liabilities is due
mainly to the changed composition of the portfolio.
The acquisition, production, and organisation costs have an effect on the
premiums of 26,80% (33,30% in 1995).
The class 'Injury' closes with a positive technical balance of 147 million lire,
compared with the negative result of 29 million lire in 1995.
CAR RISKS VARIOUS
- -----------------
This shows a decrease of 84,30%, compared with the previous statement. The
relationship of paid/reserved losses to premiums is equivalent to 54,70% (96,11%
in 1995).
During 1996 no one else was hired for the Citifin and Cofias Convention.
In order to avoid any difficult liability, the premium reserve for the end of
the first term of 1996 was re-paid.
The acquisition, production and organisation costs have an affect on the
statement's premiums of 17,70% (26,63% in 1995).
This sector closes with a positive technical balance of 238 million lire
(compared with the positive balance of 96 million on 31/12/1995).
3
<PAGE>
FIRE
- ----
This sees a decrease of premiums of 70,40%, compared with the previous statement
(47,24%) and ceases to be influenced by the Citifin agreement for the capital
goods policy, which was cancelled in 1995.
The acquisition, production and organisation costs have an affect on the
statement's premium of 27,62% (31,67% in 1995).
'Fire' shows a positive technical balance of 6 million lire, compared with the
negative one of 50 million of 31/12/95.
OTHER DAMAGES TO GOODS
- ----------------------
This shows a premium decrease of 16,10%.
The relation of paid/reserved losses to premiums is of 71,80% (66,70% in 1995).
The acquisition, production and organisation costs have an affect on the
statement's premiums by 9,05% (12,42% in 1995).
The positive technical result of the 1995 statement of 157 million lire was
further increased to 402 million lire, thanks also to the effect of the "malus"
clause applied to the CODIPRA policy.
THEFT
- -----
This shows a decrease of 58,87% (53,71% in 1995).
The cover of risks remains until the end of the last contract and the negative
effect has influenced the technical result of this class, which closes with a
negative balance of 102 million, compared with the negative balance of 86
million in 1995.
The relation of paid/reserved losses to premiums is of 128,30%.
The incidents of acquisition, production and organisation costs is of 32,70%
(32,07% in 1995).
Other minor classes: Judiciary protection, Assistance and Transport show
positive technical results at the close of the statement, and the class
'illness' shows a negative one.
The total technical balances of these classes is a positive result of 10 million
lire.
RELATIONS WITH CONTROLLING AND CONNECTED COMPANIES
- --------------------------------------------------
During 1996 the company kept up its current account with ASA Spa (company
shareholder by 50%), with the usual intermediary insurance activities. An
interest rate, in line with market ones, is added on the current account
balances.
The Sarti-Seregni Sas Agency works with the company on all aspects, and
commission charges like those used by other agents are added.
4
<PAGE>
IMPORTANT FACTORS AFTER THE CLOSING OF THE STATEMENT
- ----------------------------------------------------
We will be able to recuperate the commission differences (re: arbitration CIAG -
CONSAP) which were originally not recognised, due to the demanded reduction in
quota, which was contractually established in the reinsurance and demotion
agreements, and whose request to change was never officially put forward.
The recent sentence by the Market Guarantor corrected the way those Consortiums
worked, because, in a first state of confusion, interpreting wrongly what MIRAFF
may have said, they excluded a few insurance risks from the possibility of
benefiting from the state contribution, saying that the refusal to pay the
insurance premium contribution to the members who draw up the hail insurance
contract with companies that are different from the "conventional" ones, is a
violation of art. 3 of Law 287/90. In this way, the company could recuperate
the premium quotas.
With reference to art. 9, comma 6 of law 14/02/92 n. 185, following the
confirmation of a two-year negative technical balance, Consap asked for the
acknowledgement (through TAR, Lazio) of the state contribution (grant-in-aid) of
10.274 million lire, which will obviously be divided between all the companies
depending on the technical balance and market quota. The forecast quota of
company recovery is carefully valued at about 150 million. Despite the negative
events which involved our reinsurers, they have re-confirmed their trust by
renewing the treaties and stop-loss.
The Rome Court of Appeal has set a date (March 1988) for the lawsuit concerning
the 'Societa' Italiana Assicurazione Crediti', who wrongly use the abbreviation
"SIAC" in their company name.
The first degree sentence from the Rome Tribunal, in granting our requests,
nullified the license for the corporate symbol registered by the above-mentioned
company, sentencing it also to damage compensation to be paid with separate
judgement in favour of SIAC and on payment of the sentence charges. It also
ordered the publication of the sentence in the newspaper "Il Sole 24 Ore".
5
<PAGE>
FORECAST CHANGE IN MANAGEMENT
- -----------------------------
The working agreement with international reinsurance partners allows us to widen
the insurance covers, thereby developing those sectors which previously obtained
positive results.
The company plans to ask for authorisation to open offices with fiscal
representation, in a few countries belonging to the EEC.
The company has opened a profit and loss account for the first term of 1997,
which shows a loss of less than 40 million.
The 1996 statement closes with a loss of 537.362.183 lire, which is going to be
postponed to future statements.
The state of net assets of 31/12/96 is as follows:
<TABLE>
<CAPTION>
<S> <C>
. company capital and reserves L.2.526.938.536
. loss L. 537.362.183
Net assets of 31/12/96 L.1.989.576.353
---------------
</TABLE>
Board of Directors
6
<PAGE>
SIAC ASSICURAZIONI S.P.A.
-------------------------
NOTE ON BALANCE SHEET OF 31 DECEMBER 1996
-----------------------------------------
CONTENT AND FORM OF BALANCE SHEET
The financial year's balance sheet (acc. to art. 2423 C.C.) is compatible with
the accounts.
So as to obtain a more detailed report, models 5 and 6 are integrated with the
comparative Economic Account and Statement of Company Assets, the financial
report, the re-classified Economic Account and Statement of Company Assets, and
the summary of re-evaluations of real estate ex art. 10 of law 72/1983.
The balance sheet entries of the present financial year are compared with those
of the previous year. They result from the calculations carried out in keeping
with the accounts approved by D.M. of 13 April 1982 and reflect that set out in
note n. 50 of 27/03/1986 from ISVAP. The changes in assets and liabilities are
as explicit as they are significant.
As for the progress of the 1996 financial year, important factors after its
closing and relations with controlling companies, you can refer to the
Management Report.
EVALUATION CRITERIA, ACCOUNT PRINCIPLES AND DRAWING UP OF THE BALANCE SHEET
- ---------------------------------------------------------------------------
(ART. 2427 N. 1 CIVIL CODE)
- ---------------------------
The balance sheet was drawn up according to the acting rule, by applying the
evaluation criteria and account principles used in the previous financial year.
The evaluation criteria and account principles used are shown hereafter,
analytically, for the most significant items. The balance sheet was drawn up on
the basis of company continuity, supposing that the company is able to realise
its own assets and pay off its own debts during the normal course of management.
The balance sheet therefore does not foresee any corrections which could become
necessary if the continuity of the company was not guaranteed.
REAL ESTATE
- -----------
The real estate is listed in the acquisition cost with re-evaluations carried
out according to the laws 72/83, 413/91 and art. 36 of the law of 10 June 1978
n. 295. The costs for improvements, changes and re-structuring are capitalized
when they show an increase in the value of real estate, whilst the costs of
ordinary maintenance or restoration are added to the account of the relative
financial year.
According to art. 2426, point 2 of the Civil Code, the real estate is not
subject to depreciation, since it is constantly maintained, which allows
unlimited use of it.
7
<PAGE>
According to art. 2426, point 2 of the Civil Code, the real estate is not
subject to depreciation, since it is constantly maintained, which allows
unlimited use of it. The net book value of the real estate is lower than the
presumed value of realisation.
FIXED-INCOME SHARES
- -------------------
These are valued between cost and presumed value of realisation, according to
art. 2426 of the Civil Code.
The issuance margin and tax that weighs it down, are taken off with the pro-rata
temporis method.
CREDIT
- ------
This is listed at its presumed value of realisation, based on the nominal value
appropriately changed by the provision account for depreciation, shown
separately on the balance sheet.
DEBTS
- -----
These are shown at nominal value.
FURNITURE, INSTALLATIONS AND OTHER COSTS
- ----------------------------------------
The furniture and installations are shown on the balance sheet at the
acquisition cost and are depreciated by applying the permissible fiscal rates,
which are considered representative of the goods' utility, and are the
following:
furniture and office equipment 12%
machines and computers 20%
installations, furnishings 15%
motor vehicles 25%
These rates are reduced by half in the statement.
The immaterial capital expenditure is listed at the changed cost of depreciation
quotas calculated constantly in relation to the remaining possibility of
utilisation.
INSTALLMENTS AND CHARGES
- ------------------------
These are calculated according to economic and time capability, by correlating
costs and revenue from the financial year.
PASSIVE REINSURANCE
- -------------------
The actuarial reserves, losses, assigned premiums and commission are determined
by the same criteria as that used for the direct work, as agreed.
8
<PAGE>
PREMIUMS AND ACCESSORIES
- ------------------------
The premiums, together with their accessories, are calculated as returns when
they are ready to be collected.
Transfers and cancellations which arose during the financial year are brought to
a direct decrease of the premiums.
PREMIUM RESERVE
- ---------------
The premium reserve for direct insurance is calculated with the pro-rata
temporis method. It is calculated in the necessary way to cover the company's
future commitments for any risks at the end of the financial year.
LOSS RESERVE
- ------------
This is determined analytically by a prudent evaluation, taking into account all
objective elements which compete to form the final cost of the loss, including
direct costs of loss reserves. The loss reserve (in accordance with art. 26 of
D. Lgs. 17/03/1995 n. 175, together with the provisions by ISVAP of 12/07/95),
also takes into account the estimate of future costs which derive from losses
already incurred by the end of the financial year, but which have not yet been
declared.
END OF YEAR REPORT
- ------------------
The fund shown on the balance sheet is calculated according to law n. 297, of 29
May 1982 and the rules of the contracts in force. It therefore covers all
company commitments by 31 December 1996.
TAXES
- -----
These are determined by a realistic prediction of tax burdens to be honoured.
ANALYSIS OF BUDGET
------------------
The budget entries are compared with those of the previous year. All amounts
shown are in lire, except when otherwise stated.
a) STATE OF ASSETS AND LIABILITIES
- - REAL ESTATE AND RELATIVE DEPRECIATION FUND:
1) property for company use:
BOOK VALUE AMORTIZATION FUND NET VALUE
balance at 31-12-95 1,500 (62) 1,438
increases 1996 - - -
decreases 1996 - - -
9
<PAGE>
balance at 31/12/96 1.500 (62) 1.438
2) property for housing
BOOK VALUE
balance at 31/12/95 1.115
increases 1996 -
decreases 1996 235
balance at 31/12/96 880
The real estate is listed at lower values compared with the relative market
ones, as confirmed by expert opinion. During the course of the financial year,
the property of Bologna was sold. The result was a capital gain of 35 million
lire. Following art. 10 of law 72/83, we have enclosed (with the note) an
analytical table of values of the re-evaluations carried out.
FIXED-INCOME SHARES
- -------------------
These are like current assets, and are as follows:
1996 1995
. Obb. M Paschi EAC 2000 13% 35 43
. Obb. (same) 99 10% 22 31
. Obb. (same) 77 10% 3 9
. Obb. (same) 0F04 8,75% 4 5
- - Obb. BNL SACF 12.10% 30 30
. CTO 12.50% 93-96 1.563 1.495
. other 1
-------------------
1.657 1.614
The movement of shares during the financial year is as follows:
1996 1995
Initial balance 1.614 1.617
Acquisitions 1.582
Refunds/Sales (1.519) (9)
Re-evaluation for issuance margin 6
Devaluation for adjustments to market values (20)
Final balance 1.657 1.614
The nominal value of the refunded shares during the year amounted to 1.526
million lire. The refunding of these shares has not led to significant losses or
gains. The nominal value of the shares on 1/12/1995 is equivalent to 1.598
million lire (1.623 million on 31/12/1995).
The market value of the shares on 31/12/96, based on the market quotation for
similar shares, is of 1.663 million lire.
10
<PAGE>
The interest accumulated during the 1996 financial year, on the above-
mentioned shares, has been calculated in the profit and loss account.
HOLDINGS IN NON-QUOTED COMPANIES
1996 1995
3 3
This refers to out holding with RITA Srl, a consortium company that
manages a telecommunications' network for insurance companies. It is
valued at cost price and is equivalent to 0,27% of the participating
company capital.
CREDIT TO MEMBERS FOR PAYMENTS STILL DUE
1996 1995
940 940
This represents the amount of company capital undersigned during 1995,
but which has not yet been paid.
CREDIT AND DEBTS TO INSURANCE AND REINSURANCE COMPANIES
-------------------------------------------------------
The balance sheet items are as follows:
1996 1995
CURRENT ACCOUNT CREDIT
----------------------
This credit, payable during the course of the following year, derives
from reinsurance and coinsurance relations with:
. Hughes Gibb 25 24
. Bruno Sforni 1,973 325
. New Re - 1
. Verona Assicurazioni - -
. ASSITALIA, SAI, Fata - -
. ITAS Assicurazioni - -
. CONS. AP. 37 134
. Abeille 5 5
. Winterthur 91 111
. Munchener Ruck 48 -
----------------------------------------------------------------------
2,179 600
The credit regarding Consap represents the final net position of all items
connected to the obligatory cession of production regarding the sub-heading
'hail' and to the consequent re-taking on of risks as indirect work.
The balance of the said credit to Bruno Sforni refers to the balance of passive
reinsurance administered through this broker.
Nearly all of this amount results as paid during the first term of 1997.
11
<PAGE>
CURRENT ACCOUNT DEBTS 1996 1995
These, which do not exceed five years, derive from
reinsurance and coinsurance relations with:
. Bruno Sforni 8 1
. Munchener Ruck - 60
. Alsford Page & Gems 39 1
. Winterthur Ass. - -
. Cattolica Ass. - 183
. ITAS Ass. - 76
. Assitalia 525 449
. Fata 289 394
- --------------------------------------------------------------------------------
861 1,164
The entries for Assitalia and Fata take into account the assets and liabilities
items included in the coinsurance accounts, following the indirect damages
policy for hail.
PREMIUM RESERVE AND REINSURERS' PREMIUM RESERVE
1996 1995
a) Premium reserve 990 2,132
b) Reinsurers' premium reserve (75) (334)
--------------------------
Conserved premium reserve (A-B) 915 1,798
The premium reserve was calculated with the pro-rata temporis method. The
portfolio includes agreements drawn up until September 1996 which stipulate the
monthly issuing and advance payment of costs for premiums relating to long-term
contracts. The premium quota for such costs is calculated depending on the
duration of each contract.
The reduction in premium reserve follows the early closing of a consistent
number of contracts concerning the Cofias and Citifin agreements, and the
effect of the unsuccessful renewal of the CODIPRA agreement, whose premium due
on 31/12/1995 was discounted.
The amount of the premium reserve also includes insurance deriving from natural
disasters, as stated in D.M. n. 705 of 19/04/96.
The premium reserve for the sub-heading 'illness' does not contain the
integration for old-age reserves, since the portfolio policies do not have the
established characteristics of art. 25 of D.Lgs 17/03/95 n. 175.
LOSS RESERVE
1996 1995
a) Loss reserve 3.136 3.239
b) Loss reserve charged to reinsurers (1.385) (1.109)
----------------------------
1.751 2.130
The decrease in loss reserve is due mainly to the failed renewal and to the
rescaling of agreement policies (Injury - Car Risks - Fire/Theft).
The reserve was joined to the estimate of late losses (as of ISVAP 12/07/95).
12
<PAGE>
SAVINGS AND DEPOSITS AT BANKING INSTITUTIONS
The balance is made up as follows:
1996 1995
. Savings 1 2
. Deposits 715 2.041
-----------------
716 2.043
The deposits at banking institutions include the savings account of about 520
million Lire, tied-up by the Tribunal at a loss payment, for which a temporarily
enforceable injunctive decree existed, charged to the company. The
implementation was suspended following the Milan Magistrate's suspension
measure, and with sentence 5465/96 the Tribunal accepted SIAC's request. The
opposite party appealed to this sentence. The deposit was financed by the
reinsurers for 286 million Lire, their relative quota. (This amount is shown in
the reinsurers' account / advanced loss payments for savings).
The assets concerning the above (compared with the balances of 31 December
1995) are set out below:
31/12/1996 31/12/1995
current account (assets) 190 1.464
(tied-up) savings account 520 506
(tied-up) savings account - 69
c/a and postal deposit 4 2
------------------------
714 2.041
CREDIT
1996 1995
. Credit to Agents and intermediaries 158 164
. Credit to insureds for premiums relating
to this statement 661 354
. Credit to insureds for premiums relating
to the previous statement 100 94
Other credit 492 482
----------------------
1.456 1.094
Credit to agents is made up of the balance from the 1996 statements, whose
remittances (losses) arose at the beginning of the current year.
Credit to insureds for premiums mainly regard expired receipts for the month of
December 1996.
Credit to insureds for premiums relating to previous statements, equivalent to
100 million lire, is nearly all made up of credit given to lawyers.
Following an inspection of credit to insureds on 30/04/1997, a taking equivalent
to nearly the total amount of the premiums is shown.
A fund of 142 million lire has been allocated, in view of the risks from failed
credit collection and other collection difficulties.
13
<PAGE>
The entry "Other credit" is as follows:
1996 1995
. Credit account 1 1
. Tax revenue 239 195
. Asa c/c 128 116
. ILOR 23 23
. Other entries 27 4
. VAT 8 1
. Registry Office 66 107
-------------------
492 447
. amounts to be recovered from
third parties for losses. 45 35
-------------------
537 482
The current account with Asa that registers work deriving from intermediary
insurance is regulated by market rates.
Credit to the Registry Office comes from the excess of instalments paid by the
company during 1995, compared with amounts effectively due.
FURNITURE, INSTALLATION AND LONG-TERM COSTS
1996 1995
. furniture, office machines, registered goods 98 103
. installations 15 -
. long-term costs 16 22
-------------------
225 213
Changes during the financial year:
INITIAL COST INCREASES DECREASES FINAL COST
Furniture, office machines 103 2 (7) 98
registered property - 15 - 15
Installations 88 8 - 96
Long-term costs 22 - (6) 16
----------------------------------------------------
total 1996 213 25 (13) 225
----------------------------------------------------
total 1995 255 48 (90) 213
INITIAL FUND INCREASES DECREASES FINAL FUND
Furniture, office equip. 53 12 (4) 61
Registered movable goods - 2 - 2
Installations 55 12 - 67
----------------------------------------------------
total 1996 108 26 (4) 130
----------------------------------------------------
total 1995 125 22 (38) 109
Any acquisitions made during the course of the financial year refer to office
equipment, vehicles and installations.
14
<PAGE>
The company has not calculated advanced amortizations.
The yearly tax burden, of which remained 16 million Lire on 31/12/96 refer to
the costs incurred for the increase in company capital which is consistently
amortized in five years.
OTHER ASSETS
1996 1995
1) Accrued income 38 36
2) Assets various - 1.567
3) Assets various 3 70
-----------------
41 1.673
The accrued income of L. 38 million refers to interest rates and profit from the
financial year, but payable next year.
They were calculated with the consent of the union.
The amount of 1.567 million lire listed on the balance sheet last year refers to
advanced payments of losses not due, of 1.073 million lire and to net premiums
not cashed, of 474 million, both concerning the contentious case with Toro.
The Turin Tribunal acknowledged the company's reasons, obliging the opposite
party to return the amount cashed and to pay the delayed premiums, and also
acknowledged that SIAC had to pay active interest on these amounts, of L. 813
million lire. Even with the appeal from the opposite party, comforted by the
favourable opinion of their own lawyer, they have reason be believe there are no
risks involved, since the opposite party's lawyers presented no new elements
against to SIAC.
Consequently, the Management did not consider it necessary to maintain the
integrative fund of 455 million lire, registered on 31\12\1995 amongst the funds
set aside for specific purposes. This fund was, however, transferred with
counterpart to non-recurrent incomes. The company's potential liability in this
case would be L. 2.640 million.
The amount of 70 million lire, which refers to invoices issued at the end of
1995 in the charge of ASA Spa and Sarti Seregni Sas, for the use of buildings
and equipment, was regulated during 1996.
DEBTS VARIOUS
1996 1995
Debts to agents 1.210 503
Debts to suppliers 597 97
Debts for tributary charges 33 95
Debts for assistance 899 546
----- -----
2.774 1.269
Debts to agents of 1.210 million lire concern the commission under 'hail' due on
31/12/1996 and paid to the agents at the beginning of 1997.
The entry 'Other debts' is as follows:
1996 1995
* c/c rented property - 51
* Reinsurers advance loss payment for savings 355 286
* paid losses 538 95
15
<PAGE>
1996 1995
. other 6 4
. insureds advanced premiums - 12
. other debt to agents - 29
. Philipines - hail loss - 69
-------------------
899 546
The amount of 355 million lire represents the sum advanced by the reinsurers for
two losses: Catania and Delta. For the first, as already stated, a deposit
account was opened at the Banca Nazionale del Lavoro.
The losses seem to be regularly set aside for in the loss reserve, and pro-
quota, in the loss reserve charged to the reinsurers.
The amount of 538 million lire refers to defined losses, paid at the end of
1996, the payment deadline being the beginning of 1997.
DEBTS FROM MORTGAGES AND LOANS
1996 1995
M.G.I. Loan 300 300
Under the entry 'Debts' for mortgages and loans, the amount of 300 million lire
concerning a loan contract with MGI which runs out in 1997 at a rate of 9%
annually. The interest rates to be paid were calculated on 31\12\96.
OTHER LIABILITIES
1996 1995
Accrued liabilities 44 23
other liabilities 253 215
-------------------
297 238
1996 1995
other liabilities:
commission to agents 35 49
invoices to be received 218 166
-------------------
253 215
The above include commission to agents still to be paid (35 million), and
invoices to be received for expert consultancy for 218 million lire.
FUNDS SET ASIDE FOR SPECIFIC PURPOSES
1996 1995
funds for:
movement stocks and shares - 1
credit devaluation 142 137
taxes 10 22
end of statement liquidation 251 213
agents indemnity 54 40
controlling of assets - 455
integration premium reserve - 200
future charges 58 80
------------------
515 1.148
16
<PAGE>
The above items were changes as follows during the financial year:
MOVEMENT OF DEVAL. INTEG. TAXES
STOCKS AND SHARES CREDIT PREMIUM RESERVE
bal. on 31/12/95 1 137 200 21
allocation 1996 - 15 - 5
uses of allocation 1 (10) 200 (16)
-----------------------------------------------
bal. on 31/12/96 - 142 - 10
-----------------------------------------------
END OF STATEMENT AGENTS FUTURE CONT. TOTAL
LIQUIDATION INDEMNITY CHARGES ASSETS
(WAGES)
bal. 31/12/95 213 41 80 455 1,148
allocation 1996 38 12 - - 65
uses - - 21 455 (703)
------------------------------------------------------
bal. on 31/12/96 251 53 59 - 510
------------------------------------------------------
The devaluation of credit fund is deemed adequate to align the original amount
of credit described to their value of presumed realization. The end of
statement payments are analytically calculated for the seven employees working
on 31/12/1996.
At the closing of the financial year, considering that the suppositions to keep
the integrative premium reserve no longer existed and, since the liability to
accidents for elementary sub-headings improved, the company saw to the transfer
of the above with counterpart non-recurrent incomes.
The (net) fund for future charges was set up to meet CIRAS' management charges
and connected activities, based on a reasonable estimate of the amount due,
whilst waiting to hear from Corsorzio.
The average number of employees during 1996 was 7 (9 in 1995).
The number of employees on 31/12/1996 is the following:
white collar workers 4
middle managers 1
(top) managers 2
-----------------------
total 7
The amount for the tax fund on 31/12/1996 includes the tax on Net Assets ex D.L.
513/92 of the financial year, and was listed between the statement's costs.
For the statements that still remain open fiscally (1989 onwards) there are no
assessments under way by the fiscal Authorities.
17
<PAGE>
ACCOUNTS
These include third party shares as security for 1,6 million lire and guarantees
lent by a bank in favour of the company for 32,5 million lire, and 69 million
lire (corresponding to the government concession tax paid over the years) for
which the refund was asked.
COMPANY CAPITAL AND ASSETS RESERVES
The changes during the last three financial years are as follows:
(see Italian page 17)
- ---------------------
COMPANY CAPITAL
The initial company capital of 1.500 million lire was knocked down during 1995
by 570 million lire to cover the remaining loss of the 1994 statement and the
partial loss of the 1995 statement resulting on 30 April 1995, as indicated. It
was re-set at 2.500 million lire, of which 1.560 was paid after the meeting's
resolution of 28 June 1995.
The company capital on 31 December 1996 was made up of n. 2.500.000 shares, each
one being 1.000, and registered respectively to ASA SpA (50%) and Sarti Seregni
Maria Luisa (50%).
INTEGRATION FUND SOLVENCY MARGIN EX ART. 36 L. 295/1978 (?)
This is as follows:
Million Lire
balance on 31 Dec. 1993 1.771
utilization loss cover 1993 statement (1.771)
increase for re-evaluation on property Via Flaminia, 393 333
utilization partial loss cover on 30/09/1994 (312)
utilization partial loss cover on 30/04/95 10
------
11
All the re-evaluations ex art. 36 L. 295/1978 were carried out by experts. They
had no impact on the profit and loss account (including the 1994 one of 333
million lire). We enclose a table of the assets and liabilities reserves, ex
art. 105 of law 917/1986.
b) PROFIT AND LOSS ACCOUNT
. STATEMENT PREMIUMS AND "ACCESSORIES"
1996 1995
premiums and accessories of the
direct work statement 12.434 10.811
premiums and accessories on risks
taken on in reinsurance - 6.178
----------------------
12.434 16.989
18
<PAGE>
In comparison with the previous year, there is a decrease in acquisition
commission (362 million lire) of which 123 million lire refers to elementary
sub-headings as a consequence of the diminished amount of premiums, and 240
million lire to hail. However, an increase of 449 million lire for "other
expenses to third parties" can be noted, due to the supplementary commission
calculated on the sub-heading 'hail'. Last year no supplements were seen because
the production objectives were not reached.
Commission to agents is the market norm for similar companies.
PROPERTY AND FINANCIAL CHARGES
1996 1995
expenses regarding real estate investments 17 23
expenses regarding shares 11 14
black interest 41 57
--------------------
69 94
These are no significant changes compared with the previous statement.
The black interest particularly concerns the 1996 quota accrued on the loan
agreement with MGI and the reinsurance deposit accounts.
PROPERTY AND FINANCIAL RETURNS
1996 1995
revenue and returns from real
estate administration 9 9
premium interest and other gains
from fixed-income shares 194 208
interest on deposits at banking
institutions 100 57
interest on other credit 95 20
interest to reinsurance companies 3 36
--------------------
401 330
'Interest on other credit' includes the quota of interest accrued on credit
concerning Toro Assicurazioni - credit that was entirely recovered during that
financial year.
OTHER RETURNS AND RECOVERIES
1996 1995
25 94
these are from third parties for administrative payments.
EXTRA CHARGES
1996 1995
losses on credit - 10
non-recurrent charges - 2
losses deriving from balance sheet
evaluation of fixed-income shares 20 -
costs regarding the sales of real estate 8 -
20
<PAGE>
1996 1995
EXTRA RETURNS
gains from transfer of real estate 35 -
gains from transfer of movable
goods 5 2
non-recurrent incomes 1.396 218
---------------------
1.436 220
During the financial year the property in Bologna was transferred, which
generated a gain of 35 million lire.
728 million lire was given to the non-recurrent incomes account which refers to
the legal interest which the Turin Tribunal declared to be in our favor
following the Toro case. The recoveries from the integration premium reserve
fund for 200 million lire, and the amendment fund of 155 million lire for assets
various (the fund is already being taxed), have been added to the same account,
following the settlement of the debit concerning Toro.
GENERAL EXPENSES
1996 1995
717 796
The impact on premiums is of 5,88%. The expenses for personnel total 712
million lire with an impact of 5,84%.
1996 1995
Payments to administrators was 159 148
Payments to the Union was 29 24
DUTIES AND TAXES
The company only set aside the duty on property since the income-tax return for
the 1996 statement will highlight a negative fiscal result.
The losses declared which can still be taken advantage of, according to IRPEG,
and resulting from the last income tax return, are following:
DECLARED LOSS
1992 713
1993 2.328
1994 1.392
1995 35
PAYMENT MARGIN AND TECHNICAL (CONTINGENCY) RESERVE COVER
The payment margin (of credit-worthiness), calculated with regard to the
average cost of losses (since this is greater than the annual amount of
premiums) was 1.433 million lire on 31/12/1996.
The payment margin's components come to 1.503 million lire. There is therefore
an excess of 70 million lire.
The actuarial reserves seem to be covered according to the D.Lgs of 19/03/96 n.
206, causing modification and integration of the D.Lgs 17/03/94 n. 175.
Board of Directors
21
<PAGE>
As for the 'hail' entry from the 1996 statement, neither cession nor
'retrocession' operations regarding Consap exist anymore because, with the
understanding of the third EEC directive, CIRAS was prevented from working
following the Antitrust sentence.
The direct work premiums in elementary sub-headings saw a decrease of 41,7%,
compared with those of the previous statement, whilst those of the hail
sub-heading saw an increase of 29,68%.
For further details on direct work, you can refer to the management report and
the progress of individual entries.
ASSIGNED PREMIUMS
1996 1995
on direct insurance risks 8.507 8.761
risks taken on in reinsurance - 3.383
---------------------
8.507 12.345
The company avails itself of treaties in quota an Excess of loss for elementary
sub-headings, and treaties in quota and stop loss for 'hail'.
COMPENSATION PAID OUT, RELATING CHARGES AND LIQUIDATION COSTS
The following is the analytical composition of compensation compared with the
same information from the previous statement.
1996 1995
. losses from statement 19.684 8.206
. losses from previous statements 883 2.109
. losses on risks in reinsurance - 5.717
---------------------
20.567 11.634
The above amounts refer to the sums paid out for compensation, direct expenses.
The liquidation costs for this statement's losses were equivalent to 213 million
lire (217 million lire in 1995) and for previous statements 168 million lire
(122 million in 1995).
The compensation for hail is for 18.943 million lire (6.892 million in 1995) and
1.624 million for other sub-headings (1.374 million lire in 1995). The increase
in losses for hail is of 175% compared with the last statement and it reflects
the exceptional liability to loss during 1996. The losses from elementary
sub-headings saw a decrease of 43,62% compared with the previous statement.
ACQUISITION CHARGES, PRODUCTION AND ORGANIZATION
The amount shown on the balance sheet includes:
1996 1995
acquisition commission 975 1.337
other expenses to third parties 463 14
direct expenses for acquisition 91 11
communal charges for acquisition,
production and organization 418 476
acquisition charges for risks taken
on in reinsurance - 1.236
---------------------
1.947 3.074
19
<PAGE>
SIAC ASSICURAZIONI S.P.A.
ENCLOSURE A
ANALYTICAL STATEMENT OF THE RE-EVALUATION VALUES CARRIED OUT ON REAL ESTATE
(in thousands)
(SEE ENCLOSURE A)
ENCLOSURE B
STATEMENT OF PATRIMONIAL RESERVES (ASSETS)
(EX. ART. 105 OF L. 917/1986)
(SEE ENCLOSURE B)
RE-CLASSIFIED STATEMENT OF ASSETS AND LIABILITIES
ON 31/12/96 - 31/12/95
(in millions)
ASSETS 31.12.1996 31.12.1995
Savings and banks 195 1.537
Credit to members for deposits still due 940 940
Net credit from relative funds
to insureds 761 448
to agents and intermediaries 158 164
to reinsurance companies 2.179 601
credits various 540 552
(devaluation credit fund) (142) (137)
accrued income and deferred charges 38 37
-----------------------
total current assets 4.669 4.142
fixed-income shares 1.657 1.613
non-quoted holdings 3 3
other financial capital expenditure 520 507
furniture, installations yearly costs,
transport (net) 95 105
real estate goods (net) 2.318 2.553
sums to be recovered (Toro case) - 1.111
-----------------------
total assets (not-current) 4.593 5.892
-----------------------
total assets 9.262 10.034
LIABILITIES
debts to agents 1.210 503
different debts 1.218 786
debts to reinsurance companies 861 1.164
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
other debts 899 546
accrued expenses and deferred incomes 44 23
tax fund 10 22
total current liabilities 4.242 3.044
end of financial year payment (wages?) 304 254
premium reserve integration fund - 200
future charges fund 59 80
net actuarial reserves
. premiums reserves 916 1.798
. losses reserve 1.751 2.131
total non-current liabilities 3.030 4.463
NET PROPERTY
company capital 2.500 2.500
legal reserve 1 -
carry-over from previous statements 14 -
covered loss during year - 1
integrative fund L. 295/78 11 11
taxed reserve 1 -
profit (loss) of statement (537) 15
---------------------
total net assets 1.990 2.527
---------------------
total liabilities and net assets 9.262 10.034
</TABLE>
<TABLE>
<CAPTION>
RE-CLASSIFIED ECONOMIC ACCOUNT
ON 31/12/1995
(in million lire)
<S> <C> <C>
1996 1995
related gross premiums 13.283 17.836
assigned premiums (8.767) (12.278)
-----------------------
4.516 5.558
related losses (20.750) (15.587)
assigned losses 15.168 11.225
-----------------------
related retained losses (5.582) (4.362)
-----------------------
passive (unprofitable) commission (1.947) (3.074)
active (profitable) commission 1.506 2.333
-----------------------
(441) (741)
-----------------------
result from insurance management (1.507) 455
assets and net financial returns 333 236
-----------------------
result from insurance and financial
management (1.174) 691
general and administrative expenses (717) (797)
setting aside quotas (2) (86)
amortization quotas (31) (29)
direct returns and premiums 25 94
-----------------------
result of operations (1.899) (127)
</TABLE>
23
<PAGE>
Extra charges and returns 1,407 207
------------------
Results before taxes (492) 80
Taxes (45) (65)
------------------
Result of financial year (537) 15
SIAC ASSICURAZIONI SPA
FINANCIAL REPORT
(in million lire)
SOURCES OF FINANCING 31-12-95 31-12-95
Liquidity generated from the financial year's
income management
Net profit (loss) (537) 15
More (less) changes to entries that have
no effect on the liquidity:
1. Devaluation/(re-eval) shares
2. (Gains)/losses from transfer of property and goods
3. Amortizations
4. Old-age indemnity
5. Set aside quota
6. Payments
7. Increase (decrease) losses reserve
8. Increase (decrease) premium reserve
9. Increase (decrease) debts and other liabilities (see Italian for figures)
10. Increase (decrease) accrued expenses and
deferred incomes
11. Decrease (increase) credit and other activities
12. Decrease (increase) accrued income and
deferred charges
13. Setting aside in tax fund
14. Setting aside in devaluation credit fund
15. Setting aside future charges fund
16. Utilization premium reserve integration fund
17. Liquidity generated from income management
18. Increase in company capital
19. Loss covered during increase in capital
20. Short-term financing
21. Returns from sale of real estate and goods
22. Returns from sale/refund of fixed-income shares
24
<PAGE>
USES OF LIQUIDITY
1. Financial capital expenditure
2. Fixed assets and yearly charges
3. Increase in fixed-income shares
4. Refund of financing
5. Payment of taxes
INCREASE (DECREASE) IN CASH ACCOUNTS
AND BANK ACCOUNTS ((A)-(B))
CASH AND BANK ACCOUNTS AT THE BEGINNING OF THE STATEMENT
CASH AND BANK ACCOUNTS AT THE END OF THE STATEMENT
25
<PAGE>
SIAC ASSICURAZIONI SPA
Head office in Milan - Via Fabio Filzi 2
REPORT BY THE UNION ON THE BALANCE SHEET ENDING 31.12.1996
Dear shareholders,
you have been called to this meeting to approve of the balance sheet relating to
the financial year ending on 31.12.1996, with a loss of L. 537.362.183.
This balance sheet, presented by the Board of Directors, is made up of the
statement of assets, the economic account and by the end note, including the
report of management by the administrators. The balance sheet, in its entirety,
was given to the Union, in keeping with the terms of art. 2429 of the Civil
Code.
The Unionists in force during the 1996 financial year declare that periodical
checks were properly carried out (as according to art. 2403 of the Civil Code),
as a result of which nothing was found to query. The existence and complete
availability of the shares to cover the actuarial reserves, as well as the
enforcement of anti-recycling rules, was constantly checked.
The report by the auditing company KPMG SpA, who were given the job of
certifying the balance sheet of 31.12.1996, expresses conformity with the
disciplinary norms.
On examination of the balance sheet ending 31.12.1996, as shown for your
approval, the principle accountable results (compared with those of the previous
financial year) are as follows:
STATE OF ASSETS AND LIABILITIES (in million lire)
1996 1995
---- ----
ASSETS
- ------
. Current assets 4.669 4.412
. Capital expenditure 4.593 5.892
----- ------
Total 9.262 10.034
LIABILITIES
- -----------
. Current debts 4.242 3.044
. Actuarial reserves and setting asides 3.030 4.463
----- ------
Total 7.272 7.507
NET ASSETS AND LIABILITIES 1.990 2.527
- --------------------------
ECONOMIC ACCOUNT
Retained premiums 4.516 5.558
Retained losses (5.582) (4.362)
26
<PAGE>
Net commission (441) (741)
--- ---
Insurance management result (1.507) 455
Financial management result 333 236
General expenses, receipts and various
charges (725) (818)
--- ---
Operational result (1.899) (127)
Extra charges and returns 1.407 207
Taxes (45) (65)
--- ---
Result of the statement (537) 15
We declare that the documents which make up the balance sheet are those foreseen
by the law, and in particular by the Civil Code, as of changes made by the
Legislative Decree of 9 April 1991, n. 127. The balance sheet is made up of
three parts: state of assets and liabilities, economic account and integrative
note. Concerning the state of assets and liabilities and the economic account,
the Unionists confirm that:
. the structures foreseen by the norm concerning the balance sheet of the
insurance companies have been respected;
. the evaluation criteria according to art. 2426 Civil Code was applied, except
for the real estate which underwent, during previous years, a re-evaluation
of L. 75,603 million (according to Law 72/83), one of L. 21,052 million
(according to L. 413/91), another of L. 1.771,468 million (art. 36 of L.
295/78), and in the 1994 statement, one of L. 333,430 million according to
the same art. 36 of L. 295/78, without charging to the economic account;
. a comparison of the amounts of each entry was made with the results of the
previous statement.
The Union can also guarantee that during the drawing up of the economic account
and of the state of assets and liabilities, no compensations on items were made.
As far as the integrative note is concerned, the Union confirms that this was
drawn up according to the obligatory guidelines of art. 2427 Civil Code, adapted
to the specific insurance sector.
The information in the balance sheet comply with the results of the company
accounts.
The Union also confirms that the results used by the administrators to draw up
the balance sheet documents derive from information from the properly kept
accounts.
The evaluation of the capital expenditure (that different from the real estate),
came to the acquisition cost. Both the material capital expenditure and the
immaterial capital expenditure were systematically amortized in relation to
their remaining utility.
The shares listed are valued at the acquisition cost, taking into account the
issuance margins.
The premium reserves were calculated with the pro-rata temporis method and the
loss reserves were determined analytically on the basis of the presumed
definition of the last loss cost and also takes into account the estimate of
future costs.
In conclusion we confirm that:
. no appeal to the derogation (art. 2423 comma 4, Civil Code) was made.
. we approve of the balance sheet at your disposal.
. we agree with the treatment of the balance sheet loss.
Milan 10.06.1997 UNION
27
<PAGE>
KPMG
AUDIT REPORT ON THE FINANCIAL YEAR, AS OF ART. 73 OF
LEGISLATIVE DECREE, 17 MARCH 1995, N.175
To the shareholders of
SIAC Assicurazioni S.p.A.
1. We have submitted the balance sheet from SIAC Assicurazioni SpA. (ending 31
December 1996) for auditing (real estate - Model 5, account of profits and
losses - model 6 and integrative note). We have also checked the compliance
of the report on management with the balance sheet.
2. Our examination was carried out according to the principles and criteria for
accounts checking recommended by Consab, and integrated, where necessary,
based on auditing procedures specifically for insurance companies' balance
sheets, as well as carrying out checks that we deemed necessary to fulfil
our aim. As for a verdict on the previous statement's balance sheet, you can
refer to the audit report issued by us on 11 June 1996.
3. In our opinion, the balance sheet is its entirety (model 5, model 6 and
integrative note) was clearly drawn up and realistically represents the
patrimonial and financial situation of the economic result of the Company,
in conforming with the norms. We therefore issue an external audit
(certification) of SIAC Assicurazioni SpA, 31 December 1996.
4. As indicated in the integrative note, SIAC, comforted by the favourable
outcome of the legal case with the other delegatee company (which brought
about the return of payments for losses not due and the cashing of premiums
retained by the same), listed among the extra components for income (asset)
interest recognized by the Tribunal and the specific correcting fund of
L.1.183 million (which in the past had been carefully set aside and then no
longer deemed necessary). Expenses for losses and interest, amounting to the
stated in the integrative note, could emanate from the eventual negative
outcome of the above-mentioned case in later stages of the verdict.
Other than for that indicated previously, uncertainties still remain over the
company continuity in relation to present characteristics and dimensions of the
portfolio. Moreover, as indicated by the administrators in the management
report, new operative strategies were carried out and the initiatives
deliberated in the 1995 statement were confirmed and finalized for the
reinforcement of patrimonial methods.
Milan, 13 June 1997
KPMG SpA
Mario Tamborini
28
<PAGE>
EXHIBIT 99.G
SIAC ACQUISITION
FINANCIAL INFORMATION
(FISCAL YEARS ENDING DECEMBER 31, 1996 AND 1995)
1996
- --------------------------------------------------------------------------------
ASSETS ITL (x 1,000,000)
- --------------------------------------------------------------------------------
Buildings 2 318
Fixed revenue bonds 1 657
Subsidiaries & Other investments 523
Investments 2 180
Fixed assets 95
(net of depreciation)
Agents & Brokers 919
Reinsurers 2 179
Other assets 38
Other credits 398
Sundry credits 3 534
Shareholders 940
Cash and equivalent 195
- --------------------------------------------------------------------------------
TOTAL 9 262
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES ITL (x 1,000,000)
- --------------------------------------------------------------------------------
Capital 2 500
Shareholders fund 13
c/f results -523
Net equity 1 990
Net premium reserve 916
Net loss reserve 1 751
Net reserve funds 2 887
Staff redundancy fees reserve 304
Reinsurers current account 861
Agents current account 1 210
Other debitors 2 230
Other debts and liabilities 4 301
- --------------------------------------------------------------------------------
TOTAL 9 262
- --------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------
ASSETS USD (x 1,000,000)
- --------------------------------------------------------------------------------
Buildings 1.515
Fixed revenue bonds 1.083
Subsidiaries & Other investments 0.342
Investments 1.425
Fixed assets 0.082
(net of depreciation)
Agents & Brokers 0.601
Reinsurers 1.424
Other assets 0.025
Other credits 0.260
Sundry credits 2.310
Shareholders 0.614
Cash and equivalent 0.127
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES USD (x 1,000,000)
- --------------------------------------------------------------------------------
Capital 1.634
Shareholders fund 0.008
c/f results -0.342
Net equity 1.301
Net premium reserve 0.599
Net loss reserve 1.145
Net reserve funds 1.743
Staff redundancy fees reserve 0.199
Reinsurers current account 0.583
Agents current account 0.791
Other debitors 1.458
Other debts and liabilities 2.811
- --------------------------------------------------------------------------------
TOTAL 6.054
- --------------------------------------------------------------------------------
Exchange rate to 1 USD 1 529.82 (FT Dec 27th 1996)
<PAGE>
SIAC ACQUISITION
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------- ---------------------------------
| Profit and Loss summary ITL (x 1,000,000) | | USD (x 1,000,000) |
|----------------------------------------------------------------------------------| |---------------------------------|
| Gross Ceded | Net | | Gross Ceded | Net |
|-------------------------------------------------------------------------|--------| |------------------------|--------|
|<S> <C> <C> | <C> | | <C> <C> |<C> |
| Written premiums 13 283 -8 767 | 4 518 | | 8.683 -5.731 | 2.952 |
| (included premium reserve and portfolio variation) | | | | |
| | | | | |
1 | Losses -20 750 15 168 | -5 582 | | -13.564 9,915 | -3.649 |
9 | (included loss reserve and portfolio variation) | | | | |
9 | | | | | |
6 | Commissions -1 947 1 506 | -441 | | -1.273 0.984 | -0.288 |
| | | | | |
|-------------------------------------------------------------------------|--------| |------------------------|--------|
| Insurance balance | -1 507 | | | -0.985 |
|-------------------------------------------------------------------------|--------| |------------------------|--------|
| | | | | |
| Investment Income | 333 | | | 0.218 |
| | | | | |
| General overheads | -750 | | | -0.490 |
| (included depreciation and taxes) | | | | |
| | | | | |
| Other revenues | 25 | | | 0.016 |
| | | | | |
|-------------------------------------------------------------------------|--------| |------------------------|--------|
| Result of the year | -1 899 | | | -1.241 |
|-------------------------------------------------------------------------|--------| |------------------------|--------|
| | | | | |
| Extraordinary item (recovery) | 1 407 | | | 0.920 |
| Taxation | -45 | | | -0.029 |
| | | | | |
|-------------------------------------------------------------------------|--------| |------------------------|--------|
| Net Result of the year | -537 | | | -0.351 |
---------------------------------------------------------------------------------- ---------------------------------
</TABLE>
Exchange rate to 1 USD 1 529.82 (FT Dec 27th 1996)
