<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to __________
Commission File No. 2-8381-NY
ARISTA INVESTORS CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-2957684
- ------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
116 John Street, New York, N.Y. 10038
- ---------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212)964-2150
Indicate by check mark whether the registrant has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The aggregate number of Registrant's outstanding shares on November 20, 1998
was 2,570,100 shares of Class A Common Stock, $0.01 par value (excluding 10,000
shares of treasury stock) and 47,400 shares of Class B Common Stock, $0.01 par
value.
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<PAGE>
ARISTA INVESTORS CORP.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets at September 30,
1998 (Unaudited) and December 31, 1997 3
Consolidated Statements of Operation
(Unaudited) for the nine months ended
September 30, 1998 and 1997 5
Consolidated Statements of Changes in Stockholders' Equity for
the nine months ended September 30, 1998 (Unaudited) and the year
ended December 31, 1997 6
Consolidated Statements of Cash Flows
(Unaudited for the nine months ended
September 30, 1998 and 1997 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operattions 11
PART II. OTHER INFORMATION
Item 1 through Item 6 14
Signatures 16
</TABLE>
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Investments:
Held-to-maturity securities:
Bonds and long-term U. S. Treasury
obligations at amortized cost (market
value $2,747,893 at September 30, 1998 and
$2,632,904 at December 31, 1997) $2,621,165 $2,630,453
Available-for-sale securities:
Redeemable preferred stocks, at market value
(amortized cost of $31,524 at September 30,
1998 and December 31, 1997) 7,104 9,250
Trading securities, at market value (cost of $279
at September 30, 1998 and December 31, 1997) 366 85
------------- ------------
Total investments 2,628,635 2,639,788
Cash and equivalents 8,276,388 8,296,943
Premiums receivable 0 2,978,600
Deferred policy acquisition costs, net 0 484,398
Receivables from related parties 562,394 443,182
Furniture and equipment, at cost, net of
accumulated depreciation of $819,709 at September
30, 1998 and $783,799 at December 31, 1997 87,752 113,663
Deferred income taxes, net 979,486 710,050
Receivables from third party administration 940,620 192,500
Receivables from reinsurer 1,461,360 0
Other assets 881,999 1,174,072
------------- ------------
Total assets $15,818,634 $17,033,196
------------- ------------
------------- ------------
</TABLE>
(Continued)
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to reinsurer $ 0 $ 158,721
Claims liabilities 0 3,391,950
Unearned premiums 0 1,464,800
Commissions and fees payable 226,117 729,912
Accounts payable and accrued expenses 3,866,565 1,627,187
Income taxes payable, net 1,248,944 277,771
Surplus note payable, net 2,891,250 2,880,000
------------- ------------
Total liabilities 8,232,876 10,530,341
------------- ------------
Commitments and contingencies: (Note 2)
Stockholders' equity:
Class A common stock, $.01 par value;
9,950,000 shares authorized; 2,580,100
shares issued 25,801 25,801
Class B convertible common stock, $.01 par
value; 50,000 shares authorized, 47,400
shares issued and outstanding 474 474
Additional paid-in capital 5,839,609 5,839,609
Paid-in capital attributed to detachable warrant 150,000 150,000
Retained earnings 2,121,099 1,035,985
Accumulated comprehensive income (loss):
Net unrealized investment loss (Note 4) (24,485) (22,274)
------------- ------------
8,112,498 7,029,595
Secured promissory note from shareholder (500,000) (500,000)
Cost of 10,000 shares Class A common stock
held in treasury (26,740) (26,740)
------------- ------------
Total stockholders' equity 7,585,758 6,502,855
------------- ------------
Total liabilities and stockholders' equity $ 15,818,634 $ 17,033,196
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenue from continuing operations:
Third-party administrative services 837,198 93,920 1,035,988 248,091
Net realized and unrealized investment
gains (losses) (14) 225 346 (2,519)
Net investment income 139,119 124,834 403,626 379,849
Other income 4,609 6,852 21,323 4,900
---------- --------- ---------- ---------
Total revenue 980,912 225,831 1,461,283 630,321
General and administrative expenses 1,041,890 270,000 1,041,890 810,000
---------- --------- ---------- ---------
Income (loss) before income taxes (60,978) (44,169) 419,393 (179,679)
Income tax provision (benefit) (23,781) (17,225) 163,563 (70,075)
---------- --------- ---------- ---------
Income (loss) from continuing operations (37,197) (26,944) 255,830 (109,604)
---------- --------- ---------- ---------
Discontinued operations:
Income (loss) from discontinued operations,
net of tax (Note 7) 166,387 (39,371) (8,887) 243,864
Gain on disposal of discontinued operations,
net of tax of $530,719 838,171 -- 838,171 --
---------- --------- ---------- ---------
Income (loss) from discontinued operations 1,004,558 (39,371) 847,058 243,864
---------- --------- ---------- ---------
Net income (loss) $ 967,361 $ (66,315) $ 1,085,114 $ 134,260
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Net income (loss) per common share:
Continuing operations $ (0.01) $ (0.01) $ 0.10 $ (0.04)
Discontinued operations 0.38 (0.02) 0.31 0.09
---------- --------- ---------- ---------
$ 0.37 $ (0.03) $ 0.41 $ 0.05
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Weighted average number of common shares
outstanding 2,617,500 2,617,500 2,617,500 2,617,500
---------- --------- ---------- ---------
---------- --------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Nine months ended September 30, 1998 (unaudited) and year ended
December 31, 1997
<TABLE>
<CAPTION>
Common Stock
--------------------------------------------------------------
Class A Convertible Class B
------------------------ ----------------------------------
Paid-in
capital
attributed
Number Par Number Par Additional to
of value of value paid-in detachable
Shares $.01 Shares $.01 capital warrants
---------- ------------ -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1997 2,580,100 $ 25,801 47,400 $ 474 $5,839,609 $ 150,000
Net income -- -- -- -- -- --
Net investment gain -- -- -- -- -- --
---------- ------------ -------- ----------- ----------- -------------
Balance - December 31, 1997 2,580,100 $ 25,801 47,400 $ 474 $5,839,609 $ 150,000
Net income (unaudited) -- -- -- -- -- --
Net investment loss (unaudited) -- -- -- -- -- --
---------- ------------ -------- ----------- ----------- -------------
Balance - September 30, 1998 (unaudited) 2,580,100 $ 25,801 47,400 $ 474 $5,839,609 $ 150,000
---------- ------------ -------- ----------- ----------- -------------
---------- ------------ -------- ----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
Accumulated Class A
other Secured common
compre- promissory stock
Retained hensive note held in
earnings income receivable treasury Total
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1997 $ 935,665 $ ( 27,229) $ ( 500,000) $ ( 26,740) $ 6,397,580
Net income 100,320 -- -- -- 100,320
Net investment gain -- 4,955 -- -- 4,955
------------ ------------ ------------- ------------ ------------
Balance - December 31, 1997 1,035,985 (22,274) (500,000) (26,740) 6,502,855
Net income (unaudited) 1,085,114 -- -- -- 1,085,114
Net investment loss (unaudited) -- (2,211) -- -- (2,211)
------------ ------------ ------------- ------------ ------------
Balance - September 30, 1998 (unaudited) $ 2,121,099 $ ( 24,485) $ (500,000) $ ( 26,740) $ 7,585,758
------------ ------------ ------------- ------------ ------------
------------ ------------ ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,085,114 $ 134,260
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 35,910 42,992
Discount on surplus note 11,250 11,250
Amortization of deferred acquisition costs 484,398 224,545
Loss on sale of investments -- 2,625
Deferred income taxes/(benefit) (1,257,257) 109,946
(Increase) decrease in operating assets:
Premiums receivable 2,978,600 504,700
Receivables from officers and directors (119,212) (122,079)
Prepaid and refundable income taxes 710,050 193,010
Receivables from third party administration (748,120) 19,280
Receivables from reinsurer (1,461,360) --
Other assets 292,073 162,581
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 2,239,378 349,364
Payable to reinsurer (158,721) (4,146)
Net claims liabilities (3,391,950) (651,300)
Net unearned premiums (1,464,800) 82,920
Commissions and fees payable (503,795) 71,186
Income taxes payable, net 1,248,944 --
----------- -----------
Net cash provided by (used in) operating activities (19,498) 1,131,134
----------- -----------
Cash flows from investing activities:
Capital expenditures (9,999) (32,717)
Proceeds from sale of investments 8,942 112,990
Purchases of investments -- (279)
----------- -----------
Net cash used in investing activities (1,057) 79,994
----------- -----------
Increase in cash and equivalents (20,555) 1,211,128
Cash and equivalents:
Beginning of period 8,296,943 7,076,659
----------- -----------
End of period $ 8,276,388 $ 8,287,787
----------- -----------
----------- -----------
Supplemental cash flow disclosure:
Cash paid during the period for income taxes $ 299,195 $ 295,931
----------- -----------
----------- -----------
Supplemental investing and financing disclosure:
Proceeds from sale of insurance business ($3,421,486) --
Premiums receivable sold (3,249,000) --
Net claim liabilities 2,400,000 --
Net unearned premiums 1,328,491 --
Payable to reinsurer 1,480,635 --
----------- -----------
(1,461,360) --
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1997
(Unaudited)
Note 1 - Basis of presentation
The accompanying consolidated financial statements are prepared on the basis of
generally accepted accounting principles ("GAAP"). Certain information normally
included in annual financial statements prepared in accordance with GAAP has
been condensed or omittted pursuant to the rules and regulations of the
Securties and Exchange Commission. GAAP differs from statutory accounting
principles ("SAP") used by insurance companies in reporting to state regulatory
agencies. In the opinion of the management of Arista Investors Corp. (the
"Company" or the "Registrant"), all adjustments (consisting of normal recurring
accruals only) have been reflected for a fair presentation of the unaudited
financial position as of September 30, 1998 and results of operations for the
nine-month and three-month periods ended September 30, 1998 and 1997. The
operating results for the periods are not necessarily indicative of the results
to be expected for the entire year.
Note 2 - Reinsurance
From October 1, 1995 to December 31, 1997, Arista Insurance Company ("Arista")
had an agreement with The Cologne Life Reinsurance Company whereby Arista ceded,
by way of reinsurance, a 50% quota share participation in Arista's statutory,
super statutory and voluntary disability benefits insurance (collectively, the
"Insurance"), both for business in force as of October 1, 1995 and for new
business written or acquired after October 1, 1995.
From January 1, 1998 to June 30, 1998 Arista had a Quota Share Reinsurance
Treaty with The Guardian Life Insurance Company of America ("The Guardian"),
pursuant to which Arista ceded by way of reinsurance, a 50% participation in the
Insurance, both for business in force as of January 1, 1998 and for business
written or acquired after January 1, 1998.
Effective as of July 1, 1998, the Company and Arista entered into an Assumption
Reinsurance Agreement (the "Agreement") with The Guardian. Pursuant to this
Agreement, the Company agreed to cede to The Guardian all of Arista's
liabilities under each and every policy of the Insurance that had been
underwritten by Arista. Arista discontinued sales of the Insurance, effective
November 11, 1998.
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<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998 and 1997
(unaudited)
Note 3 - Related parties
At September 30, 1998 and December 31, 1997, Bernard Kooper, Chairman of the
Boards of Directors of the Company and Arista and a Director of The Collection
Group, Inc., beneficially owned 20.4% and 100% of the outstanding shares of
Class A and Class B Common Stock, respectively. Mr. Kooper is also the owner of
Bernard Kooper Life Agency, Inc. (the "Agency"), one of the general agents of
Arista. The Agency received approximately $156,000 and $169,000 in commissions
from Arista during the nine months ended September 30, 1998 and 1997,
respectively. Of this amount, the Agency paid approximately $113,000 and
$116,000 during both the nine months ended September 30, 1998 and 1997,
respectively, to brokers, which included certain members of the Board of
Directors of the Company and Arista. The amount paid to members of the Board of
Directors of the Company and/or Arista by the Agency was approximately $15,000
and $13,000 for the nine months ended September 30, 1998 and 1997, respectively.
The commissions paid to the Agency in the third quarter were reimbursed by The
Guardian under the Agreement.
Note 4 - New Accounting Standards
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 (SFAS No. 130) "Reporting Comprehensive Income". This pronouncement requires
entities to make certain disclosures about all types of income, expenses, gains
and losses arising during the period in addition to net income from operations.
SFAS No. 130 is effective for years beginning after December 15, 1997.
SFAS No. 130 did not have a material effect on the Company's financial position
or results of operations for the nine-month periods ended September 30, 1998 and
September 30, 1997.
-9-
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1997
(Unaudited)
Note 5 - Segment Information
<TABLE>
<CAPTION>
Adminis-
trative
Insurance Service
Segment Segment Total
------------ ------------ -----------
<S> <C> <C> <C>
1998
Revenues from outside customers ...... $ 9,792,264 $ 1,035,988 $10,828,252
Major customers ...................... $ -- $ -- $ --
Profit and loss ...................... $ 829,284 $ 255,830 $ 1,085,114
1997
Revenues from outside customers ...... $16,471,370 $ 248,091 $16,719,461
Major customers ...................... $ 1,449,999 $ _ $ 1,449,999
Profit and loss ...................... $ 243,864 $ (109,604) $ 134,260
</TABLE>
Note 6 - Third Party Administration
The Company concurrently entered into an Administrative Services Agreement ("TPA
Agreement"), to be effective July 1, 1998, with The Guardian. As a third party
administrator, the Company performed administrative and other services relating
to the Insurance as well as other such insurance policies previously
underwritten by The Guardian. The Company earned a service fee based on both
fixed and variable percentages of paid premiums earned by The Guardian.
Arista has previously entered into administrative service agreements with The
United States Life Insurance Company in the City of New York and Hartford Life
and Accident Insurance Company for which it received fees based upon premiums
earned.
Note 7 - Discontinued Operations
In November 1998, the Company completed the sale of its insurance business,
previously conducted by its wholly-owned subsidiary, Arista, to The Guardian for
cash plus the assumption of related assets and liabilities. The sale resulted in
a net gain of $835,023, net of taxes of $533,867. The net assets of the
discontinued operations at September 30, 1998 have been segregated in the
consolidated balance sheet. Summary of operating results of the discontinued
operations, excluding the gain on disposal, are as follows:
-10-
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1997
(Unaudited)
Note 6 (continued)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
1998 1997 1998 1997
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Revenue:
Gross premiums earned $281,000 $5,475,359 $9,792,264 $16,471,370
Ceded premiums earned 0 2,737,680 4,630,632 8,235,685
-------- ---------- ---------- -----------
Net premiums earned 281,000 2,737,679 5,161,632 8,235,685
-------- ---------- ---------- -----------
Expenses:
Underwriting:
Gross claims incurred (141,424) 3,485,032 4,839,236 9,424,406
Ceded claims incurred (128,166) 1,742,516 2,362,164 4,712,203
-------- ---------- ---------- -----------
Net claims incurred (13,258) 1,742,516 2,477,072 4,712,203
-------- ---------- ---------- -----------
Gross commissions incurred 77,844 979,502 1,965,300 3,056,620
Ceded commissions incurred 56,351 906,190 1,538,787 3,255,823
-------- ---------- ---------- -----------
Net commissions incurred (earned) 21,493 73,312 426,513 (199,203)
-------- ---------- ---------- -----------
Total underwriting expenses 8,235 1,815,828 2,903,585 4,513,000
General and administrative expenses 0 900,297 2,272,616 3,042,146
-------- ---------- ---------- -----------
Total expenses 8,235 2,716,125 5,176,201 7,555,146
-------- ---------- ---------- -----------
Profit (loss) from discontinued operations,
before tax 272,765 21,554 (14,569) 680,539
Tax provision (benefit) 106,378 60,925 (5,682) 436,675
-------- ---------- ---------- -----------
Net income (loss) from discontinued operations,
net of tax $166,387 ($39,371) ($8,887) $243,864
-------- ---------- ---------- -----------
-------- ---------- ---------- -----------
</TABLE>
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<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements (unaudited) of the Company and the notes
thereto appearing elsewhere in this Form 10-Q. Except for the historical
information contained herein, the following discussion contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those projected in the forward-looking statements
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section, as well as in
other sections herein.
Results of Operations
Nine-Month And Three-Month Periods Ended September 30, 1998 VS.
September 30,1997(unaudited)
The Company's after tax income for the first nine months of 1998 was
approximately $1,085,000, of which approximately $256,000 was net income from
continuing operations and approximately $847,000 was net income from
discontinued operations. The net income from discontinued operations included a
loss from discontinued operations of approximately $9,000 and a gain on disposal
of discontinued operations of approximately $847,000. The Company's after tax
income for the third quarter ended September 30, 1998 was approximately
$967,000. In comparison, for the first nine months of 1997, the Company's net
income after taxes was approximately $134,000; comprised of a net loss from
continuing operations of approximately $110,000 and net income from discontinued
operations of approximately $244,000. For the third quarter ended September 30,
1997, the Company had a net loss of approximately $66,000.
The consolidated revenue from third-party administrative services was
approximately $1,036,000 and $248,000 for the first nine months of 1998 and
1997, respectively. The principal reasons for this increase were (a) the
additional fees earned by the Company based upon performance by the Company and
results achieved by The Guardian on the paid premiums earned from The Guardian's
existing book of business and (b) the fees earned by the Company on the
additional business serviced under The Guardian's Assumption Reinsurance
Agreement (Note 2).
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<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
Consolidated investment income for the first nine months of 1998 and 1997 was
approximately $404,000 and $380,000, respectively. For the third quarters of
1998 and 1997, consolidated investment income was approximately $139,000 and
$125,000, respectively.
Consolidated other income was approximately $21,000 and $5,000 for the nine
months ended September 30, 1998 and 1997, respectively.
The consolidated general and administrative expenses for the continued
operations for the first nine months of 1998 and 1997 were approximately
$1,042,000 and $810,000, respectively. The consolidated general and
administrative expenses were approximately $1,042,000 and $270,000 for the
quarters ended September 30, 1998 and 1997, respectively. The amounts reported
for the quarter ended September 30, 1998 represented the actual expenses
incurred in connection with the operation of the Company solely as a third party
administrator; such expenses incurred in the third quarter ended September 30,
1997 were mainly attributable to the sale and underwriting of the Insurance.
The consolidated loss of approximately $9,000 from discontinued operations for
the nine months ended September 30, 1998 was due to the costs incurred in
winding down the insurance business. For the nine months ended September 30,
1997, the net income from discontinued operations of approximately $244,000
reflected the continual sale and underwriting of the Insurance and an incurred
loss ratio of 57.2%.
For 1998's third quarter and first nine months, the net gain on disposal of
discontinued operations of approximately $838,000 represents the net funds
received from the cession of the Insurance business pursuant to the Agreement
with The Guardian.
Liquidity and Capital Resources
Retained earnings increased from $1,035,985 at December 31, 1997 to $2,121,099
at September 30, 1998 as a result of the Company's net income. The Company's net
income for the third quarter of 1998 included a net gain on disposal of
discontinued operations of $838,171.
Management does not believe that the year 2000 data-processing issue, which has
received wide-spread publicity in the industry, will have a material impact on
the Company.
-13-
<PAGE>
ARISTA INVESTORS CORP.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Nothing to report.
Item 2. Changes in Securities
Nothing to report
Item 3. Defaults Upon Senior Securities
Nothing to report.
Item 4. Submission of Matters to a Vote of Security Holders
On October 19, 1998, the Company held a special meeting of stockholders (the
"Special Meeting"). As of the record date the for Special Meeting, there were
2,570,100 shares of Class A Common Stock outstanding and 47,400 shares of
Class B Common Stock outstanding.
At the Special Meeting, the Company's Class A Common Stockholders and the Class
B Common Stockholder approved the sale of substantially all of the Company's
assets pursuant to an Assumption Reinsurance Agreement (the "Proposal") by and
among Arista Insurance Company, the Company and The Guardian Life Insurance
Company of America ("The Guardian").
The Class A Stockholder votes for the Proposal was as follows:
For: 1,904,440
Against: 15,540
Abstain: 0
The Class B Stockholder votes for the Proposal was as follows:
For: 47,400
Against: 0
Abstain: 0
-14-
<PAGE>
ARISTA INVESTORS CORP.
PART II. OTHER INFORMATION
(continued)
Item 5. Other Information
On November 12, 1998, the Company, together with Arista, consummated the sale of
Arista's book of New York State statutory, super statutory and voluntary
disability benefits insurance business to The Guardian. The Company will file a
Form 8-K under separate cover.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K: none
c. Exhibit 10.43: Employment Agreement between Stanley Mandel
and the Company
-15-
<PAGE>
SIGNATURES
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.
ARISTA INVESTORS CORP. (Registrant)
BY: /S/ BERNARD KOOPER
---------------------------------
BERNARD KOOPER, President and
Chairman of the Board (principal
executive officer)
BY: /S/ SUSAN J. HALL
---------------------------------
SUSAN J. HALL, Senior Vice President
and Treasurer (principal financial
and accounting officer)
November 20, 1998
-16-
<PAGE>
Exhibit 99.1
ARISTA INVESTORS CORP.
116 John Street
New York, New York 10038
September ___, 1998
Mr. Stanley S. Mandel
45 Sutton Place South
New York, New York 10022
Dear Stanley:
This letter will confirm our agreement with respect to your
relationship with Arista Investors Corp., a Delaware corporation (the
"Company"), which shall be effective (the "Effective Date") upon the closing
date (the "Closing Date") of the sale of substantially all of the Company's
assets pursuant to an Assumption Reinsurance Agreement by and among Arista
Insurance Company (a wholly-owned subsidiary of the Company), the Company and
The Guardian Life Insurance Company of America ("The Guardian").
In connection with the foregoing, we agree that:
1. Employment With the Company.
(a) During the period commencing on the Effective Date and
ending on the later to occur of (i) the second anniversary of the Effective
Date, or (ii) the termination date of that certain Administrative Services
Agreement between the Company and The Guardian (the "Administrative Services
Agreement"), (hereinafter referred to as the "Employment Period"), you shall
serve as President of the Company, subject to the terms and conditions specified
herein; provided, however,
<PAGE>
that the Employment Period shall terminate not later than the fifth anniversary
of the Effective Date, subject to the conditions set forth in paragraph 2(b).
(b) Notwithstanding anything contained herein to the contrary,
in the event this Agreement is being terminated pursuant to either paragraph
1(a)(i) or 1(a)(ii) (the "Proposed Termination"), the Company or such successor
or surviving corporation, at its sole option, shall have the right to elect to
extend the Employment Period for up to three additional one-year periods upon
not less than sixty (60) days prior written notice mailed to you prior to the
Proposed Termination; provided, however, that the Employment Period shall
terminate not later than the fifth anniversary of the Effective Date, subject to
the conditions set forth in paragraph 2(b).
(c) As President you shall assist, to the best of your
ability, in the operation of the Company, which shall include, but shall not be
limited to, the sale, promotion and development of the products and business of
the Company. You shall have the powers and duties commonly ascribed to a senior
executive officer of a corporation and shall report to and shall be responsible
to the Board of Directors of the Company. During the Employment Period, the
Board of Directors agrees to nominate you for election to the Company's Board of
Directors.
(d) Except during vacation periods or absences due to
temporary illness, you shall devote substantially all of your business time,
attention and energies to your duties and responsibilities hereunder and, except
for business trips which shall be necessary or desirable in connection with the
Company's business, shall render such services at the principal office of the
Company. Nothing herein contained shall prevent or be construed as preventing
you from holding or purchasing up to five (5%) percent of any class of stock or
securities of any corporation which is listed on a national securities exchange
or is regularly traded in the over-the-counter market, or
2
<PAGE>
from holding or making other investments in or from participating in any other
business venture, so long as no such investment or participation in such
business venture shall involve any requirement that you devote substantial time
during normal business hours thereto and, so long as such investment or your
participation in such business venture does not involve any conflict with your
duties or obligations to the Company as provided in this Agreement.
2. Compensation.
(a) In consideration for services to be rendered by you
hereunder during the Employment Period:
(i) You shall receive a salary at the rate of One
Hundred and Eighty-Five Thousand Dollars ($185,000) per annum, which salary
shall be subject to all applicable federal, state and other tax withholdings.
Such salary shall be paid to you in twenty-six (26) equal bi-weekly
installments, payable in arrears or on such other basis as other employees of
the Company generally are paid;
(ii) With respect to the period commencing January 1
of each fiscal year of the Company, commencing with the fiscal year beginning
January 1, 1999, and ending on December 31 of each fiscal year or the portion of
such fiscal year during which you are an employee of the Company (each a "Bonus
Period"), the Company will pay to you as additional compensation no later than
One Hundred Twenty (120) days after the end of such fiscal year, such bonus in
light of your contributions to the Company's performance for such Bonus Period.
Such bonus shall be based upon a weighted formula to be determined by the
Company's Board of Directors. The weighted formula referred to herein to be
applied by the Board of Directors for the bonus to be paid by the Company to you
for any Bonus Period will be equal to eight percent (8%) of the Company's
3
<PAGE>
annual earnings before income taxes from third party administration operations
for such Bonus Period. As used herein, the term "earnings before income taxes
from third party administration operations" shall mean the income of the
Company's current operations before taxes and extraordinary or non-recurring
items from third party administration operations for such Bonus Period.
(iii) In recognition of your services to the Company,
it is contemplated that the Company may, but shall not be obligated to, grant
stock options to you to purchase shares of the Company's Class A Common Stock
when, and if, determined by the Board of Directors of the Company.
(b) In the event this Agreement shall terminate in the manner
contemplated in sub-paragraph 8(b)(v), the Company shall have the option,
exercisable on sixty (60) days prior written notice, to advise you that the
Company has elected to cause you not to engage in any activity described in
sub-paragraph 8(a)(i) and 8(a)(ii) for a period of twelve (12) months following
the date of such termination in consideration of the payment by the Company of
the sum of One Hundred Eighty-Five Thousand Dollars ($185,000) to you, which
payment shall be paid to you in twelve (12) equal monthly installments, payable
on the first day of the month, commencing in the month subsequent to the month
in which your employment with the Company terminates. In the event the Company
fails to send such written notice to you, such failure shall be deemed to be an
election by the Company not to require you to forebear from engaging in any of
the activities described in sub-paragraph 8(a)(i) and 8(a)(ii) from and after
the date of such termination.
3. Fringe Benefits. You shall be entitled to participate in any and all
insurance fringe benefits and/or retirement plans generally afforded to the
other executives of the Company (to the
4
<PAGE>
extent you otherwise qualify therefor under the specific terms and conditions of
each such benefit or plan) including, without limitation, group disability
insurance, life insurance, medical insurance and pension plans which are, or
which may become available generally to senior executive officers of the
Company. You shall be entitled to four (4) weeks vacation during each twelve
(12) month period falling within the Employment Period, to be taken at such time
or times as the reasonable needs of the Company's business shall allow.
4. Reimbursement of Expenses.
(a) The Company shall reimburse you for all reasonable
expenses incurred in connection with the promotion of the business of the
Company, including expenses for travel, entertainment and similar expenses
incurred by you on the Company's behalf. No such reimbursement shall be made
except upon the presentation by you of an itemized account of such expenses or
other evidence thereof for which reimbursement then is being sought, all in form
reasonably satisfactory to the Company.
(b) The Company shall provide a Five Thousand Dollar ($5,000)
nonallocated expense allowance for expenses incurred by you in carrying on the
business of the Company for each twelve (12) month period falling within the
Employment Period, payable in twelve (12) equal monthly installments on the
first (1st) day of each month falling within the Employment Period.
5. Termination of Employment. During the Employment Period, your
employment may be terminated by the Board of Directors of the Company on the
occurrence of any one or more of the following events:
(a) Your death;
5
<PAGE>
(b) Your failure substantially to perform your duties and
responsibilities hereunder owing to physical or mental incapacity (hereinafter
referred to as a "disability"), which disability shall continue for more than
six (6) consecutive months;
(c) For "Cause," which shall mean (i) your willful failure
substantially to perform your duties hereunder, for reasons other than death or
disability; (ii) your willful engaging in misconduct materially injurious to the
Company; or (iii) your commission of an act constituting common law fraud or a
felony against the Company;
(d) A "Change of Control" of the Company, in accordance with
paragraph 9 below; or
(e) Pursuant to the provisions of paragraph 1(a) above, upon
the termination of the Administrative Services Agreement.
6. Indemnity. The Company shall indemnify you and hold you harmless
from any and all liability arising out of any act or failure to act undertaken
by you in good faith while performing services for the Company and shall use its
best efforts to obtain coverage for you under any insurance policy not in force
or hereafter obtained during the Employment Period covering officers and
directors of the Company against claims made against them or any of them for any
act or failure to act in such capacities. The Company shall pay all expenses,
including reasonable attorneys' fees actually or necessarily incurred by you in
connection with the defense of any action, suit or proceeding arising out of any
such claim and in connection with any appeal arising therefrom.
7. Disclosure of Information. All memoranda, notes, records or other
documents made or compiled by you or made available to you during the Employment
Period concerning the business of the Company or any of its subsidiaries, shall
be the Company's property and shall be delivered
6
<PAGE>
to the Company by you on the termination of your employment. You shall not use
for yourself or others or divulge to others, any proprietary or confidential
information of the Company obtained by you as a result of your employment unless
authorized by the Company. For purposes of this paragraph 7, the term
"proprietary or confidential information" shall mean all information which is
known only to you or to you and other employees, former employees, consultants
or others in a confidential relationship with the Company which relates to
specific matters such as trade secrets, customers, potential customers, vendor
lists, pricing and credit techniques, research and development activities, books
and records and commission schedules, as they may exist from time to time, which
you may have acquired or obtained by virtue of work heretofore or hereafter
performed for or on behalf of the Company or which you may acquire or may have
acquired knowledge of during the performance of such work, and which is not
known to others, or is not readily available to others from sources other than
you, or is not in the public domain. In the event of a breach or a threatened
breach by you of the provisions of this paragraph 7, the Company shall be
entitled to an injunction restraining you from disclosing, in whole or in part,
the aforementioned proprietary or confidential information of the Company, or
from rendering any services to any person, firm, company, association or other
entity to whom or to which such proprietary or confidential information, in
whole or in part, has been disclosed or is threatened to be disclosed. Nothing
herein contained shall be construed as prohibiting the Company from pursuing any
other remedies available to the Company for such breach or threatened breach,
including the recovery of damages from you.
8. Restrictive Covenants.
(a) You hereby acknowledge and recognize the highly
competitive nature of the Company's business and, accordingly, agree that, in
consideration of the premises contained herein,
7
<PAGE>
you will not during the Employment Period and thereafter until the Designated
Date (as hereinafter defined): (i) directly or indirectly engage in any
Competitive Activity (as hereinafter defined), whether such engagement shall be
as an officer, director, employee, consultant, agent, lender, stockholder, or
other participant; or (ii) assist others in engaging in Competitive Activity. As
used herein, the term "Competitive Activity" shall mean and include the
development and marketing of and all activity involving the sale, administration
or servicing of statutory disability benefits insurance or any other insurance
product, then offered by the Company or by any subsidiary of the Company during
the calendar year immediately preceding the termination of your employment
hereunder.
(b) As used in this paragraph 8, the "Designated Date" shall
mean any of the following dates:
(i) in the event you willfully terminate your
employment with the Company in violation of this Agreement prior to the
expiration of the Employment Period, the term "Designated Date" shall mean the
one (1) year anniversary of the date of such termination; or
(ii) in the event the Company terminates your
employment under this Agreement for Cause, the term "Designated Date" shall mean
the one (1) year anniversary of the date of such termination; or
(iii) in the event the Company terminates your
employment without Cause, the term "Designated Date" shall mean the date of such
termination; or
(iv) in the event of any consolidation or merger of
the Company into or with another corporation during the Employment Period, and
the Company is not the surviving entity, or the sale of all or substantially all
of the assets of the Company to another corporation
8
<PAGE>
during the Employment Period, or in the event that fifty (50%) percent or more
of the voting common stock of the Company shall be owned by one or more
individuals or entities, who are acting in concert or as part of an affiliated
group (other than a group one of the members of which is you), at any time
during the Employment Period, and this Agreement is terminated by the Company or
any successor or surviving corporation, the term "Designated Date" shall mean
the one (1) year anniversary of the date of such termination; or
(v) subject to the provisions of sub-paragraph 2(b)
hereof, in the event this Agreement terminates at the end of the term of the
Employment Period, the term "Designated Date" shall mean the date of such
termination or the twelve (12) month anniversary of the date of such
termination, as the case may be.
It is the desire and intent of the parties that the provisions
of this paragraph 8 shall be enforced to the fullest extent permissible under
the laws and public policies applied in each jurisdiction in which enforcement
is sought. Accordingly, if any provision of this paragraph 8 shall be
adjudicated to be invalid or unenforceable in any such jurisdiction, such
provision of this paragraph 8 shall be deemed amended to delete therefrom the
portion thus adjudicated to be invalid or unenforceable, such deletion to apply
only with respect to the operation of such provision of this paragraph 8 in the
particular jurisdiction in which such adjudication is made. In addition, if the
scope of any restriction contained in this paragraph 8 is adjudicated to be too
broad to permit enforcement thereof to its fullest extent, then such restriction
shall be enforced to the maximum extent permitted by law and you hereby consent
and agree that such scope may be judicially modified accordingly in any
proceeding brought to enforce such restriction.
9
<PAGE>
(c) In the event of a breach or threatened breach by you of
the provisions of this paragraph 8, the Company shall be entitled to an
injunction restraining you from such breach. Nothing herein contained shall be
construed as prohibiting the Company from pursuing any other remedies available
for such breach or threatened breach or any other breach of this Agreement.
9. Consolidation; Merger; Change of Control. (a) In the event of any
consolidation or merger of the Company into or with another corporation during
the Employment Period, and the Company is not the surviving entity, or the sale
of all or substantially all of the assets of the Company to another corporation
during the Employment Period, or in the event that fifty (50%) percent or more
of the voting common stock of the Company shall be owned by one or more
individuals or entities, who are acting in concert or as part of an affiliated
group (other than a group one of the members of which is you, your spouse, your
issue, your or your spouse's siblings or any issue thereof) at any time during
the Employment Period, (the occurrence of any of the foregoing, a "Change of
Control") then this Employment Agreement may be either (i) terminated by the
Company or any such successor or surviving corporation on sixty (60) days prior
written notice to you provided that such notice shall be accompanied by a
certified or cashier's check in an amount equal to Three Hundred and Seventy
Thousand Dollars ($370,000); (ii) assigned by the Company or any such successor
or surviving corporation on sixty (60) days prior written notice to you provided
that upon the first such assignment, such notice shall be accompanied by a
certified or cashier's check in an amount equal to Three Hundred and Seventy
Thousand Dollars ($370,000); or (iii) continued by the Company or any such
successor or surviving corporation by written notice provided that such notice
shall be accompanied by a certified or cashier's check in an amount equal to
Three Hundred and Seventy Thousand Dollars ($370,000).
10
<PAGE>
(b) Notwithstanding the provisions of paragraph 9 (a) above,
any such payments shall be made only in an amount which, when taken together
with the present value of all other payments to you that are contingent on a
Change in Control of the Company, computed in accordance with the provisions of
Section 280G(d)(4) of the Internal Revenue Code of 1986 (the "Code"), does not
equal or exceed three (3) times your "Base Amount," as computed in accordance
with Code Section 280G(b)(3).
10. Key-Man Insurance. You shall cooperate with the Company by
completing all necessary applications and take all required physical
examinations to enable the Company to obtain and maintain key-man life insurance
on your life in whatever amount the Company determines.
11. Notices. Any notices required or permitted to be given under the
provisions of this Agreement shall be in writing and delivered personally or by
certified or registered mail, return receipt requested, postage prepaid to the
following persons at the following addresses, or to such other person at such
other address as any party may request by notice in writing to the other party
to this Agreement:
To you: Stanley S. Mandel
45 Sutton Place South
New York, New York 10022
With a copy to: Helyn S. Goldstein, Esq.
Weil, Gotshal & Manges, LLP
767 Fifth Avenue
New York, New York 10153
To the Company: Arista Investors Corp.
116 John Street,
New York, NY 10038
Attn: Secretary
11
<PAGE>
With a copy to: Michael R. Reiner, Esq.
Morrison Cohen Singer &Weinstein, LLP
750 Lexington Avenue
New York, NY 10022
Notice delivered via certified or registered mail pursuant to
this Section 11 shall be deemed received by the addressee upon the fifth (5th)
day after the sender deposits such notice with the U.S. Postal Service.
12. Entire Agreement. This instrument contains the entire understanding
and agreement between the parties relating to the subject matter hereof, and
neither this Agreement nor any provision hereof may be waived, modified,
amended, changed, discharged or terminated, except by an agreement in writing
signed by the party against whom enforcement of any waiver, modification,
change, amendment, discharge or termination is sought.
13. Binding Effect. This Agreement shall be binding on the successors
and assigns of the Company and shall inure to the benefit and be enforceable by
and against its successors and assigns. This Agreement is personal in nature and
may not be assigned or transferred by you without the prior written consent of
the Company.
14. Construction. This Agreement shall be construed in accordance with,
and be governed by, the laws of the State of New York for contracts entered into
and to be performed in New York.
15. Assignment. This Agreement is personal in its nature and the
Employee shall not assign this Agreement or any interest therein. The Company
may assign this Agreement or any of it rights and obligations under this
Agreement without the consent of the Employee.
12
<PAGE>
16. Employment Agreement with Arista Insurance Company. Except as
provided therein, the Employment Agreement between Arista Insurance Company and
you, made as of February 17, 1993, and as amended, shall terminate and be of no
further force and effect on the Effective Date.
17. Illegality. In case any one or more of the provisions of this
Agreement shall be invalid, illegal or unenforceable in any respect, the
validity, the legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
18. Counterparts. This Agreement may be executed simultaneously in
counterparts, each of which shall be deemed an original, and all of which
counterparts shall together constitute a single agreement.
19. Captions. The captions of the paragraphs hereof are for convenience
only and shall not control or affect the meaning or construction of any of the
terms or provisions of this Agreement.
If the foregoing correctly reflects our understanding, please
so indicate by signing in the space provided.
ARISTA INVESTORS CORP.
By: /s/ Bernard Kooper
----------------------------
Bernard Kooper,
Chairman of the Board
Accepted and Agreed to:
/s/ Stanley S. Mandel
- ---------------------
Stanley S. Mandel
13
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