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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark
One)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF SECURITIES EXCHANGE
ACT OF 1934
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
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(Address of principal executive offices)
Issuer's telephone number: (770) 248-3311
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
None None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock - Par Value $.001 None
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(Title of class)
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
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Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to be best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. Yes X No
The issuer's revenues for 1997 were $6,799,954.
At February 28, 1998, there were 2,497,800 shares of common stock
outstanding. The aggregate market value of the common stock held by
non-affiliates computed on the basis of the price at which the stock was sold
was $19,978,000. All warrants previously issued in 1995 have been exercised.
There is no established market for the shares of common stock.
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TABLE OF CONTENTS
PART I
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Page No.
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ITEM 1 Description of Business 4
ITEM 2 Description of Property 13
ITEM 3 Legal Proceedings 13
ITEM 4 Submission of Matters to a Vote of Security Holders 13
PART II
ITEM 5 Market for Common Equity and Related Stockholder Matters 13
ITEM 6 Management's Discussion and Analysis or Plan of Operation 14
ITEM 7 Financial Statements 23
ITEM 8 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 42
PART III
ITEM 9 Directors, Executive Officers, Promoters and Control Persons, Compliance With Sections 16(a)
of the Exchange Act 42
ITEM 10 Executive Compensation 44
ITEM 11 Security Ownership of Certain Beneficial Owners and Management 45
ITEM 12 Certain Relationships and Related Transactions 47
ITEM 13 Exhibits and Reports on Form 8-K 50
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TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Overview
The WMA Corporation (the "Company") was formed March 9, 1995 by S.
Hubert Humphrey, Jr. ("Mr. Humphrey") under Delaware law under the name WMA
International Corporation. On March 3, 1998, the Company's stockholders approved
the change of its corporate name to The WMA Corporation. The Company owns 100%
of the outstanding stock of WMA Life Insurance Company Limited, a Bermuda life
insurance corporation formed August 2, 1995 ("WMA Life"). The Company also owns
100% of the outstanding stock of WMA Life Holding, Ltd. ("Holding"), a Bermuda
corporation, which has no significant business operations. In December of 1996,
WMA Life became a wholly owned subsidiary of the Company. As used in this
document, the "Company" means The WMA Corporation and, unless the context
requires otherwise, WMA Life.
The Company, through WMA Life, provides reinsurance for certain life
insurance companies on variable universal life insurance ("VUL") and variable
annuity policies sold through World Marketing Alliance, Inc., a Georgia
corporation, which operates 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 securities licenses are
required for the sale of variable annuity and VUL products, such licenses are
obtained through WMA Securities, Inc. under a dual licensing arrangement with
WMA Agency. S. Hubert Humphrey, Jr. owns substantially all of WMA Agency and all
of WMA Securities, Inc. Mr. Humphrey also beneficially owns approximately 36.1%
of the Company's Common Stock.
The Company commenced reinsurance operations near the end of the second
quarter of 1996. From commencement through 1997, the Company primarily reinsured
death benefits thereby reinsuring mortality risks on VUL policies. In July of
1997, the Company entered an agreement to reinsure benefits and risks on
variable annuity policies. During 1998, the Company will expand its variable
annuity and VUL reinsurance business. Commencing in 1998, the VUL benefits
reinsured will include not only death benefits, but also cash surrender
benefits, policy loans, partial withdrawal benefits and other policy benefit
guarantees typical of life insurance contracts. In reinsuring these additional
benefits, the Company will increase its insurance risk exposure concerning
mortality, persistency and investment risk.
The Company currently has reinsurance agreements with Western Reserve
Life Assurance Company of Ohio ("Western Reserve"), Kemper Investors Life
Insurance Company ("Kemper"), and American Skandia Life Assurance Corporation
("American Skandia"), all of which are hereinafter collectively referred to as
the "Ceding Life Companies." The Company's largest reinsurance relationship is
currently with Western Reserve.
For the year ended December 31, 1997, the Company earned $1.52 million
on revenues of $6.80 million. Total assets and stockholders' equity at December
31, 1997 were $25.07 million and $22.08 million, respectively. As of December
31, 1997, the Company reinsured approximately 150,000 policies and had life
reinsurance in force with an aggregate face value of $4.16 billion.
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The Company, to date, has derived substantially all of its life
insurance reinsurance revenues from VUL policies issued by Western Reserve and
substantially all of its annuity reinsurance revenues from variable annuities
issued by American Skandia. The termination of the Company's reinsurance
relationships with either of these life insurance companies would have a
material adverse effect on the operating results and prospects of the Company.
The Company will have significant reinsurance balances due from the Ceding Life
Companies, in particular Western Reserve, and as a result, will be exposed to
risks associated with the collection of these balances. Any adverse change in
the financial condition of a Ceding Life Company could impair the Company's
ability to collect these balances as a general creditor, which in turn, could
result in a material adverse effect upon the financial condition of the Company.
The Company was formed principally to provide an opportunity for WMA
Agency's independent insurance agents ("WMA Sales Associates") to participate
indirectly in certain business produced by WMA Agency. The Company believes that
WMA Sales Associates who have an equity interest in the Company have a greater
incentive to place profitable and persistent business with life insurers whose
policies are reinsured by the Company. To enable certain WMA Sales Associates to
purchase the Company's common stock in its 1995 registered, non-underwritten
offering, WMA Agency loaned them funds to acquire such shares. These shares have
been pledged with WMA Agency as security for these loans and voting proxies have
been executed in favor of WMA Agency. Since Mr. Humphrey owns substantially all
of WMA Agency, he is deemed to beneficially own the 402,836 shares of the
Company's common stock pledged as collateral for these loans. As of December 31,
1997, the outstanding balance of these loans was $1,305,505. These loans are
payable from the borrower's personal funds in 60 equal monthly installments of
principal and interest, in accordance with the terms of the loans. As of
December 31, 1997, WMA Sales Associates and employees of WMA Agency beneficially
and directly owned all of the outstanding Common Stock of the Company.
Policies Reinsured
The Company currently reinsures only VUL and variable annuity policies.
- VUL is a flexible premium adjustable life insurance plan that offers
a form of permanent insurance to the policyholder but also enables
the policyholder, within certain limitations, to change the face
amount or death benefit of the policy and the timing of the premium
payments to meet the policyholder's situation, even after the policy
is written. The death benefits and cash values in VUL policies vary
to reflect investment experience of a separate account (i.e., a
separate pool of assets, typically mutual funds). The policyholder
may specify, within limits and from time to time, where the assets in
the separate account are to be invested. The policy has a guaranteed
minimum death benefit while cash values vary with the investment
performance of the separate account. In a VUL policy, the investment
risk is passed on to the policyholder. From the premium paid by the
policyholder, the insurance company deducts charges for the cost of
the mortality risk and administrative expenses. The balance is placed
in the separate account for investment in accordance with the
policyholder's direction. The net amount of risk on a VUL policy is
often defined as the difference between the specified face amount of
insurance and the value of the assets in the separate account at any
given time.
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- Variable annuity contracts provide for flexible premium payments and
guarantee that the annuitant will receive a series of periodic
payments commencing at a specified date. The amount of the deferred
annuity cash values will vary in accordance with the investment
experience of the separate account much in the same manner as the
separate account in a VUL policy. Variable annuities may provide a
guaranteed minimum death benefit prior to the commencement of annuity
benefit payments.
Reinsurance Types
Through 1997, the Company has written two types of reinsurance: monthly
renewable term ("MRT") and modified coinsurance ("ModCo"). During 1998, the
Company will begin reinsuring variable annuity and VUL policies issued by
Western Reserve, on business sold through WMA Agency, on a coinsurance and ModCo
basis.
Monthly Renewable Term. MRT, also referred to as risk premium
reinsurance, is a plan of reinsurance in which the premium rates are not
directly related to the premium rates on the original plan of insurance. Under
MRT reinsurance, the Ceding Life Company reinsures the mortality risk with the
Company. The amount reinsured in any one month is not based on the face amount
of the policy, but rather on a net amount of risk. A net amount of risk in any
policy month may be defined as mutually agreed upon in advance based upon a
formula or table of values. The Ceding Life Company retains responsibility for
establishing the policy reserves as well as for the payment of all policy
benefits, commissions, and expenses involved in issuing and maintaining the
business.
The Company is also subject to a persistency risk, although not part of
the risk transferred. Persistency risk is associated with the possibility that
the Company may not be able to recover its acquisition expenses during the life
of the policies. MRT reinsurance involves limited investment risk, no cash
surrender risk, no policy loans, and little cash strain compared to other forms
of reinsurance.
Modified Coinsurance. Under ModCo arrangements, reinsurance risk is
ceded to the Company on essentially the same basis as that of the underlying
policies reinsured. The Company receives a proportionate share of gross premiums
from the Ceding Life Companies. The Company then provides expense allowances to
the Ceding Life Companies in recognition of commissions and other expenses
associated with the reinsured policies. These other expenses relate to costs
associated with underwriting, marketing, policy issue and maintenance. The
reserve on the ceded portion of the policy is an obligation of, and held by, the
Ceding Life Company rather than the Company.
ModCo is similar to coinsurance except that reserves and assets related
to the reserves that would otherwise be recorded and held by the Company are
retained by the Ceding Life Company. ModCo reinsurance is used primarily for
products that develop cash values, which permits the Ceding Life Company to
retain the associated assets for investment purposes. Under ModCo, the mortality
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 VUL products reinsured, the Company is
significantly insulated from the impact of changes in investment yields as the
policyholders retain virtually all of the investment risk. (See
Overview-Policies Reinsured). However, on an overall basis, a decline in
investment yields is expected to cause a decrease in the Company's revenues
under its ModCo 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
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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 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.
Reinsurance Agreements
The following table indicates the names and types of insurance products
currently reinsured by the Company, the Ceding Life Companies that issue the
policies underlying the reinsurance, and the type of reinsurance applicable to
each.
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REINSURANCE NAME OF PRODUCT(S) PRODUCT REINSURANCE INITIAL POLICY COMMENCEMENT
COMPANY REINSURED TYPE TYPE ISSUE DATES DATE
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Western Reserve Freedom Equity
Protector VUL MRT 1/92 to present 6/96
Western Reserve Financial Freedom
Builder VUL MRT 8/97 to present 8/97
American Skandia Imperium Variable
Annuity ModCo 1/97 to present 1/97
Kemper Power VUL VUL MRT 10/96 to present 10/96
</TABLE>
The Company has recently reached agreements in principle, with Western
Reserve, to reinsure certain VUL and variable annuity products which will enable
the Company to participate in earnings 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. These new reinsurance agreements provide that Western Reserve
will initially reinsure, on a coinsurance and modified coinsurance basis, with
the Company 20% of certain of its VUL policies and 40% of certain of its
variable annuity policies sold through WMA Agency. If the volume of business
written through WMA Agency increases or decreases in subsequent years, these
percentages may change.
Marketing -- WMA Agency
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.
As of December 31, 1997, WMA Agency, which began operations in January
of 1991, had 245 employees. As of December 31, 1997, WMA Securities, Inc., which
began operations in 1994, had 30 employees. Both companies are located in
Duluth, Georgia, a northern suburb of Atlanta. WMA Agency currently markets a
variety
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of life insurance and annuity products in addition to VUL and variable
annuities. These products include ordinary life, term life, variable life,
universal life, fixed annuities, equity-indexed annuities, long term care,
disability and health insurance. WMA Agency markets products for numerous life
insurance and annuity companies, among them Kemper, Western Reserve, American
Skandia, Fortis Benefits Investors, Inc., The Midland Life Insurance Company and
Pacific Life Insurance Company. The Company estimates that 45% of VUL premiums
and 29% of variable annuity premiums, placed by the Ceding Life Companies
through WMA Agency, originated in California. A material amount of business
reinsured is composed of this business sold by WMA Agency in California.
VUL products and variable annuities have investment features considered
to be securities and are treated as securities under federal and state
securities laws. In order to sell these products, 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. WMA
Securities, Inc. ("WMAS"), is a registered broker-dealer, which is owned by S.
Hubert Humphrey, Jr., who also owns substantially all of the common stock 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.
As a registered broker-dealer, WMAS's operations are subject to
periodic examination and review by both the NASD and the Securities and Exchange
Commission ("SEC"), a federal agency. In September 1997, the Atlanta District
Office of the SEC examined the operations of WMAS. On February 3, 1998, WMAS
received a letter from the SEC setting forth certain alleged deficiencies and
violations of the Securities Exchange Act of 1934 pertaining to net capital
requirements, record keeping and other compliance matters. In response to this
letter, WMAS subsequently engaged a consultant to make recommendations to WMAS
on how to improve its compliance practice and has notified the SEC in its
response that it plans to implement the consultant's recommendations.
Implementation of these recommendations will involve significant capital
expenditures by WMAS and could lead to a disruption of WMAS' business. 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.
The Company understands that it is not the current policy of the SEC to
issue any written advice as to whether the steps taken by a recipient of a
deficiency letter to address alleged deficiencies are adequate or satisfactory;
therefore, it is unlikely that WMAS will receive any indication from the SEC
regarding the adequacy of the corrective action that it has taken or intends to
take, until the SEC conducts a subsequent examination of the operations of WMAS
and the alleged deficiencies contained in the deficiency letter are no longer
found to exist. WMAS cannot determine when and if the SEC will conduct a
subsequent examination of its operations nor can it predict the outcome of such
examination should it occur.
The Company also understands that in situations where the SEC
determines that alleged deficiencies may arise to the level of a potential
violation of the federal securities laws, its policy is to refer the matter to
its Enforcement Division for further investigation. During the course of any
investigation, if initiated, the Enforcement Division may recommend the
imposition of sanctions. These sanctions, should they be imposed, could take
various forms, ranging from the imposition of monetary penalties to permanent
revocation of a broker-dealer's registration or of the licenses of sales
representatives, resulting in the broker-dealer's inability to continue
operations.
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Any such sanctions, if imposed against WMAS, could impair the financial
and operating condition of WMAS. If WMA Sales Associates are no longer able to
maintain their licenses with WMAS, a significant disruption of the sale of new
VUL and variable annuity products to be reinsured by the Company could result
until the WMA Sales Associates could become registered with another
broker-dealer.
Underwriting and Policy Administration
As an automatic treaty reinsurer, the Company relies upon the
underwriting of the Ceding Life Companies on policies that the Company
reinsures. The Company reviews and monitors the underwriting standards and
procedures of the Ceding Life Companies, including rules used for policy
continuations, changes, reentries, reinstatements, and conversions.
The Ceding Life Companies administer policies reinsured by the Company
and provide the Company with all information necessary for processing the
reinsurance.
Future Policy Benefits
The provision for future policy benefits reflected in the Company's
Consolidated Financial Statements are calculated based on generally accepted
accounting principles ("GAAP"). Liabilities for future benefits under the MRT
agreements include provisions for expected future claims, claims in the course
of settlement and claims incurred but not reported. The liability is estimated
using methods that include assumptions, such as estimates of expected investment
yields, mortality, terminations, and expenses, applicable at the time the
reinsurance contracts are executed including provision for the risk of adverse
deviation.
Liabilities for future policy benefits under the Company's coinsurance
agreements equal its contractual percentage of each Ceding Life Company's
policyholder obligations.
Liabilities for future policy benefits are reflected in the Company's
Consolidated Financial Statements and are based on information provided by the
Ceding Life Companies. The reserves established by the Company with respect to
individual risks or classes of business may be greater or less than those
established by ceding companies due to the use of different mortality and other
assumptions. Actual mortality experience in a particular period may be greater
than expected mortality experience and, consequently, may adversely affect the
Company's operating results for such period.
Retrocession
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. As of
December 31, 1997, the Company had not reinsured ("retroceded") any of its
reinsurance. However, the Company intends to retrocede portions of the mortality
risk in excess of its retention limit due to the new proposed VUL reinsurance
agreement with Western Reserve. Standard mortality risks in excess of $100,000
per life will be retroceded to American Phoenix Life and Reassurance Company,
Swiss Re Life & Health America, Inc., The Lincoln National Life Insurance
Company, and Transamerica Occidental Life Insurance Company.
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Investments
The Company's investments are assets selected with the objective of
maximizing investment returns consistent with appropriate credit,
diversification, tax and regulatory considerations, while providing sufficient
liquidity to enable the Company to meet its obligations as a reinsurance company
on a timely basis.
The Company has engaged Falcon Asset Management, Inc. ("Falcon"), an
independent investment advisor and manager, to invest the Company's assets in
accordance with the Company's investment guidelines. The performance of, and the
fees paid to its investment advisor are reviewed periodically by the Board of
Directors of the Company. The fees paid to its investment advisor during 1997
were $50,000. Falcon has or had no affiliation with the Company, WMA Agency, WMA
Securities, nor has Falcon disclosed any affiliation with the Ceding Life
Companies.
Competition
The Company is dependent upon WMA Agency for marketing the VUL and
variable annuity products the Company reinsures. WMA Agency faces intense
competition in the sale of these products from the agency forces and marketing
organizations of major life insurance companies as well as from companies
marketing investment related products such as mutual funds. Many of WMA Agency's
competitors have substantially greater financial and marketing resources than
WMA Agency. The Company believes that many large insurance companies have begun
devoting significant resources to the development and marketing of VUL and
variable annuity products that directly compete with those products sold through
WMA Agency, which are reinsured by the Company.
Competition for sales agents with demonstrated ability is also intense.
However, the Company believes that WMA Agency has been, and will continue to be,
able to attract, motivate, and retain productive, independent sales agents by
providing innovative products and quality service.
The Company has made a decision to focus its energies on existing WMA
Agency relationships consistent with its business strategies, rather than
developing relationships with other independent entities. This decision has had
a positive impact on the Company in that it has been able to secure reinsurance
agreements more favorable than otherwise attainable due to the leverage it has
as a result of the WMA Agency relationship. As the Company becomes more mature
and has more resources available to it, it will likely develop relationships
with non-WMA Agency related entities. At this time, however, the Company lacks
the resources to pursue such a strategy and believes it would be
counterproductive to do so at this time.
Regulation
Bermuda--Insurance Regulation
WMA Life is registered as a long-term insurer under the Insurance Act
1978, as Amended, (the "Insurance Act"), which expression includes the related
regulations promulgated under the said Act which, among other things, imposes on
Bermuda insurance companies solvency and liquidity standards and auditing and
reporting requirements
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and grants to the Minister of Finance (the "Minister") powers to supervise,
investigate and intervene in the affairs of insurance companies. A long-term
insurer is one which issues life, annuity or accident and disability contracts
for periods of not less than five years. Among the other significant aspects of
the Bermuda insurance regulatory framework are:
- An insurer's registration may be canceled by the Minister on certain
grounds specified in the Insurance Act, including failure of the
insurer to comply with its obligations under the Insurance Act and,
if, in the opinion of the Minister, the insurer has not been carrying
on business in accordance with sound insurance principles.
- Every registered insurer must appoint an independent auditor who will
annually audit and report on the Statutory Financial Statements and
the Statutory Financial Return of the insurer, both of which, in the
case of WMA Life, are required to be filed annually with the
Registrar of Companies (the "Registrar"), who is the chief
administrative officer under the Insurance Act. WMA Life's auditor is
KPMG Peat Marwick (Hamilton, Bermuda), the Bermuda "tenant" of KPMG
Peat Marwick LLP.
- WMA Life must appoint an actuary approved by the Minister and file
with the Annual Statutory Financial Return an actuarial certificate
in the prescribed form. Mr. Edward F. McKernan, an officer of the
Company and WMA Life, was approved August 7, 1995 by Minister of
Finance as WMA Life's Actuary.
- An insurer must prepare Annual Statutory Financial Statements which
include, in statutory form, a balance sheet, income statement,
statement of capital and surplus and detailed notes thereto.
- WMA Life is required to file with the Registrar a Statutory Financial
Return no later than four months from the insurer's financial year
end (unless specifically extended), which includes, among other
matters, a report of an approved independent auditor on the Annual
Statutory Financial Statements of the insurer; solvency certificate;
the Annual Statutory Financial Statements themselves; and the opinion
of the approved Actuary.
- The Insurance Act requires WMA Life to have a minimum level of
statutory capital and surplus of $250,000. At December 31, 1997, WMA
Life's statutory capital and surplus was $6,407,578. In addition, the
Insurance Act provides that the statutory assets of WMA Life must
exceed its statutory liabilities by at least $250,000. Statutory
assets and liabilities refer to those assets and liabilities
established in conformity with the requirements of the Insurance Act
for the statutory balance sheet.
- An insurer is required to maintain a principal office in Bermuda and
to appoint and maintain a Principal Representative in Bermuda. WMA
Life's Principal Representative and principal office is CFM Insurance
Mangers, Ltd., 3rd Floor, 44 Church Street, Hamilton HM 12, Bermuda.
Among the Principal Representative's duties is to report to the
Minister if the Principal Representative believes it is likely that
the insurer for whom he acts may become insolvent or that a
reportable event has occurred.
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- The payment of dividends by WMA Life to the Company is restricted by
Bermuda law. WMA Life may not declare or pay a dividend or make a
distribution out of contributed surplus if, among other things, there
are reasonable grounds for believing that (a) WMA Life is, or would
after the payment be, unable to pay its liabilities as they become
due; or (b) the realizable value of WMA Life's assets would thereby
be less than the aggregate of its liabilities and its issued share
capital and share premium accounts. The amount available for
distribution of dividends at December 31, 1997 is $6,157,578.
Additionally, the amount available for distribution of dividends must
be supported by liquid assets. WMA Life meets the requirement as the
amount of invested assets and quoted investments and cash was greater
than $6,157,578.
United States
WMA Life is not admitted as authorized to do business in any state of
the United States. The insurance laws of each state of the United States do not
directly regulate the sale of reinsurance within their jurisdictions by alien
insurers, such as WMA Life. Nevertheless, the sale of reinsurance by alien
reinsurers, such as WMA Life, to insurance companies domiciled or licensed in
United States jurisdictions is indirectly regulated by state "credit for
reinsurance" laws that operate to deny statutory financial statement credit to
ceding insurers unless the alien reinsurer posts acceptable security for ceded
liabilities and agrees to certain contract provisions. The insurance laws of
United States jurisdictions generally exempt the business of reinsurance from
"doing business" laws. The Company does not believe that WMA Life is subject to
the insurance laws of any state in the United States.
Employees
During 1997, the Company had no employees. The Company's day-to-day
operations were conducted pursuant to an agreement with WMA Management Services,
Inc. ("WMA Management"), a Georgia corporation controlled by Mr. Humphrey. WMA
Management performed all of the Company's managerial and administrative
functions pursuant to the terms of this agreement for which the Company paid
$120,000 to WMA Management during 1997.
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ITEM 2. DESCRIPTION OF PROPERTY.
As of January 21, 1998, the Company began subleasing, on a triple net
basis, approximately 1,500 square feet of office space in Duluth, Georgia from
WMA Agency through January 20, 2008, at a base annual rental rate of $12.45 per
square foot for the first five years of the lease term which is equivalent to
the rate being paid by WMA Agency to its lessor. This rate will increase by
approximately 13.5% during the last five years of the term. The triple net basis
requires the Company to pay, in addition to the stipulated base rent, its
proportionate share of the taxes, insurance and common area maintenance costs of
the office building. The annual base rent for this space during the first five
years is $18,675. The Company does not own or lease any other properties. Prior
to that date, the Company utilized office facilities in space provided to it by
WMA Agency.
ITEM 3. LEGAL PROCEEDINGS.
At December 31, 1997, the Company was not a party to any litigation or
arbitration and is not aware of any litigation or arbitration, that is likely to
have a material adverse effect on the Company's consolidated financial position
or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On March 3, 1998, the Company's stockholders, at a special meeting,
approved a recommendation of the Company's Board of Directors to amend the
Company's Certificate of Incorporation to change the Company's name to "The WMA
Corporation" from WMA International Corporation. The vote was 1,777,079 shares
voting FOR the name change, 3,057 shares AGAINST, and 68,829 share votes were
withheld.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
No public trading market existed for the Company's common stock during
1997. The Company recently applied to the NASDAQ National Market to have its
stock quoted under the trading symbol WMAC. The WMAC symbol has been reserved
for the Company. There can be no assurance that the Company's application for
quotation on the NASDAQ national market will be accepted.
In late December, 1997, the Company issued 88,258 shares of its common
stock to several agents of WMA Agency who exercised warrants that they had
previously purchased from the Company pursuant to registration statement
(Commission File #3 - 94226-A), which became effective December 31, 1995. The
Company received $882,580 in cash upon the exercise of these warrants, which
funds were used for general working capital purposes. The shares issued by the
Company upon exercise of these warrants are restricted and may be resold only
pursuant to an effective registration statement, an exemption from registration
or pursuant to Rule 144 which contains certain limitations based upon trading
volume, holding period, manner of sale and notice upon any such resale. As of
December 31, 1997, all warrants were exercised.
A-13
<PAGE> 14
At December 31, 1997, the Company had 2,497,800 shares of common stock
outstanding and approximately 803 stockholders of record.
The Company did not pay or declare a dividend in 1997.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following analysis of the consolidated results of operations and
financial condition of The WMA Corporation should be read in conjunction with
the Company's Consolidated Financial Statements and the notes thereto, included
elsewhere herein.
OVERVIEW
The Company is a holding company, owning all of the outstanding capital
stock of 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 with
respect to VUL and variable annuity policies sold through WMA Agency. WMA Agency
is separate from the Company.
All of the Company's reinsurance business is generated by the marketing
efforts of WMA Agency, which places business with the Ceding Life Companies. As
a consequence, the Company is dependent upon WMA Agency to market those
products, which the Company reinsures. The following tables show, by Ceding Life
Company, the percentage of WMA Agency business reinsured by the Company.
Life Insurance Applications (1)
<TABLE>
<CAPTION>
Ceding Life Company 1997 1996
------------------- ---- ----
<S> <C> <C>
Western Reserve 85% 85%
American Skandia 0 0
Kemper 2 0
--------------------------------------------
Total 87% 85%
<CAPTION>
Annuity Applications (1)
Ceding Life Company 1997 1996
------------------- ---- ----
<S> <C> <C>
Western Reserve 0% 0%
American Skandia 13 0
Kemper 0 0
--------------------------------------------
Total 13% 0%
</TABLE>
(1) As reported to WMA Agency by life insurance companies, of
applications for life insurance and annuity policies submitted by WMA
Agency, that WMA Agency monitors on a regular basis.
A-14
<PAGE> 15
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 table. The reasons WMA
Life's revenue 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 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 company's pricing
and assumptions, the type of product, the ceding company's underwriting
practices and procedures, the type of distribution system, the ceding 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 December 31, 1997, WMA Life's reinsurance inforce on life insurance
policies constituted 148,940 policies with an aggregate face amount of $4.16
billion. This is an increase of 55,065 life insurance policies or 59% and $1.49
billion of inforce face amount, or 56% from December 31, 1996. As of December
31, 1997, WMA Life had reinsurance inforce with respect to variable annuities
for 1,897 policies with reinsured annuity contract benefits of $30.89 million.
Regarding the variable annuity reinsurance, there is not a prior comparable
period considering 1997 was the first year such business was in place.
The following table indicates the percentage of WMA Life's reinsurance
revenues derived from the Ceding Life Companies:
<TABLE>
<CAPTION>
Ceding Life Company 1997 1996
------------------- ---- ----
<S> <C> <C>
Western Reserve 95.5% 100%
American Skandia 3.6 0
Kemper 0.9 0
------ ---- ----
Total 100% 100%
</TABLE>
A-15
<PAGE> 16
MRT REINSURANCE
During 1997, WMA Life's reinsurance indemnity agreements included two
agreements relating to VUL policies. The reinsurance of the VUL policies
includes business previously and currently being sold through WMA Agency and
issued by Western Reserve and Kemper. The Western Reserve and Kemper reinsurance
agreements provide for the reinsurance of a portion of all individual VUL
policies sold by WMA Agency on a MRT basis. Under the MRT reinsurance agreements
with Western Reserve and Kemper, WMA Life assumes a portion of the mortality
risk related to the VUL policies written by the ceding companies. Settlements
are made under these agreements on a monthly basis.
MODCO REINSURANCE
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. WMA Life assumes a proportionate share of the insurance
risks and expenses and receives a proportionate share of the premiums or
revenues from the Imperium policies. The insurance risks include mortality,
lapses, cash surrenders and investment risks. ModCo requires that the reserves
and assets related to the reserves that would otherwise be recorded and held by
the Company be retained by American Skandia. Settlement is made under this
agreement on a monthly basis.
ACCOUNTING
WMA Life recognizes premiums as earned on MRT reinsurance for the
mortality risk reinsured. Reinsured policy 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 ModCo agreement, 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 acquisition costs on the
balance sheet. Deferred acquisition costs increased $3.77 million during 1997 to
$4.50 million at December 31, 1997.
Deferred acquisition costs are amortized over the lives of the
underlying policies (with regard to the terms of the reinsurance agreements).
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
A-16
<PAGE> 17
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 provisions 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 exceed 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.)
Under the ModCo agreement, 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 with regard to the reinsured
policies. 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 with regard 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 be reflected during the then current accounting period.
With regard to the American Skandia ModCo reinsurance, improved first
year persistency over that anticipated has resulted in fewer surrender charge
revenues. This has a depressing impact on current period revenues. Nonetheless,
long term revenues are expected to more than offset the reduction in current
revenues due to improved persistency, as there is a larger base of in force
business. Reflecting this experience, there was a 1.61% reduction in the
amortization as a function of expected gross profits otherwise required to
amortize the associated deferred acquisition expense for business issued during
1997. To date, management believes the assumptions used regarding its estimate
for future gross profits are appropriate for its circumstances.
Life insurance claims settled and the increase in the liability for
future policy benefits, related to reinsured VUL policies, are recorded as
Benefits, claims and settlement expenses in the Consolidated Financial
Statements. The liability for future policy benefits, recorded on the balance
sheets was $1.29 million at December 31, 1997 in comparison to $614,000 at
December 31, 1996, an increase of $676,000 or 110%. The liability, 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. Changes in the liability for future policy benefits that
result from the Company's periodic estimation for financial reporting purposes
are recognized in income in the period in which the change occurs.
Through year-end 1997, the Company's MRT reinsurance mortality
experience resulted in higher earnings due to fewer claims than otherwise
anticipated. Actual death claims were approximately 70% to 75% of expected death
claims. However, due to the Company's VERY limited experience, the results are
not credible indicators of future experience. It is not known whether the
Company's experience is temporal, due to normal random fluctuations, or
permanent.
A-17
<PAGE> 18
Although also subject to a correction, the Company's MRT reinsurance
persistency experience, through year-end 1997, has been better than anticipated
and is expected to result in increased future revenues from business in force.
Although experience of the Company is VERY limited, persistency of the business
reinsured on an MRT basis is approximately 5% to 10% better than anticipated.
However, due to the Company's VERY limited experience, the results are not
credible indicators of future experience. It is not known whether the Company's
experience is temporal, due to normal random fluctuations, or permanent.
To date, 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 actuarial, legal, and accounting services received. Amortization of
deferred organization costs, interest expense and miscellaneous operating
expenses are also included.
RESULTS OF OPERATIONS
Since the Company did not commence reinsurance operations until the end of the
second quarter of 1996, no meaningful comparisons can be made with respect to
results of operations in years prior to 1996. Additionally, results of
operations for 1997 include 12 months of operation, while results of operations
for 1996 include only six and one-half months of operations.
Twelve Month Periods Ending December 31, 1997 Compared to Twelve Month Period
Ending December 31, 1996
Revenues. The Company's Total revenue increased by $4.17 million, or
159%, to $6.80 million in 1997 from $2.63 million in 1996. The increase was
attributable primarily to the growth in premiums associated with the Western
Reserve MRT agreement. Reinsured policy revenue of $195,000 was attributable to
the modified coinsurance agreement WMA Life entered into with American Skandia
during 1997. Other revenue of $300,000 was due to a one-time payment to the
Company from Western Reserve to compensate the Company for delays in a product
introduction that is reinsured under the MRT agreement. An increase in
investment income of $461,000 also contributed to the increase in revenue.
Premiums. Premiums increased by $3.21 million, or 160%, to $5.22
million in 1997 from $2.01 million in 1996. 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 Western Reserve premiums was due to
a full year of operations in 1997 and an increase in the number and reinsured
amount of VUL policies sold by WMA Agency for Western Reserve. At December 31,
1997 and 1996, WMA Life's reinsurance in force constituted 148,940 and 93,875
life insurance policies, respectively which represented a 59% increase.
A-18
<PAGE> 19
Reinsured Policy Revenues. An increase of $195,000 was due to the
revenue generated from the ModCo agreement with American Skandia. This was the
first period that revenue was recorded regarding this agreement. The revenue
reflects 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 ModCo agreement, as they
relate to universal life-type contracts.
Net Investment Income. Net investment income, including Net realized
gains on investments, increased by $461,000, or 74%, to $1.09 million in 1997
from $627,000 in 1996. Investment income is earned from the investment in
securities (fixed income and equity) and cash equivalents. Investment income in
1997 from securities was $1.04 million and $117,000 from cash equivalents, in
comparison to $277,000 and $385,000 in 1996, respectively. The increase was the
result of the majority of the Company's assets being invested in fixed income
securities during 1997, as compared to 1996 when the Company's assets were
invested in cash or cash equivalent securities for ten months of the year.
Concurrently, in November of 1996, the Company engaged Falcon, an independent
investment advisor and manager, to invest the Company's assets in accordance
with the Company's investment guidelines. Falcon has or had no affiliation with
the Company, WMA Agency, WMA Securities, nor has Falcon disclosed any
affiliation with the Ceding Life Companies. Investment expenses of $65,000 and
$35,000 for 1997 and 1996 respectively related to investment advisor fees and
custodial fees, which were netted with gross investment income.
Benefits, Claims and Settlement Expenses. Benefits, claims and
settlement expenses increased by $1.43 million, or 146%, to $2.41 million in
1997 from $977,000 in 1996. This increase primarily resulted from an increase in
volume of in force business and a full year of reinsurance operations in 1997,
which lengthened the exposure period for reinsured policies from six and
one-half months in 1996. The amount of business in force at December 31, 1997,
was $4.16 billion as compared to $2.67 billion at December 31, 1996, which
represented a $1.49 billion, or 56% increase. As of December 31, 1996, WMA
Life's death benefit exposure on business reinsured through the Western Reserve
MRT agreement commenced with each policy's monthiversary occurring during the
month of June, for all policies in force on June 30, 1996.
Reinsurance Premium Allowances, Net. Net reinsurance premium allowances
increased by $878,000, or 152%, to $1.45 million in 1997 from $576,000 in 1996.
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. 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 length of the exposure period, and an increase in the
volume of business in force.
Professional Fees, Management Fees and Other Expenses. Professional
fees, management fees and other expenses increased by $63,000, or 15%, to
$480,000 in 1997 from $417,000 in 1996. Total expenses for each year included
professional fees for legal, actuarial and accounting expenses incurred,
management fees to WMA Management, consulting fees to WMA Agency, and other
miscellaneous expenses. The increase in expenses was primarily associated with
an increase in the amount of reinsurance business as well as a full year of
operations in
A-19
<PAGE> 20
1997 as compared to six and one-half months in 1996. Expenses relating to the
administration of the Company also contributed to the increase.
Amortization of Deferred Acquisition Costs. Amortization of deferred
acquisition costs increased by $115,000 to $121,000 in 1997 from $6,000 in 1996.
The increase in deferred acquisition costs was attributable primarily to: (i) a
full year of operations in 1997 as compared to only six and one-half months
reported for 1996, and (ii) an increase in business assumed.
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.
Income Taxes. Income taxes increased by $703,000 to $816,000 in 1997
from $113,000 in 1996. The Company's effective tax rate was 34.9% in 1997 and
17.2% in 1996. The increase in effective tax rate is due to the 1996 reversal of
a valuation allowance for deferred tax assets.
Net Income. As a result of the foregoing, net income for the year ended
December 31, 1997, was $1.52 million compared to $545,000 for the year ended
December 31, 1996, which was an increase of $975,000, or 179%.
LIQUIDITY AND CAPITAL RESOURCES
Historically, 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 and the Company's common
stock. 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.
The Company's cash requirements will consist of salary 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
salary and benefits because it had no employees. The Company incurred no capital
expenditures in 1997.
For the year ended December 31, 1997, net cash flows used in operating
activities were $560,000, compared to net cash provided by operating activities
of $427,000 for the year ended December 31, 1996. This change is due primarily
to additional cash required to reimburse the Ceding Life Companies for
reinsurance commission and expense allowances as a result of the growth in the
underlying business. The net cash used in investing activities decreased from
$16.3 million for the year ended December 31, 1996 to $1.86 million for the year
ended December 31, 1997. The Company experienced a corresponding decrease in the
net cash provided by financing activities from $17.59 million for the year ended
December 31, 1996 to $1.91 million for the year ended December 31, 1997. In both
1997 and 1996, the Company received cash from the issuance of common stock, with
the proceeds from such issuance being primarily invested in investment
securities.
A-20
<PAGE> 21
The Company has no assets other than the stock of its subsidiaries and
investment assets. The Company will rely on income from its investment 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 supported by liquid assets. WMA Life meets this
requirement as the amount of invested assets and quoted investments and cash is
greater than $6,157,578.
The Company's primary source of liquidity was $1.47 million in cash and
cash equivalents at December 31, 1997, a decrease of $511,000 from the prior
comparable period. The decrease in cash and cash equivalents was due primarily
to placement of assets into fixed income and equity securities in accordance
with the Company's investment guidelines. As a result of the American Skandia
agreement, WMA Life has repositioned its investment portfolio to meet the
liquidity requirements of this agreement. The effective duration of the
Company's fixed income portfolio decreased from 6.1 years as of year-end 1996 to
just over four years as of year end 1997, with over 95% of the fixed income
securities for year end 1997 having a maturity of less than 10 years, an
increase from 83% from year-end 1996. The Company's fixed income portfolio
represents over 96% of the total invested assets, and has an average quality of
rating Aa2 by Moody's.
As a result of the new proposed reinsurance agreements with Western
Reserve, the Company will require substantially greater amounts of cash to make
required 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 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 proposed 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 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.
The Company's reinsurance agreements provide security to the Ceding
Life Companies through a Letter of Credit ("LOC") for the benefit of the Ceding
Life Companies. WMA Life has previously secured a LOC in favor of Western
Reserve and, during the fourth quarter of 1997, increased the LOC from
$1,000,000 to $2,000,000.
A-21
<PAGE> 22
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 incurred no capital
expenditures during 1997.
The Company believes that the sources of cash from the 1995 offering
will be sufficient to meet the Company's cash needs for the next twelve months
with respect to the administration of WMA Life's current MRT agreements with
Western Reserve and Kemper and modified coinsurance agreement with American
Skandia. However, to provide sufficient capital to fund payments of reinsurance
allowances to Western Reserve in relation to the proposed agreements, the
Company intends to offer shares of common stock to the public sometime in 1998.
If an offering is not consummated, or if the Company's cash requirements are
greater than anticipated, the Company may have to resort to other methods of
raising the necessary capital to finance its growth, such as borrowing from
financial institutions or the sale of additional securities in other private or
public offerings. There can be no assurance that such alternatives would be
available to the Company at an acceptable cost, if at all.
YEAR 2000 ISSUE
The Company has reviewed 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. 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 expenditure.
The Company is dependent on the data processing systems of the Ceding
Life Companies and for the year 2000 and beyond. There can be no assurance that
these systems will be able to properly process information relating to the year
2000 and beyond. The failure of these systems to be Year 2000 compliant could
have a material adverse effect upon the Company.
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
A-22
<PAGE> 23
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, and the availability capital on
acceptable terms and other factors discussed in this report.
ITEM 7. FINANCIAL STATEMENTS.
The December 31, 1997 Financial Statements follow on the next page.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 24
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The WMA Corporation:
We have audited the accompanying consolidated balance sheets of The WMA
Corporation (formerly known as WMA International Corporation) as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The WMA Corporation
(formerly known as WMA International Corporation) as of December 31, 1997 and
1996, and the results of their operations and their cash flows, for the years
then ended in conformity with generally accepted accounting principles.
Atlanta, Georgia
March 6, 1998
A-24
<PAGE> 25
THE WMA CORPORATION
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets
1997 1996
------------ -----------
<S> <C> <C>
Fixed maturity securities - available for sale (amortized
cost of $17,686,390 and $15,860,123 for 1997 and
1996, respectively) $ 17,782,055 $15,678,474
Equity securities - available for sale (cost of $487,733
for 1997 and 1996) 630,929 479,016
------------ -----------
Total investments 18,412,984 16,157,490
Cash and cash equivalents 1,469,663 1,980,201
Investment income due and accrued 257,629 181,265
Reinsurance receivables 183,524 30,396
Deferred acquisition costs 4,503,338 732,329
Deferred organization costs (net of accumulated
amortization of $62,128 and $25,692 at December 31,
1997 and 1996, respectively) 124,741 161,177
Other assets 114,026 26,861
------------ -----------
Total assets $ 25,065,905 $19,269,719
============ ===========
Liabilities and Stockholders' Equity
Liabilities:
Future policy benefits $ 1,293,917 $ 614,477
Reinsurance balances payable 434,443 --
Accrued expenses 53,735 86,763
Accounts payable 105,108 80,773
Due to WMA Management Services, Inc. 120,000 55,220
Due to World Marketing Alliance, Inc. 1,916 15,922
Due to stockholders -- 15,418
Deferred tax liability 980,411 48,083
------------ -----------
Total liabilities 2,989,530 916,656
------------ -----------
Stockholders' equity:
Common stock, par value $.001, 10,000,000 authorized; 2,500,000 and
2,305,550 shares issued in 1997 and 1996,
respectively 2,500 2,306
Additional paid-in capital 20,228,973 18,286,667
Unrealized gain (loss) on securities available for sale,
net of taxes 157,670 (125,641)
Retained earnings 1,709,232 189,731
Treasury stock, at cost (2,200 shares) (22,000) --
----------- -----------
Total stockholders' equity 22,076,375 18,353,063
----------- -----------
Commitments (note 9)
Total liabilities and stockholders' equity $25,065,905 $19,269,719
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
A-25
<PAGE> 26
THE WMA CORPORATION
Consolidated Statements of Operations
Years ended December 31, 1997 and 1996 and for the
Period March 9, 1995 Through December 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Premiums $5,217,365 $2,007,391 $ --
Reinsured policy revenues 195,124 -- --
Net investment income 1,087,465 624,883 6,661
Net realized gains on investments -- 1,752 --
Other income 300,000 -- --
---------- ---------- ---------
Total revenue 6,799,954 2,634,026 6,661
---------- ---------- ---------
Benefits and expenses:
Benefits, claims, and settlement expenses 2,408,842 976,635 --
Reinsurance premium allowances, net 1,454,204 576,297 --
Amortization of deferred acquisition costs 121,283 6,414 --
Professional fees and other expenses 303,246 228,650 176,282
Management fees to WMA Management Services, Inc. 120,000 119,119 --
Consulting fees to World Marketing Alliance, Inc. 57,135 69,751 185,000
---------- ---------- ---------
Total benefits and expenses 4,464,710 1,976,866 361,282
---------- ---------- ---------
Net income (loss) before income taxes 2,335,244 657,160 (354,621)
Income tax expense 815,743 112,808 --
---------- ---------- ---------
Net income (loss) after income taxes $1,519,501 $ 544,352 $(354,621)
========== ========== =========
Basic and diluted income per share $ 0.63 $ $0.44 $ (0.87)
========== ========== =========
Weighted-average common shares outstanding 2,394,769 1,246,500 408,219
========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
A-26
<PAGE> 27
THE WMA CORPORATION
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997 and 1996 and for the
Period March 9, 1995 Through December 31, 1995
<TABLE>
<CAPTION>
Additional Unrealized Total
Number Common paid-in loss in Accumulated Treasury stockholders'
of shares stock capital investments equity (deficit) stock equity (deficit)
--------- ----------- --------- ----------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 9, 1995 -- $ -- $ -- $ -- $ -- $ -- $ --
Common stock issued 500,000 500 249,500 -- -- -- 250,000
Net loss -- -- -- (354,621) -- (354,621)
--------- --------- ----------- --------- ---------- -------- -----------
Balance, December 31, 1995 500,000 500 249,500 -- (354,621) -- (104,621)
Common stock issued 1,805,550 1,806 18,553,694 -- -- -- 18,555,500
Net income -- -- -- -- 544,352 -- 544,352
Unrealized loss in investments -- -- -- (125,641) -- -- (125,641)
Deferred offering costs -- (516,527) -- -- -- (516,527)
--------- --------- ----------- --------- ---------- -------- -----------
Balance, December 31, 1996 2,305,550 2,306 18,286,667 (125,641) 189,731 -- 18,353,063
Common stock issued 194,450 194 1,944,306 -- -- -- 1,944,500
Net income -- -- -- -- 1,519,501 -- 1,519,501
Unrealized gain (loss) in
investments -- -- -- 283,311 -- -- 283,311
Purchase of treasury stock
(2,200 shares
and 2,000 warrants) -- (2,000) -- -- (22,000) (24,000)
--------- --------- ----------- --------- ---------- -------- -----------
Balance, December 31, 1997 2,500,000 $ 2,500 $20,228,973 $ 157,670 $1,709,232 $(22,000) $22,076,375
========= ========= =========== ========= ========== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
A-27
<PAGE> 28
THE WMA CORPORATION
Consolidated Statements of Cash Flows
Years ended December 31, 1997 and 1996 and for the
Period March 9, 1995 Through December 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,519,501 $ 544,352 $ (354,621)
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 157,719 32,106 --
Deferred tax expense 815,743 112,808 --
Change in:
Investment income due and accrued (76,364) (181,265) --
Reinsurance receivables (153,128) (30,396) --
Deferred acquisition costs (3,892,292) (738,743) --
Other assets (87,165) (26,861) --
Future policy benefits 679,440 614,477 --
Reinsurance balances payable 434,443 -- --
Accrued expenses (33,028) 86,763 --
Accrued interest -- (12,995) 12,995
Accounts payable 24,335 (44,103) 65,095
Due to WMA Management Services, Inc. 64,780 55,220 --
Due to World Marketing Alliance, Inc. (14,006) 15,922 --
----------- ----------- ---------
Net cash (used in) provided by
operating activities (560,022) 427,285 (276,531)
----------- ----------- ---------
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities 5,363,904 4,783,000 --
Purchase of available-for-sale securities (7,219,502) (21,130,856) --
----------- ----------- ---------
Net cash used in investing activities (1,855,598) (16,347,856) --
----------- ----------- ---------
Cash flows from financing activities:
Issuance of common stock 1,944,500 18,555,500 250,000
Purchase of treasury stock and warrants (24,000) -- --
Proceeds from borrowings under note payable -- -- 750,000
Repayments of borrowings under note payable -- (748,679) (1,321)
Offering costs -- (217,989) (298,538)
Organization costs -- (10,512) (116,576)
(Decrease) increase in due to stockholders (15,418) 15,418 --
----------- ----------- ---------
Net cash provided by financing activities 1,905,082 17,593,738 583,565
----------- ----------- ---------
Net (decrease) increase in cash and
cash equivalents (510,538) 1,673,167 307,034
Cash and cash equivalents at beginning of period 1,980,201 307,034 --
----------- ----------- --------
Cash and cash equivalents at end of period $ 1,469,663 $ 1,980,201 $307,034
=========== =========== ========
Supplemental disclosure of cash flow information:
Interest paid $ 10,971 $ 56,032 $ 16,406
=========== =========== ========
Income taxes paid $ -- $ -- $ --
=========== =========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
A-28
<PAGE> 29
THE WMA CORPORATION
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(1) Organization
The WMA Corporation (formerly known as WMA International Corporation)
is an insurance holding company originally formed March 9, 1995.
The consolidated financial statements include the assets, liabilities,
and results of operations of The WMA Corporation ("WMA Corporation")
and its wholly owned subsidiaries, WMA Life Holding, Ltd. ("Holding"),
a Bermuda domiciled insurance holding company, and WMA Life Insurance
Company Limited ("WMA Life"), a Bermuda domiciled life reinsurance
company (collectively, the "Company").
The Company provides reinsurance for certain national life insurance
companies on variable universal life ("VUL") insurance and variable
annuity policies sold through World Marketing Alliance, Inc. ("WMA
Agency"), a sales and marketing organization. Such policies are sold
throughout the United States. S. Hubert Humphrey, Jr., a major
shareholder of WMA Corporation, owns a controlling interest in WMA
Agency and WMA Management Services, Inc. ("WMA Management"), which
provide operating assistance to the Company for a fee. WMA Management
is primarily responsible for the maintenance of the financial records
of the Company.
Reinsurance is an arrangement under which an insurance company, the
"reinsurer," agrees to indemnify another insurance company, the ceding
company, for all or a portion of the insurance risks underwritten by
the ceding company. The reinsurer, in turn, assumes a portion of the
underwritten risk in exchange for a portion of the premium collected.
The Company currently assumes portions of mortality and other risks
relating to life insurance and annuity policies in order to share in
the net profits generated through the sale of such policies by WMA
Agency.
(2) Summary of Significant Accounting Policies
Consolidation and Basis of Presentation. The consolidated financial
statements of the Company have been prepared in accordance with
generally accepted accounting principles prescribed for stock life
insurance companies. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the reported amounts of revenues
and expenses during the reporting period. Accounts that the Company
deems to be sensitive to changes in estimates include deferred policy
acquisition costs and future policy benefits. In all instances, actual
results could differ from estimates.
The accompanying financial statements consolidate the accounts of WMA
Corporation and its subsidiaries. All significant intercompany balances
and transactions have been eliminated.
(Continued)
A-29
<PAGE> 30
THE WMA CORPORATION
Notes to Consolidated Financial Statements
Investments. The Company classifies all fixed maturity securities and
equity securities as "available for sale." Such securities are reported
at fair value. Fixed maturities available for sale are so classified
based upon the possibility that such securities could be sold prior to
maturity if that action enables the Company to execute its investment
philosophy and appropriately match investment results to operating and
liquidity needs.
Although no impairments in value have occurred which would require
adjustment to the carrying value of securities, any such impairment
identified in the future would result in a reduction of the carrying
value of the individual security to its fair value as the new cost
basis and reflection of a corresponding write down amount as a realized
capital loss in the consolidated statements of operations. The
Company's policy is to recognize such an impairment when the projected
cash flows of these securities have been reduced on other than a
temporary basis so that the realizable value is reduced to an amount
less than the carrying value.
Investment income is recognized as it accrues or is legally due. Income
on mortgage-backed securities includes amortization and accretion of
purchase premiums and discounts using a method that approximates a
level yield, taking into consideration assumed prepayment patterns. The
retrospective adjustment method is used to adjust for prepayment
activity. Realized gains and losses on sales of investments are
included in net income, as are write-downs of securities where declines
in value are deemed to be other than temporary in nature. The cost of
investment securities sold is determined based upon the specific
identification method. Unrealized gains and losses on marketable equity
securities and fixed maturity securities available for sale, less
applicable deferred income taxes, are reported as a separate component
of stockholders' equity.
The Company does not participate in investments defined as derivatives
under Statement of Financial Accounting Standards No. 119, Disclosure
about Derivative Financial Instruments and Fair Value of Financial
Instruments.
Fair Value Disclosures. The carrying values of cash and cash
equivalents, reinsurance receivables and payables, accrued expenses and
accounts payable approximate their fair values due to the short-term
nature of these accounts. The carrying value of future policy benefits
approximates its fair value as credited interest approximates current
market rates. See Note 3 for fair value information covering the
Company's investment portfolio.
Additional Information Regarding Statements of Cash Flows. Cash and
cash equivalents include cash on hand and on deposit purchased with an
original maturity of three months or less.
Deferred Policy Acquisition Costs. Costs of acquiring new business,
which vary with and are primarily related to the production of new
business, have been deferred to the extent that such costs are deemed
recoverable from future premiums. Such costs include reinsurance
commission and expense allowances paid to ceding companies, and certain
other underwriting costs such as actuarial, legal and accounting fees
incurred in developing the reinsurance agreements.
(Continued)
A-30
<PAGE> 31
THE WMA CORPORATION
Notes to Consolidated Financial Statements
Deferred acquisition costs are amortized over the lives of the
underlying policies (with regard to the terms of the reinsurance
agreement), in proportion to the ratio of revenues collected during the
then current period to total anticipated revenues. On those policies
under a monthly renewable term agreement, revenues represent premiums
recognized for the mortality risk reinsured. Such premiums are
estimated using the same assumptions used for computing liabilities for
future policy benefits. Such assumptions include estimates of expected
investment yields, mortality, persistency and expenses applicable at
the time the policies are reinsured. For policies under a modified
coinsurance agreement, revenues represent gross profits associated with
mortality charges, investment margins, surrender charges, and expense
loads.
Reinsurance Premium Allowances. Allowances represent a percentage of
each reinsurance premium which is paid or allowed by WMA Life to the
ceding company for each policy reinsured in recognition of commissions
and other expenses associated with the reinsured policies. These other
expenses relate to costs associated with underwriting, marketing,
policy issue, and maintenance. The reinsurance expense allowances
represent the Company's share of acquisition and maintenance expenses
incurred by the ceding company that are attributable to the risks
reinsured. Allowances are shown net of amounts deferred as policy
acquisition costs.
Future Policy Benefits. Liabilities for future benefits on life
policies are established in an amount adequate to meet the estimated
future obligations on policies in force. Liabilities for future policy
benefits under long-term life insurance policies have been computed
based upon expected investment yields, mortality and withdrawal rates,
and other assumptions including estimates for incurred but not reported
losses. These assumptions include a margin for adverse deviation and
vary with the characteristics of the plan of insurance, year of issue,
age of insured, and other appropriate factors. The assumptions for
expected investment yields are based upon various factors including
current yields on the Company's investment portfolio and market rates
for new investment money. Interest rates currently used in estimating
future policy benefits range from 6.0% to 7.0%. The mortality and
withdrawal assumptions are based on industry experience and standards.
Policy and contract reserves are included in future policy benefits on
the consolidated balance sheet.
Liabilities for future policy benefits under the modified coinsurance
agreement equal reinsured policy account balances on underlying
variable annuity policies. Under the modified coinsurance agreements,
the Company records such liabilities as an offset to related assets as
its intentions and rights under the agreements with the ceding
companies meet the appropriate conditions governing rights of setoff.
Income Taxes. The Company uses the asset and liability method to record
deferred income taxes. Accordingly, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, using
enacted tax rates expected to apply when such temporary differences are
expected to reverse.
Recognition of Revenues and Related Expenses. Reinsurance premiums
received under the monthly renewable term agreements are recognized as
revenue over the premium paying periods of the reinsured policies.
Benefits and expenses are associated with earned premiums so that
profits are recognized over the life of the related contract. This
association is accomplished through the provision for future policy
benefits and the amortization of deferred policy acquisition costs.
(Continued)
A-31
<PAGE> 32
THE WMA CORPORATION
Notes to Consolidated Financial Statements
Other revenue consists of non-recurring items other than reinsurance
premiums or investment earnings and is recognized upon completion of
the related earnings process. During the year ended December 31, 1997,
other income related to a one-time payment from a ceding company to
compensate the Company for delays in the introduction of a reinsured
product.
Reinsured Policy Revenues. Reinsured policy revenues represent the
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
modified coinsurance agreement, as they relate to universal life-type
contracts.
Income Per Share. Basic income per share is computed based on the
weighted-average number of common shares outstanding during the period,
in accordance with Statement of Financial Accounting Standards (SFAS)
No. 128, Earnings Per Share. The Company has no dilutive potential
common shares outstanding, and thus basic and diluted income per share
is the same.
Deferred Offering Costs. Costs relating to the common stock offering
were deferred at December 31, 1995 and were offset against the proceeds
of the offering during 1996.
Deferred Organization Costs. Costs of organizing the Company have been
capitalized and are being amortized over five years on the
straight-line method.
Recent Accounting Pronouncement. In June 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 130, Reporting Comprehensive
Income. This statement establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 130 requires all items
that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed in equal prominence with the other financial
statements. The term "comprehensive income" is used in the statement to
describe the total of all components of comprehensive income including
net income. "Other comprehensive income" refers to revenues, expenses,
gains, and losses that are included in comprehensive income but
excluded from earnings under current accounting standards. Currently,
"other comprehensive income" for the Company consists of items recorded
directly in equity under SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. SFAS No. 130 is effective
for both interim and annual periods beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments
of an Enterprise and Related Information. SFAS No. 131 establishes new
standards for the disclosures made by public business enterprises to
report information about operating segments in annual financial
statements and requires those enterprises to report selected
information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for years
beginning after December 15, 1997. The Company does not have any
separate segments that are considered material.
Reclassification. The Company has reclassified the presentation of
certain 1996 information to conform to the 1997 presentation.
(Continued)
A-32
<PAGE> 33
THE WMA CORPORATION
Notes to Consolidated Financial Statements
(3) Investments
Major categories of net investment income consist of the following:
<TABLE>
<CAPTION>
Periods ended December 31,
--------------------------------
1997 1996 1995
---------- ------- -----
<S> <C> <C> <C>
Fixed maturity securities $1,035,453 276,693 -
Short-term investments 117,035 384,997 6,661
---------- ------- -----
1,152,488 661,690 6,661
Investment expense (65,023) (35,055) -
---------- ------- -----
Net investment income $1,087,465 626,635 6,661
========== ======= =====
</TABLE>
The amortized cost, unrealized gains and losses, and estimated fair
values of investments in fixed maturity securities at December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
1997 cost gains losses value
---- --------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Available for sale:
Fixed maturities:
U.S. Government and agencies $ 5,846,323 50,622 - 5,896,945
Commercial and industrial 8,813,657 103,456 59,698 8,857,415
Public utilities 797,949 11,300 6,554 802,695
Mortgage-backed securities 2,228,461 26,960 30,421 2,225,000
----------- ------- ------ ----------
17,686,390 192,338 96,673 17,782,055
Equity securities 487,733 143,196 - 630,929
----------- ------- ------ ----------
$18,174,123 335,534 96,673 18,412,984
=========== ======= ====== ==========
<CAPTION>
1996
----
<S> <C> <C> <C> <C>
Available for sale:
Fixed maturities:
U.S. Government and agencies $ 6,558,639 221 30,382 6,528,478
Commercial and industrial 7,998,112 -- 127,322 7,870,790
Public utilities 797,718 -- 17,044 780,674
Mortgage-backed securities 505,654 -- 7,122 498,532
----------- --- ------- ----------
15,860,123 221 181,870 15,678,474
Equity securities 487,733 - 8,717 479,016
----------- --- ------- ----------
$16,347,856 221 190,587 16,157,490
=========== === ======= ==========
</TABLE>
There were no investments in any entity in excess of 10% of
stockholders' equity at December 31, 1997, other than investments
issued or guaranteed by the U.S. Government. Fixed maturity securities
are valued based upon quoted market prices.
(Continued)
A-33
<PAGE> 34
THE WMA CORPORATION
Notes to Consolidated Financial Statements
At December 31, 1997, the contracted maturities of investments in fixed
maturity securities were as follows:
<TABLE>
<CAPTION>
Amortized Fair
cost value
---------- ----------
Available for sale:
<S> <C> <C>
Due after one year through five years $ 9,283,473 9,334,185
Due after five years through ten years 5,849,646 5,929,302
Due after ten years 324,810 293,568
Mortgage-backed securities 2,228,461 2,225,000
----------- ----------
$17,686,390 17,782,055
=========== ==========
</TABLE>
Expected maturities will differ from contractual maturities because
some issuers have the right to call or prepay obligations with or
without call or prepayment penalties.
Changes in net unrealized gains and losses were as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Fixed maturity securities available for sale $277,314 (181,649)
Equity securities 151,913 (8,717)
-------- --------
$429,227 (190,366)
======== ========
</TABLE>
(4) Reinsurance
Retrocession reinsurance contracts do not relieve the Company from its
obligations to ceding companies. Failure of retrocessionaires to honor
their obligations could result in losses to the Company; consequently,
allowances would be established for amounts deemed uncollectible. At
December 31, 1997 and 1996, there were no retrocession agreements.
The Company has entered into several reinsurance contracts. As of
December 31, 1997, the majority of the reinsurance assumed is written
through two contracts, a monthly renewable term agreement with Western
Reserve Life Assurance Co. of Ohio ("Western Reserve"), and a modified
coinsurance agreement with American Skandia Life Assurance Corporation
("American Skandia"). As of December 31, 1996, the majority of the
reinsurance assumed was written through Western Reserve. There was no
reinsurance activity for the period ended December 31, 1995.
Policies reinsured under these contracts are administered by Western
Reserve and American Skandia (the ceding companies). The ceding
companies provide the Company with all information necessary for
processing the reinsurance, including claims.
(Continued)
A-34
<PAGE> 35
THE WMA CORPORATION
Notes to Consolidated Financial Statements
The effect of reinsurance on premiums and amounts earned is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1997 1996
---------- ---------
<S> <C> <C>
Reinsurance assumed $5,412,489 2,007,391
Reinsurance ceded - -
---------- ---------
Net premiums and amounts earned $5,412,489 2,007,391
========== =========
</TABLE>
Of the total reinsurance revenues above, 95% and 100% relates to
Western Reserve, for 1997 and 1996, respectively.
The effect of reinsurance on policyholder claims and other policy
benefits is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1997 1996
---------- --------
<S> <C> <C>
Direct $ - -
Reinsurance assumed 2,408,842 976,635
Reinsurance ceded - -
---------- -------
Net policyholder claims and benefits $2,408,842 976,635
========== =======
</TABLE>
The impact of reinsurance on life insurance in force is shown in the
following schedule (in millions):
<TABLE>
<CAPTION>
Assumed/
Life insurance in force Direct Assumed Ceded Net net %
----------------------- ------ ------- ----- ------ --------
<S> <C> <C> <C> <C> <C>
December 31, 1997 $ - 4,162 - 4,162 100%
December 31, 1996 - 2,673 - 2,673 100%
</TABLE>
(Continued)
A-35
<PAGE> 36
THE WMA CORPORATION
Notes to Consolidated Financial Statements
(5) Deferred Policy Acquisition Costs
The following reflects the amounts of policy acquisition costs deferred
and amortized:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1996
---------- -------
<S> <C> <C>
Deferred acquisition cost:
Assumed $4,503,338 732,329
Retroceded - -
---------- -------
Net $4,503,338 732,329
========== =======
Beginning of year $ 732,329 -
Capitalized:
Assumed 3,892,292 738,743
Retroceded - -
Amortized:
Assumed (121,283) (6,414)
Retroceded - -
---------- -------
End of year $4,503,338 732,329
========== =======
</TABLE>
Included within capitalized amounts above are certain expenses paid to
WMA Management for consulting services relating to the acquisition of
reinsured policies. Consulting services included activities relating to
pricing reinsurance, drafting agreements, negotiating terms and
reinsurance product development. Such amounts totaled $17,914 and
$49,914 for the years ended December 31, 1997 and 1996, respectively.
(6) Income Tax
Under current Bermuda law, WMA Life is not required to pay any taxes in
Bermuda on either income or capital gains. WMA Life has received an
undertaking from the Minister of Finance in Bermuda that in the event
of any such taxes being imposed, WMA Life will be exempted from
taxation until the year 2016.
The Company determined its income tax expense and liability in
accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes.
Effective January 1, 1996, WMA Life made an irrevocable election under
section 953(d) of the Internal Revenue Code of 1986, as amended, to be
treated as a domestic insurance company for United Stated Federal
income tax purposes. As a result of this "domestic" election, WMA Life
is subject to U.S. taxation on its worldwide income as if it was a U.S.
corporation.
(Continued)
A-36
<PAGE> 37
THE WMA CORPORATION
Notes to Consolidated Financial Statements
Total income taxes (benefit) for the years ended December 31, 1997 and
1996 were allocated as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1996
<S> <C> <C>
--------- --------
Tax attributable to:
Income from continuing operations $ 815,743 112,808
========= ========
Unrealized gains (losses) on securities
available for sale $ 145,948 (64,725)
========= ========
</TABLE>
The Federal income tax expense from continuing operations for the years
ended December 31, 1997, 1996, and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- -------- ----
<S> <C> <C> <C>
Current $ 29,363 - -
Deferred 786,380 112,808 -
-------- -------- ---
Total $815,743 112,808 -
======== ======== ===
</TABLE>
The income tax expense from continuing operations for the years ended
December 31, 1997, 1996, and 1995 differed from the amounts computed by
applying the U.S. Federal income tax rate of 34 percent to income
before income taxes as a result of the following:
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996 1995
------------------------ -------- -------- --------
<S> <C> <C> <C>
Computed expected tax expense $793,983 223,434 (120,571)
Change in valuation allowance - (117,307) 117,307
Other, net 21,760 6,681 3,264
-------- -------- --------
Total $815,743 112,808 -
======== ======= ========
</TABLE>
(Continued)
A-37
<PAGE> 38
THE WMA CORPORATION
Notes to Consolidated Financial Statements
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying values of assets and liabilities for
financial reporting purposes and Federal income tax purposes. The net
deferred tax liability at December 31, 1997 and 1996 is composed of the
following amounts:
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996
------------------------ ------------ -------
<S> <C> <C>
Deferred tax assets:
Policy acquisition costs $ - 12,903
Deferred organizational costs 5,888 20,673
Net operating loss carryforward 731,423 166,615
Unrealized losses on securities held for sale - 64,724
------------ --------
Gross deferred tax assets: 737,311 264,915
Less valuation allowance - -
------------ --------
Net deferred tax assets 737,311 264,915
------------ --------
Deferred tax liabilities:
Policy benefit reserves 105,363 64,006
Deferred acquisition costs 1,531,135 248,992
Unrealized gains on securities held for sale 81,224 -
------------ --------
Gross deferred tax liabilities 1,717,722 312,998
------------ --------
Net deferred tax liabilities $ 980,411 48,083
============ ========
</TABLE>
There were no valuation allowances for deferred tax assets as of
December 31, 1997 and 1996 since it is management's belief that it is
more likely than not that the deferred tax assets will be realized.
However, the amount of the deferred tax asset could be reduced in the
near term if estimates of future taxable income are reduced.
(7) Related Party Transactions
The Company, from time to time, has entered into transactions with WMA
Agency or its affiliates, which are controlled by S. Hubert Humphrey,
Jr., the beneficial owner of approximately 36.1% of the Company's
outstanding common stock. Mr. Humphrey and certain directors and
officers of the Company are also employees of WMA Agency. The Company
has had a management agreement with WMA Management for management and
consulting services relating to the day-to-day activities of the
Company since December 1995. These management and consulting services
include personnel costs relating to the use of certain employees of WMA
Agency and WMA Management to perform the day-to-day activities of the
Company. For the years ended December 31, 1997 and 1996, the Company
incurred $120,000 and $119,119, respectively, to WMA Management for
these services. A portion of amounts paid to WMA Management was
deferred as policy acquisition costs. Such amounts totaled $17,914 and
$49,914 for the years ended December 31, 1997 and 1996, respectively.
This management agreement was terminated as of December 31, 1997.
(Continued)
A-38
<PAGE> 39
THE WMA CORPORATION
Notes to Consolidated Financial Statements
The Company also receives certain other services from WMA Agency,
including the funding of certain operating and travel related expenses.
For the years ended December 31, 1997 and 1996, the Company incurred
$57,135 and $69,751, respectively, for these services. During 1995, WMA
Agency funded approximately $185,000 of certain expenditures incurred
for the organization of the Company and for the related registered
offering. The Company has reimbursed all amounts paid by WMA Agency for
such expenditures.
The Company's officers do not, and are not required to, devote their
time exclusively to the business of the Company, nor are they subject
to non-competition agreements. As a consequence, they could legally
engage in activities which could be adverse to the best interests of
the Company, subject to their fiduciary obligations to the Company
under applicable corporate law.
Commission for sales of life insurance and annuity contracts reinsured
by the Company are paid to WMA Agency and WMA Sales Associates by the
ceding companies. Mr. Humphrey receives direct compensation from WMA
Agency and receives virtually no direct compensation from the Company.
In addition, since Mr. Humphrey and certain of the directors are also
executive officers and employees of companies constituting WMA Agency,
the interests of WMA Agency with respect to the commissions received on
life insurance sales by WMA Agency from the ceding companies (and
indirectly under coinsurance agreements from the Company) may conflict
with the interests of the Company in negotiating reinsurance agreements
beneficial to the Company.
On August 2, 1995, WMA Life entered into an agreement with CFM
Insurance Managers, Ltd. ("CFM"), a Bermuda corporation providing
professional management services to international companies operating
in Bermuda. C. Simon Scupham, a director of the Company, is the
President of CFM. Pursuant to this agreement, CFM acts as the Principal
Representative for WMA Life in Bermuda. This agreement is for an
unlimited duration, but may be terminated by either part upon 90 days
prior written notice or upon 30 days prior written notice under
specified circumstances. During both years ended December 31, 1997 and
1996, the Company paid to CFM a $60,000 annual fee pursuant to its
agreement with the Company.
In 1995, Mr. Humphrey pledged 500,000 of his shares of the Company's
Common Stock in connection with a loan made by Money Services, Inc. to
WMA Agency ("Agency Loan"). Money Services, Inc. is a subsidiary of
AEGON USA, Inc., as is Western Reserve, for whom the Company provides
reinsurance. Western Reserve underwrites the largest proportion of VUL
business sold by WMA Agency, a large percentage of which was reinsured
by the Company in 1996 and 1997.
Part of the loan proceeds were allocated for use by WMA Agency to make
loans to certain of its WMA Sales Associates (the "Agent Loans") to
acquire 402,836 shares of common stock in the 1995 offering. As of
December 31, 1997, the outstanding principal amount of the Agent Loans
was $1,305,505. The WMA Sales Associates' shares of common stock are
pledged to WMA Agency as security for the Agent Loans. Each pledge is
accompanied by an irrevocable proxy which grants to WMA Agency or its
nominee the right to exercise, in its sole and absolute discretion, all
voting power relating to the pledged shares until all indebtedness owed
by the borrower to WMA Agency is no longer outstanding.
(Continued)
A-39
<PAGE> 40
THE WMA CORPORATION
Notes to Consolidated Financial Statements
The Agency Loan, which was in the initial principal amount of
$2,250,000 in 1995, was subsequently consolidated into a WMA Agency
line of credit facility and the maximum available amount was increased
to $7,750,000. On November 30, 1997, this line of credit facility was
again increased to a maximum available amount of $14,750,000. Mr.
Humphrey's pledge of his shares of Common Stock is one of the various
forms of collateral for this line of credit, which as of December 31,
1997 had an outstanding balance in excess of $12 million. Upon default
on this credit line, the lender, Money Services, Inc., would have the
right to take title to the pledged shares and to exercise voting
control. This line of credit is being amortized over a fifteen year
period ending November 1, 2012 with principal and interest payable
monthly by WMA Agency. Interest is calculated in arrears based on AEGON
USA's cost of its five year senior debt instruments, which is, in turn,
based upon five year U.S. Treasury Notes, plus an underwriters
override. Interest on the line of credit is adjusted every five years.
(8) Statutory Restrictions
WMA Corporation's subsidiary, WMA Life, is a Bermuda-domiciled
insurance company, and as such, is subject to the restrictions of the
Bermuda Insurance Act of 1978 ("the Insurance Act"). The most
significant of these restrictions is that WMA Life must maintain a
minimum of $250,000 capital and surplus. In addition, WMA Life must
maintain a solvency margin, defined as the excess of statutory assets
over statutory liabilities, of at least $250,000. Statutory assets and
liabilities refer to those assets and liabilities established in
conforming to the requirements of the Insurance Act for the statutory
balance sheet. The payment of dividends by WMA Life to the Company is
restricted by Bermuda law. WMA Life may not declare or pay a dividend
or make a distribution out of contributed surplus if, among other
things, there are reasonable grounds for believing that (a) WMA Life
is, or would after the payment be, unable to pay its liabilities as
they become due; or (b) the realizable value of WMA Life's assets would
thereby be less than the aggregate of its liabilities and its issued
share capital and share premium accounts. The amount available for
distribution of dividends at December 31, 1997 is $6,157,578.
Additionally, the amount available for distribution of dividends must
be supported by liquid assets. As of December 31, 1997, WMA Life met
this requirement as the amount of invested assets and quoted
investments and cash was greater than $6,157,578.
(9) Capital Infusion
Pursuant to a registration statement filed with the Securities and
Exchange Commission, during 1995, the Company sold 500,000 common stock
warrants at $1 per warrant entitling the owner to purchase one share of
common stock at $10 per share and 1,393,808 shares of common stock
($0.001 par value) for $10 a share. As of December 31, 1996, 411,742 of
the common stock warrants had been exercised. The issuance of the
common stock and the exercise of common stock warrants resulted in
total proceeds of $18,555,500, which when netted against deferred
offering costs of $516,527, resulted in a net increase in total common
stock and paid-in capital of $18,038,973.
(Continued)
A-40
<PAGE> 41
THE WMA CORPORATION
Notes to Consolidated Financial Statements
During the year ended December 31, 1997, the remaining 88,258 common
stock warrants were exercised and an additional 106,192 shares of
common stock were sold for $10 a share. The issuance of the common
stock and the exercise of common stock warrants resulted in total
proceeds of $1,944,500, with a corresponding increase to total common
stock and paid-in capital. Additionally, during the year ended December
31, 1997, the Company repurchased 2,200 outstanding shares and 2,000
warrants from individual stockholders under the buy back provisions of
the stockholder agreement. The buy back of the warrants is reflected as
a return of paid-in capital in the accompanying statement of
stockholders' equity and the repurchase of common shares is recorded as
treasury stock at the repurchase price of $10 per share.
(10) Commitments and Contingent Liabilities
From time to time, the Company may be subject to reinsurance-related
litigation and arbitration in the normal course of business. Management
does not believe that the Company is a party to any such pending
litigation or arbitration which would have a material adverse effect on
its future operations.
The Company has obtained letters of credit in favor of unaffiliated
insurance companies from which the Company assumes business. The
posting of a letter of credit allows the ceding company to take
statutory reserve credit for reinsurance ceded which would otherwise
not be available as WMA Life is not "authorized" (essentially licensed)
by the ceding company's state of domicile. At December 31, 1997, the
amount of the outstanding letters of credit was $2,030,000. Within the
terms of the agreement, the Company has pledged the fixed maturity
securities as collateral for the letters of credit.
The Company currently leases office space from WMA Agency under a lease
agreement which expires in 2008. The agreement requires the Company to
pay during the first five years of the lease term an amount equivalent
to the rate paid by WMA Agency to its lessor. The rate paid is subject
to increase during the last five years of the lease term. The following
is a schedule of future minimum lease payments as of December 31, 1997:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1998 $ 18,675
1999 18,675
2000 18,675
2001 18,675
2002 18,675
Thereafter 93,375
--------
$186,750
========
</TABLE>
A-41
<PAGE> 42
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Snyder, Camp, Stewart & Company, LLP was previously the principal
accountants for WMA International Corporation. On December 4, 1996, that firm's
appointment as principal accountants was terminated and KPMG Peat Marwick LLP
was engaged as principal accountants. The decision to change accountants was
approved by the Board of Directors.
In connection with the audit of the period from inception (March 9,
1995) through December 31, 1995, and the subsequent interim period through
December 4, 1996, there were no disagreements with Snyder, Camp, Stewart &
Company, LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements if
not resolved to their satisfaction would have caused them to make reference in
connection with their opinion to the subject matter of the disagreement.
The audit report of Snyder, Camp, Stewart & Company, LLP on the
financial statements of WMA International Corporation as of December 31, 1995
and for the period from inception (March 9, 1995) through December 31, 1995, did
not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope, or accounting principles.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
The executive officers and directors of the Company as of December 31,
1997 were as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
S. Hubert Humphrey, Jr......... 55 President and Director of the Company and
President of WMA Life
Thomas W. Montgomery........... 48 Executive Vice President, Secretary and
Director of the Company and Vice President
of WMA Life
Edward F. McKernan............. 42 Senior Vice President, Chief Financial Officer,
Actuary and Director of the Company, and
Vice President and Actuary of WMA Life
C. Simon Scupham............... 44 Director
</TABLE>
A-42
<PAGE> 43
The following is certain additional information concerning each of the
executive officers and directors of the Company.
Mr. Humphrey became President and Director of the Company in March 1995
and President of WMA Life in August 1995. He has also been the President and
Chief Executive Officer of World Marketing Alliance, Inc. since its founding in
January, 1991. Mr. Humphrey has been involved in the financial services field
for 19 years. Prior to 1991, Mr. Humphrey had been a Regional Vice President and
National Sales Director of A. L. Williams & Associates, Inc., a nationwide
financial services company that was acquired by Primerica Financial Services,
Inc. in 1989, and a Vice President of the A. L. Williams Corporation, an
affiliated life reinsurance company.
Mr. Montgomery has been the Executive Vice President, Secretary and a
Director of the Company since March 1995 and a Vice President of WMA Life since
August 1995. He has also been the Executive Vice President of World Marketing
Alliance, Inc. since March 1994. Mr. Montgomery is a certified public
accountant, and is a former audit and tax partner in the accounting firms of
Richter & Company, P.C. and Davis, Crittenden, Richter & Fletcher, where he
worked from 1973 to 1994.
Mr. McKernan became Senior Vice President and Actuary of the Company in
April 1996 and was elected a Director of the Company in August 1997. He was
named Chief Financial Officer of the Company in December 1997. Mr. McKernan, an
actuary, has been a Vice President and Actuary of WMA Life since April 1996. He
has also been Senior Vice President and Actuary of World Marketing Alliance,
Inc. since April 1996. Immediately prior to joining the Company, Mr. McKernan
had been a Senior Manager for three years in the Life Actuarial Consulting
Practice of KPMG Peat Marwick LLP. From August 1990 through September 1993, Mr.
McKernan was the Marketing Actuary of U.S. Operations for Seaboard Life
Insurance Company. Prior to his tenure with this firm, Mr. McKernan was employed
by Tillinghast, a Towers Perrin company, as a consultant, which is an
international actuarial consulting firm. He is a Fellow of the Society of
Actuaries (1988) and a Member of the American Academy of Actuaries (1985).
Mr. Scupham was elected a Director of the Company in April 1996. Since
1988, he has been the President of CFM Insurance Managers, Ltd., ("CFM") a
Bermuda corporation incorporated in 1988 that provides professional management
services to international companies operating in Bermuda. He is a qualified
Chartered Accountant (CA) and Associate Fellow of the Institute of Mathematics
and its Applications. Mr. Scupham is also President of Mutual Risk Management
(Bermuda) Ltd., the parent company of CFM Insurance Managers, Ltd., and
Shoreline Mutual Management (Bermuda) Limited. Prior to joining CFM, Mr. Scupham
served as the director of Bermuda operations for the Kemper Group.
A-43
<PAGE> 44
ITEM 10. EXECUTIVE COMPENSATION.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
YEAR SALARY BONUS OTHER ANNUAL
NAME AND PRINCIPAL POSITION $ $ $ COMPENSATION(1)
--------------------------- ---- ------ ----- ---------------
<S> <C> <C> <C> <C>
S. Hubert Humphrey, Jr. 1997 0 0 $177,135
President and Chief 1996 0 0 188,870
Executive Officer 1995 0 0 185,000
Thomas W. Montgomery 1997 0 0 0
Executive Vice President and 1996 0 0 0
Secretary 1995 0 0 0
Edward F. McKernan 1997 0 0 0
Senior Vice President and Actuary 1996 0 0 0
Chief Financial Officer
</TABLE>
(1) Amounts shown represent payments made by the Company to
entities controlled by Mr. Humphrey pursuant to written
agreements between these entities and the Company. Such
payments, while not paid directly to Mr. Humphrey may be
deemed to be indirect compensation to Mr. Humphrey.
For the years reflected in the above table, no direct compensation was
awarded to, earned by or paid to any of the directors and executive officers of
the Company nor were there any employee agreements. The Company has relied upon
WMA Agency, WMA Management, and third party providers for all managerial and
administrative services. During 1998, the Company expects to employ its own
personnel but will continue to reimburse WMA Agency for expenses incurred on its
behalf. For the year ended December 31, 1997, $57,135 of the $177,135 reimbursed
WMA Agency for expenses paid on the Company's behalf. These expenses related to
outside service providers, travel and miscellaneous out of pocket expenses. For
1996 and 1995, such amounts were $69,751 and $185,000, respectively. The
remaining balances from the amounts shown in the above table are primarily the
result of personnel costs relating to the use of certain employees of WMA Agency
and WMA Management Services, Inc. to perform the day-to-day activities of the
Company. The Company estimates such expenses could have been three times higher
had it obtained such services from unaffiliated consultants rather than
utilizing WMA Agency employees due to the differential between consultant fees
and employee related salaries. During 1997, Messrs. Humphrey, Montgomery and
McKernan devoted approximately 1%, 2.5%, and 46.5% of their time, respectively
to the Company's business, which the Board of Directors deemed appropriate for
the Company's business activities.
A-44
<PAGE> 45
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the beneficial ownership as of December
31, 1997, of those persons, known by the Company to beneficially own more than
5% of its Common Stock. There is presently no public market for shares of the
Common Stock. The determination of "beneficial ownership" is made pursuant to
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "1934
Act"). Such Rule provides that shares shall be deemed to be "beneficially owned"
where a person or group has, either solely or in conjunction with others, the
power to vote or direct the voting of shares and/or the power to dispose, or to
direct the disposition of shares; or where a person or group has the right to
acquire any such power within 60 days after the date such "beneficial ownership"
is determined. Furthermore, shares not outstanding which are subject to options
or warrants are deemed to be outstanding for the purpose of computing the
percentage of outstanding shares owned by the persons shown in the tables below.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF
---------------- ---------------- ----------
CLASS
-----
<S> <C> <C>
S. Hubert Humphrey, Jr. 902,836 (1) 36.1%
Richard L. Thawley 200,000 (2) 8.0%
1110 W. Kettleman Lane, Ste. 240
Lodi, CA 95240
Monte Holm 153,500 (3) 6.2%
2004 Calle de Espana
Las Vegas, NV 89102
</TABLE>
- --------------------------------------------------------------------------------
(1) Includes 402,836 shares of Common Stock, for which WMA Agency
(of which Mr. Humphrey is the principal stockholder) holds
proxies of Common Stock obtained in connection with loans made
to certain agents of WMA Agency.
(2) Mr. Thawley owns 108,200 shares individually of record. 91,800
shares are owned by an IRA rollover trust for the benefit of
Mr. Thawley and his wife.
(3) Mr. Holm owns 3,500 shares individually of record and 40,000
shares jointly of record with his wife. 110,000 shares are
held of record by seven trusts created by Mr. Holm and his
wife.
Mr. Thawley and Mr. Holm are independent sales associates of WMA Agency.
The following table sets forth as of December 31, 1997 the amount of
Common Stock beneficially owned by the directors and executive officers of the
Company as a group.
A-45
<PAGE> 46
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES(1) PERCENT OF CLASS
------------------------------------ ------------------- ----------------
<S> <C> <C>
S. Hubert Humphrey, Jr. 902,836(2) 36.1%
Thomas W. Montgomery 9,908 0.4
Edward F. McKernan 5,000 0.2
C. Simon Scupham None 0
All directors and executive officers
as a Group (5 persons) 917,744 36.7%
</TABLE>
- --------------------------------------------------------------------------------
(1) All shares are owned individually of record unless otherwise indicated
below.
(2) Includes 402,836 shares of Common Stock, for which WMA Agency (of which
Mr. Humphrey is the principal stockholder) holds voting proxies. Mr.
Humphrey has pledged all of the above shares of Common Stock as
security for several loans.
Pledge of Shares
In 1995, Mr. Humphrey pledged 500,000 of his shares of the Company's
Common Stock in connection with a loan made by Money Services, Inc. to WMA
Agency ("Agency Loan"). Money Services, Inc. is a subsidiary of AEGON USA, Inc.,
as is Western Reserve, for whom the Company provides reinsurance. (See Item 1.
"Description of Business - Reinsurance Agreements".) Western Reserve underwrites
the largest proportion of VUL business sold by WMA Agency, a large percentage of
which was reinsured by the Company in 1996 and 1997. (See Item 6, "Management's
Discussion and Analysis or Plan of Operation - Overview".)
Part of the loan proceeds were allocated for use by WMA Agency to make
loans to certain of its WMA Sales Associates (the "Agent Loans") to acquire
402,836 shares of common stock in the 1995 offering. As of December 31, 1997,
the outstanding principal amount of the Agent Loans was $1,305,505. The WMA
Sales Associates' shares of common stock are pledged to WMA Agency as security
for the Agent Loans. Each pledge is accompanied by an irrevocable proxy which
grants to WMA Agency or its nominee the right to exercise, in its sole and
absolute discretion, all voting power relating to the pledged shares until all
indebtedness owed by the borrower to WMA Agency is no longer outstanding.
The Agency Loan, which was in the initial principal amount of
$2,250,000 in 1995, was subsequently consolidated into a WMA Agency line of
credit facility and the maximum available amount was increased to $7,750,000. On
November 30, 1997, this line of credit facility was again increased to a maximum
available amount of $14,750,000. Mr. Humphrey's pledge of his shares of Common
Stock is one of the various forms of collateral for this line of credit, which
as of December 31, 1997 had an outstanding balance in excess of $12 million.
Upon default on this credit line, the lender, Money Services, Inc., a subsidiary
of AEGON USA, Inc., would have the right to take title to the pledged shares and
to exercise voting control. This line of credit is being amortized over a
fifteen year period ending November 1, 2012 with principal and interest payable
monthly by WMA Agency. Interest is calculated in arrears based on AEGON USA's
cost of its five year senior debt instruments, which is, in turn, based upon
five year U.S. Treasury Notes, plus an underwriters override. Interest on the
line of credit is adjusted every five years.
A-46
<PAGE> 47
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Conflicts of Interest
Mr. Humphrey, the Company's Chief Executive Officer, is the beneficial owner of
approximately 36.1% of the Company's Common Shares outstanding. Mr. Humphrey,
together with his wife, Norma P. Humphrey, owns substantially all the
outstanding shares of World Marketing Alliance, Inc., and certain affiliated
entities constituting WMA Agency which recruit train and supervise the sales
force responsible for selling life insurance and annuity contracts reinsured by
the Company. In addition, Mr. Humphrey and certain directors and officers of the
Company are also employees of WMA Agency. (See Item 9 above.) The Company has
and may continue to enter into transactions from time to time with WMA Agency,
Mr. Humphrey, other officers or directors of the Company or their affiliates.
Such transactions necessarily involve conflicts of interest, and the terms of
such transactions may not necessarily be equivalent to the terms of transactions
entered into between unrelated parties pursuant to arms length negotiations.
The Company's officers do not, and are not required to, devote their
time exclusively to the business of the Company, nor are they subject to
non-competition agreements. As a consequence, they could legally engage in
activities which could be adverse to the best interests of the Company, subject
to their fiduciary obligations to the Company under applicable corporate law.
In view of the substantial relationships among the Company, WMA Agency,
and Mr. Humphrey, conflicts of interest will exist or arise with respect to
existing and future business dealings, including, without limitation: the terms
of WMA Agency's selling agreements (including commission arrangements) and the
Company's reinsurance relationships with life insurance companies; the relative
commitment of time and energy of Mr. Humphrey and the other common executive
officers of WMA Agency and the Company; agreements between the Company and WMA
Agency; potential acquisitions of properties or businesses; the issuance of
additional securities by the Company; the election of the Company's directors;
and the payment of dividends by the Company.
Conflicts with WMA Agency
Commissions for sales of life insurance and annuity contracts reinsured
by the Company are paid to WMA Agency and WMA Sales Associates by the Ceding
Life Companies. Mr. Humphrey and Mr. Montgomery receive direct compensation from
WMA Agency and receive virtually no direct compensation from the Company. In
addition, Mr. Humphrey, Mr. Montgomery, and certain of the directors of the
Company are also executive officers and employees of companies constituting WMA
Agency. As a result of such relationships, the interests of WMA Agency, with
respect to the commissions received on life insurance sales by WMA Agency from
the Ceding Life Companies (and indirectly under coinsurance agreements from the
Company), may conflict with the interests of the Company in negotiating
reinsurance agreements beneficial to the Company.
A-47
<PAGE> 48
Management and Related Services
The Company has had a management agreement with WMA Management which is
owned 100% by Mr. Humphrey, who is its director and President. WMA Management
has been responsible for the day-to-day activities of the Company. For these
services, WMA Management received an annual fee of $120,000 for services
rendered in 1997 and $119,119 in 1996. Due to the Company's expected employment
of its own personnel in 1998, the management agreement was terminated as of
December 31, 1997. During 1998, WMA Management will provide only such consulting
services as the Company may from time to time request.
The Company receives certain other services from WMA Agency including
the funding of certain operating and travel related expenses. For the years
ended December 31, 1997 and 1996, the Company incurred $57,135 and $69,751,
respectively, to WMA Agency for these services. During 1995, the Company
reimbursed $185,000 to WMA Agency for funding certain expenditures incurred for
the organization of the Company and for the related non-underwritten offering.
The Company has reimbursed all amounts paid by WMA Agency for such expenditures.
Principal Representative Agreement
On August 2, 1995, WMA Life entered into an agreement with CFM, a
Bermuda corporation providing professional management services to international
companies operating in Bermuda. C. Simon Scupham, a director of the Company, is
the President of CFM. Pursuant to this agreement, CFM acts as the Principal
Representative for WMA Life in Bermuda. This agreement is for an unlimited
duration, but may be terminated by either party upon 90 days prior written
notice or upon 30 days prior written notice under specified circumstances. The
Company paid CFM $60,000 in fees during 1997 and 1996 pursuant to its agreement
with the Company.
Lease Agreement with WMA Agency
As of January 21, 1998, the Company entered into an agreement with WMA
Agency to sublease on a triple net basis, approximately 1,500 square feet of
office space for the Company's offices in Duluth, Georgia. The initial term of
the sublease is ten years at an annual base rent of $18,675 for the first five
years of the lease term, which annual base rent will increase by approximately
13.5% thereafter. A "triple net" lease means that the Company as the subtenant,
in addition to being required to pay the stipulated rent, must also pay its
proportionate share of the taxes, insurance and common space maintenance cost
applicable to the entire building being leased by WMA Agency from AEGON, USA,
Inc. ("AEGON").
Future Conflicts of Interest
The Company has in the past and may from time to time in the future
enter into other transactions with WMA Agency and other affiliates of its
directors and officers, provided that the terms thereof are, in the view of the
Board of Directors, no less favorable to the Company than could be obtained from
a third party.
A-48
<PAGE> 49
Lack of Separate Legal Representation
Counsel for the Company, Merritt & Tenney, LLP, of Atlanta, Georgia,
also represents WMA Agency, WMA Securities and Mr. Humphrey. Should a conflict
of interest result from this lack of separate legal representation, the
independent and disinterested directors shall select independent counsel to
represent the Company and to advise the Company with respect to the conflict of
interest.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
A-49
<PAGE> 50
Item 13. 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)
3.2 Bylaws (1)
4.1 Shareholders' Agreement (3)
4.2 Specimen Stock Certificate (2)
4.4 Revised Specimen Warrant (4)
4.5 Loan Agreement between WMA Agency and Offering Subscribers (3)
10.1 Loan Agreement between Money Services, Inc. and WMA Agency (3)
10.2 Modification of Loan & Security Agreements between Money Services, Inc. and WMA Agency (5)
10.3 Management Agreement with WMA Management (3)
10.4 Reinsurance Agreement between WMA Life and Western Reserve dated July 9, 1996 (5). Portions of this Exhibit
have been omitted, a complete copy of which has been filed separately with the Secretary of the Commission
pursuant to an application for confidential treatment.
10.5 Sublease Agreement between World Marketing Alliance, Inc. and The WMA Corporation dated January 21, 1998 (attached)
10.6 Automatic Variable Annuity Reinsurance Agreement between Western Reserve and WMA Life effective January 1,
1998 (6). Portions of this Exhibit have been omitted, a complete copy of which has been filed separately with the
Secretary of the Commission pursuant to an application for confidential treatment.
10.7 Management Agreement dated August 2, 1995, between CFM Insurance Managers, Ltd. And WMA Life (attached)
10.8 Form of Pledge and Security Agreement and Irrevocable Proxy between Debtor and World Marketing Alliance, Inc. (attached)
27.1 Financial Data Schedule (for SEC use only) (previously filed)
</TABLE>
A-50
<PAGE> 51
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 September 22, 1995 as part of the Registration Statement and
incorporated herein by reference pursuant to Rule 12b-32.
(3) Filed on November 17, 1995 as part of the Registration Statement and
incorporated herein by reference pursuant to Rule 12b-32.
(4) Filed on December 20, 1995 as part of the Registration Statement and
incorporated herein by reference pursuant to Rule 12b-32.
(5) Filed on May 15, 1998 as an Exhibit to Form 10-QSB for the period ended
March 31, 1998 and incorporated herein by reference pursuant to Rule
12b-32.
(6) Filed on August 20, 1998 as Exhibit 10.5 to Form 10-QSB for the period
ended June 30, 1998 and incorporated herein by reference pursuant to
Rule 12b-32.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
A-51
<PAGE> 52
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this amended report to be signed on its behalf by the undersigned,
thereunto duly authorized.
(Registrant) The WMA Corporation
----------------------
By (Signature and Title)/s/ S. Hubert Humphrey, Jr.
---------------------------
S. Hubert Humphrey, Jr., President and Director
Date: October 1, 1998
In accordance with the Exchange Act, this amended report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By (Signature and Title)/s/ S. Hubert Humphrey, Jr.
---------------------------
S. Hubert Humphrey, Jr., President and Director
Date: October 1, 1998
By (Signature and Title)/s/ Edward F. McKernan
----------------------------------------------
Edward F. McKernan, Senior Vice President
Chief Financial Officer, Actuary, and Director
Date: October 1, 1998
By (Signature and Title)/s/ Thomas W. Montgomery
----------------------------------------------
Thomas W. Montgomery, Executive Vice President
Secretary and Director
Date: October 1, 1998
<PAGE> 1
EXHIBIT 10.5
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (this "Sublease") is made and entered into this
21st day January, 1998, by and between WORLD MARKETING ALLIANCE, INC., a
Georgia corporation ("Sublessor") and THE WMA CORPORATION, a Delaware
corporation ("Sublessee").
W I T N E S S E T H:
WHEREAS, Sublessor as "Tenant" has previously entered into that certain
Master Lease (the "Lease") with Western Reserve Life Assurance Co. of Ohio, an
Ohio corporation (the "Landlord") dated March 21, 1997, wherein Sublessor did
lease from Original Landlord a four story building containing approximately
100,000 square feet (the "Building") and other site improvements (the Building
and other site improvements being hereinafter referred to as the "Premises");
and
WHEREAS, Sublessee desire to sublet approximately 1,500 square feet of the
Premises (the "Sublet Premises") from the Sublessor and Sublessor is willing to
sublet the same to Sublessee upon the terms and conditions hereinafter set
forth.
NOW, THEREFORE, for and in consideration of TEN AND NO/100 ($10.00)
DOLLARS in hand paid by Sublessee to Sublessor, the mutual promises and
covenants contained herein, and other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, do hereby covenant and agree as follows:
1. Defined Terms. All terms and words of art used herein, as indicated
by the initial capitalization thereof, shall have the same respective meaning
designated for such terms and words of art in the Lease, except as otherwise
defined herein.
2. Sublet Premises. Subject to all terms and conditions of this Sublease,
Sublessor hereby leases to Sublessee and Sublessee hereby leases from
Sublessor, the Sublet Premises. Sublessee acknowledges and agrees that the
Sublet Premises are being leased to Sublessee in an "As Is" condition, without
representation, warranty or covenant of or from Sublessor. Sublessee
acknowledges that neither Sublessor nor any agent of Sublessor has made any
representation or warranty, express or implied, with respect to the Sublet
Premises or with respect to the suitability or fitness of the same for the
conduct of Sublessee's business or for any other purpose, and Sublessee further
acknowledges that it has had an adequate opportunity to inspect and approve,
and has adequately inspected and approved, the condition of the Sublet
Premises.
3. Term. The term of this Sublease (the "Term") shall commence on
February 1, 1998, (the "Commencement Date") and shall expire on January 31,
2008, unless sooner terminated as hereinafter provided. In the event the Lease,
or Sublessor's right to possess and occupy the Premises is terminated prior to
the expiration of the aforesaid Term, this Sublease shall automatically
terminate
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<PAGE> 2
concurrently with such termination and shall thereafter be null and void and of
no further force or effect. Upon any such termination the parties hereto shall
be released from all duties, obligations, liabilities and responsibilities
under this Sublease, except to the extent any obligations are required to be
performed or satisfied prior to such termination and are not fully performed or
satisfied as of such termination.
4. Sublease Monthly Base Rent; Additional Rent; Other Charges. (a)
Sublessee shall pay to Sublessor, at such place as Sublessor shall specify,
during the first five (5) years during the Term of this Sublease, base annual
rent in an amount equal to $18,675.00, payable in equal monthly installments
commencing on the Commencement Date and continuing on the same day of each and
every consecutive month thereafter, through and including January 1, 2003. From
and after February 1, 2003, Sublessee shall pay to Sublessor, during the next
five (5) year term of the Lease, base annual rent of $18,675.00 increased by a
percentage equal to the percentage increase in the annual base rent payable
during said five (5) year term by Sublessor pursuant to the Lease, payable in
equal monthly installments during the remainder of the Term.
(b) Sublessee shall also pay to Sublessor, on or before two (2) days
prior to the date when the same becomes due and payable by Sublessor to
Landlord under the Lease, 1 1/2% of each installment of additional rent,
together with 1 1/2% of any and all other charges, costs and expenses payable
by Sublessor under the Lease.
(c) Sublessor agrees to pay to Landlord when due, the entire amount of
each of the base monthly rent and additional rent, together with the entire
amount of any other charges, costs, costs and expenses payable by Sublessor to
Landlord under the terms of the Lease; provided, however, if Sublessor directs
Sublessee to pay any portion of such items directly to the Landlord, Sublessor
shall only be obligated hereunder to pay that portion of such items in excess
of the amount required to be paid to the Landlord by Sublessee.
(d) Sublessee's covenant to pay the amounts set forth above is
independent of any other covenant, condition, provision or agreement herein
contained and is payable without any right of set-off, deduction, counterclaim,
suspension or abatement. Any amounts not paid on or before the due date shall
be subject to a late charge equal to the amount of any interest of fees that
would be payable by Sublessor if Sublessor were to make such late payment
under the Lease.
5. Subordinate to Lease. (a) Sublessee hereby acknowledges that this
Sublease is a sublease under the provisions of, and is subject and subordinate
to all of the terms and conditions of the Lease. All of the provisions of the
Lease setting forth the obligations of the "Tenant" or subtenant of the
Premises are incorporated herein by this reference and shall apply to Sublessee
as if Sublessee were the "Tenant" and subtenant thereunder. A copy of the
Lease is attached hereto as Exhibit "A".
(b) Sublessor shall not be deemed to have assumed any duty or obligation
of the Landlord under the Lease and shall not be liable or responsible in any
manner whatsoever of any failure of the Landlord to perform any such duty or
obligation. Sublessee shall strictly abide by, comply in all
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<PAGE> 3
respects with and fully and completely perform all terms covenants, conditions,
and provisions of the Lease (including, without limitation, such terms,
covenants, conditions and provisions relating to rent, insurance, maintenance
and alterations) as if Sublessee were the "Tenant" thereunder and, to the
extent evidence of such performance must be provided to the Landlord pursuant
to the Lease, Sublessee shall provide such evidence to Sublessor. Sublessee
shall not engage in or permit any activity or conduct that would (i)
constitute a breach or default under the Lease, or (ii) result in the Landlord
being entitled to terminate the Lease or to terminate Sublessor's right to
possess or occupy the Premises, or any portion of such Premises, or to exercise
any other rights or remedies to which the Landlord may be entitled for a
default or breach under the Lease.
(c) Sublessee acknowledges and agrees that in no event shall Sublessee be
entitled or authorized to act as agent for, or otherwise on behalf of,
Sublessor or to bind Sublessor in any way whatsoever.
(d) Sublessee hereby agrees to indemnify and hold Sublessor harmless from
and against any and all loss, cost, damage or expense, including, but not
limited to, attorney's fees and court costs, incurred by Sublessor or Landlord
by reason of any breach or default on the part of Sublessee which may cause the
Lease to be terminated or forfeited, and for all claims which shall accrue to
the benefit of or for the Landlord under the Lease.
6. Use. Sublessee shall use the Sublet Premises only for professional,
executive office purposes. Sublessee shall not cause or permit any nuisance, or
cause or permit anything which would violate any law or cause a breach of or
default under the Lease or this Sublease.
7. Maintenance and Repairs. Sublessee, at its own expense, shall keep
and maintain the Sublet Premises in good order and repair and in a state of
cleanliness.
8. Modifications and Alterations. Sublessee shall not modify or alter
the Sublet Premises in any manner whatsoever or make any improvement, change or
addition thereto without the prior written consent of Sublessor and Landlord.
9. Default and Remedies. The terms and conditions of Articles 20 and 21
of the Lease shall govern Sublessee's default and Sublessor's remedies under
this Sublease as if Sublessee were the "Tenant" under the Lease, Sublessor were
the "Landlord" and such articles were fully set forth herein; provided,
however, with respect to any cure period provided in such articles for the
"Tenant" to cure any breach or default, the cure period applicable and
available to Sublessee hereunder to cure any breach or default of Sublessee
shall be the longer of (i) one-half (1/2) the cure period applicable to
"Tenant" thereunder, or (ii) a cure period expiring five (5) days prior to the
expiration of the cure period applicable to "Tenant" thereunder.
10. Return of Sublet Premises. Sublessee, at its own expense, shall
return the Sublet Premises to Sublessor at the expiration, or prior termination
or cancellation of this Sublease or the
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<PAGE> 4
Lease, in as good condition as when first received by Sublessee, reasonable
wear and tear, unrepaired casualty, and condemnation loss only excepted.
11. Quiet Enjoyment. So long as Sublessee is in full compliance with the
terms and conditions of this Sublease, Sublessee may peacefully and quietly
enjoy the Sublet Premises, subject, nevertheless, to the terms and conditions of
this Sublease, the Lease, and the claims of non-Sublessor persons and entities.
12. No Other Agreements. All prior understandings and agreements between
the parties are merged within this Sublease, which alone fully and completely
sets forth the understanding of the parties hereto. This Sublease may not be
changed or terminated in any manner other than by agreement in writing,
executed by the party against whom enforcement of the change or termination is
sought.
13. Notice. Any notice or demand which either party may or must give to
the other hereunder shall be in writing and delivered personally or sent by
certified mail, return receipt requested, addressed if to Sublessor, as follows:
World Marketing Alliance, Inc.
11315 Johns Creek Parkway
Duluth, Georgia 30097
Attn: Thomas W. Montgomery
and if to Sublessee, as follows:
The WMA Corporation
11315 Johns Creek Parkway
Duluth, Georgia 30097
Attn: Edward F. McKernan
Either party may, by notice in writing, direct that future notices or demands
be sent to a difference address.
14. Time. Time is of the essence of this Sublease. If any time period,
date or deadline set forth in this Sublease falls on a Saturday, Sunday, or
holiday generally recognized by national banks in the Atlanta, Georgia area,
such time period, date or deadline shall be extended until the next business
day.
15. Governing Law: Severability. This Sublease shall be governed by,
construed under and interpreted and enforced in accordance with the laws of the
State of Georgia. If any provision of this Sublease is deemed or held to be
illegal, invalid or unenforceable under the then applicable law, the remainder
of this Sublease shall not be affected. In lieu of any such provision, there
shall be added
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<PAGE> 5
to this Sublease a provision as nearly identical to such provision as may be
possible with such modifications as my be necessary to make such replacement
provision legal, valid and enforceable.
16. Binding. The covenants and agreements herein contained shall bind
and inure to the benefit of Sublessor, Sublessee, and their respective permitted
successors and assigns.
17. Counterparts. This Sublease may be executed in several counterparts,
each of which shall be deemed an original, and all such counterparts together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this Sublease to executed
under seal and delivered, as of the day and year first above written.
SUBLESSOR:
WORLD MARKETING ALLIANCE, INC.,
a Georgia corporation
By: /s/ Thomas W. Montgomery
-------------------------------------
Name: Thomas W. Montgomery
Title: Executive Vice President
(Corporate Seal)
SUBLESSEE:
THE WMA CORPORATION,
a Delaware corporation
By: /s/ Edward F. McKernan
-------------------------------------
Name: Edward F. McKernan
Title: Senior Vice President
(Corporate Seal)
Page 5
<PAGE> 1
EXHIBIT 10.7
MANAGEMENT AGREEMENT
THIS AGREEMENT is made the 2nd day of August, 1995 between WMA LIFE
INSURANCE COMPANY LIMITED an insurance company incorporated under the laws of
Bermuda and having its head office in Hamilton, Bermuda (hereinafter called the
"Company") of the one part and CFM INSURANCE MANAGERS LTD., a body corporate
under the laws of Bermuda and having its head office and principal place of
business at Third Floor, 44 Church Street, Hamilton, Bermuda (hereinafter
called the "Manager") of the other part.
W I T N E S S E T H
WHEREAS, the Company has requested the Manager to act as its managing
agent for its insurance business in Bermuda, subject to any approval, if
required, of any regulatory bodies where required and the Manager has agreed to
assume this responsibility;
NOW THEREFORE, in consideration of the covenants, warranties and mutual
agreements herein set forth and in reliance upon the representations and
warranties contained herein, the parties hereby agree as follows:
ARTICLE I. ENGAGEMENT. The Company hereby designates and appoints the
Manager (which expression shall include every director, officer, employee and
agent of the Manager) to act as its managing agent for the business of writing
reinsurance which the Company is or may hereafter be authorized to engage in
subject to the terms and conditions hereinafter set forth.
The Parties hereby agree that the Manager shall act as the Principal
Representative under The Insurance Act 1978, and every statutory amendment, and
the Company acknowledges that the Principal Representative has certain duties
under said Act including but not limited to the duty to report to the Minister
of Finance the likelihood of the Company becoming insolvent, failure of the
Company to meet certain ratios specified under the Act, certain offenses under
the Act, involvement of the Company in any criminal proceedings whether in
Bermuda or abroad, and ceasing to carry on insurance business in or from within
Bermuda.
ARTICLE II. DUTIES AND OBLIGATIONS OF THE MANAGER. The duties of the
Manager shall include the following and where the performance of a specific
duty requires the authorization of the Company, such authorization shall be
deemed to have been given on the execution of this Agreement by the Company.
A. The Manager shall accept requests for quotations on risks,
applications, proposals, and underwriting information as may be offered to the
Company from time to time, it being understood the Company shall be responsible
and shall have sole responsibility for all underwriting decisions with respect
to the issuance and delivery of insurance policies and reinsurance agreements
covered under the scope of this Agreement.
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<PAGE> 2
B. On the authorization of the Company, the Manager shall sign and
issue in the name of the Company policies and contracts of insurance and
reinsurance together with such binders and other documents as may be required
in relation to the conduct of the insurance and reinsurance business of the
Company.
C. On the authorization of the Company, the Manager shall cancel all
contracts of insurance and reinsurance.
D. The Manager shall on behalf of the Company collect premium, pay
return premiums, allowances and reinsurance premiums.
E. The Manager shall maintain on behalf of the Company, separate
from the Manager's own books and records, such books of account showing the
financial condition of the Company in accordance with the Insurance Act 1978
and the Companies Act 1981, and every statutory amendment of said Acts, and in
accordance with established accounting principles applicable to the business of
insurance and reinsurance and will submit each year an annual balance sheet and
statement of profit and loss to the Board of Directors and the auditor of the
Company.
F. The Manager shall prepare and make available, upon the request of
the Company's directors, interim financial statements and other reports as may
reasonably be required by the Company.
G. The Manager shall file or cause to be filed all reports with the
appropriate insurance authorities as required by law and to pay or cause to be
paid out of the funds of the Company all taxes and other fees which may be due
and owing by the Company.
H. The Manager shall maintain a properly staffed office in Bermuda
to enable the due performance of all duties required under this Agreement. The
Manager at its sole discretion will make available to the Company the services
of certain of its employees whom both the Manager and the Company shall
determine are qualified to act as representatives of the Company. It being
understood, the Manager shall have the sole discretion to substitute one or
more of its employees as representatives of the Company so long as the
substitute is determined qualified by both the Manager and the Company.
I. All monies from time to time received by the Manager on behalf of
or from the Company shall be paid by the Manager into a separate bank account
or accounts as needed (the "Account") in the name of the Company and all
payments made by the Manager on behalf of the Company shall be made out of such
Account in accordance with any resolution adopted by the Company pursuant to
Article III, Subsection C. All checks on the Account shall be signed by two
signatories to be appointed by the Manager.
J. On the authorization of the Company, the Manager shall promptly
pay all losses borne by the Company, including loss adjustment expenses and
expenses incurred in investigating and/or settling claims, out of the amount on
deposit in the Account. If at any time or times the monies on deposit in the
Account and such other assets of the Company under the supervision of the
Manager shall be insufficient to meet the liabilities of the business of the
Company, the Company shall place funds in the Account in the amount required to
meet such liabilities. The Manager shall retain in the Account, from premiums
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<PAGE> 3
paid, sums sufficient to pay estimated claims and expenses of the following
quarter. Upon specific directions in writing by the Company or by an authorized
representative of the Company, any funds received in excess of this figure
shall be remitted to the Company's investment manager ("Investment Manager") as
identified to the Manager by the Company for investment for the account of the
Company, subject to the investment guidelines given from time to time to the
Investment Manager by the Company. It being understood, the Manager assumes no
responsibility whatsoever for the investment of these funds by the Company's
Investment Manager.
K. Upon the specific direction in writing by the Company or by an
authorized representative of the Company, the Manager shall effect the
reinsurance or retrocession of such risks accepted on behalf of the Company.
Furthermore, in the event the Company decides to effect any reinsurance or
retrocession without the assistance of the Manager, the Company shall advise
the Manager before placing any reinsurance or retrocession. The Manager shall
not be responsible for the solvency of any company or other reinsurer,
reinsuring the Company, nor for the failure on the part of any such reinsurer
to pay a claim to the Company.
L. The Manager shall pay on behalf of the Company all charges and
expenses incurred in the operation of the Company provided that such payments
shall be fully indemnified by the Company. Any general and administrative
expense that exceeds $5,000 shall first be approved by an authorized
representative of the Company.
M. The Manager shall generally do all things reasonable and
necessary, pursuant to the terms of this Agreement, to perform its duties as
managing agent for the insurance or reinsurance business which the Company is
or may hereafter be authorized to undertake. It is further understood that the
Manager will perform all duties and responsibilities as principal representative
under The Insurance Act 1978, and every statutory amendment.
ARTICLE III. DUTIES AND OBLIGATIONS OF THE COMPANY. The Company agrees
and covenants with the Manager to undertake and discharge the following
obligations:
A. The Company shall provide sufficient information and instructions
and shall promptly comply with any reasonable requests by the Manager for
information, instructions or requests for approval which will enable the
Manager to perform all its duties set out in this Agreement.
B. The Company's directors shall review, and where appropriate,
approve or ratify the performance of reasonable actions taken on behalf of the
Company, and the forms of any documents and contracts arising therefrom,
pursuant to the terms of this Agreement.
C. The Company shall ensure that at least two designated employees
of the Manager are given by resolution of the Company authority to sign against
any current account and other bank accounts maintained by the Company.
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<PAGE> 4
D. The Company shall be responsible and have sole responsibility for all
investment and underwriting decisions, notwithstanding any advice which may be
given by the Manager.
E. The Company shall designate its own attorneys who shall act as Agents
to receive service of process on its behalf.
ARTICLE IV. MANAGEMENT FEE. The Company shall pay the Manager a fee
which shall be documented as an Addendum to this Agreement and which may by
mutual agreement require revision from time to time. The Manager will arrange
for payment of all fees and out of pocket expenses directly from the Account of
the Company.
ARTICLE V. DIRECT COSTS BORNE BY THE COMPANY. In addition to the
management fee as provided in Article IV of this Agreement, the Company shall
assume and pay the following:
A. all reinsurance premiums and returns of premiums;
B. all commissions to brokers and agents including contingent commissions
on contingent contracts due and paid to agents, general agents, sub-agents,
brokers and companies;
C. all statutory charges payable by the Company;
D. uncollected balances arising from premium writings and notes in
payment of balances due from agents, general agents, sub-agents, brokers,
companies or assureds;
E. all losses, loss expenses, legal expenses in connection therewith and
any charges with reference to the adjustment or settlement of losses;
F. all fees of outside auditors, accountants, and counsel;
G. all other direct expenses and costs of operating the business of the
Company which are of a strictly company character, including but not limited to
reinsurance premium, communication costs, travel expenses and taxes.
ARTICLE VI. INDEMNITY. Both Manager and Company shall indemnify, defend
and hold harmless each other against any and all loss, damage, liability, cost
or expense, including, without limitation, any interest, fine, penalty,
criminal or civil judgement or authorized settlement, court costs, reasonable
attorneys' fees and expert witnesses' fees, reasonable accountants' fees,
disbursements and expenses suffered or incurred by Company or Manager, or any
successors or assigns thereto, as a result of, or with respect to any breach by
either party of any representation or warranty, or any breach of or
non-compliance by either party with any covenant or obligation contained in
this Agreement. The terms of this Article VI shall survive the termination of
this Agreement.
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<PAGE> 5
ARTICLE VII. COMMENCEMENT AND TERMINATION. This Agreement shall be
effective as of the 2nd day of August, 1995, and shall be of unlimited
duration, provided that the Agreement may be terminated by the Manager or the
Company upon written notice of such termination at least three calendar months
prior to the proposed termination date (the "Termination Notice"). Such
termination shall not prejudice any contracts of insurance to which the Company
and/or the Manager may have been committed if such contracts have attached
prior to the proposed termination date, provided, however, that this Agreement
shall continue in full force and effect for the purpose of performing all acts
and things necessary expedient, and proper in respect to all rights,
liabilities, agreements, policies, instruments of insurance and making
extensions thereof and as to other matters opened, made, assumed, undertaken
and contracted for under this Agreement including the conclusion of seasonal
business.
Upon termination of this Agreement pursuant to a Termination Notice as
defined above, between the date of the Termination Notice and the proposed
termination date, the Manager shall not bind the Company to additional
contracts of insurance which will attach after the termination date.
This Agreement may be terminated upon written notice delivered at least 30
days prior to the proposed termination date as follows:
A. By the Manager if the Company shall fail to advise the Manager before
placing any reinsurance or retrocession for the Company;
B. By the Manager if the Company shall issue policies of direct and/or
reinsurance which are of the type covered under the scope of this Agreement on
behalf of the Company without prior consultation with the Manager;
C. By either the Manager or the Company if there is a breach of any
material provision of this Agreement by the other party which is not remedied
within 30 days after written notice of such breach is given by the Manager or
the Company to the party whose conduct constitutes such breach;
D. By either the Manager or the Company if a petition seeking an order
for conservation, rehabilitation or liquidation is filed as respects the other
party in its domiciliary state.
The Company and the Manager both agree that, in the event this Agreement
terminates for any reason whatsoever, both parties shall, pursuant to Section 8
3(A) of The Insurance Act 1978, and every statutory amendment, give thirty (30)
days' notice in writing to the Minister of Finance of the Parties' intent to
terminate the Agreement.
ARTICLE VIII. RECORDS, ACCOUNTS, REPORTS AND STATEMENTS.
The Manager agrees to maintain records of all business transacted by it for the
Company including but not limited to reinsurance agreements issued, records of
acceptances, cover notes issued, treaties executed, premiums collected, losses
and loss expenses paid or incurred
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<PAGE> 6
and the Manager agrees to pay or collect balances due to or from its clients
or customers, and to render accounts and statements as hereinafter provided.
Within forty-five (45) days after the end of each quarter, or such other
period as may be requested by the Company, the Manager shall render financial
statements in the form as shall be mutually agreed upon by the Company and the
Manager.
All books and records of the Company maintained by the Manager shall be
and remain the property of the Company and shall be delivered to the Company,
or its designee following any termination of this Agreement provided such fees
due under this Agreement have been paid. During the term of this Agreement,
such books and records shall be under the exclusive control of the Manager,
provided however, that they shall be available during normal business hours for
inspection by the Company and the Manager, upon request by the Company, should
provide copies of such books and records so requested. The Manager shall have
the right to maintain copies of such books and records maintained by it and
shall have the right at any time within six years after any termination of this
Agreement to inspect such books and records and to make copies thereof or
extracts therefrom.
At the end of each year, during the term of this Agreement the Manager
shall prepare statutory financial statements and file a statutory financial
return of the company as required under the Insurance Act, 1978.
The Manager shall assist the Company's tax advisors in making all
necessary tax returns which must be filed by the Company and other tax-related
issues. It being understood the Manager shall not be responsible for the
retention of such tax advisors nor the filing of said returns.
ARTICLE IX. ARBITRATION. In the event of any irreconcilable dispute
between the Company and the Manager in connection with this Agreement, such
disputes shall be submitted to a Board of Arbitration for binding arbitration.
As soon as either party demands an arbitration and has named an arbitrator, the
other binds itself to name an arbitrator within one month thereafter.
The Board of Arbitration shall consist of one arbitrator to be chosen by
the Company and one arbitrator to be chosen by the Manager, and an umpire to be
chosen as promptly as possible by the two arbitrators. If within one month the
two arbitrators are unable to agree upon an umpire, each arbitrator shall name
three candidates, two of whom shall be declined by the other arbitrator within
one month and the choice shall be made between the two remaining candidates by
drawing lots.
The Company and the Manager shall submit their cases to the arbitrators
within one month after the selection of the umpire. The arbitrators are
empowered, however, to extend the time granted in which to submit cases for a
further period of not more than thirty (30) days.
The arbitrators are relieved from all judicial formalities and may abstain
from following the strict rules of evidence. The decision of the arbitrators
shall be final and binding upon both the Company and the Manager, but failing
to agree, they shall call on the umpire and the decision of the majority shall
be final and binding upon both the Company and the Manager.
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<PAGE> 7
The Company and the Manager shall each bear the expense of its own
arbitrator and shall jointly and equally share with the other the expense of
the umpire. Arbitration shall take place in Bermuda unless otherwise mutually
agreed.
Final award shall be made by the arbitrators within a reasonable time and
in any event within six (6) months of the date on which the parties have
submitted the dispute to the arbitrators.
ARTICLE X. MISCELLANEOUS. This Agreement and the rights and obligations
of the parties to it shall be governed by and construed and enforced in
accordance with the laws of Bermuda.
This Agreement may not be assigned by either party without the prior
written consent of the other party hereto. This Agreement shall inure to the
benefit of and be binding upon the parties to this Agreement and their
respective successors and permitted assigns.
Wherever under this Agreement one party is required or permitted to give
notice to the other, such notice shall be effected either by personal delivery
in writing or by mail, registered or certified, postage prepaid, return receipt
requested, to the following addresses:
If to the Manager:
CFM Insurance Managers Ltd.
Third Floor
44 Church Street
Hamilton HM 12, Bermuda
If to the Company:
The Secretary
c/o Codan Services Limited
Clarendon House
Clarendon Building
Par-La-Ville Road
Hamilton HM 11, Bermuda
Copy to:
James F. Tenney
Merritt & Tenney
200 Galleria Parkway
Suite 500
Atlanta, GA 30339
USA
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Each party to this Agreement may from time to time change the address to
which notices may be given by giving the other party written notice, in the
manner provided in this Article, of the new address and the date upon which it
will become effective. Notices delivered personally shall be deemed given upon
receipt; mailed notices shall be deemed given three business days after mailing.
Services of process may be made upon:
If to the Manager:
The Secretary
CFM Insurance Managers Ltd.
c/o Codan Services Limited
Third Floor
44 Church Street
Hamilton HM 12, Bermuda
If to the Company:
Ms. Lisa Marshall
c/o Codan Services Limited
Clarendon House
Clarendon Building
Par-La-Ville Road
Hamilton HM 11, Bermuda
The Manager and the Company hereby designate the above-named as their true
and lawful attorney upon whom may be served any lawful process in any action,
suit or proceeding instituted by or on behalf of the Manager or Company or any
beneficiary hereunder arising out of this Agreement, and hereby designate the
above-named as the person to whom the said officer is authorized to mail such
process or true copy thereof.
If any provision of this Agreement is held to be void, illegal or
unenforceable under present or future laws effective during the term hereof,
such provision shall be fully severable and this Agreement shall be construed
and enforced as if such illegal, invalid or unenforceable provision never
comprised a part hereof, and the remaining provisions of this Agreement shall
remain in full force and effect and shall not be affected in any way by the
void, illegal or unenforceable provision or by its severance. Furthermore, in
lieu of such severed provision, there shall be added automatically as part of
this Agreement a provision as similar in its terms to such severed provision as
may be possible and be valid, legal and enforceable.
The Article captions contained in this Agreement are for convenience of
reference only; such captions do not constitute any part of the agreement
between the parties and shall not be considered in the interpretation or
construction of it.
-8-
<PAGE> 9
This Agreement constitutes the entire agreement between the parties with
respect to its subject matter and supersedes all prior written or oral
agreements pertaining to such subject matter. This Agreement may be modified or
amended only by a written instrument signed by both of the parties hereto.
No breach of any condition of this Agreement by any party may be waived,
in any way, except by a written instrument signed by the parties hereto.
Continuing performance or waiver by either party of this Agreement after breach
thereof shall be in no way construed as a waiver of any subsequent breach of
this Agreement, whether or not of a similar nature. Continuing performance by
any party shall not be regarded as waiving any rights resulting from a breach
thereof.
Nothing herein contained shall constitute a partnership between or a joint
venture by the Company and the Manager. No party hereto shall hold itself out
contrary to the terms of this paragraph and no party shall become liable for
any act or omission of another party contrary to the provisions hereof.
This Agreement shall not be deemed to give any right or remedy to any
third party whatsoever unless said right or remedy is specifically granted to
such third party by the terms hereof.
This Agreement shall be construed as an honorable undertaking among the
parties hereto not to be defeated by technical legal construction or poverty of
language.
This Agreement may be executed in one or more counterparts, each of which
shall be considered an original, but all of which taken together shall
constitute one single agreement between the parties. The several counterparts
may be instruments, papers or contracts; they need not be executed on the same
date or within any particular period of time; they need not be signed by the
same parties whether parties to this Management Agreement or not; and they need
not identify the same subject matter. If there is any conflict between the
provisions of such separate writings and this Management Agreement, the
provisions of this Management Agreement shall govern.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in duplicate by their officers or agents thereunto truly authorized as of the
day and year first here and before written.
For and behalf of:
WMA LIFE INSURANCE COMPANY
LIMITED
WITNESS:
/s/ Wood Montgomery By: /s/ S. Hubert Humphrey, Jr.
- ----------------------- --------------------------------------
For and behalf of
CFM INSURANCE MANAGERS LTD.
WITNESS:
/s/ By: /s/ P.C. Regan
- ----------------------- --------------------------------------
-10-
<PAGE> 11
MANAGEMENT AGREEMENT
ADDENDUM I
THIS ADDENDUM attaches to and forms an integral part of the Agreement made
the 2nd day of August, 1995 between WMA LIFE INSURANCE COMPANY LIMITED
(hereinafter called the "Company") of the one part and CFM INSURANCE MANAGERS
LTD., (hereinafter called the "Manager") of the other part.
W I T N E S S E T H
NOW THEREFORE, in accordance with Article IV of the Agreement, the Manager
and Company mutually agree that for the period commencing the 2nd day of
August, 1995 the Manager shall bill the Company on a regular basis for the time
incurred by its employees at their hourly charge-out rates in addition to
reimbursement of any out-of-pocket expenses.
For and behalf of:
WMA LIFE INSURANCE COMPANY
LIMITED
WITNESS:
/s/ Wood Montgomery By: /s/ S. Hubert Humphrey, Jr.
- ----------------------- ----------------------------
For and behalf of
CFM INSURANCE MANAGERS LTD.
WITNESS:
/s/ By: /s/ P.C. Regan
- ----------------------- -----------------------
<PAGE> 12
MANAGEMENT AGREEMENT
ADDENDUM 2
THIS ADDENDUM attaches to and forms an integral part of the Agreement made
the 2nd day of August, 1995 between WMA LIFE INSURANCE COMPANY LIMITED
(hereinafter called the "Company") of the one part and CFM INSURANCE MANAGERS
LTD., (hereinafter called the "Manager") of the other part.
W I T N E S S E T H
NOW THEREFORE, in accordance with Article IV of the Agreement, the Manager
and Company mutually agree that the Manager shall be paid a monthly fee of
$5,000.00 in addition to reimbursement of any out of pocket expenses; payable
on the 1st day of each month commencing simultaneously with the execution date
of the first reinsurance agreement written by the Company. Such fee to be
adjusted at the end of each calendar year by the amount that the actual time
incurred by the manager charged at standard charge-out rates exceeds the fee
paid for that year. Addendum 1 will be immediately superceded upon the
effective date of this Addendum.
For and behalf of:
WMA LIFE INSURANCE COMPANY LIMITED
WITNESS:
/s/ Wood Montgomery By: /s/ S. Hubert Humphrey, Jr.
- ----------------------------- --------------------------------
For and behalf of
CFM INSURANCE MANAGERS LTD.
WITNESS:
/s/ By: /s/ P.C. Regan
- ----------------------------- --------------------------------
<PAGE> 1
EXHIBIT 10.8
PLEDGE AND SECURITY AGREEMENT
AND IRREVOCABLE PROXY
THIS PLEDGE AND SECURITY AGREEMENT is made this day of [, 199[,
by[, hereinafter called "Debtor", in favor of WORLD MARKETING ALLIANCE, INC., a
Georgia corporation, hereinafter called "Lender".
W I T N E S S E T H:
1. CREATION OF SECURITY INTEREST. Debtor does hereby grant to Lender a
present and continuing security interest in and security title to all shares of
the issued and outstanding stock of WMA INTERNATIONAL CORPORATION, a Delaware
corporation, hereinafter called the "Corporation", which are owned by Debtor,
together with all proceeds and all payments, stock rights, rights to subscribe,
stock warrants, dividends and other distributions of every kind and
description, stock splits, new securities and certificates, substitutions,
additions, replacements, renewals, interest or other rights or distributions
which are declared, issued, paid or payable with respect to or on account of
the foregoing shares, hereinafter collectively called the "Pledged Stock".
2. PURPOSE OF AGREEMENT. This pledge and security agreement is made and
intended to secure the indebtedness, and obligations of Debtor to Lender under
that certain Secured Promissory Note of even date herewith made by Debtor in
favor of Lender in the original face principal amount of [ and No One Hundredths
($[.00) Dollars, and any and all renewal(s), extension(s) and modification(s)
thereof, and substitution(s) therefor, in whole or in part, and (ii) all other
obligations and indebtedness now or hereafter owing by Debtor to Lender, however
or whenever created, arising, incurred or evidenced, whether primary or
secondary, direct or indirect, joint or several, absolute or contingent or due
or to become due, and any and all renewal(s), extension(s) and modification(s)
thereof, and substitution(s) therefor, in whole or in part. The indebtedness,
liabilities, duties and obligations secured hereby are hereinafter collectively
called the "Liabilities".
3. REPRESENTATIONS AND WARRANTIES. Debtor hereby represents and warrants
to Lender that: Debtor owns and has full power and authority to pledge and
assign the Pledged Stock and will have such authority with respect to any
substituted and additional Pledged Stock which may be hereafter delivered to
the Lender; the Pledged Stock is not subject to the interest of any third
person; Debtor will defend the Pledged Stock against the claims and demands of
all third persons; the Pledged Stock is and will be genuine, free from forgery,
counterfeit, and all adverse liens, claims, defaults, prepayments, defenses and
conditions precedent, conditions subsequent and encumbrances (other than the
security interest granted and conveyed hereunder); if Debtor receives any of
the Pledged Stock, Debtor will immediately deliver same to Lender to be held by
Lender hereunder in the same manner as the Pledged Stock originally pledged
hereunder; Debtor will not mortgage,
Page 1
<PAGE> 2
pledge or loan, or grant or create any other security interest in, any of the
Pledged Stock, and will not transfer, assign, convey or otherwise dispose of
any of the Pledged Stock without the prior written consent of Lender, which
consent may, in Lender's sole and absolute discretion, be delayed, conditioned
or withheld for any reason whatsoever.
4. POWER OF ATTORNEY. Debtor hereby appoints Lender as its lawful
attorney-in-fact to act for Debtor with respect to the Pledged Stock, including
without limitation, the authority to redeem or collect and give full receipt
for any distributions declared, paid, payable, or issues in respect of the
Pledged Stock, and to endorse Debtor's name on any of the Pledged Stock the
right to sell or otherwise dispose of the Pledged Stock, and on all proceeds
therefrom that may come into Lender's possession and to deposit or otherwise
collect the same.
5. VOTING OF PLEDGED STOCK. Anything to the contrary herein
notwithstanding, until such time as all Liabilities have been paid in full,
Lender, or its nominee, without notice or demand of any kind, shall have the
sole and exclusive right to exercise all voting powers pertaining to any and
all of the Pledged Stock (and to give written consents in lieu of voting
thereon) and may exercise such power in such manner as Lender, in its sole and
absolute discretion, shall determine. THIS PROXY IS COUPLED WITH AN INTEREST
AND IS IRREVOCABLE BY DEATH OR OTHERWISE. The exercise by Lender of any of its
rights and remedies under this paragraph shall not be deemed a disposition of
collateral under Article 9 of the Uniform Commercial Code nor an acceptance by
Lender of any of the Pledged Stock in satisfaction of the Liabilities or any of
the Liabilities.
6. DEFAULT AND REMEDIES. If Debtor fails to pay when due any amount
payable under the Liabilities; or if Debtor fails to perform or breaches any
agreement or undertaking herein or is in default under any writing relating to
any of the Liabilities or any other agreement between Lender and Debtor; or if
the Pledged Stock be seized or levied upon or a receiver be appointed for it;
then Debtor shall be in default hereunder. In the event Debtor shall be in
default hereunder, Lender shall be authorized, in its discretion, to exercise
any one or more of the rights and remedies granted pursuant to this agreement
or available at law or in equity, including, without limitation, the rights and
remedies available to a secured party under the Uniform Commercial Code as then
in effect in the State of Georgia, including, without limitation, the right
upon default to sell or otherwise dispose of the Pledged Stock.
7. MISCELLANEOUS PROVISION. Lender shall not be deemed to waive any of
Lender's rights under this pledge and security agreement unless such waiver is
express, in writing and signed by Lender, and no delay or omission by Lender in
exercising any of Lender's rights under this pledge and security agreement
shall operate as a waiver of any such rights, and a waiver on one occasion
shall not be construed as a waiver of any of Lender's rights on any other
occasion. This pledge and security agreement shall be binding upon Debtor and
his/her heirs, successors, legal representatives and assigns, and shall inure
to the benefit of Lender and its legal representatives, successors and
assigns. This pledge and security agreement shall be governed by, construed
under
Page 2
<PAGE> 3
and interpreted and enforced in accordance with the laws of the State of
Georgia. Every power and proxy given to Lender herein is coupled with an
interest and is irrevocable by death or otherwise.
IN WITNESS WHEREOF, Debtor has executed and sealed this pledge and
security agreement, and delivered this agreement to Lender, all the day and
year first written above.
Signed, sealed, and
delivered this ______ day
of [, 199[
in the presence of:
(SEAL)
- -------------------------- ------------------------------
Witness [
- --------------------------
Notary Public
My commission expires:
- --------------------------
(AFFIX NOTARY SEAL)
CONSENT TO PLEDGE
WMA International Corporation, by its signature below, consents to Debtor's
execution of the foregoing Pledge and Security Agreement and Irrevocable Proxy
("Pledge") between Debtor and Lender and acknowledges and agrees that said
Pledge shall not constitute a breach of the WMA International Corporation
Shareholders' Agreement dated December 22, 1995 ("Agreement") and that its
consent is provided in accordance with Section 2.1 of said Agreement.
WMA International Corporation
Attest: By:
------------------- --------------------------------
Secretary Name:
---------, ------------------------------
Title:
(Corporate Seal) ------------------------------
Date:
------------------------------
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