-----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, BVwRHbaEHKYM54d7JHrE0rxSPqRinuWoz/3OgNJt2VjfZGe3A4ztq7fPk3iCkKb0 ur6TOPBexI12RUfzV6Bfaw== 0000950152-02-002100.txt : 20020415 0000950152-02-002100.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950152-02-002100 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANCINSURANCE CORP CENTRAL INDEX KEY: 0000276400 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 310790882 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-08738 FILM NUMBER: 02581521 BUSINESS ADDRESS: STREET 1: 20 E BROAD ST STREET 2: 4TH FLOOR CITY: COLUMBUS STATE: OH ZIP: 43215 BUSINESS PHONE: 6142282800 MAIL ADDRESS: STREET 1: 20 E. BROAD STREET STREET 2: 4TH FLOOR CITY: COLUMBUS STATE: OH ZIP: 43215 10-K405 1 l92627ae10-k405.txt BANCINSURANCE CORPORATION 10-K405/12-31-01 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2001 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 0-8738 ----------------------------------------------------- BANCINSURANCE CORPORATION - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 31-0790882 - -------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 250 East Broad Street, Columbus, Ohio 43215 - ---------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) (614) 228-2800 - ------------------------------------------------------------------------------- (Registrant's telephone number including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange ------------------- On Which Registered --------------------- NONE NONE - --------------------------- ------------------------------- Securities registered pursuant to Section 12(g) of the Act: COMMON SHARES, WITHOUT PAR VALUE - -------------------------------------------------------------------------------- (Title of Class) 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 twelve 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 the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of Common Shares held by non-affiliates of the registrant as of February 8, 2002 was $10,473,256. The number of shares outstanding of the registrant's Common Shares as of February 8, 2002 was 5,770,185. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Annual Report to Shareholders for the fiscal year ended December 31, 2001 are incorporated by reference into Part II of this report. Portions of the Proxy Statement to be filed in connection with the solicitation of proxies for the Annual Meeting of Shareholders to be held on June 3, 2002 are incorporated by reference into Part III of this report. BANCINSURANCE CORPORATION AND SUBSIDIARIES 2001 FORM 10-K TABLE OF CONTENTS
Page PART I Item 1. Business................................................................... 3 Item 2. Properties................................................................. 7 Item 3. Legal Proceedings.......................................................... 7 Item 4. Submission of Matters to a Vote of Security Holders........................ 7 PART II Item 5. Market for the Company's Common Shares and Related Security Holder Matters................................................ 7 Item 6. Selected Financial Data.................................................... 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 7 Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................................................... 7 Item 8. Consolidated Financial Statements and Supplementary Data................... 8 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 8 PART III Item 10. Directors and Executive Officers of the Company............................ 8 Item 11. Executive Compensation..................................................... 8 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................................. 8 Item 13. Certain Relationships and Related Transactions............................. 8 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................................................... 8
PART I Item 1. BUSINESS GENERAL Bancinsurance Corporation is an Ohio insurance holding company primarily engaged in the underwriting of specialized insurance products and related services through its wholly-owned subsidiary, Ohio Indemnity Company. Ohio Indemnity is licensed to transact business in 47 states and the District of Columbia and on a surplus lines basis in Texas. A wholly-owned subsidiary, Paul Boardway and Associates, Inc., a New York corporation which was acquired in August 1999, is a property/casualty insurance agency serving lending institutions. A wholly-owned subsidiary, American Legal Publishing Corporation, an Ohio corporation which was acquired in February 2000 offers a wide range of publishing services for state and local governments. Segment reporting is included in the notes to the Consolidated Financial Statements in the Company's 2001 Annual Report. PRODUCTS The majority of the Company's net premiums written and premiums earned are derived from two distinct lines of specialized insurance products and related services: Lender/Dealer Products. Ultimate Loss Insurance, a form of physical damage single interest collateral protection insurance, is sold to lending institutions, such as banks, savings and loan associations, credit unions, automobile dealers and finance companies. Ultimate Loss Insurance insures against damage to pledged collateral in cases where the collateral is not otherwise insured. The standard policy covers physical damage to the collateral, not to exceed the lesser of the collateral's fair market value or the outstanding loan balance. This blanket single interest collateral protection policy is generally written to cover the lending institution's complete portfolio of collateralized personal property loans, which consist primarily of automobile loans. Certain Ultimate Loss Insurance policies are eligible for experience rated and return premium refunds based on comparisons between actual and expected losses. The Company offers supplemental coverages, at additional premium cost, for losses resulting from unintentional errors in lien filings and conversion, confiscation and skip risks. Conversion risk coverage protects the lender from unauthorized and wrongful taking of the lender's collateral. Skip risk coverage protects the lender when a delinquent debtor disappears with the loan collateral. Since its inception in 1956, the Company has gradually expanded the coverage of the Ultimate Loss Insurance product to include lenders such as banks, savings and loans, credit unions and finance companies. During 2001, the Company provided Ultimate Loss Insurance coverage to approximately 480 lending institutions. The premiums charged for Ultimate Loss Insurance reflect claims experience, loan volumes and general market conditions. Guaranteed Auto Protection ("GAP") insures the difference between the outstanding balance of a loan or lease and the actual cash value of a vehicle that is involved in a total loss. Such a loss can result from a collision or theft. GAP amounts exist resulting from the way loans and leases amortize compared to depreciation patterns of vehicles. Leasing, low or no down payment loans, long term loans (60-84 months) and trade-ins contribute to GAP amounts. GAP insurance policies insure lenders, lessors or auto dealers, who waive GAP amounts and elect to purchase insurance to cover the risk assumed by making the waiver. There are two primary forms of GAP insurance products. First, voluntary GAP programs are sold to lenders, lessors and auto dealers. This coverage is in turn sold directly to the borrower when a vehicle is purchased or leased. Second, Blanket GAP policies are sold to lessors, in blanket form, who typically waive GAP amounts on all of their leases. Auto dealers frequently sell GAP waivers. This is a result of their dual role as selling agent for the vehicle and lender through their Finance and Insurance Department. As a result, the auto dealers can offer to waive GAP amounts if the vehicle is determined to be a total loss. The Company's GAP Coverage product is filed and approved in 45 states. Unemployment Insurance Protection and Related Products. Unemployment compensation is a federally mandated, state administered employee benefit product. Ohio Indemnity currently offers three types of products to meet the unemployment compensation requirements of non-profit organizations and public sector employers. These include Bonded Service, Excess of Loss and Mandated Bonds. The Company began providing the Bonded Service product in 1989. Bonded Service is a fully indemnified product with first dollar coverage. It is often a less costly alternative to the State Unemployment Insurance Tax System and is rated based on the employer's own experience. The provision of technical support and specific recommendations for the customer's 3 deductibles and retention rates are key elements of the Bonded Service product. Each customer's unemployment liability is managed by a third party, which the Company, in turn, is bonded. The Company began providing Excess of Loss products in 1992 to protect trusts consisting of groups of smaller, not-for-profit entities. The Excess of Loss products offer employers the opportunity to benefit from obtaining reimbursing status to meet their unemployment obligations, while protecting their assets against higher than anticipated claims. Individual Excess of Loss is an individually underwritten policy that includes an attachment point specific to each employer's experience and is normally reserved for larger non-for-profit entities. Smaller employers may join a trust along with other non-profit employers. Ohio Indemnity also underwrites State Mandated Bonds required by certain state departments of labor. This coverage is normally written as a companion to the Company's other unemployment protection products and may be necessary for an employer to obtain reimbursing status. The Company's obligations under such bonds may not, in every case, cease upon termination of an employer's participation in the program. The financial statements include reserves for losses on such programs for benefits paid. The Company's reserves for these losses were $425,500 at December 31, 2001. American Legal Publishing Corporation. In February 2000, the Company acquired the shares of American Legal Publishing Corporation ("ALPC"). ALPC publishes, supplements, and distributes codes of ordinances for municipalities throughout the United States. ALPC provides information management services to more than 1,300 municipalities and counties nationwide in addition to state governments. These information management services include electronic publishing, document imaging and internet hosting services. ALPC also provides codification services, including: a review of municipal ordinances, at the client's request, to determine if there are potential conflicts between state and federal laws, state and federal constitutions, and state and federal court decisions; a review of specific ordinances of the client to make certain that they do not conflict with other ordinances or its charter, if one exists; and preparation of recommendations for clients concerning changes, additions or deletions to their ordinances. Certain states require municipalities and/or counties to have a code of ordinances. ALPC has developed and markets a "Basic Code of Ordinances" for smaller municipalities. The "Basic Code of Ordinances" enables municipalities and counties to fulfill their state legal mandate and also realize economic benefits from having a code of ordinances. Paul Boardway and Associates, Inc. In August 1999, the Company acquired the shares of Paul Boardway and Associates, Inc., a property/casualty insurance agency serving lending institutions throughout the northeast United States. Paul Boardway offers blanket single interest, mortgage impairment, gap waiver for auto, forced placed homeowners and flood determination insurance products. The agency provides the Company with a direct link to its customer base as well as the ability to cross-sell additional insurance products and services not offered by Ohio Indemnity. During 2001, Paul Boardway generated commission fees of $407,559, which includes intersegment commissions of $340,494. COMPETITION The insurance business is highly competitive. There are approximately 3,262 property/casualty insurance companies in the United States. The majority of such property/casualty insurers are not engaged in the specialty lines of insurance which the Company underwrites. Some of its competitors offer more diversified insurance coverage and have greater financial resources than the Company. Competitors may offer lower premiums, specialized products, more complete and complex product lines, greater pricing flexibility, different marketing techniques or better agent compensation. Management believes that one of its competitive advantages is specializing in limited insurance lines. This specialization allows the Company to refine its underwriting and claims techniques, which in turn, provides agents and insureds with superior service. Insurers who have designed coverages for reimbursing employers with loss limitation features similar in concept to the Bonded Service program provide indirect competition for its Bonded Service program. The Company believes that the Bonded Service program has cost savings and other features which enable the program to compete effectively against providers of loss limitation coverages. The cost containment service firm, on whom the Company relies for growth in bond fees, competes with other cost containment service firms for service contracts with not-for-profit organizations, some of which may require loss limitation coverages. Approximately 20 companies are engaged in the codification of local government ordinances. Five companies operate on either a national or regional basis, with the remainder serving clients only within a relatively small geographic area. ALPC currently represents approximately 1,300 local governmental units in 33 states. 4 There can be no assurance that the Company will not face additional competition in its markets from new or existing competitors. REINSURANCE In the ordinary course of business, the Company assumes and cedes reinsurance with other insurers and reinsurers. Such arrangements serve to enhance the Company's capacity to write business, provide greater diversification and limit the Company's maximum loss arising from large risks. Ceded reinsurance is effected by negotiation on individual risks. Although reinsurance does not discharge the original insurer from its primary liability to its policyholders, it is the practice of insurers for accounting purposes to treat reinsured risks as risks of the reinsurer. The primary insurer would only reassume liability in those situations where the reinsurer is unable to meet the obligations it assumed under the reinsurance agreements. The ability to collect reinsurance is subject to the solvency of the reinsurers. The Company's ceded reinsurance transactions are attributable to two Lender/Dealer policies and a mortgage protection product. The Company assumed a quota share participation in the gross liability of an insurer covering bail bond business. Premiums for reinsurance ceded by Ohio Indemnity in 2001 were 2.5% of written premiums. Ceded reinsurance decreased commission expense by $160,839 in 2001. REGULATION Insurance Company Regulation Ohio Indemnity, as an Ohio property/casualty insurance company, is subject to the regulatory supervision of the Ohio Department of Insurance. In addition, Ohio Indemnity is subject to regulation in each jurisdiction in which it is licensed to write insurance. In general, such regulation is designed to protect the interests of insurance policyholders. Such regulation relates to, among other matters: licensing of insurers and their agents; authorized lines of business; capital and surplus requirements and general standards of solvency; financial reports; reserve requirements; underwriting limitations; investment criteria; transactions with affiliates; dividend limitations; changes in control and a variety of other financial and nonfinancial matters. The principal source of cash is dividends from Ohio Indemnity. The Company is subject to the Ohio Insurance Holding Company System Regulatory Act, as amended, which requires that a 10-day notice of the proposed payment of any dividends or other distributions by Ohio Indemnity be given to the Ohio Superintendent of Insurance. If such dividends or distributions, together with any other dividends or distributions made within the preceding twelve months, exceed the greater of: (1) 10% of Ohio Indemnity's statutory surplus as of the immediately preceding December 31st, or (2) the net income of Ohio Indemnity for the immediately preceding calendar year, a 30-day notice of the proposed dividend or distribution is required to be given to the Superintendent. The Superintendent may disapprove the dividend or distribution within the 10-day period following receipt of such notice. Most states have insurance laws requiring that rate schedules and other information be filed with the state's regulatory authority, either directly or through a rating organization with which the insurer is affiliated. The regulatory authority may disapprove of a rate filing if it finds that the rates are inadequate, excessive or unfairly discriminatory. Rates vary by class of business, hazard assumed and size of risk, and are not necessarily uniform for all insurers. Many states have recently adopted laws which limit the ability of insurance companies to increase rates. To date, such limitations have had a limited impact on the Company, and the Company has no knowledge of any such limitations that may affect its future results of operations. However, there can be no assurance that such limitations will not adversely affect the Company's results of operations in the future. All insurance companies must file annual statements in states where they are authorized to do business and are subject to regular and special examinations by the regulatory agencies of those states. On June 20, 1997, the Ohio Department of Insurance issued its triennial examination report on Ohio Indemnity for the three-year period ended December 31, 1996. The examiners reported that the financial statements set forth in the report reflected the financial condition of Ohio Indemnity. Management is not aware of any recommendations by regulatory authorities which, if implemented, would have a material effect on the Company's liquidity, capital resources or results of operations. The next review will be conducted by the Ohio Superintendent of Insurance in 2002 for the five-year period ending December 31, 2001. 5 Numerous states require deposits of assets by insurance companies to protect policyholders. Such deposits must consist of securities which comply with standards established by the particular state's insurance department. As of December 31, 2001, the Company has securities with a fair value of approximately $4,351,603 with eleven state insurance departments. The deposits, typically required by a state's insurance department on admission to do insurance business in such state, may be increased periodically as mandated by applicable statutory or regulatory requirements. Insurance Holding Company System Regulation Bancinsurance Corporation is subject to the Ohio Insurance Holding Company System Regulatory Act, as amended, which governs any direct or indirect change in control and some affiliated-party transactions. No person may acquire, directly or indirectly, 10% or more of the outstanding voting securities of Ohio Indemnity, unless the Ohio Superintendent of Insurance has approved such acquisition. The determination of whether to approve any such acquisition is based on a variety of factors, including an evaluation of the acquirer's financial condition, the competence of its management and whether competition in Ohio would be reduced. In addition, certain material transactions involving Bancinsurance and Ohio Indemnity must be disclosed to the Ohio Superintendent of Insurance not less than 30 days prior to the effective date of the transaction. Such transaction can be disapproved by the Superintendent within such 30-day period if it does not meet the required standards. Transactions requiring approval by the Superintendent include sales, purchases or exchanges of assets; loans and extensions of credit; and investments not in compliance with statutory guidelines. Ohio Indemnity is also required to file periodic and updated statements reflecting the current status of its holding company system, the existence of any related-party transactions and certain financial information relating to any person who directly or indirectly controls (presumed to exist with 10% voting control) Ohio Indemnity. Bancinsurance Corporation believes that it is in compliance with the Ohio Insurance Holding Company System Regulatory Act and the related regulations. The National Association of Insurance Commissioners ("NAIC") All states have adopted the financial reporting form of NAIC, which is typically referred to as the NAIC "annual statement." In addition, most states, including Ohio, generally defer to NAIC with respect to statutory accounting practices and procedures. In this regard, NAIC has a substantial degree of practical influence and is able to accomplish quasi-legislative initiatives through amendments to the NAIC annual statement and applicable statutory accounting practices and procedures. The NAIC revised the Accounting Practices and Procedures Manual in a process referred to as Codification. The revised Accounting Practices and Procedures Manual became effective January 1, 2001. Ohio adopted the provisions of the revised manual, which has changed, to some extent, prescribed statutory accounting practices and will result in changes to the accounting practices that Ohio Indemnity uses to prepare its statutory-basis financial statements. The impact of these changes to Ohio Indemnity's statutory-basis capital and surplus as of January 1, 2001 were not material. The NAIC also adopted a Risk Based Capital test applicable to property/casualty insurers. Ohio also adopted the Risk Based Capital test. The Risk Based Capital test serves as a benchmark of an insurance enterprise's solvency by establishing statutory surplus targets which will require certain Bancinsurance level or regulatory level actions. Based on the Company's analysis, Bancinsurance believes that its total adjusted capital is in excess of all required action levels and that no corrective action will be necessary. PENDING LEGISLATION The insurance industry is under continuous review by state and federal legislatures and regulatory industries. From time to time various legislative and regulatory changes have been proposed in the insurance industry which could effect insurers and reinsurers. Among the proposals that have in the past been, or are at present being, considered are the possible introduction of federal regulation in addition to, or in lieu of, the current system of state regulation of insurers, and other possible restrictions on insurance transactions with unlicensed insurers. The Company is unable to predict whether any of these proposals will be adopted, the form in which any of these proposals would be adopted or the impact, if any, adoption would have on the Company. EMPLOYEES As of February 8, 2002, the Company employed 58 full-time employees and one part-time employee. None of the Company's employees are represented by a collective bargaining agreement, and are not aware of any efforts to unionize its employees. 6 SERVICE MARKS The Company has developed common law rights in its service mark, "ULTIMATE LOSS INSURANCE," which is registered in Ohio. The Company has developed common law rights for, "BI BANCINSURANCE CORPORATION" (stylized letters) in each state in which Bancinsurance has been operating. Item 2. PROPERTIES As of February 8, 2002, the Company leases a total of approximately 17,426 square feet of office space in two locations. The Company leases 11,868 square feet in Columbus, Ohio for our headquarters pursuant to a lease that commended on January 1, 2001 and expires on December 31, 2008. The lease provides for monthly rent of $13,230. American Legal Publishing leases 5,558 square feet in Cincinnati, Ohio pursuant to a lease that expires July 31, 2003. The lease provides for monthly rent of $5,442, net of reimbursements payable to the lessor for cost of maintenance and operation of the building. Item 3. LEGAL PROCEEDINGS There are no material legal proceedings instituted, pending or, to the best of the Company's knowledge, threatened against Bancinsurance, its subsidiaries or against any of its assets, interests or rights, or against any officer, director or employee of any of them that in any such case, if decided adversely, could reasonably be expected to have, individually or in the aggregate, a material adverse effect. Neither Bancinsurance nor any of its subsidiaries is a party to any order, judgment or decree which has had or could reasonably be expected to have a material adverse effect on us. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2001. PART II Item 5. MARKET FOR THE COMPANY'S COMMON SHARES AND RELATED SECURITY HOLDERS MATTERS The information required by this item is included under the caption "Market Information," "Holders" and "Dividends" in the Company's 2001 Annual Report and is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA The information required by this item is included under the caption "Selected Financial Data" in the Company's 2001 Annual Report and is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is included under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2001 Annual Report and is incorporated herein by reference. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is included under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2001 Annual Report and is incorporated herein by reference. 7 Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated balance sheets as of December 31, 2001 and 2000, and the consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years ended December 31, 2001, 2000 and 1999 and the notes to the financial statements, together with the independent auditors' report thereon appear in the Company's 2001 Annual Report and are incorporated herein by reference. The Company's Financial Statement Schedules and the Independent Auditor's Consent and Report on the Financial Statement Schedules are included in response to Item 14 hereof. Item 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with accountants during each of the two fiscal years ended December 31, 2001 and 2000. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The information required by this item is included under the captions "Election of Directors," "Executive Officers of the Corporation" in the Company's Proxy Statement relating to the 2002 Annual Meeting of Shareholders and is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION The information required by this item is included under the captions "Compensation of Directors" and "Executive Compensation" in the 2002 Proxy Statement relating to the 2002 Annual Meeting of Shareholders and is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is included under the caption "Ownership of Voting Shares" in the 2002 Proxy Statement relating to the 2002 Annual Meeting of Shareholders and is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is included under the caption "Certain Relationships and Related Transactions" in the 2002 Proxy Statement relating to the 2002 Annual Meeting of Shareholders and is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) The following financial statements appearing in the Company's Annual Report are incorporated herein by reference: Consolidated Balance Sheets as of December 31, 2001 and 2000 Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999 Consolidated Statements of Comprehensive Income for the years ended December 31, 2001, 2000 and 1999 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 Notes to the Consolidated Financial Statements Report of Independent Auditors 8 (2) FINANCIAL STATEMENT SCHEDULES The following financial statement schedules are included in Part IV of this report: Schedule I -- Summary of investments - other than investments in related parties Schedule II -- Condensed financial information of Bancinsurance Corporation (Parent Company Only) Independent Auditors' Consent - Ernst & Young LLP (filed as Exhibit 23(a)). Independent Accountants Consent and Report on Schedules - PricewaterhouseCoopers LLP (filed as Exhibit 23(b)). Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the consolidated financial statements or notes thereto. (3) EXHIBITS The following exhibits required by item 601 of Regulation S-K are filed as part of this report. For convenience of reference, the exhibits are listed according to the numbers appearing in the Exhibit Table to Item 601 of Regulation S-K. 3(a) Amended and Restated Articles of Incorporation of Bancinsurance Corporation (reference is made to Exhibit 3(a) of Form 10-K for the fiscal year ended December 31, 1984 (file number 0-8738), which is incorporated herein by reference). 3(b)* Certificate of Amendment to the Amended and Restated Articles of Incorporation of Bancinsurance Corporation dated March 10, 1993. 3(c)* Amended and Restated Articles of Incorporation of Bancinsurance Corporation (reflecting amendments through March 10, 1993)(for SEC reporting purposes only). 3(d) Amended and Restated Code of Regulations of Bancinsurance Corporation (reference is made to Exhibit 3(b) of Form 10-K for the fiscal year ended December 31, 1984 (file number 0-8738), which is incorporated herein by reference). 4(a)* Credit Agreement dated January 25, 1993 by and between Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio. 4(b)* First Amendment to Credit Agreement dated November 5, 1993 by and between Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio. 4(c)* Second Amendment to Credit Agreement dated October 19, 1994 by and between Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio. 4(d)* Third Amendment to Credit Agreement dated November 24, 1999 by and between Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio. 4(e)* Fourth Amendment to Credit Agreement dated December 11, 2000 by and between Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio. 10(a) Amended Tax Allocation Agreement by and between Bancinsurance Corporation and Ohio Indemnity Company (reference is made to Exhibit 10(d) of Form 10-K for the fiscal year ended December 31, 1983 (file number 0-8738), which is incorporated herein by reference). 10(c) Amended and Restated Unemployment Compensation Administration Agreement Between Ohio Indemnity Company and The Gibbens Co., Inc. (reference is made to Exhibit 10(e) of Form 10-K/A for the fiscal year ended December 31, 1992 (file number 0-8738), which is incorporated herein by reference). 10(d) Bancinsurance Corporation Employee Profit Sharing Plan (reference is made to Exhibit 10(a) of Form 10-K for the fiscal year ended December 31, 1986 (file number 0-8738), which is incorporated herein by reference). 9 10(e) Bancinsurance Corporation 1984 Stock Option Plan (reference is made to Exhibit 10(d) of Form 10-K for the fiscal year ended December 31, 1984 (file number 0-8738), which is incorporated herein by reference). 10(f) Bancinsurance Corporation 1994 Stock Option Plan (reference is made to Exhibit 10(f) of Form 10-Q for the fiscal quarter ended June 30, 1994 (file number 0-8738), which is incorporated herein by reference). 13(a)* Annual Report to Shareholders for the year ended December 31, 2001 21* Subsidiaries of the Company as of December 31, 2001 23(a)* Consent of Ernst & Young LLP 23(b)* Consent and opinion of PricewaterhouseCoopers LLP - --------------------- * Filed with this Report. (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed by the Company during the quarter ended December 31, 2001. (c) EXHIBITS See Item 14(a)(3). (d) FINANCIAL STATEMENT SCHEDULES See Item 14(a)(2). 10 BANCINSURANCE CORPORATION AND SUBSIDIARIES Schedule I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENT IN RELATED PARTIES
DECEMBER 31, 2001 - --------------------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D -------- -------- -------- -------- Type of Investment Cost (1) Fair Amount at which Value shown in the balance sheet - --------------------------------------------------------------------------------------------------------------------------- Held to maturity: Fixed maturities: Governments $ 2,235,092 $ 2,315,185 $ 2,235,092 States, territories and possessions 1,042,957 1,073,134 1,042,957 Special revenue 1,372,840 1,384,928 1,372,840 Redeemable preferred stocks: Public utilities 96,000 96,000 96,000 ------------ ------------ ------------ Total held to maturity 4,746,889 4,869,247 4,746,889 ------------ ------------ ------------ Available for sale: Fixed maturities: States, territories and possessions 4,493,912 4,583,721 4,583,721 Special revenue 9,457,182 9,438,306 9,438,306 Industrial and miscellaneous 260,328 251,125 251,125 Equity securities: Nonredeemable preferred stocks: Banks, trust and insurance companies 375,004 390,750 390,750 Common stocks: Public utilities 38,750 36,782 36,782 Banks, trust and insurance companies 1,373,176 1,457,938 1,457,938 Industrial and miscellaneous 4,194,844 4,830,102 4,830,102 ------------ ------------ ------------ Total available for sale 20,193,196 20,988,724 20,988,724 ------------ ------------ ------------ Short-term investments 5,476,140 5,476,140 5,476,140 ------------ ------------ ------------ Total investments $ 30,416,225 $ 31,334,111 $ 31,211,753 ============ ============ ============
(1) Original cost of equity securities, adjusted for any permanent write downs, and, as to fixed maturities, original cost reduced by repayments, write downs and adjusted for amortization of premiums or accrual of discounts. 11 BANCINSURANCE CORPORATION AND SUBSIDIARIES Schedule II - CONDENSED FINANCIAL INFORMATION OF BANCINSURANCE CORPORATION (PARENT COMPANY ONLY) CONDENSED BALANCE SHEETS December 31, 2001 and 2000 ASSETS 2001 2000 ----------- ----------- Cash $ 11,698 $ 605,063 Investment in subsidiaries 35,866,577 33,112,646 Other 3,255,350 1,568,610 ----------- ----------- 39,133,625 35,286,319 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Note payable to bank 5,600,000 5,142,000 Other 2,141,716 1,608,960 Shareholders' equity 31,391,909 28,535,359 ----------- ----------- $39,133,625 $35,286,319 =========== =========== 12 BANCINSURANCE CORPORATION AND SUBSIDIARIES Schedule II - CONDENSED FINANCIAL INFORMATION OF BANCINSURANCE CORPORATION (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF INCOME Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999 ------------ ------------ ----------- Dividends from subsidiaries $ 630,000 $ 1,793,000 $ 2,000,000 Other income 70,971 22,546 40,044 General and administrative expenses (874,719) (718,968) (470,821) ----------- ----------- ----------- Net income (loss) before tax benefit and equity in earnings of subsidiaries (173,748) 1,096,578 1,569,223 Income tax benefit 270,023 239,243 169,007 ----------- ----------- ----------- Net income before equity in earnings of subsidiaries 96,275 1,335,821 1,738,230 Equity in undistributed earnings of subsidiaries 2,978,915 2,582,536 2,150,965 ----------- ----------- ----------- Net income $ 3,075,190 $ 3,918,357 $ 3,889,195 =========== =========== ===========
13 BANCINSURANCE CORPORATION AND SUBSIDIARIES Schedule II - CONDENSED FINANCIAL INFORMATION OF BANCINSURANCE CORPORATION (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF CASH FLOWS Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999 ------------ ------------ ------------ Cash flows from operating activities: Net income $ 3,075,190 $ 3,918,357 $ 3,889,195 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Equity in undistributed net earnings of subsidiaries (2,988,511) (3,734,362) (4,284,603) Net realized loss on disposal of furniture and equipment 6,014 -- -- Deferred federal income tax benefit (36,150) (7,105) (26,673) Change in operating assets and liabilities: Notes receivable 41,000 (415,900) 20,951 Loans to affiliates (166,169) (82,719) (71,719) Accounts receivable from subsidiaries (905,352) 1,614,687 (537,746) Other assets (130,419) (66,138) (802) Accounts payable to subsidiaries (95,888) 1,206,168 -- Acquisition liabilities (159,659) (459,456) 619,114 Other liabilities 788,301 107,545 (72,614) ------------ ------------ ------------ Net cash provided by (used in) operating activities (571,643) 2,213,353 (464,897) ------------ ------------ ------------ Cash flows from financing activities: Proceeds from notes payable to bank 20,350,000 17,157,000 7,345,000 Repayments of notes payable to bank (19,892,000) (17,160,000) (6,450,000) Cost of equity securities purchased (475,180) (174,000) -- Proceeds from stock options exercised -- 37,564 9,063 Acquisition of treasury stock (4,542) (1,525,012) (688,583) Dividends paid -- -- (464) ------------ ------------ ------------ Net cash provided by (used in) financing activities (21,722) (1,664,448) 215,016 ------------ ------------ ------------ Net increase (decrease) in cash (593,365) 548,905 (249,881) ------------ ------------ ------------ Cash at beginning of year 605,063 56,158 306,039 ------------ ------------ ------------ Cash at end of year $ 11,698 $ 605,063 $ 56,158 ============ ============ ============ Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 12,514 $ 228,331 $ 233,958 ============ ============ ============ Income taxes $ 950,000 $ 1,445,000 $ 1,865,000 ============ ============ ============ Supplemental schedule of non-cash investing activities: Common shares issued in purchase acquisition $ 9,456 $ 300,000 $ -- ============ ============ ============ Common shares received in debenture conversion $ -- $ -- $ 50,000 ============ ============ ============
14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Bancinsurance Corporation (Registrant) 3/13/02 By Si Sokol ------- ------------------------------ DATE Si Sokol Chairman of Board of Directors (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
3/13/02 Si Sokol 3/13/02 John S. Sokol - ------- --------------------------- ------- ---------------------------- DATE Si Sokol DATE John S. Sokol Chairman of Board of Directors President and Director (Principal Executive Officer) 3/13/02 Daniel D. Harkins 3/13/02 William S. Sheley - ------- --------------------------- ------- ---------------------------- DATE Daniel D. Harkins DATE William S. Sheley Director Director 3/13/02 Saul Sokol 3/13/02 Matthew D. Walter - ------- --------------------------- ------- ---------------------------- DATE Saul Sokol DATE Matthew D. Walter Director Director 3/13/02 Sally J. Cress ------- ---------------------------- DATE Sally J. Cress Treasurer and Secretary (Principal Financial and Accounting Officer)
15 INDEX OF EXHIBITS EXHIBIT NO. DESCRIPTION - ----------- ----------- The following exhibits required by item 601 of Regulation S-K are filed as part of this report. For convenience of reference, the exhibits are listed according to the numbers appearing in the Exhibit Table to Item 601 of Regulation S-K. 3(a) Amended and Restated Articles of Incorporation of Bancinsurance Corporation (reference is made to Exhibit 3(a) of Form 10-K for the fiscal year ended December 31, 1984 (file number 0-8738), which is incorporated herein by reference). 3(b)* Certificate of Amendment to the Amended and Restated Articles of Incorporation of Bancinsurance Corporation dated March 10, 1993. 3(c)* Amended and Restated Articles of Incorporation of Bancinsurance Corporation (reflecting amendments through March 10, 1993)(for SEC reporting purposes only). 3(d) Amended and Restated Code of Regulations of Bancinsurance Corporation (reference is made to Exhibit 3(b) of Form 10-K for the fiscal year ended December 31, 1984 (file number 0-8738), which is incorporated herein by reference). 4(a)* Credit Agreement dated January 25, 1993 by and between Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio. 4(b)* First Amendment to Credit Agreement dated November 5, 1993 by and between Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio. 4(c)* Second Amendment to Credit Agreement dated October 19, 1994 by and between Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio. 4(d)* Third Amendment to Credit Agreement dated November 24, 1999 by and between Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio. 4(e)* Fourth Amendment to Credit Agreement dated December 11, 2000 by and between Bancinsurance Corporation and The Fifth Third Bank of Columbus, Ohio. 10(a) Amended Tax Allocation Agreement by and between Bancinsurance Corporation and Ohio Indemnity Company (reference is made to Exhibit 10(d) of Form 10-K for the fiscal year ended December 31, 1983 (file number 0-8738), which is incorporated herein by reference). 10(c) Amended and Restated Unemployment Compensation Administration Agreement between Ohio Indemnity Company and The Gibbens Co., Inc. (references is made to Exhibit 10(e) of Form 10-K/A for the fiscal year ended December 31, 1992 (file number 0-8738), which is incorporated herein by reference). The following are management contracts and compensatory plans and arrangements in which directors or executive officers participate: 10(d) Employee Profit Sharing Plan (reference is made to Exhibit 10(a) of Form 10-K for the fiscal year ended December 31, 1986 (file number 0-8738), which is incorporated herein by reference). 10(e) 1984 Stock Option Plan (reference is made to exhibit 10(d) of From 10-K for the fiscal year ended December 31, 1984 (file number 0-8738), which is incorporated herein by reference). 16 10(f) 1994 Stock Option Plan (reference is made to Exhibit 10(f) of Form 10-Q for the fiscal quarter ended June 30, 1994 (file number 0-8738), which is incorporated herein by reference). 13(a)* Annual Report to Shareholders for the year ended December 31, 2001 21* Subsidiaries of the Company as of December 31, 2001 23(a)* Consent of Ernst & Young LLP 23(b)* Consent and opinion of PricewaterhouseCoopers LLP - ---------------------------- * Filed with this Report. 17 EX-3.B 3 l92627aex3-b.txt EXHIBIT 3B EXHIBIT 3(b) CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF BANCINSURANCE CORPORATION Si Sokol, President, and Sally J. Cress, Secretary, of Bancinsurance Corporation, an Ohio corporation, with its principal place of business at 20 East Broad Street, Columbus, Ohio, do hereby certify that upon unanimous approval of the Board of Directors at a meeting held on March 10, 1993 and upon authority granted to the Board of Directors pursuant to the corporation's Amended and Restated Articles of Incorporation and Section 1701.70(B)(3) of the Ohio General Corporation Law, Article FOURTH of the Amended and Restated Articles of Incorporation has been amended as follows: FOURTH: SECTION 1. The number of shares which the corporation is authorized to have outstanding shall be 20,200,000, 20,000,000 of which shall be Common Shares, without par value, 100,000 of which shall be Class A Serial Preference Shares, without par value, and 98,646 of which shall be Class B Serial Preference Shares, without par value. SECTION 2. The express terms and provisions of the shares of each class are as follows: SUBDIVISION A Class A Serial Preference Shares Issuable in Series The Class A Serial Preference Shares may be issued from time to time in series. The Class A Serial Preference Shares of all series shall be in all respects entitled to the same preferences, rights and privileges and subject to the same terms and provisions, except that different series of Class A Serial Preference Shares may vary as to dividend rate, redemption rights and price, liquidation price, conversion rights, if any, sinking fund requirements, if any, the dates of payment of dividends and the dates from which they are cumulative, and restrictions, if any, on the issuance of shares of any class or series, all of which shall be fixed as hereinafter provided. The terms and provisions set forth in Subdivision B hereof shall apply to the Class A Serial Preference Shares of all series. All the shares of any one series shall be alike. Subject to the limitations and restrictions set forth in this Article Fourth, the Board of Directors is hereby authorized and empowered, at any time, and from time to time, to designate and issue any authorized and unissued Class A Serial Preference Shares (whether or not previously designated as shares of a particular series and including Class A Serial Preference Shares of any series issued and thereafter acquired by the corporation, except that convertible shares which have been converted into shares of another class shall not be reissued as convertible shares) as shares of one or more series, hereby or hereafter to be designated; to adopt amendments to these Amended Articles of Incorporation in respect of any such shares; and thereby to determine, fix or alter: (a) The number of shares to constitute a series and the distinctive designation thereof; (b) The rate of the annual dividends thereon, the dates of payment thereof, and the date or dates from which such dividends shall be cumulative; (c) The amount per share, if any, which the holders of Class A Serial Preference Shares of such series shall be entitled to receive upon the redemption thereof, or upon the liquidation, dissolution or winding up of the corporation and the amount of premium, if any, plus an amount equal to the dividends accrued and unpaid thereon; (d) The conversion or exchange rights, if any, of such series, including without limitation the price or prices, rate or rates, provisions for the adjustment thereof (including provisions for protection against the dilution or impairment of such rights), and all other terms and conditions upon which Class A Serial Preference Shares constituting such series may be convertible into, or exchangeable for, shares of any other class or classes or series; and (e) The restrictions, if any, on the issuance of shares of any class or series. SUBDIVISION B Provisions Applicable to All Series of Class A Serial Preference Shares 1. DIVIDENDS. The holders of Class A Serial Preference Shares of each series shall be entitled to receive, when and as declared by the Board of Directors, dividends at, but not exceeding, the dividend rate fixed for such series by the Board of Directors pursuant to the provisions of Subdivision A hereof. Such dividends shall be cumulative, so that if dividends on all outstanding Class A Serial Preference Shares of each series at the dividend rate fixed therefor shall not have been paid or declared and set apart for payment for all past dividend periods, and for the dividend period current at the time, the deficiency shall be fully paid, or dividends equal thereto declared and set apart for payment, but without interest thereon, before any dividends on the Class B Serial Preference Shares or the Common Shares shall be paid or declared and set apart for payment. Dividends shall not be declared or paid on the Class A Serial Preference shares of any one series for any dividend period unless dividends have been, or are contemporaneously, paid or declared and set apart for payment on the Class A Serial Preference Shares of all series for the dividend periods terminating on the same or an earlier date. Any dividend paid in an amount less than full cumulative dividends accrued or in arrears on all Class A Serial Preference Shares then outstanding shall be divided among the outstanding Class A Serial Preference Shares of each series in proportion to the aggregate amounts which would be distributable to Class A Serial Preference Shares of each series if full cumulative dividends were declared and paid thereon. The holders of Class A Serial Preference Shares of any series shall not be entitled to any dividends in excess of the rate fixed for such series. After full cumulative dividends as aforesaid upon the Class A Serial Preference Shares of all series then outstanding shall have been paid for all past dividend periods, and full dividends on the Class A Serial Preference Shares for the current dividend period shall have been declared and paid or set apart for payment, then, and not otherwise, dividends in cash, property, or shares of any class, may be declared and paid upon the Class B Serial Preference Shares and the Common Shares. The term "accrued and unpaid dividends" as used in this Articles Fourth means, in respect of each Class A Serial Preference Share of any series, an amount equal to the dividend rate fixed for such series from the date from which dividends became cumulative to the date of computation, less the aggregate amount of dividends paid thereon. 2. DISSOLUTION AND LIQUIDATION. The Class A Serial Preference Shares shall be preferred as to assets as well as dividends and upon the-dissolution, liquidation, or winding up of the corporation, whether voluntary or involuntary, the holders of the Class A Serial Preference Shares of each series shall be entitled to receive and be paid for each share thereof, out of the assets of the corporation (whether capital or surplus) such amount as shall have been fixed by the Board of Directors at the time such shares are issued together with an amount equal to the accrued and unpaid dividends thereon to the date of payment, plus a premium of such additional amount per share, if any, as shall have been fixed for such series, before any distribution of the assets shall be made to the holders of the Class B Serial Preference Shares or the Common Shares, but the holders of the Class A Serial Preference Shares shall be entitled to no further participation in such distribution; and the holders of the Common Shares shall be entitled, to the exclusion of the holders of the Class A Serial Preference Shares (but subject to the rights of the holders of the Class B Serial Preference Shares), to all assets of the corporation remaining after payment to the holders of the Class A Serial Preference Shares of the full preferential amounts aforesaid. If, upon any such dissolution, liquidation or winding up, the assets of the corporation distributable among the holders of Class A Serial Preference Shares shall be insufficient to pay in full the preferential amounts aforesaid, then such assets or the proceeds thereof, shall be distributed among the holders of Class A Serial Preference Shares then outstanding according to the number of shares held by each divided among the outstanding Class A Serial Preference Shares of each series in proportion to the aggregate amounts which would be distributable to the Class A Serial Preference Shares of each series if the full preferential amounts were paid, until such amount as shall have been so fixed by the Board of Directors shall be distributed in respect of each share, and if any excess shall then remain, such excess shall be distributed among the holders of outstanding Class A Serial Preference Shares ratably in proportion to the amounts to which they are respectively entitled by reason of accrued and unpaid dividends until each shall have received payment in full of all accrued and unpaid dividends. The consolidation or merger of the corporation, at any time, or from time to time, with any other corporation or corporation, shall not be construed as a dissolution, liquidation, or winding up of the corporation within the meaning hereof. 3. REDEMPTION. The corporation, at its option to be exercised by its Board of Directors, may redeem the whole or any part of any series of the Class A Serial Preference Shares which is redeemable, at any time, or from time to time, by the payment in cash of a price for each series thereof, in such amount as shall have been fixed by the Board of Directors at the time such shares are issued, plus a premium of such additional amount per share, if any, as shall have been fixed as payable in case of redemption in respect of such series, together with the amount of any dividends accrued and unpaid thereon to the date of redemption. If at any time less than all of the Class A Serial Preference Shares then outstanding shall be called for redemption, the Board of Directors may select the series of Class A Serial Preference Shares to be redeemed and if less than all the Class A Serial Preference Shares of any series are to be called for redemption., the shares to be redeemed may be selected by lot, or pro rata, or by such other equitable method as the Board of Directors in its discretion may determine. Notice of every such redemption, stating the redemption date, the redemption price, and the place of payment thereof, shall be given by mailing a copy of such notice at least thirty (30) days and not more than sixty (60) days prior to the date fixed for redemption to the holders of record of the Class A Serial Preference Shares to be redeemed at their respective addresses as the same appear on the books of the corporation. If such notice of redemption shall have been duly given, and if on or before the redemption date specified in such notice all funds necessary for such redemption shall have been set aside so as to be available therefor, then notwithstanding that any certificate for Class A Serial Preference Shares so called for redemption shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding, the right to receive dividends thereon shall cease to accrue from and after the date of redemption so fixed, and all rights with respect to such Class A Serial Preference Shares so called for redemption shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable upon redemption thereof, but without interest. The corporation shall have the right to purchase Class A Serial Preference Shares of any series (in the case of redeemable shares at a price not in excess of the redemption price thereof), either for the purpose of redemption and retirement or (except in the case of redeemable shares) to be held, used and disposed of as treasury shares. Subject to the limitations and provisions of this Article Fourth the Board of Directors may prescribe the manner, terms and conditions upon which Class A Serial Preference Shares shall be called for redemption, purchased or redeemed. 4. PROTECTIVE PROVISIONS. The corporation shall not, without the affirmative vote at a meeting, or the written consent with or without a meeting of the holders of at least a majority of the Class A Serial Preference Shares of the particular series proposed to be affected, change the express terms and provisions of any series of the Class A Serial Preference Shares in any manner substantially prejudicial to the holders thereof. 5. VOTING RIGHTS. Except as otherwise expressly provided herein or by law, the holders of Class A Serial Preference Shares shall not be entitled to vote or participate in meetings of shareholders of the corporation. SUBDIVISION C Class B Serial Preference Issuable in Series The Class B Serial Preference Shares may be issued from time to time in series. The Class B Serial Preference Shares of all series shall be in all respects entitled to the same preferences, rights, privileges and subject to the same terms and provisions, except that different series of Class B Serial Preference Shares may vary as to dividend rate, redemption rights and price, liquidation price, conversion right, if any, sinking fund requirements, if any, the dates of payment of dividends, and restrictions, if any, on the issuance of shares of any class or series, all of which shall be fixed as hereinafter provided. The terms and provisions set forth in Subdivision D hereof shall apply to the Class B Serial Preference Shares of all Series. All the shares of any one series shall be alike. Subject to the limitations and restrictions set forth in this Article Fourth, the Board of Directors is hereby authorized and empowered, at any time, and from time to time, to designate and issue any authorized and unissued Class B Serial Preference Shares (whether or not previously designated as shares of a particular series and including Class B Serial Preference Shares of any series issued and thereafter acquired by the corporation, except that convertible shares which have been converted into shares of another class shall not be, reissued as convertible shares) as shares of one or more series, hereby or hereafter to be designated; to adopt amendments to these Amended Articles of Incorporation in respect of any such shares; and thereby to determine, fix or alter: (a) The number of shares to constitute a series and the distinctive designation thereof; (b) The rate of annual dividends thereon and the dates of payment thereof; (c) The amount per share, if any, which the holders of Class B Serial Preference Shares of such series shall be entitled to receive upon the redemption thereof, or upon the liquidation, dissolution or winding up of the corporation and the amount of premium, if any, plus an amount equal to the dividends accrued and unpaid thereof; (d) The conversion or exchange rights, if any, of such series, including without limitation the price or prices, rate or rates, provisions for the adjustment thereof (including provisions for protection against the dilution or impairment of such rights), and all other terms and conditions upon which Class B Serial Preference Shares constituting such series may be convertible into, or exchangeable for, shares of any other class or classes or series; and (e) The restrictions, if any, on the issuance of shares of any class or series. SUBDIVISION D Provisions Applicable to All Series Of Class B Serial Preference Shares 1. DIVIDENDS. The holders of Class B Serial Preference Shares of each series shall be entitled to receive, when and as declared by the Board of Directors, dividends at, but not exceeding, the dividend rate fixed for such series by the Board of Directors pursuant to the provisions of Subdivisions C hereof. Such dividends shall not be cumulative. If dividends on all outstanding Class B Serial Preference Shares of each series at the dividend rate fixed therefor shall not have been paid or declared and set apart for payment for the dividend period current at the time, the deficiency shall be fully paid, or dividends equal thereto declared and set apart for payment, but without interest thereon, before any dividends on the Common Shares shall be paid or declared and set apart for payment. Dividends shall not be declared or paid on the Class B Serial Preference Shares of any one series for any dividend period unless dividends have been, or are contemporaneously, paid or declared and set apart for payment on the Class B Serial Preference Shares of all series for the dividend periods terminating on the same or an earlier date. Any dividend paid in an amount less than full dividends accrued upon all Class B Serial Preference Shares then outstanding shall be divided among the outstanding Class B Serial Preference Shares of each series in proportion to the aggregate amounts which would be distributable to the Class B Serial Preference Shares of each series if full dividends were declared and paid thereon. The holders of Class B Serial Preference Shares of any series shall not be entitled to any dividends in excess of the rate fixed for such series. After full dividends on the Class B Serial Preference Shares for the current dividend period shall have been declared and paid or set apart for payment, then, and not otherwise, dividends in cash, property, or shares of any class, may be declared and paid upon the Common Shares. The term "accrued and unpaid dividends" as used in this Article Fourth means, in respect of each Class B Serial Preference Share of any series, an amount equal to the dividend rate fixed for such series from the date of the then current dividend period to the date of computation, less the aggregate amount of dividends paid thereon. 2. DISSOLUTION AND LIQUIDATIONS. The Class B Serial Preference Shares shall be preferred over the Common Shares as to assets as well as dividends and upon the dissolution, liquidation, or winding up of the corporation, whether voluntary or involuntary, the holders of the Class B Serial Preference Shares of each series shall be entitled to receive and be paid for each share thereof, out of the assets of the corporation (whether capital or surplus) such amount as shall have been fixed by the Board of Directors at the time such shares are issued together with an amount equal to the accrued and unpaid dividends thereon to the date of payment, plus a premium of such additional amount per share, if any, as shall have been fixed for such series, before any distribution of the assets shall be made to the holders of the Common Shares, but the holders of the Class B Serial Preference Shares shall be entitled to no further participation in such distribution; and the holders of the Common Shares shall be entitled, to the exclusion of the holders of the Class B Serial Preference Shares, to all assets of the corporation remaining after payment to the holders of the Class B Serial Preference Shares of the full preferential amounts aforesaid. If, upon any such dissolution, liquidation or winding up, the assets of the corporation distributable among the holders of Class B Serial Preference Shares shall be insufficient to pay in full the preferential amounts aforesaid, then such assets or the proceeds thereof, shall be distributed among the holders of Class B Serial Preference Shares then outstanding according to the number of shares held by each divided among the outstanding Class B Serial Preference Shares of each series in proportion to the aggregate amounts which would be distributable to the Class B Serial Preference Shares of each series if the full preferential amounts were paid, until such amount as shall have been so fixed by the Board of Directors shall be distributed in respect of each share, and if any excess shall then remain, such excess shall be distributed among the holders of outstanding Class B Serial Preference Shares ratably in proportion in the amounts to which they are respectively entitled by reason of accrued and unpaid dividends until each shall have received payment in full of all accrued and unpaid dividends. The consolidation or merger of the corporation, at any time, or from time to time, with any other corporation or corporations, shall not be construed as a dissolution, liquidation, or winding up of the corporation within the meaning hereof. 3. REDEMPTION. The corporation, at its option to be exercised by its Board of Directors, may redeem the whole or any part of any series of the Class B Serial Preference Shares which is redeemable, at any time, or from time to time, by the payment in cash of a price for each series thereof, in such amount as shall have been fixed by the Board of Directors at the time such shares are issued, plus a premium of such additional amount per share, if any, as shall have been fixed as payable in case of redemption in respect of such series, together with the amount of any dividends accrued and unpaid thereon to the date of redemption. If at any time less than all of the Class B Serial Preference Shares then outstanding shall be called for redemption, the Board of Directors may select the series of Class B Serial Preference Shares to be redeemed and if less than all the Class B Serial Preference Shares of any series are to be called for redemption, the shares to be redeemed may be selected by lot, or pro rata, or by such other equitable method as the Board of Directors in its discretion may determine. Notice of every such redemption, stating the redemption date, the redemption price, and the place of payment thereof, shall be given by mailing a copy of such notice at least thirty (30) days and not more than sixty (60) days prior to the date fixed for redemption to the holders of record of the Class B Serial Preference Shares to be redeemed at their respective addresses as the same appear on the books of the corporation. If such notice of redemption shall have been duly given, and if on or before the redemption date specified in such notice all funds necessary for such redemption shall have been set aside so as to be available therefor, then notwithstanding that any certificate for Class B Serial Preference Shares so called for redemption shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding, the right to receive dividends thereon shall cease to accrue from and after the date of redemption so fixed, and all rights with respect to such Class B Serial Preference Shares so called for redemption shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable upon redemption thereof, but without interest. The corporation shall have the rights to purchase Class B Serial Preference Shares of any series (in the case of redeemable shares at a price not in excess of the redemption price thereof), either for the purpose of redemption and retirement or (except in the case of redeemable shares) to be held, used and disposed of as treasury shares. Subject to the limitations and provisions of this Article Fourth the Board of Directors may prescribe the manner, terms and conditions upon which Class B Serial Preference Shares shall be called for redemption, purchased or redeemed. 4. PROTECTIVE PROVISIONS. The corporation shall not, without the affirmative vote at a meeting, or the written consent with or without a meeting of the holders of at least a majority of the Class B Serial Preference Shares of the particular series proposed to be affected, change the express terms and provisions of any series of the Class A Serial Preference Shares in any manner substantially prejudicial to the holders thereof. 5. VOTING RIGHTS. Except as otherwise expressly provided herein or by law, the holders of Class B Serial Preference Shares shall not be entitled to vote or participate in meetings of shareholders of the corporation. SUBDIVISION E Provisions Applicable to Common Shares VOTING RIGHTS. Each holder of record of Common Shares shall be entitled to one (1) vote for each Common Share registered in his name on the books of the corporation. IN WITNESS WHEREOF, the above named officers, acting-for and on behalf of Bancinsurance Corporation, have hereunto subscribed their names this 10th day of March, 1993. By: /s/ Si Sokol, President ------------------------------------ Si Sokol, President By: /s/ Sally J. Cress ------------------------------------ Sally J. Cress, Secretary EX-3.C 4 l92627aex3-c.txt EXHIBIT 3C EXHIBIT 3(c) Filed only for Securities and Exchange Commission reporting purposes and not filed with The Ohio Secretary of State AMENDED AND RESTATED ARTICLES OF INCORPORATION OF BANCINSURANCE CORPORATION FIRST: The name of the corporation shall be BANCINSURANCE CORPORATION. SECOND: The place in the State of Ohio where the principal office of the corporation is to be located in the City of Columbus, Franklin County. THIRD: The purpose of the corporation is to engage in any BUSINESS or lawful act or activity for which corporations may be formed under Chapter 1701 of the Ohio Revised Code. FOURTH: SECTION 1. The number of shares which the corporation is authorized to have outstanding shall be 20,200,000, 20,000,000 of which shall be Common Shares, without par value, 100,000 of which shall be Class A Serial Preference Shares, without par value, and 98,646 of which shall be Class B Serial Preference Shares, without par value. SECTION 2. The express terms and provisions of the shares of each class are as follows: SUBDIVISION A Class A Serial Preference Shares Issuable in Series The Class A Serial Preference Shares may be issued from time to time in series. The Class A Serial Preference Shares of all series shall be in all respects entitled to the same preferences, rights and privileges and subject to the same terms and provisions, except that different series of Class A Serial Preference Shares may vary as to dividend rate, redemption rights and price, liquidation price, conversion rights, if any, sinking fund requirements, if any, the dates of payment of dividends and the dates from which they are cumulative, and restrictions, if any, on the issuance of shares of any class or series, all of which shall be fixed as hereinafter provided. The terms and provisions set forth in Subdivision B hereof shall apply to the Class A Serial Preference Shares of all series. All the shares of any one series shall be alike. Subject to the limitations and restrictions set forth in this Article Fourth, the Board of Directors is hereby authorized and empowered, at any time, and from time to time, to designate and issue any authorized and unissued Class A Serial Preference Shares (whether or not previously designated as shares of a particular series and including Class A Serial Preference Shares of any series issued and thereafter acquired by the corporation, except that convertible shares which have been converted into shares of another class shall not be reissued as convertible shares) as shares of one or more series, hereby or hereafter to be designated; to adopt amendments to these Amended Articles of Incorporation in respect of any such shares; and thereby to determine, fix or alter: (a) The number of shares to constitute a series and the distinctive designation thereof; (b) The rate of the annual dividends thereon, the dates of payment thereof, and the date or dates from which such dividends shall be cumulative; (c) The amount per share, if any, which the holders of Class A Serial Preference Shares of such series shall be entitled to receive upon the redemption thereof, or upon the liquidation, dissolution or winding up of the corporation and the amount of premium, if any, plus an amount equal to the dividends accrued and unpaid thereon; (d) The conversion or exchange rights, if any, of such series, including without limitation the price or prices, rate or rates, provisions for the adjustment thereof (including provisions for protection against the dilution or impairment of such rights), and all other terms and conditions upon which Class A Serial Preference Shares constituting such series may be convertible into, or exchangeable for, shares of any other class or classes or series; and (e) The restrictions, if any, on the issuance of shares of any class or series. SUBDIVISION B Provisions Applicable to All Series of Class A Serial Preference Shares 1. DIVIDENDS. The holders of Class A Serial Preference Shares of each series shall be entitled to receive, when and as declared by the Board of Directors, dividends at, but not exceeding, the dividend rate fixed for such series by the Board of Directors pursuant to the provisions of Subdivision A hereof. Such dividends shall be cumulative, so that if dividends on all outstanding Class A Serial Preference Shares of each series at the dividend rate fixed therefor shall not have been paid or declared and set apart for payment for all past dividend periods, and for the dividend period current at the time, the deficiency shall be fully paid, or dividends equal thereto declared and set apart for payment, but without interest thereon, before any dividends on the Class B Serial Preference Shares or the Common Shares shall be paid or declared and set apart for payment. Dividends shall not be declared or paid on the Class A Serial Preference shares of any one series for any dividend period unless dividends have been, or are contemporaneously, paid or declared and set apart for payment on the Class A Serial Preference Shares of all series for the dividend periods terminating on the same or an earlier date. Any dividend paid in an amount less than full cumulative dividends accrued or in arrears on all Class A Serial Preference Shares then outstanding shall be divided among the outstanding Class A Serial Preference Shares of each series in proportion to the aggregate amounts which would be distributable to Class A Serial Preference Shares of each series if full cumulative dividends were declared and paid thereon. The holders of Class A Serial Preference Shares of any series shall not be entitled to any dividends in excess of the rate fixed for such series. After full cumulative dividends as aforesaid upon the Class A Serial Preference Shares of all series then outstanding shall have been paid for all past dividend periods, and full dividends on the Class A Serial Preference Shares for the current dividend period shall have been declared and paid or set apart for payment, then, and not otherwise, dividends in cash, property, or shares of any class, may be declared and paid upon the Class B Serial Preference Shares and the Common Shares. The term "accrued and unpaid dividends" as used in this Articles Fourth means, in respect of each Class A Serial Preference Share of any series, an amount equal to the dividend rate fixed for such series from the date from which dividends became cumulative to the date of computation, less the aggregate amount of dividends paid thereon. 2. DISSOLUTION AND LIQUIDATION. The Class A Serial Preference Shares shall be preferred as to assets as well as dividends and upon the-dissolution, liquidation, or winding up of the corporation, whether voluntary or involuntary, the holders of the Class A Serial Preference Shares of each series shall be entitled to receive and be paid for each share thereof, out of the assets of the corporation (whether capital or surplus) such amount as shall have been fixed by the Board of Directors at the time such shares are issued together with an amount equal to the accrued and unpaid dividends thereon to the date of payment, plus a premium of such additional amount per share, if any, as shall have been fixed for such series, before any distribution of the assets shall be made to the holders of the Class B Serial Preference Shares or the Common Shares, but the holders of the Class A Serial Preference Shares shall be entitled to no further participation in such distribution; and the holders of the Common Shares shall be entitled, to the exclusion of the holders of the Class A Serial Preference Shares (but subject to the rights of the holders of the Class B Serial Preference Shares), to all assets of the corporation remaining after payment to the holders of the Class A Serial Preference Shares of the full preferential amounts aforesaid. If, upon any such dissolution, liquidation or winding up, the assets of the corporation distributable among the holders of Class A Serial Preference Shares shall be insufficient to pay in full the preferential amounts aforesaid, then such assets or the proceeds thereof, shall be distributed among the holders of Class A Serial Preference Shares then outstanding according to the number of shares held by each divided among the outstanding Class A Serial Preference Shares of each series in proportion to the aggregate amounts which would be distributable to the Class A Serial Preference Shares of each series if the full preferential amounts were paid, until such amount as shall have been so fixed by the Board of Directors shall be distributed in respect of each share, and if any excess shall then remain, such excess shall be distributed among the holders of outstanding Class A Serial Preference Shares ratably in proportion to the amounts to which they are respectively entitled by reason of accrued and unpaid dividends until each shall have received payment in full of all accrued and unpaid dividends. The consolidation or merger of the corporation, at any time, or from time to time, with any other corporation or corporation, shall not be construed as a dissolution, liquidation, or winding up of the corporation within the meaning hereof. 3. REDEMPTION. The corporation, at its option to be exercised by its Board of Directors, may redeem the whole or any part of any series of the Class A Serial Preference Shares which is redeemable, at any time, or from time to time, by the payment in cash of a price for each series thereof, in such amount as shall have been fixed by the Board of Directors at the time such shares are issued, plus a premium of such additional amount per share, if any, as shall have been fixed as payable in case of redemption in respect of such series, together with the amount of any dividends accrued and unpaid thereon to the date of redemption. If at any time less than all of the Class A Serial Preference Shares then outstanding shall be called for redemption, the Board of Directors may select the series of Class A Serial Preference Shares to be redeemed and if less than all the Class A Serial Preference Shares of any series are to be called for redemption., the shares to be redeemed may be selected by lot, or pro rata, or by such other equitable method as the Board of Directors in its discretion may determine. Notice of every such redemption, stating the redemption date, the redemption price, and the place of payment thereof, shall be given by mailing a copy of such notice at least thirty (30) days and not more than sixty (60) days prior to the date fixed for redemption to the holders of record of the Class A Serial Preference Shares to be redeemed at their respective addresses as the same appear on the books of the corporation. If such notice of redemption shall have been duly given, and if on or before the redemption date specified in such notice all funds necessary for such redemption shall have been set aside so as to be available therefor, then notwithstanding that any certificate for Class A Serial Preference Shares so called for redemption shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding, the right to receive dividends thereon shall cease to accrue from and after the date of redemption so fixed, and all rights with respect to such Class A Serial Preference Shares so called for redemption shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable upon redemption thereof, but without interest. The corporation shall have the right to purchase Class A Serial Preference Shares of any series (in the case of redeemable shares at a price not in excess of the redemption price thereof), either for the purpose of redemption and retirement or (except in the case of redeemable shares) to be held, used and disposed of as treasury shares. Subject to the limitations and provisions of this Article Fourth the Board of Directors may prescribe the manner, terms and conditions upon which Class A Serial Preference Shares shall be called for redemption, purchased or redeemed. 4. PROTECTIVE PROVISIONS. The corporation shall not, without the affirmative vote at a meeting, or the written consent with or without a meeting of the holders of at least a majority of the Class A Serial Preference Shares of the particular series proposed to be affected, change the express terms and provisions of any series of the Class A Serial Preference Shares in any manner substantially prejudicial to the holders thereof. 5. VOTING RIGHTS. Except as otherwise expressly provided herein or by law, the holders of Class A Serial Preference Shares shall not be entitled to vote or participate in meetings of shareholders of the corporation. SUBDIVISION C Class B Serial Preference Issuable in Series The Class B Serial Preference Shares may be issued from time to time in series. The Class B Serial Preference Shares of all series shall be in all respects entitled to the same preferences, rights, privileges and subject to the same terms and provisions, except that different series of Class B Serial Preference Shares may vary as to dividend rate, redemption rights and price, liquidation price, conversion right, if any, sinking fund requirements, if any, the dates of payment of dividends, and restrictions, if any, on the issuance of shares of any class or series, all of which shall be fixed as hereinafter provided. The terms and provisions set forth in Subdivision D hereof shall apply to the Class B Serial Preference Shares of all Series. All the shares of any one series shall be alike. Subject to the limitations and restrictions set forth in this Article Fourth, the Board of Directors is hereby authorized and empowered, at any time, and from time to time, to designate and issue any authorized and unissued Class B Serial Preference Shares (whether or not previously designated as shares of a particular series and including Class B Serial Preference Shares of any series issued and thereafter acquired by the corporation, except that convertible shares which have been converted into shares of another class shall not be, reissued as convertible shares) as shares of one or more series, hereby or hereafter to be designated; to adopt amendments to these Amended Articles of Incorporation in respect of any such shares; and thereby to determine, fix or alter: (a) The number of shares to constitute a series and the distinctive designation thereof; (b) The rate of annual dividends thereon and the dates of payment thereof; (c) The amount per share, if any, which the holders of Class B Serial Preference Shares of such series shall be entitled to receive upon the redemption thereof, or upon the liquidation, dissolution or winding up of the corporation and the amount of premium, if any, plus an amount equal to the dividends accrued and unpaid thereof; (d) The conversion or exchange rights, if any, of such series, including without limitation the price or prices, rate or rates, provisions for the adjustment thereof (including provisions for protection against the dilution or impairment of such rights), and all other terms and conditions upon which Class B Serial Preference Shares constituting such series may be convertible into, or exchangeable for, shares of any other class or classes or series; and (e) The restrictions, if any, on the issuance of shares of any class or series. SUBDIVISION D Provisions Applicable to All Series Of Class B Serial Preference Shares 1. DIVIDENDS. The holders of Class B Serial Preference Shares of each series shall be entitled to receive, when and as declared by the Board of Directors, dividends at, but not exceeding, the dividend rate fixed for such series by the Board of Directors pursuant to the provisions of Subdivisions C hereof. Such dividends shall not be cumulative. If dividends on all outstanding Class B Serial Preference Shares of each series at the dividend rate fixed therefor shall not have been paid or declared and set apart for payment for the dividend period current at the time, the deficiency shall be fully paid, or dividends equal thereto declared and set apart for payment, but without interest thereon, before any dividends on the Common Shares shall be paid or declared and set apart for payment. Dividends shall not be declared or paid on the Class B Serial Preference Shares of any one series for any dividend period unless dividends have been, or are contemporaneously, paid or declared and set apart for payment on the Class B Serial Preference Shares of all series for the dividend periods terminating on the same or an earlier date. Any dividend paid in an amount less than full dividends accrued upon all Class B Serial Preference Shares then outstanding shall be divided among the outstanding Class B Serial Preference Shares of each series in proportion to the aggregate amounts which would be distributable to the Class B Serial Preference Shares of each series if full dividends were declared and paid thereon. The holders of Class B Serial Preference Shares of any series shall not be entitled to any dividends in excess of the rate fixed for such series. After full dividends on the Class B Serial Preference Shares for the current dividend period shall have been declared and paid or set apart for payment, then, and not otherwise, dividends in cash, property, or shares of any class, may be declared and paid upon the Common Shares. The term "accrued and unpaid dividends" as used in this Article Fourth means, in respect of each Class B Serial Preference Share of any series, an amount equal to the dividend rate fixed for such series from the date of the then current dividend period to the date of computation, less the aggregate amount of dividends paid thereon. 2. DISSOLUTION AND LIQUIDATIONS. The Class B Serial Preference Shares shall be preferred over the Common Shares as to assets as well as dividends and upon the dissolution, liquidation, or winding up of the corporation, whether voluntary or involuntary, the holders of the Class B Serial Preference Shares of each series shall be entitled to receive and be paid for each share thereof, out of the assets of the corporation (whether capital or surplus) such amount as shall have been fixed by the Board of Directors at the time such shares are issued together with an amount equal to the accrued and unpaid dividends thereon to the date of payment, plus a premium of such additional amount per share, if any, as shall have been fixed for such series, before any distribution of the assets shall be made to the holders of the Common Shares, but the holders of the Class B Serial Preference Shares shall be entitled to no further participation in such distribution; and the holders of the Common Shares shall be entitled, to the exclusion of the holders of the Class B Serial Preference Shares, to all assets of the corporation remaining after payment to the holders of the Class B Serial Preference Shares of the full preferential amounts aforesaid. If, upon any such dissolution, liquidation or winding up, the assets of the corporation distributable among the holders of Class B Serial Preference Shares shall be insufficient to pay in full the preferential amounts aforesaid, then such assets or the proceeds thereof, shall be distributed among the holders of Class B Serial Preference Shares then outstanding according to the number of shares held by each divided among the outstanding Class B Serial Preference Shares of each series in proportion to the aggregate amounts which would be distributable to the Class B Serial Preference Shares of each series if the full preferential amounts were paid, until such amount as shall have been so fixed by the Board of Directors shall be distributed in respect of each share, and if any excess shall then remain, such excess shall be distributed among the holders of outstanding Class B Serial Preference Shares ratably in proportion in the amounts to which they are respectively entitled by reason of accrued and unpaid dividends until each shall have received payment in full of all accrued and unpaid dividends. The consolidation or merger of the corporation, at any time, or from time to time, with any other corporation or corporations, shall not be construed as a dissolution, liquidation, or winding up of the corporation within the meaning hereof. 3. REDEMPTION. The corporation, at its option to be exercised by its Board of Directors, may redeem the whole or any part of any series of the Class B Serial Preference Shares which is redeemable, at any time, or from time to time, by the payment in cash of a price for each series thereof, in such amount as shall have been fixed by the Board of Directors at the time such shares are issued, plus a premium of such additional amount per share, if any, as shall have been fixed as payable in case of redemption in respect of such series, together with the amount of any dividends accrued and unpaid thereon to the date of redemption. If at any time less than all of the Class B Serial Preference Shares then outstanding shall be called for redemption, the Board of Directors may select the series of Class B Serial Preference Shares to be redeemed and if less than all the Class B Serial Preference Shares of any series are to be called for redemption, the shares to be redeemed may be selected by lot, or pro rata, or by such other equitable method as the Board of Directors in its discretion may determine. Notice of every such redemption, stating the redemption date, the redemption price, and the place of payment thereof, shall be given by mailing a copy of such notice at least thirty (30) days and not more than sixty (60) days prior to the date fixed for redemption to the holders of record of the Class B Serial Preference Shares to be redeemed at their respective addresses as the same appear on the books of the corporation. If such notice of redemption shall have been duly given, and if on or before the redemption date specified in such notice all funds necessary for such redemption shall have been set aside so as to be available therefor, then notwithstanding that any certificate for Class B Serial Preference Shares so called for redemption shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding, the right to receive dividends thereon shall cease to accrue from and after the date of redemption so fixed, and all rights with respect to such Class B Serial Preference Shares so called for redemption shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable upon redemption thereof, but without interest. The corporation shall have the rights to purchase Class B Serial Preference Shares of any series (in the case of redeemable shares at a price not in excess of the redemption price thereof), either for the purpose of redemption and retirement or (except in the case of redeemable shares) to be held, used and disposed of as treasury shares. Subject to the limitations and provisions of this Article Fourth the Board of Directors may prescribe the manner, terms and conditions upon which Class B Serial Preference Shares shall be called for redemption, purchased or redeemed. 4. PROTECTIVE PROVISIONS. The corporation shall not, without the affirmative vote at a meeting, or the written consent with or without a meeting of the holders of at least a majority of the Class B Serial Preference Shares of the particular series proposed to be affected, change the express terms and provisions of any series of the Class A Serial Preference Shares in any manner substantially prejudicial to the holders thereof. 5. VOTING RIGHTS. Except as otherwise expressly provided herein or by law, the holders of Class B Serial Preference Shares shall not be entitled to vote or participate in meetings of shareholders of the corporation. SUBDIVISION E Provisions Applicable to Common Shares VOTING RIGHTS. Each holder of record of Common Shares shall be entitled to one (1) vote for each Common Share registered in his name on the books of the corporation. FIFTH: No holder of shares of the corporation of any class shall be entitled as such, as a matter of right, to subscribe for or purchase shares of any class, now or hereafter authorized, or to subscribe for or purchase securities convertible into or exchangeable for shares of the corporation or to which shall be attached or appertain any warrants or rights entitling the holder thereof to subscribe for or purchase shares, except such rights of subscription or purchase, if any, for such considerations and upon such terms and conditions as its Board of Directors from time to time may determine. SIXTH: Notwithstanding any provision of the Ohio Corporation Law, now or thereafter in force, requiring for any purpose the authorization or taking of any action by the vote or consent of the holders of shares entitling them to exercise two-thirds (2/3) or any other proportion of the voting power of the corporation or of any class or classes of shares thereof, such action, unless otherwise expressly required by law or these Amended and Restated Articles of Incorporation, may be authorized or taken by the vote or consent of the holders of shares entitling them to exercise a majority of the voting power of the corporation or of such class or classes of shares thereof; provided, however, that unless at least three-fourths (3/4) of the directors of the corporation shall recommend the approval of any of the following matters, the affirmative vote of the holders of shares entitling them to exercise at least three-fourths (3/4) of the voting power of the corporation, or the affirmative vote of the holders of at least three-fourths (3/4) of the voting power of each class or classes of shares of the corporation entitled to vote in respect of any such matter as a class, shall be required to adopt: 1. An amendment to the Amended and Restated Articles of Incorporation of the corporation; 2. An agreement or merger or consolidation providing for the merger or consolidation of the corporation with or into one or more other corporations and requiring shareholder approval; 3. A proposed combination or majority share acquisition involving the issuance of shares of the corporation and requiring shareholder approval; 4. A proposal to sell, exchange, transfer or otherwise dispose of all, or substantially all, of the assets, with or without the goodwill of the corporation; 5. A proposed dissolution of the corporation. SEVENTH: To the extent permitted by law, the corporation, by action through its Board of Directors, shall have the right and power to repurchase any of its outstanding shares of any class issued by it at such time, for such considerations and upon such terms and conditions as may be agreed upon between the corporation and the selling shareholder. EIGHTH: In the event that any person proposes (a) an exchange or tender offer for shares of the corporation, (b) a merger or consolidation of the corporation, or (c) a purchase or acquisition of all or substantially all of the assets of the corporation, the directors shall, in evaluating what is in the best interests of the corporation and its shareholders, consider the following: 1. The fairness of the price or financial terms of the proposal; 2. The effect upon employees, customers and suppliers of the corporation; 3. The relationship of the proposal to the value of the corporation in a transaction of a similar type resulting from free negotiations; 4. Such other factors, whether legal, economic or social, as the directors determine to be relevant to an evaluation of the best interest of the corporation and its shareholders. NINTH: These Amended and Restated Articles of Incorporation supersede and take the place of the existing Article of Incorporation as heretofore amended. IN WITNESS WHEREOF, the above named officers, acting-for and on behalf of Bancinsurance Corporation, have hereunto subscribed their names this 10th day of March, 1993. By: /s/ Si Sokol, President --------------------------------------- Si Sokol, President By: /s/ Sally J. Cress ---------------------------------------- Sally J. Cress, Secretary EX-4.A 5 l92627aex4-a.txt EXHIBIT 4A EXHIBIT 4(a) CREDIT AGREEMENT This Credit Agreement is entered into as of the 25th day of January, 1993, by and between BANCINSURANCE CORPORATION, an Ohio corporation ("Borrower") and THE FIFTH THIRD BANK OF COLUMBUS, an Ohio banking corporation ("Bank"). Section 1. DEFINITIONS. Certain capitalized terms have the meanings set forth on Exhibit 1 hereto. All financial terms used in this Agreement but not defined on Exhibit 1 or in the Security Agreement have the meanings given to them by generally accepted accounting principles. Section 2. LOANS. 2.1. REVOLVING CREDIT LOANS. (a) Subject to the terms and conditions hereof, Bank hereby extends to Borrower a line of credit facility (the "Facility") under which Bank will make loans (the "Revolving Loans") to $6,000,000. Bank may create and maintain reserves from time to time based on such credit considerations as Bank may deem appropriate. Borrower may borrow, prepay (without penalty or charge), and reborrow under the Facility, provided that the principal amount of all Revolving Loans outstanding at any one time under the Facility will not exceed $6,000,000. If the amount of Revolving Loans outstanding at any time under the Facility exceeds such amount, Borrower will immediately pay the amount of such excess to Bank in cash. (b) Borrower may request a Revolving Loan by written or telephone notice to Bank. Bank will make Revolving Loans by crediting the amount thereof to Borrower's account at Bank. Loan proceeds will be used for general working capital purposes. (c) On the date hereof, Borrower will duly issue and deliver to Bank a Revolving Note in the form of Exhibit 2.1 (the "Revolving Note"), in the principal amount of $6,000,000 bearing interest as specified in the Revolving Note. (d) (i) The term of the Facility will expire on the date which is four (4) years from the date of execution of this Agreement, and the Revolving Note will become payable in full on that date. Borrower may prepay the principal balance of the Revolving Note in whole or part at any time without premium or penalty. (ii) The Borrower expressly understands and agrees that on May 1, 1994, and on each May 1 thereafter, the Bank shall have the right to review and shall either renew the Facility herein or shall terminate the Facility. If the Bank elects to renew the Facility, said Facility shall be extended for an additional one (1) year period. If the Bank elects to terminate, then, in that event, the Facility herein shall expire three (3) years after the Bank's election to terminate the Facility. It is expressly understood and agreed by Borrower that the terms, conditions, provisions and covenants of this Agreement shall be in full force and effect during the three (3) year period after the Bank elects to terminate the Facility. If the Bank elects to extend the Facility, then, in that event the Facility shall expire four (4) years after the Bank elects to extend said Facility. Notwithstanding anything to the contrary contained hereinabove, if Borrower should be in default of any of the terms, conditions, provisions or covenants of this Agreement, then, in that event, Bank shall have the right to immediately terminate the Facility herein, to demand payment in full of any existing Obligations and shall have all of the rights granted to Bank under Section 6.1 of this Agreement. (iv) The Bank also reserves the right to terminate this Agreement and all further disbursements hereunder at any time prior to the Termination Date upon the occurrence of any Event of Default as described in Section 8 of this Agreement or in any promissory note, or any other document executed by Borrower pursuant to this Agreement. 2.2 FEES. Unused Facility Fee: So long as this Agreement is in effect, Borrower will pay to Bank an unused facility fee at an annual rate equal to .25 % of that portion of the Facility that is not outstanding on each day (the "Unused Facility Fee"), which will be payable on the first (1st) day of each calendar quarter in arrears for the previous calendar month with a final payment due on the termination of this Agreement. Section 3. REPRESENTATIONS AND WARRANTIES. Borrower hereby warrants and represents to Bank the following: 3.1 ORGANIZATION AND QUALIFICATION. Borrower is a duly organized, validly existing corporation in good standing under the laws of the State of Ohio, its state of incorporation, has the power and authority (corporate and otherwise) to carry on its business and to enter into and perform this Agreement, the Note and the other Loan Documents, is qualified and licensed to do business in each jurisdiction in which such qualification or licensing is required. All information provided to Bank with respect to Borrower and its operations is true and correct. 3.2. DUE AUTHORIZATION. The execution, delivery and performance by Borrower of this Agreement, the Note and the other Loan Documents have been duly authorized by all necessary corporate action, and will not contravene any law or any governmental rule or order binding on Borrower, or the articles of incorporation or bylaws/code of regulations of Borrower, nor violate any agreement or instrument by which Borrower is bound nor result in the creation of a Lien on any assets of Borrower except the Lien to Bank granted herein. Borrower has duly executed and delivered this Agreement, the Note and the other Loan Documents and they are valid and binding obligations of Borrower enforceable according to their respective terms except as limited by equitable principles and by bankruptcy, insolvency or similar laws affecting the rights of creditors generally. No notice to or consent by any governmental body is needed in connection with this transaction. 3.3. LITIGATION. There are no suits or proceedings pending or threatened against or affecting Borrower, and no proceedings before any governmental body are pending or threatened against Borrower except as set forth on Exhibit 3.3 attached hereto. 3.4 MARGIN STOCK. No part of the Loans will be used to purchase or carry, or to reduce or retire or refinance any credit incurred to purchase or carry, any margin stock (within the meaning of Regulations U and X of the Board of Governors of the Federal Reserve System) or to extend credit to others for the purpose of purchasing or carrying any margin stock. If requested by Bank, Borrower will furnish to Bank statements in conformity with the requirements of Federal Reserve Form U-1. 3.5 BUSINESS. Borrower is not a party to or subject to any agreement or restriction which in the opinion of Borrower's management is so unusual or burdensome that it might have a material adverse effect on Borrower's business, properties or prospects. 3.6 LICENSES, ETC. Borrower has obtained any and all licenses, permits, franchises, GOVERNMENTAL authorizations, patents, trademarks, copyrights or other rights necessary for the ownership of its properties and the advantageous conduct of its business. Borrower possesses adequate licenses, patents, patent applications, copyrights, trademarks, trademark applications, and trade names to continue to conduct its business as heretofore conducted by it, without any conflict with the rights of any other person or entity. All of the foregoing are in full force and effect and none of the foregoing not in known conflict with the rights of others. LAWS AND TAXES. Borrower is in compliance with all laws, regulations, rulings, orders, injunctions, decrees, conditions or other requirements applicable to or imposed upon Borrower by any law or by any governmental authority, court or agency. Borrower has filed all required tax returns and reports that are now required to be filed by it in connection with any federal, state and local tax, duty or charge levied, assessed or imposed upon Borrower or its assets, including unemployment, social security, and real estate taxes. Borrower has paid all taxes which are now due and payable. No taxing authority has asserted or assessed any additional tax Borrower authorizes any attorney of record to appear for it in any court of record in the State of Ohio, after this Note becomes due and payable, whether by its terms or upon default, waives the issuance and service of process, and releases all errors and rights of appeal, and confesses a judgment against it in favor of the holder of such obligation, for the principal amount of such obligation plus interest thereon, together with court costs and attorneys' fees. Stay of execution and all exemptions are hereby waived. If an obligation is referred to an attorney for collection, and the payment is obtained without the entry of a judgment, the obligors will pay to the holder of such obligation its attorneys' fees liabilities against Borrower which are outstanding on the date of this Agreement, and Borrower has not filed for any extension of time for the payment of any tax or the filing of any tax return or report. 3.8 FINANCIAL CONDITION. All financial information relating to Borrower which has been or may hereafter be delivered to Bank is true and correct and has been prepared in accordance with generally accepted accounting principles consistently applied. Borrower has no material obligations or liabilities of any kind not disclosed in that financial information, and there has been no material adverse change in the financial condition of Borrower nor has Borrower suffered any damage, destruction or loss which has adversely affected its business or assets since the submission of the most recent financial information to Bank. 3.9 TITLE. Borrower has good and marketable title to the assets reflected on the most recent balance sheet submitted to Bank, free and clear from all liens and encumbrances of any kind, except for (collectively, the "Permitted Liens"): (a) current taxes and assessments not yet due and payable, (b) liens and encumbrances, if any, reflected or noted on such balance sheets or notes thereto, (c) assets disposed of in the ordinary course of business, and (d) liens imposed by law, such as workman's, warehousemen's or mechanics liens, and incurred in good faith in the ordinary course of business. 3.10 DEFAULTS. Borrower is in compliance with all material agreements applicable to it and there does not now exist any default or violation by Borrower of or under any of the terms, conditions or obligations of (a) its Articles of Incorporation or Regulations/Bylaws, or (b) any indenture, mortgage, deed of trust, franchise, permit, contract, agreement or other instrument to which Borrower is a party or by which it is bound, and the consummation of the transactions contemplated by this Agreement will not result in such default or violation. 3.11 ENVIRONMENTAL LAWS. (a) Borrower has obtained all permits, licenses and other authorizations which are required under Environmental Laws and Borrower is in compliance in all material respects with all terms and conditions of the required permits, licenses and authorizations, and is also in compliance in all material respects with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in the Environmental Laws. (b) Borrower is not aware of, and has not received notice of, any past, present or future events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent compliance or continued compliance, in any material respect, with Environmental Laws, or may give rise to any material common law or legal liability, or otherwise form the basis of any material claim, action, demand, suit, proceeding, hearing, study or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant, chemical, or industrial, toxic or hazardous substance or waste. (c) There is no civil, criminal or administrative action suit, demand, claim, hearing, notice or demand letter, notice of violation, investigation or proceeding pending or threatened against Borrower, relating in any way to Environmental Laws. 3.12 ERISA. Borrower is in compliance with all of its obligations to contribute to any employee benefit plan or pension plan regulated by the Federal Employee Retirement Income Security Act of 1974 ("ERISA"). Borrower has not received notice informing it that it is not in full compliance with any of the requirements of ERISA, and the regulations promulgated thereunder and, there exists no event described in Section 4043(3) thereof ("Reportable Event"). Section 4. Affirmative Covenants. 4.1 BOOKS AND RECORDS. Borrower will maintain proper books of account and records and enter therein complete and accurate entries and records of all of its transactions in accordance with generally accepted accounting principles and give representatives of Bank access thereto at all reasonable times, including permission to examine, copy and make abstracts from any such books and records and such other information which might be helpful to Bank in evaluating the status of the Loans as it may reasonably request from time to time. 4.2 FINANCIAL STATEMENTS. Borrower will maintain a standard and modem system for accounting and will furnish to Bank: (a) Within forty-five (45) days after the end of each quarter, a copy of Borrower's consolidated financial statements for that quarter and for the year to date in a form reasonably acceptable to Bank, prepared and certified as complete and correct, subject to changes resulting from year-end adjustments, by the principal financial officer of Borrower. Borrower may meet this requirement by furnishing to Bank a copy of form 10-Q filed with the Securities and Exchange Commission; (b) Within ninety (90) days after the end of each fiscal year, a copy of Borrower's consolidated financial statements for that year audited by a firm of independent certified public accountants acceptable to Bank (which acceptance will not be unreasonably withheld), and accompanied by a standard audit opinion of such accountants without significant qualification and a copy of form 10-K filed with the Securities and Exchange Commission; (c) With the statements submitted under (a) and (b) above, a certificate signed by the principal financial officer of Borrower, (i) stating he is familiar with all documents relating to Bank and that no Event of Default specified in this Agreement, nor any event which upon notice or lapse of time, or both would constitute such an Event of Default, has occurred, or if any such condition or event existed or exists, specifying it and describing what action Borrower has taken or proposes to take with respect thereto, and (ii) setting forth, in summary form, figures showing the financial status of Borrower in respect of the financial restrictions contained in this Agreement; (d) Forthwith upon any officer of Borrower obtaining knowledge of any condition or event which constitutes or, after notice or lapse of time or both, constitute an Event of Default, a certificate of such person specifying the nature and period of the existence thereof, and what action Borrower has taken or is taking or proposes to take in respect thereof; and if at any time Borrower has any additional subsidiaries which have financial statements that could be consolidated with those of Borrower under generally accepted accounting principles, the financial statements required by subsections (a) and (b) above will be the financial statements of Borrower and all such subsidiaries prepared on a consolidated and consolidating basis. 4.3 CONDITION AND REPAIR. Borrower will maintain its assets in good repair and working order and will make all appropriate repairs and replacements thereof. 4.4 INSURANCE. Borrower will insure its properties and business against loss or damage of the kinds and in the amounts customarily insured against by corporations with established reputations engaged in the same or similar business as Borrower. 4.5 TAXES. Borrower will pay when due all taxes, assessments and other governmental charges imposed upon it or its assets, franchises, business, income or profits before any penalty or interest accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which by law might be a lien or charge upon any of its assets, provided that (unless any material item or property would be lost, forfeited or materially damaged as a result thereof) no such charge or claim need be paid if it is being diligently contested in good faith, if Bank is notified in advance of such contest and if Borrower establishes an adequate reserve or other appropriate provision required by generally accepted accounting principles and deposits with Bank cash or bond in an amount acceptable to Bank. 4.6 EXISTENCE; BUSINESS. Borrower will (a) maintain its existence, (b) engage primarily in business of the same general character as that now conducted, and (c) refrain from entering into any lines of business substantially different from the business or activities in which Borrower is presently engaged. 4.7 COMPLIANCE WITH LAWS. Borrower will comply with all federal, state and local laws, regulations and orders applicable to Borrower or its assets including but not limited to all Environmental Laws, in all respects material to Borrower's business, assets or prospects and will immediately notify Bank of any violation of any rule, regulation, statute, ordinance, order or law relating to the public health or the environment and of any complaint or notifications received by Borrower regarding to any environmental or safety and health rule, regulation, statute, ordinance or law. 4.8 NOTICE OF DEFAULT. Borrower will, within three (3) days of its knowledge thereof, give written notice to Bank of (a) the occurrence of any event or the existence of any condition which would be, after notice or lapse of applicable grace periods, an Event of Default, and (b) the occurrence of any event or the existence of any condition which would prohibit Borrower from continuing to make the representations set forth in this Agreement. 4.9 COSTS. Borrower will pay to Bank its fees, costs and expenses (including, without limitation, reasonable attorneys' fees, court costs, litigation and other expense) (collectively, "Costs") incurred or paid by Bank in negotiating, documenting, administering and enforcing the Loan Documents. The Costs will be due upon demand by Bank. If Borrower fails to pay the Costs when upon such demand, Bank is entitled to disburse such sums as an advance under the Facility, thereafter the Costs will bear interest from the date incurred or disbursed at the highest rate set forth in the Note. 4.10 DEPOSITORY/BANKING SERVICES. Bank will be the primary depository in which substantially all of Borrower's funds are deposited, and the principal bank of account of Borrower, as long as this Agreement is in effect, and Borrower will grant Bank the first and last opportunity to provide any corporate banking services required by Borrower and its subsidiaries, including, without limitation, payroll, cash management and employee benefit plan services. 4.11 OTHER AMOUNTS DEEMED LOANS. If Borrower fails to pay any tax, assessment, governmental charge or levy or to maintain insurance within the time permitted by this Agreement, or to discharge any Lien prohibited hereby, or to comply with any other obligation, Bank may, but shall not be obligated to, pay, satisfy, discharge or bond the same for the account of Borrower, and to the extent permitted by law and at the option of Bank, all monies so paid by Bank on behalf of Borrower will be deemed Loans and Obligations. Section 5. Negative Covenants. 5.1 INDEBTEDNESS. Borrower will not incur, create, assume or permit to exist any additional Indebtedness for borrowed money (other than the Obligations) or Indebtedness on account of deposits, advances or progress payments under contracts, notes, bonds, debentures or similar obligations or other indebtedness evidenced by notes, bonds, debentures, capitalized leases or similar obligations except: (a) indebtedness incurred pursuant to this Agreement or with Bank; (b) liabilities on account of deposits or advances by customers in the ordinary course of business or on account of deposits under worker's compensation, unemployment insurance and social security laws or to enforce the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases or to secure statutory obligations or security or appeal bonds, or to secure indemnity, performance or other similar bonds in the ordinary course of business; (c) other indebtedness of Borrower existing as of the date of this Agreement and previously disclosed to Bank in Borrower's financial statements; (d) indebtedness arising out of the acquisition by Borrower of another entity which is financed entirely by Borrower or Bank (and not by a financial institution or other lender); (e) lease payments arising under capitalized equipment leases of Borrower which lease payments will not be in excess of $50,000 in the aggregate in any fiscal year. 5.2 PLEDGE OR ENCUMBRANCE OF ASSETS. Other than the Permitted Liens, neither Borrower nor its wholly-owned subsidiary, Ohio Indemnity Company, will create, incur, assume or permit to exist any Lien in any present or future asset, except for Liens to Bank, Liens existing on the date of this Agreement which have been disclosed to and approved by Bank and Liens imposed by law which secure amounts not at the time due and payable. 5.3 GUARANTEES AND LOANS. Borrower will not enter into any direct or indirect guarantees other than by endorsement of checks for deposit or other than in the ordinary course of business nor make any advance or loan other than in the ordinary course of business as presently conducted, including, without limitation, loans and advances to employees of Borrower in excess of $150,000 in the aggregate at any one time. Notwithstanding the foregoing, Borrower shall be permitted to guarantee obligations of its wholly-owned subsidiaries. 5.4 MERGER; DISPOSITION OF ASSETS. Borrower will not (a) change its capital structure, (b) merge or consolidate with any corporation, (c) sell, transfer or otherwise dispose of all or any substantial part of its assets, whether now owned or hereafter acquired, except for sales of Inventory in the ordinary course of business and except for dispositions of property with a book value of less than $10,000 per year which is not used or useful in its business. 5.5 STATUTORY NET WORTH. Borrower will not permit the tangible net worth of Ohio Indemnity Company ("policy holder surplus" in statutory reporting) to be less than the amounts indicated at the end of each respective periods indicated below, as determined in accordance with accounting standards promulgated by the Ohio Department of Insurance: Fiscal Year Ending Maximum Net Worth ------------------ ----------------- December 31, 1992 $7000,000 December 31, 1993 $7,250,000 December 31, 1994 $7,750,000 This minimum net worth shall thereafter be increased by at least $500,000 at the end of each fiscal year commencing with the fiscal year ending December 31, 1995. 5.6 DEBT SERVICE COVERAGE RATIO. Borrower will not permit the Debt Service Coverage Ratio of Ohio Indemnity Company on a consolidated basis, to be less than 2.0 to 1 at the end of any fiscal year beginning with the fiscal year ending December 31, 1993. 5.7. NET PREMIUM RATIO. Borrower will not permit the ratio of net premiums written to policy holder surplus of Ohio Indemnity Company on a consolidated basis and, as determined in accordance with accounting standards promulgated by the Ohio Department of Insurance to exceed 3 to 1 at any time. Section 6. Events of Default and Remedies. 6.1 EVENTS OF DEFAULT. Any of the following events will be an Event of Default ("Event of Default"): (a) any representation or warranty made by Borrower herein or in any of the Loan Documents is incorrect when made or reaffirmed; or (b) Borrower defaults in the payment of any principal or interest on any Obligation when due and payable, by acceleration or otherwise; or (c) Borrower fails to observe or perform any covenant, condition or agreement herein and the failure or inability of Borrower to cure such default within 30 days of the occurrence thereof, provided that such 30 day grace period will not apply to (i) a breach of any covenant which in Bank's good faith judgment is incapable of cure, (ii) any failure to permit inspection of the books and records of Borrower, (iii) any breach in any negative covenant set forth in Section 5 hereof, or (iv) any breach of any covenant which has already occurred; or (d) a court enters a decree or order for relief with respect to Borrower [or any guarantor] in an involuntary case under any applicable bankruptcy, insolvency or other similar law then in effect, or appoints a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of Borrower or for any substantial part of its property, or orders the wind-up or liquidation of its affairs; or a petition initiating an involuntary case under any such bankruptcy, insolvency or similar law is filed and is pending for thirty (30) days without dismissal; or (e) Borrower commences a voluntary case under any applicable bankruptcy, insolvency or other similar law in effect, or makes any general assignment for the benefit of creditors, or fails generally to pay its debts as such debts become due, or takes corporate action in furtherance of any of the foregoing; or (f) Borrower defaults under the terms of any Indebtedness or lease involving payment obligations of Borrower and such default gives any creditor or lessor the right to accelerate the maturity of any such indebtedness or lease payments which right is not contested by Borrower or is determined by any court of competent jurisdiction to be valid; or (g) final judgment of the payment of money in excess of $25,000 is rendered against Borrower and remains undischarged for 10 days during which execution is not effectively stayed; or (h) any event occurs which might, in Bank's opinion, have a material adverse effect on the Collateral or on Borrower's financial condition, operations, assets or prospects, or on any other property securing the repayment of the Obligations; (i) a Reportable Event (as defined in ERISA) occurs with respect to any employee benefit plan maintained by Borrower for its employees other than a Reportable Event caused solely by a decrease in employment; or a trustee is appointed by a United States District Court to administer any employee benefit plan; or the Pension Benefit Guaranty Corporation institutes proceedings to terminate any of Borrower's employee benefit plans. 6.2 REMEDIES. If any Event of Default will occur, Bank may cease advancing money hereunder, and/or declare all Obligations to be due and payable forthwith, whereupon they will forthwith become due and payable without presentment, demand, protest, or notice of any kind, all of which are hereby expressly waived by Borrower. 6.3 SETOFF. If any Event of Default will occur, Bank is authorized, without notice to Borrower, to offset and apply to all or any part of the Obligations all moneys, credits and other property of any nature whatsoever of Borrower now or at any time hereafter in the possession of, in transit to or from, under the control or custody of, or on deposit with (whether held by Borrower individually or jointly with another party), Bank, including but not limited to certificates of deposit. 6.4 DEFAULT RATE. After the occurrence of an Event of Default, all amounts of principal outstanding as of the date of the occurrence of such Event of Default will bear interest at the Default Rate, in Bank's sole discretion, without notice to Borrower. This provision does not constitute a waiver of any Events of Default or an agreement by Bank to permit any late payments whatsoever. 6.5 NO REMEDY EXCLUSIVE. No remedy set forth herein is exclusive of any other available remedy or remedies, but each is cumulative and in addition to every other remedy available under this Agreement, the Loan Documents or as may be now or hereafter existing at law, in equity or by statute. Borrower waives any requirement of marshalling of assets which may be secured by any of the Loan Documents. 6.6 EFFECT OF TERMINATION. The termination of this Agreement will not affect any rights of either party or any obligation of either party to the other, arising prior to the effective date of such termination, and the provisions hereof shall continue to be fully operative until all transactions entered into, rights created or Obligations incurred prior to such termination have been fully disposed of, concluded or liquidated. The security interest, lien and rights granted to Bank hereunder and under the Loan Documents will continue in full force and effect, notwithstanding the termination of this Agreement or the fact that no Loans are outstanding to Borrower, until all of the Obligations, have been paid in full. 6.7 NO ADEQUATE REMEDY AT LAW. Borrower recognizes that in the event Borrower fails to pay, perform, observe or discharge any of its Obligations under this Agreement, the Note or the other Loan Documents, no remedy at law will provide adequate relief to Bank and Borrower agrees that Bank shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving that it has incurred actual damages. Section 7. Conditions Precedent. 7.1 CONDITIONS TO INITIAL LOANS. Bank will have no obligation to make or advance any Revolving Loan or the Term Loan until Borrower has delivered to Bank at or before the closing date, in form and substance satisfactory to Bank: (a) Executed version of the Revolving Note in the form of Exhibit 2.1 attached hereto. (b) A Certificate of Borrower in the form of Exhibit 7.1 (b) and all attachments thereto. (c) An assignment of key man life insurance in the minimum amount of $100,000 on the life of Simon Sokol in favor of the Bank. (d) Such additional information and materials as Bank may reasonably request. 7.2 CONDITIONS TO EACH REVOLVING LOAN. On the date of each Revolving Loan, the following statements will be true: (a) All of the representations and warranties contained herein and in the Loan Documents will be correct in all material respects as though made on such date; (b) No event will have occurred and be continuing, or would result from such Loan, which constitutes an Event of Default, or would constitute an Event of Default but for the requirement that notice be given or lapse of time or both; (c) The aggregate unpaid principal amount of the Revolving Loans after giving effect to such Revolving Loan will not violate the lending limits set forth in Section 2.1 of this Agreement. The acceptance by Borrower of the proceeds of each Revolving Loan will be deemed to constitute a representation and warranty by Borrower that the conditions in Section 7.2 of this Agreement, other than those that have been waived in writing by Bank, have been satisfied. Section 8. Miscellaneous Provisions. 8.1 MISCELLANEOUS. This Agreement, the exhibits and the other Loan Documents are the complete agreement of the parties hereto and supersede all previous understandings relating to the subject matter hereof. This Agreement may be amended only in writing signed by the party against whom enforcement of the amendment is sought. This Agreement may be executed in counterparts. If any part of this Agreement is held invalid, the remainder of this Agreement will not be affected thereby. This Agreement is and is intended to be a continuing agreement and will remain in full force and effect until the Loans are finally and irrevocably paid in full and the Facility is terminated. 8.2 WAIVER BY BORROWER. Borrower waives notice of non-payment, demand, presentment, protest or notice of protest and all other notices (except those notices specifically provided for in this Agreement); consents to any renewals or extensions of time of payment thereof-, and generally waives any all suretyship defenses and defenses in the nature thereof. 8.3 BINDING EFFECT. This Agreement will be binding upon and inure to the benefit of the respective legal representatives, successors and assigns of the parties hereto; however, Borrower may not assign any of its rights or delegate any of its obligations hereunder. Bank (and any subsequent assignee) may transfer and assign this Agreement or may assign partial interests or participation in the Loans to other persons. Bank may disclose to all prospective and actual assignees and participants all financial, business and other information about a Borrower which Bank may possess at any time. 8.4 SURVIVAL. All representations, warranties, covenants and agreements made by Borrower herein and in the Loan Documents will survive the execution and delivery of this Agreement, the Loan Documents and the issuance of the Note. 8.5 DELAY OR OMISSION. No delay or omission on the part of Bank in exercising any right, remedy or power arising from any Event of Default will impair any such right, remedy or power or any other right remedy or power or be considered a waiver or any right, remedy or power or any Event of Default nor will the action or omission to act by Bank upon the occurrence of any Event of Default impair any right, remedy or power arising as a result thereof or affect any subsequent Event of Default of the same or different nature. 8.6 NOTICES. Any notices under or pursuant to this Agreement will be deemed duly sent when delivered in hand or when mailed by registered or certified mail, return receipt requested, addressed as follows: To Borrower: Bancinsurance Corporation 20 East Broad Street Columbus, Ohio 43215 Attention: Simon Sokol, President To Bank: The Fifth Third Bank of Columbus 21 East State Street Columbus, Ohio 43215 Attention: Commercial Loan Department Either party may change such address by sending notice of the change to the other party. 8.7 NO PARTNERSHIP. Nothing contained herein or in any of the Loan Documents is intended to create or will be construed to create any relationship between Bank and Borrower other than as expressly set forth herein or therein and will not create any joint venture, partnership or other relationship. 8.8 INDEMNIFICATION. If after receipt of any payment of all or part of the Obligations, Bank is for any reason compelled to surrender such payment to any person or entity, because such payment is determined to be void or voidable as a preference, impermissible setoff, or diversion of trust funds, or for any other reason, this Agreement will continue in full force and effect and Borrower will be liable to, and will indemnify, save and hold Bank, its officers, directors, attorneys, and employees harmless of and from the amount of such payment surrendered. The provisions of this Section will be and remain effective notwithstanding any contrary action which may have been taken by Bank in reliance on such payment, and any such contrary action so taken will be without prejudice to Bank's rights under this Agreement and will be deemed to have been conditioned upon such payment becoming final, indefeasible and irrevocable. In addition, Borrower will indemnify, defend, save and hold Bank, its officers, directors, attorneys, and employees harmless of, from and against all claims, DEMANDS, liabilities, judgments, losses, damages, costs and expenses, joint or several (including all accounting fees and attorneys' fees reasonably incurred), that Bank or any such indemnified party may incur arising out of this Agreement, any of the Loan Documents or any act taken by Bank hereunder except for the willful misconduct or gross negligence of such indemnified party. The provisions of this Section will survive the termination of this Agreement. 8.9 GOVERNING LAW; JURISDICTION. This Agreement, the Note and the other Loan Documents will be governed by the domestic laws of the State of Ohio. Borrower agrees that the state and federal courts in Franklin County, Ohio, or any other court in which Bank initiates proceedings have exclusive jurisdiction over all matters arising out of this Agreement, and that service of process in any such proceeding will be effective if mailed to Borrower at its address described in the Notices section of this Agreement. BANK AND BORROWER HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 8.10 CONFESSION OF JUDGMENT. Borrower authorizes any attorney of record to appear for it in any court of record in the State of Ohio, after an Obligation becomes due and payable whether by its terms or upon default, waives the issuance and service of process, releases all errors and rights of appeal, and confesses a judgment against it in favor of the holder of such Obligation, for the principal amount of such Obligation plus interest thereon, together with court costs and attorneys' fees. Stay of Execution and all exemptions are hereby waived. If an Obligation is referred to an attorney for collection, and the payment is obtained without the entry of a judgment, the obligors will pay to the holder of such Obligation its attorneys' fees. The undersigned acknowledges and agrees to be bound by the terms and provisions of only Section 5.2 hereof. OHIO INDEMNITY COMPANY By: /s/ Si Sokol ------------------------------------ Its: President ------------------------------------ IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement by their duly authorized officers as of the date first above written. THE FIFTH THIRD BANK OF COLUMBUS By: /s/ Tim O'dell ------------------------------------ Its: Senior Vice President ------------------------------------ WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT OR ANY OTHER CAUSE. BANCINSURANCE CORPORATION By: /s/ Si Sokol ------------------------------------ Its: President ------------------------------------ EX-4.B 6 l92627aex4-b.txt EXHIBIT 4B EXHIBIT 4(b) FIRST AMENDMENT TO CREDIT AGREEMENT This First Amendment to the Credit Agreement (the "Amendment") is entered as of this 5th day of November, 1993, by and between THE FIFTH THIRD BANK OF COLUMBUS, an Ohio banking corporation (the "Bank*) and BANCINSURANCE CORPORATION, an Ohio corporation (the "Borrower"). WHEREAS, Bank and Borrower entered into that certain Credit Agreement, dated as of January 25, 1993 (the "Agreement"); WHEREAS, in connection with the transactions contemplated by the Agreement, Borrower executed a Revolving Note, dated January 25, 1993 in the principal amount of $6,000,000 and made payable to Bank (the "Revolving Note"); WHEREAS, Borrower and Bank desire to amend the Agreement and the Revolving Note to increase the principal amount thereof subject to the conditions set forth herein; NOW THEREFORE, intending to be legally bound, the parties hereto agree as follows: 1. AMENDMENTS. (a) Section 2, Subsection 2.1 (a) of the Agreement is hereby amended and restated in its entirety as follows: 2.1 REVOLVING CREDIT LOANS. (a) Subject to the terms and conditions hereof, Bank hereby increases and extends to Borrower a line of credit facility (the "Facility") under which Bank will make loans (the "Revolving Loans") to $10,000,000. Bank may create and maintain reserves from time to time based on such credit considerations as Bank may deem appropriate. Borrower may borrow, prepay (without penalty or charge), and reborrow under the Facility, provided that the principal amount of all Revolving Loans outstanding at any onetime under the Facility will not exceed $10,000,000. If the amount of Revolving Loans outstanding at any time under the Facility exceeds such amount, Borrower will immediately pay the amount of such excess to Bank in cash. (b) Section 2, Subsection 2.1 (b) of the Agreement is hereby amended and restated in its entirety as follows: 2.1(b) On the date of execution of the First Amendment to the Credit Agreement (the "Amendment"), Borrower shall duly execute and deliver to Bank an amended and restated Revolving Note in the form attached as Exhibit 2.1 to the Amendment, in the principal amount of $10,000,000, bearing interest as specified in such Revolving Note (the "Revolving Note") and will be delivered to Bank in substitution for the Revolving Note originally executed by Borrower on January 25, 1993, in the principal amount of $6,000,000. 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER. To induce Bank to enter into this Amendment, Borrower represents and warrants as follows: (a) The representations and warranties of Borrower contained in Section 3 of the Agreement are deemed to have been made again on and as of the date of execution of this Amendment, and are true and correct as of the date of execution hereof. (b) No Event of Default (as such term is defined in Section 6 of the Agreement) or event or condition which, with the lapse of time or giving of notice or both, would constitute an Event of Default exists on the date hereof. (c) The person executing this Amendment and the Amended and Restated Revolving Note, is a duly elected and acting officer of Borrower and is duly authorized by the Board of Directors of Borrower to execute and deliver this Amendment and such note on behalf of Borrower. 3. CONDITIONS. Bank's obligations under this Amendment are subject to the following conditions: (a) Borrower shall have executed and delivered to Bank the Amended and Restated Revolving Note in the form attached hereto as Exhibit 2.1. (b) The Bank shall have been furnished copies, certified by the Secretary or assistant Secretary of Borrower, of resolutions of the Board of Directors of Borrower authorizing the execution of this Amendment, the Exhibits hereto and all other documents executed in connection herewith which resolutions will be in the form attached hereto as Exhibit A. (c) The representations and warranties of Borrower in Section 3 hereof shall be true and correct on the date of execution of this Amendment. 4. GENERAL. (a) Except as expressly modified hereby, the Agreement remains unaltered and in full force and effect. Borrower acknowledges that Bank has made no oral representations to Borrower with respect to the Agreement and this Amendment thereto and that all prior understandings between the parties are merged into the Agreement as amended by this writing. All Loans outstanding on the date of execution of this Amendment shall be considered for all purposes to be Loans outstanding under the Agreement as amended by this Amendment. (b) Capitalized terms used and not otherwise defined herein will have the meanings set forth in the Agreement. (c) Nothing contained herein will be construed as waiving any default or Event of Default under the Agreement or will affect or impair any right, power or remedy of the Bank under or with respect to the Loans, the Agreement, as amended, the Revolving Note, as amended and restated, or any agreement or instrument guaranteeing, securing or otherwise relating to the Loans. (d) This Amendment shall be considered an integral part of the Agreement, and all references to the Agreement in the Agreement itself or any document referring thereto shall, on and after the date of execution of this Amendment, be deemed to be references to the Agreement as amended by this Amendment. (e) This Amendment will be binding upon and inure to the benefit of Borrower and Bank and their respective successors and assigns. (f) All representations, warranties and covenants made by Borrower herein will survive the execution and delivery of this Amendment. (g) This Amendment will, in all respects, be governed and construed in accordance with the laws of the State of Ohio. (h) This Amendment may be executed in one or more counterparts, each of which will be deemed an original and all of which together will constitute one and the same instrument. (i) Borrower authorizes any attorney of record to appear for it in any court of record in the State of Ohio, after an Obligation becomes due and payable whether by its terms or upon default, waives the issuance and service of process, releases all errors and rights of appeal, and confesses a judgment against it in favor of the holder of such Obligation, for the principal amount of such Obligation plus interest thereon, together with court costs and attorneys' fees. Stay of Execution and all exemptions are hereby waived. If an Obligation is referred to an attorney for collection, and the payment is obtained without the entry of a judgment, the obligors will pay to the holder of such Obligation its attorneys' fees. IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement by their duly authorized officers as of the date first above written. WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT OR ANY OTHER CAUSE. BANCINSURANCE CORPORATION By: /s/ Si Sokol ------------------------------------- Its: President ------------------------------------- THE FIFTH THIRD BANK OF COLUMBUS By: /s/ Tim O'dell ------------------------------------- Its: Senior Vice President ------------------------------------- EX-4.C 7 l92627aex4-c.txt EXHIBIT 4C EXHIBIT 4(c) SECOND AMENDMENT TO CREDIT AGREEMENT This Second Amendment to the Credit Agreement (the "Amendment") is entered as of this 19th day of October, 1994, by and between THE FIFTH THIRD BANK OF COLUMBUS, an Ohio banking corporation (the "Bank") and BANCINSURANCE CORPORATION, an Ohio corporation (the "Borrower"). WHEREAS, Bank and Borrower entered into that certain Credit Agreement, dated as of January 25, 1993 (the "Agreement"); WHEREAS, in connection with the transactions contemplated by the Agreement, Borrower executed a Revolving Note, dated January 25, 1993 in the principal amount of $6,000,000 and made payable to Bank (the "Revolving Note"): WHEREAS, in connection with transactions contemplated by the Agreement, Borrower executed an Amended and Restated Revolving Note, dated November 5, 1993 in the principal amount of $10,000,000 and made payable to the Bank (the "Amended and Restated Revolving Note") in substitution for the Note, originally dated January 25, 1993. WHEREAS, Borrower and Bank desire to amend the Agreement and the Amended and Restated Revolving Note to extend the maturity thereof as permitted under section 2. 1 (d)(ii) to May 1, 1988 subject to the conditions set forth herein; NOW THEREFORE, intending to be legally bound, the parties hereto agree as follows: 1. AMENDMENTS (a) Section 2, subsection 2.1 (a) of the Agreement is hereby amended and restated in its entirety as follows: 2. 1(a) On the date of execution of the Second Amendment to the Credit Agreement (the 'Amendment"), Borrower shall duly execute and deliver to Bank an amended and restated Revolving Note in the form attached as Exhibit 2.1 to the Amendment, in the principal amount of $10,000,000 bearing interest as specified in such Amended and Restated Revolving Note (the "Revolving Note") and will be delivered to Bank in substitution for the Revolving Note originally executed by Borrower on November 5, 1993, in the principal amount of $10,000,000. 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER. To induce Bank to enter into this Amendment, Borrower represents and warrants as follows: (a) The representations and warranties of Borrower contained in Section 3 of the Agreement are deemed to have been made again on and as of the date of execution of this Amendment, and are true and correct as of the date of execution hereof. (b) No Event of Default (as such terra is defined in Section 6 of the Agreement) or event or condition which, with the lapse of time or giving notice or both, would constitute an Event of Default exists on the date hereof. (c) The person executing this Amendment and the Amended and Restated Revolving Note, is a duly elected and acting officer of Borrower and is duly authorized by the Board of Directors of Borrower to execute and deliver this Amendment and such note on behalf of Borrower. 3. Conditions. Bank's obligations under this Amendment are subject to the following conditions: (a) Borrower shall have executed and delivered to Bank the Amended and Restated Revolving Note in the form attached hereto as Exhibit 2. 1. (b) The Bank shall have been furnished copies, certified by the Secretary or assistant Secretary of Borrower, of resolutions of the Board of Directors or Borrower authorizing the execution of this Amendment, the Exhibits hereto and all other documents executed in connection herewith which resolutions will be in the form attached hereto as Exhibit A. (c) The representations and warranties of Borrower in Section 3 hereof shall be true and correct on the date of execution of this Amendment. 4. GENERAL. (a) Except as expressly modified hereby, the Agreement remains unaltered and in full force and effect. Borrower acknowledges that Bank has made no oral representations to Borrower with respect to the Agreement and this Amendment thereto and that all prior understandings between the parties are merged into the Agreement as amended by this writing. All loans outstanding on the date of execution of this Amendment shall be considered for all purposes to be Loans outstanding under the Agreement as amended by this Amendment. (b) Capitalized terms used and not otherwise defined herein will have the meanings set forth in the Agreement. (c) Nothing contained herein will be construed as waiving any default or Event of Default under the Agreement or will affect or impair any right, power or remedy of the Bank under or with respect to the Loans, the Agreement, as amended, the Revolving Note, as amended and restated, or any agreement or instrument guaranteeing, securing or otherwise relating to the Loans. (d) This Amendment shall be considered an integral part of the Agreement, and all references to the Agreement in the Agreement itself or any document referring thereto shall, on and after the date of execution of this Amendment, be deemed to be references to the Agreement as amended by this Amendment. (e) This Amendment will be binding upon and insure to the benefit of Borrower and Bank and their respective successors and assigns. (f) All representations, warranties and covenants made by Borrower herein will survive the execution and delivery of this Amendment. (g) This Amendment will, in all respects, be governed and construed in accordance with the laws of the State of Ohio. (h) This Amendment may be executed in one or more counterparts, each of which will be deemed an original and all of which together will constitute one and the same instrument. (i) Borrower authorizes any attorney of record to appear for it in any court of record in the State of Ohio, after an Obligation becomes due and payable whether by its terms or upon default, waives the issuance and service of process, releases all errors and rights of appeal, and confesses a judgment against it in favor of the holder of such Obligation, for the principal amount of such Obligation plus interest thereon, together with court costs and attorneys' fees. Stay of Execution and all exemptions are hereby waived. If an Obligation is referred to an attorney for collection, and the payment is obtained without the entry of a judgment, the obligers will pay to the holder of such Obligation its attorneys' fees. IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement by their duly authorized officers as of the date first above written. WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT OR ANY OTHER CAUSE. BANCINSURANCE CORPORATION By: /s/ Si Sokol ------------------------------------- Its: President ------------------------------------- THE FIFTH THIRD BANK OF COLUMBUS By: /s/ Tim O'dell ------------------------------------- Its: Senior Vice President ------------------------------------- EX-4.D 8 l92627aex4-d.txt EXHIBIT 4D EXHIBIT 4(d) THIRD AMENDMENT TO CREDIT AGREEMENT This Third Amendment to the Credit Agreement (the "Amendment") is entered as of this 24th day of November, 1999, by and between FIFTH THIRD BANK, CENTRAL OHIO, an Ohio banking corporation (the "Bank") and BANCINSURANCE CORPORATION, an Ohio corporation (the "Borrower"). WHEREAS, Bank and Borrower entered into that certain Credit Agreement, dated as of January 25, 1993, as amended by the First Amendment thereto, dated November 5, 1993 and the Second Amendment thereto, dated October 19, 1994 (the "Agreement"); WHEREAS, Borrower executed and delivered to Bank a Revolving Note, dated January 25, 1993, in the original principal amount of $6,000,000 (the "Note"); WHEREAS, the terms of the Note were amended and restated pursuant to Amended and Restated Notes, dated November 5, 1993, October 19, 1994, July 19, 1995, June 4, 1996, July 17, 1997 and September 1, 1998, in the principal amount of $ 10,000,000; and WHEREAS, Borrower and Bank desire to amend the Agreement and the Note to extend the term thereof and to change certain financial covenants contained in the Agreement, subject to the terms and conditions set forth herein; NOW THEREFORE, intending to be legally bound, the parties hereto agree as follows: 1. AMENDMENTS. (a) Section 2, Subsections 2. 1 (a) and (b) of the Agreement are hereby amended and restated in their entirety to read as follows: 2.1 REVOLVING CREDIT LOANS. (a) Subject to the terms and conditions hereof, Bank hereby extends to Borrower a line of credit facility (the "Facility") under which Bank will make loans (the "Revolving Loans") to Borrower in an aggregate amount to not exceed $10,000,000. Bank may create and maintain reserves from time to time based on such credit considerations as Bank may deem appropriate. Borrower may borrow, prepay (without penalty or charge) and reborrow under the Facility, provided that the principal amount of all Revolving Loans outstanding at any one time under the Facility will not exceed $10,000,000. If the amount of the Revolving Loans outstanding at any time under the Facility exceeds such amount, Borrower shall immediately pay the amount of such excess to Bank in cash. (b) On the date of execution of the Third Amendment to Credit Agreement (the "Amendment"), Borrower shall duly execute and deliver to Bank an amended and restated Revolving Note in the form attached as Exhibit 2.1 to the Amendment, in the principal amount of $10,000,000, bearing interest as specified in such Revolving Note (the "Revolving Note") and will be delivered to Bank in substitution for the Note most recently executed by Borrower on September 1, 1998, in the principal amount of $10,000,000. (b) Section 5, Subsection 5.5 of the Agreement is hereby amended and restated in its entirety to read as follows: 5.5 STATUTORY NET WORTH. Borrower will not permit the tangible net worth of Ohio Indemnity Company ("policy holder surplus" in statutory reporting) to be less than $18,000,000 on each December 31 throughout the term of this Agreement, as determined in accordance with accounting standards promulgated by the Ohio Department of Insurance. 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER. To induce Bank to enter into this Amendment, Borrower represents and warrants as follows: (a) The representations and warranties of Borrower contained in Section 3 of the Agreement are deemed to have been made again on and as of the date of execution of this Amendment, and are true and correct as of the date of execution hereof. (b) No Event of Default (as such term is defined in Section 6 of the Agreement) or event or condition which, with the lapse of time or giving of notice or both, would constitute an Event of Default exists on the date hereof. (c) The person executing this Amendment and the Amended and Restated Revolving Note, is a duly elected and acting officer of Borrower and is duly authorized by the Board of Directors of Borrower to execute and deliver this Amendment and such note on behalf of Borrower. 3. CONDITIONS. Bank's obligations under this Amendment are subject to the following conditions: (a) Borrower shall have executed and delivered to Bank the Amended and Restated Revolving Note in the form attached hereto as Exhibit 2. 1. (b) The Bank shall have been furnished copies, certified by the Secretary or assistant Secretary of Borrower, of resolutions of the Board of Directors of Borrower authorizing the execution of this Amendment, the Exhibits hereto and all other documents executed in connection herewith which resolutions will be in the form attached hereto as Exhibit A. (c) The representations and warranties of Borrower in Section 2 hereof shall be true and correct on the date of execution of this Amendment. 4. GENERAL. (a) Except as expressly modified hereby, the Agreement remains unaltered and in full force and effect. Borrower acknowledges that Bank has made no oral representations to Borrower with respect to the Agreement and this Amendment thereto and that all prior understandings between the parties are merged into the Agreement as amended by this writing. All Loans outstanding on the date of execution of this Amendment shall be considered for all purposes to be Loans outstanding under the Agreement as amended by this Amendment. (b) Capitalized terms used and not otherwise defined herein will have the meanings set forth in the Agreement. (c) Nothing contained herein will be construed as waiving any default or Event of Default under the Agreement or will affect or impair any right, power or remedy of the Bank under or with respect to the Loans, the Agreement, as amended, the Note, as amended and restated, or any agreement or instrument guaranteeing, securing or otherwise relating to the Loans. (d) This Amendment shall be considered an integral part of the Agreement, and all references to the Agreement in the Agreement itself or any document referring thereto shall, on and after the date of execution of this Amendment, be deemed to be references to the Agreement as amended by this Amendment. (e) This Amendment will be binding upon and inure to the benefit of Borrower and Bank and their respective successors and assigns. (f) All representations, warranties and covenants made by Borrower herein will survive the execution and delivery of this Amendment. (g) This Amendment will, in all respects, be governed and construed in accordance with the laws of the State of Ohio. (h) This Amendment may be executed in one or more counterparts, each of which will be deemed an original and all of which together will constitute one and the same instrument. (i) Borrower authorizes any attorney of record to appear for it in any court of record in the State of Ohio, after an Obligation becomes due and payable whether by its terms or upon default, waives the issuance and service of process, releases all errors and rights of appeal, and confesses a judgment against it in favor of the holder of such Obligation, for the principal amount of such Obligation plus interest thereon, together with court costs and attorneys' fees. Stay of Execution and all exemptions are hereby waived. Borrower also agrees that the attorney acting for Borrower as set forth in this paragraph may be compensated by Bank for such services, and Borrower waives any conflict of interest caused by such representation and compensation arrangement. If an Obligation is referred to an attorney for collection, and the payment is obtained without the entry of a judgment, the obligors will pay to the holder of such Obligation its attorneys' fees. The undersigned acknowledges and agrees to be bound by the terms and provisions of only Section 5.2 of the Agreement. OHIO INDEMNITY COMPANY By: /s/ John Sokol ------------------------------------- Its: President ------------------------------------- IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement by their duly authorized officers as of the date first above written. WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT OR ANY OTHER CAUSE. BANCINSURANCE CORPORATION By: /s/ John Sokol ------------------------------------- Its: President ------------------------------------- FIFTH THIRD BANK, CENTRAL OHIO By: Ted Lape ------------------------------------- Its: Vice President ------------------------------------- EX-4.E 9 l92627aex4-e.txt EXHIBIT 4E EXHIBIT 4(e) FOURTH AMENDMENT TO CREDIT AGREEMENT This Third Amendment to the Credit Agreement (the "Amendment") is entered as of this 11th day of December, 2000, by and between FIFTH THIRD BANK, CENTRAL OHIO, an Ohio banking corporation (the "Bank") and BANCINSURANCE CORPORATION, an Ohio corporation (the "Borrower"). WHEREAS, Bank and Borrower entered into that certain Credit Agreement, dated as of January 25, 1993, as amended by the First Amendment thereto, dated November 5, 1993, the Second Amendment thereto, dated October 19, 1994 and the Third Amendment thereto, dated December 12, 1999 (the "Agreement"); WHEREAS, Borrower executed and delivered to Bank a Revolving Note, dated January 25, 1993, in the original principal amount of $6,000,000 (the "Note"); WHEREAS, the terms of the Note were amended and restated pursuant to Amended and Restated Notes, dated November 5, 1993, October 19, 1994, July 19, 1995, June 4, 1996, July 17, 1997, September 1, 1998 and December 12, 1999, in the principal amount of $ 10,000,000; and WHEREAS, Borrower and Bank desire to amend the Agreement and the Note to extend the term thereof and to change certain financial covenants contained in the Agreement, subject to the terms and conditions set forth herein; NOW THEREFORE, intending to be legally bound, the parties hereto agree as follows: 1. AMENDMENTS. (a) Section 2, Subsections 2. 1 (a) and (b) of the Agreement are hereby amended and restated in their entirety to read as follows: 2.1 REVOLVING CREDIT LOANS. (a) Subject to the terms and conditions hereof, Bank hereby extends to Borrower a line of credit facility (the "Facility") under which Bank will make loans (the "Revolving Loans") to Borrower in an aggregate amount to not exceed $10,000,000. Bank may create and maintain reserves from time to time based on such credit considerations as Bank may deem appropriate. Borrower may borrow, prepay (without penalty or charge) and reborrow under the Facility, provided that the principal amount of all Revolving Loans outstanding at any one time under the Facility will not exceed $10,000,000. If the amount of the Revolving Loans outstanding at any time under the Facility exceeds such amount, Borrower shall immediately pay the amount of such excess to Bank in cash. (b) On the date of execution of the Fourth Amendment to Credit Agreement (the "Amendment"), Borrower shall duly execute and deliver to Bank an amended and restated Revolving Note in the form attached as Exhibit 2.1 to the Amendment, in the principal amount of $10,000,000, bearing interest as specified in such Revolving Note (the "Revolving Note") and will be delivered to Bank in substitution for the Note most recently executed by Borrower on December 12, 1999, in the principal amount of $10,000,000. (b) Section 5, Subsection 5.5 of the Agreement is hereby amended and restated in its entirety to read as follows: 5.5 STATUTORY NET WORTH. Borrower will not permit the tangible net worth of Ohio Indemnity Company ("policy holder surplus" in statutory reporting) to be less than $21,000,000 on each December 31 throughout the term of this Agreement, as determined in accordance with accounting standards promulgated by the Ohio Department of Insurance. 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER. To induce Bank to enter into this Amendment, Borrower represents and warrants as follows: (a) The representations and warranties of Borrower contained in Section 3 of the Agreement are deemed to have been made again on and as of the date of execution of this Amendment, and are true and correct as of the date of execution hereof. (b) No Event of Default (as such term is defined in Section 6 of the Agreement) or event or condition which, with the lapse of time or giving of notice or both, would constitute an Event of Default exists on the date hereof. (c) The person executing this Amendment and the Amended and Restated Revolving Note, is a duly elected and acting officer of Borrower and is duly authorized by the Board of Directors of Borrower to execute and deliver this Amendment and such note on behalf of Borrower. 3. Conditions, Bank's obligations under this Amendment are subject to the following conditions: (a) Borrower shall have executed and delivered to Bank the Amended and Restated Revolving Note in the form attached hereto as Exhibit 2. 1. (b) The Bank shall have been furnished copies, certified by the Secretary or assistant Secretary of Borrower, of resolutions of the Board of Directors of Borrower authorizing the execution of this Amendment, the Exhibits hereto and all other documents executed in connection herewith which resolutions will be in the form attached hereto as Exhibit A. (c) The representations and warranties of Borrower in Section 2 hereof shall be true and correct on the date of execution of this Amendment. 4. GENERAL. (a) Except as expressly modified hereby, the Agreement remains unaltered and in full force and effect. Borrower acknowledges that Bank has made no oral representations to Borrower with respect to the Agreement and this Amendment thereto and that all prior understandings between the parties are merged into the Agreement as amended by this writing. All Loans outstanding on the date of execution of this Amendment shall be considered for all purposes to be Loans outstanding under the Agreement as amended by this Amendment. (b) Capitalized terms used and not otherwise defined herein will have the meanings set forth in the Agreement. (c) Nothing contained herein will be construed as waiving any default or Event of Default under the Agreement or will affect or impair any right, power or remedy of the Bank under or with respect to the Loans, the Agreement, as amended, the Note, as amended and restated, or any agreement or instrument guaranteeing, securing or otherwise relating to the Loans. (d) This Amendment shall be considered an integral part of the Agreement, and all references to the Agreement in the Agreement itself or any document referring thereto shall, on and after the date of execution of this Amendment, be deemed to be references to the Agreement as amended by this Amendment. (e) This Amendment will be binding upon and inure to the benefit of Borrower and Bank and their respective successors and assigns. (f) All representations, warranties and covenants made by Borrower herein will survive the execution and delivery of this Amendment. (g) This Amendment will, in all respects, be governed and construed in accordance with the laws of the State of Ohio. (h) This Amendment may be executed in one or more counterparts, each of which will be deemed an original and all of which together will constitute one and the same instrument. (i) Borrower authorizes any attorney of record to appear for it in any court of record in the State of Ohio, after an Obligation becomes due and payable whether by its terms or upon default, waives the issuance and service of process, releases all errors and rights of appeal, and confesses a judgment against it in favor of the holder of such Obligation, for the principal amount of such Obligation plus interest thereon, together with court costs and attorneys' fees. Stay of Execution and all exemptions are hereby waived. Borrower also agrees that the attorney acting for Borrower as set forth in this paragraph may be compensated by Bank for such services, and Borrower waives any conflict of interest caused by such representation and compensation arrangement. If an Obligation is referred to an attorney for collection, and the payment is obtained without the entry of a judgment, the obligors will pay to the holder of such Obligation its attorneys' fees. The undersigned acknowledges and agrees to be bound by the terms and provisions of only the Agreement. OHIO INDEMNITY COMPANY By: /s/ John S. Sokol ------------------------------------ Its: President ------------------------------------ IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement by their duly authorized officers as of the date first above written. WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT OR ANY OTHER CAUSE. BANCINSURANCE CORPORATION By: /s/ John S. Sokol ------------------------------------ Its: President ------------------------------------ FIFTH THIRD BANK, CENTRAL OHIO By: /s/ Ted Lape ------------------------------------ Its: Vice President ------------------------------------ EXHIBIT 2.1 AMENDED AND RESTATED REVOLVING NOTE $10,000,000 Columbus, Ohio January 25, 1993 First Amendment and Restatement November 5, 1993 Second Amendment and Restatement October 19, 1994 Third Amendment and Restatement July 19, 1995 Fourth Amendment and Restatement June 4, 1996 Fifth Amendment and Restatement July 17, 1997 Sixth Amendment and Restatement September 1, 1998 Seventh Amendment and Restatement November 24, 1999 Eighth Amendment and Restatement December 11, 2000 On June 30,2004 BANCINSURANCE CORPORATION, an Ohio corporation, for value received, hereby promises to pay to the order of FIFTH THIRD BANK, CENTRAL OHIO an Ohio banking corporation (the "Bank") at its offices, located at 21 East State Street, Columbus, Ohio 43215, in lawful money of the United States of America and in immediately available funds, the principal stun of Ten Million and 00/100 Dollars ($10,000,000) or such lesser unpaid principal amount as may be advanced by Bank pursuant to the terms of the Credit Agreement dated January 25, 1993, by and between Borrower and Bank, as amended by the First Amendment thereto, dated November 5, 1993, the Second Amendment thereto dated October 19, 1994, the Third Amendment thereto dated December 12, 1999 and the Fourth Amendment thereto, dated of even date herewith, as the same may be further amended from time to time (the "Agreement"). The principal balance outstanding hereunder, will bear interest from the date of the first advance until paid at an annual floating rate of interest equal to 0.75% less than the Prime Rate (as defined below) of Bank in effect from time to time. The interest rate charged hereunder will change automatically upon each change in the Prime Rate. Accrued and unpaid interest will be due and payable quarterly commencing on the first day of January, 2001 and continuing on the first (1st) day of each April, July, October and January thereafter during the term hereof. On June 30, 2004, all outstanding principal and all accrued and unpaid interest will be due and payable. Interest will be calculated based on a 360 day year and charged for the actual number of days elapsed, and will be payable on the first day of each calendar quarter. After maturity, whether by acceleration or otherwise, this Note will bear interest (computed and adjusted in the same manner, and with the same effect, as interest hereon prior to maturity) payable on demand, at a rate per annum equal to the Default Rate, until paid, and whether before or after the entry of judgment hereon. The Prime Rate means the rate of interest per annum announced to be its Prime Rate from time to time by Bank at its principal office Columbus, Ohio whether or not Bank will at times lend to borrowers at lower rates of interest, or if there is no such Prime Rate, then its base rate or such other rate as may be substituted by Bank for the Prime Rate. The principal amount of each loan made by Bank under this Note and the amount of each prepayment made by Borrower under this Note will be recorded by Bank in the regularly maintained data processing records of Bank. The aggregate unpaid principal amount of all loans set forth in such records will be presumptive evidence of the principal amount owing and unpaid on this Note. However, failure by Bank to make any such entry will not limit or otherwise affect Borrower's obligations under this Note or the Agreement. All payments received by Bank under this Note will be applied first to payment of amounts advanced by Bank on behalf of Borrower or which may be due for insurance, taxes and attorney's fees or other charges to be paid by Borrower pursuant to the Agreement and the Loan Documents (as defined in the Agreement), then to accrued interest on this Note, then to principal which will be repaid in the inverse order of maturity. This Note is the Revolving Note referred to in the Agreement, and is entitled to the benefits, and is subject to the terms of the Agreement. Capitalized terms used, but not otherwise defined herein will have the meanings attributed thereto in the Agreement. Capitalized terms used, but not otherwise defined herein will have the meanings attributed thereto in the Agreement. The principal of this Note is prepayable in the amounts and under the circumstances, and its maturity is subject to acceleration upon the terms, set forth in the Agreement. Except as otherwise expressly provided in the Agreement, if any payment on this Note becomes due and payable on a day other than one on which Bank is open for business (a "Business Day"), the maturity thereof will be extended to the next Business Day, and interest will be payable at the rate specified herein during such extension period. After the occurrence of an Event of Default, all amounts of principal outstanding as of the date of the occurrence of such Event of Default will bear interest at the Default Rate, in Bank's sole discretion, without notice to Borrower. This provision does not constitute a waiver of any Events of Default or an agreement by Bank to permit any late payments whatsoever. In no event will the interest rate on this Note exceed the highest rate permissible under any law which a court of competent jurisdiction will, in a final determination, deem applicable hereto. In the event that a court determines that Bank has received interest and other charges under this Note in excess of the highest permissible rate applicable hereto, such excess will be deemed received on account of, and will automatically be applied to reduce the amounts due to Bank from Borrower under this Note, other than interest, and the provisions hereof will be deemed amended to provide for the highest permissible rate. If there are no such amounts outstanding, Bank will refund to Borrower such excess. Borrower and all endorsers, sureties, guarantors and other persons liable on this Note hereby waive presentment for payment, demand, notice of dishonor, protest, notice of protest and all other demands and notices in connection with the delivery, performance and enforcement of this Note, and consent to one or more renewals or extensions of this Note. This Note is being executed and delivered in substitution for the Amended and Restated Revolving Note, most recently dated December 12, 1999, in the principal amount of $10,000,000 and is not delivered in repayment hereof. This Note may not be changed orally, but only by an instrument in writing. This Note is being delivered in, is intended to be performed in, will be construed and enforceable in accordance with, and be governed by the internal laws of, the State of Ohio without regards to principles of conflict of laws. Borrower agrees that the State and Federal courts in Franklin County, Ohio or any other court in which Bank initiates proceedings will have exclusive jurisdiction over all matters arising out of this Note, and that service of process in any such proceeding will be effective if mailed to Borrower at its address described in the Notices section of the Agreement. BORROWER HEREBY WAIVES THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS NOTE. Borrower authorizes any attorney of record to appear for it in any court of record in the State of Ohio, after an Obligation becomes due and payable whether by its terms or upon default waives the issuance and service of process, releases all errors and rights of appeal, and confesses a judgment against it in favor of the holder of such Obligation, for the principal amount of such Obligation plus interest thereon, together with court costs and attorneys' fees. Stay of Execution and all exemptions are hereby waived. Borrower also agrees that the attorney acting for Borrower as set forth in this paragraph may be compensated by Bank for such services, and Borrower waives any conflict of interest caused by such representation and compensation arrangement. If an Obligation is referred to an attorney for collection, and the payment is obtained without the entry of a judgment, the obligors will pay to the holder of such Obligation its attorneys' fees. WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL, IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON BOIS PART TO COMPLY WITH THE AGREEMENT OR ANY OTHER CAUSE. BANCINSURANCE CORPORATION By: /s/ John S. Sokol ------------------------------------ Its: President ------------------------------------ EX-13.A 10 l92627aex13-a.txt EXHIBIT 13A
EXHIBIT 13(a) - ------------------------------------------------------------------------------------------------------------------------------------ BANCINSURANCE CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------------------------ 2001 2000 -------------- ------------ ASSETS Investments: Held to maturity: Fixed maturities, at amortized cost (fair value $4,869,247 in 2001 and $5,144,356 in 2000)....... $ 4,746,889 $ 5,048,466 Available for sale: Fixed maturities, at fair value (amortized cost $14,211,422 in 2001 and $14,323,397 in 2000)..... 14,273,152 14,486,863 Equity securities, at fair value (cost $5,981,774 in 2001 and $3,852,659 in 2000)................ 6,715,572 4,823,438 Short-term investments, at cost which approximates fair value..................................... 5,476,140 6,019,440 ------------- ------------ TOTAL INVESTMENTS............................................................................. 31,211,753 30,378,207 ------------- ------------ Cash .............................................................................................. 19,547,132 6,560,778 Premiums receivable................................................................................ 5,189,123 2,591,617 Accounts receivable, net of allowance for doubtful accounts........................................ 590,401 441,315 Reinsurance receivable............................................................................. 90,018 20,250 Reinsurance recoverable on paid losses............................................................. 32,027 99,631 Prepaid reinsurance premiums....................................................................... 901,482 50,048 Deferred policy acquisition costs.................................................................. 1,522,533 642,787 Estimated earnings in excess of billings on uncompleted codification contracts..................... 151,507 159,295 Loans to affiliates................................................................................ 699,208 533,039 Notes receivable................................................................................... 400,000 441,000 Land and building, net............................................................................. - 34,546 Furniture, fixtures and leasehold improvements, net................................................ 150,024 134,691 Excess of investment over net assets of subsidiaries, net.......................................... 2,534,596 2,635,424 Intangible asset, net.............................................................................. 864,912 422,416 Accrued investment income.......................................................................... 338,300 336,803 Other assets ...................................................................................... 447,661 419,137 ------------- ------------ TOTAL ASSETS.................................................................................. $ 64,670,677 $ 45,900,984 ============= ============ See accompanying notes to consolidated financial statements. - ------------------------------------------------------------------------------------------------------------------------------------ 13(a) - 1
- ------------------------------------------------------------------------------------------------------------------------------------ BANCINSURANCE CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------------------------ 2001 2000 -------------- ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Reserve for unpaid losses and loss adjustment expenses.......................................... $ 4,872,598 $ 2,958,615 Unearned premiums............................................................................... 6,030,273 2,740,418 Experience rating adjustments payable........................................................... 6,472,413 1,316,563 Retrospective premium adjustments payable....................................................... 3,716,869 855,567 Funds held under reinsurance treaties........................................................... 1,001,520 - Contract funds on deposit....................................................................... 1,937,924 2,073,529 Notes payable................................................................................... 5,696,839 5,142,000 Acquisition liability........................................................................... - 159,659 Taxes, licenses, and fees payable............................................................... 552,873 216,923 Federal income taxes payable.................................................................... 374,861 47,314 Deferred federal income taxes................................................................... 109,001 310,345 Commissions payable............................................................................. 1,350,924 821,777 Billings in excess of estimated earnings on uncompleted codification contracts.................. 107,452 64,195 Other........................................................................................... 1,055,221 658,720 ------------- ------------- TOTAL LIABILITIES.......................................................................... 33,278,768 17,365,625 ------------- ------------- Shareholders' equity: Non-voting preferred stock: Class A Serial Preference shares without par value; authorized 100,000 shares; no shares issued or outstanding............................................................. - - Class B Serial Preference shares without par value; authorized 98,646 shares; no shares issued or outstanding ............................................................ - - Common shares without par value; authorized 20,000,000 shares; 6,170,341 shares issued......... 1,794,141 1,794,141 Additional paid-in capital..................................................................... 1,337,242 1,336,805 Accumulated other comprehensive income......................................................... 525,048 748,602 Retained earnings.............................................................................. 29,539,902 26,464,712 ------------- ------------- 33,196,333 30,344,260 Less: Treasury shares, at cost (400,156 in 2001 and 401,106 in 2000 common shares)............ (1,804,424) (1,808,901) -------------- ------------- TOTAL SHAREHOLDERS' EQUITY................................................................. 31,391,909 28,535,359 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................................. $ 64,670,677 $ 45,900,984 ============= ============= See accompanying notes to consolidated financial statements. - ------------------------------------------------------------------------------------------------------------------------------------ 13(a) - 2
- ------------------------------------------------------------------------------------------------------------------------------------ BANCINSURANCE CORPORATION CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------------------------ 2001 2000 1999 ---- ---- ---- INCOME: Premiums written ................................. $ 41,853,030 $ 25,403,832 $ 27,019,384 Increase in unearned premiums .................... (3,289,854) (344,940) (1,676,683) ------------ ------------ ------------ Premiums earned .............................. 38,563,176 25,058,892 25,342,701 Premiums ceded ................................... (254,438) (217,077) (127,070) ------------ ------------ ------------ Net premiums earned .......................... 38,308,738 24,841,815 25,215,631 Investment income ................................ 1,496,621 1,628,306 1,495,848 Net realized gain (loss) on investments .......... 22,542 (320,742) 226,826 Gain on sale of property ......................... 15,848 -- -- Codification and subscription fees ............... 2,652,231 1,884,067 -- Claims administration fees ....................... -- 427,036 591,654 Title and appraisal fees ......................... -- 115,724 2,387,351 Management fees .................................. 846,446 659,929 1,153,663 Commission fees .................................. 67,065 155,942 103,430 Other income ..................................... 78,631 988,919 87,504 ------------ ------------ ------------ Total revenue ................................ 43,488,122 30,380,996 31,261,907 ------------ ------------ ------------ LOSSES AND OPERATING EXPENSES: Losses and loss adjustment expenses .............. 21,823,538 15,230,041 14,595,243 Reinsurance recoveries ........................... (164,794) (161,411) (9,892) Experience rating adjustments .................... 5,155,850 (233,026) 1,169,999 Commission expense ............................... 5,918,461 3,639,642 3,623,761 Other insurance operating expenses ............... 3,126,234 2,936,666 2,855,542 General and administrative expenses .............. 3,334,200 3,090,167 3,311,415 Interest expense ................................. 28,076 257,984 262,641 ------------ ------------ ------------ Total expenses ............................... 39,221,565 24,760,063 25,808,709 ------------ ------------ ------------ Income before federal income taxes ........... 4,266,557 5,620,933 5,453,198 Federal income taxes .............................. 1,191,367 1,702,576 1,564,003 ------------ ------------ ------------ Net income ................................... $ 3,075,190 $ 3,918,357 $ 3,889,195 ============ ============ ============ Net income per common share ....................... $ .53 $ .66 $ .64 ============ ============ ============ Net income per common share, assuming dilution..... $ .53 $ .66 $ .63 ============ ============ ============ See accompanying notes to consolidated financial statements. - ------------------------------------------------------------------------------------------------------------------------------------ 13(a) - 3
- ------------------------------------------------------------------------------------------------------------------------------------ BANCINSURANCE CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------------------------ 2001 2000 1999 ---- ---- ---- Net income ................................................................... $ 3,075,190 $ 3,918,357 $ 3,889,195 Other comprehensive income: Unrealized holding gains (loss) on securities arising during period, net of income tax (benefit) expense of $(115,164), $314,841 and $(268,087), respectively ................................... (223,554) 611,162 (520,404) ----------- ----------- ----------- Comprehensive income ......................................................... $ 2,851,636 $ 4,529,519 $ 3,368,791 =========== =========== =========== See accompanying notes to consolidated financial statements. - ------------------------------------------------------------------------------------------------------------------------------------ 13(a) - 4
- --------------------------------------------------------------------------------------------------------------------------- BANCINSURANCE CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - --------------------------------------------------------------------------------------------------------------------------- ACCUMULATED ADDITIONAL OTHER PREFERRED SHARES COMMON PAID-IN COMPREHENSIVE RETAINED TREASURY CLASS A CLASS B SHARES CAPITAL INCOME EARNINGS SHARES - --------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1998........ -- -- $ 315,567 $1,495,387 $ 657,844 $ 20,136,198 $ (100,514) Net income..................... -- -- -- -- -- 3,889,195 -- Change in unrealized loss on investments, net of income tax benefit of $268,087...................... -- -- -- -- (520,404) -- -- 5% common share dividend at fair value................. -- -- 1,478,574 -- -- (1,479,038) -- Purchase of 124,630 treasury shares........................ -- -- -- -- -- -- (688,583) 12,500 shares issued in connection with the exercise of stock options....................... -- -- -- (52,614) -- -- 61,677 -------- --------- ---------- ---------- ----------- ------------ ------------ Balance December 31, 1999........ -- -- 1,794,141 1,442,773 137,440 22,546,355 (727,420) Net income..................... -- -- -- -- -- 3,918,357 -- Change in unrealized gain on investments, net of income taxes of $314,841...................... -- -- -- -- 611,162 -- -- Issue of 73,504 treasury shares in purchase acquisition (note 1(f))................... -- -- -- (37,196) -- -- 337,195 Purchase of 349,318 treasury shares........................ -- -- -- -- -- -- (1,525,012) 22,000 shares issued in connection with the exercise of stock options....................... -- -- -- (68,772) -- -- 106,336 -------- --------- ---------- ---------- ----------- ------------ ------------ Balance December 31, 2000........ -- -- 1,794,141 1,336,805 748,602 26,464,712 (1,808,901) NET INCOME..................... -- -- -- -- -- 3,075,190 -- CHANGE IN UNREALIZED GAIN ON INVESTMENTS, NET OF INCOME TAXES BENEFIT OF $115,164...................... -- -- -- -- (223,554) -- -- PURCHASE OF 1,050 TREASURY SHARES........................ -- -- -- -- -- -- (4,542) CAPITAL CONTRIBUTED IN ASSET PURCHASE...................... -- -- -- 437 -- -- 9,019 -------- --------- ---------- ---------- ----------- ------------ ------------ BALANCE DECEMBER 31, 2001........ -- -- $1,794,141 $1,337,242 $ 525,048 $ 29,539,902 $(1,804,424) ======== ========= ========== ========== =========== ============ ============
- ------------------------------------------------------------------------------- BANCINSURANCE CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------- Balance December 31, 1998........ $22,504,482 Net income..................... 3,889,195 Change in unrealized loss on investments, net of income tax benefit of $268,087...................... (520,404) 5% common share dividend at fair value................. (464) Purchase of 124,630 treasury shares........................ (688,583) 12,500 shares issued in connection with the exercise of stock options....................... 9,063 ----------- Balance December 31, 1999........ 25,193,289 Net income..................... 3,918,357 Change in unrealized gain on investments, net of income taxes of $314,841...................... 611,162 Issue of 73,504 treasury shares in purchase acquisition (note 1(f))................... 299,999 Purchase of 349,318 treasury shares........................ (1,525,012) 22,000 shares issued in connection with the exercise of stock options....................... 37,564 ----------- Balance December 31, 2000........ 28,535,359 NET INCOME..................... 3,075,190 CHANGE IN UNREALIZED GAIN ON INVESTMENTS, NET OF INCOME TAXES BENEFIT OF $115,164...................... (223,554) PURCHASE OF 1,050 TREASURY SHARES........................ (4,542) CAPITAL CONTRIBUTED IN ASSET PURCHASE...................... 9,456 ----------- BALANCE DECEMBER 31, 2001........ $31,391,909 =========== See accompanying notes to consolidated financial statements. - ------------------------------------------------------------------------------- 13(a) - 5
- -------------------------------------------------------------------------------------------------------------------------------- BANCINSURANCE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, - -------------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 ---- ---- ---- Cash flows from operating activities: Net income .................................................................... $ 3,075,190 $ 3,918,357 $ 3,889,195 Adjustments to reconcile net income to net cash provided by operating activities: Net realized gain on disposal of subsidiaries ............................... -- (59,936) -- Net realized (gain) loss on investments ..................................... (22,542) 320,742 (226,826) Net realized (gain) loss on disposal of property and equipment .............. (14,800) 1,497 2,599 Net realized loss on debt forgiveness ....................................... -- 30,000 -- Depreciation and amortization ............................................... 306,061 327,524 256,004 Deferred federal income tax (benefit) expense ............................... (86,180) 319,316 (346,873) Change in operating assets and liabilities: Premiums receivable ...................................................... (2,597,506) (378,339) (429,559) Accounts and reinsurance receivable, net ................................. (1,002,684) 709,732 (172,942) Deferred policy acquisition costs ........................................ (879,746) (423,594) (66,515) Other assets ............................................................. (147,402) (121,202) (252,868) Reserve for unpaid losses and loss adjustment expenses ................... 1,913,983 (764,397) 924,757 Unearned premiums ........................................................ 3,289,855 309,642 1,711,981 Funds held under reinsurance treaties .................................... 1,001,520 -- -- Experience rating adjustments payable .................................... 5,155,850 (233,026) 1,169,999 Retrospective premium adjustments payable ................................ 2,861,302 772,043 72,011 Contract funds on deposit ................................................ (135,605) (198,648) (645,691) Other liabilities ........................................................ 1,525,649 (218,409) (728,637) ------------ ------------ ------------ Net cash provided by operating activities ................................ 14,242,945 4,311,302 5,156,635 ------------ ------------ ------------ Cash flows from investing activities: Proceeds from held to maturity: fixed maturities due to redemption or maturity 1,341,000 1,020,000 438,000 Proceeds from available for sale: fixed maturities sold, redeemed and matured 7,383,150 6,342,760 4,998,051 Proceeds from available for sale: equity securities sold ..................... 13,175,789 10,288,020 5,212,493 Cost of investments purchased: Held to maturity: fixed maturities .......................................... (299,955) (884,859) (699,375) Available for sale: fixed maturities ........................................ (8,064,552) (5,099,713) (10,358,534) Equity securities ........................................................... (15,288,282) (9,903,848) (5,864,798) Net change in short-term investments and securities purchased under agreements to resell ........................................................ 543,300 627,764 438,126 Purchase of furniture, equipment and leasehold improvements .................. (108,822) (86,253) (225,070) Cash used in purchase of subsidiary .......................................... -- (958,094) (1,500,000) Cash used in acquisition of assets ........................................... (403,503) -- -- Other ........................................................................ 11,826 (7,165) 8,600 ------------ ------------ ------------ Net cash provided by (used in) investing activities ...................... (1,710,049) 1,338,612 (7,552,507) ------------ ------------ ------------ Cash flows from financing activities: Proceeds from note payable to bank ........................................... 20,350,000 17,157,000 7,345,0000 Repayments of note payable to bank ........................................... (19,892,000) (17,160,000) (6,450,000) Proceeds from stock options exercised ........................................ -- 37,564 9,063 Acquisition of treasury stock ................................................ (4,542) (1,525,012) (688,583) Dividends paid ............................................................... -- -- (464) ------------ ------------ ------------ Net cash provided by (used in) financing activities ...................... 453,458 (1,490,448) 215,016 ------------ ------------ ------------ Net increase (decrease) in cash ............................................... 12,986,354 4,159,466 (2,180,856) Cash at beginning of year ..................................................... 6,560,778 2,401,312 4,582,168 ------------ ------------ ------------ Cash at end of year ........................................................... $ 19,547,132 $ 6,560,778 $ 2,401,312 ============ ============ ============ Supplemental disclosures of cash flow information: Cash paid during the year for: Interest ..................................................................... $ 13,398 $ 230,200 $ 233,958 ============ ============ ============ Income taxes ................................................................. $ 950,000 $ 1,445,000 $ 1,865,000 ============ ============ ============ Supplemental schedule of noncash investing activities: Common shares issued in purchase acquisition ................................. $ 9,456 $ 300,000 $ -- ============ ============ ============ Common shares received in debenture conversion ............................... $ -- $ -- $ 50,000 ============ ============ ============ See accompanying notes to consolidated financial statements. - -------------------------------------------------------------------------------------------------------------------------------- 13(a) - 6
- -------------------------------------------------------------------------------- BANCINSURANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) ORGANIZATION Bancinsurance Corporation ("the Company") was incorporated in the State of Ohio in 1970. The Company is primarily engaged, through its wholly-owned subsidiary, Ohio Indemnity Company ("Ohio Indemnity"), in the underwriting of specialized property and casualty insurance. Insurance written is principally in two lines of business, ultimate loss insurance and a bonded service program. Ohio Indemnity is licensed in forty-seven states and the District of Columbia and licensed for surplus lines in Texas. As such, Ohio Indemnity is subject to the regulations of the Department of Insurance of the State of Ohio (the "Department") and the regulations of each state in which it operates. In August 1999, the Company acquired the stock of Paul Boardway and Associates, Inc. ("Paul Boardway"). Paul Boardway is a property/casualty insurance agency serving lending institutions. On February 29, 2000, American Legal Publishing Corporation ("American Legal Publishing") became a wholly-owned subsidiary through a merger. American Legal Publishing's primary business consists of the codification of municipal and county codes of ordinances and the supplementing thereof. During 1997, Custom Title Services, Inc. (formerly known as Title Research Corporation) ("Custom Title") was incorporated in Ohio as a wholly-owned subsidiary. Custom Title is a title lien search and mortgage service company. On January 29, 2000, the Company entered into an agreement for the Sale of Custom Title. During 1993, BCIS Services, Inc. ("BCIS Services") was incorporated as a wholly-owned subsidiary. BCIS Services provides workers' compensation claims management and loss control services to employers who self-insure this obligation. On October 6, 2000, the Company entered into an agreement for the sale of BCIS Services. No single customer of the Company accounts for a predominant share of consolidated revenue, except for four customers in the ultimate loss insurance program. See Note 16. (b) BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") which vary in certain respects from reporting practices prescribed or permitted by the State of Ohio. Effective January 1, 2001, the State of Ohio required that insurance companies domiciled in the state of Ohio prepare their statutory basis financial statements in accordance with the NAIC Accounting Practices and Procedures Manual. The effects of these differences on shareholders equity and net income are shown in Note 12. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (c) CONSOLIDATION POLICY The accompanying financial statements include the Company's accounts and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. (d) INVESTMENTS Investments in fixed maturities held as available for sale are carried at fair value. The unrealized holding gain or loss, net of applicable deferred taxes, is reflected in other comprehensive income. Investments in held to maturity fixed maturities, which include fixed maturity securities and preferred stocks with mandatory redemption features, where the Company has the ability and intent to hold to maturity or put date, are carried at amortized cost. Available for sale equity securities, which include common stocks and preferred stocks without mandatory redemption features, are reported at fair value with unrealized gains or losses, net of applicable deferred taxes, reflected in other comprehensive income. Short-term investments are reported at cost which approximates fair value. Realized gains and losses on disposal of investments are determined by the specific identification method and are included in net investment income. The carrying value of investments is revised and the amount of revision is charged to net realized losses on investments when management determines that a decline in the value of an investment is other than temporary. (e) ACCOUNTS RECEIVABLE Accounts receivable at December 31, 2001 are comprised of municipal code contract billings. The Company estimates its allowance for doubtful accounts and bad debts based upon management's assessment of the collectibility of receivables and prior experience. (f) EXCESS OF INVESTMENT OVER NET ASSETS OF SUBSIDIARY The excess of investment over net assets of Ohio Indemnity is not being amortized as the acquisition took place on April 22, 1970, and there is no permanent diminution in value of such excess. On August 25, 1999, the Company acquired the stock of Paul Boardway. The Company purchased Paul Boardway for $1,500,000 in cash; $300,000 of the Company's common shares which were issued on the first anniversary of the closing date; and $331,247 of acquisition liabilities. The acquisition was accounted for using the purchase method. The Company is amortizing the resulting goodwill on a straight-line basis over its estimated economic life of twenty years. At December 31, 2001, the net book value of goodwill associated with the acquisition was $1,780,858. - -------------------------------------------------------------------------------- 13(a) - 7 - -------------------------------------------------------------------------------- (g) INTANGIBLE ASSET On July 19, 1999, the Company entered into an Agreement and Plan of Merger with Westford Group, Inc., an Ohio corporation ("Westford"), whereby Westford would be merged with and into Bancinsurance. On February 29, 2000, the shareholders of Westford approved the merger. The Company paid the Westford shareholders cash in the amount of $.70 per share for each share of Westford common stock, without par value. The total amount of the merger consideration paid was $958,094. The Company paid the merger consideration from existing cash reserves. Preceding the merger, Westford was an affiliate of the Company through a common officer and principal shareholder. This individual owned 42.4% and 45.8% of the outstanding common stock of Westford and Bancinsurance, respectively, at the time of the merger. Immediately following the merger, Westford was dissolved and Westford's wholly-owned subsidiary, American Legal Publishing, became the surviving entity as a wholly-owned subsidiary of Bancinsurance. American Legal Publishing offers a wide range of publishing services including information management, documents imaging, and electronic publishing solutions for state and local governments. American Legal Publishing currently publishes, supplements and distributes codes of ordinances for over 1,300 municipalities. The merger was accounted for as a purchase. The excess of the fair value of net assets acquired over the purchase price of approximately $440,780 was allocated to a database acquired. Pro forma data for the merger is not included as the effect is not material to the Company's financial statements. The database is comprised of the municipal code data and related files. Provision for amortization of the database is based on an estimated useful life of twenty years reflecting the long-lived nature of the municipal codes and is computed on the straight-line method. On June 20, 2001, American Legal Publishing, purchased substantially all the net assets of Justinian Publishing Company, an Ohio Corporation ("Justinian"), for (a) $403,503 in cash; (b) 2,000 common shares of the Company; and (c) a $100,000 non-interest bearing promissory note due on the first anniversary of the closing date. The Company paid the acquisition consideration from existing cash reserves. The acquisition was accounted for using the purchase method. The excess of the fair value of the net assets acquired over the purchase price of approximately $478,491 was allocated to a database acquired. The database is comprised of municipal code data and related files. Provision for amortization of the database is based on an estimated useful life of twenty years reflecting the long-lived nature of the municipal data. (h) RECOGNITION OF REVENUES AND RELATED EXPENSES Insurance premiums are recorded as revenue over the period of risk assumed. For the "Ultimate Loss Insurance" products, a form of physical damage blanket single interest collateral protection insurance sold to lending institutions, premiums are earned in relation to the level of exposure assumed. For the unemployment insurance products, premiums are earned pro rata. The portion of premiums written applicable to the unexpired portion of insurance contracts is recorded in the balance sheet as unearned premiums. Management fees are recorded as revenue in the period a residual in the aggregate loss fund, established in connection with the bonded service program, is shared with the cost containment service firm. Commission fees reported for Paul Boardway, claims administration fees reported for BCIS Services and title service and appraisal fees reported for Custom Title are recorded as revenue in the period in which the work was performed and/or services provided. Revenue from municipal code contracts is recognized on the percentage-of-completion method. Completion is measured based on the percentage of direct labor costs incurred to date to estimated direct labor costs for each contract. While management uses available information to estimate total direct labor costs on each contract, actual experience may vary from estimated amounts. Under this method, the costs incurred and the related revenues are included in the statement of operations as work progresses. Adjustments to contract cost estimates are made in the periods in which the facts which require such revisions become known. If a revised estimate indicates a loss, such loss is provided for in its entirety. The amount by which revenues are earned in advance of contractual collection dates is an unbilled receivable and the amount by which contractual billings exceed earned revenues is unrealized revenue which is carried as a liability. Revenue from code supplements is recognized on the completed-contract method because the typical supplement is completed in a few months. No progress payments are billed due to the short production time and low average supplement contract price. Supplement contracts in process are valued at the lower of cost or contract price less estimated cost of completion. Costs of uncompleted code supplements, included in other assets in the Consolidated Balance Sheets, represents all supplement costs incurred to date. Provisions for estimated losses on uncompleted contracts are made in the period which losses are determined. (i) POLICY ACQUISITION COSTS Acquisition expenses, mainly commissions and premium taxes, related to unearned premiums are deferred and amortized over the period the coverage is provided. Anticipated losses and other expenses related to those premiums are considered in determining the recoverability of deferred acquisition costs. (j) RESERVE FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES Loss and loss adjustment expense reserves represent the estimated ultimate net cost of all reported and unreported losses incurred through December 31. The Company does not discount loss and loss adjustment expense reserves. The reserves for unpaid losses and loss adjustment expenses are estimated using individual case-basis valuations and statistical analyses. Those estimates are subject to the effects of trends in loss severity and frequency. Although considerable variability is inherent in such estimates, management believes the reserves for losses and loss adjustment expenses are adequate. The estimates are regularly reviewed and adjusted as necessary as experience develops or new information becomes known; such adjustments are included in current operations. - -------------------------------------------------------------------------------- 13(a) - 8 - -------------------------------------------------------------------------------- (k) REINSURANCE In the ordinary course of business, the Company assumes and cedes reinsurance with other insurers and reinsurers. Ceded reinsurance transactions are attributable to two Lender/Dealer policies and a mortgage protection product. The Company assumed a quota share participation in the gross liability of an insurer covering bail bond business. (l) EXPERIENCE RATING AND RETROSPECTIVE PREMIUM ADJUSTMENTS Certain policies are eligible for premium adjustments based upon a comparison of actual losses to expected losses. For certain policies, return premiums are calculated and settled on an annual basis. These balances are presented in the accompanying balance sheets as retrospective premium adjustments payable. For others, an experience rating adjustment payable is calculated and adjusted from period to period and settled upon cancellation of the policy. These balances are presented in the accompanying balance sheets as experience rating adjustments payable. (m) CONTRACT FUNDS ON DEPOSIT The Company has an agreement with a cost containment service firm involving a program designed to control the unemployment compensation costs of certain non-profit employers. Pursuant to this agreement, a bond has been issued insuring the payment of certain reimbursable unemployment compensation benefits on behalf of the employers enrolled in this program. Certain monies allocated toward the payment of these benefits are held by the Company. The Company and the cost containment service firm share any residual resulting from the development of benefits to be paid from the contract funds held on deposit. The Company records management fees in the period the residual is shared with the cost containment service firm. Fees of $846,446, $659,929 and $1,153,663 were recognized in 2001, 2000 and 1999, respectively, as a result of this arrangement. (n) DEPRECIATION AND AMORTIZATION Furniture and fixtures are stated at cost and depreciated using the straight-line method over a three year useful life. Leasehold improvements are capitalized and amortized over the remaining office lease term. Maintenance, repairs and minor renewals are charged directly to expense as incurred. (o) FEDERAL INCOME TAXES The Company files a consolidated federal income tax return with its subsidiaries. Accordingly, deferred tax liabilities and assets have been recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred income taxes are recognized at prevailing income tax rates for temporary differences between financial statement and income tax bases of assets and liabilities for which income tax benefits will be realized in future years. (p) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that fair value: Short-term investments and securities purchased under agreements to resell: For these short-term investments, the carrying amounts are reasonable estimates of fair value. Fixed maturities and equity securities: Fair values are based upon quoted market prices or dealer quotes for comparable securities. Accounts and notes receivable: The carrying amounts are reasonable estimates of fair value. Note payable to bank: Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. Based on this analysis, the carrying amount is a reasonable estimate of fair value. (q) CASH AND CASH EQUIVALENTS For the purposes of the statements of cash flows, cash equivalents include money market instruments with a maturity of ninety days or less when purchased. (r) RECLASSIFICATIONS Certain 1999 amounts have been reclassified in order to conform to the 2001 and 2000 presentation. - -------------------------------------------------------------------------------- 13(a) - 9 - -------------------------------------------------------------------------------- (2) INVESTMENTS The amortized cost and estimated fair values of investments in held to maturity and available for sale securities were as follows:
DECEMBER 31, 2001 -------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE -------------------------------------------------------------------- Held to maturity: Fixed maturities: US Treasury securities and obligations of US government corporations and agencies .. $ 2,235,092 $ 80,093 $ -- $ 2,315,185 Obligations of states and political subdivisions ..... 2,415,797 44,541 2,276 2,458,062 Redeemable preferred stock .. 96,000 -- -- 96,000 ----------- ----------- ----------- ----------- 4,746,889 124,634 2,276 4,869,247 ----------- ----------- ----------- ----------- Available for sale: Fixed maturities: Obligations of states and political subdivisions ..... 13,951,094 179,793 108,860 14,022,027 Corporate securities .......... 260,328 43,125 52,328 251,125 Equity securities ............. 5,981,774 1,364,753 630,955 6,715,572 ----------- ----------- ----------- ----------- 20,193,196 1,587,671 792,143 20,988,724 ----------- ----------- ----------- ----------- Totals ................. $24,940,085 $ 1,712,305 $ 794,419 $25,857,971 =========== =========== =========== ===========
December 31, 2000 -------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value -------------------------------------------------------------------- Held to maturity: Fixed maturities: US Treasury securities and obligations of US government corporations and agencies .. $ 2,536,673 $ 51,529 $ 2,622 $ 2,585,580 Obligations of states and political subdivisions ..... 2,214,793 46,983 -- 2,261,776 Redeemable preferred stock ... 297,000 -- -- 297,000 ----------- ----------- ----------- ----------- 5,048,466 98,512 2,622 5,144,356 ----------- ----------- ----------- ----------- Available for sale: Fixed maturities: US Treasury securities and obligations of US government corporations and agencies .. 497,793 3,207 120 500,880 Obligations of states and political subdivisions ..... 13,825,604 203,585 43,206 13,985,983 Equity securities .............. 3,852,659 1,465,130 494,351 4,823,438 ----------- ----------- ----------- ----------- 18,176,056 1,671,922 537,677 19,310,301 ----------- ----------- ----------- ----------- Totals ......... $23,224,522 $ 1,770,434 $ 540,299 $24,454,657 =========== =========== =========== ===========
The amortized cost and estimated fair value of investments in held to maturity and available for sale securities at December 31, 2001 by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. - -------------------------------------------------------------------------------- 13(a) - 10 - --------------------------------------------------------------------------------
------------------------------------------------------ HELD TO MATURITY AVAILABLE FOR SALE AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE ------------------------------------------------------ Due in one year or less .............. $ 1,051,435 $ 1,066,637 $ 1,857,917 $ 1,863,550 Due after one year through five years 2,915,171 3,011,588 4,699,928 4,754,638 Due after five years through ten years 197,789 196,660 4,934,232 4,925,447 Due after ten years .................. 486,494 498,362 2,719,345 2,729,517 ----------- ----------- ----------- ----------- 4,650,889 4,773,247 14,211,422 14,273,152 Redeemable preferred stock ........... 96,000 96,000 -- -- Equity securities .................... -- -- 5,981,774 6,715,572 ----------- ----------- ----------- ----------- $ 4,746,889 $ 4,869,247 $20,193,196 $20,988,724 =========== =========== =========== ===========
Investment income, net of expenses, is summarized below: ---------------------------------------------- 2001 2000 1999 ---------------------------------------------- Held to maturity: Fixed maturities ....... $ 295,469 $ 357,902 $ 239,284 Available for sale: Fixed maturities ....... 835,867 733,583 714,526 Equity securities ...... 196,707 184,805 224,947 Short-term investments ...... 173,834 315,755 345,164 Other ....................... 44,176 63,006 28,355 Expenses .................... (49,432) (26,745) (56,428) ----------- ----------- ----------- Investment income ...... $ 1,496,621 $ 1,628,306 $ 1,495,848 =========== =========== =========== Fixed maturity investments were predominately income producing for the years ended December 31, 2001, 2000 and 1999. Refer to Note 1 for a description of the methods and significant assumptions used to estimate the fair value of financial instruments. The proceeds from sales of available-for-sale securities were $20,558,939, $16,630,780 and $10,210,544 for the years ended December 31, 2001, 2000 and 1999, respectively. Pre-tax net realized gains (losses) on investments were as follows for each of the years ended December 31:
-------------------------------------- 2001 2000 1999 -------------------------------------- Gross realized gains: Held to maturity: fixed maturities ......... $ -- $ -- $ 4,303 Available for sale: fixed maturities ......... 53,314 34,111 43,239 equity securities ........ 665,761 339,940 550,402 --------- --------- --------- Total gains .................................... 719,075 374,051 597,944 ========= ========= ========= Gross realized losses: Held to maturity: fixed maturities ......... 400 -- -- Available for sale: fixed maturities ......... 46,992 56,833 26,198 equity securities ........ 649,141 637,960 344,920 --------- --------- --------- Total losses ................................... 696,533 694,793 371,118 ========= ========= ========= Net realized gains (losses) .................... $ 22,542 $(320,742) $ 226,826 ========= ========= =========
At December 31, 2001, investments having a par value of $4,204,000 were on deposit with various state insurance departments to meet their respective regulatory requirements. - -------------------------------------------------------------------------------- 13(a) - 11 - -------------------------------------------------------------------------------- (3) DEFERRED POLICY ACQUISITION COSTS Changes in deferred policy acquisition costs at December 31 are summarized as follows:
----------------------------------- 2001 2000 ----------------------------------- Deferred, January 1.............................. $ 642,787 $ 219,193 Additions: Commissions................................... 1,682,847 599,545 Premium tax................................... 122,837 43,459 -------------- ------------- 1,805,684 643,004 Amortization to expense ......................... 925,938 219,410 -------------- ------------- Deferred, December 31............................ $ 1,522,533 $ 642,787 ============== =============
(4) UNCOMPLETED CONTRACTS Revenues earned on uncompleted codification contracts by American Legal Publishing were $1,035,321 and $1,027,339 and billings to date on those contracts were $991,266 and $932,239, at December 31, 2001 and 2000, respectively. The excess of costs and estimated earnings over billings to date are presented in the accompanying balance sheets. (5) NOTES RECEIVABLE On January 24, 2000, the Company sold 85.4% of its 100 shares of Custom Title for $350,000 in the form of a promissory note. The promissory note is co-made by the business owner of the acquiring company and another company with which he is affiliated. The note bears interest at the prime rate, payable quarterly commencing March 1, 2000, and is payable as to principal quarterly commencing March 1, 2002 through January 1, 2007. The Company contributed the remaining 14.6 shares of Custom Title in consideration of a 10% capital investment of $60,000 in the acquiring company. In connection with the sale transaction, the Company loaned $91,000 to the acquiring company. The associated promissory note provided for interest at the prime rate and was paid in full as to interest and principal on February 1, 2001. During the third quarter of 2000, the Company determined the business of the acquiring company was impaired. A $60,000 write-down for the other-than-temporary impairment of the 10% capital investment was recognized in earnings. (6) NOTE PAYABLE TO BANK As of December 31, 2001, the Company had an uncollateralized $10,000,000 revolving line of credit with a maturity date of June 30, 2004 with an outstanding balance of $5,600,000. The revolving credit agreement provides for interest payable quarterly, at an annual rate equal to 0.75% less than the prime rate (4.0% per annum at December 31, 2001). The bank that provides the credit line is also a policyholder of the Company's. Premium from this policyholder represented 8.8% of revenue for the year ended December 31, 2001. (7) LEASES AND SHARED EXPENSES The Company routinely leases premises for use as administrative offices, vehicles and office equipment under operating leases for varying periods. Management expects that in the normal course of business, leases will be renewed or replaced by other leases. Consolidated rental expenses under operating leases were $267,000, $198,353 and $252,809 during 2001, 2000 and 1999, respectively. The future minimum lease payments required under these operating leases, are as follows: ------------------------------------------------ YEAR OPERATING ENDING LEASES ------------------------------------------------ 2002 $ 179,181 2003 207,172 2004 178,380 2005 175,850 2006 208,769 2007 224,009 2008 229,943 ---------- $1,403,304 ========== In January 2001, the Company entered into a new lease for its Columbus office space, replacing the existing commitment. Occupancy was assumed under the new lease on January 1, 2001. Under its provisions, no cash payments are due until April 1, 2002. Rent expense will be recognized evenly over the lease term ending December 31, 2008. - -------------------------------------------------------------------------------- 13(a) - 12 (8) FEDERAL INCOME TAXES Deferred income taxes for 2001 and 2000 reflect the impact of "temporary differences" between amounts of assets and liabilities for financial reporting purposes and such amounts as measured on an income tax basis. Temporary differences which give rise to the net deferred tax liability at December 31 are as follows:
------------------------ 2001 2000 ------------------------ Deferred tax assets: Unpaid loss and loss adjustment expense reserves .. $ 79,395 $ 79,845 Unearned premium reserves ......................... 354,439 188,625 Unrealized losses on available for sale securities -- 6,737 Accrued bonus ..................................... 99,079 -- Capital loss carryforward ......................... 108,988 -- Other reserves .................................... 34,000 34,000 Book/tax depreciation differences ................. 35,061 33,778 Other ............................................. 28,066 14,130 --------- --------- Subtotal ....................................... 739,028 357,115 Deferred tax liabilities: Unrealized gains on available for sale securities . (270,479) (392,381) Discounting of anticipated salvage and subrogation (2,752) (2,153) Deferred policy acquisition costs ................. (517,662) (218,548) Accrued dividends receivable ...................... (3,627) (4,223) Other goodwill .................................... (42,320) (34,968) Book/tax depreciation differences ................. (5,574) -- Other ............................................. (5,615) (15,187) --------- --------- Net deferred tax liability ..................... $(109,001) $(310,345) ========= =========
Net deferred tax assets and liabilities and federal income tax expense in future years can be materially affected by changes in enacted tax rates or by unexpected adverse events. The provision for federal income taxes at December 31, consists of the following:
------------------------------------------- 2001 2000 1999 ------------------------------------------- Current ......................... $ 1,056,810 $ 1,662,025 $ 1,706,736 Current recoverable ............. -- (109,052) -- Deferred expense (benefit) ...... 134,557 149,603 (142,733) ----------- ----------- ----------- Federal income taxes ......... $ 1,191,367 $ 1,702,576 $ 1,564,003 =========== =========== ===========
The difference between income taxes provided at the Company's effective tax rate and the 34% federal statutory rate at December 31, is as follows:
------------------------------------------ 2001 2000 1999 ------------------------------------------ Federal income tax at statutory rate ................ $ 1,450,629 $ 1,911,117 $ 1,854,087 Dividends received and tax exempt interest deductions (327,644) (282,613) (304,367) Amortization of goodwill and intangible ............. 46,686 41,114 19,760 Non-deductible interest expense ..................... 1,225 12,904 2,838 Other ............................................... 20,471 20,054 (8,315) ----------- ----------- ----------- Federal income taxes ........................... $ 1,191,367 $ 1,702,576 $ 1,564,003 =========== =========== ===========
(9) BENEFIT PLANS The Ohio Indemnity Company Employee 401(k) and Profit Sharing Plan (the "401(k) Plan") is available to full-time employees who meet the 401(k) Plan's eligibility requirements. Under the 401(k) Plan, the Company matches 50% of the qualified employee's contribution up to 6% of salary. The total cost of the matching contribution was $92,340, $109,395 and $83,648 for the years 2001, 2000 and 1999, respectively. (10) STOCK OPTION PLANS The Company applies APB Opinion No. 25 and related interpretations in accounting for options issued to employees, officers and directors under its plans. FASB Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") was issued by the FASB in 1995 and changes the methods for recognition of cost on plans similar to those used by the Company. Adoption of SFAS 123 is optional; however, pro forma disclosures as if the Company had adopted the cost recognition requirements under SFAS 123 in 2001, 2000 and 1999 are presented below. - -------------------------------------------------------------------------------- 13(a) - 13 - -------------------------------------------------------------------------------- The Company has two stock option plans. The Bancinsurance Corporation 1984 Stock Option Plan was open to all employees of the Company and its subsidiaries. All options were granted before May 17, 1994 for a term of not more than ten years. The options for 50,000 shares outstanding at December 31, 2001 expire at various dates from 2003 through 2004 and range in option price per share from $5.25 to $6.00. The Bancinsurance Corporation 1994 Stock Option Plan provides for the grant of options to purchase up to an aggregate of 500,000 common shares, 100,000 common shares for any one individual. Certain key employees, officers, and directors of, and consultants and advisors to, the Company and its subsidiaries are eligible to participate in the 1994 Stock Option Plan. The 1994 Stock Option Plan is administered by the Stock Option Committee which will determine to whom and when options will be granted along with the terms and conditions of the options. The options for 305,500 common shares outstanding at December 31, 2001 expire at dates from 2004 to 2011 and range in option price per share from $2.50 to $6.75. A summary of the status of the Company's stock options as of December 31, 2001, 2000 and 1999 and changes during the year ended on those dates is presented below:
2001 2000 1999 WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE -------------------------------------------------------------------------- Outstanding at beginning of year........... 323,000 $4.76 363,500 $4.42 295,000 $ 4.00 Granted.................................... 49,000 4.62 16,000 4.04 81,000 5.40 Exercised.................................. (14,000) 2.89 (39,500) 1.55 (12,500) .73 Expired.................................... -- -- -- -- -- -- Canceled................................... (2,500) 4.75 (17,000) 4.43 -- -------- ----- --------- ----- -------- ------- Outstanding at end of year................. 355,500 $4.81 323,000 $4.76 363,500 $ 4.42 ======== ===== ========= ===== ======== ======= Options exercisable at year-end............ 209,300 180,500 180,500 ======== ========= ======== Shares reserved for issuance............... 484,500 501,000 557,500 ======== ========= ======== Options available for future grant......... 128,500 178,000 194,000 ======== ========= ======== Weighted average fair value of options granted during the year.................. $ 2.0434 $ 2.1071 $ 2.7789 ======== ========= ========
The fair value of each option granted during 2001, 2000 and 1999 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: (1) expected volatility of 35.15% for 2001, 43.06% for 2000 and 44.36% for 1999, (2) risk-free interest rate of 5.24% for options granted May 17, 2001, 5.31% for options granted May 30, 2001, 5.20% for options granted May 31, 2001, 6.72% for options granted May 17, 2000, 6.52% for options granted May 31, 2000, 5.39% for options granted April 30, 1999, 5.98% for options granted June 2, 1999 and 5.82% for options granted July 16, 1999 and (3) expected life of 6 years for all years. The following table summarizes information about stock options outstanding at December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------------------------------------------- NUMBER WEIGHTED-AVERAGE WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE RANGE OF EXERCISE PRICES AT 12/31/01 CONTRACTUAL LIFE PRICE AT 12/31/01 PRICE --------------------------------------------------------------------------------- $ 2.50 - 2.875........................ 21,500 3.88 $ 2.57 21,500 $ 2.57 3.375 - 3.875....................... 35,000 4.93 3.82 28,800 3.81 4.00 - 4.85........................ 162,000 7.23 4.63 67,000 4.64 5.25 - 5.625........................ 89,000 6.71 5.38 44,000 5.36 6.00 - 6.75......................... 48,000 2.37 6.08 48,000 6.08 ---------- --------- 2.50 - 6.75......................... 355,500 4.81 209,300 4.79 ========== =========
If compensation cost for the Company's 2001, 2000 and 1999 grants for stock-based compensation plans had been determined consistent with SFAS 123, the Company's net income and net income per common share would approximate the pro forma amounts below:
-------------------------------------------------------------------------------- AS REPORTED PRO FORMA 2001 2000 1999 2001 2000 1999 -------------------------------------------------------------------------------- Net income......................... $3,075,190 $3,918,357 $3,889,195 $3,068,601 $3,916,083 $3,876,851 --------- --------- --------- --------- --------- --------- Net income per common share, diluted......................... $ .53 $ .66 $ .63 $ .53 $ .66 $ .63 --------- --------- --------- --------- --------- ---------
- -------------------------------------------------------------------------------- 13(a) - 14 - -------------------------------------------------------------------------------- The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. Additional awards in future years are anticipated. (11) STATUTORY RESTRICTIONS Generally, Ohio Indemnity is restricted by the insurance law of the State of Ohio as to amounts that can be transferred in the form of dividends, loans, or advances without the approval of the Department. Under these restrictions, during 2002, dividends, loans or advances in excess of $2,963,288 will require the approval of the Department. (12) STATUTORY SURPLUS AND NET INCOME As of December 31, 2001, Ohio Indemnity's statutory surplus and net income determined in accordance with accounting practices prescribed or permitted by the Department differed from shareholders' equity and net income determined in accordance with GAAP by the following:
SHAREHOLDERS' NET EQUITY/SURPLUS INCOME -------------- ------ Statutory ............................................. $ 29,632,880 $ 2,567,615 Reconciling items: Non-admitted assets .................................. 2,818 -- Deferred policy acquisition costs .................... 1,522,533 879,746 Deferred taxes ....................................... (538,651) (134,557) Unrealized gain on available for sale fixed maturities 61,730 -- Provision for reinsurance ............................ 32,027 -- ------------ ------------ GAAP .................................................. $ 30,713,337 $ 3,312,804 ============ ============
As of December 31, 2000, Ohio Indemnity's statutory surplus differed from GAAP shareholder's equity by an amount of $793 in nonadmitted assets, $642,787 in deferred policy acquisition costs, $348,547 in deferred taxes and $163,467 in unrealized gain on available for sale fixed maturities. Statutory net income for the year ended December 31, 2000 differed from GAAP net income by $423,594 in deferred policy acquisition costs and $149,233 in deferred taxes. Statutory net income for the year ended December 31, 1999 differed from GAAP net income by $66,515 in deferred policy acquisition costs and $134,233 in deferred taxes. (13) RESERVE FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES Activity in the reserve for unpaid losses and loss adjustment expenses is summarized as follows:
[Dollars in thousands] ---------------------------------------- 2001 2000 1999 ---------------------------------------- Balance at January 1............................................ $ 2,959 $ 3,723 $ 2,798 Less reinsurance recoverables.................................. 20 2 3 --------- ---------- ---------- Net Balance at January 1........................................ 2,939 3,721 2,795 --------- ---------- ---------- Incurred related to: Current year................................................... 21,759 17,169 16,177 Prior years.................................................... (100) (2,100) (1,592) --------- ---------- ---------- Total incurred.................................................. 21,659 15,069 14,585 --------- ---------- ---------- Paid related to: Current year................................................... 17,074 14,210 12,459 Prior years.................................................... 2,741 1,641 1,200 --------- ---------- ---------- Total paid...................................................... 19,815 15,851 13,659 --------- ---------- ---------- Net Balance at December 31...................................... 4,783 2,939 3,721 Plus reinsurance recoverables.................................. 90 20 2 --------- ---------- ---------- Balance at December 31.......................................... $ 4,873 $ 2,959 $ 3,723 ========= ========== ==========
As a result of changes in estimates of insured events in prior years, the provision for unpaid losses and loss adjustment expenses decreased by $100,000, $2,100,000 and $1,592,000 in 2001, 2000 and 1999, respectively, due to redundancy in ultimate loss coverage reserves for prior accident years. (14) REINSURANCE In the ordinary course of business, the Company assumes and cedes reinsurance with other insurers and reinsurers. Such arrangements serve to enhance the Company's capacity to write business, provide greater diversification and limit the Company's maximum loss arising from large risks. Ceded reinsurance is effected by negotiation on individual risks. Although reinsurance does not discharge the original insurer from its primary liability to its policyholders, it is the practice of insurers for accounting purposes to treat reinsured risks as risks of the reinsurer. The primary insurer would only reassume liability in those situations where the reinsurer is unable to meet the obligations it assumed under the reinsurance agreements. The ability to collect reinsurance is subject to the solvency of the reinsurers. - -------------------------------------------------------------------------------- 13(a) - 15 - -------------------------------------------------------------------------------- The Company's ceded reinsurance transactions are attributable to two Lender/Dealer policies and a mortgage protection product. In 2001, the Company assumed a quota share participation in the gross liability of an insurer covering bail bond business. A reconciliation of direct to net premiums, on both a written and earned basis, for the years ended December 31, 2001, 2000 and 1999 is as follows:
2001 2000 1999 ---------------------------- ---------------------------- ------------------------------- PREMIUMS PREMIUMS Premiums Premiums Premiums Premiums WRITTEN EARNED Written Earned Written Earned ------------ ------------- ------------ ------------- ------------ ---------------- Direct $ 41,523,291 $ 38,390,171 $ 25,403,832 $ 25,058,892 $ 27,019,384 $ 25,342,701 Assumed 329,739 173,005 -- -- -- -- Ceded -- (254,438) -- (217,077) -- (127,070) ------------ ------------ ------------ ------------ ------------ ------------ $ 41,853,030 $ 38,308,738 $ 25,403,832 $ 24,841,815 $ 27,019,384 $ 25,215,631 ============ ============ ============ ============ ============ ============
The amounts of recoveries pertaining to reinsurance contracts that were deducted from losses incurred during 2001, 2000 and 1999 were: $164,794, $161,411 and $9,892, respectively. Ceded reinsurance decreased commission expense incurred by $160,839, $49,988 and $73,420, respectively. (15) RELATED PARTIES Loans to affiliates at December 31, 2001 includes a $96,000 loan to an officer of the Company. Such indebtedness is due and payable on February 1, 2002 and accrues interest at the prime rate through February 1, 2002 and, if unpaid on such date, 2% above the prime rate thereafter. Pursuant to the terms of a Resignation Agreement and Release between the Company and such officer, the Company has the right to offset any amounts that are due and payable under the cognovit promissory notes against any amounts that are due and payable by the Company under such Resignation Agreement and Release. During 1994, the Company entered into a Split-Dollar Insurance Agreement with a bank, as trustee, for the benefit of an officer/shareholder and his spouse. The bank has acquired a second-to-die policy on the lives of the insureds, in the aggregate face amount of $2,700,000. At December 31, 2001, the Company had loaned the trustee $574,058 under this agreement for payment of insurance premiums. Amounts loaned by the Company to the trustee are to be repaid, in full, without interest from any of the following sources; cash surrender value of the underlying insurance contracts, death benefits and/or the sale of 15,750 common shares of the Company contributed by the officer/shareholder to the Trust. In February 2000, the Company entered into a Split-Dollar Insurance Agreement for the benefit of another officer in the face amount of $1,000,000. At December 31, 2001, $23,000 was included in loans to affiliates for payment of insurance premiums. All premiums paid by the Company in connection with the Split-Dollar insurance policy are to be repaid, in full, without interest, upon the death, retirement or termination of the officer. During 2001 and 2000, the Company agreed to repurchase common shares of the Company from two officers of Ohio Indemnity concurrent with the issuance of such common shares through exercise of stock options. The $22,640 payment in 2001 and the $58,750 payment in 2000 to settle the option grants were recorded as compensation expense. The executive offices of the Company are shared with consolidated subsidiaries. Rental, equipment and bookkeeping expenses are allocated among them pursuant to management fee agreements. (16) CONCENTRATIONS Four customers in the ultimate loss insurance program represented $4,238,080, $3,850,000, $3,677,520 and $3,485,288 of the Company's net premiums earned in 2001, $0, $3,550,000, $2,843,525 and $2,683,880 of the net premiums earned in 2000 and $0, $3,825,000, $2,643,601and $2,859,446 of the net premiums earned in 1999, respectively. (17) STOCK DIVIDEND On May 5, 1999, the Company declared a 5% common share dividend to shareholders of record on May 25, 1999. Accordingly, all common share data have been adjusted to include the effect of the stock dividend. (18) COMMON SHARE REPURCHASE PROGRAM On August 16, 1999, the Board of Directors adopted a common share repurchase program. The program allowed the Company to repurchase, from time to time, up to a total of 500,000 of its common shares. The program expired on December 31, 2000. Through December 31, 2000, the Company repurchased 491,448 shares at an average price per share of $4.62 under this program. Repurchases were funded by cash flows from operations. (19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Our results of operations have varied, and in the future may vary, from quarter to quarter principally because of fluctuations in underwriting results. Consequently, quarterly results are not necessarily indicative of full year results, nor are they comparable to the results of other quarters. The following table sets forth certain unaudited quarterly consolidated financial and operating data: - -------------------------------------------------------------------------------- 13(a) - 16 - --------------------------------------------------------------------------------
2001 -------------------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------------------------------------------------------------- Net premiums earned........................ $7,014,694 $10,618,263 $10,098,238 $10,577,543 Net investment and other income............ 1,669,420 1,291,969 1,320,293 897,702 Total revenue.............................. 8,684,114 11,910,232 11,418,531 11,475,245 Losses and operating expenses.............. 7,790,510 10,728,289 10,410,251 10,292,515 Net income ................................ 654,063 846,258 729,396 845,473 Net income per common share................ .11 .15 .13 .14 Net income per common share, .............. assuming dilution........................ .11 .15 .13 .14
2000 -------------------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------------------------------------------------------------- Net premiums earned........................ $5,615,626 $6,399,555 $6,680,951 $6,145,683 Net investment and other income............ 1,353,045 2,076,951 1,122,905 986,280 Total revenue.............................. 6,968,671 8,476,506 7,803,856 7,131,963 Losses and operating expenses.............. 6,063,087 6,570,227 5,944,642 6,182,107 Net income ................................ 653,869 1,313,062 1,239,733 711,693 Net income per common share................ .11 .22 .21 .12 Net income per common share, assuming dilution........................ .11 .22 .21 .12
Common share data have been adjusted to include the effect of the stock dividend. (20) REGULATORY STANDARD Ohio Indemnity is subject to a Risk Based Capital test applicable to property and casualty insurers. The Risk Based Capital test serves as a benchmark of insurance enterprises' solvency by state insurance regulators by establishing statutory surplus targets which will require certain company level or regulatory level actions. Ohio Indemnity's total adjusted capital is in excess of all required action levels. (21) LITIGATION There are no actions, suits, claims, governmental investigations or proceedings instituted, pending or, to the Company's knowledge, threatened against the Company, its subsidiaries or against any of their assets, interests or rights or against any officer, director or employee of any of them that in any such case, if decided adversely, could reasonably be expected to have, individually or in the aggregate, a material adverse effect. Neither the Company nor any of the Company's subsidiaries is a party to any order, judgment or decree which has had or could reasonably be expected to have a material adverse effect on the Company. (22) DISPUTE SETTLEMENT Included in other income for the year ended December 31, 2000, is a $900,000 payment received in May 2000, in connection with the settlement of a dispute with an unaffiliated party. (23) SUPPLEMENTAL DISCLOSURE FOR EARNINGS PER SHARE
---------------------------------------------- 2001 2000 1999 ---------------------------------------------- Net income......................................................... $ 3,075,190 $ 3,918,357 $ 3,889,195 ------------ ------------ ------------ Income available to common shareholders, assuming dilution............................................... $ 3,075,190 $ 3,918,357 $ 3,889,195 ------------ ------------ ------------ Weighted average common shares outstanding......................... 5,769,340 5,891,752 6,106,117 Adjustments for dilutive securities: Dilutive effect of outstanding options.......................... 20,000 18,831 74,131 ------------ ------------ ------------ Diluted common shares.............................................. 5,789,340 5,910,583 6,180,248 ============ ============ ============ Net income per common share........................................ $ .53 $ .66 $ .64 Net income per common share, assuming dilution..................... $ .53 $ .66 $ .63
Common Share data has been adjusted to include the effect of the stock dividend. - -------------------------------------------------------------------------------- 13(a) - 17 (24) SEGMENT INFORMATION The Company operates primarily in the property/casualty insurance industry. There are intersegment management and commission fees. The allocations of certain general expenses within segments are based on a number of assumptions, and the reported operating results would change if different methods were applied. Depreciation and capital expenditures are not considered material.
DECEMBER 31, 2001 --------------------------------------------------------------------------------------------- MUNICIPAL PROPERTY/CASUALTY INSURANCE CODE ALL CONSOLIDATED INSURANCE AGENCY PUBLISHING OTHER TOTALS --------------------------------------------------------------------------------------------- Revenues from external customers... $39,793,214 $ 67,065 $ 2,652,231 $ 23,147 $42,535,657 Intersegment revenues ............. 5,880 340,494 -- 81,240 427,614 Interest revenue .................. 1,335,796 107 -- 44,176 1,380,079 Interest expense .................. 9,266 -- 3,162 15,648 28,076 Depreciation and amortization ..... 59,829 102,122 78,140 65,970 306,061 Segment profit (loss) ............. 4,545,478 141,402 380,425 (373,134) 4,694,171 Income tax expense (benefit) ...... 1,229,850 87,923 143,617 (270,023) 1,191,367 Segment assets .................... 58,283,510 2,610,501 1,878,414 3,967,509 66,739,934
DECEMBER 31, 2000 ---------------------------------------------------------------------------------------------- WORKERS MUNICIPAL PROPERTY/CASUALTY TITLE COMPENSATION INSURANCE CODE ALL CONSOLIDATED INSURANCE AGENCY ADMINISTRATION AGENCY PUBLISHING OTHER TOTALS ---------------------------------------------------------------------------------------------- Revenues from external customers.... $26,954,064 $ 115,724 $ 427,036 $ 155,942 $ 1,884,067 $ 10,280 $29,547,113 Intersegment revenues .............. 5,880 -- -- 642,113 -- 71,240 719,233 Interest revenue ................... 1,489,992 -- -- 98 -- 63,026 1,553,116 Interest expense ................... 7,526 90 -- 40 -- 250,328 257,984 Depreciation and amortization ...... 118,651 419 2,746 107,189 39,823 58,696 327,524 Segment profit (loss) .............. 5,751,667 (37,138) (37,177) 373,978 266,025 22,811 6,340,166 Income tax expense (benefit) ....... 1,677,890 -- -- 161,852 102,077 (239,243) 1,702,576 Segment assets ..................... 40,285,510 -- -- 2,492,767 1,464,405 2,888,620 47,131,302
DECEMBER 31, 1999 -------------------------------------------------------------------------------------------- WORKERS PROPERTY/CASUALTY TITLE COMPENSATION INSURANCE ALL CONSOLIDATED INSURANCE AGENCY ADMINISTRATION AGENCY OTHER TOTALS -------------------------------------------------------------------------------------------- Revenues from external customers... $26,804,050 $ 2,387,351 $ 591,654 $ 479,197 $ 109 $30,262,361 Intersegment revenues ............. 9,480 -- -- 375,014 10,440 394,934 Interest revenue .................. 1,364,876 -- -- -- 29,604 1,394,480 Interest expense .................. 5,054 2,814 29 51 254,693 262,641 Depreciation and amortization ..... 65,907 64,555 4,685 43,928 76,929 256,004 Segment profit (loss) ............. 5,626,008 33,556 (36,867) 261,278 (35,843) 5,848,132 Income tax expense (benefit) ...... 1,615,479 13,927 -- 103,604 (169,007) 1,564,003 Segment assets .................... 37,205,839 940,140 248,952 2,409,474 3,349,718 44,154,123
- -------------------------------------------------------------------------------- 13(a) - 18 - --------------------------------------------------------------------------------
---------------------------------------------- 2001 2000 1999 ---------------------------------------------- REVENUE Total revenues for reportable segments $ 42,535,657 $ 29,547,113 $ 30,262,361 Interest revenue ...................... 1,380,079 1,553,116 1,394,480 Elimination of intersegment revenues .. (427,614) (719,233) (394,934) ------------ ------------ ------------ Total consolidated revenue ............ $ 43,488,122 $ 30,380,996 $ 31,261,907 ============ ============ ============ PROFIT Total profit for reportable segments .. $ 5,067,305 $ 6,317,355 $ 5,883,975 Other loss ............................ (373,134) 22,811 (35,843) Elimination of intersegment profits ... (427,614) (719,233) (394,934) ------------ ------------ ------------ Income before income taxes ............ $ 4,266,557 $ 5,620,933 $ 5,453,198 ============ ============ ============ ASSETS Total assets for reportable segments .. $ 62,772,425 $ 44,242,682 $ 40,804,405 Other assets .......................... 3,967,509 2,888,620 3,349,718 Elimination of intersegment receivables (2,069,257) (1,230,318) (1,706,010) ------------ ------------ ------------ Consolidated assets ................... $ 64,670,677 $ 45,900,984 $ 42,448,113 ============ ============ ============
(25) SALES OF SUBSIDIARIES On January 24, 2000, the Company sold its wholly-owned subsidiary Custom Title Services, Inc. See Note 5. A $34,512 gain on disposal of the subsidiary was recognized in earnings. The business operated as a title lien search and mortgage service company. Title and appraisal fees represented 4% and 7.6% of total revenue for 2000 and 1999, respectively. On October 6, 2000, the Company sold its wholly-owned subsidiary, BCIS Services, Inc. for $40,000. A $24,625 gain on disposal of subsidiary was recognized in earnings. The business operated as a third party administrator specializing in certain workers' compensation programs. Claims administration fees represented 1.4% and 1.9% of total revenue for 2000 and 1999, respectively. (26) POLICY RESCISSION On July 11, 2000, the Company entered into an Agreement to Rescind and Release a policy which provided coverage to auto dealers (or agents) who sold auto warranty contracts. The policy rescission resulted in an underwriting gain of $243,000 for the nine months ended September 30, 2000 primarily due to the release of reserves associated with the program. (27) ADOPTION OF NEW ACCOUNTING STANDARDS In June 2001, the FASB issued SFAS 141, "Business Combinations," which eliminates the pooling-of-interest method of accounting for business combinations and requires the use of the purchase method. In addition, SFAS 141 requires the reassessment of intangible assets to determine if they are appropriately classified either separately or within goodwill. SFAS 141 is effective for business combinations initiated after June 30, 2001. The Company adopted SFAS 141 on July 1, 2001, with no material impact on the financial statements. In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets," which eliminates the amortization of goodwill and other acquired intangible assets with indefinite economic useful lives. SFAS 142 requires an annual impairment test of goodwill and other intangible assets that are not subject to amortization. The Company adopted SFAS 142 on January 1, 2002. In accordance with the provisions of SFAS 142, the Company ceased amortization of goodwill and all intangible assets with indefinite useful lives. The Company has performed the requisite transitional impairment tests for these assets as of January 1, 2002 and has determined that approximately $1.5 million of goodwill, associated with the August 1999 acquisition of Paul Boardway and Associates, Inc., will be recorded as a charge to income in the first quarter of 2002. - -------------------------------------------------------------------------------- 13(a) - 19 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Bancinsurance Corporation We have audited the accompanying consolidated balance sheets of Bancinsurance Corporation as of December 31, 2001 and 2000, and the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of Bancinsurance Corporation for the year ended December 31, 1999 were audited by other auditors whose report dated March 13, 2000 expressed an unqualified opinion on those statements. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the 2001 and 2000 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bancinsurance Corporation at December 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. /s/Ernst & Young LLP Columbus, Ohio February 1, 2002 - -------------------------------------------------------------------------------- 13(a) - 20 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Our principal sources of revenue are premiums paid by insureds. Premium volume principally is earned as written because of the nature of the monthly policies issued. Our principal costs are losses and loss adjustment expenses. The principal factor in determining the level of our profit is the difference between the premiums earned and losses and loss adjustment expenses incurred. Losses and loss adjustment expense reserves are estimates of what an insurer expects to pay on behalf of claimants. We are required to maintain reserves for payment of estimated losses and loss adjustment expenses for both reported claims and incurred but not reported claims. Our ultimate liability may be different from current reserve estimates. Losses and loss adjustment expense reserves for incurred by not reported claims are estimated based on several variables including historical and statistical information, inflation, legal developments, economic conditions, general trends in claim severity and frequency and other factors that could affect the adequacy of loss reserves. We review case reserves and incurred but not reported reserves monthly and make appropriate adjustments. SUMMARY RESULTS The following table sets forth period to period changes in selected financial data:
--------------------------------------------------- PERIOD TO PERIOD INCREASE (DECREASE) YEARS ENDED DECEMBER 31, --------------------------------------------------- 2000-2001 1999-2000 ------------------------- ------------------------- AMOUNT %CHANGE AMOUNT %CHANGE ------------- -------- ------------- --------- Premiums written ................. $ 16,449,198 64.8% $ (1,615,552) (6.0)% Net premiums earned .............. 13,466,923 54.2% (373,816) (1.5)% Net investment income ............ 211,599 16.2% (415,110) (24.1)% Total revenue .................... 13,107,126 43.1% (880,911) (2.8)% Loss and loss adjustment expenses, net of reinsurance recoveries .. 6,590,114 43.7% 483,279 3.3% Operating expenses ............... 8,101,296 85.9% (1,527,268) (13.9)% Interest expense ................. (229,908) (89.1)% (4,657) (1.8)% Operating income ................. (1,354,376) (24.1)% 167,735 3.1% Net income ....................... (843,167) (21.5)% 29,162 .7%
The combined ratio, which is the sum of the loss ratio and the expense ratio, is the traditional measure of underwriting experience for insurance companies. The following table reflects the loss, expense and combined ratios of Ohio Indemnity on both a statutory and GAAP basis for each of the years ended December 31:
2001 2000 1999 ------------------------------------- Statutory: Loss ratio ........................ 63.9% 59.7% 62.5% Expense ratio ..................... 23.4% 29.1% 23.9% ---- ---- ---- Combined ratio .................... 87.3% 88.8% 86.4% ==== ==== ==== GAAP: Loss ratio ........................ 56.5% 60.7% 57.8% Expense ratio ..................... 35.5% 27.4% 26.6% ---- ---- ---- Combined ratio .................... 92.0% 88.1% 84.4% ==== ==== ====
Investment of Ohio Indemnity's assets is restricted to those investments permitted by the Ohio insurance laws. Our overall investment policy is determined by our Board of Directors and is reviewed periodically. We principally invest in investment-grade obligations of states, municipalities and political subdivisions because the majority of the interest income from such investments is tax-exempt and such investments have generally resulted in favorable net yields. We have the ability and intent to hold held to maturity fixed income securities to maturity or to the put date, and, as a result, we carry held to maturity fixed income securities at amortized cost for GAAP purposes. As our fixed income securities mature, there can be no assurance that we will be able to reinvest in securities with comparable yields. - -------------------------------------------------------------------------------- 13(a) - 21 - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2001 AS COMPARED TO YEAR ENDED DECEMBER 31, 2000 Premiums. Premiums written in fiscal year 2001 increased 64.8% to $41,853,030 from $25,403,832 in fiscal year 2000. Net premiums earned in fiscal year 2001 increased 54.2% to $38,308,738 from $24,841,815 in fiscal year 2000. We attribute these increases in premiums written and net premiums earned primarily to growth in the number of new policies that we issued in 2001 as a result of the addition of four significant financial institutions (and numerous smaller financial institutions) as customers in our Lender/Dealer program. Increased automobile lending, which resulted in higher premium volume on existing policies, also contributed to overall premium growth in fiscal year 2001. Lender/Dealer written premiums increased by $14,366,165 during 2001 over the comparable year to date period in 2000. New policy sales benefited from our expanded marketing department and expanded sales through agency relationships to regional and community financial institutions. The Guaranteed Auto Protection ("GAP") premiums written increased from $293,800 in 2000 to $1,646,279 in 2001 primarily as a result of an agent transferring a book of GAP business to us. Premiums written for our Unemployment Insurance Protection business increased by $400,816 during 2001 over 2000 primarily as a result of growth in Mandated Surety Bonds and increases in premiums on our existing Excess of Loss business. During the third quarter of 2001, we assumed Bail Bond coverage in New Jersey. Premiums written for this business were $329,739 in 2001. Investment Income. Investment income (before taxes and excluding net realized capital gains/losses) decreased 8.1% to $1,496,621 in 2001 from $1,628,306 in 2000. The decrease in investment income was primarily the result of a decrease in average portfolio yield. As of December 31, 2001 and 2000, the average yield on our portfolio was 3.5% and 4.6%, respectfully. The effective duration of our portfolio at December 31, 2001 was 6.1 years compared with 5.9 years at December 31, 2000. During 2001, we realized gains on investments of $22,542 compared with realized losses of $320,742 in 2000. During the fourth quarter of 2001, we recorded a realized loss on equity investments of $388,333. The Company's investment strategy is based on current market conditions and tax considerations which we regularly monitor. Codification and Subscription Fees. Codification and subscription fees generated by American Legal Publishing, our consolidated subsidiary, accounted for $1,884,067 of our revenues in 2000 and $2,652,231 of our revenues in 2001. The increase in codification and subscription fees in 2001 was primarily attributable to our acquisition of Justinian Publishing Company, which contributed $301,631 in additional fees. In addition, growth in subscriptions and state league programs contributed to the increase. See Note 1 (g) to our Consolidated Financial Statements. Claims Administration Fees. Claims administration fees generated by BCIS Services, our former consolidated subsidiary, accounted for $427,036 of our revenues in 2000. On October 6, 2000, we sold BCIS Services. See Note 25 to our Consolidated Financial Statements. Title and Appraisal Fees. Title services and appraisal fees generated by Custom Title Services, our former consolidated subsidiary, accounted for $115,724 of our revenues in 2000. On January 24, 2000, we sold Custom Title Services. See Note 25 to our Consolidated Financial Statements. Management Fees. Management fees increased 28.3% in 2001 from $659,929 in 2000 to $846,446 in 2001. The increase was the result of a 19.2% decline in calendar year benefits charges which were partially offset by a 4.4% reduction in Bonded Service fees, thus increasing the residual reserve distribution. We expect fees to vary from year to year depending on unemployment levels and claims experience in the Bonded Service program. See Note 1(m) to our Consolidated Financial Statements. Commission Fees. Net commission fees generated by our Paul Boardway and Associates subsidiary accounted for $67,065 of our revenues in 2001 and $155,942 of our revenues in 2000. The decline in commission fees was primarily the result of our action taken during 2000 to preserve the business acquired from Paul Boardway and Associates in 1999 and to provide a claim servicing location closer to its customers. During the first half of 2000, we transferred several policies to another general agency who represents Ohio Indemnity. See Note 1(f) to our Consolidated Financial Statements. Other Income. Other income decreased from $988,919 in 2000 to $78,631 in 2001. The decrease was primarily the result of recognition of a one-time payment of $900,000 received by us in the second quarter of 2000 in settlement of a dispute with an unaffiliated party. Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses increased 43.7% in 2001 to $21,658,744 from $15,068,630 in 2000, respectively. The resulting net loss and loss adjustment expense GAAP ratios were 56.5% and 60.7% in 2000, respectively. The increase in the loss and loss adjustment expense ratio during 2001 was primarily the result of higher dollar losses expected due to growth in our Lender/Dealer products. Our GAP business incurred loss and loss adjustment expenses of $294,076 in 2001 and $25,362 in 2000. Losses and loss adjustment expenses for the Unemployment Insurance Protection business increased $211,429 from 2000 to 2001, which was primarily caused by less favorable claims experience and higher claims incurred. Our Bail Bond Insurance business incurred loss and loss adjustment expenses of $103,803 in 2001. Partially offsetting these increases, during 2000, we released $304,604 of loss reserves due to the rescission of the auto warranty contract program. See Note 26 to our Consolidated Financial Statements. Operating Expenses. Our operating expenses consist of experience rating adjustments, commission expense, other insurance operating expense, amortization of deferred policy acquisition costs and general and administrative expenses. Experience rating adjustments increased from $(233,026) in 2000 to $5,155,850 in 2001. Experience rating adjustments are calculated and adjusted from period to period based on policy experience to date and premium growth. Management anticipates that the experience rating adjustment may fluctuate in future years based on this calculation. Commission expense increased 62.6% during 2001 from $3,639,642 in 2000 to $5,918,461 in 2001. The increase in 2001 was consistent with the overall premium activity for 2001. Other insurance operating expenses increased 6.5% as a result of increases in state and local insurance taxes, rent and office supplies. General and administrative expenses increased 7.9% from $3,090,167 in 2000 to $3,334,200 in 2001, primarily as a result of increases in salaries, sales commissions and supplies. - -------------------------------------------------------------------------------- 13(a) - 22 - -------------------------------------------------------------------------------- Federal Income Taxes. In 2001, we had income before taxes of $4,266,557 and recorded a provision of $1,191,367 for income taxes, as compared to income before taxes of $5,620,933 and a provision for income taxes of $1,702,576 in 2000. The effective consolidated income tax rate was 27.9% and 30.3% in 2001 and 2000, respectively. In 2001, the deductible for dividends received and tax exempt interest was 15.9% higher compared with the prior year. See Note 8 to our Consolidated Financial Statements. GAAP Combined Ratio. Our combined ratio was 92.0% of net premiums earned for the year 2001 compared to 88.1% the prior year. The 3.9 percentage point increase is attributable to the higher expense ratio. Expressed as a percentage of premiums earned, the loss ratio declined to 56.5% for the year 2001 from 60.7% a year ago. The expense ratio rose to 35.5% for the year 2001 from 27.4% the prior year, principally due to a reclassification of experience rating adjustment expenses during fourth quarter 2000. YEAR ENDED DECEMBER 31, 2000 AS COMPARED TO YEAR ENDED DECEMBER 31, 1999 Premiums. Premiums written decreased 6.0% from $27,019,384 in 1999 to $25,403,832 in 2000; while premiums earned remained relatively constant at $25,215,631 in 1999 and $24,841,815 in 2000. Premiums written for Lender/Dealer insurance increased 4.2% from $20,765,936 in 1999 to $21,643,668 in 2000. Premiums earned for Lender/Dealer insurance remained relatively constant at $20,222,904 in 1999 and $20,377,066 in 2000. Premiums written for the Unemployment Insurance program decreased 18.6% from $4,689,962 in 1999 to $3,819,154 in 2000; while premiums earned decreased 18.8% from $4,692,875 in 1999 to $3,810,995 in 2000. The decrease in premiums written and premiums earned in our Unemployment Insurance program were primarily the result of a reduction in premium associated with a decline in risk exposure resulting from higher deductibles on two significant policies. In 1999, we began providing auto warranty contract coverage to automobile dealers or agents. We decided to discontinue offering this policy during the third quarter of 2000 because it was not achieving expected results. This resulted in return premiums, which totaled $1,250,592 and a reduction in premiums written in the same amount. The policy represented negative earned premium of $61,241 during 2000. See Note 26 to our Consolidated Financial Statements. Investment Income. Investment income decreased 24.1% from $1,722,674 in 1999 to $1,307,564 in 2000. The decrease was the result of realized losses which were $320,742 in 2000 compared with realized gains of $226,826 in 1999. A weaker outlook for U.S. corporate profits and the slowdown in consumer spending attributed to a repositioning of our equity portfolio in the fourth quarter. While most stocks were down, technology and telecommunication stocks were generally down the most. The broader indices were also down for 2000, with the NASDAQ dropping approximately 20% of its value in the fourth quarter. Our investment strategy is based on current market conditions and other factors which we review from time to time. Our investment portfolio is concentrated in municipal tax-free investment-grade securities. We strive to maintain a high quality investment portfolio. The average yield on our investment portfolio was 4.6% in 1999 and 2000. Codification and Subscription Fees. Codification and subscription fees generated by our American Legal Publishing subsidiary accounted for $1,884,067 of our revenues for 2000. We acquired American Legal Publishing on February 29, 2000. Claims Administration Fees. Claims administration fees generated by our BCIS Services subsidiary accounted for $591,654 of our revenues in 1999 and $427,036 in 2000. On October 6, 2000, we sold BCIS Services. Management does not expect the sale to have a material adverse effect on our operating results. See Note 25 to our Consolidated Financial Statements. Title and Appraisal Fees. Title services and appraisal fees generated by our Custom Title Services subsidiary accounted for $2,387,351 of our revenues in 1999 and $115,724 in 2000. On January 24, 2000, we sold Custom Title Services. Management does not expect the sale to have a material adverse effect on our operating results. See Note 25 to our Consolidated Financial Statements. Management Fees. Management fees decreased from $1,153,663 in 1999 to $659,929 in 2000. The decrease was attributable to recognition of less favorable results from a closed year of operations of the Bonded Service program. We expect fees to vary from year to year depending on claims experience in the Bonded Service program. See Note 1(m) to our Consolidated Financial Statements. Commission Fees. Net commission fees generated by our Paul Boardway and Associates subsidiary accounted for $103,430 of our revenues in 1999 and $155,942 in 2000. We acquired Paul Boardway during the third quarter of 1999. See Note 1(f) to our Consolidated Financial Statements. Other Income. Other income increased from $87,504 in 1999 to $988,919 in 2000. The increase was attributable to other income of $900,000 received by us in the second quarter of 2000 in settlement of a dispute with an unaffiliated party. Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses totaled $14,585,351, or 57.8% of premiums earned in 1999 compared to $15,068,630 or 60.7% of premiums earned in 2000. Losses and loss adjustment expenses for the Lender/Dealer Insurance program decreased 5.7% from $15,064,387 in 1999 to $14,203,678 in 2000. Losses and loss adjustment expenses for the Unemployment Insurance program decreased 39.4% from $299,363 in 1999 to $181,506 in 2000. These decreases were primarily the result of favorable loss experience on reserves for prior accident years and further complemented by the release of $304,664 of loss reserves due to the recission of the auto warranty contract program. See Note 26 to our Consolidated Financial Statements. Operating Expenses. Operating expenses consist of experience rating adjustments, commission expense, other insurance operating expense, amortization of deferred policy acquisition costs and general and administrative expenses. Operating expenses decreased 1.3% from $9,790,718 in 1999 to $9,666,475 in 2000. Experience rating adjustments decreased from $1,169,999 in 1999 to $(233,026) in 2000. Commission expense remained relatively constant at $3,623,761 in 1999 and $3,639,642 in 2000. Prior to August 25, 1999, Paul Boardway and Associates was an unaffiliated independent insurance agency. Subsequent to the acquisition, all intercompany commission transactions and balances have been eliminated in consolidation. Other insurance operating expenses increased 2.8% from $2,855,542 in 1999 to $2,936,666 in 2000 primarily as a result of increases in computer consulting services, tax, license and fees, allocable salaries and legal expense. General and administrative - -------------------------------------------------------------------------------- 13(a) - 23 - -------------------------------------------------------------------------------- expenses decreased 6.7% from $3,311,415 in 1999 to $3,090,167 in 2000 primarily as a result of decreases in title business expense, salaries and related benefits, rent and bad debt expense. BCIS Services incurred operating expenses of $628,534 in 1999 compared with $464,213 in 2000. Custom Title discontinued business operations under our ownership January 24, 2000. Paul Boardway and Associates incurred operating expenses in 1999 of $217,919 from its acquisition on August 25, 1999 to $412,459 during 2000. American Legal Publishing incurred operating expenses of $1,607,258 from its acquisition on February 29, 2000 through December 31, 2000. Federal Income Taxes. For the year 2000, we had income before taxes of $5,620,933 and recorded a provision of $1,702,576 for income taxes compared with income before taxes of $5,453,198 and a provision for income taxes of $1,564,003 in 1999. The effective consolidated income tax rate was 28.7% for 1999 and 30.3% in 2000. See Note 8 to the Notes to Consolidated Financial Statements. GAAP Combined Ratio. The change in the GAAP combined ratio from 84.4% in 1999 to 88.1% in 2000 was an anticipated increase in the loss ratio due to management's continuing emphasis on larger accounts in the Lender/Dealer Insurance program. DISCONTINUED PRODUCTS On January 24, 2000, we sold Custom Title Services, Inc. and on October 6, 2000 we sold BCIS Services, Inc. as part of an overall strategy to focus on our historically profitable core lines of business. On July 11, 2000, we entered into an Agreement to Rescind and Release a significant policy for a product which provided coverage to auto dealers or agents who sold auto warranty contracts. Management does not expect these transactions will have a material adverse effect on our operating results. LIQUIDITY AND CAPITAL RESOURCES We are an insurance holding company whose principal asset is the capital stock of Ohio Indemnity. We are, and will continue to be, dependent on dividends from Ohio Indemnity to meet our liquidity requirements, including debt service obligations. We have a $10 million credit facility to fund working capital requirements. Based on statutory limitations, the maximum amount of dividends that we would be able to receive in 2002 from Ohio Indemnity, absent regulatory consent, is $2,963,288. See Note 11 to our Consolidated Financial Statements. Ohio Indemnity derives its funds principally from net premiums written, reinsurance recoveries, investment income and contributions of capital from us. The principal use of these funds is for payment of losses and loss adjustment expenses, commissions, operating expenses and income taxes. Net cash provided by operating activities equaled $5,156,635, $4,311,302 and $14,242,945 for the years ended December 31, 1999, 2000 and 2001, respectively. Net cash provided by (used in) financing activities was $215,016, $(1,490,448) and $453,458 for the years ended December 31, 1999, 2000 and 2001, respectively. Net cash provided by (used in) our investing activities was $(7,552,507), $1,338,612 and $(1,710,049) for the years ended December 31, 1999, 2000 and 2001, respectively. American Legal Publishing derives its funds principally from codification and subscription fees which are currently sufficient to meet its operating obligations. Paul Boardway and Associates derives its funds principally from commission fees which are currently sufficient to meet its operating obligations. When expanding our business through acquisitions, we have selected growth opportunities to build upon existing strengths and industry experience. As each business segment is continually evaluated with goals of increased revenue and profitability, management will reposition assets to those areas which contribute to our overall financial objectives. We maintain a level of cash and liquid short-term investments which we believe will be adequate to meet our anticipated payment obligations without being required to liquidate intermediate-term and long-term investments through the end of 2002. Because of the nature of the risks we insure, losses and loss adjustment expenses emanating from our policies are characterized by relatively short settlement periods and quick development of ultimate losses compared to claims emanating from other types of insurance products. Therefore, we believe that we can estimate our cash needs to meet our loss and expense payment obligations through the end of 2002. Our investments at December 31, 2001 consisted primarily of investment-grade fixed income securities. Cash and short-term investments at December 31, 2001 amounted to $25,023,272 or 49.3% of total cash and invested assets. The fair values of our held to maturity fixed income securities are subject to market fluctuations but are carried on our balance sheet at amortized cost because we have the ability and intent to hold held to maturity fixed income securities to maturity or put date. Available for sale fixed income securities are reported at fair value with unrealized gains or losses, net of applicable deferred taxes, reflected in accumulated other comprehensive income. We earned net investment income of $1,722,674, $1,307,564 and $1,519,163 for the years ended December 31, 1999, 2000 and 2001, respectively. Interest rate risk is the risk that interest rates will change and cause a decrease in the value of an insurer's investments. We mitigate this risk by attempting to ladder the maturity schedule with the expected payouts of our liabilities. To the extent that liabilities come due more quickly than assets mature, we would have to sell assets prior to maturity and recognize a gain or loss. All our material capital commitments and financial obligations are reflected in our financial statements, except our risk on surety bonds and state mandated performance bonds, written in connection with the Bonded Service program. The financial statements include reserves for losses on these programs for any claims filed and for an estimate of incurred but not reported losses. Such reserves were $425,500 and $368,000 at December 31, 2001 and 2000, respectively. Under applicable insurance statutes and regulations, Ohio Indemnity is required to maintain prescribed amounts of capital and surplus as well as statutory deposits with the appropriate insurance authorities. Ohio Indemnity is in compliance with all applicable statutory capital and surplus requirements. Ohio Indemnity's investments consist only of permitted investments under Ohio insurance laws. DISCLOSURE ABOUT MARKET RISK The following discussion about our risk-management activities includes "forward-looking statements" that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. - -------------------------------------------------------------------------------- 13(a) - 24 - -------------------------------------------------------------------------------- Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, commodity prices and other relevant market rate or price changes. Market risk is influenced by the volatility and liquidity in the markets in which the related underlying assets are traded. The following is a discussion of our primary market risk exposures and how those exposures are currently managed as of December 31, 2001. Our market risk sensitive instruments are entered into for purposes other than trading. The carrying value of our investment portfolio as of December 31, 2001 was $31,211,753, 60.9% of which is invested in fixed income securities, 21.5% in equity securities and 17.6% in short-term investments. The primary market risk to the investment portfolio is interest rate risk associated with investments in fixed income securities as well as fixed-rate short-term investments. We have no foreign exchange risk or direct commodity risk. For fixed income securities, the short-term liquidity needs and the potential liquidity needs of the business are key factors in managing the portfolio. The portfolio duration relative to the liabilities' duration is primarily managed through cash market transactions. For additional information regarding our objectives and strategies pertaining to the investment portfolio, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." For our investment portfolio, for the year ended December 31, 2001, there were no material changes in our primary market risk exposures or in how these exposures were managed compared to the year ended December 31, 2000. We do not anticipate material changes in our primary market risk exposures or in how those exposures are managed in future reporting periods based upon what is known or expected to be in effect during future reporting periods. The following table summarizes the financial instruments held by us at December 31, 2001, which are sensitive to changes in interest rates. The instruments held by us are held for purposes other than trading. Excluded from the financial instruments shown below, are those fixed-rate instruments with a maturity of less than twelve months at December 31, 2001, as we have determined the interest rate risk related to these instruments to be relatively immaterial. Also excluded from the cash flow information disclosed below are cash receipts and payments related to interest. In the normal course of business, we also face risks that are either nonfinancial or non-quantifiable. Such risks principally include credit risk and legal risk and are not represented in the following table:
PROJECTED CASH FLOWS ----------------------------------------------------------------------------------------- 2002 2003 2004 2005 2006 THEREAFTER TOTAL ----------------------------------------------------------------------------------------- ASSETS Fixed income securities: Held to maturity ............ $ 1,141,000 $1,400,000 $ 135,000 $ 145,000 $ 700,000 $ 1,195,000 $ 4,716,000 Available for sale .......... Loans to affiliates ........... $ 597,058 $ 597,058 Weighted Average Interest Rate: Fixed income securities ..... 5.36% 5.74% 6.80% 4.75% 4.92% 5.19% Loans to affiliates ......... 0.00% PROJECTED CASH FLOWS -------------------- DECEMBER 31, 2001 FAIR VALUE -------------------- ASSETS Fixed income securities: Held to maturity ............ $ 4,869,247 Available for sale .......... $ 14,273,152 Loans to affiliates ........... 488,801 Weighted Average Interest Rate: Fixed income securities ..... Loans to affiliates .........
The amounts reported as cash flows in the above table for held-to-maturity fixed income securities represent par values at maturity date or call date, if applicable. The fair values of fixed income securities as disclosed in the above table are based upon quoted market prices or dealer quotes for comparable securities. The fair values of the fixed rate short-term investments, as well as the loans to affiliates, are based upon the amount of total cash flows discounted over the applicable term at interest rates that approximate market yields on similar investments at December 31, 2001. The cash flows for the loans to affiliates represent the principal amounts outstanding at December 31, 2001 at respective due dates. FACTORS TO CONSIDER FORWARD-LOOKING Going forward, management will consider underwriting, acquisition and investment opportunities which fit our strategy of penetrating specialized insurance markets within the financial services industry. These decisions will be in areas where management feels we have an understanding of the underwriting and inherent risks. Management intends to add independent agents to expand our market presence. We will further concentrate on penetrating larger financial institutions for collateral protection insurance, expanding financial institution programs and auto dealer service contract programs. We will also consider opportunities for underwriting additional non-profit organizations as they continue to consolidate into national trusts and seek to retain and transfer their unemployment claim exposure. TRENDS During 2001, we experienced a material increase in loss and loss adjustment expenses. We attribute this increase primarily to the condition of the national economy. Specifically, we believe that rising unemployment levels and increased loan defaults and automobile repossessions caused such increase. To the extent that unemployment levels continue to rise, loan defaults and automobile repossessions continue to increase in frequency and the national economy continues to weaken, we anticipate that this trend will continue during our first quarter of 2002. - -------------------------------------------------------------------------------- 13(a) - 25 - -------------------------------------------------------------------------------- We also anticipate that our premiums earned in the first quarter of 2002 will be affected by the condition of the national economy. Specifically, the tragedies of September 11, 2001 motivated captive finance companies of automobile manufacturers to offer 0% financing programs. As a result, banks and finance companies, our primary customers, are experiencing lower demand for automobile loans. Although we are uncertain of the long-term impact of this trend, we anticipate that it will cause a decrease in premiums earned by our Lender/Dealer Insurance programs during our first quarter of 2002. FORWARD-LOOKING INFORMATION Statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" that indicate our and shareholder values, intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements. It is important to note that our actual results could differ materially from those projected in such forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Many of the factors that will determine these results and values are beyond our ability to control or predict. Shareholders are cautioned not to put undue reliance on forward-looking statements. In addition, we have no obligation, and we do not intend to update forward-looking statements after the date hereof, even if new information, future events, or other circumstances have made them incorrect or misleading. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Some of the factors that could cause our actual results to differ from our forward-looking statements include the following: (i) the demand for Ultimate Loss and Bonded Service insurance varies with factors beyond our control such as changes in interest rates, level of automobile financing activity, cost of automobiles, consumer confidence, unemployment levels, and general economic activity; (ii) the risk that losses from claims are greater than anticipated such that reserves for possible claims are inadequate; (iii) the risk that unanticipated adverse changes in securities markets could result in material losses in our investments; and (iv) the dependence on key management personnel with skills critical to our long-term success. INFLATION We do not believe that inflation has, or will have in the foreseeable future, a material impact upon our operating results. INSURANCE REGULATORY MATTERS The NAIC has developed a risk-based capital measurement formula to be applied to all property/casualty insurance companies. This formula calculates a minimum required statutory net worth, based on the underwriting, investment, credit, loss reserve and other business risks inherent in an individual company's operations. Under the current formula, any insurance company which does not meet threshold risk-based capital measurement standards could be forced to reduce the scope of its operations and ultimately could become subject to statutory receivership proceedings. Based on our analysis, our total adjusted capital is in excess of all required action levels and no corrective action will be necessary. The risk based capital provisions have been enacted into the Ohio Revised Code. RESERVES The amount of incurred losses and loss adjustment expenses is dependent upon a number of factors, including claims frequency and severity, the nature and types of losses incurred and the number of policies written. These factors may fluctuate from year to year and do not necessarily bear any relationship to the amount of premiums written or earned. As claims are incurred, provisions are made for unpaid losses and loss adjustment expenses by accumulating case reserve estimates for claims reported prior to the close of the accounting period and by estimating incurred but not reported claims based upon past experience modified for current trends. Notwithstanding the variability inherent in such estimates, management believes that the provisions made for unpaid losses and loss adjustment expenses are adequate to meet our claim obligations. Such estimates are reviewed monthly by management and annually by an independent consulting actuary and, as adjustments thereto become necessary, such adjustments are reflected in our results of operations. Our independent consulting actuary has opined that loss and loss adjustment expense reserve levels, as of December 31, 2001, were reasonable. - -------------------------------------------------------------------------------- 13(a) - 26 - -------------------------------------------------------------------------------- BANCINSURANCE CORPORATION SELECTED FINANCIAL DATA
--------------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 1996 1995 --------------------------------------------------------------------------------------------------- Premiums earned $38,308,738 $24,841,815 $25,215,631 $20,869,288 $11,169,243 $10,138,104 $19,783,307 Investment and other income 5,179,384 5,539,181 6,046,276 5,328,425 4,661,158 2,566,770 2,027,037 Total revenues 43,488,122 30,380,996 31,261,907 26,197,713 15,830,401 12,704,874 21,810,344 Losses and loss adjustment expenses, net of reinsurance recoveries 21,658,744 15,068,630 14,585,351 12,961,147 6,070,954 5,404,484 12,760,094 Operating expenses 17,562,821 9,691,433 11,223,358 8,485,804 6,090,799 4,179,093 7,452,466 Operating income 4,266,557 5,620,933 5,453,198 4,750,762 3,668,648 3,121,297 1,597,784 Income taxes 1,191,367 1,702,576 1,564,003 1,356,342 967,354 780,249 176,698 Net income 3,075,190 3,918,357 3,889,195 3,394,420 2,701,294 2,341,048 1,421,086 Net income per common share, diluted(1) .53 $.66 $.63 $.55 $.44 $.38 $.23
SELECTED BALANCE SHEET DATA
--------------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 1996 1995 --------------------------------------------------------------------------------------------------- Total assets $64,670,677 $45,900,984 $42,448,113 $35,948,667 $31,404,432 $28,274,952 $27,750,234 Note payable to bank 5,600,000 5,142,000 5,145,000 4,250,000 5,000,000 5,600,000 5,616,132 Net shareholders' equity 31,391,909 28,535,359 25,193,289 22,504,482 19,079,801 15,906,817 13,710,410
(1) Earnings per share assuming dilution is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding adjusted for any dilutive potential common shares for the period and restated for common stock dividends. - -------------------------------------------------------------------------------- 13(a) - 27
--------------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 1989 1988 1987 --------------------------------------------------------------------------------------------------------------------------- $25,535,824 $19,787,858 $10,657,111 $6,852,544 $4,596,382 $3,326,437 $3,327,362 $2,717,607 2,140,734 1,879,007 1,241,158 653,300 343,776 379,287 275,331 264,709 27,676,558 21,666,865 11,898,269 7,505,844 4,940,158 3,705,724 3,602,693 2,982,316 15,564,508 10,918,649 5,063,855 3,444,370 2,582,505 2,119,556 1,957,693 1,418,484 9,459,652 7,506,212 3,938,717 2,786,956 1,739,441 1,074,691 774,083 643,867 2,652,398 2,826,614 2,895,697 1,274,518 618,212 511,477 870,917 919,965 335,403 580,379 758,167 332,108 178,466 72,596 240,220 258,315 2,316,995 2,294,822 2,137,530 942,410 439,746 438,881 630,697 628,226 $.37 $.38 $.35 $.15 $.08 $.08 $.10 $.10
--------------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 1989 1988 1987 --------------------------------------------------------------------------------------------------------------------------- $43,774,264 $43,612,249 $28,014,631 $15,534,604 $11,581,617 $7,492,524 $5,755,781 $4,021,011 5,916,132 5,316,132 3,500,000 3,350,000 3,600,000 1,600,000 1,650,000 368,000 11,838,424 9,909,742 7,581,232 5,239,984 4,247,832 3,685,010 3,342,282 2,777,141
- -------------------------------------------------------------------------------- 13(a) - 28 - -------------------------------------------------------------------------------- MARKET INFORMATION The Company's common stock shares are traded on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol "BCIS." The following table sets forth for the periods indicated the high and low sale prices for the Company in the over-the-counter market as reported by the National Quotation Bureau, Inc. The prices shown represent quotation between dealers, without adjustment for retail markups, markdowns or commissions, and may not represent actual transactions. On February 8, 2002, the last reported sale price of the Company's common shares was $4.35. Fiscal Quarter Ended Low Sale High Sale -------------------- -------- --------- March 31, 2000 4.250 5.500 June 30, 2000 3.875 4.859 September 30, 2000 3.938 4.625 December 31, 2000 4.188 4.625 March 31, 2001 4.313 4.688 June 30, 2001 4.370 5.120 September 30, 2001 4.150 5.160 December 31, 2001 4.450 5.000 HOLDERS The number of registered holders of record of the Company's common shares as of February 8, 2002 was 864. DIVIDENDS No cash dividends were declared or paid on our outstanding common shares in the two most recent fiscal years. We intend to retain earnings to finance the growth of our business and the business of Ohio Indemnity, American Legal Publishing and Paul Boardway and, therefore, do not anticipate paying any cash dividends to holders of our common shares. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will be dependent upon our results of operations, financial condition, legal and regulatory restrictions, and other factors deemed relevant at the time. Reference is made to Note 11 to our Consolidated Financial Statements for a description of the restrictions on payment of dividends to us from Ohio Indemnity. ANNUAL MEETING The annual meeting of shareholders will be held on June 3, 2002, at 10:30 a.m. local time, at the offices of Vorys, Sater, Seymour and Pease, 52 East Gay Street, Columbus, Ohio. - -------------------------------------------------------------------------------- 13(a) - 29 EX-21 11 l92627aex21.txt EXHIBIT 21 EXHIBIT 21 - SUBSIDIARIES OF THE COMPANY ---------------------------------------- BANCINSURANCE CORPORATION 100% 100% 100% 100% OHIO INDEMNITY COMPANY AMERICAN LEGAL PUBLISHING CORP. PAUL BOARDWAY & ASSOCIATES, INC. BIC MANAGEMENT, INC. (An Insurance Company) (A Publishing Company) (An Insurance Agency) (A Cost Containment Provider) Incorporated in Ohio Incorporated in Ohio Incorporated in New York Incorporated in Nevada
EX-23.A 12 l92627aex23-a.txt EXHIBIT 23A EXHIBIT 23 (a) Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Bancinsurance Corporation of our report dated February 1, 2002, included in the 2001 Annual Report to Shareholders of Bancinsurance Corporation. Our audit also included the financial statement schedules of Bancinsurance Corporation listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in Registration Statements on Form S-8 pertaining to the 1984 Stock Option Plan and the 1994 Stock Option Plan of our report dated February 1, 2002 with respect to the consolidated financial statements of Bancinsurance Corporation incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedules included in this Annual Report (Form 10-K) of Bancinsurance Corporation of the year ended December 31, 2001. /s/ Ernst & Young LLP Columbus, Ohio March 13, 2002 EX-23.B 13 l92627aex23-b.txt EXHIBIT 23B EXHIBIT 23(b) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 of the 1984 Stock Option Plan and the 1994 Stock Option Plan of Bancinsurance Corporation of our report dated March 13, 2000 relating to the financial statements, which appears in the Annual Report to Shareholders, which is incorporated by reference in Bancinsurance Corporation's Annual Report on Form 10-K for the year ended December 31, 2001. We also consent to the incorporation by reference of our report dated March 13, 2000 relating to the financial statement schedules, which appears in this Form 10-K. /s/PricewaterhouseCoopers LLP Columbus, Ohio March 15, 2002 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Bancinsurance Corporation: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, comprehensive income, of cash flows and of changes in shareholders' equity (appearing in the Bancinsurance Corporation 2001 Annual Report to Shareholders which has been incorporated by reference in this Form 10-K) present fairly, in all material respects, the financial position of Bancinsurance Corporation and its subsidiaries at December 31, 1999, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. We have not audited the consolidated financial statements of Bancinsurance Corporation for any period subsequent to December 31, 1999. /s/PricewaterhouseCoopers LLP March 13, 2000 Report of Independent Accountants On Financial Statement Schedules To the Board of Directors and Shareholders of Bancinsurance Corporation: Our audit of the consolidated financial statements referred to in our report dated March 13, 2000 appearing in Exhibit 23(a) in this Annual Report on Form 10-K also included an audit of the financial statement schedules as of December 31, 1999 and for the year ended December 31, 1999 listed in Item 14(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. We have not audited the financial statement schedules of Bancinsurance Corporation for any period subsequent to December 31, 1999. /s/PricewaterhouseCoopers LLP March 13, 2000 -----END PRIVACY-ENHANCED MESSAGE-----