FAEGRE & BENSON LLP
--------------------------------------------------
2200 NORWEST CENTER, 90 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402-3901
TELEPHONE: 612-336-3000
FACSIMILE: 612-336-3026
March 31, 1999
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: 1150 Liquidating Corporation
File No. 811-407
Ladies and Gentlemen:
We hereby transmit for filing on behalf of the above-referenced
company, pursuant to the Electronic Data Gathering, Analysis and Retrieval
System, an Annual Report on Form 10-K for the fiscal year ended December 31,
1998 (the "Form 10-K"), including the exhibits referred to therein.
The Company has adopted the liquidation basis of accounting, effective
January 1, 1995. Other than the foregoing, the financial statements contained in
the Form 10-K do not reflect a change from the preceding year in any accounting
principles or practices or in the method of applying any such principles or
practices.
Very truly yours,
/s/ Keyna P. Skeffingotn
Keyna P. Skeffington
cc: Charles A. Geer
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998 Commission File No. 811-407
================================================================================
1150 LIQUIDATING CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-0557530
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
IDS Center 55402
80 South 8th Street (Zip Code)
Suite 4440
Minneapolis, Minnesota
(Address of Principal Executive Offices)
Registrant's Telephone Number (612) 338-5254
================================================================================
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 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 value of the voting stock held by non-affiliates of the registrant
is not available. The common stock of the registrant is not publicly traded;
consequently, there is no definitive available price for the stock.
Number of shares of common stock outstanding at March 1, 1999 2,179,714
Documents Incorporated By Reference
None
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
On June 14, 1995, ARM Financial Group, Inc. ("ARM Financial") purchased
substantially all of the assets and assumed certain of the liabilities of the
Company pursuant to the Amended and Restated Stock and Asset Purchase Agreement
dated as of February 16, 1995 (the "Sale Transaction"). The assets sold to ARM
Financial included the outstanding capital stock of State Bond and Mortgage Life
Insurance Company ("SBM Life"), SBM Certificate Company ("SBM Certificate") and
SBM Financial Services, Inc. ("SBM Financial" and together with SBM Life and SBM
Certificate, the "Subsidiaries"). The Company filed a Notice of Intent to
Dissolve with the Secretary of State of the State of Minnesota immediately after
the consummation of the Sale Transaction. The Company has therefore taken the
first step required under Minnesota law to dissolve and cannot carry on any
business other than is necessary to wind up the affairs of the Company. The
Company's activities subsequent to the Sale Transaction have consisted solely of
making liquidating distributions to shareholders, attempting to resolve and
satisfy outstanding liabilities, managing ongoing litigation and managing the
cash proceeds of the Sale Transaction. The Company has no employees. The Chief
Executive Officer of the Company is paid an hourly fee for services rendered to
the Company.
DISTRIBUTIONS
Immediately after the closing of the Sale Transaction, the Company made
liquidating distributions to the holders of the Series A Mandatory Redeemable
Voting Convertible Preferred Stock of the Company (the "Preferred Stock") in the
aggregate amount of $20.5 million, representing an aggregate liquidation
preference of $19.0 million and accrued and unpaid dividends of $1.5 million. No
further liquidation payments are required with respect to the Preferred Stock.
To date the Company has made liquidating distributions equal to an aggregate of
$1,545,906 or $5.07 per share with respect to the Common Stock of the Company
(the "Common Stock") held by the Company's Thrift Plan and Profit Sharing Stock
Plan (collectively, the "Plans") and distributions equal to an aggregate of
$8,448,307 or $4.51 per share with respect to the Common Stock held by other
shareholders. The remaining proceeds of the Sale Transaction of approximately
$890,000 are being invested in a short-term government money market fund pending
the resolution of liabilities of the Company. The Company does not expect to
distribute all of the remaining cash proceeds of the Sale Transaction until all
known debts, obligations and liabilities of the Company, including contingent
liabilities, have been paid or adequate provision has been made therefor, and
there are no pending legal, administrative or arbitration proceedings by or
against the Company or adequate provision has been made therefor.
HISTORICAL BUSINESS DISCUSSION
For detailed information regarding historical activities of the Company
prior to the Sale Transaction, see the Company's Annual Report on Form 10-K for
the year ended
<PAGE>
December 31, 1994 and the Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1995 and June 30, 1995.
ITEM 2. PROPERTIES
Since the Sale Transaction, the Company's principal executive offices
have been located at IDS Center, 80 South 8th Street, Minneapolis, Minnesota.
The Company occupies the private offices of its Chief Executive Officer on a
rent-free basis.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
GENERAL. As of March 1, 1999, there were approximately 356 holders of
record of the Common Stock. The Common Stock is not listed on any securities
exchange, nor is it traded or quoted through the facilities of any national
market system or automated quotations system or traded in the over-the-counter
market. Any trading in the Common Stock has been either (i) in privately
negotiated transactions among shareholders or between shareholders and third
parties or (ii) in transactions between shareholders and the Company (primarily
between the Company and the Plans pursuant to the terms of the Plans). The
Company believes that there has not been sufficient trading in the Common Stock
to establish any readily ascertainable market value for the Common Stock. Nor,
generally, does the Company have knowledge of the price or other terms upon
which Common Stock is traded among shareholders.
DIVIDENDS. The Company has not paid dividends with respect to its
Common Stock since the second quarter of 1994 and has no current intentions of
paying dividends on its Common Stock, other than liquidating distributions.
2
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following financial data of the Company is presented for the
four-year period ended December 31, 1998 on a liquidation basis.
STATEMENT OF NET ASSETS IN LIQUIDATION AS OF DECEMBER 31, 1998, 1997, 1996 AND
1995.
<TABLE>
<CAPTION>
1998 1997 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and short term investments $ 819,931 $5,015,698 $5,861,428 $6,048,325
Federal income tax refund 70,000 15,541 118,831
Escrowed funds 888,634 846,419
Other assets 412 36,971 60,893 13,188
---------- ---------- ---------- ----------
890,343 5,052,669 6,826,496 7,026,763
LIABILITIES
Accounts payable 83,814 83,888 125,308 55,166
Reserve for estimated costs during the period of
liquidation 86,358 245,239 438,611 577,527
Reserve for legal expenses payable under Settlement
Agreement 250,000
Reserve for taxes 70,000 92,968
---------- ---------- ---------- ----------
Total Liabilities 170,172 399,127 813,919 725,661
Common stock held by Employee Benefit Plans -
304,693 shares(1) 126,545 825,231 2,639,835 1,608,906
---------- ---------- ---------- ----------
Net asset available to common shareholders $ 593,626 $3,828,311 $3,372,742 $4,692,196
========== ========== ========== ==========
Common shares outstanding - 2,179,714 less 304,693
shares held by Employee Benefit Plans(1) 1,875,021 1,875,021 1,875,021 1,875,021
========== ========== ========== ==========
Net Assets per common share outstanding $ .32 $ 2.04 $ 1.80 $ 2.50
========== ========== ========== ==========
</TABLE>
- -------------------
(1) On February 16, 1998 the shares were distributed to the participants of
the Plans. See "Legal Proceedings".
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
YEARS ENDED DECEMBER 31, 1998, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1998 1997 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSETS (DEFICIT) AT BEGINNING OF YEAR $ 3,828,311 $ 3,372,742 $ 4,692,196 $(31,976,759)
Income (loss) from liquidating activities 66,629 529,599 (330,740) 42,662,596
Special allocation of carrying value to common
stock held by Employee Benefit Plans under
Settlement Agreement (1,000,000)
Preferred stock liquidation amount in excess of
carrying value (1,279,805)
Dividend distribution to common shareholders (3,292,000) (5,994,214)
Allocation of common stock dividend distribution
to common stock held by Employee Benefit Plans 837,906
Allocation of (income) loss and carrying value to
common stock held by Employee Benefit Plans (9,314) (74,030) 11,286 442,472
------------ ------------ ------------ ------------
NET ASSETS AT END OF YEAR $ 593,626 $ 3,828,311 $ 3,372,742 $ 4,692,196
============ ============ ============ ============
</TABLE>
3
<PAGE>
The following selected financial data of the Company is presented for
the year ended December 31, 1994 on a going concern basis.
1994
----
(in thousands, except for
per share data)
Total Revenues $ 59,932
Income (Loss) From Continuing
Operations(1) (3,604)
Net Income (Loss) (3,604)
Per Common Share:
Primary:
Continuing Operations (2.40)
Net Income (Loss) (2.40)
Fully diluted:
Continuing Operations (2.40)
Net Income (Loss) (2.40)
Dividends declared per share:
Common Stock .10
Mandatory Redeemable Voting
Convertible Preferred Stock 40.00
As of December 31,
-----------------
1994
-----------------
(in thousands)
Total Assets 969,364
Face Amount Certificate Reserves 60,355
Future Policy Benefits 910,104
Mandatory Redeemable Voting
Convertible Preferred Stock 18,486
Common Stock Held by Employee
Benefit Plans 1,917
Stockholders' Equity (Deficit)(1) (31,977)
Total Assets of Affiliated Mutual Fund
Companies 203,691
- ------------------
(1) Effective January 1, 1994, the Company adopted SFAS 115 which had a
significant effect on stockholders' equity.
4
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SALE OF COMPANY OPERATIONS
The Company sold its operations to ARM Financial on June 14, 1995
(which for accounting purposes was effective May 31, 1995) and incurred a loss
of $6.5 million. See Note 1 to the Company's Financial Statements in Item 8
hereof. The purchase price was determined pursuant to the Amended and Restated
Purchase Agreement dated as of February 16, 1995 between the Company and ARM
Financial. The gain or loss on the sale recorded by the Company was subject to
fluctuation through the effective date of the Sale Transaction based on the
market value of the available-for-sale securities and the associated unrealized
gains/losses.
In 1994, as a result of a combination of factors, the Company was
required to look to outside sources for capital and ultimately entered into the
sale of the Company's operations to ARM Financial. The events leading to the
sale of the Company's operations to ARM Financial included the required adoption
of SFAS 115 effective January 1, 1994 and the rapidly rising interest rates in
1994. These factors resulted in significantly reduced market values in the
Company's investment portfolio, especially its Collateralized Mortgage
Obligations ("CMOs"), which adversely impacted stockholders' equity through the
recording of unrealized losses. This decline in investment portfolio value and
stockholders' equity caused regulatory concerns regarding the capital adequacy
of the Company. In addition, A.M. Best reduced the Company's rating to B+ which
caused significant concern in the marketplace, along with further concern by
regulators, as to the adequacy of the Company's capital base. The sale of the
Company's operations became the solution to the capital issues.
Subsequent to the Sale Transaction, the Company had no operations. Upon
closing of the Sale Transaction, the Company redeemed the Preferred Stock at its
liquidation value ($19 million) plus $1.5 million of dividends in arrears. The
remaining proceeds from the Sale Transaction have been invested in a short-term
government money market fund. The Company is in the process of paying, and
making provision for, its remaining liabilities and has made distributions to
holders of the Common Stock. The remaining proceeds will be distributed once all
other liabilities have been satisfied. See Note 2 to the Company's Financial
Statements in Item 8 hereof.
THREE YEARS ENDED DECEMBER 31, 1998
The terms of the Sale Transaction were largely established in January
1995 and were finalized as of February 16, 1995. Such terms were not subject to
variation due to changes in the market value of the Company's available-for-sale
securities or the Company's results of operations through the closing of the
Sale Transaction.
Revenue for the periods January 1, 1996 to December 31, 1996, January
1, 1997 to December 31, 1997 and January 1, 1998 to December 31, 1998 consisted
almost entirely of earnings on invested assets and certain insurance proceeds.
Expenses for the same periods
5
<PAGE>
consisted primarily of general and administrative expenses incurred in
connection with winding up the affairs of the Company, expenses incurred in 1997
in connection with the settlement of the litigation with the Trustee of the
Plans and resolving the allegations of the Department of Labor and the Internal
Revenue Service, and expenses associated with reconciling payments made at the
June 15, 1995 closing of the Sale Transaction to final accounting and tax
obligations at May 31, 1995. See Note 2 to the Company's Financial Statements in
Item 8 hereof.
Net assets ultimately available for distribution to shareholders of the
Company will depend upon the amount needed to satisfy, or make adequate
provision for, all known debts, obligations and liabilities of the Company and
any legal, administrative or arbitration proceeding by or against the Company,
and the expenses and liabilities incurred in connection therewith. The Statement
of Net Assets in Liquidation as of December 31, 1998, 1997 and 1996 includes
accruals for general and administrative expenses anticipated by the Company to
be incurred with respect to resolving certain known liabilities in a reasonably
timely fashion, as expected at that date. Net assets ultimately available for
distribution will be adjusted for additional liabilities that must be satisfied,
and to the extent general and administrative expenses incurred exceeds the
reserve for estimated costs during the period of liquidation included in the
Statement of Net Assets in Liquidation as of December 31, 1998. These potential
costs could have a material adverse effect on the Company and could
substantially reduce the amount of liquidating distributions available to
shareholders and Plan participants.
As noted in Note 1 to the Company's Financial Statements in Item 8
hereof and under "Sale of Company Operations" above, the Company has no
remaining operations and therefore no capital resources or liquidity issues. As
previously discussed, the Company is in the process of liquidating and
distributing the proceeds from the sale of its operations to the Company's
shareholders. Distributions were made in August 1995 and September 1998 and a
final distribution will be made as soon as practicable after all other
liabilities are satisfied.
6
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997
AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1998
AND INDEPENDENT AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
1150 Liquidating Corporation
Minneapolis, Minnesota
We have audited the accompanying statements of net assets in liquidation of 1150
Liquidating Corporation (the Company) as of December 31, 1998 and 1997 and the
related statements of changes in net assets in liquidation for each of the three
years in the period ended December 31, 1998. 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 accounting
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.
As discussed in Note 1 to the financial statements, the Board of Directors of
the Company approved a plan of liquidation in May 1995 and the Company commenced
liquidation shortly thereafter. As a result, the Company changed its basis of
accounting from the going-concern basis to the liquidation basis, effective
January 1, 1995.
In our opinion, such financial statements present fairly, in all material
respects, the net assets in liquidation of 1150 Liquidating Corporation at
December 31, 1998 and 1997 and the changes in its net assets in liquidation for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles on the bases described in the
preceding paragraph.
Minneapolis, Minnesota
March 25, 1999
<PAGE>
1150 LIQUIDATING CORPORATION
STATEMENTS OF NET ASSETS IN LIQUIDATION
AS OF DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
ASSETS
<S> <C> <C>
Cash and short-term investments $ 819,931 $5,015,698
Federal income tax refund 70,000
Other assets 412 36,971
---------- ----------
890,343 5,052,669
LIABILITIES
Accounts payable 83,814 83,888
Reserve for estimated costs during the period of liquidation (Note 2) 86,358 245,239
Reserve for taxes 70,000
---------- ----------
Total liabilities 170,172 399,127
Common stock held by plan participants in 1998 and the
Employee Benefit Plans in 1997 - 304,693 shares (Note 2) 126,545 825,231
---------- ----------
Net asset available to common shareholders $ 593,626 $3,828,311
========== ==========
Common shares outstanding -- 2,179,714 less 304,693 shares
held by Employee Benefit Plans 1,875,021 1,875,021
========== ==========
Net assets per common share outstanding (Note 2) $ 0.32 $ 2.04
========== ==========
</TABLE>
See notes to financial statements.
<PAGE>
1150 LIQUIDATING CORPORATION
STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
NET ASSETS AT BEGINNING OF YEAR $ 3,828,311 $ 3,372,742 $ 4,692,196
Income (loss) from liquidating activities (Note 1) 66,629 529,599 (330,740)
Special allocation of carrying value to common
stock held by Employee Benefit Plans under
Settlement Agreement (Note 2) (1,000,000)
Dividend distribution to common shareholders (3,292,000)
Allocation of net (income) loss and carrying
value to common stock held by Employee
Benefit Plans (9,314) (74,030) 11,286
----------- ----------- -----------
NET ASSETS AT END OF YEAR $ 593,626 $ 3,828,311 $ 3,372,742
=========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
1150 LIQUIDATING CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
BASIS OF PRESENTATION
The financial statements at December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998 include the
accounts of 1150 Liquidating Corporation, formerly SBM Company (the
Company). These financial statements have been prepared in accordance
with generally accepted accounting principles.
PLAN OF LIQUIDATION
A Plan of Liquidation and Dissolution (the Plan of Dissolution) was
adopted by the Company's Board of Directors and approved by the holders
of a majority of the Company's outstanding shares of common stock at
the annual meeting on May 18, 1995. The Plan of Dissolution provides
for the proposed sale of substantially all the assets and business
operations of the Company, including State Bond and Mortgage Life
Insurance Company, SBM Certificate Company, SBM Financial Services,
Inc. (the Subsidiaries), and the State Bond Mutual Funds as well as the
liquidation and dissolution of the Company.
As a result, the Company adopted the liquidation basis of accounting,
effective January 1, 1995. This basis of accounting is considered
appropriate when the Company has adopted a plan of liquidation and
liquidation appears imminent, the Company is no longer considered a
going concern, and the net realizable value of the Company's assets are
reasonably determined. Under the liquidation basis of accounting,
assets are stated at their estimated net realizable values and
liabilities are stated at their anticipated settlement amounts.
NATURE OF OPERATIONS
Effective May 31, 1995, the Company sold substantially all of the
business operations and assets of the Company to ARM Financial Group,
Inc. (ARM) (the Transaction) for a purchase price of $34.5 million, net
of $4.1 million of liabilities assumed (and not reflected in the
liabilities assumed in the first table below), pursuant to an Amended
and Restated Stock and Asset Purchase Agreement dated February 16, 1995
between the Company and ARM. As part of the Transaction, ARM acquired
all of the outstanding stock of the Company's wholly owned subsidiaries
and certain assets of the Company, including the investment adviser
function of six mutual funds, and assumed certain liabilities of the
Company.
<PAGE>
The following summarizes certain amounts related to the Transaction:
<TABLE>
<CAPTION>
<S> <C>
Proceeds from the sale $ 34,445,877
Assets sold:
Investments 808,543,939
Receivable from reinsurer 85,202,588
Deferred acquisition costs 61,683,713
Other assets 14,863,970
------------
970,294,210
Liabilities assumed:
Future policy benefits 861,067,924
Face amount certificate reserves 56,439,745
Accounts payable and other liabilities 12,508,983
------------
930,016,652
------------
Net assets sold 40,277,558
Less costs of the Transaction, including income taxes of $408,000 710,927
------------
Net loss on sale of operations and assets $ (6,542,608)
============
</TABLE>
At the closing of the above transaction, the Series A Preferred Stock
was redeemed for $20.5 million (including $1.5 million of dividends in
arrears) as a result of its senior rights over the common stock.
A summary of significant activities from January 1 to December 31, 1996
is as follows:
<TABLE>
<CAPTION>
<S> <C>
Income on cash and short-term investments $ 299,331
Revised provision for estimated costs during the period of liquidation (572,171)
Reserve for legal expenses payable under Settlement Agreement (250,000)
Income tax benefits 192,100
---------
$(330,740)
=========
</TABLE>
A summary of significant activities from January 1 to December 31, 1997
is as follows:
<TABLE>
<CAPTION>
<S> <C>
Income on cash and short-term investments $ 360,190
Revised provision for estimated costs during the period of liquidation (196,213)
Insurance settlement 340,000
Income tax benefits 25,622
---------
$ 529,599
=========
</TABLE>
A summary of significant activities from January 1 to December 31, 1998
is as follows:
<TABLE>
<CAPTION>
<S> <C>
Income on cash and short-term investments $ 192,968
Revised provision for estimated costs during the period of liquidation (236,257)
Income tax benefits 109,918
---------
$ 66,629
=========
</TABLE>
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LIQUIDATION BASIS OF ACCOUNTING
Assets have been valued at estimated net realizable value and
liabilities provide for all anticipated expenses to be incurred during
the period of liquidation. The Reserve for Estimated Costs during the
Period of Liquidation includes what management anticipated at that date
were reasonable estimates of costs required to liquidate its remaining
assets and to defend known and asserted legal claims, as well as the
estimated costs of directors and officers and legal, audit, and other
professional fees and expenses expected to be incurred during the
period of liquidation. The net assets ultimately available for
distribution to shareholders will depend almost entirely upon the
remaining time involved in winding up the affairs of the Company,
including resolution of any now unknown and unasserted liabilities or
additional litigation related to such matters. The Statements of Net
Assets in Liquidation includes accruals for general and administrative
expenses anticipated by management with respect to resolving such known
matters in a reasonably timely fashion, as expected at that date. Net
assets ultimately available for distribution will be reduced by the
amount of any other unknown and unasserted liabilities and additional
litigation costs related to such matters as may arise in the future,
and to any extent general and administrative expenses incurred exceed
the estimates provided for in financial statements. In addition, the
financial statements do not reflect any investment income that is
anticipated to be earned subsequent to December 31, 1998.
USE OF ESTIMATES
The preparation of financial statements in accordance 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 amount of revenues
and expenses during the reporting period. For example, estimates and
assumptions are used in determining the Reserve for Estimated Costs
during the Period of Liquidation and Common Stock Held by Employee
Benefit Plans. While these estimates are based on the best judgment of
management, actual results and revised estimates could differ from
current estimates and are reflected in the period of change.
INCOME TAXES
The federal income tax refund is based on the amounts currently due
from the IRS as reflected on the Company's federal tax return. Deferred
income taxes were not significant at December 31, 1998 and 1997. Cash
payments (refunds) for income taxes for the years ended December 31,
1998, 1997, and 1996 were $45,000, $(111,163), and $(295,390),
respectively.
COMMON STOCK HELD BY EMPLOYEE BENEFIT PLANS AND RELATED LITIGATION
The Company's two employee benefit plans (Plans) owned 304,693 shares
of Company common stock at December 31, 1998 and 1997. The value of
such shares has been classified as a separate line on the Statement of
Net Assets in Liquidation at December 31, 1998 and 1997 because of the
Company's obligation to repurchase such shares, under certain
circumstances, under a stock repurchase agreement or put agreement (the
Stock Agreement), between the Company and the Plans' Trustee dated
September 30, 1993. The value of such shares is adjusted each year to
reflect their pro rata share of net income (loss) and liquidating
distributions.
<PAGE>
Pursuant to the terms of the stock agreement between the Company and
Firstar Trust Company of Minnesota, the trustee of the Plans (the
Trustee), is entitled, under certain circumstances, to "put" shares of
Common Stock in the Plans back to the Company at the higher of fair
market value or adjusted book value. Prior to the liquidating
distributions of shares of Common Stock from Employee Benefit Plans to
plan participants on February 16, 1998, the Plans held 304,693 shares
of Common Stock.
On March 1, 1995, the Company filed a state court declaratory judgment
action in this matter seeking an interpretation of the Stock Agreement
(the Plan litigation). On November 13, 1995, the Company, the Trustee
and the Schonlau Trust agreed upon a settlement of the litigation and
executed a settlement agreement in principle. A final and more formal
settlement agreement (the Settlement Agreement) was executed on June 6,
1997. In general, the Settlement Agreement provided for payment by the
Company of $1.15 million to the Plans in addition to the pro rata
amounts otherwise distributable in liquidation with respect to the
304,693 shares of Common Stock held by the Plans. This amount included
$150,000 in partial payment of attorneys' fees incurred by the Trustee.
The Settlement Agreement also provided for the payment by the Company
of $100,000 of the litigation costs incurred by the Schonlau Trust. The
amounts paid as part of the settlement are in addition to the pro rata
amounts payable to Plan shareholders (determined without regard to the
settlement amounts) and are paid out of the amount otherwise available
for pro rata distribution in liquidation to non-Plan shareholders.
On August 21, 1997, the Court held a hearing as required under the
terms of the Settlement Agreement. At the conclusion of the hearing,
the Court entered an Order approving the settlement, certifying a
mandatory settlement class of non-Plan shareholders, and barring Plan
and non-Plan shareholders from asserting any claims against the
Company, the Trustee and the Schonlau Trust (and affiliated persons)
and the Plans, the administrative committees for the Plans and members
of such committees which arise out of, relate to, or exist by reason
of, the subject matter of the Plan litigation or the settlement of the
Plan litigation. Accordingly, the Settlement Agreement became effective
on November 19, 1997. Pursuant to the terms of the Settlement
Agreement, on or about December 1, 1997, the Company made settlement
payments totaling $1.15 million to the Trustee and a settlement payment
of $100,000 to the Schonlau Trust. Also, on or about December 1, 1997,
the Company's initial liquidating distribution to the Trustee, which
had been held in escrow pending resolution of the Plan litigation, was
released to the Trustee.
Related administrative matters which involved assertions by the
Department of Labor (DOL) and Internal Revenue Service (IRS) have been
resolved, effective upon the entering of the Order approving the
settlement of the Plan Litigation.
The Settlement Agreement also contains a provision barring Plan and
non-Plan shareholders from asserting any claims against the Company,
the Trustee and the Schonlau Trust (and affiliated persons) and the
Plans, the administrative committees for the Plans and members of such
committees which arise out of, relate to, or exist by reason of, the
subject matter of the Plan litigation or the settlement of the Plan
litigation. Among the claims not released by the Plan and non-Plan
shareholders and specifically preserved in the Settlement Agreement are
claims (i) relating to transactions between ARM Financial and the
holders of Preferred Stock in which Preferred Stock was sold to ARM
Financial, (ii) relating to the purchase or sale by the Company or its
affiliates of mortgage backed securities and stripped mortgage backed
securities, (iii) against the Company's auditors or accountants which
may arise from the purchase or sale by the Company or its affiliates of
mortgage backed securities, and (iv) relating to the sale in 1994 by
Roman Schmid of certain shares of Common Stock to the holders of
Preferred Stock. The specific preservation of such claims in the
Settlement Agreement was made at the request of the Schonlau Trust. The
Company was advised by the Schonlau Trust in August 1998 that it did
not intend to assert any of the claims which it had been investigating,
although it did not preclude asserting them in the future. Thereafter,
the Company's Board of Directors determined to distribute $4 million to
shareholders ($708,000 to former Plan shareholders, $3,292,000 to other
shareholders) as an
<PAGE>
additional liquidating distribution, which was made on September 25,
1998 bringing the cumulative liquidating distributions to $9,994,213
($1,545,906 to former Plan shareholders and $8,448,307 to other
shareholders). To the extent that any claims are brought, directly or
by cross-claim or third-party claim against officers or directors of
the Company or other third parties, the Company could be required to
provide defense and/or indemnity or contribution to one or more such
parties. No provision for any such liabilities has been made in the
financial statements.
In a related matter, the Company entered into a Settlement Agreement
and Release of Claims (Release) with Nutmeg Insurance Company and
Pacific Insurance Company, the Company's fiduciary liability insurers
(the Insurers), on October 3, 1997. Under the terms of that Release,
the Company agreed to release its claims for coverage under the
Insurers' fiduciary liability policies with respect to claims arising
out of, or related to, the Trustee's Counterclaims in the Plan
litigation and the DOL and IRS investigations described above, in
return for a payment of $340,000. The settlement between the Company
and the Insurers was concluded on December 3, 1997, when the Company
received the Insurers' settlement payment.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements on accounting and financial disclosure and
no change of accountants during the two most recent fiscal years.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons were the directors and executive officers of the
Company at March 1, 1999.
Name and
Year First Became
Director or Officer Position Business
(Age) with Company Experience
- ------------------- ----------------------- -------------------------------
Richard M. Evjen Director President, The Evjen Associates,
1993 Inc., architects/ engineers/
(66) planners
Kennon V. Rothchild Director Chairman and Chief Executive
1992 Officer, RCN Associates, Inc.,
(70) mortgage banking consultants
Robert M. Winslow Director President, Sangart, Inc.
1992
(57)
<PAGE>
Charles A. Geer Chief Executive Officer Owner, Charles Geer &
1993 Associates, a private
(58) management and merchant
banking firm, and
consulting attorney
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation paid by the Company in
1998, 1997 and 1996 to its Chief Executive Officer. No other person who served
as an executive officer of the Company during 1998 received salary and bonus in
excess of $100,000.
<TABLE>
<CAPTION>
Annual Compensation
---------------------------- Long-Term
Compensation Awards
Name and Securities All Other
Principal Position Year Salary Bonus Underlying Options Compensation
------------------ ---- ----------- ----- ------------------- ------------
<S> <C> <C> <C> <C> <C>
Charles A. Geer(1) 1998 $142,362(2)
Chief Executive Officer 1997 $113,063(2) --- --- ---
1996 $174,602(2) --- --- ---
</TABLE>
- ----------------
(1) Mr. Geer entered into the Initial Agreement (as hereinafter defined)
with the Company in July 1994. He acted as an independent contractor
for the Company through December 31, 1994. From January 1, 1995 to the
closing of the Sale Transaction, he was an employee of the Company.
Since the Sale Transaction he has acted as a consultant to the Company
and has received an hourly fee for services rendered to the Company.
(2) Does not include $36,750 accrued by the Company in 1998 for fees
payable to Mr. Geer for services rendered during 1998, but does include
$103,863 paid to Mr. Geer in 1998 for services rendered in 1997. Does
not include $103,863 accrued by the Company in 1997 for fees payable to
Mr. Geer for services rendered during 1997, but does include $81,563
paid to Mr. Geer in 1997 for services rendered in 1996. Does not
include $81,563 accrued by the Company in 1996 for fees payable to Mr.
Geer for services rendered during 1996, but includes $105,705 paid to
Mr. Geer in 1996 for services rendered in 1995.
Compensation Committee Interlocks and Insider Participation
in Compensation Decisions
The members of the Company's Compensation Committee in 1998 were Kennon
V. Rothchild and Robert M. Winslow. The Committee members have no interlocking
relationships as defined by the Securities and Exchange Commission.
Director Compensation
Members of the Board of Directors of the Company, none of whom are
employees of the Company, currently receive a quarterly fee of $5,000. Prior to
consummation of the Sale Transaction, each non-employee director received an
annual fee of $3,600 plus (i) an additional sum equal to $2,700 if such director
attended 75% or more of the Board's regular quarterly meetings during the year,
or (ii) an additional sum equal to $675 multiplied by the total number of
regular quarterly meetings attended during the year if such director attended
less than 75% of such meetings, and (iii) $675 for each special meeting
<PAGE>
attended. Directors are also paid a per-meeting fee for each committee meeting
attended. The aggregate amount of fees paid to or accrued for the benefit of
directors during 1998 by the Company was $55,000. Directors are also reimbursed
for reasonable travel expenses incurred in attending Board of Director meetings.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the
ownership of the issued and outstanding shares of Common Stock as of March 1,
1999 by all persons who owned 5% or more of the Common Stock of the Company, by
directors, by the sole executive officer and by such executive officer and
directors of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME AND ADDRESS OF OWNERSHIP OF CLASS
- ---------------- ----------------- --------
<S> <C> <C>
Clara K. Schonlau 354,400(1) 16.26%
300 South State Street Beneficial
New Ulm, MN 56073
Henry Somsen 120,000 5.51%
211 2nd Street Record and
New Ulm, MN 55901 Beneficial
State Bank & Trust Co. of New Ulm 249,835(2) 11.46%
100 North Minnesota Street Record
New Ulm, MN 56073
Charles A. Geer -0- --
4440 IDS Center
Minneapolis, MN 55402
Richard M. Evjen -0- --
P.O. Box 225
Hudson, WI 54016
Kennon V. Rothchild 2,200 *
2300 American National Bank Building Beneficial
St. Paul, MN 55101
Robert M. Winslow 1,000 *
Department of Medicine Record and
University of California-Veterans Affairs Medical Center Beneficial
3350 LaJolla Village Drive (111-E)
San Diego, CA 92161
Executive officer and directors as a group 3,200 *
(4 persons) Record and
Beneficial
</TABLE>
- -------------------------
*Less than 1%.
(1) Of these shares, 352,800 are held of record by Robert Struyk and First
Bank National Association of Minneapolis as Trustees of the Trust under
the will of T.H. Schonlau, and 1,600 are held of record by State Bank &
Trust Company of New Ulm as Trustee of the Clara Schonlau Revocable
Trust, of which trust Mrs. Schonlau is the life beneficiary.
(2) The Bank holds these shares as trustee of a number of trusts.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EMPLOYMENT AGREEMENT WITH CHARLES A. GEER. The Company and Charles A.
Geer entered into an initial agreement as of July 15, 1994 (the "Initial
Agreement") which was superseded by a letter agreement executed in November 1994
(the "Letter Agreement"). The Letter Agreement, except for provisions relating
to indemnification of Mr. Geer for certain claims, was terminated in accordance
with its terms upon consummation of the Sale Transaction.
Pursuant to the Letter Agreement, Mr. Geer was entitled to receive
$135,000 upon termination of his employment, in lieu of severance pay, provided
that if the termination was a constructive termination or was in connection with
a change of control of the Company (as defined), he would be entitled to
$270,000. Since Mr. Geer's employment was terminated as a part of the Sale
Transaction, he received $270,000 as severance pay upon the closing of the Sale
Transaction.
The Initial Agreement and the Letter Agreement provided for the payment
to Mr. Geer of an incentive bonus of 1% of the net value of any new capital
financing for the Company or any Subsidiary, any substantial sale of assets by
the Company or any Subsidiary, and certain other transactions arranged during
the term of Mr. Geer's employment. Although up to $20 million of capital
financing was arranged for one of the Subsidiaries as a part of the Sale
Transaction, Mr. Geer's incentive bonus was calculated only on the basis of the
value of the sale of the assets of the Company. Accordingly, Mr. Geer received
$386,000 as an incentive bonus upon the consummation of the Sale Transaction.
Under the Letter Agreement, Mr. Geer was granted a warrant to purchase
five percent of the Common Stock of the Company outstanding on a fully-diluted
basis at a price of $6.29 per share (the "Warrant") in order to offer him a
participation in the value of the Company. The Warrant contained standard
anti-dilution protections and was subject to repurchase by the Company at the
option of either the Company or Mr. Geer under different circumstances which
involved termination of Mr. Geer's employment before December 31, 1996 at a
price of $300,000 (before a change of control of the Company, as defined) or
$500,000 (after a change of control of the Company). The Warrant was repurchased
by the Company for $500,000 upon consummation of the Sale Transaction.
RELEASE IN FAVOR OF OFFICERS AND DIRECTORS AND CERTAIN SHAREHOLDERS.
One of the conditions to the Company's obligation to consummate the Sale
Transaction was the execution and delivery, to the extent permitted by
regulatory authorities, of a release by each of the Subsidiaries in favor of the
Company and each person who, prior to consummation of the Sale Transaction, was
an officer or director of the Company or any of the Subsidiaries (a "Released
Person"). The releases executed in connection with the Sale Transaction released
and discharged any and all claims which could be made against the Company or a
Released Person (other than, in the case of a Released Person, a claim based on
fraud) by a Subsidiary arising out of, based on or in connection with, any act,
omission, event, transaction or occurrence that happened or failed to happen, or
any fact or circumstance in existence, prior to or contemporaneously with the
execution of the release.
INDEMNIFICATION OF OFFICERS AND DIRECTORS. In connection with the Sale
Transaction, ARM Financial agreed to cause each of the Subsidiaries to continue
to indemnify or to directly indemnify the persons who were officers and
directors of each of the Subsidiaries prior to the consummation of the
<PAGE>
Sale Transaction for any action or inaction by such person prior to the
consummation of the Sale Transaction. ARM Financial also agreed to cause the
Subsidiaries to maintain the provisions in their articles of incorporation and
bylaws which limit the liability of persons who were officers and directors of
the Subsidiaries prior to the consummation of the Sale Transaction for actions
or inactions by such persons prior to the consummation of the Sale Transaction.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS OF THE COMPANY AS OF DECEMBER 31, 1998,
1997 AND 1996 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31,
1998 INCLUDED IN ITEM 8.
Independent Auditors' Report
Statements of Net Assets in Liquidation as of December 31, 1998
and 1997
Statements of Changes in Net Assets in Liquidation - Years Ended
December 31, 1998, 1997 and 1996.
Notes to Financial Statements - Years ended December 31, 1998, 1997
and 1996.
2. FINANCIAL STATEMENT SCHEDULES.
None.
3. LIST OF REQUIRED EXHIBITS:
(2) Plan of Complete Liquidation and Dissolution of registrant filed as
Exhibit 2 to Form 10-K filed April 15, 1996 (File No. 811-407).*
(3) Amended and Restated Articles of Incorporation filed as Exhibit 3B to
Form 10-K filed April 1, 1991 (File No. 811-407).*
Amendment to Amended and Restated Articles of Incorporation filed as
Exhibit 3A to Form 10-K filed April 12, 1995 (File No. 811-407).*
Amendment to Amended and Restated Articles of Incorporation filed as
Exhibit 3 to Form 10-K filed April 15, 1996 (File No. 811-407).*
Restated By-laws, as amended, filed as Exhibit 3 to Form 10-K filed
March 31, 1993 (File No. 811-407).*
(4) Instruments defining the rights of security holders - filed as exhibits
4A through 4K to Registration Statement No. 2-61993 dated June 27,
1978; Exhibit 4 to Registration Statement No. 2-76706 dated March 26,
1982; and Exhibit 4 to Registration Statement No. 33-6131 dated May 28,
1986.*
- -------------------------
* Previously filed as indicated and incorporated herein by reference.
<PAGE>
(10) Material Contracts.
The following documents were filed as the designated exhibits to Form
10-K or registration statements filed as indicated.
Assumption, Assignment Agreement and Bill of Sale between registrant
and SBM Certificate Company dated December 31, 1990 filed as Exhibit
18(b) to Form N-8B-4 No. 811-6268 of SBM Certificate Company filed
April 1, 1991.*
SBM Company Thrift Plan Trust Agreement dated November 1, 1993, filed
as Exhibit 10B to Form 10-K dated December 31, 1993 (File No.
811-407).* First Amendment to Thrift Plan dated December 22, 1994 filed
as Exhibit 10A to Form 10-K filed April 12, 1995 (File No. 811-407).*
SBM Company Profit Sharing Stock Plan Trust Agreement dated November 1,
1993, filed as Exhibit 10C to Form 10-K dated December 31, 1993 (File
No. 811-407).* First Amendment to Stock Plan dated December 22, 1994
filed as Exhibit 10B to Form 10-K filed April 12, 1995 (File No.
811-407).*
Engagement Agreement between registrant and Charles A. Geer dated
November 22, 1994 and Warrant issued to Charles A. Geer filed as
Exhibit 10C to Form 10-K filed April 12, 1995 (File No. 811-407).*
Amended and Restated Stock and Asset Purchase Agreement between the
registrant and ARM Financial Group, Inc., dated as of February 16,
1995, filed as an Exhibit to a Form 8-K of the registrant dated
February 16, 1995.*
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
SBM Company Thrift Plan Trust Agreement dated November 1, 1993, filed
as Exhibit 10B to Form 10-K dated December 31, 1993 (File No.
811-407).* First Amendment to SBM Company Thrift Plan Trust Agreement
filed as Exhibit 10A to Form 10-K filed April 12, 1995 (File No.
811-407).*
SBM Company Profit Sharing Stock Plan Trust Agreement dated November 1,
1993, filed as Exhibit 10C to Form 10-K dated December 31, 1993 (File
No. 811-407).* First Amendment to SBM Company Profit Sharing Stock Plan
Trust Agreement filed as Exhibit 10B to Form 10-K filed April 12, 1995
(File No. 811-407).*
Engagement Agreement between registrant and Charles A. Geer dated
November 22, 1994 and Warrant issued to Charles A. Geer filed as
Exhibit 10C to Form 10-K filed April 12, 1995 (File No. 811-407). *
- -------------------------
* Previously filed as indicated and incorporated herein by reference.
<PAGE>
(27) Financial Data Schedule, filed as Exhibit 27.1 hereto.
(b) REPORTS ON FORM 8-K.
None.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT
No annual report, proxy statement or other proxy soliciting material
was sent to the security holders of the Registrant during the last fiscal year.
<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.
1150 LIQUIDATING CORPORATION
Registrant
Date: March 30, 1999 By /s/ Charles A. Geer
----------------------------------------------
Charles A. Geer,
Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 30, 1999 By /s/ Charles A. Geer
----------------------------------------------
Charles A. Geer Chief Executive Officer
Date: March 30, 1999 By
----------------------------------------------
Richard M. Evjen Director
Date: March 30, 1999 By /s/ Kennon V. Rothchild
----------------------------------------------
Kennon V. Rothchild Director
Date: March 30, 1999 By /s/ Robert M. Winslow
----------------------------------------------
Robert M. Winslow Director
<PAGE>
Exhibit Index
Exhibit No. Document Form of Filing
- ----------- ------------------------------------------------- --------------
27.1 Financial Data Schedule Electronic
Transmission
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 819,931
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 889,931
<PP&E> 0
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<TOTAL-ASSETS> 890,343
<CURRENT-LIABILITIES> 170,171
<BONDS> 0
126,546
0
<COMMON> 0
<OTHER-SE> 593,626
<TOTAL-LIABILITY-AND-EQUITY> 890,343
<SALES> 0
<TOTAL-REVENUES> 66,629
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
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<INCOME-CONTINUING> 66,629
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