-----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, UTCxYWskLCzjhC4GHosrxsqF+HK1alBql78mAED4/9atqUaJAahjzlQb4xMzNa6E snFAMXJubPNE05q/kqvlkA== 0000912057-96-009928.txt : 19960802 0000912057-96-009928.hdr.sgml : 19960802 ACCESSION NUMBER: 0000912057-96-009928 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CROP GROWERS CORP CENTRAL INDEX KEY: 0000921584 STANDARD INDUSTRIAL CLASSIFICATION: 6411 IRS NUMBER: 810491497 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-77548 FILM NUMBER: 96566750 BUSINESS ADDRESS: STREET 1: 201 CROP GROWERS DR CITY: GREAT FALLS STATE: MT ZIP: 59401 BUSINESS PHONE: 4064528101 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 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: 0-23830 CROP GROWERS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 81-0491497 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 201 CROP GROWERS DRIVE GREAT FALLS, MONTANA 59401 (Address of principal executive offices) (zip code) (406) 791-3418 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- --------- The number of shares outstanding of the registrant's common stock on May 1, 1996 was 8,149,131 shares. CROP GROWERS CORPORATION FORM 10-Q Quarter ended March 31, 1996 INDEX PAGE ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 1996 (unaudited) and December 31, 1995 3 Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 1996 and March 31, 1995 4 Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 1996 and March 31, 1995 5 Notes to Unaudited Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II - OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 2 PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements. CROP GROWERS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 1996 1995 (UNAUDITED) ASSETS ----------- ------------ Investments: Fixed maturities, held to maturity $ 2,310,736 $ 2,311,177 Fixed maturities, available for sale 5,800,774 5,838,391 Equity securities, available for sale 1,828,766 1,757,540 ------------ ---------- Total investments 9,940,276 9,907,108 Cash and cash equivalents 636,486 6,980,570 Premiums receivable, net 187,894,210 73,870,654 Prepaids and other assets 3,819,240 8,556,765 Reinsurance balances receivable 95,460,926 31,779,006 Property and equipment, net 12,432,542 11,687,066 Intangible assets, net 9,115,270 9,264,662 ------------ ------------ $319,298,950 $152,045,831 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Premiums and commissions payable $ 72,411,316 $ 23,572,783 Accounts payable and other liabilities 17,003,058 8,183,036 Loss reserves 85,341,565 21,726,157 Reinsurance balances payable 86,860,418 17,787,552 Note payable to bank 2,908,639 32,245,539 Long-term debt 3,838,477 4,188,540 ------------ ------------ Total liabilities $268,363,473 $107,703,607 Stockholders' equity: Preferred stock (par value $.01): 10,000,000 shares authorized; none issued and outstanding -- -- Common stock (par value $.01): 40,000,000 shares authorized; 8,149,131 and 8,172,581 shares issued and outstanding at March 31, 1996 and December 31, 1995, respectively 81,491 81,726 Paid-in capital 37,856,739 38,244,567 Retained earnings 12,854,499 5,881,973 Unrealized appreciation of fixed maturity investments available for sale, net of taxes 205,248 208,958 Unearned compensation (62,500) (75,000) ------------- ------------- Total stockholders' equity $ 50,935,477 $ 44,342,224 Contingencies ------------- ------------- $319,298,950 $152,045,831 ============= =============
See accompanying notes to unaudited consolidated financial statements. 3 CROP GROWERS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, MARCH 31, 1996 1995 --------- --------- Revenues: Service fees $ 66,272,697 $ 49,164,958 Software and hardware sales 663,251 254,664 Premiums earned and other income 116,769 350,494 Investment income 561,512 461,820 ------------- ------------ Total revenues 67,614,229 50,231,936 Expenses: Agent commissions and other direct costs 46,280,011 35,477,069 Cost of software and hardware sales 347,206 68,496 Losses incurred and other expense 97,407 199,004 General and administrative expense 7,705,344 5,416,609 Depreciation expense 423,297 281,032 Amortization expense 451,239 199,074 Interest expense 834,037 270,917 ------------- ------------ Total expenses 56,138,541 41,912,201 ------------- ------------ Income before income taxes 11,475,688 8,319,735 Income taxes (4,503,163) (3,141,291) ------------- ------------ Net income $ 6,972,525 $ 5,178,444 ============= ============ Net income per common share $ .84 $ .63 ============= ============ Weighted average common shares outstanding 8,348,429 8,284,069 ============= ============
See accompanying notes to unaudited consolidated financial statements. 4 CROP GROWERS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, MARCH 31, 1996 1995 --------- --------- Operating activities: Net income $ 6,972,525 $ 5,178,444 Adjustments to reconcile net income to net cash provided by (used by) operating activities: Depreciation 423,297 281,032 Amortization 451,239 199,074 Other changes: Premiums receivable (114,023,552) (84,322,369) Premiums and commissions payable 28,221,592 25,942,662 Accounts payable and other liabilities 8,822,382 25,397,299 Loss reserves 63,615,408 15,928,179 Reinsurance balances receivable (63,681,920) (15,928,179) Reinsurance balances payable 69,072,866 15,928,179 Prepaids and other assets 4,440,964 5,025,661 -------------- ------------- Net cash provided by (used by) operating activities 4,314,801 (6,370,018) Investing activities: Decrease in company financed premiums 20,616,941 20,304,821 Purchases of equity securities - available for sale (575,793) -- Purchases of fixed maturity securities - available for sale -- (7,328,671) Proceeds from sale of equity securities - available for sale 570,613 -- Maturities of fixed maturity securities - available for sale -- 6,119,008 Capitalization of intangible assets, including acquisitions of businesses (26,847) (425,406) Purchase of property and equipment (1,168,773) (1,748,513) -------------- ------------- Net cash provided by investing activities 19,416,141 16,921,239 Financing activities: Net repayments of note payable to bank (29,336,900) (13,557,000) Proceeds from issuance of long-term debt 20,034 1,991,092 Repayments on long-term debt (370,097) (367,369) Repurchase of common stock (394,063) -- Issuance of common stock 6,000 -- -------------- ------------- Net cash used by financing activities (30,075,026) (11,933,277) -------------- ------------- Net decrease in cash and cash equivalents (6,344,084) (1,382,056) Cash and cash equivalents, beginning of quarter 6,980,570 2,975,363 -------------- ------------- Cash and cash equivalents, end of quarter $ 636,486 $ 1,593,307 ============== =============
See accompanying notes to unaudited consolidated financial statements. 5 CROP GROWERS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. QUARTERLY PRESENTATION The unaudited consolidated financial statements have been prepared by Crop Growers Corporation (the Company), pursuant to the rules and regulations of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. Results of operations for interim periods are not indicative of results of operations to be expected for the full year ending December 31, 1996. It is suggested that these unaudited consolidated financial statements be read in conjunction with the consolidated financial statements and related notes in the Company's Form 10-K for the year ended December 31, 1995, as amended. In the opinion of management, the information furnished reflects all adjustments which are of a normal recurring nature and are necessary for a fair presentation of the Company's financial position as of March 31, 1996 and December 31, 1995, and the results of its operations and cash flows for the three months ended March 31, 1996 and 1995. 2. RECONCILIATION OF STOCKHOLDERS' EQUITY 1996 1995 ---- ---- Balance at January 1 $44,342,224 $38,668,720 Net income 6,972,525 5,178,444 Change in unrealized appreciation of fixed maturity and equity investments, net of taxes (3,710) 268,465 Restricted stock compensation earned 12,500 12,500 Exercise of stock options 6,000 -- Repurchase of Common stock (394,062) -- ----------- ----------- Balance at March 31 $50,935,477 $44,128,129 =========== =========== 3. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT In the first quarter of 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires that certain long-lived assets be reviewed for impairment when events or circumstances indicate that the carrying amounts of the assets may not be recoverable. If such review indicates that the carrying amount of an asset exceeds the sum of its expected future cash flows, the assets carrying value is written down to fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. The adoption did not have a significant effect on the financial position or results of operations of the Company. 4. RELOCATION OF CORPORATE HEADQUARTERS On March 28, 1996, the Company announced that it will take steps to relocate its headquarters and main office to Overland Park, Kansas. The Company intends to begin relocation efforts in the second quarter and anticipates substantial completion of these efforts by the end of 1996. At March 31, 1996, the Company was in the process of determining all significant actions to be taken in order to complete the relocation efforts, including identifying the number of employees that will relocate. These amounts will be charged to expense when determined and communicated. The benefit arrangements for employees whose jobs will not be relocated or whose jobs will be eliminated in the relocation had not been determined or communicated at such date. Amounts incurred as part of the relocation will be charged to expense when incurred. 6 CROP GROWERS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS No amounts have been charged to expense in the three months ended March 31, 1996. 5. LEGAL MATTERS INDEPENDENT COUNSEL INVESTIGATION. On February 26, 1996, the Company announced that it is a target of the investigation being conducted by the Independent Counsel appointed to investigate matters relating to former Secretary of Agriculture Mike Espy. The investigation relates to alleged violations of federal election and other laws in connection with contributions made to the 1993 Congressional primary campaign of Henry Espy, brother of Mike Espy. The Company and certain of its employees have received and responded to subpoenas to provide documents and testimony to the Independent Counsel. The Company's Chief Executive Officer and President John Hemmingson and its Executive Vice President Gary Black are also targets of the investigation. Neither the Company nor any director, officer or employee of the Company has been charged in connection with the investigation. The Company has formed a special committee (the "Special Committee") consisting of outside directors of the board of directors to review matters related to the investigation. The Special Committee has authority and discretion to take any and all appropriate actions relating to the investigation. The Company intends to vigorously defend against the allegations which are being considered by the Independent Counsel. Although the ultimate outcome of the investigation cannot be determined, if criminal or other proceedings are instituted against the Company as a result of the investigation, and the outcome were unfavorable, the Company could be subject to substantial monetary fines and other sanctions, including state insurance regulatory issues and the possibility that events involving the Independent Counsel's investigation could affect the Company's ability to continue to participate in the federal MPCI program. Any such result could have a material adverse effect on the Company, its results of operations, financial position or liquidity. No provision for any liability that may result from events relating to the Independent Counsel's investigation has been made in the Company's Consolidated Financial Statements. SHAREHOLDER LITIGATION. On May 22, 1995, a complaint in an action entitled JEANNE M. WEILEIN VS. JOHN HEMMINGSON, GARY BLACK AND CROP GROWERS CORPORATION (CIV. NO. 95-58-GF-PGH) was filed in the United States District Court for the District of Montana. On May 26, 1995, a complaint in an action entitled SANDRA L. ING. VS. JOHN HEMMINGSON, GARY BLACK AND CROP GROWERS CORPORATION (CIV. NO. 95-59-GF-PGH) was filed in the same court. Each suit was filed by one shareholder of the Company as a class action on behalf of all persons who purchased the Company's common stock between February 13, 1995 and May 16, 1995. Except for the identities of the named plaintiffs, the complaints are identical in all respects. The two suits have been consolidated by the court into a single action entitled IN RE CROP GROWERS SECURITIES LITIGATION (CIV. NO. 95-58-GF-PGH). The complaint alleges, among other things, that the Company made false and misleading statements in publicly filed or disseminated documents to inflate artificially the price of its common stock. The complaint seeks compensatory damages for the class. The plaintiffs have moved the District Court for an order certifying the case as a class action and the Company has moved for an order dismissing the complaint in its entirety and staying discovery pending a decision of the Company's motion to dismiss. The District Court referred both matters to a United States Magistrate Judge for recommended decision. While the Magistrate Judge permitted discovery on non-parties to proceed, he stayed discovery between the parties pending final decision on the Company's motion to dismiss. On March 20, 1996, the Magistrate Judge issued a Report and Recommendation granting the plaintiffs' motion for class certification and issued an Order denying defendants' motion to dismiss. The Company has filed objections to the Magistrate's Report and Recommendation and appealed his Order to the District Court. The Company considers the claims made in the complaint to be without merit and intends to continue to vigorously defend against them. However, an unfavorable decision in this case would likely have a material adverse effect on the Company's financial condition, results of operations and liquidity. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The Company operates principally in three business segments: Agency operations: Servicing of multi-peril crop insurance ("MPCI"), crop hail insurance and other insurance products underwritten by third party insurance companies as well as its own property and casualty insurance subsidiaries. Software operations: Development, marketing, and sale of proprietary software and related products to agents, farmers, and others. Insurance operations: Underwriting of premiums by the Company's property and casualty insurance subsidiaries and the developing of risk management strategies for all premiums serviced by the Company. The sources of revenues and the related expenses for each of these segments are described below. 03/31/96 03/31/95 -------- -------- REVENUES Agency operations $67,212,193 $48,907,455 Software operations 3,062,346 2,460,607 Insurance operations 1,075,766 458,654 Corporate operations 257,097 156,996 Investment income 561,512 461,820 Less intercompany revenues (4,554,685) (2,213,596) ----------- ----------- Total revenues $67,614,229 $50,231,936 =========== =========== INCOME BEFORE TAXES Agency operations $11,751,214 $ 8,131,172 Software operations 1,348,150 1,049,964 Insurance operations 545,551 227,018 Corporate operations (2,730,740) (1,550,239) Investment income 561,512 461,820 ----------- ----------- Total income before taxes $11,475,688 $ 8,319,735 =========== =========== AGENCY OPERATIONS SERVICE FEES The Company's agency operations revenues include service fees related to MPCI and crop hail, and excess loss adjusting expense reimbursement related to MPCI premiums serviced. For MPCI buy-up coverage, the Company is entitled to the expense reimbursement payable by the Federal Crop Insurance Corporation (the "FCIC"). This expense reimbursement is passed through to the Company under its MPCI contracts with third party insurance companies and is paid directly to the Company for MPCI premiums underwritten by its property and casualty insurance subsidiaries. For the 1996 and 1995 crop years, the expense reimbursement for buy-up coverage has been established by the FCIC at 31%. For MPCI basic coverage, the Company retains a portion of the administrative fee paid 8 by the insured and receives an amount for loss adjusting expenses (regardless of the loss experience of the insureds), which amounts are passed through or paid directly to the Company under its MPCI contracts. For basic coverage, the administrative fee is up to the first $100 of the administration fee paid by the insured and the loss adjusting expense reimbursement is equal to 4.7% of an imputed premium. The expense reimbursement level for the 1997, 1998 and 1999 crop years for buy-up coverage is limited under the Federal Crop Insurance Reform Act of 1994 (the "Reform Act") to levels not to exceed 29%, 28% and 27.5%, respectively. Because MPCI service fees are directly related to the expense reimbursement established by the FCIC, the Company's future MPCI service fees will be affected by the reduction in the level of expense reimbursement. In the past, the impact of FCIC expense reimbursement level reductions on the Company's net earnings has been minimized because the Company has reduced its agents' commissions in order to minimize the impact on its margin on MPCI business. MPCI agent commissions vary by agent depending on such factors as the volume of premium produced by the agent, whether or not the agent is responsible for any direct costs and other competitive factors. The Company is negotiating with agents regarding reduced commissions on buy-up coverage to offset the impact of the expense reimbursement to be paid by the FCIC in the 1997 crop year. In addition, while the Reform Act contains a directive to the FCIC to alter program procedures and administrative requirements to reduce the administrative and operating costs of private insurance companies participating in the MPCI program in an amount that corresponds to the reduction in the expense reimbursement rate, there can be no assurance that this will be the case or that the Company's actual costs will not exceed the expense reimbursement rate. Under its MPCI contracts, the Company is also entitled to receive any excess loss adjustment expense reimbursement from the FCIC. The FCIC pays contracting insurance companies an amount up to 4% of premium on buy-up coverage for excess loss adjusting expenses on such coverage if loss ratios on the Company's total book of MPCI business, by state and by risk retention fund, are in excess of the ratios established by the FCIC. Generally, the excess loss adjustment expense reimbursement increases as the loss ratio increases. Under basic coverage policies, the FCIC pays contracting insurance companies an amount up to 1.7% of the imputed premium for excess loss adjusting expenses in the event loss ratios on the overall book of basic coverage are in excess of loss ratios established by the FCIC. The Company's service fees related to crop hail insurance are a percentage of the premiums serviced for third party insurance companies. AGENT COMMISSIONS AND OTHER DIRECT COSTS Agent commissions and other direct costs related to marketing and servicing MPCI are obligations of the Company and, accordingly, are reflected as expenses of the Company. Additionally, agent commissions and other direct costs on crop hail insurance are generally direct obligations of the Company and, therefore, are reflected as expenses of the Company. Under the Company's crop hail contract with CNA Insurance Companies ("CNA"), agent commissions and other direct costs, except loss adjusting expense, are the direct obligations of CNA and, therefore are not reflected as an expense of the Company. Other direct costs include overwrite fees payable to third party insurance companies, loss adjusting expenses, premium taxes on crop hail insurance, bureau fees and other costs. These costs, except for loss adjusting expense, vary proportionally with the amount of premiums serviced. The Company's overwrite fees are negotiated with such companies and are generally based on the amount of premiums serviced. Overwrite fees are reduced as a percentage of the Company's overall premium serviced to the extent its property and casualty insurance subsidiaries are utilized to underwrite a portion of premiums serviced by the Company. Loss adjustment expenses are based on management's estimate of all Company adjusting costs to settle claims incurred or to be incurred on policies on which revenue has been recognized. The estimate is continuously reviewed and variances, if any, in estimated versus actual amounts are reflected in current operations. In some instances, agents are responsible for loss adjusting expenses or other direct costs associated with policies sold by them, and those agents generally receive higher commissions in return for the assumption of those direct costs. Bureau fees are fees charged by NCIS for providing rates and 9 procedures required to be used by the FCIC. RECOGNITION OF SERVICE FEES AND DIRECT COSTS Crop Growers recognizes service fees from MPCI policies and the related direct costs as of the sales closing date for the particular policy. The sales closing date, which is established by the FCIC, is the date on which coverage for a crop must be bound or renewed by the policyholder and when substantially all required services relating to placing the insurance have been rendered by the Company. Unless canceled by the farmer, policies in place from the prior year automatically renew on the same terms on the sales closing date. Since sales closing dates precede the date on which farmers plant their insured crop, MPCI coverage and related premiums are estimated by the Company until the farmer subsequently submits his or her report on actual acreage planted. The effects of changes in such estimated premiums are included in the results of operations in the period in which the estimates are changed. For crop hail insurance, service fees are recognized when the insurance coverage is accepted by the insurance company, which is concurrent with the completion of substantially all services required by the Company. Direct costs such as agent commissions, loss adjusting, and premium taxes are recognized at the time service fees are recognized. RECENT DEVELOPMENTS Under the Reform Act, beginning with the 1995 crop year, farmers were required to obtain at least basic coverage on eligible crops in order to participate in many federal farm subsidy programs. Basic coverage is available through private companies or at USDA field service offices. Based on statistics provided by the FCIC, the majority of farmers participating in the MPCI program at the Basic Coverage level in the 1996 and 1995 crop years obtained such coverage through USDA offices. On April 4, 1996, a new farm bill was enacted into law. Certain of the farm bill's provisions relate to the MPCI program. One change affects the mandatory link of basic coverage and participation in United States Department of Agriculture ("USDA") farm and credit programs by permitting farmers, effective for 1996 spring crops, to participate in such programs without buying at least basic coverage, provided such farmers waive any right to any possible emergency crop loss assistance in connection with the particular crop. In addition, the farm bill provides that, effective with the 1997 crop year, the USDA will offer basic coverage only if the Secretary of Agriculture determines that there is an insufficient number of approved insurance providers operating in the particular state or region to adequately provide basic coverage to farmers. The farm bill provides that the Secretary will, not later than 90 days after enactment, announce the results of whether basic coverage in a state or portion of a state is sufficiently available through private insurance providers. For subsequent crop years, the Secretary shall make such determination not later than April 30 of the year preceding the year in which the crop will be planted. The Company cannot predict the impact of the changes to the MPCI program on the MPCI industry or its business as a result of enactment of the farm bill or any other proposals that may be made or implemented in the future. SOFTWARE OPERATIONS The Company's software operations revenues includes sales of VisAgtm software, mapping products, and hardware products. Costs include commissions on software and mapping sales, mapping product development costs, hardware costs, and other direct costs such as shipping, postage, and packaging. The VisAg product is a PC-based map driven farm management system designed for use by small family farms to large corporate operations. Mapping products are computer generated geo-referenced maps which allow an agent or farmers to view an entire agricultural operation on a single map. Hardware products represent various hardware products manufactured by third parties sold to agents and other outside customers. Revenues from the sales of VisAg, mapping products and hardware are recognized upon shipment to the customer. INSURANCE OPERATIONS The Company's insurance operations include premiums earned and losses incurred on MPCI buy up, basic, crop hail, and other coverages underwritten and retained by the Company's property and casualty insurance subsidiaries. Additionally, the Company has arrangements with its third 10 party insurance companies pursuant to which it is entitled to receive a percentage of the underwriting gains, if any, on crop insurance it services. The Company's operating results may vary significantly depending on the underwriting results of the premiums serviced and underwritten by it. The Company does not assume any of the underwriting loss under its servicing contracts with third party insurers; however, following a year in which an underwriting loss occurs, the Company's share of any future underwriting gains is reduced. Underwriting gains or losses on crop insurance are generally not determinable until sometime after the second quarter of any year and, accordingly, the Company expects that revenues, if any, from these arrangements will typically be recognized in the third and fourth quarters. Underwriting gains on premiums serviced by the Company are recognized by the Company as additional service fees and, because they generally have very low related expenses, can have a material impact on the Company's operating results. Accordingly, although the Company's risk management strategy is to minimize its exposure to underwriting risk, Crop Growers' earnings can be materially affected by factors which impact underwriting results and, accordingly, its portion of any underwriting gains, including the timing and severity of losses from storms and other natural perils. INVESTMENT INCOME The Company derives investment income from interest charged to policyholders who elect not to pay their MPCI premiums on the FCIC established due date and from investments. Under the MPCI program, the FCIC charges interest at a rate of 1.25% per month on overdue premiums and the insurance company, which is responsible for payment of the policyholder's premiums to the FCIC, passes such interest cost on to the policyholder. The Company has agreed with its contracting insurance companies to assume the responsibility for such payments to the FCIC and, therefore, receives interest payments made by policyholders on deferred premiums. In the event of an insured loss, the Company deducts premium payments and interest, if any, from the claim payment to the farmer. The Company also earns investment income on interest and dividends on investment securities and excess cash invested at certain times of the year, which typically occurs after MPCI and crop hail premiums are collected. Also included in investment income are income and losses on investments in companies which are less than 50% owned, which are accounted for under the equity method. SEASONALITY The Company's quarterly operating results vary substantially from quarter to quarter as a result of various factors, including MPCI sales closing dates, crop production cycles and recognition of underwriting gains, if any. The Company recognizes the highest amount of service fees and related direct costs in the first quarter. The majority of these amounts are attributed to service fees related to MPCI. Virtually all of the Company's service fees and direct costs related to crop hail insurance are recognized in the second quarter. The Company generally recognizes its second highest amount of revenues and related direct costs in the third quarter because the MPCI sales closing date for the majority of fall crops is September 30. In addition, the Company may recognize a portion of underwriting gains or losses, if any, on the premiums it underwrites or services in the third quarter. In the fourth quarter, the Company also recognizes underwriting gains or losses, if any, on the premiums it underwrites or services, most of the interest income on MPCI deferred premium financing and service fees on MPCI premiums with sales closing dates occurring in the fourth quarter. Crop Growers cannot predict whether MPCI sales closing dates will be changed in the future, but any such change could have a material effect on the Company's quarterly results of operations. Because the Company's business is directly tied to the production cycle of crops, the Company expects that seasonal patterns in its operating results will continue. 11 RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995 AGENCY OPERATIONS. Service fees increased 34.8% to $66.3 million for the three months ended March 31, 1996 compared to $49.2 million in the three months ended March 31, 1995. The increase in service fees was primarily the result of increased MPCI premiums serviced primarily attributable to acquisitions made in 1995 and FCIC established rate increases on MPCI premiums. MPCI buy up and basic coverage premiums serviced in the three months ended March 31, 1996 were $187.4 million and $38.5 million respectively, as compared to $126.4 million and $24.8 million in the three months ended March 31, 1995. Included in premiums serviced in the three months ended March 31, 1996 were $38.4 million and $4.3 million, respectively of MPCI buy up and basic coverage premiums attributed to acquisitions made in 1995. Agent commissions and other direct costs increased 30.5% to $46.3 million for the three months ended March 31, 1996 compared to $35.5 million for the three months ended March 31, 1995. The increase in agent commissions and other direct costs was the result of the increased MPCI premiums serviced by the Company. As a percentage of MPCI service fees, related agent commissions and other direct costs decreased to 69.9% from 72.8% in the three months ended March 31, 1996 as compared to the three months ended March 31, 1995. The reduction was primarily attributed to agency acquisitions completed during 1995 which had the effect of moving direct costs to general and administrative expenses as these agents became employees. SOFTWARE OPERATIONS. Software and hardware sales increased $408,000 to $663,000 for the three months ended March 31, 1996 compared to $255,000 in the three months ended March 31, 1995. The increase in software sales was attributed to sales of VisAg which was introduced in December 1995, and increased sales of mapping products. Cost of software sales increased $279,000 in the three month ended March 31, 1996 to $347,000 from $68,000 in three months ended March 31, 1995. The increase in cost of software sales was attributed to sales of VisAg and mapping products. INSURANCE OPERATIONS. Virtually all of the premiums underwritten by the Company's property and casualty insurance subsidiaries was reinsured with third party insurance companies. Accordingly, the effects of the Company's insurance operations are not material to first quarter operations. INVESTMENT INCOME. Investment income increased 21.6% in the three months ended March 31, 1996 to $562,000 from $462,000 in the three months ended March 31, 1995. The increase in investment income was due primarily to interest charged on the increased MPCI premiums financed for policyholders and investment earnings. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased 42.3% in the three months ended March 31, 1996 to $7.7 million from $5.4 million in the three months ended March 31, 1995. The increase was due primarily to the increase in the number of employees hired by the Company to service the increased MPCI premium volume and additional general and administrative costs incurred as a result of acquisitions made by the Company in 1995. The Company had 513 and 312 employees at March 31, 1996 and March 31, 1995, respectively. In the three months ended March 31, 1996, the Company incurred approximately $500,000 in connection with an investigation of the Company and certain of its officers being conducted by the Independent Counsel appointed to investigate matters relating to former Secretary of Agriculture, Mike Espy. The Company also incurred approximately $50,000 in the three months ended March 31, 1996 in connection with defending a shareholder class action lawsuit filed in May 1995. The Company expects these legal costs to continue to be significant while these actions proceed. Depreciation and amortization expenses increased to $875,000 in the three months ended March 31, 1996 from $480,000 for the three months ended March 31, 1995. The increase was primarily a result of increased property and equipment purchased to support the growth of the Company and an increase in the amortization of intangible assets as a result of 1995 acquisitions. 12 INTEREST EXPENSE. Interest expense increased 207.9% to $834,000 in the three months ended March 31, 1996 from $271,000 in the three months ended March 31, 1995. The increase in interest expense was primarily due to additional borrowings necessary to finance MPCI deferred premiums and the increase in operating expenses necessary to service the increase in premium volumes. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES Cash provided by operating activities was $4.3 million in the three months ended March 31, 1996 as compared to cash used by operating activities of $6.4 million in the three months ended March 31, 1995. The increase in cash provided by operating activities in the three months ended March 31, 1996 was primarily due to the receipt of $4.0 million in income tax refunds. The primary use of cash from operating activities in the three months ended March 31, 1995 resulted from an increase in premiums serviced by the Company which premiums had not been collected from the policy holders. INVESTING ACTIVITIES Most of the Company's cash flow has been used to pay premiums due to the FCIC in the last quarter of the year on behalf of policyholders in order to earn the spread between the interest charged to the policyholders, which is equal to the rate established by the FCIC, and the Company's cost of funds. Cash provided by investing activities was $19.4 million in the three months ended March 31, 1996 and $16.9 million in the three months ended March 31, 1995. The primary source of cash provided by investing activities was the receipt of a substantial portion of the deferred MPCI premiums financed by the Company in the fourth quarter. The remaining investing activities of the Company have been primarily the acquisitions of certain agency operations, purchases and sales and maturities of investment securities, and the purchase of property and equipment needed as a result of the growth of the Company. FINANCING ACTIVITIES The Company used cash for financing activities of $30.1 million in the three months ended March 31, 1996 and $11.9 million in the three months ended March 31, 1995. The primary uses of cash were to repay borrowings of $29.4 and $13.6 million under its lines of credit in the three months ended March 31, 1996 and 1995, respectively. The Company currently maintains two secured revolving lines of credit in the amount of $35 and $15 million. The lines of credit are committed through October 15, 1996. At the Company's option, interest on borrowings made under the lines of credit may be based on the bank's base rate or LIBOR plus 2%. The $15 million facility is available solely to pay crop hail losses with respect to policies issued, serviced or managed by or through the Company or its subsidiaries. The credit agreements require the maintenance of a minimum level of 13 reinsurance on MPCI and crop hail loss reserves, and contain certain covenants which require the Company to meet certain financial ratios and levels of tangible net worth. At March 31, 1996, $2.9 million was outstanding under the $35 million facility. At March 31, 1996, no amounts were outstanding under the $15 million facility. The Company believes that the cash generated from operations and availability of borrowings under its current lines of credit will provide sufficient resources to finance the Company's current operations and projected working capital needs. RECENT DEVELOPMENTS MANAGEMENT CHANGES At the end of March 1996, the Company announced that it had granted leaves of absence to President and Chief Executive Officer John Hemmingson and Executive Vice President Gary Black. The leaves of absence will commence no later than upon the hiring of a new Chief Executive Officer. Messrs. Hemmingson and Black will resign as directors effective with the commencement of their leaves of absence. On May 9, 1996, the Company and Mr. Black agreed that his leave of absence would commence effective as of that date. In addition, Mr. Black resigned as a director on that date. RELOCATION OF CORPORATE HEADQUARTERS On March 28, 1996, the Company announced that it will take steps to relocate its headquarters and main office to Overland Park, Kansas. The Company intends to begin relocation efforts in the second quarter and anticipates substantial completion of these efforts by the end of 1996. At March 31, 1996, the Company was in the process of determining all significant actions to be taken in order to complete the relocation efforts, including identifying the number of employees that will relocate. Amounts incurred as part of the relocation will be charged to expense when incurred. The benefit arrangements for employees whose jobs will not be relocated or whose jobs will be eliminated in the relocation had not been determined or communicated at such date. These amounts will be charged to expense when determined and communicated. No amounts have been charged to expense in the three months ended March 31, 1996. 14 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. See Part I, Item 3 and Part II, Item 8, Note 16 (Legal Matters), of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, as amended and Note 5 (Legal Matters), of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. ITEM 2. CHANGES IN SECURITIES. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 1. Amendment to Employment Agreement Providing for a Leave of Absence dated May 9, 1996 between John Hemmingson and the Company 2. Form of Agreement Granting Irrevocable Proxy relating to John Hemmingson. 3. Amendment to Employment Agreement Providing for a Leave of Absence dated May 9, 1996 between Gary Black and the Company. 4. Form of Agreement Granting Irrevocable Proxy relating to Gary Black. (b) Reports on Form 8-K The Company filed a report on Form 8-K dated February 26, 1996 announcing that it and its Chief Executive Officer, John Hemmingson and its Executive Vice President, Gary Black, were targets of an investigation being conducted by the Independent Counsel appointed to investigate matters relating to former Secretary of Agriculture, Mike Espy. 15 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CROP GROWERS CORPORATION May 15, 1996 /s/ David E. Hill --------------------------------------------- David E. Hill Chief Financial Officer 16 EX-1 2 EXHIBIT 1 EXHIBIT 1 AMENDMENT TO EMPLOYMENT AGREEMENT PROVIDING FOR A LEAVE OF ABSENCE This Amendment to Employment Agreement Providing for a Leave of Absence (the "Amendment Agreement") is entered into this 9th day of May, 1996, by and between Crop Growers Corporation, a Delaware corporation (the "Company"), and John J. Hemmingson ("Executive"). RECITALS A. Executive was instrumental in the formation of the Company and has contributed substantially to its growth as a significant shareholder, employee, officer and director. B. The parties entered into an Employment Agreement, dated June 22, 1994, as amended March 29, 1996, presently in full force and effect. C. The parties entered into an Indemnification Agreement, dated June 22, 1994, presently in full force and effect. D. The parties recognize that Executive may in the next few months need to devote substantial time to his personal affairs and that of necessity this will require him to devote less than full-time service to the Company. E. The Company has formed an Independent Directors Committee (the "Committee") to review and act on certain matters delegated to the Committee by the Board of Directors. AGREEMENT 1. The Company hereby grants Executive a personal leave of absence beginning as of the earlier of the date on which a new Chief Executive Officer is hired or the date the Committee determines in its sole discretion that the leave should begin. During the period of this leave of absence, Executive will continue to be employed by the Company, but shall resign his position as a director. 2. Executive's compensation and benefits, including bonuses, shall continue under the terms agreed to in his Employment Agreement dated June 22, 1994, as amended March 29, 1996. 3. Executive agrees that he will not accept any other employment during the period of his leave of absence, nor will he provide significant services as a consultant or director for any other business. 4. Although during the term of the leave of absence Executive will not have any job responsibilities and will not be expected to report to work, he shall make himself available to the Company to the extent reasonably requested. 5. During his leave of absence, Executive shall have access to the Company's facilities and employees, and to records maintained in the Company's offices, including both corporate records and his own records, to the extent necessary to satisfy the responsibilities assigned to Executive pursuant to Paragraph 4 and Executive and his counsel shall also, upon giving prior notice to the Company, have access to these facilities and records necessary to prepare or present Executive's position, defense or response in connection with any criminal, civil or administrative matters involving the Executive. 6. This Amendment Agreement shall remain in full force and effect until the Company and the Executive agree that the Executive should return to active employment with the Company, or the expiration of the Employment Agreement of June 22, 1994, as amended March 29, 1996, whichever comes first. 7. The existing Employment Agreement between the Company and Executive, dated June 22, 1994, as amended March 29, 1996, shall remain in full force and effect except to the extent expressly modified or superseded herein. 8. Executive has entered, or within thirty days of the execution of this Amendment Agreement will enter, into an agreement granting an irrevocable proxy as to shares of the Company beneficially owned by Executive to a person (or any successor thereof) reasonably acceptable to the Committee. Executive agrees to provide to the Company, upon execution, copies of such irrevocable proxy agreement. CROP GROWERS CORPORATION Date: March 9, 1996 By: /s/ Paul T. Horn -------------------------------- Its: Chairman Date: March 9, 1996 /s/ John J. Hemmingson ---------------------- John J. Hemmingson ("Executive") 2 EX-2 3 EXHIBIT 2 EXHIBIT 2 AGREEMENT GRANTING IRREVOCABLE PROXY Agreement made this __ day of May, 1996, by and between John J. Hemmingson ("Grantor"), and _______________________________________ ("Proxy Holder"). WHEREAS, Grantor is presently the President, Chief Executive Officer and a Director of Crop Growers Corporation, 201 Crop Growers Drive, Great Falls, Montana 59401 (the "Corporation"); WHEREAS, Grantor has executed an Amendment to Employment Agreement Providing for a Leave of Absence (the "Amendment Agreement"); WHEREAS, as of April 2, 1996, Grantor was the beneficial and/or record owner of 1,462,453 shares of the Corporation, constituting 17.6% of the outstanding shares of the Corporation (the "Shares"); WHEREAS, Grantor desires to appoint Proxy Holder as his proxy, and Proxy Holder agrees to accept said proxy, on the terms and conditions hereof. NOW, THEREFORE, in consideration of the mutual covenants contained herein, Grantor and the Proxy Holder hereby agree as follows: 1. IRREVOCABLE PROXY. Simultaneously with the execution hereof, Grantor is granting an irrevocable proxy to _________________________________, in the form of Exhibit A attached hereto and made a part hereof. 2. CHANGES IN COMMON STOCK. In the event that subsequent to the date of this Agreement any Shares or other securities (other than any shares or securities of another corporation issued to the Corporation's stockholders pursuant to a plan of merger) are issued with respect to, or in exchange for, any of the Shares held by the Grantor, by reason of any stock dividend, stock split, consolidation of shares, reclassification or consolidation involving the Corporation, such shares or securities shall be deemed to be Shares for all purposes of this Agreement. 3. SHARES SUBSEQUENTLY SOLD NOT SUBJECT TO THIS AGREEMENT. This Agreement extends only to Shares owned, beneficially or of record, by Grantor. Any Shares sold, transferred, gifted or otherwise disposed of after the date hereof, and with respect to which Grantor retains no beneficial interest, are expressly excluded from the scope and application of this Agreement. For all purposes of this Agreement and the Irrevocable Proxy attached hereto as Exhibit A, the term "beneficial ownership" shall have the meaning set forth in Rule 13d- 3(a) under the Securities Exchange Act of 1934. 4. RESPONSIBILITIES OF PROXY HOLDER. In voting the Shares, Proxy Holder agrees to discharge in good faith, and to the extent commensurate with Grantor's status as a significant stockholder of the Corporation, Grantor's responsibilities with respect to the Shares. 5. COMPENSATION TO PROXY HOLDER. In exchange for Proxy Holder's agreement to accept, and act upon, the irrevocable proxy granted by Grantor, Proxy Holder shall be compensated in an amount equal to ________ percent (____%) of the appreciation in price of Crop Growers Corporation common stock as traded on the Nasdaq National Market, as measured by the difference in the closing price for the Company's common stock on the date of execution of the Agreement, and the closing price of the Company's common stock on the date of termination of this Agreement. The compensation due Proxy Holder under this Agreement shall be paid by Grantor, in cash or in common stock of Crop Growers Corporation (in the sole discretion of Grantor) with thirty (30) days of termination of this Agreement. 6. GENERAL PROVISIONS. (a) All of the covenants and agreements contained in this Agreement shall be binding upon, and enure to the benefit of, the respective parties and their successors, assigns, heirs, executors, administrators and other legal representatives, as the case may be. (b) This Agreement, and the rights of the parties hereto, shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the conflicts of law provisions thereof. (c) This Agreement shall remain in effect until the earlier of (i) resolution of any criminal charges that may be brought against Grantor pursuant to any indictment charged by a United States Grand Jury, or (ii) termination of the Amendment Agreement. (d) If any provision of this Agreement shall be declared void or unenforceable by any court or any administrative board of competent jurisdiction, such provision shall be deemed to have been severed for the remainder of this Agreement, and this Agreement shall continue in all respects to be valid and enforceable. (e) No waivers of any breach of this Agreement extended by any party hereto to any other party shall be construed as a waiver of any rights or remedies of any other party hereto or with respect to any subsequent breach. -2- (f) Wherever the context of this Agreement shall so require, the use of the singular shall include the plural, and the use of any gender shall include all genders. (g) If this Agreement is amended in any way, Grantor agrees to provide to the Company, upon execution, copies of such amendment and any amendments to the irrevocable proxy granted pursuant hereto (Exhibit A). IN WITNESS WHEREOF, Grantor and Proxy Holder have executed this Agreement as of the date first written above. ----------------------------------- John J. Hemmingson ("Grantor") ----------------------------------- ("Proxy Holder") ------------------- -3- Exhibit "A" IRREVOCABLE PROXY Pursuant to the provisions of Section 212 of the General Corporation Law of the State of Delaware, the undersigned hereby irrevocably appoints ______________________________ as his attorney and proxy, to attend meetings, to vote, and to execute and deliver written consents (or withhold written consents) with respect to all shares of capital stock (the "Shares") of CROP GROWERS CORPORATION (the "Corporation") now owned or hereafter acquired by the undersigned, for all purposes, including electing directors of the Corporation and ratifying the Corporation's auditors, but such appointment and proxy shall not apply to any action relating to any merger, consolidation, dissolution, liquidation, sale of substantially all of the assets of the Corporation, or amendment of the articles of incorporation of the Corporation that adversely affects existing shareholders. This proxy applies only to Shares of the Corporation beneficially owned by the undersigned as of the record date for determination of stockholders of record of the Corporation, fixed in accordance with the Corporation's Bylaws. This proxy is made pursuant to an Agreement Granting Irrevocable Proxy, dated May __, 1996, between the undersigned and ________________________ (the "Agreement"). The undersigned hereby affirms that his proxy is given as an integral part of the Agreement and as such is coupled with an interest and is irrevocable. This proxy shall terminate on termination of said Agreement. Dated: , 1996 By: ------------ -------------------------------- John J. Hemmingson EX-3 4 EXHIBIT 3 EXHIBIT 3 AMENDMENT TO EMPLOYMENT AGREEMENT PROVIDING FOR A LEAVE OF ABSENCE This Amendment to Employment Agreement Providing for a Leave of Absence (the "Amendment Agreement") is entered into this 9th day of May, 1996, by and between Crop Growers Corporation, a Delaware corporation (the "Company"), and Gary A. Black ("Executive"). RECITALS A. Executive was instrumental in the formation of the Company and has contributed substantially to its growth as a significant shareholder, employee, officer and director. B. The parties entered into an Employment Agreement, dated June 22, 1994, as amended March 29, 1996, presently in full force and effect. C. The parties entered into an Indemnification Agreement, dated June 22, 1994, presently in full force and effect. D. The parties recognize that Executive may in the next few months need to devote substantial time to his personal affairs and that of necessity this will require him to devote less than full-time service to the Company. E. The Company has formed an Independent Directors Committee (the "Committee") to review and act on certain matters delegated to the Committee by the Board of Directors. AGREEMENT 1. The Company hereby grants Executive a personal leave of absence beginning as of the date hereof. During the period of this leave of absence, Executive will continue to be employed by the Company, but shall resign his position as a director. 2. Executive's compensation and benefits, including bonuses, shall continue under the terms agreed to in his Employment Agreement dated June 22, 1994, as amended March 29, 1996. 3. Executive agrees that he will not accept any other employment during the period of his leave of absence, nor will he provide significant services as a consultant or director for any other business. 4. Although during the term of the leave of absence Executive will not have any job responsibilities and will not be expected to report to work, he shall make himself available to the Company to the extent reasonably requested. 5. During his leave of absence, Executive shall have access to the Company's facilities and employees, and to records maintained in the Company's offices, including both corporate records and his own records, to the extent necessary to satisfy the responsibilities assigned to Executive pursuant to Paragraph 4 and Executive and his counsel shall also, upon giving prior notice to the Company, have access to these facilities and records necessary to prepare or present Executive's position, defense or response in connection with any criminal, civil or administrative matters involving the Executive. 6. This Amendment Agreement shall remain in full force and effect until the Company and the Executive agree that the Executive should return to active employment with the Company, or the expiration of the Employment Agreement of June 22, 1994, as amended March 29, 1996, whichever comes first. 7. The existing Employment Agreement between the Company and Executive, dated June 22, 1994, as amended March 29, 1996, shall remain in full force and effect except to the extent expressly modified or superseded herein. 8. Executive has entered, or within thirty days of the execution of this Amendment Agreement will enter, into an agreement granting an irrevocable proxy as to shares of the Company beneficially owned by Executive to a person (or any successor thereof) reasonably acceptable to the Committee. Executive agrees to provide to the Company, upon execution, copies of such irrevocable proxy agreement. CROP GROWERS CORPORATION Date: March 9, 1996 By: /s/ Paul T. Horn ---------------------- Its: Chairman Date: March 9, 1996 /s/ Gary A. Black --------------------------- Gary A. Black ("Executive") 2 EX-4 5 EXHIBIT 4 EXHIBIT 4 AGREEMENT GRANTING IRREVOCABLE PROXY Agreement made this __ day of May, 1996, by and between Gary A. Black ("Grantor"), and ______________________________________ ("Proxy Holder"). WHEREAS, Grantor is presently Executive Vice President and a Director of Crop Growers Corporation, 201 Crop Growers Drive, Great Falls, Montana 59401 (the "Corporation"); WHEREAS, Grantor has executed an Amendment to Employment Agreement Providing for a Leave of Absence (the "Amendment Agreement"); WHEREAS, as of April 2, 1996, Grantor was the beneficial and/or record owner of 855,036 shares of the Corporation, constituting 10.4% of the outstanding shares of the Corporation (the "Shares"); WHEREAS, Grantor desires to appoint Proxy Holder as his proxy, and Proxy Holder agrees to accept said proxy, on the terms and conditions hereof. NOW, THEREFORE, in consideration of the mutual covenants contained herein, Grantor and the Proxy Holder hereby agree as follows: 1. IRREVOCABLE PROXY. Simultaneously with the execution hereof, Grantor is granting an irrevocable proxy to ______________________________________, in the form of Exhibit A attached hereto and made a part hereof. 2. CHANGES IN COMMON STOCK. In the event that subsequent to the date of this Agreement any Shares or other securities (other than any shares or securities of another corporation issued to the Corporation's stockholders pursuant to a plan of merger) are issued with respect to, or in exchange for, any of the Shares held by the Grantor, by reason of any stock dividend, stock split, consolidation of shares, reclassification or consolidation involving the Corporation, such shares or securities shall be deemed to be Shares for all purposes of this Agreement. 3. SHARES SUBSEQUENTLY SOLD NOT SUBJECT TO THIS AGREEMENT. This Agreement extends only to Shares owned, beneficially or of record, by Grantor. Any Shares sold, transferred, gifted or otherwise disposed of after the date hereof, and with respect to which Grantor retains no beneficial interest, are expressly excluded from the scope and application of this Agreement. For all purposes of this Agreement and the Irrevocable Proxy attached hereto as Exhibit A, the term "beneficial ownership" shall have the meaning set forth in Rule 13d-3(a) under the Securities Exchange Act of 1934. Grantor specifically disclaims beneficial ownership with respect to any Shares held by any irrevocable trust now in existence or to be created, for the benefit of any of Grantor's children. 4. RESPONSIBILITIES OF PROXY HOLDER. In voting the Shares, Proxy Holder agrees to discharge in good faith, and to the extent commensurate with Grantor's status as a significant stockholder of the Corporation, Grantor's responsibilities with respect to the Shares. 5. COMPENSATION TO PROXY HOLDER. In exchange for Proxy Holder's agreement to accept, and act upon, the irrevocable proxy granted by Grantor, Proxy Holder shall be compensated in the amount of $2,000, fifty percent (50%) of which shall be payable upon execution of this Agreement, with the remaining fifty percent (50%) payable within fifteen (15) days of termination of this Agreement. 6. GENERAL PROVISIONS. (a) All of the covenants and agreements contained in this Agreement shall be binding upon, and enure to the benefit of, the respective parties and their successors, assigns, heirs, executors, administrators and other legal representatives, as the case may be. (b) This Agreement, and the rights of the parties hereto, shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the conflicts of law provisions thereof. (c) This Agreement shall remain in effect until the earlier of (i) resolution of any criminal charges that may be brought against Grantor pursuant to any indictment charged by a United States Grand Jury, or (ii) termination of the Amendment Agreement. (d) If any provision of this Agreement shall be declared void or unenforceable by any court or any administrative board of competent jurisdiction, such provision shall be deemed to have been severed for the remainder of this Agreement, and this Agreement shall continue in all respects to be valid and enforceable. (e) No waivers of any breach of this Agreement extended by any party hereto to any other party shall be construed as a waiver of any rights or remedies of any other party hereto or with respect to any subsequent breach. -2- (f) Wherever the context of this Agreement shall so require, the use of the singular shall include the plural, and the use of any gender shall include all genders. (g) If this Agreement is amended in any way, Grantor agrees to provide to the Company, upon execution, copies of such amendment and any amendments to the irrevocable proxy granted pursuant hereto (Exhibit A). IN WITNESS WHEREOF, Grantor and Proxy Holder have executed this Agreement as of the date first written above. ----------------------------------- Gary A. Black ("Grantor") ----------------------------------- ("Proxy Holder") ------------------- -3- Exhibit "A" IRREVOCABLE PROXY Pursuant to the provisions of Section 212 of the General Corporation Law of the State of Delaware, the undersigned hereby irrevocably appoints ______________________ as his attorney and proxy, to attend meetings, to vote, and to execute and deliver written consents (or withhold written consents) with respect to all shares of capital stock (the "Shares") of CROP GROWERS CORPORATION (the "Corporation") now owned or hereafter acquired by the undersigned, for all purposes, including electing directors of the Corporation and ratifying the Corporation's auditors, but such appointment and proxy shall not apply to any action relating to any merger, consolidation, dissolution, liquidation, sale of substantially all of the assets of the Corporation, or amendment of the articles of incorporation of the Corporation that adversely affects existing shareholders. This proxy applies only to Shares of the Corporation beneficially owned by the undersigned as of the record date for determination of stockholders of record of the Corporation, fixed in accordance with the Corporation's Bylaws. This proxy is made pursuant to an Agreement Granting Irrevocable Proxy, dated May _____, 1996, between the undersigned and __________________________ _________ (the "Agreement"). The undersigned hereby affirms that his proxy is given as an integral part of the Agreement and as such is coupled with an interest and is irrevocable. This proxy shall terminate on termination of said Agreement. Dated: , 1996 By: ------------ --------------------------------- Gary A. Black EX-27 6 EXHIBIT 27 (FDS)
7 3-MOS DEC-31-1995 MAR-31-1996 5,800,774 2,310,736 2,367,029 1,828,766 0 0 9,940,276 636,486 95,460,926 0 319,298,950 0 0 0 0 6,747,116 0 0 81,491 50,853,986 50,935,477 0 561,512 0 116,769 0 0 0 11,475,688 4,503,163 6,972,525 0 0 0 6,972,525 .84 .84 0 0 0 0 0 0 0
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