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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT For
the transition period from _______ to ________
Commission file number 0-23637
THE WMA CORPORATION
(Name of small business issuer in its charter)
DELAWARE 58-2179041
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
11315 JOHNS CREEK PARKWAY, DULUTH, GEORGIA 30097
(Address of principal executive offices)
Issuer's telephone number: (770) 248-3311
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13, or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the Issuer's classes
of common equity, as of the latest practicable date:
As of September 30, 1998, there were 2,495,010 shares of common stock
(.001 par value) outstanding.
Transitional Small Business Disclosure Format (Check one): Yes No X
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TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C> <C>
ITEM 1 Financial Statements 3
ITEM 2 Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II
ITEM 1 Legal Proceedings 17
ITEM 2 Changes in Securities 17
ITEM 3 Defaults Upon Senior Securities 17
ITEM 4 Submission of Matters to a Vote of Security Holders 17
ITEM 5 Other Information 17
ITEM 6 Exhibits and Reports on Form 8-K 19
</TABLE>
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THE WMA CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Fixed maturity securities - available for sale (amortized cost
of $9,676,778 and $17,686,390 for 1998 and 1997, respectively) $ 10,094,509 $ 17,782,055
Equity securities - available for sale (cost of $487,733 for 1998 and 1997) 660,563 630,929
------------ ------------
Total investments 10,755,072 18,412,984
Cash and cash equivalents 6,655,488 1,469,663
Investment income due and accrued 148,596 257,629
Reinsurance balances receivable 61,534 183,524
Prepaid expenses 792,277 113,243
Deferred acquisition costs 20,283,359 4,503,338
Deferred organization costs (net of accumulated amortization of $89,456
and $62,128 at 1998 and 1997, respectively) 97,413 124,741
Due from World Marketing Alliance, Inc. 2,607 --
Other assets 2,918 783
------------ ------------
Total assets $ 38,799,264 $ 25,065,905
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Future policy benefits $ 1,935,474 $ 1,293,917
Reinsurance balances payable 5,605,723 434,443
Accrued expenses 42,500 53,735
Accounts payable 118,067 105,108
Due to WMA Management Services, Inc. -- 120,000
Due to World Marketing Alliance, Inc. -- 1,916
Short term debt 5,000,000 --
Deferred tax liability 2,025,334 980,411
------------ ------------
Total liabilities 14,727,098 2,989,530
Stockholders' equity:
Common stock, par value $.001, 10,000,000 authorized: 2,500,000
shares issued in 1998 and 1997 2,500 2,500
Additional paid-in capital 20,228,973 20,228,973
Accumulated other comprehensive income 389,131 157,670
Retained earnings 3,501,462 1,709,232
Treasury stock, at cost (4,990 and 2,200 for 1998 and 1997,
respectively) (49,900) (22,000)
------------ ------------
Total stockholders' equity 24,072,166 22,076,375
------------ ------------
Total liabilities and stockholders' equity $ 38,799,264 $ 25,065,905
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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THE WMA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Premiums $ 1,853,639 $ 1,388,417 $ 5,383,901 $ 3,652,644
Reinsured policy revenues 1,346,430 100,756 2,236,421 100,756
Net investment income 257,979 307,945 779,894 835,972
Net realized gains on investments 111,416 -- 101,719 645
----------- ----------- ----------- -----------
Total revenue 3,569,464 1,797,118 8,501,935 4,590,017
Benefits and expenses:
Benefits, claims and settlement expenses 602,228 660,835 2,438,647 1,655,724
Reinsurance premium allowances, net 728,749 421,144 1,808,581 1,070,003
Amortization of deferred acquisition costs, net 377,136 8,178 933,918 981
Professional fees and other expenses 239,285 86,347 424,244 182,835
Management fees to WMA Management Services, Inc. -- 30,000 -- 90,000
Consulting fees to World Marketing Alliance, Inc. -- 12,750 178,632 59,051
----------- ----------- ----------- -----------
Total benefits and expenses 1,947,398 1,219,254 5,784,022 3,058,594
----------- ----------- ----------- -----------
Income before income taxes 1,622,066 577,864 2,717,913 1,531,423
Income tax expense (552,035) (137,585) (925,685) (537,658)
----------- ----------- ----------- -----------
Net income after income taxes $ 1,070,031 $ 440,279 $ 1,792,228 $ 993,765
=========== =========== =========== ===========
Basic and diluted income per share $ 0.43 $ 0.18 $ 0.72 $ 0.41
=========== =========== =========== ===========
Weighted-average common shares
outstanding 2,495,010 2,411,742 2,496,018 2,402,893
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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THE WMA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,792,228 $ 993,765
Adjustments to reconcile net income to net cash
used in operating activities
Amortization 961,246 28,309
Deferred tax expense 925,685 537,658
Change in:
Investment income due and accrued 109,033 (69,260)
Reinsurance balances receivable 121,991 (17,385)
Deferred acquisition costs (16,713,939) (2,650,930)
Prepaid expenses (679,034) (32,922)
Due from World Marketing Alliance, Inc. (2,607) --
Other assets (2,135) --
Future policy benefits 641,557 360,397
Reinsurance balances payable 5,171,280 278,129
Accrued expenses (11,235) 10,492
Accounts payable 12,959 (60,288)
Due to WMA Management Services, Inc. (120,000) 34,780
Due to World Marketing Alliance, Inc. (1,916) 94,792
------------ -----------
Net cash used in operating activities (7,794,887) (492,463)
------------ -----------
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities 8,008,612 2,670,299
Purchase of available-for-sale securities -- (1,892,399)
------------ -----------
Net cash provided by investing activities 8,008,612 777,900
------------ -----------
Cash flows from financing activities:
Proceeds from short-term financing 5,000,000 --
Issuance of common stock -- 1,059,920
Purchase of treasury stock (27,900) (20,000)
Increase in due to stockholders -- (1,601)
------------ -----------
Net cash provided by financing activities 4,972,100 1,038,319
------------ -----------
Net decrease in cash and cash equivalents 5,185,825 1,323,756
Cash and cash equivalents at beginning of period 1,469,663 1,980,201
------------ -----------
Cash and cash equivalents at end of period $ 6,655,488 $ 3,303,957
============ ===========
Supplemental disclosure of cash flow information:
Interest paid $ -- $ 9,427
============ ===========
Income taxes paid $ -- $ --
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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THE WMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-QSB of Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included.
(2) DEFERRED TAX
Deferred income tax liabilities and related expenses are determined in
accordance with Statement of Financial Accounting Standard No. 109 (SFAS No.
109) using an effective federal tax rate of 34%. SFAS No. 109 specifically
excludes recognition of the "small life insurance company deduction" available
under Section 806 of the Internal Revenue Code for qualifying life insurance
companies. This special deduction, for which management believes the Company
will qualify for a number of years, can reduce the effective federal income tax
rate from 34% to less than 20% depending upon the amount of taxable income.
Consequently, the effective tax rate on the Company's earnings may ultimately
prove to be less than the deferred income tax liabilities and related expenses
determined under SFAS No. 109, at September 30, 1998.
(3) ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (Statement 130). Statement 130 establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements. The Company adopted Statement 130
effective January 1, 1998. The primary component of the differences between net
income and comprehensive income for the Company is unrealized gains on
securities. Total comprehensive income for the three months ended September 30,
1998 was $1,104,412 compared to $675,352 for the three months ended September
30, 1997. Total comprehensive income for the nine months ended September 30,
1998 was $2,023,689 compared to $1,161,844 for the nine months ended September
30, 1997. In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (Statement 131). Statement 131 is effective for financial
statements for years ending after December 15, 1997. The Company does not have
any separate segments that are considered material.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
OVERVIEW
The WMA Corporation ("the Company") is a holding company, owning all
of the outstanding capital stock of WMA Life Insurance Company Limited ("WMA
Life"), a Bermuda life insurance corporation. WMA Life commenced reinsurance
operations at the end of the second quarter of 1996. WMA Life is presently
engaged in providing reinsurance to certain insurance companies ("Ceding Life
Companies") with respect to variable universal life ("VUL") and variable annuity
policies sold through World Marketing Alliance, Inc., a Georgia corporation
which is a multi-product independent insurance agency. World Marketing Alliance,
Inc., and certain entities and persons with which it is associated primarily for
licensing purposes, are referred to herein as "WMA Agency", unless the context
indicates otherwise. Where sales associates of WMA Agency ("WMA Sales
Associates") are required to hold securities licenses for the sale of variable
annuity and VUL products, they become licensed as registered representatives of
WMA Securities, Inc. ("WMAS"), a registered securities broker. S. Hubert
Humphrey, Jr., the Company's President, owns substantially all of WMA Agency and
all of WMAS. Mr. Humphrey also beneficially owns approximately 36.1% of the
Company's Common Stock.
All of the Company's reinsurance business is generated by the
marketing efforts of WMA Agency which places business with the Ceding Life
Companies. The Company does not use reinsurance intermediaries or engage in any
direct marketing activities. As a consequence, the Company is dependent upon and
benefits from WMA Agency marketing those products which the Company reinsures.
World Marketing Alliance, Inc. is an independent entity separate and apart from
the Company.
The following tables show, by Ceding Life Company, the percentage of
WMA Agency business reinsured by the Company.
<TABLE>
<CAPTION>
Life Insurance Applications(1)
------------------------------
Ceding Life Company 9/30/98 1997 1996
- ------------------- ------- ---- ----
<S> <C> <C> <C>
Western Reserve Life Assurance Company 81% 85% 85%
Of Ohio ("Western Reserve")
American Skandia Life Assurance Corporation N/A N/A N/A
("American Skandia")
Kemper Investors Life Insurance Company
("Kemper") 4 2 0
---- --- ---
Total Subject to Reinsurance 85% 87% 85%
Total Not Subject to Reinsurance 15% 13% 15%
--- --- ---
Total Applications Submitted 100% 100% 100%
</TABLE>
<TABLE>
<CAPTION>
Annuity Applications(1)
-----------------------
9/30/98 1997 1996
------- ---- ----
<S> <C> <C> <C>
Ceding Life Company
- -------------------
Western Reserve 42% 0% 0%
American Skandia 16 13 0
Kemper N/A N/A N/A
--- --- ---
Total Subject to Reinsurance 58% 13% 0%
Total Not Subject to Reinsurance 42% 87% 100%
---- --- ---
Total Applications Submitted 100% 100% 100%
</TABLE>
(1) As reported to WMA Agency by life insurance companies, of applications for
life insurance and annuity policies submitted by WMA Agency, and that WMA
Agency monitors on a regular basis.
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WMA Life's revenues do not and are not expected to, bear any
relationship to the distribution of business placed by the companies with whom
WMA Agency does business as illustrated by the above tables. The reasons WMA
Life's revenues will diverge from the relationships noted above include, but are
not limited to, the nature, mix and pricing of the products reinsured; the terms
of the various reinsurance agreements; and the prescribed generally accepted
accounting for such products and reinsurance structures.
Under a reinsurance agreement, the economic consequences of certain
insurance risks are transferred from the Ceding Life Company to the reinsurer.
Depending upon the type of reinsurance agreement, these risks may include:
mortality, persistency, expense and investment. Key considerations in evaluating
the risks include: industry experience, the Ceding Life Company's pricing and
assumptions, the type of product, the Ceding Life Company's underwriting
practices and procedures, the type of distribution system, the Ceding Life
Company's recent experience and the market for the product.
The Ceding Life Companies retain responsibility for the payment of all
claims, surrender values, commissions and expenses involved in issuing and
maintaining the policies. In addition, the Ceding Life Companies administer the
reinsurance contracts and, on a monthly basis, provide WMA Life with information
regarding premiums, reserves, benefits, claims and settlement expenses for
policies reinsured. Financial activity between the Ceding Life Companies and WMA
Life is settled on either a monthly or quarterly basis in accordance with the
terms of the reinsurance agreements.
At September 30, 1998, WMA Life's reinsurance in force on life
insurance policies including riders constituted 198,832 policies with an
aggregate face amount of $5.76 billion. This is an increase of 19,463 life
insurance policies and riders or 11%, and $525 million of in force face amount,
or 10% from June 30, 1998. As of September 30, 1998, WMA Life had reinsurance in
force with respect to variable annuities for 8,087 policies, with reinsured
annuity contract benefits of $111.96 million. This is an increase of 2,275
annuity policies, or 39% and $21.54 million, or 24% of annuity contract benefits
from June 30, 1998. The relative increase in the amount of annuity contract
benefits is lower than the increase in the number of annuity policies due to the
smaller average policy size of the new reinsured annuity business with Western
Reserve.
The following table indicates the percentage of WMA Life's premiums
and reinsured policy revenues derived from the Ceding Life Companies:
<TABLE>
<CAPTION>
9/30/98 1997 1996
------- ---- ----
<S> <C> <C> <C>
Western Reserve 89.7% 95.5% 100%
American Skandia 8.5 3.6 --
Kemper 1.8 0.9 --
---- ---- ---
Total 100% 100% 100%
</TABLE>
MRT REINSURANCE
Through the third quarter of 1998, WMA Life's reinsurance indemnity
agreements included two Monthly Renewable Term ("MRT") agreements relating to
VUL policies. MRT reinsurance is a variation of Yearly Renewable Term Insurance.
The reinsurance of the VUL policies includes business previously and currently
being sold through WMA Agency and issued by Western Reserve and Kemper. Under
the MRT reinsurance agreements, WMA Life assumes a portion of the mortality risk
related to the VUL policies written by Western Reserve and Kemper. WMA Life
ceased reinsuring Financial Freedom Builder VUL policies sold after March 31,
1998 on a MRT basis and commencing April 1, 1998, began reinsuring Financial
Freedom Builder policies on a coinsurance and modified coinsurance basis. (See
discussion under "Coinsurance and Modified Coinsurance" below.) The Company will
continue to reinsure, in accordance with the terms of the MRT reinsurance
agreement with Western Reserve, all Financial Freedom Builder VUL policies
issued prior to April 1, 1998 as long as those policies remain in force.
Settlements made under these agreements are made on a monthly basis.
8
<PAGE> 9
COINSURANCE AND MODIFIED COINSURANCE
Under a coinsurance arrangement, WMA Life assumes a proportionate
share of the risks and expenses and receives a proportionate share of the
premiums and revenues associated with the underlying policies. The assumed risks
include mortality, lapses, cash surrenders and investment risk. Additionally,
under coinsurance WMA Life must establish a proportionate share of the policy
reserves. Modified coinsurance ("ModCo") is a variation of coinsurance. ModCo is
similar to coinsurance except that the reserves and the assets related to the
reserves, which would otherwise be recorded and held by the Company, are
retained by the Ceding Life Company. ModCo is used primarily for products that
develop cash values which allows the Ceding Life Company to retain the
associated assets for investment purposes. Under coinsurance and modified
coinsurance, the mortality, persistency and investment risks are reinsured on
the same plan as that of the original policy. The Ceding Life Companies and the
Company share in these risks in the same manner.
Due to the nature of the variable products reinsured, the Company is
significantly insulated from the impact of changes in investment yields as the
policyholder retains virtually all of the investment risk. However, on an
overall basis, a decline in investment yields is expected to cause a decrease in
the Company's investment income and revenues under its coinsurance and modified
coinsurance agreements, as the reinsured policy account balances upon which some
of the Company's revenues are calculated would presumably be lower. Accordingly,
the Company's income before income taxes will be smaller. Conversely, an
increase in investment yields is expected to have the opposite effect. If
mortality experience is worse than assumed (i.e., higher claims), it is expected
to cause an increase in Benefits, claims and settlements, and a decrease in
current and future revenues that would have otherwise resulted from the VUL
policies reinsured. Conversely, if mortality experience is better than assumed
(i.e., lower claims), it is expected to cause an increase in current and future
revenues that would have otherwise resulted from the policies reinsured.
WMA Life executed a reinsurance agreement on a ModCo basis with
American Skandia during July, 1997, providing for the reinsurance of a portion
of all Imperium variable annuity policies sold by WMA Agency commencing as of
January 1, 1997. The Imperium policies are products exclusively distributed and
sold by WMA Agency. Settlement is made under this agreement on a monthly basis.
Effective January 1, 1998, WMA Life commenced reinsurance on a
coinsurance and modified coinsurance basis with Western Reserve a portion of all
Freedom Wealth Creator variable annuity policies sold through WMA Agency. This
agreement enables the Company to participate in revenues arising principally
from mortality and expense charges, sales charges associated with surrenders,
credited interest rate spreads, administrative charges and asset based
allowances. Settlement under this agreement is made on a quarterly basis.
Commencing April 1, 1998, WMA Life began reinsuring on a coinsurance
and modified coinsurance basis with Western Reserve a portion of all Financial
Freedom Builder VUL policies sold through WMA Agency. This agreement has enabled
the Company to participate in revenues arising principally from mortality and
expense charges, cost of insurance charges, sales charges associated with
surrenders, credited interest rate spreads, administrative charges and asset
based allowances. Settlement under this agreement is made on a quarterly basis.
ACCOUNTING
WMA Life recognizes premiums as earned on MRT reinsurance for the
mortality risk reinsured. Reinsured policy revenues that are reported in the
period reflect policy mortality and expense charges, policy administration
charges, asset based allowances and deferred sales charges that have been
assessed against the reinsured policy account balances under the coinsurance and
modified coinsurance agreements, as they relate to universal life-type
contracts.
Net investment income is the gross income earned from the invested
assets less the investment management expenses and custodial fees.
WMA Life also recognizes costs that vary with and are directly
associated with the acquisition of the reinsured policies. These costs include
actuarial, legal and accounting fees, and salaries and expenses incurred
directly by WMA Life and reinsurance commission and expense allowances paid to
the Ceding Life Companies in accordance with the reinsurance agreements. These
expenses are deferred to the extent that such costs are deemed recoverable from
future policy revenues in accordance with Generally Accepted Accounting
Principles ("GAAP") and are recorded as deferred
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acquisition costs on the balance sheet. Deferred acquisition costs increased
$15.78 million during the first nine months of 1998 to $20.28 million at
September 30, 1998.
Deferred acquisition costs are amortized over the lives of the
underlying policies (with regard to the terms of the reinsurance agreement).
Under the MRT agreements, the amortization is in proportion to the ratio of
premiums collected during the then current period to total anticipated premiums.
The rate of amortization is based upon methods that include assumptions, such as
estimates of expected investment yields, mortality, persistency and expenses
applicable at the time the policies are reinsured. The assumptions include
provision for risk of adverse deviation. Original assumptions continue to be
used in subsequent accounting periods to determine changes in the deferred
acquisition costs unless a premium deficiency exists. (A premium deficiency is
recognized if the sum of expected claim costs, unamortized acquisition costs,
and maintenance costs exceeds related unearned premiums. A premium deficiency is
first recognized by charging any unamortized acquisition costs to expense to the
extent required to eliminate the deficiency. If the premium deficiency is
greater than unamortized acquisition costs, a liability shall be accrued for the
excess deficiency.) Although the Company is reinsuring on a coinsurance and
modified coinsurance basis with Western Reserve a portion of all Financial
Freedom Builder VUL policies previously reinsured on a MRT basis, policies
issued prior to April 1, 1998 will continue to be reinsured in accordance with
the MRT reinsurance agreement with Western Reserve. These changes do not result
in a premium deficiency.
Under the coinsurance and modified coinsurance agreements, the
amortization of the deferred acquisition cost is in proportion to the ratio of
gross profits recognized during the then current period to total anticipated
gross profits. During each accounting period, assumptions used in calculating
the amortization of the Company's deferred acquisition expense reflect actual
experience for the then current accounting period. Management also reviews on a
periodic basis evolving experience with regard to the Company's assumptions
concerning future experience relating to mortality, persistency, investment
yields and expenses in determining its estimates of future gross profits. To the
extent management believes variances from expected assumptions are permanent,
rather than temporal, assumptions used with regard to future experience will be
changed. Upon adoption of any change in assumptions used with regard to future
experience, the amortization of the Company's deferred acquisition cost will be
recalculated and will be reflected during the then current accounting period.
Life insurance claims settled and the increase in the liability for
future policy benefits, related to MRT reinsured VUL policies, are recorded as
Benefits, claims and settlement expenses on the Consolidated Financial
Statements. The liability for future policy benefits was $1.94 million at
September 30, 1998 compared to $1.29 million at December 31, 1997. The liability
at September 30, 1998 is comprised of two components: the liabilities related to
the coinsurance of variable annuity and VUL policyholder obligations and
liabilities under the Company's MRT reinsurance agreements. The liability, with
regard to the MRT reinsurance, which represents the present value of future
benefits to be paid and related expenses, less the present value of future net
premiums (that portion of the premium required to provide for all benefits and
expenses), is estimated using the same methods and assumptions used to amortize
the deferred acquisition costs under the MRT agreements. The liability for the
fixed account portions of the Western Reserve variable annuity and VUL
coinsurance agreements is equal to reinsured policy account balances. Management
believes the assumptions used regarding its liability for future policy benefits
are appropriate for its circumstances.
Professional fees, management fees and other expenses include expenses
incurred for salaries paid, actuarial, legal, and accounting services received.
Amortization of deferred organization costs, interest expense and miscellaneous
operating expenses are also included.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997.
Revenues. The Company's revenues increased by $3.91 million, or 85%, to
$8.50 million for the nine months ended September 30, 1998 from $4.59 million
for the same period in 1997. The increase was primarily attributable to the
coinsurance and modified coinsurance agreements WMA Life entered into with
American Skandia during 1997 and with Western Reserve in 1998. Further, a
revenue increase of $1.73 million was attributable to the growth in premiums
associated with the Western Reserve MRT agreement.
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<PAGE> 11
Premiums. Premiums increased by $1.73 million, or 47%, to $5.38 million
for the nine months ended September 30, 1998 from $3.65 million for the same
period in 1997. The increase was attributable primarily to the growth in
premiums associated with a MRT reinsurance agreement WMA Life entered into with
Western Reserve during the second quarter of 1996, and to a much lesser extent
to a MRT agreement executed during the fourth quarter of 1996 with Kemper. The
increase in premiums was due to an increase in the number and reinsured amount
of VUL policies sold by WMA Agency. Policies reinsured on a MRT basis increased
by 20,034, or 15%, to 158,110 at September 30, 1998 from 138,076 at September
30, 1997. For the three month period ending September 30,1998, premiums
increased by $52,000, or 3%, from $1.80 million for the three month period
ending June 30, 1998. However, policies in force on a MRT basis decreased to
158,110 at September 30, 1998 from 161,680 at June 30, 1998 due to the
discontinuation of Financial Freedom Builder VUL policies reinsured on a MRT
basis and the lapsing of in force policies. Consequently, management expects the
MRT in force business to continue to decline as policyholders terminate their
policies either as a result of surrender or premium lapse.
Reinsured Policy Revenues. Reinsured policy revenues increased by $2.14
million, to $2.24 million for the nine months ended September 30, 1998 from
$101,000 for the same period in 1997. Reinsured policy revenues of $101,000 for
the nine months ended September 30, 1997 were related to the variable annuity
ModCo agreement WMA Life executed with American Skandia during the third quarter
of 1997. Of the $2.24 million Reinsured policy revenues at the end of the third
quarter of 1998, $850,000 was attributable to the variable annuity ModCo
agreement with American Skandia and to the variable annuity coinsurance and
modified coinsurance agreement WMA Life entered into with Western Reserve
beginning January 1, 1998 and $1.39 million was attributable to the VUL
coinsurance and modified coinsurance agreement WMA Life entered into with
Western Reserve beginning April 1, 1998. These revenues reflect policy mortality
and expense charges, policy administration charges, asset based allowances and
deferred sales charges that have been assessed against the reinsured policy
account balances under the coinsurance and modified coinsurance agreements, as
they relate to universal life-type contracts. A revenue increase of $615,000, or
84%, from $731,000 for the three months ending June 30, 1998 to $1.35 million
for the three months ending September 30,1998 was largely attributable to the
VUL coinsurance and modified coinsurance agreement with Western Reserve.
Net Investment Income and Net Realized Gains on Investments. Net
investment income decreased by $56,000, or 7%, to $780,000 for the nine months
ended September 30, 1998 from $836,000 for the same period in 1997. Investment
income is earned from the investment in securities (fixed income and equity) and
cash equivalents. Investment expenses of $23,000 and $43,000 for 1998 and 1997,
respectively, related to investment advisor fees and custodial fees, were netted
with gross investment income excluding realized gains and losses. The decrease
in net investment income was primarily due to the reduction in total investments
resulting from the sale of fixed income securities in order to pay the Ceding
Life Companies for reinsurance expense allowances and benefits. The principal
components of these payments are attributable to the Western Reserve VUL
coinsurance and modified coinsurance agreement. The sale of the fixed income
securities resulted in an increase of $101,000 in Net realized gains on
investments to $102,000 in 1998 from $1,000 in 1997.
Benefits, Claims and Settlement Expenses. Benefits, claims and
settlement expenses increased by $783,000, or 47%, to $2.44 million for the nine
months ended September 30, 1998 from $1.66 million for the same period in 1997.
This increase primarily resulted from an increase in volume of in force
business. The amount of business in force at September 30, 1998, was $5.76
billion as compared to $3.86 billion at September 30, 1997, which represented a
$1.90 billion, or 49% increase.
Benefits, claims and settlement expenses decreased by $359,000, or 37%,
to $602,000 for the three month period ending September 30, 1998 from $961,000
for the three month period ending June 30, 1998. This decrease was attributable
primarily to lower than expected mortality experience. The Company's
profitability, in part, depends on the volume and amount of death claims
incurred. While death claims are reasonably predictable over a period of many
years, claims become less predictable over shorter periods and are subject to
fluctuation from quarter to quarter and year to year. Claims paid plus those
incurred in the third quarter of 1998 were approximately 40% lower than
otherwise expected based upon prior claims activity. Estimated additional net
income was $235,000 for the third quarter due to this lower than expected claims
activity. A review of October 1998 claims activity indicates there has not been
a delay in reporting of claims incurred. However, management believes this
activity is unique to third quarter results and is not indicative of future
experience.
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<PAGE> 12
A retrocession agreement was entered into simultaneously with the
reinsurance of the Western Reserve VUL business on a coinsurance and modified
coinsurance basis. WMA Life retrocedes portions of the mortality risk in excess
of its retention limit. Standard mortality risks in excess of $100,000 per life
are retroceded to American Phoenix Life and Reinsurance Company, Swiss Re Life &
Health America, Inc., The Lincoln National Life Insurance Company, and
Transamerica Occidental Life Insurance Company. The retrocession agreement
serves to reduce the impact of fluctuations in death claims from quarter to
quarter and year to year.
Reinsurance Premium Allowances, Net. Net reinsurance premium allowances
increased by $739,000, or 69%, to $1.81 million for the nine months ended
September 30, 1998 from $1.07 million for the same period in 1997. Gross
reinsurance premium allowances represent a portion of reinsurance premiums paid
or allowed by WMA Life to the Ceding Life Companies for each policy reinsured. A
certain portion of the gross reinsurance allowances, with regard to the
production of new business was primarily related to the Company's share of
commissions, certain development costs and other expenses from such production
of new business incurred by the Ceding Life Companies on the business reinsured.
These amounts have been deferred to the extent that such costs are deemed
recoverable from future policy revenue in accordance with GAAP. The balance of
those amounts not deferred are reflected as net reinsurance premium allowances
and are often a level percentage of individual policy revenues (e.g., renewal
reinsurance allowances). Similar to the increase in Benefits, claims and
settlement expenses, the increase in net reinsurance premium allowances was due
to an increase in the volume of business in force and placement of the reinsured
variable annuity and the VUL business reinsured on a coinsurance and modified
coinsurance basis.
Professional Fees, Management Fees, Consulting Fees and Other Expenses.
Professional fees, management fees, consulting fees and other expenses increased
by $271,000, or 82%, to $603,000 for the nine months ended September 30, 1998
from $332,000 for the same period in 1997. Total expenses for each period
included professional fees for legal, actuarial and accounting expenses
incurred, management fees to WMA Management Services, Inc., consulting fees to
World Marketing Alliance, Inc., operating expenses and other miscellaneous
expenses. The increase in expenses was primarily associated with an increase in
the amount of reinsurance business activities and expenses relating to the
administration of the Company. During 1998, the Company has hired six employees,
thus incurring additional expenses relating to salaries and benefits.
Amortization of Deferred Acquisition Costs, Net. Amortization of
deferred acquisition costs increased by $933,000 to $934,000 for the nine months
ended September 30, 1998 from $1,000 for the same period in 1997. The increase
in amortization of deferred acquisition costs was attributable primarily to
increased revenues associated with business reinsured and with the placement of
new business.
The deferred acquisition cost balance is equal to the prior period
deferred acquisition cost balance, plus interest and acquisition costs
capitalized, less amortization as a function of premium revenue. Amortization of
deferred acquisition costs is equal to amortization as a function of premium
revenue, less interest capitalized. During the third quarter of 1997, interest
capitalized was nearly equal to amortization as a function of premium revenue.
As each block of reinsured policies ages under the MRT reinsurance agreements,
amortization as a function of premium revenue will continue to exceed interest
capitalized. The increase in policy acquisition costs, consisting primarily of
commission and reinsurance expense allowances, under the VUL coinsurance and
modified coinsurance agreement as compared to that under the MRT agreement is
largely attributable to the relative differences in the gross premiums paid
under each agreement, respectively. First year gross premiums paid were $4.58
million under the VUL coinsurance agreement for the three month period ending
September 30,1998 as compared to $360,000 for first year MRT reinsurance
premiums paid for the same period.
Income Taxes. Income taxes increased by $388,000 to $926,000 for the
nine months ended September 30, 1998 from $538,000 for the same period in 1997.
The Company's effective tax rate was 34% in 1998 and 35% in 1997.
Net Income. As a result of the foregoing, net income for the nine-month
period ended September 30, 1998, was $1.79 million compared to $994,000 for the
nine-month period ended September 30, 1997.
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<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of the Company's cash flow have been premiums
received from Ceding Life Companies, investment income, maturing investments and
proceeds from sales of invested assets, the Company's Common Stock and short
term financing. Premiums are generally received in advance of related claims
payments. In addition to the need for cash flow to meet operating expenses, the
liquidity requirements of the Company relate primarily to the payment of gross
reinsurance allowances, operating expenses, investment purchases, and
reinsurance claims.
As a result of the coinsurance and modified coinsurance agreements
with Western Reserve, the Company requires substantially greater amounts of cash
to make payments to Western Reserve than it has been required to make under its
MRT agreement. Under the MRT reinsurance agreements, premiums vary in proportion
to expected mortality claims reinsured. The Company's cash inflows under the MRT
agreements equal premiums for the mortality risk reinsured. The Company's cash
outflows equal reinsurance expense allowances and death benefit claims. The
reinsurance expense allowances represent the Company's share of acquisition and
maintenance expenses incurred by the Ceding Life Company that are attributable
to the risks reinsured. With respect to the first policy year, the Company's net
cash outlay is approximately equal to death benefit claims because of the
expense allowance structure; thereafter, in renewal policy years, it is
anticipated no further cash outlays will occur because reinsurance expense
allowances are materially less as a function of premium.
Under the Western Reserve VUL coinsurance and modified coinsurance
agreement, since the Company is reinsuring risks on the same plan as that of the
original policy, reinsurance premiums are materially greater than premiums paid
on the MRT reinsurance--perhaps as much as fifteen times or more. During the
first year in which a policy is reinsured on a coinsurance basis, the Company is
required to reimburse Western Reserve for its share of acquisition costs,
including first year commissions and issuance expenses. Further, under modified
coinsurance, the Company will allow Western Reserve to retain assets related to
reserves in support of reinsured policy benefits (e.g., cash values).
Accordingly, because of the type of reinsurance and the plan reinsured, the net
cash outlays could be as much as, or more than, the first year premium paid.
In recognition of these liquidity requirements, during the first
quarter of 1998 the Company contributed additional capital to WMA Life through a
transfer of assets, and corresponding due and accrued investment income, with an
amortized cost of approximately $10.16 million. During the second and third
quarters of 1998, the Company liquidated its shorter duration fixed income
securities. Also during the third quarter of 1998, the Company contributed an
additional $5 million of cash to WMA Life from the proceeds of a loan under the
line of credit with Money Services, Inc. ("MSI"), a subsidiary of AEGON USA,
Inc. ("AEGON"). (See discussion of loan below.)
The Company's primary source of liquidity was $6.66 million in cash and
cash equivalents at September 30, 1998, a decrease of $3.35 million from
September 30, 1997. The effective duration of the Company's fixed income
portfolio is just over five years, with over 78% of the fixed income securities
having a maturity of less than 10 years. The Company's fixed income portfolio
represents over 94% of the total invested assets, and has an average quality
rating of Aa3 by Moody's. The effective duration of the Company's fixed income
portfolio has increased during 1998 due to the selling of the shorter duration
investments in order to pay the Ceding Life Companies for the reinsurance
expense allowances, benefits and claims.
The Company's cash requirements will also consist of: salaries and
benefits; management service fees; investment management and custodial account
fees; accounting and consulting services fees; expenses related to regulatory
issues and compliance with corporate and tax matters; and other incidental
administrative expenses. Prior to 1998, the Company incurred no expense for
salaries and benefits because it had no employees. The Company has hired six
employees during 1998. The Company incurred no capital expenditures in 1997 or
through the third quarter of 1998.
For the period ended September 30, 1998, net cash flows used in
operating activities were $7.79 million, compared to net cash used in operating
activities of $492,000 for the period ended September 30, 1997. This increase is
due primarily to additional cash required to reimburse Western Reserve for
reinsurance allowances as a result of the
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<PAGE> 14
VUL coinsurance and modified coinsurance agreement executed during 1998 and to a
lesser extent to the variable annuity agreements with American Skandia and
Western Reserve. Through September 1997, the Company had MRT reinsurance
agreements with Western Reserve and Kemper and a ModCo agreement with American
Skandia in place. The Company has used its invested assets during 1998 to
reimburse the Ceding Life Companies for allowances associated with the American
Skandia and Western Reserve agreements. The net cash provided by investing
activities for the period ended September 30, 1998 was $8.01 million, compared
to net cash provided by investing activities of $778,000 for the period ended
September 30, 1997. The Company received cash from the issuance of common stock
in the first quarter of 1997, which allowed the Company to purchase additional
investments. The net cash provided by financing activities was $4.97 million for
the period ended September 30, 1998 compared to net cash provided by financing
activities of $1.04 million for the period ended September 30, 1997. The Company
purchased a small amount of stock from its shareholders in the first six months
of 1998 and during the third quarter of 1997. The Company received short-term
debt financing from MSI during the third quarter of 1998 as discussed below.
On September 30, 1998, the Company entered into a $10 million line of
credit agreement with MSI pursuant to the terms of which the Company immediately
borrowed $5 million to cover its immediate cash needs. Borrowings under this
line of credit bear interest at the rate of 8% per annum. All outstanding
balances of principal and interest under this line of credit become due and
payable on January 31, 1999, unless extended by the lender. This credit line and
the borrowings thereunder became necessary to fund payment obligations to
Western Reserve required under the coinsurance agreements. The Company had
planned to finance these payments with the proceeds of a proposed $37,500,000
Subscription Offering of its common stock. On November 12, 1998, the Company,
upon the advice of its financial advisors and counsel applied to the Securities
and Exchange Commission ("SEC") to withdraw its registration statement relating
to this Subscription Offering.
The Company intends to repay the loans outstanding under the line of
credit with proceeds of a private sale of common stock to institutional and
other accredited investors or through alternative sources of financing. If the
stock sale does not occur or sufficient proceeds are not obtained and
alternative sources of financing are not obtainable at an acceptable cost, the
Company would be unable to meet its obligations to pay reinsurance expense
allowances under the coinsurance agreements with Western Reserve and would not
be able to repay amounts that it had borrowed from MSI under the new line of
credit agreement. As a consequence, the Company would be compelled to attempt to
renegotiate amendments to the coinsurance agreements which would reduce its
future cash outlays. At the same time, Western Reserve, pursuant to the terms of
the new line of credit agreement with MSI, would, upon the Company's failure to
timely repay loans obtained under the line of credit agreement, have the right,
until such loans are paid in full, to (i) recapture business previously ceded to
the Company for reinsurance, and (ii) reduce the Company's quota share of new
business to be reinsured under the new reinsurance agreements to a level where
the Company's available cash could meet its continuing obligations under the
reinsurance agreements, which reduction could be to zero. In such a case,
Western Reserve would no longer be required to cede new policies to the Company
for reinsurance under the agreements.
The WMA Corporation has no assets other than the stock of WMA Life and
$1.41 million of cash and invested assets. The Company will rely on income from
its invested assets and dividends from WMA Life to meet holding company cash
requirements.
The minimum solvency margin for WMA Life as a long-term insurer under
Bermuda regulations is $250,000. As of December 31, 1997, WMA Life had total
statutory capital and surplus of $6,407,578. The amount available for
distribution of dividends is $6,157,578. Additionally, the amount available for
dividend distribution must be supplied through liquid assets. WMA Life met this
requirement as the amount of invested assets and quoted investments and cash was
greater than $6,157,578.
Under the Company's reinsurance agreements, the Company is required to
provide security through a Letter of Credit ("LOC") for the benefit of the
Ceding Life Companies. The Company is in the process of increasing existing, and
obtaining additional, LOCs with Western Reserve as beneficiary, from $2.0
million to $7.0 million in support of anticipated reserve credits, under each of
the reinsurance agreements in place with Western Reserve, through October,
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<PAGE> 15
1999. WMA Life also has previously secured a LOC of $30,000 in favor of Kemper.
The LOCs were issued by IBJ Schroder, the Company's custodian, and
collateralized by the Company's assets held with the custodian. If determined to
be necessary, WMA Life will develop facilities for future LOCs and trust
arrangements in support of additional reinsurance agreements.
As a result of the 1995 offering, the Company sold 2,000,000 shares
of Common Stock and 500,000 warrants for gross proceeds of $20.5 million
(excluding deferred organization costs of $517,000). The Company believes that
the sources of cash from the 1995 offering, the $5 million loan from MSI, and
the additional $5 million line of credit available from MSI will be sufficient
to meet the Company's cash needs until January 1999 with respect to the
administration of WMA Life's current MRT agreements with Western Reserve and
Kemper, its variable annuity coinsurance agreements with American Skandia and
Western Reserve, and its VUL reinsurance agreement with Western Reserve. The
Company plans to repay its outstanding debt to MSI and to provide additional
capital to meet its future cash needs with the proceeds of a private sale of
stock to institutional and other accredited investors. The Company is also
exploring additional sources of financing through debt, reinsurance arrangements
and securitization of its receivables.
YEAR 2000 COMPLIANCE
The Company has performed an initial assessment of its internal
business systems and believes its systems, primarily its computer systems, will
process date information accurately and without interruption when required to
process dates in the year 1999 and beyond. This assessment has focused primarily
on the Company's computer systems as the Company's business centers around the
processing of financial data and is not significantly impacted by embedded
technology such as micro controllers. The Company has discussed the Year 2000
issue with the Ceding Life Companies and the steps they have taken to address
the situation. The Company believes its operations will not be affected. The
Company has not been required to expend significant resources to address the
Year 2000 issue and does not anticipate any significant expenditures.
The Company is dependent on the data processing systems of the Ceding
Life Companies for the year 2000 and beyond. Due to this dependence, the failure
of the systems of the Ceding Life Companies to be year 2000 compliant could have
a material adverse effect upon the Company, as a result of business interruption
or loss of revenue sources. There can be no assurance that these systems will be
able to properly process information relating to the year 2000 and beyond. The
Company has also discussed the Year 2000 issue with the Ceding Life Companies,
and in particular Western Reserve, and the steps they have taken, or intend to
take, to address the situation.
The Company is monitoring this risk through continued communications
with the Ceding Life Companies regarding the status of their year 2000
readiness. Since the Company reinsures more business with Western Reserve than
with the other Ceding Life Companies, the Company has requested and received
written advice as to the status of their year 2000 compliance program. Western
Reserve has advised the Company that their program for their internal systems to
become year 2000 compliant began in mid-1996 and, though currently not
completed, is expected to be complete by the end of 1998. Western Reserve has
also advised us that it will continue revalidation tests of its internal systems
as well as those systems which interface with their business partners through
1999. However, that there can be no guarantees that their efforts to remediate
their internal systems will be trouble free and that they will be in compliance
before the year 2000.
Due to the nature of its internal computer systems, the Company does
not incur significant recurring technology costs and has not been, nor is it
expected to be, required to expend significant resource to address the Year 2000
issue. Since the Company will not be required to incur significant costs related
to system replacement but will be involved primarily in monitoring third party
suppliers, the estimated future costs of remediation will primarily consist of
personnel costs.
In the event that the Ceding Life Companies are not year 2000
compliant, the Company's operations could be significantly impacted by the
Company's ability to enter into reinsurance agreements with other companies at
the same or similar terms.
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FORWARD-LOOKING STATEMENTS
Certain statements made in this report are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, and
are subject to the safe harbor provisions of that Act. These statements include,
but are not limited to, statements relating to increases in reinsurance revenues
and net income in future periods resulting from, among other things, the Company
expanding the types of reinsurance written, expanded reinsurance capacity and
investment results. Because such forward-looking statements involve risks, both
known and unknown, and uncertainties, there are important factors that could
cause actual results to differ materially from those expressed or implied by
such forward-looking statements, including but not limited to: changes in the
Company's relationship with WMA Agency, adverse reinsurance experience,
increased competition from within the insurance industry, the extent to which
the Company is able to develop new reinsurance programs and markets for its
reinsurance, changes in the control of the Company, the Company's cash
requirements, the outcome of regulatory examinations and investigations, and the
availability capital on acceptable terms and other factors discussed in this
report.
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PART II
ITEM 1. LEGAL PROCEEDINGS
At September 30, 1998, neither the Company nor its subsidiaries were
involved in any legal proceedings.
ITEM 2. CHANGES IN SECURITIES.
On October 20, 1998, the Company's Board of Directors passed a
resolution to limit the number of shares exercisable under the stock options
granted, and warrants issued, in June, 1998 to a formula amount determined by
multiplying the number of shares by a fraction, the numerator of which is the
gross dollar amount of new capital actually received by the Company, or subject
to a binding commitment to purchase, on or before March 31, 1999 and the
denominator of which is $75,000,000. The Board felt this limitation would
encourage the officers of the Company to direct their attention to the Company's
capital needs. Stockholder approval of the Stock Option Plan and the Warrants,
as well as ratification of the options granted and warrants issued is being
sought, but has not yet been obtained.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There have been no defaults in the payment of principal or interest of
any indebtedness of the issuer.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the stockholders during the period covered by this
point. The Company's Annual Meeting of stockholders originally scheduled for
August 10, 1998 has been postponed. The Company plans to reschedule the Annual
Meeting, but no new meeting date has been scheduled.
ITEM 5. OTHER INFORMATION.
On November 12, 1998, the Company submitted an application to withdraw
the Registration Statement which it filed with the SEC on June 9, 1998. The
application was made on the advice of its financial advisors and counsel that
the prevailing conditions were not conducive to a successful offering. The
registration statement was never declared effective and no securities were
offered or sold under this registration statement.
SIGNIFICANT REGULATORY ACTIVITIES WITH POTENTIAL IMPACT UPON THE COMPANY
The Company reinsures VUL and variable annuity products marketed by WMA Agency.
These products are treated as securities under federal and state securities
laws. In order to sell these products, the WMA Sales Associates must be
individually licensed by the National Association of Securities Dealers ("NASD")
and must become affiliated with a registered securities broker-dealer. WMAS is a
registered broker-dealer, which is owned by S. Hubert Humphrey, Jr. who also
owns substantially all of WMA Agency and is the principal stockholder of the
Company. All of the WMA Sales Associates who are licensed to sell VUL and
variable annuity products are registered representatives of WMAS.
On May 21, 1998, the SEC issued a formal Order of Investigation
("Order") directed at certain alleged activities of WMAS and persons employed by
or associated with WMAS. This investigation was initiated to determine whether
any federal securities laws had been violated. The Order alleges that such
persons or others acting in concert with them have, among other things, engaged
in acts or practices involving the sale and promotion of variable life insurance
products, variable annuities and mutual funds which were fraudulent and
deceptive. The Order also alleges that WMAS failed to supervise such persons
with a view to preventing the alleged violations. WMAS has neither admitted nor
denied the allegations contained in the Order and is cooperating with the SEC in
this investigation. Subpoenas have been issued pursuant to this order for the
production of documents and the testimony of several officers of WMA Agency and
WMAS. If this investigation reveals one or more violations of the federal
securities laws, the
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<PAGE> 18
Enforcement Division may recommend the imposition of sanctions against WMAS.
These sanctions, should they be imposed, could take various forms, including but
not limited to: the imposition of monetary penalties which can be quite
substantial depending upon the nature and severity of the violation, heightened
regulatory scrutiny by the SEC and NASD, and the temporary suspension or
permanent revocation of WMAS' registration or of the licenses of WMA Sales
Associates resulting in the broker-dealer's inability to continue operations.
There can be no assurance that the SEC's Enforcement Division, after
completing its investigation, will not seek to impose sanctions against WMAS,
which if substantial could impair the financial and operation condition of WMAS.
If the WMA Sales Associates are no longer able to maintain their licenses with
WMAS, a disruption of the sale of new VUL and variable annuity products would
result until the WMA Sales Associates could become registered with another
broker-dealer. There can be no assurance, however, that the WMA Sales Associates
could register with another broker-dealer or that WMA Life could reinsure
products sold through another broker-dealer. Consequently, such a disruption
could cause a significant interruption in the production of new business
reinsured by the Company due to the Company's dependence upon WMA Agency and WMA
Sales Associates for the marketing of new VUL and variable annuity policies
which the Company may then reinsure.
The Company has also been advised that the States of California and
Arizona have initiated investigations into the sales activities of WMA Agency
and WMAS, respectively. The Arizona Corporation Commission has initiated an
investigation of WMAS as a result of the sales activities of certain of its
former registered representatives. The focus of this investigation is to
determine whether WMAS adequately supervised these individuals. WMAS is
voluntarily cooperating with the Arizona Securities Commission in an effort to
reach a quick conclusion of the investigation. A proposed settlement order is
being considered which contemplates a monetary payment from WMA Securities. Any
sanction imposed by the State of Arizona would be reportable by WMAS through the
Central Registration Depository system, a computerized filing and data
processing system operated by the NASD that maintains information about NASD
members for access by state securities regulators, self-regulatory
organizations, and the SEC. The reporting of any sanction(s) imposed by the
State of Arizona could lead to investigations of WMAS in other states.
The California Department of Insurance has initiated an investigation
into the sales activities of certain former and current WMA Sales Associates in
California. The scope of this investigation relates to product suitability and
sales practices relating to the sale of VUL policies to residents of California.
WMA is cooperating fully with the investigation in an effort to resolve this
inquiry, which is in still in the investigation stage, as quickly as possible.
If the California Department of Insurance determines that violations of its
insurance laws have occurred, it could seek to impose sanctions ranging from
monetary penalties to license suspension or revocation, or limitation on growth
of new sales agents. Because California accounts for a substantial amount of WMA
Agency's total sales production, any sanctions imposed would have an adverse
effect on WMA Agency and the production of new business to be reinsured by the
Company.
PROPOSED NEW BUSINESS RELATIONSHIP WITH AEGON AND WESTERN RESERVE
During the past several months, representatives of WMA Agency have been
engaged in serious discussions with representatives of AEGON, the parent company
of Western Reserve, relating to several matters. The earlier reported proposed
separation of the administration services function from WMA Agency and placement
in a separate corporation to be jointly owned by WMA Agency and AEGON is no
longer being discussed. Discussions continue with respect to certain other
matters. These discussions are proceeding toward a letter of intent which would
form the basis for formal negotiations regarding a definitive agreement. There
can be no assurance that these discussions will lead to a letter of intent or a
definitive agreement, or that any such letter or agreement, if attained, will
contain all or any portion of the matters discussed above.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
No reports were required to be filed on Form 8-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
3.1 Articles of Incorporation(1)
3.1.1 Amendment to Articles of Incorporation changing name of
Company to "The WMA Corporation" (2)
3.2 By-laws(1)
3.2.1 Amendment to By-Laws re Related Party Transactions (3)
4.1 Revised Specimen Stock Certificate (Attached)
4.2 1998 Stock Option Plan(4)
4.3 Form of Warrant(4)
4.5 Loan Agreement between WMA Agency and Offering Subscribers (5)
10.1 Revolving Line of Credit Loan Agreement between The WMA
Corporation and Money Services, Inc. dated September 30, 1998
(Attached)
10.2 Revolving Line of Credit Promissory Note issued by The WMA
Corporation on September 30, 1998 to Money Services, Inc. in
the principal sum of $10,000,000 (Attached)
10.3 Directed Reinsurance Agreement between WMA Life and WMA Agency
dated June 8, 1998 (Attached)
27.1 Financial Data Schedule (Attached) (for SEC use only)
</TABLE>
[FOOTNOTES ON NEXT PAGE]
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FOOTNOTES TO PRECEDING PAGE:
(1) Filed on June 28, 1995 as part of the Registration Statement and
incorporated herein by reference pursuant to Rule 12b-32.
(2) Filed on May 15, 1998 as an Exhibit to Quarterly Report on Form 10-QSB
and incorporated herein by reference pursuant to Rule 12b-32.
(3) Filed on June 9, 1998 as an Exhibit to the Registration Statement and
incorporated herein by reference pursuant to Rule 12b-32.
(4) Filed on July 2, 1998 as an Exhibit to the Preliminary Proxy Statement
and incorporated herein by reference pursuant to Rule 12b-32.
(5) Filed on November 17, 1995 as an Exhibit to the Registration Statement
and incorporated herein by reference pursuant to Rule 12b-32.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
(Registrant) The WMA Corporation
<TABLE>
<S> <C> <C>
By (Signature/Title) /s/ Edward F. McKernan (SEAL) Date: November 16, 1998
Edward F. McKernan, Senior Vice
President, Chief Financial Officer,
Actuary, and Director
</TABLE>
21
<PAGE> 1
EXHIBIT 4.1
[NUMBER] [SHARES]
[WMA GRAPHIC]
THE WMA CORPORATION
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 928970 10 2
THIS CERTIFIES that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.001 PER SHARE, OF
THE WMA CORPORATION transferable only on the books of the Corporation by the
holder hereof, in person or by attorney, upon surrender of this Certificate
properly endorsed.
This Certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed with the facsimile signatures of its duly authorized officers, and its
facsimile seal to be hereunto affixed.
Dated
/s/ THOMAS W. MONTGOMERY /s/ S. HUBERT HUMPHREY, JR.
------------------------ ----------------------------
Secretary President
[WMA SEAL]
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NEW YORK)
TRANSFER AGENT AND REGISTRAR
AUTHORIZED SIGNATURE
<PAGE> 2
THE WMA CORPORATION
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM --as tenants in common UNIF GIFT MIN ACT--
TEN ENT --as tenants by the entireties ___________________________________________as custodian for
JT TEN --as joint tenants with right of survivorship and -----------------------------------------------------------
not as tenants in common (Minor)
under Uniform Gifts to Minors Act of
-----------------------------------------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list
For value received, ________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
shares
- --------------------------------------------------------------------------
of the capital stock represented by this Certificate, and do hereby irrevocably
constitute and appoint
attorney
- -----------------------------------------------------------------------
to transfer such stock on the books of the Corporation with full power of
substitution in the premises.
Dated
--------------------------
------------------------------------------------------------------
NOTICE: The signature to this assignment must correspond with the
name as written upon the face of the certificate in every
particular, without alteration or enlargement or any
change whatever
SIGNATURE(S) GUARANTEED:
-------------------------------------------------
The signature(s) should be guaranteed by an
eligible Guarantor institution (banks,
stockbrokers, Savings and Loan Associations and
Credit Unions with membership in an approved
signature guarantee Medallion program) pursuant
to S.E.C. Rule 17 Ad-15.
<PAGE> 1
REVOLVING LINE OF CREDIT
LOAN AGREEMENT
THIS REVOLVING LINE OF CREDIT LOAN AGREEMENT (the "Agreement") is made
and entered into as of the 30th day of September, 1998, by and between THE WMA
CORPORATION, a Delaware corporation (hereinafter referred to as "Borrower"),
and MONEY SERVICES, INC., a Delaware corporation (hereinafter referred to as
"Lender").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements hereinafter
set forth, Lender agrees to make and Borrower agrees to accept one or more
loans in accordance with and subject to the terms and conditions hereinafter
set forth.
ARTICLE 1
TERMS AND DEFINITIONS
In addition to the other terms hereinafter defined, the following
terms shall, for purposes of this Agreement, have the meanings set forth in
this Article 1.
1.1 ACCOUNTING TERMS. All accounting terms not specifically defined herein
shall have the meanings attributed to such terms under generally
accepted accounting principles consistently applied.
1.2 ADDRESS. The executive offices of the Borrower are located at 11315
Johns Creek Parkway, Duluth, Georgia 30097.
1.3 AGREEMENT. This Revolving Line of Credit Loan Agreement, as amended or
supplemented from time to time.
1.4 BANKRUPTCY CODE. The Bankruptcy Reform Act of 1978, as amended from
time to time.
1.5 CREDIT DOCUMENTS. Collectively, this Agreement and the Note, together
with any and all other documents and instruments now or hereafter
evidencing, securing or otherwise relating to the Obligations.
1.6 EVENT OF DEFAULT. Any of the events or conditions described in Article
5 of this Agreement.
1.7 LOAN. The Loan described in Article 2 of this Agreement.
<PAGE> 2
1.8 NOTE. The Revolving Line of Credit Promissory Note evidencing all or
any portion of the Loan indebtedness of Borrower to Lender
(hereinafter singularly and/or collectively referred to as the
"Note"), together with all modifications, renewals and extensions
thereof.
1.9 OBLIGATIONS. The indebtedness, liabilities and obligations of Borrower
to Lender arising hereunder or under any of the other Credit Documents
or as a result hereof or thereof, whether evidenced by the Note or
otherwise, and any and all extensions or renewals thereof in whole or
in part; any indebtedness, liability or obligation of Borrower to
Lender under any later or future advances or loans by Lender to
Borrower, and any and all extensions or renewals thereof in whole or
in part; and any and all future or additional indebtednesses,
liabilities or obligations of Borrower to Lender whatsoever, whether
existing as of the date hereof or hereafter arising, whether arising
under a loan, lease, line of credit, letter of credit or other type of
financing, and whether direct, indirect, absolute or contingent, and
whether evidenced by, arising out of, or relating to, a promissory
note, check draft, bond, letter of credit, lease, guaranty agreement
or otherwise.
1.10 PERSON. Any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, entity, party, or government (whether national, federal,
state, county, city, municipal or otherwise, including without
limitation, any instrumentality, division, agency, body or department
thereof).
1.11 REQUIREMENT. Any law, statute, ordinance, rule, or regulation, or
judicial or administrative order, award, judgment or writ, injunction
or decree, relating in any way to Borrower, its properties or assets,
or its business, issued by the United States, the jurisdiction in
which Borrower conducts business, or in which it leases, owns or
operates properties or assets or any political subdivision thereof, or
any agency, department, commission, board, bureau or instrumentality
of any of them.
ARTICLE 2
LOAN
Subject to the provisions of this Agreement, Lender is making the Loan
to Borrower, upon the following terms:
2.1 LOAN. Borrower shall have the right from time to time to borrow
amounts not to exceed at any one time in the aggregate, the sum of Ten
Million and No/100 ($10,000,000.00) Dollars. Except for the
advancement of Loan proceeds described in Section 2.2 hereof, all
subsequent draw requests submitted by Borrower shall be in writing and
shall be delivered to Lender no later than ten (10) days prior to the
requested date of disbursement.
2
<PAGE> 3
2.2 PRESENT DISBURSEMENT. Lender has, as of the date hereof, advanced to
Borrower the sum of Five Million and No/100 ($5,000,000.00) Dollars,
which advancement is evidenced by and is part of the Note.
2.3 INTEREST AND REPAYMENT TERMS. The principal amount of the Loan shall
be payable in accordance with, and interest on said principal amount
shall accrue at the rate specified in and shall be payable in
accordance with, the provisions of the Note.
2.4 USE OF PROCEEDS. Borrower shall use the proceeds of the Loan to make
capital contributions to WMA Life Insurance Company Limited, a Bermuda
corporation and a wholly-owned subsidiary of Borrower ("WMALIC"), who
in turn shall use the same to fulfill its settlement obligations to
Western Reserve Life Assurance Co. of Ohio, an Ohio corporation ("WRL")
pursuant to that certain (i) Automatic Reinsurance Agreement No. 1
dated July 9, 1996, by and between WMALIC and WRL; (ii) Automatic
Variable Annuity Reinsurance Agreement dated January 1, 1998 by and
between WMALIC and WRL; and (iii) Automatic Variable Universal Life
Reinsurance Agreement dated April 1, 1998 by and between WMALIC and
WRL; the foregoing agreements being collectively referred to herein as
the "Reinsurance Agreements".
ARTICLE 3
GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES OF BORROWER
Borrower hereby represents, covenants and warrants to Lender as
follows:
3.1 SOLVENCY. Borrower now has and will continue to maintain during the
term of this Agreement capital sufficient to conduct the business
transactions in which it is currently engaged or as contemplated
hereunder to be engaged, and is and will continue to be during the
term of this Agreement solvent and able to pay its debts as they
mature, and Borrower now owns and will maintain during the term of
this Agreement property whose fair saleable value is greater than the
amount required to pay the indebtedness evidenced by the Note, or such
amounts as are advanced therewith.
3.2 PENDING LITIGATION. There are no actions, suits or proceedings pending
or threatened against or affecting Borrower, or involving the validity
or enforceability of any of the Credit Documents or the priority of
the lien thereof, at law or in equity, or before any governmental, or
administrative agency.
3.3 VIOLATIONS OF REQUIREMENTS. Borrower is not in default with or in
violation of any Requirement, and shall during the terms of this
Agreement comply promptly with each and every Requirement and shall
furnish Lender, on demand, independent evidence of such compliance.
3
<PAGE> 4
3.4 MISREPRESENTATIONS. Neither this Agreement nor any of the other Credit
Documents, in each case as of its date, contains any untrue statement
of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein not
misleading.
3.5 BORROWER'S ACTS: Borrower has done no act or omitted to do any act
which might prevent Lender from or limit Lender in, acting under any
of the provisions hereof.
ARTICLE 4
GENERAL AFFIRMATIVE COVENANTS OF BORROWER
Borrower hereby covenants and agrees with Lender as follows:
4.1 PAYMENT OF NOTE. Borrower shall punctually pay the principal and
interest on the Note and all of the other Obligations in accordance
with the terms hereof and of the other Credit Documents.
4.2 CHANGE OF ADDRESS. If at any time hereafter, Borrower elects to move,
Borrower shall, prior to such move, give Lender thirty (30) days prior
written notice.
4.3 NOTICE OF DEFAULTS. Borrower shall promptly give notice in writing to
Lender of (a) the occurrence of any Event of Default under this
Agreement or any of the other Credit Documents or of any event of
default under any material instrument or other agreement of Borrower,
(b) any litigation, proceeding, investigation or dispute which may
exist at any time between Borrower and any governmental or regulatory
body which might substantially interfere with the normal business
operations of Borrower, and (c) all litigation and proceedings brought
against Borrower which, if adversely determined, would have a material
adverse effect on Borrower's operations or financial condition.
4.4 FINANCIAL STATEMENTS OF BORROWER. All financial statements of
Borrower, copies of which have heretofore been furnished to Lender, or
which shall hereinafter be furnished by Borrower to Lender, are and
shall be complete and are and shall fairly and accurately represent
the financial condition of Borrower, as of the dates and for the
periods referred to therein, and have been or shall be prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the period involved.
4.5 AMENDMENT OF REINSURANCE AGREEMENTS. In the event that Borrower fails
to pay the Note in accordance with the terms therein, Borrower
acknowledges and agrees that WRL shall have the right to amend, and
the Borrower shall consent to such amendment, the Reinsurance
Agreements to i) cause a recapture of business previously ceded to
WRL, the value of which is to be determined using pricing assumptions
previously disclosed by WRL to WMALIC, Limited, sufficient to repay
the Note, and ii) reduce the quota share percentages of the
Reinsurance Agreements with regard to new business in a manner
reasonably designed to eliminate the need for additional surplus or
cash needs; provided, however, that the Reinsurance Agreements
themselves shall continue in full force and effect otherwise. At such
time that WMALIC is able to demonstrate to WRL that it has adequate
additional surplus and cash, the parties shall agree to amend the
quota share percentages to the amounts the parties had originally
agreed.
4
<PAGE> 5
ARTICLE 5
5 EVENTS OF DEFAULT
The occurrence of any events or conditions described in
Sections 5.1 through 5. shall constitute an Event of Default hereunder,
provided that any requirement for the giving of notice or the lapse of time, or
both, has been satisfied.
5.1 NOTE. Borrower shall fail to make payment of principal of or interest
on, the Note, when the same shall become due and payable, whether by
default, maturity or otherwise.
5.2 OBLIGATIONS. Borrower shall fail to make any payments of principal of
or interest on any of the Obligations, when the same shall become due
and payable, whether by default, maturity or otherwise.
5.3 MISREPRESENTATIONS. Any representation, warranty or statement made by
Borrower herein or in the Note is or proves to have been incorrect,
untrue or misleading in any material respect when made, or becomes
incorrect, untrue or misleading in any material respect at any time
any amount remains unpaid on account of any of the Obligations.
5.4 COVENANTS. Borrower fails to keep, observe, perform, carry out or
execute in every particular its respective covenants, agreements,
obligations or conditions contained in this Agreement or in the Note.
5.5 VOLUNTARY BANKRUPTCY. Borrower shall file a voluntary petition in
bankruptcy or a voluntary petition or answer seeking liquidation,
reorganization, arrangement or readjustment of its debts, or for any
other relief under the Bankruptcy Code, or under any other act or law
pertaining to insolvency or debtor relief, whether state, Federal or
foreign, now or hereafter existing; Borrower shall enter into any
agreement indicating its consent to, approval of, or acquiescence in,
any such petition or proceeding; Borrower shall apply for or permit
the appointment by consent or acquiescence of a receiver, custodian or
trustee of Borrower for all or a substantial part of its property;
Borrower shall make an assignment for the benefit of its creditors;
Borrower shall be unable or shall fail to pay its debts generally as
such debts become due; Borrower shall commit any act which would
provide grounds for the entry of an order for relief under any chapter
of the Bankruptcy Code.
5.6 INVOLUNTARY BANKRUPTCY. There shall have been filed against Borrower
an involuntary petition in bankruptcy or seeking liquidation,
reorganization, arrangement or readjustment of its debts or for any
other relief under the Bankruptcy Code, or under any other act or law
pertaining to insolvency or debtor relief, whether state, Federal or
foreign, now or hereafter existing; Borrower shall suffer or permit
the involuntary appointment of a receiver, custodian or trustee of
Borrower for all or a substantial part of its property; Borrower shall
suffer or permit the issuance of a warrant of attachment or
garnishment, execution or similar process
5
<PAGE> 6
against all or any substantial part of the property of Borrower; or
Borrower shall commit any act which would provide grounds for the
entry of an order for relief under any chapter of the Bankruptcy Code.
5.7 JUDGEMENTS. If a judgement for the payment of money in excess of
$50,000 shall have been rendered by any court of competent
jurisdiction against Borrower and the same shall not have been
discharged or varied or execution thereunder stayed, whether pursuant
to appeal or otherwise, within ninety (90) days of the entry thereof,
or if any order, ruling or direction of any competent authority is
issued with respect to Borrower which materially adversely affects
Borrower or which requires a substantial or material adverse change in
the business or affairs of Borrower or any material disposition of
assets of Borrower.
5.8 TAX LIENS. If any federal tax lien is filed of record against Borrower
and is not bonded or discharged within ninety (90) days.
5.9 DEEMED INSECURE. Lender, at any time and in good faith, shall deem
itself insecure (and for purposes of this Agreement, Lender shall be
entitled to deem itself insecure when some event occurs, fails to
occur, or is threatened or some objective condition exists or is
threatened which materially impairs the prospects that any of the
Obligations will not be paid when due, or which materially affects the
financial or business condition or results of operations of the
Borrower).
5.10 EVIDENCE OF NO DEFAULT. Lender shall reasonably suspect the occurrence
of one or more of the aforesaid Events of Default and Borrower, upon
request of Lender, shall fail to promptly provide evidence reasonably
satisfactory to Lender that any such Event of Default has not in fact
occurred.
5.11 NOTICE AND CURE. Notwithstanding anything herein contained to the
contrary, Borrower shall have five (5) business days following receipt
of written notice thereof from Lender arising out of the non-payment
of money within which to cure such monetary Event of Default. In the
event of a Event of Default arising under Sections 5.4, 5.7, 5.8 and
5.9 hereof, Borrower shall have thirty (30) business days following
receipt of written notice thereof from Lender within which to cure
such Event(s) of Default, provided, however, that if an Event of
Default occurs which may not reasonably be cured within said thirty
(30) business days after notice thereof, the occurrence of such Event
of Default will not constitute an Event of Default hereunder so long
as efforts are commenced within said thirty (30) business day period
to cure such Event of Default and thereafter diligently pursued until
cure is accomplished, provided, however, in no event shall (i) such
cure period extend beyond ninety (90) days from the date on which
Borrower receives written notice from Lender of such Event of Default;
and (ii) said extended cure period shall apply only if there exists a
reasonable likelihood that such Event of Default can be cured within
said ninety (90) day period. The notice and cure rights herein granted
shall not apply to defaults arising under Sections 5.5 and 5.6 hereof.
6
<PAGE> 7
ARTICLE 6
REMEDIES
Upon the occurrence of any one or more Events of Default, Lender's
obligation to extend any financing under this Agreement shall immediately
cease; provided, however, that if such Event of Default is cured within any
applicable notice and cure period, then such obligation shall be reinstated as
of the date of such Event of Default is cured or written waiver thereof is
executed by Lender. Upon the occurrence or existence of any Event of Default,
which is not cured within the applicable notice and cure period, if any, set
forth herein, or at any time thereafter, at its option and in addition to and
not in lieu of any remedies provided for in the Credit documents, or any other
statute or rule of law or equity, all of which may be exercised successively or
concurrently, Lender shall be entitled to exercise any and all remedies
available to it at law or in equity.
ARTICLE 7
GENERAL OBLIGATIONS
The following conditions shall be applicable throughout the term of
this Agreement, to this Agreement and to the other Credit Documents:
7.1 RIGHTS OF THIRD PARTIES. All conditions of the obligations of Lender
hereunder and under any of the other Credit Documents, including the
obligation to make advances, are imposed solely and exclusively for
the benefit of Borrower and its successors and assigns and no other
person or entity shall have standing to require satisfaction of such
conditions in accordance with their terms or be entitled to assume
that Lender will refuse to make advances in the absence of strict
compliance with any or all thereof, and no other person or entity
shall, under any circumstances by deemed to be a beneficiary of such
conditions, any and all of which may be freely waived in whole or in
part by Lender at any time if in its sole discretion it deems it
desirable to do so. Borrower shall and does indemnify Lender from and
against any liabilities, claims or losses resulting from the
disbursement of the proceeds of the Loan. This provision shall survive
the repayment of the Loan and shall continue in full force and effect
so long as the possibility of such liabilities, claims or losses
exists.
7.2 EVIDENCE OF SATISFACTION OF CONDITIONS. Any condition of this
Agreement or any of the other Credit Documents which requires the
submission of evidence of the existence or non-existence of a
specified fact or facts implied as a condition the existence or
non-existence, as the case may be, of such fact or facts, and Lender
shall, at all times, be free independently to establish to its
satisfaction and in its absolute discretion such existence or
non-existence.
7
<PAGE> 8
7.3 NO AGENCY. Lender is not the agent or representative of Borrower, and
Borrower is not the agent or representative of Lender, and nothing in
this Agreement or any of the other Credit Documents shall be construed
to make Lender liable to anyone for goods delivered to or labor or
services performed upon any property of Borrower or for debts or
claims accruing against Borrower.
7.4 NO PARTNERSHIP OR JOINT VENTURE OR CONTROL RELATIONSHIP. Neither this
Agreement nor any of the other Credit Documents shall in any respect be
interpreted, deemed or construed as making Lender a partner or joint
venturer with, or providing Lender with any rights to control the
business or conduct of Borrower (or any entities related to or
affiliated with Borrower) or to influence decisions relating the
Borrower's business operations or the business operations of any
entities related to or affiliated with Borrower, or creating any
similar relationship or entity, and Borrower agrees that it will not
make any contrary assertion, contention, claim or counterclaim in any
action, suit or other legal proceeding involving Lender and Borrower.
7.5 NO ASSIGNMENT BY BORROWER. This Agreement and the other Credit
Documents may not be assigned by Borrower without the written consent
of Lender. If Lender approves any such assignment by Borrower, Lender
shall be entitled to make advances to such assignee and such advances
shall be evidenced by the Note and secured by the Credit Documents.
Borrower shall remain liable for payment of all sums advanced
hereunder before and after such assignment.
7.6 ASSIGNMENT BY LENDER. The Note, this Agreement, and any and all of the
other Credit Documents may be endorsed, assigned, and transferred in
whole or in part by Lender, and any such holder and assignee of same
shall succeed to and be possessed of the rights of Lender under all of
the same to the extent transferred and assigned.
7.7 ENTIRE AGREEMENT. This Agreement contains the entire terms of the
agreement between Borrower and Lender covering the disbursement of the
Loan and the use of the Loan by Borrower.
7.8 NOTICES. Any and all notices, elections, demands, requests and
responses thereto permitted or required to be given under this
Agreement or any of the other Credit Documents shall be in writing,
signed by or on behalf of the party giving the same, and shall be
deemed to have been properly given and shall be effective upon being
personally delivered, or upon being deposited in the United States
Post Office, postage prepaid, certified with return receipt requested,
to the other party at the address of such other party set forth below
or at such other address within the continental United States as such
other party may designate by notice specifically designated as a
notice of change of address and given in accordance herewith;
provided, however, that the time period in which any response to any
such notice, election, demand or request must be given shall commence
on the date of receipt thereof; and provided further that no notice of
change of address shall be effective until the date of receipt
thereof. Personal delivery to a party or to any officer, partner,
agent or employee of such party at such address shall constitute
receipt. Rejection or other refusal to accept or inability to deliver
because of changed address of which no notice has been received shall
also
8
<PAGE> 9
constitute receipt. Any such notice, election, demand, request or
response, if given to Lender shall be addressed as follows:
Money Services, Inc.
4333 Edgewood Road, N. E.
Cedar Rapids, Iowa 52499
Attention: Patrick DePalma
and, if given to Borrower, shall be addressed as follows:
The WMA Corporation
11315 Johns Creek Parkway
Duluth, Georgia 30097
Attention: Thomas W. Montgomery
7.9 SUCCESSORS AND ASSIGNS INCLUDED IN PARTIES. Whenever in this Agreement
or in any other Credit Document any party is named or referred to, the
heirs, executors, legal representatives, successors, successors-in-
title and assigns of such parties shall be included, and all covenants
and agreements contained in this Agreement or in any other Credit
Document by or on behalf of Borrower or by or on behalf of Lender shall
bind and inure to the benefit of their respective heirs, executors,
legal representatives, successors, successors-in-title and assigns
whether so expressed or not; provided, however, that nothing contained
in this Agreement or in any other Credit Document shall or shall be
deemed to limit or act in derogation of any restriction on transfer or
assignment impressed upon Borrower in any of the Credit Documents.
7.10 HEADINGS. The headings of the articles, paragraphs and subparagraphs
of this Agreement and the other Credit Documents are for the
convenience of reference only, are not to be considered a part hereof
or thereof and shall not limit or otherwise affect any of the terms
hereof or thereof.
7.11 INVALID PROVISION TO AFFECT NO OTHERS. In fulfillment of any provision
hereof or in any of the Credit Documents or any transaction related
thereto at the time performance of such provision shall be due, shall
involve transcending the limit of validity presently prescribed by any
applicable usury statute or any other applicable law, with regard to
obligations of like character and amount, then ipso facto, the
obligation to be fulfilled shall be reduced to the limit of such
validity; and if any clause or provision herein or therein contained
operates or would prospectively operate to invalidate this Agreement
or any of the other Credit Documents, in whole or in part, then such
clause or provision only shall be held for naught,
9
<PAGE> 10
as though not herein or therein contained, and the remainder of this
Agreement or such other Credit Document shall remain operative and in
full force and effect.
7.12 NUMBER AND GENDER. Whenever the singular or plural number, or the
masculine, feminine or neuter gender is used herein or in any other
Credit Document, it shall equally include the other.
7.13 AMENDMENTS. Neither this Agreement nor any of the other Credit
Documents, nor any provisions hereof or thereof may be changed,
waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change,
waiver discharge or termination is sought.
7.14 GOVERNING LAW. This Agreement and the other Credit Documents shall be
governed by and construed in accordance with the laws of the State of
Iowa, except to the extent otherwise specified in any of the other
Credit Documents in which event the specification of governing law in
such other Credit Documents shall control.
7.15 NO WAIVER. No delay or failure on the part of any party hereto or to
any of the other Credit Documents of the exercise of any right or
remedy hereunder or thereunder shall operate as a waiver thereof, and
no single or partial exercise of any right or remedy hereunder or
thereunder shall preclude other or further exercise thereof or the
exercise of any other right or remedy. No action or forbearance by any
party contrary to the provisions of this Agreement or of any other
Credit Document shall be construed to constitute a waiver of any of
the express provisions hereof or thereof. Specifically, but without
limiting the foregoing provisions of this paragraph, Lender may waive
any Event of Default, and, in such event, such Event of Default shall
be deemed non-existent ab initio and shall have no effect upon this
Agreement; provided, however, that no such waiver shall be effective
whatsoever unless the same is in writing, specifically describes each
or Event of Default waived and is duly executed by an officer of
Lender.
7.16 NO WAIVER OF CONDITIONS TO ADVANCES. No advance of proceeds hereunder
shall constitute a waiver of any of the conditions to any obligation
of Lender to make further advancer nor, in the event Borrower is
unable to satisfy any such condition, shall any such advance have the
effect of precluding Lender from thereafter declaring such inability
to be an Event of Default.
7.17 MAXIMUM INTEREST RATE. Anything in the Note, this Agreement or any of
the other Credit Documents to the contrary notwithstanding, it is
understood and agreed by the parties that, if by reason of
acceleration or otherwise, interest paid or contracted to be paid by
Borrower on the loan shall exceed the maximum amount permitted by
applicable law, the excess shall be credited on interest accrued or
principal, or both, so that such interest shall not exceed the maximum
amount permitted by such law, provided that this paragraph shall not
have any
10
<PAGE> 11
effect if there is no applicable law regulating the amount of interest
which can be paid on the Loan or if no usury defense is available to
Borrower.
7.18 LENDER'S LIABILITY. No action shall be commenced by Borrower for any
claim against Lender under the terms of this Agreement or any of the
other Credit Documents unless notice thereof, specifically setting
forth the claim of Borrower, shall have been given to Lender within
fifteen (15) days after the occurrence of the event or omission which
Borrower alleges gave rise to such claim, and failure to give such
notice shall constitute a waiver of any such claim. The liability of
Lender to Borrower for any breach of the terms of this Agreement or
any of the other Credit Documents by Lender shall not exceed a sum
equal to the amount which Lender shall have failed to advance in
consequence of a breach by Lender of its obligations under this
Agreement or any of the other Credit Documents, together with interest
thereon at the rate payable by Borrower for advances which Borrower is
to receive hereunder on the Loan, computed from the date when the
advance should have been made by Lender to the date when the advance
is, in fact, made by Lender, and, upon the making of any such payment
by Lender to Borrower, the same shall be treated as an advance under
the Lender, in the same fashion as any other advance on the Loan under
the terms of this Agreement.
7.19 SUMS HELD BY LENDER. Lender shall not, except to the extent required
by law or otherwise provided in any Credit Document, have any
obligation to pay interest on any sums from time to time deposited by
Borrower with Lender, or otherwise collected by Lender, pursuant to
this Agreement or any of the other Credit Documents.
7.20 CONFLICT WITH CREDIT DOCUMENTS. Except as otherwise specifically set
forth herein or in the other Credit Documents, in the event of any
conflict between the provisions hereof and any of the other Credit
Documents, the provisions hereof shall govern but, in the absence of
conflict, nothing herein shall restrict the rights or remedies of
Lender under any of the other Credit Documents.
7.21 CONSTRUCTION OF AGREEMENT. No provision of this Agreement or of any
other Credit Document shall be construed against or interpreted to the
disadvantage of any party hereto or thereto by any court or other
governmental or judicial authority by reason of such party having or
being deemed to have structured or dictated such provision.
7.22 PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be made under
the Note or any other Credit Document shall be stated to be due on a
Saturday, Sunday, or a public holiday under the laws of the State of
Iowa, such payment may be made on the next succeeding business day,
and such extension of time shall in such case be included in the
computation of payment of interest under the Note or such other Credit
Document.
11
<PAGE> 12
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement
under seal as of the date first above written.
LENDER:
MONEY SERVICES, INC.
AN DELAWARE CORPORATION
BY: /s/ PATRICK DEPALMA
---------------------------------
NAME: Patrick DePalma
TITLE: President
(CORPORATE SEAL)
BORROWER:
THE WMA CORPORATION
A GEORGIA CORPORATION
BY: /s/ THOMAS W. MONTGOMERY
---------------------------------
NAME: Thomas W. Montgomery
TITLE: Executive Vice-President
(CORPORATE SEAL)
12
<PAGE> 1
REVOLVING LINE OF CREDIT
PROMISSORY NOTE
$10,000,000.00 Atlanta, Georgia September__, 1998
FOR VALUE RECEIVED, the undersigned, THE WMA CORPORATION, a
Delaware corporation (hereinafter referred to as the "Maker"), promise to pay
to the order of MONEY SERVICES, INC., a Delaware corporation (hereinafter
referred to as "Payee"; Payee, and any subsequent holder hereof, being
hereinafter referred to as "Holder"), without grace, at the office of Payee at
4333 Edgewood Road, N. E., Cedar Rapids, Iowa 52499, or at such other place as
Holder may designate to Maker in writing from time to time, the principal sum
of Ten Million and No/100 ($10,000,000.00) Dollars, or such other lesser
amounts as shall be noted on the attached Schedule of Loans and Payments of
Principal pursuant to the authority set forth in this Note, together with
simple interest on so much thereof as is from time to time outstanding and
unpaid, from the date hereof, at the rate of eight (8%) percent per annum, in
lawful money of the United States of America, which shall at the time of
payment be legal tender in payment of all debts and dues, public and private.
Such principal and interest to be paid in the following manner, to wit:
The entire outstanding principal balance hereof, together
with all accrued but unpaid interest thereon, shall be due and payable in full
on January 31, 1998.
This Note is issued pursuant to that certain Revolving Line
of Credit Agreement dated of even date herewith by and between Maker and Holder
(the "Loan Agreement") and is entitled to the benefits and is subject to the
provisions of the Loan Agreement; provided, however, nothing contained in the
Loan Agreement is intended or should be construed to modify, affect or impair
the provisions of this Note. Pursuant to the terms of the Loan Agreement, Maker
shall have the right to borrow amounts not to exceed at any one time in the
aggregate, the sum of Ten Million and No/100 ($10,000,000.00) Dollars.
This Note may be prepaid in whole or in part without penalty
or prepayment premium.
It is hereby expressly agreed that should any default be made
in the payment of principal or interest as stipulated above, that interest
shall accrue on the outstanding principal balance of this Note and for so long
as such default continues at the rate of ten (10%) percent per annum.
Time is of the essence of this Note.
This Note may not be changed orally, but only by an agreement
in writing signed by the party against whom enforcement of any waiver, change,
modification, or discharge is sought.
Promissory Note 1
<PAGE> 2
If for any circumstances whatsoever, fulfillment of any
provision of this Note or of any other instrument evidencing or securing the
indebtedness evidenced hereby, at the time performance of such provision shall
be due, shall involve transcending the limit of validity presently prescribed
by any applicable usury statute or any other applicable law, with regard to
obligations of like character and amount, then, ipso facto, the obligation to
be fulfilled shall be reduced to the limit of such validity, so that in no
event shall any exaction be possible under this Note or under any other
instrument evidencing or securing the indebtedness evidenced hereby, that is in
excess of the current limit of such validity, but such obligation shall be
fulfilled to the limit of such validity.
This Note is intended as a contract under and shall be
construed and enforceable in accordance with the laws of the State of Iowa.
Borrower hereby submits to the jurisdiction of the courts of the State of Iowa
with respect to any legal action which may be brought to Lender hereunder.
IN WITNESS WHEREOF, Maker has caused this Note to be executed
under Seal on the date first above written.
MAKER:
THE WMA CORPORATION
a Delaware corporation
By:
---------------------------------
Name: Thomas W. Montgomery
------------------------------
Title: Executive Vice President
-----------------------------
(Corporate Seal)
Promissory Note Page 2
<PAGE> 1
EXHIBIT 10.3
DIRECTED REINSURANCE AGREEMENT
THIS AGREEMENT, effective June 8, 1998 by and between World Marketing
Alliance, Inc., a corporation organized and existing under the laws of the State
of Georgia ("Agency"), and The WMA Corporation, a corporation organized and
existing under the laws of Delaware ("WMAC").
WHEREAS, Agency, through a network of independent sales contractors
("Agents"), is engaged in the sale of various life insurance products
("Products") issued by life insurance companies ("Ceding Insurance Companies")
with which Agency has selling agreements;
WHEREAS, WMAC, through its subsidiary, WMA Life Insurance Company
Limited, (which subsidiary is hereinafter also referred to as "WMAC" where the
context requires) is engaged in the business of reinsuring Products sold by
Agency through its Agents and desires to continue to have the opportunity to
provide additional reinsurance for the Products sold by the Agency through the
Agents;
WHEREAS, WMAC is presently in the process of preparing a registration
statement for an additional offering of its common stock;
WHEREAS, the Agents presently own a substantial amount of WMAC's issued
and outstanding common stock offered pursuant to a prior registered stock
offering by WMAC, and desire to have the opportunity to acquire additional
common stock offered by WMAC from time to time;
WHEREAS, Agency desires to secure opportunities for its Agents to
acquire, on a direct purchase basis, additional shares of capital stock of WMAC
that may be offered for sale by WMAC in the future; and
WHEREAS, the purpose of this Agreement is to set forth the terms and
conditions under which Agency shall offer WMAC the opportunity to reinsure the
Products sold by the Agents, and WMAC shall provide opportunities to the Agents
to purchase its common stock offered from time to time in the future.
NOW THEREFORE, for and in consideration of the mutual covenants
contained herein, and Ten Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto intending to be legally bound do hereby agree as follows:
1. Agency's Obligations. During the term of this Agreement, subject to the
limitations set forth in Paragraph 3 hereof, Agency shall use its best efforts,
at the option of WMAC, to cause
Page 1
<PAGE> 2
the Ceding Insurance Companies to provide WMAC with the opportunity to reinsure
all Products sold by the Agents on terms that are acceptable to WMAC and no less
favorable than WMAC's existing reinsurance agreement with Western Reserve Life
Assurance Co. of Ohio in effect as of the date of this Agreement. Agency shall
use its best efforts to cooperate with WMAC in its negotiations with the Ceding
Insurance Companies to enter into reinsurance agreements. With respect to any
selling agreements entered into by Agency with a Ceding Insurance Company after
the date of this Agreement, Agency will use its best efforts to negotiate a
provision requiring such Ceding Insurance Company to offer WMAC the right to
reinsure any Products sold by the Agents. Agency shall notify WMAC of Agency's
intent to enter into a selling agreement with a Ceding Insurance Company and
agrees that it shall not execute any selling agreement prior to allowing WMAC
the opportunity to provide the terms and conditions of reinsurance which WMAC
desires to include in such selling agreement. Agency further agrees to make
reasonable efforts to encourage its Agents to sell Products of the Ceding Life
Companies only to those individuals who meet or exceed the WMAC underwriting
standards provided in writing to Agency. Agency agrees that, during the term of
this Agreement, it shall not enter into agreement containing provisions similar
to those contained herein, with any other party .
2. WMAC's Obligations. During the term of this Agreement, subject to the
limitations set forth in Paragraph 4 hereof, if and when WMAC shall offer for
sale additional shares of any class of its capital stock, including the proposed
registration statement to be filed in 1998, WMAC agrees to offer no less 25%
percent of such new shares to Agents and such other persons in the amounts
designated by Agency on a direct subscription basis; provided, however, that the
underwriters of a contemporaneous underwritten offering, if any, shall
reasonably agree (and WMAC shall use its best efforts to cause the underwriters
to so agree) to allow any shares not purchased on a subscription basis to be
included in the underwritten offering. Agency may waive WMAC's obligation to
offer additional shares to Agents with respect to any offering of WMAC capital
stock, provided, however, that any such waiver shall not constitute a waiver
with respect to any subsequent offering of capital stock by WMAC. WMAC further
agrees to authorize the issuance of warrants to purchase up to 600,000 shares of
WMAC common stock, such warrants to be issued by WMAC at the direction of the
Agency to the employees of and designated by the Agency, on such terms and
conditions that are set forth in that certain warrant form attached hereto as
Exhibit A, and by this reference made a part hereof, and such other terms and
conditions, if any, to which the Agency and WMAC may hereafter agree.
Page 2
<PAGE> 3
3. Limitation on Agency's Obligations. Nothing in this Agreement shall obligate
Agency to sell or continue to sell any particular life insurance product of any
life insurance company or to maintain in effect any particular selling
agreement. Agency may change Products or the terms of any selling agreements
with the Ceding Insurance Companies. Agency shall however give WMAC at least 120
days prior written notice of Agency's intent to discontinue the sale of any
Product or the termination of any selling agreement. Subject to the provisions
of the preceding sentence, Agency may discontinue the sale of any Products at
any time. Agency shall not be obligated to sell substitute Products for
discontinued Products. Nothing in this Agreement shall obligate Agency to delay
the execution of, or to agree to any terms or conditions in, any selling
agreement with a Ceding Insurance Company that are not in the best interest of
the Agency, as determined in the sole discretion of the board of directors of
the Agency.
4. Limitation on WMAC's Obligations. Nothing in this Agreement shall impose any
obligation on WMAC to provide reinsurance of any Products. Nothing in this
Agreement shall obligate WMAC to offer for sale any shares of its capital stock
at a price or on terms and conditions less favorable than WMAC could otherwise
realize or obtain in an underwritten offering of its capital stock. In the event
any shares of its capital stock required to be offered to Agents or other
persons designated by Agency pursuant to Paragraph 2 of this Agreement are not
purchased within thirty days of the effective date of the registration statement
pursuant to which such shares are offered for sale, then WMAC shall have no
further obligation to offer such shares for sale to the Agents or such other
persons designated by the Agency. WMAC shall also be relieved of its obligation
to offer new shares to Agents of Agency to the extent that, in the opinion of
the lead underwriter selected by WMAC in any subsequent sale of additional
shares, such a direct offering would substantially impair an underwritten
offering by WMAC to raise additional capital. Such a limitation would apply with
respect to each subsequent stock offering by WMAC and may result in any such
instance in reducing WMAC's obligation to offer shares to Agents of Agency from
no less than 25% to an amount which is less than 25% to zero, depending upon the
underwriter's opinion.
5. Changes Required by Law. If applicable law, regulations or governmental
policy, or any interpretation thereof, requires change in any of the provisions
of this Agreement, either party may offer the other an amendment or a
superseding Agreement modified to reflect changes required by such laws,
regulations, policies or interpretations thereof, or may terminate this
Agreement pursuant to Paragraph 15 hereof. If the other party shall fail to
accept an offered amendment or superseding Agreement within thirty (30) days
after it has been offered, this Agreement may be terminated by the offering
party upon written notice to the other, with such termination to be effective
upon receipt of such notice.
6. Neither Party Agent or Legal Representative of Other. This Agreement does not
constitute either party the agent or legal representative of the other for any
purpose whatsoever. Neither is granted any express or implied right or authority
to assume or to create any obligation in behalf of or in the name of the other
or any parent, subsidiaries, or to bind them in any manner whatsoever.
Page 3
<PAGE> 4
7. Government Approvals. Both parties shall cooperate in securing any government
approvals or permits required to effect the transactions contemplated by this
Agreement, including but not limited to registering any shares of WMAC stock the
Securities Exchange Commission or similar state authority in which event Agency
will pay its proportionate share of such expenses incurred by WMAC.
8. Separate Responsibilities of Parties. Each party shall be solely responsible
for any and all expenditures, obligations or responsibilities made, incurred or
assumed by it in preparation for performance or in the performance of its
obligations under this Agreement.
9. Notices. Any notice required to be given by either party to the other in
connection with this Agreement shall be made in writing and shall be sent by
prepaid registered mail. Notices pertaining to matters other than termination or
modification of this Agreement may instead be transmitted by means of facsimile,
cable or telex. Any such notice to Agency shall be directed as appropriate and
addressed as follows:
World Marketing Alliance, Inc.
11315 John's Creek Parkway
Duluth, Georgia 30097
Attention: S. Hubert Humphrey, Jr.
Any such notice to WMAC shall be directed to and addressed as
follows:
The WMA Corporation
11315 John's Creek Parkway
Duluth, Georgia 30097
Attention: Edward F. McKernan
10. No Implied Waivers. Failure of either party at any time to require
performance by the other party of any provision hereof shall in no way affect
the full right to require such performance at any time thereafter. Waiver by
either party of a breach of any obligation hereunder shall not constitute a
waiver of any succeeding breach of the same obligation itself. Failure of either
party to exercise any of its rights provided under this Agreement shall not
constitute a waiver of such right.
11. Assignment. Neither this Agreement nor any rights or obligations hereunder
shall be assigned or otherwise transferred by Agency or WMAC, either voluntarily
or involuntarily, without the prior written consent of the other; provided,
however, that WMAC shall have the right to assign its rights and benefits under
this Agreement to a reinsurance subsidiary, including but not limited to WMA
Life Insurance Company Limited in the event and only in the event that such
subsidiary executes and delivers to Agency a written instrument pursuant to
which it
Page 4
<PAGE> 5
acknowledges and agrees that its rights as assignee are subject to all of the
provisions of this Agreement, and WMAC's obligations thereunder.
12. Sole Agreement of Parties. There are no other agreements or understandings,
either oral or written, between the parties affecting this Agreement.
13. Applicable Law and Dispute Resolution. This Agreement shall be governed by
and construed according to the laws of the State of Georgia. If a dispute arises
from or relates to this Agreement or the breach thereof, and if the dispute
cannot be settled through direct discussions, the parties agree to endeavor
first to settle the dispute in an amicable manner by mediation administered by
the American Arbitration Association under its commercial Mediation Rules before
resorting to arbitration. Thereafter, any unresolved controversy or claim
arising from or relating to this Agreement or breach thereof shall be settled by
arbitration administered by the American Arbitration Association in accordance
with its Commercial Arbitration Rules and Judgment on the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
14. Contract Construction and Official Text. Invalidity of any provision of this
Agreement shall not affect any other provision and, in the event of a judicial
finding of such invalidity, this Agreement shall remain in force in all other
respects. Section headings and titles herein are for the convenience of the
parties only and shall not be construed as affecting the substantive provisions
of this Agreement.
15. Termination of Agreement. Unless terminated sooner pursuant to this
Paragraph 15, this Agreement shall continue in force for 10 years after the
effective date shown hereon and shall automatically expire at the end of such
stipulated term without any action by either of the parties.
Termination of this Agreement shall earlier occur:
(a) Upon material breach by either party of obligations under this
Agreement, if such breach substantially lessens the value of
the Agreement to the other party, the other party may give
notice of intent to terminate the Agreement. Notice of
termination shall become final and effective 60 days after
notice of intent to terminate has been given, without
necessity for judicial action, unless the notice is withdrawn
as a result of correction of the breach or other action
satisfactory to the party who gave the notice.
(b) Upon the occurrence of any circumstance, including adoption of
any law, regulation or policy by any government, that
adversely affects the ability of Agency or WMAC to perform its
obligations hereunder or that so changes the relationship
between Agency and WMAC as to undermine the basic assumptions
and expectations of the parties at the time this Agreement was
executed. Notice of termination shall be effective immediately
without necessity for judicial action.
Page 5
<PAGE> 6
(c) Upon a substantial change in control of Agency, WMAC shall
have the right to terminate this Agreement upon 30 days'
notice to Agency. A change in control shall be deemed to occur
when the present controlling shareholder's interest in Agency
is reduced to less than 50% of the then outstanding voting
stock of Agency.
Upon expiration or termination of this Agreement, neither WMAC or Agency shall
have any further obligations to the other party.
16. Confidentiality. Except as required by law or unless the parties otherwise
agree, Agency and WMAC each agrees that it will not, directly or indirectly,
divulge, or allow or cause another to divulge, to anyone, use or otherwise
appropriate for its benefit, any affiliated entity or another, or fail to take
such other precautions as it would normally take with its own confidential
information to prevent disclosure to third parties, the terms of this Agreement
or any confidential information identified as such by a party hereto during the
course of performance of this Agreement.
17. Amendments. No amendment or modification of any provision of this Agreement
shall in any event be effective without the written concurrence of Agency and
WMAC.
IN WITNESS WHEREOF this Agreement consisting of this and the five (5)
preceding pages has been executed in duplicate on behalf of the parties by their
duly authorized representatives as follows:
WORLD MARKETING ALLIANCE, INC. THE WMA CORPORATION
By:/s/ Thomas W. Montgomery By:/s/ Edward F. McKerman
-------------------------------- -----------------------------
Title: Vice President Title: Senior Vice President
----------------------------- --------------------------
Date: June 8, 1998 Date:
----------------------------- ---------------------------
Page 6
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WMA CORPORATION FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<DEBT-HELD-FOR-SALE> 10,094,509
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 660,563
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 10,755,072
<CASH> 6,655,488
<RECOVER-REINSURE> 61,534
<DEFERRED-ACQUISITION> 20,283,359
<TOTAL-ASSETS> 38,799,264
<POLICY-LOSSES> 1,935,474
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 5,000,000
0
0
<COMMON> 2,500
<OTHER-SE> 24,069,666
<TOTAL-LIABILITY-AND-EQUITY> 38,799,264
5,383,901
<INVESTMENT-INCOME> 779,894
<INVESTMENT-GAINS> 101,719
<OTHER-INCOME> 2,236,421
<BENEFITS> 2,438,647
<UNDERWRITING-AMORTIZATION> 933,918
<UNDERWRITING-OTHER> 1,808,581
<INCOME-PRETAX> 2,717,913
<INCOME-TAX> 925,685
<INCOME-CONTINUING> 1,792,228
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,792,228
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.72
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
