U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10 - QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------ ------
Commission File No. 0-11184
NORTH EAST INSURANCE COMPANY
(Name of small business issuer as specified in its charter)
Maine 01-0278387
(State or other jurisdiction of (I.R.S employer
incorporation or organization) identification number)
482 Payne Road, Scarborough, Maine 04074
(Address of principal executive offices)
(207) 883-2232
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes[ X ] No [ ]
As of August 7, 1999 there were 3,049,089 outstanding shares of Common
Stock, $1.00 par value, the only authorized class of the issuer.
Transitional Small Business Disclosure Format: Yes [ ] No [ X ]
NORTH EAST INSURANCE COMPANY
AND SUBSIDIARIES
INDEX
-----
Part I. - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheet
As of June 30, 1999 3
Consolidated Statements of
Operations and Comprehensive
Income for the Six Months Ended
June 30,1999 and 1998 4
Consolidated Statements of
Operations and Comprehensive Income
for the Three Months Ended
June 30,1999 and 1998 5
Consolidated Statements of Cash Flows
for the Six Months Ended June 30,1999
and 1998 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
the Financial Condition and Results of
Operations 11
Part II - Other Information
Item 4 - Submission of Matters to a Vote
of Security Holders 16
Item 5 - Other Information 16
Item 6 - Exhibits and Reports on Form 8-K 17
Exhibit Index 19
Item 1. FINANCIAL INFORMATION
North East Insurance Company and Subsidiaries
Consolidated Balance Sheet
As of June 30, 1999
ASSETS 1999
-----------
Investments:
Fixed maturities available for sale, at
fair value (amortized cost $13,538,508 ) $13,588,094
Equity securities available for sale,
at fair value (cost $666,581) 701,722
Short-term investments 1,723,152
-----------
Total investments 16,012,968
Reinsurance (loss and loss adjustment
Expense reserves and paid recoverables) 3,603,615
Premium balances receivable 6,930,260
Deferred policy acquisition costs 2,336,151
Cash 327,920
Prepaid reinsurance premiums
(ceded unearned premium) 781,167
Investment income due and accrued 221,179
Property and equipment, net of
accumulated depreciation 227,231
Deferred tax asset 2,070,342
Prepaid federal income tax 9,242
Other assets 170,230
-----------
Total Assets $32,690,305
===========
LIABILITIES
Losses and loss adjustment expenses $12,445,890
Unearned premiums 9,124,563
Reinsurance balances payable 781,886
Reserve for unpaid expenses 416,544
Book overdraft 393,296
Other liabilities 78,563
-----------
Total Liabilities 23,240,742
SHAREHOLDERS' EQUITY
Common stock $1.00 par value,
authorized 12,000,000 shares,
issued 3,049,089 and outstanding shares 3,049,089
Additional paid-in capital 6,407,132
Accumulated other comprehensive income 55,917
Accumulated retained earnings (62,575)
-----------
Total Shareholders' Equity 9,449,563
-----------
Total Liabilities and Shareholders'
Equity $32,690,305
===========
The accompanying notes are an integral part of the consolidated financial
statements.
North East Insurance Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Loss)
for the Six Months ended June 30,
Consolidated Statements of Operations
-------------------------------------
1999 1998
--------------------------
Revenues:
Premiums earned $7,810,473 $6,274,216
Premiums ceded 1,549,418 937,583
--------------------------
Net premiums earned 6,261,055 5,336,633
Net investment income 400,020 448,417
Realized capital gains (losses) (32,180) 33,316
--------------------------
Total revenues 6,628,895 5,818,366
Expenses:
Losses and loss adjustment expenses 4,952,162 4,375,950
Reinsurance recoveries (321,077) (323,150)
Net losses and loss adjustment
expenses 4,631,085 4,052,800
Underwriting and other expenses
incurred 2,882,696 2,189,355
--------------------------
Total expenses 7,513,781 6,242,155
Income (loss) before provision for
income taxes (884,886) (423,789)
Provision (credit) for income taxes (289,920) (155,416)
--------------------------
Net income (loss) $ (594,966) $ (268,373)
==========================
Net income (loss) per common share:
Basic $ (0.20) $ (0.09)
==========================
Diluted $ (0.20) $ (0.09)
==========================
Consolidated Statements of Comprehensive Income (Loss)
------------------------------------------------------
1999 1998
-------------------------
Net income (loss) $(594,966) $(268,373)
Other comprehensive income (loss),
net of income tax:
Change in unrealized appreciation
(depreciation) of securities
(tax expense (credit) 1999
-$(109,382); 1998 - $4,204) (244,518) 41,476
Reclassification adjustment for losses
(gains) included in net income
(tax expense (credit) 1999-$0; 1998 - $0) 32,180 (33,316)
-------------------------
Comprehensive income (loss) $(807,304) $(260,213)
=========================
The accompanying notes are an integral part of the consolidated financial
statements.
North East Insurance Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Loss)
for the Three Months ended June 30,
Consolidated Statements of Operations
-------------------------------------
1999 1998
--------------------------
Revenues:
Premiums earned $4,047,074 $3,252,859
Premiums ceded 875,626 455,183
--------------------------
Net premiums earned 3,171,448 2,797,676
Net investment income 214,981 224,654
Realized capital gains (losses) (35,484) 124
--------------------------
Total revenues 3,350,945 3,022,454
Expenses:
Losses and loss adjustment expenses 2,337,673 1,731,261
Reinsurance recoveries (269,557) (156,637)
--------------------------
Net losses and loss adjustment
expenses 2,068,116 1,574,624
Underwriting and other
expenses incurred 1,448,417 1,110,863
--------------------------
Total expenses 3,516,533 2,685,487
Income (loss) before provision for
income taxes (165,588) 336,967
Provision (credit) for income taxes (44,235) 114,526
--------------------------
Net income (loss) $ (121,353) $ 222,441
==========================
Net income (loss) per common share:
Basic $ (0.04) $ 0.07
==========================
Diluted $ (0.04) $ 0.07
==========================
Consolidated Statements of Comprehensive Income (Loss)
------------------------------------------------------
1999 1998
--------------------------
Net income (loss) $ (121,353) $ 222,441
Other comprehensive income (loss),
net of income tax:
Change in unrealized appreciation
(depreciation) of securities
(tax expense (credit) 1999
- $(76,957); 1998 - $3,327) (184,879) 9,986
Reclassification adjustment for
losses (gains ) included in net
income (tax expense (credit)
1999 - $0; 1998 - $0) 35,484 (124)
--------------------------
Comprehensive income (loss) $ (270,748) $ 232,303
==========================
The accompanying notes are an integral part of the consolidated financial
statements.
North East Insurance Company And Subsidiaries
Consolidated Statements of Cash Flows
for the Six Months ended June 30,
1999 1998
--------------------------
Cash flow from operating activities:
Insurance premium received $8,152,688 $6,455,633
Loss and loss adjustment expenses paid (6,033,927) (3,291,371)
Operating expenses paid (3,784,097) (2,158,056)
Investment income received 429,263 414,074
--------------------------
Net cash provided by (used in)
operating activities (1,236,073) 1,420,280
--------------------------
Cash flows from investing activities:
Fixed maturities available
for sale, sold 4,350,226 2,839,734
Fixed maturities available
for sale, purchased (2,696,864) (5,040,919)
Equity securities available
for sale, purchased (164,952) (169,979)
Sale of furniture, fixtures
and equipment 22,624 14,530
Purchase of furniture, fixtures and
equipment (62,139) (23,978)
--------------------------
Net cash provided by (used in)
investing activities 1,448,895 (2,380,612)
--------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 0 5,758
Increase (decrease) in book overdraft 561 (146,602)
--------------------------
Net cash provided by (used in)
financing activities 561 (140,844)
--------------------------
Net increase (decrease) in cash,
and short-term investments 213,383 (1,101,176)
Cash and short-term
investments at beginning of year 1,837,689 3,772,738
--------------------------
Cash and short-term
investments at end of period $2,051,072 $2,671,562
==========================
The accompanying notes are an integral part of the consolidated financial
statements.
North East Insurance Company And Subsidiaries
Consolidated Reconciliation of Cash Used In
Operating Activities to Net Income (Loss)
for the Six Months ended June 30,
1999 1998
--------------------------
Net income (loss) $ (594,966) $ (268,373)
Decrease in net premium and ceded
reinsurance balances 1,152,597 347,064
Increase in unearned
premium reserve 739,036 771,936
Increase (decrease) in net loss
and loss adjustment expense reserve (1,402,842) 761,429
Decrease (increase) in investment income
due and accrued 29,243 (34,343)
Increase in deferred tax asset (289,920) (155,416)
Increase in deferred policy
acquisition costs (479,921) (134,556)
Increase (decrease) in expense accruals (517,051) 37,769
Amortization of bond premium, net 33,305 32,152
Depreciation and amortization expense 62,266 96,929
Gain on investment activities (32,180) (34,311)
--------------------------
Net cash provided by
(used in) operating activities $(1,236,073) $1,420,280
===========================
The accompanying notes are an integral part of the consolidated financial
statements.
North East Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1999
1. Basis of Presentation
- ------------------------
The condensed consolidated financial statements included herein have been
prepared by the Registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosure normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Registrant believes that the disclosures which are made are adequate to make
the information presented not misleading, particularly when read in
conjunction with the financial statements and the notes thereto included in
the Registrant's latest annual report on Form 10-KSB. In Management's
opinion, the attached interim financial statements reflect all adjustments
which are necessary for a fair statement of the results for the periods
presented.
2. Accounting Pronouncements Adopted
- -----------------------------------
On January 1, 1999, the Company adopted Statement of Position ("SOP") 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments"
which provides guidance on accounting for insurance-related assessments. The
adoption of SOP 97-3 did not have a material impact on North East's results
of operation, liquidity or financial position.
On January 1, 1999, the Company adopted SOP 98-7, "Deposit Accounting:
Accounting for Insurance and Reinsurance Contracts That Do Not Transfer
Insurance Risk", which provides guidance on applying the deposit method of
accounting to insurance and reinsurance contracts that do not transfer
insurance risk. The adoption of SOP 98-7 did not have a material impact on
North East's results of operation, liquidity or financial position.
3. Earnings per Share
- ---------------------
Earnings per share are computed in accordance with the provisions of FAS
No. 128 "Earnings Per Share" ("EPS") which requires the dual presentation of
basic and diluted earnings per share. Basic EPS is computed by dividing net
income available to common stockholders by the weighted average number of
common shares outstanding. The weighted average number of shares outstanding
used to calculate basic EPS was 3,049,089 and 3,046,949 in 1999 and 1998,
respectively. The weighted average number of shares outstanding used to
calculate diluted EPS was 3,049,089 and 3,140,601 in 1999 and 1998,
respectively. Diluted EPS is computed by dividing net income available to
common stockholders by the weighted average number of common shares
outstanding while giving effect to all dilutive potential common shares
outstanding. In computing diluted EPS, only potential common shares (those
that reduce earnings per share) are included. Potential common shares are
not used when computing diluted EPS if the result would be antidilutive,
such as when a net loss is reported. In-the-money options of 400,998
shares were not considered dilutive due to the net losses being reported for
the six months ended June 30, 1999. The difference between basic and diluted
shares used to calculate EPS is the dilutive effect of stock options. Net
income used to calculate basic and diluted EPS was identical.
4. Reinsurance
- --------------
During the first quarter of 1999, the Company endorsed the aggregate
coverage provided under its first layer excess of loss treaty for the 1999
calendar. The revision encompased premium rate, coverage period and
attachment point for the experience rated premium adjustment. Effective for
the coverage periods January 1, 1999 to March 31, 1999 and April 1, 1999 to
June 30, 1999, the Company incurred a total of $625,000 in reinsurance
premium cost for coverage in the event that the Company's ratio of net
losses and allocated loss adjustment expenses incurred to net premiums
earned, before giving effect to this reinsurance arrangement, exceeded 75%.
This contract did not meet the requirements of Statement of Financial
Accounting Standards No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts", and is being accounted for
following the guidance of SOP 98-7. At June 30, 1999, the Company's deposit
liability recorded in its Consolidated Balance Sheet was $375,000.
5. Litigation
- -------------
A former executive (Mr. Koren) has asserted employment-related claims
against the Company under an Employment Continuity Agreement and for alleged
discrimination on the basis of age, religion, and disability. The
Employment Continuity claim is for special severance compensation of
approximately $170,000 plus continuation of certain benefits; no amount of
damages has been specified on the discrimination claims. The Company has
denied liability, and management has stated an intention to defend
vigorously against any claims that Mr. Koren may bring.
6. Merger Agreement
- -------------------
The Company has entered into an Agreement and Plan of Merger, dated as of
March 16, 1999, as amended and restated as of May 28, 1999 with Motor Club
of America. The Agreement provides for a merger by which NEIC would become
a wholly-owned subsidiary of Motor Club. Consummation of the merger is
subject to various conditions, including approval of the transaction by
shareholders of both NEIC and Motor Club and receipt of insurance regulatory
approvals in Maine and New York. Shareholders of NEIC approved the
Agreement on July 20, 1999 following adjournment of the Special Meeting of
shareholders which had been called to approve the Agreement on July 12,
1999. The shareholders of Motor Club approved the Agreement at a Special
Meeting of Motor Club shareholders on July 12, 1999. The merger received
approval from the Maine Superintendent of Insurance on July 23, 1999, but,
as of August 12, 1999, had not been approved by the New York State
Department of Insurance. NEIC anticipates that the merger will be approved
by the New York State Department of Insurance in the near future and that
the merger will be consummated shortly thereafter. In seeking Maine
regulatory approval Motor Club has undertaken to contribute at least $2
million of additional capital to NEIC following consumation of the merger.
North East Insurance Company and Subsidiaries
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Six Months Ended June 30, 1999
- ------------------------------
Gross (direct plus assumed) premiums written amounted to $8,564,743 for the
six months ended June 30, 1999 compared with $7,380,932 for the six months
ended June 30, 1998, a 16.0% increase. Gross premiums earned for the six
months ended June 30,1999 amounted to $7,810,473, representing a growth of
24.5% over the $6,274,216 recorded in the first six months of 1998. The
premium volume increase is a result of NEIC's new personal automobile
insurance program ("AutoMatic"), introduced late in the second quarter of
1998. The differential in premium growth, written (16.0%) compared with
earned (24.5%), is a carryover from the dramatic premium growth in 1998
associated with the introduction of AutoMatic. Premiums written are reported
at the time of policy issuance while premiums earned are reported over the
policy term. Premium growth rates are expected to moderate over the balance
of 1999.
During the first quarter of 1999, the Company endorsed the aggregate
coverage provided under its first layer excess of loss treaty for the 1999
calendar. The revision encompased premium rate, coverage period and
attachment point for the experience rated premium adjustment. Effective for
the coverage periods January 1, 1999 to March 31, 1999 and April 1, 1999 to
June 30, 1999, the Company incurred a total of $625,000 in reinsurance
premiums for coverage in the event that the Company's ratio of net losses
and allocated loss adjustment expenses incurred to net premiums earned,
before giving effect to this reinsurance arrangement, exceeded 75%. This
contract did not meet the requirements of Statement of Financial Accounting
Standards No. 113, "Accounting and Reporting for Reinsurance of Short-
Duration and Long-Duration Contracts", and is being accounted for following
the guidance of SOP 98-7. At June 30, 1999 the Company's deposit liability
recorded in its Consolidated Balance Sheet was $375,000.
Net premiums earned for the six months ended June 30, 1999 and 1998 amounted
to $6,261,055 and $5,336,633, respectively, an increase of 17.3%, due
principally to AutoMatic.
Loss and loss adjustment expense represented 74.0% and 75.9% of net earned
premium for the six months ended June 30, 1999 and 1998, respectively. Due
to weather related claims loss and loss adjustment expense ratios in the
first quarter typically is are significantly higher than the second and
third quarters; the fourth quarter normally exhibits a ratio higher than the
second and third quarters but lower than the first quarter. Though the two
loss and loss adjustment expense ratios are similar in amount, their
composition differs significantly. Loss experience for 1999 has followed a
pattern which closely resembles our historic experience for each of the
first two quarters. Loss experience for 1998 includes a first quarter where
the Company's loss ratio approached an historic high and a second quarter
wherein the loss ratio approached a record low.
Effective July 1, 1998, the State of Maine increased by 150% the mandatory
statutory liability limits for personal auto coverage. The second quarter of
1999 concludes the first full year of these state mandated higher limits of
liability coverage for personal auto policies. As a result of these higher
limits, the Company has observed an increase in the ultimate claim cost of
its more severe cases. In addition, AutoMatic has resulted in increased
comprehensive, collision and physical damage segments of insurance coverage
purchased by our insureds. The overall effect to date is an increase to the
average cost of claim settlement of approximately $500. The Company is
currently performing an underwriting review of its AutoMatic program in
order to determine what pricing adjustments, if any, may be appropriate.
Underwriting expenses incurred represented 41.2% and 35.8% of net premiums
written for the six months ended June 30, 1999 and 1998, respectively.
Expenses for 1999 include one-time expenses associated with the proposed
pending merger, amounting to approximately $250,000, more than 3% percent of
net written premium.
Gross investment income amounted to $478,299 for the six months ended June
30, 1999 compared with $554,623 for the six months ended June 30, 1998. The
return on fixed maturities, based on amortized cost, before expenses was
6.1% and 5.9% for the six month periods ended June 30, 1999 and
1998,respectively.
Net loss for the six months ended June 30, 1999 amounted to $594,966 or
$0.20 per share compared with a net loss of $268,373 or $0.09 per share for
the six months ended June 30, 1998.
Shareholders' equity at June 30, 1999 amounted to $9,449,563 or $3.10 per
share compared with $10,256,867 or $3.36 per share at December 31, 1998.
Three Months Ended June 30, 1999
- --------------------------------
Gross premiums written amounted to $4,643,762 for the three months ended
June 30, 1999 compared with $3,709,999, a 25.1% increase. Gross premiums
earned for the three months ended June 30, 1999 amounted to $4,047,074,
representing a 24.4% increase over the $3,252,859 reported for the three
months ended June 30, 1998. The premium growth relates to the introduction
of AutoMatic discussed previously.
Losses and loss adjustment expenses represented 65.2% and 56.3% of net
earned premium for the three months ended June 30, 1999 and 1998,
respectively. Loss experience for the three months ended June 30,1999 was
acceptable though it was 8.9% worse than the comparable period of 1998. Loss
experience in 1998 reflected near record lows in both severity and
frequency.
Underwriting expenses incurred amounted to $1,448,417 and $1,110,864 for the
three months ended June 30, 1999 and 1998, respectively. The expense ratio
for the three months ended June 30, 1999 was 38.5% compared with 35.0% for
the three months ended June 30, 1998. Expenses for the second quarter of
1999 include one-time expenses associated with the pending merger of
approximately $150,000, or 4.0% of the net written premium for the three
month period.
Investment income amounted to $214,981 for the three months ended June 30,
1999 compared with $224,654 for the three months ended June 30, 1998.
Realized losses on the sale of securities amounted to $35,484 for the three
months ended June 30, 1999 compared with realized gains of $124 for the same
period of 1998.
Net loss for the three months ended June 30, 1999 amounted to $121,353 or
$0.04 per share compared with net income of $222,441 or $0.07 per share for
the three months ended June 30, 1998.
Shareholders equity declined $0.09 per share for the three months ended June
30, 1999 to $9,449,563 from $9,720,311 reported at March 31, 1999. The
decline includes a loss of $149,395 associated with the change in market
value of securities held, net of applicable income taxes, plus the net loss
of $121,353 for the three months ended June 30, 1999.
Liquidity and Capital Resources
- -------------------------------
Cash used by operating activities amounted to $1,236,073 for the six months
ended June 30, 1999 compared with cash provided by operating activities of
$1,420,280 for the six months ended June 30, 1998. Cash flow for the first
quarter of 1998 included receipt of approximately $2,841,243 due the Company
under its reinsurance treaties. Cash provided by investing activities
amounted to $1,448,895 for the six months ended June 30, 1999 compared with
cash used in investing activities of $2,380,612 for the six months ended
June 30, 1998.
The fair value of the Company's fixed maturities available for sale was
$49,586 more than the amortized cost at June 30,1999, compared with $425,187
more than amortized cost at December 31,1998. During the first six months of
1999 and 1998 the Company used $164,952 and $169,979, respectively for the
purchase of equity securities.
The Company maintains short-term investments to provide a cash resource
should the demands from operations exceed incoming cash flow. Short-term
investments amounted to $1,723,152 at June 30, 1999 compared with $1,526,752
at December 31, 1998. The Company believes that this level is sufficient to
meet any unanticipated cash demands.
Due principally to increases in the value of American Colonial Insurance
Company (NEIC's subsidiary in New York which no longer writes insurance and
whose claims are now in runoff) and decreases in the book value of NEIC, the
Company's total investment in subsidiaries now exceeds its total statutory
surplus. Under Maine law, an Maine insurance company is not permitted to
make equity investments to the extent that its total equity investments
exceed statutory surplus. As a result, the Company has discontinued further
purchases of equity securities for its investment portfolio. The Company has
also responded to a request from the Maine Bureau of Insurance that NEIC
provide a plan for decreasing its equity investments relative to surplus.
The principal components of this plan are to cause American Colonial to pay
dividends to the Company when and as permitted under New York insurance
laws, and to obtain a $2 million capital infusion from Motor Club of America
in connection with the pending merger transaction.
YEAR 2000 ISSUES
- ----------------
North East has substantially completed its review of internal systems and
believes such systems to be Y2K compliant. NEIC has also completed the
process of contacting its independent agents and key vendors to ascertain
their status relative to Y2K issues. This process revealed the the
commercial lines policy rating system currently in use by the Company is not
Y2K compliant. The Company has reviewed its options relative to commercial
lines rating and has identified a course of action, at a estimated cost of
less than $50,000, to remedy this area of noncompliance by the end of the
third quarter of 1999. This action is subject to review by Motor Club of
America, assuming successful completion of the pending merger transaction.
The Company does not yet have a contingency plan for Y2K-related disruptions
in its systems. It expects to complete such a plan by the fourth quarter of
1999.
The Company estimates that the cost of upgrading its information processing
systems (over and above normal systems maintenance costs) did not exceed
$1,000,000 from 1995 through the date of substantial completion of the
upgrade. This upgrade was motivated primarily by factors other than Y2K
compliance. The Company estimates its additional expenditures for Y2K
compliance will not exceed $100,000.
No assurance can be given that the Company will be fully Y2K compliant by
the dates required. However, based on current information, the Company
believes that the effects of any noncompliance will not be material to the
overall operations of the Company.
Forward-Looking Information
- ---------------------------
From time to time, NEIC publishes information that includes forward-looking
statements, as defined in Section 21E of the Securities Exchange Act of
1934. This "Management's Discussion and Analysis" section of this Form 10-
QSB contains forward-looking statements, such as estimates of future revenue
growth, anticipated future events and estimates of costs and implementation
dates associated with Y2K compliance efforts.
The Company cautions readers that numerous factors beyond NEIC's control
could cause projected revenue growth to differ materially from the levels
reflected in these forward-looking statements, including changes in the
changes in the pricing of competing policies, consolidation among insurance
agents, and changes in consumer preferences. Factors that could cause Y2K-
related costs to exceed expectations include the failure of agents and
outside vendors to cooperate with NEIC compliance efforts and unanticipated
problems with systems believed to be Y2K compliant.
North East Insurance Company and Subsidiaries
Part II: OTHER INFORMATION
- --------------------------
Item 4. Submission of Matters to a Vote of Security Holders
The Company called a Special Meeting of the shareholders for the purpose of
approving an Agreement and Plan of Merger, dated as of March 16, 1999
between Motor Club of America and NEIC, as amended and restated as of May
28, 1999, and the merger of NEIC and NEIC Insurance Acquisition Corporation,
a wholly-owned subsidiary of Motor Club. The meeting was held on July 12,
1999 and adjourned to July 20, 1999. At the meeting the shareholders of
NEIC approved the Agreement and Merger by the following vote:
For Against Abstained Broker Non-Votes
--------- ------- --------- ----------------
2,352,824 5,700 3,700 0
Item 5. Other Information
NEIC has executed an Agreement and Plan of Merger, dated as of March 16,
1999, as amended and restated on May 28, 1999, with Motor Club of America.
Motor Club is an insurance holding company located in Paramus, New Jersey.
Motor Club's common stock is publicly traded on the NASDAQ Stock Market,
under the symbol "MOTR". The agreement provides for a merger by which NEIC
would become a wholly-owned subsidiary of Motor Club. For each share of
NEIC stock, a NEIC shareholder may elect to receive (a) $3.30 in cash, (b)
0.19048 shares of Motor Club stock, or (c) a combination of cash and stock.
If the NEIC shareholders in the aggregate elect to exchange more than 50% of
their shares for MOTR stock, the elections will be ratably reduced to 50%.
Consummation of the merger is subject to various conditions, including
receipt of shareholder approval and insurance regulatory approvals.
Shareholders of NEIC approved the Agreement on July 20, 1999 following
adjournment of the Special Meeting of shareholders which had been called to
approve the Agreement on July 12, 1999. The shareholders of Motor Club
approved the Agreement at a Special Meeting of Motor Club shareholders on
July 12, 1999. The merger received approval from the Maine Superintendent
of Insurance on July 23, 1999, but, as of August 12 , 1999, had not been
approved by the New York State Department of Insurance. NEIC anticipates
that the merger will be approved by the New York State Department of
Insurance in the near future and that the merger will be consummated shortly
thereafter.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
2.1 Agreement and Plan of Merger between NEIC and Motor Club of
America, dated as of March 16, 1999, as amended and restated as of May 28,
1999, incorporated by reference to Exhibit 2.1 and Annex A to the Proxy
Statement/Prospectus included in Amendment No. 1 to Registration Statement
on Form S-4 (333-78529) filed by Motor Club of America with the Securities
and Exchange Commission on June 3, 1999.
27 Financial Data Schedules
b) Reports on Form 8-K
The Company filed a Form 8-K Report on July 13, 1999, regarding adjournment
of the Special Meeting of Shareholders to approve the merger transaction
with Motor Club of America.
North East Insurance Company and Subsidiaries
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
North East Insurance Company
Date: August 13, 1999 By /S/Robert G. Schatz
------------------------------
Robert G. Schatz
President and Chief Executive
Officer
Date: August 13, 1999 By /S/Graham S. Payne
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Graham S. Payne
Treasurer and Chief Financial
Officer
North East Insurance Company and Subsidiaries
Form 10-QSB
Exhibit Index
Exhibit
Number Description
- ------------------------
2.1 Agreement and Plan of Merger between NEIC and Motor Club of America,
dated as of March 16, 1999, as amended and restated as of May 28, 1999,
incorporated by reference to Exhibit 2.1 and Annex A to the Proxy
Statement/Prospectus included in Amendment No. 1 to Registration
Statement on Form S-4 (333-78529) filed by Motor Club of America with
the Securities and Exchange Commission on June 3, 1999.
27 Financial Data Schedule