- PROPERTIES No properties are owned by the Registrant that are material to its business.
(**) As of 12/10/93 a 2-for-1 stock split to shareholders of record on January 20, 1994 was recorded.
As of 6/7/95 a 20% stock dividend was declared payable to stockholders of record on July 27, 1995.
Earnings per share were restated to reflect the stock dividend dilution.
(*) As of 12/6/95 $.075 of dividends were declared payable to stockholders of record on January 26, 1996 and were accrued by FIIG as part of the other liabilities.
Certain balance sheet amounts have been reclassified for prior years to conform with 1995 presentations.
The property exposures are significant natural disaster coverages where First Re reinsures the insureds losses in excess of underlying retentions and reinsured coverages. The losses on this class are reported and settled in a shorter time frame than First Re's traditional business. Catastrophe losses are sporadic, difficult to predict and vary depending on the cedent's underwriting exposures.
Because of the sporadic nature of the insured catastrophes, in any one year the losses incurred can exceed the premiums for that year. The underwriters for this class typically attempt to recoup this shortfall of premiums in excess of losses over a period of time.
At December 31, 1995, 1994 and 1993 these programs accounted for 15.3%, 23.0% and 27.0% respectively of First Re's earned premium.
The Registrant was originally formed to support reinsurance of financial institutions blanket bond and directors and officers liability insurance coverages. First Re reinsured two companies, Virginia Surety Company, Inc. and Dearborn Insurance Company ("DIC"), both affiliates of Aon Corporation ("Aon"). Effective July 1, 1993, VSC withdrew from the market for these coverages.
The financial institutions reinsurance was approximately 0.2%, 10.5% and 54.3%, of the premiums earned in 1995, 1994, and 1993 respectively. All of the policies expired by June 30, 1994.
First Re continues to reserve and pay claims on these lines of business.
The Bond policy issued by VSC/DIC, which was marketed by Aon affiliates and in part reinsured by First Re, is based on a Surety Association of America standard form. This program was terminated when VSC withdrew from the market on July 1, 1993. The policy provides for indemnification of the insured financial institution for any losses discovered during the period of coverage.
Bonds policies issued as a result of the treaties had limits up to $5,000,000, of which First Re reinsured 50% of the first $500,000 limit and 11% of the limits between $500,000 and $5,000,000.
Policies issued from this treaty coverage had limits up to $3,000,000, of which First Re reinsured $600,000 (in 1993) and amounts up to $1,000,000 in earlier years.
The following table outlines the respective reserve components and their balances at December 31, 1994 and at quarterly intervals through the period to December 31, 1995:
The Registrant engages the firms of Asset Allocation and Management Company ("AAM") and Otter Creek Management, Inc. ("OCM") to provide investment portfolio management services under the Board of Directors' approved guidelines, which in turn are conformed to the insurance laws of Connecticut. The investment portfolio remains at investment grade quality. No investment in a single security or issuer exceeds 5.0% of the total investment portfolio. OCM began managing $5,000,000 of the portfolio January 1, 1994 and the portfolio had a market value of approximately $6,700,000 at December 31, 1995. OCM is controlled by a director of the Registrant who manages portfolios for a variety of clients seeking investments in certain segments of the market that are perceived as undervalued. In January 1995, the Registrant invested $1,000,000 in PSCO Partners Limited Partnership ("PSCO"), a limited partnership, that invests in publicly held financial services stocks. The partnership is recorded as part of the common stock investments of the Registrant.
At January 1, 1994, First Re had capital loss carryforwards of approximately $404,000, which were utilized in 1994 to offset taxes due on the realized capital gains of $570,231. Approximately $778,000 of the $1,275,142 gains recorded in 1993 were free of taxes paid, due to the utilization of capital loss carryforwards. The capital gains realized in 1995 were fully taxed.
As part of its revised investment policy, the Registrant elected, beginning in 1991, to segregate its securities held for investment from those which are held for trading. Fixed maturities held for investment were carried at amortized cost, because the Registrant had the ability and intent to hold such investments to maturity. As of December 31, 1993, the Registrant adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 allows the Registrant to classify its portfolio of fixed maturities and equity securities as available for sale and to report them at market value. The market value of the non-redeemable preferred equities at December 31, 1995 was $6,091,931. Fixed maturities held for sale had a market value of $58,834,592 as of December 31, 1995. Common stocks had an aggregate market value of $4,148,237 at December 31, 1995.
The unrealized gain or loss on these securities in the held for sale portfolio is recorded directly to stockholders' equity less the applicable capital gains tax. The unrealized gain net of taxes on these securities was $1,542,730 at December 31, 1995. Short-term investments are carried at the lower of amortized cost or market value, which was $6,110,072 and $4,673,778, as of December 31, 1995 and 1994 respectively.
Cash flow provided from operations was $5,368,018 in 1995 as compared to $2,933,553 in 1994 and $1,014,343 in 1993. Investing activities used cash in the amount of $4,413,500 in 1995 and $3,981,220 in 1994 as compared to a contribution of $3,266,013 in 1993.
Financing activities used cash amounting to $423,209, $564,822 and $517,825 in 1995, 1994 and 1993 respectively. Receipt of shareholder loans and proceeds from stock options totaling $270,754 offset an increase in stockholder dividends of $129,141 in 1995. Payment of cash dividends was the sole financing activity in 1994 and 1993.
The Oakley operations of the Registrant generated most of the cash increase from operations in 1995 and 1994. Oakley collects premiums from producers and invests them in short-term investments until settlement with the issuing company (VSC or First Re) is required. Oakley invests these funds in short-term investments that are matched to quarterly settlement dates. First Re, as a reinsurer and an insurer, receives its contractual portion of these funds and invests them in fixed income securities that match the anticipated loss payout term. Oakley completed its second full year of operation in 1995.
Investing activities in 1995 reflect a net use of cash totaling $4,413,500 compared to $3,981,220 in 1994. The Registrant increased its short-term investments $1,437,064 to fund the contractual settlement requirements of Oakley. It also invested $1,000,000 in an investment partnership (PSCO) in January 1995. PSCO invests in publicly traded financial services company common stocks and this investment is carried as part of common stocks. The year end value of PSCO was $1,379,000.
The Registrant feels it has sufficient liquidity to enable it to carry out its planned operations.
Prior to risk based capital standards, general convention in the insurance industry established an informal guideline ratio of premiums to capital that was deemed appropriate. Typically, this ratio provided that written premiums be no greater than three times the capital and surplus of First Re. For the current year, First Re has an average ratio of $.34 of premium written for each $1.00 of its capital and surplus. On the basis of these results, management believes that it has available insurance capacity to increase its writings should the opportunity present itself.
Payments of future cash dividends are reviewed and voted on at regularly scheduled Board of Directors' meetings of the Registrant and its subsidiaries. In declaring the most recent dividend, the Registrant considered its current financial condition with special attention to current income and retained earnings, and its Stockholder Dividend Policy. These decisions, further, are based upon the subsidiaries' performance, taking into account regulatory restrictions on the payment of dividends by such subsidiaries, which are discussed in more detail in the footnotes to the financial statements.
The Registrant announced in March, 1995 plans to repurchase up to three million dollars of its common stock in open market purchases, but to date has not acquired any stock through this program.
Net income in 1995 is 15.6% higher than 1994 ($4,321,799 vs $3,738,818) and 1994 was 16.4% higher than 1993 ($3,738,818 vs $3,211,945).
The pre-tax average yields on mean invested assets for the years 1995 and 1994 were 5.5% and 5.1%, respectively. Improvement in short term rates was the major reason for the increase in yield.
The Registrant's investments at December 31, 1995 had an unrealized after-tax gain of $1,542,730 as compared to a loss of $1,562,822 at December 31, 1994. In 1994, the Registrant utilized the $404,000 remaining unrealized capital loss carry forward from December 31, 1993 to offset taxes that would otherwise be paid on its capital gains.
Premiums earned increased 45.2% in 1995 (to $11,356,083) as compared to a 5.2% growth in 1994 (to $7,819,784) as First Re continued its expansion into other reinsurance lines and finished its second full year of the Oakley operation (the 1993 results reflected nine months of Oakley). These increases offset the loss of revenue from the financial institutions program due to the withdrawal of VSC as an underwriter of this coverage in the third quarter of 1993. The financial institutions' program represented less than 0.2% of total earned premium in 1995, as compared to 10.5% in 1994 and 54.3% in 1993.
Other income decreased 25.0% to $556,941 in 1995 from 1994. Other income increased 27.5% to $742,546 in 1994 from 1993. The 1995 amount includes amortization of the excess of acquired net assets over cost related to the First Re purchase of $455,000 and the remainder is brokerage income from the company's financial institution division of its Oakley subsidiary. This division was terminated in the second quarter of 1995. The 1994 amount includes amortization of the excess of acquired net assets over cost related to the First Re purchase of $466,465 and the remainder is from management fees related to First Re Management Company, Inc. activities and brokerage income from the Oakley operation.
Favorable development in underlying claim settlements on the VSC financial institutions' business created a favorable re-estimation of liabilities related to claims that had been charged to prior year income statements. The reduction in estimated ultimate losses on this and other non renewed programs for the underwriting years 1988-1990 recorded in the 1995 income statement was approximately $3,469,000. For 1994 these coverages represented 96.7% or approximately $2,585,000 of the incurred claims and 36.3% or $1,771,442 for 1993. The company continues to monitor these claims carefully and continually re-estimates its ultimate losses based on evaluation of each underlying case and advice from outside counsel and ceding companies' actuaries. The Registrant believes its reserves are adequate to cover the remaining exposures in its financial institutions' business.
Oakley loss estimates are recorded using a combination of the prior underwriting history, industry experience and management judgment. Oakley losses were $7,145,864 in 1995, $4,705,129 in 1994 and $1,052,453 in 1993. The estimated ultimate losses are approximately 80.9% of the Oakley inception to date earned premiums. The increase in the estimated ultimate losses on these classes were due to the increase in premium revenues and its' related exposure.
The reinsurance (and insurance) industry is continually being scrutinized by the Executive and Legislative branches of government, as well as by other regulatory agencies for dividend paying ability and solvency.
The NAIC has established a new set of measurements for risk based capital ("RBC") requirements on 1994 financial statements. The tests correlate the risk and uncertainty of the underwriting exposure with the quality of the assets. Based on the RBC formulas adopted by the NAIC, capital of First Re exceeded the required levels of capital. The Registrant does not foresee any negative results of this requirement.
The Registrant has agreed to deal exclusively with CHP II and Mr. Dore for a period of 45 days. The agreement provides under certain circumstances for the payment of a cash fee in the amount of $3,500,000 to CHP II in the event the Registrant executes an agreement with a third party involving a merger or other business combination or sale of a substantial portion of the assets or stock of the Registrant within one year. The discussion of the terms of the agreement is qualified in its entirety by reference to the agreement, a copy of which is attached hereto as an exhibit.
9. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
We have audited the consolidated balance sheets of Financial Institutions Insurance Group, Ltd. as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995 and the financial statement schedules of Financial Institutions Insurance Group, Ltd. listed in Item 14 (a) of this Form 10-K. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Financial Institutions Insurance Group, Ltd. as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
The Registrant conducts its business by owning and operating an insurance company and underwriting insurance and reinsurance assumptions through two wholly owned underwriting agencies.
The Registrant's primary business from its inception in 1986 through July 1, 1993 was reinsurance of Directors and Officers liability and Blanket Bond coverage for banks and savings institutions that were insured by an unaffiliated insurer, Virginia Surety Company ("VSC"). These reinsurance contracts were assumed by FIIF.
In 1992 the Registrant formed an underwriting management company, First Re Management Company "FRM" and began to write reinsurance through the reinsurance intermediary market. FRM typically assumed for First Re 5.0% or less of a company's reinsurance exposure on terms set by the reinsurance market. The premiums are typically related to property catastrophe coverages, professional liability and other liability coverages.
On April 1, 1993, the Registrant acquired the renewal rights from VSC for a book of professional liability and non-financial institutions directors and officers liability insurance and further entered into a management agreement pursuant to which the Registrant will perform underwriting and administrative services with respect to such business. The Registrant organized a wholly-owned subsidiary, Oakley Underwriting Agency, Inc. ("Oakley"), to act as an underwriting management company and hired staff involved with this program from VSC to underwrite these lines of business. First Re assumes, as reinsurance, a portion of the premiums and liabilities from these programs. First Re also issues direct insurance policies in Oakley and reinsures them with non-affiliated reinsurers.
Nearly all of the premiums written by the Registrant are produced by Oakley. Should changes be made to the Oakley program, the revenues of the Registrant could change significantly. In addition, the Registrant writes reinsurance for catastrophe coverage. The Registrant believes its portfolio is well-diversified so that any catastrophic event would not have a material impact on its financial position.
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles and include the accounts, after inter-company eliminations, of the Registrant and its subsidiaries, JBR, First Re, FIIF (through September 21, 1994), FRM, Oakley, and F/I Insurance Agency("F/I Agency"), Incorporated (collectively "the Registrant").
Premiums are recognized as revenue over the term of the related reinsurance contracts or policies and are net of deductions for retrocessions to other reinsurers. Unearned premium reserves are established for the unexpired portion of policy premiums.
Acquisition costs, which consist primarily of commissions, are deferred and amortized pro rata over the contract periods in which the related premiums are earned. Future investment income attributable to related premiums is taken into account in measuring the carrying value of this asset. All other acquisition expenses are charged to operations as incurred.
Ceded reinsurance premiums, commissions, expense reimbursements, and reserves related to ceded reinsurance business are accounted for on a basis consistent with that used in accounting for the assumed business. Premiums ceded to other companies have been reported as a reduction of premium income. Loss and loss adjustment expense payments ceded to other companies have been reported as a reduction of those items. A provision for doubtful or uncollectable reinsurance ceded of approximately $171,000 is recorded net of ceded reinsurance recoverable.
The excess of acquired net assets over cost relating to the acquisition of First Re during 1991, is being amortized on a straight-line basis over a seven year period, which is the estimated time period over which the purchased liabilities will be settled. The amortization is recorded as other income in the consolidated statement of income.
Non-redeemable preferred equities are carried at estimated market value in 1995 and 1994. The Registrant reports short-term investments at amortized cost, which approximates current market value. Realized gains and losses on investments are determined on the basis of specific identification. The Registrant classifies its portfolio as available for sale, as it has the ability but not the intent to hold these securities to maturity.
As most of the Registrant's business is written on a claims-made form of coverage, the liability for unpaid losses and loss adjustment expenses consists of an aggregation of the estimated liability for incurred losses and loss adjustment expenses on claims that are known to the Registrant as of the reporting date and an aggregate estimate of the liability for losses and loss adjustment expenses incurred, but not reported to the Registrant, as of the same date. Although such reserves are based on estimates, management believes that the recorded reserves for loss and loss adjustment expenses are adequate in the aggregate to cover the ultimate resolution of reported and incurred but not reported claims. These estimates are continually reviewed, and any required adjustments are reflected in current operations.
Cash equivalents include short term, highly liquid investments that are readily convertible to known amounts of cash.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain balances in the prior years' financial statements have been reclassified to conform to current presentation.
Effective December 31, 1993, the Registrant adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Registrant classified its entire portfolio of fixed maturities and equity securities as available for sale and reported them at market value. During 1993, before the adoption of SFAS No. 115, the Registrant's portfolio was segregated into two classifications: securities held for trading and securities held for investment. All securities held for trading were previously reported at estimated market values, whereas the securities held for investment were reported at amortized cost. The investment portfolio consisted of securities for which the Registrant had the intention and ability to hold until maturity. The trading portfolio arose primarily because investment assets exceed the amounts needed to match against liabilities, and because the Registrant intended to generate realized gains so the tax benefits of capital loss carry forwards obtained through the purchase of JBR could be realized.
The proceeds from the sale of investments held for sale were $39,071,486 and $21,866,175 during 1995 and 1994 respectively.
First Re has certain invested assets on deposit with state insurance regulatory authorities at December 31, 1995, with an amortized cost of $2,189,091. These deposits are required to maintain the licenses and allow the writing of insurance and reinsurance in those states. Market value of these securities is $2,236,000.
Some of First Re's existing contracts require letters of credit in the amount of the premium paid to be held by the reinsured. First Re collateralized the letter of credit with a U.S. treasury bond totaling approximately $351,000 and has collateralized these with an interest bearing investment of approximately the same amount.
Prior to December 1993, there was an agreement between the principal ceding companies, VSC and First Re, which called for funds to be held by VSC. During the fourth quarter of 1993, the Registrant negotiated the release of these funds by establishing a trust agreement between First Re and VSC. The trust, which is the property of First Re, has been funded with securities with a current estimated market value of approximately $6,606,000 and $13,768,000 for 1995 and 1994 respectively which is included as investments in the consolidated balance sheet. Investments must be maintained in the trust until certain reinsurance assumed obligations are settled.
The net deferred tax asset comprised the tax effects of the temporary differences relating to the following assets and liabilities:
The valuation allowance established in 1994 is with respect to the tax effect of the unrealized losses on equity securities. There was no valuation allowance established on the tax effect of the fixed maturities in 1994 because, although they were held for sale, management would hold them until maturity to avoid non-deductible losses.
The following reconciles the consolidated statutory net income and stockholders' equity of FIIG and its subsidiaries, determined in accordance with accounting practices prescribed or permitted by the Insurance Department of the State of Connecticut, with such amounts determined in conformity with generally accepted accounting principles (GAAP):
In June 1993, the Registrant entered into a lease for office space in Chicago with an annual rent of approximately $112,000. The lease is due to terminate on May 31, 1996. On a month to month basis, the Registrant also leases space in Avon, Connecticut to service the run-off operation that it assumed in conjunction with the purchase of JBR and First Re. The annual cost of this is approximately $40,000.
The Registrant has a 401 (k) retirement savings plan which commenced in 1992. All employees are eligible to participate in the plan after completing six months of service. Participants may make contributions on a pre-tax basis of up to 15% of annual compensation subject to IRS limitations. The Registrant matches 50% of the employee's contribution (up to 6%). The Registrant's contributions were approximately $111,000, $120,000, and $95,000 in 1995, 1994 and 1993, respectively.
The Registrant has no other significant pension or other post-retirement programs in place for the benefit of its employees as of December 31, 1995.
When a reinsured company reports a claim, the Registrant establishes a reserve equal to that report. It also evaluates the circumstance of that claim based on the judgment of management and reserving practices for the type of business, it establishes additional case reserves sufficient to settle the estimated ultimate liability given the current information. In many cases, several years may elapse between the reporting of a claim and its final settlement. These estimates are difficult to quantify, as the outcome may depend on multi-party litigation and other factors not readily predictable.
The Federal Deposit Insurance Corporation the success of to The Resolution Trust Corporation can be a party to claims in the discontinued financial institution business which tends to lengthen the claims settlement period. The other reinsurance exposures typically would involve property catastrophe events which tend to be more easily quantified, as the claims would likely be notified quickly, and they do not usually involve litigation.
On February 19, 1996 the Registrants entered into a letter agreement to be sold to a new company to be formed by Castle Harlan Partners II and John Dore, the President of the Registrant. This event will not have a material effect on the affairs of the Registrant.
John B. Zellars is Chairman of the Executive Committee of the Registrant. He currently serves as a member of the Board of Directors of Douglas Federal Savings Bank; Greater Georgia Life Insurance Co. and Blue Cross/Blue Shield of Georgia. Mr. Zellars previously served as a member of the Board of Directors of the Federal Home Loan Bank of Atlanta, and in 1989, retired as Chairman of the Board of Georgia Federal Bank in Atlanta, Georgia. Mr. Zellars, a past Chairman of the U.S. League, also has served as President and Chief Executive Officer of Georgia Federal Bank, a director of Asset Management Fund for Savings Institutions, Inc. and as Chairman of the Board of the Federal Asset Disposition Association. He has also served as a Director of Fuqua Industries, Inc.; Director of Southern Floridabanc Federal Savings and Loan, Boca Raton, Florida; and senior Chairman and CEO of Lamar Savings Association, Austin Texas; and Director of Beach Federal Savings and Loan Association, Boynton Beach, Florida.
R. Keith Long is Chairman of the Board of the Registrant. He has been engaged principally in private investments since January, 1991. For more than five years prior thereto, Mr. Long was employed as a principal in the capital markets division of Morgan Stanley & Co.
John A. Dore has served as a member of the Board of Directors and as President and Chief Executive Officer of the Registrant since October 1, 1990. In addition, Mr. Dore serves as President and Chief Executive Officer of The First Reinsurance Company of Hartford, First Re Management Company, Inc., F/I Insurance Agency, and Oakley Underwriting Agency, Inc., a wholly-owned subsidiary of the Registrant. Prior to joining the Registrant, beginning in 1987, Mr. Dore served as President and Chief Operating Officer of Virginia Surety Company/Dearborn Insurance Company. From 1983 to 1986, Mr. Dore was President and Chief Executive Officer of Chicago Underwriting Group, Inc.
Herschel Rosenthal currently is President of Donalga, Inc. a commercial construction development company in Florida. Mr. Rosenthal previously served as President of Flagler Federal Savings and Loan Association of Miami from 1976 until his retirement effective January 31, 1992. Mr. Rosenthal also served as a director of Flagler Federal Savings and Loan Association.
Joe C. Morris currently serves as Senior Vice President of First Bank, F.S.B. in Overland Park, Kansas. Mr. Morris was Director of Government Affairs at Metropolitan Financial Corporation, Overland Park, Kansas from 1993 to 1994, and formerly Chief Executive Officer and Chairman of the Board of Directors of Western Financial Corporation, a savings and loan holding company, and Columbia Savings Association, F.A., Emporia, Kansas. In addition, Mr. Morris previously served as President of Columbia Savings Association, Emporia, Kansas. Mr. Morris also is a past Chairman of the U.S. League. He formerly served as a director of both Asset Management Fund for Savings Institutions, Inc. and Advance America Funds, Inc.
Thad Woodard has served as President of the Community Bankers Association of North Carolina (formerly the North Carolina Alliance of Community Financial Institutions) since 1978.
In addition to serving as directors of the Registrant, R. Keith Long served as Chairman of the Board of Directors of the Registrant, John A. Dore as President and Chief Executive Officer and William B. O'Connell as Vice Chairman of the Board of Directors. Additional information about the foregoing officers is included herein under "Directors." Other officers of the Registrant are as set forth below:
Lonnie L. Steffen has served as Executive Vice President, Chief Financial Officer and Treasurer of the Registrant since September, 1991. Prior thereto, beginning in 1986, Mr. Steffen served as Executive Vice President of First Re. Mr. Steffen currently serves as Executive Vice President, Chief Financial Officer and Treasurer of FRM, First Re and Oakley, and Executive Vice President and Chief Financial Officer of F/I Agency. Mr. Steffen also is a member of the Boards of Directors of First Re and Oakley.
Robert E. Wendt, Senior Vice President of the Registrant, is also Senior Vice President of FRM and First Re, as well as Senior Vice President and Director of both F/I Agency and Oakley. For the five years prior to joining the Registrant in 1988, Mr. Wendt was employed by CNA Insurance Companies as Underwriting Manager, Senior Manager of Commercial Lines Underwriting, and as Senior Manager of Underwriting.
The following table sets forth certain information regarding the compensation paid by the Registrant to or for the account of the Chief Executive Officer and each of the other most highly compensated executive officers of the Registrant for services rendered in all capacities during each of the Registrant's fiscal years ended December 31, 1995, 1994 and 1993. All share and per share amounts, including amounts for prior periods, have been adjusted to reflect the 20 percent stock dividends payable on August 24, 1995 and February 22, 1996.
(3) Supplemental and matching contributions made by the Registrant's wholly-owned subsidiary, FRM, pursuant to its Thrift Plan ("401(k) Plan"). Pursuant to the terms of the 401(k) Plan, an employee who has completed at least six months service may save, through payroll deductions, up to 15 percent of the employee's monthly wages or salary, with the total contribution not to exceed amounts permissible under the Internal Revenue Code. An amount equal to 50 percent of the employee's savings is contributed to the employee's 401(k) account, to the extent such savings do not exceed 6 percent of monthly wages or salary. In addition, a supplemental annual contribution in the amount of six percent of each employee's salary is made to the employee's account. 4) Shares awarded pursuant to the provisions of Mr. Dore's Employment Agreement dated October 1, 1990. Subject to his continuing employment, the agreement gave Mr. Dore the right to receive a total of 28,800 shares of Common Stock in increments over the periods January 1, 1992 through January 1,1996 as follows:
The closing market price per share of the Registrant's stock at December 31, 1995 was $13.54. The aggregate value of Mr. Dore's stock awards at December 31, 1995 was therefore equal to $341,205 ($13.54 x 25,200 shares). Dividends are paid on the shares of Common Stock actually held by Mr. Dore in the same manner as all shares of the Registrant's Common Stock. No dividends are paid on shares to be received at future dates.
The members of the Executive Committee who are not full-time salaried officers (the "Committee") administer the Stock Option Plan and are responsible for determining: the individuals who will receive options; the number of options to be granted and the number of shares subject to each option; and the terms and conditions of the options, including when exercisable, the price, and payment terms.
The purchase price per share of common stock subject to an option will be fixed by the Committee but will not be less than the fair market value per share of common stock on the date the option is granted. The date an option first is exercisable will not be more than 12 years after the date the option is granted, and the date the option expires will not be more than five years after the date the option first is exercisable. In the event of certain structural changes or a change-in-control, options not yet exercisable will become immediately exercisable.
John A. Dore has entered into an Employment Agreement dated October 1, 1990 pursuant to which Mr. Dore was employed as President and Chief Executive Officer of the Registrant and certain affiliates. The Employment Agreement provides for an annual base salary of $175,000, which salary may be increased in conjunction with annual reviews of executive compensation. The Employment Agreement is terminable by either party on the last day of any month with 60 days prior written notice. Subject to his continuing employment, the Agreement gave Mr. Dore the right to receive as additional compensation a total of 28,800 shares of the common stock of the Registrant over the period January 1, 1992 through January 1, 1996.
In addition, if Mr. Dore terminates his employment or is terminated under certain specific circumstances, including a change in control, for a period of seven months following such termination Mr. Dore will have the right to require the Registrant to repurchase for cash at $3.47 per share all shares of the common stock of the Registrant obtained pursuant to his Employment Agreement.
In March, 1995, the Board of Directors adopted an Amended Directors' Incentive Plan (the "Amended Plan") for the directors of the Registrant and its subsidiaries. Pursuant to the Amended Plan, each director receives an annual cash fee of $5,000 for service on the boards of the Registrant's subsidiaries, as well as a $1,000 cash fee for each directors' meeting attended. Directors receive a cash fee of $500 for attendance at committee meetings, and the chairman of a committee receives an additional fee of $250.
Directors are permitted to elect to receive shares of Common Stock ("Incentive Shares") in lieu of cash fees. The directors of the Registrant also receive an option to purchase 1,000 shares of Common Stock ("Incentive Option") annually. The purchase price per share of common stock subject to an Incentive Option is the fair market value per share of common stock on the date the Incentive Option is granted.
The Amended Plan is administered by the members of the Executive Committee of the Board of Directors who are not full-time salaried officers. The administrators of the Plan do not have discretion as to the selection of the directors to whom the awards may be granted. All of the non-employee directors, with the exception of the Chairman of the Board, participate in the Plan.
The total number of securities subject to the Plan, including both Incentive Shares and Incentive Options, is 252,000. The Plan provides that it will terminate on July 1, 1996.
As of January 31, 1996 the following persons or entities were known by the Registrant to be beneficial owners of 5 percent or more of the Registrant's Common Shares:
3. Mr. Long also holds options to purchase 7,200 shares of the Registrant's Common Stock as described under "Remuneration and Other Transactions with Management - Directors' Compensation."
4. Schedule 13D dated June 26, 1992 filed with the Securities and Exchange Commission reported ownership of 192,096 Common Shares. The Registrant's records indicate an additional 4,054 shares subsequently were acquired.
5. As reported in an Amendment to Schedule 13D dated March 8, 1995 filed with the Securities and Exchange Commission. David G. Booth is the spouse of Jane Marvel Garnett.
7. 6,336 Shares of Common Stock are owned directly by the children of Mr. Dore, and 67,658 shares of Common Stock are owned directly by the spouse of Mr. Dore.
9. As reported in a Form 4 dated September 6, 1995 filed with the Securities and Exchange Commission.
The amount and nature of beneficial ownership of Common Shares by the directors and executive officers of the Registrant as of January 31, 1996 is set forth below:
3. 6,336 shares of Common Stock are owned directly by the children of Mr. Dore and 67,658 shares of Common Stock are owned directly by the spouse of Mr. Dore.
4. Owned directly by a limited partnership, the general partner of which is a corporation owned by Mr. Long.
6. Owned directly by the estate of the spouse of the person whose ownership is reported.
7. Owned directly by the spouse of the person whose ownership is reported.
9. Owned directly by the spouse of the person whose ownership is reported. Mr. Wendt also holds options (currently exercisable or exercisable within 60 days of January 31, 1996) to purchase 3,312 shares of Common Stock.
As used herein, "beneficially owned" means the sole or shared power to vote or direct the voting of a security and/or sole or shared investment power with respect to a security (i.e., the power to dispose or direct the disposition of a security). Unless otherwise indicated, the nominees and all directors and executive officers as a group have sole voting and sole investment power over the shares listed.
The present directors and named executive officers of the Registrant as a group (14 individuals including the above named directors) owned beneficially 777,932 Common Shares, or 27.9 percent of the outstanding Common Shares at January 31, 1996 including in such calculation options for Common Shares exercisable within 60 days of January 31, 1996.
At a special meeting of the Board of Directors of the Registrant on April 21, 1995, an agreement with Mr. Long was approved pursuant to which: (i) Henry Drewitz and Edmond Shanahan retired from the Board of Directors of the Registrant and its subsidiaries effective July 1, 1995; (ii) the Board of Directors of the Registrant and its subsidiaries filled the vacancies created by such resignations with two nominees of Mr. Long, John P. Diesel and Richard P. Ackerman; (iii) Mr. Long was nominated to be Chairman of the Board of the Registrant and its subsidiaries, with Mr. Zellars to remain as Chairman of the Executive Committee of the Registrant and its subsidiaries, and Mr. O'Connell to remain as Vice-Chairman of the Registrant and its subsidiaries; and (iv) Mr. Long withdrew his request for a stockholders' list and voted his shares in favor of the slate of director nominees proposed by management.
In December 1991, the Board of Directors of the Registrant authorized an updated form of Indemnity Agreement between the Registrant and its directors and officers and the directors and officers of its subsidiaries. Pursuant to the Indemnity Agreements, and in order to induce continued service by its directors and officers, the Registrant agrees to indemnify the directors and officers for certain claims against such persons arising solely out of their positions as directors and officers of the Registrant or its subsidiaries. Indemnity Agreements have been executed by each of the directors as well as by the officers of the Registrant set forth herein under "Executive Officers of the Registrant."
(a) (1) The following consolidated financial statements of Financial Institutions Insurance Group, Ltd. are included in