-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jyu4eRYi221omPdGqJ8n4ezEtYnd1Q/3ZfKndt0R/Pi4lA1HoP3fjzUp6qESraz9 pBZsLUMq4U5zA/9gTHQIxA== /in/edgar/work/0000703701-00-500011/0000703701-00-500011.txt : 20001121 0000703701-00-500011.hdr.sgml : 20001121 ACCESSION NUMBER: 0000703701-00-500011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASCENT ASSURANCE INC CENTRAL INDEX KEY: 0000703701 STANDARD INDUSTRIAL CLASSIFICATION: [6321 ] IRS NUMBER: 731165000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-10873 FILM NUMBER: 773069 BUSINESS ADDRESS: STREET 1: 110 WEST SEVENTH STREET STREET 2: STE 300 CITY: FORT WORTH STATE: TX ZIP: 76102 BUSINESS PHONE: 8178783306 MAIL ADDRESS: STREET 1: 110 WEST SEVENTH STREET STREET 2: SUITE 300 CITY: FORT WORTH STATE: TX ZIP: 76102 FORMER COMPANY: FORMER CONFORMED NAME: WESTBRIDGE CAPITAL CORP DATE OF NAME CHANGE: 19920703 10-Q 1 f10q0900.txt 9/30/2000 10Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period Ended September 30, 2000 Commission File Number 1-8538 ASCENT ASSURANCE, INC. ---------------------- (Exact name of Registrant as specified in its Charter) DELAWARE 73-1165000 - -------- ---------- (State of Incorporation) (I.R.S. Employer Identification No.) 110 West Seventh Street, Suite 300, Fort Worth, Texas 76102 - ----------------------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) 817-878-3300 ------------------------------------------------------------------- (Registrant's Telephone Number, including Area Code) N/A ----------------------------------------------------------------------------- (Former Name, Address and Former Fiscal Year, if changed since Last Report) Indicate, by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate, by check mark whether the Registrant has filed all reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES X NO ------- Common Stock - Par Value $.01 6,500,000 Shares Outstanding at November 14, 2000 ASCENT ASSURANCE, INC. INDEX TO FORM 10-Q - ------------------------------------------------------------------------------- PART 1 - FINANCIAL INFORMATION Page No. - ------------------------------ -------- Item 1 - Financial Statements Ascent Assurance, Inc. Condensed Consolidated Balance Sheets at September 30, 2000 and December 31, 1999 2 Ascent Assurance, Inc. Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2000 and 1999, the Nine Months Ended September 30, 2000 and the Six Months Ended September 30, 1999 3 Westbridge Capital Corp. Condensed Consolidated Statement of Operations for the Three Months ended March 31, 1999 4 Ascent Assurance, Inc. Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended September 30, 2000 and 1999, the Nine Months Ended September 30, 2000 and the Six Months Ended September 30, 1999 5 Westbridge Capital Corp. Consolidated Statement of Comprehensive Income for the Three Months Ended March 31, 1999 6 Ascent Assurance, Inc. Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2000 and 1999, the Nine Months Ended September 30, 2000 and the Six Months Ended September 30, 1999 7 Westbridge Capital Corp. Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 31, 1999 8 Ascent Assurance, Inc. Consolidated Statement of Changes in Stockholders' Equity for the Nine Months Ended September 30, 2000 9 Notes to Condensed Consolidated Financial Statements 10 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations General 13 Business Overview 13 Operating Results 14 Financial Condition 16 Liquidity, Capital Resources and Statutory Capital and Surplus 18 Forward-Looking Statements 20 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 22 ASCENT ASSURANCE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS September 30, December 31, 2000 1999 (Unaudited) (Audited) ------------- ------------ (in thousands, except per share data) Assets Investments: Fixed Maturities: Available-for-sale, at market value (amortized cost $108,807 and $103,436) $ 103,724 $ 97,563 Equity securities, at market (cost $1,365) 1,309 1,313 Other investments 430 413 Short-term investments 11,490 10,904 ------------- ------------ Total Investments 116,953 110,193 Cash 6,063 5,110 Accrued investment income 1,820 2,030 Receivables from agents, net of allowance for doubtful accounts of $5,806 and $6,060 8,422 7,062 Deferred policy acquisition costs 25,286 19,393 Deferred tax asset, net 7,917 7,086 Property and equipment, net of accumulated depreciation of $2,435 and $1,546 6,506 6,272 Other assets 6,379 6,544 ------------- ------------ Total Assets $ 179,346 $ 163,690 ============= ============ Liabilities, Preferred Stock and Stockholders' Equity Liabilities: Policy liabilities and accruals: Future policy benefits $ 60,953 $ 57,119 Claim reserves 42,998 38,776 ------------- ------------ Total policy liabilities and accruals 103,951 95,895 Accounts payable and other liabilities 20,351 13,592 Notes payable 9,651 7,162 ------------- ------------ Total liabilities 133,953 116,649 ------------- ------------ Redeemable Convertible Preferred Stock 25,130 23,257 ------------- ------------ Stockholders' Equity: Common stock ($.01 par value, 30,000,000 shares authorized; 6,500,000 shares issued) 65 65 Capital in excess of par value 27,534 27,338 Accumulated other comprehensive loss, net of tax (3,392) (3,851) Retained (deficit) earnings (3,944) 232 ------------- ------------ Total Stockholders' Equity 20,263 23,784 ------------- ------------ Total Liabilities, Preferred Stock and Stockholders' Equity $ 179,346 $ 163,690 ============= ============ See the Notes to the Condensed Consolidated Financial Statements. ASCENT ASSURANCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Nine Months Six Months Ended Ended Ended September 30, September 30, September 30, ------------------------------ ------------- ------------- 2000 1999 2000 1999 ------------- ------------- ------------- ------------- (in thousands, except per share data) Revenues: Premiums: First-year $ 8,419 $ 4,810 $ 22,358 $ 8,713 Renewal 22,412 23,702 66,706 49,373 ------------- ------------- ------------- ------------- 30,831 28,512 89,064 58,086 Net investment income 2,626 2,222 6,970 4,555 Fee and service income 5,207 4,506 15,397 8,702 Net realized gain (loss) on investments 28 (107) (209) (170) ------------- ------------- ------------- ------------- 38,692 35,133 111,222 71,173 ------------- ------------- ------------- ------------- Benefits, claims and expenses: Benefits and claims 24,516 22,619 71,160 44,352 Amortization of deferred policy acquisition costs 780 502 2,001 894 Commissions 5,062 4,859 14,442 9,796 General and administrative expenses 8,094 6,042 22,614 11,987 Taxes, licenses and fees 1,235 1,190 3,939 2,483 Interest expense on notes payable 198 85 435 204 Resolution of pre-confirmation contingencies - (1,235) - (1,235) ------------- ------------- ------------- ------------- 39,885 34,062 114,591 68,481 (Loss) income before income taxes (1,193) 1,071 (3,369) 2,692 Federal income tax benefit (expense) 406 (364) 1,146 (931) ------------- ------------- ------------- ------------- Net (loss) income $ (787) $ 707 $ (2,223) $ 1,761 ============= ============= ============= ============= Preferred stock dividends 651 596 1,953 1,243 ------------- ------------- ------------- ------------- (Loss) income applicable to common stockholders $ (1,438) $ 111 $ (4,176) $ 518 ============= ============= ============= ============= Basic and diluted (loss) earnings per common share $ (.22) $ .02 $ (.64) $ .08 ============= ============= ============= ============= Weighted average shares outstanding: Basic 6,500 6,500 6,500 6,500 ============= ============= ============= ============= Diluted 6,500 6,500 6,500 6,515 ============= ============= ============= =============
See the Notes to the Condensed Consolidated Financial Statements. WESTBRIDGE CAPITAL CORP. (now, Ascent Assurance, Inc.) CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Audited) Three Months Ended March 31, 1999 --------------------- (in thousands, except per share data) Revenues: Premiums: First-year $ 3,121 Renewal 26,827 --------------------- 29,948 Net investment income 2,562 Fee and service income 4,263 Net realized gain on investments 41 --------------------- 36,814 --------------------- Benefits, claims and expenses: Benefits and claims 21,799 Amortization of deferred policy acquisition costs 286 Commissions 6,134 General and administrative expenses 6,635 Taxes, licenses and fees 1,059 Interest expense on notes payable 119 Interest expense on retired/canceled debt 507 --------------------- 36,539 --------------------- Income before income taxes 275 Federal income tax expense (67) --------------------- Net income $ 208 ===================== Basic and diluted earnings per common share $ .03 ===================== Basic and diluted weighted average shares outstanding 7,032 ===================== See the Notes to the Condensed Consolidated Financial Statements. ASCENT ASSURANCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Nine Months Six Months Ended Ended Ended September 30, September 30, September 30, ------------------------------- ------------- ------------- 2000 1999 2000 1999 ------------- ------------- ------------- ------------- (in thousands) Net (loss) income $ (787) $ 707 $ (2,223) $ 1,761 Other comprehensive income (loss): Unrealized holding gain (loss) arising during period, net of tax 997 (855) 321 (2,869) Reclassification adjustment of (gain) loss on sales of investments included in net income, net of tax (18) 70 138 111 ------------- ------------- ------------- ------------- Comprehensive gain (loss) $ 192 $ (78) $ (1,764) $ (997) ============= ============= ============= =============
See the Notes to the Condensed Consolidated Financial Statements. WESTBRIDGE CAPITAL CORP. (now, Ascent Assurance, Inc.) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Audited) Three Months Ended March 31, 1999 ------------------- (in thousands) Net income $ 208 Other comprehensive loss: Unrealized holding loss arising during period, net of tax (1,959) Reclassification adjustment of gain on sales of investments included in net income, net of tax (27) ------------------- Comprehensive loss $ (1,778) =================== See the Notes to the Condensed Consolidated Financial Statements. ASCENT ASSURANCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Nine Months Six Months Ended Ended Ended September 30, September 30, September 30, ------------------------------ ------------- ------------- 2000 1999 2000 1999 ------------- ------------- ------------- ------------- (in thousands) Cash Flow From Operating Activities: Net (loss) income $ (787) $ 707 $ (2,223) $ 1,761 Adjustments to reconcile net income to cash provided by (used for) operating activities Decrease in accrued investment income 203 152 210 165 Amortization of deferred policy acquisition costs 780 502 2,001 894 (Increase) decrease in receivables from agents (595) 58 (1,360) 1,302 Addition to deferred policy acquisition costs (2,735) (1,917) (7,894) (3,653) Decrease (increase) in other assets 994 (2,011) 165 (945) (Decrease) increase in policy liabilities and accruals (1,922) (434) 8,056 (2,094) Increase (decrease) in accounts payable and other liabilities 5,856 (5,486) 6,759 (8,038) Decrease (increase) in deferred income taxes, net 118 1,923 (831) 896 Other, net (726) 883 1,275 2,275 ------------- ------------- ------------- ------------- Net Cash Provided By (Used For) Operating Activities 1,186 (5,623) 6,158 (7,437) ------------- ------------- ------------- ------------- Cash Flow From Investing Activities: Purchases of fixed maturity investments (10,369) (498) (19,375) (3,994) Sales of fixed maturity investments 6,433 1,993 10,147 8,556 Maturities and calls of fixed maturity investments 1,285 1,420 3,283 2,227 Net decrease (increase) in short term and other investments 3,308 2,050 (603) 2,677 Property and equipment purchased (326) (2,046) (1,146) (3,209) ------------- ------------- ------------- ------------- Net Cash Provided By (Used For) Investing Activities 331 2,919 (7,694) 6,257 ------------- ------------- ------------- ------------- Cash Flow From Financing Activities: Issuance of notes payable 974 4,650 2,862 6,058 Repayment of notes payable (93) (1,691) (373) (4,678) ------------- ------------- ------------- ------------- Net Cash Provided By Financing Activities 881 2,959 2,489 1,380 ------------- ------------- ------------- ------------- Increase In Cash During Period 2,398 255 953 200 Cash At Beginning Of Period 3,665 2,155 5,110 2,210 ------------- ------------- ------------- ------------- Cash At End Of Period $ 6,063 $ 2,410 $ 6,063 $ 2,410 ============= ============= ============= =============
See the Notes to the Condensed Consolidated Financial Statements. WESTBRIDGE CAPITAL CORP. (now, Ascent Assurance, Inc.) CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Audited) Three Months Ended March 31, 1999 ------------------ (in thousands) Cash Flow From Operating Activities: Net income $ 208 Adjustments to reconcile net income to cash provided by (used for) operating activities: Amortization of deferred policy acquisition costs 286 Decrease in receivables from agents 1,678 Addition to deferred policy acquisition costs (1,148) Increase in other assets (1,007) Decrease in policy liabilities and accruals (2,181) Increase in accounts payable and other liabilities 4,428 Increase in deferred income taxes, net (1,070) Other, net 1,308 ----------------- Net Cash Provided By Operating Activities 2,502 ----------------- Cash Flow From Investing Activities: Proceeds from investments sold: Fixed maturities, called or matured 2,215 Fixed maturities, sold 4,904 Other investments, sold or matured 139 Cost of investments acquired (5,851) Other (873) ----------------- Net Cash Provided By Investing Activities 534 ----------------- Cash Flow From Financing Activities: Retirement of senior subordinated debentures (15,167) Issuance of Preferred Stock 15,167 Issuance of notes payable 911 Repayment of notes payable (2,015) ----------------- Net Cash Used For Financing Activities (1,104) ----------------- Increase In Cash During Period 1,932 Cash At Beginning Of Period 278 ----------------- Cash At End Of Period $ 2,210 ================= See the Notes to the Condensed Consolidated Financial Statements. ASCENT ASSURANCE, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) (in thousands, except share data) Accumulated Common Stock Capital Other Retained Total ------------ in Excess Comprehensive (Deficit) Stockholders' Shares Amount of Par Value Loss Earnings Equity Balance at December 31, 1999 6,500,000 $ 65 $ 27,338 $ (3,851) $ 232 $ 23,784 Net loss (2,223) (2,223) Preferred Stock dividend (1,953) (1,953) Other comprehensive gain, net of tax 459 459 Amortization of unearned compensation 196 196 ----------- -------- ------------ ------------- ----------- ------------- Balance at September 30, 2000 6,500,000 $ 65 $ 27,534 $ (3,392) $ (3,944) $ 20,263 =========== ======== ============ ============= =========== =============
See the Notes to the Condensed Consolidated Financial Statements. ASCENT ASSURANCE, INC. (formerly, Westbridge Capital Corp.) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - DESCRIPTION OF BUSINESS Ascent Assurance, Inc. ("Ascent"), a Delaware company incorporated in 1982, is an insurance holding company engaged in the development, marketing, underwriting and administration of medical expense and supplemental health insurance products, primarily to self-employed individuals and small business owners. Ascent adopted its corporate name on March 24, 1999, the date its predecessor, Westbridge Capital Corp. ("Westbridge"), emerged from Chapter 11 reorganization proceedings (see Note 6). References herein to the "Company" shall mean for all periods on or prior to March 31, 1999, Westbridge and its subsidiaries, and for all periods on or after the close of business on March 31, 1999, Ascent and its subsidiaries. The Company's revenues result primarily from premiums and fees from the insurance products sold by its wholly owned subsidiaries National Foundation Life Insurance Company ("NFL"), Freedom Life Insurance Company of America ("FLICA"), National Financial Insurance Company ("NFIC") and American Insurance Company of Texas ("AICT", and together with NFL, NFIC and FLICA, collectively, the "Insurance Subsidiaries") and marketed by NationalCare(R) Marketing, Inc. ("NCM"), also a wholly owned subsidiary. To a lesser extent the Company derives revenue from (i) telemarketing services, (ii) printing services, and (iii) renewal commissions received by the Company for sales of insurance products underwritten primarily by unaffiliated managed care organizations (such sales have been significantly curtailed). NOTE 2 - ACCOUNTING PRINCIPLES Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and footnotes required by accounting principles generally accepted in the United States ("GAAP") for complete financial statements. Financial statements prepared in accordance with GAAP require the use of management estimates. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain reclassifications have been made to 1999 amounts in order to conform to the 2000 financial statement presentation. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Fresh Start Adjustments. In accordance with the American Institute of Certified Public Accountants' Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code," Ascent adopted fresh start reporting effective March 31, 1999. Fresh start reporting requires the new reporting entity created on the reorganization effective date to determine a reorganization book value. The reorganization book value is allocated to the fair value of assets and liabilities similar to the purchase method of accounting under APB 16. As a result of the application of fresh start reporting, the consolidated financial statements of Ascent issued subsequent to the adoption of fresh start reporting will not be comparable with those of Westbridge prepared before adoption of fresh start reporting, including the historical consolidated financial statements of Westbridge in this quarterly report. NOTE 3 - EARNINGS PER SHARE ("EPS") Under GAAP there are two measures of Earnings Per Share: "Basic Earnings Per Share" and "Diluted Earnings Per Share". Basic EPS is computed by dividing income applicable to common shareholders by the weighted average number of common shares outstanding ("average shares") during the period. To obtain net income applicable to common shareholders for EPS computations, preferred stock dividends are deducted from net income. EPS for the three months ended March 31, 1999 is computed based upon the capital structure of Westbridge prior to the effective date of the plan of reorganization. As the accrual of preferred stock dividends was suspended on September 16, 1998, no preferred stock dividends were deducted in the computation of EPS for the three months ended March 31, 1999. Diluted EPS reflects the potential dilution of average shares that could occur if securities or other contracts to issue common stock were converted or exercised. For the periods shown below, the impact of common stock options and convertible notes were anti-dilutive and were not included in the calculation of EPS. The following table reflects the calculation of basic and diluted EPS: Ascent Westbridge ------------------------------------------------------ ------------ Three Months Nine Months Six Months Three Months Ended Ended Ended Ended September 30, Sept. 30, Sept. 30, March 31, ------------------------ ----------- ----------- ------------ 2000 1999 2000 1999 1999 (amounts in 000's, except per share amounts) Net (loss) income $ (787) $ 707 $ (2,223) $ 1,761 $ 208 Preferred Stock dividends 651 596 1,953 1,243 - ---------- ---------- ----------- ----------- ------------ (Loss) income applicable to common shareholders $ (1,438) $ 111 $ (4,176) $ 518 $ 208 ========== ========== =========== =========== ============ Weighted average shares outstanding: Basic 6,500 6,500 6,500 6,500 7,032 Diluted 6,500 6,500 6,500 6,515 7,032 Basic and diluted (loss) earnings per share $ (.22) $ .02 $ (.64) $ .08 $ .03 ========== ========== =========== =========== ============
NOTE 4 - PREFERRED STOCK Effective January 31, 2000, the Company declared and paid the contractual dividend of $1,873,965 on its Redeemable Convertible Preferred Stock ("Preferred Stock"), which was accrued at December 31, 1999. The dividend was paid through the issuance of 1,873 additional shares of Preferred Stock and a $965 distribution of cash. Dividends on the Company's Preferred Stock are payable in cash or through issuance of additional shares of Preferred Stock, at the Company's option. NOTE 5 - COMMITMENTS AND CONTINGENCIES In the normal course of its business operations, the Company is involved in various claims and other business related disputes. In the opinion of management, the Company is not a party to any pending litigation the disposition of which would have a material adverse effect on the Company's business, financial position or its results of operations. NOTE 6 - REORGANIZATION EFFECTIVE MARCH 24, 1999 On September 16, 1998, Westbridge commenced its reorganization by filing a voluntary petition for relief under Chapter 11, Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"), along with a disclosure statement (as amended, the "Disclosure Statement") and a proposed plan of reorganization (as amended, the "Plan"). The filing of the Disclosure Statement and Plan culminated months of negotiations between Westbridge and an ad hoc committee (the "Creditors' Committee") of holders of its 11% Senior Subordinated Notes due 2002 (the "Senior Notes") and its 7-1/2% Convertible Subordinated Notes due 2004 (the "Convertible Notes"). The Disclosure Statement was approved by entry of an order by the Bankruptcy Court on October 30, 1998. Following the approval of the Plan by the holders of allowed claims and equity interests, the Bankruptcy Court confirmed the Plan on December 17, 1998. The Plan became effective March 24, 1999 (the "Effective Date"). On the Effective Date, Westbridge's certificate of incorporation and by-laws were amended and restated in their entirety and pursuant thereto, Westbridge changed its corporate name to "Ascent Assurance, Inc.". The Plan provided for the recapitalization of certain old debt and equity interests in Westbridge and the issuance of new equity securities and warrants. Additional information regarding the reorganization is disclosed in the Company's 1999 Report on Form 10-K. NOTE 7 - IMPLEMENTATION OF NEW ACCOUNTING PRONOUNCEMENTS In 1998, the National Association of Insurance Commissioners ("NAIC") adopted the Codification of Statutory Accounting Principles guidance, which will replace the current Accounting Practices and Procedures manual as the NAIC's primary guidance on statutory accounting. The Codification provides guidance for areas where statutory accounting has been silent and changes current statutory accounting in certain areas. The Insurance Department of the State of Domicile of the Company's Insurance Subsidiaries has adopted the Codification effective January 1, 2001. The Company does not expect Codification guidance to materially impact statutory surplus. In June, 1998 the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This statement (as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities, Deferral of the Effective Date of SFAS No. 133, an amendment of SFAS No. 133") is effective for fiscal years beginning after June 15, 2000. The pronouncement established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. As the Company has not participated in derivative or hedging activities, the Company's financial statements are not affected by SFAS 133. In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). The Company adopted FIN 44 on a prospective basis effective July 1, 2000. The adoption of FIN 44 did not have a material impact on the Company's results of operations, liquidity or financial position. ASCENT ASSURANCE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Ascent Assurance, Inc. ("Ascent"), adopted its corporate name on March 24, 1999, the date its predecessor, Westbridge Capital Corp. ("Westbridge") emerged from Chapter 11 reorganization proceedings. References herein to the "Company" shall mean for all periods on or prior to March 31, 1999, Westbridge and its subsidiaries, and for all periods on or after the close of business on March 31, 1999, Ascent and its subsidiaries. For additional information regarding the reorganization and adoption of fresh start accounting, see Notes 2 and 6 to the Condensed Consolidated Financial Statements included at Part 1, Item I. The following discussion provides management's assessment of financial condition at September 30, 2000 as compared to December 31, 1999 and results of operations for the three and nine months ended September 30, 2000 as compared to the comparable 1999 periods for the Company. This discussion updates the "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 1999 Report on Form 10-K and should be read in conjunction therewith. Statements contained in this analysis and elsewhere in this document that are not based on historical information are forward-looking statements and are based on management's projections, estimates and assumptions. Management cautions readers regarding its forward-looking statements (see "Forward-Looking Statements"). BUSINESS OVERVIEW The Company's revenues result primarily from premiums and fees from the insurance products sold by its wholly owned subsidiaries National Foundation Life Insurance Company ("NFL"), Freedom Life Insurance Company of America ("FLICA"), National Financial Insurance Company ("NFIC") and American Insurance Company of Texas ("AICT", and together with NFL, NFIC and FLICA, collectively, the "Insurance Subsidiaries") and marketed by NationalCare(R) Marketing, Inc. ("NCM"), also a wholly owned subsidiary. To a lesser extent the Company derives revenue from (i) telemarketing services, (ii) printing services, and (iii) renewal commissions received by the Company for sales of insurance products underwritten primarily by unaffiliated managed care organizations (such sales have been significantly curtailed). The product lines currently marketed and underwritten by the Company's Insurance Subsidiaries are Medical Expense products and Specified Disease products. Medical Expense products are generally designed to reimburse insureds for eligible expenses incurred for hospital confinement, surgical expenses, physician services, outpatient services and the cost of medicines. Specified Disease products include indemnity policies for hospital confinement and convalescent care for treatment of specified diseases and "event specific" policies, which provide fixed benefits or lump sum payments upon diagnoses of certain types of internal cancer or other catastrophic diseases. Historically, the Company's Insurance Subsidiaries have also underwritten a significant amount of Medicare Supplement products. The underwriting of Medicare Supplement products was curtailed due to the relatively low margins for these products. OPERATING RESULTS Results of operations for Ascent are reported for the three months ended September 30, 2000 and 1999 and for the nine months ended September 30, 2000. Results for the nine months ended September 30, 1999 are reported on a pro forma basis as if Ascent and Westbridge adopted fresh start accounting on January 1, 1999 and operated as a single entity. (In thousands except insurance operating ratios.) Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ------------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ --------------- Ascent Ascent Ascent Proforma Ascent Premiums $ 30,831 $ 28,512 $ 89,064 $ 88,034 Other 960 506 2,455 1,055 ------------ ------------ ------------ --------------- Total insurance operating revenue 31,791 29,018 91,519 89,089 Benefits and claims 24,516 22,619 71,160 66,151 Commissions 3,515 2,944 9,463 9,427 Amortization of deferred policy acquisition costs 780 502 2,001 1,180 General and administrative expense 6,257 4,846 17,222 14,987 Taxes licenses and fees 988 1,190 3,448 3,542 ------------ ------------ ------------ --------------- Total insurance operating expenses 36,056 32,101 103,294 95,287 ------------ ------------ ------------ --------------- Insurance operating results (4,265) (3,083) (11,775) (6,198) ------------ ------------ ------------ --------------- Fee and service income 4,247 4,000 12,942 11,910 Fee and service expenses (3,631) (3,111) (10,862) (10,138) ------------ ------------ ------------ --------------- Fee and service results 616 889 2,080 1,772 ------------ ------------ ------------ --------------- Net investment income 2,626 2,222 6,970 7,117 Net realized gain (loss) on investments 28 (107) (209) (129) Interest expense on notes payable (198) (85) (435) (323) Resolution of pre-confirmation contingencies - 1,235 - 1,235 ------------ ------------ ------------ --------------- (Loss) income before income taxes (1,193) 1,071 (3,369) 3,474 Income tax benefit (expense) 406 (364) 1,146 (1,216) ------------ ------------ ------------ --------------- Net (loss) income $ (787) $ 707 $ (2,223) $ 2,258 ============ ============ ============ =============== Insurance operating ratios* Benefits and claims 79.5% 79.3% 79.9% 75.1% Commissions 11.4% 10.3% 10.6% 10.7% Amortization of deferred policy acquisition costs 2.5% 1.8% 2.2% 1.3% General and administrative expense 19.7% 16.7% 18.8% 16.8% Taxes, licenses and fees 3.2% 4.2% 3.9% 4.0%
*Ratios are calculated as a percent of premium with the exception of the general and administrative expense ratio which is calculated as a percent of total insurance operating revenue. Overview. For the third quarter of 2000, the Company incurred a loss before income taxes of $1.2 million compared to $1.1 million of income before income taxes for the corresponding 1999 period. The unfavorable variance in pre-tax income was principally attributable to a 3.0 percentage point increase in general and administrative expenses which reduced insurance operating results by $0.9 million. In addition, pre-tax income for the third quarter of 1999 included $1.2 million of non-recurring income relative to the favorable resolution of pre-confirmation contingencies. For the first nine months ended September 30, 2000, the loss before income taxes was $3.4 million, compared to a $3.5 million income for the corresponding 1999 period. The principal contributors to the decline in pre-tax income were a 4.8 percentage point increase in the benefits and claim ratio, a 2.0 percentage point increase in the general and administrative expense ratio and the non-recurring prior years' income from the favorable resolution of pre-confirmation contingencies. The following narratives discuss the principal components of insurance operating results. Premiums. Premium revenue, in thousands, for each major product line is set forth below: Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Ascent Ascent Ascent Proforma Ascent Medical Expense: First-year $ 7,158 $ 4,320 $ 20,005 $ 10,683 Renewal 10,301 9,446 27,609 31,047 ------------ ------------ ------------ ------------ Subtotal 17,459 13,766 47,614 41,730 ------------ ------------ ------------ ------------ Specified Disease: First-year 325 342 1,051 979 Renewal 6,573 6,804 19,867 21,139 ------------ ------------ ------------ ------------ Subtotal 6,898 7,146 20,918 22,118 ------------ ------------ ------------ ------------ Medicare Supplement: First-year - 10 - 32 Renewal 5,330 7,325 18,404 23,616 ------------ ------------ ------------ ------------ Subtotal 5,330 7,335 18,404 23,648 ------------ ------------ ------------ ------------ Other 1,144 265 2,128 538 ------------ ------------ ------------ ------------ Total Premium Revenue $ 30,831 $ 28,512 $ 89,064 $ 88,034 ============ ============ ============ ============
Total premiums increased by $2.3 million, or 8%, in the third quarter of 2000 as compared to the third quarter of 1999 and $1.0 million, or 1%, for the nine months of 2000 as compared to the corresponding 1999 period as new business production exceeded the expected decline in renewal premiums from older, closed blocks of business. The Company is principally marketing medical expense products. No medicare supplement products are being marketed. Benefits and Claims. Benefits and claims are comprised of (1) claims paid, (2) changes in claim reserves for claims incurred (whether or not reported), and (3) changes in future policy benefit reserves. The increase in the ratio of benefits and claims to premiums for the first nine months of 2000 compared to the corresponding 1999 period was due primarily to unfavorable paid claims experience in the Medical Expense line of business for both first-year and renewal business. The Company continues to pursue initiatives to reduce its benefits and claims to premium ratio including increased production of profitable products and active premium rate increase management. In July 2000, the Company began marketing a new medical expense policy in all significant marketing regions and discontinued selling the principal medical expense policy sold since 1998. The new medical expense policy is designed to produce a substantially lower benefits and claims to premium ratio than the Company's discontinued products. General and Administrative expense. For the third quarter of 2000 and the nine months ended September 30, 2000, general and administrative expenses increased over the comparable 1999 period due principally to non-recurring expenses of $650,000 related to the implementation in May, 2000 of the Company's new policy administration and claims data processing systems. FINANCIAL CONDITION Investments. The following table summarizes the Company's fixed maturity securities, excluding short-term investments and certificates of deposit. All of the Company's fixed maturity securities are classified as available-for-sale and are carried at estimated market value. Estimated market value represents the closing sales prices of marketable securities. Investments in the debt securities of corporations are principally in publicly traded bonds. September 30, 2000 December 31, 1999 -------------------------- -------------------------- Market Market Fixed Maturity Securities Value % Value % - ------------------------------------- -------------- --------- -------------- --------- (in thousands) (in thousands) U.S. Government and governmental agencies and authorities (except mortgage-backed) $ 10,097 9.7 $ 10,688 11.0 Finance 23,661 22.8 23,950 24.5 Public utilities 6,420 6.2 9,128 9.4 Mortgage-backed and asset-backed 17,050 16.5 7,725 7.9 States, municipalities and political subdivisions 1,905 1.8 1,867 1.9 All other corporate bonds 44,591 43.0 44,205 45.3 -------------- --------- -------------- --------- Total fixed maturity securities $ 103,724 100.0 $ 97,563 100.0 ============== ========= ============== =========
The following table indicates by rating the composition of the Company's fixed maturity securities portfolio, excluding short-term investments and certificates of deposit. Ratings are the lower of those assigned by Standard & Poor's and Moody's, when available, and are shown in the table using the Standard & Poor's rating scale. Unrated securities are assigned ratings based on the applicable NAIC's designation or the rating assigned to comparable debt outstanding of the same issuer. NAIC 1 fixed maturity securities have been classified as "A" (and above) and NAIC 2 fixed maturity securities have been classified as "BBB". September 30, 2000 December 31, 1999 -------------------------- ------------------------- Composition of Fixed Maturity Market Market Securities by Rating Value % Value % - ---------------------------------- -------------- --------- -------------- --------- (in thousands) (in thousands) Ratings - ------- Investment grade: U.S. Government and agencies $ 22,603 21.8 $ 18,414 18.9 AAA 5,828 5.6 1,865 1.9 AA 8,781 8.5 10,277 10.5 A 37,365 36.0 35,823 36.7 BBB 28,050 27.1 29,732 30.5 Non-Investment grade: BB 642 0.6 1,133 1.2 B and below 455 0.4 319 0.3 -------------- --------- ------------- --------- Total fixed maturity securities $ 103,724 100.0 $ 97,563 100.0 ============== ========= ============= =========
The scheduled contractual maturities of the Company's fixed maturity securities, excluding short-term investments and certificates of deposit, at September 30, 2000 and December 31, 1999 are shown in the table below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties. September 30, 2000 December 31, 1999 -------------------------- -------------------------- Composition of Fixed Maturity Market Market Securities by Maturity Value % Value % - -------------------------------------------- -------------- --------- -------------- --------- (in thousands) (in thousands) Scheduled Maturity Due in one year or less $ 5,842 5.6 $ 4,012 4.1 Due after one year through five years 27,980 27.0 33,311 34.2 Due after five years through ten years 28,802 27.8 26,367 27.0 Due after ten years 24,050 23.2 26,148 26.8 Mortgage-backed and asset-backed securities 17,050 16.4 7,725 7.9 -------------- --------- -------------- --------- Total fixed maturity securities $ 103,724 100.0 $ 97,563 100.0 ============== ========= ============== =========
Claim Reserves. Claim reserves are established by the Company for benefit payments which have already been incurred by the policyholder but which have not been paid by the Company. Claim reserves totaled $43.0 million at September 30, 2000 as compared to $38.8 million at December 31, 1999. The process of estimating claim reserves involves the active participation of experienced actuarial consultants with input from the underwriting, claims, and finance departments. The inherent uncertainty in estimating claim reserves is increased when significant changes occur. Examples of such changes include: (1) changes in economic conditions; (2) changes in state or federal laws and regulations, particularly insurance reform measures; (3) changes in production sources for existing lines of business; (4) writings of significant blocks of new business and (5) significant changes in claims payment patterns. As a result of the implementation of a new claims administration system in May 2000, the Company's claims payment pattern has accelerated. Because claim reserves are estimates, management monitors reserve adequacy over time, evaluating new information as it becomes available and adjusting claim reserves as necessary. Such adjustments are reflected in current operations. Management considers many factors when setting reserves including: (1) historical trends; (2) current legal interpretations of coverage and liability; (3) loss payments and pending levels of unpaid claims; and (4) product mix. Based on these considerations, management believes that adequate provision has been made for the Company's claim reserves. Actual claims paid may deviate, perhaps substantially, from such reserves. Future Policy Benefit Reserves. Future policy benefit reserves are established by the Company for benefit payments that have not been incurred but which are estimated to be incurred in the future. Future policy benefit reserves totaled $61.0 million at September 30, 2000 as compared to $57.1 million at December 31, 1999. Future policy benefit reserves are calculated according to the net level premium reserve method and are equal to the discounted present value of the Company's expected future policyholder benefits minus the discounted present value of its expected future net premiums. These present value determinations are based upon assumed fixed investment yields, the age of the insured(s) at the time of policy issuance, expected morbidity and persistency rates, and expected future policyholder benefits. In determining the morbidity, persistency rate, claim cost and other assumptions used in determining the Company's future policy benefit reserves, the Company relies primarily upon its own benefit payment history and upon information developed in conjunction with actuarial consultants and industry data. The Company's persistency rates have a direct impact upon its policy benefit reserves because the determinations for this reserve are, in part, a function of the number of policies in force and expected to remain in force to maturity. If persistency is higher or lower than expected, future policyholder benefits will also be higher or lower because of the different than expected number of policies in force, and the policy benefit reserves will be increased or decreased accordingly. In accordance with GAAP, the Company's actuarial assumptions are generally fixed, and absent materially adverse benefit experience, they are not generally adjusted. The Company monitors the adequacy of its policy benefit reserves on an ongoing basis by periodically analyzing the accuracy of its actuarial assumptions. The adequacy of the Company's policy benefit reserves may also be impacted by the development of new medicines and treatment procedures which may alter the incidence rates of illness and the treatment methods for illness and accident (such as out-patient versus in-patient care) or prolong life expectancy. Changes in coverage provided by major medical insurers or government plans may also affect the adequacy of the Company's reserves if, for example, such developments had the effect of increasing or decreasing the incidence rate and per claim costs of occurrences against which the Company insures. An increase in either the incidence rate or the per claim costs of such occurrences could result in the Company needing to post additional reserves, which could have a material adverse effect upon its business, financial condition or results of operations. LIQUIDITY, CAPITAL RESOURCES AND STATUTORY CAPITAL AND SURPLUS Ascent. Ascent's principal assets consist of the capital stock of its operating subsidiaries and invested assets. Accordingly, Ascent's sources of funds are primarily comprised of dividends and advances from non-insurance subsidiaries. The Company's principal uses of cash are for capital contributions to its Insurance Subsidiaries and general and administrative expenses. The Company funded capital contributions to its Insurance Subsidiaries of $2.0 million and $4.8 million during the three and nine months ended September 30, 2000, respectively, as compared to $3.0 million and $3.4 million for the corresponding prior year periods. The Company expects to make additional contributions to its Insurance Subsidiaries to support planned growth in 2000 and 2001. Continued adverse paid claims experience in Medical Expense products could have a material adverse impact on the Company's ability to provide sufficient capital contributions to its Insurance Subsidiaries to support planned growth and meet minimum statutory capital and surplus requirements. As of September 30, 2000, Ascent held approximately $6.9 million in unrestricted cash and invested assets as compared to $8.7 million at December 31, 1999. Dividends on Ascent's Redeemable Convertible Preferred Stock ("Preferred Stock") may be paid in cash or by issuance of additional shares of Preferred Stock, at the Company's option. Preferred Stock dividends accrued for 1999 were paid in January 2000 through the issuance of 1,873 additional shares of Preferred Stock and a $965 distribution of cash. For the three and nine months ended September 30, 2000, preferred stock dividends of $651,000 amd $1,953,000, respectively, were accrued. Insurance Subsidiaries. The primary sources of cash for the Insurance Subsidiaries are premiums, sales and maturities of invested assets and investment income while the primary uses of cash are benefits and claims, commissions, general and administrative expenses, and taxes, licenses and fees. During 2000, cash contributions of $4.8 million have been provided by Ascent to its Insurance Subsidiaries to maintain statutory surplus (see "Ascent" discussion above). The Company's Insurance Subsidiaries have recorded combined statutory losses of $10.0 million for the nine months ended September 30, 2000 as compared to $5.3 million for the corresponding 1999 period. The increased statutory losses resulted from i) higher than expected claims and benefits for Medical Expense products and ii) costs associated with increased new business production which must be expensed under statutory accounting (for GAAP accounting, such costs are deferred and amortized as related premiums are recorded). Dividends paid by the Company's insurance subsidiaries are determined by and are subject to the regulations of the insurance laws and practices of the insurance departments of their respective states of domicile. During the third quarter of 2000, NFL and FLICA redomesticated from the states of Delaware and Mississippi, respectively, to the state of Texas. As a result, NFL, FLICA, NFIC and AICT are Texas domestic companies and are subject to regulation under Texas insurance laws. The Insurance Subsidiaries are precluded from paying dividends during 2000 without prior approval of the Texas Insurance Commissioner as the companies' earned surplus is negative. On September 29, 2000, NFL transferred its 100% ownership of FLICA to Ascent through an extraordinary dividend approved by the Texas Department of Insurance. Inflation will affect claim costs on the Company's Medicare Supplement and Medical Expense products. Costs associated with a hospital stay and the amounts reimbursed by the Medicare program are each determined, in part, based on the rate of inflation. If hospital and other medical costs that are reimbursed by the Medicare program increase, claim costs on the Medicare Supplement products will increase. Similarly, as the hospital and other medical costs increase, claim costs on the Medical Expense products will increase. The Company has somewhat mitigated its exposure to inflation in incorporating certain limitations on the maximum benefits which may be paid under its policies and by filing for premium rate increases as necessary. Consolidated. The Company's consolidated net cash provided by (used for) operations totaled $1.2 million and $(5.6) million for the third quarter of 2000 and 1999, respectively. The increase in cash flow from operations was primarily attributable to an increase in accounts payable and other liabilities related to the disbursement of claim payments. Net cash provided by investing activities for the third quarter of 2000 and 1999 totaled $0.3 million and $2.9 million, respectively. Cash provided by investing activities for the third quarter of 1999 was used to fund operational activities compared to the corresponding quarter of 2000 where operations were self-funding. Net cash provided by financing activities totaled $0.9 million and $3.0 million for the third quarter of 2000 and 1999, respectively. Financing activities during the third quarter of 2000 include $1.0 million in borrowings related to the Company's receivable financing program and $0.1 million in repayments related to the term loan facility. Financing activities for the corresponding period in 1999 included $1.7 million of repayments and $1.4 million of new borrowings related to the Company's receivables financing program and $3.3 million in new borrowings under the term loan facility. In the ordinary course of business, the Company advances commissions on policies written by its general agencies and their agents. The Company finances the majority of its obligations to make commission advances through Ascent Funding, Inc. ("AFI"), an indirect wholly owned subsidiary of Ascent which has entered into a Credit Agreement (the "Credit Agreement") with LaSalle Bank N. A. ("LaSalle"). This Credit Agreement, as amended, provides AFI with a $7.5 million revolving loan facility, which expires on June 5, 2001. The proceeds of this facility are used to purchase agent advance receivables from the Insurance Subsidiaries and certain affiliated marketing companies. At September 30, 2000, approximately $6.7 million was outstanding under the Credit Agreement. Under the terms of the Credit Agreement, agent advances made by the Company within six months of the expiration date (after December 5, 2000) are not eligible for financing. LaSalle has provided the Company with a commitment letter stating that the expiration date of the Credit Agreement will be extended until June 5, 2002. AFI's obligations under the Credit Agreement are secured by liens upon substantially all of AFI's assets. Furthermore, Ascent has guaranteed AFI's obligations under the Credit Agreement, and has pledged all of the issued and outstanding shares of the capital stock of AFI, NFL, FLICA and NFIC as collateral for that guaranty (the "Guaranty Agreement"). In July 1999, Ascent Management, Inc. ("AMI") entered into a $3.3 million term loan facility with LaSalle, proceeds of which were used to fund system replacement costs. Advances under the term loan facility are secured by substantially all of AMI's assets and the Guaranty Agreement. Under the terms of the loan, principal is payable in 60 equal monthly installments beginning January 31, 2000. At September 30, 2000, approximately $2.9 million was outstanding under the term loan facility. FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. The preceding statements and certain other statements contained in Part 1, Item 1 - Financial Statements and Part 1, Item 2 - - Management's Discussion and Analysis of Results of Operation and Financial Condition, are forward-looking statements. These forward-looking statements are based on the intent, belief or current expectations of the Company and members of its senior management team. While the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance, and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Important factors known to management that could cause actual results to differ materially from those contemplated by the forward-looking statements in this Report include, but are not limited to: |X| the effect of economic and market conditions |X| further adverse developments with respect to the Company's liquidity position or operations of the Company's various businesses |X| actions that may be taken by insurance regulatory authorities |X| adverse developments in the timing or results of the Company's current strategic business plan |X| the difficulty in controlling health care costs and integrating new operations |X| the ability of the Company to realize anticipated general and administrative expense savings and overhead reductions from system replacement initiatives |X| the ability of management to return the Company's operations to profitability, and |X| the possible negative effects of prospective health care reform. Additional factors that would cause actual results to differ materially from those contemplated within this report can also be found in the Company's reports to the Securities and Exchange Commission ("SEC") on Form 10-K for the Year Ended December 31, 1999 and Form 10-Q for the Three Months Ended June 30, 2000. Subsequent written or oral statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this Report and those in the Company's reports previously filed with the SEC. Copies of these filings may be obtained by contacting the Company or the SEC. ASCENT ASSURANCE, INC. PART II ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following exhibits are filed herewith. Exhibits incorporated by reference are indicated in the parentheses following the description. 2.1 First Amended Plan of Reorganization of Westbridge Capital Corp. Under Chapter 11 of the Bankruptcy Code, dated as of October 30, 1998 (incorporated by reference to Exhibit 2 to the Company's Form 8-K filed on September 21, 1998). 2.2 Amended Disclosure Schedule Accompanying the First Amended Plan of Reorganization of Westbridge Capital Corp. under Chapter 11 of the Bankruptcy Code (incorporated by reference to Exhibit 2 to the Company's Form 8-K filed on September 21, 1998). 2.3 Findings of Fact, Conclusions of Law, and Order confirming the First Amended Plan of Reorganization of Westbridge Capital Corp. dated October 30, 1998, as modified (incorporated by reference to Exhibit 2 to the Company's Form 8-K filed on December 29, 1998). 3.1 Second Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on March 24, 1999 (incorporated by reference to Exhibit 3.1 to the Company's Form 8-A filed on March 25, 1999). 3.2 Amended and Restated By-Laws of the Company, effective as of March 24, 1999 (incorporated by reference to Exhibit 3.2 to the Company's Form 8-A filed on March 25, 1999). 3.3 Amendment to the By-Laws of the Company, effective as of April 5, 2000. 4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Form 8-A filed on March 25, 1999). 4.2 Form of Warrant Certificate, included in the Form of Warrant Agreement (incorporated by reference to Exhibit 4.2 to the Company's Form 8-A filed on March 25, 1999). 4.3 Form of Warrant Agreement dated as of March 24, 1999, between the Company and LaSalle National Bank, as warrant agent (incorporated by reference to Exhibit 4.3 to the Company's Form 8-A filed on March 25, 1999). 4.4 Form of Preferred Stock Certificate (incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). 10.1 First Amendment to Guaranty Agreement dated as of March 24, 1999 between Westbridge Capital Corp. in favor of LaSalle National Bank (incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). 10.2 Registration Rights Agreement dated as of March 24, 1999 between the Company and Special Situations Holdings, Inc. - Westbridge (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). 10.3 1999 Stock Option Plan dated as of March 24, 1999 (incorporated by reference to the Company's Schedule 14A filed with the Commission on April 30, 1999) 10.4 Installment Note Agreement dated July 20, 1999 between Ascent Management, Inc. and LaSalle Bank National Association (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 10.5 Second Amendment to Credit Agreement dated August 12, 1999 between Ascent Funding, Inc. and LaSalle Bank National Association (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 10.6 Second Amendment to Guaranty Agreement dated July 20, 1999 between Ascent Assurance, Inc. and LaSalle Bank National Association (incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 10.7 Third Amendment to Guaranty Agreement dated April 17, 2000 between Ascent Assurance, Inc. and LaSalle Bank National Association (incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000). 10.8 Extension of Employment Agreement, dated as of September 15, 1998, by and among the Company, Westbridge Management Corp. and Mr. Patrick J. Mitchell (incorporated by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000). 10.9 Extension of Employment Agreement, dated as of September 15, 1998, by and among the Company, Westbridge Management Corp. and Mr. Patrick H. O'Neill (incorporated by reference to Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000). 10.10 Fourth Amendment to Guaranty Agreement dated August 10, 2000 between Ascent Assurance, Inc. and LaSalle Bank National Association. 27.1 Financial Data Schedule (included in electronic filing only). (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended September 30, 2000. Form 10-Q Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ASCENT ASSURANCE, INC. /s/ Cynthia B. Koenig -------------------------------------- Cynthia B. Koenig Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Dated at Fort Worth, Texas November 20, 2000 EX-10.10 2 exh10_10.txt FOURTH AMENDMENT TO GUARANTY AGREEMENT FOURTH AMENDMENT TO GUARANTY AGREEMENT AND WAIVER OF CERTAIN EVENTS OF DEFAULT UNDER CREDIT AGREEMENT This Fourth Amendment to Guaranty Agreement and Waiver of Certain Events of Default under Credit Agreement (the "Amendment") is made as of this 10th day of August, 2000 by and among ASCENT ASSURANCE, INC. (the "Guarantor") and LASALLE BANK NATIONAL ASSOCIATION (the "Bank"). W I T N E S S E T H WHEREAS, the Guarantor delivered a Guaranty Agreement in favor of the Bank, dated as of June 6, 1997, as amended by that certain First Amendment to Guaranty Agreement, dated as of March 24, 1999, as further amended by that certain Second Amendment to Guaranty Agreement, dated as of July 21, 1999, as further amended by that certain Third Amendment to Guaranty Agreement, dated as of April 17, 2000 (collectively, the "Guaranty Agreement"); WHEREAS, the Guarantor delivered the Guaranty pursuant to that certain Credit Agreement, dated as of June 6, 1997 between Ascent Funding, Inc. (formerly Westbridge Funding Corporation) and the Bank (the "Credit Agreement"); and WHEREAS, the parties desire to further amend the Guaranty Agreement and waive certain covenant defaults and events of default under the Guaranty and Credit Agreement, as more fully set forth herein. NOW, THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the adequacy of which is hereby acknowledged, and subject to the terms and conditions hereof, the parties hereto agree as follows: SECTION 1. DEFINITIONS. Unless otherwise defined herein, all capitalized ------------ terms shall have the meaning given to them in the Guaranty. Section 2. WAIVER OF CERTAIN COVENANT DEFAULTS UNDER GUARANTY AND EVENTS OF DEFAULT UNDER CREDIT AGREEMENT. (i) As of June 30, 2000 each of the Guarantor, Freedom Life Insurance Company of America ("FLICA") and National Foundation Life Insurance Company ("NFL") is in Default of Negative Covenants Section 6.8 Minimum Statutory Surplus of Insurance Subsidiaries of the Guaranty. Such covenant default under the Guaranty constitutes an Event of Default under Section 8.1 (e) of the Credit Agreement. The Bank hereby waives (i) such covenant default under the Guaranty and (ii) such Event of Default under the Credit Agreement or the Installment Note, dated July 21, 1999 from Ascent Management, Inc. in favor of the Bank and any and all documents executed in connection therewith (collectively, the "AMI Agreements"); provided, however, that such waivers shall not constitute a future waiver of any Default or Event of Default under the Guaranty or under such Event of Default section of the Credit Agreement or the AMI Agreements or of any other covenant under the Guaranty, the Credit Agreement or the AMI Agreements. SECTION 3. AMENDMENTS TO GUARANTY AGREEMENT. ---------- -- -------- ---------- 3.1 Section 6.8 of the Guaranty is hereby deleted in its entirety and replaced by inserting the following in its stead: "Section 6.8 Minimum Statutory Surplus of Insurance Subsidiaries. As of the end of any fiscal quarter, permit the Statutory Surplus of any Insurance Subsidiary to be less than the Minimum Statutory Surplus Requirement for such Insurance Subsidiary as specified in Schedule 6.8 for the applicable fiscal year; provided, however, that for each of NFL and FLICA, the Minimum Statutory Surplus Requirement shall increase by 50% of the sum of positive Statutory Net Income for each fiscal quarter beginning with the fiscal quarter ending September 30, 2000." SECTION 4. AMENDMENTS TO SCHEDULE TO GUARANTY AGREEMENT. ---------- -- -------- -- -------- ---------- 4.1 Schedule 6.8 of the Guaranty is hereby deleted in its entirety and replaced by inserting the following in its stead: "Minimum Statutory Surplus Requirements" (in Million $) Insurance Subsidiary Minimum Statutory Surplus Requirement - --------------------------------- -------------------------------------------- NFL $10.2 - --------------------------------- -------------------------------------------- NFIC $1.4 - --------------------------------- -------------------------------------------- AIC $1.4 - --------------------------------- -------------------------------------------- FLICA $5.0 - --------------------------------- -------------------------------------------- SECTION 5. CONDITIONS PRECEDENT. The effectiveness of this Amendment is ---------- ---------- expressly conditioned upon satisfaction of the following conditions precedent: 5.1 The Bank shall have received a $5,000 waiver and amendment fee due on the date hereof. 5.2 The Bank shall have received copies of this Amendment duly executed by the Guarantor. 5.3 The Bank shall have received such other documents, certificates and assurances as it shall reasonably request, all of which have been delivered on or prior to the date hereof. SECTION 6. REAFFIRMATION OF THE GUARANTOR. The Guarantor hereby ratifies and reaffirms that certain Guaranty Agreement and each of the terms and provisions contained therein, and agrees that the Guaranty Agreement continues in full force and effect following the execution and delivery of this Amendment. The Guarantor represents and warrants to the Bank that the Guaranty Agreement was, on the date of the execution and delivery thereof, and continues to be, the valid and binding obligation of the Guarantor enforceable in accordance with its terms and that the Guarantor has no claims or defenses to the enforcement of the rights and remedies of the Bank under the Guaranty Agreement. SECTION 7. COUNTERPARTS. This Amendment may be executed in two or more ------------- counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document. IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the day and year specified above. ASCENT ASSURANCE, INC. By: /s/ Patrick J. Mitchell ----------------------------- Name: Patrick J. Mitchell Title: Chairman of the Board and Chief Executive Officer LASALLE BANK NATIONAL ASSOCIATION By: /s/ Linda A. Whittaker ---------------------------- Name: Linda A. Whittaker Title: Commercial Banking Officer ACKNOWLEDGMENT AND AGREEMENT OF BORROWER The undersigned, ASCENT FUNDING, INC. hereby represents and warrants to the Bank that (i) the warranties set forth in Article 5 of the Credit Agreement are true and correct on and as of the date hereof, except to the extent (a) that any such warranties relate to a specific date, or (b) changes thereto are a result of transactions for which the Bank has granted its consent; (ii) the Borrower is on the date hereof in compliance with all the terms and provisions set forth in the Credit Agreement; and (iii) upon execution hereof no Event of Default has occurred and is continuing or has not previously or simultaneously with the execution hereof been waived. IN WITNESS WHEREOF, this Acknowledgment and Agreement of Borrower has been duly authorized as of this 10th day of August, 2000. ASCENT FUNDING, INC. By: /s/ Patrick J. Mitchell --------------------------------- Name: Patrick J. Mitchell Title: Chairman of the Board and President EX-27 3 r0900fds.frm FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
7 1,000 U.S.DOLLARS 9-MOS Dec-31-2000 Sep-30-2000 1 103,724 0 0 1,309 92 0 116,953 6,063 0 25,286 179,346 103,951 0 0 0 9,651 25,130 0 65 20,198 179,346 89,064 6,970 (209) 15,397 71,160 2,001 22,614 (3,369) (1,146) (2,223) 0 0 0 (4,176) (0.64) (0.64) 0 0 0 0 0 0 0
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