-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CTlNKlTmiJijqMZMu0TuJ+9N5K4uIaIubTaCanDddPw9wfAhT9Wdevs4wXYJQFUL JzK+sF3NWijde7DZvZdYSQ== 0001003957-98-000018.txt : 19980616 0001003957-98-000018.hdr.sgml : 19980616 ACCESSION NUMBER: 0001003957-98-000018 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980401 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980615 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RISCORP INC CENTRAL INDEX KEY: 0001003957 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 650335150 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-27462 FILM NUMBER: 98648176 BUSINESS ADDRESS: STREET 1: ONE SARASOTA TOWER STREET 2: SUITE 608 CITY: SARASOTA STATE: FL ZIP: 34236 BUSINESS PHONE: 9419512022 MAIL ADDRESS: STREET 1: 1390 MAIN STREET CITY: SARASOTA STATE: FL ZIP: 34236 8-K/A 1 REPORT ON FORM 8-K AS OF APRIL 1, 1998 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): April 1, 1998 RISCORP, INC. (Exact name of registrant as specified in its charter) Florida 0-27462 65-0335150 (State or other (Commission (I.R.S. Employer jurisdiction of File Number) Identification No.) incorporation) One Sarasota Tower, Suite 608 Sarasota, Florida 34236 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (941) 366-5015 N/A (Former name or former address, if changed since last report) This document contains statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. The words "believe", estimate", "intend", "anticipate", and similar expressions and variations thereof identify certain of such forward-looking statements, which speak only as of the dates on which they were made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those indicated in the forward-looking statements as a result of various factors. Readers are cautioned not to place undue reliance on these forward-looking statements. Item 2. Acquisition or Disposition of Assets. Pursuant to an Asset Purchase Agreement dated June 17, 1997, by and among the Company, its subsidiaries, and Zenith Insurance Company ("Zenith"), a wholly owned subsidiary of Zenith National Insurance Corp., the Company and its subsidiaries sold substantially all their operating assets to Zenith. The transaction was completed on April 1, 1998. In accordance with the Asset Purchase Agreement, on April 2, 1998, Zenith transferred $25.0 million to RISCORP and an additional $10.0 million into an interest bearing escrow account as payment of the initial and minimum purchase price. The final purchase price will be the excess, if any, of the book value of the transferred assets over the transferred liabilities assumed by Zenith at closing. On June 8, 1998, the Company's representative delivered to Zenith a closing date balance sheet (the "Closing Balance Sheet") representing the audited statement of transferred assets and transferred liabilities. The Closing Balance Sheet indicated a final purchase price of approximately $141 million. The Closing Balance Sheet is subject to review by Zenith, and the determination of the final purchase price is subject to a dispute resolution process. Accordingly, the ultimate final purchase price has not yet been determined, and may differ materially from the amount indicated by the Closing Balance Sheet. The final purchase price, less the $35 million paid at closing, will be payable in cash. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (b) Pro Forma Financial Information The pro forma financial information required by this Item 7(b) is incorporated herein by reference to Exhibit 99 hereto. (c) Exhibits 2.1 Asset Purchase Agreement, dated June 17, 1997, among Zenith Insurance Company and RISCORP, Inc., RISCORP Management Services, Inc., RISCORP of Illinois, Inc., Independent Association Administrators Incorporated, RISCORP Insurance Services, Inc., RISCORP Management Care Services, Inc., CompSource, Inc., RISCORP Real Estate Holdings, Inc., RISCORP Insurance Company, RISCORP West, Inc., RISCORP of Florida, Inc., RISCORP Insurance Company, RISCORP Services, Inc., RISCORP Staffing Solutions Holding, Inc., RISCORP Staffing Solutions, Inc. I, and RISCORP Staffing Solutions, Inc. II (incorporated by reference to the Company's Proxy Statement dated March 3, 1998). 99 Pro Forma Financial Information SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. RISCORP, INC. By: /s/ Walter E. Riehemann Walter E. Riehemann Secretary and Treasurer Dated: June 15, 1998 EXHIBIT INDEX Number Description 2.1 Asset Purchase Agreement, dated June 17, 1997, among Zenith Insurance Company and RISCORP, Inc., RISCORP Management Services, Inc., RISCORP of Illinois, Inc., Independent Association Administrators Incorporated, RISCORP Insurance Services, Inc., RISCORP Management Care Services, Inc., CompSource, Inc., RISCORP Real Estate Holdings, Inc., RISCORP Insurance Company, RISCORP West, Inc., RISCORP of Florida, Inc., RISCORP Insurance Company, RISCORP Services, Inc., RISCORP Staffing Solutions Holding, Inc., RISCORP Staffing Solutions, Inc. I, and RISCORP Staffing Solutions, Inc. II. (incorporated by reference to the Company's Proxy Statement dated March 3, 1998). 99 Pro Forma Financial Information EX-99 2 PRO FORMA FINANCIAL STATEMENTS UNAUDITED PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma balance sheet estimates the pro forma effect of the sale to Zenith as if the sale and the transactions contemplated in the Asset Purchase Agreement had been consummated on March 31, 1998. The following unaudited pro forma income statements estimate the pro forma income statements based on the pro forma effects of the sale as if such sale had occurred on January 1, 1997. The pro forma adjustments are described in the following notes and are based upon available information and certain assumptions that the Company believes are reasonable. The pro forma data may not be indicative of the results of operations and financial position of the Company, as it may be in the future or as it might have been had the transaction been consummated on the respective dates assumed. The information should be read in conjunction with the Company's historical financial statements and accompanying notes previously filed in RISCORP's Form 10-K for the year ended December 31, 1997, the Proxy Statement dated March 3, 1998 and the Form 10-Q/A for the three months ended March 31, 1998. The proposed purchase price of the Company reflected in the pro forma financial information is the excess of the Transferred Assets over the Transferred Liabilities (as such terms are defined in the Asset Purchase Agreement) of the Company on the Closing Date as determined by the audited Proposed Business Balance Sheet of the Company prepared in conformity with generally accepted accounting principles which have been consistently applied. The actual purchase price of the net assets of the Company and its subsidiaries acquired by Zenith will be based on the Final Business Balance Sheet, as determined in accordance with the terms of the Asset Purchase Agreement, subject to the minimum purchase price of $35.0 million. The final purchase price is subject to review by Zenith and a dispute resolution process; therefore, the final purchase price cannot be determined at this time and may differ materially from the purchase price reflected in the pro forma consolidated balance sheet presented below. RISCORP, INC. AND SUBSIDIARIES Pro Forma Consolidated Balance Sheet March 31, 1998 (Unaudited)
Pro Forma Adjustments for Pro Forma Historical Assets Balances to March 31, 1998 and Liabilities be Retained ASSETS to be Sold by RISCORP ---------------- ----------------- ----------------- Investments: Fixed maturities, available for sale $ 117,589,939 $ 115,535,609 $ 2,054,330 Fixed maturities, available for sale - restricted total 59,843,713 59,843,713 - Fixed maturities, held to maturity 23,750,829 14,437,092 9,313,737 ----------- ------------ ---------- Total investments 201,184,481 189,816,414 11,368,067 ----------- ------------ ---------- Cash and cash equivalents 15,167,683 15,167,683 - Cash and cash equivalents - restricted 14,385,010 14,141,010 244,000 Premiums receivable, net 83,556,333 83,556,333 - Recoverable from Florida Special Disability Trust Fund 44,552,000 44,552,000 - Reinsurance recoverables 213,667,000 213,667,000 - Prepaid reinsurance premiums 21,680,084 21,680,084 - Prepaid managed care fees 6,182,364 6,182,364 - Asset purchase receivable from Zenith - - 141,054,795 Accounts receivable - other 19,278,386 10,603,762 8,674,624 Accrued reinsurance commissions 38,669,647 38,669,647 - Deferred income taxes 22,361,155 - 22,361,155 Property and equipment, net 25,545,984 25,221,907 324,077 Goodwill 14,068,754 14,068,754 - Other assets 6,738,182 2,134,412 4,603,770 -------------- -------------- -------------- TOTAL ASSETS $ 727,037,063 $ 679,461,370 $ 188,630,488 ============== ============== ============== See accompanying notes.
RISCORP, INC. AND SUBSIDIARIES Pro Forma Consolidated Balance Sheet March 31, 1998 (Unaudited)
Pro Forma Adjustments for Pro Forma Historical Assets Balances to LIABILITIES AND March 31, 1998 and Liabilities be Retained SHAREHOLDERS' EQUITY to be Sold by RISCORP ---------------- ----------------- ----------------- Liabilities: Losses and loss adjustment expenses $ 461,656,421 $ 461,656,421 $ - Unearned premiums 43,177,363 43,177,363 - Notes payable of parent company 15,527,203 15,197,019 330,184 Deposit balances payable 3,913,334 3,913,334 - Net assets in excess of cost of businesses acquired 5,543,563 5,543,563 - Accrued expenses and other liabilities 42,409,097 8,918,875 33,490,222 --------------- --------------- -------------- Total liabilities 572,226,981 538,406,575 33,820,406 -------------- ------------- -------------- Shareholders' equity: Common stock 128,184 - 128,184 Preferred stock 243,344 - 243,344 Additional paid-in capital 136,608,722 - 136,608,722 Net unrealized gains on investments 1,957,603 - 1,957,603 Retained earnings 15,873,355 - 15,873,355 Treasury stock (1,126) - (1,126) ------ ------------- ----------- Total shareholders' equity 154,810,082 - 154,810,082 TOTAL LIABLITIES AND SHAREHOLDERS' EQUITY $ 727,037,063 $ 538,406,575 $ 188,630,488 ============= ============= ============= See accompanying notes.
RISCORP, INC. AND SUBSIDIARIES ProForma Consolidated Statement of Operations For the three months ended March 31, 1998 (Unaudited) Pro Forma Historical Adjustments for Pro Forma After March 31, Proposed Sale to Proposed Sale to 1998 Zenith Zenith ---------------- ----------------- ----------------- Revenue: Premiums earned $ 25,818,960 $ 25,818,960 $ - Fee and other income 5,723,333 5,723,333 - Net investment income 4,766,657 4,595,117 171,540 -------------- -------------- -------------- Total revenue 36,308,950 36,137,410 171,540 ------------- ------------- -------------- Expenses: Losses and loss adjustment expenses 24,344,997 24,344,997 - Unallocated loss adjustment expenses 2,231,893 2,231,893 - Commissions, underwriting and administrative expenses 15,515,266 13,725,266 1,790,000 Interest 468,561 468,561 - Depreciation and amortization 3,069,595 3,069,595 - -------------- -------------- -------------- Total expenses 45,630,312 43,840,312 1,790,000 ------------- ------------- -------------- Income (loss) before income taxes (9,321,362) (7,702,902) (1,618,460) Income taxes - - - Net income $ (9,321,362) $ (7,702,902) $ (1,618,460) ============= ============ ============ Net income per common share $ (0.25) $ (0.04) ===== Weighted average common and common share equivalents outstanding 36,868,114 36,868,114 ============= ============ See accompanying notes.
RISCORP, INC. AND SUBSIDIARIES Pro Forma Consolidated Statement of Operations For the year ended December 31, 1997
Pro Forma Pro Forma After Historical Adjustments for Proposed Sale to 1997 Sale to Zenith Zenith (Unaudited) (Unaudited) Revenue: Premiums earned $ 179,728,868 $ 179,728,868 $ - Fee and other income 20,369,557 20,369,557 - Net investment income 17,992,982 17,306,822 686,160 --------------- --------------- --------------- Total revenue 218,091,407 217,405,247 686,160 -------------- -------------- --------------- Expenses: Losses and loss adjustment expenses 104,051,528 104,051,528 - Unallocated loss adjustment expenses 19,311,302 19,311,302 - Commissions, underwriting and administrative expenses 70,801,253 51,421,253 19,380,000 Interest 1,918,563 1,918,563 - Depreciation and amortization 7,422,515 7,422,515 - -------------- -------------- ------------- Total expenses 203,505,161 184,125,161 19,380,000 -------------- -------------- ------------- Income (loss) before income taxes 14,586,246 33,280,086 (18,693,840) Income taxes 7,300,000 16,646,920 (9,346,920) ------- --------------- ------------- Net income $ 7,286,246 $ 16,633,166 $ (9,346,920) =============== ============== ============ Net income per common share $ 0.20 $ (0.25) ==== ===== Weighted average common and common share equivalents outstanding 37,115,672 37,115,672 ============== ============ See accompanying notes.
1. Pro Forma Balance Sheet Adjustments for Sale The pro forma balance sheet reflects a receivable from Zenith at March 31, 1998 for the net receivable from the asset sale in the amount of $141,054,795 based on the amounts contained on the audited Proposed Business Balance Sheet. These proceeds from the sale will be allocated among the Company and those subsidiaries also selling assets in connection with the sale transaction. The proceeds from the sale are expected to be received by RISCORP as follows: $25.0 million was paid to the Company on the Closing Date, April 1, 1998. $10.0 million was placed, on the Closing Date, in an interest bearing escrow account. Not later than 135 days after the Closing Date (August 13, 1998), Zenith is required to pay in cash the remaining purchase price to RISCORP, plus interest thereon of 6.13 percent from the Closing Date through the final payment date, less the additional amount required to be deposited into escrow. This final payment will be based on the Final Business Balance Sheet and is subject to review by Zenith and a dispute resolution process. The final purchase price cannot be determined at this time and may differ materially from the purchase price reflected in the pro forma consolidated balance sheet presented above. The additional amount to be escrowed from the remaining purchase price will be that amount necessary to increase the escrow balance to an amount equal to 15 percent of the purchase price as determined by the Final Business Balance Sheet. The amount of cash that is estimated to be held in escrow (excluding interest) is $21.2 million based on the audited Proposed Business Balance Sheet. The escrowed funds will be invested in United States government debt obligations or in money market funds secured by such debt obligations. Interest income on the escrowed funds will be paid to the Company at the end of each calendar quarter. The escrowed funds will be disbursed pursuant to the terms of the Escrow Agreement and are expected to be paid to the Company twenty-four (24) months from the Closing Date. The Company will transfer all of its assets and liabilities from its insurance operations and will retain certain assets and liabilities as follows: $141.1 million in receivable from Zenith from the sale. Security investments adequate to meet the minimum capital and surplus requirements of the insurance subsidiaries totaling approximately $11.4 million. $22.4 million of deferred tax assets that are currently expected to be primarily recovered from the reversal of certain timing differences that will occur as a result of the sale to Zenith. The conversion of this deferred tax asset to cash is projected to occur within 18 months after the date of the sale. $8.7 million of insurance recoveries relating to certain litigation settlements and other miscellaneous recoverables. $5.1 million of prepaid items, fixed assets and restricted cash. $12.3 million of employee related accruals, certain restructuring accruals, accrued expenses for one time charges incurred in connection with the sale, post closing expenses, notes payable and taxes payable. $21.5 million of accrued litigation settlements. 1. Pro Forma Adjustment for the Statements of Operations The pro forma income statements reflect adjustments as if the sale had occurred on January 1, 1997. After the sale is consummated, the Company will no longer have any insurance operations or other operating entities. All activities will be focused on concluding the business of the Company, the sale of the insurance subsidiaries, the defense of lawsuits filed against the Company and the eventual liquidation of the assets to the shareholders. The Company is required to establish an escrow account in an amount equal to 15% of the cash proceeds of the sale. These funds will be invested in United States government debt obligations or in money market funds secured by such debt obligations with a duration of up to two years from the Closing Date, in accordance with the terms of the Escrow Agreement. The Company projects it will realize a yield of 5.0% on the amounts placed in the escrow account. The remaining 85% of the proceeds from the sale will be invested in U.S. Treasury securities similar to those in the escrow account. The Company projects it will realize a yield of 5.5% on the other invested balances beginning 135 days after the Closing Date (see Note 1 above). Post closing, the Company will liquidate its investment portfolio to the extent that operating and other costs exceed the investment income generated by the invested assets. The pro forma income statements reflect projected interest income on the retained security investments noted in Note 1. The Company expects that its statutory tax rates for the periods covered by these pro forma statements will be zero due to tax benefits that will be realized by the Company due to the sale transaction. 2. One Time Charges Incurred in Connection with the Asset Sale The Company's estimate (in thousands) of certain one time charges resulting from the sale are described below. These charges will be incurred at the closing. Fees to Smith Barney.......................... $1,500 Fees to Alex Brown............................ 900 Stock incentive............................... 2,973 Change in control payments to Mr. Dawson...... 1,096 Personnel costs relating to change in control. 2,435 Change in unrealized capital gains............ (1,958) Legal fees...................................... 475 Accounting, auditing and actuarial fees....... 1,975 ------- $9,396 3. Post Closing Expenses The Company anticipates that the post closing expenses will be primarily related to the ongoing administration of the three insurance subsidiaries, the parent company and expenses to conclude the business of the Company as discussed in Note 2. The Company will have continued obligations in connection with the payment of certain June 1997 restructuring costs through the post closing year, in addition to the costs associated with the settlement of the various legal proceedings. The estimated components of the post closing expenses are:
3 Months 12 Months Ended Ended 3-31-98 12-31-97 ------------- ----------- (1) Legal......................................$ 250,000 $ 933,000 (2) Finance, accounting & regulatory reporting. 300,000 1,200,000 (3) Audit & actuarial.......................... 110,000 435,000 (4) Salary & benefits.......................... 350,000 291,000 (5) General and administrative................. 750,000 2,929,000 (6) Computer equipment & maintenance........... 30,000 117,000 (7) Litigation settlements - net - 13,475,000 ----------- ----------- $ 1,790,000 $19,380,000 =========== ===========
The pro forma income statement for the year ended December 31, 1997 reflects estimated litigation settlements of $23.475 million and estimated insurance recoveries of $10.0 million resulting in a net cost of $13.475 million. The settlements are more fully described in the Company's Form 10-K filed on March 27, 1998. The Company has contracted with finance, accounting, legal, tax, audit and actuarial professionals for their services to fulfill most of the post closing functions. Audit and actuarial costs include cost estimates from the Company's independent accountants and actuaries for the completion of the audit and loss reserve certification of the Proposed Business Balance Sheet. As part of the closing, Zenith entered into an assumption and indemnity reinsurance agreement with each of the Company's three insurance subsidiaries. This form of reinsurance will not require the Company to have any involvement in the insurance operations that were sold. -----END PRIVACY-ENHANCED MESSAGE-----