<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended: March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number: 0-9628
ANCHOR PACIFIC UNDERWRITERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-1687187
(State or other jurisdiction (I.R.S. Employer Identification
incorporation or organization) No.)
1800 Sutter Street, Suite 400, 510/682-7707
Concord, California, 94520 (Registrant's telephone number
(Address of principal executive offices including area code)
and Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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. [X]Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding as of March 31, 1996
Common Stock, par value $.02 per share 3,685,612 shares
This document is comprised of 18 pages.
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Consolidated Balance Sheets, March 31, 1996 (unaudited) and
December 31, 1995.............................................. 1
Consolidated Statements of Operations for the three
months ended March 31, 1996 and 1995 (unaudited)............... 3
Consolidated Statements of Shareholders' Equity for the three
months ended March 31, 1996 (unaudited) and year ended
December 31, 1995.............................................. 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1996 and 1995 (unaudited).............. 5
Notes to Consolidated Financial Statements.................... 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................ 15
ITEM 2. Changes in Securities........................................ 15
ITEM 3. Defaults Upon Senior Securities.............................. 15
ITEM 4. Submission of Matters to a Vote of Security Holders ......... 15
ITEM 5. Other Information............................................ 15
ITEM 6. Exhibits and Reports on Form 8-K............................. 15
<PAGE>
PART I - FINANCIAL INFORMATION
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents - corporate funds $ 490,498 $ 904,781
Cash and cash equivalents - brokerage
fiduciary funds 1,267,736 1,529,524
Cash and cash equivalents - third-party
administration fiduciary funds 2,922,436 4,010,606
Accounts receivable (less allowance for
doubtful account of $49,560 in 1996
and 1995) 1,831,378 1,255,335
Prepaid expenses and other current assets 294,657 295,537
---------- ----------
Total current assets 6,806,705 7,995,783
Property and equipment 2,933,383 2,892,462
Less accumulated depreciation and amortization (1,905,109) (1,835,530)
------------ ------------
1,028,274 1,056,932
Other assets:
Goodwill, net 2,159,271 2,128,452
Intangible assets, net 1,266,180 1,128,740
Deferred compensation 435,000 361,344
Other 64,204 61,182
----------- -----------
3,924,655 3,679,718
----------- -----------
Total assets $11,759,634 $12,732,433
----------- -----------
----------- -----------
</TABLE>
1
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Cash and cash equivalents - third-party
administration fiduciary funds $ 2,922,436 $ 4,010,606
Net premiums payable - insurance companies 2,853,928 2,510,983
Accounts payable and accrued expenses 435,010 404,801
Short-term debt 1,175,000 1,175,000
Current portion of long-term debt 113,975 156,622
Current portion of long-term liabilities 718,661 498,537
----------- -----------
Total current liabilities 8,219,010 8,756,549
Long-term liabilities 939,534 1,034,895
Long-term debt, including $790,000 in 1996 and
1995, owed to related parties 1,195,865 1,266,635
Deferred tax liability 111,322 111,322
Shareholders' equity:
Common stock - $.02 par value; 8,000,000
shares authorized; 3,685,612 and 3,674,501
shares issued as of 3/31/96 and 12/31/95
respectively 73,712 73,490
Additional paid-in capital 3,004,053 2,989,275
Retained earnings (deficit) (1,783,862) (1,499,733)
----------- -----------
Total shareholders' equity 1,293,903 1,563,032
----------- -----------
Total liabilities and shareholders' equity $11,759,634 $12,732,433
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------------
1996 1995
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
Commissions, fees and other income $2,066,511 $2,241,931
Interest income 27,842 23,472
---------- ----------
Total revenue 2,094,353 2,265,403
---------- ----------
Operating expenses:
Salaries, commissions and employee benefits 1,375,953 1,542,701
Selling, general and administrative expenses 798,029 748,221
---------- ----------
Total operating expenses 2,173,982 2,290,922
---------- ----------
(79,629) (25,519)
Other income (expense):
Amortization of goodwill and intangible assets (91,740) (104,499)
Interest (129,407) (28,114)
Other 21,447 39,162
Merger expenses -- (204,209)
---------- ----------
Total other income (expense) (199,700) (297,660)
---------- ----------
Loss before income taxes (279,329) (323,179)
Income tax expense 4,800 4,800
---------- ----------
Net loss $ (284,129) $(327,979)
---------- ----------
---------- ----------
Net loss per common share $ (.08) $ (.08)
---------- ----------
---------- ----------
Weighted average number of common shares
outstanding 3,681,908 3,923,258
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-In Earnings
Shares Amount Capital (Deficit) Total
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 (Restated) 3,923,258 $78,465 $3,294,702 $ (632,704) $2,740,463
Stock issued for warrants exercised 163 3 486 -- 489
Canceled stock:
Acquisition related adjustment (248,710) (4,974) (305,917) -- (310,891)
Fractional shares (210) (4) 4 -- --
Net Loss -- -- -- (867,029) (867,029)
--------- ------- ---------- ----------- ----------
Balance at December 31, 1995 3,674,501 $73,490 $2,989,275 $(1,499,733) $1,563,032
Stock issued for warrants exercised -- -- -- -- --
Convertible debentures 11,111 222 14,778 -- 15,000
Canceled stock:
Fractional shares -- -- -- -- --
Net loss -- -- -- (284,129) (284,129)
--------- ------- ---------- ----------- ----------
Balance at March 31, 1996
(Unaudited) 3,685,612 $73,712 $3,004,053 $(1,783,862) $1,293,903
--------- ------- ---------- ----------- ----------
--------- ------- ---------- ----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES
4
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------------------
1996 1995
(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(284,129) $(327,979)
Adjustments to reconcile net loss to cash provided
by (used in) operating activities:
Depreciation and amortization 69,579 51,018
Amortization of goodwill, and other
intangibles 91,740 104,499
Changes in operating assets and liabilities,
net of effect of purchases of subsidiaries:
Cash and cash equivalents - brokerage
fiduciary funds 261,788 9,031
Accounts receivable (576,043) (125,518)
Prepaid expenses and other current assets 1,802 93,942
Other assets (3,022) (7,121)
Deferred compensation (73,656) 1,904
Net premiums payable - insurance companies 342,945 10,070
Accounts payable and accrued expenses 30,209 (16,330)
Other liabilities (22,865) (6,966)
--------- ---------
Net cash used in operating activities (161,652) (213,450)
INVESTING ACTIVITIES
Notes receivable, net (4,872) --
Purchases of property and equipment (40,921) (64,435)
Purchases of customer list (260,000) (203,765)
--------- ---------
Net cash used in investing activities (305,793) (268,200)
</TABLE>
5
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ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------------------
1996 1995
(unaudited) (unaudited)
<S> <C> <C>
FINANCING ACTIVITIES
Debt:
Borrowings -- 657,697
Repayment (102,860) (289,724)
Net payments on amounts due on acquisitions 156,022 94,926
--------- ---------
Net cash provided by financing activities 53,162 462,899
--------- ---------
Net decrease in cash (414,283) (18,751)
Cash and cash equivalents - corporate funds at
beginning of period 904,781 384,102
--------- ---------
Cash and cash equivalents - corporate funds at
end of period $ 490,498 $ 365,351
--------- ---------
--------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 129,407 $ 28,144
--------- ---------
--------- ---------
NON-CASH FINANCING ACTIVITIES
Common stock - convertible debentures exercised $ 15,000 $ --
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES
6
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Anchor
Pacific Underwriters, Inc. and its subsidiaries ("Anchor") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, consisting of
normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31,
1996 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in Anchor's
Form 10-K for the year ended December 31, 1995.
The financial statements have been prepared on the going concern basis.
Anchor has reported net losses during the past three years. The increase in
net loss in 1995 and 1994 relates to expenses incurred in connection with
acquisitions and a merger. These events are further discussed in the footnotes
of the audited financials included in the 1995 Form 10-K. Anchor's business is
not capital intensive and Anchor historically has had sufficient capital to
meet its operating needs. Anchor plans to continue making acquisitions and, in
order to fund these acquisitions is presently seeking new bank lines as well as
seeking to raise up to $10 million from institutional investors.
Management's plan to achieve profitability includes a strategy to
strengthen its core health insurance and property and casualty insurance
businesses by: (a) continuing to develop specialized affiliated business units
that target selected insurance market segments defined by industry type,
geographic location and consumer demographics; (b) establishing new products
and services; and (c) seeking to acquire and integrate compatible insurance
brokerage and administration businesses in the Western United States. In
conjunction with such acquisition strategies, management intends to realize
efficiencies and reduce expenses through the integration and centralization of
certain services with its existing infrastructure.
RECLASSIFICATION
Certain prior year balances have been reclassified to conform with the
current year presentation.
NOTE 2 -- ACQUISITIONS
On January 6, 1995, Anchor merged with System Industries, Inc. ("System").
For accounting purposes, the merger has been treated as a recapitalization of
Anchor with Anchor as the acquirer (reverse acquisition). The historical
financial statements prior to January 6, 1995 are those of Anchor. These
historical financial statements have been restated to give effect to this
recapitalization. Upon consummation of this merger, shareholders of System
received one share of Anchor Common stock and one Warrant to purchase one share
of Anchor Common Stock for every 42.3291 shares of issued and outstanding
System Common Stock. As a result of the merger, Anchor became a public
company. In February 1995, Anchor acquired certain third-party administration
accounts from a company located in Stockton, California at a purchase price of
approximately $204,000 (which reflects a $50,000 cash payment and a discounted
future income stream) with an additional $55,000 of stock consideration to be
determined. On March 1, 1996, Anchor purchased the R.L. Ferguson Insurance
Agency ("RLF"), at a purchase price of approximately $260,000 (which reflects a
$95,000 cash payment and a discounted future income stream) with an additional
$25,000 of stock consideration to be issued at an agreed per-share value of
Anchor's Common Stock to be $2.00 per share.
7
<PAGE>
The results of operations from these acquisitions are included in Anchor's
consolidated financial statements from the date of purchase.
Although Anchor is engaged in discussions with third parties regarding
potential acquisitions, as of May 10, 1996, it did not have any binding
agreements with respect to acquisitions. No assurances can be given with
respect to the likelihood, or financial or business effect, of any possible
future acquisition.
NOTE 3 -- CONTINGENCIES
Anchor is subject to certain legal proceedings and claims arising in
connection with its business. It is management's opinion that the resolution
of these claims will not have a material effect on Anchor's consolidated
financial position.
NOTE 4 -- CONVERTIBLE PREFERRED STOCK
Anchor is seeking to raise up to $10 million in long-term financing through
the proposed issuance of Series A Convertible Preferred Stock. A portion of
the proceeds will be used for debt consolidation, working capital and to fund
future acquisitions. Although the terms of the Series A Convertible Preferred
Stock have not been finalized, certain preferences will be given in regards to
liquidation, voting, board representation, conversion, dilution and
registration rights. There can be no assurances as to when or whether Anchor
will raise additional capital or what the final terms and conditions would be
for such capital.
NOTE 5 -- COMMITMENTS
In 1993, Anchor entered into an agreement with a third party to provide
information management services. Such services included managing and operating
certain automated information systems as well as providing programming support
and the development of certain software applications.
The agreement provided for an initial term of three years (expiring March
28, 1996) with two (2) two-year automatic renewals unless a 90-day notice of
nonrenewal was given by either party. Net costs for the initial term
approximated $416,000 per year. Other terms and conditions included a penalty
provision should Anchor not continue the agreement through the automatic
renewal periods.
On March 25, 1996, Anchor successfully negotiated the termination of this
agreement for $125,000 payable with a $50,000 down payment with monthly
installments through February 1997. This will allow Anchor to begin
consolidation of computer systems between Harden & Company ("Harden") and
Benefit Resources, Inc. ("BRI"). Management expects that this buyout will
result in expense and cash savings as well as improve future productivity.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
Anchor was organized in 1986 as a California general partnership for the
specific purpose of acquiring Harden, a third-party employee benefits
administrator. Anchor was reorganized as a private California corporation in
March 1987 and became a public reporting Delaware corporation on January 6,
1995 when it merged with System.
Since its inception, Anchor has expanded its insurance and financial
service capabilities through internal growth and a series of acquisitions. In
August 1994, Anchor acquired BRI, a third-party administrator located in
Scottsdale, Arizona; in October 1994, it acquired Putnam, Knudsen & Wieking,
Inc. ("PKW"), a property and casualty insurance brokerage company located in
Oakland, California; and in March 1996, Anchor acquired RLF, a property and
casualty insurance brokerage company located in Walnut Creek, California. The
RLF acquisition is not significant to Anchor. The acquisitions of these
entities were accounted for using the purchase method of accounting. Anchor
expects to continue to expand its insurance brokerage and administration
businesses and to explore other complementary expansion opportunities.
Historically, Anchor derived a majority of its revenues from third-party
administration services. In light of its acquisition of PKW and the March 1,
1996 acquisition of RLF, Anchor expects to significantly increase the
percentage of its revenues that are derived from property and casualty
insurance brokerage activities.
RESULTS OF OPERATIONS -- QUARTERS ENDED MARCH 31, 1996 AND 1995
GENERAL
Anchor derives a substantial portion of its revenues from commissions,
which generally are based on a percentage of premiums produced by Anchor,
contingent commissions, which generally are based on underwriting profits
derived over a given period of time by the insurance carrier, and fees received
for claims administration (including underwriting and risk analysis) services,
which generally are based on a percentage of premiums collected, or on a per
capita basis. Anchor does not assume any underwriting risk in connection with
its business.
Fluctuations in premiums charged by insurance companies may materially
affect commission revenues. During the last seven years, the property and
casualty insurance industry has experienced a "soft market" where the
underwriting capacity of insurance companies expanded, stimulating an increase
in competition and a decrease in premium rates, thereby reducing related
commissions and fees. In addition to the soft market for property and casualty
insurance, workers' compensation reform in California has had the effect of
reducing workers' compensation insurance premiums and, consequently, reducing
commissions generated by the sale of related insurance products. Although some
sources in the insurance industry have predicted future premium increases, the
likelihood of rate increases in 1996 remains uncertain. Anchor believes that
revenues generated from anticipated future growth and continued diversification
of its business will offset weaknesses in the property and casualty market and
any loss of revenues that may result from workers' compensation reform.
Inflation may also impact commission revenues by, among other things,
increasing property replacement costs and workers' compensation and liability
claims, thereby causing some clients to seek higher levels of insurance
coverage and pay higher premiums. During the past several years, the United
States has experienced very low rates of inflation along with business
downsizing, reduced sales and lower payrolls; these events have resulted in
lower levels of exposure to insure. Because the United States has recently
experienced limited inflationary pressures inflation has had minimal impact on
insurance prices.
Other factors, such as client uncertainty about the effect of health care
reform, could also affect Anchor's business. Anchor believes, however, that
its expertise in two major elements of health care reform proposals (managed
care and managed competition), combined with its strategy of serving middle
market clients, makes it well positioned to operate effectively in a managed
care and managed competition environment. Anchor also believes that in light
of the political changes in the United States Congress, the United States will
experience
9
<PAGE>
incremental, rather than comprehensive, changes in health care regulations. It
is not possible at this time to predict the effect that any health care
legislation will have on Anchor's business condition or operations.
Anchor is unaware of any current regulatory proposals that could have a
material effect on its liquidity, capital resources or operations.
Anchor recently took steps to strengthen the sales management at both PKW
and BRI by hiring seasoned sales and marketing Executives to take over
marketing responsibilities. Product development and new product sales continue
to be a top priority as does geographical diversification into other states.
Marketing for new business on the release of a new product by Harden and BRI's
new carrier began on April 1, 1996.
REVENUES
TOTAL REVENUES. Total revenues for the three months ended March 31, 1996
were $2,094,353, a decrease of $171,050 or 7.6%, over 1995 first quarter
revenues of $2,265,403. The decrease resulted from net lost business for the
three month period ended March 31, 1996. Anchor's revenues vary from quarter
to quarter as a result of the timing of policy renewals and net new/lost
business production, whereas expenses are fairly uniform throughout the year.
This loss of revenue is due primarily to the decrease in fee income as
discussed below.
Commissions and fees make up substantially all of Anchor's revenues. The
following table sets forth the percentages of Anchor's revenues attributable to
insurance brokerage services (for which commissions are generated), and
third-party administration and underwriting and risk analysis services (for
which fees are generated), for the three months ended March 31, 1996, 1995 and
1994. Also included is the percentage of revenues generated from premium
finance activities.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, 1996 1995 1994
- --------------------------- -------- -------- --------
<S> <C> <C> <C>
Insurance Brokerage 42% 41% 20%
Third-Party Administration 58% 58% 79%
Premium Financing -- 1% 1%
---- ---- ----
Total 100% 100% 100%
</TABLE>
Historically, Anchor derived a majority of its revenues from third-party
administration services. In light of its acquisitions of PKW and RLF, Anchor
expects to continue to experience an increase in the percentage of its revenues
that are derived from insurance brokerage activities.
COMMISSIONS. Commissions are reported net of sub-broker commissions and
generally are recognized as of the effective date of the insurance policy
except for commissions on installment premiums which are recognized
periodically as billed. Commissions for the first quarter of 1996 were
$874,298, a decrease of $43,669 or 4.8%, compared to $917,967 of commissions
for the first quarter of 1995. The decrease resulted from net lost business
for the three month period ended March 31, 1996.
Anchor expects that, in 1996, commission revenues generated from sales of
workers' compensation insurance, which accounted for approximately 18% of
commission revenues (or 7% of Anchor's total revenues) in 1995, might decrease
as a result of workers' compensation reform in California. Anchor believes,
however, that revenues generated from anticipated growth and continued
diversification of its business will substantially offset any loss of revenues
that result from workers' compensation reform.
FEES. Fees from Anchor's third-party administration (including
underwriting and risk analysis) services for the three months ended March 31,
1996 were $1,192,186, a decrease of $127,451, or 9.7%, compared to $1,319,637
in fees for the same period in 1995. This loss of fees income is the result of
a change in the principal carrier for Harden and is discussed below.
10
<PAGE>
Fee revenues generated by Anchor in the first quarter of 1996 from
third-party administration services consist of revenues generated by Harden and
BRI. A significant portion of BRI's fee revenues relate to an insurance product
underwritten by one insurance carrier, which currently is an A+ (Superior)
rated insurance carrier.
Harden's third-party administration revenues substantially relate to: (a)
an insurance product underwritten by two insurance carriers, which are A
(Excellent) and A+ (Superior) rated insurance carriers; and (b) the
administration of insurance programs underwritten by various insurance carriers
for a number of self-insured employers. The insurance product referred to in
subparagraph (a) above accounted for approximately 60.6% of Harden's revenues
(or approximately 25.1% of Anchor's total revenues) in 1995, and revenues
related to the administration self-insured programs described in sub-paragraph
(b), accounted for 38.0% of Harden's revenues in such period. Self-insurance
is a program in which a client assumes a manageable portion of its insurance
risks, usually (although not always) placing the less predictable and larger
loss exposure with an excess insurance carrier.
The insurance company which offered the product that accounted for 65% of
Harden's third-party administration revenues in the first quarter of 1995
informed Harden that as a result of changes in its business strategy, it
would discontinue offering such an insurance product by the end of 1995. On
July 20, 1995, Harden obtained a binding commitment from an A+ (Superior)
rated insurance carrier to underwrite the risk and provide a replacement
product as of October 1, 1995. Although management anticipates an orderly
transition to the new carrier, such a transition often causes clients to
reevaluate their insurance needs, or alternatively, the client may not
satisfy the new insurance carrier's underwriting requirements. Consequently
there usually is a short term net loss of clients. During the first quarter
in 1996, one client who represented approximately 9% of Harden's 1995
revenues, (or 3.7% of Anchor's consolidated revenues) was advised by the new
carrier that it did not meet its underwriting standards.
INTEREST INCOME. Interest income consists of interest earned on
insurance premiums and other funds held in fiduciary accounts and interest
earned on investments. Interest income was $27,842 and $23,472 for the three
months ended March 31, 1996 and 1995, respectively. The increase in interest
income in 1996, as compared to 1995, resulted primarily from a larger amount
of insurance premiums and other funds held in fiduciary accounts.
EXPENSES
Anchor continues to monitor expenses closely as Harden and BRI transition
from one carrier to another for their major indemnity product. Anchor is
monitoring staffing as well as outside professional services. Recent
termination for contracted systems support will result in cost savings and
greater productivity.
TOTAL EXPENSES. Total operating expenses for the three months ended
March 31, 1996 were $2,173,982, a decrease of $116,940 or 5.1% as compared to
the operating expenses of $2,290,922 for the same period in 1995. As
discussed below, the decrease in total expenses resulted from a decrease in
employee compensation and benefits offset, in part, by the increase in
selling, general and administrative expenses.
EMPLOYEE COMPENSATION AND BENEFITS. Employee compensation and benefits
for the three months ended March 31, 1996 were $1,375,953, a decrease of
$166,748 or 10.8% as compared to $1,542,701 for the same period in 1995.
Starting in 1996 PKW went to a compensation system for all sales personnel
based upon commission only versus the prior practice of paying commission
plus salary. The change in 1996 was made in order to record commissions to
properly match with earned revenues. In addition, the decrease was also
attributed by normal attrition at Harden, PKW and BRI.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $793,029 and $748,221 for the three months ended
March 31, 1996 and 1995, respectively. The $44,808, or 6.0%, increase in
1996, as compared to 1995, resulted primarily from reclassification of
certain items. Other operating expenses include rent, travel, insurance,
postage, telephone, supplies and other miscellaneous expenses.
11
<PAGE>
INTEREST EXPENSE. Interest expense totaled $129,407 and $28,114, for the
three months ended March 31, 1996 and 1995, respectively. The increase in
interest expense of $101,293 in the first quarter 1996, as compared to the
same period in 1995, resulted primarily from an increase in outstanding
borrowings on Anchor's existing line of credit. Anchor expects that interest
expense will increase in 1996, as compared to 1995, due to larger outstanding
borrowings.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Goodwill represents the
excess of the cost of acquisitions over the fair value of net assets
acquired. Other intangibles include covenants not to compete, customer lists
and other contractual rights. Amortization of goodwill and other intangibles
was $91,740 and $104,499, for the three months ended March 31, 1996 and 1995,
respectively. The decrease in amortization of goodwill and other intangibles
is a result of an adjustment to goodwill in the fourth quarter of 1995 due to
the subsequent adjustment of the PKW purchase price. For further
information, refer to Adjustment to PKW Purchase Price, page 15, in Anchor's
Annual Report on Form 10-K for the year ended December 31, 1995.
INCOME TAXES
Anchor's expense for income taxes was $4,800 for both three month periods
ended March 31, 1996 and 1995. This $4,800 expense represents the minimum
annual required tax payment due.
LIQUIDITY AND CAPITAL RESOURCES
Anchor's business is not capital intensive and Anchor historically has
had sufficient capital to meet its operating needs. Anchor reported net cash
flows (used in) operations of $(161,652) for the three months ended March 31,
1996, compared to net cash flows (used in) operations of $(213,450) for the
three months ended March 31, 1995. During 1996, Anchor expects to meet its
operating and capital needs from cash flow derived from operations and
borrowing under its existing credit agreements. As of March 31, 1996, Anchor
had approximately $325,000 available on its existing lines of credit.
Subject to obtaining financing from alternate sources, Anchor expects to
draw down on substantially all of its lines of credit. Liquidity would be
impaired if cash flow from operations were reduced or if existing credit
lines were insufficient. To further supplement these funding sources Anchor
is presently seeking new bank lines and, as described below, is seeking to
raise up to $10 million from institutional investors.
During the period of May 1, 1995 through December 31, 1995, Anchor raised
$370,000 to supplement its working capital and capital expenditure
requirements by selling 10% Convertible Subordinated Debentures (the
"Debentures"). The basic terms of the Debentures are: (a) 10% interest per
annum; (b) two year maturity; (c) conversion price of $1.35 in the first
year and $1.65 in the second year; (d) "piggyback" registration rights for
three years; (e) subordination provisions that subordinate the Debentures to
Anchor's "Senior Debt" (as defined in the Debentures); and (f) provisions
that permit Anchor to redeem the Debentures at par at any time. Purchasers
of the Debentures included seven members of the Board of Directors of Anchor
and a limited number of other sophisticated investors.
An additional $600,000 was raised in the fourth quarter of 1995 to
supplement Anchor's working capital and capital expenditure requirements by
selling a 10% Convertible Subordinated Debenture, Series A (the "Debenture")
to Guarantee Life Insurance Company. The basic terms of the Debenture are:
(a) 10% interest per annum; (b) two year maturity; (c) conversion price of
$1.50; (d) "piggyback" registration rights for three years; (e) subordination
provisions that subordinate the Debenture to Anchor's "Senior Debt" (as
defined in the Debenture); and (f) provisions that permit Anchor to redeem
the Debenture at par at any time.
During 1995, Anchor engaged the services of an investment banker to
assist in raising approximately $10 million from institutional investors
through the proposed issuance of Series A Convertible Preferred Stock.
Marketing of this private placement to institutional investors will begin in
May, 1996. The proceeds of this offering would be used for debt
consolidation, working capital and to fund future acquisitions. At the
present time, Anchor expects to offer investors preferred stock that will be
convertible into shares of common stock. Anchor has had preliminary
discussions with various potential investors, but has not yet obtained any
commitments with respect to such financing. Consequently, there can be no
assurance as to when or whether Anchor will raise additional capital or what
the terms and conditions would be for such capital.
12
<PAGE>
Capital and certain acquisition related expenditures were $300,921 and
$268,200 for the three months ended March 31, 1996 and 1995, respectively.
During the first quarter of 1996, the R.L. Ferguson Insurance Agency ("RLF")
located in Walnut Creek, California was acquired and merged into Anchor's
insurance brokerage subsidiary, PKW, located in Concord, California. During
the first quarter of 1995 certain third-party administration accounts from a
company located in Stockton, California were acquired and merged in Anchor's
third-party administration subsidiary, Harden, located in Concord, California.
Short-term debt, current portion of long-term debt and current portion of
long-term liabilities at March 31, 1996, totaling in the aggregate $2,007,636
(as compared to $1,830,159 at December 31, 1995) consisted of: (a) $975,000
outstanding under a $1,000,000 revolving line of credit maintained by Anchor
with a regional San Francisco Bay Area bank; (b) $200,000 outstanding under
a $500,000 unsecured line of credit maintained by Anchor with another
regional San Francisco Bay Area bank; (c) approximately $228,750 of future
fixed payments under a consulting agreement entered into with a company
affiliated with the former shareholders of BRI; (d) $150,000 representing
the current portion of obligations with regard to certain real property
leased by PKW prior to its acquisition by Anchor and relocation to Anchor's
executive offices; and (e) $453,886 for certain other current liabilities.
On October 25, 1995 the $1,000,000 line of credit expired. The bank has
extended the line of credit to September 8, 1996. The line of credit
requires Anchor to maintain shareholders' equity of at least $800,000.
Anchor's shareholders' equity at March 31, 1996 was $1,293,403. The $500,000
unsecured line of credit, expires on July 30, 1996. The interest rate on the
$1,000,000 line of credit is at the lending bank's prime rate. The $500,000
line of credit has an interest rate equal to the lending bank's prime rate
plus 1-1/4%.
In 1995, the bank that provided Anchor with the $1,000,000 line of credit
also provided Anchor with equipment financing loans of $125,000 and $62,000
for equipment purchased with operating capital. The proceeds from the
$125,000 equipment financing loan were then used to reduce the outstanding
balance on said $1,000,000 line of credit.
At March 31, 1996, long-term liabilities, less the current portion
discussed above, totaled $2,246,721 (as compared to $2,412,852 at December
31, 1995), and primarily consisted of: (a) convertible debentures of
$955,000; (b) approximately $384,000 of future fixed payments under the
consulting agreement mentioned above with a company affiliated with the
former shareholders of BRI; (c) approximately $285,137 representing the
long-term portion of obligations with regard to certain real property leased
by PKW prior to its acquisition by Anchor and relocation to Anchor's
executive offices; and (d) approximately $622,584 for certain other long-term
liabilities. In May, 1995, PKW entered into a sublease with respect to 82%
of PKW's prior office space. The sublease expires on September 30, 1997
(unless extended by the subtenant through November 30, 1999, the date on
which the term of the master lease expires) and requires PKW to provide a
multi-year rent subsidy. In December, 1995, PKW entered into a sublease with
respect to an additional 10% of PKW's prior office space. The sublease
expires on November 30, 1999 and requires PKW to provide a multi- year rent
subsidy. The amounts classified as short and long-term liability with
respect to the PKW leases reflect such subsidy and are based upon the
assumptions that: (a) the subtenant of the May, 1995, sublease will exercise
its option to extend the lease through 1999; and (b) the remaining 8% of such
office space will be subleased in 1997.
Anchor has not paid cash dividends in the past and does not expect to pay
cash dividends in the foreseeable future.
STRATEGY
Anchor's strategy is to strengthen its core health insurance and property
and casualty (including workers' compensation) insurance businesses by: (a)
continuing to develop specialized affiliated business units that target
selected insurance industry market segments defined by industry type,
geographic location and consumer demographics; (b) establishing new products
and services; and (c) seeking to acquire and integrate compatible insurance
brokerage and administration businesses in the Western United States. In
connection with this strategy, Anchor regularly considers acquisition
opportunities. To date, acquisitions by Anchor have involved relatively
small acquisitions of insurance brokerage and administration accounts to
larger acquisitions of insurance brokerage companies, such as PKW, and
third-party administrators, such as BRI. Anchor expects to
13
<PAGE>
continue to pursue appropriate acquisition opportunities, and believes that
its merger with System greatly enhances its ability to make acquisitions and
continue its expansion strategy. Although Anchor is engaged in discussions
with third parties regarding potential acquisitions, as of May 10, 1996, it
did not have any binding agreements with respect to acquisitions. No
assurances can be given with respect to the likelihood, or financial or
business effect, of any possible future acquisition.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Anchor and its subsidiaries are parties from time to time to various
lawsuits that have arisen in the normal course of business. Management is
not aware of any lawsuits to which Anchor or its subsidiaries is currently a
party or to which any property of Anchor or any of its subsidiaries is
subject, which might materially adversely affect the financial condition or
results of operations of Anchor.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.12a Mutual Release and Settlement Agreement, Promissory Note and
UCC-1 Financing Statement dated as of March 25, 1996, between
Harden and BRC (formerly CMSI) of the Information Management
Agreement dated as of May 11, 1993, between Harden and CMSI,
which is incorporated by reference to Exhibit 10.12 of the
Company's Annual Report on Form 10-K for the year ended December
31, 1994.
10.12b Account Transition Agreement, Promissory Note and UCC-1
Financing Statement dated as of March 29, 1996, between Harden
and BRC (formerly CMSI) of the Management Agreement dated as of
May 11, 1993, between Harden and CMSI, which is incorporated by
reference to Exhibit 10.12 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.18 Purchase and Sale Agreement dated as of March 1, 1996, between
Anchor and Roland L. Ferguson, doing business as R.L.
Ferguson Insurance Agency.
27.0 Financial Data Schedule
B. Reports on Form 8-K
Anchor filed a Form 8-K dated April 26, 1996 in which it
reported pursuant to Items 4 and 7 thereof a change in its
independent accountant, and attached the following exhibits:
16 Letter from Ernst & Young LLP regarding change in certifying
accountant.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Anchor has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ANCHOR PACIFIC UNDERWRITERS, INC.
Date: May 10, 1996 /s/ James R. Dunathan
------------------------------ -----------------------------------------
James R. Dunathan
President and Chief Executive Officer
Date: May 10, 1996 /s/ Earl Wiklund
------------------------------ -----------------------------------------
Earl Wiklund
Senior Vice President and Chief Financial
Officer
16
<PAGE>
EXHIBIT 10.12a
<PAGE>
[LETTERHEAD]
March 21, 1996
Mr. James R. Dunathan
President and Chief Executive Officer
Anchor Pacific Underwriters, Inc. DELIVERED BY FACSIMILE
1800 Sutter St. Suite 400 (510) 676-9317
Concord, California 94520
re: Mutual Release and Settlement Agreement
Dear Jim:
Based upon telephone conversations with Earl Wiklund, I believe we have
reached terms to conclude our business relationship on a mutually beneficial
basis. The following summarizes our agreement:
1) Anchor Pacific Underwriters, Inc. and Harden & Company Insurance Services,
Inc. will pay to BRC Health Care (formerly known as CMSI), $125,000 to
settle any and all (i) open and/or disputed invoices for programming
services, and (ii) marketing rights associated with the software in question
("Agreed Settlement Amount").
2) Anchor Pacific will pay the Agreed Settlement Amount to BRC in the
following manner:
a) $50,000 no later than March 28, 1996; and
b) $75,000 to be paid as follows:
1) 8 consecutive monthly payments of $5,500 commencing April, 1996
and due by the 25th of each month; and
2) $31,000 no later than December 26, 1996.
3) It is our mutual intent that the Agreed Settlement Amount is to be
received by BRC within the 1996 calendar year. Anchor retains the right
to payoff the amounts due to BRC on or before December 26, 1996 at any
time without penalty. However, if Anchor defaults in making any of these
payments, BRC will have the right, but not the obligation, to assess
interest charges at the prevailing prime interest rate plus two points at the
time of default on the remaining outstanding balance, and continuing until
the remaining balance of the Agreed Settlement Amount is paid.
4) As part hereof, Anchor agrees to execute a UCC-1 Financing Statement and
Note Payable Agreement in the forms attached hereto.
Please signify your acceptance of this agreement where indicated below and
return one of the originals to my attention at the address listed above. All
payments of the Agreed Settlement Amount should be remitted to:
BRC Health Care, Inc.
1111 W. Mockingbird Lane Ste #1400
Dallas, Texas 75247-5014
Attn: Darrell T. Carpenter
<PAGE>
Letter: Mutual Release and Settlement Agreement
March 21, 1996
Page 2 of 2
It is my understanding that your Board of Directors has given their tentative
approval to the structure of this agreement and we can proceed with the
completion of the attached documents. However, if you have any questions
concerning the attachments or this proposed agreement, please call me
directly at (214) 640-5611.
To my knowledge, this proposed agreement would close all the outstanding
issues between our two organizations and we can proceed with the transition
of services from BRC to Anchor. The items involved in the transition are:
a) Employment transition of existing BRC personnel into Anchor's
organization;
b) Value settlement of the document and forms inventory;
c) Anchor's acquisition of BRC's Checkguard check writing system that was
purchased, developed and installed by BRC to facilitate Anchor's check
writing process; and
d) Transference of BRC owned computer equipment to BRC's Dallas office.
Thank you for your help in concluding this matter and best wishes for your
organization's success in the future.
Very truly yours,
/s/ DARRELL T. CARPENTER
Darrell T. Carpenter
Division Controller
BRC Health Care, Inc.
ACKNOWLEDGED AND ACCEPTED THIS 25TH DAY OF MARCH, 1996:
ANCHOR PACIFIC UNDERWRITERS, INC.
By: /s/ JAMES R. DUNATHAN
---------------------
James R. Dunathan
President and Chief Executive Officer
Enclosures: Note Payable Agreement.
UCC-1 Financing Statement.
cc: Earl Wiklund, CFO, Anchor Pacific Underwriters, Inc.
David Hart, Exec. VP, BRC Health Care
David Koeninger, Sr. VP, BRC Health Care
<PAGE>
PROMISSORY NOTE
$125,000.00 March 25, 1996
For value received, the undersigned ("Maker"), promise(s) to pay to the
order of BRC Health Care, Inc., an Oregon corporation ("Payee"), the
principal sum of One Hundred Twenty-Five Thousand and No/100 Dollars
($125,000.00) in lawful money of the United States of America which shall be
legal tender for the payment of this debt without interest. The principal
shall be due and payable as follows:
Principal and interest on this Note are payable at Business Records
Corporation, 1111 W. Mockingbird Lane, Suite 1400, Dallas, Texas 75247,
Attention: Mr. Darrell T. Carpenter.
Maker agrees to execute whatever additional documentation that BRC deems
necessary and/or desirable to perfect its secured interest thereunder and
thereunder through an UCC-1 Financing Statement to be filed with the Texas
Secretary of State's Office once it has been executed by Maker ("Security
Document"). The file-stamped copy of the Security Document shall be attached
hereto and incorporated herein as Exhibit "A". Any default under the letter
agreement attached hereto as Exhibit "B" ("Letter Agreement"), and/or the
Security Document, or hereunder (collectively the "Default"), shall cause
Payee to have the option, but not the obligation, to accelerate the entire
principal balance to become due and payable immediately, without notice or
demand. An event of Default shall be deemed to have occurred upon any the
following:
1. Default in the payment of principal due hereunder or in the
performance of any of the covenants or provisions of the Letter Agreement, or
Security Document executed in connection with the indebtedness evidenced
hereby; and/or
2. The death, liquidation, termination or dissolution of Maker or any
other party liable for the payment hereof, whether as endorser, guarantor,
surety or otherwise; and/or
3. The bankruptcy or insolvency of, the assignment for the benefit of
creditors by, or the appointment of a receiver for any property of any party
liable for the payment of this Note, whether as maker, endorser, guarantor,
surety or otherwise.
During the existence of any default hereunder or under any instrument
securing or evidencing the indebtedness evidenced hereby, the entire unpaid
balance of principal shall bear interest at the highest rate permitted by
applicable law, or, if no such maximum rate is established by applicable law,
then at the rate of prime plus two %.
Maker hereby waives presentment for payment, demand and notice of
nonpayment of this Note, and understands that BRC, may in its sole
discretion, extend repayment of any part or whole of the debt at any time at
the request of Maker. Provided, however, that in the event this Note shall be
placed in the hands of an attorney for collection, Maker shall also be liable
to BRC for any reasonable attorneys fees and costs incurred in connection
with such collection.
This Note shall be governed by, and construed in accordance with the laws
of the State of Texas, and the United States of America to the extent that
the laws of the United States of America would permit the holder hereof to
contract for, charge, receive, take and reserve a greater amount of interest
than would otherwise be permitted by applicable Texas law.
<PAGE>
Promissory Note
Anchor Pacific Underwriters, Inc.
Page 2 of 2
Whenever used herein, the words "Maker" and "Payee" shall be deemed to
include their respective heirs, personal representatives, successors and
assigns.
In Witness Whereof, the undersigned has hereunto set its hand as of the
day and year first above written.
MAKER:
ANCHOR PACIFIC UNDERWRITERS, INC.
a Delaware Corporation
By: /s/ JAMES R. DUNATHAN
Its: President / C.E.O.
<PAGE>
THIS FINANCING STATEMENT IS PRESENTED TO A FILING OFFICER
FOR FILING PURSUANT TO THE UNIFORM COMMERCIAL CODE.
<TABLE>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------|---------------------------|---------|------------------|-------------------
1. DEBTOR (IF PERSONAL) LAST NAME | FIRST NAME |M.I. |1A. PREFIX | 1B. SUFFIX
Anchor Pacific Underwriters, Inc. | | | |
- ------------------------------------------------|--------------|------------|---------|------------------|-------------------
1C. MAILING ADDRESS |1D. CITY, STATE |1E. ZIP CODE
1800 Sutter Street, Suite 400 | Concord, California | 94520
- ------------------------------------------------|--------------|------------|---------|------------------|-------------------
2. ADDITIONAL DEBTOR (IF PERSONAL) LAST NAME | FIRST NAME |M.I. |2A. PREFIX | 2B. SUFFIX
Harden & Company Insurance Services, Inc. | | | |
- ------------------------------------------------|--------------|------------|---------|------------------|-------------------
2C. MAILING ADDRESS |2D. CITY, STATE |2E. ZIP CODE
1800 Sutter Street, Suite 400 | Concord, California | 94520
- ------------------------------------------------|--------------|------------|----------------------------|-------------------
3. SECURED PARTY (IF PERSONAL) LAST NAME | FIRST NAME |M.I.
BRC Health Care, Inc. | |
- ------------------------------------------------|--------------|------------|----------------------------|-------------------
3A. MAILING ADDRESS |3B. CITY, STATE |3C. ZIP CODE
1111 W. Mockingbird Ln., Suite 1400 | Dallas, Texas | 75247
- ---------------------------------------------------------------|-----------------------------------------|-------------------
4. ASSIGNEE OF SECURED PARTY (IF ANY)
- ---------------------------------------------------------------|-----------------------------------------|-------------------
4A. MAILING ADDRESS |4B. CITY, STATE |4C. ZIP CODE
| |
- ---------------------------------------------------------------|-----------------------------------------|-------------------
5. This FINANCING STATEMENT covers the following types or items of property. (If collateral is crops, fixtures, timber or
minerals, read Instruction B. 5-6 on back.)
Promissory Note and Letter Agreement dated March 21, 1996.
</TABLE>
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------|--------------------------------------------------------------------------
6. CHECK ONLY 6A. PRODUCTS OF | 6B. THIS FINANCING STATEMENT IS NUMBER OF ADDITIONAL
IF / / COLLATERAL ARE | / / TO BE FILED FOR RECORD IN SHEETS
APPLICABLE ALSO COVERED | THE REAL ESTATE RECORDS. PRESENTED-----------
- -------------------------------------------------|--------------------------------------------------------------------------
7. CHECK 7A. THIS FINANCING STATEMENT IS SIGNED BY THE SECURED PARTY
APPROPRIATE INSTEAD OF THE DEBTOR TO PERFECT A SECURITY INTEREST IN / /(1) / /(2) / /(3) / /(4) / /(5)
BOX COLLATERAL IN ACCORDANCE WITH INSTRUCTION B. 7 ITEM:
- ----------------------------------------------------------------------------------------|------------------------------------|
8. SIGNATURE(S) |THIS SPACE FOR USE OF FILING OFFICER|
OF /s/ JAMES R. DUNATHAN PRES./C.E.O. |(DATE, TIME, NUMBER, FILING OFFICER)|
DEBTOR(S) | |
- ----------------------------------------------------------------------------------------| |
| |
ANCHOR PACIFIC UNDERWRITERS, INC. | |
| |
- ----------------------------------------------------------------------------------------| |
SIGNATURE(S) | |
OF /s/ EARL WIKLUND | |
SECURED PARTY(IES) | |
- ----------------------------------------------------------------------------------------| |
| |
| |
| |
- ----------------------------------------------------------------------------------------| |
9. Return copy to: | |
| |
NAME BRC Health Care, Inc. | |
ADDRESS 1111 W. Mockingbird Lane, Suite 1400 | |
CITY Dallas, Texas 75247 | |
STATE Attn: Division Controller | |
ZIP | |
- ----------------------------------------------------------------------------------------|------------------------------------|
</TABLE>
<PAGE>
EXHIBIT 10.12b
<PAGE>
[LETTERHEAD]
March 27, 1996
Mr. James R. Dunathan
President and Chief Executive Officer
Anchor Pacific Underwriters, Inc. DELIVERED BY FACSIMILE
1800 Sutter St. Suite 400 (510) 676-9317
Concord, California 94520
re: Account Transition
Dear Jim:
Based upon additional telephone conversations with Earl Wiklund, I believe we
have concluded the remaining items to end our business relationship on a
mutually beneficial basis. The following summarizes our agreement regarding the
following:
1) Anchor Pacific Underwriters, Inc. and Harden & Company Insurance Services,
Inc. will pay to BRC Health Care (formerly known as CMSI), $16,500 to
settle any and all (I) items regarding all document and forms inventory as
detailed on "Attachment A", (II) BRC's Checkguard check writing system
that was purchased, developed and installed by BRC to facilitate Anchor's
check writing process; and (III) all BRC computer equipment detailed on
"Attachment B" ("Agreed Settlement Amount").
2) Anchor Pacific will pay the Agreed Settlement Amount to BRC in two (2)
consecutive monthly payments of $8,250 commencing January, 1997 and due by
the 25th of each month; and the last payment due no later than February 25,
1997.
3) Anchor retains the right to payoff the amounts due to BRC on or before
February 25, 1997 at any time without penalty. However, if Anchor defaults
in making any of these payments, BRC will have the right, but not the
obligation, to assess interest charges at the prevailing prime interest
rate plus two points at the time of default on the remaining outstanding
balance, and continuing until the remaining balance of the Agreed
Settlement Amount is paid.
4) As part hereof, Anchor agrees to execute a UCC-1 Financing Statement and
Note Payable Agreement in the forms attached hereto.
Please signify your acceptance of this agreement where indicated below and
return one of the originals to my attention at the address listed above. All
payments of the Agreed Settlement Amount should be remitted to:
BRC Health Care, Inc.
1111 W. Mockingbird Lane Ste #1400
Dallas, Texas 75247-5014
Attn: Darrell T. Carpenter
<PAGE>
Letter: Account Transition
March 27, 1996
Page 2 of 2
If you have any questions concerning the attachments or this proposed
agreement, please call me directly at (214) 640-5611.
To my knowledge, this agreement closes all outstanding
issues between our two organizations and the transition
of services from BRC to Anchor will proceed as scheduled for April 1, 1996.
Additionally, we will forward to Anchor the information necessary to aid in
the transition of existing personnel from BRC to Anchor.
Thank you for your help in concluding this matter and best wishes for your
organization's success in the future.
Very truly yours,
/s/ DARRELL T. CARPENTER
Darrell T. Carpenter
Division Controller
BRC Health Care, Inc.
ACKNOWLEDGED AND ACCEPTED THIS 29TH DAY OF MARCH, 1996:
ANCHOR PACIFIC UNDERWRITERS, INC.
By: /s/ JAMES R. DUNATHAN
---------------------
James R. Dunathan
President and Chief Executive Officer
Enclosures: Note Payable Agreement.
UCC-1 Financing Statement.
cc: Earl Wiklund, CFO, Anchor Pacific Underwriters, Inc.
David Hart, Exec. VP, BRC Health Care
David Koeninger, Sr. VP, BRC Health Care
<PAGE>
BRC FORMS INVENTORY
Cost Center 96500 - Harden Company
<TABLE>
<CAPTION>
Package Package Quantity Inventory
Form Type Type Quantity Cost Packages Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BLUE BAR Carton 3,100 $ 13.85 /m 5.00 $69.25
IDCARD2 Carton 1,000 838.95 /m 1.25 1,048.69
IDCARD4 Carton 1,000 738.94 /m 1.25 923.68
IDCARD4 w/o back Carton 1,000 738.94 /m 1.00 738.94
IDCARD4 Green Carton 1,000 738.94 /m 1.00 738.94
PAST DUE NOTICE Carton 1,100 700.00 /m 0.10 70.00
S/F BILLS Carton 1,000 169.10 /m 0.00 0.00
MET BILLS Carton 1,000 233.90 /m 0.75 175.43
IH Bills Carton 1,000 275.31 /m 2.40 660.74
FILE LABELS Carton 6,000 2.64 /m 0.33 5.23
WIDE LABELS Carton 12,000 3.64 /m 1.00 43.68
SCERT LABEL Carton 3,000 6.98 /m 1.00 20.94
ECERT LABEL Carton 4,000 4.79 /m 1.00 19.16
MCERT LABEL Carton 2,000 10.26 /m 2.00 41.04
CONT. 2ND SHEET Carton 1,100 86.36 /m 2.00 190.00
LASER - LHED Carton 4,000 38.75 /m 3.00 116.25
LASER - 2ND SHEET Carton 4,000 28.40 /m 16.00 454.40
TONER HP4 LASER Each 1 111.20 /ea 10.00 1,112.00
INK CART MICR XEROX Each 1 205.00 /ea 1.00 205.00
PRINT CART XEROX Each 1 357.00 /ea 4.00 1,428.00
6408 RIBBON Each 1 8.95 /ea 36.00 322.20
4234 RIBBON Each 1 37.50 /ea 4.00 150.00
LASER - EOBS Carton 2,500 23.40 /m 2.00 46.80
LASER - CHECKS Carton 2,500 26.90 /m 7.00 188.30
LASER - PREM CHK Ream 500 125.91 /m 3.50 220.34
- --------------------------------------------------------------------------------------------------------
Final Total $8,989.00
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
ATTACHMENT A
<PAGE>
BRC HEALTH CARE, INC. DATE OF PHYSICAL INVENTORY:-----------
PHYSICAL INVENTORY SCHEDULE
COMPANY OWNED EQUPMENT - USED IN DAY-TO-DAY ACTIVITIES
LOCATION:_HARDEN & COMPANY, CONCORD CA COST CENTER NUMBER:_96500-----------
<TABLE>
<CAPTION>
MANUFACTURER BRC ASSET EQUIPMENT RESPONSIBLE
ITEM DESCRIPTION MANUFACTURER SERIAL NUMBER NUMBER LOCATION EMPLOYEE COMMENTS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Personal Computer 386 Compaq 031146CC560 Computer Room S. Nelson
LaserJet 4 printer Hewlett Packard USBC083033 Computer Room S. Nelson
DeskJet 500 printer Hewlett Packard 3030S64098 Computer Room S. Nelson
DeskJet 500C printer Hewlett Packard 32196A11353 Computer Room S. Nelson
Monitor Amdek 2291009910 Computer Room S. Nelson
Keyboard Compaq 0131146CC560 Computer Room S. Nelson
9600SA modem Practival Peripherals 2390232544 Computer Room S. Nelson
</TABLE>
Equipment Inventory Schedule ATTACHMENT B
<PAGE>
PROMISSORY NOTE
$16,500.00 March 29, 1996
For value received, the undersigned ("Maker"), promise(s) to pay to the
order of BRC Health Care, Inc., an Oregon corporation ("Payee"), the
principal sum of Sixteen Thousand, Five Hundred and No/100 Dollars
($16,500.00) in lawful money of the United States of America which shall be
legal tender for the payment of this debt without interest. The principal
shall be due and payable as follows:
Principal and interest on this Note are payable at Business Records
Corporation, 1111 W. Mockingbird Lane, Suite 1400, Dallas, Texas 75247,
Attention: Mr. Darrell T. Carpenter.
Maker agrees to execute whatever additional documentation that BRC deems
necessary and/or desirable to perfect its secured interest thereunder and
thereunder through an UCC-1 Financing Statement to be filed with the Texas
Secretary of State's Office once it has been executed by Maker ("Security
Document"). The file-stamped copy of the Security Document shall be attached
hereto and incorporated herein as Exhibit "A". Any default under the letter
agreement attached hereto as Exhibit "B" ("Letter Agreement"), and/or the
Security Document, or hereunder (collectively the "Default"), shall cause
Payee to have the option, but not the obligation, to accelerate the entire
principal balance to become due and payable immediately, without notice or
demand. An event of Default shall be deemed to have occurred upon any the
following:
1. Default in the payment of principal due hereunder or in the
performance of any of the covenants or provisions of the Letter Agreement, or
Security Document executed in connection with the indebtedness evidenced
hereby; and/or
2. The death, liquidation, termination or dissolution of Maker or any
other party liable for the payment hereof, whether as endorser, guarantor,
surety or otherwise; and/or
3. The bankruptcy or insolvency of, the assignment for the benefit of
creditors by, or the appointment of a receiver for any property of any party
liable for the payment of this Note, whether as maker, endorser, guarantor,
surety or otherwise.
During the existence of any default hereunder or under any instrument
securing or evidencing the indebtedness evidenced hereby, the entire unpaid
balance of principal shall bear interest at the highest rate permitted by
applicable law, or, if no such maximum rate is established by applicable law,
then at the rate of prime plus two percent.
Maker hereby waives presentment for payment, demand and notice of
nonpayment of this Note, and understands that BRC, may in its sole
discretion, extend repayment of any part or whole of the debt at any time at
the request of Maker. Provided, however, that in the event this Note shall be
placed in the hands of an attorney for collection, Maker shall also be liable
to BRC for any reasonable attorneys fees and costs incurred in connection
with such collection.
This Note shall be governed by, and construed in accordance with the laws
of the State of Texas, and the United States of America to the extent that
the laws of the United States of America would permit the holder hereof to
contract for, charge, receive, take and reserve a greater amount of interest
than would otherwise be permitted by applicable Texas law.
<PAGE>
Promissory Note
Anchor Pacific Underwriters, Inc.
Page 2 of 2
Whenever used herein, the words "Maker" and "Payee" shall be deemed to
include their respective heirs, personal representatives, successors and
assigns.
In Witness Whereof, the undersigned has hereunto set its hand as of the
day and year first above written.
MAKER:
ANCHOR PACIFIC UNDERWRITERS, INC.
a Delaware Corporation
By: /s/ JAMES R. DUNATHAN
Its: President & C.E.O.
<PAGE>
THIS FINANCING STATEMENT IS PRESENTED TO A FILING OFFICER
FOR FILING PURSUANT TO THE UNIFORM COMMERCIAL CODE.
<TABLE>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------|---------------------------|---------|------------------|-------------------
1. DEBTOR (IF PERSONAL) LAST NAME | FIRST NAME |M.I. |1A. PREFIX | 1B. SUFFIX
Anchor Pacific Underwriters, Inc. | | | |
- ------------------------------------------------|--------------|------------|---------|------------------|-------------------
1C. MAILING ADDRESS |1D. CITY, STATE |1E. ZIP CODE
1800 Sutter Street, Suite 400 | Concord, CA | 94520
- ------------------------------------------------|--------------|------------|---------|------------------|-------------------
2. ADDITIONAL DEBTOR (IF PERSONAL) LAST NAME | FIRST NAME |M.I. |2A. PREFIX | 2B. SUFFIX
Harden & Company Insurance Services, Inc. | | | |
- ------------------------------------------------|--------------|------------|---------|------------------|-------------------
2C. MAILING ADDRESS |2D. CITY, STATE |2E. ZIP CODE
1800 Sutter Street, Suite 400 | Concord, CA | 94520
- ------------------------------------------------|--------------|------------|----------------------------|-------------------
3. SECURED PARTY (IF PERSONAL) LAST NAME | FIRST NAME |M.I.
BRC Health Care, Inc. | |
- ------------------------------------------------|--------------|------------|----------------------------|-------------------
3A. MAILING ADDRESS |3B. CITY, STATE |3C. ZIP CODE
1111 W. Mockingbird Lane., Suite 1400 | Dallas, TX | 75247
- ---------------------------------------------------------------|-----------------------------------------|-------------------
4. ASSIGNEE OF SECURED PARTY (IF ANY)
- ---------------------------------------------------------------|-----------------------------------------|-------------------
4A. MAILING ADDRESS |4B. CITY, STATE |4C. ZIP CODE
| |
- ---------------------------------------------------------------|-----------------------------------------|-------------------
5. This FINANCING STATEMENT covers the following types or items of property. (If collateral is crops, fixtures, timber or
minerals, read Instruction B. 5-6 on back.)
As specified in attached letter and Promissory Note dated 3/27/96.
</TABLE>
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------|--------------------------------------------------------------------------
6. CHECK ONLY 6A. PRODUCTS OF | 6B. THIS FINANCING STATEMENT IS NUMBER OF ADDITIONAL
OF / / COLLATERAL ARE | / / TO BE FILED FOR RECORD IN SHEETS
APPLICABLE ALSO COVERED | THE REAL ESTATE RECORDS. PRESENTED-----------
- -------------------------------------------------|--------------------------------------------------------------------------
7. CHECK 7A. THIS FINANCING STATEMENT IS SIGNED BY THE SECURED PARTY
APPROPRIATE INSTEAD OF THE DEBTOR TO PERFECT A SECURITY INTEREST IN / /(1) / /(2) / /(3) / /(4) / /(5)
BOX COLLATERAL IN ACCORDANCE WITH INSTRUCTION B. 7 ITEM:
- ----------------------------------------------------------------------------------------|------------------------------------|
8. SIGNATURE(S) |THIS SPACE FOR USE OF FILING OFFICER|
OF /s/ JAMES R. DUNATHAN |(DATE, TIME, NUMBER, FILING OFFICER)|
DEBTOR(S) | |
- ----------------------------------------------------------------------------------------| |
| |
| |
| |
- ----------------------------------------------------------------------------------------| |
SIGNATURE(S) | |
OF /s/ Earl Wiklund | |
SECURED PARTY(IES) | |
- ----------------------------------------------------------------------------------------| |
| |
| |
| |
- ----------------------------------------------------------------------------------------| |
9. Return copy to: | |
| |
NAME BRC Health Care, Inc. | |
ADDRESS 1111 W. Mockingbird Lane, Suite 1400 | |
CITY Dallas, TX 75247 | |
STATE Attn: Darrell T. Carpenter | |
ZIP | |
- ----------------------------------------------------------------------------------------|------------------------------------|
STANDARD FORM - FORM UCC-1 (REV. 9/1/90) -C- 1990 OFFICE OF THE SECRETARY OF STATE OF TEXAS
</TABLE>
(1) FILING OFFICER COPY - NUMERICAL
<PAGE>
EXHIBIT 10.18
<PAGE>
PURCHASE AND SALE AGREEMENT
This Agreement is made as of March 1, 1996, at Concord, California, by and
between Anchor Pacific Underwriters, Inc., a Delaware corporation ("Buyer" or
"APU") and Roland L. Ferguson, doing business as R.L. Ferguson Insurance Agency
("Seller").
RECITALS
A. Seller represents that he is the owner of all the assets, properties,
book of accounts and business of R.L. Ferguson Insurance Agency, a sole
proprietorship owned by Roland L. Ferguson.
B. Buyer desires to purchase from Seller and Seller desires to sell to
Buyer, on the terms and conditions of this Agreement, all the assets,
properties, book of accounts and business of R.L. Ferguson Insurance Agency.
TERMS AND CONDITIONS
1. TRANSFER ASSETS. Subject to the terms and conditions set forth in this
Agreement, Seller agrees to sell, convey, transfer, assign, and deliver to
Buyer, and Buyer agrees to purchase from Seller all the assets, properties,
book of accounts and business of R.L. Ferguson Insurance Agency, a sole
proprietorship owned by Roland L. Ferguson (such assets, properties, book of
accounts and business are collectively referred to as the "Assets") including,
without limitation the following:
(a) The book of accounts, client lists, expiration files, client account
records, including current copies of client policies, prior copies of client
policies, applications, quotations and claim/loss data that is currently
contained in the client's file, ledger cards, financing agreements, and
correspondence, all of which assets are substantially in accordance with the
Schedule of Clients shown in Exhibit "A" prepared by Seller and dated February,
1996.
(b) The goodwill of Seller relative to the Assets.
(c) The historic or dead client files and records, including, but not
limited to, client accounting records, and accounting records regarding
insurance companies; or copies thereof, if required.
(d) The name "R.L. Ferguson Insurance Agency."
(e) All trade secrets and confidential information of Seller.
2. CONSIDERATION FOR TRANSFER. The consideration for the transfer of the
Assets
1
<PAGE>
shall be payable as follows:
(a) Ninety-Five Thousand Dollars ($95,000) by cashier's check payable to
Seller or as directed by Seller at the Closing.
(b) That number of shares of Buyer's common stock determined by dividing
the agreed per-share value of Buyer's common stock into $25,000. The agreed
per-share value of Buyer's common stock shall be $2.00 per share. The shares
shall be issued to Roland Langdon Ferguson & Ruby Delores Ferguson, Trustees,
The Ferguson Revocable Trust U/A dated 09/11/1995 and shall be issued to Seller
six (6) months after the Closing Date. For a two (2) year period following the
Closing, the shares issued in accordance with this Paragraph 2(b) shall be
accorded "piggyback registration rights" which shall provide for registration of
all APU shares held by its shareholders in any registration of APU shares other
than by a Form S-4 or Form S-8. APU shall bear all costs, except for
underwriter or broker discounts and commissions, associated with the
registration of the APU shares.
(c) Buyer shall pay to Seller within fifteen (15) days after the end of
each month for a period of 60 consecutive months (the "Contingent Payment
Period"), commencing with the first full calendar month ending after the
Closing Date (as hereinafter defined), a sum equal to fifteen percent (15%) of
the net commission revenue from the Schedule of Clients paid to Buyer (the
"Contingent Payments"). For purposes of this Paragrapoh 2, the term "net
commission revenue" is defined as gross commissions, including endorsements,
stipulated billings, monthly payments, and installments less return
commission from endoresements, stipulated billings, monthly payments,
installments, cancellation transactions and commission returns due to rebates
or premium rollbacks related in any manner to Proposition 103. "Net commission
revenues" do not include contingency commissions, service fees charged due to
late payment of premium and interest earned by Buyer on commission. Contingent
Payments shall continue for the entire Contingent Payment Period as calculated
under this Paragraph 2.(c) regardless of the Seller's ability to perform under
the separate Employment Agreement as that performance may relate to illness,
disability or death.
In the event all or any part of Anchor Pacific Underwriters, Inc. or any
of its subsidiaries should be sold, merged or reorganized, Buyer shall have the
right to pre-pay the Contingent Payments without penalty, based upon the mutual
agreement of the parties.
3. SELLER'S LIABILITY. It is expressly understood and agreed that Buyer
shall not be liable for any of the obligations or liability of Seller of any
kind and nature other than those specifically assumed by Buyer in this
Agreement, and Seller hereby indemnifies Buyer and shall hold Buyer harmless
against any loss, cost, liability, claim or expense suffered or incurred,
directly or indirectly, as a result of the assertion against Buyer of any
obligation or liability of Seller other than those specifically assumed by
Buyer in this Agreement.
4. ALLOCATION OF PURCHASE PRICE. The consideration for the transfer of the
Assets
2
<PAGE>
shall be allocated as follows:
<TABLE>
<S> <C>
Expirations 50%
Covenant Not To Compete 20%
Goodwill 30%
</TABLE>
Both parties agree to report this transaction for state and federal tax
purposes in accordance with this allocation of the purchase price.
5. EXCISE TAXES. Seller shall pay all sales and use taxes arising out of
the transfer of the Assets. Buyer shall not be responsible for any business,
occupation, withholding or similar tax, or any taxes of any kind related to any
period before the Closing Date.
6. REPRESENTATION AND WARRANTIES OF SELLER. In addition to the
representation and warranties contained in other paragraphs of this Agreement,
Seller makes the following representations and warranties (which
representations and warranties shall survive the Closing regardless of what
investigations Buyer shall have made with respect thereto prior to the
Closing), each of which individual representation and warranty (i) is material
and being relied upon by Buyer, and (ii) is true in all respects as of the date
hereof and shall be true in all respects on the Closing Date:
6.1 All federal, state, local and foreign tax returns and tax reports
required to be filed by or on behalf of Seller have been timely filed with the
appropriate governmental agencies in all jurisdictions in which such returns
and reports are required to be filed, and all federal, state, local and foreign
taxes, including income taxes and all other taxes of whatever kind or nature due
from Seller, as well as any penalties and interest with respect to such taxes,
have been fully paid.
6.2 Seller is the sole owner of (and Buyer will acquire hereunder) the
entire right, title and interest in and to the Assets.
6.3 The Assets are free and clear of all liens, encumbrances, claims,
rights, demands and restrictions of any kind or character.
6.4 Seller is not involved or aware of any pending or threatened
litigation which does or will affect the Assets.
6.5 There are no actions or proceedings pending or threatened against
Seller before any court or administrative agency in any way connected with the
Assets.
6.6 All laws, ordinances, rules and regulations of any government or any
agency, body or subdivision thereof bearing on the Assets have been complied
with by Seller.
6.7 Seller has received no noticed or knowledge that any governmental
3
<PAGE>
authority or any employee or agent thereof considers the operation, use or
ownership of the R.L. Ferguson Insurance Agency to have violated any ordinance,
rule, law, regulation or order of any government or any agency, body or
subdivision thereof or that any investigation has been commenced or is
contemplated respecting such possible violation.
6.8 Neither this Agreement, nor anything provided to be done hereunder,
including but not limited to the transfer, assignment and sale of the Assets
violates or shall violate any contract, agreement or instrument to which Seller
is a party.
6.9 No other agent or broker, potential buyer, or representatives have
been provided copies or have had access through Seller to the following
specific data: expirations, copies of client policies, client lists and client
account records within the past 36 months.
6.10 All payments required to have been made by Seller to any
governmental entity, including the California Employment Development
Department, have been made.
6.11 To the best of Seller's knowledge, Seller has disclosed to Buyer in
writing any material problem in connection with the book of accounts or Assets
being transferred hereunder.
6.12 The book of accounts represent commercial and personal property and
casualty, Worker's Compensation, bonds and Inland Marine lines of insurance
coverage only.
6.13 None of the client accounts to be transferred hereunder were
accepted or placed on a brokerage basis, except as properly identified and
identified.
6.14 All client accounts to be transferred hereunder are the direct
production of R.L. Ferguson Insurance Agency, except as properly identified and
coded.
6.15 Seller's premises located at 800 South Broadway, Suite 304, Walnut
Creek, California, is rented under a month-to-month tenancy terminable on
30-day's written notice.
7. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE. The obligations of Buyer
to purchase the Assets under this Agreement are subject to the satisfaction, at
or before the cLosing of all the conditions set out below in this Paragraph 7.
Buyer may waive any or all of these conditions in whole or in part without
prior notice; provided, however, that no such waiver of a condition shall
constitute a waiver by Buyer of any of its other rights or remedies, at law or
in equity, if Seller shall be in default of any of its representation,
warranties, or covenants under this Agreement.
7.1 The due performance of Seller of each and every undertaking and
agreement to be performed by it hereunder, and the truth of each representation
and warranty made in this Agreement by Seller at the time as of which the same
is made and as of the Closing Date.
4
<PAGE>
7.2 No action, suit, or proceeding before any court or any governmental
body or authority, pertaining to the transaction contemplated by this Agreement
or to its consummation, shall have been instituted or threatened on or before
the Closing Date.
7.3 Buyer's approval of the results of its investigations and
evaluations of the R.L. Ferguson Insurance Agency pursuant to Paragraph 9.2 of
this Agreement.
7.4 Seller shall execute and deliver to Buyer an "Employment Agreement"
in the form attached hereto as Exhibit "B" (the "Employment Agreement").
8. PAYABLES AND RECEIVABLES.
8.1 Seller shall own and be responsible for all insurance carrier and
client payables and receivables on policy and binder transactions that occur
prior to the Closing Date on policies and binders with an effective date prior
to the Closing Date and shall save, defend and hold Buyer harmless with respect
thereto. Buyer shall be responsible for and own all insurance carrier and
client payables and receivables on policy and binder transactions that occur on
and after the Closing Date on policies and binders with an effective date prior
to the Closing Date and on all policy and binder transactions on policies with
an effective date as of the Closing Date and thereafter and shall save, defend
and hold Seller harmless with respect thereto. All moneys received by or
credited to Seller prior to and after the Closing Date that is the property of
Buyer shall be paid to Buyer at the earlier of the Closing or the tenth (10th)
of the month following that month that it is received by Seller.
8.2 Money paid to Buyer or Seller shall be accompanied by adequate
documentation to permit the parties to identify specific receivables and
payments by client policy.
8.3 Annual anniversaries on policies written for a period in excess of
one (1) year shall be deemed to have been annually renewed and treated as such.
8.4 All endorsement transactions, stipulated billings, monthly payments,
carrier installments, policy cancellations and interim and final audits that
occur or are effective on and after the Closing Date on policies with an
effective date prior to the Closing Date are the property and the responsibility
of Buyer.
9. SELLER'S OBLIGATIONS BEFORE CLOSING.
9.1 Seller will carry on its business and activities diligently and in
substantially the same manner as they previously have been carried out and
shall not make or institute any unusual or novel methods of purchase, sale,
lease, management, accounting or operation that vary materially from those
methods used by Seller as of January 2, 1996. By way of non-exclusive
illustration, the following shall be deemed not to be in the ordinary course of
business for purposes of this Agreement: borrowing or loaning of money or
agreeing so to do;
5
<PAGE>
encumbering any asset or agreeing so to do; increasing in any material respect
the compensation, other forms of remuneration for agent, agents, distributors,
or sales representatives or agreeing so to do; amending or agreeing to amend
any pension or other employee benefit plan; acquisition or agreement to acquire
any common stock or other equity securities; acquisition of or agreement to
acquire any material amount of assets; disposition or agreement to dispose of
any material amount of assets; payment of or agreement to pay current
liabilities in a manner inconsistent with past practice; or hiring or agreement
to hire any professional or managerial personnel.
9.2 Until the Closing, Seller will permit Buyer and its representatives
to conduct reasonable investigations and evaluations of the R.L. Ferguson
Insurance Agency, furnish them with all information, documents and records
which they reasonably request, and assist them, should the need be deemed
appropriate, in conducting informal interviews with key employees, customers
and insurance carriers of Seller.
10. CLOSING. The transfer of the Assets by Seller to Buyer (the "Closing")
shall take place at Buyer's office located in Concord, California on March 1,
1996 (the "Closing Date").
11. SELLER'S OBLIGATIONS AT CLOSING. At the Closing, Seller shall deliver
or cause to be delivered to Buyer a bill of sale of the Assets in the form
attached hereto as Exhibit "C" (the "Bill of Sale").
Simultaneously with the consummation of the transfer, Seller will put
Buyer into full possession and enjoyment of the Assets to be conveyed and
transferred by this Agreement.
Seller, at any time before or after the Closing Date, will execute,
acknowledge, and deliver any further assignments, conveyances, and other
assurances, documents, and instruments of transfer, reasonably requested by
Buyer and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by the Buyer for the purpose of
assigning, transferring, granting, conveying, and confirming to Buyer, or
reducing to possession, any or all property and assets to be conveyed and
transferred by this Agreement. If requested by Buyer, Seller further agrees to
prosecute or otherwise enforce in its own name for the benefit of Buyer any
claims, rights, or benefits that are transferred to Buyer by this Agreement and
that require prosecution or enforcement in Seller's name. Any prosecution or
enforcement of claims, rights, or OSC enforcement is made necessary by a breach
of this Agreement by Seller.
12. BUYER'S OBLIGATIONS AFTER CLOSING.
12.1 Seller shall transfer his insurance licenses and all licenses of
Seller's employees to Buyer's agency. Buyer shall pay the costs related to such
transfers.
12.2 Buyer shall at Buyer's cost provide Seller with Errors & Omissions
insurance protection effective the Closing Date and for so long as Seller
remains a full time
6
<PAGE>
employee of Buyer under Buyer's policy during the Contingent Payment Period.
12.3 Buyer shall be responsible for all salaries, benefits and rent for
Seller's business accruing after the Closing Date.
13. SELLER'S OBLIGATIONS AFTER CLOSING.
13.1 Seller shall remain responsible for the collection of all
outstanding account receivables as of the Closing Date for all amounts due on
policies with transaction and effective dates as of the Closing Date, or
earlier.
13.3 SELLER'S NON-COMPETITION. Except for services provided to Buyer,
Seller agrees that he will not at any time within the five-year period,
immediately following the Closing Date, directly or indirectly engage in, or
have any interest in any person, firm, corporation, or business (whether as an
employee, officer, director, agent, security holder, creditor, consultant, or
otherwise) that engages in any activity in any of the counties of Alameda or
Contra Costa, California, which activity is the same as, similar to, or
competitive with any activity now engaged in by Seller in any of these counties
so long as Buyer (or any successor) shall engage in this activity in such
county.
The parties intend that the covenant contained in the preceding portion
of this paragraph shall be construed as a series of separate covenants, one for
each county specified. Except for geographic coverage, each such separate
covenant shall be deemed identical in terms to the covenant contained in the
preceding paragraph. If, in any judicial proceeding, a court shall refuse to
enforce any of the separate covenants deemed included in this paragraph, then
this unenforceable covenant shall be deemed eliminated from these provisions
for the purpose of those proceedings to the extent necessary to permit the
remaining separate covenants to be enforced.
Seller further agrees not to divulge, communicate, use to the detriment
of Buyer or for the benefit of any other person or persons, or misuse in any
way any confidential information or trade secrets of Seller, including
personnel information, client lists, or other technical data.
13.4 Seller shall transfer his present license with the California
Department of Insurance to be included as an endorsee under Buyer's license.
14. INDEMNIFICATION BY SELLER. Seller agrees to indemnify and hold Buyer
harmless from and against any claim, loss, damage or expense, including any
reasonable attorneys' fees (including attorneys' fees on appeal), asserted
against or suffered by Buyer resulting from:
(a) Any breach by Seller of this Agreement;
(b) Any liability or obligation of Seller which Buyer is not required to
assume hereunder;
7
<PAGE>
(c) The inaccuracy or breach of any of the representations, warranties,
or covenants made by Seller herein;
(d) Any other act or omission to act of Seller, his agents, employees or
contractors, the consequences of which Buyer has not expressly assumed
hereunder.
15. COST.
15.1 FINDER'S OR BROKER'S FEES. Except for commissions due to Jack T.
Hunn, Insurance Marketing Associates, for which Buyer shall be responsible,
each of the parties represents and warrants that it has dealt with no broker or
finder in connection with any of the transactions contemplated by this
Agreement and, insofar as it knows, no broker or other person is entitled to
any commission or finder's fee in connection with any of these transactions.
15.2 EXPENSES. Each of the parties shall pay all costs and expenses
incurred or to be incurred by it in negotiating and preparing this Agreement
and in closing and carrying out the transactions contemplated by this Agreement.
16. MISCELLANEOUS PROVISIONS.
16.1 The subject headings of the paragraphs and subparagraphs of this
Agreement are included for purposes of convenience only, and shall not affect
the construction or interpretation of any of its provisions.
16.2 This Agreement is subject to and modified by the provisions of the
letter agreement between Seller and Buyer dated February 9, 1996, attached
hereto as Exhibit "D" and incorporated herein.
16.3 This Agreement constitutes the entire agreement between the parties
pertaining to the subject matter contained in it and supersedes all prior and
contemporaneous agreements, representations, and understandings of the parties.
No supplement, modification, or amendment of this Agreement shall be binding
unless executed in writing by all the parties. No waiver of any of the
provisions of this Agreement shall be deemed, or shall constitute, a waiver of
any other provisions, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing by the
party making the waiver.
16.4 This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16.5 This Agreement shall be binding on and shall inure to the benefit
of the parties to it and their respective heirs, legal representatives,
successors, and assigns. Buyer shall have the right to assign this Agreement
and all of Buyer's rights under it to a corporation or partnership in which
Buyer has an interest.
8
<PAGE>
16.6 All representations, warranties, covenants, and agreements of the
parties contained in this Agreement, or in any instrument, certificate, or
other writing provided for in it, shall survive the Closing.
16.7 All notices, requests, demands, and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given on
the date of service if served personally on the party to whom notice is to be
given, or on the third day after mailing if mailed to the party to whom notice
is to be given, by first class mail, registered or certified, postage prepaid,
and properly addressed as follows:
TO SELLER AT: Roland L. Ferguson
P.O. Box 113
Alamo, California 94507
TO BUYER AT: J. R. Dunathan, President
Anchor Pacific Underwriters, Inc.
1800 Sutter Street, Suite 400
Concord, California 94520
Any party may change its address for purposes of this paragraph by giving
the other party written notice of the new address in the manner set forth above.
16.8 This Agreement shall be construed in accordance with, and governed
by, the laws of the State of California.
Executed the day and year first above written:
SELLER:
/s/ Roland L. Ferguson
------------------------------------
Roland L. Ferguson
BUYER:
Anchor Pacific Underwriters,
Inc.
By: /s/ James R. Dunathan
--------------------------------
James R. Dunathan, President
9
<PAGE>
EXHIBIT "C"
BILL OF SALE
Roland L. Ferguson, doing business as R.L. Ferguson Insurance Agency
("Seller"), for good and valuable consideration, receipt of which is hereby
acknowledged, and pursuant to a certain Purchase and Sale Agreement (the
"Agreement") between Seller and Anchor Pacific Underwriters, Inc. ("Buyer"),
hereby sells, assigns, transfers, conveys, and delivers to Anchor Pacific
Underwriters, Inc. and its successors and assigns, the "Assets" referred to in
Section 1 of the Agreement.
To have and to hold the same unto Buyer and its successors and assigns,
forever.
The Seller, for itself and its successors and assigns, hereby covenants
with the Buyer, its successors and assigns, that the Seller is the owner
absolutely of said property; that the same are free and clear of and from all
encumbrances, that it has good right to sell and to assign the same unto Buyer
as aforesaid and will warrant and defend the same unto Buyer against the lawful
claims and demands of all persons.
The Seller hereby covenants and agrees to execute and deliver or cause
to be executed and delivered, and to do or to make, or to cause to be done or
made, upon request of Buyer, any and all agreements, instruments, papers, acts,
or things, supplemental, confirmatory, or otherwise, as may reasonably be
required by Buyer for the purpose of or in connection with perfecting and
completing the sale hereunder of the assets of Seller which are hereby sold and
transferred.
In Witness Whereof, the Seller has executed this Bill of Sale on March 1,
1996.
/s/ Roland L. Ferguson
-----------------------------
Roland L. Ferguson
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,680,670
<SECURITIES> 0
<RECEIVABLES> 1,880,938
<ALLOWANCES> 49,560
<INVENTORY> 0
<CURRENT-ASSETS> 6,806,705
<PP&E> 2,933,383
<DEPRECIATION> 1,905,109
<TOTAL-ASSETS> 11,759,634
<CURRENT-LIABILITIES> 8,219,010
<BONDS> 0
0
0
<COMMON> 73,712
<OTHER-SE> 1,220,191
<TOTAL-LIABILITY-AND-EQUITY> 11,759,634
<SALES> 0
<TOTAL-REVENUES> 2,094,353
<CGS> 0
<TOTAL-COSTS> 2,173,982
<OTHER-EXPENSES> 199,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129,407
<INCOME-PRETAX> (279,329)
<INCOME-TAX> 4,800
<INCOME-CONTINUING> (284,129)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (284,129)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
