UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 2005
|_| 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 001-12233
Bexil Corporation
(Name of small business issuer in its charter)
Maryland 13-3907058
--------------------------------------------------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
11 Hanover Square, New York, New York 10005
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 1-212-785-0400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock American Stock Exchange
Rights to Purchase Series A Participating American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year: $308,432
The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of March 31,
2006: 608,101 shares at $30.47 per share, or $18,528,837.
The number of shares outstanding of the issuer's classes of common equity, as of
March 31, 2006: Common Stock, par value $.01 per share - 883,592 shares.
Item 1. Description of Business.....................................................................................1
Item 2. Description of Property.....................................................................................5
Item 3. Legal Proceedings...........................................................................................5
Item 4. Submission of Matters to a Vote of Security Holders.........................................................5
Item 5. Market for the Company's Common Equity and Related Stockholder Matters......................................7
Item 6. Management's Discussion and Analysis or Plan of Operation...................................................8
Item 7. Financial Statements.......................................................................................11
Item 8. Changes In and Disagreements With Accountants on Acounting and Financial Disclosure........................41
Item 8A. Controls and Procedures....................................................................................41
Item 8B. Other Information..........................................................................................41
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.....................................................................41
Item 10. Executive Compensation.....................................................................................43
Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.............45
Item 12. Certain Relationships and Related Transactions.............................................................48
Item 13. Exhibits...................................................................................................49
Item 14. Principal Accountant Fees and Services.....................................................................50
PART I
Item 1. Description of Business
All of our periodic report filings with the Securities and Exchange Commission
(the "SEC") pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, are made available, free of charge, through our web site,
www.bexil.com, including our Annual Report on Form 10-KSB, Quarterly Reports on
Form 10-QSB, Current Reports on Form 8-K and any amendments to those reports.
These reports and amendments are available through our web site as soon as
reasonably practicable after we electronically file or furnish such material to
the SEC. All subsequent references to "Notes" refer to the Notes to Financial
Statements located elsewhere in this Form 10-KSB.
Overview
Bexil Corporation, a Maryland corporation (the "Company"), is a holding company.
We have 11 employees, none of whom are full time.
The Company was incorporated in 1996 under the laws of the State of Maryland as
Bull & Bear U.S. Government Securities Fund, Inc., a non-diversified closed-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"). In October 1996, the Company's predecessor, a
series of shares of Bull & Bear Funds II, Inc., an open-end management
investment company, transferred its net assets to the Company in exchange for
shares of the Company. The Company changed its name to Bexil Corporation in
1999. In 2002, the Company filed an application with the Securities and Exchange
Commission (the "SEC") to terminate its registration as an investment company
registered under the 1940 Act.
On January 6, 2004, the Company's application with the SEC to terminate its
registration as an investment company was granted. As a result, the Company is
subject to the reporting and other requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and is no longer subject to regulation
under the 1940 Act. The Company's shares are listed on the American Stock
Exchange.
Bexil's primary holding is, and for the last three years has been, its fifty
percent interest in privately held York Insurance Services Group, Inc. ("York").
York is an insurance services business process outsourcing company. Since the
1930's, York (through predecessor companies) has served as both an independent
adjustment company and third party administrator providing comprehensive claims,
data, and risk related services to insurance companies, self-insureds, and
intermediaries throughout the United States. York's business units include the
program management, licensed private investigation, recovery, environmental
consulting, retail logistics and large/complex loss adjusting.
The Company's fifty percent interest in York is accounted for using the equity
method and, therefore, our financial results are not consolidated with York's.
On December 23, 2005, the Company entered into an agreement for the sale ("Sale
Agreement") of its fifty percent interest in York to York Insurance Acquisition,
Inc. ("York Buyer"), a newly formed entity controlled by Odyssey Investment
Partners, LLC ("Odyssey") and certain other investors for approximately $39
million in cash. A special committee of independent directors, have evaluated
the fairness of the transaction, and the Board of Directors of Bexil have
approved the transaction, which is subject to the approval of the holders of at
least 50% of Bexil's outstanding common stock. Holders of approximately 32% of
Bexil's stock have entered into an agreement in which they have agreed to vote
their shares in favor of the sale and against any action that would reasonably
be expected to prevent the transactions contemplated by the sale. On March 27,
2006, proxy material was mailed to stockholders seeking approval at a special
meeting of stockholders scheduled for April 27, 2006. Completion of the
transaction is also subject to the consummation of an agreement by the other
fifty percent owner of York, Thomas C. MacArthur, to sell a portion and rollover
a portion of his shares to York Buyer, and other conditions to closing.
-1-
If the sale does not receive shareholder approval the Sale Agreement will be
terminated. The Sale Agreement obligates the Company to pay York Buyer its
reasonable out-of-pocket expenses (including without limitation, all fees and
expenses of counsel, accountants, investment bankers, experts, and consultants
to York Buyer and its affiliates) incurred by York Buyer or on its behalf in
connection with or related to the authorization, preparation, negotiation,
execution and performance of the Sale Agreement and the agreement by the other
fifty percent owner of York up to a maximum of $1,750,000 if the Sale Agreement
is terminated for certain reasons, including if the sale of the Company's fifty
percent interest in York is not approved by the stockholders of the Company.
York Industry Profile and Risks
The insurance services industry in which York competes is fragmented and
includes captive and independent service providers. Captives are typically owned
and operated by insurance carriers and brokers. Independent competitors include
a few large, a small group of mid-sized, and many small companies. York seeks to
position itself as a nimble, nationwide provider of a broad array of insurance
services. York's objective is to offer its customers the flexibility of the
smaller providers combined with the infrastructure and service offerings of
larger competitors.
York competes in the domestic and international markets for claims
administration, claims adjusting, and related services, which are highly
competitive. A large number of companies compete in varying ways in various
segments of the market. Competitors include those insurance companies that have
their own claims handling capabilities, insurance brokers offering adjusting and
related services to supplement brokerage services, as well as national,
regional, and small adjusting companies.
Although there are a large number of property and casualty insurers, the major
insurers, which account for a substantial portion of the insurance services
market, typically maintain a staff of adjusters on their payrolls. Generally,
insurers use this staff to adjust automobile and smaller property claims. Many
insurers, however, also have internal adjusting staffs, which handle claims that
are larger or more complicated. Nonetheless, to varying degrees, property and
casualty insurers "outsource" claims adjusting, whether entirely, on a
multi-policy "program" basis, a policy-by-policy basis or on an
adjustment-by-adjustment basis.
Insurers have numerous reasons for out-sourcing claims handling. Some insurers
have elected to reduce overhead by eliminating internal claims adjusting
capability in whole or in part. Others have specialized requirements for
specialized adjusting services. Additionally, certain claims may require
adjusting services outside the geographic area that an insurer's staff can
handle conveniently. Insurers' relationships with insureds or managing general
agents, and those parties' relationships with claims administrators, may also
result in an insurer out-sourcing claims. York makes its services available to
those insurers wishing to out-source claims handling.
Insurance markets tend to be cyclical in nature. As markets "harden," premiums,
deductibles and "self-insured retention" amounts tend to increase, while
coverage terms tend to become more restrictive. As markets "soften," the
opposite tends to occur. Different business opportunities arise in all phases of
these cycles. For example, the higher deductibles and self-insured retention
amounts seen during a "hard" market may lead insureds to take a greater degree
of control over the claims handling process. This presents an opportunity for
York to provide service to "self-insured" parties. On the other hand, a "soft"
market will tend to cause insurers to seek to cut costs. One way insurers try to
do this is by reducing the overhead of their in-house claims departments. This
presents an opportunity to York to handle out-sourced claims.
-2-
The insurance industry is heavily regulated and has recently been the focus of
intense scrutiny. Business practices of brokers, agents, insurance carriers and
reinsurers have been under review, including many customers and parties that
refer business to York. It is uncertain what impact these recent regulatory
initiatives will have on the insurance industry and ultimately on York's
business. To the extent that these regulatory initiatives lead to changes in the
industry, both risks to its current business and opportunities for new business
may be created.
York generates revenues through separate and distinct contractual service
arrangements with several carriers that are affiliates of each other (but not
related to York) which, in aggregate, represented approximately 42% and 30% of
York's revenue in 2005 and 2004, respectively. Approximately two thirds of this
revenue is derived from third-party administrative ("TPA") services provided on
industry-specific program business which also involves relationships with
managing general agents ("MGA's") and trade associations which are an integral
part of the buying decision.
York also manages claims for residual market plans in several states. Although
York maintains a contractual relationship with the servicing carrier the
selection of York as a TPA on these programs is influenced by each individual
state plan, the servicing carrier which manages the plan, the state departments
of insurance which oversee each plan and the representatives of insurance
companies who serve on the boards of each plan. In the aggregate, residual
market plans represented 27% and 32% of York's revenue in 2005 and 2004,
respectively. Some of the carriers referred to above are also involved as the
serving carrier on a portion of the residual market plans. It is York's position
that each of these residual market plans is a separate customer relationship and
as such, the customer concentration disclosure above does not reflect any
business derived from the residual market plans.
Operations after the Sale of York Shares
Upon the sale of the York shares, the Company will seek to acquire and/or
develop one or more businesses. There are no limits on the types of businesses
or fields in which the Company may devote its assets. No businesses to acquire
or develop have been identified by the Company at this time. The Company cannot
predict what changes to its present business or operations would result from the
sale of the York shares. We have no plans to dissolve and liquidate the Company.
We may decide to use most of the proceeds from the sale to start up and develop
a business or to explore other alternatives, such as an acquisition of or
business combination with, another entity or entities. At this time our Board of
Directors has not made any decision to pursue any of these options.
Forward Looking Information
Information or statements provided by or on behalf of the Company from time to
time, including those within this Annual Report on Form 10-KSB, may contain
certain "forward looking information", including information relating to
anticipated growth in revenues or earnings per share, anticipated changes in the
amount and composition of assets under management, anticipated expense levels,
and expectations regarding financial market conditions. The Company cautions
readers that any forward looking information provided by or on behalf of the
Company is not a guarantee of future performance and that actual results may
differ materially from those in forward looking information as a result of
various factors, including but not limited to those discussed below. Further,
such forward looking statements speak only as of the date on which such
statements are made, and the Company undertakes no obligation to update any
forward looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events.
-3-
Certain written and oral statements made or incorporated by reference from time
to time by the Company in this report, other reports, filings with the SEC,
press releases, conferences, or otherwise, contain "forward looking information"
and are "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward looking statements include,
without limitation, any statement that may predict, forecast, indicate or imply
future results, performance or achievements. Forward looking statements may be
identified, without limitation, by the use of such words as "anticipates",
"estimates", "expects", "intends", "plans", "predicts", "projects", "believes",
or words or phrases of similar meaning. Forward looking statements include risks
and uncertainties which could cause actual results or outcomes to differ
materially from those expressed in the forward looking statements. In addition
to other factors and matters discussed elsewhere herein, some of the important
facts that could cause actual results to differ materially from those discussed
in the forward looking statements include the following: changes in general
economic conditions in York's major geographic markets; occurrences of
weather-related, natural and man-made disasters, changes in overall employment
levels and associated injury rates in the United States; changes in the degree
to which property and casualty insurance carriers outsource their claims
handling functions; decisions by major insurance carriers and underwriters and
brokers to expand their activities as third party administrators and adjusters,
which would directly compete with York's business; the ability to identify new
revenue sources not directly tied to the insurance underwriting cycle; the
growth of alternative risk programs and the use of independent third party
administrators such as York, as opposed to administrators affiliated with
brokers or insurance carriers; the ability to develop or acquire information
technology resources to support and grow York's business; the ability to
recruit, train and retain qualified personnel; the renewal of existing major
contracts with clients and York's ability to obtain such renewals and new
contracts on satisfactory financial terms and the creditworthiness of its major
clients; changes in accounting principles or application of such principles to
York's business; and any other factors referenced or incorporated by reference
in this report and any other publicly filed report. The risks included above are
not exhaustive.
Other sections of this report may include reference to the additional factors
which could adversely impact the Company's and York's business and financial
performance. Moreover, the Company and York operate in a very competitive and
rapidly changing environment. New risk factors emerge from time to time, and it
is not possible for management to predict all such risk factors, nor can it
assess the impact of known risk factors on the Company and York's business or
the extent to which any factor or combination of factors may cause actual
results to differ materially from those contained in any forward looking
statement. The Company undertakes no obligation to revise or publicly release
the results of any revisions to forward looking statements or to identify any
new risk factors which may arise. Given these risks and uncertainties, investors
should not place undue reliance on forward looking statements as a prediction of
actual future results.
Investors should also be aware that while the Company does, from time to time,
communicate with securities analysts, it is against the Company's policy to
disclose to them any material, non-public information. Accordingly, investors
should not assume that the Company agrees with any statement or report issued by
any analyst irrespective of the content of the statement or report. Furthermore,
the Company has a policy against issuing or confirming financial forecasts or
projections issued by others. Thus, to the extent that the reports issued by
securities analysts contain any projections, forecasts, or opinions, such
reports are not the responsibility of the Company.
-4-
Item 2. Description of Property
The principal office of the Company is located at 11 Hanover Square, New York,
New York 10005. The Company shares this office space of 3,800 square feet and
various administrative and other support functions with Winmill & Co.
Incorporated ("Winco"), Tuxis Corporation, and their affiliates (the
"Affiliates") and pays an allocated cost based on an estimated assessment of use
and other factors of the rent expense of jointly used office space and overhead
expense of various jointly used administrative and support functions incurred by
Winco. The Company incurred allocated rent and overhead costs of $92,271 and
$124,000 for the years ended December 31, 2005 and 2004, respectively.
Item 3. Legal Proceedings
From time to time, the Company is threatened or named as a defendant in
litigation arising in the normal course of business. As of December 31, 2005,
the Company was not involved in any litigation that, in the opinion of
management, was reasonably likely to have a material adverse impact on the
financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the 2005 fiscal year, the Annual Meeting of
Stockholders ("Meeting") of the Company was held on November 10, 2005 to elect
Edward G. Webb, Jr. and Thomas B. Winmill as Class I Directors with each to
serve a three year term, and each until his successor is duly elected and
qualifies. With regard to the proposal to elect to the Board of Directors the
nominee, Edward G. Webb, Jr. as a Class I Director, 728,198 shares were voted in
favor of and 41,799 shares were
-5-
voted to withhold authority for the nominee. With regard to the proposal to
elect to the Board of Directors the nominee, Thomas B. Winmill as a Class I
Director, 750,232 shares were voted in favor of and 19,765 shares were voted to
withhold authority for the nominee.
-6-
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's Common Stock trades on the American Stock Exchange under the
symbol BXL. There are approximately 200 holders of record of Common Stock as of
December 31, 2005. In addition, there are an indeterminate number of beneficial
owners of Common Stock that are held in "street name." No dividends were paid on
the Common Stock in the past year and the Company does not expect to pay any
such dividends in the foreseeable future. The high and low sales prices of the
Common Stock during each quarterly period over the last two years were as
follows:
2005 2004
High Low High Low
First Quarter $16.00 $14.25 $27.85 $16.10
Second Quarter $19.73 $12.25 $25.20 $17.65
Third Quarter $25.00 $17.90 $18.25 $15.25
Fourth Quarter $35.75 $23.21 $17.71 $15.75
Equity Compensation Plan Information
Number of
Weighted- Shares
Number of average exercise remaining available
shares to be issued price of outstanding for future issuance
upon exercise of options, warrants under equity
outstanding options and rights compensation plans
Equity Compensation Plans
approved by security holders 144,000 $21.45 31,918
Equity Compensation Plans not
approved by security holders - - -
Total 144,000 $21.45 31,918
======= ====== ======
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities By The Issuer
None.
-7-
Stockholder Rights Plan
The Board of Directors has adopted a stockholder rights plan. To implement the
rights plan, the Board of Directors declared a dividend distribution of one
right for each outstanding share of Bexil common stock, par value $.01 per
share, to holders of record of the shares of common stock at the close of
business on November 21, 2005. Each right entitles the registered holder to
purchase from Bexil one one-thousandth of a share of preferred stock, par value
$.01 per share. The rights were distributed as a non-taxable dividend and will
expire on November 21, 2015. The rights are evidenced by the underlying Bexil
common stock, and no separate preferred stock purchase rights certificates were
distributed. The rights to acquire preferred stock will become exercisable only
if a person or group, other than certain exempt persons, acquires or commences a
tender offer for 10% or more of Bexil's common stock. If a person or group,
other than certain exempt persons, acquires or commences a tender offer for 10%
or more of Bexil's common stock, each holder of a right, except the acquirer,
will be entitled, subject to Bexil's right to redeem or exchange the right, to
exercise, at an exercise price of $67.50, the right for one one-thousandth of a
share of Bexil's newly-created Series A Participating Preferred Stock, or the
number of shares of Bexil common stock equal to the holder's number of rights
multiplied by the exercise price and divided by 50% of the market price of
Bexil's common stock on the date of the occurrence of such an event. Bexil's
Board of Directors may terminate the rights plan at any time or redeem the
rights, for $0.01 per right, at any time before a person acquires 10% or more of
Bexil's common stock.
Item 6. Management's Discussion and Analysis or Plan of Operation
Effective with a Securities and Exchange Commission order on January 6, 2004,
the Company ceased to be an investment company under Section 8(f) of the
Investment Company Act of 1940. As a registered investment company, the Company
recorded its net assets at fair value (or market value). Upon de-registration,
the Company began reporting its assets and liabilities on a historical cost
basis. The Company effected the change as of January 1, 2004 because management
deemed there to be no material change to in either fair value or historical cost
of its net assets in the three business day period from January 1, 2004 to
January 6, 2004. As a consequence, the Company changed its method of accounting
for its fifty percent interest in York from the fair value method to the equity
method. In addition, the Company changed its basis of accounting for its other
investment from fair value to cost. For all other assets and liabilities fair
value approximated cost at the time of de-registration. As such no additional
transition adjustments were required. This transition resulted in a change in
accounting principle, as described in Note 2 the financial statements, included
below in Item 7 of this Annual Report.
Critical Accounting Estimates
Impairment of Goodwill. The Company initially recorded $1,500,000 of goodwill
relating to the investment of York. The Company reviews goodwill for impairment
annually. As part of this review the Company considers financial performance,
legal factors, business climate, potential action by regulators, etc. The
Company believes there has been no impairment of goodwill as of December 31,
2005.
-8-
2005 Compared to 2004
Total revenues of $308,432 in 2005 increased $144,689 or 88.4% compared to 2004.
Revenues from consulting and other fees earned from York increased $59,000 due
primarily to an increase in the consulting arrangement to $150,000 per annum in
2005 from $100,000 per annum in 2004. Dividend and interest income increased
$85,689 or 168.9% due to larger investable cash balances and rising yields on
our money market fund investments. Investable cash balances were larger
primarily as a result of receiving $12,670,691 in cash dividends from York in
2005.
Total expenses of $2,352,262 in 2005 increased $1,325,505 or 129.1% compared to
total expenses of $1,026,757 in 2004. Compensation and benefits increased
$742,350 or 121.6% in 2005 compared to 2004. The increase was due to bonus
payments totaling $815,625 paid to the Chief Executive Officer and the Executive
Chairman as a result of the Company having entered into an agreement to sell its
fifty percent interest in York (the "Proposed Sale"). This was partially offset
by a decrease of approximately $100,000 in base salary expense in 2005 from
2004. Professional expenses increased $571,615 or 252.0% in 2005. This was due
to an increase in audit and audit related expenses of approximately $226,000 as
a result of the change in auditors in 2005. Legal expenses increased
approximately $116,000 and other professional services increased approximately
$208,000 arising from the Proposed Sale. The decrease in occupancy expenses was
due to a decrease in allocated rent and occupancy expenses for jointly used
office space and administrative support functions from affiliate Winco of
$31,729. Communications expenses increased $42,008 or 74.7% due to expenses
incurred from the Proposed Sale.
The Company recognized an impairment loss of $325,000 related to an investment
in the common stock of a non-public entity in 2005. A valuation committee
established by the Company determined that the decrease in fair value of the
investment was other than temporary based upon the financial condition and near
term prospects of the underlying investee.
The Company's income tax benefit decreased $110,673 or 41.4% in 2005 due
primarily to a reduction in deferred tax assets.
The Company's equity in the earnings of York increased $800,343 or 28.5% in
2005, from $2,812,088 in 2004 to $3,612,431 in 2005. This increase is
attributable to York's net income from 2004 to 2005.
Net income in 2005 was $1,400,222 compared to net income of $2,219,785 in 2004,
representing a 36.9% decrease year to year. Net income on a per-share diluted
basis was $1.59 in 2005, compared with $2.52 in 2004, representing a 37.1%
decrease year to year.
Recent Accounting Pronouncements
In December 2004, FASB issued Statement of Financial Accounting Standards No.
123 (Revised 2004), "Share-Based Payment" ("SFAS 123R"). SFAS 123R requires all
share-based payments to employees, including grants of employee stock options to
be measured at fair value. In addition, SFAS 123R will cause unrecognized
expense (based on the amounts in our pro forma disclosure in Note 4 to the
financial statements) related to options vesting after the date of initial
adoption to be recognized as a charge to operations over the remaining vesting
period. Under SFAS 123R, we must determine the appropriate fair value model to
used for valuing share-based payments, the amortization method for compensation
cost and the transition method to be used at the date of adoption. The
transition alternatives include prospective and retroactive adoption methods.
Under the retroactive method, prior periods may be restated either as of the
beginning of the year of adoption or for all periods presented. The prospective
method requires that compensation expense be recorded for all unvested stock
options at the beginning of the first quarter of adoption of SFAS 123R, while
the retroactive method would record compensation expense for all unvested stock
options beginning with the first period stated. Management has adpoted SFAS 123R
effective January 1, 2006, using the prospective method. As of January 1, 2006,
deferred compensation expense for all unvested stock options was approximately
$200,000. This amount will be amortized as a charge to income over the remaining
vesting periods.
Liquidity and Capital Resources
Historically, we have had adequate liquidity to fund our operations. In
management's opinion, we should be able to generate adequate amounts of cash to
meet our anticipated obligations. During the year ended December 31, 2005,
working capital increased $9,900,633 due primarily from the cash dividends
received from York.
-9-
The following table reflects the Company's working capital, total assets,
long-term debt and shareholders' equity as of the dates indicated.
December 31,
------------
2005 2004
Working Capital $13,303,292 $ 3,402,659
Total Assets $17,798,976 $15,114,564
Long-Term Debt $ - $ -
Shareholders' Equity $17,007,457 $14,870,744
Management knows of no contingencies that are reasonably likely to result in a
material decrease in the Company's liquidity or that are likely to materially
adversely affect the Company's capital resources.
-10-
Item 7. Financial Statements
Financial Statements required by Item 310(a) of Regulation S-B.
BEXIL CORPORATION Page
Report of Independent Registered Public Accounting Firm 12
Balance Sheet at December 31, 2005 13
Statements of Income for the Years Ended December 31, 2005 and 2004 14
Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 2005 and 2004 15
Statements of Cash Flows for the Years Ended December 31, 2005 and 2004 16
Notes to Financial Statements 17
YORK INSURANCE SERVICES GROUP, INC.
Independent Auditors' Report 26
Consolidated Financial Statements for the Years Ended
December 31, 2005 and 2004:
Balance Sheets 27
Statements of Income 28
Statements of Stockholders' Equity 29
Statements of Cash Flows 30
Notes to Financial Statements 31
-11-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Bexil Corporation
New York, NY
We have audited the accompanying balance sheet of Bexil Corporation as of
December 31, 2005, and the related statements of income, shareholders' equity,
and cash flows for the years ended December 31, 2005 and 2004. 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 in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. An audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 2005, and the
results of its operations and its cash flows for the years ended December 31,
2005 and 2004 in conformity with accounting principles generally accepted in the
United States of America.
/s/DELOITTE & TOUCHE LLP
March 30, 2006
Parsippany, NJ
-12-
BEXIL CORPORATION
BALANCE SHEET
December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents $ 14,088,835
Receivables $ 10,334
--------
Total current assets 14,099,169
----------
Fifty percent interest in unconsolidated affiliate (Note 8) 1,865,226
Deferred taxes 1,102,448
---------
2,967,674
---------
Total assets $ 17,066,843
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 567,759
Income taxes 228,118
-------
Total current liabilities 795,877
-------
Commitments and contingencies (Note 9) -
Shareholders' equity
Common stock, $0.01 par value, 9,900,000 shares authorized;
879,592 shares issued and outstanding 8,796
Additional paid-in capital 12,642,163
Series A participating preferred stock, $0.01 par value, 100,000
shares authorized, -0- shares issued and outstanding -
Retained earnings 3,620,007
---------
Total shareholders' equity 16,270,966
----------
Total liabilities and shareholders' equity $ 17,066,843
============
See notes to the financial statements.
-13-
BEXIL CORPORATION
STATEMENTS OF INCOME
Years Ended December 31, 2005 and 2004
--------------------------------------------------------------------------------
2005 2004
---------------- ---------------
Revenues
Consulting and other $ 172,000 $ 113,000
Dividends and interest 136,432 50,743
---------------- ---------------
308,432 163,743
---------------- ---------------
Expenses
Employee compensation and benefits 1,352,639 610,289
Professional 798,460 226,845
Occupancy 102,896 133,364
Communicaitons 98,267 56,259
----------------- ---------------
2,352,262 1,026,757
----------------- ---------------
Realized gain (loss) on investments (325,000) 3,417
----------------- ---------------
Loss before income taxes and equity in earnings of
York Insurance Services Group, Inc. (2,368,830) (859,597)
Income tax benefit (156,621) (267,294)
Equity in earnings of York Insurance Services Group, Inc. 3,612,431 2,812,088
----------------- ---------------
Net income $1,400,222 $2,219,785
================= ===============
Per share net income:
Basic $ 1.59 $ 2.52
Diluted $ 1.59 $ 2.52
Average shares outstanding:
Basic 879,592 879,591
Diluted 882,521 879,591
See notes to the financial statements.
-14-
BEXIL CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 2005 and 2004
--------------------------------------------------------------------------------
Common Stock
Additional Total
Net Assets Paid-In Retained Shareholders'
(Predecessor Basis) Shares Par Value Capital Earnings Equity
Balance, December 31, 2003 $ 15,148,086 879,592 $ - $ - $ - $ -
Adjustment from predecessor basis (Note 2)
Allocated balance as of January 1, 2004 (15,148,086) - 8,796 9,437,231 5,702,059 15,148,086
Transitional adjustment - - - (2,497,127) - (2,497,127)
Retained earnings - - - 5,702,059 (5,702,059) -
Net income - - - - 2,219,785 2,219,785
---------- ---------- ---------- ---------- ----------- -----------
Balance, December 31, 2004 - 879,592 8,796 12,642,163 2,219,785 14,870,744
Net income - - - - 1,400,222 1,400,222
---------- ---------- ---------- ---------- ----------- -----------
Balance, December 31, 2005 $ - 879,592 $8,796 $12,642,163 $3,620,007 $16,270,966
========== ========== ========== =========== =========== ===========
See notes to the financial statements.
-15-
BEXIL CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2005 and 2004
--------------------------------------------------------------------------------
2005 2004
---------------- ----------------
Cash flows from operating activities
Net income $ 1,400,222 $ 2,219,785
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Equity in earnings of York Insurance Services Group, Inc. (3,612,431) (3,020,550)
Dividends from York Insurance Services Group, Inc. 11,535,917 -
Realized loss (gain) on investments 325,000 (3,417)
Increase in deferred taxes (884,455) (95,006)
(Increase) decrease in receivables (8,729) 4,282
Increase in income taxes payable 252,115 21,171
Increase (decrease) in other liabilities 345,111 (22,950)
---------------- ----------------
Net cash provided by (used in) operating activities 9,352,750 (896,685)
---------------- ----------------
Cash flows from investing activities
Maturity of investment 5,000,000 4,300,000
Purchase of investment (5,000,000) (1,605)
Dividend return of investment from York Insurance Services Group, Inc. 1,134,774 -
---------------- ----------------
Net cash provided by investing activities 1,134,774 4,298,395
---------------- ----------------
Net increase in cash and cash equivalents 10,487,524 3,401,710
Cash and cash equivalents
Beginning of year 3,601,311 199,601
---------------- ----------------
End of year $ 14,088,835 $ 3,601,311
================ ================
Supplemental disclosure:
Income taxes paid $ 475,719 $ 62,250
See notes to the financial statements.
-16-
BEXIL CORPORATION
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2005 and 2004
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business and Organization Bexil Corporation (the "Company"), a
Maryland corporation, is a holding company. We have 11 employees. The Company's
primary holding is a fifty percent interest in privately held York Insurance
Services Group, Inc. ("York"). Our fifty percent interest in York is accounted
for using the equity method, and therefore our financial results are not
consolidated with York's.
The Company was incorporated in 1996 under the laws of the State of Maryland as
Bull & Bear U.S. Government Securities Fund, Inc., a non-diversified closed-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"). In October 1996, the Company's predecessor, a
series of shares of Bull & Bear Funds II, Inc., an open-end management
investment company, transferred its net assets to the Company in exchange for
shares of the Company. The Company changed its name to Bexil Corporation in
1999. In 2002, the Company filed an application with the Securities and Exchange
Commission (the "SEC") to terminate its registration as an investment company
registered under the 1940 Act.
On January 6, 2004, the Company's application with the SEC to terminate its
registration as an investment company was granted. As a result, the Company is
subject to the reporting and other requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and is no longer subject to regulation
under the 1940 Act. The Company's shares are listed on the American Stock
Exchange.
The information furnished in this report reflects all adjustments which are, in
the opinion of management, necessary to a fair statement of the results of the
period.
York Insurance Services Group, Inc. - Business
York is a privately owned insurance services business process outsourcing
company. Since the 1930's, York (through predecessor companies) has served as
both an independent adjustment company and third party administrator providing
claims data and risk related services to insurance companies, self insureds, and
intermediaries throughout the United States. More recently, York has established
business units in the program management, licensed private investigation,
recovery, environmental consulting, retail logistics and large/complex loss
adjusting markets.
Basis of Presentation
The Company's fifty percent interest in York is accounted using the equity
method and, therefore, our financial results are not consolidated with York's.
As fully described in Note 2 to the financial statements, effective January 1,
2004, the Company changed its method of accounting for its fifty percent
interest in York from the fair value method to the equity method. Certain prior
year balances have been reclassified to conform to the current year
presentation. Such reclassifications did not affect total revenues, operating
income or net income.
-17-
Cash and Cash Equivalents
Investments in money market funds and short-term investments and other
marketable securities maturing in 90 days or less are considered to be cash
equivalents. At December 31, 2005, the Company held approximately $13,800,000 in
a money market fund.
Investment in Unconsolidated Affiliate
Our fifty percent interest in York is accounted for using the equity method, and
therefore, our financial results are not consolidated with York's. See Note 2 to
the financial statements for a description of the transitional adjustment that
occurred during the first quarter of 2004.
Other Investments
The Company carries its investments in securities other than marketable
securities maturing in 90 days or less at the lower of cost or estimated net
realizable value.
Income Taxes
The Company's method of accounting for income taxes conforms to the Financial
Accounting Standards Board ("FASB")'s Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." This method requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the financial reporting basis and
the tax basis of assets and liabilities.
Reporting Segment
The Company's operations are organized around insurance services and classified
into one group: insurance services. The chief operating decision maker reviews
and considers the reports of York and York's consolidated subsidiaries as the
key decision making information.
Earnings Per Share
Basic earnings per share is computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed by
applying the treasury stock method where the weighted average number of common
shares outstanding is adjusted for the incremental shares attributed to
potentially dilutive securities including outstanding exercisable options to
purchase common stock during the period. The following table sets forth the
computation of basic and diluted earnings per share:
-18-
2005 2004
------------------- -------------------
Numerator for basic and diluted earnings per share:
Net income $1,400,222 $2,219,785
=================== ===================
Denominator for basic earnings per share:
Weighted-average shares 879,592 879,591
Effect of dilutive securities:
Employee stock options 2,929 -
------------------- -------------------
Denominator for diluted earnings per share:
Adjusted weighted average shares and assumed conversion 882,521 879,591
=================== ===================
Per share net income:
Basic $ 1.59 $ 2.52
Diluted $ 1.59 $ 2.52
Dilutive securities consisting of stock options were excluded if their effect
was anti-dilutive. There were options to purchase 121,000 and 143,000 shares of
common stock for the years ended December 31, 2005 and 2004, respectively, that
were excluded from earnings per share because their effect was anti-dilutive.
Management's Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Estimates are primarily used in the determination of
equity method goodwill, investment impairment and expenses allocation. Actual
results may differ from those estimates.
Recent Accounting Pronouncements
In December 2004, FASB issued Statement of Financial Accounting Standards No.
123 (Revised 2004), "Share-Based Payment" ("SFAS 123R"). SFAS 123R requires all
share-based payments to employees, including grants of employee stock options to
be measured at fair value. In addition, SFAS 123R will cause unrecognized
expense (based on the amounts in our pro forma disclosure in Note 4 to the
financial statements) related to options vesting after the date of initial
adoption to be recognized as a charge to operations over the remaining vesting
period. Under SFAS 123R, we must determine the appropriate fair value model to
used for valuing share-based payments, the amortization method for compensation
cost and the transition method to be used at the date of adoption. The
transition alternatives include prospective and retroactive adoption methods.
Under the retroactive method, prior periods may be restated either as of the
beginning of the year of adoption or for all periods presented. The prospective
method requires that compensation expense be recorded for all unvested stock
options at the beginning of the first quarter of adoption of SFAS 123R, while
the retroactive method would record compensation expense for all unvested stock
options beginning with the first period stated. Management has adpoted SFAS 123R
effective January 1, 2006, using the prospective method. As of January 1, 2006,
deferred compensation expense for all unvested stock options was approximately
$200,000. This amount will be amortized as a charge to income over the remaining
vesting periods.
2. CHANGE IN ACCOUNTING PRINCIPLE
Effective with an SEC order on January 6, 2004, the Company ceased to be an
investment company pursuant to Section 8(f) of the 1940 Act. As a registered
investment company, the Company recorded its net assets at fair value (or market
value). Upon de-registration, the Company began reporting its assets and
liabilities on a historical cost basis. The Company effected the change as of
January 1, 2004 because management deemed there to be no material change in
either the fair value or historical cost of its net assets in the three business
day period from January 1, 2004 to January 6, 2004.
-19-
As a consequence of de-registration, the Company changed its method of
accounting for its fifty percent interest in York from the fair value method to
the equity method. In addition, the Company changed its basis of accounting for
its other investment from fair value to cost. For all other assets and
liabilities, fair value approximated cost and no additional transition
adjustment was required.
The effect of the change in accounting principle resulted in a cumulative
transition adjustment made to additional paid-in capital is as follows:
Opening retained earnings January 1, 2004 $ 5,702,060
--------------------
Effect for the change in accounting principle:
Investment in York
Equity at January 1, 2004 6,402,936
Goodwill at January 1, 2004 1,500,000
Fair value at December 31, 2003 (15,695,280)
--------------------
Net change for the accounting principle (7,792,344)
Deferred tax charge related to fair value accounting 5,712,876
Deferred tax charge related to equity method accounting for York (441,265)
Other investments 23,605
--------------------
Transitional adjustment from fair value under predecessor basis (2,497,128)
--------------------
Cumulative transitional adjustment $ 3,204,932
====================
3. OTHER INVESTMENTS
The Company recognized an impairment loss of $325,000 and $0 related to an
investment in the common stock of a non-public entity for the years ended
December 31, 2005 and 2004, respectively. A valuation committee established by
the Company determined that the decrease in fair value of the investment was
other than temporary based upon the financial condition and near term prospects
of the underlying investee.
4. STOCK OPTIONS
On March 25, 2004, the Company's shareholders approved the adoption of the 2004
Incentive Compensation Plan ("Plan"), which provides for the granting of a
maximum of 175,918 options to purchase common stock to directors, officers and
key employees of the Company or its affiliates. The option price per share may
not be less than the fair value of such shares on the date the option is
granted, and the maximum term of an option may not exceed 5 years. The vesting
period is three years of service.
The Company applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock option plan. Accordingly, no compensation cost has been
recognized for its stock option plan. Disclosure of pro forma compensation cost
for the Company's plan is required by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and
has been determined based on the fair value at the grant dates for awards under
the plan consistent with the method of SFAS 123. For purposes of pro forma
disclosure, the estimated fair value of the options is amortized to expense over
the options' vesting period.
-20-
The following table presents the Company's pro forma net income for the years
ended December 31, 2005 and 2004, respectively, assuming the Company had used
the fair value method (SFAS 123) to recognize compensation expense with respect
to options:
Year Ended December 31,
2005 2004
Net income - as reported $ 1,400,222 $ 2,219,785
Less total employee stock option expense determined
under fair value method, net of related tax effects (103,981) (580,665)
--------- ---------
Pro forma net income $ 1,296,241 $ 1,639,120
=========== ===========
Earnings per share - Basic:
As reported $ 1.59 $ 2.52
Pro forma $ 1.47 $ 1.86
Earnings per share - Diluted:
As reported $ 1.59 $ 2.52
Pro forma $ 1.47 $ 1.86
Shares - Basic 879,592 879,591
Shares - Diluted 882,521 879,591
The fair value of options granted were estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
Year Ended December 31,
2005 2004
Expected life (in years) 5 3
Risk-free interest rate 4.11 - 4.49% 2.7%
Expected volatility 49 - 51% 48%
Dividend yield - -
The following table summarizes information about stock options outstanding:
Shares Under Weighted Average
Option Exercise Price
---------------------------------------------------------------- ----------------------- -----------------------
Balance, December 31, 2003 - $ -
Granted 147,500 $ 21.47
Forfeited (4,500) $ 21.59
-----------------------
Balance, December 31, 2004 143,000 $ 21.47
Granted 8,000 $ 21.19
Forfeited (7,000) $ 21.59
-----------------------
Balance, December 31, 2005 144,000 $ 21.45
=======================
-21-
The following table summarized information about stock options outstanding at
December 31, 2005:
Weighted-Average Weighted-Average
Range of Remaining Weighted-Average Exercise Price of
Exercise Price Options Outstanding Contractual Life Exercise Price Options Exercisable Exercisable Options
-------------------- ----------------------- -------------------- -------------------- ---------------------- ---------------------
$ 16.30 - $ 19.50 28,000 3.98 $ 17.54 21,000 $ 16.37
$ 21.59 - $ 24.00 116,000 3.36 $ 22.51 78,214 $ 22.13
----------------------- ---------------------- -------
144,000 3.41 $ 21.45 99,214 $ 20.91
======================= ====================== =======
5. 401(k) PLAN
The Company participates in a 401(k) retirement plan for substantially all of
its qualified employees. The plan is sponsored by affiliate Winmill & Co.
Incorporated. Contributions to this plan are based upon a percentage of salaries
of eligible employees and are accrued and funded on a current basis. Total plan
expense for the years ended December 31, 2005 and 2004 was $19,668 and $13,337,
respectively.
6. INCOME TAXES
The income tax provision (benefit) is comprised of the following:
2005 2004
-------------------- --------------------
Current provision:
Federal $ - $ -
State and local 727,834 36,175
-------------------- --------------------
Total current provision 727,834 36,175
-------------------- --------------------
Deferred provision (benefit):
Net operating loss (234,729) (303,469)
Equity in earnings of York (649,726) -
-------------------- --------------------
Total deferred provision (benefit) (884,455) (303,469)
-------------------- --------------------
Total provision (benefit) for income taxes $ (156,621) $ (267,294)
==================== ====================
At December 31, 2005, deferred taxes were $1,102,448 comprised of net operating
and capital loss carryforwards.
At December 31, 2005, the net operating loss carryforwards of $2,363,925 expire
as follows: $658,200 in 2022, $572,400 in 2023, $895,800 in 2024, and $237,525
in 2025.
Except for as noted below, there was no difference in 2005 and 2004 between the
effective tax rate and the statutory tax rate.
The provision for income taxes differs from the federal statutory income tax
rate as a result of the dividends received exclusion (80%) on the equity in
earnings of the unconsolidated affiliate.
-22-
7. RELATED PARTIES
Certain officers of the Company also serve as officers and/or directors of
Winmill & Co. Incorporated ("Winco"), Tuxis Corporation ("Tuxis"), and their
affiliates (collectively with Bexil, the "Affiliates"). At December 31, 2005,
Winco's wholly owned subsidiary, Investor Service Center, Inc., owned 222,644
shares of the Company and 224,665 shares of Tuxis, or 25% and 23%, respectively,
of the outstanding common stock. Winco's wholly owned subsidiary, Midas
Management Corporation ("MMC"), acts as "master" payer of compensation and
benefits of Affiliate employees. At December 31, 2005, the Company had a payable
to MMC for compensation and benefit expenses of $1,951.
Rent expense of jointly used office space and overhead expense for various
jointly used administrative and support functions incurred by Winco are
allocated to the Company and the Affiliates. At December 31, 2005, the Company
had a receivable from Winco related to these costs of $7,729. The Company
incurred allocated rent and overhead costs of $92,271 and $124,000 for the years
ended December 31, 2005 and 2004, respectively.
The Company earned fees of $172,000 and $113,000 from York for consulting
services and for service on York's board of directors for the years ended
December 31, 2005 and 2004, respectively. At December 31, 2005, the Company had
a $1,000 receivable for directors fee.
On December 22, 2005, the Company entered into an expense sharing agreement
among York and the other fifty percent stockholder of York for interest and
other expenses related to a bank loan obtained by and for use by York. The
expense sharing agreement has a limited duration of approximately six months and
will end on June 30, 2006. The loan is for $15,000,000 bearing interest at LIBOR
plus 1.5%. Under the expense sharing agreement the Company will bear 50% of the
interest expense. The Company will also bear two-thirds of other agreed upon
expenses up to a maximum in total of approximately $197,000. As of December 31,
2005, the Company has incurred expenses of approximately $116,000 related to the
expense sharing agreement.
8. INVESTMENT IN UNCONSOLIDATED AFFILIATE
Summarized condensed financial information for York is as follows:
Year ended December 31,
York Insurance Services Group, Inc. 2005 2004
Revenues $ 75,241,609 $ 71,512,418
Expenses 63,186,888 60,952,590
Net income 7,224,861 6,041,101
Working capital 8,727,146 14,169,125
Total assets 30,444,192 35,481,110
Long term debt 13,834,609 1,209,949
Shareholder's equity 730,452 18,846,973
York is a fifty percent owned unconsolidated affiliate accounted for by the
equity method. The Company's cost of its fifty percent interest in York exceeds
the underlying equity in net assets as follows during 2005.
-23-
Equity in net assets of York $ 365,226
Goodwill 1,500,000
-----------------
Carrying value $ 1,865,226
=================
The carrying value of the Company's investment in York of $1,865,226 at December
31, 2005 is reviewed by the Company for impairment in accordance with APB
Opinion No. 18, "The Equity Method of Accounting for Investments in Common
Stock."
The equity method good will of $1,500,000 is not amortized. The Company reviews
the goodwill balance for impairment and considers changes in events or
circumstances that would impair the valuation. The Company believes their has
been no impairment of goodwill as of December 31, 2005.
9. CONTINGENCIES
At December 31, 2005 there were no contingent obligations or events occurring
that could reasonably be expected to have a material adverse impact on the
Company's financial statements.
10. CAPITAL STOCK
On November 10, 2005, the Board of Directors authorized the reclassification of
100,000 unissued shares of common stock of the Company (from among the
10,000,000 shares of common stock, $0.01 par value, of the Company which are
authorized) into 100,000 shares of Series A Participating Preferred Stock, par
value $0.01 per share, of the Company.
11. STOCKHOLDER RIGHTS PLAN
The Board of Directors has adopted a stockholder rights plan. To implement the
rights plan, the Board of Directors declared a dividend distribution of one
right for each outstanding share of Bexil common stock, par value $.01 per
share, to holders of record of the shares of common stock at the close of
business on November 21, 2005. Each right entitles the registered holder to
purchase from Bexil one one-thousandth of a share of preferred stock, par value
$.01 per share. The rights were distributed as a non-taxable dividend and will
expire on November 21, 2015. The rights are evidenced by the underlying Bexil
common stock, and no separate preferred stock purchase rights certificates were
distributed. The rights to acquire preferred stock will become exercisable only
if a person or group, other than certain exempt persons, acquires or commences a
tender offer for 10% or more of Bexil's common stock. If a person or group,
other than certain exempt persons, acquires or commences a tender offer for 10%
or more of Bexil's common stock, each holder of a right, except the acquirer,
will be entitled, subject to Bexil's right to redeem or exchange the right, to
exercise, at an exercise price of $67.50, the right for one one-thousandth of a
share of Bexil's newly-created Series A Participating Preferred Stock, or the
number of shares of Bexil common stock equal to the holder's number of rights
multiplied by the exercise price and divided by 50% of the market price of
Bexil's common stock on the date of the occurrence of such an event. Bexil's
Board of Directors may terminate the rights plan at any time or redeem the
rights, for $0.01 per right, at any time before a person acquires 10% or more of
Bexil's common stock.
12. SALE OF YORK
On December 23, 2005, the Company entered into an agreement for the sale ("Sale
Agreement") of its fifty percent interest in York to York Insurance Acquisition,
Inc. ("York Buyer"), a newly formed entity controlled by Odyssey Investment
Partners, LLC ("Odyssey") and certain other investors for approximately $39
million in cash. A special committee of independent directors, having evaluated
the fairness of the transaction, and the Board of Directors of Bexil have
approved the transaction, which is subject to the approval of the holders of at
least 50% of Bexil's outstanding common stock. Holders of approximately 32% of
Bexil's stock have entered into an agreement in which they have agreed to vote
their shares in favor of the sale and against any action that would reasonably
be expected to prevent the transactions contemplated by the sale. On March 27,
2006, proxy material was mailed to stockholders seeking approval at a special
meeting of stockholders scheduled for April 27, 2006. Completion of the
transaction is also subject to the consummation of an agreement by the other
fifty percent owner of York, Thomas C. MacArthur, to sell a portion and rollover
a portion of his shares to York Buyer, and other conditions to closing.
-24-
If the sale does not receive shareholder approval the Sale Agreement will be
terminated. The Sale Agreement obligates the Company to pay York Buyer its
reasonable out-of-pocket expenses (including without limitation, all fees and
expenses of counsel, accountants, investment bankers, experts, and consultants
to York Buyer and its affiliates) incurred by York Buyer or on its behalf in
connection with or related to the authorization, preparation, negotiation,
execution and performance of the Sale Agreement and the agreement by the other
fifty percent owner of York up to a maximum of $1,750,000 if the Sale Agreement
is terminated for certain reasons, including if the sale of the Company's fifty
percent interest in York is not approved by the stockholders of the Company.
-25-
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
York Insurance Services Group, Inc. and Subsidiaries
Parsippany, New Jersey
We have audited the accompanying consolidated balance sheets of York
Insurance Services Group, Inc. and subsidiaries (the "Company") as of December
31, 2005 and 2004, and the related consolidated statements of income,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
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, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the companies as of December
31, 2005 and 2004, and the results of their operations and their cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental schedule of
operating expenses for York Insurance Services Group, Inc. and Subsidiaries, for
the years ended December 31 2005 and 2004, is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements. The supplemental schedule is the responsibility of the Company's
management. Such supplemental schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects when considered in relation
to the basic financial statements taken as a whole.
-26-
DELOITTE & TOUCHE LLP
March 28, 2006
Parsippany, NJ
YORK INSURANCE SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
ASSETS 2005 2004
CURRENT ASSETS:
Cash and cash equivalents $ 1,614,105 $ 5,106,919
Accounts receivable, less allowance for doubtful accounts of $840,000 and 553,000 15,890,855 11,742,609
Unbilled revenue 1,982,282 8,714,865
Deferred income taxes 1,839,712 1,425,306
Prepaid expenses and other current assets 1,145,578 930,043
--------- -------
-
Total current assets 22,472,532 27,919,742
---------- ----------
-
PROPERTY AND PLANT
Furniture, fixtures and equipment Net 4,418,308 4,072,397
-
OTHER ASSETS:
Other intangible assets Net 2,000,000 2,250,000
Goodwill 1,050,294 1,050,294
Other 503,058 188,677
------- -------
-
Total other assets 3,553,352 3,488,971
--------- ---------
-
TOTAL $ 30,444,192 $ 35,481,110
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 834,038 $ 2,215,555
Accrued payroll expenses 1,857,896 1,614,685
Accrued expenses 742,683 795,784
Accrued sub-contractors' fees - 3,151,990
Taxes payable 1,125,488 719,460
Current portion of deferred income 6,205,693 4,553,345
Current portion of note payable 2,586,207 345,386
Current portion of capital lease obligation 261,011 244,001
Other current liabilities 132,370 110,411
------- -------
-
Total current liabilities 13,745,386 13,750,617
---------- ----------
-
NONCURRENT LIABILITIES:
Deferred income 344,614 505,927
Notes payable 13,834,609 1,209,949
Capital lease obligation 292,176 416,129
Deferred income taxes 498,249 26,588
Other 641,594 363,280
------- -------
-
Total noncurrent liabilities 15,611,242 2,521,873
---------- ---------
MINORITY INTEREST 357,112 361,647
------- -------
STOCKHOLDERS' EQUITY:
Common stock -no par value, 1,000 shares authorized,
1,000 shares issued and outstanding - -
Additional paid-in capital 3,000,000 3,000,000
Retained (deficit)/earnings (2,269,548) 15,846,973
---------- ----------
-
Total stockholders' equity 730,452 18,846,973
------- ----------
-
TOTAL $ 30,444,192 $ 35,481,110
============ ============
See notes to consolidated financial statements.
-27-
YORK INSURANCE SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
2005 2004
REVENUE $ 75,241,609 $ 71,512,418
OPERATING EXPENSES 63,186,888 60,952,590
---------- ----------
INCOME FROM OPERATIONS 12,054,721 10,559,828
---------- ----------
OTHER INCOME AND DEDUCTIONS:
Investment income 63,849 38,136
Interest expense (148,962) (155,689)
-------- --------
(85,113) (117,553)
------- --------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 11,969,608 10,442,275
---------- ----------
PROVISION FOR INCOME TAXES (4,364,112) (4,208,239)
MINORITY INTEREST IN USTM INCOME (380,635) (192,935)
-------- --------
NET INCOME $ 7,224,861 $ 6,041,101
=========== ===========
See notes to consolidated to financial statements.
-28-
YORK INSURANCE SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
2005 2004
COMMON STOCK: $ - $ -
ADDITIONAL PAID-IN CAPITAL
Balance- Beginning of year 3,000,000 3,000,000
--------- ---------
Balance-End of year 3,000,000 3,000,000
--------- ---------
RETAINED (DEFICIT)/EARNINGS:
Balance- Beginning of year 15,846,973 9,805,872
Net income 7,224,861 6,041,101
Corporate distributions (25,341,382) -
----------- -----------
Balance-End of year (2,269,548) 15,846,973
---------- ----------
TOTAL STOCKHOLDERS' EQUITY -End of year $ 730,452 $ 18,846,973
=========== ============
See notes to consolidated financial statements.
-29-
YORK INSURANCE SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,224,861 $ 6,041,101
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,596,623 1,429,752
Bad debt expense 306,296 154,740
Loss on disposition of fixed assets 50,960 1,004
Changes in:
Accounts receivable (4,454,542) (4,129,237)
Unbilled revenues 6,732,583 (7,002,628)
Minority interest 380,635 192,935
Deferred income taxes 57,255 (915,143)
Prepaid expenses and other current assets (215,535) (370,080)
Other noncurrent assets (314,381) (22,379)
Accounts payable (1,381,517) 1,735,265
Accrued payroll expenses 243,211 1,115,344
Accrued expenses (53,101) 446,414
Accrued sub-contractors' fees (3,151,990) 3,151,990
Taxes payable 406,028 1,149,399
Deferred income 1,491,035 1,801,731
Other payables 300,272 80,943
------- ------
Net cash provided by operating activities 9,218,693 4,861,151
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,591,939) (1,355,656)
Net proceeds from sale of fixed assets 2,959 1,550
----- -----
Net cash used in investing activities (1,588,980) (1,354,106)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Corporate distributions (25,341,382) -
Repayment of notes payable 14,865,481 (811,679)
Repayment of capital lease obligations (261,456) (193,847)
Partnership distributions (385,170) (100,001)
-------- --------
Net cash used in financing activities (11,122,527) (1,105,527)
----------- ----------
NET INCREASE / (DECREASE) IN CASH (3,492,814) 2,401,518
CASH AND CASH EQUIVALENTS-Beginning of year 5,106,919 2,705,401
--------- ---------
CASH AND CASH EQUIVALENTS-End of year $ 1,614,105 $ 5,106,919
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid-income taxes $ 3,714,140 $ 4,011,427
============ ===========
Cash paid-interest $ 142,392 $ 155,689
========== ===========
See notes to consolidated financial statements.
-30-
YORK INSURANCE SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND ORGANIZATION
York Insurance Services Group, Inc. (the "Company") provides comprehensive
claims services for insurance carriers and self-insureds. Claim services
provided include property and casualty, workers' compensation, transportation,
environmental and surveillance investigations. Services are provided throughout
the United States.
The Company has a 50 percent ownership in a general partnership, Underground
Storage Tank Management ("USTM"). The partnership was formed to contract with
various State agencies to audit the costs incurred for the clean up of
contaminated underground storage tanks and perform site inspections. All revenue
is derived from work performed for the State of Florida Department of
Environmental Protection. The Company maintains managerial, financial and
operational control of USTM.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation- The financial statements include York Insurance Services
Group, Inc., its wholly owned subsidiaries, York Claims Service, Inc., York
Claims Service, Inc. - Florida, York Special Investigations, Inc., York Claims
Service of Nevada, Inc. and its 50 percent investment in USTM. York Claims
Service, Inc. and York Claims Service, Inc. - Florida, Inc. provide
comprehensive claims services and third-party administration for insurance
carriers, self-insureds, municipalities, brokers and other intermediaries. York
Special Investigations, Inc. offers surveillance investigation in addition to
other special investigation services.
Investment in USTM Partnership-The Company's 50 percent investment in USTM is
fully consolidated and a minority interest is recorded to account for the
minority interest holder's proportionate share of net equity and net income in
USTM.
Management's Use of Estimates-The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Estimates are primarily used
in the determination of unbilled revenue, deferred income and allowance for
doubtful accounts. Actual results may differ from those estimates.
Cash Equivalents- The Company considers money market funds and highly liquid
debt instruments purchased with original maturity dates of three months or less
to be cash equivalents.
Unbilled Revenue- Unbilled revenue represents work performed on client files
that have not been invoiced at the end of the year, as per contract terms or
customary on-account billing procedures. The unbilled revenues are valued based
on actual time or estimated completion of services.
Deferred Income Taxes- The deferred income tax assets and liabilities recorded
on the consolidated balance sheets represent the income tax effects of temporary
differences between the tax basis of assets and their amounts for financial
reporting purposes. Deferred income taxes arise from the recognition of these
temporary differences.
-31-
Property and Depreciation- The Company depreciates the cost of property and
equipment over the estimated useful lives of the related assets using the
straight-line method. The estimated useful lives for the principal
classifications are as follows:
Estimated
Classification Useful Lives
Furniture, fixtures and equipment 7 years
Computer hardware and software 3-5 years
Automobiles 5 years
Leasehold improvements 3-10 years
Capitalized Software and Development- The Company capitalizes costs associated
with internally developed software or systems. These costs included external
direct costs for services and payroll and payroll related costs for employees
directly associated with developing internal-use software and systems. Such
costs are amortized on a straight-line basis over five years.
Goodwill and Other Intangible Assets- The Company accounts for goodwill and
other intangible assets in accordance with SFAS No. 142, Goodwill and Other
Intangible Assets, which states that goodwill and intangible assets with
indefinite useful lives should not be amortized, but instead tested for
impairment at least annually at the reporting unit level. If an impairment
exists, a writedown to fair value (normally measured by discounting estimated
future cash flows) is recorded.
Intangible assets with finite lives are amortized on the straight-line basis
over their estimated useful lives and are reviewed for impairment in accordance
with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized for the amount by which the carrying amount of the asset exceeds the
fair value of the asset.
After considering legal factors, business climate, potential action by
regulators, key personnel and financial position, the Company believes there has
been no impairment of goodwill and other intangible assets as of December 31,
2005 and 2004.
Allowance for Doubtful Accounts- The Company creates a reserve for receivables
that may become uncollectible. The amount of the reserve is based upon
management's assessment of several factors including the review of aging
experience.
Revenue Recognition- Revenue is recognized as a claim file is being processed,
based on the estimated rate at which services are provided or the actual value
of time. The estimated rate at which services are provided is based on the
average life of the claim and recognized as the claim enters different phases of
the claims handling process. The full amount of revenue is recognized when the
claim is closed or when the services have been completed.
Deferred Income- Deferred income represents the unearned portion of fixed fee
arrangements or fixed percentages of net earned premiums of carriers, derived
from insurance policies issued by clients. Deferred income is recognized into
income based upon proportional performance.
-32-
3. CORPORATE DISTRIBUTIONS
The Company declared and paid corporate distributions of $25,341,382 and $0, to
the shareholders of record for the years ended December 31, 2005 and 2004,
respectively.
4. PROPERTY & PLANT
The carrying value of depreciable assets as of December 31, 2005 is as follows:
Accumulated Carrying
Classification Cost Depreciation Value
Furniture, fixtures and equipment $3,018,462 $1,094,254 $1,924,208
Computer hardware and software 2,138,273 1,221,818 916,455
Automobiles - - -
Leasehold improvements 738,215 291,093 447,122
Systems development 2,272,509 1,141,986 1,130,523
Total $8,167,459 $3,749,151 $4,418,308
During 2005 depreciation expense was $1,346,623.
The carrying value of depreciable assets as of December 31, 2004 is as follows:
Accumulated Carrying
Classification Cost Depreciation Value
Furniture, fixtures and equipment $ 2,535,287 $ 734,907 $ 1,800,380
Computer hardware and software 1,655,333 856,337 798,996
Automobiles 7,391 7,391 -
Leasehold improvements 670,658 217,972 452,686
Systems development 1,774,109 753,774 1,020,335
Total $ 6,642,778 $2,570,381 $ 4,072,397
During 2004, depreciation expense was $1,179,752.
-33-
5. OTHER INTANGIBLE ASSETS
Other intangible assets consist principally of trademarks and trade names and
customer relationships. Customer relationships are amortized on a straight-line
basis over an estimated useful life of 10 years. Trademarks and trade names and
goodwill which are not amortized are assessed for impairment on an annual basis
or more frequently as events or circumstances arise. Amortization of intangible
assets charged to operations amounted to $250,000 for the years ended December
31, 2005 and 2004.
Other intangible assets consist of the following at December 31, 2005:
Accumulated Carrying
Classification Cost Amortization Value
Amortized intangible assets:
Customer relationships $2,500,000 $1,000,000 $1,500,000
========== ========== ==========
Unamortized intangible assets:
Trademarks and trade names $ 500,000 $ - $ 500,000
========= ========== ==========
-34-
Other intangible assets consist of the following at December 31, 2004:
The estimated amortization expense for the years ending December 31, 2006, 2007,
2008, 2009 and 2010 is $250,000 each year.
6. LEASE COMMITMENTS
The Company leases office space in each of the cities in which its offices are
located and certain office equipment under operating leases. Rental expense for
all operating leases totaled $3,316,425 in 2005 and $2,702,028 in 2004.
Future minimum lease payments for operating leases that have initial or
remaining noncancelable terms in excess of one year as of December 31, 2005 are
as follows:
2006 2007 2008 2009 2010 Thereafter Total
Office space $ 1,996,512 $1,568,368 $ 1,478,699 $ 1,244,069 $ 1,018,721 $2,394,941 $ 9,701,310
Equipment 249,471 141,222 47,510 - - - 438,203
------- ------- ------ --------- --------- --------- -------
Total $ 2,245,983 $1,709,590 $ 1,526,209 $ 1,244,069 $ 1,018,721 $2,394,941 $ 10,139,513
=========== ========== =========== =========== =========== ========== ============
7. CAPITAL LEASE OBLIGATIONS
The Company leases certain office equipment and furniture under capital leases
with terms up to 48 months. The leases expire between January 2005 and December
2008. The total amount of equipment and furniture financed by capital leases was
$154,513 in 2005 and $394,245 in 2004. The total amount paid by the Company was
$261,456 in 2005 and $193,847 in 2004.
The carrying value of equipment held under capital leases, which is included in
property, plant, and equipment in the financial statements, as of
December 31, 2005 is as follows:
Accumulated Carrying
Classification Cost Depreciation Value
Equipment under capital lease $ 1,183,723 $ 341,705 $ 842,018
=========== ========= =========
During 2005, depreciation expense was $138,660.
-35-
The carrying value of equipment held under capital leases, which is included in
property, plant, and equipment in the financial statements, as of
December 31, 2004 is as follows:
Accumulated Carrying
Classification Cost Depreciation Value
Equipment under capital lease $ 912,624 $ 203,045 $ 709,579
========= ========= =========
During 2004, depreciation expense was $100,400.
8. NOTES PAYABLE
During 2002, the Company acquired loans of $5,000,000 and $4,000,000 from AIG
and Merchants New York Commercial Corporation, respectively. The AIG loan was
payable in sixty equal monthly installments commencing on February 18, 2002 with
interest rate of prime plus 1.5%.
On June 17, 2003, the Company paid the AIG loan down to $1,000,000, at which
time the terms of the loan were renegotiated. The renegotiated loan is payable
in 36 equal installments of $31,106, with interest at 7.50 %. On March 23, 2005,
the AIG loan was paid off.
The Merchants loan is a revolving line of credit for a period of four years and
is deemed automatically renewed for a successive term of one year thereafter.
The interest rate on the revolving line of credit is the prime rate, 5.25% at
December 31, 2004. The line of credit was paid off on December 14, 2005.
Both the AIG and commercial bank loans required the Company to maintain a
working capital of not less than $5,000,000 at all times and tangible net worth
of $5,250,000 on December 31, 2004. The Company was in compliance with
requirements on both loans for December 31, 2004.
On December 14, 2005, the Company entered into a $15,000,000 term loan with
Wachovia Bank, NA, with interest equal to the one-month LIBOR rate plus 1.5%.
The interest rate at December 31, 2005 was 5.8675%.
The term loan is payable in 60 equal installments of $258,621, with the first
payment due on March 14, 2006. The annual principal payments applicable to the
term loan as of December 31, 2005 are as follows:
2006 2007 2008 2009 2010 Total
$2,586,207 $3,103,448 $3,103,448 $ 3,103,449 $ 3,103,448 $ 15,000,000
========== ========== ========== =========== =========== ============
-36-
The term loan requires the Company to maintain the following financial
covenants; funded debt to EBITDA ratio of not more than 2.00 to 1.00, funds flow
coverage ratio of not less than 1.50 to 1.00, liquidity requirement of not less
than $2,000,000, officer and director compensation shall not increase during any
fiscal year by more than 20%, no losses for any two consecutive quarters and no
change in the current chief executive officer. The Company was in compliance
with all covenants except for the funds flow coverage ratio and the liquidity
requirement on December 31, 2005. A waiver was granted by the bank, allowing for
no penalties to the Company for the noncompliance.
On December 14, 2005, the Company entered into a $5,000,000 revolving loan
facility with Wachovia Bank, NA, with interest equal to the LIBOR Market
Index-Based Rate plus 1.50%. The interest rate at December 31, 2005 was 5.89%.
As of December 31, 2005, the Company had drawn $1,420,816 from the revolving
loan.
9. INCOME TAXES
The provision for federal, state and local income taxes for the years ended
December 31, 2005 and 2004 is comprised of the following:
2005 2004
Current - Federal, state and local $4,306,857 $5,123,382
Deferred income tax benefit 57,255 (915,143)
------ --------
$4,364,112 $4,208,239
========== ==========
The provision for federal, state and local income taxes for the years ended
December 31, 2005 and 2004 is comprised of the following:
2005 2004
Income Before Income Taxes and
Minority Interest $ 11,969,608 $ 10,442,275
Minority Interest in USTM Income (380,635) (192,935)
-------- --------
Pre-tax Net Income $ 11,588,973 $ 10,249,340
============ ============
Income Tax - Statutory Rate $ 4,056,140 35% $ 3,587,269 35%
Meals & Entertainment 74,572 1% 76,578 1%
State income taxes (188,102) -2% (288,184) -3%
Non-deductible Goodwill (176,000) -2% - 0%
Other 60,069 1% 9,194 0%
------ --- ----- ---
Federal Total Income Tax Expense 3,826,679 33% 3,384,857 29%
State Total Income Tax Expense 537,433 5% 823,382 8%
------- --- ------- ---
Total Income Tax Expense $ 4,364,112 38% $4,208,239 41%
============ === ========== ===
-37-
Net deferred income tax assets and (liabilities) consist of the following as of
December 31, 2005 and 2004:
2005 2004
Depreciation and amortization $ (709,417) $ (239,012)
Deferred income 1,658,502 1,408,830
Allowance for doubtful accounts 294,000 193,550
Enterprise appreciation rights 98,378 35,350
$1,341,463 $1,398,718
10. EMPLOYEE BENEFITS
The Company has a voluntary employee savings plan (401(k) plan) in which
eligible employees can contribute on a pretax basis a certain portion of their
income. Matching contributions are made by the Company up to 6% of annual salary
depending on the employees' years of service. The total cost of the plan to the
Company was $638,842 in 2005 and $632,401 in 2004. The Company also has the
following additional employee benefit plans: group life, health, dental,
long-term disability and supplemental life insurance. The aggregate total of
such additional employee benefit plan expense to the Company was $2,449,377 in
2005 and $2,232,532 in 2004.
11. CONCENTRATION OF BUSINESS
The Company has generated revenues through separate and distinct contractual
service arrangements with several carriers that are affiliates of each other
(but not related to the Company) which, in aggregate, represented approximately
42% and 30% of the company's revenue in 2005 and 2004 respectively.
Approximately two thirds of this revenue is derived from TPA services provided
on industry-specific program business which also involves relationships with
MGAs and trade associations which are an integral part of the buying decision.
The Company also manages claims for residual market plans in several states.
Although the Company maintains a contractual relationship with the servicing
carrier the selection of the Company as a TPA on these programs is influenced by
each individual state plan, the servicing carrier which manages the plan, the
state departments of insurance which oversee each plan and the representatives
of insurance companies who serve on the Boards of each plan. In the aggregate,
residual market plans represented 27% and 32% of the company's revenue in 2005
and 2004, respectively. Some of the carriers referred to above are also involved
as the serving carrier on a portion of the residual market plans. It is the
Company's position that each of these residual market plans is a separate
customer relationship and as such, the customer concentration disclosure above
does not reflect any business derived from the residual market plans.
12. FIDUCIARY ACCOUNT
The Company holds money in escrow on behalf of certain clients. These escrow
funds are used to pay losses and claim-related expenses on behalf of those
clients. The payment of losses and claim-expenses does not affect the operating
results of the Company. Neither the cash balances nor the related liabilities
are included in the accompanying financial statements. The balance of the
fiduciary accounts was $1,996,350 at December 31, 2005 and $1,819,628 at
December 31, 2004.
-38-
13. RELATED PARTY TRANSACTIONS
The Company entered into an agreement with the shareholders of record as of
December 22, 2005. The agreement provides that the Company is to be reimbursed
for interest expense and certain costs associated with the Wachovia term loan
through June 30, 2006.
The Company made a $125,000 loan to a senior executive in 2005, with interest at
5%. The total amount of interest paid was $4,894. The loan was repaid in full on
January 19, 2006.
14. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims that arise as result of
events that occur in the ordinary course of business. Although there can be no
assurance as to the ultimate outcome of these matters, it is the opinion of the
Company's management that the final disposition of such matters will not have a
material adverse effect on the Company's financial position, results of
operations and cash flows.
15. SUBSEQUENT EVENTS
On December 23, 2005 the Company announced the signing of a definitive agreement
under which Odyssey Investment Partners LLC in partnership with the Company's
Chairman & CEO, other members of the Company's senior management and Ward
Partners, LLC will purchase the Company. The primary selling shareholder is
Bexil Corporation. The completion of the transaction, which is expected to occur
in the first quarter of 2006, is subject to financing, the receipt of regulatory
and other third-party approvals and customary closing conditions.
******
-39-
YORK INSURANCE SERVICES GROUP INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE OF OPERATING EXPENSES
--------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 2005 AND 2004
The following table represents the statements of operating expenses of York
Insurance Services Group, Inc. for the years ended December 31, 2005 and 2004:
2005 2004
Salaries $ 43,569,246 $ 42,834,174
Employee benefits 3,647,041 3,225,881
Travel 1,734,440 1,425,828
Automobiles 1,380,719 1,330,018
Rent and related expenses 3,053,260 2,460,964
Equipment 654,288 672,853
Printing and stationary 630,304 723,692
Communications 1,835,982 1,917,145
Data processing 883,401 815,420
Depreciation and other amortization 1,596,623 1,429,752
Service fees 692,722 577,973
Loss adjustment expense 2,245,147 2,523,550
Other 1,263,715 1,015,340
--------- ---------
Total operating expenses $ 63,186,888 $ 60,952,590
============ ============
-40-
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Effective April 13, 2005, Tait, Weller & Baker LLP resigned as and Deloitte &
Touche LLP ("Deloitte") became the Company's independent registered public
accounting firm. In connection with this change in accountants, there was no
disagreement or event as described in paragraph (a)(1)(iv) of Item 304 of
Regulation S-B.
Item 8A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, our management carried out
an evaluation, under the supervision and with the participation of our principal
executive officer and principal financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation,
our principal executive officer and principal financial officer have concluded
that our disclosure controls and procedures are, as of the date covered by this
Annual Report, effective to ensure that the information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC
rules and forms.
Changes in Internal Controls
In connection with the evaluation of our internal controls during our last
fiscal quarter, our principal executive officer and principal financial officer
have determined that there have been no changes to our internal controls over
financial reporting that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.
Item 8B. Other Information.
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The following list contains the names, ages, positions and lengths of service of
all directors and executive officers of the Company.
Name Position Years of Service Age
Director Officer
Bassett S. Winmill Chairman of the Board 10 10 76
Thomas B. Winmill, Esq. President, Chief Executive Officer, 10 10 46
General Counsel, Director
Edward G. Webb, Jr. Director 2 - 67
Charles A. Carroll Director 2 - 75
Douglas Wu Director 9 - 45
Thomas O'Malley Treasurer, Chief Financial Officer, - 1 47
Chief Accounting Officer
John F. Ramirez Vice President, Chief Compliance Officer
Secretary - 1 28
-41-
Set forth below is a description of the business experience of the directors and
executive officers of the Company during the past five years.
BASSETT S. WINMILL - Chairman of the Board of the Company, as well as Tuxis
Corporation and Global Income Fund, Inc. and of Winmill & Co. Incorporated
("WCI") and certain of its affiliates. Mr. Winmill is a member of the New York
Society of Security Analysts, the Association for Investment Management and
Research, and the International Society of Financial Analysts. Mr. Winmill was
born on February 10, 1930. He is the father of Thomas B. Winmill.
THOMAS B. WINMILL, ESQ. - President, Chief Executive Officer, General Counsel
and Director of the Company as well as Foxby Corp., Global Income Fund, Inc.,
Midas Fund, Inc., Midas Special Equities Fund, Inc., and Midas Dollar Reserves,
Inc. and of WCI and certain of its affiliates. Mr. Winmill is General Counsel of
Tuxis Corporation. Mr. Winmill is a member of the New York State Bar and the SEC
Rules Committee of the Investment Company Institute. Mr. Winmill was born on
June 25, 1959. He is the son of Bassett S. Winmill.
EDWARD G. WEBB, JR. - Equity Portfolio Manager for Advanced Asset Management
Advisers, Inc. since October 2002. Mr. Webb was President of Webb Associates,
Ltd. from 1996 to 2004. Prior to that, he served as a Senior Vice President and
Director of WCI. Mr. Webb was born on March 31, 1939.
CHARLES A. CARROLL - From 1989 to the present, Mr. Carroll has been affiliated
with Kalin Associates, Inc., a member firm of the New York Stock Exchange. Mr.
Carroll was born on December 18, 1930.
DOUGLAS WU - Since 1998, Mr. Wu has been a Principal of Maxwell Partners, prior
to which, he was a Managing Director of Rothschild Emerging Markets/ Croesus
Capital Management. Mr. Wu is a director of York Insurance Services Group, Inc.
Mr. Wu was born on July 31, 1960.
THOMAS O'MALLEY - Vice President, Chief Financial Officer, and Chief Accounting
Officer since 2005. He is also Vice President, Chief Financial Officer and Chief
Accounting Officer of Tuxis Corporation, Foxby Corp., Global Income Fund, Inc.,
Midas Fund, Inc., Midas Special Equities Fund, Inc., Midas Dollar Reserves,
Inc., and of WCI and certain of its affiliates. Previously, Mr. O'Malley served
as Assistant Controller of Reich & Tang Asset Management, LLC, Reich & Tang
Services, Inc., and Reich & Tang Distributors, Inc. He is a certified public
accountant. Mr. O'Malley was born on July 22, 1958.
JOHN F. RAMIREZ - Vice President, Secretary, and Chief Compliance Officer. He is
also Vice President, Secretary, and Chief Compliance Officer of Tuxis
Corporation, Foxby Corp., Global Income Fund, Inc., Midas Fund, Inc., Midas
Special Equities Fund, Inc., Midas Dollar Reserves, Inc., and of WCI and certain
of its affiliates. Mr. Ramirez is a member of the Chief Compliance Officer
Committee of the Investment Company Institute. Mr. Ramirez was born on April 29,
1977.
-42-
The Company has a standing Audit Committee that consists of Charles A. Carroll,
Edward G. Webb, Jr. and Douglas Wu, each of whom has been determined by the
Company's board of directors to be an audit committee financial expert and
"independent" as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the
Exchange Act.
The Company has adopted a Code of Conduct and Ethics, adopted pursuant to
American Stock Exchange Company Guide Section 807 and Regulation SB Item 406,
which applies to all Bexil Corporation directors, officers and employees, as
well as to directors, officers and employees of each consolidated subsidiary of
Bexil Corporation. The Code of Ethics is posted on the Company's web site at
www.bexil.com.
Based solely on the information from Forms 3, 4, and 5 furnished to it, and in
the case of officers and directors of the Company, on written representations
that no Form 5 is required, the Company believes that the directors, officers,
and owners of more than 10 percent of the common stock of the Company have filed
on a timely basis reports required by Section 16(a) of the Exchange Act during
the most recent fiscal year.
Item 10. Executive Compensation
The following information and tables set forth the information required under
the Securities and Exchange Commission's executive compensation rules.
Summary Compensation Table
The following table sets forth compensation for the fiscal years ended December
31, 2005, 2004 and 2003 received by the Company's Chief Executive Officer and
Executive Chairman of the Board of Directors. No other executive officer of the
Company serving at the end of fiscal year 2005 had total annual salary and bonus
in fiscal year 2005 in excess of $100,000.
-43-
Annual Compensation Long-term compensation
-------------------- ----------------------
Awards Payouts
------ -------
Securities Long-term
Other annual Restricted underlying incentive All other
Compen- Stock options/ plan payouts compen-
Name and Principal Position Year Salary($) Bonus($) sation Awards SARs(#) ($) sation
Thomas B. Winmill 2005 300,000 697,500 0 0 0 0 10,222 (1)
President and Chief 2004 300,000 35,000 0 0 60,000 0 7,215 (1)
Executive Officer 2003 250,000 30,000 0 0 0 0 0
Bassett S. Winmill 2005 0 208,125 0 0 0 0 0
Executive Chairman of 2004 50,000 35,000 0 0 60,000 0 2,400 (2)
the Board of Directors 2003 50,000 0 0 0 0 0 0
(1) Represents a matching contribution to a 401(k) plan and club dues.
(2) Represents a matching contribution to a 401(k) plan.
Option Grants Table
The following table sets forth, for the year ended December 31, 2005,
information regarding the options granted for each of the executive officers
named in the Summary Compensation Table.
Percentage Of Total
Number of Securities Options/SARs Granted Average
Underlying Options To Employees In Exercise Of Expiration
Name Granted Fiscal Year Base Price Date
----------------------- -------------------------- ----------------------- --------------- -------------
Thomas B. Winmill 60,000 43.20% $ 21.54 (a)
Bassett S. Winmill 60,000 43.20% $ 21.54 (a)
(a) 50,000 options expire 9/25/2009 and 10,000 options expire 11/10/2009
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Value Table
Number of securities
Name Shares acquired Value underlying unexercised Value of unexercised in-the-money
acquired on realized options/SARs at FY-end(#) options/SARs at FY-end($)
exercise(#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
----------------------- ------------------------------------------------------------------------------------------------
Thomas B. Winmill - $ - -46,107 / 13,893 $605,091 / $142,417
Bassett S. Winmill - $ - -46,107 / 13,893 $605,091 / $142,417
-44-
Long-Term Incentive Plan Awards Table
There were no long-term incentive plan awards made during the year ended
December 31, 2005 to the executive officers named in the Summary Compensation
Table.
Compensation of Directors
Non-employee directors of the Company are compensated in 2006 for services
provided as a director, as follows: $2,500 for each quarterly regular meeting
attended; $500 as a retainer paid quarterly; $250 per special board meeting
attended; Audit Committee: $250 per meeting of a committee of the board attended
(except when held near the time of another board or other committee meeting for
which the director is compensated); Governance, Compensation and Nominating
Committee: $1,000 per annum; Committee chairs: $500 per annum per committee
chaired in addition to the foregoing; Shareholders' meetings: $1,000 for each
shareholders' meeting attended; York directorship: $1,000 fee per meeting of the
board of York; and, reimbursement for meeting expenses.
Under the 2004 Incentive Compensation Plan ("Plan"), the Company's non-employee
directors receive non-qualified stock options for Company common stock. The
Company will grant an initial option for 1,000 shares of Company common stock on
the effective date of any non-employee director's initial election to the Board.
The Company will also grant an annual option for 1,000 shares of Company common
stock to each non-employee director at the close of business on the date of the
Company's annual stockholder meeting. These amounts are subject to adjustment
for corporate transactions. These option awards are the only type of awards that
non-employee directors of the Company are eligible to receive under the Plan.
The exercise price per share of non-employee director options will be equal to
100% of the fair market value of a share of Company common stock on the date of
grant and these options will expire at the earlier of (i) five years from the
date of grant or (ii) three months after the date the non-employee director
ceases to serve as a director of the Company for any reason. Non-employee
director options will vest at the end of a period commencing on the date of
grant and ending on a date which is the sooner of three years from the date of
grant date or three years from commencement of service to the Company, and if
the optionee has more than three years of service on the date of grant, the
options will vest immediately.
Other Arrangements. Douglas Wu received $12,000 from York for his services as a
director of York in fiscal year 2005.
Employment Contracts
The Company has no employment or termination contracts with any of its
employees.
Item 11. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
Securities Authorized For Issuance under Equity Compensation Plans
Securities authorized for issuance under equity compensation plans as of the end
of December 31, 2005 with respect to compensation plans (including individual
compensation arrangements) under which equity securities of the Company are
authorized for issuance, are aggregated as follows:
-45-
Equity Compensation Plan Information
--------------------------------------------------------------------------------------------------------------------------
Plan category Number of securities to Weighted-average Number of securities remaining
be issued upon exercise exercise price of available for future issuance
of outstanding options, outstanding options, under equity compensation plans
warrants and rights warrants and rights (excluding securities reflected in
column (a))
(a) (b) (c)
Equity compensation plans 144,000 $21.45 31,918
approved by security holders
Equity compensation plans not 0 0 0
approved by security holders
Total 144,000 $21.45 31,918
Security Ownership of Certain Beneficial Owners
The table below sets forth for person (including any "group") who is known to
the Company to be the beneficial owner of more than five percent of any class of
the Company's voting securities based on their filings with the Securities and
Exchange Commission.
Title of class Name and address of beneficial owner Amount and nature of Percent of class
beneficial ownership
Common Stock Fondren Management LP(1) 53,100 shares 6.00%
1177 West Loop South,
Suite 1625
Houston, Texas 77027
------------------------------------------------------------------------------------------------------------------------
Common Stock Bassett S. Winmill 280,923 shares(2)* 30.20%
11 Hanover Square
New York, New York 10005
------------------------------------------------------------------------------------------------------------------------
Common Stock Winmill & Co. Incorporated 222,644 shares(3) 25.31%
11 Hanover Square
New York, New York 10005
------------------------------------------------------------------------------------------------------------------------
Common Stock Investor Service Center, Inc. 222,644 shares 25.31%
11 Hanover Square
New York, New York 10005
------------------------------------------------------------------------------------------------------------------------
Common Stock Thomas B. Winmill 96,043 shares(4)* 10.32%
11 Hanover Square
New York, New York 10005
------------------------------------------------------------------------------------------------------------------------
(1) According to a Schedule 13G/A filed February 14, 2006.
-46-
(2) Bassett S. Winmill has indirect beneficial ownership of 222,644 shares, as a
result of his status as a controlling person of Winmill & Co. Incorporated and
Investor Service Center, Inc., the direct beneficial owner. Mr. Winmill
disclaims beneficial ownership of the shares held by Investor Service Center,
Inc. Bassett S. Winmill is Thomas B. Winmill's father.
(3) Winmill & Co. Incorporated has indirect beneficial ownership of these
shares, as a result of its status as a controlling person of Investor Service
Center, Inc., the direct beneficial owner.
(4) Thomas B. Winmill has indirect beneficial ownership of 26,712 of these
shares held by his spouse and sons. Mr. Winmill disclaims ownership of the
shares held by his spouse and sons. Bassett S. Winmill is Thomas B. Winmill's
father.
* This amount includes 50,738 shares with respect to which such person has the
right to acquire beneficial ownership as specified in Rule 13d-3(d)(1) under the
Exchange Act, including the right to acquire within sixty days, from options,
warrants, rights, conversion privilege or similar obligations.
Security Ownership of Management as of February 28, 2006
------------------------------------------------------------------------------------------------------------------------
Title of class Name and address of beneficial owner Amount and nature of beneficial Percent of class
ownership
-------------------------------------------------------------------------------------------------------------------------
Common Stock Bassett S. Winmill 280,923 shares (1), (2) 30.20%
11 Hanover Square
New York, New York 10005
------------------------------------------------------------------------------------------------------------------------
Common Stock Thomas B. Winmill 96,043 shares (1), (3) 10.32%
11 Hanover Square
New York, New York 10005
------------------------------------------------------------------------------------------------------------------------
Common Stock Charles A. Carroll 3,200 shares (4) 0.36%
11 Hanover Square
New York, New York 10005
------------------------------------------------------------------------------------------------------------------------
Common Stock Edward G. Webb, Jr. 1,500 shares (4) 0.17%
11 Hanover Square
New York, New York 10005
------------------------------------------------------------------------------------------------------------------------
Common Stock Douglas Wu 3,000 shares (5) 0.34%
11 Hanover Square
New York, New York 10005
------------------------------------------------------------------------------------------------------------------------
Common Stock Thomas O'Malley 0 shares 0.0%
11 Hanover Square
New York, New York 10005
------------------------------------------------------------------------------------------------------------------------
Common Stock John F. Ramirez 0 shares 0.0%
11 Hanover Square
New York, New York 10005
------------------------------------------------------------------------------------------------------------------------
Common Stock Directors and executive officers as a 384,666 shares (6) 39.09%
group
------------------------------------------------------------------------------------------------------------------------
(1) This amount includes 50,738 shares with respect to which such person has the
right to acquire beneficial ownership as specified in Rule 13d-3(d)(1) under the
Exchange Act, including the right to acquire within sixty days, from options,
warrants, rights, conversion privilege or similar obligations.
-47-
(2) Bassett S. Winmill has indirect beneficial ownership of 222,644 of these
shares, as a result of his status as a controlling person of Winmill & Co.
Incorporated and Investor Service Center, Inc., the direct beneficial owner. Mr.
Winmill disclaims beneficial ownership of the shares held by Investor Service
Center, Inc. Bassett S. Winmill is Thomas B. Winmill's father.
(3) Thomas B. Winmill has indirect beneficial ownership of 26,712 of these
shares held by his spouse and sons. Mr. Winmill disclaims ownership of the
shares held by his spouse and sons. Bassett S. Winmill is Thomas B. Winmill's
father.
(4) This amount includes 0 shares with respect to which such person has the
right to acquire beneficial ownership as specified in Rule 13d-3(d)(1) under the
Exchange Act, including the right to acquire within sixty days, from options,
warrants, rights, conversion privilege or similar obligations.
(5) This amount includes 3,000 shares with respect to which such person has the
right to acquire beneficial ownership as specified in Rule 13d-3(d)(1) under the
Exchange Act, including the right to acquire within sixty days, from options,
warrants, rights, conversion privilege or similar obligations.
(6) This amount includes 104,476 shares with respect to which directors and
executive officers as a group have the right to acquire beneficial ownership as
specified in Rule 13d-3(d)(1) under the Exchange Act, including the right to
acquire within sixty days, from options, warrants, rights, conversion privilege
or similar obligations.
Item 12. Certain Relationships and Related Transactions
Certain officers of the Company also serve as officers and/or directors of
Winmill & Co. Incorporated ("Winco"), Tuxis Corporation ("Tuxis"), and their
affiliates (collectively with Bexil, the "Affiliates"). At December 31, 2005,
Winco's wholly owned subsidiary, Investor Service Center, Inc., owned 222,644
shares of the Company and 224,665 shares of Tuxis, or 25% and 23%, respectively,
of the outstanding common stock. Winco's wholly owned subsidiary, Midas
Management Corporation ("MMC"), acts as "master" payer of compensation and
benefits of Affiliate employees. At December 31, 2005, the Company had a payable
to MMC for compensation and benefit expenses of $1,951.
Rent expense of jointly used office space and overhead expense for various
jointly used administrative and support functions incurred by Winco are
allocated to the Company and the Affiliates. At December 31, 2005, the Company
had a receivable from Winco related to these costs of $7,729. The Company
incurred allocated rent and overhead costs of $92,271 and $124,000 for the years
ended December 31, 2005 and 2004, respectively.
The Company earned fees of $172,000 and $113,000 from York for consulting
services and for service on York's board of directors for the years ended
December 31, 2005 and 2004, respectively. At December 31, 2005, the Company had
a $1,000 receivable for directors fee.
On December 22, 2005, the Company entered into an expense sharing agreement
among York and the other fifty percent stockholder of York for interest and
other expenses related to a bank loan obtained by and for use by York. The
expense sharing agreement has a limited duration of approximately six months and
will end on June 30, 2006. The loan is for $15,000,000 bearing interest at LIBOR
plus 1.5%. Under the expense sharing agreement the Company will bear 50% of the
interest expense. The Company will also bear two-thirds of other agreed upon
expenses up to a maximum in total of approximately $197,000. At December 31,
2005, the Company incurred expenses of approximately $116,000 related to the
expense sharing agreement.
-48-
Item 13. Exhibits
(a) The following exhibits are incorporated as part of this 10-KSB annual
report:
3.1-1 Articles of Incorporation (the "Charter") of Bexil filed on 11/25/1996 as
Exhibit A to Bexil's Registration Statement on Form N-2
(Registration No. 811-07833) ("Form N-2"), are hereby incorporated
by reference.
3.1-2 Articles of Amendment to the Charter filed on 11/25/1996 as Exhibit A to
Bexil's Post-Effective Amendment to Form N-2 are hereby incorporated
by reference.
3.1-3 Articles of Amendment to the Charter filed on 03/29/2004 as Exhibit 4-a-3
to Bexil's S-8 are hereby incorporated by reference.
3.1-4 Articles of Amendment to the Charter filed on 06/20/2005 as Exhibit 3.1-4
to Bexil's 10-KSB/A are hereby incorporated by reference.
3.1-5 Form of Articles Supplementary to the Charter of Series A Participating
Preferred Stock filed on 11/14/2005 as Exhibit 1 to Bexil's 8-A is
hereby incorporated by reference.
3.2 By-Laws filed on 03/29/2004 as Exhibit 4-b to Bexil's S-8, are
hereby incorporated by reference.
4.1-1 Specimen common stock certificate filed on 06/20/2005 as Exhibit 4.1-1 to
Bexil's 10-KSB/A is hereby incorporated by reference.
4.1-2 Bexil's 2004 Incentive Compensation Plan effective as of March 24, 2004,
included as Appendix A to Bexil's Proxy Statement for its 2004
Special Meeting of Stockholders, is hereby incorporated by reference.
4.1-3 Forms of Stock Option Agreements under Bexil's 2004 Incentive Compensation
Plan filed on 3/29/2004 as Exhibit 4-c-2 to Bexil's S-8 are
hereby incorporated by reference.
10.1-1 Stockholders Agreement among York Insurance Services Group, Inc., Thomas
C. MacArthur, and Bexil filed as Exhibit C to Bexil's Form N-8F on
12/05/2003 is hereby incorporated by reference.
10.1-2 By-Laws of York Insurance Services Group, Inc. filed as Exhibit D to
Bexil's Form N-8F on 12/05/2003 are hereby incorporated by reference.
10.1-3 Stock Purchase Agreement dated as of December 23, 2005 by and among York
Insurance Holdings, Inc., York Insurance Acquisition, Inc., and Bexil
Corporation, for the sale of Bexil Corporation's 50% interest in privately
held York Insurance Services Group, Inc. to York Insurance Holdings, Inc.
filed as Exhibit 2.1 to Bexil's Current Report on Form 8-K on 12/29/2005 is
hereby incorporated by reference.
10.1-3 Voting Agreement, dated as of December 23, 2005, among York Insurance
Holdings, Inc. and certain stockholders of Bexil Corporation named therein
filed as Exhibit 2.2 to Bexil's Current Report on Form 8-K on 12/29/2005 is
hereby incorporated by reference.
-49-
21 Subsidiaries of the small business issuer filed on 06/20/2005 as Exhibit 21
to Bexil's 10-KSB/A is hereby incorporated by reference.
23. Consent of Independent Registered Public Accounting Firm.
Deloitte & Touche LLP. Filed herewith.
24-1 Power of attorney -- Durable Power of Attorney of Charles A. Carroll filed
on 06/20/2005 as Exhibit 24-1 to Bexil's 10-KSB/A is hereby incorporated by
reference.
24-2 Power of attorney -- Durable Power of Attorney of Edward G. Webb, Jr. filed
on 06/20/2005 as Exhibit 24-2 to Bexil's 10-KSB/A is hereby incorporated by
reference.
24-3 Power of attorney -- Durable Power of Attorney of Bassett S. Winmill filed
on 06/20/2005 as Exhibit 24-3 to Bexil's 10-KSB/A is hereby incorporated by
reference.
24-4 Power of attorney -- Durable Power of Attorney of Douglas Wu filed on
06/20/2005 as Exhibit 24-4 to Bexil's 10-KSB/A is hereby incorporated by
reference.
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. Filed herewith.
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. Filed herewith.
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. Filed herewith.
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. Filed herewith.
Item 14. Principal Accountant Fees and Services.
Effective April 13, 2005, Tait, Weller & Baker LLP ("Tait Weller") resigned as
and Deloitte & Touche LLP ("Deloitte") became the Company's independent
registered public accounting firm. The information below includes amounts billed
or expected to be billed for these services.
Audit Fees
The aggregate fees billed or expected to be billed by Deloitte for professional
services rendered for the audit of the Company's annual financial statements for
the fiscal year ended December 31, 2005 and for the reviews of the financial
statements included in the Company's Quarterly Reports on Form 10-QSB for that
fiscal year were $155,000. The aggregate fees billed by Deloitte for
professional services rendered in connection with the audit of financial
statements for the fiscal year ended December 31, 2004 and by Tait Weller for
the reviews of the financial statements included in each Quarterly Report on
Form 10-QSB during that year were $113,975 and $6,000, respectively.
-50-
Audit-Related Fees
The aggregate fees billed by Deloitte for services rendered to the Company,
other than the services described above under "Audit Fees" for the fiscal year
ended December 31, 2005 were $35,425. These audit-related services included
assistance provided in connection with the sale of the Company's interest in
York. The aggregate fees billed by Deloitte for services rendered to the
Company, other than the services described above under "Audit Fees" for the
fiscal year ended December 31, 2004 were $0.
Tax Fees
No fees were billed by Deloitte for services rendered to the Company
for tax compliance services and related consultations during fiscal year 2005 or
fiscal year 2004.
All Other Fees
No other fees were billed by Deloitte for services rendered to the Company
during fiscal year 2005 or fiscal year 2004.
It is the Audit Committee's policy to approve in advance the types of audit,
audit-related, tax, and any other services to be provided by the Company's
independent registered public accounting firm.
The Audit Committee has approved all of the aforementioned independent
registered public accounting firm's services and fees for 2005 and 2004 and, in
doing so, has considered whether the provision of such services is compatible
with maintaining independence.
-51-
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BEXIL CORPORATION
March 31, 2006 By: /s/ Thomas O'Malley
-------------------
Thomas O'Malley
Chief Financial Officer and
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Company and in the
capacities and on the dates indicated.
March 31, 2006 By:/s/ Basset S. Winmill
---------------------
Bassett S. Winmill, Chairman of the Board,
Director
March 31, 2006 By:/s/Thomas B. Winmill
--------------------
Thomas B. Winmill, Esq., President
Chief Executive Officer,
General Counsel, Director
March 31, 2006 By:/s/ Edward G. Webb, Jr.
-----------------------
Edward G. Webb, Jr., Director
March 31, 2006 By:/s/ Charles A. Carroll
----------------------
Charles A. Carroll, Director
March 31, 2006 By:/s/ Douglas Wu
--------------------
Douglas Wu, Director
-52-
Exhibit 23. Consent of Independent Registered Public Accounting Firm
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 001-12233 ) of our report, dated March 30, 2006, relating to the
financial statements of Bexil Corporation, appearing in the Annual Report on
Form 10-KSB of Bexil Corporation for the year ended December 31, 2005, which is
part of the Registration Statement.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 30, 2006
-53-
Certification - Exchange Act Rules 13a-14 and 15d-14
I, Thomas B. Winmill, certify that:
1. I have reviewed this annual report on Form 10-KSB of Bexil Corporation
("small business issuer");
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the periods covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the small business issuer, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) [omitted in accordance with SEC Release Nos. 33-8238 and 34-47986];
c) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the small business issuer's internal
control over financial reporting that occurred during the small business
issuer's most recent fiscal quarter (the small business issuer's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and
5. The small business issuer's other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee of
the small business issuer's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's internal
control over financial reporting.
Date: March 31, 2006
/s/ Thomas B. Winmill
Chief Executive Officer
-54-
I, Thomas O'Malley, certify that:
1. I have reviewed this annual report on Form 10-KSB of Bexil Corporation
("small business issuer");
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the periods covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the small business issuer, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) [omitted in accordance with SEC Release Nos. 33-8238 and 34-47986];
c) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the small business issuers internal
control over financial reporting that occurred during the small business issuers
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the small business issuers' internal control over
financial reporting; and
5. The small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee of
small business issuer's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's internal
control over financial reporting.
Date: March 31, 2006
/s/ Thomas O'Malley
Chief Financial Officer
-55-
CEO CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Bexil Corporation (the "Company") on
Form 10-KSB for the period ended December 31, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Thomas B. Winmill,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley act of 2002,
that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Thomas B. Winmill
Thomas B. Winmill
Chief Executive Officer
March 31, 2006
-56-
CFO CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Bexil Corporation (the "Company") on
Form 10-KSB for the period ended December 31, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Thomas O'Malley,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley act of 2002,
that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/Thomas O'Malley
Thomas O'Malley
Chief Financial Officer
March 31, 2006
-57-