-----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, LUMhrrxRYe/YZw1LQl4WdSzmqU704+e+x91G5dqlUcet3gNSkP0kMv9BGjjlfKv4 OjeKO0Y6sceYlknf8pzRrA== 0000950116-97-000629.txt : 19970430 0000950116-97-000629.hdr.sgml : 19970430 ACCESSION NUMBER: 0000950116-97-000629 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOUNTBATTEN INC CENTRAL INDEX KEY: 0000922597 STANDARD INDUSTRIAL CLASSIFICATION: 6351 IRS NUMBER: 232633708 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24638 FILM NUMBER: 97569831 BUSINESS ADDRESS: STREET 1: 33 ROCK HILL RD CITY: BALA CYNWYD STATE: PA ZIP: 19004 BUSINESS PHONE: 2156642259 10-K 1 Washington, D.C. 20549 FORM 10-KSB (Mark One) __X__ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 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 0-24638 MOUNTBATTEN, INC. ( Name of small business issuer as specified in its charter) Pennsylvania 23-2633708 - - ---------------------------- ------------------------------ (State or other jurisdiction IRS Employer Identification No. of incorporation or organization) 33 Rock Hill Road Bala Cynwyd, Pennsylvania 19004 - - ---------------------------------------- ------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (610) 664-2259 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value ------------------------------- (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -- --- Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B, is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [ X ] State issuer's revenues for the most recent fiscal year: $7,829,171 The aggregate market value of the voting stock held by non-affiliates, as of March 24, 1997 was approximately $15.9 million. As of March 24, 1997 the aggregate number of shares outstanding was 2,528,530. DOCUMENTS INCORPORATED BY REFERENCE: Part III of this Form 10-KSB incorporates by reference information from the registrant's proxy statement in connection with its 1997 Annual Meeting of Shareholders to be filed with the Commission pursuant to Rule 14a-6(b) under the Exchange Act. Transitional Small Business Disclosure Format (check one) Yes__ No X --- Item 1. Description of Business A. Description of the Business Mountbatten, Inc. (the "Company") engages in the underwriting of surety bonds, primarily contract bonds, through its wholly owned subsidiary, The Mountbatten Surety Company, Inc. (the "Surety Company"). Contract bonds constitute a specialty market within the property and casualty insurance industry, and are generally posted by contractors (and/or subcontractors) to guarantee completion of their work on government and private construction projects. Suretyship is an extension of credit in the form of an agreement by the "surety" for the benefit of the "obligee" to guarantee payment or performance by the "principal." When a surety bond is issued, the obligee holds the surety responsible for the obligation of the principal. The surety and the principal are jointly responsible to the obligee for the debt or obligation, which is the subject of the surety bond. Surety bonds are often required by law, and a typeof surety bond known as a "contract bond" is often required by a party, whether private or governmental, entering into a construction, rehabilitation, remediation or similar contract. In some instances, bonds are furnished in lieu of cash deposits, but often a bond is required and a cash alternative is not permitted. The Surety Company wrote its first bond in October 1992. In May 1994, the Surety Company received a Treasury Listing (the "T-Listing") to write federally required bonds anywhere in the United States and its territories. Prior to July 1994, the Surety Company was licensed to write bonds only in the Commonwealth of Pennsylvania. The following table sets forth information, chronologically, with respect to those states in which the Surety Company is presently licensed to write bonds: State Date of Admission - - ----- ----------------- Pennsylvania September 11, 1992 Delaware July 13, 1994 Maryland October 7, 1994 New Jersey March 31, 1995 Virginia August 17, 1995 District of Columbia September 1, 1995 New York October 19, 1995 Ohio November 28, 1995 Kentucky April 26, 1996 Tennessee September 23, 1996 Indiana September 30, 1996 Connecticut December 1, 1996 Mississippi December 1, 1996 Illinois December 5, 1996 South Carolina February 3, 1997 In addition, the Surety Company has applied for a license to underwrite bonds in Alabama, Georgia, North Carolina and West Virginia, and anticipates filing license applications in various other states. B. Bond Products The Surety Company writes primarily contract bonds to guarantee the required performance and payments of contractors and subcontractors engaged in construction and, to a lesser extent, environmental remediation projects. Projects bonded by the Surety Company generally have durations that do not exceed two years; most are completed in one year or less. The Surety Company also writes a variety of other surety bonds, although it is focusing increasingly on contract bonds. The Surety Company does not provide financial guarantee bonds, bail bonds, bonds for remediation of groundwater contamination or bonds covering a variety of risks deemed inappropriate for the Surety Company; nor does it underwrite any liability insurance. The following table sets forth information concerning the nature of the bonds written by the Surety Company for the years ended December 31, 1996 and 1995:
Years ended December 31 ----------------------- 1996 1995 ---- ---- % of % of Gross Gross Gross Gross % of Premiums Premiums % of Premiums Premiums Type of Bond Number Total Written Written Number Total Written Written - - ------------ ------ ----- -------- -------- ------ ----- -------- --------- Contract bonds 1,112 80.1% $ 7,541,676 96.3% 892 81.4% $ 4,450,089 95.3% Non-contract bonds 277 19.9% 287,495 3.7% 204 18.6% 221,588 4.7% ----- ----- ----------- ----- --- ----- ----------- ----- Total 1,389 100.0% $ 7,829,171 100.0% 1,096 100.0% $ 4,671,677 100.0% ===== ===== =========== ====== ===== ====== =========== ======
Prior to November 1995, the reinsurance program required that the Company not write any bond exceeding $3 million, or bonds on the same work program in favor of the principal exceeding $4.5 million in the aggregate. Effective November 1, 1995, the Company secured a new reinsurance treaty that increased the maximum single bond limit to $5 million, and the work program aggregate to $7.5 million. Effective November 1, 1996, the Company secured a new reinsurance treaty that increased the work program aggregate to $10 million. While future increases in the Surety Company's maximum bond size are anticipated, management believes that the current maximum bond size of $5 million will allow the Surety Company to continue to penetrate selected markets for contract bonds. The following table sets forth information concerning the dollar amount of bonds written by the Surety Company for the years ended December 31, 1996 and 1995:
Years ended December 31 ----------------------- 1996 1995 ---- ---- % of % of Gross Gross Gross Gross % of Premiums Premiums % of Premiums Premiums Bond Amount Number Total Written Written Number Total Written Written - - ------------ ------ ----- -------- -------- ------ ----- -------- --------- $150,000 orless 896 64.5% $912,120 11.7% 774 70.6% $ 771,796 16.5% $150,001 - $250,000 132 9.5% 565,590 7.2% 103 9.4% 477,384 10.2% $250,001 - $500,000 168 12.1% 1,331,933 17.0% 101 9.2% 818,754 17.5% $500,001 - $750,000 59 4.2% 726,215 9.2% 45 4.1% 578,867 12.4% $750,001 - $1,000,000 36 2.6% 663,188 8.5% 26 2.4% 464,714 10.0% $1,000,001 - $1,500,000 36 2.6% 886,583 11.3% 23 2.1% 576,936 12.3% $1,500,001 - $2,000,000 23 1.7% 804,420 10.3% 13 1.2% 477,356 10.2% $2,000,001 - $3,000,000 22 1.6% 945,908 12.1% 10 0.9% 419,623 9.0% OVER $3,000,000 17 1.2% 993,214 12.7% 1 0.1% 86,247 1.9% ----- ------ ---------- ------ ----- ------ ------------ ------ Total 1,389 100.0% $7,829,171 100.0% 1,096 100.0% $ 4,671,677 100.0%
The Surety Company uses bond forms prepared by the American Institute of Architects ("AIA"), or bond forms specified by the bond obligee, for performance, payment and bid bonds. The Surety Company also uses an internally generated indemnity agreement to document its rights with respect to entities or persons it bonds. Among other things, the indemnity agreement provides the Surety Company with an assignment of the principal's contract rights and a confession of judgment against the bond principal in the event of a default under the indemnity agreement, the principal's obligation, or both. C. Underwriting The Surety Company places a high priority on minimizing bond claims and losses. Accordingly, the Surety Company underwrites each bond submission at its home office and has granted no binding authority to its independent brokers and agents. The Surety Company believes that its use of both financial analysis and technical analysis in the bond underwriting process permits it to achieve better underwriting results than would otherwise be possible through financial analysis alone. Technical analysis procedures in the underwriting process using management's expertise in the construction industry can provide an indication of substandard construction or record-keeping practices that might increase the likelihood of a bond claim. D. Claims and Reserves The Surety Company attempts to actively manage disputes and claims in an effort to minimize losses. Depending on the relevant factors, the Surety Company can pursue its rights at law and under the general indemnity agreements associated with a bond; may enforce its rights with respect to collateral securing the bond; may pay the claim or may complete the project using any remaining project funds due the bonded contractor as well as, or in addition to, seeking the remedies referred to previously. While the Surety Company does not bond projects with durations exceeding two years, and while it attempts to obtain releases from bond obligees upon completion of bonded projects, in cases where releases are not obtained, claims may be asserted following completion of the contract. AIA performance bonds permit claims for up to two years following the scheduled date of the final contract payment, and AIA payment bonds permit claims up to one year after the bond principal ceases work on the project. The Surety Company maintains incurred but not reported loss ("IBNR") reserves with respect to claims that have been incurred but not reported. Because of the Company's limited operating history and claims experience, its IBNR reserves are primarily based on both data derived from the experience of industry, as well as the Surety Company's actual experience. A limited number of claims have been filed against the Surety Company. The Surety Company has established case reserves to provide for all anticipated payments and related expenses on known claims. IBNR reserves are reviewed and certified at least annually by the Surety Company's independent actuary. Such certification has been obtained as of December 31, 1996. The Surety Company believes that aggregate reserves make reasonable and sufficient provision for payments on reported and unreported claims. E. Sales and Marketing Substantially all the Surety Company's business is produced by its network of independent brokers and independent agents. The Surety Company documents its agent relationships with a broad agency agreement, which relies on pre-negotiated commission and incentive commission schedules. The Surety Company has established similar agency arrangements in all of the states in which it is licensed to write bonds. F. Regulation Surety companies are generally regulated as property and casualty insurance companies even though surety bonds differ in important respects from traditional forms of property and casualty insurance. Thus, surety companies, like other types of insurance companies, are subject to supervision and regulation in the states in which they transact business. Such supervision and regulation, designed primarily for the protection of policyholders (or bond obligees) and not shareholders, relates to most aspects of an insurance company's business and includes such matters as authorized lines of business, underwriting standards, financial condition standards, licensing, investment policies, premium levels and the filing of quarterly, annual and other reports based on statutory accounting principles and a variety of other financial and nonfinancial matters. Because the Company is domiciled in the Commonwealth of Pennsylvania, the Pennsylvania Insurance Department (the "Department") has primary authority over it. The Surety Company is also subject to the supervision and regulation of the appropriate agency in any state in which the Surety Company obtains a license to transact business. In general, the Surety Company must obtain a license in a given state in order to write bonds covering risks therein. In order to obtain a license, the Surety Company must submit detailed financial and other information, and satisfy statutory and regulatory requirements, as well as informal criteria applied by the state insurance department. In May 1994, the Surety Company received a certificate of authority, or "T-Listing," from the United States Department of the Treasury, allowing it to write bonds required by the United States government. The T-Listing entitles the Surety Company to write federally required bonds anywhere in the United States or its territories, currently in amounts up to $669,000 (representing approximately 10% of the Surety Company's statutory policyholders' surplus at December 31, 1995). The Surety Company is authorized to write larger bonds so long as a T-Listed reinsurer with greater bonding authority (such as the Surety Company's current reinsurer) provides a "Miller Act" endorsement undertaking to be liable directly to the bond obligee in the event the Surety Company defaults on its bond. The Surety Company intends to write bonds regularly on this basis. The Company expects its T-Listing amount to increase in the 1997 Treasury Circular. The range of premium rates charged by the Surety Company for its bonds has been filed with and approved by the Department. The Department's approval is required to increase or decrease premiums in the future beyond the current ranges of approved premium rates. The Surety Company would additionally require rate approvals from other states in which it is licensed in order to change its premium rates from the ranges currently approved. Most states, including Pennsylvania, have enacted legislation that regulates insurance holding company systems. Each insurance holding company system is required to register with the insurance supervisory agency of its state of domicile, and furnish information concerning the operations of companies within the system. Pursuant to these laws, the Department may examine the Company and the Surety Company, require disclosure of material transactions by the holding company, and require prior approval of certain transactions, such as extraordinary dividends from an insurance company to its holding company. All transactions between the Company and the Surety Company must be fair and equitable. Approval by the applicable Insurance Commissioner is required prior to consummation of transactions affecting the control of an insurer. In Pennsylvania, the acquisition of 10% or more of the outstanding capital stock of an insurer or its holding company is presumed to be a change in control. G. Competition The surety industry is highly competitive. Many surety companies are larger than the Surety Company, have considerably greater financial and other resources, have greater experience in the surety industry and, unlike the Surety Company, offer a broad line of insurance products. In addition, the Surety Company is at a competitive disadvantage against companies that have an A.M. Best "letter" rating and/or licenses to write surety bonds on a broader geographic basis. A.M. Best has assigned a "number" rating of 5 (Secure) to the Surety Company, and will assign a "letter" rating to the Surety Company in 1998, once five full years of operations have been completed. While many of the largest surety companies have targeted the market for bonds of $5 million or more, many other surety companies actively target the Surety Company's primary market niche for bonds up to $5 million. The Surety Company attempts to meet this competition by providing its brokers, agents and customers with high quality, timely and innovative services. H. Employees The Company employs 17 full time employees at its Bala Cynwyd, Pennsylvania offices. Management believes that employee relations are generally good. Item 2. Description of Property The Company leases 3,675 square feet of office space at 33 Rock Hill Road, Bala Cynwyd, Pennsylvania 19004 at an annual cost of approximately $64,782, exclusive of sublease income (approximately $7,692) from a single tenant presently occupying approximately 400 square feet of such office space with a month-to-month term. The lease term expires September 30, 1999, provided that the Company may terminate the lease at any time by giving 60 days advance written notice and paying a specified amount of the landlord's cost to improve the space. The Company has not purchased or developed real estate for investment purposes, or made real estate loans. Accordingly, it has no properties arising from such activities. Item 3. Legal Proceedings The Company is not involved in any pending or threatened legal or administrative proceedings other than those undertaken in the ordinary course of its surety business. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of the year ended December 31, 1996. Executive Officers of the Company The names of the executive officers of the Company, together with certain information regarding them, are as follows: Name Age Position - - ---- --- -------- Kenneth L. Brier 47 President and Chief Executive Officer since 1992 Ted A. Drauschak 36 Executive Vice President since 1992 Joel D. Cooperman 44 Vice President - Finance, Treasurer, and Chief Financial Officer since 1995; Formerly Vice President - Finance, Treasurer, and Chief Financial Officer with O'Brien Environmental Energy, Inc. from January 1981 through April 1995 Stephen C. Fletcher 40 Vice President and President of the Surety Company Bond Division since 1992 Part II Item 5. Market for Common Equity and Related Stockholder Matters The Registrant's common stock was originally traded in the over-the-counter market on the Nasdaq SmallCap Market System under the symbol MTBN. The Company publicly listed its common stock as a result of an initial public offering that was completed in September 1994. On December 26, 1995 the Registrant's common stock began trading on the Nasdaq National Market System under the same symbol. The following table sets forth the high and low trading prices as reported by Nasdaq:
1996 1995 ---- ---- High Low High Low ---- --- ---- --- First Quarter 6 1/4 5 6 3/8 4 1/2 Second Quarter 8 1/2 5 1/4 6 5 1/4 Third Quarter 8 1/2 7 6 5 1/8 Fourth Quarter 8 3/4 7 3/4 5 3/4 4 7/8
On March 24, 1997 the closing price was $9.375. There were approximately 51 holders of record of the common stock of the Company. The Company believes that there are approximately 750 beneficial owners of its common stock. The Registrant has paid no dividends in the past, though it may elect to do so in the future. Dividends are subject to the dividend restrictions imposed on the Surety Company by the Department. Pennsylvania insurance laws currently prohibit dividends that would leave the Surety Company with total capital and surplus in an amount less than the Department requires to conduct a surety business. These laws also afford the Department 30 days to disapprove the payment of dividends in excess of "unassigned surplus" (i.e., undistributed accumulated surplus including net income and realized gains) or "extraordinary dividends" (i.e. dividends over a twelve-month period that exceed the greater of 10% of policyholders' surplus as shown on the latest annual statement filed with the Department, or net income shown on such statement). Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The Company's principal business activity is to underwrite surety bonds through its wholly owned subsidiary, the Surety Company. The Surety Company wrote its first bond in October 1992. In May 1994, the Surety Company received a Treasury Listing (the "T-Listing") to write federally required bonds anywhere in the United States and its territories. Prior to July 1994, the Surety Company was licensed it write bonds only in the Commonwealth of Pennsylvania. The following table sets forth information, chronologically, with respect to those states in which the Surety Company is presently licensed to write bonds: State Date of Admission - - ----- ----------------- Pennsylvania September 11, 1992 Delaware July 13, 1994 Maryland October 7, 1994 New Jersey March 31, 1995 Virginia August 17, 1995 District of Columbia September 1, 1995 New York October 19, 1995 Ohio November 28, 1995 Kentucky April 26, 1996 Tennessee September 23, 1996 Indiana September 30, 1996 Connecticut December 1, 1996 Mississippi December 1, 1996 Illinois December 5, 1996 South Carolina February 3, 1997 In addition, the Surety Company has applied for a license to underwrite bonds in Alabama, Georgia, North Carolina and West Virginia, and anticipates filing license applications in various other states. Results of Operations Year ended December 31, 1996 compared to year ended December 31, 1995: During the year ended December 31, 1996, the Surety Company generated $7,829,171 of gross written premiums, compared to $4,671,677 of gross written premiums during the year ended December 31, 1995, representing an increase of $3,157,494 or 68%. Management attributes the increase in gross written premiums primarily to the Surety Company's increased penetration of the states in which the Surety Company became licensed prior to 1996. Because the Surety Company either began marketing efforts or became licensed in the other states listed above relatively late in 1996, its expansion in these markets did not significantly impact gross written premiums in 1996. For the year ended December 31, 1996, ceded reinsurance premiums totaled $1,287,308, representing approximately 16% of gross written premiums. For the year ended December 31, 1995, ceded reinsurance premiums totaled $717,741, representing approximately 15% of gross written premiums. The increase in ceded reinsurance premiums from the 1995 period to the 1996 1 period was primarily the result of the increase in gross written premiums as well as an increase in reinsurance coverage limits and reinstatements. Effective November 1, 1995, the Company secured a new reinsurance treaty that increased the Company's maximum single bond limit and work program aggregate imit from $3 million and $4.5 million, respectively, to $5 million and $7.5 million, respectively. In addition, the Company's reinsurance coverage limits and reinstatements were increased. Under this treaty (effective from November 1995 through October 1996) the ceded reinsurance premiums represented approximately 16.75% of gross written premiums, adjusted for the Company's 5% participation in the first layer. Effective November 1, 1996, the Company secured a new reinsurance treaty that increased the Company's work program aggregate limit from $7.5 million to $10 million. Under the new reinsurance treaty (effective from November 1996 through October 1997), the maximum single bond limit remains at $5 million. However, the Company's aggregate reinsurance coverage limits and reinstatements are increased, and ceded reinsurance premiums are expected to represent approximately 15.26% of gross written premiums, adjusted for the Company's 5% participation in the first and second layers. For the year ended December 31, 1996, claims and claim adjustment expenses incurred were $519,708, or an incurred loss and loss adjustment expense ratio of 8.4%, compared to $369,639, or an incurred loss and loss adjustment expense ratio of 9.7%, for the year ended December 31, 1995. The increase in claim and claim adjustment expenses in 1996 reflects primarily the increase in the Company's business volume. Of the $519,708 of claims and claim adjustment expenses incurred in 1996, $340,784 relates to known claims, most of which is associated with two bonded principals, and $178,924 relates to the increase in reserves for IBNR, which is primarily driven by net earned premiums in force at December 31, 1996. A limited number of claims have been filed on the Surety Company's bonds. Accordingly, the Surety Company has established case reserves of $634,156, gross of reinsurance, to provide for future claims and claim adjustment expense payments. For the year ended December 31, 1996, commission expenses were $2,233,048, representing approximately 29% of gross written premiums, compared to $1,338,794, or approximately 29% of gross written premiums, for the year ended December 31, 1995. The increase in commission expenses in 1996 relates primarily to the increase in gross written premiums. For the years ended December 31, 1996 and 1995, the Company incurred salary and benefits costs of $1,299,702 and $1,013,571, respectively. The increase in salary and benefit costs in 1996 reflects an increase in the number of employees, including additional underwriters and related support personnel, a controller, increased compensation and merit bonuses for these personnel, as well as additional compensation awarded to senior management by the Company's compensation committee. For the year ended December 31, 1996, the Company incurred approximately $144,128 for professional services and $705,188 for other operating expenses, compared to $131,715 and $451,054, respectively, for the similar period in 1995. This increase reflected legal, accounting, auditing, and various other expenses incurred to comply with regulatory reporting obligations, licensure and tax requirements in states in which the Company is licensed to transact business, licensing of additional agents, and required infrastructure changes to support the Company's current and expected future levels of gross written premiums. For the years ended December 31, 1996 and 1995, the Company generated $421,810 and $389,991, respectively, of income from its investments, comprised exclusively of U.S. Government securities. The yield on average invested assets for 1996 and 1995 was 5.6% and 5.9%, respectively. The increase in interest income in 1996 was due to the investment of additional funds generated from the 2 Company's operations, offset by lower yields. On December 29, 1995, the Company sold all of its U.S. government securities having original maturities of less than one year, and reinvested the proceeds of $4,635,219 in a U.S. government security maturing in November 2000 with an effective yield to maturity of 5.44%. Interest expense (associated with a note payable in the original amount of $170,000) for 1996 and 1995 was $0 and $4,517, respectively. The note was repaid in April 1995. The provision for income taxes for 1996 was $593,831 (an effective tax rate of 34.3%), as compared to $172,206 (an effective tax rate of 19.6%) for 1995. The 1995 effective tax rate was reduced by the elimination in 1995 of the deferred tax asset valuation allowance in the amount of $112,895. The valuation allowance was eliminated due to management's favorable assessment of the earnings potential of the Company. Net income for the year ended December 31, 1996 was $1,135,370, as compared to $705,125 for the year ended December 31, 1995, an increase of $430,245, or 61%. Seasonality Because most of the Surety Company's premiums are generated on construction related bonds, and are associated with jobs primarily in Mid-Atlantic States, the Surety Company's business has been seasonal. Accordingly, operating results have varied from quarter to quarter, with premium levels lowest from November to March. Seasonality is expected to have less of an effect on premium activity as the Surety Company becomes licensed and generates business in states having more temperate climates. Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 Except for historical information provided in the Management's Discussion and Analysis, statements made throughout this document are forward-looking and contain information about financial results, economic conditions, trends and known uncertainties. The Company cautions the reader that actual results could differ materially from those expected by the Company, depending on the outcome of certain factors (some of which are described with the forward-looking statements) including: 1) adverse loss development for projects bonded by the Company in prior years; 2) heightened competition, particularly price competition, reducing margins; 3) significant changes in interest rates. Liquidity and Capital Resources Initial operations of the Surety Company were financed by contributions from the Company, principally from the sale of common stock by the Company. Continuing operations have been financed by internally generated cash flow from operations. Costs incurred by the Company are shared with the Surety Company under a services agreement which provides for the Surety Company to reimburse the Company for costs paid by the Company which are deemed to benefit the Surety Company. As in 1996, the Surety Company may elect to pay dividends in the future, subject to the dividend restrictions of the Commonwealth of Pennsylvania insurance laws and regulations. The Company expects to maintain a high level of liquidity through, among other things, the continued investment in U.S. government securities and other high-grade investment instruments. During 1996, approximately $1,018,000 of the Company's cash and investment portfolio was converted to U.S. Treasury instruments in conjunction with the final licensure requirements of the Commonwealth of Kentucky and the State of Illinois. Management anticipates that additional "deposit" requirements will be required to be satisfied in those states in which the Surety Company intends to seek a license to write surety bonds. 3 The Company had approximately $9,248,000 of investments and cash equivalents at December 31, 1996, and approximately $7,442,000 of investments and cash equivalents at December 31, 1995. The Company's anticipated expansion plans will require additional personnel and financial resources. While certain costs are expected to increase due to the changes in infrastructure as discussed above, management believes that the Company and the Surety Company have adequate liquidity to pay all claims and meet all other obligations for the next twelve months, at a minimum. The Surety Company requires capital to support its bond underwriting. Management believes that the statutory surplus of the Surety Company, which was approximately $7,975,000 at December 31, 1996, will be sufficient to support the Surety Company's current and anticipated premiums and losses. Item 7. Financial Statements Page ---- Report of Independent Accountants 12 Consolidated Balance Sheets as of December 31, 1996 and 1995 13 Consolidated Statements of Operations for the years ended December 31, 1996 and 1995 14 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1996 and 1995 15 Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995 16 Notes to Consolidated Financial Statements 17 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Mountbatten, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Mountbatten, Inc. and its subsidiary at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. 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. We conducted our audits of these statements in accordance with generally accepted auditing standards 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 audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Boston, Massachusetts February 21, 1997 Mountbatten, Inc. and Subsidiary Consolidated Balance Sheets
As of As of December 31, 1996 December 31, 1995 ------------------ ----------------- ASSETS Fixed maturities: Available-for-sale, at fair value (amortized cost of $8,596,475 and $6,665,324, respectively) $8,487,946 $6,685,900 ---------- ---------- 8,487,946 6,685,900 Cash and cash equivalents 759,749 755,639 Premiums receivable 562,820 385,372 Reinsurance receivable 294,911 205,037 Subrogation recoverable 606,476 393,999 Accrued investment income 60,196 36,673 Property and equipment, net 56,838 52,519 Deferred acquisition costs 393,447 270,687 Prepaid reinsurance premiums - 39,166 Deferred tax asset 32,223 113,597 Other assets 4,215 59,318 ----------- ---------- TOTAL ASSETS $11,258,821 $8,997,907 =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Unpaid claims and claim adjustment expenses $1,153,270 $602,265 Unearned premiums 954,101 621,403 Reinsurance premium payable 353,834 - Accrued expenses and other liabilities 254,927 246,592 Federal income taxes payable 161,505 196,624 ---------- -------- TOTAL LIABILITIES 2,877,637 1,666,884 ---------- --------- Shareholders' Equity Common stock, par value $.001 per share; authorized 20,000,000 shares; issued and and outstanding, 2,528,530 shares. 2,529 2,529 Additional paid in capital 6,762,934 6,762,934 Net unrealized (depreciation) appreciation, fixed maturities (71,629) 13,580 Retained earnings 1,687,350 551,980 --------- --------- TOTAL SHAREHOLDERS' EQUITY 8,381,184 7,331,023 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,258,821 $8,997,907 =========== ==========
The accompanying notes are an integral part of these financial statements Mountbatten, Inc. and Subsidiary Consolidated Statements of Operations Year ended December 31, ------------ 1996 1995 Underwriting: Gross written premiums $7,829,171 $4,671,677 Premiums ceded (1,287,308) (717,741) ----------- ----------- Net written premiums 6,541,863 3,953,936 Change in unearned premium (332,698) (157,306) ---------- ---------- Net earned premiums 6,209,165 3,796,630 --------- --------- Claims and claims adjustment expenses 519,708 369,639 Commission expense 2,233,048 1,338,794 Salaries and benefits 1,299,702 1,013,571 Professional fees 144,128 131,715 Other operating expenses 705,188 451,054 --------- --------- 4,901,774 3,304,773 --------- --------- Underwriting income 1,307,391 491,857 Other income (expense) Interest income 421,810 389,991 Interest expense - (4,517) --------- ---------- Income before income taxes 1,729,201 877,331 Provision for income taxes 593,831 172,206 --------- -------- Net income $1,135,370 $705,125 ========== ======== Earnings per share: $0.42 $0.27 Weighted average shares outstanding 2,691,751 2,590,733 The accompanying notes are an integral part of these financial statements Mountbatten, Inc. and Subsidiary Consolidated Statements of Changes in Shareholders' Equity December 31, 1996
Net unrealized appreciation, Retained Total Common Additional fixed earnings shareholders Shares Amount paid in capital maturities (deficit) equity ------ ------ --------------- ---------- --------- ----------- Balance at December 31, 1994 2,528,530 2,529 6,762,934 (153,145) 6,612,318 Net income 705,125 705,125 Net unrealized appreciation, Fixed maturities 13,580 13,580 --------- ------ ---------- -------- ---------- ---------- Balance at December 31,1995 2,528,530 $2,529 $6,762,934 $13,580 $ 551,980 $7,331,023 ========= ====== ========== ======== ========== ========== Net income 1,135,370 1,135,370 Net unrealized depreciation, Fixed maturities (85,209) (85,209) ---------- ------- ---------- --------- ---------- ----------- Balance at December 31,1996 2,528,530 $2,529 $6,762,934 $(71,629) $1,687,350 $8,381,184 ========= ====== ========== ========= ========== ==========
The accompanying notes are an integral part of these financial statements Mountbatten, Inc. and Subsidiary Consolidated Statements of Cash Flows Year ended December 31, ----------------------- 1996 1995 ------ ------ Operating activities: Net income $1,135,370 $705,125 Adjustments to reconcile net income to net cash Provided by (used in) operating activities: Depreciation and amortization 26,391 17,654 Change in: Premiums receivable (177,448) (26,953) Reinsurance receivable (89,874) (205,037) Subrogation recoverable (212,477) (257,641) Accrued investment income (23,523) 18,188 Unearned premiums 332,698 157,307 Unpaid claims and claim adjustmentexpenses 551,005 406,607 Prepaid reinsurance premiums 39,166 2,088 Reinsurance premium payable 353,834 - Accrued expenses and other liabilities 8,335 196,572 Deferred acquisition costs (122,760) (56,554) Deferred tax asset 81,374 (97,866) Federal income taxes payable (35,119) 65,667 Other, net 99,059 (35,867) -------- -------- Net cash provided by operating activities 1,966,031 889,290 --------- -------- Investing activities: Purchase of equipment (30,710) (43,200) Purchase of investments (3,952,428) (23,472,564) Maturities of investments 2,021,217 23,379,443 ---------- ------------ Net cash used in investing activities (1,961,921) (136,321) ----------- ------------ Financing activities: Repayment of note payable - (170,000) ----------- ------------ Net cash provided by financing activities - (170,000) ----------- ------------ Net increase in cash and cash equivalents 4,110 582,969 Cash and cash equivalents at beginning of period 755,639 172,670 ----------- ----------- Cash and cash equivalents at end of period $759,749 $755,639 Supplemental disclosure of cash flow information: The Company made payments of $503,680 during the year ended December 31, 1996 for federal income taxes. Payments of $4,517 and $211,401 were made by the Company during the year ended December 31, 1995 for interest and federal income taxes, respectively. The accompanying notes are an integral part of these financial statements Mountbatten, Inc. and Subsidiary Notes to Consolidated Financial Statements Note 1 - Description of Business: Mountbatten, Inc. ("Mountbatten") commenced operations on February 1, 1992. Mountbatten acts as a holding company for The Mountbatten Surety Company, Inc. (the "Surety Company"). The Surety Company underwrites performance, payment and other bonds, and is licensed to conduct business in the Commonwealths of Pennsylvania, Virginia, and Kentucky, the States of Delaware, Maryland, New Jersey, New York, Ohio, Tennessee, Indiana, Connecticut, Mississippi, Illinois, South Carolina, and the District of Columbia. The Surety Company distributes bonds in these states through independent agents and brokers. (Mountbatten together with the Surety Company are referred to below as the "Company"). Note 2 - Summary of Significant Accounting Policies: Basis of presentation: The consolidated financial statements have been prepared in conformity with generally accepted accounting principles (GAAP). The consolidated financial statements include the accounts of Mountbatten, Inc. and its subsidiary, the Surety Company. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and related disclosures in the notes to the consolidated financial statements. Significant estimates used in determining subrogation recoverable, unearned premiums and unpaid claims and claim expenses are discussed throughout these notes. Actual results could differ from those estimates. All intercompany amounts are eliminated in consolidation. New accounting pronouncements: In October 1995, the Financial Accounting Standards Board issued Statement No. 123 "Accounting for Stock-Based Compensation" (SFAS No. 123). The statement defines a fair value based method of accounting for an employee stock option. Companies may, however, elect to adopt this new accounting rule through a pro forma disclosure option, while continuing to use the intrinsic value based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." Under the disclosure option, companies must make pro forma disclosures of net income and earnings per share, as if the fair value method of accounting below had been applied. Under the new fair value method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service (or vesting) period. Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at the grant date over the amount an employee must pay to acquire the stock. The Company has elected to adopt the disclosure option under SFAS No. 123 and will continue to account for stock-based compensation using the intrinsic value based method under APB No. 25. See Note 9 to the consolidated financial statements for additional information. During the fourth quarter of 1995, the FASB issued a guide to implementation of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 required that debt and equity securities be classified into different categories and carried at fair value if they are not classified as held-to-maturity. The guide permitted a one-time opportunity to reclassify securities subject to SFAS No. 115. Consequently, Mountbatten reclassified all of its securities to available-for-sale as of 6 Note 2 - Summary of Significant Accounting Policies: - (continued) November 30, 1995. This reclassification did not have a material effect on the consolidated financial statements. Premium recognition: Premiums are recognized as earned over the estimated period of bond performance or project completion, which is generally less than one year. Ceded reinsurance premiums are recognized on a similar basis. Unearned premiums represent the portion of net premiums applicable to the unexpired portion of the bond. The estimates are based primarily on management's understanding of a bonded project's stage of completion supplemented by historical completion patterns. Cash equivalents: Cash equivalents include highly liquid money market instruments with original maturities of three months or less. Investments: The Company accounts for its investments in fixed maturity securities in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 requires that an enterprise classify debt and equity securities into either of these categories as applicable: held-to-maturity, available for sale or trading. SFAS No. 115 also requires that unrealized gains and losses for trading securities be included in earnings, while unrealized gains and losses for available-for-sale securities be excluded from earnings and reported as a separate component of shareholders' equity until realized. At December 31, 1996 and 1995, the Company's investments in fixed maturity securities were classified as available-for-sale. Prior to the Company reclassifying its securities as available for sale at November 30, 1995, the Company classified its investment in debt securities as held-to-maturity. These securities were carried at amortized cost, which approximated market. Any premium or discount was amortized on a monthly basis as interest was earned. Fixed assets: Fixed assets, which are comprised of furniture and fixtures, computer equipment and leasehold improvements, are recorded at cost and are depreciated using the straight line method over their useful lives, which range from three to five years. Deferred policy acquisition costs: Acquisition costs which vary with and are primarily related to the production of premiums, primarily commissions, premium taxes, and certain underwriting expenses, are deferred and amortized ratably over the terms of the related insurance contracts, to the extent such costs are deemed to be recoverable. Future underwriting and investment income are considered in determining the recoverability of such acquisition costs. Amortization expense related to deferred policy acquisition cost is included as an adjustment to commission expense, salaries and benefits, and other operating expenses. 7 Note 2 - Summary of Significant Accounting Policies: - (continued) Reinsurance receivable: Reinsurance receivable is an estimate of an amount to be received from its reinsurer relating to unpaid claims and claims adjustment expenses, offset by an amount received from the reinsurer. Subrogation recoverable: The Surety Company requires bond applicants to enter into an indemnity agreement which obligates the insured to reimburse the Surety Company for any claims paid and costs incurred that are related to the bond. Subrogation recoverable represents amounts estimated to be recovered by the Surety Company from bonded principals for claim costs incurred by the Surety Company after a failure of a bonded principal to fulfill a bonded obligation. The Company records subrogation recoverable when a claim is incurred and it is probable that the costs will be recovered. Changes in estimates of subrogation recoverable are credited or charged to income in the period in which they are determined and are included in claims and claim adjustment expenses. Unpaid claims and claim adjustment expenses: The reserve for claims and claim adjustment expenses is based on management's individual case estimates of the ultimate future payments to be made on reported claims and related expenses, and on estimates for incurred but not reported ("IBNR") claims. Claim reserve estimates are revised by management, as information becomes available. Changes in these estimates are charged or credited to income in the period in which they are determined. Claim adjustment expenses include costs associated directly with specific claims paid or in the process of settlement. Income taxes: Income taxes are provided based on income reported in the financial statements. Deferred federal income taxes are provided based on an asset and liability approach in accordance with SFAS 109, "Accounting for Income Taxes," which requires the recognition of deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Note 3 - Investments: The amortized cost and estimated fair values of fixed maturity investments at December 31, 1996 and 1995 are as follows: December 31, 1996 December 31, 1995 ----------------- ----------------- Cost Fair Value Cost Fair Value ---- ---------- ---- ---------- U.S. Treasury Securities $8,596,475 $8,487,946 $6,665,324 $6,685,900 U.S. Treasury instruments with a fair market value of approximately $1,819,000 and $812,000 were held on deposit with various insurance departments as of December 31, 1996 and 1995, respectively. 8 Note 3 - Investments (continued): The amortized cost and estimated fair value of fixed maturity investments at December 31, 1996 and 1995 are shown below by the expected maturity period: December 31, 1996 ----------------- Cost Fair Value ---- ---------- Less than one year $3,968,458 $3,967,729 Due after one year through five 4,628,017 4,520,217 years ---------- ----------- Total $8,596,475 $8,487,946 ========== ========== Note 4 - Fixed Assets Fixed assets consists of: December 31, ----------- 1996 1995 ---- ---- Furniture and fixtures $41,733 $31,890 Office equipment (primarily computers) 58,212 43,814 Leasehold Improvements 14,900 8,431 ------- ------- 114,845 84,135 Less: accumulated depreciation/amortization (58,007) (31,616) -------- -------- $56,838 $52,519 ======= ======= The Company occupies its office space under operating leases that expire September 30, 1999, if not terminated by either party by delivering written notice 60 days prior to the expiration of the current term. Rent expense for 1996 and 1995 was $58,374 and $43,916, respectively. As of December 31, 1996, the future minimum rental commitments payable under its operating lease are as follows: 1997 $ 64,782 1998 64,782 1999 48,587 --------- $178,151 ========= Note 5 - Income Taxes Mountbatten, Inc. files a consolidated income tax return with its wholly-owned subsidiary, the Surety Company, and is a party to a tax sharing agreement with the Surety Company. The Company had a gross deferred tax asset at December 31, 1994, which was offset by a valuation allowance of $112,895. The valuation allowance reflected management's assessment that, based upon available information at that time, there was not sufficient positive evidence to determine that it was more likely than not that the 9 Note 5 - Income Taxes (continued) entire deferred tax asset would be realized due to management's assessment of the Company's earnings potential. Adjustments to the valuation allowance are made if there is a change in management's assessment of the amount of the deferred tax asset that is realizable. During 1995, the valuation allowance of $112,895 was eliminated to reflect the reversal of certain temporary differences and management's assessment that the earnings potential of the Company was sufficient to provide positive evidence that the deferred tax asset will be realized. The tax effect of temporary differences, which give rise to deferred income tax assets and liabilities as of December 31 were as follows: 1996 1995 ---- ---- Deferred tax liabilities: Deferred acquisition costs ($133,772) ($92,034) Subrogation receivable discounting (30,958) (21,918) Other - (6,246) -------- --------- Gross deferred tax liabilities (164,730) (120,198) -------- --------- Deferred tax assets: Loss reserve discounting 30,828 17,466 Net unrealized value, fixed maturities 36,900 - Unearned premium reserve 64,879 42,256 Organizational and startup costs 62,606 108,113 Accrued salaries and benefits - 65,960 Other 1,740 - -------- -------- Gross deferred tax asset 196,953 233,795 -------- -------- Deferred tax asset, net $32,223 $113,597 ======== ======== The components of income tax expense were as follows: 1996 1995 ---- ---- Current federal tax expense $468,561 $277,068 Deferred federal tax expense 125,270 (104,862) -------- --------- Total federal income tax expense $593,831 $172,206 ======== ======== The provision for income taxes differs from the amount of income tax determined by applying the applicable statutory federal income tax to pretax income from operations as a result of the following differences: 1996 1995 ---- ---- Tax expense at statutory rate (34%) $587,928 $298,293 Other, net 5,903 (13,192) Valuation allowance - (112,895) -------- --------- Total federal income tax expense $593,831 $172,206 ======== ======== 10 Note 5 - Income Taxes (continued) The tax effect of temporary differences which resulted in the deferred tax (benefit) were as follows: 1996 1995 ---- ---- Deferred acquisition costs $ 41,738 $ 19,228 Accrued salaries and benefits 65,960 (65,960) Organizational and startup costs 45,508 45,508 Loss reserve discounting (13,362) (11,872) Subrogation receivable discounting 9,041 13,758 Unearned premium reserve (22,623) (13,502) Professional fees - 21,728 Other (992) (910) Valuation allowance - (112,895) --------- ---------- Deferred tax benefit $125,270 ($104,862) ======== ========== Note 6 - Unpaid Claims and Claim Expense Reserves and Reinsurance Receivable: The process by which reserves are established for insured events and related litigation requires reliance upon estimates based on the Surety Company's limited claims experience, supplemented with available industry data. The Surety Company's limited claims experience creates uncertainty with respect to the estimation of loss and loss adjustment expense reserves. As information develops which varies from expected experience, provides additional data or, in some cases, augments data which previously were not considered sufficient in determining reserves, adjustments to reserves may be required. Included in loss reserves at December 31, 1996 and 1995 are case reserves totaling $634,156 and $300,090, respectively, and IBNR reserves of $519,114 and $302,175, respectively. Reinsurance receivable of $294,911 at December 31, 1996 includes $324,994 related to unpaid losses, offset by $30,083 received from the reinsurer as an overpayment. Reinsurance receivable of $205,037 at December 31, 1995 includes $129,199 and $75,838 of receivables related to paid and unpaid losses, respectively. Activity in the reserve for unpaid claims and claim adjustment expenses for the years ended December 31, 1996 and 1995 were as follows: 1996 1995 ---- ---- Gross Reserves - January 1 $ 602,265 $ 195,658 Less subrogation recoverable 393,999 136,358 Less reinsurance receivable 75,838 - ---------- --------- Net reserve- January 1 132,428 59,300 ---------- --------- Incurred losses related to: Current year 768,722 407,957 Prior year (249,014) (38,318) Paid related to: Current Year 409,802 214,310 Prior Year 20,531 82,201 ---------- -------- Net reserve- December 31 221,800 132,428 Plus subrogation receivable 606,476 393,999 Plus reinsurance receivable 324,994 75,838 ---------- -------- Gross Reserves - December 31 $1,153,270 $602,265 ========== ======== 11 Note 6 - Unpaid Claims and Claim Expense Reserves and Reinsurance Receivable (continued) As part of an ongoing process, the reserves have been re-estimated for all prior accident years and were decreased by $249,014 and $38,318 in 1996 and 1995, respectively. Note 7 - Note Payable The note payable of $170,000, due to a commercial bank, was repaid in April 1995. Note 8 - Reinsurance: In the normal course of business, the Company enters into contracts to cede reinsurance primarily to limit losses from large exposures and to permit recovery of a portion of direct losses; however, such a transfer of risk does not relieve the Company from contingent liability for these losses. The Company's current reinsurance program provides four layers of reinsurance. Under the first layer, the Company retains 100% of all losses up to $150,000 and the reinsurer assumes 95% of the next $850,000, subject to a maximum annual recovery by the Company of $3,230,000. The second layer provides $1,000,000 of coverage (95% to be assumed by the reinsurer) on any loss discovered for any principal in excess of the first $1,000,000 of loss with an aggregate annual maximum of $2,850,000. The third layer provides $2,500,000 of coverage on any loss discovered for any principal in excess of the first $2,000,000 of loss with an aggregate annual maximum of $5,000,000. The fourth layer provides $3,000,000 of coverage on any loss discovered for any principal in excess of the first $4,500,000 with an aggregate annual maximum of $3,000,000. Prior to November 1995, the reinsurance program required that the Company not write any bond exceeding $3,000,000 or bonds on the same work program in favor of the principal exceeding $4,500,000 in the aggregate. Under this program, the maximum bond duration could not exceed 24 months. Effective November 1995, the reinsurance program required that the Company not write any bond exceeding $5,000,000, or bonds on the same work program in favor of the principal exceeding $7,500,000 in the aggregate. The work program limit of $7,500,000 increased to $10,000,000 effective November 1996. Note 9 - Shareholders' Equity Statutory surplus and dividend restrictions: The Surety Company is subject to the minimum capital and surplus requirements of the Commonwealth of Pennsylvania insurance laws and regulations. Under applicable Pennsylvania laws and regulations, the Company is required to maintain a minimum of $1,125,000 of paid in capital. The maximum amount of dividends which can be paid by the Surety Company to shareholders without the prior approval of the Insurance Commissioner is subject to restrictions relating to statutory surplus. Statutory surplus at December 31, 1996 and 1995 was $7,975,119 and $6,691,311, respectively, and statutory net income for the years ended December 31, 1996 and 1995 was $1,260,999 and $601,970, respectively. In September 1996, the Surety Company paid a dividend of $336,242 to its shareholder. The maximum dividend that may be paid without the approval prior to October 1997 is approximately $332,000. After September 1997 the maximum dividend that may be paid without prior approval is approximately $798,000, less any dividends paid during the previous twelve months. 12 Note 9 - Shareholders' Equity (continued) Subject to these restrictions, dividends may be paid as determined by the Board of Directors. Stock options and warrants: In November 1993 the Company granted incentive stock options to selected individuals to purchase 186,000 shares of common stock (35,000 shares and 151,000 shares at an exercise price of $4.95 and $4.50, respectively). 500 of these incentive stock options were cancelled in December 1995. These options become exercisable over a five-year period commencing one year after the date of grant. In November 1993 the Company granted non-qualified stock options to selected individuals to purchase 81,000 shares of common stock at an exercise price of $4.50 per share. These options vested immediately, and are exercisable for a ten-year period after the date of grant. In July 1993, the Company issued a warrant to an underwriter to purchase 4,800 shares of common stock at an exercise price of $4.50 per share of common stock until July 1996. The exercise price then increases by $.45 per share until July 1999. The warrant expires July 2000. The Company sold to the underwriter, for nominal consideration in connection with the initial public offering, warrants to purchase 100,000 shares of common stock at an exercise price of $6.00 per share. These warrants became exercisable during a four-year period commencing August 1995, and they expire August 1999. In February 1995, the Company granted incentive stock options to selected individuals to purchase 19,000 shares of common stock at an exercise price of $5.00 per share. These options vest over a four-year period and are exercisable for a ten-year period after the date of grant. In September 1995, 2,000 of these incentive stock options were canceled. In February 1995, the Company granted incentive stock options to an individual to purchase 15,000 shares of common stock at an exercise price of $5.50 per share. These options vest over a two-year period and are exercisable for a five-year period after the date of grant In February 1995, the Company granted non-qualified stock options to selected individuals to purchase 8,000 shares of common stock at an exercise price of $5.00 per share. These options vest immediately, and are exercisable for a ten-year period after the date of grant. In June 1995, 4,000 of these non-qualified stock options were canceled. In April 1995, the Company granted non-qualified and incentive stock options to a selected individual to purchase 10,000 and 30,000 shares, respectively, of common stock at an exercise price of $5.25 per share. The non-qualified stock option vested immediately, and is exercisable for a ten-year period after the date of the grant. The incentive stock option vests over a five-year period, and is exercisable for a ten-year period after the date of the grant. On November 3, 1995, the Company adopted the Equity Incentive Plan for Key Employees and the non-qualified Equity Incentive Plan for Outside Directors whereby key employees and outside directors may be granted options to purchase shares of the Company's common stock at a price not less than the fair market value of such shares, as determined by the Company's Board of Directors, at the date on which the options are granted. The options are exercisable during the period selected by the Board of Directors, but no earlier than six months after the date of grant and no later than ten years from the date of grant. A total of 250,000 and 50,000 shares of common stock were reserved for issuance under the Key Employees and Outside Directors Plans, respectively. 13 Note 9 - Shareholders' Equity (continued) As of December 31, 1996, reserved shares for stock options granted under all plans totaled approximately 665,000. In January 1996, the Company granted incentive stock options to selected individuals to purchase 63,750 and 20,000 shares of common stock at an exercise price of $5.25 and $5.78 per share, respectively. These options all vest over a five-year period, and are exercisable for a ten-year and five-year period, respectively, after the date of the grant. 250 and 500 of these incentive stock options were cancelled in September and December 1995, respectively. In January 1996, the Company granted non-qualified stock options to selected individuals to purchase 35,000 shares of common stock at an exercise price of $5.25 per share. These options vest immediately, and are exercisable for a ten-year period after the date of grant. In May 1996, the Company granted non-qualified stock options to selected individuals to purchase 8,000 shares of common stock at an exercise price of $5.50 per share. These options vest immediately, and are exercisable for a ten-year period after the date of grant. In December 1996, the Company granted incentive stock options to selected individuals to purchase 28,000 shares of common stock at an exercise price of $8 per share. These options vest over a five-year period, and are exercisable for a ten-year period after the date of grant. In December 1996, the Company granted non-qualified stock options to selected individuals to purchase 64,000 shares of common stock at an exercise price of $8 per share. These options vest immediately, and are exercisable for a ten-year period after the date of grant. Information regarding these plans is as follows:
1996 1995 ------------------------------ ---------------------------- Weighted Average Weighted Average Shares Exercise Price Shares Exercise Price ------ ---------------- ------ --------------- Options outstanding- beginning of year 447,300 $5.00 371,300 $4.95 Options granted 218,000 $6.47 76,000 $5.23 ------- ----- ------- ----- Options outstanding- end of year 665,300 $5.48 447,300 $5.00 ======= ===== ======= ===== Weighted average fair value of options, granted during the year $3.20 $2.59 ===== =====
The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation." Accordingly, under SFAS No. 123, no compensation expense has been recognized for the stock option plans. Had compensation cost been determined based on the fair value at the grant date for awards in 1996 and 1995 consistent with the accounting provision of SFAS No. 123, where the fair value of the stock option grants are recognized on a straight line basis over the vesting period of the grant, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below: Note 9 - Shareholders' Equity (continued) 1996 1995 Net earnings - as reported $1,135,370 $705,125 Net earnings - pro forma $793,370 $497,206 Earnings per share - as reported $0.42 $0.27 Earnings per share - pro forma $0.29 $0.19 For 1996 and 1995, no compensation expense has been recognized for stock options under the intrinsic value based method under APB No. 25. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for the respective year of grant: 1996 1995 Dividend yield 0% 0% Expected volatility 50% 50% Risk-free interest rate 5.4% 6.2% Expected life of option 5 years 5 years The following table summarizes information about fixed stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable ---------------------------------------------- -------------------------------- Weighted Range of Number Average Weighted Number Weighted Exercise Outstanding Remaining Average Exercisable at Average Prices at 12/31/96 Contractual Life Exercise Price 12/31/96 Exercise Price ------------------------------------------------- ---------------------------------- $4.50-$5.50 453,300 6.9 years $4.84 323,600 $4.77 $5.78-$8.00 212,000 5.9 years $6.85 164,000 $6.78 ---------------------------------------------- ---------------------------------- 665,300 6.6 years $5.48 487,600 $5.45 ============================================ ==================================
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. The answer to this item is incorporated by reference to the Company's definitive proxy statement for the 1997 Annual Meeting of Shareholders to be filed with the Commission pursuant to Rule 14a-6(b) under the Exchange Act. See Part I for certain information regarding the Company's executive officers. Item 10. Executive Compensation. The answer to this item is incorporated by reference to the Company's definitive proxy statement for the 1997 Annual Meeting of Shareholders to be filed with the Commission pursuant to Rule 14a-6(b) under the Exchange Act. Item 11. Security Ownership of Certain Beneficial Owners and Management. The answer to this item is incorporated by reference to the Company's definitive proxy statement for the 1997 Annual Meeting of Shareholders to be filed with the Commission pursuant to Rule 14a-6(b) under the Exchange Act. Item 12. Certain Relationships and Related Transactions. The answer to this item is incorporated by reference to the Company's definitive proxy statement for the 1997 Annual Meeting of Shareholders to be filed with the Commission pursuant to Rule 14a-6(b) under the Exchange Act. Item 13. Exhibits and Reports on Form 8-K. (a) Financial Statements and exhibits filed: (1) Financial Statements included in Item 7 of this Form 10-KSB Report. Page Report of Independent Accountants 12 Consolidated Balance Sheets as of December 31, 1996 and 1995 13 Consolidated Statements of Operations for the two years ended December 31, 1996 and 1995 14 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1996 and 1995 15 Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995 16 Notes to the Consolidated Financial Statements 17 (2) Exhibits Exhibit No. Description of Exhibit (3.2)* Amended and Restated Articles of Incorporation of the Registrant (3.3)** By-laws of Registrant (10.1)*** Reinsurance Treaty with Transatlantic Reinsurance Company dated March 1, 1995 Management Contracts and Compensatory Plans or Arrangements (10.2)*** Amended and Restated Employment Agreement between the Company and Kenneth L. Brier dated March 8, 1996 (10.3)*** Amended and Restated Employment Agreement between the Company and Ted A. Drauschak dated March 8, 1996 (10.4) Amended and Restated Employment Agreement between the Company and Stephen C. Fletcher dated September 26, 1996 (10.5) Amended and Restated Employment Agreement between the Company and Joel D. Cooperman dated June 14, 1996 (10.6)** 1993 Non-Qualified Stock Option Plan and Form of 1993 Non- Qualified Stock Option Agreement 14 Item 13. (continued) Exhibits and Reports on Form 8-k (10.7)** 1993 Incentive Stock Option Plan and Form of 1993 Incentive Stock Option Agreement (10.8)**** 1995 Equity Incentive Plan for Key Employees (10.9)***** 1995 Equity Incentive Plan for Outside Directors Other Material Contracts (10.10)*** Amended and Restated Services Agreement dated December 31, 1995 between the Company and The Surety Company (10.11)*** Summary of First, Second, Third, and Fourth Surety Excess of Loss Reinsurance Agreement dated November 1, 1995 (10.12) Summary of First, Second, Third, and Fourth Surety Excess of Loss Reinsurance Agreement dated November 1, 1996 (20) Proxy Statement relating to the 1997 Annual Meeting of Shareholders (to be filed with the Commission pursuant to Rule 14a-6(b) under the Exchange Act) (21) Subsidiaries of the Company (23) Consent of Independent Public Accountants (27) Financial Data Schedule (b) Reports on Form 8-K: During the quarter ended December 31, 1996, the Registrant did not file any reports on Form 8-K. * Such exhibit is hereby incorporated by reference to the like-described exhibit in the Registrant's Form 10-QSB quarterly report for the period ended March 31, 1996. ** Such exhibit is hereby incorporated by reference to the like-described exhibit in the Registrant's SB-2 Registration Statement No. 33-78336 declared effective September 1, 1994. *** Such exhibit is hereby incorporated by reference to the like-described exhibit in the Registrant's Form 10-KSB Annual Report for the year ended December 31, 1996. **** Such exhibit is hereby incorporated by reference to the like-described exhibit in the Registrant's Form S-8 Registration Statement No. 333-23055 filed on March 10, 1997. ***** Such exhibit is hereby incorporated by reference to the like-described exhibit in the Registrant's Form S-8 Registration Statement No. 333-23057 filed on March 10, 1997. SIGNATURES In accordance with Section 13 or 15(d) of Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. March 27,1997 MOUNTBATTEN, INC. By /s/ Kenneth L. Brier ------------------------------- Kenneth L. Brier President and Chief Executive Officer (principal executive officer) By /s/ Joel D. Cooperman ------------------------------- Joel D. Cooperman Vice President, Finance, Treasurer, and Chief Financial Officer (principal financial and accounting officer) In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ Kenneth L. Brier President, Chief March 27, 1997 - - -------------------------- Executive Officer, Kenneth L. Brier and Director (principal executive officer) /s/ Ted Drauschak Executive Vice President, March 27, 1997 - - -------------------------- Secretary, and Director Ted Drauschak /s/ Joel D. Cooperman Vice President, Finance, March 27, 1997 - - -------------------------- Treasurer, and Chief Financial Joel D. Cooperman Officer (principal financial and accounting officer) /s/ J. Michael Adams Director March 27, 1997 - - -------------------------- J. Michael Adams /s/ Thomas P. Garry Director March 27, 1997 - - -------------------------- Thomas P. Garry Exhibit Index (3.2)* Amended and Restated Articles of Incorporation of the Registrant (3.3)** By-laws of Registrant (10.1)*** Reinsurance Treaty with Transatlantic Reinsurance Company dated March 1, 1995 Management Contracts and Compensatory Plans or Arrangements (10.2)*** Amended and Restated Employment Agreement between the Company and Kenneth L. Brier dated March 8, 1996 (10.3)*** Amended and Restated Employment Agreement between the Company and Ted A. Drauschak dated March 8, 1996 (10.4) Amended and Restated Employment Agreement between the Company and Stephen C. Fletcher dated September 26, 1996 (10.5) Amended and Restated Employment Agreement between the Company and Joel D. Cooperman dated June 14, 1996 (10.6)** 1993 Non-Qualified Stock Option Plan and Form of 1993 Non- Qualified Stock Option Agreement (10.7)** 1993 Incentive Stock Option Plan and Form of 1993 Incentive Stock Option Agreement (10.8)**** 1995 Equity Incentive Plan for Key Employees (10.9)***** 1995 Equity Incentive Plan for Outside Directors Other Material Contracts (10.10)*** Amended and Restated Services Agreement dated December 31, 1995 between the Company and The Surety Company (10.11)*** Summary of First, Second, Third, and Fourth Surety Excess of Loss Reinsurance Agreement dated November 1, 1995 (10.12) Summary of First, Second, Third, and Fourth Surety Excess of Loss Reinsurance Agreement dated November 1, 1996 (20) Proxy Statement relating to the 1997 Annual Meeting of Shareholders (to be filed with the Commission pursuant to Rule 14a-6(b) under the Exchange Act) (21) Subsidiaries of the Company (23) Consent of Independent Public Accountants (27) Financial Data Schedule 15 Exhibit Index (continued) * Such exhibit is hereby incorporated by reference to the like-described exhibit in the Registrant's Form 10-QSB quarterly report for the period ended March 31,1996. ** Such exhibit is hereby incorporated by reference to the like-described exhibit in the Registrant's SB-2 Registration Statement No. 33-78336 declared effective September 1, 1994. *** Such exhibit is hereby incorporated by reference to the like-described exhibit in the Registrant's Form 10-KSB Annual Report for the year ended December 31, 1996. **** Such exhibit is hereby incorporated by reference to the like-described exhibit in the Registrant's Form S-8 Registration Statement No. 333-23055 filed on March 10, 1997. ***** Such exhibit is hereby incorporated by reference to the like-described exhibit in the Registrant's Form S-8 Registration Statement No. 33-23057 filed on March 10, 1997. EX-10.4 2 EXHIBIT 10.4 Exhibit 10.4 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT ----------------------- This Amendment No. 1 is entered into on this 26th day of September, 1996, between STEPHEN C. FLETCHER ("Employee") and THE MOUNTBATTEN SURETY COMPANY, INC. (the "Corporation"). In consideration of the mutual covenants herein, and intending to be legally bound hereby, the parties agree as follows: 1. Background. The parties entered into an Employment Agreement dated March 15, 1992 (the "Agreement"), and Employee commenced his employment with the Corporation on April 16, 1992. In May 1994, the Corporation changed its name from the Mountbatten Environmental Insurance & Surety Company, Inc. to its present name. Thereafter, the Corporation became a public company and the parties now desire to amend the Agreement on the terms set forth below. 2. Amendment. Paragraph 5 of the Agreement shall be amended to read in its entirety as follows: --------- "5. At-will Employment "(a) Employee's employment with Corporation began on April 16, 1992 and will continue until terminated as hereafter set forth. "(b) This Agreement and all of Employee's rights hereunder shall terminate upon the death of Employee, and neither Employee nor his estate shall have any further rights hereunder except for any unpaid compensation and reimbursements through the date of death. "(c)Employee's employment hereunder shall be "at will" and except as set forth in paragraph (d) and (e) below, either party shall have the right to terminate this Agreement at any time, pursuant to the following terms and conditions: (1) Corporation shall have the right to terminate Employee's employment and rights to compensation hereunder by providing to Employee either (a) 90 days' prior written notice of such termination or (b) immediate notice of termination together with an undertaking to continue payment of Employee's compensation under this Agreement for 90 days, provided that Employee abides by all obligations of his under this Agreement. Upon the effective date of termination specified in such notice, this Agreement shall terminate except for the provisions which expressly survive termination, and Employee shall vacate the offices of the Corporation. (2) Employee shall have the right to terminate his employment hereunder by providing ninety (90) days' written notice to the Board of Directors. Thereafter, this Agreement shall terminate except for the provisions which expressly survive termination. "(d) Corporation shall have the right at any time upon prior written notice immediately to terminate Employee's employment hereunder for just cause. For the purpose of this Agreement, "termination for just cause" shall mean termination only for personal dishonesty, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties (if Corporation gives Employee written notice thereof and he fails to correct such failure within 30 days), willful violation of any law, rule or regulation or final cease-and-desist order to be enforced by any regulatory agency with jurisdiction over Corporation or any of its affiliates or material breach of any provision of this Agreement (if Corporation gives Employee written notice thereof and he fails to correct such failure within 30 days). For purposes of this paragraph, no act or failure to act on the Employee's part shall be considered "willful" or "intentional" unless done or omitted to be done by him in bad faith and without reasonable belief that his action or omission was in the best interest of Corporation; provided that any act or omission to act on the Employee's behalf in reliance upon an opinion of counsel to Corporation shall not be deemed to be willful or intentional. In the event employment is terminated for just cause, Employee shall have no right to compensation or other benefits for any period after such date of termination. "(e) Employee may terminate his employment hereunder for good reason. For purposes of this Agreement, "good reason" shall mean any of the following occurrences without Employee's express written consent within one year subsequent to a change in control of the Corporation: (1) the assignment to Employee of any duties inconsistent with Employee's positions, duties, responsibilities and status with the Corporation; (2) a change in Employee's reporting responsibilities, titles or offices as in effect immediately prior to a change in control of the Corporation; (3) any removal of Employee from, or any failure to re-elect Employee to, any of such positions, except in connection with a termination of employment for just cause, death, or retirement; (4) a reduction by the Corporation in Employee's annual salary as in effect immediately prior to a change in control or as the same may be increased from time to time; or (5) the failure of the Corporation to continue effect any bonus, benefit or compensation plan, life insurance plan, health and accident plan or disability plan in which Employee is participating at the time of a change in control of the Corporation, or the taking of any action by the Corporation which would adversely affect Employee's participation in or materially reduce Employee's benefits under any such plans. "(f) For purposes of this Agreement, a "change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") whether or not the Corporation is then subject to such reporting requirement; provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act in effect on the date first written above), other than the Corporation or any "person" who on the date hereof is a director or officer of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 25% or more of the combined voting power of the Corporation's then outstanding securities, or (ii) during any period of two consecutive years during the term of this Agreement, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period. "(g) If Employee shall terminate his Employment for good reason pursuant to paragraph (e) or if the Corporation terminates Employee other than for just cause within one year after a change in control of the Corporation, then in lieu of any further salary payments to Employee for periods subsequent to the date of termination, the Corporation shall pay as severance to Employee an amount equal to (i) the average aggregate annual compensation paid to the Employee and includable in the Employee's gross income for federal income tax purposes during the five calendar years preceding the taxable year in which the date of termination occurs (or such lesser amount of time if the Employee has not been employed by the Corporation for five years at the time of termination) by the Corporation and any of its subsidiaries subject to United States income tax, multiplied by (ii) 2.99, such payment to be made in a lump sum on or before the fifth day following the date of termination; provided, however, that if the lump sum severance payment under this paragraph, either alone or together with other payments which the Employee has the right to receive from the Corporation, would constitute an "excess parachute payment" as defined in Section 280G of the Internal Revenue Code of 1986 (the "Code"), such that Employee has or may have liability for any excise tax under Section 4999 of the Code, at the time payment is due or at the time of determination that the same includes an "excess parachute payment", whichever is later, that portion characterized as "excess" shall be treated as a loan by the Corporation to the Employee, repayable on the following terms: the principal shall be payable on the tenth annual anniversary of the actual date of payment or the date of determination of the "excess", whichever is later, with interest until paid, fixed at the applicable federal rate in effect under Section 7872(f) (2) for the month in which such date occurs and which shall accrue annually if not paid and thereupon be added to principal, subject to the Employee's right to prepay interest or principal in whole or in part at any time without premium or penalty. The determination of the amount of any "excess parachute payment" shall be made by independent counsel to the Corporation in consultation with the independent certified public accountants of the Corporation. If for any reason the basis for termination of this Agreement or payment of amounts under this paragraph is disputed by either party to this Agreement or any other person or agency, then pending resolution of any such dispute, within five days after the due date of such payment, the Corporation shall deliver the entire amount calculated in accordance with this paragraph to an independent trustee to hold in an interest-bearing account in trust for the benefit of the Employee and the Corporation, whichever may be ultimately entitled to the same. The trustee shall be a bank or savings institution (other than the Corporation) with deposits of at least $50,000,000, unrelated to any parties in the dispute, and disinterested in any transaction arising out of or engendering the dispute. If the parties are unable to agree upon a trustee within the foregoing time period, then either party may seek immediate relief from a court of competent jurisdiction. In addition, the Corporation agrees that Employee would have no adequate remedy at law for breach of the foregoing obligations, and Employee shall be entitled to immediate injunctive and other appropriate equitable relief to enforce the same." 3. Notices. Subparagraph (b) of Paragraph 9 is amended with regard to notice to the Corporation as follows: "(b) If to Corporation to: The Mountbatten Surety Company, Inc. 33 Rock Hill Road Bala Cynwyd, PA 19004 with a required copy to: Gary L. Bragg, Esquire O'Neill, Bragg & Staffin, P.C. 531 Plymouth Road, Suite 500 Plymouth Meeting, PA 19462" 4. Effect. Except as set forth in this Amendment No. 1, the Agreement shall remain in full force and effect, and as Amended hereby, the Agreement is hereby ratified and confirmed by the parties. IN WITNESS WHEREOF, the parties have executed or caused to be executed this Amendment No. 1 on the date first written above. "Employee": /s/ Stephen C. Fletcher ------------------- Stephen C. Fletcher "Corporation": THE MOUNTBATTEN SURETY COMPANY, INC. By: /s/ Kenneth L. Brier -------------------- Kenneth L. Brier, President EX-10.5 3 EXHIBIT 10.5 Exhibit 10.5 AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated June 14, 1996 is by and between MOUNTBATTEN, INC., a Pennsylvania corporation ("Corporation"), and JOEL D. COOPERMAN, an individual residing at 10 Buttonwood Circle, Lafayette Hill, PA 19444 ("Employee"). In consideration of the mutual promises contained herein, and intending to be legally bound hereby, Corporation and Employee agree as follows: 1. Employment ---------- Corporation employs Employee under an Employment Agreement dated April 21, 1995, and desires to continue such employment on the amended terms set forth in this Restated Agreement. Employee shall continue to serve as Vice President-Finance and Treasurer of the Corporation or any of its affiliates (collectively referred to as the "Corporation") on the terms set forth in this Agreement, and Employee hereby accepts employment on such terms. 2. Compensation ------------ In consideration of the services rendered by Employee to Corporation hereunder, Corporation shall pay to Employee a salary at the monthly rate of $9,166.67, payable at the times of Corporation's regular payrolls or as otherwise agreed by Corporation and Employee. The Corporation shall review Employee's performance at least annually. 3. Expenses -------- Corporation shall reimburse Employee for all expenses reasonably incurred by him in carrying out his duties hereunder, upon presentation to Corporation by Employee, from time to time, of an itemized account of such expenses together with such receipts and forms as are required pursuant to Corporation's normal policies and practices. 4. Duties ------ During the term of his employment hereunder, Employee shall report to the President of the Corporation and perform duties as assigned to him by the President or the Board of Directors in his capacity as Vice President-Finance and Treasurer. Employee shall devote his full time, energy, skill and best efforts to promote the business and affairs of the Corporation. Except as herein provided, Employee agrees that during his employment hereunder he will not be employed by, participate or engage in or take part in any manner, directly or indirectly, in the affairs of any other business enterprise or occupation without approval of the President or the Board of Directors. 5. At-will Employment ------------------ (a) Employee's employment with Corporation began on May 15, 1995 and will continue until terminated as hereafter set forth. (b) This Agreement and all of Employee's rights hereunder shall terminate upon the death of Employee, and neither Employee nor his estate shall have any further rights hereunder except for any unpaid compensation and reimbursements through the date of death. Exercise of any stock options after death shall be governed by the applicable plan(s) and option agreement(s). (c) Employee's employment hereunder shall be "at will" and except as set forth in paragraph (d) and (e) below, either party shall have the right to terminate this Agreement at any time, pursuant to the following terms and conditions: (1) Corporation shall have the right to terminate Employee's employment and rights to compensation hereunder by providing to Employee either (a) five months' prior written notice of such termination or (b) immediate notice of termination together with an undertaking to continue payment of Employee's compensation under this Agreement for five months, provided that Employee abides by all obligations of his under this Agreement. Upon the effective date of termination specified in such notice, this Agreement shall terminate except for the provisions which expressly survive termination, and Employee shall vacate the offices of the Corporation. (2) Employee shall have the right to terminate his employment hereunder by providing five months' written notice to the President or the Board of Directors. Upon the effective date of termination specified in such notice, this Agreement shall terminate except for the provisions which expressly survive termination. (d) Corporation shall have the right at any time upon prior written notice immediately to terminate Employee's employment hereunder for just cause. For the purpose of this Agreement, "termination for just cause" shall mean termination only for personal dishonesty, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties (if Corporation gives Employee written notice thereof and he fails to correct such failure within 30 days), willful violation of any law, rule or regulation or final cease-and-desist order to be enforced by any regulatory agency with jurisdiction over Corporation or any of its affiliates or material breach of any provision of this Agreement (if Corporation gives Employee written notice thereof and he fails to correct such failure within 30 days). For purposes of this paragraph, no act or failure to act on the Employee's part shall be considered "willful" or "intentional" unless done or omitted to be done by him in bad faith and without reasonable belief that his action or omission was in the best interest of Corporation; provided that any act or omission to act on the Employee's behalf in reliance upon an opinion of counsel to Corporation shall not be deemed to be willful or intentional. In the event employment is terminated for just cause, Employee shall have no right to compensation or other benefits for any period after such date of termination. (e) Employee may terminate his employment hereunder for good reason. For purposes of this Agreement, "good reason" shall mean any of the following occurrences without Employee's express written consent within one year subsequent to a change in control of the Corporation: (1) the assignment to Employee of any duties inconsistent with Employee's positions, duties, responsibilities and status with the Corporation; (2) a change in Employee's reporting responsibilities, titles or offices as in effect immediately prior to a change in control of the Corporation; (3) any removal of Employee from, or any failure to re-elect Employee to, any of such positions, except in connection with a termination of employment for just cause, death, or retirement; (4) a reduction by the Corporation in Employee's annual salary as in effect immediately prior to a change in control or as the same may be increased from time to time; or (5) the failure of the Corporation to continue effect any bonus, benefit or compensation plan, life insurance plan, health and accident plan or disability plan in which Employee is participating at the time of a change in control of the Corporation, or the taking of any action by the Corporation which would adversely affect Employee's participation in or materially reduce Employee's benefits under any such plans. (f) For purposes of this Agreement, a "change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") whether or not the Corporation is then subject to such reporting requirement; provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act in effect on the date first written above), other than the Corporation or any "person" who on the date hereof is a director or officer of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 25% or more of the combined voting power of the Corporation's then outstanding securities, or (ii) during any period of two consecutive years during the term of this Agreement, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period. (g) If Employee shall terminate his Employment for good reason pursuant to paragraph (e) or if the Corporation terminates Employee other than for just cause within one year after a change in control of the Corporation, then in lieu of any further salary payments to Employee for periods subsequent to the date of termination, the Corporation shall pay as severance to Employee an amount equal to (i) the average aggregate annual compensation paid to the Employee and includable in the Employee's gross income for federal income tax purposes during the five calendar years preceding the taxable year in which the date of termination occurs (or such lesser amount of time if the Employee has not been employed by the Corporation for five years at the time of termination) by the Corporation and any of its subsidiaries subject to United States income tax, multiplied by (ii) 2.99, such payment to be made in a lump sum on or before the fifth day following the date of termination; provided, however, that if the lump sum severance payment under this paragraph, either alone or together with other payments which the Employee has the right to receive from the Corporation, would constitute an "excess parachute payment" as defined in Section 280G of the Internal Revenue Code of 1986 (the "Code"), such that Employee has or may have liability for any excise tax under Section 4999 of the Code, at the time payment is due or at the time of determination that the same includes an "excess parachute payment", whichever is later, that portion characterized as "excess" shall be treated as a loan by the Corporation to the Employee, repayable on the following terms: the principal shall be payable on the tenth annual anniversary of the actual date of payment or the date of determination of the "excess", whichever is later, with interest until paid, fixed at the applicable federal rate in effect under Section 7872(f)(2) for the month in which such date occurs and which shall accrue annually if not paid and thereupon be added to principal, subject to the Employee's right to prepay interest or principal in whole or in part at any time without premium or penalty. The determination of the amount of any "excess parachute payment" shall be made by independent counsel to the Corporation in consultation with the independent certified public accountants of the Corporation. If for any reason the basis for termination of this Agreement or payment of amounts under this paragraph is disputed by either party to this Agreement or any other person or agency, then pending resolution of any such dispute, within five days after the due date of such payment, the Corporation shall deliver the entire amount calculated in accordance with this paragraph to an independent trustee to hold in an interest-bearing account in trust for the benefit of the Employee and the Corporation, whichever may be ultimately entitled to the same. The trustee shall be a bank or savings institution (other than the Corporation) with deposits of at least $50,000,000, unrelated to any parties in the dispute, and disinterested in any transaction arising out of or engendering the dispute. If the parties are unable to agree upon a trustee within the foregoing time period, then either party may seek immediate relief from a court of competent jurisdiction. In addition, the Corporation agrees that Employee would have no adequate remedy at law for breach of the foregoing obligations, and Employee shall be entitled to immediate injunctive and other appropriate equitable relief to enforce the same. 6. Benefits; Stock Options ----------------------- Corporation shall provide and Employee shall be entitled to participate in all benefit plans and programs generally available to employees of Corporation on the same terms as other employees. Corporation shall consider Employee for a bonus for his efforts and based on the consolidated results of operations of Corporation and its affiliates from year to year, all on such terms and with such conditions and restrictions as may be determined by the Board of Directors in its discretion. As promptly as practicable, Corporation shall adopt a new Incentive Stock Option Plan and grant Employee qualified incentive stock options exercisable for a period of ten years, to purchase up to 30,000 shares of Corporation's common stock (the "Shares") at an exercise price equal to the fair market value on the date of grant, vesting as follows: an option to purchase up to 20,000 Shares vesting at 20% per year over a period of five years commencing on the first anniversary of this Agreement, and an option to purchase up to 10,000 Shares vesting at 20% per year over a period of five years commencing in January, 1996 upon satisfactory review of Employee's performance by the Board of Directors at that time. In addition to the foregoing options, Corporation shall also grant Employee as promptly as practicable a nonqualified option to purchase up to 10,000 Shares at an exercise price equal to the fair market value on the date of grant of the option, vesting 100% immediately on the date of grant. 7. Automobile Allowance -------------------- In addition to Employee's salary, Corporation shall pay to Employee an automobile allowance of $700 per month payable on the first day of each month, or in installments at the time of his salary payments, as the Corporation may elect. This allowance is to cover expenses, direct and indirect (including depreciation) of Employee for the use of his automobile while on business of the Corporation, and is in lieu of payment or reimbursement for mileage, insurance, lease costs, maintenance and repair costs, and any other expenses incurred by Employee in connection with the operation, ownership and use of his automobile. Other than this automobile allowance, Corporation shall have no obligation or liability with respect to provision or use of Employee's automobile. 8. Non-Disclosure; Non-Competition ------------------------------- (a) At all times after the date hereof, including after termination of this Agreement for any or no reason, Employee shall not, except with the express prior written consent of the Board of Directors of the Corporation, directly or indirectly, other than in the ordinary course of business: (1) communicate, disclose or divulge to any Person, or use for his own benefit or the benefit of any Person, any knowledge or information which he may have acquired, no matter from whom or in what manner such knowledge or information may have been acquired, heretofore or hereafter, concerning the conduct and details of the business of Corporation or its shareholders, including, but not limited to, names of insureds, insurers or agents, expiration dates of policies, customers or prospective customers, suppliers, properties, trade secrets, techniques, equipment, materials, premiums, costs, marketing methods, operations, policies, prospects and financial condition; (2) solicit or induce, directly or indirectly, any employee, consultant or other agent of the Corporation or any affiliate to leave the employ of the Corporation or otherwise terminate the relationship with the Corporation; (3) for a period of six months after termination, initiate or receive any contact with or otherwise deal with or have a business relationship with any clients, insureds or others with business relationships with the Corporation at the date of termination; or (4) make any statement which criticizes, denigrates or otherwise reflects adversely on the Corporation. (b) Employee hereby acknowledges that any breach by him of any of the covenants contained in this paragraph 8 ("Covenants") will result in irreparable injury to Corporation for which money damages could not adequately compensate Corporation. In the event of any such breach, Corporation shall be entitled, in addition to any other rights and remedies which it may have at law or in equity, to have an injunction issued by any competent court enjoining and restraining Employee or any other Person involved therein from continuing such breach. The existence of any claim or cause of action which Employee or any such other Person may have against Corporation shall not constitute a defense or bar to the enforcement of any of the Covenants. If Corporation must resort to the courts for enforcement of any of the Covenants, or if any of the Covenants is otherwise the subject of litigation between Corporation and Employee or any such other Person, then the term of any such Covenant which has a fixed term shall be extended for a period of time equal to the period of such breach, commencing on the date of a final court order (without further right of appeal) acknowledging the validity of such Covenant. (c) If any portion of the Covenants or the application thereof is construed to be invalid or unenforceable, then the other portions of the Covenants, and of all other terms of this Agreement, or the application thereof shall not be affected thereby and shall be given full force and effect without regard to the invalid or unenforceable portions. If any of the Covenants is determined to be unenforceable because of the geographical area covered thereby, the duration thereof or the scope thereof, then the court making such determination shall have the power to reduce such area or duration, or to limit such scope, and such Covenant shall then be enforceable in its reduced form. (d) The provisions of this paragraph 8 are identical to those of the original Agreement executed prior to the date Employee commenced his employment with the Corporation. 9. Vacation -------- Employee shall be entitled to four weeks' paid vacation per calendar year, to be scheduled at the mutual convenience of Employee and Corporation. 10. Notices ------- All notices and other communication which are required or permitted hereunder shall be given in writing and either delivered by hand or mailed by certified mail, return receipt requested, postage prepaid, as follows: (a) If to Employee, to: Mr. Joel D. Cooperman 10 Buttonwood Circle Lafayette Hill, PA 19444 (b) If to Corporation, to: Mountbatten, Inc. 33 Rock Hill Road Bala Cynwyd, PA 19004 11. Miscellaneous ------------- (a) This Agreement shall be binding upon, inure to the benefit of, and be enforceable by the successors and assigns of Corporation and the heirs, estate, personal representatives and beneficiaries of Employee. The rights, obligations and duties of the Employee hereunder are personal and are not assignable or delegable by him in any manner whatsoever. (b) This Agreement constitutes the entire understanding of the parties with respect to the subject matter hereof, supersedes all prior discussions, promises and representations and the Agreement dated April 21, 1995, and shall not be modified, terminated or any provisions waived orally, including this clause. (c) No failure to exercise, delay in exercising, or single or partial exercise of any right, power or remedy hereunder shall preclude any other or further exercise of the same or any other right, power or remedy. (d) The headings of the paragraphs of this Agreement have been inserted for convenience of reference only and shall not constitute a part of this Agreement. (e) This Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania applicable to contracts made and to be performed solely therein, and each party consents to the exclusive jurisdiction and venue of the state and Federal courts of Pennsylvania to resolve any disputes between the parties. (f) Employee represents and warrants that he is under no competition restriction or other restraint at the time of execution of this Agreement which would prevent or hinder in any way his performance of duties hereunder. (g) As used herein, "Person" shall mean a natural person, sole proprietorship, joint venture, partnership, corporation, association, cooperative, trust, estate, government (or any branch, subdivision or agency thereof), or any other entity. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first written above. MOUNTBATTEN, INC. EMPLOYEE: By: /s/ Kenneth L. Brier /s/ Joel D. Cooperman ------------------------------- --------------------- Kenneth L. Brier, President Joel D. Cooperman EX-10.12 4 EXHBIT 10.12 SUMMARY OF THE MOUNTBATTEN SURETY COMPANY, INC. FIRST, SECOND, THIRD, AND FOURTH SURETY EXCESS OF LOSS REINSURANCE AGREEMENT
REINSURED COMPANY: The Mountbatten Surety Company, Inc. (PREAMBLE) Bala Cynwyd, Pennsylvania BUSINESS REINSURED: In force, new and renewal business classified by the Company as Surety ARTICLE 1 Business. ACCOUNT BASIS: Losses Discovered. COVER: Per attached Schedule A. ARTICLE 2 COMMENCEMENT AND Continuous at November 1, 1996 on a losses discovered basis, with ARTICLE 3 TERMINATION: respect to bonds in force, and written or renewed thereafter. Either party may terminate as of any November 1 by giving 90 days written notice. Runoff at termination not to exceed 24 months. Cut-off at Company's option. TERRITORY: This Agreement shall cover wherever the Company's Bonds cover but is ARTICLE 4 limited to Bonds issued in the United States of America, its territories and possessions, on risks normally located therein. WARRANTY: It is warranted for purposes of this Agreement that: ARTICLE 5 Maximum Any One Bond $5,000,000 Maximum Any One Bonded Work Program $10,000,000 Maximum Bond Duration 24 Months EXCLUSIONS: Attached. ARTICLE 6 PREMIUM: Per attached Schedule A. Deposit Premium payable quarterly beginning ARTICLE 7 November 1, 1996. REPORTS: Annually within 60 days. ARTICLE 10 DEFINITIONS: Ultimate Net Loss, expenses included ARTICLE 11 Work Program - Attached Gross Net Written Premium Income Bond - Attached Losses Discovered - Attached Principal - Attached Underwriting Year - Attached
CLAUSES: Net Retained Lines ARTICLE 12 Currency ARTICLE 13 Loss/Unearned Premium Reserve Funding ARTICLE 14 Taxes (Reinsurers pay FET as applicable) ARTICLE 15 Notice of Loss and Loss Settlements ARTICLE 16 Offset ARTICLE 17 Delay, Omission or Error ARTICLE 18 Inspection ARTICLE 19 Arbitration ARTICLE 20 Service of Suit ARTICLE 21 Insolvency ARTICLE 22 Sedgwick Re Intermediary Clause ARTICLE 23 Extra Contractual Obligations (90%) PARTICIPATION: ARTICLE 24 REGULATION 98: Premium and loss payments made to Sedgwick Re shall be deposited in a Premium and Loss Account in accordance with Section 32.3(a)(1) of Regulation 98 of the New York Insurance Department. The parties hereto consent to withdrawals from said Account in accordance with Section 32.3(a)(3) of the Regulation, including interest and Federal Excise Tax.
Reinsurers Effective: November 1, 1996 - - -------------------------------------- Per attached Schedule This confirms the terms and conditions as negotiated with reinsurers on your behalf. Final placement Summaries reflecting the same terms and conditions have been presented to reinsurers for confirmation and signature. Amendments, if any, will be confirmed in writing. It is requested you review this document and notify us immediately if the placement details or security do not meet with your approval. If all is in order, please sign and return one copy of this Summary. For and on behalf of: Sedgwick Re, Inc. - - ------------------------------------------- ---------------- Joseph F. Stanoch, Vice President Date - - ------------------------------------------- ---------------- The Mountbatten Surety Company, Inc. Date The Mountbatten Surety Company, Inc. Surety Excess of Loss Reinsurance Terms Effective: November 1, 1996 Definitions Loss Discovered For the purposed of this Agreement, the Company shall have discovered a loss on the date on which the Company, in the normal course of business, establishes an incurred loss through the actual payment of all of, or a portion of a claim, the creation of an outstanding loss reserve, or a combination thereof which exceeds $75,000 with respect to the First and Second Excess layers, $1,000,000 with respect to the Third Excess layer, and $2,250,000 with respect to the Fourth Layer. Work Program The term "work program" as used in this Agreement shall mean, for any contractor Principal, the greater of (a) the aggregate line of credit issued by the Company and outstanding at the time a contract bond is executed, or (b) the uncompleted portion of construction contracts or supply contracts (including the Principal's share of joint ventures, and outstanding bids and the contract being bonded, and excluding cost plus work not subject to a guaranteed maximum price) as known to the Company and outstanding at the time any contract is executed. Bond The term "Bond" as used in this Agreement shall mean any bond, undertaking, guarantee, indemnity, binder, or other obligation, including riders and endorsements and letters and agreements in connection therewith, at any time issued, assumed, or accepted by the Company and classified by any Federal or State body as surety business at the effective date of such business. Principal The term "Principal" as used in this Agreement shall mean any legal entity under the same management and control, or one or more legal entities for which bonds are executed relying upon the indemnity of the same person, firm, or corporation, or relying upon the indemnity of a related group of persons, firms, or corporations, or the Company is furnished and named in a supporting indemnity agreement. The Mountbatten Surety Company, Inc. Surety Excess of Loss Reinsurance Terms Effective: November 1, 1996 Exclusions This Agreement does not cover: 1. Bank Depository Bonds. 2. Note Guarantee Bonds. 3. Mortgage Deficiency Bonds. 4. Guarantees of Installment Paper. 5. Insurance Company Qualifying Bonds. 6. Securities Exchange Commission Liability Bonds. 7. Insurance Patent Infringement Bonds. 8. Bail Bonds. 9. Lease Bonds. 10. Mortgage Guarantee Insurance. 11. Defeasance Bonds. 12. Small Business Administration Guarantees. 13. Financial Guarantees which shall mean any bonds of coverage which guarantee to any beneficiaries of the bonds or coverage against or indemnify such beneficiaries for financial loss or the incurrence of additional costs or expenses by reason of 1) non-payment of any sums required to be paid to the beneficiaries of the bonds or coverage pursuant to any financial obligations, 2) any fluctuations in financial markets or commodity prices, 3) any changes in law, 4) the failure to receive any anticipated payments of monies or money equivalents, 5) the inaccuracy of any valuations and 6) overpayments of any financial obligations for any reasons, including, but not limited to, Accounts Receivable Coverage, Change-in-Law Coverage, Commercial Mortgage Guarantees, Commercial Paper Coverage, Coupon Over-Redemption Coverage, Cram Down bonds, Excess Federal Deposit Insurance Corporation Coverage, Excess Federal Savings and Loan Insurance Corporation Coverage, Excess Securities Investment Protection Corporation Coverage, Golden Parachute Coverage, Guarantees of Bank Letters Credit, Guarantees of Mortgaged Backed Securities, Housing Bonds, Industrial bond Insurance Coverage, Interest Rate Cap Coverage, Lease Bonds or Guarantees, Limited Partnership Investor Note Bonds or Guarantees, Mobile Home Loan Guarantees, Money Market Coverage, Mortgage Backed Securities, Guarantees, Mortgage Services Performance bonds, Movie Completion bonds or Insurance Municipal Bond Insurance, Repurchase Agreement Guarantees, Residual Value Insurance or Guarantees, Retroactive Liability Insurance, Student Loan Guarantees, Systems Performance Insurance, Weather-Related Coverage, and Bonds used in Lieu of Letters of Credit (except where such bonds are allowed to be substituted for Letter of Credit for Contract Bid, Performance, or Labor and Material payment obligations outside the United States). 14. Bonds written on an excess of loss basis. 15. Appeal bonds unless 100% collateralized. 16. No coverage for fraudulent or misuse of powers of attorney or granted authority by producing agents. 17. Nuclear Incident liability reinsurance. 18. War Risks exclusion clause. 19. Pools and Associations. 20. Insolvency Funds. 21. Third Party Liability cover of all types, including strict liability. In respect of a bond or bonds issued, to guarantee the performance of a contract, this Agreement does not cover loss or loss expenses which arise from liability, for bodily injury (including sickness, disease or death), property damage (including cleanup or remediation costs), damage to the environment, diminution in value of property), or economic loss of any kind (including loss of use of property). Under no circumstances shall the Reinsurer follow the fortunes of the Company where the Company is found legally liable to pay such loss or loss expense under a bond or bonds. 22. Reinsurance assumed, but not to exclude business underwritten by the Company and otherwise subject to the treaty, but issued on another Company's policy due to license or other considerations. 23. Strip Mining Bonds. 24. Co-Surety Bond business. 25. Super Fund Clean-Up or similar exposures. 26. Ground water contamination exposures. The Mountbatten Surety Company Inc. Surety Excess of Loss Reinsurance Schedule A Terms Effective November 1, 1996 Basis: Losses Discovered, Each Principal
First Excess Second Excess Third Excess Fourth Excess Limit: $850,000 $1,000,000 $2,500,000 $3,000,000 Excess of Retention: $150,000 $1,000,000 $2,000,000 $4,500,000 Reinstatements/ 1st reinstatement free, 2.0 with additional premium 1 with additional premium Nil Limitations: next two reinstatements pro rata as to amount and pro rata as to amount and with additional premium 50% as to time. 100% as to time. prorata as to amount, 50% as to time Premium: Rate applicable to SWP 8.1% 4.25% 2.20% 1.33% Profit Sharing: 20% of profits after 20% Reinsurer Expense Annual Deposit: $850,000 $445,000 $230,000 $139,000 Minimum Premium: $765,000 $400,000 $205,000 $125,000 Payable: Quarterly Quarterly Quarterly Quarterly
Other: Company to retain 5% of the First and Second Excess of Loss Layers Bonds exceeding $3,000,000 and Work Programs exceeding 7,500,000 to have sign off by either the Chairman or EVP. One page summary of bonds over $3,000,000 to be sent to lead reinsurer within two working days of commitment. The Mountbatten Surety Company Inc. Bala Cynwyd, PA. Surety Excess of Loss Reinsurance Reinsurers Effective: November 1, 1996 - - -------------------------------------- Reinsurer First Excess Second Excess Third Excess Fourth Excess - - --------- ------------ ------------- ------------ ------------- Transatlantic 47.50% 47.50% 50.00% 50.00% Reinsurance Co. Underwriters at Lloyds, London through Ballantyne, McKean & Sullivan, Ltd. 23.75% 23.75% 25.00% 25.00% Chatham Reinsurance Corp. 0.00% 4.00% 4.00% 3.00% Hartford Fire Insurance Co. 23.75% 19.75% 21.00% 22.00% ------ ------ ----- ----- 95.00% 95.00% 100.0% 100.0%
EX-21 5 EXHIBIT 21 EXHIBIT 21 ---------- SUBSIDIARIES OF REGISTRANT The Mountbatten Surety Company, Inc., incorporated under the laws of the Commonwealth of Pennsylvania, is 100% owned by Registrant. HMS Dreadnought, Inc., incorporated under the laws of the State of Delaware, is 100% owned by Registrant. EX-23 6 EXHIBIT 23 EXHIBIT 23 ---------- CONSENT OF INDEPENDENT ACCOUNTS We hereby consent to the incorporation by reference in the Registration Statement on Forms S-8 (No. 333-23055 and No. 333-23057) of Mountbatten, Inc. of our report dated February 21, 1997 which appears in this Annual Report on Form 10-KSB. PRICE WATERHOUSE LLP Boston, Massachusetts March 27, 1997 EX-27 7 FINANCIAL DATA SCHEDULE
7 12-MOS DEC-31-1996 DEC-31-1996 8,487,946 0 0 0 0 0 8,487,946 759,749 0 393,447 11,258,821 1,153,270 954,101 0 0 0 0 0 2,529 0 11,258,821 7,829,171 421,810 0 0 519,708 (122,760) 4,504,826 1,729,201 593,831 1,135,370 0 0 0 1,135,370 0.42 0.42 602,265 712,790 55,056 0 216,841 1,153,270 0
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