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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: SEPTEMBER 30, 1997 Commission file number: 0-16332
NATIONAL INSURANCE GROUP
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3031790
(State of Incorporation) (IRS Employer Identification No.)
395 OYSTER POINT BOULEVARD, SUITE 500
SOUTH SAN FRANCISCO, CA 94080
(Address of principal executive office) (Zip Code)
(650) 872-6772
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 XX No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 4,032,132 shares as
of November 5, 1997.
<PAGE> 2
NATIONAL INSURANCE GROUP
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements:
Consolidated Balance Sheets as of September 30, 1997 and
December 31, 1996 1
Consolidated Statements of Earnings for the periods
ended September 30, 1997 and 1996 2
Consolidated Statements of Shareholders' Equity
for the nine months ended September 30, 1997 and 1996 3
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1997 and 1996 4
Notes to Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 13
Item 2 - Changes in Securities 13
Item 3 - Defaults Upon Senior Securities 13
Item 4 - Submission of Matters to a Vote of Security Holders 13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 14
SIGNATURES 16
<PAGE> 3
NATIONAL INSURANCE GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 30, 1997 and December 31, 1996
(in thousands of dollars, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS:
Fixed maturities $13,995 $18,538
Equity securities 2,856 2,051
Short-term investments 10,854 10,005
------- -------
Total investments 27,705 30,594
------- -------
Cash and cash equivalents 4,888 3,183
Net premiums and accounts receivable 9,368 5,181
Accrued interest receivable 403 377
Property and equipment, net 5,028 3,484
Deferred acquisition costs 2,690 2,186
Deferred federal income taxes receivable 2,501 421
Goodwill 12,736 --
Other assets 2,726 1,686
------- -------
Total assets $68,045 $47,112
======= =======
LIABILITIES:
Reserve for losses and LAE $ 2,803 $ 2,198
Unearned premiums 6,244 4,753
Commissions payable 1,398 1,113
Accrued expenses and other liabilities 4,882 3,718
Drafts payable 650 295
Notes payable 9,768 1,333
Reserve for return premiums 5,379 2,382
Unclaimed property-proposition 103 2,260 2,268
Deferred revenue 7,543 500
------- -------
Total liabilities 40,927 18,560
------- -------
SHAREHOLDERS' EQUITY:
Common stock, no par value;
authorized, 15,000,000 shares;
issued and outstanding:3,988,215
in 1997 and 3,896,937 in 1996 18,256 17,592
Retained earnings 8,862 10,960
------- -------
Total shareholders' equity 27,118 28,552
------- -------
Total liabilities and
shareholders' equity $68,045 $47,112
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
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NATIONAL INSURANCE GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the periods ended September 30, 1997 and 1996
(in thousands of dollars, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Third Quarter Nine Months
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net premiums written $ 5,141 $ 2,703 $ 14,855 $ 8,708
Change in unearned premiums (425) 344 (1,491) 1,180
----------- ----------- ----------- -----------
Net premiums earned 4,716 3,047 13,364 9,888
Real Estate Information Services 5,919 4,920 15,898 14,511
Tracking fees 1,893 1,362 5,495 3,884
Net commission income 310 298 698 897
Net investment income 389 488 1,280 1,490
----------- ----------- ----------- -----------
TOTAL REVENUES 13,227 10,115 36,735 30,670
----------- ----------- ----------- -----------
Loss and LAE incurred 1,605 975 4,491 3,647
Commissions to
non-affiliates 152 346 1,254 1,606
Personnel expenses 5,716 4,311 16,289 14,471
All other expenses 4,393 3,112 10,826 10,691
----------- ----------- ----------- -----------
TOTAL EXPENSES 11,866 8,744 32,860 30,415
----------- ----------- ----------- -----------
Income before provision
for income taxes 1,361 1,371 3,875 255
Provision for
income taxes 483 501 1,358 93
----------- ----------- ----------- -----------
NET INCOME $ 878 $ 870 $ 2,517 $ 162
=========== =========== =========== ===========
Weighted average common and
common equivalent shares
outstanding 4,063,047 3,996,897 4,049,796 3,985,708
----------- ----------- ----------- -----------
Per share results:
Net income per share $ 0.22 $ 0.22 $ 0.62 $ 0.04
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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NATIONAL INSURANCE GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the nine months ended September 30, 1997 and 1996
(in thousands of dollars, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
Total
Common Stock Share-
------------------------ Retained holders'
Shares Amount Earnings Equity
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at
December 31, 1995 4,679,697 $ 23,071 $ 9,810 $ 32,881
Options exercised 22,500 149 -- 149
Accelerated vesting -- 39 -- 39
Stock Repurchase (705,300) (4,972) -- (4,972)
Net Income -- -- 162 162
Unrealized loss, net
of deferred tax -- -- (174) (174)
---------- ---------- ---------- ----------
Balance at
September 30, 1996 3,996,897 $ 18,287 $ 9,798 $ 28,085
========== ========== ========== ==========
Balance at
December 31, 1996 3,896,937 $ 17,592 $ 10,960 $ 28,552
Net income -- -- 2,517 2,517
Options exercised 91,278 664 -- 664
Dividends paid -- -- (4,660) (4,660)
Unrealized gain,
net of deferred tax -- -- 45 45
---------- ---------- ---------- ----------
Balance at
September 30, 1997 3,988,215 $ 18,256 $ 8,862 $ 27,118
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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NATIONAL INSURANCE GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1997 and 1996
(in thousands of dollars, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,517 $ 162
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,014 1,358
Change in assets and liabilities net of effects
from purchase of ARTS
Increase in net premiums and accounts
receivable and accrued interest receivable (3,019) (1,159)
Increase in deferred revenue 39 --
(Increase) decrease in deferred acquisition costs (504) 543
Increase (decrease) in insurance liabilities 5,448 (124)
Decrease in unclaimed property-proposition 103 (9) (2,098)
(Increase) in tax assets 476 (117)
Other, net 450 634
--------- ---------
Net cash provided (used) by operating activities 6,412 (801)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (47,218) (106,466)
Maturity of investments 50,215 111,075
Purchase of equipment (2,144) (999)
Purchase of ARTS, including acquisition costs (9,881) --
--------- ---------
Net cash provided (used) by investing activities (9,028) 3,610
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase Common Stock -- (4,972)
Stock options exercised 547 189
Dividends to shareholders (4,660) --
Net Borrowings on notes payable 8,434 2,000
--------- ---------
Net cash provided (used) by financing activities 4,321 (2,783)
--------- ---------
Net increase in cash and cash equivalents 1,705 26
Cash and cash equivalents at beginning of period 3,183 3,233
--------- ---------
Cash and cash equivalents at end of period $ 4,888 $ 3,259
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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NATIONAL INSURANCE GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Financial Information
In the opinion of management, the financial information reflects all
adjustments (consisting only of normal recurring adjustments) which are
necessary to a fair presentation of financial position and results of
operations for the interim periods. The results for the nine month period
ended September 30, 1997 and September 30, 1996 are not necessarily
indicative of the results to be expected in the future.
2. Acquisition
On September 18, 1997, two wholly owned subsidiaries of National
Insurance Group, a California corporation (the "Company" or "National"),
Pinnacle American Realty Tax Services, Inc., a Delaware corporation
("PARTS-VA"), and Pinnacle American Realty Tax Services of New York, Inc.,
a Delaware corporation ("PARTS-NY") (PARTS-NY and PARTS-VA, collectively
"PARTS"), acquired substantially all the assets and assumed certain
liabilities of American Realty Tax Services, Inc., a Virginia corporation
("ARTS-VA"), and American Realty Tax Services of New York, Inc., a
Virginia corporation ("ARTS-NY") (ARTS-NY and ARTS-VA, collectively
"ARTS"). The acquisition agreement, dated August 15, 1997, as amended (the
"Agreement"), was entered into by and among ARTS, the shareholders of
ARTS, the Company, and New Arts Acquisition, Inc., a Delaware corporation,
which is a wholly owned subsidiary of the Company ("New Arts"). On October
1, 1997, PARTS-VA changed its name to Pinnacle Real Estate Tax Services,
Inc. ("PRETS-VA"), and PARTS-NY changed its name to Pinnacle Real Estate
Tax Services of New York, Inc. ("PRETS-NY") (PRETS-NY and PRETS-VA,
collectively "PRETS").
As consideration for the acquisition of certain assets of ARTS (the
"ARTS Acquisition"), New Arts paid $9.2 million in cash and agreed to
assume certain liabilities of ARTS. Pursuant to the Agreement, if the cash
revenue of certain contracts of PRETS exceeds certain targets for the
twelve months ended and including April 30, 1998, PRETS is required to pay
additional consideration of up to $4 million according to a formula as set
forth in the Agreement ("Additional Consideration"). Fifty percent of the
Additional Consideration may be paid in the form of a three year note
bearing interest at eight percent per annum. The remaining fifty percent
of the Additional Consideration may be paid in cash. The Company has
agreed to guarantee the payment of these obligations.
The ARTS Acquisition was accounted for as a purchase of assets. The
fair market value of the assets acquired from ARTS was approximately $4.4
million. The fair market value of liabilities assumed was approximately
$7.3 million, including approximately $7 million of deferred revenue
related to PRETS' existing portfolio of loans. The amount of goodwill
recorded in connection with the transaction was $12.7 million, which will
be amortized over a 25-year period as a result of PRETS' long standing
vendor and customer relationships. Since the ARTS Acquisition was executed
only thirteen days prior to the end of the third quarter of 1997, the
Company's results of operations for the third quarter and nine months
ended September 30, 1997, were not materially affected by the ARTS
Acquisition. The Company filed with the Securities and Exchange Commission
a Form 8-K, Current Report, dated September 18, 1997, in connection with
the ARTS Acquisition. The Company will file an amendment to the Form 8-K
in which historical and pro-forma financial information for PRETS will be
presented.
The majority of tax service revenues earned by PRETS are from "life of
loan" servicing contracts, which require customers to pay an up-front,
one-time fee to receive real estate property tax tracking services over
the life of a loan. The revenue from "life of loan" contracts is
recognized over the estimated life of the loans in proportion to the
amount of expenses incurred to
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service the real estate property tax tracking on the subject loans. Since
the bulk of expenses incurred in providing real estate property tax
tracking on the loans occurs in the first year, a majority of the "life of
loan" revenue is recognized within the first year of servicing. The
remainder of the revenue is amortized in accordance with the estimated
rate at which loans are paid off or otherwise are removed from the
servicing portfolio. As a result of this revenue recognition policy, PRETS
records a deferred revenue reserve on its balance sheet. As of
September 30, 1997, deferred "life of loan" tax servicing revenue was $7.0
million.
The primary business of PRETS is real estate property tax information
services for mortgage lending and mortgage loan servicing institutions.
PRETS facilitates the payment by mortgage lenders and mortgage loan
servicing companies of borrowers' escrowed and non-escrowed funds to
local, county and state taxing authorities nationwide. PRETS obtains
property tax data from various taxing authorities and integrates this
information with loan data from its customer base. PRETS accomplishes this
through a proprietary online database and software, as well as a network
of customer service centers.
3. Financing
In connection with the ARTS Acquisition, the Company and New Arts
entered into a term note facility (the "Term Facility") with the Company's
primary commercial bank. The Term Facility allows for a maximum borrowing
of $11.3 million, including $2 million for any Additional Consideration
which may be payable pursuant to the Agreement on or before May 25, 1998.
The Term Facility matures in May, 2003, and calls for interest payments at
the rate of prime plus one and one-quarter percent, beginning September,
1997. Principal is paid monthly, beginning May 30, 1998, in accordance
with a variable amortization schedule. Collateral for the loan includes
non-insurance company cash deposits of the Company, the common stock of
the Company's wholly owned subsidiary, Pinnacle Data Corporation, a
California corporation, as well as the stock of PRETS and of New Arts. As
of September 30, 1997, the Company had utilized $9.3 million of the $11.3
million Term Facility.
On September 18, 1997, the Company amended its $5 million revolving
facility (the "Revolving Facility"). The primary amendment to the
Revolving Facility was the reduction in borrowing limits to $1 million
from $5 million. As of September 30, 1997, the Company had no borrowings
under the Revolving Facility and was in compliance with the financial
covenants of the Revolving Facility.
4. Reclassification
For comparative purposes, certain prior year amounts have been
reclassified to conform to the current year presentation. Such
reclassifications had no impact on the Company's net income or
shareholders' equity.
5. Earnings per share
In February, 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128. SFAS
No. 128 is designed to improve the earnings per share ("EPS") information
provided in the financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements, and
increasing the comparability of EPS data on an international basis. SFAS
No. 128 is required to be adopted on December 31, 1997. The Company does
not believe that SFAS No. 128 will have a material impact on its financial
statements.
6. Comprehensive income
In June, 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes standards for the reporting and display
of comprehensive income and its
6
<PAGE> 9
components in a full set of general purpose financial statements.
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from non-owner sources. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. The Company does not believe that
SFAS No. 130 will have a material impact on its financial statements.
7. Segment reporting
In June, 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS No. 131 requires
publicly-held companies to report financial and other information about
key revenue-producing segments of the entity for which such information is
available and utilized by the chief operating decision maker. Specific
information to be reported for individual segments includes profit or
loss, certain revenue and expense items and total assets. A reconciliation
of segment financial information to amounts reported in the financial
statements would be provided. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. The Company does not believe that SFAS
No. 131 will have a material impact on its financial statements.
8. Subsequent events
On November 1, 1997, the Company's Board of Directors declared a
dividend of $0.11 per share. The dividend is payable on November 24, 1997,
to shareholders of record on November 17, 1997.
These quarterly interim financial statements are unaudited.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the interim
financial statements and the notes thereto, which are set forth elsewhere in
this report.
RESULTS OF OPERATIONS
General
On September 18, 1997, two wholly owned subsidiaries of the Company acquired
substantially all the assets of ARTS and assumed certain liabilities. The
acquisitions were accounted for as purchases of assets and are described in
detail in the notes to the financial statements contained in this report. The
Company's results of operations for the third quarter ended and for the nine
months ended September 30, 1997, were not materially affected by this
transaction, since the transaction closed thirteen days before the end of the
quarter.
THIRD QUARTER OF 1997 COMPARED WITH THIRD QUARTER OF 1996:
Revenue
Total revenue of the Company for the third quarter increased from $10.1
million in 1996 to $13.2 million in 1997, an increase of $3.1 million, or
31%. Revenues for the comparable period of 1996 included a change in a
deferred revenue estimate, which increased reported revenue for that
period by $885,000. Had this adjustment not been made, the Company would
have recognized $9.2 million in the third quarter of 1996, instead of the
reported $10.1 million.
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Net premiums written by the Company's wholly owned subsidiary, Great Pacific
Insurance Company, a California corporation (the "Insurance Subsidiary"), for
the third quarter increased from $2.7 million in 1996 to $5.1 million in 1997,
an increase of $2.4 million, or 90%. The increase in net premiums written was
primarily due to an increase in the volume of business from the Company's
existing mortgage hazard insurance tracking customers.
Net premiums earned by the Insurance Subsidiary for the third quarter
increased from $3.0 million in 1996 to $4.7 million in 1997, an increase of $1.7
million, or 55%. Premium revenue is generally earned ratably over a twelve month
period from the inception date of each insurance policy written, and is affected
by policies written over the prior twelve months and by policies canceled during
the quarter. Such cancellations would be applicable to premiums written in all
prior periods. The combined effect of changes in premiums written, earned and
canceled within any period is measured in terms of the change in unearned
premiums. For the quarter ended September 30, 1997, unearned premiums increased
by $425,000, compared to a decrease in unearned premiums of $344,000 for the
same quarter of 1996. See also, "Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations, Results of Operations, Nine
Months Ended September 30, 1997, Compared with the Nine Months Ended September
30, 1996, Revenue."
Real estate information services revenues for the third quarter increased
from $4.9 million in 1996 to $5.9 million in 1997, an increase of $1 million, or
20%. This increase is primarily a result of higher volume of inquires from
existing flood zone determination customers. The real estate information
services revenues for the third quarter of 1996 included a change in a deferred
revenue estimate, which increased reported revenues by $885,000. Had this
adjustment not been made, real estate information services revenues would have
been $4 million, instead of the reported $4.9 million.
Tracking fees for the third quarter increased from $1.4 million in 1996 to
$1.9 million in 1997, an increase of $500,000, or 39%. The increase was due
primarily to the addition of new customers.
Expenses
Loss and loss adjustment expenses ("LAE") incurred for the third quarter
increased from $975,000 (32% of net premiums earned) in 1996 to $1.6 million
(34% of net premiums earned) in 1997, an increase of $630,000, or 65%. The
average loss and LAE per new claim reported in the third quarter of 1997 was
approximately $6,080, compared to $5,600 for the same period in 1996. The number
of losses increased from 173 in 1996 to 264 in 1997.
Commissions to non-affiliates in the third quarter decreased from $346,000
(11.3% of net premiums earned) in 1996 to $152,000 (3.2% of net premiums earned)
in 1997, a decrease of $194,000, or 56%. The decrease in the amount of
commission expense is due to a decline in net premiums written by independent
agents. The percentage of commissions paid to net premiums earned varies
depending upon customer mix. The decrease as a percentage of net premiums is due
primarily to the fact that a larger percentage of the Insurance Subsidiary's
business is produced by lenders who earn lower commission rates.
Personnel expenses in the third quarter increased from $4.3 million in 1996
to $5.7 million in 1997, an increase of $1.4 million, or 33%. This increase was
a result of an increase in hiring in response to volume increases in net
premiums written, flood zone determinations, and motor vehicle tracking
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business. Personnel expenses as a percent of total revenue remained constant
at 43% from 1996 to 1997.
All other expenses in the third quarter increased from $3.1 million in 1996
to $4.4 million in 1997, an increase of $1.3 million, or 41%. The increase was
primarily due to additional costs incurred to handle the increase in the volume
of business in each of the Company's subsidiaries.
As a result of the above factors, income before provision for income taxes
for the third quarter decreased from $1.37 million in 1996 to $1.36 million in
1997, a decrease of approximately $10,000. Net Income for the third quarter of
1996 was $870,000, or $0.22 per share compared with net income of $878,000, or
$0.22 per share in 1997. The weighted average number of shares outstanding for
the third quarter of 1996 and 1997 were 3,996,897 and 4,063,047, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1996:
Revenue
Total revenue of the Company for the nine month period increased from $30.7
million in 1996 to $36.7 million in 1997, an increase of $6.0 million, or 20%.
Revenues for the comparable period of 1996 included a change in a deferred
revenue estimate, which increased reported revenue for that period by $885,000.
Had this adjustment not been made, the Company would have recognized revenues of
$29.8 million in the third quarter of 1996, instead of the reported $30.7
million.
Net premiums written for the period increased from $8.7 million in 1996 to
$14.9 million in 1997, an increase of $6.2 million, or 71%. The increase in net
premiums written was primarily due to an increase in the volume of business from
the Company's existing mortgage tracking customers.
Net premiums earned by the Insurance Subsidiary for the period increased
from $9.9 million in 1996 to $13.4 million in 1997, an increase of $3.5 million,
or 35%. Premium revenue is generally earned ratably over a twelve month period
from the inception date of each insurance policy written, and is affected by
policies written over the prior twelve months and by policies canceled during
the applicable accounting period. Such cancellations would be applicable to
premiums written in all prior periods. The combined effect of changes in
premiums written, earned and canceled within any period is measured in terms of
the change in unearned premiums. For the nine months ended September 30, 1997,
unearned premiums increased by $1.5 million, compared to a decrease in unearned
premiums of $1.2 million for the same nine months of 1996.
The Company has received notice from a customer that it would not renew its
hazard insurance tracking and force-place insurance contract effective October
31, 1997. Such customer accounted for 1.6% of consolidated revenue in 1995, 3.3%
in 1996 and 11% in the first nine months of 1997. Management believes that the
decrease in revenue due to the loss of this customer may be material, but will
be offset, in part, by changes in certain reserves potentially arising from the
customer's departure, and additional business from new and existing customers;
and, delayed by the rate at which the unearned premium for such customer is
earned over the next twelve months. The Company is presently unable to estimate
the amount of such offsets, which are dependent upon numerous factors,
including, without limitation, the general health of the mortgage banking and
vehicle financing industries, interest rates, general economic conditions, the
realization of expected new business from new and existing customers
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and other factors. These factors, together with statements regarding certain
risks and uncertainties contained in other parts of this report, may affect the
Company's operating results. Investors should read this paragraph, which
contains forward looking statements, in connection with any other
forward looking statement made in this report, including, but not limited to,
statements preceded or followed by the words "believes", "anticipates",
"expects", "aware" or similar expressions as they relate to the Company or its
management.
Real estate information services revenues for the period increased from
$14.5 million in 1996 to $15.9 million in 1997, an increase of $1.4 million, or
10%. This increase is primarily a result of higher volume of inquiries from
existing flood zone determination customers. The real estate information
services revenues for the nine months ended September 30, 1996, included a
change in a deferred revenue estimate, which increased reported revenues by
$885,000. Had this adjustment not been made, real estate information services
revenues would have been $13.6 million, instead of the reported $14.5 million.
Tracking fees for the period increased from $3.9 million in 1996 to $5.5
million in 1997, an increase of $1.6 million, or 42%. The increase was due
primarily to the addition of new customers.
Expenses
Loss and LAE incurred for the nine month period increased from $3.6 million
(36.9% of net premiums earned) in 1996 to $4.5 million (34% of net premiums
earned) in 1997, an increase of $900,000, or 23%. The average loss and LAE per
new claim reported in the nine month period ended September 30, 1997, was
approximately $7,209, compared to $6,100 for the same period in 1996. The number
of losses increased from 595 in 1996 to 623 in 1997.
Commissions to non-affiliates for the period decreased from $1.6 million
(16.2% of net premiums earned) in 1996 to $1.3 million (9.4% of net premiums
earned) in 1997, a decrease of $300,000, or 18.8%. The percentage of commissions
paid to net premiums earned varies depending upon customer mix. The decrease is
due primarily to the fact that a larger percentage of the Insurance Subsidiary's
business is being produced by lenders who earn lower commission rates.
Personnel expenses for the period increased from $14.5 million in 1996 to
$16.3 million in 1997, an increase of $1.8 million, or 13%. This increase was in
response to volume increases in the volume of net written premiums, flood zone
determinations and motor vehicles tracked. Personnel expenses as a percent of
total revenue decreased from 47.2% in 1996 to 44% in 1997. The reduction was
primarily due to the fact that personnel expenses from the comparable period of
1996 included expenses of $1.37 million from executive retention agreements
entered into in the second quarter of 1996 in connection with a change in
management of the Company. Had these expenses not occurred, the Company would
have recognized $13.1 million in personnel expenses in the comparable period of
1996, instead of the reported $14.5 million; accordingly, personnel expenses as
a percentage of revenues would have been 43%, instead of 47.2%.
All other expenses in the nine month period increased nominally from $10.7
million in 1996 to $10.8 million in 1997, an increase of $100,000, or 1%.
As a result of the above factors, pre-tax income for the nine month period
increased from $255,000 in 1996 to $3.9 million in 1997, an increase of $3.6
million. The pre-tax income from last year's
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comparable period included a change in a deferred revenue estimate, as well as
costs incurred in connection with executive retention agreements. The deferred
revenue adjustment increased reported revenue and pre-tax earnings for the
period by $885,000; the expenses recognized in connection with the executive
retention agreements lowered reported pre-tax earnings for the period by $1.37
million. Had this adjustment and expense not occurred, the Company would have
recognized pre-tax income for the nine months ended September 30, 1996, of
$751,000, instead of the reported pre-tax income of $255,000; net income would
have been $477,000, or $0.12 per share, instead of the reported net income of
$162,000, or $0.04 per share. The weighted average number of shares outstanding
for the nine months ended September 30, 1996, and 1997 were 3,985,708 and
4,049,796, respectively.
LIQUIDITY AND CAPITAL RESOURCES
National is a holding company with no operations and no sources of income
itself except interest or investment income. The principal assets of National
are the stock of its subsidiaries. National is, and for the foreseeable future
will continue to be, dependent on the dividends from its subsidiaries to meet
its liquidity requirements, including debt service obligations. Dividends
payable to National by the Insurance Subsidiary are subject to certain
regulatory restrictions described below.
The Insurance Subsidiary collects and invests premiums written in advance of
the payments for associated claims. In the absence of a catastrophic loss, this
timing difference between premium collection and claims payment, combined with
investment income, normally provides short-term funds in excess of normal
operating demands for cash. As of September 30, 1997, the Company had cash and
short-term investments aggregating $15.7 million compared to $13.2 million at
December 31, 1996.
Of the Company's cash and short-term investments as of September 30, 1997,
$8.3 million is held by the Insurance Subsidiary compared to $8.3 million at
December 31, 1996. Insurance companies, including the Insurance Subsidiary, are
subject to laws and regulations which restrict their ability to pay dividends to
parent companies or other shareholders. Under California law, the maximum amount
of dividends that the Insurance Subsidiary may pay the Company in any twelve
month period without prior regulatory approval is the greater of (i) net income
for the preceding calendar year, or (ii) 10% of policyholders' surplus
(shareholders' equity adjusted to a statutory basis) as of the previous December
31. For the year ended December 31, 1996, the Insurance Subsidiary had net
income of approximately $2.8 million and as of December 31, 1996, statutory
policyholders' surplus of $26.8 million. Accordingly, for the year ended
December 31, 1996, the maximum dividend permitted by the Insurance Subsidiary to
National was approximately $2.8 million. On April 10, 1997, the Insurance
Subsidiary made a dividend payment to National in the amount of $2.5 million.
On September 18, 1997, the Company entered into a secured term note facility
(the "Term Facility") with a commercial bank. The Term Facility allows for a
maximum borrowing of $11.3 million, the proceeds of which may only be used for
purposes of acquiring the assets of ARTS. As of September 30, 1997, the
Company's borrowings under the Term Facility were $9.3 million. The remaining
portion of the Term Facility may be used for paying additional consideration for
ARTS in accordance with the Asset Purchase Agreement dated August 15, 1997, as
amended. As of September 30, 1997, the Company was in compliance with all
financial ratio and minimum net worth requirements per the terms of the Term
Facility.
On September 18, 1997, the Company amended its $5 million revolving facility
(the "Revolving Facility"). The primary amendment to the Revolving Facility was
the reduction in borrowing limits to
11
<PAGE> 14
$1 million from $5 million. As of September 30, 1997, the Company had no
borrowings under the Revolving Facility and was in compliance with the financial
covenants of the Revolving Facility.
In addition to the Term Facility and Revolving Facility, the Company has a
remaining balance of $500,000 due under a $2 million note payable (the "Term
Loan") as of September 30, 1997. As of September 30, 1997, the Company is in
compliance with the financial covenants of the Term Loan.
Consolidated shareholders' equity at September 30, 1997, totaled $27.1
million, or $6.80 per share, compared to $28.6 million, or $7.33 per share, at
December 31, 1996.
Industry and regulatory guidelines suggest that a property and casualty
insurers' annual statutory net written premium should not exceed approximately
three times its policyholder surplus. The Company's surplus ratio is
significantly lower than such guidelines. For the year ended December 31, 1996,
the Company's net written premium to policyholder surplus ratio was .50 to 1.
Management believes that as of September 30, 1997, that ratio has not materially
changed.
The Company is not aware of any trends, requirements, commitments, or events
that will or are reasonably likely to have a material negative impact on the
Company's liquidity during 1997. This report contains forward-looking statements
reflecting the Company's current expectations. There can be no assurance that
the Company's actual future performance will meet the Company's current
expectations.
Inflation generally affects the rate of investment return in the securities
and financial markets, and increases and decreases in such investment return
rates have a corresponding effect on the Company's investment income.
12
<PAGE> 15
NATIONAL INSURANCE GROUP AND SUBSIDIARIES
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is routinely a party to litigation incidental to its business,
as well as other litigation. While the ultimate results of such litigation
cannot presently be determined on the date of this report, management believes
that no individual item of litigation or group of similar items of litigation is
likely to have a material adverse effect on the consolidated financial position
of the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on July 11, 1997. At
the annual meeting, the shareholders elected Bard E. Bunaes, Bruce A. Cole, John
F. Hartigan, Saul B. Jodel and Mark A. Speizer to serve as directors of the
Company for the ensuing year, amended the Company's 1986 Stock Option Plan, and
ratified the selection of Coopers & Lybrand, LLP, as the Company's independent
accountants for the year ending December 31, 1997.
The votes for each of the proposals at the annual meeting were as follows:
Proposal
- --------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1. Election of Directors:
All nominees for director were elected with 3,558,210 shares voting for and 235,700 shares withheld.
Broker
For Against Withheld Non-votes
--- ------- -------- ---------
2. Amendment to
1986 Stock Option Plan 3,367,637 416,273 10,000 0
3. Appointment of
Coopers & Lybrand, LLP 3,793,910 0 0 0
</TABLE>
No other matters were submitted to a vote of security holders of the
Company at the annual meeting or otherwise during the quarter.
Item 5. Other Information
In August, 1997, Mr. Hartigan resigned from the Board of Directors.
13
<PAGE> 16
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
2.1 Assets Purchase Agreement by and among New ARTS Acquisition, Inc.,
National Insurance Group, American Realty Tax Services, Inc.,
American Realty Tax Services of New York, Inc., and Certain
Shareholders dated August 15, 1997 (incorporated by reference to
exhibits filed with the Company's Form 8-K dated September 18,
1997)
10.1 Credit Terms and Conditions dated April 2, 1997 by and between
National Insurance Group and Imperial Bank and Amendment No. 1 to
Credit Terms and Conditions dated September 17, 1997, by and
between National Insurance Group and Imperial Bank
10.2 Credit Terms and Conditions dated September 11, 1997, by and
between New Arts Acquisition, Inc. and Imperial Bank
10.3 Note dated September 11, 1997, made by New Arts Acquisition, Inc.
payable to Imperial Bank in the original principal amount of
$11,268,000
10.4 Addendum to Note dated September 11, 1997, made by New Arts
Acquisition, Inc.
10.5 Note dated September 11, 1997, made by National Insurance Group
payable to Imperial Bank in the original principal amount of
$1,000,000
10.6 Continuing Guarantee dated September 11, 1997, by National
Insurance Group for the benefit of Imperial Bank
10.7 General Security Agreement dated September 11, 1997, by New Arts
Acquisition, Inc. for the benefit of Imperial Bank
10.8 Pledge Agreement dated September 10, 1996, by and between National
Insurance Group and Imperial Bank, as amended by Amendment No. 1 to
Pledge Agreement dated April 2, 1997, and as further amended by
Amendment No. 2 to Pledge Agreement dated September 18, 1997
11.1 Computation of weighted average shares outstanding and earnings per
share
27.1 Financial data schedule
</TABLE>
14
<PAGE> 17
(b) Reports on Form 8-K
Report on Form 8-K, dated September 18, 1997, was filed with the
Securities and Exchange Commission. This report contained information relating
to the ARTS Acquisition.
15
<PAGE> 18
SIGNATURES
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.
NATIONAL INSURANCE GROUP
------------------------
(REGISTRANT)
/S/ MARK A. SPEIZER
-------------------------
DATE: NOVEMBER 5, 1997 (SIGNATURE)
Mark A. Speizer, Chairman
of the Board and Chief
Executive Officer
/S/ GREGORY S. SAUNDERS
-------------------------
DATE: NOVEMBER 5, 1997 (SIGNATURE)
Gregory S. Saunders,
Executive Vice President, Treasurer
and Chief Financial Officer
(Principal Financial Officer)
16
<PAGE> 19
NATIONAL INSURANCE GROUP
INDEX TO EXHIBITS
EXHIBIT
NUMBER
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
2.1 Assets Purchase Agreement by and among New ARTS Acquisition, Inc.,
National Insurance Group, American Realty Tax Services, Inc.,
American Realty Tax Services of New York, Inc., and Certain
Shareholders dated August 15, 1997 (incorporated by reference to
exhibits filed with the Company's Form 8-K dated September 18,
1997)
10.1 Credit Terms and Conditions dated April 2, 1997, by and between
National Insurance Group and Imperial Bank and Amendment No. 1 to
Credit Terms and Conditions dated September 17, 1997, by and
between National Insurance Group and Imperial Bank
10.2 Credit Terms and Conditions dated September 11, 1997, by and
between New Arts Acquisition, Inc. and Imperial Bank
10.3 Note dated September 11, 1997, made by New Arts Acquisition, Inc.
payable to Imperial Bank in the original principal amount of
$11,268,000
10.4 Addendum to Note dated September 11, 1997, made by New Arts
Acquisition, Inc.
10.5 Note dated September 11, 1997, made by National Insurance Group
payable to Imperial Bank in the original principal amount of
$1,000,000
10.6 Continuing Guarantee dated September 11, 1997, by National
Insurance Group for the benefit of Imperial Bank
10.7 General Security Agreement dated September 11, 1997, by New Arts
Acquisition, Inc. for the benefit of Imperial Bank
10.8 Pledge Agreement dated September 10, 1996, by and between National
Insurance Group and Imperial Bank, as amended by Amendment No. 1 to
Pledge Agreement dated April 2, 1997, and as further amended by
Amendment No. 2 to Pledge Agreement dated September 18, 1997
11.1 Computation of weighted average shares outstanding and earnings per
share
27.1 Financial data schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
456 Montgomery Street Date: April 2, 1997
San Francisco, California
Borrower: National Insurance Group
Subject: CREDIT TERMS AND CONDITIONS ("AGREEMENT")
Gentlemen:
To induce you to make loans to the undersigned (herein called "Borrower"), and
in consideration of any loan or loans you, in your sole discretion, may make to
Borrower, Borrower warrants and agrees as follows:
A. Borrower represents and warrants that:
1. Existence and Rights. Company is a California Corporation.
Borrower is duly organized and existing and in good standing under the laws of
the State of California (without limit as to the duration of its existence) and
is authorized and in good standing to do business in the State of California;
Company has powers and adequate authority, rights and franchises to own its
property and to carry on its business as now conducted, and is duly qualified
and in good standing in each State in which the character of the properties
owned by it therein or the conduct of its business makes such qualification
necessary; and Borrower has the power and adequate authority to make and carry
out this Agreement. Borrower has no investment in any other business entity,
except:
Great Pacific Insurance Company
Pinnacle Data Corporation
Fastrac Systems, Inc. Insurance Agent and Broker; and Fastrac Systems, Inc.
2. AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement are duly authorized and do not require the consent or
approval of any governmental body or other regulatory authority; are
not in contravention of or in conflict with any law or regulation or
any term or provision of Borrower's articles of incorporation,
by-laws, or Articles of Association, as the case may be, and this
Agreement is the valid, binding and legally enforceable obligation of
Borrower in accordance with its terms.
3. NO CONFLICT. The execution, delivery and performance of this Agreement
are not in contravention of or in conflict with any agreement,
indenture or undertaking to which Borrower is a party or by which it
or any of its property may be bound or affected, and do not cause any
lien, charge or other encumbrance to be created or imposed upon any
such property by reason thereof.
4. LITIGATION. To the knowledge of Borrower (i) there is no litigation or
other legal proceedings pending or threatened against Borrower, which
individually or in the aggregate would have a material adverse effect
on the financial condition, operations, or business of Borrower; and
(ii) Borrower is not in default with respect to any order, writ,
injunction, decree or demand of any court or other governmental or
regulatory authority, where such default would have a material adverse
effect to the financial condition, operations or business of Borrower.
1
<PAGE> 2
5. FINANCIAL CONDITION. The balance sheet of Borrower as of 12/31/96, and
the related profit and loss statement for the fiscal year ended on
that date, copy of which has heretofore been delivered to you by
Borrower, and all other statements and data submitted in writing by
Borrower to you in connection with this request for credit are true
and correct, and said balance sheet and profit and loss statement
fairly present the financial condition of Borrower as of the date
thereof and the results of the operations of Borrower for the period
covered thereby, and have been prepared in accordance with generally
accepted accounting principles on a basis consistently maintained.
Since such date there have been no materially adverse changes in the
financial condition or business of Borrower.
6. TITLE TO ASSETS. Borrower has good title to its assets.
7. TAX STATUS. Borrower has no liability for any delinquent state, local
or federal taxes, not subject to dispute by Borrower and for which
reasonable reserves have been established and, if Borrower has
contracted with any governmental agency, Borrower has no liability
for renegotiation of profits.
8. TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights,
and licenses to conduct its business as now operated, without any known
conflict with the valid trademarks, trade names, copyrights, patents
and license rights of others.
9. REGULATION U. The collateral for this loan is not margin stock within
the definition of Regulation U of the Board of Governors of the
Federal Reserve system.
B. Borrower agrees that so long as it is indebted to you, it will, unless you
shall otherwise consent in writing:
1. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises
and other authority adequate for the conduct of its business; maintain
its properties, equipment and facilities in good order and repair;
conduct its business in an orderly manner without voluntary
interruption and, if a corporation or partnership, maintain and
preserve its existence.
2. INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property
against fire and other hazards with responsible insurance carriers to
the extent usually maintained by similar businesses.
3. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties,
and all its other liabilities at any time existing, except to the
extent and so long as:
(a) The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse
effect upon its financial condition or the loss of any right of
redemption from any sale thereunder; and
2
<PAGE> 3
(b) It shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting practice) deemed
adequate with respect thereto.
4. NET WORTH. Maintain a tangible net worth (meaning the excess of all
assets, excluding any value for good will, trademarks, patents,
copyrights, leaseholds, organization expense and other similar
intangible items, over its liabilities) of not less than $22,500,000.
5. PROFITABILITY. Borrower to be profitable on a fiscal year basis and
shall not have losses for any two consecutive quarters.
6. CASH FLOW COVERAGE. Commencing with fiscal year 1997 and thereafter on
an annual basis, the sum of Borrower's net profit plus period
depreciation divided by the current portion of long term debt and
capitalized leases shall not be less than 1.4.
7. RECORDS AND REPORTS. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles
on a basis consistently maintained; permit your representatives to
have access to, and to examine its properties, books and records at
all reasonable times; and furnish you:
(a) As soon as available, and in any event within 50 days after the
close of each quarter of each fiscal year of Borrower, commencing
with the quarter next ending, a balance sheet, profit and loss
statement and reconciliation of Borrower's capital accounts as of
the close of such period and covering operations for the portion of
Borrower's fiscal year ending on the last day of such period, all
in reasonable detail and stating in comparative form the figures
for the corresponding date and period in the previous fiscal year,
prepared in accordance with generally accepted accounting
principles on a basis consistently maintained by Borrower and
certified by an appropriate officer of Borrower, subject, however,
to year-end audit adjustments.
(b) As soon as available, and in any event within 100 days after the
close of each fiscal year of Borrower, a report of audit of
Company as of the close of and for such fiscal year, all in
reasonable detail and stating in comparative form the figures as
of the close of and for the previous fiscal year, with the
unqualified opinion of accountants satisfactory to you, or no
third party opinion required.
(c) Within 100 days after the end of each fiscal year of Borrower, a
certificate of chief financial officer of Borrower, stating that
to the best knowledge of such officer, Borrower has performed and
observed all material covenants on its part required to be
performed by it except where the failure to so perform or observe
would have a material adverse effect on the financial condition,
operations or business of Borrower;
(d) Promptly after the receipt thereof by Borrower shall send to its
stockholders, if any, and copies of all reports which Borrower may
file with the Securities and Exchange Commission or any
governmental authority at any time substituted therefor; and
3
<PAGE> 4
(e) Such other information relating to the affairs of Borrower as you
reasonably may request from time to time.
(f) Notice of Default. Promptly notify the Bank in writing of the
occurrence of any event of default hereunder or any event which
upon notice and lapse of time would be an event of default.
C. Borrower agrees that so long as it is indebted to you, it will not, without
your written consent:
Type of Business: Management. Make any substantial change in its business
or operations or make any change in incumbency of Mark A. Speizer as
chairman and Chief Executive Officer of Borrower or of Bruce A. Cole as
President of Borrower.
D. The occurrence of any one of the following events of default shall, at your
option, terminate your commitment to lend and make all sums of principal
and interest then remaining unpaid on all Borrower's indebtedness to you
immediately due and payable, all without demand, presentment or notice, all
of which are hereby expressly waived:
1. FAILURE TO PAY NOTE. Failure to pay any installment of principal or of
interest on any indebtedness of Borrower to you within 10 days of the
date when due.
2. BREACH OF COVENANT. Failure of Borrower to perform any other term or
condition of this Agreement binding upon Borrower, which failure
continues and is not cured within thirty days after written notice from
Bank to Borrower.
3. BREACH OF WARRANTY. Any of Borrower's representations or warranties
made herein or any statement or certificate at any time given in
writing pursuant hereto or in connection herewith shall be false or
misleading in any material respect.
4. INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or
admits its inability to pay its debts as the mature; or make an
assignment for the benefit of creditors; or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part
of its property or business.
5. JUDGMENTS, ATTACHMENTS. Any money judgment, writ or warrant of
attachment, or similar process shall be entered or filed against
Borrower or any of its assets, which judgment, writ or warrant of
attachment or similar process will have a material adverse effect on
the financial condition, operations and business of Borrower and which
remains unvacated, unbonded, or unstayed for a period of 30 days or in
any event later than five days prior to the day of any proposed sale or
execution under such judgment, writ, warrant of attachment or similar
process.
4
<PAGE> 5
6. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or
any law for the relief of debtors shall be instituted by or against
Borrower and, if instituted against it, shall be consented to.
E. Miscellaneous Provisions.
1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
your Bank or any holder of Notes issued hereunder, in the exercise of
any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any
other right, power or privilege. All rights and remedies existing under
this agreement of any note issued in connection with a loan that your
Bank may make hereunder, are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
2. TERMINATION. Upon thirty days written notice to Lender, Borrower may
terminate this agreement in full, provided that, upon such time of
notice and upon the effective termination date, the Borrower has no
outstanding principal, interest, penalties, or any other amounts due
under this agreement. Upon termination, Lender's interest in all
Collateral of Borrower shall cease.
3. NOTICES. All notices, demands, requests or other communications that
may be or are required to be given, served, or sent by any party to any
other party pursuant to this agreement shall be in writing and shall be
mailed by first-class registered or certified mail, return receipt
requested, postage prepaid, or transmitted by hand delivery, with
signature required by recipient, addressed as follows:
4. AMENDED AND RESTATED CREDIT TERMS AND CONDITIONS. This Agreement
amends and restates in full that Credit Terms and Conditions dated
September 10, 1996 executed by Borrower in favor of Bank. That
Promissory Note dated September 10, 1996 and that Promissory Note dated
April 2, 1997, both executed by the Borrower in favor of Bank are
subject to the terms and conditions of this Agreement.
Notices to Borrower:
Gregory S. Saunders
Chief Financial Officer
National Insurance Group
395 Oyster Point Boulevard, Suite 500
South San Francisco, California 94080-1933
With a copy (which shall
not constitute notice) to:
Robert P. Barbarowicz
Executive Vice President and General Counsel
395 Oyster Point Boulevard, Suite 500
South San Francisco, California 94080-1933
5
<PAGE> 6
Notices to Bank:
Joseph J. McCarthy, Vice President
Imperial Bank
456 Montgomery Street, 6th Floor
San Francisco, California, 94104
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request or communication that is mailed shall be deemed
sufficiently given, served, sent, and received for all purposes at such time as
it is delivered to the addressees (with the return receipt, the delivery
receipt, the affidavit of messenger being conclusive evidence of such delivery)
or at such time as delivery refused by the addressees upon presentation.
Agreed to and Accepted:
<TABLE>
<CAPTION>
National Insurance Group Imperial Bank
<S> <C> <C> <C>
By /s/ Robert P. Barbarowicz Date 4-25-97 By /s/ Joseph J. McCarthy Date 4/25/97
------------------------- ------- ---------------------- -------
Robert P. Barbarowicz, Vice President
Executive Vice President (Signature and Title)
(Signature and Title)
By Date
------------------------- -------
(Signature and Title)
</TABLE>
6
<PAGE> 7
AMENDMENT NO. 1 TO CREDIT TERMS AND CONDITIONS
This Amendment No 1 dated as of September 17, 1997 ("Amendment") to that
certain Credit Terms and Agreement dated April 2, 1997 ("Agreement") by and
between Imperial Bank ("Bank") and National Insurance Group ("Borrower"). All
capitalized terms used herein, and not defined herein shall have the same
meaning as set forth in the Agreement.
1. The following Sections B.4, B.5 and B.6 of the Agreement are hereby each
amended in full to read as follows:
"4. NET WORTH. Maintain on a consolidated basis a tangible net worth
(meaning the excess of all assets, excluding any value for good will,
provided that goodwill for New Arts Acquisition, Inc. will be included,
trademarks, patents, copyrights, leaseholds, organization expense and other
similar intangible items, over its liabilities) of not less than
$25,000,000 to increase each fiscal year end, commencing with fiscal year
end 1998, by Borrower's net income minus dividends paid.
5. PROFITABILITY. Borrower to be profitable on a consolidated basis on a
fiscal year basis and shall not have losses for any two consecutive
quarters.
6. CASH FLOW COVERAGE. Commencing with fiscal year 1997 and thereafter on a
consolidated and annual basis, the sum of Borrower's net profit plus period
depreciation divided by the current portion of long term debt and
capitalized leases shall not be less than 1.4."
2. The following Sections B. 7(a) and B.7(b) of the Agreement are hereby each
amended in full to read as follows:
"(a) As soon as available, and in any event within 50 days after the
close of each quarter of each fiscal year of Borrower, commencing with
the quarter next ending, a consolidated balance sheet, profit and loss
statement and reconciliation of Borrower's capital accounts as of the
close of such period and covering operations for the portion of
Borrower's fiscal year ending on the last day of such period, all in
reasonable detail and stating in comparative form the figures for the
corresponding date and period in the previous fiscal year, prepared in
accordance with generally accepted accounting principles on a basis
consistently maintained by Borrower and certified by an appropriate
officer of Borrower, subject, however, to year-end audit adjustments.
1
<PAGE> 8
(b) As soon as available, and in any event within 100 days after the
close of each fiscal year of Borrower, a report of audit of Company on a
consolidated basis as of the close of and for such fiscal year, all in
reasonable detail and stating in comparative form the figures as of the
close of and for the previous fiscal year, with the unqualified opinion
of accountants satisfactory to you, or no third party opinion required."
3. The following Sub-sections 7 and 8 are hereby added to section D of the
agreement.
"7. GUARANTEE. Borrower shall default in its obligations under any
guarantee it executed in your favor guaranteeing the obligations of New
Arts Acquisition, Inc. ("New Arts").
8. NEW ARTS CREDIT AGREEMENT. A default shall occur, and such default is
not cured within any applicable cure period, in that Credit Terms and
Conditions executed by New Arts and the Bank dated September 11, 1997, as
such may be amended, modified, superseded, replaced, restated or amended
and restated ("New Arts Credit Agreement").
4. The following Section F is hereby added to the Agreement.
F. Applicable Law and Reference Provisions.
1. APPLICABLE LAW. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed
by and construed according to the laws of the State of California, to
the jurisdiction of which the parties hereby agree to submit.
2. Reference Provisions.
(a). Other than (i) non-judicial foreclosure and all matters in
connection therewith regarding security interests in real or personal
property; or (ii) the appointment of a receiver, or the exercise of
other provisional remedies (any and all of which may be initiated
pursuant to applicable law), each controversy, dispute or claim
between the parties arising out of or relating to this Agreement which
controversy, dispute or claim is not settled in writing within thirty
(30) days after the "Claim Date" (defined as the date on which a party
subject to the Agreement gives written notice to all other parties
that a controversy, dispute or claim exists), will be settled by a
reference proceeding in California in accordance with the provisions
of Section 638 et seq of the California Code of Civil Procedure, or
their successor section ("CCP"), which shall constitute the exclusive
remedy for the settlement of any controversy, dispute or claim
concerning this Agreement, including whether such controversy, dispute
or claim is subject to the reference proceeding and except as set
forth above, the parties waive their rights to initiate any legal
proceedings against each other in any court or jurisdiction other than
the Superior Court in the County where the real property securing this
Agreement, if
2
<PAGE> 9
any, is located or Los Angeles County if none (the "Court"). The
referee shall be a retired Judge of the Court selected by mutual
agreement of the parties, and if they cannot so agree within
forty-five (45) days after the Claim Date, the referee shall be
promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary
judge, with all of the powers of a temporary judge, as authorized by
law, and upon selection should take and subscribe to the oath of
office as provided for in Rule 244 of the California Rules of Court
(or any subsequently enacted Rule). Each party shall have one
peremptory challenge pursuant to CCP Section 170.6. The referee shall
(a) be requested to set the matter for hearing within sixty (60) days
after the Claim Date and (b) try any and all issues of law or fact and
report a statement of decision upon them, if possible, within ninety
(90) days of the Claim Date. Any decision rendered by the referee will
be final, binding and conclusive and judgment shall be entered
pursuant to CCP Section 644.90 in any court in the State of California
having jurisdiction. Any party may apply for a reference proceeding at
any time after thirty (30) days following notice to any other party of
the nature of the controversy, dispute or claim, by filing a petition
for a hearing and/or trial. All discovery permitted by this Agreement
shall be completed no later than fifteen (15) days before the first
hearing date established by the referee. The referee may extend such
period in the event of a party's refusal to provide requested
discovery for any reason whatsoever, including, without limitation,
legal objections raised to such discovery or unavailability of a
witness due to absence or illness. No party shall be entitled to
"priority" in conducting discovery. Depositions may be taken by either
party upon seven (7) days written notice, and request for production
or inspection of documents shall be responded to within ten (10) days
after service. All disputes relating to discovery which cannot be
resolved by the parties shall be submitted to the referee whose
decision shall be final and binding upon the parties. Pending
appointment of the referee as provided herein, the Superior Court is
empowered to issue temporary and/or provisional remedies, as
appropriate.
(b). Except as expressly set forth in this Agreement, the referee
shall determine the manner in which the reference proceeding is
conducted including the time and place of all hearings, the order of
presentation of evidence, and all other questions that arise with
respect to the course of the reference proceeding. All proceedings and
hearings conducted before the referee, except for trial, shall be
conducted without a court reporter, except that when any party so
requests, a court reporter will be used at any hearing conducted
before the referee. The party making such a request shall have the
obligation to arrange for and pay for the court reporter. The costs of
the court reporter at the trial shall be borne equally by the parties.
(c). The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State
of California. The rules of evidence applicable to proceedings at law
in the State of California will be applicable to the reference
proceeding. The referee shall be empowered to enter equitable as well
as legal relief, to provide all temporary and/or provisional remedies
and to enter equitable orders that will be binding upon the parties.
The referee shall issue a single judgment at
3
<PAGE> 10
the close of the reference proceeding which shall dispose of all of
the claims of the parties that are the subject of the reference. The
parties hereto expressly reserve the right to contest or appeal from
the final judgment or any appealable order or appealable judgment
entered by the referee. The parties hereto expressly reserve the right
to findings of fact, conclusions of law, a written statement of
decision, and the right to move for a new trial or a different
judgment, which new trial, if granted, is also to be a reference
proceeding under this provision.
(d). In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is
enacted), any dispute between the parties that would otherwise be
determined by the reference procedure herein described will be
resolved and determined by arbitration. The arbitration will be
conducted by a retired judge of the Court, in accordance with the
California Arbitration Act, Section 1280 through Section 1294.2 of the
CCP as amended from time to time. The limitations with respect to
discovery as set forth hereinabove shall apply to any such arbitration
proceeding.
5. The Borrower hereby agrees that as long as New Arts remains obligated
to the Bank the provisions of Sections B.4, B.5, B.6, and B.7 of the
Agreement shall remain in full force and effect and shall survive
repayment if full of all obligations of Borrower to Bank or the
termination of the Agreement or if the Agreement is no longer in
effect for any reason. Any breach of this provision shall result in a
default in the New Arts Credit Agreement.
6. Except as provided above, the Agreement remains unchanged.
National Insurance Group
By: /s/ GREG SAUNDERS
-------------------------
Title: EVP, CFO
-------------------------
Imperial Bank
By: /s/ JOSEPH J. MCCARTHY
-------------------------
Title: Vice President
-------------------------
4
<PAGE> 1
EXHIBIT 10.2
East Bay Regional Office Date: September 11, 1997
1331 N. California Blvd.
Suite 320
Walnut Creek, Ca. 94596-9504
Borrower: New Arts Acquisition, Inc.
Subject: CREDIT TERMS AND CONDITIONS ("AGREEMENT")
Gentlemen:
To induce Imperial Bank (herein sometimes herein referred to as "you" and
sometimes as "Bank") to make loans to the undersigned (herein called
"Borrower"), and in consideration of any loan or loans you, in your sole
discretion, may make to Borrower, Borrower warrants and agrees as follows:
A. Borrower represents and warrants that:
1. EXISTENCE AND RIGHTS. Borrower is a Delaware Corporation. Borrower is
duly organized and existing and in good standing under the laws of
the State of Delaware (without limit as to the duration of its
existence); Borrower has powers and adequate authority, rights and
franchises to own its property and to carry on its business as now
conducted, and is duly qualified and in good standing in each State
in which the character of the properties owned by it therein or the
conduct of its business makes such qualification necessary; and
Borrower has the corporate power and adequate corporate authority to
make and carry out this Agreement. Borrower has no investment in any
other business entity except as follows:
(a) Pinnacle American Realty Tax Services, Inc.
(b) Pinnacle American Realty Tax Service of New York, Inc.
2. AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement are duly authorized and do not require the consent or
approval of any governmental body or other regulatory authority; are
not in contravention of or in conflict with any law or regulation or
any term or provision of Borrower's articles of incorporation,
by-laws, or Articles of Association, as the case may be, and this
Agreement is the valid, binding and legally enforceable obligation of
Borrower in accordance with its terms.
3. NO CONFLICT. The execution, delivery and performance of this
Agreement are not in contravention of or in conflict with any
agreement, indenture or undertaking to which Borrower is a party or
by which it or any of its property may be bound or affected, and do
not cause any lien, charge or other encumbrance to be created or
imposed upon any such property by reason thereof.
4. LITIGATION. To the knowledge of Borrower (i) there is no litigation
or other legal proceedings pending or threatened against Borrower,
which individually or in the aggregate would have a material adverse
effect on the financial condition, operations, or business of
Borrower; and (ii) Borrower is not in default with respect to any
order, writ, injunction, decree or demand of any court or other
1
<PAGE> 2
governmental or regulatory authority, where such default would have a
material adverse effect to the financial condition, operations or
business of Borrower.
5. FINANCIAL CONDITION. The Recasted and Forecasted Income Statement,
Summary Cash Flow & Dividend Analysis, Proforma Balance Sheets, Cash
Flow Forecast and Financing Analysis of Borrower, copy of which has
heretofore been delivered to you by Borrower, and all other statements
and data submitted in writing by Borrower to you in connection with this
request for credit are prepared in good faith based upon reasonable
assumptions, and have been prepared in accordance with generally
accepted accounting principles on a basis consistently maintained.
6. TITLE TO ASSETS. Borrower has good title to its assets.
7. TAX STATUS. Borrower has no liability for any delinquent state, local or
federal taxes, not subject to dispute by Borrower and for which
reasonable reserves have been established and, if Borrower has
contracted with any government agency, Borrower has no liability for
renegotiation of profits.
8. TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights,
and licenses to conduct its business as now operated, without any known
conflict with the valid trademarks, trade names, copyrights, patents and
license rights of others.
9. REGULATION U. The collateral for this loan is not margin stock within
the definition of Regulation U of the Board of Governors of the Federal
Reserve system.
B. Borrower agrees that so long as it is indebted to you, it will, unless you
shall otherwise consent in writing:
1. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises and
other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct
its business in an orderly manner without voluntary interruption and, if
a corporation or partnership, maintain and preserve its existence.
2. INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property
against fire and other hazards with responsible insurance carriers to
the extent usually maintained by similar businesses.
3. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties,
and all its other liabilities at any time existing, except to the extent
and so long as:
(a) The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse
effect upon its financial condition or the loss of any right of
redemption from any sale thereunder; and
(b) It shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting practice) deemed
adequate with respect thereto.
2
<PAGE> 3
4. PROFITABILITY. Borrower, on a consolidate basis with National
Insurance Group ("Guarantor") to be profitable on a fiscal year basis
and shall not have losses for any two consecutive quarters.
5. NOTICE OF DEFAULT. Promptly notify the Bank in writing of the
occurrence of any event of default hereunder or any event which upon
notice and lapse of time would be an event of default.
6. BANKING RELATIONSHIP. Maintain, and cause all its subsidiaries to
maintain, all significant bank deposit accounts and banking
relationship with Bank.
7. COSTS AND FEES.
(a) Borrower shall pay to Bank all legal fees, documentation costs
and all out of pocket cost and expenses incurred by the Bank in
connection with the negotiation and preparation of this
Agreement, including but not limited to filing fees.
(b) Borrower will pay promptly to Bank without demand, after notice,
with interest thereon from the date of expenditure at the rate
applicable to the loan from Bank to Borrower, reasonable
attorneys' fees and all costs and expenses paid or incurred by
Bank in collecting or compromising any loan whether or not suit
is filed. If suit is brought to enforce any provision of this
Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and court costs in addition to any
other remedy or recovery awarded by the court.
8. EXCESS CASH FLOW PRINCIPAL PAYMENTS. Commencing April 1, 1999, and
on the 91st day of each fiscal year thereafter, pay to Bank as a
principal reduction of any loan made by Bank to Borrower, an Excess
Cash Flow Principal Payment ("ECFPP") equal to Excess Cash Flow
("ECF") times Principal Payment Percentage ("PPP"). For the purpose
of this Section 8 the following definitions shall apply:
(a) "CFBD" means the Guarantor's audited net income after tax, plus
depreciation, amortization, plus (less) changes in working
capital, less principal and interest payments on all debt, less
capital expenditures. CFBD excludes any cash received from
financing activities (i.e. new loans, new equity and other forms
of financing). In addition, CFBD shall not include amounts
reported on Guarantor's consolidated statements of cash flows as
reported in its SEC financial statements representing proceeds
from the sale, maturity or purchase of investment securities, as
reported in accordance with Generally Accepted Accounting
Principals.
(b) "MDA means $0.48 times the number of Guarantor's common shares
outstanding as of any fiscal years.
(c) "ECF" means the difference between CFBD and the MDA measured on
an annual basis on the 91st day following each fiscal year end.
(d) "ECFPP" means the annual payment to be made by Borrower as a
reduction in the principal of the obligations owing Bank from
Borrower paid in accordance with the provisions of this Section
B.8.
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<PAGE> 4
(e) "PPP" means the percentage of ECF to be paid by Borrower each
year to Bank in accordance with the provisions of this Section
B.8. The PPP's for each year is set forth in Schedule A attached
hereto.
9. REPORTING REQUIREMENTS. Borrower will provide the following to Bank,
all in form and substance satisfactory to Bank:
(a) Commencing with the fiscal year 1999, and each year thereafter
no later than the 91st day of each fiscal year, a certificate of
the calculation of ECF, certified to by the Chief Financial
Officer of the Borrower. The calculation shall set forth, in
reasonable detail, the method of determining ECF and such other
variables as are relevant in determining the ECFPP, as estimated
in the attached Schedule A.
(b) Cause the Guarantor to provide those reports required by Section
7 of the Credit Terms and Conditions executed by Guarantor in
favor of Bank dated April 2, 1997, ("Guarantor's Credit
Agreement"), as such may be amended, modified, superseded,
replaced, restated or modified even if the Guarantor's Credit
Agreement is terminated or no longer in effect for any reason.
10. USE OF PROCEEDS. Borrower shall use the proceeds of any loan from
Bank only to purchase the assets of American Realty Tax Services,
Inc. ("Seller") and American Realty Tax Services of New York
pursuant to the terms of that Asset Purchase Agreement ("Purchase
Agreement") dated as of August 15, 1997 between Seller, Borrower and
Guarantor.
11. PURCHASE AGREEMENT. Prior to the Bank making any loans to Borrower,
Borrower shall provide Bank with an executed copy of the Purchase
Agreement.
12. GUARANTEE. Prior to Bank making any loans to Borrower, Borrower
shall cause Guarantor to execute a guarantee in form, substance and
amounts satisfactory to bank guaranteeing Borrower's obligations to
Bank and Bank shall have received an Amendment to the Pledge
Agreement executed by Guarantor and an amendment to the Guarantor's
Credit Agreement.
13. NET WORTH. Maintain, on a consolidated basis with Guarantor and
Guarantor's and Borrower's subsidiaries, a tangible net worth
(meaning the excess of all assets, excluding any value for good
will, provided that good will for Borrower will be included,
trademarks, patents, copyrights, leaseholds, organization expense
and other similar intangible items, over its liabilities) of not
less than $25,000,000 to increase each fiscal year end, commencing
with fiscal year end 1997, by Guarantor's net income minus dividends
paid.
14. CASH FLOW COVERAGE. Commencing with fiscal year 1997 and thereafter
on an annual basis, the aggregate sum of Borrower's and Guarantor's
net profit plus period depreciation divided by the current portion
of long term debt and capitalized leases shall not be less than 1.4.
15. QUALIFICATION TO DO BUSINESS. Within 90 days from the date of this
Agreement qualify as a foreign corporation to do business in
California.
4
<PAGE> 5
C. Borrower agrees that so long as it is indebted to you, it will not,
without your written consent:
1. TYPE OF BUSINESS; MANAGEMENT. Make any substantial change in its
business or operations or make any change in incumbency of Mark A.
Speizer as chairman and Chief Executive Officer of Borrower or of
Bruce A. Cole as President of Borrower.
D. The occurrence of any one of the following events of default shall, at your
option, terminate your commitment to lend and make all sums of principal
and interest then remaining unpaid on all Borrower's indebtedness to you
immediately due and payable, all without demand, presentment or notice, all
of which are hereby expressly waived:
1. FAILURE TO PAY. Failure to pay any installment of principal or of
interest on any indebtedness of Borrower to you within 10 days of the
date when due.
2. BREACH OF COVENANT. Failure of Borrower to perform any other term or
condition of this Agreement, or any other agreement or document
executed by Borrower in favor of Bank, binding upon Borrower, which
failure continues and is not cured within thirty days after written
notice from Bank to Borrower.
3. BREACH OF WARRANTY. Any of Borrower's representations or warranties
made herein or any statement or certificate at any time given in
writing pursuant hereto or in connection herewith shall be false or
misleading in any material respect.
4. INSOLVENCY; RECEIVER OR TRUSTEE. Borrower or Guarantor shall become
insolvent; or admit its inability to pay its debts as they mature; or
make an assignment for the benefit of creditors; or apply for or
consent to the appointment of a receiver or trustee for it or for a
substantial part of its property or business.
5. JUDGMENTS, ATTACHMENTS. Any money judgment, writ or warrant of
attachment, or similar process shall be entered or filed against
Borrower or Guarantor or any of its assets, which judgment, writ or
warrant of attachment or similar process will have a material adverse
effect on the financial condition, operations and business of
Borrower or Guarantor and which remains unvacated, unbonded or
unstayed for a period of 30 days or in any event later than five days
prior to the day of any proposed sale or execution under such
judgment, writ, warrant of attachment or similar process.
6. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or
against Borrower or Guarantor and, if instituted against it, shall be
consented to.
7. REVOCATION OF GUARANTEE. The revocation of any guarantee by the
Guarantor.
5
<PAGE> 6
8. DEFAULT BY GUARANTOR. An event of default shall occur in the Guarantor's
Credit Agreement as such may be amended, modified, superseded, replaced
or restated, or modified or in any other agreement or document executed
by Guarantor in favor of Bank.
E. Miscellaneous Provisions.
1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
your Bank or any holder of Notes issued hereunder, in the exercise of
any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any
other right, power or privilege. All rights and remedies existing under
this agreement of any note issued in connection with a loan that your
Bank may make hereunder, are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
2. TERMINATION. Upon thirty days written notice to Lender, Borrower may
terminate this agreement in full, provided that, upon such time of
notice and upon the effective termination date, the Borrower has no
outstanding principal, interest, penalties, or any other amounts due
under this agreement. Upon termination, Lender's interest in all
Collateral of Borrower shall cease.
3. NOTICES. All notices, demands, requests or other communications that
may be or are required to be given, served, or sent by any party to
any other party pursuant to this agreement shall be in writing and
shall be mailed by first-class registered or certified mail, return
receipt requested, postage prepaid, or transmitted by hand delivery,
with signature required by recipient, addressed as follows:
Notices to Borrower:
Gregory S. Saunders
Chief Financial Officer
New Arts Acquisition, Inc.
395 Oyster Point Boulevard, Suite 500
South San Francisco, California 94080-1933
With a copy (which shall
not constitute notice) to:
Robert P. Barbarowicz
Secretary
395 Oyster Point Boulevard, Suite 500
South San Francisco, California 94080-1933
6
<PAGE> 7
Notices to Bank:
Joseph J. McCarthy, Vice President
Imperial Bank
East Bay Regional Office
1331 N. California Blvd.
Suite 320
Walnut Creek, Ca 94596-9504
Atten: Commercial Lending
Each party may designate by notice in writing a new address to which
any notice, demand, request or communication may thereafter be so
given, served or sent. Each notice, demand, request or communication
that is mailed shall be deemed sufficiently given, served, sent, and
received for all purposes at such time as it is delivered to the
addressees (with the return receipt, the delivery receipt, the
affidavit of messenger being conclusive evidence of such delivery) or
at such time as delivery refused by the addressees upon presentation.
F. Applicable Law and Reference Provisions
1. APPLICABLE LAW. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed
by and construed according to the laws of the State of California, to
the jurisdiction of which the parties hereby agree to submit.
2. REFERENCE PROVISIONS.
(a). Other than (i) non-judicial foreclosure and all matters in
connection therewith regarding security interests in real or
personal property; or (ii) the appointment of a receiver, or the
exercise of other provisional remedies (any and all of which may
be initiated pursuant to applicable law), each controversy,
dispute or claim between the parties arising out of or relating
to this Agreement which controversy, dispute or claim is not
settled in writing within thirty (30) days after the "Claim Date"
(defined as the date on which a party subject to the Agreement
gives written notice to all other parties that a controversy,
dispute or claim exists), will be settled by a reference
proceeding in California in accordance with the provisions of
Section 638 et seq. of the California Code of Civil Procedure, or
their successor section ("CCP"), which shall constitute the
exclusive remedy for the settlement of any controversy, dispute
or claim concerning this Agreement, including whether such
controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their
rights to initiate any legal proceedings against each other in
any court or jurisdiction other than the Superior Court in the
County where the real property securing this Agreement, if any,
is located or Los Angeles County if none (the "Court"). The
referee shall be a retired Judge of the Court selected by mutual
agreement of the parties, and if they cannot so agree within
forty-five (45) days after the Claim Date, the referee shall be
promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a
temporary judge, with all of the powers of a temporary judge, as
authorized by law, and upon selection should take and subscribe
to the oath of office as provided for in Rule 244 of the
California Rules of Court (or any subsequently enacted Rule).
Each party shall have one peremptory challenge pursuant to CCP
Section 170.6. The referee shall (a) be requested to set the
matter for hearing within sixty (60) days after the Claim Date
and (b) try any and all issues of law or fact and report a
statement of decision upon them, if
7
<PAGE> 8
possible, within ninety (90) days of the Claim Date. Any decision
rendered by the referee will be final, binding and conclusive and
judgment shall be entered pursuant to CCP Section 644.90 in any
court in the State of California having jurisdiction. Any party
may apply for a reference proceeding at any time after thirty
(30) days following notice to any other party of the nature of
the controversy, dispute or claim, by filing a petition for a
hearing and/or trial. All discovery permitted by this Agreement
shall be completed no later than fifteen (15) days before the
first hearing date established by the referee. The referee may
extend such period in the event of a party's refusal to provide
requested discovery for any reason whatsoever, including, without
limitation, legal objections raised to such discovery or
unavailability of a witness due to absence or illness. No party
shall be entitled to "priority" in conducting discovery.
Depositions may be taken by either party upon seven (7) days
written notice, and request for production or inspection of
documents shall be responded to within ten (10) days after
service. All disputes relating to discovery which cannot be
resolved by the parties shall be submitted to the referee whose
decision shall be final and binding upon the parties. Pending
appointment of the referee as provided herein, the Superior Court
is empowered to issue temporary and/or provisional remedies, as
appropriate.
(b). Except as expressly set forth in this Agreement, the referee
shall determine the manner in which the reference proceeding is
conducted including the time and place of all hearings, the order
of presentation of evidence, and all other questions that arise
with respect to the course of the reference proceeding. All
proceedings and hearings conducted before the referee, except for
trial, shall be conducted without a court reporter, except that
when any party so requests, a court reporter will be used at any
hearing conducted before the referee. The party making such a
request shall have the obligation to arrange for and pay for the
court reporter. The costs of the court reporter at the trial
shall be borne equally by the parties.
(c). The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the
State of California. The rules of evidence applicable to
proceedings at law in the State of California will be applicable
to the reference proceeding. The referee shall be empowered to
enter equitable as well as legal relief, to provide all temporary
and/or provisional remedies and to enter equitable orders that
will be binding upon the parties. The referee shall issue a
single judgment at the close of the reference proceeding which
shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve
the right to contest or appeal from the final judgment or any
appealable order or appealable judgment entered by the referee.
The parties hereto expressly reserve the right to findings of
fact, conclusions of law, a written statement of decision, and
the right to move for a new trial or a different judgment, which
new trial, if granted, is also to be a reference proceeding under
this provision.
(d). In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is
enacted), any dispute between the parties that would otherwise be
determined by the reference procedure herein described will be
resolved and determined by arbitration. The arbitration will be
conducted by a retired judge of the Court, in accordance with
the California Arbitration Act, Section 1280 through Section
1294.2 of the CCP as amended from time to time. The limitations
with respect to discovery as set forth hereinabove shall apply to
any such arbitration proceeding.
8
<PAGE> 9
AGREED TO AND ACCEPTED:
NEW ARTS ACQUISITION, INC. IMPERIAL BANK
BY /s/ GREG SANDERS, EVP DATE 9/17/97 BY /s/ JOSEPH McCARTHY DATE 9/17/97
-------------------------- -------- --------------------- --------
(SIGNATURE AND TITLE) (SIGNATURE AND TITLE)
BY /s/ ROBERT P. BARBAROWICZ DATE 9/17/97
-------------------------- --------
(SIGNATURE AND TITLE)
EXECUTIVE VICE PRESIDENT &
SECRETARY
9
<PAGE> 10
<TABLE>
<CAPTION>
Schedule A Numbers in $000's Fiscal Year
-----------------------------------------------------------
Amounts herein are estimates only 1998 1999 2000 2001 2002
and subject to change ------ ------ ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total est. NAIG cash flow before dividends, $3,413 $5,718 $ 8,459 $ 12,812 $ 11,185
after debt service
Less Maximum Dividend Allowance (MDA) 1,904 1,904 1,904 1,904 1,904
(based on $.48/sh.)
------ ----- ------ -------- ----------
Excess Cash Flow (ECF) available for $1,509 $3,814 $8,555 $10,908 $9,281
prepayment of term loan
Principal Payment Percentage (PPP) 50.0% 30.0% 20.0% 10.0% 10.0%
------ ----- -------- -------- ---------
Prospective Excess Cash Flow Principal $ 754 $1,144 $1,311 $1,091 $ 928
Payment (ECFPP)
Cumulative prospective ECFPP 754 1,899 3,210 4,300 5,228
------ ------ ------- --------- ---------
</TABLE>
<PAGE> 1
EXHIBIT 10.3
[IMPERIAL BANK LOGO]
NOTE
$11,268,000.00 Walnut Creek, California September 11, 1997
On March 30, 2003, and as hereinafter provided, for value received, the
undersigned promises to pay to IMPERIAL BANK ("Bank") a California banking
corporation, or order, at its East Bay Regional office, the principal sum of
$11,268,000.00 or such sums up to the maximum if so stated, as the Bank may now
or hereafter advance to or for the benefit of the undersigned in accordance with
the terms hereof, together with interest from date of disbursement or (N/A),
whichever is later, on the unpaid principal balance [ ] at the rate of ____% per
year [X] at the rate of 1.250% per year in excess of the rate of interest which
Bank has announced as its prime lending rate (the "Prime Rate"), which shall
vary concurrently with any change in such Prime Rate, or $250.00, whichever is
greater. Interest shall be computed at the above rate on the basis of the actual
number of days during which the principal balance is outstanding, divided by
360, which shall, for interest computation purposes, be considered one year.
Interest shall be payable [X] monthly [ ] quarterly [X] included with principal
[ ] in addition to principal [ ] beginning September 30, 1997, and if not so
paid shall become a part of the principal. All payments shall be applied first
to any late charges owing, then to interest and the remainder, if any, to
principal. [X] (if checked), Principal shall be payable in installments of
$______________, or more, each installment on the 30th day of each month,
beginning May 30, 1998. Advances not to exceed any unpaid balance owing at any
one time equal to the maximum amount specified above, may be made at the option
of Bank.
Any partial prepayment shall be applied to the Installments, if any, in
inverse order of maturity. Should default be made in the payment of principal or
interest when due, or in the performance or observance, when due, of any item,
covenant or condition of any deed of trust, security agreement or other
agreement (including amendments or extensions thereof) securing or pertaining to
this note, at the option of the holder hereof and without notice or demand, the
entire balance of principal and accrued interest then remaining unpaid shall (a)
become immediately due and payable, and (b) thereafter bear interest, until paid
in full, at the increased rate of 5% per year in excess of the rate provided for
above, as it may vary from time to time.
Defaults shall include*
If any installment payment, interest payment, principal payment or
principal balance payment due hereunder is delinquent ten or more days, Obligor
agrees to pay Bank at late charge in the amount of 5% of the payment so due and
unpaid, in addition to the payment; but nothing in this paragraph is to be
construed as any obligation on the part of the holder of this note to accept
payment of any payment past due or less than the total unpaid principal balance
after maturity.
If this note is not paid when due, each Obligor promises to pay all
costs and expenses of collection and reasonable attorneys fees incurred by the
holder hereof on account of such collection, plus interest at the rate
applicable to principal, whether or not suit is filed hereon. Each Obligor shall
be jointly and severally liable hereon and consents to renewals, replacements
and extensions of time for payment hereof, before, at, or after maturity;
consents to the acceptance, release or substitution of security for this note;
and waives demand and protest and the right to assert any statute of
limitations. Any married person who signs this note agrees that recourse may be
had against separate property for any obligations hereunder. The indebtedness
evidenced hereby shall be payable in lawful money of the United States. In any
action brought under or arising out of this note, each Obligor, including
successor(s) or assign(s) hereby consents to the application of California law,
to the jurisdiction of any competent court within the State of California, and
to service of process by any means authorized by California law.
No single or partial exercise of any power hereunder, or under any deed
of trust, security agreement or other agreement in connection herewith shall
preclude other or further exercises thereof or the exercise of any other such
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect to
any of the security. Any delay or omission on the part of the holder hereof in
exercising any right hereunder, or under any deed of trust, security agreement
or other agreement, shall not operate as a waiver of such right, or of any other
right, under this note or any deed of trust, security agreement or other
agreement in connection herewith.
*See attached Addendum
New Arts Acquisition, Inc.
- ------------------------------------- -------------------------------------
By: /s/ GREG SAUNDERS
- ------------------------------------- -------------------------------------
Greg Saunders
EVP, CFO
- ------------------------------------- -------------------------------------
L 494 E (Rev 6/97)
<PAGE> 1
EXHIBIT 10.4
ADDENDUM TO NOTE
New Arts Acquisition, Inc.
September 11, 1997
I. Advances under the Note shall be available through April 30, 1998. On said
date, the outstanding balance of advances under the Note shall be converted to
an amortizing loan payable in 32 equal monthly payments of principal including
interest based upon a 10 year amortization commencing on May 30, 1998. On
December 30, 2000, the then outstanding balance of advances under the Note
shall be payable in 27 equal monthly payments of principal including interest
based upon a 3 year amortization commencing on January 30, 2001. All principal
and accrued but unpaid interest shall in any event be due and payable on March
30, 2003. The monthly payments shall be adjusted annually on the anniversary
date of the Note to reflect the then applicable rate of interest and the
balance of the respective initial amortization periods.
II. Notwithstanding the amount specified as the monthly payment, the amount
due monthly shall never be less than interest accrued.
III. Any default under the obligations of National Insurance Group to Bank
shall constitute a default hereunder.
IV. Defaults shall include those defaults contained in the Credit Terms and
Conditions executed by the undersigned.
New Arts Acquisition, Inc.
By: /s/ GREG SAUNDERS
------------------------------
Greg Saunders
EVP, CFO
<PAGE> 1
EXHIBIT 10.5
[IMPERIAL BANK LOGO]
NOTE
$ 1,000,000.00 Walnut Creek, California, September 11, 1997
On March 31, 1998 , and as hereinafter provided, for value received,
the undersigned promises to pay to IMPERIAL BANK ("Bank") a California banking
corporation, or order, at its East Bay Regional office, the principal sum of
$1,000,000.00 Maximum or such sums up to the maximum if so stated, as the Bank
may now or hereafter advance to or for the benefit of the undersigned in
accordance with the terms hereof, together with interest from date of
disbursement or (N/A), whichever is later, on the unpaid principal balance
[ ] at the rate of % per year [X] at the rate of 0.750% per year in
excess of the rate of interest which Bank has announced as its prime lending
rate (the "Prime Rate"), which shall vary concurrently with any change in such
Prime Rate, or $250.00, whichever is greater. Interest shall be computed at the
above rate on the basis of the actual number of days during which the principal
balance is outstanding, divided by 360, which shall, for interest computation
purposes, be considered one year.
Interest shall be payable [X] monthly [ ] quarterly [ ] included with principal
[ ] in addition to principal [ ] beginning September 30, 1997, and if not so
paid shall become a part of the principal. All payments shall be applied first
to any late charges owing, then to interest and the remainder, if any, to
principal. [ ] (If checked), Principal shall be payable in Installments of
$ or more, each installment on the day of each ,
beginning . Advances not to exceed any unpaid
balance owing at any one time equal to the maximum amount specified above, may
be made at the option of Bank.
Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should default be made in the payment of principal
or interest when due, or in the performance or observance, when due, of any
item, covenant or condition of any deed of trust, security agreement or other
agreement (including amendments or extensions thereof) securing or pertaining
to this note, at the option of the holder hereof and without notice or demand,
the entire balance of principal and accrued interest then remaining unpaid
shall (a) become immediately due and payable, and (b) thereafter bear interest,
until paid in full, at the increased rate of 5% per year in excess of the rate
provided for above, as it may vary from time to time.
Defaults shall include*
If any installment payment, interest payment, principal payment or
principal balance payment due hereunder is delinquent ten or more days, Obligor
agrees to pay Bank a late charge in the amount of 5% of the payment so due and
unpaid, in addition to the payment; but nothing in this paragraph is to be
construed as any obligation on the part of the holder of this note to accept
payment of any payment past due or less than the total unpaid principal balance
after maturity.
If this note is not paid when due, each Obligor promises to pay all costs
and expenses of collection and reasonable attorneys fees incurred by the holder
hereof on account of such collection, plus interest at the rate applicable to
principal, whether or not suit is filed hereon. Each Obligor shall be jointly
and severally liable hereon and consents to renewals, replacements and
extensions of time for payment hereof, before, at, or after maturity,
consents to the acceptance, release or substitution of security for this note,
and waives demand and protest and the right to assert any statute of
limitations. Any married person who signs this note agrees that recourse may be
had against separate property for any obligations hereunder. The indebtedness
evidenced hereby shall be payable in lawful money of the United States. In any
action brought under or arising out of this note, each Obligor, including
successor(s) or assign(s) hereby consents to the application of California law,
to the jurisdiction of any competent court within the State of California, and
to service of process by any means authorized by California law.
No single or partial exercise of any power hereunder, or under any deed of
trust, security agreement or other agreement in connection herewith shall
preclude other or further exercises thereof or the exercise of any other such
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect to
any of the security. Any delay or omission on the part of the holder hereof in
exercising any right hereunder, or under any deed of trust, security agreement
or other agreement, shall not operate as a waiver of such right, or of any other
right, under this note or any deed of trust, security agreement or other
agreement in connection herewith.
*those defaults in that Credit Terms and Conditions between the undersigned and
the Bank.
Any default under the obligations of New Arts Acquisition, Inc. to
Bank shall constitute a default hereunder.
National Insurance Group
- ---------------------------------- ---------------------------------------
By: /s/ GREG SAUNDERS
- ---------------------------------- ---------------------------------------
Greg Saunders
EVP & CFO
- ---------------------------------- ---------------------------------------
<PAGE> 1
EXHIBIT 10.6
[LOGO IMPERIAL BANK LOGO]
CONTINUING GUARANTEE
ORIGINATING OFFICE:
NAME OF OFFICE: East Bay Regional Office
STREET ADDRESS: 1331 N. California Blvd., Ste. 320
CITY, STATE, ZIP CODE: Walnut Creek, CA 94596-9504
The undersigned (hereinafter referred to as "Guarantor") hereby requests
and authorizes IMPERIAL BANK (hereinafter referred to as the "Bank") to extend
credit to New Arts Acquisition, Inc. a Corporation (Designate type of entity)
(hereinafter referred to as "Debtor"), and in consideration of the granting of
such credit by the Bank to Debtor, Guarantor agrees as follows:
1. The words "indebtedness" and "credit" are used herein in their most
comprehensive sense and include any and all advances, debts, obligations and
liabilities, including interest thereon, of Debtor heretofore, now or hereafter
made, incurred or created, with or without notice to Guarantor, whether
voluntary or involuntary and however arising, whether due or not due, absolute
or contingent, liquidated or unliquidated, determined or undetermined, whether
assumed by Debtor's successors, heirs or assigns by operation of law or
otherwise, and whether Debtor is liable individually or jointly with others,
and whether recovery upon any such indebtedness or credit is or hereafter
becomes barred by any statute of limitations or is or hereafter becomes
otherwise unenforceable.
2. Credit may be granted from time to time at the request of Debtor and
without further authorization from or notice to Guarantor, even though Debtor's
financial condition may have deteriorated since the date hereof. If Debtor is a
corporation or a partnership,the Bank need not inquire into the power of
Debtor or the authority of its officers, directors, partners or agents acting
or purporting to act in its behalf. Each credit heretofore or hereafter granted
to Debtor shall be considered to have been granted at the special instance and
request of Guarantor and in consideration of and in reliance upon this
guarantee.
3. Guarantor hereby unconditionally guarantees and promises to pay the
Bank or its order any and all indebtedness of Debtor to the Bank and to perform
any and all obligations of Debtor under the terms of any agreement or
instrument evidencing, securing or executed in connection with any such
indebtedness ("Credit Documents"). The liability of guarantor shall not at any
time exceed the sum of the amount set forth below, plus the interest thereon in
accordance with the Credit Documents and the costs, attorneys' fees and other
expenses provided for in Paragraph 15 hereof. If no amount is set forth below,
the liability of the Guarantor hereunder shall be unlimited. The Bank may permit
Debtor's indebtedness to exceed any maximum liability without impairing the
obligations of Guarantor hereunder. No payments made by or on behalf of
Guarantor to the Bank shall reduce any such maximum liability unless written
notice to that effect is received by the Bank at or prior to the time such
payment is made. If Guarantor has executed more than one guarantee of the
indebtedness of Debtor to the Bank, the guarantees shall be cumulative.
4. Either before or after revocation hereof and in such manner, upon such
terms and at such times as it considers best and with or without notice to
Guarantor, the Bank may alter, compromise, accelerate, extend or change the time
or manner for the payment of any indebtedness hereby guaranteed, increase or
reduce the rate of interest thereon, release or add any one or more guarantors
or endorsers, accept additional or substituted security therefor, or release or
subordinate any security therefor. No exercise or nonexercise by the Bank of any
right hereby given it, no dealing by the Bank with Debtor or any other person,
and no change, impairment or suspension of any right or remedy of the Bank shall
in any way affect any of the obligations of Guarantor hereunder or any security
furnished by Guarantor or give Guarantor any recourse against the Bank.
5.
Page 1 of 4
<PAGE> 2
6. Guarantor waives and agrees not to assert or take advantage of (a) any
right to require the Bank to proceed against the Debtor or any other person,
firm or corporation or to proceed against or exhaust any security held by it at
any time or to pursue any other remedy in its power; (b) the defense of the
statute of limitations in any action hereunder or for the collection of any
indebtedness or the performance of any obligation guaranteed hereby; (c) any
defense that may arise by reason of the incapacity, lack of authority, death or
disability of, or revocation hereof by any other or others or the failure of
the Bank to file or enforce a claim against the estate (either in
administration, bankruptcy, or other proceeding) of any other or others; (d)
demand, protest and notice of any kind including, without limiting the
generality of the foregoing, notice of the existence, creation or incurring of
new or additional indebtedness or of any action or non-action on the part of
the Debtor, the Bank, any endorser, creditor of Debtor or Guarantor under this
or any other instrument, or any other person whomsoever, in connection with any
obligation or evidence of indebtedness hereby guaranteed; (e) any defense based
upon an election of remedies by the Bank, including without limitation, an
election to proceed by nonjudicial rather than judicial foreclosure, which
election destroys or otherwise impairs subrogation rights of Guarantor or the
right of Guarantor to proceed against Debtor for reimbursement, or both,
including, without limitation, the impairment of subrogation rights arising by
virtue of California Civil Code 580(b) and 580(d); (f) any defense or right
based upon the fair value deficiency protections and provisions of California
Civil Code 580(a) and California Civil Procedure Code 726; and (g) any defense
or right based upon the acceptance by the Bank or an affiliate of the Bank of a
deed in lieu of foreclosure, without extinguishing the indebtedness, even if
such acceptance destroys, alters or otherwise impairs subrogation rights of
Guarantor or the right of Guarantor to proceed against Debtor for
reimbursement, or both.
7. Guarantor, by execution hereof, represents to the Bank that the
relationship between Guarantor and Debtor is such that Guarantor has access to
all relevant facts and information concerning the indebtedness and Debtor and
that the Bank can rely upon Guarantor having such access. Guarantor waives and
agrees not to assert any duty on the part of the Bank to disclose to Guarantor
any facts that the Bank may now or hereafter know about Debtor, regardless of
whether the Bank has reason to believe that any such facts materially increase
the risk beyond that which Guarantor intends to assume, or has reason to believe
that such facts are unknown to Guarantor, or has a reasonable opportunity to
communicate such facts to Guarantor. Guarantor is fully responsible for being
and keeping informed of the financial condition of Debtor and all circumstances
bearing on the risk of non-payment of the indebtedness guaranteed hereby.
8. Until all indebtedness of Debtor to the Bank has been paid in full,
even though such indebtedness is in excess of the liability of Guarantor,
Guarantor shall have no right of subrogation and waives any right to enforce
any remedy which the Bank now has or may hereinafter have against Debtor and
any benefit of and any right to participate in any security now or hereinafter
held by the Bank.
9. Except as otherwise provided in this paragraph, upon a default
hereunder or in any obligation guaranteed hereunder all existing or future
indebtedness of Debtor to Guarantor and, if Debtor is a partnership, any right
to withdraw any capital of Guarantor invested in Debtor, is hereby subordinated
to all indebtedness hereby guaranteed and, without the prior written consent of
the Bank, shall not be paid or withdrawn in whole or in part nor will Guarantor
accept any payment of or on account of any such indebtedness or as a withdrawal
of capital while this guarantee is in effect. At the Bank's request, Debtor
shall pay to the Bank all or any part of subordinated indebtedness and any
capital which Guarantor is entitled to withdraw. Each payment by Debtor to
Guarantor in violation of this paragraph shall be received in trust for the Bank
and shall be paid to the Bank immediately on account of the indebtedness of
Debtor to the Bank. No such payment shall reduce or affect in any manner
Guarantor's liability under any of the provisions of this guarantee. Guarantor
reserves the right to receive from Debtor payment of any salary for personal
services at the same monthly rate as that at which Guarantor has been paid
during the preceding twelve months, it being expressly understood that such
amount shall not be subordinated to the indebtedness guaranteed hereby.
10. Guarantor will file all claims against Debtor in any bankruptcy or
other proceeding in which the filing of claims is required by law upon any
indebtedness of Debtor to Guarantor and shall concurrently assign to the Bank
all of the Guarantor's rights thereunder. If Guarantor does not file any such
claim, the Bank, as Guarantor's attorney-in-fact, is hereby authorized to do so
in Guarantor's name or, in the Bank's discretion, to assign the claim and to
cause proof of claim to be filed in the name of the Bank's nominee. In all such
cases, whether in administration, bankruptcy or otherwise, the person or
persons authorized to pay such claims shall pay to the Bank the full amount
thereof and, to the full extent necessary for the purpose, Guarantor hereby
assigns to the Bank all of the Guarantor's rights to any and all such payments
or distributions to which Guarantor would otherwise be entitled. If the amount
so paid is greater than the guaranteed indebtedness than outstanding, the Bank
will pay the amount of the excess to the person entitled thereto.
11. With or without notice to Guarantor, the Bank, in its sole discretion
and at any time and from to time either before or after delivery of any notice
of revocation hereunder and in such manner and upon such terms as it considers
fit, may (a) apply any or all payments or recoveries from Debtor, from Guarantor
or from any other guarantor under this or any other instrument or realized from
any security, in such manner and order or priority as the Bank elects, to any
indebtedness of Debtor to the Bank, whether or not such indebtedness is
guaranteed hereby or is otherwise secured or is due at the time of such
application; and (b) refund to Debtor any payment received by the Bank upon any
indebtedness hereby guaranteed and payment of the amount refunded shall be fully
guaranteed hereby. Any recovery realized from any other guarantor under this or
any other instrument shall be first credited upon that portion of the
indebtedness of Debtor to the Bank which exceeds Guarantor's maximum liability,
if any, hereunder.
12. The amount of Guarantor's liability and all rights, powers and
remedies of the Bank hereunder and under the Credit Documents and any other
agreement now or at any time hereafter in force between the Bank and Guarantor
shall be cumulative and not alternative, and such rights, powers and remedies
shall be in addition to all rights, powers and remedies given to the Bank by
law.
13. Guarantor's obligations hereunder are independent of the obligations of
Debtor and, in the event of any default hereunder, a separate action or actions
may be brought and prosecuted against Guarantor whether action is brought
against Debtor or whether Debtor is joined in any such action or actions. The
Bank may maintain successive actions for other defaults. The Bank's rights
hereunder shall not be exhausted by its exercise of any of its rights or
remedies or by any such action or by any number of successive actions until and
unless all indebtedness and obligations hereby guaranteed have been paid and
fully performed.
Page 2 of 4
<PAGE> 3
14. This is a continuing guarantee and Guarantor agrees that it shall
remain in full force until and unless Guarantor delivers to the Bank written
notice that it has been revoked as to credit granted subsequent to the effective
time of revocation as herein provided. Delivery of such notice shall be
effective by personal service upon an officer of the Bank at the originating
office of the Bank designated on the first page hereof or by mailing such notice
by certified or registered mail, return receipt requested, postage prepaid and
addressed to the Bank at the originating office designated on the first page
hereof. Regardless of how notice of revocation is given, it shall not be
effective until twelve o'clock noon Pacific Standard or Daylight Savings Time,
as the case may be, on the next succeeding Bank business day following the day
such notice is delivered, but delivery of such notice shall not affect any of
Guarantor's obligations hereunder with respect to credit granted prior to the
effective date of such revocation, nor shall it affect any of the obligations of
any other guarantor for the credit granted to Debtor hereunder. If the
originating office of the Bank designated above is not in existence at the time
notice of revocation is desired to be given, then such notice may be given in
the manner above provided by delivering the same to IMPERIAL BANK OFFICE at 9920
South La Cienega Boulevard, Inglewood, California 90301.
15. Guarantor agrees to pay to the Bank without demand reasonable
attorneys' fees and all costs and other expenses which the Bank expends or
incurs in collecting or compromising any indebtedness of the Debtor, in
protecting the Bank's security under the Credit Documents or in enforcing this
guarantee against Guarantor or any other guarantor of any indebtedness hereby
guaranteed whether or not suit is filed, including, without limitation,
attorney's fees, costs and other such expenses incurred in any bankruptcy
proceeding. Guarantor warrants and represents that it is fully authorized by law
to execute this guarantee.
16. This guarantee shall benefit the Bank, its successors and assigns,
including the assignees of any indebtedness hereby guaranteed, and binds
Guarantor's successors and assigns. This guarantee is assignable by the Bank
with respect to all or any portion of the indebtedness and obligations
guaranteed hereunder, and, when so assigned, Guarantor shall be liable to the
assignees under this guarantee without in any manner affecting Guarantor's
liability hereunder with respect to any indebtedness or obligations retained by
the Bank. No delegation or assignment of this guarantee by any Guarantor shall
be of any force or effect or release Guarantor from any obligation hereunder.
17. No provision of this guarantee or right of the Bank hereunder can be
waived, nor can any Guarantor be released from his/her obligations hereunder,
except by a writing duly executed by an authorized officer of the Bank. Should
any one or more provisions of this guarantee be determined to be illegal or
unenforceable, all other provisions nevertheless shall be governed by and
construed in accordance with the laws of California, and Guarantor agrees to
submit to the jurisdiction of the Courts of California.
18. If more than one guarantor signs this guarantee, the obligation of all
such guarantors shall be joint and several. When the context and construction so
require, all words used in the singular shall be deemed to have been used in the
plural and the masculine shall include the feminine and neuter. Any married
person who signs this guarantee agrees that recourse may be had against separate
property for all obligations under this guarantee.
19. Except as provided in any other written agreement now or at any time
hereafter in force between the Bank and Guarantor, this guarantee shall
constitute the entire agreement of Guarantor with the Bank with respect to the
subject matter hereof and no representation, understanding, promise or condition
concerning the subject matter hereof shall be binding upon the Bank unless
expressed herein. Any notice to Guarantor shall be considered to have been duly
given when delivered personally or forty-eight hours after being mailed,
postage prepaid, to the address(es) set forth below or to such other address(es)
as Guarantor may from time to time designate by giving notice in the same manner
of notice to the Bank set forth in Paragraph 14 hereof.
20. Each of the undersigned Guarantors hereby acknowledges the receipt of
a true copy of this guarantee.
21. [ ] This guarantee is secured by a deed of trust dated ,
19 , to Imperial Bancorp. as Trustee.
GUARANTEE AMOUNT $11,268,000.00
Executed by or on behalf of Guarantor(s) on September 11, 1997
Signature of Guarantor(s) Address
National Insurance Group 395 Oyster Point Blvd., Ste. 500, S. San Francisco,
- ------------------------ --------------------------------------------------
By /s/ Greg Saunders, EVP, CFO
- ------------------------------ ------------------------------------------------
- ------------------------------ ------------------------------------------------
- ------------------------------ ------------------------------------------------
L 115 E (Rev. 10/92) Page 3 of 4
<PAGE> 1
EXHIBIT 10.7
[LOGO IMPERIAL BANK LOGO]
GENERAL SECURITY AGREEMENT
(Tangible and Intangible Personal Property)
This Agreement is executed on September 11, 1997, by New Arts Acquisition, Inc.
(hereinafter called "Obligor"), in consideration of financial accommodations
given, to be given or continued to Obligor or National Insurance Group, the
Obligor grants to IMPERIAL BANK (hereinafter called "Bank") a security interest
in (a) all property (i) delivered to Bank by Obligor, (ii) which shall be in
Bank's possession or control in any matter or for any purpose, (iii) described
below, (iv) now owned or hereafter acquired by Obligor of the type or class
described below and/or in any supplementary schedule hereto, or in any financing
statements filed by Bank and executed by or on behalf of Obligor; (b) the
proceeds, increase and products of such property, all accessions thereto, and
all property which Obligor may receive on account of such collateral which
Obligor will immediately deliver to Bank (collectively referred to as
"Collateral") to secure payment and performance of all of Obligor's present or
future debts or obligations to Bank, whether absolute or contingent (hereafter
referred to as "Debt"). Unless otherwise defined, words used herein have the
meanings given them in the California Uniform Commercial Code.
Collateral:
A. VEHICLE, VESSEL, AIRCRAFT:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Identification License or
Year Make/Manufacturer Model and Serial No. Registration No. New or Used
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Engine or other equipment: ______________________________________________________________________
(For aircraft - original ink signature on copy to FAA)
B. DEPOSIT ACCOUNTS:
Type ______________________ Account Number _______________________ Amount $ _____________________
In name of _________________________________________Depository __________________________________
AND ALL EXTENSIONS OR RENEWALS THEREOF.
</TABLE>
C. ACCOUNTS, INTANGIBLES AND OTHER: (Describe)
1,000 shares common stock Pinnacle American Realty Tax
Services, Inc. Certificate No. 1, in the name of New
Arts Acquisition, Inc.
1,000 shares common stock Pinnacle American Realty Tax
Services of New York, Inc. Certificate No. 1, in the
name of new Arts Acquisition, Inc.
The collateral not in Bank's possession will be located at:
[ ] If checked, the Obligor is executing this Agreement as an Accommodation
Debtor only and the Obligor's liability is limited to the security interest
granted in the Collateral described herein. The party being accommodated is
("Borrower").
All the terms and provisions on the reverse side hereof are incorporated
herein as though set forth in full, and constitute a part of this Agreement.
Signature
(indicate title,
Name if applicable) Address
New Arts Acquisition, Inc. By: /s/ Greg Saunders, 395 Oyster Point Blvd.
- ------------------------- -------------------------- ----------------------
EVP, CFO Ste. 500 S. San
- ------------------------- -------------------------- ----------------------
Francisco, CA 94080
- ------------------------- -------------------------- ----------------------
Page 1 of 2
<PAGE> 2
SECURITY AGREEMENT (CONTINUED)
Obligor represents, warrants and agrees:
1. Obligor will immediately pay (a) any Debt when due, (b) Bank's costs
of collecting the Debt, of protecting, insuring or realizing on Collateral, and
any expenditure of Bank pursuant hereto, including attorneys' fees and expenses,
with interest at the rate of 24% per year, or the rate applicable to the Debt,
whichever is less, from the date of expenditure and (c) any deficiency after
realization of Collateral.
2. Obligor will use the proceeds of any loan that becomes Debt hereunder
for the purpose indicated on the application therefore, and will promptly
contract to purchase and pay the purchase price of any property which becomes
Collateral hereunder from the proceeds of any loan made for that purpose.
3. As to all Collateral in Obligor's possession (unless specifically
otherwise agreed to by Bank in writing), Obligor will:
(a) Have, or has possession of the Collateral at the location
disclosed to Bank and will not remove the Collateral from the
location.
(b) Keep the Collateral separate and identifiable.
(c) Maintain the Collateral in good and saleable condition, repair
it if necessary, clean, feed, shelter, water, medicate, fertilize,
cultivate, irrigate, prune and otherwise deal with the Collateral in
all such ways as are considered good practice by owners of like
property, use it lawfully and only as permitted by insurance policies,
and permit Bank to inspect the Collateral at any reasonable time.
(d) Not sell, contract to sell, lease, encumber or transfer the
Collateral (other than inventory Collateral) until the Debt has been
paid, even though Bank has a security interest in proceeds of such
Collateral.
4. As to Collateral which is inventory and accounts, Obligor:
(a) May, until notice from Bank, sell, lease or otherwise dispose of
inventory Collateral in the ordinary course of business only, and
collect the cash proceeds thereof.
(b) Will, upon notice from Bank, deposit all cash proceeds as
received in a demand deposit account with Bank, containing only such
proceeds and deliver statements identifying units of inventory
disposed of, accounts which gave rise to proceeds, and all
acquisitions and returns of inventory as required by Bank.
(c) Will receive in trust, schedule on forms satisfactory to the
Bank and deliver to Bank all non-cash proceeds other than inventory
received in trade.
(d) If not in default, may obtain release of Bank's interest in
individual units of inventory upon request, therefore, payments to
Bank of the release price of such units shown on any Collateral
schedule supplementary hereto, and compliance herewith as to proceeds
thereof.
5. As to Collateral which are accounts, chattel paper, general
intangibles and proceeds described in 4(c) above, Obligor warrants, represents
and agrees:
(a) All such Collateral is genuine, enforceable in accordance with
its terms, free from default, prepayment, defense and conditions
precedent (except as disclosed and accepted by Bank in writing), and
is supported by consecutively numbered invoices to, or rights
against, the debtors thereon. Obligor will supply Bank with duplicate
invoices or other evidence of Obligor's rights on Bank's request.
(b) All persons appearing to be obligated on such Collateral have
authority and capacity to contract.
(c) All chattel paper is in compliance with law as to form, content
and manner of preparation and execution and has been properly
registered, recorded, and/or filed to protect Obligor's interest
thereunder.
(d) If an account debtor shall also be indebted to Obligor on
another obligation, any payment made by him not specifically
designated to be applied on any particular obligation shall be
considered to be a payment on the account in which Bank has a
security interest. Should any remittance include a payment not on an
account, it shall be delivered to Bank and, if no event of default
has occurred, Bank shall pay obligor the amount of such payment.
(e) Obligor agrees not to compromise, settle or adjust any account or
renew or extend the time of payment thereof without Bank's prior
written consent.
6. Obligor owns all Collateral absolutely, and no other person has or
claims any interest in any Collateral, accept as disclosed to and accepted by
Bank in writing. Obligor will defend any proceeding which may affect title to or
Bank's security interest in any Collateral, and will indemnify and hold Bank
free and harmless from all costs and expenses of Bank's defense.
7. Obligor will pay when due all existing or future charges, liens or
encumbrances on and all taxes and assessments now or hereafter imposed on or
affecting the Collateral and, if the Collateral is in Obligor's possession, the
realty on which the Collateral is located.
8. Obligor will insure the Collateral with Bank as loss payee in form and
amounts with companies, and against risks and liability satisfactory to Bank,
and hereby assigns such policies to Bank, agrees to deliver them to Bank at
Bank's request, and authorizes Bank to make any claim thereunder, to cancel the
insurance on Obligor's default, and to receive payment of and endorse any
instrument in payment of any loss or return premium. If Obligor should fail to
deliver the required policy or policies to the Bank, Bank may, at Obligor's cost
and expense, without any duty to do so, get and pay for insurance naming as the
Insured, at Bank's option, either both Obligor and Bank, or only Bank, and the
cost thereof shall be secured by this Security Agreement, and shall be repayable
as provided in paragraph 1 above.
9. Obligor will give Bank any information it requires. All information at
any time supplied to Bank by Obligor (including, but not limited to, the value
and condition of Collateral, financial statements, financing statements, and
statements made in documentary Collateral) is correct and complete, and Obligor
will notify Bank of any adverse change in such information. Obligor will
promptly notify Bank of any change of Obligor's residence, chief executive
office or mailing address.
10. Bank is irrevocably appointed Obligor's attorney-in-fact to do any act
which Obligor is obligated hereby to do, to exercise such rights as Obligor may
exercise, to use such equipment as Obligor might use, to enter Obligor's
premises to give notice of Bank's security interest, and to collect Collateral
and proceeds and to execute and file in Obligor's name any financing statements
and amendments thereto required to perfect Bank's security interest hereunder,
all to protect and preserve the Collateral and Bank's rights hereunder. Bank
may:
(a) Endorse, collect and receive delivery or payment of instruments
and documents constituting Collateral;
(b) Make extension agreements with respect to or affecting
Collateral, exchange it for other Collateral, release persons liable
thereon or take security for the payment thereof, and compromise
disputes in connection therewith;
(c) Use or operate Collateral for the purpose of preserving
Collateral or its value and for preserving or liquidating Collateral.
11. If more than one Obligor signs this Agreement, their liability is
joint and several. Any Obligor who is married agrees that recourse may be had
against separate property for the Debt. Discharge of any Obligor except for full
payment, or any extension, forbearance, change of rate of interest, or
acceptance, release or substitution of Collateral or any impairment or
suspension of Bank's rights against an Obligor, or any transfer of an Obligor's
interest to another shall not affect the liability of any other Obligor. Until
the Debt shall have been paid or performed in full, Bank's rights shall continue
even if the Debt is outlawed. All Obligors waive: (a) any right to require Bank
to proceed against any Obligor before any other, or to pursue any other remedy;
(b) presentment, protest and notice of protest, demand and notice of nonpayment,
demand or performance, notice of sale, and advertisement of sale; (c) any right
to the benefit of or to direct the application of any Collateral until the Debt
shall have been paid; (d) and any right of subrogation to Bank until Debt shall
have been paid or performed in full.
12. Upon default, at Bank's option, without demand or notice, all or any
part of the Debt shall immediately become due. Bank shall have all rights given
by law, and may sell, in one or more sales, Collateral in any county where Bank
has an office. Bank may purchase at such sale. Sales for cash or on credit to a
wholesaler, retailer or user of the Collateral, or at public or private auction,
are all to be considered commercially reasonable. Bank may require Obligor to
assemble the Collateral and make it available to Bank at the entrance to the
location of the Collateral, or a place designated by Bank.
Defaults shall include:
(a) Any default by Obligor in the Credit Terms and Conditions
executed by Obligor.
(b) Any default by National Insurance Group in any of its
obligations to the Bank.
(c) Any actual or reasonably anticipated deterioration of the
Collateral or in the market price thereof which causes it, in Bank's
judgment, to become unsatisfactory as security.
(d) Any levy or seizure against Borrower or any of the Collateral.
(e) Death, termination of business, assignment for creditors,
insolvency, appointment of receiver, or the filing of any petition
under bankruptcy or debtor's relief laws of, by or against Obligor
or Borrower or any guarantor of the Debt.
(f) Any warranty or representation which is false or is reasonably
believed in good faith by Bank to be false.
13. Bank's acceptance of partial or delinquent payments or the failure of
Bank to exercise any right or remedy shall not waive any obligation of Obligor
or Borrower or right of Bank to modify this Agreement, or waive any other
similar default.
14. On transfer of all or any part of the Debt, Bank may transfer all or
any part of the Collateral. Bank may deliver all or any part of the Collateral
to any Obligor at any time. Any such transfer or delivery shall discharge Bank
from all liability and responsibility with respect to such Collateral
transferred or delivered. This Agreement benefits Bank's successors and assigns
and binds Obligor's heirs, legatees, personal representatives, successors and
assigns. Obligor agrees not to assert against any assignee of Bank any claim or
defense that may exist against Bank. Time is of the essence. This Agreement and
supplementary schedules hereto contain the entire security agreement between
Bank and Obligor. Obligor will execute any additional agreements, assignments or
documents reasonably required by Bank to carry this Agreement into effect.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of California, to the jurisdiction of whose courts the
Obligor hereby agrees to submit. Obligor agrees that service of process may be
accompanied by any means authorized by California law. All words used herein in
the singular shall be considered to have been used in the plural where the
context and construction so require.
Page 2 of 2
<PAGE> 1
EXHIBIT 10.8
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("AGREEMENT") is made as of the 10th day of September,
1996, by and between National Insurance Group, a California Corporation
("Pledgor"), and Imperial Bank ("Secured Party").
INTRODUCTORY STATEMENT
A. Secured Party and Pledgor have entered into those certain credit terms and
conditions of even, date herewith (the "Loan Agreement").
B. To induce Secured Party to enter into the Loan Agreement, Pledgor has
agreed to grant to Secured Party, and to create in favor of Secured Party, a
security interest in certain property of Pledgor, as hereinafter provided, as
security for Pledgor's payment and performance of its obligations to Secured
Party under the Loan Agreement.
Accordingly, the parties hereto hereby agree as follows:
ARTICLE I
COLLATERAL
Section 1.1 Grant of Security Interest in Collateral. In order to secure the
due and punctual payment and performance of Pledgor's obligations under the
Loan Agreement and this Agreement (The "Obligations"), Pledgor hereby pledges
to Secured Party, and grants to Secured Party a security interest in, all of
Pledgor's right, title and interest in, to and under the following property.
(a) all of Pledgor's right, title and interest in and to 1000 shares of
capital stock of Pinnacle Data Corporation, evidenced by certificate No. 201
(the "Pledged Collateral"), and all distributions or payments of any type,
whether in cash or kind, on account of or otherwise related thereto, and any
securities or other equity interests therein as a result of a merger,
reorganization, or any other activity; and
(b) All proceeds and products of the foregoing.
The interest in property described in paragraphs(a) and (b) of this Section 1.1
are sometimes referred to herein collectively as the "Collateral."
<PAGE> 2
ARTICLE 2
PLEDGOR'S GENERAL
REPRESENTATIONS, WARRANTIES AND COVENANTS
Pledgor represents and warrants, and covenants and agrees that it will do
the following:
Section 2.1 Title. Pledgor has and will at all times have and maintain
good title to all Collateral free of all security interests, liens and
encumbrances. The liens and security interests granted hereunder will be
perfected on or prior to the date hereof by delivery of the certificates
representing the Pledged Collateral to Secured Party each certificates
evidencing any of the Pledged Collateral pledged hereunder by Pledgor is issued
in the name of Pledgor and has attached an appropriate instrument of transfer
duly signed in blank by Pledgor.
Section 2.2 Preservation of Rights. Pledgor shall at its expense protect
and defend its rights in the Collateral as described in Section 2.1, and the
security interests of Secured Party therein and thereto, against the claims
and demands of third parties.
Section 2.3 No Consent. No authorization, approval or other action by, and
no notice to or filing with, any governmental authority or regulatory body or
other person is required for the pledge by Pledgor of the Collateral pursuant
to this Agreement or for the execution, delivery or performance of this
Agreement by Pledgor. The making and performance of this Agreement are within
Pledgor's corporate power and authority and have been duly authorized by all
necessary action of Pledgor.
Section 2.4 Perfection of Liens. Pledgor has caused and shall cause to be
taken all actions as may be required by any present or future law in order
fully to protect and perfect the liens and security interests of Secured Party
hereof upon, and the rights and interests of Secured Party in, the Collateral.
The security interest created hereby represents a first priority lien on and
security interest in the Collateral.
Section 2.5 Other Assurances. Pledgor upon request shall take such actions
and deliver such documents as may be reasonably requested by Secured Party.
Section 2.6 Release of Collateral. Pledgor shall not sell, transfer,
pledge or otherwise dispose of any of the Collateral or any interest therein,
or attempt or contract to do so.
<PAGE> 3
ARTICLE 3
PARTICULAR PROVISIONS RESPECTING COLLATERAL
(a) Provided no Event of Default shall have occurred and be continuing,
Pledgor shall be entitled, from time to time, to collect, receive and retain for
its own use all distributions and other payments of any type or nature made upon
or with respect to the Collateral (collectively, the "Pledged Collateral
Payments"). Secured Party shall have the right to collect, receive and retain as
Collateral all Pledged Collateral Payments made after the occurrence and during
the continuation of an Event of Default, and Pledgor shall take all such action
as may be reasonably necessary or appropriate to give effect to such right.
(b) Provided no Event of Default shall have occurred and be continuing,
Pledgor shall have the right, and, after the occurrence and during the
continuation of an Event of Default and following notice from Secured Party to
Pledgor, Secured Party shall have the right, from time to time, to (i) exercise
any and all voting power with respect to the Pledged Collateral, and (ii) give
all consents, ratifications, approvals and waivers with respect to the Pledged
Collateral and to exercise any options or rights with respect thereto.
Section 3.3 Secured Party's Appointment as Attorney-in Fact.
(a) Subject to Section 3.3(b), Pledgor hereby irrevocably constitutes and
appoints Secured Party and any officer of Secured Party and any agent designated
by such officer, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable except as set forth in Section 3.3(b)
power and authority in the place and stead of Pledgor and in the name of
Pledgor, or in its own name, from time to time in Secured Party's reasonable
discretion, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute and deliver any and all documents
and instruments which may be reasonably necessary or desirable to accomplish the
purposes of this Agreement.
(b) Secured Party agrees that, except after the occurrence and during the
continuation of an Event of Default and the acceleration of the Obligations, it
will forebear from exercising the power of attorney or any rights granted to
Secured Party pursuant to this Section 3.3. The power of attorney granted
pursuant to this Section 3.3 is a power coupled with an interest and shall be
irrevocable until the Obligations are paid in full or otherwise satisfied in
full.
<PAGE> 4
ARTICLE 4
DEFAULT
Section 4.1 Defaults, Events of Default, etc., Pledger agrees that the
occurrence of the following, together with the expiration of any applicable
notice and/or cure period (if any), shall constitute an "Event of Default"
under this Agreement:
(a) If a default occurs under the Loan Agreement; or
(b) If Pledgor fails faithfully to perform or observe any material
covenant or agreement herein to be performed by Pledgor and such failure has a
material adverse effect on the Collateral, and such failure continues for
thirty (30) days after notice thereof to Pledgor from Secured Party (provided
that such 30-day period may be extended so long as such failure is capable of
being cured and Pledgor thereafter diligently pursues such a cure to Secured
Party's reasonable satisfaction); or
(c) If any material representation or warranty of Pledgor contained in
this Agreement is in breach or is false when made or deemed made and such
breach or falsity has a material adverse effect on the Collateral; or
(d) In the event Secured Party shall cease to have a first priority
security interest in any of the Collateral (other than as a result of any
action or omission of Secured Party).
Section 4.2 Remedies Generally. Following the occurrence and during the
continuation of an Event of Default:
(a) Secured Party may exercise all the rights and remedies of a secured
party under the Code.
(b) Pledgor recognizes that Secured Party may be unable to effect a
sale to the public of all or part of the Collateral by reason of a certain
prohibitions or restrictions in federal or state securities laws and
regulations (herein collectively called the "Securities Laws"), or the
provisions of other federal and state laws, regulations or rulings, but may be
compelled to resort to one or more sales to a restricted group of purchasers
who will be required to agree to acquire the Collateral for their own account,
for investment and not with a view to the further distribution or resale
thereof without restriction. Pledgor agrees that any sale(s) so made may be at
prices and other terms less favorable to Pledgor than if the Collateral were
sold to the public, and that Secured Party has no obligation to delay the sale
of the Collateral for period(s) of time necessary to permit the issuer thereof
to register the Collateral for sale to the public under any of the Securities
Laws. Pledgor agrees that negotiated sales whether for cash or credit made
under the
<PAGE> 5
foregoing circumstances shall not be deemed for that reason not to have been
made in a commercially reasonable manner. Pledgor shall cooperate with Secured
Party and shall satisfy any requirements under the Securities laws applicable
to the sale or transfer of the Collateral.
ARTICLE 5
DEFINITIONS
The following terms shall have the respective meanings set forth below;
"Agreement" shall mean this Pledge Agreement, by and among Pledgor and
Secured Party, as the same may from time to time be amended or supplemented.
"Code" shall mean the California Uniform Commercial Code.
"Collateral" shall have the meaning given in Section 1.1
"Obligations" shall have the meaning given in Section 1.1.
"Pledged Collateral" shall have the meaning given in Section 1.1(a).
"Pledged Collateral Payments" shall have the meaning given in Section
3.2(a)
"Pledgor" shall mean National Insurance Group.
"Secured Party" shall mean Imperial Bank.
ARTICLE 6
MISCELLANEOUS
Section 6.1 No Waiver; Remedies. No failure on the part of Secured Party
to exercise, and no delay in exercising any right hereunder shall operate as a
waiver thereof; nor shall any single or partial waiver or exercise of any right
hereunder preclude any other or further waiver or exercise thereof or the
waiver or exercise of any other right. Except as express provided herein, the
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
Section 6.2 Termination.
(a) Upon the full and final payment or other satisfaction of all
Obligations) and upon termination of all of Pledgor's other obligations under
the Loan Documents and the obligations of Pledgor hereunder, the liens and
security interests created by this Agreement and by the Other Assurances shall
terminate
<PAGE> 6
forthwith and all right, title and interest of Secured Party in and to the
Collateral shall revert to Pledgor, and its successors and assigns.
(b) Upon the termination of Secured Party's liens and security interests
and the release of the Collateral, Secured Party will promptly (i) execute and
deliver to Pledgor such documents as Pledgor shall reasonably request to
evidence the termination of such security interest and the release of the
Collateral, and (ii) deliver or cause to be delivered to Pledgor all property of
Pledgor then held by Secured Party or any agent thereof, all without
representation or warranty by Secured Party (other than acknowledgment of
receipt of repayment) and with no recourse to Secured Party.
(c) This Agreement shall terminate when the liens and security interests
granted hereunder have terminated and the Collateral has been released.
Section 6.3 Successors and Assigns. This Agreement shall bind and
inure to the benefit of the respective successors and assigns of each of the
parties; provided, however, that Pledgor may not assign this Agreement or any
rights or duties hereunder without Secured Party's prior written consent and
any prohibited assignment shall be absolutely void. No consent to an assignment
by Secured Party shall release Pledgor from its obligations hereunder. Secured
Party may assign this Agreement and its rights and duties hereunder and no
consent or approval by Pledgor is required in connection with any such
assignment. Secured Party reserves the right to sell, assign, transfer,
negotiate, or grant participation in all or any part of, or any interest in
Secured Party's rights and benefits hereunder. In connection with any such
assignment or participation, Secured Party may disclose all documents and
information which Secured Party now or hereafter may have relating to Pledgor
or Pledgor's business, provided that such recipient executes a confidentiality
agreement reasonably satisfactory to Pledgor.
Section 6.4 Attorney's Fees. If any party to this Agreement shall
bring any action or proceeding for any relief against the other, declaratory or
otherwise, arising out of this Agreement, the losing party shall pay to the
prevailing party a reasonable sum for attorney's fees and costs incurred in
bringing or defending such action or proceeding and/or enforcing any judgment
granted therein, all of which shall be paid whether or not such action or
proceeding is prosecuted to final judgment. Any judgment or order entered in
such action or proceeding shall contain a specific provision providing for the
recovery of attorneys' fees and costs, separate from the judgment, incurred in
enforcing each judgment. The prevailing party shall be determined by the trier
of fact based upon an assessment of which party's major arguments or positions
taken in the proceedings could fairly be said to have prevailed over the other
party's major arguments or positions on major disputed issues.
<PAGE> 7
Section 6.5 Section Headings. Headings and numbers have been set forth
herein for conveniences only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
Section 6.6 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Security Party or
Pledgor, whether under any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
Section 6.7 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
Section 6.8 Amendments in Writing. This Agreement can only be amended by a
writing signed by both Secured Party and Pledgor.
Section 6.9 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
Section 6.10 Integration. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
Section 6.11 Notices. Unless otherwise provided in this Agreement, all
notices or demands by any party relating to this Agreement or any other Loan
Document shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by registered or certified mail, postage
prepaid, return receipt requested, or by prepaid telex, telefacsimile, or
telegram (with messenger delivery specified) to Pledgor or to Secured Party, as
the case may be, at its address set forth in the Loan Agreement.
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section, shall be
deemed received on the earlier of the date of Actual receipt or three (3) days
after the deposit thereof in the mail.
Section 6.12 CHOICE OF LAW.
<PAGE> 8
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS
ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING
EFFECT TO ITS CONFLICT OF LAWS PRINCIPLES.
IN WITNESS WHEREOF, Pledgor and Secured Party have caused this Agreement
to be executed by their duly authorized representatives as of the day and year
first above written.
IMPERIAL BANK
By: /s/ JOSEPH J. MCCARTHY
-----------------------
Name: Joseph J. McCarthy
Title: Vice President
NATIONAL INSURANCE GROUP
By: /s/ ROBERT P. BARBAROWICZ
-------------------------
Name: Robert P. Barbarowicz
Title: E.V.P. General Counsel & Secretary
NATIONAL INSURANCE GROUP
By: /s/ R. J. LELIEUR
-----------------------
Name: Robert J. Lelieur
Title: V.P. Treasurer & Controller
<PAGE> 9
AMENDMENT NO. 1 TO PLEDGE AGREEMENT
This Amendment No. 1 dated as of April 2, 1997 ("Amendment") to that certain
Pledge Agreement ("Pledge Agreement") dated the 10th day of September 1996 by
and between Imperial Bank ("Secured Party") and National Insurance Group
("Pledgor") ("Agreement"). All capitalized terms used herein, and not defined
herein shall have the same meaning as set forth in the Pledge Agreement.
INTRODUCTORY STATEMENT
A. Pursuant to the terms of the Pledge Agreement, Secured Party granted a
security interest in certain Collateral to secure Pledgor's Obligations under
the Credit Terms and Conditions ("Prior Loan Agreement"), dated the date of the
Pledge Agreement, and under the Pledge Agreement.
B. Pledgor and Secured Party have agreed to enter into a new Credit Terms
and Conditions ("New Loan Agreement") dated the dated hereof, which will amend
and restate in full the Prior Loan Agreement.
Accordingly, the parties hereto agree that the Pledge Agreement is
hereby amended as follows:
1. The term "Loan Agreement" wherever it appears in the Pledge Agreement
shall mean the New Loan Agreement, as it may be amended, superseded, restated
or in any other way modified.
2. Except as provided above, the Pledge Agreement remains unchanged and the
parties hereby confirm that the Pledge Agreement as herein amended is in full
force and effect and secures the New Loan Agreement.
National Insurance Group
"Pledgor"
By: /s/ Robert P. Barbarowicz
---------------------------
Title: Executive Vice President
------------------------
Signatures continued on next page
<PAGE> 10
Imperial Bank
"Bank"
By: Joseph J. McCarthy
------------------------
Title: Vice President
---------------------
<PAGE> 11
Amendment No. 2 to Pledge Agreement
This Amendment No. 2 dated as of September 18, 1997 ("Amendment") to that
certain Pledge Agreement dated the 10th day of September 1996 as previously
amended ("Pledge Agreement") by and between Imperial Bank ("Secured Party") and
National Insurance Group ("Pledgor"). All capitalized terms used herein, and
not defined herein shall have the same meaning as set forth in the Pledge
Agreement.
INTRODUCTORY STATEMENT
A. Pursuant to the terms of the Pledge Agreement, Secured Party has granted
a security interest in certain Collateral to secure Pledgor's Obligations under
the Credit Terms and Conditions dated April 2, 1997 and under the Pledge
Agreement.
B. Secured Party has agreed to make a loan to New Arts Acquisition, Inc.
("New Arts"), a wholly owned subsidiary of Pledgor.
C. Secured Party has agreed to pledge the stock of New Arts to the Bank
pursuant to the terms hereof.
D. Secured Party has agreed to guarantee the loan to New Arts and to pledge
the Collateral, as defined in the Pledge Agreement, to secure the loan to New
Arts by Bank and the guarantee of New Arts by Pledgor.
Accordingly, the parties hereto agree that the Pledge Agreement is hereby
amended as follows:
1. Section 1.1 of the Pledge Agreement is hereby amended in full to read as
follows:
"Section 1.1 GRANT OF A SECURITY INTEREST IN COLLATERAL. In order to
secure the due and punctual payment and performance of Pledgor's (i)
obligations under the Loan Agreement and this Agreement, (ii) any obligation of
New Arts Acquisition, Inc. ("New Arts") to Bank, (iii) Pledgor's obligations
under any guarantee executed by Pledgor guaranteeing New Arts' obligations to
Bank, and (iv) all present or other Pledgor's present and future debts or
obligations to Bank, whether absolute or contingent (The "Obligations"),
Pledgor hereby reaffirms the prior grant of security interest to Secured Party,
hereby pledges to Secured Party, and grants to Secured Party a security
interest in, all of Pledgor's right, title and interest in, to and under the
following property:
(a) all of Pledgor's right, title and interest in and to the following:
1
<PAGE> 12
(i) 1,000 shares of capital stock of Pinnacle Data Corporation,
evidenced by certificate No. 201, and
(ii) 1,000 shares of the common stock of New Arts Acquisition, Inc.,
evidenced by Certificate No. 1.
(b) All distributions or payments of any type, whether in cash or kind,
on account of or otherwise related to the above securities, and any securities
or other equity on account of or otherwise related thereto, and any securities
or other equity interest therein as a result of a merger, reorganization, or
other activity; and
(c) All proceeds and products of the foregoing.
The interest in property described in paragraphs (a), (b) and (c) of this
section 1.1 are sometimes referred to herein collectively as the "Collateral"
2. Section 4.1 of the Pledge Agreement is amended by substituting a comma for
the period at the end of Sub-Section (d) and adding the following Sub-Section
(e) thereto:
"(e) If New Arts defaults in any obligation it may have to Bank, or if the
Pledgor defaults under any guarantee it has executed in favor of Bank relating
to New Art, or if Pledgor shall default in any other Obligation."
3. Except as provided above, the Pledge Agreement remains unchanged and the
parties hereby confirm that the Pledge Agreement as herein amended is in full
force and effect and secures the New Loan Agreement.
National Insurance Group
"Pledgor"
By: /s/ Greg Saunders
--------------------------------
Title: EVP, CFO
-----------------------------
Imperial Bank
"Bank"
By: /s/ Joseph J. McCarthy
--------------------------------
Title: Vice President
-----------------------------
2
<PAGE> 1
EXHIBIT 11
COMPUTATION OF WEIGHTED AVERAGE SHARES
OUTSTANDING AND EARNINGS PER SHARE
(in thousands of dollars except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
-------------------------- -------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Actual common shares
Outstanding 3,896,937 4,679,697 3,896,937 4,679,697
Weighted average common
Shares issued upon
exercise 52,795 22,500 39,544 11,311
Of stock options
Stock repurchase -- (705,300) -- (705,300)
Common shares issuable
under outstanding stock
Options 113,315 -- 113,315 --
Total weighted average
Shares outstanding 4,063,047 3,996,897 4,049,796 3,985,708
============ ============ =========== ===========
Net income $ 877 $ 870 $ 2,517 $ 162
============ ============ =========== ===========
Net income per share $ 0.22 $ 0.22 $ 0.62 $ 0.04
============ ============ ============ ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 13,995
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 2,856
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 27,705
<CASH> 4,888
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,690
<TOTAL-ASSETS> 68,045
<POLICY-LOSSES> 2,803
<UNEARNED-PREMIUMS> 6,244
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 9,768
0
0
<COMMON> 18,256
<OTHER-SE> 8,862
<TOTAL-LIABILITY-AND-EQUITY> 68,045
13,364
<INVESTMENT-INCOME> 1,280
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 22,091
<BENEFITS> 4,491
<UNDERWRITING-AMORTIZATION> 6,127
<UNDERWRITING-OTHER> 22,242
<INCOME-PRETAX> 3,875
<INCOME-TAX> 1,358
<INCOME-CONTINUING> 2,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,517
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
<RESERVE-OPEN> 2,198
<PROVISION-CURRENT> 4,260
<PROVISION-PRIOR> 232
<PAYMENTS-CURRENT> 1,999
<PAYMENTS-PRIOR> 1,888
<RESERVE-CLOSE> 2,803
<CUMULATIVE-DEFICIENCY> 232
</TABLE>
