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o | No fee required |
þ | Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11. |
(1) | Title of each class of securities to which transaction applies: |
(2) | Aggregate number of securities to which transaction applies: |
(3) | Per unit price or other underlying value of transaction computed pursuant to the Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
(4) | Proposed maximum aggregate value of transaction: |
(5) | Total fee paid: $1,391.09 |
o | Fee paid previously with preliminary materials. |
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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8500 COLLEGE BOULEVARD
• | To consider and vote upon the proposal (the “Merger Proposal”) to adopt the Agreement and Plan of Merger, dated as of August 31, 2007, as amended (the “Merger Agreement”), among Capital, Brooke Corporation, a Kansas corporation (“Brooke Corp.”), and Brooke Franchise Corporation, a Missouri corporation (“Brooke Franchise”). Under the Merger Proposal, Brooke Franchise will be merged with and into Capital, with Capital remaining as the surviving corporation (the “Merger”). | |
• | To consider and vote upon the proposal (the “Exchange Proposal”) to adopt the Exchange Agreement, dated as of August 31, 2007, as amended (the “Exchange Agreement”), among Capital, Delta Plus Holdings, Inc. (“Delta Plus”) and Brooke Corp. Under the Exchange Proposal, Brooke Corp. will contribute to Capital all of the outstanding stock of Delta Plus in exchange for consideration equal to 500,000 shares of Capital common stock, with an opportunity to receive additional shares of Capital common stock pursuant to earn-out provisions in the Exchange Agreement (the “Exchange”). | |
• | To approve an amendment (the “Incentive Plan Amendment”) to the Brooke Capital Corporation 2007 Equity Incentive Plan to increase the total number of shares of common stock that may be awarded under such plan from 400,000 to 2,400,000; and | |
• | The transaction of such other business as may properly come before the Special Meeting and any adjournment(s) or postponement(s) thereof. |
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ANNEX A Merger Agreement and the Amendment Thereto | A-1 | |||
ANNEX B Exchange Agreement and the Amendment Thereto | B-1 | |||
ANNEX C Fairness Opinion to the Independent Directors Committee | B-1 |
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Q. | Why has Capital called this special meeting of stockholders? | |
A. | Under the Merger Proposal, Brooke Capital Corporation (“Capital”), Brooke Corporation (“Brooke Corp”) and Brooke Franchise Corporation (“Brooke Franchise”) have entered into an Agreement and Plan of Merger dated as of August 31, 2007, as amended, that is described in this information statement. This agreement, as amended, is referred to as the Merger Agreement. Under the terms of the Merger Agreement, Brooke Franchise will be merged with and into Capital, whereupon the separate existence of Brooke Franchise will cease, and Capital will be the surviving entity of the Merger and constitute the combined companies. As a result of the Merger, Brooke Corp. will receive at closing merger consideration of 5,000,000 shares of Capital common stock, with an opportunity to receive additional shares of Capital common stock pursuant to a contingent, performance based earn-out based on Capital’s adjusted earnings in fiscal years 2007 and 2008 from operations and using assets of Brooke Franchise as it existed prior to the Merger. To comply with Kansas corporation law, stockholders holding at least a majority of our common stock must approve the Merger Agreement. Under the Exchange Proposal, Capital, Brooke Corp. and Delta Plus Holdings, Inc. (“Delta Plus”) have entered into an Exchange Agreement dated as of August 31, 2007 that is described in this information statement. This agreement is referred to as the Exchange Agreement. Under the terms of the Exchange Agreement, Brooke Corp. will contribute to Capital all of the outstanding stock of Delta Plus in exchange for consideration equal to 500,000 shares of Capital common stock, with an opportunity to receive additional shares of Capital common stock pursuant to earn-out provisions in the Exchange Agreement. To comply with the rules of the American Stock Exchange, stockholders holding at least a majority of our common stock must approve the Exchange Agreement. Capital also proposes an amendment (the “Incentive Plan Amendment”) to the Brooke Capital Corporation 2007 Equity Incentive Plan to increase the total number of shares that may be awarded under the plan from 400,000 to 2,400,000. The Incentive Plan Amendment requires the approval of stockholders holding at least a majority of our common stock. | |
Q. | Why is Capital proposing the Merger? | |
A. | We believe that Brooke Franchise is an attractive target for us because it fits with our strategic objectives since Brooke Franchise is a franchise business that distributes insurance services through a network of more than 800 franchise locations, 1,700 licensed agents and 450 employees and includes non-standard auto insurance companies, through which nearly 40% of Brooke Franchise’s sales commissions are received. Capital’s business plans include the distribution of insurance policies and other compatible services through independent insurance agents. Furthermore, as a public company, Capital is positioned to raise the capital required to increase insurance premium revenues | |
Q. | What is being voted on? | |
A. | There are three proposals on which the Capital stockholders are being asked to vote. The first proposal is to adopt and approve the Merger Agreement and the transactions contemplated thereby. | |
The second proposal is to adopt and approve the Exchange Agreement and the transactions contemplated thereby. | ||
The third proposal is to adopt and approve an amendment to the Brooke Capital Corporation 2007 Equity Incentive Plan to increase the number of shares of Capital common stock issuable pursuant to awards under the Plan from 400,000 to 2,400,000. | ||
Q. | Are the proposals conditioned upon approval of the other proposals? | |
A. | The obligation to close on the Exchange Agreement is subject to the Merger having first been effectuated. | |
Q. | What vote is required in order to adopt the Merger Proposal? | |
A. | The Merger Proposal will be approved upon the affirmative vote of the holders of a majority of the shares of Capital’s common stock present or represented at the meeting. |
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Q. | What vote is required in order to adopt the Exchange Proposal? | |
A. | The Exchange Proposal will be approved upon the affirmative vote of the holders of a majority of the shares of Capital’s common stock present or represented at the meeting. | |
Q. | What vote is required in order to adopt the Incentive Plan Amendment? | |
A. | The approval of the Incentive Plan Amendment will require the affirmative vote of the holders of a majority of the shares of Capital’s common stock present or represented at the meeting. | |
Q. | Does the Capital board recommend voting in favor of the three proposals? | |
A. | Yes. The Capital independent directors committee and board of directors have both carefully considered the terms and conditions of the Merger Agreement, the Exchange Agreement, and the proposal to amend the incentive plan. The independent directors committee has determined that the Merger and the transactions thereby, the Exchange and the transactions contemplated thereby, and the amendment to the incentive plan are fair to the stockholders of Capital other than Brooke Corp. Based on this determination, the Capital directors have determined that the Merger and the transactions contemplated thereby, the Exchange Proposal and the transactions contemplated thereby, and the amendment to the incentive plan are fair to and in the best interests of Capital and its stockholders. The board of directors recommends that Capital stockholders vote for each of (i) the Merger, (ii) the Exchange Proposal, and (iii) the Incentive Plan Amendment. Some of the members of Capital’s board of directors have interests in the Merger Proposal and the Exchange Proposal that are different from, or in addition to, your interests as a stockholder. For a description of such interests and the factors considered by Capital’s board of directors in making its determination with respect to the Merger and the Exchange, please see the section entitled “Item 1: The Merger Proposal — Interests of Capital Directors and Officers in the Proposed Transactions” and the section entitled “Item 1: The Merger Proposal — Reason for Approval of the Merger and the Exchange by the Capital Board of Directors; Recommendations by the Board.” | |
Q. | What will happen in the proposed Merger? | |
A. | As a consequence of the Merger, Brooke Franchise will be merged with and into Capital, and as a result the combined company will continue to be a public company owned by the stockholders of Capital, including Brooke Corp. | |
Q. | What will happen in the proposed Exchange? | |
A. | Upon the closing of the Exchange Agreement, Delta Plus will become a wholly owned subsidiary of Capital. | |
Q. | How does Brooke Corp., our largest stockholder, intend to vote its shares? | |
A. | Brooke Corp., our largest stockholder (holding 1,795,467 shares of our common stock), has advised us that its intends to vote its shares in favor of the Merger Proposal, the Exchange Proposal, and the Incentive Plan Amendment. For that reason, we are not asking you to submit a proxy to vote your shares at the meeting. You are welcome to attend the meeting in person to vote your shares. | |
Q. | What is the consideration for the Merger? | |
A. | As a result of the Merger, at Closing, Brooke Corp. will receive merger consideration of 5,000,000 shares of Capital common stock, with an opportunity to receive additional shares of Capital common stock pursuant to a contingent, performance based earn-out based on Capital’s adjusted earnings in fiscal years 2007 and 2008 from operations and using assets of Brooke Franchise as it existed prior to the Merger. | |
If Capital, excluding earnings from any subsidiaries, has Brooke Franchise-related adjusted earnings, more particularly referred to as Franchise EBITDA, as that term is defined in the Merger Agreement, for fiscal year 2007, equal to or in excess of $7,900,000, Brooke Corp. will receive additional merger consideration equal to 900,000 shares of Capital common stock; provided that, to the extent Franchise EBITDA for fiscal year 2007 exceeds $11,850,000, Brooke Corp. will receive an additional 225,000 shares of Capital common stock (in addition to the 900,000 shares for meeting the $7,900,000 Franchise EBITDA target). |
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If Capital, excluding earnings from any subsidiaries, has Franchise EBITDA for fiscal year 2008, equal to or in excess of $9,900,000, Brooke Corp. will receive additional merger consideration equal to 900,000 shares of Capital common stock; provided that, to the extent Franchise EBITDA for fiscal year 2008 exceeds $14,850,000, Brooke Corp. will receive an additional 225,000 shares of Capital common stock (in addition to the 900,000 shares for meeting the $9,900,000 Franchise EBITDA target). | ||
The merger consideration is subject to equitable adjustment in the event of stock splits, stock dividends, reverse stock splits or other charges on Capital’s outstanding stock. | ||
Q. | What is the consideration for the Exchange? | |
A. | Under the Exchange Agreement, Brooke Corp. will contribute to Capital all of the outstanding stock of Delta Plus in exchange for consideration equal to 500,000 shares of Capital common stock, with an opportunity to receive additional shares of Capital common stock pursuant to an earn-out. | |
If Delta Plus, on a consolidated basis, has Net Income, as defined in the Exchange Agreement, for fiscal year 2007, equal to or in excess of $600,000, Brooke Corp. will receive additional exchange consideration equal to 100,000 shares of Capital common stock; provided that, to the extent Delta Plus’s consolidated Net Income for fiscal year 2007 equals or exceeds $900,000, Brooke Corp. will receive an additional 25,000 shares of Capital common stock (in addition to the 100,000 shares for meeting the $600,000 consolidated Net Income target). If Delta Plus, on a consolidated basis, has Net Income for fiscal year 2008, equal to or in excess of $1,600,000, Brooke Corp. will receive additional merger consideration equal to 100,000 shares of Capital common stock; provided that, to the extent Delta Plus’s consolidated Net Income for fiscal year 2008 equals or exceeds $2,400,000, Brooke Corp. will receive an additional 25,000 shares of Capital common stock (in addition to the 100,000 shares for meeting the $1,600,000 consolidated Net Income target). | ||
Q. | What will our stockholders receive in the proposed Merger and Exchange? | |
A. | Our stockholders will own the combined company if the Merger Proposal is approved. The combined company will own Delta Plus if the Exchange Agreement is effectuated. | |
Q. | Who will manage the combined company after the Merger and Exchange? | |
A. | Under the terms of the Merger Agreement and Exchange Agreement, two executive officers of Brooke Franchise, Kyle L. Garst and Dane Devlin, will become directors of Capital. Subject to board approval, Mr. Garst will become our Chairman of the Board and Chief Executive Officer. Subject to board approval, Mr. Devlin will become our President and Chief Operating Officer. For additional information concerning our anticipated officers and directors following the Merger and Exchange, see the section entitled “Executive Officers, Directors, and Other Information about the Combined Company”. | |
Q. | When do you expect the Merger to be completed? | |
A. | The closing of the Merger will take place promptly following the satisfaction of the conditions described under the section entitled, “The Merger Agreement — Conditions to the Closing of the Merger,” unless Capital and Brooke Corp. agree in writing to another time. The Merger is expected to be consummated within two (2) business days following the approval of the Merger at the Special Meeting. | |
Q. | When do you expect the Exchange to be completed? | |
A. | Subject to receipt of regulatory approval, the Exchange Agreement is expected to be closed shortly after the Merger is effectuated. | |
Q. | What do I need to do now? | |
A. | Capital urges you to read carefully and consider the information contained in this information statement, including the exhibits, and to consider how the Merger and Exchange will affect you as a stockholder of Capital. |
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Q. | What are the federal income tax consequences of the Merger and the Exchange to Capital and its stockholders? | |
A. | For federal income tax purposes, it is intended that the Merger will constitute a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code and this discussion assumes that the Merger will be treated as such. Holders of Capital stock will not recognize any gain or loss for federal income tax purposes as a result of the Merger. No gain or loss will be recognized by Capital pursuant to or as a result of the Merger. | |
For federal income tax purposes, it is intended that the Exchange will constitute a tax-free transaction pursuant to Section 351(a) of the Internal Revenue Code and this discussion assumes that the Exchange will be treated as such. Holders of Capital stock will not recognize any gain or loss for federal income tax purposes as a result of the Exchange. No gain or loss will be recognized by Capital pursuant to or as a result of the Exchange. | ||
For a description of the material federal income tax consequences of the Merger and the Exchange, respectively, please see the information set forth in “Item 1: The Merger Proposal — Material Federal Income Tax Consequences Of The Merger.” and “Item 2: The Exchange Proposal — Material Federal Income Tax Consequences Of The Exchange.” | ||
Q. | Who can help answer my questions? | |
A. | If you have questions about the Merger, the Exchange, or the Incentive Plan Amendment or if you need additional copies of the information statement you should contact William Morton, Chief Financial Officer of Capital at billmorton@brookeagent.com or by calling (913) 383-9700 x4532. | |
You may also obtain additional information about Capital from documents filed with the SEC by following the instructions in the section entitled “Where You Can Find More Information.” |
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• | The Merger Proposal to adopt the Agreement and Plan of Merger, dated as of August 31, 2007, as amended (the “Merger Agreement”), among Capital, Brooke Corp. and Brooke Franchise, and the approval of the transactions contemplated thereby; | |
• | The Exchange Proposal to adopt the Exchange Agreement, dated as of August 31, 2007, as amended (the “Exchange Agreement”), among Capital, Brooke Corp. and Delta Plus, and the approval of the transactions contemplated thereby; and | |
• | The Incentive Plan Amendment to increase the number of shares that may be awarded under such plan from 400,000 to 2,400,000. |
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• | The representations and warranties of Brooke Corp. and Brooke Franchise contained in the Merger Agreement shall be true and correct as of the Closing Date as though made at that time (without regard to any “material” or “materiality” qualifiers or qualifications for a “Company Material Adverse Effect”, and except for those representations and warranties that speak as to a stated date, in which case such representation and warranty shall be true and correct as of such date), except to the extent that the failure of the representations and warranties, taken as a whole, to be true and correct would not reasonably be expected to have a Company Material Adverse Effect, to materially delay the Closing or to materially and adversely affect the ability of Brooke Corp. and Brooke Franchise to consummate the Merger and related transactions. |
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• | All covenants, agreements and obligations required by the terms of the Merger Agreement to be performed, satisfied or complied with by Brooke Corp. and Brooke Franchise, at or before the Closing Date shall have been duly and properly performed and complied with in all material respects. | |
• | There shall be no order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority that prohibits the transactions contemplated in the Merger Agreement or renders it unlawful to consummate such transactions. | |
• | Capital shall have distributed this Information Statement to its stockholders. | |
• | The independent directors and the board of directors of Capital shall have duly approved the Merger Agreement and all transactions contemplated thereby, and Capital shall have obtained the approval by majority vote of its stockholders. | |
• | All approvals, consents and waivers of all persons and authorities that are required to effect the transactions contemplated in the Merger Agreement shall have been received, and executed counterparts thereof shall have been delivered to Capital not less than two business days prior to the Closing. | |
• | No litigation shall have been commenced or threatened against Capital, Brooke Corp., Brooke Franchise, or any of the affiliates, officers or directors of any of them, with respect to the Merger or related transactions, which, in the reasonable judgment of counsel to Capital, could have a Company Material Adverse Effect or prevent consummation of the Merger or related transactions. | |
• | There shall not have occurred since December 31, 2006 any event, circumstance or condition that has had, or could reasonably be expected to have, a Company Material Adverse Effect. | |
• | The fairness opinion received by the Independent Directors Committee of Capital on August 31, 2007 from Duff & Phelps shall not have been changed, modified or withdrawn on or before the Closing Date; | |
• | Capital shall have received the Solvency Opinion, as defined in the Merger Agreement, satisfactory to the Independent Directors Committee and the Board of Directors of Capital in its and their sole discretion, confirming the Solvency, as defined in the Merger Agreement, of Brooke Franchise, on a consolidated basis immediately prior to the transactions contemplated in the Merger Agreement and the Solvency of Capital on a consolidated basis immediately after the transactions contemplated by Merger Agreement. | |
• | Capital shall have received from the other parties each of the deliverables to be provided pursuant to the Merger Agreement. | |
• | Brooke Corp. shall have paid in cash to Brooke Franchise an amount equal to the Parent Receivable, as defined in the Merger Agreement, valued on and as of the Closing Date. | |
• | The board of directors of Brooke Franchise, and Brooke Corp. in Brooke Corp.’s capacity as stockholder of Brooke Franchise, shall have duly approved the Merger Agreement and all transactions contemplated therein, and the board of directors of Brooke Corp. shall have duly approved the Merger Agreement and all transactions contemplated therein. | |
• | Brooke Franchise must have Net Working Capital, shown on the Closing Balance Sheet, of no less than $22,800,000. |
• | The representations and warranties of Capital on the other hand, contained in the Merger Agreement shall be true and correct as of the Closing Date as though made at that time (without regard to any “material” or “materiality” qualifiers or qualifications for a “Capital Material Adverse Effect” on the other hand, and except for those representations and warranties that speak as to a stated date, in which case such representation and warranty shall be true and correct as of such date), except to the extent that the failure |
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of the representations and warranties, taken as a whole, to be true and correct would not reasonably be expected to have a Capital Material Adverse Effect, to materially delay the Closing or to materially and adversely affect the ability of Capital to consummate the Merger and related transactions. |
• | All covenants, agreements and obligations required by the terms of the Merger Agreement to be performed, satisfied or complied with by Capital, at or before the Closing Date, shall have been duly and properly performed and complied with in all material respects. | |
• | There shall be no order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority that prohibits the transactions contemplated in the Merger Agreement or renders it unlawful to consummate such transactions. | |
• | The board of directors of Brooke Franchise, and Brooke Corp. in Brooke Corp.’s capacity as stockholder of Brooke Franchise, shall have duly approved the Merger Agreement and all transactions contemplated therein, and the board of directors of Brooke Corp. shall have duly approved the Merger Agreement and all related transactions. | |
• | All approvals, consents and waivers of all persons and authorities that are required to effect the transactions contemplated in the Merger Agreement shall have been received, and executed counterparts thereof shall have been delivered to Brooke Corp. and Brooke Franchise not less than two business days prior to the Closing. | |
• | No litigation shall have been commenced or threatened against Capital, Brooke Corp., Brooke Franchise, or any of the affiliates, officers or directors of any of them, with respect to the Merger or related transactions, which, in the reasonable judgment of counsel to Brooke Corp., could have a Company Material Adverse Effect or prevent consummation of the Merger or related transactions. | |
• | Brooke Corp. and Brooke Franchise shall have received from the other parties each of the deliverables to be provided pursuant to the Merger Agreement. | |
• | There shall not have occurred since December 31, 2006 any event, circumstance or condition that has had, or could reasonably be expected to have, a Capital Material Adverse Effect. | |
• | The Articles of Incorporation of Capital shall not have been amended to provide for cumulative voting rights, classification of directors, diminution of the rights of any controlling stockholder or extraordinary treatment of minority stockholders or management members. | |
• | Brooke Corp. shall have paid any and all amounts owed to Brooke Franchise and Brooke Franchise shall have paid any and all amounts owed to Brooke Corp. | |
• | Brooke Franchise shall have executed and delivered to Brooke Corp. an Amended and Restated Servicing and Tax Allocation Agreement. Among other provisions, the Amended and Restated Servicing and Tax Allocation Agreement shall provide for: (i) a monthly fee of zero dollars ($00); (ii) the continuation of specified services during a transition period ending on December 31, 2007; and (iii) for the reimbursement by Brooke Franchise to Brooke Corp. of all out of pocket expenses reasonably incurred by Brooke Corp. in connection with the operations of the Company or the support provided by Brooke Corp. to Brooke Franchise. | |
• | The opinion from the investment bank of national reputation that the transaction contemplated by Merger Agreement is entirely fair to the shareholders of Brooke Corp. that was received by Brooke Corp. immediately prior to the signing of the Merger Agreement shall remain in effect and such investment bank shall have confirmed same in writing on and as of the Closing Date. | |
• | Brooke Corp. shall have received a solvency opinion, satisfactory to its Board of Directors in its sole discretion, confirming the Solvency, as defined in the Merger Agreement, of Brooke Franchise, on a consolidated basis immediately prior to the transactions contemplated in the Merger Agreement and the Solvency of Capital on a consolidated basis immediately after the transactions contemplated by Merger Agreement. |
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• | Brooke Franchise shall have declared and paid the Parent Dividend, as defined in Merger Agreement. | |
• | Brooke Corp. shall have received a written opinion, in form and substance reasonably acceptable to the Brooke Corp. and its legal counsel, issued by legal counsel to Capital that the shares constituting the Initial Merger Consideration under the Merger Agreement have been duly authorized, validly issued, and are fully paid and nonassessable. |
• | By the mutual written consent of Capital and Brooke Corp.; | |
• | By either Capital or Brooke Corp. by written notice to the other party if the Closing shall not have occurred on or before December 31, 2007; provided, however, that such termination may not be effectuated if the failure to consummate the transactions contemplated in the Merger Agreement prior to the December 31, 2007 date is the direct or indirect result of any breach of any covenant, representation or warranty of such party or because any of the conditions precedent to the obligations of the other party have not been satisfied due to any action or failure to act by the party seeking termination; | |
• | By Capital, by prior written notice to Brooke Corp., if Brooke Corp. or Brooke Franchise shall fail to perform in any material respect any material obligation of Brooke Corp. or Brooke Franchise herein required to be performed prior to the Closing Date and such failure is not cured within thirty (30) days after Capital has notified Brooke Corp. of its intent to terminate for such failure; | |
• | By Brooke Corp., by prior written notice to Capital, if Capital shall fail to perform in any material respect any material obligation of Capital herein required to be performed prior to the Closing Date and such failure is not cured within thirty (30) days after Brooke Corp. has notified Capital of its intent to terminate for such failure; or | |
• | By Brooke Corp., if Brooke Corp. has not received the Fairness Opinion specified in Section 7.13 of the Merger Agreement, indicating that the transactions contemplated in the Merger Agreement are not entirely fair to all of the shareholders of Brooke Corp., on or before December 31, 2007. |
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• | The representations and warranties of Brooke Corp. and Delta Plus, contained in the Exchange Agreement, shall be true and correct as of the Closing Date as though made at that time (without regard to any “material” or “materiality” qualifiers or qualifications for a “Company Material Adverse Effect,” and except for those representations and warranties that speak as to a stated date, in which case such representation and warranty shall be true and correct as of such date), except to the extent that the failure of the representations and warranties, taken as a whole, to be true and correct would not reasonably be expected to have a Company Material Adverse Effect, to materially delay the Closing or to materially and adversely affect the ability of Brooke Corp. and Delta Plus to consummate the Exchange and related transactions. | |
• | All covenants, agreements and obligations required by the terms of the Exchange Agreement to be performed, satisfied or complied with by Brooke Corp. and Delta Plus, at or before the Closing Date, shall have been duly and properly performed and complied with in all material respects. | |
• | There shall be no order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority that prohibits the transactions contemplated in the Exchange Agreement or renders it unlawful to consummate such transactions. | |
• | Capital shall have received the Solvency Opinion, as defined in the Exchange Agreement, satisfactory to the Independent Directors Committee and the Board of Directors of Capital in its and their sole discretion, confirming the Solvency, as defined in the Exchange Agreement, of Delta Plus, on a consolidated basis immediately prior to the transactions contemplated in the Exchange Agreement and the Solvency of Capital on a consolidated basis immediately after the transactions contemplated by Exchange Agreement. | |
• | The independent directors and the board of directors of Capital shall have duly approved the Exchange Agreement and all transactions contemplated thereby, and Capital shall have obtained the approval by majority vote of its stockholders. | |
• | All approvals, consents and waivers of all persons and authorities that are required to effect the transactions contemplated hereby shall have been received, and executed counterparts thereof shall have been delivered to Capital, not less than two business days prior to the Closing. | |
• | No litigation shall have been commenced or threatened against Capital, Brooke Corp., Delta Plus, or any of the affiliates, officers or directors of any of them, with respect to the Merger or related transactions, which, in the reasonable judgment of counsel to Capital, could have a Company Material Adverse Effect or prevent consummation of the Exchange or related transactions. | |
• | There shall not have occurred since December 31, 2006 any event, circumstance or condition that has had, or could reasonably be expected to have, a Company Material Adverse Effect. | |
• | The fairness opinion received by the Independent Directors Committee of Capital on August 31, 2007 from Duff & Phelps shall not have been changed, modified or withdrawn on or before the Closing Date. | |
• | Capital shall have received from the other parties each of the deliverables to be provided pursuant to the Exchange Agreement. | |
• | The boards of directors of Delta Plus and Brooke Corp., in Brooke Corp.’s capacity as stockholder of Delta Plus, shall have duly approved the Exchange Agreement and all transactions contemplated therein, and the board of directors of Brooke Corp. shall have duly approved the Exchange Agreement and all related transactions. | |
• | Delta Plus on a consolidated basis must have Tangible Book Value on and as of the Closing Date that is equal to or great than zero, and Brooke Corp. shall have made any necessary cash contribution to Delta Plus to ensure said level of Tangible Book Value. |
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• | The representations and warranties of Capital, contained in the Exchange Agreement, shall be true and correct as of the Closing Date as though made at that time (without regard to any “material” or “materiality” qualifiers or qualifications for a “Capital Material Adverse Effect”, and except for those representations and warranties that speak as to a stated date, in which case such representation and warranty shall be true and correct as of such date), except to the extent that the failure of the representations and warranties, taken as a whole, to be true and correct would not reasonably be expected to have a Capital Material Adverse Effect, to materially delay the Closing or to materially and adversely affect the ability of Capital to consummate the Exchange and related transactions. | |
• | All covenants, agreements and obligations required by the terms of the Exchange Agreement to be performed, satisfied or complied with by Capital, on or before the Closing Date, shall have been duly and properly performed and complied with in all material respects. | |
• | There shall be no order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority that prohibits the transactions contemplated by the Exchange Agreement or renders it unlawful to consummate such transactions. | |
• | The boards of directors of Delta Plus and Brooke Corp., in Brooke Corp.’s capacity as stockholder of Delta Plus, shall have duly approved the Exchange Agreement and all transactions contemplated therein, and the board of directors of Brooke Corp. shall have duly approved the Exchange Agreement and all related transactions. | |
• | All approvals, consents and waivers of all persons and authorities that are required to effect the transactions contemplated hereby shall have been received, and executed counterparts thereof shall have been delivered to Brooke Corp. and Delta Plus, not less than two business days prior to the Closing. | |
• | No litigation shall have been commenced or threatened against Capital, Brooke Corp., Delta Plus, or any of the affiliates, officers or directors of any of them, with respect to the Merger or related transactions, which, in the reasonable judgment of counsel to Brooke Corp., could have a Company Material Adverse Effect or prevent consummation of the Exchange or related transactions. | |
• | Brooke Corp. shall have received from the other parties each of the deliverables to be provided pursuant to the Exchange Agreement. | |
• | Delta Plus shall have paid in cash to Brooke Corp. an amount equal to the Parent Payable, as defined in the Exchange Agreement, valued on and as of the Closing Date. | |
• | There shall not have occurred since December 31, 2006 any event, circumstance or condition that has had, or could reasonably be expected to have, a Capital Material Adverse Effect. | |
• | The Articles of Incorporation of Capital shall not have been amended to provide for cumulative voting rights, classification of directors, diminution of the rights of any controlling stockholder or extraordinary treatment of minority stockholders or management members. | |
• | Brooke Corp. shall have paid any and all amounts owed to Delta Plus and Delta Plus shall have paid any and all amounts owed to Brooke Corp. | |
• | Brooke Corp. shall have received the Solvency Opinion, as defined in the Exchange Agreement, satisfactory to its Board of Directors, in its sole discretion, confirming the Solvency, as defined in the Exchange Agreement, of Delta Plus, on a consolidated basis immediately prior to the transactions contemplated in the Exchange Agreement and the Solvency of Capital on a consolidated basis immediately after the transactions contemplated by Exchange Agreement. | |
• | The opinion from the investment bank of national reputation that the transaction contemplated by Exchange Agreement is entirely fair to the shareholders of Brooke Corp. that was received by Brooke Corp. |
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immediately prior to the signing of the Exchange Agreement shall remain in effect and such investment bank shall have confirmed same in writing on and as of the Closing Date. |
• | Delta Plus, on a consolidated basis shall have a Tangible Book Value, as defined in the Exchange Agreement, that is equal to or greater than zero on and as of the Closing Date. | |
• | The transactions contemplated by and in the Merger Agreement shall have been consummated. | |
• | Brooke Corp. shall have received a written opinion, in form and substance reasonably acceptable to the Brooke Corp. and its legal counsel, issued by legal counsel to Capital that the shares constituting the Initial Exchange Consideration under the Exchange Agreement have been duly authorized, validly issued, and are fully paid and nonassessable. |
• | By the mutual written consent of Capital and Brooke Corp.; | |
• | By either Capital or Brooke Corp., by written notice to the other party if the Closing shall not have occurred on or before December 31, 2007; provided, however, that such termination may not be effectuated if the failure to consummate the transactions contemplated in the Exchange Agreement prior to the December 31, 2007 date is the direct or indirect result of any breach of any covenant, representation or warranty of such party or because any of the conditions precedent to the obligations of the other party have not been satisfied due to any action or failure to act by the party seeking termination; | |
• | By Capital, by prior written notice to Brooke Corp., if Brooke Corp. or Delta Plus shall fail to perform in any material respect any material obligation of Brooke Corp. or Delta Plus required in the Exchange Agreement to be performed prior to the Closing Date and such failure is not cured within thirty (30) days after Capital has notified Brooke Corp. of its intent to terminate for such failure; | |
• | By Brooke Corp., by prior written notice to Capital, if Capital shall fail to perform in any material respect any material obligation of Capital required in the Exchange Agreement to be performed prior to the Closing Date and such failure is not cured within thirty (30) days after Brooke Corp. has notified Capital of its intent to terminate for such failure; or | |
• | By Brooke Corp., if Brooke Corp. has not received the Fairness Opinion specified in the Exchange Agreement, indicating that the transactions contemplated by the Exchange Agreement are not entirely fair to all of the shareholders of Brooke Corp., on or before December 31, 2007. |
• | Brooke Franchise is a franchise business that distributes insurance services through a network of more than 800 franchise locations, 1,700 licensed agents and 450 employees. | |
• | The value of Brooke Franchise is its insurance agency distribution system of more than 800 franchise locations, 1,700 licensed agents and 450 employees. Brooke Franchise proposes to increase its profit margins by combining its insurance agency distribution system with insurance companies so it can increase profit margins by receiving a larger share of insurance premiums by generating underwriting profits in addition to receiving sales commissions. | |
• | Nearly 40% of Brooke Franchise’s sales commissions are received from non-standard auto insurance companies. Traders Insurance Company, a wholly owned subsidiary of Delta Plus, primarily issues non-standard auto insurance policies but requires additional capital to support significant increases in insurance premium revenues. |
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• | Capital’s business plans include the distribution of insurance policies and other compatible services through independent insurance agents. Furthermore, as a public company, Capital is positioned to raise the capital required to increase insurance premium revenues. |
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For the | For the | |||||||||||||||||||||||||||
Six Months | Six Months | |||||||||||||||||||||||||||
Ended | Ended | Year Ended December 31, | ||||||||||||||||||||||||||
06/30/07 | 06/30/06 | 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Total operating revenues | $ | 7,043 | $ | 2,515 | $ | 6,162 | $ | 4,861 | $ | 4,697 | $ | 4,314 | $ | 4,159 | ||||||||||||||
Net income (loss) | 1,732 | (124 | ) | 756 | (701 | ) | (233 | ) | (486 | ) | (547 | ) | ||||||||||||||||
Total investments | 22,440 | 16,215 | 18,027 | 17,912 | 14,633 | 12,883 | 11,587 | |||||||||||||||||||||
Total assets | 36,786 | 25,860 | 31,257 | 26,678 | 22,955 | 20,679 | 18,747 | |||||||||||||||||||||
Total policy and contract liabilities | 23,692 | 18,354 | 20,184 | 16,242 | 11,288 | 8,418 | 5,733 | |||||||||||||||||||||
Shareholders’ equity | 11,302 | 6,783 | 10,258 | 7,323 | 8,967 | 9,429 | 9,895 |
For the | For the | |||||||||||||||||||||||||||
Six Months | Six Months | |||||||||||||||||||||||||||
Ended | Ended | Year Ended December 31, | ||||||||||||||||||||||||||
06/30/07 | 06/30/06 | 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Total operating revenues | $ | 84,820 | $ | 73,614 | $ | 142,348 | $ | 119,018 | $ | 85,283 | $ | 53,171 | $ | 115 | ||||||||||||||
Net income (loss) | 2,348 | 3,513 | 2,422 | 4,766 | �� | 6,332 | 2,363 | (32 | ) | |||||||||||||||||||
Accounts receivable | 15,128 | 13,549 | 18,082 | 9,590 | 4,545 | 2,505 | — | |||||||||||||||||||||
Total assets | 81,945 | 63,251 | 63,043 | 58,141 | 47,300 | 25,277 | 1,098 | |||||||||||||||||||||
Debt | 37,981 | 26,736 | 28,337 | 27,167 | 25,773 | 13,364 | — | |||||||||||||||||||||
Shareholders’ equity | 22,328 | 21,072 | 19,980 | 17,558 | 9,792 | 3,460 | 1,097 |
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For the | ||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||
Ended | Year Ended December 31, | |||||||||||||||||||||||
06/30/07 | 2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Total operating revenues | $ | 8,023 | $ | 15,706 | $ | 14,376 | $ | 14,176 | $ | 13,746 | $ | 13,287 | ||||||||||||
Net income | 97 | 56 | 243 | 961 | 993 | 81 | ||||||||||||||||||
Total investments | 9,219 | 9,210 | 8,716 | 7,775 | 7,813 | 6,615 | ||||||||||||||||||
Total assets | 21,789 | 20,075 | 18,708 | 18,987 | 17,893 | 16,167 | ||||||||||||||||||
Loss and loss adjustment reserve | 7,898 | 7,749 | 7,221 | 6,836 | 6,242 | 6,459 | ||||||||||||||||||
Shareholders’ equity (deficit) | 877 | 1,268 | 1,239 | 1,123 | 217 | (746 | ) |
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For the Six Months Ended | For the Year Ended | |||||||
June 30, 2007 | December 31, 2006 | |||||||
(In thousands, except per share data) | ||||||||
Total operating revenues | $ | 99,886 | $ | 164,216 | ||||
Net income | 4,177 | 3,234 |
For the Six Months Ended | For the Year Ended | |||||||||||||||
June 30, 2007 | December 31, 2006 | |||||||||||||||
Maximum | Minimum | Maximum | Minimum | |||||||||||||
Shares | Shares | Shares | Shares | |||||||||||||
Basic earnings per share | $ | 0.41 | $ | 0.47 | $ | 0.37 | $ | 0.44 | ||||||||
Diluted earning per share | $ | 0.31 | $ | 0.38 | $ | 0.26 | $ | 0.33 |
For the Six Months Ended | ||||||||
June 30, 2007 | ||||||||
Maximum | Minimum | |||||||
Shares* | Shares** | |||||||
Total assets | $ | 116,805 | $ | 116,805 | ||||
Total Debt | 40,517 | 40,517 | ||||||
Shareholders’ equity | 13,388 | 13,388 |
* | Assumes maximum number of shares issued based on earn out provisions. | |
** | Assumes minimum number of shares issued based on earn out provisions. |
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Historical for the | Pro Forma for the | Historical for the | Pro Forma for the | |||||||||||||||||||||
Six Months Ended | Six Months Ended | Year Ended | Year Ended | |||||||||||||||||||||
June 30, 2007 | June 30, 2007 | December 31, 2006 | December 31, 2006 | |||||||||||||||||||||
Brooke | Maximum | Minimum | Brooke | Maximum | Minimum | |||||||||||||||||||
Capital | Shares | Shares | Capital | Shares | Shares | |||||||||||||||||||
Basic EPS | $ | 0.57 | $ | 0.41 | $ | 0.47 | $ | 0.50 | $ | 0.37 | $ | 0.44 | ||||||||||||
Diluted EPS | 0.57 | 0.31 | 0.38 | 0.39 | 0.26 | 0.33 | ||||||||||||||||||
Shares used to compute basic EPS | 3,063,890 | 10,203,890 | 8,953,890 | 1,497,638 | 8,637,638 | 7,387,638 | ||||||||||||||||||
Shares used to compute diluted EPS | 3,063,890 | 13,463,890 | 10,963,890 | 1,958,672 | 12,358,672 | 9,858,672 |
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• | the nomination, election and removal of our Board of Directors; | |
• | the adoption of amendments to our charter documents; | |
• | our management and policies; and | |
• | the outcome of any corporate transaction or other matter submitted to our stockholders for approval, including mergers, consolidations and sale of all or substantially all of our assets. |
• | that losses of one member of the group may be used to offset the income or gains of other members of the group during the consolidated return year; | |
• | dividends received by members of the group from other members are generally not included in the gross income of the distributee and are, therefore, not subject to tax; |
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• | if some members of the group have sold goods to, or performed services for, other members of the group, which the other members have capitalized, the profits on such transactions may be deferred until a later period; and | |
• | the tax basis of a subsidiary’s stock owned by another member of the group is adjusted to reflect the subsidiary’s distributions and taxable income or loss, certain tax-exempt income, and noncapital, nondeductible items taken into account for the period that subsidiary is a member of the consolidated group. |
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Amount of | ||||||||||
Name and Address of Beneficial Owner | Status of Holder | Beneficial Ownership | Percent of Class(1) | |||||||
Brooke Corporation(2) | Beneficial Owner | 1,795,467 | 52 | % | ||||||
10959 Grandview, Suite 600 Overland Park, KS 66210 | ||||||||||
Robert Orr(3) | Director, Officer, | 1,795,467 | 52 | % | ||||||
210 West State Street | Beneficial Owner | |||||||||
Phillipsburg, KS 67661 | ||||||||||
Paul E. Burke, Jr. | Director | 26,666 | * | |||||||
2009 Camelback Drive Lenexa, KS 66047 | ||||||||||
Keith E. Bouchey | Director | 10,000 | * | |||||||
9820 Metcalf, Suite 110 Overland Park, KS 66212 | ||||||||||
Richard E. Gill | Director | 10,000 | * | |||||||
215 West Main Street Cherryvale, KS 67335 | ||||||||||
William R. Morton, Jr. | Officer | 10,000 | * | |||||||
8500 College Boulevard Overland Park, KS 66210 | ||||||||||
Michael S. Hess | Director, Officer, | |||||||||
8500 College Boulevard | Beneficial Owner | 250,000 | 7 | % | ||||||
Overland Park, KS 66210 | ||||||||||
All Directors and Officers as a Group (6 persons) | 2,119,133 | 61 | % |
* | Indicates less than 1% ownership. | |
(1) | All percentages represent the total number of shares as beneficially owned by the individual, group, or entity or as a percentage of (i) 3,475,817 shares of common stock issued and outstanding as of the Record Date, plus (ii) any shares that the individual, group, or entity has the right to purchase within 60 days after such date pursuant to the exercise of a vested stock option, warrants, conversion privileges or other rights. | |
(2) | As of the Record Date, Brooke owned directly 1,795,467 shares of Capital common stock that represents approximately 52% of the shares then outstanding. As of that date, a group consisting of Brooke Holdings, Inc., Robert D. Orr, Leland S. Orr, Anita F. Larson, Michael S. Lowry, and Kyle T. Garst beneficially owned these shares. | |
(3) | As of the Record Date, Robert D. Orr owned 65.45% of the common stock of Brooke Holdings, Inc. Brooke Holdings, Inc. in turn owned, as of that date, 41.13% of Brooke Corp. Brooke Holdings, Inc. and the following executive officers of Brooke and/or its subsidiaries: Robert D. Orr, Leland S. Orr, Anita F. Larson, Michael S. Lowry and Kyle L. Garst have orally agreed to vote their shares of Brooke Corp. common stock together and, as a group, beneficially owned 45.37% of the shares of Brooke Corp. common stock on the Record Date. Based on Robert D. Orr’s ownership of Brooke Holdings, Inc. and his and Brooke Holdings, Inc.’s participation in the group, Robert D. Orr is deemed to beneficially own 1,778,801 shares of Capital common stock. |
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• | improve retention and performance of Brooke Franchise’s management by providing a substantial direct ownership stake in their business through an incentive stock compensation plan, | |
• | as a franchisor, Brooke Franchise is an entrepreneurial organization with entrepreneurial managers that are more likely to succeed if their companies’ performance is directly tied to their personal wealth, | |
• | separating Brooke Corp’s insurance agency activities, conducted through Brooke Franchise, from its finance company activities, conducted through Brooke Credit Corporation, simplifies and clarifies Brooke Corp’s business and allows investors to more easily compare valuations for these separate business activities with other similar businesses, | |
• | as a public company, Brooke Franchise provides its shareholders, including Brooke Corp, with more liquidity and therefore more ownership flexibility, | |
• | as a public company, Brooke Franchise has more access to capital markets, which allows Brooke Corp to diversify its investment risk in Brooke Franchise without selling shares. |
• | Brooke Franchise could increase its profit margins by combining with an auto insurance company and thereby receive a larger share of insurance premiums by receiving underwriting profits in addition to sales commissions, | |
• | a significant portion of the non-standard auto insurance policies sold by Brooke Franchise’s insurance agents could be transferred with minimal disruption for agents to an insurance company with which Brooke Franchise is allied, | |
• | an alliance by Brooke Franchise with a non-standard auto insurance company is not expected to jeopardize its relationship with other standard insurance companies with which Brooke Franchise does business. |
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• | an alliance with Brooke Franchise significantly expands the distribution opportunities of First Life America Corporation, the life insurance company subsidiary of Capital, | |
• | Brooke Capital Advisors, the consulting and brokerage subsidiary of Capital, has expertise in capitalizing property and casualty insurance companies as proposed by Brooke Franchise, | |
• | a merger with Brooke Franchise will significantly increase the market capitalization of Capital, which should correspondingly generate investor interest and capital raising opportunities with more than 800 insurance agency locations, 1,700 licensed agents and 450 employees, Brooke Franchise represents significant insurance distribution opportunities, | |
• | by combining with Brooke Franchise, Capital acquires significant management depth and experience. |
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• | its knowledge of Capital’s business operations, financial condition, earnings and prospects and of the business operations, financial condition, earnings and prospects of Brooke Franchise and Delta Plus; | |
• | its knowledge of the property and casualty insurance businesses, including continuing trends of consolidation, decrease in third-party commission payments, increased operating costs, and increased nationwide competition; | |
• | its belief that the combined company would be in a better position to market and distribute the life insurance products of the combined company, by enhanced distribution through the Brooke Franchise insurance agency distribution system, and to market the loan brokerage services of the combined company; | |
• | its belief that the four business segments of the combined company (insurance agency franchising, non-standard automobile insurance, life insurance, and loan brokerage services) offers superior diversification as compared with Capital’s current product offerings (life insurance and loan brokerage services); | |
• | its belief that the combined company will be in a position to benefit from offering propriety non-standard automobile insurance through increased insurance premium revenues; | |
• | its belief that the increased market capitalization provided by the combined company offers an opportunity for increased stockholder liquidity; | |
• | the financial analysis and presentation of D&P to the Independent Directors Committee and its opinion, dated August 31, 2007, to the effect that as of that date and subject to the assumptions, qualifications and limitations set forth in its opinion, consideration to be paid by Capital pursuant to the Merger Agreement and the Exchange Agreement was fair, from a financial point of view, to Capital; | |
• | the final terms and conditions of the Merger Agreement and the Exchange Agreement, as materially enhanced over the terms first proposed, and the Committee’s assessment of the likelihood that the Merger would be completed in a timely manner and that the management team of the combined company would be able to successfully integrate and operate the businesses of the combined company after the Merger and the Exchange ; and | |
• | regulatory and other approvals required in connection with the Merger and the Exchange and the likelihood regulatory approvals will be received in a timely manner and without unacceptable conditions. |
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• | the potential for a negative impact on the market price of Capital’s stock; | |
• | the potential risk of diverting management’s focus and resources from other strategic opportunities and from operational matters while working to implement the Merger and the Exchange; | |
• | the substantial Merger and Exchange-related restructuring charges; | |
• | that either the Merger or the Exchange, or both, might not receive necessary regulatory approvals and clearances to complete the transactions; | |
• | the risks related to the structure of the proposed transactions described under “Risk Factors — Risk Related to the Structure of the Proposed Transactions”; | |
• | the risks related to Brooke Franchise and its business described under “Risk Factors — Risks Related to Our Franchise Business Segment”; and | |
• | the risks related to Delta Plus and its business described under “Risk Factors — Risks Related to Our Non-Standard Insurance Segment”. |
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• | proper corporate organization, foreign qualifications and similar corporate matters; | |
• | the authorization, performance and enforceability of the Merger Agreement; | |
• | the capitalization of Brooke Franchise and its subsidiaries; | |
• | the absence of violation of any applicable law or any agreement to which Brooke Corp. or Brooke Franchise is a party; | |
• | that the transactions contemplated in the Merger Agreement will not disable Brooke Franchise’s ability to operate its business post-Closing consistent with past practice; | |
• | financial statements and related information including representation on Net Working Capital at Closing; | |
• | absence of undisclosed liabilities and encumbrances; | |
• | taxes; | |
• | absence of brokers or finders; | |
• | absence of an untrue statement of material fact or material omission necessary to make the representations and warranties not misleading; | |
• | the compliance with the rules and regulations of the SEC in all Brook Franchise and Brooke Corp. filings since January 1, 2004; | |
• | acquisition for own account; | |
• | absence of certain changes; | |
• | absence of litigation and administrative actions; | |
• | compliance with laws; | |
• | title to and condition of properties, including all equipment and real properties; | |
• | insurance; | |
• | contracts and commitments; |
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• | labor matters; | |
• | employee and employee benefits matters; and | |
• | intellectual property. |
• | proper corporate organization, foreign qualifications and similar corporate matters; | |
• | the authorization, performance and enforceability of the Merger Agreement; | |
• | the capitalization of Capital and its subsidiaries; | |
• | the absence of violation of any applicable law or any agreement to which Capital is a party; | |
• | SEC reports; | |
• | financial statements and related information; | |
• | absence of undisclosed liabilities; | |
• | taxes; | |
• | absence of brokers or finders; | |
• | absence of an untrue statement of material fact or material omission necessary to make the representations and warranties not misleading; | |
• | acquisition for own account; | |
• | continuity of the business enterprise of Brooke Franchise; | |
• | absence of certain changes; | |
• | absence of litigation and administrative actions; | |
• | compliance with laws; | |
• | title to and condition of properties, including all equipment and real properties; | |
• | insurance; | |
• | contracts and commitments; | |
• | labor matters; | |
• | employee and employee benefits matters; and | |
• | intellectual property. |
• | amend its organizational documents; | |
• | authorize or issue any shares of capital stock or any subscription, option, warrant, call right, preemptive right or other agreement or commitment obligation to issue, sell, deliver or transfer any interest or security in it; | |
• | other than declaration and payment of the Parent Dividend and payment of the Parent Receivable, sell, transfer or agree to sell or transfer any assets other than in the ordinary course of business; |
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• | acquire any assets except in the ordinary course of business, or merge with any other entity; | |
• | create or incur any material encumbrance of any kind on any assets or properties; | |
• | change any financial or tax accounting practice, policy or method, make or revoke any election relating to taxes, file any amended tax return or claim for refund, or settle any material claim relating to taxes; | |
• | violate or breach any material contract; | |
• | make any loan, advance or capital contribution to or investment in any other entity or person other than in the ordinary course of business; | |
• | incur any indebtedness or enter into any guarantee of indebtedness, or incur any other material liability or obligation other than in the ordinary course of business; | |
• | other than in the ordinary course of business, cancel or forgive any material debts or claims or redeem or repay any indebtedness for borrowed money; | |
• | take any action that would prevent the Merger from qualifying as a reorganization under the Internal Revenue Code; or | |
• | authorize, permit or agree to take any of the foregoing actions. |
• | Capital and Brooke Corp. shall provide access to the other to all its and its subsidiaries’ respective properties, books, records, and employees, for the purpose of performing due diligence pending the closing; | |
• | Capital and Brooke Corp. shall maintain as confidential the books, records and other information pertaining to the business of the other; | |
• | Capital and Brooke Franchise shall cooperate with one another in the public announcements pertaining to the Merger; | |
• | Capital and Brooke Corp. shall each file a Form 8-K announcing the closing and such other information that may be required to be disclosed with respect to the Merger Proposal; | |
• | Each party will use its commercially reasonable efforts to obtain all authorizations, consents, orders and approvals of any Governmental Authority that may be necessary for its execution and delivery of, and the performance of its obligations and will cooperate fully with the other party in promptly seeking to obtain all such authorizations, consents, orders and approvals; | |
• | Neither Brooke Corp. nor Brooke Franchise shall authorize or permit any of its directors, officers or employees or any investment banker, financial advisor, attorney, accountant or other agent or representative retained by either of them to, directly or indirectly (a) solicit, initiate or knowingly encourage (including by way of furnishing information) the making of any proposal or offer (i) relating to any acquisition or purchase of all or any portion of the capital stock of Brooke Franchise or its assets (other than assets to be sold in the ordinary course of business consistent with past practice), (ii) to enter into any merger, consolidation or other business combination with Brooke Franchise, or (iii) to enter into a recapitalization, reorganization or any other extraordinary business transaction involving or otherwise relating to Brooke Franchise, or (b) participate in any discussions, conversations, negotiations and other communications regarding, or furnish to any other person any information with respect to, or otherwise facilitate or encourage any effort or attempt by any other person to seek to do any of the foregoing. | |
• | Each of Brooke Corp. and Brooke Franchise shall immediately cease and cause to be terminated all existing discussions, conversations, negotiations and other communications with any persons conducted heretofore with respect to any of the foregoing. And each of Brooke Corp. and Brooke Franchise shall notify Capital promptly if any such proposal or offer, or any inquiry or other contact with any Person with respect thereto, is made and shall, in any such notice to Capital, indicate in reasonable detail the identity of the person making |
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such proposal, offer, inquiry or contact and the terms and conditions of such proposal, offer, inquiry or other contact; |
• | Capital shall not, nor shall it authorize or permit any of its directors, officers or employees or any investment banker, financial advisor, attorney, accountant or other agent or representative retained by Capital, directly or indirectly, (a) solicit, initiate or knowingly encourage (including by way of furnishing information) the making of any proposal or offer (i) relating to any acquisition or purchase of all or any portion of the capital stock of any person other than Brooke Franchise, or its assets, (ii) to enter into any merger, consolidation or other business combination with any person other than Brooke Franchise, or (iii) to enter into a recapitalization, reorganization or any other extraordinary business transaction involving or otherwise relating to any person other than Brooke Franchise, or (b) participate in any discussions, conversations, negotiations and other communications regarding, or furnish to any other person any information with respect to, or otherwise facilitate or encourage any effort or attempt by any other person to seek to do any of the foregoing. | |
• | Capital immediately shall cease and cause to be terminated all existing discussions, conversations, negotiations and other communications with any persons conducted heretofore with respect to any of the foregoing. | |
• | Capital shall notify Brooke Corp. promptly if any such proposal or offer, or any inquiry or other contact with any Person with respect thereto, is made and shall, in any such notice to Brooke Corp., indicate in reasonable detail the identity of the person making such proposal, offer, inquiry or contact and the terms and conditions of such proposal, offer, inquiry or other contact. | |
• | For a period of five years following the closing, Brooke Corp. and its affiliates shall be prohibited from materially competing with the business conducted by Brooke Franchise immediately prior to the closing in the U.S.; | |
• | For a period of one year following the closing, Brooke Corp. shall not solicit for employment any employee who was an employee of Brooke Franchise immediately prior to the closing except with the prior consent of Capital or if such employee has not been employed by either Brooke Franchise or Capital for a period of six months prior to such solicitation; | |
• | As soon as is reasonably practicable after receipt by Capital from Brooke Corp. and Brooke Franchise of all financial and other information relating to Brooke Corp. and Brooke Franchise as Capital may reasonably request, Capital shall prepare and file with the SEC this Information Statement and take such actions as are reasonably necessary so as to make the Information Statement be declared effective; | |
• | upon filing of the Information Statement, Capital shall hold a meeting of its stockholders for the purpose of obtaining a vote in favor of the Merger and the adoption of the incentive plan; | |
• | Capital shall ensure that the disclosures contained in the Information Statement are in compliance with the General Corporation Law of the State of Kansas, and Brooke Corp. and Brooke Franchise shall ensure that the disclosures contained in the Information Statement with respect to Brooke Franchise do not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; | |
• | At least one day prior to closing on the Merger, Capital shall prepare a draft form 8-K announcing the closing and in such form as is required for filing with the SEC. In addition, Capital and Brooke Corp. will prepare a press release announcing the consummation of the Merger Proposal; | |
• | Brooke Corp. and its respective affiliates shall not engage in any transactions involving the securities of Capital prior to the time of making a public announcement of the Merger and will attempt to cause its directors, officers, employees and representatives to also refrain from such activities; | |
• | Capital and its respective affiliates shall not engage in any transactions involving the securities of Parent prior to the time of making a public announcement of the Merger and will attempt to cause its directors, officers, employees and representatives to also refrain from such activities; |
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• | Immediately after the closing of the Merger, Capital shall register the capital stock received by Brooke Corp. as the Closing Payment in the Merger with the SEC and each applicable state securities commissioner on an appropriate registration statement, and Capital shall use its best efforts to cause such registration statement to be declared effective by the SEC and such commissioners as promptly as practicable after the closing; | |
• | On or before the closing date under the Merger Agreement and to the extent permitted by Missouri law, Brooke Franchise shall declare and pay a cash dividend in the amount of $22,328,000 to Brooke Corp.; | |
• | Immediately after the effectiveness of the Merger, Brooke Corp. and Capital shall consummate the Exchange transaction contemplated in the Exchange Agreement for the contribution of Delta Plus’s stock to Capital in return for Capital common stock; | |
• | The parties will cooperate with each other with respect to ongoing litigation or claims; | |
• | At any time and from time to time prior to the eight (8) month anniversary of the closing date of the Merger Agreement that certain Brooke Franchise accounts receivable remain uncollected for more than ninety (90) days after the applicable invoice date of such receivables, then Capital may elect to tender in writing ownership of such delinquent receivable to Brooke Corp. and within five (5) business days after the delivery of such tender, Brooke Corp. shall pay to Capital by wire transfer of immediately available funds the full amount of such delinquent receivable and thereafter Brooke Corp. shall have all rights as the holder of such receivable. Promptly after the eighth-month anniversary of the closing date of the Merger Agreement, Brooke Corp. will reimburse Capital for certain defined receivables that remain uncollected as of such eighth-month anniversary; provided, however, that, after the closing of the Merger, Capital will continue to collect, and process such receivables, consistent with the past practices of Brooke Franchise; and provided, further that, Capital promptly will return to Brooke Corp. dollar for dollar any monies that are collected in respect of receivables subsequent to Brooke Corp. reimbursement payment; | |
• | Brooke Corp., for a period of one hundred eighty (180) days after the effectiveness of the Merger, will not, without the prior written consent of Capital, (a) lend; offer; pledge; sell; contract to sell; sell any option or contract to purchase; purchase any option or contract to sell; grant any option, right, or warrant to purchase; or otherwise transfer or dispose of, directly or indirectly, any shares of Capital’s capital stock or any securities convertible into or exercisable or exchangeable (directly or indirectly) for the capital stock received under the Merger Agreement or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (a) or (b) above is to be settled by delivery of Capital’s stock or other securities, in cash, or otherwise. Notwithstanding the foregoing, Brooke Corp. may pledge shares of the Capital’s stock so long as its lender, which takes a security interest in such shares, agrees to be bound by the terms and conditions of the applicable section of the Merger Agreement; | |
• | Brooke Corp. and Capital will enter into a license agreement reasonably acceptable to each of them, whereby Capital would have a worldwide, perpetual, royalty-free license for the trademark “Brooke,” for use in conjunction with Capital’s insurance business, with Brooke Corp. retaining and rights to use of such mark in non-insurance activities; and | |
• | Kyle L. Garst and Dane S. Devlin will be appointed and elected as additional Capital directors. |
• | The representations and warranties of Brooke Corp. and Brooke Franchise contained in the Merger Agreement shall be true and correct as of the Closing Date as though made at that time (without regard to any “material” or “materiality” qualifiers or qualifications for a “Company Material Adverse Effect”, and except for those representations and warranties that speak as to a stated date, in which case such |
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representation and warranty shall be true and correct as of such date), except to the extent that the failure of the representations and warranties, taken as a whole, to be true and correct would not reasonably be expected to have a Company Material Adverse Effect, to materially delay the Closing or to materially and adversely affect the ability of Brooke Corp. and Brooke Franchise to consummate the Merger and related transactions. |
• | All covenants, agreements and obligations required by the terms of the Merger Agreement to be performed, satisfied or complied with by Brooke Corp. and Brooke Franchise, at or before the Closing Date shall have been duly and properly performed and complied with in all material respects. | |
• | There shall be no order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority that prohibits the transactions contemplated in the Merger Agreement or renders it unlawful to consummate such transactions. | |
• | Capital shall have distributed this Information Statement to its stockholders. | |
• | The independent directors and the board of directors of Capital shall have duly approved the Merger Agreement and all transactions contemplated thereby, and Capital shall have obtained the approval by majority vote of its stockholders. | |
• | All approvals, consents and waivers of all persons and authorities that are required to effect the transactions contemplated in the Merger Agreement shall have been received, and executed counterparts thereof shall have been delivered to Capital not less than two business days prior to the Closing. | |
• | No litigation shall have been commenced or threatened against Capital, Brooke Corp., Brooke Franchise, or any of the affiliates, officers or directors of any of them, with respect to the Merger or related transactions, which, in the reasonable judgment of counsel to Capital, could have a Company Material Adverse Effect or prevent consummation of the Merger or related transactions. | |
• | There shall not have occurred since December 31, 2006 any event, circumstance or condition that has had, or could reasonably be expected to have, a Company Material Adverse Effect. | |
• | The fairness opinion received by the Independent Directors Committee of Capital on August 31, 2007 from Duff & Phelps shall not have been materially changed, modified or withdrawn on or before the Closing Date; | |
• | Capital shall have received the Solvency Opinion, as defined in the Merger Agreement, satisfactory to the Independent Directors Committee and the Board of Directors of Capital in its and their sole discretion, confirming the Solvency, as defined in the Merger Agreement, of Brooke Franchise, on a consolidated basis immediately prior to the transactions contemplated in the Merger Agreement and the Solvency of Capital on a consolidated basis immediately after the transactions contemplated by Merger Agreement. | |
• | Capital shall have received from the other parties each of the deliverables to be provided pursuant to the Merger Agreement. | |
• | Brooke Corp. shall have paid in cash to Brooke Franchise an amount equal to the Parent Receivable, as defined in the Merger Agreement, valued on and as of the Closing Date. | |
• | The board of directors of Brooke Franchise, and Brooke Corp. in Brooke Corp.’s capacity as stockholder of Brooke Franchise, shall have duly approved the Merger Agreement and all transactions contemplated therein, and the board of directors of Brooke Corp. shall have duly approved the Merger Agreement and all transactions contemplated therein. | |
• | Brooke Franchise must have Net Working Capital, shown on the Closing Balance Sheet, of no less than $22,800,000. |
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• | The representations and warranties of Capital on the other hand, contained in the Merger Agreement shall be true and correct as of the Closing Date as though made at that time (without regard to any “material” or “materiality” qualifiers or qualifications for a “Capital Material Adverse Effect” on the other hand, and except for those representations and warranties that speak as to a stated date, in which case such representation and warranty shall be true and correct as of such date), except to the extent that the failure of the representations and warranties, taken as a whole, to be true and correct would not reasonably be expected to have a Capital Material Adverse Effect, to materially delay the Closing or to materially and adversely affect the ability of Capital to consummate the Merger and related transactions. | |
• | All covenants, agreements and obligations required by the terms of the Merger Agreement to be performed, satisfied or complied with by Capital, at or before the Closing Date, shall have been duly and properly performed and complied with in all material respects. | |
• | There shall be no order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority that prohibits the transactions contemplated in the Merger Agreement or renders it unlawful to consummate such transactions. | |
• | The board of directors of Brooke Franchise, and Brooke Corp. in Brooke Corp.’s capacity as stockholder of Brooke Franchise, shall have duly approved the Merger Agreement and all transactions contemplated therein, and the board of directors of Brooke Corp. shall have duly approved the Merger Agreement and all related transactions. | |
• | All approvals, consents and waivers of all persons and authorities that are required to effect the transactions contemplated in the Merger Agreement shall have been received, and executed counterparts thereof shall have been delivered to Brooke Corp. and Brooke Franchise not less than two business days prior to the Closing. | |
• | No litigation shall have been commenced or threatened against Capital, Brooke Corp., Brooke Franchise, or any of the affiliates, officers or directors of any of them, with respect to the Merger or related transactions, which, in the reasonable judgment of counsel to Brooke Corp., could have a Company Material Adverse Effect or prevent consummation of the Merger or related transactions. | |
• | Brooke Corp. and Brooke Franchise shall have received from the other parties each of the deliverables to be provided pursuant to the Merger Agreement. | |
• | There shall not have occurred since December 31, 2006 any event, circumstance or condition that has had, or could reasonably be expected to have, a Capital Material Adverse Effect. | |
• | The Articles of Incorporation of Capital shall not have been amended to provide for cumulative voting rights, classification of directors, diminution of the rights of any controlling stockholder or extraordinary treatment of minority stockholders or management members. | |
• | Brooke Corp. shall have paid any and all amounts owed to Brooke Franchise and Brooke Franchise shall have paid any and all amounts owed to Brooke Corp. | |
• | Brooke Franchise shall have executed and delivered to Brooke Corp. an Amended and Restated Servicing and Tax Allocation Agreement. Among other provisions, the Amended and Restated Servicing and Tax Allocation Agreement shall provide for: (i) a monthly fee of zero dollars ($00); (ii) the continuation of specified services during a transition period ending on December 31, 2007; and (iii) for the reimbursement by Brooke Franchise to Brooke Corp. of all out of pocket expenses reasonably incurred by Brooke Corp. in connection with the operations of the Company or the support provided by Brooke Corp. to Brooke Franchise. | |
• | The opinion from the investment bank of national reputation that the transaction contemplated by Merger Agreement is entirely fair to the shareholders of Brooke Corp. that was received by Brooke Corp. |
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immediately prior to the signing of the Merger Agreement shall remain in effect and such investment bank shall have confirmed same in writing on and as of the Closing Date. |
• | Brooke Corp. shall have received the Solvency Opinion, satisfactory to its Board of Directors in its sole discretion, confirming the Solvency, as defined in the Merger Agreement, of Brooke Franchise, on a consolidated basis immediately prior to the transactions contemplated in the Merger Agreement and the Solvency of Capital on a consolidated basis immediately after the transactions contemplated by Merger Agreement. | |
• | Brooke Franchise shall have declared and paid the Parent Dividend, as defined in Merger Agreement. | |
• | Brooke Corp. shall have received a written opinion, in form and substance reasonably acceptable to the Brooke Corp. and its legal counsel, issued by legal counsel to Capital that the shares constituting the Initial Merger Consideration under the Merger Agreement have been duly authorized, validly issued, and are fully paid and nonassessable. |
• | By the mutual written consent of Capital and Brooke Corp.; | |
• | By either Capital or Brooke Corp., by written notice to the other party if the Closing shall not have occurred on or before December 31, 2007; provided, however, that such termination may not be effectuated if the failure to consummate the transactions contemplated in the Merger Agreement prior to the December 31, |
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2007 date is the direct or indirect result of any breach of any covenant, representation or warranty of such party or because any of the conditions precedent to the obligations of the other party have not been satisfied due to any action or failure to act by the party seeking termination; |
• | By Capital, by prior written notice to Brooke Corp., if Brooke Corp. or Brooke Franchise shall fail to perform in any material respect any material obligation of Brooke Corp. or Brooke Franchise herein required to be performed prior to the Closing Date and such failure is not cured within thirty (30) days after Capital has notified Brooke Corp. of its intent to terminate for such failure; | |
• | By Brooke Corp., by prior written notice to Capital, if Capital shall fail to perform in any material respect any material obligation of Capital herein required to be performed prior to the Closing Date and such failure is not cured within thirty (30) days after Brooke Corp. has notified Capital of its intent to terminate for such failure; or | |
• | By Brooke Corp., if Brooke Corp. has not received the Fairness Opinion specified in Section 7.13, indicating that the transactions contemplated by the Merger Agreement are not entirely fair to all of the shareholders of Capital, on or before December 31, 2007. |
• | the rights of the parties to bring actions against each other for breach of the Merger Agreement will survive; and | |
• | the parties’ obligations relating to confidentiality, public disclosure and indemnification shall survive termination of the Merger Agreement. |
• | cooperate in good faith to jointly prepare all press releases and public announcements pertaining to the Merger Agreement and the transactions governed by it; and | |
• | not issue or otherwise make any public announcement or communication pertaining to the Merger Agreement or the transaction without the prior consent of the other party, which shall not be unreasonably withheld by the other party, except as may be required by applicable laws or court process. |
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• | tax-exempt organizations; | |
• | holders whose “functional currency” as defined in the Code is other than the U.S. dollar; | |
• | a bank, insurance company, or other financial institution; | |
• | a dealer or broker in securities; | |
• | traders in securities; | |
• | a partnership or other entity classified as a partnership for U.S. federal income tax purposes; | |
• | S corporations and other pass-through entities; | |
• | a stockholder exercising dissenter’s rights; | |
• | a person liable for the alternative minimum tax; | |
• | holders who acquired their shares of stock pursuant to the exercise of options or similar derivative securities, through a tax-qualified retirement plan or otherwise as compensation; or | |
• | holders who hold their shares as part of a hedge, straddle or other risk reduction, constructive sale or conversion transaction. |
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ITEM 2: | THE EXCHANGE PROPOSAL |
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• | proper corporate organization, foreign qualifications and similar corporate matters; | |
• | the authorization, performance and enforceability of the Exchange Agreement; | |
• | the capitalization of Delta Plus and its subsidiaries; | |
• | the absence of violation of any applicable law or any agreement to which Brooke Corp. or Delta Plus is a party; | |
• | that the transactions contemplated in the Exchange Agreement will not disable Delta Plus and its subsidiaries’ ability to operate its and their businesses post-closing consistent with past practice; | |
• | financial statements and related information; | |
• | absence of undisclosed liabilities and encumbrances, including any liabilities related to the transaction by which Brooke Corp. acquired the stock of Delta Plus; | |
• | taxes; | |
• | absence of brokers or finders; | |
• | absence of an untrue statement of material fact or material omission necessary to make the representations and warranties not misleading; | |
• | acquisition for own account; | |
• | absence of certain changes; | |
• | absence of litigation and administrative actions; | |
• | compliance with laws including Delta Plus’s subsidiary’s compliance with insurance regulations; | |
• | title to and condition of properties, including all equipment and real properties; | |
• | insurance; |
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• | contracts and commitments; | |
• | labor matters; | |
• | employee and employee benefits matters; and | |
• | intellectual property. |
• | proper corporate organization and similar corporate matters; | |
• | the authorization, performance and enforceability of the Exchange Agreement; | |
• | the capitalization of Capital and its subsidiaries; | |
• | the absence of violation of any applicable law or any agreement to which Capital is a party; | |
• | financial statements and related information; | |
• | absence of undisclosed liabilities; | |
• | taxes; | |
• | absence of brokers or finders; | |
• | absence of an untrue statement of material fact or material omission necessary to make the representations and warranties not misleading; | |
• | acquisition for own account; | |
• | absence of certain changes; | |
• | absence of litigation and administrative actions; | |
• | compliance with laws; | |
• | title to and condition of properties, including all equipment and real properties; | |
• | insurance; | |
• | contracts and commitments; | |
• | labor matters; | |
• | employee and employee benefits matters; and | |
• | intellectual property. |
• | amend its organizational documents; | |
• | authorize or issue any shares of capital stock or any subscription, option, warrant, call right, preemptive right or other agreement or commitment obligation to issue, sell, deliver or transfer any interest or security in it; | |
• | other than declaration and payment of the Parent Dividend and payment of the Parent Receivable, sell, transfer or agree to sell or transfer any assets other than in the ordinary course of business; | |
• | acquire any assets except in the ordinary course of business, or merge with any other entity; |
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• | create or incur any material encumbrance of any kind on any assets or properties; | |
• | change any financial or tax accounting practice, policy or method, make or revoke any election relating to taxes, file any amended tax return or claim for refund, or settle any material claim relating to taxes; | |
• | violate or breach any material contract; | |
• | make any loan, advance or capital contribution to or investment in any other entity or person other than in the ordinary course of business; | |
• | incur any indebtedness or enter into any guarantee of indebtedness, or incur any other material liability or obligation other than in the ordinary course of business; | |
• | cancel or forgive any material debts or claims or redeem or repay any indebtedness for borrowed money; | |
• | take any action that would prevent the Exchange from qualifying as an exchange within the meaning of Section 351 of the Internal Revenue Code; or | |
• | authorize, permit or agree to take any of the foregoing actions. |
• | Capital and Brooke Corp. shall provide access to the other to all its and its subsidiaries’ respective properties, books, records, and employees, for the purpose of performing due diligence pending the closing; | |
• | Capital and Brooke Corp. shall maintain as confidential the books, records and other information pertaining to the business of the other; | |
• | Capital and Brooke Corp. shall cooperate with one another in the public announcements pertaining to the Exchange; | |
• | Capital and Brooke Corp. shall each file a Form 8-K announcing the closing and such other information that may be required to be disclosed with respect to the Exchange; | |
• | Each party will use its commercially reasonable efforts to obtain all authorizations, consents, orders and approvals of any Governmental Authority that may be necessary for its execution and delivery of, and the performance of its obligations and will cooperate fully with the other party in promptly seeking to obtain all such authorizations, consents, orders and approvals; | |
• | Neither Brooke Corp. nor Delta Plus shall authorize or permit any of its directors, officers or employees or any investment banker, financial advisor, attorney, accountant or other agent or representative retained by either of them to, directly or indirectly (a) solicit, initiate or knowingly encourage (including by way of furnishing information) the making of any proposal or offer (i) relating to any acquisition or purchase of all or any portion of the capital stock of Delta Plus or its assets (other than assets to be sold in the ordinary course of business consistent with past practice), (ii) to enter into any merger, consolidation or other business combination with Delta Plus, or (iii) to enter into a recapitalization, reorganization or any other extraordinary business transaction involving or otherwise relating to Delta Plus, or (b) participate in any discussions, conversations, negotiations and other communications regarding, or furnish to any other person any information with respect to, or otherwise facilitate or encourage any effort or attempt by any other person to seek to do any of the foregoing. | |
• | Each of Brooke Corp. and Delta Plus shall immediately cease and cause to be terminated all existing discussions, conversations, negotiations and other communications with any persons conducted heretofore with respect to any of the foregoing. And each of Brooke Corp. and Delta Plus shall notify Capital promptly if any such proposal or offer, or any inquiry or other contact with any person with respect thereto, is made and shall, in any such notice to Capital, indicate in reasonable detail the identity of the person making such proposal, offer, inquiry or contact and the terms and conditions of such proposal, offer, inquiry or other contact; |
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• | Capital shall not, nor shall it authorize or permit any of its directors, officers or employees or any investment banker, financial advisor, attorney, accountant or other agent or representative retained by Capital, directly or indirectly, (a) solicit, initiate or knowingly encourage (including by way of furnishing information) the making of any proposal or offer (i) relating to any acquisition or purchase of all or any portion of the capital stock of any person other than Delta Plus, or its assets, (ii) to enter into any merger, consolidation or other business combination with any person other than Delta Plus, or (iii) to enter into a recapitalization, reorganization or any other extraordinary business transaction involving or otherwise relating to any person other than Delta Plus, or (b) participate in any discussions, conversations, negotiations and other communications regarding, or furnish to any other person any information with respect to, or otherwise facilitate or encourage any effort or attempt by any other person to seek to do any of the foregoing. | |
• | Capital immediately shall cease and cause to be terminated all existing discussions, conversations, negotiations and other communications with any persons conducted heretofore with respect to any of the foregoing. | |
• | Capital shall notify Brooke Corp. promptly if any such proposal or offer, or any inquiry or other contact with any person with respect thereto, is made and shall, in any such notice to Capital, indicate in reasonable detail the identity of the person making such proposal, offer, inquiry or contact and the terms and conditions of such proposal, offer, inquiry or other contact. | |
• | for a period of five years following the closing, Brooke Corp. and its affiliates shall be prohibited from materially competing with the business conducted by Delta Plus immediately prior to the closing in the U.S.; | |
• | for a period of one year following the closing, Brooke Corp. shall not solicit for employment any employee who was an employee of Delta Plus immediately prior to the closing except with the prior consent of Capital or if such employee has not been employed by either Delta Plus or Capital for a period of six months prior to such solicitation; | |
• | for a period of six years following the closing, Capital shall indemnify, defend and hold harmless the officers, directors, employees and agents of Capital, Brooke Corp. and Delta Plus against damages arising out of claims brought or make by third parties based on the actions of such persons in such official capacities prior to the closing; | |
• | Capital shall ensure that the disclosures contained in this Information Statement are in compliance with the General Corporation Law of the State of Kansas, and Brooke Corp. and Delta Plus shall ensure that the disclosures contained in this Information Statement with respect to Delta Plus do not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; | |
• | Capital, Brooke Corp. and their respective affiliates shall not engage in any transactions involving the securities of Capital prior to the time of making a public announcement of the Exchange; | |
• | Immediately after the closing of the Exchange, Capital shall register the capital stock received by Brooke Corp. in the Exchange with the SEC and each applicable state securities commissioner on an appropriate registration statement, and Capital shall use its best efforts to cause such registration statement to be declared effective by the SEC and such commissioners as promptly as practicable after the closing; | |
• | The parties will cooperate with each other with respect to ongoing litigation or claims; and | |
• | Prior to the closing of the Exchange, Delta Plus may borrow up to $2,500,000 from an independent third party lender on terms and conditions that are approved by Capital and Brooke Corp. |
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• | The representations and warranties of Brooke Corp. and Delta Plus, contained in the Exchange Agreement, shall be true and correct as of the Closing Date as though made at that time (without regard to any “material” or “materiality” qualifiers or qualifications for a “Company Material Adverse Effect,” and except for those representations and warranties that speak as to a stated date, in which case such representation and warranty shall be true and correct as of such date), except to the extent that the failure of the representations and warranties, taken as a whole, to be true and correct would not reasonably be expected to have a Company Material Adverse Effect, to materially delay the Closing or to materially and adversely affect the ability of Brooke Corp. and Delta Plus to consummate the Exchange and related transactions. | |
• | All covenants, agreements and obligations required by the terms of the Exchange Agreement to be performed, satisfied or complied with by Brooke Corp. and Delta Plus, at or before the Closing Date, shall have been duly and properly performed and complied with in all material respects. | |
• | There shall be no order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority that prohibits the transactions contemplated in the Exchange Agreement or renders it unlawful to consummate such transactions. | |
• | Capital shall have received the Solvency Opinion, as defined in the Exchange Agreement, satisfactory to the Independent Directors Committee and the Board of Directors of Capital in its and their sole discretion, confirming the Solvency, as defined in the Exchange Agreement, of Delta Plus, on a consolidated basis immediately prior to the transactions contemplated in the Exchange Agreement and the Solvency of Capital on a consolidated basis immediately after the transactions contemplated by Exchange Agreement. | |
• | The independent directors and the board of directors of Capital shall have duly approved the Exchange Agreement and all transactions contemplated thereby, and Capital shall have obtained the approval by majority vote of its stockholders. | |
• | All approvals, consents and waivers of all persons and authorities that are required to effect the transactions contemplated hereby shall have been received, and executed counterparts thereof shall have been delivered to Capital, not less than two business days prior to the Closing. | |
• | No litigation shall have been commenced or threatened against Capital, Brooke Corp., Delta Plus, or any of the affiliates, officers or directors of any of them, with respect to the Merger or related transactions, which, in the reasonable judgment of counsel to Capital, could have a Company Material Adverse Effect or prevent consummation of the Exchange or related transactions. | |
• | There shall not have occurred since December 31, 2006 any event, circumstance or condition that has had, or could reasonably be expected to have, a Company Material Adverse Effect. | |
• | The fairness opinion received by the Independent Directors Committee of Capital on August 31, 2007 from Duff & Phelps shall not have been changed, modified or withdrawn on or before the Closing Date. | |
• | Capital shall have received from the other parties each of the deliverables to be provided pursuant to the Exchange Agreement. | |
• | The boards of directors of Delta Plus and Brooke Corp., in Brooke Corp.’s capacity as stockholder of Delta Plus, shall have duly approved the Exchange Agreement and all transactions contemplated therein, and the board of directors of Brooke Corp. shall have duly approved the Exchange Agreement and all related transactions. | |
• | Delta Plus on a consolidated basis must have Tangible Book Value on and as of the Closing Date that is equal to or great than zero, and Brooke Corp. shall have made any necessary cash contribution to Delta Plus to ensure said level of Tangible Book Value. |
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• | The representations and warranties of Capital, contained in the Exchange Agreement, shall be true and correct as of the Closing Date as though made at that time (without regard to any “material” or “materiality” qualifiers or qualifications for a “Capital Material Adverse Effect”, and except for those representations and warranties that speak as to a stated date, in which case such representation and warranty shall be true and correct as of such date), except to the extent that the failure of the representations and warranties, taken as a whole, to be true and correct would not reasonably be expected to have a Capital Material Adverse Effect, to materially delay the Closing or to materially and adversely affect the ability of Capital to consummate the Exchange and related transactions. | |
• | All covenants, agreements and obligations required by the terms of the Exchange Agreement to be performed, satisfied or complied with by Capital, on or before the Closing Date, shall have been duly and properly performed and complied with in all material respects. | |
• | There shall be no order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority that prohibits the transactions contemplated by the Exchange Agreement or renders it unlawful to consummate such transactions. | |
• | The boards of directors of Delta Plus and Brooke Corp., in Brooke Corp.’s capacity as stockholder of Delta Plus, shall have duly approved the Exchange Agreement and all transactions contemplated therein, and the board of directors of Brooke Corp. shall have duly approved the Exchange Agreement and all related transactions. | |
• | All approvals, consents and waivers of all persons and authorities that are required to effect the transactions contemplated hereby shall have been received, and executed counterparts thereof shall have been delivered to Brooke Corp. and Delta Plus, not less than two business days prior to the Closing. | |
• | No litigation shall have been commenced or threatened against Capital, Brooke Corp., Delta Plus, or any of the affiliates, officers or directors of any of them, with respect to the Merger or related transactions, which, in the reasonable judgment of counsel to Brooke Corp., could have a Company Material Adverse Effect or prevent consummation of the Exchange or related transactions. | |
• | Brooke Corp. shall have received from the other parties each of the deliverables to be provided pursuant to the Exchange Agreement. | |
• | Delta Plus shall have paid in cash to Brooke Corp. an amount equal to the Parent Payable, as defined in the Exchange Agreement, valued on and as of the Closing Date. | |
• | There shall not have occurred since December 31, 2006 any event, circumstance or condition that has had, or could reasonably be expected to have, a Capital Material Adverse Effect. | |
• | The Articles of Incorporation of Capital shall not have been amended to provide for cumulative voting rights, classification of directors, diminution of the rights of any controlling stockholder or extraordinary treatment of minority stockholders or management members. | |
• | Brooke Corp. shall have paid any and all amounts owed to Delta Plus and Delta Plus shall have paid any and all amounts owed to Brooke Corp. | |
• | Brooke Corp. shall have received the Solvency Opinion, as defined in the Exchange Agreement, satisfactory to its Board of Directors, in its sole discretion, confirming the Solvency, as defined in the Exchange Agreement, of Delta Plus, on a consolidated basis immediately prior to the transactions contemplated in the Exchange Agreement and the Solvency of Capital on a consolidated basis immediately after the transactions contemplated by Exchange Agreement. | |
• | The opinion from the investment bank of national reputation that the transaction contemplated by Exchange Agreement is entirely fair to the shareholders of Brooke Corp. that was received by Brooke Corp. |
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immediately prior to the signing of the Exchange Agreement shall remain in effect and such investment bank shall have confirmed same in writing on and as of the Closing Date. |
• | Delta Plus, on a consolidated basis shall have a Tangible Book Value, as defined in the Exchange Agreement, that is equal to or greater than zero on and as of the Closing Date. | |
• | The transactions contemplated by and in the Merger Agreement shall have been consummated. | |
• | Brooke Corp. shall have received a written opinion, in form and substance reasonably acceptable to the Brooke Corp. and its legal counsel, issued by legal counsel to Capital that the shares constituting the Initial Exchange Consideration under the Exchange Agreement have been duly authorized, validly issued, and are fully paid and nonassessable. |
• | By the mutual written consent of Capital and Brooke Corp.; | |
• | By either Capital or Brooke Corp., by written notice to the other party if the Closing shall not have occurred on or before December 31, 2007; provided, however, that such termination may not be effectuated if the failure to consummate the transactions contemplated in the Exchange Agreement prior to the December 31, 2007 date is the direct or indirect result of any breach of any covenant, representation or warranty of such party or because any of the conditions precedent to the obligations of the other party have not been satisfied due to any action or failure to act by the party seeking termination; | |
• | By Capital, by prior written notice to Brooke Corp., if Brooke Corp. or Brooke Franchise shall fail to perform in any material respect any material obligation of Brooke Corp. or Delta Plus required in the Exchange Agreement to be performed prior to the Closing Date and such failure is not cured within thirty (30) days after Capital has notified Brooke Corp. of its intent to terminate for such failure; |
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• | By Brooke Corp., by prior written notice to Capital, if Capital shall fail to perform in any material respect any material obligation of Capital required in the Exchange Agreement to be performed prior to the Closing Date and such failure is not cured within thirty (30) days after Brooke Corp. has notified Capital of its intent to terminate for such failure; or | |
• | By Brooke Corp., if Brooke Corp. has not received the Fairness Opinion specified in Section 7.13, indicating that the transactions contemplated by the Exchange Agreement are not entirely fair to all of the Shareholders of Capital, on or before December 31, 2007. |
• | the rights of the parties to bring actions against each other for breach of the Exchange Agreement will survive; and | |
• | the parties’ obligations relating to confidentiality, public disclosure and indemnification shall survive termination of the Exchange Agreement. |
• | cooperate in good faith to jointly prepare all press releases and public announcements pertaining to the Exchange Agreement and the transactions governed by it; and | |
• | not issue or otherwise make any public announcement or communication pertaining to the Exchange Agreement or the transaction without the prior consent of the other party, which shall not be unreasonably withheld by the other party, except as may be required by applicable laws or court process. |
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• | tax-exempt organizations; | |
• | holders whose “functional currency” as defined in the Code is other than the U.S. dollar; | |
• | a bank, insurance company, or other financial institution; | |
• | a dealer or broker in securities; | |
• | traders in securities; | |
• | a partnership or other entity classified as a partnership for U.S. federal income tax purposes; | |
• | S corporations and other pass-through entities; | |
• | a stockholder exercising dissenter’s rights; | |
• | a person liable for the alternative minimum tax; | |
• | holders who acquired their shares of stock pursuant to the exercise of options or similar derivative securities, through a tax-qualified retirement plan or otherwise as compensation; or | |
• | holders who hold their shares as part of a hedge, straddle or other risk reduction, constructive sale or conversion transaction. |
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(Exclusive of Earn-Out Payments)
Brooke | Brooke | |||||||||||||||||||||||
New | Corp. | Corp. | Minority | Minority | Total | |||||||||||||||||||
Shares | Shares | Ownership | Shares | Ownership | Shares | |||||||||||||||||||
Pre-transaction | 1,795,467 | 51.7 | % | 1,680,350 | 48.3 | % | 3,475,817 | |||||||||||||||||
Brooke Franchise Merger Closing Payment | 5,000,000 | 6,795,467 | 80.2 | % | 1,680,350 | 19.8 | % | 8,475,817 | ||||||||||||||||
Delta Plus Acquisition Closing Payment | 500,000 | 7,295,467 | 81.3 | % | 1,680,350 | 18.7 | % | 8,975,817 |
(Inclusive of All Earn-Out Payments)
Brooke | Brooke | |||||||||||||||||||||||
New | Corp. | Corp. | Minority | Minority | Total | |||||||||||||||||||
Shares | Shares | Ownership | Shares | Ownership | Shares | |||||||||||||||||||
Pre-Earn-Out | 7,295,467 | 81.3 | % | 1,680,350 | 18.7 | % | 8,975,817 | |||||||||||||||||
Brooke Franchise Merge Total Additional Earn-Out Shares | 2,250,000 | 9,545,467 | 85.0 | % | 1,680,350 | 15.0 | % | 11,225,817 | ||||||||||||||||
Delta Plus Purchase Total Additional Earn-Out Shares | 250,000 | 9,795,467 | 85.4 | % | 1,680,350 | 14.6 | % | 11,475,817 |
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(Inclusive of All Earn-Out Payments by each Earn-Out Period and Level)
Brooke | Brooke | |||||||||||||||||||||||
New | Corp | Corp | Minority | Minority | Total | |||||||||||||||||||
Shares | Shares | Ownership | Shares | Ownership | Shares | |||||||||||||||||||
Pre-transaction | 1,795,467 | 51.7 | % | 1,680,350 | 48.3 | % | 3,475,817 | |||||||||||||||||
Brooke Franchise Closing Payment | 5,000,000 | 6,795,467 | 80.2 | % | 1,680,350 | 19.8 | % | 8,475,817 | ||||||||||||||||
Delta Plus Closing Payment | 500,000 | 7,295,467 | 81.3 | % | 1,680,350 | 18.7 | % | 8,975,817 | ||||||||||||||||
Brooke Franchise 2007 Earnout (First Level) | 900,000 | 8,195,467 | 83.0 | % | 1,680,350 | 17.0 | % | 9,875,817 | ||||||||||||||||
Brooke Franchise 2007 Earnout (Second Level) | 225,000 | 8,420,467 | 83.4 | % | 1,680,350 | 16.6 | % | 10,100,817 | ||||||||||||||||
Delta Plus 2007 Earnout (First Level) | 100,000 | 8,520,467 | 83.5 | % | 1,680,350 | 16.5 | % | 10,200,817 | ||||||||||||||||
Delta Plus 2007 Earnout (Second Level) | 25,000 | 8,545,467 | 83.6 | % | 1,680,350 | 16.4 | % | 10,225,817 | ||||||||||||||||
Brooke Franchise 2008 Earnout (First Level) | 900,000 | 9,445,467 | 84.9 | % | 1,680,350 | 15.1 | % | 11,125,817 | ||||||||||||||||
Brooke Franchise 2008 Earnout (Second Level) | 225,000 | 9,670,467 | 85.2 | % | 1,680,350 | 14.8 | % | 11,350,817 | ||||||||||||||||
Delta Plus 2008 Earnout (First Level) | 100,000 | 9,770,467 | 85.3 | % | 1,680,350 | 14.7 | % | 11,450,817 | ||||||||||||||||
Delta Plus 2008 Earnout (Second Level) | 25,000 | 9,795,467 | 85.4 | % | 1,680,350 | 14.6 | % | 11,475,817 |
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ITEM 3: | AMENDMENT OF BROOKE CAPITAL CORPORATION 2007 EQUITY INCENTIVE PLAN |
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Number of | Property and | Company | ||||||||||||||||||
State | Franchise Locations | Casualty Insurance | Conversions | Start Up | Developed | |||||||||||||||
Texas | 129 | 125 | 55 | 73 | 1 | |||||||||||||||
California | 101 | 101 | 68 | 33 | 0 | |||||||||||||||
Kansas | 79 | 78 | 66 | 13 | 0 | |||||||||||||||
Florida | 78 | 77 | 61 | 17 | 0 | |||||||||||||||
Georgia | 42 | 42 | 4 | 38 | 0 | |||||||||||||||
Virginia | 39 | 39 | 31 | 8 | 0 | |||||||||||||||
Missouri | 37 | 36 | 17 | 17 | 3 | |||||||||||||||
Arizona | 31 | 31 | 17 | 13 | 1 | |||||||||||||||
North Carolina | 27 | 26 | 6 | 21 | 0 | |||||||||||||||
Colorado | 23 | 22 | 16 | 5 | 2 | |||||||||||||||
Illinois | 21 | 19 | 14 | 7 | 0 | |||||||||||||||
Ohio | 20 | 20 | 2 | 18 | 0 |
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• | Basic services fees. In exchange for a basic franchise fee of $165,000 per location, Brooke Franchise provides its conversion and start up franchisees with a business model, use of a registered trade name, access to the products of its insurance company suppliers, access to the advertising center, facility support and processing center, and use of its Internet-based management system. |
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• | Buyers assistance fees. For those franchisees acquiring and converting an existing insurance agency into one of its franchised locations, Brooke Franchise provides, among other things, an inspection of the agency to be acquired. Initial franchise fees associated with these services usually equal approximately 50% of the annual gross revenues of the agency to be acquired and converted, less the initial franchise fees for basic services. | |
• | Start up assistance fees. In 2004, Brooke Franchise began recruiting experienced insurance professionals to start up new franchise locations, opening 41 new start up locations that year, 106 new start up locations in 2005, and 152 new start up locations in 2006. Brooke Franchise did not charge any additional initial franchise fees for start up services provided to these franchisees other than its fee for basic services. |
Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Share of Ongoing Revenues(1) | $ | 20,872 | $ | 16,257 | $ | 10,894 | ||||||
Initial Franchise Fees | ||||||||||||
Basic Services | 31,770 | 19,375 | 8,795 | |||||||||
Buyers Assistance | 3,137 | 10,133 | 8,122 | |||||||||
Consulting Fees | 2,731 | 4,916 | 5,236 |
(1) | Share of ongoing revenues represents Brooke Franchise’s insurance commissions less commission expense. |
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FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
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2006 | 2005 | |||||||||||||||||||
Year Ended | % Increase | Year Ended | % Increase | Year Ended | ||||||||||||||||
December 31, | (Decrease) | December 31, | (Decrease) | December 31, | ||||||||||||||||
2006 | Over 2005 | 2005 | Over 2004 | 2004 | ||||||||||||||||
REVENUES | ||||||||||||||||||||
Insurance commissions | $ | 99,190 | 23 | % | $ | 80,490 | 40 | % | $ | 57,619 | ||||||||||
Consulting fees | 2,731 | (44 | ) | 4,916 | (6 | ) | 5,236 | |||||||||||||
Gain on sale of businesses | 3,059 | (1 | ) | 3,091 | (41 | ) | 5,261 | |||||||||||||
Initial franchise fees for basic services | 31,770 | 64 | 19,375 | 120 | 8,795 | |||||||||||||||
Initial franchise fees for buyers assistance plans | 3,137 | (69 | ) | 10,133 | 25 | 8,122 | ||||||||||||||
Interest income | 275 | 98 | 139 | 256 | 39 | |||||||||||||||
Other income | 2,186 | 150 | 874 | 314 | 211 | |||||||||||||||
Total operating revenues | 142,348 | 20 | 119,018 | 40 | 85,283 | |||||||||||||||
EXPENSES | ||||||||||||||||||||
Commission expense | 78,318 | 22 | 64,233 | 37 | 46,725 | |||||||||||||||
Payroll expense | 23,114 | 18 | 19,620 | 74 | 11,262 | |||||||||||||||
Amortization | 68 | — | (14 | ) | (103 | ) | 429 | |||||||||||||
Other operating expenses | 35,241 | 36 | 25,978 | 63 | 15,929 | |||||||||||||||
Total operating expenses | 136,741 | 25 | 109,817 | 48 | 74,345 | |||||||||||||||
Income from operations | 5,607 | (39 | ) | 9,201 | (16 | ) | 10,938 | |||||||||||||
Interest expense | 1,700 | 12 | 1,515 | 13 | 1,344 | |||||||||||||||
Income before income taxes | $ | 3,907 | (49 | )% | $ | 7,686 | (20 | )% | $ | 9,594 | ||||||||||
Total assets (at period end) | $ | 63,043 | 8 | % | $ | 58,141 | 23 | % | $ | 47,300 |
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Three Months | Three Months | 2007 | Six Months | Six Months | 2007 | |||||||||||||||||||
Ended | Ended | % increase | Ended | Ended | % increase | |||||||||||||||||||
June 30, | June 30, | (Decrease) | June 30, | June 30, | (Decrease) | |||||||||||||||||||
2007 | 2006 | Over 2006 | 2007 | 2006 | Over 2006 | |||||||||||||||||||
REVENUES | ||||||||||||||||||||||||
Insurance commissions | $ | 27,615 | $ | 24,739 | 12 | % | $ | 59,623 | $ | 51,376 | 16 | % | ||||||||||||
Consulting fees | 1,113 | 830 | 34 | 1,427 | 1,601 | (11 | ) | |||||||||||||||||
Gain on sale of businesses | 1,161 | 2,414 | (52 | ) | 1,842 | 2,881 | (36 | ) | ||||||||||||||||
Initial franchise fees for basic services | 7,095 | 8,495 | (16 | ) | 19,965 | 14,055 | 42 | |||||||||||||||||
Initial franchise fees for buyers assistance plans | 70 | 1,175 | (94 | ) | 455 | 2,532 | (82 | ) | ||||||||||||||||
Interest income | 96 | 67 | 43 | 173 | 122 | 42 | ||||||||||||||||||
Other income | 695 | 607 | 14 | 1,335 | 1,046 | 28 | ||||||||||||||||||
Total Revenues | 37,845 | 38,327 | (1 | ) | 84,820 | 73,613 | 15 | |||||||||||||||||
EXPENSES | ||||||||||||||||||||||||
Commission expense | 22,126 | 20,142 | 10 | 44,967 | 39,056 | 15 | ||||||||||||||||||
Payroll expense | 5,424 | 5,750 | (6 | ) | 10,985 | 11,434 | (4 | ) | ||||||||||||||||
Depreciation and Amortization | 31 | 17 | 82 | 46 | 34 | 35 | ||||||||||||||||||
Other operating expenses | 10,286 | 9,942 | 3 | 23,777 | 16,602 | 43 | ||||||||||||||||||
Total Operating Expenses | 37,867 | 35,851 | 6, | 79,775 | 67,126 | 19 | ||||||||||||||||||
Income from operations | (22 | ) | 2,476 | (101 | ) | 5,045 | 6,487 | (22 | ) | |||||||||||||||
Interest expense | 705 | 395 | 78 | 1,258 | 820 | 53 | ||||||||||||||||||
Income before income taxes | $ | (727 | ) | $ | 2,081 | (135 | )% | $ | 3,787 | $ | 5,667 | (33 | )% | |||||||||||
Total assets (at period end) | $ | 81,945 | $ | 63,251 | 30 | % | $ | 81,945 | $ | 63,251 | 30 | % |
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and the Corresponding Number of Locations
Start-up Related | Conversion Related | Company Developed | Total Initial | |||||||||||||
Initial Franchise Fees | Initial Franchise Fees | Initial Franchise Fees | Franchise Fees | |||||||||||||
for Basic Services | for Basic Services | for Basic Services | for Basic Services | |||||||||||||
(Locations) | (Locations) | (Locations) | (Locations) | |||||||||||||
(In thousands, except number of locations) | ||||||||||||||||
Year Ended December 31, 2006 | $ | 23,820 | (168) | $ | 7,215 | (55) | $ | 735 | (4) | $ | 31,770 | (227) | ||||
Year Ended December 31, 2005 | 12,375 | (108) | 7,000 | (102) | 0 | (0) | 19,375 | (210) | ||||||||
Year Ended December 31, 2004 | 3,800 | (41) | 4,995 | (115) | 0 | (0) | 8,795 | (156) |
Start-up Related | Conversion Related | Company Developed | ||||||||||||||
Initial Franchise Fees | Initial Franchise Fees | Initial Franchise Fees | Total Initial Franchise | |||||||||||||
for Basic Services | for Basic | for Basic | Fees For Basic | |||||||||||||
(Locations) | Services(Locations) | Services(Locations) | Services(Locations) | |||||||||||||
Three months ended June 30, 2007 | $ | 3,630 | (22) | $ | 2,640 | (13) | $ | 825 | (5) | $ | 7,095 | (40) | ||||
Six-months ended June 30, 2007 | 10,395 | (63) | 7,260 | (55) | 2,310 | (12) | 19,965 | (130) | ||||||||
Three months ended June 30, 2006 | 6,200 | (47) | 2,160 | (16) | 135 | (0) | 8,495 | (63) | ||||||||
Six-months ended June 30, 2006 | 10,440 | (80) | 3,480 | (31) | 135 | (1) | 14,055 | (112) |
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Beginning | Weighted | Weighted | Interest Rate Used | Reduced | Gain on Sale | |||||||||||||||||||||||
Principal | Average | Average | for Net Present | Full Nominal | Carrying | from Deferred | ||||||||||||||||||||||
Balance | Rate | Maturity | Value | Purchase Price | Value | Payments | ||||||||||||||||||||||
(In thousands, except percentages and number of days) | ||||||||||||||||||||||||||||
2006 | $ | 8,047 | 9.41 | % | 464 days | 9.00-9.75 | % | $ | 23,625 | $ | 22,295 | $ | 1,330 | |||||||||||||||
2005 | 10,380 | 7.69 | % | 606 days | 6.75-8.75 | % | 24,045 | 22,860 | 1,185 | |||||||||||||||||||
2004 | 7,669 | 5.91 | % | 807 days | 5.50-6.75 | % | 8,221 | 7,411 | 810 |
Interest Rate | ||||||||||||||||||||||||||||
Beginning | Weighted | Weighted | Used for | Reduced | Gain on Sale | |||||||||||||||||||||||
Principal | Average | Average | Net Present | Full Nominal | Carrying | from Deferred | ||||||||||||||||||||||
Balance | Rate | Maturity | Value | Purchase Price | Value | Payments | ||||||||||||||||||||||
Three months ended June 30, 2007 | $ | 3,683 | 9.75 | % | 602 days | 9.75 | % | $ | 13,598 | $ | 13,155 | $ | 443 | |||||||||||||||
Six months ended June 30, 2007 | 9,561 | 9.75 | % | 514 days | 9.75 | % | 23,982 | 22,858 | 1,124 | |||||||||||||||||||
Three months ended June 30, 2006 | 4,890 | 9.49 | % | 731 days | 9.25-9.50 | % | 16,203 | 15,472 | 731 | |||||||||||||||||||
Six months ended June 31, 2006 | 6,932 | 9.35 | % | 947 days | 9.00-9.50 | % | 21,129 | 19,950 | 1,179 |
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As of | As of | |||||||
December 31, | December 31, | |||||||
2006 | 2005 | |||||||
Total Statement Balances | $ | 6,214 | $ | 4,047 | ||||
Uncollected Accounts* (Included in Above Total Statement Balances) | $ | 3,778 | $ | 3,681 | ||||
Watch Statement Balances (Included in Above Total Statement Balances) | $ | 5,476 | $ | 1,859 | ||||
Watch Statement Uncollected Accounts** | $ | 1,804 | $ | 865 |
* | These amounts are limited to uncollected balances for franchisees with unpaid statement balances as of December 2006 and 2005. | |
** | These amounts are limited to uncollected balances for franchisees with watch statement balances as of December 2006 and 2005. |
As of | As of | |||||||
June 30, | December 31, | |||||||
2007 | 2006 | |||||||
Total Statement Balances | $ | 6,552 | $ | 6,214 | ||||
Uncollected Accounts* (Included in Above Total Statement Balances) | $ | 3,378 | $ | 3,778 | ||||
Watch Statement Balances (Included in Above Total Statement Balances) | $ | 5,866 | $ | 5,476 | ||||
Watch Statement Uncollected Accounts** | $ | 1,152 | $ | 1,804 |
* | These amounts are limited to uncollected balances for franchisees with unpaid statement balances as of June 2007 and December 2006. | |
** | These amounts are limited to uncollected balances for franchisees with watch statement balances as of June 2007 and December 2006. |
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Write off | ||||||||||||||||||||
Balance at | Write off | Non- | Balance at | |||||||||||||||||
Beginning | Charges to | Statement | Statement | End of | ||||||||||||||||
of Year | Expenses | Balances | Balances | Year | ||||||||||||||||
Allowance for Doubtful Accounts | ||||||||||||||||||||
Year ended December 31, 2004 | $ | 0 | $ | 1,757 | $ | 1,182 | $ | 0 | $ | 575 | ||||||||||
Year ended December 31, 2005 | 575 | 2,974 | 1,336 | 1,497 | 716 | |||||||||||||||
Year ended December 31, 2006 | $ | 716 | $ | 4,313 | $ | 3,026 | $ | 537 | $ | 1,466 |
Write off | ||||||||||||||||||||
Balance at | Write off | Non- | ||||||||||||||||||
Beginning | Charges to | Statement | Statement | Balance at | ||||||||||||||||
of Year | Expenses | Balances | Balances | End of Year | ||||||||||||||||
Allowance for Doubtful Accounts | ||||||||||||||||||||
Year ended December 31, 2006 | $ | 716 | $ | 4,313 | $ | 3,026 | $ | 537 | $ | 1,466 | ||||||||||
Six months ended June 30, 2007 | $ | 1,466 | $ | 4,383 | $ | 3,368 | $ | 815 | $ | 1,666 |
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Payments Due by Period | ||||||||||||||||||||
Less than | 1 to 3 | 3 to 5 | More than | |||||||||||||||||
Contractual Obligations | Total | 1 Year | Years | Years | 5 Years | |||||||||||||||
Short-term borrowings | $ | 10,172 | $ | 10,172 | $ | — | $ | — | $ | — | ||||||||||
Long-term debt | 27,808 | 17,915 | 5,514 | 1,082 | 3,297 | |||||||||||||||
Interest payments* | 6,171 | 2,872 | 1,433 | 744 | 1,122 | |||||||||||||||
Operating leases (facilities) | 27,336 | 10,162 | 13,973 | 3,192 | 9 | |||||||||||||||
Total | $ | 71,487 | $ | 41,121 | $ | 20,920 | $ | 5,018 | $ | 4,428 |
* | Includes interest on short-term and long-term borrowings. For additional information on the debt associated with these interest payments see the footnotes to our financial statements. |
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2006% | Six Months | 2007% | Six Months | |||||||||||||||||||||
Year Ended | Increase | Year Ended | Ended | Increase | Ended | |||||||||||||||||||
December 31, | (Decrease) | December 31, | June 30 | (Decrease) | June 30 | |||||||||||||||||||
2006 | Over 2005 | 2005 | 2007 | Over 2006 | 2006 | |||||||||||||||||||
Premium Earned | $ | 9,715,210 | — | $ | 9,702,180 | $ | 6,086,682 | 28 | $ | 4,750,809 | ||||||||||||||
Commission income | 3,799,245 | 25 | 3,048,762 | 1,098,721 | (44 | ) | 1,946,123 | |||||||||||||||||
Management fees earned | 1,479,046 | 35 | 1,099,336 | 488,097 | (38 | ) | 782,138 | |||||||||||||||||
Net investment income | 346,131 | 8 | 321,105 | 229,949 | 1 | 228,246 | ||||||||||||||||||
Net realized gains/(losses) on sales of investments | 100,299 | — | (9,808 | ) | — | (100 | ) | 4,948 | ||||||||||||||||
Other income | 266,159 | 24 | 214,531 | 119,538 | 9 | 109,737 | ||||||||||||||||||
Total Revenues | 15,706,090 | 9 | 14,376,106 | 8,022,987 | 3 | 7,822,001 | ||||||||||||||||||
Losses and loss adjustment expenses | 6,836,572 | 12 | 6,084,269 | 3,704,058 | 74 | 2,130,648 | ||||||||||||||||||
General and administrative expenses | 8,986,668 | 21 | 7,417,243 | 4,193,582 | (10 | ) | 4,669,754 | |||||||||||||||||
Interest expense | 413,046 | (7 | ) | 442,620 | 117,351 | (44 | ) | 210,291 | ||||||||||||||||
Total Expenses | 16,236,286 | 16 | 13,944,132 | 8,014,991 | 14 | 7,010,693 | ||||||||||||||||||
(Loss)/Income before Income Taxes | (530,196 | ) | (223 | ) | 431,974 | 7,996 | (99 | ) | �� | 811,308 | ||||||||||||||
Federal income tax benefit/(expense) | 585,707 | — | (188,625 | ) | 88,684 | — | (328,695 | ) | ||||||||||||||||
Net Income | $ | 55,511 | (77 | ) | $ | 243,349 | $ | 96,680 | (80 | ) | $ | 482,613 | ||||||||||||
Other Comprehensive Income, net of tax | ||||||||||||||||||||||||
Net Income | $ | 55,511 | (77 | ) | $ | 243,349 | $ | 96,680 | (80 | ) | $ | 482,613 | ||||||||||||
Net unrealized holding losses arising during the period | (92,762 | ) | — | (120,944 | ) | 8,500 | — | (63,501 | ) | |||||||||||||||
Less: reclassification adjustment for realized gains/(losses) included in net income | 66,197 | — | (6,473 | ) | — | — | — | |||||||||||||||||
Other Comprehensive Loss | (26,565 | ) | — | (127,417 | ) | 8,500 | — | (63,501 | ) | |||||||||||||||
Comprehensive Income | $ | 28,946 | (75 | ) | $ | 115,932 | $ | 105,180 | (75 | ) | $ | 419,112 | ||||||||||||
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2006% | 2007% | |||||||||||||||||||||||
As of | Increase | As of | As of | Increase | As of | |||||||||||||||||||
December 31, | (Decrease) | December 31, | June 30 | (Decrease) | June 30 | |||||||||||||||||||
2006 | Over 2005 | 2005 | 2007 | Over 2006 | 2006 | |||||||||||||||||||
Investments available for sale | $ | 9,210,002 | 6 | $ | 8,716,452 | $ | 9,218,686 | 1 | $ | 9,104,950 | ||||||||||||||
Cash & cash equivalents | 1,164,036 | (48 | ) | 2,244,164 | 2,296,252 | 58 | 1,449,753 | |||||||||||||||||
Accounts receivable | 412,105 | (2 | ) | 422,286 | 491,006 | (16 | ) | 584,883 | ||||||||||||||||
Premiums receivable | 2,154,945 | 59 | 1,355,618 | 2,668,283 | 45 | 1,840,946 | ||||||||||||||||||
Ceding commission receivable | — | (100 | ) | 190,554 | — | — | — | |||||||||||||||||
Reinsurance recoverable — paid losses | 222,326 | (42 | ) | 386,191 | 511,707 | 17 | 435,834 | |||||||||||||||||
Reinsurance recoverable — unpaid losses | 2,113,167 | 15 | 1,835,019 | 2,000,200 | 20 | 1,666,053 | ||||||||||||||||||
Prepaid reinsurance premiums | 910,228 | 49 | 609,154 | 1,184,694 | 53 | 773,032 | ||||||||||||||||||
Deferred policy acquisition costs | 365,378 | 30 | 281,523 | 696,772 | 143 | 286,337 | ||||||||||||||||||
Income tax receivable | 683,254 | 5,277 | 12,706 | 674,878 | — | — | ||||||||||||||||||
Net deferred income tax asset | 405,129 | (7 | ) | 433,592 | 353,088 | (39 | ) | 576,978 | ||||||||||||||||
Note receivable — related party | 163,401 | — | 163,401 | 163,401 | — | 163,401 | ||||||||||||||||||
Goodwill | 944,790 | (4 | ) | 980,843 | 944,790 | — | 944,790 | |||||||||||||||||
Other assets | 1,326,214 | 23 | 1,076,698 | 584,971 | (28 | ) | 807,881 | |||||||||||||||||
Total Assets | $ | 20,074,975 | 7 | $ | 18,708,201 | $ | 21,788,728 | 17 | $ | 18,634,838 | ||||||||||||||
Loss and loss adjustment expenses | $ | 7,749,327 | 7 | $ | 7,221,220 | $ | 7,897,779 | 20 | $ | 6,582,908 | ||||||||||||||
Unearned premiums | 3,033,170 | 49 | 2,029,591 | 3,948,057 | 53 | 2,575,852 | ||||||||||||||||||
Reinsurance payable | 857,691 | 1 | 845,648 | 1,698,368 | 165 | 641,560 | ||||||||||||||||||
Accounts payable and accrued expenses | 762,785 | 83 | 416,816 | 361,301 | (52 | ) | 748,232 | |||||||||||||||||
Parent payable | — | — | — | 4,596,015 | — | — | ||||||||||||||||||
Notes payable | 5,202,789 | (3 | ) | 5,378,280 | 535,834 | (90 | ) | 5,185,183 | ||||||||||||||||
Other liabilities | 1,201,284 | (24 | ) | 1,577,663 | 1,874,265 | 51 | 1,243,008 | |||||||||||||||||
Total Liabilities | 18,807,046 | 8 | 17,469,218 | 20,911,619 | 23 | 16,976,743 | ||||||||||||||||||
Common Stock | 1,000 | — | 1,000 | 1,000 | — | 1,000 | ||||||||||||||||||
Accumulated other comprehensive income | (127,362 | ) | — | (100,797 | ) | (118,862 | ) | — | (164,298 | ) | ||||||||||||||
Retained earnings | 1,394,291 | 4 | 1,338,780 | 994,971 | (45 | ) | 1,821,393 | |||||||||||||||||
Total Stockholders’ equity | 1,267,929 | 2 | 1,238,983 | 877,109 | (47 | ) | 1,658,095 | |||||||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 20,074,975 | 7 | $ | 18,708,201 | $ | 21,788,728 | 17 | $ | 18,634,838 | ||||||||||||||
93
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94
Table of Contents
Brooke | Brooke | |||||||||||||||||||||||||||
Capital | Franchise | |||||||||||||||||||||||||||
Corporation | Corporation | Proforma | Delta Plus | Proforma | ||||||||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | June 30, | ||||||||||||||||||||||||
2007 | 2007 | Adjustments | 2007 | 2007 | Adjustments | 2007 | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||||||
Investments: | ||||||||||||||||||||||||||||
Securities available-for-sale, at fair value: | ||||||||||||||||||||||||||||
Fixed maturities | $ | 16,384 | — | $ | 16,384 | $ | 9,219 | $ | 25,603 | |||||||||||||||||||
Equity securities | 240 | — | 240 | 240 | ||||||||||||||||||||||||
Investments in real estate | 275 | — | 275 | 275 | ||||||||||||||||||||||||
Policy loans | 181 | — | 181 | 181 | ||||||||||||||||||||||||
Mortgage loans on real estate | 1,899 | — | 1,899 | 1,899 | ||||||||||||||||||||||||
Other investments | 3,461 | — | 3,461 | 3,461 | ||||||||||||||||||||||||
Total investments | 22,440 | — | — | 22,440 | 9,219 | — | 31,659 | |||||||||||||||||||||
Cash | 4,805 | 16,696 | 23,014 | 22,187 | 2,296 | 1,209 | 23,096 | |||||||||||||||||||||
(22,328 | ) | (4,596 | ) | |||||||||||||||||||||||||
2,000 | ||||||||||||||||||||||||||||
Restricted cash | — | 685 | 685 | 685 | ||||||||||||||||||||||||
Accounts receivable | 429 | 15,128 | 15,557 | 3,159 | 18,716 | |||||||||||||||||||||||
Other receivables | 180 | 8,924 | 9,104 | 2,512 | 11,616 | |||||||||||||||||||||||
Deposits and prepaid expense | — | 132 | 132 | 1,185 | 1,317 | |||||||||||||||||||||||
Income tax receivable | 1,028 | 1,028 | ||||||||||||||||||||||||||
Receivable from parent company | — | 23,014 | (23,014 | ) | — | — | ||||||||||||||||||||||
Advertising supply inventory | — | 785 | 785 | 785 | ||||||||||||||||||||||||
Total current assets | 27,854 | 65,364 | (22,328 | ) | 70,890 | 19,399 | (1,387 | ) | 88,902 | |||||||||||||||||||
Investment in businesses | — | 3,766 | 3,766 | 3,766 | ||||||||||||||||||||||||
Property and Equipment | 3,586 | 15,607 | 19,193 | 19,193 | ||||||||||||||||||||||||
Less: Accumulated depreciation | (1,007 | ) | (3,376 | ) | (4,383 | ) | (4,383 | ) | ||||||||||||||||||||
Net Property and Equipment | 2,579 | 12,231 | — | 14,810 | — | — | 14,810 | |||||||||||||||||||||
Other assets | ||||||||||||||||||||||||||||
Amortizable intangible assets | 10,149 | — | 10,149 | 697 | 10,846 | |||||||||||||||||||||||
Accumulated amortizations | (4,809 | ) | — | (4,809 | ) | (4,809 | ) | |||||||||||||||||||||
Goodwill | 945 | 945 | ||||||||||||||||||||||||||
Other assets | 1,013 | 584 | 1,597 | 748 | 2,345 | |||||||||||||||||||||||
Total other assets | 6,353 | 584 | — | 6,937 | 2,390 | — | 9,327 | |||||||||||||||||||||
Total assets | $ | 36,786 | $ | 81,945 | $ | (22,328 | ) | $ | 96,403 | $ | 21,789 | $ | (1,387 | ) | $ | 116,805 | ||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||||
Policy and contract liabilities | $ | 23,692 | — | $ | 23,692 | $ | 3,948 | $ | 27,640 | |||||||||||||||||||
IBNR loss reserve | — | 7,898 | 7,898 | |||||||||||||||||||||||||
Accounts payable | 707 | 7,999 | 8,706 | 3,134 | 11,840 | |||||||||||||||||||||||
Premiums payable to insurance companies | — | 5,229 | 5,229 | 5,229 | ||||||||||||||||||||||||
Producer payable | — | 5,132 | 5,132 | 5,132 | ||||||||||||||||||||||||
Interest payable | — | 1,425 | 1,425 | 1,425 | ||||||||||||||||||||||||
Income tax payable | 663 | 1,362 | 2,025 | 2,025 | ||||||||||||||||||||||||
Accrued commission refunds | — | 489 | 489 | 800 | 1,289 | |||||||||||||||||||||||
Current maturities of long-term debt | — | 27,609 | 27,609 | 5,132 | (4,596 | ) | 30,145 | |||||||||||||||||||||
2,000 | ||||||||||||||||||||||||||||
Total current liabilities | 25,062 | 49,245 | — | 74,307 | 20,912 | (2,596 | ) | 92,623 | ||||||||||||||||||||
Deferred income tax payable | 422 | — | 422 | 422 | ||||||||||||||||||||||||
Long-term debt less current maturities | — | 10,372 | 10,372 | 10,372 | ||||||||||||||||||||||||
Total liabilities | 25,484 | 59,617 | — | 85,101 | 20,912 | (2,596 | ) | 103,417 | ||||||||||||||||||||
Stockholders’ equity | ||||||||||||||||||||||||||||
Common stock | 32 | 17 | (17 | ) | 82 | 1 | (1 | ) | 87 | |||||||||||||||||||
50 | 5 | |||||||||||||||||||||||||||
— | ||||||||||||||||||||||||||||
Less: Treasury stock | (736 | ) | (115 | ) | 115 | (736 | ) | (736 | ) | |||||||||||||||||||
Additional paid-in capital | 14,919 | 6,026 | (6,026 | ) | 14,869 | 2,086 | 16,950 | |||||||||||||||||||||
(50 | ) | (5 | ) | |||||||||||||||||||||||||
Accumulated other comprehensive loss | (512 | ) | (512 | ) | (119 | ) | 119 | (512 | ) | |||||||||||||||||||
Retained earnings | (2,401 | ) | 16,400 | (16,400 | ) | (2,401 | ) | 995 | 1,209 | (2,401 | ) | |||||||||||||||||
(2,204 | ) | |||||||||||||||||||||||||||
Total stockholders’ equity | 11,302 | 22,328 | (22,328 | ) | 11,302 | 877 | 1,209 | 13,388 | ||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 36,786 | $ | 81,945 | $ | (22,328 | ) | $ | 96,403 | $ | 21,789 | $ | (1,387 | ) | $ | 116,805 |
95
Table of Contents
Brooke | Brooke | |||||||||||||||||||||||||||
Capital | Franchise | |||||||||||||||||||||||||||
Corporation | Corporation | Proforma | Delta Plus | Proforma | ||||||||||||||||||||||||
for Six | for Six | for Six | for Six | for Six | ||||||||||||||||||||||||
Months | Months | Months | Months | Months | ||||||||||||||||||||||||
Ended | Ended | Ended | Ended | Ended | ||||||||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | June 30, | ||||||||||||||||||||||||
2007 | 2007 | Adjustments | 2007 | 2007 | Adjustments | 2007 | ||||||||||||||||||||||
(In thousands, except share data) | ||||||||||||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||||||
Gross premium income | $ | 2,187 | — | $ | 2,187 | $ | 6,087 | $ | 8,274 | |||||||||||||||||||
Reinsurance premiums assumed | 9 | — | 9 | 9 | ||||||||||||||||||||||||
Reinsurance premiums ceded | (274 | ) | — | (274 | ) | (274 | ) | |||||||||||||||||||||
Net premium income | 1,922 | — | — | 1,922 | 6,087 | — | 8,009 | |||||||||||||||||||||
Insurance commissions | — | 59,623 | 59,623 | 1,099 | 60,722 | |||||||||||||||||||||||
Consulting fees | 4,245 | 1,427 | 5,672 | 488 | 6,160 | |||||||||||||||||||||||
Gain on sale of businesses | — | 1,842 | 1,842 | 1,842 | ||||||||||||||||||||||||
Initial franchise fee for | ||||||||||||||||||||||||||||
basic services | — | 19,965 | 19,965 | 19,965 | ||||||||||||||||||||||||
Initial franchise fee for | ||||||||||||||||||||||||||||
buyers assistance plans | — | 455 | 455 | 455 | ||||||||||||||||||||||||
Net investment income | 676 | 173 | 849 | 230 | 1,079 | |||||||||||||||||||||||
Net realized investment gain | ||||||||||||||||||||||||||||
(loss) | 81 | — | 81 | — | 81 | |||||||||||||||||||||||
Interest Income | — | — | — | — | ||||||||||||||||||||||||
Other income | 119 | 1,335 | 1,454 | 119 | 1,573 | |||||||||||||||||||||||
Total income | 7,043 | 84,820 | — | 91,863 | 8,023 | — | 99,886 | |||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||
Increase in policy reserves | 482 | — | 482 | 482 | ||||||||||||||||||||||||
Policy holder surrender values | 146 | — | 146 | 146 | ||||||||||||||||||||||||
Interest credited on annuities | ||||||||||||||||||||||||||||
and premium deposits | 366 | — | 366 | 366 | ||||||||||||||||||||||||
Death claims | 417 | — | 417 | 417 | ||||||||||||||||||||||||
Policy acquisition costs | ||||||||||||||||||||||||||||
deferred | (489 | ) | — | (489 | ) | (489 | ) | |||||||||||||||||||||
Commission expense | 498 | 44,967 | 45,465 | (720 | ) | 44,745 | ||||||||||||||||||||||
Payroll expense | 1,228 | 10,985 | 12,213 | 2,616 | 14,829 | |||||||||||||||||||||||
Depreciation and amortization | 359 | 46 | 405 | 68 | 473 | |||||||||||||||||||||||
Insurance loss and loss expense | — | — | 3,704 | 3,704 | ||||||||||||||||||||||||
Other operating expense | 1,416 | 23,777 | 25,193 | 2,230 | 27,423 | |||||||||||||||||||||||
Total operating expenses | 4,423 | 79,775 | — | 84,198 | 7,898 | — | 92,096 | |||||||||||||||||||||
Income from operations | 2,620 | 5,045 | — | 7,665 | 125 | — | 7,790 | |||||||||||||||||||||
Other Expenses | ||||||||||||||||||||||||||||
Interest expense | — | 1,258 | 1,258 | 117 | 1,375 | |||||||||||||||||||||||
Total other expenses | — | 1,258 | — | 1,258 | 117 | — | 1,375 | |||||||||||||||||||||
Income before income taxes | 2,620 | 3,787 | — | 6,407 | 8 | — | 6,415 | |||||||||||||||||||||
Provision for income taxes | 888 | 1,439 | 2,327 | (89 | ) | 2,238 | ||||||||||||||||||||||
Net income | $ | 1,732 | $ | 2,348 | — | $ | 4,080 | $ | 97 | — | $ | 4,177 | ||||||||||||||||
Earnings per share: | ||||||||||||||||||||||||||||
Basic earnings per share | 0.57 | 0.46 | 0.47 | |||||||||||||||||||||||||
Basic weighted average shares | 3,063,890 | 8,953,890 | 8,953,890 | |||||||||||||||||||||||||
Diluted earnings per share | 0.57 | 0.37 | 0.38 | |||||||||||||||||||||||||
Diluted weighted average shares | 3,063,890 | 10,963,890 | 10,963,890 |
96
Table of Contents
Brooke | Brooke | |||||||||||||||||||||||||||
Capital | Franchise | |||||||||||||||||||||||||||
Corporation | Corporation | Proforma | Delta Plus | Proforma | ||||||||||||||||||||||||
for Six | for Six | for Six | for Six | for Six | ||||||||||||||||||||||||
Months | Months | Months | Months | Months | ||||||||||||||||||||||||
Ended | Ended | Ended | Ended | Ended | ||||||||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | June 30, | ||||||||||||||||||||||||
2007 | 2007 | Adjustments | 2007 | 2007 | Adjustments | 2007 | ||||||||||||||||||||||
(In thousands, except share data) | ||||||||||||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||||||
Gross premium income | $ | 2,187 | — | $ | 2,187 | $ | 6,087 | $ | 8,274 | |||||||||||||||||||
Reinsurance premiums assumed | 9 | — | 9 | 9 | ||||||||||||||||||||||||
Reinsurance premiums ceded | (274 | ) | — | (274 | ) | (274 | ) | |||||||||||||||||||||
Net premium income | 1,922 | — | — | 1,922 | 6,087 | — | 8,009 | |||||||||||||||||||||
Insurance commissions | — | 59,623 | 59,623 | 1,099 | 60,722 | |||||||||||||||||||||||
Consulting fees | 4,245 | 1,427 | 5,672 | 488 | 6,160 | |||||||||||||||||||||||
Gain on sale of businesses | — | 1,842 | 1,842 | 1,842 | ||||||||||||||||||||||||
Initial franchise fee for | ||||||||||||||||||||||||||||
basic services | — | 19,965 | 19,965 | 19,965 | ||||||||||||||||||||||||
Initial franchise fee for | ||||||||||||||||||||||||||||
buyers assistance plans | — | 455 | 455 | 455 | ||||||||||||||||||||||||
Net investment income | 676 | 173 | 849 | 230 | 1,079 | |||||||||||||||||||||||
Net realized investment gain | ||||||||||||||||||||||||||||
(loss) | 81 | — | 81 | — | 81 | |||||||||||||||||||||||
Interest Income | — | — | — | — | ||||||||||||||||||||||||
Other income | 119 | 1,335 | 1,454 | 119 | 1,573 | |||||||||||||||||||||||
Total income | 7,043 | 84,820 | — | 91,863 | 8,023 | — | 99,886 | |||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||
Increase in policy reserves | 482 | — | 482 | 482 | ||||||||||||||||||||||||
Policy holder surrender values | 146 | — | 146 | 146 | ||||||||||||||||||||||||
Interest credited on annuities and premium deposits | 366 | — | 366 | 366 | ||||||||||||||||||||||||
Death claims | 417 | — | 417 | 417 | ||||||||||||||||||||||||
Policy acquisition costs | ||||||||||||||||||||||||||||
deferred | (489 | ) | — | (489 | ) | (489 | ) | |||||||||||||||||||||
Commission expense | 498 | 44,967 | 45,465 | (720 | ) | 44,745 | ||||||||||||||||||||||
Payroll expense | 1,228 | 10,985 | 12,213 | 2,616 | 14,829 | |||||||||||||||||||||||
Depreciation and amortization | 359 | 46 | 405 | 68 | 473 | |||||||||||||||||||||||
Insurance loss and loss expense | — | — | 3,704 | 3,704 | ||||||||||||||||||||||||
Other operating expense | 1,416 | 23,777 | 25,193 | 2,230 | 27,423 | |||||||||||||||||||||||
Total operating expenses | 4,423 | 79,775 | — | 84,198 | 7,898 | — | 92,096 | |||||||||||||||||||||
Income from operations | 2,620 | 5,045 | — | 7,665 | 125 | — | 7,790 | |||||||||||||||||||||
Other Expenses | ||||||||||||||||||||||||||||
Interest expense | — | 1,258 | 1,258 | 117 | 1,375 | |||||||||||||||||||||||
Total other expenses | — | 1,258 | — | 1,258 | 117 | — | 1,375 | |||||||||||||||||||||
Income before income taxes | 2,620 | 3,787 | — | 6,407 | 8 | — | 6,415 | |||||||||||||||||||||
Provision for income taxes | 888 | 1,439 | 2,327 | (89 | ) | 2,238 | ||||||||||||||||||||||
Net income | $ | 1,732 | $ | 2,348 | — | $ | 4,080 | $ | 97 | — | $ | 4,177 | ||||||||||||||||
Earnings per share: | ||||||||||||||||||||||||||||
Basic earnings per share | 0.57 | 0.40 | 0.41 | |||||||||||||||||||||||||
Basic weighted average shares | 3,063,890 | 10,203,890 | 10,203,890 | |||||||||||||||||||||||||
Diluted earnings per share | 0.57 | 0.30 | 0.31 | |||||||||||||||||||||||||
Diluted weighted average shares | 3,063,890 | 13,463,890 | 13,463,890 |
97
Table of Contents
Brooke | Brooke | |||||||||||||||||||||||||||
Capital | Franchise | |||||||||||||||||||||||||||
Corporation | Corporation | Proforma | Delta Plus | Proforma | ||||||||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||||
2006 | 2006 | Adjustments | 2006 | 2006 | Adjustments | 2006 | ||||||||||||||||||||||
(In thousands, except share data) | ||||||||||||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||||||
Gross premium income | $ | 4,253 | — | $ | 4,253 | $ | 9,715 | $ | 13,968 | |||||||||||||||||||
Reinsurance premiums | ||||||||||||||||||||||||||||
assumed | 12 | — | 12 | 12 | ||||||||||||||||||||||||
Reinsurance premiums ceded | (588 | ) | — | (588 | ) | (588 | ) | |||||||||||||||||||||
Net premium income | 3,677 | — | — | 3,677 | 9,715 | — | 13,392 | |||||||||||||||||||||
Insurance commissions | — | 99,190 | 99,190 | 3,799 | 102,989 | |||||||||||||||||||||||
Consulting fees | 1,199 | 2,731 | 3,930 | 1,479 | 5,409 | |||||||||||||||||||||||
Gain on sale of businesses | — | 3,059 | 3,059 | 3,059 | ||||||||||||||||||||||||
Initial franchise fee for basic services | — | 31,770 | 31,770 | 31,770 | ||||||||||||||||||||||||
Initial franchise fee for buyers assistance plans | — | 3,137 | 3,137 | 3,137 | ||||||||||||||||||||||||
Net investment income | 1,086 | 275 | 1,361 | 346 | 1,707 | |||||||||||||||||||||||
Net realized investment gain (loss) | (40 | ) | — | (40 | ) | 101 | 61 | |||||||||||||||||||||
Interest Income | — | — | — | — | ||||||||||||||||||||||||
Other income | 240 | 2,186 | 2,426 | 266 | 2,692 | |||||||||||||||||||||||
Total income | 6,162 | 142,348 | — | 148,510 | 15,706 | — | 164,216 | |||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||
Increase in policy reserves | 841 | — | 841 | 841 | ||||||||||||||||||||||||
Policy holder surrender values | 270 | — | 270 | 270 | ||||||||||||||||||||||||
Interest credited on annuities and premium deposits | 579 | — | 579 | 579 | ||||||||||||||||||||||||
Death claims | 737 | — | 737 | 737 | ||||||||||||||||||||||||
Policy acquisition costs deferred | (814 | ) | — | (814 | ) | (814 | ) | |||||||||||||||||||||
Commission expense | 809 | 78,318 | 79,127 | (720 | ) | 78,407 | ||||||||||||||||||||||
Payroll expense | 934 | 23,114 | 24,048 | 5,385 | 29,433 | |||||||||||||||||||||||
Depreciation and amortization | 738 | 68 | 806 | 166 | 972 | |||||||||||||||||||||||
Insurance loss and loss expense | — | — | 6,837 | 6,837 | ||||||||||||||||||||||||
Other operating expense | 1,300 | 35,241 | 36,541 | 4,155 | 40,696 | |||||||||||||||||||||||
Total operating expenses | 5,394 | 136,741 | — | 142,135 | 15,823 | — | 157,958 | |||||||||||||||||||||
Income from operations | 768 | 5,607 | — | 6,375 | (117 | ) | — | 6,258 | ||||||||||||||||||||
Other Expenses | ||||||||||||||||||||||||||||
Interest expense | — | 1,700 | 1,700 | 413 | 2,113 | |||||||||||||||||||||||
Total other expenses | — | 1,700 | — | 1,700 | 413 | — | 2,113 | |||||||||||||||||||||
Income before income taxes | 768 | 3,907 | — | 4,675 | (530 | ) | — | 4,145 | ||||||||||||||||||||
Provision for income taxes | 12 | 1,485 | 1,497 | (586 | ) | 911 | ||||||||||||||||||||||
Net income | $ | 756 | $ | 2,422 | — | $ | 3,178 | $ | 56 | — | $ | 3,234 | ||||||||||||||||
Earnings per share: | ||||||||||||||||||||||||||||
Basic earnings per share | 0.50 | 0.43 | 0.44 | |||||||||||||||||||||||||
Basic weighted average | ||||||||||||||||||||||||||||
shares | 1,497,638 | 7,387,638 | 7,387,638 | |||||||||||||||||||||||||
Diluted earnings per share | 0.39 | 0.32 | 0.33 | |||||||||||||||||||||||||
Diluted weighted average | ||||||||||||||||||||||||||||
shares | 1,958,672 | 9,858,672 | 9,858,672 |
98
Table of Contents
Brooke | Brooke | |||||||||||||||||||||||||||
Capital | Franchise | |||||||||||||||||||||||||||
Corporation | Corporation | Proforma | Delta Plus | Proforma | ||||||||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||||
2006 | 2006 | Adjustments | 2006 | 2006 | Adjustments | 2006 | ||||||||||||||||||||||
(In thousands, except share data) | ||||||||||||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||||||
Gross premium income | $ | 4,253 | — | $ | 4,253 | $ | 9,715 | $ | 13,968 | |||||||||||||||||||
Reinsurance premiums assumed | 12 | — | 12 | 12 | ||||||||||||||||||||||||
Reinsurance premiums ceded | (588 | ) | — | (588 | ) | (588 | ) | |||||||||||||||||||||
Net premium income | 3,677 | — | — | 3,677 | 9,715 | — | 13,392 | |||||||||||||||||||||
Insurance commissions | — | 99,190 | 99,190 | 3,799 | 102,989 | |||||||||||||||||||||||
Consulting fees | 1,199 | 2,731 | 3,930 | 1,479 | 5,409 | |||||||||||||||||||||||
Gain on sale of businesses | — | 3,059 | 3,059 | 3,059 | ||||||||||||||||||||||||
Initial franchise fee for basic services | — | 31,770 | 31,770 | 31,770 | ||||||||||||||||||||||||
Initial franchise fee for buyers assistance plans | — | 3,137 | 3,137 | 3,137 | ||||||||||||||||||||||||
Net investment income | 1,086 | 275 | 1,361 | 346 | 1,707 | |||||||||||||||||||||||
Net realized investment gain (loss) | (40 | ) | — | (40 | ) | 101 | 61 | |||||||||||||||||||||
Interest Income | — | — | — | — | ||||||||||||||||||||||||
Other income | 240 | 2,186 | 2,426 | 266 | 2,692 | |||||||||||||||||||||||
Total income | 6,162 | 142,348 | — | 148,510 | 15,706 | — | 164,216 | |||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||
Increase in policy reserves | 841 | — | 841 | 841 | ||||||||||||||||||||||||
Policy holder surrender values | 270 | — | 270 | 270 | ||||||||||||||||||||||||
Interest credited on annuities and premium deposits | 579 | — | 579 | 579 | ||||||||||||||||||||||||
Death claims | 737 | — | 737 | 737 | ||||||||||||||||||||||||
Policy acquisition costs deferred | (814 | ) | — | (814 | ) | (814 | ) | |||||||||||||||||||||
Commission expense | 809 | 78,318 | 79,127 | (720 | ) | 78,407 | ||||||||||||||||||||||
Payroll expense | 934 | 23,114 | 24,048 | 5,385 | 29,433 | |||||||||||||||||||||||
Depreciation and amortization | 738 | 68 | 806 | 166 | 972 | |||||||||||||||||||||||
Insurance loss and loss expense | — | — | 6,837 | 6,837 | ||||||||||||||||||||||||
Other operating expense | 1,300 | 35,241 | 36,541 | 4,155 | 40,696 | |||||||||||||||||||||||
Total operating expenses | 5,394 | 136,741 | — | 142,135 | 15,823 | — | 157,958 | |||||||||||||||||||||
Income from operations | 768 | 5,607 | — | 6,375 | (117 | ) | — | 6,258 | ||||||||||||||||||||
Other Expenses | ||||||||||||||||||||||||||||
Interest expense | — | 1,700 | 1,700 | 413 | 2,113 | |||||||||||||||||||||||
Total other expenses | — | 1,700 | — | 1,700 | 413 | — | 2,113 | |||||||||||||||||||||
Income before income taxes | 768 | 3,907 | — | 4,675 | (530 | ) | — | 4,145 | ||||||||||||||||||||
Provision for income taxes | 12 | 1,485 | 1,497 | (586 | ) | 911 | ||||||||||||||||||||||
Net income | $ | 756 | $ | 2,422 | — | $ | 3,178 | $ | 56 | — | $ | 3,234 | ||||||||||||||||
Earnings per share: | ||||||||||||||||||||||||||||
Basic earnings per share | 0.50 | 0.37 | 0.37 | |||||||||||||||||||||||||
Basic weighted average shares | 1,497,638 | 8,637,638 | 8,637,638 | |||||||||||||||||||||||||
Diluted earnings per share | 0.39 | 0.26 | 0.26 | |||||||||||||||||||||||||
Diluted weighted average shares | 1,958,672 | 12,358,672 | 12,358,672 |
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Brooke | Brooke | |||||||||||||||||||||||||||
Capital | Franchise | |||||||||||||||||||||||||||
Corporation | Corporation | Proforma | Delta Plus | Proforma | ||||||||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||||
2005 | 2005 | Adjustments | 2005 | 2005 | Adjustments | 2005 | ||||||||||||||||||||||
(In thousands, except share data) | ||||||||||||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||||||
Gross premium income | $ | 4,201 | — | $ | 4,201 | $ | 9,702 | $ | 13,903 | |||||||||||||||||||
Reinsurance premiums assumed | 12 | — | 12 | 12 | ||||||||||||||||||||||||
Reinsurance premiums ceded | (420 | ) | — | (420 | ) | (420 | ) | |||||||||||||||||||||
Net premium income | 3,793 | — | — | 3,793 | 9,702 | — | 13,495 | |||||||||||||||||||||
Insurance commissions | — | 80,490 | 80,490 | 3,049 | 83,539 | |||||||||||||||||||||||
Consulting fees | 1 | 4,916 | 4,917 | 1,099 | 6,016 | |||||||||||||||||||||||
Gain on sale of businesses | — | 3,091 | 3,091 | 3,091 | ||||||||||||||||||||||||
Initial franchise fee for basic services | — | 19,375 | 19,375 | 19,375 | ||||||||||||||||||||||||
Initial franchise fee for buyers assistance plans | — | 10,133 | 10,133 | 10,133 | ||||||||||||||||||||||||
Net investment income | 867 | 139 | 1,006 | 321 | 1,327 | |||||||||||||||||||||||
Net realized investment gain (loss) | (2 | ) | — | (2 | ) | (10 | ) | (12 | ) | |||||||||||||||||||
Interest Income | — | — | — | — | ||||||||||||||||||||||||
Other income | 201 | 874 | 1,075 | 215 | 1,290 | |||||||||||||||||||||||
Total income | 4,860 | 119,018 | — | 123,878 | 14,376 | — | 138,254 | |||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||
Increase in policy reserves | 1,118 | — | 1,118 | 1,118 | ||||||||||||||||||||||||
Policy holder surrender values | 236 | — | 236 | 236 | ||||||||||||||||||||||||
Interest credited on annuities and premium deposits | 406 | — | 406 | 406 | ||||||||||||||||||||||||
Death claims | 506 | — | 506 | 506 | ||||||||||||||||||||||||
Policy acquisition costs deferred | (1,247 | ) | — | (1,247 | ) | (1,247 | ) | |||||||||||||||||||||
Commission expense | 1,201 | 64,233 | 65,434 | (1,234 | ) | 64,200 | ||||||||||||||||||||||
Payroll expense | 1,235 | 19,620 | 20,855 | 4,489 | 25,344 | |||||||||||||||||||||||
Depreciation and amortization | 631 | (14 | ) | 617 | 237 | 854 | ||||||||||||||||||||||
Insurance loss and loss expense | — | — | 6,084 | 6,084 | ||||||||||||||||||||||||
Other operating expense | 1,475 | 25,978 | 27,453 | 3,925 | 31,378 | |||||||||||||||||||||||
Total operating expenses | 5,561 | 109,817 | — | 115,378 | 13,501 | — | 128,879 | |||||||||||||||||||||
Income (loss) from operations | (701 | ) | 9,201 | — | 8,500 | 875 | — | 9,375 | ||||||||||||||||||||
Other Expenses | ||||||||||||||||||||||||||||
Interest expense | — | 1,515 | 1,515 | 443 | 1,958 | |||||||||||||||||||||||
Total other expenses | — | 1,515 | — | 1,515 | 443 | — | 1,958 | |||||||||||||||||||||
Income (loss) before income taxes | (701 | ) | 7,686 | — | 6,985 | 432 | — | 7,417 | ||||||||||||||||||||
Provision for income taxes | — | 2,920 | 2,920 | 189 | 3,109 | |||||||||||||||||||||||
Net income (loss) | $ | (701 | ) | $ | 4,766 | — | $ | 4,065 | $ | 243 | — | $ | 4,308 | |||||||||||||||
Earnings per share: | ||||||||||||||||||||||||||||
Basic earnings (loss) per share | (0.49 | ) | 0.55 | 0.59 | ||||||||||||||||||||||||
Basic weighted average shares | 1,437,925 | 7,327,925 | 7,327,925 | |||||||||||||||||||||||||
Diluted earnings (loss) per share | (0.49 | ) | 0.44 | 0.46 | ||||||||||||||||||||||||
Diluted weighted average shares | 1,437,925 | 9,337,925 | 9,337,925 |
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Brooke | ||||||||||||||||||||||||||||
Brooke Capital | Franchise | |||||||||||||||||||||||||||
Corporation | Corporation | Proforma | Delta Plus | Proforma | ||||||||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||||
2004 | 2004 | Adjustments | 2004 | 2004 | Adjustments | 2004 | ||||||||||||||||||||||
(In thousands, except share data) | ||||||||||||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||||||
Gross premium income | $ | 3,641 | — | $ | 3,641 | $ | 9,838 | $ | 13,479 | |||||||||||||||||||
Reinsurance premiums assumed | 11 | — | 11 | 11 | ||||||||||||||||||||||||
Reinsurance premiums ceded | (118 | ) | — | (118 | ) | (118 | ) | |||||||||||||||||||||
Net premium income | 3,534 | — | — | 3,534 | 9,838 | — | 13,372 | |||||||||||||||||||||
Insurance commissions | — | 57,619 | 57,619 | 2,908 | 60,527 | |||||||||||||||||||||||
Consulting fees | — | 5,236 | 5,236 | 989 | 6,225 | |||||||||||||||||||||||
Gain on sale of businesses | — | 5,261 | 5,261 | 5,261 | ||||||||||||||||||||||||
Initial franchise fee for basic services | — | 8,795 | 8,795 | 8,795 | ||||||||||||||||||||||||
Initial franchise fee for buyers assistance plans | — | 8,122 | 8,122 | 8,122 | ||||||||||||||||||||||||
Net investment income | 517 | 39 | 556 | 232 | 788 | |||||||||||||||||||||||
Net realized investment gain (loss) | 464 | — | 464 | (6 | ) | 458 | ||||||||||||||||||||||
Interest Income | — | — | — | — | ||||||||||||||||||||||||
Other income | 183 | 211 | 394 | 215 | 609 | |||||||||||||||||||||||
Total income | 4,698 | 85,283 | — | 89,981 | 14,176 | — | 104,157 | |||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||
Increase in policy reserves | 1,021 | — | 1,021 | 1,021 | ||||||||||||||||||||||||
Policy holder surrender values | 135 | — | 135 | 135 | ||||||||||||||||||||||||
Interest credited on annuities and premium deposits | 345 | — | 345 | 345 | ||||||||||||||||||||||||
Death claims | 289 | — | 289 | 289 | ||||||||||||||||||||||||
Policy acquisition costs deferred | (1,276 | ) | — | (1,276 | ) | (1,276 | ) | |||||||||||||||||||||
Commission expense | 1,060 | 46,725 | 47,785 | (1,398 | ) | 46,387 | ||||||||||||||||||||||
Payroll expense | 1,119 | 11,262 | 12,381 | 4,133 | 16,514 | |||||||||||||||||||||||
Depreciation and amortization | 770 | 429 | 1,199 | 261 | 1,460 | |||||||||||||||||||||||
Insurance loss and loss expense | — | — | 5,658 | 5,658 | ||||||||||||||||||||||||
Other operating expense | 1,532 | 15,929 | 17,461 | 3,591 | 21,052 | |||||||||||||||||||||||
Total operating expenses | 4,995 | 74,345 | — | 79,340 | 12,245 | — | 91,585 | |||||||||||||||||||||
Income (loss) from operations | (297 | ) | 10,938 | — | 10,641 | 1,931 | — | 12,572 | ||||||||||||||||||||
Other Expenses | ||||||||||||||||||||||||||||
Interest expense | — | 1,344 | 1,344 | 505 | 1,849 | |||||||||||||||||||||||
Total other expenses | — | 1,344 | — | 1,344 | 505 | — | 1,849 | |||||||||||||||||||||
Income (loss) before income taxes | (297 | ) | 9,594 | — | 9,297 | 1,426 | — | 10,723 | ||||||||||||||||||||
Provision for income taxes | (64 | ) | 3,262 | 3,198 | 465 | 3,663 | ||||||||||||||||||||||
Net income (loss) | $ | (233 | ) | $ | 6,332 | — | $ | 6,099 | $ | 961 | — | $ | 7,060 | |||||||||||||||
Earnings per share: | ||||||||||||||||||||||||||||
Basic earnings (loss) per share | (0.15 | ) | 0.82 | .95 | ||||||||||||||||||||||||
Basic weighted average shares | 1,562,359 | 7,452,359 | 7,452,359 | |||||||||||||||||||||||||
Diluted earnings (loss) per share | (0.15 | ) | 0.64 | 0.75 | ||||||||||||||||||||||||
Diluted weighted average shares | 1,562,359 | 9,462,359 | 9,462,359 |
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Maximum | Minimum | |||||||
Proforma — June 30, 2007 | Shares | Shares | ||||||
Brooke Capital Corporation average number of shares outstanding during the six months ended June 30, 2007 | 3,063,890 | 3,063,890 | ||||||
Restricted shares outstanding | 390,000 | 390,000 | ||||||
Brooke Capital Corporation common stock issued to Brooke Corporation | 5,500,000 | 5,500,000 | ||||||
Assumption of earnout shares for 2007 | 1,250,000 | — | ||||||
Total number of shares outstanding for basic earnings per share | 10,203,890 | 8,953,890 | ||||||
Assumed issuance of stock awards | 2,010,000 | 2,010,000 | ||||||
Assumption of earnout shares 2008 | 1,250,000 | — | ||||||
Total number of shares outstanding for diluted earnings per share | 13,463,890 | 10,963,890 | ||||||
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Maximum | Minimum | |||||||
Proforma — December 31, 2006 | Shares | Shares | ||||||
Brooke Capital Corporation average number of shares outstanding during the year ended December 31, 2006 | 1,497,638 | 1,497,638 | ||||||
Restricted shares outstanding | 390,000 | 390,000 | ||||||
Brooke Capital Corporation common stock issued to Brooke Corporation | 5,500,000 | 5,500,000 | ||||||
Assumption of earnout shares for 2007 | 1,250,000 | — | ||||||
Total number of shares outstanding for basic earnings per share | 8,637,638 | 7,387,638 | ||||||
Warrants outstanding | 547,820 | 547,820 | ||||||
Assumed repurchase of shares with proceeds of exercise | (86,786 | ) | (86,786 | ) | ||||
Assumed issuance of stock awards | 2,010,000 | 2,010,000 | ||||||
Assumption of earnout shares for 2008 | 1,250,000 | — | ||||||
Total number of shares outstanding for diluted earnings per share | 12,358,672 | 9,858,672 | ||||||
Maximum | Minimum | |||||||
Proforma — December 31, 2005 | Shares | Shares | ||||||
Brooke Capital Corporation average number of shares outstanding during the year ended December 31, 2005 | 1,437,925 | 1,437,925 | ||||||
Restricted shares outstanding | 390,000 | 390,000 | ||||||
Brooke Capital Corporation common stock issued to Brooke Corporation | 5,500,000 | 5,500,000 | ||||||
Assumption of earnout shares for 2007 | 1,250,000 | — | ||||||
Total number of shares outstanding for basic earnings per share | 8,577,925 | 7,327,925 | ||||||
Assumed issuance of stock awards | 2,010,000 | 2,010,000 | ||||||
Assumption of earnout shares for 2008 | 1,250,000 | — | ||||||
Total number of shares outstanding for diluted earnings per share | 11,837,925 | 9,337,925 | ||||||
Maximum | Minimum | |||||||
Proforma — December 31, 2004 | Shares | Shares | ||||||
Brooke Capital Corporation average number of shares outstanding during the year ended December 31, 2004 | 1,562,359 | 1,562,359 | ||||||
Restricted shares outstanding | 390,000 | 390,000 | ||||||
Brooke Capital Corporation common stock issued to Brooke Corporation | 5,500,000 | 5,500,000 | ||||||
Assumption of earnout shares for 2007 | 1,250,000 | — | ||||||
Total number of shares outstanding for basic earnings per share | 8,702,359 | 7,452,359 | ||||||
Assumed issuance of stock awards | 2,010,000 | 2,010,000 | ||||||
Assumption of earnout shares for 2008 | 1,250,000 | — | ||||||
Total number of shares outstanding for diluted earnings per share | 11,962,359 | 9,462,359 | ||||||
103
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Name | Age | Position | ||
Kyle L. Garst | 37 | Chairman of the Board, Chief Executive Officer and Director | ||
Dane S. Devlin | 44 | President, Chief Operating Officer and Director | ||
Keith E. Bouchey | 56 | Director | ||
Paul E. Burke, Jr. | 73 | Director | ||
Richard E. Gill | 52 | Director | ||
Michael S. Hess | 51 | Vice Chairman and Director | ||
Kelly Drouillard | 42 | Vice President | ||
William R, Morton, Jr. | 53 | Chief Financial Officer and Treasurer |
104
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105
Table of Contents
106
Table of Contents
107
Table of Contents
Annual Audited Financial Statements: | ||||
F-1 | ||||
F-2 | ||||
F-3 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-8 | ||||
Unaudited Interim Financial Statements: | ||||
F-25 | ||||
F-26 | ||||
F-27 | ||||
F-28 | ||||
F-29 |
Annual Audited Financial Statements | ||||
F-32 | ||||
F-33 | ||||
F-34 | ||||
F-35 | ||||
F-36 | ||||
F-37 | ||||
Unaudited Interim Financial Statements: | ||||
F-49 | ||||
F-50 | ||||
F-51 | ||||
F-52 | ||||
F-53 |
108
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Annual Audited Financial Statements: | ||||
F-62 | ||||
F-63 | ||||
F-64 | ||||
F-65 | ||||
F-66 | ||||
F-67 | ||||
F-76 | ||||
Unaudited Interim Financial Statements: | ||||
F-77 | ||||
F-78 | ||||
F-79 | ||||
F- | ||||
F-80 | ||||
F-81 |
109
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F-1
Table of Contents
Twelve Wyandotte Plaza 120 West 12th Street, Suite 1200 Kansas City, MO 64105-1936 816 221-6300 Fax 816-221-6380 | ||||||
Beyond Your Numbers |
F-2
Table of Contents
December 31, | December 31, | |||||||
2006 | 2005 | |||||||
ASSETS | ||||||||
Investments: | ||||||||
Securities available-for-sale, at fair value: | ||||||||
Fixed maturities (amortized cost, $12,532,067 in 2006 and $13,960,005 in 2005) | $ | 12,298,780 | $ | 13,854,375 | ||||
Equity securities (cost of $258,400 in 2006 and $458,150 in 2005) | 283,060 | 456,760 | ||||||
Investments in real estate | 274,564 | 274,564 | ||||||
Policy loans | 166,026 | 103,493 | ||||||
Mortgage loans on real estate | 1,937,281 | 1,566,382 | ||||||
Other Investments | 3,067,369 | 1,656,866 | ||||||
Total investments | 18,027,080 | 17,912,440 | ||||||
Cash and cash equivalents | 3,542,928 | 249,109 | ||||||
Accrued investment income | 233,858 | 250,984 | ||||||
Accounts receivable | 281,894 | 272,200 | ||||||
Reinsurance receivables | 112,145 | 78,725 | ||||||
Deferred policy acquisition costs (net of accumulated amortization of $4,444,081 in 2006 and $3,712,369 in 2005) | 5,209,693 | 5,133,244 | ||||||
Property and equipment (net of accumulated depreciation of $945,228 in 2006 and $820,415 in 2005) | 2,627,586 | 2,756,025 | ||||||
Other assets | 1,221,559 | 24,935 | ||||||
Total assets | $ | 31,256,743 | $ | 26,677,662 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Policy and contract liabilities: | ||||||||
Future annuity benefits | $ | 13,658,174 | $ | 10,301,546 | ||||
Future policy benefits | 6,109,055 | 5,267,805 | ||||||
Liability for policy claims | 211,932 | 190,050 | ||||||
Policyholder premium deposits | 104,038 | 146,354 | ||||||
Deposits on pending policy applications | 27,788 | 9,361 | ||||||
Reinsurance premiums payable | 54,732 | 107,334 | ||||||
Amounts held under reinsurance | 18,321 | 219,079 | ||||||
Total policy and contract liabilities | 20,184,040 | 16,241,529 | ||||||
Commissions, salaries, wages and benefits payable | 49,661 | 131,873 | ||||||
Other liabilities | 257,085 | 180,086 | ||||||
Notes payable | — | 2,272,986 | ||||||
Deferred federal income taxes payable | 508,380 | 527,941 | ||||||
Total liabilities | 20,999,166 | 19,354,415 | ||||||
Shareholders’ equity: | ||||||||
Common stock, $.10 par value, 8,000,000 shares authorized, issued and outstanding in 2006; and 5,449,578 shares issued and 4,257,057 shares outstanding in 2005 | 800,000 | 544,958 | ||||||
Additional paid in capital | 13,757,298 | 12,478,903 | ||||||
Accumulated deficit | (4,132,804 | ) | (3,496,404 | ) | ||||
Accumulated other comprehensive loss | (166,917 | ) | (84,862 | ) | ||||
Less: Treasury stock held at cost (0 shares in 2006 and 1,192,521 in 2005) | — | (2,119,348 | ) | |||||
Total shareholders’ equity | 10,257,577 | 7,323,247 | ||||||
Total liabilities and shareholders’ equity | $ | 31,256,743 | $ | 26,677,662 | ||||
F-3
Table of Contents
2006 | 2005 | 2004 | ||||||||||
Revenues: | ||||||||||||
Gross premium income | $ | 4,253,356 | $ | 4,200,579 | $ | 3,640,557 | ||||||
Reinsurance premiums assumed | 12,425 | 12,240 | 10,816 | |||||||||
Reinsurance premiums ceded | (588,544 | ) | (419,660 | ) | (117,761 | ) | ||||||
Net premium income | 3,677,237 | 3,793,159 | 3,533,612 | |||||||||
Net investment income | 1,085,897 | 867,303 | 517,486 | |||||||||
Net realized investment gain (loss) | (39,955 | ) | (1,836 | ) | 463,787 | |||||||
Rental income | 239,678 | 201,008 | 182,553 | |||||||||
Consulting fees | 1,199,339 | 868 | 38 | |||||||||
Total revenue | 6,162,196 | 4,860,502 | 4,697,476 | |||||||||
Benefits and expenses: | ||||||||||||
Increase in policy reserves | 841,250 | 1,118,501 | 1,020,812 | |||||||||
Policyholder surrender values | 270,113 | 236,594 | 135,518 | |||||||||
Interest credited on annuities and premium deposits | 579,074 | 405,778 | 344,918 | |||||||||
Death claims | 736,830 | 506,750 | 288,741 | |||||||||
Commissions | 809,549 | 1,200,741 | 1,059,798 | |||||||||
Policy acquisition costs deferred | (814,016 | ) | (1,246,987 | ) | (1,275,646 | ) | ||||||
Amortization of deferred policy acquisition costs | 737,567 | 630,737 | 769,611 | |||||||||
Salaries, wages, and employee benefits | 933,707 | 1,234,824 | 1,119,185 | |||||||||
Miscellaneous taxes | 123,638 | 137,886 | 171,886 | |||||||||
Other operating costs and expenses | 1,176,769 | 1,336,307 | 1,359,969 | |||||||||
Total benefits and expenses | 5,394,481 | 5,561,131 | 4,994,792 | |||||||||
Income (Loss) before income tax expense | 767,715 | (700,629 | ) | (297,316 | ) | |||||||
Income tax expense (benefit) | 11,867 | — | (64,380 | ) | ||||||||
Net Income (Loss) | $ | 755,848 | $ | (700,629 | ) | $ | (232,936 | ) | ||||
Net Income (Loss) per common share: | ||||||||||||
Basic | $ | 0.50 | $ | (0.49 | ) | $ | (0.15 | ) | ||||
Diluted | $ | 0.39 | $ | (0.49 | ) | $ | (0.15 | ) | ||||
F-4
Table of Contents
2006 | 2005 | 2004 | ||||||||||
Net income (loss) | $ | 755,848 | $ | (700,629 | ) | $ | (232,936 | ) | ||||
Unrealized gain (loss) on available-for-sale securities: | ||||||||||||
Unrealized holding gain (loss) during the period | (141,563 | ) | (382,700 | ) | 138,928 | |||||||
Less: Reclassification for gains (loss) included in net income | (39,955 | ) | (1,836 | ) | 463,787 | |||||||
Tax benefit (expense) | 19,553 | 75,548 | 93,011 | |||||||||
Other comprehensive loss | (82,055 | ) | (305,316 | ) | (231,848 | ) | ||||||
Comprehensive income (loss) | $ | 673,793 | $ | (1,005,945 | ) | $ | (464,784 | ) | ||||
F-5
Table of Contents
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
2006 | 2005 | 2004 | ||||||||||
Common stock: | ||||||||||||
Balance, beginning of year | $ | 44,958 | $ | 544,958 | $ | 544,958 | ||||||
Common shares issued | 255,042 | — | — | |||||||||
Balance, end of year | 800,000 | 544,958 | 544,958 | |||||||||
Additional paid in capital: | ||||||||||||
Balance, beginning of year | 12,478,903 | 12,380,716 | 12,380,523 | |||||||||
Stock warrants issued | 564,150 | 35,465 | — | |||||||||
Additional paid in capital on issuance of common stock | 714,245 | 62,722 | — | |||||||||
Additional paid in capital on sale of treasury stock | — | — | 193 | |||||||||
Balance, end of year | 13,757,298 | 12,478,903 | 12,380,716 | |||||||||
Accumulated deficit: | ||||||||||||
Balance, beginning of year | (3,496,404 | ) | (2,795,775 | ) | (2,562,839 | ) | ||||||
Loss on sale of treasury stock | (1,392,248 | ) | — | — | ||||||||
Net income (loss) | 755,848 | (700,629 | ) | (232,936 | ) | |||||||
Balance, end of year | (4,132,804 | ) | (3,496,404 | ) | (2,795,775 | ) | ||||||
Accumulated other comprehensive income: | ||||||||||||
Balance, beginning of year | (84,862 | ) | 220,454 | 452,302 | ||||||||
Other comprehensive income | (82,055 | ) | (305,316 | ) | (231,848 | ) | ||||||
Balance, end of year | (166,917 | ) | (84,862 | ) | 220,454 | |||||||
Treasury stock: | ||||||||||||
Balance, beginning of year | (2,119,348 | ) | (1,383,666 | ) | (1,385,483 | ) | ||||||
Sale of 1,192,521 shares at a cost of $1.78 per share | 2,119,348 | — | — | |||||||||
Purchase of 450,500 common shares at $1.71 per share | — | (770,355 | ) | — | ||||||||
Issuance of 19,479 shares at cost of $1.78 per share | — | 34,673 | — | |||||||||
Sale of 1,000 shares at cost of $1.82 per share | — | — | 1,817 | |||||||||
Balance, end of year | — | (2,119,348 | ) | (1,383,666 | ) | |||||||
Total shareholders’ equity | $ | 10,257,577 | $ | 7,323,247 | $ | 8,966,687 | ||||||
F-6
Table of Contents
2006 | 2005 | 2004 | ||||||||||
Operating activities: | ||||||||||||
Net income (loss) | $ | 755,848 | $ | (700,629 | ) | $ | (232,936 | ) | ||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||
Interest credited on annuities and premium deposits | 579,074 | 405,778 | 344,918 | |||||||||
Net realized investment (gain) loss | 39,955 | 1,836 | (463,787 | ) | ||||||||
Provision for depreciation | 143,692 | 154,301 | 132,902 | |||||||||
Equity loss in investment in affiliate | — | — | 28,516 | |||||||||
Settlement loss | — | 35,465 | — | |||||||||
Amortization of premium and accretion of discount on fixed maturity and short-term investments | (145,087 | ) | 25,958 | 138,001 | ||||||||
Provision for deferred federal income taxes | — | — | (64,380 | ) | ||||||||
Acquisition costs capitalized | (814,016 | ) | (1,246,987 | ) | (1,275,646 | ) | ||||||
Amortization of deferred acquisition costs | 737,567 | 630,737 | 769,611 | |||||||||
(Increase) decrease in assets: | ||||||||||||
Accrued investment income | 17,126 | (36,844 | ) | (33,071 | ) | |||||||
Accounts receivable | (9,694 | ) | (14,006 | ) | 38,172 | |||||||
Reinsurance receivables | (33,420 | ) | (78,725 | ) | — | |||||||
Policy loans | (62,533 | ) | (16,547 | ) | (26,495 | ) | ||||||
Other assets | (1,196,624 | ) | 5,430 | (22,717 | ) | |||||||
Increase (decrease) in liabilities: | ||||||||||||
Future policy benefits | 841,250 | 1,118,501 | 1,020,812 | |||||||||
Liability for policy claims | 21,882 | 77,144 | 4,888 | |||||||||
Deposits on pending policy applications | 18,427 | (307 | ) | (22,823 | ) | |||||||
Reinsurance premiums payable | (52,602 | ) | 84,214 | (8,593 | ) | |||||||
Amounts held under reinsurance | (200,758 | ) | 219,079 | — | ||||||||
Commissions, salaries, wages and benefits payable | (82,212 | ) | 27,929 | 50,929 | ||||||||
Other liabilities | 76,999 | 76,611 | 26,593 | |||||||||
Net cash provided by operating activities | $ | 634,874 | $ | 768,938 | $ | 404,894 | ||||||
Investing activities: | ||||||||||||
Purchase of available-for-sale fixed maturities | $ | (2,670,727 | ) | $ | (2,748,760 | ) | $ | (10,022,949 | ) | |||
Sale of available-for-sale fixed maturities | 3,409,932 | 400,080 | 6,732,704 | |||||||||
Maturity of available-for-sale fixed maturities | 576,046 | 1,502,624 | 1,850,000 | |||||||||
Purchase of available-for-sale equities | — | (247,750 | ) | (193,600 | ) | |||||||
Sale of available-for-sale equities | 222,699 | 25,000 | — | |||||||||
Additions to property and equipment | (15,253 | ) | (135,140 | ) | (71,275 | ) | ||||||
Purchase of other investments | (1,593,368 | ) | (1,520,232 | ) | (202,760 | ) | ||||||
Maturity of other investments | 377,726 | 134,416 | — | |||||||||
Purchase of investments in affiliate | — | — | (11,500 | ) | ||||||||
Dispositions of investment in affiliate | — | — | 48,184 | |||||||||
Purchase of mortgage loans | (429,500 | ) | (1,244,600 | ) | (350,000 | ) | ||||||
Payments received on mortgage loans | 58,601 | 27,760 | 458 | |||||||||
Payment on notes receivable | — | — | 13,741 | |||||||||
Purchases of short-term investments | — | — | (3,925,512 | ) | ||||||||
Sale or maturity of short term investments | — | — | 4,375,507 | |||||||||
Net cash used in investing activities | (63,844 | ) | (3,806,602 | ) | (1,757,002 | ) | ||||||
Financing activities: | ||||||||||||
Proceeds from note payable | — | 570,355 | — | |||||||||
Payments on notes payable | (2,272,986 | ) | (88,976 | ) | (51,400 | ) | ||||||
Deposits on annuity contracts | 3,548,635 | 3,754,742 | 1,839,573 | |||||||||
Surrenders on annuity contracts | (766,138 | ) | (658,617 | ) | (269,794 | ) | ||||||
Policyholder premium deposits | 9,486 | 23,938 | 22,472 | |||||||||
Withdrawals on policyholder premium deposits | (56,745 | ) | (71,342 | ) | (61,514 | ) | ||||||
Proceeds from issuance of warrants | 564,150 | — | — | |||||||||
Proceeds from sale of common stock | 969,287 | — | — | |||||||||
Proceeds from sale of treasury stock | 727,100 | — | 2,010 | |||||||||
Purchase of treasury stock | — | (770,355 | ) | — | ||||||||
Net cash provided by financing activities | 2,722,789 | 2,759,745 | 1,481,347 | |||||||||
Increase (decrease) in cash and cash equivalents | 3,293,819 | (277,919 | ) | 129,239 | ||||||||
Cash and cash equivalents, beginning of period | 249,109 | 527,028 | 397,789 | |||||||||
Cash and cash equivalents, end of period | $ | 3,542,928 | $ | 249,109 | $ | 527,028 | ||||||
Supplemental disclosure of cash activities: | ||||||||||||
Interest paid | $ | 62,295 | $ | 105,084 | $ | 111,104 | ||||||
Income taxes paid | $ | — | $ | — | $ | — | ||||||
Schedule of non-cash investing transactions: | ||||||||||||
Issuance of treasury stock | $ | — | $ | 97,935 | $ | — | ||||||
F-7
Table of Contents
1. | Nature of Operations |
2. | Significant Accounting Policies |
F-8
Table of Contents
Building and capitalized interest | 39 years | |||
Land improvements | 15 years | |||
Furniture, fixtures and equipment | 3 to 7 years |
F-9
Table of Contents
F-10
Table of Contents
Years Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Numerator: | ||||||||||||
Net income (loss) — numerator for basic earnings per share | $ | 755,848 | $ | (700,629 | ) | $ | (232,936 | ) | ||||
Effect of dilutive securities | — | — | — | |||||||||
Numerator for diluted earnings per share | $ | 755,848 | $ | (700,629 | ) | $ | (232,936 | ) | ||||
Denominator: | ||||||||||||
Average common shares outstanding | 4,492,914 | 4,313,774 | 4,687,078 | |||||||||
Effect of 3-for-1 reverse stock split | (2,995,276 | ) | (2,875,849 | ) | (3,124,719 | ) | ||||||
Shares used for basic earnings per share | 1,497,638 | 1,437,925 | 1,562,359 | |||||||||
Effect of diluted warrant outstanding (adjusted for split) | 547,820 | — | — | |||||||||
Assumed repurchase of shares with proceeds of exercise | (86,786 | ) | — | — | ||||||||
Shares used for diluted earnings per share | 1,958,672 | 1,437,925 | 1,562,359 | |||||||||
Earnings per share: | ||||||||||||
Basic | $ | 0.50 | $ | (0.49 | ) | $ | (0.15 | ) | ||||
Diluted | $ | 0.39 | $ | (0.49 | ) | $ | (0.15 | ) | ||||
F-11
Table of Contents
3. | Investments |
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
December 31, 2006: | ||||||||||||||||
U.S. Government Agency | $ | 1,559,006 | $ | 9,879 | $ | 18,414 | $ | 1,550,471 | ||||||||
Corporate bonds | 10,973,061 | 75,128 | 299,880 | 10,748,309 | ||||||||||||
Total | $ | 12,532,067 | $ | 85,007 | $ | 318,294 | $ | 12,298,780 | ||||||||
Equity securities | $ | 258,400 | $ | 28,960 | $ | 4,300 | $ | 283,060 | ||||||||
December 31, 2005: | ||||||||||||||||
U.S. Government Agency | $ | 1,408,079 | $ | 16,891 | $ | 14,026 | $ | 1,410,944 | ||||||||
Corporate bonds | 12,551,926 | 223,559 | 332,054 | 12,443,431 | ||||||||||||
Total | $ | 13,960,005 | $ | 240,450 | $ | 346,080 | $ | 13,854,375 | ||||||||
Equity securities | $ | 458,150 | $ | 22,005 | $ | 23,395 | $ | 456,760 | ||||||||
Amortized Cost | Fair Value | |||||||
Due in one year or less through five years | $ | 2,454,322 | $ | 2,470,426 | ||||
Due after five years through ten years | 5,176,566 | 5,064,874 | ||||||
Due after ten years | 4,901,179 | 4,763,480 | ||||||
$ | 12,532,067 | $ | 12,298,780 | |||||
F-12
Table of Contents
Years Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Fixed maturities | $ | 720,022 | $ | 713,645 | $ | 509,933 | ||||||
Equity securities | 25,929 | 18,666 | 70 | |||||||||
Notes receivables | — | — | 238 | |||||||||
Mortgage loans on real estate | 116,584 | 66,625 | 2,275 | |||||||||
Equity loss on investment in related parties | — | — | (28,516 | ) | ||||||||
Short-term and other investments | 249,418 | 90,007 | 43,798 | |||||||||
Gross investment income | 1,111,953 | 888,943 | 527,798 | |||||||||
Investment expenses | (26,056 | ) | (21,640 | ) | (10,312 | ) | ||||||
Net investment income | $ | 1,085,897 | $ | 867,303 | $ | 517,486 | ||||||
F-13
Table of Contents
Less Than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
December 31, 2006: | ||||||||||||||||||||||||
U.S. Government Agency | $ | — | $ | — | $ | 694,830 | $ | 18,414 | $ | 694,830 | $ | 18,414 | ||||||||||||
Corporate bonds | 4,360,312 | 77,558 | 4,743,034 | 222,322 | 9,103,346 | 299,880 | ||||||||||||||||||
Total | $ | 4,360,312 | $ | 77,558 | $ | 5,437,864 | $ | 240,736 | $ | 9,798,176 | $ | 318,294 | ||||||||||||
Equity securities | $ | 2,300 | $ | 50 | $ | 95,750 | $ | 4,250 | $ | 98,050 | $ | 4,300 | ||||||||||||
Less Than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
December 31, 2005: | ||||||||||||||||||||||||
U.S. Government Agency | $ | 598,965 | $ | 11,324 | $ | 96,879 | $ | 2,702 | $ | 695,844# | $ | 14,026 | ||||||||||||
Corporate bonds | 6,047,377 | 212,041 | 1,414,230 | 120,013 | 7,461,607# | 332,054 | ||||||||||||||||||
Total | $ | 6,646,342 | $ | 223,365 | $ | 1,511,109 | $ | 122,715 | $ | 8,157,451 | $ | 346,080 | ||||||||||||
Equity securities | $ | 47,980 | $ | 20 | $ | 126,275 | $ | 23,375 | $ | 174,255 | $ | 23,395 | ||||||||||||
4. | Concentrations of Credit Risk |
5. | Property and Equipment |
F-14
Table of Contents
2006 | 2005 | |||||||
Land and improvements | $ | 357,675 | $ | 357,675 | ||||
Building and capitalized interest | 2,605,330 | 2,605,330 | ||||||
Furniture, fixtures and equipment | 500,939 | 510,063 | ||||||
Tenant improvements | 108,870 | 103,372 | ||||||
Total property and equipment | 3,572,814 | 3,576,440 | ||||||
Less — accumulated depreciation and amortization | (945,228 | ) | (820,415 | ) | ||||
Net property and equipment | $ | 2,627,586 | $ | 2,756,025 | ||||
6. | Leases |
Year Ending December 31, | Amount | |||
2007 | 238,385 | |||
2008 | 238,385 | |||
2009 | 238,385 | |||
2010 | 220,919 | |||
2011 | 185,988 | |||
Total | $ | 936,073 | ||
F-15
Table of Contents
7. | Federal Income Taxes |
Years Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Current | $ | 11,867 | $ | — | $ | — | ||||||
Deferred | — | — | (64,380 | ) | ||||||||
Federal income tax (benefit) expense | $ | 11,867 | $ | — | $ | (64,380 | ) | |||||
2006 | 2005 | 2004 | ||||||||||
Federal income tax expense (benefit) at statutory rate | $ | 261,023 | $ | (238,213 | ) | $ | (101,088 | ) | ||||
Small life insurance company deduction | (32,165 | ) | (36,106 | ) | (64,975 | ) | ||||||
Increase (decrease) in valuation allowance | (289,533 | ) | 273,190 | 100,202 | ||||||||
Other | 72,542 | 1,129 | 1,481 | |||||||||
Federal income tax (benefit) expense | $ | 11,867 | — | $ | (64,380 | ) | ||||||
F-16
Table of Contents
December 31, | ||||||||
2006 | 2005 | |||||||
Deferred tax liability: | ||||||||
Due premiums | $ | 10,571 | $ | 11,832 | ||||
Policy reserves | 4,069 | — | ||||||
Deferred policy acquisition costs | 873,841 | 868,699 | ||||||
Accrual of discount | 8,524 | 5,387 | ||||||
Premium deposit | 8,463 | — | ||||||
Total deferred tax liability | 905,468 | 885,918 | ||||||
Deferred tax asset: | ||||||||
Policy reserves | — | 92,810 | ||||||
Capital loss carryforward | 9,948 | — | ||||||
AMT credit carryforward | 11,867 | — | ||||||
Reinsurance premiums | 2,298 | 3,514 | ||||||
Net operating loss carryforward | 2,019,534 | 2,217,307 | ||||||
Net unrealized investment loss | 41,726 | 22,164 | ||||||
Total deferred tax asset | 2,085,373 | 2,335,795 | ||||||
Valuation allowance | (1,688,285 | ) | (1,977,818 | ) | ||||
Net deferred tax asset | 397,088 | 357,977 | ||||||
Net deferred tax liability | $ | 508,380 | $ | 527,941 | ||||
8. | Intercompany Sale of Building and Payoff of Related Mortgage Notes Payable |
F-17
Table of Contents
9. | Shareholders’ Equity and Statutory Accounting Practices |
GAAP | SAP | |||||||||||||||
Net Income | Capital and | Net Income | Capital and | |||||||||||||
(Loss) | Surplus | (Loss) | Surplus | |||||||||||||
2006 | 254,517 | 7,659,130 | 216,259 | 3,966,233 | ||||||||||||
2005 | 271,995 | 6,490,251 | (64,575 | ) | 2,724,980 | |||||||||||
2004 | 528,494 | 6,251,955 | (54,205 | ) | 2,539,348 |
10. | Shareholders’ Equity Transactions |
F-18
Table of Contents
11. | Reinsurance |
F-19
Table of Contents
12. | Related Party Transactions |
F-20
Table of Contents
13. | Fair Values of Financial Instruments |
F-21
Table of Contents
F-22
Table of Contents
14. | Segment Information |
2006 | 2005 | 2004 | ||||||||||
Revenues: | ||||||||||||
Life and annuity insurance operations | $ | 4,880,259 | $ | 4,628,936 | $ | 4,293,633 | ||||||
Brokerage operations | 1,199,210 | 765 | — | |||||||||
Corporate | 82,727 | 230,801 | 403,843 | |||||||||
Total | $ | 6,162,196 | $ | 4,860,502 | $ | 4,697,476 | ||||||
Income (loss) before income taxes: | ||||||||||||
Life and annuity insurance operations | $ | 254,517 | $ | 271,992 | $ | 464,114 | ||||||
Brokerage operations | 1,083,796 | (13,965 | ) | — | ||||||||
Corporate | (570,598 | ) | (958,656 | ) | (761,430 | ) | ||||||
Total | $ | 767,715 | $ | (700,629 | ) | $ | (297,316 | ) | ||||
Depreciation and amortization expense: | ||||||||||||
Life and annuity insurance operations | $ | 737,908 | $ | 630,737 | $ | 769,611 | ||||||
Brokerage operations | 584 | 438 | — | |||||||||
Corporate | 142,767 | 153,863 | 132,902 | |||||||||
Total | $ | 881,259 | $ | 785,038 | $ | 902,513 | ||||||
Assets: | ||||||||||||
Life and annuity insurance operations | $ | 28,570,332 | $ | 23,337,149 | $ | 18,305,111 | ||||||
Brokerage operations | 1,198,212 | 11,903 | — | |||||||||
Corporate | 1,488,199 | 3,328,610 | 4,649,885 | |||||||||
Total | $ | 31,256,743 | $ | 26,677,662 | $ | 22,954,996 | ||||||
15. | Liquidity and Capital Resources |
F-23
Table of Contents
16. | Other Regulatory Matters |
17. | Subsequent Events |
F-24
Table of Contents
June 30, | December 31, | |||||||
2007 | 2006 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Investments: | ||||||||
Securities available-for-sale, at fair value: | ||||||||
Fixed maturities (amortized cost, $17,023,155 in 2007 and $12,532,067 in 2006) | $ | 16,384,834 | $ | 12,298,780 | ||||
Equity securities (cost of $241,600 in 2007 and $258,400 in 2006) | 239,617 | 283,060 | ||||||
Investments in real estate | 274,564 | 274,564 | ||||||
Policy loans | 181,032 | 166,026 | ||||||
Mortgage loans on real estate | 1,898,628 | 1,937,281 | ||||||
Other investments | 3,460,975 | 3,067,369 | ||||||
Total investments | 22,439,650 | 18,027,080 | ||||||
Cash and cash equivalents | 4,804,645 | 3,542,928 | ||||||
Accrued investment income | 294,770 | 233,858 | ||||||
Accounts receivable | 134,326 | 281,894 | ||||||
Reinsurance receivables | 180,509 | 112,145 | ||||||
Deferred policy acquisition costs (net of accumulated amortization of $4,808,605 in 2007 and $4,449,936 in 2006) | 5,340,116 | 5,209,693 | ||||||
Property and equipment (net of accumulated depreciation of $1,006,888 in 2007 and $945,228 in 2006) | 2,578,902 | 2,627,586 | ||||||
Other assets | 1,013,031 | 1,221,559 | ||||||
Total assets | $ | 36,785,949 | $ | 31,256,743 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Policy and contract liabilities: | ||||||||
Future annuity benefits | $ | 16,857,235 | $ | 13,658,174 | ||||
Future policy benefits | 6,590,741 | 6,109,055 | ||||||
Liability for policy claims | 97,561 | 211,932 | ||||||
Policyholder premium deposits | 80,642 | 104,038 | ||||||
Deposits on pending policy applications | 16,031 | 27,788 | ||||||
Reinsurance premiums payable | 49,538 | 54,732 | ||||||
Amounts held under reinsurance | — | 18,321 | ||||||
Total policy and contract liabilities | 23,691,748 | 20,184,040 | ||||||
Commissions, salaries, wages and benefits payable | 279,906 | 49,661 | ||||||
Other liabilities | 427,522 | 257,085 | ||||||
Federal income taxes payable | 662,631 | — | ||||||
Deferred federal income taxes payable | 422,044 | 508,380 | ||||||
Total liabilities | 25,483,851 | 20,999,166 | ||||||
Shareholders’ equity: | ||||||||
Common stock, $.01 par value, 25,000,000 shares authorized; 3,214,486 issued and 3,085,817 outstanding in 2007; and 2,666,666 issued and outstanding in 2006 | 32,145 | 26,667 | ||||||
Additional paid in capital | 14,919,456 | 14,530,631 | ||||||
Accumulated deficit | (2,401,248 | ) | (4,132,804 | ) | ||||
Accumulated other comprehensive loss | (512,258 | ) | (166,917 | ) | ||||
Less: Treasury stock held at cost (128,669 shares in 2007 and 0 shares in 2006) | (735,997 | ) | — | |||||
Total shareholders’ equity | 11,302,098 | 10,257,577 | ||||||
Total liabilities and shareholders’ equity | $ | 36,785,949 | $ | 31,256,743 | ||||
F-25
Table of Contents
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenues: | ||||||||||||||||
Gross premium income | $ | 968,183 | $ | 972,407 | $ | 2,187,358 | $ | 2,236,373 | ||||||||
Reinsurance premiums assumed | 6,471 | 6,471 | 9,058 | 8,637 | ||||||||||||
Reinsurance premiums ceded | (125,493 | ) | (150,520 | ) | (274,191 | ) | (312,873 | ) | ||||||||
Net premium income | 849,161 | 828,358 | 1,922,225 | 1,932,137 | ||||||||||||
Net investment income | 353,180 | 267,710 | 675,811 | 533,676 | ||||||||||||
Net realized investment gain (loss) | 80,640 | (68,293 | ) | 80,594 | (70,017 | ) | ||||||||||
Rental income | 59,596 | 59,057 | 119,192 | 118,114 | ||||||||||||
Consulting fees and other income | 3,989,951 | 1,054 | 4,245,158 | 1,305 | ||||||||||||
Total revenue | 5,332,528 | 1,087,886 | 7,042,980 | 2,515,215 | ||||||||||||
Benefits and expenses: | ||||||||||||||||
Increase in policy reserves | 152,060 | 185,348 | 481,686 | 435,325 | ||||||||||||
Policyholder surrender values | 59,040 | 76,556 | 145,746 | 147,921 | ||||||||||||
Interest credited on annuities and premium deposits | 193,109 | 142,943 | 365,853 | 269,247 | ||||||||||||
Death claims | 103,745 | 162,467 | 417,282 | 295,031 | ||||||||||||
Commissions | 245,021 | 175,299 | 498,435 | 425,620 | ||||||||||||
Policy acquisition costs deferred | (238,346 | ) | (162,257 | ) | (489,092 | ) | (437,251 | ) | ||||||||
Amortization of deferred policy acquisition costs | 194,810 | 209,827 | 358,669 | 365,743 | ||||||||||||
Salaries, wages, and employee benefits | 879,573 | 218,176 | 1,228,510 | 489,009 | ||||||||||||
Miscellaneous taxes | 28,703 | 32,223 | 58,344 | 59,351 | ||||||||||||
Other operating costs and expenses | 1,012,676 | 230,231 | 1,357,876 | 589,323 | ||||||||||||
Total benefits and expenses | 2,630,391 | 1,270,813 | 4,423,309 | 2,639,319 | ||||||||||||
Income (Loss) before income tax expense | 2,702,137 | (182,927 | ) | 2,619,671 | (124,104 | ) | ||||||||||
Income tax expense | 888,115 | — | 888,115 | — | ||||||||||||
Net Income (Loss) | $ | 1,814,022 | $ | (182,927 | ) | $ | 1,731,556 | $ | (124,104 | ) | ||||||
Net Income (Loss) per common share — basic and diluted | $ | 0.58 | $ | (0.13 | ) | $ | 0.57 | $ | (0.09 | ) | ||||||
�� |
F-26
Table of Contents
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Net income (loss) | $ | 1,814,022 | $ | (182,927 | ) | $ | 1,731,556 | $ | (124,104 | ) | ||||||
Unrealized gain (loss) on available-for-sale securities: | ||||||||||||||||
Unrealized holding loss during the period | (371,432 | ) | (285,437 | ) | (351,083 | ) | (589,804 | ) | ||||||||
Less: Reclassification for gains (loss) included in net income | 80,640 | (68,293 | ) | 80,594 | (70,017 | ) | ||||||||||
Tax benefit | 90,415 | 40,334 | 86,336 | 103,197 | ||||||||||||
Other comprehensive loss | (361,657 | ) | (176,810 | ) | (345,341 | ) | (416,590 | ) | ||||||||
Comprehensive income (loss) | $ | 1,452,365 | $ | (359,737 | ) | $ | 1,386,215 | $ | (540,694 | ) | ||||||
F-27
Table of Contents
Six Months Ended | ||||||||
June 30, | June 30, | |||||||
2007 | 2006 | |||||||
(Unaudited) | ||||||||
Operating activities: | ||||||||
Net income (loss) | $ | 1,731,556 | $ | (124,104 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Interest credited on annuities and premium deposits | 365,853 | 269,247 | ||||||
Net realized investment (gain) loss | (80,594 | ) | 70,017 | |||||
Provision for depreciation | 62,278 | 66,117 | ||||||
Amortization of premium and accretion of discount on fixed maturity and short-term investments | (104,114 | ) | (42,505 | ) | ||||
Acquisition costs capitalized | (489,092 | ) | (437,251 | ) | ||||
Amortization of deferred acquisition costs | 358,669 | 365,743 | ||||||
(Increase) decrease in assets: | ||||||||
Accrued investment income | (60,912 | ) | 24,476 | |||||
Accounts receivable | 147,568 | 68,263 | ||||||
Reinsurance receivables | (68,364 | ) | (34,050 | ) | ||||
Policy loans | (15,006 | ) | (38,437 | ) | ||||
Other assets | 208,528 | (97,813 | ) | |||||
Increase (decrease) in liabilities: | ||||||||
Future policy benefits | 481,686 | 435,325 | ||||||
Liability for policy claims | (114,371 | ) | (12,979 | ) | ||||
Deposits on pending policy applications | (11,757 | ) | 7,120 | |||||
Reinsurance premiums payable | (5,194 | ) | (41,137 | ) | ||||
Amounts held under reinsurance | (18,321 | ) | (123,650 | ) | ||||
Commissions, salaries, wages and benefits payable | 230,245 | (70,244 | ) | |||||
Income tax payable | 662,631 | — | ||||||
Other liabilities | 170,434 | 56,523 | ||||||
Net cash provided by operating activities | $ | 3,451,723 | $ | 340,661 | ||||
Investing activities: | ||||||||
Purchase of available-for-sale fixed maturities | $ | (4,536,733 | ) | $ | (664,852 | ) | ||
Sale of available-for-sale fixed maturities | — | 2,258,015 | ||||||
Maturity of available-for-sale fixed maturities | 23,958 | 471,000 | ||||||
Sale of available-for-sale equities | 97,440 | 222,699 | ||||||
Additions to property and equipment | (13,594 | ) | (7,755 | ) | ||||
Purchase of other investments | (592,400 | ) | (1,329,068 | ) | ||||
Maturity of other investments | 324,552 | 203,687 | ||||||
Payments received on mortgage loans | 38,653 | 27,429 | ||||||
Net cash used in investing activities | (4,658,124 | ) | 1,181,155 | |||||
Financing activities: | ||||||||
Payments on notes payable | — | (2,272,986 | ) | |||||
Deposits on annuity contracts | 3,307,397 | 1,929,687 | ||||||
Surrenders on annuity contracts | (472,299 | ) | (337,060 | ) | ||||
Policyholder premium deposits | 2,431 | — | ||||||
Withdrawals on policyholder premium deposits | (27,717 | ) | (14,109 | ) | ||||
Purchase of treasury stock | (735,997 | ) | — | |||||
Proceeds from redemption of warrant | 394,303 | — | ||||||
Net cash provided by financing activities | 2,468,118 | (694,468 | ) | |||||
Increase (decrease) in cash and cash equivalents | 1,261,717 | 827,348 | ||||||
Cash and cash equivalents, beginning of period | 3,542,928 | 249,109 | ||||||
Cash and cash equivalents, end of period | $ | 4,804,645 | $ | 1,076,457 | ||||
Supplemental disclosure of cash activities: | ||||||||
Interest paid | $ | — | $ | 62,295 | ||||
Income taxes paid | $ | — | $ | — | ||||
F-28
Table of Contents
1. | Basis of Presentation |
2. | Net Income (Loss) Per Common Share |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) | $ | 1,814,022 | $ | (182,926 | ) | $ | 1,731,556 | $ | (124,104 | ) | ||||||
Denominator: | ||||||||||||||||
Average common shares outstanding (after the effect of 1-for-3 reverse stock split) used for basic and diluted earnings per share | 3,101,568 | 1,419,019 | 3,063,890 | 1,419,019 | ||||||||||||
Earnings (loss) per share — basic and diluted | $ | 0.58 | $ | (0.13 | ) | $ | 0.57 | $ | (0.09 | ) | ||||||
F-29
Table of Contents
3. | Federal Income Taxes |
4. | Reinsurance |
5. | Other Regulatory Matters |
6. | Financial Information Relating to Industry Segments |
F-30
Table of Contents
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenues: | ||||||||||||||||
Life and annuity insurance operations | $ | 1,260,520 | $ | 1,067,962 | $ | 2,708,441 | $ | 2,433,356 | ||||||||
Brokerage operations | 3,989,925 | 1,055 | 4,245,132 | 1,270 | ||||||||||||
Corporate | 82,083 | 18,869 | 89,407 | 80,589 | ||||||||||||
Total | $ | 5,332,528 | $ | 1,087,886 | $ | 7,042,980 | $ | 2,515,215 | ||||||||
Income (loss) before income taxes: | ||||||||||||||||
Life and annuity insurance operations | $ | 215,733 | $ | (67,691 | ) | $ | 223,124 | $ | 176,776 | |||||||
Brokerage operations | 2,853,315 | (1,480 | ) | 2,932,440 | (6,426 | ) | ||||||||||
Corporate | (366,911 | ) | (113,756 | ) | (535,893 | ) | (294,454 | ) | ||||||||
Total | $ | 2,702,137 | $ | (182,927 | ) | $ | 2,619,671 | $ | (124,104 | ) | ||||||
Depreciation and amortization expense: | ||||||||||||||||
Life and annuity insurance operations | $ | 212,447 | $ | 221,793 | $ | 393,553 | $ | 377,709 | ||||||||
Brokerage operations | 48 | 146 | 97 | 292 | ||||||||||||
Corporate | 11,128 | 18,580 | 27,297 | 53,859 | ||||||||||||
Total | $ | 223,623 | $ | 240,519 | $ | 420,947 | $ | 431,860 | ||||||||
June 30, | December 31, | |||||||
2007 | 2006 | |||||||
Assets: | ||||||||
Life and annuity insurance operations | $ | 31,305,082 | $ | 28,570,332 | ||||
Brokerage operations | 4,499,222 | 1,198,212 | ||||||
Corporate | 981,645 | 1,488,199 | ||||||
Total | $ | 36,785,949 | $ | 31,256,743 | ||||
F-31
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F-32
Table of Contents
2006 | 2005 | |||||||
(In thousands, except share amounts) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 10,801 | $ | 5,406 | ||||
Restricted cash | 615 | 547 | ||||||
Accounts receivable, net | 18,082 | 9,590 | ||||||
Other receivables | 1,492 | 1,106 | ||||||
Prepaid expenses | — | 126 | ||||||
Deposits | 468 | 209 | ||||||
Receivable from parent company | 27,926 | 35,166 | ||||||
Advertising supply inventory | 462 | — | ||||||
Total current assets | 59,846 | 52,150 | ||||||
Investment in businesses | 2,333 | 5,058 | ||||||
Building | 250 | 250 | ||||||
Amortizable intangible assets | 614 | 683 | ||||||
Total assets | $ | 63,043 | $ | 58,141 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 1,759 | $ | 1,252 | ||||
Premiums payable to insurance companies | 5,956 | 4,003 | ||||||
Producer payable | 4,234 | 3,710 | ||||||
Interest payable | 757 | 697 | ||||||
Income tax payable to parent | 1,485 | 2,920 | ||||||
Accrued commission refunds | 535 | 716 | ||||||
Unearned buyer consulting fees | — | 118 | ||||||
Short term debt | 10,208 | 3,714 | ||||||
Current maturities of long-term debt | 10,798 | 11,234 | ||||||
Total current liabilities | 35,732 | 28,364 | ||||||
Long-term debt less current maturities | 7,331 | 12,219 | ||||||
Total liabilities | 43,063 | 40,583 | ||||||
Stockholders’ equity | ||||||||
Common stock, $10 and $1 par, 3,505,000 shares authorized, 8,600 shares issued and outstanding | 17 | 17 | ||||||
Less: Treasury stock, 15,500 shares, at cost | (115 | ) | (115 | ) | ||||
Additional paid-in capital | 6,026 | 6,026 | ||||||
Retained earnings | 14,052 | 11,630 | ||||||
Total stockholders’ equity | 19,980 | 17,558 | ||||||
Total liabilities and stockholders’ equity | $ | 63,043 | $ | 58,141 | ||||
F-33
Table of Contents
2006 | 2005 | 2004 | ||||||||||
(In thousands) | ||||||||||||
Operating Revenues | ||||||||||||
Insurance commissions | $ | 99,190 | $ | 80,490 | $ | 57,619 | ||||||
Consulting fees | 2,731 | 4,916 | 5,236 | |||||||||
Gain on sale of businesses | 3,059 | 3,091 | 5,261 | |||||||||
Initial franchise fees for basic services | 31,770 | 19,375 | 8,795 | |||||||||
Initial franchise fees for buyer assistance plans | 10,133 | 8,122 | ||||||||||
Interest income | 275 | 139 | 39 | |||||||||
Other income | 2,186 | 874 | 211 | |||||||||
Total operating revenues | 142,348 | 119,018 | 85,283 | |||||||||
Operating Expenses | ||||||||||||
Commission expense | 78,318 | 64,233 | 46,725 | |||||||||
Payroll expense | 23,114 | 19,620 | 11,262 | |||||||||
Amortization | 68 | (14 | ) | 429 | ||||||||
Other operating expenses | 35,241 | 25,978 | 15,929 | |||||||||
Total operating expenses | 136,741 | 109,817 | 74,345 | |||||||||
Income from operations | 5,607 | 9,201 | 10,938 | |||||||||
Other Expenses | ||||||||||||
Interest expense | 1,700 | 1,515 | 1,344 | |||||||||
Total other expenses | 1,700 | 1,515 | 1,344 | |||||||||
Income before income taxes | 3,907 | 7,686 | 9,594 | |||||||||
Provision for income taxes | 1,485 | 2,920 | 3,262 | |||||||||
Net income | $ | 2,422 | $ | 4,766 | $ | 6,332 |
F-34
Table of Contents
Common | Treasury | Add’l Paid- | Retained | |||||||||||||||||
Stock | Stock | in Capital | Earnings | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Balances, December 31, 2003 | $ | 17 | $ | (115 | ) | $ | 1,026 | $ | 2,532 | $ | 3,460 | |||||||||
Net income | — | — | — | 6,332 | 6,332 | |||||||||||||||
Balances, December 31, 2004 | 17 | (115 | ) | 1,026 | 8,864 | 9,792 | ||||||||||||||
Dividends paid | — | — | — | (2,000 | ) | (2,000 | ) | |||||||||||||
Equity contribution | — | — | 5,000 | — | 5,000 | |||||||||||||||
Net income | — | — | — | 4,766 | 4,766 | |||||||||||||||
Balances, December 31, 2005 | 17 | (115 | ) | 6,026 | 11,630 | 17,558 | ||||||||||||||
Net income | — | — | — | 2,422 | 2,422 | |||||||||||||||
Balances, December 31, 2006 | $ | 17 | $ | (115 | ) | $ | 6,026 | $ | 14,052 | $ | 19,980 | |||||||||
F-35
Table of Contents
2006 | 2005 | 2004 | ||||||||||
(In thousands) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net Income | $ | 2,422 | $ | 4,766 | $ | 6,332 | ||||||
Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||||||
Amortization | 68 | (14 | ) | 429 | ||||||||
Gain on sale of businesses | (1,370 | ) | (3,091 | ) | (5,261 | ) | ||||||
Purchase of business inventory provided by sellers | 12,221 | 14,318 | 11,740 | |||||||||
(Increase) decrease in assets: | ||||||||||||
Accounts receivable | (8,492 | ) | (5,045 | ) | (2,040 | ) | ||||||
Other receivables | (385 | ) | (247 | ) | 193 | |||||||
Prepaid expenses and other assets | (663 | ) | (282 | ) | 43 | |||||||
Business inventory | 2,725 | (4,036 | ) | (655 | ) | |||||||
Increase (decrease) in liabilities: | ||||||||||||
Accounts and expense payable | 507 | 2,120 | 1,416 | |||||||||
Other liabilities | 803 | (439 | ) | 1,866 | ||||||||
Net cash provided by operating activities | 7,836 | 8,050 | 14,063 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Inflows from parent | 87,046 | 37,105 | 124,744 | |||||||||
Outflows to parent | (79,807 | ) | (39,679 | ) | (146,274 | ) | ||||||
Purchase of subsidiary and business assets | — | (2,054 | ) | (8,215 | ) | |||||||
Sale of subsidiary and business assets | — | 3,949 | 12,977 | |||||||||
Net cash provided by (used in) investing activities | 7,239 | (679 | ) | (16,768 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Capital contribution | — | 5,000 | — | |||||||||
Dividends paid | — | (2,000 | ) | — | ||||||||
Loan proceeds on debt | 8,500 | 10,194 | 12,720 | |||||||||
Payments on debt | (18,180 | ) | (21,880 | ) | (12,870 | ) | ||||||
Net cash used in financing activities | (9,680 | ) | (8,686 | ) | (150 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | 5,395 | (1,315 | ) | (2,855 | ) | |||||||
Cash and cash equivalents, beginning of year | 5,406 | 6,721 | 9,576 | |||||||||
Cash and cash equivalents, end of year | $ | 10,801 | $ | 5,406 | $ | 6,721 | ||||||
Supplemental disclosure: | ||||||||||||
Cash paid for interest | $ | 1,640 | $ | 1,229 | $ | 933 | ||||||
F-36
Table of Contents
1. | Summary of Significant Accounting Policies |
(a) | Organization |
F-37
Table of Contents
(b) | Principles of Consolidation |
(c) | Use of Accounting Estimates |
• | Amount of future policy cancellations which may result in commission refunds and a corresponding reserve | |
• | Share of future policy cancellations due from franchisees | |
• | Amount of allowance for doubtful accounts | |
• | Share of policy commissions due to franchisees for commissions received by the Company but not yet distributed to franchisees | |
• | Useful lives of intangible assets |
(d) | Cash Equivalents |
(e) | Allowance for Doubtful Accounts |
(f) | Revenue Recognition |
F-38
Table of Contents
F-39
Table of Contents
(g) | Amortizable Intangible Assets |
(h) | Income Taxes |
(i) | Investment in Businesses |
F-40
Table of Contents
(j) | Gain or Loss on Sale of Businesses |
(k) | Buyer Assistance Plan |
(l) | Other Receivables |
(m) | Restricted Cash |
(n) | Advertising |
F-41
Table of Contents
(o) | Building |
(p) | Advertising Supply Inventory |
2. | Transactions with Parent Company |
F-42
Table of Contents
3. | Bank Loans and Notes Payable |
2006 | 2005 | |||||||
(In thousands) | ||||||||
Seller notes payable. These notes are payable to the seller of businesses that the Company has purchased and are collateralized by assets of the businesses purchased. Some of these notes have an interest rate of 0% and have been discounted at a rate of 5.50% to 9.75% and maturities range from January 2007 to January 2011. A particular seller note payable has an interest rate of 7.00% and matures September 2015 | $ | 18,738 | $ | 24,804 | ||||
Columbian Bank and Trust Company, due March, 2007. Interest rate is variable and was 8.25% at December 31, 2006. Interest and principal are due in one payment at maturity. Collateralized by accounts receivable | 8,500 | — | ||||||
Brooke Credit Corporation, due September, 2020. Interest rate is variable and was 10.25% at December 31, 2006. Interest and principal are payable in 180 monthly payments of $12,238. Collateralized by various assets of the Company | — | 1,195 | ||||||
Brooke Credit Corporation, due September, 2015. Interest rate is variable and was 11.75% at December 31, 2006. Interest and principal are payable in 120 monthly payments of $16,080. Collateralized by various assets of the Company | 1,099 | 1,168 | ||||||
Total bank loans and notes payable | 28,337 | 27,167 | ||||||
Less: Current maturities and short-term debt | (21,006 | ) | (14,948 | ) | ||||
Total long-term debt | $ | 7,331 | $ | 12,219 |
(In thousands) | ||||
Years Ending December 31, | ||||
2007 | $ | 21,006 | ||
2008 | 5,434 | |||
2009 | 439 | |||
2010 | 456 | |||
2011 | 236 | |||
Thereafter | 766 | |||
$ | 28,337 | |||
F-43
Table of Contents
4. | Income Taxes |
December 31, | December 31, | December 31, | ||||||||||
2005 | 2005 | 2004 | ||||||||||
U.S. federal statutory tax rate | 35 | % | 35 | % | 34 | % | ||||||
State statutory tax rate | 4 | % | 4 | % | 4 | % | ||||||
Miscellaneous | (1 | )% | (1 | )% | (4 | )% | ||||||
Effective tax rate | 38 | % | 38 | % | 34 | % |
5. | Employee Benefit Plans |
6. | Concentration of Credit Risk |
7. | Related Party Information |
F-44
Table of Contents
F-45
Table of Contents
8. | Acquisitions and Divestitures |
9. | Intangible Assets |
10. | Supplemental Cash Flow Disclosures |
F-46
Table of Contents
2006 | 2005 | 2004 | ||||||||||
(In thousands) | ||||||||||||
Purchase of business inventory | $ | (25,254 | ) | $ | (27,536 | ) | $ | (18,996 | ) | |||
Sale of business inventory | 39,225 | 37,818 | 29,951 | |||||||||
Net cash provided from sale of inventory | 13,971 | 10,282 | 10,955 | |||||||||
Cash provided by sellers of business inventory | (12,221 | ) | (14,318 | ) | (11,740 | ) | ||||||
Write down to realizable value of inventory | 975 | — | 130 | |||||||||
(Increase) decrease in inventory on balance sheet | $ | 2,725 | $ | 4,036 | $ | 655 | ||||||
11. | New Accounting Standards |
12. | Reclassifications |
13. | Contingencies |
F-47
Table of Contents
COMBINED FINANCIAL STATEMENTS | ||||
Combined Balance Sheets | F-49 | |||
Combined Statements of Income | ||||
Combined Statements of Changes in Stockholders’ Equity | F-51 | |||
Combined Statements of Cash Flows | F-52 | |||
Notes to Combined Financial Statements | F-53 |
F-48
Table of Contents
June 30, | December 31, | |||||||
2007 | 2006 | |||||||
(In thousands, except share amounts) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 16,696 | $ | 10,801 | ||||
Restricted cash | 685 | 615 | ||||||
Accounts receivable, net | 15,128 | 18,082 | ||||||
Other receivables | 8,924 | 1,492 | ||||||
Deposits | 132 | 468 | ||||||
Receivable from parent company | 23,014 | 27,926 | ||||||
Advertising supply inventory | 785 | 462 | ||||||
Total current assets | 65,364 | 59,846 | ||||||
Investment in businesses | 3,766 | 2,333 | ||||||
Property and Equipment | 15,607 | 250 | ||||||
Less: Accumulated depreciation | (3,376 | ) | ||||||
Net Property and Equipment | 12,231 | 250 | ||||||
Amortizable intangible assets | 584 | 614 | ||||||
Total assets | $ | 81,945 | $ | 63,043 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 7,999 | $ | 1,759 | ||||
Premiums payable to insurance companies | 5,229 | 5,956 | ||||||
Producer payable | 5,132 | 4,234 | ||||||
Interest payable | 1,425 | 757 | ||||||
Income tax payable to parent | 1,362 | 1,485 | ||||||
Accrued commission refunds | 490 | 535 | ||||||
Short term debt | 10,172 | 10,208 | ||||||
Current maturities of long-term debt | 17,915 | 10,798 | ||||||
Total current liabilities | 49,724 | 35,732 | ||||||
Long-term debt less current maturities | 9,893 | 7,331 | ||||||
Total liabilities | 59,617 | 43,063 | ||||||
Stockholders’ equity | ||||||||
Common stock, $10 and $1 par, 3,505,000 shares authorized, 8,600 shares issued and outstanding | 17 | 17 | ||||||
Less: Treasury stock, 15,500 shares, at cost | (115 | ) | (115 | ) | ||||
Additional paid-in capital | 6,026 | 6,026 | ||||||
Retained earnings | 16,400 | 14,052 | ||||||
Total stockholders’ equity | 22,328 | 19,980 | ||||||
Total liabilities and stockholders’ equity | $ | 81,945 | $ | 63,043 | ||||
F-49
Table of Contents
June 30, | June 30, | |||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Operating Revenues | ||||||||
Insurance commissions | $ | 59,623 | $ | 51,376 | ||||
Consulting fees | 1,427 | 1,601 | ||||||
Gain on sale of businesses | 1,842 | 2,881 | ||||||
Initial franchise fees for basic services | 19,965 | 14,055 | ||||||
Initial franchise fees for buyer assistance plans | 2,532 | |||||||
Interest income | 173 | 122 | ||||||
Other income | 1,335 | 1,046 | ||||||
Total operating revenues | 84,820 | 73,613 | ||||||
Operating Expenses | ||||||||
Commission expense | 44,967 | 39,057 | ||||||
Payroll expense | 10,985 | 11,434 | ||||||
Depreciation and amortization | 46 | 34 | ||||||
Other operating expenses | 23,777 | 16,602 | ||||||
Total operating expenses | 79,775 | 67,127 | ||||||
Income from operations | 5,045 | 6,486 | ||||||
Other Expenses | ||||||||
Interest expense | 1,258 | 820 | ||||||
Total other expenses | 1,258 | 820 | ||||||
Income before income taxes | 3,787 | 5,666 | ||||||
Provision for income taxes | 1,439 | 2,153 | ||||||
Net income | $ | 2,348 | $ | 3,513 |
F-50
Table of Contents
Common | Treasury | Add’l Paid- | Retained | |||||||||||||||||
Stock | Stock | in Capital | Earnings | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Balances, December 31, 2006 | — | — | 6,026 | 14,052 | 19,980 | |||||||||||||||
Net income | — | — | — | 2,348 | 2,348 | |||||||||||||||
Balances, June 30, 2007 | $ | — | $ | — | $ | 6,026 | $ | 16,400 | $ | 22,328 | ||||||||||
F-51
Table of Contents
June 30, | June 30, | |||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net Income | $ | 2,348 | $ | 3,513 | ||||
Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||
Depreciation and Amortization | 46 | 34 | ||||||
Gain on sale of businesses | (1,147 | ) | (1,181 | ) | ||||
Purchase of business inventory provided by sellers | 11,021 | 9,542 | ||||||
(Increase) decrease in assets: | ||||||||
Accounts receivable | 2,948 | (3,960 | ) | |||||
Other receivables | (7,427 | ) | (436 | ) | ||||
Prepaid expenses and other assets | 59 | (102 | ) | |||||
Business inventory | (1,433 | ) | 2,930 | |||||
Increase (decrease) in liabilities: | ||||||||
Accounts and expense payable | 6,227 | 1,233 | ||||||
Other liabilities | 751 | 793 | ||||||
Net cash provided by operating activities | 13,393 | 12,366 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Inflows from parent | 39,282 | 53,786 | ||||||
Outflows to parent | (35,378 | ) | (55,200 | ) | ||||
Purchase of subsidiary and business assets | (735 | ) | 0 | |||||
Purchase of fixed assets | (5,686 | ) | 0 | |||||
Net cash used in investing activities | (2,517 | ) | (1,414 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Capital contribution | — | — | ||||||
Dividends paid | — | — | ||||||
Loan proceeds on debt | — | — | ||||||
Payments on debt | (4,981 | ) | (9,189 | ) | ||||
Net cash used in financing activities | (4,981 | ) | (9,189 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 5,895 | 1,763 | ||||||
Cash and cash equivalents, beginning of year | 10,801 | 5,406 | ||||||
Cash and cash equivalents, end of year | $ | 16,696 | $ | 7,169 | ||||
Supplemental disclosure: | ||||||||
Cash paid for interest | $ | 565 | $ | 803 | ||||
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1. | Summary of Significant Accounting Policies |
(a) | Organization |
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(b) | Principles of Consolidation |
(c) | Use of Accounting Estimates |
• | Amount of future policy cancellations which may result in commission refunds and a corresponding reserve | |
• | Share of future policy cancellations due from franchisees | |
• | Amount of allowance for doubtful accounts | |
• | Share of policy commissions due to franchisees for commissions received by the Company but not yet distributed to franchisees | |
• | Useful lives of intangible assets |
(d) | Cash Equivalents |
(e) | Allowance for Doubtful Accounts |
(f) | Revenue Recognition |
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F-55
Table of Contents
(g) | Amortizable Intangible Assets |
(h) | Income Taxes |
(i) | Investment in Businesses |
(j) | Gain or Loss on Sale of Businesses |
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(k) | Buyer Assistance Plan |
(l) | Other Receivables |
(m) | Restricted Cash |
(n) | Advertising |
(o) | Advertising Supply Inventory |
2. | Transactions with Parent Company |
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3. | Property and Equipment |
June 30, | December 31, | |||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Furniture | $ | 4,316 | $ | 0 | ||||
Office and computer equipment | 3,296 | 0 | ||||||
Automobiles and airplanes | 1,013 | 0 | ||||||
Building and leasehold improvements | 6,780 | 250 | ||||||
Land | 202 | 0 | ||||||
15,607 | 250 | |||||||
Less: Accumulated depreciation | (3,376 | ) | 0 | |||||
Property and equipment, net | $ | 12,231 | $ | 250 | ||||
Depreciation expense | $ | 15 | $ | 0 |
4. | Bank Loans and Notes Payable |
June 30, | December 31, | |||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Seller notes payable. These notes are payable to the seller of businesses that the Company has purchased and are collateralized by assets of the businesses purchased. Some of these notes have an interest rate of 0% and have been discounted at a rate of 5.50% to 9.75% and maturities range from January 2007 to January 2011. A particular seller note payable has an interest rate of 7.00% and matures September 2015 | $ | 23,677 | $ | 18,738 | ||||
Company debt with banks. These notes are payable to banks and collateralized by various assets of the Company. Interest rates on these notes range from 7.75% to 8.5%. Maturities range from July, 2007 to September, 2021 | 11,280 | 8,500 | ||||||
Brooke Credit Corporation., Interest rates on these notes range from 11.75% to 12.25%. Maturities range from October, 2011 January, 2021. Collateralized by various assets of the Company | 3,023 | 1,099 | ||||||
Total bank loans and notes payable | 37,980 | 28,337 | ||||||
Less: Current maturities and short-term debt | (28,087 | ) | (21,006 | ) | ||||
Total long-term debt | $ | 9,893 | $ | 7,331 | ||||
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(In thousands) | ||||
Years Ending June 30, | ||||
2008 | $ | 28,087 | ||
2009 | 4,496 | |||
2010 | 1,018 | |||
2011 | 618 | |||
2012 | 464 | |||
Thereafter | 3,297 | |||
$ | 37,980 | |||
5. | Income Taxes |
June 30, | June 30, | |||||||
2007 | 2006 | |||||||
U.S. federal statutory tax rate | 38 | % | 38 | % | ||||
State statutory tax rate | 4 | % | 4 | % | ||||
Miscellaneous | (4 | )% | (4 | )% | ||||
Effective tax rate | 38 | % | 38 | % |
6. | Employee Benefit Plans |
7. | Concentration of Credit Risk |
8. | Related Party Information |
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9. | Acquisitions and Divestitures |
10. | Intangible Assets |
11. | Supplemental Cash Flow Disclosures |
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2007 | 2006 | |||||||
(In thousands) | ||||||||
Purchase of business inventory | $ | (18,439 | ) | $ | (19,672 | ) | ||
Sale of business inventory | 27,727 | 31,594 | ||||||
Net cash provided from sale of inventory | 9,288 | 11,922 | ||||||
Cash provided by sellers of business inventory | (11,021 | ) | (9,542 | ) | ||||
Write down to realizable value of inventory | 300 | 550 | ||||||
(Increase) decrease in inventory on balance sheet | $ | (1,433 | ) | $ | 2,930 | |||
12. | New Accounting Standards |
13. | Reclassifications |
14. | Contingencies |
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As of December 31, | ||||||||
2006 | 2005 | |||||||
ASSETS | ||||||||
Investments available for sale | ||||||||
Fixed maturity securities | $ | 8,588,259 | $ | 8,166,120 | ||||
Equity securities | 621,743 | 550,332 | ||||||
Total Investments | 9,210,002 | 8,716,452 | ||||||
Cash and cash equivalents | 1,164,036 | 2,244,164 | ||||||
Accounts receivable | 412,105 | 422,286 | ||||||
Premiums receivable | 2,154,945 | 1,355,618 | ||||||
Ceding commission receivable | — | 190,554 | ||||||
Reinsurance recoverable — paid losses | 222,326 | 386,191 | ||||||
Reinsurance recoverable — unpaid losses | 2,113,167 | 1,835,019 | ||||||
Prepaid reinsurance premiums | 910,228 | 609,154 | ||||||
Deferred policy acquisition costs | 365,378 | 281,523 | ||||||
Income tax receivable | 683,254 | 12,706 | ||||||
Net deferred income tax asset | 405,129 | 433,592 | ||||||
Note receivable-related party | 163,401 | 163,401 | ||||||
Goodwill | 944,790 | 980,843 | ||||||
Other assets | 1,326,214 | 1,076,698 | ||||||
Total Assets | $ | 20,074,975 | $ | 18,708,201 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Liabilities: | ||||||||
Loss and loss adjustment expenses | $ | 7,749,327 | $ | 7,221,220 | ||||
Unearned premiums | 3,033,170 | 2,029,591 | ||||||
Reinsurance payable | 857,691 | 845,648 | ||||||
Accounts payable and accrued expenses | 762,785 | 416,816 | ||||||
Notes payable | 5,202,789 | 5,378,280 | ||||||
Other liabilities | 1,201,284 | 1,577,663 | ||||||
Total Liabilities | 18,807,046 | 17,469,218 | ||||||
Stockholders’ Equity: | ||||||||
Common stock $1 par, 30,000 shares authorized, 1,000 issued and outstanding | 1,000 | 1,000 | ||||||
Accumulated other comprehensive income | (127,362 | ) | (100,797 | ) | ||||
Retained earnings | 1,394,291 | 1,338,780 | ||||||
Total Stockholders’ Equity | 1,267,929 | 1,238,983 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 20,074,975 | $ | 18,708,201 | ||||
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Years Ended December 31, | ||||||||
2006 | 2005 | |||||||
Revenues | ||||||||
Premiums earned | $ | 9,715,210 | $ | 9,702,180 | ||||
Commission income | 3,799,245 | 3,048,762 | ||||||
Management fees earned | 1,479,046 | 1,099,336 | ||||||
Net investment income | 346,131 | 321,105 | ||||||
Net realized gains/(losses) on sales of investments | 100,299 | (9,808 | ) | |||||
Other income | 266,159 | 214,531 | ||||||
Total Revenues | 15,706,090 | 14,376,106 | ||||||
Expenses | ||||||||
Losses and loss adjustment expenses | 6,836,572 | 6,084,269 | ||||||
General and administrative expenses | 8,986,668 | 7,417,243 | ||||||
Interest expense | 413,046 | 442,620 | ||||||
Total Expenses | 16,236,286 | 13,944,132 | ||||||
(Loss)/Income Before Federal Income Taxes | (530,196 | ) | 431,974 | |||||
Federal income tax benefit/(expense) | 585,707 | (188,625 | ) | |||||
Net Income | $ | 55,511 | $ | 243,349 | ||||
Other Comprehensive Income, net of tax | ||||||||
Net Income | $ | 55,511 | $ | 243,349 | ||||
Net unrealized holding losses arising during the period | (92,762 | ) | (120,944 | ) | ||||
Less: reclassification adjustment for realized gains/(losses) included in net income | 66,197 | (6,473 | ) | |||||
Other Comprehensive Loss | (26,565 | ) | (127,417 | ) | ||||
Comprehensive Income | $ | 28,946 | $ | 115,932 | ||||
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Accumulated | ||||||||||||||||
Other | Total | |||||||||||||||
Comprehensive | Retained | Stockholders’ | ||||||||||||||
Common Stock | Income | Earnings | Equity | |||||||||||||
Balance at January 1, 2005 | $ | 1,000 | $ | 26,620 | $ | 1,095,431 | $ | 1,123,051 | ||||||||
Other comprehensive loss | — | (127,417 | ) | — | (127,417 | ) | ||||||||||
Net income | — | — | 243,349 | 243,349 | ||||||||||||
Balance at December 31, 2005 | 1,000 | (100,797 | ) | 1,338,780 | 1,238,983 | |||||||||||
Other comprehensive loss | — | (26,565 | ) | — | (26,565 | ) | ||||||||||
Net income | — | — | 55,511 | 55,511 | ||||||||||||
Balance at December 31, 2006 | $ | 1,000 | $ | (127,362 | ) | $ | 1,394,291 | $ | 1,267,929 | |||||||
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Years Ended December 31, | ||||||||
2006 | 2005 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 55,511 | $ | 243,349 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Net realized (gains)/losses of investments | (100,299 | ) | 9,808 | |||||
Deferred federal income taxes | 22,940 | (40,677 | ) | |||||
Depreciation and amortization | 165,716 | 254,443 | ||||||
Changes in assets and liabilities: | ||||||||
Reinsurance recoverable | 76,271 | 294,237 | ||||||
Accounts receivable | 10,182 | (328,315 | ) | |||||
Premiums receivable | (799,327 | ) | 146,638 | |||||
Other assets, net | (1,578,391 | ) | 454,049 | |||||
Losses and loss adjustment expenses | 528,107 | 385,376 | ||||||
Unearned premiums, net | 1,003,579 | (337,151 | ) | |||||
Reinsurance payable | 12,043 | (606,596 | ) | |||||
Accounts payable and accrued expenses | 345,969 | 65,395 | ||||||
Net cash from operating activities | (257,699 | ) | 540,556 | |||||
Cash flows from investing activities | ||||||||
Cost of investments purchased | (2,085,981 | ) | (2,279,982 | ) | ||||
Proceeds from sales and maturities of investments | 1,646,299 | 1,129,545 | ||||||
Cost of fixed asset purchased | (207,257 | ) | (180,500 | ) | ||||
Net cash from investing activities | (646,939 | ) | (1,330,937 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from issuance of long-term debt | 153,161 | 131,003 | ||||||
Repayments on long-term debt | (328,651 | ) | (634,307 | ) | ||||
Net cash from financing activities | (175,490 | ) | (503,304 | ) | ||||
Net change in cash and cash equivalents | (1,080,128 | ) | (1,293,685 | ) | ||||
Cash and cash equivalents, beginning of year | 2,244,164 | 3,537,849 | ||||||
Cash and cash equivalents, end of year | $ | 1,164,036 | $ | 2,244,164 | ||||
Supplemental disclosure of cash flow information | ||||||||
Income taxes paid | $ | 40,500 | $ | 270,079 | ||||
Interest expense paid | $ | 413,045 | $ | 442,620 | ||||
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Note A — | Organization and Significant Accounting Policies |
• | Traders Insurance Connection, Inc. | |
• | Traders Insurance Company | |
• | Professional Claims, Inc. | |
• | Christopher Joseph & Company |
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Note B — | Insurance Activity |
Direct | Ceded | Net | ||||||||||
2006 | ||||||||||||
Premiums written | $ | 14,882,450 | $ | 4,464,735 | $ | 10,417,717 | ||||||
Change in unearned premiums | (1,003,579 | ) | (301,074 | ) | (702,507 | ) | ||||||
Premiums earned | $ | 13,878,871 | $ | 4,163,661 | $ | 9,715,210 | ||||||
2005 | ||||||||||||
Premiums written | $ | 13,523,342 | $ | 4,056,974 | $ | 9,466,368 | ||||||
Change in unearned premiums | 336,875 | 101,063 | 235,812 | |||||||||
Premiums earned | $ | 13,860,217 | $ | 4,158,037 | $ | 9,702,180 | ||||||
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2006 | 2005 | |||||||
Gross liability as of January 1, | $ | 7,221 | $ | 6,836 | ||||
Less: reinsurance recoverables on paid losses | (1,835 | ) | (1,696 | ) | ||||
Net liability as of January 1, | 5,386 | 5,140 | ||||||
Incurred related to: | ||||||||
Current year | 6,542 | 6,532 | ||||||
Development of prior years | 295 | (448 | ) | |||||
Total incurred during the year | 6,837 | 6,084 | ||||||
Paid related to: | ||||||||
Current year | (3,250 | ) | (3,075 | ) | ||||
Prior years | (3,337 | ) | (2,763 | ) | ||||
Total paid | (6,587 | ) | (5,838 | ) | ||||
Net liability, December 31, | 5,636 | 5,386 | ||||||
Plus: reinsurance recoverable on unpaid losses | 2,113 | 1,835 | ||||||
Gross liability as of December 31, | $ | 7,749 | $ | 7,221 | ||||
Note C — | Investments |
Cost/ | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
At December 31, 2006 | Cost | Gains | Losses | Value | ||||||||||||
Fixed maturity securities: | ||||||||||||||||
U.S. Government securities | $ | 3,322,355 | $ | 974 | $ | (83,732 | ) | $ | 3,239,597 | |||||||
Corporate debt securities | 3,814,627 | 10,686 | (76,732 | ) | 3,748,581 | |||||||||||
US Treasury securities | 1,618,959 | 752 | (19,630 | ) | 1,600,081 | |||||||||||
Total fixed maturity securities | $ | 8,755,941 | $ | 12,412 | $ | (180,094 | ) | $ | 8,588,259 | |||||||
Equity securities | $ | 647,035 | $ | 22,313 | $ | (47,605 | ) | $ | 621,743 | |||||||
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Cost/ | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
At December 31, 2005 | Cost | Gains | Losses | Value | ||||||||||||
Fixed maturity securities: | ||||||||||||||||
U.S. Government securities | $ | 3,072,483 | $ | 2,217 | $ | (92,274 | ) | $ | 2,982,426 | |||||||
Corporate debt securities | 3,529,771 | 21,487 | (72,864 | ) | 3,478,394 | |||||||||||
US Treasury securities | 1,718,773 | 1,993 | (15,466 | ) | 1,705,300 | |||||||||||
Total fixed maturity securities | $ | 8,321,027 | $ | 25,697 | $ | (180,604 | ) | $ | 8,166,120 | |||||||
Equity securities | $ | 547,672 | $ | 68,108 | $ | (65,448 | ) | $ | 550,332 | |||||||
Less Than Twelve Months | Twelve Months or Greater | |||||||||||||||
Unrealized | Unrealized | |||||||||||||||
Fair Value | Losses | Fair Value | Losses | |||||||||||||
Description of security | ||||||||||||||||
US Government securities | $ | 298,554 | $ | (1,446 | ) | $ | 2,839,983 | $ | (82,286 | ) | ||||||
Corporate debt securities | 675,339 | (15,035 | ) | 2,184,078 | (61,697 | ) | ||||||||||
US Treasury securities | 349,175 | (1,413 | ) | 1,150,157 | (18,216 | ) | ||||||||||
Total fixed maturity securities | $ | 1,323,068 | $ | (17,894 | ) | $ | 6,174,218 | $ | (162,199 | ) | ||||||
Equity securities | $ | 90,430 | $ | (8,579 | ) | $ | 133,625 | $ | (39,026 | ) | ||||||
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Amortized | Fair | |||||||
Cost | Value | |||||||
Maturity: | ||||||||
In 2007 | $ | 1,400,847 | $ | 1,395,025 | ||||
In 2008-2011 | 4,444,978 | 4,365,170 | ||||||
In 2012-2016 | 2,538,081 | 2,467,042 | ||||||
In 2016-2020 | 372,035 | 361,022 | ||||||
Total fixed maturity securities | $ | 8,755,941 | $ | 8,588,259 | ||||
2006 | 2005 | |||||||
Investment income: | ||||||||
Fixed maturity securities | $ | 394,587 | $ | 345,640 | ||||
Equity securities | 10,564 | 9,153 | ||||||
Cash and cash equivalents | 15,167 | 31,856 | ||||||
Other invested assets | 41,524 | 43,011 | ||||||
Gross investment income | 461,842 | 429,660 | ||||||
Investment expense | (115,711 | ) | (108,555 | ) | ||||
Net investment income | $ | 346,131 | $ | 321,105 | ||||
Note D — | Significant Agreements and Related Party Transactions |
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Note E — | Federal Income Taxes |
2006 | 2005 | |||||||
Current income tax (benefit) expense | $ | (219,242 | ) | $ | 176,609 | |||
Prior year (over) under accrual | (389,405 | ) | 50,067 | |||||
Deferred income tax expense (benefit) | 22,940 | (38,051 | ) | |||||
Federal income tax expense | $ | (585,707 | ) | $ | 188,625 | |||
2006 | 2005 | |||||||
Deferred tax asset: | ||||||||
Discounting of unpaid losses and LAE | $ | 141,215 | $ | 134,952 | ||||
Unearned premiums | 144,360 | 98,345 | ||||||
Net operation loss carryforward | 43,827 | 43,827 | ||||||
Capital loss carryforwards | 10,983 | 48,097 | ||||||
Amortization of other intangible asset | 135,721 | 118,564 | ||||||
Unrealized losses on investments | 77,418 | 83,658 | ||||||
Other | 47,200 | 70,830 | ||||||
Total deferred tax assets | 600,724 | 598,273 | ||||||
Deferred tax liabilities: | ||||||||
Deferred acquisition costs | 182,894 | 132,787 | ||||||
Unrealized gains on investments | 11,807 | 31,894 | ||||||
Other | 894 | — | ||||||
Total deferred tax liabilities | 195,595 | 164,681 | ||||||
Net deferred income tax asset | $ | 405,129 | $ | 433,592 | ||||
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Note F — | Profit Sharing and Retirement Plan |
Note G — | Commitments |
Amount | ||||
2007 | $ | 389,510 | ||
2008 | 292,513 | |||
2009 | 201,033 | |||
2010 | 49,705 | |||
Thereafter | — | |||
$ | 932,761 | |||
Note H — | Dividend Restrictions |
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Note I — | Notes Payable |
2006 | 2005 | |||||||
Note payable to Dorinco bearing interest at 8%; due April 2014; minimum principle payments of $250,000 every two years, which can be accelerated based on cash flow results of certain subsidiaries; collateralized by the stock of Delta Plus, Connection, CJC, TIC and Professional Claims, Inc. | $ | 4,566,586 | $ | 4,816,586 | ||||
Non-interest bearing installment payment obligation on a non-compete agreement; original obligation discounted to present value using a rate of 10.25%, 60 monthly installments of $16,670 beginning May 1, 2000, followed by 12 monthly installments of $12,500 until paid in full | — | 36,868 | ||||||
Note payable to relative of significant shareholder bearing interest at 10%; monthly payments of interest only until December 2007, at which time the entire principle balance becomes due and payable. Automatic renewal in December 2007 unless full payment demanded | 250,000 | 250,000 | ||||||
Various individual notes payable with combined payments ranging from $476 to $4,262 per month; interest rates ranging from 0% to 9%; collateralized by personal property; payable through May 2010 | 386,203 | 274,826 | ||||||
Total long-term debt | $ | 5,202,789 | $ | 5,378,280 | ||||
2007 | $ | 522,188 | ||
2008 | 273,316 | |||
2009 | 23,620 | |||
2010 and thereafter | 4,383,665 | |||
$ | 5,202,789 | |||
Note J — | Subsequent Event |
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As of June 30, | ||||||||
2007 | 2006 | |||||||
ASSETS | ||||||||
Investments available for sale | ||||||||
Fixed maturity securities | $ | 8,546,186 | $ | 8,540,392 | ||||
Equity securities | 672,500 | 564,558 | ||||||
Total Investments | 9,218,686 | 9,104,950 | ||||||
Cash and cash equivalents | 2,296,252 | 1,449,753 | ||||||
Accounts receivable | 491,006 | 584,883 | ||||||
Premiums receivable | 2,668,283 | 1,840,946 | ||||||
Reinsurance recoverable — paid losses | 511,707 | 435,834 | ||||||
Reinsurance recoverable — unpaid losses | 2,000,200 | 1,666,053 | ||||||
Prepaid reinsurance premiums | 1,184,694 | 773,032 | ||||||
Deferred policy acquisition costs | 696,772 | 286,337 | ||||||
Income tax receivable | 674,878 | — | ||||||
Net deferred income tax asset | 353,088 | 576,978 | ||||||
Note receivable-related party | — | 163,401 | ||||||
Goodwill | 944,790 | 944,790 | ||||||
Other assets | 748,372 | 807,881 | ||||||
Total Assets | $ | 21,788,728 | $ | 18,634,838 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Liabilities: | ||||||||
Loss and loss adjustment expenses | $ | 7,897,779 | $ | 6,582,908 | ||||
Unearned premiums | 3,948,057 | 2,575,852 | ||||||
Reinsurance payable | 1,698,368 | 641,560 | ||||||
Accounts payable and accrued expenses | 361,301 | 748,232 | ||||||
Parent payable | 4,596,015 | — | ||||||
Notes payable | 535,834 | 5,185,183 | ||||||
Other liabilities | 1,874,265 | 1,243,008 | ||||||
Total Liabilities | 20,911,619 | 16,976,743 | ||||||
Stockholders’ Equity: | ||||||||
Common stock $1 par, 30,000 shares authorized, 1,000 issued and outstanding | 1,000 | 1,000 | ||||||
Accumulated other comprehensive income | (118,862 | ) | (164,298 | ) | ||||
Retained earnings | 994,971 | 1,821,393 | ||||||
Total Stockholders’ Equity | 877,109 | 1,658,095 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 21,788,728 | $ | 18,634,838 | ||||
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Periods Ended June 30, | ||||||||
2007 | 2006 | |||||||
Revenues | ||||||||
Premiums earned | $ | 6,086,682 | $ | 4,750,809 | ||||
Commission income | 1,098,721 | 1,946,123 | ||||||
Management fees earned | 488,097 | 782,138 | ||||||
Net investment income | 229,949 | 228,246 | ||||||
Net realized gains/(losses) on sales of investments | — | 4,948 | ||||||
Other income | 119,538 | 109,737 | ||||||
Total Revenues | 8,022,987 | 7,822,001 | ||||||
Expenses | ||||||||
Losses and loss adjustment expenses | 3,704,058 | 2,130,648 | ||||||
General and administrative expenses | 4,193,582 | 4,669,754 | ||||||
Interest expense | 117,351 | 210,291 | ||||||
Total Expenses | 8,014,991 | 7,010,693 | ||||||
(Loss)/Income Before Federal Income Taxes | 7,996 | 811,308 | ||||||
Federal income (tax benefit)/expense | (88,684 | ) | 328,695 | |||||
Net Income | $ | 96,680 | $ | 482,613 | ||||
Other Comprehensive Income, net of tax | ||||||||
Net Income | $ | 96,680 | $ | 482,613 | ||||
Net unrealized holding losses arising during the period | 8,500 | (63,501 | ) | |||||
Less: reclassification adjustment for realized gains/(losses) included in net income | — | — | ||||||
Other Comprehensive Gain/(loss) | 8,500 | (63,501 | ) | |||||
Comprehensive Income | $ | 105,180 | $ | 419,112 | ||||
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Accumulated | ||||||||||||||||
Other | Total | |||||||||||||||
Common | Comprehensive | Retained | Stockholders’ | |||||||||||||
Stock | Income | Earnings | Equity | |||||||||||||
Balance at January 1, 2006 | $ | 1,000 | $ | (100,797 | ) | $ | 1,338,780 | $ | 1,238,983 | |||||||
Other comprehensive loss | — | (63,501 | ) | — | (63,501 | ) | ||||||||||
Net income | — | — | 482,613 | 482,613 | ||||||||||||
Balance at June 30, 2006 | 1,000 | (164,298 | ) | 1,821,393 | 1,658,095 | |||||||||||
Balance at January 1, 2007 | 1,000 | (127,362 | ) | 1,394,291 | 1,267,929 | |||||||||||
Other comprehensive loss | — | 8,500 | — | 8,500 | ||||||||||||
Equity adjustment | (496,000 | ) | (496,000 | ) | ||||||||||||
Net income | — | — | 96,680 | 96,680 | ||||||||||||
Balance at June 30, 2007 | $ | 1,000 | $ | (118,862 | ) | $ | 994,971 | $ | 877,109 | |||||||
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Periods Ended June 30, | ||||||||
2007 | 2006 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 96,680 | $ | 482,613 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Net realized (gains)/losses of investments | — | (4,948 | ) | |||||
Deferred federal income taxes | 47,662 | 38,169 | ||||||
Depreciation and amortization | 68,197 | 76,004 | ||||||
Changes in assets and liabilities: | ||||||||
Reinsurance recoverable | (176,414 | ) | 309,877 | |||||
Accounts receivable | 84,499 | 803 | ||||||
Premiums receivable | (513,338 | ) | (485,328 | ) | ||||
Other assets, net | 52,829 | (427,519 | ) | |||||
Losses and loss adjustment expenses | 148,452 | (638,312 | ) | |||||
Unearned premiums, net | 914,887 | 546,261 | ||||||
Reinsurance payable | 840,677 | (204,089 | ) | |||||
Accounts payable and accrued expenses | (401,484 | ) | 331,415 | |||||
Net cash from operating activities | 1,162,647 | 24,946 | ||||||
Cash flows from investing activities | ||||||||
Cost of investments purchased | (697,356 | ) | (1,090,169 | ) | ||||
Proceeds from sales and maturities of investments | 700,000 | 604,948 | ||||||
Cost of fixed asset purchased | (32,104 | ) | (141,039 | ) | ||||
Net cash from investing activities | (29,460 | ) | (626,260 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from issuance of long-term debt | 4,596,015 | 115,326 | ||||||
Repayments on long-term debt | (4,596,986 | ) | (308,423 | ) | ||||
Net cash from financing activities | (971 | ) | (193,097 | ) | ||||
Net change in cash and cash equivalents | 1,132,216 | (794,411 | ) | |||||
Cash and cash equivalents, beginning of year | 1,164,036 | 2,244,164 | ||||||
Cash and cash equivalents, end of year | $ | 2,296,252 | $ | 1,449,753 | ||||
Supplemental disclosure of cash flow information | ||||||||
Income taxes paid | $ | — | $ | 40,500 | ||||
Interest expense paid | $ | 117,351 | $ | 210,291 | ||||
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Note A — | Organization and Significant Accounting Policies |
• | Traders Insurance Connection, Inc. | |
• | Traders Insurance Company | |
• | Professional Claims, Inc. | |
• | Christopher Joseph & Company |
F-81
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F-82
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Note B — | Insurance Activity |
Direct | Ceded | Net | ||||||||||
2007 | ||||||||||||
Premiums written | $ | 9,610,148 | $ | 2,883,044 | $ | 6,727,104 | ||||||
Change in unearned premiums | (914,888 | ) | (274,466 | ) | (640,422 | ) | ||||||
Premiums earned | $ | 8,695,260 | $ | 2,608,578 | $ | 6,086,682 | ||||||
2006 | ||||||||||||
Premiums written | $ | 7,333,130 | $ | 2,199,939 | $ | 5,133,191 | ||||||
Change in unearned premiums | (546,260 | ) | (163,878 | ) | (382,382 | ) | ||||||
Premiums earned | $ | 6,786,870 | $ | 2,036,061 | $ | 4,750,809 | ||||||
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2007 | 2006 | |||||||
Gross liability as of January 1, | $ | 7,749 | $ | 7,221 | ||||
Less: reinsurance recoverables on paid losses | (2,113 | ) | (1,835 | ) | ||||
Net liability as of January 1, | 5,636 | 5,386 | ||||||
Incurred related to: | ||||||||
Current year | 3,678 | 2,507 | ||||||
Development of prior periods | 581 | 148 | ||||||
Total incurred during the year | 4,259 | 2,655 | ||||||
Paid related to: | ||||||||
Current year | (1,585 | ) | (910 | ) | ||||
Prior periods | (2,413 | ) | (2,214 | ) | ||||
Total paid | (3,998 | ) | (3,124 | ) | ||||
Net liability, June 30, | 5,897 | 4,917 | ||||||
Plus: reinsurance recoverable on unpaid losses | 2,001 | 1,666 | ||||||
Gross liability as of June 30, | $ | 7,898 | $ | 6,583 | ||||
Note C — | Investments |
Cost/ | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
At June 30, 2007 | ||||||||||||||||
Fixed maturity securities: | ||||||||||||||||
U.S. Government securities | $ | 3,372,356 | $ | 507 | $ | (85,606 | ) | $ | 3,287,257 | |||||||
Corporate debt securities | 3,661,613 | 6,046 | (105,148 | ) | 3,562,511 | |||||||||||
US Treasury securities | 1,717,776 | 451 | (21,809 | ) | 1,696,418 | |||||||||||
Total fixed maturity securities | $ | 8,751,745 | $ | 7,004 | $ | (212,563 | ) | $ | 8,546,186 | |||||||
Equity securities | $ | 647,035 | $ | 70,748 | $ | (45,283 | ) | $ | 672,500 | |||||||
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Cost/ | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
At June 30, 2006 | ||||||||||||||||
Fixed maturity securities: | ||||||||||||||||
U.S. Government securities | $ | 3,222,591 | $ | 1,703 | $ | (119,589 | ) | $ | 3,104,705 | |||||||
Corporate debt securities | 3,864,832 | 5,093 | (113,963 | ) | 3,755,962 | |||||||||||
US Treasury securities | 1,718,315 | 37 | (38,627 | ) | 1,679,725 | |||||||||||
Total fixed maturity securities | $ | 8,805,738 | $ | 6,833 | $ | (272,179 | ) | $ | 8,540,392 | |||||||
Equity securities | $ | 547,672 | $ | 81,834 | $ | (64,948 | ) | $ | 564,558 | |||||||
Less Than Twelve Months | Twelve Months or Greater | |||||||||||||||
Unrealized | Unrealized | |||||||||||||||
Fair Value | Losses | Fair Value | Losses | |||||||||||||
Description of security | ||||||||||||||||
US Government securities | $ | 384,093 | $ | (15,907 | ) | $ | 2,627,954 | $ | (69,444 | ) | ||||||
Corporate debt securities | 915,407 | (25,133 | ) | 1,889,556 | (80,089 | ) | ||||||||||
US Treasury securities | 348,988 | (1,129 | ) | 1,247,800 | (20,386 | ) | ||||||||||
Total fixed maturity securities | $ | 1,648,488 | $ | (42,169 | ) | $ | 5,754,310 | $ | (169,919 | ) | ||||||
Equity securities | $ | 99,657 | $ | (10,048 | ) | $ | 122,382 | $ | (35,235 | ) | ||||||
Amortized Cost | Fair Value | |||||||
Maturity: | ||||||||
In 2008 | $ | 1,672,375 | $ | 1,666,390 | ||||
In 2008-2012 | 4,070,416 | 3,980,404 | ||||||
In 2012-2017 | 2,636,918 | 2,545,047 | ||||||
In 2017-2021 | 372,035 | 354,345 | ||||||
Total fixed maturity securities | $ | 8,751,744 | $ | 8,546,186 | ||||
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2007 | 2006 | |||||||
Investment income: | ||||||||
Fixed maturity securities | $ | 190,588 | $ | 191,487 | ||||
Equity securities | 6,282 | 5,259 | ||||||
Cash and cash equivalents | 12,649 | 10,443 | ||||||
Other invested assets | 20,430 | 21,057 | ||||||
Gross investment income | 229,949 | 228,246 | ||||||
Investment expense | — | — | ||||||
Net investment income | $ | 229,949 | $ | 228,246 | ||||
Note E — | Federal Income Taxes |
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2007 | ||||
Deferred tax asset: | ||||
Discounting of unpaid losses and LAE | $ | 147,761 | ||
Unearned premiums | 187,909 | |||
Net operation loss carryforward | 43,827 | |||
Capital loss carryforwards | 10,983 | |||
Amortization of other intangible asset | 135,721 | |||
Unrealized losses on investments | 69,890 | |||
Other | 3,451 | |||
Total deferred tax assets | 599,542 | |||
Deferred tax liabilities: | ||||
Deferred acquisition costs | 236,902 | |||
Unrealized gains on investments | 8,658 | |||
Other | 894 | |||
Total deferred tax liabilities | 246,454 | |||
Net deferred income tax asset | $ | 353,088 | ||
Note G — | Commitments |
Amount | ||||
2008 | $ | 341,012 | ||
2009 | 246,774 | |||
2010 | 150,222 | |||
Thereafter | — | |||
$ | 738,008 | |||
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Note H — | Dividend Restrictions |
Note I — | Notes Payable |
2007 | 2006 | |||||||
Note payable to Dorinco bearing interest at 8%; due April 2014; minimum principle payments of $250,000 every two years, which can be accelerated based on cash flow results of certain subsidiaries; collateralized by the stock of Delta Plus, Connection, CJC, TIC and Professional Claims, Inc. | $ | — | $ | 4,566,586 | ||||
Non-interest bearing installment payment obligation on a non-compete agreement; original obligation discounted to present value using a rate of 10.25%, 60 monthly installments of $16,670 beginning May 1, 2000, followed by 12 monthly installments of $12,500 until paid in full | — | 111,868 | ||||||
Note payable to relative of significant shareholder bearing interest at 10%; monthly payments of interest only until December 2007, at which time the entire principle balance becomes due and payable. Automatic renewal in December 2007 unless full payment demanded | 250,000 | 250,000 | ||||||
Various individual notes payable with combined payments ranging from $476 to $4,262 per month; interest rates ranging from 0% to 9%; collateralized by personal property; payable through May 2010 | 285,834 | 356,729 | ||||||
Total long-term debt | $ | 535,834 | $ | 5,185,183 | ||||
2008 | $ | 337,316 | ||
2009 | 85,431 | |||
2010 | 87,840 | |||
2011 and thereafter | 25,247 | |||
$ | 535,834 | |||
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Table of Contents
Table of Contents
1. MERGER | A-1 | |||||
1.1. | The Merger | A-1 | ||||
1.2. | Filing of Certificates of Merger | A-1 | ||||
1.3. | Effect of Merger | A-1 | ||||
1.4. | Merger Consideration | A-1 | ||||
1.5. | Effect on Stock | A-3 | ||||
1.6. | Exemptions from Registration; Restrictions on Resale | A-3 | ||||
1.7. | Organizational Documents | A-3 | ||||
1.8. | Officers and Directors | A-3 | ||||
1.9. | Exchange of Certificates | A-3 | ||||
1.10. | No Fractional Shares | A-3 | ||||
1.11. | Market Stand-off Agreement | A-3 | ||||
1.12. | Further Action | A-4 | ||||
2. REPRESENTATIONS AND WARRANTIES OF PARENT AND COMPANY | A-4 | |||||
2.1. | Corporate | A-4 | ||||
2.2. | Authority | A-4 | ||||
2.3. | Capitalization | A-5 | ||||
2.4. | No Violation | A-5 | ||||
2.5. | Financial Statements | A-5 | ||||
2.6. | Absence of Undisclosed Liabilities or Encumbrances | A-6 | ||||
2.7. | Tax Matters | A-6 | ||||
2.8. | No Brokers or Finders | A-7 | ||||
2.9. | Disclosure | A-7 | ||||
2.10. | Purchase for Own Account | A-8 | ||||
2.11. | Absence of Certain Changes | A-8 | ||||
2.12. | No Litigation; Administrative Actions | A-9 | ||||
2.13. | Compliance With Laws | A-9 | ||||
2.14. | Title to and Condition of Properties | A-10 | ||||
2.15. | Contracts and Commitments | A-10 | ||||
2.16. | Labor Matters | A-11 | ||||
2.17. | Employee Benefit Plans | A-11 | ||||
2.18. | Intellectual Property | A-12 |
A-i
Table of Contents
3. REPRESENTATIONS AND WARRANTIES OF CAPITAL | A-12 | |||||
3.1. | Corporate | A-12 | ||||
3.2. | Authority | A-13 | ||||
3.3. | Capitalization | A-13 | ||||
3.4. | No Violation | A-13 | ||||
3.5. | Reports | A-13 | ||||
3.6. | Financial Statements | A-14 | ||||
3.7. | Absence of Undisclosed Liabilities | A-14 | ||||
3.8. | Tax Matters | A-14 | ||||
3.9. | No Brokers or Finders | A-15 | ||||
3.10. | Disclosure | A-15 | ||||
3.11. | Company Stock for Capital’s Own Account | A-15 | ||||
3.12. | Continuity of Business Enterprise | A-15 | ||||
3.13. | Absence of Certain Changes | A-15 | ||||
3.14. | No Litigation | A-16 | ||||
3.15. | Compliance With Laws | A-16 | ||||
3.16. | Title to and Condition of Properties | A-16 | ||||
3.17. | Contracts and Commitments | A-17 | ||||
3.18. | Labor Matters | A-17 | ||||
3.19. | Employee Benefit Plans | A-18 | ||||
3.20. | Intellectual Property | A-18 | ||||
4. COVENANTS | A-18 | |||||
4.1. | Conduct of the Business | A-18 | ||||
4.2. | Access to Information | A-20 | ||||
4.3. | Confidentiality | A-20 | ||||
4.4. | Public Disclosure | A-20 | ||||
4.5. | Regulatory and Other Authorizations | A-21 | ||||
4.6. | Further Assurances | A-21 | ||||
4.7. | No Solicitation by Parent or Company | A-21 | ||||
4.8. | No Solicitation by Capital | A-21 | ||||
4.9. | Non-Competition; Non-Solicitation | A-21 | ||||
4.10. | Indemnification of Officers and Directors | A-22 | ||||
4.11. | Company Name and Principal Office | A-22 | ||||
5. ADDITIONAL AGREEMENTS | A-22 | |||||
5.1. | Information Statement; Special Meeting | A-22 | ||||
5.2. | Form 8-K | A-23 | ||||
5.3. | Required Information | A-23 | ||||
5.4. | No Securities Transactions | A-24 | ||||
5.5. | Registration and Listing | A-24 | ||||
5.6. | Parent Dividend | A-24 | ||||
5.7. | Delta Exchange | A-24 | ||||
5.8. | Litigation Support | A-24 | ||||
5.9. | Certain Company Receivables | A-24 |
A-ii
Table of Contents
6. CONDITIONS PRECEDENT TO CAPITAL’S PERFORMANCE | A-25 | |||||
6.1. | Accuracy of Representations and Warranties of Parent and Company | A-25 | ||||
6.2. | Performance of Covenants of Parent and Company | A-25 | ||||
6.3. | No Governmental Order | A-25 | ||||
6.4. | Information Statement | A-25 | ||||
6.5. | Corporate Approval | A-25 | ||||
6.6. | Solvency Opinion | A-25 | ||||
6.7. | Consents and Approvals | A-25 | ||||
6.8. | Absence of Litigation | A-25 | ||||
6.9. | Company Material Adverse Effect | A-25 | ||||
6.10. | Fairness Opinion | A-25 | ||||
6.11. | Net Working Capital | A-25 | ||||
6.12. | Deliverables | A-25 | ||||
6.13. | Parent Receivable | A-26 | ||||
6.14. | Approval | A-26 | ||||
7. CONDITIONS PRECEDENT TO COMPANY’S PERFORMANCE | A-26 | |||||
7.1. | Accuracy of Capital’s Representations and Warranties | A-26 | ||||
7.2. | Performance of Capital’s Covenants | A-26 | ||||
7.3. | No Governmental Order | A-26 | ||||
7.4. | Corporate Approval | A-26 | ||||
7.5. | [Reserved] | A-26 | ||||
7.6. | Absence of Litigation | A-26 | ||||
7.7. | Capital Material Adverse Effect | A-26 | ||||
7.8. | Capital’s Articles of Incorporation | A-26 | ||||
7.9. | Consents and Approvals | A-26 | ||||
7.10. | Payments | A-26 | ||||
7.11. | Deliverables | A-27 | ||||
7.12. | Agreement | A-27 | ||||
7.13. | Fairness Opinion | A-27 | ||||
7.14. | Parent Dividend | A-27 | ||||
8. TERMINATION PRIOR TO CLOSING | A-27 | |||||
8.1. | Termination | A-27 | ||||
8.2. | Effect on Obligations | A-27 | ||||
9. THE CLOSING | A-28 | |||||
9.1. | Closing | A-28 | ||||
9.2. | Company’s Obligations | A-28 | ||||
9.3. | Capital’s Obligations | A-28 |
A-iii
Table of Contents
10. INDEMNIFICATION | A-29 | |||||
10.1. | Survival of Representations and Warranties | A-29 | ||||
10.2. | Indemnification Obligations | A-29 | ||||
10.3. | Exclusive Remedy | A-30 | ||||
10.4. | Litigation Settlements and Expenses | A-30 | ||||
11. MISCELLANEOUS PROVISIONS | A-30 | |||||
11.1. | Entire Agreement | A-30 | ||||
11.2. | Governing Law | A-30 | ||||
11.3. | Schedules | A-31 | ||||
11.4. | Waiver and Amendment | A-31 | ||||
11.5. | Assignment | A-31 | ||||
11.6. | Successors and Assigns | A-31 | ||||
11.7. | No Third Party Beneficiaries | A-31 | ||||
11.8. | No Personal Liability | A-31 | ||||
11.9. | Notices | A-32 | ||||
11.10. | Severability | A-32 | ||||
11.11. | Counterparts | A-32 | ||||
11.12. | No Presumption | A-33 | ||||
11.13. | Facsimile Signatures | A-33 | ||||
11.14. | Fees and Expenses | A-33 | ||||
12. DEFINITIONS | A-33 | |||||
12.1. | Definitions | A-33 | ||||
12.2. | Cross-References | A-37 | ||||
12.3. | Interpretation | A-38 |
A-iv
Table of Contents
1. | MERGER |
A-1
Table of Contents
A-2
Table of Contents
A-3
Table of Contents
2. | REPRESENTATIONS AND WARRANTIES OF PARENT AND COMPANY |
A-4
Table of Contents
A-5
Table of Contents
A-6
Table of Contents
A-7
Table of Contents
A-8
Table of Contents
A-9
Table of Contents
A-10
Table of Contents
A-11
Table of Contents
3. | REPRESENTATIONS AND WARRANTIES OF CAPITAL |
A-12
Table of Contents
A-13
Table of Contents
A-14
Table of Contents
A-15
Table of Contents
A-16
Table of Contents
A-17
Table of Contents
4. | COVENANTS |
A-18
Table of Contents
A-19
Table of Contents
A-20
Table of Contents
A-21
Table of Contents
5. | ADDITIONAL AGREEMENTS |
A-22
Table of Contents
A-23
Table of Contents
A-24
Table of Contents
6. | CONDITIONS PRECEDENT TO CAPITAL’S PERFORMANCE |
A-25
Table of Contents
7. | CONDITIONS PRECEDENT TO COMPANY’S PERFORMANCE |
A-26
Table of Contents
8. | TERMINATION PRIOR TO CLOSING |
A-27
Table of Contents
9. | THE CLOSING |
A-28
Table of Contents
10. | INDEMNIFICATION |
A-29
Table of Contents
11. | MISCELLANEOUS PROVISIONS |
A-30
Table of Contents
A-31
Table of Contents
If to Capital: | Brooke Capital Corporation 8500 College Blvd. Overland Park, Kansas 66210 Attention: Mr. Michael S. Hess Facsimile: (913) 339-2435 | |
with a copy to | ||
William M. Schulte, Esq. Polsinelli Shalton Flanigan Suelthaus PC Suite 500 6201 College Boulevard Overland Park, KS 66211-2435 Facsimile: (913) 451-6205 | ||
If to Parent: | Brooke Corporation 10950 Grandview Drive, Suite 600 Overland Park, Kansas 66210 Attention: Mr. Leland Orr Facsimile: (913) 339-6328 | |
with a copy to: | ||
P. Mitchell Woolery, Esq. Kutak Rock LLP Suite 500 1010 Grand Boulevard Kansas City, MO 64106-2220 Facsimile: (816) 960-0041 |
A-32
Table of Contents
12. | DEFINITIONS |
A-33
Table of Contents
A-34
Table of Contents
A-35
Table of Contents
A-36
Table of Contents
“Agreement” | Preamble | |
“Audited Company Financials” | Section 5.1(b) | |
“Capital” | Preamble | |
“Capital Directors” | Section 9.3(e) | |
“Capital Indemnified Parties” | Section 10.2(a) | |
“Capital Insurance Policies” | Section 3.16(c) | |
“Capital Plans” | Section 3.19(a) | |
“Capital Reports” | Section 3.5 | |
“Capital Stock” | Section 1.4(a) | |
“CERCLA” | Section 2.13(c) | |
“Certificate” | Section 1.5(a) | |
“Closing Date” | Section 9.1 | |
“Closing” | Section 9.1 | |
“Code” | Preamble | |
“Company” | Preamble | |
“Company Insurance Policies” | Section 2.14(c) | |
“Company Stock” | Section 1.5(a) | |
“Confidentiality Agreement” | Section 4.3 | |
“Disclosure Schedule” | Preamble to Article 2 | |
“Earnout Payment” | Section 1.4(b) | |
“Earnout Period” | Section 1.4(b) | |
“Earnout Shares” | Section 1.4(b) | |
“Earnout Statement” | Section 1.4(c) | |
“Environmental Laws” | Section 2.13(c) | |
“Exchange Act” | Section 2.4 | |
“Independent Accountants” | Section 1.4(d) | |
“Information Statement” | Section 5.1(a) | |
“Initial Merger Consideration” | Section 1.4(a) | |
“Material Contract” | ||
“Materially Competes” | Section 4.9(a) | |
“Merger” | Section 1.1 | |
“Merger Consideration” | Section 1.4 | |
“Notice of Objection” | Section 1.4(d) | |
“Parent” | Preamble | |
“Parent Dividend” | Section 5.6 | |
“Parent Indemnified Parties” | Section 10.2(b) | |
“Parent Reports” | Section 2.11 | |
“Plans” | Section 2.17(a) | |
“Press Release” | Section 5.2 | |
“Information Statement” | Section 5.1(a) | |
“Recent Company Balance Sheet” | Section 2.5 | |
“Recent Capital Balance Sheet” | Section 3.6 | |
“Registration Statement” | Section 5.5 | |
“SEC” | Section 2.9 | |
“Securities Act” | Section 2.4 | |
“Special Meeting” | Section 5.1(e) | |
“Specified Representations” | Section 10.1 | |
“Surviving Corporation” | Section 1.1 | |
“Transaction Form 8-K” | Section 5.2 | |
“Waste” | Section 2.13(c) |
A-37
Table of Contents
A-38
Table of Contents
By: | /s/ MICHAEL HESS |
Its: | Vice Chairman of the Board |
By: | /s/ KYLE GARST |
Its: Chief Executive Officer
By: | /s/ ROBERT D. ORR |
Its: Chairman and Chief Executive Officer
A-39
Table of Contents
A-40
Table of Contents
By: | /s/ ROBERT D. ORR |
By: | /s/ MICHAEL HESS |
Its: Vice Chairman of the Board
By: | /s/ KYLE GARST |
Its: Chief Executive Officer
A-41
Table of Contents
Table of Contents
Table of Contents
Page | ||||||||
1. EXCHANGE | B-1 | |||||||
1.1. | The Exchange | B-1 | ||||||
1.2. | [Reserved] | B-1 | ||||||
1.3. | [Reserved] | B-1 | ||||||
1.4. | Exchange Consideration | B-1 | ||||||
1.5. | [Reserved] | B-3 | ||||||
1.6. | Exemptions from Registration; Restrictions on Resale | B-3 | ||||||
1.7. | [Reserved] | B-3 | ||||||
1.8. | [Reserved] | B-3 | ||||||
1.9. | Exchange of Certificates | B-3 | ||||||
1.10. | No Fractional Shares | B-3 | ||||||
1.11. | Market Stand-off Agreement | B-3 | ||||||
1.12. | Further Action | B-3 | ||||||
2. REPRESENTATIONS AND WARRANTIES OF PARENT AND COMPANY | B-3 | |||||||
2.1. | Corporate | B-4 | ||||||
2.2. | Authority | B-4 | ||||||
2.3. | Capitalization | B-4 | ||||||
2.4. | No Violation | B-4 | ||||||
2.5. | Financial Statements | B-5 | ||||||
2.6. | Absence of Undisclosed Liabilities or Encumbrances | B-5 | ||||||
2.7. | Tax Matters | B-6 | ||||||
2.8. | No Brokers or Finders | B-6 | ||||||
2.9. | Disclosure | B-6 | ||||||
2.10. | Purchase for Own Account | B-7 | ||||||
2.11. | Absence of Certain Changes | B-7 | ||||||
2.12. | No Litigation; Administrative Actions | B-8 | ||||||
2.13. | Compliance With Laws | B-9 | ||||||
2.14. | Title to and Condition of Properties | B-9 | ||||||
2.15. | Contracts and Commitments | B-10 | ||||||
2.16. | Labor Matters | B-11 | ||||||
2.17. | Employee Benefit Plans | B-11 | ||||||
2.18. | Intellectual Property | B-11 | ||||||
3. REPRESENTATIONS AND WARRANTIES OF CAPITAL | B-12 | |||||||
3.1. | Corporate | B-12 | ||||||
3.2. | Authority | B-12 | ||||||
3.3. | Capitalization | B-12 | ||||||
3.4. | No Violation | B-12 | ||||||
3.5. | Reports | B-13 | ||||||
3.6. | Financial Statements | B-13 | ||||||
3.7. | Absence of Undisclosed Liabilities | B-13 | ||||||
3.8. | Tax Matters | B-14 | ||||||
3.9. | No Brokers or Finders | B-14 | ||||||
3.10. | Disclosure | B-14 |
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3.11. | Company Stock for Capital’s Own Account | B-14 | ||||||
3.12. | [Reserved] | B-15 | ||||||
3.13. | Absence of Certain Changes | B-15 | ||||||
3.14. | No Litigation | B-15 | ||||||
3.15. | Compliance With Laws | B-16 | ||||||
3.16. | Title to and Condition of Properties | B-16 | ||||||
3.17. | Contracts and Commitments | B-16 | ||||||
3.18. | Labor Matters | B-17 | ||||||
3.19. | Employee Benefit Plans | B-17 | ||||||
3.20. | Intellectual Property | B-18 | ||||||
4. COVENANTS | B-18 | |||||||
4.1. | Conduct of the Business | B-18 | ||||||
4.2. | Access to Information | B-19 | ||||||
4.3. | Confidentiality | B-19 | ||||||
4.4. | Public Disclosure | B-20 | ||||||
4.5. | Regulatory and Other Authorizations; Form A | B-20 | ||||||
4.6. | Further Assurances | B-20 | ||||||
4.7. | No Solicitation by Parent or Company | B-20 | ||||||
4.8. | No Solicitation by Capital | B-21 | ||||||
4.9. | Non-Competition; Non-Solicitation | B-21 | ||||||
4.10. | Indemnification of Officers and Directors | B-22 | ||||||
4.11. | Company Name and Principal Office | B-22 | ||||||
5. ADDITIONAL AGREEMENTS | B-22 | |||||||
5.1. | Other Matters | B-22 | ||||||
5.2. | Form 8-K | B-22 | ||||||
5.3. | Required Information | B-22 | ||||||
5.4. | No Securities Transactions | B-23 | ||||||
5.5. | Registration and Listing | B-23 | ||||||
5.6. | [Reserved] | B-23 | ||||||
5.7. | [Reserved] | B-23 | ||||||
5.8. | Litigation Support | B-23 | ||||||
6. CONDITIONS PRECEDENT TO CAPITAL’S PERFORMANCE | B-23 | |||||||
6.1. | Accuracy of Representations and Warranties of Parent and Company | B-23 | ||||||
6.2. | Performance of Covenants of Parent and Company | B-23 | ||||||
6.3. | No Governmental Order | B-24 | ||||||
6.4. | [Reserved] | B-24 | ||||||
6.5. | Corporate Approval | B-24 | ||||||
6.6. | [Reserved] | B-24 | ||||||
6.7. | Consents and Approvals | B-24 | ||||||
6.8. | Absence of Litigation | B-24 |
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6.9. | Company Material Adverse Effect | B-24 | ||||||
6.10. | Fairness Opinion | B-24 | ||||||
6.11. | [Reserved] | B-24 | ||||||
6.12. | Deliverables | B-24 | ||||||
6.13. | Parent Capital Contribution | B-24 | ||||||
6.14. | Approval | B-24 | ||||||
7. CONDITIONS PRECEDENT TO COMPANY’S PERFORMANCE | B-24 | |||||||
7.1. | Accuracy of Capital’s Representations and Warranties | B-24 | ||||||
7.2. | Performance of Capital’s Covenants | B-25 | ||||||
7.3. | No Governmental Order | B-25 | ||||||
7.4. | Corporate Approval | B-25 | ||||||
7.5. | Parent Payable | B-25 | ||||||
7.6. | Absence of Litigation | B-25 | ||||||
7.7. | Capital Material Adverse Effect | B-25 | ||||||
7.8. | Capital’s Articles of Incorporation | B-25 | ||||||
7.9. | Consents and Approvals | B-34 | ||||||
7.10. | Payments | B-25 | ||||||
7.11. | Deliverables | B-25 | ||||||
7.12. | [Reserved] | B-25 | ||||||
7.13. | Fairness Opinion | B-25 | ||||||
7.14. | [Reserved] | B-25 | ||||||
7.15. | Merger | B-25 | ||||||
8. TERMINATION PRIOR TO CLOSING | B-26 | |||||||
8.1. | Termination | B-26 | ||||||
8.2. | Effect on Obligations | B-26 | ||||||
9. THE CLOSING | B-26 | |||||||
9.1. | Closing | B-26 | ||||||
9.2. | Company’s Obligations | B-26 | ||||||
9.3. | Capital’s Obligations | B-27 | ||||||
10. INDEMNIFICATION | B-27 | |||||||
10.1. | Survival of Representations and Warranties | B-27 | ||||||
10.2. | Indemnification Obligations | B-27 | ||||||
10.3. | Exclusive Remedy | B-28 |
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11. MISCELLANEOUS PROVISIONS | B-29 | |||||||
11.1. | Entire Agreement | B-29 | ||||||
11.2. | Governing Law | B-29 | ||||||
11.3. | Schedules | B-29 | ||||||
11.4. | Waiver and Amendment | B-29 | ||||||
11.5. | Assignment | B-29 | ||||||
11.6. | Successors and Assigns | B-29 | ||||||
11.7. | No Third Party Beneficiaries | B-29 | ||||||
11.8. | No Personal Liability | B-29 | ||||||
11.9. | Notices | B-30 | ||||||
11.10. | Severability | B-30 | ||||||
11.11. | Counterparts | B-31 | ||||||
11.12. | No Presumption | B-31 | ||||||
11.13. | Facsimile Signatures | B-31 | ||||||
11.14. | Fees and Expenses | B-31 | ||||||
12. DEFINITIONS | B-31 | |||||||
12.1. | Definitions | B-31 | ||||||
12.2. | Cross-References | B-35 | ||||||
12.3. | Interpretation | B-36 |
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1. | EXCHANGE |
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2. | REPRESENTATIONS AND WARRANTIES OF PARENT AND COMPANY |
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3. | REPRESENTATIONS AND WARRANTIES OF CAPITAL |
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4. | COVENANTS |
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5. | ADDITIONAL AGREEMENTS |
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6. | CONDITIONS PRECEDENT TO CAPITAL’S PERFORMANCE |
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7. | CONDITIONS PRECEDENT TO COMPANY’S PERFORMANCE |
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8. | TERMINATION PRIOR TO CLOSING |
9. | THE CLOSING |
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10. | INDEMNIFICATION |
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11. | MISCELLANEOUS PROVISIONS |
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If to Capital: | Brooke Capital Corporation 8500 College Blvd. Overland Park, Kansas 66210 Attention: Mr. Michael S. Hess Facsimile: (913) 339-2435 | |
with a copy to | ||
William M. Schulte, Esq. Polsinelli Shalton Flanigan Suelthaus PC Suite 500 6201 College Boulevard Overland Park, KS 66211-2435 Facsimile: (913) 451-6205 | ||
If to Parent: | Brooke Corporation 10950 Grandview Drive, Suite 600 Overland Park, Kansas 66210 Attention: Mr. Leland Orr Facsimile: (913) 339-6328 | |
with a copy to: | ||
P. Mitchell Woolery, Esq. Kutak Rock LLP Suite 500 1010 Grand Boulevard Kansas City, MO 64106-2220 Facsimile: (816) 960-0041 |
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12. | DEFINITIONS |
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“Agreement” | Preamble | |
“Audited Company Financials” | Section 5.1(b) | |
“Capital” | Preamble | |
“Capital Directors” | Section 9.3(e) | |
“Capital Indemnified Parties” | Section 10.2(a) | |
“Capital Insurance Policies” | Section 3.16(c) | |
“Capital Plans” | Section 3.19(a) | |
“Capital Reports” | Section 3.5 | |
“Capital Stock” | Section 1.4 | |
“CERCLA” | Section 2.13(c) | |
“Certificate” | Section 1.5(a) | |
“Closing Date” | Section 9.1 | |
“Closing” | Section 9.1 | |
“Code” | Preamble | |
“Company” | Preamble | |
“Company Insurance Policies” | Section 2.14(c) | |
“Company Stock” | Section 1.5(a) | |
“Confidentiality Agreement” | Section 4.3 | |
“DIFP” | Section 3.4 | |
“Disclosure Schedule” | Preamble to Article 2 | |
“Environmental Laws” | Section 2.13(c) | |
“Exchange Act” | Section 2.4 | |
“Materially Competes” | Section 4.9(a) | |
“Parent” | Preamble | |
“Parent Indemnified Parties” | Section 10.2(b) | |
“Parent Reports” | Section 2.11 | |
“Plans” | Section 2.17(a) | |
“Press Release” | Section 5.2 | |
“Recent Company Balance Sheet” | Section 2.5 | |
“Recent Capital Balance Sheet” | Section 3.6 | |
“Registration Statement | Section 5.5 | |
“SEC” | Section 2.9 | |
“Securities Act” | Section 2.4 | |
“Specified Representations” | Section 10.1 | |
“Transaction Form 8-K” | Section 5.2 | |
“Waste” | Section 2.13(c) |
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By: | /s/ MICHAEL HESS |
Its: | Vice Chairman of the Board |
By: | /s/ MARK C. CONCANNON |
Its: | President and Chief Executive Officer |
By: | /s/ ROBERT D. ORR |
Its: | Chairman and Chief Executive Officer |
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By: | /s/ ROBERT D. ORR Name: Robert D. Orr Its: Chairman and Chief Executive Officer |
By: | /s/ MICHAEL HESS Name: Michael Hess Its: Vice Chairman of the Board |
By: | /s/ MARK C. CONCANNON Name: Mark C. Concannon Its: President and Chief Executive Officer |
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• | 900,000 incremental shares if BFC’s 2007 full-year projected EBITDA is at least $7,900,000. | |
• | 225,000 incremental shares if BFC’s 2007 full-year projected EBITDA is 1.5x or greater, management’s projected full-year EBITDA or $11,850,000. | |
• | 900,000 incremental shares if BFC’s 2008 full-year projected EBITDA is at least $9,900,000. | |
• | 225,000 incremental shares if BFC’s 2008 full-year projected EBITDA is 1.5x or greater, management’s projected full-year 2008 EBITDA or $14,850,000. |
• | 100,000 incremental shares if Delta Plus’s 2007 full-year projected after-tax income is at least $600,000. | |
• | 25,000 incremental shares if Delta Plus’s 2007 full-year projected after-tax income is 1.5x or greater, management’s projected full-year after-tax income or $900,000. | |
• | 100,000 incremental shares if Delta Plus’s 2008 full-year projected after-tax income is at least $1,600,000. |
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• | 25,000 incremental shares if Delta Plus’s 2008 full-year projected after-tax income is 1.5x or greater, management’s projected full-year after-tax income or $2,400,000. |
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