As Filed with the Securities and Exchange Commission on October 2, 1995
Registration No. 33-81380
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
___________________
WESTBRIDGE CAPITAL CORP.
(Exact name of Registrant as specified in its charter)
DELAWARE 6300 73-1165000
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identfication No.)
____________________
777 Main Street
Fort Worth, Texas 76102
(817) 878-3300
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
____________________
PATRICK J. MITCHELL
Vice President, Chief Financial Officer and Treasurer
Westbridge Capital Corp.
777 Main Street
Fort Worth, Texas 76102
(817) 878-3300
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
____________________
with copies to:
ROBERT S. REDER, ESQ.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
(212) 530-5680
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement, as
determined by the Selling Securityholders.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |X|
_________________________
<PAGE>
CROSS REFERENCE SHEET
(Pursuant to Item 501(b) of Regulation S-K)
<TABLE>
<CAPTION>
Registration Statement Items and Heading Location in Prospectus
- ---------------------------------------- ----------------------
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus . . . . . . . Cover Page of Registration Statement;
Outside Front Cover Page of Prospectus;
Cross Reference Sheet
2. Inside Front and Outside Back Cover Pages
of Prospectus. . . . . . . . . . . . . . . . . . . . Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges . . . . . . . . . . . . Prospectus Summary; Risk Factors; The
Company; Capitalization; Selected Historical
Consolidated Financial Information
4. Use of Proceeds . . . . . . . . . . . . . . . . . . . Not Applicable
5. Determination of Offering Price . . . . . . . . . . . Not Applicable
6. Dilution. . . . . . . . . . . . . . . . . . . . . . . Not Applicable
7. Selling Security Holders. . . . . . . . . . . . . . . Selling Securityholders
8. Plan of Distribution. . . . . . . . . . . . . . . . . Plan of Distribution
9. Description of Securities to be Registered . . . . . Outside Front Cover Page of Prospectus;
Prospectus Summary; Description of Capital
Stock; Description of Convertible
Subordinated Debentures
10. Interests of Named Experts and Counsel. . . . . . . . Experts; Legal Matters
11. Information with Respect to the Registrant . . . . . Prospectus Summary; Risk Factors; The
Company; Price Range of Common Stock and
Dividend Policy; Capitalization;
Selected Historical Consolidated Financial
Information; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business; Management;
Principal Stockholders; Description of Capital
Stock
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities. . . . . . . . . . . . Not Applicable
</TABLE>
<PAGE>
WESTBRIDGE CAPITAL CORP.
SERIES A CUMULATIVE CONVERTIBLE REDEEMABLE
EXCHANGEABLE PREFERRED STOCK
$.10 PAR VALUE, $1,000 LIQUIDATION PREFERENCE
COMMON STOCK
CONVERTIBLE SUBORDINATED DEBENTURES
DUE APRIL 12, 2004
__________________
Up to 20,000 shares of Series A Cumulative Convertible Redeemable
Exchangeable Preferred Stock, par value $.10 per share, liquidation
preference $1,000 per share (the "Series A Preferred Stock"), of Westbridge
Capital Corp. ("Westbridge"), may be offered from time to time by certain
holders of the Series A Preferred Stock. See "Selling Securityholders." The
dividend on the Series A Preferred Stock, which is equal to $82.50 per share,
per annum, is payable on the last business day of each January, April, July
and October out of funds legally available therefor, when, as and if declared
by Westbridge's Board of Directors (the "Board of Directors") and is subject
to certain adjustments described herein. Each quarterly dividend is fully
cumulative and accrues (whether or not declared) without accruing interest or
additional dividends. On or after April 12, 1997, Westbridge may redeem, in
whole or in part, upon not less than 30 nor more than 60 days' prior written
notice, the outstanding shares of Series A Preferred Stock initially at a
price of $1,050 per share and thereafter at prices declining to $1,000 per
share on or after April 1, 2002, in each case, plus accrued and unpaid
dividends to the redemption date. On April 12, 2004, Westbridge is required
to redeem all outstanding shares, if any, in whole at a price of $1,000 per
share, plus accrued and unpaid dividends to the redemption date. In
addition, in certain circumstances more fully described herein, holders of
Series A Preferred Stock may require Westbridge to redeem, in whole or in
part, as the case may be, the Series A Preferred Stock held by such holders
at the applicable redemption price plus accrued and unpaid dividends to the
redemption date. The Series A Preferred Stock is not subject to any
mandatory sinking fund. Westbridge's ability to pay dividends on, or to
redeem, the Series A Preferred Stock is limited by the amount of funds
legally available therefor and is subject to the satisfaction of certain
covenants and restrictions under the Senior Subordinated Indenture (as
defined herein), Westbridge's Restated Certificate of Incorporation and
certain legal and regulatory requirements. See "Risk Factors -- Holding
Company Structure; Reliance on Subsidiaries, -- Repurchase at Option of
Holders and -- Restrictions on Dividends," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity,
Capital Resources and Statutory Capital and Surplus," and "Description of
Capital Stock -- Preferred Stock -- Series A Preferred Stock." Each share of
Series A Preferred Stock is convertible, at the option of the holder thereof,
into shares of Common Stock at a price of $8.41 per share, subject to certain
adjustments described herein. The shares of Series A Preferred Stock may, at
the option of Westbridge, be exchanged for that principal amount of
Convertible Subordinated Debentures due April 12, 2004 (the "Convertible
Subordinated Debentures") of Westbridge equal to the aggregate liquidation
preference of the Series A Preferred Stock to be exchanged. Westbridge may
effect such exchange only if accrued and unpaid dividends on the Series A
Preferred Stock have been paid. Holders of Series A Preferred Stock are not
entitled to any voting rights, except as set forth in Westbridge's Restated
Certificate of Incorporation and as required by law. See "Description of
Capital Stock -- Preferred Stock -- Series A Preferred Stock" for a
discussion of these and other terms of the Series A Preferred Stock.
(continues on following page)
__________________
THERE HAS BEEN NO ACTIVE TRADING MARKET FOR EITHER THE SERIES A PREFERRED
STOCK OR THE CONVERTIBLE SUBORDINATED DEBENTURES NOR IS IT EXPECTED THAT SUCH
AN ACTIVE TRADING MARKET WILL DEVELOP.
__________________
See "Risk Factors" for information concerning certain factors that should be
considered by prospective investors, as an investment in the Series A
Preferred Stock, the Common Stock or the Convertible Subordinated Debentures
involves a high degree of risk.
__________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
__________________
The date of this Prospectus is October 2, 1995
<PAGE>
(continuation of cover page)
Up to 2,378,120 shares of Common Stock, par value $.10 per share (the
"Common Stock"), of Westbridge issuable upon the conversion of the Series A
Preferred Stock or the Convertible Subordinated Debentures, plus such
additional number of shares of Common Stock as may be issued upon the
conversion of the Series A Preferred Stock or the Convertible Subordinated
Debentures by reason of adjustment of the conversion rate in certain events
outlined herein, may, following conversion, be offered from time to time by
certain holders of Common Stock. See "Selling Securityholders." The
outstanding Common Stock is, and the Common Stock offered hereby will be,
listed on the New York Stock Exchange (the "NYSE"). On September 28, 1995,
the last reported sale price of the Common Stock on the NYSE was $6 1/8 per
share. See "Price Range of Common Stock and Dividend Policy."
Up to $20,000,000 aggregate principal amount of Convertible Subordinated
Debentures issuable upon the exchange by Westbridge of the Series A
Preferred Stock may, following exchange, be offered from time to time by
certain holders of the Convertible Subordinated Debentures. See "Selling
Securityholders." The Convertible Subordinated Debentures will bear
interest at a rate equal to the applicable dividend rate on the Series A
Preferred Stock at the time of exchange. Interest shall accrue from the
date of exchange, or from the most recent interest payment date to which
interest has been paid or provided for, determined as provided in the
indenture under which the Convertible Subordinated Debentures will be
issued (the "Convertible Subordinated Indenture"). Interest will be
payable on the last business day of each January, April, July and October
following the date of issuance and will be subject to certain adjustments
described herein. The Convertible Subordinated Debentures will mature on
April 12, 2004. On or after April 12, 1997, Westbridge may redeem, in
whole or in part, upon not less than 30 nor more than 60 days' prior
written notice, the outstanding Convertible Subordinated Debentures
initially at a price per $1,000 principal amount of $1,050 and thereafter
at prices declining to $1,000 on or after April 1, 2002, in each case, plus
accrued and unpaid interest to the redemption date. The Convertible
Subordinated Debentures are not subject to any mandatory sinking fund. In
addition, in certain circumstances more fully described herein, holders of
Convertible Subordinated Debentures may require Westbridge to repurchase,
in whole or in part, as the case may be, the Convertible Subordinated
Debentures held by such holders at the repurchase prices set forth herein,
plus accrued and unpaid interest to the repurchase date. The Convertible
Subordinated Debentures will rank junior to Westbridge's Senior
Subordinated Notes (as defined herein) and any other Senior Indebtedness
(as defined herein) subsequently issued by Westbridge. The Convertible
Subordinated Debentures may, at the option of the holders thereof, be
converted into shares of Common Stock at a price and in a manner
substantially similar to the price and manner in which the Series A
Preferred Stock may be converted as set forth herein. On September 27,
1995, there was approximately $20,000,000 of Senior Indebtedness
outstanding, consisting primarily of the Senior Subordinated Notes. See
"Description of Convertible Subordinated Debentures" for a discussion of
these and other terms of the Convertible Subordinated Debentures.
The Company will not receive any of the proceeds from any sale of
Series A Preferred Stock, Common Stock or Convertible Subordinated
Debentures offered from time to time by the holders thereof (collectively,
the "Selling Securityholders"). Any or all of such Series A Preferred
Stock, Common Stock or Convertible Subordinated Debentures covered by this
Prospectus may be sold, from time to time by the Selling Securityholders
(i) to or through underwriters or dealers, (ii) directly to one or more
other purchasers, (iii) through agents on a best-efforts basis, or (iv)
through a combination of any such methods of sale. The names of any
underwriters or agents and the applicable commissions or discounts, along
with pricing information, will be set forth in an accompanying Prospectus
Supplement. See "Plan of Distribution."
The Series A Preferred Stock was issued by Westbridge on April 12, 1994
pursuant to the terms of the Preferred Stock Purchase Agreement, dated as
of April 1, 1994 (the "Preferred Stock Purchase Agreement"), between
Westbridge and the purchasers named therein, in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"). The proceeds from the issuance of the Series A Preferred Stock were
used to provide financing for the Acquisition (as defined herein). The
Preferred Stock Purchase Agreement contained certain registration
requirements on the part of Westbridge and the registration statement filed
by Westbridge under the Securities Act, and of which this Prospectus is a
part, satisfied those registration requirements. See "The Acquisition" and
"Description of Capital Stock -- Preferred Stock -- Series A Preferred
Stock."
<PAGE>
AVAILABLE INFORMATION
Westbridge is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith
files reports, proxy statements and other information with the Securities
and Exchange Commission (the "Commission"). Such reports, proxy statements
and other information filed by Westbridge can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional
offices: 7 World Trade Center, Suite 1300, New York, New York 10048, and
Northwest Atrium Center, 550 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can also be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such reports and other
information concerning Westbridge also may be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
Westbridge has filed with the Commission a Registration Statement under
the Securities Act with respect to the Offering (as defined herein). This
Prospectus, which forms a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto, certain parts of which have been
omitted in accordance with the rules and regulations of the Commission.
For further information with respect to Westbridge and the Offering,
reference is hereby made to such Registration Statement, exhibits and
schedules.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and the
consolidated financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. References in this Prospectus to the "Series
A Preferred Stock" mean the Series A Cumulative Convertible Redeemable
Exchangeable Preferred Stock of Westbridge, par value $.10 per share,
liquidation preference $1,000 per share, references to the "Common Stock"
mean the common stock of Westbridge, par value $.10 per share, references
to the "Convertible Subordinated Debentures" mean the Convertible
Subordinated Debentures of Westbridge due April 12, 2004 which are issuable
upon exchange of the Series A Preferred Stock and references to the
"Offering" mean the offering of the Series A Preferred Stock, the Common
Stock or the Convertible Subordinated Debentures made hereby. All
financial information set forth herein is presented in accordance with
generally accepted accounting principles ("GAAP"), unless otherwise noted.
Unless the context otherwise requires, all references in this Prospectus to
"Westbridge" mean only Westbridge Capital Corp., and all references in this
Prospectus to the "Company" mean Westbridge Capital Corp. and its
consolidated subsidiaries. See "Glossary of Insurance Terms" for
definitions of certain terms used in this Prospectus.
The Company
Westbridge, through its subsidiaries and affiliated companies,
principally underwrites and sells specialized health insurance products to
supplement or substitute for medical expense coverage usually provided by
employers and government programs. The Company's major product lines are:
* "Cancer and Specified Disease Products", which include
policies designed to provide daily indemnity for
hospital confinement and convalescent care for
treatment of specified diseases, as well as "event
specific" policies designed to provide daily indemnity
for confinement in an intensive care unit, fixed
benefits in the case of accidental death, or lump sum
payments upon initial diagnosis of certain types of
internal cancer;
* "Medical Expense Products", which include policies
providing reimbursement for various costs of medical
and hospital care; and
* "Medicare Supplement Products", which are designed to
provide reimbursement for certain expenses not covered
by the Medicare program.
The majority of Westbridge's operations have historically been conducted
through its wholly-owned subsidiary, National Foundation Life Insurance
Company ("NFL").
The Company markets its products primarily through general agency
networks. The principal general agency networks used by the Company
include: LifeStyles Marketing Group, Inc., a 51.0%-owned indirect
subsidiary of Westbridge ("LifeStyles Marketing"); Senior Benefits, LLC, a
50.0%-owned subsidiary of Westbridge ("Senior Benefits"); and two general
agency networks controlled by individuals, one of which (the "Locke
Agency") is controlled by John P. Locke ("Locke") and the other of which
(the "Elkins Agency") is controlled by Phillip D. Elkins ("Elkins"). The
Company has certain contractual arrangements with Locke expiring in 1998
which provide the terms and conditions on which the Locke Agency markets
the Company's products and set forth coinsurance agreements between the
Company and an entity controlled by Locke. The Company also has
contractual arrangements with Elkins expiring in 1995 which relate to
insurance previously written through an entity controlled by Elkins and
coinsured by the Company. Each agency network specializes in one of the
Company's product lines and focuses on selling those products in small
towns and rural areas to individuals who have medical expense coverage that
they may consider inadequate. See "Business--Marketing."
<PAGE>
The Company's strategy is to continue to expand its sales and
marketing of existing products; introduce new specialized supplemental
products to respond to the changing health care environment; and, if and
when opportunities arise, acquire blocks of business. In furtherance of
this strategy, since November 1993 the Company has acquired equity
interests in two insurance agencies to expand sales of its products. In
addition, during 1995 the Company has entered into new relationships with
established general agency networks specializing in the sale of products
comparable to the Company's existing product lines and has begun offering
several new products. The Company continues to seek additional similar
relationships. See "Business--Marketing." In response to recent
developments in managed healthcare, the Company has entered into
contractual arrangements with a "preferred provider organization" which
offers policyholders of certain Medical Expense Products the option of
using network physicians, hospitals and ancillary healthcare providers to
reduce their calendar year deductible and coinsurance portion by up to
50.0%. The Company has also contracted with individual hospitals to reduce
the cost to policyholders of certain Medicare Supplement Products. See
"Business--Description of Policies."
The Company believes that recent conditions in the insurance industry
have created opportunities to acquire health insurance companies and blocks
of health insurance business at a lower cost than would be required to
produce such business. Since September 1992, the Company has acquired
three blocks of supplemental health insurance policies, two of which
consisted exclusively of Medicare Supplement Products. Aggregate premiums
from these acquisitions totaled $19.6 million for the year ended
December 31, 1994 and $8.2 million for the six months ended June 30, 1995.
Also, on April 12, 1994, the Company completed its acquisition (the
"Acquisition") of National Financial Insurance Company ("NFI") and American
Insurance Company of Texas ("AICT"), two affiliated, privately-owned Texas
health insurers with business lines substantially similar to those of the
Company and with combined annualized premiums on the date of such purchase
of approximately $45.0 million. The purchase price for the Acquisition was
funded primarily through the issuance by Westbridge of 20,000 shares of its
Series A Cumulative Convertible Redeemable Exchangeable Preferred Stock
(the "Series A Preferred Stock"). See "The Acquisition." The foregoing
acquisitions have significantly increased the Company's revenue stream and
asset base. The increase in the Company's net income from $800,000 in 1991
to $6.4 million in 1994 was due in large part to the acquisition of the two
blocks of Medicare Supplement Products referred to above, as well as the
Acquisition.
Westbridge's insurance subsidiaries and affiliates are licensed to
sell their products in a combined total of 40 states, primarily in the
western, middle western, southern and southeastern regions of the United
States. These licenses are subject to renewal by the insurance regulatory
authorities of each such state. The Company must file periodic financial
statements with each state's insurance regulatory authority and conduct its
business in accordance with such state's laws and regulations. A failure
by the Company to comply with any state's financial or business conduct
requirements could result in the future revocation of the Company's license
to sell insurance products in such state. See "Business--Regulation."
<PAGE>
Series A Preferred Stock
<TABLE>
<S> <C>
Title and Amount
of Securities. . . . . . . . . . . . . . . . . . . . . . . . Up to 20,000 shares of Series A Cumulative
Convertible Redeemable Exchangeable Preferred
Stock, par value $.10 per share, liquidation
preference $1,000 per share.
Liquidation
Preference . . . . . . . . . . . . . . . . . . . . . . . . . . Upon any liquidation, dissolution or winding up
of Westbridge, whether voluntary or involuntary,
the holders of Series A Preferred Stock shall
have a preference over the Common Stock or any
other class or series of stock of Westbridge
ranking upon liquidation, dissolution or winding
up junior to the Series A Preferred Stock, for
payment out of the assets of Westbridge or
proceeds thereof of $1,000 per share plus all
dividends accrued and unpaid thereon and after
such payments the holders of Series A Preferred
Stock will be entitled to no other payments.
If, in the case of any such liquidation,
dissolution or winding up of Westbridge, the
assets of Westbridge or proceeds thereof are
insufficient to pay in full the liquidation
payments described above, and similar payments
on or other class or series of stock of
Westbridge ranking upon liquidation, dissolution
or winding up on a parity with the Series A
Preferred Stock, then such assets and proceeds
will be distributed among the holders of the
Series A Preferred Stock and any such other
classes or series of stock ratably in accordance
with the respective amounts which would be
payable on such Series A Preferred Stock and any
such other classes or series of stock if all
amounts payable thereon were paid in full.
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . Holders of Series A Preferred Stock will be
entitled to receive, when and as declared by the
Board of Directors out of funds legally
available for payment, cumulative cash dividends
at an annual rate of $82.50 per share. The
dividend rate is subject to a one percentage
point increase if certain Events of
Noncompliance (as defined herein) occur. See
"Description of Capital Stock -- Preferred Stock
-- Series A Preferred Stock." Once an Event of
Noncompliance has been cured, the annual
dividend rate will revert to $82.50 per share.
Dividends on the Series A Preferred Stock will
be payable quarterly in arrears from the date of
original issuance on the last business day of
January, April, July and October of each year,
commencing on July 31, 1994, in respect of the
quarterly period ending on the last day of the
immediately preceding calendar quarter. In
addition, if Westbridge makes any dividend
payment or other distribution on the Common
Stock, other than (i) dividends payable in cash
in an aggregate amount in any fiscal year not
exceeding $500,000, or (ii) any dividend or
distribution of shares of Common Stock, then the
holders of shares of Series A Preferred Stock
shall be entitled to receive, with respect to
each share of Series A Preferred Stock held, the
same dividend or distribution received by a
holder of the number of shares of Common Stock
into which such share of Series A Preferred
Stock is convertible on the record date for such
dividend or distribution.
Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . Except to the extent provided in the Restated
Certificate of Incorporation of Westbridge (the
"Certificate of Incorporation") and as provided
by law, the holders of the Series A Preferred
Stock will not have voting rights, except that
whenever any dividends payable on shares of
Series A Preferred Stock in an amount equivalent
to or exceeding the amount of dividends payable
thereon for six (6) Quarterly Dividend Periods
(as defined herein) (whether or not consecutive)
shall be past due, thereafter and until all
accrued and unpaid dividends shall have been
paid in full or declared and set apart for
payment, the holders of shares of Series A
Preferred Stock, together with the holders of
any other series of preferred stock of
Westbridge ("Preferred Stock") as to which
dividends are in arrears and as a result are
entitled to the rights described in this
paragraph, shall have the right, notwithstanding
anything to the contrary in the Certificate of
Incorporation or the By-Laws of Westbridge (the
"By-Laws"), voting together as a single class
with such other series, to elect two directors
of Westbridge, such directors to be in addition
to the number of directors constituting the
Board of Directors immediately prior to the
accrual of such right, with the remaining
directors to be elected by the other class or
classes of stock entitled to vote therefor at
any meeting of the stockholders held for the
purpose of electing directors. Such right to
vote for the election of directors may be
exercised as provided in the Certificate of
Incorporation until all accrued and unpaid
dividends shall have been paid in full or
declared and set apart for payment, at which
time the term of office of the two directors so
elected shall terminate automatically. The
directors so elected shall serve until the next
annual meeting of stockholders of Westbridge or
until their successors shall be elected and
shall qualify, unless the term of office of the
persons so elected as directors shall have
earlier terminated. The rights of the holders
of Series A Preferred Stock to elect two
directors shall not be adversely affected by the
voting or other rights applicable to any other
security of Westbridge.
Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . Each share of Series A Preferred Stock may, at
any time, at the option of the holder thereof,
be converted into shares of Common Stock, on the
terms and conditions set forth in the
Certificate of Incorporation. Each share of
Series A Preferred Stock shall be convertible
into a number of fully-paid and nonassessable
shares of Common Stock equal to the result
obtained (calculated to the nearest 1/1,000th of
a share) by dividing the Liquidation Preference
by the Conversion Price (each, as defined
herein). The Conversion Price shall be subject
to certain anti-dilution adjustments. See
"Description of Capital Stock -- Preferred Stock
-- Series A Preferred Stock -- Conversion."
Redemptions. . . . . . . . . . . . . . . . . . . . . . . . . . Westbridge shall have no right to redeem any
shares of Series A Preferred Stock prior to
April 12, 1997. The Series A Preferred Stock is
not subject to any mandatory sinking fund and
the Company currently does not intend to provide
for a sinking fund to satisfy its redemption
obligations. All redemption payments will be
made solely out of funds legally available
therefor at the time of each such redemption.
Optional. . . . . . . . . . . . . . . . . . . . . . . . On or after April 12, 1997, Westbridge may
redeem, in whole or in part, at any time or from
time to time upon not less than thirty (30) nor
more than sixty (60) days prior written notice,
the outstanding shares of Series A Preferred
Stock by paying therefor in cash an amount per
share equal to the sum of (i) $1,000 multiplied
by the applicable Redemption Price set forth
below, and (ii) all accrued and unpaid dividends
thereon to the date of redemption; provided that
the redemption date in connection with any such
redemption shall not be a date which is within
the period commencing thirty (30) days prior to
a Quarterly Dividend Payment Date (as defined
herein) and ending on the fifth business day
following such Quarterly Dividend Payment Date.
For any redemption of the Series A Preferred
Stock, the applicable "Redemption Price", if the
redemption date occurs during the twelve-month
period beginning April 1 of the years indicated,
shall be as follows:
Redemption
Year Price
1997 105%
1998 104%
1999 103%
2000 102%
2001 101%
2002 and thereafter 100%
Mandatory . . . . . . . . . . . . . . . . . . . . . . . The Series A Preferred Stock is subject to
mandatory redemption by Westbridge on April 12,
2004, by paying therefor in cash an amount equal
to $1,000 per share plus all accrued and unpaid
dividends thereon to the date of redemption.
If a Repurchase Event (as defined herein) shall
have occurred, each holder of shares of Series A
Preferred Stock shall be entitled to require
Westbridge to redeem all or any portion of the
shares of Series A Preferred Stock then held by
such holder by paying therefor in cash an amount
per share equal to the sum of (x) $1,000
multiplied by the applicable Redemption Price,
and (y) all accrued and unpaid dividends thereon
to the date of redemption.
If an Event of Noncompliance of the type
described in clause (v) of the definition of
such term (provided that such Event of
Noncompliance is the result of a voluntary
assignment for the benefit of creditors or a
voluntary bankruptcy, reorganization, insolvency
or other similar proceeding commenced by
Westbridge) shall have occurred, the holder or
holders of a majority of the shares of Series A
Preferred Stock then outstanding shall be
entitled to require Westbridge to redeem all or
any portion of the Series A Preferred Stock
owned by such holder or holders by paying
therefor in cash an amount per share equal to
the sum of (x) $1,000 and (y) all accrued and
unpaid dividends thereon to the date of
redemption. See "Risk Factors -- Repurchase at
Option of Holders."
Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . The shares of Series A Preferred Stock are
exchangeable, in whole or in part, at the option
of Westbridge, at any time upon not less than
thirty (30) nor more than sixty (60) days prior
written notice to the holders thereof, for that
principal amount of Convertible Subordinated
Debentures equal to the Liquidation Preference
of the shares to be exchanged; provided that on
or prior to the date of exchange Westbridge
shall have paid to the holders of outstanding
shares of Series A Preferred Stock all accrued
and unpaid dividends thereon to the date fixed
for exchange.
Other Rights and
Restrictions . . . . . . . . . . . . . . . . . . . . . . . . Whenever (i) any dividend payable on the Series
A Preferred Stock is past due, thereafter and
until all accrued and unpaid dividends payable
have been paid in full or declared and set apart
for payment, or (ii) Westbridge shall not have
redeemed shares of Series A Preferred Stock on
the date such redemption is required, thereafter
and until such redemption payment shall have
been made or all necessary funds therefor set
apart for payment, Westbridge shall not: (A)
declare or pay dividends, or make any other
distributions, on any Junior Stock (as defined
herein) other than dividends or distributions
payable in Junior Stock; (B) declare or pay
dividends, or make any other distributions, on
any Parity Stock (as defined herein), other than
dividends or distributions payable in Junior
Stock, except dividends paid ratably on the
Series A Preferred Stock and all Parity Stock on
which dividends are payable or in arrears, in
proportion to the total amounts to which the
holders of all such shares are then entitled;
(C) redeem or purchase or otherwise acquire for
consideration (other than Junior Stock) any
shares of Junior Stock or Parity Stock (other
than, with respect to Parity Stock, ratably with
the Series A Preferred Stock); or (D) purchase
or otherwise acquire for consideration any
shares of Series A Preferred Stock, except that
Westbridge may redeem shares of Series A
Preferred Stock.
The Preferred Stock Purchase Agreement, pursuant
to which the Series A Preferred Stock was
issued, provides that, except as otherwise
provided for therein, and for so long as one or
more of the original purchasers of such shares
(the "Investors") own at least $10,000,000 in
aggregate Liquidation Preference of the Series A
Preferred Stock, then without first obtaining
the consent or approval of Investors holding at
least a majority of the Series A Preferred Stock
(measured by Liquidation Preference), Westbridge
shall not: (i) declare or pay dividends or make
any other payment or distribution, on any shares
of capital stock of Westbridge other than the
Series A Preferred Stock, except as provided
therein; (ii) purchase, redeem or retire any
shares of capital stock of Westbridge (other
than Series A Preferred Stock) or any rights,
options or warrants to purchase or acquire, or
other securities convertible into or
exchangeable for, shares of capital stock of
Westbridge; (iii) sell, lease, transfer or
otherwise dispose of any asset (including,
without limitation, shares of capital stock or
any other ownership interest in any Subsidiary
(as defined herein)) other than in the ordinary
course of business; (iv) issue any shares of
Common Stock or any rights, options or warrants
to purchase, or other securities convertible
into or exchangeable for, shares of Common
Stock; except in certain circumstances as
described herein; (vi) enter into any
transaction with any affiliate of Westbridge
(other than (x) transactions with certain
Subsidiaries, (y) declarations and payments of
dividends on the Common Stock permitted by
clause (i) above and (z) payments of reasonable
and customary fees and compensation to
directors, officers and employees of Westbridge
and certain of its Subsidiaries), except in the
ordinary course of business and upon fair and
reasonable terms no less favorable to Westbridge
than would be obtained in a comparable arm's-
length transaction between unrelated third
parties; or (vii) amend the Certificate of
Incorporation in such a manner as would
adversely affect the preferences or rights of
the Series A Preferred Stock.
<PAGE>
So long as any shares of Series A Preferred
Stock shall be outstanding and unless the
consent or approval of a greater number of
shares shall then be required by law, without
first obtaining the consent or approval of the
holders of a majority of the shares of Series A
Preferred Stock then outstanding, Westbridge
shall not: (i) authorize or create any class or
series, or any shares of any class or series, of
any Senior Stock (as defined herein); (ii)
authorize or create any class or series, or any
shares of any class or series, of Parity Stock;
(iii) reclassify any shares of capital stock of
Westbridge into shares of Senior Stock or Parity
Stock; (iv) authorize any security exchangeable
for, convertible into, or evidencing the right
to purchase any shares of Senior Stock or Parity
Stock; or (v) amend, alter or repeal the
Certificate of Incorporation to alter or change
the preferences, rights or powers of the
Series A Preferred Stock so as to affect the
Series A Preferred Stock adversely or to
increase the authorized number of shares of
Series A Preferred Stock.
Ranking. . . . . . . . . . . . . . . . . . . . . . . . . . . . The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the
distribution of assets upon dissolution,
liquidation or winding up of Westbridge, (i)
prior to all shares of Junior Stock (including
without limitation, the Common Stock) and (ii)
prior to all shares of any other series of
Preferred Stock of Westbridge, unless and to the
extent such other series, the authorization and
creation of which was approved or consented to
by the requisite holders of Series A Preferred
Stock, by its terms ranks on a parity with or
senior to the Series A Preferred Stock in any
respect.
</TABLE>
Convertible Subordinated Debentures
<TABLE>
<S> <C>
Title and Amount
of Securities. . . . . . . . . . . . . . . . . . . . . . . . . Up to $20,000,000 of Convertible Subordinated
Debentures Due April 12, 2004; limited to a
principal amount equal to the aggregate
Liquidation Preference of the shares of Series A
Preferred Stock to be exchanged.
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . The Convertible Subordinated Debentures will
bear interest at a rate equal to the applicable
dividend rate on the Series A Preferred Stock at
the time of exchange. Interest shall accrue
from the date of exchange, or from the most
recent interest payment date to which interest
has been paid or provided for, and shall be
payable quarterly in arrears on the last
business day of January, April, July and October
of each year. The interest rate is subject to
adjustment as set forth in the Convertible
Subordinated Indenture and in a manner
substantially similar to the adjustment of the
dividend rate relating to the Series A Preferred
Stock. See "Description of Convertible
Subordinated Debentures -- Interest" and
"Description of Capital Stock -- Preferred Stock
-- Series A Preferred Stock -- Dividends."
<PAGE>
Conversion . . . . . . . . . . . . . . . . . . . . . . . . . The Convertible Subordinated Debentures may, at
any time, at the option of the holder thereof,
be converted into shares of Common Stock, on the
terms and conditions set forth in the
Convertible Subordinated Indenture. The
conversion price with respect to the Convertible
Subordinated Debentures is subject to adjustment
in a manner substantially similar to the
adjustment of the Conversion Price relating to
the Series A Preferred Stock. See "Description
of Convertible Subordinated Debentures --
Conversion Rights" and "Description of Capital
Stock -- Preferred Stock -- Series A Preferred
Stock -- Conversion."
Subordination. . . . . . . . . . . . . . . . . . . . . . . . The payment of the principal of, premium, if
any, and interest on the Convertible
Subordinated Debentures will, to the extent set
forth in the Convertible Subordinated Indenture,
be subordinated in right of payment to the prior
payment in full of all Senior Indebtedness. As
a result of the subordination provisions,
holders of the Convertible Subordinated
Debentures may, in the event of insolvency of
Westbridge, recover less ratably than holders of
Senior Indebtedness. The Convertible
Subordinated Indenture does not restrict the
incurrence of additional Senior Indebtedness by
Westbridge or its subsidiaries. See "Risk
Factors -- Subordination" and "Description of
Convertible Subordinated Debentures --
Subordination."
Redemption . . . . . . . . . . . . . . . . . . . . . . . . . The Convertible Subordinated Debentures are not
redeemable prior to April 12, 1997. On or after
April 12, 1997, Westbridge may redeem, in whole
or in part, at any time, upon not less than
thirty (30) nor more than sixty (60) days prior
written notice, any outstanding Convertible
Subordinated Debentures, initially at 105% of
the principal amount thereof, declining to 100%
of the principal amount thereof on or after
April 1, 2002, in each case plus accrued
interest to the date fixed for redemption. See
"Risk Factors -- Repurchase at Option of
Holders" and "Description of Convertible
Subordinated Debentures -- Westbridge's Right of
Redemption."
<PAGE>
Repurchase at Option
of Holder. . . . . . . . . . . . . . . . . . . . . . . . . . . Upon the occurrence of a Repurchase Event or a
certain Event of Noncompliance, each holder of
Convertible Subordinated Debentures shall be
entitled, at such holder's option, to require
Westbridge to repurchase all of such holder's
outstanding Convertible Subordinated Debentures,
or any portion thereof that is an integral
multiple of $1,000, by paying therefor in cash
an amount as set forth in the Convertible
Subordinated Indenture. See "Description of
Convertible Subordinated Debentures --
Repurchase at Option of Holders Under Certain
Circumstances."
</TABLE>
Risk Factors
For a discussion of certain factors that should be considered by
prospective purchasers of the Series A Preferred Stock, the Common Stock or
the Convertible Subordinated Debentures, see "Risk Factors."
<PAGE>
Summary Historical Consolidated Financial Information
The Company
The information set forth below was selected or derived from the
consolidated financial statements of the Company and should be read in
conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial
statements of the Company and the related notes thereto appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
1995 1994(1) 1994(1) 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data and ratios)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Premiums . . . . . . . . . . . . . . . $56,810 $43,964 $98,703 $68,731 $56,731 $55,548 $50,838
Net investment income. . . . . . . . . 3,584 2,332 5,764 4,120 3,932 4,520 5,459
Net realized gains (losses). . . . . .
investments . . . . . . . . . . . . . (72) 193 320 1,030 422 7 37
Total revenues . . . . . . . . . . . . 61,217 47,346 106,546 75,292 62,634 61,950 57,842
Income (loss) before
cumulative effect of change
in accounting principle. . . . . . . 2,142 2,837 6,425 3,531 1,762 814 (1,961)
Cumulative effect on prior years of
change in accounting principle . . . -- -- -- -- 1,134 -- --
Extraordinary loss from early
extinguishment of debt, net
of income tax benefit. . . . . . . . 407 -- -- -- -- -- --
Net income (loss)(2) . . . . . . . . . 1,735 2,837 6,425 3,531 2,896 814 (1,961)
Preferred stock dividends. . . . . . . 825 365 1,190
Income (loss) applicable to
common stockholders. . . . . . . . . $ 910 $ 2,472 $5,235 $ 3,531 $ 2,896 $ 814 $(1,961)
===== ======= ===== ====== ====== ====== ======
Per Share Data:
Income (loss) before cumulative
effect of change in
accounting principle and
extraordinary item . . . . . . . . . $ 0.24 $ 0.53 $ 1.13 $ 0.78 $ 0.40 $ 0.20 $ (0.47)
Net income (loss)(2)
- Primary. . . . . . . . . . . . . . 0.16 0.53 1.13 0.78 0.66 0.20 (0.47)
- Fully-diluted. . . . . . . . . . . $ 0.22 $ 0.50 $ 1.03 $ 0.78 $ 0.66 $ 0.20 $ (0.47)
Ratios:
Return on average
stockholders' equity(3)(4). . . . . . 6.0% 20.9% 21.8% 20.0% 10.3% 5.6% N/A
Ratio of earnings to fixed
charges(5). . . . . . . . . . . . . . 2.1x 3.1x 3.0x 2.6x 2.2x 1.3x 0.4x
Ratio of earnings to combined
fixed charges and preferred
stock dividends(6) . . . . . . . . . 1.4 2.6 2.3 -- -- -- --
<FN>
(See footnotes on following page)
</TABLE>
<TABLE>
<CAPTION>
At June 30, At December 31,
1995 1994(1) 1994(1) 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(in thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Total cash and invested assets . . . . $ 99,493 $114,971 $108,838 $ 57,434 $59,399 $44,224 $54,302
Deferred policy acquisition costs. . . 48,214 61,365 58,654 28,354 30,768 29,672 29,460
Total assets . . . . . . . . . . . . . 174,587 191,769 187,581 97,067 101,915 85,856 97,178
Long-term debt . . . . . . . . . . . . 19,225 24,538 24,665 19,422 19,210 19,024 18,864
Redeemable preferred stock(7). . . . . 20,000 20,000 20,000 --- --- --- ---
Stockholders' equity . . . . . . . . . 37,882 24,114 26,355 21,611 18,013 14,920 14,032
Supplementary Data:
Policies in force (8). . . . . . . . . 304 325 322 230 230 227 253
Statutory capital and
surplus (8)(9) . . . . . . . . . . . $ 20,523 $ 25,052 $ 23,564 $ 16,066 $ 14,265 $ 13,501 $ 5,909
Statutory net gain (loss)
from operations (8)(9) . . . . . . . . $ (1,471) $ 838 $ 3,525 $ 4,066 $ 2,366 $ 2,012 $ (2,798)
<FN>
______________
(1) Includes operations of NFI and AICT from April 12, 1994.
(2) Net income in 1992 reflects the effect of the Company's adoption of Statement
of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," on a prospective basis as of January 1, 1992.
(3) Before cumulative effect of change in accounting principle.
(4) Return on average equity for the interim periods represents an annualized yield.
(5) In computing the ratio of earnings to fixed charges, fixed charges consist of
interest on indebtedness, amortization of debt expense and such
portion of rental expense which is estimated to be representative of the interest
factor, all on a pre-tax basis. Earnings are pre-tax income from
continuing operations plus fixed charges.
(6) In computing the ratio of earnings to combined fixed charges and preferred stock
dividends, fixed charges consist of interest on indebtedness,
amortization of debt expense, such portion of rental expense which is estimated
to be representative of the interest factor, and preferred stock
dividend requirements (preferred stock dividend requirements are applicable only
to the year ended December 31, 1994 and the six months
ended June 30, 1995), all on a pre-tax basis. Earnings are pre-tax income from
continuing operations plus fixed charges.
(7) Consists of 20,000 shares of Series A Preferred Stock which, from April 12, 1994
through February 28, 1995, were convertible, at the option of
the holders thereof, into 2,285,720 shares of Common Stock at a conversion price
of $8.75 per share of Common Stock. As a result of
Westbridge's sale to the public on February 28, 1995 of 1,500,000 shares of Common
Stock, the shares of Series A Preferred Stock are
convertible, at the option of the holders thereof, into 2,378,120 shares of Common
Stock at a conversion price of $8.41 per share of Common
Stock. The Series A Preferred Stock is exchangeable, at the option of Westbridge,
into that principal amount of Convertible Subordinated
Debentures due April 12, 2004 of Westbridge (the "Convertible Subordinated
Debentures") equal to the aggregate liquidation preference of the
shares of Series A Preferred Stock to be exchanged.
(8) Applies solely to the wholly-owned insurance subsidiaries of Westbridge.
(9) Calculated in accordance with statutory accounting practices.
</TABLE>
<PAGE>
NFI and AICT -- Before the Acquisition
The information set forth below is based on the consolidated
financial statements of NFI and AICT before the Acquisition and should be read
in conjunction with the consolidated financial statements of NFI and AICT and
the related notes thereto appearing elsewhere in this Prospectus. NFI's results
of operations prior to the Acquisition include the operations of AICT which,
during such time, was a 65% owned subsidiary of NFI. Concurrent with the
Acquisition, the remaining 35% interest in AICT, which was owned by two
affiliates of NFI, was transferred to NFI. Also included in the results of
operations for 1992 and 1991 is the operations of Imperial Insurance Company, a
wholly-owned subsidiary of AICT, which was disposed of in 1992. The operations
of Imperial Insurance Company were not material to the consolidated results of
operations of NFI and AICT in 1992 or 1991.
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(in thousands, except ratios)
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Premiums . . . . . . . . . . . . . $12,082 $13,605 $52,153 $66,923 $ 78,420
Net investment income. . . . . . . 685 966 $3,454 5,324 6,936
Net realized gain (loss)
on investments . . . . . . . . . 262 635 2,539 1,914 1,650
Total revenues(1). . . . . . . 13,183 15,267 61,569 76,242 89,246
Income (loss) before cumulative
effect of change in
accounting principle . . . . . . 1,077 1,068 2,592 435 4,488
Cumulative effect of
adoption of SFAS 109 . . . . . . -- (3,600) (3,600) __ __
Net income (loss)(2) . . . . . . . $ 1,077 $ (2,532) $ (1,007) $ 435 $ 4,448
Ratios:
Return on average equity(3)(4) . . 28.7% 25.8% 15.4% 2.3% 24.2%
Ratio of benefits and claims
to premiums . . . . . . . . . . 0.67x 0.67x 0.71x 0.69x 0.63x
Ratio of general and administrative
expense to premiums. . . . . . . 0.19 0.17 0.15 0.22 0.23
Ratio of total expenses
to premiums. . . . . . . . . . . 1.05 1.03 1.13 1.13 1.06
</TABLE>
<TABLE>
<CAPTION>
At March 31, At December 31,
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(in thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Total cash and invested asset. . . . . $58,077 $ 60,362 $ 59,250 $ 65,430 $ 87,397
Deferred policy acquisition costs. . . 23,595 30,902 24,615 32,006 35,825
Total assets . . . . . . . . . . . . . 90,410 101,416 95,043 111,372 138,153
Stockholder's equity . . . . . . . . . 15,209 14,277 14,816 18,848 18,913
<FN>
______________
(1) NFI and AICT discontinued marketing and new business production
during the first six months of 1992. Beginning in January 1995 NFI
and AICT resumed issuing new policies consisting primarily of
Medical Expense Products and Medicare Supplement Products.
(2) Net income in 1993 reflects the effect of the Company's adoption
of SFAS 109, "Accounting for Income Taxes," on a prospective basis as of
January 1, 1993.
(3) Before cumulative effect of change in accounting principle.
(4) Return on average equity for the interim periods represents an annualized yield.
</TABLE>
<PAGE>
Summary Unaudited Pro Forma Consolidated Financial Information
The unaudited pro forma financial data give effect to the Acquisition
and the issuance of the Series A Preferred Stock as if these transactions
had occurred on January 1, 1994 for purposes of the Statements of
Operations. See "Unaudited Pro Forma Consolidated Financial Statements."
The following summary financial information should be read in conjunction
with the consolidated financial statements of the Company and of NFI and
AICT and the related unaudited pro forma consolidated financial statements
and, in each case, the related notes thereto included elsewhere in this
Prospectus.
The summary pro forma financial information presented is not
necessarily indicative of actual results that would have been achieved had
the Acquisition and related transactions closed on the dates assumed. In
addition, the pro forma financial information does not purport to be
indicative of the results of operations which may be achieved in the
future. Both NFI and AICT ceased writing new business in 1992. The
Company has recently begun to write certain Medical Expense Products and
Medicare Supplement Products through NFI and AICT, and is reviewing its
options to market other policies through NFI and AICT and may or may not
elect to do so in the future.
The pro forma financial information presented has been prepared on the
basis of the assumptions described in the notes to the unaudited pro forma
consolidated financial statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31, 1994
NFI
and Pro Forma Pro
Company AICT Adjustments Forma
------- ---- ----------- -----
(in thousands, except per share data)
Statement of Operations Data:
<S> <C> <C> <C> <C>
Premiums. . . . . . . . . . . . . $98,703 $13,433 $ -- $112,136
Net investment income . . . . . . 5,764 782 -- 6,546
Net realized gain
on investments. . . . . . . . . 320 262 (262)(1) 320
------ ------ ----- -----
Total revenues. . . . . . . . . . 106,546 14,634 (262) 120,918
Net income . . . . . . . . 6,425 1,145 (544) 7,026
====== ====== ===== =======
Preferred stock dividends . . . . 1,190 -- 460 (2) 1,650
Net income available to
common stockholders. . . . . . . $ 5,235 $ 1,145 $ (1,004) $ 5,376
===== ====== ===== =======
Per Share Data:
Fully diluted earnings
per share . . . . . . . . . . . $ 1.03 $ -- $ -- 1.02
===== ====== ===== =======
Weighted average fully diluted
shares outstanding. . . . . . . 6,267 -- 633(3) 6,900
<FN>
_______________
(1) To eliminate historical realized gains and losses on disposal of
investments. Upon acquisition, purchase accounting adjustments would
result in stating marketable securities at fair market value.
(2) To reflect 8.25% dividend on the Series A Preferred Stock.
(3) To reflect potential dilutive effect of the Series A Preferred Stock which was convertible into Common Stock
at $8.75 per share of Common Stock through February 28, 1995.
</TABLE>
<PAGE>
RISK FACTORS
Before purchasing the Series A Preferred Stock, the Common
Stock or the Convertible Subordinated Debentures offered hereby,
a prospective investor should consider the specific factors set
forth below as well as the other information set forth elsewhere
in this Prospectus.
Reliance on General Agency Networks/Credit Risk
The Company's four primary general agency networks accounted
for a large majority of the Company's first-year premiums for the
six months ended June 30, 1995 and the year ended December 31,
1994. LifeStyles Marketing markets the Company's Medical Expense
Products and is 51.0% owned by the Company. Senior Benefits
markets the Company's Medicare Supplement Products and is 50.0%
owned by the Company. Two other agency networks, the Locke
Agency and the Elkins Agency, market Cancer and Specified Disease
Products which are issued, coinsured or reinsured by the Company.
In addition to the Company's substantial ownership interests in
LifeStyles Marketing and Senior Benefits, the Company has
contractual arrangements with Locke and Elkins (including certain
entities controlled by Locke and Elkins). These contractual
arrangements include, among other things, (i) a coinsurance
agreement (the "FLICA Agreement") with Freedom Life Insurance
Company of America ("FLICA"), a wholly-owned subsidiary of
Freedom Holding Company ("Freedom Holding"), 60.0% of which is
owned by Locke and 40.0% of which is owned by the Company, which
expires in 1998, and (ii) a marketing agreement and a coinsurance
agreement with Paramount Life Insurance Company ("Paramount
Life"), an Arkansas-based insurer which is wholly-owned by
Elkins, each of which expires on December 31, 1995 and is
terminable only for cause. Under the terms of these agreements,
FLICA and Paramount Life agreed to offer certain Cancer and
Specified Disease Products to be coinsured or reinsured by the
Company. See "Business--Marketing." During the six months ended
June 30, 1995, LifeStyles Marketing accounted for 39.1% of the
Company's first-year premiums and the Locke Agency and the Elkins
Agency accounted, from direct sales or indirectly through
coinsurance and reinsurance arrangements, for 15.0% and 1.6% of
first-year premiums, respectively. Also during the six months
ended June 30, 1995, Senior Benefits, which was formed in
November 1993 by the Company and an Arizona-based agency
specializing in the sale of Medicare supplement insurance,
accounted for 20.0% of the Company's first-year premiums. The
Company believes that its relationships with its general agency
networks are good. However, there can be no assurance that such
relationships will continue, or if they do continue, that they
will remain profitable for the Company. The loss of, or
significantly reduced effort by, any of these general agency
networks or their controlling individuals could have a material
adverse effect on the Company's future premium revenues. See
"Business--Marketing."
The Company has entered into new relationships with
established general agency networks specializing in the sale of
products comparable to the Company's existing product lines and
has begun offering several new products. The Company continues
to seek additional similar relationships. The Company's decision
to form a relationship with any general agency network has been
and will continue to be based primarily on that general agency
network's historical levels of sales and profitability, as well
as its access to the Company's target markets. There can be no
assurance that any additional agency relationships will be formed
or, if formed, that such relationships will result in increased
sales or be profitable for the Company.
<PAGE>
In the ordinary course of business, the Company advances
first-year commissions on policies written by its general agency
networks and their agents. The Company is reimbursed for these
advances from the commissions earned over the respective policy's
life. In the event that policies lapse prior to the time the
Company has been fully reimbursed, the agency network or the
individual agents, as the case may be, are responsible for
reimbursing the Company for the outstanding balance of the
commission advance. Except for approximately $200,000 of losses
recorded by the Company during the year ended December 31, 1992,
the Company has not experienced material losses on such
commission advances. There can be no assurance as to the
occurrence or degree of any future losses. As of June 30, 1995,
outstanding advances totaled $1.9 million to the Locke Agency
(which advances are made through FLICA), $5.4 million to the
agents of LifeStyles Marketing, $1.4 million to the agents of
Senior Benefits, there were no outstanding advances to the Elkins
Agency, and there were aggregate outstanding advances totaling
$2.4 million to the Company's other general agency networks and
their agents. To the extent that sales increase, the Company
will experience increased receivables from its agency networks
and a reduction in cash flow.
Holding Company Structure; Reliance on Subsidiaries
Westbridge is an insurance holding company, the principal
assets of which consist of the capital stock of NFL, Westbridge
National Life Insurance Company ("WNL", which is a wholly-owned
subsidiary of NFL), NFI and AICT (which is a wholly-owned
subsidiary of NFI) (collectively, the "Insurance Subsidiaries").
In addition, the Company has a 40.0% interest in Freedom Holding
and equity interests in three marketing subsidiaries through
which the Company's insurance products are sold. Accordingly,
Westbridge is dependent upon dividends, advances due from
subsidiaries, principal and interest payments on surplus
certificates, lease payments on fixed assets and tax allocation
payments from the Insurance Subsidiaries and its other
subsidiaries and affiliates for funds to meet its obligations,
including interest on the Senior Subordinated Notes. Westbridge
is similarly dependent on such sources to pay, if and when
declared by the Board of Directors, dividends on its Common Stock
and Preferred Stock, including the Series A Preferred Stock.
Dividend payments from Westbridge's Insurance Subsidiaries
are regulated by the insurance laws of their domiciliary states.
NFL is domiciled in Delaware. Under the Delaware Insurance Code,
an insurer domiciled in Delaware may not declare or pay a
dividend or other distribution from any source other than "earned
surplus" without the state insurance commissioner's prior
approval. "Earned surplus" is defined as an amount equal to the
unassigned funds of an insurer as set forth on its most recent
statutory annual statement, including all or part of the surplus
arising from unrealized capital gains or revaluation of assets.
WNL, which is domiciled in Arizona, has not contributed in the
past, and is not expected to contribute in the foreseeable
future, significant dividends to Westbridge. NFI and AICT are
domiciled in Texas. An insurer domiciled in Texas may pay
dividends only out of "surplus profits arising from its
business." Moreover, insurers domiciled in either Delaware or
Texas may not pay "extraordinary dividends" without first
providing the state insurance commissioner with 30-days' prior
notice, during which time such commissioner may disapprove the
payment. An "extraordinary dividend" is defined as a dividend
whose fair market value together with that of other dividends
made within the preceding 12 months exceeds the greater of
(a) ten percent of the insurer's surplus as regards policyholders
as of the preceding December 31 or (b) the net gain from
operations of such insurer, not including realized capital gains,
for the 12-month period ending on the preceding December 31. The
Company is not in a position to assess the likelihood of
obtaining future approval for the payment of "extraordinary
dividends" or dividends from a source other than "earned
surplus." With respect to ordinary dividends payable by an
insurer domiciled in Delaware, notice of any dividend must be
provided to the state insurance commissioner within five
(5) business days following the declaration thereof and at least
ten (10) days prior to the payment thereof. As of December 31,
1994, NFL had negative statutory "earned surplus" as a result of
historical statutory losses. For the foreseeable future, NFL has
agreed to seek the approval of the Delaware insurance
commissioner prior to making any dividend payments. In both
Delaware and Texas, the state insurance commissioner reviews the
dividends paid by each insurer domiciled in such commissioner's
state at least once each year to determine whether they are
reasonable in relation to the insurer's surplus as regards
policyholders and quality of earnings. The state insurance
commissioner may issue an order to limit or disallow the payment
of ordinary dividends if such commissioner finds the insurer to
be presently or potentially financially distressed or troubled.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity, Capital Resources and
Statutory Capital and Surplus."
<PAGE>
The terms of loans and transfers of assets within the
holding company structure are also subject to state insurance
holding company laws. Westbridge holds a surplus certificate
issued by NFL which, as of the date of this Prospectus, totaled
$777,000. The unpaid aggregate principal amount under the
surplus certificate bears interest at an agreed upon rate not to
exceed 10.0% and is repayable, in whole or in part, upon
(i) NFL's surplus exceeding $7.0 million, exclusive of any
surplus provided by reinsurance treaties, and (ii) NFL receiving
prior approval from the Delaware insurance commissioner. See
Note 11 of "Notes to Consolidated Financial Statements" herein.
New Business Production; Acquisitions
For the year ended December 31, 1994 and the six months
ended June 30, 1995, approximately 50.0% and 45.0%, respectively,
of the Company's premiums related to policies obtained through
purchases of closed blocks of insurance policies and through the
Acquisition. Renewal premiums from these closed blocks of
business will decline over time due to policy run-off resulting
from lapses and cancellations and the absence of newly issued
policies. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." In order to offset such
run-off, the Company must issue new policies through its existing
general agency networks or through new agency networks, or
acquire additional policies. In an effort to expand the
marketing of its products, the Company is actively seeking new
relationships with established general agency networks and has
recently entered into several such relationships and begun
working with such agencies to develop and offer new products.
Such expansion may involve the creation of new subsidiaries,
joint ventures or similar business arrangements, and is expected
to involve moderate cash expenditures by the Company. There can
be no assurance that any additional agency relationships will be
formed or, if formed, that such relationships will result in
increased sales or be profitable for the Company.
As in the past, the Company may from time to time seek to
acquire blocks of insurance policies in force either through
indemnity and assumption reinsurance or through the acquisition
of companies. Such acquisitions are subject to prior regulatory
approval. In the case where indemnity and assumption reinsurance
is used, prior approval from the insurance regulator of each
state in which the policies to be acquired have been written must
be obtained before the Company can assume those policies under
assumption reinsurance. See "Business--Reinsurance." In the case
where the Company seeks to acquire another company, prior
approval from the insurance regulator of the domiciliary state of
the company to be acquired, and the domiciliary state of each
insurance subsidiary, must be obtained before the acquisition can
be consummated. There can be no assurance that such regulatory
approval would be obtained. Moreover, due to certain legislative
and regulatory initiatives, it may become more difficult to
utilize assumption reinsurance as a method of acquiring blocks of
business in the future. See "Business--Regulation." In addition,
future acquisitions will depend on the availability and
suitability of blocks of policies in force and companies to be
acquired, and may also be subject to the Company obtaining
adequate financing. There can be no assurance that suitable
blocks of policies in force, companies, or adequate financing
would be available to the Company.
<PAGE>
Health Care Reform
On September 22, 1993, President Clinton proposed the Health
Security Act of 1993 (the "HSA"), legislation designed to reform
the United States health care system. The HSA is primarily
intended to (i) provide access to health care services for all
United States residents and (ii) control the escalation of health
care expenditures in the United States. Since the introduction
of the HSA, several members of Congress have proposed alternative
legislation which would provide varying degrees of coverage. On
October 7, 1994, Congress adjourned without having enacted
significant health care legislation. However, such legislation
may be enacted in the future. The specific elements of the HSA,
or other federal legislation enacted to reform the health care
system, may include limitations on government spending for health
care benefits, price controls, the creation of large purchasing
groups and mandatory standard health care benefit programs. The
HSA, or any other proposed legislation, is expected to undergo
significant revision prior to congressional approval and
implementation. In addition, state governments may propose and
adopt health care plans. Such federal or state legislation, if
enacted, could, among other things, further restrict the
Company's ability to implement rate increases, and could impose
limitations on the profitability of certain of the Company's
insurance products. Also, to the extent that such legislation
guarantees major medical coverage to all United States residents
and/or expands the scope of basic coverage, the demand for
specified disease and supplemental insurance may be reduced, and
certain health insurance business currently in force could
experience high lapse rates. The Company cannot predict what
effect, if any, yet to be enacted health care legislation or
proposals will have on the Company if and when enacted. The
Company believes that the current political environment in which
it operates will result in continued legislative scrutiny of
health care reform and may lead to additional legislative
initiatives. No assurance can be given that enactment of any
federal and/or state health care reforms will not have a material
effect on the Company's business.
Adequacy of Reserves; Recoverability of Deferred Policy
Acquisition Costs
The Company's Cancer and Specified Disease Products
generally provide readily determinable benefits pursuant to fixed
or capped schedules of indemnities. The substantial majority of
these benefits are therefore generally not subject to increase as
a result of inflation. Accordingly, and based on the Company's
morbidity, persistency and benefit payment experience, as well as
information developed, in part, in reliance on actuarial
consultants and industry data, management believes that the
amounts and timing of the Company's future policyholder benefits
are generally relatively predictable. Inflation may affect, to a
limited extent, claim costs on the Company's Medicare Supplement
Products and Medical Expense Products. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity, Capital Resources, and Statutory Capital
and Surplus--Consolidated." As a result, future policy benefits
are less predictable than with respect to the Cancer and
Specified Disease Products. Although management believes that
the Company's policy benefit reserves are adequate, there can be
no assurance with respect to such adequacy. A material
inadequacy in the policy benefit reserves could have a material
adverse effect on the business, results of operations and
financial condition of the Company. For example, if the Company
underestimates expected policyholder benefits, then the policy
benefit reserves would be inadequate to fund such benefits. As a
result, the Company would incur additional operating expenses
when the Company incurs such benefits or when the Company becomes
aware of the inadequacy and increases its reserve. Additionally,
the Company would likely write-off a portion of deferred policy
acquisition costs associated with those policies. See "Business-
- -Reserve Policy and Adequacy." The Company's financial results
are partially based on management's estimates of the Company's
liability for outstanding claims incurred and reserves for future
policyholder benefits.
<PAGE>
Under generally accepted accounting principles, a deferred
acquisition cost asset (DPAC) is established to properly spread
the acquisition costs for the production of new business against
the expected future revenues from the policies. The deferred
acquisition costs are amortized over future revenues of the
business to which the costs are related. The amortization
schedule is based on the expected pattern of future revenues and
on the expected persistency of the policies. The actual
amortization of DPAC is adjusted to reflect the actual
persistency of the business. If actual policy terminations are
higher than expected, DPAC will be amortized more rapidly than
originally scheduled.
Competition
The Company is engaged in a highly competitive industry.
Several hundred insurance companies sell accident and health
insurance, including numerous insurers which offer competitive
protection plans substantially similar to those offered by the
Company. Many of these competitors have considerably greater
financial resources and considerably higher ratings from
insurance rating agencies than the Company. Private insurers and
voluntary and cooperative plans provide various alternatives for
meeting hospitalization and medical expenses. Additionally, the
federal and state governments provide through the Medicare and
Medicaid programs for the payment of certain costs associated
with medical care. These major medical programs generally cover
a substantial amount of the medical expenses incurred as a result
of accidents or illnesses. The Company's Cancer and Specified
Disease Products are designed to provide coverage which is
supplemental to major medical insurance and may be used to defray
nonmedical as well as medical expenses. Since these policies are
sold to complement major medical insurance, the Company competes
only indirectly with these insurers. However, expansion of
coverage by other insurers could adversely affect the Company's
business. The Company's Medical Expense Products are designed to
provide coverage which is similar to the major medical insurance
programs described above, but are sold primarily to persons not
covered in an employer sponsored group. The Company's Medicare
Supplement Products are designed to supplement the Medicare
program by reimbursing for expenses not covered by such program.
To the extent that future government programs reduce the private
insurance industry's participation, they could adversely affect
the Company's business. See "Business--Competition."
Regulation
Westbridge and its Insurance Subsidiaries and affiliates are
subject to regulation and supervision in all of the jurisdictions
in which they conduct business. Regulatory agencies supervising
the insurance industry are typically granted broad administrative
powers relating to, among other things, the granting and revoking
of licenses to transact business, regulation of trade practices
and premiums, licensing of agents, approval of content and form
of policies, maintenance of specified reserves and capital and
surplus, deposits of securities, form and content of required
financial statements, nature of investments and limitations on
dividends to stockholders. The purpose of such regulation and
supervision is primarily to provide safeguards for policyholders
rather than to protect the interests of stockholders. Such
regulation may delay the introduction of new products and may
impede, or impose burdensome conditions on, rate increases or
other actions that the Company may wish to take in order to
enhance its operating results. In addition, federal or state
legislation or regulations may be enacted that may prohibit or
impose restrictions on the ability to sell certain types of
insurance products or impose other restrictions on the Company's
operations. No assurance can be given that future legislative or
regulatory changes will not adversely effect the Company's
business. See "Business--Regulation."
<PAGE>
Four states, Connecticut, Massachusetts, New Jersey and New
York, have adopted statutes or insurance department regulations
that either prohibit sales of policies that offer only "specified
or dread disease" coverage (such as that provided by certain of
the Company's Cancer and Specified Disease Products) or require
that such coverage be offered in conjunction with other forms of
health insurance. The Company has never written insurance in
those states and does not currently intend to enter those
markets. The Company has no knowledge of legislative initiatives
which would limit or prohibit the sale of "specified or dread
disease" policies in other states in which the Company operates.
Nearly all states in which the Company is licensed regulate
loss ratios. The minimum loss ratios applicable to the Company's
products range from 40.0% to 65.0%, with most falling in the
range of 50.0% to 55.0%. The Company believes that it is within
its minimum loss ratio requirements. Because these requirements
mandate that the Company incur loss experience of not less than a
specified percentage of its earned premiums over the life of a
policy, they directly impact the profitability of the Company.
Any increase in the Company's premium rates must be justified to
the relevant regulatory authority on the basis of the Company's
conformance to the minimum loss ratio. This can have the effect
of inhibiting the Company's ability to raise premium rates on new
sales, and thus its ability to generate additional cash from
operations. Although the Company is not aware of any proposals
by regulators to increase minimum loss ratios, states may
increase minimum loss ratios from time to time. The National
Association of Insurance Commissioners (the "NAIC") has in the
past proposed model rules which would increase minimum loss
ratios applicable to the Company's products. There can be no
assurance that such a proposal will not be reintroduced in the
future. Increases in minimum loss ratio requirements could have
a material adverse effect upon the results of operations of the
Company. See "Business--Regulation."
Periodically, the insurance regulatory framework is subject
to review, and certain state legislatures consider or enact laws
that alter, and in many cases increase, state authority to
regulate insurance companies. In recent years, the NAIC and
state regulators have been re-examining existing laws and
regulations, specifically focusing on insurance company
investments and solvency issues. In addition, legislation has
been introduced in Congress which could result in the
U.S. Government assuming some role in the regulation of the
insurance industry. The Company cannot predict the effect that
any NAIC recommendations or proposed or future legislation or
regulations may have on the financial condition or operations of
the Company. See "--Holding Company Structure; Reliance on
Subsidiaries" and "Business--Regulation."
Certain Anti-takeover Provisions
Certain provisions in Westbridge's Certificate of
Incorporation (the "Certificate of Incorporation") and By-Laws
(the "By-Laws") could discourage potential acquisition proposals
and could delay or prevent a change in control of Westbridge.
Such provisions could diminish the opportunities for a
stockholder to participate in tender offers, including tender
offers at a price above the then current market value of the
Common Stock, or proxy contests. Such provisions may also
inhibit fluctuations in the market price of the Common Stock that
could result from takeover attempts. These provisions, among
other things, (i) classify Westbridge's board of directors (the
"Board of Directors") into three classes, each of which serves
for different three-year periods, (ii) provide that a director of
Westbridge may be removed only for cause and only by a vote of
80.0% of the Common Stock then outstanding, (iii) eliminate the
ability of stockholders to take any action without a meeting, and
(iv) provide that the stockholders may amend or repeal the
By-Laws or any of the foregoing provisions of the Certificate of
Incorporation only by a vote of 80.0% of the Common Stock then
outstanding. In addition, the By-Laws establish certain advance
notice procedures for nomination of candidates for election as
directors and for stockholder proposals to be considered at
stockholders' meetings. See "Description of Capital Stock--
Delaware Anti-takeover Law and Certain Charter Provisions." In
addition, the Board of Directors, without further stockholder
approval, may issue Preferred Stock with such terms as the Board
of Directors may determine, and which could have the effect of
delaying or preventing a change in control of Westbridge. The
issuance of such Preferred Stock could also adversely affect the
voting power of the holders of Common Stock. See "Description of
Capital Stock--Preferred Stock." Westbridge is also afforded the
protections of Section 203 of the Delaware General Corporation
Law, which could delay or prevent a change in control of
Westbridge or could impede a merger, consolidation, takeover or
other business combination involving Westbridge or discourage a
potential acquiror from making a tender offer or otherwise
attempting to obtain control of Westbridge. See "Description of
Capital Stock--Delaware Anti-takeover Law and Certain Charter
Provisions." Additionally, state insurance regulatory laws
require advance approval by state agencies of any change in
control of certain insurance holding companies. Any purchaser of
10.0% or more of the outstanding shares of Common Stock of
Westbridge will be presumed to have acquired control of the
Insurance Subsidiaries unless the relevant insurance
commissioner, following application by such purchaser in each
Insurance Subsidiary's state of domicile, determines otherwise.
Such approvals may deter, delay or prevent certain transactions
affecting the control or the ownership of Common Stock, including
transactions that could be advantageous to the stockholders of
Westbridge. See "Description of Capital Stock--Insurance
Regulation Concerning Change of Control."
<PAGE>
Restrictions on Westbridge Dividends
The Preferred Stock Purchase Agreement relating to the
issuance and sale of the Series A Preferred Stock (the "Preferred
Stock Purchase Agreement") provides that for so long as one or
more of the original purchasers own in the aggregate Series A
Preferred Stock and Convertible Subordinated Debentures having an
aggregate liquidation preference and principal amount equal to at
least $10.0 million, then without first obtaining the consent or
approval of original purchasers holding in the aggregate Series A
Preferred Stock and Convertible Subordinated Debentures
representing a majority of the Series A Preferred Stock (measured
by liquidation preference) and Convertible Subordinated
Debentures (measured by principal amount) then held by the
original purchasers, Westbridge shall not declare or pay
dividends or make any other payment or distribution, on any
shares of capital stock of Westbridge other than the Series A
Preferred Stock; except, that no approval or consent of the
original purchasers shall be required for dividends or other
distributions payable (x) in cash in an amount in any year not
exceeding $500,000 or (y) in capital stock of Westbridge.
Westbridge has not paid any cash dividends on the Common Stock
and does not anticipate declaring or paying cash dividends in the
foreseeable future.
The Senior Subordinated Indenture prohibits the payment of
dividends and other distributions on Westbridge's capital stock
(except for dividends payable on the Series A Preferred Stock and
dividends payable in capital stock of Westbridge) and the
purchase of capital stock (except for the redemption or exchange
of the Series A Preferred Stock), unless after giving effect
thereto, the aggregate amount expended for those purposes
subsequent to March 15, 1995, does not exceed the sum of (i) $3.0
million, plus (ii) 50.0% of Westbridge's aggregate Consolidated
Net Income (excluding unrealized gains and losses on securities
marked to market to the extent they were included in such
Consolidated Net Income) (as defined in the Senior Subordinated
Indenture) for each fiscal year commencing subsequent to
December 31, 1994, plus (iii) 100% of the aggregate net proceeds
received by Westbridge on account of any capital stock issued by
Westbridge (other than to a subsidiary) subsequent to January 1,
1995 (including the aggregate net cash proceeds received by
Westbridge on disposition of any property received by Westbridge
from such sales), plus (iv) 100% of the aggregate net proceeds
received by Westbridge on account of any Indebtedness (as defined
in the Senior Subordinated Indenture) convertible into capital
stock of Westbridge issued by Westbridge (other than to a
subsidiary) subsequent to January 1, 1995 (including the
aggregate net cash proceeds received by Westbridge on disposition
of any property received by Westbridge from such sales), to the
extent such Indebtedness has been converted into such capital
stock.
<PAGE>
Redemption and Repurchase of Series A Preferred Stock and
Convertible Subordinated Debentures at Option of Holders
The Certificate of Incorporation and the Preferred Stock
Purchase Agreement describe certain events which provide each
holder of Series A Preferred Stock, or the Convertible
Subordinated Debentures, with the option to require Westbridge to
redeem or repurchase all or any part of the holder's Series A
Preferred Stock or Convertible Subordinated Debentures, as the
case may be. Such events include generally (i) a change in
control of Westbridge, (ii) certain consolidations or mergers
involving Westbridge, or certain sales, leases or conveyances of
the assets of Westbridge or its subsidiaries, (iii) a voluntary
assignment by Westbridge for the benefit of its creditors or a
voluntary bankruptcy, reorganization, insolvency or similar
proceeding commenced by Westbridge or its subsidiaries, and
(iv) the occurrence of a period of ninety (90) consecutive days
during which the Common Stock is not listed for trading.
Following the occurrence of any such event, there can be no
assurance that Westbridge would have sufficient funds to redeem
or repurchase such Series A Preferred Stock or Convertible
Subordinated Debentures. Westbridge's failure to redeem or
repurchase could constitute an event of default under then
existing indebtedness thereby permitting an acceleration of such
indebtedness.
Absence of a Market for Series A Preferred Stock and Convertible
Subordinated Debentures
There is no public market for the Series A Preferred Stock
at the present time. No assurance can be given that an active
public market will develop for the Series A Preferred Stock or,
if issued, the Convertible Subordinated Debentures, or as to the
liquidity of the trading for the Series A Preferred Stock or the
Convertible Subordinated Debentures. Westbridge does not intend
to list the Series A Preferred Stock or the Convertible
Subordinated Debentures on any national securities exchange or to
include the Series A Preferred Stock or the Convertible
Subordinated Debentures for quotation on any quotation system.
There can be no assurance that any broker-dealer will make a
market in the Series A Preferred Stock or, if issued, the
Convertible Subordinated Debentures.
Subordination
The Convertible Subordinated Debentures will be subordinated
in the right of payment to all existing and future Senior
Indebtedness, including the principal of (and any premium, if
any) and interest on and all other amounts due on or payable in
connection with Senior Indebtedness. At August 31, 1995, there
was approximately $20,000,000 of Senior Indebtedness outstanding,
consisting primarily of Westbridge's 11% Senior Subordinated
Notes due 2002 (the "Senior Subordinated Notes"). The
Convertible Subordinated Indenture does not restrict the ability
of Westbridge or its subsidiaries to incur additional
indebtedness and the Company may from time to time issue
additional indebtedness constituting Senior Indebtedness. By
reason of such subordination, in the event of liquidation,
reorganization, dissolution or winding up of Westbridge, or upon
an assignment for the benefit of creditors or any other
marshalling of Westbridge's assets and liabilities, or upon other
proceedings, the holders of the Senior Subordinated Notes and
other creditors who are holders of Senior Indebtedness must be
paid in full before the holders of the Convertible Subordinated
Debentures may be paid. This may have the effect of reducing the
amount of such proceeds paid to the holders of the Convertible
Subordinated Debentures. In addition, under certain
circumstances, no payments may be made with respect to the
principal of or interest on the Convertible Subordinated
Debentures if there exists (and has not been waived) a nonpayment
default, or certain other defaults with respect to Senior
Indebtedness. See "Description of Convertible Subordinated
Debentures -- Subordination."
<PAGE>
Tax Consequences of Redemption of Series A Preferred Stock for
Cash or Convertible Subordinated Debentures
The Company's redemption of Series A Preferred Stock for
cash or for Convertible Subordinated Debentures will be treated
as a dividend distribution to the redeemed holder unless, certain
tests prescribed by the Internal Revenue Code of 1986, as amended
(the "Code") are met. The relevant tests are described in
"Certain Federal Income Tax Consequences -- Redemption of Series
A Preferred Stock for Cash or Convertible Subordinated
Debentures." If the redemption satisfies any of those tests, the
holder will recognize capital gain or loss equal to the
difference between (i) the cash redemption proceeds (except any
amounts attributable to accrued but unpaid dividends) or the
issue price of the Convertible Subordinated Debentures received;
and (ii) the holder's tax basis in the redeemed shares.
Especially in the case of a redemption in exchange for
Convertible Subordinated Debentures, no assurance can be given
that any of the relevant tests will be met.
If the redemption satisfies none of the relevant tests, the
redeemed holder will be treated as having received a dividend
equal to either the amount of cash proceeds or the issue price of
the Convertible Subordinated Debentures received. The holder
will recognize ordinary dividend income to the extent of the
Company's earnings and profits; any excess will be applied
against and reduce the holder's adjusted tax basis in the
redeemed shares to the extent of the basis; any excess will be
treated as capital gain, which will be long term if the holder's
holding period exceeds one year. A holder receiving Convertible
Subordinated Debentures but retaining no stock holdings in the
Company may lose its tax basis in the redeemed shares. In
addition, a redemption treated as a dividend may be an
"extraordinary dividend" to a corporate holder. See "Certain
Federal Income Tax Consequences -Extraordinary Dividends."
Investors should consult their own tax advisers regarding the
possible tax consequences of a redemption of the Series A
Preferred Stock. See "Certain Federal Income Tax Consequences --
Redemption of Series A Preferred Stock for Cash or Convertible
Subordinated Debentures."
Tax Considerations Respecting Convertible Subordinated Debentures
With Original Issue Discount
Convertible Subordinated Debentures issued in exchange for
Series A Preferred Stock may have original issue discount
("OID"). A holder of Convertible Subordinated Debentures that
have OID must include portions of the OID in income as it accrues
(regardless of the holder's method of accounting), using a
constant yield to maturity method. The OID included in income
will be ordinary interest income, and generally must be included
in income before the holder receives the cash representing that
income. See "Certain Federal Income Tax Consequences --
Treatment of Convertible Subordinated Debentures."
<PAGE>
THE COMPANY
Westbridge was incorporated as a Delaware holding company in
September 1982 for its wholly-owned subsidiary, NFL, which has
been in the insurance business since 1960. The majority of
Westbridge's operations have historically been conducted through
NFL. While the Company currently derives substantial revenue
from its other Insurance Subsidiaries, primarily NFI and AICT.
The Common Stock is traded on the NYSE under the symbol
"WBC." Westbridge, a Delaware corporation, has its executive
offices located at 777 Main Street, Suite 900, Fort Worth, Texas
76102, and its telephone number is (817) 878-3300.
THE ACQUISITION
On April 12, 1994, the Company completed the acquisition of
NFI and AICT. At that time, the acquired companies' combined
health insurance in force consisted of approximately 102,000
policies with approximately $45.0 million in annualized premiums
in business lines substantially similar to those of the Company.
Both acquired companies ceased writing new business during the
first six months of 1992. The Company has recently begun to
write certain Medical Expense Products and certain Medicare
Supplement Products through NFI and AICT, and is reviewing its
options to market other policies through NFI and AICT and may or
may not elect to do so in the future. The Acquisition nearly
doubled the Company's invested assets, increased total assets by
approximately 90.0% and increased total annualized premiums in
force by approximately 60.0%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Description of Capital Stock--Preferred Stock--Series A
Preferred Stock," and "Pro Forma Financial Information."
The Company consolidated the operations of NFI and AICT into
NFL by transferring all policyholder information relating to the
acquired policies onto NFL's administrative and database systems.
In addition, the executive and administrative operations of the
acquired companies have been moved to the Company's home office.
As a result of this consolidation, the Company added
approximately 70 employees. However the Company expects to be
able to administer the acquired business at overhead costs
which are lower than those incurred by NFI and AICT prior to the
Acquisition.
Westbridge effected the acquisition of NFI and AICT by
purchasing 100% of the outstanding capital stock of NFI for a
cash purchase price of $20.1 million. The purchase price was
funded primarily through the issuance by Westbridge of 20,000
shares of its Series A Preferred Stock in a private placement
exempt from the registration requirements of the Securities Act
of 1933, as amended. Westbridge received approximately $19.0
million in net proceeds from the issuance of the Series A
Preferred Stock. The remainder of the purchase price was
provided from general corporate funds.
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on the NYSE under the symbol
"WBC." The following table sets forth the high and low sales
price for the Common Stock, by quarter, for the periods
indicated.
1993 High Low
1st Quarter . . . . . . . . . . $7-1/4 $5-1/2
2nd Quarter . . . . . . . . . . 6-3/4 4-7/8
3rd Quarter . . . . . . . . . . 6-1/2 5-1/2
4th Quarter . . . . . . . . . . 7-3/8 5-7/8
1994
1st Quarter . . . . . . . . . . 8-1/2 6-3/4
2nd Quarter. . . . . . . . . . . 8-3/4 6-5/8
3rd Quarter. . . . . . . . . . . 9-5/8 7-7/8
4th Quarter. . . . . . . . . . . 9-3/8 8-7/8
1995
1st Quarter . . . . . . . . . . 8-1/8 5-7/8
2nd Quarter. . . . . . . . . . . 7-1/2 5-1/2
3rd Quarter. . . . . . . . . . . 6-5/8 5-3/4
(through September 28, 1995)
On September 28, 1995, the closing price of the Common Stock
on the NYSE was $6-1/8 per share.
As of September 15, 1995, there were 2,449 record holders of
the Common Stock.
Westbridge has not paid any cash dividends on the Common
Stock and does not anticipate declaring or paying cash dividends
on the Common Stock in the foreseeable future. Both the
Preferred Stock Purchase Agreement relating to the Series A
Preferred Stock and the Senior Subordinated Indenture relating to
the Senior Subordinated Notes, impose certain restrictions upon
Westbridge with respect to the payment of dividends on the Common
Stock. See "Description of Capital Stock -- Restrictions on
Dividends." For information concerning statutory limitations on
the payment of dividends by the Insurance Subsidiaries to
Westbridge, see "Business -- Regulation" and Note 13 of "Notes to
the Consolidated Financial Statements" herein.
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated
capitalization of the Company at June 30, 1995. The table should
be read in conjunction with the Consolidated Financial Statements
of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At June 30, 1995
(in thousands)
<S> <C>
Debt:
11% Senior Subordinated
Notes due 2002. . . . . . . . . . . . . . . . . . . . $20,000
------
Total debt. . . . . . . . . . . . . . . . . . . . . . 20,000
------
Redeemable preferred stock ($.10 par value):
1,000,000 shares authorized;
20,000 shares of preferred
stock ($1,000 liquidation preference) issued(1) 20,000
------
Total redeemable preferred stock. . . . . . . . . . . 20,000
------
Stockholders' equity:
Common stock ($.10 par value) 30,000,000 shares
authorized; 5,950,258 shares issued . . . . . . 595
Capital in excess of par value. . . . . . . . . . . . 29,126
Unrealized appreciation of investments
carried at market value . . . . . . . . . . . . 520
Retained Earnings . . . . . . . . . . . . . . . . . . 7,811
Less: Aggregate of treasury shares and investment
by affiliates in Common Stock (28,600), at cost (170)
------
Total stockholders' equity. . . . . . . . . . . . . . 37,882
-------
Total capitalization. . . . . . . . . . . . . . . . . $ 77,882
-------
<FN>
_______________
(1) The Series A Preferred Stock is convertible, at the option of the holders
thereof, into 2,378,120 shares of Common Stock at a conversion
price of $8.41 per share of Common Stock. The Series A Preferred Stock is
exchangeable, at the option of Westbridge, into that
principal amount of Convertible Subordinated Debentures equal to the aggregate
liquidation preference of the shares of Series A
Preferred Stock to be exchanged.
</TABLE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The Company
The information set forth below was selected or derived from
the consolidated financial statements of the Company. The
information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements
of the Company and related notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
1995 1994(1) 1994(1) 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data and ratios)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Premiums. . . . . . . . . . . . . . $56,810 $43,964 $98,703 $68,731 $56,731 $55,548 $50,838
Net investment income . . . . . . . 3,584 2,332 5,764 4,120 3,932 4,520 5,459
Fee and service income. . . . . . . 890 824 1,728 1,397 1,392 1,205 1,352
Net realized gains (losses)
on investments. . . . . . . . . . (72) 193 320 1,030 422 7 37
Other income. . . . . . . . . . . . 5 33 31 14 157 670 156
------ ------ ------- ------ ------ ------ ------
Total revenues . . . . . . . . 61,217 47,346 106,546 75,292 62,634 61,950 57,842
------ ------ ------- ------ ------ ------ ------
Benefits and claims . . . . . . . . 33,509 23,096 53,623 33,153 26,522 29,397 28,168
Amortization of deferred
policy acquisition costs. . . . . 5,948 4,066 9,711 8,159 8,452 9,194 8,549
Commissions . . . . . . . . . . . . 5,814 5,365 11,224 9,595 8,382 5,658 5,838
General and administrative
expenses. . . . . . . . . . . . . 9,611 7,747 16,847 14,349 12,663 12,645 12,693
Taxes, licenses and fees. . . . . . 2,066 1,577 3,230 2,724 2,095 1,940 1,594
Interest expense. . . . . . . . . . 1,290 1,469 3,067 2,552 2,536 2,450 2,670
------ ------ ------- ------ ------ ------ -----
Total expenses . . . . . . . . 58,238 43,320 97,702 70,532 60,650 61,284 59,512
------ ------ ------- ------ ------ ------ ------
Provision for income taxes. . . . . 1,013 1,360 2,764 1,562 532 149 20
Minority interest . . . . . . . . . -- -- -- -- -- -- (511)
Equity in Freedom Holding Company 176 171 345 333 310 297 240
Income (loss) before cumulative
effect of change in
accounting principle. . . . . . . 2,142 2,837 6,425 3,531 1,762 814 (1,961)
Cumulative effect on prior
years of change in
accounting principle. . . . . . . -- -- -- -- 1,134 -- --
Extraordinary loss from early
extinguishment of debt, net
of income tax benefit . . . . . . 407 -- -- -- -- -- --
Net income (loss)(2). . . . . . . . 1,735 2,837 6,425 3,531 2,896 814 (1,961)
------ ------ ------- ------ ------ ------ ------
Preferred stock dividends . . . . . 825 365 1,190 -- -- -- --
Income (loss) applicable to
common stockholders . . . . . . . $ 910 $2,472 $ 5,235 $ 3,531 $ 2,896 $ 814 $(1,961)
====== ====== ======= ====== ====== ====== ======
Per Share Data:
Income (loss) before cumulative
effect of change in
accounting principle and
extraordinary item. . . . . . . $ 0.24 $ 0.53 $ 1.13 $ 0.78 $ 0.40 $ 0.20 $ (0.47)
Net income (loss)(2)
- Primary . . . . . . . . . . 0.16 0.53 1.13 0.78 0.66 0.20 (0.47)
- Fully-diluted . . . . . . . . $ 0.22 $ 0.50 $ 1.03 $ 0.78 $ 0.66 $ 0.20 $ (0.47)
Ratios:
Return on average
stockholders' equity(3)(4) . . . 6.0% 20.9% 21.8% 20.0% 10.3% 5.6% N/A
Ratio of earnings to fixed
charges(5) . . . . . . . . . . 2.1x 3.1x 3.0x 2.6x 2.2x 1.3x 0.4x
Ratio of earnings
to combined fixed charges
and preferred stock
dividends(6). 1.4 2.6 2.3 -- -- -- --
(See footnotes on following page)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
At June 30, At December 31,
1995 1994(1) 1994(1) 1993 1992 1991 1990
(in thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Total cash and invested assets. . . . . . . .$ 99,493 $114,971 $108,838 $57,434 $ 59,399 $ 44,274 $54,302
Deferred policy acquisition costs . . . . . . 48,214 61,365 58,654 28,354 30,768 29,672 29,460
Total assets. . . . . . . . . . . . . . . . . 174,587 191,769 187,581 97,067 101,915 85,856 97,178
Long-term debt. . . . . . . . . . . . . . . . 19,225 24,538 24,665 19,422 19,210 19,024 18,864
Redeemable preferred stock(7) . . . . . . . . 20,000 20,000 20,000 -- -- -- --
Stockholders' equity. . . . . . . . . . . . . 37,882 24,114 26,355 21,611 18,013 14,920 14,032
Supplementary Data:
Policies in force(8). . . . . . . . . . . . . 304 325 322 230 230 227 253
Statutory capital and surplus(8)(9) . . . . .$ 20,523 $ 25,052 $ 23,564 $ 16,066 $ 14,265 $ 13,501 $ 5,909
Statutory net gain (loss)
from operations(8)(9) . . . . . . . . . . . (1,471) 838 3,525 4,066 2,366 2,012 (2,798)
<FN>
______________
(1) Includes operations of NFI and AICT from April 12, 1994.
(2) Net income in 1992 reflects the effect of the Company's adoption of SFAS 109, "Accounting
for Income Taxes," on a prospective basis as of January 1, 1992.
(3) Before cumulative effect of change in accounting principle.
(4) Return on average equity for the interim periods represents an annualized yield.
(5) In computing the ratio of earnings to fixed charges, fixed charges consist of
interest on indebtedness, amortization of debt expense and such
portion of rental expense which is estimated to be representative
of the interest factor, all on a pre-tax basis. Earnings
are pre-tax income from continuing operations plus fixed charges.
(6) In computing the ratio of earnings to combined fixed charges and preferred
stock dividends, fixed charges consist of interest on
indebtedness, amortization of debt expense, such portion of rental expense,
which is estimated to be representative of the interest
factor, and preferred stock dividend requirements (preferred stock dividend
requirements are applicable only to the year ended
December 31, 1994 and the six months ended June 30, 1995), all on a pre-tax
basis. Earnings are pre-tax income from continuing operations plus fixed charges.
(7) Consists of 20,000 shares of Series A Preferred Stock which, from April 12,
1994 through February 28, 1995, were convertible, at the option of the holders
thereof, into 2,285,720 shares of Common Stock at a conversion price of $8.75 per share
of Common Stock. As a result of Westbridge's sale to the public on February 28, 1995
of 1,500,000 shares of Common Stock, the shares of Series A Preferred Stock are convertible,
at the option of the holders thereof, into 2,378,120 shares of Common Stock at a
conversion price of $8.41 per share of Common Stock. The Series A Preferred Stock
is exchangeable, at the option of Westbridge, into that principal amount of Convertible
Subordinated Debentures due April 12, 2004 of Westbridge (the "Convertible
Subordinated Debentures") equal to the aggregate liquidation preference of the shares
of Series A Preferred Stock to be exchanged.
(8) Applies solely to the wholly-owned insurance subsidiaries of Westbridge.
(9) Calculated in accordance with statutory accounting practices.
</TABLE>
<PAGE>
NFI AND AICT -- Before the Acquisition
The information set forth below was selected or derived from
the consolidated financial statements of NFI and AICT. The
information set forth below should be read in conjunction with
the consolidated financial statements of NFI and AICT and related
notes thereto appearing elsewhere in this Prospectus. NFI's
results of operations prior to the Acquisition include the
operations of AICT which, during such time, was a 65% owned
subsidiary of NFI. Concurrent with the Acquisition, the
remaining 35% interest in AICT, which was owned by two affiliates
of NFI, was transferred to NFI. Also included in the results of
operations for 1992 and 1991 is the operations of Imperial
Insurance Company, a wholly-owned subsidiary of AICT, which was
disposed of in 1992. The operations of Imperial Insurance
Company were not material to the consolidated results of
operations of NFI and AICT in 1992 or 1991.
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(in thousands, except ratios)
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Premiums. . . . . . . . . . . . $12,082 $13,605 $52,153 $66,923 $ 78,420
Net investment income . . . . . 685 966 $3,454 5,324 6,936
Net realized gain (loss)
on investments. . . . . . . . 262 635 2,539 1,914 1,650
Other income. . . . . . . . . . 154 61 3,423 2,081 2,240
------ ------ ------ ------ ------
Total revenues(1) . . . . . 13,183 15,267 61,569 76,242 89,246
------ ------ ------ ------ ------
Benefits and Claims . . . . . . 8,030 9,067 37,142 46,268 49,402
Amortization of deferred policy
acquisition costs . . . . . . 1,020 1,103 7,391 3,819 2,260
Commissions . . . . . . . . . . 997 1,491 5,131 8,185 11,157
General and administrative
expenses 2,290 2,272 7,874 14,759 17,888
Taxes, licenses and fees. . . . 315 77 1,072 2,387 2,676
Interest expense. . . . . . . . 19 21 78 90 122
------ ------ ------ ------ ------
Total expenses. . . . . . . 12,671 14,031 58,688 75,508 83,505
------ ------ ------ ------ ------
Provision (benefit) for federal
income taxes. . . . . . . . . (439) 222 502 (201) 388
Minority interest . . . . . . . (126) (54) (213) 500 905
Income (loss) before cumulative
effect of change in
accounting principle. . . . . 1,077 1,068 2,592 435 4,488
Cumulative effect of
adoption of SFAS 109. . . . . -- (3,600) (3,600) __ __
Net income (loss)(2). . . . . . $ 1,077 $ (2,532) $ (1,007) $ 435 $ 4,448
====== ====== ======= ======
Ratios:
Return on average equity(3)(4). 28.7% 25.8% 15.4% 2.3% 24.2%
Ratio of benefits and claims
to premiums . . . . . . . . . 0.67x 0.67x 0.71x 0.69x 0.63x
Ratio of general and administrative
expense to premiums . . . . . 0.19 0.17 0.15 0.22 0.23
Ratio of total expenses
to premiums . . . . . . . . . 1.05 1.03 1.13 1.13 1.06
<FN>
(See footnotes on following page)
</TABLE>
<TABLE>
<CAPTION>
At March 31, At December 31,
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(in thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Total cash and invested asset . . . $ 58,077 $ 60,362 $ 59,250 $ 65,430 $ 87,397
Deferred policy acquisition costs . 23,595 30,902 24,615 32,006 35,825
Total assets. . . . . . . . . . . . 90,410 101,416 95,043 111,372 138,153
Stockholder's equity. . . . . . . . 15,209 14,277 14,816 18,848 18,913
<FN>
______________
(1) NFI and AICT discontinued marketing and new business production during
the first six months of 1992. Beginning in January
1995, NFI and AICT resumed issuing new policies consisting primarily of
Medical Expense Products and Medicare Supplement Products.
(2) Net income in 1993 reflects the effect of the Company's adoption of SFAS
109, "Accounting for Income Taxes," on a prospective basis as of January 1, 1993.
(3) Before cumulative effect of change in accounting principle.
(4) Return on average equity for the interim periods represents an annualized yield.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company derives its revenue primarily from premiums from its
insurance products and, to a significantly lesser extent, from fee and
service income, income earned on investment assets and gains on the sales
or redemptions of investment assets. The Company's primary expenses
include benefits and claims in connection with its insurance products,
amortization of deferred policy acquisition costs ("DPAC"), commissions
paid on policy renewals, general and administrative expenses associated
with policy and claims administration, taxes, licenses and fees, interest
on the Senior Subordinated Notes and dividends. In addition to the
foregoing expenses, Westbridge is obligated to pay dividends on the Series
A Preferred Stock if and when declared by the Board of Directors.
Fee and service income is generated from (i) administrative and
computer services provided to FLICA, (ii) commissions received by
LifeStyles Marketing from unaffiliated insurance companies, (iii) fees
received by Westbridge Printing Services, Inc. ("WPS"), a wholly-owned
printing subsidiary, for services provided to unaffiliated companies and
(iv) fees received by Foundation Financial Services, Inc. ("FFS"), a
wholly-owned third party administrator, for services provided to
unaffiliated companies.
Benefits and claims are comprised of (i) claims paid, (ii) changes in
claim reserves for claims incurred (whether or not reported) and
(iii) changes in policy benefit reserves based on actuarial assumptions of
future benefit obligations not yet incurred on policies in force.
DPAC consists of expenditures made for the production of new business.
They consist principally of the amount by which first-year commission costs
exceed commission costs paid in subsequent policy years. Also included in
DPAC is the cost of insurance purchased relating to acquired blocks of
business. The amortization of these costs is based on actuarially
estimated future premium revenues. The amortization rate is adjusted
periodically to reflect actual experience.
Over the past three years, the Company has acquired seasoned blocks of
business to supplement its revenue. These acquisitions included (i) a
block of Medicare Supplement Products purchased from American Integrity
Insurance Company ("American Integrity") in September 1992, (ii) a block of
Medicare Supplement Products purchased from Life and Health Insurance
Company of America ("Life and Health") in March 1993, (iii) a block of
Cancer and Specified Disease Products purchased from Dixie National Life
Insurance Company ("Dixie National Life") in February 1994 and (iv) a block
of policies in all of the Company's product lines purchased in the
Acquisition. The following table shows the premiums received by the
Company through internal sales and through acquisitions during the periods
indicated.
<PAGE>
<TABLE>
<CAPTION>
Premiums(1)
Six Months
Ended June 30, Year Ended December 31,
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Company-issued policies
First-year premiums . . . . . . $ 13,456 $ 6,127 $15,019 $ 8,675 $ 9,483 $16,826 $14,862
Renewal premiums. . . . . . . . 17,771 17,387 34,328 36,655 40,345 38,722 35,976
------ ------ ------ ------ ------ ------ ------
Total Company-issued policy
premiums. . . . . . . . 31,227 23,514 49,347 45,330 49,828 55,548 50,838
------ ------ ------ ------ ------ ------ ------
Acquired policies
American Integrity. . . . . . . 5,280 7,180 13,200 21,137 6,903 -- --
Life and Health . . . . . . . . 1,121 1,346 2,506 2,264 -- -- --
Dixie National Life . . . . . . 1,813 2,103 3,907 -- -- -- --
NFI and AICT. . . . . . . . . . 17,369 9,821 29,743 -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total acquired policy
premiums(2) . . . . . . . . . 25,583 20,450 49,356 23,401 6,903 -- --
------ ------ ------ ------ ------ ------ ------
Total Premiums. . . . . . . . . . $56,810 $43,964 $98,703 $68,731 $56,731 $55,548 $50,838
====== ====== ====== ====== ====== ====== ======
<FN>
__________________
(1) For a breakdown of premiums by product line, see "Business -- Product Lines."
(2) Premiums for the acquired policies include first-year premiums of $2 and
$24 for the six months ended June 30, 1995 and 1994, respectively,
and $76 and $63 for the years ended December 31, 1994 and 1993, respectively.
</TABLE>
Due to the size and the timing of the acquisitions described above,
the Company's results of operations for the six months ended June 30, 1995
and the year ended December 31, 1994 compared to the corresponding periods
in the prior year show significant increases in certain revenues and
expenses. Generally, as a result of the acquisitions of policies in force,
and the transfer of assets and liabilities relating thereto, the Company
receives higher revenues in the form of premiums, net investment income and
net realized gains on investments, and experiences higher expenses in the
form of benefits and claims, amortization of DPAC, commissions and general
and administrative expenses. The Company expects that the levels of
premiums, net investment income, net realized gains on investments,
benefits and claims, amortization of DPAC, commissions and general and
administrative expenses attributable to these acquired policies will
continue to decline over time as the acquired businesses run off.
In an effort to expand the marketing of its products, the Company is
actively seeking new relationships with established general agency networks
and has recently entered into several such relationships and begun working
with such agencies to develop and offer new products. Such expansion may
involve the creation of new subsidiaries, joint ventures or similar
business arrangements, and is expected to involve moderate cash
expenditures by the Company. To the extent the Company is successful in
generating new business, premiums, as well as benefits and claims,
amortization of DPAC, commissions, general and administrative expenses and
taxes, licenses and fees would be expected to increase.
Results of Operations--The Company
Six Months Ended June 30, 1995 Compared with Six Months Ended June 30, 1994
Premiums. Premiums increased $12.8 million, or 29.2%, from $44.0
million to $56.8 million. This increase was due primarily to an increase
in first-year premiums for Company-issued policies of $7.3 million, or
119.6%, and an increase in premiums for acquired policies of $5.1 million,
or 25.1%.
<PAGE>
The increase in total acquired policy premiums was due primarily to
the acquisition of NFI and AICT in April, 1994. As a result, the
operations of NFI and AICT were included for a full six months during 1995,
while the prior year period included those operations from April 12, 1994.
The increase in first-year premiums was due primarily to increases of
$4.4 million, or 495.3%, for Medicare Supplement Products generated for NFL
by Senior Benefits, $1.5 million, or 205.7%, for policies assumed by NFL
from FLICA, and $380,000, or 10.2%, for Medical Expense generated by
LifeStyles Marketing, and $1.2 million in first-year premiums for Medical
Expense Products written in NFI and AICT which were not present in the
prior year period. Offsetting these increases was a decrease of $209,000,
or 26.3%, in first-year premiums for Cancer and Specified Disease Products
written directly by NFL.
Net investment income. Net investment income increased $1.3 million,
or 53.7%, from $2.3 million to $3.6 million due primarily to investment
income earned on invested assets acquired in the Acquisition.
Fee and service income. Fee and service income increased $66,000, or
8.0% from $824,000 to $890,000 due primarily to increased commissions
earned by LifeStyles Marketing from non-affiliated insurers.
Benefits and claims. Benefits and claims increased $10.4 million, or
45.1%, from $23.1 million to $33.5 million. Of this increase, $5.6 million
was due benefits and claims associated with policies acquired in the
Acquisition. Benefits and claims for NFL increased $4.8 million, or 28.8%,
due primarily to an increase of $4.6 million, or 1,659.1%, for Medicare
Supplement Products produced by Senior Benefits, $1.6 million, or 232.5%,
for Cancer and Specified Disease Products assumed from FLICA, $327,000, or
57.9%, for Pre-1987 Medical Expense Products and $310,000, or 8.5%, for
LifeStyles Products. Offsetting these increases were decreases of $1.1
million, or 38.4%, for Company-issued Cancer and Specified Disease
Products, $486,000, or 8.5%, for acquired Medicare Supplement Products and
$304,000, or 71.0%, for Cancer and Specified Disease Products assumed by
NFL from Paramount Life.
Amortization of DPAC. Amortization of DPAC increased $1.9 million, or
46.3%, from $4.1 million to $6.0 million due primarily to an increase of
$675,000, or 67.5%, as a result of the Acquisition and an increase of $1.1
million, or 35.1%, for policies issued by NFL. The primary factors were
increases of $426,000, or 258.2%, in Medicare Supplement Products produced
for NFL by Senior Benefits, $258,000, or 409.5%, for Cancer and Specified
Disease policies acquired by NFL from Dixie National Life and $223,000, or
187.6%, for LifeStyles Products, as well as $286,000 for Cancer and
Specified Disease Products assumed from FLICA.
Commissions. Commissions increased $449,000, or 8.4%, from $5.4
million to $5.8 million due primarily to an increase of $710,000, or 88.6%,
in commissions on policies acquired in the Acquisition, which were not
present in the first quarter of 1994. This increase was offset, in part, by
decreases of $261,000, or 5.7%, in other commissions. Before elimination
of intercompany revenues and expenses in consolidation, commissions
increased $86,000, or 1.5%, in NFL, and increased $145,000, or 8.0% in
LifeStyles Marketing. An increase of $268,000, or 382.9%, in commissions
paid to Senior Benefits by NFL and $282,000, or 10.1%, in commissions paid
to LifeStyles Marketing by NFL were eliminated in consolidation.
<PAGE>
General and administrative expenses. General and administrative
expenses increased $1.9 million, or 24.1%, from $7.7 million to $9.6
million due primarily to costs associated with the administration of
policies acquired in the Acquisition, which were not present in the first
quarter of 1994. Also contributing to the increase were general and
administrative costs associated with increased marketing operations.
Taxes, licenses and fees. Taxes, licenses and fees increased
$489,000, or 31.0%, from $1.6 million to $2.1 million due primarily to
premium taxes associated with the policies acquired in the Acquisition,
which were not present in the first quarter of 1994.
Interest expense. Interest expense decreased $179,000, or 12.2%, from
$1.5 million to $1.3 million due primarily to the redemption of $25.0
million of Westbridge's 11.7% Senior Subordinated Debentures due 1996 (the
"Senior Subordinated Debentures") during the first quarter of 1995 and the
issuance of $20.0 million of Senior Subordinated Notes which bear interest
at a per annum rate of 11%.
Provision for income taxes. The provision for income taxes decreased
$347,000, or 25.5%, from $1.4 million to $1.0 million due to the decrease
in the Company's consolidated pre-tax income.
Year Ended December 31, 1994 Compared with Year Ended December 31, 1993
Premiums. Premiums increased $30.0 million, or 43.7%, from $68.7
million to $98.7 million. This increase was due primarily to an increase
in total acquired policy premiums of $26.0 million, or 111.1%, and an
increase in first-year premiums for Company-issued policies of $6.3
million, or 72.4%, offset, in part, by a decrease in renewal premiums
(excluding renewal premiums on policies acquired in acquisitions) of $2.3
million, or 6.3%.
The increase in total acquired policy premiums resulted from premiums
of $29.7 million from the policies obtained in the Acquisition and $3.9
million from the Cancer and Specified Disease Products acquired from Dixie
National Life, which, in each case, were not present in the year ended
December 31, 1993. In addition, premiums on the block of policies acquired
from Life and Health in March 1993 increased $242,000, or 10.7%, from the
corresponding prior year period. These increases were offset, in part, by
a decrease in premiums on the block of policies acquired from American
Integrity in September 1992 of $7.9 million, or 37.4%, due to policy lapses
or cancellations.
The increase in first-year premiums resulted primarily from $3.9
million in first-year premiums generated by Senior Benefits, which began
writing the Company's Medicare Supplement Products in November 1993, and
increases of $1.7 million, or 30.9%, in first-year premiums for Medical
Expense Products sold by LifeStyles Marketing and $1.3 million, or 118.2%,
in first-year premiums on policies reinsured from FLICA. These increases
were offset, in part, by a decrease of $548,000, or 27.1% in first-year
premiums on Cancer and Specified Disease Products written directly by the
Company.
The decrease in renewal premiums (excluding renewal premiums on
policies acquired in acquisitions) was primarily due to a decrease of
$885,000, or 24.8%, for pre-1987 Medical Expense Products, a decrease of
$479,000, or 4.9%, for LifeStyles Products and a decrease of $378,000, or
19.1%, in premiums for Cancer and Specified Disease Products reinsured from
Paramount Life. Decreases in renewal premiums result from lapses or
cancellations of existing policies which are not offset by the Company's
acquisition or generation of new business. If the Company's efforts to
increase the sales and marketing of its existing products do not offset
future policy lapses or cancellations, premiums will decline over time.
<PAGE>
Net investment income. Net investment income increased $1.6 million,
or 39.0%, from $4.1 million to $5.8 million due primarily to investment
income of $2.6 million earned on the investment assets acquired in the
Acquisition, offset, in part, by lower returns on the Company's other
investment assets resulting from reinvestment, at lower interest rates, of
the proceeds on bonds which were redeemed or matured during the year ended
December 31, 1993.
Fee and service income. Fee and service income increased $300,000, or
21.4%, from $1.4 million to $1.7 million due primarily to increased
commissions earned through LifeStyles Marketing from non-affiliated
insurers. 42
Benefits and claims. Benefits and claims increased $20.4 million, or
61.4%, from $33.2 million to $53.6 million. This increase was due
primarily to benefits and claims of $19.4 million on the policies acquired
in the Acquisition, $2.7 million on the Cancer and Specified Disease
Products acquired from Dixie National Life in February 1994, and $1.5
million on the Medicare Supplement Products marketed by Senior Benefits
following its formation in November 1993, each of which were not present or
were insignificant in the corresponding period in 1993. Also contributing
were increases in benefits and claims of $1.1 million, or 15.9%, for
LifeStyles Products, $1.4 million, or 32.6%, for Cancer and Specified
Disease Products issued directly by the Company, and $352,000 or 23.0%, for
Cancer and Specified Disease Products reinsured from FLICA. These
increases were offset, in part, by decreases in benefits and claims of $4.3
million, or 29.9%, for the previously acquired Medicare Supplement
Products, and $1.3 million, or 46.4%, for pre-1987 Medical Expense
Products.
Amortization of DPAC. Amortization of DPAC increased $1.5 million, or
18.3%, from $8.2 million to $9.7 million. This increase was due primarily
to $3.0 million of amortization expense attributable to the policies
acquired in the Acquisition, and $520,000 of amortization expense relating
to Medicare Supplement Products marketed by Senior Benefits, each of which
were not present or were insignificant in the corresponding period in 1993.
These increases were offset, in part, by decreases in amortization expense
of $829,000, or 27.0%, for LifeStyles Products, $413,000, or 51.2%, for
pre-1987 Medical Expense Products, and $458,000, or 41.3%, for previously
acquired Medicare Supplement Products.
Commissions. Commissions increased $1.6 million, or 16.7%, from $9.6
million to $11.2 million due primarily to $2.4 million of commissions on
the policies acquired in the Acquisition, offset, in part, by a decrease of
$800,000, or 8.3% in other commissions.
Before elimination of intercompany revenues and expenses in
consolidation, commissions decreased $145,000, or 1.3%, in NFL and
increased $816,000, or 28.9%, in LifeStyles Marketing. An increase of
$1.2 million, or 27.3%, in commissions paid to LifeStyles Marketing by NFL
was eliminated in consolidation.
The decrease in commissions paid by NFL resulted primarily from
decreases of $1.3 million, or 37.1%, in commissions paid on the previously
acquired Medicare Supplement Products and $157,000, or 4.1%, in commissions
paid on Cancer and Specified Disease Products issued directly by the
Company. These decreases were offset, in part, by $767,000 in commissions
paid on the Cancer and Specified Disease Products acquired from Dixie
National Life, and $205,000 of commission expense relating to Medicare
Supplement Products marketed by Senior Benefits, each of which were not
present in 1993, and increases of $234,000, or 12.6%, in commissions paid
on LifeStyles Products and $269,000, or 22.4%, in commissions paid on
Cancer and Specified Disease Products reinsured from FLICA. The increase
in commissions paid by LifeStyles Marketing resulted from increased
production of new business.
<PAGE>
General and administrative expenses. General and administrative
expenses increased $2.5 million, or 17.5%, from $14.3 million to $16.8
million due primarily to the costs associated with the administration of
the policies acquired in the Acquisition.
Taxes, licenses and fees. Taxes, licenses and fees increased
$500,000, or 18.5%, from $2.7 million to $3.2 million due primarily to the
additional taxes on the premiums associated with the policies acquired in
the Acquisition.
Interest expense. Interest expense increased $600,000, or 24.0%, from
$2.5 million to $3.1 million due primarily to the 25% increase in the
Company's consolidated debt following NFL's sale in February 1994 of $5.0
million principal amount of Senior Subordinated Debentures previously held
in its investment portfolio.
Provision for income taxes. The provision for income taxes increased
$1.2 million, or 75.0%, from $1.6 million to $2.8 million due primarily to
the profitable operations acquired in the Acquisition as well as an
increase in the pre-tax income of NFL.
Year Ended December 31, 1993 Compared with Year Ended December 31, 1992
Premiums. Premiums increased $12.0 million, or 21.2%, from $56.7
million to $68.7 million. This increase was due primarily to an increase
in total acquired policy premiums of $16.5 million, or 239.0%, offset, in
part, by a decrease in renewal premiums (excluding renewal premiums on
policies acquired in acquisitions) of $3.7 million, or 9.1% and a decrease
in first-year premiums for Company-issued policies of $808,000, or 8.5%.
The increase in total acquired policy premiums resulted from an
increase in premiums of $14.2 million for the Medicare Supplement Products
acquired from American Integrity in September 1992 and premiums of $2.3
million for the Medicare Supplement Products acquired from Life and Health
in March 1993.
The decrease in first-year premiums was primarily due to a decrease of
$361,000, or 6.1%, in first-year premiums generated for NFL by LifeStyles
Marketing and a decrease of $471,000, or 13.3%, in first-year premiums for
Cancer and Specified Disease Products. The decreases in first-year
premiums followed decreases in production which occurred in response to
rate increases implemented in the latter half of 1991. However, the
decrease in first-year premiums for LifeStyles Products has since leveled
off and, on a quarter-to-quarter basis during 1993, first-year premiums
have increased. LifeStyles Products' first-year premiums were
$1.1 million, $1.3 million, $1.5 million and $1.6 million in the first,
second, third and fourth quarter of 1993, respectively.
The decrease in renewal premiums (excluding renewal premiums on
policies acquired in acquisitions) was primarily due to a decrease of
$1.0 million, or 5.1%, for Cancer and Specified Disease Products and a
decrease of $1.3 million, or 11.9%, for LifeStyles Products. Also
contributing to the decrease in renewal premiums was a decrease for certain
pre-1987 Medical Expense Products of $602,000, or 14.4%, and a decrease for
pre-1987 Medicare Supplement Products of $676,000, or 15.7%. Decreases in
renewal premiums result from lapses or cancellations of existing policies
which are not offset by the Company's acquisition or generation of new
business. To the extent that the Company's efforts to increase the sales
and marketing of its existing products do not offset future policy lapses
or cancellations, renewal premiums will continue to decline over time.
<PAGE>
Net investment income. Net investment income increased $200,000, or
5.1%, from $3.9 million to $4.1 million due primarily to additional
investment assets received in connection with the acquisition of Medicare
Supplement Products from American Integrity in September 1992 and from Life
and Health in March 1993. This increase was offset, in part, by a decrease
in the Company's average annual yield on investments from 8.5% to 7.4%.
Fee and service income. Fee and service income increased $5,000, or
less than 1.0%, to remain at $1.4 million.
Net realized gain on investments. Net realized gain on investments
increased $578,000, or 137.0%, from $422,000 to $1.0 million. This
increase was due primarily to premium amounts received upon the redemption
of bonds prior to their scheduled maturities. These redemptions resulted
generally from the low interest rate environment during 1993.
Other income. Other income decreased $143,000, or 91.1%, from
$157,000 to $14,000. This decrease, which represents a return to
historical nominal levels, reflects the one-time gain of $133,000 recorded
on the sale of a portion of the Company's life insurance business in 1992.
Benefits and claims. Benefits and claims increased $6.7 million, or
25.3%, from $26.5 million to $33.2 million. This increase was due
primarily to an increase of $9.8 million, or 309.4%, in benefits and claims
on the Medicare Supplement Products acquired from American Integrity in
September 1992, and benefits and claims of $1.3 million on the Medicare
Supplement Products acquired from Life and Health in March 1993. This
increase was offset, in part, by a decrease of $2.5 million, or 26.4%, for
LifeStyles Products, a decrease of $886,000, or 11.5%, for Cancer and
Specified Disease Products and a decrease of $1.0 million, or 18.2%, for
pre-1987 Medical Expense Products.
Amortization of DPAC. Amortization of DPAC decreased $300,000, or
3.5%, from $8.5 million to $8.2 million due primarily to a decrease for
Cancer and Specified Disease Products of $486,000, or 16.4%, and a combined
decrease for most of the Company's other product lines totaling $390,000.
These decreases were offset, in part, by an increase for the Medicare
Supplement Products acquired from American Integrity in September 1992 of
$583,000, or 111.0%, from $525,000 to $1.1 million.
Commissions. Commissions increased $1.2 million, or 14.3%, from
$8.4 million to $9.6 million. This increase was due primarily to an
increase of $2.4 million, or 224.7%, in commissions paid on acquired
policies, and a decrease of $505,000 in the consolidation elimination of
commissions paid to LifeStyles Marketing by NFL. These changes were
offset, in part, by a decrease of $1.7 million, or 13.8%, in other
commissions (excluding commissions on policies acquired in acquisitions).
The increase in commissions paid on acquired policies resulted from an
increase of $2.3 million, or 211.6%, in commissions paid on the Medicare
Supplement Products acquired from American Integrity in September 1992 and
$139,000 in commissions paid on the Medicare Supplement Products acquired
from Life and Health in March 1993.
<PAGE>
The decrease in other commissions (excluding commissions on policies
acquired in acquisitions) resulted from a decrease of $549,000, or 16.3%,
in commissions paid by LifeStyles Marketing and a decrease of $1.1 million,
or 12.9%, in other commissions paid by NFL (excluding commissions paid to
LifeStyles Marketing).
General and administrative expenses. General and administrative
expenses increased $1.6 million, or 12.6%, from $12.7 million to
$14.3 million due primarily to an increase of $1.0 million, or 9.9%, for
the general and administrative expenses of NFL, and an increase for
LifeStyles Marketing of $451,000, or 17.1%. The increase for NFL resulted
from the Medicare Supplement Products acquired from American Integrity in
September 1992. The increase for LifeStyles Marketing is attributable to
expenses relating to expanded marketing efforts.
Taxes, licenses and fees. Taxes, licenses and fees increased
$600,000, or 28.6%, from $2.1 million to $2.7 million due primarily to
additional premium taxes paid on increased premiums.
Interest expense. Interest expense increased $100,000, or less than
4.0%, from $2.5 million to $2.6 million.
Provision for income taxes. The provision for income taxes increased
$1.1 million, or 206.8%, from $532,000 to $1.6 million due to the increase
in the pre-tax results of operations. Contributing to this increase was an
increase in operating income and the adoption of SFAS 109 as of the
beginning of 1992.
Results of Operations--NFI and AICT--Before the Acquisition
NFI's results of operations prior to the Acquisition include the
operations of AICT which, during such time, was a 65.0% owned subsidiary of
NFI. Concurrent with the Acquisition, the remaining 35.0% interest in
AICT, which was owned by two affiliates of NFI, was transferred to NFI.
Both NFI and AICT were principally involved in the sale of individual
accident and health insurance policies consisting primarily of major
medical, hospital and surgical coverage which was substantially similar to
the Company's Medical Expense Products. NFI and AICT had also written
various forms of individual life insurance policies. During the first half
of 1992, both NFI and AICT ceased writing new business. Income from the
sale of the entire block of life insurance policies was recognized by NFI
and AICT in the first quarter of 1993.
Due to the decision by NFI and AICT to cease writing new business and,
to a lesser extent, the sales of their respective life insurance blocks of
business, NFI and AICT have been managing closed blocks of accident and
health insurance policies since the latter half of 1992. As a result, the
policies have and will continue to run-off over time resulting in decreased
premiums, investment assets and net investment income, as well as lower
benefits and claims and commissions.
Three Months Ended March 31, 1994 Compared with Three Months Ended
March 31, 1993
Premiums. Premiums decreased $1.5 million, or 11.0%, from $13.6
million to $12.1 million due to the run-off of existing policies.
Reductions of $642,000 and $881,000 were recorded for first-year premiums
and renewal premiums, respectively.
Net investment income. Net investment income decreased $281,000, or
29.1%, from $966,000 to $685,000 due primarily to lower yields on invested
assets. NFI restructured its investment portfolio during the latter half
of 1993 and the first quarter of 1994 in anticipation of the Acquisition.
A substantial portion of the fixed income investments and mortgage loans,
all of the marketable securities and nearly all of the collateral loans
were re-invested in short-term investments, resulting in lower investment
yields. Also contributing to lower net investment income was a decrease in
the average amount of investment assets from $59.6 million to $53.0
million.
<PAGE>
Net realized gain on investments. Net realized gain on investments
decreased $373,000, or 58.7%, from $635,000 to $262,000 due primarily to
lower returns realized on the sale of investment assets.
Other income. Other income increased $93,000, or 152.5%, from $61,000
to $154,000 due to insignificant fluctuations in various other income
categories.
Benefits and claims. Benefits and claims decreased $1.1 million, or
12.1%, from $9.1 million to $8.0 million due to the run-off of existing
policies. This decrease is consistent with the decrease in premiums for
the same period as discussed above.
Amortization of DPAC. Amortization of DPAC, net of amounts deferred,
decreased $100,000, or 9.1%, from $1.1 million to $1.0 million due
primarily to decreased amortization expense associated with lower premiums.
Commissions. Commissions decreased $503,000, or 33.5%, from $1.5
million to $997,000 due primarily to the decrease in first-year premiums of
$642,000.
General and administrative expenses. General and administrative
expenses increased $18,000, or 0.8%, to remain at $2.3 million due to
insignificant fluctuations in various expense categories.
Taxes, licenses and fees. Taxes, licenses and fees increased
$238,000, or 309.1%, from $77,000 to $315,000. Generally, changes in
taxes, licenses and fees follow the changes in premiums; however, at
year-end 1992, NFI over-estimated its liability for premium taxes due for
fiscal year 1992 by $450,000 and, as a result, taxes, licenses and fees for
the first quarter of 1993 appeared unusually low.
Year Ended December 31, 1993 Compared with Year Ended December 31, 1992
Premiums. Premiums decreased $14.7 million, or 22.0%, from $66.9
million to $52.2 million due primarily to the run-off of existing policies
which were not replaced by new business. First-year and renewal premiums
decreased $2.9 million and $11.9 million, respectively. Also contributing
to this decrease was the sale of the block of life insurance policies which
caused a decrease in renewal premiums of $597,000.
Net investment income. Net investment income decreased $1.8 million,
or 34.0%, from $5.3 million to $3.5 million due to a decrease in the amount
of investment assets and a lower average yield on investments. The
decrease in the amount of investment assets resulted from the run-off of
existing policies. The lower average yield on investments resulted from
the sale of certain higher yielding investment assets in anticipation of
the Acquisition and reinvestment of these assets at lower rates. As a
result, the average yield on investment assets decreased from 7.9% to 6.4%.
<PAGE>
Net realized gain on investments. Net realized gain on investments
increased $600,000, or 31.6%, from $1.9 million to $2.5 million due
primarily to the sale of investment assets at the end of 1993 in
anticipation of the Acquisition.
Other income. Other income increased $1.3 million, or 61.9%, from
$2.1 million to $3.4 million due primarily to the recognition of income
from the sale by NFI and AICT of the entire block of their life insurance
policies.
Benefits and claims. Benefits and claims decreased $9.2 million, or
19.9%, from $46.3 million to $37.1 due to the run-off of existing policies
which were not replaced by new business. This decrease was consistent with
the decrease in premiums for the same period as discussed above.
Amortization of DPAC. Amortization of DPAC, net of amounts deferred,
increased $3.6 million, or 94.7%, from $3.8 million to $7.4 million due
primarily to a decrease in the amount of acquisition costs deferred during
1993 of $2.9 million, or 88.3%, from $3.3 million to $385,000 as a result
of management's decision to cease writing new business. Additionally, the
sale of life insurance policies resulted in amortization of $2.5 million of
DPAC in 1993.
Commissions. Commissions decreased $3.1 million, or 37.8%, from $8.2
million to $5.1 million due primarily to the decrease in first-year
premiums of $2.9 million.
General and administrative expenses. General and administrative
expenses decreased $6.9 million, or 46.6%, from $14.8 million to $7.9
million due primarily to elimination of the marketing, underwriting and new
business related functions and the consolidation of NFI's operations in its
Dallas office. Most of these measures were implemented during the third
and fourth quarters of 1992.
Taxes, licenses and fees. Taxes, licenses and fees decreased $1.3
million, or 54.2%, from $2.4 million to $1.1 million due primarily to
decreases in premium taxes associated with lower premium levels. Also
contributing to this decrease was a $450,000 over-estimation by NFI for its
liability for premium taxes at the end of 1992.
Year Ended December 31, 1992 Compared with Year Ended December 31, 1991
Premiums. Premiums decreased $11.5 million, or 14.7%, from $78.4
million to $66.9 million due primarily to run-off of existing policies and
NFI's decision to cease writing new business during 1992, which resulted in
decreases of $8.5 million and $3.0 million in renewal premiums and
first-year premiums, respectively. Also contributing to this decrease was
the sale of the life insurance business, which caused a decrease in renewal
premiums of $1.0 million.
Net investment income. Net investment income decreased $1.6 million,
or 23.2%, from $6.9 million to $5.3 million due to a decrease in the amount
of investment assets and a decrease in the average return on investment
assets from 8.9% to 7.9%. The decrease in investment assets resulted from
the run-off of existing policies.
Net realized gain on investments. Net realized gain on investments
remained relatively level for the year ended December 31, 1992 as compared
to the year ended December 31, 1991.
Benefits and claims. Benefits and claims decreased $3.1 million, or
6.3%, from $49.4 million to $46.3 million due primarily to a decrease in
the amount of insurance in force resulting from management's decision to
cease writing new business.
<PAGE>
Amortization of DPAC. Amortization of DPAC, net of amounts deferred,
increased $1.5 million, or 65.2%, from $2.3 million to $3.8 million due
primarily to a decrease in the amount of acquisition costs deferred during
1992 of $2.1 million, or 39.2%, from $5.4 million to $3.3 million as a
result of the cessation of new business production.
Commissions. Commissions decreased $3.0 million, or 26.8%, from $11.2
million to $8.2 million due primarily to the decrease in first-year
premiums of $3.0 million.
General and administrative expenses. General and administrative
expenses decreased $3.1 million, or 17.3%, from $17.9 million to $14.8
million due primarily to elimination of the marketing, underwriting and new
business related functions and the consolidation of NFI's operations in its
Dallas office. Most of these measures were implemented during the third
and fourth quarter of 1992.
Taxes, licenses and fees. Taxes, licenses and fees decreased
$300,000, or 11.1%, from $2.7 million to $2.4 million due primarily to
decreases in premium taxes associated with lower premium levels.
Liquidity, Capital Resources, and Statutory Capital and Surplus
Westbridge
Westbridge is a holding company which conducts its principal
operations through its Insurance Subsidiaries. Westbridge's primary assets
consist of the outstanding capital stock of NFL and NFI, of which it is the
sole stockholder. NFL owns 100% of WNL and also owns a 40.0% interest in
Freedom Holding. AICT is a wholly-owned subsidiary of NFI. Westbridge's
primary sources of funds are dividends from its Insurance Subsidiaries,
advances due from subsidiaries, principal and interest payments on a
surplus certificate issued by NFL to Westbridge, lease payments on fixed
assets and tax contributions under a tax sharing agreement among Westbridge
and its subsidiaries. Additional cash is periodically provided from the
sale of short-term investments. Historically, Westbridge has not relied on
dividends from its subsidiaries and has received funds primarily from the
other sources described above. However, in light of the issuance of the
Series A Preferred Stock in April 1994, management expects that Westbridge
will, for the foreseeable future, rely to a significant extent on dividends
from its Insurance Subsidiaries to meet its expenses and other obligations.
During the year ended December 31, 1994, Westbridge received approximately
$5.3 million, or 75.5%, of its funds (excluding the proceeds from the
issuance of the Series A Preferred Stock) from its subsidiaries. Of the
funds received from its subsidiaries, approximately $3.8 million, or 71.7%,
was received from NFL in the form of dividends, lease payments on fixed
assets, payments of principal and interest on the surplus certificate
issued by NFL and other sources, and the remaining $1.5 million, or 28.3%,
was received from LifeStyles Marketing in the form of repayments of
advances from Westbridge. For the six months ended June 30, 1995,
Westbridge received approximately $860,000, or 72.2%, of its funds
(excluding the proceeds from the public offering in February 1995 of the
Senior Subordinated Notes and Common Stock) from its subsidiaries. Of the
funds received from its subsidiaries, approximately $850,000, or 98.8%, was
received from NFL in the form of dividends, lease payments on fixed assets,
payments of principal and interest on the surplus certificate issued by NFL
and other sources. Westbridge's expenses and other obligations consist
primarily of $2.2 million in annual interest payments on the Senior
Subordinated Notes, $1.7 million in annual dividends on the Series A
Preferred Stock, working capital requirements for its marketing
subsidiaries and taxes. For the year ended December 31, 1994 and the six
months ended June 30, 1995, Westbridge's cash requirements (exclusive of
amounts paid in connection with the Acquisition, the sale of the Series A
Preferred Stock and the sale of the Common Stock and Senior Subordinated
Notes) aggregated approximately $5.1 million and $1.5 million,
respectively. Westbridge used a substantial portion of the proceeds from
the sale of the Common Stock and Senior Subordinated Notes to redeem the
Senior Subordinated Debentures in March 1995. The Senior Subordinated
Notes mature in March 2002 and the Series A Preferred Stock is subject to
mandatory redemption in April 2004.
<PAGE>
Dividend payments from Westbridge's principal Insurance Subsidiaries
are regulated by the insurance laws of their domiciliary states. NFL is
domiciled in Delaware. Under the Delaware Insurance Code, an insurer
domiciled in Delaware may not declare or pay a dividend or other
distribution from any source other than "earned surplus" without the state
insurance commissioner's prior approval. "Earned surplus" is defined as an
amount equal to the unassigned funds of an insurer as set forth on its most
recent statutory annual statement, including all or part of the surplus
arising from unrealized capital gains or revaluation of assets. WNL, which
is domiciled in Arizona, has not contributed in the past, and is not
expected to contribute in the foreseeable future, significant dividends to
Westbridge. NFI and AICT are domiciled in Texas. An insurer domiciled in
Texas may pay dividends only out of "surplus profits arising from its
business." Moreover, insurers domiciled in either Delaware or Texas may not
pay "extraordinary dividends" without first providing the state insurance
commissioner with 30-days' prior notice, during which time such
commissioner may disapprove the payment. An "extraordinary dividend" is
defined as a dividend whose fair market value together with that of other
dividends made within the preceding 12 months exceeds the greater of (a)
ten percent of the insurer's surplus as regards policyholders as of the
preceding December 31 or (b) the net gain from operations of such insurer,
not including realized capital gains, for the 12-month period ending on the
preceding December 31. In September 1994, NFL paid to Westbridge an
"extraordinary dividend" in the amount of $2.0 million. Of this amount,
$1.5 million was used for the September semi-annual interest payment on the
Senior Subordinated Debentures and the remainder was used for general
corporate purposes. The Company does not believe that receipt of this
dividend is an indication of, and the Company is not in a position to
assess, the likelihood of obtaining approval for the payment of
"extraordinary dividends" or dividends from a source other than "earned
surplus." With respect to ordinary dividends payable by an insurer
domiciled in Delaware, notice of any dividend must be provided to the state
insurance commissioner within five (5) business days following the
declaration thereof and at least ten (10) days prior to the payment
thereof. As of December 31, 1994, NFL had negative statutory "earned
surplus" as a result of historical statutory losses. For the foreseeable
future, NFL has agreed to seek the approval of the Delaware insurance
commissioner prior to making any dividend payments. As of December 31,
1994, AICT had the ability to pay to NFI, without prior regulatory
approval, $641,000 in dividends during 1995, none of which has been paid.
As of December 31, 1994, NFI had the ability to pay to Westbridge, without
prior regulatory approval, $1.1 million in dividends during 1995, none of
which has been paid. In both Delaware and Texas, the state insurance
commissioner reviews the dividends paid by each insurer domiciled in such
commissioner's state at least once each year to determine whether they are
reasonable in relation to the insurer's surplus as regards policyholders
and quality of earnings. The state insurance commissioner may issue an
order to limit or disallow the payment of ordinary dividends if such
commissioner finds the insurer to be presently or potentially financially
distressed or troubled.
Westbridge periodically advances cash to its subsidiaries as their
continuing operations require and, as of June 30, 1995, such advances due
from subsidiaries totaled $6.1 million. Westbridge also holds a receivable
from the surplus certificate issued by NFL which, as of the date of this
Prospectus, totaled $777,000. Payments of principal due under the surplus
certificate require the prior approval of the Delaware regulatory
authorities. In addition, Westbridge holds a secured promissory note (the
"Elkins Note") from NFC Marketing, Inc., an Arkansas corporation which is
wholly-owned by Elkins. The balance of this note recorded on the books of
Westbridge at June 30, 1995 was approximately $1.3 million. This note,
which was renegotiated in October 1994, represents principal and accrued
interest on a loan made by Westbridge to NFC Marketing, Inc. for the
purpose of expanding its marketing efforts. The original loan was
scheduled to be repaid in April 1993. However, due to certain financial
difficulties, NFC Marketing, Inc. was in arrears on the full amount of this
note and, as of October 10, 1994, owed Westbridge approximately $1.2
million. On such date, the Elkins Note was renewed and extended with terms
which provide, among other things, for the payment to Westbridge of $20,000
per month until such time as the full amount of principal and interest
thereunder has been paid. Under the terms of the Elkins Note, such amounts
will be paid to Westbridge by NFL out of monthly commissions which would
otherwise be payable to NFC Marketing, Inc. by NFL. Payment of principal
and interest under the Elkins Note has been guaranteed by Elkins. In
addition, under the terms of a Security Agreement delivered to Westbridge
by NFC Marketing, Inc., following a default, Westbridge has the right to
apply monies, balances, credits or collections which it may hold for NFC
Marketing, Inc. on deposit, or which might otherwise be payable to NFC
Marketing by NFL (including, among other things, agents' commissions
payable by NFL to NFC Marketing, Inc.), to offset the unpaid balance of the
Elkins Note. Amounts available for such offset have averaged approximately
$160,000 per month over the past twelve months and consist exclusively of
commissions. Such commissions relate to and are paid by NFL out of
premiums it receives from policyholders on previously written policies.
Subject to policy lapses or cancellations, these premiums will continue to
be received by NFL and commissions thereon will be available for offset by
Westbridge whether or not Elkins' relationship with the Company continues.
Following any exercise by Westbridge of its right of offset, management
believes that the level of lapses and cancellations would gradually
increase as a result of agents' efforts to transfer the policies to other
insurers. However, management also believes that the rate at which such
policies could be rewritten would not significantly affect the level of
premiums received by NFL in the near term. As a result, management
believes that following any future payment default Westbridge should be
able to recover the full amount owed on this note. Westbridge does not
know of, nor does it have any reason to believe that there is, any other of
its general agency networks which is experiencing financial difficulty.
<PAGE>
Westbridge believes that its near-term cash requirements, including
interest on the Senior Subordinated Notes and dividend payments on the
Series A Preferred Stock, will be met through operating cash flows,
repayments of advances due from subsidiaries, payments relating to the
surplus certificate and dividends received from the Insurance Subsidiaries.
Insurance Subsidiaries
The primary sources of cash for the Insurance Subsidiaries are
premiums, income on investment assets and fee and service income.
Additional cash is periodically provided from the sale of short-term
investment assets and could, if necessary, be provided through the sale of
long-term investment assets. However, the Company's investment policy is
to hold its long-term securities to maturity. The Insurance Subsidiaries'
primary uses for cash are benefits and claims, commissions, general and
administrative expenses and taxes.
In the ordinary course of business, the Company advances first-year
commissions on policies written by its general agency networks and their
agents. The Company is reimbursed for these advances from commissions
earned over the respective policy's life. In the event that policies lapse
prior to the time the Company has been fully reimbursed, the agency network
or the individual agents, as the case may be, are responsible for
reimbursing the Company for the outstanding balance of the commission
advance. Except for approximately $200,000 of losses recorded by the
Company during the year ended December 31, 1992, the Company has not
experienced material losses on such advances. There can be no assurance as
to the occurrence or degree of any future losses. As of June 30, 1995,
outstanding advances totaled $1.9 million to the Locke Agency (which
advances are made through FLICA), $5.4 million to the agents of LifeStyles
Marketing, $1.4 million to the agents of Senior Benefits, there were no
outstanding advances to the Elkins Agency, and there were aggregate
outstanding advances totaling $2.4 million to the Company's other general
agency networks and their agents.
<PAGE>
Consolidated
The Company's consolidated net cash used for operations totaled $10.6
million, $7.2 million and $4.4 million in 1994, 1993 and 1992,
respectively. The primary reason for the increase in cash used for
operations over the past three years is an increase in paid claims
associated with the Medicare Supplement Products acquired in September 1992
and March 1993, the policies acquired from Dixie National Life in February
1994 and the policies obtained in the Acquisition. These increases have
been offset, in part, by increases in collected premiums and a decrease in
commissions paid. Net cash used for operations for the six months ended
June 30, 1995, totaled $14.0 million compared to $5.7 million for the
corresponding period in 1994. In addition to the reasons set forth above,
this increase was also due to increases in commission advances and issuance
costs resulting from higher levels of new business production.
Net cash used for operations has increased substantially since 1991
and relates directly to the Company's three significant acquisitions of
closed blocks of policies since September 1992. Each of these transactions
were effected through indemnity and assumption reinsurance arrangements
which involved the transfer to the Company of cash or other investment
assets and the assumption by the Company of policy liabilities. While the
benefits and claims paid on the policies assumed are reflected directly in
the statement of cash flows, the initial receipt of cash and/or investment
assets is reflected supplementally on the statement of cash flows through a
schedule of non-cash investing activities. As a result, as the investment
assets mature or are liquidated, and cash is paid out in the form of
benefits and claims, the effect on the Company's statement of cash flows is
an increase in net cash used. Such negative operating cash flows are
planned, and are an inherent part of acquisitions of closed blocks of
business through indemnity and assumption reinsurance. A review of
operating cash flows should be considered in conjunction with the
supplemental schedule of non-cash investing activities.
Investing activities provided $7.1 million for the six months ended
June 30, 1995, compared with net cash used of $16.7 for the six months
ended June 30, 1994. The significant amount of net cash used in 1994
resulted primarily from the purchase of the common stock of NFI in the
Acquisition. Similarly, net cash used for the year ended December 31, 1994
totaled $16.7 million, compared with net cash provided by investing
activities of $5.4 million and $5.7 million in 1993 and 1992, respectively.
For the years ended 1993 and 1992, net cash provided by investing
activities was principally the result of the excess of proceeds from
investments sold and matured over the cost of investments acquired.
Net cash provided by financing activities was $4.2 million in the six
months ended June 30, 1995, compared to $25.1 million for the prior year
period. In February 1995, $29.1 million of cash was provided by the public
sale of Common Stock and Senior Subordinated Notes. Also, in March 1995,
$25.0 million in cash was used to redeem the Senior Subordinated
Debentures. In the first six months of 1994, $20.0 million in cash was
provided in the sale of the Series A Preferred Stock and the sale by NFL,
to a non-affiliated party, of $5,000,000 principal amount of Senior
Subordinated Debentures, which had previously been held by NFL in its
investment portfolio. There were no significant financing activities
during the years ended December 31, 1993 or 1992.
<PAGE>
The Company believes that its near-term cash requirements will be met
through a combination of operating and investing cash flows. The Company
anticipates that its longer-term cash requirements for the operation of the
business will also be met through a combination of operating and investing
cash flows. Additional capital may be necessary to consummate future
growth through acquisitions. There can be no assurance that the financing
facility will be obtained, that opportunities for future acquisitions will
arise or that additional capital to consummate such acquisitions will be
available.
The Company had no significant high-yield, unrated or less than
investment grade corporate debt securities in its investment portfolio as
of June 30, 1995 and it is the Company's policy not to invest in such
assets. Changes in interest rates may affect the market value of the
Company's investment portfolio. The Company's policy is to hold its
investments to maturity and, therefore, absent redemptions of such
investments prior to maturity, or loss experience materially in excess of,
or at times materially sooner than expected, such changes should not impact
the Company's ability to meet its future policyholder benefit obligations.
Included in the assets of the Company at June 30, 1995 were $732,289
of real estate mortgage loans and $141,000 of real estate acquired through
foreclosure. Approximately 98.0% of these assets are located in Oklahoma
and Texas. Such regional concentration may have a higher investment risk
than a more diversified portfolio. It is the Company's policy not to
invest in such assets and, accordingly, the Company has made no mortgage
loans or real estate purchases since 1989.
Inflation may affect, to a limited extent, claim costs on the
Company's Medicare Supplement Products and Medical Expense Products. Costs
associated with a hospital stay, and the amounts reimbursed by the Medicare
program, are each determined, in part, based on the rate of inflation. If
hospital and other medical costs which are reimbursed by the Medicare
program increase, claim costs on the Medicare Supplement Products will
increase. Similarly, as the hospital and other medical costs increase,
claim costs on the Medical Expense Products will increase. However, with
the approval of the relevant state regulatory authority, the Company has
the ability, within the constraints of the loss ratios mandated by the
regulatory authorities, to raise premium rates on its guaranteed renewable
products in the event of adverse claims experience. In addition, the
Company has limited its exposure to inflation by incorporating certain
maximum benefits under its policies. See "Business--Products."
The NAIC has proposed certain risk-based capital ("RBC") statutory
requirements for insurance companies. Under the proposed requirements,
insurers whose capital and surplus fall below the specified level would be
subject to remedial action. The proposed guidelines do not take effect
until adopted on a state by state basis. Delaware and Texas have not yet
adopted such proposals; however, as of December 31, 1994, the RBC for each
of the Insurance Subsidiaries exceeded the proposed threshold for required
regulatory intervention. See "Business--Regulation."
Recent Accounting Change
Effective January 1, 1994, the Company adopted SFAS No. 115
"Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115").
SFAS 115 requires that all debt securities and certain equity
securities be classified into three categories and accounted for as
follows: (i) debt securities that the Company has the positive intent and
ability to hold to maturity are classified as "held-to-maturity" securities
and reported at amortized cost; (ii) debt and equity securities that are
bought and held principally for the purpose of selling them in the near
term are classified as "trading" securities and reported at fair value,
with unrealized gains and losses included in earnings; and (iii) debt and
equity securities that are not classified as either held-to-maturity
securities or trading securities are classified as "available-for-sale"
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of
stockholders' equity.
<PAGE>
Following the Company's adoption of SFAS 115 in the first quarter of
1994, the Company established its classification between held-to-maturity
and available-for-sale by reviewing the maturity schedule of its investment
portfolio and matching it to the Company's projected cash flow
requirements. The Company does not engage in "trading" of securities. At
June 30, 1995, approximately $76.9 million, or 87.0%, of the Company's
fixed maturity investment assets were classified as held-to-maturity and
approximately $11.6 million, or 13.0%, were classified as
available-for-sale. Of those securities classified as held-to-maturity,
approximately $25.4 million had maturities of five years or less. When
combined with the securities classified as available-for-sale,
approximately 42.0% of the Company's fixed maturity investment portfolio
was either available-for-sale, or had a maturity within five years.
In accordance with SFAS 115, the cumulative effect of recording to a
separate component of stockholders' equity the difference between market
value and amortized cost at January 1, 1994 of securities classified as
available-for-sale has been treated as a change in accounting principal,
and no restatement of prior year financial statements has been made. See
Note 5 of "Notes to Unaudited Consolidated Financial Statements" of
Westbridge herein.
BUSINESS
General
Westbridge, through its subsidiaries and affiliated companies,
principally underwrites and sells specialized health insurance products to
supplement medical expense coverage usually provided by employers and
government programs. The Company's major product lines are Cancer and
Specified Disease Products, Medical Expense Products and Medicare
Supplement Products. Cancer and Specified Disease Products include
policies designed to provide daily indemnity for hospital confinement and
convalescent care for treatment of specified diseases, as well as "event
specific" policies designed to provide daily indemnity for confinement in
an intensive care unit or to provide a fixed benefit in the case of
accidental death. Medical Expense Products include policies providing
reimbursement for various medical and hospital care, catastrophic nursing
care and home health care. Medicare Supplement Products are designed to
reimburse for the expenses not covered by the Medicare program.
The Company markets its products primarily through general agency
networks. The principal general agency networks used by the Company
include: LifeStyles Marketing; Senior Benefits; and two general agency
networks controlled by individuals, the Locke Agency and the Elkins Agency.
The Company has certain contractual arrangements with Locke expiring in
1998 which provide the terms and conditions on which the Locke Agency
markets the Company's products and set forth coinsurance agreements between
the Company and an entity controlled by Locke. The Company also has
contractual arrangements with Elkins expiring in 1995 which relate to
insurance previously written through an entity controlled by Elkins and
coinsured by the Company. Each agency network specializes in one of the
Company's product lines and focuses on selling those products in small
towns and rural areas to individuals who have medical expense coverage that
they may consider inadequate. See "--Marketing."
<PAGE>
The Company's strategy is to continue to expand its sales and
marketing of existing products; introduce new specialized supplemental
products to respond to the changing health care environment; and, if and
when opportunities arise, acquire blocks of business.
Since 1988 the Company's general agency networks have accounted for
substantially all of the Company's first-year premiums. LifeStyles
Marketing, which is 51.0% owned by Westbridge's wholly-owned subsidiary,
Westbridge Marketing Corporation ("WMC"), markets the Company's Medical
Expense Products. In addition to generating premiums for the Company from
the policies it sells, LifeStyles Marketing also generates commissions on
those products it sells that are underwritten by other insurance companies.
The marketing of the Company's Cancer and Specified Disease Products is
performed by the Locke Agency and the Elkins Agency. In November 1993, the
Company and an Arizona-based agency specializing in the sale of Medicare
supplement insurance jointly formed Senior Benefits. Senior Benefits,
which is 50.0% owned by Westbridge, markets the Company's Medicare
Supplement Products. During 1995, the Company has entered into new
relationships with established general agency networks specializing in the
sale of products comparable to the Company's existing product lines and has
begun offering several new products. The Company continues to seek
additional similar relationships.
The Company believes that recent conditions in the insurance industry
have created opportunities to acquire health insurance companies and blocks
of health insurance business at a lower cost than would be required to
produce such business. Consequently, the Company has actively sought
opportunities to acquire business with which it is very familiar, having
underwritten or sold such policies in the past. In September 1992, NFL
purchased a block of Medicare supplement policies from American Integrity
having annualized premium revenues of approximately $42.0 million. The
purchase was accomplished through a combination of indemnity and assumption
reinsurance agreements. Under the terms of the agreements, American
Integrity transferred assets to NFL and NFL assumed the risks associated
with the policies acquired. The policies acquired by NFL are not subject
to voluntary recapture by American Integrity. Additionally, in March 1993,
NFL purchased a similar block of Medicare Supplement policies from Life and
Health having annualized premium revenues of approximately $4.0 million.
The purchase was accomplished through a combination of indemnity and
assumption reinsurance agreements. Under the terms of the agreements, Life
and Health transferred assets to NFL and NFL assumed the risks associated
with the policies acquired in a manner similar to the American Integrity
transaction. The Medicare supplement policies acquired from American
Integrity and from Life and Health were existing blocks of business from
which the Company has derived additional revenue through renewal premiums.
In February 1994, the Company purchased a closed block of cancer
indemnity insurance from Dixie National Life with annualized premiums of
approximately $4.5 million. The acquisition was completed by way of
assumption reinsurance agreements and did not require additional financing.
The transaction involved the transfer of cash by NFL and the assumption of
certain Dixie National Life liabilities and reserve assets.
On April 12, 1994, the Company completed the acquisition of NFI and
AICT. At that time, the acquired companies' combined health insurance in
force consisted of approximately 102,000 policies with approximately $45.0
million in annualized premiums in business lines substantially similar to
those of the Company. Both acquired companies ceased writing new business
in the first six months in 1992. The Company has recently begun to write
certain Medical Expense Products and certain Medicare Supplement Products
through NFI and AICT, and is reviewing its options to market other policies
through NFI and AICT and may or may not elect to do so in the future.
<PAGE>
Over the past five years, the Company has developed sophisticated
administrative and database systems in order to provide high quality
service to its agents and policyholders and to reduce overhead expenses as
a percentage of premiums. As a result, the Company has been able to absorb
quickly and efficiently the business it has acquired and believes that it
can support future growth while maintaining an efficient and cost effective
operation.
Westbridge's Insurance Subsidiaries and affiliates are licensed to
sell their products in a combined total of 40 states, primarily in the
western, middle western, southern and southeastern regions of the United
States. These licenses are subject to renewal by the insurance regulatory
authorities of each such state. The Company must file periodic financial
statements with each state's insurance regulatory authority and conduct its
business in accordance with such state's laws and regulations. A failure
by the Company to comply with any state's financial or business conduct
requirements could result in the future revocation of the Company's license
to sell insurance products in such state. See "--Regulation."
Product Lines
Premiums by major product line for each of the periods indicated is
set forth below:
<PAGE>
<TABLE>
<CAPTION>
Premiums by Major Product Line
Six Months
Ended June 30, Year Ended December 31,
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
(in thousands)
ACCIDENT AND HEALTH INSURANCE
<S> <C> <C> <C> <C> <C>
Cancer and Specified Disease Products
Direct business
First-year. . . . . . . . $ 585 $ 794 $ 1,476 $ 2,024 $ 2,045
Renewal . . . . . . . . . 6,532 6,758 13,321 13,414 14,426
Acquired business
First-year. . . . . . . . 84 24 53 -- --
Renewal(1). . . . . . . . 4,286 3,490 7,954 -- --
Reinsurance assumed
First-year. . . . . . . . 2,260 740 2,363 1,051 1,501
Renewal . . . . . . . . . 2,841 2,775 5,484 5,782 5,794
------ ------ ------ ------ ------
Total Cancer and Specified
Disease Products . . . . . . . . . . 16,588 14,581 30,651 22,271 23,766
Medical Expense Products
LifeStyles Products(2)
First-year. . . . . . . . 4,093 3,713 7,219 5,539 5,900
Renewal . . . . . . . . . 5,089 4,518 9,267 9,746 11,060
Other direct
First-year. . . . . . . . 1,069 -- -- -- --
Renewal . . . . . . . . . 9 -- -- -- --
Acquired business
First-year. . . . . . . . (82) -- -- -- --
Renewal(1). . . . . . . . 10,348 6,248 18,350 -- --
Other(3)
First-year. . . . . . . . (3) (1) 1 6 17
Renewal . . . . . . . . . 1,099 1,482 2,686 3,571 4,173
------ ------ ------ ------ ------
Total Medical Expense Products . . . 21,622 15,960 37,523 18,862 21,150
Medicare Supplement Products
Direct business
First-year. . . . . . . . 5,407 880 3,952 46 --
Renewal . . . . . . . . . 651 5 43 -- --
Acquired business
First-year. . . . . . . . -- -- 3 63 69
Renewal(1). . . . . . . . 10,949 10,688 22,996 23,338 6,834
Other(3)
First-year. . . . . . . . -- (2) -- -- --
Renewal . . . . . . . . . 1,351 1,623 3,090 3,642 4,318
------ ------ ------ ------ ------
Total Medicare Supplement Products. . 18,358 13,194 30,084 27,089 11,221
------ ------ ------ ------ ------
Total Accident and Health Insurance . 56,568 43,735 98,258 68,222 56,137
LIFE INSURANCE
First-year. . . . . . . . 40 3 8 9 19
Renewal . . . . . . . . . 202 226 437 500 575
------ ------ ------ ------ ------
Total Life Insurance. . . . . . . . . 242 229 445 509 594
------ ------ ------ ------ ------
Total Premium Revenue . . . . . . . . $56,810 $43,964 $98,703 $68,731 $56,731
====== ====== ====== ====== ======
<FN>
___________________________
(1) Includes revenue from policies acquired in the Acquisition.
(2) Consists of MedPlan IV, Hospital Surgical Expense Policies, Super Saver I
and previously marketed LifeStyles Products. See "--Description of
Policies."
(3) Consists of certain policies included in pre-1987 Medical Expense
Products that were subsequently discontinued, and "NationalCare Products"
that were introduced in 1986 and discontinued in 1988. See "-- Description of Policies."
</TABLE>
<PAGE>
Description of Policies
The Company's products are designed with flexibility as to benefits
and premium payments and can be adapted to meet regional sales or
competitive needs, as well as those of the individual policyholders. These
products have fixed, capped or limited benefits and are designed to reduce
the potential financial impact of covered illnesses and injuries.
Set forth below is a brief description of the principal insurance
products which the Company offers currently and those which have been
discontinued with respect to new sales but are still being renewed.
Cancer and Specified Disease Products
The Company's Cancer and Specified Disease Products make both
immediate and subsequent payments directly to the policyholder following
diagnosis of or treatment for a covered illness or injury. The payments
are designed to help reduce the potential financial impact of these
illnesses or injuries. Payments may be used at the policyholder's
discretion for any purpose, including helping to offset non-medical
expenses or medical-related expenses not paid by the policyholder's other
health insurance. The amount of benefits provided under the Company's
Cancer and Specified Disease Products is not necessarily reflective of the
actual cost expected to be incurred by the insured as a result of the
illness or injury. Cancer and Specified Disease Products are guaranteed
renewable.
Cancer and Specified Disease Products are generally issued by the
Company after an application form is filled out by the agent on behalf of
the prospective insured. The application form asks the prospective insured
whether he has had the disease for which insurance is sought. Policies are
not available to anyone who has been diagnosed as having the disease prior
to the date of policy issuance. The Company is currently marketing the
following products:
Ordinary Cancer and Specified Disease. The Company's Ordinary Cancer
and Specified Disease policies generally pay according to a fixed,
predetermined schedule of indemnities after the insured has been diagnosed
as having cancer or one of 27 other covered diseases. Optional benefits
include a first occurrence benefit, which pays a specified sum to the
policyholder upon the initial diagnosis of internal cancer and an intensive
care unit ("ICU") benefit which pays an additional benefit for each day an
insured is confined in an ICU.
While an insured is confined to a hospital for subsequent covered
treatment, the benefits provided under the Company's policy generally
include the following: (i) a specified payment for each day of hospital
confinement, (ii) reimbursement for actual charges for in-patient drugs and
diagnostic testing, subject to fixed, predetermined per diem limits,
(iii) a specified payment for each day an insured is visited by an
attending physician or receives special private nurse care,
(iv) reimbursement for actual charges incurred for ambulance service in
connection with hospital confinement, (v) reimbursement for actual charges
for family member transportation to and from a hospital in which an insured
is confined, subject to fixed, predetermined per trip limits and certain
geographic and distance requirements, and (vi) reimbursement for actual
charges for family member lodging while accompanying an insured confined to
a hospital, subject to fixed, predetermined per diem limits and certain
geographic and distance requirements.
The Company's cancer policies also provide a range of medical,
medical-related and non-medical benefits, regardless of whether an insured
is hospitalized. These benefits generally include the following:
(i) reimbursement for actual charges for breast prosthetic devices, subject
to fixed, predetermined per device limits, (ii) a specified payment for
each day of confinement in a skilled nursing facility, subject to a fixed,
predetermined number of days, (iii) a specified payment for each day of
hospice confinement or treatment, (iv) reimbursement for actual charges for
transportation of an insured to and from a facility where covered cancer
treatments are received, subject to fixed, predetermined per trip limits
and certain geographic and distance requirements, (v) reimbursement for
actual charges for radiation and chemotherapy treatment, subject to fixed,
predetermined annual or lifetime limits, and (vi) specified payments for
each surgical procedure which an insured undergoes, and for each
administration of anesthesia to the insured, according to a fixed,
predetermined schedule based upon the nature of the surgical procedure.
The average annual premium for this policy (including riders) was
approximately $156 with respect to new sales of such policies for the six
months ended June 30, 1995.
<PAGE>
First Occurrence. The Company's First Occurrence policies pay a
specified lump sum to the policyholder or beneficiary under the policy
immediately upon the initial diagnosis of malignant internal cancer. The
First Occurrence policies are a new product underwritten by FLICA and 90.0%
coinsured with NFL. Benefits under these policies range from $10,000 to
$50,000. The average annual premium for this policy (including riders) was
approximately $305 with respect to new sales of such policies for the six
months ended June 30, 1995.
CASH. The Company's CASH policies pay according to fixed, per diem
amounts while the insured is confined to a hospital for the treatment of a
covered illness or injury. Covered illness or injury consists of cancer,
accident, stroke or heart attack. A majority of the policies are sold with
an optional return of premium benefit which provides for the return after
20 years to the policyholder of all premiums paid under the policy less any
claims paid to the policyholder. The CASH policies are underwritten by
FLICA and 50.0% coinsured with NFL. The average annual premium for this
policy (including riders) was approximately $205 with respect to new sales
of such policies for the six months ended June 30, 1995.
The Company has a number of older Cancer and Specified Disease
Products which are not currently sold in material amounts, but which
produce significant renewal premiums and consist of the following:
Cancer and Heart Attack. The Company offers two versions of its basic
Cancer and Heart Attack policies, introduced in 1973 and 1977,
respectively. One version provides insureds with predetermined daily
benefits for each period of hospital confinement or convalescence for
treatment of cancer or a heart attack. The other version contains maximum
limits for scheduled benefits, but overall policy benefits are not limited.
These products impose no limit on the number of days of hospitalization for
which benefits may be payable.
Intensive Care Unit. The Company also offers an ICU policy,
introduced in 1978, which provides a fixed daily payment in the event of
hospital confinement in an intensive care unit for any accident or
sickness. Benefits are provided for a maximum of 15 days per confinement
and are subject to a lifetime maximum per insured.
Accidental Death. In 1981, the Company introduced an Accidental Death
insurance policy which provides a fixed benefit when accidental injury
causes the death of the insured. The policy also offers an optional rider
which provides a daily benefit in the event of total disability caused by
an accident.
<PAGE>
Medical Expense Products
The Company's Medical Expense Products are designed to reimburse the
insureds for expenses incurred for hospital confinement, surgical expenses,
physician services and the cost of medicines immediately following a
hospital stay. Out-patient benefits and maternity benefits are also
available. These policies are individually underwritten based upon medical
information provided by the applicant prior to issue. Information in the
application is verified with the applicant through a tape-recorded
telephone conversation. Based upon the state in which these policies are
offered, these policies are issued either as guaranteed renewable for life
or conditionally renewable at the Company's option. The Company's Medical
Expense Products are marketed primarily by LifeStyles Marketing and are
underwritten by NFL. Medical Expense Products currently offered by the
Company include the following:
Super Saver I. Super Saver I provides limited benefits for hospital,
medical and surgical expenses. The policies reimburse 60.0% of the first
$10,000 of eligible expenses which exceed the calendar year deductible and
100% of eligible expenses thereafter. The policy has a maximum benefit of
$100,000 for each injury or sickness. Eligible expenses are similar to
MedPlan IV eligible expenses except that out-patient benefits are limited
to surgical, extended care, hospice care and home care. The average annual
premium for this policy (including riders) was approximately $861 with
respect to new sales of such policies for the six months ended June 30,
1995.
The Company has entered into contractual arrangements with a
"preferred provider organization" which provides to certain Super Saver I
policyholders the option, by using network physicians, hospitals and
ancillary healthcare providers, of reducing their calendar year deductible
and coinsurance portion by up to 50.0%. To the extent that policyholders
exercise this option, they will receive reimbursement for 80.0% of eligible
expenses rather than the 60.0% described above.
MedPlan IV. MedPlan IV policies reimburse 80.0% of the first $5,000
of eligible expenses which exceed a calendar year deductible and 100% of
eligible expenses thereafter. Reimbursement is subject to specified
aggregate per cause and lifetime maximums. Eligible expenses include usual
and customary charges for hospital room expense; in-hospital expenses for
drugs, x-rays, laboratory charges; surgical expenses (subject to
limitation); in-hospital physicians, private duty nurses, pathologist,
radiologist or physiotherapist expense (subject to limitation); and
outpatient benefits, including surgical benefits, extended care, hospice
care and home care. Benefits are also provided (subject to a calendar year
maximum) for out-patient medical services including prescription drugs.
The average annual premium for this policy (including riders) was
approximately $1,659 with respect to new sales of such policies for the six
months ended June 30, 1995.
Hospital Surgical Expense Policies. These policies cover many of the
expenses described as MedPlan IV eligible expenses, subject, however, to
inside limits. These limits take the form of maximum daily hospital
benefits, maximum out-patient treatment benefits, and calendar year limits
for miscellaneous hospital benefits, out-patient day surgery, out-patient
x-rays and laboratory tests, and doctor visits. Surgical benefits are
subject to a schedule of limits. Maximum benefits under the policies are
limited to a maximum of $25,000 per confinement. The average annual
premium for this policy (including riders) was approximately $2,265 with
respect to new sales of such policies for the six months ended June 30,
1995.
<PAGE>
The Company has a number of older Medical Expense Products which are
not currently sold in material amounts, but which produce significant
renewal premiums and consist of the following:
LifeStyles Products. These products consist of Limited Benefit Basic
Hospital Medical Surgical Expense Insurance (the "LBBH Policy") and Medical
Surgical Expense Insurance (the "MSE Policy") and were sold by LifeStyles
Marketing. The LBBH Policy is designed to reimburse insureds for expenses
incurred for hospital confinement, surgical expenses, physician services
and the cost of medicines immediately following a hospital stay. Optional
limited benefit out-patient and maternity benefit riders are also offered.
The policy features a range of deductibles and copayment options. The MSE
Policy is more limited and therefore less expensive than the LBBH Policy,
and is designed to reimburse insureds for expenses incurred for hospital
confinement, surgical expenses, physicians services and minor out-patient
expenses. The policy contains "inside limits" on the separate benefits
provided such as a limit on the daily room and board benefit, a fixed
surgical schedule and a limit on the maximum miscellaneous hospital benefit
payable. These limits make the benefits provided by the policy less
subject to inflationary increases in the cost of medical care.
Pre-1987 Medical Expense Products. These products consist of major
medical expense policies and general health care policies.
NationalCare Products. These products consist of nursing care
policies, catastrophic nursing care policies, home care policies, physician
and out-patient care policies and hospital indemnity policies.
Medicare Supplement Products
The Company's Medicare Supplement Products provide coverage for many
of the medical expenses which the Medicare program does not cover, such as
copayments, deductibles and specified losses which exceed the federal
program's maximum benefits. The Omnibus Budget Reconciliation Act of 1990
mandated, among other things, standardized policy features in Medicare
supplement plans. In July 1991, the NAIC implemented regulations creating
ten model Medicare supplement plans (Plans A through J). Plan A provides
the least coverage, while Plan J offers the most extensive coverage. The
Company's Medicare Supplement Products are generally underwritten by NFL
and are guaranteed renewable.
At June 30, 1995, the Company's Medicare Supplement Products consisted
primarily of Medicare Supplement Products acquired by the Company from
American Integrity during 1992, from Life and Health during 1993, and from
NFI and AICT during 1994. These policies were existing blocks of business
from which the Company expects to derive additional revenue through renewal
premiums. In addition, the Company is currently marketing the following
Medicare Supplement Products:
Medicare Supplement Plans. In November 1993, the Company began
offering four of the model plans (Plans A, B, C and F) through the
Company's 50.0% owned subsidiary, Senior Benefits. The Company has
declined to offer the other plans due in large part to their high benefit
levels and consequently higher cost to the consumer. The average annual
premium for Medicare Supplement Plans was approximately $848 with respect
to new sales of such policies for the six months ended June 30, 1995.
Medicare Select. The federal government's Medicare Select Program,
which is currently authorized in all 50 states, is designed to provide
benefits which supplement the Medicare program at attractive rates by
taking advantage of arrangements with hospitals and other health care
providers. These arrangements typically provide that a hospital or health
care provider will agree to waive Medicare's Part A initial deductible,
thereby reducing the total benefit expenses associated with a hospital
stay. The Company has entered into Hospital Preferred Provider Network
Agreements ("PPO Agreements") in 6 states where Medicare Select has been
authorized and is currently negotiating PPO Agreements in 1 additional
state.
<PAGE>
The Company also has a number of older Medicare Supplement Products
which are not currently sold in material amounts, but which produce
significant renewal premiums. These products consist of certain pre-1987
Medical Expense Products and certain NationalCare Products.
Life Insurance
In 1988, the Company reentered the life insurance market through the
development of its Annually Renewable Term ("ART") policy. The ART policy
was approved for sale in January 1988. It is an individually underwritten
level term policy which is renewable to age 70. Premiums increase with
advancing age. The policy is issued in face amounts ranging from $5,000 to
$100,000, and an optional accidental death benefit rider is also available.
This policy is currently sold exclusively, subject to territorial
production requirements, through LifeStyles Marketing, but only nominal
production of new business has occurred since 1991.
While the Company substantially discontinued active sales of ordinary
life insurance products in 1979, it continues to receive renewal premiums
on ordinary life policies in force sold prior to that date. The Company
sold a substantial portion of this block of business during 1991 and 1992.
See Note 4 of "Notes to the Consolidated Financial Statements" herein.
Marketing
The Company generally markets its products to individuals on a
one-on-one basis primarily through agents who are independent contractors
associated with four general agency networks in which the Company either
has a significant ownership interest or a long-standing marketing or
reinsurance arrangement.
The initial sales contact is a result of leads generated either by the
agency network or through outside sources. The agent's decision to sell
one policy in preference to another and, more specifically, to associate
with an agency network that markets one or a group of policies over those
of competing carriers depends on several factors, assuming the basic
marketability of the product. These factors include: (i) the commission to
which the agent will be entitled upon the sale of the policy, (ii) the
carrier's reputation for rapid processing of policyholder applications and
inquiries, (iii) the rapid and equitable administration of claims, (iv) the
willingness of the general agency to provide prospect leads, and
(v) availability of sales brochures and other marketing materials
(including information about the Company) to assist the agent's sales
efforts.
The Company's agency networks accounted for a large majority of its
first-year premium revenues in the six months ended June 30, 1995, and each
specializes in marketing one of the Company's product lines. LifeStyles
Marketing markets the Company's Medical Expense Products, the Locke Agency
and the Elkins Agency each market the Company's Cancer and Specified
Disease Products, and Senior Benefits markets the Company's Medicare
Supplement Products. Each of these four general agencies has a field force
of "career" agents who depend on the general agency for leads and produce
insurance sales exclusively for that general agency. In addition, the
Locke Agency, Senior Benefits and LifeStyles Marketing have licensed a
number of "independent" agents on a brokerage basis to sell the Company's
products. These independent agents typically sell the products of other
insurance companies and also sell the Company's products through the Locke
Agency, Senior Benefits and LifeStyles Marketing.
<PAGE>
The Company's agency networks focus on niche marketing of specialized
policies in localized geographical markets, primarily in the western,
middle western, southern and southeastern regions of the United States.
The Company's policies are sold to individuals who are either not covered
under group insurance protection normally available to employees of
business organizations or who wish to supplement existing coverage. In
many cases, these individuals are employed by small business groups.
Generally, Medicare Supplement Products are targeted to individuals 65 and
over, Medical Expense Products are targeted to individuals under 65 and
Cancer and Specified Disease Products are targeted to individuals of all
ages.
The general agency networks receive commissions equal to a percentage
of premiums paid, varying with the type of policy and differing for
first-year sales and policy renewals. Commissions for first-year sales
range from 60.0% to 90.0% of premiums paid; commissions for policy renewals
range from 0% to 25.0% of premiums paid.
In furtherance of the Company's strategy to expand its sales and
marketing of existing products, since November 1993 the Company has
acquired equity interests in three insurance agencies to expand sales of
its products. In addition, during 1995 the Company has entered into new
relationships with established general agency networks specializing in the
sale of products comparable to the Company's existing product lines and has
begun offering several new products. The Company continues to seek
additional similar relationships. The Company's decision to form a
relationship with any general agency network has been and will continue to
be based primarily on that general agency network's historical levels of
sales and profitability, as well as its access to the Company's target
markets. There can be no assurance that any additional agency
relationships will be formed or, if formed, that such relationships will
result in increased sales or be profitable for the Company.
<PAGE>
The chart below summarizes the primary marketing arrangements for the
Company's products as of June 30, 1995.
<TABLE>
<CAPTION>
Approx. Number Percent of
of Agents Primary States First-Year Nature of Relationships
Product Line Agency Network (career/ were Marketed Premium Volume with the Company
independent) for Six Months
Ended
June 30, 1995
- ------------ -------------- -------------- -------------- -------------- -----------------------
<S> <C> <C> <C> <C> <C>
Cancer and Locke Agency 94/1,500 AL, KY, LA 15.0% - Exclusive Long-term
Specified Disease NC, SC, TN marketing agreement
Products - Coinsurance and
computer services
agreement with
FLICA, a subsidiary of
Freedom Holding,
which is jointly owned
by Locke (60%) and
the Company (40%)
Elkins Agency 400/0 AR 1.6% - Coinsurance and
administrative services
agreement with
Paramount Life, 100%
controlled by Elkins
- Exclusive long-term
marketing agreement
for states in which
Paramount Life is not
licensed
Medical Expense LifeStyles 1,010/1,342 AL, CA, CO 39.1% - Agency Contract provides
Products Marketing GA, KS, KY right to sell NFL's
LA, MS, MO Medical Expense Products
NC, OK, TN - 51%-owned by the
TX Company
Medicare Senior 1,964/75 AZ, CA, KS 20.0% - Agency contract provides
Supplement Benefits exclusive right to sell
NFL's Medicare
Supplement Products
in certain states
- 50%-owned by the
Company
</TABLE>
Cancer and Specified Disease Agency Networks
The Company's Cancer and Specified Disease products are distributed
through two general agency networks, each of which has marketed the
Company's products for over 17 years.
One of the two principal agency networks writing Cancer and Specified
Disease Products is the Locke Agency. John P. Locke owns 60.0% of Freedom
Holding and the Company owns the remaining 40.0%. Freedom Holding owns
100% of FLICA, a Mississippi insurer licensed in 34 states, which
specializes in the sale of cancer and specified disease insurance.
Concurrently with the Company's investment in Freedom Holding in November
1988, Locke agreed to sell Cancer and Specified Disease Products
exclusively for FLICA and the Company for a period of ten years. Also at
that time, FLICA and NFL entered into a ten-year coinsurance agreement
under which the Company receives 50.0% of all insurance written by FLICA.
Most of the new insurance policies written by the Locke Agency are written
in FLICA and 50.0% reinsured in NFL, however, some new business is written
directly in NFL. The coinsurance agreement does not provide for
termination prior to the expiration of its ten-year term.
<PAGE>
In late 1993, the Locke Agency began writing a new cancer product,
"First Occurrence", which is written in FLICA and 90.0% reinsured in NFL
under a coinsurance agreement which expires in 1998. See "Description of
Policies--Cancer and Specified Disease Products."
The Locke Agency maintains its sales headquarters in Louisville,
Kentucky and currently consists of approximately 94 career agents and 1,500
independent agents operating in 15 states. Locke's agency network,
directly through sales in NFL and indirectly through reinsurance assumed
from FLICA, accounted for approximately 15.0% of NFL's first-year accident
and health insurance premiums for the six months ended June 30, 1995.
The other principal agency network writing Cancer and Specified
Disease Products is the Elkins Agency. Phillip D. Elkins owns 100% of
Paramount Life, an Arkansas-based insurer licensed in five states, which
specializes in the sale of cancer and specified disease insurance. In
March 1990, NFL entered into a coinsurance agreement with Paramount Life.
During 1990 and through June 1991, most of the new business written by the
Elkins Agency was written in Paramount Life and reinsured in NFL pursuant
to the coinsurance agreement; however, the Elkins Agency continued during
this time period to write new business directly in NFL in states in which
Paramount Life was not licensed to write business. In July 1991, the
Elkins Agency ceased writing new business in Paramount Life and resumed
writing new business in NFL. Under the terms of the coinsurance agreement,
the term of which expires on December 31, 1995, NFL received 90.0% of all
business written to date in Paramount Life by the Elkins Agency. Elkins'
general agent agreement for direct written business may be terminated only
for cause, upon 30 days' written notice, by either party and, in the event
of such termination, NFL is not permitted to contract with agents in the
Elkins Agency network for a period of six months. NFL is required by this
contract to pay Elkins renewal commissions after termination. The
coinsurance agreement, and the marketing agreement to which it relates, are
terminable only for cause.
The Elkins Agency maintains its sales headquarters in Little Rock,
Arkansas and currently consists of approximately 400 career agents in five
states. The Elkins Agency, through a combination of direct sales for NFL
and indirectly through reinsurance assumed from Paramount Life, accounted
for approximately 1.6% of the Company's first-year accident and health
insurance premiums for the six months ended June 30, 1995.
The loss of, or significantly reduced sales efforts by, either the
Locke Agency or, to a lesser extent, the Elkins Agency, and the failure by
the Company to replace such agents or otherwise offset such losses, could
materially affect the business of the Company. Management believes that
its relations with the Locke Agency and the Elkins Agency are good.
In general, Cancer and Specified Disease Products entail lower
premiums than the Company's other products. The majority of premiums are
collected from policyholders on a monthly basis. In order to attract
agency networks to sell these products, the Company (as is the practice in
the industry) pays up to a full year's commission at the time of each policy
issuance.
<PAGE>
Medical Expense Agency Network
The Company's Medical Expense Products are sold primarily through
LifeStyles Marketing.
In September 1987, the Company entered into an agency contract with an
insurance agency granting it the exclusive right, subject to territorial
production requirements, to sell the Medical Expense Products introduced by
NFL in 1987 and 1988. Effective April 1, 1988, the Company and the owners
of the agency agreed to restructure the insurance agency as a joint
venture, creating LifeStyles Marketing. Under the terms of the joint
venture agreement WMC, the Company's wholly-owned subsidiary, owns a 51.0%
voting interest in LifeStyles Marketing, is entitled to 50.0% of the
profits and losses of LifeStyles Marketing and is responsible for financing
LifeStyles Marketing's operations. This venture allows the Company to
share in the commission fees of products of other insurance carriers that
are sold by LifeStyles Marketing, but which NFL has elected not to
underwrite. LifeStyles Marketing is responsible for recruiting,
supervising and compensating agents. All commissions paid by NFL and other
insurance carriers are remitted to LifeStyles Marketing, which in turn pays
the writing agent an agreed-upon amount. As is common in insurance
marketing agencies, amounts paid to a writing agent at the time of a policy
sale are generally a multiple of the commissions received by LifeStyles
Marketing from the insurance carriers on such policy sale. These advanced
or unearned amounts are generally deducted before any earned renewal
amounts are paid to the writing agent on such policy. During a period of
increasing sales, as experienced by LifeStyles Marketing during 1990, cash
is required in order to finance agent advances. The LifeStyles Marketing
agency network maintains its sales headquarters in Arlington, Texas and
currently consists of approximately 1,010 career agents and 1,342
independent agents operating out of 16 branch sales offices in 11 states.
LifeStyles Marketing accounted for 39.1% of NFL's first-year premium
revenues for the six months ended June 30, 1995.
Medicare Supplement Agency Network
In November 1993, the Company and an Arizona-based agency specializing
in the sale of Medicare supplement insurance, formed Senior Benefits. The
Company acquired a 50.0% interest in Senior Benefits to establish a strong
distribution network for its Medicare Supplement Products. Senior Benefits
maintains its sales headquarters in Scottsdale, Arizona and currently
consists of approximately 1,964 career agents and 75 independent agents in
two states. The Company entered into this relationship in order to better
position itself in the Medicare supplemental segment of the insurance
market and Senior Benefits accounted for approximately 20.0% of the
Company's first-year accident and health insurance premiums for the six
months ended June 30, 1995.
To complement its new "Medicare Select" products and the agency
contract with Senior Benefits, the Company has entered into PPO Agreements
with hospitals and health care providers, and is currently negotiating
additional PPO Agreements. Accordingly, Senior Benefits intends to expand
its marketing operations to additional states in which Medicare Select has
been approved and NFL is currently licensed.
Home Office Operations
Except for LifeStyles Marketing, Senior Benefits, WPS and American
Senior Security Plans, none of the Company's subsidiaries has any branch
offices and, other than incidental travel by employees, the subsidiaries
conduct their entire operations at the Fort Worth office (the "Home
Office"). The functions carried out at the Home Office include policy
issue and underwriting, policyowner service, claims processing, agency
service and other administrative functions such as data processing, legal,
accounting and actuarial. The Company also provides certain administrative
and computer services on a fee for service basis to FLICA and Paramount
Life, including recordkeeping and reporting for their respective policies,
claims and commissions.
<PAGE>
The policy issue and underwriting department reviews policy
applications. Although, as is common in the industry, physical
examinations and tests are not required before a policy is issued, the
Company's underwriting personnel will generally telephone an applicant for
a Medical Expense Product to verify the information set forth in the policy
application (which telephone calls are recorded as a matter of course) and
will often contact the applicant's physician in the verification process.
Applicants for the Company's Cancer and Specified Disease Products must
certify in writing that they meet certain health standards established by
the Company before the policy will be issued. Applicants for the Company's
Medicare Supplement Products fill out an application and, based on the
historical health information certified therein, the Company makes its
determination as to whether to issue the policy.
The policyowner service department and agency service department are
responsible for responding to policyowner and agent requests for
information or services. The claims processing department reviews benefit
claims submitted by policyowners, determines the benefits payable and
processes the claim payments.
Reserve Policy and Adequacy
The Company's reserves consist of two separate components: the claim
reserves and the policy benefit reserves. The claim reserves are
established by the Company for benefit payments which have already been
incurred by the policyholder but which have not been paid by the Company.
The Company's actuaries estimate these reserves based upon analysis of
claim inventories, loss ratios and claim lag studies. These estimates are
developed in the aggregate for claims incurred (whether or not reported).
The claim reserves include an amount which will not be paid out until
subsequent reporting periods, but which is recorded in the current period
for reporting purposes. Policy benefit reserves are established by the
Company for benefit payments which have not been incurred but which are
estimated to be incurred in the future. The policy benefit reserves
accounted for approximately 54.0% of the Company's total reserves as of
June 30, 1995. The policy benefit reserves are calculated according to the
net level premium reserve method, and are equal to the discounted present
value of the Company's expected future policyholder benefits, minus the
discounted present value of its expected future net premiums. These
present value determinations are based upon assumed fixed investment
yields, the age of insured(s) under a policy at the time of policy
issuance, expected morbidity and persistency rates, and expected future
policyholder benefits.
In determining the morbidity, persistency rate, claim cost and other
assumptions used in determining the Company's policy benefit reserves, the
Company relies primarily upon its own benefit payment history, and upon
information developed in conjunction with actuarial consultants and
industry data. The Company's persistency rates have a direct impact upon
its policy benefit reserves, because the determinations for this reserve
are, in part, a function of the number of policies in force and expected to
remain in force to maturity. If persistency is higher or lower than
expected, future policyholder benefits will also be higher or lower because
of the different than expected number of policies in force, and
accordingly, the policy benefit reserves will be increased or decreased.
The Company's reserve requirements are also interrelated with product
pricing and profitability. The Company must price its products at a level
sufficient to fund its policyholder benefits and still remain profitable.
Because the Company's policyholder benefits represent the single largest
category of its operating expenses, inaccuracies in the assumptions used to
estimate the amount of such benefits can result in the Company failing to
price its products appropriately and to generate sufficient premiums to
fund the payment thereof. Because the discount factor used in calculating
the Company's policy benefit reserves is based upon the rate of return of
the Company's investments designed to fund this reserve, the amount of the
reserve is dependent upon the yield on these investments. Provided that
there is not material adverse experience with respect to these benefits,
changes in future market interest rates will not have an impact on the
profitability of policies already sold. Because fluctuations in future
market interest rates affect the Company's yield on new investments, they
also affect the discount factor used to establish, and thus the amount of,
its policy benefit reserves for new sales. In addition, because an
increase in the policy benefit reserves in any period is treated as an
expense for income statement purposes, market interest rate fluctuations
can directly affect the Company's profitability for policies sold in such
period. It is not possible to predict future market interest rate
fluctuations.
<PAGE>
In accordance with GAAP, the Company's actuarial assumptions are
generally fixed at the time they are made, and absent materially adverse
benefit experience, they are not generally adjusted. Nonetheless, the
Company monitors the adequacy of its policy benefit reserves on an ongoing
basis by periodically analyzing the accuracy of its actuarial assumptions.
The adequacy of the Company's policy benefit reserves may also be
impacted by the development of new medicines and treatment procedures which
may alter the incidence rates of illness and the treatment methods for
illness and accident victims (such as out-patient versus in-patient care)
or prolong the life expectancy of such victims. Changes in coverage
provided by major medical insurers or government plans may also affect the
adequacy of the Company's reserves if, for example, such developments had
the effect of increasing or decreasing the incidence rate and per claim
costs of occurrences against which the Company insures. An increase in
either the incidence rate or the per claim costs of such occurrences could
result in the Company needing to post additional reserves, which could have
a material adverse effect upon its business, results of operations and
financial condition.
The Insurance Subsidiaries are required to report their results of
operations and financial position to state regulatory agencies based upon
SAP. Under SAP, certain assumptions used in determining the policy benefit
reserves, such as claim costs and investment result assumptions, are often
more conservative than those appropriate for use by the Company under GAAP.
In particular, SAP interest rate assumptions for investment results are
fixed by statute and are generally lower than those used by the Company
under GAAP. Another significant difference is that under SAP, unlike under
GAAP, the Company is required to expense all sales and other policy
acquisition expenses as they are incurred, rather than capitalizing and
amortizing them over the expected life of the policy. Although the effect
of this requirement is moderated by the allowance under SAP of an
accounting procedure known as the "two year preliminary term" reserve
valuation method, which allows the Company to defer any accumulation of
policy benefit reserves until after the second policy year, the immediate
charge off of sales and acquisition expenses and the sometimes conservative
claim cost and other valuation assumptions under SAP generally cause a lag
between the sale of a policy and the emergence of reported earnings.
Because this lag can reduce the Company's gain from operations on a SAP
basis, it can have the effect of reducing the amount of funds available for
dividend distributions to shareholders.
<PAGE>
Regulation
The Company and its affiliates are subject to regulation and
supervision in all jurisdictions in which they conduct business. In
general, insurance laws establish supervisory agencies with broad
administrative powers relating to, among other things, the granting and
revoking of licenses to transact business, regulation of trade practices
and premiums, licensing of agents, approval of content and form of
policies, maintenance of specified reserves and capital and surplus,
deposits of securities, form and content of required financial statements,
nature of investments and limitations on dividends to stockholders. The
purpose of such regulation and supervision is primarily to provide
safeguards for policyholders rather than to protect the interests of
stockholders. Such regulation delays the introduction of new products and
may impede, or impose burdensome conditions on, rate increases or other
actions that the Company may wish to take in order to enhance its operating
results. In addition, federal or state legislation or regulatory
pronouncements may be enacted that may prohibit or impose restrictions on
the ability to sell certain types of insurance products or impose other
restrictions on the Company's operations. No assurances can be given that
future legislative or regulatory changes will not adversely affect the
Company's business.
Generally, before the Company is permitted to market an insurance
product in a particular state, it must obtain regulatory approval from that
state and adhere to that state's insurance laws and regulations which
include, among other things, specific requirements regarding the form,
language, premium rates and policy benefits of that product. Consequently,
although the Company's policies generally provide for the same basic types
and levels of coverage in each of the states in which they are marketed,
the policies are not precisely identical in each state or other
jurisdiction in which they are sold. In addition, obtaining such approval
can cause delays in the Company's ability to market new products.
Nearly all states in which the Company does business regulate loss
ratios. The minimum loss ratios applicable to the Company's products range
from 40.0% to 65.0%, with most falling in the range of 50.0% to 55.0%. The
Company believes that it is within its minimum loss ratio requirements.
Because these requirements mandate that the Company incur loss experience
of not less than a specified percentage of its earned premiums over the
life of a policy, they directly impact the profitability of the Company.
Any increase in the Company's premiums must be justified to the relevant
regulatory authority on the basis of the Company's conformance to the
minimum loss ratio. This can have the effect of inhibiting the Company's
ability to raise premiums on new sales, and thus its ability to generate
additional cash from operations. Although the Company is not aware of any
proposals by regulators to increase minimum loss ratios, states may
increase minimum loss ratios from time to time. The NAIC has in the past
proposed model rules which would increase minimum loss ratios applicable to
the Company's products. No assurance can be given that such a proposal
will not be reintroduced in the future. Increases in minimum loss ratio
requirements could have a material adverse effect upon the results of
operations of the Company.
The NAIC has adopted a model law for adoption in the states requiring
every life and health insurer licensed in a state to utilize an adopted RBC
formula. The RBC formula establishes capital requirements for four
categories of risk: asset risk, insurance risk, interest rate risk and
business risk. The NAIC has proposed that the RBC formula may be used by
regulators as an analytical tool to monitor the adequacy of capital of
insurers. Under the model law, if an insurer's RBC, as determined under
the RBC formula, falls below specified RBC levels, the insurer would be
subject to different degrees of regulatory action depending upon the RBC
level. At the initial problem level, the "Company Action Level", the
insurer would be required to identify and propose actions to correct the
risk-based capital deficiency and to provide the regulator with financial
projections assuming both the absence and the presence of corrective action
(collectively, an "RBC Plan"). At the second problem level, the
"Regulatory Action Level," the insurer would be required to submit an RBC
Plan and would be subject to such examination or analysis and to such
orders specifying required corrective action as the insurance regulator
deems necessary. At the third problem level, the "Authorized Control
Level," the regulator may place the insurer under regulatory control if he
decides that would be in the best interests of policyholders, creditors and
the public. At the fourth problem level, the "Mandatory Control Level,"
the model law requires the regulator to place the insurer under regulatory
control. As of December 31, 1994 each Insurance Subsidiary's RBC
substantially exceeded the "Company Action Level." This model law will have
no legal effect until formally adopted by the states, although it can be
expected to be used by regulators in the foregoing manner prior to
adoption. The Company does not believe that the model law will have any
material adverse effect on liquidity, capital resources or results of
operations of the Company or cause the Company to change its business
strategy.
<PAGE>
Under applicable Delaware law, NFL must maintain minimum aggregate
statutory capital and surplus of $550,000. Under applicable Texas law,
each of NFI and AICT must maintain minimum aggregate statutory capital and
surplus of $1.4 million. The state of Georgia requires licensed
out-of-state insurers to maintain minimum capital of $1.5 million and
Kentucky requires minimum surplus of $2.0 million, which levels are higher
than those of any other states in which the Insurance Subsidiaries are
currently licensed. Accordingly, the minimum aggregate statutory capital
and surplus which each of NFL, NFI and AICT must maintain is $3.5 million.
At December 31, 1994, aggregate statutory capital and surplus for NFL, NFI
and AICT was $13.0 million, $10.6 million and $6.4 million, respectively.
According to statutory accounting practices (as opposed to generally
accepted accounting principles), costs in excess of first-year premiums
associated with the issuance of new policies are charged to surplus through
operations. These costs are primarily sales commissions and issuance costs
and the establishment of statutory reserves. Increased first-year sales of
insurance tend to reduce statutory surplus. Statutory net income for NFL,
NFI and AICT for the year ended December 31, 1994 was $1.7 million, $1.8
million and $1.1 million, respectively.
On the basis of statutory financial statements filed with state
insurance regulators, the NAIC also calculates annually 13 financial ratios
to assist state regulators in monitoring the financial condition of
insurance companies. A "usual range" of results for each ratio is used as
a benchmark. Departure from the "usual range" on four or more of the
ratios could lead to inquiries from individual state insurance departments
and increased regulatory oversight. Based on statutory financial
statements for 1994, NFL fell within the "usual range" on 10 of the ratios,
and NFI and AICT each fell within the "usual range" for 12 of the ratios.
NFL fell outside the "usual range" for the "Net Change in Capital and
Surplus" ratio (Ratio #1) and "Gross Change in Capital and Surplus" ratio
(Ratio #1A) as a result of a dividend payment and surplus note repayments
by NFL to Westbridge during 1994. These events are not expected to recur
in 1995 and, as a result, NFL should return to the "usual range" for these
ratios. NFL also fell outside the "usual range" for the "Non-admitted to
Admitted Assets" ratio (Ratio #5) primarily as a result of the increase in
agents' debit balances resulting from increased production of new business
during 1994. Because NFL plans to continue such production of new
business, this ratio may continue to fall outside the "usual range". NFI
and AICT each fell outside the "usual range" for the "Change in Asset Mix"
ratio (Ratio #11) as a result of a substantial change in the composition of
the invested assets of each company resulting from the conversion of
certain invested assets to cash, and subsequent reinvestment in investment
grade securities, in connection with the Acquisition. This event will not
recur and, therefore, each company should return to the "usual range" for
this ratio.
Under the rules of the NAIC and state statutory requirements, the
Company is subject to examination generally every three years by one or
more insurance departments of the states in which it does business. In
1990 an examination was concluded for the years 1987 through 1989 by the
insurance departments of Delaware and Idaho. The examination did not
result in any significant adjustments to the statutory financial statements
of the Company for the years under examination. Currently, the States of
Delaware and Mississippi are conducting a statutory examination of NFL
which covers the years 1990 through 1992 and NFI and AICT are being
examined by the State of Texas for the years 1991 through 1993.
<PAGE>
Many states have enacted insurance holding company laws that require
registration and periodic reporting by insurance companies within their
jurisdictions. Such legislation typically places restrictions on, or
requires prior notice or approval of, certain transactions within the
holding company system. For example, dividend payments from Westbridge's
principal Insurance Subsidiaries, NFL, NFI and AICT, are regulated by the
insurance laws of their domiciliary states. See "Risk Factors--Holding
Company Structure; Reliance on Subsidiaries" and "Risk Factors--Certain
Anti-takeover Provisions." Additionally, the terms of loans and transfers
of assets within the holding company structure are also subject to state
insurance holding company laws. Westbridge holds a surplus certificate
issued by NFL which, as of the date of this Prospectus, totaled $777,000.
The unpaid aggregate principal under the surplus certificate bears interest
at an agreed upon rate not to exceed 10.0% and is repayable, in whole or
part, upon (i) NFL's surplus exceeding $7.0 million, exclusive of any
surplus provided by reinsurance treaties, and (ii) NFL receiving prior
approval from the Delaware State Insurance Commissioner. See Note 13 of
"Notes to Consolidated Financial Statements" herein.
A majority of the states in the U.S., including those in which the
Company is currently licensed and markets its policies, have adopted
requirements that coverage provided by all accident and health policies
contain prescribed minimum and maximum benefits and meet other minimum
standards, and that specified disclosure forms be provided to policyholders
at the time of sale. Compliance with such requirements has not adversely
affected NFL's marketing efforts in those states. Four states,
Connecticut, Massachusetts, New Jersey and New York, have adopted statutes
or insurance department regulations that either prohibit sales of policies
that offer only "specified or dread disease" coverage (such as that
provided by certain of the Company's Cancer and Specified Disease Products)
or require that such coverage be offered in conjunction with other forms of
health insurance. The Company has never written insurance in those states
and does not currently intend to enter those markets. The Company has no
knowledge of legislative initiatives which would limit or prohibit the sale
of "specified or dread disease" policies in other states in which the
Company operates.
The Company may be required, under the solvency or guaranty laws of
most states in which it does business, to pay assessments (up to prescribed
limits) to fund policyholder losses or liabilities of insurance companies
that become insolvent. Recent insolvencies of insurance companies increase
the possibility that such assessments may be required. These assessments
may be deferred or forgiven under most guaranty laws if they would threaten
an insurer's financial strength and, in certain instances, may be offset
against future premium taxes. The incurrence and amount of such
assessments may increase in the future without notice. The Company pays
the amount of such assessments as they are incurred. Assessments which
cannot be offset against future premium taxes are charged to expense.
Assessments which qualify for offset against future premium taxes are
capitalized, and are offset against such future premium taxes. The Company
paid approximately $128,000 in the year ended December 31, 1994, and
approximately $23,000 in the six months ended June 30, 1995, as a result of
such assessments. The likelihood and amount of any other future
assessments cannot be estimated and are beyond the control of the Company.
<PAGE>
Although the U.S. Government generally does not directly regulate the
insurance business, federal initiatives often impact the insurance business
in a variety of ways. Current and proposed federal measures which may
significantly affect the insurance business include controls on the cost of
medical care, medical entitlement programs (e.g., Medicare), minimum
solvency requirements for insurers and the development of a national health
care system. See "Risk Factors--Health Care Reform."
One such proposed measure is the introduction by Representative John
Dingell on April 9, 1992 of the Federal Insurance Solvency Act of 1992
(H.R. 4900) (reintroduced on March 10, 1993 (H.R. 1290)) which, if
enacted into law, would establish an independent federal agency to regulate
the financial condition of federally certified life, health and
property/casualty insurers and reinsurers in the United States. Under this
Act, insurers may voluntarily elect to obtain a certificate of solvency
from this federal agency or to remain subject to state financial condition
regulation. The federal agency would set risk-based capital and surplus
standards for such certificates. Federally certified insurers and
reinsurers would be required to comply with federal requirements relating
to capital and surplus, investments, reinsurance, asset valuation,
financial reporting, accounting and holding company system matters. In
addition, the federal agency would conduct examinations and review proposed
mergers. Those insurers and reinsurers that obtain a federal solvency
certificate would be exempt from further state financial condition
regulation, although they would remain subject to state market conduct and
other regulation. Under the Act, all insurance insolvencies and
rehabilitations would be supervised by federal courts; with the federal
agency acting as receiver for federally certified insurers and state
regulators acting as receivers for state-regulated insurers. In addition,
federally certified insurers (but not reinsurers) would be required to
become members of the National Insurance Protection Corporation, a
nonprofit corporation that would serve as a pre-funded national guaranty
fund for federally certified insurers. It is not possible to predict
whether or in what form this proposed legislation will be enacted or the
potential effects thereof on the Company and its competitors.
Another proposed bill, which if enacted could affect the Company's
ability to continue to grow through the acquisition of blocks of business,
is the Insurance Policy Transfer Act (S. 1989), introduced by Senators
Howard Metzenbaum and Richard Bryan on March 25, 1994. The stated purpose
of the Act is to prohibit the transfer and novation of an insurance policy
(i.e., assumption reinsurance) without the prior informed consent of the
policyholder. In order to transfer a policy, the transferring insurer
would be required to provide policyholders with financial data on both the
transferring and assuming insurers as well as the ratings given to them by
nationally recognized insurance company rating organizations. A
disinterested third-party expert, such as an actuary, would have to find
that the transfer was fair and in the best interests of the policyholders
affected thereby. The insurance regulators of the states of domicile of
both the transferring and assuming companies would need to approve the
transfer. Without the written consent of the policyholder, a policy could
not be transferred unless the assuming insurer had a higher rating than the
transferring insurer (or already had the highest possible rating) and the
policyholder did not respond to notices of the proposed transfer given over
a three-year period. It is not possible to predict whether or in what form
this proposed legislation will be enacted or the potential effects thereof
on the Company and its competitors.
On the subject of assumption reinsurance, the NAIC has also recently
taken action. The Assumption Reinsurance Model Act was adopted in 1993 and
is similar but, in certain respects, less restrictive than the federal
bill. The Model Act provides a 25-month notice period and may allow a
transfer after the expiration of such period even if the assuming insurer
does not have a higher rating than the transferring insurer. The Model Act
will have no legal effect until formally adopted by the states, although it
can be expected to be relied upon by regulators in states without statutes,
regulations or other defined rules expressly governing assumption
reinsurance.
<PAGE>
Investment Policy and Results
Investment income is an important source of revenue and the Company's
return on invested assets has a material effect on net income. The
Company's investment policy is subject to the requirements of regulatory
authorities regarding maintenance of minimum statutory reserves in order to
meet future policy obligations under policies in force. Statutory reserves
may consist only of certain types of admitted investments, the percentage
mix of which is regulated by statute. In addition, certain assets are held
on deposit in specified states and invested in specified securities in
order to comply with state law and reduce premium tax assessments in such
states. Although the Company closely monitors its investment portfolio,
available yields on newly-invested funds and gains or losses on existing
investments depend primarily on general market conditions.
Investment policy is determined by the Investment Committees of the
Company and the Insurance Subsidiaries in accordance with guidelines set
forth by their respective Boards of Directors. The current investment
policy of the Company and the Insurance Subsidiaries is to invest primarily
in fixed-income securities of the U.S. Government and its related agencies
and in investment grade fixed-income corporate securities. Current policy
is also to balance the portfolio between long- and short-term investments
so as to achieve long-term returns consistent with the preservation of
capital and maintenance of adequate liquidity to meet the payment of the
Company's policy benefits and claims, interest on the Senior Subordinated
Debentures and dividends on the Series A Preferred Stock. Although the
balance sheet shows invested assets in real estate and mortgage loans, the
Company's investment policy excludes the investment of new funds in real
estate or mortgage loans and since prior to 1989 the Company has acquired
no such assets in its portfolio. Delaware Management Company, Inc.,
managers of approximately $25.0 billion of investment assets, was retained
in 1992 to assist the Company in the management of its investment
portfolio.
<PAGE>
The following table sets forth a summary of consolidated cash and
invested assets of the Company for the dates indicated, valued in
accordance with generally accepted accounting principles:
<TABLE>
<CAPTIONS>
December 31,
June 30, 1995 1994 1993 1992
------------- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Cash . . . . . . . . . . $ 92 $ 2,871 $ 148 $ 1,945
------- ------- ------ -------
Bonds:
U.S. Government and related agencies . . 36,274 39,753 18,875 15,088
State, county and municipal. . . . . . . 1,615 1,450 1,480 1,510
Public utilities . . . . . . . . . . 8,990 8,778 4,476 12,911
Industrial and miscellaneous . . . . . . 41,220 40,783 24,006 17,486
------- ------- ------ -------
Total Bonds . . . . . . . . . 88,099 90,764 48,837 46,995
------- ------- ------ -------
Preferred stock . . . . . . . . . . 354 343 356 421
------- ------- ------ -------
Common stock . . . . . . . . . . 193 126 119 121
------- ------- ------ -------
Investment in Freedom Holding Company(1) . 6,001 5,945 5,600 5,267
------- ------- ------ -------
Other Invested Assets
Mortgage loans on real estate. . . . . . 732 768 865 1,030
Policy loans . . . . . . . . . . 289 291 289 298
Certificates of deposit and
short-term investments . . . . . . . . 3,592 7,589 1,079 2,981
Investment real estate . . . . . . . . . 141 141 141 341
------- ------- ------ -------
Total Other Invested Assets . 4,754 8,789 2,374 4,650
------- ------- ------ -------
Total Cash and Invested
Assets . . . . . . . . . $ 99,493 $108,838 $57,434 $59,399
======= ======= ====== =======
<FN>
___________
(1) Represents the Company's 40% ownership interest.
</TABLE>
Included in the invested assets of the Company outlined in the
preceding table are certain high-yield debt securities which are below a
"BBB" or equivalent rating. The Company owned no such assets at December
31, 1993 and December 31, 1992, and these high-yield debt securities
amounted to less than 0.1% of the Company's total cash and invested assets
at December 31, 1994.
The significant increase in the investment portfolio during 1994 was
primarily the result of the assets acquired in the Acquisition. See
"Business -- General."
The following table summarizes consolidated investment results for the
periods shown:
<TABLE>
<CAPTION>
December 31,
June 30, 1995 1994 1993 1992
------------- ---- ---- ----
(in thousands)
<S> <C>
Total invested assets, cash
and cash equivalents . . . . . . . . . . $ 99,493 $108,838 $57,434 $59,399
Net investment income. . . . . . . . . . . 3,584 5,764 4,120 3,932
Average annual yield on total investments. 6.9% 6.4% 7.4% 8.5%
Realized gains on investments. . . . . . . $ (72) $ 320 $ 1,030 $ 422
</TABLE>
<PAGE>
At June 30, 1995, the market or estimated fair value of the Company's
total fixed maturity assets was $89.6 million. The following table
summarizes the Company's fixed maturity securities, excluding short-term
investments, as of June 30, 1995.
<TABLE>
<CAPTION>
Fixed Maturity Securities
Market or Estimated
Book Value(1) Fair Value(2)
Total % Total %
----- --- ----- ---
(in thousands)
Fixed maturity securities at June 30, 1995:
<S> <C> <C> <C> <C>
U.S. Government and governmental
agencies and authorities
(except mortgage-backed). . . . . . . $24,758 28.0% $25,379 28.3%
States, municipalities and political
subdivisions. . . . . . . . . . . . . 1,615 1.8 1,615 1.8
Finance . . . . . . . . . . . . . . . . 18,234 20.6 18,060 20.1
Public utilities. . . . . . . . . . . . 8,990 10.2 9,148 10.2
Mortgage-backed . . . . . . . . . . . . 11,516 13.0 11,778 13.1
All other corporate bonds . . . . . . . 22,986 26.0 23,261 25.9
Certificates of deposit . . . . . . . . 400 0.5 400 0.4
------ ---- ------ ----
Total fixed maturity securities $ 88,499 100.0% $89,641 100.0%
<FN>
- --------------------
(1) Fixed maturity securities classified as held-to-maturity are carried at amortized cost.
Fixed maturity securities classified as available-for-sale are carried at market value.
(2) Market value represents the closing sales prices of marketable securities.
Estimated fair values are based on the credit quality and duration of marketable
securities deemed comparable by the Company, which may be of another issuer.
</TABLE>
The Company's fixed maturity investment portfolio at June 30, 1995 was
composed primarily of debt securities of the U.S. Government and
corporations and of mortgage-backed securities. Investments in the debt
securities of corporations are principally in publicly-traded bonds.
Mortgage-backed securities represented approximately 13.1% of the
Company's total invested assets as of June 30, 1995. Investors are
compensated primarily for reinvestment risk rather than credit quality
risk. During periods of significant interest rate volatility, the
underlying mortgages may prepay more quickly or more slowly than
anticipated. If the repayment of principal occurs earlier than anticipated
during period of declining interest rates, investment income may decline
due to the reinvestment of these funds at the lower current market rates.
<PAGE>
The following table indicates by rating the composition of the
Company's fixed maturity securities portfolio, excluding short-term
investments, as of June 30, 1995.
Composition of Fixed Maturity Securities by Rating
<TABLE>
<CAPTION>
Market or Estimated
Book Value(1) Fair Value(2)
Ratings(3) Total % Total %
----- --- ----- ---
(in thousands)
<S> <C> <C> <C> <C>
Investment grade:
U.S. Government and agencies. . $36,274 41.0% $37,157 41.5%
AAA . . . . . . . . . . . . . . 605 0.7 605 0.7
AA. . . . . . . . . . . . . . . 10,106 11.4 10,142 11.3
A . . . . . . . . . . . . . . . 23,268 26.3 23,705 26.4
BBB . . . . . . . . . . . . . . 18,146 20.5 17,972 20.0
CCC . . . . . . . . . . . . . . 100 0.1 60 0.1
------ ----- ------ -----
Total fixed maturity of securities. $88,499 100.0% $89,641 100.0%
====== ===== ====== =====
<FN>
- --------------------
(1) Fixed maturity securities classified as held-to-maturity are carried at amortized
cost. Fixed maturity securities classified as available-for-sale are
carried at market value.
(2) Market value represents the closing sales prices of marketable securities.
Estimated fair values are based on the credit quality and duration of
marketable securities deemed comparable by the Company, which may be of another issuer.
(3) Ratings are the lower of those assigned primarily by Standard & Poor's
and Moody's when available, and shown in the table using the Standard &
Poor's rating scale. Unrated securities are assigned ratings based on
the applicable NAIC rating or the rating assigned to comparable debt
outstanding of the same issuer. NAIC 1 fixed maturity securities have
been classified as "A", and NAIC 2 fixed maturity securities have been
classified as "BBB."
</TABLE>
The NAIC assigns securities quality ratings and uniform prices called
"NAIC Designations," which are used by insurers when preparing their annual
statutory reports. The NAIC assigns designations to publicly-traded as
well as privately-placed securities. The ratings assigned by the NAIC
range from Class 1 to Class 6, with Class 1 as the highest quality rating.
The following table sets forth the book and market or estimated fair value
of the Company's fixed maturity securities according to NAIC Designations
and Standard & Poor's ratings as of June 30, 1995.
<PAGE>
NAIC Designations
<TABLE>
<CAPTION>
Market or Estimated
Book Value(1) Fair Value(2)
NAIC Designation (3) Total % Total %
----- --- ----- ---
(in thousands)
<S> <C> <C> <C> <C>
NAIC 1 (AAA, AA, A). . . . . . . . . $70,253 79.4% $71,609 79.9%
NAIC 2 (BBB) . . . . . . . . . . . . 18,146 20.5 17,972 20.0
NAIC 3 (BB) and below . . . . . . . 100 0.1 60 0.1
------ ----- ------ -----
Total fixed maturity securities $88,499 100.0% $89,641 100.0%
====== ===== ====== =====
<FN>
- --------------------
(1) Fixed maturity securities classified as held-to-maturity are carried at amortized cost.
Fixed maturity securities classified as available-for-sale are carried at market value.
(2) Market value represents the closing sales prices of marketable securities.
Estimated fair values are based on the credit quality and duration of marketable
securities deemed comparable by the Company, which may be of another issuer.
(3) Generally comparable to Standard & Poor's ratings. Comparisons between NAIC
ratings and Standard & Poor's ratings are as published by the NAIC.
</TABLE>
The scheduled maturities of the Company's fixed maturity securities,
excluding short-term investments, as of June 30, 1995 were as follows:
Composition of Fixed Maturity Securities by Maturity
<TABLE>
<CAPTION>
Market or Estimated
Book Value(1) Fair Value(2)
Scheduled Maturity Total % Total %
----- - ----- -
(in thousands)
<S> <C> <C> <C> <C>
Due in one year or less. . . . . . . . . $ 4,061 4.6% $ 4,053 4.5%
Due after one year through five years. . 21,316 24.1 21,226 23.7
Due after five years through ten years . 17,795 20.1 18,201 20.3
Due after ten years. . . . . . . . . . . 33,811 38.2 34,383 38.4
Mortgage and asset backed securities . . 11,516 13.0 11,778 13.1
------ ----- ------- -----
Total fixed maturity securities . $88,499 100.0% $ 89,641 100.0%
====== ===== ======= =====
<FN>
- --------------------
(1) Fixed maturity securities classified as held-to-maturity are carried at amortized
cost. Fixed maturity securities classified as available-for-sale are
carried at market value.
(2) Market value represents the closing sales prices of marketable securities.
Estimated fair values are based on the credit quality and duration of
marketable securities deemed comparable by the Company, which may be of another issuer.
</TABLE>
Reinsurance
Ceded
As is customary in the insurance industry, the Company cedes
reinsurance to other insurance companies. Cession of reinsurance is
utilized by an insurer to limit its maximum loss, thereby providing a
greater diversification of risk and minimizing exposures on larger risks.
Reinsurance does not discharge the primary liability of the original
insurer with respect to such insurance (except for assumption reinsurance
described below) but the Company, in accordance with prevailing insurance
industry practice, reports reserves and claims after adjustment for
reserves and claims ceded to other companies through reinsurance.
<PAGE>
The Company generally does not cede risks associated with its Cancer
and Specified Disease Products, Medicare Supplement Products or Life
Insurance Products. However, 100% of the Company's risks under its
Accidental Death policies currently in force are reinsured, and the Company
has an excess loss reinsurance agreement with General American Life
Insurance Company which limits the Company's losses on the First Occurrence
policies in the event that such losses exceed a certain percentage of
earned premiums. The Company currently reinsures its risks under its
Medical Expense Products with Mercantile & General Corporation and
Employers Reassurance Corporation so that its maximum payment to any one
beneficiary during any one-year period is limited ($100,000 in 1994) for
any accident or illness. In accordance with industry practice, the
reinsurance agreements in force with respect to these policies are
terminable by either party with respect to claims incurred after the
termination date and the expiration dates.
Assumed
The Company also assumes reinsurance (primarily in the form of
coinsurance) as part of its ongoing operations. Assumption of reinsurance
is utilized by insurers as an additional source of insurance business. In
May 1987, NFL entered into a coinsurance treaty with FLICA. Under the
terms of the treaty, NFL assumed a 50.0% share of all cancer and specified
disease policies written by FLICA, the ceding company, from January 1, 1987
through December 31, 1988. During 1988, the coinsurance treaty was amended
to continue until December 31, 1998. See "--Marketing." For the six months
ended June 30, 1995, $2.1 million of assumed premiums under this
coinsurance treaty were recorded as premiums. In March 1990, NFL entered
into a coinsurance treaty with Paramount Life. Under the terms of the
treaty, which is effective from April 1, 1990 through December 31, 1995,
NFL currently assumes 90.0% of the cancer and specified disease policies
written by Paramount Life. For the nine months ended June 30, 1995,
$692,000 of assumed premiums under this coinsurance treaty were recorded as
premiums. In December 1993, NFL entered into a coinsurance agreement with
FLICA. Under the terms of this agreement, which expires in November 1998,
the Company assumes 90.0% of the First Occurrence policies issued by FLICA.
For the six months ended June 30, 1995, $2.2 million of assumed premiums
under this agreement were recorded as premiums.
Use in acquisitions
Over the past three years, the Company has acquired blocks of policies
in force from American Integrity, Life and Health and Dixie National Life
through the use of indemnity and assumption reinsurance. Using this
process, the Company first acquires policies by insuring the risks of
policies ceded by other insurers in the manner discussed above. Following
such acquisition, the Company applies to each relevant state regulatory
authority for approval to convert the indemnity reinsurance to assumption
reinsurance. As regulatory approval from each state is obtained, the
Company issues assumption certificates to policyholders in the approving
state to provide notice of the Company's assumption of the primary
obligation under the insurance policies assumed. There can be no assurance
that regulatory approval will be granted by each relevant state, or as to
the time required to obtain such approval. As of June 30, 1995, annualized
premiums of $10.9 million relating to the policies acquired from American
Integrity and annualized premiums of $2.2 million relating to the policies
acquired from Life and Health had not yet been approved for assumption.
<PAGE>
Employees
At June 30, 1995 the Company employed 280 persons. Included in the
total number of persons employed by the Company are approximately 70
employees hired by the Company primarily as a result of the consummation of
the Acquisition. The Company has not experienced any work stoppages,
strikes or business interruptions as a result of labor disputes involving
its employees, and the Company considers its relations with its employees
to be good.
Facilities
The Company maintains its principal offices at 777 Main Street, Fort
Worth, Texas. Such offices were leased by NFL in July 1983 under a lease
agreement which was amended in July 1992 and which expires in June 2001.
Under the terms of the agreement, the Company leases 44,000 square feet of
space.
WPS, the Company's wholly-owned printing subsidiary which prints all
policies, forms and brochures of the Insurance Subsidiaries, maintains its
manufacturing facility at 500 East 4th Street, Fort Worth, Texas, under a
month-to-month lease agreement.
LifeStyles Marketing maintains its sales headquarters at 1161
Corporate Drive, Arlington, Texas, under a five year lease agreement which
expires in August 1997. LifeStyles Marketing also leases office space for
certain of its 16 branch sales office locations under lease agreements
which expire on various dates throughout the next twelve months. Senior
Benefits maintains its offices in Scottsdale, Arizona, under a three-year
lease expiring in May 1998. American Senior Security Plans maintaining its
offices in Fort Worth Texas, under an annual lease agreement.
American Senior Security Plans maintains its offices in Fort Worth,
Texas, under an annual lease agreement.
Litigation
In the normal course of its business operations, the Company is
involved in various claims and other business related disputes. In the
opinion of management, the Company is not party to any pending litigation
the disposition of which would have a material adverse effect on the
Company's consolidated financial position or its results of operations.
Competition
The supplemental health and accident insurance industry in the United
States is highly competitive. Although this market is fragmented, the
Company competes with a large number of other insurers, some of which have
been in business for a longer period of time and some of which have higher
ratings by A.M. Best Company, Inc. ("A.M. Best") and substantially
greater financial and other resources than the Company. A.M. Best, a
nationally recognized insurance rating agency, assigns a rating which
measures each company's relative financial strength and ability to meet its
contractual obligations. In the markets in which the Company sells its
products, the Company believes that its A.M. Best rating is not a
significant factor affecting its ability to sell its insurance products.
<PAGE>
Private insurers and voluntary and cooperative plans, such as Blue
Cross and Blue Shield, and Health Maintenance Organizations, provide
various alternatives for meeting hospitalization and medical expenses.
Much of this insurance is sold on a group basis to employer sponsored
groups. The federal and state governments also provide insurance through
the Medicare and Medicaid programs for the payment of the costs associated
with medical care. These major medical programs generally cover a
substantial amount of the medical expenses incurred as a result of
accidents or illnesses. The Company's Cancer and Specified Disease
Products are designed to provide coverage which is supplemental to major
medical insurance and may be used to defray nonmedical as well as medical
expenses. Since these policies are sold to complement major medical
insurance, the Company competes only indirectly with these insurers.
However, expansion of coverage by other insurers could adversely affect the
Company's business. See "Risk Factors--Health Care Reform."
The Company's Medical Expense Products are designed to provide
coverage which is similar to the major medical insurance programs described
above, but sold primarily to persons not covered in an employer sponsored
group. The Company's Medicare Supplement Products are designed to
supplement the Medicare program by reimbursing for expenses not covered by
such program. To the extent that future government programs expand or
contract the private insurance industry's participation, they could benefit
or adversely affect the Company's business.
The Company competes directly with other insurers offering similar
products and believes that its current benefits and premium rates are
generally competitive with those offered by other companies. Management
believes that service to policyholders and prompt and fair payment of
claims continue to be important factors in the Company's ability to remain
competitive.
In addition to product and service competition, there is also very
strong competition within the supplemental health and accident insurance
market for qualified, effective agents. The recruitment and retention of
such agents is extremely important to the success and growth of the
Company's business. Management believes that the Company's controlled
agency network is competitive with respect to the recruitment and training
of agents. However, there can be no assurance that the Company's
controlled agency network will be able to continue to recruit or retain
qualified, effective agents. The inability of the Company to adequately
recruit and retain such agents could have a material adverse effect upon
the Company's business, results of operations and financial condition.
<PAGE>
MANAGEMENT
Executive Officers
Westbridge's executive officers, who serve at the pleasure of the
Board of Directors, are as follows:
<TABLE>
<CAPTION>
Years with
Name Age Position with the Company the Company
- ---- --- ------------------------- ---------
<S> <C> <C> <C>
Martin E. Kantor 73 Chairman of the Board and Chief Executive Officer 18
James W. Thigpen 58 President and Chief Operating Officer 14
Stephen D. Davidson 39 Vice President and Chief Marketing Officer 1
Ben E. McCurdy 51 Vice President 13
Margaret A. Megless 44 Vice President 18
Patrick J. Mitchell 37 Vice President, Chief Financial Officer and Treasurer --
Michael D. Norris 48 Vice President and Secretary 12
Dennis A. Weverka 50 Vice President 14
</TABLE>
Mr. Kantor has served as Chairman of the Board and Chief
Executive Officer of Westbridge since 1993. Mr. Kantor had served as
Chairman of the Board, President and Chief Executive Officer of Westbridge
since prior to 1989. Mr. Kantor has served as Chairman of the Board of NFL
since prior to 1989, and also became Chief Executive Officer of NFL in
1985. Following the Acquisition, Mr. Kantor was appointed Chairman of the
Board of each of NFI and AICT. Mr. Kantor may be deemed to be a control
person of Westbridge by virtue of his ownership of 766,014 shares, or
12.8% of the outstanding shares of Westbridge's Common Stock at September
15, 1995. This amount does not include shares held in various trusts
established by Mr. Kantor for the benefit of his children and grandchildren
over which he has no voting or investment power and as to which Mr. Kantor
disclaims beneficial ownership. See "Principal Stockholders."
Mr. Thigpen has served as President and Chief Operating Officer
of Westbridge since January 1993. Following the Acquisition, Mr. Thigpen
was appointed President and Chief Operating Officer of each of NFI and
AICT. Mr. Thigpen had served as Executive Vice President of Westbridge
since prior to 1989. Mr. Thigpen has also served as President and Chief
Operating Officer of NFL since prior to 1989.
Mr. Davidson has served as Vice President and Chief Marketing
Officer of Westbridge and as a Senior Vice President of NFL, NFI and AICT
since joining the Company in August 1994. Mr. Davidson served as President
of Senior Benefits, L.L.C., from 1992 to 1994 and as Vice President of
Marketing for Pioneer Life Insurance Company, Rockford, Illinois, from 1989
to 1992.
<PAGE>
Mr. McCurdy has served as Vice President of Westbridge since
August 1994 and as Senior Vice President of Administration of NFL since
1989. Following the Acquisition, Mr. McCurdy was appointed Senior Vice
President of Administration of each of NFI and AICT, and in June 1994 was
appointed a director of NFL, NFI and AICT. Mr. McCurdy joined the Company
in August 1982. Mr. McCurdy is also a Fellow of the Life Management
Institute.
Ms. Megless has served as Vice President, Information Systems of
Westbridge since August 1994 and as Senior Vice President, Information
Systems of NFL since 1992. Following the Acquisition, Ms. Megless was
appointed Senior Vice President of each of NFI and AICT, and in June 1994
was appointed a director of NFL, NFI and AICT. Ms. Megless joined the
Company in January 1977, serving as Vice President, Information Systems of
NFL from 1984 to 1992.
Mr. Mitchell joined Westbridge as Vice President, Chief
Financial Officer and Treasurer in August 1995. Mr. Mitchell is also
Senior Vice President and Treasurer of NFL, NFI and AICT. Prior to joining
Westbridge, he served as Vice President, Finance for Bankers Life and
Casualty Company. From 1989 to 1993, Mr. Mitchell was Assistant Vice
President, Finance for Reliance Standard Life Insurance Company.
Mr. Mitchell is a CPA and former audit manager with Arthur Young & Co.
Mr. Norris has served as Secretary of Westbridge since prior to
1989 and was appointed as a Vice President of Westbridge in August 1994.
Mr. Norris has also served as Senior Vice President, General Counsel and
Secretary of NFL since prior to 1989. Following the Acquisition, Mr.
Norris was appointed Senior Vice President and Secretary of each of NFI and
AICT, and in June 1994 was appointed a director of NFL, NFI and AICT. Mr.
Norris was Counsel for the Oklahoma Insurance Department, Oklahoma City,
Oklahoma for two years prior to joining NFL in March 1983. Mr. Norris was
an adjuster and attorney for Allstate Insurance Company, Oklahoma City,
Oklahoma, from 1979 to 1981.
Mr. Weverka was appointed Vice President, Corporate Planning and
Development of Westbridge in August 1994. Mr. Weverka joined the Company
in August 1981 and has served as a Senior Vice President of NFL since prior
to 1989. Following the Acquisition, Mr. Weverka was appointed Senior Vice
President of NFI and AICT, and in June 1994 was appointed a director of
NFL, NFI and AICT.
Directors
Westbridge's directors are as follows:
Served as
Director
Name Age Since
- ----- --- -----
Marvin H. Berkeley. . . . . 72 1982
Arthur W. Feinberg. . . . . 72 1984
George M. Garfunkel . . . . 56 1994
Martin E. Kantor. . . . . . 73 1982
Glenn O. Phillips . . . . . 65 1987
Joseph C. Sibigtroth. . . . 79 1984
James W. Thigpen. . . . . . 58 1985
Barth P. Walker . . . . . . 80 1982
<PAGE>
The Board of Directors is classified into three classes, each of
which serves for three years with one class being elected each year.
Messrs. Berkeley, Phillips and Thigpen serve as directors for a term
expiring at the 1996 Annual Meeting of Stockholders, Messrs. Feinberg and
Garfunkel serve as directors for a term expiring at the 1997 Annual Meeting
of Stockholders and Messrs. Kantor, Sibigtroth and Walker serve as
directors for a term expiring at the 1998 Annual Meeting of Stockholders.
For other information with respect to Messrs. Kantor and
Thigpen, see "-- Executive Officers."
Dr. Berkeley has served as Professor of Management of the
University of North Texas, Denton, Texas, since prior to 1989, and is
former Dean of the College of Business Administration of the University of
North Texas. Dr. Berkeley is an advisory director of Enersyst Development
Center, Inc., a Director of John Watson Landscape Illumination, Inc., a
Director of Irving National Bank, Irving, Texas, and is a former Governor
of International Insurance Society, Inc.
Dr. Feinberg has served as the Chief of Geriatric Medicine of
the Department of Medicine of North Shore University Hospital, Manhasset,
New York since prior to 1989. Dr. Feinberg also has been, since prior to
1989, a Professor, Clinical Medicine, Cornell University Medical College.
Dr. Feinberg was formerly a Regent and Chairman of the Board of Governors
of the American College of Physicians.
Mr. Garfunkel is a founding partner of the Great Neck, New York
law firm of Garfunkel, Wild & Travis P.C., which specializes in the
representation of clients in the health care industry. He is also a
director of Berkshire Taconic Community Foundation, Inc. For information
relating to Mr. Garfunkel's ownership of Common Stock, see Note (2) under
"Principal Stockholders".
Mr. Phillips is President and Director of Financial Services of
America and President of Document Registry Corp. Prior to 1992, Mr.
Phillips was an insurance consultant, and from 1966 through 1987 was
employed by Businessmen's Assurance Company of Kansas City, Missouri where
he held the position of Vice President of Corporate Brokerage and Special
Sales. Prior to that period, Mr. Phillips served as director and Executive
Vice President of Certified Life Company of Shreveport, Louisiana and Vice
President and Field Manager for Central Assurance Company of Columbus,
Ohio.
Mr. Sibigtroth is a retired consulting actuary and had been a
private consulting actuary since prior to 1989. From 1972 to 1981 he
served as Senior Vice President and Chief Actuary of New York Life
Insurance Company. In the past, he has served as Chairman of both the
Mortality and Morbidity Committees of the American Society of Actuaries,
and as Treasurer of the New York State Guaranty Corporation.
Mr. Walker has been a senior member of Walker & Walker, a law
firm in Oklahoma City, Oklahoma since prior to 1989.
The Audit Committee of the Board of Directors is composed of Mr.
Walker (Chairman), Dr. Berkeley, and Mr. Sibigtroth. The Audit Committee,
which met twice during 1994 recommends to the Board of Directors the firm
to be employed as the Company's independent accountants, reviews details of
each audit engagement and audit reports, including all reports by the
independent accountants regarding internal control and management reports,
and reviews resolution of any material matters with respect to appropriate
accounting principles and practices to be used in preparation of the
Company's financial statements.
<PAGE>
The Board of Directors does not have an executive, compensation
or nominating committee.
The Board of Directors met four times during 1994. All of the
members of the Board of Directors attended at least 75% of the aggregate of
all Board meetings and meetings of any committee of the Board on which they
served during 1994.
Executive Compensation
The following table sets forth information on cash and other
compensation paid or accrued for each of the fiscal years ended
December 31, 1994, 1993 and 1992 to each of the named Executive Officers
including the Chief Executive Officer, for services in all capacities to
the Company and its subsidiaries.
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards/Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation* Options(#) Compensation**
- --------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Martin E. Kantor 1994 $366,923 $60,000 0 0 $2,310
Chairman of the Board and 1993 $321.058 $40,000 0 0 $2,249
Chief Executive Officer 1992 $305,679 $40,000 0 0 $2,119
James W. Thigpen 1994 $305,869 $60,000 0 0 $2,310
President and Chief 1993 $254,916 $40,000 0 10,000 $2,249
Operating Officer 1992 $235,542 $40,000 0 0 $2,119
Michael C. Batte 1994 $193,879 $30,000 0 0 $2,310
Vice President, Chief 1993 $157,187 $20,750 0 10,000 $2,249
Financial Officer and 1992 $142,917 $23,750 0 0 $2,119
Treasurer
Michael D. Norris 1994 $117,712 $22,000 0 0 $2,114
Vice President and 1993 $ 96,317 $15,000 0 10,000 $1,859
Secretary 1992 $ 91,731 $23,750 0 0 $1,122
<FN>
___________________________
* The amount of other annual compensation paid to each of the named
Executive Officers during the years shown does not include perquisites
and other personal benefits, if any. Such benefits totaled less than the
lesser of either $50,000 or 10% of total annual salary and bonus
reported for each of the named Executive Officers.
** Amounts shown in column (g) represent matching contributions of the Company
credited to the Executive Officers under the Company's 401(k) plan.
</TABLE>
Each director of Westbridge who is not a salaried employee or
consultant of NFL receives $2,500 per Board meeting attended.
Additionally, all audit committee members who attend special audit
committee meetings which do not coincide with full board meetings receive
$1,000 per special audit committee meeting attended. All directors are
reimbursed for their expenses incurred in attending Board meetings. Dr.
Berkeley received $1,750 in consultation fees from NFL in 1994. Dr.
Feinberg received $6,000 in consultation fees from Westbridge during 1994.
<PAGE>
Each non-employee director is also entitled to receive
automatic, non-discretionary and fixed annual grants of stock options under
the Company's 1992 Stock Option Plan, as amended (the "Plan"). Pursuant to
the Plan, a stock option to acquire 5,000 shares of Common Stock was
granted to each non-employee director serving as a member of the Board of
Directors on January 14, 1993. Thereafter, a stock option to acquire 1,000
shares of Common Stock will automatically be granted each succeeding year
(immediately following Westbridge's annual meeting of stockholders) to each
non-employee director serving as a Board member at such time.
Additionally, each non-employee Board member, upon becoming a director of
Westbridge for the first time, will be entitled to receive a stock option
to acquire 5,000 shares of Common Stock. The option price per share is the
average of the mean high and low trading prices for the Common Stock for
the fifth through the ninth trading day following the relevant grant date.
Each option becomes exercisable on the first anniversary of the date of
grant and may thereafter be exercised in whole or in part during the term
of the option by payment of the full option price for the number of
underlying shares to be acquired upon any such exercise. Each option will
expire seven years after the date on which the option is granted, subject
to earlier termination upon an optionee's termination of service as a
director, other than as a result of retirement, death or disability.
During 1994, each non-employee director of Westbridge received an option to
acquire 1,000 shares of Common Stock pursuant to the Plan, except
Mr. Garfunkel, who joined the Board in 1994, received an option to require
5,000 shares of Common Stock pursuant to the Plan.
Stock Options
The following table sets forth information as to the named
Executive Officers, the exercise of stock options during the last fiscal
year and the values of unexercised options as of the end of the last fiscal
year all of which were exercisable as of such date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Securities Unexercised
Underlying Unexercised In-The-Money
Shares Options at Year-End Options at year-End
Name and Aquired Value (Exercisable/ (Exercisable/
Principal Position on Exercise Realized Unexrecisable) Unexercisable)
- ------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Martin E. Kantor - $ - - $ -
Chairman of the Board
and Chief Executive Officer
James W. Thigpen 82,528 $550,742 47,000/0 $225,450/0
President and Chief
Operating Officer
Michael C. Batte 10,500 $ 53,625 59,520/0 $292,250/0
Vice President, Chief
Financial Officer and
Treasurer
Michael D. Norris 20,000 $140,000 32,564/0 $146,052/0
Vice President and
Secretary
</TABLE>
<PAGE>
The values listed in columns (c) and (e) represent the difference
between the fair market value of the Common Stock and the exercise price of
the options at exercise and December 31, 1994, respectively.
Compensation Committee Interlocks and Insider Participation
Westbridge's Board of Directors does not have a compensation committee
or other board committee performing equivalent functions. Mr. Kantor, who
served as Chairman of the Board, President and Chief Executive Officer of
Westbridge during 1994, and Mr. Thigpen who served as President and Chief
Operating Officer of Westbridge during 1994, participated in deliberations
of the Board during 1994 concerning executive officer compensation.
Certain Transactions
As of September 15, 1995, James W. Thigpen, President and Chief
Operating Officer of Westbridge, was indebted to the Company in the
aggregate amount of $108,500. Such indebtedness is in the form of
interest-free salary advances, the most recent of which occurred on
April 1, 1991 in the amount of $70,000. Since January 1, 1994, the largest
aggregate amount of indebtedness was $124,500. Mr. Thigpen has agreed to
repay the full amount of this indebtedness on or prior to December 31, 1999
and has further agreed to make payments during 1995 totaling not less than
$20,000, of which $16,000 has been paid.
Security Ownership of Management
The following table sets forth as of September 15, 1995 (except with
resect to shares owned by Mr. Batte, which are as of June 30, 1995, and except
for 401(k) shares owned by Messrs. Batte, Kantor, Norris and Thigpen, which are
as of May 31, 1995), the number and percentage of shares of Common Stock
owned by the directors of Westbridge, each of the Executive Officers named
in the table under "Summary of Compensation" and all Executive Officers and
directors as a group. To Westbridge's knowledge, the persons listed below
each have sole voting and investment power as to all shares indicated as
owned by them.
<PAGE>
<TABLE>
<CAPTION>
Number of
Name Shares Owned Percent
<S> <C> <C>
Michael C. Batte (i)(ii) . . . . . . . . 105,871 1.77%
Marvin H. Berkeley (i) . . . . . . . . . 17,200 *
Arthur W. Feinberg (i) . . . . . . . . . 18,098 *
George M. Garfunkel (iii). . . . . . . . 421,060 7.03
Martin E. Kantor (ii)(iv). . . . . . . . 766,014 12.80
Michael D. Norris (i)(ii). . . . . . . . 46,737 *
Glenn O. Phillips (i). . . . . . . . . . 7,000 *
Joseph C. Sibigtroth (i) . . . . . . . . 7,000 *
James W. Thigpen (i)(ii) . . . . . . . . 159,569 2.67
Barth P. Walker (i)(v) . . . . . . . . . 18,379 *
All executive officers and directors --------- -----
as a group (14)(vi). . . . . . . . . 1,756,815 28.35%
<FN>
_______________
* Less than 1%
(i) The number of shares owned by Messrs. Batte, Berkeley, Feinberg,
Norris, Phillips, Sibigtroth, Thigpen and Walker includes 59,500,
6,000, 5,000, 32,564, 6,000, 6,000, 47,000, and 6,000 shares,
respectively, subject to stock options granted and exercisable
within sixty (60) days under Westbridge's employee stock option
plans.
(ii) The number of shares owned by Messrs. Batte, Kantor, Norris and
Thigpen includes 4,171, 5,945, 2,541, and 5,969, shares,
respectively, which are owned through participation in Westbridge's
401(k) plan.
(iii) See Note (2) under "Principal Stockholders."
(iv) See Note (1) under "Principal Stockholders."
(v) Does not include 166,245 shares (2.78%) held in trusts established
by Mr. Walker for the benefit of his children and grandchildren or
76,344 shares (1.28%) owned by Mr. Walker's wife over which he has
no voting or investment power and as to which Mr. Walker disclaims
beneficial ownership.
(vi) The number of shares owned by all Executive Officers and directors
as a group includes 299,294 shares (5.00%) subject to employee stock
options granted and exercisable within sixty (60) days to all
Executive Officers and directors under Westbridge's employee stock
option plans and 29,540 shares owned through participation in
Westbridge's 401(k) plan.
</TABLE>
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of September 15, 1995, the name and
address of each person known by Westbridge to own beneficially, directly or
indirectly, more than five percent of the outstanding shares of Common
Stock (its only class of voting securities): [UPDATE TABLE]
<TABLE>
<CAPTION>
Number
Name and Address of Shares Percent
- ---------------- --------- -------
<S> <C> <C>
Martin E. Kantor(1) . . . . . . . . . . . 766,014 12.8%
175 Great Neck Road
Great Neck, NY 11021
George M. Garfunkel(2) . . . . . . . . . . 421,060 7.0%
175 Great Neck Road
Great Neck, NY 11021
President & Fellows of Harvard College (3) 594,765 9.0%
c/o Harvard Management Company, Inc.
600 Atlantic Avenue
Boston, MA 02210-2203
The Baupost Group, Inc. (3). . . . . . . . 356,805 5.6%
44 Brattle Street
2nd Floor
Cambridge, MA 02138
Merrill Lynch Asset Management (4) 416,273 6.5%
P.O. Box 9011
Princeton, NJ 08543
<FN>
____________________
(1) Based upon information supplied by Mr. Kantor, Mr. Kantor has sole voting
and dispositive power as to the shares indicated above. Does not
include 412,800 shares (6.9%) held in trusts established by Mr. Kantor
for the benefit of his children and grandchildren over which he has no
voting or investment power and as to which Mr. Kantor disclaims beneficial ownership.
(2) Based upon information supplied by Mr. Garfunkel. Includes 412,800 shares
beneficially owned by Mr. Garfunkel as trustee under various trusts
established by Mr. Kantor and referred to in Note (1) above, over which
Mr. Garfunkel has sole voting and investment power.
(3) In each case represents the number of shares of Common Stock into which
the shares of the Company's Series A Preferred Stock held by such
holder is convertible. Each share of Series A Preferred Stock, which generally
does not vote with the Common Stock in the election of directors
or on other matters, is convertible into 114.286 shares of Common Stock.
(4) In each case represents the number of shares of Common Stock issuable upon
conversion of the shares of Series A Preferred Stock which are
beneficially owned by such person as investment manager for one or more holders
of Series A Preferred Stock. Each share of Series A
Preferred Stock, which generally does not vote with the Common Stock in the
election of directors or on other matters, is convertible into
118.906 shares of Common Stock.
</TABLE>
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Authorized Capital Stock
The authorized capital stock of Westbridge consists of 30,000,000
shares of Common Stock, par value $.10 per share, and 1,000,000 shares of
Preferred Stock, par value $.10 per share. As of September 15, 1995,
5,986,458 shares of Common Stock and 20,000 shares of Series A Preferred
Stock (with an aggregate liquidation preference of $20 million) were
outstanding. All of the shares of Common Stock and Preferred Stock
outstanding are validly issued, fully paid and nonassessable.
Common Stock
Each holder of Common Stock is entitled to one vote per share in all
matters to be voted on by the stockholders, including elections of
directors, and, except as otherwise required by law or provided with
respect to the Series A Preferred Stock, the holders of such shares
exclusively possess all voting power. See "-- Preferred Stock -- Series A
Preferred Stock." Holders of Common Stock are not entitled to cumulate
their votes.
Subject to certain preferential rights of the Series A Preferred
Stock, and any other outstanding series of Preferred Stock created by the
Board of Directors from time to time, holders of Common Stock are entitled
to dividends and other distributions as and when declared by the Board of
Directors out of assets legally available therefor, and upon the
liquidation, dissolution or winding up of the Company, the holders of
Common Stock would be entitled to share equally in the distribution of all
of the Company's assets. The holders of Common Stock have no preemptive
rights to purchase shares of Common Stock of the Company.
The transfer agent and registrar for the Company's Common Stock is The
Liberty National Bank and Trust Company of Oklahoma City, 100 Broadway,
Oklahoma City, Oklahoma 73102.
Preferred Stock
The Board of Directors has the authority, without action by the
stockholders, to issue shares of Preferred Stock in one or more series and,
within certain limitations, to determine the dividend rights, dividend
rate, rights and terms of redemption, liquidation preferences, sinking fund
terms, conversion and voting rights of any series of Preferred Stock, the
number of shares constituting any such series, the designation thereof and
the price therefor.
The Company believes that the ability of its Board of Directors to
issue one or more series of Preferred Stock will provide the Company with
flexibility in structuring possible future financings and acquisitions, and
in meeting other corporate needs which might arise. The authorized shares
of Preferred Stock, as well as Common Stock, will be available for issuance
without further action by the Company's stockholders, unless such action is
required by applicable law or the rules of any stock exchange or automated
quotation system on which the Company's securities may be listed or traded.
The NYSE currently requires stockholder approval to issue additional shares
in several instances, including issuances of shares which would possess at
least 20% of the voting power outstanding or represents at least 20% of the
number of shares of Common Stock outstanding before such issuance.
<PAGE>
Series A Preferred Stock
Set forth below is a summary of the principal terms of the Series A
Preferred Stock. Such summary is qualified in its entirety by reference to
the text of the Certificate of Incorporation and to the Preferred Stock
Purchase Agreement, each of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part and is
incorporated herein by reference.
The Series A Preferred Stock constitutes a series of the Preferred
Stock, consisting of 20,000 shares. Upon any liquidation, dissolution or
winding up of Westbridge, whether voluntary or involuntary, the holders of
Series A Preferred Stock shall have priority over the Common Stock or any
other class or series of stock of Westbridge ranking upon liquidation,
dissolution or winding up junior to the Series A Preferred Stock, for
payment out of the assets of Westbridge or proceeds thereof of $1,000 per
share plus all dividends accrued and unpaid thereon and after such payments
the holders of Series A Preferred Stock will be entitled to no other
payments. If, in the case of any such liquidation, dissolution or winding
up of Westbridge, the assets of Westbridge or proceeds thereof are
insufficient to pay in full the liquidation payments described above, and
similar payments on or other class or series of stock of Westbridge ranking
upon liquidation, dissolution or winding up on a parity with the Series A
Preferred Stock, then such assets and proceeds will be distributed among
the holders of the Series A Preferred Stock and any such other classes or
series of stock ratably in accordance with the respective amounts which
would be payable on such Series A Preferred Stock and any such other
classes or series of stock if all amounts payable thereon were paid in
full. A sale of all or substantially all the assets of Westbridge, or a
consolidation, merger or other business combination of Westbridge with or
into one or more corporations, will not be deemed to be a liquidation,
dissolution or winding up of Westbridge.
Dividends. Holders of Series A Preferred Stock will be entitled to
receive, when and as declared by the Board of Directors, out of funds
legally available for payment, cumulative cash dividends at an annual rate
of $82.50 per share. The dividend rate is subject to a one percentage
point increase if an Event of Noncompliance (as defined below) of the type
described in clause (i) or (ii) of the definition of such term occurs.
Once such an Event of Noncompliance has been cured, the annual dividend
rate will revert to $82.50 per share. Dividends on the Series A Preferred
Stock will be payable quarterly in arrears from the date of original
issuance on the last day of January, April, July and October of each year
in respect of the quarterly period ending on the last day of the
immediately preceding calendar quarter. In addition, if Westbridge makes
any dividend payment or other distribution on the Common Stock, other than
(i) dividends payable in cash in an aggregate amount in any fiscal year not
exceeding $500,000, or (ii) any dividend or distribution of shares of
Common Stock, then the holders of shares of Series A Preferred Stock shall
be entitled to receive, with respect to each share of Series A Preferred
Stock held, the same dividend or distribution received by a holder of the
number of shares of Common Stock into which such share of Series A
Preferred Stock is convertible on the record date for such dividend or
distribution. Any such dividend or distribution shall be declared,
ordered, paid or made on the Series A Preferred Stock at the same time such
dividend or distribution is declared, ordered, paid or made on the Common
Stock.
<PAGE>
Whenever (i) any dividend payable on the Series A Preferred Stock is
past due, thereafter and until all accrued and unpaid dividends payable
have been paid in full or declared and set apart for payment, or (ii)
Westbridge shall not have redeemed shares of Series A Preferred Stock on
the date such redemption is required, thereafter and until such redemption
payment shall have been made or all necessary funds therefor set apart for
payment, Westbridge shall not: (A) declare or pay dividends, or make any
other distributions, on any shares of Common Stock or any other stock of
Westbridge ranking junior to the Series A Preferred Stock with respect to
the payment of dividends and the distribution of assets, whether upon
liquidation or otherwise ("Junior Stock") other than dividends or
distributions payable in Junior Stock; (B) declare or pay dividends, or
make any other distributions, on any shares of stock of Westbridge ranking
on a parity with the Series A Preferred Stock either with respect to the
payment of dividends or the distribution of assets, whether upon
liquidation or otherwise ("Parity Stock"), other than dividends or
distributions payable in Junior Stock, except dividends paid ratably on the
Series A Preferred Stock and all Parity Stock on which dividends are
payable or in arrears, in proportion to the total amounts to which the
holders of all such shares are then entitled; (C) redeem or purchase or
otherwise acquire for consideration (other than Junior Stock) any shares of
Junior Stock or Parity Stock (other than, with respect to Parity Stock,
ratably with the Series A Preferred Stock); or (D) purchase or otherwise
acquire for consideration any shares of Series A Preferred Stock, except
that Westbridge may redeem shares of Series A Preferred Stock.
Generally, an "Event of Noncompliance" shall have occurred if: (i)
Westbridge fails to pay the full amount of dividends when due; (ii)
Westbridge fails to make any required redemption payment; (iii) Westbridge
fails to observe or perform certain specified covenants or restrictions
contained in the Preferred Stock Purchase Agreement for a period of sixty
(60) days after written notice thereof has been given to Westbridge; (iv)
any representation or warranty made by Westbridge in or pursuant to the
Preferred Stock Purchase Agreement proves to have been incorrect in any
material respect when made; (v) Westbridge makes an assignment for the
benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is entered
adjudicating Westbridge bankrupt or insolvent; or any order for relief with
respect to Westbridge is entered under the Federal Bankruptcy Code; or
Westbridge or any corporation or other entity of which a majority of the
voting power of the voting equity securities or equity interest is owned,
directly or indirectly, by Westbridge (a "Subsidiary") petitions or applies
to any tribunal for the appointment of a custodian, trustee, receiver or
liquidator of Westbridge or any of its Subsidiaries or of any substantial
part of the assets of Westbridge or any of its Subsidiaries, or commences
any proceeding relating to Westbridge or any Subsidiary under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction; or any such petition or
application is filed, or any such proceeding is commenced, against
Westbridge or any of its Subsidiaries and either (a) Westbridge or such
Subsidiary by any act indicates its approval thereof, consent thereto or
acquiescence therein or (b) such petition, application or proceeding is not
dismissed within ninety (90) days; or (vi) Westbridge or certain of its
Subsidiaries fails to pay when due principal plus interest of at least
$1,000,000 in respect of any indebtedness of Westbridge or certain of its
Subsidiaries and such failure results in the acceleration of such
indebtedness, or a judgment or order for the payment of money of at least
$1,000,000 shall be rendered against Westbridge or certain of its
Subsidiaries and such judgment or order shall not have been vacated,
discharged, stayed or bonded pending appeal within sixty (60) days.
<PAGE>
Preferred Stock Purchase Agreement. The Preferred Stock Purchase
Agreement provides that for so long as one or more of the Investors own at
least $10,000,000 in aggregate Liquidation Preference of the Series A
Preferred Stock, then without first obtaining the consent or approval of
Investors holding at least a majority of the Series A Preferred Stock
(measured by Liquidation Preference), Westbridge shall not: (i) declare or
pay dividends or make any other payment or distribution, on any shares of
capital stock of Westbridge other than the Series A Preferred Stock;
except, that no approval or consent of the Investors shall be required for
dividends or other distributions payable (x) in cash in an amount in any
year not exceeding $500,000 or (y) in capital stock of Westbridge; (ii)
purchase, redeem or retire any shares of capital stock of Westbridge (other
than Series A Preferred Stock) or any rights, options or warrants to
purchase or acquire, or other securities convertible into or exchangeable
for, shares of capital stock of Westbridge; except, that no approval or
consent of the Investors shall be required in the case of purchases,
redemptions or retirements payable out of the net cash proceeds to
Westbridge from the issuance or sale of any shares of capital stock of
Westbridge, or any rights, options or warrants to purchase or acquire, or
other securities convertible into or exchangeable for, shares of capital
stock of Westbridge; (iii) sell, lease, transfer or otherwise dispose of
any asset (including, without limitation, shares of capital stock or any
other ownership interest in any Subsidiary) other than in the ordinary
course of business; except, that no approval or consent of the Investors
shall be required in the case of any sale, lease, transfer or other
disposition if (x) there shall not have occurred an Event of Noncompliance
directly as a result thereof, (y) Westbridge receives, in exchange for such
asset, the Fair Market Value (as defined in the Certificate of
Incorporation) thereof, and (z) all of the proceeds of such sale, lease,
transfer or other disposition are used by Westbridge within ninety (90)
days either to acquire assets for use in the business of Westbridge or any
of its Subsidiaries, or to repay or redeem Series A Preferred Stock or
indebtedness of Westbridge; (iv) issue any shares of Common Stock or any
rights, options or warrants to purchase, or other securities convertible
into or exchangeable for, shares of Common Stock; except, that no approval
or consent of the Investors shall be required in the case of shares of
Common Stock (or rights, options or warrants to purchase, or securities
convertible into or exchangeable for, shares of Common Stock) issued (w)
upon the exercise of certain options to purchase Common Stock granted to
Oppenheimer & Co., Inc. in connection with its acting as placement agent
for the Series A Preferred Stock, (x) through an underwritten offering
registered pursuant to the Securities Act, (y) pursuant to any Employee
Benefit Plan (as defined in the Certificate of Incorporation), or (z) as
consideration for the acquisition of any business or block of insurance
business by Westbridge or any of its Subsidiaries; (v) enter into, or
permit any subsidiary to enter into, any business which is substantially
different from and/or not connected with the business in which Westbridge
or certain of its Subsidiaries were engaged on April 12, 1994; (vi) enter
into any transaction with any affiliate of Westbridge (other than (x)
transactions with certain Subsidiaries, (y) declarations and payments of
dividends on the Common Stock permitted by clause (i) above and (z)
payments of reasonable and customary fees and compensation to directors,
officers and employees of Westbridge and certain of its Subsidiaries),
except in the ordinary course of business and upon fair and reasonable
terms no less favorable to Westbridge than would be obtained in a
comparable arm's-length transaction between unrelated third parties; or
(vii) amend the Certificate of Incorporation in such a manner as would
adversely affect the preferences or rights of the Series A Preferred Stock.
<PAGE>
Election of Directors. Whenever any dividends payable on shares of
Series A Preferred Stock in an amount equivalent to or exceeding the amount
of dividends payable thereon for six (6) Quarterly Dividend Periods
(whether or not consecutive) shall be past due, thereafter and until all
accrued and unpaid dividends shall have been paid in full or declared and
set apart for payment, the holders of shares of Series A Preferred Stock,
together with the holders of any other series of Preferred Stock as to
which dividends are in arrears and as a result are entitled to the rights
described in this paragraph, shall have the right, notwithstanding anything
to the contrary in the Certificate of Incorporation or the By-Laws, voting
together as a single class with such other series, to elect two directors
of Westbridge, such directors to be in addition to the number of directors
constituting the Board of Directors immediately prior to the accrual of
such right, with the remaining directors to be elected by the other class
or classes of stock entitled to vote therefor at any meeting of the
stockholders held for the purpose of electing directors. Such right to
vote for the election of directors may be exercised as provided in the
Certificate of Incorporation until all accrued and unpaid dividends shall
have been paid in full or declared and set apart for payment, at which time
the term of office of the two directors so elected shall terminate
automatically. The directors so elected shall serve until the next annual
meeting of stockholders of Westbridge or until their successors shall be
elected and shall qualify, unless the term of office of the persons so
elected as directors shall have earlier terminated. The rights of the
holders of Series A Preferred Stock to elect two directors shall not be
adversely affected by the voting or other rights applicable to any other
security of Westbridge.
Certain Restrictions. So long as any shares of Series A Preferred
Stock shall be outstanding and unless the consent or approval of a greater
number of shares shall then be required by law, without first obtaining the
consent or approval of the holders of a majority of the shares of Series A
Preferred Stock then outstanding, Westbridge shall not: (i) authorize or
create any class or series, or any shares of any class or series, of any
stock of the Company ranking prior to the Series A Preferred Stock either
with respect to the payment of dividends or the distribution of assets,
whether upon liquidation or otherwise ("Senior Stock"); (ii) authorize or
create any class or series, or any shares of any class or series, of Parity
Stock; (iii) reclassify any shares of capital stock of Westbridge into
shares of Senior Stock or Parity Stock; (iv) authorize any security
exchangeable for, convertible into, or evidencing the right to purchase any
shares of Senior Stock or Parity Stock; or (v) amend, alter or repeal the
Certificate of Incorporation to alter or change the preferences, rights or
powers of the Series A Preferred Stock so as to affect the Series A
Preferred Stock adversely or to increase the authorized number of shares of
Series A Preferred Stock.
Redemption. Westbridge shall have no right to redeem any shares of
Series A Preferred Stock prior to April 12, 1997. On or after April 12,
1997, Westbridge may redeem, in whole or in part, at any time or from time
to time upon not less than thirty (30) nor more than sixty (60) days' prior
written notice, the outstanding shares of Series A Preferred Stock by
paying therefor in cash an amount per share equal to the sum of (i) $1,000
multiplied by the applicable Redemption Price set forth below, and (ii) all
accrued and unpaid dividends thereon to the date of redemption; provided
that the redemption date in connection with any such redemption shall not
be a date which is within the period commencing thirty (30) days prior to a
Quarterly Dividend Payment Date and ending on the fifth business day
following such Quarterly Dividend Payment Date.
<PAGE>
For any redemption of the Series A Preferred Stock, the applicable
Redemption Price, if the redemption date occurs during the twelve-month
period beginning April 1 of the years indicated, shall be as follows:
Redemption
Year Price
---- -----
1997 105%
1998 104%
1999 103%
2000 102%
2001 101%
2002 and thereafter 100%
If a Repurchase Event (as defined below) shall have occurred, each
holder of shares of Series A Preferred Stock shall be entitled to require
Westbridge to redeem all or any portion of the shares of Series A Preferred
Stock then held by such holder by paying therefor in cash an amount per
share equal to the sum of (x) $1,000 multiplied by the applicable
Redemption Price, and (y) all accrued and unpaid dividends thereon to the
date of redemption.
If an Event of Noncompliance of the type described in clause (v) of
the definition of such term (provided that such Event of Noncompliance is
the result of a voluntary assignment for the benefit of creditors or a
voluntary bankruptcy, reorganization, insolvency or other similar
proceeding commenced by Westbridge) shall have occurred, the holder or
holders of a majority of the shares of Series A Preferred Stock then
outstanding shall be entitled to require Westbridge (by written notice
delivered to the Secretary at the principal executive offices of
Westbridge) to redeem all or any portion of the Series A Preferred Stock
owned by such holder or holders by paying therefor in cash an amount per
share equal to the sum of (x) $1,000 and (y) all accrued and unpaid
dividends thereon to the date of redemption.
The Series A Preferred Stock is subject to mandatory redemption by
Westbridge on April 12, 2004, by paying therefor in cash an amount equal to
the stated liquidation preference of $1,000 per share (the "Liquidation
Preference") plus all accrued and unpaid dividends thereon to the date of
redemption.
A "Repurchase Event" shall occur or has occurred if: (a) any person or
group (within the meaning of Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), other than Westbridge or any
of its Subsidiaries, any employee benefit plan or related trust of
Westbridge or any of its Subsidiaries, or any of the original purchasers of
Series A Preferred Stock pursuant to the Preferred Stock Purchase Agreement
and their transferees and their respective affiliates (within the meaning
of Rule 12b-2 under the Exchange Act), shall beneficially own (within the
meaning of Rule 13d-3 under the Exchange Act) more than 50% of the total
voting power of all classes of capital stock of Westbridge entitled to vote
generally in the election of directors of Westbridge; or (b) Westbridge
consolidates with, merges into or sells, leases or conveys all or
substantially all of its assets to, any Person other than a wholly-owned
Subsidiary of Westbridge, unless in connection with such consolidation,
merger, sale, lease or conveyance, the holders of all outstanding shares of
Series A Preferred Stock are entitled to receive, upon conversion,
aggregate consideration (in the form of cash, securities listed for trading
on the NYSE or the American Stock Exchange or traded through the NASDAQ
System -- National Market System (the value of which for this purpose shall
be the current trading price on the trading day immediately preceding the
closing date of such consolidation, merger, sale, lease or conveyance), or
any combination thereof) in an amount for each share of Common Stock into
which the Series A Preferred Stock is at the time convertible at least
equal to the product of (i) an amount equal to the Redemption Price,
expressed as a percentage of the Liquidation Preference on the date of such
Repurchase Event (or if such Repurchase Event occurs prior to April 1,
1997, 105%), plus accrued and unpaid dividends to the date of such payment,
and (ii) the Conversion Price in effect immediately prior to consummation
of such consolidation, merger, sale, lease or conveyance.
<PAGE>
Conversion. Each share of Series A Preferred Stock may, at any time,
at the option of the holder thereof, be converted into shares of Common
Stock, on the terms and conditions set forth in the Certificate of
Incorporation. Each share of Series A Preferred Stock shall be convertible
into a number of fully-paid and nonassessable shares of Common Stock equal
to the result obtained (calculated to the nearest 1/1,000th of a share) by
dividing the Liquidation Preference by an amount equal to $8.41 as adjusted
from time to time as provided in the Certificate of Incorporation (the
"Conversion Price"). The Conversion Price shall be subject to adjustment
from time to time: (i) in case Westbridge shall at any time declare a
dividend, or make a distribution, on the outstanding shares of Common Stock
in shares of Common Stock or subdivide or reclassify the outstanding shares
of Common Stock into a greater number of shares of Common Stock or combine
or reclassify the outstanding shares of Common Stock into a smaller number
of shares of Common Stock, (ii) in case Westbridge shall, subject to
certain exceptions, issue shares of Common Stock (or rights, options or
warrants to purchase or other securities convertible into or exchangeable
for shares of Common Stock) at any time at a price per share less than the
Current Market Price per share of Common Stock on the date of issuance of
such shares (or the date of issuance of such rights, options, warrants or
other convertible or exchangeable securities) and (iii) in case Westbridge
shall be a party to certain transaction (including, without limitation, a
merger, consolidation, sale of all or substantially all of Westbridge's
assets or recapitalization of the Common Stock) in which the previously
outstanding Common Stock shall be changed into or, pursuant to the
operation of law or the terms of the transaction to which Westbridge is a
party, exchanged for different securities of Westbridge or common stock or
other securities of another corporation or interests in a noncorporate
entity or other property (including cash) or any combination of any of the
foregoing.
Exchange. The shares of Series A Preferred Stock are exchangeable, in
whole or in part, at the option of Westbridge, at any time on or after
April 12, 1995 upon not less than thirty (30) nor more than sixty (60) days
prior written notice to the holders thereof, for that principal amount of
Convertible Subordinated Debentures equal to the Liquidation Preference of
the shares to be exchanged; provided that on or prior to the date of
exchange Westbridge shall have paid to the holders of outstanding shares of
Series A Preferred Stock all accrued and unpaid dividends thereon to the
date fixed for exchange.
Rank. The Series A Preferred Stock shall rank, with respect to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up of Westbridge, (i) prior to all shares of Junior
Stock (including, without limitation, the Common Stock) and (ii) prior to
all shares of any other series of Preferred Stock of Westbridge, unless and
to the extent such other series, the authorization and creation of which
was approved or consented to by the requisite holders of Series A Preferred
Stock, by its terms ranks on a parity with or senior to the Series A
Preferred Stock in any respect.
<PAGE>
Restrictions on Dividends
The Preferred Stock Purchase Agreement provides that for so long as
one or more of the Investors own at least $10,000,000 in aggregate
Liquidation Preference of the Series A Preferred Stock, then without first
obtaining the consent or approval of Investors holding at least a majority
of the Series A Preferred Stock (measured by Liquidation Preference),
Westbridge shall not: (i) declare or pay dividends or make any other
payment or distribution, on any shares of capital stock of Westbridge other
than the Series A Preferred Stock; except, that no approval or consent of
the Investors shall be required for dividends or other distributions
payable (x) in cash in an amount in any year not exceeding $500,000 or (y)
in capital stock of Westbridge. Westbridge has not paid any cash dividends
on the Common Stock and does not anticipate declaring or paying any such
cash dividends in the foreseeable future.
The Senior Subordinated Indenture prohibits the payment of dividends
and other distributions on Westbridge's capital stock (except for dividends
payable on the Series A Preferred Stock and dividends payable in capital
stock of Westbridge) and the purchase of capital stock (except for the
redemption or exchange of the Series A Preferred Stock), unless after
giving effect thereto, the aggregate amount expended for those purposes
subsequent to March 15, 1995, does not exceed the sum of (i) $3.0 million,
plus (ii) 50.0% of Westbridge's aggregate Consolidated Net Income
(excluding unrealized gains and losses on securities marked to market to
the extent they were included in such Consolidated Net Income) (as defined
in the Senior Subordinated Indenture) for each fiscal year commencing
subsequent to December 31, 1994, plus (iii) 100% of the aggregate net
proceeds received by Westbridge on account of any capital stock issued by
Westbridge (other than to a subsidiary) subsequent to January 1, 1995
(including the aggregate net cash proceeds received by Westbridge on
disposition of any property received by Westbridge from such sales), plus
(iv) 100% of the aggregate net proceeds received by Westbridge on account
of any Indebtedness (as defined in the Senior Subordinated Indenture)
convertible into capital stock of Westbridge issued by Westbridge (other
than to a subsidiary) subsequent to January 1, 1995 (including the
aggregate net cash proceeds received by Westbridge on disposition of any
property received by Westbridge from such sales), to the extent such
Indebtedness has been converted into such capital stock.
Delaware Anti-takeover Law and Certain Charter Provisions
Section 203 of the Delaware General Corporation Law, as amended
("Section 203"), provides that, subject to certain exceptions specified
therein, an "interested stockholder" of a Delaware corporation shall not
engage in any business combination, including mergers or consolidations or
acquisitions of additional shares of the corporation, with the corporation
for a three-year period following the date that such stockholder becomes an
"interested stockholder" unless (i) prior to such date, the board of
directors of the corporation approved either the business combination or
the transaction which resulted in the stockholder becoming an "interested
stockholder", (ii) upon consummation of the transaction which resulted in
the stockholder becoming an "interested stockholder", the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain
shares), or (iii) on or subsequent to such date, the business combination
is approved by the board of directors of the corporation and authorized at
an annual or special meeting of stockholders by the affirmative vote of at
least 66-2/3% of the outstanding voting stock which is not owned by the
"interested stockholder." Except as otherwise specified in Section 203, an
"interested stockholder" is defined to include (x) any person that is the
owner of 15% or more of the outstanding voting stock of the corporation, or
is an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within
three years immediately prior to the relevant date and (y) the affiliates
and associates of any such person.
<PAGE>
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions
imposed thereunder. The Certificate of Incorporation does not exclude the
Company from the restrictions imposed under Section 203. The provisions of
Section 203 may encourage companies interested in acquiring the Company to
negotiate in advance with the Board of Directors, since the stockholder
approval requirement would be avoided if a majority of the directors then
in office approve either the business combination or the transaction which
results in the shareholder becoming an interested shareholder. Such
provisions also may have the effect of preventing changes in the management
of the Company. It is possible that such provisions could make it more
difficult to accomplish transactions which stockholders may otherwise deem
to be in their best interests.
The Certificate of Incorporation and By-Laws contain certain
provisions relating to corporate governance and to the rights of
stockholders which may be deemed to have potential anti-takeover effects in
that such provisions may delay or prevent a change of control of the
Company. These provisions: (i) classify the Board of Directors into three
classes, each of which serve for three years, with one class being elected
each year; (ii) provide that the number of directors of the Company shall
be fixed by the By-Laws and may be increased or decreased from time to time
in such manner as may be prescribed in the By-Laws; (iii) require that
advance notice of stockholder nominations be given in the manner provided
for in the By-Laws; (iv) provide that directors may be removed only for
cause and only with the approval of the holders of at least 80% of the
voting power of the then outstanding shares of capital stock of the Company
entitled to vote generally in the election of directors ("Voting Stock"),
voting together as a single class; (v) require that stockholder action be
taken at an annual meeting of stockholders or a special meeting of
stockholders, which may be called only by the Chairman of the Board, the
President or by resolution of the Board of Directors, and prohibit
stockholder action by written consent; and (vi) provide that the
stockholder vote required to alter, amend, or repeal the foregoing
provisions of the Certificate of Incorporation or the By-Law Amendments (as
defined below), or to adopt any provision inconsistent therewith, shall be
80% of the Voting Stock, voting together as a single class.
Further, the By-Laws contain related provisions that, among other
things, (i) provide that advance notice of stockholder nominations of
directors and of stockholder proposals of business to be conducted at
annual meetings of stockholders be given and that certain information be
provided with respect to such nominations or proposals in the manner
provided in the By-Laws; (ii) provide that the number of directors of the
Company be fixed exclusively by the Board of Directors within the range
established in the By-Laws; and (iii) provide that any vacancy on the Board
of Directors shall be filled only by the remaining directors then in
office, though less than a quorum, and that directors so appointed will
serve for the remainder of the full term of the class in which the vacancy
occurred rather than until the next annual meeting of stockholders.
Although the Board of Directors has no intention at the present time
of doing so, it could issue additional series of Preferred Stock that
could, depending on the terms of such series, impede the completion of a
merger, tender offer or other takeover attempt. The Board of Directors
will make any determination to issue such shares based on its judgment as
to the best interests of the Company and its stockholders. The Board of
Directors, in so acting, could issue Preferred Stock having terms that
could discourage an acquisition attempt through which an acquiror may be
able to change the composition of the Board of Directors, including a
tender offer or other transaction that some, or a majority, of the
Company's stockholders might believe to be in their best interests or in
which stockholders might receive a premium for their stock over the then
current market price of such stock.
<PAGE>
Insurance Regulation Concerning Change of Control
State insurance regulatory laws intended primarily for the protection
of policyholders contain provisions that require advance approval by state
agencies of any change in control of an insurance company that is domiciled
(or, in some cases, having such substantial business that it is deemed
commercially domiciled) in that state. "Control" is generally presumed to
exist through the ownership of 10% or more of the voting securities of a
domestic insurance company or of any company which controls a domestic
insurance company. In addition, many state insurance regulatory laws
contain provisions that may require pre-notification to state agencies of a
change in control of a nondomestic admitted insurance company in that
state. While such pre-notification statutes do not authorize the state
agency to disapprove the change of control, such statutes do authorize the
issuance of a cease and desist order with respect to the nondomestic
admitted insurer if certain conditions exist such as undue market
concentration. Any future transactions that would constitute a change in
control of the Company would generally require prior approval by the state
insurance departments of Arizona, Delaware, Mississippi and Texas and may
require the pre-acquisition notification in those states which have adopted
pre-acquisition notification provisions and wherein the insurers are
admitted to transact business. Such requirements may deter, delay or
prevent certain transactions affecting the control of or the ownership of
Common Stock, including transactions that could be advantageous to the
shareholders of the Company.
Limitation of Liability of Directors
The Certificate of Incorporation provides that a director of the
Company will not be personally liable to the Company or its shareholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Company or its shareholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware Law, which concerns unlawful
payments of dividends, stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit.
While the Certificate of Incorporation provides directors with
protection from awards for monetary damages for breaches of their duty of
care, it does not eliminate such duty. Accordingly, the Certificate of
Incorporation will have no effect on the availability of equitable remedies
such as an injunction or rescission based on a director's breach of his or
her duty of care. The provisions of the Certificate of Incorporation
described above apply to an officer of the Company only if he or she is a
director of the Company and is acting in his or her capacity as director,
and do not apply to officers of the Company who are not directors.
<PAGE>
DESCRIPTION OF CONVERTIBLE SUBORDINATED DEBENTURES
The shares of Series A Preferred Stock are exchangeable, in whole or
in part, at the option of Westbridge, at any time on or after April 12,
1995, upon not less than thirty (30) nor more than sixty (60) days prior
written notice to the holders thereof, for that principal amount of
Convertible Subordinated Debentures equal to the Liquidation Preference for
the shares to be exchanged. If Westbridge elects to exchange the Series A
Preferred Stock for the Convertible Subordinated Debentures, Westbridge
will issue the Convertible Subordinated Debentures under the Convertible
Subordinated Indenture to be entered into between Westbridge and a trustee
to be designated by Westbridge prior to such exchange which would qualify
at the time of such designation as a trustee under the Trust Indenture Act
of 1939, as amended (together with any successor trustee, the "Trustee").
Westbridge may only effect such exchange if on or prior to the date of
exchange Westbridge shall have paid to holders of outstanding shares of
Series A Preferred Stock all accrued and unpaid dividends thereon to the
date fixed for exchange.
Set forth below is a summary of certain provisions of the Convertible
Subordinated Indenture and the Convertible Subordinated Debentures and is
qualified in its entirety by reference to the Convertible Subordinated
Indenture, including the definitions of certain terms contained therein.
The form of the Convertible Subordinated Indenture has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part
and is incorporated herein by reference.
General. The Convertible Subordinated Debentures will be general,
unsecured, subordinated obligations of Westbridge, limited to a principal
amount equal to the Liquidation Preference of the shares of Series A
Preferred Stock to be exchanged, and will mature on April 12, 2004. The
Convertible Subordinated Debentures will be issued only in fully registered
form, without coupons, in denominations of $1,000 and any integral
multiples thereof.
Interest. The Convertible Subordinated Debentures will bear interest
at a rate equal to the applicable dividend rate on the Series A Preferred
Stock at the time of exchange. Interest shall accrue from the date fixed
for exchange, or from the most recent interest payment date to which
interest has been paid or duly provided for, and shall be payable quarterly
in arrears on the last day of January, April, July and October of each year
to the person in whose name the Convertible Subordinated Debentures are
registered at the close of business on the January 15, April 15, July 15
and October 15, as the case may be, next preceding such interest payment
date. Interest will be computed on the basis of a 360-day year consisting
of twelve 30-day months. The interest rate is subject to adjustment as set
forth in the Convertible Subordinated Indenture and in a manner
substantially similar to the adjustment of the dividend rate relating to
the Series A Preferred Stock as set forth above. See "Description of
Capital Stock -- Preferred Stock -- Series A Preferred Stock -- Dividends."
Principal of, premium, if any, and interest on the Convertible Subordinated
Debentures will be payable, and the transfer of Convertible Subordinated
Debentures will be registrable, at the office or agency of Westbridge
maintained for that purpose in the City of New York, New York. In
addition, payment of interest may, at the option of Westbridge, be made by
check mailed to the address of the person entitled thereto as it appears in
the register of holders of Convertible Subordinated Debentures.
Conversion Rights. The Convertible Subordinated Debentures will be
convertible into shares of Common Stock at the option of the holder at any
time and at the conversion price then in effect on the terms and conditions
set forth in the Convertible Subordinated Indenture. The conversion price
with respect to the Convertible Subordinated Debentures is subject to
adjustment as set forth in the Convertible Subordinated Indenture and in a
manner substantially similar to the adjustment of the Conversion Price
relating to the Series A Preferred Stock as set forth above. See
"Description of Capital Stock -- Preferred Stock -- Series A Preferred
Stock -- Conversion." The right to convert Convertible Subordinated
Debentures called for redemption will terminate on the business day next
preceding the date fixed for redemption.
<PAGE>
Holders of Convertible Subordinated Debentures at the close of
business on an interest payment record date will be entitled to receive the
interest payable on such Convertible Subordinated Debentures on the
corresponding interest payment date notwithstanding the conversion thereof
or Westbridge's default on payment of the interest due on such interest
payment date. However, Convertible Subordinated Debentures surrendered for
conversion during the period from the close of business on any interest
payment record date to the opening of business on the corresponding
interest payment date (except Convertible Subordinated Debentures or
portions thereof called for redemption on a redemption date during such
period) must be accompanied by payment of an amount equal to the interest
payable on such Convertible Subordinated Debentures on such interest
payment date. A holder of Convertible Subordinated Debentures on an
interest payment record date who converts Convertible Subordinated
Debentures on an interest payment date will receive the interest payment on
such Convertible Subordinated Debentures by Westbridge on such date, and
the converting holder need not include payment in the amount of such
interest upon surrender of Convertible Subordinated Debentures for
conversion. Except as provided above, no payment or adjustment will be
made on account of accrued interest upon conversion of Convertible
Subordinated Debentures.
Upon surrender of the Convertible Subordinated Debentures to be
converted, as required in the Convertible Subordinated Indenture,
Westbridge will issue the number of full shares of Common Stock issuable
upon conversion thereof. No fractions of shares of Common Stock will be
issued upon conversion, but in lieu thereof, an amount will be paid in cash
by Westbridge to holders of Convertible Subordinated Debentures for such
fractional interest equal to such fractional interest multiplied by the
Current Market Price per share of Common Stock (as defined in the
Convertible Subordinated Indenture) on the conversion date.
Subordination. The payment of the principal of, premium, if any, and
interest on Convertible Subordinated Debentures will, to the extent set
forth in the Convertible Subordinated Indenture, be subordinated in right
of payment to the prior payment in full of all Senior Indebtedness (as
defined below).
In the event and during the continuation of any default in the payment
of principal, interest or premium, if any, on any Senior Indebtedness or an
event of default with respect to any Senior Indebtedness as defined therein
(after giving effect to any grace period provided for therein) or in any
agreement pursuant to which any Senior Indebtedness is issued and the
default is the subject of a judicial proceeding or the Company receives
notice of the default from the Trustee or any holder of Senior Indebtedness
or any trustee therefor, no payment with respect to the principal, interest
or premium, if any, on the Convertible Subordinated Debentures may be made
by Westbridge unless and until such default has been waived or shall have
ceased to exist. Upon any payment or distribution of assets or securities
of Westbridge to creditors upon any dissolution, winding up, liquidation,
reorganization or upon an assignment for the benefit of creditors or any
other marshaling of the assets and liabilities of Westbridge or upon other
proceedings, the holders of all Senior Indebtedness will first be entitled
to receive payment in full of all amounts due or to become due thereon
before the holders of the Convertible Subordinated Debentures will be
entitled to (i) receive any payment in respect of the principal of or
premium, if any, or interest on the Convertible Subordinated Debentures or
(ii) retain any assets so paid or distributed in respect thereof. In the
event that notwithstanding the foregoing, the Trustee or the holder of any
Convertible Subordinated Debentures is entitled to receive any payment or
distribution of assets or securities of Westbridge of any kind or character
(excluding securities of Westbridge as reorganized or readjusted or
securities of Westbridge or any other corporation provided for by a plan of
reorganization or readjustment, which are subordinate in right of payment
to all Senior Indebtedness to the same extent as the Convertible
Subordinated Debentures), then such payment or distribution will be
required to be paid over or delivered forthwith directly to the holders of
Senior Indebtedness or their representative(s) or the trustee(s) under any
indenture pursuant to which any instruments evidencing any Senior
Indebtedness may have been issued, for application to the payment of all
Senior Indebtedness remaining unpaid, to the extent necessary to pay the
Senior Indebtedness in full.
<PAGE>
Because of these subordination provisions, in the event of an
insolvency of Westbridge, holders of Convertible Subordinated Debentures
may recover less, ratably, than holders of Senior Indebtedness.
"Senior Indebtedness" as defined in the Convertible Subordinated
Indenture means the principal of, premium, if any, and interest (including
interest accruing on or after the filing of any petition in bankruptcy or
for reorganization relating to Westbridge, whether or not such claim for
post-petition interest is allowed in such proceeding) on the following,
whether outstanding at the date of the Convertible Subordinated Indenture
or thereafter incurred or created: (a) indebtedness of Westbridge for
money borrowed (including purchase-money obligations) evidenced by notes or
other written obligations, (b) indebtedness of Westbridge evidenced by
notes, debentures (other than the Convertible Subordinated Debentures),
bonds or other securities issued under the provisions of an indenture or
similar instrument, including, without limitation, Westbridge's Senior
Subordinated Notes, (c) obligations of Westbridge as lessee under
capitalized leases and leases of property made as part of any sale and
leaseback transactions, (d) indebtedness of others of any of the kinds
described in the preceding clauses (a) through (c) assumed or guaranteed by
Westbridge and (e) renewals, extensions and refundings of, and indebtedness
and obligations of a successor corporation issued in exchange for or in
replacement of, indebtedness or obligations of the kinds described in the
preceding clauses (a) through (d), unless in the case of any particular
indebtedness, obligation, renewal, extension or refunding the instrument
creating or evidencing the same or the assumption or guarantee thereof
expressly provides that such indebtedness, obligation, renewal, extension
or refunding is not superior in right of payment to the Convertible
Subordinated Debentures; provided, however, that the Convertible
Subordinated Debentures shall not be superior in right of payment to such
enumerated indebtedness issued, assumed or guaranteed by Westbridge.
At August 31, 1995, Westbridge's Senior Indebtedness aggregated
approximately $20,000,000, consisting primarily of the Senior Subordinated
Notes. Westbridge may from time to time to incur additional indebtedness
constituting Senior Indebtedness. The Convertible Subordinated Indenture
does not restrict the incurrence of additional Senior Indebtedness by
Westbridge or its subsidiaries.
Optional Redemption. The Convertible Subordinated Debentures will be
redeemable, at the option of Westbridge, at any time on or after April 12,
1997, in whole or in part, upon not less than thirty (30) nor more than
sixty (60) days prior notice at the redemption prices (expressed as
percentages of the principal amount being redeemed) set forth below, plus
accrued interest, if the date fixed for redemption occurs during the
twelve-month period beginning April 1 of the years indicated:
<PAGE>
Redemption
Year Price
1997. . . . . . . . . . . . . 105%
1998. . . . . . . . . . . . . 104%
1999. . . . . . . . . . . . . 103%
2000. . . . . . . . . . . . . 102%
2001. . . . . . . . . . . . . 101%
2002 and thereafter . . . . . 100%
Repurchase at Option of Holders Under Certain Circumstances. Upon the
occurrence of a Repurchase Event or an Event of Noncompliance of the type
described in clause (v) of the definition of such term (provided that such
Event of Noncompliance is the result of a voluntary assignment for the
benefit of creditors or a voluntary bankruptcy, reorganization, insolvency
or other similar proceeding commenced by Westbridge), each holder of
Convertible Subordinated Debentures shall be entitled, at such holder's
option, to require Westbridge to repurchase all of such holder's
outstanding Convertible Subordinated Debentures, or any portion thereof
that is an integral multiple of $1,000, by paying therefor in cash an
amount equal to (a) in the case of a Repurchase Event, the applicable
redemption price set forth in the form of Convertible Subordinated
Debentures, or (b) in the case of an Event of Noncompliance as described
above, the principal amount of Convertible Subordinated Debentures being
repurchased, together in each case with all accrued and unpaid interest to
the date fixed for repurchase.
Westbridge is obligated to provide notice to the Trustee and all
holders of record of the Convertible Subordinated Debentures of certain
information with respect to a repurchase as set forth in the Convertible
Subordinated Indenture. To exercise the right to require Westbridge to
repurchase outstanding Convertible Subordinated Debentures, holders must
deliver to the Trustee a written notice exercising such right.
Events of Default. The following will be Events of Default under the
Convertible Subordinated Indenture: (a) failure to pay principal of or
premium, if any, on the Convertible Subordinated Debentures when due at
maturity, upon redemption or otherwise; (b) failure to pay any interest on
any Convertible Subordinated Debentures when it becomes due and payable,
continued for five (5) business days; (c) failure to perform any other
covenant or restriction of Westbridge in the Convertible Subordinated
Indenture or in certain sections of the Preferred Stock Purchase Agreement,
continued for 60 days after written notice to the Company as provided in
the Convertible Subordinated Indenture; (d) certain events in bankruptcy,
insolvency or reorganization of Westbridge or any Subsidiary of Westbridge;
or (e) failure to pay when due principal plus interest in an amount equal
to at least $1,000,000 in respect of any indebtedness of Westbridge or any
Subsidiary of Westbridge and such failure results in acceleration of such
indebtedness, or a judgment or order for the payment of an amount equal to
at least $1,000,000 is rendered against Westbridge or any Subsidiary of
Westbridge and is not vacated, discharged, stayed or bonded pending appeal
within sixty (60) days thereof. Subject to the provisions of the
Convertible Subordinated Indenture relating to the duties of the Trustee,
in case an Event of Default shall occur and be continuing, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Convertible Subordinated Indenture at the request or direction of any of
the holders, unless such holders shall have offered to the Trustee
reasonable security or indemnity. The holders of a majority in aggregate
principal amount of the outstanding Convertible Subordinated Debentures
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust
or power conferred to the Trustee (subject to certain exceptions).
<PAGE>
If an Event of Default occurs and is continuing, either the Trustee or
the holders of at least 25% in aggregate principal amount of the
outstanding Convertible Subordinated Debentures may accelerate the maturity
of all Convertible Subordinated Debentures. Notwithstanding the foregoing,
the maturity of the Convertible Subordinated Debentures automatically
accelerates upon the occurrence of an Event of Default arising out of
certain events in bankruptcy, insolvency or reorganization, as set forth
above. After acceleration, but before a judgment or decree based on
acceleration, the holders of a majority in aggregate principal amount of
outstanding Convertible Subordinated Debentures may, under certain
circumstances, rescind and annul the acceleration if all Events of Default,
other than the nonpayment of principal amounts which became due by
acceleration, have been cured or waived, and certain other payments have
been made by Westbridge, as provided in the Convertible Subordinated
Indenture.
No holder of any Convertible Subordinated Debentures will have any
right to institute any proceeding with respect to the Convertible
Subordinated Indenture or for the appointment of a receiver or trustee, or
for any remedy under the Convertible Subordinated Indenture unless such
holder previously has given to the Trustee written notice of a continuing
Event of Default and unless the holders of at least 25% in aggregate
principal amount of the outstanding Convertible Subordinated Debentures
have made written request, and offered reasonable indemnity to the Trustee,
to institute proceedings as trustee, and the Trustee has not received from
the holders of a majority in aggregate principal amount of the outstanding
Convertible Subordinated Debentures a direction inconsistent with the
request, and the Trustee has failed to institute such proceedings, within
60 days. However, these limitations do not apply to a suit instituted by a
holder of Convertible Subordinated Debentures for the enforcement of
payment of the principal or premium, if any, or interest on such
Convertible Subordinated Debentures on or after the respective due dates
expressed in such Convertible Subordinated Debentures or the right to
require Westbridge to repurchase the Convertible Subordinated Debentures
under certain circumstances or convert the Convertible Subordinated
Debentures in accordance with the Convertible Subordinated Indenture.
Westbridge will be required to furnish to the Trustee annually a
statement of the performance by Westbridge of certain of its obligations
under the Convertible Subordinated Indenture and as to any default in the
performance of the obligations.
The Trustee will, within ninety (90) days after the occurrence of a
default, mail to all holders of Convertible Subordinated Debentures notice
of all defaults known to it, but except in the case of a default in the
payment of the principal of or premium, if any, or interest on any of the
Convertible Subordinated Debentures, the Trustee shall be protected in
withholding such notice if it in good faith determines that the withholding
of such notice is in the interests of such holders.
The holders of a majority in aggregate principal amount of outstanding
Convertible Subordinated Debentures may on behalf of the holders of all the
Convertible Subordinated Debentures waive any past defaults, other than a
default (a) in payment of the principal of or premium, if any, or interest
on any Convertible Subordinated Debentures or (b) in respect of a covenant
or provision in the Convertible Subordinated Indenture which pursuant to
the Convertible Subordinated Indenture cannot be modified or amended
without the consent of the holder of each outstanding Convertible
Subordinated Debenture affected.
<PAGE>
Merger and Consolidation. Westbridge may not consolidate with or
merge into any other corporation or lease, convey or transfer all or
substantially all of its properties and assets to, another corporation,
person or entity unless (a) the successor or transferee is a corporation
organized and existing under the laws of the United States, any state
thereof or the District of Columbia, (b) the successor assumes the due and
punctual payment of the principal of and premium, if any, and interest on
all the Subordinated Convertible Debentures and the performance of every
covenant by Westbridge in the Convertible Subordinated Indenture, and
provides for conversion rights to the extent set forth in the Convertible
Subordinated Indenture, (c) after such transaction no Event of Default
exists, and no event has occurred and is continuing which after notice or
lapse of time or both, would become an Event of Default, and (d) Westbridge
has delivered to the Trustee an officers' certificate and an opinion of
counsel as set forth in the Convertible Subordinated Indenture.
Modification. Supplemental indentures modifying or amending the
Convertible Subordinated Indenture may be entered into by Westbridge and
the Trustee with the consent of the holders of a majority in aggregate
principal amount of the outstanding Convertible Subordinated Debentures;
provided, however, that no such modification or amendment may, without the
consent of the holder of each Convertible Subordinated Debenture affected
thereby, (a) change the stated maturity of the principal, or any
installment of interest on, any Convertible Subordinate Debentures, reduce
the interest rate, the principal amount, or premium, if any, on any
Convertible Subordinated Debentures, or impair the right of a holder to
institute suit for payment thereof, change the place of payment where or
the currency in which the Convertible Subordinated Debentures are payable,
impair the right to convert the Convertible Subordinated Debentures into
Common Stock, modify the subordination provisions of the Convertible
Subordinated Indenture in a manner adverse to the holders of Convertible
Subordinated Debentures or, following the making of an offer to purchase
Convertible Subordinated Debentures by Westbridge in connection with a
repurchase at the option of holders, modify the provisions of the
Convertible Subordinated Indenture with respect to Westbridge's obligation
to purchase such Convertible Subordinated Debentures in a manner adverse to
such holder, or (b) reduce the percentage in principal amount of the
outstanding Convertible Subordinated Debentures, the consent of holders of
which is required for any such modifications or any waiver of certain
provisions provided for in the Convertible Subordinated Indenture.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax
consequences of acquiring, owning and disposing of the Series A Preferred
Stock. Milbank, Tweed, Hadley & McCloy has acted as the Company's tax
counsel and has delivered an opinion that the summary, insofar as it
expresses conclusions of law, is accurate in all material respects. Tax
consequences that result from the tax status or particular circumstances of
the holder are not addressed. Thus, for example, the summary does not
discuss the treatment of holders that are subject to special tax rules,
such as banks, insurance companies, regulated investment companies,
personal holding companies, corporations subject to the alternative minimum
tax, S corporations, foreign entities, nonresident alien individuals,
broker-dealers and tax-exempt entities. The summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, court decisions and current administrative rulings and
pronouncements of the Internal Revenue Service ("IRS"), all of which are
subject to change, possibly with retroactive effect. The summary assumes
that the Series A Preferred Stock will be held as "capital assets" as
defined in the Code. Prospective purchasers are advised to consult their
own tax advisors regarding the tax consequences of acquiring, holding or
disposing of the Series A Preferred Stock in light of their personal
investment circumstances, and the consequences under federal, state, local
and foreign tax laws.
<PAGE>
Dividends on Series A Preferred Stock
Distributions with respect to the Series A Preferred Stock will
constitute "dividends" for federal income tax purposes to the extent that
the Company has current or accumulated earnings and profits for federal
income tax purposes. Distributions paid to corporations that qualify as
"dividends" for federal income tax purposes will generally be eligible for
the dividends received deduction under section 243 of the Code, subject to
the limitations contained in sections 246 and 246A of the Code.
The dividends received deduction will not be available with respect to
stock that is held for 45 days or less (90 days in the case of a dividend
on preferred stock attributable to a period or periods aggregating more
than 366 days), including the day of disposition, but excluding the day of
acquisition or any day that is more than 45 days (or 90 days) after the
date on which the stock becomes ex-dividend. A taxpayer's holding period
for these purposes is reduced by periods during which the taxpayer has an
option to sell, is under a contractual obligation to sell, has made (but
not closed) a short sale of substantially identical stock or securities or
is the grantor of an option to purchase substantially identical stock or
securities. A taxpayer's holding period also is reduced where the
taxpayer's risk of loss with respect to the stock is considered diminished
by reason of the taxpayer holding one or more positions in substantially
similar or related property. Proposed regulations issued on May 26, 1993
offer guidance on the application of this rule. These proposed regulations
are prospective, except for certain specified transactions, including a
short sale of common stock or a convertible debenture when the taxpayer
holds convertible preferred stock of the same issuer and the price changes
of the common stock or convertible debenture, as the case may be, are
related to price changes on the convertible preferred stock. Further, the
dividends received deduction will also not be available if the taxpayer is
under an obligation to make related payments with respect to positions in
substantially similar or related property. The dividends received
deduction will be limited to specified percentages of the holder's taxable
income and may be reduced or eliminated if the holder has indebtedness
"directly attributable" to its investment in the stock. Prospective
corporate purchasers of Series A Preferred Stock should consult their own
tax advisors to determine whether these limitations might apply to them.
A corporate holder may, in general, be required to include in its
alternative minimum taxable income an amount equal to a portion of any
dividends received deduction allowed in computing regular taxable income.
If a distribution with respect to Series A Preferred Stock exceeds the
holder's allocable share of the Company's current and accumulated earnings
and profits, the excess will be applied against and reduce the holder's tax
basis in the Series A Preferred Stock. The amount in excess of the amount
of the dividend and the amount applied against basis, if any, will be
treated as capital gain.
<PAGE>
Extraordinary Dividends
If a corporate holder receives an "extraordinary dividend" from the
Company with respect to Series A Preferred Stock that it has not held for
more than two years on the dividend announcement date, the basis of the
Series A Preferred Stock will be reduced (but not below zero) by the
portion of the dividend that is not taxed because of the dividends received
deduction. If, because of the prohibition against reducing basis below
zero, any amount of the non-taxed portion of an extraordinary dividend has
not been applied to reduce basis, that amount will be treated as gain from
the sale or exchange of stock when the stock is disposed of. An
"extraordinary dividend" on the Series A Preferred Stock would include a
dividend that (i) equals or exceeds 5% of the holder's adjusted tax basis
in the stock, treating all dividends having ex-dividend dates within an 85-
day period as one dividend, or (ii) exceeds 20% of the holder's adjusted
tax basis (determined without regard to any reduction for the non-taxed
portion of prior extraordinary dividends) in the stock, treating all
dividends having ex-dividend dates within a 365-day period as one dividend.
A holder may elect to use the fair market value of the stock, rather than
its adjusted basis, for purposes of applying the 5% or 20% limitation, if
the holder is able to establish fair market value to the satisfaction of
the IRS. An "extraordinary dividend" would also include any amount treated
as a dividend in the case of a redemption of the Series A Preferred Stock
that is non-pro rata as to all stockholders, without regard to the period
the holder held the stock.
Special rules apply to "qualified preferred dividends." A qualified
preferred dividend is any fixed dividend payable with respect to preferred
stock which (i) provides for fixed preferred dividends payable no less
often than annually and (ii) is not in arrears as to dividends when
acquired, provided the actual rate of return, as determined under section
1059(e)(3) of the Code, on the stock does not exceed 15%. Where a
qualified preferred dividend exceeds the 5% or 20% extraordinary dividend
limitation described above, (1) the extraordinary dividend rules will not
apply if the taxpayer has held the stock for more than five years, and (2)
if the taxpayer disposes of the stock before it has been held for more than
five years, the aggregate reduction in basis will not exceed the excess of
the qualified preferred dividends paid on the stock during the period held
by the taxpayer over the qualified preferred dividends that would have been
paid during the period on the basis of the stated rate of return as
determined under section 1059(e)(3) of the Code. The length of time a
taxpayer is deemed to have held stock for purposes of the extraordinary
dividend rules is determined under principles similar to those applicable
to the dividends received deduction discussed above.
Redemption Premium
If the redemption price of redeemable preferred stock exceeds its
issue price, all or a portion of the excess may constitute an unreasonable
redemption premium, taxable as a dividend to the extent of the issuing
corporation's current or accumulated earnings and profits over the period
during which the preferred stock cannot be redeemed. In the case of
redeemable preferred stock that the issuer is not required to redeem at a
specified time, a premium is considered to be reasonable if it is in the
nature of a penalty for a premature redemption and if the premium does not
exceed the amount the issuer would be required to pay for the redemption
right under market conditions existing at the time of issuance of the
preferred stock. If the redemption premium payable on the Series A
Preferred Stock is considered unreasonable under the foregoing rules, a
holder of the Series A Preferred Stock would take the amount of such
premium (the excess of the redemption price over the issue price) into
income over the period during which the stock cannot be called for
redemption under an economic accrual method. The Revenue Reconciliation
Act of 1990 authorized the Treasury Department to promulgate new
regulations to govern the federal income tax treatment of redemption
premiums on preferred stock. Under proposed regulations (the "Proposed 305
Regulations") that would not apply to stock issued before publications of
final regulations, and thus would not by their terms apply to the Series A
Preferred Stock, in the case of redeemable preferred stock that the issuer
is not required to redeem at a specified time, the premium may be taxable
as a dividend only if redemption pursuant to the issuer's call right is
more likely than not to occur. The Proposed 305 Regulations provide that a
redemption is not treated as more likely than not to occur if (i) the
issuer and the holder are not related within the meaning of Section 267(b)
or Section 707(b) of the Code, (ii) there are no arrangements that
effectively require the issuer to redeem the stock, and (iii) the exercise
of the right to redeem would not reduce the yield of the stock. Even if
the redemption is more likely than not to occur, the premium will not be
taxable as a dividend if the premium is solely in the nature of a penalty
for premature redemption. A penalty for premature redemption is a premium
paid as a result of changes in economic or market conditions over which
neither the issuer nor the holder has control. There can be no assurance
final regulations will not differ from the Proposed 305 Regulations and
have retroactive effect.
<PAGE>
In addition, the legislative history of the Revenue Reconciliation Act
of 1990 indicates that the Treasury Department may treat accrued and unpaid
dividends on cumulative preferred stock, like the Series A Preferred Stock,
as a disguised redemption premium if, at the time of issuance of the stock,
there is no intention for dividends to be paid currently. If accrued and
unpaid dividends were treated as a disguised redemption premium, the holder
would be required to accrue the dividends into income without regard to
whether they were paid in cash.
Redemption of Series A Preferred Stock for Cash or Convertible Subordinated
Debentures
Under the rules of section 302 of the Code, a redemption of shares of
Series A Preferred Stock by the Company for cash will be treated as a
distribution taxable as a dividend to redeeming stockholders to the extent
of the Company's current or accumulated earnings and profits, unless the
redemption (i) results in a "complete termination" of the stockholder's
interest in the Company (within the meaning of section 302(b)(3) of the
Code), (ii) is "substantially disproportionate" (within the meaning of
section 302(b)(2) of the Code) with respect to the holder or (iii) is "not
essentially equivalent to a dividend" (within the meaning of section
302(b)(1) of the Code). In determining whether any of the Code section
302(b) tests have been met, shares of Common Stock and of any other class
of stock of the Company will be taken into account along with shares of
Series A Preferred Stock. Moreover, shares considered to be owned by the
holder by reason of the constructive ownership rules set forth in section
318 of the Code, as well as shares actually owned, will be taken into
account. If any of the foregoing tests is met, then, except with respect
to declared and unpaid dividends, if any, the redemption of shares of
Series A Preferred Stock for cash will result in taxable capital gain or
loss equal to the difference between the amount of cash received and the
holder's tax basis in the redeemed shares. Any capital gain or loss and
will be long-term capital gain or loss if the shareholder's holding period
exceeds one year. Based on a published IRS ruling, the redemption of a
shareholder's Series A Preferred Stock for cash will be treated as "not
essentially equivalent to a dividend" if, taking into account the
constructive ownership rules, (a) the shareholder's relative stock interest
in the Company is minimal, (b) the shareholder exercises no control over
the Company's affairs and (c) there is a reduction in the holder's
proportionate interest in the Company.
In general, an exchange of Series A Preferred Stock for Convertible
Subordinated Debentures will be subject to the same rules as a redemption
for cash. However, because the Convertible Subordinated Debentures will be
convertible into Common Stock, which a holder of the Convertible
Subordinated Debentures will be deemed to own under the constructive
ownership rules of section 318 of the Code, it is unlikely the receipt of
Convertible Subordinated Debentures in exchange for the Series A Preferred
Stock would qualify under the "complete termination" or "substantially
disproportionate" tests described above. Accordingly, the redemption would
be treated as a distribution to the extent of the issue price of the
Convertible Subordinated Debentures and be taxable as a dividend (to the
extent of the Company's current or accumulated earnings and profits) unless
the "not essentially equivalent to a dividend" test is satisfied. No
assurance can be given that it would be possible to satisfy that test in
these circumstances. If any exception is satisfied, the exchange would
not, except with respect to declared and unpaid dividends, be treated as a
dividend and the holder would recognize capital gain or loss equal to the
difference between the issue price of the Convertible Subordinated
Debentures and the holder's adjusted tax basis in the Series A Preferred
Stock. Gain or loss would be long-term capital gain or loss if the holding
period for the Series A Preferred Stock exceeded one year.
<PAGE>
If a redemption of Series A Preferred Stock is treated as a
distribution that may be taxable as a dividend, as opposed to consideration
received in a sale or exchange, the amount of the distribution will be
measured by the amount of cash or the issue price of the Convertible
Subordinated Debentures, as the case may be, received by the holder. The
holder's adjusted tax basis in the Series A Preferred Stock will be
transferred to any remaining stock holdings in the Company. If the holder
does not retain any stock ownership in the Company, it is unclear whether
the holder will be permitted to transfer the basis to any Convertible
Subordinated Debentures received in the exchange or will lose the basis
entirely. Under section 1059 of the Code, the term "extraordinary
dividend" includes any redemption of stock that is treated as a dividend
and that is non-pro rata as to all stock, including holders of common
stock, irrespective of holding period. Consequently, to the extent an
exchange of Series A Preferred Stock for Convertible Subordinated
Debentures or cash constitutes a distribution taxable as a dividend, it may
constitute an "extraordinary dividend" to a corporate shareholder. See "--
Extraordinary Dividends" above. All prospective purchasers are urged to
consult their own tax advisers with respect to the question of whether an
exchange of Series A Preferred Stock for Convertible Subordinated
Debentures will satisfy any of the non-dividend exceptions to section
302(b) of the Code and other issues relating to an exchange for Convertible
Subordinated Debentures.
Treatment of Convertible Subordinated Debentures
Interest and Original Issue Discount
Stated interest on the Convertible Subordinated Debentures should
generally be included in the holder's taxable income in accordance with the
holder's method of accounting. In addition, if the Series A Preferred
Stock is exchanged for Convertible Subordinated Debentures and the issue
price of the Convertible Subordinated Debentures, as determined under
section 1273 or 1274 of the Code, is less than the stated redemption price
at maturity of the Convertible Subordinated Debentures (as determined under
Code section 1273), then, provided the excess is greater than a statutory
de minimis amount, the Convertible Subordinated Debentures will have
original issue discount ("OID"). Assuming the Convertible Subordinated
Debentures are traded on an established securities market, the issue price
of the Convertible Subordinated Debentures will be their fair market value
(including the value of the conversion feature) on their issue date.
Similarly, if the Series A Preferred Stock, but not the Convertible
Subordinated Debentures issued and exchanged therefor, is traded on an
established securities market at the time of the exchange, the issue price
of each Convertible Subordinated Debenture should be the fair market value
of the Preferred Stock exchanged therefor at the time of the exchange. In
the event neither the Series A Preferred Stock nor the Convertible
Subordinated Debentures are traded on an established securities market, the
issue price of the Convertible Subordinated Debentures will be their stated
principal amount or, in the event the Convertible Subordinated Debentures
do not bear "adequate stated interest" within the meaning of Code section
1274, their "imputed principal amount," which is generally the sum of the
present values of all payments due under the Convertible Subordinated
Debentures, discounted from the date of payment to their issue date at the
appropriate "applicable federal rate." A holder of a Convertible
Subordinated Debenture with OID would be required to include OID in income
as it accrues using a constant yield to maturity method (regardless of its
method of accounting). OID is considered de minimis if it is less than
0.25% of the principal amount of the Convertible Subordinated Debenture
multiplied by its weighted average maturity. In general, OID must be
included in income in advance of the receipt of the cash representing that
income.
Bond Premium on Convertible Subordinated Debentures
If the Series A Preferred Stock is exchanged for Convertible
Subordinated Debentures, and the holder's basis in the Convertible
Subordinated Debentures exceeds the amount payable at the maturity date (or
earlier redemption date, if appropriate) of the Convertible Subordinated
Debentures, the excess (excluding the amount attributable to the conversion
feature as determined under Treasury regulation section 1.171-2(c)(2)) may
be deductible, subject to certain limitations with respect to individuals,
by the holder of the Convertible Subordinated Debentures as amortizable
bond premium over the term of the Convertible Subordinated Debentures
(taking into account earlier call dates, as appropriate), under a yield to
maturity formula but only if an election by the taxpayer under section 171
of the Code is in effect or is made. An election is binding once made and
applies to all debt obligations owned or subsequently acquired by the
taxpayer. The amortizable bond premium will be treated as an offset to
interest income on the Convertible Subordinated Debentures, rather than as
a separate deduction item.
Market Discount on Resale of Convertible Subordinated Debentures
If a holder acquires (other than at original issue) a Convertible
Subordinated Debenture at a price that is less than the principal amount of
the Convertible Subordinated Debenture, or if the Convertible Subordinated
Debenture is issued with OID, its adjusted issue price, by an amount
greater than a statutory de minimis amount, the Convertible Subordinated
Debenture will be treated as having market discount. If a holder
thereafter recognizes gain upon disposition of such a Convertible
Subordinated Debenture, the lesser of (i) such gain, or (ii) the portion of
the market discount that accrued while the Convertible Subordinated
Debenture was held by the holder will be treated as ordinary income at the
time of the disposition. A holder of a Convertible Subordinated Debenture
may elect to include any market discount in income currently as it accrues
rather than upon disposition on the Convertible Subordinated Debenture.
This election is revocable only with the consent of the IRS and applies to
all market discount bonds acquired by the holder on or after the first day
of the taxable year in which the holder makes the election In addition,
although market discount generally accrues on a straight line basis over
the term of the Convertible Subordinated Debenture, at the election of the
holder, it will accrue on a constant interest basis.
A holder of a Convertible Subordinated Debenture that acquired it at a
market discount may be required to defer the deduction of all or a portion
of any interest paid or accrued on any indebtedness incurred or continued
to purchase or carry the Convertible Subordinated Debenture until the
market discount is recognizable upon a subsequent disposition of the
Convertible Subordinated Debenture. Deferral is not required, however, if
the holder elects to include accrued market discount in income currently.
<PAGE>
Redemption or Sale of Convertible Subordinated Debentures
Generally, any redemption or sale of Convertible Subordinated
Debentures by a holder would result in taxable gain or loss equal to the
difference between the amount of cash received (except to the extent that
cash received is attributable to accrued interest) and the holder's basis
in the Convertible Subordinated Debentures. The tax basis of a holder of a
Convertible Subordinated Debenture generally will be equal to the holder's
cost, increased by any market discount included in the holder's income, and
reduced by any amortizable bond premium applied against the holder's
income, prior to sale or redemption of the Debenture. The tax basis of a
holder that received a Convertible Subordinated Debenture in exchange for
Series A Preferred Stock will generally be equal to the issue price of the
Convertible Subordinated Debenture on the date the Debenture was issued
plus any OID or market discount on the Convertible Subordinated Debenture
included in the holder's income prior to sale or redemption of the
Convertible Subordinated Debenture. Subject to the market discount rules
described above, such gain or loss would be capital gain or loss and would
be long-term capital gain or loss if the holding period exceeded one year.
Conversion of Series A Preferred Stock or Convertible Subordinated
Debentures into Common Stock
No gain or loss generally will be recognized upon conversion of shares
of Series A Preferred Stock or Convertible Subordinated Debentures into
shares of Common Stock, except with respect to any cash paid in lieu of
fractional shares of Common Stock, which generally will be capital gain.
Additionally, if the conversion takes place when there is a dividend
arrearage on the Series A Preferred Stock and the fair market value of the
Common Stock exceeds the issue price of the Series A Preferred Stock, a
portion of the Common Stock received might be treated as a dividend
distribution, taxable as ordinary income. In addition, ordinary income may
be recognized to the extent that a portion of the Common Stock received is
determined to constitute an interest payment with respect to the
Convertible Subordinated Debentures. The tax basis of the Common Stock
received upon conversion will be equal to the tax basis of the shares of
Series A Preferred Stock (assuming the conversion is not treated as
resulting in the payment of a dividend) or the Convertible Subordinated
Debentures converted, and the holding period of the Common Stock will
include the holding period of the shares of Series A Preferred Stock or
Convertible Subordinated Debentures converted. The tax basis of any Common
Stock treated as a dividend will be equal to its fair market value on the
date of the distribution.
Adjustment of Conversion Price
Holders of convertible preferred stock or convertible debt may be
deemed to have received a constructive distribution of stock that is
taxable as a dividend where the conversion ratio is adjusted to reflect a
cash or property distribution with respect to stock into which such
preferred stock is convertible. An adjustment to the conversion price made
pursuant to a bona fide reasonable adjustment formula which has the effect
of preventing the dilution of the interest of the holders generally will
not be considered to result in a constructive distribution of stock.
Certain of the possible adjustments provided in the Series A Preferred
Stock and Convertible Subordinated Debentures may not qualify as being
pursuant to a bona fide reasonable adjustment formula. If a nonqualifying
adjustment were made, the holders of Series A Preferred Stock or
Convertible Subordinated Debentures might be deemed to have received a
taxable stock dividend.
<PAGE>
Backup Withholding
Under the backup withholding provisions of the Code and applicable
Treasury regulations, a holder of Series A Preferred Stock or Convertible
Subordinated Debentures may be subject to backup withholding at the rate of
31% with respect to dividends on, or the proceeds of a sale, exchange or
redemption of, the Series A Preferred Stock or Convertible Subordinated
Debentures, unless such holder (i) is a corporation or comes within certain
other exempt categories and when required demonstrates this fact or (ii)
provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. The amount of any backup
withholding from a payment to a holder will be credited against the
holder's federal income tax liability and may entitle the holder to a
refund, provided that the required information is furnished to the IRS.
PLAN OF DISTRIBUTION
Westbridge will not receive any of the proceeds from the sale by the
Selling Securityholders of the Series A Preferred Stock, Common Stock or
Convertible Subordinated Debentures offered hereby. Any or all of the
shares of Series A Preferred Stock, Common Stock or Convertible
Subordinated Debentures may be sold from time to time (i) to or through
underwriters or dealers, (ii) directly to one or more other purchasers,
(iii) through agents on a best-efforts basis, or (iv) through a combination
of any such methods of sale. The Selling Securityholders and any such
underwriters, dealers or agents that participate in the distribution of the
Series A Preferred Stock, Common Stock or Convertible Subordinated
Debentures may be deemed to be underwriters within the meaning of the
Securities Act, and any profit on the sale of the Series A Preferred Stock,
Common Stock or Convertible Subordinated Debentures by them and any
discounts, commissions or concessions received by them may be deemed to be
underwriting discounts and commissions under the Securities Act. The
Series A Preferred Stock, Common Stock or Convertible Subordinated
Debentures may be sold from time to time in one or more transactions at a
fixed offering price, which may be changed, or at varying prices determined
at the time of sale or at negotiated prices. Such prices will be
determined by the Selling Securityholders or by an agreement between the
Selling Securityholders and underwriters or dealers. Brokers or dealers
acting in connection with the sale of Series A Preferred Stock, Common
Stock or Convertible Subordinated Debentures contemplated by this
Prospectus may receive fees or commissions in connection therewith.
At the time a particular offer of Series A Preferred Stock, Common
Stock or Convertible Subordinated Debentures is made, to the extent
required, a supplement to this Prospectus will be distributed which will
identify and set forth the aggregate number of shares of Series A Preferred
Stock, Common Stock or Convertible Subordinated Debentures being offered
and the terms of the offering, including the name or names of any
underwriters, dealers or agents, the purchase price paid by any underwriter
for Series A Preferred Stock, Common Stock or Convertible Subordinated
Debentures purchased from the Selling Securityholders, any discounts,
commissions and other items constituting compensation from the Selling
Securityholders and/or Westbridge and any discounts, commissions or
concessions allowed or reallowed or paid to dealers, including the proposed
selling price to the public. Such supplement to this Prospectus and, if
necessary, a post-effective amendment to the Registration Statement of
which this Prospectus is a part, will be filed with the Commission to
reflect the disclosure of additional information with respect to the
distribution of the Series A Preferred Stock, Common Stock or Convertible
Subordinated Debentures.
<PAGE>
The Series A Preferred Stock is not currently listed on any national
securities exchange or included on the NASDAQ System. Westbridge does not
intend to provide for such a listing or inclusion for the Series A
Preferred Stock or, if issued, the Convertible Subordinated Debentures.
The outstanding Common Stock is, and the Common Stock offered hereby will
be, listed on the NYSE.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Series A Preferred Stock, Common
Stock or Convertible Subordinated Debentures may not simultaneously engage
in market making activities with respect to the Series A Preferred Stock,
Common Stock or Convertible Subordinated Debentures for a period of nine
business days prior to the commencement of such distribution. In addition
and without limiting the foregoing, the Selling Securityholders and any
person participating in the distribution of the Series A Preferred Stock,
Common Stock or Convertible Subordinated Debentures will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation rules 10b-6 and 10b-7, which
provisions may limit the timing of purchases and sales of the Series A
Preferred Stock, Common Stock or Convertible Subordinated Debentures by the
Selling Securityholders or any such other person.
In order to comply with certain states' securities laws, if
applicable, the Series A Preferred Stock, Common Stock and Convertible
Subordinated Debentures will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In certain states the Series A
Preferred Stock, Common Stock and Convertible Subordinated Debentures may
not be sold unless they have been registered or qualified for sale in such
state, or unless an exemption from registration or qualification is
available.
Pursuant to the Preferred Stock Purchase Agreement, Westbridge agreed
to file the Registration Statement of which this Prospectus is a part with
the Commission and use its best efforts to have it declared effective, and
to indemnify the Selling Securityholders and certain other persons against
certain liabilities, including liabilities arising under the Securities
Act. Under the terms of such Preferred Stock Purchase Agreement,
Westbridge has agreed to keep such Registration Statement continuously
effective for a period of three years from the date the Registration
Statement is first declared effective by the Commission.
Pursuant to the Preferred Stock Purchase Agreement, Westbridge has
paid or will pay any and all expenses incident to the performance of or
compliance with such agreement including, among other things, registration
and filing fees, fees and expenses incurred in connection with compliance
with securities or blue sky laws of the applicable states, fees and
disbursements of counsel and independent public accountants for Westbridge,
but excluding underwriting discounts and commissions, the fees and expenses
of counsel to the Selling Securityholders and transfer taxes, if any.
In the Preferred Stock Purchase Agreement, Westbridge agreed to
indemnify and hold harmless, to the extent permitted by law, the Selling
Securityholders and their general and limited partners, officers,
directors, agents and employees and each person who controls a Selling
Securityholder against all losses, claims, damages, liabilities, costs
(including the costs of investigation and reasonable attorneys' fees) and
expenses (collectively "Losses"), arising out of or based upon any untrue
or alleged untrue statement of material fact contained in this Prospectus
or the Registration Statement of which it is a part, any amendment of
supplement hereto or thereto, or any omission or alleged omission of a
material fact required to be stated herein or therein or necessary to make
the statements herein or therein not misleading, except to the extent that
the same arise out of or are based upon information furnished in writing to
Westbridge by such Selling Securityholders expressly for use herein or
therein. The Selling Securityholders also have agreed to indemnify, to the
extent permitted by law, Westbridge and its officers, directors, agents and
employees, and each person who controls Westbridge against Losses arising
out of or based upon any untrue statement of material fact contained in
this Prospectus or the Registration Statement of which it is a part, any
omission to state herein or therein a material fact required to be stated
herein or therein or necessary to make the statements herein or therein not
misleading to the extent such statement or omission is contained in
information provided by such Selling Securityholder for inclusion herein or
therein.
<PAGE>
SELLING SECURITYHOLDERS
Certain holders of Series A Preferred Stock, Common Stock or
Convertible Subordinated Debentures may offer such securities hereby on a
continuous or delayed basis pursuant to Rule 415 promulgated under the
Securities Act. Holders who so offer such securities (the "Selling
Securityholders") shall consist solely of Investors and permitted
transferees thereof, if any, which acquired such securities other than
under an effective registration statement with respect to such securities
or in a public distribution pursuant to Rule 144 promulgated under the
Securities Act.
The following table provides certain information as of the date of
this Prospectus with respect to each Selling Securityholder for whose
account Series A Preferred Stock, Common Stock or Convertible Subordinated
Debentures may be sold pursuant to this Prospectus, which information has
been furnished to the Company by the Selling Securityholders and other
sources that the Company has not certified. Because the Selling
Securityholders may sell all or some part of the Series A Preferred Stock,
Common Stock or Convertible Subordinated Debentures that they hold pursuant
to this Prospectus, no estimate can be given as to the amount of Series A
Preferred Stock, Common Stock or Convertible Subordinated Debentures that
will be held by the Selling Securityholders at any time subsequent to the
date of this Prospectus. See "Plan of Distribution." As of the date of
this Prospectus, none of the Selling Securityholders has had a material
relationship within the past three years with the Company or any of its
Subsidiaries, other than as a result of the ownership of the securities of
the Company.
<PAGE>
<TABLE>
<CAPTION>
Shares of Shares of
Series A Series A
Preferred Stock Preferred Stock
Beneficially Beneficially
Owned Prior to Shares Owned After the
Name of Selling Securityholder the Offering(1) Offered Hereby(2) the Offering(1)(2)(3)
Number Percent Number Percent(4)
------ ------- ----------------- ------ ----------
<S> <C> <C> <C> <C>
Chestnut Hill Fund L.P.(5) 1,000 5.00% 1,000 0
Delaware State Employees
Retirement Fund 1,675 8.38 1,675 0
Declaration of Trust For Defined Benefit
Plans of Zeneca Holdings Inc. 325 1.63 325 0
Declaration of Trust For Defined Benefit
Plans of ICI American Holdings Inc. 500 2.50 500 0
Davos Partners, L.P.(6) 780 3.90 780 0
Quasar International Partners, C.V.(7) 630 3.15 630 0
Adrienne Partners, L.P.(6) 90 (10) 90 0
Sage International Fund Ltd. 1,000 5.00 1,000 0
Antosa Ltd. 250 1.25 250 0
Bonnington Corporation 150 (10) 150 0
Lulworth Corporation 150 (10) 150 0
Chesterwood Ltd. 150 (10) 150 0
Sebo Ltd. 150 (10) 150 0
Palmareal Ltd. 150 (10) 150 0
President and Fellows of Harvard College 5,000 25.00 5,000 0
National Lloyds Insurance Company 1,000 5.00 1,000 0
The Baupost Group, Inc.(8) 3,000 15.00 3,000 0
Convertible Holdings, Inc. 2,000 10.00 2,000 0
Offshore Strategies Ltd. 500 2.50 500 0
Bridgerope & Co.(9) 1,500 7.50 1,500 0
<FN>
____________________
(1) Information with respect to beneficial ownership was obtained from the Selling Securityholders.
(2) This Prospectus also covers the maximum number of shares of Common Stock issuable upon conversion of the
Series A Preferred Stock or Convertible Subordinated Debentures, and the aggregate principal amount of
Convertible Subordinated Debentures issuable upon exchange of the Series A Preferred Stock, in each case, as
described herein.
(3) Assumes sale of all, and no other purchases or sales of, Series A Preferred Stock, Common Stock or
Convertible Subordinated Debentures. See "Plan of Distribution."
(4) No holders will after the Offering own as much as 1% of the Series A Preferred Stock.
(5) Such shares are beneficially owned by Chestnut Hill Management Corp.
(6) Such shares are beneficially owned by David Nolan.
(7) Such shares are beneficially owned by D. Nolan Management Company, Inc.
(8) Such shares are also beneficially owned by Baupost Partners and Seth A. Klarman.
(9) Such shares are beneficially owned by Merrill Lynch World Income Fund, Inc.
(10) Less than 1%.
</TABLE>
The Selling Securityholders' right to offer Series A Preferred
Stock, Common Stock or Convertible Subordinated Debentures hereby
derives from certain registration rights granted to the Investors in
the Preferred Stock Purchase Agreement. In the Preferred Stock
Purchase Agreement, Westbridge agreed to use its best efforts to keep
the Registration Statement, of which this Prospectus is a part,
effective for a period of up to three years following the date of its
original effectiveness.
<PAGE>
LEGAL MATTERS
The legality of the Series A Preferred Stock, the Convertible
Subordinated Debentures issuable upon the exchange of the Series A
Preferred Stock, and the Common Stock issuable upon the conversion of
the Series A Preferred Stock or the Convertible Subordinated
Debentures and certain Federal tax matters has been passed upon for
the Company by Milbank, Tweed, Hadley & McCloy, New York, New York.
EXPERTS
The consolidated financial statements of Westbridge included in
this Prospectus as of December 31, 1994, 1993 and 1992, and for each
of the years in the three-year period ended December 31, 1994, and the
financial statement schedules included herein and elsewhere in the
Registration Statement, have been so included in reliance upon the
report of Price Waterhouse, independent accountants, given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of NFI as of December 31,
1993, and for the year then ended, have been so included in reliance
upon the report of Price Waterhouse, independent accountants, given
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of NFI as of December 31,
1992, and for each of the years in the two-year period ended December
31, 1992, have been so included in reliance upon the report of Jaynes,
Reitmeier, Boyd & Therrell, P.C., independent accountants, given upon
the authority of such firm as experts in accounting and auditing.
GLOSSARY OF INSURANCE TERMS
The following Glossary includes definitions of certain
general insurance terms, as well as certain terms which relate
specifically to the Company.
<TABLE>
<S> <C>
agent: An independent contractor representative of an insurer licensed to sell and service
the insurer's products.
amortization of DPAC: Amortization of DPAC for a particular period expressed as a percentage of premiums
earned for that period, all amounts determined in accordance with GAAP.
assumption reinsurance: A transfer of policies from one insurance company to another where there is a
novation of the existing policies and the assuming insurer is substituted for the
transferring insurer. The transferring insurer is released from any obligations to
the policyholder under the policy.
benefits: All amounts payable pursuant to the Company's policies, including base policy
benefits and the benefits payable by the Company by virtue of a return of premium
rider.
claim: A demand by the policyholder for payment by the Company of a base policy benefit.
coinsurance: Where two or more insurers share all losses covered by a policy in a proportion
agreed upon in advance.
commission: Compensation paid by an insurer to its agents or to brokers for placing insurance
coverage with the insurer, usually determined as a percentage of premiums earned by
the insurer with respect to policies written by those agents or brokers.
controlled agency network
system: A group of agency networks in which the Company has either a substantial ownership
interest or a long-term marketing relationship or reinsurance agreement.
copayment: The amount paid by a covered person toward a claim after the deductible has been
met.
deductible: The portion of an insured loss to be borne by the insured before he is entitled to
any recovery from the insurer.
deferred policy
acquisition costs (DPAC): An asset of an insurer, determined in accordance with GAAP, that consists of
expenses incurred by the insurer that are related to, and vary with, the production
of new sales. This asset consists of the portion of first-year commissions in
excess of renewal commissions and certain underwriting, policy issue and selling
expenses, all of which are capitalized and amortized over the expected term of the
policy. This asset does not exist under SAP, which require that these items be
expensed in the period in which they are incurred.
first-year premiums: During any fiscal period, the premiums recorded in the first 12 months following
the issuance of a policy.
GAAP: Generally accepted accounting principles in the United States.
guaranteed renewable
policy: An insurance policy that the policyholder has the absolute right to continue in
force for the duration of his life or for a specified period of time by the timely
payment of premiums. The insurer is contractually prohibited during such period,
absent policyholder agreement, from changing any provision of a guaranteed
renewable policy, other than the amount of premiums payable by the insured.
level term: A type of life insurance policy where the face value remains the same from the
effective date until the expiration date.
loss ratio: The sum of the Company's policyholder benefits and claims for a particular period
plus the increase in its policy benefit reserves during that period expressed as a
percentage of its premiums earned for that period.
morbidity: The relative incidence of disease.
mortality: The relative incidence of death.
NAIC: The National Association of Insurance Commissioners, an association of all state
insurance commissioners formed to promote uniformity in regulation. Statutory
accounting practices are largely based on NAIC policies.
policy: An individual contract of insurance or a certificate of coverage issued by an
insurer to a policyholder evidencing the agreement of the insurer to provide the
benefit described therein.
policyholder: The individual who applies to the Company for coverage and in whose name a policy
or a certificate of coverage is issued. The policyholder will receive the benefits
payable under the policy unless he assigns them to someone else or he designates a
beneficiary.
policyholder benefits: The total amount of benefits paid under the Company's policies during a particular
period plus the increase (or minus the decrease) in its unpaid claim reserves
(including the IBNR claim reserves and the ICOS claim reserves).
premiums: The amount payable to an insurer by its policyholders in consideration of the
coverage period under its insurance policies.
recapture: The action of a ceding insurance company taking back from a reinsurer insurance
previously ceded.
reinsurance: The acceptance by one or more insurers, of a portion or all of the risk
underwritten by another insurer.
renewal premiums: During any fiscal period, the premiums recorded from and after the 13th month
following the issuance of a policy.
rider: An agreement attached to or incorporated into an insurance policy which adds to, or
changes the terms of coverage provided under the policy.
statutory accounting
practices (SAP): Accounting practices prescribed or permitted by the relevant state insurance
regulatory authorities.
statutory capital
and surplus: The amount remaining after all of an insurer's liabilities as of a particular date
are subtracted from all of its assets as of that date, all amounts determined in
accordance with SAP.
surplus: The amount by which admitted assets exceed liabilities and paid-in capital, all
amounts as determined in accordance with SAP.
underwriting: An insurer's process of reviewing an application for insurance coverage, deciding
whether and on what basis to award all or part of the coverage requested, and
determining the applicable premium; also refers to the granting of such coverage.
</TABLE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The Company
<TABLE>
<S> <C>
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the years ended December 31, 1994,
1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Balance Sheets as of December 31, 1994 and 1993 . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Changes in Stockholders' Equity . . . . . . . . . . F-8
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . F-9
Unaudited Consolidated Statements of Operations for the six months ended
June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-31
Unaudited Consolidated Balance Sheets as of June 30, 1995,
December 31, 1994 and June 30, 1994. . . . . . . . . . . . . . . . . . . . . F-32
Unaudited Consolidated Statements of Cash Flows for the six months ended
June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-34
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . . . F-36
NFI and AICT
Reports of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . F-38
Consolidated Statements of Income for the years ended December 31, 1993,
1992 and 1991. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-40
Consolidated Balance Sheets of December 31, 1993 and 1992. . . . . . . . . . . F-41
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . F-42
Consolidated Statement of Changes in Stockholder's Equity. . . . . . . . . . . F-43
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . F-44
Unaudited Consolidated Statement of Income for the three months ended
March 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-54
Unaudited Consolidated Balance Sheet as of March 31, 1994. . . . . . . . . . . F-55
Unaudited Consolidated Statement of Cash Flows for the three months ended
March 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-56
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . . . F-57
Pro Forma
Pro Forma Financial Information. . . . . . . . . . . . . . . . . . . . . . . . P-1
Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P-2
Notes to Pro Forma Financial Information . . . . . . . . . . . . . . . . . . . P-3
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Westbridge Capital Corp.
In our opinion, the accompanying consolidated financial statements
present fairly, in all material respects, the financial position of
Westbridge Capital Corp. and its subsidiaries at December 31, 1994
and 1993, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1994,
in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits
in accordance with generally accepted auditing standards which
require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating overall
financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Fort Worth, Texas
March 30, 1995
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Revenues:
Premiums:
First-year $ 15,111 $ 8,738 $ 9,552
Renewal 83,592 59,993 47,179
-------- -------- --------
98,703 68,731 56,731
Net investment income 5,764 4,120 3,932
Fee and service income 1,728 1,397 1,392
Net realized gain on investments 320 1,030 422
Other income 31 14 157
-------- -------- --------
106,546 75,292 62,634
-------- -------- --------
Benefits, claims and expenses:
Benefits and claims 53,623 33,153 26,522
Amortization of deferred policy acquisition costs 9,711 8,159 8,452
Commissions 11,224 9,595 8,382
General and administrative expenses 16,847 14,349 12,663
Taxes, licenses and fees 3,230 2,724 2,095
Interest expense 3,067 2,552 2,536
-------- -------- --------
97,702 70,532 60,650
-------- -------- --------
Income before income taxes, equity in earnings
of Freedom Holding Company and cumulative effect
of change in accounting principle 8,844 4,760 1,984
Provision for income taxes 2,764 1,562 532
Equity in earnings of Freedom Holding Company 345 333 310
-------- -------- --------
Net income, before cumulative effect of change
in accounting principle 6,425 3,531 1,762
Cumulative effect on prior years of change
in accounting for income taxes - - 1,134
-------- -------- --------
Net income $ 6,425 $ 3,531 $ 2,896
======== ======== ========
Preferred stock dividends 1,190 - -
Income applicable to common stockholders $ 5,235 $ 3,531 $ 2,896
======== ======== ========
Earnings Per Common Share:
Primary:
Income before cumulative effect of accounting change $ 1.13 $ .78 $ .40
Cumulative effect of accounting change - - .26
-------- -------- --------
Net earnings $ 1.13 $ .78 $ .66
======== ======== ========
Fully Diluted:
Income before cumulative effect of accounting change $ 1.03 $ .78 $ .40
Cumulative effect of accounting change - - .26
-------- -------- --------
Net earnings $ 1.03 $ .78 $ .66
======== ======== ========
Weighted Average Shares Outstanding:
Primary 4,617,000 4,555,000 4,381,000
Fully Diluted 6,267,000 4,555,000 4,381,000
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS
Year Ended December 31,
1994 1993
<S> <C> <C>
Investments:
Fixed maturities:
Available-for-sale, at market value $ 10,787 $ -
(amortized cost $11,310)
Held-to-maturity, at amortized
cost (market value $75,238, and $51,806) 80,377 49,737
Equity securities, at market 469 475
Investment in Freedom Holding Company,
on the equity basis 5,945 5,600
Mortgage loans on real estate 768 865
Investment real estate 141 141
Policy loans 291 289
Short-term investments 7,189 179
-------- --------
Total Investments 105,967 57,286
Cash 2,871 148
Notes receivable from related parties - 1,381
Accrued investment income 1,924 1,044
Receivables from agents, net of $1,137
and $1,133 allowance for doubtful accounts 7,353 4,950
Deferred policy acquisition costs 58,654 28,354
Leasehold improvements and equipment,
at cost, net of accumulated depreciation
and amortization of $3,446 and $3,151 1,215 564
Other assets 9,597 3,340
-------- --------
Total Assets $187,581 $ 97,067
======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Year Ended December 31,
1994 1993
<S> <C> <C>
Liabilities:
Policy liabilities and accruals:
Future policy benefits $ 62,893 $32,877
Claims 41,387 12,794
-------- -------
104,280 45,671
Accumulated policyholders' funds 372 360
Other liabilities 8,678 7,677
Deferred income taxes 3,231 2,326
Senior subordinated debentures,
net of unamortized discount 24,665 19,422
------- -------
Total Liabilities 141,226 75,456
------- -------
Redeemable Preferred Stock 20,000 -
------- -------
Stockholders' Equity:
Common stock, ($.l0 par value,
30,000,000 shares authorized;
4,430,458, and 4,273,467 shares issued) 443 427
Capital in excess of par value 19,328 19,483
Unrealized appreciation (depreciation)
of investments carried at market value (147) 205
Retained earnings 6,901 1,666
------- -------
26,525 21,781
Less - Aggregate of shares held in
treasury and investment by
affiliate in Westbridge Capital
Corp. common stock (28,600 at
December 31, 1994 and 1993, at cost) (170) (170)
------- -------
Total Stockholders' Equity 26,355 21,611
------- -------
Commitments and contingencies
Total Liabilities, Redeemable Preferred
Stock and Stockholders' Equity $187,581 $97,067
======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1994 1993 1992
------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,425 $ 3,531 $ 2,896
Adjustments to reconcile net income applicable
to common stockholders, to net cash used for
operating activities:
Decrease in policy liabilities and accruals (6,700) (15,108) (7,553)
Amortization of deferred policy acquisition costs9,711 8,159 8,452
Increase in deferred income taxes 905 1,138 196
Additions to deferred policy acquisition costs (12,582) (5,745) (5,850)
Depreciation expense 325 413 486
Cumulative effect on prior years of change in
accounting principle for income taxes - - (1,134)
Increase in receivables from agents (2,403) (994) (50)
Increase in other assets (6,257) (128) (609)
Equity in earnings of Freedom Holding Company (345) (333) (310)
Net realized gains on investments (320) (1,106) (406)
Increase (decrease) in other liabilities 1,013 2,867 (292)
Other, net (392) 125 (200)
------- ------- -------
NET CASH USED FOR OPERATING ACTIVITIES (10,620) (7,181) (4,374)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of NFI and AICT (20,178) - -
Proceeds from investments sold:
Fixed maturities, classified as
hold-to-maturity, called or matured 4,357 10,240 11,907
Fixed maturities, classified as
available-for-sale, called or matured 1,544 - -
Fixed maturities, classified as
hold-to-maturity, sold - 18,187 12,513
Fixed maturities, classified as
available-for-sale, sold 7,275 - -
Short-term investments sold or matured 45,020 1,581 6,721
Other investments sold or matured 98 329 654
Cost of investments acquired (50,039) (25,542) (26,230)
Notes receivable from related parties 1,381 783 585
Additions to leasehold improvements and
equipment, net of retirements (976) (228) (420)
------- ------- -------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES (11,518) 5,350 5,730
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Effective issuance of senior subordinated
debentures, at par 5,000 - -
Issuance of redeemable preferred stock 20,000 - -
Issuance of common stock 395 123 79
Purchase and cancellation of common stock (534) (89) -
------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 24,861 34 79
------- ------- -------
INCREASE (DECREASE) IN CASH DURING PERIOD 2,723 (1,797) 1,435
CASH AT BEGINNING OF PERIOD 148 1,945 510
------- ------- -------
CASH AT END OF PERIOD $ 2,871 $ 148 $ 1,945
======= ======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 2,678 $ 2,353 $ 2,352
Income taxes $ 2,090 $ 424 $ 258
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Supplemental Schedule Of Non-Cash Investing Activities:
<TABLE>
<CAPTION>
The Company purchased the outstanding capital stock of a health insurer and its
subsidiary in the second quarter of 1994 for a cash purchase price of $20.1
million. This purchase resulted in the Company receiving tangible assets and
assuming liabilities as follows:
<S> <C>
Assets $61,293,000
Liabilities $72,199,000
</TABLE>
<TABLE>
<CAPTION>
The Company purchased a block of Supplemental Health insurance in the first
quarter of 1994. This purchase resulted in the Company disbursing assets and
assuming liabilities as follows:
<S> <C>
Investments $ 545,000
Policy liabilities $ 2,626,000
</TABLE>
<TABLE>
<CAPTION>
The Company purchased a Medicare Supplement block of business in the first
quarter of 1993. This purchase resulted in the Company receiving assets and
assuming liabilities as follows:
<S> <C>
Investments $ 2,526,000
Policy liabilities $ 2,445,000
</TABLE>
<TABLE>
<CAPTION>
The Company purchased a Medicare Supplement block of business in the third
quarter of 1992. This purchase resulted in the Company receiving assets and
assuming liabilities as follows:
<S> <C>
Investments $18,440,000
Policy liabilities $21,997,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share data)
Unrealized
Appreciation Retained Total
Capital (Depreciation) Earnings Stock-
Common Stock in Excess of (Accumulated Treasury Stock holders'
Shares Amount of Par Value Investments Deficit) Shares Amount Equity
--------- ------ ------------ ----------- -------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1992 4,226,425 $423 $19,833 $54 $(4,761) 78,600 $(629) $14,920
Net income 2,896 2,896
Unrealized appreciation
of investments 118 118
Issuance of shares under
stock option plans 44,412 4 75 79
Cancellation of treasury stock (50,000) (5) (454) (50,000) 459 --
--------- ---- ------- ---- ------- ------- ---- -------
Balance at December 31, 1992 4,220,837 422 19,454 172 (1,865) 28,600 (170) 18,013
Net income 3,531 3,531
Unrealized appreciation
of investments 33 33
Issuance of shares under
stock option plans 66,180 7 116 123
Shares purchased and
cancelled (13,550) (2) (87) (89)
--------- ---- ------- ---- ------- ------- ---- -------
Balance at December 31, 1993 4,273,467 427 19,483 205 1,666 28,600 (170) 21,611
Net income 6,425 6,425
Preferred stock dividend (1,190) (1,190)
Unrealized depreciation
of investments (352) (352)
Issuance of shares under
stock option plans 219,648 22 373 395
Shares purchased and
cancelled (62,657) (6) (528) (534)
--------- ---- ------- ----- ------- ------- ----- -------
Balance at December 31, 1994 4,430,458 $443 $19,328 $(147) $ 6,901 28,600 $(170) $26,355
========= ==== ======= ===== ======= ======= ===== =======
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
WESTBRIDGE CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
Principles of Consolidation. The consolidated financial statements include
accounts of Westbridge Capital Corp. ("the Company"), and its wholly-owned
subsidiaries, National Foundation Life Insurance Company ("NFL"), National
Financial Insurance Company ("NFI"), American Insurance Company of Texas
("AICT"), Foundation Financial Services, Inc. ("FFS"), Westbridge Marketing
Corporation ("WMC"), Westbridge Financial Corp. ("WFC"), Westbridge Printing
Services, Inc. ("WPS"), Flex-Plan Systems, Inc. ("FPS"), and National Legal
Services Company, Inc., as well as its 51%-owned subsidiary, LifeStyles
Marketing Group, Inc. ("LifeStyles Marketing"), and its 50%-owned subsidiaries,
Senior Benefits, LLC ("Senior Benefits") and American Senior Security Plans, LLC
("ASSP"). The Company's decision to consolidate the accounts of Senior Benefits
and ASSP is based on the extent to which the Company exercises control over
Senior Benefits and ASSP. The Company has agreed to provide 100% of the
financing required to support the marketing efforts of Senior Benefits and ASSP
and also has significant input in their management. All significant
intercompany accounts and transactions have been
eliminated.
Accounting Principles and Regulatory Matters. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP"). These principles differ from statutory accounting
principles, which must be used by the Company's Insurance Subsidiaries when
reporting to state insurance departments. The Company's Insurance Subsidiaries
are subject to oversight by insurance regulators of Delaware, Texas and other
states in which they are authorized to conduct business. These regulators
perform triennial examinations of the statutory financial statements and,
as a result, may propose adjustment to such statements.
Investments. The Company's fixed maturity portfolio is segregated into two
components: fixed maturities, held to maturity and fixed maturities available-
for-sale. Fixed maturities, where the Company has intent and ability to hold
to maturity, are carried at amortized cost, adjusted for other than temporary
impairments. Fixed maturities that are available-for-sale, are carried at
market value. Changes in aggregate unrealized appreciation or depreciation on
fixed maturities available for sale are reported directly in stockholders'
equity, net of applicable deferred income taxes. Equity securities (common
and nonredeemable preferred stocks) are carried at market value. The Company's
40% equity invest-ment in Freedom Holding Company is accounted for on the equity
basis (i.e., cost adjusted for equity in post-acquisition earnings and
amortization of excess cost). Mortgage loans on real estate and policy loans
are carried at the unpaid principal balance. Accrual of interest income ceases
when loans are ninety days or more past due. Foreclosed assets are carried at
the lower of fair value or unpaid principal balance, less necessary costs to
effect foreclosure. Realized gains and losses on sales of investments are
recognized in current operations on the specific identification basis. Changes
in market values of equity securities, after deferred income tax effects, are
reflected as unrealized appreciation or depreciation directly in stockholders'
equity and, accordingly, have no effect on current operations.
<PAGE>
Deferred Policy Acquisition Costs. Policy acquisition costs consisting of
commissions and other costs, which vary with and are primarily related to the
production of new business, are deferred and amortized over periods not to
exceed the estimated premium-paying periods of the related policies. Also
included in deferred policy acquisition costs is the cost of insurance purchased
on acquired business. Amortization is dynamically adjusted based on current and
projected future levels of premium revenue. Such projected future levels of
premium revenue are estimated using assumptions as to interest, mortality,
morbidity and withdrawals consistent with those used in calculating liabilities
for future policy benefits.
Leasehold Improvements and Equipment. Leasehold improvements and equipment are
stated at cost less accumulated depreciation and amortization. Depreciation of
equipment is computed using the straight-line method over the estimated useful
lives (three to seven years) of the assets. Leasehold improvements are
amortized over the estimated useful lives of the related assets or the period of
the lease, whichever is shorter. Maintenance and repairs are expensed as
incurred and renewals and betterments are capitalized.
Future Policy Benefits and Claims. Liabilities for future policy benefits not
yet incurred are computed primarily using the net level premium method including
actuarial assumptions as to investment yield, mortality, morbidity and
withdrawals.
Claims represent the estimated liabilities on claims reported plus claims
incurred but not yet reported. These liabilities are necessarily subject to the
impact of future changes in claim experience and, as adjustments become
necessary, they are reflected in current operations.
Recognition of Revenue. Life insurance and accident and health premiums are
recognized as revenue when received. Benefits and expenses are associated with
related premiums so as to result in a proper matching of revenue with expenses.
Fee and service income and investment income are recognized when earned.
Income Taxes. In January 1992, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes". The
adoption of SFAS 109 changes the Company's method of accounting for income taxes
from the deferred method ("APB 11") to an asset and liability approach.
Previously the Company deferred the past tax effects of timing differences
between financial reporting and taxable income. The asset and liability
approach requires the recognition of deferred tax liabilities and assets for the
expected future tax consequence of temporary differences between the carrying
amounts and the tax bases of other assets and liabilities.
Earnings Per Share. Primary net income per share of Common Stock is determined
by dividing net income, less dividends on the Series A Preferred Stock, by
primary weighted-average shares outstanding. Fully diluted net income per share
is computed as if the Series A Preferred Stock had been converted to Common
Stock, at the December 31, 1994 conversion price of $8.75 per share, resulting
in 2,285,720 additional shares. The additional average shares outstanding were
measured from the April 12, 1994 issue date, through December 31, 1994.
<PAGE>
NOTE 2 - INVESTMENTS
<TABLE>
<CAPTION>
Major categories of investment income are summarized as follows:
Year Ended December 31,
1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Fixed maturities $5,064 $3,823 $3,106
Mortgage loans on real estate 83 94 181
Short-term investments 489 31 180
Other 308 323 488
------ ------ ------
5,944 4,271 3,955
Less: Investment expenses 180 151 23
------ ------ ------
Net investment income $5,764 $4,120 $3,932
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Realized gains (losses) on investments are summarized as follows:
Year Ended December 31,
1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Fixed maturities $ 320 $1,113 $ 422
Short-term investments - 55 -
Other long-term investments - (138) -
------ ------ -----
Realized gains on investments $ 320 $1,030 $ 422
====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Unrealized appreciation (depreciation) on investments in equity securities and
other investments reflected directly in stockholders' equity is summarized as
follows:
Year Ended December 31,
1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 205 $172 $ 54
Unrealized depreciation on fixed
maturities available-for-sale (346) - -
Unrealized appreciation (depreciation)
on equity securities and other investments (6) 33 118
----- ---- ----
Balance at end of year $(147) $205 $172
===== ==== ====
</TABLE>
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standard No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" (the "Statement").
This Statement requires all debt securities and certain equity securities to be
classified in three categories and accounted for as follows:
* Debt securities that the enterprise has the positive intent and ability to
hold to maturity are classified as held-to-maturity securities and
reported at amortized cost.
* Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses
included in earnings.
* Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of stock-
holders' equity.
The Company does not engage in "trading" of securities, and accordingly, all of
the applicable investments have been categorized as held-to-maturity securities
or as available-for-sale securities.
In accordance with the Statement, the cumulative effect of recording to a
separate component of stockholders' equity the difference between market value
and amortized cost at January 1, 1994 of securities classified as available-for-
sale has been treated as a change in accounting principal, and no restatement of
prior year financial statements has been made.
<TABLE>
<CAPTION>
The amortized cost and estimated market values of investments in fixed
maturities as of December 31, 1994 and 1993, are summarized by category as
follows (in thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Available-for-Sale Cost Gains Losses Value
- ------------------ ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government and governmental
agencies and authorities $ - $ - $ - $ -
States, municipalities, and
political subdivisions 1,485 - 35 1,450
Mortgage-backed securities 2,622 11 133 2,500
Public utilities 2,516 - 95 2,421
All other corporate bonds 4,687 9 280 4,416
------- ----- ---- -------
Balance at December 31, 1994 $11,310 $ 20 $543 $10,787
======= ===== ==== =======
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Held-to-Maturity Cost Gains Losses Value
- ---------------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government and governmental
agencies and authorities $27,849 $ 89 $1,289 $26,649
States, municipalities, and
political subdivisions - - - -
Mortgage-backed securities 9,403 - 336 9,067
Public utilities 6,357 37 415 5,979
Financial institutions 18,244 11 1,748 16,507
All other corporate bonds 18,124 54 1,542 16,636
Certificates of deposit 400 - - 400
------- ------ ------ -------
Balance at December 31, 1994 $80,377 $ 191 $5,330 $75,238
======= ====== ====== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Fixed Maturities Cost Gains Losses Value
- ---------------- ---- ----- ------ -----
<S> <C> <C> <C> <C>>
U.S. Government and governmental
agencies and authorities $18,875 $ 486 $ 10 $19,351
States, municipalities, and
political subdivisions 1,480 205 - 1,685
Public utilities 4,476 461 - 4,937
All other corporate bonds 24,006 1,116 189 24,933
Certificates of deposit 900 - - 900
Balance at December 31, 1993 $49,737 $2,268 $199 $51,806
</TABLE>
The amortized cost and estimated market value of investments in fixed maturities
as of December 31, 1994, by classification, are shown below, in thousands,
summarized by duration to maturity. Mortgage-backed securities are listed
separately. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Available-for-Sale Cost Value
- ------------------------------------ ---- -----
<S> <C> <C>
Due in one year or less $ - $ -
Due after one year through five years - -
Due after five years through ten years 1,943 1,849
Due after ten years 6,745 6,437
Mortgage-backed securities 2,622 2,501
------- -------
$11,310 $10,787
======= =======
</TABLE>
<TABLE>
<CAPTION>
Estimated
Amortized Market
Held-to-Maturity Cost Value
- ------------------------------------- ---- -----
<S> <C> <C>
Due in one year or less $ 4,077 $ 4,060
Due after one year through five years 21,143 19,522
Due after five years through ten years 18,820 17,723
Due after ten years 26,934 24,866
Mortgage-backed securities 9,403 9,067
------- -------
$80,377 $75,238
======= =======
</TABLE>
<TABLE>
<CAPTION>
A summary of unrealized depreciation reflected directly in stockholders' equity
at December 31, 1994, on investments in fixed maturities available-for-sale, is
as follows (in thousands):
Year Ended December 31,
1994
----
<S> <C>
Amortized cost $11,310
Estimated Market Value 10,787
-------
Unrealized depreciation (523)
Estimated tax at 34% (178)
-------
Unrealized depreciation, net of tax $ (345)
=======
</TABLE>
<TABLE>
<CAPTION>
A summary of unrealized appreciation (depreciation) on investments in fixed
maturities held-to-maturity, is as follows (in thousands):
Year Ended December 31,
1994 1993 1992
==== ==== ====
<S> <C> <C> <C>
Amortized cost $80,377 $49,737 $48,295
Estimated Market Value 75,238 51,806 49,823
------- ------- -------
Unrealized appreciation (depreciation) $(5,139) $ 2,069 $ 1,528
======= ======= =======
</TABLE>
Proceeds from sales of investments in debt securities were $13,176,000 in 1994
and $28,427,000 in 1993. Gross gains of $372,000 and gross losses of $52,000
were realized on 1994 sales. Gross gains of $1,172,000 and gross losses of
$59,000 were realized on 1993 sales.
Included in fixed maturities at December 31, 1994, is one high-yield, unrated or
less than investment grade corporate debt security. The Company's investment in
this security comprises .1% of total cash and invested assets at December 31,
1994. Excluding NFL's investment in the Company's Debentures (see NOTE 8), the
Company owned no high-yield, unrated or less than investment grade corporate
debt securities at December 31, 1993.
Securities on deposit with insurance regulators in accordance with statutory
requirements at December 31, 1994 and 1993 aggregated $19,820,000 and
$7,140,000, respectively.
NOTE 3 - ACQUISITIONS
Acquisition of NFI and AICT
On April 12, 1994, Westbridge consummated the acquisition (the "Acquisition") of
all of the outstanding capital stock of NFI and its wholly-owned subsidiary
AICT. NFI and AICT are health insurers which ceased marketing operations in the
past, and currently administer closed blocks of health insurance policies.
During latter part of 1994, NFI and AICT renewed marketing operations. The
purchase price for the Acquisition approximated $20,100,000, which was paid in
cash. The Acquisition has been accounted for under the purchase method and,
accordingly, the operating results of NFI and AICT have been included in the
consolidated operating results since the date of acquisition.
The funds used to acquire NFI and AICT were provided by the issuance of Series A
Preferred Stock (see NOTE 10).
The following summary, prepared on a pro forma basis, combines the consolidated
results of operations of NFI and AICT with the operations of the Company, after
including the impact of certain adjustments, such as amortization of deferred
acquisition costs, dividends on the Series A Preferred Stock, and factually
supportable expense reductions resulting from the consolidation of
administrative operations, which will have a continuing impact. The following
results assume the acquisition occurred as of the beginning of the respective
periods.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA FINANCIAL DATA
(Unaudited)
(In thousands, except share data)
Year Ended
December 31,
1994 1993
---- ----
<S> <C> <C>
Total Revenues $115,466 $116,446
Income applicable to common stockholders 5,483 5,149
Net income per common share
Primary $1.19 $1.13
Fully diluted $1.03 $0.99
</TABLE>
The pro forma financial information is presented for informational purposes
only, and is not necessarily indicative of what actually would have occurred if
the acquisition had been in effect for the entire periods presented. In
addition, the pro forma financial information is not intended to be a projection
of future results.
Acquisition of a Block of Cancer and Specified Disease Insurance Business
On February 8, 1994, NFL completed its purchase of a block of Cancer and
Specified Disease Insurance from Dixie National Life Insurance Company. The
purchase price for the block was $2,125,000. This acquisition has been
accounted for under purchase accounting rules.
Acquisition of Medicare Supplement Business
On September 25, 1992, NFL completed its purchase of a block of Medicare
Supplement policies from American Integrity Insurance Company ("AII"). Under
the terms of the purchase, AII transferred to NFL $18,440,000 in cash and NFL
assumed the risks associated with those policies. The Company accounted for
this trans-action under purchase accounting rules and estimates have been
recorded in the accompanying financial statements as of September 30, 1992, for
reserves for future policy benefits in the amount of $9,197,000 and for claims
in the amount of $12,800,000. The Company initially recorded an estimate for
cost of insurance purchased in the amount of $3,884,000 of which the unamortized
balance is included in deferred policy acquisition costs in the accompanying
financial statements.
On March 29, 1993, NFL completed its purchase of a block of Medicare Supplement
policies from Life and Health Insurance Company of America ("LHI"). Under the
terms of the purchase, LHI transferred to NFL $2,526,000 in cash and NFL assumed
the risks associated with those policies. The Company accounted for this
transaction under purchase accounting rules.
NOTE 4 - SALE OF A BLOCK OF LIFE INSURANCE BUSINESS
On July 1, 1992, NFL sold a block of its ordinary life insurance line of
business to an unrelated life insurance company. Under the terms of this
transaction, NFL transferred $474,000 in assets to the acquiring company and
released $607,000 in reserves and other liabilities related to the block of
business sold. The differences between the assets transferred and the reserves
and other liabilities released, $133,000, is included in other income in the
accompanying financial statements in 1992. Additionally, the transaction
resulted in an increase in NFL's statutory earnings and statutory capital and
surplus for 1992.
<PAGE>
NOTE 5 - INVESTMENT IN FREEDOM HOLDING COMPANY
In November 1988, the Company purchased a 40% equity interest in Freedom Holding
Company of Louisville, Kentucky ("Freedom"). Freedom owns 100% of Freedom Life
Insurance Company of America ("FLICA"), a Mississippi insurer licensed in 34
states and specializing in the sale of Cancer and Specified Disease Insurance
products. Freedom's 60% principal owner is John P. Locke. Concurrent with the
equity purchase in Freedom, Locke and his insurance marketing agencies also
entered into a 10-year marketing agreement with FLICA and NFL for the sale
of their products on an exclusive basis. Additionally, FLICA and NFL
consummated a 10-year coinsurance agreement under which NFL or its affiliates
will receive 50% of all insurance business written by FLICA.
The purchase price for the equity ownership in Freedom aggregated $4,200,000.
The Company also made loans to Locke and Freedom in the amount of $2,400,000 and
$1,086,000 respectively. The loans were each in the form of 10-year, 11.70%
notes. Concurrent with the purchase, Locke made a $2,400,000 capital
contribution to Freedom. This capital contribution together with the Company's
loan to Freedom and $1,600,000 of the purchase price proceeds were utilized by
Freedom to retire all of its then existing debt obligations. During 1994, both
notes were repaid in full.
The Company utilizes the equity method of accounting for its 40% equity interest
in Freedom. The Company's portion of Freedom's earnings was $345,000 in 1994,
$333,000 in 1993, and $310,000 in 1992.
NOTE 6 - LIFESTYLES MARKETING GROUP, INC. JOINT VENTURE
In September 1987, NFL consummated an agency contract with LifeStyles Agency of
Arlington, Texas ("LifeStyles Marketing") granting its agency force the
exclusive right, subject to territorial production requirements, to sell NFL's
Medical Expense Products developed in 1987 and 1988. During the second quarter
of 1988, the Company agreed with the owners of LifeStyles Marketing to
restructure the insurance agency as a joint venture. Under the terms of the
definitive agreement consummated in November 1988, WMC, a wholly-owned
subsidiary of the Company, holds a 51%-voting interest in the entity, LifeStyles
Marketing.
The Company is providing financing to LifeStyles Marketing in its expansion
efforts. LifeStyles Marketing's revenues and expenses during 1994 approximated
$7,246,000 and $7,130,000, respectively. Revenues and expenses were $5,395,000
and $6,014,000 in 1993 and $5,815,000 and $6,115,000 in 1992, respectively. Of
the revenues received, $5,561,000 were derived from NFL in the form of
commission income on insurance products sold for NFL during 1994, $4,386,000 in
1993 and $4,891,000 in 1992. Through December 31, 1994, the Company loaned
LifeStyles Marketing approximately $6,178,000 in the form of advances which
accrue interest at prime plus 1% established at the beginning of each year,
which equaled 7% during the year ended December 31, 1994, on the unpaid balance.
There is not a scheduled repayment plan in place for amounts the Company has
loaned to LifeStyles Marketing. No dividends are to be distributed to any
shareholders until all advances and accrued interest due the Company have been
repaid.
<PAGE>
Under the terms of the joint venture agreement, profits and losses of LifeStyles
Marketing are to be allocated 50% to WMC and 50% to the minority shareholders.
However, because of the Company's voting and financial control, the operations
of the joint venture are consolidated with the Company's operations and,
accordingly, all significant intercompany accounts and transactions are
eliminated.
Through December 31, 1994, the Company has recognized 100% of the cumulative
losses of LifeStyles Marketing in its consolidated financial statements. The
minority interest share in such losses recognized by the Company is $1,276,000
at December 31, 1994. The Company has, and will continue to, recognize 100% of
LifeStyles Marketing's profits in the consolidated financial statements until
all cumulative losses are recovered through future earnings.
NOTE 7 - FUTURE POLICY BENEFITS
Future policy benefits have been calculated using assumptions (which generally
contemplate the risk of adverse deviation) for withdrawals, interest, mortality
and morbidity appropriate at the time the policies were issued. The more
material assumptions pertinent thereto are as follows:
LIFE PRODUCTS
Withdrawals Standard industry tables were used for issues through 1975;
Company experience was used for issues subsequent to 1975.
Interest Level 4% for issues through 1965; level 4.5% for 1966 through
1969 issues, and 6% graded to 4.5% in 25 years for 1970
through 1981 issues. Issues for 1982 through 1987 are 10%
graded to 7% at year 10. ART issues in 1988 and later are
8.5% for 5 years graded to 7.5% in year 20. Participating
policies are 4.5% for issues through 1965; 5% for 1966 through
1969 issues, and graded from 6% to 5% in 25 years for issues
subsequent to 1969.
Mortality Based on modifications of the 1955-1960 Select and Ultimate
Basic Tables and, for certain issues from 1975 through 1981,
modifications of the 1958 CSO. Issues subsequent to 1981
use modifications of the 1965-1970 Select and Ultimate Basic
Tables.
ACCIDENT AND HEALTH PRODUCTS
Withdrawals Issues through 1980 are based on industry experience; 1981
through 1993 issues are based on industry experience and
Company experience, where available. Policies acquired in
acquisitions are based on recent experience of the blocks
acquired.
Interest Issues through 1980 are 6% graded to 4.5% in 25 years; most
1981 through 1992 issues are 10% graded to 7% in 10 years
except for certain NationalCare and Supplemental Hospital
Income issues which are 8% graded to 6% in 8 years and
LifeStyles Products which are 9% graded to 7% in 10 years.
1993 issues are 7% level. Policies acquired from AII in 1992
are 6.4% level. Policies acquired from LHI in 1993 and DNL in
1994 are 6% level. Policies acquired in the Acquisition of
NFI and AICT are 7% level.
<PAGE>
Mortality Issues through 1980 use the 1955-1960 Ultimate Table; issues
subsequent to 1980 through 1992 use the 1965-1970 Ultimate
Table. 1993 issues use the 1975-1980 Ultimate Table. Policies
acquired in acquisitions use the 1965-1970 Ultimate Table.
Morbidity Based on industry tables published in 1974 by Tillinghast,
Nelson and Warren, Inc., as well as other population
statistics and morbidity studies.
NOTE 8 - SUBORDINATED DEBENTURES
In March 1986, the Company completed a public offering of 25,000 Units
consisting of $25,000,000 principal amount of 11.70% Senior Subordinated
Debentures due 1996 (the "Debentures") and warrants topurchase 800,000
shares of the Company's Common Stock (the "Warrants") at $12.25 per share. The
Warrants expired unexercised on March 15, 1991.
The Debentures may be redeemed at any time, in whole or in part, at 100% of
their principal amount, plus accrued interest. The Indenture provides
limitations or restrictions on the amount and type of Company indebtedness,
the amount of dividends that can be paid to shareholders of the Company's Common
Stock, the purchase of Common Stock by the Company and the merger or sale of
Company assets.
In August 1987, NFL purchased, in an open market transaction,
$5,000,000 par value of the Debentures. For GAAP reporting purposes, the
purchased Debentures were no longer treated as part of the Company's
consolidated debt.
In February 1994, NFL sold at par value, to an unrelated party, the $5,000,000
par value of the Debentures held in its portfolio. This transaction has been
accounted for, on a consolidated basis as an issuance of debt.
<TABLE>
<CAPTION>
A summary of the liability for Senior Subordinated Debentures, net of
unamortized discount, is as follows:
(In thousands)
December 31,
1994 1993
<S> <C> <C>
Par value of Debentures issued $25,000 $25,000
Less: Unamortized discount (335) (722)
------- -------
Book value of Debentures issued 24,665 24,278
Less: Investment by subsidiary ($5,000 par
value less unamortized discount of $144 in 1993) - (4,856)
------- -------
Senior subordinated debentures, net of
unamortized discount $24,665 $19,422
======= =======
NOTE 9 - CLAIM RESERVES
</TABLE>
<TABLE>
<CAPTION>
The following table provides a reconciliation of the beginning and ending claim
reserve balances, on a gross-of-reinsurance basis, for 1994 and 1993, to the
gross amounts reported in the Company's balance sheet; the 1992 reconciliation
is presented on a net-of-reinsurance basis.
Year Ended December 31,
1994 1993 1992
(in thousands)
<S> <C> <C> <C>
Balance at January 1 (Gross) $12,794 $ * $ *
Less: reinsurance recoverables 65 * *
Net balance at January 1 12,729 21,635 13,572
Incurred related to:
Current year 59,830 42,018 30,280
Prior years (1,381) (5,376) (1,167)
------ ------ ------
Total incurred 58,449 36,642 29,113
------ ------ ------
Current year reserves acquired 33,032 291 12,800
Paid related to:
Current year 42,919 30,205 10,562
Prior years 10,655 13,695 20,973
Current year acquired business 10,706 1,939 2,315
------ ------ ------
Total paid 64,280 45,839 33,850
------ ------ ------
Balance at December 31 39,930 12,729 21,635
Plus: reinsurance recoverables 1,457 65 *
------ ------ ------
Balance at December 31 (Gross) $41,387 $12,794 $ *
====== ====== ======
<FN>
* Amounts are presented net prior to the adoption by the Company in 1993 of
SFAS 113 "Accounting and Reporting for Reinsurance of Short-Duration and Long
Duration Contracts."
<PAGE>
NOTE 10 - REDEEMABLE PREFERRED STOCK
On April 12, 1994, the Company issued 20,000 shares of Series A Cumulative
Convertible Redeemable Exchangeable Preferred Stock (the "Series A Preferred
Stock"), at a price of $1,000 per share. The Series A Preferred Stock was
issued in a private placement, and was subsequently registered with the
Securities and Exchange Commission under a registration statement which was
declared effective in October 1994. The following summarizes the significant
terms of the Series A Preferred Stock:
* Liquidation preference of $1,000 per share.
* Cumulative annual dividend rate of 8.25%, subject to increase upon non-
compliance by the Company with certain restrictions.
* At December 31, 1994, the Series A Preferred Stock was convertible by the
holders thereof into the Company's common stock at a conversion price of
$8.75 per share. At December 31, 1994, the 20,000 shares of Series A
Preferred Stock were convertible into 2,285,720 shares of common stock.
* On or after April 12, 1995, the Series A Preferred Stock may, at the
option of the Company, be exchanged for an amount of Convertible
Subordinated Notes due April 12, 2004, equal to the aggregate
liquidation preference of the Series A Preferred Stock being exchanged.
The Convertible Subordinated Notes would bear interest a 8.25% and be
convertible into common stock at a price of $8.75 per share, in each
case, subject to certain adjustments.
* The Company is required to redeem all shares of Series A Preferred Stock,
or any Convertible Subordinated Notes outstanding on April 12, 2004.
* The Company may redeem any and all shares of Series A Preferred Stock
outstanding on or after April 12, 1997.
In connection with the issuance of the Series A Preferred Stock, the placement
agent was granted a warrant to purchase 120,000 shares at $8.75 per share,
subject to certain adjustments.
<PAGE>
NOTE 11 - DEFERRED POLICY ACQUISITION COSTS AND PREMIUM REVENUE
</TABLE>
<TABLE>
<CAPTION>
A summary of deferred policy acquisition costs by major product line of
insurance follows:
DEFERRED POLICY ACQUISITION COSTS
1994 1993 1992
Accident Accident Accident
and and and
Life Health Life Health Life Health
---- ------ ---- ------ ---- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of year $ 36 $28,318 $ 46 $30,722 $ 65 $29,607
Deferrals:
Commissions 2 7,465 2 4,733 8 4,836
Issue costs 3 1,535 2 1,008 2 727
--- ------ --- ------ --- ------
41 37,318 50 36,463 75 35,170
Cost of Insurance
Purchased -- 31,006 -- -- -- 3,975
Amortization (10) (9,701) (14) (8,145) (29) (8,423)
--- ------ --- ------ --- ------
Balance at end of year $ 31 $58,623 $ 36 $28,318 $ 46 $30,722
=== ====== === ====== === ======
<FN>
The cost of insurance purchased of $31.0 million in 1994 is related to the
purchase of NFI and is being amortized in relation to premium revenues over the
remaining life of the business. Interest is accrued on the unamortized balance
at 7% per year. Amortization of this cost of insurance purchased was
approximately $3.0 million during 1994, net of interest accretion of
approximately $1.5 million.
</TABLE>
<TABLE>
<CAPTION>
A summary of first-year and renewal premium revenue by major product line of
insurance follows:
1994 1993 1992
Accident Accident Accident
and and and
Life Health Life Health Life Health
---- ------ ---- ------ ---- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
First-year $ 8 $15,103 $ 9 $ 8,729 $ 19 $ 9,533
Renewal 437 83,155 500 59,493 575 46,604
---- ------- ---- ------ ---- -------
$445 $98,258 $509 68,222 $594 $56,137
==== ======= ==== ====== ==== =======
</TABLE>
<PAGE>
NOTE 12 - INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
The Company has adopted SFAS 109 on a prospective basis effective January 1,
1992. SFAS 109 mandates the asset and liability method for computing deferred
income taxes. Under this method, balance sheet amounts for deferred income
taxes are computed based on the tax effect of the differences between the
financial reporting and federal income tax basis of assets and liabilities
using the tax rates which are expected to be in effect when these differences
are anticipated to reverse. As a result of adopting SFAS 109, a gain of
$1,134,000 was recorded in relating to the cumulative effect of a change in
accounting principle.
In accordance with SFAS 109, total tax expense is the amount of income taxes
expected to be payable for the current year plus (or minus) the deferred income
tax expense (or benefit) represented by the change in the deferred income tax
accounts at the beginning and end of the year. The effect of changes in tax
rates and federal income tax laws are reflected in income from continuing
operations in the period such changes are enacted.
The tax effect of future taxable temporary differences (liabilities) and future
deductible temporary differences (assets) are separately calculated and recorded
when such differences arise. A valuation allowance, reducing any recognized
deferred tax asset, must be recorded if it is determined that it is more likely
than not that such deferred tax asset will not be realized.
The Company and its wholly-owned subsidiaries, other than NFI and AICT, file a
consolidated federal income tax return. NFI and AICT file separate federal
income tax returns.
The new income tax act passed by Congress in August 1993 increased the federal
income tax rate to 35%, retroactive to January 1993. This change in federal
income tax rates had no material effect on the provision for income taxes or net
income.
<TABLE>
<CAPTION>
The provision for U.S. federal income taxes charged to continuing operations was
as follows:
Year Ended December 31,
1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Current $1,581 $ 321 $336
Deferred 1,183 1,241 196
------ ------ ----
Total provision for income taxes $2,764 $1,562 $532
====== ====== ====
</TABLE>
Provision has not been made for state and foreign income tax expense since such
expense is minimal.
<PAGE>
<TABLE>
<CAPTION>
The differences between the effective tax rate and the amount derived by
multiplying the income (loss) before income tax expense by the Federal income
tax rate for the Company's last three years follow:
Year Ended December 31,
1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Statutory tax rate 34% 34% 34%
Small life insurance company deduction
calculated as a percentage of life
insurance company income (5%) (3%) --
Utilization of investment tax credit and
alternative minimum tax credit carryovers -- -- (11%)
Unutilized loss carryforwards of non-life
companies 2% 4% 5%
Equity earnings of unconsolidated subsidiary (1%) (2%) (5%)
Other items, net -- (2%) --
---- ---- ----
Effective tax rate 30% 31% 23%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Deferred taxes are recorded for temporary differences between the financial
reporting basis and the federal income tax basis of the Company's assets and
liabilities. The sources of these differences and the estimated tax effect of
each are as follows:
December 31,
1994 1993
(In thousands)
<S> <C> <C>
Deferred Tax Liabilities:
Deferred policy acquisition costs $11,817 $5,738
Invested assets 63 285
Other deferred tax liabilities 1,890 1,417
------- -------
Total deferred tax liability 13,770 7,440
------- -------
Deferred Tax Assets:
Policy reserves 8,668 2,708
Net operating loss carryforwards 6,292 5,536
Tax credit carryforwards 11 676
Unrealized depreciation of investments 75 -
Other deferred tax assets 444 558
Valuation allowance (4,951) (4,364)
------ ------
Total deferred tax asset 10,539 5,114
------ ------
Net deferred tax liability $ 3,231 $ 2,326
====== ======
</TABLE>
A valuation allowance has been provided for 1994 and 1993, respectively, for the
tax effect of a portion of the non-life loss carryovers since it is more likely
than not that such benefits will not be realized. The change in the valuation
allowance increased $587,000 due primarily to increases in non-life net
operating losses which are not expected to be utilized against life company
income.
Under the provisions of pre-1984 life insurance tax regulations, NFL was taxed
on the lesser of taxable investment income or income from operations, plus one-
half of any excess of income from operations over taxable investment income.
One-half of the excess (if any) of the income from operations over taxable
investment income, an amount which was not currently subject to taxation, plus
special deductions allowed in computing the income from operations, were placed
in a special memorandum tax account known as the policyholders' surplus
account. The aggregate accumulation in the account at December 31, 1994,
approximated $2,500,000. Federal income taxes will become payable on this
account at the then current tax rate when and to the extent that the account
exceeds a specific maximum, or when and if distributions to stockholders, other
than stock dividends and other limited exceptions, are made in excess of the
accumulated previously taxed income. The Company does not anticipate any
transactions that would cause any part of the amount to become taxable and,
accordingly, deferred taxes which would approximate $875,000, have not been
provided on such amount.
<PAGE>
At December 31, 1994, NFL has approximately $13,700,000 in its shareholders
surplus account from which it could make distributions to the Company without
incurring any federal tax liability. The amount of dividends which may be paid
by NFL to the Company is limited by statutory regulations.
At December 31, 1994, the Company and its wholly-owned subsidiaries have
aggregate net operating loss carryforwards of approximately $18,506,000 and
$10,907,000 for regular tax and alternative minimum tax purposes,
respectively, which expire in 2001 through 2008. Included in such aggregate
carryovers are non-life net operating loss carryovers that may be utilized,
subject to certain limitations, against life taxable income for regular and
alternative minimum tax purposes of approximately $15,800,000 and $9,694,000,
respectively.
NOTE 13 - STATUTORY CAPITAL AND SURPLUS
Under applicable Delaware law, NFL must maintain minimum aggregate statutory
capital and surplus of $550,000. Under applicable Texas law, each of NFI and
AICT must maintain minimum aggregate statutory capital and surplus of $1.4
million. The state of Georgia requires licensed out-of-state insurers to
maintain minimum capital of $1.5 million and Kentucky requires minimum surplus
of $2.0 million, which levels are higher than those of any other states in which
the Insurance Subsidiaries are currently licensed. Accordingly, the minimum
aggregate statutory capital and surplus which each of NFL, NFI and AICT must
maintain is $3.5 million. At December 31, 1994, aggregate statutory capital and
surplus for NFL, NFI and AICT was $13.0 million, $10.6 million and $6.4 million,
respectively. Statutory net income for NFL, NFI and AICT for the year ended
December 31, 1994, was $1.7 million, $1.8 million and $1.1 million. AICT is
wholly-owned by NFI. Accordingly, statutory capital and surplus of NFI includes
capital and surplus of AICT.
Dividend payments from Westbridge's principal Insurance Subsidiaries are
regulated by the insurance laws of their domiciliary states. NFL is domiciled
in Delaware. Under the Delaware Insurance Code, an insurer domiciled in
Delaware may not declare or pay a dividend or other distribution from any source
other than "earned surplus" without the state insurance commissioner's prior
approval. "Earned surplus" is defined as an amount equal to the unassigned
funds of an insurer as set forth on its most recent statutory annual statement,
including all or part of the surplus arising from unrealized capital gains or
revaluation of assets. NFI and AICT are domiciled in Texas. An insurer
domiciled in Texas may pay dividends only out of "surplus profits arising from
its business". Moreover, insurers domiciled in either Delaware or Texas may not
pay "extraordinary dividends" without first providing the state insurance
commissioner with 30-days' prior notice, during which time such commissioner may
disapprove the payment. An "extraordinary dividend" is defined as a dividend
whose fair market value together with that of other dividends made within the
preceding 12 months exceeds the greater of (a) ten percent of the insurer's
surplus as regards policyholders as of the preceding December 31 or (b) the
net gain from operations of such insurer, not including realized capital gains,
for the 12-month period ending on the preceding December 31. In September 1994,
NFL paid to Westbridge an "extra-ordinary dividend" in the amount of $2.0
million. With respect to ordinary dividends payable by an insurer domiciled in
Delaware, notice of any dividend must be provided to the state insurance
commissioner within five (5) business days following the declaration thereof and
at least ten (10) days prior to the payment thereof. As of December 31, 1994,
NFL had negative statutory "earned surplus" as a result of historical statutory
losses. For the foreseeable future, NFL has agreed to seek the approval of the
Delaware insurance commissioner prior to making any dividend payments. As of
December 31, 1994, AICT has the ability to pay to NFI, without prior regulatory
approval, $641,000 in dividends during 1995. As of December 31, 1994, NFI has
the ability to pay to Westbridge, without prior regulatory approval, $1.1
million during 1995. In both Delaware and Texas, the state insurance
commissioner reviews the dividends paid by each insurer domiciled in such
commissioner's state at least once each year to determine whether they are
reasonable in relation to the insurer's surplus as regards policyholders and
quality of earnings. The state insurance commissioner may issue an order to
limit or disallow the payment of ordinary dividends if such commissioner finds
the insurer to be presently or potentially financially distressed or troubled.
<PAGE>
In December 1990, the Company and NFL entered into an agreement under which NFL
issued a Surplus Certificate to the Company in the principal amount of
$2,863,000 in exchange for $2,863,000 of the Company's assets. The unpaid
aggregate principal under the Surplus Certificate bears interest at an agreed
upon rate not to exceed 10% and is repayable, in whole or in part, upon (i)
NFL's surplus exceeding $7,000,000, exclusive of any surplus provided by any
reinsurance treaties, and (ii) NFL receiving prior approval for repayment from
the Delaware State Insurance Commissioner. During 1993 and 1994, NFL received
such approval and repaid $2,086,000 to the Company.
In 1993, NFL increased its statutory capital from $1,200,000 to $2,000,000
through a stock dividend which transferred $800,000 from unassigned surplus to
capital.
In December 1994, the AICPA approved Statement of Position 94-5, "Disclosures of
Certain Matters in the Financial Statements of Insurance Enterprises". This
statement requires insurance enterprises to make disclosures in their financial
statements regarding the accounting methods used in their statutory financial
statements that are permitted by state insurance departments rather than
prescribed statutory accounting practices. Prescribed statutory accounting
practices include a variety of publications of the NAIC as well as state laws,
regulations and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed. The Company
employed no permitted statutory accounting practices that individually or in the
aggregate materially affected statutory surplus or risk-based capital at
December 31, 1994 or 1993.
NOTE 14 - EMPLOYEE BENEFIT PLANS
The Company adopted, as of July 1, 1982, an employee incentive stock option plan
(the "ISO Plan"). The ISO Plan, as amended, authorizes the Company's Board of
Directors to issue to key full-time employees of the Company, or any of its
subsidiaries, non-transferrable options to purchase up to 580,000 (as adjusted
to give effect for stock dividends paid in 1983) shares, in the aggregate, of
the Company's Common Stock. Options granted under the ISO Plan are intended to
qualify as either "incentive stock options" under Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code"), or as non-qualified stock options
as defined under the Code. The ISO Plan provides that the option price per
share will be no less than the fair market value for a share of the Company's
Common Stock on the date of grant. To date, all option prices have been equal
to the fair market value of the stock on the date of grant. The ISO plan also
provides that shares available upon the exercise of options granted under the
ISO Plan may be paid for with cash or by tendering shares of Common Stock owned
by optionee(s), or a combination of the foregoing. All options outstanding are
exercisable within ten years from the date the option was granted, except that
no option is exercisable until at least one year after its grant. In addition,
the ISO Plan provides that no one owning 10% of the total combined voting power
of all classes of the Company's stock, or of the stock of any subsidiary, is
eligible to be awarded options under the ISO Plan.
<PAGE>
The Company also adopted, as of September 5, 1985, a second employee stock
option plan (the "1985 Plan"). The 1985 Plan provides for the granting, to
eligible employees of the Company or its subsidiaries, of stock options to
purchase up to a total of 200,000 shares of the Company's Common Stock.
Options granted under the 1985 Plan are treated as "non-qualified stock options"
for purposes of the Code and the option price per share shall not be less than
90% of the fair market value of the Company's Common Stock on the date of grant.
All options outstanding are exercisable within seven years from the date the
option was granted, except that no option is exercisable until at least one year
after its grant.
A third employee stock option plan (the "1992 Plan"), was adopted as of March
26, 1992. The 1992 Plan provided for the granting, to eligible employees of the
Company or its subsidiaries, of stock options to purchase up to a total of
300,000 shares of the Company's Common Stock. Options granted under the 1992
Plan are treated as "non-qualified stock options" for purposes of the Code and
the option price per share shall not be less than 90% of the fair market value
of the Company's Common Stock on the date of grant. All options outstanding are
exercisable within seven years from the date the option was granted, except that
no option is exercisable until at least one year after its grant.
<PAGE>
<TABLE>
<CAPTION>
Information regarding the Company's stock option plans is summarized as follows:
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Options outstanding at beginning of year 554,917 499,285 531,697
Options granted during the year:
Price granted at $6.84 5,000 -- --
Price granted at $7.20 5,000 -- --
Price granted at $7.65 25,000 -- --
Price granted at $7.71 5,000 -- --
Price granted at $5.18 -- 92,000 --
Price granted at $5.75 -- 30,000 --
Price granted at $6.08 -- 10,000 --
Price granted at $2.50 -- -- 12,000
Options exercised during the year:
Price ranging from $1.63 to $5.18 (219,623) (66,180) (44,412)
Options canceled during the year:
Price ranging from $1.69 to $2.00 -- (10,188) --
------- ------- -------
Options outstanding at end of year 375,294 554,917 499,285
======= ======= =======
At December 31, 1994, options for 204,294 shares were exercisable under the
stock options plans at a price ranging from $1.88 to $2.50; and options for
131,000 shares were exercisable at a price ranging from $5.18 to $6.08. Also,
at December 31, 1994 and 1993, options for 128,000 and 168,000 shares,
respectively, remained available for future grant under the plans.
In September 1986, the Company established a retirement savings plan for its
employees. The plan permits all employees who have been with the Company for at
least one year to make contributions by salary reduction pursuant to section
401(k) of the Internal Revenue Code. The plan allows employees to defer up to
3% of their salary with partially matching discretionary Company contributions
determined by the Company's Board of Directors. Employee contributions are
invested in any of four investment funds at the discretion of the employee.
Company contributions are in the form of the Company's Common Stock. The
Company's contributions to the plan in 1994 and 1993 approximated $98,000 and
$45,000, respectively.
NOTE 15 - REINSURANCE
The Insurance Subsidiaries cede insurance to other insurers and reinsurers on
both its life and accident and health business. Reinsurance agreements are used
to limit maximum losses and provide greater diversity of risk. The Company
remains liable to policyholders to the extent the reinsuring companies are
unable to meet their treaty obligations. Total life and accident and health
premiums of $1,703,000, $495,000, and $504,000 were paid to reinsurers in 1994,
1993, and 1992, respectively. Face amounts of life insurance in force
approximated $21,814,000 and $22,340,000 at December 31, 1994 and 1993,
respectively. No life insurance was reinsured as of December 31, 1994 and 1993.
In late 1993, NFL entered into a coinsurance treaty with FLICA. FLICA is a
wholly-owned subsidiary of Freedom. Under the terms of the treaty, NFL assumed
90% pro-rata share of first occurrence cancer business. For the year ended
December 31, 1994 $1,640,000 of assumed premiums under coinsurance treaty are
included as premium revenue in the Consolidated Financial Statements.
<PAGE>
In May 1987, NFL entered into a coinsurance treaty with FLICA. Under the terms
of the treaty, NFL assumed a 50% pro-rata share of all insurance business
written by FLICA from January 1, 1987 through December 31, 1988. In November
1988 (see NOTE 5), the coinsurance treaty was amended to extend through 1997.
For the years ended December 31, 1994, 1993 and 1992, $4,607,000, $4,856,000,
and $4,786,000, respectively, of assumed premiums under the coinsurance treaty
are included as premium revenues in the consolidated financial statements. In
March 1990, NFL entered into a coinsurance treaty with Paramount Life Insurance
Company ("Paramount"). Paramount is controlled by one of NFL's managing general
agents. Under the terms of the treaty, NFL assumes a quota- share of all
insurance written by PLIC for a period of five years beginning in 1990. For
1990 and 1991 new business, NFL assumed a 90% quota-share. No new business was
reinsured from Paramount during 1993 or 1992. For the years ended December 31,
1994, 1993 and 1992, $1,601,000, $1,977,000, and $2,509,000, respectively, of
assumed premiums under the coinsurance treaty with Paramount is included as
premium revenue in the consolidated financial statements.
NOTE 16 - COMMITMENTS AND CONTINGENCIES
The Company's future minimum lease payments for non-cancelable operating leases,
relating primarily to office facilities and data processing equipment having a
remaining term in excess of one year, at December 31, 1994, aggregated
$9,425,000. The amounts due by year are as follows: 1995-$2,008,000; 1996-
$1,786,000; 1997-$1,541,000; 1998-$1,375,000; 1999-$1,244,000; and thereafter-
$1,471,000. Aggregate rental expense included in the consolidated financial
statements for all operating leases approximated $2,953,000, $1,908,000, and
$1,584,000 in 1994, 1993 and 1992, respectively.
In the normal course of their business operations, the Insurance Subsidiaries,
continue to be involved in various claims, lawsuits (alleging actual as well as
substantial exemplary damages) and regulatory matters. In the opinion of
management, the disposition of these or any other legal matters will not have a
material adverse effect on the Company's consolidated financial position.
In the ordinary course of business, the Company has advanced commissions and
made loans to agents collateralized by future commissions. Advances to agents
are recorded as receivables from agents and consisted as of December 31, 1994 in
amounts of $3,552,000 for LifeStyles Marketing's agents, $1,757,000 for agent
balances reinsured from FLICA and $2,045,000 for other agent balances.
Westbridge holds a secured promissory note (the "Elkins Note"), from NFC
Marketing, Inc. ("NFC"), an Arkansas corporation which is wholly-owned by
Elkins. The balance of this note recorded on the books of the Company at
December 31, 1994 is approximately $1.0 million. The note, which was
renegotiated in October 1994, represents principal and accrued interest on a
loan made by Westbridge to NFC for the purpose of expanding its marketing
efforts. The original loan was scheduled to be repaid in April 1993. However,
due to certain financial difficulties, NFC was in arrears on the full amount of
this note and in October 1994 the Elkins Note was renewed and extended with
terms which provide, among other things, for the payment to Westbridge of
$20,000 per month until such time as the full amount of principal and interest
thereunder has been paid. Under the terms of the Elkins Note, such amounts have
been paid to Westbridge by NFL from monthly commissions which would otherwise be
payable to NFC by NFL. Payment of the principal and interest under the Elkins
Note has been guaranteed by Elkins. In addition, under the terms of a Security
Agreement delivered to Westbridge by NFC, following a default, Westbridge has
the right to apply monies, balances, credit or collections which it may hold for
NFC on deposit, or which might otherwise be payable to NFC by NFL (including,
among other things, agents' commissions payable by NFL to NFC), to offset the
unpaid balance of the Elkins Note. Following any exercise by the Company of its
right of offset, management believes that the level of lapses and cancellations
would gradually increase as a result of agents' efforts to transfer the policies
to other insurers. However, management also believes that the rate at which
such policies could be rewritten would not significantly affect the level of
premiums received in the near term and, as a result, the Company should recover
the full amount owed on this note.
<PAGE>
NOTE 17 - RECONCILIATION TO STATUTORY REPORTING
</TABLE>
<TABLE>
<CAPTION>
A reconciliation of net income as reported by the Insurance Subsidiaries under
practices prescribed or permitted by regulatory authorities and that reported
herein by the Company on a consolidated GAAP basis follows:
Year Ended December 31,
1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Net income as reported by the
Insurance Subsidiaries on a
regulatory basis $ 3,043 $ 4,066 $ 2,366
Additions to (deductions from)
regulatory basis:
Future policy benefits and claims 1,264 4,076 (116)
Deferred policy acquisition and
development costs, net of amortization 6,967 (2,414) 1,096
Deferred and uncollected premiums (601) 1,672 371
Income taxes (2,505) (1,991) 618
Operations of affiliates (2,669) (2,347) (2,192)
Other, net 926 469 753
------- ------- -------
Consolidated net income as reported herein
on a GAAP basis $ 6,425 $ 3,531 $ 2,896
======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
A reconciliation of capital and surplus reported by the Insurance Subsidiaries
under regulatory practices to stockholders' equity as reported herein by
Westbridge on a consolidated GAAP basis follows:
Year Ended December 31,
1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Capital and surplus as reported by the
Insurance Subsidiaries on a
regulatory basis $ 23,564 $ 16,066 $ 14,265
Additions to (deductions from)
a regulatory basis:
Future policy benefits and claims (23,298) (12,090) (16,277)
Deferred policy acquisition and
development costs 55,305 28,354 30,768
Nonadmitted assets 8,127 4,567 3,898
Income taxes (10,038) (2,326) (1,188)
Deferred, uncollected and advance premiums 704 2,246 574
Asset valuation reserve 1,644 1,518 996
Stockholders' equity (deficit)
of affiliates (41,071) (20,621) (18,665)
Other, net 11,418 3,897 3,642
-------- -------- --------
Consolidated stockholders' equity as reported
herein on a GAAP basis $ 26,355 $ 21,611 $ 18,013
======== ======== ========
</TABLE>
NOTE 18 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Summarized quarterly financial data for each of the Company's last two years of
operations is as follows:
Quarter Ended
1994 March June September December
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Premium income $17,201 $26,763 $27,696 $27,043
Net investment income 872 1,460 1,610 1,822
Realized gains on investments 62 131 127 -
Fee, service and other income 448 409 449 453
Benefits, claims and other expenses 16,989 26,331 27,302 27,080
Net income before cumulative effect
of a change in accounting principle 1,146 1,691 1,781 1,807
Preferred stock dividends - 365 412 413
Income applicable to common stock-
holders 1,146 1,326 1,369 1,394
Earnings per share:
Primary $ .25 $ .29 $ .30 $ .30
Fully diluted $ .25 $ .26 $ .26 $ .26
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
1993 March June September December
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Premium income $18,965 $17,168 $17,086 $15,512
Net investment income 1,132 1,189 950 849
Realized gains on investments 105 340 281 304
Fee, service and other income 340 328 360 384
Benefits, claims and other expenses 19,600 17,900 17,465 15,568
Net income 674 831 893 1,133
Earnings per share $ .15 $ .18 $ .20 $ .25
</TABLE>
NOTE 19 - SUBSEQUENT EVENTS
On February 28, 1995, the Company issued 1,500,000 shares of its Common Stock in
an underwritten public offering. The shares of Common Stock were issued at a
price of $7.00 per share, less an underwriting discount of $.42 per share.
Also on February 28, 1995, the Company issued $20,000,000 aggregate principal
amount of its 11% Senior Subordinated Notes due 2002 (the "Notes"), in an under-
written public offering. The Notes were issued at par, less an underwriting
discount of 4%.
The Company may redeem the Notes at any time on or after March 1, 1998, upon 30
days written notice, at par plus accrued interest. Following the death of any
holder of the Notes and the request for repayment, the Company will repay such
holder's Notes at par plus accrued interest. The Company is not obligated to
redeem more than $50,000 in principal amount per holder per calendar year or in
aggregate for all holders more than $250,000 in principal amount per calendar
year. The Notes contain certain covenants which limit the Company's ability to,
(i) incur certain types of indebtedness, (ii) pay dividends or make
distributions to holders of the Company's equity securities, or (iii)
consolidate, merge, or transfer all or substantially all of the Company's
assets. The Notes also contain covenants which require the Company to maintain,
(i) a minimum amount of liquid assets, (ii) a minimum consolidated net worth,
and (iii) a minimum fixed charge ratio.
Concurrent with the Common Stock and Note offerings, the Company called for
redemption on March 30, 1995, all of its outstanding 11.7% Senior Subordinated
Debentures due 1996. The redemption price is par plus accrued interest.
As a result of the issuance of the Common Stock, the conversion rate of the
Series A Preferred Stock has been adjusted. The Series A Preferred Stock is now
convertible into 2,378,120 shares of Common Stock at $8.41 per share.
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS
<CAPTION>
June 30, December 31, June 30,
1995 1994 1994
<S> <C> <C> <C>
Investments:
Fixed maturities:
Available-for-sale, at market
value (amortized cost $11,149
$11,310 and $12,620) $ 11,617 $ 10,787 $ 12,546
Held-to-maturity, at amortized
cost (market value $78,024
$75,238 and $75,322) 76,882 80,377 77,289
Equity securities, at market 547 469 465
Investment in Freedom Holding Company,
on the equity basis 6,001 5,945 5,771
Mortgage loans on real estate 732 768 806
Investment real estate 141 141 141
Policy loans 289 291 286
Short-term investments 3,192 7,189 15,005
------- ------- -------
Total Investments 99,401 105,967 112,309
Cash 92 2,871 2,662
Accrued investment income 1,771 1,924 2,102
Receivables from agents, net of
allowance for doubtful accounts 11,150 7,353 5,482
Deferred policy acquisition costs 48,214 58,654 61,365
Leasehold improvements and equipment,
at cost, net of accumulated depreciation
and amortization 1,576 1,215 555
Other assets 12,383 9,597 7,294
-------- -------- --------
Total Assets $174,587 $187,581 $191,769
======== ======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
<CAPTION>
June 30, December 31, June 30,
1995 1994 1994
<S> <C> <C> <C>
Liabilities:
Policy liabilities and accruals:
Future policy benefits $ 45,412 $ 62,893 $ 63,771
Claims 39,248 41,387 43,179
-------- -------- --------
84,660 104,280 106,950
Accumulated policyholders' funds 360 372 372
Other liabilities 9,134 8,678 8,149
Deferred income taxes 3,326 3,231 7,646
Senior subordinated debentures,
net of unamortized discount - 24,665 24,538
Senior subordinated notes, due 2002
net of unamortized discount 19,225 - -
-------- -------- --------
Total Liabilities 116,705 141,226 147,655
Redeemable Preferred Stock 20,000 20,000 20,000
Stockholders' Equity:
Common stock, ($.l0 par value, 30,000,000
shares authorized; 5,950,258, 4,430,458
and 4,328,873 shares issued) 595 443 433
Capital in excess of par value 29,126 19,328 19,567
Unrealized appreciation (depreciation) of
investments carried at market value 520 (147) 146
Retained earnings 7,811 6,901 4,138
-------- -------- --------
38,052 26,525 24,284
Less - Aggregate of shares held in
treasury and investment by affiliate
in Westbridge Capital Corp. common
stock (28,600 shares at June 30, 1995,
December 31, 1994 and June 30, 1994),
at cost (170) (170) (170)
-------- -------- --------
Total Stockholders' Equity 37,882 26,355 24,114
Total Liabilities, Redeemable
Preferred Stock and Stockholders'
Equity $174,587 $187,581 $191,769
======== ======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1995 1994 1995 1994
------------------ ----------------
<S> <C> <C> <C> <C>
Revenues:
Premiums:
First-year $ 7,497 $ 3,396 $13,456 $ 6,151
Renewal 21,379 23,367 43,354 37,813
------- ------- ------- -------
28,876 26,763 56,810 43,964
Net investment income 1,764 1,460 3,584 2,332
Fee and service income 458 379 890 824
Net realized gains (losses) on investments (11) 131 (72) 193
Other income (1) 30 5 33
------- ------- ------- -------
31,086 28,763 61,217 47,346
------- ------- ------- -------
Benefits, claims and expenses:
Benefits and claims 17,181 14,841 33,509 23,096
Amortization of deferred
policy acquisition costs 3,058 2,557 5,948 4,066
Commissions 2,715 3,031 5,814 5,365
General and administrative expenses 4,559 4,129 9,611 7,747
Taxes, licenses and fees 986 985 2,066 1,577
Interest expense 570 788 1,290 1,469
------- ------- ------- -------
29,069 26,331 58,238 43,320
------- ------- ------- -------
Income before income taxes, equity in
earnings of Freedom Holding Company
and extraordinary item 2,017 2,432 2,979 4,026
Provision for income taxes 686 827 1,013 1,360
Equity in Freedom Holding Company 87 86 176 171
------- ------- ------- -------
Net income before extraordinary item 1,418 1,691 2,142 2,837
Extraordinary loss from early extinguishment
of debt, net of income tax benefit of $210 - - 407 -
------- ------- ------- -------
Net Income $ 1,418 $ 1,691 $ 1,735 $ 2,837
======= ======= ======= =======
Preferred stock dividends 412 365 825 365
Income applicable to common stockholders $ 1,006 $ 1,326 $ 910 $ 2,472
======= ======= ======= =======
Earnings per common share:
Primary:
Income before extraordinary item $ .17 $ .29 $ .24 $ .53
Extraordinary item - - (.08) -
------- ------- ------- -------
Net Earnings $ .17 $ .29 $ .16 $ .53
======= ======= ======= =======
Fully diluted:
Income before extraordinary item $ .17 $ .26 $ .27 $ .50
Extraordinary item - - (.05) -
------- ------- ------- -------
Net Earnings $ .17 $ .26 $ .22 $ .50
======= ======= ======= =======
Weighted average shares outstanding:
Primary 6,079 4,619 5,602 4,622
Fully diluted 8,457 6,628 7,951 5,632
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1995 1994 1995 1994
------------------- -------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,418 $ 1,691 $ 1,735 $ 2,837
Adjustments to reconcile net income
to cash used for operating activities:
Decrease in policy liabilities and accruals (895) (1,806) (1,620) (4,030)
Amortization of deferred policy
acquisition costs 3,058 2,557 5,948 4,066
Additions to deferred policy
acquisition costs (5,662) (3,213) (11,508) (5,080)
Increase in deferred income taxes 358 418 95 752
Depreciation expense 123 70 234 133
Increase in receivables from agents (1,911) (315) (3,797) (532)
Increase in other assets (2,409) (3,301) (2,786) (3,954)
Equity in earnings of Freedom Holding Company (86) (86) (56) (171)
Net realized (gains) losses on investments 14 (131) 72 (193)
Increase (decrease) in other liabilities (748) 1,437 (1,556) 484
Other, net (685) (359) (774) (26)
------ ------ ------ ------
NET CASH USED FOR OPERATING ACTIVITIES (7,425) (3,038) (14,013) (5,714)
------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of NFI and AICT - (20,178) - (20,178)
Proceeds from investments sold:
Fixed maturities, classified as
hold-to-maturity, called or matured 271 1,140 519 1,140
Fixed maturities, classified as
available-for-sale, called or matured 64 193 77 1,368
Fixed maturities, classified as
available-for-sale, sold 2,987 2,225 3,939 5,158
Short-term investments, sold or matured 7,596 33,584 10,530 35,057
Other investments, sold or matured 14 26 38 60
Cost of investments acquired (4,217) (32,520) (7,424) (40,724)
Notes receivable from related parties - 37 - 1,381
Additions to leasehold improvements
and equipment, net of retirements (209) (60) (595) (124)
------ ------ ------ ------
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES 6,506 (15,553) 7,084 (16,862)
------ ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (retirement) of debentures, at par - - (25,000) 5,000
Issuance of subordinated notes - - 19,200 -
Issuance of redeemable preferred stock - 20,000 - 20,000
Issuance of common stock 1 27 9,950 109
Purchase and cancellation of common stock - - - (19)
------ ------ ------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1 20,027 4,150 25,090
------ ------ ------ ------
INCREASE (DECREASE) IN CASH DURING PERIOD (918) 1,436 (2,779) 2,514
CASH AT BEGINNING OF PERIOD 1,010 1,226 2,871 148
------ ------ ------ ------
CASH AT END OF PERIOD $ 92 $ 2,662 $ 92 $ 2,662
====== ====== ====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for (in thousands):
Interest $560 $ 7 $2,338 $1,207
Income taxes $325 $415 $ 328 $ 415
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
The Company purchased the outstanding capital stock of a health
insurer and its subsidiary in the second quarter of 1994 for a cash
purchase price of $20.1 million. This purchase resulted in the
Company receiving tangible assets and assuming liabilities as
follows:
<S> <C>
Assets $61,293,000
Liabilities $72,199,000
</TABLE>
<TABLE>
The Company purchased a block of Supplemental Health insurance in
the first quarter of 1994. This purchase resulted in the Company
disbursing assets and assuming liabilities as follows:
<S> <C>
Investments $ 545,000
Policy liabilities $ 2,626,000
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
WESTBRIDGE CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements for
Westbridge Capital Corp. ("Westbridge" and, together with its
consolidated subsidiaries, the "Company") have been prepared in
accordance with the instructions to Form 10-Q and do not include
all of the information and footnotes required by generally accepted
accounting principles ("GAAP") 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, 1995 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1995. The
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December
31, 1994.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
In the normal course of their business operations, National
Foundation Life Insurance Company ("NFL"), National Financial
Insurance Company ("NFI"), and American Insurance Company of Texas
("AICT"), Westbridge's primary insurance subsidiaries, are involved
in various claims and other business related disputes. In the
opinion of management, the disposition of these matters will have
no material adverse effect on the Company's consolidated financial
position.
NOTE 3 - ACQUISITION OF NFI AND AICT
On April 12, 1994, Westbridge consummated the acquisition (the
"Acquisition") of all of the outstanding capital stock of NFI and
its wholly owned subsidiary AICT. NFI and AICT are health insurers
domiciled in the state of Texas. The Acquisition has been
accounted for under the purchase method and, accordingly, the
operating results of NFI and AICT have been included in the
consolidated operating results since the date of acquisition.
Effective April 1, 1995, the Company recorded an adjustment to the
liability for future policy benefits relating to insurance policies
obtained in the Acquisition. The effect of this adjustment was to
reduce the liability for future policy benefits and to reduce
deferred policy acquisition costs by approximately $18,500,000.
The adjustment resulted from calculating the liability using
current actuarial assumptions rather than the historical actuarial
assumptions which were present at the time of the Acquisition. The
difference is accounted for as an adjustment to the purchase price
as it falls within the one-year "look-back" period following the
Acquisition.
NOTE 4 - FINANCING ACTIVITY
On February 28, 1995, the Company issued 1,500,000 shares of its
Common Stock in an underwritten public offering. The shares of
Common Stock were issued at a price of $7.00 per share, less an
underwriting discount of $.42 per share.
<PAGE>
Also on February 28, 1995, the Company issued $20,000,000 aggregate
principal amount of its 11% Senior Subordinated Notes due 2002 (the
"Notes"), in an under-written public offering. The Notes were
issued at par, less an underwriting discount of 4%.
The Company may redeem the Notes at any time on or after March 1,
1998, upon 30 days' written notice, at par plus accrued interest.
Upon the death of any holder of the Notes, the Company will repay
such holder's Notes at par plus accrued interest. The Company is
not obligated to redeem more than $50,000 in principal amount per
holder per calendar year or in aggregate for all holders more than
$250,000 in principal amount per calendar year. The Notes contain
certain covenants which limit the Company's ability to, (i) incur
certain types of indebtedness, (ii) pay dividends or make
distributions to holders of the Company's equity securities, or
(iii) consolidate, merge, or transfer all or substantially all of
the Company's assets. The Notes also contain covenants which
require the Company to maintain, (i) a minimum amount of liquid
assets, (ii) a minimum consolidated net worth, and (iii) a minimum
fixed charge ratio.
Concurrent with the Common Stock and Note offerings, on February
28, 1995 the Company placed funds in escrow sufficient to cover all
remaining principal and interest payments on its outstanding 11.7%
Senior Subordinated Debentures due 1996, which were called for
redemption on March 30, 1995. The redemption price was par plus
accrued interest. This redemption prior to scheduled maturity
resulted in a loss from early extinguishment of debt. The loss
related to amortization of the remaining original issue discount
and write-off of deferred financing costs, offset in part by
interest earned on the funds in escrow. This loss is reported, net
of tax, as an extraordinary item on the accompanying statement of
operations.
As a result of the issuance of the Common Stock, the conversion
rate of the Series A Preferred Stock has been adjusted. The Series
A Preferred Stock is now convertible into an aggregate of 2,378,120
shares of Common Stock.
NOTE 5 - EARNINGS PER SHARE
Primary Income Before Extraordinary Item. Calculated by dividing
net income before extraordinary item, less preferred stock
dividends, by primary weighted average shares outstanding. Primary
weighted average shares outstanding do not assume the conversion to
Common Stock of the Series A Preferred Stock.
Fully Diluted Income Before Extraordinary Item. Calculated by
dividing net income before extraordinary item by fully diluted
weighted average shares outstanding. The preferred stock dividend
is not deducted from income for the fully diluted calculation, but
the fully diluted averages shares outstanding number is larger.
The fully diluted calculation assumes the conversion of the Series
A Preferred Stock to Common Stock at the beginning of the period.
Were such a conversion to occur, (a) preferred dividends would not
be paid, and are therefore not deducted from earnings for the
calculation and, (b) there would be a greater number of shares of
Common Stock outstanding as a result of the conversion.
At June 30, 1995, the Series A Preferred Stock was convertible to
Common Stock at a conversion price of $8.41, which would result in
2,378,120 additional shares of Common Stock upon conversion.
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholder
of National Financial Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholder's equity and of
cash flows present fairly, in all material respects, the financial position of
National Financial Insurance Company and its subsidiary at December 31, 1993,
and the results of their operations and their cash flows for the year in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. The consolidated financial statements of National Financial Insurance
Company for the years ended December 31, 1992 and 1991 were audited by other
independent accountants whose report dated November 24, 1993 expressed an
unqualified opinion on those statements.
As discussed in Note 6 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," as of January 1, 1993.
PRICE WATERHOUSE LLP
Dallas, Texas
June 23, 1994
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors
Westbridge Capital Corp.:
We have audited the consolidated balance sheets of National Financial
Insurance Company and Subsidiaries (a subsidiary of National Group
Corporation) as of December 31, 1992 and 1991 and the related consolidated
statements of income, stockholder's equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. We have not audited the consolidated
financial statements of National Financial Insurance Company for any period
subsequent to December 31, 1992.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of National Financial Insurance
Company and Subsidiaries (a subsidiary of National Group Corporation) at
December 31, 1992 and 1991 and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Jaynes, Reitmeier, Boyd, Therrell, P.C.
November 24, 1993NATIONAL FINANCIAL INSURANCE COMPANY
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
1993 1992
-------------- --------------
ASSETS
<S> <C> <C>
Fixed maturities, at amortized cost
(market - $25,940,393 and $30,101,280) $ 24,970,781 $ 29,454,692
Marketable equity securities, at market:
Preferred stocks (cost $595,407 and $569,826) 469,343 450,318
Common stocks (cost - $2,445,201 and $2,575,977) 2,383,806 3,417,915
Mortgage loans on real estate 3,637,988 7,227,474
Collateral loans 5,751,920 6,281,736
Investment real estate 8,134,978 7,565,131
Short-term investments 2,772,896 5,214,792
Other invested assets 270,752 -
---------- ----------
Total invested assets 48,392,464 59,612,058
Cash and cash equivalents 10,857,748 5,817,950
Deposit under reinsurance financing agreement - 2,569,278
Ceded reinsurance recoverable 2,275,823 -
Premiums due and other receivables 1,946,497 2,438,291
Accrued investment income 613,105 879,131
Deferred policy acquisition costs 24,614,611 32,005,618
Property and equipment 436,966 636,752
Receivable from affiliates 344,307 97,111
Goodwill 4,650,063 4,818,823
Other assets 911,578 2,497,147
----------- -----------
Total assets $ 95,043,162 $ 111,372,159
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NATIONAL FINANCIAL INSURANCE COMPANY
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1993 AND 1992
1993 1992
-------------- --------------
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
Liabilities:
Accident and health future policy benefits $ 31,868,304 $ 36,021,831
Policy and contract claims 34,722,021 39,404,470
----------- -----------
66,590,325 75,426,301
Federal income taxes:
Current 238,045 905,328
Deferred 4,525,264 1,560,727
Notes payable 1,000,000 1,000,000
Accrued commissions and expenses - 2,072,883
Deferred revenue under reinsurance agreements 2,171,884 5,694,704
Payable to affiliates 190,831 389,319
Other liabilities 2,277,083 1,912,590
Total liabilities 76,993,432 88,961,852
----------- -----------
Minority interest 3,233,922 3,562,236
----------- -----------
Stockholder's equity:
Common stock (par value $12 per share;
200,000 shares authorized; 125,000 and
100,000 shares issued and outstanding) 1,500,000 1,200,000
Net unrealized (loss) gain on marketable
equity securities (70,151) 374,966
Retained earnings 13,385,959 17,273,105
----------- -----------
Total stockholder's equity 14,815,808 18,848,071
----------- -----------
Commitments and contingencies (Note 10) - -
Total liabilities and stockholder's equity $ 95,043,162 $ 111,372,159
=========== ===========
</TABLE>
<PAGE>
NATIONAL FINANCIAL INSURANCE COMPANY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
------------------- ------------------- ------------------
<S> <C> <C> <C>
Premiums and other revenue:
Life and accident and health premiums $ 52,152,550 $ 66,925,334 $ 78,387,000
Property and casualty premiums - (2,730) 32,531
Net investment income 3,453,989 5,323,909 6,936,143
Gains from sale of investments 2,539,061 1,913,900 1,649,610
Other revenue 3,423,605 2,081,344 2,240,228
---------------- ----------------- -----------------
61,569,205 76,241,757 89,245,512
---------------- ----------------- -----------------
Benefits and expenses:
Death and other policy benefits:
Life and accident and health 42,675,465 54,805,918 57,971,812
Property and casualty - 58,981 80,167
Decrease in liability for future policy
benefits (5,533,464) (8,596,937) (8,650,334)
Amortization of deferred policy
acquisition costs, net of
amounts deferred 7,391,007 3,819,046 2,259,823
Commissions for acquiring and
servicing policies 5,131,262 8,185,106 11,156,783
Taxes, licenses and fees 1,071,894 2,386,988 2,676,347
Other operating costs and expenses 7,874,404 14,759,205 17,887,540
Interest expense 77,499 89,339 122,438
---------------- ----------------- -----------------
58,688,067 75,507,646 83,504,576
---------------- ----------------- -----------------
Gain from operations before federal
income taxes, minority interest and
cumulative effect of change
in accounting principle 2,881,138 734,111 5,740,936
---------------- ----------------- -----------------
Provision (benefit) for federal
income taxes:
Current 917,907 751,555 327,943
Deferred (416,020) (952,962) 60,355
---------------- ----------------- -----------------
501,887 (201,407) 388,298
---------------- ----------------- -----------------
Gain from operations before
minority interest and cumulative
effect of change in accounting principle 2,379,251 935,518 5,352,638
Minority interest in (loss) earnings (213,241) 500,400 904,612
---------------- ----------------- -----------------
Gain from operations before cumulative
effect of change in accounting principle 2,592,492 435,118 4,448,026
Cumulative effect on prior years
of change in accounting
principle 3,599,638 - -
---------------- ----------------- -----------------
Net income (loss) $ (1,007,146) $ 435,118 $ 4,448,026
================ ================= =================
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NATIONAL FINANCIAL INSURANCE COMPANY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITES
YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
Marketable Total
Capital Equity Retained Stockholder's
Stock Securities Earnings Equity
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Balances, December 31,
1990 $ 1,200,000 $ (113,746) $ 16,736,961 $ 17,823,215
Net income - - 4,448,026 4,448,026
Dividends to stockholder - - (3,447,000) (3,447,000)
Unrealized gains on
marketable securities - 88,632 - 88,632
---------------- ---------------- --------------- ----------------
Balances, December 31,
1991 1,200,000 (25,114) 17,737,987 18,912,873
Net income - - 435,118 435,118
Dividends to stockholder - - (900,000) (900,000)
Unrealized gains on
marketable equity
securities - 400,080 - 400,080
---------------- ---------------- --------------- ----------------
Balances, December 31,
1992 1,200,000 374,966 17,273,105 18,848,071
---------------- ---------------- --------------- ----------------
Net income - - (1,007,146) (1,007,146)
Dividends to stockholder (2,580,000) (2,580,000)
Unrealized gains on
marketable equity
securities - (445,117) - (445,117)
Stock dividend 300,000 (300,000) -
---------------- ---------------- ---------------- -----------------
Balances, December 31,
1993 $ 1,500,000 $ (70,151) $ 13,385,959 $ 14,815,808
================ ================ ================ =================
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NATIONAL FINANCIAL INSURANCE COMPANY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,007,146) $ 435,118 $ 4,448,026
Adjustments to reconcile net income
to net cash provided from (used for)
operating activities:
Decrease in liabilities for
policyholder funds (8,835,976) (25,797,217) (7,497,019)
Deferral of policy acquisition costs (384,954) (3,285,637) (6,476,793)
Amortization of deferred policy
acquisition costs 7,775,961 7,104,683 7,660,823
Increase in federal income tax
liability 2,297,254 (952,962) 60,355
Depreciation and amortization 444,060 308,335 165,678
Realized (gains) losses on
investments (2,539,061) (1,913,900) (1,649,610)
Minority interest in earnings
of subsidiaries (213,241) 500,400 904,612
Decrease in allowance for
losses on investments - (643,052) (129,478)
Decrease (increase) in
premiums due and other
receivables 491,794 1,028,347 (1,036,331)
Decrease in accrued
investment income 266,026 432,033 56,990
Decrease in deposit under
financing agreement 293,455 132,373 1,727,573
Increase (decrease) in deferred
revenue under reinsurance
agreements (3,522,820) 805,253 (625,425)
Increase (decrease) in accrued
commissions and expenses (2,072,883) (534,471) (90,120)
Decrease (increase) in other
assets 1,585,569 (1,076,602) 417,148
Increase (decrease) in other
liabilities 670,876 65,064 (3,245,293)
--------------- --------------- ---------------
Net cash used for
operating activities (4,751,086) (23,392,235) (5,308,864)
--------------- --------------- ---------------
Cash flows from investing activities:
Investments matured or repaid:
Bonds 6,701,626 3,488,267 2,275,384
Mortgage and collateral loans 9,552,444 12,445,123 10,448,937
Investments sold:
Bonds 1,837,650 3,526,744 1,116,946
Stocks 9,444,043 6,895,247 6,979,093
Real estate - 744,228 69,511
Other investments - 2,537,301 165,892
Additions to investments:
Bonds $ (3,854,185) $ (13,551,499) $ (6,395,345)
Stocks (7,039,743) (5,807,691) (5,034,316)
Mortgage and collateral loans (5,250,000) (6,664,133) (6,814,292)
Real estate (1,305,491) (2,041,067) (3,543,279)
Other investments (269,663) - 288
Decrease in short-term
investments 2,441,896 17,718,255 8,198,117
Decrease (increase) in property
and equipment 112,307 - (64,899)
--------------- --------------- ---------------
Net cash provided from
investing activities 12,370,884 19,290,775 7,402,037
--------------- --------------- ---------------
Cash flows from financing activities:
Repayment of notes payable - (500,000) -
Dividends paid (2,580,000) (1,559,622) (4,077,000)
--------------- --------------- ---------------
Net cash used for financing
activities (2,580,000) (2,059,622) (4,077,000)
--------------- --------------- ---------------
Net increase (decrease) in cash
and cash equivalents 5,039,798 (6,161,082) (1,983,827)
Cash and cash equivalents,
beginning of year 5,817,950 11,979,032 13,962,859
--------------- --------------- ---------------
Cash and cash equivalents,
end of year $ 10,857,748 $ 5,817,950 $ 11,979,032
===============
Supplemental disclosures cash flow
information:
Cash paid during the year for:
Interest $ 77,499 $ 89,339 $ 271,279
Income taxes 1,612,139 - 4,186,818
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
National Financial Insurance Company (NFIC or the Company) is a life and
health insurance company which was incorporated in 1979 and is domiciled
in the state of Texas. The Company is licensed to write insurance
policies in twenty-five states and primarily issues individual and group
accident and health insurance policies.
Until April 12, 1994, the Company and its majority-owned (65%) subsidiary,
American Insurance Company of Texas (AICT), were wholly-owned subsidiaries
of National Group Corporation. On April 12, 1994, NFIC and AICT were sold
to Westbridge Capital Corp.
Summary of Significant Accounting Policies
Basis of presentation
The accompanying consolidated financial statements include the accounts of
NFIC and AICT, adjusted for minority interest in AICT. All significant
intercompany balances and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers cash and all highly liquid investments purchased
with an original maturity date of three months or less to be cash and cash
equivalents.
Investments
Investments in fixed maturities are recorded at amortized cost.
Investments in common stock and nonredeemable preferred stock are recorded
at market value with unrealized gains and losses reported as a separate
component of stockholder's equity. Mortgage loans are recorded at
amortized cost less an allowance for uncollectible balances. Real estate
is recorded at cost less accumulated depreciation calculated over
the estimated useful life using the straight-line method. Short-term
investments are recorded at cost which approximates market value.
Realized gains and losses on investments sold is determined on the
specific identification method.
Deferred policy acquisition costs
Certain costs of acquiring new insurance policies, such as commissions and
underwriting expenses, are deferred and amortized over the expected
premium-paying period of the related policy based on the ratio of annual
premium revenue to expected total premium revenue to be received for the
life of the policy.
<PAGE>
Fixed Assets
Electronic data processing equipment and furniture and equipment are
stated at cost less accumulated depreciation of $1,126,123 and $897,415 at
December 31, 1993 and 1992, respectively. Depreciation of electronic data
processing equipment and furniture and equipment is computed using the
straight-line method over the estimated useful lives (two to seven years)
of the assets.
Liability for future policy benefits
Liabilities for future policy benefits have been calculated on a net level
premium method using estimated investment yields, withdrawals, mortality
and other assumptions based on Company experience.
Premium recognition
Premiums on accident and health insurance policies are recognized over the
premium paying period.
Federal income taxes
The Company adopted the provisions of Statement of Financial Accounting
Standard (SFAS) No. 109, "Accounting for Income Taxes," effective January
1, 1993. This statement requires the use of the asset and liability
method for calculating deferred income taxes. Under this method, deferred
income tax balances are computed based on the tax effect of the temporary
differences in the financial reporting and income tax bases of assets and
liabilities using tax rates which are expected to be in effect when these
temporary differences are expected to reverse. As a result of adopting
FAS 109, a charge of $3,599,638 has been recorded related to the
cumulative effect of a change in accounting principle.
Recent accounting pronouncements
During 1993, the Financial Accounting Standards Board adopted SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
This statement requires that investments in such securities be segregated
into three categories based on management's intentions in investing in
those securities. First, securities which management has the positive
intent and ability to hold to maturity are classified as such and are
reported at amortized cost. Second, securities which are purchased for
resale in the near term are classified as "trading securities" and are
reported at market value with unrealized gains and losses included in
earnings. All other securities are classified as "available-for-sale" and
are reported at market value with unrealized gains and losses reported
as a separate component of stockholder's equity. This statement is
effective for fiscal years beginning after December 15, 1993. Management
believes that the adoption of this statement will have an insignificant
impact on the Company's operations and financial position.
<PAGE>
2. INVESTMENTS
<TABLE>
<CAPTION>
At December 31, 1993 and 1992, gross unrealized gains and losses on the
Company's fixed maturity portfolio were as follows:
1993
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gain Losses Value
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government agencies $ 9,764,555 $ 471,295 $ 1,743 $ 10,234,107
Obligations of state
and political sub-
divisions 5,263,624 4,507 7 5,268,124
Public utility
securities 3,901,220 219,564 40,053 4,080,731
Corporate securities 6,041,382 317,790 1,741 6,357,431
---------------- ---------------- ---------------- -----------------
$ 24,970,781 $ 1,013,156 $ 43,544 $ 25,940,393
================ ================ ================ =================
</TABLE>
<TABLE>
<CAPTION>
1992
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gain Losses Value
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government agencies $ 9,002,001 $ 343,406 $ 2,900 $ 9,342,507
Obligations of state
and political sub-
divisions 6,115,662 4,002 - 6,119,664
Public utility
securities 7,625,942 163,191 19,112 7,770,021
Corporate securities 6,711,087 161,702 3,701 6,869,088
---------------- ---------------- ---------------- -----------------
$ 29,454,692 $ 672,301 $ 25,713 $ 30,101,280
================ ================ ================ =================
</TABLE>
<PAGE>
<TABLE>
Unrealized appreciation (depreciation) on investments in equity securities and other
investments reflected directly in stockholder's equity is summarized as follows:
Year Ended December 31,
1993 1992
----------------- -----------------
<S> <C> <C>
Balance at beginning of year $ 374,966 $ (25,114)
Unrealized (depreciation) appreciation (445,117) 400,080
----------------- -----------------
Balance at end of year $ (70,151) $ 374,966
================= =================
</TABLE>
The amortized cost and estimated market value of investments in fixed
maturities as of December 31, 1993 are shown below, summarized by duration
to maturity. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
----------------- -----------------
<S> <C> <C>
Due in one year or less $ 324,965 $ 334,000
Due after one year through five years 4,489,279 4,702,098
Due after five years through ten years 9,537,771 10,063,820
Due after ten years 10,618,766 10,840,475
----------------- -----------------
$ 24,970,781 $ 25,940,393
================= =================
</TABLE>
Investment income for the years ended December 31, 1993, 1992 and 1991 is
summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
----------------- ----------------- -----------------
<S> <C> <C> <C>
Interest on bonds $ 2,177,170 $ 2,314,364 $ 1,734,903
Dividends on preferred and
common stocks 71,337 290,924 188,730
Interest on mortgage and
collateral loans 1,258,053 1,928,733 2,757,233
Real estate income 1,539,208 791,583 214,536
Interest on short-term
investments 370,937 1,041,687 2,705,997
Other 19,551 165,723 191,082
----------------- ----------------- -----------------
5,436,256 6,533,014 7,792,481
Investment expenses 1,982,267 1,209,105 856,338
----------------- ----------------- -----------------
$ 3,453,989 $ 5,323,909 $ 6,936,143
================= ================= =================
</TABLE>
<PAGE>
The realized gains (losses) on investments before federal income taxes for
the years ended December 31, are summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
----------------- ----------------- -----------------
<S> <C> <C> <C>
Bonds $ 166,411 $ 159,704 $ 22,419
Preferred stocks 940 (7,975) 26
Common stocks 2,233,192 1,182,442 1,796,389
Mortgage loans (63,529) 620,500 109,908
Real estate 198,561 17,200 (76,571)
Other 3,486 (57,971) (202,561)
----------------- ----------------- -----------------
$ 2,539,061 $ 1,913,900 $ 1,649,610
================= ================= =================
</TABLE>
Collateral loans in the amount of $5,751,920 and $5,969,675 at December
31, 1993 and 1992, respectively, are due from one of the Company's outside
legal counsel or from entities owned or controlled by the legal counsel.
Cash, cash equivalents and short-term investments at December 31, 1993 and
1992 include deposits at one financial institution of $3,760,056 and
$4,181,055, respectively.
The Companies have certain investments on deposit in custody for various
state insurance regulatory authorities. These consisted of bonds,
preferred stocks, common stocks and certificates of deposit with an
aggregate carrying value of $6,666,993 and $8,523,532 at December 31, 1993
and 1992, respectively. In addition, the Company is required to maintain
on deposit with a trustee assets in an amount equal to the total reserves
on policies assumed from an unaffiliated insurance company of $3,807,843
and $4,115,890 at December 31, 1993 and 1992, respectively. Total
reserves are defined as the total statutory reserves required to be
maintained on these policies. The assets would be used by the ceding
company for the benefit of the policyholders only in the event of the
Company's failure to fulfill its obligations as reinsurer under the terms
of the reinsurance agreements.
Proceeds from sales of investments in debt securities were $8,539,276 in
1993 and $7,015,011 in 1992. Gross gains of $170,197 and gross losses of
$3,786 were realized on 1993 sales. Gross gains of $160,662 and gross
losses of $1,333 were realized on 1992 sales.
The Company owned no high-yield, unrated or less than investment grade
corporate debt securities at December 31, 1993 and 1992.
<PAGE>
3. INVESTMENT IN REAL ESTATE
<TABLE>
<CAPTION>
Investment real estate at December 31, is summarized as follows:
1993 1992
----------------- -----------------
<S> <C> <C>
Investment real estate, at cost $ 7,477,679 $ 7,062,087
Less accumulated depreciation (574,100) (239,641)
Properties acquired in satisfaction of debt 1,231,399 742,685
----------------- -----------------
$ 8,134,978 $ 7,565,131
================= =================
</TABLE>
The Company excluded due and accrued income from investment income on
loans in foreclosure or delinquent 90 days or more. Assets acquired in
satisfaction of debt are recorded at fair value and depreciated using the
straight-line method.
4. FUTURE POLICY BENEFITS
<TABLE>
<CAPTION>
The major assumptions used in the calculation of future policy benefits
for accident and health policies are as follows:
Line of Years of Interest Mortality or
Business Issue Rates Morbidity
-------- ---------- -------- ----------------------------
<S> <C> <C> <C>
Accident All 7% 59 ADB Table, TSA Vol.
XXXI, pages 173-175. 100%
- 1965-70 Ultimate Mortality
Table
Cancer All 7% TSA Vol. XXX, pages 49-55
and Other Sources. 100% -
1965-70 Ultimate Mortality
Table
Disability All 7% 1985 Commissioners'
Individual Disability Table.
100% - 1965-70 Ultimate
Mortality Table
Home health All 7% TSA Vol. XXXIV, pages 485-
570 and Other Sources.
100% - 1965-70 Ultimate
Mortality Table
Nursing home All 7% 1985 National Nursing Home
Survey and review of 1977
National Nursing Home
Survey - modified
Hospital and
major medical All 7% TSA Vol. XXX, pages 9-123
and Other Sources. 100% -
1965-70 Ultimate Mortality
Table
Medicare
Supplement All 7% TSA Vol. XXXIV, pages 485-
570 and Other Sources.
100% - 1965-70 Ultimate
Mortality Table
</TABLE>
5. DEFERRED POLICY ACQUISITION COSTS
<TABLE>
<CAPTION>
A summary of deferred policy acquisition costs follows:
Year Ended December 31,
1993 1992 1991
----------------- ----------------- -----------------
<S> <C> <C> <C>
Balance at beginning of year $ 32,005,618 $ 35,824,664 $ 37,008,694
Additions 384,954 3,285,637 5,401,000
Amortization (7,775,961) (7,104,683) (7,660,823)
Acquisition - - 1,075,793
----------------- ----------------- -----------------
Balance at end of year $ 24,614,611 $ 32,005,618 $ 35,824,664
================= ================= =================
</TABLE>
Commissions comprise the majority of the additions to deferred policy
acquisition costs in each year.
6. INCOME TAXES
In 1993, the Company will join in the filing of a consolidated federal
income tax return with its parent and other affiliates. Pursuant to a tax
sharing agreement, the Company records a portion of the allocated federal
income tax of the consolidated group generally based on the amount of tax
computed as if the Company filed separately.
As discussed in Note 1, the Company changed its method of accounting for
income taxes on a prospective basis effective January 1, 1993.
Consequently, the 1993 tax provision has been calculated in accordance
with FAS 109, whereas the 1992 and 1991 tax provisions were calculated in
accordance with the previous method of accounting.
<PAGE>
In accordance with SFAS 109, total tax expense is the amount of income
taxes expected to be payable for the current year plus (or minus) the
deferred income tax expense (or benefit) represented by the change in the
deferred income tax accounts at the beginning and end of the year. The
effect of changes in tax rates and federal income tax laws are reflected
in income from continuing operations in the period such changes are
enacted.
The tax effect of future taxable temporary differences (liabilities) and
future deductible temporary differences (assets) are separately calculated
and recorded when such differences arise. A valuation allowance, reducing
any recognized deferred tax asset, must be recorded if it is determined
that it is more likely than not that such deferred tax asset will not be
realized.
<TABLE>
<CAPTION>
The provision for U.S. federal income taxes charged to continuing
operations was as follows:
1993 1992 1991
----------------- ----------------- -----------------
<S> <C> <C> <C>
Current $ 917,907 $ 751,555 $ 327,943
Deferred (416,020) (952,962) 60,355
----------------- ----------------- -----------------
Total provision for income taxes $ 501,887 $ (201,407) $ 388,298
================= ================= =================
</TABLE>
The provision for income taxes for the year ended December 31, 1993 is
less than the amount of income tax determined by applying the U.S.
statutory income tax rate of 34% to the pretax income as a result of the
following differences:
<TABLE>
<S> <C>
Income tax at the statutory rate $ 979,587
Increase (decrease) in taxes
resulting from:
Small life insurance company deduction (572,000)
Dividends received deduction (148,652)
Other items, net 242,952
-----------------
Total provision for income taxes $ 501,887
=================
</TABLE>
<PAGE>
The provision for income taxes for the years ended December 31, 1992 and
1991 is less than the amount of income tax determined by applying the U.S.
statutory income tax rate of 34% to the pretax income as a result of the
following differences:
<TABLE>
<CAPTION>
1992 1991
----------- -----------
<S> <C> <C>
Income tax at the statutory rate $ 249,598 $ 1,951,918
Increase (decrease) in taxes resulting from:
Small life insurance company deduction (402,245) (583,714)
Dividends received deduction (54,987) (39,582)
Change in realizable reversal of timing/
temporary differences -0- (938,215)
Other items, net 6,227 (2,109)
----------- -----------
Total provisions for income taxes $ (201,407) $ 388,298
=========== ===========
</TABLE>
The effective federal income tax rates of (27)% and 7% in 1992 and 1991,
respectively, are less than the regular corporate federal income tax rate
of 34% primarily because of: (a) the small life insurance company
deduction used for income tax purposes, and, (b) changes in the timing of
projected reversals of future deductible temporary differences.
Deferred taxes are recorded for temporary differences between the
financial reporting bases and the federal income tax bases of the
Company's assets and liabilities. The sources of these differences and
the estimated tax effect of each are as follows:
<TABLE>
<CAPTION>
December 31, January 1,
1993 1993
-------------- --------------
<S> <C> <C>
Deferred Tax Liability
Deferred policy acquisition costs $ 6,965,634 $ 9,615,678
Policyholders surplus account 757,000 757,000
Invested assets 301,162 774,036
Other 445,510 650,850
-------------- --------------
8,469,306 11,797,564
Deferred Tax Asset
Policy reserves 2,893,724 4,659,201
Other 1,050,318 1,977,999
-------------- --------------
3,944,042 6,637,200
-------------- --------------
Net deferred tax liability $ 4,525,264 $ 5,160,364
============== ==============
</TABLE>
Under the provisions of pre-1984 life insurance tax regulations, the
Company was taxed on the lesser of taxable investment income or income
from operations, plus one-half of any excess of income from operations
over taxable investment income. One-half of the excess (if any) of the
income from operations over taxable investment income, an amount which
was not currently subject to taxation, plus special deductions allowed in
computing the income from operations, were placed in a special memorandum
tax account known as the policy holders surplus account. The aggregate
accumulation in the account at December 31, 1993 and December 31, 1992
approximated $2,226,000. Federal income taxes will become payable on this
account at the then current tax rate when and to the extent that the
account exceeds a specific maximum, or when and if the distributions to
stockholders, other than stock dividends and other limited exceptions, are
made in excess of the accumulated previously taxed income. At December
31, 1993 and December 31, 1992, the Company has approximated $17,789,000
and $17,307,000, respectively, in its shareholder's surplus account from
which it could make distributions without incurring any federal tax
liability. The Company has recorded $757,000 of deferred federal income
taxes relating to expected transactions which will cause taxable income
relating to the PSA.
At December 31, 1993, the Company has an alternative minimum tax credit
carryforward of approximately $200,000.
<PAGE>
7. REINSURANCE
As is customary in the insurance industry, the Company reinsures portions
of certain insurance policies they write, thereby providing a greater
diversification of risk and minimizing exposure on larger risks. The
Company remains liable to the policyholder if the assuming companies were
unable to meet their obligations under any reinsurance treaties.
The Company adopted the provisions of SFAS No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts,"
effective January 1, 1993. The statement requires future policy reserves
and claim reserves to be reported on a gross basis in the balance sheet
and amounts ceded to reinsurers are recorded as receivables. At December
31, 1993, future policy benefits and policy and contract claim amounts
ceded under terms of reinsurance agreements totaling $2,275,823 have
been recorded as ceded reinsurance recoverables.
During 1993, 1992 and 1991, the Company had a "deposit" type agreement
with one unrelated insurance company which did not qualify as an
reinsurance agreement. The agreement was terminated during 1993.
Future policy benefits and policy and contract claims which have been
excluded from the accompanying financial statements under terms of
reinsurance agreements at December 31, are as follows:
<TABLE>
<CAPTION>
1993 1992
----------------- -----------------
<S> <C> <C>
Future policy benefits $ -0- $ 17,846,158
================= =================
Policy and contract claims $ -0- $ 1,454,127
================= =================
</TABLE>
<PAGE>
Premiums and related reinsurance amounts for the years ended December 31,
are summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
----------------- ----------------- -----------------
<S> <C> <C> <C>
Direct premiums $ 54,032,288 $ 69,377,036 $ 81,414,206
Reinsurance premiums
assumed from other companies 1,609,179 1,944,878 2,564,405
Reinsurance premiums
ceded to other companies (3,488,917) (4,399,310) (5,559,080)
----------------- ----------------- -----------------
Net premiums $ 52,152,550 $ 66,922,604 $ 78,419,531
================= ================= =================
</TABLE>
Life insurance in force amounts at December 31, are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
1993 1992
----------------- -----------------
<S> <C> <C>
Direct life insurance in force $ -0- $ 86,905
Reinsurance risks ceded
to other companies -0- (86,905)
----------------- -----------------
Net life insurance in force $ -0- $ -0-
================= =================
</TABLE>
Included in the reinsurance amounts discussed in the preceding paragraphs
for 1992 is the Company's life insurance in force ceded through a 100%
indemnity reinsurance to an unrelated insurance company. During 1993,
the Company received regulatory approval of the transaction, which was
then modified to an assumption reinsurance transaction. The transaction
consisted of the following assets transferred and liabilities ceded:
<TABLE>
<CAPTION>
American National
Insurance Financial
Company Insurance
of Texas Company Total
----------------- ----------------- -----------------
<S> <C> <C> <C>
Future policy benefits $ (664,431) $ (16,313,848) $ (16,978,279)
Policy and contract claims (21,321) (36,837) (58,158)
Dividends and coupons - (300,444) (300,444)
Net premiums due less advance 62,699 176,824 239,523
Other, net (4,100) 6,007 1,907
----------------- ----------------- -----------------
(627,153) (16,468,298) (17,095,451)
Net consideration paid on
reinsurance ceded 484,020 13,657,690 14,141,710
----------------- ----------------- -----------------
Deferred gain on reinsurance
ceded $ (143,133) $ (2,810,608) $ (2,953,741)
================= ================= =================
</TABLE>
<PAGE>
The deferred gain of $2,953,741 is included in deferred revenue under
reinsurance agreements in the accompanying financial statements at
December 31, 1992. Also included in the 1992 financial statements are
deferred acquisition costs related to the life business of $143,000 in
American Insurance Company of Texas and $2,357,536 in National Financial
Insurance Company which will be charged against the above deferred gain
once the assumption reinsurance agreement is finalized.
In connection with the 100% indemnity reinsurance agreement on life
business described above, the Company sold policy loans of approximately
$2.4 million for their book value, which approximated market.
8. STATUTORY CAPITAL AND SURPLUS
The Company and its insurance subsidiaries are required to file statutory
financial statements with state insurance regulatory authorities.
Accounting principles used to prepare these statutory financial statements
differ from financial statements prepared on the basis of generally
accepted accounting principles.
Reconciliations of statutory net income and capital and surplus, as
determined using statutory accounting principles, to the amounts included
in the accompanying financial statements are as follows:
<TABLE>
<CAPTION>
December 31,
1993 1992 1991
------------ ------------ -----------
<S> <C> <C> <C>
Combined statutory net income of
insurance subsidiaries $ 1,963,956 $ 1,318,178 $ 2,534,754
Increases (decreases):
Deferred policy acquisition costs (7,391,007) (3,819,046) (1,184,030)
Future policy benefits (543,561) (833,380) 2,011,473
Deferred federal income taxes (3,183,618) 952,962 (60,355)
Reinsurance financing agreement 4,690,872 3,688,361 905,491
Allowance for losses on
investment - 620,500 (542,575)
Deferred gain on life business
reinsured 2,953,741 (2,953,741) -
Earnings in excess of dividends
received from subsidiaries - 2,377,606 317,762
Other adjustments, net (106,789) 967,666 2,857,881
Consolidating eliminations
and adjustments 609,260 (1,883,988) (2,392,375)
------------ ----------- -----------
Net (loss) income as
reported herein $ (1,007,146) $ 435,118 $ 4,448,026
============ =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1993 1992
----------------- -----------------
<S> <C> <C>
Combined statutory capital and surplus of
insurance subsidiaries $ 12,958,018 $ 13,717,952
Increases (decreases):
Deferred policy acquisition costs 24,614,611 32,005,618
Future policy benefits (14,356,009) (13,812,448)
Deferred federal income taxes (4,525,264) (1,560,727)
Goodwill 4,650,063 4,818,823
Reinsurance financing agreement - (4,690,872)
Surplus debenture (1,000,000) (1,000,000)
Deferred revenue on assumed business (2,171,884) (2,740,963)
Deferred revenue on life business reinsured - (2,953,741)
Allowance for losses on investments - (158,382)
Statutory asset valuation reserves 2,127,698 1,913,551
Investment in subsidiaries 2,913,029 3,392,817
Other adjustments, net (1,154,678) 94,259
Consolidating eliminations and adjustments (9,239,776) (10,177,816)
----------------- -----------------
Stockholder's equity as reported herein $ 14,815,808 $ 18,848,071
================= =================
</TABLE>
Under Texas Insurance Law, all dividends on capital stock must be
distributed out of earned surplus only. Further, dividends paid not
requiring state insurance department approval are generally limited to the
greater of 10% of statutory capital and surplus or statutory gain from
operations for life and accident and health companies.
9. PROFIT SHARING AND RETIREMENT PLAN
The Company participates with other affiliates in a noncontributory
employee profit sharing plan covering substantially all employees.
Company contributions were based on various factors, including
profitability, and are made at the sole discretion of the Company. No
contribution was made to this plan in 1993 or 1992.
Beginning January 1, 1992, the Company initiated a contributory defined
contribution 401(k) employee profit sharing plan in which the Company
matches employee contributions at a stated percentage of employee
contributions to a defined maximum. An employee is eligible to
participate in the plan after one year of employment and is fully vested
after seven years of employment. The profit sharing plan, as well as
the 401(k) plan, invests in various stocks and other permissible
investments. Investment earnings are distributed based on account
balances while contributions and forfeitures are distributed based on
employee compensation. The Company contributions to the 401(k) plan in
1993 and 1992 were $64,184 and $90,744, respectively.
<PAGE>
10. CONTINGENCIES
The Company and its subsidiaries are involved in various pending or
threatened legal proceedings arising from the conduct of their business.
In some instances, these proceedings include claims for punitive damages
and similar types of relief in unspecified or substantial amounts, in
addition to amounts for alleged contractual liability or requests for
equitable relief. After consultation with counsel and a review of
available facts, it is management's opinion these proceedings ultimately
will be resolved without materially affecting the consolidated financial
statements of the Company.
11. RELATED PARTY TRANSACTIONS
Financial Reinsurance Corporation, related through common ownership,
reinsured accident and health business of the Company for 1991 and a
portion of 1992. Policy premiums ceded to Financial Reinsurance
Corporation totaled $1,051,194 and $1,326,117 for 1992 and 1991,
respectively. On July 1, 1992, the Company canceled the reinsurance
agreement and received funds equal to the reserves of the ceded policies.
The policy and contract claims liability at December 31, 1991 was reduced
by $694,464 for the business ceded. The Company received commissions on
reinsurance ceded of $157,560 and $254,331 in 1992 and 1991, respectively,
from Financial Reinsurance Corporation.
The Company is controlled by a common parent, National Group Corporation,
along with other affiliated companies. Other affiliated companies under
the common control of National Group Corporation include National Lloyds
Insurance Company, National Group Management Corporation, NALICO General
Agency, Inc., NALICO Insurance Service Corporation and Adjustment
Associates, Inc.
During 1990, the Company purchased an office building used by its parent
and affiliated corporations. Rental income from these affiliates totaled
$61,603, $27,510 and $34,665 for 1993, 1992 and 1991, respectively.
The Company has surplus debentures totaling $1,000,000 at December 31,
1993 and 1992 payable to National Group Corporation which bear interest at
a base rate plus one percent (7.75% at December 31, 1993). Interest
incurred totaled $77,499, $98,944 and $149,753 for 1993, 1992 and 1991,
respectively.
Mortgage loans at December 31, 1993, 1992 and 1991 include a first lien
mortgage note receivable from an affiliated corporation of approximately
$240,000. Interest received during 1993, 1992 and 1991, totaled $16,083,
$15,251 and $24,867, respectively.
The Company shares certain general and administrative expenses under cost
sharing agreements with an affiliate, National Group Management
Corporation. Such expenses, which include data processing and equipment
charges, totaled $112,110, $469,438 and $552,520 for 1993, 1992 and 1991,
respectively and were allocated based on usage time and approximate costs
that would have been incurred on a stand-alone basis.
<PAGE>
12. SUBSEQUENT EVENTS
On April 12, 1994, all of the outstanding stock of NFIC was acquired by
Westbridge Capital Corp., a Delaware holding company for a purchase price
of approximately $20 million. Westbridge, through its wholly-owned
subsidiary National Foundation Life Insurance Company, a Delaware
domiciled insurance company, operates in the life and accident and health
insurance business.
In connection with the acquisition, the following events occurred. First,
the remaining 35% of AICT, which was not previously held by NFIC, was
transferred to NFIC. Second, all invested assets held by NFIC and AICT
prior to the acquisition, excluding bonds on deposit with state insurance
departments, were converted to cash at the previous book value. The funds
have subsequently been reinvested in U.S. Treasury securities, GNMA
mortgage backed securities, investment grade corporate bonds, and short
-term investments.
<TABLE>
<CAPTION>
NATIONAL FINANCIAL INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
(Unaudited, in thousands)
ASSETS
March 31, March 31,
1994 1993
------- -------
<S> <C> <C>
Fixed maturities:
Available-for-sale, at market value
(amortized cost $14,311) $15,115 $ -
Held-for-maturity, at amortized cost
(market value $29,492) - 28,480
Marketable equity securities,
at market - 4,198
Mortgage loans on real estate 2,625 7,073
Collateral loans 181 6,266
Investment real estate 7,928 7,040
Short-term investments 31,673 6,435
------- -------
Total Invested Assets 57,522 59,492
Cash and cash equivalents 555 870
Accrued investment income 487 935
Deferred policy acquisition costs 23,595 30,902
Receivable from affiliates 215 105
Goodwill 4,608 4,777
Other assets 3,428 4,335
------- -------
Total Assets $90,410 $101,416
======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
NATIONAL FINANCIAL INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
(Continued)
(Unaudited, in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, March 31,
1994 1993
------- -------
<S> <C> <C>
Liabilities:
Accident and health future policy
benefits $30,231 $31,666
Policy and contract claims 31,516 36,010
------ ------
61,747 67,676
Federal income taxes:
Current 485 627
Deferred 4,545 5,851
Notes payable 1,000 1,000
Deferred revenue under reinsurance
agreements 2,049 4,814
Payable to affiliates 199 222
Other liabilities 2,068 3,469
------ ------
Total Liabilities 72,093 83,659
------ ------
Minority Interest 3,108 3,480
------ ------
Stockholders' Equity:
Common stock 1,500 1,200
Net unrealized gain on securities 531 645
Retained earnings 13,178 12,432
------ ------
Commitments and contingencies (Note 3) - -
Total Stockholders' Equity 15,209 14,277
------ -------
Total Liabilities and Stockholders' Equity $90,410 $101,416
====== =======
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
NATIONAL FINANCIAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME
(Unaudited, in thousands)
Three Months Ended
March 31,
1994 1993
------ ------
<S> <C> <C>
Revenues:
Premiums $12,082 $13,605
Net investment income 685 966
Gains from sale of investments 262 635
Other revenue 154 61
------ ------
13,183 15,267
Benefits and Expenses:
Life and accident and health
policy benefits 8,030 9,067
Decrease in deferred policy
acquisition costs 1,020 1,103
Commissions 997 1,491
Taxes, licenses and fees 315 77
Other operating costs and expenses 2,290 2,272
Interest expense 19 21
------ ------
12,671 14,031
Income before federal income taxes and
minority interest 512 1,236
Provision (benefit) for federal
income taxes (439) 222
Minority interest in loss of subsidiary 126 54
Gain from operations before cumulative
effect of change in accounting
principle 1,077 1,068
------ ------
Cumulative effect on prior years of
change in accounting principle - (3,600)
------ ------
Net income (loss) $ 1,077 $(2,532)
====== ======
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
NATIONAL FINANCIAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
March 31,
1994 1993
------- ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,077 $(2,532)
Adjustments to reconcile net income to cash
used for operating activities:
Decrease in policy liabilities (4,843) (7,750)
Amortization of deferred policy
acquisition costs 1,020 1,103
Depreciation and amortization 42 48
Realized gains on investments (262) (635)
Minority interest 126 54
Decrease in accrued investment income 127 56
Decrease (increase) in other assets 3,300 (1,838)
Decrease in other liabilities (229) (517)
Other, net (1,133) 385
------ ------
NET CASH USED FOR OPERATING
ACTIVITIES (775) (11,626)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments:
Fixed maturities, classified as
held-to-maturity, called or matured - 7,481
Fixed maturities, classified as
held-to-maturity, sold - 3,913
Fixed maturities, classfied as
available-for-sale, sold or matured 20,657 -
Cost of investments acquired (28,900) (2,136)
------ ------
NET CASH USED BY INVESTING ACTIVITIES (8,243) 9,258
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends declared and paid (1,285) (2,580)
------ ------
NET CASH PROVIDED BY FINANCING
ACTIVITIES (1,285) (2,580)
------ ------
DECREASE IN CASH DURING PERIOD (10,303) (4,948)
CASH AT BEGINNING OF PERIOD 10,858 5,818
------ ------
CASH AT END OF PERIOD $ 555 $ 870
====== ======
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
NATIONAL FINANCIAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION
National Financial Insurance Company ("the Company") and its subsidiary,
American Insurance Company of Texas ("AICT"), are life and accident and
health insurers domiciled in the state of Texas. The Company and its
subsidiary ceased marketing operations in the past, and currently
administer closed blocks of insurance policies.
NOTE 2 - FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements for the
Company should be read in conjunction with the consolidated statements
for the year ended December 31, 1993. These unaudited consolidated
financial statements exclude certain information and other informative
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles.
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, 1994 are not necessarily indicative of the results that may be
expected for the full year.
NOTE 3 - CHANGE IN ACCOUNTING FOR INVESTMENTS
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standard No. 115 "Accounting for Certain Investments in Debt
and Equity Securities", (the "Statement").
This Statement requires all debt securities and certain equity
securities to be classified in three categories and accounted for as
follows:
* Debt securities that the Company has the positive
intent and ability to hold to maturity are
classified as held-to-maturity securities and
reported at amortized cost.
* Debt and equity securities that are bought and held
principally for the purpose of selling them in the
near term are classified as trading securities and
reported at fair value, with unrealized gains and
losses included in earnings.
* Debt and equity securities not classified as either
held-to-maturity securities or trading securities
are classified as available-for-sale securities and
reported at fair value, with unrealized gains and
losses excluded from earnings and reported in a
separate component of stockholders' equity.
The Company does not engage in "trading" of securities, and accordingly,
all of the applicable investments have been categorized as available-
for-sale securities.
In accordance with the Statement, the cumulative effect of recording to
a separate component of stockholders' equity the difference between
market value and amortized cost at January 1, 1994 of securities
classified as available-for-sale has been treated as a change in
accounting principal, and no restatement of prior year financial
statements has been made.
All applicable investments have been classified as available-for-sale.
As described in Note 5, concurrent with the sale of the Company, on
April 12, 1994, substantially all investments were converted to cash.
Accordingly, presentation of maturities and major security types is not
meaningful.
A summary of unrealized appreciation reflected directly in stockholders'
equity at March 31, 1994, on investments in fixed maturities available-
for-sale is as follows (in thousands):
Amortized cost $14,311
Estimated market value 15,115
------
Excess of market value over amortized cost 804
Estimated tax at 34% ( 273)
------
Unrealized appreciation, net of tax $ 531
======
NOTE 4 - COMMITMENTS AND CONTINGENCIES
In the normal course of its business operations, the Company and its
subsidiary are involved in various claims and other business related
disputes. In the opinion of management, the disposition of these
matters will have no material adverse effect on the Company's
consolidated financial position.
NOTE 5 - SUBSEQUENT EVENTS
On April 12, 1994, the Company and its subsidiary were sold to
Westbridge Capital Corp. ("Westbridge"), a holding company domiciled in
Delaware, with its main offices located in Fort Worth, Texas.
Concurrent with the sale of the Company, the following significant
events occurred:
* The 35% minority share in AICT not previously held by the Company
was transferred to the Company in the form of a capital
contribution.
* Most of the invested assets of the Company and AICT were
converted to cash, and subsequently reinvested in government
bonds and investment grade corporate debt securities.
Westbridge is currently in the process of consolidating the operations
of the Company and AICT with its other insurance operations in its Fort
Worth headquarters.
<PAGE>
Pro Forma Financial Information
The Unaudited Pro Forma Consolidated Financial Statements of
Westbridge Capital Corp. ("the Company") set forth on the following
pages (the "Pro Forma Statements") include the Unaudited Pro Forma
Consolidated Statement of Operations for the year ended December
31, 1994. Because the consolidated balance sheet of the Company at
December 31, 1994 includes National Financial Insurance Company
("NFIC") and American Insurance Company of Texas ("AICT"), which
were acquired by the Company on April 12, 1994, a pro forma balance
sheet has not been presented.
The Pro Forma Consolidated Statement of Operations for the
year ended December 31, 1994 has been prepared by combining the
consolidated statement of operations of the Company for the year
ended December 31, 1994 (which includes the operations of NFIC from
April 12, 1994, through December 31, 1994) with the consolidated
statement of operations of NFIC for the period January 1, 1994,
through April 11, 1994, adjusted to give effect to the acquisition,
the sale of the convertible preferred stock, and the application of
the net proceeds as if they had occurred on January 1, 1994.
The Pro Forma Statement includes all material adjustments
necessary to present the historical results in a manner reflecting
the assumptions set forth above.
The Pro Forma Statement does not purport to be indicative of
the results of operations that would have actually been obtained if
the acquisition had been consummated as of the beginning of the
period presented. In addition, the Pro Forma Statement does not
purport to be indicative of the results of operations which may be
achieved in the future. NFIC and AICT ceased writing new business
in 1992 and resumed new business writing in January, 1995.
The Pro Forma Statement of Operations has been prepared using
calculations based on assumptions and adjustments deemed reasonable
by the Company. These assumptions and adjustments are set forth in
the Notes to Pro Forma Financial Information.
The pro forma adjustments and combined amounts are provided
for informational purposes only. The Company's financial
statements reflect the effects of the acquisition only from the
date of the acquisition, April 12, 1994. The pro forma adjustments
are applied to the historical consolidated financial statements of
the Company and NFIC to account for the acquisition as a purchase.
Under purchase accounting, the total purchase cost is allocated to
the assets and liabilities of NFIC based on their relative fair
values. Allocations are subject to valuations as of the date of
the acquisition based on appraisals and other studies and
estimates.
PAGE
<PAGE>
WESTBRIDGE CAPITAL CORP.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Pro Forma
Westbridge NFIC Adjustments Pro Forma
---------- -------- -----------
<S> <C> <C> <C> <C>
Revenues
Premiums $98,703 $13,433 $ - $112,136
Net investment income 5,764 782 - 6,546
Fee and service income 1,728 1,728
Net realized gains (losses)
on investments 320 262 (262) (1) 320
Other income 31 157 - 188
------- ------ ---- -------
Total Revenue 106,546 14,634 (262) 120,918
------- ------ ---- -------
Benefits, Claims and Expenses
Benefits and claims 53,623 8,910 - 62,533
Amortization of deferred policy
acquisition costs and
intangibles 9,711 1,170 8 (2) 10,889
Commissions 11,224 1,107 - 12,331
General and administrative
expenses 16,847 2,517 (600) (3) 18,764
Taxes, licenses and fees 3,230 350 - 3,580
Interest expense 3,067 - - 3,067
------- ------ ---- ------
Total Expenses 97,702 14,054 (592) 111,164
------- ------ ---- -------
Provision for income taxes 2,764 (439) 748 (4) 3,073
Equity in earnings of Freedom
Holding Company 345 - - 345
Minority Interest - 126 (126) (7) -
------- ------ ---- -------
Net Income $ 6,425 $ 1,145 $ (544) $ 7,026
======= ====== ==== =======
Preferred stock dividends 1,190 - 460 (5) 1,650
Net income available to common
stockholders $ 5,235 $ 1,145 $(1,004) $ 5,376
======= ====== ===== =======
Fully diluted earnings per share $ 1.03 - - $1.02
======= ====== ===== =======
Weighted average fully diluted
shares outstanding 6,267 - 633 (6) 6,900
======= ====== ===== =======
<FN>
See accompanying notes to unaudited pro forma financial information.
</TABLE>
WESTBRIDGE CAPITAL CORP.
NOTES TO PRO FORMA FINANCIAL INFORMATION
1. Adjustment serves to eliminate historical realized gains and
losses on disposal of investments. Upon acquisition, purchase
accounting adjustments would result in stating marketable
securities at fair market value. Accordingly, during the
year, resultant gains and losses would be minimal.
2. Adjusts amortization expense upon elimination of historical
deferred acquisition costs of NFIC resulting from purchase
accounting, and provides for amortization of present value of
future profits and goodwill resulting from the acquisition.
The pro-forma adjustment for amortization of deferred policy
acquisition costs and intangibles for the year ended December
31, 1994, is composed of the following amounts, (in thousands):
Elimination of historical amortization
expense of NFIC $(1,170)
Pro-forma amortization of cost of
insurance purchased relating to the
acquisition of NFIC 1,178
-----
Pro-forma adjustment for the year
ended December 31, 1994 $ 8
=====
The consolidated statement of operations of Westbridge for the
year ended December 31, 1994, included $3,023,000 of
amortization of cost of insurance purchased relating to the
acquisition of NFIC for the period from April 12, 1994 through
December 31, 1994.
3. Reductions in costs have been realized upon consolidation of the
operations of NFIC with the other insurance operations of
Westbridge. Because Westbridge's results of operations include the
actual results of operations of NFIC beginning April 12, 1994,
the pro-forma adjustments relate to NFIC's results of operations prior
to April 12, 1994. For the pro forma results of operations for the
year ended December 31, 1994, the pro forma expense reductions are
composed of the following items (in thousands):
Salaries and wages $124
Real estate and rental expenses 423
Actuarial fees 50
Other 3
---
$600
===
Salaries and Wages
Prior to the acquisition, NFIC incurred salaries and wages for
approximately 100 employees. Upon acquisition, Westbridge
immediately began the process of absorbing the operations of
NFIC into Westbridge's existing operations in its Fort Worth
facilities.
Two months following the acquisition, approximately 60 NFIC
employees were released. Additional NFIC employees continued
to be released. Seven months following the acquisition, all
NFIC employees were released upon completion of the conversion
process.
Following the acquisition, Westbridge began adding staff to
its existing operation in its Fort Worth facilities to support
the operations of NFIC. As of seven months following the
acquisition, Westbridge had completed its acquisition related
staff increases, and was performing all of the administration
for the NFIC operations in its Fort Worth facilities. The net
increase in staff by Westbridge related to the acquisition of
NFIC, was approximately 70. The NFIC employees terminated
were across all job functions. The additional employees added
by Westbridge were primarily line-level employees.
Real Estate and Rental Expenses
Adjustment represents cost savings realized by the elimination
of real estate expenses, and the expense of duplicate
facilities and equipment rental. Under the terms of the
purchase, the seller has agreed to allow NFIC to occupy office
space rent free for up to one year following the acquisition.
The Company had the conversion completed and the duplicate
facilities vacated well in advance of the one year period.
The Company has no significant lease obligations with respect
to the duplicate facilities. Amounts are quantified as
follows (in thousands):
Real estate expenses $300
Rental expense 123
---
$423
Actuarial Fees
Represents a reduction in consulting actuary fees which are
realized by consolidation of operations.
4. Adjusts consolidated pro forma tax provision to the
appropriate combined rate.
5. Provides for 8.25% dividend on the Convertible Redeemable
Exchangeable Preferred Stock.
6. To reflect the potential dilutive effect of Preferred Stock
which is convertible into Westbridge Capital Common Stock at
$8.75 per share.
7. To reflect the elimination of minority interest in the
earnings of AICT. Prior to the acquisition, there was a 35%
minority interest in AICT. Concurrent with the Acquisition,
the remaining 35% interest in AICT was obtained by NFIC.
Accordingly, a pro forma adjustment has been made to remove
the effects of the minority interest.
<PAGE>
No dealer, salesperson or any other person has been
authorized to give any information or to make any
representations in connection with this offering other than
those contained in this Prospectus, and, if given or made,
such information or representations must not be relied
upon as having been so authorized by the Company or any
Underwriter. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy by anyone in any
jurisdiction in which such offer or solicitation is not
authorized or in which such person making such offer or
solicitation is not qualified to do so or to any person to
whom it is unlawful to make such offer or solicitation.
Neither the delivery of this Prospectus nor any sale
hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of
the Company since the date hereof or that the information
contained herein is correct as of any time subsequent to its
date.
___________________
TABLE OF CONTENTS
Page
Available Information. . . . . . . . . . . . . . . . . . . . . . 3
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . 18
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
The Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . 27
Price Range of Common Stock and
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . 28
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 29
Selected Historical Consolidated Financial Information . . . . . 30
Management's Discussion and Analysis
of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . 34
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . 83
Description of Capital Stock . . . . . . . . . . . . . . . . . . 84
Description of Convertible Subordinated Debentures . . . . . . . 94
Certain Federal Income Tax
Considerations . . . . . . . . . . . . . . . . . . . . . . . . 99
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . 106
Selling Securityholders. . . . . . . . . . . . . . . . . . . . . 108
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 110
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Glossary of Insurance Terms. . . . . . . . . . . . . . . . . . . 111
Index to Financial Statements. . . . . . . . . . . . . . . . . . F-1
<PAGE>
[LOGO]
WESTBRIDGE
CAPITAL CORP.
Series A Cumulative
Convertible Redeemable Exchangeable
Preferred Stock
Common Stock
Convertible Subordinated
Debentures due April 12, 2004
PROSPECTUS
September 29, 1995
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the fees and expenses payable
in connection with the sale of the Series A Preferred Stock,
Common Stock and Convertible Subordinated Debentures being
registered. The Company will pay all such fees and expenses.
All amounts are estimates except for the filing and listing fees.
SEC Registration Fee. . . . . . . . . . . . . . . . . $ 6,896.55
NYSE listing fees . . . . . . . . . . . . . . . . . . 17,500.00
Blue Sky fees and expenses. . . . . . . . . . . . . . 5,000.00
Accounting fees and expenses. . . . . . . . . . . . . 70,000.00
Legal fees and expenses . . . . . . . . . . . . . . . 275,000.00
Printing and engraving fees and expenses. . . . . . . 3,000.00
Transfer Agent's and registrar's fees and expenses. . 5,000.00
Trustee's fees and expenses . . . . . . . . . . . . . 10,000.00
Miscellaneous fees and expenses . . . . . . . . . . . 15,603.45
----------
Total. . . . . . . . . . . . . . . . . . . . . $408,000.00
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits
("DGCL") a Delaware corporation to indemnify any of its
directors, officers, employees and agents of the corporation, or
is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or
enterprise, against actual and reasonable expenses (including
attorneys' fees) incurred by such person in connection with any
action, suit or proceeding if (i) he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and (ii) in the case of a criminal
proceeding, he had no reasonable cause to believe his conduct was
unlawful. Except as ordered by a court, no indemnification shall
be made in connection with any proceeding brought by or in the
right of the Company where the person involved is adjudged to be
liable to the Company.
Section 145 further authorizes a corporation to purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director,
officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether
or not the corporation would otherwise have the power to
indemnify him under Section 145. The Company maintains policies
insuring the Company's officers and directors against certain
liabilities for actions taken in such capacities, including
liabilities under the Securities Act.
Article V of the By-Laws of the Company provides for
indemnification of the directors and officers of the Company to
the full extent permitted by law, as now in effect or later
amended.
Article V of the Certificate of Incorporation limits under
certain circumstances the liability of the Company's directors
for a breach of their fiduciary duty as directors. These
provisions do not eliminate the liability of a director (i) for a
breach of the director's duty of loyalty to the Company or its
shareholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL (relating to the
declaration of dividends and purchase or redemption of shares in
violation of the DGCL), or (iv) for any transaction from which
the director derived an improper personal benefit.
At present, there is no pending litigation or proceeding
involving a director or officer of the Company as to which
indemnification is being sought nor is the Company aware of any
threatened litigation that may result in claims for
indemnification by any officer, director, or employee of the
Company.
Item 15. Recent Sales of Unregistered Securities.
On April 12, 1994, Westbridge issued 20,000 shares of its
Series A Cumulative Convertible Exchangeable Redeemable Preferred
Stock (the "Series A Preferred Stock") with a liquidation
preference of $1,000 per share. Such shares were privately
placed by Oppenheimer & Co., Inc., ("Oppenheimer"), as placement
agent with "accredited investors" (as defined in Regulation D
promulgated under the Securities Act of 1933, as amended) and
such sale was, pursuant to the provision of Rule 506, exempt from
the registration requirements under the Securities Act of 1933,
as amended. Westbridge received approximately $20.0 million in
cash from the sale of the Series A Preferred Stock and, from this
amount, paid to Oppenheimer a fee of $800,000 and certain other
expenses estimated at $197,500. In addition, Westbridge issued
to Oppenheimer warrants to purchase 120,000 shares of Common
Stock at $8.75 per share.
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
The following exhibits are filed herewith. Exhibits
incorporated by reference are indicated in the parentheses following
the description.
<TABLE>
<S> <C>
2.1 - Stock Purchase Agreement dated as of December 6, 1993 among Westbridge, National
Group Corporation and C. Clifton Robinson (incorporated by reference to Exhibit 2.1
to the Company's Annual Report on Form 10-K for the year ended December 31, 1993).
2.2 - Amendment No. 1 to Stock Purchase Agreement, dated as of April 12, 1994, by and
among Westbridge, National Group Corporation and C. Clifton Robinson (incorporated
by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K dated April
26, 1994).
3.1* - Restated Certificate of Incorporation of Westbridge filed with the Secretary of
State of Delaware on July 28, 1994.
3.2* - By-Laws of Westbridge, effective as of June 24, 1994.
4.1* - Article Fourth of the Restated Certificate of Incorporation of Westbridge (included
in Exhibit 3.1).
4.2 - Specimen Certificate for Westbridge Common Stock (incorporated by reference to
Exhibit 4.1 to Amendment No. 1 to the Company's Registration Statement No. 2-78200
on Form S-1).
4.3* - Form of Convertible Subordinated Indenture relating to the Convertible Subordinated
Debentures, including form of Convertible Subordinated Debenture.
4.4 - Indenture between Westbridge and Liberty Bank & Trust Company of Oklahoma City,
National Association, as Trustee, including form of Senior Subordinated Note
(incorporated by reference to Exhibit 2 to the Company's Form 8-A dated July 19, 1995.
5.1* - Opinion of Milbank, Tweed, Hadley & McCloy regarding legality of the Series A
Preferred Stock, the Common Stock and the Convertible Subordinated Debentures.
7.1* - Opinion of Milbank, Tweed, Hadley & McCloy regarding liquidation preference of the
Series A Preferred Stock.
8.1* - Opinion of Milbank, Tweed, Hadley & McCloy regarding certain tax matters.
10.1 - Westbridge Employee Incentive Stock Option Plan (incorporated by reference to
Exhibit 10.1 to Amendment No. 1 to the Company's Registration Statement No. 2-78200
on Form S-1).
10.2 - Regional General Agent's Contract with C. Flowers (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1985).
10.3 - General Agent's Agreement with John P. Locke, as amended on November 7, 1988
(incorporated by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991). (Confidential Treatment for portions of this Exhibit has
been requested).
10.4 - General Agent's Agreement with Phillip D. Elkins as amended on April 5, 1976
(incorporated by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991). (Confidential Treatment for portions of this Exhibit has
been requested).
10.5 - Description of Cash Bonus Plan (incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1988).
10.6 - Westbridge 1985 Stock Option Plan (incorporated by reference to Exhibit 10.7 to the
Company's Registration Statement No. 33-3577 on Form S-1).
10.7 - Amendment No. 1 to Employee Incentive Stock Option Plan of Westbridge (incorporated
by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1986).
10.8 - Amendment No. 2 to Employee Incentive Stock Option Plan of Westbridge (incorporated
by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1987).
10.9 - Amendment No. 3 to Employee Incentive Stock Option Plan of Westbridge (incorporated
by reference to Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1988).
10.10 - Stockholders' Agreement dated April 2, 1988, by and among the Company and the other
stockholders of LifeStyles Marketing Group, Inc., named therein, as amended
(incorporated by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1988).
10.11 - Stockholders' Agreement dated September 30, 1988, by and among the Company, John P.
Locke and Freedom Holding Company, (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1988).
10.12 - Supplement to General Agent's Agreement with Phillip D. Elkins as amended on
February 8, 1990 (incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1990). (Confidential Treatment for portions
of this Exhibit has been requested).
10.13 - Coinsurance Agreement between National Foundation Life Insurance Company and
Paramount Life Insurance Company, as of March 1, 1990 (incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended December 31, 1990).
10.14 - Marketing and Information Services Agreement between National Foundation Life
Insurance Company and Paramount Life Insurance Company, as of March 1, 1990
(incorporated by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1990).
10.15 - Administrative Services Agreement between National Foundation Life Insurance
Company and Paramount Life Insurance Company, as of March 1, 1990 (incorporated by
reference to the Company's Annual Report on Form 10-K for the year ended December
31, 1990).
10.16 - Coinsurance Agreement between National Foundation Life Insurance Company and
Freedom Life Insurance Company of America, as of May 5, 1987 (incorporated by
reference to the Company's Annual Report on Form 10-K for the year ended December
31, 1990).
10.17 - Assumption Reinsurance Agreement, dated June 20, 1991, by and among National
Foundation Life Insurance Company and Bankers Protective Life Insurance Company
(incorporated by reference to Exhibit 2 to the Company's Report on Form 8-K dated
August 27, 1991).
10.18 - Assumption Reinsurance Agreement dated September 16, 1992, by and among National
Foundation Life Insurance Company and American Integrity Insurance Company
(incorporated by reference to Exhibit 2 of the Company's report on Form 8-K dated
September 25, 1992).
10.19 - Westbridge 1992 Stock Option Plan (incorporated by reference to Exhibit 28.4 to the
Company's Registration Statement No. 33-55192 on Form S-8).
10.20 - First Amendment to the 1992 Stock Option Plan (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1992).
10.21* - Second Amendment to the 1992 Stock Option Plan.
10.22 - Preferred Stock Purchase Agreement dated as of April 1, 1994 by and between
Westbridge and each of the purchasers named on the signature pages thereto
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form
8-K dated April 26, 1994).
12.1** - Statement of computation of earnings to fixed charges.
21.1** - List of Subsidiaries of Westbridge.
23.1** - Consent of Price Waterhouse.
23.2** - Consent of Jaynes, Reitmeier, Boyd & Therrell, P.C.
23.3* - Consent of Milbank, Tweed, Hadley & McCloy (included in Exhibits 5.1, 7.1 and 8.1).
24.1* - Powers of Attorney.
27.1** - Financial Data Schedule.
<FN>
_________________________
* Previously Filed
** Filed Herewith
</TABLE>
<PAGE>
(b) Financial Statement Schedules.
II. Condensed Financial Information of Registrant
(included on page S-1)
III. Supplementary Insurance Information (included on page
S-4).
IV. Reinsurance (included on page S-5).
V. Valuation and Qualifying Accounts and Reserves
(included on page S-6).
Item 17. Undertakings.
1. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to its Certificate
of Incorporation, By-Laws or otherwise, the registrant has been
advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
2. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement;
(2) That, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
3. The undersigned Company hereby undertakes to file an
application for the purpose of determining the eligibility of the
trustee to act under subsection (a) of Section 310 of the Trust
Indenture Act of 1939 in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2)
of the Trust Indenture Act of 1939.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this Post-Effective Amendment
No. 1 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Fort
Worth, State of Texas, on September 29, 1995.
WESTBRIDGE CAPITAL CORP.
By: /s/ Martin E. Kantor
(Martin E. Kantor,
Chairman of the Board
and Chief Executive Officer)
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment No. 1 to the Registration Statement
has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Martin E. Kantor Director, Chairman of the Board, September 29, 1995
(Martin E. Kantor) and Chief Executive Officer
(Principal Executive Officer)
/s/ James W. Thigpen Director, President and September 29, 1995
(James W. Thigpen) Chief Operating Officer
/s/ Patrick J. Mitchell Vice President, Chief September 29, 1995
(Patrick J. Mitchell) Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
* Director September 29, 1995
(Marvin H. Berkeley)
* Director September 29, 1995
(Arthur W. Feinberg)
* Director September 29, 1995
(George M. Garfunkel)
* Director September 29, 1995
(Glenn O. Phillips)
* Director September 29, 1995
(Joseph C. Sibigtroth)
* Director September 29, 1995
(Barth P. Walker)
*By:/s/James W. Thigpen September 29, 1995
(James W. Thigpen)
(Attorney-in-Fact)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
WESTBRIDGE CAPITAL CORP. (PARENT COMPANY)
STATEMENT OF CASH FLOWS
(In thousands)
Year Ended December 31,
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,235 $ 3,531 $ 2,896
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Equity in undistributed net income of
subsidiaries (8,312) (5,187) (4,751)
Accrued investment income 87 39 (135)
Advances due from subsidiaries 1,461 6 1,204
Other liabilities 356 (18) 139
Increase in deferred income tax benefit (1,268) (842) (255)
(Increase) decrease in deferred expense (1,726) 117 117
Other, net 669 427 327
------ ------ ------
NET CASH USED FOR OPERATING ACTIVITIES (3,498) (1,927) (458)
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of NFI and AICT (20,178) - -
Proceeds from investments sold and matured 100 100 -
Proceeds from surplus certificate 1,000 864 -
Notes receivable from related parties 1,381 278 226
Additions to leasehold improvements and
equipment, net of retirements (911) (219) (421)
Decrease in notes receivable - - 64
Investment in subsidiaries 2,000 - 135
------ ------ ------
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES (16,608) 1,023 4
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of redeemable preferred stock 20,000 - -
Issuance of common stock 395 123 79
Purchase and cancellation of common stock (534) (89) -
------ ------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 19,861 34 79
------ ------ ------
DECREASE IN CASH AND SHORT-TERM
INVESTMENTS DURING THE YEAR (245) (870) (375)
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF YEAR 272 1,142 1,517
------ ------ ------
CASH AND SHORT-TERM INVESTMENTS AT
END OF YEAR $ 27 $ 272 $1,142
====== ====== =====
<FN>
The condensed financial information should be read in conjunction with the
Westbridge Capital Corp. December 31, 1994 consolidated financial statements and
notes thereto.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III
WESTBRIDGE CAPITAL CORP.
SUPPLEMENTARY INSURANCE INFORMATION
(In thousands)
Other
Policy Amortization
Deferred Claims Benefits of Policy
Policy Future and Net and Acquisi- Other
Acquisition Policy Benefits Premium Investment Claims tion OperatingPremiums
Segment Costs Benefits Payable Revenue Income Expense Costs Expenses Written*
- ------- ----- -------- ------- ------- ------ ------- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Insurance operations $58,654 $62,862 $41,349 $98,703 $5,487 $53,623 $9,711 $22,688 $34,732
Fee and service income activities -- -- -- -- -- -- -- 7,704 =======
Corporate (parent company) -- -- -- -- 277 -- -- 3,976
------- ------- ------- ------- ------ ------- ------ -------
Total $58,654 $62,862 $41,349 $98,703 $5,764 $53,623 $9,711 $34,368
======= ======= ======= ======= ====== ======= ====== =======
Year ended December 31, 1993:
Insurance operations $28,354 $32,877 $12,794 $68,731 $3,653 $33,153 $8,159 $19,898 $23,809
Fee and service income activities -- -- -- -- -- -- -- 6,180 =======
Corporate (parent company) -- -- -- -- 467 -- -- 3,142
------- ------- ------- ------- ------ ------- ------ -------
Total $28,354 $32,877 $12,794 $68,731 $4,120 $33,153 $8,159 $29,220
======= ======= ======= ======= ====== ======= ====== =======
Year ended December 31, 1992:
Insurance operations $30,768 $36,699 $21,635 $56,731 $3,553 $26,522 $8,452 $16,266 $19,367
Fee and service income activities -- -- -- -- 2 -- -- 6,264 =======
Corporate (parent company) -- -- -- -- 377 -- -- 3,146
------- ------- ------- ------- ------ ------- ------ -------
Total $30,768 $36,699 $21,635 $56,731 $3,932 $26,522 $8,452 $25,676
======= ======= ======= ======= ====== ======= ====== =======
<FN>
* Premiums Written--Amounts do not apply to life insurance.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WESTBRIDGE CAPITAL CORP.
SCHEDULE IV
REINSURANCE
(In thousands)
Assumed Percentage
Ceded to From of Amount
Gross Other Other Net Assumed
Amount CompaniesCompanies Amount to Net
------ --------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Life insurance in force $21,814 $ -- $ -- $21,814 --
======= ======= ======= ======= =====
Premiums:
Life $ 444 $ (1) $ -- $ 445 --
Accident and health 88,956 1,781 11,083 98,258 11.28%
------- ------- ------- ------- -----
Total premiums $89,400 $ 1,780 $11,083 $98,703 11.23%
======= ======= ======= ======= =====
Year ended December 31, 1993:
Life insurance in force $22,340 $ -- $ -- $22,340 --
======= ======= ======= ======= =====
Premiums:
Life $ 509 $ -- $ -- $ 509 --
Accident and health 61,884 495 6,833 68,222 10.02%
------- ------- ------- ------- -----
Total premiums $62,393 $ 495 $6,833 $68,731 9.94%
======= ======= ======= ======= =====
Year ended December 31, 1992:
Life insurance in force $25,609 $ -- $ -- $25,609 --
======= ======= ======= ======= =====
Premiums:
Life $ 593 $ (1) $ -- $ 594 --
Accident and health 49,347 505 7,295 56,137 12.99%
------- ------- ------- ------- -----
Total premiums $49,940 $ 504 $7,295 $56,731 12.86%
======= ======= ======= ======= =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE V
WESTBRIDGE CAPITAL CORP.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
Additions
Charged Balance
Balance at to at
Beginning Costs and Deductions End of
of Period Expenses (Charge Offs) Period
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful
agents' balances $1,133 $ 4 $ -- $1,137
====== ==== ==== ======
Year ended December 31, 1993:
Allowance for doubtful
agents' balances $1,152 $(19) $ -- $1,133
====== ==== ==== ======
Year ended December 31, 1992:
Allowance for doubtful
agents' balances $ 943 $209 $ -- $1,152
====== ==== ==== ======
</TABLE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No.
Page No.
----------
<S> <C>
<C>
2.1 - Stock Purchase Agreement dated as of December 6, 1993 among Westbridge,
National Group Corporation and C. Clifton Robinson (incorporated by
reference to Exhibit 2.1 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993).
2.2 - Amendment No. 1 to Stock Purchase Agreement, dated as of
April 12, 1994, by and among Westbridge, National Group
Corporation and C. Clifton Robinson (incorporated by
reference to Exhibit 2.2 to the Company's Current Report
on Form 8-K dated April 26, 1994).
3.1* - Restated Certificate of Incorporation of Westbridge filed with the
Secretary of State of Delaware on July 28, 1994.
3.2* - By-Laws of Westbridge, effective as of June 24, 1994.
4.1* - Article Fourth of the Restated Certificate of
Incorporation of Westbridge (included in Exhibit 3.1).
4.2 - Specimen Certificate for Westbridge Common Stock
(incorporated by reference to Exhibit 4.1 to Amendment No.
1 to the Company's Registration Statement No. 2-78200 on
Form S-1).
4.3* - Form of Convertible Subordinated Indenture relating to the
Convertible Subordinated Debentures, including form of
Convertible Subordinated Debenture.
4.4 - Indenture between Westbridge and Liberty Bank & Trust
Company of Oklahoma City, National Association, as
Trustee, including form of Senior Subordinated Note
(incorporated by reference to Exhibit 2 to the Company's
Form 8-A dated July 19, 1995).
5.1* - Opinion of Milbank, Tweed, Hadley & McCloy regarding
legality of the Series A Preferred Stock, the Common Stock
and the Convertible Subordinated Debentures.
7.1* - Opinion of Milbank, Tweed, Hadley & McCloy regarding liquidation preference
of the Series A Preferred Stock.
8.1* - Opinion of Milbank, Tweed, Hadley & McCloy regarding
certain tax matters.
10.1 - Westbridge Employee Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.1 to Amendment
No. 1 to the Company's Registration Statement No. 2-78200
on Form S-1).
10.2 - Regional General Agent's Contract with C. Flowers
(incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1985).
10.3 - General Agent's Agreement with John P. Locke, as amended on November 7,
1988 (incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991). (Confidential Treatment for
portions of this Exhibit has been requested).
10.4 - General Agent's Agreement with Phillip D. Elkins as amended on April 5,
1976 (incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991). (Confidential Treatment for
portions of this Exhibit has been requested).
10.5 - Description of Cash Bonus Plan (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1988).
10.6 - Westbridge 1985 Stock Option Plan (incorporated by reference to Exhibit
10.7 to the Company's Registration Statement No. 33-3577 on Form S-1).
10.7 - Amendment No. 1 to Employee Incentive Stock Option Plan of
Westbridge (incorporated by reference to Exhibit 10.8 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1986).
10.8 - Amendment No. 2 to Employee Incentive Stock Option Plan of
Westbridge (incorporated by reference to Exhibit 10.9 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1987).
10.9 - Amendment No. 3 to Employee Incentive Stock Option Plan of
Westbridge (incorporated by reference to Exhibit 10.10 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1988).
10.10 - Stockholders' Agreement dated April 2, 1988, by and among
the Company and the other stockholders of LifeStyles
Marketing Group, Inc., named therein, as amended
(incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1988).
10.11 - Stockholders' Agreement dated September 30, 1988, by and
among the Company, John P. Locke and Freedom Holding
Company, (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
1988).
10.12 - Supplement to General Agent's Agreement with Phillip D.
Elkins as amended on February 8, 1990 (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1990). (Confidential
Treatment for portions of this Exhibit has been
requested).
10.13 - Coinsurance Agreement between National Foundation Life
Insurance Company and Paramount Life Insurance Company, as
of March 1, 1990 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990).
10.14 - Marketing and Information Services Agreement between
National Foundation Life Insurance Company and Paramount
Life Insurance Company, as of March 1, 1990 (incorporated
by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990).
10.15 - Administrative Services Agreement between National
Foundation Life Insurance Company and Paramount Life
Insurance Company, as of March 1, 1990 (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1990).
10.16 - Coinsurance Agreement between National Foundation Life
Insurance Company and Freedom Life Insurance Company of
America, as of May 5, 1987 (incorporated by reference to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1990).
10.17 - Assumption Reinsurance Agreement, dated June 20, 1991, by
and among National Foundation Life Insurance Company and
Bankers Protective Life Insurance Company (incorporated by
reference to Exhibit 2 to the Company's Report on Form 8-K
dated August 27, 1991).
10.18 - Assumption Reinsurance Agreement dated September 16, 1992,
by and among National Foundation Life Insurance Company
and American Integrity Insurance Company (incorporated by
reference to Exhibit 2 of the Company's report on Form 8-K
dated September 25, 1992).
10.19 - Westbridge 1992 Stock Option Plan (incorporated by reference to Exhibit
28.4 to the Company's Registration Statement No. 33-55192 on Form S-8).
10.20 - First Amendment to the 1992 Stock Option Plan
(incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992).
10.21* - Second Amendment to the 1992 Stock Option Plan.
10.22 - Preferred Stock Purchase Agreement dated as of April 1,
1994 by and between Westbridge and each of the purchasers
named on the signature pages thereto (incorporated by
reference to Exhibit 10.1 to the Company's Current Report
on Form 8-K dated April 26, 1994).
12.1** - Statement of computation of earnings to fixed charges.
21.1** - List of Subsidiaries of Westbridge.
23.1** - Consent of Price Waterhouse.
23.2** - Consent of Jaynes, Reitmeier, Boyd & Therrell, P.C.
23.3* - Consent of Milbank, Tweed, Hadley & McCloy (included in
Exhibits 5.1, 7.1 and 8.1).
24.1* - Powers of Attorney.
27.1** - Financial Data Schedule.
<FN>
_________________________
* Previously Filed
** Filed Herewith
</TABLE>
Westbridge Capital and Consolidated
Subsidiaries Computation of Ratio
of Earnings to Combined Fixed Charges and
Preferred Dividends and
Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations
before provisions for income
taxes per statement of income $1,923 $3,832 $ 7,999 $5,093 $3,428 $ 963 $(1,941)
Add:
Portion of rents representative
of the interest factor 394 370 901 612 452 407 578
Interest on indebtedness 1,212 1,370 2,827 2,340 2,340 2,340 2,340
Amortization of debt expense 78 99 240 212 196 110 330
----- ----- ------ ----- ----- ----- -----
Income as adjusted $3,607 $5,671 $11,967 $8,257 $6,416 $3,820 $1,307
===== ===== ====== ===== ===== ===== =====
Preferred stock dividend requirements 391 235 779 -- -- -- --
Ratio of income before provision for
income taxes to net income 211.32% 155.02% 152.80% 144.24% 118.37% 118.30% 98.98%
Preferred stock dividend factor on
pre-tax basis 826 364 1,190 -- -- -- --
Fixed charges:
Interest on indebtedness 1,212 1,370 2,827 2,340 2,340 2,340 2,340
Amortization of debt expense 78 99 240 212 196 110 330
Capitalized interest -- -- -- -- -- -- --
Portion of rents representative
of the interest factor 394 370 901 612 452 407 578
----- ----- ----- ----- ----- ----- -----
Fixed charges and preferred
stock dividends $2,510 $2,203 $ 5,158 $3,164 $2,988 $2,857 $3,248
----- ----- ----- ----- ----- ----- -----
Ratio of earnings to fixed charges
and preferred stock dividends 1.44 2.57 2.32 2.61 2.15 1.34 0.40
==== ==== ==== ==== ==== ==== ====
Ratio of earnings to fixed charges 2.14 3.08 3.02 2.61 2.15 1.34 0.40
==== ==== ==== ==== ==== ==== ====
</TABLE>
Exhibit 21.1
SUBSIDIARIES OF WESTBRIDGE CAPITAL CORP.
<TABLE>
<CAPTION>
Percentage
Subsidiary Ownership
<S> <C> <C>
1. National Foundation Life Insurance Company (Delaware) 100%
2. American Insurance Company of Texas (Texas) 100%
3. National Financial Insurance Company (Texas) 100%
4. National Legal Services Company, Inc. (Delaware) 100%
5. Foundation Financial Services, Inc. (Nevada) 100%
6. Westbridge Marketing Corporation (Delaware) 100%
7. Westbridge Printing Services, Inc. (Delaware) 100%
8. Flex-Plan Systems, Inc. (Delaware) 100%
9. Westbridge Financial Corp. (Delaware) 100%
10. LifeStyles Marketing Group, Inc. (Delaware) 51%
11. Senior Benefits, LLC (Arizona) 50%
12. American Senior Security Plans, LLC (Delaware) 50%
13. Senior Benefits of Texas, Inc. (Texas) 50%
14. American Senior Security Plans of Texas, Inc. (Texas) 50%
15. Managed Care-One Insurance Agency, Inc. (California) 50%
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
this Registration Statement on Form S-1 of our report dated March
30, 1995 relating to the consolidated financial statements of
Westbridge Capital Corp., which appears in such Prospectus. We
also consent to the application of such report to the Financial
Statement Schedules for the three years ended December 31, 1994
listed under Item 16(b) of this Registration Statement when such
schedules are read in conjunction with the financial statements
referred to in our report. The audits referred to in such report
also included these schedules. We also consent to the reference to
us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Fort Worth, Texas
September 29, 1995
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
this Registration Statement on Form S-1 of our report dated June
23, 1994 relating to the consolidated financial statements of
National Financial Insurance Company, which appears in such
Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Dallas, Texas
September 29, 1995
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors
Westbridge Capital Corp.:
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 1 for Form S-1 Registration Statement of our
report dated November 24, 1993, relating to the financial statements of
National Financial Insurance Company, which appears in such Prospectus. We
also consent to the reference to our firm under the heading "Expert" in such
Prospectus.
/s/ Jaynes, Reitmeier, Boyd, Therrell, P.C.
September 29, 1995
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> JUN-30-1995 DEC-31-1995
<DEBT-HELD-FOR-SALE> 11,617 10,787
<DEBT-CARRYING-VALUE> 76,882 80,377
<DEBT-MARKET-VALUE> 78,024 75,238
<EQUITIES> 547 469
<MORTGAGE> 732 768
<REAL-ESTATE> 141 141
<TOTAL-INVEST> 99,401 105,967
<CASH> 92 2,871
<RECOVER-REINSURE> 0 0
<DEFERRED-ACQUISITION> 48,214 58,654
<TOTAL-ASSETS> 174,587 187,581
<POLICY-LOSSES> 84,660 104,280
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 360 372
<NOTES-PAYABLE> 19,225 24,665
<COMMON> 595 443
20,000 20,000
0 0
<OTHER-SE> 37,287 25,912
<TOTAL-LIABILITY-AND-EQUITY> 174,587 187,581
56,810 98,703
<INVESTMENT-INCOME> 3,584 5,764
<INVESTMENT-GAINS> (72) 320
<OTHER-INCOME> 895 1,759
<BENEFITS> 33,509 53,623
<UNDERWRITING-AMORTIZATION> 5,948 9,711
<UNDERWRITING-OTHER> 9,611 16,847
<INCOME-PRETAX> 2,979 8,844
<INCOME-TAX> 1,013 2,764
<INCOME-CONTINUING> 2,142 6,425
<DISCONTINUED> 0 0
<EXTRAORDINARY> (407) 0
<CHANGES> 0 0
<NET-INCOME> 910 5,235
<EPS-PRIMARY> .16 1.13
<EPS-DILUTED> .22 1.03
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
