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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1997 COMMISSION FILE NUMBER: 0-9628
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM [ ] TO [ ]
ANCHOR PACIFIC UNDERWRITERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-1687187
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1800 SUTTER STREET, SUITE 400 94520
CONCORD, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 682-7707
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common stock, $.02 par value
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
As of June 30, 1997, the Registrant had 4,628,175 shares of common stock
outstanding.
This document is comprised of 32 pages.
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ANCHOR PACIFIC UNDERWRITERS, INC.
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Consolidated Balance Sheets, June 30, 1997
(unaudited) and December 31, 1996................... 1
Consolidated Statements of Operations for the six
months and quarters ended June 30, 1997 and 1996
(unaudited)......................................... 3
Consolidated Statements of Shareholders' Equity for
the six months ended June 30, 1997 (unaudited) and
year ended December 31, 1996........................ 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 1997 and 1996 (unaudited)..... 5
Notes to Consolidated Financial Statements ......... 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................ 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings................................... 17
ITEM 2. Changes in Securities............................... 17
ITEM 3. Defaults Upon Senior Securities..................... 17
ITEM 4. Submission of Matters to a Vote of Security Holders. 17
ITEM 5. Other Information................................... 17
ITEM 6. Exhibits and Reports on Form 8-K.................... 18
</TABLE>
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PART I - FINANCIAL INFORMATION
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
<S> <C> <C>
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents -
corporate funds $ 28,799 $ 151,765
Cash and cash equivalents -
brokerage fiduciary funds 1,275,310 977,086
Cash and cash equivalents -
third-party administration
fiduciary funds 2,930,057 3,580,793
Accounts receivable (less allowance
for doubtful accounts of $41,200
and $32,438 in 1997 and 1996) 1,187,374 1,309,921
Prepaid expenses and other current
assets 263,301 244,086
---------- -----------
Total current assets 5,684,841 6,263,651
Property and equipment 2,981,145 2,976,497
Less accumulated depreciation and
amortization (2,306,896) (2,155,300)
---------- -----------
674,249 821,197
Other assets:
Goodwill, net 1,861,879 1,903,729
Intangible assets, net 1,062,020 1,139,467
Deferred compensation 206,784 257,784
Other 144,757 125,611
---------- -----------
3,275,440 3,426,591
---------- -----------
Total assets $9,634,530 $10,511,439
========== ===========
</TABLE>
1
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ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- -------------
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Cash and cash equivalents -
third-party administration
fiduciary funds $ 2,930,057 $ 3,580,793
Net premiums payable - insurance
companies 2,170,443 2,037,749
Accounts payable and accrued
expenses 525,982 438,208
Short-term borrowings 1,420,000 1,395,000
Current portion of long-term debt 290,000 425,110
Current portion of long-term
liabilities 799,174 604,398
----------- -----------
Total current liabilities 8,135,656 8,481,258
----------- -----------
Long-term liabilities 531,587 773,930
----------- -----------
Long-term debt, including $220,000 in
1997 and 1996, owed to related parties 129,793 149,020
----------- -----------
Shareholders' equity:
Preferred stock - $.02 par value;
2,000,000 shares authorized; none
issued and outstanding
Common stock - $.02 par value;
16,000,000 shares authorized;
4,628,175 and 4,362,837 shares
issued as of 6/30/97 and
12/31/96,respectively 92,565 87,256
Additional paid-in capital 4,160,200 3,925,508
Accumulated deficit (3,415,271) (2,905,533)
----------- -----------
Total shareholders' equity 837,494 1,107,231
----------- -----------
Total liabilities and shareholders'
equity $ 9,634,530 $10,511,439
=========== ===========
</TABLE>
See accompanying notes.
2
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ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Quarters
Ended June 30, Ended June 30,
------------------------- -------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Commissions, fees and other income $4,021,975 $4,086,411 $2,016,721 $2,019,900
Interest Income 42,135 59,379 20,540 31,537
---------- ---------- ---------- ----------
Total revenue 4,064,110 4,145,790 2,037,261 2,051,437
Operating expenses:
Salaries, commissions and employee
benefits 2,796,297 2,763,056 1,411,490 1,387,103
Selling, general and administrative
expenses 1,569,759 1,607,116 814,533 809,088
---------- ---------- ---------- ----------
4,366,056 4,370,172 2,226,023 2,196,191
---------- ---------- ---------- ----------
(301,946) (224,382) (188,762) (144,754)
Other income (expense):
Amortization of goodwill &
intangible assets (119,296) (186,902) (56,768) (95,162)
Interest (99,329) (202,193) (48,111) (72,786)
Other 15,303 37,444 11,959 15,997
---------- ---------- ---------- ----------
Total other income (expense) (203,322) (351,651) (92,920) (151,951)
---------- ---------- ---------- ----------
Loss before income taxes (505,268) (576,033) (281,682) (296,705)
Provision for income taxes 4,470 4,800 - -
---------- ---------- ---------- ----------
Net loss $ (509,738) $ (580,833) $ (281,682) $ (296,705)
========== ========== ========== ==========
Net loss per common and
common equivalent share $ (0.11) $ (0.16) $ (0.06) $ (0.08)
========== ========== ========== ==========
Weighted average number of
common and common equivalent
shares outstanding 4,530,649 3,683,760 4,605,092 3,685,612
========== ========== ========== ==========
</TABLE>
See accompanying notes
3
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ANCHOR PACIFIC UNDERWRITERS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1995 3,674,501 $73,490 $2,989,275 $(1,499,733) $ 1,563,032
Stock issued for warrants
exercised 36 1 107 - 108
Debentures exchanged
for stock 644,444 12,889 857,111 - 870,000
Shares issued for
acquisitions 43,928 879 79,120 - 79,999
Canceled stock:
Fractional shares (72) (3) (105) - (108)
Net loss - - - (1,405,800) (1,405,800)
-------------------------------------------------------------------
Balance at December 31,
1996 4,362,837 $87,256 $3,925,508 $(2,905,533) $ 1,107,231
Stock issued for warrants
exercised 567 11 1,690 - 1,701
Stock issued for Private
Offering 264,778 5,298 233,002 - 238,300
Canceled stock:
Fractional shares (7) - - - -
Net Loss - - - (509,738) (509,738)
-------------------------------------------------------------------
Balance at June 30, 1997
(Unaudited) 4,628,175 $92,565 $4,160,200 (3,415,271) $ 837,494
-------------------------------------------------------------------
</TABLE>
See accompanying notes
4
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ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
-----------------------
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(509,738) $(580,833)
Adjustments to reconcile net loss to
cash provided by (used in) operating
activities:
Depreciation and amortization 151,597 141,897
Amortization of goodwill, other
intangibles and organization
expenses 119,296 186,902
Changes in operating assets and
liabilities:
Cash and cash equivalents -
brokerage fiduciary funds (298,224) 343,421
Accounts receivable 122,547 (503,611)
Prepaid expenses and other
current assets (9,749) (42,189)
Other assets (19,146) (1,673)
Deferred compensation 51,000 103,560
Net premiums payable - insurance
companies 132,694 122,287
Accounts payable and accrued
expenses 87,773 32,534
Other liabilities - (28,562)
--------- ---------
Net cash used in operating activities (171,950) (226,267)
INVESTING ACTIVITIES
Notes receivable, net (9,466) 2,098
Purchases of property and equipment (4,648) (61,350)
Purchases of customer list - (260,000)
--------- ---------
Net cash used in investing activities (14,114) (319,252)
</TABLE>
5
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ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
----------------------
1997 1996
<S> <C> <C>
FINANCING ACTIVITIES
Common stock issued 240,001 -
Debt:
Borrowings 35,000 -
Repayment (211,903) (42,421)
Net payments on amounts due on acquisitions - 156,022
-------- --------
Net cash provided by financing activities 63,098 113,601
-------- --------
Net decrease in cash and cash equivalents (122,966) (431,918)
Cash and cash equivalents - corporate
funds at beginning of period 151,765 904,781
--------- --------
Cash and cash equivalents - corporate
funds at end of period $ 28,799 $ 472,863
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 99,329 $ 202,193
========= =========
Income taxes $ 8,526 $ -
========= =========
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES
Common stock - convertible debentures exercised $ - $ 15,000
========= =========
</TABLE>
See accompanying notes
6
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ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
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 six month period ended June 30, 1997, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. 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, 1996.
The financial statements have been prepared on the going concern basis.
Anchor has reported a net loss during each of the past three fiscal years.
Anchor maintained a $1,000,000 credit line with a bank which expired on January
7, 1997, and has not been renewed. Anchor is continuing to negotiate with the
bank to retire or restructure the obligation either through a new credit
facility provided by another interested bank or in combination with funding from
investors. The terms and conditions of this new credit facility are expected to
be finalized prior to the end of third quarter 1997. Anchor's business is not
capital intensive and Anchor historically has had sufficient capital to meet its
operating needs. Operating losses incurred during the last three fiscal years,
however, have required Anchor to seek additional capital. Consequently, Anchor
is currently seeking to raise an additional $500,000 in equity from the members
of the Board of Directors and other qualified investors to supplement its
working capital. As of August 4, 1997, Anchor had raised $260,000, and had oral
commitments for an additional $90,000 in equity financings. Under the terms of
this financing Anchor is issuing common stock at $0.90 per share along with a
five year warrant to purchase stock at $0.90 per share.
Management's plan is to strengthen Anchor's 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) strengthening
management, sales and marketing staff. In conjunction with this strategy,
Anchor seeks to manage its affairs to achieve expansion through internal growth
of its existing and new product lines. Anchor also regularly considers
acquisition and merger opportunities and other business expansion alternatives.
As part of Anchor's strategy to create the premier regional publicly traded
insurance brokerage/administrator in the Western United States, it expects to
obtain additional momentum by using its status as a public company to attract
public or private financing. Such funding would be available to Anchor for
future acquisitions, expanded marketing and consolidation of its insurance
operations.
RECLASSIFICATIONS
- -----------------
Certain prior years' balances have been reclassified to conform with the
current year presentation.
RECAPITALIZATION AND RESTATEMENT
- --------------------------------
On January 6, 1995, Anchor merged with System Industries, Inc. ("System").
For accounting purposes, the merger was treated as a recapitalization of Anchor
with Anchor as the acquirer (reverse acquisition). Upon consummation of this
merger, shareholders and certain creditors of System each received one share of
Anchor common stock and one warrant to purchase one share of Anchor common stock
at a price of $3.00 for every 42.3291 shares of issued and outstanding System
common stock. Warrants to purchase 194,886 shares of common stock expired
January 6, 1997, and unissued warrants to purchase 195,789 shares of common
stock will expire one year after their issuance. As a result of the merger,
Anchor became a public company.
7
<PAGE>
NOTE 2 - ACQUISITIONS
- ---------------------
To date, acquisitions by Anchor have involved both relatively small
acquisitions of insurance brokerage and administration accounts, as well as
larger acquisitions of insurance brokerage companies, such as Putnam, Knudsen &
Wieking, Inc. ("PKW"), and third-party administrators, such as Benefit
Resources, Inc. ("BRI"). The results of operations from these acquisitions are
included in Anchor's consolidated financial statements from the date of
purchase. Anchor also expects to continue to expand its insurance brokerage and
administration businesses through internal growth. Anchor's third-party
administration services recently obtained commitments with respect to several
new business projects which are expected to further expand internal revenue
growth while avoiding many of the costs associated with expansion achieved
through the purchase of new businesses.
NOTE 3 - CONTINGENCIES
- ----------------------
Anchor is subject to certain legal proceedings and claims arising in the
ordinary course of 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 - SUBORDINATED BRIDGE NOTES AND WARRANT
- ----------------------------------------------
During 1996, Anchor raised $225,000 from five members of the Board of
Directors and other qualified investors through the issuance of 10% Subordinated
Bridge Notes with Warrant to Purchase Shares of Anchor Common Stock ("Bridge
Notes"). The basic terms of the Bridge Notes were: (a) 10% interest per annum,
paid in arrears; (b) one year maturity; (c) for every $10,000 of principal
invested the purchaser received a five year warrant to acquire 1,000 shares of
Anchor common stock at a purchase price of $1.75 per share; (d) "piggyback"
registration rights for three years; and (e) subordination provisions that
subordinate the Bridge Notes to Anchor's "Senior Debt" (as defined in the Bridge
Notes). The Bridge Notes are equal in status to the Debentures and Series A
Debenture (see Note 5 below) issued during 1995, which mature in 1997.
In February 1997, Anchor offered the purchasers of said Bridge Notes an
opportunity to either change the terms of the warrants underlying the Bridge
Notes or to participate in the 1997 Offering (see Note 6 below), by exchanging
their Bridge Notes. The basic terms of these two alternatives were: (a) in lieu
of receiving warrants to acquire 1,000 shares of Anchor common stock at a
purchase price of $1.75 per share, for every $10,000 of principal invested, the
purchaser would receive warrants to acquire 2,000 shares of Anchor common stock
at a purchase price of $1.35 per share; or (b) participate in the 1997 Offering
by exchanging the Bridge Notes and receive in return (i) interest at the rate of
10% per annum up to the date of conversion; (ii) Anchor common stock in place of
the Bridge Notes at a price equal to $0.90 per share; and (iii) five year
warrants, equal to the number of shares issued in place of the Bridge Notes,
with the right to purchase Anchor's common stock at a purchase price of $0.90
per share. Purchasers representing $180,000 of said Bridge Note chose
alternative (a) above, and the remaining $45,000 chose alternative (b) above.
NOTE 5 - 10% CONVERTIBLE SUBORDINATED DEBENTURES
- ------------------------------------------------
In 1995, Anchor issued $370,000 of 10% Convertible Subordinated Debentures
(the "Debentures") and a 10% Convertible Subordinated Debenture, Series A
("Series A Debenture") for $600,000. In December 1996, Guarantee Life Insurance
Company converted all $600,000 of the Series A Debenture it held into 444,444
shares of Anchor's common stock at $1.35 per share. In addition, investors
holding $270,000 of the Debentures, including seven members of the Board of
Directors, converted their Debentures into 200,000 shares of Anchor's common
stock at $1.35 per share. These conversions will save Anchor approximately
$85,000 in interest payments, reduce outstanding indebtedness by $870,000 and,
in turn, increase shareholders' equity by $870,000. For further information
regarding the Series A Debenture and the Debentures, refer to Anchor's Annual
Report on Form 10-K for the year ended December 31, 1996.
8
<PAGE>
NOTE 6 - 1997 OFFERING
- ----------------------
During first quarter 1997, Anchor commenced raising additional funds from
members of the Board of Directors and other qualified investors through a
private offering which consisted of Anchor common stock along with warrants to
acquire shares of anchor common stock (the "1997 Offering"). As of August 4,
1997, Anchor had received $260,000 from said investors and had oral commitments
for an additional $90,000 in the 1997 Offering. Anchor intends to utilize a
substantial portion of the proceeds from the 1997 Offering to support current
and future working capital needs of Anchor. The basic terms of the 1997
Offering are: (a) 555,000 shares of Anchor common stock available at a purchase
price of $0.90 per share: (b) five year warrants to acquire one share of Anchor
common stock for each share of Anchor common stock purchased at an exercise
price of $0.90 per share; (c) "piggyback" registration rights for three years;
and (d) anti-dilution protection for stock splits, stock dividends,
recapitalizations and reorganizations. Purchasers of the 1997 Offering, as of
August 4, 1997, consist of six members of the Board of Directors and other
qualified investors.
NOTE 7 - COMMITMENTS
- --------------------
On December 17, 1996, Anchor entered into a Financial Advisory Agreement
("Agreement") with The Private Financing Group ("TPFG"), to advise and assist in
planning, locating investors or funding sources, reviewing overall business
needs and promotion of the internal and external business goals of Anchor. In
particular, TPFG was to contact outside third party and institutional funding
sources concerning possible debt or equity financing opportunities. Although
Anchor had discussions with several potential investors concerning possible
financings, management concluded that the current financial condition of Anchor
made any financing proposal too costly. Consequently, the Board of Directors
determined that management should defer seeking outside financing until Anchor's
financial operating results sufficiently improve to enable it to achieve a cost-
effective private or public financing.
The Agreement with TPFG provided for an advisory consulting fee of $15,000
per month, plus reasonable expenses, commencing December 17, 1996, and
continuing for a period of six months. Because the Board of Directors has
determined that management should postpone seeking outside financing, in April
1997, management exercised the cancellation provisions and terminated the
Agreement with TPFG.
On May 5, 1997, Anchor entered into a $10,000 Six Month Note ("Note A") with
a member of the Board of Directors to supplement current working capital needs.
The basic terms of Note A were: (A) 10% interest per annum, paid in arrears; and
(b) six month maturity.
On May 28, 1997, Anchor entered into a $50,000 Three Month Note ("Note B")
with a member of the Board of Directors to supplement current working capital
needs. The basic terms of Note B were: (a) 10% interest per annum, paid in
arrears; (b) three month maturity; (c) five year warrants to acquire 30,000
shares of Anchor common stock at a purchase price of $0.90 per share; and (d)
"piggyback" registration rights for three years.
On July 3, 1997, Anchor obtained a $150,000 unsecured term loan from a San
Francisco Bay Area Bank for additional working capital in connection with a new
business opportunity in the Los Angeles area. This contract, effective July 1,
1997, grants administrative and servicing responsibilities to Anchor's third-
party administration subsidiary, Harden & Company Insurance Services, Inc.
("Harden").
9
<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 & Company Insurance Services, Inc.
("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 in January 1995.
Since its inception, Anchor has expanded its insurance and financial
service capabilities through internal growth as well as a series of
acquisitions. From 1986 through 1990, Anchor, through Harden, focused on
providing administrative services for group insurance benefit plans. In 1990,
Anchor began to diversify its business by providing property, casualty and
workers' compensation insurance products and services, as well as offering
market studies and program analysis for certain non-profit associations who had
endorsed Anchor's products.
From 1990 through 1992, Anchor expanded its property and casualty business
by: (a) acquiring certain assets, including insurance brokerage accounts, from
four property and casualty brokerage firms; and (b) organizing Anchor Pacific
Premium Finance Company ("APPFCO"), to complement its property and casualty
business by providing premium financing to Anchor's clients. Effective May 30,
1997, Anchor dissolved APPFCO as a result of its inactivity. As part of its
expansion strategy anchor has made a series of acquisitions including the
acquisitions of Benefit Resources, Inc. ("BRI"), a third-party employee benefits
administrator located in Scottsdale, Arizona in August 1994; Putnam, Knudsen &
Wieking, Inc. ("PKW"), a property and casualty insurance brokerage company
located in Oakland, California in October 1994; certain third-party
administration accounts from Dutcher Insurance Agency, Inc. ("Dutcher"), located
in Stockton, California in February 1995; R. L. Ferguson Agency ("RLF"), a
property and casualty insurance brokerage company located in Walnut Creek,
California in March 1996; certain property and casualty accounts from Norman I.
Robins ("Robins"), in April 1996; and certain property accounts from John R.
McPherson ("McPherson"), in May 1996. In July 1997, Harden took over a third-
party administration business, located in the Los Angeles Area, that was
previously serviced by an unrelated third party. In connection with this
expansion Harden hired 34 employees previously employed by the prior third-party
administrator. Anchor will continue to look for opportunities to expand its
insurance brokerage and administration businesses. In this regard, it has
recently obtained commitments for several new business projects which will
enable Anchor to substantially expand revenues through internal growth thereby
avoiding the costs associated with the actual purchase of new business and
related revenues. These contracts, secured by Anchor's third-party
administration services, are expected to generate an increase of over 50% in new
revenues by the end of the fourth quarter 1997.
RESULTS OF OPERATIONS -- QUARTERS ENDED JUNE 30, 1997 AND 1996
GENERAL
Anchor derives revenues from commissions and fees received for claims
administration (including underwriting and risk analysis) services. Commissions
may be based on a percentage of gross premiums or may be structured as
contingent commissions, which are generally based on underwriting profits over a
given period of time by the insurance carrier. Fees for claims administration
services 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
any of its business.
Fluctuations in premiums charged by insurance companies may materially
affect commission revenues. During the last nine 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 which, in turn, has resulted
in reduced 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 the near future remains
uncertain. Anchor believes that revenues generated from anticipated future
growth and continued diversification of its business will offset weaknesses in
the
10
<PAGE>
property and casualty market and any loss of revenues that may result from
workers' compensation reform.
Historically, inflation has impacted 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, in turn, pay higher premiums. During the past several
years, the United States has experienced very low rates of inflation along with
gradual business expansion. Consequently, inflation has had minimal impact on
insurance prices in the United States during the past several years.
At times, client uncertainty concerning the scope and direction of health
care reform, may also affect Anchor's business. Anchor believes that its
expertise in two areas frequently identified in health care reform proposals
(managed care and managed competition), combined with its strategy of targeting
middle market clients, leaves it well positioned to operate effectively in a
managed care and managed competition environment. Anchor also believes that in
the current political environment, the United States will experience
incremental, rather than sudden comprehensive changes in health care
regulations. It is not possible at this time, however, 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.
Other outside factors may have a significant impact on Anchor's operations.
For example, the insurance carrier which previously offered the product that
accounted for 51% of Harden and BRI's, and 27% of Anchor's, overall third-party
administration revenues in 1996 informed Harden and BRI in the third quarter of
1996, that as a result of changes in its business strategy, it would discontinue
offering such an insurance product by the end of February 1997.
Harden and BRI subsequently entered into a multi-year, exclusive contract
with an A- (Excellent) rated insurance carrier to underwrite the risk and
provide a replacement product for Anchor's third-party administration services.
This contract became effective December 1, 1996. The transition to the new
insurance carrier has been less disruptive for Harden and BRI's clients than an
earlier transition to a new carrier in late 1995 because the new insurance
carrier fully assumed all policies in California and a majority of policies in
Arizona thereby avoiding the loss of accounts which Harden and BRI experienced
earlier. The impact on Harden and BRI's revenue has been minimal.
The new replacement insurance carrier is a subsidiary of the largest HMO in
Nevada. Management believes that the new insurance carrier will enable Anchor
to provide the small group medical insurance market with stronger managed care
components. In addition, the replacement insurance carrier's business strategy
is to aggressively market group health products in a multi-state distribution
system through an exclusive multi-year contract with Harden and BRI in
California and Arizona. The reaction of the Harden and BRI distributors
continues to be very favorable and the change has been widely accepted. Harden
and BRI began to receive revenues from this new business in January 1997. In
addition, effective July 1, 1997, the same insurance carrier purchased a
significant volume of business from another insurance carrier in California. The
new insurance carrier then entered into a contract with Harden to service all of
the administration of this business at a favorable fee which has the potential
to substantially increase Harden's revenues.
Anchor continues to take steps to strengthen its sales management by hiring
additional seasoned sales and marketing executives. Product development and new
product sales continue to be a high priority, as does geographical
diversification into other western states and marketing territories. Marketing
for new business coinciding with the release of new products by Harden and BRI
began in 1996.
REVENUES
TOTAL REVENUES. Total revenues for the six months ended June 30, 1997 were
$4,064,110, a decrease of $81,680 or 2.0%, as compared to $4,145,790 in revenues
for the same period in 1996. The decrease resulted from the continuing soft
property and casualty market and the effects of open-rating in workers'
compensation. 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.
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, underwriting and risk analysis services (for which fees
are generated),
11
<PAGE>
for the six months ended June 30, 1997, 1996 and 1995. The percentage of
Anchor's revenues attributable to premium finance services are no longer
included in the following table inasmuch as the premium finance services was
dissolved effective as of May 30, 1997, due to its inactivity.
<TABLE>
<CAPTION>
==========================================================
SIX MONTHS ENDED JUNE 30, 1997 1996 1995
- ----------------------------------------------------------
<S> <C> <C> <C>
Insurance Brokerage Commissions 41% 43% 41%
- ----------------------------------------------------------
Third-Party Administration Fees 59% 57% 59%
- ----------------------------------------------------------
TOTAL 100% 100% 100%
==========================================================
</TABLE>
Harden and BRI have recently entered into a multi-year, exclusive contract
with a new insurance carrier. Because this new relationship presents new growth
opportunities, Anchor expects that the percentage of its revenues that are
derived from third-party administration services will significantly increase
July 1, 1997.
COMMISSIONS. Commissions from insurance brokerage services 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 six
months of 1997 were $1,627,555, a decrease of $123,314 or 7.0%, compared to
$1,750,869 of commissions for the same period of 1996. The decrease is largely
due to the continuing soft property and casualty market and the effects of open-
rating in workers' compensation.
Based on recent experience, management presently anticipates that
commission revenues generated from the sale of workers' compensation insurance,
which accounted for approximately 15% of commission revenues (or 7% of Anchor's
total revenues) in 1996, may decrease as a result of workers' compensation
reform in California. Anchor believes, however, that revenues generated from
anticipated internal 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 six months ended June 30, 1997
were $2,394,330, an increase of $59,371 or 2.5%, as compared to $2,334,959 in
fees for the same period in 1996. This increase in fee income is the result of
new business generated from the new insurance carrier as discussed above.
Fee revenues generated by Anchor in the second quarter of 1997 from third-
party administration services consist of revenues generated by Harden and BRI.
Harden's third-party administration revenues are substantially derived from: (a)
an insurance product underwritten by one insurance carrier, which is A-
(Excellent); and (b) the administration of insurance programs underwritten by
various insurance carriers for a number of self-insured employers. The
insurance product, described in (a) above, accounted for approximately 31.7% of
Harden's revenues (or approximately 11.9% of Anchor's total revenues) in the
first six months of 1997, and revenues related to the administration of self-
insured programs, described in (b) above, accounted for approximately 59.2% of
Harden's revenues (or approximately 22.3% of Anchor's total revenues) in the
first six months of 1997. 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. A significant portion of BRI's fee revenues generated from new clients
relate to an insurance product underwritten by the same A- (Excellent) rated
insurance carrier.
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 $42,135 and $59,379 for the six months ended
June 30, 1997 and 1996, respectively. The decrease in interest income in 1997,
as compared to 1996, was primarily caused by reduced insurance premiums and
other funds held in fiduciary accounts, which is directly related to business
lost due to the prior insurance carrier's underwriting requirements referred to
above. Management anticipates that interest income will begin increasing as a
result of the increase in funds held in fiduciary accounts from new business.
12
<PAGE>
EXPENSES
TOTAL EXPENSES. Total operating expenses for the six months ended June 30,
1997, were $4,366,056, a decrease of $4,116 or 0.1% as compared to the operating
expenses of $4,370,172 for the same period in 1996. As discussed below, the
decrease in total expenses resulted primarily from a decrease in selling,
general and administrative expenses offset, in part, by the increase in employee
compensation and benefits.
EMPLOYEE COMPENSATION AND BENEFITS. Employee compensation and benefits for
the six months ended June 30, 1997, were $2,796,297, an increase of $33,241 or
1.2% as compared to $2,763,056 for the same period in 1996. The increase
related primarily to anticipated staffing needs required to service new business
projects from Anchor's third-party administration services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $1,569,759 and $1,607,116 for the six months ended
June 30, 1997 and 1996, respectively. The $37,357 or 2.3% decrease in 1997, as
compared to 1996, resulted primarily from a decrease in legal and auditing fees.
General and administrative expenses include rent, travel, insurance, postage,
telephone, supplies and other miscellaneous expenses.
INTEREST EXPENSE. Interest expense totaled $99,329 and $202,193, for the
six months ended June 30, 1997 and 1996, respectively. The decrease in expense
of $102,864 in the six months ended June 30, 1997, as compared to the same
period in 1996, resulted from the termination of services of an investment
banker and the conversions of the $600,000 series a debenture and $270,000 of
the debentures. Anchor will continue to see additional expense savings in 1997
as a result of the conversions of the Series A Debenture and Debentures. For
further details refer to Note 5, above.
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 $119,296
and $186,902, for the six months ended June 30, 1997 and 1996, respectively.
The decrease in amortization and other intangibles is a result of goodwill being
fully amortized at Harden as of December 31, 1996.
INCOME TAXES
Anchor's expense for income taxes was $4,470 and $4,800 for the six month
periods ended June 30, 1997 and 1996, respectively. An analysis of Anchor's
provision for income taxes is presented in Note 9 of the Notes to Consolidated
Financial Statements in Anchor's Form 10-K for the year ending December 31,
1996.
RESULTS OF OPERATIONS - QUARTERS ENDED JUNE 30, 1997 AND 1996
REVENUES
TOTAL REVENUES. Total revenues for the three months ended June 30, 1997,
were $2,037,261, a decrease of $14,176 or 0.7%, as compared to $2,051,437 of
revenues for the same period in 1996. The decrease resulted primarily from the
continuing soft property and casualty market and the effects of open-rating in
workers' compensation. Anchor's revenues vary from quarter to quarter as result
of the timing of policy renewals and new new/lost business production, whereas
expenses are fairly uniform throughout the year.
COMMISSIONS. Commissions for the three months ended June 30, 1997, were
$827,524, a decrease of $49,047 or 5.6%, as compared to $876,571 of commissions
for the same period of 1996. The net loss of business at PKW accounted for
substantially all of the decrease.
FEES. Fees from Anchor's third-party administration (including
underwriting and analysis) services for the three months ended June 30, 1997,
were $1,189,240, an increase of $46,467 or 4.1% as compared to $1,142,773 in
fees for the same period in 1996. The increase in fee income is the result of
new business received from the new insurance carrier as discussed above.
INTEREST INCOME. Interest income was $20,540 and $31,537 for the three
months ended June 30, 1997
13
<PAGE>
and 1996, respectively. The decrease in interest income in the second quarter of
1997, as compared to 1996, resulted primarily from a smaller amount of insurance
premiums and other funds held in fiduciary accounts.
EXPENSES
TOTAL EXPENSES. Total operating expenses for the three months ended June
30, 1997 were $2,226,023, an increase of $29,832 or 1.4%, as compared to
operating expenses of $2,196,190 for the same period in 1996. The increase
resulted primarily from the increase in employee compensation and benefits,
offset, in part, by a decrease in selling, general and administrative expenses.
EMPLOYEE COMPENSATION AND BENEFITS. Employee compensation and benefits for
the three months ended June 30, 1997 were $1,411,490, an increase of $24,387 or
1.8%, as compared to $1,387,103 for the same period in 1996. The increase
related primarily to the addition to staff to service new business projects from
Anchor's third-party administration services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $814,533 and $809,087 for the three months ended
June 30, 1997 and 1996, respectively. The $5,445 or 0.7%, increase in the
second quarter of 1997, as compared to the same period in 1996 resulted
primarily from reclassification of certain items previously classified as
employee compensation and benefits. General and administrative expenses include
rent, travel, insurance, postage, telephone, supplies and other miscellaneous
expenses.
INTEREST EXPENSE. Interest expense was $48,111 and $72,786 for the three
months ended June 30, 1997 and 1996, respectively. The decrease in interest
expense in 1997, as compared to 1996, resulted primarily from the termination of
services of an investment banker and the conversions of the $600,000 Series A
Debenture and $270,000 of the Debentures. Anchor will continue to see
additional expense savings in 1997 as a result of the conversions of the Series
A Debenture and Debentures. For further details refer to Note 5, above.
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 $56,768
and $95,162 for the three months ended June 30, 1997 and 1996, respectively.
The decrease in amortization and other intangibles is a result of goodwill being
fully amortized at Harden as of December 31, 1996.
INCOME TAXES
Anchor's minimum annual required tax payment due was reported during the
first quarter of 1997 and 1996. Therefore, there was no income tax expense
reported for the three month periods ended June 30, 1997 and 1996.
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 $(171,950) for the six months ended June 30, 1997,
compared to net cash flows (used in) operations of $(226,267) for the six months
ended June 30, 1996. During 1997, Anchor met its operating and capital needs
from various sources, including borrowing under its existing credit agreements
and the use of proceeds received from members of the Board of Directors and
other qualified investors derived from a private offering of Anchor common stock
along with warrants to acquire shares of Anchor common stock (the "1997
Offering"). See Note 6, above.
During 1996, Anchor raised $225,000 from five members of the Board of
Directors and other qualified investors through the issuance of 10% Subordinated
Bridge Notes with Warrant to Purchase Shares of Anchor Common Stock ("Bridge
Notes"). The basic terms of the Bridge Notes were: (a) 10% interest per annum,
paid in arrears; (b) one year maturity; (c) for every $10,000 of principal
invested, the purchaser received warrants to acquire 1,000 shares of Anchor
common stock at a purchase price of $1.75 per share; (d) "piggyback"
registration rights for three years; and (e) subordination provisions that
subordinate the Bridge Notes to Anchor's "Senior Debt" (as defined in the Bridge
Notes). The Bridge Notes are equal in status to the Debentures and Series A
14
<PAGE>
Debenture (see Note 5 above) issued during 1995, which mature in 1997.
In February 1997, Anchor offered the purchasers of said Bridge Notes an
opportunity to either change the terms of the warrants underlying the Bridge
Notes or to participate in the 1997 Offering (see Note 6 above), by exchanging
their Bridge Notes. The basic terms of these two alternatives were: (a) in
lieu of receiving warrants to acquire 1,000 shares of Anchor common stock at a
purchase price of $1.75 per share, for every $10,000 of principal invested, the
purchaser would receive warrants to acquire 2,000 shares of Anchor common stock
at a purchase price of $1.35 per share; or (b) participate in the 1997 Offering
by exchanging the Bridge Notes and receiving in return (i) interest at the rate
of 10% per annum up to the date of conversion; (ii) Anchor common stock in place
of the Bridge Notes at a price equal to $0.90 per share; and (iii) five year
warrants, equal to the number of shares issued in place of the Bridge Notes,
with the right to purchase Anchor's common stock at a purchase price of $0.90
per share. The purchasers representing $180,000 of said Bridge Note chose
alternative (a) above, and the remaining $45,000 chose alternative (b) above.
In 1995, Anchor issued $370,000 of Convertible Subordinated Debentures
(the "Debentures") and a 10% Convertible Subordinated Convertible Debenture,
Series A ("Series A Debenture") in the amount of $600,000. In December 1996,
Guarantee Life Insurance Company converted all $600,000 of the Series A
Debenture it held into 444,444 shares of Anchor's common stock at $1.35 per
share. In addition, investors holding $270,000 of the debentures, including
seven members of the Board of Directors, converted their debentures into 200,000
shares of Anchor's common stock at $1.35 per share. These conversions will save
Anchor approximately $85,000 in interest payments, reduce outstanding
indebtedness by $870,000 and, in turn, increase shareholders' equity by
$870,000. For further information regarding the Series A Debenture and the
Debentures, refer to Anchor's Annual Report on Form 10-K for the year ended
December 31, 1996.
On December 17, 1996, Anchor entered into a Financial Advisory Agreement
("Agreement") with the Private Financing Group ("TPFG"), to advise and assist in
planning, locating investors or funding sources, reviewing overall business
needs and promotion of the internal and external business goals of Anchor. In
particular, TPFG was to contact outside third party and institutional funding
sources concerning possible debt or equity financing opportunities. Although
Anchor had discussions with several potential investors concerning possible
financings, management concluded that the current financial condition of Anchor
made any financing proposal too costly. Consequently, the Board of Directors
determined that management should defer seeking outside financing until Anchor's
financial operating results sufficiently improve to enable it to achieve a cost-
effective private or public financing.
The Agreement with TPFG provided for an advisory consulting fee of
$15,000 per month, plus reasonable expenses, commencing December 17, 1996, and
continuing for a period of six months. Because the Board of Directors
determined that management should postpone seeking outside financing, in April
1997, management exercised the cancellation provisions and terminated the
Agreement with TPFG.
During first quarter 1997, Anchor commenced raising additional funds from
members of the Board of Directors and other qualified investors through a
private offering of Anchor common stock along with warrants to acquire shares of
Anchor common stock (the "1997 Offering"). As of August 4, 1997, Anchor had
received $260,000 from said investors and had oral commitments for an additional
$90,000 in the 1997 Offering. Anchor has utilized a substantial portion of the
proceeds from the 1997 Offering to support current working capital needs. The
basic terms of the 1997 Offering are: (a) 555,000 shares of Anchor common stock
available at a purchase price of $0.90 per share; (b) five year warrants to
acquire one share of Anchor common stock for each share of Anchor common stock
purchased at an exercise price of $0.90 per share; (c) "piggyback" registration
rights for three years; and (d) anti-dilution protection for stock splits, stock
dividends, recapitalizations and reorganizations. Purchasers of the 1997
Offering, as of August 4, 1997, consisted of six members of the Board of
Directors and other qualified investors.
Capital and certain acquisition related expenditures were $4,648 and
$319,252 for the six months ended June 30, 1997, and 1996, respectively. The
largest 1997 expenditure involved computer equipment purchased by Harden during
the first quarter. During the first six months of 1996, the R.L. Ferguson
Insurance Agency ("RLF") located in Walnut Creek, California and certain
property and casualty accounts from Norman I. Robins ("Robins") and from John R.
McPherson ("McPherson") were merged into Anchor's insurance brokerage
subsidiary, PKW, located in Concord, California.
15
<PAGE>
Short-term debt, current portion of long-term debt and current portion of
long-term liabilities at June 30, 1997, totaling in the aggregate $2,509,174 (as
compared to $2,424,508 at December 31, 1996) 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) $445,000 outstanding under a
$450,000 unsecured line of credit with another regional San Francisco Bay Area
bank; (c) approximately $243,750 of future fixed payments under a consulting
agreement entered into with a company affiliated with the former shareholders of
BRI; (d) $207,500 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; (e) $100,000 of Debentures; (f)
$180,000 of Bridge Notes; and (g) approximately $357,924 for certain other
current liabilities.
On January 7, 1997, the $1,000,000 line of credit expired. Although Anchor
was within the covenants of the line of credit on the renewal date, and is
current with all interest payments, the bank notified Anchor that it would no
longer continue to extend the line to Anchor, under the same terms. Anchor is
continuing to negotiate with the bank to retire or restructure the obligation
either through a new credit facility provided by another interested bank or in
combination with funding from investors. The terms and conditions of this
credit facility are expected to be finalized prior to the end of third quarter
1997. The interest rate on the $1,000,000 line of credit is at the lending
bank's prime rate.
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. The $450,000 unsecured line of credit with the
other regional San Francisco Bay area bank matures on October 20, 1997. The
interest rate on the $450,000 line of credit is equal to the lending bank's
prime rate plus 1.5%. On July 3, 1997, the bank that provided Anchor with the
$450,000 unsecured line of credit also provided Anchor an unsecured $150,000
loan for additional working capital in connection with a new business
opportunity in the Los Angeles Area. This contract, effective July 1, 1997,
grants administrative and servicing responsibilities to Anchor's third-party
administration subsidiary, Harden. The interest rate on the $150,000 loan
which matures on July 2, 1999, is equal to the lending bank's prime rate plus
2%.
At June 30, 1997, long-term liabilities, less the current portion discussed
above, totaled $661,380 (as compared to $922,950 at December 31, 1996), and
primarily consisted of (a) approximately $89,230 of future fixed payments under
the consulting agreement, mentioned above, with a company affiliated with the
former shareholders of BRI; (b) approximately $153,000 representing the long-
term portion of obligations related to certain real property leased by PKW prior
to its acquisition by Anchor and relocation to Anchor's executive offices; (c)
approximately $296,500 representing deferred rent related to certain real
property currently leased by Anchor; and (d) approximately $122,650 for certain
other long-term liabilities. In May 1995, PKW entered into a sublease with
respect to 82% of PKW's prior office space. In December 1995, PKW entered into
a sublease with respect to an additional 10% of PKW's prior office space. The
subleases expire on November 30, 1999, and each require 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 assumption
that the remaining 8% of such office space will be subleased.
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)
strengthening management, sales and marketing staff. In conjunction with this
strategy, Anchor seeks to manage its affairs to achieve expansion through
internal growth of its existing and new product lines. Anchor also regularly
considers acquisition and merger opportunities and other business expansion
alternatives. As part of Anchor's strategy to create the premier regional
publicly traded insurance brokerage/administrator in the Western United States,
it expects to obtain additional momentum by using its status as a public company
to attract public or private financing. Such funding would be available to
Anchor for future acquisitions, expanded marketing and consolidation of its
insurance operations.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Anchor and its subsidiaries are parties from time to time to various
lawsuits that arise 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
Article fourth of Anchor's Certificate of Incorporation was amended to
(i) increase the authorized shares of Common Stock from 8,000,000 to 16,000,000
shares, and (ii) increase the authorized shares of Preferred Stock from 500,000
to 2,000,000 shares.
The increase in the number of authorized shares of Common Stock and
Preferred Stock was approved at the May 13, 1997, Annual Meeting of Stockholders
to assure that an adequate supply of authorized and unissued shares of Common
Stock and preferred stock is available for general corporate needs, such as
raising additional equity capital, financing acquisitions with capital stock,
declaring stock splits or stock dividends, or using for future employee benefit
plans.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Pursuant to notice duly given, the Annual Meeting of Stockholders of
Anchor was held on May 13, 1997 at which time the number of shares represented
and voted in person or by proxy were: 3,492,625 by proxy, and 0 in person. The
total number of shares present in person and by proxy equaled 81.20% of the
total shares issued and outstanding as of March 14, 1997, the record date of
said meeting, the stockholders approved the following proposals:
The first proposal was the election of directors. The following
directors, being all of the nominees as set forth in the proxy statement, were
elected to serve until the next annual meeting of stockholders and until their
successors are elected and have qualified: James R. Dunathan, Earl Wiklund,
Audie J. Dudum, Steven A. Gonsalves, Lawrence A. Hayes, R. William MacCullough,
Donald B. Putnam, Michael R. Sanford, Gordon M. Silverstein and James P.
Wieking.
The second proposal was the approval to amend Article Fourth of the
Company's Certificate of Incorporation to (i) increase the authorized shares of
Common Stock from 8,000,000 to 16,000,000 shares; and (ii) increase the
authorized shares of Preferred Stock from 500,000 to 2,000,000 shares. Said
proposal received the following votes: 2,745,233 (63.82%) for; 40,537 against;
5,975 abstained; and 700,880 broker non-votes.
The third proposal was the ratification of the appointment of independent
auditors, Odenberg, Ullakko, Muranishi & Co. ("Odenberg") to audit the financial
statements of Anchor for the fiscal year ended December 31, 1996. Anchor had
dismissed the firm of Ernst & Young based solely on the fact that the engagement
of Odenberg would result in substantial cost savings. Said proposal received
the following votes: 3,468,971 (80.65%) for; 21,932 against; and 1,722
abstained.
ITEM 5. OTHER INFORMATION
None.
17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.24 Business Loan Agreement Dated as of July 3, 1997, between Anchor and
Imperial Bank, and related documents.
27.0 Financial Data Schedule
B. REPORTS ON FORM 8-K
None
18
<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: August 4 , 1997 /s/ James R. Dunathan
-------------------- -------------------------------------------------
James R. Dunathan
President and Chief Executive Officer
Date: August 4, 1997 /s/ Earl Wiklund
-------------------- -------------------------------------------------
Earl Wiklund
Senior Vice President and Chief Financial Officer
19
<PAGE>
EXHIBIT 10.24
[LOGO OF IMPERIAL BANK]
NOTE
$150,000.00 San Francisco, California July 3, 1997
On July 2, 1999, and as hereinafter provided, for value received, the
undersigned promises to pay to IMPERIAL BANK ("Bank"), a California banking
corporation, or order, at its San Francisco Regional office, the principal sum
of $150,000.00 or such sums up to the maximum if so stated, as the Bank may now
or hereafter advance to or for the benefit of the undersigned in accordance with
the terms hereof, together with interest from date of disbursement or N/A,
whichever is later, on the unpaid principal balance [_] at the rate of ____%
per year [X] at the rate of 2.000% per year in excess of the rate of interest
which Bank has announced as its prime lending rate (the "Prime Rate"), which
shall vary concurrently with any change in such Prime Rate, or $250.00,
whichever is greater. Interest shall be computed at the above rate on the basis
of the actual number of days during which the principal balance is outstanding,
divided by 360, which shall, for interest computation purposes, be considered
one year.
Interest shall be payable [X] monthly [_] quarterly [_] included with principal
[X] in addition to principal [_] beginning August 2, 1997, and if not so paid
shall become a part of the principal. All payments shall be applied first to
interest, and the remainder, if any, on principal. [X] (If checked), Principal
shall be payable in installments of $2,500.00, or more, each installment on the
2nd day of each month, beginning August 2, 1997. Advances not to exceed any
unpaid balance owing at any one time equal to the maximum amount specified
above, may be made at the option of Bank.
Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should default be made in the payment of principal
or interest when due, or in the performance or observance, when due, of any
item, covenant or condition of any deed of trust, security agreement or other
agreement (including amendments of extensions thereof) securing or pertaining to
this note, at the option of the holder hereof and without notice or demand, the
entire balance of principal and accrued interest then remaining unpaid shall (a)
become immediately due and payable, and (b) thereafter bear interest, until paid
in full, at the increased rate of 5% per year in excess of the rate provided for
above, as it may vary from time to time.
Defaults shall include, but not be limited to, the failure of the maker(s)
to pay principal or interest when due; the filing as to each person obligated
hereon, whether as maker, co-maker, endorser or guarantor (individually or
collectively referred to as the "Obligor") of a voluntary or involuntary
petition under the provisions of the Federal Bankruptcy Act; the issuance of any
attachment or execution against any asset of any Obligor; the death of any
Obligor; or any deterioration of the financial condition of any Obligor which
results in the holder hereof considering itself, in good faith, insecure.
[X] If any installment payment or principal balance payment due hereunder is
delinquent ten or more days, Obligor agrees to pay a late charge in the amount
of 5% of the payment so due and unpaid, in addition to the payment, but nothing
in this paragraph is to be construed as any obligation on the part of the holder
of this note to accept payment of any installment past due or less than the
total unpaid principal balance after maturity.
If this note is not paid when due, each Obligor promises to pay all costs
and expenses of collection and reasonable attorney's fees incurred by the holder
hereof on account of such collection, plus interest at the rate applicable to
principal, whether or not suit is filed hereon. Each Obligor shall be jointly
and severally liable hereon and consents to renewals, replacements and
extensions of time for payment hereof, before, at, or after maturity; consents
to the acceptance, release or substitution of security for this note; and waives
demand and protest and the right to assert any statute of limitations. Any
married person who signs this note agrees that recourse may be had against
separate property for any obligations hereunder. The indebtedness evidenced
hereby shall be payable in lawful money of the United States. In any action
brought under or arising out of this note, each Obligor, including successor(s)
or assign(s) hereby consents to the application of California law, to the
jurisdiction of any competent court within the State of California, and to
service of process by any means authorized by California law.
No single or partial exercise of any power hereunder, or under any deed of
trust, security agreement or other agreement in connection herewith shall
preclude other or further exercises thereof or the exercise of any other such
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect
to any of the security. Any delay or omission on the part of the holder hereof
in exercising any right hereunder, or under any deed of trust, security
agreement or other agreement, shall not operate as a waiver of such right, or of
any other right, under this note or any deed of trust, security agreement or
other agreement in connection herewith.
Anchor Pacific Underwriters, Inc.,
a Delaware corporation
- ----------------------------------- -----------------------------------------
BY
- ------------------------------------ -----------------------------------------
- ------------------------------------ -----------------------------------------
[_] (initial here)
Subject to terms, conditions and limitations contained in the Credit Agreement
dated July 3, 1997. A default under any obligation of Obligor to Bank shall be
considered a
<PAGE>
[LOGO OF IMPERIAL BANK]
Member FDIC
CORPORATE RESOLUTION REGARDING CREDIT
OFFICE: San Francisco Regional ADDRESS: 456 Montgomery Street
San Francisco, California 94104
RESOLVED, that ANCHOR PACIFIC UNDERWRITERS, INC., a Delaware corporation
borrow from IMPERIAL BANK, hereinafter referred to as "Bank", from time to time,
such sums of money as, in the judgement of the officer or officers hereinafter
authorized, this corporation may require; provided that the aggregate amount of
such borrowing, pursuant to this resolution, shall not at any one time exceed
the principal sum of Six Hundred Thousand and No/100 DOLLARS ($600,000.00), in
addition to such amount as may be otherwise authorized;
RESOLVED FURTHER, that any 1 of the following named officers
----
(Specify Number)
James R. Durathan the President/CEO
- -------------------------------- ----------------------------------
Earl Wiklund the Secretary/CFO
- -------------------------------- ----------------------------------
- -------------------------------- the ----------------------------------
- -------------------------------- the ----------------------------------
- -------------------------------- the ----------------------------------
of this corporation (the officer or officers acting in combination, authorized
to act pursuant hereto being hereinafter designated as "authorized officers"),
be and they are hereby authorized, directed and empowered, for and on behalf and
in the name of this corporation (1) to execute and deliver to the Bank such
notes or other evidences of indebtedness of this corporation for the monies so
borrowed, with interest thereon, as the Bank may require, and to execute and
deliver, from time to time, renewals or extensions of such notes or other
evidences of indebtedness; (2) to grant a security interest in, transfer, or
otherwise hypothecate or deed in trust for Bank's benefit and deliver by such
instruments in writing or otherwise as may be demanded by the Bank, any of the
property of this corporation as may be required by the Bank to secure the
payment of any notes or other indebtedness of this corporation or third parties
to the Bank, whether arising pursuant to this resolution or otherwise; and (3)
to perform all acts and execute and deliver all instruments which the Bank may
deem necessary to carry out the purposes of this resolution;
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized and empowered, and that any one of said authorized officers be and
he/she is hereby authorized and empowered (1) to discount with or sell to the
Bank conditional sales contracts, notes, acceptances, drafts, bailment
agreements, leases, receivables and evidences of indebtedness payable to this
corporation, upon such terms as may be agreed upon by them and the Bank, and to
endorse in the name of this corporation said notes, acceptances, drafts,
bailment agreements, leases, receivables and evidences of indebtedness so
discounted, and to guarantee the payment of the same to the Bank, and (2) to
apply for and obtain from the Bank letters of credit and in connection therewith
to execute such agreement, applications, guarantees, indemnities and other
financial undertakings as Bank may require;
RESOLVED FURTHER, that said authorized officers are also authorized to
direct the disposition of the proceeds of any such obligation, and to accept or
direct delivery from the Bank of any property of this corporation at any time
held by the Bank;
RESOLVED FURTHER, that the authority given hereunder shall be deemed
retroactive and any and all acts authorized hereunder performed prior to the
passage of this resolution are hereby ratified and affirmed;
RESOLVED FURTHER, that this resolution will continue in full force and
effect until the Bank shall receive official notice in writing form this
corporation of the revocation thereof by a resolution duly adopted by the Board
of Directors of this corporation, and that the certification of the Secretary of
this corporation as to the signatures of the above named persons shall be
binding on this corporation.
I, Earl Wiklund, Secretary of the above named corporation, duly organized
------------
and existing under the laws of the State of Delaware, do hereby certify that
--------
the foregoing is a full, true and correct copy of a resolution of the Board of
Directors of said corporation.
I further certify that said resolution is still in full force and effect
and has not been amended or revoked, and that the specimen signatures appearing
below are the signatures of the officers authorized to sign for this corporation
by virtue of said resolution,
EXECUTED ON July 3, 1997
AUTHORIZED SIGNATURES:
----------------------
Signature: ___________________________
James R. Dunathan
Signature: ___________________________ __________________________________
Earl Wiklund (Secretary)
Earl Wiklund
Signature: ___________________________
Signature: ___________________________
Signature: ___________________________
<PAGE>
[LETTERHEAD OF IMPERIAL BANK]
456 MONTGOMERY STREET
- -------------------------
SAN FRANCISCO, California
- -------------
Subject: CREDIT TERMS AND CONDITIONS ("AGREEMENT")
Gentlemen:
To induce you to make loans to the undersigned (herein called "Borrower"), and
in consideration of any loan or loans you, in your sole discretion, may make to
Borrower, Borrower warrants and agrees as follows:
A. Borrower represents and warrants that:
1. EXISTENCE AND RIGHTS, Company is a [ ] sole proprietor.
or individual.
[ ] partnership.
[X] corporation.
If a partnership or corporation, Borrower is duly organized and existing and in
good standing under the laws of the State of CALIFORNIA (if a corporation,
----------
without limit as to the duration of its existence) and is authorized and in good
standing to do business in the State of California. Company has powers and
adequate authority, rights and franchises to own its property and to carry on
its business as now conducted, and is duly qualified and in good standing in
each State in which the character of the properties owned by it therein or the
conduct of its business makes such qualification necessary; and Borrower has the
power and adequate authority to make and carry out this Agreement. Borrower has
no investment in any other business entity, except
HARDEN & COMPANY INSURANCE SERVICES, INC., PUTNAM, KNUDSEN & WIEKING, INC.,
- --------------------------------------------------------------------------------
BENEFIT RESOURCES, INC., PLANNED BENEFIT SERVICES, INC. ANCHOR PACIFIC PREMIUM
- --------------------------------------------------------------------------------
FINANCE COMPANY, INC.
- --------------------------------------------------------------------------------
2. AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement are duly authorized and do not require the consent or approval of any
governmental body or other regulatory authority; are not in contravention of or
in conflict with any law or regulation or any term or provision of Borrower's
articles of incorporation, by-laws, or Articles of Association, as the case may
be, and this Agreement is the valid, binding and legally enforceable obligation
of Borrower in accordance with its terms.
3. NO CONFLICT. The execution, delivery and performance of this Agreement are
not in contravention of or in conflict with any agreement, indenture or
undertaking to which Borrower is party or by which it or any of its property may
be bound or affected, and do not cause any lien, charge or other encumbrance to
be created or imposed upon any such property by reason thereof.
4. LITIGATION. There is no litigation or other proceeding pending or
threatened against or affecting Borrower, and Borrower is not in default with
respect to any order, writ, injunction, decree or demand of any court or other
governmental or regulatory authority.
5. FINANCIAL CONDITION. The balance sheet of Borrower as of 5/31/97, and the
-------
related profit and loss statement for the FIVE MONTHS ended on that date, a copy
-----------
of which has heretofore been delivered to you by Borrower, and all other
statements and data submitted in writing by Borrower to you in connection with
this request for credit are true and correct, and said balance sheet and profit
and loss statement truly present the financial condition of Borrower as of the
date thereof and the results of the operations of Borrower for the period
covered thereby, and have been prepared in accordance with generally accepted
accounting principles on a basis consistently maintained. Since such date there
have been no materially adverse changes in the financial condition or business
of Borrower. Borrower has no knowledge of any liabilities, contingent or
otherwise, at such date not reflected in said balance sheet, and Borrower has
not entered into any special commitments or substantial contracts which are not
reflected in said balance sheet, other than in the ordinary and normal course of
its business, which may have a materially adverse effect upon its financial
condition, operations or business as now conducted.
6. TITLE TO ASSETS. Borrower has good title to its assets, and the same are
not subject to any liens or encumbrances other than those permitted by Section
C.3 hereof.
7. TAX STATUS. Borrower has no liability for any delinquent state, local or
federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
July 3, 1997
------------
BORROWER: ANCHOR PACIFIC UNDERWRITERS, INC.
----------------------------------------------------------------------
1800 SUTTER ST, CONCORD, CA. 94520
----------------------------------------------------------------------
8. TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
9. REGULATION U. The proceeds of this loan shall not be used to purchase or
carry margin stock (as defined within Regulation U of the Board of Governors of
the Federal Reserve system).
B. Borrower agrees that so long as it is indebted to you, it will, unless you
shall otherwise consent in writing:
1. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises and
other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
2. INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar business.
3. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and all its
other liabilities at any time existing, except to the extent and so long as:
(a) The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse effect
upon its financial condition or the loss of any right of redemption from
any sale thereunder; and
(b) It shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting practice) deemed by it
adequate with respect thereto.
4. NET WORTH AND WORKING CAPITAL. Maintain a tangible net worth (meaning
the excess of all assets, excluding any value for good will, trademarks,
patents, copyrights, leaseholds, organization expense and other similar
intangible items, over its liabilities) of not less than $ 650,000 ;
--------
maintain net current assets (i.e., working capital) of not less than $ n/a ;
---
and maintain a ratio of current assets to current liabilities of not less than
n/a to n/a ; all as computed and determined in accordance with generally
- --- ---
accepted accounting principles on a basis consistently maintained by Borrower.
5. RECORDS AND REPORTS. Maintain a standard and modern system of accounting
in accordance with generally accepted accounting principles on a basis
consistently maintained; permit your representatives to have access to, and to
examine its properties, books and records at all reasonable times; and furnish
you;
(a) As soon as available, and in any event within 15 DAYS days after the
-------
close of each MONTH of each fiscal year of Borrower, commencing with the
-----
MONTH next ending, a balance sheet, profit and loss statement and
-----
reconciliation of Borrower's capital accounts as of the close of such
period and covering operations for the portion of Borrower's fiscal year
ending on the last day of such period, all in reasonable detail and
stating in comparative form the figures for the corresponding date and
period in the previous fiscal year, prepared in accordance with generally
accepted accounting principles on a basis consistently maintained by
Borrower and certified by an appropriate officer of Borrower, subject,
however, to year-end audit adjustments;
(b) As soon as available, and in any event within 90 days after the close
of each fiscal year of Borrower, a report of audit of Company as of the
close of and for such fiscal year, all in reasonable detail and stating
in comparative form the figures as of the close of and for the previous
fiscal year, with the [X] unqualified [ ] qualified opinion of
accountants satisfactory to you, or [ ] no third party opinion required.
<PAGE>
(c) Within 90 days after the end of each fiscal year of Borrower, a
certificate of chief financial officer or partner of Borrower, stating that
Borrower has performed and observed each and every covenant contained in
this Letter of inducement to be performed by it and that no event has
occurred and no condition then exists which constitutes an event of default
hereunder or would constitute such an event of default upon the lapse of
time or upon the giving of notice and the lapse of time specified herein;
or, if any such event has occurred or any such condition exists, specifying
the nature thereof;
(d) Promptly after the receipt thereof by Borrower, copies of any detailed
audit reports submitted to Borrower by independent accountants in
connection with each annual or interim audit of the accounts of Borrower
made by such accountants;
(e) Promptly after the same are available, copies of all such proxy
statements, financial statements and reports as Borrower shall send to its
stockholders, if any, and copies of all reports which Borrower may file
with the Securities and Exchange Commission or any governmental authority
at any time substituted therefor; and
(f) Such other information relating to the affairs of Borrower as you
reasonably may request from time to time.
(g) Notice of Default. Promptly notify the Bank in writing of the
occurrence of any event of default hereunder or any event which upon notice
and lapse of time would be an event of default.
C. Borrower agrees that so long as it is indebted to you, it will not, without
your written consent:
1. TYPE OF BUSINESS; MANAGEMENT; EXECUTIVES' COMPENSATION. Make any
substantial change in the character of its business; or make any change in its
executive management; or allow the salary, bonuses or other compensation of any
of its executives, to exceed $ 500,000 per annum in the aggregate.
---------
2. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than loans from you except obligations
now existing as shown in financial statement dated 5/31/97, excluding those
-------
being refinanced by your bank; or sell or transfer, either with or without
recourse, any accounts or notes receivable or any moneys due to become due.
3. LIENS AND ENCUMBRANCES. Create, incur, or assume any mortgage, pledge,
encumbrance, lien or charge of any kind (including the charge upon property at
any time purchased or acquired under conditional sale or other title retention
agreement) upon any asset now owned or hereafter acquired by it, other than
liens for taxes not delinquent and liens in your favor.
4. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances to
any person or other entity other than in the ordinary and normal course of its
business as now conducted or make any investment in the securities of any person
or other entity other than the United States Government; or guarantee or
otherwise become liable upon the obligation of any person or other entity,
except by endorsement of negotiable instruments for deposit or collection in the
ordinary and normal course of its business.
5. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase or
otherwise acquire the assets or business of any person or other entity; or
liquidate, dissolve, merge or consolidate, or commence any proceedings therefor;
or sell any assets except in the ordinary and normal course of its business as
now conducted; or sell, lease, assign, or transfer any substantial part of its
business as now conducted, including without limitation the selling of any
property or other asset accompanied by the leasing back of the same.
See Addendum A attached INITIAL
HERE
6. DIVIDENDS, STOCK PAYMENTS. If a corporation, declare or pay any dividend
(other than dividends payable in common stock of Borrower) or make any other
distribution on any of its capital stock now outstanding or hereafter issued or
purchase, redeem or retire any of such stock; except, however, Borrower may pay
a cash dividend to its shareholders in an amount not to exceed 0 % of net after
-
tax earnings for such dividend period.
7. CAPITAL EXPENDITURES. Make or incur obligations for capital expenditures
in excess of $ 200,000 in the period from the date hereof 12/31/97 or in excess
------- --------
of $ 500,000 in any one fiscal year thereafter.
-------
8. LEASE LIABILITY. Make or incur liability for payments of rent under leases
of real property in excess or 900,000 and personal leases of property in excess
-------
of 400,000 in any one fiscal year.
-------
D. The occurrence of any one of the following events of default shall, at your
option, terminate your commitment to lend and make all sums of principal and
interest then remaining unpaid on all Borrower's indebtedness to you immediately
due and payable, all without demand, presentment or notice, all of which are
hereby expressly waived:
1. FAILURE TO PAY NOTE. Failure to pay any installment of principal or of
interest on any indebtedness of Borrower to you.
2. BREACH OF COVENANT. Failure of Borrower to perform any other term or
condition of this Agreement binding upon Borrower.
3. BREACH OF WARRANTY. Any of Borrower's representations or warranties made
herein or any statement or certificate at any time given in writing pursuant
hereto or in connection herewith shall be false or misleading in any material
respect.
4. INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or admit
its inability to pay its debts as they mature; or make an assignment for the
benefit of creditors; or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business.
5. JUDGMENTS, ATTACHMENTS. Any money judgment, writ or warrant of
attachment, or similar process shall be entered or filed against Borrower or any
of its assets and shall remain unvacated, unbonded or unstayed for a period of
10 days or in any event later that five days prior to the date of any proposed
sale thereunder.
6. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall be consented to.
E. MISCELLANEOUS PROVISIONS.
1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of your
Bank or any holder of Notes issued hereunder, in the exercise of any power,
right or privilege hereunder shall operate as waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing under this agreement or any note issued in
connection with a loan that your Bank may make hereunder, are cumulative to, and
not exclusive of, any rights or remedies otherwise available.
Anchor Pacific Underwriters, Inc.
---------------------------------------------
By /s/ JAMES R. DUNATHAN
---------------------------------------------
(Signature and Title)
By /s/ EARL WIKLUND
---------------------------------------------
(Signature and Title)
Page 2 of 2
<PAGE>
Anchor Pacific Underwriters, Inc. Initial
Credit Terms & Conditions Dated July 3, 1997 Here
ADDENDUM [ ]
Other Terms and Conditions:
On an annual basis, earnings before Interest, Taxes,
Depreciation and Amortization shall cover principal and interest
of the current portions of long term debt and capitalized lease
obligations a minimum of 1.5 xs.
Company to provide unqualified audited financial statements and
10K report within 90 days of the close of its fiscal year end.
On a monthly basis, Borrower, must achieve at least 80% of their
budget goals for earnings before depreciation and amortization
based on the company's June 1997 forecast.
The company's Arizona deposits to be transferred to Imperial
Bank.
Anchor Pacific Underwriters, Inc.
By: /s/ James R. Dunathan Date: 7-3-97 /s/ Earl Wiklund Date: 7-3-97
--------------------- ------ ---------------- ------
James R. Dunathan Earl Wiklund
President & CEO Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,234,166
<SECURITIES> 0
<RECEIVABLES> 1,228,574
<ALLOWANCES> 41,200
<INVENTORY> 0
<CURRENT-ASSETS> 5,684,841
<PP&E> 2,981,145
<DEPRECIATION> 2,306,896
<TOTAL-ASSETS> 9,634,530
<CURRENT-LIABILITIES> 8,135,656
<BONDS> 0
0
0
<COMMON> 92,565
<OTHER-SE> 744,930
<TOTAL-LIABILITY-AND-EQUITY> 9,634,530
<SALES> 0
<TOTAL-REVENUES> 4,064,110
<CGS> 0
<TOTAL-COSTS> 4,366,056
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99,329
<INCOME-PRETAX> (505,268)
<INCOME-TAX> 4,470
<INCOME-CONTINUING> (509,738)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (509,738)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
