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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 1995
Commission File Number 1-8538
WESTBRIDGE CAPITAL CORP.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 73-1165000
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
777 Main Street, Fort Worth, Texas 76102
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code:
(817) 878-3300
Registrant's Shareholder and Investor Relations Toll Free
Telephone Number:
(800) 437-8690
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock (par value $.10) New York Stock Exchange
$20,000,000 11.0% Senior Subordinated Notes Due 2002,
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No__
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant's knowledge, in the
definitive Proxy Statement or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of voting stock held by non-affiliates
of the Registrant amounted to $38,025,970 as of March 11, 1996.
At March 11, 1996, 5,964,858 shares of Common Stock were
outstanding.
Certain items in Part III are incorporated by reference from the
definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders.
WESTBRIDGE CAPITAL CORP.
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
ITEM 1. Business...................................... 3
ITEM 2. Properties..................................... 26
ITEM 3. Legal Proceedings.............................. 27
ITEM 4. Submission of Matters to a Vote of Security Holders.. 27
PART II
ITEM 5. Market for the Registrant's Common Stock and
Related Stockholder Matters................. 29
ITEM 6. Selected Financial Data..................... 30
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations... 31
ITEM 8. Financial Statements and Supplementary Data... 42
ITEM 9. Disagreements on Accounting and Financial Disclosure.. 78
PART III
ITEM 10. Directors and Executive Officers of the Registrant.. 78
ITEM 11. Executive Compensation............................ 78
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management......................... 78
ITEM 13. Certain Relationships and Related
Transactions...................................... 78
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................ 78
PART I
ITEM 1. BUSINESS
GENERAL
Westbridge Capital Corp. ("Westbridge"), and together with its
subsidiaries, the ("Company"), through its subsidiaries and
affiliated companies, principally underwrites and sells
specialized health insurance products and health plans to
supplement or substitute for medical expense coverage usually
provided by employers and government programs. The Company's
wholly-owned subsidiaries and affiliated companies include
National Foundation Life Insurance Company ("NFL"), National
Financial Insurance Company ("NFIC"), American Insurance Company
of Texas ("AICT"), Westbridge National Life Insurance Company
("WNL") and together with NFL, NFIC and AICT, the ("Insurance
Subsidiaries"), Foundation Financial Services, Inc. ("FFS"),
Westbridge Marketing Corporation ("WMC"), Precision Dialing
Services, Inc., ("PDS"), Westbridge Printing Services, Inc.
("WPS"), Westbridge Funding Corporation "(WFC"), LifeStyles
Marketing Group, Inc. ("LifeStyles Marketing"), Senior Benefits,
LLC ("Senior Benefits"), American Senior Security Plans, LLC
("ASSP") and Health Care-One Insurance Agency, Inc. ("Health
Care-One"). The Company's major product lines are Cancer and
Specified Disease Products, Medical Expense Products and Medicare
Supplement Products. Cancer and Specified Disease Products
include policies designed to provide daily indemnity for hospital
confinement and convalescent care for treatment of specified
diseases, as well as "event specific" policies designed to
provide daily indemnity for confinement in an intensive care
unit, fixed benefits in the case of accidental death, or lump sum
payments upon initial diagnosis of certain types of internal
cancer. Medical Expense Products include policies providing
reimbursement for various medical and hospital care,
catastrophic nursing care and home health care. Medicare
Supplement Products are designed to provide reimbursement for
certain expenses not covered by the Medicare program.
The Company markets its products primarily through general agency
networks. While the number of agency networks in the Company's
system has grown substantially, five principal general agency
networks accounted for over 90% of the Company's first-year
premium revenues in 1995. These five general agencies include:
LifeStyles Marketing, Senior Benefits, and three general agency
networks controlled by individuals, the Locke Agency, Cornerstone
National Marketing Corporation ("Cornerstone") and National Farm
& Ranch Group, Inc. ("Farm & Ranch"). The Company has certain
contractual arrangements with Locke expiring in 1998 which
provide the terms and conditions on which the Locke Agency
markets the Company's products and set forth coinsurance
agreements between the Company and an entity controlled by Locke.
Each agency network specializes in one of the Company's product
lines and focuses on selling those products in small towns and
rural areas to individuals who have medical expense coverage that
they may consider inadequate. In late 1995, the Company, through
Health-Care One, began marketing HMO and PPO products for Blue
Cross of California to individuals and small groups. While
results for this new venture were not significant in 1995, the
Company intends to substantially increase marketing operations in
Health Care-One. See "MARKETING".
The Company's strategy is to market its existing products;
introduce new specialized supplemental products to respond to the
changing health care environment; expand marketing of HMO and PPO
products of other carriers, and, if and when opportunities arise,
acquire blocks of business.
The Company believes that opportunities exist in the insurance
industry to acquire health insurance companies and blocks of
health insurance business at a lower cost than would be required
to produce such business. Consequently, the Company has actively
sought opportunities to acquire business with which it is very
familiar, having underwritten or sold such policies in the past.
In September 1992, NFL purchased a block of Medicare Supplement
policies from American Integrity Insurance Company ("AII"),
having annualized premium revenues of approximately $42.0
million. The purchase was accomplished through a combination of
indemnity and assumption reinsurance agreements. Under the terms
of the agreements, AII transferred assets to NFL and NFL assumed
the risks associated with the policies acquired. The policies
acquired by NFL are not subject to voluntary recapture by AII.
Additionally, in March 1993, NFL purchased a similar block of
Medicare Supplement policies from Life and Health Insurance
Company of America ("LHI"), having annualized premium revenues of
approximately $4.0 million. The purchase was accomplished
through a combination of indemnity and assumption reinsurance
agreements. Under the terms of the agreements, LHI transferred
assets to NFL and NFL assumed the risks associated with the
policies acquired in a manner similar to the AII transaction.
The Medicare Supplement policies acquired from AII and from LHI
were existing blocks of business from which the Company has
derived additional revenue through renewal premiums.
In February 1994, the Company purchased a closed block of cancer
indemnity insurance from Dixie National Life Insurance Company
("DNL"), with annualized premiums of approximately $4.5 million.
The acquisition was completed by way of assumption reinsurance
agreements and did not require additional financing. The
transaction involved the transfer of cash by NFL and the
assumption of certain DNL liabilities and reserves.
On April 12, 1994, the Company completed the acquisition of NFIC
and AICT, (the "Acquisition"). At that time, the acquired
companies' combined health insurance in force consisted of
approximately 102,000 policies with approximately $45.0 million
in annualized premiums in business lines substantially similar to
those of the Company. Both acquired companies ceased writing new
business in the first six months in 1992. In 1995, the Company
resumed writing business through NFIC and AICT.
The Company has developed sophisticated administrative and
database systems in order to provide high quality service to its
agents and policyholders and to improve administrative
efficiency. As a result, the Company has been able to absorb
quickly and efficiently the business it has acquired and believes
that it can support future growth while maintaining an efficient
and cost effective operation.
Westbridge's Insurance Subsidiaries and affiliates are licensed
to sell their products in a combined total of 41 states,
primarily in the western, middle western, southern and
southeastern regions of the United States. These licenses are
subject to renewal by the insurance regulatory authorities of
each such state. The Company must file periodic financial
statements with each state's insurance regulatory authority and
conduct its business in accordance with such state's laws and
regulations. A failure by the Company to comply with any state's
financial or business conduct requirements could result in the
future revocation of the Company's license to sell insurance
products in such state. See "REGULATION".
PRODUCT LINES
Premiums by major product line for each of the periods indicated is set forth
below:
Year Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
(In thousands)
ACCIDENT AND HEALTH INSURANCE:
Cancer and Specified Disease Products:
Direct business
First-year $ 1,254 $ 1,476 $ 2,024
Renewal 13,815 13,321 13,414
Acquired business
First-year 1 53 -
Renewal (1) 8,094 7,954 -
Reinsurance assumed
First-year 4,437 2,363 1,051
Renewal 5,474 5,484 5 ,782
------ ------ ------
Total Cancer and Specified
Disease Products 33,075 30,651 22,271
------ ------ ------
Medical Expense Products:
Direct business (2)
First-year 16,288 7,219 5,539
Renewal 9,990 9,267 9,746
Acquired business
First-year 133 - -
Renewal (1) 19,436 18,350 -
Other (3)
First-year 64 1 6
Renewal 1,926 2,686 3,571
------ ------ ------
Total Medical Expense Products 47,837 37,523 18,862
------ ------ ------
Medicare Supplement Products:
Direct business
First-year 12,359 3,952 46
Renewal 3,011 43 -
Acquired business
First-year 79 3 63
Renewal (1) 20,566 22,996 23,338
Other (3)
First-year - - -
Renewal 2,617 3,090 3,642
------- ------- -------
Total Medicare Supplement Products 38,632 30,084 27,089
------- ------- -------
Total Accident and Health Insurance 119,544 98,258 68,222
------- ------- -------
LIFE INSURANCE:
First-year 159 8 9
Renewal 390 437 500
------- ------- -------
Total Life Insurance 549 445 509
------- ------- -------
Total Premium Revenue $120,093 $98,703 $68,731
======= ======= =======
______________________
(1) Includes revenue from policies acquired in the Acquisition.
(2) Consists of MM-95, MedPlan IV, Hospital Surgical Expense Policies, Super Saver I and
previously marketed LifeStyles Products. See "DESCRIPTION OF POLICIES".
(3) Consists of certain policies included in pre-1987 Medical Expense Products that were
subsequently discontinued, and "NationalCare Products" that were introduced in 1986
and discontinued in 1988. See "DESCRIPTION OF POLICIES".
DESCRIPTION OF POLICIES
The Company's products are designed with flexibility as to
benefits and premium payments and can be adapted to meet regional
sales or competitive needs, as well as those of the individual
policyholders. These products have fixed, capped or limited
benefits and are designed to reduce the potential financial
impact of covered illnesses and injuries.
Set forth below is a brief description of the principal insurance
products which the Company offers currently and those which have
been discontinued with respect to new sales but are still being
renewed.
CANCER AND SPECIFIED DISEASE PRODUCTS
The Company's Cancer and Specified Disease Products make both
immediate and subsequent payments directly to the policyholder
following diagnosis of or treatment for a covered illness or
injury. The payments are designed to help reduce the potential
financial impact of these illnesses or injuries. Payments may be
used at the policyholder's discretion for any purpose, including
helping to offset non-medical expenses or medical-related
expenses not paid by the policyholder's other health insurance.
The amount of benefits provided under the Company's Cancer and
Specified Disease Products is not necessarily reflective of the
actual cost expected to be incurred by the insured as a result of
the illness or injury. Cancer and Specified Disease Products are
guaranteed renewable.
Cancer and Specified Disease Products are generally issued by the
Company after an application form is filled out by the agent on
behalf of the prospective insured. The application form asks the
prospective insured whether he has had the disease for which
insurance is sought. Policies are not available to anyone who
has been diagnosed as having the disease prior to the date of
policy issuance. The Company is currently marketing the
following products:
Ordinary Cancer and Specified Disease
The Company's Ordinary Cancer and Specified Disease policies
generally pay according to a fixed, predetermined schedule of
indemnities after the insured has been diagnosed as having cancer
or one of 27 other covered diseases. Optional benefits include a
first occurrence benefit, which pays a specified sum to the
policyholder upon the initial diagnosis of internal cancer and an
intensive care unit ("ICU") benefit which pays an additional
benefit for each day an insured is confined in an ICU.
While an insured is confined to a hospital for subsequent covered
treatment, the benefits provided under the Company's policy
generally include the following: (i) a specified payment for each
day of hospital confinement, (ii) reimbursement for actual
charges for in-patient drugs and diagnostic testing, subject to
fixed, predetermined per diem limits, (iii) a specified payment
for each day an insured is visited by an attending physician or
receives special private nurse care, (iv) reimbursement for
actual charges incurred for ambulance service in connection with
hospital confinement, (v) reimbursement for actual charges for
family member transportation to and from a hospital in which an
insured is confined, subject to fixed, predetermined per trip
limits and certain geographic and distance requirements, and
(vi) reimbursement for actual charges for family member lodging
while accompanying an insured confined to a hospital, subject to
fixed, predetermined per diem limits and certain geographic and
distance requirements.
The Company's Cancer policies also provide a range of medical,
medical-related and non-medical benefits, regardless of whether
an insured is hospitalized. These benefits generally include the
following: (i) reimbursement for actual charges for breast
prosthetic devices, subject to fixed, predetermined per device
limits, (ii) a specified payment for each day of confinement in a
skilled nursing facility, subject to a fixed, predetermined
number of days, (iii) a specified payment for each day of hospice
confinement or treatment, (iv) reimbursement for actual charges
for transportation of an insured to and from a facility where
covered cancer treatments are received, subject to fixed,
predetermined per trip limits and certain geographic and distance
requirements, (v) reimbursement for actual charges for radiation
and chemotherapy treatment, subject to fixed, predetermined
annual or lifetime limits, and (vi) specified payments for each
surgical procedure which an insured undergoes, and for each
administration of anesthesia to the insured, according to a
fixed, predetermined schedule based upon the nature of the
surgical procedure. The average annual premium for this policy
(including riders) was approximately $188 with respect to new
sales of such policies for the year ended December 31, 1995.
First Occurrence
The Company's First Occurrence policies pay a specified lump sum
to the policyholder or beneficiary under the policy immediately
upon the initial diagnosis of malignant internal cancer. The
First Occurrence policies are underwritten by Freedom Life
Insurance Company of America ("FLICA"), and 90.0% coinsured with
NFL. Benefits under these policies range from $10,000 to
$50,000. The average annual premium for this policy (including
riders) was approximately $311 with respect to new sales of such
policies for the year ended December 31, 1995.
CASH
The Company's CASH policies pay according to fixed, per diem
amounts while the insured is confined to a hospital for the
treatment of a covered illness or injury. Covered illness or
injury consists of cancer, accident, stroke or heart attack. A
majority of the policies are sold with an optional return of
premium benefit which provides for the return after 20 years to
the policyholder of all premiums paid under the policy less any
claims paid to the policyholder. The CASH policies are
underwritten by FLICA and 50.0% coinsured with NFL. The average
annual premium for this policy (including riders) was
approximately $206 with respect to new sales of such policies for
the year ended December 31, 1995.
The Company has a number of older Cancer and Specified Disease
Products which are not currently sold in material amounts, but
which produce significant renewal premiums and consist of the
following:
Cancer and Heart Attack
The Company offers two versions of its basic Cancer and Heart
Attack policies, introduced in 1973 and 1977, respectively. One
version provides insureds with predetermined daily benefits for
each period of hospital confinement or convalescence for
treatment of cancer or a heart attack. The other version
contains maximum limits for scheduled benefits, but overall
policy benefits are not limited. These products impose no limit
on the number of days of hospitalization for which benefits may
be payable.
Intensive Care Unit
The Company also offers an ICU policy, introduced in 1978, which
provides a fixed daily payment in the event of hospital
confinement in an intensive care unit for any accident or
sickness. Benefits are provided for a maximum of 15 days per
confinement and are subject to a lifetime maximum per insured.
Accidental Death
In 1981, the Company introduced an Accidental Death insurance
policy which provides a fixed benefit when accidental injury
causes the death of the insured. The policy also offers an
optional rider which provides a daily benefit in the event of
total disability caused by an accident.
MEDICAL EXPENSE PRODUCTS
The Company's Medical Expense Products are designed to reimburse
the insured for expenses incurred for hospital confinement,
surgical expenses, physician services and the cost of medicines
immediately following a hospital stay. Out-patient benefits and
maternity benefits are also available. These policies are
individually underwritten based upon medical information provided
by the applicant prior to issue. Information in the application
is verified with the applicant through a tape-recorded telephone
conversation or through written correspondence. Based upon the
state in which these policies are offered, these policies are
issued either as guaranteed renewable for life or conditionally
renewable at the Company's option. The Company's Medical Expense
Products are marketed by LifeStyles Marketing, Cornerstone and
Farm & Ranch, and are underwritten by NFL, NFIC and AICT.
Medical Expense Products currently offered by the Company include
the following:
MM-95
MM-95 provides major medical coverage for hospital, medical and
surgical expenses, including certain out-patient coverages. The
insured has a number of options with respect to deductibles,
coinsurance percentages, and stop-loss limits. After the annual
deductible is met, ranging from $500 to $20,000, the insured is
reimbursed 60% - 80% of eligible expenses up to a stop-loss limit
ranging from $5,000 to $10,000, after which 100% of eligible
expenses are covered, up to certain maximum policy limits. MM95
also offers reduced deductibles and coinsurance amounts if the
insured uses the services of a provider which is a member of a
participating Preferred Provider Organization ("PPO") network.
Super Saver I
Super Saver I provides limited benefits for hospital, medical and
surgical expenses. The policies reimburse 60.0% of the first
$10,000 of eligible expenses which exceed the calendar year
deductible and 100% of eligible expenses thereafter. The policy
has a maximum benefit of $100,000 for each injury or sickness.
Eligible expenses are similar to MedPlan IV eligible expenses
except that out-patient benefits are limited to surgical,
extended care, hospice care and home care.
Super Saver I also offers reduced deductibles and coinsurance
amounts if the insured uses the services of a provider
participating in a PPO network.
MedPlan IV
MedPlan IV policies reimburse 80.0% of the first $5,000 of
eligible expenses which exceed a calendar year deductible and
100% of eligible expenses thereafter. Reimbursement is subject
to specified aggregate per cause and lifetime maximums. Eligible
expenses include usual and customary charges for hospital room
expense; in-hospital expenses for drugs, x-rays, laboratory
charges; surgical expenses (subject to limitation); in-hospital
physicians, private duty nurses, pathologist, radiologist or
physiotherapist expense (subject to limitation); and outpatient
benefits, including surgical benefits, extended care, hospice
care and home care. Benefits are also provided (subject to a
calendar year maximum) for out-patient medical services including
prescription drugs.
Hospital Surgical Expense Policies
These policies cover many of the expenses described as MedPlan IV
eligible expenses, subject to inside limits. These limits take
the form of maximum daily hospital benefits, maximum out-patient
treatment benefits, and calendar year limits for miscellaneous
hospital benefits, out-patient day surgery, out-patient x-rays
and laboratory tests, and doctor visits. Surgical benefits are
subject to a schedule of limits. Maximum benefits under the
policies are limited to a maximum of $25,000 per confinement.
The Company has a number of older Medical Expense Products which
are not currently sold in material amounts, but which produce
significant renewal premiums and consist of the following:
LifeStyles Products
These products consist of Limited Benefit Basic Hospital Medical
Surgical Expense Insurance (the "LBBH Policy") and Medical
Surgical Expense Insurance (the "MSE Policy") and were sold by
LifeStyles Marketing. The LBBH Policy is designed to reimburse
insureds for expenses incurred for hospital confinement, surgical
expenses, physician services and the cost of medicines
immediately following a hospital stay. Optional limited benefit
out-patient and maternity benefit riders are also offered. The
policy features a range of deductibles and copayment options.
The MSE Policy is more limited and therefore less expensive than
the LBBH Policy, and is designed to reimburse insureds for
expenses incurred for hospital confinement, surgical expenses,
physicians services and minor out-patient expenses. The policy
contains "inside limits" on the separate benefits provided such
as a limit on the daily room and board benefit, a fixed surgical
schedule and a limit on the maximum miscellaneous hospital
benefit payable. These limits make the benefits provided by the
policy less subject to inflationary increases in the cost of
medical care.
Pre-1987 Medical Expense Products
These products consist of major medical expense policies and
general health care policies.
NationalCare Products
These products consist of nursing care policies, catastrophic
nursing care policies, home care policies, physician and
out-patient care policies and hospital indemnity policies.
MEDICARE SUPPLEMENT PRODUCTS
The Company's Medicare Supplement Products provide coverage for
many of the medical expenses which the Medicare program does not
cover, such as copayments, deductibles and specified losses which
exceed the federal program's maximum benefits. The Omnibus
Budget Reconciliation Act of 1990 mandated, among other things,
standardized policy features in Medicare Supplement plans. In
July 1991, the NAIC implemented regulations creating ten model
Medicare Supplement plans (Plans A through J). Plan A provides
the least coverage, while Plan J offers the most extensive
coverage. The Company's Medicare Supplement Products are
generally underwritten by NFL and are guaranteed renewable.
During 1995, approximately 53% of the Company's Medicare
Supplement Products premium revenues consisted of Medicare
Supplement Products acquired by the Company from AII during 1992,
from LHI during 1993, and from NFIC and AICT during 1994. These
policies were existing blocks of business from which the Company
expects to derive additional revenue through renewal premiums.
In addition, the Company is currently marketing the following
Medicare Supplement Products:
Medicare Supplement Plans
In November 1993, the Company began offering four of the model
plans (Plans A, B, C and F) through Senior Benefits. During
1995, the Company also marketed Medicare Supplement Plans through
ASSP. The Company has declined to offer the other plans due in
large part to their high benefit levels and consequently higher
cost to the consumer.
Medicare Select
The Company markets a Medicare Supplement Product called Medicare
Select. Medicare Select is designed to provide benefits which
supplement the Medicare program at attractive rates by taking
advantage of arrangements with hospitals and other health care
providers. These arrangements typically provide that a hospital
or health care provider will agree to waive Medicare's Part A
initial deductible, thereby reducing the total benefit expenses
associated with a hospital stay. The Company has entered into
Hospital Preferred Provider Network Agreements ("PPO Agreements")
in 8 states.
The Company also has a number of older Medicare Supplement
Products which are not currently sold in material amounts, but
which produce significant renewal premiums. These products
consist of certain pre-1987 Medical Expense Products and certain
NationalCare Products.
LIFE INSURANCE
In 1988, the Company reentered the life insurance market through
the development of its Annually Renewable Term ("ART") policy.
The ART policy was approved for sale in January 1988. It is an
individually underwritten level term policy which is renewable to
age 70. Premiums increase with advancing age. The policy is
issued in face amounts ranging from $5,000 to $100,000, and an
optional acci-dental death benefit rider is also available. This
policy is currently sold exclusively, subject to territorial
production requirements, through LifeStyles Marketing, but only
nominal production of new business has occurred since 1991.
The Company began marketing its EZ-100 plan in 1995. EZ-100 is
an individually underwritten whole life insurance product
designed to serve as a compliment to other accident and health
product offerings. EZ-100 is issued in face amounts ranging from
$3,000 to $20,000, and may be offered by any of the Company's
marketing organizations.
The Company continues to receive renewal premiums on ordinary
life policies in force sold prior to 1979. The Company sold a
substantial portion of this block of business during 1991 and
1992.
MARKETING
The Company generally markets its products to individuals on a
one-on-one basis primarily through agents who are independent
contractors associated with general agency networks.
The initial sales contact is a result of leads generated either
by the agency network or through outside sources. The agent's
decision to sell one policy in preference to another and, more
specifically, to associate with an agency network that markets
one or a group of policies over those of competing carriers
depends on several factors, assuming the basic marketability of
the product. These factors include: (i) the commission to which
the agent will be entitled upon the sale of the policy, (ii) the
carrier's reputation for rapid processing of policyholder
applications and inquiries, (iii) the rapid and equitable
administration of claims, (iv) the willingness of the general
agency to provide prospect leads, and (v) availability of sales
brochures and other marketing materials (including information
about the Company) to assist the agent's sales efforts.
The Company's five primary agency networks accounted for over 90%
of its first-year premium revenues for the year ended
December 31, 1995, and each specializes in marketing one of the
Company's product lines. LifeStyles Marketing, Cornerstone and
Farm & Ranch each market the Company's Medical Expense Products
for NFL, NFIC and AICT, respectively. The Locke Agency markets
the Company's Cancer and Specified Disease Products, and Senior
Benefits markets the Company's Medicare Supplement Products.
Each of these general agencies has a field force of "career"
agents who depend on the general agency for leads and produce
insurance sales exclusively for that general agency. In
addition, the Locke Agency, Senior Benefits and LifeStyles
Marketing have licensed a number of independent agents on a
"brokerage" basis to sell the Company's products. These
independent agents typically sell the products of other insurance
companies and also sell the Company's products on an irregular
basis.
The Company's agency networks focus on niche marketing of
specialized policies in localized geographical markets, primarily
in the western, middle western, southern and southeastern regions
of the United States. The Company's policies are sold to
individuals who are either not covered under group insurance
protection normally available to employees of business
organizations or who wish to supplement existing coverage. In
many cases, these individuals are employed by small business
groups. Generally, Medicare Supplement Products are targeted to
individuals over 65, while Medical Expense Products and Cancer
and Specified Disease Products are targeted to individuals under
65.
The general agency networks receive commissions equal to a
percentage of premiums paid, varying with the type of policy and
differing for first-year sales and policy renewals. Commissions
for first-year sales range from 55.0% to 95.0% of premiums paid;
commissions for policy renewals range from 0% to 25.0% of
premiums paid.
The Company has entered into new relationships with established
general agency networks specializing in the sale of products
comparable to the Company's existing product lines and has begun
offering several new products. The Company continues to seek
additional similar relationships. The Company's decision to form
a relationship with any general agency network has been and will
continue to be based primarily on that general agency network's
historical levels of sales and profitability, as well as its
access to the Company's target markets. There can be no
assurance that any additional agency relationships will be formed
or, if formed, that such relationships will result in increased
sales or be profitable for the Company.
The chart below summarizes
the marketing arrangements for the Company's Products.
Product Line Agency Network Approx. Primary Percent of Nature of Relationship with the
Number of States 1995 New Company
Agents where Premium
(career/ Marketed Volume
indepen-
dent)
Cancer and Specified
Disease Products John P. Locke 25/3,000 KY, NC, SC, 12.2% -Exclusive long term marketing
AL, LA, TN agreement
-Coinsurance and computer services
agreement with FLICA, jointly owned
by Locke(60%) and the Company
(40%)
Phillip D. Elkins 100/0 AR 2.8% -Independent Agency
Medical Expense LifeStyles 957/1547 TX, OK, CO, 35.4% -Agency contract provides exclusive
Products Marketing Group, LA, TN, KY, right to sell NFL's Medical Expense
Inc. AL, NC, KS, Products
IN -51% owned by the company
Cornerstone 711/0 AR, CA, FL, 7.4% -Independent Agency
National GA, MO, TX
Marketing Corp.
National Farm & 403/0 TX, MO 7.6% -Independent Agency
Ranch Group, Inc.
Medicare Supplement Senior Benefits, 89/2,468 AZ, TX 31.6% -Agency contract provides eclusive
Products LLC right to sell NFL's Medicare
Supplement Products
-50% owned by the Company
American Senior 165/375 OK, MS, KY, 1.6% -50% owned by the Company
Security Plans, TX
LLC
HMO Products Health Care-One 202/0 CA, TX N/A -Sells products for Blue Cross of
Insurance Agency, California
Inc. -50% owned by Company
Cancer and Specified Disease Agency Networks
The Company's Cancer and Specified Disease products are
distributed primarily through the Locke agency, which has
marketed the Company's products for over 17 years. John P. Locke
owns 60.0% of Freedom Holding Company ("Freedom") and the Company
owns the remaining 40.0%. Freedom owns 100% of FLICA, a
Mississippi insurer licensed in 34 states, which specializes in
the sale of cancer and specified disease insurance. Concurrently
with the Company's investment in Freedom in November 1988, Locke
agreed to sell Cancer and Specified Disease Products exclusively
for Freedom Life Insurance Company of America, ("FLICA") and the
Company for a period of ten years. Also at that time, FLICA and
NFL entered into a ten-year coinsurance agreement under which the
Company receives 50.0% of all insurance written by FLICA. Most
of the new insurance policies written by the Locke Agency are
written in FLICA and reinsured in NFL, however, some new business
is written directly in NFL. The coinsurance agreement does not
provide for termination prior to the expiration of its ten-year
term.
In late 1993, the Locke Agency began writing a new cancer
product, "First Occurrence", which is written in FLICA and 90.0%
reinsured in NFL under a coinsurance agreement which expires in
1998. See "DESCRIPTION OF POLICIES-Cancer and Specified Disease
Products."
The Locke Agency maintains its sales headquarters in Louisville,
Kentucky and currently consists of approximately 25 career agents
and 3,000 independent agents operating in 15 states. Locke's
agency network, directly through sales in NFL and indirectly
through reinsurance assumed from FLICA, accounted for
approximately 12.2% of NFL's first-year accident and health
insurance premiums for the year ended December 31, 1995.
The loss of, or significantly reduced sales efforts by, the Locke
Agency, and the failure by the Company to replace such agents or
otherwise offset such losses, could materially affect the
business of the Company. Management believes that its relations
with the Locke Agency are good.
In general, Cancer and Specified Disease Products entail lower
premiums than the Company's other products. The majority of
premiums are collected from policyholders on a monthly basis. In
order to attract agency networks to sell these products, the
Company (as is the practice in the industry) advances a portion
of a full year's commission at the time of each policy issuance.
MEDICAL EXPENSE AGENCY NETWORK
The Company's Medical Expense Products are sold primarily through
LifeStyles Marketing, Cornerstone and Farm & Ranch.
LifeStyles Marketing Group, Inc.
In September 1987, the Company entered into an agency contract
with an insurance agency granting it the exclusive right, subject
to territorial production requirements, to sell the Medical
Expense Products introduced by NFL in 1987 and 1988. Effective
April 1, 1988, the Company and the owners of the agency agreed to
restructure the insurance agency as a joint venture, creating
LifeStyles Marketing. Under the terms of the joint venture
agreement WMC, the Company's wholly-owned subsidiary, owns a
51.0% voting interest in LifeStyles Marketing, is entitled to
50.0% of the profits and losses of LifeStyles Marketing and is
responsible for financing LifeStyles Marketing's operations.
This venture allows the Company to share in the commission fees
of products of other insurance carriers that are sold by
LifeStyles Marketing, but which NFL has elected not to
underwrite. LifeStyles Marketing is responsible for recruiting,
supervising and compensating agents. All commissions paid by NFL
and other insurance carriers are remitted to LifeStyles
Marketing, which in turn pays the writing agent an agreed-upon
amount. As is common in insurance marketing agencies, amounts
paid to a writing agent at the time of a policy sale are
generally a multiple of the commissions received by LifeStyles
Marketing from the insurance carriers on such policy sale. These
advanced or unearned amounts are generally deducted before any
earned renewal amounts are paid to the writing agent on such
policy. During a period of increasing sales, cash is required in
order to finance agent advances. The LifeStyles Marketing agency
network maintains its sales headquarters in Arlington, Texas and
currently consists of approximately 957 career agents and 1,547
independent agents operating out of 18 branch sales offices in 14
states. LifeStyles Marketing accounted for 35.4% of the
Company's first-year premium revenues for the year ended December
31, 1995.
Cornerstone National Marketing Corp.
In October 1994, the Company entered into a Master General
Agent's Contract with Cornerstone. Under this agreement,
Cornerstone markets the Company's Medical Expense Products
underwritten in NFIC.
Cornerstone maintains its sales headquarters in Arlington, Texas,
and consists of 711 agents. Cornerstone specializes in the
marketing of association group insurance programs, and accounted
for approximately 7.4% of the Company's first-year premium
revenues for the year ended December 31, 1995.
National Farm & Ranch Group, Inc.
In December 1994, the Company entered into a General Agent's
Contract with Farm & Ranch. Under this agreement, Farm & Ranch
markets the Company's Medical Expense Products underwritten in
AICT.
Farm & Ranch maintains its sales headquarters in Fort Worth,
Texas, and consists of 403 agents. Farm & Ranch specializes in
the marketing of insurance products to farmers, ranchers and
others in the rural agricultural community. Farm & Ranch
accounted for approximately 7.6% of the Company's first-year
premium revenues for the year ended December 31, 1995.
The loss of, or significantly reduced sales efforts by either
Cornerstone or Farm & Ranch, and the failure by the Company to
replace such agents or otherwise offset such losses, could
materially affect the business of the Company. Management
believes that its relations with Cornerstone and Farm & Ranch are
good.
MEDICARE SUPPLEMENT AGENCY NETWORK
In November 1993, the Company and an Arizona-based agency
specializing in the sale of Medicare supplement insurance, formed
Senior Benefits. The Company acquired a 50.0% interest in Senior
Benefits to establish a strong distribution network for its
Medicare Supplement Products. Senior Benefits maintains its
sales headquarters in Scottsdale, Arizona and currently consists
of approximately 89 career and 2,468 independent agents. The
Company entered into this relationship in order to better
position itself in the Medicare supplemental segment of the
insurance market and Senior Benefits accounted for approximately
31.6% of the Company's first-year accident and health insurance
premiums for the year ended December 31, 1995.
To complement its new "Medicare Select" products and the agency
contract with Senior Benefits, the Company has entered into PPO
Agreements with Columbia/HCA and other hospitals and health care
providers, and is currently negotiating additional PPO
Agreements. Accordingly, Senior Benefits intends to expand its
marketing operations to additional states in which Medicare
Select has been approved and NFL is currently licensed.
HMO AGENCY NETWORK
In late 1995, the Company purchased a 50% ownership in Health
Care-One, an insurance agency specializing in marketing HMO
Products for Blue Cross of California and Foundation Health Plans
in both California and Texas. Health Care-One maintains its
sales headquarters in San Diego, California, and has a sales
force consisting of 202 career agents.
The new business production by Health Care-One is not
underwritten by the Insurance Subsidiaries of the Company, the
Company entered into this arrangement to expand the marketing
efforts to include HMO Products. This venture allows the
Company to earn commission income through sales of products of
other insurance carriers, without assuming underwriting risk.
The operations of Health Care-One were not significant for the
year ended December 31, 1995.
HOME OFFICE OPERATIONS
Except for LifeStyles Marketing, Senior Benefits, WPS, ASSP, and
Health Care-One, none of the Company's subsidiaries has any
branch offices and, other than incidental travel by employees,
the subsidiaries conduct their entire operations at the Fort
Worth office (the "Home Office"). The functions carried out at
the Home Office include policy issue and underwriting,
policyowner service, claims processing, agency service and other
administrative functions such as data processing, legal,
accounting and actuarial. The Company also provides certain
administrative and computer services on a fee for service basis
to FLICA, including record keeping and reporting for their
respective policies, claims and commissions.
The policy issue and underwriting department reviews policy
applications. Although, as is common in the industry, physical
examinations and tests are not required before a policy is
issued, the Company's underwriting personnel will generally
telephone an applicant for a Medical Expense Product to verify
the information set forth in the policy application (which
telephone calls are recorded as a matter of course) and will
often contact the applicant's physician in the verification
process. Applicants for the Company's Cancer and Specified
Disease Products must certify in writing that they meet certain
health standards established by the Company before the policy
will be issued. Most applicants for the Company's Medicare
Supplement Products fill out an application and, based on the
historical health information certified therein, the Company
makes its determination as to whether to issue the policy.
Certain applicants, during a six month "window" after reaching
age 65, are not required to provide historical health
information.
The policyowner service department and agency service department
are responsible for responding to policyowner and agent requests
for information or services. The claims processing department
reviews benefit claims submitted by policyowners, determines the
benefits payable and processes the claim payments.
RESERVE POLICY AND ADEQUACY
The Company's reserves consist of two separate components: the
claim reserves and the policy benefit reserves. The claim
reserves are established by the Company for benefit payments
which have already been incurred by the policyholder but which
have not been paid by the Company. The Company's actuaries
estimate these reserves based upon analysis of claim inventories,
loss ratios and claim lag studies. These estimates are developed
in the aggregate for claims incurred (whether or not reported).
The claim reserves include an amount which will not be paid out
until subsequent reporting periods, but which is recorded in the
current period for reporting purposes. Policy benefit reserves
are established by the Company for benefit payments which have
not been incurred but which are estimated to be incurred in the
future. The policy benefit reserves accounted for approximately
54.4% of the Company's total reserves as of December 31, 1995.
The policy benefit reserves are calculated according to the net
level premium reserve method, and are equal to the discounted
present value of the Company's expected future policyholder
benefits, minus the discounted present value of its expected
future net premiums. These present value determinations are
based upon assumed fixed investment yields, the age of insured(s)
under a policy at the time of policy issuance, expected morbidity
and persistency rates, and expected future policyholder benefits.
Except for purposes of reporting to insurance regulatory
authorities and for tax filing, the Company's claim reserves and
policy benefit reserves are determined in accordance with
generally accepted accounting principles ("GAAP").
In determining the morbidity, persistency rate, claim cost and
other assumptions used in determining the Company's policy
benefit reserves, the Company relies primarily upon its own
benefit payment history, and upon information developed in
conjunction with actuarial consultants and industry data. The
Company's persistency rates have a direct impact upon its policy
benefit reserves, because the determinations for this reserve
are, in part, a function of the number of policies in force and
expected to remain in force to maturity. If persistency is
higher or lower than expected, future policyholder benefits will
also be higher or lower because of the different than expected
number of policies in force, and accordingly, the policy benefit
reserves will be increased or decreased.
The Company's reserve requirements are also interrelated with
product pricing and profitability. The Company must price its
products at a level sufficient to fund its policyholder benefits
and still remain profitable. Because the Company's policyholder
benefits represent the single largest category of its operating
expenses, inaccuracies in the assumptions used to estimate the
amount of such benefits can result in the Company failing to
price its products appropriately and to generate sufficient
premiums to fund the payment thereof. Because the discount
factor used in calculating the Company's policy benefit reserves
is based upon the rate of return of the Company's investments
designed to fund this reserve, the amount of the reserve is
dependent upon the yield on these investments. Provided that
there is not material adverse experience with respect to these
benefits, changes in future market interest rates will not have
an impact on the profitability of policies already sold. Because
fluctuations in future market interest rates affect the Company's
yield on new investments, they also affect the discount factor
used to establish, and thus the amount of, its policy benefit
reserves for new sales. In addition, because an increase in the
policy benefit reserves in any period is treated as an expense
for income statement purposes, market interest rate fluctuations
can directly affect the Company's profitability for policies sold
in such period. It is not possible to predict future market
interest rate fluctuations.
In accordance with GAAP, the Company's actuarial assumptions are
generally fixed at the time they are made, and absent materially
adverse benefit experience, they are not generally adjusted.
Nonetheless, the Company monitors the adequacy of its policy
benefit reserves on an ongoing basis by periodically analyzing
the accuracy of its actuarial assumptions.
The adequacy of the Company's policy benefit reserves may also be
impacted by the development of new medicines and treatment
procedures which may alter the incidence rates of illness and the
treatment methods for illness and accident victims (such as
out-patient versus in-patient care) or prolong the life
expectancy of such victims. Changes in coverage provided by
major medical insurers or government plans may also affect the
adequacy of the Company's reserves if, for example, such
developments had the effect of increasing or decreasing the
incidence rate and per claim costs of occurrences against which
the Company insures. An increase in either the incidence rate or
the per claim costs of such occurrences could result in the
Company needing to post additional reserves, which could have a
material adverse effect upon its business, results of operations
and financial condition.
The Insurance Subsidiaries are required to report their results
of operations and financial position to state regulatory agencies
based upon statutory accounting practices ("SAP"). Under SAP,
certain assumptions used in determining the policy benefit
reserves, such as claim costs and investment result assumptions,
are often more conservative than those appropriate for use by the
Company under GAAP. In particular, SAP interest rate assumptions
for investment results are fixed by statute and are generally
lower than those used by the Company under GAAP. Another
significant difference is that under SAP, unlike under GAAP, the
Company is required to expense all sales and other policy
acquisition expenses as they are incurred, rather than
capitalizing and amortizing them over the expected life of the
policy. Although the effect of this requirement is moderated by
the allowance under SAP of an accounting procedure known as the
"two year preliminary term" reserve valuation method, which
allows the Company to defer any accumulation of policy benefit
reserves until after the second policy year, the immediate charge
off of sales and acquisition expenses and the claim cost and
other valuation assumptions under SAP generally cause a lag
between the sale of a policy and the emergence of reported
earnings. Because this lag can reduce the Company's gain from
operations on a SAP basis, it can have the effect of reducing the
amount of funds available for dividend distributions to
shareholders.
REGULATION
The Company and its affiliates are subject to regulation and
supervision in all jurisdictions in which they conduct business.
In general, insurance laws establish supervisory agencies with
broad administrative powers relating to, among other things, the
granting and revoking of licenses to transact business,
regulation of trade practices and premiums, licensing of agents,
approval of content and form of policies, maintenance of
specified reserves and capital and surplus, deposits of
securities, form and content of required financial statements,
nature of investments and limitations on dividends to
stockholders. The purpose of such regulation and supervision is
primarily to provide safeguards for policyholders rather than to
protect the interests of stockholders. Such regulation delays
the introduction of new products and may impede, or impose
burdensome conditions on, rate increases or other actions that
the Company may wish to take in order to enhance its operating
results. In addition, federal or state legislation or regulatory
pronouncements may be enacted that may prohibit or impose
restrictions on the ability to sell certain types of insurance
products or impose other restrictions on the Company's
operations. No assurances can be given that future legislative
or regulatory changes will not adversely affect the Company's
business.
Generally, before the Company is permitted to market an insurance
product in a particular state, it must obtain regulatory approval
from that state and adhere to that state's insurance laws and
regulations which include, among other things, specific
requirements regarding the form, language, premium rates and
policy benefits of that product. Consequently, although the
Company's policies generally provide for the same basic types and
levels of coverage in each of the states in which they are
marketed, the policies are not precisely identical in each state
or other jurisdiction in which they are sold. In addition,
obtaining such approval can cause delays in the Company's ability
to market new products.
Nearly all states in which the Company does business regulate
loss ratios. The minimum loss ratios applicable to the Company's
products range from 40.0% to 65.0%, with most falling in the
range of 50.0% to 55.0%. The Company believes that it is within
its minimum loss ratio requirements. Because these requirements
mandate that the Company incur loss experience of not less than a
specified percentage of its earned premiums over the life of a
policy, they directly impact the profitability of the Company.
Any increase in the Company's premiums must be justified to the
relevant regulatory authority on the basis of the Company's
conformance to the minimum loss ratio. This can have the effect
of inhibiting the Company's ability to raise premiums on new
sales, and thus its ability to generate additional cash from
operations. Although the Company is not aware of any proposals
by regulators to increase minimum loss ratios, states may
increase minimum loss ratios from time to time. The National
Association of Insurance Commissioners ("NAIC"), has in the past
proposed model rules which would increase minimum loss ratios
applicable to the Company's products. No assurance can be given
that such a proposal will not be reintroduced in the future.
Increases in minimum loss ratio requirements could have a
material adverse effect upon the results of operations of the
Company.
The NAIC has adopted a model law for adoption in the states
requiring every life and health insurer licensed in a state to
utilize an adopted RBC formula. The RBC formula establishes
capital requirements for four categories of risk: asset risk,
insurance risk, interest rate risk and business risk. The NAIC
has pro-posed that the RBC formula may be used by regulators as
an analytical tool to monitor the adequacy of capital of
insurers. Under the model law, if an insurer's RBC, as
determined under the RBC formula, falls below specified RBC
levels, the insurer would be subject to different degrees of
regulatory action depending upon the RBC level. At the initial
problem level, the "Company Action Level", the insurer would be
required to identify and propose actions to correct the
risk-based capital deficiency and to provide the regulator with
financial projections assuming both the absence and the presence
of corrective action (collectively, an "RBC Plan"). At the
second problem level, the "Regulatory Action Level," the insurer
would be required to submit an RBC Plan and would be subject to
such examination or analysis and to such orders specifying
required corrective action as the insurance regulator deems
necessary. At the third problem level, the "Authorized Control
Level," the regulator may place the insurer under regulatory
control if he decides that would be in the best interests of
policyholders, creditors and the public. At the fourth problem
level, the "Mandatory Control Level," the model law requires the
regulator to place the insurer under regulatory control. As of
December 31, 1995 each Insurance Subsidiary's RBC exceeded the
"Company Action Level." This model law has been adopted in
Delaware. Although it has not been formally adopted in Texas, it
is used by regulators in Texas. The Company does not believe
that the model law will have any material adverse effect on
liquidity, capital resources or results of operations of the
Company or cause the Company to change its business strategy.
Under applicable Delaware law, NFL must maintain minimum
aggregate statutory capital and surplus of $550,000. Under
applicable Texas law, each of NFIC and AICT must maintain minimum
aggregate statutory capital and surplus of $1.4 million. The
state of Georgia requires licensed out-of-state insurers to
maintain minimum capital of $1.5 million and Kentucky requires
minimum surplus of $2.0 million, which levels are higher than
those of any other states in which the Insurance Subsidiaries are
currently licensed. Accordingly, the minimum aggregate statutory
capital and surplus which each of NFL, NFIC and AICT must
maintain is $3.5 million. At December 31, 1995, aggregate
statutory capital and surplus for NFL, NFIC and AICT was $14.1
million, $9.9 million and $8.3 million, respectively. According
to SAP (as opposed to GAAP), costs in excess of first-year
premiums associated with the issuance of new policies are charged
to surplus through operations. These costs are primarily sales
commissions and issuance costs and the establishment of statutory
reserves. Increased first-year sales of insurance tend to reduce
statutory surplus.
On the basis of statutory financial statements filed with state
insurance regulators, the NAIC also calculates annually 13
financial ratios to assist state regulators in monitoring the
financial condition of insurance companies. A "usual range" of
results for each ratio is used as a benchmark. Departure from
the "usual range" on four or more of the ratios could lead to
inquiries from individual state insurance departments and
increased regulatory oversight. Based on statutory financial
statements for 1995, NFL and AICT fell within the "usual range"
on 12 of the ratios. NFIC fell within the "usual range" on 11 of
the ratios. NFL and NFIC fell outside the "usual range" for "Net
Income to Total Income" (Ratio 2) as a result of recording
statutory losses during 1995. Because continued production of
new business may continue to cause strain during 1996, this event
could recur in 1996. NFIC and AICT fell outside the "usual
range" for Change in Reserving Ratio" (Ratio 12) as a result of
having life insurance reserves in 1995, when there were none in
1994. This resulted from production of life insurance business
in 1995. Both NFIC and AICT are expected to return to the "usual
range" for this ratio in 1996.
In 1995, an examination for NFL was concluded for the years 1990
through 1992 by the insurance departments of Delaware and
Mississippi. Also in 1995, and examination for NFIC and AICT was
concluded by the insurance department of Texas for the years 1991
through 1993. These examinations did not result in any
significant adjustments to the statutory financial statements for
the years under examination. Currently, the State of Delaware is
conducting a statutory examination of NFL which covers the years
1993 through 1995.
Many states have enacted insurance holding company laws that
require registration and periodic reporting by insurance
companies within their jurisdictions. Such legislation typically
places restrictions on, or requires prior notice or approval of,
certain transactions within the holding company system. For
example, dividend payments from Westbridge's principal Insurance
Subsidiaries, NFL, NFIC and AICT, are regulated by the insurance
laws of their domiciliary states. Additionally, the terms of
loans and transfers of assets within the holding company
structure are also subject to state insurance holding company
laws. Westbridge holds a surplus certificate issued by NFL the
amount of $777,000. The unpaid aggregate principal under the
surplus certificate bears interest at an agreed upon rate not to
exceed 10.0% and is repayable, in whole or part, upon (i) NFL's
surplus exceeding $7.0 million, exclusive of any surplus provided
by reinsurance treaties, and (ii) NFL receiving prior approval
from the Delaware State Insurance Commissioner.
A majority of the states in the U.S., including those in which
the Company is currently licensed and markets its policies, have
adopted requirements that coverage provided by all accident and
health policies contain prescribed minimum and maximum benefits
and meet other minimum standards, and that specified dis-closure
forms be provided to policyholders at the time of sale.
Compliance with such requirements has not adversely affected
NFL's marketing efforts in those states. Four states,
Connecticut, Massachusetts, New Jersey and New York, have adopted
statutes or insurance department regulations that either prohibit
sales of policies that offer only "specified or dread disease"
coverage (such as that provided by certain of the Company's
Cancer and Specified Disease Products) or require that such
coverage be offered in conjunction with other forms of health
insurance. The Company has never written insurance in those
states and does not currently intend to enter those markets. The
Company has no knowledge of legislative initiatives which would
limit or prohibit the sale of "specified or dread disease"
policies in other states in which the Company operates.
The Company may be required, under the solvency or guaranty laws
of most states in which it does business, to pay assessments (up
to prescribed limits) to fund policyholder losses or liabilities
of insurance companies that become insolvent. Recent
insolvencies of insurance companies increase the possibility that
such assessments may be required. These assessments may be
deferred or forgiven under most guaranty laws if they would
threaten an insurer's financial strength and, in certain
instances, may be offset against future premium taxes. The
incurrence and amount of such assessments may increase in the
future without notice. The Company pays the amount of such
assessments as they are incurred. Assessments which cannot be
offset against future premium taxes are charged to expense.
Assessments which qualify for offset against future premium taxes
are capitalized, and are offset against such future premium
taxes. The Company paid approximately $128,000 in the year ended
December 31, 1994, and approximately $65,000 for the year ended
December 31, 1995, as a result of such assessments. The
likelihood and amount of any other future assessments cannot be
estimated and are beyond the control of the Company.
Although the U.S. Government generally does not directly regulate
the insurance business, federal initiatives often impact the
insurance business in a variety of ways. Current and proposed
federal measures which may significantly affect the insurance
business include controls on the cost of medical care, medical
entitlement programs (e.g., Medicare), minimum solvency
requirements for insurers and the development of a national
health care system.
On the subject of assumption reinsurance, the NAIC has taken
action. The Assumption Reinsurance Model Act was adopted in
1993. The Model Act provides a 25-month notice period and may
allow a transfer after the expiration of such period even if the
assuming insurer does not have a higher rating than the
transferring insurer. The Model Act will have no legal effect
until formally adopted by the states, although it can be expected
to be relied upon by regulators in states without statutes,
regulations or other defined rules expressly governing assumption
reinsurance.
COMPETITION
The supplemental health and accident insurance industry in the
United States is highly competitive. Although this market is
fragmented, the Company competes with a large number of other
insurers, some of which have been in business for a longer period
of time and some of which have higher ratings by A.M. Best
Company, Inc. ("A.M. Best") and substantially greater financial
and other resources than the Company. A.M. Best, a nationally
recognized insurance rating agency, assigns a rating which
measures each company's relative financial strength and ability
to meet its contractual obligations. In the markets in which the
Company sells its products, the Company believes that its A.M.
Best rating is not a significant factor affecting its ability to
sell its insurance products.
Private insurers and voluntary and cooperative plans, such as
Blue Cross and Blue Shield, and Health Maintenance Organizations,
provide various alternatives for meeting hospitalization and
medical expenses. Much of this insurance is sold on a group
basis to employer sponsored groups. The federal and state
governments also provide insurance through the Medicare and
Medicaid programs for the payment of the costs associated with
medical care. These major medical programs generally cover a
substantial amount of the medical expenses incurred as a result
of accidents or illnesses. The Company's Cancer and Specified
Disease Products are designed to provide coverage which is
supplemental to major medical insurance and may be used to defray
nonmedical as well as medical expenses. Since these policies are
sold to complement major medical insurance, the Company competes
only indirectly with these insurers. However, expansion of
coverage by other insurers could adversely affect the Company's
business.
The Company's Medical Expense Products are designed to provide
coverage which is similar to the major medical insurance programs
described above, but sold primarily to persons not covered in an
employer sponsored group. The Company's Medicare Supplement
Products are designed to supplement the Medicare program by
reimbursing for expenses not covered by such program. To the
extent that future government programs expand or contract the
private insurance industry's participation, they could benefit or
adversely affect the Company's business.
The Company competes directly with other insurers offering
similar products and believes that its current benefits and
premium rates are generally competitive with those offered by
other companies. Management believes that service to
policyholders and prompt and fair payment of claims continue to
be important factors in the Company's ability to remain
competitive.
In addition to product and service competition, there is also
very strong competition within the supplemental health and
accident insurance market for qualified, effective agents. The
recruitment and retention of such agents is extremely important
to the success and growth of the Company's business. Management
believes that the Company's controlled agency network is
competitive with respect to the recruitment and training of
agents. However, there can be no assurance that the Company's
controlled agency network will be able to continue to recruit or
retain qualified, effective agents. The inability of the Company
to adequately recruit and retain such agents could have a
material adverse effect upon the Company's business, results of
operations and financial condition.
INVESTMENT POLICY AND RESULTS
Investment income is an important source of revenue and the
Company's return on invested assets has a material effect on net
income. The Company's investment policy is subject to the
requirements of regulatory authorities regarding maintenance of
minimum statutory reserves in order to meet future policy
obligations under policies in force. Statutory reserves may
consist only of certain types of admitted investments, the
percentage mix of which is regulated by statute. In addition,
certain assets are held on deposit in specified states and
invested in specified securities in order to comply with state
law and reduce premium tax assessments in such states. Although
the Company closely monitors its investment portfolio, available
yields on newly-invested funds and gains or losses on existing
investments depend primarily on general market conditions.
Investment policy is determined by the Investment Committees of
the Company and the Insurance Subsidiaries in accordance with
guidelines set forth by their respective Boards of Directors.
The current investment policy of the Company and the Insurance
Subsidiaries is to invest primarily in fixed-income securities of
the U.S. Government and its related agencies, investment grade
fixed-income corporate securities and in mortgage-backed
securities. Also up to 5% of the Company's assets may be
invested in higher yielding non-investment grade securities.
Current policy is also to balance the portfolio between long- and
short-term investments so as to achieve long-term returns
consistent with the preservation of capital and maintenance of
adequate liquidity to meet the payment of the Company's policy
benefits and claims, interest on the indebtedness and dividends
on the Series A Preferred Stock. Although the balance sheet
shows invested assets in real estate and mortgage loans, the
Company's investment policy excludes the investment of new funds
in real estate or mortgage loans and since prior to 1989 the
Company has acquired no such assets in its portfolio.
The following table sets forth a summary of consolidated cash and
invested assets of the Company for the dates indicated, valued in
accordance with generally accepted accounting principles:
Year Ended December 31,
-----------------------------------------------
1995 1994 1993
----------------------------------------------
(In thousands)
Cash $ 2,013 $ 2,871 $ 148
Bonds:
U.S. Government and related agencies 35,658 39,753 18,875
State, county and municipal 1,632 1,450 1,480
Public utilities 8,700 8,778 4,476
Industrial and miscellaneous 40,490 40,783 24,006
------- ------- ------
Total Bonds 86,480 90,764 48,837
------- ------- ------
Preferred stock 356 343 356
------- ------- ------
Common stock 183 126 119
------- ------- ------
Investment in Freedom Holding Company (1) 6,173 5,945 5,600
------- ------- ------
Other Invested Assets:
Mortgage loans on real estate 639 768 865
Policy loans 285 291 289
Certificates of deposit and short-term
investments 15,246 7,589 1,079
Investment real estate 141 141 141
------- ------- ------
Total Other Invested Assets 16,311 8,789 2,374
------- ------- ------
Total Cash and Invested Assets $111,516 $108,838 $57,434
======= ======= =======
____________________
(1) Represents the Company's 40.0% ownership interest.
Included in the invested assets of the Company outlined in the
preceding table are certain high-yield debt securities which are
below a "BBB" or equivalent rating. Although the Company owned
no such assets at December 31, 1994, these high-yield debt
securities amounted to less than 0.7% and 0.1% of the Company's
total cash and invested assets at December 31, 1995 and
December 31, 1994, respectively.
The significant increase in the investment portfolio during 1994
was primarily the result of the assets acquired by the Company in
the Acquisition. See "BUSINESS-GENERAL."
The following table summarizes consolidated investment results
for the periods shown:
Year Ended December 31,
------------------------------------------------
1995 1994 1993
------------------------------------------------
(In thousands)
Total invested assets, cash and cash equivalents $111,516 $108,838 $ 57,434
Net investment income $ 7,421 $ 5,764 $ 4,120
Average annual yield on total investments 7.0% 6.4% 7.4%
Realized gains on investments $ 182 $ 320 $ 1,030
The following table summarizes the Company's fixed maturity
securities, excluding short-term investments, as of December 31,
1995:
FIXED MATURITY SECURITIES
Market or
Estimated
Book Value(1) Fair Value(2)
-------------------- -------------------
Total % Total %
-------- ----- -------- -----
(In thousands)
Fixed maturity securities:
U.S. Government and governmental agencies
and authorities (except mortgage-backed) $24,583 28.3 $24,583 28.3
States, municipalities and
political subdivisions 1,632 1.9 1,632 1.9
Finance 18,745 21.6 18,745 21.6
Public utilities 8,700 10.0 8,700 10.0
Mortgaged-backed 11,075 12.8 11,075 12.8
All other corporate bonds 21,745 25.1 21,745 25.1
Certificates of deposit 300 0.3 300 0.3
------- ----- ------- ----
Total fixed maturity securities $86,780 100.0 $86,780 100.0
======= ===== ======= =====
_____________________
(1) Fixed maturity securities classified as held-to-maturity
are carried at amortized cost. Fixed maturity securities
classified as available-for-sale are carried at market
value. At December 31, 1995, all of the Company's fixed
maturity securities are classified as available-for-sale.
(2) Market value represents the closing sales prices of
marketable securities. Estimated fair values are based on
the credit quality and duration of marketable securities
deemed comparable by the Company, which may be of another
issuer.
The Company's fixed maturity investment portfolio at December 31,
1995 was composed primarily of debt securities of the
U.S. Government and corporations and of mortgage-backed
securities. Investments in the debt securities of corporations
are principally in publicly-traded bonds.
Mortgage-backed securities represented approximately 12.8% of the
market or estimated fair value of the Company's total investment
securities as of December 31, 1995. Investors are compensated
primarily for reinvestment risk rather than credit quality risk.
During periods of significant interest rate volatility, the
underlying mortgages may prepay more quickly or more slowly than
anticipated. If the repayment of principal occurs earlier than
anticipated during periods of declining interest rates,
investment income may decline due to the reinvestment of these
funds at the lower current market rates.
The following table indicates by rating the composition of the
Company's fixed maturity securities portfolio, excluding
short-term investments, as of December 31, 1995:
COMPOSITION OF FIXED MATURITY SECURITIES BY RATING
Market or
Estimated
Book Value(1) Fair Value(2)
-------------------- -------------------
Ratings(3) Total % Total %
- --------------- ------- ----- ------- -----
(In thousands)
Investment grade:
U.S. Government and agencies $35,658 41.1 $35,659 41.1
AAA 1,610 1.9 1,610 1.9
AA 10,570 12.2 10,570 12.2
A 24,313 28.0 24,312 28.0
BBB 13,879 16.0 13,879 16.0
Non-Investment grade:
BB 710 0.8 710 0.8
CCC 40 - 40 -
------- ----- ------- -----
Total fixed maturity securities $86,780 100.0 $86,780 100.0
======= ===== ======= =====
_____________________
(1) Fixed maturity securities classified as held-to-maturity
are carried at amortized cost. Fixed maturity securities
classified as available-for-sale are carried at market
value. At December 31, 1995, all of the Company's fixed
maturity securities are classified as available-for-sale.
(2) Market value represents the closing sales prices of
marketable fixed maturity securities. Estimated fair
values are based on the credit quality and duration of
marketable securities deemed comparable by the Company,
which may be of another issuer.
(3) Ratings are the lower of those assigned primarily by
Standard & Poor's and Moody's when available, and shown in
the table using the Standard & Poor's rating scale.
Unrated securities are assigned ratings based on the
applicable NAIC rating or the rating assigned to comparable
debt out-standing of the same issuer. NAIC 1 fixed
maturity securities have been classified as "A", and NAIC 2
fixed maturity securities have been classified as "BBB".
The NAIC assigns securities quality ratings and uniform prices
called "NAIC Designations," which are used by insurers when
preparing their annual statutory reports. The NAIC assigns
designations to publicly- traded as well as privately-placed
securities. The ratings assigned by the NAIC range from Class 1
to Class 6, with Class 1 as the highest quality rating. The
following table sets forth the book and market or estimated fair
value of the Company's fixed maturity securities, excluding
short-term investments, according to NAIC Designations and
Standard & Poor's ratings as of December 31, 1995:
NAIC DESIGNATIONS
Market or
Estimated
Book Value(1) Fair Value(2)
--------------------------- -----------------------
NAIC Designations(3) Total % Total %
- -------------------- -------- ---- ------- -----
(In thousands)
NAIC 1 (AAA, AA, A) $72,151 83.2 $72,151 83.2
NAIC 2 (BBB) 13,879 16.0 13,879 16.0
NAIC 3 (BB) and below 750 0.8 750 0.8
------- ----- ------- -----
Total fixed maturity securities $86,780 100.0 $86,780 100.0
======= ===== ======= =====
_____________________
(1) Fixed maturity securities classified as held-to-maturity are carried at amortized
cost. Fixed maturity securities classified as available-for-sale are carried at
market value. At December 31, 1995, all of the Company's fixed maturity
securities are classified as available-for-sale.
(2) Market value represents the closing sales prices of marketable fixed maturity
securities. Estimated fair values are based on the credit quality and duration
of marketable securities deemed comparable by the Company, which may be
of another issuer.
(3) Generally comparable to Standard & Poor's ratings. Comparisons between
NAIC ratings and Standard & Poor's ratings are as published by the NAIC.
The scheduled maturities of the Company's fixed maturity securities, excluding
short-term investments, as of December 31, 1995 were as follows:
COMPOSITION OF FIXED MATURITY SECURITIES BY MATURITY
Market or
Estimated
Book Value(1) Fair Value(2)
----------------------- ------------------------
Scheduled Maturity Total % Total %
- ------------------ ------- ----- -------- -----
(In thousands)
Due in one year or less $ 3,441 4.0 $ 3,441 4.0
Due after one year through five years 23,380 26.9 23,380 26.9
Due after five years through ten years 19,987 23.0 19,987 23.0
Due after ten years 28,897 33.3 28,897 33.3
Mortgage-backed securities 11,075 12.8 11,075 12.8
------- ----- ------- -----
Total fixed maturity securities $86,780 100.0 $86,780 100.0
======= ===== ======= =====
_____________________
(1) Fixed maturity securities classified as held-to-maturity
are carried at amortized cost. Fixed maturity securities
classified as available-for-sale are carried at market
value. At December 31, 1995, all of the company's fixed
maturity securities are classified as available-for-sale.
(2) Market value represents the closing sales prices of
marketable fixed maturity securities. Estimated fair
values are based on the credit quality and duration of
marketable securities deemed comparable by the Company,
which may be of another issuer.
REINSURANCE
Ceded
As is customary in the insurance industry, the Company cedes
reinsurance to other insurance companies. Cession of reinsurance
is utilized by an insurer to limit its maximum loss, thereby
providing a greater diversification of risk and minimizing
exposures on larger risks. Reinsurance does not discharge the
primary liability of the original insurer with respect to such
insurance (except for assumption reinsurance described below) but
the Company, in accordance with prevailing insurance industry
practice, reports reserves and claims after adjustment for
reserves and claims ceded to other companies through reinsurance.
The Company generally does not cede risks associated with its
Cancer and Specified Disease Products, Medicare Supplement
Products or Life Insurance Products. However, 100% of the
Company's risks under its Accidental Death policies currently in
force are reinsured. The Company had an excess loss reinsurance
agreement during 1995 which limited the Company's losses on the
First Occurrence policies in the event that such losses exceeded
a certain percentage of earned premiums. This reinsurance
agreement was not renewed in 1996. The Company currently
reinsures its risks under its Medical Expense Products so that
its maximum payment to any one beneficiary during any one-year
period is limited ($100,000 in 1995) for any accident or illness.
In accordance with industry practice, the reinsurance agreements
in force with respect to these policies are terminable by either
party with respect to claims incurred after the termination date
and the expiration dates.
Assumed
The Company also assumes reinsurance (primarily in the form of
coinsurance) as part of its ongoing operations. Assumption of
reinsurance is utilized by insurers as an additional source of
insurance business. In May 1987, NFL entered into a coinsurance
treaty with FLICA. Under the terms of the treaty, NFL assumed a
50.0% share of all Cancer and Specified Disease policies written
by FLICA, the ceding company, from January 1, 1987 through
December 31, 1988. During 1988, the coinsurance treaty was
amended to continue until December 31, 1998. See "MARKETING".
For the year ended December 31, 1995, $4.3 million of assumed
premiums under this coinsurance treaty were recorded as premiums.
In March 1990, NFL entered into a coinsurance treaty with
Paramount. Under the terms of the treaty, which was in effect
from April 1, 1990 through May 31, 1995, NFL assumed 90.0% of the
Cancer and Specified Disease policies written by Paramount. The
treaty effectively ended upon the purchase of this block of
business by NFL from Paramount. For the year ended December 31,
1995, $582,000 of assumed premiums under this coinsurance treaty
were recorded as premiums. In December 1993, NFL entered into a
coinsurance agreement with FLICA. Under the terms of this
agreement, which expires in November 1998, the Company assumes
90.0% of the First Occurrence policies issued by FLICA. For the
year ended December 31, 1995, $5.1 million of assumed premiums
under this agreement were recorded as premiums.
Use in Acquisitions
Over the past four years, the Company has acquired blocks of
policies in force from AII, LHI, and DNL, through the use of
indemnity and assumption reinsurance. Using this process, the
Company first acquires policies by insuring the risks of policies
ceded by other insurers in the manner discussed above. Following
such acquisition, the Company applies to each relevant state
regulatory authority for approval to convert the indemnity
reinsurance to assumption reinsurance. As regulatory approval
from each state is obtained, the Company issues assumption
certificates to policyholders in the approving state to provide
notice of the Company's assumption of the primary obligation
under the insurance policies assumed. There can be no assurance
that regulatory approval will be granted by each relevant state,
or as to the time required to obtain such approval. As of
December 31, 1995, annualized premiums of $47,000, and
$1,480,000, relating to the policies acquired from AII, and LHI,
respectively, had not yet been approved for assumption.
EMPLOYEES
At December 31, 1995, the Company employed 309 persons, of which
67 were management and supervisory personnel. The Company has not
experienced any work stoppages, strikes or business interruptions
as a result of labor disputes involving its employees, and the
Company considers its relations with its employees to be good.
HEALTH CARE REFORM
On September 22, 1993, President Clinton proposed the Health
Security Act of 1993 (the "HSA"), legislation designed to reform
the United States health care system. The HSA is primarily
intended to (I) provide access to health care services for all
United States residents and (ii) control the escalation of health
care expenditures in the United States. Since the introduction
of the HSA, several members of Congress have proposed alternative
legislation which would provide varying degrees of coverage. On
October 7, 1994, Congress adjourned without having enacted
significant health care legislation. However, such legislation
may be enacted in the future. The specific elements of the HSA,
or other federal legislation enacted to reform the health care
system, may include limitations on government spending for
health care benefits, price controls, the creation of large
purchasing groups and mandatory standard health care benefit
programs. The HSA, or any other proposed legislation, is
expected to undergo significant revision prior to congressional
approval and implementation. In addition, state governments may
propose and adopt health care plans.
Such federal or state legislation, if enacted, could, among other
things, further restrict the Company's ability to implement rate
increases, and could impose limitations on the profitability of
certain of the Company's insurance products. Also, to the
extent that such legislation guarantees major medical coverage to
all United States residents and/or expands the scope of basic
coverage, the demand for specified disease and supplemental
insurance may be reduced, and certain health insurance business
currently in force could experience high lapse rates. The
Company cannot predict what effect, if any, yet to be enacted
health care legislation or proposals will have on the Company if
and when enacted. The Company believes that the current
political environment in which it operates will result in
continued legislative scrutiny of health care reform and may lead
to additional legislative initiatives. No assurance can be
given that enactment of any federal and/or state health care
reforms will not have a material effect on the Company's
business.
ITEM 2. PROPERTIES.
The Company maintains its principal offices at 777 Main Street,
Fort Worth, Texas. Such offices were leased by NFL in July 1983
under a lease agreement which was subsequently amended and which
expires in June 2001.
WPS, the Company's wholly-owned printing subsidiary which prints
all policies, forms and brochures of the Insurance Subsidiaries,
maintains its manufacturing facility at 7333 Jack Newell
Boulevard North, Fort Worth, Texas, under a lease agreement which
expires in October, 2005.
LifeStyles Marketing maintains its sales headquarters at 1161
Corporate Drive, Arlington, Texas, under a five year lease
agreement which expires in August, 1997. LifeStyles Marketing
also leases office space for certain of its 18 branch sales
office locations under lease agreements which expire on various
dates throughout the next twelve months. Senior Benefits
maintains its offices in Scottsdale, Arizona, under a three-year
lease expiring in September, 1996.
American Senior Security Plans maintains its offices in Dallas,
Texas, under an annual lease agreement.
Health-Care One maintains its offices in San Diego, California,
under a lease agreement expiring January, 1999.
ITEM 3. LEGAL PROCEEDINGS.
In the normal course of its business operations, the Company is
involved in various claims and other business related disputes.
In the opinion of management, the Company is not party to any
pending litigation the disposition of which would have a material
adverse effect on the Company's consolidated financial position
or its results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted during the fourth quarter of the
fiscal year covered by this report to a vote of security holders
of the Company.
EXECUTIVE OFFICERS OF REGISTRANT
Westbridge's executive officers, who serve at the pleasure of the
Board of Directors, are as follows:
Years with
Name Age Position with the Company the Company
Martin E. Kantor 73 Chairman of the Board and
Chief Executive Officer 19
James W. Thigpen 58 President and Chief
Operating Officer 14
Patrick J. Mitchell 37 Vice President, Chief Financial -
Officer and Treasurer
Stephen D. Davidson 40 Vice President and Chief
Marketing Officer 2
Margaret A. Megless 44 Vice President 20
Michael D. Norris 49 Vice President and Secretary 12
Dennis A. Weverka 51 Vice President 15
Mr. Kantor has served as Chairman of the Board and Chief
Executive Officer of Westbridge since 1993 Mr. Kantor had served
as Chairman of the Board, President and Chief Executive Officer
of Westbridge since prior to 1990. Mr. Kantor has served as
Chairman of the Board of NFL since prior to 1989, and also became
Chief Executive Officer of NFL in 1985. Following the
Acquisition of NFIC and AICT, Mr. Kantor was appointed Chairman
of the Board of each of NFIC and AICT. Mr. Kantor may be deemed
to be a control person of Westbridge by virtue of his ownership
of 721,906 shares, or 12% of the outstanding shares of
Westbridge's Common Stock at December 31, 1995. This amount does
not include shares held in various trusts established by
Mr. Kantor for the benefit of his children and grandchildren over
which he has no voting or investment power and as to which
Mr. Kantor disclaims beneficial ownership.
Mr. Thigpen has served as President and Chief Operating Officer
of Westbridge since January 1993. Following the Acquisition of
NFIC and AICT, Mr. Thigpen was appointed President and Chief
Operating Officer of each of NFIC and AICT. Mr. Thigpen had
served as Executive Vice President of Westbridge since prior to
1989. Mr. Thigpen has also served as President and Chief
Operating Officer of NFL since prior to 1989. From March 1981 to
April 1985, Mr. Thigpen served as Executive Vice President-Operations of NFL.
Mr. Thigpen was Senior Vice President of
Operations of Lone Star Life Insurance Company, Dallas, Texas for
four years prior to his joining NFL in March 1981.
Mr. Mitchell has served as Vice President, Chief Financial
Officer and Treasurer of Westbridge since August 1995.
Mr. Mitchell is also Senior Vice President, Treasurer and
Director of NFL, NFIC and AICT, and has served in that capacity
since August 1995. Mr. Mitchell served as Vice President for
Bankers Life & Casualty Company, Chicago, Illinois, for two years
prior to joining Westbridge. Mr. Mitchell was an Assistant Vice
President for Reliance Standard Life Insurance Company,
Philadelphia, Pennsylvania, from 1989 to 1993.
Steven D. Davidson, Vice President, has served as Chief Marketing
Officer of Westbridge and as a Senior Vice President of NFL, NFIC
and AICT since joining the Company in August 1994. Mr. Davidson
served as President of Senior Benefits, L.L.C., from 1992 to 1994
and as Vice President of Marketing for Pioneer Life Insurance
Company, Rockford, Illinois, from 1989 to 1992.
Margaret A. Megless has served as Vice President, Information
Systems of Westbridge since August 1994 and as Senior Vice
President, Information Systems of NFL since 1992. Following the
Acquisition of NFIC and AICT, Ms. Megless was appointed Senior
Vice President of each of NFIC and AICT, and in June 1994, was
appointed a director of NFL, NFIC and AICT. Ms. Megless joined
the Company in January 1977, serving as Vice President,
Information Systems of NFL from 1984 to 1992.
Mr. Norris is Vice President and Secretary of Westbridge and has
served as Secretary since prior to 1990, and has served as Vice
President since August 1994. Mr. Norris has also served as
Senior Vice President, General Counsel and Secretary of NFL since
prior to 1990. Following the Acquisition of NFIC and AICT,,
Mr. Norris was appointed Senior Vice President and Secretary of
each of NFIC and AICT, and in June 1994 was appointed a director
of NFL, NFIC and AICT. Mr. Norris was Counsel for the Oklahoma
Insurance Department, Oklahoma City, Oklahoma for two years prior
to joining NFL in March 1983. Mr. Norris was an adjuster and
attorney for Allstate Insurance Company, Oklahoma City, Oklahoma,
from 1979 to 1981.
Dennis A. Weverka was appointed Vice President, of Westbridge in
August 1994. Mr. Weverka joined the Company in August 1981 and
has served as a Senior Vice President of NFL since 1984.
Following the Acquisition of NFIC and AICT, Mr. Weverka was
appointed Senior Vice President of NFIC and AICT, and in June
1994 was appointed a director of NFL, NFIC and AICT.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
The Common Stock trades on the New York Stock Exchange under the
symbol "WBC". Prior to May 25, 1995, the Common Stock traded on
the American Stock Exchange, under the same symbol. The
following table sets forth the high and low sales price for the
Common Stock, by quarter, for the periods indicated.
High Low
1994
First Quarter 8 1/2 6 3/4
Second Quarter 8 3/4 6 5/8
Third Quarter 9 5/8 7 7/8
Fourth Quarter 9 3/8 7 3/8
1995
First Quarter 8 1/8 5 7/8
Second Quarter 7 1/2 5 1/2
Third Quarter 6 5/8 5 3/4
Fourth Quarter 6 5/8 5 5/8
1996
First Quarter (through March 11, 1996) 6 5/8 6 1/8
On March 11, 1996, the closing price of the Common Stock on the
NYSE was $6 3/8 per share.
As of March 11, 1996, there were 2,424 record holders of the
Common Stock.
Westbridge has not paid any cash dividends on the Common Stock
and does not anticipate declaring or paying cash dividends on the
Common Stock in the foreseeable future. Both the Preferred Stock
Purchase Agreement related to the Series A Preferred Stock and
the Indenture related to the 11% Senior Subordinated Notes,
impose certain restrictions upon the Company with respect to the
payment of dividends on the Common Stock. For information
concerning statutory limitations on the payment of dividends by
the Insurance Subsidiaries to Westbridge, see "BUSINESS--REGULATION"
and NOTE 12 of "Notes to the Consolidated Financial
Statements" herein.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
Selected financial data for each of the Company's last five years
of operations is presented below (in thousands, except share
data):
Year Ended December 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------------------
Total revenues $130,032 $106,546 $ 75,292 $ 62,634 $ 61,950
Income before cumulative effect of change
in accounting principle and extra-
ordinary item 5,731 6,425 3,531 1,762 814
Cumulative effect of change in accounting
principle (1) - - - 1,134 -
Extraordinary loss from early extinguishment
of debt, net of income tax benefit (2) 407 - - - -
Net income 5,324 6,425 3,531 2,896 814
Preferred stock dividends 1,650 1,190 - - -
Income applicable to common stockholders 3,674 5,235 3,531 2,896 814
Total assets 200,999 187,581 97,067 101,915 85,856
Stockholders' equity (3) 42,805 26,355 21,611 18,013 14,920
Notes payable (4) 15,807 - - - -
Senior subordinated debentures due 1996 (3) - 24,665 19,422 19,210 19,024
Senior subordinated notes due 2002 (3) 19,264 - - - -
Redeemable preferred stock 20,000 20,000 - - -
Share Data:
Primary:
Income before cumulative effect of
accounting change and extraordinary item $0.70 $1.13 $0.78 $0.40 $0.20
Cumulative effect of accounting change (1) - - - 0.26 -
Extraordinary item (2) (0.07) - - - -
Net earnings $0.63 $1.13 $0.78 $0.66 $0.20
Fully Diluted:
Income before cumulative effect of
accounting change and extraordinary item $0.70 $1.03 $0.78 $0.40 $0.20
Cumulative effect of accounting change (1) - - - 0.26 -
Extraordinary item (2) (0.05) - - - -
Net earnings $0.65 $1.03 $0.78 $0.66 $0.20
Book Value Per Share:
Primary $7.18 $5.99 $5.09 $4.30 $3.55
Fully diluted (5) $7.53 $6.93 $5.09 $4.30 $3.55
Weighted Average Shares Outstanding:
Primary 5,836,000 4,617,000 4,555,000 4,381,000 4,148,000
Fully diluted 8,204,000 6,267,000 4,555,000 4,381,000 4,148,000
_________________
(1) Represents the effect of the Company's adoption of SFAS 109,
"Accounting for Income Taxes", on a prospective basis as of
January 1, 1992.
(2) Represents loss from early extinguishment of Senior
Subordinated Debentures due 1996, on March 30, 1995.
(3) On February 28, 1995, the Company issued $20,000,000 principal
amount of its 11% Senior Subordinated Notes due 2002 (the
"Notes"), and issued 1,500,000 additional shares of Common Stock.
The proceeds of these offerings have been used, in part, to
redeem the Senior Subordinated Debentures due 1996, on March 30,
1995.
(4) Represents the balance outstanding against a revolving line of
credit with a cap of $20,000,000, plus a note payable to a
related party of approximately $1,000,000.
(5) Calculated by adding the redeemable preferred stock balance to
stockholders' equity, and dividing the resultant sum by the
period-end shares outstanding plus the number of common shares
issuable upon conversion of the redeemable preferred stock if
converted at the end of the period.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.
OVERVIEW
The Company derives its revenue primarily from premiums from its
insurance products and, to a significantly lesser extent, from
fee and service income, income earned on investment assets and
gains on the sales or redemptions of investment assets. The
Company's primary expenses include benefits and claims in
connection with its insurance products, amortization of deferred
policy acquisition costs ("DPAC"), commissions paid on policy
renewals, general and administrative expenses associated with
policy and claims administration, taxes, licenses and fees, and
interest on the indebtedness. In addition to the foregoing
expenses, the Company is obligated to pay dividends on the
Series A Preferred Stock if and when declared by the Board of
Directors.
Fee and service income is generated primarily from
(i) telemarketing services provided to unaffiliated insurance
agencies, (ii) commissions received by marketing organizations
from unaffiliated insurance companies, (iii) administrative and
computer services provided to FLICA, and (iv) fees received by
WPS for services provided to unaffiliated companies.
Benefits and claims are comprised of (i) claims paid,
(ii) changes in claim reserves for claims incurred (whether or
not reported) and (iii) changes in policy benefit reserves based
on actuarial assumptions of future benefit obligations not yet
incurred on policies in force.
DPAC consists of expenditures made for the production of new
business. They consist principally of the amount by which
first-year commission costs exceed commission costs paid in
subsequent policy years. Also included in DPAC is the cost of
insurance purchased relating to acquired blocks of business. The
amortization of these costs is based on actuarially estimated
future premium revenues. The amortization rate is adjusted
periodically to reflect actual experience.
Over the past four years, the Company has acquired seasoned
blocks of business to supplement its revenue. These acquisitions
included (i) a block of Medicare Supplement Products purchased
from AII in September 1992, (ii) a block of Medicare Supplement
Products purchased from LHI in March 1993, (iii) a block of
Cancer and Specified Disease Products purchased from DNL in
February 1994 and (iv) a block of policies in all of the
Company's product lines purchased in the Acquisition.
The following table shows the premiums received by the Company
through internal sales and through acquisitions during the
periods indicated.
Year Ended December 31,
-------------------------------------
1995 1994 1993
-------- -------- --------
(In thousands)
Company-Issued Policies:
First-year premiums $ 34,561 $15,019 $ 8,675
Renewal premiums 37,223 34,328 36,655
------- ------ ------
Total company-issued policies 71,784 49,347 45,330
------- ------ ------
Acquired Policies:
American Integrity 9,811 13,200 21,137
Life and Health 2,089 2,506 2,264
Dixie National Life 3,299 3,907 --
NFIC and AICT 33,110 29,743 --
------- ------ ------
Total acquired policies 48,309 49,356 23,401
------- ------ ------
Total Premiums $120,093 $98,703 $68,731
======= ====== ======
As demonstrated by the substantial increases in first-year
premiums for company issued policies over the past three years,
the Company has strived to produce revenue growth through
marketing and sale of new insurance business. This successful
marketing growth has resulted from expanded production at
existing agency networks, such as LifeStyles Marketing and Senior
Benefits, and from the development of relationships with new
marketing organizations, such as Cornerstone and Farm & Ranch.
RESULTS OF OPERATIONS
Year Ended December 31, 1995 Compared with Year Ended
December 31, 1994
Premiums. Premiums increased $21.4 million, or 21.7%, from $98.7
million to $120.1 million. This was due to an increase in first-year
premiums of $19.6 million, or 130.1 %, and an increase in
renewal premiums of $1.7 million, or 2.1%.
The increase in first-year premiums resulted from a $7.9 million,
or 199.1%, increase in first-year Medicare Supplement premium
generated by Senior Benefits, a $4.6 million, or 63.1%, increase
in first-year Medical Expense premiums generated by LifeStyles
Marketing, an increase of $5.0 million in first-year Medical
Expense premiums generated by Cornerstone and Farm & Ranch, which
began marketing products for the Company in December 1994, and a
$2.1 million, or 87.5%, increase in first-year premiums on
policies reinsured from FLICA.
The increase in renewal premium is attributable to increases of
$3.0 million from Senior Benefits, $1.0 million, or 26.1%, from
policies reinsured from FLICA, and $701,000, or 7.6%, for
LifeStyles Marketing Products. These increases were offset by
decreases of $1.2 million, or 21.3%, from discontinued Medicare
Supplement and Medical Expense Products, and $1.2 million in
renewal premiums from Acquired Policies. The decrease in renewal
premium from Acquired Policies is primarily attributable to a
$3.4 million, or 25.7%, decrease from the AII block of business
along with decreases of $556,000, or 14.4%, and $416,000, or
16.6%, in renewal premium from policies acquired from Dixie
National and Life and Health, respectively, offset by a $3.2
million increase in renewal premium from NFIC and AICT acquired
policies. Because NFIC and AICT were acquired in April, 1994,
revenues from the policies were recorded for a full year in 1995
compared to approximately nine months in 1994.
Net Investment Income. Net investment income increased $1.7
million, or 29.8%, from $5.7 million to $7.4 million due to a
combination of slightly higher rates of return on the Company's
invested assets and the results of having the invested assets
acquired with NFIC and AICT earning income for the Company for a
full year in 1995. Additionally, approximately $400,000 of
interest on agents' debit balances was recorded in 1995, which
was not present in 1994.
Fee and Service Income. Fee and service income increased
$599,000, or 35.2%, from $1.7 million to $2.3 million due
primarily to an increase of $442,000 of telemarketing services
sold to non-affiliated agency operations.
Benefits and Claims. Benefit and claim expense increased $16.9
million, or 31.5%, from $53.6 million to $70.5 million. This was
due to increases of $11.5 million in benefit and claim expense on
Medicare Supplement Products produced by Senior Benefits, $3.2
million, or 39.8%, on Medical Expense Products sold by LifeStyles
Marketing, $4.0 million, or 211.0%, on policies reinsured from
FLICA, $3.4 million in Medical Expense Products marketed by
Cornerstone and Farm & Ranch, and $791,000, or 64.1%, on pre-1987
Medical Expense Products. Offsetting these increases were
decreases in benefits and claims expense of $4.6 million, or
81.3%, for Cancer and Specified Disease Products issued directly
by the Company and $491,000, or 1.5%, related to Acquired
Products.
Benefits and claims expense as a percentage of total premiums
rose 4.3% in 1995 compared to 1994. This increase is primarily
attributable to two factors. First, a shift in product mix from
defined benefit policies such Cancer and Specified Disease
Products, to Medical Expense Products and Medicare Supplement
Products which have inherently higher benefit ratios. Second,
increased medical provider claims industry-wide contributed to
the increase.
Amortization of DPAC. Amortization of DPAC increased $1.8
million, or 18.6%, from $9.7 million to $11.5 million. The
increase in amortization of DPAC resulted from amortization
increases of $2.9 million related to LifeStyles Marketing
Products, $1.4 million from discontinued Medicare Supplement
Products and $927,000 from pre-1987 Medical Expense Products.
These increases are offset, in part, by decreases in amortization
of DPAC related to Company-issued Cancer and Specified Disease
Product of $2.0 million and Cancer and Specified Disease Product
reinsured from FLICA of $1.1 million.
Commissions. Commissions increased $135,000, or 1.2%, from $11.2
million to $11.3 million. Commissions increased $587,000 from
policies reinsured with FLICA with an offsetting decrease of
$510,000 from Acquired policies. Before elimination of
intercompany revenues and expenses in consolidation, commissions
increased $913,000, or 8.3%, in NFL, $847,000, or 35.1%, in NFIC
and AICT, and $1.3 million, or 35.1%, in LifeStyles Marketing.
An increase of $2.2 million, or 39.7%, in commissions paid to
LifeStyles Marketing by NFL was eliminated in consolidation. An
increase of $529,000 in commissions paid to Senior Benefits by
NFL was also eliminated in consolidation.
The increase in commissions before consolidation eliminations for
NFL resulted from increases of $1.3 million for products sold by
Senior Benefits, $383,000, or 18.4%, for products sold by
LifeStyles Marketing, and $587,000, or 39.9%, for policies
reinsured from FLICA. These increase were offset, in part, by
decreases of $959,000, or 32.8%, for Acquired Policies and
$261,000, or 7.2%, for Company-issued Cancer and Specified
Disease products. The increase in commissions before
consolidation eliminations for NFIC and AICT is principally the
result of two items. $449,000 of the increase resulted from
recording NFIC and AICT commissions for a full year in 1995, as
opposed to about nine months in 1994. $398,000 of the increase
resulted from new product sales generated by Cornerstone and Farm
& Ranch. These items were not present or were insignificant in
the corresponding period in 1994.
General and Administrative Expenses. General and administrative
expenses increased $5.1 million, or 30.1%, from $16.8 million to
$21.9 million. This increase stems from expenses associated with
developing marketing operations to maintain growth momentum and
the effect of the first full fiscal year administering the NFIC
and AICT acquisition.
Taxes, Licenses and Fees. Taxes, licenses and fees increased
$871,000, or 27.2%, from $3.2 million to $4.1 million due
principally to the increase in collected premiums and the related
tax thereon levied by state governments.
Interest Expense. Interest expense decreased $635,000, or 21.2%,
from $3.0 million to $2.4 million. This decrease is the result of
the Company retiring $25.0 million of 11.7% Senior Subordinated
Debentures effective March 30, 1995 along with the issuance of
$20.0 million of 11.0% senior notes on February 28, 1995.
Provision for Income Taxes. The provision for income taxes
increased $49,000, or 1.8%, from $2,764,000 to $2,813,000. A
decrease in pre-tax income of $648,000, or 7.3%, was offset by an
increase of 300 basis points, or 10%, in the effective tax rate
resulting in the relatively small increase in the provision for
income taxes. The Company received little or no small company
tax benefit in 1995 and consequently experienced an increase to
the effective tax rate.
Year Ended December 31, 1994 Compared with Year Ended
December 31, 1993
Premiums. Premiums increased $30.0 million, or 43.7%, from $68.7
million to $98.7 million. This increase was due primarily to an
increase in total acquired policy premiums of $26.0 million, or
111.1%, and an increase in first-year premiums for Company-issued
policies of $6.3 million, or 72.4%, offset, in part, by a
decrease in renewal premiums (excluding renewal premiums on
policies acquired in acquisitions) of $2.3 million, or 6.3%.
The increase in total acquired policy premiums resulted from
premiums of $29.7 million from the policies obtained in the
Acquisition and $3.9 million from the Cancer and Specified
Disease Products acquired from DNL, which, in each case, were not
present in the year ended December 31, 1993. In addition,
premiums on the block of policies acquired from LHI in March 1993
increased $242,000, or 10.7%, from the corresponding prior year
period. These increases were offset, in part, by a decrease in
premiums on the block of policies acquired from AII in September
1992 of $7.9 million, or 37.4%, due to policy lapses or
cancellations.
The increase in first-year premiums resulted primarily from $3.9
million in first-year premiums generated by Senior Benefits,
which began writing the Company's Medicare Supplement Products in
November 1993, and increases of $1.7 million, or 30.9%, in
first-year premiums for Medical Expense Products sold by
LifeStyles Marketing and $1.3 million, or 118.2%, in first-year
premiums on policies reinsured from FLICA. These increases were
offset, in part, by a decrease of $548,000, or 27.1% in
first-year premiums on Cancer and Specified Disease Products
written directly by the Company.
The decrease in renewal premiums (excluding renewal premiums on
policies acquired in acquisitions) was primarily due to a
decrease of $885,000, or 24.8%, for pre-1987 Medical Expense
Products, a decrease of $479,000, or 4.9%, for LifeStyles
Products and a decrease of $378,000, or 19.1%, in premiums for
Cancer and Specified Disease Products reinsured from Paramount.
Decreases in renewal premiums result from lapses or cancellations
of existing policies which are not offset by the Company's
acquisition or generation of new business. If the Company's
efforts to increase the sales and marketing of its existing
products do not offset future policy lapses or cancellations,
premiums will decline over time.
Net Investment Income. Net investment income increased $1.6
million, or 39.0%, from $4.1 million to $5.8 million due
primarily to investment income of $2.6 million earned on the
investment assets acquired in the Acquisition, offset, in part,
by lower returns on the Company's other investment assets
resulting from reinvestment, at lower interest rates, of the
proceeds on bonds which were redeemed or matured during the year
ended December 31, 1993.
Fee and Service Income. Fee and service income increased
$300,000, or 21.4%, from $1.4 million to $1.7 million due
primarily to increased commissions received through LifeStyles
Marketing from non-affiliated insurers.
Benefits and Claims. Benefits and claims increased $20.4
million, or 61.4%, from $33.2 million to $53.6 million. This
increase was due primarily to benefits and claims of $19.4
million on the policies acquired in the Acquisition, $2.7 million
on the Cancer and Specified Disease Products acquired from DNL in
February 1994, and $1.5 million on the Medicare Supplement
Products marketed by Senior Benefits following its formation in
November 1993, each of which were not present or were
insignificant in the corresponding period in 1993. Also
contributing were increases in benefits and claims of $1.1
million, or 15.9%, for LifeStyles Products, $1.4 million, or
32.6%, for Cancer and Specified Disease Products issued directly
by the Company, and $352,000 or 23.0%, for Cancer and Specified
Disease Products reinsured from FLICA. These increases were
offset, in part, by decreases in benefits and claims of $4.3
million, or 29.9%, for the previously acquired Medicare
Supplement Products, and $1.3 million, or 46.4%, for pre-1987
Medical Expense Products.
Amortization of DPAC. Amortization of DPAC increased $1.5
million, or 18.3%, from $8.2 million to $9.7 million. This
increase was due primarily to $3.0 million of amortization
expense attributable to the policies acquired in the Acquisition,
and $520,000 of amortization expense relating to Medicare
Supplement Products marketed by Senior Benefits, each of which
were not present or were insignificant in the corresponding
period in 1993. These increases were offset, in part, by
decreases in amortization expense of $829,000, or 27.0%, for
LifeStyles Products, $413,000, or 51.2%, for pre-1987 Medical
Expense Products, and $458,000, or 41.3%, for previously acquired
Medicare Supplement Products.
Commissions. Commissions increased $1.6 million, or 16.7%, from
$9.6 million to $11.2 million due primarily to $2.4 million of
commissions on the policies acquired in the Acquisition, offset,
in part, by a decrease of $800,000, or 8.3% in other commissions.
Before elimination of intercompany revenues and expenses in
consolidation, commissions decreased $145,000, or 1.3%, in NFL
and increased $816,000, or 28.9%, in LifeStyles Marketing. An
increase of $1.2 million, or 27.3%, in commissions paid to
LifeStyles Marketing by NFL was eliminated in consolidation.
The decrease in commissions paid by NFL resulted primarily from
decreases of $1.3 million, or 37.1%, in commissions paid on the
previously acquired Medicare Supplement Products and $157,000, or
4.1%, in commissions paid on Cancer and Specified Disease
Products issued directly by the Company. These decreases were
offset, in part, by $767,000 in commissions paid on the Cancer
and Specified Disease Products acquired from DNL, and $205,000 of
commission expense relating to Medicare Supplement Products
marketed by Senior Benefits, each of which were not present in
1993, and increases of $234,000, or 12.6%, in commissions paid on
LifeStyles Products and $269,000, or 22.4%, in commissions paid
on Cancer and Specified Disease Products reinsured from FLICA.
The increase in commissions paid by LifeStyles Marketing resulted
from increased production of new business.
General and Administrative Expenses. General and administrative
expenses increased $2.5 million, or 17.5%, from $14.3 million to
$16.8 million due primarily to the costs associated with the
administration of the policies acquired in the Acquisition.
Taxes, Licenses and Fees. Taxes, licenses and fees increased
$500,000, or 18.5%, from $2.7 million to $3.2 million due
primarily to the additional taxes on the premiums associated with
the policies acquired in the Acquisition.
Interest Expense. Interest expense increased $600,000, or 24.0%,
from $2.5 million to $3.1 million due primarily to the 25%
increase in the Company's consolidated debt following NFL's sale
in February 1994 of $5.0 million principal amount of Senior
Subordinated Debentures previously held in its investment
portfolio.
Provision for Income Taxes. The provision for income taxes
increased $1.2 million, or 75.0%, from $1.6 million to $2.8
million due primarily to the profitable operations acquired in
the Acquisition as well as an increase in the pre-tax income of
NFL.
Year Ended December 31, 1993 Compared with Year Ended December
31, 1992
Premiums. Premiums increased $12.0 million, or 21.2%, from $56.7
million to $68.7 million. This increase was due primarily to an
increase in total acquired policy premiums of $16.5 million or
239.0%, offset, in part, by a decrease in renewal premiums
(excluding renewal premiums on policies acquired in acquisitions)
of $3.7 million, or 9.1% and a decrease in first-year premiums
for Company-issued policies of $808,000, or 8.5%.
The increase in total acquired policy premiums resulted from an
increase in premiums of $14.2 million for the Medicare Supplement
Products acquired from AII in September 1992 and premiums of $2.3
million for the Medicare Supplement Products acquired from LHI in
March 1993.
The decrease in first-year premiums was primarily due to a
decrease of $361,000, or 6.1%, in first-year premiums generated
for NFL by LifeStyles Marketing and a decrease of $471,000, or
13.3%, in first-year premiums for Cancer and Specified Disease
Products. The decreases in first-year premiums followed
decreases in production which occurred in response to rate
increases implemented in the latter half of 1991. However, the
decrease in first-year premiums for LifeStyles Products has since
leveled off and, on a quarter-to-quarter basis during 1993,
first-year premiums have increased. LifeStyles Products'
first-year premiums were $1.1 million, $1.3 million, $1.5 million
and $1.6 million in the first, second, third and fourth quarter
of 1993, respectively.
The decrease in renewal premiums (excluding renewal premiums on
policies acquired in acquisitions) was primarily due to a
decrease of $1.0 million, or 5.1%, for Cancer and Specified
Disease Products and a decrease of $1.3 million, or 11.9%, for
LifeStyles Products. Also contributing to the decrease in
renewal premiums was a decrease for certain pre-1987 Medical
Expense Products of $602,000, or 14.4%, and a decrease for
pre-1987 Medicare Supplement Products of $676,000, or 15.7%.
Decreases in renewal premiums result from lapses or cancellations
of existing policies which are not offset by the Company's
acquisition or generation of new business. To the extent that
the Company's efforts to increase the sales and marketing of its
existing products do not offset future policy lapses or
cancellations, renewal premiums will continue to decline over
time.
Net Investment Income. Net investment income increased $200,000,
or 5.1%, from $3.9 million to $4.1 million due primarily to
additional investment assets received in connection with the
acquisition of Medicare Supplement Products from AII in September
1992 and from LHI in March 1993. This increase was offset, in
part, by a decrease in the Company's average annual yield on
investments from 8.5% to 7.4%.
Fee and Service Income. Fee and service income increased $5,000,
or less than 1.0%, to remain at $1.4 million.
Net Realized Gain on Investments. Net realized gain on
investments increased $578,000, or 137.0%, from $422,000 to
$1.0 million. This increase was due primarily to premium amounts
received upon the redemption of bonds prior to their scheduled
maturities. These redemptions resulted generally from the low
interest rate environment during 1993.
Other Income. Other income decreased $143,000, or 91.1%, from
$157,000 to $14,000. This decrease, which represents a return to
historical nominal levels, reflects the one-time gain of $133,000
recorded on the sale of a portion of the Company's life insurance
business in 1992.
Benefits and Claims. Benefits and claims increased $6.7 million,
or 25.3%, from $26.5 million to $33.2 million. This increase was
due primarily to an increase of $9.8 million, or 309.4%, in
benefits and claims on the Medicare Supplement Products acquired
from AII in September 1992, and benefits and claims of $1.3
million on the Medicare Supplement Products acquired from LHI in
March 1993. This increase was offset, in part, by a decrease of
$2.5 million, or 26.4%, for LifeStyles Products, a decrease of
$886,000, or 11.5%, for Cancer and Specified Disease Products and
a decrease of $1.0 million, or 18.2%, for pre-1987 Medical
Expense Products.
Amortization of DPAC. Amortization of DPAC decreased $300,000,
or 3.5%, from $8.5 million to $8.2 million due primarily to a
decrease for Cancer and Specified Disease Products of $486,000,
or 16.4%, and a combined decrease for most of the Company's other
product lines totaling $390,000. These decreases were offset, in
part, by an increase for the Medicare Supplement Products
acquired from AII in September 1992 of $583,000, or 111.0%, from
$525,000 to $1.1 million.
Commissions. Commissions increased $1.2 million, or 14.3%, from
$8.4 million to $9.6 million. This increase was due primarily to
an increase of $2.4 million, or 224.7%, in commissions paid on
acquired policies, and a decrease of $505,000 in the
consolidation elimination of commissions paid to LifeStyles
Marketing by NFL. These changes were offset, in part, by a
decrease of $1.7 million, or 13.8%, in other commissions
(excluding commissions on policies acquired in acquisitions).
The increase in commissions paid on acquired policies resulted
from an increase of $2.3 million, or 211.6%, in commissions paid
on the Medicare Supplement Products acquired from AII in
September 1992 and $139,000 in commissions paid on the Medicare
Supplement Products acquired from LHI in March 1993.
The decrease in other commissions (excluding commissions on
policies acquired in acquisitions) resulted from a decrease of
$549,000, or 16.3%, in commissions paid by LifeStyles Marketing
and a decrease of $1.1 million, or 12.9%, in other commissions
paid by NFL (excluding commissions paid to LifeStyles Marketing).
General and Administrative Expenses. General and administrative
expenses increased $1.6 million, or 12.6%, from $12.7 million to
$14.3 million due primarily to an increase of $1.0 million, or
9.9%, for the general and administrative expenses of NFL, and an
increase for LifeStyles Marketing of $451,000, or 17.1%. The
increase for NFL resulted from the Medicare Supplement Products
acquired from AII in September 1992. The increase for LifeStyles
Marketing is attributable to expenses relating to expanded
marketing efforts.
Taxes, Licenses and Fees. Taxes, licenses and fees increased
$600,000, or 28.6%, from $2.1 million to $2.7 million due
primarily to additional premium taxes paid on increased premiums.
Interest Expense. Interest expense increased $100,000, or less
than 4.0%, from $2.5 million to $2.6 million.
Provision for Income Taxes. The provision for income taxes
increased $1.1 million, or 206.8%, from $532,000 to $1.6 million
due to the increase in the pre-tax results of operations.
Contributing to this increase was an increase in operating income
and the adoption of SFAS 109 as of the beginning of 1992.
LIQUIDITY, CAPITAL RESOURCES, AND STATUTORY CAPITAL AND SURPLUS
Westbridge
Westbridge is a holding company which conducts its principal
operations through its Insurance Subsidiaries. Westbridge's
primary assets consist of the outstanding capital stock of NFL
and NFIC, of which it is the sole stockholder. NFL owns 100% of
WNL and also owns a 40.0% interest in Freedom Holding. AICT is a
wholly-owned subsidiary of NFIC. Westbridge's primary sources of
funds are dividends from its Insurance Subsidiaries, advances due
or dividends from non-insurance subsidiaries, principal and
interest payments on a surplus certificate issued by NFL to
Westbridge, lease payments on fixed assets, tax contributions
under a tax sharing agreement among Westbridge and its
subsidiaries, and receipt of principal and interest payments due
on the Elkins' note (as defined below). During the year ended
December 31, 1995, Westbridge received approximately
$3.3 million, or 93.3%, of its funds (excluding proceeds from
the issuance of securities) from its subsidiaries. Of the funds
received from its subsidiaries, approximately $1.0 million, or
30.8%, was received from the insurance subsidiaries in the form
of lease payments on fixed assets, payments of principal and
interest on the surplus certificate issued by NFL and payments
under a tax sharing agreement, and the remaining $2.3 million, or
69.2%, was received from LifeStyles Marketing and Senior Benefits
in the form of repayments of advances from Westbridge.
Westbridge's expenses and other obligations consist primarily of
$2.2 million in annual interest payments on the Senior
Subordinated Notes, $1.7 million in annual dividends on the
Series A Preferred Stock, working capital requirements for its
marketing subsidiaries and taxes. For the year ended
December 31, 1995, Westbridge's cash requirements (exclusive of
amounts paid in connection with the sale of the Common Stock and
Senior Subordinated Notes) aggregated approximately $6.1 million.
Westbridge used a substantial portion of the proceeds from the
sale of the Common Stock and Senior Subordinated Notes to redeem
the Senior Subordinated Debentures in March 1995. The Senior
Subordinated Notes mature in March 2002 and the Series A
Preferred Stock is subject to mandatory redemption in April 2004.
Dividend payments from Westbridge's principal Insurance
Subsidiaries are regulated by the insurance laws of their
domiciliary states. NFL is domiciled in Delaware. Under the
Delaware Insurance Code, an insurer domiciled in Delaware may not
declare or pay a dividend or other distribution from any source
other than "earned surplus" without the state insurance
commissioner's prior approval. "Earned surplus" is defined as an
amount equal to the unassigned funds of an insurer as set forth
on its most recent statutory annual statement, including all or
part of the surplus arising from unrealized capital gains or
revaluation of assets. WNL, which is domiciled in Arizona, has
not contributed in the past, and is not expected to contribute in
the foreseeable future, significant dividends to Westbridge.
NFIC and AICT are domiciled in Texas. An insurer domiciled in
Texas may pay dividends only out of "surplus profits arising from
its business." Moreover, insurers domiciled in either Delaware or
Texas may not pay "extraordinary dividends" without first
providing the state insurance commissioner with 30-days prior
notice, during which time such commissioner may disapprove the
payment. An "extraordinary dividend" is defined as a dividend
whose fair market value together with that of other dividends
made within the preceding twelve months exceeds the greater of
(a) ten percent of the insurer's surplus as regards policyholders
as of the preceding December 31 or (b) the net gain from
operations of such insurer, not including realized capital gains,
for the twelve-month period ending on the preceding December 31.
In September 1994, NFL paid to Westbridge an "extraordinary
dividend" in the amount of $2.0 million. The Company does not
believe that receipt of this dividend is an indication of, and
the Company is not in a position to assess, the likelihood of
obtaining approval for the payment of "extraordinary dividends"
or dividends from a source other than "earned surplus." With
respect to ordinary dividends payable by an insurer domiciled in
Delaware, notice of any dividend must be provided to the state
insurance commissioner within five business days following the
declaration thereof and at least ten days prior to the payment
thereof. As of December 31, 1995, NFL had negative statutory
"earned surplus" as a result of historical statutory losses. For
the foreseeable future, NFL has agreed to seek the approval of
the Delaware insurance commissioner prior to making any dividend
payments. As of December 31, 1995, AICT had the ability to pay
to NFIC, without prior regulatory approval, $835,000 in dividends
during 1996, none of which has been paid. As of December 31,
1995, NFIC had the ability to pay to Westbridge, without prior
regulatory approval, $994,000 in dividends during 1996, none of
which has been paid. In both Delaware and Texas, the state
insurance commissioner reviews the dividends paid by each insurer
domiciled in such commissioner's state at least once each year to
determine whether they are reasonable in relation to the
insurer's surplus as regards policyholders and quality of
earnings. The state insurance commissioner may issue an order to
limit or disallow the payment of ordinary dividends if such
commissioner finds the insurer to be presently or potentially
financially distressed or troubled.
Westbridge periodically advances cash to its subsidiaries as
their continuing operations require and, as of December 31, 1995,
such advances due from subsidiaries totaled $4.8 million.
Westbridge also holds a receivable from the surplus certificate
issued by NFL which, as of December 31, 1995, totaled $777,000.
Payments of principal due under the surplus certificate require
the prior approval of the Delaware regulatory authorities. In
addition, Westbridge holds a secured promissory note (the "Elkins
Note") from NFC Marketing, Inc., an Arkansas corporation which is
wholly-owned by Elkins. The balance of this note recorded on the
books of Westbridge at December 31, 1995 was approximately
$860,000. This note, which was renegotiated in October 1994,
represents principal and accrued interest on a loan made by
Westbridge to NFC Marketing, Inc. for the purpose of expanding
its marketing efforts. The original loan was scheduled to be
repaid in April 1993. However, due to certain financial
difficulties, NFC Marketing, Inc., was in arrears on the full
amount of this note and, as of October 10, 1994, owed Westbridge
approximately $1.2 million. On such date, the Elkins Note was
renewed and extended with terms which provide, among other
things, for the payment to Westbridge of $20,000 per month until
such time as the full amount of principal and interest thereunder
has been paid. Under the terms of the Elkins Note, such amounts
will be paid to Westbridge by NFL out of monthly commissions
which would otherwise be payable to NFC Marketing, Inc., by NFL.
Payment of principal and interest under the Elkins Note has been
guaranteed by Elkins. In addition, under the terms of a Security
Agreement delivered to Westbridge by NFC Marketing, Inc.,
following a default, Westbridge has the right to apply monies,
balances, credits or collections which it may hold for NFC
Marketing, Inc. on deposit, or which might otherwise be payable
to NFC Marketing, Inc., by NFL (including, among other things,
agents' commissions payable by NFL to NFC Marketing, Inc.), to
offset the unpaid balance of the Elkins Note. Amounts available
for such offset have averaged approximately $150,000 per month
over the past twelve months and consist exclusively of
commissions. Such commissions relate to and are paid by NFL out
of premiums it receives from policyholders on previously written
policies. Subject to policy lapses or cancellations, these
premiums will continue to be received by NFL and commissions
thereon will be available for offset by Westbridge whether or not
Elkins' relationship with the Company continues. Following any
exercise by Westbridge of its right of offset, management
believes that the level of lapses and cancellations would
gradually increase as a result of agents' efforts to transfer the
policies to other insurers. However, management also believes
that the rate at which such policies could be rewritten would not
significantly affect the level of premiums received by NFL in the
near term. As a result, management believes that following any
future payment default Westbridge should be able to recover the
full amount owed on this note. Westbridge does not know of, nor
does it have any reason to believe that there is, any other of
its general agency networks which is experiencing financial
difficulty.
Westbridge believes that its near-term cash requirements,
including interest on the Senior Subordinated Notes and dividend
payments on the Series A Preferred Stock, will be met through
operating cash flows, repayments of advances due from
subsidiaries, payments relating to the surplus certificate and
dividends received from the Insurance Subsidiaries.
Insurance Subsidiaries
The primary sources of cash for the Insurance Subsidiaries are
premiums, income on investment assets and fee and service income.
Additional cash is periodically provided from the sale of
short-term investment assets and could, if necessary, be provided
through the sale of long-term investment assets. However, the
Company's investment policy is to hold its long-term securities
to maturity. The Insurance Subsidiaries' primary uses for cash
are benefits and claims, commissions, general and administrative
expenses and taxes.
In the ordinary course of business, the Company advances
first-year commissions on policies written by its general agency
networks and their agents. The Company is reimbursed for these
advances from commissions earned over the respective policy's
life. In the event that policies lapse prior to the time the
Company has been fully reimbursed, the agency network or the
individual agents, as the case may be, are responsible for
reimbursing the Company for the outstanding balance of the
commission advance. There can be no assurance as to the
occurrence or degree of any future losses. As of December 30,
1995, outstanding advances totaled $16.7 million.
Consolidated
The Company's consolidated net cash used for operations totaled
$21.3 million, $10.6 million, and $7.2 million in 1995, 1994 and
1993, respectively. The increase in 1995 resulted from
increases to deferred policy acquisition costs and receivables
from agents resulting from substantial increases in production
of new business during 1995. The primary reasons for the
increase in cash used for operations during 1994 and 1993 are
increases to deferred policy acquisition costs and an increase in
paid claims associated with the Medicare Supplement Products
acquired in September 1992 and March 1993, the policies acquired
from DNL in February 1994 and the policies obtained in the
Acquisition. These increases have been offset, in part, by
increases in collected premiums and a decrease in commissions
paid.
Net cash used for operations has been impacted by the Company's
significant acquisitions of closed blocks of policies since
September 1992. These acquisitions involve the transfer to the
Company of cash or other investment assets and the assumption by
the Company of policy liabilities. While the benefits and claims
paid on the policies assumed are reflected directly in the
statement of cash flows, the initial receipt of cash and/or
investment assets is reflected supplementally on the statement of
cash flows through a schedule of non-cash investing activities.
As a result, as the investment assets mature or are liquidated,
and cash is paid out in the form of benefits and claims, the
effect on the Company's statement of cash flows is an increase in
net cash used. Such negative operating cash flows are planned,
and are an inherent part of acquisitions of closed blocks of
business. A review of operating cash flows should be considered
in conjunction with the supplemental schedule of non-cash
investing activities.
Net cash provided by investing activities totaled $386,000 in
1995 and $5.4 million in 1993, compared to net cash used for
investing activities of $11.5 million in 1994. The significant
amount of net cash used in 1994 resulted primarily from the
purchase of the common stock of NFIC in the Acquisition. For
1993, net cash provided by investing activities was principally
the result of the excess of proceeds from investments sold and
matured over the cost of investments acquired.
Net cash provided by financing activities was $20.0 million,
$24.9 million, and $34,000 for the years ended December 1995,
1994, and 1993, respectively. In February 1995, $29.3 million of
cash was provided by the public sale of Common Stock and Senior
Subordinated Notes. In December, 1995, $14.9 million of cash was
provided by borrowing under a credit agreement with a bank, and
approximately $1.0 million of cash was provided by the issuance
of a senior note. See further discussion of these financing
activities in NOTE 7 of "Notes to the Consolidated Financial
Statements" therein. Also, in March 1995, $25.0 million in cash
was used to redeem the Senior Subordinated Debentures. In the
first six months of 1994, $20.0 million in cash was provided in
the sale of the Series A Preferred Stock and the sale by NFL, to
a non-affiliated party, of $5,000,000 principal amount of Senior
Subordinated Debentures, which had previously been held by NFL in
its investment portfolio. There were no significant financing
activities during the year ended December 31, 1993.
The Company believes that its near-term cash requirements will be
met through a combination of operating and investing cash flows.
The Company anticipates that its longer-term cash requirements
for the operation of the business will also be met through a
combination of operating and investing cash flows. Additional
capital may be necessary for future growth, whether internal or
through acquisitions. There can be no assurance that such
additional capital will be obtained, that opportunities for
future acquisitions will arise or that additional capital to
consummate such acquisitions will be available.
The Company had no significant high-yield, unrated or less than
investment grade fixed maturity securities in its investment
portfolio as of December 31, 1995 and it is the Company's policy
not to exceed more than 5% of total investments in such assets.
Changes in interest rates may affect the market value of the
Company's investment portfolio. Absent redemptions of such
investments prior to maturity, or loss experience materially in
excess of, or at times materially sooner than expected, such
changes should not impact the Company's ability to meet its
future policyholder benefit obligations.
Included in the assets of the Company at December 31, 1995 were
$639,000 of real estate mortgage loans and $141,000 of real
estate acquired through foreclosure. Approximately 98.0% of
these assets are located in Oklahoma and Texas. Such regional
concentration may have a higher investment risk than a more
diversified portfolio. It is the Company's policy not to invest
in such assets and, accordingly, the Company has made no mortgage
loans or real estate purchases since 1989.
Inflation may affect, to a limited extent, claim costs on the
Company's Medicare Supplement Products and Medical Expense
Products. Costs associated with a hospital stay, and the amounts
reimbursed by the Medicare program, are each determined, in part,
based on the rate of inflation. If hospital and other medical
costs which are reimbursed by the Medicare program increase,
claim costs on the Medicare Supplement Products will increase.
Similarly, as the hospital and other medical costs increase,
claim costs on the Medical Expense Products will increase.
However, with the approval of the relevant state regulatory
authority, the Company has the ability, within the constraints of
the loss ratios mandated by the regulatory authorities, to raise
premium rates on its guaranteed renewable products in the event
of adverse claims experience. In addition, the Company has
limited its exposure to inflation by incorporating certain
maximum benefits under its policies. See "BUSINESS--PRODUCTS."
The NAIC has proposed certain risk-based capital ("RBC")
statutory requirements for insurance companies. Under the
proposed requirements, insurers whose capital and surplus fall
below the specified level would be subject to remedial action.
The proposed guidelines do not take effect until adopted on a
state by state basis. Delaware has and Texas has not yet adopted
such proposals. As of December 31, 1995, the RBC for each of the
Insurance Subsidiaries exceeded the proposed threshold for
required regulatory intervention. See "BUSINESS--REGULATION."
During 1995, the Company experienced rapid growth in product
sales and first-year premium revenues. Such growth tends to
produce cash flow strain, and statutory surplus strain for the
Company's Insurance Subsidiaries. The Company could ease these
strains by limiting marketing activities, by seeking additional
equity or debt financing, or through reinsurance.
No assurance can be given that the Company will be able to obtain
additional financing or reinsurance, and if necessary, the
Company will limit marketing operations as a means of reducing
strain to cash flow and statutory surplus.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements and Financial Statement Schedules
Covered by the Following Report of Independent Accountants.
Page
Number(s)
Report of Independent Accountants.................................................. 43
Financial Statements:
Consolidated Statements of Operations for the Three Years ended December 31, 1995.. 44
Consolidated Balance Sheets at December 31, 1995 and 1994.......................... 45
Consolidated Statements of Cash Flows for the Three Years ended December 31, 1995.... 47
Consolidated Statements of Changes in Stockholders' Equity for the
Three Years ended December 31, 1995.............................................. 49
Notes to Consolidated Financial Statements.......................................... 50
Financial Statement Schedules:
II. Condensed Financial Information of Registrant as
of and for the Three Years ended December 31, 1995............................. 72
III. Supplementary Insurance Information for the Three
Years ended December 31, 1995.................................................. 75
IV. Reinsurance for the Three Years ended December 31, 1995.......................... 76
V. Valuation and Qualifying Accounts and Reserves for the
Three Years ended December 31, 1995............................................ 77
All other Financial Statement Schedules are omitted because they are not applicable or the required
information is shown in the Financial Statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors
and Stockholders of
Westbridge Capital Corp.
In our opinion, the consolidated financial statements listed in
the index appearing on page 42 of this Form 10-K present fairly,
in all material respects, the financial position of Westbridge
Capital Corp. and its subsidiaries at December 31, 1995 and 1994,
and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ Price Waterhouse, LLP
PRICE WATERHOUSE LLP
Fort Worth, Texas
March 29, 1996
WESTBRIDGE CAPITAL CORP.
------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------------
(In thousands)
ASSETS
-------------
December 31,
--------------------------------
1995 1994
--------------------------------
Investments:
Fixed maturities:
Available-for-sale, at market value
(amortized cost $83,160 and $11,310) $ 86,780 $ 10,787
Held-to-maturity, at amortized cost
(market value $0 and $75,238) - 80,377
Equity securities, at market 539 469
Investment in Freedom Holding Company,
on the equity basis 6,173 5,945
Mortgage loans on real estate 639 768
Investment real estate 141 141
Policy loans 285 291
Short-term investments 14,946 7,189
-------- -------
Total Investments 109,503 105,967
Cash 2,013 2,871
Accrued investment income 1,711 1,924
Receivables from agents, net of $1,187 and
$1,137 allowance for doubtful accounts 16,706 7,353
Deferred policy acquisition costs 56,977 58,654
Leasehold improvements and equipment, at
cost, net of accumulated depreciation
and amortization of $3,905 and $3,446 1,590 1,215
Other assets 12,499 9,597
------- -------
Total Assets $200,999 $187,581
======= =======
The accompanying notes are an integral part of these
financial statements.
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
December 31,
--------------------------------------
1995 1994
--------------------------------------
Liabilities:
Policy liabilities and accruals:
Future policy benefits $ 46,620 $ 62,893
Claims 39,063 41,387
------- --------
85,683 104,280
Accumulated policyholders' funds 373 372
Other liabilities 11,226 8,678
Deferred income taxes 5,841 3,231
Notes payable 15,807 -
Senior subordinated debentures,
net of unamortized discount - 24,665
Senior subordinated notes, net of
unamortized discount, due 2002 19,264 -
------- -------
Total Liabilities 138,194 141,226
------- -------
Redeemable Preferred Stock 20,000 20,000
------- -------
Stockholders' Equity:
Common stock, ($.l0 par value,
30,000,000 shares authorized;
5,992,458, and 4,430,458 shares issued) 599 443
Capital in excess of par value 29,208 19,328
Unrealized appreciation (depreciation)
of investments carried at market
value, net of tax 2,593 (147)
Retained earnings 10,575 6,901
------- ------
42,975 26,525
Less - Aggregate of shares held in
treasury and investment by affiliate
in Westbridge Capital Corp. common
stock (28,600 at December 31,
1995 and 1994, at cost) (170) (170)
-------- ------
Total Stockholders' Equity 42,805 26,355
-------- ------
Commitments and contingencies
Total Liabilities, Redeemable Preferred
Stock and Stockholders' Equity $200,999 $187,581
======= =======
The accompanying notes are an integral part of these financial statements.
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
Year Ended December 31,
----------------------------------
1995 1994 1993
----------------------------------
Revenues:
Premiums:
First-year $ 34,774 $ 15,111 $ 8,738
Renewal 85,319 83,592 59,993
------- ------- -------
120,093 98,703 68,731
Net investment income 7,421 5,764 4,120
Fee and service income 2,327 1,728 1,397
Net realized gain on investments 182 320 1,030
Other income 9 31 14
------- ------- ------
130,032 106,546 75,292
------- ------- ------
Benefits, claims and expenses:
Benefits and claims 70,465 53,623 33,153
Amortization of deferred
policy acquisition costs 11,553 9,711 8,159
Commissions 11,359 11,224 9,595
General and administrative expenses 21,926 16,847 14,349
Taxes, licenses and fees 4,101 3,230 2,724
Interest expense 2,432 3,067 2,552
------- ------- -------
121,836 97,702 70,532
------- ------- -------
Income before income taxes, equity in
earnings of Freedom Holding Company and
extraordinary item 8,196 8,844 4,760
Provision for income taxes 2,813 2,764 1,562
Equity in earnings of Freedom Holding Company 348 345 333
------ ------ ------
Income before extraordinary item 5,731 6,425 3,531
Extraordinary loss from early
extinguishment of debt 407 - -
------ ------ ------
Net income $ 5,324 $ 6,425 $ 3,531
====== ====== ======
Preferred stock dividends 1,650 1,190 -
------ ------ ------
Income applicable to common stockholders $ 3,674 $ 5,235 $ 3,531
====== ====== ======
Earnings Per Common Share:
Primary:
Income before extraordinary item $ 0.70 $ 1.13 $ 0.78
Extraordinary item (0.07) - -
----- ----- -----
Net earnings $ 0.63 $ 1.13 $ 0.78
Fully Diluted:
Income before extraordinary item $ 0.70 $ 1.03 $ 0.78
Extraordinary item (0.05) - -
----- ----- ------
Net earnings $ 0.65 $ 1.03 $ 0.78
===== ===== =====
Weighted Average Shares Outstanding:
Primary 5,836,000 4,617,000 4,555,000
========= ========= =========
Fully Diluted 8,204,000 6,267,000 4,555,000
========= ========= =========
The accompanying notes are an integral part of these financial statements.
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
--------------------------------------------------------
1995 1994 1993
--------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income applicable to common stockholders $ 3,674 $ 5,235 $ 3,531
Adjustments to reconcile net income applicable cash
provided by (used for) operating activities:
Decrease in policy liabilities and accruals (5,194) (6,700) (15,108)
Amortization of deferred policy acquisition costs 11,553 9,711 8,159
Increase in deferred income taxes 2,610 905 1,138
Additions to deferred policy acquisition costs (23,279) (12,582) (5,745)
Depreciation expense 486 325 413
Increase in receivables from agents (9,353) (2,403) (994)
Increase in other assets (2,902) (6,257) (128)
Change in investment in Freedom Holding Company (228) (345) (333)
Net realized gains on investments (182) (320) (1,030)
Increase in other liabilities 2,548 1,013 2,867
Other, net (1,020) 798 49
------ ------ ------
NET CASH USED FOR OPERATING ACTIVITIES (21,287) (10,620) (7,181)
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of NFIC and AICT - (20,178) -
Proceeds from investments sold:
Fixed maturities, classified as
held-to-maturity, called or matured 2,629 4,357 10,240
Fixed maturities, classified as
available-for-sale, called or matured 468 1,544 -
Fixed maturities, classified as
held-to-maturity, sold - - 18,187
Fixed maturities, classified as
available-for-sale, sold 6,585 7,275 -
Short-term investments sold or matured 15,058 45,020 1,581
Other investments sold or matured 136 98 329
Cost of investments acquired (23,629) (50,039) (25,542)
Notes receivable from related parties - 1,381 783
Additions to leasehold improvements
and equipment, net of retirements (861) (976) (228)
------ ------ ------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 386 (11,518) 5,350
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Effective issuance of senior
subordinated debentures, at par - 5,000 -
Redemption of senior subordinated debentures (25,000) - -
Issuance of redeemable preferred stock - 20,000 -
Issuance of subordinated notes 19,200 - -
Issuance of notes payable 15,807 - -
Issuance of common stock 10,108 395 123
Issuance of common stock warrants 74 - -
Purchase and cancellation of common stock (146) (534) (89)
------ ------ -----
NET CASH PROVIDED BY FINANCING ACTIVITIES 20,043 24,861 34
------ ------ -----
INCREASE (DECREASE) IN CASH DURING PERIOD (858) 2,723 (1,797)
CASH AT BEGINNING OF PERIOD 2,871 148 1,945
------ ------ -----
CASH AT END OF PERIOD $ 2,013 $ 2,871 $ 148
====== ====== =====
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 2,336 $ 2,678 $ 2,353
Income taxes $ 960 $ 2,090 $ 424
The accompanying notes are an integral part of these financial
statements.
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Supplemental Schedule Of Non-Cash Investing Activities:
The Company purchased the outstanding capital stock of a health
insurer and its subsidiary in the second quarter of 1994 for a
cash purchase price of $20.1 million. This purchase resulted in
the Company receiving assets and assuming liabilities as follows:
Assets $61,293,000
Liabilities $72,199,000
The Company purchased a block of Supplemental Health insurance in
the first quarter of 1994. This purchase resulted in the Company
disbursing investments and assuming liabilities as follows:
Investments $ 545,000
Policy liabilities $ 2,626,000
The Company purchased a Medicare Supplement block of business in
the first quarter of 1993. This purchase resulted in the Company
receiving investments and assuming liabilities as follows:
Investments $ 2,526,000
Policy liabilities $ 2,445,000
The accompanying notes are an integral part of these financial
statements.
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share data)
Unrealized
Appreciation Retained Total
Capital (Depreciation) Earnings Stock-
Common Stock in Excess of (Accumulated Treasury Stock holders'
Shares Amount of Par Value Investments Deficit) Shares Amount Equity
--------- ------ ----------- ------- --------- ------ ------ -------
Balance at January 1, 1993 4,220,837 $422 $19,454 $172 $(1,865) 28,600 $(170) $18,013
Net income 3,531 3,531
Unrealized appreciation of investments 33 33
Issuance of shares under stock
option plans 66,180 7 116 123
Shares purchased and cancelled (13,550) (2) (87) (89)
--------- ---- ------ ---- ----- ------ ----- ------
Balance at December 31, 1993 4,273,467 427 19,483 205 1,666 28,600 (170) 21,611
Net income 6,425 6,425
Preferred stock dividend (1,190) (1,190)
Unrealized depreciation of investments (352) (352)
Issuance of shares under stock
option plans 219,648 22 373 395
Shares purchased and cancelled (62,657) (6) (528) (534)
--------- --- ------ --- ----- ------ ----- ------
Balance at December 31, 1994 4,430,458 443 19,328 (147) 6,901 28,600 (170) 26,355
Net income 5,324 5,324
Preferred stock dividend (1,650) (1,650)
Unrealized appreciation of investments 2,740 2,740
Issuance of shares under stock
option plans 85,300 8 230 238
Issuance of shares from an underwritten
public offering 1,500,000 150 9,720 9,870
Shares purchased and cancelled (23,300) (2) (144) (146)
Issuance of stock warrants 74 74
--------- ---- ------ ------ ------- ------ ------ -------
Balance at December 31, 1995 5,992,458 $599 $29,208 $2,593 $10,575 28,600 $(170) $42,805
========= ==== ====== ====== ======= ====== ====== =======
The accompanying notes are an integral part of these financial statements.
WESTBRIDGE CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
Principles of Consolidation. The consolidated financial statements include
accounts of Westbridge Capital Corp. ("the Company"), and its wholly-owned
subsidiaries, National Foundation Life Insurance Company ("NFL"), National
Financial Insurance Company ("NFIC"), American Insurance Company of Texas
("AICT"), Foundation Financial Services, Inc. ("FFS"), Westbridge Marketing
Corporation ("WMC"), Westbridge Financial Corp. ("Westbridge Financial"),
Westbridge Printing Services, Inc. ("WPS"), Precision Dialing Services,
Inc. ("PDS") Westbridge National Life Insurance Company ("WNL"),
Flex-Plan Systems, Inc. ("FPS"), and Westbridge Funding Corporation
("WFC"), (formerly known as National Legal Services Company, Inc.), as well
as its 51%-owned subsidiary, LifeStyles Marketing Group, Inc. ("LifeStyles
Marketing"), and its 50%-owned subsidiaries, Senior Benefits, LLC ("Senior
Benefits"), American Senior Security Plans, LLC ("ASSP"), and Health Care-One
Insurance Agency, Inc. ("Health Care-One"). The Company's decision to
consolidate the accounts of Senior Benefits, ASSP, and Health Care-One, is
based on the extent to which the Company exercises control over Senior
Benefits, ASSP and Health Care-One. The Company has agreed to provide 100%
of the financing required to support the marketing efforts of Senior
Benefits, ASSP, and Health Care-One, and also has significant input in
their management. All significant intercompany accounts and transactions
have been eliminated.
Nature of Operations. The Company, through its subsidiaries and
affiliates, principally underwrites and sells specialized health insurance
products and health plans. The company's major product lines are Cancer
and Specified Disease Products, Medical Expense Products and Medicare
Supplement Products.
Accounting Principles and Regulatory Matters. The consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles ("GAAP"). These principles differ from statutory
accounting principles, which must be used by the Company's Insurance
Subsidiaries when reporting to state insurance departments. The Company's
Insurance Subsidiaries are subject to oversight by insurance regulators of
Delaware, Texas and other states in which they are authorized to conduct
business. These regulators perform triennial examinations of the statutory
financial statements and, as a result, may propose adjustment to such
statements.
Investments. In 1994, the Company's fixed maturity portfolio was
segregated into two components: fixed maturities held-to-maturity and fixed
maturities available-for-sale. During 1995, the Company's held-to-maturity
portfolio was reclassified as available-for-sale; therefore, fixed
maturities available-for-sale are carried at market value. Changes in
aggregate unrealized appreciation or depreciation on fixed maturities
available for sale are reported directly in stockholders' equity, net of
applicable deferred income taxes. Equity securities (common and
nonredeemable preferred stocks) are carried at market value. The Company's
40% equity investment in Freedom Holding Company is accounted for on the
equity basis (i.e., cost adjusted for equity in post-acquisition earnings
and amortization of excess cost). Mortgage loans on real estate and policy
loans are carried at the unpaid principal balance. Accrual of interest
income ceases when loans are ninety days or more past due. Foreclosed
assets are carried at the lower of fair value or unpaid principal balance,
less necessary costs to effect foreclosure. Realized gains and losses on
sales of investments are recognized in current operations on the specific
identification basis. Changes in market values of equity securities, after
deferred income tax effects, are reflected as unrealized appreciation or
depreciation directly in stockholders' equity and, accordingly, have no
effect on current operations.
Deferred Policy Acquisition Costs.
Policy acquisition costs consisting of commissions and other costs,
which vary with and are primarily related to the production
of new business, are deferred and amortized over periods not
to exceed the estimated premium-paying periods of the related policies.
Also included in deferred policy acquisition costs is the cost of insurance
purchased on acquired business. Amortization is dynamically adjusted based
on current and projected future levels of premium revenue. Such projected
future levels of premium revenue are estimated using assumptions as to
interest, mortality, morbidity and withdrawals consistent with those used
in calculating liabilities for future policy benefits.
Leasehold Improvements and Equipment. Leasehold improvements and equipment
are stated at cost less accumulated depreciation and amortization.
Depreciation of equipment is computed using the straight-line method over
the estimated useful lives (three to seven years) of the assets. Leasehold
improvements are amortized over the estimated useful lives of the related
assets or the period of the lease, whichever is shorter. Maintenance and
repairs are expensed as incurred and renewals and betterments are
capitalized.
Future Policy Benefits and Claims. Liabilities for future policy benefits
not yet incurred are computed primarily using the net level premium method
including actuarial assumptions as to investment yield, mortality,
morbidity and withdrawals.
Claims represent the estimated liabilities on claims reported plus claims
incurred but not yet reported. These liabilities are necessarily subject
to the impact of future changes in claim experience and, as adjustments
become necessary, they are reflected in current operations.
Recognition of Revenue. Life insurance and accident and health premiums
are recognized as revenue when received. Benefits and expenses are
associated with related premiums so as to result in a proper matching of
revenue with expenses.
Fee and service income and investment income are recognized when earned.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Income Taxes. The Company records income taxes based on the asset and
liability approach. The asset and liaility approach requires the
recognition of deferred tax liabilities and assets for the expected future
tax consequence of temporary differences between the carrying amounts and
the tax basis of assets and liabilities.
Earnings Per Share. Primary net income per share of Common Stock is
determined by dividing net income, less dividends on the Series A Preferred
Stock, by primary weighted-average shares outstanding. Fully diluted net
income per share is computed through dividing net income by fully diluted
weighted average shares outstanding, which assumes conversion of the Series
A Preferred Stock. At the December 31, 1994, the Series A Preferred Stock
was convertible at $8.75 per share, resulting in 2,285,720 additional
shares. The additional average shares outstanding were measured from the
April 12, 1994 issue date, through December 31, 1994. At December 31,
1995, as a result of the February 28, 1995 common stock issuance, the
conversion price was adjusted to $8.41 per share resulting in 2,378,120
additional shares.
New Accounting Pronouncements. During 1995, the Financial Accounting
Standards Board ("FASB") issued Financial Accounting Standards ("FAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". This statement requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
addition, the statement requires that long-lived assets and certain
identifiable intangibles to be disposed of, be reported at the lower of
carrying amount of fair value less cost to sell.
FAS No. 121 is effective for fiscal years beginning after 1995. The
Company plans to adopt FAS No. 121 effective January 1, 1996. Management
does not anticipate that adoption of this standard will have a material
impact on the Company's financial statements.
During 1995, the FASB also issued FAS No. 123 "Accounting for Stock-Based
Compensation", which encourages companies to adopt the fair value based
method of accounting for stock-based compensation. This method requires
the recognition of compensation expense equal to the fair value of such
equity securities at the date of the grant. This statement also allows
companies to continue to account for stock-based compensation under the
intrinsic value based method, as prescribed by Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees", with footnote
disclosure of the pro-forma effects of the fair value based method. The
Company plans to adopt SFAS No. 123 during 1996 by continuing to account
for stock-based compensation under the intrinsic value method and
disclosing the pro-forma effects of the fair value method in the footnotes
to the financial statements.
NOTE 2 - INVESTMENTS
Major categories of investment income are summarized as follows:
Year Ended December 31,
--------------------------------------
1995 1994 1993
--------- ---------- ---------
(In thousands)
Fixed maturities $6,542 $5,064 $3,823
Mortgage loans on real estate 71 83 94
Short-term investments 250 489 31
Other 824 308 323
------ ------ ------
7,687 5,944 4,271
Less: Investment expenses 266 180 151
------ ------ ------
Net investment income $7,421 $5,764 $4,120
====== ====== ======
Realized gains (losses) on investments are summarized as follows:
Year Ended December 31,
-------------------------------------
1995 1994 1993
-------- -------- --------
(In thousands)
Fixed maturities $ 185 $ 320 $1,113
Short-term investments (3) - 55
Other long-term investments - - (138)
---- ---- -----
Realized gains on investments $ 182 $ 320 $1,030
==== ==== =====
Unrealized appreciation (depreciation) on investments reflected directly
in stockholders' equity is summarized as follows:
Year Ended December 31,
-------------------------------------
1995 1994 1993
--------- ---------- ---------
(In thousands)
Balance at beginning of year $ (147) $ 205 $172
Unrealized appreciation (depreciation), net
of tax on fixed maturities available-for-sale 2,735 (346) -
Unrealized appreciation (depreciation)
on equity securities and other investments 5 (6) 33
------ ----- ----
Balance at end of year $2,593 $(147) $205
====== ====== ====
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standard No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" (the "Statement"). This Statement requires all debt
securities and certain equity securities to be classified in three
categories and accounted for as follows:
* Debt securities that the enterprise has the positive intent and
ability to hold to maturity are classified as held-to-maturity
securities and reported at amortized cost.
* Debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and
losses included in earnings.
* Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair value, with unrealized gains and
losses excluded from earnings and reported in a separate component of
stockholders' equity.
The Company does not engage in "trading" of securities, and accordingly,
all of the applicable investments have been categorized as held-to-maturity
securities or as available-for-sale securities at December 31, 1994 and as
available-for-sale securities at December 31, 1995.
In accordance with the Statement, the cumulative effect of recording to a
separate component of stockholders' equity the difference between market
value and amortized cost at January 1, 1994 of securities classified as
available-for-sale has been treated as a change in accounting principle,
and no restatement of prior year financial statements has been made.
Additionally, in accordance with the statement, all investments categorized
as held-to-maturity, were transferred to the available-for-sale category at
December 31, 1995.
Market values represent the closing sales prices of marketable securities.
Estimated fair values are based on the credit quality and duration of
marketable securities deemed comparable by the company, which may be of
another issuer.
The amortized cost and estimated market values of
investments in fixed maturities as of December 31, 1995 and 1994, are
summarized by category as follows (in thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Available-for-Sale Cost Gains Losses Value
- ------------------------- ------- -------- --------- ---------
U.S. Government and governmental
agencies and authorities $23,365 $1,226 $ 8 $24,583
States, municipalities, and
political subdivisions 1,510 122 - 1,632
Mortgage-backed securities 10,756 390 71 11,075
Public utilities 8,241 519 60 8,700
Finance companies 18,224 719 198 18,745
All other corporate bonds 20,764 1,236 255 21,745
Certificates of deposit 300 - - 300
------- ----- ---- ------
Balance at December 31, 1995 $83,160 $4,212 $592 $86,780
======= ====== ==== =======
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Available-for-Sale Cost Gains Losses Value
- ------------------------ ------- --------- ---------- ---------
U.S. Government and governmental
agencies and authorities $ - $ - $ - $ -
States, municipalities, and
political subdivisions 1,485 - 35 1,450
Mortgage-backed securities 2,622 11 133 2,500
Public utilities 2,516 - 95 2,421
All other corporate bonds 4,687 9 280 4,416
------ ----- ---- ------
Balance at December 31, 1994 $11,310 $ 20 $ 543 $10,787
====== ===== ==== ======
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Held-to-Maturity Cost Gains Losses Value
- ------------------------- -------- -------- -------- --------
U.S. Government and governmental
agencies and authorities $27,849 $ 89 $1,289 $26,649
States, municipalities, and
political subdivisions - - - -
Mortgage-backed securities 9,403 - 336 9,067
Public utilities 6,357 37 415 5,979
Financial institutions 18,244 11 1,748 16,507
All other corporate bonds 18,124 54 1,542 16,636
Certificates of deposit 400 - - 400
------- ---- ------ -------
Balance at December 31, 1994 $80,377 $191 $5,330 $75,238
======= ==== ====== =======
The amortized cost and estimated market value of investments in
available-for-sale fixed maturities as of December 31, 1995, are shown below,
in thousands, summarized by year to maturity. Mortgage-backed securities are
listed separately. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Estimated
Amortized Market
Cost Value
------- --------
Due in one year or less $ 3,441 $ 3,441
Due after one year through five years 23,078 23,380
Due after five years through ten years 18,730 19,987
Due after ten years 27,155 28,897
Mortgage-backed securities 10,756 11,075
------- -------
$83,160 $86,780
======= =======
A summary of unrealized appreciation (depreciation) reflected directly in
stockholders' equity at December 31, 1995 and 1994, on investments in fixed
maturities available-for-sale, is as follows (in thousands):
Year Ended December 31,
-------------------------------------
1995 1994
------------ -------------
Amortized cost $83,160 $11,310
Estimated market value 86,780 10,787
------- ------
Excess (deficit) of market value
to amortized cost 3,620 (523)
Estimated tax 1,231 (178)
------- ------
Unrealized appreciation
(depreciation), net of tax $ 2,389 $ (345)
======= ======
A summary of unrealized appreciation (depreciation) on investments in fixed
maturities held-to-maturity, is as follows (in thousands):
Year Ended December 31,
---------------------------------------
1994 1993
-------- --------
Amortized cost $80,377 $49,737
Estimated Market Value 75,238 51,806
------ ------
Unrealized appreciation (depreciation) $ (5,139) $ 2,069
====== ======
Proceeds from sales of investments in fixed maturity securities were
$9,682,000 in 1995 and $13,176,000 in 1994. Gross gains of $255,000 and
gross losses of $73,000 were realized on 1995 sales. Gross gains of
$372,000 and gross losses of $52,000 were realized on 1994 sales.
Included in fixed maturities at December 31, 1995, are two high-yield,
unrated or less than investment grade corporate debt securities. The
Company's investment in the two securities comprises 0.7% of total cash and
invested assets at December 31, 1995. The Company owned one high-yield,
unrated or less than investment grade corporate debt security at
December 31, 1994. The Company's investment in this security comprised
0.1% of total cash and invested assets at December 31, 1994.
Securities on deposit with insurance regulators in accordance with
statutory requirements at December 31, 1995 and 1994 aggregated $19,920,000
and $19,820,000, respectively.
NOTE 3 - ACQUISITIONS
Acquisition of NFIC and AICT
On April 12, 1994, Westbridge consummated the acquisition (the
"Acquisition") of all of the outstanding capital stock of NFIC and its
wholly-owned subsidiary AICT. NFIC and AICT are health insurers which
ceased marketing operations in the past, and currently administer closed
blocks of health insurance policies. During the latter part of 1994, NFIC
and AICT renewed marketing operations. The purchase price for the
Acquisition approximated $20,100,000, which was paid in cash. The
Acquisition has been accounted for under the purchase method and,
accordingly, the operating results of NFIC and AICT have been included in
the consolidated operating results since the date of acquisition.
During 1995, the Company revised the assumptions used in calculating the
future policy benefit and claims liabilities for NFIC and AICT. These
changes resulted in a net purchase accounting adjustment of approximately
$13.4 million.
The funds used to acquire NFIC and AICT were provided by the issuance of
Series A Preferred Stock (see NOTE 9).
The following summary, prepared on a pro-forma basis, combines the
consolidated results of operations of NFIC and AICT with the operations of
the Company, after including the impact of certain adjustments, such as
amortization of deferred acquisition costs, dividends on the Series A
Preferred Stock, and factually supportable expense reductions resulting
from the consolidation of administrative operations, which will have a
continuing impact. The following results assume the acquisition occurred
as of the beginning of the respective periods.
PRO-FORMA FINANCIAL DATA
(Unaudited)
(In thousands, except share data)
Year Ended
December 31,
--------------------------------
1994 1993
--------- -----------
Total Revenues $115,466 $116,446
Income applicable to common stockholders 5,483 5,149
Net income per common share
Primary $1.19 $1.13
Fully diluted $1.03 $0.99
The pro-forma financial information is presented for informational purposes
only, and is not necessarily indicative of what actually would have
occurred if the acquisition had been in effect for the entire periods
presented. In addition, the pro forma financial information is not
intended to be a projection of future results.
Acquisition of a Block of Cancer and Specified Disease Insurance Business
On February 8, 1994, NFL completed its purchase of a block of Cancer and
Specified Disease Insurance from Dixie National Life Insurance Company.
The purchase price for the block was $2,125,000. This acquisition has been
accounted for using the purchase method of accounting.
Acquisition of Medicare Supplement Business
On March 29, 1993, NFL completed its purchase of a block of Medicare
Supplement policies from Life and Health Insurance Company of America
("LHI"). Under the terms of the purchase, LHI transferred to
NFL $2,526,000 in cash and NFL assumed the risks associated with those
policies. The Company accounted for this transaction using the purchase
method of accounting.
NOTE 4 - INVESTMENT IN FREEDOM HOLDING COMPANY
In November 1988, the Company purchased a 40% equity interest in Freedom
Holding Company of Louisville, Kentucky ("Freedom"). Freedom owns 100% of
Freedom Life Insurance Company of America ("FLICA"), a Mississippi insurer
licensed in 34 states and specializing in the sale of Cancer and Specified
Disease Insurance products. Freedom's 60% principal owner is John
P. Locke. Concurrent with the equity purchase in Freedom, Locke and his
insurance marketing agencies also entered into a 10-year marketing
agreement with FLICA and NFL for the sale of their products on an exclusive
basis. Additionally, FLICA and NFL consummated a 10-year coinsurance
agreement under which NFL or its affiliates will receive 50% of all
insurance business written by FLICA.
The purchase price for the equity ownership in Freedom aggregated
$4,200,000. The Company also made loans to Locke and Freedom in the amount
of $2,400,000 and $1,086,000 respectively. The loans were each in the form
of 10-year, 11.70% notes. Concurrent with the purchase, Locke made a
$2,400,000 capital contribution to Freedom. This capital contribution
together with the Company's loan to Freedom and $1,600,000 of the purchase
price proceeds were utilized by Freedom to retire all of its then existing
debt obligations. During 1994, both notes were repaid in full.
The Company utilizes the equity method of accounting for its 40% equity
interest in Freedom. The Company's portion of Freedom's earnings was
$348,000 in 1995, $345,000 in 1994 and $333,000 in 1993. The Company
received a $120,000 dividend in 1995 from Freedom.
NOTE 5 - MARKETING OPERATIONS
LifeStyles Marketing Group, Inc. Joint Venture
In September 1987, NFL consummated an agency contract with LifeStyles
Agency of Arlington, Texas ("LifeStyles Marketing") granting its agency
force the exclusive right, subject to territorial production requirements,
to sell NFL's Medical Expense Products developed in 1987 and 1988. During
the second quarter of 1988, the Company agreed with the owners of
LifeStyles Marketing to restructure the insurance agency as a joint
venture. Under the terms of the definitive agreement consummated in
November 1988, WMC, a wholly-owned subsidiary of the Company, holds a
51%-voting interest in the entity, LifeStyles Marketing.
The Company is providing financing to LifeStyles Marketing in its expansion
efforts. LifeStyles Marketing's revenues and expenses during 1995
approximated $9,115,000 and $8,397,000, respectively. Revenues and
expenses were $7,246,000 and $7,130,000 in 1994 and $5,395,000 and
$6,014,000 in 1993, respectively. Of the revenues received, $7,664,000
were derived from NFL in the form of commission income on insurance
products sold for NFL during 1995, $5,561,000 in 1994 and $4,386,000 in
1993. Through December 31, 1995, the Company loaned LifeStyles Marketing
approximately $7,127,000 in the form of advances which accrue interest at
prime plus 1% established at the beginning of each year, which equaled 8.5%
during the year ended December 31, 1995, on the unpaid balance. There is
not a scheduled repay-ment plan in place for amounts the Company has loaned
to LifeStyles Marketing. No dividends are to be distributed to any
shareholders until all advances and accrued interest due the Company have
been repaid.
Under the terms of the joint venture agreement, profits and losses of
LifeStyles Marketing are to be allocated 50% to WMC and 50% to the minority
shareholders. However, because of the Company's voting and financial
control, the operations of the joint venture are consolidated with the
Company's operations and, accordingly, all significant intercompany
accounts and transactions are eliminated.
Through December 31, 1995, the Company has recognized 100% of the
cumulative losses of LifeStyles Marketing in its consolidated financial
statements. The minority interest share in such losses recognized by the
Company is $840,000 at December 31, 1995. The Company has, and will
continue to, recognize 100% of LifeStyles Marketing's profits in the
consolidated financial statements until all cumulative losses are recovered
through future earnings.
Senior Benefits, LLC
In November 1993, the Company acquired a 50% interest in Senior Benefits,
which markets Medicare Supplement policies for NFL. The Company is
providing financing to Senior Benefits during the start-up phase of the
operations. Senior Benefits' revenue and expenses were $1,005,000 and
$1,105,000 during 1995, and $278,000 and $547,000 during 1994,
respectively. Of the revenues received, $982,000 were derived from NFL in
the form of commission income on insurance products sold during 1995, and
$271,000 in 1994. Through December 31, 1995, the Company loaned Senior
Benefits approximately $980,000 in the form of advances. There is not a
scheduled repayment plan in place for amounts the Company has loan Senior
Benefits. No dividends are to be distributed to any shareholders until all
advances due to the Company have been repaid. Through December 31, 1995,
the Company has recognized 100% of the cumulative losses of Senior Benefits
of which the minority interest share of such losses is approximately
$175,000.
NOTE 6 - FUTURE POLICY BENEFITS
Future policy benefits have been calculated using assumptions (which
generally contemplate the risk of adverse deviation) for withdrawals,
interest, mortality and morbidity appropriate at the time the policies were
issued. The more material assumptions pertinent thereto are as follows:
LIFE PRODUCTS
Withdrawals Standard industry tables are used for issues through 1975;
Company experience is used for issues subsequent to 1975.
Interest Level 4% for issues through 1965; level 4.5% for 1966 through
1969 issues, and 6% graded to 4.5% in 25 years for 1970 through
1981 issues. Issues for 1982 through 1987 are 10% graded to 7%
at year 10. ART issues in 1988 and later are 8.5% for 5 years
graded to 7.5% in year 20. Participating policies are 4.5% for
issues through 1965; 5% for 1966 through 1969 issues, and graded
from 6% to 5% in 25 years for issues subsequent to 1969.
Mortality Based on modifications of the 1955-1960 Select and Ultimate
Basic Tables and, for certain issues from 1975 through 1981,
modifications of the 1958 CSO. Issues subsequent to 1981
use modifications of the 1965-1970 Select and Ultimate Basic
Tables.
ACCIDENT AND HEALTH PRODUCTS
Withdrawals Issues through 1980 are based on industry experience; 1981
through 1993 issues are based on industry experience and
Company experience, where available. Policies acquired in
acquisitions are based on recent experience of the blocks
acquired.
Interest Issues through 1980 are 6% graded to 4.5% in 25 years; most 1981
through 1992 issues are 10% graded to 7% in 10 years except for
certain NationalCare and Supplemental Hospital Income issues
which are 8% graded to 6% in 8 years and LifeStyles Products
which are 9% graded to 7% in 10 years. 1993 issues are 7% level.
Policies acquired from AII in 1992 are 6.4% level. Policies
acquired from LHI in 1993 and DNL in 1994 are 6% level. Policies
acquired in the Acquisition of NFIC and AICT are 7% level.
Mortality Issues through 1980 use the 1955-1960 Ultimate Table; issues
subsequent to 1980 through 1992 use the 1965-1970 Ultimate
Table. 1993 issues use the 1975-1980 Ultimate Table.
Policies acquired in acquisitions use the 1965-1970 Ultimate
Table.
Morbidity Based on industry tables published in 1974 by Tillinghast,
Nelson and Warren, Inc., as well as other population
statistics and morbidity studies.
NOTE 7 - FINANCING ACTIVITIES
Common Stock Offering
On February 28, 1995, the Company issued 1,500,000 shares of its Common
Stock in an underwritten public offering. The Shares of Common Stock were
issued at a price of $7.00 per share, less an underwriting discount of $.42
per share. As a result of the issuance of the Common Stock, the conversion
rate of the Series A Preferred Stock has been adjusted. The Series A
Preferred Stock is now convervitble into 2,378,120 shares of Common Stock
at a conversion price of $8.41 per share.
Subordinated Notes
On February 28, 1995, the Company issued $20,000,000 aggregate principal
amount of its 11% Senior Subordinated Notes due 2002 (the "Notes"), in an
underwritten public offering. The Notes were issued at par, less an
underwriting discount of 4%.
The Company may redeem the Notes at any time on or after March 1, 1998,
upon 30-days written notice, at par plus accrued interest. Following the
death of any holder of the Notes and the request for repayment, the Company
will repay such holder's Notes at par plus accrued interest. The Company
is not obligated to redeem more than $50,000 in principal amount per holder
per calendar year or in aggregate for all holders more than $250,000 in
principal amount per calendar year. The Notes contain certain covenants
which limit the Company's ability to, (i) incur certain types of
indebtedness, (ii) pay dividends or make distributions to holders of the
Company's equity securities, or (iii) consolidate, merge, or transfer all
or substantially all of the Company's assets. The Notes also contain
covenants which require the Company to maintain, (i) a minimum amount of
liquid assets, (ii) a minimum consolidated net worth, and (iii) a minimum
fixed charge ratio.
Subordinated Debentures
In March 1986, the Company completed a public offering of 25,000 Units
consisting of $25,000,000 principal amount of 11.70% Senior Subordinated
Debentures due 1996 (the "Debentures") and warrants to purchase 800,000
shares of the Company's Common Stock (the "Warrants") at $12.25 per share.
The Warrants expired unexercised on March 15, 1991.
In August 1987, NFL purchased, in an open market transaction, $5,000,000
par value of the Debentures. For GAAP reporting purposes, the purchased
Debentures were no longer treated as part of the Company's consolidated
debt.
In February 1994, NFL sold at par value, to an unrelated party, the
$5,000,000 par value of the Debentures held in its portfolio. This
transaction has been accounted for, on a consolidated basis as an issuance
of debt.
Concurrent with the Common Stock and Note offerings, on February 29, 1995,
the Company placed funds in escrow sufficient to cover all remaining
principal and interest payments on its outstanding 11.7% Senior
Subordinated Debentures due 1996, which were called for redemption on March
30, 1995. The redemption price was par plus accrued interest. This
redemption prior to scheduled maturity resulted in a loss from early
extinguishment of debt. The loss related to amortization of the remaining
original issue discount and write-off of deferred financing costs, offset
in part by interest earned on the funds in escrow. This loss is reported
as an extraordinary item on the accompanying statement of operations.
Senior Note
On December 22, 1995, the Company issued a $1,000,000 principal amount 10%
Senior Note due 2002 (the "Senior Note") to the Chairman of the Board of
Directors, a related party. The Senior Note was issued at par. In
connection with the Senior Note issuance, the Company also issued a common
stock purchase Warrant for 135,501 shares of common stock at an exercise
price of $7.38 per share.
Interest payments on the Senior Note prior to the third anniversary of the
commencement date are added to the principal amount of the Senior Note.
Subsequent to the third anniversary date, interest payments on the
accumulated interest and principal are due on a semi-annual basis. The
Senior Note may be prepaid in whole or in part without premium or penalty.
Following the death of the holder of the Senior Note and request for
payment, the Company will repay the Senior Note within one year of
notification provided that the Company is, or, after giving effect to such
prepayment would not be in default under any Senior Indebtedness.
Credit Arrangement
The Company has a $20,000,000 Credit Agreement (the "Agreement") which is
secured by receivable balances from insurance agents which expires on
December 28, 1997. There is a commitment fee of 1/2 of 1% on the unused
portion. At the Company's option, interest under the Agreement may be
based on prime rate or LIBOR plus an applicable margin. The rate in effect
at December 31, 1995, was approximately 8.7%. The Company borrowed
approximately $14,880,000 under the Agreement at December 31, 1995. The
Agreement required the Company, among other things, to maintain minimum
levels of statutory surplus, tangible net worth and certain minimum
financial ratios. Subsequent to December 31, 1995 the Company made an
additional borrowing under the Agreement of approximately $2,200,000.
NOTE 8 - CLAIM RESERVES
The following table provides a reconciliation of the beginning and ending
claim reserve balances, on a gross-of-reinsurance basis, for 1995, 1994 and
1993, to the gross amounts reported in the Company's balance sheet.
Year Ended December 31,
------------------------------------------
1995 1994 1993
--------- --------- ---------
(in thousands)
Balance at January 1 (Gross) $41,387 $12,794 $ *
Less: reinsurance recoverables 1,457 65 *
Net balance at January 1 39,930 12,729 21,635
Incurred related to:
Current year 67,239 59,830 42,018
Prior years 2,698 (1,381) (5,376)
------ ------ ------
Total incurred 69,937 58,449 36,642
------ ------ ------
Current year reserves acquired - 33,032 291
Paid related to:
Current year 46,755 42,919 30,205
Prior years 27,468 10,655 13,695
Current year acquired business - 10,706 1,939
------ ------ ------
Total paid 74,223 64,280 45,839
------ ------ ------
Balance at December 31 35,644 39,930 12,729
Plus: reinsurance recoverables 3,419 1,457 65
------ ------ ------
Balance at December 31 (Gross) $39,063 $41,387 $12,794
====== ====== ======
___________________
* Amounts are presented net prior to the adoption by the Company in 1993
of SFAS 113 "Accounting and Reporting for Reinsurance of Short-Duration
and Long Duration Contracts."
NOTE 9 - REDEEMABLE PREFERRED STOCK
On April 12, 1994, the Company issued 20,000 shares of Series A Cumulative
Convertible Redeemable Exchangeable Preferred Stock (the "Series A
Preferred Stock"), at a price of $1,000 per share. The Series A Preferred
Stock was issued in a private placement, and was subsequently registered
with the Securities and Exchange Commission under a registration statement
which was declared effective in October 1994. The following summarizes the
significant terms of the Series A Preferred Stock:
* Liquidation preference of $1,000 per share.
* Cumulative annual dividend rate of 8.25%, subject to increase upon
non-compliance by the Company with certain restrictions.
* At December 31, 1994, the Series A Preferred Stock was convertible by
the holders thereof into the Company's common stock at a conversion
price of $8.75 per share. At December 31, 1994, the 20,000 shares of
Series A Preferred Stock were convertible into 2,285,720 shares of
common stock. At December 31, 1995, as a result of the common stock
offering, the conversion price was adjusted to $8.41 per share which
equates to the Series A Preferred Stock being convertible into
2,378,120 shares of common stock.
* On or after April 12, 1995, the Series A Preferred Stock may, at the
option of the Company, be exchanged for an amount of Convertible
Subordinated Notes due April 12, 2004, equal to the aggregate
liquidation preference of the Series A Preferred Stock being
exchanged. The Convertible Subordinated Notes would bear interest at
8.25% and be convertible into common stock at a price of $8.41 per
share, in each case, subject to certain adjustments.
* The Company is required to redeem all shares of Series A Preferred
Stock, or any Convertible Subordinated Notes outstanding on April 12,
2004.
* The Company may redeem any and all shares of Series A Preferred Stock
outstanding on or after April 12, 1997.
In connection with the issuance of the Series A Preferred Stock, the
placement agent was granted a warrant to purchase 120,000 shares at $8.75
per share, subject to certain adjustments. As a result of the February 28,
1995 Common Stock issuance, the conversion price of the Warrant was
adjusted to $8.41 per share.
NOTE 10 - DEFERRED POLICY ACQUISITION COSTS
A summary of deferred policy acquisition costs by major product line of
insurance follows:
1995 1994 1993
-------- -------- --------
Accident Accident Accident
and and and
Life Health Life Health Life Health
------ ---------- ------ --------- ------ ---------
(In thousands)
Balance at beginning
of year $ 31 $58,623 $ 36 $28,318 $ 46 $30,722
Deferrals:
Commissions 122 16,517 2 7,465 2 4,733
Issue costs 30 6,484 3 1,535 2 1,008
---- ------ --- ------ --- -----
183 81,624 41 37,318 50 36,463
Cost of insurance purchased -- 126 -- 31,006 -- --
Purchase accounting
adjustment -- (13,403) -- -- -- --
Amortization 22 (11,575) (10) (9,701) (14) (8,145)
---- ------ ---- ------ ---- -----
Balance at end of year $205 $56,772 $ 31 $58,623 $ 36 $28,318
==== ====== ==== ====== ==== ======
The cost of insurance purchased in 1994 is related to the purchase of NFIC
and is being amortized in relation to premium revenues over the remaining
life of the business. Interest accrues on the unamortized balance at 7%
per year. Amortization of this cost of insurance purchased was
approximately $2.3 million and $3.0 million in 1995 and 1994, respectively,
net of interest accretion of $1.3 million and $1.5 million.
During 1995, the Company recorded Purchase Accounting adjustments to the
purchase price of NFIC as these adjustments fell within the one-year
"look-back" period following the acquisition, in accordance with Statement of
Financial Accounting Standard No. 38 "Accounting for Preacquisition
Contingencies of Purchased Enterprises."
For each of the next five years, the estimated amortization of the cost of
insurance purchased is 15% to 20% of each years' beginning balance.
NOTE 11 - INCOME TAXES
The provision for income taxes is calculated as the amount of income taxes
expected to be payable for the current year plus (or minus) the deferred
income tax expense (or benefit) represented by the change in the deferred
income tax accounts at the beginning and end of the year. The effect of
changes in tax rates and federal income tax laws are reflected in income
from continuing operations in the period such changes are enacted.
The tax effect of future taxable temporary differences (liabilities) and
future deductible temporary differences (assets) are separately calculated
and recorded when such differences arise. A valuation allowance, reducing
any recognized deferred tax asset, must be recorded if it is determined
that it is more likely than not that such deferred tax asset will not be
realized.
The Company and its wholly-owned subsidiaries, other than NFIC and AICT,
file a consolidated federal income tax return. NFIC and AICT file separate
federal income tax returns.
The provision for U.S. federal income taxes charged to continuing
operations was as follows:
Year Ended December 31,
----------------------
1995 1994 1993
----- ------ ------
(In thousands)
Current $1,032 $1,581 $ 321
Deferred 1,781 1,183 1,241
----- ----- -----
Total provision for income taxes $2,813 $2,764 $1,562
===== ===== =====
Provision has not been made for state and foreign income tax expense since
such expense is minimal.
The differences between the effective tax rate and the amount derived by
multiplying the income (loss) before income tax expense by the Federal
income tax rate for the Company's last three years follow:
Year Ended December 31,
-----------------------------
1995 1994 1993
------- ----- ------
Statutory tax rate 34% 34% 34%
Small life insurance company deduction calculated
as a percentage of life insurance company income -- (5%) (3%)
Unutilized loss carryforwards of non-life companies -- 2% 4%
Equity earnings of unconsolidated subsidiary (1%) (1%) (2%)
Other items, net -- -- (2%)
---- ---- ----
Effective tax rate 33% 30% 31%
==== ==== ====
Deferred taxes are recorded for temporary differences between the financial
reporting basis and the federal income tax basis of the Company's assets
and liabilities. The sources of these differences and the estimated tax
effect of each are as follows:
December 31,
------------------------------
1995 1994
-------- ---------
(In thousands)
Deferred Tax Liabilities:
Deferred policy acquisition costs $ 8,683 $11,817
Invested assets 604 63
Unrealized gain on investments 851 -
Other deferred tax liabilities 2,399 1,890
------ ------
Total deferred tax liability 12,537 13,770
------ ------
Deferred Tax Assets:
Policy reserves 3,296 8,668
Net operating loss carryforwards 6,960 6,292
Tax credit carryforwards 11 11
Unrealized depreciation of investments - 75
Other deferred tax assets 1,307 444
Valuation allowance (4,878) (4,951)
------ ------
Total deferred tax asset 6,696 10,539
------ ------
Net deferred tax liability $ 5,841 $ 3,231
------ ------
A valuation allowance has been provided for 1995 and 1994, respectively,
for the tax effect of a portion of the non-life loss carryovers since it is
more likely than not that such benefits will not be realized. The change
in the valuation allowance of $73,000 is due primarily to decreases in non-life
net operating losses which are not expected to be utilized against
life company income.
Under the provisions of pre-1984 life insurance tax regulations, NFL was
taxed on the lesser of taxable investment income or income from operations,
plus one-half of any excess of income from operations over taxable
investment income. One-half of the excess (if any) of the income from
operations over taxable investment income, an amount which was not
currently subject to taxation, plus special deductions allowed in computing
the income from operations, were placed in a special memorandum tax account
known as the policyholders' surplus account. The aggregate accumulation in
the account at December 31, 1995 approximated $2.5 million. Federal income
taxes will become payable on this account at the then current tax rate when
and to the extent that the account exceeds a specific maximum, or when and
if distributions to stockholders, other than stock dividends and other
limited exceptions, are made in excess of the accumulated previously taxed
income. The Company does not anticipate any transactions that would cause
any part of the amount to become taxable and, accordingly, deferred taxes
which would approximate $875,000, have not been provided on such amount.
At December 31, 1995, NFL has approximately $12,209,000 in its shareholders
surplus account from which it could make distributions to the Company
without incurring any federal tax liability. The amount of dividends which
may be paid by NFL to the Company is limited by statutory regulations.
At December 31, 1995, the Company and its wholly-owned subsidiaries have
aggregate non-life net operating loss carryforwards of approximately
$19,241,000 and $8,021,000 for regular tax and alternative minimum tax
purposes, respectively, which expire in 2001 through 2010.
NOTE 12 - STATUTORY CAPITAL AND SURPLUS
Under applicable Delaware law, NFL must maintain minimum aggregate
statutory capital and surplus of $550,000. Under applicable Texas law,
each of NFIC and AICT must maintain minimum aggregate statutory capital and
surplus of $1.4 million. The state of Georgia requires licensed
out-of-state insurers to maintain minimum capital of $1.5 million and Kentucky
requires minimum surplus of $2.0 million, which levels are higher than
those of any other states in which the Insurance Subsidiaries are currently
licensed. Accordingly, the minimum aggregate statutory capital and surplus
which each of NFL, NFIC and AICT must maintain is $3.5 million. At
December 31, 1995, aggregate statutory capital and surplus for NFL, NFIC
and AICT was $14.1 million, $9.9 million and $8.3 million, respectively.
Statutory net income (loss) for NFL, NFIC and AICT for the year ended
December 31, 1995, was $(5.5) million, $(0.8) million and $1.7 million,
respectively. AICT is wholly-owned by NFIC. Accordingly, statutory
capital and surplus of NFIC includes capital and surplus of AICT.
Dividend payments from Westbridge's principal Insurance Subsidiaries are
regulated by the insurance laws of their domiciliary states. NFL is
domiciled in Delaware. Under the Delaware Insurance Code, an insurer
domiciled in Delaware may not declare or pay a dividend or other
distribution from any source other than "earned surplus" without the state
insurance commissioner's prior approval. "Earned surplus" is defined as an
amount equal to the unassigned funds of an insurer as set forth on its most
recent statutory annual statement, including all or part of the surplus
arising from unrealized capital gains or revaluation of assets. NFIC and
AICT are domiciled in Texas. An insurer domiciled in Texas may pay
dividends only out of "surplus profits arising from its business".
Moreover, insurers domiciled in either Delaware or Texas may not pay
"extraordinary dividends" without first providing the state insurance
commissioner with 30-days prior notice, during which time such commissioner
may disapprove the payment. An "extraordinary dividend" is defined as a
dividend whose fair market value together with that of other dividends made
within the preceding 12 months exceeds the greater of (a) ten percent of
the insurer's surplus as regards policyholders as of the preceding December
31 or (b) the net gain from operations of such insurer, not including
realized capital gains, for the 12-month period ending on the preceding
December 31. In September 1994, NFL paid to Westbridge an "extraordinary
dividend" in the amount of $2.0 million. With respect to ordinary
dividends payable by an insurer domiciled in Delaware, notice of any
dividend must be provided to the state insurance commissioner within five
(5) business days following the declaration thereof and at least ten (10)
days prior to the payment thereof. As of December 31, 1994, NFL had
negative statutory "earned surplus" as a result of historical statutory
losses. For the foreseeable future, NFL has agreed to seek the approval of
the Delaware insurance commissioner prior to making any dividend payments.
As of December 31, 1995, AICT has the ability to pay to NFIC, without prior
regulatory approval, $835,000 in dividends during 1996. As of December 31,
1995, NFIC has the ability to pay to Westbridge, without prior regulatory
approval, $1.0 million during 1996. In both Delaware and Texas, the state
insurance commissioner reviews the dividends paid by each insurer domiciled
in such commissioner's state at least once each year to determine whether
they are reasonable in relation to the insurer's surplus as regards
policyholders and quality of earnings. The state insurance commissioner
may issue an order to limit or disallow the payment of ordinary dividends
if such commissioner finds the insurer to be presently or potentially
financially distressed or troubled.
In December 1990, the Company and NFL entered into an agreement under which
NFL issued a Surplus Certificate to the Company in the principal amount of
$2,863,000 in exchange for $2,863,000 of the Company's assets. The unpaid
aggregate principal under the Surplus Certificate bears interest at an
agreed upon rate not to exceed 10% and is repayable, in whole or in part,
upon (i) NFL's surplus exceeding $7,000,000, exclusive of any surplus
provided by any reinsurance treaties, and (ii) NFL receiving prior approval
for repayment from the Delaware State Insurance Commissioner. During 1993
and 1994, NFL received such approval and repaid $2,086,000 to the Company.
No principle payments were made in 1995.
The statutory financial statements of the Company's insurance subsidiaries
are prepared using accounting methods which are prescribed or permitted by
the insurance department of the respective companies' state of domicile.
Prescribed statutory accounting practices include a variety of publications
of the NAIC as well as state laws, regulations and general administrative
rules. Permitted statutory accounting practices encompass all accounting
practices not so prescribed. The Company employed no permitted statutory
accounting practices that individually or in the aggregate materially
affected statutory surplus or risk-based capital at December 31, 1995 or
1994.
NOTE 13 - EMPLOYEE BENEFIT PLANS
The Company adopted, as of July 1, 1982, an employee incentive stock option
plan (the "ISO Plan"). The ISO Plan, as amended, authorizes the Company's
Board of Directors to issue to key full-time employees of the Company, or
any of its subsidiaries, non-transferrable options to purchase up to
580,000 (as adjusted to give effect for stock dividends paid in 1983)
shares, in the aggregate, of the Company's Common Stock. Options granted
under the ISO Plan are intended to qualify as either "incentive stock
options" under Section 422A of the Internal Revenue Code of 1986, as
amended (the "Code"), or as non-qualified stock options as defined under
the Code. The ISO Plan provides that the option price per share will be no
less than the fair market value for a share of the Company's Common Stock
on the date of grant. To date, all option prices have been equal to the
fair market value of the stock on the date of grant. The ISO plan also
provides that shares available upon the exercise of options granted under
the ISO Plan may be paid for with cash or by tendering shares of Common
Stock owned by optionee(s), or a combination of the foregoing. All options
outstanding are exercisable within ten years from the date the option was
granted, except that no option is exercisable until at least one year after
its grant. In addition, the ISO Plan provides that no one owning 10% of
the total combined voting power of all classes of the Company's stock, or
of the stock of any subsidiary, is eligible to be awarded options under the
ISO Plan.
The Company also adopted, as of September 5, 1985, a second employee stock
option plan (the "1985 Plan"). The 1985 Plan provides for the granting, to
eligible employees of the Company or its subsidiaries, of stock options to
purchase up to a total of 200,000 shares of the Company's Common Stock.
Options granted under the 1985 Plan are treated as "non-qualified stock
options" for purposes of the Code and the option price per share shall not
be less than 90% of the fair market value of the Company's Common Stock on
the date of grant. All options outstanding are exercisable within seven
years from the date the option was granted, except that no option is
exercisable until at least one year after its grant.
A third employee stock option plan (the "1992 Plan"), was adopted as of
March 26, 1992. The 1992 Plan provided for the granting, to eligible
employees of the Company or its subsidiaries, of stock options to purchase
up to a total of 300,000 shares of the Company's Common Stock. Options
granted under the 1992 Plan are treated as "non-qualified stock options"
for purposes of the Code and the option price per share shall not be less
than 90% of the fair market value of the Company's Common Stock on the date
of grant. All options outstanding are exercisable within seven years from
the date the option was granted, except that no option is exercisable until
at least one year after its grant.
Information regarding the Company's stock option plans is summarized as
follows:
Year Ended December 31,
-------------------------------------
1995 1994 1993
------- ------- -------
Options outstanding at beginning of year 375,294 554,917 499,285
Options granted during the year:
Price granted at $5.40 116,000 -- --
Price granted at $5.60 6,000 -- --
Price granted at $6.84 -- 5,000 --
Price granted at $7.20 -- 5,000 --
Price granted at $7.65 -- 25,000 --
Price granted at $7.71 -- 5,000 --
Price granted at $5.18 -- -- 92,000
Price granted at $5.75 -- -- 30,000
Price granted at $6.08 -- -- 10,000
Price granted at $2.50 -- -- --
Options exercised during the year:
Price ranging from $1.63 to $5.75 (85,300) (219,623) (66,180)
Options canceled during the year:
Price ranging from $1.69 to $2.00 -- -- (10,188)
------- ------- -------
Options outstanding at end of year 411,994 375,294 554,917
======= ======= =======
At December 31, 1995, options for 141,294 shares were exercisable under the
stock options plans at a price ranging from $1.88 to $2.50; and options for
148,700 shares were exercisable at a price ranging from $5.18 to $7.71.
Also, at December 31, 1995, 1994 and 1993, options for 6,000, 128,000 and
168,000 shares, respectively, remained available for future grant under the
plans.
In September 1986, the Company established a retirement savings plan for
its employees. The plan permits all employees who have been with the
Company for at least one year to make contributions by salary reduction
pursuant to section 401(k) of the Internal Revenue Code. The plan allows
employees to defer up to 3% of their salary with partially matching
discretionary Company contributions determined by the Company's Board of
Directors. Employee contributions are invested in any of four investment
funds at the discretion of the employee. Company contributions are in the
form of the Company's Common Stock. The Company's contributions to the
plan in 1995, 1994 and 1993 approximated $79,000, $98,000 and $45,000,
respectively.
NOTE 14 - REINSURANCE
The Insurance Subsidiaries cede insurance to other insurers and reinsurers
on both its life and accident and health business. Reinsurance agreements
are used to limit maximum losses and provide greater diversity of risk.
The Company remains liable to policyholders to the extent the reinsuring
companies are unable to meet their treaty obligations. Total accident and
health premiums of $2,807,000, $1,703,000, and $495,000, were paid to
reinsurers in 1995, 1994, and 1993, respectively. Face amounts of life
insurance in force approximated $43,441,000, and $21,814,000 at
December 31, 1995 and 1994, respectively. No life insurance was reinsured
as of December 31, 1995 and 1994.
In late 1993, NFL entered into a coinsurance treaty with FLICA. FLICA is a
wholly-owned subsidiary of Freedom. Under the terms of the treaty, NFL
assumed a 90% pro-rata share of first occurrence cancer business. For the
years ended December 31, 1995, 1994 and 1993, $5,058,000, $1,640,000, and
zero, respectively, of assumed premiums under this coinsurance treaty are
included as premium revenue in the Consolidated Financial Statements.
In May 1987, NFL entered into a coinsurance treaty with FLICA. Under the
terms of the treaty, NFL assumed a 50% pro-rata share of all insurance
business written by FLICA from January 1, 1987 through December 31, 1988.
In November 1988 (see NOTE 4), the coinsurance treaty was amended to extend
through 1997. For the years ended December 31, 1995, 1994 and 1993,
$4,272,000, $4,607,000, and $4,856,000, respectively, of assumed premiums
under the coinsurance treaty are included as premium revenues in the
consolidated financial statements.
In March 1990, NFL entered into a coinsurance treaty with Paramount Life
Insurance Company ("Paramount"). Paramount is controlled by one of NFL's
managing general agents. Under the terms of the treaty, NFL assumes a
quota-share of all insurance written by PLIC for a period of five years
beginning in 1990. For 1990 and 1991 new business, NFL assumed a 90%
quota-share. No new business was reinsured from Paramount during 1993 or
1992. For the years ended December 31, 1995, 1994 and 1993, $582,000,
$1,601,000, and $1,977,000, respectively, of assumed premiums under the
coinsurance treaty with Paramount is included as premium revenue in the
consolidated financial statements.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
The Company's future minimum lease payments for non-cancelable operating
leases, relating primarily to office facilities and data processing
equipment having a remaining term in excess of one year, at December 31,
1995, aggregated $13,580,000. The amounts due by year are as follows:
1996-$2,750,000; 1997-$2,550,000; 1998- $2,260,000; 1999-$1,990,000;
2000-$1,760,000; and thereafter-$2,270,000. Aggregate rental expense included
in the consolidated financial statements for all operating leases
approximated $3,413,000, $2,953,000, and $1,908,000 in 1995, 1994 and 1993,
respectively.
In the normal course of their business operations, the Insurance
Subsidiaries, continue to be involved in various claims, lawsuits (alleging
actual as well as substantial exemplary damages) and regulatory matters.
In the opinion of management, the disposition of these or any other legal
matters will not have a material adverse effect on the Company's
consolidated financial position.
In the ordinary course of business, the Company has advanced commissions
and made loans to agents collateralized by future commissions. Advances to
agents are recorded as receivables from agents and consisted as of
December 31, 1995 in amounts of $7,690,000 for LifeStyles Marketing's
agents, $1,718,000 for agent balances reinsured from FLICA, $1,768,000 for
Farm & Ranch's agents, $2,423,000 for Cornerstone's agents, $1,585,000 for
Senior Benefit's agents, and $1,522,000 for other agent balances.
Westbridge holds a secured promissory note (the "Elkins Note"), from NFC
Marketing, Inc. ("NFC"), an Arkansas corporation which is wholly-owned by
Elkins. The balance of this note recorded on the books of the Company at
December 31, 1995 is approximately $860,000. The note, which was
renegotiated in October 1994, represents principal and accrued interest on
a loan made by Westbridge to NFC for the purpose of expanding its marketing
efforts. The original loan was scheduled to be repaid in April 1993.
However, due to certain financial difficulties, NFC was in arrears on the
full amount of this note and in October 1994 the Elkins Note was renewed
and extended with terms which provide, among other things, for the payment
to Westbridge of $20,000 per month until such time as the full amount of
principal and interest thereunder has been paid. Under the terms of the
Elkins Note, such amounts have been paid to Westbridge by NFL from monthly
commissions which would otherwise be payable to NFC by NFL. Payment of the
principal and interest under the Elkins Note has been guaranteed by Elkins.
In addition, under the terms of a Security Agreement delivered to
Westbridge by NFC, following a default, Westbridge has the right to apply
monies, balances, credit or collections which it may hold for NFC on
deposit, or which might otherwise be payable to NFC by NFL (including,
among other things, agents' commissions payable by NFL to NFC), to offset
the unpaid balance of the Elkins Note. Following any exercise by the
Company of its right of offset, management believes that the level of
lapses and cancellations would gradually increase as a result of agents'
efforts to transfer the policies to other insurers. However, management
also believes that the rate at which such policies could be rewritten would
not significantly affect the level of premiums received in the near term
and, as a result, the Company should recover the full amount owed on this
note.
NOTE 16 - RECONCILIATION TO STATUTORY REPORTING
A reconciliation of net income as reported by the Insurance Subsidiaries
under practices prescribed or permitted by regulatory authorities and that
reported herein by the Company on a consolidated GAAP basis follows:
Year Ended December 31,
-----------------------------------
1995 1994 1993
--------- -------- -------
(In thousands)
Net (loss) income as reported by the insurance
subsidiaries on a regulatory basis $ (6,296) $ 3,043 $ 4,066
Additions to (deductions from) regulatory basis:
Future policy benefits and claims 166 1,264 4,076
Deferred policy acquisition and
development costs, net of amortization 15,329 6,967 (2,414)
Deferred and uncollected premiums 138 (601) 1,672
Income taxes (2,837) (2,505) (1,991)
Operations of affiliates (1,355) (2,669) (2,347)
Other, net 179 926 469
------ ------ ------
Consolidated net income as reported herein
on a GAAP basis $ 5,324 $ 6,425 $ 3,531
====== ====== ======
A reconciliation of capital and surplus reported by the Insurance
Subsidiaries under regulatory practices to stockholders' equity as reported
herein by Westbridge on a consolidated GAAP basis follows:
Year Ended December 31,
--------------------------
1995 1994 1993
-------- -------- --------
(In thousands)
Capital and surplus as reported by the Insurance
Subsidiaries on a regulatory basis $ 24,038 $ 23,564 $ 16,066
Additions to (deductions from) a regulatory basis:
Future policy benefits and claims (9,723) (23,298) (12,090)
Deferred policy acquisition and development costs 34,333 55,305 28,354
Nonadmitted assets 1,124 8,127 4,567
Income taxes (9,447) (10,038) (2,326)
Deferred, uncollected and advance premiums 241 704 2,246
Asset valuation reserve 823 1,644 1,518
Stockholders' equity (deficit) of affiliates (8,506) (41,071) (20,621)
Other, net 9,922 11,418 3,897
------ ------ ------
Consolidated stockholders' equity as reported
herein on a GAAP basis $ 42,805 $ 26,355 $ 21,611
======= ======= =======
NOTE 17 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial data for each of the Company's last two
years of operations is as follows:
Quarter Ended
---------------
1995 March June September December
- -------- --------- ------ ---------- ---------
(In thousands, except per share data)
Premium income $27,934 $28,876 $30,554 $32,729
Net investment income 1,820 1,764 1,722 2,115
Net realized gains (losses) on investments (61) (11) 37 217
Fee, service and other income 438 457 665 776
Benefits, claims and other expenses 29,169 29,069 30,386 33,212
Net income before extraordinary item 724 1,418 1,796 1,793
Extraordinary loss from early extinguishment
of debt, net of income tax benefit 407 - - -
Preferred stock dividend 413 412 413 412
Income (loss) applicable to common stockholders (96) 1,006 1,383 1,381
Earnings per share:
Primary:
Income before extraordinary item $ .06 $ .17 $ .23 $ .23
Extraordinary item (.08) - - -
Net earnings $ (.02) $ .17 $ .23 $ .23
Fully diluted:
Income before extraordinary item $ .10 $ .17 $ .21 $ .21
Extraordinary item (.06) - - -
Net earnings $ .04 $ .17 $ .21 $ .21
Quarter Ended
---------------------
1994 March June September December
- -------- ---------- ------- ----------- ----------
(In thousands, except per share data)
Premium income $17,201 $26,763 $27,696 $27,043
Net investment income 872 1,460 1,610 1,822
Realized gains on investments 62 131 127 -
Fee, service and other income 448 409 449 453
Benefits, claims and other expenses 16,989 26,331 27,302 27,080
Net income before cumulative effect
of a change in accounting principle 1,146 1,691 1,781 1,807
Preferred stock dividends - 365 412 413
Income applicable to common stockholders 1,146 1,326 1,369 1,394
Earnings per share:
Primary $ .25 $ .29 $ .30 $ .30
Fully diluted $ .25 $ .26 $ .26 $ .26
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
WESTBRIDGE CAPITAL CORP. (PARENT COMPANY)
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(In thousands)
Year Ended December 31,
------------------------------------
1995 1994 1993
---------- --------- ---------
Net investment income $ 23 $ 12 $ 36
Realized gains and losses on investments - - 55
Intercompany income derived from:
Interest on Surplus Certificates 78 106 229
Rental of leasehold improvements and equipment 1,597 658 618
Interest on advances to subsidiaries 182 170 226
Other income 120 96 205
----- ----- -----
2,000 1,042 1,369
----- ----- -----
General and administrative expenses 2,085 894 652
Taxes, licenses and fees 97 35 25
Interest expense 2,432 3,228 3,190
----- ----- -----
4,614 4,157 3,867
----- ----- -----
Loss before benefit for income taxes and equity
in undistributed net earnings of subsidiaries (2,614) (3,115) (2,498)
Benefit for income taxes 1,427 1,228 842
----- ----- -----
(1,187) (1,887) (1,656)
Equity in undistributed net earnings
of subsidiaries 6,918 8,312 5,187
----- ----- -----
Net income before extraordinary item 5,731 6,425 3,531
Extraordinary loss from early extinguishment
of debt, net of income tax benefit of $210 407 - -
----- ----- -----
Net income 5,324 6,425 3,531
Preferred stock dividends 1,650 1,190 -
----- ----- -----
Income applicable to common stockholders 3,674 5,235 3,531
Retained earnings (accumulated deficit)
at beginning of year 6,901 1,666 (1,865)
----- ----- -----
Retained earnings (accumulated deficit)
at end of year $10,575 $ 6,901 $ 1,666
====== ====== ======
The condensed financial information should be read in conjunction with the
Westbridge Capital Corp. December 31, 1995 consolidated financial statements
and notes thereto.
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
WESTBRIDGE CAPITAL CORP. (PARENT COMPANY)
BALANCE SHEETS
(In thousands)
December 31,
-----------------------------
1995 1994
-----------------------------
Assets:
Cash and other short-term investments $ 1,446 $ 27
Investment in consolidated subsidiaries 70,118 60,613
Notes receivable from related parties - -
Accrued investment income 34 22
Leasehold improvements and equipment, net 1,387 1,131
Other assets 7,257 5,862
Advances due from subsidiaries 4,797 5,519
Receivable from subsidiary on Surplus Certificate 777 777
------ ------
Total Assets $85,816 $73,951
====== ======
Liabilities:
Senior subordinated debentures, net $19,264 $24,580
Interest payable 2 871
Other liabilities 2,055 1,116
Payable to subsidiaries 1,690 1,029
------ ------
Total Liabilities 23,011 27,596
------ ------
Redeemable Preferred Stock 20,000 20,000
Stockholders' Equity:
Common stock 599 443
Capital in excess of par value 29,208 19,328
Unrealized appreciation (depreciation)
of investments carried at market value 2,593 (147)
Retained earnings 10,575 6,901
------ ------
42,975 26,525
------ ------
Less: Aggregate shares held in treasury and
investment by affiliate in Parent Company's
common stock (28,600 shares at December 31,
1995 and 1994), at cost (170) (170)
------ ------
Total Stockholders' Equity 42,805 26,355
------ ------
Total Liabilities, Redeemable Preferred Stock
and Stockholders' Equity $85,816 $73,951
====== ======
The condensed financial information should be read in conjunction with the
Westbridge Capital Corp. December 31, 1995 consolidated financial statements and notes thereto.
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
WESTBRIDGE CAPITAL CORP. (PARENT COMPANY)
STATEMENT OF CASH FLOWS
(In thousands)
Year Ended December 31,
-------------------------------
1995 1994 1993
------ ----- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income applicable to common stockholders $ 3,674 $ 5,235 $ 3,531
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Equity in undistributed net income of subsidiaries (6,918) (8,312) (5,187)
Accrued investment income (12) 87 39
Advances due from subsidiaries 1,383 1,461 6
Other liabilities 10 356 (18)
Increase in deferred income tax benefit (1,376) (1,268) (842)
(Increase) decrease in deferred expense (137) (1,726) 117
Other, net 335 669 427
----- ----- -----
NET CASH USED FOR OPERATING ACTIVITIES (3,041) (3,498) (1,927)
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of NFIC and AICT - (20,178) -
Proceeds from investments sold and matured - 100 100
Proceeds from surplus certificate - 1,000 864
Notes receivable from related parties - 1,381 278
Additions to leasehold improvements and equipment,
net of retirements (703) (911) (219)
Investment in subsidiaries - 2,000 -
----- ----- -----
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES (703) (16,608) 1,023
----- ------ -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of redeemable preferred stock - 20,000 -
Retirement of 1996 debentures (25,000) - -
Issuance of subordinated notes 19,200 - -
Issuance of note payable 927 - -
Issuance of common stock 10,108 395 123
Issuance of common stock warrants 74 - -
Purchase and cancellation of common stock (146) (534) (89)
------ ------ -----
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,163 19,861 34
----- ------ -----
INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS DURING THE YEAR 1,419 (245) (870)
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF YEAR 27 272 1,142
----- ----- -----
CASH AND SHORT-TERM INVESTMENTS AT
END OF YEAR $1,446 $ 27 $ 272
===== ===== =====
The condensed financial information should be read in conjunction with the
Westbridge Capital Corp. December 31, 1995 consolidated financial statements
and notes thereto.
SCHEDULE III
WESTBRIDGE CAPITAL CORP.
SUPPLEMENTARY INSURANCE INFORMATION
(In thousands)
Other
Policy Amortization
Deferred Claims Benefits of Policy
Policy Future and Net and Acquisi- Other
AcquisitionPolicy Benefits Premium Invest Claims tion Operating Premiums
Segment Costs Benefits Payable Revenue Income Expense Costs Expenses Written*
----- ------- ------ ------- ------ ------- ----- ------- --------
Year ended December 31, 1995:
Insurance operations $56,977 $46,620 $39,063 $120,093 $7,095 $70,465 $11,553 $23,533 $98,996
Fee and service income
activities -- -- -- -- -- -- -- 11,670
Corporate (parent company) -- -- -- -- 326 -- -- 4,615
------ ------ ------ -------- ----- ------ ------ ------
Total $56,977 $46,620 $39,063 $120,093 $7,421 $70,465 $11,553 $39,818
====== ====== ====== ======= ===== ====== ====== ======
Year ended December 31, 1994:
Insurance operations $58,654 $62,862 $41,349 $98,703 $5,487 $53,623 $9,711 $22,688 $34,732
Fee and service income
activities -- -- -- -- -- -- -- 7,704
Corporate (parent company) -- -- -- -- 277 -- -- 3,976
------ ------ ------ ------ ----- ------ ----- ------
Total $58,654 $62,862 $41,349 $98,703 $5,764 $53,623 $9,711 $34,368
====== ====== ====== ====== ===== ====== ===== ======
Year ended December 31, 1993:
Insurance operations $28,354 $32,877 $12,794 $68,731 $3,653 $33,153 $8,159 $19,898 $23,809
Fee and service income
activities -- -- -- -- -- -- -- 6,180
Corporate (parent company) -- -- -- -- 467 -- -- 3,142
------ ------ ------ ------ ----- ------ ----- ------
Total $28,354 $32,877 $12,794 $68,731 $4,120 $33,153 $8,159 $29,220
====== ====== ====== ====== ===== ====== ===== ======
* Premiums Written--Amounts do not apply to life insurance.
WESTBRIDGE CAPITAL CORP.
SCHEDULE IV
REINSURANCE
(In thousands)
Assumed Percentage
Ceded to From of Amount
Gross Other Other Net Assumed
Amount Companies Companies Amount to Net
------- ---------- --------- ------- ----------
Year ended December 31, 1995:
Life insurance in force $ 43,441 $ -- $ -- $ 43,441 --
Premiums:
Life $ 549 $ -- $ -- $ 549 --
Accident and health 112,444 2,811 9,911 119,544 8.29%
------- ------ ----- -------
Total premiums $112,993 $2,811 $9,911 $120,093 8.25%
======= ===== ===== =======
Year ended December 31, 1994:
Life insurance in force $21,814 $ -- $ -- $21,814 --
Premiums:
Life $ 444 $ (1) $ -- $ 445 --
Accident and health 92,192 1,781 7,847 98,258 7.99%
------ ----- ----- ------
Total premiums $92,636 $1,780 $7,847 $98,703 7.95%
====== ===== ===== ======
Year ended December 31, 1993:
Life insurance in force $22,340 $ -- $ -- $22,340 --
Premiums:
Life $ 509 $ -- $ -- $ 509 --
Accident and health 61,884 495 6,833 68,222 10.02%
------ ----- ----- ------
Total premiums $62,393 $ 495 $6,833 $68,731 9.94%
====== ===== ===== ======
SCHEDULE V
WESTBRIDGE CAPITAL CORP.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
Additions
Charged Balance
Balance at to at
Beginning Costs and Deductions End of
of Period Expenses (Charge Offs) Period
Year ended December 31, 1995:
Allowance for doubtful agents' balances $1,137 $ 50 $ -- $1,187
Year ended December 31, 1994:
Allowance for doubtful agents' balances $1,133 $ 4 $ -- $1,137
Year ended December 31, 1993:
Allowance for doubtful agents' balances $1,152 $(19) $ -- $1,133
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to directors is incorporated herein by
reference to Election of Directors" from the Company's definitive
proxy statement for the 1996 Annual Meeting of Stockholders.
Information relating to executive officers is contained under the
heading "Executive Officers" in PART I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
Executive Compensation is incorporated herein by reference to
"Election of Directors -- Executive Compensation" from the
Company's definitive proxy statement for the 1996 Annual Meeting
of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information pertaining to security ownership of certain beneficial
owners and management is incorporated herein by reference to
"Principal Stockholders" and "Election of Directors -- Security
Ownership of Management" from the Company's definitive proxy
statement for the 1996 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information pertaining to certain relationships and related
transactions is incorporated herein by reference to "Principal
Stockholders" and "Election of Directors" from the Company's
definitive proxy statement for the 1996 Annual Meeting of
Stockholders.
PART IV
ITEM 14. FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND REPORTS ON
FORM 8-K.
(a) The documents set forth below are filed as part of this
report.
(1) Financial Statements:
Reference is made to ITEM 8, "Index to Financial Statements
and Financial Statement Schedules."
(2) Financial Statement Schedules:
Reference is made to ITEM 8, "Index to Financial Statements
and Financial Statement Schedules."
(3) Exhibits:
The following exhibits are filed herewith. Exhibits
incorporated by reference are indicated in the parentheses
following the description.
2.1 Stock Purchase Agreement dated as of December 6, 1993
among Westbridge, National Group Corporation and
C. Clifton Robinson (incorporated by reference to
Exhibit 2.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993).
2.2 Amendment No. 1 to Stock Purchase Agreement, dated as
of April 12, 1994, by and among Westbridge, National
Group Corporation and C. Clifton Robinson
(incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K dated April 26,
1994).
3.1 Restated Certificate of Incorporation of Westbridge
filed with the Secretary of State of Delaware on
July 28, 1994 (incorporated by reference to
Exhibit 3.1 to Amendment No. 1 to the Company's
Registration Statement No. 33-31830 on Form S-1).
3.2 By-Laws of Westbridge, effective as of June 24, 1994
(incorporated by reference to Exhibit 3.2 to Amendment
No. 1 to the Company's Registration Statement No.
33-31830 on Form S-1).
4.1 Specimen Certificate for Westbridge Common Stock
(incorporated by reference to Exhibit 4.1 to Amendment
No. 1 to the Company's Registration Statement No.
2-78200 on Form S-1).
4.2** Specimen Certificate for Westbridge Series A
Cumulative Convertible Exchangeable Preferred Stock
$.10 Par Value, $1,000 Liquidation Preference.
4.3** Form of Indenture between Westbridge and Liberty Bank
and Trust Company of Oklahoma City, National
Association, as Trustee, including form of Note.
10.1 General Agent's Agreement with John P. Locke, as
amended on November 7, 1988 (incorporated by reference
to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991). (Confidential
Treatment for portions of this Exhibit has been
requested).
10.2 Description of Cash Bonus Plan (incorporated by
reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1988).
10.3 Westbridge 1985 Stock Option Plan (incorporated by
reference to Exhibit 10.7 to the Company's
Registration Statement No. 33-3577 on Form S-1).
10.4 Amendment No. 1 to Employee Incentive Stock Option
Plan of Westbridge (incorporated by reference to
Exhibit 10.8 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1986).
10.5 Amendment No. 2 to Employee Incentive Stock Option
Plan of Westbridge (incorporated by reference to
Exhibit 10.9 to the Company's Annual Report on Form
10-K for the year ended December 31, 1987).
10.6 Amendment No. 3 to Employee Incentive Stock Option
Plan of Westbridge (incorporated by reference to
Exhibit 10.10 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1988).
10.7 Stockholders' Agreement dated April 2, 1988, by and
among the Company and the other stockholders of
LifeStyles Marketing Group, Inc., named therein, as
amended (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December
31, 1988).
10.8 Stockholders' Agreement dated September 30, 1988, by
and among the Company, John P. Locke and Freedom
Holding Company (incorporated by reference to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1988).
10.9 Coinsurance Agreement between National Foundation Life
Insurance Company and Paramount Life Insurance
Company, as of March 1, 1990 (incorporated by
reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990).
10.10 Coinsurance Agreement between National Foundation Life
Insurance Company and Freedom Life Insurance Company
of America, as of May 5, 1987 (incorporated by
reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990).
10.11 Assumption Reinsurance Agreement, dated June 20, 1991,
by and among National Foundation Life Insurance
Company and Bankers Protective Life Insurance Company
(incorporated by reference to Exhibit 2 to the
Company's Report on Form 8-K dated August 27, 1991).
10.12 Assumption Reinsurance Agreement dated September 16,
1992, by and among National Foundation Life Insurance
Company and American Integrity Insurance Company
(incorporated by reference to Exhibit 2 of the
Company's Report on Form 8-K dated September 25,
1992).
10.13 Westbridge 1992 Stock Option Plan (incorporated by
reference to Exhibit 28.4 to the Company's
Registration Statement No. 33-55192 on Form S-8).
10.14 First Amendment to the 1992 Stock Option Plan
(incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1992).
10.15 Second Amendment to the 1992 Stock Option Plan
(incorporated by reference to Exhibit 10.21 to
Amendment No. 1 to the Company's Registration
Statement No. 33-31830 on Form S-1).
10.16 Preferred Stock Purchase Agreement dated as of
April 1, 1994 by and between Westbridge and each of
the purchasers named on the signature pages thereto
(incorporated by reference to Exhibit to Exhibit 10.1
to the Company's Current Report on Form 8-K dated
April 26, 1994).
10.17* Receivables Purchase and Sale Agreement dated November
15, 1995 between National Foundation Life Insurance
Company, National Financial Insurance Company,
American Insurance Company of Texas, Health Care-One
Insurance Agency, Inc., and Westbridge Funding
Corporation.
10.18* Credit Agreement dated as of December 28, 1995 between
Westbridge Funding Corporation and Fleet National Bank
of Connecticut.
10.19* Guaranty Agreement dated as of December 28, 1995 by
Westbridge Capital Corp. in favor of Fleet National
Bank of Connecticut.
10.20* Security Agreement dated as of December 28, 1995 by
Westbridge Funding Corporation for the benefit of
Fleet National Bank of Connecticut.
10.21* Westbridge Capital Corp. 10% Senior Note Due 2002
dated December 22, 1995.
10.22* Warrant to Purchase Common Stock of Westbridge Capital
Corp. (transfer restricted) dated December 22, 1995.
21* List of Subsidiaries of Westbridge.
24* Consent of Price Waterhouse LLP.
27* Financial Data Schedule.
(b) Report on Form 8-K.
Westbridge filed no reports on Form 8-K during the last
quarter of the year covered by this report.
* Filed Herewith.
** Previously Filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 29th day of March, 1996.
WESTBRIDGE CAPITAL CORP.
/s/ Martin E. Kantor
(Martin E. Kantor
Chairman of the Board and
Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
/s/ Martin E. Kantor Director, Chairman of the Board March 29, 1996
(Martin E. Kantor) and Chief Executive Officer
(Principal Executive Officer)
/s/ Marvin H. Berkeley Director March 29, 1996
(Marvin H. Berkeley)
/s/ Arthur S. Feinberg Director March 29, 1996
(Arthur W. Feinberg)
/s/ George M. Garfunkel Director March 29, 1996
(George M. Garfunkel)
/s/ Glenn O. Phillips Director March 29, 1996
(Glenn O. Phillips)
/s/ Joseph C. Sibigtroth Director March 29, 1996
(Joseph C. Sibigtroth)
/s/ James W. Thigpen Director, President and March 29, 1996
(James W. Thigpen) Chief Operating Officer
/s/ Barth P. Walker Director March 29, 1996
(Barth P. Walker)
/s/ Patrick J. Mitchell Vice President, Chief Financial March 29, 1996
(Patrick J. Mitchell) Officer and Treasurer
(Principal Financial and
Accounting Officer)
INDEX OF EXHIBITS
Exhibit
Number Description of Exhibit
10.17* Receivables Purchase and Sale Agreement dated November 15, 1995 between
National Foundation Life Insurance Company, National Financial Insurance
Company, American Insurance Company of Texas, Health Care-One Insurance
Agency, Inc., and Westbridge Funding Corporation.
10.18* Credit Agreement dated as of December 28, 1995 between Westbridge Funding
Corporation and Fleet National Bank of Connecticut.
10.19* Guaranty Agreement dated as of December 28, 1995 by Westbridge Capital
Corp. in favor of Fleet National Bank of Connecticut.
10.20* Security Agreement dated as of December 28, 1995 by Westbridge Funding
Corporation for the benefit of Fleet National Bank of Connecticut.
10.21* Westbridge Capital Corp. 10% Senior Note Due 2002 dated December 22,
1995.
10.22* Warrant to Purchase Common Stock of Westbridge Capital Corp. (transfer
restricted) dated December 22, 1995.
21* Subsidiaries of Westbridge.
24* Consent of Price Waterhouse.
27* Financial Data Schedule.
* Filed Herewith
Exhibit 10.17
RECEIVABLES PURCHASE AND SALE AGREEMENT
This Receivables Purchase and Sale Agreement,
dated as of November 15, 1995 (this "Agreement"), is
entered into by and between National Foundation Life
Insurance Company, a Delaware corporation, National
Financial Insurance Company, a Texas corporation,
American Insurance Company of Texas, a Texas
corporation, and Health Care-One Insurance Agency,
Inc., a California corporation (each of which is
referred to herein as a "Seller" and are collectively
referred to herein as the "Sellers"), and Westbridge
Funding Corporation, a Delaware corporation (the
"Purchaser"). Capitalized terms not otherwise defined
herein shall have the meanings set forth in Section
1.1.
WHEREAS, the Sellers are in the business of
underwriting and/or selling insurance products, and in
the ordinary course of such business (i) generate and
receive premiums from insureds, a portion of which
premiums represent commissions (the "Commissions") due
or to become due to agents of the Sellers, including
without limitation general agents of the Seller and
other agents with whom said general agents have
contracted (collectively, the "Agents") and (ii)
generate accounts receivable resulting from advances of
first-year Commissions paid to the Sellers' Agents
(each, an "Agent Obligor") in respect of insurance
policies sold by such Agent Obligors (the obligations
of such Agent Obligors to repay the principal amount
of, and interest and other finance charges on, such
advances being referred to herein as "Agent
Receivables");
WHEREAS, the Sellers desire to sell to the
Purchaser, and, subject to the terms and conditions set
forth herein, the Purchaser agrees to purchase from the
Sellers, from time to time on a non-recourse basis, all
of each Seller's right, title and interest in, to and
under their respective Agent Receivables; and
WHEREAS, in connection with such sale of
Agent Receivables and as collateral for the repayment
thereof, the Sellers desire to assign to the Purchaser,
and the Purchaser desires to assume, all of each
Seller's rights in, to and under all guarantees thereof
and all collateral security therefor, including,
without limitation, the Assigned Commissions and Agent
Contract Rights (each as defined below);
NOW, THEREFORE, in consideration of the
mutual covenants and agreements set forth in this
Agreements, and for other good and valuable
consideration, the receipt and sufficiency of which is
are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Definitions. The following
terms shall have the definitions set forth below:
"Agent Contract Rights" means all of each
Seller's rights under each contract, financing
agreement, note, instrument, or other agreement by
which any Agent Obligor is bound to make payments to
such Seller to repay advances of first-year Commissions
made by such Seller to such Agent Obligor or any other
Agent Obligor and to pay interest and/or other finance
charges to the Seller.
"Assigned Commissions" means the Commissions
due or to become due to the Agent Obligors with respect
to Insurance Policies sold by such Agent Obligors,
including without limitation all renewal Commissions,
but only to the extent that such Commissions have been
assigned by such Agent Obligors to a Seller as
collateral to secure the payment of the Agent
Receivables owing by such Agent Obligors.
"Business Day" means any day on which
commercial banks are open for business in the States of
Connecticut and Texas.
"Collections" means all the payments and
collections received by a Seller, from time to time,
under any Insurance Policies arising out of a sale of
insurance products or services, which includes (i)
premiums, (ii) Commissions, (iii) any interest or
finance charges on such Commissions, and (iv) any other
obligations of the insureds thereunder.
"Cut-Off Date" means (i) November 30, 1995;
and (ii) thereafter until the Purchase Termination
Date, the last day of each subsequent calendar month.
"Insurance Policies" means the insurance
policies issued by any Seller and sold by any Agent
Obligor.
"Person" means any individual, partnership,
corporation, limited liability company, business trust,
joint stock company, trust, unincorporated association,
joint venture, governmental authority or other entity
of whatever nature.
"Purchase Termination Date" means January 7,
1998 or such later date as the parties to this
Agreement mutually agree.
"Quarterly Reconciliation Date" means the
Closing Date in January, April, July and October during
the term of this Agreement, commencing on January 31,
1996.
ARTICLE II
PURCHASE AND SALE; CLOSINGS
Section 2.1. Purchase and Sale. On the
terms and subject to the conditions of this Agreement,
each Seller hereby agrees to sell to the Purchaser, and
the Purchaser hereby agrees to purchase from each
Seller, from time to time on a non-recourse basis, all
of such Seller's right, title and interest in, to and
under the Agent Receivables outstanding on November 30,
1995 and which arise prior to the last day of the
calendar month immediately preceding the month in which
the Purchase Termination Date occurs, and in connection
therewith and as collateral therefor, the Seller agrees
to assign to the Purchaser at the time of each sale,
and the Purchaser agrees to assume from the Seller, all
of the Sellers right, title and interest in, to and
under including, without limitation, all interest
accrued or accruing on such Agent Receivables, all
monies due and to become due thereunder, all guarantees
thereof, all collateral security therefor (including,
without limitation, all Assigned Commissions and Agent
Contract Rights), and all proceeds thereof. Each sale
and purchase of Agent Receivables hereunder shall take
place in the manner set forth in Section 2.2 below.
Section 2.2. Closings. (a) A closing of
the sale and purchase of Agent Receivables (each, a
"Closing") shall take place (i) on the second Business
Day following the satisfaction of all of the closing
conditions specified in paragraph (c) below, and (ii)
thereafter until the Purchase Termination Date, on the
eighth Business Day of each subsequent calendar month
(each, a "Closing Date").
(b) On each Closing Date:
(i) each Seller shall deliver to the
Purchaser an Assignment substantially in the form
of Exhibit A hereto, dated the Closing Date, which
specifies in reasonable detail (A) each Agent
Receivable outstanding as of the Cut-Off Date
immediately prior to such Closing Date and being
sold by such Seller on the applicable Closing
Date, (B) the outstanding amount of such Agent
Receivable as of such Cut-Off Date, and (C) the
Assigned Commissions and Agent Contract Rights
relating to such Agent Receivable which have not
been previously assigned by each Seller; and
(ii) the Purchaser shall deliver to each
Seller, in immediately available funds, the
aggregate purchase price for the Agent Receivables
being purchased from such Seller on such date
equal to 85% of the aggregate amount of such Agent
Receivables as of the Cut-Off Date.
(c) (i) the obligations of the Sellers and
the Purchaser to consummate the sale and purchase
of any Agent Receivables on each Closing Date
shall be subject to the satisfaction of the
following conditions: (A) the transactions
contemplated by this Agreement not being
prohibited by or in conflict with any applicable
law, order, decree or governmental regulation; and
(B) the receipt and continued effectiveness of all
consents, approvals and actions of, filings with
and notices to any third party, including, without
limitation, any governmental or regulatory
authority, necessary to permit the Sellers and the
Purchaser to perform their respective obligations
under this Agreement and to consummate the
transactions contemplated hereby, all in form and
substance reasonably satisfactory to the Purchaser
and the Sellers, as applicable; and
(ii) the obligations of the Purchaser to
consummate the purchase of Agent Receivables on
each Closing Date shall be subject to the
Purchaser having available sufficient funds to pay
the purchase price on such Closing Date.
(d) Prior to the initial Closing Date, each
Seller shall deliver to the Purchaser a UCC-1 financing
statement of the Purchaser as secured party/assignee
and such Seller as the debtor/assignor with respect to
the Agent Receivables, and the Assigned Commissions and
Agent Contract Rights relating thereto, to be assigned
by such Seller hereunder.
Section 2.3. Security Interest. The parties
hereto agree that this Agreement is intended to
constitute the sale of and shall transfer ownership to
the Purchaser of all right, title and interest of each
Seller in, to and under the Agent Receivables sold
hereunder. In addition, the parties hereto agree that
(a) this Agreement constitutes a grant by each Seller
to the Purchaser of a perfected first priority security
interest in all of such Seller's right, title and
interest in, to and under each Agent Receivable sold
hereunder, including, without limitation, all interest
accrued or accruing thereon, all monies due and to
become due thereunder, all guarantees thereof, all
collateral security therefor (including, without
limitation, all Assigned Commissions and Agent Contract
Rights), and all "proceeds" (as defined in Section
9-306 of the Uniform Commercial Code as in effect in
the applicable jurisdiction) thereof, in each case,
whether now existing or hereafter arising, (b) such
security interest is intended to secure, without
limitation, all now and hereafter outstanding
obligations of each Seller to the Purchaser and (c)
this Agreement shall constitute a security agreement
under applicable law.
ARTICLE III
ADDITIONAL COVENANTS
Section 3.1. Appointment of Sellers as
Servicing Agents. The Purchaser hereby appoints each
Seller, and each Seller hereby accepts such
appointment, as the Purchaser's agent to service,
administer and collect the Agent Receivables sold by it
hereunder and the Assigned Commissions assigned by it
hereunder (in such capacity, each Seller is referred to
herein as a "Servicing Agent") pursuant to the terms of
this Section 3.1.
Section 3.2. Rights and Duties of Servicing
Agent. (a) Each Servicing Agent shall take or cause to
be taken all such actions as may be necessary or
advisable to service, administer, account, collect and
remit to the Purchaser from time to time the Assigned
Commissions relating to the Agent Receivables sold by
it hereunder, all with reasonable care and diligence
and in accordance with its sound credit and collection
policies, which policies shall not be amended, modified
or waived in any material respect without the prior
written consent of the Purchaser. Unless and until
otherwise specified by the Purchaser, each Servicing
Agent shall enforce the Purchaser's rights and
interests in and under the Agent Receivables sold by it
hereunder and the related collateral security and
guarantees (including the Assigned Commissions and
Agent Contract Rights).
(b) Each Servicing Agent shall collect, and
hold in trust for the account of the Purchaser in an
interest bearing account of the Servicing Agent, the
portion of all Collections which represent Assigned
Commissions (together with all interest and/or other
finance charges paid by the Agent Obligors thereon, the
"Collected Commissions"). On each Closing Date, each
Servicing Agent will (i) furnish or cause to be
furnished to the Purchaser a statement setting forth a
detailed itemization of the amounts which it has
received in respect of the repayment of Agent
Receivables and such other information as the Purchaser
may reasonably request; and (ii) pay to the Purchaser
such amounts, together with any and all interest
received thereon during the period for which such
amounts were held by such Servicing Agent.
(c) Promptly following each calendar
quarter, each Servicing Agent shall reconcile the
aggregate Collected Commissions received by it to the
amount of Assigned Commissions which should have been
received by it in repayment of Agent Receivables. To
the extent necessary and in accordance with the Agent
Contract Rights relating to such Agent Receivables,
each Servicing Agent shall take such steps as shall be
necessary to recover from each Agent Obligor any
shortfall in the repayment of Agent Receivables. On
each Closing Date, each Servicing Agent will (i)
furnish or cause to be furnished to the Purchaser a
statement setting forth a detailed itemization of the
amounts which it has recovered in respect of shortfalls
in the repayment of Agent Receivables and such other
information as the Purchaser may reasonably request;
and (ii) pay to the Purchaser such recovered amounts,
together with any and all interest received thereon
during the period for which such recovered amounts were
held by such Servicing Agent. The Purchaser hereby
authorizes each Servicing Agent to enforce each Agent
Obligor's obligations under the respective Agent
Receivables and related Agent Contract Rights and to
collect all amounts due under the Agent Receivables
sold by it hereunder, including, without limitation,
endorsing any instruments representing Collections.
Section 3.3. Rights of the Purchaser. (a)
At any time or from time to time, the Purchaser may
notify (or cause each Servicing Agent to notify) the
Agent Obligors of its ownership of the Agent
Receivables purchased by it hereunder, and may direct
such Agent Obligors to pay all amounts due or to become
due thereunder directly to the Purchaser or its
designee.
(b) Each Servicing Agent shall, at the
Purchaser's request, (i) assemble all of the documents,
instruments and other records (including, without
limitation, computer tapes and disks) which evidence
the Agent Receivables purchased by the Purchaser
hereunder and the related Agent Contract Rights and
collateral security (and such other information which
the Purchaser may reasonably request), and make the
same available to the Purchaser or its designee, and
(ii) segregate all cash, checks and other instruments
received by it from time to time constituting
Collections of Agent Receivables purchased by the
Purchaser hereunder in a manner acceptable to the
Purchaser and shall, remit all such cash, checks and
instruments, duly endorsed or with duly executed
instruments of transfer, to the Purchaser or its
designee.
(c) Anything herein to the contrary
notwithstanding, the exercise by the Purchaser of any
of its rights hereunder shall not relieve the Servicing
Agent from any of its duties or obligations with
respect to the Agent Contract Rights relating to the
Agent Receivables sold by it hereunder.
Section 3.4. Further Assurances. At any
time or from time to time after the date hereof, at the
Purchaser's request and without further consideration,
each of the Sellers shall execute and deliver to the
Purchaser such other instruments of sale, transfer,
conveyance, assignment and confirmation, provide such
materials and information and take such other actions
as the Purchaser may reasonably deem necessary or
desirable in order more effectively to transfer, convey
and assign to the Purchaser, and to confirm the
Purchaser's title to, all of the Agent Receivables and
Assigned Commissions and Agent Contract Rights relating
thereto, and, to the full extent permitted by law, to
cause each of the Sellers to fulfill its obligations
under this Agreement, including, without limitation,
the execution of any financing statements or
continuation statements relating to Agent Receivables
or Assigned Commissions or Agent Contract Rights for
filing under the provisions of the Uniform Commercial
Code of any applicable jurisdiction.
Section 3.5. Standard of Care. Each Seller
will exercise and give the same care and attention to
its obligations pursuant to Article III as it gives to
all other corporate obligations of a comparable nature,
provided, that it shall not be held responsible for any
losses arising from any action taken by it hereunder in
good faith absent willful misconduct or gross
negligence.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 4.1. Representations, Warranties and
Covenants. Each of the Sellers severally, and not
jointly, hereby represents, warrants and covenants to
the Purchaser as follows:
(a) on the Cut-Off Date relating to the sale
of Agent Receivables hereunder, each Insurance Policy
giving rise to such Agent Receivables and the related
Assigned Commissions will be in full force and effect
in accordance with its terms and, to its knowledge free
from any lien, security interest, encumbrance or other
right, title or interest of any Person, and neither it
nor, to its knowledge, any insured had or will have
done or failed to do anything that would or might
permit any such insured or it to terminate any such
Insurance Policy or suspend or reduce any payments or
obligations due or to become due thereunder.
(b) on the Cut-Off Date relating to the sale
of Agent Receivables hereunder, each Insurance Policy
sold by such Seller giving rise to such Agent
Receivables is a valid, binding and legally enforceable
obligation of it and it had all requisite authority and
capacity to issue or sell such Insurance Policy and no
such Insurance Policy violates any applicable law or
contravenes any other agreement to which it is subject.
(c) the execution and delivery of this
Agreement by it, and the performance by it of its
obligations hereunder, have been duly authorized by all
necessary corporate and other action and do not and,
subject to the approval of the relevant state insurance
commissioners and receipt of the consents set forth in
Schedule 4.1(c), will not require any consent or
approval not heretofore obtained of any governmental
authority or other Person.
(d) this Agreement is the valid, binding and
enforceable obligation of it, and does not violate any
applicable law or contravene any other agreement to
which it is a party.
(e) other than financing statements on file
at any public office covering its security interests in
Assigned Commissions and Agent Contract Rights which
will be assigned to the Purchaser hereunder, there are
no financing statements now on file, or intended so to
be, and neither it nor any of its subsidiaries or
affiliates will execute or consent to the filing in any
public office of any financing statement under the laws
of any jurisdiction, relating to the Agent Receivables
and the Assigned Commissions, Agent Contract Rights and
other collateral relating thereto.
(f) on each Closing Date, Schedule I to the
Assignment delivered on such Closing Date will contain
a complete and correct statement of the Agent
Receivables being sold on such Closing Date and the
Assigned Commissions and Agent Contracts Rights
relating thereto.
(g) upon payment on each Closing Date of the
dollar amount to be paid on such date as described in
Section 2.2(b)(ii) hereof for the purchase of the Agent
Receivables sold to the Purchaser on such date, the
Purchaser will have at such time good title to the
Agent Receivables set forth in Schedule I to the
Assignment delivered on such Closing Date.
ARTICLE V
MISCELLANEOUS
Section 5.1. Termination. This Agreement
will terminate on the Purchase Termination Date, or on
such other date as the parties shall agree to in
writing.
Section 5.2 Notices. All notices, requests
and other communications hereunder must be in writing
and will be deemed to have been duly given only if
delivered personally or by facsimile transmission or
mailed (first class postage prepaid) to the other
parties at the respective addresses set forth on the
signature pages hereof. All such notices, requests and
other communications will be deemed given upon receipt.
Section 5.3. Waiver. Any term or condition
of this Agreement may be waived at any time by the
party that is entitled to the benefit thereof, but no
such waiver shall be effective unless set forth in a
written instrument duly executed by or on behalf of the
party waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in
any one or more instances, shall be deemed to be or
construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion.
All remedies, either under this Agreement or by Law or
otherwise afforded, will be cumulative and not
alternative.
Section 5.4. Amendment. This Agreement may
be amended, supplemented or modified only by a written
instrument duly executed by or on behalf of each party
hereto.
Section 5.5. No Third Party Beneficiary.
The terms and provisions of this Agreement are intended
solely for the benefit of each party hereto and their
respective successors or permitted assigns, and except
as set forth in Section 5.11 it is not the intention of
the parties to confer third-party beneficiary rights
upon any other Person.
Section 5.6. Successors and Assigns. This
Agreement shall inure to the benefit of and shall be
binding upon the parties hereto and their respective
successors, heirs, personal representatives and
permitted assigns.
Section 5.7. Entire Agreement. This
Agreement supersedes all prior discussions and
agreements between the parties with respect to the
subject matter hereof between the parties, and contains
the sole and entire agreement between the parties
hereto with respect to the subject matter hereof.
Section 5.8. Headings. The headings used in
this Agreement have been inserted for convenience of
reference only and do not define or limit the
provisions hereof.
Section 5.9. Governing Law. This Agreement
shall be governed by and construed in accordance with
the laws of the State of New York.
Section 5.10. Invalid Provisions. If any
provision of this Agreement is held to be illegal,
invalid or unenforceable under any present or future
Law, and if the rights or obligations of any party
hereto under this Agreement will not be materially and
adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will be construed
and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part
hereof and (c) the remaining provisions of this
Agreement will remain in full force and effect and will
not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom.
Section 5.11. Sellers' Obligations.
Notwithstanding that all sales of Agent Receivables
pursuant to Section 2.1 of this Agreement will be on a
non-recourse basis, nothing contained herein shall be
construed to relieve any Seller from liability for any
misrepresentation, breach of warranty or nonfulfillment
of or failure to perform any covenant or agreement on
its part contained in Article IV. Each Seller
understands that the Purchaser intends to assign to and
grant to a lending institution or institutions a
security interest in all of its rights, title and
interest to this Agreement. Each Seller hereby
consents to such assignment and grant, and further
agrees that all representations, warranties, covenants
and agreements of such Seller made herein shall also be
for the benefit of and inure to such lending
institution or institutions and all holders from time
to time of notes issued by Purchaser to such
institution or institutions.
Section 5.12. Counterparts. This Agreement
may be executed in any number of counterparts, each of
which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been
duly executed and delivered by the duly authorized
officer of each party as of the date first above
written.
SELLERS:
NATIONAL FOUNDATION LIFE
INSURANCE COMPANY
By:_/s/ Michael D Norris__
Name: Michael D. Norris
Title: Senior Vice President
Address for Notices:
777 Main Street
Suite 900
Fort Worth, Texas 76102
NATIONAL FINANCIAL
INSURANCE COMPANY
By:__/s/ Michael D. Norris__
Name: Michael D. Norris
Title: Senior Vice President
Address for Notices:
777 Main Street
Suite 900
Fort Worth, Texas 76102
AMERICAN INSURANCE
COMPANY OF TEXAS
By:__/s/ Michael D. Norris__
Name: Michael D. Norris
Title: Senior Vice President
Address for Notices:
777 Main Street
Suite 900
Fort Worth, Texas 76102
HEALTH CARE-ONE INSURANCE
AGENCY, INC.
By:__/s/ Michael D. Norris__
Name: Michael D. Norris
Title: Senior Vice President
Address for Notices:
777 Main Street
Suite 900
Fort Worth, Texas 76102
PURCHASER:
WESTBRIDGE FUNDING
CORPORATION
By:__/s/ Patrick J. Mitchell__
Name: Patrick J. Mitchell
Title: Vice President
Address for Notices:
777 Main Street
Suite 900
Fort Worth, Texas 76102
EXHIBIT A
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned (the
"Seller") does hereby sell, transfer, convey, assign
and deliver to the Purchaser free and clear of all
mortgages, pledges, assessments, security interests,
leases, liens, adverse claims, levies, charges or other
encumbrances of any kind ("Liens"), other than
permitted Liens, on a non-recourse basis, all of the
Seller's right, title and interest in, to and under the
Agent Receivables listed in Schedule I hereto, together
with all interest accrued or accruing thereon, all
monies due and to become due thereunder, all guarantees
thereof, all collateral security therefor (including,
without limitation, all Assigned Commissions and Agent
Contract Rights), and all proceeds thereof in each
case, listed in Schedule I hereto (the "Assigned
Assets"), TO HAVE AND TO HOLD the same unto the
Purchaser, its successors and assigns, forever.
The terms Seller, Agent Receivables, Assigned
Commissions and Agent Contract Rights shall have the
respective meanings assigned thereto in the Receivables
Purchase and Sale Agreement, dated as of ___________,
between National Foundation Life Insurance Company, a
Delaware corporation, National Financial Insurance
Company, a Texas corporation, American Insurance
Company of Texas, a Texas corporation, and Health
Care-One Insurance Agency, a Delaware corporation, and
Westbridge Funding Corporation, a Delaware corporation
(the "Purchaser").
The Purchaser hereby accepts the sale,
transfer, conveyance, assignment and delivery of the
Assigned Assets.
At any time or from time to time after the
date hereof, at the Purchaser's request and without
further consideration, the Seller shall execute and
deliver to the Purchaser such other instruments of
sale, transfer, conveyance, assignment and
confirmation, provide such materials and information
and take such other actions as the Purchaser may
reasonably deem necessary or desirable in order more
effectively to transfer, convey and assign to the
Purchaser, and to confirm the Purchaser's title to, all
of the Assigned Assets, and, to the full extent
permitted by law, to put the Purchaser in actual
possession and operating control of the Assigned Assets
and to assist the Purchaser in exercising all rights
with respect thereto.
This Assignment shall be governed by and
construed in accordance with the laws of the State of
New York applicable to a contract executed and
performed in such State without giving effect to the
conflicts of laws principles thereof, except that if it
is necessary in any other jurisdiction to have the law
of such other jurisdiction govern this Assignment in
order for this Assignment to be effective in any
respect, then the laws of such other jurisdiction shall
govern this Assignment to such extent.
IN WITNESS WHEREOF, the undersigned has
caused its duly authorized officer to execute this
Assignment on this ______ day of _________, 199_.
[SELLER]
By:____________________________
Name:
Title:
SCHEDULE 4.1(c)
1. General Agent's Agreement, dated November 7, 1988
by and between National Foundation Life Insurance
Company ("NFL"), and John P. Locke, d/b/a 1st
Million. (Pursuant to Section 9, NFL must obtain
prior written consent to assign this Agreement.)
2. General Agent's Agreement, dated April 5, 1976 by
and between NFL and Phillip David Elkins of Little
Rock Arkansas. (Pursuant to section 10, NFL must
obtain prior written consent to assign this
Agreement.)
Exhibit 10.18
CREDIT AGREEMENT
dated as of December 28, 1995
between
WESTBRIDGE FUNDING CORPORATION
and
FLEET NATIONAL BANK OF CONNECTICUT
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.. . . . . . . 1
Section 1.1.Definitions . . . . . . . . . . . . . . . . . . 1
Section 1.2. Accounting Terms . . . . . . . . . . . . . 12
Section 1.3. Rounding.. . . . . . . . . . . . . . . . . 12
Section 1.4. Exhibits and Schedules.. . . . . . . . . . 12
Section 1.5. References to "Borrower and its Subsidiaries". 12
Section 1.6. Miscellaneous Terms. . . . . . . . . . . . 13
Section 1.7. Uniform Commercial Code Definitions. . . . 13
ARTICLE 2. THE CREDIT.. . . . . . . . . . . . . . . . . . . . 13
Section 2.1. The Revolving Loans. . . . . . . . . . . . 13
Section 2.2. The Revolving Note . . . . . . . . . . . . 13
Section 2.3. Procedure for Borrowing. . . . . . . . . . 14
Section 2.4. Termination or Optional Reduction of Commitment 14
Section 2.5. Maturity of Revolving Loans. . . . . . . . 15
Section 2.6. Mandatory Prepayments. . . . . . . . . . . 15
Section 2.7. Optional Prepayments . . . . . . . . . . . 15
Section 2.8. Interest on the Revolving Loans. . . . . . 15
Section 2.9. Fees . . . . . . . . . . . . . . . . . . . 16
Section 2.10. Payments Generally . . . . . . . . . . . . 17
Section 2.11. Capital Adequacy. . . . . . . . . . . . . 17
Section 2.12. Increased Costs. . . . . . . . . . . . . . 18
Section 2.13. Illegality . . . . . . . . . . . . . . . . 18
Section 2.14. Payments to be Free of Deductions. . . . . 19
Section 2.15. Computations . . . . . . . . . . . . . . . 20
Section 2.16. Compensation . . . . . . . . . . . . . . . 20
ARTICLE 3. SECURITY.. . . . . . . . . . . . . . . . . . . . . 21
Section 3.1. Security Agreement and Guaranty. . . . . . 21
Section 3.2. Pledge Agreement.. . . . . . . . . . . . . 21
Section 3.3. Further Assurances.. . . . . . . . . . . . 21
ARTICLE 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . 22
Section 4.1. Documentary Conditions Precedent . . . . . 22
Section 4.2. Additional Conditions Precedent to Each Loan. 25
Section 4.3. Deemed Representations . . . . . . . . . . 26
ARTICLE 5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . 26
Section 5.1. Incorporation, Good Standing and Due Qualification 26
Section 5.2. Corporate Power and Authority; No Conflicts 27
Section 5.3. Legally Enforceable Agreements . . . . . . 27
Section 5.4. Litigation . . . . . . . . . . . . . . . . 27
Section 5.5. Disclosures. . . . . . . . . . . . . . . . 27
Section 5.6. Ownership and Liens. . . . . . . . . . . . 27
Section 5.7. Taxes. . . . . . . . . . . . . . . . . . . 28
Section 5.8. ERISA. . . . . . . . . . . . . . . . . . . 28
Section 5.9. Subsidiaries and Ownership of Stock. . . . 28
Section 5.10. Credit Arrangements. . . . . . . . . . . . 28
Section 5.11. Operation of Business. . . . . . . . . . . 29
Section 5.12. No Default on Outstanding Judgments or Orders 29
Section 5.13. No Defaults on Other Agreements. . . . . . 29
Section 5.14. Governmental Regulation. . . . . . . . . . 29
Section 5.15. Consents and Approvals.. . . . . . . . . . 29
Section 5.16. Partnerships . . . . . . . . . . . . . . . 29
Section 5.17. Environmental Protection . . . . . . . . . 29
Section 5.18. Copyrights, Patents, Trademarks, Etc . . . 30
Section 5.19. Compliance with Laws . . . . . . . . . . . 30
Section 5.20. Receivables. . . . . . . . . . . . . . . . 30
Section 5.21. Use of Proceeds. . . . . . . . . . . . . . 30
ARTICLE 6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . 31
Section 6.1. Maintenance of Existence . . . . . . . . . 31
Section 6.2. Conduct of Business. . . . . . . . . . . . 31
Section 6.3. Maintenance of Properties. . . . . . . . . 31
Section 6.4. Maintenance of Records . . . . . . . . . . 31
Section 6.5. Maintenance of Insurance . . . . . . . . . 31
Section 6.6. Compliance with Laws . . . . . . . . . . . 31
Section 6.7. Right of Inspection. . . . . . . . . . . . 31
Section 6.8. Reporting Requirements . . . . . . . . . . 32
(a) Annual GAAP Statements of Borrower. . . . . . . 32
(b) Quarterly GAAP Statements of Borrower.. . . . . 33
(c) Management Letters. . . . . . . . . . . . . . . 33
(d) SEC Filings.. . . . . . . . . . . . . . . . . . 33
(e) Notice of Litigation. . . . . . . . . . . . . . 33
(f) Notices of Default. . . . . . . . . . . . . . . 33
(g) Other Filings.. . . . . . . . . . . . . . . . . 34
(h) Additional Information. . . . . . . . . . . . . 34
Section 6.9. Certificates.. . . . . . . . . . . . . . . 34
(a) Officers' Certificate.. . . . . . . . . . . . . 34
(b) Accountant's Certificate. . . . . . . . . . . . 35
Section 6.10. Further Assurances . . . . . . . . . . . . 35
Section 6.11. Compliance with Agreements.. . . . . . . . 35
Section 6.12. Use of Proceeds. . . . . . . . . . . . . . 35
ARTICLE 7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . 35
Section 7.1. Debt . . . . . . . . . . . . . . . . . . . 35
Section 7.2. Guaranties, Etc. . . . . . . . . . . . . . 36
Section 7.3. Liens. . . . . . . . . . . . . . . . . . . 36
Section 7.4. Investments. . . . . . . . . . . . . . . . 36
Section 7.5. Mergers and Consolidations and Acquisitions of Assets 37
Section 7.6. Sale of Assets . . . . . . . . . . . . . . 37
Section 7.7. Stock of the Borrower, Subsidiaries, Etc.. 37
Section 7.8. Transactions with Affiliates . . . . . . . 37
Section 7.9. Capital Expenditures . . . . . . . . . . . 37
Section 7.10. Minimum Consolidated GAAP Net Worth. . . . 37
Section 7.11. Minimum Interest Coverage. . . . . . . . . 37
Section 7.12. Minimum Collateral Ratio . . . . . . . . . 37
Section 7.13. Distributions. . . . . . . . . . . . . . . 37
Section 7.14. Receivables Purchase Agreement.. . . . . . 38
ARTICLE 8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . 38
Section 8.1. Events of Default. . . . . . . . . . . . . 38
Section 8.2. Remedies . . . . . . . . . . . . . . . . . 41
ARTICLE 9. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . 41
Section 9.1. Amendments and Waivers . . . . . . . . . . 41
Section 9.2. Usury. . . . . . . . . . . . . . . . . . . 42
Section 9.3. Expenses; Indemnities. . . . . . . . . . . 42
Section 9.4. Term; Survival . . . . . . . . . . . . . . 43
Section 9.5. Assignment; Participations . . . . . . . . 43
Section 9.6. Notices. . . . . . . . . . . . . . . . . . 44
Section 9.7. Setoff . . . . . . . . . . . . . . . . . . 44
Section 9.8. Jurisdiction; Immunities . . . . . . . . . 44
Section 9.9. Table of Contents; Headings. . . . . . . . 45
Section 9.10. Severability . . . . . . . . . . . . . . . 45
Section 9.11. Counterparts . . . . . . . . . . . . . . . 45
Section 9.12. Integration. . . . . . . . . . . . . . . . 45
Section 9.13. Governing Law. . . . . . . . . . . . . . . 45
Section 9.14. Confidentiality. . . . . . . . . . . . . . 45
Section 9.15. Authorization of Third Parties to Deliver
Opinions, Etc. . . . . . . . . . . . . . . 46
Section 9.16. Borrower's Waivers . . . . . . . . . . . . 46
Section 9.17. State of Making and Substantial Performance 46
Schedule 1.1 Commitments and Lending Offices
Schedule 5.4 Litigation
Schedule 5.10 Credit Arrangements
Exhibit A Revolving Note
Exhibit B-1 Forms of Eligible Agent Contract
Exhibit B-2 Forms of Master General Agent Contract
Exhibit C Schedule of Maximum Advance Percentages by Policy Type
Exhibit D Eligible Receivable Eligibility Criteria
Exhibit E Form of WCC Guaranty
Exhibit F Notice of Borrowing
Exhibit G Form of Pledge Agreement
Exhibit H Form of Security Agreement
Exhibit I Schedule of Master General Agents
Exhibit J-1 Form of Opinion of Corporate Counsel to Borrower and Guarantor.
Exhibit J-2 Form of Opinion of Corporate and Insurance Counsel to each
Eligible Seller
Exhibit J-3 Form of Opinion of Corporate Counsel to the Guarantor re Pledge
Agreement
Exhibit K Officer's Certificate
Exhibit L Borrowing Base Certificate
CREDIT AGREEMENT dated as of December 28, 1995 between
WESTBRIDGE FUNDING CORPORATION, a Delaware corporation (the
"Borrower"), and FLEET NATIONAL BANK OF CONNECTICUT (the "Bank").
The Borrower desires that the Bank extend credit as provided herein,
and the Bank is prepared to extend such credit. Accordingly, the Borrower and
the Bank agree as follows:
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.
Section 1.1.Definitions. As used in this Agreement, the following terms
have the following meanings (terms defined in the singular to have a correlative
meaning when used in the plural and vice versa):
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise), provided that, in any
event: (i) any Person which owns directly or indirectly 20% or more of the
securities having ordinary voting power for the election of directors or other
governing body of a corporation or 20% or more of the partnership or other
ownership interests of any other Person (other than as a limited partner of such
other Person) will be deemed to control such corporation or other Person; and
(ii) each director and officer of such Person shall be deemed to be an Affiliate
of the Person.
"Agreement" means this Credit Agreement, as amended or supplemented
from time to time. References to Articles, Sections, Exhibits, Schedules and
the like refer to the Articles, Sections, Exhibits, Schedules and the like of
this Agreement unless otherwise indicated.
"A.M. Best Rating" means the most recent rating announced by A.M.
Best (or any successor thereto) or, if such rating is no longer announced by
A.M. Best (or its successor), the most recent rating announced by another
rating agency selected by the Bank.
"AIC" means American Insurance Company of Texas, a Texas
corporation.
"Anniversary Date" means December 28 of each calendar year,
commencing December 28, 1996.
"Applicable Commitment Fee Percentage" means, on any date, the per
annum Applicable Rate specified in Column 2 below corresponding to the
lowest A.M. Best Rating of any Insurance Affiliate in effect on such date:
(1) (2)
A.M. Best Rating Applicable Rate
B++ or higher 0.400%
B+ 0.450%
B or below 0.500%.
Any change in the Applicable Rate by reason of a change in the A.M. Best
Rating shall become effective on the date of announcement or publication by the
rating agency of a change in such rating, or in the absence of such
announcement or publication, on the effective date of such changed rating.
"Applicable Interest Rate" means for any Revolving Loan, the Base Rate
or the Eurodollar Rate plus, in each case, the Applicable Margin, for such
Revolving Loan.
"Applicable Margin" means:
(a) with respect to each Base Rate Loan on any date, 0.625%; and
(b) with respect each Eurodollar Rate Loan on any date, the Applicable
Margin per annum specified in Column 2 below corresponding to
the lowest A.M. Best Rating of any Insurance Affiliate in effect on
such date:
(1) (2)
A.M. Best Rating Applicable Margin
B++ or higher 2.250%
B+ 2.500%
B 2.750%
B- or below 3.000%
Any change in the Applicable Margin by reason of a change in the A.M. Best
Rating shall become effective on the date of announcement or publication by the
rating agency of a change in such rating, or in the absence of such
announcement or publication, on the effective date of such changed rating.
"Assigned Commissions" has the meaning set forth in Section 1.1 of the
Receivables Purchase Agreement.
"Base Rate" means, for any Interest Period or any other period, a
fluctuating interest rate per annum as shall be in effect from time to time,
which rate per annum shall at all times be equal to the rate of interest
announced publicly by the Bank in Hartford, Connecticut, from time to time, as
the Bank's base rate or prime rate.
"Base Rate Loan" means a Revolving Loan which bears interest at the
Base Rate plus the Applicable Margin.
"Borrowing" means a borrowing consisting of a Revolving Loan from
the Bank under this Agreement.
"Borrowing Base" means, as of any date of determination, an amount
equal to 90% of the aggregate Eligible Agent Collateral Value attributable to
each of the Eligible Agent Obligors.
"Business Day" means any day (other than a Saturday, Sunday or legal
holiday) on which commercial banks are not authorized or required to close in
Connecticut or Texas, except that, with respect to Borrowings, notices,
determinations and payments with respect to a Eurodollar Rate Loan, such day
shall be a "Business Day" only if it is also a day for trading by and between
banks in the London interbank Eurodollar market.
"Capital Expenditures" means, for any period, the Dollar amount of
gross expenditures (including payments in respect of Capital Lease Obligations)
made for fixed assets, real property, plant and equipment, and all renewals,
improvements and replacements thereto (but not repairs thereof) incurred during
such period, all as determined in accordance with GAAP.
"Capital Lease" means any lease which has been or should be capitalized
on the books of the lessee in accordance with GAAP.
"Capital Lease Obligation" means the obligation of the lessee under a
Capital Lease. The amount of a Capital Lease Obligation at any date is the
amount at which the lessee's liability under the related Capital Lease would be
required to be shown on its balance sheet at such date in accordance with
GAAP.
"Closing Date" means the date this Agreement has been executed by the
Borrower and the Bank.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Commitment" means the commitment of the Bank to make Revolving
Loans hereunder as set forth in Schedule 1.1, as the same may be reduced from
time to time pursuant to Sections 2.4.
"Commitment Period" means the period from and including the date
hereof to but not including the Revolving Loan Termination Date or such earlier
date as the Commitment shall terminate as provided herein.
"Consolidated GAAP Net Worth" means the sum of (a) the capital stock
and additional paid-in capital of the Borrower and its Subsidiaries on a
consolidated basis, plus (without duplication) (b) the amount of retained
earnings (inclusive of deferred revenues) (or, in the case of a deficit, minus
the deficit), minus (c) treasury stock, plus or minus (d) any other account
which is customarily added or deducted in determining stockholders' equity
(excluding SFAS No. 115), all of which shall be determined on a consolidated
basis in accordance with GAAP.
"Debt" means, with respect to any Person: (a) indebtedness of such
Person for borrowed money; (b) indebtedness for the deferred purchase price of
Property or services (except trade payables and accrued expenses, incurred in
the ordinary course of business); (c) the face amount of any outstanding letters
of credit issued for the account of such Person; (d) obligations arising under
acceptance facilities; (e) guaranties, endorsements (other than for collection
in the ordinary course of business) and other contingent obligations to purchase
or to provide funds for payment of the obligations of another Person, to supply
funds to invest in any Person to cause such Person to maintain a minimum
working capital or net worth or otherwise assure the creditors of such Person
against loss; (f) obligations secured by any Lien on Property of such Person;
and (g) Capital Lease Obligations.
"Default" means any event which with the giving of notice or lapse of
time, or both, would become an Event of Default.
"Default Rate" means a percentage per annum equal at all times to the
lesser of 4% per annum above the Applicable Interest Rate in effect from time
to time or the highest rate permitted by law.
"Distributions" means (a) dividends or other distributions in respect
of capital stock of a Person (except distributions in such stock) and (b) the
redemption or acquisition of such stock or of warrants, rights or other options
to purchase such stock (except when solely in exchange for such stock) unless
made, contemporaneously, from the net proceeds of a sale of such stock.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"Earned Commissions" with respect to any Eligible Agent Obligor,
means, as of any date of determination, that portion of all payments and
collections received by an Eligible Seller under any Insurance Policy that has
been, or should have been, applied by such Eligible Seller under an Eligible
Agent Contract to reduce the outstanding amount of any Eligible Receivable
payable by such Eligible Agent Obligor.
"Eligible Agent Collateral Value" with respect to any Eligible Agent
Obligor, means, as of any date of determination, an amount equal to the
aggregate outstanding amount of all Eligible Receivables payable by such
Eligible Agent Obligor as of such determination date, which outstanding amount
shall be determined in the same manner as used to calculate the purchase price
described in Section 2.2(b)(ii) of the Receivables Purchase Agreement.
"Eligible Agent Contract" means an agreement between an Eligible
Seller and an Eligible Agent Obligor, substantially in one of the forms set
forth in Exhibit B-1 or Exhibit B-2, as such Exhibits shall be amended from time
to time in accordance with Section 9.1.
"Eligible Agent Obligor" means a Master General Agent or a Sub-Agent
of a Master General Agent authorized by an Eligible Seller to sell insurance
policies of any of the types identified on Exhibit C.
"Eligible Receivable" means, as of any date of determination, a
Receivable as to which (a) each of the eligibility criteria set forth in Exhibit
D is satisfied, (b) every representation and warranty set forth in the
Receivables Purchase Agreement with respect to such Receivable is true, complete
and correct, and (c) every covenant in the Receivables Purchase Agreement with
respect to such Receivable has been complied with in all material respects.
"Eligible Seller" means any of AIC, HCO, NFIC and NFL.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, including any rules and regulations promulgated
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower or is under common control
(within the meaning of Section 414(c) of the Code) with the Borrower.
"Eurodollar Rate" means, for the Interest Period for each Eurodollar
Rate Loan comprising part of the same Borrowing, an interest rate per annum
equal to (x) the rate quoted by the Bank at 11:00 a.m. London time (or as soon
thereafter as practical) at which deposits in Dollars are offered by prime
commercial banks to prime commercial banks in the London interbank
Eurodollar market two Business Days before the first day of such Interest
Period for a period equal to such Interest Period and in an amount equal to the
Borrowing, divided by (y) one (1) minus the Reserve Requirement, if any, for
each such Eurodollar Rate Loan for such Interest Period.
"Eurodollar Rate Loan" means a Revolving Loan which bears interest at
the Eurodollar Rate, plus the Applicable Margin.
"Event of Default" has the meaning given such term in Section 8.1.
"First-Year Commissions" with respect to an Insurance Policy originated
by any specified Eligible Agent Obligor pursuant to the terms of an Eligible
Agent Contract, means the aggregate amount that would be paid by the issuing
Eligible Seller to such Eligible Agent Obligor pursuant to the Eligible Agent
Contract during the first twelve months that such Insurance Policy is in force,
assuming such Insurance Policy remains in full force and effect for the entire
twelve month period.
"Financing Statements" means the UCC-1 financing statements signed by
the Borrower in connection with the security interest granted to the Bank in the
Receivables and other collateral pursuant to the Security Agreement.
"Funding Date" means the date on which any Borrowing is made.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time, applied on a basis consistent
with those used in the preparation of the financial statements referred to in
Section 5.5 (except for changes concurred in by the Borrower's independent
public accountants).
"GAAP EBIT" with respect to any Person, means, for any period, an
amount equal to Net Income for such period, plus (without duplication, to the
extent deducted in determining Net Income) the sum of (a) Interest Expense for
such period, plus (b) income tax expense deducted in determining Net Income
for such period, all of which shall be determined in accordance with GAAP and
eliminating intercompany balances and transactions, as applicable.
"Guarantor" means Westbridge Capital Corp., a Delaware corporation.
"Guaranty" means the Guaranty Agreement in the form of Exhibit E
hereto, duly executed and delivered by the Guarantor.
"HCO" means Health Care-One Insurance Agency, Inc. a California
corporation.
"Insurance Affiliate" means any of AIC, NFIC and NFL.
"Insurance Commissioner" means with respect to any Insurance
Affiliate, the head of any insurance regulatory authority and/or, if the context
so requires, such insurance regulatory authority in the relevant place of
domicile of such Insurance Affiliate at the relevant time.
"Insurance Policy" means an Insurance Policy issued by or through an
Eligible Seller and written or sold by an Eligible Agent Obligor.
"Interest Coverage Ratio" at the end of any fiscal quarter means (a)
prior to the fiscal quarter ending December 31, 1996, the ratio of (i) an amount
equal to the consolidated GAAP EBIT of the Borrower and all Subsidiaries for all
of the preceding fiscal quarters occuring in 1996, to (ii) total Interest
Expense of the Borrower and its Subsidiaries on a consolidated basis for the
same number of fiscal quarters as included in calculating clause (i) above, and
(b) on and after the fiscal quarter ending December 31, 1996, (i) an amount
equal to the consolidated GAAP EBIT of the Borrower and all Subsidiaries for the
immediately preceding four fiscal quarters (ending on such date), to (ii) total
Interest Expense of the Borrower and its Subsidiaries on a consolidated basis
for the immediately succeeding four fiscal quarters (beginning on such date).
For purposes of clauses (a)(ii) and (b)(ii) above, Interest Expense shall be
calculated on the assumption that a Eurodollar Rate Loan for the full amount of
the Commitment will be outstanding for the period contemplated in the
calculation and the A.M. Best Ratings of the Insurance Affiliates on the date of
the certification required by Section 6.9(a) with respect to the fiscal quarter
being tested will remain in effect for the entire period contemplated by the
calculation.
"Interest Expense" with respect to any Person for any period, means, the
consolidated interest expense, including the interest portion of rental payments
under Capital Leases, as determined on a consolidated basis in accordance with
GAAP.
"Interest Period" means (a) for each Eurodollar Rate Loan, the period
commencing on the date of such Eurodollar Rate Loan or on the last day of the
preceding Interest Period, as the case may be, and ending on the numerically
corresponding day of the last month of the period selected by the Borrower
pursuant to the following provisions: the duration of each Eurodollar Rate
Loan Interest Period shall be one (1), two (2), three (3) or six (6) months, in
each case as the Borrower may select, upon notice received by the Bank not
later than 11:00 a.m. (Connecticut time) on the third Business Day prior to the
first day of such Interest Period; and (b) for each Base Rate Loan, the period
commencing on the date of such Base Rate Loan or on the last day of the
preceding Interest Period, as the case may be, pursuant to notice received by
the Bank not later than 11:00 a.m. (Connecticut time) on any Business Day
selected by the Borrower as the first day of such Interest Period, and ending on
the thirtieth (30th) day after the date of such Base Rate Loan or the last day
of the preceding Interest Period, as the case may be; provided, however, that:
(i) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next succeeding
Business Day; provided that, if such extension would cause the
last day of such Interest Period to occur in the next following
calendar month, the last day of such Interest Period shall occur
on the next preceding Business Day; and
(ii) no Interest Period for any Revolving Loan shall extend beyond
the Revolving Loan Termination Date.
"Investment" in any Person means (a) the acquisition (whether for cash,
property, services or securities or by merger or otherwise) of capital stock,
bonds, notes, debentures, partnership or other ownership interests or other
securities of such Person and (b) any deposits with, or advance, loan or other
extension of credit to, such Person and (without duplication) any amount
committed to be advanced, lent or extended to such Person.
"Lending Office" means, for each type of Revolving Loan, the lending
office of the Bank (or of an affiliate of the Bank) designated as such for such
type of Revolving Loan on Schedule 1.1 or such other office of the Bank (or of
an affiliate of the Bank) as the Bank may from time to time specify to the
Borrower as the office through which its Revolving Loans of such type are to be
made and maintained.
"Lien" means any lien (statutory or otherwise), security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, financing lease or other encumbrance or similar right of
others, or any agreement to give any of the foregoing.
"Loan Documents" mean this Agreement, the Revolving Note, the
Guaranty, the Security Agreement, the Pledge Agreement (if delivered) and any
other documents, agreements, reports, and instruments now or hereafter
executed in connection herewith or contemplated hereby.
"Master General Agent" shall mean an agent of an Eligible Seller
identified on Exhibit I, which agent shall be party to a Master General Agent
Contract.
"Master General Agent Contract" means an agreement between a Master
General Agent and an Eligible Seller substantially in one of the forms set forth
in Exhibit B-2.
"Materially Adverse Effect" means any material adverse effect upon the
business, assets, liabilities, financial condition, results of operations or, as
far as the Borrower can reasonably foresee, prospects of the Borrower and its
Subsidiaries taken as a whole, or the Guarantor and its Subsidiaries, taken as a
whole, or upon the ability of the Borrower or the Guarantor to perform in all
material respects its obligations under this Agreement or any other Loan
Document, as applicable, resulting from any act, omission, situation, status,
event, or undertaking, either singly or taken together.
"Multiemployer Plan" means a Plan defined as such in Section 3(37) of
ERISA to which contributions have been made by the Borrower or any ERISA
Affiliate and which is covered by Title IV of ERISA.
"NFIC" means National Financial Insurance Company, a Texas
corporation.
"NFL" means National Foundation Life Insurance Company, a Delaware
corporation.
"Net Income" means, as applied to any Person for any period, the
aggregate amount of net income of such Person, after taxes, for such period, as
determined in accordance with GAAP.
"Notice of Borrowing" means the certificate, in the form of Exhibit F
hereto, to be delivered by the Borrower to the Bank pursuant to Sections 2.3
and 4.2(g) and shall include any accompanying certifications or documents.
"Obligations" means all indebtedness, obligations and liabilities of the
Borrower and its Subsidiaries, if any, to the Bank under this Agreement, the
Security Agreement or the Revolving Note.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Permitted Investments" means (a) direct obligations of the United
States of America, or of any agency thereof, or obligations guaranteed as to
principal and interest by the United States of America, or of any agency
thereof, in either case maturing not more than 90 days from the date of
acquisition thereof; (b) certificates of deposit issued by or other overnight
deposits with any bank or trust company organized under the laws of the United
States of America or any state thereof and having capital, surplus and undivided
profits of at least $500,000,000 and having long term unsecured and unguaranteed
debt rated "BBB+" or better or "Baa1" or better by Standard & Poor's Ratings
Group, a division of McGraw Hill, Inc. or Moody's Investors Service, Inc.,
respectively, maturing not more than 90 days from the date of acquisition
thereof; (c) commercial paper rated A-1 or better or P-1 by Standard & Poor's
Ratings Group, a Division of McGraw Hill, Inc., or Moody's Investors Service,
Inc., respectively, maturing not more than 90 days from the date of acquisition
thereof; (d) repurchase agreements and reverse repurchase agreements with any
bank having combined capital and surplus in an amount of not less than
$500,000,000, or any primary dealer of United States government securities in
each case, having long term unsecured and unguaranteed debt rated "BBB+" or
better or "Baa1" or better by Standard & Poor's Ratings Group, a division of
McGraw Hill, Inc. or Moody's Investors Service, Inc., respectively, relating to
marketable direct obligations issued or unconditionally guaranteed or insured by
the United States of America or any agency or instrumentality thereof and
backed by the full faith and credit of the United States of America, in each
case maturing within 60 days from the date of acquisition thereof; in each case
so long as the same (x) provide for the payment of principal and interest (and
not principal alone or interest alone) and (y) are not subject to any
contingency regarding the payment of principal or interest; and (e) long-term
debt rated "BBB+" or better or "Baa1" or better by Standard & Poor's Rating
Group, a division of McGraw Hill, Inc. or Moody's Inverstors Services, Inc.,
respectively.
"Permitted Liens" has the meaning specified in Section 7.3.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by the Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA, other than a
Multiemployer Plan.
"Pledge Agreement" means the Pledge Agreement, in the form of
Exhibit G hereto, duly executed and delivered by the Guarantor.
"Pledge Approvals" has the meaning specified in Section 3.4.
"Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Code for which there is no applicable statutory
or regulatory exemption (including a class exemption or an individual
exemption).
"Property" means any interest of any kind in property or assets, whether
real, personal or mixed, and whether tangible or intangible.
"Receivable" means rights under any Eligible Agent Contract by which
(a) an Eligible Agent Obligor is bound to make payments to an Eligible Seller
and (b) an Eligible Seller is permitted to offset amounts owed to such Eligible
Agent Obligor, to repay advances of First-Year Commissions made by such
Eligible Seller to such Eligible Agent Obligor or any other Eligible Agent
Obligor and to pay interest and/or other finance charges to the Eligible Seller.
"Receivables Purchase Agreement" means the Receivables Purchase and
Sale Agreement dated as of [November 15], 1995 by and between the Borrower
and each of the Eligible Sellers, as amended.
"Regulations D, X and U" means Regulations D, X and U of the Board
of Governors of the Federal Reserve System, as amended or supplemented from
time to time.
"Regulatory Change" means any change after the date of this Agreement
in United States federal, state or foreign laws or regulations (including
Regulation D) or the adoption or making after such date of any orders, rulings,
interpretations, directives, guidelines or requests applying to a class of banks
including the Bank, of or under any United States federal, state, or foreign
laws or regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
"Reportable Event" means any of the events set forth in Section 4043(c)
of ERISA as to which events the PBGC by regulation has not waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, provided that a failure to meet the minimum
funding standard of Section 412 of the Code or Section 302 of ERISA shall be a
Reportable Event regardless of any waivers given under Section 412(d) of the
Code.
"Reserve Requirement" means for any Eurodollar Rate Loans for any
Interest Period (or, as the case may be, shorter period), the average maximum
rate at which reserves (including marginal, supplemental or emergency
reserves, if any) are required to be maintained during such period under
Regulation D by member banks of the Federal Reserve System in Boston,
Massachusetts with deposits exceeding one billion Dollars against
"Eurocurrency liabilities" (as such term is used in Regulation D). Without
limiting the effect of the foregoing, the Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks by reason of
any Regulatory Change against: (i) any category of liabilities which includes
deposits by references to which the Eurodollar Rate is to be determined as
provided in the definition of "Eurodollar Rate", as applicable, in this Article
1, or (ii) any category of extensions of credit or other assets which include
Eurodollar Rate Loans.
"Revolving Loan" or "Revolving Loans" has the meaning specified in
Section 2.1. Each Revolving Loan shall be a Base Rate Loan or a Eurodollar
Rate Loan.
"Revolving Loan Termination Date" means December 28, 1997;
provided, however, if not fewer than thirteen (13) months nor more than fifteen
(15) months prior to any Anniversary Date, the Borrower requests the Bank to
extend the Revolving Loan Termination Date for an additional year and if the
Bank in its sole discretion in writing within thirty (30) days of such request,
grants such request, the Revolving Loan Termination Date means the date to
which the Revolving Loan Termination Date has been so extended. If such date
is not a Business Day, the Revolving Loan Termination Date shall be the next
preceding Business Day.
"Revolving Note" means a promissory note of the Borrower, in the form
of Exhibit A hereto, evidencing the Revolving Loans made by the Bank
hereunder.
"Security Agreement" means the Security Agreement in the form of
Exhibit H, duly executed and delivered by the Borrower.
"Senior Officer" means the (a) chief executive officer, (b) chief
operating officer, (c) the president, or (d) chief financial officer of the
person designated.
"SFAS No. 115" means Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities,
issued by the Financial Accounting Standards Board in May, 1993.
"Stock Pledge Financing Statements" means UCC-1 financing statements
signed by the Guarantor in connection with the stock of NFL, NFIC and the
Borrower pledged to the Bank pursuant to the Pledge Agreement (if delivered).
"Sub-Agent" has the meaning specified in any one of the forms of
Master General Agent Contracts.
"Subordinated Debt" means any unsecured Debt for money borrowed by
the Borrower or its Subsidiaries, as applicable, in an amount and on terms and
conditions satisfactory to the Bank and which is subordinated under terms
satisfactory in form and substance to the Bank in its sole judgment, as
evidenced by the Bank's written consent thereto given prior to the creation of
such Debt, to the Borrower's Obligations.
"Subsidiary" means with respect to any Person, any corporation,
partnership or joint venture whether now existing or hereafter organized or
acquired: (i) in the case of a corporation, of which a majority of the
securities having ordinary voting power for the election of directors (other
than securities having such power only by reason of the happening of a
contingency) are at the time owned by such Person and/or one or more
Subsidiaries of such Person or (ii) in the case of a partnership or joint
venture, in which such Person is a general partner or joint venturer or of which
a majority of the partnership or other ownership interests are at the time owned
by such Person and/or one or more of its Subsidiaries. Unless the context
otherwise requires, references in this Agreement to "Subsidiary" or
"Subsidiaries" shall be deemed to be references to a Subsidiary or Subsidiaries
of the Borrower or of a Subsidiary of the Borrower.
"Unfunded Vested Liabilities" means, with respect to any Plan, the
amount (if any) by which the present value of all vested benefits under the Plan
exceeds the fair market value of all Plan assets allocable to such benefits, as
determined on the most recent valuation date of the Plan and in accordance with
the provisions of ERISA for calculating the potential liability of the Borrower
or any ERISA Affiliate to the PBGC or the Plan under Title IV of ERISA.
Section 1.2. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, applied on a
consistent basis, and all financial data required to be delivered hereunder
shall be prepared in accordance with GAAP, applied on a consistent basis; except
as otherwise specifically prescribed herein. In the event that GAAP changes
during the term of this Agreement such that the financial covenants contained in
Article 6 would then be calculated in a different manner or with different
components (a) the Borrower and the Bank agree to enter into good faith
negotiations to amend this Agreement in such respects as are necessary to
conform those covenants as criteria for evaluating the Borrower's financial
condition to substantially the same criteria as were effective prior to such
change in GAAP and (b) the Borrower shall be deemed to be in compliance
with the financial covenants contained in such Sections during the sixty (60)
days following any such change in GAAP if and to the extent that the Borrower
would have been in compliance therewith under GAAP as in effect immediately
prior to such change; provided, however, if an amendment shall not be agreed
upon within sixty (60) days or such longer period as shall be agreed to by the
Bank, for purposes of determining compliance with such covenants until such
amendment shall be agreed upon, such terms shall be construed in accordance
with GAAP as in effect immediately prior to such change in GAAP.
Section 1.3. Rounding. Any financial ratios required to be maintained
by Borrower pursuant to this Agreement shall be calculated by dividing the
appropriate component by the other component, carrying the result to one place
more than the number of places by which such ratio is expressed in this
Agreement and rounding the result up or down to the nearest number (with a
round-up if there is no nearest number) to the number of places by which such
ratio is expressed in this Agreement.
Section 1.4. Exhibits and Schedules. All Exhibits and Schedules to
this Agreement, either as originally existing or as the same may from time to
time be supplemented, modified or amended, are incorporated herein by this
reference. A matter disclosed on any Schedule shall be deemed disclosed on all
Schedules.
Section 1.5. References to "Borrower and its Subsidiaries". Any
reference herein to "Borrower and its Subsidiaries" or the like shall refer
solely to Borrower during such times, if any, as the Borrower shall have no
Subsidiaries.
Section 1.6. Miscellaneous Terms. The term "or" is disjunctive; the
term "and" is conjunctive. The term "shall" is mandatory, the term "may" is
permissive. Masculine terms also apply to females; feminine terms also apply
to males. The term "including" is by way of example and not limitation.
Section 1.7. Uniform Commercial Code Definitions. The non-capitalized
terms used in this Agreement that are not otherwise defined in the
Agreement and that are defined in Article 9 of the Uniform Commercial Code
as in effect in the State of Connecticut are used herein as so defined.
ARTICLE 2. THE CREDIT.
Section 2.1. The Revolving Loans. Subject to the terms and
conditions of this Agreement, the Bank agrees to make revolving loans to the
Borrower (hereinafter collectively referred to as the "Revolving Loan" or
"Revolving Loans") from time to time from and including the date hereof until
the earlier of the Revolving Loan Termination Date or the termination of the
Commitment of the Bank, up to, but not exceeding in the aggregate principal
amount at any one time outstanding, the lesser of (i) an amount equal to the
Borrowing Base or (ii) the amount of TWENTY MILLION AND NO/00
DOLLARS ($20,000,000). Each Borrowing under this Section 2.1 of (i) a Base
Rate Loan shall be in the principal amount of not less than $200,000; or (ii) a
Eurodollar Rate Loan shall be in the principal amount of not less than
$200,000. During the Commitment Period and subject to the foregoing
limitations, the Borrower may borrow, repay and reborrow Revolving Loans,
all in accordance with the terms and conditions of this Agreement.
Section 2.2. The Revolving Note.
(a) The Revolving Loans of the Bank shall be evidenced by a single
promissory note in favor of the Bank in the form of Exhibit A, dated the date of
this Agreement, and duly completed and executed by the Borrower.
(b) The Bank is authorized to record and, prior to any transfer of the
Revolving Note, endorse on a schedule forming a part thereof appropriate
notations evidencing the date, the type, the amount and the maturity of each
Revolving Loan made by it which is evidenced by such Revolving Note and the
date and amount of each payment of principal made by the Borrower with
respect thereto; provided, that failure to make any such endorsement or notation
shall not affect the Obligations of the Borrower hereunder or under the
Revolving Note. The Bank is hereby irrevocably authorized by the Borrower to
so endorse the Revolving Note and to attach to and make a part of the
Revolving Note a continuation of any such schedule as and when required. The
Bank may, at its option, record and maintain such information in its internal
records rather than on such schedule.
Section 2.3. Procedure for Borrowing.
(a) The Borrower shall give the Bank a Notice of Borrowing, in the
form of Exhibit F hereto, prior to 11:00 a.m. (Connecticut time), on the date of
a Borrowing of a Base Rate Loan and at least three (3) Business Days before a
Borrowing of a Eurodollar Rate Loan, specifying:
(i) the date of such Borrowing, which shall be a Business
Day,
(ii) the principal amount of such Borrowing,
(iii) whether the Revolving Loan comprising such Borrowing
is to be a Base Rate Loan or a Eurodollar Rate Loan, and
(iv) if a Eurodollar Rate Loan, the Interest Period with respect
to such Borrowing.
(b) No Notice of Borrowing shall be revocable by the Borrower.
(c) There shall be no more than four (4) Interest Periods relating to
Eurodollar Rate Loans outstanding at any time.
(d) If the Bank makes a new Revolving Loan hereunder on a day on
which the Borrower is to repay an outstanding Revolving Loan from the Bank,
the Bank shall apply the proceeds of its new Revolving Loan to make such
repayment and only an amount equal to the excess (if any) of the amount being
borrowed over the amount being repaid shall be made available by the Bank to
the Borrower.
(e) Notwithstanding anything to the contrary herein contained, if,
upon the expiration of any Interest Period applicable to any Borrowing of a
Revolving Loan, the Borrower shall fail to give a new Notice of Borrowing and
Borrowing Base Certificate as set forth in this Section, the Borrower shall be
deemed to have given a Borrowing Base Certificate demonstrating a Borrowing
Base in excess of the aggregate principal amount of Revolving Loans
outstanding and a new Notice of Borrowing of a Base Rate Loan in principal
amount equal to the outstanding principal amount of such Revolving Loan and
the proceeds of the new Borrowing shall be applied directly to repay such
outstanding principal amount on the day of such Borrowing.
Section 2.4. Termination or Optional Reduction of Commitment. The
Commitment shall terminate on the Revolving Loan Termination Date and any
Revolving Loans then outstanding (together with accrued interest thereon) shall
be due and payable on such date. No termination of the Commitment hereunder
shall relieve the Borrower of any of its outstanding Obligations to the Bank
hereunder or otherwise. The Borrower shall have the right, upon prior written
notice of at least five (5) Business Days to the Bank, to terminate or, from
time to time, reduce the Commitment, provided that (i) any such reduction of the
Commitment shall be accompanied by the prepayment of the Revolving Note,
together with accrued interest thereon to the date of such prepayment and any
amount due pursuant to Section 2.7, to the extent, if any, that the aggregate
unpaid principal amount thereof then outstanding exceeds the Commitment as
then reduced and (ii) any such termination of the Commitment shall be
accompanied by prepayment in full of the unpaid principal amount of the
Revolving Note, together with accrued interest thereon to the date of such
prepayment and any amount due pursuant to Section 2.7. Any such partial
reduction of the Commitment shall be in an aggregate principal amount of
$500,000 or any whole multiple of $250,000 in excess thereof and shall reduce
permanently the Commitment then in effect hereunder.
Section 2.5. Maturity of Revolving Loans. Each Revolving Loan shall
mature, and the principal amount thereof shall be due and payable, on the last
day of the Interest Period applicable to such Revolving Loan, or such earlier
date as provided herein.
Section 2.6. Mandatory Prepayments. If at any time the aggregate
principal amount of the Revolving Loans exceeds the Borrowing Base, the
Borrower shall immediately pay to the Bank, without premium or penalty
(except as set forth in Section 2.16), the amount equal to said excess,
accompanied by the payment of accrued interest on the amount of such payment
to the date thereof.
Section 2.7. Optional Prepayments.
(a) The Borrower may, upon at least one (1) Business Day's notice
to the Bank, prepay any Base Rate Loan, without premium or penalty, in whole
at any time or from time to time in part by paying the principal amount being
prepaid together with accrued interest thereon to the date of prepayment.
(b) The Borrower may, upon at least three (3) Business Days' notice
to the Bank, prepay any Eurodollar Rate Loan, in whole at any time or from
time to time in part, without premium or penalty (except as set forth in Section
2.16), by paying the principal amount being prepaid together with accrued
interest thereon to the date of prepayment.
Section 2.8. Interest on the Revolving Loans.
(a) Each Base Rate Loan shall bear interest on the outstanding
principal amount thereof, for each day from the date such Base Rate Loan is
made until it becomes due, at a rate per annum equal to the Base Rate for such
day, plus the Applicable Margin. Interest shall be payable monthly in arrears
on the first Business Day of each calendar month, commencing January 1,
1996. Such interest shall accrue from and including the date of such Borrowing
to but excluding the date of any repayment thereof and shall be computed on the
basis of a fraction, the numerator of which is the actual number of days elapsed
from the date of Borrowing and the denominator of which is three hundred sixty
(360). Overdue principal of and, to the extent permitted by law, overdue
interest on the Base Rate Loans shall bear interest for each day overdue until
paid at a percentage per annum equal to the Default Rate.
(b) Each Eurodollar Rate Loan shall bear interest on the unpaid
principal amount thereof, for each day from the date such Eurodollar Rate Loan
is made until it becomes due, at a rate per annum equal to the Eurodollar Rate
for the relevant Interest Period, plus the Applicable Margin. Interest shall be
payable on the last day of the Interest Period applicable thereto; provided,
that if such Interest Period is longer than ninety (90) days, interest shall be
payable every ninety (90) days and on the last day of such Interest Period.
Such interest shall accrue from and including the date of such Borrowing to but
excluding the date of any repayment thereof and shall be computed on the basis
of a fraction, the numerator of which is the actual number of days elapsed from
the date of Borrowing and the denominator of which is three hundred sixty (360).
Overdue principal of and, to the extent permitted by law, overdue interest on
the Eurodollar Rate Loans shall bear interest for each day overdue until paid at
a percentage per annum equal to the Default Rate.
Section 2.9. Fees.
(a) The Borrower shall pay a $200,000 initial facility fee to the Bank
on the Closing Date.
(b) The Borrower shall pay an additional facility fee to the Bank in
an amount equal to the excess, if any, of (i) the market value (as quoted on the
New York Stock Exchange) of 40,000 shares of common stock of the Guarantor
as of the close of business on the earlier to occur of (X) the Revolving Loan
Termination Date and (Y) the date the Bank elects to receive such additional
facility fee over (ii) $240,000.00 (the "Strike Price"); provided, however, in
the event that the Guarantor shall (x) issue additional shares of common stock
as a dividend or other distribution on outstanding common stock or (y) subdivide
or reclassify its outstanding shares of common stock, then, in each such event,
the Strike Price shall, simultaneously with each such event, be adjusted by
multiplying the then-current Strike Price by a fraction, the numerator of which
shall be the number of shares of common stock outstanding immediately prior to
such event and the denominator of which shall be the number of shares of
common stock outstanding immediately after such event, and the product so
obtained shall thereafter be the Strike Price then in effect. Such additional
facility fee shall be payable by the Borrower (i) in two equal installments, the
first installment to be due on the earlier to occur of (X) the Revolving Loan
Termination Date and (Y) December 28, 2000, and the second installment to be
due on the date occuring one year after the date the first installment was due,
but not later than December 28, 2001, or (ii) upon an earlier demand by the
Bank for payment, in two equal installments, the first installment to be due
within 90 days after such demand for payment is made and the second
installment to be due on the date occuring one year after such demand for
payment is made; provided, however, if, on any date, the value of such
additional facility fee equals or exceeds $200,000, the Borrower may, at its
option, elect to pay on such date such additional facility fee immediately,
which payment shall be in full satisfaction of the additional facility fee
described herein.
(c) The Borrower shall pay to the Bank an unused fee for the
Commitment Period, payable in arrears at the Applicable Commitment Fee
Percentage in effect from time to time on the daily unused portion of the Bank's
Commitment with respect to the Revolving Loan. The unused fee shall be
payable quarterly on the first Business Day of January, April, July and October
of each year beginning in January, 1996.
(d) The fees required by paragraphs (a), (b) and (c) of this Section
shall not be refundable.
Section 2.10. Payments Generally. All payments under this
Agreement shall be made in Dollars in immediately available funds not later
than 2:00 p.m.(Connecticut time) on the due date (each such payment made
after such time on such due date to be deemed to have been made on the next
succeeding Business Day) to the Bank at its address set forth on the signature
pages hereof or at such other address as it may hereafter designate by notice to
the Borrower for the account of the Lending Office of the Bank specified by the
Bank on Schedule 1.1 hereto. The Borrower shall, at the time of making each
payment under this Agreement, specify to the Bank the principal or other
amount payable by the Borrower under this Agreement to which such payment
is to be applied (and in the event that it fails to so specify, or if a Default
or Event of Default has occurred and is continuing, the Bank may apply such
payment as it may elect in its sole discretion). If the due date of any payment
under this Agreement would otherwise fall on a day which is not a Business
Day, such date shall be extended to the next succeeding Business Day and such
extension of time shall in such case be included in the computation of such
payment; provided that, if such extension would cause the last day of an
Interest Period to occur in the next following calendar month, the last day of
such Interest Period shall occur on the next preceding Business Day.
Section 2.11. Capital Adequacy.
(a) If after the date hereof, either (i) the introduction of, or any
change in, or in the interpretation or enforcement of, any law, regulation,
order, ruling, interpretation, directive, guideline or request or (ii) the
compliance with any order, ruling, interpretation, directive, guideline or
request from any central bank or other governmental authority (whether or not
having the force of law) issued, announced, published, promulgated or made after
the date hereof (including, in any event, any law, regulation, order, ruling,
interpretation, directive, guideline or request contemplated by the report dated
July, 1988 entitled "International Convergence of Capital Measurement and
Capital Standards" issued by the Basle Committee on Banking Regulation and
Supervisory Practices) affects or would affect the amount of capital required or
expected to be maintained by the Bank or any corporation controlling the Bank
and the Bank reasonably determines that the amount of such required or
expected capital is increased by or based upon the existence of the Bank's
Revolving Loans hereunder or the Bank's commitment to lend hereunder, then,
upon demand by the Bank, the Borrower shall be liable for, and shall pay to the
Bank, within thirty (30) days following demand from time to time by the Bank,
additional amounts sufficient to compensate the Bank in the light of such
circumstances for the effects of such law, regulation, order, ruling,
interpretation, directive, guideline or request, to the extent that the Bank
reasonably determines such increase in capital to be allocable to the existence
of the Bank's Revolving Loans hereunder or of the Bank's commitment to lend
hereunder. A certificate substantiating such amounts and identifying the event
giving rise thereto, submitted to the Borrower by the Bank, shall be conclusive,
absent manifest error.
(b) The Bank shall notify the Borrower of any event occurring after
the date hereof entitling the Bank to any compensation under paragraph (a) above
as promptly as practicable, but in any event within 30 days after the Bank
obtains actual knowledge thereof; provided that (i) if the Bank fails to give
such notice within thirty (30) days after it obtains actual knowledge of such an
event, the Bank shall, with respect to compensation payable pursuant to this
Section in respect of any costs resulting from such event, only be entitled to
payment under this Section for costs incurred from and after the date thirty
(30) days prior to the date that the Bank does give such notice and (ii) the
Bank will use reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions) to designate a different Lending Office for the
Revolving Loans affected by such event if such designation will avoid the need
for, or reduce the amount of, such compensation and will not, in the sole
opinion of the Bank, be disadvantageous to the Bank.
Section 2.12. Increased Costs.
(a) If after the date hereof, due to either (i) the introduction of or
any change in or in the interpretation or enforcement of, any law, regulation,
order, ruling, directive, guideline or request, or (ii) the compliance with any
order, ruling, directive, guideline or request from any central bank or other
governmental authority (whether or not having the force of law) issued,
announced, published, promulgated or made after the date hereof, there shall be
any increase in the cost to the Bank of agreeing to make or making, funding or
maintaining Eurodollar Rate Loans, then the Borrower shall be liable for, and
shall from time to time, within thirty (30) days following a demand by the
Bank, pay to the Bank for the account of the Bank additional amounts sufficient
to compensate the Bank for such increased cost. A certificate substantiating
the amount of such increased cost, submitted to the Borrower by the Bank, shall
be conclusive, absent manifest error.
(b) The Bank shall notify the Borrower of any event occurring after
the date hereof entitling the Bank to any compensation under paragraph (a) above
as promptly as practicable, but in any event within 30 days after the Bank
obtains actual knowledge thereof; provided that (i) if the Bank fails to give
such notice within thirty (30) days after it obtains actual knowledge of such an
event, the Bank shall, with respect to compensation payable pursuant to this
Section in respect of any costs resulting from such event, only be entitled to
payment under this Section for costs incurred from and after the date thirty
(30) days prior to the date that the Bank does give such notice and (ii) the
Bank will use reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions) to designate a different Lending Office for the
Revolving Loans affected by such event if such designation will avoid the need
for, or reduce the amount of, such compensation and will not, in the sole
opinion of the Bank, be disadvantageous to the Bank.
Section 2.13. Illegality. Notwithstanding any other provision of this
Agreement, if after the date hereof the introduction of, or any change in or in
the interpretation or enforcement of, any law, regulation, order, ruling,
directive, guideline or request shall make it unlawful, or any central bank or
other governmental authority shall assert that it is unlawful, for the Bank or
its Lending Office to perform its obligations hereunder to make Eurodollar Rate
Loans or to continue to fund or maintain Eurodollar Rate Loans hereunder,
then, on notice thereof by the Bank to the Borrower, (i) the obligation of the
Bank to make Eurodollar Rate Loans shall terminate (and the Bank shall make
all of its Revolving Loans as Base Rate Loans notwithstanding any election by
the Borrower to have the Bank make Eurodollar Rate Loans) and (ii) if legally
permissible, at the end of the current Interest Period for such Eurodollar Rate
Loans, otherwise five (5) Business Days after such notice and demand, all
Eurodollar Rate Loans of the Bank then outstanding will automatically convert
into Base Rate Loans; provided, however, that before making any such demand,
the Bank agrees to use reasonable efforts (consistent with its internal policy
and legal and regulatory restrictions) to designate a different Lending Office
if the making of such a designation would allow the Bank or its Lending Office
to continue to perform its obligations to make Eurodollar Rate Loans and would
not, in the judgment of the Bank, be otherwise disadvantageous to the Bank. A
certificate describing such introduction or change in or in the interpretation
or enforcement of such law, regulation, order, ruling, directive, guideline or
request, submitted to the Borrower by the Bank, shall be conclusive evidence of
such introduction, change, interpretation or enforcement, absent manifest error.
The Bank and the Borrower agree to negotiate in good faith in order to agree
upon a mutually acceptable mechanism to provide that Eurodollar Rate Loans
made by the Bank as to which the foregoing conditions occur shall convert into
Base Rate Loans.
Section 2.14. Payments to be Free of Deductions. All payments by the
Borrower under this Agreement shall be made without setoff or counterclaim
and free and clear of, and without deduction for, any taxes (other than any
taxes imposed on or measured by the gross income or profits of the Bank),
levies, imposts, duties, charges, fees, deductions, withholdings, compulsory
loans, restrictions or conditions of any nature now or hereafter imposed or
levied by any country or any political subdivision thereof or taxing or other
authority therein unless the Borrower is compelled by law to make such deduction
or withholding. If any such obligation is imposed upon the Borrower with
respect to any amount payable by it hereunder, it will pay to the Bank, on the
date on which such amount becomes due and payable hereunder and in Dollars, such
additional amount as shall be necessary to enable the Bank to receive the same
net amount which it would have received on such due date had no such
obligation been imposed upon the Borrower. If the Bank is at any time, or any
permitted assignee of the Bank hereunder (an "Assignee"), is organized under
the laws of any jurisdiction other than the United States or any state or other
political subdivision thereof, the Bank or the Assignee shall deliver to the
Borrower on the date it becomes a party to this Agreement, and at such other
times as may be necessary in the determination of the Borrower in its
reasonable discretion, such certificates, documents or other evidence, properly
completed and duly executed by the Bank or the Assignee (including, without
limitation, Internal Revenue Service Form 1001 or Form 4224 or any other
certificate or statement of exemption required by Treasury Regulations Section
1.1441-4(a) or Section 1.1441-6(c) or any successor thereto) to establish that
the Bank or the Assignee is not subject to deduction or withholding of United
States Federal Income Tax under Section 1441 or 1442 of the Internal Revenue
Code or otherwise (or under any comparable provisions of any successor statute)
with respect to any payments to the Bank or the Assignee of principal, interest,
fees or other amounts payable hereunder. Borrower shall not be required to pay
any additional amount to the Bank or any Assignee under this Section if the Bank
or such Assignee shall have failed to satisfy the requirements of the
immediately preceding sentence; provided that if the Bank or any Assignee shall
have satisfied such requirements on the date it became a party to this
Agreement, nothing in this Section shall relieve Borrower of its obligation to
pay any additional amounts pursuant to this Section in the event that, as a
result of any change in applicable law, the Bank or such Assignee is no longer
properly entitled to deliver certificates, documents or other evidence at a
subsequent date establishing the fact that the Bank or the Assignee is not
subject to withholding as described in the immediately preceding sentence.
Section 2.15. Computations. All computations of interest and like
payments hereunder on the Revolving Loans shall, in the absence of clearly
demonstrable error, be considered correct and binding on the Borrower and the
Bank, unless within thirty (30) Business Days after receipt of any notice by the
Bank of such outstanding amount, the Borrower notifies the Bank to the
contrary.
Section 2.16. Compensation. In the event of any prepayment pursuant to
Section 2.6 or 2.7(b), if such prepayment occurs on a date that is not the last
day of the Interest Period applicable to the Revolving Loan being prepaid, the
Borrower shall pay any amounts as shall be sufficient (in the reasonable opinion
of the Bank) to compensate the Bank for any loss, cost or expense which the
Bank may incur as a result of such prepayment, including without limitation,
any loss, cost or expense incurred by reason of funds liquidation or
reemployment of deposits or other funds acquired by the Bank to fund or
maintain such Eurodollar Rate Loan and any administrative costs, expenses or
charges of the Bank as a result thereof. Without limiting the effect of the
preceding sentence, such compensation shall include an amount equal to the
excess, if any, of (i) the amount of interest that otherwise would have accrued
on the principal amount so prepaid for the period from the date of such
prepayment to the last day of the then current Interest Period for such
Eurodollar Rate Loan at the applicable rate of interest for such Eurodollar Rate
Loan provided for herein over (ii) the amount of interest that otherwise would
have accrued on such principal amount at a rate per annum equal to the interest
component of the amount the Bank would have bid in the London interbank
market for Dollar deposits of leading banks in amounts comparable to such
principal amount and with maturities comparable to such period (as reasonably
determined by the Bank), if the Bank has match-funded such Eurodollar Rate
Loan, or the Bank's cost of funds, if the Bank has not match-funded. The Bank
will furnish to the Borrower a certificate setting forth the basis and amount of
each request by such Bank for compensation under this Section.
ARTICLE 3. SECURITY.
Section 3.1. Security Agreement and Guaranty. In order to secure
payment when due of the principal and interest under the Revolving Note and
the other Obligations, the Borrower agrees to deliver to the Bank or cause to be
delivered to the Bank on the Closing Date the following:
(a) the Security Agreement duly executed by the Borrower;
(b) the Receivables Purchase Agreement duly executed and delivered
by the Borrower and each of the Eligible Sellers;
(c) the Guaranty duly executed and delivered by the Guarantor; and
(d) the Financing Statements.
Section 3.2. Pledge Agreement. In order to further secure payment
when due of the principal and interest under the Revolving Note and the other
Obligations, subject to obtaining the Pledge Approvals, the Borrower agrees to
cause to be delivered to the Bank within five (5) Business Days after the Pledge
Approvals have been obtained the following:
(a) the Pledge Agreement duly executed and delivered by the
Guarantor;
(b) stock certificates representing all of the outstanding capital
stock of NFIC, NFL and the Borrower (with stock powers signed in
blank);
(c) the Stock Pledge Financing Statements duly executed and
delivered by the Guarantor; and
(d) favorable opinions of counsel to the Guarantor, dated as of the
date of the Pledge Agreement, in substantially the form set forth
in Exhibit J-3.
Section 3.3. Further Assurances. At any time following the delivery
of this Agreement, the Security Agreement, the Guaranty, or the Pledge
Agreement to the Bank, at the request of the Bank, the Borrower will execute
any certificate, instrument, statement or document and will procure any such
certificate, instrument, statement or document (and pay all connected costs)
which the Bank reasonably deems necessary to preserve the security interests of
the Bank contemplated hereby.
Section 3.4. Required Consents and Approvals. The Borrower
agrees to use, or cause the Guarantor to use, reasonable efforts to obtain, or
cause to be obtained, as soon as practicable, all necessary approvals and
consents by the appropriate Insurance Commissioners permitting the pledge of
all of the capital stock of NFL, NFIC and the Borrower to the Bank and the
execution and delivery of the Pledge Agreement (collectively, the "Pledge
Approvals"). The Bank acknowledges and agrees that receipt of the Pledge
Approvals is not a condition to performance by the Bank of its obligations
hereunder.
ARTICLE 4. CONDITIONS PRECEDENT.
Section 4.1. Documentary Conditions Precedent. The Commitment of
the Bank to make Revolving Loans under this Agreement is subject to the
condition precedent that the Borrower shall have delivered to the Bank, on or
prior to the Closing Date, the following, in form and substance satisfactory to
the Bank:
(a) the Revolving Note for the account of the Bank duly executed by
the Borrower;
(b) a certificate of the Secretary or Assistant Secretary of the
Borrower, dated the Closing Date, attesting on behalf of the Borrower to all
corporate action taken by the Borrower, including resolutions of its Board of
Directors authorizing the execution, delivery and performance of this
Agreement, the Security Agreement, the Revolving Note, the Receivables
Purchase Agreement and each other document to be delivered by the Borrower
pursuant to this Agreement, and attesting to the names and true signatures of
the officers of the Borrower authorized to sign this Agreement, the Security
Agreement, the Receivables Purchase Agreement, the Revolving Note, and the
other documents to be delivered by the Borrower under this Agreement;
(c) a certificate of the Secretary or Assistant Secretary of the
Guarantor, dated the Closing Date, attesting on behalf of the Guarantor to all
corporate action taken by the Guarantor, including resolutions of its Board of
Directors authorizing the execution, delivery and performance of the Guaranty
and the Pledge Agreement (following receipt of the Pledge Approvals) and each
other document to be delivered by the Guarantor thereunder, and attesting to the
names and true signatures of the officers of the Guarantor authorized to sign
the Guaranty, the Pledge Agreement (following the receipt of the Pledge
Approvals) and the other documents to be delivered by the Guarantor thereunder;
(d) a certificate of the Secretary or Assistant Secretary of each
Eligible Seller, dated the Closing Date, attesting on behalf of such Eligible
Seller to all corporate action taken by such Eligible Seller, including
resolutions of its Board of Directors authorizing the execution, delivery and
performance of the Receivables Purchase Agreement and each other document to be
delivered by the Eligible Seller thereunder, and attesting to the names and true
signatures of the officers of the Eligible Seller authorized to sign the
Receivables Purchase Agreement and the other documents to be delivered by the
Eligible Seller thereunder;
(e) a certificate of a Senior Officer of the Borrower, dated the
Closing Date, certifying on behalf of the Borrower that (i) the representations
and warranties of the Borrower in Article 5 of this Agreement and Section 4 of
the Security Agreement are true, complete and correct in all material respects
on such date as though made on and as of such date (or, if such representation
or warranty is expressly stated to have been made as of a specific date, as of
such specific date), (ii) no event has occurred and is continuing which
constitutes a Default or Event of Default, (iii) the Borrower has performed and
complied with all agreements and conditions contained in this Agreement which
are required to be performed or complied with by the Borrower at or before the
Closing Date, and (iv) since September 30, 1995, no event has occurred that has
had, or could reasonably be expected to have, a Materially Adverse Effect;
(f) a certificate of a Senior Officer of the Guarantor, dated the
Closing Date, certifying on behalf of the Guarantor that (i) the representations
and warranties of the Guarantor in Article 4 of the Guaranty are true, complete
and correct in all material respects on such date as though made on and as of
such date (or, if such representation or warranty is expressly stated to have
been made as of a specific date, as of such specific date), (ii) no event has
occurred and is continuing which constitutes a Default or Event of Default under
this Agreement, (iii) the Guarantor has performed and complied with all
agreements and conditions contained in the Guaranty which are required to be
performed or complied with by the Guarantor at or before the Closing Date, and
(iv) since September 30, 1995, no event has occurred that has had, or could
reasonably be expected to have, a Materially Adverse Effect;
(g) a certificate of a Senior Officer of each Eligible Seller, dated
the Closing Date, certifying on behalf of such Eligible Seller that (i) the
representations and warranties of such Eligible Seller in Article IV of the
Receivables Purchase Agreement are true, complete and correct in all material
respects on such date as though made on and as of such date (or, if such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date), (ii) no event has occurred and is
continuing which constitutes a default under the Receivables Purchase
Agreement, and (iii) there has been no material adverse change in the financial
condition, operations, Properties, business, or as far as the Eligible Seller
can reasonably foresee, prospects of the Eligible Seller since September 30,
1995;
(h) a certificate of a Senior Officer of the Borrower, substantially in
the form of Exhibit K, which certificate shall include information required to
establish that the Borrower will be in compliance with the covenants set forth
in Sections 7.10 to 7.11 of this Agreement, after giving effect to the
transactions contemplated herein;
(i) a certificate of a Senior Officer of the Guarantor, substantially
in the form of Attachment 4 to Exhibit A to the Guaranty, which certificate
shall include information required to establish that the Guarantor will be in
compliance with the covenants set forth in Sections 6.3 to 6.8 of the Guaranty,
after giving effect to the transactions contemplated herein and in the Guaranty
Agreement;
(j) a certificate of good standing for the Borrower as of a recent date
by the Secretary of State of its jurisdiction of incorporation and each state
where the Borrower, by the nature of its business, is required to qualify to do
business, except where the failure to be so qualified would not have a
Materially Adverse Effect;
(k) a certificate or similar instrument from the appropriate tax
authority in the State of Delaware and, if different, its principal place of
business, as to the payment by the Borrower of all taxes owed;
(l) a certificate of good standing for the Guarantor as of a recent
date by the Secretary of State of its jurisdiction of incorporation and each
state where the Guarantor, by the nature of its business, is required to qualify
to do business, except where the failure to be so qualified would not have a
Materially Adverse Effect;
(m) a certificate or similar instrument from the appropriate tax
authority in the State of Delaware and, if different, its principal place of
business, as to the payment by the Guarantor of all taxes owed;
(n) a certificate of good standing for HCO as of a recent date by the
Secretary of State of its jurisdiction of incorporation and each state where
HCO, by the nature of its business, is required to qualify to do business,
except where the failure to be so qualified would not have a Materially Adverse
Effect;
(o) with respect to each Eligible Seller, a certificate or similar
instrument from the appropriate tax authority in its jurisdiction of
incorporation as to the payment by such Eligible Seller of all taxes owed;
(p) a certificate of authority from each Insurance Commissioner
certifying that each Insurance Affiliate is duly licensed and in good standing
with the applicable Insurance Commissioner;
(q) a favorable opinion of counsel to the Borrower,the Eligible
Sellers and the Guarantor dated the Closing Date, in substantially the form set
forth in Exhibit J-1 hereto;
(r) a favorable opinion of counsel to the Guarantor and each Eligible
Seller, dated the Closing Date, in substantially the form set forth in Exhibit
J-2 hereto;
(s) a certificate of a Senior Officer of the Borrower certifying that
each consent, license, approval and notice required by the Borrower in
connection with the execution, delivery, performance, validity and
enforceability of this Agreement, the Security Agreement, the Receivables
Purchase Agreement and each other document and instrument required to be
delivered in connection herewith is in full force and effect, except as
otherwise provided in Section 5.15 of this Agreement;
(t) a certificate of a Senior Officer of the Guarantor certifying that
each consent, license, approval and notice required by the Guarantor in
connection with the execution, delivery, performance, validity and
enforceability of this Agreement, the Security Agreement, the Pledge
Agreement (subject to the Pledge Approvals), the Guaranty, the Receivables
Purchase Agreement and each other document and instrument required to be
delivered in connection herewith, including the documents described in Article
3 hereof, is in full force and effect, except as otherwise provided in Section
5.15 of this Agreement;
(u) a certificate of a Senior Officer of each Eligible Seller
certifying that each consent, license, approval and notice required by such
Eligible Seller in connection with the execution, delivery, performance,
validity and enforceability of the Receivables Purchase Agreement and each other
document and instrument required to be delivered in connection herewith is in
full force and effect, except as otherwise provided in Section 5.15 of this
Agreement;
(v) a Master General Agent Contract for each Master General Agent,
attached to a certificate of a Senior Officer of the Eligible Seller party
thereto certifying that such Master General Agent Contract is a true, correct
and complete copy, including all amendments and supplements thereto, and is in
full force and effect on the Closing Date;
(w) all corporate and legal proceedings and all instruments and
agreements in connection with the transactions contemplated by this Agreement,
the Security Agreement, the Pledge Agreement (subject to the Pledge
Approvals), the Guaranty and the Receivables Purchase Agreement shall be
satisfactory in form and substance to the Bank and the Bank shall have received
any and all other information and documents with respect to the Borrower, the
Guarantor and any Eligible Seller, which it may reasonably request;
(x) payment to the Bank of the initial facility fee in the amount of
$200,000; and
(y) payment to Day, Berry & Howard, special counsel to the Bank,
of its legal fees and disbursement.
Section 4.2. Additional Conditions Precedent to Each Loan. The
obligation of the Bank to make the Revolving Loans pursuant to a Borrowing
(including the initial Borrowing), unless waived by the Bank, shall be subject
to the further conditions precedent that on the date of such Revolving Loan:
(a) the representations and warranties of the Borrower contained in
Article 5 of this Agreement and Section 4 of the Security Agreement are true
and correct in all material respects on and as of the date of such Revolving
Loan as though made on and as of such date (or, if such representation or
warranty is expressly stated to have been made as of a specific date, as of such
specific date);
(b) the representations and warranties of the Guarantor contained in
Article 5 of the Guaranty and Section 2 of the Pledge Agreement (if in effect)
are true and correct in all material respects on and as of the date of such
Revolving Loan as though made on and as of such date (or, if such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date);
(c) the representations and warranties of each Eligible Seller
contained in Article IV of the Receivables Purchase Agreement are true and
correct in all material respects on and as of the date of such Revolving Loan as
though made on and as of such date (or, if such representation or warranty is
expressly stated to have been made as of a specific date, as of such specific
date);
(d) the Borrower has complied with all conditions contained in this
Agreement that are required to be complied with by the Borrower, and the
Borrower has performed in all material respects all agreements contained in this
Agreement and the Security Agreement that are required to be performed by the
Borrower;
(e) there does not exist any Default or Event of Default under this
Agreement;
(f) since the date of the last Borrowing under this Agreement (or if
no Borrowing has occurred, since September 30, 1995), there has occurred no
event that could reasonably be expected to have a Materially Adverse Effect;
(g) the Bank shall have received a duly executed Notice of
Borrowing in the form of Exhibit F, and a duly executed Borrowing Base
Certificate in the form of Exhibit L, except to the extent otherwise provided in
Section 2.3(e);
(h) the Bank shall have received a duly executed Assignment for
each Receivable included in the calculation of the Borrowing Base;
(i) the Bank shall have received evidenced, in form and substance
satisfactory to it, that each consent, approval, order, license, or permit
required from any Person, including without limitation any Insurance
Commissioner, required to authorize, or required in connection with the
performance by the Borrower, the Guarantor or any Eligible Seller of, or the
legality, validity, binding effect or enforceability of, this Agreement, the
Guaranty or the Receivables Purchase Agreement, including the use of proceeds of
any Borrowing by the Borrower to acquire Eligible Receivables, shall have been
received or given and remain in full force and effect, and the Bank shall have
received updated legal opinions in form and substance satisfactory to the Bank
relating to such matters.
Section 4.3. Deemed Representations. Each Notice of Borrowing
hereunder and acceptance by the Borrower of the proceeds of such Borrowing
shall constitute a representation and warranty that the statements contained in
Section 4.2, in the Notice of Borrowing and in the Borrowing Base Certificate
are true and correct both on the date of such Notice of Borrowing and, unless
the Borrower otherwise notifies the Bank prior to such Borrowing, as of the
date of such Borrowing.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants the following:
Section 5.1. Incorporation, Good Standing and Due Qualification. The
Borrower is duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, has the power and authority to own
its assets and to transact the business in which it is now engaged, and is duly
qualified as a foreign corporation and in good standing under the laws of each
other jurisdiction in which such qualification is required, except where the
failure to be so qualified could not reasonably be expected to have a Materially
Adverse Effect. The Borrower has all requisite power and authority to execute
and deliver and to perform all of its obligations under this Agreement, the
Revolving Note, the Security Agreement, the Receivables Purchase Agreement
and the other writings contemplated hereby.
Section 5.2. Corporate Power and Authority; No Conflicts. The
execution, delivery and performance by the Borrower of this Agreement, the
Security Agreement, the Receivables Purchase Agreement and the Revolving
Note have been duly authorized by all necessary corporate action and do not and
will not (a) require any consent or approval of its stockholders; (b) violate
any provisions of its certificate of incorporation or by-laws; (c) violate any
provision of, or require any filing, registration, consent or approval under,
any law, rule, regulation (including without limitation, Regulation U and X),
order, writ, judgment, injunction, decree, determination or award presently in
effect having applicability to and binding upon the Borrower or any Subsidiary;
(d) result in a breach of, or constitute a default or require any consent under,
any indenture, mortgage or loan or credit agreement or any other material
agreement, lease or instrument to which the Borrower or any Subsidiary is a
party or by which it or its Properties may be bound; or (e) except as
contemplated hereby, or by the Revolving Note or the Security Agreement,
result in, or require, the creation or imposition of any Lien upon or with
respect to any of the Properties now owned or hereafter acquired by the
Borrower.
Section 5.3. Legally Enforceable Agreements. This Agreement, the
Security Agreement and the Revolving Note constitute the legal, valid and
binding obligations of the Borrower enforceable against the Borrower in
accordance with their respective terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting creditors' rights
generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
Section 5.4. Litigation. Except as disclosed on Schedule 5.4, there
are no actions, suits or proceedings or investigations (other than routine
examinations performed by insurance regulatory authorities) pending or, to the
knowledge of the Borrower, threatened against or affecting, the Borrower or
any of its Subsidiaries, or any Property of any of them before any court,
governmental agency or arbitrator, which if determined adversely to the
Borrower or any Subsidiary would in any one case or in the aggregate, have a
Materially Adverse Effect.
Section 5.5. Disclosures. No written information, exhibit or
report furnished by or on behalf of the Borrower to the Bank in connection with
the negotiation of this Agreement, including the report entitled "Agent Debit
Balances - October, 1995" of Westbridge Capital Corp., contained any material
misstatement of fact or omitted to state any fact necessary to make the
statements contained therein not materially misleading. All written financial
projections furnished by or on behalf of the Borrower to the Bank in
connection with the negotiation of this Agreement, have been prepared in good
faith and on reasonable assumptions. Since September 30, 1995, no event or
circumstance has occurred that could reasonably be expected to have a
Materially Adverse Effect.
Section 5.6. Ownership and Liens. Each of the Borrower and its
Subsidiaries has good and valid title to, or valid leasehold interests in, its
material Properties, and none of the material Properties owned by the Borrower
or its Subsidiaries, and none of its leasehold interests is subject to any Lien,
except any Permitted Liens.
Section 5.7. Taxes. Each of the Borrower and its Subsidiaries has
filed (or had filed on its behalf) all federal and all other material tax
returns required to be filed, has paid all due and payable taxes, assessments
and governmental charges and levies, including interest and penalties, imposed
upon it or upon its Properties, and has made adequate provision for the payment
of such taxes, assessments and other charges accruing but not yet due and
payable, except with respect to taxes which are being contested in good faith by
the Borrower or its Subsidiaries and for which such Person has established and
maintains adequate reserves for payment. To the best knowledge of Borrower,
there is no tax assessment contemplated or proposed by any governmental
agency against the Borrower or any of its Subsidiaries that could reasonably be
expected to have a Materially Adverse Effect, other than, as of each date
subsequent to the Closing Date, such contemplated or proposed tax assessments
with respect to which (i) Borrower has promptly notified Bank in writing of its
knowledge and (ii) the Borrower or the appropriate Subsidiary of the Borrower
has in good faith commenced, or intends to commence within the time period
permitted by the applicable law or regulation, and thereafter diligently pursued
or will pursue, as the case may be, appropriate proceedings in opposition to
such assessment.
Section 5.8. ERISA. Each of the Borrower and its Subsidiaries is in
compliance in all material respects with all applicable provisions of ERISA.
Within the three-year period prior to the date hereof, neither a Reportable
Event nor a Prohibited Transaction has occurred with respect to any Plan; no
notice of intent to terminate a Plan has been filed nor has any Plan been
terminated; no circumstance exists which constitutes grounds under Section 4042
of ERISA entitling the PBGC to institute proceedings to terminate, or appoint a
trustee to administer, a Plan, nor has the PBGC instituted any such proceedings;
neither the Borrower nor any ERISA Affiliate has completely or partially
withdrawn under Sections 4201 or 4204 of ERISA from a Multiemployer Plan; each
of the Borrower and its ERISA Affiliates has met its minimum funding
requirements under ERISA with respect to all of its Plans and there are no
Unfunded Vested Liabilities and neither the Borrower nor any ERISA Affiliate has
incurred any material liability to the PBGC under ERISA other than for premium
payments incurred in the normal course of operating the Plans.
Section 5.9. Subsidiaries and Ownership of Stock. The Borrower has
no Subsidiaries.
Section 5.10. Credit Arrangements. Schedule 5.10 is a complete and
correct list of all credit agreements, indentures, guaranties, Capital Leases,
mortgages, and other instruments, agreements and arrangements presently in
effect providing for or relating to extensions of credit (including agreements
and arrangements for the issuance of letters of credit or for acceptance
financing) in respect of which the Borrower or any of its Subsidiaries is in any
manner directly or contingently obligated, other than trade payables in the
ordinary course of business; and the maximum principal or face amounts of the
credit in question, which are outstanding and which can be outstanding, are
therein set forth and are correctly stated as of the date hereof, and all Liens
given or agreed to be given as security therefor are therein set forth and are
correctly described or indicated in such Schedule.
Section 5.11. Operation of Business. Each of the Borrower and its
Subsidiaries possesses all licenses, permits and franchises, or rights thereto,
necessary to conduct its business as now conducted and as presently proposed to
be conducted, except where the absence of which could reasonably be expected
to have a Materially Adverse Effect, and neither the Borrower nor any of its
Subsidiaries is in violation in any material respect of any valid rights of
others with respect to any of the foregoing.
Section 5.12. No Default on Outstanding Judgments or Orders. Each of
the Borrower and its Subsidiaries has satisfied all material judgments and
neither the Borrower nor any Subsidiary is in default with respect to any
judgment, writ, injunction, decree, rule or regulation of any court, arbitrator
or federal, state, municipal or other governmental authority, commission, board,
bureau, agency or instrumentality, domestic or foreign, which could, in any one
case or in the aggregate, reasonably be expected to have a Materially Adverse
Effect.
Section 5.13. No Defaults on Other Agreements. Neither the Borrower
nor any of its Subsidiaries is in default in any material respect in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument material to its business to
which it is a party.
Section 5.14. Governmental Regulation. Neither the Borrower nor any
of its Subsidiaries is subject to regulation under the Investment Company Act of
1940, as amended, or any statute or regulation limiting its ability to incur
indebtedness for money borrowed as contemplated hereby.
Section 5.15. Consents and Approvals. No authorization, consent,
approval, order, license or permit from, or filing, registration or
qualification with, or exemption by, any governmental or public body or
authority, or any subdivision thereof, or any other Person, including without
limitation, any Insurance Commissioner, is required to authorize, or is required
in connection with the execution, delivery and performance by the Borrower of,
or the legality, validity, binding effect or enforceability with respect to the
Borrower of, this Agreement, or the Receivables Purchase Agreement, except for
(i) filings and recordings of Liens created pursuant to the Security Agreement,
(ii) those consents, approvals or other similar actions that have been obtained
and have not been modified, amended, rescinded or revoked and are in full force
and effect, and (iii) consents, approvals or similar actions, the failure of
which to obtain or perform could not reasonably be expected to have a Materially
Adverse Effect.
Section 5.16. Partnerships. Neither the Borrower nor any of its
Subsidiaries is a partner in any partnership.
Section 5.17. Environmental Protection. Each of the Borrower and its
Subsidiaries has obtained all material permits, licenses and other
authorizations which are required under all environmental laws, including laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes into the environment (including without limitation, ambient air,
surface water, ground water, or land), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes, except to the extent failure to have any such
permit, license or authorization could not reasonably be expected to have a
Materially Adverse Effect. Each of the Borrower and its Subsidiaries is in
compliance with all terms and conditions of the required permits, licenses and
authorizations, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in the environmental laws or contained in any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, except to the extent
failure to comply could not reasonably be expected to have a Materially Adverse
Effect. None of the Properties of the Borrower or its Subsidiaries, either
owned or leased, have been included or, to the knowledge of the Borrower,
proposed for inclusion on the National Priorities List adopted pursuant to the
Comprehensive Environmental Response Compensation and Liability Act, as amended,
or on any similar list or inventory of sites requiring response or cleanup
actions adopted by any other federal, state or local agency.
Section 5.18. Copyrights, Patents, Trademarks, Etc. Neither the
Borrower nor any of its Subsidiaries uses in the operation of its business as
presently conducted, any patents, trademarks, service marks, trade names, or
copyrighted materials the loss by the Borrower or such Subsidiary of which
would have a Materially Adverse Effect.
Section 5.19. Compliance with Laws. Neither the Borrower nor any of
its Subsidiaries is in violation of any laws, ordinances, rules or regulations,
applicable to it, of any federal, state or municipal governmental authorities,
instrumentalities or agencies, including without limitation, the United States
Occupational Safety and Health Act of 1970, as amended, except where such
violation could not reasonably be expected to have a Materially Adverse Effect.
Section 5.20. Receivables. All Receivables and all books, records and
documents relating thereto are and will be genuine and in all respects what they
purport to be; the amount of each Receivable shown on the books and records
of the Borrower (as adjusted on the books and records of the Borrower, from
time to time, to reflect payments received by the Borrower with respect to such
Receivable) represented as owing or to be owing at maturity by each Eligible
Agent Obligor is and will be the correct amount actually owing or to be owing
by such Eligible Agent Obligor at maturity. The Borrower has no knowledge of
any fact which would impair the validity or collectibility of any Receivable,
except to the extent that such impairment could not reasonably be expected to
have a Materially Adverse Effect.
Section 5.21. Use of Proceeds. Neither Borrower nor any of its
Subsidiaries nor any Eligible Seller is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying any such "margin stock."
ARTICLE 6. AFFIRMATIVE COVENANTS
During the term of this Agreement, and until performance, payment
and/or satisfaction in full of the Obligations, the Borrower covenants and
agrees that it shall, and shall cause each of its Subsidiaries to, unless the
Bank otherwise consents in writing:
Section 6.1. Maintenance of Existence. Preserve and maintain its
corporate existence and good standing in the jurisdiction of its incorporation,
and qualify and remain qualified as a foreign corporation in each jurisdiction
in which such qualification is required from time to time, except where failure
to be so qualified would not have a Materially Adverse Effect.
Section 6.2. Conduct of Business. Continue to engage in a business
of the same general type as conducted by it on the date of this Agreement.
Section 6.3. Maintenance of Properties. Maintain, keep and preserve
all of its material Properties (tangible and intangible), necessary or useful in
the conduct of its business, in good working order and condition, ordinary wear
and tear excepted, except that the failure to maintain, preserve and protect a
particular item of Property that is not of significant value, either
intrinsically or to the operations of Borrower and its Subsidiaries, taken as a
whole, shall not constitute a violation of this covenant.
Section 6.4. Maintenance of Records. Keep accurate and complete
records and books of account, in which complete entries will be made in
accordance with GAAP, reflecting all financial transactions of the Borrower and
its Subsidiaries.
Section 6.5. Maintenance of Insurance. Maintain insurance (subject
to customary deductibles and retentions) with financially sound and reputable
insurance companies, in such amounts and with such coverages (including
without limitation public liability insurance, fire, hazard and extended
coverage insurance on all of its assets, necessary workers' compensation
insurance and all other coverages as are consistent with industry practice) as
are maintained by companies of established reputation engaged in similar
businesses and similarly situated; provided that such insurance may be obtained
from Affiliates of the Borrower.
Section 6.6. Compliance with Laws. Comply in all respects with all
applicable laws, rules, regulations and orders, except where the failure to so
comply would not have a Materially Adverse Effect. Such compliance shall
include, without limitation, paying all taxes, assessments and governmental
charges imposed upon it or upon its Property (and all penalties and other costs,
if any, related thereto), unless contested in good faith by appropriate
proceedings and for which adequate reserves have been set aside.
Section 6.7. Right of Inspection. From time to time upon prior
notice and in accordance with customary standards and practices within the
banking industry (including, without limitation, upon any Event of Default or
whenever the Bank may have reasonable cause to believe that an Event of Default
has occurred and is continuing), the Borrower shall permit the Bank or any agent
or representative thereof, to examine and make copies and abstracts from the
records and books of account of, and visit the Properties of, the Borrower and
its Subsidiaries to discuss the affairs, finances and accounts of the Borrower
and any such Subsidiaries with any of their respective officers and directors
and the Borrower's independent accountants, and to make such verification
concerning the Borrower and its Subsidiaries as may be reasonable under the
circumstances, and upon request, furnish promptly to the Bank true copies of all
financial information made available to Senior Officers of Borrower and its
Subsidiaries; provided, that the Bank shall use reasonable efforts to not
materially interfere with the business of the Borrower and its Subsidiaries and
to treat as confidential any and all information obtained pursuant to this
Section, except to the extent disclosure is required by any law, regulation,
order, ruling, directive, guideline or request from any central bank or other
government authority (whether or not having the force of law).
Section 6.8. Reporting Requirements. The Borrower shall, and shall
cause each of its Subsidiaries, as applicable, to, furnish to the Bank:
(a) Annual GAAP Statements of Borrower. Within one hundred
twenty (120) days following the end of Borrower's fiscal year copies of:
(i) the consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries as at the close of such fiscal
year, and
(ii) the consolidated and consolidating statements of
operations and statements of stockholders' equity and cash
flows, in each case of the Borrower and its Subsidiaries
for such fiscal year,
in each case setting forth in comparative form the figures for the
preceding fiscal year and prepared in accordance with GAAP, all in
reasonable detail and accompanied by an opinion of Price Waterhouse
LLP or other firm of independent public accountants of recognized
national standing selected by the Borrower and reasonably acceptable to
the Bank on such consolidated balance sheets and consolidated
statements, to the effect that the financial statements have been
prepared in accordance with GAAP (except for changes in application in
which such accountants concur) and present fairly in all material
respects in accordance with GAAP the financial condition of the
Borrower and its Subsidiaries as of the end of such fiscal year and the
results of its operations for the fiscal year then ended and that the
examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted auditing
standards and, accordingly, included such tests of the accounting
records and such other auditing procedures as were considered
necessary under the circumstances.
(b) Quarterly GAAP Statements of Borrower. As soon as available,
and in any event within sixty (60) days after the end of each quarterly fiscal
period of the Borrower (other than the fourth fiscal quarter of any fiscal
year), copies of:
(i) the consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries as at the end of such fiscal
quarter, and
(ii) the consolidated and consolidating statements of
operations and consolidated statements of stockholders'
equity and cash flows, in each case of the Borrower and
its Subsidiaries for such fiscal quarter and the portion of
such fiscal year ended with such fiscal quarter,
in each case setting forth in comparative form the figures for the
preceding fiscal year and prepared in accordance with GAAP all in
reasonable detail and certified as presenting fairly in accordance with
GAAP the financial condition of the Borrower and its Subsidiaries as of
the end of such period and the results of operations for such period by
a Senior Officer of such company, subject only to normal year-end
accruals and audit adjustments and the absence of footnotes.
(c) Management Letters. Promptly upon receipt thereof, copies of
any reports or management letters relating to the internal financial controls
and procedures delivered to the Borrower or any of its Subsidiaries by any
independent certified public accountant in connection with examination of the
financial statements of the Borrower or any such Subsidiary.
(d) SEC Filings. Promptly after the same are available, copies of
each annual report, proxy or financial statement or other report or
communication, if any, sent to the stockholders of the Borrower generally and
copies of all annual, regular, periodic and special reports and registration
statements which the Borrower may file or be required to file with the
Securities and Exchange Commission under Sections 13 and 15(d) of the Securities
and Exchange Act of 1934.
(e) Notice of Litigation. Promptly after the commencement thereof,
notice of any action, suit and proceeding before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, against the Borrower or any of its Subsidiaries, (A) which, if
determined adversely to the Borrower or such Subsidiary, would have a
Materially Adverse Effect, or (B) commenced by any creditor or lessor under
any written credit agreement with respect to borrowed money or material lease
which asserts a default thereunder on the part of the Borrower or any of its
Subsidiaries.
(f) Notices of Default. As soon as practicable and in any event
within fifteen (15) days after the occurrence of each Default or Event of
Default, a written notice setting forth the details of such Default or Event of
Default and the action which is proposed to be taken by the Borrower with
respect thereto.
(g) Other Filings. Promptly upon the filing thereof and at any time
upon the reasonable request of the Bank, permit the Bank the opportunity to
review copies of all reports, including annual reports, and notices which the
Borrower or any Subsidiary files with or receives from the PBGC or the U.S.
Department of Labor under ERISA; and as soon as practicable and in any event
within fifteen (15) days after the Borrower or any if its Subsidiaries knows or
has reason to know that any Reportable Event or Prohibited Transaction has
occurred with respect to any Plan or that the PBGC or the Borrower or any
such Subsidiary has instituted or will institute proceedings under Title IV of
ERISA to terminate any Plan, the Borrower will deliver to the Bank a certificate
of a Senior Officer of the Borrower setting forth details as to such Reportable
Event or Prohibited Transaction or Plan termination and the action the
Borrower proposes to take with respect thereto.
(h) Additional Information. Such additional information as the Bank
may reasonably request concerning the Borrower and its Subsidiaries and for
that purpose all pertinent books, documents and vouchers relating to its
business, affairs and Properties, including investments as shall from time to
time be designated by the Bank.
Section 6.9. Certificates.
(a) Officers' Certificate. Simultaneously with each delivery of
financial statements pursuant to Section 6.8(a) and 6.8(b), the Borrower shall
deliver to the Bank a certificate of its Chief Financial Officer which will
(i) certify on behalf of the Borrower that such officer has
reviewed the Agreement and the other Loan Documents and the
condition and transactions of the Borrower and its Subsidiaries
for the period covered by such financial statements, and state
that to the best of his knowledge the Borrower has observed or
performed all of its covenants and other agreements, and satisfied
every condition, contained in this Agreement and the other Loan
Documents, and no Default or Event of Default has occurred and
is continuing or, if a Default or Event of Default has occurred
and is continuing, a statement as to the nature thereof and the
action which is proposed to be taken with respect thereto,
(ii) include information (with detailed calculations in the form
set out in Exhibit K) required to establish whether the Borrower
was in compliance with the covenants set forth in Sections 7.10,
7.11 and 7.12 of this Agreement during the period covered by
the financial statements then being delivered, and
(iii) include information (with detailed calculations in the
form set out in Exhibit K) required to establish whether, as of
the last day of each month during the prior calendar quarter, the
Borrowing Base exceeded the aggregate principal amount of the
Revolving Loans outstanding on each such date.
(b) Accountant's Certificate. Simultaneously with each delivery of
financial statements pursuant to Section 6.8(a), the Borrower will
deliver to the Bank a certificate of the independent certified public
accountants who certify such statements, stating whether, in the course
of their audit of the financial statements, they obtained any knowledge
of a condition or event which constitutes a Default or Event of Default
and the nature thereof.
Section 6.10. Further Assurances. The Borrower shall take all such
further actions and execute and file or record, at its own cost and expense, all
such further documents and instruments as the Bank may at any time reasonably
determine may be necessary or advisable; and shall do, execute, acknowledge,
deliver, record, file, re-file, record, register and re-register any and all
such further acts, deeds, conveyances, estoppel certificates, transfers,
certificates, assurances and other instruments as the Bank may reasonably
require from time to time in order to carry out more effectively the purposes of
this Agreement, the Security Agreement, the Guaranty, the Pledge Agreement, the
Receivables Purchase Agreement or the Revolving Note.
Section 6.11. Compliance with Agreements. Promptly and fully comply
with all contractual obligations under all agreements, mortgages, indentures,
leases and/or instruments to which any one or more of the Borrower and its
Subsidiaries is a party, whether such agreements, mortgages, indentures, leases
or instruments are with the Bank or another Person, except where such failure
to so comply would not have a Materially Adverse Effect.
Section 6.12. Use of Proceeds. Use proceeds of the Revolving Loans
solely to (i) acquire Eligible Receivables, (ii) repay Revolving Loans made
hereunder, (iii) pay to the Bank interest accrued on the Revolving Loans made
hereunder, (iv) pay to the Bank the fees described in Section 2.9, (v) pay
costs, expenses and charges described in Section 9.3(a), and (vi) pay reasonable
costs, expenses and charges of outside legal counsel to the Borrower, the
Guarantor and each Eligible Seller incurred in connection with the preparation,
negotiation and regulatory approval of this Agreement, the Security Agreement,
the Pledge Agreement, the Guaranty, the Receivables Purchase Agreement and the
Revolving Note. No part of such proceeds shall be used to purchase or carry,
or to extend credit to others for the purpose of purchasing or carrying, any
"margin stock" (as such term is defined in Regulation G of the Board of
Governors of the Federal Reserve System) in violation of Regulations U and X.
ARTICLE 7. NEGATIVE COVENANTS.
During the term of this Agreement, and until performance, payment
and/or satisfaction in full of the Obligations, the Borrower covenants and
agrees that Borrower shall not, and shall not permit its Subsidiaries to, unless
the Bank otherwise consents in writing:
Section 7.1. Debt. Create, incur, assume or suffer to exist any
Debt, except:
(a) Debt of the Borrower under this Agreement and the Revolving
Note;
(b) Debt permitted under Section 7.2 hereof; and
(c) Subordinated Debt of the Borrower or its Subsidiaries.
Section 7.2. Guaranties, Etc. Assume, guarantee, endorse or
otherwise be or become directly or contingently responsible or liable
(including, but not limited to, an agreement to purchase any obligation, or to
supply or advance any funds, or an agreement to cause such Person to maintain a
minimum working capital or net worth or otherwise to assure the creditors of
any Person against loss) for the obligations of any Person, except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business.
Section 7.3. Liens. Create, incur, assume or suffer to exist any
Lien, upon or with respect to any of its Properties, now owned or hereafter
acquired, except (the following being referred to herein as "Permitted Liens"):
(a) Liens for taxes or assessments or other government charges or
levies if not yet due and payable or if due and payable, if they are being
contested in good faith by appropriate proceedings and for which appropriate
reserves are maintained;
(b) Liens imposed by law, such as mechanic's, materialmen's,
landlord's, warehousemen's and carrier's Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due for more than forty-five (45) days, or which are being contested in
good faith by appropriate proceedings and for which appropriate reserves have
been established;
(c) Liens or deposits under workers' compensation, unemployment
insurance, social security or similar legislation (other than ERISA);
(d) judgment and other similar Liens arising in connection with court
proceedings; provided that the execution or other enforcement of such Liens is
effectively stayed and the claims secured thereby are being actively contested
in good faith and by appropriate proceedings;
(e) easements, rights-of-way, restrictions and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use and enjoyment by the Borrower or any of its Subsidiaries of the
Property or assets encumbered thereby in the normal course of its business or
materially impair the value of the Property subject thereto; and
(f) Liens created pursuant to the Security Agreement.
Section 7.4. Investments. Neither the Borrower nor any of its
Subsidiaries will make any Investment in any other Person, except for Permitted
Investments.
Section 7.5. Mergers and Consolidations and Acquisitions of Assets.
Merge or consolidate with any Person (whether or not Borrower or any
Subsidiary is the surviving entity), or acquire all or substantially all of the
assets or any of the capital stock of any Person.
Section 7.6. Sale of Assets. Sell, lease or otherwise dispose of any
material assets, except in the ordinary course of business.
Section 7.7. Stock of the Borrower, Subsidiaries, Etc. Issue any
additional shares of the Borrower's capital stock to any Person or pledge,
assign, hypothecate, transfer, convey, sell or otherwise dispose of, encumber or
grant any security interest in, or deliver to any other Person, any shares of
capital stock of its Subsidiaries, or permit any such Subsidiaries to issue any
additional shares of its capital stock to any Person other than the Borrower or
any Subsidiaries, except directors' qualifying shares.
Section 7.8. Transactions with Affiliates. Enter into any
transaction of any kind with any Affiliate of the Borrower, or any Person that
owns or holds five percent (5%) or more of the outstanding common stock of the
Borrower, other than (a) the Receivables Purchase Agreement, (b) transactions
between or among Borrower and its wholly owned Subsidiaries or between or among
its wholly owned Subsidiaries or (c) transactions on terms at least as favorable
to the Borrower or its Subsidiaries as would be the case in an arm's-length
transaction between unrelated parties of equal bargaining power.
Section 7.9. Capital Expenditures. Make or permit to be made, or
commit to make any Capital Expenditure.
Section 7.10. Minimum Consolidated GAAP Net Worth. As of the end
of any fiscal quarter, permit Consolidated GAAP Net Worth of the Borrower
and its Subsidiaries to be less than an amount equal to the sum of (a)
$1,000,000 plus (b) 50% of any cumulative positive Net Income of the
Borrower and its Subsidiaries for each fiscal quarter following the fiscal
quarter ending September 30, 1995, plus (c) the net amount after deducting cost
of issuance of paid-in capital resulting from any issuance by the Borrower of
its capital stock after the date of this Agreement.
Section 7.11. Minimum Interest Coverage. As of the end of each fiscal
quarter permit the Interest Coverage Ratio to be less than 1.10 to 1.00.
Section 7.12. Minimum Collateral Ratio. At any time, permit the
principal amount outstanding under this Agreement to exceed the Borrowing
Base.
Section 7.13. Distributions. Make any Distributions to any Person.
Section 7.14. Receivables Purchase Agreement. Amend, modify or
waive any material provision of the Receivables Purchase Agreement.
ARTICLE 8. EVENTS OF DEFAULT.
Section 8.1. Events of Default. Any of the following events shall be
an "Event of Default":
(a) the Borrower shall fail to pay any principal amount when due,
whether at stated maturity, by acceleration, by notice of prepayment or
otherwise, or Borrower shall fail to pay any premium or interest, or any fees or
other amounts payable hereunder, within five days after the date due;
(b) any written statement, representation or warranty made by the
Borrower in this Agreement, the Security Agreement or the Revolving Note, or
which is contained in any certificate, document, financial or other written
statement furnished at any time under or in connection with this Agreement or
the Revolving Note shall prove to have been incorrect in any material respect on
or as of the date made;
(c) any written statement, representation or warranty made by the
Guarantor in the Guaranty or the Pledge Agreement (if delivered), or which is
contained in any certificate, document, financial or other written statement
furnished at any time under or in connection with the Guaranty or the Pledge
Agreement (if delivered) shall prove to have been incorrect in any material
respect on or as of the date made;
(d) the Borrower shall (i) fail to perform or observe any term,
covenant, or agreement contained in Section 6.1, Section 6.8(f), Section 6.12 or
Article 7; or (ii) fail to perform or observe any term, covenant, or agreement
on its part to be performed or observed (other than the obligations specifically
referred to elsewhere in this Section 8.1) in this Agreement (including without
limitation any such term, covenant or agreement contained in Article 7 hereof),
the Security Agreement, the Receivables Purchase Agreement or the Revolving
Note and such failure shall continue unremedied for thirty (30) consecutive days
after either (x) any Senior Officer of the Borrower has knowledge thereof or (y)
the Bank has given notice thereof to the Borrower. The Bank shall use
reasonable efforts to give the Borrower notice of any Default or Event of
Default under this Section 8.1(c); provided, however, that failure to give any
such notice shall not impair or otherwise adversely affect the Bank's rights and
remedies hereunder;
(e) the Guarantor shall (i) fail to perform or observe any term,
covenant, or agreement contained in Section 5.1 Section 5.8(j), Section 5.12,
Section 5.13 or Article 6 of the Guaranty; or (ii) fail to perform or observe
any term, covenant, or agreement on its part to be performed or observed (other
than the obligations specifically referred to elsewhere in this Section 8.1) in
the Guaranty (including without limitation any such term, covenant or agreement
contained in Article 6 thereof) or the Pledge Agreement (if delivered) and such
failure shall continue unremedied for thirty (30) consecutive days after either
(x) any Senior Officer of the Borrower has knowledge thereof or (y) the Bank has
given notice thereof to the Borrower. The Bank shall use reasonable efforts to
give the Borrower and the Guarantor notice of any Default or Event of Default
under this Section 8.1(e); provided, however, that failure to give any such
notice shall not impair or otherwise adversely affect the Bank's rights and
remedies under this Agreement or the Guaranty;
(f) any default by any Eligible Seller under the Receivables Purchase
Agreement or any Eligible Agent Contract that has, or could reasonably
be expected to have, a Materially Adverse Effect;
(g) any material provision of the Receivables Purchase Agreement or
any Eligible Agent Contract shall at any time for any reason have ceased to be
valid and binding on any Eligible Seller or shall be declared to be null and
void by any court or other Person having jurisdiction or any Eligible Seller
shall deny that it has any further liability or obligation under the Receivables
Purchase Agreement or any Eligible Agent Contract;
(h) any default by any Eligible Agent Obligor under any Eligible
Agent Contract that has, or could reasonably be expected to have, a Materially
Adverse Effect;
(i) any material provision of any Eligible Agent Contract shall at any
time for any reason have ceased to be valid and binding on the Eligible Agent
Obligor party thereto or any Eligible Agent Contract shall be declared to be
null and void by any court or other Person having jurisdiction or the Eligible
Agent Obligor party thereto shall deny that it has any or further liability or
obligation under the Eligible Agent Contract, if the occurrence of such event
has, or could reasonably be expected to have a Materially Adverse Effect;
(j) the Guarantor or any Subsidiary (including the Borrower) shall
(i) fail to pay any indebtedness, including but not limited to indebtedness for
borrowed money (other than the payment Obligations described in (a) above), of
the Guarantor or such Subsidiary, as the case may be, or any interest or
premium thereon, when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise); or (ii) fail to perform or
observe any term, covenant or condition on its part to be performed or observed
under any agreement or instrument relating to any such indebtedness, when
required to be performed or observed and such failure continues after any
applicable notice and grace period, if the effect of such failure to perform or
observe is to accelerate, or to permit the acceleration of the maturity of such
indebtedness, or (iii) any such indebtedness shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof; provided, however, that it
shall not be a Default or Event of Default under this Section 7.1(j) unless the
aggregate principal amount of indebtedness described in clauses (i) through
(iii) above shall exceed $20,000;
(k) the Guarantor or any of its Subsidiaries, including the Borrower,
(i) shall generally not, or be unable to, or shall admit in writing its
inability to, pay its debts as such debts become due; or (ii) shall make an
assignment for the benefit of creditors or petition or apply to any tribunal for
the appointment of a custodian, receiver or trustee for it or a substantial part
of its assets; or (iii) shall commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect; or (iv) shall have had any
such petition or application filed or any such proceeding shall have been
commenced against it in which an adjudication or appointment is made or order
for relief is entered, or which petition, application or proceeding remains
undismissed for a period of sixty (60) consecutive days or more; or (v) shall be
the subject of any proceeding under which all or substantially all of its assets
may be subject to seizure, forfeiture or divestiture (other than a proceeding in
respect of a Lien permitted under this Agreement); or (vi) by any act or
omission shall indicate its consent to, approval of or acquiescence in any such
petition, application or proceeding or order for relief or the appointment of a
custodian, receiver or trustee for all or any substantial part of its Property;
or (vii) shall suffer any such custodianship, receivership or trusteeship to
continue undischarged for a period of sixty (60) consecutive days or more;
(l) (A) Any Insurance Commissioner shall apply for an order
pursuant to any section of the applicable insurance code, directing the
rehabilitation, conservation or liquidation of any Insurance Affiliate, and any
such application shall not be dismissed or otherwise terminated during a period
of sixty (60) consecutive days, or a court of competent jurisdiction shall enter
an order granting the relief sought; or (B) any Insurance Commissioner shall
file a complaint or petition pursuant any applicable insurance code seeking the
dissolution of any Insurance Affiliate, and such complaint or petition is not
dismissed or otherwise terminated for a period of sixty (60) consecutive days,
or a court of competent jurisdiction shall order the dissolution of any
Insurance Affiliate;
(m) one or more judgments, decrees or orders for the payment of
money in excess of $20,000 in the aggregate shall have been rendered against
the Borrower or any of its Subsidiaries (excluding judgments which are covered
by insurance other than self-insurance) and such judgments, decrees or orders
shall continue unsatisfied and in effect for a period of sixty (60) consecutive
days without being vacated, discharged, satisfied or stayed or bonded pending
appeal;
(n) any of the following events shall occur or exist with respect to
the Guarantor or any ERISA Affiliate, including the Borrower: (i) any
Prohibited Transaction involving any Plan; (ii) any Reportable Event shall occur
with respect to any Plan; (iii) the filing under Section 4041 of ERISA of a
notice of intent to terminate any Plan or the termination of any Plan (other
than in a "standard termination" referred to in Section 4041 of ERISA); (iv) any
event or circumstance exists which would constitute grounds entitling the PBGC
to institute proceedings under Section 4042 of ERISA for the termination of, or
for the appointment of a trustee to administer any Plan, or the institution by
the PBGC of any such proceedings; (v) complete or partial withdrawal under
Section 4201 or 4204 of ERISA from a Multiemployer Plan or the
reorganization, insolvency or termination of any Multiemployer Plan; and in
each case above, such event or condition, together with all other such events or
conditions, if any, would in the reasonable opinion of the Bank subject the
Borrower to any tax, penalty or other liability to a Plan, Multiemployer Plan,
the PBGC or otherwise (or any combination thereof), or subject the Guarantor
or any Subsidiary (other than the Borrower) to any tax, penalty or other
liability to a Plan, Multiemployer Plan, the PBGC or otherwise (or any
combination thereof) which in the aggregate exceed or may exceed $200,000;
(o) any material provision of the Guaranty or the Pledge Agreement
(if delivered) shall at any time for any reason have ceased to be valid and
binding on the Guarantor or shall be declared to be null and void by any court
or other Person having jurisdiction;
(p) any material provision of this Agreement or the Security
Agreement shall at any time for any reason have ceased to be valid and binding
on the Borrower or shall be declared to be null and void by any court or other
Person having jurisdiction; or
(q) the validity or enforceability of this Agreement, the Security
Agreement, the Guaranty or the Pledge Agreement (if delivered) shall be
contested by the Guarantor or any of its Subsidiaries, including the Borrower,
or the Guarantor or any of its Subsidiaries, including the Borrower, shall deny
it has any further liability or obligation thereunder.
Section 8.2. Remedies. Without limiting any other rights or remedies
of the Bank provided for elsewhere in this Agreement, the Security Agreement,
the Pledge Agreement, the Guaranty or the Revolving Note, or by applicable
law, or in equity, or otherwise, if any Event of Default shall occur and be
continuing, the Bank may by notice to the Borrower, (i) declare the
Commitment to be terminated, whereupon the same shall forthwith terminate,
(ii) declare all amounts owing under this Agreement and the Revolving Note
(whether or not such Obligations be contingent or unmatured) to be forthwith
due and payable, whereupon all such amounts shall become and be forthwith
due and payable, without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by the Borrower; provided that,
in the case of an Event of Default referred to in Section 8.1(k) above with
respect to the Borrower, the Commitment shall be immediately terminated, and
all such amounts shall be immediately due and payable without notice,
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrower.
ARTICLE 9. MISCELLANEOUS.
Section 9.1. Amendments and Waivers. No amendment or waiver of
any provision of this Agreement, the Security Agreement, or the Revolving
Note nor consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by the Bank
and the Borrower, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No failure on
the part of the Bank to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof or preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
Section 9.2. Usury. Anything herein to the contrary notwithstanding,
the Obligations of the Borrower with respect to this Agreement and the
Revolving Note shall be subject to the limitation that payments of interest
shall not be required to the extent that receipt thereof would be contrary to
provisions of law applicable to the Bank limiting rates of interest which may be
charged or collected by the Bank.
Section 9.3. Expenses; Indemnities.
(a) Unless otherwise agreed in writing, the Borrower shall reimburse
the Bank on demand for all reasonable costs, expenses and charges (including
without limitation reasonable fees and charges of its attorneys) incurred by the
Bank in connection with the preparation and negotiation of this Agreement, the
Security Agreement, the Pledge Agreement, the Guaranty, the Receivables
Purchase Agreement and the Revolving Note. The Borrower further agrees to
pay the Bank on demand for all reasonable costs, expenses and
charges(including without limitation, reasonable fees and charges of external
legal counsel for the Bank) incurred by the Bank in connection with the
performance, modification and amendment of this Agreement, the Security
Agreement, the Pledge Agreement, the Guaranty, the Receivables Purchase
Agreement and the Revolving Note. The Borrower further agrees to pay on
demand all reasonable costs and expenses (including reasonable counsel fees and
expenses), if any, in connection with the enforcement, including without
limitation the enforcement of judgments (whether through negotiations, legal
proceedings or otherwise) of this Agreement, the Security Agreement, the
Pledge Agreement, the Guaranty, the Receivables Purchase Agreement or the
Revolving Note or any other document to be delivered hereunder or thereunder.
Until paid, the amount of any cost, expense or charge shall constitute, together
with all accrued interest thereon, part of the Obligations.
(b) The Borrower hereby agrees to indemnify the Bank upon demand
at any time, against any and all losses, costs or expenses which the Bank may at
any time or from time to time sustain or incur as a consequence of (i) any
failure by the Borrower to pay, punctually on the due date thereof, any amount
payable by the Borrower to the Bank or (ii) the acceleration, in accordance with
the terms of this Agreement, of the time of payment of any of the Obligations of
the Borrower. Such losses, costs or expenses may include, without limitation,
(i) any commercially reasonable costs incurred by the Bank in carrying funds to
cover any overdue principal, overdue interest, or any other overdue sums
payable by the Borrower to the Bank or (ii) any losses incurred or sustained by
the Bank in liquidating or reemploying funds acquired by the Bank from third
parties, except to the extent caused by the Bank's gross negligence or willful
misconduct.
(c) The Borrower agrees to indemnify the Bank and its directors,
officers, employees, agents and Affiliates from, and hold each of them harmless
against, any and all losses, liabilities, claims, damages, costs or expenses
incurred by any of them arising out of or by reason of any investigation or
litigation or other proceedings (including any threatened investigation or
litigation or other proceedings) relating to any transaction contemplated by
this Agreement, the Security Agreement, the Pledge Agreement, the Guaranty or
the Receivables Purchase Agreement, any actions or omissions of the Borrower,
the Guarantor or any of its Subsidiary or any of their respective directors,
officers, employees or agents in connection with this Agreement, the Security
Agreement, the Pledge Agreement, the Guaranty or the Receivables Purchase
Agreement, or any actual or proposed use by the Borrower or any Subsidiary of
the proceeds of the Revolving Loans, including without limitation, the
reasonable fees and disbursements of counsel incurred in connection with any
such investigation or litigation or other proceedings (but excluding any such
losses, liabilities, claims, damages or expenses incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified).
(d) The Borrower agrees to indemnify the Bank and its directors,
officers, employees, agents and Affiliates from, and hold each of them harmless
against, any and all losses, liabilities, claims, damages, costs or expenses
(including without limitation, reasonable fees and disbursements of counsel,
engineers or similar professionals) which may be incurred by or asserted against
the Bank or any such party in connection with or arising out of or relating to
(i) the Bank's compliance with any environmental law with respect to the
Properties or operations of the Borrower or its Subsidiaries, (ii) any natural
resource damages, governmental fines or penalties or other amounts mandated
by any governmental authority, court order, demand or decree in connection
with the disposal by the Borrower or its Subsidiaries either on-site or off-site
(including leakage or seepage from any such site including third party treatment
facilities) of pollutants, contaminants or hazardous wastes and (iii) any
personal injury or property damage to third parties resulting from such
pollutants, contaminants or hazardous wastes.
Section 9.4. Term; Survival. This Agreement shall continue in full
force and effect as long as any Obligations are owing by the Borrower to the
Bank. No termination of this Agreement or any other Loan Document shall in
any way affect or impair the rights and obligations of the parties hereto
relating to any transactions or events prior to such termination date, and all
warranties and representations of the Borrower shall survive such termination.
All representations and warranties made hereunder and in any document,
certificate, or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement or the Revolving
Note. The obligations of the Borrower under Sections 2.11, 2.12 and 9.3 shall
survive the repayment of the Revolving Loans and the termination of the
Commitment.
Section 9.5. Assignment; Participations. This Agreement shall be
binding upon, and shall inure to the benefit of, the Borrower, the Bank and
their respective successors and assigns, except that the Borrower may not assign
or transfer its rights or obligations hereunder. Subject to the consent of the
Insurance Commissioner, if required, the Bank may (i) sell Participations in,
(ii) upon ten (10) days' notice to the Borrower may assign all, but not a part,
of any Revolving Loan to another lender, (iii) without notice to the Borrower
may assign all or any part of any Revolving Loan to any Affiliate of the Bank,
or (iv) with the prior written consent of the Borrower, which consent will not
unreasonably be withheld, may assign less than all of any Revolving Loan to
another lender, in which event (a) in the case of an assignment, the assignee
shall have, to the extent of such assignment (unless otherwise provided
therein), the same rights, benefits and obligations as it would have if it were
the Bank hereunder; and (b) in the case of a participation, the participant
shall have no rights under this Agreement or the Revolving Note. The agreement
executed by the Bank in favor of any participant shall not give such participant
the right to require the Bank to take or omit to take any action hereunder
except action directly relating to (i) the extension of a regularly scheduled
payment date with respect to any portion of the principal of or interest on any
amount outstanding hereunder allocated to such participant, (ii) the reduction
of the principal amount allocated to such participant or (iii) the reduction of
the rate of interest payable on such amount or any amount of fees payable
hereunder to a rate or amount, as the case may be, below that which the
participant is entitled to
receive under its agreement with the Bank. The Bank may furnish any
information concerning the Borrower in the possession of the Bank from time to
time to assignees and participants (including prospective assignees and
participants); provided that the Bank shall require any such prospective
assignee or such participant (prospective or otherwise) to agree
in writing to maintain the confidentiality of such information in accordance
with the provisions set forth in Section 9.14.
Section 9.6. Notices. All notices, requests, demands and other
communications provided for herein shall be in writing and shall be (i) hand
delivered; (ii) sent by certified, registered or express United States mail,
return receipt requested, or reputable next-day courier service; or (iii) given
by telex, telecopy, telegraph or similar means of electronic communication. All
such communications shall be effective upon the receipt thereof. Notices shall
be addressed to the Borrower and the Bank at their respective addresses set
forth on the signature pages of this Agreement, or to such other address as the
Borrower or the Bank shall theretofore have transmitted to the other party in
writing by any of the means specified in this Section.
Section 9.7. Setoff. The Borrower agrees that, in addition to (and
without limitation of) any right of setoff, banker's lien or counterclaim the
Bank may otherwise have, the Bank shall be entitled, at its option, to offset
balances (general or special, time or demand, provisional or final, and
regardless of whether such balances are then due to the Borrower) held by it for
the account of the Borrower at any of the Bank's offices, in Dollars or in any
other currency, against any amount payable by the Borrower under this Agreement
or the Revolving Note that is not paid when due, taking into account any
applicable grace period, in which case it shall promptly notify the Borrower
thereof; provided that the Bank's failure to give such notice shall not affect
the validity thereof.
Section 9.8. Jurisdiction; Immunities.
(a) The Borrower hereby irrevocably submits to the jurisdiction of
any Connecticut State or United States Federal court sitting in Connecticut over
any action or proceeding arising out of or relating to this Agreement, the
Security Agreement, the Pledge Agreement, the Guaranty, the Receivables
Purchase Agreement or the Revolving Note, and the Borrower hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such Connecticut State or Federal court. The
Borrower irrevocably consents to the service of any and all process in any such
action or proceeding by the mailing of copies of such process to the Borrower at
its address specified in Section 9.6. The Borrower agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law. The Borrower further waives any objection to venue in such State and any
objection to an action or proceeding in such State on the basis of forum non
conveniens. The Borrower further agrees that any action or proceeding brought
against the Bank shall be brought only in Connecticut State or United States
Federal courts sitting in Connecticut.
(b) Nothing in this Section shall affect the right of the Bank to
serve legal process in any other manner permitted by law or affect the right of
the Bank to bring any action or proceeding against the Borrower or its Property
in the courts of any other jurisdictions.
Section 9.9. Table of Contents; Headings. Any table of contents and
the headings and captions hereunder are for convenience only and shall not
affect the interpretation or construction of this Agreement.
Section 9.10. Severability. The provisions of this Agreement are
intended to be severable. If for any reason any provision of this Agreement
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
such provision shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without in any manner affecting the validity
or enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
Section 9.11. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any party hereto may execute this Agreement by signing
any such counterpart.
Section 9.12. Integration. This Agreement, the Security and the
Revolving Note set forth the entire agreement between the parties hereto
relating to the transactions contemplated hereby and thereby and supersede any
prior oral or written statements or agreements with respect to such
transactions.
Section 9.13. Governing Law. This Agreement shall be governed by,
and interpreted and construed in accordance with, the laws of the State of
Connecticut.
Section 9.14. Confidentiality. Subject to the following sentence, the
Bank (on behalf of itself and each of its Affiliates, directors, officers,
employees and representatives) and any assignee of the Bank becoming a party
to this Agreement agrees to use its best efforts, consistent with its normal
procedures for handling confidential information in accordance with safe and
sound bank practices, to retain in confidence and not disclose without the prior
written consent of the Borrower any written information about the Borrower
and its Subsidiaries obtained pursuant to the requirements of this Agreement,
except as permitted under Section 9.5 of this Agreement. Notwithstanding the
foregoing, the Bank (a) may disclose or otherwise use such information to the
extent that such information is required in any application, report,
statement or testimony submitted to any governmental agency having or
claiming to have jurisdiction over the Bank, (b) may disclose or otherwise
use such information to the extent that such information is required in
response to any summons or subpoena or in connection with any litigation
affecting the Bank, (c) may disclose or otherwise use such information to
the extent that such information is reasonably believed by the Bank (after
notification to the Borrower, unless such notification is prohibited by law)
to be required in order to comply with any law, order, regulation, or ruling
applicable to the Bank, and (d) may disclose or otherwise use such information
to the extent that such information becomes publicly available.
Section 9.15. Authorization of Third Parties to Deliver Opinions, Etc.
The Borrower hereby authorizes and directs each Person whose preparation or
delivery to the Bank of any opinion, report or other information is a condition
or covenant under this Agreement (including under Articles 5, 6 and 7) to so
prepare or deliver such opinion, report or other information for the benefit of
the Bank. The Borrower agrees to confirm such authorizations and directions
provided for in this Section 9.15 from time to time as may be requested by the
Bank.
Section 9.16. Borrower's Waivers. THE BORROWER
ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH
RESPECT
TO THIS TRANSACTION AND THIS AGREEMENT AND THAT IT MAKES THE
FOLLOWING WAIVERS
KNOWINGLY AND VOLUNTARILY:
(a) THE BORROWER IRREVOCABLY WAIVES TRIAL BY
JURY IN ANY COURT AND IN ANY SUIT, ACTION OR
PROCEEDING OR ANY MATTER ARISING IN CONNECTION
WITH OR IN ANY WAY RELATED TO THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT, THE REVOLVING
NOTE, THE SECURITY AGREEMENT OR ANY OF THE
BORROWER'S DOCUMENTS RELATED THERETO AND THE
ENFORCEMENT OF ANY OF THE BANK'S RIGHTS AND
REMEDIES; AND
(b) THE BORROWER EXPRESSLY ACKNOWLEDGES THAT
THIS AGREEMENT IS DELIVERED AS PART OF A
COMMERCIAL TRANSACTION AS SUCH TERM IS USED AND
DEFINED IN CHAPTER 903a OF THE CONNECTICUT GENERAL
STATUTES AND VOLUNTARILY AND KNOWINGLY WAIVES
ANY AND ALL RIGHTS WHICH ARE OR MAY BE CONFERRED
UPON IT UNDER CHAPTER 903a OF SAID STATUTES (OR ANY
OTHER STATUTE AFFECTING PREJUDGMENT REMEDIES) TO
ANY NOTICE OR HEARING OR PRIOR COURT ORDER OR THE
POSTING OF ANY BOND PRIOR TO ANY PREJUDGMENT
REMEDY WHICH THE BANK MAY USE.
Section 9.17. State of Making and Substantial Performance. The
parties hereto agree that this Agreement is being made and is to be
substantially performed in the State of Connecticut.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
WESTBRIDGE FUNDING CORPORATION
By: /s/ Patrick J. Mitchell
Name: Patrick J. Mitchell
Title: CFO
Address for Notices:
777 Main Street
Fort Worth, TX 76102
Attn: Chief Financial Officer
Telecopier No.: (817) 878-3880
With a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, NY 10005-1413
Attn: Jonathan R. Rod, Esq.
Telecopier No.: (212) 530-5219
FLEET NATIONAL BANK OF CONNECTICUT
By: /s/ David A. Wilkie
Name: David A. Wilkie
Title: A.V.P.
Address for Notices:
Insurance Industry Department
777 Main Street, MSN 250
Hartford, CT 06115
Attn: David Wilkie
Telecopier No.: (860) 986-1264
With a copy to:
Richard C. MacKenzie, Esq.
Day, Berry & Howard
CityPlace I
Hartford, CT 06103-3499
Telecopier No.: (860) 275-0343
SCHEDULE 1.1
COMMITMENTS AND LENDING OFFICES
Name and Address of
Bank
Commitment
Amount
Percentage of
Aggregate
Commitments
Type of Loans
Fleet National Bank of
Connecticut
777 Main Street
Hartford, CT 06115
$20,000,000
100%
Base Rate,
Eurodollar Rate
SCHEDULE 5.4
LITIGATION
NONE
SCHEDULE 5.6
LIENS
NONE
SCHEDULE 5.10
CREDIT ARRANGEMENTS
NONE
EXHIBIT A
REVOLVING NOTE
$20,000,000.00 Hartford, Connecticut
December __, 1995
WESTBRIDGE FUNDING CORPORATION (the "Borrower"), for
value received, hereby unconditionally promises to pay to the order of FLEET
NATIONAL BANK OF CONNECTICUT, a national banking association (the
"Bank") at its office located at 777 Main Street, Hartford, Connecticut 06115,
for the account of the appropriate Lending Office of the Bank, the principal sum
of TWENTY MILLION AND NO/100 Dollars ($20,000,000) or, if less, the
unpaid principal amount loaned by the Bank to the Borrower pursuant to the
Agreement referred to below, in lawful money of the United States of America
and in immediately available funds, on the date(s) and in the manner provided
in said Agreement. The Borrower also promises to pay interest on the unpaid
principal balance hereof, for the period such balance is outstanding, at said
principal office for the account of said Lending Office, in like money, at the
rates of interest, on the date(s) and in the manner provided in said Agreement;
and to pay interest on any overdue principal and interest at the Default Rate.
The date, type, amount and maturity date for each Revolving Loan made
by the Bank to the Borrower under the Agreement referred to below, and each
payment of principal thereof, shall be recorded by the Bank on its books and,
prior to any transfer of this Revolving Note (or, at the discretion of the Bank,
at any other time), endorsed by the Bank on the schedule attached hereto or any
continuation thereof or otherwise recorded and maintained in its internal
records.
This is the Revolving Note referred to in that certain Credit Agreement
(as amended from time to time, the "Agreement") dated as of December 28,
1995 between the Borrower and the Bank and evidences the Revolving Loans
made by the Bank thereunder and is secured by a Security Agreement and a
Guaranty as set forth in the Agreement, and may be secured by a Pledge
Agreement as set forth in the Agreement, and is entitled to the benefits
thereof. All terms not defined herein shall have the meanings given to them in
the Agreement.
The Agreement provides for the acceleration of the maturity of this
Revolving Note upon the occurrence of certain Events of Default and for
prepayments on the terms and conditions specified therein.
The Borrower waives presentment, notice of dishonor, protest and any
other notice or formality with respect to this Revolving Note.
No waiver of any right or remedy under this Revolving Note shall in any
event be effective unless the same shall be in writing and signed by the waiving
party, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
In accordance with the provisions of the Agreement, the Borrower shall
reimburse the Bank on demand for all reasonable costs, expenses and charges
(including without limitation, reasonable fees and charges of external legal
counsel for the Bank) incurred by the Bank in connection with the preparation,
performance or enforcement of this Revolving Note.
This Revolving Note shall be binding on the Borrower and its permitted
successors and assigns and shall inure to the benefit of the Bank and its
permitted successors and assigns, provided that the Borrower may not delegate
any obligations hereunder without the prior written consent of the Bank.
This Revolving Note shall be governed by, and interpreted and
construed in accordance with, the laws of the State of Connecticut.
THE BORROWER EXPRESSLY ACKNOWLEDGES THAT THE
REVOLVING LOANS EVIDENCED HEREBY ARE PART OF A
COMMERCIAL TRANSACTION AS SUCH TERM IS USED AND
DEFINED IN CHAPTER 903a OF THE CONNECTICUT GENERAL
STATUTES AND HEREBY VOLUNTARILY AND KNOWINGLY WAIVES
ANY AND ALL RIGHTS WHICH ARE OR MAY BE CONFERRED UPON
IT UNDER CHAPTER 903a OF SAID STATUTES (OR ANY OTHER
STATUTE AFFECTING PREJUDGMENT REMEDIES) TO ANY NOTICE
OR HEARING OR PRIOR COURT ORDER OR THE POSTING OF ANY
BOND PRIOR TO ANY PREJUDGMENT REMEDY WHICH THE BANK
MAY USE. THE BORROWER ACKNOWLEDGES THAT IT HAS BEEN
ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS
TRANSACTION AND THE REVOLVING LOANS.
IN WITNESS WHEREOF, the undersigned has caused this Revolving
Note to be duly executed as of the day and year first above written.
WESTBRIDGE FUNDING
CORPORATION
By:
Print Name:
Print Title:
Schedule to
Revolving Note
REVOLVING LOANS AND PAYMENTS
Amount and Payments Unpaid
Type of Maturity Principal/ Principal Notation
Date Loan Date Interest Balance By
____ ________ ________ _________ _______________ ________
EXHIBIT B-1
FORMS OF ELIGIBLE AGENT CONTRACT
EXHIBIT B-2
FORMS OF MASTER GENERAL AGENT CONTRACT
EXHIBIT C
Schedule of Maximum Advance Percentage
By Policy Type
Type of Policy Maximum
Advance
Percentage
MEDICAL EXPENSE
HSC, HSG, SSC, SSG, MM95, LMGMM1, AGMM1,
MSE, NFLS92 75%
MEDICARE SUPPLEMENT
NCMSA, NCMSB, NCMSD, NCMSF, NCDMA, NCMDB,
AMSSA, AMSSB, AMSSC 150%*
HOME HEALTH CARE/ LONG TERM CARE
HHCP, LTC 75%
CANCER
LSMCS, CSD-92 100%
LIFE
EZ-100, TERM70 100%
CHAMPUS SUPPLEMENT
CHMPS 75%
ACCIDENT
ACCT-C 75%
* Level Commission states only, in all other states the Maximum Advance
Percentage is 100%.
EXHIBIT D
Eligible Receivable
ELIGIBILITY CRITERIA
As of any date of determination, each Receivable that is included in the
Borrowing Base calculation as an "Eligible Receivable" shall have all of the
following characteristics:
1. has been purchased by the Borrower pursuant to the terms of the Receivables
Purchase Agreement, and is identified on a duly executed Assignment
substantially in the form of Exhibit A to the Receivables Purchase Agreement, a
copy of which Assignment shall have been delivered to the Bank;
2. has a Cut-Off Date (as defined in the Receivables Purchase Agreement)
relating to the sale of such Receivable not later than six months prior to the
Revolving Loan Termination Date;
3. has not been outstanding for more than six (6) months prior to the Cut-Off
Date (as defined in the Receivables Purchase Agreement) relating to the sale of
such Receivable, except for Receivables sold on the first Closing Date under the
Receivables Purchase Agreement, which may be outstanding for up to fifteen (15)
months prior to the applicable Cut-Off Date;
4. is evidenced by an Eligible Agent Contract (substantially in the form of
Exhibit B-1 or Exhibit B-2) properly completed and executed, a copy of which
Eligible Agent Contract (a) shall have been delivered to the Borrower
on or prior to the date such Receivable is acquired and (b) shall be the
genuine, legal, valid and binding obligation of the Eligible Agent Obligor and
Eligible Seller parties thereto, enforceable by the Borrower and its assignee in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally, at law or in equity;
5. has not been sold, transferred, assigned or pledged by the selling Eligible
Seller to any Person other than the Borrower, and the Borrower has good title to
such Receivable free and clear of any Lien other than Liens created pursuant
to the Security Agreement;
6. arises in connection only with origination of an Insurance Policy offered by
an Insurance Affiliate or Blue Cross / Blue Shield of California which:
(a) is of a type set forth on Exhibit C,
(b) has been originated in the United States of America by an Eligible
Agent Obligor in the ordinary course of such Person's business
of selling insurance as an independent insurance agent or broker,
(c) as of the Cut-Off Date (as defined in the Receivables Purchase
Agreement) relating to the sale of the related Receivable, is a valid,
binding and legally enforceable obligation of the issuing insurance
company, and such issuing insurance company had the requisite authority
and capacity to sell and issue such Insurance Policy and such Insurance
Policy does not violate any applicable law or contravene any other
agreement to which the issuing insurance company is subject, and
(d) as of (X) the Cut-Off Date (as defined in the Receivables Purchase
Agreement) relating to the sale of such Receivable and (Y) on at least
one (1) day during the ninety (90) day period immediately preceding any
date of determination, is not terminated by the insured or the
insurer and is in full force and effect in accordance with its terms
enforceable by the issuing insurance company against the insured
in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights
generally, at law or in equity; and
(e) should generate premium revenue that, if paid by the insured in
accordance with the terms of the Insurance Policy, will, in accordance
with the terms of the related Eligible Agent Contract, result in the
payment to the Eligible Agent Obligor on or prior to the Revolving Loan
Termination Date, but not later than the date that is fifteen (15)
months after the date of issuance of such Insurance Policy, of 100% of
the First-Year Commissions associated with such Insurance Policy.
7. complies at all times in all material respects with all requirements of
applicable federal, State and local laws, and regulations thereunder,
8. has not been satisfied, subordinated or rescinded, nor has the security
interest securing such Receivable been released from the Lien granted by the
related Eligible Agent Obligor in whole or in part;
9. has not been discharged under a bankruptcy proceeding and the Eligible Agent
Obligor is not in a bankruptcy or insolvency proceeding;
10. has no right of rescission, setoff, counterclaim or defense which has been
asserted or threatened with respect to such Receivable by any party to the
related Eligible Agent Contract, except any right of setoff exercisable
by an Eligible Seller party thereto against the related Eligible Agent
Obligor as contemplated by the Receivables Purchase Agreement or otherwise;
11. has not been originated in, nor is such Receivable subject to the laws of,
any jurisdiction under which the sale, transfer and assignment
of such Receivable to the Borrower or under the Security Agreement would
be unlawful, void or voidable;
12. bears interest at a minimum rate per annum of 7%, provided that at least 75%
of the aggregate outstanding Receivables shall bear interest at a minimum
rate per annum of 12%, and provided, further, that Receivables in an
aggregate amount not to exceed $2,000,000 relating to advances made
by NFL prior to November 1, 1995 in respect of insurance policies sold by
Freedom Life Insurance Company of America shall not be required to bear
interest;
13. with respect to which the First-Year Commissions advanced to the related
Eligible Agent Obligor do not exceed the Maximum Advance Percentage
(as set forth on Exhibit C) of annual premium payments required to be made
by the insured under the related Insurance Policy.
EXHIBIT E
FORM OF WCC GUARANTY
EXHIBIT F
Notice of Borrowing
, 19
Fleet National Bank of Connecticut
777 Main Street
Hartford, Connecticut 06115
Attention: Insurance Industry Department
Re: Credit Agreement dated as of December 28, 1995 (the "Agreement")
between Westbridge Funding Corporation (the "Borrower") and
Fleet National Bank of Connecticut
Ladies and Gentlemen:
Pursuant to Section 2.3 of the Agreement, the undersigned Borrower hereby
gives you irrevocable notice that the Borrower requests a Revolving Loan under
the Agreement, and in that connection Borrower sets forth below the information
relating to such Revolving Loan:
Borrowing Date:
Aggregate Principal
Amount:
Type of Loan (Base
Rate or Eurodollar
Rate):
Eurodollar
Interest Period:
As required by Section 4.2 of the Agreement, the undersigned officer on
behalf of the Borrower hereby certifies that:
(a) the representations and warranties of the Borrower contained in Article
5 of the Agreement and Section 4 of the Security Agreement are true and correct
in all material respects on and as of the date hereof (or, if such
representation or warranty is expressly stated to have been made as of
a specific date, as of such specific date);
(b) the Borrower has complied with all conditions contained in the
Agreement that are required to be complied with by the Borrower as of this date,
and the Borrower has performed in all material respects all agreements contained
in the Agreement and the Security Agreement that are required to be
performed by the Borrower;
(c) there does not exist any Default or Event of Default under the
Agreement;
(d) attached hereto is a true, complete and correct Borrowing Base
Certificate in the form of Exhibit L to the Agreement;
(e) attached hereto is a form of Assignment substantially in the form of
Exhibit A to the Receivables Purchase Agreement (including Schedule I thereto)
covering any Receivables not previously included in the Borrowing Base, which
Assignment will be duly executed and delivered to the Borrower by each Eligible
Seller, as applicable, on or prior to the Borrowing Date; and
(f) each of the other conditions precedent set forth in Section 4.2 have
been satisfied and complied with.
All capitalized terms used in this notice not otherwise defined herein shall
have the same meaning as assigned to them in the Agreement.
WESTBRIDGE FUNDING
CORPORATION
By:
Print Name:
Print Title:
EXHIBIT G
FORM OF PLEDGE AGREEMENT
EXHIBIT H
FORM OF SECURITY AGREEMENT
EXHIBIT I
LIST OF MASTER GENERAL AGENTS
Master General Agent
Eligible Seller
American Senior Security Plans, LLC
NFIC
Cornerstone National Marketing Corp.
NFIC
NFL
AIC
National Farm & Ranch Group, Inc.
NFIC
NFL
AIC
Life styles Marketing Group, Inc.
NFL
AIC
Senior Benefits, L.L.C.
NFL
AIC
HealthCare One Insurance Agency Inc.
AIC
Tim McCoy & Associates, Inc.
AIC
Freedom Life Insurance Company of America
NFL
EXHIBIT J-1
EXHIBIT J-2
EXHIBIT J-3
(Description of Opinion of Counsel to the
Guarantor regarding the Pledge Agreement)
The opinions of one or more counsel to the Guarantor, which is called
for by Section 3.2(d) of the Agreement, shall be dated the date of the Pledge
Agreement and addressed to the Bank, shall be in form and substance reasonably
satisfactory to the Bank, and shall, when taken together, be substantially to
the effect that:
1. The Guarantor has all requisite corporate power to (i) execute,
deliver and perform the Pledge Agreement, (ii) execute and deliver the
documents and certificates delivered in connection therewith, and (iii) carry
out the transactions contemplated thereby.
2. The execution, delivery and performance by the Guarantor of the
Pledge Agreement (a) has been duly authorized by all necessary corporate action
on its part, and (b) does not and will not (i) violate any provisions of
its certificate of incorporation or by-laws, (ii) violate any applicable
law, rule or regulation of the United States of America or the States
of Texas or Delaware, or any order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to and
binding upon the Guarantor or any of its Subsidiaries (including the Borrower
and each Eligible Seller) of which such counsel is aware (after due inquiry),
(iii) to such counsel's knowledge, result in a breach of, or constitute a
default or require any consent under, any loan or credit agreement or
any other agreement, mortgage, indenture, lease or instrument known to it,
after due inquiry, to which the Guarantor or any Subsidiary (including the
Borrower and each Eligible Seller) is a party or by which the Properties of
the Guarantor or any of its Subsidiaries (including the Borrower and each
Eligible Seller) is bound or affected; or (iv) to such counsel's knowledge
(after due inquiry), result in, or require, the creation or imposition of any
Lien upon any of the Properties now owned or hereafter acquired by the
Guarantor or any of its Subsidiaries (including the Borrower and each Eligible
Seller) pursuant to the terms of such agreement, mortgage, indenture , lease or
instrument, except as created by the Security Agreement or the Pledge
Agreement.
3. The Pledge Agreement has been duly executed and delivered by duly
authorized officers of the Guarantor. If the Pledge Agreement were stated to be
governed by and construed in accordance with the law of the State of New York
or the State of Texas, the Pledge Agreement would constitute the legal, valid
and binding obligation of the Guarantor, enforceable against it in accordance
with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyenace or transfer or other similar
laws relating to or affecting the rights of creditors generally and except as
the enforceability of the Pledge Agreement is subject to the application of
general principles of equity (regardless of whether considered in a proceeding
in equity or at law), including, without limitation, (a) the possible
unavailability of specific performance, injunctive relief or any other equitable
remedy and (b) concepts of materiality, reasonableness, good faith and fair
dealing.
4. No authorization, approval or consent of, and no filing or
registration with, any governmental or regulatory authority or agency of the
United States of America or the State of Texas of Delaware is required on the
part of the Guarantor for the execution, delivery or performance by the
Guarantor of, or for the incurrence by the Guarantor of any liabilities under,
the Pledge Agreement, except (i) the consents, approvals, or similar actions
described in clause (ii) of Section 5.15 of the Credit Agreement and in clause
(ii) of Section 4.13 of the Guaranty, which have been obtained and are in full
force and effect, and (ii) the consents, approvals, or similar actions, the
failure of which to obtain or perform could not reasonably be expected to have a
Materially Adverse Effect.
5. All of the issued and outstanding shares of capital stock of each
of the Insurance Subsidiaries, which are being pledged and delivered to you in
the date hereof pursuant to the Pledge Agreement, represent all of the issued
and outstanding shares of capital stock of each of the Insurance Subsidiaries.
6. If the Pledge Agreement were stated to be governed by and
construed in accordance with the law of the State of New York or the State of
Texas, of if a Connecticut court were to apply the law of the State of New York
or the State of Texas to the Pledge Agreement, the Pledge Agreement would be
effective to create, in favor of the holder of the Revolving Note, a valid
security interest under the Uniform Commercial Code in the State of New York or
the State of Texas (the "UCC") in all of the right, title and interest of the
Guarantor in, to and under the shares of capital stock of the Insurance
Subsidiaries as collateral security for the payment when due of the Obligations
(as defined in the Security Agreement), except that (a) such security interest
will continue in Collateral after its sale, exchange or other disposition and in
any "proceeds" within the meaning of Section 9-306(1) of the UCC thereof only
to the extent provided in Sections 9-306 of the UCC, and (b) such security
interest in any portion of the Collateral in which the Borrower acquires rights
after the commencement of a case under the Bankruptcy Code in respect of the
Borrower may be limited by Section 552 of the Bankruptcy Code.
7. The security interest referred to in paragraph 6 above in the
shares of capital stock of the Insurance Subsidiaries shall be created and
perfected by the holder of the Revolving Note taking possession of the
certificates representing such shares, and such security interest will remain
perfected thereafter so long as such certificates is retained by such holder
in its possession, except that it may be advisable to file duly executed
financing statements in the forms attached as Schedule A hereto in the
jurisdiction in which the Guarantor's chief executive office is located and
thereafter to file continuation statements for such financing statements within
six months prior to the expiration of five years following the date of original
filing.
The opinions expressed shall be solely for your benefit and may not be
relied upon by any other person or entity without such counsels' consent.
EXHIBIT K
OFFICER'S CERTIFICATE
WESTBRIDGE FUNDING CORPORATION
______ __, 199
Pursuant to Section 6.9(a) of the Credit Agreement dated as of December 28,
1995 (the "Credit Agreement") between Westbridge Funding Corporation (the
"Borrower") and Fleet National Bank of Connecticut (the "Bank"),
I, _______________, DO HEREBY CERTIFY on behalf of the Borrower that:
1. I am the duly elected, qualified and acting Chief Financial Officer of
the Borrower; and
2. Attached hereto as Attachment 1 is a true and correct copy of the
consolidated GAAP financial statements of the Borrower and its
Subsidiaries as of the close of the fiscal [year/quarter] ending
__________, 199_; and
3. I have reviewed the Credit Agreement and Security Agreement and the
condition and transactions of the Borrower and its Subsidiaries for
the fiscal [year/quarter] ending _____, 199_, and to the best of my
knowledge the Borrower has observed and performed all of its
covenants and other agreements, and satisfied every condition
contained in the Credit Agreement, the Security Agreement and the
Revolving Note, and I have not obtained knowledge of any condition or
event which constitutes a Default or an Event of Default, except as
set forth on Attachment 2 attached hereto;
4. Attached hereto as Attachment 3 is true and correct information (with
detailed calculations) establishing that the Borrower was in
compliance with the covenants set forth in Sections 7.10 and 7.11 of
the Credit Agreement during the fiscal [year/quarter] ending
__________ ___, 199_; and
5. Attached hereto as Attachment 4 is true and correct information (with
detailed calculations) establishing that as of the last day of each
calendar month during the fiscal [year/quarter] ending __________ ___,
199_, the Borrowing Base exceeded the aggregate principal amount of
Revolving Loans outstanding on such dates.
Except as otherwise defined herein, terms used herein shall have the meanings
set forth in the Credit Agreement, pursuant to which this certificate is
delivered.
IN WITNESS WHEREOF, I have signed this certificate as of the date hereof
on behalf of.
By:
Print Name:
Title: Chief Financial Officer
Financial Statements
for the period ending
_____________ __, 199_
Defaults and Events of Default
Note: If a Default or Event of Default has occurred and is continuing, a
statement as to the nature thereof and the action proposed to be taken by the
Borrower with respect thereto as required.
Computations and Information
Showing Compliance with
Sections 7.10 to 7.11
of the
Credit Agreement
Except as otherwise defined herein, terms used herein shall have the meanings
set forth in the Credit Agreement.
Section 7.10. Minimum Consolidated GAAP Net Worth
1. Consolidated GAAP Net Worth as of the fiscal quarter
ending ______________, 199__. = ________________
2. Consolidated positive Net Income for each fiscal quarter following the
fiscal quarter ending September 30, 1995 was:
[Include data for each quarter, as applicable]
2a. The sum of the positive Net Income for each of the quarters
set forth in Line 2 above = ________________
2b. 50% of line 2a = ________________
3. Paid-in capital resulting from any issuance by Borrower
of its capital stock = ________________
4. The sum of $1,000,000 and line 2b and line 3 = ________________
5. Line 1 is not less than line 4.
Section 7.11. Minimum Interest Coverage.
1. Consolidated GAAP EBIT of the Borrower and Subsidiaries
for the immediately preceding four fiscal quarters (ending
on [fill in ending date for fiscal quarter]) = ________________
2. Total Interest Expense of the Borrower and its Subsidiaries
for the immediately succeeding four fiscal quarters ending on
[fill in ending date for fiscal quarter] = ________________
3. The ratio of line 1 to line 2 = ___ : ___
4. The ratio in line 3 is not less than 1.10 to 1.00.
[******ADD ATTACHMENT 4<*******]
EXHIBIT L
FORM OF
BORROWING BASE CERTIFICATE
Exhibit 10.19*
GUARANTY AGREEMENT
dated as of December 28, 1995
by
WESTBRIDGE CAPITAL CORP.
in favor of
FLEET NATIONAL BANK OF CONNECTICUT
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.. . . . . . . . . .-1-
Section 1.1. General. . . . . . . . . . . . . . . . . .-1-
Section 1.2. Other Definitions. . . . . . . . . . . . .-1-
Section 1.3. Accounting Terms . . . . . . . . . . . . .-5-
Section 1.4. Rounding.. . . . . . . . . . . . . . . . .-5-
Section 1.5. Exhibits and Schedules.. . . . . . . . . .-6-
Section 1.6. References to "Guarantor and its
Subsidiaries". . . . . . . . . . . . . . .-6-
Section 1.7. Miscellaneous Terms. . . . . . . . . . . .-6-
Section 1.8. Uniform Commercial Code Definitions. . . .-6-
ARTICLE 2. THE GUARANTY.. . . . . . . . . . . . . . . . . . .-6-
Section 2.1. Guaranty of Payment and Performance of
Obligations. . . . . . . . . . . . . . . .-6-
Section 2.2. Guaranty Continuing and Liability
Unlimited. . . . . . . . . . . . . . . . .-7-
Section 2.3. Unconditional Nature of Guarantor's
Obligations and Liabilities. . . . . . . .-7-
Section 2.4. Guarantor's Waiver.. . . . . . . . . . . .-8-
ARTICLE 3. SECURITY.. . . . . . . . . . . . . . . . . . . . .-9-
Section 3.1. Pledge Agreement.. . . . . . . . . . . . .-9-
Section 3.2. Further Assurances.. . . . . . . . . . . .-9-
ARTICLE 4. REPRESENTATIONS AND WARRANTIES.. . . . . . . . . -10-
Section 4.1. Incorporation, Good Standing and Due
Qualification. . . . . . . . . . . . . . -10-
Section 4.2. Corporate Power and Authority; No
Conflicts. . . . . . . . . . . . . . . . -10-
Section 4.3. Legally Enforceable Agreements . . . . . -10-
Section 4.4. Litigation . . . . . . . . . . . . . . . -10-
Section 4.5. Financial Statements . . . . . . . . . . -11-
Section 4.6. Ownership and Liens. . . . . . . . . . . -11-
Section 4.7. Taxes. . . . . . . . . . . . . . . . . . -11-
Section 4.8. ERISA. . . . . . . . . . . . . . . . . . -12-
Section 4.9. Subsidiaries and Ownership of Stock. . . -12-
Section 4.10. Operation of Business. . . . . . . . . . -13-
Section 4.11. No Default on Outstanding Judgments or
Orders . . . . . . . . . . . . . . . . . -13-
Section 4.12. No Defaults on Other Agreements. . . . . -13-
Section 4.13. Consents and Approvals.. . . . . . . . . -13-
Section 4.14. Partnerships . . . . . . . . . . . . . . -13-
Section 4.15. Environmental Protection . . . . . . . . -14-
Section 4.16. Copyrights, Patents, Trademarks, Etc . . -14-
Section 4.17. Compliance with Laws . . . . . . . . . . -14-
Section 4.18. Events of Default. . . . . . . . . . . . -14-
Section 4.19. No Adverse Change. . . . . . . . . . . . -14-
Section 4.20. Ordinary Course Transaction. . . . . . . -15-
Section 4.21. No Other Agreements with Respect to
Receivables. . . . . . . . . . . . . . . -15-
ARTICLE 5. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . -15-
Section 5.1. Maintenance of Existence and Domicile of
Eligible Sellers . . . . . . . . . . . . -15-
Section 5.2. Conduct of Business. . . . . . . . . . . -16-
Section 5.3. Maintenance of Properties. . . . . . . . -16-
Section 5.4. Maintenance of Records . . . . . . . . . -16-
Section 5.5. Maintenance of Insurance . . . . . . . . -16-
Section 5.6. Compliance with Laws . . . . . . . . . . -16-
Section 5.7. Right of Inspection. . . . . . . . . . . -16-
Section 5.8. Reporting Requirements . . . . . . . . . -17-
(a) Annual GAAP Statements of Guarantor.. . . . . -17-
(b) Annual SAP Financial Statements . . . . . . . -17-
(c) Quarterly GAAP Statements of Guarantor. . . . -18-
(d) Quarterly SAP Statements. . . . . . . . . . . -18-
(e) Annual Convention Statements. . . . . . . . . -18-
(f) Annual/Quarterly Reports. . . . . . . . . . . -18-
(g) Management Letters. . . . . . . . . . . . . . -18-
(h) SEC Filings.. . . . . . . . . . . . . . . . . -19-
(i) Notice of Litigation. . . . . . . . . . . . . -19-
(j) Notices of Default. . . . . . . . . . . . . . -19-
(k) Other Filings.. . . . . . . . . . . . . . . . -19-
(l) Risk-based Capital Calculation. . . . . . . . -19-
(m) Additional Information. . . . . . . . . . . . -20-
Section 5.9. Certificates.. . . . . . . . . . . . . . -20-
(a) Officers' Certificate.. . . . . . . . . . . . -20-
(b) Accountant's Certificate. . . . . . . . . . . -20-
Section 5.10. Further Assurances . . . . . . . . . . . -20-
Section 5.11. Compliance with Agreements.. . . . . . . -20-
Section 5.12. Use of Proceeds. . . . . . . . . . . . . -21-
Section 5.13. Compliance with Receivables Purchase
Agreement. . . . . . . . . . . . . . . . -21-
Section 5.14. Distributions. . . . . . . . . . . . . . -21-
ARTICLE 6. NEGATIVE COVENANTS . . . . . . . . . . . . . . . -21-
Section 6.1. Mergers and Consolidations . . . . . . . -21-
Section 6.2. Stock of Subsidiaries, Etc.. . . . . . . -21-
Section 6.3. Minimum Consolidated GAAP Net Worth. . . -22-
Section 6.4. Minimum Interest Coverage. . . . . . . . -22-
Section 6.5. Investment Grade Assets. . . . . . . . . -22-
Section 6.6. Risk-Based Capital Ratio . . . . . . . . -22-
Section 6.7. Minimum A.M. Best Rating . . . . . . . . -22-
Section 6.8. Minimum Statutory Surplus of Insurance
Subsidiaries . . . . . . . . . . . . . . -22-
Section 6.9. Credit and Collection Policy . . . . . . -23-
Section 6.10. Eligible Agent Contracts . . . . . . . . -23-
ARTICLE 7. MISCELLANEOUS. . . . . . . . . . . . . . . . . . -23-
Section 7.1. Amendments and Waivers . . . . . . . . . -23-
Section 7.2. Expenses; Indemnities. . . . . . . . . . -23-
Section 7.3. Successors and Assigns . . . . . . . . . -24-
Section 7.4. Notices. . . . . . . . . . . . . . . . . -24-
Section 7.5. Setoff . . . . . . . . . . . . . . . . . -24-
Section 7.6. Jurisdiction; Immunities . . . . . . . . -24-
Section 7.7. Waiver of Rights to Subrogation and
Reimbursement. . . . . . . . . . . . . . -25-
Section 7.8. Subordination of Obligations to
Guarantor. . . . . . . . . . . . . . . . -25-
Section 7.9. Table of Contents; Headings. . . . . . . -25-
Section 7.10. Severability . . . . . . . . . . . . . . -25-
Section 7.11. Governing Law. . . . . . . . . . . . . . -25-
Section 7.12. Authorization of Third Parties to
Deliver Opinions, Etc. . . . . . . . . . -25-
Section 7.13. Guarantor's Waivers. . . . . . . . . . . -26-
Schedule 4.2 Corporate Power and Authority; No Conflicts
Schedule 4.4 Litigation
Schedule 4.9 Subsidiaries
Schedule 4.14 Partnerships
Schedule 5.3 Maintenance of Properties
Schedule 6.8 Annual Base Statutory Surplus
Exhibit A Officer's Certificate
GUARANTY AGREEMENT
This GUARANTY AGREEMENT (this "Guaranty Agreement")
dated as of December 28, 1995 is by WESTBRIDGE CAPITAL CORP.,
a Delaware corporation (the "Guarantor"), for the benefit of FLEET
NATIONAL BANK OF CONNECTICUT (the "Bank"), its successors
and assigns and any and all other "Beneficiaries" (as such term is
defined in Section 7.3 hereof).
RECITALS
A. Pursuant to the Credit Agreement dated as of December
28, 1995 (the "Credit Agreement") between Westbridge Funding
Corporation (the "Debtor") and the Bank, the Bank has agreed, on
certain terms and conditions to make one or more revolving loans to the
Debtor in an aggregate principal amount not to exceed $20,000,000 (the
"Revolving Loans").
B. The Revolving Loans are evidenced by a single
promissory note in favor of the Bank dated the date of the Credit
Agreement, in the principal amount of $20,000,000, due and payable in
accordance with the terms of the Credit Agreement.
C. The Debtor is an indirect wholly-owned subsidiary of the
Guarantor.
D. As a condition to making the Revolving Loans, the Bank
has required that the Guarantor execute and deliver this Guaranty
Agreement.
NOW, THEREFORE, the Guarantor hereby agrees, as follows:
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.
Section 1.1. General. Unless otherwise defined herein,
capitalized terms used herein which are defined in the Credit Agreement
shall have the meanings therein assigned.
Section 1.2. Other Definitions. As used in this Agreement, the
following additional terms have the following meanings (terms defined in
the singular to have a correlative meaning when used in the plural and
vice versa):
"AIC" means American Insurance Company of Texas, a Texas
corporation.
"Available Dividends" at the end of any fiscal quarter means, in
the aggregate, the portion of Statutory Surplus of each Insurance
Subsidiary that is permitted by applicable laws and regulations to be
distributed to shareholders.
"Beneficiaries" has the meaning specified in Section 7.3.
"Credit Agreement" has the meaning specified in the Recitals.
"Consolidated GAAP Net Worth" means the sum of (a) the
capital stock and additional paid-in capital of the Guarantor and its
Subsidiaries on a consolidated basis, plus (without duplication) (b) the
amount of retained earnings (or, in the case of a deficit, minus the
deficit), minus (c) treasury stock, plus or minus (d) any other account
which is customarily added or deducted in determining shareholders'
equity (excluding SFAS No. 115), all of which shall be determined on a
consolidated basis in accordance with GAAP.
"Debtor" has the meaning specified in the Recitals.
"Eligible Account" means an interest-bearing deposit account
established in the name of the Borrower with an Eligible Depository,
which account may include only cash or Eligible Investments.
"Eligible Depository" means the Bank or any other commercial
bank or trust company having capital, surplus and undivided profits
aggregating at least Five Hundred Million Dollars ($500,000,000) and
having a long term deposit or long-term C.D. rating of "BBB+" or
better by Standard and Poor's Ratings Group, a division of McGraw
Hill, Inc., or "Baa1" or better by Moody's Investor Service, Inc.
"Eligible Investments" means (a) direct obligations of the United
States of America, or of any agency thereof, or obligations guaranteed as
to principal and interest by the United States of America, or of any
agency thereof, in either case maturing not more than 90 days from the
date of acquisition thereof; (b) certificates of deposit issued by or other
overnight deposits with any bank or trust company organized under the
laws of the United States of America or any state thereof and having
capital, surplus and undivided profits of at least $500,000,000 and
having long term unsecured and unguaranteed debt rated "BBB+" or
better or "Baa1" or better by Standard & Poor's Ratings Group, a
division of McGraw Hill, Inc. or Moody's Investors Service, Inc.,
respectively, maturing not more than 90 days from the date of
acquisition thereof; (c) commercial paper rated A-1 or better or P-1 by
Standard & Poor's Ratings Group, a Division of McGraw Hill, Inc., or
Moody's Investors Service, Inc., respectively, maturing not more than
90 days from the date of acquisition thereof; (d) repurchase agreements
and reverse repurchase agreements with any bank having combined
capital and surplus in an amount of not less than $500,000,000, or any
primary dealer of United States government securities in each case,
having long term unsecured and unguaranteed debt rated "BBB+" or
better or "Baa1" or better by Standard & Poor's Ratings Group, a
division of McGraw Hill, Inc. or Moody's Investors Service, Inc.,
respectively, relating to marketable direct obligations issued or
unconditionally guaranteed or insured by the United States of America
or any agency or instrumentality thereof and backed by the full faith and
credit of the United States of America, in each case maturing within 60
days from the date of acquisition thereof; in each case so long as the
same (x) provide for the payment of principal and interest (and not
principal alone or interest alone) and (y) are not subject to any
contingency regarding the payment of principal or interest; and (e)
long-term debt rated "BBB+" or better or "Baa1" or better by Standard &
Poor's Rating Group, a division of McGraw Hill, Inc. or Moody's
Inverstors Services, Inc., respectively.
"Financing Statements" means the UCC-1 financing statements to
be signed by the Guarantor in connection with the security interest to be
granted to the Bank in the stock of NFL, NFIC and the Borrower,
pursuant to the Pledge Agreement (if and when delivered).
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time, applied on a
basis consistent with those used in the preparation of the financial
statements referred to in Section 4.5 (except for changes concurred in by
the Guarantor's independent public accountants).
"Guaranty Agreement" means this Guaranty Agreement, as
amended or supplemented from time to time. References to Articles,
Sections, Exhibits, Schedules and the like refer to the Articles, Sections,
Exhibits, Schedules and the like of this Guaranty Agreement unless
otherwise indicated.
"HCO" means Health Care-One Insurance Agency, Inc. a
California corporation.
"Insurance Commissioner" means with respect to any Insurance
Subsidiary, the head of any insurance regulatory authority and/or, if the
context so requires, such insurance regulatory authority in the relevant
place of domicile of such Insurance Subsidiary at the relevant time.
"Insurance Subsidiary" means any of AIC, NFIC and NFL.
"Interest Coverage Ratio" at the end of any fiscal quarter, means
the ratio of (a) the sum of (i) Available Dividends for the immediately
preceding four fiscal quarters, plus (ii) total cash and cash equivalents of
the Guarantor and the Insurance Subsidiaries on a consolidated basis,
minus (iii) dividends paid by each Insurance Subsidiary to the
Guarantor, plus (iv) total taxes paid by the Insurance Subsidiaries to the
Guarantor pursuant to any intercorporate tax sharing agreement, plus (v)
an amount equal to the consolidated GAAP EBIT of the Guarantor and
its Subsidiaries for the immediately preceding four fiscal quarters
(ending on such date), minus (vi) total taxes paid by the Guarantor on a
consolidated basis for the immediately preceding four fiscal quarters
(ending on such date) to (b) total Interest Expense of the Guarantor and
its Subsidiaries on a consolidated basis for the immediately succeeding
four fiscal quarters (beginning on such date). For purposes of clause (b)
above, Interest Expense shall be calculated on the assumption that a
Eurodollar Rate Loan for the full amount of the Commitment will be
outstanding for the succeeding four fiscal quarters and the A.M. Best
Rating of the Insurance Subsidiaries on the date of the certification
required by Section 6.9(a) of the Credit Agreement with respect to the
fiscal quarter being tested will remain in effect for the succeeding four
fiscal quarters.
"Interest Expense" means, with respect to any Person for any
period, the consolidated interest expense, including the interest portion
of rental payments under Capital Leases, as determined on a
consolidated basis in accordance with GAAP.
"Investment" means, with respect to any Person, any investment
by or of such Person, whether by means of purchase or other acquisition
of capital stock or other Securities of any other Person or by means of
loan, advance (other than advances to employees for moving and travel
expenses, drawing accounts and similar expenditures made in the
ordinary course of business), capital contribution or other debt or equity
participation or interest, in any other Person, including any partnership
and joint venture interests of such Person in any other Person.
"Investment Grade Securities" means any Securities having a
fixed maturity which have a rating by the NAIC of 1 or 2 or, if the
NAIC rating categories in effect on the Closing Date change, such other
rating or ratings of such Securities determined by the NAIC to be
symbolic of investment grade quality.
"Materially Adverse Effect" means any material adverse effect
upon the business, assets, liabilities, financial condition, results of
operations or, as far as the Guarantor can reasonably foresee, prospects
of the Guarantor and its Subsidiaries taken as a whole, or upon the
ability of the Debtor or the Guarantor to perform in all material respects
its obligations under this Guaranty Agreement, the Credit Agreement,
the Pledge Agreement, the Security Agreement or the Revolving Note,
as applicable, resulting from any act, omission, situation, status, event,
or undertaking, either singly or taken together.
"NAIC" means the National Association of Insurance
Commissioners or any successor thereto, or in lieu thereof, any other
association, agency or other organization performing substantially
similar advisory, coordination or other like functions among insurance
departments, insurance commissions and similar governmental
authorities of the various states of the United States of America toward
the promotion of uniformity in the practices of such governmental
authorities.
"Net Income" means, as applied to any Person for any period,
the aggregate amount of net income of such Person, after taxes, for such
period, as determined in accordance with GAAP.
"NFL" means National Foundation Life Insurance Company, a
Delaware corporation.
"NFIC" means National Financial Insurance Company, a Texas
corporation.
"Obligations" has the meaning specified in Section 2.1(b).
"Pledge Approvals" has the meaning specified in Section 3.3.
"Revolving Loans" has the meaning specified in the Recitals.
"Risk-Based Capital Ratio" of any Person means, as at any fiscal
year-end, the ratio of "Total Adjusted Capital" of such Person as at such
date to "Authorized Control Level RBC" of such Person as at such date,
as such terms are defined by the NAIC Risk-Based Capital (RBC) for
Insurers Model Act, as amended from time to time. Using the annual
SAP Financial Statements form prescribed for the year ended December
31, 1994 (the "Convention Blank"), the Risk-Based Capital Ratio as of
December 31, 1994 is equal to the quotient of (a) the amount that
appears on line 28, column (1) on page 23 of the Convention Blank
divided by (b) the amount that appears on line 27, column (1) on page
23 of the Convention Blank .
"SAP" means, for each Insurance Subsidiary, the statutory
accounting practices permitted or prescribed by the applicable Insurance
Commissioner for the preparation of annual statements and other
financial reports by insurance corporations of the same type as such
Insurance Subsidiary.
"SAP Financial Statements" means, for each Insurance
Subsidiary, the financial statements which have been submitted or are
required to be submitted to the applicable Insurance Commissioner.
"Securities" means any capital stock, share, voting trust
certificate, bonds, debentures, notes or other evidences of indebtedness,
limited partnership interests, or any warrant, option or other right to
purchase or acquire any of the foregoing.
"Statutory Net Income" with respect to any Insurance Subsidiary,
means, for any period the consolidated net income of such Insurance
Subsidiary that appears, or should appear, on the SAP Financial
Statements. On the annual SAP Financial Statements form prescribed
for the year ended December 31, 1994, the net income amount appears
on line 33, column (1) on page 4 thereof.
"Statutory Surplus" with respect to any Insurance Subsidiary,
means, for any period, the surplus that appears, or should appear, on the
SAP Financial Statements of such Insurance Subsidiary. On the annual
SAP Financial Statements form prescribed for the year ended December
31, 1994, such amount appears on line 48, column (1) on page 4
thereof.
"Total Invested Assets" means, as at any date of determination,
the aggregate value of all the Eligible Sellers' portfolio of Securities
having a fixed maturity classified as invested assets under and valued in
accordance with SAP as at such date.
Section 1.3. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP,
applied on a consistent basis, and all financial data required to be
delivered hereunder shall be prepared in accordance with GAAP, applied
on a consistent basis; except as otherwise specifically prescribed herein.
In the event that GAAP changes during the term of this Guaranty
Agreement such that the financial covenants contained in Article 6 would
then be calculated in a different manner or with different components (a)
the Guarantor and the Bank agree to enter into good faith negotiations to
amend this Guaranty Agreement in such respects as are necessary to
conform those covenants as criteria for evaluating the Guarantor's
financial condition to substantially the same criteria as were effective
prior to such change in GAAP and (b) the Guarantor shall be deemed to
be in compliance with the financial covenants contained in such Sections
during the sixty (60) days following any such change in GAAP if and to
the extent that the Guarantor would have been in compliance therewith
under GAAP as in effect immediately prior to such change; provided,
however, if an amendment shall not be agreed upon within sixty (60)
days or such longer period as shall be agreed to by the Bank, for
purposes of determining compliance with such covenants until such
amendment shall be agreed upon, such terms shall be construed in
accordance with GAAP as in effect immediately prior to such change in
GAAP.
Section 1.4. Rounding. Any financial ratios required to be
maintained by Guarantor pursuant to this Guaranty Agreement shall be
calculated by dividing the appropriate component by the other
component, carrying the result to one place more than the number of
places by which such ratio is expressed in this Guaranty Agreement and
rounding the result up or down to the nearest number (with a round-up if
there is no nearest number) to the number of places by which such ratio
is expressed in this Guaranty Agreement.
Section 1.5. Exhibits and Schedules. All Exhibits and
Schedules to this Guaranty Agreement, either as originally existing or as
the same may from time to time be supplemented, modified or amended,
are incorporated herein by this reference. A matter disclosed on any
Schedule shall be deemed disclosed on all Schedules.
Section 1.6. References to "Guarantor and its Subsidiaries".
Any reference herein to "Guarantor and its Subsidiaries" or the like shall
refer solely to Guarantor during such times, if any, as the Guarantor
shall have no Subsidiaries.
Section 1.7. Miscellaneous Terms. The term "or" is
disjunctive; the term "and" is conjunctive. The term "shall" is
mandatory, the term "may" is permissive. Masculine terms also apply
to females; feminine terms also apply to males. The term "including" is
by way of example and not limitation.
Section 1.8. Uniform Commercial Code Definitions. The non-capitalized
terms used in this Guaranty Agreement that are not otherwise
defined in the Guaranty Agreement and that are defined in Article 9 of
the Uniform Commercial Code as in effect in the State of Connecticut
are used herein as so defined.
ARTICLE 2. THE GUARANTY.
Section 2.1. Guaranty of Payment and Performance of
Obligations.
(a) The Guarantor unconditionally guarantees to each of
the Beneficiaries the full and punctual payment when due and
performance of the Obligations (as defined in subsection (b) below).
This Guaranty Agreement is an absolute, unconditional and continuing
guaranty of the full and punctual payment and performance by the
Debtor of each of the Obligations, and not of collectibility only, and is
in no way conditioned upon any requirement that any Beneficiary first
attempt to collect payment from the Debtor or any other guarantor or
surety or resort to any security or other means of obtaining payment of
all or any part of the Obligations or upon any other contingency. Upon
any default by the Debtor in the full and punctual payment or
performance of any of the Obligations, the liabilities and obligations of
the Guarantor hereunder shall at the option of any Beneficiary become
forthwith due and payable without demand or notice of any nature, all
such demands and notices being expressly waived by the Guarantor.
(b) As used herein, the term "Obligations" means any
and all indebtedness, obligations and liabilities of any kind of the Debtor
to any or all of the Beneficiaries, howsoever incurred, arising or
evidenced, whether now or hereafter existing, direct or indirect, absolute
or contingent, secured or unsecured, joint or several, due or to become
due or of payment or performance, and including without limitation the
Debtor's obligation to pay (i) all principal of, interest on and premium,
if any, with respect to all sums advanced to the Debtor under the Credit
Agreement and the Revolving Note when and as the same shall become
due and payable (whether at maturity or by declaration or otherwise),
(ii) all fees and expenses due and payable under the terms of the Credit
Agreement, and (iii) all costs and expenses (including court costs,
reasonable attorneys' fees and other legal expenses) incurred by any
Beneficiary in exercising and enforcing any of its rights, powers and
remedies under the Credit Agreement, the Security Agreement or any
other Obligation Agreement including without limitation its rights and
remedies following the Debtor's default thereunder. With respect to
Beneficiaries other than the Bank or its affiliates, the term "Obligations"
is limited to the Debtor's obligations and liabilities, whether now or
hereafter existing, arising under or in connection with any of the
Obligation Agreements (as defined below). The term "Obligation
Agreements" means the Revolving Note, the Credit Agreement, the
Security Agreement and any other agreement, document or instrument
referred to therein.
Section 2.2. Guaranty Continuing and Liability Unlimited.
(a) This is a continuing guaranty and shall be binding
upon the Guarantor regardless of (i) how long after the date hereof any
part of the Obligations is incurred by the
Debtor and (ii) the amount of the Obligations at any time outstanding
(whether more or less than the original principal amount of the
Revolving Note). This Guaranty Agreement may be enforced by any or
all of the Beneficiaries from time to time and as often as occasion for
such enforcement may arise.
(b) If after receipt of any payment of, or the proceeds of
any collateral for, all or any part of the Obligations, the Beneficiaries are
compelled to surrender or voluntarily surrender such payment or
proceeds to any person because such payment or application of proceeds
is or may be avoided, invalidated, recaptured, or set aside as a
preference, fraudulent conveyance, impermissible setoff or for any other
reason, whether or not such surrender is the result of (i) any judgment,
decree or order of any court or administrative body having jurisdiction
over the Beneficiaries, or (ii) any settlement or compromise by the
Beneficiaries of any claim as to any of the foregoing with any person
(including the Debtor), then the Obligations or part thereof affected shall
be reinstated and continue and this Guaranty Agreement shall be
reinstated and continue in full force as to such Obligations or part
thereof as if such payment or proceeds had not been received,
notwithstanding any previous cancellation of any instrument evidencing
any such Obligation or any previous instrument delivered to evidence the
satisfaction thereof. The provisions of this Section 2.2(b) shall survive
the termination of this Guaranty Agreement and any satisfaction and
discharge of the Debtor by virtue of any payment, court order or any
federal or state law.
Section 2.3. Unconditional Nature of Guarantor's Obligations
and Liabilities. The obligations and liabilities of the Guarantor
hereunder shall be absolute and unconditional, shall not be subject to any
counterclaim, set-off, deduction or defense based upon any claim the
Guarantor may have against the Debtor, any other guarantor, or any
other person or entity, and shall remain in full force and effect until all
of the Obligations have been fully satisfied, without regard to, or release
or discharge by, any event, circumstance or condition (whether or not
the Guarantor shall have knowledge or notice thereof) which but for the
provisions of this Section might constitute a legal or equitable defense or
discharge of a guarantor or surety or which might in any way limit
recourse against the Guarantor, including without limitation: (a) any
amendment or modification of, or supplement to, the terms of the Credit
Agreement, the Security Agreement, the Revolving Note or any other
Obligation Agreement; (b) any waiver, consent or indulgence by any
Beneficiary, or any exercise or non-exercise by any Beneficiary of any
right, power or remedy, under or in respect of this Guaranty Agreement,
the Credit Agreement, the Security Agreement, the Revolving Note or
any other Obligation Agreement (whether or not the Guarantor or the
Debtor has or have notice or knowledge of any such action or inaction);
(c) the invalidity or unenforceability, in whole or in part, of the Credit
Agreement, the Security Agreement, the Revolving Note or any other
Obligation Agreement, or the termination (except pursuant to its terms
or by written agreement between the Beneficiaries and the Debtor),
cancellation or frustration of any thereof, or any limitation or cessation
of the Debtor's liability under any thereof (other than any limitation or
cessation expressly provided for therein), including without limitation
any invalidity, unenforceability or impaired liability resulting from the
Debtor's lack of capacity, power and/or authority to enter into the Credit
Agreement, the Security Agreement or any other Obligation Agreement
and/or to incur any or all of the Obligations, or from the execution and
delivery of any Obligation Agreement by any person acting for the
Debtor without or in excess of authority; (d) any actual, purported or
attempted sale, assignment or other transfer by any or all of the
Beneficiaries or by the Debtor of any Obligation Agreement or of any of
its rights, interests or obligations thereunder; (e) any defect in the
Debtor's title to any item(s) of the "Collateral" (as defined in the
Security Agreement), or the failure of any such item to meet the
requirements of any law, regulation, judgment, administrative order or
decision or of any agreement between the Debtor and any other party; (f)
any actual, purported or attempted sale, assignment, transfer,
encumbrance, redelivery or other temporary or permanent disposition of
any item(s) of the Collateral, or any damage to or destruction, seizure
condemnation, theft, repossession or any other partial or total loss or
loss of use of any thereof; (g) the Debtor's failure to obtain, protect,
preserve or enforce any rights in any item(s) of the Collateral against
any party, or the invalidity or unenforceability of any such rights; (h) the
taking or holding by any or all of the Beneficiaries of a security interest,
lien or other encumbrance in or on any other property as security for
any or all of the Obligations or any exchange, release, non-perfection,
loss or alteration of, or any other dealing with, any such security; (i) the
addition of any party as a guarantor or surety of all or any part of the
Obligations, or any limitation of the liability of any additional guarantor
or surety of all or any part of the Obligations under any other
agreement; (j) any merger, amalgamation or consolidation of the Debtor
into or with any other entity, or any sale, lease, transfer or other
disposition of any or all of Debtor's assets or any sale, transfer or other
disposition of any or all of the shares of capital stock or other securities
of the Debtor to any other person or entity; (k) any change in the
financial condition of the Debtor or (as applicable) of any subsidiary,
affiliate, partner or controlling shareholder thereof, or the Debtor's entry
into an assignment for the benefit of creditors, an arrangement or any
other agreement or procedure for the restructuring of its liabilities, or
the Debtor's insolvency, bankruptcy, reorganization, dissolution,
liquidation or any similar action by or occurrence with respect to the
Debtor.
Section 2.4. Guarantor's Waiver. The Guarantor
unconditionally waives, to the fullest extent permitted by law: (a) notice
of any of the matters referred to in Section 2.3 hereof; (b) any right to
the enforcement, assertion or exercise by any or all of the Beneficiaries
of any of its rights, powers or remedies under, against or with respect to
(i) the Credit Agreement, the Security Agreement, the Revolving Note
or any other Obligation Agreement, (ii) any other guarantor or surety, or
(iii) any security for all or any part of the Obligations; (c) any
requirement of diligence and any defense based on a claim of laches; (d)
all defenses which may now or hereafter exist by virtue of any statute of
limitations, or of any stay, valuation, exemption, moratorium or similar
law, except the sole defense of full and indefeasible payment; (e) any
requirement that the Guarantor be joined as a party in any action or
proceeding against the Debtor to enforce any of the provisions of the
Credit Agreement, the Security Agreement, the Revolving Note or any
other Obligation Agreement; (f) any requirement that any Beneficiary
mitigate or attempt to mitigate damages resulting from a default by the
Guarantor hereunder or from a default by the Debtor under any of the
Obligation Agreements; (g) acceptance of this Guaranty Agreement by
any Beneficiary; and (h) all presentments, protests, notices of dishonor,
demands for performance and any and all other demands upon and
notices to the Debtor, and any and all other formalities of any kind, the
omission of or delay in performance of which might but for the
provisions of this Section constitute legal or equitable grounds for
relieving or discharging the Guarantor in whole or in part from its
irrevocable, absolute and continuing obligations hereunder, it being the
intention of the Guarantor that its obligations hereunder shall not be
discharged except by payment and performance and then only to the
extent thereof.
ARTICLE 3. SECURITY.
Section 3.1. Pledge Agreement. In order to secure payment
when due of the obligations and liabilities of the Guarantor hereunder,
subject to obtaining the Pledge Approvals, the Guarantor agrees to
deliver, or cause to be delivered, to the Bank within five (5) Business
Days after the Pledge Approvals have been obtained the following:
(a) the Pledge Agreement duly executed by the Guarantor;
(b) stock certificates representing all of the outstanding capital stock
of NFL, NFIC and the Debtor (with stock powers signed in blank);
(c) the Stock Pledge Financing Statements duly executed by the
Guarantor;
(d) favorable opinions of counsel to the Guarantor, dated as of such
Pledge Agreement, in substantially the form set forth in Exhibit J-3 to
the Credit Agreement;
Section 3.2. Further Assurances. At any time following the
delivery of the Guaranty Agreement or the Pledge Agreement to the
Bank, at the request of the Bank, the Guarantor will execute any
certificate, instrument, statement or document and will procure any such
certificate, instrument, statement or document (and pay all connected
costs) which the Bank reasonably deems necessary to preserve the
security interests of the Bank contemplated hereby.
Section 3.3. Required Consents and Approvals. The Guarantor
agrees to use reasonable efforts to obtain, as soon as practicable, all
necessary approvals and consents by the Insurance Commissioners
permitting the pledge of all of the capital stock of NFL, NFIC and the
Debtor to the Bank and the execution and delivery of the Pledge
Agreement (collectively, the "Pledge Approvals").
ARTICLE 4. REPRESENTATIONS AND WARRANTIES.
The Guarantor hereby represents and warrants the following:
Section 4.1. Incorporation, Good Standing and Due
Qualification. The Guarantor is duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of incorporation, has
the power and authority to own its assets and to transact the business in
which it is now engaged, and is duly qualified as a foreign corporation
and in good standing under the laws of each other jurisdiction in which
such qualification is required, except where the failure to be so qualified
could not reasonably be expected to have a Materially Adverse Effect.
The Guarantor has all requisite power and authority to execute and
deliver and to perform all of its obligations under this Guaranty
Agreement, the Pledge Agreement and the other writings contemplated
hereby.
Section 4.2. Corporate Power and Authority; No Conflicts. The
execution, delivery and performance by the Guarantor of this Guaranty
Agreement and the Pledge Agreement have been duly authorized by all
necessary corporate action and do not and will not (a) require any
consent or approval of its stockholders; (b) violate any provisions of its
certificate of incorporation or by-laws; (c) subject to obtaining the
Pledge Approvals and any limitations provided therein with respect to
the Pledge Agreement, violate any provision of, or require any filing,
registration, consent or approval under, any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award presently in
effect having applicability to and binding upon the Guarantor or any
Subsidiary, except the Pledge Approvals; (d) except as set forth in
Schedule 4.2, result in a breach of, or constitute a default or require any
consent under, any indenture, mortgage or loan or credit agreement or
any other material agreement, lease or instrument to which the
Guarantor or any Subsidiary is a party or by which it or its Properties
may be bound; or (e) except as contemplated hereby, result in, or
require, the creation or imposition of any Lien upon or with respect to
any of the Properties now owned or hereafter acquired by the Guarantor.
Section 4.3. Legally Enforceable Agreements.
(a) This Guaranty Agreement constitutes the legal, valid and
binding obligations of the Guarantor enforceable against the Guarantor
in accordance with its respective terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at
law).
(b) The Receivables Purchase Agreement constitutes the legal,
valid and binding obligation of each of the Eligible Sellers enforceable
against each of them in accordance with its terms, except to the extent
that such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and by general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or
at law).
Section 4.4. Litigation. Except as disclosed on Schedule 4.4,
there are no actions, suits or proceedings or investigations (other than
routine examinations performed by insurance regulatory authorities)
pending or, to the knowledge of the Guarantor, threatened against or
affecting , the Guarantor or any of its Subsidiaries, or any Property of
any of them before any court, governmental agency or arbitrator, which
if determined adversely to the Guarantor or any Subsidiary would in any
one case or in the aggregate, have a Materially Adverse Effect, other
than individual cases pending for which the amount of damages claimed
against the Guarantor or any Subsidiary is not more than $100,000.
Section 4.5. Financial Statements. The consolidated and
consolidating balance sheets of the Guarantor and its Subsidiaries as of
December 31, 1994 and December 31, 1993 and the related consolidated
and consolidating statements of operations, stockholders' equity, and
cash flows of the Guarantor and its Subsidiaries for the fiscal years then
ended, and the accompanying footnotes, together with the opinion on the
consolidated balance sheets and statements of Price Waterhouse LLP,
independent certified public accountants, and the unaudited interim
consolidated and consolidating balance sheet of the Guarantor and its
Subsidiaries as at September 30, 1995 and the related consolidated
statements of operations, stockholders' equity and cash flows for the
nine-month period then ended, copies of which have been furnished to
the Bank, fairly present the financial condition of the Guarantor and its
Subsidiaries, taken as a whole, as at such dates and the results of the
operations of the Guarantor and its Subsidiaries, taken as a whole, for
the periods covered by such statements, all in accordance with GAAP
consistently applied (subject to year-end adjustments in the case of the
interim financial statements). There are no liabilities of the Guarantor or
any Subsidiary, fixed or contingent, which are material but are not
reflected in the financial statements or in the notes thereto, other than
liabilities arising in the ordinary course of business since September 30,
1995, and other than this Guaranty Agreement, the Credit Agreement
and the Revolving Note. No written information, exhibit or report
furnished by or on behalf of the Guarantor to the Bank in connection
with the negotiation of the Credit Agreement or this Guaranty
Agreement, including a report entitled "Agent Debit Balances - October,
1995" of Westbridge Capital Corp., contained any material misstatement
of fact or omitted to state any fact necessary to make the statements
contained therein not materially misleading. All written financial
projections furnished by or on behalf of the Guarantor to the Bank in
connection with the negotiation of this Agreement, have been prepared
in good faith and on reasonable assumptions. Since September 30, 1995
no event or circumstance has occurred that could reasonably be expected
to have a Materially Adverse Effect.
Section 4.6. Ownership and Liens. Each of the Guarantor and
its Subsidiaries has good and valid title to, or valid leasehold interests
in, its material Properties, including the material Properties reflected in
the financial statements referred to in Section 4.5 (other than any
Properties disposed of in the ordinary course of business), and none of
the material Properties and assets owned by the Guarantor or its
Subsidiaries, and none of its leasehold interests is subject to any Lien,
except as disclosed in such financial statements or in Schedule 4.6 and
except Permitted Liens.
Section 4.7. Taxes. Each of the Guarantor and its Subsidiaries
has filed (or had filed on its behalf) all federal tax returns and all other
material tax returns required to be filed, has paid all due and payable
taxes, assessments and governmental charges and levies, including
interest and penalties, imposed upon it or upon its Properties, and has
made adequate provision for the payment of such taxes, assessments and
other charges accruing but not yet due and payable, except with respect
to taxes which are being contested in good faith by the Guarantor or its
Subsidiaries and for which such Person has established and maintains
adequate reserves for payment. To the best knowledge of Guarantor,
there is no tax assessment contemplated or proposed by any
governmental agency against the Guarantor or any of its Subsidiaries that
could reasonably be expected to have a Materially Adverse Effect, other
than, as of each date subsequent to the Closing Date, such contemplated
or proposed tax assessments with respect to which (i) Guarantor has
promptly notified the Bank in writing of its knowledge and (ii) the
Guarantor or the appropriate Subsidiary of the Guarantor has in good
faith commenced, or intends to commence within the time period
permitted by the applicable law or regulation, and thereafter diligently
pursued or will pursue, as the case may be, appropriate proceedings in
opposition to such assessment.
Section 4.8. ERISA. Each of the Guarantor and its
Subsidiaries is in compliance in all material respects with all applicable
provisions of ERISA. Within the three-year period prior to the date
hereof, neither a Reportable Event nor a Prohibited Transaction has
occurred with respect to any Plan; no notice of intent to terminate a Plan
has been filed nor has any Plan been terminated; no circumstance exists
which constitutes grounds under Section 4042 of ERISA entitling the
PBGC to institute proceedings to terminate, or appoint a trustee to
administer, a Plan, nor has the PBGC instituted any such proceedings;
neither the Guarantor nor any ERISA Affiliate has completely or
partially withdrawn under Sections 4201 or 4204 of ERISA from a
Multiemployer Plan; each of the Guarantor and its ERISA Affiliates has
met its minimum funding requirements under ERISA with respect to all
of its Plans and there are no Unfunded Vested Liabilities and neither the
Guarantor nor any ERISA Affiliate has incurred any material liability to
the PBGC under ERISA other than for premium payments incurred in
the normal course of operating the Plans.
Section 4.9. Subsidiaries and Ownership of Stock.
(a) Schedule 4.9 correctly sets forth the names of all
Subsidiaries of the Guarantor. All of the outstanding shares of capital
stock, or all of the units of equity interest, as the case may be, of each
Subsidiary are owned of record and beneficially by the Guarantor or a
Subsidiary of the Guarantor, except as disclosed on said Schedule; there
are no outstanding options, warrants or other rights to purchase capital
stock of any such Subsidiary; and all such shares or equity interests so
owned are duly authorized, validly issued, fully paid, non-assessable,
and were issued in compliance with all applicable state and federal
securities and other laws, and are free and clear of all Liens, except for
restrictions imposed upon the sale of stock of the Insurance Subsidiaries
by the Insurance Commissioner or other insurance regulatory authorities.
(b) Each Subsidiary of the Guarantor is a corporation or a
limited liability company duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, has the
power and authority to own its assets and to transact the business in
which it is now engaged, and is duly qualified as a foreign corporation
and in good standing under the laws of each other jurisdiction in which
such qualification is required, except where the failure to be so qualified
could not reasonably be expected to have a Materially Adverse Effect.
(c) Each Subsidiary of the Guarantor is in compliance with all
laws and other requirements applicable to its business and has obtained
all authorizations, consents, approvals, orders, licenses, and permits
from, and each Subsidiary has accomplished all filings, registrations,
and qualifications with, or obtained exemptions from any of the
foregoing from, any governmental or public agency that are necessary
for the transaction of its business, except where the failure to be in such
compliance, obtain such authorizations, consents, approvals, orders,
licenses, and permits, accomplish such filings, registrations, and
qualifications, or obtain such exemptions, could not reasonably be
expected to have a Materially Adverse Effect.
Section 4.10. Operation of Business. Each of the Guarantor and
its Subsidiaries possesses all licenses, permits and franchises, or rights
thereto, necessary to conduct its business as now conducted and as
presently proposed to be conducted, except where the absence of which
could not reasonably be expected to have a Materially Adverse Effect,
and neither the Guarantor nor any of its Subsidiaries is in violation in
any material respect of any valid rights of others with respect to any of
the foregoing.
Section 4.11. No Default on Outstanding Judgments or Orders.
Each of the Guarantor and its Subsidiaries has satisfied all material
judgments and neither the Guarantor nor any Subsidiary is in default
with respect to any judgment, writ, injunction, decree, rule or regulation
of any court, arbitrator or federal, state, municipal or other
governmental authority, commission, board, bureau, agency or
instrumentality, domestic or foreign, which could reasonably be
expected to, in any one case or in the aggregate, have a Materially
Adverse Effect.
Section 4.12. No Defaults on Other Agreements. Neither the
Guarantor nor any of its Subsidiaries is in default in any material respect
in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any agreement or instrument
material to its business to which it is a party.
Section 4.13. Consents and Approvals. No authorization,
consent, approval, order, license or permit from, or filing, registration
or qualification with, or exemption by, any governmental or public body
or authority, or any subdivision thereof, or any other Person, including
without limitation, any Insurance Commissioner, is required to
authorize, or is required in connection with the execution, delivery and
performance by the Guarantor, the Borrower or any Eligible Seller of,
or the legality, validity, binding effect or enforceability of, this Guaranty
Agreement, the Pledge Agreement, the Credit Agreement, the Security
Agreement, the Revolving Note or the Receivables Purchase Agreement,
other than Pledge Approvals required in connection with the grant and
perfection of security interests granted pursuant to the Pledge
Agreement, and except for (i) filings and recordings of Liens created
pursuant to the Security Agreement, (ii) those consents, approvals or
other similar actions that have been obtained and have not been
modified, amended, rescinded or revoked and are in full force and
effect, and (iii) consents, approvals or similar actions, the failure of
which to obtain or perform could not reasonably be expected to have a
Materially Adverse Effect. Except for the Pledge Approvals, such
consents, approvals or other similar actions have been obtained and have
not been modified, amended, rescinded or revoked, and are in full force
and effect.
Section 4.14. Partnerships. Except as set forth in Schedule
4.14, neither the Guarantor nor any of its Subsidiaries is a partner in any
partnership.
Section 4.15. Environmental Protection. Each of the Guarantor
and its Subsidiaries has obtained all material permits, licenses and other
authorizations which are required under all environmental laws,
including laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes into the environment (including without
limitation, ambient air, surface water, ground water, or land), or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or
wastes, except to the extent failure to have any such permit, license or
authorization could not reasonably be expected to have a Materially
Adverse Effect. Each of the Guarantor and its Subsidiaries is in
compliance with all terms and conditions of the required permits,
licenses and authorizations, and is also in compliance with all other
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the
environmental laws or contained in any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, except to the extent failure to
comply could not reasonably be expected to have a Materially Adverse
Effect. None of the Properties of the Guarantor or its Subsidiaries,
either owned or leased, have been included or, to the knowledge of the
Guarantor, proposed for inclusion on the National Priorities List adopted
pursuant to the Comprehensive Environmental Response Compensation
and Liability Act, as amended, or on any similar list or inventory of
sites requiring response or cleanup actions adopted by any other federal,
state or local agency.
Section 4.16. Copyrights, Patents, Trademarks, Etc. Each of
the Guarantor and its Subsidiaries is duly licensed or otherwise entitled
to use all patents, trademarks, service marks, trade names, and
copyrighted materials which are used in the operation of its business as
presently conducted, except where the failure to be so licensed or
entitled could not reasonably be expected to have a Materially Adverse
Effect. No claim is pending or, to the knowledge of the Guarantor,
threatened against the Guarantor or any of its Subsidiaries contesting the
use of any such patents, trademarks, service marks, trade names or
copyrighted materials, nor does the Guarantor know of any valid basis
for any such claims, other than claims which, if adversely determined,
could not reasonably be expected to have a Materially Adverse Effect.
Section 4.17. Compliance with Laws. Neither the Guarantor nor
any of its Subsidiaries is in violation of any laws, ordinances, rules or
regulations, applicable to it, of any federal, state or municipal
governmental authorities, instrumentalities or agencies, including
without limitation, the United States Occupational Safety and Health Act
of 1970, as amended, except where such violation would not have a
Materially Adverse Effect.
Section 4.18. Events of Default. No Default or Event of Default
has occurred and is continuing under the Credit Agreement .
Section 4.19. No Adverse Change. Since September 30, 1995,
there has occurred no event which could reasonably be expected to have
a Materially Adverse Effect.
Section 4.20. Ordinary Course Transaction.
(a) The transactions contemplated by this Guaranty Agreement
are being consummated by the Guarantor in furtherance of the
Guarantor's ordinary business purposes, with no contemplation of
insolvency and with no intent to hinder, delay or defraud any of its
present or future creditors. Neither before or as a result of the
transactions contemplated by this Guaranty Agreement will the
Guarantor be insolvent or have an unreasonably small capital for the
conduct of its business and the payment of its anticipated obligations.
The Guarantor's assets and cash flow enable it to meet its present
obligations in the ordinary course of business as they become due, and
the Guarantor does not believe that it will incur debts beyond its ability
to pay.
(b) The transactions contemplated by the Receivables Purchase
Agreement are being consummated by the Debtor and each of the
Eligible Sellers in furtherance of their ordinary business purposes, with
no contemplation of insolvency and with no intent to hinder, delay or
defraud any of its present or future creditors of the Eligible Sellers.
Neither before or as a result of the transactions contemplated by the
Receivables Purchase Agreement will any Eligible Sellers be insolvent
or have an unreasonably small capital for the conduct of its business and
the payment of its anticipated obligations. Each of the Eligible Seller's
assets and cash flow enable it to meet its present obligations in the
ordinary course of business as they become due, and the Guarantor does
not believe that any such Eligible Seller will incur debts beyond its
ability to pay.
The Guarantor shall be deemed to have made and reaffirmed each of the
foregoing representations and warranties on and as of the date of each
Borrowing under the Credit Agreement.
Section 4.21. No Other Agreements with Respect to
Receivables. Other than the Eligible Agent Contracts, neither the
Guarantor nor any Subsidiary has entered into any agreement with any
Eligible Agent Obligor relating to any Eligible Receivable or the
Assigned Commissions.
ARTICLE 5. AFFIRMATIVE COVENANTS
On and after the execution of this Guaranty Agreement, and until
performance, payment and/or satisfaction in full of Revolving Note,
amounts due under the Credit Agreement and all other Obligations, the
Guarantor covenants and agrees that it shall, and shall cause each of its
Subsidiaries to, unless the Bank otherwise consents in writing:
Section 5.1. Maintenance of Existence and Domicile of Eligible
Sellers. Preserve and maintain its corporate existence and good standing
in the jurisdiction of its incorporation, and qualify and remain qualified
as a foreign corporation in each jurisdiction in which such qualification
is required from time to time, except where failure to be so qualified
would not have a Materially Adverse Effect; and preserve and maintain
the domicile of each of its Eligible Sellers as in effect on the date hereof.
Section 5.2. Conduct of Business. Continue to engage in a
business of the same general type as conducted by it on the date of this
Guaranty Agreement.
Section 5.3. Maintenance of Properties. Except as set forth in
Schedule 5.3, maintain, keep and preserve all of its material tangible
Properties, which are necessary or useful in the conduct of its business,
in good working order and condition, ordinary wear and tear excepted,
except that the failure to maintain, preserve and protect a particular item
of Property that is not of significant value, either intrinsically or to the
operations of the Guarantor or its Subsidiaries, taken as a whole, shall
not constitute a violation of this covenant.
Section 5.4. Maintenance of Records. Keep accurate and
complete records and books of account, in which complete entries will
be made in accordance with GAAP and SAP, as applicable, reflecting all
financial transactions of the Guarantor and its Subsidiaries.
Section 5.5. Maintenance of Insurance. Maintain insurance
(subject to customary deductibles and retentions) with financially sound
and reputable insurance companies, in such amounts and with such
coverages (including without limitation public liability insurance, fire,
hazard and extended coverage insurance on all of its assets, necessary
workers' compensation insurance and all other coverages as are
consistent with industry practice) as are maintained by companies of
established reputation engaged in similar businesses and similarly
situated; provided that such insurance may be obtained from Affiliates of
the Guarantor.
Section 5.6. Compliance with Laws. Comply in all respects
with all applicable laws, rules, regulations and orders, except where the
failure to so comply would not have a Materially Adverse Effect. Such
compliance shall include, without limitation, paying all taxes,
assessments and governmental charges imposed upon it or upon its
Property (and all penalties and other costs, if any, related thereto),
unless contested in good faith by appropriate proceedings and for which
adequate reserves have been set aside.
Section 5.7. Right of Inspection. From time to time upon prior
notice and in accordance with customary standards and practices within
the banking industry (including, without limitation, upon any Event of
Default or whenever the Bank may have reasonable cause to believe that
an Event of Default has occurred and is continuing), the Guarantor shall
permit the Bank or any agent or representative thereof, to examine and
make copies and abstracts from the records and books of account of, and
visit the Properties of, the Guarantor and its Subsidiaries to discuss the
affairs, finances and accounts of the Guarantor and any such Subsidiaries
with any of their respective officers and directors and the Guarantor's
and its Subsidiaries' independent accountants, and to make such
verification concerning the Guarantor and its Subsidiaries as may be
reasonable under the circumstances, and upon request, furnish promptly
to the Bank true copies of all financial information made available to
Senior Officers of Guarantor and its Subsidiaries; provided, that the
Bank shall use reasonable efforts to not materially interfere with the
business of the Guarantor and its Subsidiaries and to treat as confidential
any and all information obtained pursuant to this Section, except to the
extent disclosure is required by any law, regulation, order, ruling,
directive, guideline or request from any central bank or other
government authority (whether or not having the force of law).
Section 5.8. Reporting Requirements. The Guarantor shall,
and shall cause each of its Insurance Subsidiaries, as applicable, to,
furnish to the Bank:
(a) Annual GAAP Statements of Guarantor. Within one
hundred twenty (120) days following the end of Guarantor's
fiscal year (or such earlier date as the Guarantor's Form 10-K is
filed with the Securities and Exchange Commission) copies of:
(i) the consolidated and consolidating balance sheets
of the Guarantor and its Subsidiaries as at the close
of such fiscal year, and
(ii) the consolidated and consolidating statements of
operations and statements of stockholders' equity
and cash flows, in each case of the Guarantor and
its Subsidiaries for such fiscal year,
in each case setting forth in comparative form the figures for the
preceding fiscal year and prepared in accordance with GAAP, all
in reasonable detail and accompanied by an opinion on the
consolidated balance sheets and statements of Price Waterhouse
LLP or other firm of independent public accountants of
recognized national standing selected by the Guarantor and
reasonably acceptable to the Bank, to the effect that the financial
statements have been prepared in accordance with GAAP (except
for changes in application in which such accountants concur) and
present fairly in all material respects in accordance with GAAP
the financial condition of the Guarantor and its Subsidiaries as of
the end of such fiscal year and the results of its operations for the
fiscal year then ended and that the examination of such
accountants in connection with such financial statements has been
made in accordance with generally accepted auditing standards
and, accordingly, included such tests of the accounting records
and such other auditing procedures as were considered necessary
under the circumstances.
(b) Annual SAP Financial Statements. As soon as available,
and in any event within one hundred fifty (150) days following
the end of the fiscal year of each Insurance Subsidiary (or such
earlier date as such are filed with the applicable insurance
regulatory authority), copies of audited SAP Financial Statements
for each such Insurance Subsidiary, in each case setting forth in
comparative form the figures for the preceding fiscal year and
prepared in accordance with SAP, all in reasonable detail and
accompanied by an opinion on the consolidated balance sheet and
statements of Price Waterhouse LLP or other firm of independent
public accountants of recognized national standing selected by the
Guarantor and reasonably acceptable to the Bank, to the effect
that the financial statements have been prepared in accordance
with SAP (except for changes in application in which such
accountants concur) and present fairly in all material respects in
accordance with SAP the financial condition of such Insurance
Subsidiary as of the end of such fiscal year and the results of its
operations for the fiscal year then ended and that the examination
of such accountants in connection with such financial statements
has been made in accordance with generally accepted auditing
standards and, accordingly, included such tests of the accounting
records and such other auditing procedures as were considered
necessary under the circumstances.
(c) Quarterly GAAP Statements of Guarantor. As soon as
available, and in any event within sixty (60) days after the end of
each quarterly fiscal period of the Guarantor (other than the
fourth fiscal quarter of any fiscal year), copies of:
(i) the consolidated and consolidating balance sheets
of the Guarantor and its Subsidiaries as at the end
of such fiscal quarter, and
(ii) the consolidated and consolidating statements of
operations and consolidated statements of
shareholders' equity and cash flows, in each case
of the Guarantor and its Subsidiaries for such
fiscal quarter and the portion of such fiscal year
ended with such fiscal quarter,
in each case setting forth in comparative form the figures for the
preceding fiscal year and prepared in accordance with GAAP all
in reasonable detail and certified as presenting fairly in
accordance with GAAP the financial condition of the Guarantor
and its Subsidiaries as of the end of such period and the results of
operations for such period by a Senior Officer of such company,
subject only to normal year-end accruals and audit adjustments
and the absence of footnotes.
(d) Quarterly SAP Statements. As soon as available, and in
any event within sixty (60) days following the end of each fiscal
quarter of each Insurance Subsidiary (or such earlier date as such
are filed with the applicable insurance regulatory authority),
copies of the unaudited SAP Financial Statements for each
quarterly fiscal period of each such Insurance Subsidiary, in
each case setting forth in comparative form the figures for the
preceding fiscal year and prepared in accordance with SAP, all in
reasonable detail and represented as presenting fairly in
accordance with SAP the financial condition of such Insurance
Subsidiary, as of the end of such period and results of operations
for such period by a Senior Officer of such Insurance Subsidiary,
subject to normal year-end accruals and audit adjustments.
(e) Annual Convention Statements. As soon as available, and
in any event by March 1 following the end of each fiscal year of
each Insurance Subsidiary (or such date as such are filed with the
applicable insurance regulatory authority), copies of the Annual
Convention Statement for such Insurance Subsidiary, in the form
prescribed by the NAIC.
(f) Annual/Quarterly Reports. Concurrently with the
delivery of the financial statements required pursuant to
subsections (c) and (d) of this Section, copies of all reports
required to be filed with the Insurance Commissioner in
connection with the filing of such financial statements.
(g) Management Letters. Promptly upon receipt thereof,
copies of any reports or management letters relating to the
internal financial controls and procedures delivered to the
Guarantor or any of its Subsidiaries by any independent certified
public accountant in connection with examination of the financial
statements of the Guarantor or any such Subsidiary.
(h) SEC Filings. Promptly after the same are available,
copies of each annual report, proxy or financial statement or
other report or communication sent to the public shareholders
generally of the Guarantor and copies of all annual, regular,
periodic and special reports and registration statements which the
Guarantor may file or be required to file with the Securities and
Exchange Commission under Sections 13 and 15(d) of the
Securities and Exchange Act of 1934.
(i) Notice of Litigation. Promptly after the commencement
thereof, notice of any action, suit and proceeding before any
court or governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, against the
Guarantor or any of its Subsidiaries (A) not arising out of an
insurance policy issued by the Guarantor or any of its
Subsidiaries, which, if determined adversely to the Guarantor or
such Subsidiary, would have a Materially Adverse Effect, (B)
arising out of an insurance policy issued by any Subsidiary of the
Guarantor, which demands relief, net of reinsurance obtained by
the Subsidiary with respect to such insurance policy, which, if
determined adversely to such Subsidiary would have a Materially
Adverse Effect, or (C) commenced by any creditor or lessor
under any written credit agreement with respect to borrowed
money or material lease which asserts a default thereunder on the
part of the Guarantor or any of its Subsidiaries.
(j) Notices of Default. As soon as practicable and in any
event within fifteen (15) days after the occurrence of each Default
or Event of Default, a written notice setting forth the details of
such Default or Event of Default and the action which is
proposed to be taken by the Guarantor or the Debtor with respect
thereto.
(k) Other Filings. Promptly upon the filing thereof and at
any time upon the reasonable request of the Bank, permit the
Bank the opportunity to review copies of all reports, including
annual reports, and notices which the Guarantor or any
Subsidiary files with or receives from the PBGC or the U.S.
Department of Labor under ERISA; and as soon as practicable
and in any event within fifteen (15) days after the Guarantor or
any of its Subsidiaries knows or has reason to know that any
Reportable Event or Prohibited Transaction has occurred with
respect to any Plan or that the PBGC or the Guarantor or any
such Subsidiary has instituted or will institute proceedings under
Title IV of ERISA to terminate any Plan, the Guarantor will
deliver to the Bank a certificate of a Senior Officer of the
Guarantor setting forth details as to such Reportable Event or
Prohibited Transaction or Plan termination and the action the
Guarantor proposes to take with respect thereto.
(l) Risk-based Capital Calculation. As soon as available, and
in any event by March 1 following the end of each fiscal year of
each Insurance Subsidiary (or such date as such are filed with the
applicable insurance regulatory authority), statements showing
the Risk-Based Capital Ratio for each of Insurance Subsidiary as
of each fiscal year-end..
(m) Additional Information. Such additional information as
the Bank may reasonably request concerning the Guarantor and
its Subsidiaries and for that purpose all pertinent books,
documents and vouchers relating to its business, affairs and
Properties, including investments as shall from time to time be
designated by the Bank.
Section 5.9. Certificates.
(a) Officers' Certificate. Simultaneously with each delivery
of financial statements pursuant to Section 5.8(a) and 5.8(c), the
Guarantor shall deliver to the Bank a certificate of its Chief
Financial Officer which will
(i) certify on behalf of the Guarantor that such officer
has reviewed the Guaranty Agreement, the Credit
Agreement, the Security Agreement and the Pledge
Agreement and the condition and transactions of the
Guarantor and its Subsidiaries for the period covered by
such financial statements, and state that to the best of his
knowledge the Guarantor and the Debtor has observed or
performed all of its covenants and other agreements, and
satisfied every condition, contained in this Guaranty
Agreement, the Credit Agreement, the Security
Agreement and the Pledge Agreement, and no Default or
Event of Default has occurred and is continuing or, if a
Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof and the
action which is proposed to be taken with respect thereto,
and
(ii) include information (with detailed calculations in
the form set out in Exhibit A) required to establish
whether the Guarantor was in compliance with the
covenants set forth in this Guaranty Agreement during the
period covered by the financial statements then being
delivered.
(b) Accountant's Certificate. Simultaneously with each
delivery of financial statements pursuant to Section 5.8(a) and
5.8(e), the Guarantor will deliver to the Bank a certificate of the
independent certified public accountants who certify such
statements, stating whether, in the course of their audit of the
financial statements, they obtained any knowledge of a condition
or event which constitutes a Default or Event of Default and the
nature thereof.
Section 5.10. Further Assurances. The Guarantor shall take all
such further actions and execute and file or record, at its own cost and
expense, all such further documents and instruments as the Bank may at
any time reasonably determine may be necessary or advisable; and shall
do, execute, acknowledge, deliver, record, file, re-file, record, register
and re-register any and all such further acts, deeds, conveyances,
estoppel certificates, transfers, certificates, assurances and other
instruments as the Bank may reasonably require from time to time in
order to carry out more effectively the purposes of this Guaranty
Agreement or the Pledge Agreement.
Section 5.11. Compliance with Agreements. Promptly and fully
comply with all contractual obligations under all agreements, mortgages,
indentures, leases and/or instruments to which any one or more of the
Guarantor and its Subsidiaries is a party, whether such agreements,
mortgages, indentures, leases or instruments are with the Bank or
another Person, except where such failure to so comply would not have
a Materially Adverse Effect.
Section 5.12. Use of Proceeds. Cause the Debtor to use
proceeds of the Revolving Loans solely to (i) acquire Eligible
Receivables, (ii) repay Revolving Loans made under the Credit
Agreement, (iii) pay to the Bank interest accrued on the Revolving
Loans made under the Credit Agreement, (iv) pay to the Bank the fees
described in Section 2.9 of the Credit Agreement, (v) pay costs,
expenses and charges described in Section 9.3(a) of the Credit
Agreement, and (vi) pay reasonable costs, expenses and charges of
outside legal counsel to the Borrower, the Guarantor and each Eligible
Seller incurred in connection with the preparation, negotiation and
regulatory approval of the this Agreement, Credit Agreement, the
Security Agreement, the Pledge Agreement, the Receivables Purchase
Agreement and the Revolving Note.
Section 5.13. Compliance with Receivables Purchase
Agreement. To the extent permitted by law, cause each Eligible Seller
to (a) upon thirty (30) days prior written request to the Debtor and the
Guarantor by the Bank, hold in trust for the Debtor, in an Eligible
Account separate from the other assets of such Eligible Seller, the
portion of all Collections (as defined in the Receivables Purchase
Agreement) which represents Assigned Commissions ("Collected
Commissions"), (b) to pay over to the Debtor the Collected
Commissions not later than one (1) month after such amounts are
received by the Eligible Seller, and (c) comply with all of the other
terms and conditions of the Receivables Purchase Agreement.
Section 5.14. Distributions. To the extent permitted by law,
cause each of its Subsidiaries and Affiliates to make such Distributions
to the Guarantor or the Debtor as may be necessary to assure timely
payment of the Obligations.
ARTICLE 6. NEGATIVE COVENANTS.
On and after the execution of this Guaranty Agreement, and until
performance, payment and/or satisfaction in full of Revolving Note,
amounts due under the Credit Agreement and all other Obligations, the
Guarantor covenants and agrees that it shall not, and shall not permit any
of its Subsidiaries to, unless the Bank otherwise consents in writing:
Section 6.1. Mergers and Consolidations. Merge or
consolidate with any Person; provided that any Subsidiary (other than
the Debtor) may merge into the Guarantor or any other Subsidiary, if
after giving effect to such transaction, (a) the Guarantor or, in the event
a Subsidiary is merging or consolidating with any Person other than the
Guarantor, such Subsidiary is the corporation which survives such
merger or acquisition, and (b) no Default or Event of Default would
exist.
Section 6.2. Stock of Subsidiaries, Etc. Pledge, assign,
hypothecate, transfer, convey, sell or otherwise dispose of, encumber or
grant any security interest in, or deliver to any other Person, any shares
of capital stock of (a) the Insurance Subsidiaries or the Borrower, or
permit any such Insurance Subsidiaries or the Borrower to issue any
additional shares of its capital stock to any Person or (b) any other
Person, any shares of capital stock of any other Subsidiary, or permit
any such Subsidiary to issue any additional shares of its capital stock to
any Person, other than the Guarantor or any Subsidiary.
Section 6.3. Minimum Consolidated GAAP Net Worth. As of
the end of any fiscal quarter, permit Consolidated GAAP Net Worth of
the Guarantor and its Subsidiaries to be less than an amount equal to the
sum (without giving effect to the increase or decrease to Consolidated
GAAP Net Worth attributable to the application of SFAS No. 115) of (a)
$36,000,000 plus (b) 50% of any cumulative positive Net Income of the
Guarantor and its Subsidiaries for each fiscal quarter following the fiscal
quarter ending September 30, 1995 plus (c) the amount of paid-in capital
resulting from any issuance by the Guarantor of its capital stock after the
date of this Guaranty Agreement.
Section 6.4. Minimum Interest Coverage. As of the end of
each fiscal quarter, permit the Interest Coverage Ratio to be less than
2.00 to 1.00.
Section 6.5. Investment Grade Assets. Permit total consolidated
Investment of the Eligible Sellers in Investment Grade Securities, as of
the end of any fiscal quarter, to be less than ninety five percent (95%) of
the aggregate amount of Total Invested Assets.
Section 6.6. Risk-Based Capital Ratio. As at any date, permit
the Risk-Based Capital Ratio of any Insurance Subsidiary to be less than
(i) as of the fiscal year ending December 31, 1995, 200% and (ii) as of
any fiscal year ending on and after December 31, 1996, 210%. In the
event of any change after the date of this Guaranty Agreement in the
NAIC Risk Based Capital (RBC) for Insurers Model Act or NAIC's
interpretations thereof affecting the calculation of the Risk-Based Capital
Ratio, (a) the Guarantor and the Bank agree to enter into good faith
negotiations to amend this Guaranty Agreement in such respects as are
necessary to conform this Section as a measurement of the sufficiency of
the risk-based capital of each Insurance Subsidiary to substantially the
same measurement as was effective prior to such change and (b) the
Guarantor shall be deemed to be in compliance with this Section during
the sixty (60) days following any such change if and to the extent that
the Guarantor would have been in compliance therewith under said Act
and interpretations as in effect immediately prior to such change,
provided, however, if an amendment shall not be agreed upon within
such sixty (60) days or such longer period as shall be agreed to by the
Bank, for purposes of determining compliance with this Section until
such amendment shall be agreed upon, compliance shall be determined
in accordance with said Act and interpretations as in effect on the date
hereof.
Section 6.7. Minimum A.M. Best Rating. Permit the A.M.
Best Rating of any Insurance Subsidiary to be less than (a) at any time,
"C++" or (b) for a period in excess of 12 consecutive months, "B-".
Section 6.8. Minimum Statutory Surplus of Insurance
Subsidiaries. As of the end of any fiscal quarter, permit the Statutory
Surplus of any Insurance Subsidiary to be less than an amount equal to
the sum of (a) the Annual Base Statutory Surplus for such Insurance
Subsidiary as specified in Schedule 6.8 for the applicable fiscal year,
plus (b) 50% of any cumulative positive Statutory Net Income for each
fiscal quarter following the fiscal quarter ending September 30, 1995,
minus (c) an amount equal to 5% of the Eligible Agent Collateral Value
as of such date.
Section 6.9. Credit and Collection Policy. Amend, modify or
waive, in any material respects, any of its credit or collection policies
with respect to any Eligible Receivables as in effect on the Closing Date.
Section 6.10. Eligible Agent Contracts. Amend, modify or
waive any provision of any Eligible Agent Contract, if such amendment,
modification or waiver could reasonably be expected to adversely affect
the likelihood of realization by the Bank of payment in full of any
Eligible Receivable under such Eligible Agent Contract, or enter into
any other agreement with any Eligible Agent Obligor, if the entering
into such other agreement could reasonably be expected to adversely
affect the likelihood of realization by the Bank of payment in full of any
Eligible Receivable under any Eligible Agent Contract.
ARTICLE 7. MISCELLANEOUS.
Section 7.1. Amendments and Waivers. No amendment or
waiver of any provision of this Guaranty Agreement or the Pledge
Agreement nor consent to any departure by the Guarantor therefrom,
shall in any event be effective unless the same shall be in writing and
signed by the Beneficiaries and the Guarantor, and then such waiver or
consent shall be effective only in the specific instance and for the
specific purpose for which given. No failure on the part of any
Beneficiary to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof or preclude any other or further
exercise thereof or the exercise of any other right.
Section 7.2. Expenses; Indemnities.
(a) Unless otherwise agreed in writing, the Guarantor shall
reimburse the Bank on demand for all reasonable costs, expenses and
charges (including without limitation reasonable fees and charges of its
attorneys) incurred by the Bank in connection with the preparation and
negotiation of this Guaranty Agreement, the Pledge Agreement, the
Credit Agreement, the Security Agreement, the Receivables Purchase
Agreement and the Revolving Note. The Guarantor further agrees to
pay on demand for all reasonable costs, expenses and charges (including
without limitation, reasonable fees and charges of external legal counsel
for the Bank) incurred in connection with the performance, modification
and amendment of this Guaranty Agreement, the Pledge Agreement, the
Security Agreement, the Receivables Purchase Agreement and the
Revolving Note. The Guarantor further agrees to pay on demand all
reasonable costs and expenses (including reasonable counsel fees and
expenses), if any, in connection with the enforcement, including without
limitation the enforcement of judgments (whether through negotiations,
legal proceedings or otherwise) of this Guaranty Agreement, the Pledge
Agreement, the Credit Agreement, the Security Agreement, the
Receivables Purchase Agreement or the Revolving Note or any other
document to be delivered under this Guaranty Agreement.
(b) The Guarantor hereby agrees to indemnify the Beneficiaries upon
demand at any time, against any and all losses, costs or expenses which
the Beneficiaries may at any time or from time to time sustain or incur
as a consequence of any failure by the Guarantor to pay, punctually on
the due date thereof, any amount payable by the Guarantor hereunder.
Such losses, costs or expenses may include, without limitation, (i) any
costs incurred by the Bank in carrying funds to cover any overdue
principal, overdue interest, or any other overdue sums payable by the
Guarantor or (ii) any losses incurred or sustained by any Beneficiary in
liquidating or reemploying funds acquired by such Beneficiary from
third parties, except to the extent caused by such Beneficiary's gross
negligence or willful misconduct.
Section 7.3. Successors and Assigns. This Guaranty
Agreement shall be binding upon the Guarantor and its successors and
assigns, and shall inure to the benefit of and be enforceable by the Bank,
its successors and assigns, and each successive holder of the Revolving
Note (collectively, the "Beneficiaries"). The Bank may furnish any
information concerning the Guarantor or its Subsidiaries in the
possession of the Bank from time to time to assignees of, and
participants in, the Revolving Note (including prospective assignees and
participants); ; provided that the Bank shall require any such prospective
assignee or such participant (prospective or otherwise) to agree in
writing to maintain the confidentiality of such information in accordance
with the provisions set forth in Section 7.3.
Section 7.4. Notices. All notices, requests, demands and other
communications provided for herein shall be in writing and shall be (i)
hand delivered; (ii) sent by certified, registered or express United States
mail, return receipt requested, or reputable next-day courier service; or
(iii) given by telex, telecopy, telegraph or similar means of electronic
communication. All such communications shall be effective upon the
receipt thereof. Notices shall be addressed to the Guarantor at the
addresses set forth on the signature pages of this Guaranty Agreement
and to the Bank at the address specified in Section 9.6 of the Credit
Agreement, or to such other address as the Guarantor or the Bank shall
theretofore have transmitted to the other party in writing by any of the
means specified in this Section.
Section 7.5. Setoff. The Guarantor agrees that, in addition to
(and without limitation of) any right of setoff, banker's lien or
counterclaim the Beneficiaries may otherwise have, the Beneficiaries
shall be entitled, at their option, to offset balances (general or special,
time or demand, provisional or final, and regardless of whether such
balances are then due to the Guarantor) held by it for the account of the
Guarantor at any of the Beneficiaries' offices, in Dollars or in any other
currency, against any amount payable by the Guarantor under this
Guaranty Agreement that is not paid when due, taking into account any
applicable grace period, in which case it shall promptly notify the
Guarantor thereof; provided that the Bank's failure to give such notice
shall not affect the validity thereof.
Section 7.6. Jurisdiction; Immunities.
(a) The Guarantor hereby irrevocably submits to the
jurisdiction of any Connecticut State or United States Federal court
sitting in Connecticut over any action or proceeding arising out of or
relating to this Guaranty Agreement, the Security Agreement, the Pledge
Agreement, the Guaranty Agreement, the Receivables Purchase
Agreement or the Revolving Note, and the Guarantor hereby
irrevocably agrees that all claims in respect of such action or proceeding
may be heard and determined in such Connecticut State or Federal court.
The Guarantor irrevocably consents to the service of any and all process
in any such action or proceeding by the mailing of copies of such
process to the Guarantor at its address specified in Section 7.4. The
Guarantor agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. The Guarantor
further waives any objection to venue in such State and any objection to
an action or proceeding in such State on the basis of forum non
conveniens. The Guarantor further agrees that any action or proceeding
brought against the Bank shall be brought only in Connecticut State or
United States Federal courts sitting in Connecticut.
(b) Nothing in this Section shall affect the right of the
Guarantor to serve legal process in any other manner permitted by law
or affect the right of the Bank to bring any action or proceeding against
the Guarantor or its Property in the courts of any other jurisdictions.
Section 7.7. Waiver of Rights to Subrogation and
Reimbursement. Until the payment and performance in full of all
Obligations and any and all obligations of Debtor to the Beneficiaries, the
Guarantor shall not exercise any rights against the Debtor arising as a
result of payment by the Guarantor hereunder, by way of subrogation or
otherwise, and will not prove any claim in competition with the
Beneficiaries or their Affiliates in respect of any payment hereunder in
bankruptcy or insolvency proceedings of any nature; the Guarantor will
not claim any set-off or counterclaim against the Debtor in respect of any
liability of the Guarantor to the Debtor and the Guarantor waives any
benefit of any right to participate in any collateral which may be held by
the Beneficiaries or any such Affiliate.
Section 7.8. Subordination of Obligations to Guarantor. Any
and all indebtedness and other obligations of the Debtor to the Guarantor
(including without limitation any such obligations resulting from any
rights of subrogation on the part of the Guarantor as a result of any
payment by the Guarantor hereunder) shall during the term of this
Guaranty Agreement be subordinated to the Obligations and to any other
indebtedness of the Debtor to any or all of the Beneficiaries.
Section 7.9. Table of Contents; Headings. Any table of
contents and the headings and captions hereunder are for convenience
only and shall not affect the interpretation or construction of this
Guaranty Agreement.
Section 7.10. Severability. The provisions of this Guaranty
Agreement are intended to be severable. If for any reason any provision
of this Guaranty Agreement shall be held invalid or unenforceable in
whole or in part in any jurisdiction, such provision shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining
provisions hereof in any jurisdiction.
Section 7.11. Governing Law. This Guaranty Agreement shall
be governed by, and interpreted and construed in accordance with, the
laws of the State of Connecticut.
Section 7.12. Authorization of Third Parties to Deliver
Opinions, Etc. The Guarantor hereby authorizes and directs each Person
whose preparation or delivery to the Bank of any opinion, report or
other information is a condition or covenant under this Guaranty
Agreement (including under Articles 3 and 5) to so prepare or deliver
such opinion, report or other information for the benefit of the
Beneficiaries. The Guarantor agrees to confirm such authorizations and
directions provided for in this Section from time to time as may be
requested by any Beneficiary.
Section 7.13. Guarantor's Waivers. THE GUARANTOR
ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL
OF ITS CHOICE WITH RESPECT TO THIS GUARANTY
AGREEMENT AND THAT IT MAKES THE FOLLOWING
WAIVERS KNOWINGLY AND VOLUNTARILY:
(a) THE GUARANTOR IRREVOCABLY WAIVES TRIAL
BY JURY IN ANY COURT AND IN ANY SUIT, ACTION OR
PROCEEDING OR ANY MATTER ARISING IN
CONNECTION WITH OR IN ANY WAY RELATED TO THE
TRANSACTIONS CONTEMPLATED BY THIS GUARANTY
AGREEMENT, THE PLEDGE AGREEMENT, THE CREDIT
AGREEMENT, THE SECURITY AGREEMENT, THE
REVOLVING NOTE OR ANY DOCUMENTS RELATED
THERETO AND THE ENFORCEMENT OF ANY OF THE
BENEFICIARIES' RIGHTS AND REMEDIES; AND
(b) THE GUARANTOR EXPRESSLY ACKNOWLEDGES
THAT THE OBLIGATIONS GUARANTEED HEREBY ARE
PART OF A COMMERCIAL TRANSACTION AS SUCH
TERM IS USED AND DEFINED IN CHAPTER 903a OF THE
CONNECTICUT GENERAL STATUTES AND
VOLUNTARILY AND KNOWINGLY WAIVES ANY AND
ALL RIGHTS WHICH ARE OR MAY BE CONFERRED
UPON IT UNDER CHAPTER 903a OF SAID STATUTES (OR
ANY OTHER STATUTE AFFECTING PREJUDGMENT
REMEDIES) TO ANY NOTICE OR HEARING OR PRIOR
COURT ORDER OR THE POSTING OF ANY BOND PRIOR
TO ANY PREJUDGMENT REMEDY WHICH ANY
BENEFICIARY MAY USE.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the Guarantor has caused this
Guaranty Agreement to be duly executed on its behalf by an officer or
other person thereunto duly authorized on the day and year first above
written.
WESTBRIDGE CAPITAL CORP.
By: /s/ Patrick J. Mitchell
Name: Patrick J. Mitchell
Title: CFO
Address for Notices:
777 Main Street
Fort Worth, Texas 76102
Attn: Chief Financial Officer
Telecopier No.: (817) 878-3880
With a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, NY 10005-1413
Attn: Jonathan R. Rod, Esq.
Telecopier No.: (212) 530-5219
SCHEDULE 4.2
CORPORATE POWER AND AUTHORITY; NO CONFLICTS
NONE
SCHEDULE 4.4
LITIGATION
[See attached.]
SCHEDULE 4.9
Subsidiaries
[See attached]
SCHEDULE 4.14
PARTNERSHIPS
NONE
SCHEDULE 5.3
EXCEPTIONS TO MAINTENANCE OF PROPERTIES
NONE
SCHEDULE 6.8
ANNUAL BASE STATUTORY SURPLUS
Insurance Subsidiary 1995 1996 1997 1998
NFL $14.0MM $14.0MM $14.0MM $14.0MM
NFIC $ 8.0MM $ 4.0MM $ 3.0MM $ 4.0MM
AIC $ 6.5MM $ 6.5MM $ 6.5MM $ 6.5MM
EXHIBIT A
OFFICER'S CERTIFICATE
WESTBRIDGE CAPITAL CORP.
______ __, 199
Pursuant to Section 5.9(a) of the Guaranty Agreement dated December
28, 1995 (the "Guaranty Agreement") by Westbridge Capital Corp. (the
"Guarantor") in favor of Fleet National Bank of Connecticut (the "Bank") and
its successors and assigns,
I, _______________, DO HEREBY CERTIFY on behalf of the Guarantor that:
1. I am the duly elected, qualified and acting Chief Financial
Officer of the Guarantor; and
2. Attached hereto as Attachment 1 is a true and correct copy of
the consolidated and consolidating GAAP financial statements
of the Guarantor and its Subsidiaries as of the close of the fiscal
[year/quarter] ending __________, 199_; and
3. Attached hereto as Attachment 2 is a true and correct copy of
the SAO Financial Statements of the NFL, NFIC and AIC as of
the close of the fiscal [year/quarter] ending __________,
199_; and
4 I have reviewed the Guaranty Agreement and Credit
Agreement and the condition and transactions of the Guarantor
and its Subsidiaries for the fiscal [year/quarter] ending _____,
199_, and to the best of my knowledge each of the Guarantor
and the Debtor have observed and performed all of its
covenants and other agreements, and satisfied every condition
contained in the Guaranty Agreement, the Credit Agreement
and the Revolving Note, and I have not obtained knowledge of
any condition or event which constitutes a Default or an Event
of Default, except as set forth on Attachment 3 attached hereto;
and
5 Attached hereto as Attachment 4 is true and correct information
(with detailed calculations) establishing that the Guarantor was
in compliance with the covenants set forth in the Credit
Agreement during the fiscal [year/quarter] ending __________
___, 199_; and
6 Attached hereto as Attachment 5 is true and correct information
(with detailed calculations) establishing the Risk-Based Capital
calculations for NFL, NFIC and AIC as of the fiscal year
ending __________ ___, 199_; and
Except as otherwise defined herein, terms used herein shall have the meanings
set forth in the Guaranty Agreement, pursuant to which this certificate is
delivered.
IN WITNESS WHEREOF, I have signed this certificate as of the date
hereof on behalf of .
By:
Print Name:
Title: Chief Financial
Officer
GAAP Financial Statements
for the period ending
_____________ __, 199_
SAP Financial Statements
for the period ending
_____________ __, 199_
Defaults and Events of Default
Note: If a Default or Event of Default has occurred and is continuing, a
statement as to the nature thereof and the action proposed to be taken
by the Guarantor or the Debtor with respect thereto as required.
Risk-Based Capital Calculations
for the period ending
_____________ __, 199_
Computations and Information
Showing Compliance with
Sections 6.3 to 6.8
of the
Guaranty Agreement
Except as otherwise defined herein, terms used herein shall have the meanings
set forth in the Guaranty Agreement.
Section 6.3. Minimum Consolidated GAAP Net Worth
1. Consolidated GAAP Net Worth as of the Guarantor
the fiscal quarter ending ______________, 199__. = ________________
2. Consolidated positive Net Income of the
Guarantor for each fiscal quarter following
the fiscal quarter ending September 30, 1995 was:
[Include data for each quarter, as applicable]
2a. The sum of the positive Net Income for each of
the quarters set forth in Line 2 above = ________________
2b. 50% of line 2a = ________________
3. Paid-in capital resulting from any issuance by
Guarantor of its capital stock = ________________
4. The sum of $36,000,000 and line 2b and line 3 = ________________
5. Line 1 is not less than line 4.
Section 6.4. Minimum Interest Coverage.
1. Available Dividends for the immediately
preceding four fiscal quarters ending on
[fill in ending date for fiscal quarter] = ________________
2. Total cash and cash equivalents of the Guarantor
and the Insurance Subsidiaries = ________________
3. Dividends paid to the Guarantor by each
Insurance Subsidiary for the immediately
preceding four quarters ending on [fill in
ending date for fiscal quarter] = ________________
4. Total taxes paid by the Insurance Subsidiaries
to the Guarantor pursuant to any intercorporate
tax sharing agreement for the fiscal quarters
(ending on [fill in ending date for fiscal quarter]) = ________________
5. Consolidated GAAP EBIT of the Guarantor and Subsidiaries
for the immediately preceding four fiscal quarters (ending
on [fill in ending date for fiscal quarter]) = ________________
6. The sum of lines 1, 2, 4 and line 5, less line 3 = ________________
7. Interest Expense for the immediately succeeding
four fiscal quarters = ________________
8. The ratio of line 6 to line 7 = ___ : ___
7. The ratio in line 5 is not less than 2.0 to 1.0.
Section 6.5. Investment Grade Assets.
1. Total consolidated Investment of the Insurance
Subsidiaries and HCO in Investment Grade Securities: =________________
2. Total Invested Assets: =________________
3. The ratio of line 1 to line 2: = ___ : ___
4. The ratio in line 3 is at least .95 to 1.00.
Section 6.6. Risk-Based Capital Ratio.
NFL NFIC AIC
___________|____________|__________
1. Adjusted Capital and Surplus as of the
fiscal [quarter/year] ending [_____,], 199_:
___________|____________|__________
2. Authorized Control Level RBC as of the
fiscal year ending [_____,], 199_:
___________|____________|__________
3. The ratio of line 1 to line 2.
___________|____________|__________
4. The ratio in line 3 is at
least 2.0 to 1.0.
___________|____________|__________
Section 6.7. Minimum Credit Ratings.
NFL NFIC AIC
___________|____________|__________
1. The A.M. Best Rating for each Insurance
Subsidiary:
___________|____________|__________
2. The effective date for each of the
above ratings is:
___________|____________|__________
3. The Ratings in line 1 are not less
than "C++", and if any is less than
"B-", such rating has not been in effect
for more than 12 consecutive months.
___________|____________|__________
Section 6.8. Minimum Statutory Surplus of Insurance Subsidiaries
NFL NFIC AIC
__________|____________|__________
1. Positive Statutory Capital and Surplus
of Insurance Subsidiary as of the fiscal
quarter ending ____ __, 199__ __________ ____________ __________
2. Positive Statutory Net Income for each
fiscal quarter following the fiscal quarter
ending September 30, 1995 was: __________ ____________ __________
[Include data for each quarter, as applicable]
2a. The sum of positive Statutory Net Income
for each of the quarters set forth in
Line 2 above __________ ____________ __________
2b. 50% of line 2a __________ ____________ __________
3. Contributions to surplus made by Debtor
to the Insurance Subsidiaries during each
fiscal quarter following the fiscal quarter
ending September 30, 1995 were: __________ ____________ __________
[Include data for each quarter, as applicable]
3a. The sum of the contributions to surplus
for each of the quarters __________ ____________ __________
4. Applicable Annual Base Statutory Surplus
from Schedule 6.8 __________ ____________ __________
5. The sum of line 2b, line 3a and line 4 __________ ____________ __________
6. Line 1 is not less than line 5. __________ ____________ __________
Exhibit 10.20*
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of December 28, 1995,
made by Westbridge Funding Corporation (the "Debtor"),
a Delaware corporation, for the benefit of Fleet
National Bank of Connecticut (the "Secured Party"), a
national banking association, and its successors and
assigns.
PRELIMINARY STATEMENT. The Secured Party has
entered into a Credit Agreement dated as of December
28, 1995 (the "Credit Agreement") with the Debtor.
Capitalized terms defined in the Credit Agreement and
not otherwise defined herein are used herein as defined
in the Credit Agreement.
NOW, THEREFORE, in consideration of the premises
and in order to induce the Secured Party to extend the
financing contemplated by the Credit Agreement, the
Debtor hereby agree as follows:
Section 1. Grant of Security. The Debtor hereby
assigns and pledges to the Secured Party and hereby
grants to the Secured Party a continuing security
interest in, all of the Debtor's right, title and
interest in and to the following assets (the
"Collateral"):
(a) all Agent Receivables (as hereinafter defined)
now owned or hereafter acquired by the Debtor
wherever located,
(b) the Assigned Commissions now or hereafter
existing, and all of Debtor's rights in, to and
under all other collateral security therefor and
all guarantees thereof,
(c) amounts deposited from time to time by any
Eligible Seller in any deposit account maintained
by such Eligible Seller in the name of the Debtor
pursuant to the terms of the Receivables Purchase
Agreement,
(d) all other accounts, contract rights, chattel
paper, instruments, general intangibles and other
obligations of any kind now or hereafter acquired
by the Debtor pursuant to the terms of the
Receivables Purchase Agreement,
(e) all rights now or hereafter existing in and
to all security agreements, and other contracts
securing or otherwise relating to any property
described in clauses (a), (b), (c) and (d) above,
(f) the Receivables Purchase Agreement,
(g) all moneys and property of any kind, now or
at any time or times hereafter, in the possession
or under the control of the Secured Party, any
bank or a bailee of Secured Party or any bank, or
otherwise;
(h) all accessions, to, substitutions for and all
replacements, products and proceeds of the
property described in clauses (a), (b), (c), (d),
(e), (f) and (g) above, including without
limitation, proceeds or insurance policies
insuring the Collateral; and
(i) all books and records (including, without
limitation, computer programs, printouts, and
other computer materials and records) of the
Debtor pertaining to any of the property described
in clauses (a), (b), (c), (d), (e), (f), (g) and
(h) above.
Anything in the foregoing description of
Collateral to the contrary notwithstanding, the
Collateral shall not include any contract right the
assignment of which, for collateral purposes, would
require or cause a forfeiture of rights thereunder.
"Agent Obligor" means an agent of an Eligible
Seller, including without limitation a general agent of
an Eligible Seller and any other agent with whom said
general agent has contracted, to whom such Eligible
Seller has advanced First-year Commissions.
"Agent Receivable" means the obligation of an
Agent Obligor to repay the principal amount of, and
interest and other finance charges on, advances made by
an Eligible Seller to such Agent Obligor with respect
to First-year Commissions.
Section 2. Security for Obligations. This
Agreement secures the payment and performance of all
indebtedness, liabilities and obligations of any kind
of the Debtor to the Secured Party, (whether directly
as principal or maker or indirectly as guarantor,
surety, endorser or otherwise), now or hereafter
existing, due or to become due, howsoever incurred,
arising or evidenced, whether of principal or interest
or payment or performance, and all obligations of the
Debtor now or hereafter existing under this Agreement
(all such obligations of the Debtor being collectively
referred to as the "Obligations").
Section 3. Debtor Remain Liable. Anything herein
to the contrary notwithstanding, (a) the Debtor shall
remain liable under the contracts and agreements
included in the Collateral to the extent set forth
therein to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had
not been executed, (b) the exercise by the Secured
Party of any of the rights hereunder shall not release
the Debtor from any of its duties or obligations under
the contracts and agreements included in the
Collateral, and (c) the Secured Party shall not have
any obligation or liability under the contracts and
agreements included in the Collateral by reason of this
Agreement, nor shall the Secured Party be obligated to
perform any of the obligations or duties of the Debtor
thereunder or to take any action to collect or enforce
any claim for payment assigned hereunder.
Section 4. Representations and Warranties. The
Debtor represents and warrants as follows:
(a) The chief places of business and chief
executive offices of the Debtor and the offices where
the Debtor keeps its records concerning the Agent
Receivables, the Assigned Commissions, and all
originals of all documents which evidence the Agent
Receivables, is at 777 Main Street, Fort Worth, Texas
76102. There is no chattel paper which evidences Agent
Receivables. No Agent Receivables are evidenced by a
promissory note or other instrument;
(b) Except as acknowledged or authorized by
the Credit Agreement and except for the security
interest created by this Agreement, the Debtor owns the
Collateral free and clear of any lien, security
interest, charge or encumbrance. No effective
financing statement or other instrument similar in
effect covering all or any part of the Debtor's right,
title or interest in the Collateral is on file in any
recording office, except such as may have been filed in
favor of the Secured Party relating to this Agreement.
The Debtor has no trade names and has not had or
operated under any other name during the last 5 years,
except that prior to November 15, 1995 it was formerly
known as "National Legal Services Company, Inc.";
(c) Except as acknowledged or authorized by
the Credit Agreement, this Agreement creates a valid
first priority security interest in the Collateral,
securing the payment of the Obligations, and all
filings and other actions necessary or desirable to
perfect and protect such security interest have been or
will be duly taken; and
(d) No authorization, approval or other
action by, and no notice to or filing with, any
governmental authority or regulatory body is required
either (i) for the grant by the Debtor of the security
interests granted hereby or for the execution, delivery
or performance of this Agreement by the Debtor or (ii)
for the perfection of or the exercise by the Secured
Party of its rights and remedies hereunder, except UCC
financing statements on Form UCC-l which have been
previously made or are being made in connection with
this Agreement.
Section 5. Further Assurances. (a) The Debtor
agrees from time to time, at its own expense, to
promptly execute and deliver all further instruments
and documents, and take all further action, that may be
reasonably necessary or desirable or that the Secured
Party may request, in order to perfect and protect any
security interest granted or purported to be granted
hereby or to enable the Secured Party to exercise and
enforce its rights and remedies hereunder with respect
to any Collateral. Without limiting the generality of
the foregoing, the Debtor will: (i) if any Agent
Receivable shall be evidenced by a promissory note or
other instrument, deliver to the Secured Party and
conditionally pledge to the Secured Party hereunder
such note or instrument and accompanied by duly
executed instruments of conditional transfer or
assignment, all in form and substance satisfactory to
the Secured Party, and (ii) execute and file such
financing, or continuation statements, or amendments
thereto, and such other instruments or notices, as may
be necessary or desirable as the Secured Party may
request, in order to perfect and preserve the security
interests granted or purported to be granted hereby.
(b) The Debtor hereby authorizes the Secured
Party to file one or more financing or continuation
statements and amendments thereto, relative to all or
any part of the Collateral without the signature of the
Debtor where permitted by law.
(c) The Debtor will furnish to the Secured
Party from time to time statements and schedules
further identifying and describing the Collateral and
such other reports in connection with the Collateral as
the Secured Party may reasonably request, all in
reasonable detail.
Section 6. Transfers and Other Liens. Except as
otherwise provided in the Credit Agreement, the Debtor
shall not:
(a) Sell, transfer (by operation of law or
otherwise) or otherwise dispose of any of the
Collateral; or
(b) Create or suffer to exist any lien,
security interest or other charge or encumbrance upon
or with respect to any of the Collateral to secure Debt
of any person or entity, except for the security
interest created by this Agreement or authorized
pursuant to the Credit Agreement.
Section 7. Other Covenants.
(a) Without the prior written consent of
the Secured Party, the Debtor will not change the
location of its chief executive office, its principal
place of business, or the Collateral or any part
thereof; provided, however, that Debtor may, upon not
less than thirty days' prior written notice to the
Secured Party, relocate its chief executive offices to
any location in Texas or to any other jurisdiction in
the United States in which the Uniform Commercial Code,
as from time to time amended or revised, is then in
effect (Texas and each such other jurisdiction being
hereinafter called a "Permitted Jurisdiction");
(b) The Debtor will, with respect to each
and every relocation of Debtor's chief executive
offices or any item(s) of the Collateral, take such
action, at Secured Party's request and direction and at
Debtor's expense as provided in Section 5 hereof (and
including without limitation the preparation and filing
where appropriate of new or amended financing
statements), as may then be necessary or desirable to
ensure the uninterrupted continuation of the Secured
Party's security interest in all of the Collateral with
the same priority as it had prior to any such
relocation.
(c) In addition to any other notices
required pursuant to this Agreement or the Credit
Agreement, the Debtor will promptly advise the Secured
Party in reasonable detail (i) of the assertion or
imposition of any claim, lien, security interest or
other encumbrance against any or all of the Collateral;
(ii) of any material adverse change in the composition
of the Collateral; (iii) concerning the commencement of
or any material development in any investigation of the
Debtor, or any administrative or judicial proceeding
against Debtor, by any governmental authority if such
investigation or proceeding may result in the
imposition of any Lien against the Collateral or any
part thereof (whether or not any such Lien has then
been claimed or asserted); and (iv) concerning any
other event reasonably likely to have a material
adverse effect on the aggregate value of the Collateral
and/or on the perfection and/or priority of the Secured
Party's security interest therein.
Section 8. Secured Party Appointed Attorney-in-Fact.
The Debtor hereby irrevocably appoints the
Secured Party the Debtor's attorney-in-fact, with full
authority in the place and stead of the Debtor and in
the name of the Debtor, the Secured Party or otherwise,
from time to time in the Secured Party's discretion, to
take any action and to execute any instrument which the
Secured Party may deem necessary or advisable to
accomplish the purposes of this Agreement, including,
without limitation:
(i) to ask, demand, collect, sue for,
recover, compound, receive and give acquittance
and receipts for moneys due and to become due
under or in respect of any of the Collateral;
(ii) to receive, endorse, and collect
any drafts or other instruments, documents and
chattel paper, in connection with Section 5(a) of
this Agreement; and
(iii) to file any claims or take any
action or institute any proceedings which the
Secured Party may deem necessary or desirable for
the collection of any of the Collateral or
otherwise to enforce the rights of the Secured
Party with respect to any of the Collateral.
So long as no Event of Default has occurred, the
Secured Party agrees to give the Debtor five business
days prior notice of its intention to exercise the
power of attorney granted hereby.
Section 9. Secured Party May Perform. If the
Debtor fails to perform any agreement contained herein,
the Secured Party may upon notice to the Debtor, itself
perform, or cause performance of, such agreement, and
the expenses of the Secured Party incurred in
connection therewith shall be payable by the Debtor
pursuant to Section 12(b) herein.
Section 10. The Secured Party's Duties. The
powers conferred on the Secured Party hereunder are
solely to protect its interest in the Collateral and
shall not impose any duty upon the Secured Party to
exercise any such powers. Except for the safe custody
of any Collateral in its possession and the accounting
for moneys actually received by it hereunder, the
Secured Party shall have no duty as to any Collateral
or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights
pertaining to any Collateral.
Section 11. Remedies. If any Event of Default
shall have occurred and be continuing:
(a) The Secured Party may exercise in
respect of the Collateral, in addition to other rights
and remedies provided for herein or otherwise
available, all the rights and remedies of a secured
party on default under the Uniform Commercial Code (the
"Code") (whether or not the Code applies to the
affected Collateral) and also may (i) require the
Debtor to, and the Debtor hereby agrees that it will at
its expense and upon request of the Secured Party
forthwith, assemble all or part of the Collateral as
directed by the Secured Party and make it available to
the Secured Party at a place to be designated by the
Secured Party which is reasonably convenient to both
parties and (ii) without notice except as specified
below, sell the Collateral or any part thereof in one
or more parcels at public or private sale, at any of
the Secured Party's offices or elsewhere, for cash, on
credit or for future delivery, and upon such other
terms as the Secured Party may deem commercially
reasonable. The Debtor agrees that, to the extent
notice of sale shall be required by law, at least ten
days' notice to the Debtor of the time and place of any
public sale or the time after which any private sale is
to be made shall constitute reasonable notification.
The Secured Party shall not be obligated to make any
sale of Collateral regardless of notice of sale having
been given. The Secured Party may adjourn any public
or private sale from time to time by announcement at
the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place
to which it was so adjourned.
(b) All cash proceeds received by the
Secured Party in respect of any sale of, collection
from, or other realization upon all or any part of the
Collateral may, in the discretion of the Secured Party,
be held by the Secured Party as collateral for, and/or
then or at any time thereafter applied (after payment
of any amounts payable to the Secured Party pursuant to
Section 12) in whole or in part by the Secured Party
against, all or any part of the Obligations in such
order as the Secured Party shall elect. Any surplus of
such cash or cash proceeds held by the Secured Party
and remaining after payment in full of all the
Obligations shall be paid over to the Debtor or to
whomsoever may be lawfully entitled to receive such
surplus.
Section 12. Indemnity and Expenses.
(a) The Debtor agrees to indemnify the
Secured Party from and against any and all claims,
losses and liabilities arising out of or resulting from
this Agreement (including, without limitation,
enforcement of this Agreement), except claims, losses
or liabilities resulting from the Secured Party's gross
negligence or willful misconduct.
(b) The Debtor will upon demand pay to the
Secured Party the amount of any and all reasonable
expenses, including the reasonable fees and
disbursements of its counsel and of any experts and
agents, which the Secured Party may incur in connection
with (i) the exercise or enforcement of any of the
rights hereunder or (ii) the failure by the Debtor to
perform or observe any of the provisions hereof.
Section 13. Amendments, Etc. No amendment or
waiver of any provision of this Agreement nor consent
to any departure by the Debtor herefrom shall in any
event be effective unless the same shall be in writing
and signed by the Secured Party and the Debtor, and
then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for
which given. No release of any amount of Collateral
shall be effective unless the same shall be in writing
and signed by the Secured Party and the Debtor, and
then such release shall be effective only in the
specific instance and for the specific purpose for
which given.
Section 14. Addresses for Notices. All notices
and other communications provided for hereunder shall
be in writing and mailed, telecopied, or telegraphed or
delivered to the appropriate party hereto, addressed to
it as stated on the signature page herein, or at such
other address as shall be designated by such party in a
written notice to each other party complying as to
delivery with the terms of this Section. All such
notices and other communications shall, when mailed,
telecopied, or telegraphed, respectively, be effective
when deposited in the mails, confirmed received by
telecopy, or delivered to the telegraph company,
respectively, addressed as aforesaid.
Section 15. Continuing Security Interest;
Transfer of Note; Conflicting Security Interests. This
Agreement shall create a continuing security interest
in the Collateral and shall (A) remain in full force
and effect until payment in full of the Obligations,
(B) be binding upon the Debtor, its successors and
assigns, and (C) inure to the benefit of the Secured
Party and its successors, transferees and assigns.
Without limiting the generality of the foregoing clause
(C), the Secured Party may assign or otherwise transfer
the Revolving Note (or any substitute or replacement
therefor) to any other person or entity with or without
notice upon the occurrence of any event which
constitutes an Event of Default or would constitute an
Event of Default but for the requirement that notice be
given or time elapse or both, and such other person or
entity shall thereupon become vested with all the
benefits in respect thereof granted to the Secured
Party herein or otherwise. Upon termination of the
Commitment under the Credit Agreement and the payment
in full of the Obligations, this Agreement and the
security interest granted hereby shall terminate and
all rights to the Collateral shall revert to the
Debtor. Upon any such termination, the Secured Party
will, at the Debtor's expense, deliver UCC termination
statements and execute and deliver to the Debtor such
documents as the Debtor shall reasonably request to
evidence such termination. To the extent that there
exist conflicting security interests in the Collateral
that suggest a different priority than provided in this
Agreement, this Agreement shall prevail.
Section 16. Governing Law; Terms. This Agreement
shall be governed by and construed in accordance with
the laws of the State of Connecticut, except as
required by mandatory provisions of law and except to
the extent that the validity or perfection of the
security interest hereunder, or remedies hereunder, in
respect of any particular Collateral are governed by
the laws of a jurisdiction other than the State of
Connecticut. Unless otherwise defined herein, or
mandated by the preceding sentence, terms used in
Article 9 of the Code in the State of Connecticut are
used herein as therein defined.
IN WITNESS WHEREOF, the Debtor has caused this
Agreement to be duly executed and delivered by its
officer thereunto duly authorized as of the date first
above written.
WESTBRIDGE FUNDING CORPORATION
By: /s/ Patrick J. Mitchell
Name: Patrick J. Mitchell
Title: CFO
Address for Notices:
777 Main Street
Fort Worth, Texas 76102
Attn: Chief Financial Officer
Telecopier No.: (817 -878-3880
With a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, NY 10005-1413
Attn: Jonathan R. Rod, Esq.
Telecopier No.: (212) 530-5219
FLEET NATIONAL BANK OF CONNECTICUT
By: /s/ David A. Wilkie
Name: David A. Wilkie
Title: A.V.P.
Address for Notices:
Insurance Industry Department
777 Main Street, MSN 250
Hartford, CT 06115
Attn: David Wilke
Telecopier No.: (860) 986-1264
With a copy to:
Richard C. MacKenzie, Esq.
Day, Berry & Howard
CityPlace I
Hartford, CT 06103-3499
Telecopier No.: (860) 275-0343
Exhibit 10.21*
WESTBRIDGE CAPITAL CORP.
10% SENIOR NOTE DUE 2002
$1,000,000.00 December 22, 1995
FOR VALUE RECEIVED, Westbridge Capital Corp.,
a Delaware corporation having its principal office at
777 Main Street, Fort Worth, Texas 76102 (the
"Company"), hereby promises to pay to the order of
Martin E. Kantor, residing at 28 Shore Cliff Place,
Great Neck, New York 11023 (including any transferee of
this Note, the "Holder"), on December 22, 2002 (the
"Maturity Date") the principal sum of one million
dollars ($1,000,000.00), and to pay to the Holder
interest on the unpaid principal amount of this Note as
provided in Section 1.2 hereof. Capitalized terms used
but not otherwise defined herein have the respective
meanings given to such terms in Article V hereof.
ARTICLE I
PRINCIPAL AND INTEREST
Section 1.1 Principal. The entire unpaid
principal amount of this Note shall be paid on the
Maturity Date. Promptly following the payment in full
of this Note, the Holder shall surrender this Note to
the Company for cancellation.
Section 1.2 Interest. Interest shall
accrue on the daily unpaid principal amount of this
Note, for each day during the period from and including
December 22, 1995 (the "Commencement Date") to but
excluding the date such Note shall be paid in full, at
the rate of ten percent (10%) per annum (the "Interest
Rate"), and shall be payable as provided in this
Section 1.2. On each six-month anniversary of the
Commencement Date (each, an "Interest Accrual Date")
occurring on or prior to the third anniversary of the
Commencement Date, the amount of such interest accrued
to but excluding such Interest Accrual Date shall be
added to the principal amount of this Note, and the
principal amount of this Note as so increased shall
thereafter bear interest as provided herein. On each
Interest Accrual Date occurring after the third
anniversary of the Commencement Date, the amount of
such interest accrued to but excluding such Interest
Accrual Date shall be paid to the Holder. On the date
on which the outstanding principal amount of this Note
is paid in full and on each date on which any principal
hereof is prepaid, the Company shall also pay the
Holder interest accrued from and including the
immediately preceding Interest Accrual Date to but
excluding the date of such payment (in the case of
prepayment hereof, only on the amount so prepaid).
Interest on this Note shall be computed on the basis of
a year of 360 days consisting of twelve 30-day months.
Section 1.3 Default Interest. Without
duplication of any interest payable under Section 1.2
hereof, the Company hereby unconditionally promises to
pay to the Holder interest on any principal or interest
payable by the Company under this Note that shall not
be paid in full when due (whether at stated maturity,
by acceleration, upon prepayment or otherwise), for the
period from and including the due date of such payment
to but excluding the date the same is paid in full, at
a rate per annum equal to the Interest Rate plus 2%,
which interest shall be payable from time to time on
demand of the Holder.
ARTICLE II
PAYMENTS AND PREPAYMENTS
Section 2.1 Payments Generally. All
payments of principal and interest in respect of this
Note shall be made by delivery to the Holder at the
address written above, or such other address that the
Holder provides to the Company, of a certified or
official bank check payable in Dollars to the order of
the Holder, not later than 12:00 p.m., New York time,
on the date on which such payment shall become due
(each such payment made after such time on such due
date to be deemed to have been made on the next
succeeding Business Day). If the due date of any
payment in respect of this Note would otherwise fall on
a day that is not a Business Day, such due date shall
be extended to the next succeeding Business Day, and
interest shall be payable on any principal so extended
for the period of such extension. All amounts payable
under this Note shall be paid free and clear of, and
without reduction by reason of, any deduction, set-off
or counterclaim.
Section 2.2 Prepayment. The Company may
at any time or from time to time, at its option, prepay
this Note (in an amount up to but not exceeding the
unpaid principal amount hereof), in whole or in part,
without premium or penalty. Interest shall be payable
in connection with any such prepayment as provided in
Section 1.2 hereof.
ARTICLE III
REPAYMENT AT OPTION OF HOLDER
Section 3.1 Repayment Option upon Death of
Holder. If the Holder is an individual, the Company
shall prepay the outstanding principal amount of this
Note (together with interest accrued hereon as provided
in Section 1.2 hereof) within one (1) year after an
Authorized Representative of such Holder has notified
the Company of the death of the Holder; provided that
the Company shall not be required to prepay this Note
pursuant to this Section 3.1 unless the Company has
received within six (6) months following the date of
death of such Holder (i) a written request for
prepayment signed by the Authorized Representative,
which request shall set forth the date of death of the
deceased Holder, (ii) this Note and (iii) evidence
reasonably satisfactory to the Company of the authority
of the Authorized Representative. Notwithstanding
anything to the contrary contained in this Section 3.1,
the Company shall not be required to make any payment
pursuant to this Section 3.1 to the extent that (a) the
Company is, or, after giving effect to such repayment
would be, in default under any Senior Indebtedness or
(b) the Company is subject to any law, regulation,
agreement or administrative directive preventing such
payment. If the Company is permitted to defer payment
of any amount otherwise due and payable pursuant to
this Section 3.1 by reason of the existence of any
condition referred to in clause (a) or (b) of the
immediately preceding sentence, such payment shall be
due and payable on the first Business Day on which such
condition no longer exists, but in no event later than
the Maturity Date.
ARTICLE IV
EVENTS OF DEFAULT
Section 4.1 Event of Default. "Event of
Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of
Default and whether it shall be voluntary or
involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court
or any order, rule or regulation of any administrative
or governmental body):
(a) default in the payment of any interest
in respect of this Note within five (5) Business Days
after it becomes due and payable; or
(b) default in the payment of the
outstanding principal amount of this Note at its
Maturity Date; or
(c) a default with respect to the Indenture
or any other instrument evidencing indebtedness of the
Company or any of its Subsidiaries which results in any
indebtedness of the Company or any of its Subsidiaries
of at least $1,000,000 becoming or being declared due
and payable prior to its scheduled maturity date; or
(d) the entry of a decree or order by a
court having jurisdiction in the premises adjudging the
Company or any of its Subsidiaries a bankrupt or insol-
vent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition
of or in respect of the Company or any of its
Subsidiaries under Federal bankruptcy law or any other
applicable Federal or state law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator
or other similar official of the Company or any of its
Subsidiaries or of any substantial part of the property
of the Company or any of its Subsidiaries, or ordering
the winding up or liquidation of the affairs of the
Company or any of its Subsidiaries, and the continuance
of any such decree or order unstayed and in effect for
a period of sixty (60) consecutive days; or
(e) the institution by the Company or any of
its Subsidiaries of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by the Company or
any of its Subsidiaries to the institution of
bankruptcy or insolvency proceedings against it, or the
filing by the Company or any of its Subsidiaries of a
petition or answer or consent seeking reorganization or
relief under Federal bankruptcy law or any other
applicable Federal or state law, or the consent by the
Company or any of its Subsidiaries to the filing of
such petition or to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator or similar
official of the Company or any of its Subsidiaries or
of any substantial part of the property of the Company
or any of its Subsidiaries, or the making by the
Company or any of its Subsidiaries of an assignment for
the benefit of creditors, or the admission by the
Company or any of its Subsidiaries in writing of its
inability to pay its debts generally as they become
due, or the taking of corporate action by the Company
or any of its Subsidiaries in furtherance of any such
action; or
(f) a judgment or order for the payment of
at least $1,000,000 is rendered against the Company or
any of its Subsidiaries and is not vacated, discharged,
stayed or bonded pending appeal within sixty (60) days
after notice of such judgment or order to the Company
or any of its Subsidiaries.
Section 4.2 Acceleration of Note. If an
Event of Default occurs and is continuing, then and in
every such case the Holder may declare the outstanding
principal amount of this Note (including accrued
interest as provided in Section 1.2 hereof) to be due
and payable immediately, by a notice in writing to the
Company, and upon any such declaration such principal
shall become immediately due and payable.
Notwithstanding the foregoing, if an Event of Default
referenced in paragraph (d) or paragraph (e) of this
Section 4.1 occurs, the outstanding principal amount of
this Note (including accrued interest as provided in
Section 1.2 hereof) shall automatically become due and
payable immediately without any declaration or other
action on the part of the Holder. At any time after
the outstanding principal amount of this Note shall
become immediately due and payable and before a
judgment or decree for payment of the money due has
been obtained, the Holder, by written notice to the
Company, may rescind and annul an acceleration and its
consequences.
ARTICLE V
DEFINITIONS
Section 5.1 Definitions. The following
terms shall have the meanings set forth below:
"Authorized Representatives" of any Holder
mean such Holder's executors, administrators or other
legal representatives of an estate, trustees of a
trust, custodians, conservators, guardians, attorneys-in-fact
and other persons generally recognized as
having legal authority to act on behalf of another.
"Business Day" means a day other than
Saturday, Sunday or any day on which banks located in
the State of New York or the State of Texas are
authorized or obligated to close.
"Commencement Date" has the meaning ascribed
to it in Section 1.2.
"Company" has the meaning ascribed to it in
the forepart of this Note.
"Dollars" and "$" means lawful money of the
United States of America.
"Event of Default" has the meaning ascribed
to in Section 4.1
"Holder" has the meaning ascribed to it in
the forepart of this Note.
"Indenture" means the Indenture dated as of
February 15, 1995 by and between the Company and
Liberty Bank and Trust Company of Oklahoma City,
National Association, trustee, as the same may be
amended from time to time.
"Interest Accrual Date" has the meaning
ascribed to it in Section 1.2.
"Interest Rate" has the meaning ascribed to
it in Section 1.2.
"Maturity Date" has the meaning ascribed to
it in the forepart of this Note.
"Note" means this Promissory Note, as
modified and supplemented and in effect from time to
time.
"Senior Indebtedness" has the meaning
ascribed to such term in the Indenture.
"Subsidiary" means any corporation or other
entity in which the Company, directly or indirectly
through Subsidiaries or otherwise, beneficially owns
more than fifty percent (50%) of either the equity
interests in, or the voting control of, such
corporation or other entity.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Rank. The Company expressly
acknowledges that the indebtedness evidenced by this
Note constitutes Senior Indebtedness.
Section 6.2 Delay or Omission Not Waiver.
No failure or delay on the part of the Holder in the
exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single
or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or
of any right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not
exclusive of, any rights or remedies otherwise
available.
Section 6.3 Governing Law. This Note
shall be governed by, and construed in accordance with,
the laws of the State of New York, without regard to
the conflicts of laws principles thereof.
Section 6.4 Successors. All agreements of
the Company in this Note shall bind its successors and
assigns.
Section 6.5 Waivers. The Company waives
demand, presentment for payment, notice of dishonor,
protest, notice of protest and notice of non-payment of
this Note.
IN WITNESS WHEREOF, the Company has caused
this Note to be duly executed by an authorized officer
thereof as of the date and year first above written.
WESTBRIDGE CAPITAL CORP.
By: /s/ James W. Thigpen
Name: James W. Thigpen
Title: President and
Chief Operating Officer
Exhibit 10.22*
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE OFFERED FOR SALE, SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT.
VOID AT 5:00 P.M., NEW YORK TIME, ON DECEMBER 22, 2002,
OR IF NOT A BUSINESS DAY, AS DEFINED HEREIN, AT 5:00
P.M., NEW YORK TIME, ON THE NEXT FOLLOWING BUSINESS
DAY.
WARRANT TO PURCHASE
135,501 SHARES OF
COMMON STOCK
NO. 1
WARRANT TO PURCHASE
COMMON STOCK
OF
WESTBRIDGE CAPITAL CORP.
TRANSFER RESTRICTED -- SEE SECTION 5.02
This certifies that, for good and valuable
consideration, the receipt of which is hereby
acknowledged, Martin E. Kantor and his permitted
assigns is entitled to purchase from Westbridge Capital
Corp., a Delaware corporation (the "Company"), subject
to the terms and conditions hereof, at any time on or
after 9:00 A.M., New York time, on December 22, 1995,
and before 5:00 P.M., New York time, on December 22,
2002 (or, if such day is not a Business Day (as defined
below), before 5:00 P.M., New York time, on the next
following Business Day), the number of fully paid and
nonassessable shares of Common Stock stated above at
the Exercise Price (as defined below); provided that
this Warrant may not be exercised so long as the
restrictions on exercise set forth in Section 2.01
hereof would prohibit such exercise. The Exercise
Price and the number of shares purchasable hereunder
are subject to adjustment from time to time as provided
in Article III.
ARTICLE I
Section 1.01: Definition of Terms. As used
in this Warrant, the following capitalized terms shall
have the following respective meanings:
(a) Board of Directors: The Board of
Directors of the Company.
(b) Business Day: A day other than a
Saturday, Sunday or other day on which banks in
the State of New York or the State of Texas are
authorized or required by law to remain closed.
(c) Common Stock: Common Stock, par value
$.10 per share, of the Company.
(d) Common Stock Equivalents: Securities
that are convertible into or exercisable for
shares of Common Stock.
(e) Demand Registration: See Section 6.02.
(f) Exchange Act: The Securities Exchange
Act of 1934, as amended.
(g) Exercise Price: $7.38 per Warrant
Share, as such price may be adjusted from time to
time pursuant to Article III.
(h) Expiration Date: 5:00 P.M., New York
time, on December 22, 2002, or if such day is not
a Business Day, the next succeeding day which is a
Business Day.
(i) Holder: A holder of Registrable
Securities.
(j) 25% Holders: At any time at which a
Demand Registration is requested, holders of
Warrants and/or holders of Registrable Securities
who have the right to acquire or hold, as the case
may be, not less than 25% of the combined total of
Warrant Shares issuable upon exercise of Warrants
and Registrable Securities outstanding at the time
such Demand Registration is requested.
(k) NASD: National Association of
Securities Dealers, Inc., and NASDAQ: NASD
Automatic Quotation System.
(l) Note: The 10% Senior Note due 2002 in
the principal amount of $1,000,000.00 issued by
the Company to Martin E. Kantor.
(m) Oppenheimer Warrant: The Warrant to
Purchase Common Stock of the Company expiring on
April 12, 1999 issued by the Company to
Oppenheimer & Co. Inc. in connection with the
consummation of the transactions contemplated by
the Preferred Stock Purchase Agreement.
(n) Person: An individual, partnership,
limited liability company, joint venture,
corporation, trust, unincorporated organization or
government or any department or agency thereof.
(o) Piggyback Registration: See Section
6.01.
(p) Preferred Stock Purchase Agreement: The
Preferred Stock Purchase Agreement dated as of
April 1, 1994 by and among the Company and the
purchasers named on the signature pages thereto,
as the same may be amended from time to time.
(q) Prospectus: Any prospectus included in
any Registration Statement, as amended or
supplemented by any prospectus supplement, with
respect to the terms of the offering of any
portion of the Registrable Securities covered by
such Registration Statement and all other
amendments and supplements to the Prospectus,
including post-effective amendments and all
material incorporated by reference in such
Prospectus.
(r) Public Offering: A public offering of
any of the Company's securities pursuant to a
registration statement under the Securities Act.
(s) Registration Expenses: Any and all
expenses incurred in connection with any
registration or action incident to performance of
or compliance by the Company with Article VI,
including, without limitation, (i) all SEC,
national securities exchange and NASD registration
and filing fees, all listing fees and all transfer
agent fees, (ii) all fees and expenses of
complying with state securities or blue sky laws
(including the fees and disbursements of counsel
for the underwriters in connection with blue sky
qualifications of the Registrable Securities),
(iii) all printing, mailing, messenger and
delivery expenses and (iv) all fees and
disbursements of counsel for the Company and of
its accountants, including the expenses of any
special audits and/or "cold comfort" letters
required by or incident to such performance and
compliance, but excluding underwriting discounts
and commissions, brokerage fees and transfer
taxes, if any, and fees of counsel or accountants
retained by the holders of Registrable Securities
to advise them in their capacity as Holders.
(t) Registrable Securities: Any Warrant
Shares and/or other securities that may be or are
issued or issuable by the Company upon exercise of
any Warrant, including those which may thereafter
be issued by the Company in respect of any such
securities by means of any stock splits, stock
dividends, recapitalizations, reclassifications or
the like, and as adjusted pursuant to Article III;
provided, however, that any particular security
shall cease to be a Registrable Security when (i)
a Registration Statement with respect to the sale
of such security shall have become effective under
the Securities Act and such security shall have
been disposed of in accordance with such
Registration Statement, or (ii) such security
shall have been sold to the public pursuant to
Rule 144 (or any successor provision) under the
Securities Act.
(u) Registration Statement: Any
registration statement of the Company filed or to
be filed with the SEC which covers any of the
Registrable Securities pursuant to the provisions
of this Warrant, including all amendments
(including post-effective amendments) and
supplements thereto, all exhibits thereto and all
material incorporated therein by reference.
(v) SEC: The Securities and Exchange
Commission or any other federal agency at the time
administering the Securities Act or the Exchange
Act.
(w) Securities Act: The Securities Act of
1933, as amended.
(x) Transfer: Any transfer, sale,
assignment, pledge, encumbrance, hypothecation,
conveyance or any other disposition of any
Warrant, Warrant Share or any interest of either
thereof.
(y) Warrant Shares: Common Stock, Common
Stock Equivalents and other securities purchased
or purchasable upon exercise of the Warrants.
(z) Warrantholder: The Person to whom this
Warrant is originally issued, or any successor in
interest thereto, or any assignee or transferee
thereof, in whose name this Warrant is registered
upon the books to be maintained by the Company for
that purpose.
(aa) Warrants: This Warrant and all other
warrants that may be issued in its place.
ARTICLE II
Duration and Exercise of Warrant
Section 2.01: Duration of Warrant. The
Warrantholder may exercise this Warrant at any time and
from time to time after 9:00 A.M., New York time, on
December 22, 1995, and before 5:00 P.M., New York time,
on the Expiration Date; provided that this Warrant may
not be exercised unless (i) the restrictions on
issuance of shares of Common Stock upon exercise of the
Warrant set forth in section4.11(iv) of the Preferred Stock
Purchase Agreement shall have ceased to apply or shall
have been waived, (ii) the holders of Common Stock have
consented to the issuance of shares of Common Stock
upon the exercise of this Warrant, if and to the extent
required by the rules of the NYSE, and (iii) all
applicable insurance laws and regulations have been
satisfied or complied with in respect of the issuance
of shares of Common Stock upon the exercise of this
Warrant. If this Warrant is not exercised prior to the
Expiration Date, it shall become void, and all rights
hereunder shall thereupon cease.
Section 2.02: Exercise of Warrant. (a) The
Warrantholder may exercise this Warrant, in whole or in
part, as follows:
(i) The Warrantholder may exercise this
Warrant, in whole or in part, by presentation and
surrender of this Warrant to the Company at its
principal executive offices or at the office of
its stock transfer agent, if any, with the
Subscription Form annexed hereto duly executed and
accompanied by the full Exercise Price for each
Warrant Share to be purchased, with the full
Exercise Price payable, at the Warrantholder's
option, (A) in cash or by check, (B) if the
Warrantholder is the holder of the Note, by the
Warrantholder agreeing to a reduction of the
outstanding principal amount of the Note equal to
the Exercise Price or (C) any combination of (A)
and (B). In connection with any such reduction in
the principal amount of the Note, the
Warrantholder will present the Note to the Company
for the purpose of permitting the Company to note
any such reduction on the fare of the Note.
(ii) By presentation and surrender of this
Warrant to the Company at its principal executive
offices with a Cashless Exercise Form annexed
hereto duly executed (a "Cashless Exercise"). In
the event of a Cashless Exercise, the
Warrantholder shall exchange its Warrant for that
number of shares of Common Stock determined by
multiplying the number of Warrant Shares by a
fraction, the numerator of which shall be the
difference between the current market price per
share of Common Stock on the Business Day prior to
the date of the Cashless Exercise and the Exercise
Price, and the denominator of which shall be the
then current market price per share of Common
Stock. For purposes of any computation under this
Section 2.02(a)(ii), the current market price per
share of Common Stock at the applicable date shall
be determined pursuant to Section 3.01(f).
(b) Upon receipt of this Warrant, in the
case of Section 2.02(a)(i), with the Subscription Form
duly executed and accompanied by payment of the
aggregate Exercise Price for the Warrant Shares for
which this Warrant is then being exercised, or, in the
case of Section 2.02(a)(ii), with the Cashless Exercise
Form duly executed, the Company shall cause to be
issued certificates for the total number of whole
shares of Common Stock for which this Warrant is being
exercised in such denominations as are requested for
delivery to the Warrantholder, and the Company shall
thereupon deliver such certificates to the
Warrantholder. The Warrantholder shall be deemed to be
the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the
stock transfer books of the Company shall then be
closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to
the Warrantholder. If at the time this Warrant is
exercised, a Registration Statement is not in effect to
register under the Securities Act the Warrant Shares
issuable upon exercise of this Warrant, the Company may
require the Warrantholder to make such representations,
and may place such legends on certificates representing
the Warrant Shares, as may be reasonably required in
the opinion of counsel to the Company to permit the
Warrant Shares to be issued without such registration.
(c) In case the Warrantholder shall exercise
this Warrant with respect to less than all of the
Warrant Shares that may be purchased under this
Warrant, the Company shall execute a new Warrant in the
form of this Warrant for the balance of such Warrant
Shares and deliver such new Warrant to the
Warrantholder.
(d) The Company shall pay any and all stock
transfer and similar taxes which may be payable in
respect of the issue of this Warrant or in respect of
the issue of any Warrant Shares.
Section 2.03: Reservation of Shares. The
Company hereby agrees that at all times there shall be
reserved for issuance and delivery upon exercise of
this Warrant such number of shares of Common Stock or
other shares of capital stock of the Company from time
to time issuable upon exercise of this Warrant. All
such shares shall be duly authorized, and when issued
upon such exercise, shall be validly issued, fully paid
and nonassessable, free and clear of all liens,
security interests, charges and other encumbrances or
restrictions on sale (other than under the Securities
Act or state securities or blue sky laws) and free and
clear of all preemptive rights.
Section 2.04: Fractional Shares. The
Company shall not be required to issue any fraction of
a share of its capital stock in connection with the
exercise of this Warrant, and in any case where the
Warrantholder would, except for the provisions of this
Section 2.04, be entitled under the terms of this
Warrant to receive a fraction of a share upon the
exercise of this Warrant, the Company shall, upon
receipt of the Exercise Price, issue the largest number
of whole shares purchasable upon exercise of this
Warrant. The Company shall not be required to make any
cash or other adjustment in respect of such fraction of
a share to which the Warrantholder would otherwise be
entitled.
Section 2.05: Listing. Prior to the
issuance of any shares of Common Stock upon exercise of
this Warrant, the Company shall secure the listing of
such shares of Common Stock upon each national
securities exchange or automated quotation system, if
any, upon which shares of Common Stock are then listed
(subject to official notice of issuance upon exercise
of this Warrant) and shall maintain, so long as any
other shares of Common Stock shall so be listed, such
listing of all shares of Common Stock from time to time
issuable upon the exercise of this Warrant; and the
Company shall so list on each national securities
exchange or automated quotation system, and shall
maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class
shall be listed on such national securities exchange or
automated quotation system.
ARTICLE III
Adjustment of Shares of Common Stock
Purchasable and of Exercise Price
The Exercise Price and the number and kind of
Warrant Shares shall be subject to adjustment from time
to time upon the happening of certain events as
provided in this Article III.
Section 3.01: Mechanical Adjustments. (a)
If at any time prior to the exercise of this Warrant in
full, the Company shall (i) declare a dividend or make
a distribution on the Common Stock payable in shares of
Common Stock, (ii) subdivide, reclassify or
recapitalize outstanding Common Stock into a greater
number of shares, or (iii) combine, reclassify or
recapitalize its outstanding Common Stock into a
smaller number of shares, the Exercise Price in effect
at the time of the record date of such dividend,
distribution, subdivision, combination or
reclassification shall be adjusted by multiplying such
Exercise Price by a fraction, the numerator of which is
the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of
which is the number of shares of Common Stock
outstanding immediately after such event. Any
adjustment required by this Section 3.01(a) shall be
made successively immediately after the record date, in
the case of a dividend or distribution, or the
effective date, in the case of a subdivision,
combination or reclassification.
(b) If at any time prior to the exercise of
this Warrant in full, the Company shall (i) issue or
sell any Common Stock or Common Stock Equivalents
without consideration or for consideration per share
(in cash, property or other assets) less than the
current market price per share of the Common Stock on
the date of such issuance or sale as determined
pursuant to Section 3.01(f) or (ii) fix a record date
for the issuance of subscription rights, options or
warrants to all holders of Common Stock entitling them
to subscribe for or purchase Common Stock (or Common
Stock Equivalents) at a price (or having an exercise or
conversion price per share) less than the current
market price of the Common Stock (as determined
pursuant to Section 3.01(f)) on the record date
described below, the Exercise Price shall be adjusted
so that the Exercise Price shall equal the price
determined by multiplying the Exercise Price in effect
immediately prior to the date of such sale or issuance
(which date in the event of distribution to
shareholders shall be deemed to be the record date set
by the Company to determine shareholders entitled to
participate in such distribution) by a fraction, the
numerator of which shall be (i) the number of shares of
Common Stock outstanding on the date of such issuance
or sale, plus (ii) the number of additional shares of
Common Stock which the aggregate consideration received
by the Company upon such issuance or sale (plus the
aggregate of any additional amount to be received by
the Company upon the exercise of such subscription
rights, options or warrants) would purchase at such
current market price per share of the Common Stock; and
the denominator of which shall be (i) the number of
shares of Common Stock outstanding on the date of such
issuance or sale, plus (ii) the number of additional
shares of Common Stock offered for subscription or
purchase (or into which the Common Stock Equivalents so
offered are exercisable or convertible). Any
adjustments required by this Section 3.01(b) shall be
made immediately after such issuance or sale or record
date, as the case may be. Such adjustments shall be
made successively whenever such event may occur. To
the extent that shares of Common Stock (or Common Stock
Equivalents) are not delivered after the expiration of
such subscription rights, options or warrants, the
Exercise Price shall be readjusted to the Exercise
Price which would then be in effect had the adjustments
made upon the issuance of such rights, options or
warrants been made upon the basis of delivery of only
the number of shares of Common Stock (or Common Stock
Equivalents) actually delivered.
(c) If at any time prior to the exercise of
this Warrant in full, the Company shall fix a record
date for the issuance or making a distribution to all
holders of Common Stock (including any such
distribution to be made in connection with a
recapitalization of the Common Stock or a consolidation
or merger in which the Company is to be the continuing
corporation) of (i) evidences of its indebtedness, (ii)
any other securities of the Company or any cash,
property or other assets (excluding a combination or
reclassification referred to in Section 3.01(a),
regular cash dividends or cash distributions paid out
of net profits legally available therefor and in the
ordinary course of business, or (iii) any subscription
rights, options or warrants for Common Stock or Common
Stock Equivalents (excluding those referred to in
Section 3.01(b)) (any such non-excluded event under
clause (i), (ii) or (iii) being herein called a
"Special Dividend"), the Exercise Price shall be
decreased immediately after the record date for such
Special Dividend to a price determined by multiplying
the Exercise Price then in effect by a fraction, the
numerator of which shall be the then current market
price of the Common Stock (as determined pursuant to
Section 3.01(f)) on such record date less the fair
market value (as determined by the Board of Directors)
of the evidences of indebtedness, securities or
property, or of the other assets issued or distributed
in such Special Dividend applicable to one share of
Common Stock or of such subscription rights, options or
warrants applicable to one share of Common Stock, and
the denominator of which shall be such then current
market price per share of Common Stock (as so
determined). Any adjustment required by this
Section 3.01(c) shall be made successively whenever
such a record date is fixed and in the event that such
distribution is not made, the Exercise Price shall
again be adjusted to be the Exercise Price that was in
effect immediately prior to such record date.
(d) If at any time prior to the exercise of
this Warrant in full, the Company shall make a
distribution to all holders of the Common Stock of
stock of a subsidiary or securities convertible into or
exercisable for such stock, then in lieu of an
adjustment in the Exercise Price or the number of
Warrant Shares purchasable upon the exercise of this
Warrant, each Warrantholder, upon the exercise hereof
at any time after such distribution, shall be entitled
to receive from the Company, such subsidiary or both,
as the Company shall determine, the stock or other
securities to which such Warrantholder would have been
entitled if such Warrantholder had exercised this
Warrant immediately prior thereto, all subject to
further adjustment as provided in this Article III, and
the Company shall reserve, for the life of the Warrant,
such securities of such subsidiary or other
corporation; provided, however, that no adjustment in
respect of dividends or interest on such stock or other
securities shall be made during the term of this
Warrant or upon its exercise.
(e) Whenever the Exercise Price payable upon
exercise of this Warrant is adjusted pursuant to one or
more of paragraphs (a), (b) and (c) of this Section
3.01, the Warrant Shares issuable upon exercise of each
Warrant shall simultaneously be adjusted by multiplying
(i) the number of Warrant Shares issuable immediately
prior to such adjustment by (ii) the Exercise Price in
effect immediately prior to such adjustment, and
dividing the product so obtained by the Exercise Price
as so adjusted.
(f) For the purpose of any computation under
this Section 3.01, the current market price per share
of Common Stock at any date shall be deemed to be the
average of the daily closing prices for twenty (20)
consecutive trading days commencing 30 trading days
before such date. The closing price for each day shall
be the last sale price regular way or, in case no such
reported sales take place on such day, the average of
the last reported bid and asked prices regular way, in
either case on the principal national securities
exchange on which the Common Stock is admitted to
trading or listed, or if not listed or admitted to
trading on any such exchange, the representative
closing bid price as reported by NASDAQ, or other
similar organization if NASDAQ is no longer reporting
such information, or if not so available, the fair
market price as determined by the Board of Directors.
(g) No adjustment in the Exercise Price
shall be required unless such adjustment would require
an increase or decrease of at least ten cents ($.10) in
such price; provided, however, that any adjustments
which by reason of this paragraph (g) are not required
to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations
under this Section 3.01 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the
case may be. Notwithstanding anything in this Section
3.01 to the contrary, the Exercise Price shall not be
reduced to less than the then existing par value of the
Common Stock as a result of any adjustment made
hereunder.
(h) In the event that at any time, as a
result of any adjustment made pursuant to Section 3.01,
the Warrantholder thereafter shall become entitled to
receive any shares of the Company other than Common
Stock, thereafter the number of such other shares so
receivable upon exercise of any Warrant shall be
subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained
in Section 3.01(a).
(i) In the case of an issue of additional
Common Stock or Common Stock Equivalents for cash, the
consideration received by the Company therefor, after
deducting therefrom any discount or commission or other
expenses paid by the Company for any underwriting of,
or otherwise in connection with, the issuance thereof,
shall be deemed to be the amount received by the
Company therefor. The term "issue" shall include the
sale or other disposition of shares held by or on
account of the Company or in the treasury of the
Company but until so sold or otherwise disposed of such
shares shall not be deemed outstanding.
Section 3.02: Notice of Adjustment.
Whenever the number of Warrant Shares or the Exercise
Price is adjusted as herein provided, the Company shall
prepare and deliver forthwith to the Warrantholder a
certificate signed by its Chairman of the Board,
President, any Vice President, Treasurer or Secretary,
setting forth (x) the adjusted number of shares
purchasable upon the exercise of this Warrant and the
Exercise Price of such shares after such adjustment,
(y) a brief statement of the facts requiring such
adjustment and (z) the computation by which such
adjustment was made.
Section 3.03: No Adjustment for Dividends.
Except as provided in Section 3.01, no adjustment
in respect of any cash dividends shall be made during
the term of this Warrant or upon the exercise of this
Warrant.
Section 3.04: Preservation of Purchase
Rights in Certain Transactions. In case of any
reclassification, capital reorganization or other
change of outstanding shares of Common Stock (other
than a subdivision or a combination of the outstanding
Common Stock and other than a change in the par value
of the Common Stock), or in case of any consolidation
or merger of the Company with or into another
corporation (other than a merger with a subsidiary in
which the Company is the continuing corporation and
that does not result in any reclassification, capital
reorganization or other change of outstanding shares of
Common Stock of the class issuable upon exercise of
this Warrant), or in case of any sale, lease, transfer
or conveyance to another corporation of the property
and assets of the Company as an entirety or
substantially as an entirety, the Company shall, as a
condition precedent to such transaction, cause such
successor or purchasing corporation, as the case may
be, to execute with the Warrantholder an agreement
granting the Warrantholder the right thereafter, upon
payment of the Exercise Price in effect immediately
prior to such action, to receive upon exercise of this
Warrant the kind and amount of shares and other
securities and property which he would have owned or
have been entitled to receive after the happening of
such reclassification, change, consolidation, merger,
sale or conveyance had this Warrant been exercised
immediately prior to such action. Such agreement shall
provide for adjustments in respect of such shares of
stock and other securities and property, which shall be
as nearly equivalent as may be practicable to the
adjustments provided for in this Article III. The
provisions of this Section 3.04 shall similarly apply
to successive reclassifications, capital
reorganizations, consolidations, mergers, sales or
conveyances.
Section 3.05: Form of Warrant After
Adjustments. The form of this Warrant need not be
changed because of any adjustments in the Exercise
Price or the number or the kind of the Warrant Shares,
and Warrants theretofore or thereafter issued may
continue to express the same price and number and kind
of shares as are stated in this Warrant, as initially
issued.
Section 3.06: Treatment of Warrantholder.
Prior to due presentment for registration of transfer
of this Warrant, the Company may deem and treat the
Warrantholder as the absolute owner of this Warrant
(notwithstanding any notation of ownership or other
writing hereon) for all purposes and shall not be
affected by any notice to the contrary.
ARTICLE IV
Other Provisions Relating
to Rights of Warrantholder
Section 4.01: No Rights as Shareholders;
Notice to Warrantholders. Nothing contained in this
Warrant shall be construed as conferring upon the
Warrantholder or his or its transferees the right to
vote or to receive dividends or to consent or to
receive notice as a shareholder in respect of any
meeting of shareholders for the election of directors
of the Company or of any other matter, or any rights
whatsoever as shareholders of the Company. The Company
shall give notice to the Warrantholder by registered
mail if at any time prior to the expiration or exercise
in full of the Warrants, any of the following events
shall occur:
(a) the Company shall authorize the payment
of any dividend payable in any securities upon
shares of Common Stock or authorize the making of
any distribution (other than a cash dividend
subject to the parenthetical set forth in Section
3.01(c)) to all holders of Common Stock;
(b) the Company shall authorize the issuance
to all holders of Common Stock of any additional
shares of Common Stock or Common Stock Equivalents
or of rights, options or warrants to subscribe for
or purchase Common Stock or Common Stock
Equivalents or of any other subscription rights,
options or warrants;
(c) a dissolution, liquidation or winding up
of the Company (other than in connection with a
consolidation, merger or sale or conveyance of the
property of the Company as an entirety or
substantially as an entirety) shall be proposed;
or
(d) a capital reorganization or
reclassification of the Common Stock (other than a
subdivision or combination of the outstanding
Common Stock and other than a change in the par
value of the Common Stock), or any consolidation
or merger of the Company with or into another
corporation (other than a consolidation or merger
in which the Company is the continuing corporation
and that does not result in any reclassification
or change of Common Stock outstanding), or in the
case of any sale or conveyance to another
corporation of the property of the Company as an
entirety or substantially as an entirety.
Such giving of notice shall be initiated at least 10
Business Days prior to the date fixed as a record date
or effective date or the date of closing of the
Company's stock transfer books for the determination of
the shareholders entitled to such dividend,
distribution or subscription rights, or for the
determination of the shareholders entitled to vote on
such proposed merger, consolidation, sale, conveyance,
dissolution, liquidation or winding up. Such notice
shall specify such record date or the date of closing
the stock transfer books, as the case may be. Failure
to provide such notice shall not affect the validity of
any action taken in connection with such dividend,
distribution or subscription rights, or proposed
merger, consolidation, sale, conveyance, dissolution,
liquidation or winding up.
Section 4.02: Lost, Stolen, Mutilated or
Destroyed Warrants. If this Warrant is lost, stolen,
mutilated or destroyed, the Company may, on such terms
as to indemnity or otherwise as it may in its
discretion impose (which shall, in the case of a
mutilated Warrant, include the surrender thereof),
issue a new Warrant of like denomination and tenor as,
and in substitution for, this Warrant.
ARTICLE V
Split-Up, Combination,
Exchange and Transfer of Warrants
Section 5.01: Split-Up, Combination,
Exchange and Transfer of Warrants. Subject to the
provisions of Section 5.02, this Warrant may be split
up, combined or exchanged for another Warrant or
Warrants containing the same terms to purchase a like
aggregate number of Warrant Shares. If the
Warrantholder desires to split up, combine or exchange
this Warrant, he or it shall make such request in
writing delivered to the Company and shall surrender to
the Company this Warrant and any other Warrants to be
so split up, combined or exchanged. Upon any such
surrender for a split-up, combination or exchange, the
Company shall execute and deliver to the person
entitled thereto a Warrant or Warrants, as the case may
be, as so requested. The Company shall not be required
to effect any split-up, combination or exchange which
will result in the issuance of a Warrant entitling the
Warrantholder to purchase upon exercise a fraction of a
share of Common Stock or a fractional Warrant. The
Company may require such Warrantholder to pay a sum
sufficient to cover any tax or governmental charge that
may be imposed in connection with any split-up,
combination or exchange of Warrants.
Section 5.02: Restrictions on Transfer. (a)
This Warrant and the Warrant Shares shall not be
Transferred, in whole or in part, unless the conditions
specified in this Section 5.02 are satisfied. The
Warrantholder, by acceptance of this Warrant, agrees to
be bound by the provisions of this Section 5.02.
(b) Except as otherwise provided in this Section
5.02, each Warrant and each certificate for Warrant
Shares bear a legend containing the following words:
THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH
ACT.
The requirement that the above legends be placed upon
certificates evidencing any Warrant or Warrant Shares
shall cease and terminate upon the earliest of the
following events: (i) when the Warrant Shares are sold
in an underwritten public offering, (ii) when such
Warrant or Warrant Shares are sold pursuant to Rule 144
under the Securities Act, (iii) when the Warrant or
Warrant Shares are Transferred in any other transaction
if the seller delivers to the Company an opinion of its
counsel, which counsel and opinion shall be reasonably
satisfactory to the Company, to the effect that such
legend is no longer necessary in order to protect the
Company against a violation by it of the Securities Act
upon any sale or other disposition of such shares
without registration thereunder. Upon the occurrence
of such event, the Company, upon the surrender of
certificates containing such legend, shall, at its own
expense, deliver to the holder of any such Warrant or
Warrant Shares as to which the requirement for such
legend shall have terminated, one or more new
certificates evidencing such Warrant or Warrant Shares
not bearing such legend.
ARTICLE VI
Registration Under the Securities Act
Section 6.01: Piggyback Registration.
(a) Right to Include Registrable Securities.
If at any time or from time to time after December 22,
1995, the Company proposes to register any of its
equity securities under the Securities Act, whether or
not for its own account (other than by a registration
statement on Form S-4 or Form S-8 or other form which
does not include substantially the same information as
would be required in a form for the general
registration of securities or would not be available
for the Registrable Securities) (a "Piggyback
Registration"), it shall as expeditiously as possible
give written notice to all Holders of its intention to
do so and of their rights under this Section 6.01.
Such rights are referred to hereinafter as "Piggyback
Registration Rights." Upon the written request of any
such Holder made within twenty (20) days after receipt
of any such notice (which request shall specify the
Registrable Securities intended to be disposed of by
such Holder), the Company shall include in the
Registration Statement the Registrable Securities which
the Company has been so requested to register by the
Holders thereof and the Company shall keep such
Registration Statement in effect and maintain
compliance with each Federal and state law or
regulation for the period necessary for such Holder to
effect the proposed sale or other disposition (but in
no event for a period greater than ninety (90) days).
(b) Withdrawal of Piggyback Registration by
Company. If, at any time after giving written notice
of its intention to register any securities in a
Piggyback Registration but prior to the effective date
of the related Registration Statement, the Company
shall determine for any reason not to register such
securities, the Company shall give written notice of
such determination to each Holder and, thereupon, shall
be relieved of its obligation to register any
Registrable Securities in connection with such
Piggyback Registration.
(c) Piggyback Registration of Underwritten
Public Offerings. If a Piggyback Registration involves
an offering by or through underwriters, then, (i) all
Holders requesting to have their Registrable Securities
included in the Company's Registration Statement must
sell their Registrable Securities to the underwriters
selected by the Company on the same terms and
conditions as apply to other selling shareholders and
(ii) any Holder requesting to have his or its
Registrable Securities included in such Registration
Statement may elect in writing, not later than three
(3) Business Days prior to the effectiveness of the
Registration Statement filed in connection with such
registration, not to have his or its Registrable
Securities so included in connection with such
registration.
(d) Payment of Registration Expenses for
Piggyback Registration. The Company shall pay all
Registration Expenses in connection with each
registration of Registrable Securities requested
pursuant to a Piggyback Registration Right contained in
this Section 6.01.
(e) Priority in Piggyback Registration. If
a Piggyback Registration involves an offering by or
through underwriters, the Company shall not be required
to include Registrable Shares therein if and to the
extent the underwriter managing the offering reasonably
believes in good faith and advises each Holder
requesting to have Registrable Securities included in
the Company's Registration Statement that such
inclusion would materially adversely affect such
offering; provided that (i) subject to the provisions
of Section 6.01 of the Oppenheimer Warrant, if other
selling shareholders have requested registration of
securities in the proposed offering,
the Company will reduce or eliminate on a pro rata
basis to all holders of the securities of the Company
exercising Piggyback Registration Rights similar to
those set forth herein in proportion to the respective
number of shares they have requested to be registered,
and (ii) in such event, such Holders may delay any
offering by them of all Registrable Shares requested to
be included or that portion of such Registrable Shares
eliminated for such period, not to exceed sixty (60)
days, as the managing underwriter shall request and the
Company shall file such supplements and post-effective
amendments and take such other action necessary to
permit such Holders to make their proposed offering for
a period of ninety (90) days following such period of
delay.
Section 6.02: Demand Registration.
(a) Request for Registration. If, at any
time subsequent to December 22, 1995, any 25% Holders
request that the Company file a Registration Statement
under the Securities Act, the Company as soon as
practicable shall use its best efforts to file a
Registration Statement with respect to all Registrable
Securities that it has been so requested to include and
obtain the effectiveness thereof, and to take all other
action necessary under any Federal or state law or
regulation to permit the Registrable Securities that
are then held and/or that may be acquired upon the
exercise of the Warrants specified in the notice of the
25% Holders to be sold or otherwise disposed of, and
the Company shall maintain such compliance with each
such Federal and state law and regulation for the
period necessary for such Holders to effect the
proposed sale or other disposition (but in no event for
more than ninety (90) days); provided, however, the
Company shall be entitled to defer such registration
for a period of up to ninety (90) days if and to the
extent that its Board of Directors shall determine that
such registration would interfere with a pending
corporate transaction. The Company shall also promptly
give written notice to all other holders of any
Registrable Securities who or that have not made a
request to the Company pursuant to the provisions of
this paragraph (a) of its intention to effect any
required registration and shall use its best efforts to
effect as expeditiously as possible such registration
of all other such Warrant Shares that are then held
and/or that may be acquired upon the exercise of the
Warrants, the Holder or holders of which have requested
such registration, within fifteen (15) days after such
notice has been given by the Company, as provided in
the preceding sentence. The Company shall be required
to effect a registration pursuant to this subsection
(a) on one occasion only, such registration being
referred to herein as a "Demand Registration".
(b) Payment of Registration Expenses for
Demand Registration. The Company shall pay all
Registration Expenses in connection with the Demand
Registration.
(c) Selection of Underwriters. If any
Demand Registration is requested to be in the form of
an underwritten offering, the managing underwriter, the
co-manager (if any) and the independent pricer required
under the rules of the NASD (if any) shall be selected
and retained by the Company. Such selection shall be
subject to the consent of the Holders who requested the
Demand Registration, which consent shall not be
unreasonably withheld. All fees and expenses (other
than Registration Expenses otherwise required to be
paid) of any managing underwriter, any co-manager or
any independent underwriter or other independent pricer
required under the rules of the NASD shall be paid for
by such underwriters or by the Holders or holders whose
shares are being registered.
Section 6.03: Buy-outs of Registration
Demand. In lieu of carrying out its obligations to
effect a Piggyback Registration or Demand Registration
of any Registrable Securities pursuant to this Article
VI, the Company may carry out such obligation by
offering to purchase and purchasing such Registrable
Securities requested to be registered at an amount in
cash per share equal to the difference between (a) 95%
of the last sale price of the Common Stock on the day
the request for registration is made and (b) the
Exercise Price in effect on such day.
Section 6.04: Registration Procedures. If
and whenever the Company is required to use its best
efforts to take action pursuant to any Federal or state
law or regulation to permit the sale or other
disposition of any Warrant Shares that are then held or
that may be acquired upon exercise of the Warrants in
order to effect or cause the registration of any
Registrable Securities under the Securities Act as
provided in this Article VI, the Company shall, as
expeditiously as practicable:
(a) furnish to each selling Holder of
Registrable Securities and the underwriters, if
any, without charge, as many copies of the
Registration Statement, the Prospectus or the
Prospectuses (including each preliminary
prospectus) and any amendment or supplement
thereto as they may reasonably request;
(b) enter into such agreements (including an
underwriting agreement) and take all such other
actions reasonably required in connection
therewith in order to expedite or facilitate the
disposition of such Registrable Securities and in
such connection, if the registration is in
connection with an underwritten offering (i) make
such representations and warranties to the
underwriters in such form, substance and scope as
are customarily made by issuers to underwriters in
underwritten offerings and confirm the same if and
when requested; (ii) obtain opinions of counsel to
the Company and updates thereof (which counsel and
opinions in form, scope and substance shall be
reasonably satisfactory to the underwriters)
addressed to the underwriters and the Holders
covering the matters customarily covered in
opinions requested in underwritten offerings and
such other matters as may be reasonably requested
by such underwriters; (iii) obtain "cold comfort"
letters and updates thereof from the Company's
accountants addressed to the underwriters, such
letters to be in customary form and covering
matters of the type customarily covered in "cold
comfort" letters in connection with offerings;
(iv) set forth in full in any underwriting
agreement entered into the indemnification
provisions and procedures of Section 6.05 hereof
with respect to all parties to be indemnified
pursuant to said Section; and (v) deliver such
documents and certificates as may be reasonably
requested by the underwriters to evidence
compliance with clause (i) above and with any
customary conditions contained in the underwriting
agreement or other agreement entered into by the
Company; the above shall be done at each closing
under such underwriting or similar agreement or as
and to the extent required thereunder;
(c) make available for inspection by one or
more representatives of the Holders of Registrable
Securities being sold, any underwriter
participating in any disposition pursuant to such
registration, and any attorney or accountant
retained by such Holders or underwriter, all
financial and other records, pertinent corporate
documents and properties of the Company, and cause
the Company's officers, directors and employees to
supply all information reasonably requested by any
such representatives, in connection with such,
subject to customary confidentiality arrangements;
and
(d) otherwise use its best efforts to comply
with all applicable Federal and state regulations,
and take such other action as may be reasonably
necessary or advisable to enable each such Holder
and each such underwriter to consummate the sale
or disposition in such jurisdictions or
jurisdictions in which any such Holder or
underwriter shall have requested that the
Registrable Securities be sold; provided that the
Company shall not be required (i) to qualify
generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for
the requirements of this paragraph (d) be
obligated to be so qualified, (ii) to subject
itself to taxation in any such jurisdiction solely
by reason of such registration or qualification or
(iii) to consent to general service of process in
any jurisdiction.
Except as otherwise provided in this Agreement, the
Company shall have sole control in connection with the
preparation, filing, withdrawal, amendment or
supplementing of each Registration Statement, the
selection of underwriters, and the distribution of any
preliminary prospectus included in the Registration
Statement, and may include within the coverage thereof
additional shares of Common Stock or other securities
for its own account or for the account of one or more
of its other security holders.
Each seller of Registrable Securities as to
which any registration is being effected shall furnish
to the Company such information regarding the
distribution of such securities and such other
information as may otherwise be required by the
Securities Act to be included in such Registration
Statement.
Section 6.05: Indemnification.
(a) Indemnification by Company. In
connection with each Registration Statement relating to
disposition of Registrable Securities, the Company
shall indemnify and hold harmless each Holder and each
underwriter of Registrable Securities and each Person,
if any, who controls such Holder or underwriter (within
the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) against any and all
losses, claims, damages and liabilities, joint or
several (including any reasonable investigation, legal
and other expenses incurred in connection with, and any
amount paid in settlement of any action, suit or
proceeding or any claim asserted), to which they, or
any of them, may become subject under the Securities
Act, the Exchange Act or other Federal or state law or
regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities arise out of or
are based upon any untrue statement or alleged untrue
statement of a material fact contained in any
Registration Statement, Prospectus or preliminary
prospectus, or such amendment or supplement thereto, or
arise out of or are based upon any omission or alleged
omission to state therein a material fact required to
be stated therein or necessary to make the statements
therein not misleading; provided, however, that such
indemnity shall not inure to the benefit of any Holder
or underwriter (or any Person controlling such Holder
or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) on
account of any losses, claims, damages or liabilities
arising from the sale of the Registrable Securities if
such untrue statement or omission or alleged untrue
statement or omission was made in such Registration
Statement, Prospectus or preliminary prospectus, or
such amendment or supplement, in reliance upon and in
conformity with information furnished in writing to the
Company by the Holder or underwriter specifically for
use therein. The Company shall also indemnify selling
brokers, dealer managers and similar securities
industry professionals participating in the
distribution, their officers and directors and each
Person who controls such Persons (within the meaning of
Section 15 of the Securities Act or Section 20 of the
Exchange Act) to the same extent as provided above with
respect to the indemnification of the Holders of
Registrable Securities, if requested. This indemnity
agreement shall be in addition to any liability which
the Company may otherwise have.
(b) Indemnification by Holder. In
connection with each Registration Statement, each
Holder shall indemnify, to the same extent as the
indemnification provided by the Company in Section
6.05(a), the Company, its directors and each officer
who signs the Registration Statement and each Person
who controls the Company (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange
Act), but only insofar as such losses, claims, damages
and liabilities arise out of or are based upon any
untrue statement or omission or alleged untrue
statement or omission which was made in the
Registration Statement, the Prospectus or preliminary
prospectus or any amendment thereof or supplement
thereto, in reliance upon and in conformity with
information furnished in writing by such Holder to the
Company specifically for use therein. In no event
shall the liability of any selling Holder of
Registrable Securities hereunder be greater in amount
than the dollar amount of the net proceeds received by
such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation. The
Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and
similar securities industry professionals participating
in the distribution, to the same extent as provided
above, with respect to information so furnished in
writing by such Persons specifically for inclusion in
any Prospectus, Registration Statement or preliminary
prospectus or any amendment thereof or supplement
thereto.
(c) Conduct of Indemnification Procedure.
Any party that proposes to assert the right to be
indemnified hereunder will, promptly after receipt of
notice of commencement of any action, suit or
proceeding against such party in respect of which a
claim is to be made against an indemnifying party or
parties under this Section, notify each such
indemnifying party of the commencement of such action,
suit or proceeding, enclosing a copy of all papers
served. No indemnification provided for in Section
6.05(a) or 6.05(b) shall be available to any party who
shall fail to give notice as provided in this Section
6.05(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would
have related and was prejudiced by the failure to give
such notice, but the omission so to notify such
indemnifying party of any such action, suit or
proceeding shall not relieve it from liability that it
may have to any indemnified party for contribution or
otherwise than under this Section. In case any such
action, suit or proceeding shall be brought against any
indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying
party shall be entitled to participate in, and, to the
extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory
to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its
election so to assume the defense thereof and the
approval by the indemnified party of such counsel, the
indemnifying party shall not be liable to such
indemnified party for any legal or other expenses,
except as provided below and except for the reasonable
costs of investigation previously incurred by such
indemnified party in connection with the defense
thereof. The indemnified party shall have the right to
employ its counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of
such indemnified party unless (i) the employment of
counsel by such indemnified party has been authorized
in writing by the indemnifying parties, (ii) the
indemnified party shall have reasonably concluded,
based on advice of counsel, that there may be a
conflict of interest between the indemnifying parties
and the indemnified party in the conduct of the defense
of such action (in which case the indemnifying parties
shall not have the right to direct the defense of such
action on behalf of the indemnified party) or (iii) the
indemnifying parties shall not have employed counsel to
assume the defense of such action within a reasonable
time after notice of the commencement thereof, in each
of which cases the fees and expenses of counsel shall
be at the expense of the indemnifying parties. An
indemnifying party shall not be liable for any
settlement of any action, suit, proceeding or claim
effected without its written consent.
(d) Contribution. In connection with each
Registration Statement relating to the disposition of
Registrable Securities, if the indemnification provided
for in subsection (a) hereof is unavailable to an
indemnified party thereunder in respect of any losses,
claims, damages or liabilities referred to therein,
then the Company shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of such
losses, claims, damages or liabilities. The amount to
be contributed by the Company hereunder shall be an
amount which is in the same proportionate relationship
to the total amount of such losses, claims, damages or
liabilities as the total net proceeds from the offering
(before deducting expenses) of the Registrable
Securities bears to the total price to the public
(including underwriters' discounts) for the offering of
the Registrable Securities covered by such
registration.
(e) Specific Performance. The Company and
the Holder acknowledge that remedies at law for the
enforcement of this Section 6.05 may be inadequate and
intend that this Section 6.05 shall be specifically
enforceable.
ARTICLE VII
Other Matters
Section 7.01: Amendments and Waivers. The
provisions of this Warrant, including the provisions of
this sentence, may not be amended, modified or
supplemented, and waiver or consents to departures from
the provisions hereof may not be given unless the
Company has obtained the written consent of holders of
at least a majority of the outstanding Registrable
Securities. Holders shall be bound by any consent
authorized by this Section whether or not certificates
representing such Registrable Securities have been
marked to indicate such consent.
Section 7.02: Counterparts. This Warrant
may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of
which so executed shall be deemed to be an original and
all of which taken together shall constitute one and
the same agreement.
Section 7.03: Governing Law. This Warrant
shall be governed by and construed in accordance with
the laws of the State of New York without regard to the
conflict of laws principles thereof.
Section 7.04: Severability. In the event
that any one or more of the provisions contained
herein, or the application thereof in any
circumstances, is held invalid, illegal or
unenforceable, the validity, legality and
enforceability of any such provisions in every other
respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
Section 7.05: Attorneys' Fees. In any
action or proceeding brought to enforce any provisions
of this Warrant, or where any provisions hereof or
thereof is validly asserted as a defense, the
successful party shall be entitled to recover
reasonable attorneys' fees and disbursements in
addition to its costs and expenses and any other
available remedy.
Section 7.06: Computations of Consent.
Whenever the consent or approval of Holders of a
specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the
Company or its affiliates (other than the original
Warrantholder and other than subsequent Holders if such
subsequent Holders are deemed to be such affiliates
solely by reason of their holdings of such Registrable
Securities) shall not be counted in determining whether
such consent or approval was given by the Holders of
such required percentage.
Section 7.07: Notice. Any notices or
certificates by the Company to the Holder and by the
Holder to the Company shall be deemed delivered if in
writing and delivered in person or by registered mail
(return receipt requested), if to the original Holder,
addressed to him at 28 Shore Cliff Place, Great Neck,
New York 11023, or, if the original Holder has
designated by notice in writing to the Company any
other address, to such other address, or, if to a
subsequent Holder, to such address as appears on the
books of the Company or such other address Holder shall
have designated by notice in writing to the Company,
and if to the Company, addressed to it at Westbridge
Capital Corp., 777 Main Street, Fort Worth, Texas
76702. The Company may change its address by written
notice to the Holder.
IN WITNESS WHEREOF, this Warrant has been
duly executed by the Company under its corporate seal
as of December 22, 1995.
WESTBRIDGE CAPITAL CORP.
By: /s/James W. Thigpen _
Name: James W.Thigpen
Title: President and Chief
Operating Officer
Attest: /s/ Michael D. Norris
Secretary
ASSIGNMENT
(To be executed only upon assignment of Warrant
Certificate)
For value received, hereby sells, assigns and transfers unto
the within Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint attorney, to
transfer said Warrant Certificate on the books of the within-named Company with
respect to the number of Warrants set forth below, with full
power of substitution in the premises:
Name (s) of
Assignees (s) Address No. of Warrants
And if said number of Warrants shall not be all the
Warrants represented by the Warrant Certificate, a new
Warrant Certificate is to be issued in the name of said
undersigned for the balance remaining of the Warrants
represented by said Warrant Certificate
Dated: __________ _____, _______
Note: The above
signature should
correspond exactly
with the name on the
face of this Warrant
Certificate.
SUBSCRIPTION FORM
(To be executed upon exercise of Warrant
pursuant to Section 2.02(a)(i))
The undersigned hereby irrevocably elects to
exercise the right of purchase represented by the
within Warrant Certificate for, and to purchase
thereunder shares of Common Stock, as
provided for therein. To the extent applicable, the
undersigned herewith makes payment, in cash or by check
or by reduction in the principal amount of the Note or
a combination thereof, in full of the Exercise Price
thereof ($________ in the aggregate).
Please issue a certificate or certificates
for such Common Stock in the name of, and pay any cash
for any fractional share to:
Name
(Please Print Name,
Address and Social
Security Number)
Signature
NOTE: The above signature should respond exactly with
the name on the first page of this Warrant Certificate
or with the name of the assignee appearing in the
assignment form above.
And if said number of shares shall not be all
the shares purchasable under the within Warrant
Certificate, a new Warrant Certificate is to be issued
in the name of said undersigned for the balance
remaining of the shares purchasable thereunder rounded
up to the next higher number of shares.
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 2.02(a)(ii))
The undersigned hereby irrevocably elects to
exchange its Warrant for such shares of Common Stock
pursuant to the Cashless Exercise provisions of the
within Warrant Certificate, as provided for in Section
2.02(a)(ii) of such Warrant Certificate.
Please issue a certificate or certificates
for such Common Stock in the name of, and pay cash for
fractional share to:
Name
(Please Print Name,
Address and Social
Security Number)
Signature_______________________
NOTE: The above signature should correspond exactly
with the name on the first page of this Warrant
Certificate or with the name of the assignee appearing
in the assignment form above.
And if said number of shares shall not be all
the shares exchangeable or purchasable under the within
Warrant Certificate, a new Warrant Certificate is to be
issued in the name of the undersigned for the balance
remaining of the shares purchasable rounded up to the
next higher number of shares.
Exhibit 21
SUBSIDIARIES OF WESTBRIDGE CAPITAL CORP.
Percentage
Subsidiary Ownership
1. National Foundation Life Insurance Company (Delaware) 100%
2. American Insurance Company of Texas (Texas) 100%
3. National Financial Insurance Company (Texas) 100%
4. Westbridge Funding Corporation (Delaware)
(Formerly National Legal Services Company, Inc.) 100%
5. Foundation Financial Services, Inc. (Nevada) 100%
6. Westbridge Marketing Corporation (Delaware) 100%
7. Westbridge Printing Services, Inc. (Delaware) 100%
8. Flex-Plan Systems, Inc. (Delaware) 100%
9. Westbridge Financial Corp. (Delaware) 100%
10. Precision Dialing Services, Inc. (Delaware) 100%
11. Westbridge National Life Insurance Company (Arizona) 100%
12. LifeStyles Marketing Group, Inc. (Delaware) 51%
13. Senior Benefits, LLC (Arizona) 50%
14. American Senior Security Plans, LLC (Delaware) 50%
15. Health Care-One Insurance Agency, Inc. (California) 50%
Exhibit 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus constituting part of the Registration Statement on Form
S-8 (No. 33-55192) of Westbridge Capital Corp. and its
subsidiaries of our report dated March 29, 1996, appearing on page
43 of this Form 10-K.
/s/ Price Waterhouse, LLP
PRICE WATERHOUSE LLP
Fort Worth, Texas
March 29, 1996