SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 1999
Commission File Number 1-8538
ASCENT ASSURANCE, INC.
-------------------------
(Exact name of Registrant as specified in its Charter)
DELAWARE 73-1165000
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
110 West Seventh Street, Suite 300, Fort Worth, Texas 76102
- ----------------------------------------------------- ------------
(Address of Principal Executive Offices) (Zip Code)
817-878-3300
-------------------------------------------------------
(Registrant's Telephone Number, including Area Code)
N/A
----------------------------------------------------------------------------
(Former Name, Address and Former Fiscal Year, if changed since Last Report)
Indicate, by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO_____
Indicate, by check mark whether the Registrant has filed all reports required to
be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
YES X NO___
Common Stock - Par Value $.01 6,500,000 Shares Outstanding at November 12, 1999
<PAGE>
<TABLE>
<CAPTION>
ASCENT ASSURANCE, INC.
INDEX TO FORM 10-Q
<S> <C> <C>
Page No.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Ascent Assurance, Inc. Condensed Consolidated Balance Sheets
at September 30, 1999 and March 31, 1999...............................................................3
Westbridge Capital Corp. Condensed Consolidated Balance Sheet
at December 31, 1998...................................................................................4
Ascent Assurance, Inc. Condensed Consolidated Statements of Income
for the Three and Six Months Ended September 30, 1999..................................................5
Westbridge Capital Corp. Condensed Consolidated Statements of Income
for the Three Months Ended March 31, 1999 and September 30, 1998 and
for the Nine Months Ended September 30, 1998...........................................................6
Ascent Assurance, Inc. Condensed Consolidated Statements of Cash Flows
for the Three and Six Months Ended September 30, 1999..................................................7
Westbridge Capital Corp. Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1999 and September 30, 1998 and
for the Nine Months Ended September 30, 1998...........................................................8
Notes to Condensed Consolidated Financial Statements.....................................................9
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
General.................................................................................................16
Business Overview.......................................................................................16
Operating Results.......................................................................................17
Financial Condition.....................................................................................20
Liquidity, Capital Resources and Statutory Capital and Surplus..........................................22
Year 2000...............................................................................................25
Forward-Looking Statements..............................................................................26
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K........................................................................27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ASCENT ASSURANCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, 1999 March 31, 1999
----------------------- ---------------------
(in thousands, except share data)
<S> <C> <C>
Assets
Investments:
Fixed Maturities:
Available-for-sale, at market value (amortized cost $108,906
and $116,352) $ 104,692 $ 116,352
Equity securities, at market 2,246 2,275
Other investments 471 516
Short-term investments 5,157 7,789
----------------------- ---------------------
Total Investments 112,566 126,932
Cash 2,410 2,210
Accrued investment income 2,004 2,169
Receivables from agents, net of allowance for doubtful accounts of
$6,499 and $6,358 6,880 8,182
Deferred policy acquisition costs 17,798 15,039
Deferred tax asset, net 5,301 7,347
Other assets 12,070 7,916
----------------------- ----------------------
Total Assets $ 159,029 $ 169,795
======================= ======================
Liabilities, Redeemable Preferred Stock and Stockholders' Equity
Liabilities:
Policy liabilities and accruals:
Future policy benefits $ 55,673 $ 54,738
Claim reserves 38,039 41,068
----------------------- ---------------------
Total Policy Liabilities and Accruals 93,712 95,806
Accounts payable and other liabilities 10,596 18,541
Notes payable 6,470 5,088
---------------------
Total Liabilities 110,778 119,435
----------------------- ---------------------
Redeemable convertible preferred stock 23,257 23,257
----------------------- ---------------------
Stockholders' Equity:
Common stock ($.01 par value, 30,000,000 shares authorized;
6,500,000 shares issued) 65 65
Capital in excess of par value 27,169 27,038
Accumulated other comprehensive income, net of tax (2,758) -
Retained Earnings 518 -
----------------------- ---------------------
Total Stockholders' Equity 24,994 27,103
----------------------- ---------------------
Total Liabilities, Redeemable Preferred Stock
and Stockholders' Equity $ 159,029 $ 169,795
======================= =====================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
WESTBRIDGE CAPITAL CORP.
(now, Ascent Assurance, Inc.)
CONDENSED CONSOLIDATED BALANCE SHEET
(Audited)
December 31, 1998
--------------------
(in thousands,
Assets except share data)
<S> <C>
Investments:
Fixed Maturities:
Available-for-sale, at market value (amortized cost $119,167) $ 122,864
Equity securities, at market 2,575
Other investments 598
Short-term investments 5,393
----------------------
Total Investments 131,430
Cash 278
Accrued investment income 2,372
Receivables from agents, net of allowance for doubtful accounts of $6,592 9,860
Deferred policy acquisition costs 14,177
Other assets 11,624
----------------------
Total Assets $ 169,741
======================
Liabilities, Redeemable Preferred Stock and Stockholders' Deficit
Liabilities:
Policy liabilities and accruals:
Future policy benefits $ 53,871
Claim reserves 44,116
----------------------
Total Policy Liabilities and Accruals 97,987
Accounts payable and other liabilities 14,807
Accrued interest and dividends payable 11,377
Notes payable 6,192
Senior subordinated notes, net of unamortized discount, due 2002 19,523
Convertible subordinated notes, due 2004 70,000
----------------------
Total Liabilities 219,886
----------------------
Redeemable Preferred Stock 11,935
----------------------
Stockholders' (Deficit) Equity:
Common stock ($.10 par value, 30,000,000 shares authorized;
7,035,809 shares issued) 703
Capital in excess of par value 37,641
Accumulated other comprehensive income, net of tax 3,911
Deficit (104,335)
----------------------
Total Stockholders' Deficit (62,080)
----------------------
Total Liabilities, Redeemable Preferred Stock and Stockholders' Deficit $ 169,741
======================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ASCENT ASSURANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
September 30, 1999 September 30, 1999
---------------------- ----------------------
(in thousands, except per share data)
<S> <C> <C>
Revenues:
Premiums:
First-year $ 4,810 $ 8,713
Renewal 23,702 49,373
---------------------- ----------------------
28,512 58,086
Net investment income 2,222 4,555
Fee and service income 4,506 8,702
Net realized loss on investments (107) (170)
---------------------- ----------------------
35,133 71,173
---------------------- ----------------------
Benefits, claims and expenses:
Benefits and claims 22,619 44,352
Amortization of deferred policy
acquisition costs 502 894
Commissions 4,859 9,796
General and administrative expenses 5,985 11,956
Taxes, licenses and fees 1,190 2,483
Interest expense on notes payable 142 235
Resolution of preconfirmation contingencies (1,235) (1,235)
---------------------- ----------------------
34,062 68,481
---------------------- ----------------------
Income before income taxes 1,071 2,692
Federal income tax expense (364) (931)
---------------------- ----------------------
Net income $ 707 $ 1,761
====================== ======================
Preferred stock dividends 596 1,243
---------------------- ----------------------
Income applicable to common stockholders $ 111 $ 518
====================== ======================
Basic and diluted net income per common share $ .02 $ .08
====================== ======================
Weighted average shares outstanding:
Basic 6,500 6,500
====================== ======================
Diluted 6,500 6,515
====================== ======================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
WESTBRIDGE CAPITAL CORP.
(now, Ascent Assurance, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Three Months Nine Months
Ended Ended Ended
March 31, September 30, September 30,
1999 1998 1998
------------------- ------------------- -------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Revenues:
Premiums:
First-year $ 3,121 $ 4,289 $ 15,979
Renewal 26,827 28,989 89,989
------------------- ------------------- -------------------
29,948 33,278 105,968
Net investment income 2,562 2,929 9,287
Fee and service income 4,263 4,085 12,184
Net realized gain on investments 41 1,576 2,105
------------------- ------------------- -------------------
36,814 41,868 129,544
------------------- ------------------- -------------------
Benefits, claims and expenses:
Benefits and claims 21,799 23,696 77,544
Amortization of deferred policy
acquisition costs 286 1,448 3,396
Commissions 6,134 6,884 25,083
General and administrative expenses 6,635 6,833 20,733
Taxes, licenses and fees 1,059 1,234 3,965
Interest expense on notes payable 119 1,882 6,186
Interest expense on retired/canceled debt 507 - -
Recognition of premium deficiency - 4,948 4,948
Reorganization expense - 1,606 3,706
------------------- ------------------- -------------------
36,539 48,531 145,561
------------------- ------------------- -------------------
Income (loss) before income taxes 275 (6,663) (16,017)
Federal income tax (expense) benefit (67) (244) 995
------------------- ------------------- -------------------
Net income (loss) $ 208 $ (6,907) $ (15,022)
=================== =================== ===================
Preferred stock dividends - 111 520
=================== =================== ===================
Income (loss) applicable to common stockholders $ 208 $ (7,018) $ (15,542)
=================== =================== ===================
Basic and diluted earnings (loss) per
common share $ .03 $ (1.01) $ (2.39)
=================== =================== ===================
Weighted average shares outstanding:
Basic 7,032 6,938 6,507
=================== =================== ===================
Diluted 7,032 6,938 6,507
=================== =================== ===================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ASCENT ASSURANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Six Months Ended
September 30, 1999 September 30, 1999
---------------------- -----------------------
(in thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 707 $ 1,761
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Amortization of deferred policy acquisition costs 502 894
Decrease in receivables from agents 58 1,302
Addition to deferred policy acquisition costs (1,917) (3,653)
Increase in other assets (2,011) (945)
Decrease in policy liabilities and accruals (434) (2,094)
Decrease in accounts payable and other liabilities (6,636) (9,188)
Decrease in deferred income taxes, net 3,073 2,046
Other, net 1,035 2,440
---------------------- -----------------------
Net Cash Used For Operating Activities (5,623) (7,437)
---------------------- -----------------------
Cash Flows From Investing Activities:
Proceeds from investments sold:
Fixed maturities, called or matured 1,420 2,227
Fixed maturities, sold 1,993 8,556
Other investments, sold or matured 2 60
Cost of investments acquired 1,550 (1,377)
Software, equipment, and other (2,046) (3,209)
---------------------- -----------------------
Net Cash Provided By Investing Activities 2,919 6,257
---------------------- -----------------------
Cash Flows From Financing Activities:
Issuance of notes payable 4,650 6,058
Repayment of notes payable (1,691) (4,678)
---------------------- -----------------------
Net Cash Provided By Financing Activities 2,959 1,380
---------------------- -----------------------
Increase In Cash During Period 255 200
Cash at Beginning of Period 2,155 2,210
---------------------- -----------------------
Cash at End of Period $ 2,410 $ 2,410
====================== =======================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
WESTBRIDGE CAPITAL CORP.
(now, Ascent Assurance, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Three Months Nine Months
Ended Ended Ended
March 31, September 30, September 30,
1999 1998 1998
------------------- ------------------ -----------------
(in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Income (loss) applicable to common stockholders $ 208 $ (7,018) $ (15,542)
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Amortization of deferred policy acquisition costs 286 1,448 3,396
Recognition of premium deficiency - 4,948 4,948
Decrease in receivables from agents 1,678 2,353 7,505
Addition to deferred policy acquisition costs (1,148) (1,425) (2,688)
(Increase) decrease in other assets (1,007) 261 862
Decrease in policy liabilities and accruals (2,181) (4,562) (7,953)
Increase in accounts payable and other liabilities 4,428 795 4,376
Increase in deferred income taxes, net (1,070) - -
Other, net 1,308 136 38
------------------- ------------------ -----------------
Net Cash Provided By (Used For) Operating
Activities 2,502 (3,064) (5,058)
------------------- ------------------ -----------------
Cash Flows From Investing Activities:
Proceeds from investments sold:
Fixed maturities, called or matured 2,215 1,538 6,664
Fixed maturities, sold 4,904 671 12,014
Other investments, sold or matured 139 3,848 5,784
Cost of investments acquired (5,851) (2,135) (12,564)
Other (873) (85) (848)
------------------- ------------------ -----------------
Net Cash Provided By Investing Activities 534 3,837 11,050
------------------- ------------------ -----------------
Cash Flows From Financing Activities:
Retirement of senior subordinated debentures (15,167) - -
Issuance of notes payable 911 1,256 4,230
Repayment of notes payable (2,015) (2,690) (9,712)
Issuance of preferred stock 15,167 - -
------------------- ------------------ -----------------
Net Cash Used For Financing Activities (1,104) (1,434) (5,482)
------------------- ------------------ -----------------
Increase (Decrease) in Cash During Period 1,932 (661) 510
Cash at Beginning of Period 278 2,201 1,030
------------------- ------------------ -----------------
Cash at End of Period $ 2,210 $ 1,540 $ 1,540
=================== ================== =================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
ASCENT ASSURANCE, INC.
(formerly, Westbridge Capital Corp.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - REORGANIZATION EFFECTIVE MARCH 24, 1999
On September 16, 1998, Westbridge Capital Corp. ("Westbridge") commenced its
reorganization by filing a voluntary petition for relief under Chapter 11, Title
11 of the United States Code in the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"), along with a disclosure statement
(as amended, the "Disclosure Statement") and a proposed plan of reorganization
(as amended, the "Plan"). The filing of the Disclosure Statement and Plan
culminated months of negotiations between Westbridge and an ad hoc committee
(the "Creditors' Committee") of holders of its 11% Senior Subordinated Notes due
2002 (the "Senior Notes") and its 7-1/2% Convertible Subordinated Notes due 2004
(the "Convertible Notes"). The Disclosure Statement was approved by entry of an
order by the Bankruptcy Court on October 30, 1998. Following the approval of the
Plan by the holders of allowed claims and equity interests, the Bankruptcy Court
confirmed the Plan on December 17, 1998. The Plan became effective March 24,
1999 (the "Effective Date").
On the Effective Date, Westbridge's certificate of incorporation and by-laws
were amended and restated in their entirety and pursuant thereto, Westbridge
changed its corporate name to "Ascent Assurance, Inc." ("Ascent"). References
herein to the "Company" shall mean for all periods on or prior to March 31,
1999, Westbridge and its subsidiaries, and for all periods on or after the close
of business on March 31, 1999, Ascent and its subsidiaries.
The following summary of the Plan omits certain information set forth in the
Plan. Any statements contained herein concerning the Plan are not necessarily
complete, and in each such instance reference is made to the Plan, a copy of
which is incorporated by reference to Exhibit 2 of Westbridge's Current Report
on Form 8-K which was filed with the Securities and Exchange Commission on
December 29, 1998. Each such statement is qualified in its entirety by such
reference. The Plan provided for the recapitalization of certain old debt and
equity interests in Westbridge and the issuance of new equity securities and
warrants. Key terms of the Plan included the following:
Cancellation of Existing Securities. Pursuant to the Plan, the following
securities of Westbridge were canceled as of the Effective Date: (i) $23.3
million aggregate principal amount and all accrued and unpaid interest on, the
Senior Notes, (ii) $77.3 million aggregate principal amount and all accrued and
unpaid interest on, the Convertible Notes, (iii) $13.2 million aggregate
liquidation preference of and all accrued and unpaid dividends on, Westbridge's
Series A Convertible Redeemable Exchangeable Preferred Stock (the "Old Preferred
Stock"), (iv) Westbridge's Common Stock, par value $.10 per share (the "Old
Common Stock"), (v) all outstanding warrants to purchase Old Common Stock, (vi)
all outstanding unexercised stock options to purchase Old Common Stock, and
(vii) all unvested grants of restricted Old Common Stock.
<PAGE>
New Equity Capital Structure. Pursuant to Ascent's Amended and Restated
Certificate of Incorporation, the total number of shares of capital stock Ascent
has the authority to issue is 30,040,000, consisting of 30,000,000 shares of
common stock, par value $.01 per share (the "New Common Stock") and 40,000
shares of preferred stock, par value $.01 per share, all of which are designated
Series A Convertible Preferred Stock (the "New Preferred Stock").
Distributions Under the Plan
Cash Distribution
To the holders of Senior Notes other than Credit Suisse First Boston
Corporation ("CSFB"), cash payments totaling approximately $15.2
million, which equaled the total Allowed 11% Senior Note Claims (as
defined in the Plan) held by creditors other than CSFB, were
distributed subject to completion of the exchange of securities as
contemplated by the Plan. In order to provide the Company with
sufficient funds to make the cash distribution to the holders of the
Allowed 11% Senior Notes under the Plan, an affiliate of CSFB (the
"CSFB Affiliate") purchased all of the shares of the New Preferred
Stock which were not otherwise distributed under the Plan.
Issuance of New Securities
Pursuant to the Plan and the purchase of New Preferred Stock, 6,500,000
shares of New Common Stock and 23,257 shares of New Preferred Stock
were issued, subject to the completion of the exchange requirements as
contemplated by the Plan, on the Effective Date as follows:
To holders of general unsecured claims and Convertible Notes as
of December 10, 1998, 6,077,500 shares, and to management at the
Effective Date, 32,500 shares, or in aggregate 94% of the New
Common Stock issued on the Effective Date. Holders of general
unsecured claims and Convertible Notes received their first
distribution of shares in partial satisfaction and discharge of
their allowed claims in April 1999. The second distribution was
made in September 1999 and the remaining shares of New Common
Stock are expected to be distributed in November 1999.
To holders of Old Preferred Stock as of December 10, 1998,
260,000 shares, or 4%, of the New Common Stock issued on the
Effective Date and Warrants ("New Warrants") to purchase an
additional 277,505 shares, or 2%, of the New Common Stock issued
on the Effective Date, on a fully diluted basis.
To holders of Old Common Stock as of December 10, 1998, 130,000
shares, or 2%, of the New Common Stock issued on the Effective
Date and New Warrants to purchase an additional 693,761 shares,
or 5%, of the New Common Stock issued on the Effective Date, on a
fully diluted basis. Fractional shares of New Common Stock will
not be issued in connection with the Plan. As a result of this
provision, certain holders of Old Common Stock received no
distribution of New Common Stock or New Warrants under the Plan.
To the CSFB Affiliate, in respect of the Senior Notes owned by
CSFB as of December 10, 1998, 8,090 shares of New Preferred Stock
which, together with the 15,167 additional shares of New
Preferred Stock purchased by the CSFB Affiliate as described
above, are convertible into 4,765,165 shares of the New Common
Stock. As a result of the New Preferred Stock received by the
CSFB Affiliate, together with the 3,093,998 shares of New Common
Stock received by the CSFB Affiliate in respect of the
Convertible Notes owned by CSFB, the CSFB Affiliate beneficially
owns approximately 56.6% of the New Common Stock on an as
converted basis, assuming the exercise of all New Warrants and
issuance of New Common Stock reserved under the 1999 Stock Option
Plan as discussed below. The New Preferred Stock has a stated
value of $1,000 per share and a cumulative annual dividend rate
of $102.50 per share payable in January of each year in cash or
by the issuance of additional shares of New Preferred Stock. The
New Preferred Stock is convertible at any time into 204.8897
shares of New Common Stock at an initial conversion price of
$4.88 per share of New Common Stock, subject to customary
anti-dilution adjustments.
Reservation of Additional New Common
Stock ss. In connection with the New Warrants described above,
971,266 shares of New Common Stock have been reserved for
issuance upon the exercise of New Warrants. The New Warrants are
exercisable at an initial exercise price of $9.04 per share of
New Common Stock, subject to customary anti-dilution adjustments,
and will expire on March 24, 2004.
Pursuant to the Plan, up to 1,251,685 shares, or 10%, of the
fully diluted number of shares of New Common Stock issued and
outstanding on the Effective Date have been reserved for issuance
to employees and directors, and up to 387,119 shares, or 3%, of
the fully diluted number of shares of New Common Stock issued on
the Effective Date have been reserved for issuance to the
Company's marketing agents under the Company's 1999 Stock Option
Plan, which was approved by the Company's shareholders.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INCLUDING FRESH START
ACCOUNTING PRINCIPLES EFFECTIVE MARCH 31, 1999 FOR ASCENT
Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include
all of the information and footnotes required by generally accepted accounting
principles ("GAAP") for complete financial statements. Financial statements
prepared in accordance with GAAP require the use of management estimates. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have been included.
Certain reclassifications have been made to 1998 amounts in order to conform to
1999 financial statement presentation. 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, 1998.
Fresh Start Adjustments. In accordance with the American Institute of Certified
Public Accountants' Statement of Position 90-7 ("SOP 90-7"), "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code," the Company
adopted fresh start reporting effective March 31, 1999. Fresh start reporting
requires the new reporting entity created on the reorganization effective date
to determine a reorganization book value. The reorganization book value is
allocated to the fair value of assets and liabilities similar to the purchase
method of accounting under APB 16. As a result of the application of fresh start
reporting, the financial statements of Ascent issued subsequent to the adoption
of fresh start reporting will not be comparable with those of Westbridge
prepared before adoption of fresh start accounting, including the historical
financial statements of Westbridge in this quarterly report. With the adoption
of fresh start accounting, the Company retained a fiscal accounting year ended
on December 31 of each year.
Ascent's reorganization book value was determined with the assistance of its
financial advisors. The significant factors used in the determination of
reorganization book value were analyses of industry, economic and overall market
conditions, historical and projected performance of the Company, and certain
financial analyses, including discounted future cash flows.
<PAGE>
The effects of the Plan and fresh start reporting on the Company's consolidated
balance sheet as of March 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Westbridge Issue New Issue New Fresh Start Ascent
03/31/1999 Preferred (a) Common (b) Adjustments(c) 03/31/1999
-------------- -------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Assets
Total investments $ 126,932 $ $ $ $ 126,932
Cash 2,210 2,210
Accrued investment income 2,169 2,169
Agent receivables, net 8,182 8,182
Deferred policy acquisition costs 15,039 15,039
Deferred tax asset, net 1,070 6,277 7,347
Other assets 13,504 (3,088) (2,500) 7,916
-------------- -------------- ---------------- ----------------- --------------
Total assets $ 169,106 $ - $ (3,088) $ 3,777 $ 169,795
============== ============== ================ ================= ==============
Liabilities, Preferred Stock & Equity
Policy liabilities and accruals $ 95,806 $ $ $ $ 95,806
Accounts payable and accruals 18,790 (249) 18,541
Notes payable 5,088 5,088
Accrued dividends 1,304 (1,304) -
Accrued interest 10,518 (3,257) (7,261) -
Senior subordinated notes, net 19,523 (19,523) -
Convertible subordinated notes 70,000 (70,000) -
-------------- -------------- ---------------- ----------------- --------------
Total liabilities 221,029 (22,780) (78,565) (249) 119,435
Old Series A preferred stock 11,935 (11,935) -
New Series A preferred stock 23,257 23,257
-------------- -------------- ---------------- ----------------- --------------
Total preferred stock 11,935 23,257 (11,935) - 23,257
Old common stock 703 (703) -
New common stock 65 65
Additional paid in capital 37,641 91,138 (101,741) 27,038
Accumulated other comprehensive
income, net of tax 1,925 (1,925) -
Retained earnings (104,127) (477) (3,088) 107,692 -
-------------- -------------- ---------------- ----------------- --------------
Total equity (63,858) (477) 87,412 4,026 27,103
-------------- -------------- ---------------- ----------------- --------------
Total liabilities, preferred
stock and equity $ 169,106 $ - $ (3,088) $ 3,777 $ 169,795
============== ============== ================ ================= ==============
</TABLE>
(a) Reflects issuance of 23,257 shares of New Preferred Stock to CFSB for $15.2
million in cash and exchange of Senior Notes held by CSFB, including
accrued interest, for $8.1 million. Includes simultaneous retirement of
Senior Notes held by holders other than CSFB, including accrued interest,
for $15.2 million and write-off of unamortized debt discount of $0.5
million.
(b) Reflects issuance of 6,500,000 shares of New Common Stock in exchange for
Convertible Notes, Old Preferred Stock, Old Common Stock and settlement of
general unsecured claims. Includes 32,500 shares of New Common Stock issued
to management on the Effective Date, and includes write-off of unamortized
debt issuance costs of $3.1 million.
(c) Reflects adjustments to record assets and liabilities at fair market value
and to set retained earnings to zero.
<PAGE>
Investments. The Company's fixed maturity portfolio is classified as
available-for-sale and is carried at estimated market value. Equity securities
(common and nonredeemable preferred stocks) are also carried at estimated market
value. With the application of fresh start reporting, the Company's marketable
securities book values under GAAP were adjusted to equal the market values of
such securities at March 31, 1999. Accordingly, the stockholders' equity section
of Ascent's March 31, 1999 fresh start balance sheet reflects a zero balance in
accumulated other comprehensive income. Changes in aggregate unrealized
appreciation or depreciation on fixed maturity and equity securities subsequent
to March 31, 1999 are reported directly in stockholders' equity, net of
applicable deferred income taxes and, accordingly, will have no effect on
current operations.
Deferred Policy Acquisition Costs ("DPAC"). Policy acquisition costs consisting
of commissions and other policy issue 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 DPAC is the cost of insurance purchased on acquired
business. The amortization of these costs is based on actuarially estimated
future premium revenues, and the amortization rate is adjusted periodically to
reflect actual experience. 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. No changes were made to DPAC assumptions for purposes of fresh start
accounting.
Future Policy Benefits. 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, withdrawals,
persistency and other assumptions which were appropriate at the time the
policies were issued. Assumptions used are based on the Company's experience as
adjusted to provide for possible adverse deviation. Generally, these actuarial
assumptions are fixed and, absent material adverse benefit experience, are not
adjusted. No changes were made to such actuarial assumptions for purposes of
fresh start accounting.
Claim Reserves. Claim reserves represent the estimated liabilities on claims
reported plus claims incurred but not yet reported. These liabilities are
subject to the impact of future changes in claim experience. As estimates are
revised, any adjustments are reflected in current operations. No changes were
made to claim reserve estimates for purposes of fresh start accounting.
Federal Income Taxes. The Company records income taxes based on the asset and
liability approach, which requires the recognition of deferred tax liabilities
and assets for the expected future tax consequence of temporary differences
between the carrying amounts and the tax basis of assets and liabilities. 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 deferred tax
asset at September 30 and March 31, 1999 is net of a valuation allowance of
approximately $16.9 million related principally to net operating loss
carryforwards ("NOLs") of Ascent's operating subsidiaries.
In connection with its reorganization, the Company realized a non-taxable gain
from the extinguishment of certain indebtedness for tax purposes, since the gain
results from a reorganization under the Bankruptcy Code. However, the Company is
required to reduce certain tax attributes of the holding company, including (i)
NOLs, (ii) certain tax credits, and (iii) tax bases in assets in an amount equal
to such a gain on extinguishment.
Resolution of Preconfirmation Contingencies. Preconfirmation contingencies are
disputed, unliquidated or contingent claims that are unresolved at the date of
the confirmation of the plan of reorganization. As part of fresh start
accounting, the Company estimated and recorded values for preconfirmation
contingencies relative to the payment of professional fees and the collection of
receivables from third parties. During the third quarter 1999, the Company
favorably resolved such preconfirmation contingencies. In accordance with
generally accepted accounting principles, the Company recognized $1.2 million of
income relative to the favorable resolution of such preconfirmation
contingencies.
NOTE 3 - EARNINGS PER SHARE ("EPS")
Basic EPS is calculated by dividing income attributable to common shareholders
by the weighted average number of common shares outstanding ("average shares")
during the period. To obtain net income attributable to common shareholders for
EPS computations, preferred stock dividends are deducted from net income.
Diluted EPS reflects the potential dilution of average shares that could occur
if securities or other contracts to issue common stock were converted or
exercised. The following table reflects the calculation of basic and diluted
EPS:
<TABLE>
<CAPTION>
Ascent Westbridge
--------------------------------- -------------------------------------------------
Three Months Six Months Three Months Three Months Nine Months
Ended Ended Ended Ended Ended
September 30, September 30, March 31, September 30, September 30,
1999 1999 1999 1998 1998
-------------- -------------- ------------- ------------- --------------
(Amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Income (loss) applicable to common
stockholders $ 111 $ 518 $ 208 $ (7,018) $ (15,542)
============== ============= ============= ============== ==============
Basic and diluted earnings (loss)
per share $ .02 $ .08 $ .03 $ (1.01) $ (2.39)
============== ============= ============= ============= =============
Weighted average shares outstanding:
Basic 6,500 6,500 7,032 6,938 6,507
============== ============= ============= ============== ==============
Diluted 6,500 6,515 7,032 6,938 6,507
============== ============== ============= ============== ==============
</TABLE>
NOTE 4 - COMPREHENSIVE INCOME
The Company's other comprehensive income consists of the unrealized appreciation
(depreciation) of marketable securities held net of tax. Comprehensive income
(loss), net of related tax, is as follows:
<TABLE>
<CAPTION>
Ascent Westbridge
--------------------------------- -------------------------------------------------
Three Months Six Months Three Months Three Months Nine Months
Ended Ended Ended Ended Ended
September 30, September 30, March 31, September 30, September 30,
1999 1999 1999 1998 1998
-------------- -------------- ------------- ------------- --------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Income (loss) applicable to common
stockholders $ 111 $ 518 $ 208 $ (7,018) $ (15,542)
Other comprehensive loss
Unrealized holding loss arising
during period, net of tax (855) (2,869) (1,959) 1,120 2,193
Reclassification adjustment of loss
(gain) on sales of fixed maturity
and equity securities included in
net income, net of tax 70 111 (27) (1,024) (1,248)
-------------- -------------- ------------- ------------- --------------
Comprehensive loss, net of tax $ (674) $ (2,240) $ (1,778) $ (6,922) $ (14,597)
============== ============== ============= ============= --------------
</TABLE>
<PAGE>
NOTE 5 - NOTES PAYABLE
In August 1999, the Company amended its $20 million revolving loan facility (the
"Credit Agreement") with LaSalle Bank, National Association ("LaSalle"). The
Credit Agreement was reduced to a $7.5 million facility and the termination date
was extended to June 5, 2001 from June 5, 2000. Also, in July 1999, Ascent
Management, Inc. ("AMI") entered into a $3.3 million term loan agreement with
LaSalle secured by substantially all of AMI's assets and the guarantee of
Ascent. Principal is payable in 60 equal monthly installments beginning January
31, 2000.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
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 a party to any pending litigation the disposition
of which would have a material adverse effect on the Company's business,
financial position or its results of operations.
NOTE 7 - IMPLEMENTATION OF NEW ACCOUNTING PRONOUNCEMENTS
In December 1997, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position ("SOP") 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments," which provides guidance on
accounting for insurance-related assessments. The Company adopted SOP 97-3 on a
prospective basis effective January 1, 1999. The adoption of SOP 97-3 did not
have a material impact on the Company's results of operations, liquidity or
financial position.
In March 1998, AcSEC issued SOP 98-1, "Accounting for the Costs of Software
Developed or Obtained for Internal Use," which requires capitalization of
certain costs after the date of adoption in connection with developing or
obtaining software for internal use. The Company adopted SOP 98-1 on a
prospective basis effective January 1, 1999. The adoption of SOP 98-1 did not
have a material impact on the Company's results of operations, liquidity or
financial position.
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
the Codification of Statutory Accounting Principles guidance, which will replace
the current Accounting Practices and Procedures manual as the NAIC's primary
guidance on statutory accounting. The NAIC is now considering amendments to the
Codification guidance that would also be effective upon implementation. The NAIC
has recommended an effective date of January 1, 2001. The Codification provides
guidance for areas where statutory accounting has been silent and changes
current statutory accounting in certain areas. It is not known whether the
insurance departments of the state of domicile of the Company's Insurance
Subsidiaries will adopt the Codification or whether those insurance departments
will make any changes to that guidance. The Company does not expect Codification
guidance, if adopted, to materially impact statutory surplus. However, the
actual effect of adoption could differ as changes are made to the Codification
guidance, prior to its recommended effective date of January 1, 2001.
<PAGE>
ASCENT ASSURANCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
In connection with its emergence from Chapter 11 bankruptcy proceedings on March
24, 1999, Westbridge Capital Corp. ("Westbridge") changed its corporate name to
"Ascent Assurance, Inc." ("Ascent"). For additional information regarding the
reorganization and adoption of fresh start accounting, see Notes 1 and 2 to the
Condensed Consolidated Financial Statements included at Part 1, Item I.
References herein to the "Company" shall mean for all periods on or prior to
March 31, 1999, Westbridge Capital Corp. ("Westbridge") and its subsidiaries,
and for all periods on or after the close of business on March 31, 1999, Ascent
and its subsidiaries.
This discussion updates the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 1998 Report on Form 10-K
and should be read in conjunction therewith. Statements contained in this
analysis and elsewhere in this document that are not based on historical
information are forward-looking statements and are based on management's
projections, estimates and assumptions. Management cautions readers regarding
its forward-looking statements (see "Forward-Looking Statements").
BUSINESS OVERVIEW
The Company derives its revenue primarily from premiums from its accident and
health insurance products and, to a significantly lesser extent, from fee and
service income, income earned on invested assets and gains on the sales or
redemptions of invested assets. The product lines currently marketed and
underwritten by the Company's insurance subsidiaries are Medical Expense
products and Specified Disease products. Medical Expense products are generally
designed to reimburse insureds for eligible expenses incurred for hospital
confinement, surgical expenses, physician services, outpatient services and the
cost of medicines. Specified Disease products include indemnity policies for
hospital confinement and convalescent care for treatment of specified diseases
and "event specific" policies, which provide fixed benefits or lump sum payments
upon diagnoses of certain types of internal cancer or other catastrophic
diseases. Historically, the Company's insurance subsidiaries have also
underwritten a significant amount of Medicare Supplement products. The
underwriting of Medicare Supplement products was curtailed in 1998 due to the
relatively low margins for these products. Fee and service income is generated
from (i) commissions received by the Company for sales of managed care and
senior products underwritten primarily by unaffiliated organizations, (ii)
telemarketing and telesurvey services, and (iii) printing services.
<PAGE>
- -------------------------------------------------------------------------------
OPERATING RESULTS
Results of operations for Ascent are reported for the three months ended
September 30, 1999 and on a pro forma basis as if Ascent and Westbridge adopted
fresh start accounting on January 1, 1999 and operated as a single entity for
the nine months ended September 30, 1999. The operating results for 1999 are
compared to Westbridge's results of operation for the corresponding periods in
1998. (In thousands except insurance operating ratios.)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
-------------- ------------- -------------- -------------
Ascent Westbridge Pro forma Westbridge
Ascent
<S> <C> <C> <C> <C>
Premiums $ 28,512 $ 33,278 $ 88,034 $ 105,968
Other 503 130 1,055 422
-------------- ------------- -------------- -------------
Total insurance operating revenue $ 29,015 $ 33,408 $ 89,089 $ 106,390
Benefits and claims 22,619 23,696 66,151 77,544
Commissions 2,944 4,167 9,383 16,757
Amortization of deferred policy acquisition costs 502 1,448 1,180 3,396
General and administrative expense 4,786 5,594 15,000 16,910
Taxes licenses and fees 1,190 1,234 3,542 3,965
-------------- ------------- -------------- -------------
Total insurance operating expenses 32,041 36,139 95,256 118,572
-------------- ------------- -------------- -------------
Insurance operating results (3,026) (2,731) (6,167) (12,182)
-------------- ------------- -------------- -------------
Fee and service income 4,000 4,085 11,910 12,184
Fee and service expenses (3,111) (4,086) (10,138) (12,571)
-------------- ------------- -------------- -------------
Fee and service results 889 (1) 1,772 (387)
-------------- ------------- -------------- -------------
Net investment income 2,222 2,929 7,117 9,287
Net realized gain (loss) on investments (107) 1,576 (129) 2,105
Interest expense on notes payable (142) (200) (354) (727)
Interest expense on retired/canceled debt - (1,682) - (5,459)
Recognition of premium deficiency - (4,948) - (4,948)
Resolution of preconfirmation contingencies 1,235 - 1,235 -
Reorganization expenses - (1,606) - (3,706)
-------------- ------------- -------------- -------------
Income (loss) before income taxes 1,071 (6,663) 3,474 (16,017)
Income tax (expense) benefit (364) (244) (1,216) 995
-------------- ------------- -------------- -------------
Net income (loss) $ 707 $ (6,907) $ 2,258 $ (15,022)
============== ============= ============== =============
Insurance operating ratios*
Benefits and claims 79.3% 71.2% 75.1% 73.2%
Commissions 10.3% 12.5% 10.7% 15.8%
Amortization of deferred policy acquisition costs 1.8% 4.4% 1.3% 3.2%
General and administrative expense 16.5% 16.7% 16.8% 15.9%
Taxes, licenses and fees 4.2% 3.7% 4.0% 3.7%
</TABLE>
*Ratios are calculated as a percent of premium with the exception of the general
and administrative expense ratio which is calculated as a percent of total
insurance operating revenue.
Overview. Pre-tax income for the third quarter of 1999 was $1.1 million compared
to a loss of $6.7 million for the third quarter of 1998. For the first nine
months of 1999, pre-tax income was $3.5 million compared to a $16.0 million loss
for the nine months ended September 30, 1998. The favorable variances in pre-tax
income were attributable to:
The improvement in insurance operating results for the first nine
months of 1999 as the 1.9 percentage point increase in the benefit and
claims to premium ratio was offset by decreases in other expenses.
Insurance operating results declined by $0.3 million in the third
quarter of 1999 in comparison to the third quarter of 1998 as the
increase in the benefits and claims to premium ratio more than offset
decreases in other expenses.
Profitable fee and service results. The Company's printing and
telemarketing operations have generated profits during 1999 compared
to losses realized in 1998.
Non-recurring items expensed during 1998 that were eliminated with the
Company's reorganization in 1999. Non-recurring items include interest
expense on retired/canceled debt, recognition of premium deficiency
and reorganization expenses.
Recognition of income relative to the resolution of preconfirmation
contingencies. (See Note 2 of the Notes To Condensed Consolidated
Financial Statements.)
The following narratives discuss the principal components of insurance operating
results and net investment income.
Premiums. Premiums, in thousands, for each major product line are set forth
below:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -----------------------------------
1999 1998 1999 1998
-------------- -------------- --------------- ---------------
Ascent Westbridge Pro forma Westbridge
Ascent
<S> <C> <C> <C> <C>
Medical Expense:
First-year $ 4,320 $ 3,586 $ 10,683 $ 12,992
Renewal 9,446 12,260 31,047 37,290
-------------- -------------- --------------- ---------------
Subtotal 13,766 15,846 41,730 50,282
-------------- -------------- --------------- ---------------
Specified Disease:
First-year 342 476 979 1,539
Renewal 6,804 7,301 21,139 22,586
-------------- -------------- --------------- ---------------
Subtotal 7,146 7,777 22,118 24,125
-------------- -------------- --------------- ---------------
Medicare Supplement:
First-year 10 213 32 1,399
Renewal 7,325 9,285 23,616 29,624
-------------- -------------- --------------- ---------------
Subtotal 7,335 9,498 23,648 31,023
-------------- -------------- --------------- ---------------
Other 265 157 538 538
============== ============== =============== ===============
Total Premium Revenue $ 28,512 $ 33,278 $ 88,034 $ 105,968
============== ============== =============== ===============
</TABLE>
Total premiums decreased $4.8 million in the third quarter of 1999 as compared
to the third quarter of 1998 due to a $5.3 million, or 18%, decrease in renewal
premiums that was partially offset by a $0.5 million, or 12%, increase in first
year premiums. For the nine months ended September 30, 1999, total premiums
decreased $17.9 million, or 17%, from the comparable period for 1998. The
decrease resulted from a $4.1 million, or 26%, decrease in first year premiums
and a decrease in renewal premiums of $13.8 million, or 15%.
The decrease in renewal premiums for the third quarter of 1999 was comprised of
a $2.8 million, or 23%, decrease in Medical Expense premiums, a $2.0 million, or
21%, decrease in Medicare Supplement premiums and a $0.5 million, or 7%,
decrease in Specified Disease premiums. The decrease in renewal premiums for the
first nine months of 1999 consists of a $6.2 million, or 17% decrease in Medical
Expense premiums, a $6.0 million, or 20%, decrease in Medicare Supplement
premiums and a $1.4 million, or 6%, decrease in Specified Disease premiums. The
cancellation of unprofitable blocks of business and decreased persistency
resulting from the implementation of rate increases on less profitable blocks of
business significantly impacted the variance from 1998 to 1999 for renewal
premiums.
The increase in first year premiums for the third quarter of 1999 was due
primarily to a $0.7 million increase in Medical Expense premiums. The increase
in first year premiums was attributable to an increase in submitted new business
production resulting from growth in the Company's agency force, the regulatory
approval of new medical expense products and the opening of new regions. The
decrease in first year premiums for the first nine months of 1999 was comprised
of a $2.3 million, or 18%, decrease in Medical Expense premiums, a $1.4 million,
or 98%, decrease in Medicare Supplement premiums and a $0.6 million, or 36%,
decrease in Specified Disease premiums. First year premiums declined in the
Medical Expense premiums and the Specified Disease premiums due to the
restructuring of the Company's marketing operations in mid-1998. The first year
premiums for Medicare Supplement decreased due to the Company discontinuing
sales of the product line.
Benefits and Claims. Benefits and claims are comprised of claims paid, changes
in claim reserves for claims incurred (whether or not reported) and changes in
future policy benefit reserves. For the third quarter of 1999, the 8.1
percentage point increase in the ratio of benefits and claims to premium
compared to the third quarter of 1998 was due primarily to unfavorable
experience in the Major Medical and Specified Disease lines of business. For the
nine months ended September 30, 1999, the 1.9 percentage point increase in the
ratio of benefits and claims to premium in comparison to the nine months ended
September 30, 1998 was due to unfavorable experience in the Major Medical line
of business partially offset by favorable trends in the Medicare Supplement line
of business. The Company continues to pursue initiatives to reduce its benefits
and claims to premium ratio including increased production of profitable
products, premium rate increases and elimination of unprofitable business.
Commissions. The 2.2 percentage point decrease in the ratio of commissions to
premium improved insurance operating results by approximately $0.6 million in
the third quarter of 1999 as compared to 1998. The decrease in the ratio of
commissions to premium is attributable to declining ultimate commission rates on
closed blocks of business.
For the nine months ended September 30, 1999, the percentage point decrease of
5.1 percentage points in the ratio of commissions to premium from 1998 improved
insurance operating results by approximately $4.5 million. The improvement in
the commission rate is attributable to the decrease in first-year premiums which
carry a higher commission rate, declining ultimate commission rates on closed
blocks of business and the lower commission rate structure implemented in the
conversion from a fragmented general agency marketing operation to a single
career agency force in mid-1998.
Net Investment income. Net investment income decreased by $0.7 million, or 24%,
for the third quarter of 1999 as compared to 1998 and decreased by $2.2 million,
or 23%, for the nine months ended September 30, 1999 as compared to 1998 due to
an 18% decrease in invested assets and decreased interest income from agent
receivables. Invested assets decreased due to the payment of reorganization
costs and the reduction of premiums received as a result of the elimination of
unprofitable blocks of business.
FINANCIAL CONDITION
The following discussion provides management's assessment of financial condition
at September 30, 1999 as compared to March 31, 1999, the date of adoption of
fresh start accounting.
Investments. The following table summarizes the Company's fixed maturity
securities, excluding short-term investments and certificates of deposit. All of
the Company's fixed maturity securities are classified as available-for-sale and
are carried at estimated market value. Estimated market value represents the
closing sales prices of marketable securities. Investments in the debt
securities of corporations are principally in publicly-traded bonds.
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
--------------------------------- --------------------------------
Market Market
Fixed Maturity Securities Value % Value %
- -------------------------------------------- ---------------- ------------- --------------- ------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
U.S. Government and governmental
agencies and authorities (except
mortgage-backed) $ 10,915 10.4 $ 11,271 9.7
Finance 27,206 26.0 31,525 27.1
Public utilities 10,352 9.9 12,745 11.0
Mortgage-backed 6,083 5.8 7,349 6.3
States, municipalities and political
subdivisions 1,917 1.8 1,543 1.3
All other corporate bonds 48,219 46.1 51,919 44.6
================ ============= ================ ============
Total fixed maturity securities $ 104,692 100.0 $ 116,352 100.00
================ ============= =============== ============
</TABLE>
The following table indicates by rating the composition of the Company's fixed
maturity securities portfolio, excluding short-term investments and certificates
of deposit. Ratings are the lower of those assigned primarily by Standard &
Poor's and Moody's, when available, and are shown in the table using the
Standard & Poor's rating scale. Unrated securities are assigned ratings based on
the applicable National Association of Insurance Commissioner's ("NAIC")
designation 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>
<CAPTION>
September 30, 1999 March 31, 1999
-------------------------------- --------------------------------
Composition of Fixed Maturity Market Market
Securities by Rating Value % Value %
- --------------------------------------------- ----------------- ---------- ------------------ ----------
Ratings (in thousands) (in thousands)
<S> <C> <C> <C> <C>
Investment grade:
U.S. Government and agencies $ 16,998 16.2 $ 17,677 15.2
AAA 2,069 2.0 2,902 2.5
AA 12,484 11.9 9,685 8.3
A 36,023 34.5 40,382 34.7
BBB 33,932 32.4 42,237 36.3
Non-Investment grade:
BB 2,034 1.9 1,317 1.1
B and below 1,152 1.1 2,152 1.9
----------------- ---------- ----------------- ----------
Total fixed maturity securities $ 104,692 100.0 $ 116,352 100.0
================= ========== ================== ==========
</TABLE>
The scheduled contractual maturities of the Company's fixed maturity securities,
excluding short-term investments and certificates of deposit, at September 30,
1999 and March 31, 1999 are shown in the table below. Expected maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without penalties.
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
-------------------------------- --------------------------------
Composition of Fixed Maturity Market Market
Securities by Maturity Value % Value %
- --------------------------------------------- ----------------- ---------- ------------------ ----------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Scheduled Maturity
Due in one year or less $ 4,005 3.8 $ 712 0.6
Due after one year through five years 29,762 28.4 37,503 32.2
Due after five years through ten years 34,760 33.3 37,550 32.3
Due after ten years 30,082 28.7 33,238 28.6
Mortgage-backed securities 6,083 5.8 7,349 6.3
----------------- ---------- ------------------ ----------
Total fixed maturity securities $ 104,692 100.0 $ 116,352 100.0
================= ========== ================== ==========
</TABLE>
Claim Reserves. 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. Claim reserves totaled $38.0 million at September 30,
1999 as compared to $41.1 million at March 31, 1999. The process of estimating
claim reserves involves the active participation of experienced actuarial
consultants with input from the underwriting, claims, and finance departments.
The inherent uncertainty in estimating claim reserves is increased when
significant changes occur. Examples of such changes include: (1) changes in
economic conditions; (2) changes in state or federal laws and regulations,
particularly insurance reform measures; (3) changes in production sources for
existing lines of business; and (4) writings of significant blocks of new
business. Because claim reserves are estimates, management monitors reserve
adequacy over time, evaluating new information as it becomes available and
adjusting claim reserves as necessary. Such adjustments are reflected in current
operations.
Management considers many factors when setting reserves including: (1)
historical trends; (2) current legal interpretations of coverage and liability;
(3) loss payments and pending levels of unpaid claims; and (4) product mix.
Based on these considerations, management believes that adequate provision has
been made for the Company's claim reserves. Actual claims paid may deviate,
perhaps substantially, from such reserves.
Future Policy Benefit Reserves. Future policy benefit reserves are established
by the Company for benefit payments that have not been incurred but which are
estimated to be incurred in the future. Future policy benefit reserves totaled
$55.7 million at September 30, 1999 as compared to $54.7 million at March 31,
1999. Future 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 the insured(s) 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 future 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 the policy benefit reserves will be increased or
decreased accordingly.
In accordance with GAAP, the Company's actuarial assumptions are generally
fixed, and absent materially adverse benefit experience, they are not generally
adjusted. 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 (such as out-patient versus in-patient care) or prolong life
expectancy. 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, financial condition or results
of operations.
LIQUIDITY, CAPITAL RESOURCES AND STATUTORY CAPITAL AND SURPLUS
Ascent. Ascent's principal assets consist of the capital stock of its operating
subsidiaries and invested assets. Accordingly, Ascent's sources of funds are
primarily comprised of dividends from its operating subsidiaries, advances and
management fees from its non-insurance subsidiaries, investment income, and tax
payments under a tax sharing agreement among Ascent and its subsidiaries. As of
September 30, 1999, Ascent held approximately $6.3 million in unrestricted cash
and invested assets.
Dividends paid by the insurance subsidiaries are determined by and subject to
the regulations of the insurance laws and practices of the insurance departments
of their respective state of domicile. National Foundation Life Insurance
Company ("NFL"), a Delaware domestic company, may not declare or pay dividends
from any source other than earned surplus without the Delaware Insurance
Commissioner's approval. The Delaware Insurance Code defines earned surplus as
the amount equal to the unassigned funds as set forth in NFL's most recent
statutory annual statement including surplus arising from unrealized gains or
revaluation of assets. Delaware insurance companies may generally pay ordinary
dividends or make distributions of cash or other property within any twelve
month period with a fair market value equal to or less than the greater of 10%
of surplus as regards policyholders as of the preceding December 31 or the net
gain from operations for the twelve month period ending on the preceding
December 31. During 1999, NFL is precluded from paying dividends without the
prior approval of the Delaware Insurance Commissioner, as its December 31, 1998
earned surplus was negative. Further, NFL has agreed to obtain prior approval
for any future dividends.
National Financial Insurance Company ("NFIC") and American Insurance Company of
Texas ("AICT"), Texas domestic companies, may make dividend payments from
surplus profits or earned surplus arising from its business. The Texas Insurance
Code defines earned surplus as unassigned surplus excluding any unrealized
gains. Texas life insurance companies may generally pay ordinary dividends or
make distributions of cash or other property within any twelve month period with
a fair market value equal to or less than the greater of 10% of surplus as
regards policyholders as of the preceding December 31 or the net gain from
operations for the twelve month period ending on the preceding December 31. Any
dividend exceeding the applicable threshold is considered extraordinary and
requires prior approval of the Texas Insurance Commissioner. NFIC's and AICT's
earned surplus at December 31, 1998 was negative, and as such, each company is
precluded from paying dividends during 1999 without the prior approval of the
Texas Insurance Commissioner.
Freedom Life Insurance Company of America ("FLICA"), a Mississippi domestic
company, may make dividend payments only from its actual net surplus computed as
required by law in its statutory annual statement. Mississippi life insurance
companies may generally pay ordinary dividends or make distributions of cash or
other property within any twelve month period with a fair market value not
exceeding the lesser of 10% of surplus as regards policyholders as of the
preceding December 31 or the net gain from operations for the twelve month
period ending on the preceding December 31. Any dividend exceeding the
applicable threshold amount requires prior approval of the Mississippi Insurance
Commissioner. FLICA is precluded from paying dividends to NFL during 1999
without the prior approval of the Mississippi Insurance Commissioner as it
recorded a net loss from operations for the year ended December 31, 1998.
Generally, all states require insurance companies to maintain statutory capital
and surplus that is reasonable in relation to their existing liabilities and
adequate to their financial needs. Delaware, Texas and Mississippi also maintain
discretionary powers relative to the declaration and payment of dividends based
upon an insurance company's financial position. In light of the statutory losses
incurred by the insurance subsidiaries during 1997 and 1998, Ascent does not
expect to receive any dividends from its insurance subsidiaries for the
foreseeable future. In addition, as discussed further below, the insurance
subsidiaries may require capital contributions from Ascent to maintain adequate
statutory capital and surplus.
Insurance Subsidiaries. The primary sources of cash for the insurance
subsidiaries are premiums and income on invested assets. Additional cash is
periodically provided by capital contributions from Ascent and from the sale of
short-term investments and could, if necessary, be provided through the sale of
long-term investments and blocks of business. The insurance subsidiaries'
primary uses for cash are benefits and claims, commissions, general and
administrative expenses, and taxes, licenses and fees.
During 1997 and 1998, the insurance subsidiaries experienced adverse loss ratios
and declining persistency on certain old Medical Expense and Medicare Supplement
products. During 1998, the insurance subsidiaries developed new insurance
products with more stringent underwriting procedures and lower agent
commissions. In addition, the insurance subsidiaries are implementing rate
increases to the extent approved by state regulatory authorities or offering
higher deductible benefit options on certain old lines of business in order to
mitigate the effect of adverse claims experience on such old lines. The
insurance subsidiaries also implemented a policyholder retention program
designed to mitigate the impact of declining persistency on such old lines
receiving rate increases. However, the Company expects that the insurance
subsidiaries will continue to incur operating losses on these old lines of
business (i) until such time as the necessary rate increases can be fully
implemented and realized, and (ii) until sales of new products reach targeted
production levels. There can be no assurance that the impact of any additional
rate increases approved will result in consistent profitability on such old
lines, or that targeted production levels will be reached and sustained. For the
nine months ended September 30, 1999 and 1998, the insurance subsidiaries
received capital contributions totaling approximately $3.4 million and $5.5
million, respectively, from Ascent. To the extent that the insurance
subsidiaries experience further statutory operating losses, additional capital
may be required.
In December 1992, the NAIC adopted the Risk-Based Capital for Life and/or Health
Insurers Model Act ("the Model Act"). The Model Act provides a tool for
insurance regulators to determine the levels of statutory capital and surplus an
insurer must maintain in relation to its insurance and investment risks and
whether there is a need for possible regulatory attention. The Model Act (or
similar legislation or regulation) has been adopted in states where the
insurance subsidiaries are domiciled. The Model Act provides four levels of
regulatory attention, varying with the ratio of the insurance company's total
adjusted capital (defined as the total of its statutory capital and surplus,
asset valuation reserve and certain other adjustments) to its risk-based capital
("RBC"). If a company's total adjusted capital is less than 100 percent but
greater than or equal to 75 percent of its RBC, or if a negative trend (as
defined by the NAIC) has occurred and total adjusted capital is less than 125
percent of RBC (the "Company Action Level"), the Company must submit a
comprehensive plan aimed at improving its capital position to the regulatory
authority proposing corrective actions. If a company's total adjusted capital is
less than 75 percent but greater than or equal to 50 percent of its RBC (the
"Regulatory Action Level"), the regulatory authority will perform a special
examination of the Company and issue an order specifying the corrective actions
that must be followed. If a company's total adjusted capital is less than 50
percent but greater than or equal to 35 percent of its RBC (the "Authorized
Control Level"), the regulatory authority may take any action it deems
necessary, including placing the Company under regulatory control. If a
company's total adjusted capital is less than 35 percent of its RBC (the
"Mandatory Control Level"), the regulatory authority must place the Company
under its control. The NAIC's requirements are effective on a state by state
basis if, and when, they are adopted by the regulators in the respective states.
The Insurance Departments of the States of Delaware and Mississippi have each
adopted the NAIC's Model Act. At September 30, 1999, total adjusted capital for
NFL, a Delaware domiciled company, and FLICA, a Mississippi domiciled company,
exceeded the respective Company Action Levels.
The Texas Department of Insurance ("TDI") has adopted its own RBC requirements,
the stated purpose of which is to require a minimum level of statutory capital
and surplus to absorb the financial, underwriting and investment risks assumed
by an insurer. Texas' RBC requirements differ from those adopted by the NAIC in
two principal respects: (i) they use different elements to determine minimum RBC
levels in their calculation formulas and (ii) they do not stipulate "Action
Levels" (like those adopted by the NAIC) where corrective actions are required.
However, the Commissioner of the TDI does have the power to take similar
corrective actions if a company does not maintain the required minimum level of
statutory capital and surplus. NFIC and AICT are domiciled in Texas and must
comply with Texas RBC requirements. At June 30, 1999, AICT's RBC exceeded the
minimum level prescribed by the TDI; however, NFIC's RBC was below the minimum
level prescribed by the TDI.
As a result of the statutory losses sustained by the Insurance Subsidiaries
during 1997 and 1998, material transactions are subject to approval by the
department of insurance in each domiciliary state.
Consolidated. The Company's consolidated net cash used for operations totaled
$5.6 million for the third quarter 1999. The use of the cash from operations was
primarily attributable to decreases in liabilities relative to the Company's
reorganization and payments for system replacement costs. Net cash provided by
investing activities for the third quarter 1999 totaled $2.9 million. The cash
provided by investing activities was used to fund operational activities. Net
cash provided by financing activities totaled $3.0 million for the third quarter
of 1999. Financing activities relate primarily to the net borrowings and
repayments associated with the Company's receivables financing program and the
funding of system replacement costs.
In the ordinary course of business, the Company advances commissions on policies
written by its general agencies 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 general agency or the individual agents, as the case may be, are
responsible for reimbursing the Company for the balance of the commission
advance.
The Company finances a substantial part of its obligations to make commission
advances through Ascent Funding, Inc. ("AFI") (formerly, Westbridge Funding
Corp.), an indirect wholly-owned subsidiary of Ascent. On June 6, 1997, AFI
entered into a Credit Agreement (the "Credit Agreement") with LaSalle. This
Credit Agreement provides AFI with a three year revolving loan facility (the
"Receivables Financing"), the proceeds of which are used to purchase agent
advance receivables from the Insurance Subsidiaries and certain affiliated
marketing companies. In August 1999, the Company amended the Credit Agreement
with LaSalle to reduce the revolving loan facility from $20 million to $7.5
million and extend the termination date to June 5, 2001 from June 5, 2000. AFI's
obligations under the Credit Agreement are secured by liens upon substantially
all of AFI's assets. Furthermore, Ascent has guaranteed AFI's obligations under
the credit agreement, and has pledged all of the issued and outstanding shares
of the capital stock of AFI, NFL and NFIC as collateral for that guaranty (the
"Guaranty Agreement"). As of September 30, 1999, there were no events of default
under the Credit or Guaranty Agreements.
Under this commission advancing program, the Company's receivables from
subagents totaled approximately $6.9 million and approximately $3.2 million was
outstanding under the Credit Agreement at September 30, 1999. During the third
quarter 1999, the Company paid approximately $1.7 million of principal and made
new borrowings of $1.4 million.
In July 1999, Ascent Management, Inc. ("AMI") received a $3.3 million term loan
facility with LaSalle proceeds of which were used to fund system replacement
costs. Advances under the term loan facility are secured by substantially all of
AMI's assets and the Guaranty Agreement. Under the terms of the loan, principal
is payable in 60 equal monthly installments beginning January 31, 2000. At
September 30, 1999, approximately $3.3 million was outstanding under the term
loan facility.
YEAR 2000
The Company has completed an enterprise-wide analysis designed to determine
whether all of its Information Technology ("I/T"), such as computer systems and
related software applications, and non-I/T systems, such as facsimile machines
and copy machines, will function properly on January 1, 2000 (the "Year 2000").
The Year 2000 problem is pervasive and complex as virtually every computer
operation will be affected in some way by the rollover of the two-digit year
value to 00. The issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail.
The Company is highly reliant upon computer systems and software, as are many of
the Company's principal businesses with which it interacts. The Company's
ability to service its policyholders and agents is dependent upon accurate and
timely transaction reporting. Transaction reporting in turn is dependent upon
the Company's highly complex interdependent computer hardware, software,
telecommunications and desktop applications, and the information obtained from
its critical business partners.
The Company's overall Year 2000 remediation effort has focused on preparing the
computer systems, infrastructure and facilities for the Year 2000. The following
phases encompass the Year 2000 plan: (i) assessment of all internal and external
business critical systems, including I/T and non-I/T systems, (ii) remediation
or upgrading of business critical systems, (iii) testing of remediated and
updated systems, (iv) implementation of remediated and updated systems, and (v)
contingency planning.
The Company has engaged certain outside vendors and dedicated certain employees
on a full time basis to help in the full array of its Year 2000 efforts. These
efforts include system assessment and monitoring advice, actual code
remediation, communication and consultation with critical business partners and
testing resources.
The Company's contingency plan is to make the existing I/T systems, which are to
be replaced, Year 2000 compliant. The contingency plan includes the
identification and prioritization of the existing system's applications.
Application programs identified for mission critical functions have been
successfully remediated, tested and moved into the production environment and
are currently in use. Other application functions that are not as critical to
the operation of the Company's business are in the testing stage and are
expected to be implemented by December, 1999.
The Company's contingency plan also includes manual business continuity plans
for each business unit. These plans have been documented and are in the process
of being tested. The Company has completed the assessment of its non-I/T systems
and has determined that those systems are compliant.
Another significant component of the Company's enterprise-wide remediation
effort is to determine whether critical business partners and vendors are Year
2000 compliant. The assessment and testing of the Year 2000 readiness of these
critical business partners and vendors have been integrated with the Company's
I/T and non-I/T Year 2000 system strategies. As a part of this process, the
Company corresponded with its outside vendors and critical business partners to
determine whether they are also prepared for the Year 2000. Responses from
vendors and critical business partners indicate that they are prepared or will
be prepared for the Year 2000.
Under the Company's enterprise-wide remediation program, the most effective I/T
systems solution was to purchase a new, more modern, Year 2000 compliant
policyholder and claim administration system. At September 30, 1999, this
replacement effort was well underway.
For the nine months ended September 30, 1999, the Company incurred approximately
$.5 million in incremental costs related to remediation of the Company's
existing systems for the Year 2000. The majority of the Company's Year 2000
costs relate to computer hardware and software purchases and consulting fees for
the replacement of existing systems. The Company expects total charges related
to the system replacement effort to approximate $4.8 million of which the
majority will be capitalized. For the nine months ended September 30, 1999, the
Company incurred approximately $3.8 million of the projected total of $4.8
million in costs relative to the system replacement.
The Company expects its Year 2000 program to be completed in a timely manner;
however, the Year 2000 computer problem creates risk for the Company from
unforeseen problems in its own computer systems and from third parties with whom
the Company deals on financial transactions. Such potential, unforeseen problems
in the Company's and/or third parties' computer systems could have a material,
adverse impact on the Company's ability to conduct its business.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. The preceding statements and certain other
statements contained in Part 1, Item 1 - Financial Statements and Part 1, Item 2
- - Management's Discussion and Analysis of Results of Operation and Financial
Condition, are forward-looking statements. These forward-looking statements are
based on the intent, belief or current expectations of the Company and members
of its senior management team. While the Company believes that its expectations
are based on reasonable assumptions within the bounds of its knowledge of its
business and operations, prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance, and involve
risks and uncertainties, and that actual results may differ materially from
those contemplated by such forward-looking statements.
Important factors known to management that could cause actual results to differ
materially from those contemplated by the forward-looking statements in this
Report include, but are not limited to:
the effect of economic and market conditions
further adverse developments with respect to the Company's liquidity
position or operations of the Company's various businesses
actions that may be taken by insurance regulatory authorities
adverse developments in the timing or results of the Company's current
strategic business plan
the difficulty in controlling health care costs and integrating new
operations
the ability of the Company to realize anticipated general and
administrative expense savings and overhead reductions from system
replacement initiatives
the ability of management to return the Company's operations to
profitability
and the possible negative effects of prospective health care reform.
Additional factors that would cause actual results to differ materially from
those contemplated within this report can also be found in the Company's reports
to the Securities and Exchange Commission ("SEC") on Form 8-K during 1999 and
Form 10-K for the year ended December 31, 1998. Subsequent written or oral
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the cautionary statements in this
Report and those in the Company's reports previously filed with the SEC. Copies
of these filings may be obtained by contacting the Company or the SEC.
<PAGE>
ASCENT ASSURANCE, INC.
(formerly, Westbridge Capital Corp.)
PART II
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed herewith. Exhibits incorporated by reference
are indicated in the parentheses following the description.
2.1 First Amended Plan of Reorganization of Westbridge Capital Corp. Under
Chapter 11 of the Bankruptcy Code, dated as of October 30, 1998
(incorporated by reference to Exhibit 2 to the Company's Form 8-K filed on
September 21, 1998).
2.2 Amended Disclosure Schedule Accompanying the First Amended Plan of
Reorganization of Westbridge Capital Corp. under Chapter 11 of the
Bankruptcy Code (incorporated by reference to Exhibit 2 to the Company's
Form 8-K filed on September 21, 1998).
2.3 Findings of Fact, Conclusions of Law, and Order confirming the First
Amended Plan of Reorganization of Westbridge Capital Corp. dated October
30, 1998, as modified (incorporated by reference to Exhibit 2 to the
Company's Form 8-K filed on December 29, 1998).
3.1 Second Amended and Restated Certificate of Incorporation of the Company
filed with the Secretary of State of Delaware on March 24, 1999
(incorporated by reference to Exhibit 3.1 to the Company's Form 8-A filed
on March 25, 1999).
3.2 Amended and Restated By-Laws of the Company, effective as of March 24, 1999
(incorporated by reference to Exhibit 3.2 to the Company's Form 8-A filed
on March 25, 1999).
4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1
to the Company's Form 8-A filed on March 25, 1999).
4.2 Form of Warrant Certificate, included in the Form of Warrant Agreement
(incorporated by reference to Exhibit 4.2 to the Company's Form 8-A filed
on March 25, 1999).
4.3 Form of Warrant Agreement dated as of March 24, 1999, between the Company
and LaSalle National Bank, as warrant agent (incorporated by reference to
Exhibit 4.3 to the Company's Form 8-A filed on March 25, 1999).
4.4 Form of Preferred Stock Certificate (incorporated by reference to Exhibit
4.4 to the Company's Annual Report on Form 10-K for the year ended December
31, 1998).
10.1 First Amendment to Guaranty Agreement dated as of March 24, 1999 between
Westbridge Capital Corp. in favor of LaSalle National Bank (incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998).
10.2 Registration Rights Agreement dated as of March 24, 1999 between the
Company and Special Situations Holdings, Inc. - Westbridge (incorporated by
reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998).
10.3 1999 Stock Option Plan dated as of March 24, 1999 (incorporated by
reference to the Company's Schedule 14A filed with the Commission on April
30, 1999).
<PAGE>
10.4 Installment Note Agreement dated July 20, 1999 between Ascent Management,
Inc. and LaSalle Bank National Association.
10.5 Second Amendment to Credit Agreement dated August 12, 1999 between Ascent
Funding, Inc. and LaSalle Bank National Association.
10.6 Second Amendment to Guaranty Agreement dated July 20, 1999 between Ascent
Assurance, Inc. and LaSalle Bank National Association.
27.1 Financial Data Schedule (included in electronic filing only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30, 1999.
<PAGE>
Form 10-Q
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASCENT ASSURANCE, INC.
/s/ Cynthia B. Koenig
----------------------------
Cynthia B. Koenig
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated at Fort Worth, Texas
November 12, 1999
<PAGE>
Exhibit 10.4
INSTALLMENT NOTE
Executed this 20th day of July, 1999
Amount $3,300,000 Due: As described below
ASCENT MANAGEMENT, INC., whose address is 110 West Seventh Street, Suite
300, Fort Worth, Texas 76102 (the "Undersigned"), for value received, promises
to pay to the order of LASALLE BANK NATIONAL ASSOCIATION (formerly known as
LaSalle National Bank), a national banking association, whose address is 135
South LaSalle Street, Chicago, Illinois 60603 (hereinafter, together with any
holder hereof, called "Bank"), the principal sum of THREE MILLION THREE HUNDRED
THOUSAND DOLLARS ($3,300,000) or so much thereof as may be outstanding from time
to time pursuant to the terms hereof. On the date hereof, the Bank shall advance
to the Undersigned, the principal sum of Two Million Dollars ($2,000,000), and
thereafter, so long as any such request is made prior to December 31, 1999, and
the Undersigned is not then in default hereof, the Bank shall advance up to the
additional amount of One Million Three Hundred Thousand Dollars ($1,300,000) in
minimum increments of Two Hundred Thousand Dollars ($200,000). The outstanding
principal amount hereof including any additional advances made pursuant to the
terms hereof after the date hereof shall bear interest from time to time at one
or more of the rates per annum determined in accordance with the Rider attached
hereto and made a part hereof as shall be specified by the Borrower at the time
of each advance hereunder, and shall be payable as provided therein. The
outstanding principal balance hereof from time to time shall be payable in
monthly installments in such amount as is necessary to fully amortize such
principal balance, based on a five year amortization, beginning January 31,
2000, and on the last day of each month thereafter, with a final installment
equal to the total principal balance then remaining unpaid, plus interest, on
December 31, 2004.
The Undersigned agrees to pay to the Bank on the date hereof a fee in the
amount of $15,000, in consideration for the Bank's agreements herein to make the
loans described above. The Undersigned also promises to pay to the Bank, for the
period from the date hereof to the maturity date, a non-use fee on the daily
unused portion of the term loan hereunder in the amount equal to one-quarter of
one percent (.25%) per annum of such unused amount. Such non-use fee shall be
payable quarterly in arrears and shall be computed for the actual number of days
elapsed during such quarter on the basis of a year of 360 days.
The Undersigned hereby authorizes the Bank to charge any account of the
Undersigned maintained at the Bank for sums due hereunder. Principal payments
submitted in funds not available until collected shall continue to bear interest
until collected. If payment hereunder becomes due and payable on a Saturday,
Sunday or legal holiday under the laws of the United States or the State of
Illinois, the due date thereof shall be extended to the next succeeding business
day, and interest shall be payable thereon at the rate specified during such
extension.
As security for the payment of this Note and any and all other liabilities
and obligations of the Undersigned to Bank arising out of or relating hereto or
any document entered into in connection herewith, howsoever created, arising or
evidenced, and howsoever owned, held or acquired, whether now or hereafter
existing, whether now due or to become due, whether direct or indirect, or
absolute or contingent, and whether several, joint or joint and several (all of
which liabilities and obligations, including this Note, are hereinafter called
the "Obligations"), the Undersigned does hereby assign and pledge, and does
hereby grant, to Bank a continuing and unconditional security interest in the
property of the Undersigned more fully described in that certain Security
Agreement of even date made by the Undersigned in favor of the Bank (the
"Security Agreement"), the covenants, conditions and agreements of which are
hereby incorporated herein by this reference, and a default thereunder shall be
and constitute a default under this Note and any other of the Obligations.
All of the aforesaid property and the products and proceeds therefrom,
including the proceeds of insurance thereon, are herein collectively called the
"Collateral".
All rights, powers and remedies of the Bank, expressed herein shall be in
addition to, and not in limitation of, those provided by law or in any written
agreement or instrument (other than this Note) relating to any of the
Obligations or any security therefor.
The Undersigned, without notice or demand of any kind, shall be in default
hereunder if: (1) any amount payable on any of the Obligations, or on the
obligations of any obligor hereunder, is not paid within five (5) days after the
date due; or (2) the Undersigned shall otherwise fail to perform any of the
promises to be performed by the Undersigned hereunder or under any other
security agreement or other agreement with Bank and such failure shall continue
unremedied for a period of thirty (30) days; or (3) the Undersigned or any other
party liable with respect to the Obligations, or any guarantor or accommodation
endorser or third party pledgor, shall make any assignment for the benefit of
creditors, or there shall be commenced any bankruptcy, receivership, insolvency,
reorganization, dissolution or liquidation proceedings by or against, or the
entry of any judgment, levy, attachment, garnishment or other process, or the
filing of any lien against any of the Undersigned or any guarantor, or any other
party liable with respect to the Obligations, or accommodation endorser or third
party pledgor for any of the Obligations, or against any of the Collateral or
any of the collateral under a separate security agreement signed by any one of
them relating to the Obligations; or (4) there be any deterioration or
impairment of any of the Collateral under any security agreement executed by any
of the Undersigned, or any other party liable with respect to the Obligations,
or any guarantor or accommodation endorser or third party pledgor for any of the
Obligations, or any decline in the value or market price thereof (whether actual
or reasonably anticipated), which causes said Collateral or collateral in the
sole opinion of Bank acting in good faith, to become unsatisfactory as to value
or character, or which causes the Bank to reasonably believe that it is insecure
and that the likelihood for repayment of the Obligations is or will soon be
impaired, time being of the essence; or (5) if this Note is secured by an
additional or separate security agreement, then the occurrence of any default
thereunder; or (6) there is a discontinuance by any guarantor of any guaranty of
Obligations hereunder; or (7) the determination by the Bank that a material
adverse change has occurred in the financial condition of the Undersigned from
the condition set forth in the most recent financial statement of the
Undersigned furnished to the Bank, or from the financial condition of the
Undersigned most recently disclosed to Bank in any manner; or (8) any oral or
written warranty, representation, certificate or statement of the Undersigned to
the Bank is untrue; or (9) the failure to do any act necessary to preserve and
maintain the value and collectability of the Collateral; or (10) failure of the
Undersigned after request by the Bank to furnish financial information or to
permit inspection by the Bank of the Undersigned's books and records; or (11)
any guarantor of this Note or of any of the other Obligations shall contest the
validity of such guaranty; or (12) the occurrence of any material adverse event
which causes a change in the financial condition of the Undersigned, or which
would have a material adverse effect on the business of the Undersigned.
Whenever the Undersigned shall be in default as aforesaid, without demand
or notice of any kind, the entire unpaid amount of all Obligations shall become
immediately due and payable, and: (1) Bank may sell all or any of the Collateral
as provided in the Security Agreement; and (2) Bank may exercise, from time to
time, any and all rights and remedies available to it under the Uniform
Commercial Code of Illinois, or otherwise available to it, including those
available under any written instrument (in addition to this Note) relating to
any of the Obligations or any security therefor.
THE UNDERSIGNED WAIVES THE BENEFIT OF ANY LAW THAT WOULD OTHERWISE RESTRICT
OR LIMIT BANK IN THE EXERCISE OF ITS RIGHT, WHICH IS HEREBY ACKNOWLEDGED, TO
APPROPRIATE WITHOUT NOTICE AND REGARDLESS OF THE COLLATERAL, AT ANY TIME
HEREAFTER, ANY INDEBTEDNESS MATURED OR UNMATURED, OWING FROM BANK TO THE
UNDERSIGNED. THE BANK MAY, FROM TIME TO TIME, WITHOUT DEMAND OR NOTICE OF ANY
KIND, APPROPRIATE AND APPLY TOWARD THE PAYMENT OF SUCH OF THE OBLIGATIONS, AND
IN SUCH ORDER OF APPLICATION, AS THE BANK MAY, FROM TIME TO TIME, ELECT ANY AND
ALL SUCH BALANCES, CREDITS, DEPOSITS, ACCOUNTS, MONEYS, CASH EQUIVALENTS AND
OTHER ASSETS, OF OR IN THE NAME OF THE UNDERSIGNED THEN OR THEREAFTER WITH THE
BANK.
THE UNDERSIGNED WAIVES EVERY DEFENSE, CAUSE OF ACTION, COUNTERCLAIM OR
SETOFF WHICH THE UNDERSIGNED MAY NOW HAVE OR HEREAFTER MAY HAVE TO ANY ACTION BY
BANK IN ENFORCING THIS NOTE AND/OR ANY OF THE OTHER OBLIGATIONS, OR THE
COLLATERAL AND RATIFY AND CONFIRM WHATEVER BANK MAY DO PURSUANT TO THE TERMS
HEREOF AND WITH RESPECT TO THE COLLATERAL AND AGREES THAT BANK SHALL NOT BE
LIABLE FOR ANY ERROR OF JUDGMENT OR MISTAKES OF FACT OR LAW. THE BANK AND THE
UNDERSIGNED KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE IRREVOCABLY, THE
RIGHT EITHER OR ANY MAY HAVE TO TRIAL BY JURY WITH RESPECT TO ANY LEGAL
PROCEEDING BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
NOTE OR ANY OF THE OTHER OBLIGATIONS, OR THE COLLATERAL, OR ANY AGREEMENT,
EXECUTED OR CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH OR ANY COURSE OF
CONDUCT OR COURSE OF DEALING, IN WHICH THE BANK AND THE UNDERSIGNED ARE ADVERSE
PARTIES. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK GRANTING ANY
FINANCIAL ACCOMMODATION TO THE UNDERSIGNED.
The Undersigned, and any other party liable with respect to the
Obligations, including any guarantors, and any and all endorsers and
accommodation parties, and each one of them, waive any and all presentment,
demand, notice of dishonor, protest, and all other notices and demands in
connection with the enforcement of Bank's rights hereunder, and hereby consent
to, and waive notice of release, with or without consideration, of the
Undersigned or of any Collateral. No default shall be waived by the Bank except
in writing. No delay on the part of the Bank in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
the Bank of any right or remedy shall preclude other or further exercise
thereof, or the exercise of any other right or remedy. This Note: (i) is valid,
binding and enforceable in accordance with its provisions, and no conditions
exist to the legal effectiveness of this Note; (ii) contains the entire
agreement between the Undersigned and Bank; (iii) is the final expression of
their intentions; and (iv) supersedes all negotiations, representations,
warranties, commitments, offers, contracts (of any kind or nature, whether oral
or written) prior to or contemporaneous with the execution hereof. No prior or
contemporaneous representations, warranties, understandings, offers or
agreements of any kind or nature, whether oral or written, have been made by
Bank or relied upon by the Undersigned in connection with the execution hereof.
No modification, discharge, termination or waiver of any of the provisions
hereof shall be binding upon the Bank, except as expressly set forth in a
writing duly signed and delivered on behalf of the Bank.
The Undersigned agrees to pay all reasonable costs, legal expenses,
attorneys' fees and paralegals' fees of every kind, paid or incurred by Bank in
enforcing its rights hereunder, including, but not limited to, litigation or
proceedings initiated under the United States Bankruptcy Code, or in respect to
any other of the Obligations, or in connection with the Collateral or in
defending against any defense, cause of action, counterclaim, setoff or
crossclaim based on any act of commission or omission by the Bank with respect
to this Note or any other of the Obligations or Collateral, or both, promptly on
demand of Bank or other person paying or incurring the same.
The Bank may at any time transfer this Note and Bank's rights in any or all
of the Collateral, and Bank thereafter shall be relieved from all liability with
respect to such Collateral.
TO INDUCE THE BANK TO MAKE THE LOAN EVIDENCED BY THIS NOTE, THE UNDERSIGNED
IRREVOCABLY AGREES THAT, ALL ACTIONS ARISING DIRECTLY OR INDIRECTLY AS A RESULT
OR IN CONSEQUENCE OF THIS NOTE OR ANY OTHER AGREEMENT WITH THE BANK RELATING
HERETO, OR THE COLLATERAL, SHALL BE INSTITUTED AND LITIGATED ONLY IN COURTS
HAVING SITUS IN THE CITY OF CHICAGO, ILLINOIS, AND THE UNDERSIGNED HEREBY
CONSENTS TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT
LOCATED AND HAVING ITS SITUS IN SAID CITY, AND WAIVES ANY OBJECTION BASED ON
FORUM NONCONVENIENS, AND THE UNDERSIGNED HEREBY WAIVES PERSONAL SERVICE OF ANY
AND ALL PROCESS, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO THE UNDERSIGNED AT THE
ADDRESS INDICATED IN THE BANK'S RECORDS IN THE MANNER PROVIDED BY APPLICABLE
STATUTE, LAW, RULE OF COURT OR OTHERWISE. FURTHERMORE, THE UNDERSIGNED WAIVES
ALL NOTICES AND DEMANDS IN CONNECTION WITH THE ENFORCEMENT OF BANK'S RIGHTS
HEREUNDER, AND HEREBY CONSENTS TO, AND WAIVES NOTICE OF THE RELEASE WITH OR
WITHOUT CONSIDERATION OF UNDERSIGNED OR OF ANY COLLATERAL.
The loan evidenced hereby has been made and this Note has been delivered at
the Bank's main office. This Note shall be governed and construed in accordance
with the laws of the State of Illinois, in which state it shall be performed,
and shall be binding upon the Undersigned and their respective legal
representatives, successors and assigns. If this Note contains any blanks when
executed by the Undersigned the Bank is hereby authorized, without notice to the
Undersigned to complete any such blanks according to the terms upon which the
loan or loans were granted. Wherever possible, each provision of this Note shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Note shall be prohibited by or be invalid under
such law, such provision shall be severable, and be ineffective to the extent of
such prohibition or invalidity, without invalidating the remaining provisions of
this Note.
The Undersigned represents and warrants to Bank that the execution and
delivery of this Note has been duly authorized by resolutions heretofore adopted
by its Board of Directors in accordance with law and its bylaws, that said
resolutions have not been amended nor rescinded, are in full force and effect
and that the officer or officers executing and delivering this Note for and on
behalf of the Undersigned, is duly authorized so to act. Bank, in extending
financial accommodations to the Undersigned, is expressly acting and relying
upon the aforesaid representations and warranties.
The Undersigned, acknowledges and agrees that the lending relationship
hereby created with the Bank is and has been conducted on an open and arm's
length basis in which no fiduciary relationship exists and that the Undersigned,
has not relied and is not relying on any such fiduciary relationship in
consummating the loan(s) evidenced by this Note.
As used herein, all provisions shall include the masculine, feminine,
neuter, singular and plural thereof, wherever the context and facts require such
construction and in particular the word "Undersigned" shall be so construed.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Undersigned has executed this Note on the date
above set forth.
ASCENT MANAGEMENT, INC.
By: /s/ Patrick J. Mitchell
--------------------------------------------------
Its: Chairman of the Board and
Chief Executive Officer
--------------------------------------------------
STATE OF TEXAS )
)SS.
COUNTY OF TARRANT )
I, the undersigned, a Notary Public in and for the State and County
aforesaid, do hereby certified that before me this day personally appeared
Patrick J. Mitchell, known to me to be the Chairman of the Board, Chief
Executive Officer and President of Ascent Management, Inc., a Delaware
corporation, and acknowledged to me that he executed and delivered this
instrument as his free and voluntary act, for the uses and purposes therein set
forth.
IN WITNESS WHEREOF, I have hereunto set my hand and notarial seal this day
of , 1999.
------------------------------------
Notary Public
My Commission Expires:
--------------
<PAGE>
Exhibit 10.5
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement (the "Amendment") is made as of
this 12TH day of August 1999 by and among ASCENT FUNDING, INC. (formerly known
as Westbridge Funding Corporation) (the "Borrower"), and LASALLE BANK NATIONAL
ASSOCIATION (formerly known as LaSalle National Bank) (the "Bank").
W I T N E S S E T H
WHEREAS, the Borrower and the Bank are parties to that certain Credit
Agreement dated as of June 6, 1997, as amended from time to time, (the "Credit
Agreement); and
WHEREAS, the parties desire to amend the Credit Agreement, as more fully
set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the adequacy of which is hereby
acknowledged, and subject to the terms and conditions hereof, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS. Unless otherwise defined herein, all capitalized
shall have the meaning given to them in the Credit Agreement.
SECTION 2. AMENDMENTS TO CREDIT AGREEMENT.
2.1 Any and all references to "Westbridge Funding Corporation" are hereby
deleted in their entirety and replaced with "Ascent Funding, Inc."
2.2 Any and all references to "Westbridge Capital Corp." are hereby deleted
in their entirety and replaced with "Ascent Assurance, Inc. "
2.3 Any and all references to "Westbridge Marketing Corporation" are hereby
deleted in their entirety and replaced with "NationalCare Marketing, Inc. "
2.4 Any and all references to "LaSalle National Bank" are hereby deleted in
their entirety and replaced with "LaSalle Bank National Association".
2.5 The definition of "Commitment" in Section 1.1 of the Credit Agreement
is hereby deleted in its entirety and replaced with the following in its stead:
"Commitment means the commitment of the Bank to make Revolving Loans
hereunder in the aggregate amount of $7,500,000, as the same may be adjusted
from time to time pursuant to Section 2.4 or by written agreement between the
Borrower and the Bank."
2.6 The definition of "Consolidated GAAP Net Worth" in Section 1.1 of the
Credit Agreement is hereby deleted in its entire replaced with the following in
its stead:
"Consolidated GAAP Net Worth" means the sum of (a) the common capital
stock and preferred capital stock (including manditorily redeemable
preferred capital stock) and additional paid in capital of the Borrower and
its Subsidiaries on a consolidated basis, plus (without duplication) (b)
the amount of retained earnings (inclusive of Deferred Revenues) (or, in
the case of a deficit, minus the deficit), minus (c) treasury stock, plus
or minus (d) any other account which is customarily added or deducted in
determining stockholders' equity (without giving effect to any increase or
decrease to Consolidated GAAP Net Worth attributable to the application of
SFAS No. 115 and 130), all of which shall be determined on a consolidated
basis in accordance with GAAP.
2.7 The definition of "Eligible Non-Insurance Company Seller" in Section
1.1 of the Credit Agreement is hereby deleted in its entirety and replaced
with the following in its stead:
"Eligible Non-Insurance Company Seller" means, (i) as of the date of this
Agreement, any of ASSP, HCO, HCO Marketing, LSMG, Senior Benefits of Texas,
NationalCare Marketing, Inc. and Freedom Marketing, (ii) as of February 1,
1999, Senior Benefits, LLC, and (iii) thereafter any other entity which has
become a party to the Non-Insurance Company Receivables Purchase Agreement,
and which is reasonably acceptable to Bank based on such financial,
operational and other considerations which the Bank in its discretion deems
appropriate."
2.8 The definition of "Revolving Loan Termination Date" in Section 1.1 of
the Credit Agreement is hereby amended by deleting "June 5, 2000" and
inserting "June 5, 2001 in its stead.
SECTION 3. CONDITIONS PRECEDENT. The effectiveness of this Amendment is
expressly conditioned upon satisfaction of the following conditions
precedent:
3.1 The Bank shall have received copies of this Amendment duly executed the
Borrower.
3.2 The Bank shall have received such other documents, certificates and
assurances as it shall reasonably request.
SECTION 4. REAFFIRMATION OF THE BORROWER. The Borrower hereby represents
and warrants to the Bank that (i) the warranties set forth in Article 5 of
the Credit Agreement are true and correct on and as of the date hereof,
except to the extent (a) that any such warranties relate to a specific
date, or (b) changes thereto are a result of transactions for which the
Bank has granted its consent; (ii) the Borrower is on the date hereof in
compliance with all of the terms and provisions set forth in the Credit
Agreement as hereby amended; and (iii) upon execution hereof no Event of
Default has occurred and is continuing or has not previously been waived.
SECTION 5. FULL FORCE AND EFFECT. Except as herein amended, the Credit
Agreement and all other Loan Documents shall remain in full force and
effect.
SECTION 6. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the
day and year specified above.
ASCENT FUNDING, INC.
By: /s/Patrick J. Mitchell
-------------------------------
Name: Patrick J. Mitchell
-------------------------------
Title: Chairman of the Board and
Chief Executive Officer
-------------------------------
LASALLE BANK NATIONAL ASSOCIATION
By: /s/ Janet R. Gates
-------------------------------
Name: Janet R. Gates
-------------------------------
Title: First Vice President
-------------------------------
<PAGE>
ACKNOWLEDGEMENT AND AGREEMENT OF GUARANTOR
The undersigned, ASCENT ASSURANCE, INC. (formerly Westbridge Capital
Corp.), hereby ratifies and reaffirms that certain Guaranty dated June 6, 1997
(the "Guaranty") made by the undersigned in favor of LaSalle Bank National
Association (the "Bank") and each of the terms and provisions contained therein,
and agrees that the Guaranty continues in full force and effect following the
execution and delivery of the foregoing Amendment. The undersigned represents
and warrants to the Bank that the Guaranty was, on the date of the execution and
delivery thereof, and continues to be, the valid and binding obligation of the
undersigned enforceable in accordance with its terms and that the undersigned
has no claims or defenses to the enforcement of the rights and remedies of the
Bank under the Guaranty.
IN WITNESS WHEREOF, this Acknowledgment and Agreement of Guarantor has been
duly authorized as of this 12th day of August, 1999.
ASCENT ASSURANCE, INC.
By: /s/Patrick J. Mitchell
----------------------------------
Name: Patrick J. Mitchell
----------------------------------
Title: Chairman of the Board and
Chief Executive Officer
----------------------------------
<PAGE>
Exhibit 10.6
SECOND AMENDMENT TO GUARANTY AGREEMENT
This SECOND AMENDMENT TO GUARANTY AGREEMENT (this "Amendment") dated as of
July 20, 1999, is made by ASCENT ASSURANCE, INC. (formerly known as Westbridge
Capital Corp.), a Delaware corporation (the "Guarantor") for the benefit of
LASALLE BANK NATIONAL ASSOCIATION (formerly known as LaSalle National Bank) (the
"Bank"), its successors and assigns and any and all other Beneficiaries.
Capitalized terms used herein without definition shall have the respective
meanings assigned to them in that certain Guaranty Agreement made by Guarantor
in favor of Bank and dated as of June 26, 1997 (the "Guaranty Agreement").
R E C I T A L S
A. Pursuant to that certain Credit Agreement dated as of June 6, 1997 (the
"Credit Agreement") between Ascent Funding, Inc. (formerly known as Westbridge
Funding Corporation) (the "Debtor") and the Bank, the Bank agreed, on certain
terms and conditions, to make revolving loans to the Debtor from time to time in
an aggregate principal amount at any one time outstanding not to exceed
$20,000,000 (the "Revolving Loans").
B. The Debtor is an indirect wholly-owned subsidiary of the Guarantor.
C. As a condition to making the Revolving Loans, the Bank required that the
Guarantor execute and deliver the Guaranty Agreement.
D. Pursuant to that certain Installment Note dated of even date herewith
(the "Installment Note"), made by Ascent Management, Inc. ("AMI") in favor of
the Bank, the Bank has agreed, on certain terms and conditions, to make a term
loan to AMI in an aggregate principal amount not to exceed $3,300,000 (the "Term
Loan").
E. AMI is a wholly-owned subsidiary of the Guarantor.
F. As a condition to making the Term Loan, the Bank has required that the
Guarantor execute and deliver this Amendment to the Guaranty Agreement.
NOW, THEREFORE, the Guarantor hereby agrees as follows:
1. Amendments to Guaranty Agreement.
1.1 The Guaranty Agreement is hereby amended so that all references
contained therein to "Debtor" shall be deemed to include, in the appropriate
context, AMI. In addition, the term "Obligations" is hereby amended to include
all obligations and liabilities of AMI arising out of or relating to the
Installment Note, of every kind and description, howsoever created, whether now
existing or hereafter created, including, without limitation, the indebtedness
evidenced from time to time pursuant to the Installment Note, and shall include
all other liabilities of AMI to the Bank arising out of or relating to the Term
Loan pursuant to any and all documents delivered by AMI to the Bank with respect
to the Term Loan. The term "Obligation Agreements" is hereby amended to include
the Installment Note and any other agreement executed and delivered to the Bank
by AMI or any third party relating thereto, including, without limitation, any
guaranties, security agreements, pledge agreements and the like.
2. Reaffirmation of Guaranty Agreement. The Guarantor hereby reaffirms to the
Bank that, except as modified hereby, the Guaranty Agreement is hereby restated
in its entirety and remains in full force and effect.
3. Required Consents and Approval. Notwithstanding anything contained herein to
the contrary, the Pledge Approval (as such term is defined in the Guaranty
Agreement) shall not apply to AMI, and in no event will the capital stock of
National Foundation Life Insurance Company, National Financial Insurance Company
or American Insurance Company of Texas, pledged to the Bank in connection with
the Revolving Loan under the Credit Agreement constitute collateral for the
Installment Note or any other obligations related thereto.
4. Governing Law. This Amendment has been delivered in Chicago, Illinois and
shall be governed by and construed in accordance with the provisions of the laws
and decisions of the State of Illinois, without giving effect to the conflict of
law principles thereunder.
5. Counterparts. This Amendment may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. One or more counterparts of this
Amendment may be delivered by telecopier, with the intention that they shall
have the same effect as an original counterpart thereof.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be
duly executed and delivered as of the day IN WITNESS WHEREOF, each of the
parties hereto has caused this Amendment to be duly executed and delivered as of
the day and year first above written.
BANK:
LASALLE BANK NATIONAL ASSOCIATION
By: /s/ Janet R. Gates
---------------------------------------------
Its: First Vice President
---------------------------------------------
GUARANTOR:
ASCENT ASSURANCE, INC.
By: /s/ Patrick J. Mitchell
----------------------------------------------
Its: Chairman of the Board and
Chief Executive Officer
---------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 104,692
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 2,246
<MORTGAGE> 170
<REAL-ESTATE> 0
<TOTAL-INVEST> 112,566
<CASH> 2,410
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 17,798
<TOTAL-ASSETS> 159,029
<POLICY-LOSSES> 93,712
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 6,470
23,257
0
<COMMON> 65
<OTHER-SE> 24,929
<TOTAL-LIABILITY-AND-EQUITY> 159,029
28,512
<INVESTMENT-INCOME> 2,222
<INVESTMENT-GAINS> (107)
<OTHER-INCOME> 4,506
<BENEFITS> 22,619
<UNDERWRITING-AMORTIZATION> 502
<UNDERWRITING-OTHER> 5,985
<INCOME-PRETAX> 1,071
<INCOME-TAX> 364
<INCOME-CONTINUING> 707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
