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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): May 30, 1996
CROP GROWERS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 0-23830 81-0491497
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
201 CROP GROWERS DRIVE
GREAT FALLS, MONTANA 59401
(Address of principal executive offices) (zip code)
(406) 791-3418
(Registrant's telephone number, including area code)
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ITEM 5: OTHER EVENTS
On May 30, 1996, Crop Growers Corporation (the "Company") announced that it,
its former President and Chief Executive Officer John Hemmingson and its
former Executive Vice President Gary Black have been indicted by a federal
grand jury in Washington, D.C. in connection with the previously announced
investigation of the Company being conducted by the Independent Counsel
appointed to investigate matters relating to former Secretary of Agriculture,
Mike Espy. The indictment alleges conspiracy to violate federal election
laws, false statements to a government agency, falsifying books and records
and false statements to auditors. The Company had previously announced that
it, its President and Chief Executive Officer John Hemmingson and its
Executive Vice President Gary Black were targets of the investigation. The
Company formed a special committee (the "Special Committee") consisting of
outside directors of the Board of Directors to review matters related to the
investigation. The Special Committee has the authority and discretion to take
any and all appropriate actions relating to the investigation.
The Company intends to vigorously defend the charges brought by the
Independent Counsel. Although the ultimate outcome of the proceedings cannot
be determined, if the outcome is unfavorable, the Company could be subject to
substantial monetary fines and other sanctions. In addition, the charges
could result in state insurance regulatory issues and the possibility that
the charges could affect the Company's ability to continue to participate in
the federal multiple-peril crop insurance program. Any such result could have
a material adverse effect on the Company, its results of operations,
financial position or liquidity. No provision for any liability that may
result from events relating to the charges have been made in the Company's
Consolidated Financial Statements.
In addition, Messrs. Hemmington and Black have resigned as directors of the
Company and are on leaves of absence. The Company's press release dated
May 30, 1996 and the indictment are filed as exhibits hereto.
On May 30, 1996, the Company also announced that it has entered into discussions
with Fireman's Fund Insurance Company regarding an agreement under which the
Company would agree to substantially increase the amount of premium it places
with Fireman's Fund. Further, Fireman's Fund would purchase $10 million of a
new series of preferred stock convertible into common stock of Crop Growers at
$13.25 per share. The Company's press release dated May 30, 1996 is filed as an
exhibit hereto.
On May 31, 1996, the Company announced that it has named Larry Martinez as its
Acting Chief Executive Officer and the Board of Directors appointed him as a
member of the Company's Board of Directors. The Company's press release dated
May 31, 1996 is filed as an exhibit hereto.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Exhibits
Exhibit No. Description
----------- -----------
99(1) Press Release dated May 30, 1996
99(2) Indictment
99(3) Press Release dated May 30, 1996
99(4) Press Release dated May 31, 1996
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Great Falls, State of
Montana, on June 10, 1996.
Date: June 10, 1996 Crop Growers Corporation
By: /s/ David Hill
--------------
David Hill
Chief Financial Officer
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Exhibit Index
Exhibit No. Description Page
------------ ----------- ----
99(1) Press Release dated May 30, 1996 5
99(2) Indictment 6
99(3) Press Release dated May 30, 1996 56
99(4) Press Release dated May 31, 1996 57
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Exhibit 99(1)
Crop Growers Corporation contact Bob Rousey 208-666-5340
FOR IMMEDIATE RELEASE
Crop Growers Reports Charges From Independent Counsel Investigation
Great Falls, MT -- May 30, 1996 -- Crop Growers Corporation (NASDAQ:CGRO) said
it was informed today that it has been indicted by a federal grand jury in
Washington, D.C. in connection with the previously announced investigation of
the Company being conducted by the Independent Counsel appointed to investigate
matters relating to former Secretary of Agriculture Mike Espy. The indictment
alleges violations of federal election campaign contributions, securities and
other laws relating to campaign contributions made to the 1993 Congressional
primary campaign of Henry Espy, brother of Mike Espy. The Company intends to
vigorously defend against the allegations made in the indictment.
The Company's former President and Chief Executive Officer John Hemmingson and
former Executive Vice president Gary Black were also indicted. Hemmingson and
Black have resigned as directors of the Company and are on leaves of absence.
Crop Growers markets and services federal multi-peril crop insurance and crop
hail insurance for third party insurance companies and its own insurance company
subsidiaries. Crop Growers is the nation's second largest servicer of crop
insurance. The Company also develops, markets, and sells farm management
software and related mapping products.
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UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF COLUMBIA
INDICTMENT
- ---------------------------
)
UNITED STATES OF AMERICA, ) Criminal No. 96-____________
)
) Violations:
)
-v- ) 18 U.S.C. Section 371 (Conspiracy)
) 18 U.S.C. Section 1001 (False Statement
CROP GROWERS CORPORATION, ) to a Government Agency)
) 18 U.S.C. Section 2 (Aiding and
JOHN J. HEMMINGSON, ) Abetting)
) 15 U.S.C. Sections 77q(a), x
AND ) (Securities Fraud)
) 15 U.S.C. Section 78m(b)(2)(A) (Public
GARY A. BLACK, ) Company Books and Records)
) 15 U.S.C. Section 78ff(a)
Defendants. ) 17 C.F.R. Section 240.13b2-1 (Falsifying
) Books and Records)
) 17 C.F.R. Section 240.13b2-2 (False
) Statements to Auditors)
- ---------------------------
THE GRAND JURY CHARGES:
COUNT ONE
CONSPIRACY
1. INTRODUCTION
At all times material to this Indictment except as otherwise stated:
A. THE DEFENDANTS
1. Defendant CROP GROWERS CORPORATION (hereinafter "CROP GROWERS") was
a corporation with principal offices located in Great Falls,
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Montana, primarily engaged in the business of marketing and servicing federal
multi-peril crop insurance and private crop hail and other named peril
insurance on behalf of insurance companies.
2. Defendant CROP GROWERS was incorporated in the State of Delaware in
April 1994 to act as the holding company for corporations under common
control to facilitate CROP GROWERS' June 1994 initial public offering of
shares of its common stock. In forming as a single holding company, CROP
GROWERS assumed the existing assets and liabilities of:
a. Crop Growers Insurance, Inc. (hereinafter "CGI") a Montana
corporation formed in 1989, which was primarily engaged in the
business of marketing and servicing federal multi-peril crop
insurance and crop hail insurance;
b. Crop Growers Software, Inc. (hereinafter "CGS"), formerly known
as AgriPeril, Inc., a Texas corporation formed in 1990, which was
primarily engaged in the business of developing proprietary
software systems to assist affiliated crop insurance agents and
farmers; and
c. Prairie Mountain Insurance, Inc. (hereinafter "PMI"), a Montana
corporation formed in 1987, which was an independent insurance
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agency offering federal multi-peril, crop hail and other lines of
insurance, and was formerly known as the Hemmingson Agency, Inc.
CGI, CGS and PMI are wholly-owned subsidiaries of CROP GROWERS.
3. Defendant JOHN J. HEMMINGSON (hereinafter "HEMMINGSON") was the
Chairman of the Board of Directors, Chief Executive Officer, and President of
CROP GROWERS. Since 1989, HEMMINGSON was Chairman of the Board of Directors,
President and Chief Executive Officer and a director of CGI. HEMMINGSON was a
director of CGS since 1991.
4. Defendant GARY A. BLACK (hereinafter "BLACK") was the Executive
Vice President, Chief Financial Officer, Treasurer and a director of CROP
GROWERS. BLACK also was the Chief Financial Officer and Secretary-Treasurer
of CGI since 1989, Secretary-Treasurer and a director of CGS since 1991, and
the Secretary-Treasurer of PMI since 1987. BLACK was a certified public
accountant licensed in Montana.
B. THE AGENCIES
5. The Federal Election Commission (hereinafter "FEC") was the agency
of the United States Government entrusted with responsibility for enforcement
of the reporting requirements of the Federal Election Campaign Act, 2 U.S.C.
Sections 431 - 455 (hereinafter "FECA"), and for detection, investigation, and
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institution of enforcement actions against violations of FECA. The FEC was
also responsible for collecting and making available to the public specific
and accurate information concerning the dates, amounts and sources of
political contributions, including the identity of the contributors, to
federal candidates such as Henry Espy.
6. The United States Securities and Exchange Commission (hereinafter
"the SEC") was the agency of the United States Government entrusted with
responsibility for, among other things, enforcing the securities laws of the
United States, which are designed to provide the investing public with full
disclosure of all material facts regarding the offer, sale and purchase of
securities. In the performance of its duties, the SEC required all publicly
held companies which had securities traded on a national securities exchange
to file periodic reports.
7. The United States Department of Agriculture (hereinafter
"Department of Agriculture") was a department of the United States
Government. The Secretary of Agriculture, a Cabinet appointee, was in charge
of the Department of Agriculture.
C. THE HENRY ESPY CAMPAIGN
8. On or before January 5, 1993, Henry Espy, not named as a defendant
in this Indictment, publicly announced his candidacy for the Democratic Party
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nomination for the United States Congress from the State of Mississippi in a
special primary election.
9. Henry Espy sought election to become the Democratic nominee for
the Mississippi Congressional District seat vacated by his brother, Alphonso
Michael Espy, not a defendant herein. Alphonso Michael Espy was resigning
his Congressional seat to accept the position of Secretary of Agriculture,
for which he had been nominated by President-Elect Clinton on December 23,
1992.
10. Alphonso Michael Espy resigned from the United States Congress on
or effective January 21, 1993, when he was confirmed as Secretary of
Agriculture. He served as Secretary of Agriculture until December 31, 1994.
11. On or about March 30,1993, Henry Espy lost the special primary
election for Congress. As the result of Henry Espy's unsuccessful campaign
for Congress, campaign debts were incurred. By in or about March 1994, the
campaign debt was approximately $120,000.
12. The Henry Espy for Congress Committee was registered as the
principal campaign committee for Henry Espy with the FEC and was designated
and authorized by Henry Espy, pursuant to FECA, to receive contributions and
make expenditures in connection with his 1993 candidacy. The Henry Espy for
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Congress Committee was subject to the reporting provisions and the campaign
financing limitations of FECA.
13. Unindicted co-conspirator #1 is an attorney licensed to practice
law in the State of Louisiana. In or about April 1993, unindicted
co-conspirator #1 contacted Henry Espy and volunteered to coordinate and
supervise all efforts to retire Henry Espy's campaign debt. Henry Espy
accepted this offer and appointed unindicted co-conspirator #1 as Chairman of
the Henry Espy for Congress Committee.
14. The Henry Espy for Congress Committee was required under FECA,
specifically, Title 2 United States Code Section 434, to file periodic
reports with the FEC, which reports were required to reflect the true
identities of all individuals and entities who contributed in excess of $200
to support the candidacy of Henry Espy in any given calendar year.
15. FECA, namely Title 2 United States Code Section 441b, prohibited
entirely and rendered illegal contributions by corporations, whether directly
or indirectly, in connection with the campaign of a candidate for the United
States Congress.
16. FECA, namely Title 2 United States Code Section 441f, prohibited
and rendered illegal the making of a contribution in the name of another
person,
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including contributions made by individuals who are reimbursed for such
contributions. These contributions are referred to herein as conduit
contributions.
17. FECA, namely Title 2 United States Code Section 437g(d)(1)(A),
provided for criminal penalties that included, for an individual defendant, a
maximum term of imprisonment of one year and a maximum fine of the greater of
$100,000 or 300 percent of the amount of the corporate conduit contribution per
violation and, for a corporate defendant, a maximum fine of $200,000 per
violation. FECA, namely Title 2 United States Code Sections 437g(a)(5) and (6),
also provided for civil remedies, including injunctive relief and a civil
penalty of the greater of $5,000 or the amount of the corporate or conduit
contribution per violation, or, in the case of a knowing and willful violation
of FECA, injunctive relief and a civil penalty of the greater of $10,000 or 200
percent of the amount of the corporate or conduit contribution per violation.
18. The violations of FECA alleged herein related to the making, receiving
and reporting of contributions that aggregated more than $2,000 during each of
the calendar years 1993 and 1994.
D. CROP GROWERS -- THE PUBLIC COMPANY
19. CROP GROWERS decided to sell its stock to the public by commencing an
initial public offering of common stock on or about April 11,
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1994. In connection therewith, CROP GROWERS filed a Registration Statement on
Form S-1 with the SEC in the District of Columbia.
20. During the period from on or about April 11, 1994 until on or about
June 22, 1994, the SEC provided comments to CROP GROWERS concerning the
Registration Statement. Based on these comments, CROP GROWERS, during the
period from on or about May 24, 1994 through on or about June 22, 1994, filed
three amendments to the Registration Statement.
21. On or about June 22, 1994, CROP GROWERS' Registration Statement became
effective, thereby enabling CROP GROWERS to conduct its initial public offering
of common stock.
22. On or about June 23, 1994, CROP GROWERS became a publicly-held
company, and its common stock began trading on the National Association of
Securities Dealers Automated Quotation System (hereinafter "NASDAQ"), a
national securities exchange.
23. In connection with the initial public offering, CROP GROWERS filed a
prospectus with the SEC in the District of Columbia and with NASDAQ.
24. As a publicly-held company with securities traded on a national
securities exchange, CROP GROWERS was required by federal law to accurately
report certain financial information to the SEC.
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25. As a publicly-held company, CROP GROWERS was required by federal law
to make and keep books, records and accounts which, in reasonable detail,
accurately and fairly reflected its transactions and the disposition of its
assets.
26. As subsidiaries of CROP GROWERS, CGI, CGS, and PMI were required by
federal law to make and keep books, records and accounts which, in reasonable
detail, accurately and fairly reflected its transactions and the disposition of
its assets.
E. MULTI-PERIL CROP INSURANCE
27. In the calendar years ended December 31, 1991 and 1992, defendant CROP
GROWERS' wholly owned subsidiary CGI derived substantially all of its revenues
from marketing and servicing federal Multi-Peril Crop Insurance (hereinafter
"MPCI"), a program within the jurisdiction of the Department of Agriculture.
28. Defendant CROP GROWERS, and its two largest shareholders, defendants
HEMMINGSON and BLACK, had a substantial financial interest in programs,
particularly MPCI, within the jurisdiction of the Department of Agriculture
and Secretary of Agriculture Espy.
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29. By in or about January 1993, CGI's revenues were and would continue to
be dependent on MPCI.
30. CROP GROWERS recognized that it was within the power of the Department
of Agriculture to reduce or eliminate the funding of, discontinue, or otherwise
significantly change the MPCI program.
31. During 1993 and early 1994, the Department of Agriculture was
considering potential legislation that would change the MPCI program. CROP
GROWERS recognized that the MPCI program might change in a manner that would
adversely affect the financial condition of CGI and CROP GROWERS.
32. On or about March 2, 1994, Secretary of Agriculture Espy proposed the
Federal Crop Insurance Reform Act of 1994 (the "Crop Insurance Reform Act")
which would subsequently be introduced into both the House of Representatives
and the Senate.
33. Under the Crop Insurance Reform Act as proposed by Secretary of
Agriculture Espy, the MPCI program would be expanded to provide basic
catastrophic MPCI coverage ("CAT") to farmers for a fixed processing fee. As
proposed, CAT was to be available, at the farmer's option, either through
private insurers, serviced by companies such as CROP GROWERS, or Department of
Agriculture field offices. Farmers would continue to be able to purchase
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government-subsidized MPCI "buy up" coverage in excess of CAT, but only through
private insurers, serviced by companies such as CROP GROWERS.
34. In or about March 1994, defendant CROP GROWERS recognized that the
volume of MPCI premiums serviced by CROP GROWERS would be adversely affected if
a large number of farmers chose to obtain CAT from Department of Agriculture
offices, rather than to obtain CAT and additional "buy up" coverage through
private companies like CROP GROWERS.
35. Because the Crop Insurance Reform Act provided that insurance
companies could pass on to farmers certain cost efficiencies in the form of
reduced premiums, CROP GROWERS also recognized that passage of the Act could
result in increased pricing competition among insurers and servicers of MPCI,
including CROP GROWERS.
36. In or about October 1994, the Crop insurance Reform Act of 1994 became
law.
II. THE CONSPIRACY
37. Beginning on or about January 30, 1993 and continuing until on or
about December 31, 1995, in the District of Columbia and elsewhere, the
defendants CROP GROWERS, HEMMINGSON, BLACK unindicted co-
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conspirator #1, and other persons known and unknown to the Grand Jury would and
did knowingly and willfully combine, conspire, confederate and agree together
and with each other to commit offences against the United States, to wit:
a. To defraud the United States, and in particular the Federal Election
Commission, by impairing, obstruction, impeding and defeating its
lawful governmental functions and duties under the Federal Election
Campaign Act by engaging in a scheme to launder illegal corporate
campaign contributions to the Henry Espy for Congress Committee in the
approximate amount of $46,000; and
b. To violate Title 15, U.S.C. Section 78m(b)(2)(A) and Section 78ff(a)
by failing to make and keep books, records and accounts, which, in
reasonable detail, accurately and fairly reflected the transactions
and dispositions of the assets of CROP GROWERS; and
c. To defraud the United States, and in particular the Securities and
Exchange Commission, by impairing, obstructing, impeding and defeating
its lawful governmental functions and duties under the Securities Act
of 1933 [15 U.S.C. Section 77, et seq.], specifically in the offer of
and in connection with sales of common stock by CROP GROWERS; and
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d. To violate Title 18, U.S.C. Section 1001 by omitting to state material
facts in Registration Statements, Prospectuses and an annual report
filed with the Securities and Exchange Commission; and
e. To violate Title 15, U.S.C. Section 77q(a) and Title 15, U.S.C.
Section 77x, in the offer and sale of securities, by using means and
instrumentalities of transportation and communication in interstate
commerce, and by the use of the mails, to employ a device, scheme and
artifice to defraud; to obtain money by means of omissions to state
material facts; and to engage in transactions, practices and courses
of business which would operate as a fraud and deceit upon the
purchaser.
A. OBJECTS OF THE CONSPIRACY
38. The conspiracy was undertaken, at least in part, for the following
purposes:
To generate money to be used for illegal corporate campaign
contributions to Henry Espy, the brother of Secretary of Agriculture
Espy, for the purpose of gaining access to Secretary Espy in order to
favorably influence his decisions concerning matters affecting CROP
GROWERS before the Department of Agriculture;
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b. To make and conceal the illegal corporate campaign contributions to
the Henry Espy for Congress Committee without the Federal Election
Commission detecting the illegal source of the contribution;
c. To falsify the financial books and records of CROP GROWERS and its
subsidiaries in order to conceal the illegal campaign contributions;
d. To conceal from the independent auditors the creation and existence of
false books, records and accounts;
e. To conceal from the Securities and Exchange Commission certain
material facts by omission in connection with CROP GROWERS' offerings
of common stock and in an annual report;
f. To conceal from the purchases of CROP GROWERS' common stock certain
material facts by omission.
B. MEANS AND METHODS OF THE CONSPIRACY
The unlawful combination, conspiracy, and agreement was to be and was
accomplished by the means and methods, and in the following manner:
(1) ACCESS TO SECRETARY OF AGRICULTURE ESPY
39. It was a part of the conspiracy that the defendants, CROP GROWERS,
HEMMINGSON, and BLACK, would and did make and cause to be made illegal
contributions to the Henry Espy for Congress Committee with the
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objective of gaining access to Secretary of Agriculture Espy for the purpose of
favorably influencing him on issues of concern to defendant CROP GROWERS.
(2) THE ILLEGAL CONTRIBUTIONS IN 1993
40. It was a further part of the conspiracy that the defendants,
HEMMINGSON and BLACK, and others both known and unknown to the Grand Jury, would
and did set in motion a scheme to use corporate assets of defendant CROP GROWERS
to make illegal corporate contributions to the Henry Espy for Congress
Committee.
41. It was a further part of the conspiracy that the defendants,
HEMMINGSON and BLACK, would and did solicit contributions from persons
affiliated with CROP GROWERS with the express understanding that such persons
who contributed to the Henry Espy for Congress Committee, and in certain
instances, the spouses of such persons (hereinafter sometimes referred to
collectively as "conduits"), would be reimbursed for their "contributions."
42. It was further part of the conspiracy that the defendants, HEMMINGSON
and BLACK, would and did directly or indirectly cause 26 conduits each to
prepare and transmit personal checks in the amount of $1,000 as contributions to
the Henry Espy for Congress Committee.
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43. It was a further part of the conspiracy that the defendant, CROP
GROWERS, and its subsidiaries, at the direction of defendants HEMMINGSON and
BLACK, during the period February 1, 1993 through September 23, 1993, would
and did directly or indirectly provide corporate funds from CROP GROWERS and
its subsidiaries for the purpose of fully reimbursing the 26 conduits.
44. It was a further part of the conspiracy that the defendant, CROP
GROWERS, during the period February 1, 1993 through September 23, 1993, would
and did reimburse, in the amount of approximately $26,000, the conduits from
corporate funds of CROP GROWERS and its subsidiaries.
45. It was a further part of the conspiracy that, as a result of the
conduit scheme, the Henry Espy for Congress Committee would and did falsely
report to the Federal Election Commission that $22,000 was contributed by 22
of the 26 individuals described above, rather than by defendant CROP GROWERS
and its subsidiaries CGI, PMI, and CGS.
(3) THE ILLEGAL CONTRIBUTION IN 1994
46. It was a further part of the conspiracy that the defendants, CROP
GROWERS and HEMMINGSON, and unindicted co-conspirator #1, in order to assist
with the retirement of the campaign debt of Henry Espy, would and did use
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CROP GROWERS' corporate funds to make an additional illegal corporate
contribution to the Henry Espy for Congress Committee in 1994.
47. It was a further part of the conspiracy that unindicted co-conspirator
#1 would and did create and transmit to defendant HEMMINGSON a fictitious
attorney-client engagement letter.
48. It was a further part of the conspiracy that the defendant HEMMINGSON,
for and on behalf of CROP GROWERS, would and did purportedly execute the
fictitious engagement letter calling for the payment of a $20,000 "retainer" in
order to conceal and disguise the fact that the $20,000 "retainer" payment was a
contribution to the Henry Espy for Congress Committee.
49. It was a further part of the conspiracy that the defendant, CROP
GROWERS, on or about July 26, 1994, would and did make an illegal corporate
contribution of $20,000 to the Henry Espy for Congress Committee.
(4) FALSIFICATION OF RECORDS TO CONCEAL THE ILLEGAL CONTRIBUTIONS
50. It was a further part of the conspiracy that the defendants,
HEMMINGSON and BLACK, would and did cause CROP GROWERS to create false and
fictitious corporate expenses, thereby also falsifying its financial books and
records, by recording or causing the recording of the $26,000 of reimbursements
for conduit contributions to the Henry Espy for Congress
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Committee and the $20,000 "retainer" as, among other things, travel advances,
travel reimbursements, expense advances, consulting fees, computer purchases, an
advance on crop loss adjustment, and legal fees.
51. It was a further part of the conspiracy that the defendants, HEMMINGSON
and BLACK, would and did direct certain conduits to create:
a. false vouchers, specifically check requisitions for travel
reimbursement;
b. false invoices, specifically increasing bills submitted to CROP
GROWERS; and
c. fictitious entries;
all in order to make the reimbursement of those campaign contributions appear as
legitimate expenses in CROP GROWERS' financial books and records.
52. If was a further part of the conspiracy that the defendants, CROP
GROWERS, HEMMINGSON and BLACK, would and did cause the false vouchers, invoices,
and fictitious entries to be made in the financial books and records, including
the subsidiary and general ledgers, knowing that these ledgers would be the
financial books and records from which CROP GROWERS would prepare its financial
statements.
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(5) AUDIT OF CROP GROWERS FINANCIAL STATEMENTS FOR
INITIAL PUBLIC STOCK OFFERING
53. It was a further part of the conspiracy that the defendant, CROP
GROWERS, acting through defendant BLACK and others, would and did create
financial statements, which were a summary of the financial books and
records of CROP GROWERS, and were false, in part, in that they failed to
accurately reflect the transactions and dispositions of assets of CROP
GROWERS, knowing that CROP GROWERS' independent auditors would review these
financial books and records during the course of its 1993 and 1994 audits.
54. It was a further part of the conspiracy that, during the period
from on or about March 25, 1994 through March 28, 1995, the defendants, CROP
GROWERS, HEMMINGSON, and BLACK, would and did make false written
representations to the independent auditors.
(6) CROP GROWERS SELLS ITS STOCK TO THE PUBLIC
55. It was a further part of the conspiracy that the defendant, CROP
GROWERS, would and did file with the Securities and Exchange Commission
Registration Statements on Form S-1, and amendments thereto, and prospectuses
in order to sell its stock to the public, and the 1994 annual report on
Form 10-K,
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signed by defendants HEMMINGSON and BLACK, which were false in that they
omitted to state certain material facts, including:
a. CROP GROWERS violated FECA by making illegal campaign contributions;
b. a material contingent liability existed for potential criminal and
civil penalties as a result of the FECA violations;
c. that the financial statements, without explaining that CROP GROWERS
had reason to believe that its violations of FECA could reasonably
result in the Department of Agriculture terminating CROP GROWERS'
ability to participate in the MPCI program, the effect of which
would reasonably be expected to have a material unfavorable impact
on CROP GROWERS' financial condition, were misleading; and
d. that it had maintained false books and records.
56. It was a further part of the conspiracy that the defendant, CROP
GROWERS, would and did cause to be delivered to shareholders and others
registration statements and prospectuses in the offering to the public of
common stock that omitted to state a material fact or facts.
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57. It was a further part of the conspiracy that the defendant, CROP
GROWERS, would and did conduct an initial public offering of 2,500,000 shares
of common stock to raise approximately $17,437,500 for the company, and a
second offering of 1,400,000 shares of stock to raise approximately
$18,326,000 for the company.
C. OVERT ACTS IN FURTHERANCE OF THE CONSPIRACY
In furtherance of this conspiracy and to effect the objects
thereof, the defendants, CROP GROWERS, HEMMINGSON, and BLACK, and the
unindicted co-conspirators, committed and caused to be committed in the
District of Columbia and elsewhere the following overt acts, among others:
(1) OVERT ACTS IN 1993 AND 1994, PRIOR TO THE 1994 CONTRIBUTION
58. On or about March 4, 1993, defendant HEMMINGSON met in the District
of Columbia with a former Department of Agriculture official who was hired
as a consultant to CROP GROWERS concerning contacts and a meeting with
Secretary of Agriculture Espy.
59. On or about March 19, 1993, that consultant wrote to defendant
HEMMINGSON and proposed the text of a draft letter from HEMMINGSON to
Secretary of Agriculture Espy concerning HEMMINGSON's proposed meeting with
Secretary of Agriculture Espy, which stated in pertinent part:
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Perhaps, at some time in the future, we will be able to arrange a
Mississippi tour for you and Congressman Henry Espy if our efforts
on his behalf are successful (this part has to be subtle).
60. On or about April 7, 1993, defendant HEMMINGSON, on behalf of
defendant CROP GROWERS, sent a letter to Secretary of Agriculture Espy in the
District of Columbia that thanked him for an appointment on April 14, 1993,
and requested the opportunity "to discuss a number of points related to crop
insurance/disaster assistance." Enclosed with the letter were "talking
points" which referenced four policy positions attributed to Secretary of
Agriculture Espy that were of concern to the crop insurance industry,
including CROP GROWERS, as follows:
-- Crop insurance is not a sound program and must be changed.
-- Disaster assistance is a preferred method of providing
financial assistance to farmers adversely impacted by natural
catastrophes.
-- The area yield plan, advocated by OMB [the Office of Management
and Budget], will be substituted for individualized coverage
currently provided to farmers.
-- That you are not inclined to appeal the 1994 House
appropriations bill markup that reduces crop insurance by $105
million, an amount that could cripple the effectiveness of the
program.
27
<PAGE>
61. On or about March 24, 1993, defendants CROP GROWERS, HEMMINGSON and
BLACK caused the Treasurer of the Henry Espy for Congress Committee to file a
Report of Receipts and Disbursements with the FEC in the District of Columbia
for the period covering January 1, 1993, through March 10, 1993.
62. On or about April 14, 1993, defendant HEMMINGSON met with Secretary
of Agriculture Espy in the District of Columbia.
63. On or about August 24, 1993, defendant HEMMINGSON, on behalf of
defendant CROP GROWERS, wrote to Secretary of Agriculture Espy in the
District of Columbia concerning the potential "drastic" effect on private
insurers of proposed legislation for the Agricultural Stabilization and
Conservation Service ("ASCS") to deliver MPCI.
64. On or about August 24, 1993, defendant HEMMINGSON, on behalf of
defendant CROP GROWERS, faxed to Henry Espy the August 24, 1993 letter to
Secretary of Agriculture Espy, with a cover note stating that "these thoughts
are for Mike's consideration in response to the recent rumors regarding the
ASCS involvement in the crop insurance program."
65. On or about August 31, 1993, defendant CROP GROWERS, caused the
Treasurer of the Henry Espy for Congress Committee to file a Report of
28
<PAGE>
Receipts and Disbursements with the FEC in the District of Columbia for the
period covering March 11, 1993 through April 19, 1993.
66. On or about September 17, 1993, defendant HEMMINGSON met with
Secretary of Agriculture Espy in the District of Columbia.
67. On or about February 22, 1994, defendant HEMMINGSON met with
Secretary of Agriculture Espy in the District of Columbia.
(2) $20,000 CONTRIBUTION IN 1994 TO THE HENRY ESPY CAMPAIGN
68. On or about March 31, 1994, defendant HEMMINGSON attended a
fundraising dinner in the District of Columbia for Henry Espy at the 116
Club. In attendance, in addition to HEMMINGSON, were Henry Espy, unindicted
co-conspirator #1 and various others who had business before the USDA,
including agricultural lobbyists. The attendees were urged to raise $10,000
or more each in order to assist with the retirement of Henry Espy's campaign
debt.
69. In or about June or July 1994, the exact date being unknown, an
"engagement letter" was created that provided for the payment of a $20,000
"retainer" by defendant CROP GROWERS to unindicted co-conspirator #1 for
legal services.
29
<PAGE>
70. On or about July 26, 1994, defendant CROP GROWERS, through CGI, over
the signature of defendant HEMMINGSON, issued a $20,000 check payable to
unindicted co-conspirator #1.
71. On or about July 26, 1994, CGI created false records in the financial
books and records of defendant CROP GROWERS as follows:
a. a voucher, specifically an entry on the $20,000 check, falsely
recorded the payment to unindicted co-conspirator #1 as "legal fees;"
and
b: a false entry in the general ledger reflecting a "debit" for legal
fees in the amount of $20,000 to unindicted co-conspirator #1.
72. On or about July 28, 1994, unindicted co-conspirator #1 traveled to a
grocery store in Algiers, Louisiana, delivered the $20,000 check from CGI that
was payable to him, and received $5,000 cash. By on or about August 8, 1994,
unindicted co-conspirator #1 obtained the remaining $15,000 in cash from the
same grocery store. On or about August 8, 1994, unindicted co-conspirator #1
deposited $10,000 cash into a bank account of the Henry Espy for Congress
Committee in Louisiana. On or about August 10, 1994, unindicted
co-conspirator #1 deposited $9,000 cash into the same bank account of the
Henry Espy for Congress Committee. On or about August 11, 1994, unindicted
co-conspirator #1 deposited $1,000 cash into the same bank account of the
Henry Espy for Congress
30
<PAGE>
Committee. On or about August 19, 1994, unindicted co-conspirator #1
transferred by wire $21,000 from the bank account of Henry Espy for Congress
Committee in Louisiana to a bank in Clarksdale, Mississippi.
93) CROP GROWERS' SEC FILINGS
73. On or about March 25, 1994, defendant CROP GROWERS, over the
signatures of HEMMINGSON and BLACK, issued a letter to the accounting firm that
audited CROP GROWERS' financial statements as of December 31, 1993 that
contained the following representations:
a. There have been no irregularities involving any member of management
or employees who have significant roles in the internal control
structure.
b. Members of management or employees with significant roles in the
internal control structure of CROP GROWERS had not, in substance,
intentionally misstated or omitted to disclose in financial statements
the effects of events or transactions; manipulated, falsified or
altered records or documents; or omitted significant information from
records or documents.
c. There have been no violations or possible violations of laws or
regulations, the effect of which should be considered for disclosure
in the financial statements or as a basis for recording a loss
contingency.
74-78. In connection with an initial public offering of securities,
defendant CROP GROWERS, on or about the dates following, did file with the
31
<PAGE>
SEC in the District of Columbia certain forms, each such filing constituting a
separate overt act:
Over
Act. No. Date Filing
-------- ---- ------
74. April 11, 1994 Registration Statement on Form S-1.
75 May 24, 1994 First amendment to the Registration Statement
on Form S-1.
76. June 17, 1994 Second amendment to the Registration
Statement on Form S-1.
77. June 22, 1994 Third amendment to the Registration Statement
on Form S-1.
78. June 24, 1994 Prospectus.
79. On or about April 11, 1994, defendant CROP GROWERS published financial
statements for the year ended December 31, 1993, that were certified on or about
March 25, 1994 by independent auditors. The financial statements included the
reimbursements for certain contributions to the Henry Espy for Congress
Committee paid by defendant CROP GROWERS through CGI, PMI and CGS.
80. On or about May 24, 1994, in response to a comment letter from the
SEC, defendant CROP GROWERS caused a response to be sent to the SEC in the
District of Columbia.
32
<PAGE>
81. On or about May 24, 1994, defendant CROP GROWERS, over the signatures
of defendants HEMMINGSON and BLACK, issued to the accounting firm that audited
CROP GROWERS' financial statements a letter reaffirming the representations set
forth in the letter of March 25, 1994.
82. On or about June 22, 1994, June 29, 1994, and July 8, 1994, Defendant
CROP GROWERS, over the signatures of defendants HEMMINGSON and BLACK, issued to
the accounting firm that audited CROP GROWERS' financial statements a letter
affirming that:
[E]xcept as set forth in the registration statement and related
prospectus, no events have occurred that have a material effect on the
consolidated financial statements as of December 31, 1993, and for
each of the years in the three-year period then ended or that should
be disclosed in order to keep those statements from being misleading.
83. On or about June 22, 1994, CROP GROWERS' amended Registration
Statement was declared effective by the SEC in the District of Columbia, thereby
allowing CROP GROWERS' stock to be sold to the public.
84. On or about June 23, 1994, defendant CROP GROWERS, through certain
broker-dealers, conducted an initial public offering of 2,500,000 shares of its
common stock at $7.50 per share, using securities offering documents, including
a prospectus, that omitted to state material facts.
33
<PAGE>
85. On or about June 23, 1994, the common stock or defendant CROP GROWERS
commenced public trading and did trade thereafter on the NASDAQ.
86-89. In connection with an offering of additional CROP GROWERS
securities to the public, defendant CROP GROWERS, on or about the dates
following, did file with the SEC in the District of Columbia certain forms, each
such filing constituting a separate overt act:
Over
Act. No. Date Filing
-------- ---- ------
86. October 31,1994 Registration Statement on Form S-1.
87. November 21, 1994 First amendment to the Registration Statement
on Form S-1.
88. November 22, 1994 Second amendment to the Registration
Statement on Form S-1.
89. November 30, 1994 Prospectus.
90. On or about November 30, 1994, defendant CROP GROWERS, through certain
broker-dealers, conducted an additional public offering of 1,400,000 shares of
its common stock at $14.00 per share, using securities offering documents,
including a prospectus, that omitted to state material facts.
34
<PAGE>
91. On or about March 28, 1995, defendant CROP GROWERS, over the
signatures of defendants HEMMINGSON and BLACK, issued a letter to the accounting
firm that audited CROP GROWERS' financial statements as of December 31, 1994
that contained the following representations:
a. There have been no irregularities involving any member of management
or employees who have significant roles in the internal control
structure.
b. Members of management or employees with significant roles in the
internal control structure of CROP GROWERS had not, in substance,
intentionally misstated or omitted to disclose in financial statements
the effects of events or transactions; manipulated, falsified or
altered records or documents; or omitted significant information from
records or documents.
c. There have been no violations or possible violations of laws or
regulations, the effect of which should be considered for disclosure
in the financial statements or as a basis for recording a loss
contingency.
92. On or about March 31, 1995, defendant CROP GROWERS filed a Form 10-K
for the year ended December 31, 1994 with the SEC in the District of Columbia.
(In violation of Title 18, United States Code, Section 371.)
35
<PAGE>
THE GRAND JURY FURTHER CHARGES:
COUNT TWO
CAUSING FALSE STATEMENT TO BE MADE TO
A GOVERNMENT AGENCY
1. Paragraphs 1 through 5 of Count One of this Indictment are realleged
and incorporated by reference as though set forth in full.
2. From in or about January 31, 1993 up to and including in or about
March 10, 1993, 23 conduits of defendant CROP GROWERS each made $1000
contributions to the Henry Espy for Congress Committee.
3. On or about March 24, 1993, the Henry Espy for Congress Committee
filed with the FEC a Report of Receipts and Disbursements for the period
covering January 1, 1993 through March 10, 1993 that identified 19 of these
conduit contributors and each of their $1000 conduit contributions.
4. On or about March 24, 1993, in the District of Columbia and elsewhere,
in a matter within the jurisdiction of a department or agency of the United
States, defendants CROP GROWERS, HEMMINGSON and BLACK knowingly and willfully
did cause to be made a false statement in that defendants CROP GROWERS,
HEMMINGSON and BLACK did cause the Henry Espy for Congress Committee to file
with the FEC a Report of Receipts and Disbursements
36
<PAGE>
that included the identification of 19 individuals in the Report as
contributors, each in the amount of $1000 to the Henry Espy for Congress
Committee, when in truth and in fact defendants CROP GROWERS, HEMMINGSON and
BLACK well knew that CROP GROWERS, and not the named conduits, had made illegal
contributions to the Henry Espy for Congress Committee totaling approximately
$19,000 with corporate funds.
(In violation of Title 18, United States Code, Sections 1001 and 2.)
37
<PAGE>
THE GRAND JURY FURTHER CHARGES:
COUNT THREE
CAUSING FALSE STATEMENT TO BE MADE TO
A GOVERNMENT AGENCY
1. Paragraphs 1 through 5 of Count One of this Indictment are realleged
and incorporated by reference as though set forth in full.
2. From in or about March 11, 1993 up to and including in or about March
31, 1993, three conduits of CROP GROWERS each made $1000 contributions to the
Henry Espy for Congress Committee.
3. On or about August 31, 1993, the Henry Espy for Congress Committee
filed with the FEC a Report of Receipts and Disbursements for the period
covering March 11, 1993, through April 19, 1993 that identified these three
conduit contributors and their $1000 conduit contributions, respectively.
4. On or about August 31, 1993, in the District of Columbia and
elsewhere, in a matter within the jurisdiction of a department or agency of
the United States, defendants CROP GROWERS, HEMMINGSON and BLACK knowingly
and willfully did cause to be made a false statement in that defendants CROP
GROWERS, HEMMINGSON and BLACK did cause the Henry Espy for Congress Committee
to file with the FEC a Report of Receipts and Disbursements
38
<PAGE>
that included the identification of three individuals in the Report as
contributors, each in the amount of $1000 to the Henry Espy for Congress
Committee, when in truth and in fact defendants CROP GROWERS, HEMMINGSON and
BLACK well knew that CROP GROWERS, and not the named conduits, had made illegal
contributions to the Henry Espy for Congress Committee totaling approximately
$3,000 with corporate funds.
(In violation of Title 18, United States Code, Sections 1001 and 2.)
39
<PAGE>
THE GRAND JURY FURTHER CHARGES:
COUNT FOUR
FALSE BOOKS AND RECORDS
1. Paragraphs 1 through 4 of Count One of this Indictment are realleged
and incorporated by reference as though set forth in full.
2. From in our about June 23, 1994 through the present, defendant CROP
GROWERS was required to make and keep books, records and accounts, which, in
reasonable detail, accurately and fairly reflected the transactions and
dispositions of the assets of defendant CROP GROWERS, including its
subsidiaries, for the period including on or about January 1, 1993, and
continuing thereafter through the present.
3. Beginning in or about January 31, 1993, and continuing through
December 31, 1994, defendant CROP GROWERS expended approximately $46,000 of
corporate assets to make illegal corporate campaign contributions and reimburse
conduit campaign contributions in violation of FECA, and HEMMINGSON and BLACK
attempted to hide and conceal these violations by making false entries in
defendant CROP GROWERS' financial books and records, as follows:
40
<PAGE>
<TABLE>
<CAPTION>
CONTRIBUTOR TO THE HENRY DATE OF, AMOUNT OF, METHOD/DESCRIPTION CORPORATE BOOKS AND
ESPY FOR CONGRESS AND CROP GROWERS OF REIMBURSEMENT OR RECORDS, ENTRY DATES AND
COMMITTEE AND DATE SUBSIDIARY MAKING PAYMENT IN CORPORATE FALSE ENTRIES
REIMBURSEMENT BOOKS AND RECORDS
------------------------ ---------------------- ----------------------- -------------------------------
<S> <C> <C> <C> <C>
a. PMI Insurance Agent, 2/1/93, $1,000, PMI travel reimbursement 2/1/93, accounts payable system
1/31/93, $1,000 2/1/93, trial balance
b. Officer of PMI, 2/1/93, 2/1/93, $2,000, PMI travel reimbursement 2/1/93, accounts payable system
$1,000 2/1/93, trial balance
wife, 2/1/93, $1,000
c. REIMBURSEMENT BY CGI OF 2/3/93, $3,000, CGI 1992 commission 2/3/93, accounts payable system
PMI'S THREE CONTRIBUTION
REIMBURSEMENTS
d. BLACK, 2/1/93, $1,000 2/2/93, $2,000, CGI travel advance 2/2/93, accounts payable system
2/12/93, general ledger
wife, 2/1/93, $1,000 2/26/93, aged trial balance
3/31/93, aged trial balance
4/30/93, aged trial balance
5/28/93, aged trial balance
6/30/93, aged trial balance
7/30/93, aged trial balance
8/31/93, aged trial balance
10/31/93, general ledger
e. Administrative Vice 2/2/93, $1,000, CGI travel advance 2/2/93, accounts payable system
President of CGI, 2/12/93, general ledger
2/1/93, $1,000 2/26/93, aged trial balance
3/31/93, aged trial balance
4/30/93, aged trial balance
5/28/93, aged trial balance
6/30/93, aged trial balance
7/30/93, aged trial balance
8/31/93, aged trial balance
10/26/93, general ledger
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
CONTRIBUTOR TO THE HENRY DATE OF, AMOUNT OF, METHOD/DESCRIPTION CORPORATE BOOKS AND
ESPY FOR CONGRESS AND CROP GROWERS OF REIMBURSEMENT OR RECORDS, ENTRY DATES AND
COMMITTEE AND DATE SUBSIDIARY MAKING PAYMENT IN CORPORATE FALSE ENTRIES
REIMBURSEMENT BOOKS AND RECORDS
------------------------ ---------------------- ----------------------- -------------------------------
<S> <C> <C> <C> <C>
f. HEMMINGSON, 2/1/93, 2/2/93, $3,000, CGI travel advance 2/2/93, accounts payable system
$1,000 2/12/93, general ledger
2/26/93, aged trial balance
HEMMINGSON's father, 3/31/93, aged trial balance
2/1/93, $1,000 4/30/93, aged trial balance
5/28/93, aged trial balance
HEMMINGSON's mother, 6/30/93, aged trial balance
2/1/93, $1,000 7/30/93, aged trial balance
8/31/93, aged trial balance
10/31/93, general ledger
g. HEMMINGSON's brother, 2/2/93, $2,000, CGI crop loss adjustment 2/2/93, accounts payable system
2/2/93, $1,000 2/2/93, general ledger
HEMMINGSON's
sister-in-law, 2/1/93,
$1,000
h. Controller of CGI, 2/3/93, $2,000, CGI computer equipment 2/3/93, accounts payable system
2/1/93, $1,000 2/3/93, general ledger
wife, 2/1/93, $1,000 12/31/93, general ledger
i. Vice President of Hail 2/3/93, $2,000, CGI purchase of computer 2/3/93, accounts payable system
Insurance of CGI, 2/3/93, general ledger
2/1/93, $1,000 12/31/93, general ledger
wife, 2/1/93, $1,000
j. Principal of AgriPeril, 2/9/93, $2,000, CGS expense account 2/9/93, subsidiary ledger
2/2/93, $1,000 (AgriPeril) advance 2/9/93, general ledger
wife, 2/2/93, $1,000
k. President of CGS, 2/2/93, 2/10/93, $2,000, CGS expense advance 2/10/93, subsidiary ledger
$1,000 (AgriPeril) 2/10/93, general ledger
wife, 2/2/93, $1,000
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
CONTRIBUTOR TO THE HENRY DATE OF, AMOUNT OF, METHOD/DESCRIPTION CORPORATE BOOKS AND
ESPY FOR CONGRESS AND CROP GROWERS OF REIMBURSEMENT OR RECORDS, ENTRY DATES AND
COMMITTEE AND DATE SUBSIDIARY MAKING PAYMENT IN CORPORATE FALSE ENTRIES
REIMBURSEMENT BOOKS AND RECORDS
------------------------ ---------------------- ----------------------- -------------------------------
<S> <C> <C> <C> <C>
l. Accountant, 2/2/93, 2/3/93, $2,898, CGS professional fees/ 2/3/93, subsidiary ledger
$1,000 (AgriPeril)--Included consulting, check 2/22/93, general ledger
wife, 2/2/93, $1,000 $898 to pay estimated included estimated tax
personal income tax liability
liability
m. Regional Vice President 2/3/93, $2,898, CGS professional fees/ 2/3/93, subsidiary ledger
of Crop Growers, 2/3/93, (AgriPeril)--Included consulting, check 2/3/93, general ledger
$1,000 $898 to pay estimated included estimated tax
husband, 2/3/93, $1,000 personal income tax liability
liability
n. Graphics Consultant, 6/16/93, $1,000 CGI added to monthly labor 6/16/93, accounts payable system
3/22/93, $1,000 8/13/93, $500, CGI charges 8/13/93, accounts payable system
husband, 3/22/93, $1,000 9/23/93, $500, CGI 9/23/93, accounts payable system
o. Co-founder of CGI, 3/29/93, $2,300, CGI travel advance 3/29/93, accounts payable system
3/29/93, $1,000 3/29/93, general ledger
3/31/93, aged trial balance
4/30/93, aged trial balance
5/28/93, aged trial balance
6/30/93, aged trial balance
7/30/93, aged trial balance
8/31/93, aged trial balance
p. CGI through un-indicted legal fees 7/26/94, accounts payable system
co-conspirator #1, 7/26/94, general ledger
7/26/94, $20,000
</TABLE>
43
<PAGE>
4. Beginning in or about January 31, 1993, and continuing through at
least December 31, 1994, CROP GROWERS knowingly and willfully falsified books,
records and accounts, and defendants HEMMINGSON and BLACK caused CROP GROWERS to
falsify books, records and accounts, by recording or causing the recording as
travel advances, expense advances, consulting fees, computer purchases, advances
on crop loss adjustments, professional fees and other expenses certain
expenditures of CROP GROWERS' corporate assets known to have been expended for
illegal campaign contributions to the Henry Espy for Congress Committee.
5. Beginning on or about July 26, 1994, and continuing through at least
December 31, 1994, CROP GROWERS knowingly and willfully falsified books, records
and accounts, and defendant HEMMINGSON caused CROP GROWERS to falsify books,
records and accounts, by recording or causing the recording as legal fees a
$20,000 expenditure of CROP GROWERS' corporate assets known to have been
expended for an illegal corporate campaign contribution to the Henry Espy for
Congress Committee.
6. From on or about January 31, 1993 through December 31, 1994, defendant
CROP GROWERS knowingly and willfully failed to make and keep books, records and
accounts, and defendants HEMMINGSON and BLACK did
44
<PAGE>
knowingly and willfully cause CROP GROWERS to fail to make and keep books,
records and accounts which, in reasonable detail, accurately and fairly
reflected the transactions and dispositions of approximately $46,000 of the
assets of CROP GROWERS.
(In violation of Title 15, United States Code, Sections 78m(b)(2)(A) and
78ff(a), and Title 18, United States Code, Section 2.)
45
<PAGE>
THE GRAND JURY FURTHER CHARGES:
COUNT FIVE
FALSIFICATION OF ACCOUNTING RECORDS
1. Paragraphs 1 through 4, and paragraphs 50 through 52 of Count One of
this Indictment are realleged and incorporated by reference as though set forth
in full. CROP GROWERS is not named herein as a defendant.
2. Beginning on or about January 31, 1993 through on or about December
31, 1995, defendants HEMMINGSON and BLACK, directly or indirectly, did knowingly
and willfully falsify defendant CROP GROWERS' books, records and accounts.
(In violation of Title 17, Code of Federal Regulations, Section 240.13b2-1 and
Title 15, United States Code, Section 78ff(a).)
46
<PAGE>
THE GRAND JURY FURTHER CHARGES:
COUNTS SIX THROUGH FIFTEEN
FALSE STATEMENTS TO THE SEC
1. Paragraphs 1 through 4, 6, 56, and 57 of Count One of this Indictment
are realleged and incorporated by reference as though set forth in full.
2. On or about the dates set forth in paragraph 4, below, defendant CROP
GROWERS filed, and defendants HEMMINGSON and BLACK caused CROP GROWERS to file,
certain forms with the Securities and Exchange Commission. These forms included
Registration Statements on Form S-1, amendments thereto and prospectuses, all of
which are forms that an issuer of securities files in order to register
securities with the SEC for sale to the public. Additionally, CROP GROWERS, as
an issuer of securities registered with the SEC pursuant to Title 15, United
States Code, Section 781, is required to file an annual report on Form 10-K.
3. In connection with the forms that defendant CROP GROWERS filed on each
of the dates identified in paragraph 4 below, and incorporated by reference
herein, defendant CROP GROWERS did knowingly and willfully omit to state the
following material facts, and defendants HEMMINGSON and BLACK
47
<PAGE>
did knowingly and willfully cause CROP GROWERS to omit to state the following
material facts:
a. CROP GROWERS violated FECA by making illegal campaign contributions;
b. A material contingent liability existed for potential criminal and
civil fines as a result of the FECA violations;
c. That the financial statements, without explaining that CROP GROWERS
had reason to believe that its violations of FECA could reasonably
result in the Department of Agriculture terminating CROP GROWERS'
ability to participate in the MPCI program, the effect of which would
reasonably be expected to have a material unfavorable impact on CROP
GROWERS' financial condition, were misleading;
d. That it had maintained false books and records.
4. On or about the dates following in the District of Columbia, in a
matter, to wit, the filing of Registration Statements, amendments thereto,
prospectuses, and an annual report within the jurisdiction of an agency of the
United States, to wit, the Securities and Exchange Commission, defendant CROP
GROWERS knowingly and willfully did omit to state one or more of the material
facts enumerated in paragraph 3 above, and incorporated by reference herein, and
48
<PAGE>
defendants HEMMINGSON and BLACK did knowingly and willfully cause CROP GROWERS
to omit to state one or more of the material facts enumerated in paragraph 3
above, and incorporated by reference herein, each such filing constituting a
separate count of this indictment as follows:
Count Date Filing
----- ---- ------
Six April 11, 1994 Form S-1 Registration Statement
Seven May 24, 1994 First Amendment to the Form S-1
Registration Statement
Eight June 17, 1994 Second Amendment to the Form S-1
Registration Statement
Nine June 22, 1994 Third Amendment to the Form S-1
Registration Statement
Ten June 23, 1994 Prospectus
Eleven October 31, 1994 Form S-1 Registration Statement
Twelve November 21, 1994 First Amendment to the Form S-1
Registration Statement
Thirteen November 22, 1994 Second Amendment to the Form S-1
Registration Statement
Fourteen November 30, 1994 Prospectus
49
<PAGE>
Fifteen March 31, 1995 Annual Report on Form 10-K
when in truth and in fact, as defendant CROP GROWERS well knew, it was required
to disclose in the forms such material facts.
(In violation of Title 18, United States Code, Sections 1001 and 2.)
50
<PAGE>
THE GRAND JURY FURTHER CHARGES:
COUNT SIXTEEN
SECURITIES FRAUD
1. Paragraphs 1 through 4, 6, 56, and 57 of Count One, and paragraphs 2
and 3 of Count Six of this Indictment are realleged and incorporated by
reference as though set forth in full.
2. In Form S-1 Registration Statements, amendments thereto, prospectus
and an annual report filed with the SEC on the dates identified in paragraphs 74
through 78, 86 through 89, and 92 of Count One of this Indictment, incorporated
by reference herein, defendant CROP GROWERS omitted to state, and defendants
HEMMINGSON and BLACK caused CROP GROWERS to omit to state, one or more of the
material facts enumerated in paragraph 3 of Count Six of this Indictment,
incorporated by reference herein.
3. Commencing on or about June 23, 1994, and continuing thereafter to on
or about September 1, 1995, defendants CROP GROWERS, HEMMINGSON and BLACK,
together with others known and unknown to the Grand Jury, by the use of means or
instrumentalities of transportation or communication in interstate commerce or
by use of the mails, did knowingly and willfully obtain money or property by
means of any omission to state a material fact necessary in order to
51
<PAGE>
make the statements made, in the light of the circumstances under which they
were made, not misleading, and did engage in any transaction, practice and
course of business which did operate and would operate as a fraud and deceit
upon the purchaser, in the offer and sale of CROP GROWERS common stock.
(In violation of Title 15, United States Code, Sections 77q(a) and 77x, and
Title 18, United States Code, Section 2.)
52
<PAGE>
THE GRAND JURY FURTHER CHARGES:
COUNT SEVENTEEN
FALSE STATEMENTS TO AUDITORS
1. Paragraphs 1 through 4 of Count One of this Indictment are realleged
and incorporated by reference as though set forth in full. CROP GROWERS is not
named herein as a defendant.
2. Beginning on or about January 31, 1993, through on or about March 28,
1995, defendants HEMMINGSON and BLACK, while officers of defendant CROP GROWERS,
knowingly and willfully made or caused to be made materially false or misleading
statements, or omitted to state or caused other persons to omit to state,
material facts necessary in order to make statements made, in light of the
circumstances under which such statements were made not misleading, to an
accountant in connection with audits of CROP GROWERS' financial statements and
the preparation of Registration Statements filed with the SEC on Form S-1,
Prospectuses, and an annual report on Form 10-K.
3. On or about March 25, 1994, in connection with Crop Growers' year
ended December 31, 1993, and on or about March 28, 1995, in connection with
Crop Growers' year ended December 31, 1994, defendants HEMMINGSON and BLACK
signed letters to the audit firm hired for the purposes of, among other
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things, conducting an independent audit of the consolidated financial statements
of CROP GROWERS and its subsidiaries, and rendering an opinion on the financial
statements of CROP GROWERS, which represented the following:
a. There have been no irregularities involving any member of management
or employees who have significant roles in the internal control
structure; and
b. There have been no violations or possible violations of laws or
regulations, the effects of which should be considered for disclosure
in the financial statements or as a basis for recording a loss
contingency.
Defendants HEMMINGSON and BLACK knew that these representations were materially
false or misleading.
4. On or about May 24, 1994, defendants HEMMINGSON and BLACK reaffirmed
to the auditors the correctness of the March 25, 1994 letter, with full
knowledge that illegal acts had occurred. Defendants HEMMINGSON and BLACK
issued this letter in contemplation of CROP GROWERS' initial public offering of
securities.
5. Beginning on or about January 31, 1993 through on or about March 28,
1995, defendants HEMMINGSON and BLACK, while officers of CROP GROWERS, did
knowingly and willfully make or cause to be made materially false or misleading
statements, or did omit to state or cause other persons to omit
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to state, material facts necessary in order to make statements made, in light of
the circumstances under which such statements were made not misleading, to an
accountant.
(In violation of Title 17, Code of Federal Regulations, Section 240.13b2-2
and Title 15, United States Code, Section 78ff(a).)
A TRUE BILL:
------------------------
Foreperson
Grand Jury 95-1
/s/ Donald C. Smaltz
- -----------------------
DONALD C. SMALTZ
Independent Counsel
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Exhibit 99(3)
Crop Growers Corporation contact Bob Rousey 208-666-5340
Fireman's Fund contact John Kozero 414-899-2166
FOR IMMEDIATE RELEASE
Crop Growers and Fireman's Fund Announce Alliance
Great Falls, MT and Novata, CA -- May 30, 1996 -- Crop Growers Corporation
(NASDAQ:CGRO) and Fireman's Fund Insurance Company announced today that they are
in discussions regarding an agreement under which Crop Growers would agree to
substantially increase the amount of premium it places with Fireman's Fund.
Further, Fireman's Fund would purchase $10 million of a new series of preferred
stock convertible into common stock of Crop Growers at $13.25 per share. The
transaction is subject to corporate approvals by both parties and execution of
definitive agreements and other closing conditions, including regulatory
approvals.
"We are excited about the proposed expansion of our relationship with Fireman's
Fund, which is recognized as one of the leaders in the insurance industry, and
their increased commitment to the crop insurance market," said Paul Horn,
Chairman of Crop Growers. "We believe this alliance would further our strategy
of increasing the profitability of our agency business while retaining
attractive profit sharing arrangements. Furthermore, the alliance and $10
million of new capital will afford us the flexibility to increase our risk
retention should it become advantageous to do so."
Joe Stinnette, President and CEO of Fireman's Fund said, "We have enjoyed a
profitable association with Crop Growers for the past two years and are looking
forward to expanding the relationship. The proposed arrangement should prove
beneficial to the long-term objectives of both companies."
Crop Growers markets and services federal multi-peril crop insurance and crop
hail insurance for third party insurance companies and its own insurance company
subsidiaries. Crop Growers is the nation's second largest servicer of crop
insurance. The Company also develops, markets, and sells farm management
software and related mapping products. Crop Growers had 8,149,131 shares
outstanding as of March 31, 1996.
One of the top 20 property casualty companies in the U.S., Fireman's Fund has
assets of $11.2 billion and had gross premiums written of $3.8 billion in 1995.
The 134-year old Fireman's fund is assigned an "A" rating from A.M. Best Company
and "Aa1" from Moody's. Fireman's Fund has 7,885 employees who operate out of
40 major offices, distributing business and personal lines insurance through
more than 6,100 independent agents.
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Exhibit 99(4)
Crop Growers Corporation contact Bob Rousey 208-666-5340
FOR IMMEDIATE RELEASE
Crop Growers Names Acting CEO
Great Falls, MT -- May 31, 1996 -- Crop Growers Corporation (NASDAQ:CGRO)
announced today that it has named Larry Martinez as its Acting Chief Executive
Officer and appointed him a member of the Company's Board of Directors. In
making the announcement, Crop Growers Chairman Paul Horn said, "Speaking on
behalf of the board, I'm very pleased that Larry has joined our team. He has
worked closely with Crop Growers Corporation since its inception and has a
thorough knowledge of the challenges and opportunities at the Company. More
importantly, he has the expertise to successfully accomplish the tasks before
him.
Mr. Martinez was formally a partner in the Great Falls, Montana office of the
law firm of Dorsey & Whitney LLP. A graduate of Princeton and Stanford Law
School, he has been in private practice since 1987, specializing in corporate
law. Mr. Martinez, his wife Anne and sons Alex and Jack reside in Great Falls.
Crop Growers markets and services federal multi-peril crop insurance and crop
hail insurance for third party insurance companies and its own insurance company
subsidiaries. Crop Growers is the nation's second largest servicer of crop
insurance. The Company also develops, markets, and sells farm management
software and related mapping products.
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