-----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, IHCxq0OfukDcQ16TY6PMCp32b9NLLyNy7xHG5ie+HKocEFpJ/LiMKDLcJdJe2HSZ nkxxIiTrSUjh0/ERESzvTw== 0000929624-99-001917.txt : 19991111 0000929624-99-001917.hdr.sgml : 19991111 ACCESSION NUMBER: 0000929624-99-001917 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANCHOR PACIFIC UNDERWRITERS INC CENTRAL INDEX KEY: 0000317781 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572] IRS NUMBER: 941687187 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10058 FILM NUMBER: 99746126 BUSINESS ADDRESS: STREET 1: 1800 SUTTER ST STREET 2: STE 400 CITY: CONCORD STATE: CA ZIP: 94520 BUSINESS PHONE: 5106827707 MAIL ADDRESS: STREET 1: 1800 SUTTER ST STE 400 CITY: CONCORD STATE: CA ZIP: 94520 FORMER COMPANY: FORMER CONFORMED NAME: SYSTEM INDUSTRIES INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 1999 Commission File Number: 0-9628 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from [ ] to [ ] ANCHOR PACIFIC UNDERWRITERS, INC. (Exact name of registrant as specified in its charter) Delaware 94-1687187 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1800 Sutter Street, Suite 400 94520 Concord, California (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (925) 682-7707 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, $.02 par value 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 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. [X]Yes [ ] No As of September 30, 1999, the Registrant had 4,710,055 shares of common stock outstanding. This document is comprised of 60 pages ================================================================================ ANCHOR PACIFIC UNDERWRITERS, INC. INDEX
Part I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets, September 30, 1999 (unaudited) and December 31, 1998............................................ 1 Consolidated Statements of Operations (unaudited) for the nine months and quarters ended September 30, 1999 and 1998....... 3 Consolidated Statements of Shareholders' Equity (Deficit) for the nine months ended September 30, 1999 (unaudited) and year ended December 31, 1998................................. 4 Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 1999 and 1998.................... 5 Notes to Consolidated Financial Statements....................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 9 Part II. OTHER INFORMATION Item 1. Legal Proceedings................................................ 17 Item 2. Changes in Securities............................................ 17 Item 3. Defaults Upon Senior Securities.................................. 17 Item 4. Submission of Matters to a Vote of Security Holders.............. 17 Item 5. Other Information................................................ 17 Item 6. Exhibits and Reports on Form 8-K................................. 17
PART I - FINANCIAL INFORMATION Anchor Pacific Underwriters, Inc. and Subsidiaries Consolidated Balance Sheets
September 30, December 31, 1999 1998 --------------- -------------- (unaudited) Assets Current Assets: Cash and cash equivalents - corporate funds $ 140,423 $ 138,139 Cash and cash equivalents - third-party administration fiduciary funds 3,606,657 3,517,772 Realizable value of net assets sold - 2,054,995 Accounts receivable (less allowance for doubtful accounts of $41,952 in 1999 and 1998, respectively) 530,550 527,827 Prepaid expenses and other current assets 174,664 191,749 --------------- --------------- Total current assets 4,452,294 6,430,482 --------------- --------------- Property and equipment 2,865,548 2,561,111 Accumulated depreciation and amortization (2,190,459) (2,010,633) --------------- --------------- 675,089 550,478 --------------- --------------- Other assets: Intangible assets, net 572,517 593,933 Other 44,585 80,431 --------------- --------------- 617,102 674,364 --------------- --------------- Total assets $ 5,744,485 $ 7,655,324 =============== ===============
1 Anchor Pacific Underwriters, Inc. and Subsidiaries Consolidated Balance Sheets (continued)
September 30, December 31, 1999 1998 ---------------- ---------------- (unaudited) Liabilities and Shareholders' Equity (Deficit) Current Liabilities: Cash and cash equivalents - third-party administration fiduciary funds $ 3,606,657 $ 3,517,772 Accounts payable 1,209,748 619,798 Accrued expenses 221,134 613,256 Short-term debt - 200,000 Current portion of long-term debt 338,000 1,242,950 Current portion of long-term liabilities 369,246 451,068 --------------- --------------- Total current liabilities 5,744,785 6,644,844 --------------- --------------- Long-term liabilities 414,449 453,226 --------------- --------------- Long-term debt, including $315,000 and $480,000 in 1999 and 1998, respectively, owed to related parties 1,127,486 858,342 --------------- --------------- Shareholders' equity (deficit): Preferred stock - $.02 par value; 2,000,000 shares authorized; none issued and outstanding Common stock - $.02 par value; 16,000,000 shares authorized; 4,710,055 shares issued as of 9/30/99 and 4,710,057 as of 12/31/98 94,201 94,201 Additional paid-in capital 4,232,265 4,232,265 Accumulated deficit (5,868,701) (4,627,554) --------------- --------------- Total shareholders' equity (deficit) (1,542,235) (301,088) --------------- --------------- Total liabilities and shareholders' equity (deficit) $ 5,744,485 $ 7,655,324 =============== ===============
See accompanying notes. 2 Anchor Pacific Underwriters, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited)
Nine Months Quarters Ended September 30, Ended September 30, ---------------------------------------- --------------------------------------- 1999 1998 1999 1998 Revenues: Administrative fees and other income $ 7,478,600 $ 9,470,283 $ 2,454,163 $ 2,943,670 Interest Income 13,087 7,788 4,131 1,740 ---------------- --------------- ---------------- ---------------- Total revenue 7,491,687 9,478,071 2,458,294 2,945,410 Operating expenses: Salaries, commissions and employee benefits 5,460,479 6,021,155 1,733,006 1,940,734 Selling, general and administrative expenses 3,100,945 3,380,511 991,662 1,108,085 ---------------- ---------------- ---------------- ---------------- Total operating expenses 8,561,424 9,401,666 2,724,668 3,048,819 ---------------- ---------------- ---------------- ---------------- (1,069,737) 76,405 (266,374) (103,409) Other income (expense): Amortization of tangible assets (47,835) (33,801) (14,775) (11,267) Interest (118,181) (162,843) (42,714) (47,459) Other (1,024) 15,406 (2,375) 2,227 ---------------- ---------------- ---------------- ---------------- Total other income (expense) (167,040) (181,238) (59,864) (56,499) ---------------- ---------------- ---------------- ---------------- Loss before income taxes (1,236,777) (104,833) (326,238) (159,908) Benefit (provision) for income taxes 4,370 6,220 (500) (51) ---------------- ---------------- ---------------- ---------------- Loss from continuing operations (1,241,147) (111,053) (325,738) (159,857) ---------------- ---------------- ---------------- ---------------- Discontinued operations: Loss from discontinued operations, net of income taxes - (2,542) - (82,197) ---------------- ---------------- ---------------- ---------------- Loss from discontinued operations - (2,542) - (82,197) ---------------- ---------------- ---------------- ---------------- Net loss $ (1,241,147) $ (113,595) $ (325,738) $ (242,054) ================ ================ ================ ================ Net loss per share: Loss from continuing operations $ (0.26) $ (0.02) $ (0.07) $ (0.03) Loss from discontinued operations - - - (0.02) ================ ================ ================ ================ Basic and diluted loss per common share $ (0.26) $ (0.02) $ (0.07) $ (0.05) ================ ================ ================ ================ Weighted average number of common shares outstanding 4,710,055 4,708,137 4,710,055 4,710,057 ================ ================ ================ ================
See accompanying notes 3 Anchor Pacific Underwriters, Inc. Consolidated Statements of Shareholders' Equity (Deficit)
Additional Common Stock Paid-In Accumulated Shares Amount Capital (Deficit) Total --------------------------------------------------------------------------------------- Balance at December 31, 1997 4,690,839 $ 93,817 $ 4,215,649 $ (3,852,224) $ 457,242 Stock issued for services rendered 18,888 378 16,622 - 17,000 Canceled stock - Fractional shares 330 6 (6) - - Net loss - - - (775,330) (775,330) --------------------------------------------------------------------------------------- Balance at December 31, 1998 4,710,057 $ 94,201 $ 4,232,265 $ (4,627,554) $ (301,088) Canceled stock - Fractional shares (2) - - - - Net Loss - - - (1,241,147) (1,241,147) --------------------------------------------------------------------------------------- Balance at September 30, 1999 (Unaudited) 4,710,055 $ 94,201 $ 4,232,265 $ (5,868,701) $ (1,542,235) =======================================================================================
See accompanying notes 4 Anchor Pacific Underwriters, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, --------------------------------------------- 1999 1998 Continuing operations activities: Net income (loss) $ (1,241,147) $ 187,146 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 179,826 211,453 Amortization of goodwill, other intangibles and organization expenses 21,416 31,820 Changes in operating assets and liabilities: Accounts receivable (2,723) 69,512 Prepaid expenses and other current assets 17,082 135,735 Other assets 35,846 (384,560) Accounts payable and accrued expenses 87,825 (19,858) ----------------- ----------------- Net cash provided by (used in) operating activities (901,875) 231,248 ----------------- ----------------- Investment activities: Notes Receivable, net - 694 Purchases of property and equipment (304,437) (242,739) Net proceeds from sale of assets 2,165,003 - ----------------- ----------------- Net cash provided by (used in) investing activities 1,860,566 (242,045) ----------------- ----------------- Financing activities: Common stock issued: Private offering - 15,297 Warrants - 1,702 Borrowings on long-term debt 225,000 - Repayment on long-term debt and liabilities (1,181,407) (67,240) ----------------- ----------------- Net cash (used in) financing activities (956,407) (50,241) ----------------- ----------------- Net increase (decrease) in cash 2,284 (61,038) Cash and cash equivalents - corporate funds at beginning of period 138,139 73,409 ----------------- ----------------- Cash and cash equivalents - corporate funds at end of period $ 140,423 $ 12,371 ================= ================= Supplemental cash flow information: Cash paid during the period for: Interest $ 118,181 $ 162,843 ================= ================= Income taxes $ 4,370 $ 6,220 ================= =================
See accompanying notes 5 ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) September 30, 1999 NOTE 1 - BASIS OF PRESENTATION - ------------------------------ The accompanying unaudited consolidated financial statements of Anchor Pacific Underwriters, Inc. and its subsidiaries ("Anchor") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 1999, are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in Anchor's Annual Report on Form 10-K for the year ended December 31, 1998. Reclassifications - ----------------- Prior years' balances have been reclassified to conform with the current year presentation of discontinued operations. Recapitalization and Restatement - -------------------------------- On January 6, 1995, Anchor merged with System Industries, Inc. ("System"), previously a dormant, publicly traded shell corporation. As a result of the merger, Anchor became a public company. For accounting purposes, the merger has been treated as a recapitalization of Anchor with Anchor as the acquirer. Upon consummation of this merger, shareholders and certain creditors of System each received one share of Anchor common stock and a one year warrant to purchase one share of Anchor common stock at a price of $3.00 for every 42.3291 shares of issued and outstanding System common stock. NOTE 2 - DISCONTINUED OPERATIONS - -------------------------------- Since its inception, Anchor has expanded its insurance and third-party administration service capabilities through internal growth as well as a series of acquisitions. From 1986 through 1990, Anchor, through a wholly- owned subsidiary, Harden & Company Insurance Services, Inc. ("Harden"), primarily focused on providing administration services for group insurance benefit plans. In 1990, Anchor began to diversify its business by providing property, casualty and workers' compensation insurance products and services, as well as offering market studies and program analysis for certain non-profit associations who had endorsed Anchor's products. During the period from 1990 through 1996, Anchor further expanded its property and casualty business by acquiring certain assets, including insurance brokerage accounts. In 1994 Anchor acquired a property and casualty insurance brokerage company, Putnam, Knudsen & Wieking, Inc. ("PKW"). Shortly thereafter it consolidated all of its property and casualty insurance brokerage business under PKW. After evaluating trends in the insurance industry, in mid-1998 the Board of Directors of Anchor decided to sell its property and casualty business and to focus on its third-party administration business. Anchor then engaged an independent investment banker to solicit possible purchasers. After reviewing seven acquisition proposals, Anchor sold substantially all the assets of PKW to an unrelated third party for approximately $2,250,000 in cash, effective December 31, 1998. The proceeds derived from the asset sale were largely used to reduce debt and to make additional financial resources available for working capital needs and third-party administration opportunities. NOTE 3 - CONTINGENCIES - ---------------------- Anchor is subject to certain legal proceedings and claims arising in the ordinary course of its business. It is management's opinion that the resolution of these claims will not have a material effect on Anchor's consolidated financial position. 6 NOTE 4 - 10% CONVERTIBLE SUBORDINATED DEBENTURES - ------------------------------------------------ In 1995, Anchor issued $370,000 of 10% Convertible Subordinated Debentures (the "Debentures"). Subsequently, investors holding $270,000 of the Debentures, including seven members of the Board of Directors, converted their debentures into 200,000 shares of Anchor's common stock at $1.35 per share. These conversions reduced Anchor's outstanding indebtedness by $270,000 and, in turn, increased shareholders' equity by $270,000. As of September 30, 1999, $40,000 of the Debentures had been repaid in full, and $60,000 remained outstanding. NOTE 5 - SUBORDINATED BRIDGE NOTES AND WARRANT - ---------------------------------------------- During 1996, Anchor raised $225,000 from five members of the Board of Directors and other qualified investors through the issuance of 10% Subordinated Bridge Notes with a Warrant to Purchase Shares of Anchor Common Stock ("Bridge Notes"). The basic terms of the Bridge Notes were: (a) 10% interest per annum, paid in arrears; (b) one year term; (c) for every $10,000 of principal invested, the purchaser received a five year warrant to purchase 1,000 shares of Anchor common stock at a purchase price of $1.75 per share; (d) "piggyback" registration rights for three years; and (e) subordination provisions that subordinate the Bridge Notes to Anchor's "Senior Debt" (as defined in the Bridge Notes). In February 1997, Anchor offered the purchasers of said Bridge Notes an opportunity to either change the terms of the warrants underlying the Bridge Notes or to participate in the 1997 Offering (discussed below), by exchanging the Bridge Notes. The basic terms of the two alternatives were: (a) in lieu of receiving a five year warrant to purchase 1,000 shares of Anchor common stock at a purchase price of $1.75 per share, for every $10,000 in principal invested, the purchaser would receive a five year warrant to purchase 2,000 shares of Anchor common stock at a purchase price of $1.35 per share; or (b) be allowed to participate in the 1997 Offering by exchanging the Bridge Notes and receiving in return (i) interest at the rate of 10% per annum up to the date of conversion; (ii) Anchor common stock in place of the Bridge Notes at a conversion price equal to $0.90 per share; and (iii) a five year warrant, equal to the number of shares issued in place of the Bridge Notes, with the right to purchase Anchor's common stock at a purchase price of $0.90 per share. Purchasers representing $180,000 of said Bridge Notes chose alternative (a) above, and the remaining $45,000 chose alternative (b) above. Subsequently, certain purchasers agreed to extend the term of the Bridge Notes and as of September 30, 1999, $80,000 of the Bridge Notes remained outstanding. NOTE 6 - 1997 OFFERING - ---------------------- During 1997, Anchor raised $305,000 from seven members of the Board of Directors and other qualified investors through a private offering of Anchor common stock along with warrants to acquire shares of Anchor common stock (the "1997 Offering"). Anchor utilized a substantial portion of the proceeds from the 1997 Offering to support current and future working capital needs of Anchor. The basic terms of the 1997 Offering were: (a) up to 555,000 shares of Anchor common stock were available at a purchase price of $0.90 per share; (b) five year warrants to acquire one share of Anchor common stock for each share of Anchor common stock purchased at an exercise price of $0.90 per share; (c) "piggyback" registration rights for three years; and (d) anti-dilution protection for stock splits, stock dividends, recapitalizations and reorganizations. NOTE 7 - 10% CONVERTIBLE SUBORDINATED DEBENTURES, SERIES B - ---------------------------------------------------------- At the end of the third quarter 1998, Anchor commenced raising additional funds from members of the Board of Directors and other qualified investors by offering 10% Convertible Subordinated Debentures, Series B (the "Series B Debentures"). At the close of the Series B Debentures offering on January 25, 1999, Anchor had raised $495,000, with $200,000 provided by its primary bank lender and the remaining $295,000 from five members of the Board of Directors and other qualified investors. Anchor utilized a substantial portion of the proceeds from the Series B Debentures to support current working capital needs. The basic terms of the Series B Debentures were: (a) 10% interest, payable semi-annually in arrears; (b) two year maturity; (c) conversion price of $0.50 per share; (d) "Piggyback" registration rights for three years; (e) for each $5,000 of Series B Debentures acquired, an investor received a five year warrant to acquire 2,000 shares of Anchor common stock at an exercise price of $0.50 per share; and (f) subordination provisions that subordinated the Series B Debentures to Anchor's "Senior Debt" (as defined in the Series B Debentures). The Series B Debentures contained a provision that allowed Anchor to redeem all or a portion of their Series B Debentures, at par, plus any outstanding interest, in the event Anchor sold PKW for an amount in excess of $2 million. Anchor sold PKW for $2,250,000 cash, effective December 31, 1998. As of 7 September 30, 1999, Anchor has repurchased $230,000 of the Series B Debentures including $200,000 repurchased from its primary lender. NOTE 8 - 10% CONVERTIBLE SUBORDINATED DEBENTURES, SERIES C - ---------------------------------------------------------- During the first nine months of 1999, Anchor raised $179,000 from members of the Board of Directors and other qualified investors by offering 10% Convertible Subordinated Debentures, Series C (the "Series C Debentures"). Anchor utilized a substantial portion of the proceeds from the Series C Debentures to support current working capital needs. The basic terms of the Series C Debentures were: (a) 10% interest, payable semi-annually in arrears; (b) two year maturity; (c) conversion price of $0.60 per share; (d) "Piggyback" registration rights for three years; (e) for each $5,000 of Series C Debentures acquired, an investor received a five year warrant to acquire 2,000 shares of Anchor common stock at an exercise price of $0.60 per share; and (f) subordination provisions that subordinated the Series C Debentures to Anchor's "Senior Debt" (as defined in the Series C Debentures). In September 1999, Anchor offered the investors of said Series C Debentures the opportunity to either remain as investors in the Series C Debentures or to convert their Series C Debentures into the Series D Debentures (discussed below). The basic terms of the two alternatives were: (a) remain as an investor of the Series C Debentures; or (b) exchange the Series C Debentures and Warrants and receive in return (i) Series D Debentures at a conversion price of $0.50 per share; and (ii) for each $5,000 of debentures originally purchased a Warrant to acquire 3,000 shares of Anchor's common stock at a purchase price of $0.50 per share. All of the Series C Debentures investors chose alternative (b) above. NOTE 9 - 10% CONVERTIBLE SUBORDINATED DEBENTURES, SERIES D - ---------------------------------------------------------- In September 1999, Anchor commenced raising additional funds from members of the Board of Directors and other qualified investors by offering 10% Convertible Subordinated Debentures, Series D (the "Series D Debentures"). As of October 7, 1999, Anchor had received $244,000 from said investors and had oral commitments for an additional $50,000 in the Series D Debentures. Anchor intends to utilize a substantial portion of the proceeds from the Series D Debentures to support current working capital needs. The basic terms of the Series D Debentures are: (a) 10% interest, payable semi-annually in arrears; (b) two year maturity; (c) conversion price of $0.50 per share; (d) "Piggyback" registration rights for three years; (e) for each $5,000 of Series D Debentures acquired, an investor receives a five year warrant to acquire 3,000 shares of Anchor common stock at an exercise price of $0.50 per share; and (f) subordination provisions that subordinates the Series D Debentures to Anchor's "Senior Debt" (as defined in the Series D Debentures). NOTE 10 - COMMITMENTS - --------------------- On September 30, 1997, Anchor obtained a $1,600,000 bank loan. The basic terms and conditions of this loan were: (a) monthly interest payments equal to the bank's prime rate, plus 2.5%; (b) five year term; (c) monthly principal payments in installments of $26,666 (Notwithstanding the foregoing payment provisions, 75% of Anchor's monthly EBITDA were to be applied to principal payments to the extent such percentage of monthly EBITDA was required to make the scheduled payment of principal. To the extent that 75% of monthly EBITDA fell short of the required principal payment, the difference was to be added to the final payment.); and (d) a five year warrant to acquire 95,000 shares of Anchor common stock at a purchase price of $1.75 per share. The proceeds of the loan were used to retire outstanding credit facilities with another bank. On December 22, 1997, the bank that provided Anchor with the $1,600,000 term loan also provided Anchor with a $250,000 loan to support current working capital needs of Anchor in connection with Harden's expansion in Portland, Oregon. On March 9, 1998, a term loan in the amount of $1,821,890 was entered into between Anchor and the bank combining both the $1,600,000 term loan and the $250,000 loan. The basic terms of this term loan were: (a) monthly interest payments equal to bank's prime rate, plus 2.5%; (b) maturity date of October 5, 2002; and (c) monthly principal payments in installments of $33,125 beginning April 5, 1998. All other terms and conditions contained in the term loan dated September 30, 1997, including all amendments thereto and replacements therefor, remained in place. 8 On June 2, 1998, a new term loan in the amount of $1,741,841 was entered into between Anchor and the bank which replaced the $1,821,890 term loan. The basic terms of this new term loan are: (a) monthly interest payments equal to bank's prime rate, plus 2.5%; (b) a maturity date of October 5, 2002; and (c) monthly principal payments in installments of $16,500 beginning on June 5, 1998. The provision which required 75% of Anchor's monthly EBITDA to be applied to principal payments was deleted. All other terms and conditions of the term loan dated September 30, 1997, including all amendments thereto and replacements therefor, remain operative. Effective December 31, 1998, based on a strategic decision to focus on its third-party administration business, a purchase agreement was entered into between PKW, Anchor and Talbot Agency of California, Inc. ("Talbot") whereby Talbot acquired certain of PKW assets, including insurance brokerage accounts. Consideration for said purchase was $2,250,000 cash, which was paid at the time of the closing on January 15, 1999, based on a purchase price of 4.5 times EBITDA. The proceeds of the sale have been used by Anchor to reduce debt and to direct additional resources to third-party administration opportunities. On April 29, 1999, Anchor obtained a new $250,000 bank loan from its primary lender. The basic terms and conditions of this loan were: (a) monthly interest payments equal to the bank's prime rate, plus 2.5%; (b) five month term; (c) principal plus all accrued unpaid interest due at maturity, September 30, 1999; and (d) a five year warrant to acquire 100,000 shares of Anchor common stock at a purchase price of $0.60 per share. The proceeds of the loan were used to support the current working capital needs of Anchor. On September 30, 1999, a new term loan in the amount of $931,485.75 was entered into between Anchor and the bank combining both the balance owing on the $1,741,841 term loan and the $250,000 bank loan. The basic terms of this new term loan are: (a) monthly interest payments equal to bank's prime rate, plus 2.5%; (b) a maturity date of October 7, 2002; and (c) monthly principal payments in installments of $16,500 beginning on November 7, 1999. All other terms and conditions contained in the term loan dated September 30, 1997, (except for the provision which required 75% of Anchor's monthly EBITDA to be applied to principal payments which had been deleted earlier) including all amendments thereto and replacements therefor, remain operative. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Background Anchor was organized in 1986 as a California general partnership for the specific purpose of acquiring Harden & Company Insurance Services, Inc., a third-party employee benefits administrator ("Harden"), from Alex Brown Financial Group. Anchor was reorganized as a private California corporation in March 1987, and reincorporated in January 1995, as a Delaware corporation in connection with a merger with System Industries, Inc. ("System"). As a result of the merger, Anchor became a public company. Since its inception, Anchor has expanded its insurance and third-party administration service capabilities through internal growth as well as a series of acquisitions. As part of its expansion strategy in 1994, Anchor acquired Benefit Resources, Inc. ("BRI") a third-party employee benefits administration business located in Scottsdale, Arizona. In 1998, Anchor caused BRI to change its name to Harden & Company of Arizona, (`Harden-AZ"). In 1995, certain third- party administration accounts were acquired by Harden-CA from Dutcher Insurance Agency, Inc. ("Dutcher"), located in Stockton, California. In July 1997, Harden-CA took over a third-party administration business, located in Los Angeles, California, that was previously serviced by an unrelated third party. As a result of declining revenues on the Los Angeles business due to carrier rate increases, the Los Angeles office was closed at the end of February 1999, with the remaining business now being serviced from the Concord, California office. In connection with the closure of the Los Angles office, approximately 15 employees who worked in that office were laid-off. Effective January 1, 1998, Anchor and Harden-CA entered into an agreement to acquire the third-party administration business of Pacific Heritage Administrators ("PHA"), a firm based in Portland, Oregon. This contract allowed Anchor to expand its marketing and servicing territory in Oregon, Washington, Idaho and Nevada and substantially enhanced Anchor's revenues in 1998. In conjunction with a new marketing strategy, in June 1998 Anchor reorganized the company's third-party administration services division. In the new organizational structure, "Harden Group" was established as the consolidated name for the management and marketing of third-party administration services. Harden Group 9 includes: Harden & Company Insurance Services, Inc. ("Harden-CA"); Harden & Company of Arizona ("Harden-AZ"); Pacific Heritage Administrators ("PHA") a division of Harden-CA; and Pacific Heritage Administrators of Nevada, Inc. ("PHA-NV"). Under Harden Group identity, the current third-party administration operations of Anchor continue to function as before in their respective territories. Currently, Harden Group includes four third-party administration operations providing services to clients throughout the Western States from six offices located in Concord and Fresno, California; Scottsdale, Arizona; Portland, Oregon; and Las Vegas and Reno, Nevada. Anchor continues to look for opportunities to expand its third-party administration services in the Western United States. General Continuing Operations Third-Party Claims Administration and Employee Benefits Consulting The employee benefits business of Anchor is conducted through Harden Group and primarily involves third-party health benefits administration activities. This business group engages in designing, implementing and administering health benefit plans for small to medium sized employer groups. Administration services provided by Harden Group include receiving and managing employer plan contributions and/or premium payments, monitoring employee and dependent eligibility, preparing required government and tax reports, handling day-to-day administration, reviewing and analyzing claims data for coverage, and managing the claims settlement process. Anchor, through Harden Group, also helps develop insurance products and services tailored to the specific needs of the client, provides risk analysis and conducts loss control and cost studies for insurance companies and self-insured employers. As compensation for its claims administration services, Harden Group generally receives fees based either on a percentage of premiums collected or on a per capita basis. During 1999, Anchor has reorganized its Harden Group senior management structure to be more responsive to the demands of an evolving marketplace. Product development and new product sales continue to be a high priority, as does geographical diversification into other marketing territories in the western states. Discontinued Operations Insurance Brokerage Anchor first entered the insurance brokerage business in 1990 through an acquisition. Thereafter it grew its insurance brokerage business primarily through acquisitions, the largest being PKW. Following the 1994 acquisition of PKW, Anchor consolidated all of its property and casualty insurance brokerage business into PKW. This segment of Anchor's business focused on property and casualty (both commercial and personal lines), health, life and disability, as well as workers' compensation. PKW acted as an agent on behalf of insurers and other intermediaries in soliciting, negotiating and effecting contracts of insurance, and as a broker in procuring insurance contracts on behalf of insureds. As an insurance agent and broker, PKW derived its income from the sale of insurance products and services and the receipt of commissions generated therefrom. Effective as of December 31, 1998, Anchor sold certain assets, including all of the insurance brokerage accounts of PKW, for approximately $2,250,000 in cash. The proceeds derived from the PKW asset sale were largely used to reduce debt and to make additional financial resources available for working capital needs and third-party administration opportunities. 10 Results of Continuing Operations -- Nine Months Ended September 30, 1999 and 1998 Reclassifications The prior years' balances detailed below have been reclassified to conform with the current year presentation of discontinued operations. Revenues Total Revenues. Total revenues for the nine months ended September 30, 1999, were $7,491,687, a decrease of $1,986,384 or 21%, as compared to $9,478,071 in revenues for the same period in 1998. The decrease in revenue in this nine month period was primarily due to the declining revenues as a result of carrier rate increases and lost business in Harden Group's former Los Angeles office as well as its PHA office. In February 1999 Harden Group closed the Los Angeles office. Anchor's revenues vary from quarter to quarter as a result of the timing of policy renewals and net new/lost business production, whereas expenses are fairly uniform throughout the year. Fees. Fees from Harden Group (including underwriting and risk analysis) services for the first nine months of 1999, were $7,478,600, a decrease of $1,991,683 or 21%, as compared to $9,470,283 in fees for the same period in 1998. This decrease in fee income is the direct result of declining revenue due to carrier rate increases and lost business generated from Harden Group's former Los Angeles office as well as its PHA office. Fee revenues generated by Anchor in the first nine months of 1999 from third-party administration services consist of revenues generated by Harden Group. The third-party administration revenues are primarily derived from: (a) an insurance product underwritten by one insurance carrier, which is rated A- (Excellent); (b) the administration of insurance programs underwritten by various insurance carriers for a number of self-insured employers; and (c) dental administration. Self-insurance is an alternative to fully insured programs in which a client assumes a manageable portion of its insurance risks, usually (although not always) placing the less predictable and larger loss exposure with an excess insurance carrier. Interest Income. Interest income consists of interest earned on funds held in fiduciary accounts and interest earned on investments. Interest income was $13,087 and $7,788 for the nine months ended September 30, 1999 and 1998, respectively. Expenses Total Expenses. Total operating expenses for the first nine months of 1999, were $8,561,424, a decrease of $840,242 or 8.9% as compared to operating expenses of $9,401,666 for the same period in 1998. As discussed below, the decrease in total expenses resulted primarily from a decrease in selling, general and administration expenses and employee compensation and benefits resulting from the closure of Harden Group's Los Angeles office as well as the reduction of staff at the Concord, Portland and Scottsdale offices in response to the reduction in revenues. Employee Compensation and Benefits. Employee compensation and benefits for the first nine months of 1999, were $5,460,479, a decrease of $560,676 or 9.3% as compared to $6,021,155 for the same period in 1998. The decrease related primarily to the closure of Harden Group's Los Angeles office and the reduction of staff at the Concord, Portland and Scottsdale offices in response to the reduction in revenue. Selling, General and Administrative Expenses. Selling, general and administrative expenses were $3,100,945 and $3,380,511 for the nine months ended September 30, 1999 and 1998, respectively. The $279,566 or 8.3% decrease in 1999, as compared to 1998, resulted primarily from the closure of Harden Group's Los Angeles office. General and administrative expenses include rent, travel, insurance, postage, telephone, supplies and other miscellaneous expenses. Interest Expense. Interest expense was $118,181 and $162,843, for the first nine months of 1999 and 1998, respectively. The decrease in interest expense of $44,662 in the first nine months of 1999, as compared to the same period in 1998, was due to the decrease in borrowings under the bank term loan. 11 Amortization of Goodwill and Other Intangibles. Goodwill represents the excess of the cost of acquisitions over the fair value of net assets acquired. Other intangibles include covenants not to compete, customer lists and other contractual rights. Amortization of goodwill and other intangibles was $47,835 and $33,801, for the first nine months of 1999 and 1998, respectively. The increase in amortization and other intangibles in the first nine months of 1999 is a result of increased intangibles at Harden-AZ. Income Taxes Anchor's expense for income taxes was $4,370 for the first nine months of 1999 as compared to $6,220 for the first nine months of 1998. Results of Continuing Operations -- Quarters Ended September 30, 1999 and 1998 Reclassifications The prior years' balances detailed below have been reclassified to conform with the current year presentation of discontinued operations. Revenues Total Revenues. Total revenues for the third quarter of 1999, were $2,458,294, a decrease of $487,116 or 16.5%, as compared to 1998 third quarter revenues of $2,945,410. The decrease in revenue in this three month period was primarily due to the declining revenues as a result of carrier rate increases and lost business in Harden Group's former Los Angeles office as well as its PHA office. Anchor's revenues vary from quarter to quarter as a result of the timing of policy renewals and net new/lost business production, whereas expenses are fairly uniform throughout the year. Fees. Fees from Harden Group (including underwriting and risk analysis) services for the third quarter of 1999, were $2,454,163, a decrease of $489,507 or 16.6%, as compared to $2,943,670 in fees for the same period in 1998. This decrease in fee income is the direct result of declining revenue due to carrier rate increases and lost business generated from Harden Group's former Los Angeles office as well as its PHA office. Fee revenues generated by Anchor in the third quarter of 1999 from third-party administration services consist of revenues generated by Harden Group. The third-party administration revenues are primarily derived from: (a) an insurance product underwritten by one insurance carrier, which is rated A- (Excellent); and (b) the administration of insurance programs underwritten by various insurance carriers for a number of self-insured employers. Self- insurance is an alternative to fully insured programs in which a client assumes a manageable portion of its insurance risks, usually (although not always) placing the less predictable and larger loss exposure with an excess insurance carrier. Interest Income. Interest income consists of interest earned on funds held in fiduciary accounts and interest earned on investments. Interest income was $4,131 and $1,740 for the quarters ended September 30, 1999 and 1998, respectively. Expenses Total Expenses. Total operating expenses for the third quarter of 1999, were $2,724,668, a decrease of $324,151 or 10.6% as compared to operating expenses of $3,048,819 for the same period in 1998. As discussed below, the decrease in total expenses resulted primarily from a decrease in selling, general and administration expenses and employee compensation and benefits resulting from the closure of Harden Group's Los Angeles office as well as the reduction of staff at the Concord, Portland and Scottsdale offices in response to the reduction in revenues. Employee Compensation and Benefits. Employee compensation and benefits for the third quarter of 1999, were $1,733,006, a decrease of $207,728 or 10.7% as compared to $1,940,734 for the same period in 1998. The decrease related primarily to the closure of Harden Group's Los Angeles office as well as the reduction of staff at the Concord, Portland and Scottsdale offices in response to the reduction in revenues. 12 Selling, General and Administrative Expenses. Selling, general and administrative expenses were $991,662 and $1,108,085 for the quarters ended September 30, 1999 and 1998, respectively. The $116,423 or 10.5% decrease in 1999, as compared to 1998, resulted primarily from the closure of Harden Group's Los Angeles office. General and administrative expenses include rent, travel, insurance, postage, telephone, supplies and other miscellaneous expenses. Interest Expense. Interest expense was $42,714 and $47,459, for the third quarter of 1999 and 1998, respectively. The decrease in interest expense of $4,745 in the third quarter of 1999, as compared to the same period in 1998, was due to the decrease in borrowings under the bank term loan. Amortization of Goodwill and Other Intangibles. Goodwill represents the excess of the cost of acquisitions over the fair value of net assets acquired. Other intangibles include covenants not to compete, customer lists and other contractual rights. Amortization of goodwill and other intangibles was $14,775 and $11,267, for the third quarter of 1999 and 1998, respectively. The increase in amortization and other intangibles is a result of increased intangibles at Harden-AZ. Income Taxes Anchor's minimum annual required tax payment due was reported during the first quarter 1999 and 1998. Therefore, there was no income tax expense reported for the quarters ended September 30, 1999 and 1998, respectively as Anchor received refunds of overpaid taxes in both quarters. An analysis of Anchor's provision for income taxes is presented in Note 9 of the Notes to Consolidated Financial Statements in Anchor's Form 10-K for the year ending December 31, 1998. Liquidity and Capital Resources Anchor reported net cash flows used in operations of $(901,875) for the nine months ended September 30, 1999, compared to net cash flows provided by operations of $231,248 for the same period in 1998. During 1999, Anchor repaid $800,000 of the existing line of credit and met its operating and capital needs from various sources, including the use of proceeds received from the sale of PKW and the use of proceeds received from the sale of Series C and D Debentures. Capital and certain acquisition related expenditures were $304,437 and $242,739 for the nine months ended September 30, 1999 and 1998, respectively. The 1999 expenditures primarily involved expenditures related to software development and implementation to update the eligibility and claims processing system. Short-term borrowings, current portion of long-term debt and current portion of long-term liabilities at September 30, 1999, totaling in the aggregate $707,246 (as compared to $1,894,018 at December 31, 1998), consisted of: (a) $198,000 representing the current portion of the term bank loans further described in Note 10 to the Financial Statements, above; (b) approximately $19,387 of future fixed payments under a consulting agreement entered into with a company affiliated with the former shareholders of Harden-AZ; (c) $44,049 representing the current portion of obligations with regard to certain real property leased by PKW prior its acquisition by Anchor and its subsequent relocation to Anchor's executive offices; (d) $60,000 of the Debentures; (e) $80,000 of the Bridge Notes; (f) approximately $23,700 representing obligations relating to the purchase of furniture, fixtures and computer equipment at the PHA location; and (g) approximately $282,110 for certain other current liabilities. At September 30, 1999, long-term liabilities and long-term debt, less the current portion discussed above, totaled $1,541,935 (as compared to $1,311,568 at December 31, 1998), and primarily consisted of: (a) $733,486 representing the long-term portion outstanding under a term bank loan further described in Note 10 to the Financial Statements, above; (b) approximately $343,449 representing deferred rent with regard to certain real property currently leased by Anchor; (c) $250,000 of Series B Debentures; (d) $144,000 of Series D Debentures; and (e) approximately $71,000 for certain other long-term liabilities. Reference is made to Notes 4 through 10 to the Financial Statements included in this Form 10-Q for further information on Anchor's fund raising activities and borrowings from its primary bank lender. 13 Anchor has not paid cash dividends in the past and does not expect to pay cash dividends in the foreseeable future. Year 2000 Update Impact of Year 2000. The "Year 2000 Issue" is the result of computer -------------------- programs being written using two digits rather than four to define the applicable year. Computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This situation could result in a system failure or miscalculations causing disruptions to operations, including, among other things, a temporary inability to process transactions, send payments, or engage in similar normal business activities. State of Readiness. Anchor's plan to achieve Year 2000 compliance in ------------------ its electronic information systems is proceeding on schedule. A team has been created to coordinate the identification and implementation of the necessary changes required for computer systems and applications. Anchor hired an outside computer consultant, OASYS Networks, Inc. ("OASYS"), to assist in the management of the Year 2000 project. OASYS provided a Limited-Scope Assessment which involved an analysis of all networked "objects" and compliance information on all installed applications that are not specific to the insurance industry. OASYS analysis was limited to the PC, PC Network and associated peripherals environment. During the course of this assessment, which was completed during the third quarter 1999, OASYS: 1. Developed an assessment project plan and a schedule that was approved by Anchor. 2. Prepared a comprehensive inventory of network environment (Hardware). In connection with preparing such inventory, OASYS identified and asset tagged all equipment, recorded serial numbers, identified installed devices and identified BIOS manufacture and version information. 3. Integrated Anchor's existing Year 2000 data into the OASYS reports and procedures, where applicable. 4. Conducted a comprehensive inventory of network environment (Software/Firmware). 5. Tested all functional computer hardware for Year 2000 and leap year compliance, where applicable. 6. Collected compliance statements from vendors for non-testable hardware equipment (modems, routers, etc.). Cross-referenced compliance data with Anchor's existing data, where applicable. 7. Researched and reported compliance data on all COTS (Common Off The Shelf) applications. 8. Built a project binder to track compliance statements and document all testing of hardware objects. 9. Interviewed key personnel to identify various dependencies and interface risks that were not immediately apparent through the physical inventory process. 10. Conferred with Anchor's team to prioritize issues and created a Mission Critical listing of all hardware, software, dependencies and interfaces. 11. Provided a database to Anchor which is being used to identify and track all new hardware objects introduced into the environment. 12. Prepared a closing Risk Analysis report. In addition, OASYS began providing Year 2000 Inbound and Outbound Compliance Communications on April 1, 1999. Inbound Year 2000 Compliance Communications involve requests from outside parties (such as venders, suppliers, etc.) for information and status on Anchor's Year 2000 compliance. Once received, OASYS responded, documented, tracked and serviced such requests with periodic summaries having been reported to Anchor's team. Outbound Year 2000 Compliance Communications were requests initiated by Anchor seeking the status of another entities' Year 2000 compliance. These requests were initiated, documented and tracked by OASYS. 14 Anchor's team has also been focused on obtaining mainframe Year 2000 compliance at its three principal offices located in Concord, California, Scottsdale, Arizona and Portland, Oregon. The status of the effort for each office is described below. Harden-CA (Concord, CA): ------------------------ Hardware: Current operating system has been reviewed and updated and is Year 2000 compliant. Software: Both the billing and claims systems are being upgraded. The project is 90% complete with scheduled compliance by the end of November 1999. Conversion: Converting the entire system to the Resource Information Management System, version 2.7 ("RIMS"), which is Year 2000 compliant. Conversion scheduled for completion by mid-year 2000. Harden-AZ (Scottsdale, AZ): --------------------------- Hardware: Current operating system has been reviewed and is Year 2000 compliant. Software: Currently on RIMS, 2.7 which is Year 2000 compliant. Upgrades: Recently upgraded software and hardware. Harden-PHA (Portland, OR): -------------------------- Hardware: Current operating system is Year 2000 compliant. Software: Claims and billing systems are currently Year 2000 compliant. Conversion: Converting entire system to RIMS, which is Year 2000 compliant. Conversion scheduled for completion by year- end 2000. Costs to Address the Year 2000 Issue. Anchor completed its programming ------------------------------------ efforts for the Year 2000 related projects during the third quarter of 1999. Final certification testing will continue during the remainder of the 1999 year. Anchor's focus has not only been on its internal systems, but also upon the compliance of its key business partners, vendors and other suppliers. Management believes that the redeployment of Anchor's resources has not adversely impacted new product or software development. The total cost of Year 2000 compliance is not expected to be material to the company's financial position. The estimated total cost of the Year 2000 Project is not expected to exceed $250,000. Risks Presented by the Year 2000 Issue. The failure to correct a -------------------------------------- material Year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such failures could materially and adversely affect Anchor's results of operations, liquidity and financial condition. Due to the general uncertainty inherent in the Year 2000 problem, resulting in part from the uncertainty of the Year 2000 readiness of its key business partners, vendors and other suppliers, Anchor is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on Anchor's results of operations, liquidity or financial condition. Anchor believes that, with the completion of the Project as currently scheduled, the possibility of significant interruptions of normal operations should be reduced. Readers are cautioned that forward-looking statements contained in the Year 2000 Update should be read in conjunction with Anchor's disclosures below under the head "Forward-Looking Statements". Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of that term under the Private Securities Litigation Reform Act of 1995. Additional written or oral forward-looking statements may be made by Anchor from time to time, in filings with the Securities and Exchange Commission or otherwise. Statements contained herein that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions referenced above. For example, discussions concerning Anchor's ability to create new products and services, and expansion of Anchor through internal growth of existing and new products and services, may involve forward-looking statements. In addition, when used in this discussion, the words, "anticipates," "expects," "intends," "plans" and variations thereof and similar expressions are intended to identify 15 forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified based on current expectations. Consequently, future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward- looking statements contained in this filing. Statements in this Quarterly Report, particularly in the Notes to Financial Statements, Management's Discussion and Analysis of Financial Condition and Results of Operations and Year 2000 Update, describe certain factors, among others, that could contribute to or cause such differences. Such forward-looking statements involve risks and uncertainties, and actual results could differ from those described herein. While the statements represent management's current judgment as to the near-term future prospects of its business, such risks and uncertainties could cause actual results to differ from the above statements. Factors which could cause actual results to differ include the following: Harden Group's relationship with new insurance carriers and marketing partners and their ability to effectively provide third-party administration services; controlling operating costs; the impact of competitive products, pricing and services; the availability of capital to finance current operations and future expansion; the cyclical nature of the health insurance markets; and unanticipated regulatory changes. Other risk factors are detailed in Anchor's filings with the Securities and Exchange Commission. Anchor assumes no obligation to update forward-looking statements. Strategy Until recently, Anchor's business has consisted of two basic operations: (i) third-party administration services (Harden Group); and (ii) property and casualty insurance brokerage (PKW). During the last several years, Anchor's third-party administration services experienced steady expansion. Revenues derived from the operations of Harden Group, as a percentage of Anchor's overall revenues, grew from 57% at December 31, 1996 to 80% at December 31, 1998. Conversely, Anchor's property and casualty insurance business was subjected to considerable competitive pressures through much of the 1990's. During this period the insurance industry has generally experienced over capacity which, in turn, has negatively impacted both insurance premiums and brokerage commissions. The financial results of PKW during mid-1998 reflected these developments. In light of these external and internal trends, the Board of Directors made a strategic decision during mid- 1998 to sell PKW, the property and casualty insurance brokerage operation. This transaction was completed, effective December 31, 1998. Anchor's current strategy is to focus on expanding Harden Group, its third-party administration services division by: (a) continuing to develop, through its marketing partners, specialized affiliated business units that target selected insurance industry market segments defined by industry type, geographic location and consumer demographics; (b) creating new products and services; and (c) strengthening management, sales and marketing staff. In conjunction with this strategy, Anchor intends to seek to manage its affairs to achieve expansion through internal growth of its existing and new product lines. Anchor also intends to consider new acquisition and merger opportunities in the third-party administration services business. As part of its strategy to focus on the third-party administration services business, Anchor has re-organized its Harden Group senior management structure to be more responsive to the demands of an evolving marketplace. To that end, effective May 1, 1999, senior management of Harden Group was consolidated into four positions from the previous structure of nine officers in three geographic operations (Concord, CA, Portland, OR and Scottsdale, AZ). 16 PART II - OTHER INFORMATION Item 1. Legal Proceedings Anchor and its subsidiaries are parties from time to time to various lawsuits that arise in the normal course of business. Management is not aware of any lawsuits to which Anchor or its subsidiaries is currently a party or to which any property of Anchor or any of its subsidiaries is subject, which might materially adversely affect the financial condition or results of operations of Anchor. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K A. Exhibits 4.10 Form of 10% Convertible Subordinated Debenture, Series D 4.10a Form of Warrant to Purchase Shares of Common Stock of Anchor Pacific Underwriters, Inc. 10.36 Business Loan Agreement dated September 30, 1999, between Anchor and Imperial Bank, and related documents. 27.0 Financial Data Schedule B. Reports on Form 8-K None 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Anchor has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ANCHOR PACIFIC UNDERWRITERS, INC. Date: November 5, 1999 /s/ James R. Dunathan ----------------------- ------------------------------------- James R. Dunathan President and Chief Executive Officer Date: November 5, 1999 /s/ Earl Wiklund ----------------------- ------------------------------------- Earl Wiklund Senior Vice President and Chief Financial Officer 18 EX-4.10 2 FORM OF 10% CONV SUBORDINATED DEBENTURE, SERIES D EXHIBIT 4.10 Debenture No. _____ THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR QUALIFICATION UNDER SUCH SECURITIES LAWS OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT THE SALE OR TRANSFER IS PURSUANT TO AN EXEMPTION FROM THE REGISTRATION OR QUALIFICATION REQUIREMENTS OF SUCH SECURITIES LAWS. ANCHOR PACIFIC UNDERWRITERS, INC. 10% Convertible Subordinated Debenture, Series D (convertible into shares of common stock) $ Concord, California _________, 1999 ANCHOR PACIFIC UNDERWRITERS, INC., a Delaware corporation (the "Company"), for value received, hereby promises to pay to ________________, or such other person in whose name this Debenture is registered on the Debenture Register (as that term is defined below) (the "Holder"), the principal amount of ____ ____________ Dollars ($___________), with simple interest on the unpaid balance of such principal amount at the rate of ten percent (10%) per annum from the date of this Debenture. Interest on the outstanding principal balance shall be computed on the basis of a 360 day year of twelve 30-day months and shall be paid to the Holder on ___________, 2000, ________, 2000 and ________, 2001 (each, an "Interest Payment Date"). Each Debenture delivered upon registration of transfer or in exchange for or in lieu of this Debenture shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by this Debenture. The full principal amount of this Debenture, plus interest, will be due and payable on __________, 2001 (the "Maturity Date"). Payment of interest and principal shall be made in lawful money of the United States of America by wire transfer to an account designated by the Holder appearing on the Debenture Register. This Debenture is a duly authorized Debenture of the Company, Series D, limited to the aggregate principal amount of $____________. 1. Representations, Warranties and Covenants. ----------------------------------------- 1.1 Organization, Good Standing and Qualification. The Company is a --------------------------------------------- corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties. 1.2 Valid Issuance of Debentures and Shares. The Debenture, when --------------------------------------- issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, and based in part upon the representations of the Holder contained in the Subscription Agreement pursuant to which this Debenture is being issued, will be issued in compliance with all applicable federal and state securities laws. The shares of the Company's Common Stock, $.02 par value per share, issuable upon conversion of the Debentures (the "Shares") have been duly and validly reserved for issuance and, upon issuance in accordance with the terms of this Debenture, shall be duly and validly issued, fully paid and nonassessable. 1.3 Compliance with Other Instruments. The Company is not in --------------------------------- violation of or default under any provisions of its Certificate of Incorporation or Bylaws as amended and in effect on and as of the date of this Debenture or of any material provision of any instrument or contract to which it is a party or by which it is bound or, to its knowledge, of any material provision of any federal or state judgment, writ, decree, order, statute, rule or governmental regulation applicable to the Company. The execution, delivery and issuance of this Debenture will not result in: (a) any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, a default under any such provision, instrument or contract; or (b) an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company. 2. Subordination. ------------- 2.1 Subordination. The indebtedness evidenced by this Debenture is ------------- subordinate and junior in right of payment to all Senior Debt (as such term is defined below) to the extent provided herein, and the Holder, by such Holder's acceptance hereof, agrees to the subordination herein provided and shall be bound by the provisions hereof. Senior Debt shall continue to be Senior Debt and entitled to the benefits of these subordination provisions irrespective of any amendment, modification or waiver of any term of the Senior Debt or extension or renewal of the Senior Debt. 2 2.2 Senior Debt Defined. As used herein, the term "Senior Debt" ------------------- shall mean the following whether now outstanding or subsequently incurred, assumed or created: (a) all indebtedness (whether or not secured) of the Company or its subsidiaries to banks, insurance companies or other financial institutions regularly engaged in the business of lending money; (b) such other indebtedness of the Company or its subsidiaries to the extent that the instrument creating or evidencing such indebtedness provides that it shall constitute Senior Debt; (c) any indebtedness issued in exchange for such Senior Debt, or any indebtedness arising from the satisfaction of such Senior Debt by a guarantor; and (d) any deferrals, renewals, or extensions of any such Senior Debt. 2.3 Default on Senior Debt. If the Company shall default in the ---------------------- payment of any principal of or interest on any Senior Debt when the same shall become due and payable, whether at maturity or at a date fixed for prepayment or by declaration of acceleration or otherwise, then, upon written notice of such default to the Company by the holders of Senior Debt or any trustee therefor, unless and until such default shall have been cured or waived or shall have ceased to exist, no direct or indirect payment (in cash, property, securities, by set-off or otherwise) shall be made or agreed to be made on account of the principal of or interest on this Debenture, or in respect of any redemption, repayment, retirement, purchase or other acquisition of this Debenture. 2.4 Prior Payment of Senior Debt. ---------------------------- (a) In the event of: (i) any insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding relating to the Company; (ii) any proceeding for the liquidation, dissolution or other winding up of the Company, voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings; (iii) any assignment by the Company for the benefit of creditors; or (iv) any other marshalling of the assets of the Company, all Senior Debt (including any interest thereon accruing after the commencement of any such proceedings) shall first be paid in full before any payment or distribution, whether in cash, securities or other property, shall be made to any Holder on account of the principal or interest on this Debenture. Any payment or distribution, whether in cash, securities or other property (other than securities of the Company or any other corporation provided for by a plan of reorganization or readjustment the payment of which is subordinate, at least to the extent provided in these subordination provisions with respect to the indebtedness evidenced by this Debenture, to the payment of all Senior Debt at the time outstanding and to any securities issued in respect thereof under any such plan of reorganization or readjustment), which would otherwise (but for these subordination provisions) be payable or deliverable in respect of this Debenture shall be paid or delivered 3 directly to the holders of Senior Debt in accordance with the priorities then existing among such holders until all Senior Debt (including any interest thereon accruing after the commencement of any such proceedings) shall have been paid in full. In the event of any such proceeding, after payment in full of all sums owing with respect to Senior Debt, the Holder of this Debenture, together with the holders of any obligations of the Company ranking on a parity with this Debenture, shall be entitled to be paid from the remaining assets of the Company the amounts at the time due and owing on account of unpaid principal of and interest on this Debenture and such other obligations before any payment or other distribution, whether in cash, property or otherwise, shall be made on account of any capital stock or any obligations of the Company ranking junior to this Debenture and such other obligations. (b) In the event that, notwithstanding the foregoing, any payment or distribution of any character, whether in cash, securities or other property (other than securities of the Company or any other corporation provided for by a plan of reorganization or readjustment the payment of which is subordinate, at least to the extent provided in these subordination provisions with respect to the indebtedness evidenced by this Debenture, to the payment of all Senior Debt at the time outstanding and to any securities issued in respect thereof under any such plan of reorganization or readjustment), shall be received by any Holder in contravention of any of the terms hereof, such payment or distribution or security shall be received in trust for the benefit of, and shall be paid over or delivered and transferred to, the holders of the Senior Debt at the time outstanding in accordance with the priorities then existing among such holders for application to the payment of all Senior Debt remaining unpaid, to the extent necessary to pay all such Senior Debt in full. In the event of the failure of any such Holder to endorse or assign any such payment, distribution or security, each holder of Senior Debt is hereby irrevocably authorized to endorse or assign the same. 2.5 No Impairment of Rights. Nothing contained herein shall impair, ----------------------- as between the Company and the Holder, the obligation of the Company to pay such Holder the principal of and interest on this Debenture or prevent such Holder from exercising all rights, powers and remedies otherwise permitted by applicable law or hereunder upon an Event of Default (as defined below) hereunder, all subject to the rights of the holders of the Senior Debt to receive cash, securities or other property otherwise payable or deliverable to the Holder of this Debenture. 2.6 Subrogation. Upon the payment in full of all Senior Debt, the ----------- Holders of the Debentures, together with all other subordinated debt of the Company ranking on a parity therewith, shall be subrogated to all rights of any holders of Senior Debt to receive any further payments or distributions applicable to the Senior Debt 4 until the indebtedness evidenced by the Debentures shall have been paid in full, and such payments or distributions received by the Holders thereof, by reason of such subrogation, of cash, securities or other property which otherwise would be paid or distributed to the holders of Senior Debt, shall, as between the Company and its creditors other than the holders of Senior Debt, on the one hand, and such Holders on the other hand, be deemed to be a payment by the Company on account of Senior Debt and not on account of the Debentures. 2.7 No Impairment of Security Interest. The provisions of this ---------------------------------- Debenture shall not impair any rights, remedies or powers of any secured creditor of the Company in respect of any security interest. The securing of any obligations of the Company otherwise ranking on a parity with the Debentures or ranking junior to such Debentures shall not be deemed to prevent such obligations from constituting, respectively, obligations ranking on a parity with such Debentures or ranking junior to such Debentures. 2.8 Amendment of Subordination Provisions. No modification or ------------------------------------- amendment of the subordination provisions contained in Section 2 hereof in a manner adverse to the holders of Senior Debt may be made without the consent of all holders of Senior Debt. 2.9 Undertaking. By its acceptance of this Debenture, the Holder ----------- agrees to execute and deliver such documents as may be reasonably requested from time to time by the Company or the lender of any Senior Debt in order to implement the foregoing provisions of Section 2 hereof. 3. No Restrictions on Issuance of Additional Debt. Nothing contained in ---------------------------------------------- this Debenture shall restrict the Company from creating, assuming or incurring any additional indebtedness, whether ranking junior to, on par with, or senior to, this Debenture, or require the Company to obtain the consent of the Holder with respect thereto. 4. Default. ------- 4.1 Event of Default. Each of the following events shall be an Event ---------------- of Default hereunder: (a) Default in the payment of any interest on this Debenture when due, continued for two (2) business days. (b) Default in the payment of the principal on the Maturity Date. 5 (c) Material default in the performance of any of the covenants or agreements of the Company contained in this Debenture continued for thirty (30) days after notice thereof (provided, however, that if the default cannot reasonably be corrected within such period, there shall be no event of default if corrective action is instituted promptly and is pursued diligently until the default is corrected). (d) If a petition in involuntary bankruptcy is filed against the Company under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation under the law of any jurisdiction, whether now or hereafter in effect, and is not stayed or dismissed within thirty (30) days after such filing, or if the Company shall make an assignment for the benefit of creditors, or shall file a voluntary petition in bankruptcy, or shall be adjudicated a bankrupt or insolvent, or shall file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of the Company or of all or any substantial part of the properties of the Company, or commence voluntary or involuntary dissolution proceedings. (e) Default under Senior Debt that gives the holder thereof the right to accelerate such Senior Debt, and such Senior Debt is in fact accelerated by such holder. 4.2 Remedies on Default, etc. ------------------------ (a) If an Event of Default occurs and is continuing after the expiration of any applicable grace period, the Holder may declare the Debenture immediately due and payable. (b) In case of a default in the payment of any principal or interest due on this Debenture, the Company shall pay to the Holder thereof the amount owing together with: (i) simple interest on the amount owing at the rate per annum equal to the lower of (x) twelve percent (12%) or (y) the maximum rate permitted under applicable law on the amounts past due; and (ii) such additional amount as shall be sufficient to cover the cost and expenses of collection, including, without limitation, reasonable attorneys' fees, expenses and disbursements. (c) No right, power or remedy conferred by this Debenture upon any Holder shall be exclusive of any other right, power or remedy referred to herein or now or hereafter available at law, in equity, by statute or otherwise. 6 5. Conversion. ---------- 5.1 Conversion Rights. The Holder may at any time, and from time to ----------------- time, prior to the first to occur of the Maturity Date or the date fixed by the Company for redemption of this Debenture (the "Redemption Date"), convert this Debenture or any portion of the principal amount hereof which is $5,000 or an integral multiple of $5,000, into Shares, at a conversion price of $0.50 per Share (the "Conversion Price"), subject to adjustment in certain events described below. The number of Shares that the Holder shall receive upon any such conversion shall be determined by dividing the principal amount of this Debenture to be so converted by the Conversion Price in effect at the time of such conversion. In the event that this Debenture is called for redemption, the right to convert the Debenture shall terminate at the close of business on the Redemption Date and will be lost if not exercised prior to that time unless the Company defaults in making the payment due upon redemption. In the event of a partial conversion of this Debenture, the Company shall execute and deliver to the Holder a new Debenture in the aggregate principal amount equal to and in exchange for the unconverted portion of the principal amount of the Debenture so surrendered for conversion. 5.2 Effect of Conversion; Issuance of Shares on Conversion. ------------------------------------------------------ Conversion of this Debenture shall be deemed to have been made at the close of business on the date that the Debenture shall have been surrendered for conversion, accompanied by written notice of election to convert in the form of Exhibit "A" attached hereto (or such other form reasonably acceptable to the Company), and thereupon the Holder shall have no further rights hereunder, except with respect to the receipt of accrued interest due hereunder and the Shares issuable upon conversion of this Debenture. As soon as practicable after full or partial conversion of this Debenture, the Company shall pay to the Holder all interest accrued hereunder with respect to the portion of the Debenture so converted to the date of conversion. In addition, as soon as practicable after full or partial conversion of this Debenture, the Company shall, at its expense, cause to be issued in the name of, and delivered to, the Holder a certificate or certificates for the number of Shares to which the Holder shall be entitled on such conversion, together with any other securities and property to which the Holder is entitled on such conversion under the terms of this Debenture. No fractional shares will be issued on conversion of this Debenture. If on any conversion of this Debenture a fraction of a share results, the Company will pay the cash value of that fractional share, calculated on the basis of the then effective Conversion Price. 5.3 Adjustments to Conversion Price. ------------------------------- (a) If the Company shall at any time while this Debenture is outstanding subdivide the outstanding shares of its Common Stock, the 7 Conversion Price then in effect immediately before that subdivision shall be proportionately decreased, and if the Company shall at any time while this Debenture is outstanding combine the outstanding shares of Common Stock, the Conversion Price then in effect immediately before that combination shall be proportionately increased. Except as otherwise provided below, any adjustment under this Section 5.3 shall become effective at the close of business on the date the subdivision or combination becomes effective. A dividend on any security of the Company payable in Common Stock, or a split of the Company's Common Stock, shall be considered a subdivision of Common Stock for purposes of this Section 5.3 at the close of business on the record date with respect to such dividend or stock split. A reverse split of the Company's Common Stock shall be considered a combination of Common Stock for purposes of this Section 5.3 at the close of business on the record date with respect to such reverse stock split. (b) In the event the Company, at any time or from time to time while this Debenture is outstanding, shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution with respect to the Company's Common stock payable in securities of the Company other than shares of Common Stock, then and in each such event, provisions shall be made so that the Holder shall receive upon conversion hereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Company which he would have received had this Debenture been converted into Common Stock on the date of such event and had the Holder thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by him. (c) If while this Debenture is outstanding, the Shares issuable upon conversion of this Debenture shall be changed into the same or a different number of shares of any other class or classes of stock of the Company, whether by recapitalization, reclassification or other exchange (other than a subdivision or combination of shares, or a capital reorganization, merger or sale of assets, provided for elsewhere in Section 5.3 hereof), the Holder shall, upon the conversion of this Debenture, be entitled to receive, in lieu of the Shares which the Holder would have become entitled to receive but for such change, a number of shares of such other class or classes of stock that would have been subject to receipt by the Holder if he had exercised his right of conversion of this Debenture immediately before that change. (d) If while this Debenture is outstanding, there shall be a merger or consolidation of the Company with or into another corporation (other 8 than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company), or the sale of all or substantially all of the Company's properties and assets to any other person, then, as a part of such merger, consolidation or sale, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon conversion of this Debenture, during the period specified in this Debenture, the number of shares of stock or other securities or property of the Company, or of the successor corporation resulting from such merger, consolidation or sale, to which a holder of the Shares deliverable upon conversion of this Debenture would have been entitled on such merger, consolidation or sale if this Debenture had been converted immediately before such merger, consolidation or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5.3 with respect to the rights of the Holder after such merger, consolidation or sale to the end that the provisions of this Section 5.3 (including adjustments of the Conversion Price then in effect and number of shares purchasable upon conversion of this Debenture) shall continue to be applicable after that event and shall be as nearly equivalent to the provisions hereof as may be practicable. (e) The Company shall promptly and in any case not later than ten (10) days after the date of any adjustment of the Conversion Price give written notice of such adjustment and the number of Shares or other securities issuable upon conversion of this Debenture, by first-class mail, postage prepaid, to the registered Holder at the Holder's address as shown on the Debenture Register. The certificate shall state such adjustment and show in reasonable detail the facts on which such adjustment is based. (f) The form of this Debenture need not be changed because of any adjustment in the Conversion Price or in the number of Shares issuable upon its conversion. A Debenture issued after any adjustment on any partial conversion or upon replacement may continue to express the same Conversion Price and the same number of Shares (appropriately reduced in the case of partial conversion) as are stated on this Debenture as initially issued, and that Conversion Price and that number of Shares shall be considered to have been so changed as of the close of business on the date of the adjustment. 6. Registration of Transfer and Exchange. ------------------------------------- 6.1 Debenture Register. The Company shall cause to be kept at the ------------------ principal office of the Company a register (the "Debenture Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration and the transfer of the Debenture subject to the provisions regarding transferability contained in this Debenture. Upon surrender for registration of transfer of any Debenture at the principal office of the Company, the Company shall execute 9 and deliver, in the name of the designated transferee or transferees, one or more new Debentures in minimum denominations of $5,000 and integral multiples of $5,000. 6.2 Transfer of Debentures. At the time the Debenture is presented ---------------------- or surrendered for registration of transfer it shall (if so required by the Company) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer of the Debentures. 6.3 Replacement Debenture. --------------------- (a) If the Debenture is mutilated and is surrendered to the Company, the Company shall execute and deliver in exchange therefor a new Debenture of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company: (i) evidence to its satisfaction of the destruction, loss or theft of the Debenture; and (ii) such security or indemnity as may be required by it to save the Company and any agent harmless. Then, in the absence of notice to the Company that the Debenture has been acquired by a bona fide purchaser, the Company shall execute and deliver, in lieu of any such destroyed, lost or stolen Debenture, a new Debenture of like tenor and principal amount and bearing a number not contemporaneously outstanding. In the event such mutilated, destroyed, lost or stolen Debenture has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Debenture, retire such Debenture. (b) Upon the issuance of any new Debenture under this Section 6.3, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. (c) Any new Debenture issued pursuant to this Section 6.3 in lieu of any destroyed, lost or stolen Debenture shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Debenture shall be at any time enforceable by anyone. (d) The provisions of this Section 6.3 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures. 7. Limitations on Disposition. The Holder understands that this -------------------------- Debenture, the Shares issuable upon conversion of this Debenture and any other securities issued 10 under this Debenture are "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable restrictions such securities may be resold without registration under the Securities Act of 1933, as amended (the "Act") only in certain limited circumstances. In this connection, the Holder represents that it is familiar with Rule 144 under the Act and the limitations imposed thereby and by the Act. The Holder further agrees not to make any disposition of all or any portion of this Debenture, the Shares or any other securities issued hereunder unless and until: (a) there is then in effect a Registration Statement under the Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; or (b) the Holder shall have (i) notified the Company of the proposed disposition and shall have furnished the Company with a reasonably detailed statement of the circumstances surrounding the proposed disposition; and (ii) furnished the Company with an opinion of counsel, satisfactory to the Company, that such disposition will not require registration of the securities under the Act. The Holder understands that this Debenture, the Shares and any other securities issued hereunder may bear the following legend, together with any other legend required by law: "The securities represented hereby have not been registered under the Securities Act of 1933, or any state securities laws. These securities may not be sold or transferred in the absence of an effective registration statement or qualification under such securities laws or an opinion of counsel, satisfactory to the Company, that the sale or transfer is pursuant to an exemption from the registration or qualification requirements of any applicable securities laws." 8. Limitations on Dividends and Distributions. So long as this Debenture ------------------------------------------ is outstanding, the Company shall not declare, pay, make or set apart any sum for a dividend or other distribution (whether in cash or other property) with respect to any class of capital stock of the Company (other than dividends or distributions payable in its capital stock), or for the redemption, retirement, purchase or other acquisition for value of any share of any class of capital stock of the Company or any warrants or rights to purchase any class of capital stock of the Company. 9. Registration Rights. ------------------- 9.1 Definitions. For purposes of Section 9 hereof, terms not ----------- otherwise defined herein shall have the following meanings: 11 (a) The terms "register," "registered" and "registration" refer to the preparation and filing of a registration statement in compliance with the Act and the rules promulgated thereunder, and the declaration of the effectiveness of such registration statement, or the taking of similar action under a successor statute or regulation. (b) The term "Registrable Securities" means the Shares issuable upon conversion of the Debenture, and any securities issued or issuable with respect to such Shares by way of a stock dividend or stock split or in connection with a combination or shares, recapitalization, merger, consolidation or other reorganization. (c) The term "Rights Holder" or "Rights Holders" means any registered holder or holders of Registrable Securities. (d) The term "Prospectus" means a prospectus that complies with applicable provisions of the Act. 9.2 Piggyback Registration. ---------------------- (a) If, at any time, through and including the third anniversary date of the issuance of this Debenture, the Company proposes to register any of its securities under the Act (other than in connection with a merger pursuant to a Form S-4 Registration Statement or an employee stock compensation plan pursuant to a Form S-8 Registration Statement), it will give written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to the Rights Holder of its intention to do so. If the Rights Holder notifies the Company within twenty (20) days after receipt of any such notice of its desire to include any Registrable Securities in such proposed registration statement, the Company shall afford such Rights Holder the opportunity to have any of the Registrable Securities registered under such registration statement and included in any underwriting involved with respect thereto. (b) Notwithstanding the provisions of Section 9 hereof: (i) the Company shall have the right at any time after it shall have given written notice pursuant to said Section 9 (irrespective of whether a written request for inclusion of any Registrable Securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof; and (ii) in the event a registration under Section 9 hereof relates to an underwritten public offering which does not include any securities being offered and sold on behalf of selling shareholders, the inclusion of any Registrable Securities may, at the election of the Company, be conditioned upon the Rights Holder agreement that the public 12 offering of such Registrable Securities shall not commence until ninety (90) days after the effective date of such registration. (c) The rights of the Rights Holder pursuant to Section 9 hereof shall be conditioned upon such Rights Holder's participation in the underwriting with respect thereto and the inclusion of such Rights Holder's Registrable Securities in such underwriting (unless otherwise mutually agreed by the Company, the managing underwriter or, if none, a majority of the underwriters, and such Rights Holder) to the extent provided herein. (d) Notwithstanding any other provision of this Debenture, if the managing underwriter or, if none, a majority of the underwriters, determines that marketing factors require a limitation of the number of shares to be underwritten or a complete exclusion of such shares, such underwriter or underwriters may limit the number of Registrable Securities that may be included in the registration and underwriting or exclude all of the Registrable Securities, as appropriate. In the case of an underwritten registration in which the number of Registrable Securities that may be included is limited, the Company shall advise the Rights Holder of the limited number of Registrable Securities that may be included in the registration, and the number of Registrable Securities that may be included in the registration and underwriting shall be allocated among all Rights Holders thereof in proportion, as nearly as practicable, to the respective amounts of Registrable Securities entitled to inclusion in such registration held by such Rights Holders at the time of filing the registration statement. (e) The Company shall (together with all Rights Holders proposing to distribute their securities through an underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for the underwriting. (f) If, after the third anniversary date of the issuance of this Debenture, the Registrable Securities owned by the Holder continue to be subject to a legend or other transfer restriction which treats the Holder as having affiliate status as that term is used in Rule 144 of the Act, then the Holder shall continue to have a one-time right to include any Registrable Securities in a proposed registration statement subject to the procedures described in Section 9.2 hereof. This registration right shall expire on the earlier of: (i) the conclusion of the Holder's affiliate status; or (ii) the sixth anniversary date of the issuance of this Debenture. 9.3 Expenses. All expenses incurred in connection with any -------- registration pursuant to this Debenture, including without limitation, all registration, 13 filing and qualification fees, printing expenses, fees and disbursements of counsel for the Company, and expenses of any special audits incidental to or required by such registration, shall be borne by the Company; provided however the Company shall not be required to pay: (a) fees of legal counsel of any Rights Holder, or underwriters' fees, discounts, commissions or expenses relating to Registrable Securities; and (b) for expenses that the Company is prohibited from paying under Blue Sky laws or by Blue Sky administrators. 9.4 Company Responsibilities. In the case of a registration effected ------------------------ by the Company pursuant to this Debenture, the Company shall use its best efforts to keep the Rights Holder advised in writing as to the initiation, effectiveness and completion of such registration. At its expense the Company shall: (a) prepare and file a registration statement (and such amendments and supplements thereto) with respect to such Registrable Securities and use its best efforts to cause such registration statement to become and remain effective for a period of one hundred eighty (180) days or until the Rights Holder or Rights Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; (b) furnish such number of copies of a Prospectus in conformity with the requirements of applicable law, and such other documents incident thereto as a Rights Holder from time to time may reasonably request; and (c) use every reasonable effort to register or qualify the Registrable Securities covered by such registration statement under the state Blue Sky laws of such jurisdictions as the Company's Board of Directors may reasonably determine, and do any and all other acts and things which may be necessary under said Blue Sky laws to enable the sellers of the Registrable Securities to consummate the public sale or other disposition of the Registrable Securities owned by them in such jurisdictions, except that the Company shall not for any purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein the Registrable Securities are so qualified. 9.5 Indemnification. --------------- (a) The Company shall indemnify the Rights Holder, each of the Rights Holder's officers and directors, and each person controlling such 14 Rights Holder, with respect to such registration effected pursuant to Section 9.2 hereof, and each underwriter, if any, and each person who controls any underwriter of the Registrable Securities, against all claims, losses, damages and liabilities (or actions in respect thereto) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement or related Prospectus, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of any rule or regulation promulgated under any securities law applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, and shall reimburse the Rights Holder, each of the Rights Holder's officers and directors, and each person controlling such Rights Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, provided that the Company shall not be liable in any such case to the extent that any such claim, loss, damage or liability arises out of or is based on any untrue statement or omission based upon written information furnished to the Company in an instrument duly executed by such Rights Holder or underwriter specifically for use therein. (b) The Rights Holder shall, if Registrable Securities held by or issuable to the Rights Holder are included in the securities as to which such registration is being effected, indemnify the Company, each of its directors and officers who sign such registration statement, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company within the meaning of the Act, and each other Rights Holder, each of such Rights Holder's officers and directors and each person controlling such Rights Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement or related Prospectus, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse the Company, such Rights Holders, such directors, officers, persons, or underwriters for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement or related Prospectus in reliance upon and in conformity with written information furnished to the Company in an instrument duly executed by such Rights Holder specifically for use therein. 15 (c) Each party entitled to indemnification under this Section 9.5 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may he sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at such party's expense; and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 9.5. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement, which does not include as an unconditional term thereof, the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. 9.6 Rights Holder's obligations. The Rights Holder shall furnish to --------------------------- the Company such written information regarding such Rights Holder and the distribution proposed by such Rights Holder as the Company may reasonably request in writing and as shall be required in connection with any registration referred to in this Debenture. 9.7 Assignment. The rights granted to the Rights Holder pursuant to ---------- this Debenture may be assigned to a transferee or assignee of the Debenture or any of the Registrable Securities, provided that the transferee or assignee is an affiliated entity of the Rights Holder and the Company is given written notice at the time of or within 10 days after said transfer, stating the name and address of said transferee or assignee and identifying the Registrable Securities with respect to which such registration rights are being assigned. 10. Miscellaneous. ------------- 10.1 Amendment. The provisions of this Debenture may be amended or --------- modified only with the written consent of the Company and the Holder. 10.2 Entire Agreement. This Debenture constitutes the entire ---------------- agreement among the parties with regard to the subject matter hereof, and supersedes and replaces any and all prior to contemporaneous agreements, written or oral. The terms and conditions of this Debenture shall inure to the benefit of, and be binding upon, the respective successors and assigns of the parties. Nothing in this Debenture is intended to confer on any third party any rights, liabilities or obligations, except as specifically provided. 16 10.3 Headings. The titles and subtitles used in this Debenture are -------- for convenience only and are not to be used in construing or interpreting this Debenture. 10.4 SEC Filings. During the term of this Debenture the Company shall ----------- promptly forward to the Holder annual and periodic reports and proxy statements required to be filed by the Company with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. 5.5 Governing Law. This Debenture shall be governed by the internal ------------- laws of the State of California as applicable to transactions performed in California between California residents. 5.6 Attorneys' Fees. The prevailing party in any action or --------------- proceeding between the parties arising out of or related to this Debenture shall be entitled to recover all reasonable expenses, including without limitation attorneys, fees and costs, incurred in connection with any such action or proceeding. IN WITNESS WHEREOF, the undersigned have executed this Debenture on the date first above written. ANCHOR PACIFIC UNDERWRITERS, INC. By:______________________________ James R. Dunathan President/CEO 17 Exhibit "A" Form of Conversion Notice To Anchor Pacific Underwriters, Inc.: The undersigned Holder hereby irrevocably exercises the option to convert this Debenture, or portion hereof (which is in the amount of not less than $5,000 and in increments of not less than $5,000 thereafter) below designated, into shares of the Company's Common Stock, $.02 par value per share, in accordance with the terms of the Debenture, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Debentures representing any unconverted principal amount hereof, be issued and delivered to the undersigned unless a different name has been indicated below. If shares or Debentures are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Any amount required to be paid by the undersigned on account of interest accompanies this Debenture. Dated:________________ __________________________________ Signature __________________________________ Taxpayer Identification Number Principal Amount to be Converted: $_______________ If shares or Debentures are to be registered in the name of a person other than the Holder, please print such person's name and address below: Name: _____________________________ Address: _____________________________ _____________________________ A-1 EX-4.10(A) 3 FORM OF WARRANT TO PURCHASE SHARES OF COMMON STOCK Exhibit 4.10a - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WARRANT TO PURCHASE SHARES OF COMMON STOCK OF ANCHOR PACIFIC UNDERWRITERS, INC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- 1. General Terms...................................................... 1 1.1 Right to Acquire Securities................................... 1 1.2 Exercise of Warrant........................................... 2 1.3 Record Holder................................................. 2 1.4 Payment of Taxes.............................................. 2 1.5 Transfer and Exchange......................................... 3 2. Transfer of Securities............................................. 3 2.1 Restrictions of Transfer...................................... 3 2.2 Cooperation................................................... 5 3. Registration Rights................................................ 5 3.1 Rights of Warrantholders...................................... 5 3.2 Expenses...................................................... 6 3.3 Company Responsibilities...................................... 7 3.4 Indemnification............................................... 7 3.5 Holder's Obligations.......................................... 9 3.6 Assignment.................................................... 9 4. Adjustments to Exercise Price and Warrant Shares................... 9 4.1 Subdivision or Combination.................................... 9 4.2 Adjustment for Reorganization, Consolidation, Merger.......... 9 4.3 Miscellaneous Exercise Matters................................ 11 4.4 No Dilution or Impairment..................................... 11 4.5 Notice of Adjustment.......................................... 11 4.6 Duty to Make Fair Adjustments in Certain Cases................ 11 5. Miscellaneous...................................................... 12 5.1 Entire Agreement.............................................. 12 5.2 Successors and Assigns........................................ 12 5.3 Governing Law................................................. 12 5.4 Notices, Etc.................................................. 12 5.5 Delays or Omissions........................................... 12 5.6 Survival...................................................... 13 5.7 Waivers and Amendments........................................ 13 5.8 Severability.................................................. 13 5.9 Registered Holder............................................. 13 5.10 Titles and Subtitles.......................................... 14
-i- EXERCISE NOTICE......................................................... 15 FORM OF ASSIGNMENT...................................................... 16
-ii- WARRANT TO PURCHASE SHARES OF COMMON STOCK OF ANCHOR PACIFIC UNDERWRITERS, INC. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, (B) IN COMPLIANCE WITH RULE 144 UNDER SUCH ACT, OR (C) THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT NO REGISTRATION IS REQUIRED FOR SUCH TRANSFER. _______ Shares of Common Stock 1. General Terms. ------------- 1.1 Right to Acquire Securities. --------------------------- (a) This Warrant certifies that for value received _________ ____________, (the "Holder"), or registered assigns, are entitled at any time before 5:00 p.m., San Francisco, California time, on the Expiration Date (as such term is defined herein) to purchase from ANCHOR PACIFIC UNDERWRITERS, INC., a Delaware corporation (the "Company"), ______ shares (the "Warrant Shares") of the fully paid and non-assessable Common Stock of the Company ("Common Stock") as constituted on the date hereof (the "Issuance Date"), at a price of $0.50 per share (the "Exercise Price"), such number of shares and price per share subject to adjustment as provided herein and all subject to the conditions set forth herein. This Warrant may be exercised at any time on or before five years from the date hereof (the "Expiration Date"). Upon any partial exercise hereof, there shall be issued to the Holder a new Warrant or Warrants with respect to the shares of Common Stock not so exercised. No fractions of a share of Common Stock will be issued upon the exercise of this Warrant, but if a fractional share would be issuable upon exercise the Company will pay in cash the fair market value thereof as determined by the Board of Directors of the Company in good faith. -1- (b) The Warrant may be subdivided, at the Warrantholder's option, into several warrants to purchase the Warrant Shares (collectively, also referred to as the "Warrant"). Such subdivision may be accomplished in accordance with the provisions of Section 1.5 hereof. 1.2 Exercise of Warrant. ------------------- (a) The Holder or any person or entity to whom the Holder has assigned its right under this Warrant (collectively referred to as the "Warrantholder") may exercise the Warrant, in whole or in part, at any time or from time to time, prior to its expiration, on any business day, by delivering a written notice in the form attached hereto (the "Exercise Notice") to the Company at the offices of the Company designated in Section 5.4 hereof, exercising the Warrant and specifying (i) the total number of shares of Common Stock the Warrantholder will purchase pursuant to such exercise and (ii) a place and date not less than one nor more than 20 business days from the date of the Exercise Notice for the closing of such purchase. (b) At any closing under Section 1.2(a) hereof, (i) the Warrantholder will surrender the Warrant and make payment to the Company of the aggregate Exercise Price for the shares of Common Stock so purchased by bank, cashier's or certified check and (ii) the Company will deliver to the Warrantholder a certificate or certificates for the number of shares of Common Stock issuable upon such exercise, together with cash, in lieu of any fraction of a share, as provided in Section 1.1(a) above. Upon any partial exercise, a new warrant or warrants of the same tenor and expiration date for the purchase of the number of such shares not purchased upon such exercise shall be issued by the Company to the registered holder thereof. 1.3 Record Holder. A Warrant shall be deemed to have been exercised ------------- immediately prior to the close of business on the date of its surrender for exercise as provided in Section 1.2(b) above, and the person entitled to receive the shares of Common Stock issuable upon such exercise shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. 1.4 Payment of Taxes. The Company shall pay all taxes and other ---------------- governmental charges that may be imposed in respect of the issue or delivery of the Warrant Shares or any portion thereof. The Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for the Warrant Shares or any portion thereof in any name other than that of the registered holder of the Warrant surrendered in connection with the purchase of such shares, and in such case the Company shall not be required to issue -2- or deliver any certificate until such tax or other charge has been paid or it has been established to the Company's satisfaction that no tax or other charge is due. 1.5 Transfer and Exchange. --------------------- (a) Subject to the terms hereof, including, without limitation, Section 2.1, the Warrant and all rights thereunder are transferable, in whole or in part, on the books of the Company maintained for such purpose at its office designated in Section 5.4 hereof by the registered holder hereof in person or by duly authorized attorney, upon surrender of the Warrant properly endorsed and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any partial transfer, the Company will issue and deliver to such holder a new warrant or warrants with respect to the Warrant Shares not so transferred. Each taker and holder of the Warrant, by taking or holding the same, consents and agrees that the Warrant when endorsed in blank shall be deemed negotiable, and that when the Warrant shall have been so endorsed, the holder may be treated by the Company and all other persons dealing with the Warrant as the absolute owner of such Warrant for any purpose and as the person entitled to exercise the rights represented thereby, or to the transfer on the books of the Company, any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered holder of the Warrant as the owner for all purposes. The term "Warrant" as used herein shall include the Warrant and, any warrants delivered in substitution or exchange therefor as provided herein. (b) The Warrant is exchangeable for a warrant or warrants for the same aggregate number of Warrant Shares, each new Warrant to represent the right to purchase such number of shares as the holder shall designate at the time of such exchange. 2. Transfer of Securities. ---------------------- 2.1 Restrictions of Transfer. Neither the Warrant nor the Warrant ------------------------ Shares shall be transferable except upon the conditions specified in this Section 2.1, which conditions are intended to insure compliance with the provisions of the Securities Act of 1933 (the "1933 Act") in respect to the transfer of the Warrant and the Warrant Shares. (a) Unless and until otherwise permitted by this Section 2.1, the Warrant and each certificate or other document evidencing any of the Warrant Shares shall be endorsed with a legend substantially in the following form: -3- "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, (B) IN COMPLIANCE WITH RULE 144 UNDER SUCH ACT, OR (C) THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT NO REGISTRATION IS REQUIRED FOR SUCH TRANSFER" (b) Neither the Warrant nor the Warrant Shares shall be transferred, and the Company shall not be required to register any such transfer, unless and until one of the following events shall have occurred: (i) the Company shall have received an opinion of counsel, in form and substance reasonably acceptable to the Company and its counsel, stating that the contemplated transfer is exempt from registration under the 1933 Act as then in effect, and the Rules and Regulations of the Securities and Exchange Commission (the "Commission") thereunder. Within five business days after delivery to the Company and its counsel of such an opinion, the Company either shall deliver to the proposed transferor a statement to the effect that such opinion is not satisfactory in the reasonable opinion of its counsel (and shall specify in detail the legal analysis supporting any such conclusion) or shall authorize the Company's transfer agent to make the requested transfer; (ii) the Company shall have been furnished with a letter from the Commission in response to a written request in form and substance acceptable to counsel for the Company setting forth all of the facts and circumstances surrounding the contemplated transfer, stating that the Commission will take no action with regard to the contemplated transfer; (iii) the Warrant or the Warrant Shares are transferred pursuant to a registration statement which has been filed with the Commission and has become effective; or (iv) the Warrant or the Warrant Shares are transferred in accordance with the provisions of Rule 144 promulgated by the Commission under the 1933 Act. -4- (c) The restrictions on transfer imposed by this Section 2.1 shall cease and terminate as to the Warrant and the Warrant Shares when (i) such securities shall have been effectively registered under the 1933 Act and sold by the holder thereof in accordance with such registration, (ii) an acceptable opinion as described in Section 2.l(b)(i) or a "no action" letter described in Section 2.l(b)(ii) states that future transfers of such securities by the transferor or the contemplated transferee would be exempt from registration under the 1933 Act, or (iii) such securities may be sold in accordance with the provisions of Rule 144 promulgated under the 1933 Act. When the restrictions on transfer contained in this Section 2.1 have terminated as provided above, the holder of the securities as to which such restrictions shall have terminated or the transferee of such holder shall be entitled to receive promptly from the Company, without expense to him, new certificates not bearing the legend set forth in Section 2.1(a) hereof. 2.2 Cooperation. The Company shall cooperate in supplying such ----------- information as may be reasonably requested by the Warrantholder to complete and file any information reporting forms presently or subsequently required by the Commission as a condition to the availability of an exemption, presently existing or subsequently adopted, from the 1933 Act for the sale of the Warrant or the Warrant Shares. 3. Registration Rights. ------------------- 3.1 Rights of Warrantholders. Holders of the Common Stock issued or ------------------------ issuable upon exercise of this Warrant (collectively, the "Registrable Securities") shall have "piggyback" registration rights as set forth below: (a) If, at any time, through and including the third anniversary of the date of this Warrant, the Company proposes to register any of its securities under the Act (other than in connection with a merger, acquisition, reorganization or similar transaction pursuant to a Form S-4 Registration Statement or an employee stock compensation plan pursuant to a Form S-8 Registration Statement), it will give written notice by registered mail, at least (30) days prior to the filing of each such registration statement, to the Holder of its intention to do so. If the Holder notifies the Company within 20 days after receipt of any such notice of its desire to include any Registrable Securities in such proposed registration statement, the Company shall afford such Holder the opportunity to have any of the Registrable Securities registered under such registration statement and included in any underwriting involved with respect thereto. -5- (b) Notwithstanding the provisions of Section 3 hereof: (i) the Company shall have the right at any time after it shall have given written notice pursuant to this Section 3 (irrespective of whether a written request for inclusion of any Registrable Securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof; and (ii) in the event a registration under Section 3 hereof relates to an underwritten public offering which does not include any securities being offered and sold on behalf of selling shareholders, the inclusion of any Registrable Securities may, at the election of the Company, be conditioned upon the Holder agreeing that the public offering of such Registrable Securities shall not commence until 90 days after the effective date of such registration. (c) The rights of the Holder pursuant to Section 3 hereof shall be conditioned upon such Holder's participation in the underwriting with respect thereto and the inclusion of such Holder's Registrable Securities in such underwriting (unless otherwise mutually agreed by the Company, the managing underwriter or, if none, a majority of the underwriters, and such Holder) to the extent provided herein. (d) Notwithstanding any other provision of this Warrant, if the managing underwriter or, if none, a majority of the underwriters, determines that marketing factors require a limitation of the number of shares to be underwritten or a complete exclusion of such shares, such underwriter or underwriters may limit the number of Registrable Securities that may be included in the registration and underwriting or exclude all of the Registrable Securities, as appropriate. In the case of an underwritten registration in which the number of Registrable Securities that may be included is limited, the Company shall advise the Holder of the limited number of Registrable Securities that may be included in the registration, and the number of Registrable Securities that may be included in the registration and underwriting shall be allocated among all Holders thereof in proportion, as nearly as practicable, to the respective amounts of Registrable Securities entitled to inclusion in such registration held by such Holders at the time of filing the registration statement. (e) The Company shall (together with all Holders proposing to distribute their securities through an underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for the underwriting. -6- 3.2 Expenses. -------- All expenses incurred in connection with any registration pursuant to this Warrant or Warrant Shares, including without limitation, all registration, filing and qualification fees, printing expenses, fees and disbursements of counsel for the Company, and expenses of any special audits incidental to or required by such registration, shall be borne by the Company; provided however the Company shall not be required to pay: (a) fees of legal counsel of any Holder, or underwriters' fees, discounts, commissions or expenses relating to Registrable Securities; and (b) for expenses that the Company is prohibited from paying under Blue Sky laws or by Blue Sky administrators. 3.3 Company Responsibilities. ------------------------ In the case of a piggyback registration of Warrant Shares, the Company shall use its best efforts to keep the Holder advised in writing as to the initiation, effectiveness and completion of such registration. At its expense the Company shall: (a) prepare and file a registration statement (and such amendments and supplements thereto) with respect to such Registrable Securities and use its best efforts to cause such registration statement to become and remain effective for a period of 180 days or until the Holder or Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; (b) furnish such number of copies of a Prospectus in conformity with the requirements of applicable law, and such other documents incident thereto as a Holder from time to time may reasonably request; and (c) use every reasonable effort to register or qualify the Registrable Securities covered by such registration statement under the state Blue Sky laws of such jurisdictions as the Company's Board of Directors may reasonably determine, and do any and all other acts and things which may be necessary under said Blue Sky laws to enable the sellers of the Registrable Securities to consummate the public sale or other disposition of the Registrable Securities owned by them in such jurisdictions, except that the Company shall not for any purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein the Registrable Securities are so qualified. -7- 3.4 Indemnification. --------------- (a) The Company shall indemnify the Holder, with respect to such registration effected pursuant to Section 3 hereof, against all claims, losses, damages and liabilities (or actions in respect thereto) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement or related Prospectus, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of any rule or regulation promulgated under any securities law applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, and shall reimburse the Holder and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, provided that the Company shall not be liable in any such case to the extent that any such claim, loss, damage or liability arises out of or is based on any untrue statement or omission based upon written information furnished to the Company in an instrument duly executed by such Holder specifically for use therein. (b) The Holder shall, if Registrable Securities held by or issuable to the Holder are included in the securities as to which such registration is being effected, indemnify the Company, each of its directors and officers who sign such registration statement, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company within the meaning of the Act, and each other Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement or related Prospectus, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse the Company and such Holders for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement or related Prospectus in reliance upon and in conformity with written information furnished to the Company in an instrument duly executed by such Holder specifically for use therein. (c) Each party entitled to indemnification under this Section 3.4 (the "Indemnified Party") shall give notice to the party required to provide -8- indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at such party's expense; and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 3.4. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement, which does not include as an unconditional term thereof, the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. 3.5 Holder's Obligations. The Holder shall furnish to the Company -------------------- such written information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be required in connection with any registration referred to in this Warrant. 3.6 Assignment. The rights granted to the Holder pursuant to this ---------- Warrant may be assigned to a transferee or assignee of the Warrant or any of the Registrable Securities, provided that the transferee or assignee is an affiliated entity of the Holder and the Company is given written notice at the time of or within 10 days after said transfer, stating the name and address of said transferee or assignee and identifying the Registrable Securities with respect to which such registration rights are being assigned. 4. Adjustments to Exercise Price and Warrant Shares. The Exercise Price ------------------------------------------------ in effect from time to time and the number of Warrant Shares shall be subject to adjustment in certain cases as set forth in this Section 4. 4.1 Subdivision or Combination. In the event the outstanding Common -------------------------- Stock shall be subdivided into a greater number of shares of Common Stock, the Exercise Price for the Warrant Shares shall, simultaneously with the effectiveness of such subdivision, be proportionately reduced and the number of Warrant Shares proportionately increased, and conversely, in case the outstanding Common Stock shall be combined into a smaller number of shares of Common Stock, the Exercise Price shall, simultaneously with the effectiveness of such combination, be proportionately increased and the number of Warrant Shares proportionately reduced. -9- 4.2 Adjustment for Reorganization, Consolidation, Merger. ---------------------------------------------------- (a) In case of any reorganization of the Company (or any other corporation the stock or other securities of which are receivable on the exercise of the Warrant) after the date on which this Warrant is first issued (the "Issuance Date"), or in case, after such date, the Company (or any such other corporation) shall consolidate with or merge into another corporation or convey all or substantially all of its assets to another corporation, then and in each such case the Warrantholder, upon exercise of the Warrant as provided in Section 1.2 hereof at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise of the Warrant prior to such consummation, the stock or other securities or property to which the Warrantholder would have been entitled upon such consummation if the Warrantholder had exercised or converted the Warrant immediately prior thereto; in each such case, the terms of this Warrant, including the exercise provisions of Section 1.2, shall be applicable to the shares of stock or other securities or property receivable upon the exercise or conversion of the Warrant after such consummation. (b) The Company shall not effect any consolidation, merger or conveyance of all or substantially all of its assets unless prior to the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation into or for the securities of which the previously outstanding stock of the Company shall be changed in connection with such consolidation or merger, or the corporation purchasing such assets, as the case may be, shall assume by written instrument, in form and substance satisfactory to the Warrantholder, executed and delivered in accordance with Section 5.4 hereof, the obligation to deliver to the Warrantholder such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Warrantholder is entitled to purchase. (c) If a purchase, tender or exchange offer is made to and accepted by the holders of more than 50% of the outstanding shares of Common Stock of the Company, the Company shall not effect any consolidation, merger or sale with the Person having made such offer or with any Affiliate of such Person, unless prior to consummation of such consolidation, merger or sale the Warrantholder shall have been given a reasonable opportunity to then elect to receive either the stock, securities or assets then issuable upon the exercise or conversion of the Warrant or, if different, the stock, securities or assets, or the equivalent, issued to previous holders of the Common Stock in accordance with such offer, computed as though the Warrantholder hereof had been, at the time -10- of such offer, a holder of the stock, securities or assets then purchasable upon the exercise or conversion of the Warrant. As used in this paragraph (c), the term "Person" shall mean and include an individual, a partnership, a corporation, a trust, a joint venture, an unincorporated organization and a government or any department or agency thereof, and an "Affiliate" of any Person shall mean any Person directly or indirectly controlling, controlled by or under direct or indirect common control with, such other Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. 4.3 Miscellaneous Exercise Matters. The Company shall at all times ------------------------------ reserve and keep available out of its authorized but unissued Common Stock the full number of Warrant Shares deliverable upon exercise of the Warrant Shares, as such number may change from time to time. Also, the Company shall, at its own expense, take all such actions and obtain all such permits and orders as may be necessary to enable the Company lawfully to issue the Warrant Shares upon the exercise of the Warrant. 4.4 No Dilution or Impairment. The Company will not, by amendment ------------------------- of its certificate of incorporation or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against dilution or other impairment. Without limiting the generality of the foregoing, the Company will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares upon the exercise or conversion of the Warrant. 4.5 Notice of Adjustment. When any adjustment is required to be -------------------- made in either the Exercise Price or the number of shares issuable upon exercise of the Warrant, the Company shall promptly notify the Warrantholder of such event, of the calculation by which such adjustment is to be made and of the resulting Exercise Price or conversion rate, as the case may be. 4.6 Duty to Make Fair Adjustments in Certain Cases. If any event ---------------------------------------------- occurs as to which in the opinion of the Board of Directors the other provisions of this Section 4 are not strictly applicable or if strictly applicable would not fairly protect the purchase and exercise rights of the Warrant in accordance with the essential intent and principles of such provisions, then the Board of Directors shall make an adjustment in -11- the application of such provisions, in accordance with such essential intent and principles, so as to protect such purchase rights as aforesaid. 5. Miscellaneous. ------------- 5.1 Entire Agreement. This Warrant constitutes the full and entire ---------------- understanding and agreements between the parties hereto with respect to the subjects hereof and thereof. 5.2 Successors and Assigns. The terms and conditions of this ---------------------- Warrant shall inure to the benefit of and be binding upon the respective successors and assigns of the parties hereto, except as expressly provided otherwise herein. 5.3 Governing Law. This Warrant shall be governed by and construed ------------- under the laws of the State of California. 5.4 Notices, Etc.. All notices and other communications required or ------------- permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery or upon the seventh day following mailing by registered air mail, postage prepaid, addressed (a) if to the Warrantholder, at ______________________ or at such other address as it shall have furnished to the Company in writing, (b) if to the Company, a copy should be sent to 1800 Sutter Street, Suite 400, Concord, California 94520 and addressed to the attention of the corporate secretary, or at such other address as the Company shall have furnished in writing to the Warrantholder, or (c) if to any other holder of any Warrant or of Warrant Shares issued upon conversion of the Warrant, at such address as such holder shall have furnished to the Company in writing, or, until such holder so furnishes an address to the Company, then to and at the address of the last holder of such Warrant or Warrant Shares who so furnished an address to the Company. 5.5 Delays or Omissions. No delay or omission to exercise any ------------------- right, power or remedy accruing to any holder of any securities issued or sold or to be issued or sold hereunder, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or in any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. -12- All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 5.6 Survival. The representations, warranties, covenants and -------- agreements made herein and or made pursuant to this Agreement shall survive the execution and delivery of this Agreement, except as expressly provided otherwise herein. 5.7 Waivers and Amendments. With the written consent of the record ---------------------- or beneficial holders of more than 50% of the Warrant Shares (treated as if converted), the obligations of the Company and the rights of the holders of the Warrant and the Warrant Shares may be waived (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely), and with the same consent the Company, when authorized by resolution of its Board of Directors, may enter into a supplemental agreement for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Warrant; provided, however, that no such waiver or supplemental agreement shall reduce the aforesaid percentage of the Warrant Shares, the holders of which are required to consent to any waiver or supplemental agreement, without the consent of the record or beneficial holders of all of the Warrant Shares (treated as if converted). Upon the effectuation of each such waiver, consent, agreement of amendment or modification, the Company promptly shall give written notice thereof to the record holders of the Warrant and the Warrant Shares. This Warrant or any provision hereof may not be changed, waived, discharged or terminated orally, but only by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, except to the extent provided in this Section 5.7. 5.8 Severability. If one or more provisions of this Warrant are ------------ held to be invalid, illegal or unenforceable under applicable law, such provision shall be modified in such manner as to be valid, legal and enforceable, but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement as if such provision were not included, in either case, and the balance of this Warrant shall not in any way be affected or impaired thereby and shall be enforceable in accordance with its terms. 5.9 Registered Holder. The Company may deem and treat the ----------------- registered Holder(s) hereof as the absolute owner(s) of this Warrant (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise or conversion hereof, of any distribution to the Holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. Other than as set forth herein, this Warrant does not entitle any Holder hereof to any rights of a stockholder of the Company. -13- 5.10 Titles and Subtitles. The titles of the sections and -------------------- subsections of this Warrant are for convenience and are not to be considered in construing this Warrant. IN WITNESS WHEREOF, Company has caused this Warrant to be signed by its duly authorized officer and issued as of the date set forth below. Dated: ANCHOR PACIFIC UNDERWRITERS, INC. By:________________________________________ James R. Dunathan Its: President/CEO -14- EXERCISE NOTICE (To be executed only upon exercise of Warrant) The undersigned registered owner of a Warrant of ANCHOR PACIFIC UNDERWRITERS, INC. (the "Company"), originally issued to _________________ irrevocably exercises such Warrant for the purchase of shares of Common Stock of the Company, purchasable with the Warrant, and hereby sets the place and date for the closing of such purchase as follows, all on the terms and conditions specified in the Warrant. Place of Closing:_______________________ Date of Closing:________________________ The undersigned requests that a certificate for such shares be registered in the name of ________, whose address is ____________________. If said number of shares is less than all of the shares of Common Stock purchasable under the Warrant, the undersigned requests that a new Warrant representing the remaining balance of such shares be registered in the name of __________, whose address is ____________________. Dated:_______________________ __________________________________ Signature of Registered Owner __________________________________ Street Address __________________________________ City State Zip -15- FORM OF ASSIGNMENT FOR VALUED RECEIVED, the undersigned registered owner of this Warrant issued by ANCHOR PACIFIC UNDERWRITERS, INC. hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant, with respect to the number of Shares of Common Stock set forth below: Name of Assignee Address No. of Shares - ---------------- ------- ------------- and does hereby irrevocably constitute and appoint _________ attorney to make such transfer on the books of ____________ maintained for such purpose, with full power of substitution in the premises. Dated:_______________________ __________________________________ Signature of Registered Owner __________________________________ Witness -16- EX-10.36 4 BUSINESS LOAN AGREEMENT DATED SEPTEMBER 30, 1999 EXHIBIT 10.36 [LOGO OF IMPERIAL BANK] PROMISSORY NOTE
- ---------------------------------------------------------------------------------------------------------- Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials $931,485.75 09-30-1999 10-07-2002 613521 900 JMC - ---------------------------------------------------------------------------------------------------------- Reference in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. - ---------------------------------------------------------------------------------------------------------- Borrower: ANCHOR PACIFIC UNDERWRITERS, INC. Lender: Imperial Bank 1800 Sulter St., #400 East Bay Regional Office Concord, CA 94520 1331 N. California Blvd., Suite 400 Walnut Creek, CA 94596-9504 ========================================================================================================== Principal Amount: $931,485.75 Initial Rate: 10.750% Date of Note: September 30, 1999
PROMISE TO PAY. ANCHOR PACIFIC UNDERWRITERS, INC. ("Borrower") promises to pay to Imperial Bank ("Lender"), or order, in lawful money of the United States of America, the principal amount of Nine Hundred Thirty One Thousand Four Hundred Eighty Five & 75/100 Dollars ($931,485.75), together with interest on the unpaid principal balance from September 30, 1999, until paid in full. PAYMENT. Subject to any payment changes resulting from changes in the index, Borrower will pay this loan in 35 principal payments of $16,500.00 each and one final principal and interest payment of $357,156.87. Borrower's first principal payment is due November 7, 1999, and all subsequent principal payments are due on the same day of each month after that. In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date. Borrower's first interest payment is due November 7, 1999, and all subsequent interest payments are due on the same day of each month after that. Borrower's final payment due October 7, 2002, will be for all principal and accrued interest not yet paid. The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs and any late charges, then to any unpaid interest, and any remaining amount to principal. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is the Imperial Bank Prime Rate (the "Index"). The Prime Rate is the rate announced by Lender as its Prime Rate of Interest from time to time. Lender will tell Borrower the current Index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each day. The Index currently is 8.250%. The interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 2.500 percentage points over the index, resulting in an initial rate of 10.750%. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. In any event, even upon full prepayment of this Note, Borrower understands that Lender is entitled to a minimum interest charge of $250.00. Other than Borrower's obligation to pay any minimum interest charge, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, they will reduce the principal balance due and may result in Borrower making fewer payments. LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to comply with or to perform when due any other term, obligation, covenant, or condition contained in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Any representation or statement made or furnished to Lender by Borrower or on Borrower's behalf is false or misleading in any material respect either now or at the time made or furnished. (d) Borrower becomes insolvent, a receiver is appointed for any part of Borrower's property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (e) Any creditor tries to take any of Borrower's property on or in which Lender has a lien or security interest. This includes a garnishment of any of Borrower's accounts with Lender. (f) Any guarantor dies or any of the other events described in this default section occurs with respect to any guarantor of this Note. (g) A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the indebtedness is impaired. (h) Lender in good faith deems itself insecure. If any default, other than a default in payment, is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured (and no event of default will have occurred) if Borrower, after receiving written notice from Lender demanding cure of such default: (a) cures the default within ten (10) days; or (b) if the cure requires more than ten (10) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Upon Borrower's failure to pay all amounts declared due pursuant to this section, including failure to pay upon final maturity, Lender, at its option, may also, if permitted under applicable law, do one or both of the following: (a) increase the variable interest rate on this Note to 7.500 percentage points over the Index, and (b) add any unpaid accrued Interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased rate). Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Los Angeles County, the State of California. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. (Initial Here JRD) This Note shall be governed by and construed in accordance with the laws of the State of California. DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if Borrower makes a payment on Borrower's loan and the check or preauthorized charge with which Borrower pays is later dishonored. RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts. CREDIT TERMS AND CONDITIONS AGREEMENT. This Note is subject to the provisions of the Credit Terms and Conditions Agreement dated September 30, 1997 and all amendments thereto and replacements therefor. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive any applicable statute of limitations, presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. PROMISSORY NOTE Page 2 (Continued) ================================================================================ PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. BORROWER: ANCHOR PACIFIC UNDERWRITERS, INC. /s/ James R. Dunathan - ---------------------------- Authorized Officer ================================================================================ EX-27 5 FINANCIAL DATA SCHEDULE
5 0000317781 ANCHOR PACIFIC UNDERWRITERS, INC. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 3,747,080 0 530,550 0 0 4,452,294 2,865,548 2,190,459 5,744,485 5,744,485 0 0 0 94,201 (1,636,436) 5,744,485 0 7,491,687 0 8,561,424 0 0 118,181 (1,236,777) 4,370 (1,241,147) 0 0 0 (1,241,147) (0.26) (0.26)
-----END PRIVACY-ENHANCED MESSAGE-----