UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to _________________________
Commission File Number: 0-22016
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HOME STATE HOLDINGS, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 13-3429087
- --------------------------------- -------------------
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Three South Revmont Drive, Shrewsbury, New Jersey 07702
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(Address of principal executive offices)
(Zip Code)
(908) 935-2600
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant: The aggregate market value, computed by reference to the closing
price of such stock on April 10, 1997, was $17,648,864.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: On April 14, 1997, there were
outstanding 5,660,000 shares of Common Stock, $.01 par value, of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) The Directors of the Company are as follows:
Class I Directors - Term Expires 1997
Perez C. Ehrich, age 54, became a Director of the Company in August 1993.
Mr. Ehrich is a member of the Audit Committee of the Board. Mr. Ehrich has been
a partner in the law firm of Dorsey & Whitney LLP since December 1995. Prior
thereto, he was a partner in the law firm of Townley & Updike since 1978.
Eric A. Reehl, age 33, has served as Executive Vice President and Chief
Financial Officer and a Director of the Company since June 1996. He has also
served as Assistant Treasurer and Assistant Secretary since August 1993. From
March 1996 to June 1996, he served as Senior Vice President - Corporate
Development. Prior to that he had served as Director of Corporate Development
since August 1993. Mr. Reehl serves as a Director, Executive Vice President and
Chief Financial Officer of Home State Insurance Company ("Home State"), New York
Merchant Bakers Insurance Company ("Merchant Bakers"), Pinnacle Insurance
Company ("Pinnacle"), Westbrook Insurance Company ("Westbrook") and Home Mutual
Insurance Company of Binghamton, NY ("Home Mutual"). He also serves as Executive
Vice President and Chief Financial Officer of Quaker City Insurance Company
("Quaker City"). Home State, Merchant Bakers, Pinnacle, Quaker City and
Westbrook are subsidiaries of the Company. Mr. Reehl also serves as a Director
(or Manager, in the case of limited liability companies) and principal officer
of each of the Company's financial services subsidiaries, and as a Director and
Executive Vice President of Transportation Insurance Network, Inc. ("TIN") and
Transportation Insurance Agency Network, Inc. ("TIAN"), subsidiaries of the
Company. From 1990 to 1993, Mr. Reehl was affiliated in various capacities with
Woodhaven Investors, Inc. ("Woodhaven"), an investment management and consulting
firm. From 1989 to 1990, Mr. Reehl served as Secretary, Treasurer and Director
of Corporate and Portfolio Development for Consolidated Capital Equities
Corporation, a real estate concern in which certain general partnership
interests were purchased by Woodhaven pursuant to a plan of reorganization filed
under Chapter 11 of the Bankruptcy Reform Act of 1978. Prior to 1989, Mr. Reehl
was a bankruptcy and reorganization consultant with Ernst & Young, a public
accounting firm.
William L. Wallace, Sr., age 73, became a Director of the Company in June
1994. Mr. Wallace has been a management consultant since 1979, specializing in
strategic planning programs for manufacturing companies. Prior thereto, Mr.
Wallace held executive positions with several corporations, including as a
Senior Vice President of Olin Corporation.
Class II Directors - Term Expires 1998:
Robert M. Baylis, age 58, has served as a Director of the Company since
December 1995 and is Chairman of the Executive Committee and a member of the
Strategic Planning Committee of the Board. Mr. Baylis is Director of the
International Forum, an executive education program of The Wharton School. Mr.
Baylis served as Vice Chairman of the Board of Directors of CS First Boston from
1994 until his retirement in 1996 after a 33-year career with First Boston
companies. He was based in Hong Kong as Chairman and Chief Executive Officer of
CS First Boston Pacific, Inc. from March 1993 until August 1994. Prior thereto,
he was Vice Chairman of the Board of Directors of First Boston Corporation from
March 1992 to March 1993. Mr. Baylis also serves as a Director of Gryphon
Holdings, Inc., New York Life Insurance Company and Covance, Inc.
Edward D. Herrick, age 52, has served as a Director of the Company since
its formation and is a member of the Executive, Compensation and Strategic
Planning Committees of the Board. Mr. Herrick also serves as a Director of most
of the Company's subsidiaries and Home Mutual. In addition, since 1986, Mr.
Herrick has been Managing Director and President of Woodhaven Investors Inc.,
which serves as investment advisor to the Company and its subsidiaries. See
"Certain Transactions." Mr. Herrick has been the President of Herrick & Co., an
investment firm, since 1986. Mr. Herrick is a Director of Preferred Holdings,
Inc., an insurance holding company specializing in workers compensation coverage
in the States of Massachusetts, Georgia and New Hampshire. Mr. Herrick is also a
Director of Mobex Communications, Inc., a wireless communication company located
in Boise, Idaho.
Mark S. Vaughn, age 49, has served as President, Chief Executive Officer,
Treasurer and Vice Chairman of the Board of Directors of the Company since June
1996. He has also served as a Director since April 1995. From July 1994 to June
1996, he served as Senior Vice President - Marketing and Underwriting. He also
serves as Chairman of the Board of Directors and Chief Executive Officer of Home
State, Merchant Bakers, Pinnacle, Quaker City, Westbrook and Home Mutual, and as
President of Home State. Mr. Vaughn also serves as a Director (or Manager, in
the case of limited liability companies), President and Chief Executive Officer
(in the case of corporations) of each of the Company's financial services
subsidiaries, and as Chairman of the Board of Directors and Chief Executive
Officer of TIN and TIAN. Mr. Vaughn began his insurance career in 1971 as a
commercial underwriting and marketing representative for The Travelers Insurance
Company. In 1973, he joined Torrence Insurance, Inc., an insurance agency, where
he became a managing partner. In 1981, Mr. Vaughn joined Transamerica Insurance
Group, and assumed increased levels of responsibility during his 13-year career
there. In 1990, Mr. Vaughn was promoted to Senior Vice President and became
responsible for nationwide personal lines operations for all Transamerica
companies.
Class III Directors - Term Expires 1999:
Michael H. Monier, age 56, has served as Chairman of the Board of Directors
of the Company since its formation in 1987 and as Secretary since 1993. Mr.
Monier is a member of the Executive, Compensation and Strategic Planning
Committees of the Board. Mr. Monier has served as a Director of most of the
Company's subsidiaries since the commencement of their respective affiliations
with the Company and as Treasurer of Quaker City Holdings since 1990. He is also
Vice President of Tower Hill, Inc., a financial services subsidiary of the
Company. Since 1986, Mr. Monier has been Vice President and Secretary of
Woodhaven Investors Inc., which serves as investment advisor to the Company and
its subsidiaries. See "Certain Transactions." In addition, Mr. Monier has served
as President of Michael Monier and Associates, an investment firm, since 1985,
and he has served as Vice President and Treasurer of Landmark Management, Inc.,
a real estate investment firm, since 1974. From 1972 until 1991, Mr. Monier
served as Managing Director of the investment firm of Samson & Monier
Associates. Mr. Monier is Chairman of the Board of Directors and Chief Executive
Officer of Mobex Communications, Inc. of Boise, Idaho, a wireless communications
company. In addition, Mr. Monier is Chairman of the Board and a Director of
Higgins Supply of McGraw, New York, a manufacturer of orthopedic stays, and is a
Director of Preferred Holdings, Inc., an insurance holding company specializing
in workers compensation coverage in the States of Massachusetts, Georgia and New
Hampshire.
Henry Sopher, age 41, became a Director of the Company in October 1996
when he was designated as such by Swiss Reinsurance America Corporation ("Swiss
Re") in connection with Swiss Re's purchase of shares of Series A Preferred
Stock. Mr. Sopher is Chairman of the Strategic Planning Committee of the Board.
Since January 1996, Mr. Sopher has been the Chairman of the Board of Directors
of Isis Consulting, Inc., an insurance and reinsurance consulting venture,
located in New York, New York, which is an affiliate of Swiss Re. From November
1992 to January 1996, Mr. Sopher was a Director of BCS Management Inc., a
consulting company, located in New York, New York. He was a Senior Manager at
Deloitte & Touche in New York, New York from 1980 to 1992 and was an accountant
at Neville Russell & Co. in London, England from 1977 to 1980.
Harold C. Stowe, age 50, became a Director of the Company in 1993 and is a
member of the Audit Committee of the Board. He also has served as a Director of
Home State since 1991. Mr. Stowe also is the President and Chief Executive
Officer of Canal Industries, Inc. ("Canal"), a private forest products company
located in Conway, S.C. Mr. Stowe has been affiliated with Canal since 1990.
From 1977 until 1990, Mr. Stowe was affiliated with Springs Industries, Inc., a
textile company, serving in various capacities, including as Treasurer and
Executive Vice President of The Springs Company, a related investment and
management company.
(b) The following table shows the names and ages of all executive officers of
the Company, the positions and offices held by such person and the period during
which each person served as an officer. The term of office of each person is
generally not fixed since each person serves at the discretion of the Board of
Directors of the Company.
Officer
Name Age Position Since
- ---- --- -------- -------
Mark S. Vaughn (1).................... 49 President, Chief Executive Officer, 1994
Vice Chairman of the Board of Directors
and Treasurer
Michael H. Monier (2)................. 56 Chairman of the Board of Directors and Secretary 1987
Eric A. Reehl (3) 33 Executive Vice President, Chief Financial Officer, 1993
Asst. Treasurer, Asst. Secretary
Douglas K. Goldenbaum (4)............. 42 Senior Vice President - Finance 1997
William G. Hurlman (5)................ 44 Senior Vice President - Underwriting/Marketing 1995
R. Scott Conant (6)................... 46 Senior Vice President - Claims 1996
James M. Tennyson, Jr. (7) 43 Senior Vice President -
Management Information Services 1994
Richard W. Bird (8)................... 48 Vice President - Marketing 1996
Vicki F. Blaich (9)................... 38 Vice President - Claims 1993
James A. Byrne Jr. (10)............... 53 Vice President - Marketing 1992
Mark Fradkin (11)..................... 52 Vice President - Personal Lines Underwriting 1994
Scott A. Morgan (12).................. 37 Vice President - GAAP Accounting 1996
Mary Jane Poverstein (13)............. 50 Vice President - Human Resources 1995
Benn Prybutok (14).................... 48 Vice President - Government Affairs 1993
George E. Roberts, Jr. (15)........... 49 Vice President - Marketing 1996
Francesco Stancati, Jr. (16).......... 42 Vice President - Commercial Underwriting 1994
Richard D. Thomas (17)................ 39 Vice President - Actuary 1996
Pauline L. Tuano (18)................. 61 Vice President - Statutory Accounting 1995
- ----------------------
(1) Mark S. Vaughn has served as President, Chief Executive Officer, Vice
Chairman of the Board of Directors and Treasurer of the Company since June
of 1996. Mr. Vaughn also currently serves as a Director of the Company as
well as each of its insurance and non-insurance related subsidiaries. He is
President and Chief Executive Officer of Aspen Intermediaries, Inc., Home
State Insurance Company, Home State Investment, Inc. and Quaker City
Holdings, Inc. He is Chairman and Chief Executive Officer of Home Mutual
Insurance Company, New York Merchant Bakers, Pinnacle Insurance Company,
Quaker City Insurance Company, Transportation Insurance Network, Inc.,
Transportation Insurance Agency Network, Inc. and Westbrook Insurance
Company. He also serves as President of Aspen Intermediaries, LLC and Home
State Insurance Management, LLC. From June 1994 through June of 1996, Mr.
Vaughn served as Senior Vice President, Marketing and Underwriting. Mr.
Vaughn began his insurance career in 1971 as a commercial underwriting and
marketing representative for The Travelers Insurance Company. In 1973 he
joined an insurance agency, where he became a managing partner. In 1981,
Mr. Vaughn joined Transamerica Insurance Group, and assumed increased
levels of responsibility during his 13-year career. In 1990, Mr. Vaughn was
promoted to Senior Vice President, and became responsible for nationwide
personal lines operations for all Transamerica companies.
(2) Michael H. Monier has served as Chairman of the Board of Directors of the
Company since its formation in 1987 and as Secretary since 1993. Mr. Monier
is a member of the Executive, Compensation and Strategic Planning
Committees of the Board of Directors. Mr. Monier has served as a Director
or Manager of each of the Company's subsidiaries since the commencement of
their respective affiliations with the Company and as Treasurer of Quaker
City Holdings since 1990. He is also Vice President of Tower Hill. Since
1986 Mr. Monier has been Vice President and Secretary of Woodhaven
Investors Inc., which serves as investment advisor to Home State and Quaker
City. In addition, Mr. Monier has served as President of Michael Monier
and Associates, an investment firm since 1985, and has served as Vice
President and Treasurer of Landmark Management, Inc., a real estate
investment firm, since 1974. From 1972 until 1991 Mr. Monier served as
Managing Director of the investment firm of Samson & Monier Associates. Mr.
Monier has also been a principal of the general partners of several single
asset real estate limited partnerships.
(3) Eric A. Reehl has served as Executive Vice President, Chief Financial
Officer, Assistant Secretary and Assistant Treasurer of the Company since
June of 1996. Mr. Reehl also currently serves as Director, Executive Vice
President and Chief Operating Officer of Aspen Intermediaries, Inc.
Director, Executive Vice President and Treasurer of Aspen, LLC. Director,
Chief Financial Officer and Treasurer of Home Mutual. Director, Executive
Vice President, Chief Financial Officer, Treasurer and Assistant Secretary
of Home State Insurance. Director, Secretary and Chief Operating Officer of
Home State Investment. Director, Executive Vice President and Treasurer of
HSIM LLC. Director, Executive Vice President and Chief Financial Officer of
New York Merchant Bakers. Director, Executive Vice President and Chief
Financial Officer of Pinnacle. Executive Vice President, Chief Financial
Officer, Assistant Treasurer and Secretary of Quaker City Holdings.
Executive Vice President, Chief Financial Officer, Treasurer and Secretary
of Quaker City Insurance. Director, Chief Operating Officer, Secretary and
Treasurer of Tower Hill. Director, Executive Vice President, Secretary and
Treasurer of Transportation Insurance Network and Transportation Insurance
Agency Network and Director, Executive Vice President, Chief Financial
Officer and Secretary of Westbrook. From 1990 to 1993, Mr. Reehl was
affiliated in various capacities with Woodhaven Investors, Inc.
("Woodhaven"), an investment firm. From 1989 to 1990, Mr. Reehl served as
Secretary, Treasurer and Director of Corporate and Portfolio Development
for Consolidated Capital Equities Corporation, a real estate concern in
which certain general partnership interests were purchased by Woodhaven
pursuant to a plan of reorganization filed under Chapter 11 of the
Bankruptcy Reform Act of 1978. Prior to 1989, Mr. Reehl was a bankruptcy
and reorganization consultant with Arthur Young & Company, a public
accounting firm.
(4) Douglas K. Goldenbaum has served as Senior Vice President - Finance since
April 1997, prior to which he served as Senior Vice President and
Controller of the Company since January, 1997. Mr. Goldenbaum is also
Senior Vice President - Finance of Home State Insurance, New York Merchant
Bakers, Pinnacle, Quaker City and Westbrook. From 1986 through 1996, Mr.
Goldenbaum was affiliated with Apprise Corporation and Crum & Forster
Insurance, wholly-owned subsidiaries of Talegen Holdings, Inc., where he
served in various management positions, including Assistant Vice President
- Financial Services. Prior to 1986, Mr. Goldenbaum was Manager of General
Accounting with Continental Insurance and a Financial Examiner with the
State of New Jersey Insurance Department.
(5) William G. Hurlman currently serves as Senior Vice President and Chief
Underwriting Officer of the Company. He also has responsibility for all
field operations and the ceded reinsurance department. Mr. Hurlman came to
the Company from Reliance Reinsurance Corporation where he held the
position of Vice President for Treaty and Alternative Risk Underwriting.
Prior to joining Reliance Re, he served as the Director of Continental
Retention & Specialty Managers, a profit center at Continental Insurance
which underwrote Risk Retention Groups and other alternative risk programs.
Mr. Hurlman received his underwriting and marketing training at Crum &
Forster Underwriters Group, where he held several technical and managerial
positions.
(6) R. Scott Conant has served as Senior Vice President, Claims for the Company
since August, 1996. He also serves in the same capacity for Home State
Insurance Company, Quaker City Insurance Company, Pinnacle Insurance
Company, New York Merchant Bakers Insurance Company, Home Mutual Insurance
Company and Westbrook Insurance Company. In April 1997, Mr. Conant became a
Director of Home Mutual. From 1995 through 1996, Mr. Conant served as a
manager and claims/litigation consultant for KPMG Peat Marwick LLP. From
1977 to 1994, Mr. Conant was affiliated with Crum & Forster Insurance
Company, a wholly owned subsidiary of Talagen Holdings, Inc., where he
served in various management positions, including Vice President -
Claim/Legal. Prior to 1977, Mr. Conant was a claims adjuster and supervisor
with Liberty Mutual Insurance Company.
(7) James M. Tennyson, Jr. was promoted to Senior Vice President, Management
Information Systems of the Company in February, 1996. Prior to which he
served as Vice President, Management Information Systems from March, 1994.
From 1990 until he joined the Company, Mr. Tennyson was a consultant for
XCEL Systems and Programming. From 1989 through 1991 he served as Corporate
Director, Information Systems at
Universal Health Services of King of Prussia, PA, which owns 33 for-profit
hospitals in the United States. Prior thereto he held a similar position at
the Trump Organization's Gaming Division in Atlantic City, New Jersey. Mr.
Tennyson was also a consultant for Provident and Greentree Mutuals of
Philadelphia and Colonial Indemnity Insurance Company before joining the
Company.
(8) Richard W. Bird has served as Vice President, Marketing of the Company
since May 1996. He also serves as the Regional Vice President, Southeast
Region for the Home State Insurance Group. Director, President and Chief
Operating Officer of Pinnacle and Vice President of Quaker City Insurance
Company. From 1974 to 1987, Mr. Bird was at Classified Insurance
Corporation, a regional company, where he was the officer in charge of the
Marketing, Underwriting, Operations, Claims, Administration and finally
Regional Vice President of all functional departments. From 1987 to 1992,
Mr. Bird was with the Viking Insurance Company as first a Regional Vice
President and after three years, promoted to corporate Vice President of
Underwriting. From July 1993 to May 1996, Mr. Bird was with the Superior
Insurance Company of Atlanta as Vice President, Underwriting/Operations
where prior to leaving he had assumed the additional role of Vice President
- Product Management. Mr. Bird has over 22 years experience in the property
and casualty insurance industry.
(9) Vicki F. Blaich has served as Vice President, Claims of the Company since
1993. Ms. Blaich is also Vice President, Claims of Home State Insurance,
New York Merchant Bakers, Pinnacle, Quaker City and Westbrook. Prior to
joining the Company, Ms. Blaich served as Claims Manager for Amgro, a
division of Hanover Insurance Company, from 1984 to 1993. Ms. Blaich has
worked in the insurance industry for twelve years.
(10) James A. Byrne, Jr. has served as Vice President, Marketing of the Company
since December 1992. Mr. Byrne served as President of Merchant Bakers from
1979 through 1992 and has served as President and Chief Operating Officer
of Merchant Bakers since June 1994. From 1992 through June 1994, he served
as its Executive Vice President. He is also a Director of Merchant Bakers.
In addition, Mr. Byrne is a Director and Vice President of Home Mutual.
Vice President and Treasurer of Pinnacle. Director and Vice President of
both Transportation Insurance Network and Transportation Insurance Agency
Network and as Director, President and Chief Operating Officer of
Westbrook. Mr. Byrne has worked in the insurance industry since 1965.
(11) Mark R. Fradkin, CPCU, has served as the Company's Vice President for
Personal Line Underwriting since April 1994. Prior to June 1996, he was
also directly responsible for underwriting and marketing management of the
Home State Insurance Company's personal automobile business in New Jersey.
His responsibilities are now focused on personal lines underwriting
management at the corporate level of all insurance company subsidiaries.
Mr. Fradkin has 30 years experience in the property and casualty insurance
industry. He was a Commercial Casualty Underwriter for CNA Insurance and
Aetna Casualty & Surety Company in New York, later becoming Assistant
Director of Research for the Independent Insurance Agents of America
(1971-1977) and Senior Research Associate for the American Insurance
Association (1978-1985). Immediately prior to joining Home State, Mr.
Fradkin was the senior underwriting executive of the New Jersey Automobile
Full Insurance Underwriting Association and the Market Transition Facility
of New Jersey (1985-1994).
(12) Scott A. Morgan has served as Vice President, GAAP Reporting of the Company
and each of the Company's subsidiaries since joining the Company in June,
1996. From 1987 to May 1996, Mr. Morgan was at the certified public
accounting firm of Coopers & Lybrand, L.L.P., most recently as Manager,
Business Assurance, serving clients in the insurance and banking
industries. From 1985 to 1987, Mr. Morgan was Supervisor, GAAP Accounting
for Bankers National Life Insurance Company and from 1981 to 1985, was
Senior Accountant for the Beneficial Corporation insurance group of
subsidiaries. Mr. Morgan is a certified public accountant.
(13) Mary Jane Poverstein joined Home State Holdings, Inc. in October 1995 as
Vice President, Human Resources. Prior to joining the Company, Ms.
Poverstein was employed by The Continental Insurance Companies where she
assumed increasing levels of responsibilities in her 14 year career. She
served on the Board of Directors from 1983 to 1987 of the Loyalty Life
Insurance Company, a wholly-owned subsidiary of the Continental
organization. Prior to joining Continental, Ms. Poverstein worked at the
Bendix Corporation for 10 years. She has over 20 years experience in Human
Resources management.
(14) Benn Prybutok joined the Company in 1992 and became Vice President,
Governmental Affairs in 1993. He has served as a Director of Quaker City
since May, 1992, and since June 1994 has served as its President and Chief
Operating Officer. He is also a Director of Home Mutual and Pinnacle,
Secretary of Home Mutual and Vice President of Westbrook. Mr. Prybutok
served as legislative liaison to the Pennsylvania Insurance Department from
1974 to 1979. He served in various management capacities with Allianz
Insurance Group from 1979 to 1984, Pacific Compensation Insurance Company
from 1985 to 1989, United National Insurance Company from 1989 to 1990 and
The Resource Intermediary Group, Ltd. from 1990 to 1992.
(15) George E. Roberts joined the Company in June of 1996 as Vice President of
Marketing and serves as Regional Vice President - Mid Atlantic Region of
the Home State Insurance Group. He is also a Director and Vice President of
Marketing for Quaker City Insurance Company. Mr. Roberts served as Vice
President - Underwriting for Warner Insurance Services of Fairlawn, New
Jersey from 1991 until 1995. Mr. Roberts was employed with Hanover
Insurance Company of Piscataway, New Jersey from 1983 until 1991, first as
a Personal Lines Manager and then as Director of Operations and Director of
Underwriting and Marketing. From 1971 through 1983, Mr. Roberts was with
Seaboard Underwriters, Inc. of Burlington, North Carolina, serving as
Assistant Branch Manager in their Augusta, Georgia office, then Branch
Manager of their Saginaw, Michigan office. Mr. Roberts was also Personal
Lines Underwriting and Marketing Manager of the national office in North
Carolina.
(16) Francesco Stancati, Jr. has served as Vice President, Commercial Lines
Underwriting of the Company since August, 1994 and serves in the same
capacity with each of the Company's insurance subsidiaries and Home Mutual.
Mr. Stancati has sixteen years of experience in the property and casualty
insurance industry. Mr. Stancati was employed with the Aetna Life and
Casualty Companies from April, 1979 through August, 1994, and from July
1990 until his departure, he held the position of Standard Strategic
Business Unit Underwriting Manager.
(17) Richard D. Thomas joined the Company in June 1996 as Vice President and
Actuary. Mr. Thomas also serves as Vice President and Actuary for Home
Mutual, Home State, Merchant Bakers, Pinnacle, Quaker City and Westbrook.
Prior to joining the Company, Mr. Thomas worked for Continental/CNA
Insurance from 1983 through 1996, with his most recent position being
Director and Assistant Actuary in charge of commercial lines pricing and
profitability analysis. Mr. Thomas became a fellow in the casualty
Actuarial Society in 1994.
(18) Pauline L. Tuano joined the Company in May 1995 as Vice President,
Statutory Accounting. Ms. Tuano also serves as Vice President, Statutory
Accounting of Home Mutual, Home State, Quaker City, Pinnacle, Westbrook and
Merchant Bakers. Prior to joining the Company, Ms. Tuano was employed by
The Continental Insurance Corporation from 1979 through April 1995, where
she assumed increased levels of responsibilities in her 16 year career.
From 1975 through 1979, Ms. Tuano was General Accounting Manager for Drake
Insurance company and from 1970 through 1974, Ms. Tuano served as an
Assistant Secretary for the Constitution Reinsurance Corporation. Ms. Tuano
has over twenty five years experience in the insurance industry.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership with the Securities and Exchange Commission. Officers, Directors and
greater-than-ten-percent beneficial owners are required by Securities and
Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based on review of the copies of such forms furnished to the Company, the
Company believes that during 1996 all Section 16(a) filing requirements
applicable to its officers, Directors and greater-than-ten-percent beneficial
owners were complied with, except that initial statements of beneficial
ownership of Company securities by Richard Bird, R. Scott Conant, William
Hurlman, Scott Morgan, George Roberts and Richard Thomas (none of whom own any
Company securities except Mr. Roberts) were filed late and a change in the form
of beneficial ownership (but not the number) of Company securities owned by
Edward D. Herrick is being reported late on an amended annual statement of
changes in beneficial ownership.
Item 11. Executive Compensation
The following table sets forth compensation information for services
performed in 1996, 1995 and 1994 for the Company, its subsidiaries and Home
Mutual by those persons who served as the Chief Executive Officer at any time
during 1996 and those persons who, at December 31, 1996, were the four other
most highly compensated executive officers, each of whom earned in excess of
$100,000 in salary and bonus in 1996 (the "Named Executives").
SUMMARY COMPENSATION TABLE(1)
Long-Term
Compensation
Annual Compensation ----------
------------------------------------------- Awards
----------
Securities
Underlying Other
Name & Principal Positions Year Salary Bonus Options Compensation(2)
- -------------------------- ---- ---------- --------- ---------- ---------------
Mark S. Vaughn(3)................... 1996 $200,242 $100,000 -- $7,528
Vice Chairman of the Board of 1995 $175,193 -- -- $5,417
Directors, President and Chief 1994 $75,577 $40,000 20,000 $1,177
Executive Officer of the Company,
Chairman, Chief Executive Officer
and Treasurer of Home State,
Quaker City and Merchant Bakers
Eric A. Reehl....................... 1996 $165,060 $80,000 -- $5,591
Executive Vice President and 1995 $150,068(4) -- -- $4,821
Chief Financial Officer of the 1994 $120,000(4) $80,000 20,000 $3,688
Company and each insurance
subsidiary; Executive Vice
President and Treasurer of TIN
and TIAN; Chief Operating
Officer of financial services
subsidiaries
James M. Tennyson, Jr.(5)........... 1996 $150,141 $20,000 10,000 $5,630
Senior Vice President - 1995 $140,109 -- -- $1,750
Management Information Systems of 1994 $108,151 $10,000 5,000 $250
the Company
Benn Prybutok....................... 1996 $120,056 $25,000 10,000 $5,066
Vice President - Government 1995 $110,000 $25,000 -- $4,632
Affairs of the Company, Pinnacle 1994 $97,334 $25,000 -- $4,096
and Westbrook; President and
Chief Operating Officer of Quaker
City
Robert Abidor....................... 1996 $353,333 $100,000 -- $12,437
Former Vice Chairman of the Board 1995 $312,000(6) -- -- $7,803
of Directors, President and Chief 1994 $260,000(6) $100,000 -- $3,561
Executive Officer of the Company;
Former Chairman, Chief Executive
Officer and Treasurer of Home
State, Quaker City and Merchant
Bakers
Kenneth E. Edwards.................. 1996 $140,055 $50,000 -- $4,656
Senior Vice President - Finance 1995 $130,054 -- -- $5,359
of the Company; Controller 1994 $108,846 $80,000 10,000 $3,580
of Home State, Pinnacle
and Quaker City
- ------------------
(1) During the years shown in the table, there were no other annual
compensation reportable or long-term incentive plan payouts to the persons
shown in the table.
(2) Other compensation in 1994, 1995 and 1996 consists of 401(k) plan
contributions and insurance premiums paid by the Company.
(3) Mr. Vaughn joined the Company in July 1994.
(4) Does not include $24,000 and $15,250 distributed to Mr. Reehl as a partner
of PPIM L.P. ("PPIM") in 1994 and 1995, respectively. PPIM provided various
investment banking and other advisory services to Home State and Quaker
City during 1994 and 1995 and earned fees for such services.
(5) Mr. Tennyson joined the Company in April 1994.
(6) Does not include $174,292 and $103,360 distributed to Mr. Abidor as a
partner of PPIM in 1994 and 1995, respectively.
Employment Agreements
In January 1997, the Company entered into a three-year amended and
restated employment agreement with Mr. Vaughn and a three-year employment
agreement with Mr. Reehl. The terms of such agreements are extended
automatically after each year for successive additional one-year periods unless
either party notifies the other in writing that it does not wish the term to be
extended. Mr. Vaughn's base annual salary is $225,000 and Mr. Reehl's base
annual salary is $200,000, subject in each case to annual increases at the
discretion of the Compensation Committee of the Board of Directors. In addition
to base annual salary, the Compensation Committee may grant bonuses to such
executives. Each executive is generally entitled to severance pay equal to
(i) three-quarters of three years' base salary upon termination due to
disability; (ii) base salary for up to one year upon voluntary termination by
the executive after the initial three-year period under the agreement;
(iii) base salary for the remaining term of the employment agreement upon
termination constituting or resulting from a breach by the Company under the
employment agreement (provided that in the event of a wrongful termination
during a period when a transaction which would be a change of control (as
defined in the agreement) is under consideration, the executive shall be paid an
amount equal to three times his then current base salary); (iv) a lump sum
severance payment equal to the greater of the initial or then current base
salary for the remaining term of the agreement in the event there is a change of
control and the executive terminates the agreement for good reason (as defined
in the agreement); and (v) a lump sum severance payment equal to 24 months'
salary at the greater of the initial or the then current base salary in the
event there is a change of control and the executive terminates the agreement
without good reason. Each executive has agreed not to compete with the Company
in its lines of business and market area for a period of two years in the case
of termination due to disability and for a period of one year in the case of
voluntary termination as described in clause (ii) above. In addition, each
executive has agreed not to solicit customers or agents of the Company for
provision of competitive services or to interfere with the Company's
relationships with customers, agents, suppliers, investors, shareholders or
employees for a period of 18 months in the event there is a change of control
and he terminates the agreement without good reason (which period is subject to
reduction to the extent that such executive elects to receive a severance
payment equal to less than 18 months of base salary). Each employment agreement
also provides that the executive will be indemnified by the Company to the full
extent permitted under Delaware law.
Mr. Tennyson entered into a February 28, 1997 retention letter with the
Company providing for a bonus of $38,750 if Mr. Tennyson remains employed
through the closing of a financing transaction (as defined in such letter) or a
change in control transaction (as defined in such letter) in 1997 and severance
pay of $77,500 if his employment is terminated without cause (or if he
terminates his employment for good reason, as defined in such letter) in
connection with or prior to the first anniversary of a change of control
transaction.
Director Compensation
The Company has provided for the payment of Directors' fees to members of
the Board who are not salaried employees of the Company or any of its
subsidiaries or affiliates and who are not members of firms or corporate
entities which receive fees from the Company or any of its subsidiaries or
affiliates ("non-affiliated Directors"). These payments were established in
recognition of the significant time commitment and work that is attendant to
being a Director and reflect the view that each Director ought to be remunerated
directly or indirectly for his efforts. Payment to non-affiliated Directors has
been established at the rate of $2,000 per each full calendar quarter served
plus $4,000 per each full fiscal year during which such Director serves on a
Committee of the Board.
In addition, Directors are reimbursed for their out-of-pocket expenses and
are eligible to receive stock options under the Plan. In August 1996, when he
was elected Chairman of the Executive Committee, Mr. Baylis was granted options
under the Plan to purchase 25,000 shares at an exercise price of $7.25 per
share. In August 1996, each of Mr. Monier and Herrick Partners, L.P. granted
Mr. Baylis options to purchase 12,500 shares at an exercise price of $7.50 per
share.
Compensation Committee Interlocks and Insider Participation
Messrs. Monier and Herrick, members of the Compensation Committee, are
principals of Woodhaven Investors Inc. ("Woodhaven"), which provides certain
investment management and consulting services to the Company, its subsidiaries
and Home Mutual, for which Woodhaven received fees of $442,816 in 1996. See
"Item 13 - Certain Relationships and Related Transactions." In addition, Mr.
Monier received a salary of $80,000 for his services as an officer of the
Company.
Stock Options
The following table contains information concerning the grant of stock
options made during fiscal year 1996 under the Company's 1993 Stock Incentive
Plan (the "Plan") to the Named Executives:
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
--------------------------------------------------------
Potential Realizable
% of Total Value at Assumed
Number of Options Annual Rate of Stock
Securities Granted Price Appreciation for
Underlying to Exercise Option Term
Options Employees Price Expiration -------------------------
Name Granted in 1996 ($/Sh) Date 5% 10%
- ---- ----------- --------- ------- -------- ---------- ----------
Mark S. Vaughn............. 0 0.0% $ -- -- $ 0 $ 0
Eric A. Reehl.............. 0 0.0% -- -- 0 0
James M. Tennyson, Jr...... 5,000 7.75% -- 12/08/04 18,500 44,300
5,000 7.75% 12/09/06 24,350 61,750
Benn Prybutok.............. 5,000 7.75% 08/19/03 15,000 34,700
5,000 7.75% 12/08/04 18,500 44,300
Robert Abidor.............. 0 0.0% -- -- 0 0
Kenneth E. Edwards......... 0 0.0% -- -- 0 0
13
The following table shows the number and value of exercisable and
unexercisable stock options granted under the Plan to the Named
Executives. To date, no options under the Plan have been exercised.
AGGREGATED FISCAL YEAR END OPTION VALUES
Value of Unexercised
Number of Securities Underlying In-the-Money
Unexercised Options at Fiscal Year End (#) Options at Fiscal Year End ($)(1)
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ------------- -------------
Mark S. Vaughn.................. 8,000 12,000 $ 0 $ 0
Eric A. Reehl................... 17,000 18,000 0 0
James M. Tennyson, Jr........... 2,000 8,000 0 0
Benn Prybutok................... 5,000 5,000 0 0
Kenneth E. Edwards.............. 7,000 8,000 0 0
Robert Abidor................... 30,860 -- 0 0
- -------------------------
(1) Market value of underlying securities at year end, minus the exercise price.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of April 25, 1997, certain
information with respect to the beneficial ownership of the Company's Common
Stock and Series A Preferred Stock by each person known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock or more than
5% of the outstanding shares of Series A Preferred Stock, based upon Schedules
13G and 13D filed by such beneficial owners with the Securities and Exchange
Commission and information furnished to the Company.
Number of
Shares
Beneficially Percent of
Name and Address of Beneficial Owner Class Owned Class
- ------------------------------------ ------------------ ------------ ----------
Michael H. Monier Common 556,950 (1) 9.8%
c/o Home State Holdings, Inc.
3 South Revmont Drive
Shrewsbury, New Jersey 07702
Edward D. Herrick Common 566,725 (2) 10.0
134 North Oak Street
Telluride, Colorado 81435
Swiss Reinsurance America Corporation Common 700,000 (3) 11.1
237 Park Avenue Series A Preferred 5,000 50.0
New York, New York 10017
Reliance Insurance Company Common 700,000 (3) 11.1
55 East 52nd Street Series A Preferred 5,000 50.0
New York, New York 10055
Marvin Schwartz Common 379,000 6.7
c/o Neuberger & Berman LLC
605 Third Avenue
New York, New York 10158
Dimensional Fund Advisors, Inc. Common 330,200 (4) 5.8
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
- ----------------------
(1) Includes 3,750 shares subject to currently exercisable warrants held by
Mr. Monier and 5,000 shares owned by Woodhaven Capital Corp. ("Woodhaven
Capital"), of which Messrs. Herrick and Monier are stockholders. Does not
include 24,157 shares owned by M&M Partners, L.P. ("M&M"). Mr. Monier's
daughters are limited partners and Christine Tunney is the general
partner of M&M. Mr. Monier disclaims beneficial ownership of the 24,157
shares owned by M&M.
(2) Consists of 546,725 shares owned by Herrick Partners, L.P., of which
Mr. Herrick is the general partner, 15,000 shares owned by the Herrick
Family Foundation, of which Mr. Herrick and his wife are co-trustees, and
5,000 shares owned by Woodhaven Capital.
(3) Consists of shares subject to currently exercisable warrants.
(4) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 330,200 shares of
Common Stock as of December 31, 1996, all of which shares are held in
portfolios of DFA Investment Dimensions Group Inc., a registered open-end
investment company, or in series of the DFA Investment Trust Company, a
Delaware business trust, or the DFA Group Trust and DFA Participation
Group Trust, investment vehicles for qualified employee benefit plans
with respect to all of which Dimensional serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares.
The following table sets forth, as of April 25, 1997, certain
information with respect to the beneficial ownership of the Company's Common
Stock by: (i) each Director of the Company; (ii) each executive officer named in
the summary compensation table herein; and (iii) all executive officers and
Directors as a group.
Number of
Shares
Beneficially Percent of
Name of Beneficial Owner Owned Class
- ------------------------ ------------ ----------
Mark S. Vaughn 25,668 (1) 0.5%
Michael H. Monier 556,950 (2) 9.8
Edward D. Herrick 566,725 (3) 10.0
Robert M. Baylis 74,000 (4) 1.3
Perez C. Ehrich 1,000 0.0
Eric A. Reehl 26,168 (5) 0.6
Henry Sopher 0 0.0
Harold C. Stowe 15,398 (6) 0.3
William L. Wallace, Sr. (7) 101,711 (8) 1.8
Benn Prybutok 5,500 (9) 0.1
James M. Tennyson, Jr. 2,000(10) 0.0
Robert Abidor (11) 0 0.0
Kenneth E. Edwards 7,000(10) 0.1
All executive officers and Directors
as a group (24 persons) 1,371,020(12) 23.6
- --------------------
(1) Includes 25,168 shares subject to currently exercisable stock options
held by Mr. Vaughn.
(2) Includes 3,750 shares subject to currently exercisable warrants held by
Mr. Monier and 5,000 shares owned by Woodhaven Capital. Does not include
24,157 shares owned by M&M, as to which Mr. Monier disclaims beneficial
ownership.
(3) Consists of 546,725 shares owned by Herrick Partners, L.P., 15,000 shares
owned by Herrick Family Foundation and 5,000 shares owned by Woodhaven
Capital.
(4) Includes 55,000 shares subject to currently exercisable stock options held
by Mr. Baylis.
(5) Includes 25,168 shares subject to currently exercisable stock options
held by Mr. Reehl.
(6) Includes 3,000 shares subject to currently exercisable stock options held
by Mr. Stowe and 1,000 shares held by Mr. Stowe as custodian for one of
his children. Does not include 2,000 shares beneficially owned by Mr.
Stowe's other children. Mr. Stowe disclaims beneficial ownership of such
2,000 shares.
(7) Mr. Wallace's profit-sharing plan owns 5,000 shares of common
stock of Quaker City Holdings, which represents less than 1%
of all Quaker City Holdings shares outstanding as of April 25,
1997.
(8) Includes 6,750 shares subject to currently exercisable warrants held by
Mr. Wallace.
(9) Includes 5,000 shares subject to currently exercisable stock options held
by Mr. Prybutok.
(10) Consists of shares subject to currently exercisable stock options.
(11) Mr. Abidor resigned as an officer and Director in 1996.
(12) Includes 114,736 shares subject to currently exercisable stock
options, 10,500 shares subject to currently exercisable
warrants and 5,000 shares owned by Woodhaven Capital.
Item 13. Certain Relationships and Related Transactions.
Woodhaven, a corporation whose principals are Messrs. Monier and Herrick,
principal stockholders and Directors of the Company, provides certain investment
management and consulting services to the Company, its subsidiaries and Home
Mutual consisting primarily of managing the investment and reinvestment of such
companies' excess funds and consulting with respect to the analysis of their
cash flows. Fees paid in 1996 were $442,816. Management believes that these
arrangements are no less favorable than could be obtained from other parties for
services of comparable quality. These arrangements are subject to triennial
review by the applicable insurance regulatory agencies.
The law firm of Dorsey & Whitney LLP, of which Mr. Ehrich is a partner,
has rendered, and expects in the future to render, legal services to the
Company.
In October 1996, the Company, Swiss Re and Reliance Insurance Company
("Reliance") entered into agreements for the Company's insurance subsidiaries to
continue to purchase reinsurance from Swiss Re and Reliance at commercially
reasonable and actuarially sound rates and for Swiss Re and Reliance to provide
certain consulting and management services to the Company. Each of Swiss Re and
Reliance is paid a monthly retainer of $8,333 for such consulting and management
services.
In connection with the October 1996 purchase by Swiss Re of Series A
Preferred Stock and warrants, Isis Consulting, Inc. ("Isis"), of which Mr.
Sopher is Chairman and Treasurer and an affiliate of Swiss Re is a stockholder,
acted as a finder for which services Isis received a fee of $100,000.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
HOME STATE HOLDINGS, INC.
Dated: April 30, 1997 By: /s/ MARK S. VAUGHN
-------------------------------
Name: Mark S. Vaughn
Title: President