<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended .....................................December 31, 1999
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 Number 0-16520
ARISTA INVESTORS CORP.
----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-2957684
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
116 JOHN STREET, NEW YORK, NEW YORK 10038
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 964-2150
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $0.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: |X| No: |_|
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock (Class A Common Stock,
par value $ .01 per share) held by non-affiliates of the registrant, based upon
the closing sale price of the stock as reported on the Over-the-Counter Bulletin
Board service on April 6, 2000 was $2,925,000.
The aggregate number of registrant's outstanding shares on April 6,
2000 was 2,570,100 shares of Class A Common Stock, $0.01 par value (excluding
10,000 shares of treasury stock).
DOCUMENTS INCORPORATED BY REFERENCE:
Part III - Portions of Registrant's Proxy Statement relating to the 2000 Annual
Meeting of Stockholders.
Part IV - Portions of previously filed reports and registration statements.
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Arista Investors Corp. (the "Registrant") through its wholly-owned
subsidiary, Arista Insurance Company ("Arista"), a New York corporation
(Registrant and Arista are sometimes hereinafter individually or collectively
referred to as the "Company"), was engaged in the sale and underwriting of
statutory, super statutory and voluntary disability benefits insurance
(collectively, the "Insurance") in the State of New York from 1979 to June 30,
1998. Since July 1, 1998, the Registrant has been engaged as a third party
administrator. See "- TPA Agreement; Third Party Administration Business". The
Registrant is a Delaware corporation incorporated on August 19, 1986, which
succeeded to the business of its predecessor, Arista Investors Corp., a New York
corporation organized in 1978. The Company's principal executive offices are
located at 116 John Street, New York, New York 10038. Its telephone number is
(212) 964-2150.
Arista was licensed to write accident and health insurance by the New
York State Insurance Department (the "Department") in October 1979, and sold and
underwrote the Insurance through June 30, 1998. During the year ended December
31, 1993, Arista amended its charter and became licensed to write a line of
property and casualty insurance in New York as well. To date, Arista has not
written any property and casualty insurance business. Such licenses may continue
in perpetuity unless suspended or terminated by an act of the regulator.
Pursuant to agreements effective July 1, 1993 and January 1, 1995,
Arista also acted as a third party administrator for the statutory disability
benefits books of business of The Guardian Life Insurance Company of America and
the United States Life Insurance Company in the City of New York, respectively.
The administrative services fees collected by Arista during the year ended
December 31, 1997, and the six months ended June 30, 1998 were $312,378 and
$195,379, respectively.
The following table sets forth the third party administrative service
fees earned, together with the consolidated investment income and realized
investment gains (losses) for each of the three years of the period ended
December 31, 1999.
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Third party administrative services $ 351,346 $ 1,493,153 $ 3,505,816
=========== ============ ===========
Investment income $ 513,913 $ 543,856 $ 152,527
=========== ============ ===========
Realized investment gains (losses) $ (2,519) $ -- $ (10,410)
=========== ============ ===========
</TABLE>
2
<PAGE>
CESSION OF INSURANCE; COMMENCEMENT OF THIRD PARTY ADMINISTRATION BUSINESS BY THE
REGISTRANT
THE AGREEMENTS. The Company entered into an Assumption Reinsurance
Agreement, dated September 23, 1998 (the "Treaty"), with The Guardian Life
Insurance Company of America, a New York mutual life insurance company ("The
Guardian"), and the Registrant entered into an Administrative Services
Agreement, also dated September 23, 1998 (the "TPA Agreement"), with The
Guardian. The transactions contemplated by the Treaty and TPA Agreement were
consummated on November 12, 1998 (the "Closing Date") and deemed effective as of
July 1, 1998 (the "Effective Date"). Also, the quota share reinsurance treaty
between Arista and The Guardian, effective as of January 1, 1998 (the "Quota
Share Reinsurance Treaty"), whereby Arista ceded a 50% participation in the
Insurance by way of reinsurance, both for business in force as of January 1,
1998 and for business written or acquired after January 1, 1998 was terminated,
effective July 1, 1998. See "-The Treaty; Cession of Insurance Business", "-TPA
Agreement; Third Party Administration Business" and "-Reinsurance Treaty" and
"-Reinsurance Ceded."
THE TREATY; CESSION OF INSURANCE BUSINESS. Pursuant to the Treaty, the
Company ceded to The Guardian all of Arista's liabilities under each and every
policy of the Insurance underwritten by Arista, excluding any liabilities
arising from (i) acts, errors or omissions of Arista, its directors, officers,
employees or agents prior to the Closing Date, (ii) any bad faith, willful
misconduct, fraud or gross negligence of Arista prior to the Closing Date or
(iii) any act, error or omission by Arista, its directors, officers, employees
or agents under the TPA Agreement. The assumption reinsurance provided by The
Guardian under the Treaty is subject to the same limitations, terms and
conditions as the Insurance. As of the Closing Date under the Treaty, Arista
discontinued all sales of the Insurance.
The cession of the Insurance to The Guardian was deemed to have taken
place as of the Effective Date. Pursuant to the Treaty, Arista was required to
present to The Guardian on the Closing Date all new policies, if any, which
Arista had issued between the Effective Date and the Closing Date for acceptance
by The Guardian pursuant to the Treaty. Any new policies not accepted by The
Guardian were canceled in accordance with the requirements of the Workers'
Compensation Law. On the Closing Date, Arista presented to The Guardian 25,092
policies, of which approximately 99.7% accepted The Guardian's assumption.
Pursuant to the Treaty, The Guardian did not assume any liabilities
other than the express obligations set forth in the Insurance or any costs or
liabilities arising as a result of any inaccuracies or inconsistencies in the
Insurance. Between the Effective Date and the Closing Date, Arista was obligated
to continue its operations in accordance with prior practices and in conformity
with prevailing industry standards and customs. The Guardian was responsible for
the handling of, and all costs and expenses, including legal fees, relating to
litigation or other claims under the Insurance, but excluding liabilities
arising out of or relating to actions for declaratory judgments initiated within
120 days of the Closing Date. As of such date, management was not aware of any
such liabilities, known, pending or threatened.
As of the six months ended June 30, 1998, and the fiscal years ended
December 31, 1998 and December 31, 1999, the Insurance encompassed some 229,000,
275,000, and 249,000 covered lives, respectively, and approximately 23,000,
24,000 and 23,000 policyholders, respectively. See
3
<PAGE>
"-TPA Agreement; Third Party Administration Business."
The Registrant accounted for the cession of the Insurance and the
assumption of specified assets and liabilities as a purchase by The Guardian.
Under this method, the Registrant recognized in earnings the net gain on
disposal of a segment of its business representing the excess of (i) the cession
allowance of 18% of the last twelve months adjusted earned premium, plus the
proceeds from the assumption of the due premium receivables at the Effective
Date by The Guardian over (ii) all unpaid claim reserves, unearned premium
reserves, plus claim expense reserves and GAAP assessment reserves assumed by
The Guardian, and the cost of disposal. The Registrant surrendered control over
all assets and liabilities transferred to The Guardian, and retained no
beneficial interest. See Financial Statements and Notes thereto.
After the closing of the cession of the Insurance to The Guardian, the
Registrant retained Arista's insurance company license and charter, consolidated
cash and cash equivalents and other net tangible assets and an ongoing TPA
operation. See "-TPA Agreement; Third Party Administration Business."
PURCHASE PRICE AND ASSUMPTION OF LIABILITIES. In exchange for the
cession of the Insurance, The Guardian paid Arista a cession allowance in an
amount, in cash, based on the premiums, as adjusted, earned by Arista for the 12
month period through the Effective Date. Such premiums were accounted for by
utilizing the actual earned premium for the most recent 12 month period prior to
the Effective Date. The cession allowance was 18% of the adjusted earned
premium. See Financial Statements and Notes thereto.
After the closing of the cession of the Insurance to The Guardian, The
Guardian mailed an Assumption Certificate ("Certificate") to each policyholder's
last known address, which certificate reflected the assumption by The Guardian
of all risks, duties and obligations associated with the Insurance. The Treaty
and the Certificate met all of the requirements of the New York State Insurance
Department (the "Department") and was approved by the Superintendent of
Insurance of the State of New York prior to consummation of the cession of the
Insurance. On the Closing Date, Arista presented to The Guardian 25,092
policies, of which 25,010 policyholders accepted The Guardian assumption, and 82
rejected The Guardian assumption.
Under the Treaty, the Company made various representations and
warranties with respect to the Insurance as well as its other assets,
liabilities and activities. These representations and warranties related to,
among other things, Arista's good standing, due incorporation, compliance with
applicable laws and the reserves held by Arista in support of the Insurance.
Arista and the Registrant have agreed to indemnify The Guardian for all
liabilities arising from any breach by Arista of any covenants or failure to
perform any obligations contained in the Treaty, which indemnity provision will
survive for two years following the termination of the Treaty.
TPA AGREEMENT; THIRD PARTY ADMINISTRATION BUSINESS. The Registrant is
licensed by the Department as an independent accident and health adjuster (the
"License"), and on the date that the cession of the Insurance was consummated,
the Registrant commenced servicing the Insurance pursuant to the TPA Agreement.
The License may continue in perpetuity unless otherwise suspended or terminated
by an act of the regulator. In April 1999, the Registrant paid a fee of $100
4
<PAGE>
for the License required for its existing sublicensee. In August, 1999, the
Registrant paid another fee of $100 for an additional employee's license.
As a third party administrator under the TPA Agreement, the
Registrant performs various services relating to the Insurance underwritten
by The Guardian, including, but not limited to, pricing of risk, underwriting
new and renewal business, investigation, calculation and payment of claims,
preparation and transmission of bills, preparation of policy kits and forms,
preparations of commission statements, maintenance of records, responding to
inquiries from policyholders and providing updates on regulatory changes.
Effective January 1, 1999, the TPA Agreement was amended to include an
additional book of Insurance acquired by The Guardian (the TPA Agreement, as
amended, is hereinafter referred to as, the "TPA Agreement"). Pursuant to the
TPA Agreement, the Registrant receives a fee based upon the premiums
collected or earned by The Guardian plus additional fees based upon
performance by the Registrant and results achieved by The Guardian. The TPA
Agreement sets three pricing parameters: (i) a basic fee of 5% to 7% of
collected premium for all required functions, (ii) adjustments to the basic
fee of +/-1% of the collected premium pursuant to a semi-annual audit
performed by The Guardian to determine whether the performance criteria under
the TPA Agreement have been complied with, and (iii) a limited contingency
payment to be paid annually based upon the developed incurred loss ratio. The
TPA Agreement is effective for a period of five years, subject to earlier
termination by The Guardian under certain circumstances as described below.
The Guardian has the right to terminate the TPA Agreement during its
full term upon 60 days prior written notice to the Registrant upon the
occurrence of any of the following events (each an "Event of Default"): (i)
breach of the TPA Agreement by the Registrant which is not cured within 30 days
or which may cause or has caused the revocation of The Guardian's license to do
an insurance business in any jurisdiction, (ii) the commencement of a voluntary
or involuntary reorganization, liquidation or receivership of the Registrant,
(iii) an order entered by a court of competent jurisdiction affecting more than
50% of the Registrant's property under conservatorship, liquidation, insolvency
or similar laws, (iv) the failure of Stanley S. Mandel, the Registrant's
President, to maintain control of the day-to-day operations of the Registrant at
any time during the first five years following the Effective Date (other than by
reason of Mr. Mandel's death or disability, in which case a replacement
acceptable to The Guardian may be appointed), (v) the Registrant permits any
other person to gain operational control of its administrative servicing
business or agrees to any arrangement which would end the existence of such
business, without giving The Guardian a right of first refusal to purchase such
business or (vi) the Registrant fails to maintain a minimum stockholders' equity
on its balance sheet of not less than 3.5% of the gross premiums earned on the
contracts administered pursuant to the TPA Agreement in the prior calendar year,
and such failure continues without being cured for 10 days after receiving
notice of such failure from The Guardian. Additionally, after the first two
years of the initial five year term of the TPA Agreement, The Guardian may
terminate the TPA Agreement in the event The Guardian desires to perform the
administrative services.
In performing the services under the TPA Agreement, the Registrant is
obligated to use commercially reasonable efforts to keep informed of, and comply
with, all applicable laws, rates and regulations and to maintain necessary
facilities, equipment and personnel to perform its duties
5
<PAGE>
under the TPA Agreement. The Registrant has granted The Guardian the right of
first refusal to purchase the Registrant's administrative servicing business in
the event the Registrant permits any other person to gain operational control of
such business or agrees to any arrangement which would end the existence of such
business.
THE GUARDIAN. The Guardian is a New York mutual life insurance company
which primarily issues individual life and group insurance coverages through its
career agency force and broker network. The Guardian manages its operations
through six profit centers: life insurance, group insurance, disability
insurance, equity products, group pensions and reinsurance. The Guardian's major
line of business is group accident and health which accounted for more than
one-half of consolidated net premiums in 1999.
CUSTOMERS; THIRD PARTY ADMINISTRATION
Pursuant to the TPA Agreement, the Registrant is obligated to provide
third party administrative services for the Insurance to The Guardian. The
Guardian represents the Registrant's largest customer of its third party
administration business, accounting for more than 90% of such business during
the year ended December 31, 1999 and for the six month period ended December 31,
1998. The failure of the Registrant to retain The Guardian as a customer by the
failure of the Registrant to correct any Event of Default, by The Guardian
electing to administer the Insurance and terminate the TPA Agreement as
discussed above, or for any other reason, would have a material adverse effect
on the Registrant's business and plan of operations. See "-TPA Agreement; Third
Party Administration Business" and "-The Guardian."
COMPETITION
The third party administration business is highly competitive.
Competition is primarily based upon range and proficiency of service and fee
structure. The Registrant believes that it has few competitors, most of whom
service other coverages in addition to the Insurance. The Registrant's
competitors vary in size, many of which have longer operating histories, offer a
broader range of services other than third party administration of insurance
policies and generally have greater financial, marketing and management
resources than the Registrant. The Company relies upon the expertise of its
employees and executive officers, particularly Stanley S. Mandel, the Company's
President. Such employees and executive officers have an average of twenty years
experience in the insurance industry and third party administration business.
The Registrant and Mr. Mandel entered into an employment agreement effective
upon the Closing Date, which agreement was amended effective as of October 1999.
Pursuant to the employment arrangement, Mr. Mandel is employed for a two-year
period, plus up to an additional three years subject to (i) the continuation of
the Registrant's third party administration arrangement with The Guardian or
(ii) the occurrence of a change-of control Event (as defined therein). The loss
of Mr. Mandel would have a material adverse effect upon the Company's business
and plan of operations. See "-TPA Agreement; Third Party Administration
Business"; "-Marketing" and "-Employees."
MARKETING
6
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The Registrant believes that, particularly with respect to the small
and medium-sized businesses on which it focused its marketing efforts, carriers
may rely upon third party administrators to service the insurance underwritten
by such carrier. Consequently, the Company considers the insurer to be its
customer and stresses prompt and personal service in all phases of underwriting,
product delivery and claims processing functions.
EMPLOYEES
As of December 31, 1999, the Company had forty-one (41) employees.
Seven (7) of these employees are executive officers, seven (7) provide claims
services as examiners, one (1) provides general and administrative services and
twenty-six (26) provide all other services. The Company believes its relations
with its employees are satisfactory.
ARISTA'S INSURANCE OPERATIONS
Under New York State law, all eligible employees, including full-time
and part-time employees in New York State, are required to be provided with
disability insurance coverage unless excluded by statute (e.g., government,
railroad, maritime or farm workers). Statutory disability benefits insurance
presently provides for a payment to totally disabled employees in the amount of
50% of weekly salary to a maximum payment of $170 per week, for a maximum of 26
weeks beginning with the eighth day of disability due to an off-the-job accident
or sickness. On-the-job accident or sickness is covered by worker's compensation
insurance, not statutory disability benefits insurance. Arista charged a premium
for the Insurance coverage based upon a rate structure approved by the
Department. In order for an insurer to alter its rate structure it must obtain
prior written approval from the Department. Under New York law, an employer may
require an employee to contribute 1/2 of 1% of covered payroll up to a maximum
of $.60 per week towards the premium charge for statutory disability benefits
insurance.
In addition to standard statutory disability benefits insurance
coverage, Arista offered certain augmented benefits which included the payment
of the disability benefit from the first day of disability as opposed to the
eighth day of disability, increased duration of benefits from 26 weeks up to 52
weeks, benefits increased over the maximum of $170 weekly benefit and an
additional multiple if related to hospitalization (e.g., 150% of the benefit if
an employee is hospitalized). Arista also offered coverage for association
groups on a competitive basis. The underwriting of these augmented benefits and
specialized coverages did not represent a significant percentage of Arista's
earned premiums.
For the year ended December 31, 1997 and the six months ended June 30,
1998, no customer accounted for 10% or more of the Company's consolidated gross
revenues.
Effective December 29, 1995, Arista issued a $3,000,000 surplus note
(the "Surplus Note") to Cologne Life Underwriting Management Company ("CLUMCO").
The Surplus Note provided for interest at the rate of 10.5% per annum, and
provided for the principal to be repaid in eight equal installments in years
three through ten, together with any accrued interest. These repayments of
principal and accrued interest were only to be made out of the free and
divisible surplus of Arista,
7
<PAGE>
and were subject to the approval of the Superintendent of Insurance of the State
of New York. If the principal and interest were not repaid in full at the end of
the ten years, the Surplus Note would be renewed annually for additional
one-year terms until the balance was repaid. The Surplus Note permitted
prepayment subject to the prior approval of the Department. In addition, the
Registrant issued a ten year warrant to CLUMCO to purchase up to 150,000 shares
of the Company's Class A Common Stock, subject to certain conditions, at an
exercise price of $3.50 per share. Effective as of January 1, 1998, in
connection with Arista's entering into a new reinsurance arrangement with The
Guardian, Arista terminated its reinsurance agreement with Cologne Life
Reinsurance Company ("Cologne"). As a result of such termination and the
Transaction, the Surplus Note plus accrued interest was repaid on December 18,
1998. In addition, CLUMCO did not exercise the warrant, and such warrant expired
in October, 1998. See "-Reinsurance Ceded."
Arista submitted an application for admission as a reinsurer to the
Office of the Commissioner of Insurance of the Commonwealth of Puerto Rico
during 1989. In 1991, Arista requested that the Commissioner hold its
application in abeyance pending the conclusion of certain negotiations regarding
a reinsurance arrangement in the Commonwealth. During 1997, the Company decided
to discontinue negotiations regarding this arrangement.
CLAIMS
Gross claims incurred by Arista amounted to $12,212,694 in 1997, and
$4,889,920 for the six months ended June 30, 1998.
The factors generally affecting gross claims incurred are a function of
the number of risks covered with either part-time or full-time workers, the wage
level of each covered employee to a maximum of $170 per week and the duration of
disability to a maximum of 26 weeks. The gross amount of claims incurred at any
point in time is also affected by the number of females covered since maternity
is treated statutorily as any other disability.
The Company's estimated-to-actual claims experience was as follows:
<TABLE>
<CAPTION>
CALENDAR YEAR ESTIMATED LOSS RATIO ACTUAL LOSS RATIO
<S> <C> <C>
1994 66.5% 65.0%
1995 62.2% 61.8%
1996 62.4% 60.6%
1997 58.8% 58.5%
</TABLE>
The estimated loss ratio is calculated for each calendar year
based upon a historical estimate of the claims development divided by the
premiums earned for such period. It differs from the actual loss ratio which
represents the fully developed claims for a calendar year divided by the actual
premiums earned for that year.
8
<PAGE>
REINSURANCE CEDED
Arista utilized reinsurance principally to reduce its net
liability on insurance business in force through risk sharing. The ceding of
insurance does not discharge the original insurer from its primary liability to
the policyholder. The ceding company is required to pay losses to the extent the
assuming company fails to meet its obligations under the reinsurance agreement.
The practice of insurers, however, subject to certain statutory limitations and
as permitted by regulatory authorities, is to account for reinsured risks to the
extent of reinsurance ceded as though they are not risks for which the original
insurer remains liable.
Effective October 1, 1995, Arista entered into an agreement
with Cologne whereby Arista ceded by way of reinsurance a 50% quota share
participation in the Insurance, both for business in force as of October 1, 1995
and for new business written or acquired after October 1, 1995. This agreement
was canceled by mutual consent of the parties effective as of January 1, 1998.
Unlike other segments of the accident and health and property
and casualty industries, there was no need to facilitate a spread of risk
pursuant to any one occurrence as the maximum liability for Arista on any one
life could not exceed $4,420. The cost to Arista of obtaining reinsurance had
never exceeded approximately 1.2% of its gross premiums received.
Arista entered into a quota share reinsurance treaty with The
Guardian effective as of January 1, 1998 , whereby 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.
This agreement was subject to cancellation by either party on ninety (90) days
prior written notice. The agreement was canceled effective June 30, 1998 as a
result of the Transaction.
RESERVES
9
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Insurance companies are required to maintain reserves for
unearned premiums, and claim reserves for unpaid losses, unpaid loss adjustment
expenses and New York State assessments for this line of business. These claim
reserves are intended to cover the probable ultimate cost of settling all losses
incurred and unpaid, including those incurred but not reported. Arista
established these claim reserves based upon its prior experience. Gross claims
liabilities were $3,391,950 at December 31, 1997, and $2,704,200 at June 30,
1998.
Loss reserves are only estimates of what the insurer expects
to pay on claims, based on facts and circumstances then known. Although a degree
of variability is inherent in such estimates, management believed that the
liabilities for unpaid claims and related adjustment expenses were adequate. The
estimates were continually reviewed and adjusted as necessary.
The following table compares Arista's gross liability for
unpaid losses, LAE, and DBL assessments, at the end of each of the last five
calendar years compared to the gross amounts actually paid against these
reserves.
<TABLE>
<CAPTION>
Year Ended December 31,
($ ,000)
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Estimated gross liability for
unpaid losses, LAE reserves and
DBL assessments $ 4,526 $ 4,351 $ 3,392 $ 0 $ 0
-------- ------- ------- --- ---
Gross amounts actually paid
against reserves:
One year later 4,561 3,277 2,917
Two years later - - -
Three years later - - -
Four years later - -
-------- ------- ------- --- ---
Redundancy (deficiency) (35) 1,074 475 0 $ 0
-------- ------- ------- --- ---
Cumulative redundancy
(deficiency) $ (35) $ 1,039 $ 1,514 $ 0 $ 0
======== ======= ======= === ===
</TABLE>
INVESTMENT POLICY
Arista must comply with the insurance laws of New York State
with regard to investments. These laws prescribe the kind, quality and
concentration of investments which may be made by insurance companies. The
investment of Arista's funds generally is subject to the direction and control
of its Board of Directors; investments are reviewed on a quarterly basis.
10
<PAGE>
Arista's funds generally are invested in federal, state and municipal
obligations, corporate debt, preferred and common stocks and such other
investments which are specifically prescribed by the New York State Insurance
Law.
The following table contains information concerning the
Company's investment portfolio as at December 31, 1999:
<TABLE>
<CAPTION>
Amount
which is
Cost or shown in
amortized Market the balance
Type of Investment Cost Value Sheet
------------------ ---- ----- -----
<S> <C> <C> <C>
Investment Securities:
United States Treasuries $177,516 $175,000 $175,112
</TABLE>
The following table summarizes the Company's investment results before
income taxes for the five years ended December 31, 1999:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net investment income $ 252,134 $ 440,540 $ 513,913 $ 543,856 $ 152,527
Net realized investment
gain (loss) $ (137) $ (208) $ (2,519) $-------- $ (10,410)
Other comprehensive
income (loss) $------ $ (15,387) $ 4,955 $ (5,698) $ 27,972
Average annual yield on
total investments(1) 5.90% 5.69% 5.83% 6.02% 4.64%
</TABLE>
REGULATION
The State of New York has statutory authorization to enforce its laws
and regulations through various administrative orders and enforcement
proceedings
Arista and, under certain circumstances, the Registrant, are subject to
regulation by the Department. Such regulation is principally for the benefit and
protection of policyholders and not stockholders. Regulation extends to, among
other things, the setting of rates to be charged, the granting and revocation of
licenses to transact business, the licensing of general agents, the approval of
policy forms and the form and content of statutorily mandated financial
statements.
The Company is also regulated under New York State Insurance Law,
Article 15, the "Holding Companies" statute. The regulations promulgated under
the "Holding Companies" statute require prior regulatory agency approval of
changes in control of an insurer and of transactions within the holding company
structure. In 1996, the Department examined Arista for the five-year period
ended December 31, 1994 and the examination was completed. A report was filed in
1999.
- ----------
(1) Calculated on the mean of total investments on the first day and last
day of each quarter.
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<PAGE>
The New York State Insurance Law provides that no corporation or other
person may acquire control of the Registrant and thus indirect control of
Arista, unless it has given notice to Arista and obtained prior written approval
of the Superintendent of Insurance for such acquisition. Under said law, any
purchaser of ten percent or more of the outstanding Common Stock of the
Registrant would be presumed to have acquired control of Arista, unless such
presumption is rebutted.
Arista is not aware of any current proposed changes in either federal
or state regulations with respect to the Insurance.
The declaration and payment of dividends by the Registrant is subject
to the discretion of its Board of Directors and is dependent upon any dividends
the Registrant may receive as the sole shareholder of Arista. Under New York
State Insurance Law, Arista may pay dividends only out of its statutory earned
surplus. Generally, the maximum amount of dividends that Arista may pay without
regulatory approval in any twelve-month period is the lesser of adjusted net
investment income or ten percent (10%) of statutory surplus. In 1998, Arista's
Board of Directors authorized the payment of a dividend to the Registrant in the
amount of $279,951. The dividend was paid on July 15, 1998. No dividends were
paid by Arista in 1997.
On February 1, 1999, the Board of Directors of Arista approved a
dividend in the amount of $167,526, based on Arista's statutory earned surplus
as of its then last filed quarterly statutory statement at September 30, 1998,
to be paid to the Registrant. The dividend was paid to the Registrant on
February 2, 1999.
RETURN OF CAPITAL
An amendment to Arista's Certificate of Incorporation (the "1998
Amendment") was approved and placed on file with the Department as of December
18, 1998, and filed with the Office of the County Clerk on December 31, 1998.
The 1998 Amendment decreased Arista's capital from $1,950,000 (comprised of
1,300 shares with a par value of $1,500 per share) to $300,000 (comprised of 200
shares with a par value of $1,500 per share). As of February 28, 1999, Arista's
paid-in surplus was $153,000. This recapitalization enabled the Board of
Directors of Arista to ratify the return of capital in the amount of $2,492,000
to the Registrant. On January 26, 1999, the Department approved Arista's return
of $2,492,000 of capital to the Registrant. The transfer was made on January 28,
1999.
A subsequent amendment ("the 1999 Amendment") was approved and placed
on file with the Department as of May 21, 1999, and filed with the Office of the
County Clerk on May 13, 1999. The 1999 Amendment decreased Arista's capital from
$300,000 (comprised of 200 shares with a par value of $1,500 per share) to
$200,000 (comprised of 200 shares with a par value of $1,000 per share). As of
May 31, 1999, Arista's paid-in surplus was $253,000.
12
<PAGE>
EXTRAORDINARY DIVIDENDS
In March, 1999, the Department approved an extraordinary cash dividend
of $4,000,000 (the "Initial 1999 Dividend"), based on their review of Arista's
filed December 31, 1998 Annual Statement, on the condition that there had been
no event that had significantly impacted upon Arista's last reported surplus as
regards policyholders. The Initial 1999 Dividend was paid to its parent company
in two installments: $3,000,000 in March 1999 and $1,000,000 in May 1999.
In April 1999, the Department approved another cash dividend of
$1,200,000, based on their review of Arista's filed March 31, 1999 Quarterly
Statement, on the condition that there had been no event that had significantly
impacted upon Arista's reported March 31, 1999 surplus as regards policyholders
(the "Second 1999 Dividend"). The Second 1999 Dividend was paid in May 1999.
In June 1999, the Department approved an additional cash dividend of
$150,000, based on their review of Arista's filed March 31, 1999 Quarterly
Statement, on the condition that there had been no event that had significantly
impacted upon Arista's reported March 31, 1999 surplus as regards policyholders
(the "Third 1999 Dividend"). The Third 1999 Dividend was paid in June 1999.
PROPOSED SALE OF ARISTA
The Registrant and Arista entered into a Stock Purchase Agreement (the
"Agreement") dated as of October 22, 1999, to sell to WCA Holdings, Inc., a
Connecticut corporation (the "Buyer"), all of the issued and outstanding shares
of common stock of Arista (the "AIC Transaction"). The completion of the AIC
Transaction is subject to various closing conditions, contingencies and
regulatory approvals, including, but not limited to, approval from the New York
State Insurance Department.
Pursuant to the Agreement, the purchase price shall be equal to the sum
of (i) the value of the assets of Arista minus the value of the liabilities of
Arista at the time of closing; plus (ii) $500,000.
The parties anticipated that the AIC Transaction would have been
consummated prior to December 31, 1999. However, to date, the parties have not
received the approval of the New York State Insurance Department. There can be
no assurance that such approval will be received.
THE COLLECTION GROUP
The Collection Group, Inc., a wholly-owned subsidiary of the
Registrant, commenced operations during July 1991. The Company intends to
dissolve The Collection Group, Inc. by June 30, 2000.
13
<PAGE>
ITEM 2. PROPERTIES.
The Registrant's and Arista's principal executive offices are located
at 116 John Street, New York, New York 10038. The offices contain approximately
16,100 square feet. On January 9, 1995, effective on or about June 1, 1995, the
Company entered into a five year lease for its principal executive office space
at an average rent over the term of the lease of approximately $210,000 per
year, exclusive of electricity. The Company is currently in the process of
negotiating an extension of the lease.
The Company has the option to terminate the lease provided it notifies
the landlord ninety days prior to the termination date, and reimburses the
landlord for the unamortized portion of the landlord's contribution for
leasehold improvements which was approximately $14,700 at December 31, 1999.
The Company provides certain office services to Bernard Kooper Life
Agency, a life and health insurance agency owned by Bernard Kooper, the
Chairman of the Board of the Company. The Bernard Kooper Life Agency
reimburses the Company for the cost of these services.
ITEM 3. LEGAL PROCEEDINGS.
Although the Company is involved in some routine litigation incidental
to the business of the Company, the Company is not a party to any litigation
which it considers will have a material adverse effect on its business or
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Nothing to report.
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
(a) Until March 30, 2000, the Company's Class A Common Stock was traded
on the Nasdaq SmallCap Market. As a result of the Company's net tangible assets
as of September 30, 1999, the Company no longer met the continued listing
requirements of the Nasdaq SmallCap Market. Therefore, effective March 30, 2000,
the Company's Class A Common Stock commenced trading on the Over-the-Counter
Bulletin Board ("OTCBB") service. The following table presents the high and low
market prices for the Company's Class A Common Stock as reported by the Nasdaq
SmallCap Market during the calendar years ended December 31, 1999 and December
31, 1998, and as reported by the OTCBB since March 30, 2000. The table
represents inter-dealer prices, which do not include retail mark-ups and
mark-downs, or any commissions to the broker dealer, and may not necessarily
represent actual transactions.
FOR THE PERIOD ENDING DECEMBER 31, 2000:
<TABLE>
<CAPTION>
Class A
Quarter Range Common Stock
------- ----- ------------
<S> <C> <C> <C>
First High $1.9375
Low $1.00
</TABLE>
FOR THE PERIOD ENDED DECEMBER 31, 1999:
<TABLE>
<CAPTION>
Class A
Quarter Range Common Stock
------- ----- ------------
<S> <C> <C> <C>
First High $3.00
Low $2.625
Second(2) High $3.4375
Low $1.0625
</TABLE>
- ----------
(2) On May 28, 1999, the Company paid a partial liquidating distribution to
stockholders of record on May 19, 1999 in an amount equal to $2.23 per
share of Class A Common Stock.
15
<PAGE>
<TABLE>
<CAPTION>
Class A
Quarter Range Common Stock
------- ----- ------------
<S> <C> <C> <C>
Third High $1.375
Low $1.00
Fourth High $1.25
Low $1.00
</TABLE>
for the Period Ended December 31, 1998:
---------------------------------------
<TABLE>
<CAPTION>
Class A
Quarter Range Common Stock
------- ----- ------------
<S> <C> <C> <C>
First High $2.375
Low $2.1563
Second High $2.5313
Low $1.75
Third High $2.4063
Low $2.25
Fourth High $3.00
Low $2.3125
</TABLE>
(b) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS:
The number of holders, including individual participants in security
position listings of registered clearing agencies, as of July, 1999, was
approximately 258.
<TABLE>
<CAPTION>
Approximate Number of
Title of Class Record Holders *
-------------- ----------------
<S> <C>
Class A Common Stock, $.01 par value 50
</TABLE>
* As of April 11, 2000
(c) On May 28, 1999, the Company made a partial liquidating
distribution in the amount of $2.23 per share to stockholders of record on May
19, 1999.
16
<PAGE>
On May 4, 1999, the Class A Directors of the Board of Directors of the
Registrant exercised an option (the "Class B Stock Transaction") granted to the
Registrant pursuant to a letter agreement, dated June 14, 1996 (the "Letter
Agreement"), by Mr. Kooper. Mr. Kooper was the beneficial owner of 47,400
shares of the Registrant's Class B Common Stock, representing all of the issued
and outstanding shares of the Class B Common Stock. The Class B Stock
Transaction closed on May 18, 1999. As a result of the Class B Stock
Transaction, there are no longer any shares of the Class B Common Stock
outstanding.
Pursuant to the Letter Agreement, the Registrant acquired 47,400 shares
of Class B Common Stock beneficially owned by Mr. Kooper in consideration for
(i) an amount equal to $146,347.50, the Fair Market Value (as defined in the
Letter Agreement) of the Registrant's Class A Common Stock and (ii) the
cancellation of the $500,000.00 outstanding principal amount under the Note (as
defined in the Letter Agreement). The source of such funds paid by the
Registrant to Mr. Kooper was working capital. Prior to the Class B Stock
Transaction and pursuant to the Registrant's Certificate of Incorporation and
By-laws, Mr. Kooper had the right to elect a majority of the Registrant's
Board of Directors. In addition, the holder of the Class B Common Stock had
the right to vote as a separate class upon any merger, reorganization,
recapitalization, liquidation, dissolution, or winding-up, sale, transfer or
hypothecation of all or a substantial portion of the assets of the Company,
and with regard to any amendment to the certificate of incorporation which
affects the number or par value, or adversely alters or changes powers,
preferences, voting power or special rights of the shares of the Class B
Common Stock. Notwithstanding the Class B Stock Transaction, Mr. Kooper
continues to beneficially own 525,200 shares of the Registrant's Class A
Common Stock (including 30,400 shares of Class A Common Stock owned by Mr.
Kooper's wife).
Since the closing of the cession of the Insurance to The Guardian on
November 12, 1998, the Department approved Arista's return of capital to the
Registrant in the amount of $2,492,000 and extraordinary dividends in the amount
of $5,350,000 in the aggregate based on reviews of Arista's filed statutory
statements. See "-Return of Capital" and "-Extraordinary Dividends."
ITEM 6. SELECTED FINANCIAL DATA.
The following information should be read in conjunction with, and is
qualified in its entirety by reference to, the Consolidated Financial Statements
of the Company and the notes thereto appearing elsewhere in this Form 10-K.
The financial statements of the Company have been prepared in
accordance with generally accepted accounting principles, which differ in
certain respects from those followed in financial statements prepared for
regulatory authorities. See Notes to the accompanying Consolidated Financial
Statements.
17
<PAGE>
Item 6. CONSOLIDATED SELECTED FINANCIAL DATA
(In Thousands, Except Per Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Revenue from continuing operations:
Third party administrative services $ 3,506 $ 1,483 $ 351 $ 261 $ 204
Investment income 152 544 514 440 252
Realized and unrealized investment losses (10) -- (3) -- --
Other income 11 19 7 38 129
Expenses:
General and administrative expenses (3,669) (2,427) (740) (700) (600)
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations before provision for
income taxes (10) (381) 129 39 (15)
----------- ----------- ----------- ----------- -----------
Provision for income taxes and tax benefit
of net operating loss carryforward:
Provision for income taxes 27 (143) 50 15 (7)
----------- ----------- ----------- ----------- -----------
Net provision (benefit) 27 (143) 50 15 (7)
----------- ----------- ----------- ----------- -----------
Net income (loss) from continuing operations (37) (238) 79 24 (8)
----------- ----------- ----------- ----------- -----------
Discontinued operations:
Income (loss) from operations of disposed segments -- (167) 21 (1,200) 73
Gain on disposal of segments (net of
income taxes of $531 and $128 in 1999
and 1996) -- 838 -- -- 192
----------- ----------- ----------- ----------- -----------
Net income (loss) from discontinued operations -- 671 21 (1,200) 265
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (37) $ 433 $ 100 $ (1,176) $ 257
=========== =========== =========== =========== ===========
Per common share:
Basic:
Income (loss) from continuing operations $ (.01) $ (.09) $ .03 $ .01 $ (.01)
Income (loss) from discontinued operations $ -- $ .26 $ .01 $ (.52) $ .14
Diluted:
Income (loss) from continuing operations $ (.01) $ (.09) $ .03 $ .01 $ (.01)
Income (loss) from discontinued operations $ -- $ .26 $ .01 $ (.52) $ .14
Weighted average number of common shares:
Basic 2,587,875 2,617,500 2,617,500 2,297,750 1,978,000
=========== =========== =========== =========== ===========
Diluted 2,587,875 2,617,500 2,617,500 2,297,750 2,279,287
=========== =========== =========== =========== ===========
Balance sheet data:
Short-term investments $ 175 $ -- $ -- $ -- $ --
Cash and equivalents 206 6,331 8,297 7,077 6,777
Receivable from third party administration 1,074 7,802 -- -- --
Premiums receivable -- -- 2,979 4,304 5,131
Total assets 2,460 10,638 17,033 17,110 17,640
Payable to reinsurer -- -- 159 93 161
Claims liabilities -- -- 3,392 4,351 4,526
Unearned premiums -- -- 1,465 1,397 1,328
Commissions payable -- -- 730 766 942
Total stockholders' equity 1,042 6,930 6,503 6,397 6,436
</TABLE>
18
<PAGE>
ITEM 7. 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 of the Company and the notes thereto
appearing elsewhere in this Form 10-K. 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.
GENERAL
Prior to July 1, 1998, the Company, through its wholly-owned
subsidiary, Arista Insurance Company, operated principally as an underwriter of
New York State disability insurance to some 23,000 policyholders and 229,000
covered lives in the New York Metropolitan Area. In November 1998, effective
July 1, 1998, the Company ceded its disability insurance underwriting operations
to The Guardian pursuant to the Treaty and concurrently, the Registrant entered
into the TPA Agreement under which the Company performs various functions as an
independent administrator for all disability policies ceded to The Guardian and
for other New York State statutory disability policies issued by The Guardian
and other companies (the "TPA services").
Pursuant to the terms of the cession of the insurance operations, the
Company received a fee of 18% of the last twelve months' adjusted earned
premium, plus the proceeds from the assumption of the due premium receivables at
the Effective Date over all unpaid claim reserves, unearned premium liability
reserves, claim expense reserves and GAAP assessment reserves assumed by The
Guardian. These transactions significantly changed the Company's financial
condition and results of operations for 1998. Accordingly, the Company
reformatted its consolidated statement of income and comprehensive income for
1998 and 1997 to distinguish continuing operating results from its TPA services
from its discontinued underwriting operations.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998
Consolidated revenues during the years ended December 31, 1999 and 1998
were $3,505,816 and $1,131,734 respectively, from the Company's continuing third
party administrative service operations. During the year ended December 31,
1999, the Company operated solely as a full-time third party administrative
service provider (a "Provider"). In comparison, the Company operated as a
Provider during the last six months of the year ended December 31, 1998 and as a
part-time Provider as well as a full-time New York State statutory disability
benefits insurer during the first six months of the year ended December 31,
1998. Revenues more than tripled, primarily due to the fees earned on the
primary client's major acquisitions, which the Company now administers.
The consolidated net loss for the year 1999 was $37,567 ($0.01 per
share). For the year
19
<PAGE>
1998, the Company reported a loss from continuing operations of $238,254 ($0.09
per share) and a gain on disposal of discontinued operations of $671,049 ($0.26
per share), resulting in consolidated net income for 1998 totaling $432,795
($0.17 per share).
Revenue from discontinued insurance operations (consisting of net
earned premiums) for the year 1998, was $5,161,632. For the year 1998, net
income from discontinued operations of $671,049 ($0.26 per share) consisted of a
net loss from operations of the disposed segment of $167,122 ($0.06 per share)
and a net gain on disposal of discontinued operations of $838,171 ($0.32 per
share).
Consolidated investment income in 1999 was $157,527 as compared to
$543,856 in 1998. The decrease in 1999 was due to the elimination of investment
income earned on the proceeds received by Arista from the issuance of a
$3,000,000 surplus note that was repaid at the end of 1998 together with
Arista's disposal of most of its investments in 1999 in order to pay
extraordinary dividends to the Company. This disposal of such investments in
1999 resulted in a net realized loss of $10,410.
Consolidated miscellaneous income in 1999 was $10,840 as compared to
$18,823 in 1998.
Consolidated general and administrative expenses for 1999 were
$3,658,773 as compared to such expenses from continuing operations of $2,427,321
for 1998. In addition, in 1998 the Company incurred consolidated general and
administrative expenses from discontinued operations of $2,272,616 and from
disposal of discontinued operations of $2,052,596. In total, the consolidated
general and administrative expenses for 1998 from all operations were
$6,752,533.
20
<PAGE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997
Consolidated revenues during the year ended December 31, 1998 were
$1,483,080, an increase of $1,131,734 compared to consolidated revenues of
$351,346 during 1997 from the Company's continuing third party administrative
service operations. In 1998 the Company operated as a full time third party
administrative service provider after July 1, compared to a part time basis in
1997 and prior years.
Revenue from discontinued insurance operations for the year 1998 was
$5,161,632 compared to $10,381,720 in 1997. Net loss from discontinued
operations was $167,122 ($0.06 per share) in 1998 compared to a net income of
$21,244 ($0.01 per share) in 1997. Net gain on disposal of discontinued
operations was $838,171 (or $0.32 per share) in 1998.
The consolidated net income for the year 1998 was $432,795 ($0.17 per
share) consisting of a loss from continuing operations of $238,254 ($0.09 per
share), and a gain on disposal of discontinued operations of $671,049 ($0.26 per
share). This is compared to consolidated net income in 1997 of $100,220 ($0.04
per share), which consisted of $79,076 ($0.03 per share) from continuing
operations, and $21,244 ($0.01 per share) from discontinued operations.
Consolidated investment income in 1998 was $543,856 compared to
$513,913 in 1997. This increase was due mainly to the Corporation's improved
average annual yield on total investments.
Consolidated general and administrative expenses for 1998 from
continuing operations were $2,427,321 compared to $740,000 in 1997. The increase
in 1998 was due to additional costs associated with operating the TPA on a
full-time basis after July 1, 1998 compared to a part-time basis in 1997.
Operating expenses associated with the Company's discontinued operations were
$5,435,604 in 1998 compared to $10,018,285 in 1997.
FINANCIAL CONDITION
YEAR ENDED DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998
Despite a large reduction in assets and liabilities at December 31,
1999 compared to December 31, 1998, the Company's financial condition remains
stable. These reductions pertain entirely to the cession of the Company's
insurance underwriting operation to The Guardian in 1998 and the payment of a
partial liquidating distribution to the stockholders of the Company in May 1999.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
YEAR ENDED DECEMBER 31, 1999
At December 31, 1999, the Company had cash and cash equivalents
aggregating $206,079 compared to $6,330,909 at December 31, 1998. The decrease
in 1999 was due principally to the delivery of a partial liquidating
distribution to the Registrant's stockholders.
The Company's primary requirement for cash in 2000 will be for working
capital as a TPA for The Guardian and other companies.
YEAR 2000
The Company considered the impact of Year 2000 issues on its computer
systems and applications and developed a remediation plan. Conversion activities
were completed by the middle of 1999. All expenses in connection with the Year
2000 compliance project were charged to operations. Expenditures in 1998
aggregated $20,500 and the Company incurred additional costs of less than $1,000
in 1999 to complete the project.
INFLATION AND SEASONALITY
The Company does not anticipate that inflation will significantly
impact its business and does not believe that its business is seasonal.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
Market risk encompasses liquidity risk and price risk, both of which
arise principally in global financial markets. The Company's operations are
not subject to these risks.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is submitted in Part IV of this Form 10-K on
pages F-1 to S-6.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information required under this item will be set forth in the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days of the Company's 1999 year end and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required under this item will be set forth in the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days of the Company's 1999 year end and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
The information required under this item will be set forth in the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days of the Company's 1999 year end and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this item will be set forth in the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days of the Company's 1999 year end and is incorporated
herein by reference.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
(A)(1) AND (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES.
PAGE
I. Financial Statements of the Registrant F-1
II. Financial Statement Schedules
A. Schedule I - Summary of Investments-
Other Than Investments in Related
Parties S-1
B. Schedule II - Condensed Financial
Information of Registrant S-2
C. Schedule III - Supplemental Segment S-6
Information
<TABLE>
<CAPTION>
EXHIBIT NO. (A)(3) EXHIBITS.
- ----------- ----------------
<S> <C>
3.1 -- Certificate of Incorporation of the Company (1)
3.2 -- By-Laws of the Company (1)
4.2 -- Form of Class A Common Stock Certificate (1)
4.5 -- Form of Class B Common Stock Certificate (1)
10.4 -- Incentive Stock Option Plan 1985, as supplemented (1)
10.5 -- Incentive Stock Option Plan 1986 (1)
10.6 -- Non-qualified Stock Option issued to Stanley S. Mandel (1)
10.7 -- Warrant issued to Bernard Kooper (1)
10.8 -- Lease between the Company and Hacienda Intercontinental
Realty, N.V. (1)
10.8.1 -- Lease dated November 29, 1990 between the Company
and Hacienda Intercontinental Realty, N.V. (2)
10.8.2 -- Letter dated December 7, 1992 from Williamson,
Picket & Gross, Inc. addressed to the Company,
incorporated by reference to Exhibit 10.8.2 to
the Company's Form 10-K for the year ended
December 31, 1992
10.9 -- Sublease between the Company and Arista (1)
24
<PAGE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
10.9.1 -- Sublease dated January 1, 1991, between the Company and Arista (2)
10.11 -- Reinsurance Agreement with NRG Reinsurance Company, as amended (1)
10.11.1 -- Amendment to Reinsurance Agreement with NRG Reinsurance Company,
dated July 16, 1990 (2)
10.11.2 -- Reinsurance Agreement with NRG Reinsurance Company, dated January
29, 1993, incorporated by reference to Exhibit 10.11.2 to the
Company's Form 10-K for the year ended December 31, 1992
10.11.3 -- Reinsurance Agreement with NRG America Life Reassurance
Corporation, effective October 1, 1993, incorporated by reference
to Exhibit 10.11.3 to the Company's 10-K for the year ended
December 31, 1993
10.12 -- Agreement for Statutory Disability Benefits General Agents (1)
10.12(a) -- Rider to Statutory Disability Benefits General Agents Agreement (1)
10.14 -- Lease of Additional Space (Room 1101) between the Company and
Hacienda Intercontinental Realty, N.V.(1)
10.15 -- Agreement between Arista Insurance Company and American
International Life Assurance Company of New York (1)
10.16 -- Sublease (Room 1101) between the Company and Arista (1)
10.17 -- Lease of Additional Space (Room 1201) between the Company and
Hacienda Intercontinental Realty, N.V. (1)
10.18 -- Sublease (Room 1201) between the Company and Arista, incorporated
by reference to Exhibit No. 1 to the Company's 10-K for the year
ended December 31, 1988
10.19 -- Agreement between Arista and First International Life Insurance
Company, incorporated by reference to Exhibit No. 2 to the
Company's 10-K for the year ended December 31, 1988.
10.21 -- Statutory Disability Benefits Administration Agreement Effective
as of October 1, 1991, between Arista and The North Atlantic Life
Insurance Company, incorporated by reference to Exhibit 10.21 to
the Company's Form 10-K for the year ended December 31, 1992
10.22 -- Employment Agreement between the Company and Bernard Kooper,
dated February 17, 1993, incorporated by reference to Exhibit
10.22 to the Company's 10-K for the year ended December 31, 1993
10.22.1 -- Amendment No. 1 to the Employment Agreement between
Arista and Bernard Kooper dated July 20, 1994 (3)
25
<PAGE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
10.23 -- Employment Agreement between Arista and Stanley Mandel, dated
February 17, 1993, incorporated by reference to Exhibit 10.23 to
the Company's 10-K for the year ended December 31, 1993
10.23.1 -- Amendment No. 1 to the Employment Agreement between Arista and
Stanley Mandel, dated July 20, 1994 (3)
10.24 -- Consulting Agreement between Arista and International Management
Consultants, dated May 1, 1993, incorporated by reference to
Exhibit 10.24 to the Company's 10-K for the year ended December
31, 1993
10.25 -- Split-Dollar Insurance Agreement between Arista Investors Corp.,
Arlyne Kooper and Bernard Kooper, dated July 20, 1994 (3)
10.26 -- Split-Dollar Insurance Agreement between Arista, Stanley Mandel
and Joy Mandel, dated July 20, 1994 (3)
10.28 -- Collateral Assignment, dated July 20, 1994 (Joy Mandel) (3)
10.29 -- Collateral Assignment, dated July 20, 1994 (Bernard Kooper and
Arlyne Kooper) (3)
10.30 -- Lease Agreement, dated January 9, 1995 between the Company and
Hacienda Intercontinental Realty, N.V. (3)
10.30.1 -- Letter dated March 12, 1996 from the Company addressed to
Williamson, Picket & Gross, Inc. (4)
10.30.2 -- Letter dated March 13, 1996 from Williamson, Picket & Gross, Inc.
addressed to the Company (4)
10.31 -- Assumption Reinsurance Treaty, dated April 1, 1994 between the
Company and Aetna Life Insurance Company (3)
10.32 -- Reinsurance Treaty, dated October 1, 1995, between Arista and
Cologne Life Reinsurance Company (4)
10.32.1 -- Surplus Note Agreement, dated December 29, 1995, between Arista
and Cologne Life Underwriting Management Company (4)
10.32.2 -- Warrant issued to Cologne Life Underwriting Management Company (4)
10.33 -- Lease (Storage space #7) effective January 1, 1996 between the
Company and Hacienda Intercontinental Realty, N.V. (4)
10.34 -- Sublease (Storage space #7) effective January 1, 1996 between the
Company and Arista (4)
10.35 -- Sublease effective June 1, 1995 between the Company and Arista (4)
10.36 -- Stock Purchase Agreement dated as of July 13, 1995
between Arista and American Travelers Life Insurance Company (4)
26
<PAGE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
10.37 -- Secured Promissory note, dated June 14, 1996, issued by Bernard
Kooper to Arista Investors Corp. in the aggregate principal
amount of $500,000 (5)
10.38 -- Pledge and Escrow Agreement, dated June 14, 1996, by and among
Bernard Kooper, as pledgor, Arista Investors Corp., as pledgee
and Morrison Cohen Singer & Weinstein, LLP, as escrow agent (5)
10.39 -- Letter Agreement, dated June 14, 1995, between Bernard Kooper and
Arista Investors Corp., granting Arista Investors Corp. an option
to acquire 47,400 shares of its Class B common stock, par value
$.01 per share (5)
10.40 -- Letter dated October 31, 1996, addressed to Williamson, Picket &
Gross, Inc. (6)
10.41 -- Letter Agreement, dated December 11, 1996, terminating sublease
between the Company and Arista (Storage Space #5) (6)
10.42 -- Quota Share Reinsurance Treaty between the Company and The
Guardian Life Insurance Company of America, effective as of
January 1, 1998.
10.43 -- Employment Agreement between Stanley Mandel and the Company,
incorporated by reference to Exhibit 10.43 to the Company Form
10-Q for the quarter ended September 30, 1998.
10.43.1 -- Amendment No. 1 to the Employment Agreement
between Stanley Mandel and the Company, dated January
21, 2000.
10.44 -- Assumption Reinsurance Agreement between Arista, the Company and
The Guardian, dated September 23, 1998, incorporated by reference
to Exhibit A to the Company's Definitive Proxy Statement dated
September 23, 1998.
10.45 -- Administrative Services Agreement between The Guardian and the
Company, dated September 23, 1998, incorporated by reference to
Exhibit B to the Company's Definitive Proxy Statement dated
September 23, 1998.
10.45.1 -- Amendment to the Administrative Services Agreement
between The Guardian and the Company, dated as of
January 1, 1999.
10.46 -- Employment Agreement between Peter Norton and the Company
(including Employment Agreement Assignment, dated as of
February 1, 1999) (8)
10.46.1 -- Amendment No. 1 to the Employment Agreement between
Peter Norton and the Company, effective as of July 1, 1999.
27
<PAGE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
10.47 -- 1999 Non-Qualified Stock Option Plan, incorporated by reference
to Exhibit A to the Company's Definitive Proxy Statement, dated
July 12, 1999.
10.48 -- 1999 Restricted Stock Plan, incorporated by reference to Exhibit
B to the Company's Definitive Proxy Statement, dated July 12,
1999.
21.1 -- List of Subsidiaries incorporated by reference to Exhibit 21.1 to
the Company's 10-K for the year ended December 31, 1993
24.1 -- Powers of Attorney, incorporated by reference to Exhibit 25.1 to
the Company's Registration Statement on Form S-1 (File No.
33-20101), dated February 11, 1988, as amended on May 6, 1988,
declared effective on May 16, 1988, and amended by Post-Effective
Amendment No. 1 dated April 27, 1989.
27 -- Financial Data Schedule
</TABLE>
- ---------------
(1) Filed as same numbered Exhibit to the Company's Registration Statement on
Form S-1 (File No. 33-20101) on February 11, 1988, as amended on May 6,
1988, declared effective on May 16, 1988, and amended by Post-Effective
Amendment No. 1 dated April 27, 1989, and incorporated herein by
reference.
(2) Filed as same numbered Exhibit to the Company's Form 10-K for the year
ended December 31, 1990, and incorporated herein by reference.
(3) Filed as same numbered Exhibit to the Company's Form 10-K for the year
ended December 31, 1994, and incorporated herein by reference.
(4) Filed as same numbered Exhibit to the Company's Form 10-K for the year
ended December 31, 1995, and incorporated herein by reference.
(5) Filed as the same numbered Exhibit to the Company's Form 10-Q for the
fiscal quarter ended June 30, 1996.
(6) Filed as same numbered Exhibit to the Company's Form 10-K for the year
ended December 31, 1996, and incorporated herein by reference.
(7) Filed as same numbered Exhibit to the Company's Form 10-K for the year
ended December 31, 1997, and incorporated herein by reference.
28
<PAGE>
(8) Filed as same numbered Exhibit to the Company's Form 10-K for the year
ended December 31, 1998, and incorporated herein by reference.
(b) REPORTS ON FORM 8-K
Nothing to report.
29
<PAGE>
ARISTA INVESTORS CORP.
FORM 10-K
FINANCIAL STATEMENTS
AND SCHEDULES
Years Ended December 31, 1999, 1998 and 1997
WITH
INDEPENDENT AUDITORS' REPORT
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
- --------------------------------------------------------------------------------
Page
Independent Auditors' Report F-2
Financial Statements of the Registrant:
Consolidated Balance Sheets F-3-4
Consolidated Statements of Income and Comprehensive Income F-5-6
Consolidated Statements of Changes in Stockholders' Equity F-7
Consolidated Statements of Cash Flows F-8-9
Notes to Consolidated Financial Statements F-10-31
Financial Statement Schedules of the Registrant:
Schedule I - Summary of Investments - Other Than Investments
in Related Parties S-1
Schedule II - Condensed Financial Information of Registrant S-2-5
Schedule III - Supplemental Segment Information S-6
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the Consolidated Financial
Statements and notes thereto.
- --------------------------------------------------------------------------------
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Arista Investors Corp.:
We have audited the accompanying consolidated balance sheets of Arista Investors
Corp. as of December 31, 1999 and 1998 and the related consolidated statements
of income and comprehensive income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Arista Investors
Corp. at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedules on
pages S-1 to S-6 of this Form 10-K are presented for purposes of complying with
the Securities and Exchange Commission's rules and are not a required part of
the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein.
Rosen Seymour Shapss Martin & Company LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
February 25, 2000
F-2
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
INVESTMENTS (Notes 2 and 16):
Held-to-maturity securities:
Bonds and long-term U.S. Treasury
obligations, at amortized cost (market
value $175,000 in 1999 and $2,676,995 in 1998) $ 175,112 $ 2,618,068
Available-for-sale securities:
Redeemable preferred stocks, at market
value (amortized cost of $31,524 in 1998) -- 3,552
Trading securities, at market value
(cost of $279 in 1998) -- 87
----------- -----------
Total investments 175,112 2,621,707
CASH AND EQUIVALENTS (Note 2) 206,079 6,330,909
DEFERRED ACQUISITION COSTS, net (Note 2) 134,608 --
RECEIVABLES FROM RELATED PARTIES (Notes 4 and 8) 422,919 341,152
RECEIVABLES FROM THIRD PARTY ADMINISTRATION (Notes 3 and 8) 1,074,139 7,802
FURNITURE AND EQUIPMENT, at cost, net of
accumulated depreciation of $871,094
in 1999 and $831,754 in 1998 (Note 2) 44,849 75,707
PREPAID AND REFUNDABLE INCOME TAXES 139,904 --
DEFERRED INCOME TAXES, net (Notes 2 and 12) -- 759,310
OTHER ASSETS (Note 4) 262,986 506,424
----------- -----------
Total assets $ 2,460,596 $10,643,011
============ ===========
</TABLE>
- --------------------------------------------------------------------------------
(CONTINUED)
F-3
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (Continued)
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 1,417,909 $ 3,083,415
Commissions payable (Notes 4 and 15) -- 43,841
Income taxes payable -- 580,319
------------ ------------
Total liabilities 1,417,909 3,707,575
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 8)
STOCKHOLDERS' EQUITY (Notes 6, 9 and 10):
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 at
December 31, 1998 (Note 4) -- 474
Additional paid-in capital -- 5,989,609
Retained earnings 1,043,626 1,468,780
Accumulated comprehensive income (loss):
Net unrealized investment loss -- (22,488)
------------ ------------
1,069,427 7,462,176
Secured promissory note from shareholder (Note 4) -- (500,000)
Cost of 10,000 shares Class A common stock held in treasury (26,740) (26,740)
------------ ------------
Total stockholders' equity 1,042,687 6,935,436
------------ ------------
Total liabilities and stockholders' equity $ 2,460,596 $ 10,643,011
============ ============
</TABLE>
- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE FROM CONTINUING OPERATIONS (Notes 2 and 4):
Third party administrative services (Note 8d) $ 3,505,816 $ 1,483,080 $ 351,346
Net realized investment losses (Note 16) (10,410) -- (2,713)
Net investment income (Note 16) 152,527 543,856 513,913
Other income 10,840 18,823 7,087
----------- ----------- -----------
Total revenue 3,658,773 2,045,759 869,633
----------- ----------- -----------
EXPENSES:
General and administrative expenses 3,669,298 2,427,321 740,000
----------- ----------- -----------
Income (loss) from continuing operations before
income tax provision (benefit) (10,525) (381,562) 129,633
PROVISION (BENEFIT) FOR INCOME TAXES (Note 12):
Provision for income taxes 27,042 (143,308) 50,557
----------- ----------- -----------
Income (loss) from continuing operations (37,567) (238,254) 79,076
----------- ----------- -----------
DISCONTINUED OPERATIONS (Notes 3 and 13):
Income (loss) from operations of disposed segment (net
of income taxes of $106,850 in 1998 and
$342,191 in 1997) -- (167,122) 21,244
Gain on disposal of discontinued operations (net of
income taxes of $530,719) -- 838,171 --
----------- ----------- -----------
Income from discontinued operations -- 671,049 21,244
----------- ----------- -----------
Net income (loss) (37,567) 432,795 100,320
----------- ----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gain (loss) on securities during year (1,850) (5,698) 4,955
Less reclassification for amounts included
in net income (loss) 29,822 -- --
Income tax (5,484) 1,937 (1,685)
----------- ----------- -----------
Other comprehensive income (loss), net 22,488 (3,761) 3,270
----------- ----------- -----------
TOTAL COMPREHENSIVE INCOME (LOSS) $ (15,079) $ 429,034 $ 103,590
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(CONTINUED)
F-5
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Continued)
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- --------------
<S> <C> <C> <C>
NET INCOME (LOSS) PER COMMON SHARE:
Basic:
Continuing operations $ (.01) $ (.09) $ .03
Discontinued operations -- .26 .01
------------- ------------- -------------
Net income (loss) $ (.01) $ .17 $ .04
============= ============= =============
Diluted:
Continuing operations $ (.01) $ (.09) $ .03
Discontinued operations -- .26 .01
------------- ------------- -------------
Net income (loss) $ (.01) $ .17 $ .04
============= ============= =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic (Note 13) 2,587,875 2,617,500 2,617,500
============= ============= =============
Diluted (Note 13) 2,587,875 2,617,500 2,617,500
============= ============= =============
</TABLE>
- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
<TABLE>
<CAPTION>
ARISTA INVESTORS CORP.
- -------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock
Convertible
Class A Class B Paid-in
---------------------- ----------------- capital
Par Number Par Additional attributed to
Number value of value paid-in detachable Retained
of shares $ .01 shares $ .01 capital warrants earnings
---------- ----------- -------- ------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1997 2,580,100 $ 25,801 47,400 $ 474 $ 5,839,609 $ 150,000 $ 935,665
Net income -- -- -- -- -- -- 100,320
Unrealized securities gain,
net -- -- -- -- -- -- --
--------- ----------- -------- ------- ----------- ----------- ----------
Balance - December 31, 1997 2,580,100 25,801 47,400 474 5,839,609 150,000 1,035,985
Net income -- -- -- -- -- -- 432,795
Unrealized securities loss,
net -- -- -- -- -- -- --
Expiration of option -- -- -- -- 150,000 (150,000) --
--------- ----------- -------- ------ ----------- ----------- ----------
Balance - December 31, 1998 2,580,100 25,801 47,400 474 5,989,609 -- 1,468,780
Net loss -- -- -- -- -- -- (37,567)
Acquisition of Convertible
Class B
common stock (Note 10) -- -- -- -- -- -- --
Retirement of treasury stock -- -- (47,400) (474) (258,286) -- (387,587)
Partial liquidation
distribution -- -- -- -- (5,731,323) -- --
Transfer of unrealized
securities
loss -- -- -- -- -- -- --
--------- ----------- ---------- ------ ----------- ----------- ----------
Balance - December 31, 1999 2,580,100 $ 25,801 -- $ -- $ -- $ -- $1,043,626
========= =========== ========== ====== =========== =========== ==========
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Continued)
Years Ended December 31, 1999, 1998 and 1997
- -----------------------------------------------------------------------------------------------------------
Convertible
Accumulated Secured Class A Class B
other promissory common common
comprehensive note stock held stock held in
income receivable in treasury treasury Total
------------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1997 $ (21,997) $ (500,000) $ (26,740) $ -- $ 6,402,812
Net income -- -- -- -- 100,320
Unrealized securities gain,
net 3,270 -- -- -- 3,270
----------- ----------- ----------- ----------- -----------
Balance - December 31, 1997 (18,727) (500,000) (26,740) -- 6,506,402
Net income -- -- -- -- 432,795
Unrealized securities loss,
net (3,761) -- -- -- (3,761)
Expiration of option -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance - December 31, 1998 (22,488) (500,000) (26,740) -- 6,935,436
Net loss -- -- -- -- (37,567)
Acquisition of Convertible
Class B
common stock (Note 10) -- 500,000 -- (646,347) (146,347)
Retirement of treasury stock -- -- -- 646,347 --
Partial liquidation
distribution -- -- -- -- (5,731,323)
Transfer of unrealized
securities
loss 22,488 -- -- -- 22,488
----------- ----------- ----------- ----------- -----------
Balance - December 31, 1999 $ -- $ -- $ (26,740) $ -- $ 1,042,687
============ ============ =========== ============ ============
- ------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-7
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Continuing operations:
Income (loss) before income taxes $ (37,567) $ (381,562) $ 129,633
Adjustments to reconcile income (loss) to net cash
provided by (used in) operating activities:
Depreciation 39,340 47,955 57,606
Amortization of deferred acquisition costs 19,230 -- --
Loss on sale of investments 10,410 -- 2,519
Deferred income taxes 759,310 (1,037,081) 199,442
Unrealized (gain) loss on trading securities -- (2) 194
(Increase) decrease in operating assets
excluding effects of discontinued operations:
Prepaid and refundable income taxes (139,904) 603,200 (294,693)
Receivable from related parties (81,767) 102,030 (260,395)
Receivable from third party administration (1,066,337) 184,698 (49,017)
Other assets 243,438 671,195 (208,962)
Increase (decrease) in operating liabilities
excluding effects of
discontinued operations:
Accounts payable and accrued expenses (1,709,347) 1,456,228 466,422
Income taxes payable (580,319) -- --
----------- ----------- -----------
Cash provided by (used in) continuing
operations before income taxes (2,543,513) 1,646,661 42,749
----------- ----------- -----------
Discontinued operations:
Income (loss) before income taxes -- 1,094,918 363,435
Adjustments to reconcile income (loss) to net cash
provided by (used in) operating activities:
Amortization of deferred acquisition costs -- 484,398 319,775
Amortization of discount on surplus note -- 120,000 15,000
(Increase) decrease in operating assets
excluding effects of divestiture:
Premiums receivable -- 2,978,600 1,325,600
Prepaid and refundable income taxes -- 106,850 --
Payable to reinsurer -- (158,721) 65,600
Claims liabilities -- (3,391,950) (959,550)
Unearned premiums -- (1,464,800) 67,420
Commissions payable -- (686,071) (36,663)
Income taxes payable -- 580,319 342,191
----------- ----------- -----------
Cash provided by (used in) discontinued
operations before income taxes -- (336,457) 1,502,808
Net increase in income taxes -- (280,561) (392,748)
----------- ----------- -----------
Net cash provided by (used in)
operating activities (2,543,513) 1,029,643 1,152,809
----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
(CONTINUED)
F-8
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Furniture and equipment acquired $ (8,482) $ (9,999) $ (32,717)
Proceeds from sale of held-to-maturity securities 2,456,905 12,385 175,000
Proceeds from sale of available-for-sale securities 1,702 -- 50,000
Proceeds from sale of trading securities 67 -- 146
Unrealized (gain) loss on securities -- 5,698 (4,955)
Purchase of investments -- -- (109,233)
Other comprehensive income (loss), net of tax -- (3,761) 3,270
Payments and costs associated with acquired business (153,838) -- (14,036)
----------- ----------- -----------
Net cash provided by investing activities 2,296,354 4,323 67,475
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in surplus note payable (Notes 6 and 10) -- (3,000,000) --
Acquisition of Convertible Class B common stock (146,347) -- --
Partial liquidation distribution (5,731,323) -- --
----------- ----------- -----------
Net cash used in financing activities (5,877,671) (3,000,000) --
Net increase (decrease) in cash
and equivalents (6,124,830) (1,966,034) 1,220,284
----------- ----------- -----------
CASH AND EQUIVALENTS:
Beginning of year 6,330,909 8,296,943 7,076,659
----------- ----------- -----------
End of year $ 206,079 $ 6,330,909 $ 8,296,943
=========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the year for:
Income taxes $ 82,492 $ 334,905 $ 305,725
=========== =========== ===========
Interest $ 68,897 $ 1,034,257 $ 36,009
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
The Company canceled a note and acquired
Convertible Class B common stock as
follows:
Cancellation of secured promissory note from
shareholder (Notes 4 and 10) $ 500,000 $ -- $ --
Acquisition of Convertible Class B
common stock (Note 10) (646,347) -- --
----------- ----------- -----------
Cash paid $ (146,347) $ -- $ --
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-9
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND NATURE OF BUSINESS
Arista Investors Corp. (the "Company") was incorporated in the State
of New York on September 28, 1978 and re-incorporated in the State of Delaware
in October 1986. Until July 1, 1998 the Company was principally a holding
company with respect to its wholly-owned subsidiaries, Arista Insurance Company
("Arista"), The Collection Group, Inc. ("Collection") and Arista Administrative
Services, Inc. ("Administrative"). Effective July 1, 1998 the Company entered
into an Administrative Services Agreement ("TPA Agreement") with The Guardian
Life Insurance Company of America" ("The Guardian") and commenced services as a
third party administrator of New York State statutory disability insurance
policies including superstatutory and voluntary disability benefits insurance
(collectively, the "Insurance") (see Note 2). Arista was incorporated in the
State of New York on May 21, 1979, and was licensed on October 11, 1979 by the
New York State Insurance Department ("NYSID"). Arista's principal line of
business through November 11, 1998 was the writing of Insurance in New York
State. In November 1998 the Company completed the assumption and transfer of
Arista's insurance business to The Guardian. The effective date of the cession
was July 1, 1998. Arista discontinued writing Insurance, effective November 12,
1998. Effective September 1, 1993 Arista amended its charter and license and has
the authority to write glass insurance as well as disability insurance. To date,
Arista has not written any glass insurance. At December 31, 1998 the Company
operated exclusively as a third party administrator. Collection was incorporated
in August 1989 and commenced operations in July 1991. The Board of Directors of
the Company approved a plan to dissolve Collection in the near future.
Administrative is an inactive company.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements are prepared in
accordance with generally accepted accounting principles ("GAAP"). GAAP differs
from Statutory Accounting Principles ("SAP") used by insurance companies in
reporting to state regulatory and industry agencies as explained in Note 17.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, Arista, Collection,
and Administrative. All intercompany balances and transactions have been
eliminated.
REVENUE RECOGNITION, PREMIUMS RECEIVABLE AND CLAIMS LIABILITIES
*Premium revenue was recognized evenly over the term of the policy.
Estimates of premiums which had been earned but not collected were accrued since
customers generally reported and paid such premiums after the earning period
based on the number of employees on their payroll during the period of coverage.
- --------------------
* These policies relate to the Company's operations prior to July 1, 1998.
- --------------------------------------------------------------------------------
(CONTINUED)
F-10
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
*Unearned premiums represented that portion of premiums applicable to
the unexpired terms of policies in force.
*Claims liabilities and claims adjustment expense accruals, which
were based on the estimated ultimate cost of settling claims, included estimates
for unreported claims and claims adjustment expenses based upon past experience,
modified for current trends.
Third party administrative fees are recognized in the period in which
the premiums are earned. Such fees are determined in accordance with prescribed
schedules based on the services performed.
REINSURANCE
*In the normal course of business, the Company sought to reduce the
loss that might arise from events that caused unfavorable underwriting results
by reinsuring risk with reinsurers. Amounts recoverable from reinsurer(s) for
commissions, losses or any other amount(s) due were deducted from ceded premiums
earned. Settlements were made quarterly by net cash payments to or from the
reinsurers (see Note 15).
DEFERRED POLICY ACQUISITION COSTS
*Policy acquisition costs included fees paid and certain other costs
in connection with acquiring new business. These costs were deferred and charged
to income over the future periods in which the related premiums were earned.
Amortization periods ranged from five to seven years. The remaining unamortized
costs were charged to income during 1998, upon the assumption and transfer of
the Insurance (see Note 3).
FURNITURE AND EQUIPMENT
Furniture and equipment are carried at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Depreciation expense for each of the years in the three-year period ended
December 31, 1999, was $39,340, $47,955, and $57,606, respectively.
INVESTMENTS
Pursuant to the requirements of SFAS 115, the Company determines the
appropriate classification of its investments in debt and equity securities at
the time of purchase and reevaluates such determination at each balance sheet
date. Debt securities that the Company has the positive intent and ability to
hold to maturity are classified as "held-to-maturity securities" and reported at
amortized cost; debt and equity securities that are bought and held principally
for the purpose of selling them in the near future are classified as "trading
securities," and reported at fair value, with unrealized gains and losses
included in earnings; debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified as
"available-for-sale securities" and reported at fair value, with unrealized
gains and losses reported as "other comprehensive income" as a separate
component of stockholders' equity.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit
risk consist principally of receivables from third party administration
functions. Credit risk with respect to these receivables is considered minimal
due to the financial condition of the insurers and deposits held by the Company.
- --------------------
* These policies relate to the Company's operations prior to July 1, 1998.
- --------------------------------------------------------------------------------
(CONTINUED)
F-11
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
DEFERRED ACQUISITION COSTS
Deferred acquisition costs include fees paid and certain other costs
in connection with acquiring new third party administration business. These
costs are deferred and charged to income over the term of the third party
administrative agreement which is four years. Amortization expense for the year
ended December 31, 1999 was $19,230.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and related fair values of financial instruments
at December 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------- ------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Cash and equivalents $ 206,079 $ 206,079 $6,330,909 $6,330,909
Investments:
Held-to-maturity securities 175,112 175,000 2,618,068 2,676,995
Available-for-sale securities -- -- 3,552 3,552
Trading securities -- -- 87 87
Receivable from related parties 422,919 422,919 341,151 341,152
Receivable from third
party administration 1,074,139 1,074,139 7,802 7,802
</TABLE>
The methods and assumptions used to estimate the fair value of
financial instruments are as follows:
(i) The carrying amounts of cash and equivalents approximate their
fair value. Investments in available-for-sale securities and trading securities
are carried at their fair values based on quoted market prices. Held-to-maturity
investments are carried at cost and their fair values are based on quoted market
prices.
(ii) The carrying values of receivables from related parties, and
receivables from third party administration approximate fair value because of
their short-term maturities.
INCOME TAXES
The Company and its subsidiaries file a consolidated federal income
tax return. Tax returns are prepared using Statutory Accounting Principles
("SAP") until December 31, 1998 (see Note 17). Deferred income taxes reflect the
future tax consequences of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end (see Note
12).
EARNINGS (LOSS) PER SHARE
Basic and diluted net income (loss) per common share (Class A and B)
have been computed in accordance with FASB Statement No. 128 (SFAS 128),
"Earnings Per Share." Basic earnings per share (basic EPS) is computed by
dividing net income (loss) by the weighted-average number of common shares
outstanding during the year. Diluted earnings per share (diluted EPS) is
computed by dividing net income (loss) used in determining basic EPS by the
weighted average number of common shares outstanding during the year, plus the
incremental shares, if any, that would have been outstanding upon the assumed
exercise of dilutive stock options and warrants.
- --------------------------------------------------------------------------------
(CONTINUED)
F-12
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS
For purposes of the statement of cash flows, cash equivalents
represent highly liquid financial instruments with a maturity date of three
months or less. At December 31, 1999 and 1998 cash and cash equivalents include
certificates of deposit, commercial paper, and money market accounts as follows:
1999 1998
---------- ----------
Cash in bank $ 124,308 $1,516,391
Money market accounts 81,771 165,360
Commercial paper -- 4,564,158
Certificates of deposit -- 85,000
---------- ----------
$ 206,079 $6,330,909
========== ==========
REPORTING COMPREHENSIVE INCOME
FASB Statement No. 130 ("SFAS 130") "Reporting Comprehensive Income"
is effective for years beginning after December 31, 1997, was issued in June
1997 and 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. The financial statements for 1997 were restated to
provide comparative disclosures for that year.
RECLASSIFICATIONS
Certain items included in the 1998 and 1997 consolidated financial
statements have been reclassified to conform with the 1999 presentation.
3. ARISTA INSURANCE COMPANY
CESSION OF INSURANCE BUSINESS
In November 1998, the Company completed the assumption and transfer
of its insurance operations previously conducted by Arista pursuant to an
Assumption Reinsurance Agreement (the "Agreement") with The Guardian, effective
July 1, 1998. Under the Agreement, Arista received a cession allowance of
$3,421,486 which was calculated as 18% of Arista's earned premium for the period
July 1, 1997 to June 30, 1998. The Guardian assumed the insurance related assets
and liabilities of Arista as of June 30, 1998. The cession resulted in a net
gain of $838,171, net of income taxes of $530,719. Arista discontinued writing
the Insurance effective July 1, 1998. The Company concurrently entered into the
TPA Agreement with The Guardian effective July 1, 1998. Under the terms of the
TPA Agreement, the Company performs administrative and other services relating
to the insurance policies it previously issued, as well as other insurance
policies previously underwritten by The Guardian. The Company earns a service
fee based on both fixed and variable percentages of premiums collected, as
earned by The Guardian.
RECAPITALIZATION
Arista amended its Certificate of Incorporation (the "Amendment")
which was approved and placed on file with the NYSID as of December 18, 1998,
and filed with the Office of the County Clerk on December 31, 1998. The
Amendment reduced Arista's stated capital from $1,950,000 (comprised of 1,300
shares with a par value of $1,500 per share) to $300,000 (comprised of 200
shares with a par value of $1,500 per share) and reduced Arista's
paid-in-surplus to $153,000. The recapitalization enabled the Board of Directors
of Arista to ratify the return of capital in the amount of $2,492,000 to the
Company. On January 26, 1999 the NYSID approved Arista's return of $2,492,000 to
the Company, and the transfer was completed on January 28, 1999.
- --------------------------------------------------------------------------------
(CONTINUED)
F-13
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
A subsequent amendment, approved and placed on file with the NYSID as
of May 21, 1999, and filed with the Office of the County Clerk on May 13, 1999,
decreased Arista's stated capital from $300,000 (comprised of 200 shares with a
par value of $1,500 per share) to $200,000 (comprised of 200 shares with a par
value of $1,000 per share). Effective as of May 31, 1999, Arista's paid-in
surplus was adjusted to $253,000.
EXTRAORDINARY DIVIDENDS
In March 1999, the Department approved an extraordinary cash dividend
of $4,000,000 (the "March 1999 Dividend"), based on its review of Arista's
December 31, 1998 Annual Statement, on the condition that there had been no
event that significantly impacted Arista's last reported surplus as regards
policyholders. The Dividend was paid to its parent company in two installments:
$3,000,000 in March 1999 and $1,000,000 in May 1999.
In April 1999 and June 1999, the Department approved dividends of
$1,200,000 and $150,000, respectively, based on its review of Arista's filed
March 31, 1999 Quarterly Statement, on the condition that there had been no
event that significantly impacted Arista's reported March 31, 1999 surplus as
regards policyholders. The Dividends were paid in May 1999 and June 1999.
4. TRANSACTIONS WITH RELATED PARTIES
AGENTS
Bernard Kooper ("Kooper"), Chairman of the Board of the Company and
Arista, and owner of 20.4% in 1999 and 1998 and 19.1% in 1997 of the Company's
outstanding Class A and 100% of the Company's Class B common stock in 1998 and
1997, is one of the general agents marketing the Insurance. Gross premiums
collected from policies placed by Kooper's agency, Bernard Kooper Life Agency,
Inc. (the "Agency") aggregated $993,706, $1,131,093 and $1,258,156 for the years
ended December 31, 1999, 1998 and 1997, respectively. The Agency received
approximately $177,200, $156,000 and $227,000 in commissions based on the
premiums collected on DBL serviced by the Company during 1999, 1998 and 1997,
respectively, for premiums on policies placed with or serviced by the Company
and Arista. Such premiums represented approximately 5.9% and 6.1% of the
consolidated gross premiums earned during the years ended December 31, 1998 and
1997, respectively. The Agency, in turn, paid approximately $133,000, $113,000
and $131,000 during 1999, 1998 and 1997, respectively, to other brokers,
including approximately $19,000, $15,000 and $26,000, respectively, to brokers
who are (or were) members of the Board of Directors of Arista. Commissions
payable to the related agencies at December 31, 1998 and 1997 were $13,960 and
$13,268, respectively.
EMPLOYMENT AGREEMENTS
The Company and Arista had employment agreements with Kooper and
Stanley Mandel ("Mandel"), respectively, which were to terminate in February
2001 as explained in Note 8(a). The Company has entered into an employment
agreement with Mandel effective November 12, 1998 and amended October 1, 1999,
which will expire as described in Note 8(a).
CONSULTING AGREEMENTS
The Company paid $6,000 to a director in 1998 for services and
out-of-pocket expenses incurred for evaluating various business opportunities.
In July 1993 Arista entered into an agreement with a consultant for specified
services to be performed for a fee of $500 per week. The consultant became a
director of Arista in October 1994. The agreement was terminated in January
1999. Arista paid $2,500 in 1999, $25,000 in 1998 and $26,000 in 1997 under this
agreement. In 1999, the Company paid Kooper $6,000 for consulting services
during the year.
- --------------------------------------------------------------------------------
(CONTINUED)
F-14
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
SECURED PROMISSORY NOTE
In June 1996 Kooper exercised a warrant granted in 1986 to acquire
365,000 shares of the Company's Class A common stock. In partial payment for the
shares, Kooper issued his secured promissory note (the "Promissory Note") to the
Company for $500,000. The Promissory Note specified interest at the one-year
London Interbank Offered Rate (LIBOR) plus 1.25% payable quarterly and was
adjusted on the first day of every October, January, April and July commencing
October 1, 1996. The principal balance outstanding and accrued but unpaid
interest was due and payable on June 14, 2001. The Promissory Note would be
canceled and extinguished if the Company exercised the option to obtain Kooper's
47,400 shares of Class B common stock. In May, 1999 the Company exercised the
option and acquired the 47,400 shares of Class B common stock, resulting in the
cancellation of the Promissory Note (see Note 9).
SALARY ADVANCES
At December 31, 1999 and 1998, salary advances to an officer and
director of the Company and Arista aggregated $150,725 and $216,750,
respectively. Salary advances are limited to one year's compensation and are
non-interest bearing. During 1999 the Board adopted a resolution to forgive this
salary advance at the rate of $50,000 per calendar year for the calendar years
ended December 31, 1999, 2000, 2001 and 2002. For the year ended December 31,
1999, $50,000 was forgiven and charged to operations. The unamortized balances
of $150,725 and $216,750 at December 31, 1999 and 1998, respectively, are
reported as "other assets" in the accompanying balance sheet.
5. CLAIMS LIABILITIES
Unpaid claims liabilities included insured claims and claim
adjustment expenses. Changes in unpaid claims liabilities for the years ended
December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Balance at January 1 $ -- $3,391,950
Less reinsurance recoverables -- 1,695,975
----------- ----------
Net claims liabilities -- 1,695,975
----------- ----------
Claims incurred:
Current year -- 4,820,822
Prior years -- 69,098
----------- ----------
Total claims incurred -- 4,889,920
----------- ----------
Claims paid:
Current year -- 2,625,298
Prior years -- 3,020,398
----------- ----------
Total claims paid -- 5,645,696
----------- ----------
Claims incurred, assumed by The Guardian (Note 3) -- 2,636,174
----------- ----------
Balance at December 31:
Net claims liabilities -- --
Plus reinsurance recoverables -- --
----------- ----------
Total liability $ -- $ --
=========== ==========
</TABLE>
- --------------------------------------------------------------------------------
(CONTINUED)
F-15
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
6. SURPLUS NOTE AND WARRANT
On December 29, 1995 Arista issued a $3,000,000 surplus note (the
"Note") to The Cologne Life Underwriting Management Company ("CLUMCO") in
conjunction with an indemnity reinsurance agreement which became effective
retroactive to October 1, 1995 (see Note 15). The Note called for interest only
at 10.5% per annum to be paid in the first and second year and thereafter with
the principal to be repaid one-eighth each year from the third to the tenth
year, from the date of closing. Upon termination of Arista's reinsurance
agreement with Cologne Life Reinsurance Company ("The Cologne") the principal
balance of the Note became due and payable. Repayment of the Note and accrued
interest were subject to the prior approval of the NYSID. Arista obtained such
approval and in December 1998, paid the balance of the Note and accrued interest
thereon. Interest expense for the years ended December 31, 1998 and 1997 totaled
$491,181 and $348,075, respectively.
In connection with the issuance of the Note, and as an inducement to
enter into the transaction with Arista, the Company issued a warrant certificate
to purchase 150,000 shares (subject to adjustment for stock dividends or stock
splits) of its Class A common stock to CLUMCO. The certificate was exercisable
after October 1996 at an exercise price of $3.50 per share and was to expire in
December 2005. At December 31, 1998 the aggregate value of the warrant was
$150,000, based on an independent appraisal of $1.00 per underlying share, and
had been reflected in stockholders' equity with the corresponding discount
charged to surplus note payable. The warrants expired upon the payment of the
Surplus Note, and the portion of the Note proceeds attributed to the warrant was
included in additional paid-in capital at December 31, 1998. The discount was
being amortized to operations over the option period of 10 years using the
straight-line method. The unamortized discount of $106,250 at December 31, 1998
was charged to operations upon the repayment of the Note.
7. LEASE COMMITMENTS
On January 9, 1995, the Company entered into a five-year lease for
its new principal executive office space, effective June 1, 1995 through May 31,
2000. The lease requires monthly base rental payments of $16,925 plus utilities
and a proportionate share of various operating expenses. The Company rents
additional storage space on a month-to-month basis. Pursuant to a sublease
agreement between the Company and Arista, Arista reimbursed the Company for
90.90% of the Company's lease obligations through June 30, 1998. The sublease
terminated June 30, 1998.
The minimum rental commitment under the operating leases for office
space for the remaining period ending May 31, 2000 is $96,892.
The Company has the option to terminate the lease provided it
notifies the landlord ninety (90) days prior to the termination date, and
reimburses the landlord for the unamortized portion of the landlord's
contribution of approximately $200,000 for leasehold improvements. Consolidated
rent expense was $271,517 in 1999, $261,063 in 1998 and $249,973 in 1997.
8. COMMITMENTS AND CONTINGENCIES
(a) EMPLOYMENT AGREEMENTS
In July 1994, Arista entered into a five-year employment agreement
with a vice president which provides for annual compensation of $125,000, annual
reimbursement of automobile expenses up to $6,000 and a nonaccountable expense
allowance of up to $3,600 per annum. Effective with the closing of the
transaction with The Guardian on November 12, 1998, Arista assigned this
employment agreement to the Company. In addition, the Company may, but is
- --------------------------------------------------------------------------------
(CONTINUED)
F-16
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
not obligated to, pay a year-end bonus as may be determined by the Board of
Directors of the Company. The agreement provides that in the event of
termination of the agreement by the Company, the Company would provide severance
pay in an amount ranging from 60% to 100% of annual compensation of the vice
president. The agreement also provides for a one-year covenant not to compete
predicated upon the payment of $75,000 by the Company. Effective July 1, 1999
the agreement was amended to extend the term of the agreement to December 31,
2000 under the same financial considerations.
Kooper and the Company had an employment contract which called for an
annual salary of $150,000 effective in February 1993 (the "Kooper Agreement")
which was to terminate in February, 2001. Similarly, Arista and Mandel had an
employment contract effective February 1993 (the "Mandel Agreement") which
called for an annual salary of $208,750 in each of the next eight years, plus
annual reimbursement of automobile expenses of $9,000 and a nonaccountable
expense allowance of $5,000, which was to terminate in February, 2001.
The Kooper and Mandel Agreements provided that, in the event of a
consolidation, merger or sale of all or substantially all of the assets of the
Company or Arista (a "Corporate Event") the employment agreements would
terminate, and upon such termination, Kooper and Mandel would each be entitled
to receive a lump sum payout. Upon consummation of the Agreement with The
Guardian on November 12, 1998, Kooper and Mandel were entitled to receive lump
sum payouts of $861,658 and $994,619, respectively. During 1999 the Company paid
$1,056,277 to Kooper and Mandel, and at December 31, 1999 and 1998 $800,000 and
$1,856,277, respectively, plus interest compounded monthly, at the applicable
federal short-term interest rate as provided in Section 1274(d) of the Internal
Revenue Code of 1986, as amended, have been accrued and are included in accounts
payable and accrued expenses in the accompanying balance sheets. Interest
expense on the lump sum payouts for the years ended December 31, 1999 and 1998
was $64,153 and $4,744, respectively. The payout would be the maximum amount
that would not trigger the excise tax payable in the event of an "excess
parachute payment," as such term is defined in the Internal Revenue Code of
1986, as amended.
In addition, Arista and the Company provided split-dollar life
insurance policies in which both Kooper and Mandel participate. Under these
agreements, the Company and Arista would pay the premiums on these policies for
a period of time specified in each agreement, on behalf of Kooper and Mandel.
The premium payments were treated as loans to both Kooper and Mandel and are
collateralized by the underlying policy. Insurance loans to Kooper and Mandel
aggregated $410,362 and $329,214 at December 31, 1999 and 1998, respectively,
and are included in receivables from related parties in the accompanying balance
sheets.
After February 16, 2001 Kooper and Mandel have the right to receive a
lump-sum retirement benefit equal to the amount of premiums paid by Arista and
the Company attributable to the cumulative increase in cash value of the
policies during the specified period of the policies. Each of Kooper's and
Mandel's employment agreements provided that, upon the occurrence of a Corporate
Event, the Company and Arista must pay to the insurance carrier such sums so as
to render as "paid up" the split-dollar life insurance policies provided to each
for Kooper and Mandel. Upon consummation of the Agreement with The Guardian,
Arista paid to the insurance carrier $78,133 to render Mandel's policy as "paid
up."
Mandel and the Company have entered into an employment contract (the
"New Mandel Agreement") commencing November 12, 1998 and will expire on November
11, 2000, or upon the termination of the TPA Agreement with The Guardian, but
not later than November 11, 2003. The New Mandel Agreement provides for an
annual base salary of $185,000 plus a nonaccountable expense allowance of $5,000
per annum. Commencing with the fiscal year beginning January 1, 1999 and ending
on December 31 of each fiscal year or portion of such fiscal year (the "Bonus
Period") for which Mandel is an employee he will receive a bonus equal to eight
percent of the Company's annual earnings from third party administration
operations before income taxes and nonrecurring events for the bonus period.
- --------------------------------------------------------------------------------
(CONTINUED)
F-17
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
The New Mandel Agreement provides that, in the event of a
consolidation, merger, sale of substantially all of the assets of the Company,
or ownership of fifty percent or more of the voting common stock by one or more
individuals or entities, who are acting in concert or as an affiliated group of
which Mandel is not a participant (a "Change in Control") the employment
agreement may be either terminated, assigned by the Company or continued by the
Company or any successor or surviving corporation provided that notice of such
action is accompanied by a lump sum payment of $370,000.
Effective October 1, 1999 the New Mandel Agreement was amended to
provide an annual base salary of $150,000, a $9,000 per annum expense allowance
for Company business related automobile costs and expenses, plus a
nonaccountable expense allowance of $5,000 per annum. This amendment also
provides that for each Bonus Period Mandel's bonus will be equal to eight
percent of the Company's annual earnings from third party administration
operations before income taxes and nonrecurring events for the bonus period, but
in no event shall the annual bonus be less than $35,000.
(b) RISK OF LOSS
At December 31, 1999 accounts receivable and cash and equivalents on
deposit with financial institutions exceeded federal deposit insurance coverage
by approximately $1,198,884.
(c) POLICY ACQUISITIONS
Arista incurred costs under various agreements it entered into to
acquire the right to offer New York State statutory disability benefits coverage
to former policyholders of other disability carriers. The costs which included
professional fees and finder's fees as well as fees paid directly to the former
disability carriers for such rights have been capitalized and are being
amortized on the straight-line basis over five to seven years. Such costs
amounted to $14,036 for the year ended December 31, 1997. Amortization of
deferred acquisition costs charged to operations for all acquisitions were
$484,398 and $319,775 for the years ended December 31, 1998 and 1997,
respectively. Accumulated amortization was $2,343,669 at December 31, 1998.
(d) REINSURANCE
A contingency liability existed with respect to reinsurance and
quota-share indemnity reinsurance agreements with The Cologne and The Guardian,
as discussed in Note 15 below.
(e) OTHER MATTERS
(1) Effective July 1, 1998, the Company entered into the TPA
Agreement with The Guardian to perform administrative and other services
relating to insurance as well as other disability policies previously
underwritten by The Guardian. The Company earns a service fee based on both
fixed and variable percentages of collected or earned premiums by The Guardian.
This agreement replaced a prior agreement between Arista and The Guardian. The
agreement will terminate June 30, 2003. However, The Guardian may terminate the
agreement after the first two years in the event The Guardian desires to perform
these services.
Effective January 1, 1999 the Company and The Guardian amended
the TPA Agreement to allow the Company to provide The Guardian with
administrative services relating to the policies The Guardian assumed from the
Amalgamated Life Insurance Company.
- --------------------------------------------------------------------------------
(CONTINUED)
F-18
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
(2) Effective January 1, 1999, the Company entered into an agreement
with the Girl Scouts of the U.S.A. (the "Girl Scouts") to provide certain
administrative services for the Super Statutory Disability Benefits Insurance
(the "DBL") provided by the Girl Scouts. The Company earns a fee of $1.75 per
capita per month for providing these services. The initial term of the agreement
was January 1, 1999 through December 31, 1999 with automatic renewals for
periods of twelve months thereafter. The agreement will remain in effect until
terminated by either party upon 60 days prior written notice.
(3) Effective March 1, 1996, Arista arranged to perform certain
administrative services for Hartford Life and Accident Insurance Company's
("Hartford") Temporary Disability Insurance ("TDI") policies. Fees for these
services are determined in accordance with a prescribed schedule based on the
type of service provided. The arrangement will remain in effect until terminated
by either party.
(4) Effective January 1, 1995, Arista entered into an agreement to
perform certain administrative services for the United States Life Insurance
Company. Fees for these services are determined in accordance with a prescribed
schedule based on the type of service provided. The agreement will remain in
effect until terminated by either party upon 180 days prior written notice.
(5) Effective April 1, 1995, the Company entered into an agreement to
perform certain administrative services for the American Bankers Insurance
Company of Florida. Fees for these services are determined in accordance with a
prescribed schedule based on the type of service provided. The agreement will
remain in effect until terminated by either party upon 180 days prior written
notice. No services are currently being provided under this agreement.
(6) Effective July 1, 1993, Arista entered into an agreement to
perform certain administrative services for The Guardian. Fees for these
services were determined in accordance with a prescribed schedule based on the
type of service provided. The agreement was terminated July 1, 1998, the
effective date of the New Agreement.
9. STOCK OPTIONS AND WARRANTS
Transactions involving stock options and warrants in each of the
years ended December 31, 1999, 1998 and 1997 are summarized below:
<TABLE>
<CAPTION>
Incentive Stock Options Warrants
------------------- ---------------------
Aggregate Aggregate
Shares(2) amount Shares(1) amount
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Options and warrants outstanding:
January 1, 1997 28,500 $ 83,563 150,000 $ 525,000
1997 Expired (28,500) (83,563) -- --
-------- -------- --------- ---------
December 31, 1997 -- -- 150,000 525,000
1998 Expired -- -- (150,000) (525,000)
-------- -------- --------- ---------
December 31, 1998 -- $ -- -- $ --
======== ======== ========= =========
</TABLE>
- --------------------------------------------------------------------------------
(CONTINUED)
F-19
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
(1) Warrants to purchase 150,000 shares of Class A common stock at an exercise
price of $3.50 per share were granted to CLUMCO in December 1995, in
connection with the issuance of a Note (see Note 6) and a new reinsurance
agreement with Arista (see Notes 8 and 13), in October 1995. In December
1998 the warrants granted to CLUMCO to purchase 150,000 shares of Class A
common stock expired upon the repayment of the Note and accrued interest.
(2) The 1986 Incentive Stock Option Plan (the "1986 Plan") provided for the
grant of options, until November 15, 1997, to purchase up to 86,900 shares
of the Company's Class A common stock. In June 1996 options to purchase
58,400 shares were exercised at $1.40 per share. Ten thousand options
granted on June 24, 1987 expired on June 23, 1997, and 18,500 options
granted on November 16, 1987 expired on November 15, 1997.
1999 NON-QUALIFIED STOCK OPTION PLAN
A Non-Qualified Stock Option Plan (the "1999 Non-Qualified Plan") was
approved by a majority of the Class A common stockholders in August 1999 and
became effective on January 1, 2000. The 1999 Non-Qualified Plan provides for
the grant of options, until August 6, 2009, to purchase up to 350,000 shares of
the Company's Class A common stock by key employees and directors of the Company
upon terms and conditions determined by a committee (the "Committee") composed
of directors of the Company. The options are exercisable for a period of ten
years from the date of grant at either a price equal to 100% of the fair market
value of the Class A common stock at the time the option is granted, or an
amount to be determined in accordance with the procedures established by the
Committee.
1999 RESTRICTED STOCK PLAN
A Restricted Stock Plan (the "1999 Restricted Stock Plan") was
approved by a majority of the Class A common stockholders in August 1999 and
became effective on January 1, 2000. The Restricted Stock Plan provides for the
issuance, until December 31, 2009, of up to 50,000 shares of Class A common
stock to key employees and directors of the Company upon terms and conditions
determined by the Board of Directors of the Company or a Committee appointed by
the Board. All Restricted Stock purchased pursuant to the 1999 Restricted Stock
Plan must be authorized by the Board of Directors which will specify the terms
and provisions to be contained in the stock purchase agreement and/or the escrow
agreement to be executed by the purchaser. The Board of Directors will determine
the per share Restricted Stock price which shall not be less than the par value
of the Class A common stock of the Company on the date the Restricted Stock is
purchased.
10. STOCKHOLDERS' EQUITY
All shares of Class A and Class B common stock issued had equal
rights and privileges except that a holder of Class B shares had the additional
right to elect a majority of the Board, and the Class B common stock was
convertible at the option of the holder at any time into an equal number of
shares of Class A common stock. All shares of Class B common stock automatically
converted into an equal number of shares of Class A common stock if Kooper sold,
transferred, or in any manner conveyed, one or more shares of Class B common
stock, or upon his death, whichever event occurred earlier.
In November 1987, the Company purchased 10,000 shares of Class A
common stock at a cost of $26,740, which are being held in treasury.
In June 1996, Kooper and the Company entered into an agreement under
which the Company obtained an option to acquire the 47,400 shares of Class B
common stock held by Kooper. The option was exercisable by a vote of the
majority of Class A directors and the delivery to Kooper, at the Company's
option, of either 47,400 shares of Class A common stock or cash equal to the
fair market value of 47,400 shares of Class A common stock at the date of
exercise
- --------------------------------------------------------------------------------
(CONTINUED)
F-19
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
plus the cancellation of his secured promissory note (see Note 4) upon payment
by Kooper of all accrued but unpaid interest. The option would terminate upon
Kooper's death.
On May 4, 1999, the Class A Directors of the Board of Directors of
the Company exercised the option to acquire the 47,400 shares of Class B common
stock, owned by Kooper. Upon the exercise of the option, Kooper received an
amount equal to $146,347.50, representing the fair market value of the
Registrant's Class A common stock less the $500,000.00 outstanding principal
amount under the secured promissory note, which was cancelled.
In November 1999, the Class B common stock acquired from Kooper was
retired.
DIVIDENDS FROM ARISTA TO THE COMPANY
In April 1996, Arista paid a dividend of $111,684 to the Company.
In July 1998, Arista paid a dividend of $279,951 to the Company.
In February, 1999, Arista paid a dividend of $167,526 to the Company.
As discussed in Note 3, on January 28, 1999, Arista returned capital
of $2,492,000 to the Company.
During 1999, Arista's Board authorized and the NYSID approved the
payment of extraordinary dividends totaling $5,350,000 to the Company.
DIVIDENDS TO STOCKHOLDERS
On May 28, 1999 the Company issued a partial liquidating distribution
of $5,731,323, representing $2.23 per share to the stockholders of record on May
19, 1999.
SECURITIES DELISTED
As a result of the liquidating distribution to stockholders paid in
May 1999, the Company's net tangible assets fell below the minimum required for
continued listing of the Company's securities on the NASDAQ SmallCap Market. In
March, the Company was notified that effective March 30, 2000, the Company's
securities will be delisted from the NASDAQ SmallCap Market.
11. PENSION PLAN
Effective July 1, 1999 the Company adopted a 401(k) Deferred
Compensation Plan (the "Plan"). The Plan covers all employees who are at least
21 years of age with at least 6 months of service, who elect to participate.
Participating employees contribute a percentage of their compensation, as
defined, into the Plan, which is limited to an amount allowable under the
Internal Revenue Code. The Company makes a matching contribution equal to 50% of
employee contributions up to 6% of their contribution. The Company's
contribution for the Plan year ended December 31, 1999 was $21,872.
- --------------------------------------------------------------------------------
(CONTINUED)
F-21
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
12. INCOME TAXES
At December 31, 1999 and 1998 deferred tax assets aggregated $-0- and
$778,578, respectively, and deferred tax liability aggregated $-0- and $19,268,
respectively, as follows:
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Deferred tax asset:
Investment in securities $ -- $ 40,152
Accounts payable and accrued expenses -- 738,426
---------- --------
Total deferred tax asset -- 778,578
---------- --------
Deferred tax liability:
Claims liabilities -- 19,268
---------- --------
Total deferred tax liability -- 19,268
---------- --------
Net deferred tax asset (liability) $ -- $759,310
========== ========
</TABLE>
The following is a reconciliation of the statutory U.S. Federal
income tax rate to the effective tax rate as reflected in the accompanying
consolidated statements of operations for continuing operations:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- ------------------------ -------------------------
Percentage Percentage Percentage
of pretax of pretax of pretax
Amount income Amount income Amount income
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income
taxes from continuing
operations $ (10,525) $ (381,562) $ 129,633
========== ========== ==========
Tax provision (benefit) at
statutory rates $ (1,579) (15.0) $ (129,731) (34.0) $ 44,075 34.0
Increase in income taxes resulting from:
State franchise and local taxes,
net of federal benefit 28,621 271.0 (13,577) (3.6) 6,482 5.0
---------- ----- ---------- ----- ---------- ----
Income tax provision (benefit) $ 27,042 256.0 $ (143,308) (37.6) $ 50,557 39.0
========== ===== ========== ===== ========== ====
</TABLE>
- --------------------------------------------------------------------------------
(CONTINUED)
F-22
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
The provision (benefit) for income taxes consists of the following at
December 31, 1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Currently payable (benefit):
Federal $ (661,963) $ 1,138,622 $ 130,550
State and local (70,305) 584,109 212,505
----------- ----------- -----------
(732,268) 1,722,731 343,055
----------- ----------- -----------
Deferred tax asset:
January 1, (778,578) (1,055,081) (974,920)
December 31, -- (778,578) (1,055,081)
----------- ----------- -----------
Net change 778,578 276,503 (80,161)
----------- ----------- -----------
Deferred tax liability:
January 1, 19,268 1,737,941 1,608,087
December 31, -- 19,268 1,737,941
----------- ----------- -----------
Net change (19,268) (1,718,673) 129,854
----------- ----------- -----------
Net deferred tax effect 759,310 (1,442,170) 49,693
----------- ----------- -----------
Total net income tax provision (benefit) 27,042 280,561 392,748
Tax provision (benefit) applicable to
discontinued operations -- 423,869 342,191
----------- ----------- -----------
Tax provision (benefit) applicable to
continuing operations $ 27,042 $ (143,308) $ 50,557
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(CONTINUED)
F-23
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
13. DISCONTINUED OPERATIONS
As discussed in Note 2, in November 1998 the Company and Arista ceded
its insurance business to The Guardian. The cession resulted in a gain of
$838,171, net of income taxes of $530,719. The operating results have been
restated to exclude the discontinued operations as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1999 1998 1997
-------------- ----------- ------------
<S> <C> <C> <C>
Revenue (Notes 2, 3, 4, 14 and 17):
Gross earned premiums $ -- $ 9,792,264 $ 20,763,439
Ceded earned premiums -- 4,630,632 10,381,719
-------------- ----------- ------------
Net earned premiums -- 5,161,632 10,381,720
-------------- ----------- ------------
Expenses (Notes 2, 4 and 14):
Underwriting:
Gross claims incurred -- 4,889,920 12,212,694
Ceded claims incurred -- 2,362,164 6,106,347
-------------- ----------- ------------
Net claims incurred -- 2,527,756 6,106,347
-------------- ----------- ------------
Gross commissions incurred -- 2,273,006 3,907,264
Ceded commissions incurred -- 1,637,774 3,937,966
-------------- ----------- ------------
Net commissions incurred (earned) -- 635,232 (30,702)
-------------- ----------- ------------
Total underwriting expenses -- 3,162,988 6,075,645
General and administrative expenses -- 2,272,616 3,942,640
-------------- ----------- ------------
Total expenses -- 5,435,604 10,018,285
-------------- ----------- ------------
Income (loss) from discontinued operations
before income tax provision (benefit) -- (273,972) 363,435
Provision (benefit) for income taxes (Note 12):
Income tax provision (benefit) -- (106,850) 342,191
-------------- ----------- ------------
Income (loss) from discontinued operations $ -- $ (167,122) $ 21,244
============== =========== ============
</TABLE>
- --------------------------------------------------------------------------------
(CONTINUED)
F-24
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
14. NET INCOME (LOSS) PER COMMON SHARE
The following table reconciles the income (loss) and the weighted
average shares used in the net income (loss) per common share calculation for
the years ended December 31, 1999, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
Net Income (Loss) Shares Per Share Amount
----------------- ------ ----------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Basic EPS $ (36,567) 2,587,875 $(.01)
Effects of dilutive securities: None -- -- --
--------- --------- ----------
Diluted EPS $ (36,567) 2,587,875 $(.01)
========= ========= ==========
YEAR ENDED DECEMBER 31, 1998:
Basic EPS $ 432,795 2,617,500 $.17
Effects of dilutive securities: None -- -- --
--------- --------- ----------
Diluted EPS $ 432,795 2,617,500 $.17
========= ========= ==========
YEAR ENDED DECEMBER 31, 1997:
Basic EPS $ 100,320 2,617,500 $.04
Effects of dilutive securities: None(1) -- -- --
--------- --------- ----------
Diluted EPS $ 100,320 2,617,500 $.04
========= ========= ==========
</TABLE>
(1) Warrants to purchase 150,000 shares of Class A common stock were not
included in computing diluted EPS, because their exercise price exceeded the
average market price during 1997.
15. REINSURANCE
In October 1995, Arista entered into a reinsurance agreement with The
Cologne (see Notes 6 and 8) whereby Arista ceded by way of reinsurance, a 50%
quota-share participation in Arista's insurance business, both for policies in
force as of October 1, 1995 and for all new insurance business written or
acquired on or after October 1, 1995. The agreement called for Arista to pay to
The Cologne its proportionate share of the gross premium written less a
provisional ceding commission of 25%, which includes premium tax, less The
Cologne's proportionate share of the gross losses applicable to this business.
The provisional ceding commission was adjusted quarterly. The agreement allowed
Arista an annual profit commission of 2% of gross earned premiums ceded to The
Cologne, if a certain loss ratio was achieved. The agreement was terminated in
March 1998, effective January 1, 1998.
Effective March 1, 1996 Arista ceded its entire assumption
reinsurance book of TDI to Hartford. Arista will receive a fee based on four
percent (4%) of earned and collected premiums generated by this book of business
for each of the next four years. At December 31, 1999 Arista estimated that it
would receive approximately $63,800 under the agreement.
- --------------------------------------------------------------------------------
(CONTINUED)
F-25
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
From January 1, 1998 to June 30, 1998, Arista entered into a
Quota-Share Reinsurance Treaty with The Guardian whereby Arista ceded by way of
reinsurance a 50% participation in Arista's insurance business, both for
policies in force as of January 1, 1998 and for business written or acquired on
or after January 1, 1998.
As discussed in Note 3, effective as of July 1, 1998 the Company
agreed to cede to The Guardian all of Arista's assets and liabilities under each
and every policy of the Insurance that had been underwritten by Arista. Arista
discontinued writing Insurance effective November 12, 1998. Ceded transactions
for the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Gross Amount Ceded Amount Net Amount
<S> <C> <C> <C>
Premium receivable $ 2,978,600 $ 1,489,300 $ 1,489,300
Claims liabilities $ 3,391,950 $ 1,695,975 $ 1,695,975
Unearned premiums $ 1,464,800 $ 732,400 $ 732,400
Commissions payable $ 729,912 $ 939,075 $ 1,668,978
</TABLE>
A contingent liability existed with respect to reinsurance ceded
which would become a liability of Arista and the Company in the event that The
Cologne was unable to meet the obligations assumed under the reinsurance
agreement.
16. INVESTMENTS
Investments at December 31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Held-to-maturity securities $ 175,112 $ 2,618,068
Available-for-sale securities - 3,552
Trading securities - 87
------------- -------------
$ 175,112 $ 2,621,707
============= =============
</TABLE>
Trading securities are adjusted to fair value and carried in the
accompanying financial statements. The aggregate fair value, gross unrealized
holding gains, losses, and amortized cost for available-for-sale and
held-to-maturity securities by major security type at December 31, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
Available-for-sale securities
-----------------------------------------------------------------------
Gross Gross
Unrealized Unrealized
Amortized Cost Gains Losses Fair Value
-------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998:
Redeemable preferred securities $ 31,524 $ - $ 27,972 $ 3,552
----------- ----------- ----------- -----------
$ 31,524 $ - $ 27,972 $ 3,552
=========== =========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(CONTINUED)
F-26
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Held-to-maturity securities
Gross Gross
Unrealized Unrealized
Amortized Cost Gains Losses Fair Value
-------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999:
U.S. Treasury securities $ 175,112 $ - $ 112 $ 175,000
----------- ----------- ----------- -----------
$ 175,112 $ - $ 112 $ 175,000
=========== =========== =========== ===========
DECEMBER 31, 1998:
U.S. Treasury securities $ 2,618,068 $ 58,927 $ - $ 2,676,995
----------- ----------- ----------- -----------
$ 2,618,068 $ 58,927 $ - $ 2,676,995
=========== =========== =========== ===========
</TABLE>
Pursuant to New York State insurance regulations, Arista maintains a
mandatory trust fund with the Bank of New York containing U.S. Treasury
securities with a carrying value of approximately $175,000 and $2,115,444 at
December 31, 1999 and 1998, respectively, and short-term investments of $173,925
and $7,179 at December 31, 1999 and 1998, respectively.
INVESTMENT INCOME
Net investment income for the years ended December 31, 1999, 1998 and
1997 consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
INTEREST AND DIVIDENDS:
Bonds and long-term investments $ 60,432 $152,794 $148,582
Short-term investments 83,889 356,168 328,765
-------- -------- --------
Total interest and dividends 144,321 508,962 477,347
INTEREST ON NOTE RECEIVABLE FROM RELATED PARTY 8,206 34,894 36,566
-------- -------- --------
Total investment income $152,527 $543,856 $513,913
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
(CONTINUED)
F-27
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
Realized and unrealized gains and losses on investments for the years
ended December 31, 1999, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ----------- -------
<S> <C> <C> <C>
REALIZED GAINS (LOSSES):
U.S. Treasury securities $ 19,432 $ -- $ --
Redeemable preferred securities (29,822) -- (2,625)
Equity securities (20) -- 106
-------- ----------- -------
Total realized losses (10,410) -- (2,519)
-------- ----------- -------
UNREALIZED LOSSES:
Equity securities -- -- (194)
-------- ----------- -------
Total unrealized losses -- -- (194)
-------- ----------- -------
Net investment losses $(10,410) $ -- $(2,713)
======== =========== =======
</TABLE>
INVESTMENT MATURITY
The following schedule sets forth the respective maturity dates as at
December 31, 1999:
<TABLE>
<CAPTION>
Held-to-maturity securities
Cost Fair Value
--------- ---------
<S> <C> <C>
Within one year $ 175,112 $ 175,000
========= =========
</TABLE>
- --------------------------------------------------------------------------------
(CONTINUED)
F-28
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
17. STATUTORY MATTERS
The following is a reconciliation of Arista's net stockholder's
equity and net income (loss) determined on the statutory basis of accounting
required by insurance regulation to amounts of equity and net income (loss)
included in the financial statements of Arista prepared on the basis of
generally accepted accounting principles for each of the years ended December
31, 1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
--------- ----------- -----------
<S> <C> <C> <C>
Capital and surplus reported for SAP purposes $ 716,849 $ 7,358,551 $ 6,206,020
Add (deduct):
Inclusion of non-admitted assets 167,250 1,057,468 2,624,539
Surplus notes payable -- -- (3,000,000)
Deferred costs, net of tax -- -- 66,158
Claims reserves, net of tax -- -- 548,059
Unrealized depreciation on marketable securities, net -- 11,613 (26,471)
Other, net of tax (10,205) (6,225) 217,267
Adjustment to premiums receivable, net of tax -- -- 533,443
Prior period tax over accrual (203,295) (92,687) (330,248)
Realized gain on investments, net of tax -- -- (27,370)
--------- ----------- -----------
Stockholder's equity reported in
Arista's financial statements $ 670,599 $ 8,328,720 $ 6,811,397
========= =========== ===========
Net income reported for SAP purposes $ 477,606 $ 2,865,411 $ 698,926
Add (deduct):
Deferred costs, net of tax -- (182,947) (139,531)
Other, net of tax -- (145,306) 164,339
Claims reserves, net of tax -- (326,898) 38,564
Realized gain on investments, net of tax 192 -- 350
Income tax expense differences (438,145) (407,289) 28,834
--------- ----------- -----------
Net income reported in Arista's
financial statements $ 39,653 $ 1,802,971 $ 791,482
========= =========== ===========
</TABLE>
Arista was in compliance with the NYSID minimum statutory capital and
surplus requirement at December 31, 1999, 1998 and 1997.
Under the New York State Insurance Law, Arista may pay dividends only
out of its statutory earned surplus. In addition, the maximum amount of
dividends that may be paid in any twelve-month period without regulatory
approval is the lesser of the adjusted net investment income or 10% of its
surplus. Arista paid dividends of $167,526 and $279,951 during 1999 and 1998,
respectively.
In March 1999, the NYSID approved an extraordinary cash dividend of
$4,000,000, based on their review of Arista's filed December 31, 1998 Annual
Statement, on the condition that there has been no event that has significantly
- --------------------------------------------------------------------------------
(CONTINUED)
F-29
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
impacted upon Arista's last reported surplus as regards policyholders. In March,
1999 and May, 1999 Arista paid extraordinary cash dividends of $3,000,000 and
$1,000,000, respectively, to the Company.
On April 29, 1999 and June 8, 1999 the NYSID approved extraordinary
cash dividends of $1,200,000 and $150,000, respectively, based on their review
of Arista's filed March 31, 1999 Quarterly Statement, on the condition that
there has been no event that has significantly impacted upon Arista's last
reported surplus as regards policyholders. In May 1999 and June 1999 Arista paid
extraordinary cash dividends of $1,200,000 and $150,000, respectively, to the
Company.
18. INDUSTRY SEGMENTS
Effective July 1, 1998, Arista ceded its insurance segment to The
Guardian and discontinued sales of the Insurance effective November 11, 1998.
The Company concurrently entered into a TPA Agreement with The Guardian,
effective July 1, 1998. The Company also provides third party administrative
services for other insurance companies. Arista was engaged principally in the
business of writing disability insurance policies in New York State. Revenues
and profit and loss by segment for the years ended December 31, 1999, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
Discontinued TPA
Insurance Service Consolidated
Segment Segment Total
--------------- --------------- ---------------
<S> <C> <C> <C>
1999
Revenues from outside customers $ - $ 3,505,816 $ 3,505,816
Major customers $ - $ 3,429,398 $ 3,429,398
Loss before income taxes $ - $ (10,525) $ (10,525)
1998
Revenues from outside customers $ 9,792,264 $ 1,483,080 $ 11,275,344
Major customers $ - $ 1,406,732 $ 1,406,732
Income (loss) before income taxes $ 1,094,918 $ (381,562) $ 713,356
1997
Revenues from outside customers $ 20,763,439 $ 351,346 $ 21,114,785
Major customers $ 2,505,370 $ - $ 2,505,370
Income before income taxes $ 363,435 $ 129,633 $ 493,068
</TABLE>
19. MAJOR CUSTOMER
For the years ended December 31, 1999 and 1998, third party
administrative fees from The Guardian represented approximately 98% and 95%,
respectively, of the Company's total revenues from continuing operations and 12%
of the consolidated total revenues from continuing and discontinued segments in
1998 (see Note 17).
For the year ended December 31, 1997, no one group accounted for 10%
or more of Arista's revenues. However, Arista underwrote disability insurance
for two large groups with combined earned premiums of approximately $2,505,000
in 1997.
- --------------------------------------------------------------------------------
(CONTINUED)
F-30
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
20. YEAR 2000
The Company has completed the conversion and testing of its computer
systems and applications and determined them to be year 2000 compliant. Total
cost associated with the Year 2000 Project aggregated $22,900. All costs
associated with these system changes are charged against income in the period
incurred.
- --------------------------------------------------------------------------------
F-31
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
SCHEDULE I
SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount shown in
Cost or the balance
Type of investment amortized cost Market value sheet
- ------------------------------------------ -------------- ------------ ---------------
<S> <C> <C> <C>
HELD-TO-MATURITY SECURITIES:
United States Government and government
agencies and authorities $ 175,112 $ 175,000 $ 175,112
============= ============= =============
</TABLE>
- --------------------------------------------------------------------------------
SEE INDEPENDENT AUDITORS' REPORT.
S-1
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Parent Company Only)
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
---------- -----------
<S> <C> <C>
ASSETS
Investment in subsidiaries $ 757,290 $ 8,727,163
Cash and equivalents 5,229 1,208,832
Receivable under TPA service agreements 1,074,139 748,797
Due from related party 415,411 225,585
Prepaid expenses and other assets 252,765 158,253
Furniture and equipment - net 44,849 75,707
Deferred tax asset 1,084,360 1,066,834
---------- -----------
Total assets $3,634,043 $12,211,171
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $1,361,321 $ 1,728,208
Due to subsidiaries, net 1,384,350 3,679,354
---------- -----------
Total liabilities 2,745,671 5,407,562
Stockholders' equity 888,372 6,803,609
---------- -----------
Total liabilities and stockholders' equity $3,634,043 $12,211,171
========== ===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS Years Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Revenue:
Third party administrative services $ 3,496,066 $ 1,283,664 $ --
Investment income 41,784 42,893 48,061
----------- ----------- ---------
3,537,850 1,326,557 48,061
Expenses:
General and administrative expenses 3,619,519 3,349,409 897,520
----------- ----------- ---------
Loss from operations before income
tax benefits and equity in net
income (loss) of subsidiaries (81,669) (2,022,852) (849,459)
Income tax expense (benefits) (4,449) (741,691) (265,284)
----------- ----------- ---------
Loss from operations before equity
in net income (loss) of subsidiaries (77,220) (1,281,161) (584,175)
Equity in net income (loss) of subsidiaries 39,653 1,713,956 684,495
----------- ----------- ---------
Net income (loss) $ (37,567) $ 432,795 $ 100,320
=========== =========== =========
</TABLE>
The accompanying condensed financial information should be read in conjunction
with the consolidated financial statements and notes thereto of Arista Investors
Corp. as of December 31, 1999 and 1998 and for each of the three years in the
period ended December 31, 1999.
- --------------------------------------------------------------------------------
(CONTINUED)
S-2
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
SCHEDULE II (CONTINUED)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Parent Company Only)
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (37,567) $ 432,795 $ 100,320
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 39,340 24,679 1,404
Equity in net income of subsidiaries (39,653) (1,713,956) (684,495)
Amortization of deferred acquisition costs 19,230 -- --
Increase (decrease) in assets and liabilities:
Receivable from third party administration (325,342) (748,797) --
Due to subsidiaries (2,295,004) 2,190,459 540,832
Due from related party (189,826) (67,055) --
Prepaid expenses and other assets (113,742) (129,691) (69,238)
Deferred tax asset (17,526) (328,785) (290,452)
Accounts payable and accrued expenses (366,887) 1,233,046 184,569
----------- ----------- ---------
Net cash provided by (used in)
operating activities (3,326,977) 892,695 (217,060)
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Furniture and equipment acquired (8,482) (100,386) --
----------- ----------- ---------
Net cash used in investing activities (8,482) (100,386) --
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of Convertible Class B common stock (146,347) -- --
Dividend from subsidiary 5,517,526 168,267 --
Return of capital from subsidiary 2,492,000 -- --
Partial liquidating distribution (5,731,323) -- --
----------- ----------- ---------
Net cash provided by financing activities 2,131,856 168,267 --
----------- ----------- ---------
Increase (decrease) in cash and equivalents (1,203,603) 960,576 (217,060)
CASH AND EQUIVALENTS:
Beginning of year 1,208,832 248,256 465,316
----------- ----------- ---------
End of year $ 5,229 $ 1,208,832 $ 248,256
=========== =========== =========
</TABLE>
- --------------------------------------------------------------------------------
(CONTINUED)
S-3
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
SCHEDULE II (CONTINUED)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Parent Company Only)
STATEMENTS OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1999 1998 1997
--------- -------------- -------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the year for:
Income taxes $ 23,855 $ 26,380 $27,720
========= ============== =======
Interest $ 59,082 $ -- $ --
========= ============== =======
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES:
The Company canceled a note and acquired
Convertible Class B common stock as
follows:
Cancellation of secured promissory
note receivable $ 500,000 $ -- $ --
Acquisition of Convertible Class B
common stock (646,437) -- --
--------- -------------- -------
Cash paid $(146,437) $ -- $ --
========= ============== =======
</TABLE>
The accompanying condensed financial information should be read in conjunction
with the consolidated financial statements and notes thereto of Arista Investors
Corp. as of December 31, 1999 and 1998 and for each of the three years in the
period ended December 31, 1999.
- --------------------------------------------------------------------------------
(CONTINUED)
S-4
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
SCHEDULE II (CONTINUED)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Parent Company Only)
NOTES TO CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the Condensed Financial Information of the Registrant does not
include all of the information and notes normally included with financial
statements prepared in accordance with generally accepted accounting principles.
It is therefore suggested that these condensed financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report as referenced in Form 10-K, Part II,
Item 8, pages F-1 to F-31.
2. CASH DIVIDENDS FROM SUBSIDIARY
Arista paid dividends to the Company in the amount of $167,526 and
$279,951 in February 1999 and July 1998, respectively. During 1999, as
authorized by Arista's Board of Directors, and approved by the NYSID, Arista
paid extraordinary dividends totaling $5,350,000 to the Company.
On January 28, 1999 Arista returned capital of $2,492,000 as
authorized by Arista's Board of Directors and approved by the NYSID.
3. CASH DIVIDENDS TO STOCKHOLDERS
On May 28, 1999 the Company issued a partial liquidating distribution
of $2.23 per share to the stockholders of record on May 19, 1999. The partial
liquidation distribution paid aggregated $5,731,323.
- --------------------------------------------------------------------------------
SEE INDEPENDENT AUDITORS' REPORT.
S-5
<PAGE>
ARISTA INVESTORS CORP.
- --------------------------------------------------------------------------------
SCHEDULE III
SUPPLEMENTAL SEGMENT INFORMATION
Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Future
Policy
Benefits, Other
Losses, Policy
Deferred Claims and Claims and Net
Policy Loss Unearned Benefits Premium Investment
Segment Acquisition Expenses Premiums Payable Revenue Income
Column A Column B Column C Column D Column E Column F Column G
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1999
Disability insurance $ - $ - $ - $ - $ - $ -
Property and casualty - - - - - -
Third-party administrative
service - - - - 3,505,816 142,117
---------- ---------- ---------- ---------- ---------- ----------
$ - $ - $ - $ - $3,505,816 $ 142,117
========== ========== ========== ========== ========== ==========
1998
Disability insurance $ - $ - $ - $ - $5,161,632 $ 290,507
Property and casualty - - - - - -
Third-party administrative
service - - - - 1,483,080 253,349
---------- ---------- ---------- ---------- ---------- ----------
$ - $ - $ - $ - $6,644,712 $ 543,856
========== ========== ========== ========== ========== ==========
<CAPTION>
Amortization
Benefits, of
Claims, Deferred
Losses and Policy Other
Settlement Acquisition Operating Premiums
Segment Expenses Costs Expenses Written
Column A Column H Column I Column J Column K
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1999
Disability insurance $ - $ - $ - $ -
Property and casualty - - - -
Third-party administrative
service - - 3,669,298 -
---------- ---------- ---------- ----------
$ - $ - $3,669,298 $ -
========== ========== ========== ==========
1998
Disability insurance $2,428,769 $ 484,398 $2,272,616 $9,806,464
Property and casualty - - - -
Third-party administrative
service - - 2,427,321 -
---------- ---------- ---------- ----------
$2,428,769 $ 484,398 $4,699,937 $9,806,464
========== ========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
SEE INDEPENDENT AUDITORS' REPORT.
S-6
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: April 13, 2000 By: /s/ STANLEY S. MANDEL
--------------------------------
Stanley S. Mandel, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ BERNARD KOOPER Chairman of the Board April 13, 2000
- --------------------------------
Bernard Kooper
/s/ STANLEY S. MANDEL President and Director April 13, 2000
- -------------------------------- (principal executive officer)
Stanley S. Mandel
/s/ SUSAN HALL Senior Vice President, April 13, 2000
- -------------------------------- Treasurer and Secretary
Susan J. Hall (principal financial and
accounting officer)
/s/ DANIEL GLASSMAN Director April 13, 2000
- --------------------------------
Daniel Glassman
/s/ MICHAEL KRASNER Director April 13, 2000
- --------------------------------
Michael Krasner
/s/ LOUIS H. SALTZMAN Director April 13, 2000
- --------------------------------
Louis H. Saltzman
</TABLE>
30
<PAGE>
EXHIBIT 10.43.1
ARISTA INVESTORS CORP.
116 John Street
New York, New York 10038
January 21, 2000
Mr. Stanley S. Mandel
45 Sutton Place South
New York, New York 10022
Dear Stanley:
This letter is intended to amend and restate Paragraphs 1, 2, 4 and 8
of that certain letter agreement, dated September 24, 1998 (the "Letter
Agreement"), between you and Arista Investors Corp., a Delaware corporation (the
"Company"), pursuant to which you are employed by the Company as President. All
terms not defined herein shall have the meanings ascribed to them in the Letter
Agreement.
In connection with the foregoing, Paragraphs 1, 2, 4 and 8 of the
Letter Agreement are hereby deleted in their entirety and replaced by the
following sections effective as of October 1, 1999:
"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, that the Employment Period shall terminate no 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
<PAGE>
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 such time as you reasonably deem
necessary in order to perform your duties and responsibilities
hereunder, but in no event shall you devote less than One Hundred and
Twenty (120) days thereto during each twelve month period falling
within the Employment Period. Nothing herein contained shall prevent or
be construed as preventing you from engaging in the business of acting
as a soliciting agent, broker or general agent on behalf of any other
insurance company for the sale of life insurance, property and casualty
insurance, or accident and health insurance, provided however, you
shall not engage in the business of acting as a soliciting agent,
broker or general agent on behalf of any other insurance company for
the sale of statutory disability benefits insurance or any other
insurance product currently administered or serviced by the Company, or
hereafter offered, written, administered or serviced during the
Employment Period by the Company or its affiliates. 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 from
holding or making other investments in or from participating in any
other business venture, 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
<PAGE>
"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 Fifty Thousand Dollars ($150,000) 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 31st 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 less the Advanced Bonus (as defined herein) previously paid to
you 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 annual
earnings before income taxes from third party administration operations
for such Bonus Period (the "Annual Bonus"), but in no event shall the
Annual Bonus be less than $35,000.00. On or about January 1st of each
Bonus Period, Thirty Five Thousand Dollars ($35,000) (the "Advanced
Bonus") shall be paid to you as an Advanced Bonus. If the Annual Bonus
is greater than $35,000, then you shall be paid the difference between
the Annual Bonus calculated hereunder less the Advanced Bonus for such
Bonus Period no later than One Hundred and Twenty (120) days after the
end of such fiscal year. If the Annual Bonus calculated hereunder is
less than or equal to the Advanced Bonus for such Bonus Period, no
additional bonus shall be paid to you 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.
3
<PAGE>
(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."
"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 pay you the sum of Nine Thousand
($9,000) Dollars per annum for automobile costs and expenses in
connection with the use of your automobile for Company business,
payable in twelve (12) equal monthly installments payable on the first
(1st) day of each month falling within the Employment Period.
(c) 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."
"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, you will not
during the Employment Period and thereafter until the Designated Date
(as hereinafter defined): (i) directly or indirectly engage in any
4
<PAGE>
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, and any other activity prohibited under paragraph 1(d)
hereof.
(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 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
5
<PAGE>
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.
(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."
Notwithstanding the foregoing restatements of Paragraphs 1, 2,
4 and 8 of the Letter Agreement, all other provisions of such Letter Agreement
shall continue in full force and effect.
6
<PAGE>
If the foregoing correctly reflects our understanding, please
so indicate by signing in the space provided. ARISTA INVESTORS CORP.
By: /s/ Susan Hall
-------------------------------------
Susan Hall, Senior Vice President
and Treasurer
Accepted and Agreed to:
/s/ Stanley S. Mandel
- -------------------------------------
Stanley S. Mandel
7
<PAGE>
Exhibit 10.45.1
AMENDMENT AGREEMENT
THIS AMENDMENT dated as of January 1, 1999 (hereinafter referred to as
the "Amendment") by and between THE GUARDIAN LIFE INSURANCE COMPANY OF AMERICA
(the "Reinsurer"), a life insurance company organized and existing under the
laws of the state of New York and ARISTA INVESTORS CORP. (the "Administrator"),
a holding company organized and existing under the laws of the state of
Delaware.
WHEREAS, the Administrator currently provides the Reinsurer with the
necessary administrative and other services (the "Administrative Services") in
accordance with the Administrative Services Agreement dated as of September 23,
1998, by and between the Reinsurer and Administrator (the "Agreement");
WHEREAS, pursuant to an Assumption Reinsurance Agreement dated January
1, 1999, by and between Amalgamated Life Insurance Company ("Amalgamated") and
Reinsurer (hereinafter referred to as the Amalgamated Reinsurance Agreement"),
Amalgamated ceded to the Reinsurer and the reinsurer agreed to accept and
assumption reinsure all existing and future. Statutory, Super Statutory and
Voluntary Disability Benefits Law Policies written by Amalgamated ("New
Business");
WHEREAS, the Administrator desires to provide the Reinsurer with the
same Administrative Services being provided under the Agreement with respect to
the New Business under the same terms and conditions as contained in the
Agreement except as specifically stated to the contrary in this Amendment.
NOW, THEREFORE, in consideration of the premises and mutual promises of
the parties hereto, they hereby covenant and agree as follows:
1) The Administrator hereby agrees to provide the Reinsurer with
the same Administrative Services with respect to the New Business as is
currently being provided by the Administrator under the Agreement pursuant to
the same terms and conditions as contained therein except as specifically
modified herein.
2) Article I of the Agreement shall be amended by inserting "and
the Amalgamated Reinsurance Agreement" in the third line of the definition for
"Claim" after the words "Assumption Reinsurance Agreement".
3) Article II of the Agreement shall be amended by inserting "and
the Amalgamated Reinsurance Agreement" in the fourth line of the first sentence
after the words "Assumption Reinsurance Agreement".
4) Article XVIIC of the Agreement is hereby amended by inserting
"the Amendment" at the end of the fourth line after "Annexes attached hereto,".
<PAGE>
5) Where the context warrants in order to effect the intention of
this Amendment, the Agreement shall be amended such that the terms Reinsured
Policies, Existing Policies and New policies shall be expanded to include
Reinsured Policies, Existing Policies, and New Policies, which Amalgamated ceded
to the Reinsurer and the Reinsurer agreed to accept and assumption reinsure
pursuant to the Amalgamated Reinsurance Agreement.
6) For the Administrative Services being provided with respect to
the New Business, Annex F on pages F-1 and F-5 where the amount of the Basic Fee
appears shall be amended such that the Basic Fee shall be reduced from 7% to 5%
of paid premium for the period from January 1, 1999 to December 31, 1999 and
shall increase to 6% of paid premium on January 1, 2000 for the balance of the
term of the Agreement. The reduced Basic Fee shall apply only to the
Administrative Services being provided in connection with the New Business.
7) It shall be a condition precedent to the effectiveness of this
amendment to the Agreement that the Reinsurer and the Administrator shall have
obtained all prior regulatory approvals necessary, if any, for the consummation
and performance of the Agreement as herein amended and modified.
8) Except as hereinabove modified all of the terms and provisions
of the Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
the day and year first above written.
THE GUARDIAN LIFE INSURANCE
COMPANY OF AMERICA
By: /s/ Sanford B. Herman
-------------------------------------------
Name: Sanford B. Herman
Title: Vice President
Group Financial Systems & Compliance
ARISTA INVESTORS CORP.
By: /s/ Stanley S. Mandel
-------------------------------------------
Name: Stanley S. Mandel
Title: President
2
<PAGE>
EXHIBIT 10.46.1
EMPLOYMENT AGREEMENT
OF
PETER NORTON
AMENDMENT NO. 1
AMENDMENT NO. 1, effective as of July 1, 1999 ("Amendment"), to that
certain Employment Agreement, dated as of July 1, 1994 (the "Employment
Agreement"), between Arista Insurance Company, a New York insurance company
("Arista"), and Peter J. Norton (hereinafter referred to as the "Employee")
pursuant to which Mr. Norton had been employed as Vice President of Arista and
which Employment Agreement was later assigned to Arista Investors Corp., a
Delaware corporation (the "Company"), pursuant to that certain Employment
Agreement Assignment, dated as of February 1, 1999 (the "Assignment"), among
Arista, the Company and the Employee whereby Arista and Employee transferred,
conveyed, assigned, released, set over and delivered to the Company, to and for
the benefit of the Company and its successors and assigns, all of Arista's and
Employee's respective rights and interest in and to the Employment Agreement and
all rights attendant thereto. Terms not defined in this Amendment shall have
such meanings otherwise ascribed to them in their respective documents.
WHEREBY, the Company and the Employee desire and intend to extend the
term of the Employment Agreement and Assignment to December 31, 2000.
NOW, THEREFORE, in consideration of the premises hereinafter set forth,
the parties, intending to be legally bound, agree as follows:
1. Section 1 of the Employment Agreement entitled, "Term of
Employment," is hereby deleted and replaced in its entirety by the following:
"1. TERM OF EMPLOYMENT. The Company hereby
agrees to employ the Employee as Vice President, and the
Employee hereby agrees to serve the Company in such capacity
for the period commencing as of the Effective Date and ending
on December 31, 2000 (hereinafter referred to as the
"Employment Period"), unless sooner terminated as hereinafter
provided."
2. Section 5 of the Employment Agreement entitled "Fringe
Benefits" is hereby deleted and replaced in its entirety by the following:
"5. FRINGE BENEFITS. The Employee shall be
entitled to participate in any and all fringe benefits and/or
plans generally afforded to the other executives of the
Company (to the extent the Employee otherwise qualifies
therefor under the specific terms and conditions of each such
benefit or plan) including, without limitation, group
disability insurance, life
<PAGE>
insurance, medical insurance and pension plans which are, or
which may become available generally to executive officers of
the Company. The Employee shall be entitled to three (3) weeks
vacation during each of the first and second 12 month periods
and to four weeks (4) vacation during each of the third,
fourth, fifth and sixth 12 month periods falling within the
Employment Period and two (2) weeks vacation during the final
six month period falling within the Employment Period (July 1,
2000 through December 31, 2000), to be taken at such time or
times as the reasonable needs of the Company's business shall
allow."
3. Section 7(d)(iii) of the Employment Agreement entitled,
"Termination of Employment," is hereby deleted and replaced in its entirety by
the following:
"(iii) if such notice is sent at any time after the
end of the thirty-sixth month of the Employment Period but
prior to the end of the seventy-eighth month thereof, such
check shall be in the amount of $75,000."
4. Section 10(a) of the Employment Agreement entitled,
"Restrictive Covenants" is hereby deleted and replaced in its entirety by the
following:
(a) The Employee hereby acknowledges and recognizes the
highly competitive nature of the Company's business and,
accordingly, agrees that, in consideration of the premises
contained herein, he 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 (x) the
development and marketing of and all activity involving the
sale of statutory disability benefits insurance or any other
insurance product then offered and written by Arista Insurance
Company or by any other subsidiary of Arista Investors Corp.
which is licensed to sell insurance in the State of New York
during the calendar year immediately preceding the termination
of Employee's employment hereunder; or (y) 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
Arista Investors Corp. or by any subsidiary of Arista
Investors Corp. during the calendar year immediately preceding
the termination of Employee's employment hereunder.
5. Section 13 of the Employment Agreement entitled, "Notices" is
hereby deleted and replaced in its entirety by the following:
2
<PAGE>
"13. NOTICES. Any notices required or permitted to be given
under the provisions of this Employment 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 Employee: Peter J. Norton
4 Wyoming Street
Old Westfield, NY 11784
To Corporation: Arista Investors Corp.
116 John Street
New York, N.Y. 10038
Attn.: Stanley S. Mandel
President
Copy to: Michael R. Reiner, Esq.
Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, N.Y. 10022"
3
<PAGE>
IN WITNESS WHEREOF, the undersigned have each caused this Amendment to
be executed by its duly authorized representative, effective as of the date
first written above.
ARISTA INVESTORS CORP.
By: /s/ Stanley S. Mandel
-------------------------------------
Name: Stanley S. Mandel
Title: President
EMPLOYEE:
/s/ Peter J. Norton
----------------------------------------
Peter J. Norton
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
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0
0
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0
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</TABLE>
