SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
                          Commission File Number 1-8538

                             ASCENT ASSURANCE, INC.

                      (FORMERLY, WESTBRIDGE CAPITAL CORP.)
             (Exact Name of Registrant as Specified in its Charter)

         DELAWARE                                     73-1165000
(State or Other Jurisdiction of          (I.R.S. Employer Identification Number)
Incorporation or Organization)

110 West Seventh Street, Fort Worth, Texas                       76102
(Address of Principal Executive Offices)                       (Zip Code)

               Registrant's Telephone Number, Including Area Code:
                                 (817) 878-3300

        Registrant's Shareholder and Investor Relations Telephone Number:
                                 (817) 877-3048

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                      None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                          Common Stock (par value $.01)

                        Warrants to purchase Common Stock

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.      Yes _X_ No__

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in the definitive Proxy Statement or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.   _X_

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _X_ No__

The Registrant's Common Stock is not currently listed on a formal stock
exchange. The estimated market value of voting stock as presented in the
Registrant's Amended Disclosure Statement accompanying the First Amended Plan of
Reorganization dated October 30, 1998, as modified, ranged from $47 million to
$60 million. See ITEM 1 "Business." At March 24, 1999, 6,500,000 shares of
Common Stock were outstanding.


<PAGE>



                             ASCENT ASSURANCE, INC.
                      (FORMERLY, WESTBRIDGE CAPITAL CORP.)

                          1998 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS

                                     PART I

<TABLE>
<S>               <C>                                                                                        <C>
  ITEM 1.           Business.................................................................................  3

  ITEM 2.           Properties............................................................................... 18

  ITEM 3.           Legal Proceedings........................................................................ 18

  ITEM 4.           Submission of Matters to a Vote of Security Holders...................................... 19


                                     PART II

  ITEM 5.           Market for the Registrant's Common Stock and Related Stockholder Matters................. 20

  ITEM 6.           Selected Consolidated Financial Data..................................................... 22

  ITEM 7.           Management's Discussion and Analysis of Results of Operation and

                      Financial Condition.................................................................... 23

  ITEM 7A.          Quantitative and Qualitative Disclosures About Market Risk............................... 37

  ITEM 8.           Financial Statements and Supplementary Data.............................................. 39

  ITEM 9.           Changes in and Disagreements with Accountants on Accounting

                      and Financial Disclosure............................................................... 77

                                    PART III

ITEM 10.            Directors and Executive Officers of the Registrant....................................... 77

ITEM 11.            Executive Compensation................................................................... 77

ITEM 12.            Security Ownership of Certain Beneficial Owners and Management........................... 77

ITEM 13.            Certain Relationships and Related Transactions........................................... 77


                                     PART IV

ITEM 14.            Financial Statement Schedules, Exhibits and Reports on Form 8-K.......................... 78
</TABLE>


<PAGE>


                                     PART I

ITEM 1.  BUSINESS

GENERAL

Ascent Assurance, Inc. (formerly, Westbridge Capital Corp.) (the "Company") is
an insurance holding company engaged in the development, marketing, underwriting
and administration of medical expense and supplemental health insurance
products, primarily to self-employed individuals and small business owners. As
used herein, the term "Westbridge" refers to the pre-reorganized operations
and/or financial condition of Westbridge and its consolidated subsidiaries,
unless the context requires otherwise.

The Company's revenues result primarily from premiums from the insurance
products sold by its wholly owned subsidiaries (i) National Foundation Life
Insurance Company ("NFL") and its wholly owned subsidiary, Freedom Life
Insurance Company of America ("FLICA") and (ii) National Financial Insurance
Company ("NFIC") and its wholly owned subsidiary, American Insurance Company of
Texas ("AICT," and together with NFL, NFIC and FLICA, collectively, the
"Insurance Subsidiaries"). To a lesser extent, the Company derives revenue from
fee and service income generated from (i) commissions received from sales of
unaffiliated managed care and senior products, (ii) telemarketing services, and
(iii) printing services.

The Company was incorporated as a Delaware holding company for NFL in September
1982. The Company's executive offices are located at 110 West Seventh Street,
Fort Worth, Texas 76102 and its telephone number is (817) 878-3300.

VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 OF THE U.S. BANKRUPTCY CODE AND
CORPORATE REORGANIZATION

On September 16, 1998 (the "Petition Date"), Westbridge commenced a
reorganization case (the "Chapter 11 Case") by filing a voluntary petition for
relief under Chapter 11, Title 11 of the United States Code in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"), along
with a disclosure statement (as amended, the "Disclosure Statement") and a
proposed plan of reorganization (as amended, the "Plan"). The filing of the
Disclosure Statement and Plan culminated months of negotiations between
Westbridge and an ad hoc committee (the "Creditors' Committee") of holders of
its 11% Senior Subordinated Notes due 2002 (the "Senior Notes") and its 7-1/2%
Convertible Subordinated Notes due 2004 (the "Convertible Notes"). The
Disclosure Statement and the Plan were amended on October 28, 1998, and the
Disclosure Statement was approved by entry of an order by the Bankruptcy Court
on October 30, 1998. Following the approval of the Plan by the holders of
allowed claims and equity interests, the Bankruptcy Court confirmed the Plan on
December 17, 1998. The Plan became effective March 24, 1999 (the "Effective
Date").

In connection with its emergence from Chapter 11, Westbridge changed its
corporate name to "Ascent Assurance, Inc." Pursuant to the Plan, the Company's
Board of Directors was reconstituted as of the Effective Date into a classified
board consisting of six directors (with two directors in each class), three of
which were appointed by Credit Suisse First Boston Corporation ("CSFB"), one of
which was appointed by the Creditors' Committee and two of which were appointed
by the Company. Until June 24, 1999, the holders of the New Preferred Stock (as
defined below) have the right to designate one additional director. Also on the
Effective Date, the Company's certificates of incorporation and by-laws were
amended and restated in their entirety, copies of which are filed as an Exhibit
hereto.

The following summary of the Plan omits certain information set forth in the
Plan. Any statements contained herein concerning the Plan are not necessarily
complete, and in each such instance reference is made to the Plan, a copy of
which is incorporated by reference to Exhibit 2 of Westbridge's Current Report
on Form 8-K which was filed with the Securities and Exchange Commission on
December 29, 1998. Each such statement is qualified in its entirety by such
reference. The Plan provides for the recapitalization of certain old debt and
equity interests in Westbridge and the issuance of new equity securities and
warrants. Key terms of the Plan include the following:

CANCELLATION OF EXISTING SECURITIES

      Westbridge's capital structure was realigned and deleveraged (see NOTE 1 -
     "Reorganization And Emergence From Chapter 11 Case" in the Notes to the
     Company's Consolidated Financial Statements). Pursuant to the Plan, the
     following securities of Westbridge were canceled as of the Effective Date:
     (i) $23.3 million aggregate principal amount of, plus all accrued and
     unpaid interest on, the Senior Notes, (ii) $77.3 million aggregate
     principal amount of, plus all accrued and unpaid interest on, the
     Convertible Notes, (iii) $13.2 million aggregate liquidation preference of,
     plus all accrued and unpaid dividends on, Westbridge's Series A Convertible
     Redeemable Exchangeable Preferred Stock (the "Old Preferred Stock"), (iv)
     Westbridge's Common Stock, par value $.10 per share (the "Old Common
     Stock"), (v) all outstanding warrants to purchase Old Common Stock, (vi)
     all outstanding unexercised stock options to purchase Old Common Stock, and
     (vii) all unvested grants of restricted Old Common Stock.

NEW EQUITY CAPITAL STRUCTURE

      Pursuant to the Company's Amended and Restated Certificate of
     Incorporation, the total number of shares of stock the Company shall have
     the authority to issue is 30,040,000, consisting of 30,000,000 shares of
     common stock, par value $.01 per share (the "New Common Stock") and 40,000
     shares of preferred stock, par value $.01 per share, all of which are
     designated Series A Convertible Preferred Stock (the "New Preferred
     Stock").

DISTRIBUTIONS UNDER THE PLAN

         CASH DISTRIBUTION

               To the holders of Senior Notes other than CSFB, cash payments
              totaling approximately $15.2 million, which are equal to the total
              Allowed 11% Senior Note Claims (as defined in the Plan) held by
              creditors other than CSFB, will be distributed subject to
              completion of the exchange of securities as contemplated by the
              Plan. In order to provide the Company with sufficient funds to
              make the cash distribution to the holders of the Allowed 11%
              Senior Notes under the Plan, an affiliate of CSFB (the "CSFB
              Affiliate") purchased all of the shares of the New Preferred Stock
              which were not otherwise distributed under the Plan.

         ISSUANCE OF NEW SECURITIES

         Pursuant to the Plan and the purchase of New Preferred Stock on the
         Effective Date, 6,500,000 shares of New Common Stock and 23,257 shares
         of New Preferred Stock were issued on the Effective Date as follows:

               To holders of general unsecured claims and Convertible Notes as
              of December 10, 1998 and current management, 6,110,000 shares, or
              94%, of the New Common Stock issued on the Effective Date, subject
              to the completion of the exchange requirements as contemplated by
              the Plan. Holders of general unsecured claims and Convertible
              Notes will receive their first distribution of shares in partial
              satisfaction and discharge of their allowed claims beginning in
              April 1999. The remaining shares of New Common Stock are held for
              future distributions to such holders pending the final resolution
              of disputed claims.

               To holders of Old Preferred Stock as of December 10, 1998,
              260,000 shares, or 4%, of the New Common Stock issued on the
              Effective Date and Warrants ("New Warrants") to purchase an
              additional 277,505 shares, or 2%, of the number of shares of New
              Common Stock issued and outstanding on the Effective Date, on a
              fully diluted basis, subject to the completion of the exchange of
              securities as contemplated by the Plan.

               To holders of Old Common Stock as of December 10, 1998, 130,000
              shares, or 2%, of the New Common Stock issued on the Effective
              Date and New Warrants to purchase an additional 693,761 shares, or
              5%, of the number of shares of New Common Stock issued and
              outstanding on the Effective Date, on a fully diluted basis,
              subject to the completion of the exchange of securities as
              contemplated by the Plan. Fractional shares of New Common Stock
              will not be issued in connection with the Plan. As a result of
              this provision, certain holders of Old Common Stock will receive
              no distribution of New Common Stock or New Warrants under the
              Plan.

               To the CSFB Affiliate, in respect of the Senior Notes owned by
              CSFB as of December 10, 1998, 8,090 shares of New Preferred Stock
              which, together with the 15,167 additional shares of New Preferred
              Stock purchased by the CSFB Affiliate as described above, are
              convertible into 4,765,165 shares of the New Common Stock at an
              initial conversion price of $4.88 per share. As a result of the
              New Preferred Stock received by the CSFB Affiliate, together with
              the 3,093,998 shares of New Common Stock to be received by the
              CSFB Affiliate in respect of the Convertible Notes owned by CSFB,
              the CSFB affiliate will own approximately 56.6% of the New Common
              Stock on an as converted basis.

         RESERVATION OF ADDITIONAL NEW COMMON STOCK

               In connection with the New Warrants described above, 971,266
              shares of New Common Stock are reserved for issuance upon the
              exercise of New Warrants. The New Warrants are exercisable at an
              initial exercise price $9.04 per share of New Common Stock and
              will expire on March 24, 2004.

               Pursuant to the Plan, up to 1,251,685 shares, or 10%, of the
              fully diluted number of shares of New Common Stock issued and
              outstanding on the Effective Date are reserved for issuance to
              employees and directors, and up to 387,119 shares, or 3%, of the
              fully diluted number of shares of New Common Stock issued and
              outstanding on the Effective Date are reserved for issuance to the
              Company's marketing agents under the Company's 1999 Stock Option
              Plan.

OTHER MATTERS

      In connection with the approval and effectiveness of the Plan, the Company
     settled a putative class action brought on behalf of certain purchasers and
     sellers of Westbridge's Convertible Notes and Old Common Stock during the
     period October 31, 1996 through October 31, 1997.

MARKETING DISTRIBUTION SYSTEM

The Company markets health insurance products through its wholly owned
subsidiary, NationalCare(R) Marketing, Inc. ("NCM"). NCM recruits agents as
independent contractors to market the health insurance products underwritten by
the Insurance Subsidiaries. NCM's agents sell these insurance products on a
one-to-one basis to individuals who are either not covered under group insurance
protection normally available to employees of business organizations or who wish
to supplement existing coverage. See ITEM 7 - "Strategic Initiatives."

Agents' sales contacts generally result from leads generated either by the
Company's telemarketing subsidiary or through outside sources. By utilizing a
predictive automated dialing system, the Company believes its indirect wholly
owned telemarketing subsidiary, Precision Dialing Services, Inc. ("PDS") is able
to generate a large number of quality sales leads. By providing its agents with
these sales leads, the Company believes it can attract experienced agents as
well as new agents entering the business.

DESCRIPTION OF PRODUCTS

The major product lines currently marketed and underwritten by the Company's
Insurance Subsidiaries are Medical Expense products and Specified Disease
products (as defined below). Historically, the Insurance Subsidiaries have also
underwritten a significant amount of Medicare Supplement products designed to
provide reimbursement for certain expenses not covered by the Medicare program.
During 1997, the Insurance Subsidiaries significantly reduced the underwriting
of these products in favor of marketing the Medicare Supplement products of
other insurers due to the relatively low margins for these products. The
Insurance Subsidiaries continue to receive premiums on Medicare Supplement
policies sold prior to that date.

The Insurance Subsidiaries' products are designed with flexibility as to
benefits, deductibles, coinsurance and premium payments, which can be adapted to
meet regional sales or competitive needs, as well as those of the individual
policyholders. Set forth below is a summary of the principal products currently
underwritten by the Insurance Subsidiaries:

      MEDICAL EXPENSE PRODUCTS - These products are generally designed to
     reimburse insureds for eligible expenses incurred for hospital confinement,
     surgical expenses, physician services, outpatient services and the cost of
     medicines. The policies provide a number of options with respect to annual
     deductibles, coinsurance percentages, maximum benefits and stop-loss
     limits. After the annual deductible is met, the insured is responsible for
     a percentage of eligible expenses up to a specified stop-loss limit.
     Thereafter, eligible expenses are covered by the Insurance Subsidiaries up
     to certain maximum aggregate policy limits.

     The Medical Expense products are individually underwritten based upon
     medical information provided by the applicant prior to issue. Information
     provided in the application is verified with the applicant through a
     tape-recorded telephone conversation or through written correspondence. In
     addition, the Insurance Subsidiaries new Medical Expense products are
     stringently underwritten and include a para-med examination or other
     medical tests, depending on the age of the applicant. All such products are
     guaranteed renewable pursuant to the Health Insurance Portability and
     Accountability Act, 42 U.S.C. ss. 300 et seq. ("HIPAA").

      SPECIFIED DISEASE PRODUCTS - These products include indemnity policies for
     hospital confinement and convalescent care for treatment of specified
     diseases and "event specific" policies, which provide fixed benefits or
     lump sum payments upon diagnosis of certain types of internal cancer or
     other catastrophic diseases ("Specified Disease"). Benefits are payable
     directly to the insured following diagnosis of or treatment for a covered
     illness or injury. The payments are designed to help reduce the potential
     financial impact of these illnesses or injuries and may be used at the
     policyholder's discretion for any purpose, including offset of non-medical
     expenses or medical-related expenses not covered and paid for by the
     policyholder's other health insurance. The amount of benefits provided
     under the Specified Disease products is not necessarily reflective of the
     actual cost expected to be incurred by the insured as a result of the
     illness or injury. Specified Disease products are generally guaranteed
     renewable by contract, but are exempt from HIPAA.

The Company's operations are comprised of one segment, Accident and Health
insurance, which includes products underwritten and/or acquired by the Insurance
Subsidiaries. Premium revenue, in thousands, for each of the Insurance
Subsidiaries' major product lines is set forth below. Certain 1997 and 1996
amounts have been reclassified to conform to 1998 presentation.

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                    ------------------------------
                                                      1998       1997       1996
                                                    --------   --------   --------
<S>                                                <C>        <C>        <C>
ACCIDENT AND HEALTH INSURANCE:
     MEDICAL EXPENSE:
       Direct business
         First-year                                 $ 15,818   $ 26,972   $ 40,391
         Renewal                                      39,434     38,275     17,545
       Acquired business (1)                           9,389     10,384     13,971
                                                    --------   --------   --------
              Subtotal                                64,641     75,631     71,907
                                                    --------   --------   --------
     SPECIFIED DISEASE:
       Direct business
         First-year                                    1,504      1,173      1,217
         Renewal                                      14,221     12,216     12,520
       Acquired business (1) (2)                      16,639     19,802     20,477
                                                    --------   --------   --------
              Subtotal                                32,364     33,191     34,214
                                                    --------   --------   --------
     MEDICARE SUPPLEMENT:
       Direct business
         First-year                                    1,477      8,763     17,863
         Renewal                                      22,981     27,134     14,119
       Acquired business (1)                          13,612     15,546     17,788
                                                    --------   --------   --------
              Subtotal                                38,070     51,443     49,770
                                                    --------   --------   --------
              Total Accident and Health Insurance    135,075    160,265    155,891
                                                    --------   --------   --------
       Other                                             642        832        889
                                                    --------   --------   --------
              Total Premium Revenue                 $135,717   $161,097   $156,780
                                                    ========   ========   ========
</TABLE>


(1) Includes revenue from policies acquired in the acquisition of NFIC and AICT
in April 1994.

(2)  Includes revenue from policies acquired in the acquisition of FLICA's
     parent, Freedom Holding Company ("FHC"), in May 1996.

GEOGRAPHIC DISTRIBUTION

The Insurance Subsidiaries are licensed to conduct business in 40 states and the
District of Columbia. The distribution of premium revenue by state for the year
ended December 31, 1998, on a statutory accounting basis, was as follows:

                        Texas           22.3%
                        North Carolina   6.9%
                        Tennessee        6.4%
                        Arkansas         6.1%
                        Florida          5.6%
                        Georgia          5.1%
                        Mississippi      4.6%
                        South Carolina   4.2%
                        California       4.1%
                        Oklahoma         4.0%
                        All others      30.7%
                                        ----
                                       100.0%


<PAGE>



INVESTMENTS

Investment income is an important source of revenue, and the Company's return on
invested assets has a material effect on net income. The Company's investment
policy is subject to the requirements of regulatory authorities. In addition,
certain assets are held on deposit in specified states and invested in specified
securities in order to comply with state law. Although the Company closely
monitors its investment portfolio, available yields on newly-invested funds and
gains or losses on existing investments depend primarily on general market
conditions. The Company's investment portfolio is managed by Conseco Capital
Management, Inc., a registered investment advisor.

Investment policy is determined by the Board of Directors of the Company and
each of the Insurance Subsidiaries. The Company's current investment policy is
to balance its portfolio between long-term and short-term investments so as to
achieve long-term returns consistent with the preservation of capital and
maintenance of adequate liquidity to meet the payment of the Company's policy
benefits and claims. The current schedule of the Company's invested asset
maturities corresponds with the Company's expectations regarding anticipated
cash flow payments based on the Company's policy benefit and claim cycle, which
the Company believes is medium term in nature. The Company invests primarily in
fixed-income securities of the U.S. Government and its related agencies,
investment grade fixed-income corporate securities and mortgage-backed
securities. Also, up to 5% of the Company's assets may be invested in higher
yielding, non-investment grade securities.

The following table provides information on the Company's cash and invested
assets, in thousands, as of the dates indicated:

<TABLE>
<CAPTION>
                                                                December 31,
                                                        ------------------------------
                                                          1998       1997       1996
                                                        --------   --------   --------
<S>                                                     <C>        <C>        <C>     
Cash and cash equivalents                               $    278   $  1,030   $  1,013
                                                        --------   --------   --------
Bonds:
   U.S. Government and related agencies                   19,886     22,142     26,108
   State, county and municipal                             1,586      1,071        518
   Public utilities                                       13,421     11,273     11,016
   Industrial and miscellaneous                           87,971     94,263     53,955
                                                        --------   --------   --------
     Total Bonds                                         122,864    128,749     91,597
                                                        --------   --------   --------
Preferred stock                                            2,575      2,645        147
                                                        --------   --------   --------
Common stock                                                   -      2,125      1,449
                                                        --------   --------   --------
Other Invested Assets:
   Mortgage loans on real estate                             318        389        658
   Policy loans                                              280        284        282
   Short-term investments and certificates of deposit      5,393     12,654      8,072
   Investment real estate                                      -        566          -
                                                        --------   --------   --------
     Total Other Invested Assets                           5,991     13,893      9,012
                                                        --------   --------   --------
       Total Cash and Invested Assets                   $131,708   $148,442   $103,218
                                                        ========   ========   ========
</TABLE>


Included in the invested assets of the Company outlined in the preceding table
are certain high-yield debt securities which are below a "BBB" or equivalent
rating. These high-yield debt securities amounted to less than 3.2%, 1.6%, and
1.5% of the Company's total cash and invested assets at December 31, 1998, 1997
and 1996, respectively.

The following table summarizes consolidated investment results (excluding
unrealized gains or losses) for the periods shown:

<TABLE>
<CAPTION>
                                                               December 31,
                                                     --------------------------------
                                                       1998        1997        1996
                                                     --------    --------    --------
                                                    (in thousands, except percentages)

<S>                                                  <C>         <C>         <C>     
Total invested assets, cash and cash equivalents     $131,708    $148,442    $103,218
Net investment income (1)                               9,500       9,390       7,535
Net realized gains on investments                       2,142          84          96
Average gross annual yield on investments                7.0%        7.7%        7.2%
</TABLE>

(1)  Excludes interest on receivables from agents of $2.5 million, $1.6 million,
     and $1.2  million for the years ended  December  31,  1998,  1997 and 1996,
     respectively.


The following table summarizes the Company's fixed maturity securities,
excluding short-term investments and certificates of deposit, at December 31,
1998:

                            FIXED MATURITY SECURITIES

<TABLE>
<CAPTION>
                                                            Carrying
                                                          Value (1),(2)        %
                                                          ------------     --------
                                                         (in thousands)

<S>                                                     <C>              <C>
           U.S. Government and governmental
              agencies and authorities (except
              mortgage-backed)                            $     11,776           9.6
           States, municipalities and political
              subdivisions                                       1,586           1.3
           Finance                                              31,919          26.0
           Public utilities                                     13,421          10.9
           Mortgage-backed                                       8,110           6.6
           All other corporate bonds                            56,052          45.6
                                                          ------------      --------
              Total fixed maturity securities             $    122,864         100.0
                                                          ============      ========
</TABLE>


(1)  At December 31, 1998, all of the Company's fixed maturity securities are
     classified as available-for-sale and are carried at estimated market value.
     Estimated market value represents the closing sales prices of marketable
     securities.

(2) Investments in the debt securities of corporations are principally in
publicly-traded bonds.

Mortgage-backed securities represented approximately 6.6% of the estimated
market value of the Company's total invested assets at December 31, 1998. The
Company's mortgage-backed securities portfolio consists entirely of U.S.
government agency pass-through certificates. Currently, the Company does not own
any collateralized mortgage obligations or non-agency pass-through securities.
All of these U.S. government agency pass-through securities have an investment
rating of AAA and are designated by the National Association of Insurance
Commissioners ("NAIC") as Class 1 securities. Mortgage-backed securities
investors are compensated primarily for prepayment risk rather than credit
quality risk. During periods of significant interest rate volatility, the
underlying mortgages may repay more quickly or more slowly than anticipated. If
the repayment of principal occurs earlier than anticipated during periods of
declining interest rates, investment income may decline due to the reinvestment
of these funds at the lower current market rates. If the repayment of principal
occurs later than anticipated during periods of increasing interest rates, the
cost of funds to satisfy liabilities may increase due to the mismatching of
assets and liabilities.

The following table indicates by rating the composition of the Company's fixed
maturity securities portfolio, excluding short-term investments and certificates
of deposit, at December 31, 1998:

               COMPOSITION OF FIXED MATURITY SECURITIES BY RATING

<TABLE>
<CAPTION>
                                                           Carrying
                                                           Value (1)           %
                                                          ------------     --------
                                                         (in thousands)
<S>                                                      <C>              <C>
          RATINGS (2)
          Investment grade:
             U.S. Government and agencies                 $     19,886         16.2
             AAA                                                 2,289          1.9
             AA                                                 11,058          9.0
             A                                                  38,397         31.2
             BBB                                                47,045         38.3
          Non-Investment grade:
             BB                                                  2,118          1.7
             B and below                                         2,071          1.7
                                                          ------------     --------
               Total fixed maturity securities            $    122,864        100.0
                                                          ============     ========
</TABLE>


(1)  At December 31, 1998, all of the Company's fixed maturity securities are
     classified as available-for-sale and are carried at estimated market value.
     Estimated market value represents the closing sales prices of marketable
     fixed maturity securities.

(2)  Ratings are the lower of those assigned primarily by Standard & Poor's and
     Moody's, when available, and are shown in the table using the Standard &
     Poor's rating scale. Unrated securities are assigned ratings based on the
     applicable NAIC designation or the rating assigned to comparable debt
     outstanding of the same issuer. NAIC 1 fixed maturity securities have been
     classified as "A" and NAIC 2 fixed maturity securities have been classified
     as "BBB".

The NAIC assigns securities quality ratings and uniform prices called "NAIC
Designations," which are used by insurers when preparing their annual statutory
reports. The NAIC assigns designations to publicly-traded as well as
privately-placed securities. The ratings assigned by the NAIC range from Class 1
(highest quality rating) to Class 6 (lowest quality rating). The following table
summarizes the Company's fixed maturity securities according to NAIC
Designations and Standard & Poor's ratings at December 31, 1998:

                                NAIC DESIGNATIONS

<TABLE>
<CAPTION>
                                                            Carrying
                                                            Value (1)          %
                                                          ------------     --------
                                                         (in thousands)
               NAIC DESIGNATIONS (2)
<S>                                                      <C>              <C> 
               NAIC 1 (AAA, AA, A)                        $     71,630         58.3
               NAIC 2 (BBB)                                     47,045         38.3
               NAIC 3 (BB) and below                             4,189          3.4
                                                          ------------     --------
                  Total fixed maturity securities         $    122,864        100.0
                                                          ============     ========
</TABLE>


(1)  At December 31, 1998, all of the Company's fixed maturity securities are
     classified as available-for-sale and are carried at estimated market value.
     Estimated market value represents the closing sales prices of marketable
     fixed maturity securities.

(2)  Generally comparable to Standard & Poor's ratings. Comparisons between NAIC
     Designations and Standard & Poor's ratings are as published by the NAIC.

The scheduled contractual maturities of the Company's fixed maturity securities,
excluding short-term investments and certificates of deposit, at December 31,
1998 are shown in the table below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without penalties.

              COMPOSITION OF FIXED MATURITY SECURITIES BY MATURITY

<TABLE>
<CAPTION>
                                                   Carrying
                                                   Value (1)          %
                                                ------------      --------
                                                (in thousands)
       SCHEDULED MATURITY
<S>                                             <C>              <C>
       Due in one year or less                  $      1,889           1.5
       Due after one year through five years          32,254          26.2
       Due after five years through ten years         41,959          34.2
       Due after ten years                            38,652          31.5
       Mortgage-backed securities                      8,110           6.6
                                                ------------      --------
            Total fixed maturity securities     $    122,864         100.0
                                                ============      ========
</TABLE>


(1)  At December 31, 1998, all of the company's fixed maturity securities are
     classified as available-for-sale and are carried at estimated market value.
     Estimated market value represents the closing sales prices of marketable
     fixed maturity securities.

RESERVE POLICY

The Company's reserves consist of two separate components: claim reserves and
policy benefit reserves. Claim reserves are established by the Company for
benefit payments which have already been incurred by the policyholder but which
have not been paid by the Company. The Company's consulting actuary estimates
these reserves based upon an analysis of claim inventories, loss ratios and
historical claim payment studies. These estimates are developed in the aggregate
for claims incurred (whether or not reported).

Policy benefit reserves are established by the Company for benefit payments that
have not been incurred but which are estimated to be incurred in the future. The
policy benefit reserves are calculated according to the net level premium
reserve method and are equal to the discounted present value of the Company's
expected future policyholder benefits minus the discounted present value of its
expected future net premiums. These present value determinations are based upon
assumed fixed investment yields, the age of the insured(s) at the time of policy
issuance, expected morbidity and persistency rates, and expected future
policyholder benefits. Except for purposes of reporting to insurance regulatory
authorities and for tax filing, the Company's claim reserves and policy benefit
reserves are determined in accordance with generally accepted accounting
principles ("GAAP").

In determining the morbidity, persistency rate, claim cost and other assumptions
used in determining the Company's policy benefit reserves, the Company relies
primarily upon its own benefit payment history and upon information developed in
conjunction with actuarial consultants and industry data. The Company's
persistency rates have a direct impact upon its policy benefit reserves because
the determinations for this reserve are, in part, a function of the number of
policies in force and expected to remain in force to maturity. If persistency is
higher or lower than expected, future policyholder benefits will also be higher
or lower because of the different than expected number of policies in force, and
the policy benefit reserves will be increased or decreased accordingly.

The Company's reserve requirements are also interrelated with product pricing
and profitability. The Company must price its products at a level sufficient to
fund its policyholder benefits and still remain profitable. Because the
Company's claim and policyholder benefits represent the single largest category
of its operating expenses, inaccuracies in the assumptions used to estimate the
amount of such benefits can result in the Company failing to price its products
appropriately and to generate sufficient premiums to fund the payment thereof.
The sharp increase in claim loss ratios experienced by the Company during the
second and third quarters of 1997 were indicative of inadequate pricing in the
Company's old Medical Expense and Medicare Supplement products. See ITEM 7 -
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."

Because the discount factor used in calculating the Company's policy benefit
reserves is based upon the rate of return of the Company's investments designed
to fund this reserve, the amount of the reserve is dependent upon the yield on
these investments. Provided that there is no material adverse experience with
respect to these benefits, changes in future market interest rates will not have
an impact on the profitability of policies already sold. Because fluctuations in
future market interest rates affect the Company's yield on new investments, they
also affect the discount factor used to establish, and thus the amount of, its
policy benefit reserves for new sales. In addition, because an increase in the
policy benefit reserves in any period is treated as an expense for income
statement purposes, market interest rate fluctuations can directly affect the
Company's profitability for policies sold in such period. It is not possible to
predict future market interest rate fluctuations.

In accordance with GAAP, the Company's actuarial assumptions are generally
fixed, and absent materially adverse benefit experience, they are not generally
adjusted. The Company monitors the adequacy of its policy benefit reserves on an
ongoing basis by periodically analyzing the accuracy of its actuarial
assumptions. The adequacy of the Company's policy benefit reserves may also be
impacted by the development of new medicines and treatment procedures which may
alter the incidence rates of illness and the treatment methods for illness and
accident (such as out-patient versus in-patient care) or prolong life
expectancy. Changes in coverage provided by major medical insurers or government
plans may also affect the adequacy of the Company's reserves if, for example,
such developments had the effect of increasing or decreasing the incidence rate
and per claim costs of occurrences against which the Company insures. An
increase in either the incidence rate or the per claim costs of such occurrences
could result in the Company needing to post additional reserves, which could
have a material adverse effect upon its business, financial condition or results
of operations.

The Company's Insurance Subsidiaries are required to report their results of
operations and financial position to state regulatory agencies based upon
statutory accounting practices ("SAP"). Under SAP, certain assumptions used in
determining the policy benefit reserves, such as claim costs and investment
result assumptions, are often more conservative than those appropriate for use
by the Company under GAAP. In particular, SAP interest rate assumptions for
investment results are fixed by statute and are generally lower than those used
by the Company under GAAP. Another significant difference is that under SAP,
unlike GAAP, the Company is required to expense all sales and other policy
acquisition costs as they are incurred rather than capitalizing and amortizing
them over the expected life of the policy. The effect of this requirement is
moderated by the allowance under SAP of an accounting treatment known as the
"two year preliminary term" reserve valuation method. This reserve method allows
the Company to defer any accumulation of policy benefit reserves until after the
second policy year. The immediate charge off of sales and acquisition expenses
and the sometimes conservative claim cost and other valuation assumptions under
SAP generally cause a lag between the sale of a policy and the emergence of
reported earnings. Because this lag can reduce the Company's gain from
operations on a SAP basis, it can have the effect of reducing the amount of
funds available for dividend distributions from the Insurance Subsidiaries to
Westbridge. See ITEM 7 - "Liquidity, Capital Resources and Statutory Capital and
Surplus - Insurance Subsidiaries."

REINSURANCE

CEDED. As is customary in the insurance industry, the Company's Insurance
Subsidiaries reinsure portions of the coverage provided to policyholders to
other insurance companies on both an excess of loss and coinsurance basis.
Cession of reinsurance is utilized by an insurer to limit its maximum loss
thereby providing a greater diversification of risk and minimizing exposures on
larger risks. Reinsurance does not discharge the primary liability of the
original insurer with respect to such insurance, but the Company, in accordance
with prevailing insurance industry practice, reports reserves and claims after
adjustment for reserves and claims ceded to other companies through reinsurance.

The Company, through NFL and FLICA, entered into a 90% Coinsurance Funds
Withheld Reinsurance Agreement (the "Coinsurance Agreement") with a reinsurer
effective July 1, 1996 on the in force Cancer, Heart and Intensive Care
business. The Coinsurance Agreement provided an initial ceding commission of
$10.5 million, of which $8.4 million was received in cash. On May 1, 1997, the
Coinsurance Agreement was terminated and recaptured. Consistent with the terms
of the agreement, the unpaid portion of the initial ceding commission allowance
was repaid inclusive of interest at 15.0%. For the years ended December 31, 1997
and 1996, the amount repaid was approximately $8.6 million and $1.9 million,
respectively. See NOTE 13 - "Reinsurance" and NOTE 15 "Extraordinary Item" to
the Company's Consolidated Financial Statements.

The Company generally does not cede risks associated with its Medicare
Supplement products. However, 100% of the Company's risks under its Accidental
Death policies currently in force are reinsured. The Company also reinsures its
risks under the Medical Expense products on an excess of loss basis so that its
maximum payment to any one beneficiary during any one-year period is limited
($100,000 in 1998) for any accident or illness. In 1998, NFL entered into an
excess of loss reinsurance agreement on a closed block of annually renewable
term life insurance. NFL's retention limit is $25,000 per year, and $22,046 of
premiums were paid to the reinsurer for the year ended December 31, 1998. No
other life insurance products were reinsured during 1998, 1997 or 1996. In
accordance with industry practice, the reinsurance agreements in force with
respect to these policies are terminable by either party with respect to claims
incurred after the termination and expiration dates.

ASSUMED. In the past, the Company has utilized coinsurance agreements to assume
premiums and increase revenues. NFL and FLICA were party to such arrangements
prior to NFL's acquisition of FHC. In 1996, prior to this acquisition, $4
million in premiums were assumed by NFL. Subsequent to the acquisition, those
coinsurance arrangements were canceled.

COMPETITION

The accident and health insurance industry is highly competitive and includes a
large number of insurance companies, many of which have substantially greater
financial resources, broader and more diversified product lines, favorable
ratings from A.M. Best Company, Inc. ("A.M. Best") and larger staffs than the
Company. The Company competes with other insurers to attract and retain the
allegiance of its agents that, at this time, are responsible for a significant
portion of the Company's revenues. Competitive factors applicable to the
Company's business include product mix, policy benefits, service to
policyholders and premium rates. The Insurance Subsidiaries are not currently
rated with A.M. Best. The Company believes that its lack of an A.M. Best rating
is not a significant factor affecting its ability to sell its products in the
markets that it serves.

Private insurers and voluntary and cooperative plans, such as Blue Cross and
Blue Shield and HMOs, provide various alternatives for defraying hospitalization
and medical expenses. Much of this insurance is sold on a group basis to
employer sponsored groups. The federal and state governments also provide
programs for the payment of the costs associated with medical care through
Medicare and Medicaid. These major medical programs generally cover a
substantial amount of the medical expenses incurred as a result of accidents or
illnesses. The Company's Medical Expense products are designed to provide
coverage which is similar to these major medical insurance programs but are sold
primarily to persons not covered by an employer sponsored group.

The Company's Specified Disease products are designed to provide coverage which
is supplemental to major medical insurance and may be used to defray nonmedical
as well as medical expenses. Since these policies are sold to complement major
medical insurance, the Company competes only indirectly with those insurers
providing major medical insurance. However, expansion of coverage by other
insurers could adversely affect the Company's business, financial condition or
results of operations. Medicare Supplement products are designed to supplement
the Medicare program by reimbursing for expenses not covered by such program. To
the extent that future government programs reduce participation by private
entities in such government programs, the Company's business, financial
condition or results of operations could be adversely affected.

The Company competes directly with other insurers offering similar products and
believes that its current benefits and premium rates are generally competitive
with those offered by other companies. Management believes that service to
policyholders and prompt and fair payment of claims continue to be important
factors in the Company's ability to remain competitive.

In addition to product and service competition, there is also very strong
competition within the accident and health insurance market for qualified,
effective agents. The recruitment and retention of such agents is important to
the success and growth of the Company's business. Management believes that the
Company is competitive with respect to the recruitment and training of agents.
However, there can be no assurance that the Company will be able to continue to
recruit or retain qualified, effective agents. The inability of the Company to
adequately recruit and retain agents could have a material adverse effect upon
the Company's business, financial condition or results of operations.

Managed health care organizations also operate in a highly competitive
environment and in an industry that is currently subject to significant changes
from business consolidations, legislative reform, aggressive marketing practices
and market pressures. The Company's ability to increase its fee and service
income by expanding its marketing of managed care and senior products
underwritten primarily by unaffiliated HMOs and other managed care organizations
may be adversely affected by the changes within this industry.

REGULATION

The Company and its Insurance Subsidiaries are subject to regulation and
supervision in all jurisdictions in which they conduct business. In general,
state insurance laws establish supervisory agencies with broad administrative
powers relating to, among other things, the granting and revoking of licenses to
transact business, regulation of trade practices, premium rate levels, premium
rate increases, licensing of agents, approval of content and form of policies,
maintenance of specified minimum statutory reserves and statutory capital and
surplus, deposits of securities, form and content of required financial
statements, nature of investments and limitations on dividends to stockholders.
The purpose of such regulation and supervision is primarily to provide
safeguards for policyholders rather than to protect the interests of
stockholders.

The Insurance Subsidiaries' health insurance products are subject to rate
regulation by state insurance departments, which generally require the
maintenance of certain minimum loss ratios. The states in which the Company is
licensed have the authority to change the minimum mandated statutory loss ratios
to which the Company is subject, the manner in which these ratios are computed
and the manner in which compliance with these ratios is measured and enforced.
Most states in which the Company writes health insurance products have adopted
the loss ratios recommended by the NAIC. The Company is unable to predict the
impact of (i) any changes in the mandatory statutory loss ratios relating to
products offered by the Company or (ii) any change in the manner in which these
minimums are computed or enforced in the future. The Company has not been
informed by any state that it does not meet mandated minimum ratios, and the
Company believes that it is in compliance with all such minimum ratios. In the
event the Company is not in compliance with minimum statutory loss ratios
mandated by regulatory authorities, the Company may be required to reduce or
refund premiums, which could have a material adverse effect on the Company's
business, financial condition or results of operations. Similarly, the Company's
ability to increase its premium rates in response to adverse loss ratios is
subject to regulatory approval. Failure to obtain such approval could have a
material adverse effect on the Company's business, financial condition and
results of operations.

In 1998, the NAIC adopted the Codification of Statutory Accounting Principles
guidance, which will replace the current Accounting Practices and Procedures
manual as the NAIC's primary guidance on statutory accounting. The NAIC is now
considering amendments to the Codification guidance that would also be effective
upon implementation. The NAIC has recommended an effective date of January 1,
2001. The Codification provides guidance for areas where statutory accounting
has been silent and changes current statutory accounting in certain areas. It is
not known whether the insurance departments of the state of domicile of the
Company's Insurance Subsidiaries will adopt the Codification or whether those
insurance departments will make any changes to that guidance. The Company has
not estimated the potential effect of the Codification guidance if adopted.
However, the actual effect of adoption could differ as changes are made to the
Codification guidance, prior to its recommended effective date of January 1,
2001.

In December 1992, the NAIC adopted the Risk-Based Capital for Life and/or Health
Insurers Model Act ("the Model Act"). The Model Act provides a tool for
insurance regulators to determine the levels of statutory capital and surplus an
insurer must maintain in relation to its insurance and investment risks and
whether there is a need for possible regulatory attention. The Model Act (or
similar legislation or regulation) has been adopted in states where the
Insurance Subsidiaries are domiciled. The Model Act provides four levels of
regulatory attention, varying with the ratio of the insurance company's total
adjusted capital (defined as the total of its statutory capital and surplus,
asset valuation reserve and certain other adjustments) to its risk-based capital
("RBC"). If a company's total adjusted capital is less than 100 percent but
greater than or equal to 75 percent of its RBC, or if a negative trend (as
defined by the NAIC) has occurred and total adjusted capital is less than 125
percent of RBC (the "Company Action Level"), the company must submit a
comprehensive plan aimed at improving its capital position to the regulatory
authority proposing corrective actions. If a company's total adjusted capital is
less than 75 percent but greater than or equal to 50 percent of its RBC (the
"Regulatory Action Level"), the regulatory authority will perform a special
examination of the company and issue an order specifying the corrective actions
that must be followed. If a company's total adjusted capital is less than 50
percent but greater than or equal to 35 percent of its RBC (the "Authorized
Control Level"), the regulatory authority may take any action it deems
necessary, including placing the company under regulatory control. If a
company's total adjusted capital is less than 35 percent of its RBC (the
"Mandatory Control Level"), the regulatory authority must place the company
under its control. The NAIC's requirements are effective on a state by state
basis if, and when, they are adopted by the regulators in the respective states.
The Insurance Departments of the States of Delaware and Mississippi have each
adopted the NAIC's Model Act. At December 31, 1998, total adjusted capital for
NFL, a Delaware domiciled company, and FLICA, a Mississippi domiciled company,
exceeded the respective Company Action Levels.

The Texas Department of Insurance ("TDI") has adopted its own RBC requirements,
the stated purpose of which is to require a minimum level of statutory capital
and surplus to absorb the financial, underwriting and investment risks assumed
by an insurer. Texas' RBC requirements differ from those adopted by the NAIC in
two principal respects: (i) they use different elements to determine minimum RBC
levels in their calculation formulas and (ii) they do not stipulate "Action
Levels" (like those adopted by the NAIC) where corrective actions are required.
However, the Commissioner of the TDI does have the power to take similar
corrective actions if a company does not maintain the required minimum level of
statutory capital and surplus. NFIC and AICT are domiciled in Texas and must
comply with Texas RBC requirements. At December 31, 1998, AICT's RBC exceeded
the minimum level prescribed by the TDI; however, NFIC's RBC was below the
minimum level prescribed by the TDI.

As a result of the statutory losses sustained by the Insurance Subsidiaries
since 1997, material transactions are subject to the approval by the department
of insurance in each domiciliary state. In December 1997, NFIC, in response to
these losses as well as the projected inability to meet RBC requirements, took
appropriate steps to voluntarily cease the sale and underwriting of new
business. In the second quarter of 1998, AICT significantly reduced the level of
sales and underwriting of new business. NFIC and AICT have also entered into a
voluntary consent order, pursuant to Article 1.32 of the Texas Insurance Code,
providing for the continued monitoring of the operations of NFIC and AICT by the
TDI. The Company has no current plans to underwrite new products in NFIC.

The Insurance Subsidiaries are subject to periodic examinations by state
regulatory authorities as part of their routine regulatory oversight process.
Mississippi is currently finalizing an examination of FLICA. In addition,
Missouri is in the process of finalizing a market conduct examination of the
Insurance Subsidiaries. Management does not expect the issuance of either
examination report to have a material effect on the financial condition of the
Company.

Many states have enacted insurance holding company laws that require
registration and periodic reporting by insurance companies within their
jurisdictions. Such legislation typically places restrictions on, or requires
prior notice or approval of, certain transactions within the holding company
system, including, without limitation, dividend payments from insurance
subsidiaries and the terms of loans and transfers of assets within the holding
company structure.

Generally, before the Company is permitted to market an insurance product in a
particular state, it must obtain regulatory approval from that state and adhere
to that state's insurance laws and regulations which include, among other
things, specific requirements regarding the form, language, premium rates and
policy benefits of that product. Consequently, although the Company's policies
generally provide for the same basic types and levels of coverage in each of the
states in which they are marketed, the policies are not precisely identical in
each state or other jurisdiction in which they are sold. Such regulation may
delay the introduction of new products and may impede, or impose burdensome
conditions on, rate increases or other actions that the Company may wish to take
in order to enhance its operating results. In addition, federal or state
legislation or regulatory pronouncements may be enacted that may prohibit or
impose restrictions on the ability to sell certain types of insurance products
or impose other restrictions on the Company's operations. For example, certain
states in which the Company does business have adopted NAIC model statutes and
regulations relating to market conduct practices of insurance companies. Any
limitations or other restrictions imposed on the Company's market conduct
practices by the regulators of a state that has adopted the model statutes and
regulations may also be imposed by the regulators in other states which have
adopted such statutes and regulations. No assurances can be given that future
legislative or regulatory changes will not adversely affect the Company's
business, financial condition or results of operations.

Four states, Connecticut, Massachusetts, New Jersey and New York, have adopted
statutes or insurance department regulations that either prohibit sales of
policies that offer only "specified or dread disease" coverage (such as that
provided by certain of the Company's Specified Disease products) or require that
such coverage be offered in conjunction with other forms of health insurance.
The Company has never written insurance in those states and does not currently
intend to enter those markets. The Company has no knowledge of legislative
initiatives that would limit or prohibit the sale of "specified or dread
disease" policies in other states in which the Company operates.

The Company may be required, under the solvency or guaranty laws of most states
in which it does business, to pay assessments (up to prescribed limits) to fund
policyholder losses or liabilities of insurance companies that become insolvent.
Non-affiliated insurance company insolvencies increase the possibility that such
assessments may be required. These assessments may be deferred or forgiven under
most guaranty laws if they would threaten an insurer's financial strength and,
in certain instances, may be offset against future premium taxes. The incurrence
and amount of such assessments may increase in the future without notice. The
Company pays the amount of such assessments as they are incurred. Assessments
that cannot be offset against future premium taxes are charged to expense.
Assessments that qualify for offset against future premium taxes are capitalized
and are offset against such future premium taxes. As a result of such
assessments, the Company paid approximately $23,000 during the year ended
December 31, 1998.

Traditionally, the U.S. Government has not directly regulated the insurance
business. However, the adoption of HIPAA, as well as other proposed federal
initiatives, impacts the insurance business in a variety of ways. Current and
proposed federal measures that may significantly affect the insurance industry
include controls on the cost of medical care, medical entitlement programs
(e.g., Medicare), guaranteed renewability and portability of certain coverage,
and minimum solvency requirements for insurers.

HEALTH CARE REFORM

Numerous proposals have been introduced in Congress and various state
legislatures to reform the present health care system. Proposals have included,
among other things, modifications to the existing employer-based insurance
system, a quasi-related system of "managed competition" among health plans and a
single-payer, public program. Most of these proposals are specifically directed
at the individual and small group health care market, which is a significant
portion of the Company's health business. At present, most health care reform,
other than that related to the Medicare program, is taking place at the state
level. A number of states have passed or are considering legislation that would
limit the differentials in rates that insurers could charge between new business
and renewal business with respect to similar demographic groups. State
legislation also has been adopted or is being considered that would make health
insurance available to all small groups by requiring coverage of all employees
and their dependents, by limiting the applicability of pre-existing conditions
exclusions, by requiring insurers to offer a basic plan exempt from certain
mandated benefits as well as a standard plan, and by establishing a mechanism to
spread the risk of high risk employees to all small group insurers.

In 1996, Congress enacted HIPAA, also commonly referred to as the
Kennedy-Kassenbaum Bill. HIPAA provisions are applicable to both insured and
self-funded employer group coverages and include minimum standards for
pre-existing condition exclusions, waiver of pre-existing condition exclusions
for individuals meeting minimum prior coverage requirements and prohibition of
health related exclusions of individuals from employer group coverage. HIPAA
also provides guaranteed acceptance of small employers with 2 to 50 employees
for insured coverage. In other respects, HIPAA's group and small group
provisions are largely in line with state small group reform laws already
enacted by the large majority of states. In the individual market, HIPAA
requires guaranteed acceptance for eligible individuals moving out of group
plans who have at least 18 months of prior coverage. However, most states have
or are expected to amend their laws to alleviate any inconsistencies with the
federal minimum standards. States which have not already enacted all of the
HIPAA group and small group standards may enact state reforms consistent with
HIPAA. The final outcome of state amendments or new legislation, as well as
federal regulations addressing these provisions, cannot be predicted.

The Company cannot predict what effect, if any, yet-to-be enacted health care
legislation or proposals will have on the Company if and when enacted. The
Company believes that the current political environment in which it operates
will result in continued legislative scrutiny of health care reform and may lead
to additional legislative initiatives. No assurance can be given that enactment
of any federal and/or state health care reforms will not have a material effect
on the Company's business, financial condition or results of operations.

HOME OFFICE OPERATIONS

The Company's operations are conducted primarily at its Fort Worth office (the
"Home Office"). See ITEM 2 "Properties." The functions carried out at the Home
Office include policy issue, underwriting, policyowner service, claims
processing, agency service, and other administrative functions such as data
processing, legal, accounting and actuarial.

The Company's policy issue and underwriting departments review policy
applications. Although industry practice does not require physical examinations
and tests before a Medical Expense policy is issued, the Company has adopted
more stringent underwriting practices for its new Medical Expense products by
requiring a para-med examination or other medical tests, depending on the age of
the applicant. In addition, the Company's underwriting personnel will generally
telephone an applicant for a Medical Expense product to verify the information
set forth in the policy application and the policy benefits being sold and will
often contact the applicant's physician in the verification process. These
verification telephone calls are recorded for the protection of the applicant
and the Company. Applicants for the Company's Specified Disease products must
certify in writing that they meet certain health standards established by the
Company before the policy will be issued.

The Company's policyowner service department and agency service department are
responsible for responding to policyowner and agent requests for information or
services. The claims processing department reviews benefit claims submitted by
policyowners, determines the benefits payable and processes the claim payments.

EMPLOYEES

At December 31, 1998, the Company employed 388 persons. The Company has not
experienced any work stoppages, strikes or business interruptions as a result of
labor disputes involving its employees, and the Company considers its relations
with its employees to be good.

ITEM 2.  PROPERTIES

On May 1, 1998, the Company moved its principal offices from 777 Main Street,
Fort Worth, Texas, to 110 West Seventh Street, Fort Worth, Texas. The lease for
the new facility expires in April, 2003. Westbridge Printing Services, Inc.
("WPS"), the Company's wholly owned printing subsidiary which prints all
policies, forms and brochures of the Insurance Subsidiaries, maintains its
facility at 7333 Jack Newell Boulevard North, Fort Worth, Texas, under a lease
agreement which expires in October, 2005. The Company also leases certain sales
offices for its affiliated marketing agencies in Arizona and California. The
Company believes that the newly leased facilities will meet its existing needs
and that the leases can be renewed or replaced on reasonable terms if necessary.

ITEM 3.  LEGAL PROCEEDINGS

EMERGENCE FROM CHAPTER 11 CASE

As more fully described in ITEM 1 - "Business," Westbridge's Plan was confirmed
by the Bankruptcy Court on December 17, 1998 and, after the satisfaction of a
number of conditions, the Plan became effective on March 24, 1999.
Notwithstanding the confirmation and effectiveness of the Plan, the Bankruptcy
Court continues to have jurisdiction to, among other things, resolve disputed
prepetition claims against Westbridge, resolve matters related to the
assumption, assumption and assignment, or rejection of executory contracts
pursuant to the Plan, and to resolve other matters that may arise in connection
with or relate to the Plan. Except as described below, provision was made under
the Plan in respect of all prepetition liabilities of Westbridge.

Pursuant to the Plan, Westbridge's obligations in respect of certain classes of
disputed prepetition claims that may ultimately be allowed by the Bankruptcy
Court would be satisfied via the issuance of New Common Stock. The Company is
withholding 257,106 shares of the New Common Stock in a reserve account from
which the settlement of any such outstanding claims would be satisfied under the
Plan. The Company is disputing outstanding claims, which in the aggregate are
less than $5.0 million. While there can be no assurance that the actual amounts
of such disputed claims that are ultimately allowed by the Bankruptcy Court will
not exceed the estimated amounts thereof, management does not expect that any
variance between such actual and estimated amounts will have a material adverse
effect on the Company's financial position.

PUTATIVE CLASS ACTION COMPLAINT

On December 17, 1997, a purported class action complaint, naming Westbridge,
three former directors of Westbridge, and two underwriters of the Westbridge's
Convertible Notes as defendants, was filed in the United States District Court
for the Northern District of Texas on behalf of persons who purchased securities
of the Company during the period October 31, 1996 through October 31, 1997. The
complaint alleged that Westbridge materially overstated its earnings due to the
establishment of inadequate reserves for pending insurance claims.

In October 1998, a preliminary settlement agreement was reached by and among the
parties to the complaint. The final settlement agreement was approved by the
Bankruptcy Court on December 17, 1998 and by the District Court pursuant to a
final judgment entered on January 20, 1999. The settlement did not involve an
admission of liability by any party.

OTHER LEGAL PROCEEDINGS

In the normal course of its business operations, the Company is involved in
various claims and other business related disputes. In the opinion of
management, the Company is not a party to any pending litigation the disposition
of which would have a material adverse effect on the Company's business,
financial position or its results of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Plan and the related Disclosure Statement were transmitted to all impaired
creditors and equity security holders of the Company along with ballots for the
purpose of soliciting acceptances of the Plan. At a hearing to consider
confirmation of the Plan, the Bankruptcy Court found that the Plan was accepted
by holders of approximately 99.9%, in dollar amount, and 97.1%, in number of
holders, of general unsecured claims and Convertible Notes held by creditors
that timely voted to accept or reject the Plan, and that the Plan was accepted
by the holders of approximately 76.9% and 97.5%, respectively, in amount of
shares held by Old Preferred Stock and Old Common Stock holders that timely
voted to accept or reject the Plan. The ballots contained no provision for
abstentions. As a result, ballots that were not returned and invalid ballots had
no effect on the outcome of the vote on the Plan. A summary of the valid ballots
cast is as follows:

<TABLE>
<CAPTION>
                                                              Ballots                   Ballots
                                                            Accepting Plan          Rejecting Plan
                                                            ------------            ------------
<S>                                                                  <C>                       <C>
Holders of general unsecured claims and Convertible Notes            103                       3
Holders of Old Preferred Stock interests                               5                       2
Holders of Old Common Stock interests                                490                      26
</TABLE>


EXECUTIVE OFFICERS OF REGISTRANT

The Company's executive officers are as follows:

<TABLE>
<CAPTION>
                                                                              Years with
   Officer Name         Age            Position with the Company              the Company
--------------------  -------    -----------------------------------------   --------------

<S>                     <C>                                                         <C>
Patrick J. Mitchell     40       Chairman of the Board and Chief Executive          3
                                  Officer

Patrick H. O'Neill      48       Executive Vice President, General Counsel          1
                                  and Secretary
</TABLE>


Mr. Mitchell has served as Chairman of the Board and Chief Executive Officer
since September 1998. He has also been serving as President, Chief Operating
Officer, Chief Financial Officer, Treasurer and Director since October 1997. Mr.
Mitchell had served as Executive Vice President, Chief Financial Officer and
Treasurer since May 1996 and joined the Company in August 1995 as Vice
President, Chief Financial Officer and Treasurer. Mr. Mitchell is also the
Chairman of the Board, Chief Executive Officer, President and Director of NFL,
NFIC, AICT and FLICA. Prior to joining Westbridge, he served as Vice President,
Finance for Bankers Life and Casualty Company. From 1989 to 1993, Mr. Mitchell
was Assistant Vice President, Finance for Reliance Standard Life Insurance
Company.

Mr. O'Neill joined the Company in September 1997 as Senior Vice President,
General Counsel and Secretary. In November 1997, Mr. O'Neill was promoted to
Executive Vice President. In addition, Mr. O'Neill serves as Senior Vice
President, General Counsel, Secretary and Director of NFL, NFIC, AICT and FLICA.
Prior to joining Westbridge and since 1990, Mr. O'Neill served as founder and
President of the Law Offices of Patrick H. O'Neill, P.C. Prior to 1990, Mr.
O'Neill was a partner in the Law Firm of Camp, Jones, O'Neill, Hall & Bates.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCK-HOLDER MATTERS

COMMON STOCK

Pursuant to the Plan, on the Effective Date (i) 6,500,000 shares of New Common
Stock and 971,266 New Warrants were delivered to LaSalle National Bank, as
exchange agent, for distribution as described above (see ITEM 1 "Business"), and
(ii) 23,257 shares of New Preferred Stock were delivered to the CSFB Affiliate.
The New Common Stock, the New Warrants and 8,090 shares of the New Preferred
Stock were issued without registration under the Securities Act of 1933, as
amended (the "Securities Act") pursuant an exemption granted under Section 1145
of the Bankruptcy Code, and the remaining 15,167 shares of New Preferred Stock
were issued and sold to the CSFB Affiliate in a private placement, exempt from
the registration requirement under the Securities Act in reliance upon the
provisions of Regulation D promulgated thereunder. The proceeds from the sale of
the New Preferred Shares pursuant to Regulation D, totaling $15.2 million, were
distributed to holders of Senior Notes (other than CSFB) pursuant to the Plan.
Each share of New Preferred Stock is convertible at any time into 204.8897
shares of New Common Stock at an initial conversion price of $4.88 per share,
subject to customary anti-dilution adjustments. The New Warrants are exercisable
at any time prior to March 24, 2004 for an aggregate of 971,266 shares of New
Common Stock at an initial exercise price of $9.04 per share, subject to
customary anti-dilution adjustments.

The New Common Stock and New Warrants are expected to be quoted on the
over-the-counter bulletin board ("OTC Bulletin Board") and application has been
made to list the New Common Stock and New Warrants on the NASDAQ SmallCap
Market. Based on the distributions made pursuant to the Plan, there were
6,500,000 shares of New Common Stock outstanding as of March 24, 1999.

Until September 16, 1998, Westbridge's Old Common Stock was traded on the New
York Stock Exchange ("NYSE"). As a result of the Chapter 11 filing, Westbridge's
Old Common Stock was delisted from the NYSE and trading commenced on the OTC
Bulletin Board. The high and low stock price listed for Westbridge's Old Common
Stock reflects the OTC Bulletin Board closing bid prices from September 25,
1998, to March 23, 1999. The bid prices, as stated, represent inter-dealer
prices without adjustments for retail mark-ups, mark-downs or commissions and
may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
                                                                    HIGH                LOW
<S>                                                              <C>                 <C>  
                 1999
                 First Quarter (through March 23, 1999)             0.344               0.172

                 1998
                 Fourth Quarter                                     0.438               0.016
                 Third Quarter                                      0.563               0.016
                 Second Quarter                                     0.875               0.313
                 First Quarter                                      0.938               0.438

                 1997
                 Fourth Quarter                                     4.938               0.375
                 Third Quarter                                     10.625               4.563
                 Second Quarter                                    10.125               8.875
                 First Quarter                                     12.250               9.500
</TABLE>


DIVIDEND POLICY

The Company did not pay any cash dividends on its Old Common Stock and does not
anticipate declaring or paying cash dividends on its New Common Stock in the
foreseeable future.

For information concerning statutory limitations on the payment of dividends to
Westbridge by the Insurance Subsidiaries and further discussion of the Company's
results of operations and liquidity, see ITEM 7 "Management's Discussion and
Analysis of Results of Operations and Financial Condition", ITEM 1 - "Business
-Regulation", and NOTE 11 - "Statutory Capital And Surplus" to the Company's
Consolidated Financial Statements.


<PAGE>



ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

The information set forth below was selected or derived from the Consolidated
Financial Statements of the Company. The information set forth below should be
read in conjunction with ITEM 7 - "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and the Consolidated Financial
Statements of the Company and related notes.

<TABLE>
<CAPTION>
                                                                         December 31,
                                       ---------------------------------------------------------------------------------
                                           1998             1997           1996 (1)          1995            1994 (2)
                                       -------------    --------------    ------------    ------------     -------------
                                                              (in thousands, except share data)
<S>                                    <C>              <C>               <C>             <C>              <C>        
STATEMENT OF OPERATION DATA:
Premiums                               $    135,717     $    161,097      $   156,780     $   120,093      $    98,703
Total revenues                              166,061          188,904          175,146         130,032          106,546
Benefits and claims                          99,419          136,866           94,187          70,465           53,623
Total expenses                              188,115          298,309          162,549         121,836           97,702
Provision (benefit) for income taxes            231          (13,268)           4,410           2,813            2,764
Extraordinary loss, net of
  income tax                                      -            1,007                -             407                -
Net (loss) income                          (22,285)          (97,144)           8,261           5,324            6,425
Preferred stock dividends                       520            1,572            1,650           1,650            1,190
(Loss) income applicable to
  common stockholders                  $   (22,805)     $    (98,716)     $     6,611     $     3,674      $     5,235

EARNINGS PER SHARE:
   Basic                               $     (3.43)     $     (16.07)     $      1.11     $      0.64      $      1.21
   Diluted                             $     (3.43)     $     (16.07)     $      0.97     $      0.63      $      1.04
BOOK VALUE PER SHARE:
   Basic                               $     (8.82)     $      (7.33)     $      7.93     $      7.14      $      5.95
   Diluted (3)                         $     (8.82)     $      (7.33)     $      8.07     $      7.50      $      6.90

WEIGHTED AVERAGE
  SHARES OUTSTANDING:
   Basic                                  6,640,000        6,143,000        5,978,000       5,698,000        4,335,000
   Diluted                                6,640,000        6,143,000        8,477,000       5,829,000        6,185,000

BALANCE SHEET DATA:
Total cash and invested assets         $    131,708     $    148,442      $   103,218     $   111,516      $   108,838
Total assets                                169,741          202,856          220,716         200,999          187,581
Policy liabilities                           97,987          107,595           93,390          85,683          104,280
Notes payable                                95,715          102,547           40,560          35,071           24,665
Total liabilities                           219,886          229,274          152,813         138,194          141,226
Redeemable preferred stock (4)               11,935           19,000           20,000          20,000           20,000
Stockholders' (deficit) equity             (62,080)          (45,418)          47,903          42,805           26,355
</TABLE>



(1) Includes operations of FLICA's parent, FHC, from June 1, 1996.

(2) Includes operations of NFIC and AICT from April 12, 1994.

(3) Calculated by adding the redeemable preferred stock balance to stockholders'
equity and dividing the resultant sum by the period-end shares outstanding plus
the number of common shares issuable upon conversion of the redeemable preferred
stock as if converted at the end of the period.

(4) At December 31, 1998 consists of 11,935 shares of Westbridge's Old Preferred
Stock, which were convertible, at the option of the holders thereof, into an
aggregate of 1,419,144 shares of Old Common Stock at a conversion price of $8.41
per share of Old Common Stock.


<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

KEY EVENTS LEADING TO THE COMMENCEMENT OF THE CHAPTER 11 CASE IN SEPTEMBER 1998

INCREASED CLAIM LOSS RATIOS

During the second and third quarters of 1997, the Company's Insurance
Subsidiaries experienced an increase in claim loss ratios on various Medical
Expense and Medicare Supplement products. Two independent reviews of the
Company's claim reserves were performed as of September 30, 1997 on the
Company's old lines of insurance business. Additionally, an independent benefit
analysis of claims was completed, which indicated that significant rate
increases would be required to offset the adverse claims experience. During the
months prior to the commencement of the Chapter 11 Case in September 1998, the
Insurance Subsidiaries continued to experience adverse loss ratios and declining
persistency on certain old Medical Expense and Medicare Supplement products.

DETERMINATION OF PREMIUM DEFICIENCY

Also during 1997, policy persistency declined in connection with the
implementation of certain rate increases together with intensified competitor
solicitation of the Company's policyholders. These events, including increased
claim loss ratios, affected the future profit margins available to absorb
amortization of Deferred Policy Acquisition Costs ("DPAC"). As a result of these
adverse changes, the Company undertook a revaluation of the recoverability of
DPAC in the fourth quarter of 1997. Based on the results of this review and the
impact of future projected premium revenues and the discontinuance of certain
lines of business, the Company determined that a premium deficiency existed for
certain old lines of business as of December 31, 1997.

A premium deficiency occurs when the projected present value of future premiums
associated with these policies will not be adequate to cover the projected
present value of future payments for benefits and related amortization of DPAC.
GAAP requires the immediate recognition of a premium deficiency by charging the
unamortized DPAC to expense. Accordingly, for the quarter and year ended
December 31, 1997, the Company recorded a non-cash charge to expense of
approximately $65.0 million and incurred a significant loss for the year ended
December 31, 1997. This adjustment had no impact on the Company's cash position
at December 31, 1997 nor did it affect the statutory capital and surplus of the
Insurance Subsidiaries.

The Insurance Subsidiaries continued to experience adverse loss ratios and
declining persistency on such old Medical Expense and Medicare Supplement
products in the months prior to the commencement of the Chapter 11 Case in
September 1998, although the loss ratios for the third quarter of 1998 reflected
an improvement over the first and second quarters of 1998. As a result of these
factors, the Company undertook a further revaluation of the recoverability of
DPAC in the third quarter of 1998. Based on the results of this review, the
Company determined that an additional premium deficiency existed and recorded a
non-cash charge to expense of approximately $5.0 million for the quarter and
nine months ended September 30, 1998. This adjustment had no impact on the
Company's cash position or on the statutory capital and surplus of the Insurance
Subsidiaries as of September 30, 1998.

FILING OF CHAPTER 11 CASE

The increase in claim loss ratios resulted in significant cash contributions by
Westbridge to its Insurance Subsidiaries beginning in the third quarter of 1997,
which threatened the Company's ability to meet its interest and dividend
payments. In November 1997, the Company suspended its payment of interest and
dividends. On September 16, 1998, Westbridge filed the Chapter 11 Case in the
Bankruptcy Court for the District of Delaware, along with the Disclosure
Statement and the Plan which culminated months of negotiations between
Westbridge and an ad hoc committee of holders of its Senior Notes and its
Convertible Notes. The Disclosure Statement and the Plan were amended on October
28, 1998 and the Disclosure Statement was approved by entry of an order by the
Bankruptcy Court on October 30, 1998. Following the approval of the Plan by the
holders of allowed claims and equity interests, the Bankruptcy Court confirmed
the Plan on December 17, 1998. The Plan became effective on March 24, 1999.
Under the Plan, among other things, the Senior Notes, the Convertible Notes, the
Old Preferred Stock, the Old Common Stock and all outstanding options and
warrants were canceled, certain prepetition claims were discharged and new
equity interests were issued. (See ITEM 1 - "Business")

STRATEGIC INITIATIVES

As a result of the Company's poor financial performance in 1997, current
management has completed or is working toward completing the following strategic
initiatives designed to restore profitability:

      CHANGE IN MANAGEMENT STRUCTURE AND CORPORATE OVERHEAD EXPENSE REDUCTIONS:
     In the fourth quarter of 1997, the Company announced the termination of
     approximately 25 senior officers, managers and other employees in order to
     create a new management framework focused on correcting the problems of the
     past and restoring the Company to profitability. In addition, the Company
     initiated other efforts to reduce corporate overhead expenses by completing
     the relocation of its corporate headquarters in May 1998. The changes
     effected in the fourth quarter of 1997 and the relocation of corporate
     headquarters will result in considerable annual savings to the Company.

     In addition, Westbridge Management Corp., an indirect wholly owned
     subsidiary, and the Insurance Subsidiaries entered into an Administrative
     Service and Management Agreement dated as of March 1, 1998, in an effort to
     avoid duplication of costs, to increase efficiency, and to otherwise reduce
     common expenses in equipment, office space, personnel, data processing and
     information system services, as well as to provide other centralized
     management and administrative services for the Insurance Subsidiaries.

      PRODUCT REVISION AND NEW PRODUCT DEVELOPMENT: The Company introduced a new
     Medical Expense product during the first quarter of 1998. Accordingly,
     management has focused on providing a reasonable level of policy benefits
     in relation to premiums and on reducing first-year commission rates on all
     of its Medical Expense products in order to enhance overall profitability
     of the business.

      REVISED MARKETING STRUCTURE: In addition to commission reductions, the
     marketing structure was completely revised to consolidate fragmented agency
     operations into a single, career agency force. The Company believes that
     this restructuring has resulted in better deployment of marketing resources
     and stronger controls over the Company's distribution channel.

      IMPLEMENTATION OF RATE INCREASES AND PRODUCT CANCELLATIONS: As indicated
     above, due to the adverse loss ratio development in the Company's old
     Medical Expense and Medicare Supplement lines of business, the Company has
     requested rate increases on those lines of business in order to mitigate
     the effect of such claims experience. In addition, consistent with federal
     and state law, the Company is pursuing the cancellation of certain blocks
     of policy forms that have irreversible excessive loss ratios.

      POLICYHOLDER CONSERVATION: The Company has also implemented a detailed
     policyholder conservation program designed to mitigate the possible impact
     of adverse selection. As indicated above, the Company suffered declining
     persistency resulting from increased competitor solicitation of its
     policyholders, as well as from the implementation of rate increases. The
     Company is working on several fronts to retain a loyal and profitable base
     of satisfied policyholders.

      REPLACEMENT OF CLAIMS AND POLICYHOLDER ADMINISTRATION DATA PROCESSING
     SYSTEMS: The Company is working toward a replacement of its claims and
     policyholder administration data processing systems during 1999. Not only
     will this data processing system replacement ensure that the Company is
     Year 2000 compliant, but resulting system efficiencies will allow the
     Company to further reduce and control its overhead expense levels.

BUSINESS OVERVIEW

The Company derives its revenue primarily from premiums from its insurance
products and, to a significantly lesser extent, from fee and service income,
income earned on invested assets and gains on the sales or redemptions of
invested assets. The Company's primary expenses include benefits and claims in
connection with its insurance products, amortization of DPAC, commissions paid
on policy renewals, general and administrative expenses associated with policy
and claims administration, taxes, licenses and fees and interest on its
indebtedness under the Credit Agreement. Prior to the filing of the Chapter 11
Case, Westbridge was obligated to pay interest on its Senior Notes and
Convertible Notes, and dividends on its Old Preferred Stock if, and when,
declared by the Board of Directors.

As of the Effective Date, the Company is obligated to pay dividends on its New
Preferred Stock, when, as and if declared by the Board of Directors. Dividends
on the New Preferred Stock accrue at an annual rate of $102.50 per share and are
payable annually. The Company may pay dividends on the New Preferred in cash or
in additional shares of New Preferred Stock having an aggregate liquidation
preference equal to the amount of dividends being declared and paid. The Company
expects to pay such dividends by issuing additional shares of New Preferred
Stock for the foreseeable future.

Fee and service income is generated from (i) commissions received by the Company
for sales of managed care and senior products underwritten primarily by
unaffiliated managed care organizations, (ii) telemarketing services, and (iii)
printing services.

Benefits and claims are comprised of (i) claims paid, (ii) changes in claim
reserves for claims incurred (whether or not reported), and (iii) changes in
policy benefit reserves based on actuarial assumptions of future benefit
obligations not yet incurred on policies in force.

Under GAAP, a DPAC asset is established to properly match the costs of writing
new business against the expected future revenues or gross profits from the
policies. The costs, which are capitalized and amortized, consist of first-year
commissions in excess of renewal commissions and certain home office expenses
related to selling, policy issue, and underwriting. The DPAC for accident and
health policies is amortized over future premium revenues of the business to
which the costs are related. The rate of amortization depends on the expected
pattern of future premium revenues for the block of policies. The scheduled
amortization for a block of policies is established when the policies are
issued. However, the actual amortization of DPAC will reflect the actual
persistency and profitability of the business. For example, if actual policy
terminations are higher than expected or if future losses are anticipated, DPAC
could be amortized more rapidly than originally scheduled or written-off, which
would reduce earnings in the applicable period. See "Key Events - Determination
of Premium Deficiency". Also included in DPAC is the cost of insurance purchased
relating to acquired blocks of business.

ACQUISITIONS. Since 1992, the Company has from time to time acquired seasoned
blocks of business to supplement its revenue. These acquisitions included blocks
of insurance policies from American Integrity Insurance Company ("AII"), Life
and Health Insurance Company of America ("LHI"), Dixie National Life Insurance
Company ("DNL"), NFIC, AICT and FLICA.

PREMIUMS. The following table shows the premiums, in thousands, received by the
Company as a result of direct sales and acquisitions. Certain reclassifications
have been made to 1997 and 1996 amounts in order to conform to 1998
presentation.

                                                       Premiums (1)
                                              ------------------------------
                                                  Year Ended December 31,
                                              ------------------------------
                                                1998       1997       1996
                                              --------   --------   --------

Company-issued policies:
     First-year premiums                      $ 18,847   $ 37,104   $ 59,937
     Renewal premiums                           77,230     78,261     44,607
                                              --------   --------   --------
       Total company-issued policy premiums     96,077    115,365    104,544
                                              --------   --------   --------

Acquired policies:
     AII                                         6,127      7,179      8,364
     LHI                                         1,345      1,533      1,820
     DNL                                         2,619      2,827      2,974
     NFIC and AICT                              18,607     20,757     24,508
     FLICA                                      10,011     12,605     14,560
     Other                                         931        831         10
                                              --------   --------   --------
       Total acquired policy premiums           39,640     45,732     52,236
                                              --------   --------   --------
         Total Premiums                       $135,717   $161,097   $156,780
                                              ========   ========   ========


(1) For a breakdown of premiums by product line, see ITEM 1 -  "Business-Product
Lines."


Generally, as a result of acquisitions of policies in force and the transfer of
assets and liabilities relating thereto, the Company receives higher revenues in
the form of premiums and net investment income and experiences higher expenses
in the form of benefits and claims, amortization of DPAC, commissions and
general and administrative expenses. The Company expects that premiums, net
investment income, net realized gains on investments, benefits and claims,
amortization of DPAC, commissions and general and administrative expenses
attributable to these acquired policies will continue to decline over time as
the acquired policies lapse.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997

PREMIUMS. Premiums decreased $25.4 million, or 15.8%, from $161.1 million to
$135.7 million as a result of declining persistency of in force policies and a
reduction in the Company's marketing results. This decrease resulted from a
decrease in first-year premiums from Company-issued policies of $18.2 million,
or 49.1%, a decrease in renewal premiums from Company-issued policies of $1.1
million, or 1.4%, a decrease in first-year premiums from acquired policies of
$0.5 million, or 61.0%, and a decrease in renewal premiums from acquired
policies of $5.6 million, or 12.4%.

The decrease in first-year premiums from Company-issued policies was
attributable to a decrease in Medical Expense premiums of $11.1 million, or
41.2%, a decrease in Medicare Supplement premiums of $7.3 million, or 83.4%, and
a decrease in other premiums of $0.1 million, or 75.5%, and was offset by an
increase in Specified Disease premiums of $0.3 million, or 30.4%.

The decrease in renewal premiums from Company-issued policies was attributable
to a decrease in Medicare Supplement premiums of $4.1 million, or 15.1%, and was
offset by an increase in Medical Expense premiums of $1.2 million, or 3.1%, and
an increase in Specified Disease premiums of $1.8 million, or 14.8%.

The decrease in first-year premiums from acquired policies was primarily
attributable to a decrease of $0.5 million, or 61.0%, from the policies acquired
from FLICA.

The decrease in renewal premiums from acquired policies was attributable to a
decrease of $2.2 million, or 10.5%, from the policies acquired in the NFIC and
AICT acquisition, a decrease of $1.9 million, or 16.2%, from the policies
acquired from FLICA, and a decrease of $1.5 million, or 12.0%, from the policies
acquired from AII and other acquisitions.

NET INVESTMENT INCOME. Net investment income increased $1.0 million, or 9.1%,
from $11.0 million to $12.0 million for the year ended December 31, 1998,
related to agents' debit balances.

FEE AND SERVICE INCOME. Fee and service income decreased $0.5 million, or 3.2%,
from $16.7 million to $16.2 million for the year ended December 31, 1998. The
Company's sales of unaffiliated managed care and senior products were lower in
1998 than 1997.

BENEFITS AND CLAIMS. During the year ended December 31, 1998, the Insurance
Subsidiaries continued to experience adverse loss ratios and declining
persistency on certain old Medical Expense and Medicare Supplement products. The
Insurance Subsidiaries have developed new insurance products with more stringent
underwriting procedures and lower agent commissions. In addition, the Insurance
Subsidiaries are implementing rate increases to the extent approved by state
regulatory authorities or offering higher deductible benefit options on certain
old lines of business in order to mitigate the effect of adverse claims
experience on such old lines. The Insurance Subsidiaries have also implemented a
policyholder retention program designed to mitigate the impact of declining
persistency on such old lines receiving rate increases. However, the Company
expects that the Insurance Subsidiaries will continue to incur operating losses
(i) until such time as the necessary rate increases can be fully implemented and
realized, and (ii) until sales of new products reach targeted production levels.
There can be no assurance that the full extent of such rate increase requests
will be approved, that the impact of these rate increases will result in
profitability on such old lines, or that targeted production levels will be
reached and sustained.

Benefits and claims expense decreased $37.5 million, or 27.4%, from $136.9
million to $99.4 million. This decrease was attributable to the decline in
premium revenue during 1998 and to the significant strengthening of claim
reserves during the second and third quarters of 1997 as a result of substantial
increases in claim loss ratios on certain Medical Expense and Medicare
Supplement products.

AMORTIZATION OF DPAC. The Company recognized a $5.0 million non-cash charge to
write off unrecoverable DPAC during the third quarter of 1998 and recognized a
$65.0 million non-cash charge to write off unrecoverable DPAC during the fourth
quarter of 1997. See "Key Events - Determination of Premium Deficiency."

As a result, the Company is currently recording commission expense on such old
lines of business that would ordinarily be deferred and amortized as a component
of DPAC. For comparative purposes, current period DPAC amortization is lower
than prior periods and commission expense is higher than prior periods.

Amortization of DPAC decreased $26.5 million, or 85.9%, from $30.9 million to
$4.4 million. This variance was attributable to decreases of $18.0 million, $7.9
million, $0.2 million, and $0.4 million, from Company-issued Medical Expense
products, Medicare Supplement products, Specified Disease products and acquired
policies, respectively.

COMMISSIONS. Commissions increased $13.3 million, or 80.1%, from $16.7 million
to $30.0 million. This variance was attributable to a decrease in the
commissions that would ordinarily be deferred and amortized as a component of
DPAC and an increase in the amounts that are being expensed as commissions on a
current basis. The increase was attributable to an increase in commissions of
$13.2 million on Company-issued policies and $0.9 million, or 8.6%, on sales of
unaffiliated insurance products, and was offset by a decrease in commissions on
sales of acquired policies of $0.8 million, or 16.0%. GENERAL AND ADMINISTRATIVE
EXPENSES. For the year ending December 31, 1998, general and administrative
expenses decreased $3.3 million, or 10.5%, from $31.4 million to $28.1 million.
These decreases were primarily attributable to corporate overhead reduction
initiatives that were implemented beginning in the fourth quarter of 1997.

RECOGNITION OF PREMIUM DEFICIENCY. During the third quarter of 1998, the Company
recorded a non-cash charge to expense of approximately $5.0 million compared to
a $65.0 million premium deficiency charge recognized in the fourth quarter of
1997. This adjustment has no impact on the Company's cash position and does not
impact the statutory capital and surplus of the Insurance Subsidiaries. See "KEY
EVENTS - Determination of Premium Deficiency".

REORGANIZATION EXPENSE. The Company was responsible for paying the fees of
certain professional advisors in connection with the Chapter 11 Case. During the
year ended December 31, 1998, the Company incurred approximately $9.2 million in
expense related to these efforts. During the year ended December 31, 1997, the
Company incurred approximately $4.4 million in reorganization expense related to
the fees of certain professional advisors and to an internal reorganization of
management.

TAXES, LICENSES AND FEES. Taxes, licenses and fees decreased $0.8 million, or
13.3%, from $6.0 million to $5.2 million for the year ended December 31, 1998.
These decreases are attributable to the declining premium base for which premium
taxes are levied.

INTEREST EXPENSE. Interest expense decreased $0.3 million, or 4.2%, from $7.1
million to $6.8 million for the year ended December 31, 1998. Commensurate with
the filing of the Chapter 11 Case, interest on the Company's Convertible Notes
ceased to accumulate. Accordingly, pre-petition non-cash accrued interest
totaled approximately $7.3 million on such Convertible Notes as of December 31,
1998.

Under the terms of the Plan, interest on the Company's Senior Notes continued to
accrue post-petition at the rate of 11% per annum through the Effective Date.
Accordingly, pre-petition non-cash accrued interest totaled approximately $2.1
million and post-petition non-cash accrued interest totaled approximately $0.6
million on such Senior Notes for the year ended December 31, 1998.

During 1997, interest expense was computed from the date of the issuance of the
Company's Convertible Notes in the second quarter of 1997.

PROVISION FOR INCOME TAXES. The change in the provision for income taxes during
1998 is directly attributable to the net loss recorded by the Company for the
year ended December 31, 1998. As a result, net operating loss carryforwards
("NOLs") were generated that will be available for offset against taxable income
generated in future reporting periods. The Company has determined that it is
more likely than not that it will be unable to utilize all of these NOLs prior
to the related expiration dates. Accordingly, the Company has recorded a
valuation allowance that significantly reduces its benefit from income taxes for
the current year from the amount that would have been derived by applying the
35% statutory federal tax rate to the Company's pre-tax loss for the year ended
December 31, 1998. See NOTE 10 - "Income Taxes" to the Company's Consolidated
Financial Statements.

EXTRAORDINARY ITEM. During the second quarter ended June 30, 1997, the Company
recognized an extraordinary loss on the early extinguishment of debt in the
amount of $1.0 million, net of taxes. This extraordinary charge was related to
the termination and recapture of a block of reinsured policies and the
recognition of unamortized financing fees associated with the prepayment and
refinancing of the Company's revolving credit facility.

PREFERRED STOCK DIVIDENDS. Commensurate with the filing of the Chapter 11 Case,
dividends on the Company's Old Preferred Stock ceased to accumulate.
Accordingly, the Company recorded approximately $1.3 million of pre-petition
non-cash accrued dividends on such Old Preferred Stock for the year ended
December 31, 1998.

YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996

PREMIUMS. Premiums increased $4.3 million, or 2.7%, from $156.8 million to
$161.1 million. This increase resulted from an increase in renewal premiums from
Company-issued policies of $33.7 million, or 75.5%, and was offset by a decrease
in renewal premiums from acquired policies of $5.4 million, or 10.7%, a decrease
in first-year premiums from Company-issued policies of $22.8 million, or 38.0%
and a decrease in first-year premiums from acquired policies of $1.2 million, or
61.4%.

The increase in renewal premiums from Company-issued policies was attributable
to an increase of $20.8 million, or 118.9% in Medical Expense premiums, an
increase of $13.0 million, or 91.9% in Medicare Supplement premiums, an increase
in other premiums of $0.2 million, or 50.0%, and was offset by a decrease of
$0.3 million, or 2.1%, in Specified Disease premiums.

The decrease in renewal premiums from acquired policies was attributable to a
decrease of $3.7 million, or 15.2%, from the policies acquired in the NFIC and
AICT acquisition, a decrease of $0.7 million, or 5.3%, from the policies
acquired from AII, LHI and DNL, and a decrease of $1.0 million, or 7.9%, from
the policies acquired in the FLICA acquisition.

The decrease in first-year premiums from Company-issued policies was
attributable to a decrease of $13.4 million, or 33.1% in Medical Expense
premiums, a decrease of $9.2 million, or 51.1% in Medicare Supplement premiums,
and a decrease of $0.2 million, or 50.0%, in other premiums.

The decrease in first-year premiums from acquired policies was attributable to a
decrease of $1.2 million, or 60.0%, from the policies acquired in the FLICA
acquisition.

NET INVESTMENT INCOME. Net investment income increased $2.3 million, or 26.4%,
from $8.7 million to $11.0 million. This increase was attributable to a higher
average investment base resulting from the net proceeds received from the
Company's sale of its Convertible Notes during the second quarter.

FEE AND SERVICE INCOME. Fee and service income increased $7.2 million, or 75.8%,
from $9.5 million to $16.7 million. The increase was primarily due to an
increase of $6.4 million, or 81%, relating to commissions on managed care
product sales earned by the Company's agency operations and an increase of $0.8
million, or 47.1%, in other fees.

BENEFITS AND CLAIMS. Benefits and claims expense increased $42.7 million, or
45.3%, from $94.2 million to $136.9 million. This increase was attributable to
an increase in benefits and claims expense from Company-issued and acquired
policies of $39.2 million and $3.5 million, or 65.7% and 10.1%, respectively.

The increase in benefits and claims expense from Company-issued policies was
primarily attributable to an increase of $31.1 million, or 115.2%, from Medical
Expense products, an increase of $6.4 million, or 25.3%, from Medicare
Supplement products, an increase of $2.2 million, or 36.7%, from Specified
Disease products, and was offset by a decrease of $0.5 million, or 35.7% from
other products.

The increase in benefits and claims expense from acquired policies was primarily
attributable to an increase of $2.9 million, or 72.5%, from the policies
acquired in the FLICA acquisition, an increase of $0.3 million, or 1.4%, from
the policies acquired in the NFIC and AICT acquisition, and an increase of $0.3
million, or 3.1% from the policies acquired from AII, LHI and DNL.

During the second and third quarters of 1997, the Company's Insurance
Subsidiaries experienced a substantial increase in claim loss ratios on certain
Medical Expense and Medicare Supplement products. Independent reviews of the
Company's claim reserves were performed as of September 30, 1997. Additionally,
an independent benefit analysis of claims was completed which indicated that
significant rate increases would be required to offset the current adverse
claims experience. However, until such time as the necessary rate increases and
benefit modifications can be fully implemented, the Company expects that it will
continue to incur operating losses. There can be no assurance that the full
extent of such rate increase requests will be approved.

AMORTIZATION OF DPAC. Amortization of DPAC increased $8.0 million, or 34.9%,
from $22.9 million to $30.9 million. This increase was attributable to an
increase in amortization of DPAC from Company-issued policies of $10.9 million,
or 63.7%, and was offset by a decrease of $2.9 million, or 50.0%, from acquired
policies.

The increase in amortization of DPAC from Company-issued policies was primarily
attributable to an increase of $7.6 million and $3.9 million, or 71.0% and
97.5%, from Medical Expense and Medicare Supplement products, respectively, and
was offset by a decrease of $0.5 million, or 23.8% from Specified Disease
products and a decrease of $0.1 million from other products.

The decrease in amortization of DPAC from acquired policies was primarily
attributable to a decrease of $2.4 million, or 104.3%, from the policies
acquired in the NFIC and AICT acquisition, a decrease of $0.7 million, or 43.8%,
from the policies acquired from AII, LHI and DNL, and was offset by an increase
of $0.2 million, or 10.5%, from the policies acquired in the FLICA acquisition.

COMMISSIONS. Commissions increased $8.8 million, or 111.4%, from $7.9 million to
$16.7 million. This increase was attributable to an increase of $4.1 million in
commissions on sales of Company-issued policies and an increase of $5.6 million,
or 114.3%, on sales of non-affiliated, managed care insurance products, and was
offset by a decrease of $0.9 million, or 14.8%, from acquired policies.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $4.3 million, or 15.9%, from $27.1 million to $31.4 million. This
increase was primarily attributable to increases in the allowance for doubtful
agent receivables and a change in estimate for the recognition of deferred
compensation expense. In addition, fewer policies were eligible for deferral of
acquisition costs as a result of the reduction in the Company's marketing
efforts for its underwritten insurance products beginning in the second quarter
of 1996.

REORGANIZATION EXPENSE. As more fully described in "Key Events", in response to
the losses sustained by the Company in the second and third quarters of 1997,
the Company hired a financial advisor to explore its strategic alternatives. The
Company was responsible for paying the fees of its financial advisor and legal
counsel and agreed to pay the fees of the financial advisors and legal counsel
for an ad hoc creditors' committee in connection with the efforts to formulate
and evaluate transactional alternatives. During 1997, the Company incurred
approximately $1.4 million in expenses during the fourth quarter of 1997 related
to these efforts. In addition, the Company incurred approximately $3.0 million
during the second quarter of 1997 in connection with a non-recurring internal
reorganization.

RECOGNITION OF PREMIUM DEFICIENCY. As more fully described in "Key Events," in
response to the significant increases in loss ratios on the Company's Medical
Expense and Medicare Supplement products and the decline in policy persistency,
the Company undertook a revaluation of the recoverability of DPAC in the fourth
quarter. Based on the results of this review and the impact of future projected
premium revenues and the discontinuance of certain lines of business, the
Company determined that a premium deficiency for certain lines of business
existed as of December 31, 1997. In this connection, for the quarter and year
ended December 31, 1997, the Company recorded a non-cash charge to expense of
approximately $65.0 million. This adjustment had no impact on the Company's cash
position at December 31, 1997 and did not impact the statutory capital and
surplus of the Insurance Subsidiaries.

TAXES, LICENSES AND FEES. Taxes, licenses and fees remained relatively unchanged
from the prior year at $6.0 million as increases in premium taxes due to higher
premium levels in 1997 were offset by decreases in state levied fees and special
assessments during the same period.

INTEREST EXPENSE. Interest expense increased $2.6 million, or 57.8%, from $4.5
million to $7.1 million. This increase is attributable to the accrued interest
expense related to the issuance of $70.0 million of the Company's Convertible
Notes.

(BENEFIT FROM) PROVISION FOR INCOME TAXES. During 1996, the provision for income
taxes was calculated by applying the 35% statutory federal tax rate to the
Company's pre-tax income for the year ended December 31, 1996. The change in the
(benefit from) provision for income taxes during 1997 is directly attributable
to the net loss recorded by the Company for the year ended December 31, 1997.
This net loss generated a significant amount of net operating loss carryforwards
("NOLs") that will be available for offset against taxable income generated in
future reporting periods. The Company has determined that it is more likely than
not that it will be unable to utilize all of these NOLs prior to the related
expiration dates. In this connection, the Company recorded a valuation allowance
that significantly reduced its benefit from income taxes from the amount that
would have been derived by applying the 35% statutory federal tax rate to the
Company's pre-tax loss for the year ended December 31, 1997. See NOTE 10 -
"Income Taxes" to the Company's Consolidated Financial Statements.

EXTRAORDINARY ITEM. The Company recognized an extraordinary loss on the early
extinguishment of debt in the amount of $1.0 million, net of taxes, for the year
ended December 31, 1997. This extraordinary charge is comprised of (i) $0.4
million, net of taxes, related to the termination and recapture of a block of
reinsured policies and (ii) $0.6 million, net of taxes, related to the
recognition of unamortized financing fees associated with the repayment and
refinancing of the Company's revolving credit facility with Fleet National Bank.

LIQUIDITY, CAPITAL RESOURCES, AND STATUTORY CAPITAL AND SURPLUS

THE COMPANY

The Company's principal assets consist of the capital stock of its operating
subsidiaries and invested assets. Accordingly, the Company's sources of funds
are comprised of dividends from its operating subsidiaries, advances and
management fees from non-insurance company subsidiaries, and tax payments under
a tax sharing agreement among the Company and its subsidiaries. In addition, for
the year ended December 31, 1998, Westbridge made capital contributions totaling
approximately $5.7 million to its Insurance Subsidiaries. As of December 31,
1998, Westbridge had approximately $10.3 million in unrestricted cash and
invested assets.

Dividends paid by the Insurance Subsidiaries are determined by and subject to
the regulations of the insurance laws and practices of the insurance departments
of their respective state of domicile. NFL, a Delaware domestic company, may not
declare or pay dividends from any source other than earned surplus without the
Delaware Insurance Commissioner's approval. The Delaware Insurance Code defines
earned surplus as the amount equal to the unassigned funds as set forth in NFL's
most recent statutory annual statement including surplus arising from unrealized
gains or revaluation of assets. Delaware insurance companies may generally pay
ordinary dividends or make distributions of cash or other property within any
twelve month period with a fair market value equal to or less than the greater
of 10% of surplus as regards policyholders as of the preceding December 31 or
the net gain from operations for the twelve month period ending on the preceding
December 31. During 1999, NFL is precluded from paying dividends without the
prior approval of the Delaware Insurance Commissioner, as its earned surplus is
negative. Further, NFL has agreed to obtain prior approval for any future
dividends.

NFIC and AICT, Texas domestic companies, may make dividend payments from surplus
profits or earned surplus arising from its business. The Texas Insurance Code
defines earned surplus as unassigned surplus excluding any unrealized gains.
Texas life insurance companies may generally pay ordinary dividends or make
distributions of cash or other property within any twelve month period with a
fair market value equal to or less than the greater of 10% of surplus as regards
policyholders as of the preceding December 31 or the net gain from operations
for the twelve month period ending on the preceding December 31. Any dividend
exceeding the applicable threshold is considered extraordinary and requires
prior approval of the Texas Insurance Commissioner. NFIC's and AICT's earned
surplus is negative, and as such, each company is precluded from paying
dividends during 1999 without the prior approval of the Texas Insurance
Commissioner.

FLICA, a Mississippi domestic company, may make dividend payments only from its
actual net surplus computed as required by law in its statutory annual
statement. Mississippi life insurance companies may generally pay ordinary
dividends or make distributions of cash or other property within any twelve
month period with a fair market value not exceeding the lesser of 10% of surplus
as regards policyholders as of the preceding December 31 or the net gain from
operations for the twelve month period ending on the preceding December 31. Any
dividend exceeding the applicable threshold amount requires prior approval of
the Mississippi Insurance Commissioner. FLICA is precluded from paying dividends
to NFL during 1999 without the prior approval of the Mississippi Insurance
Commissioner as it recorded a net loss from operations for the year ended
December 31, 1998.

Generally, all states require insurance companies to maintain statutory capital
and surplus that is reasonable in relation to their existing liabilities and
adequate to their financial needs. Delaware, Texas and Mississippi also maintain
discretionary powers relative to the declaration and payment of dividends based
upon an insurance company's financial position. In light of the statutory losses
incurred by the Insurance Subsidiaries during 1997 and 1998, the Company does
not expect to receive any dividends from its Insurance Subsidiaries for the
foreseeable future.

INSURANCE SUBSIDIARIES

The primary sources of cash for the Insurance Subsidiaries are premiums and
income on invested assets. Additional cash is periodically provided by capital
contributions from the Company and from the sale of short-term investments and
could, if necessary, be provided through the sale of long-term investments and
blocks of business. The Insurance Subsidiaries' primary uses for cash are
benefits and claims, commissions, general and administrative expenses, and
taxes, licenses and fees.

During the year ended December 31, 1998, the Insurance Subsidiaries continued to
experience adverse loss ratios and declining persistency on certain old Medical
Expense and Medicare Supplement products. The Insurance Subsidiaries have
developed new insurance products with more stringent underwriting procedures and
lower agent commissions. In addition, the Insurance Subsidiaries are
implementing rate increases to the extent approved by state regulatory
authorities or offering higher deductible benefit options on certain old lines
of business in order to mitigate the effect of adverse claims experience on such
old lines. The Insurance Subsidiaries have also implemented a policyholder
retention program designed to mitigate the impact of declining persistency on
such old lines receiving rate increases. However, the Company expects that the
Insurance Subsidiaries will continue to incur operating losses on these old
lines of business (i) until such time as the necessary rate increases can be
fully implemented and realized, and (ii) until sales of new products reach
targeted production levels. There can be no assurance that the full extent of
such rate increase requests will be approved, that the impact of these rate
increases will result in profitability on such old lines, or that targeted
production levels will be reached and sustained.

For the year ended December 31, 1998, the Insurance Subsidiaries received
capital contributions totaling approximately $5.7 million from Westbridge. To
the extent that the Insurance Subsidiaries experience further statutory
operating losses, additional capital may be required.

In December 1992, the NAIC adopted the Risk-Based Capital for Life and/or Health
Insurers Model Act ("the Model Act"). The Model Act provides a tool for
insurance regulators to determine the levels of statutory capital and surplus an
insurer must maintain in relation to its insurance and investment risks and
whether there is a need for possible regulatory attention. The Model Act (or
similar legislation or regulation) has been adopted in states where the
Insurance Subsidiaries are domiciled. The Model Act provides four levels of
regulatory attention, varying with the ratio of the insurance company's total
adjusted capital (defined as the total of its statutory capital and surplus,
asset valuation reserve and certain other adjustments) to its risk-based capital
("RBC"). If a company's total adjusted capital is less than 100 percent but
greater than or equal to 75 percent of its RBC, or if a negative trend (as
defined by the NAIC) has occurred and total adjusted capital is less than 125
percent of RBC (the "Company Action Level"), the company must submit a
comprehensive plan aimed at improving its capital position to the regulatory
authority proposing corrective actions. If a company's total adjusted capital is
less than 75 percent but greater than or equal to 50 percent of its RBC (the
"Regulatory Action Level"), the regulatory authority will perform a special
examination of the company and issue an order specifying the corrective actions
that must be followed. If a company's total adjusted capital is less than 50
percent but greater than or equal to 35 percent of its RBC (the "Authorized
Control Level"), the regulatory authority may take any action it deems
necessary, including placing the company under regulatory control. If a
company's total adjusted capital is less than 35 percent of its RBC (the
"Mandatory Control Level"), the regulatory authority must place the company
under its control. The NAIC's requirements are effective on a state by state
basis if, and when, they are adopted by the regulators in the respective states.
The Insurance Departments of the States of Delaware and Mississippi have each
adopted the NAIC's Model Act. At December 31, 1998, total adjusted capital for
NFL, a Delaware domiciled company, and FLICA, a Mississippi domiciled company,
exceeded the respective Company Action Levels.

The Texas Department of Insurance ("TDI") has adopted its own RBC requirements,
the stated purpose of which is to require a minimum level of statutory capital
and surplus to absorb the financial, underwriting and investment risks assumed
by an insurer. Texas' RBC requirements differ from those adopted by the NAIC in
two principal respects: (i) they use different elements to determine minimum RBC
levels in their calculation formulas and (ii) they do not stipulate "Action
Levels" (like those adopted by the NAIC) where corrective actions are required.
However, the Commissioner of the TDI does have the power to take similar
corrective actions if a company does not maintain the required minimum level of
statutory capital and surplus. NFIC and AICT are domiciled in Texas and must
comply with Texas RBC requirements. At December 31, 1998, AICT's RBC exceeded
the minimum level prescribed by the TDI; however, NFIC's RBC was below the
minimum level prescribed by the TDI.

As a result of the statutory losses sustained by the Insurance Subsidiaries
during 1997, material transactions are subject to approval by the department of
insurance in each domiciliary state.

Inflation will affect claim costs on the Company's Medicare Supplement and
Medical Expense products. Costs associated with a hospital stay and the amounts
reimbursed by the Medicare program are each determined, in part, based on the
rate of inflation. If hospital and other medical costs that are reimbursed by
the Medicare program increase, claim costs on the Medicare Supplement products
will increase. Similarly, as the hospital and other medical costs increase,
claim costs on the Medical Expense products will increase. The Company has
somewhat mitigated its exposure to inflation by incorporating certain
limitations on the maximum benefits which may be paid under its policies and by
filing for premium rate increases as necessary.

CONSOLIDATED

The Company's consolidated net cash used for operations totaled $8.0 million,
$20.0 million and $10.8 million for the years ended December 31, 1998, 1997 and
1996, respectively. The variance in the amount of net cash used for operations
between 1998 and 1997 was primarily the result of (a) amounts remitted to
reinsurers during 1997 terminating certain reinsurance arrangements, and (b) the
reduction in the Company's marketing results for its underwritten products,
which resulted in a decrease in net cash used for operations related to the
funding of agents' debit balances. The variance in the amount of net cash used
for operations between 1997 and 1996 was primarily the result of (a) increases
in the claim loss ratios of the Company's Medical Expense and Medicare
Supplement products, and (b) increases in amounts remitted to reinsurers under
certain reinsurance arrangements.

Net cash provided by (used for) investing activities for the years ended
December 31, 1998, 1997 and 1996 totaled $13.3 million, $(40.4) million and $6.3
million, respectively. Net cash provided by investing activities between 1998
and 1997 was primarily used to fund the Company's operating and financing
activities for the same period. Further, the significant cash outflow to acquire
investments in 1997 was related to the investment of the net proceeds from the
issuance of Westbridge's Convertible Notes. Cash inflows for 1996 were utilized
to fund operating cash requirements and were also attributable to the
liquidation of investments to support the increase in new business production,
which occurred during the first two quarters of 1996.

Net cash (used for) provided by financing activities totaled $(6.0) million,
$60.4 million and $3.5 million for the years ended December 31, 1998, 1997 and
1996, respectively. Cash flows for financing activities for the year ended
December 31, 1998 were related to the net borrowings and repayments associated
with the Company's Receivables Financing program (defined below). The Company's
net financing cash outflows declined as a result of the reduction in the
Company's marketing results for its underwritten products, which in turn
resulted in a decrease in cash flows used to finance agents' debit balances.
Cash flows provided by financing activities for the year ended December 31,
1997, included approximately $70.0 million in cash inflows resulting from the
issuance of Westbridge's Convertible Notes that was offset, in part, by cash
payments of $7.0 million to retire a note payable associated with a recaptured
reinsurance agreement, $1.0 million to retire a note with a related party, and
$0.1 million in net borrowings and repayments associated with the Company's
Receivables Financing program. For 1996, cash was provided by borrowings under
the Receivables Financing program with Fleet National Bank.

In the ordinary course of business, the Company advances commissions on policies
written by its general agencies and their agents. The Company is reimbursed for
these advances from the commissions earned over the respective policy's life. In
the event that policies lapse prior to the time the Company has been fully
reimbursed, the general agency or the individual agents, as the case may be, are
responsible for reimbursing the Company for the outstanding balance of the
commission advance. For the years ended December 31, 1998, 1997 and 1996, the
Company has recorded a net provision for uncollectible commission advances
totaling $0.6 million, $2.8 million and $0.5 million, respectively.

The Company finances the majority of its obligations to make commission advances
through Westbridge Funding Corporation ("WFC"), an indirect wholly owned
subsidiary of Westbridge. On June 6, 1997, WFC entered into a Credit Agreement
(the "Credit Agreement") with LaSalle National Bank ("LaSalle"). This Credit
Agreement provides WFC with a three-year, $20.0 million revolving loan facility
(the "Receivables Financing"), the proceeds of which are used to purchase agent
advance receivables from the Insurance Subsidiaries and certain affiliated
marketing companies. WFC's obligations under the Credit Agreement are secured by
liens upon substantially all of WFC's assets. In connection with this commission
advancing program, at December 31, 1998, the Company's receivables from
subagents totaled approximately $9.0 million and approximately $6.2 million was
outstanding under the Credit Agreement. The Credit Agreement terminates on June
5, 2000, at which time the outstanding principal and interest thereunder will be
due and payable.

The Company has guaranteed WFC's obligations under the Credit Agreement, and has
pledged all of the issued and outstanding shares of the capital stock of WFC,
NFL and NFIC as collateral for that guaranty. The Company's obligations under
the Guaranty Agreement continue following confirmation of the Plan. As of the
Effective Date, there were no events of default under the Credit or Guaranty
Agreements. See NOTE 6 to the Company's Consolidated Financial Statements.

YEAR 2000 ISSUES

The Company has initiated an enterprise-wide program designed to determine
whether all of its Information Technology ("I/T"), such as computer systems and
related software applications, and non-I/T systems, such as facsimile machines
and copy machines, will function properly as the millennium (the "Year 2000")
approaches. The Year 2000 problem is pervasive and complex as virtually every
computer operation will be affected in some way by the rollover of the two-digit
year value to 00. The issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail.

The Company is highly reliant upon computer systems and software, as are many of
the Company's principal businesses with which it interacts. The Company's
ability to service its policyholders and agents is dependent upon accurate and
timely transaction reporting. Transaction reporting in turn is dependent upon
the Company's highly complex interdependent computer hardware, software,
telecommunications and desktop applications, and the information obtained from
its critical business partners.

The Company's overall Year 2000 remediation effort has focused on preparing the
computer systems, infrastructure and facilities for the Year 2000. The following
phases encompass the Year 2000 plan: (i) assessment of all internal and external
business critical systems, including I/T and non-I/T systems, (ii) remediation
or upgrading of business critical systems, (iii) testing of remediated and
updated systems, (iv) implementation of remediated and updated systems, and (v)
contingency planning.

The Company has engaged certain outside vendors and dedicated certain employees
on a full time basis to help in the full array of its Year 2000 efforts. This
includes system assessment and monitoring advice, actual code remediation,
communication and consultation with critical business partners and testing
resources.

Under the Company's enterprise-wide remediation program, the most effective I/T
systems solution was to purchase a new, more modern, Year 2000 compliant
policyholder and claim administration system. This replacement effort is well
underway and targeted for implementation in the third quarter of 1999.

The Company has also completed the assessment of its non-I/T systems and is
currently remediating and upgrading those systems. The non-I/T systems have been
prioritized to remediate critical systems early in 1999 and non-critical systems
later in the year.

Another significant component of the Company's enterprise-wide remediation
effort is to determine whether critical business partners and vendors are Year
2000 compliant. The assessment and testing of the Year 2000 readiness of these
critical business partners and vendors have been integrated with the Company's
I/T and non-I/T Year 2000 system strategies. As a part of this process, the
Company has written letters and corresponded with its outside vendors and
critical business partners to determine whether they are also prepared for the
Year 2000.

The Company's contingency plan is to make the existing I/T systems, which are to
be replaced, Year 2000 compliant. This effort is currently in the remediation
and testing phases of the project and is scheduled to be completed during the
second quarter of 1999. The Company's contingency plan has identified and
prioritized the Year 2000 exposures within the existing I/T systems. By
remediating these I/T exposures on a priority basis, the Company is working to
limit its Year 2000 contingency risk to lower priority I/T exposures in the
event that the Company's most reasonably likely worst case Year 2000 scenario
were to occur.

The most reasonably likely worst case Year 2000 scenario would be that certain
functions within the Company's existing I/T systems would incorrectly process
policy information such as policy paid-to-dates, premium billings, commissions
and claims. This scenario could have a material, adverse impact on the Company's
ability to conduct its business.

The Company expects to incur approximately $4.0 to $5.0 million in charges
related to computer hardware and software, infrastructure, and facilities
enhancements necessary to prepare for the Year 2000, of which a portion may be
capitalized. For the year ending December 31, 1998, the Company incurred
approximately $0.6 million in expenses related to systems planning and
consulting efforts associated with the development of the Company's Year 2000
remediation plans. The majority of the Company's Year 2000 costs relate to
computer hardware and software purchases and consulting fees, which will occur
primarily in the first and second quarters of 1999.

The Company expects its Year 2000 program to be completed in a timely manner;
however, the Year 2000 computer problem creates risk for the Company from
unforeseen problems in its own computer systems and from third parties with whom
the Company deals on financial transactions. Such potential, unforeseen problems
in the Company's and/or third parties' computer systems could have a material,
adverse impact on the Company's ability to conduct its business.

FORWARD-LOOKING STATEMENTS:

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. The preceding statements and certain other
statements contained in ITEM 1 - "Business," ITEM 7 - "Management's Discussion
and Analysis of Results of Operation and Financial Condition," and Notes to the
Consolidated Financial Statements are forward-looking statements. These
forward-looking statements are based on the intent, belief or current
expectations of the Company and members of its senior management team. While the
Company believes that its expectations are based on reasonable assumptions
within the bounds of its knowledge of its business and operations, prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance, and involve risks and uncertainties, and that
actual results may differ materially from those contemplated by such
forward-looking statements. Important factors known to management that could
cause actual results to differ materially from those contemplated by the
forward-looking statements in this Report include, but are not limited to, the
effect of economic and market conditions, further adverse developments with
respect to the Company's liquidity position or operations of the Company's
various businesses, actions that may be taken by insurance regulatory
authorities, adverse developments in the timing or results of the Company's
current strategic business plan, the difficulty in controlling health care costs
and integrating new operations, the ability of the Company to realize
anticipated general and administrative expense savings and overhead reductions
presently contemplated, the ability of the Company to return the Company's
operations to profitability, the level and nature of any restructuring charges,
and the possible negative effects of prospective health care reform. Additional
factors that would cause actual results to differ materially from those
contemplated within this report can also be found in the Company's reports to
the Securities and Exchange Commission ("SEC") on Form 8-K during 1999 and 1998
and Form 10-Q for the quarters ended September 30, 1998, June 30, 1998 and March
31, 1998. Subsequent written or oral statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
cautionary statements in this Report and those in the Company's reports
previously filed with the SEC. Copies of these filings may be obtained by
contacting the Company or the SEC.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's primary objectives in managing its cash flows and investments are
to maximize investment income and yield while preserving capital and minimizing
credit risks. To attain these objectives, investment policies and strategies are
developed using expected underwriting results, forecasted federal tax positions,
regulatory requirements, forecasted economic conditions including expected
fluctuations in interest rates and general market risks.

Market risk represents the potential for loss due to adverse changes in the fair
market value of financial instruments. The market risks associated with the
financial instruments of the Company primarily relate to the Company's
investment portfolio that consists largely (93.5%) of fixed income securities.
The Company's investment portfolio is exposed to market risk through
fluctuations in interest rates, changes in credit quality and principal
prepayments.

Interest rate risk is the price sensitivity of a fixed income security to
changes in interest rates. The Company evaluates the potential changes in
interest rates and market prices within the context of asset and liability
management. Asset and liability management involves forecasting the payout
pattern of the Company's liabilities, consisting primarily of accident and
health claim reserves, to determine duration and then matching the duration of
the liabilities to fixed income investments with a similar duration. Through
asset and liability management, the Company believes that interest rate risk is
mitigated.

The table below provides cash flow information about the Company's fixed
maturity investments at December 31, 1998. The table presents cash flows of
principal amounts and related weighted average interest rates by expected
maturity dates. The cash flows are based on the earlier of the call date or the
maturity date or, for mortgage-backed securities, expected principal payment
patterns. Actual cash flows could differ from the expected amounts.

As of December 31, 1998, all of the Company's securities were classified as
available-for-sale securities.

<TABLE>
<CAPTION>
                                                          PROJECTED PRINCIPAL CASH FLOWS
                                                                  (IN THOUSANDS)
                            --------------------------------------------------------------------------------------------
                                                                                                                Fair
                                                                                                               Market
                                                                                                               Value
                              1999     2000      2001       2002       2003      Thereafter     Total         12/31/98
                            --------- -------- ---------- ---------- ---------- ------------- -----------    -----------
<S>                         <C>       <C>      <C>        <C>        <C>        <C>           <C>            <C>       
U.S. Treasury Securities    $    375  $   725  $   1,645  $   3,025  $     715  $     3,290   $    9,775     $   10,776
  Average Interest Rate        6.38%    6.96%      7.65%      6.80%      6.64%        7.82%

Mortgage-Backed Securities     1,774    1,345      1,024        762        563        2,336        7,804          8,109
  Average Interest Rate        7.82%    7.77%      7.71%      7.68%      7.64%        8.20%

Callable Securities            2,140      653      1,049      1,393      1,033        3,360        9,628          9,913
  Average Interest Rate        7.99%    7.93%      7.67%      8.85%      7.11%        7.85%

Other Fixed Maturities         1,548    5,196      5,425      6,380      9,020       60,274       87,843         94,066
  Average Interest Rate        5.16%    7.16%      7.32%      7.79%      6.54%        7.62%
                            --------- -------- ---------- ---------- ---------- ------------- -----------    -----------
Total                       $  5,837  $ 7,919  $   9,143  $  11,560  $  11,331  $    69,260   $  115,050     $  122,864
                            ========= ======== ========== ========== ========== ============= ===========    ===========
</TABLE>




The Company invests primarily in fixed-income securities of the U.S. Government
and its related agencies, investment grade fixed-income corporate securities and
mortgage-backed securities. (See PART 1 - ITEM 1 and NOTE 3 - "Investments" to
the Company's Consolidated Financial Statements.) Approximately 3.4% of the
Company's fixed-income portfolio is comprised of less than investment grade
securities. The Company's investment policy allows up to 5% of the Company's
assets to be invested in higher yielding, non-investment grade securities. Due
to the overall high quality of the Company's investment portfolio (A as rated by
Standard & Poor's), management believes the Company has marginal risk with
regard to credit quality.

Mortgage-backed securities investors are compensated primarily for prepayment
risk rather than credit quality risk. During periods of significant interest
rate volatility, the underlying mortgages may repay more quickly or more slowly
than anticipated. If the repayment of principal occurs earlier than anticipated
during periods of declining interest rates, investment income may decline due to
the reinvestment of these funds at the lower current market rates. To manage
prepayment risk, the Company limits the type of mortgage-backed structures
invested in and restricts the portfolio's total exposure in mortgage-backed
securities. If the repayment occurs later than expected during periods of
increasing interest rates, the cost of funds to pay liabilities may increase due
to the mismatching of assets and liabilities.


<PAGE>




ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements and Financial Statement Schedules Covered by the
Following Report of Independent Accountants.

<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                          NUMBER(S)

<S>                                                                                                             <C>
Report of Independent Accountants............................................................................... 40

FINANCIAL STATEMENTS:

     Consolidated Statements of Operations for the Three Years ended December 31, 1998.......................... 41

     Consolidated Balance Sheets at December 31, 1998 and 1997.................................................. 42

     Consolidated Statements of Cash Flows for the Three Years ended December 31, 1998.......................... 44

     Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the

         Three Years ended December 31, 1998.................................................................... 46

     Consolidated Statements of Comprehensive (Loss) Income for the Three Years

         ended December 31, 1998................................................................................ 47

     Notes to Consolidated Financial Statements................................................................. 48

FINANCIAL STATEMENT SCHEDULES:

II.   Condensed Financial Information of Registrant............................................................. 71

III.  Supplementary Insurance Information....................................................................... 74

IV.  Reinsurance................................................................................................ 75

V.    Valuation and Qualifying Accounts and Reserves............................................................ 76
</TABLE>

All  other  Financial  Statement  Schedules  are  omitted  because  they are not
applicable or the required  information is shown in the Financial  Statements or
notes thereto.


<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Stockholders of

Westbridge Capital Corp. (now, Ascent Assurance, Inc.)

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Westbridge Capital Corp. and its subsidiaries at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

As discussed in NOTE 1 to the Consolidated Financial Statements, Westbridge
Capital Corp. filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code with the United States Bankruptcy Court for the District of
Delaware on September 16, 1998. The Bankruptcy Court confirmed the Plan on
December 17, 1998, and, after the satisfaction of a number of conditions, the
Plan became effective on March 24, 1999. In connection with its emergence from
Chapter 11, Westbridge Capital Corp. changed its corporate name to Ascent
Assurance, Inc.

 /S/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP
Dallas, Texas

March 29, 1999


<PAGE>



                            WESTBRIDGE CAPITAL CORP.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        (IN THOUSANDS. EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                               December 31,
                                                            ----------------------------------------------------
                                                                1998                1997               1996
                                                            --------------     ---------------     -------------
<S>                                                          <C>                <C>                  <C>
        Revenues:
           Premiums:
             First-year                                      $    19,161        $    37,890          $   61,923
             Renewal                                             116,556            123,207              94,857
                                                            --------------     ---------------     -------------
                                                                 135,717            161,097             156,780
           Net investment income                                  12,011             11,023               8,736
           Fee and service income                                 16,191             16,700               9,534
           Net realized gain on investments                        2,142                 84                  96
                                                            --------------     ---------------     -------------
                                                                 166,061            188,904             175,146
                                                            --------------     ---------------     -------------
        Benefits, claims and expenses:
           Benefits and claims                                    99,419            136,866              94,187
           Amortization of deferred policy
             acquisition costs                                     4,411             30,873              22,907
           Commissions                                            29,979             16,690               7,919
           General and administrative expenses                    28,149             31,407              27,123
           Reorganization expense                                  9,179              4,424                   -
           Recognition of premium deficiency                       4,948             64,952                   -
           Taxes, licenses and fees                                5,216              5,995               5,951
           Interest expense                                        6,814              7,102               4,462
                                                            --------------     ---------------     -------------
                                                                 188,115            298,309             162,549
                                                            --------------     ---------------     -------------
        (Loss) income before income taxes, equity
           in earnings of Freedom Holding
           Company and extraordinary item                        (22,054)          (109,405)             12,597
        Provision (benefit) for income taxes                         231            (13,268)              4,410
        Equity in earnings of Freedom Holding Company                  -                  -                  74
                                                            --------------     ---------------     -------------
        (Loss) income before extraordinary item                  (22,285)           (96,137)              8,261
        Extraordinary loss, net of tax                                 -              1,007                   -
                                                            ==============     ===============     =============
           Net (loss) income                                     (22,285)       $   (97,144)         $    8,261
                                                            ==============     ===============     =============

        Preferred stock dividends                                    520              1,572               1,650
                                                            --------------     ---------------     -------------
        (Loss) income applicable to
           common stockholders                                   (22,805)       $   (98,716)         $    6,611
                                                            ==============     ===============     =============

        Earnings per common share:
           Basic:
             (Loss) income before extraordinary item         $     (3.43)       $    (15.91)         $     1.11
             Extraordinary loss                                        -               (.16)                  -
                                                            ==============     ===============     =============
               Net (loss) income                             $     (3.43)       $    (16.07)         $     1.11
                                                            ==============     ===============     =============
           Diluted:
             (Loss) income before extraordinary item         $     (3.43)       $    (15.91)         $      .97
             Extraordinary loss                                        -               (.16)                  -
                                                            ==============     ===============     =============
               Net (loss) income                             $     (3.43)       $    (16.07)         $      .97
                                                            ==============     ===============     =============

        Weighted average shares outstanding:
           Basic                                               6,640,000          6,143,000           5,978,000
                                                            ==============     ===============     =============
           Diluted                                             6,640,000          6,143,000           8,477,000
                                                            ==============     ===============     =============
</TABLE>
The accompanying notes are an integral part of these financial statements.


<PAGE>




                            WESTBRIDGE CAPITAL CORP.
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                   --------------------------------------------------
                                                                           1998                        1997
                                                                   ----------------------     -----------------------
<S>                                                                 <C>                        <C>             
Investments:
   Fixed maturities:
     Available-for-sale, at market value
       (amortized cost $116,871 and $122,840)                        $      122,864             $        128,749
   Equity securities, at market                                               2,575                        4,770
   Mortgage loans on real estate                                                318                          389
   Investment real estate                                                         -                          566
   Policy loans                                                                 280                          284
   Short-term investments and certificates of deposit                         5,393                       12,654
                                                                   ----------------------     -----------------------

         Total Investments                                                  131,430                      147,412

Cash and cash equivalents                                                       278                        1,030
Accrued investment income                                                     2,372                        2,453
Receivables from agents (net of $5,176 and
   $4,531 allowance for doubtful accounts)                                    9,860                       20,503
Deferred policy acquisition costs                                            14,177                       19,165
Leasehold improvements and equipment, at cost (net of
   accumulated depreciation and amortization of
   $3,443 and $4,106)                                                         1,849                        1,141
Due from reinsurers                                                           2,155                        3,219
Commissions receivable                                                        3,273                        1,389
Deferred debt costs, net of accumulated amortization                          3,182                        4,046
Other assets                                                                  1,165                        2,498
                                                                   ----------------------     -----------------------

         Total Assets                                                $      169,741             $        202,856
                                                                   ======================     =======================
</TABLE>

The accompanying notes are an integral part of these financial statements.


<PAGE>




                            WESTBRIDGE CAPITAL CORP.
                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

        LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                       ---------------------------------------------------
                                                                                1998                        1997
                                                                       -----------------------     -----------------------
<S>                                                                      <C>                         <C>             
      Liabilities:
         Policy liabilities and accruals:
           Future policy benefits                                        $         53,871            $         55,811
           Claims                                                                  44,116                      51,784
                                                                       -----------------------     -----------------------
                                                                                   97,987                     107,595
      Accounts payable and accruals                                                 8,642                       3,847
      Commission advances payable                                                     991                       4,702
      Other liabilities                                                             5,174                       5,612
      Accrued dividends and interest payable                                       11,377                       4,971
      Deferred income taxes, net                                                        -                           -
      Notes payable                                                                 6,192                      13,100
      Convertible subordinated notes, due 2004                                     70,000                      70,000
      Senior subordinated notes, net of
         unamortized discount, due 2002                                            19,523                      19,447
                                                                       -----------------------     -----------------------
               Total Liabilities                                                  219,886                     229,274
                                                                       -----------------------     -----------------------
      Redeemable Preferred Stock                                                   11,935                      19,000
                                                                       -----------------------     -----------------------

      Stockholders' (Deficit) Equity:
         Common stock, ($.10 par value,
           30,000,000 shares authorized;
           7,035,809 and 6,195,439 shares issued)                                     703                         620
         Capital in excess of par value                                            37,641                      30,843
         Accumulated other comprehensive
           income, net of tax                                                       3,911                       4,649
         Deficit                                                                (104,335)                     (81,530)
                                                                       -----------------------     -----------------------

               Total Stockholders' Deficit                                       (62,080)                     (45,418)
                                                                       -----------------------     -----------------------

      Commitments and contingencies:

               Total Liabilities, Redeemable Preferred
                 Stock and Stockholders' Deficit                         $        169,741            $        202,856
                                                                       =======================     =======================
</TABLE>


The accompanying notes are an integral part of these financial statements.


<PAGE>




                            WESTBRIDGE CAPITAL CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                     Year Ended December 31,
                                                                           ---------------------------------------------
                                                                              1998             1997            1996
                                                                           ------------    -------------    ------------
<S>                                                                        <C>             <C>              <C>        
Cash Flows From Operating Activities:
   Net (loss) income applicable to common stockholders                     $   (22,805)    $   (98,716)     $     6,611
   Adjustments to reconcile net (loss) income applicable to common
     stockholders to cash used for operating activities:

       Recognition of premium deficiency                                         4,948          64,952                -
       Amortization of deferred policy acquisition costs                         4,411          30,873           22,907
       Additions to deferred policy acquisition costs                           (4,371)        (31,119)         (45,138)
       Depreciation expense                                                        476             470              497
       Equity in earnings of Freedom Holding Company                                 -               -              (74)
       Decrease (increase) in receivables from agents                           10,643          (2,192)          (1,371)
       Decrease (increase) in due from reinsurers                                1,064          (1,763)           2,073
       (Increase) decrease in commissions receivable                            (1,884)          2,017           (3,406)
       Decrease in other assets                                                  1,333           1,940            4,302
       (Decrease) increase in policy liabilities and accruals                   (9,608)          14,205           2,995
       Increase (decrease) in accounts payable and accruals                      4,795           1,351           (1,027)
       Increase in accrued dividends and interest payable                        6,406           4,445               99
       (Decrease) increase in commission advances payable                       (3,711)            334            4,368
       (Decrease) increase in other liabilities                                   (438)          4,438           (6,793)
       (Decrease) increase in deferred income taxes, net                             -         (10,299)           3,708
       Other, net                                                                  735            (910)            (518)
                                                                           ------------    -------------    ------------
Net Cash Used For Operating Activities                                          (8,006)        (19,974)         (10,767)
                                                                           ------------    -------------    ------------

Cash Flows From Investing Activities:
   Acquisition of Freedom Holding Company                                            -               -           (3,970)
   Proceeds from investments sold:
     Fixed maturities, called or matured                                         7,531           9,469            8,529
     Fixed maturities, sold                                                     13,810          25,345           49,340
     Short-term  investments  and  certificates  of  deposit,  sold or           
      matured                                                                    7,261              50          155,877
     Other investments, sold or matured                                          1,652             817              556
     Cost of investments acquired                                              (15,772)        (75,745)        (203,849)
     Additions  to  leasehold  improvements  and  equipment,   net  of         
      retirements                                                               (1,184)           (300)            (218)
                                                                           ------------    -------------    ------------
Net Cash Provided By (Used For) Investing Activities                            13,298         (40,364)           6,265
                                                                           ------------    -------------    ------------
Cash Flows From Financing Activities:
   Decrease (increase) in deferred debt costs                                      864          (1,230)            (567)
   Issuance of convertible subordinated notes                                        -          70,000                -
   Issuance of notes payable                                                     5,461          21,044           16,144
   Repayment of notes payable                                                  (12,369)        (29,154)         (12,090)
   Issuance of common stock                                                          -             140              140
   Purchase and cancellation of common stock                                         -            (445)            (125)
                                                                           ------------    -------------    ------------
Net Cash (Used For) Provided By Financing Activities                            (6,044)         60,355            3,502
                                                                           ------------    -------------    ------------
(Decrease) increase in Cash and Cash Equivalents, During Period                   (752)             17           (1,000)
Cash and Cash Equivalents, At Beginning Of Period                                1,030           1,013            2,013
                                                                           ============    =============    ============
Cash and Cash Equivalents, At End Of Period                                $       278     $     1,030      $     1,013
                                                                           ============    =============    ============

Supplemental Disclosures of Cash Flow Information:
   Cash paid during the year for:
     Interest                                                              $       833     $     3,002      $     3,861
     Income taxes                                                          $     1,143     $       118      $       982
</TABLE>


The accompanying notes are an integral part of these financial statements.

                            WESTBRIDGE CAPITAL CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (CONTINUED)

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:

During the year ended December 31, 1998, seven thousand and sixty-five (7,065)
shares of the Company's Old Preferred Stock were converted into shares of Old
Common Stock. The converted shares of Old Preferred Stock had an aggregate
liquidation preference of $7,065,000 and were converted into 840,071 shares of
Old Common Stock.

The Company purchased the outstanding capital stock of Freedom Holding Company
("FHC") in the second quarter of 1996 for a cash purchase price of $6.3 million.
This purchase resulted in the Company receiving assets and assuming liabilities
as follows:

                             Assets                 $13,542,000
                             Liabilities            $  5,780,000

Adjustments to reconcile net income to cash used for operating activities in the
Company's Consolidated Statement of Cash Flows exclude increases relating to the
acquired assets and liabilities of FHC. Accordingly, these adjustments do not
correspond to the changes in the related line items on the Company's
Consolidated Balance Sheets.

The accompanying notes are an integral part of these financial statements.


<PAGE>



                            WESTBRIDGE CAPITAL CORP.
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                ACCUMULATED                               TOTAL
                                                                                   OTHER                                  STOCK-
                                                                      CAPITAL  COMPREHENSIVE RETAINED                    HOLDERS'
                                                  COMMON STOCK       IN EXCESS     INCOME   EARNINGS   TREASURY STOCK     EQUITY
                                                SHARES      AMOUNT  OF PAR VALUE   (LOSS)   (DEFICIT)  SHARES  AMOUNT   (DEFICIT)
                                                ------      ------    ---------    ------   ---------  ------  ------   ---------
<S>                <C>                         <C>         <C>        <C>        <C>        <C>         <C>     <C>     <C>     
Balance at January 1, 1996                     5,992,458   $    599   $ 29,208   $  2,593   $  10,575   28,600  $(170)  $ 42,805

  Net income                                                                                    8,261                      8,261
  Preferred stock dividend                                                                     (1,650)                    (1,650)
  Accumulated comprehensive loss, net of tax                                       (1,536)                                (1,536)
  Issuance of shares under stock
     option plans                                 62,965          6        134                                               140
  Award of restricted shares                                                 8                                                 8
  Shares  purchased and canceled
     under stock option plans                    (15,429)        (1)      (124)                                             (125)
                                              ----------   --------   --------   --------   ---------   ------  -----   --------
Balance at December 31, 1996                   6,039,994   $    604   $ 29,226   $  1,057   $  17,186   28,600  $(170)  $ 47,903

  Net loss                                                                                    (97,144)                   (97,144)
  Preferred stock dividend                                                                     (1,572)                    (1,572)
  Accumulated comprehensive income,                                                 3,592                                  3,592
     net of tax

  Preferred stock converted to common            118,905         12        937                                               949
  Issuance of shares under stock
     option plans                                 42,500          4        115                                               119
  Award and issuance of restricted shares         67,000          7      1,179                                             1,186
  Cancellation of treasury stock                 (28,600)        (3)      (167)                        (28,600)   170          0
  Shares purchased and canceled
     under stock option plans                    (44,360)        (4)      (447)                                             (451)
                                              ----------   --------   --------   --------   ---------   ------  -----   --------
Balance at December 31, 1997                   6,195,439   $    620   $ 30,843   $  4,649   $ (81,530)    --    $--     $(45,418)

  Net loss                                                                                    (22,285)                   (22,285)
  Preferred stock dividend                                                                       (520)                      (520)
  Accumulated comprehensive loss, net of tax                                         (738)                                  (738)
  Preferred stock converted to common            840,071         83      6,982                                             7,065
  Other, net                                         299       --         (184)                                             (184)
                                              ==========   ========   ========   ========   =========   ======  =====   ========
Balance at December 31, 1998                   7,035,809   $    703   $ 37,641   $  3,911   $(104,335)    --    $--     $(62,080)
                                              ==========   ========   ========   ========   =========   ======  =====   ========
</TABLE>



The accompanying notes are an integral part of these financial statements.


<PAGE>



                            WESTBRIDGE CAPITAL CORP.
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                                    -------------------------------------------------
                                                                        1998              1997             1996
                                                                    --------------    -------------    --------------
<S>                                                                 <C>               <C>              <C>         
(Loss) income before income taxes                                   $   (22,054)      $  (109,405)     $     12,597

Other comprehensive (loss) income:
   Unrealized holding gains (losses) arising during period                  822             5,677           (2,271)

   Less:  reclassification adjustment for gains on
     sales of fixed and equity securities included in
     net (loss) income                                                   (1,957)             (150)             (92)
                                                                    --------------    -------------    --------------
Comprehensive (loss) income before income taxes                         (23,189)         (103,878)           10,234

Provision for (benefit from) income taxes; extraordinary
   loss, net of tax; and preferred stock dividends                          751           (10,689)            5,986

(Benefit from) provision for income taxes on
   comprehensive (loss) income                                             (397)            1,934             (827)
                                                                    --------------    -------------    --------------

Comprehensive (loss) income, net of income taxes                    $   (23,543)      $   (95,123)     $      5,075
                                                                    ==============    =============    ==============
</TABLE>


The accompanying notes are an integral part of these financial statements.


<PAGE>


                            WESTBRIDGE CAPITAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - REORGANIZATION AND EMERGENCE FROM CHAPTER 11 CASE

On September 16, 1998 (the "Petition Date"), Westbridge commenced a
reorganization case (the "Chapter 11 Case") by filing a voluntary petition for
relief under Chapter 11, Title 11 of the United States Code in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"), along
with a disclosure statement (as amended, the "Disclosure Statement") and a
proposed plan of reorganization (as amended, the "Plan"). The filing of the
Disclosure Statement and Plan culminated months of negotiations between
Westbridge and an ad hoc committee of holders of its 11% Senior Subordinated
Notes due 2002 (the "Senior Notes") and its 7-1/2% Convertible Subordinated
Notes due 2004 (the "Convertible Notes"). The Disclosure Statement and the Plan
were amended on October 28, 1998, and the Disclosure Statement was approved by
entry of an order by the Bankruptcy Court on October 30, 1998. Following the
approval of the Plan by the holders of allowed claims and equity interests, the
Bankruptcy Court confirmed the Plan on December 17, 1998. The Plan became
effective March 24, 1999 (the "Effective Date").

In connection with its emergence from Chapter 11, Westbridge changed its
corporate name to "Ascent Assurance, Inc." Pursuant to the Plan, the Company's
Board of Directors was reconstituted as of the Effective Date, and the Company's
certificates of incorporation and by-laws were amended and restated in their
entirety.

The Plan provides for the recapitalization of certain old debt and equity
interests in Westbridge and the issuance of new equity  securities and warrants.
Key terms of the Plan include the following:

CANCELLATION OF EXISTING SECURITIES

      Westbridge's capital structure was realigned and deleveraged. Pursuant to
     the Plan, the following securities of Westbridge were canceled as of the
     Effective Date: (i) $23.3 million aggregate principal amount of, plus all
     accrued and unpaid interest on, the Senior Notes, (ii) $77.3 million
     aggregate principal amount of, plus all accrued and unpaid interest on, the
     Convertible Notes, (iii) $13.2 million aggregate liquidation preference of,
     plus all accrued and unpaid dividends on, Westbridge's Series A Convertible
     Redeemable Exchangeable Preferred Stock (the "Old Preferred Stock"), (iv)
     Westbridge's Common Stock, par value $.10 per share (the "Old Common
     Stock"), (v) all outstanding warrants to purchase Old Common Stock, (vi)
     all outstanding unexercised stock options to purchase Old Common Stock, and
     (vii) all unvested grants of restricted Old Common Stock.

NEW EQUITY CAPITAL STRUCTURE

      Pursuant to the Company's Amended and Restated Certificate of
     Incorporation, the total number of shares of stock the Company shall have
     the authority to issue is 30,040,000, consisting of 30,000,000 shares of
     common stock, par value $.01 per share (the "New Common Stock") and 40,000
     shares of preferred stock, par value $.01 per share, all of which are
     designated Series A Convertible Preferred Stock (the "New Preferred Stock")

DISTRIBUTIONS UNDER THE PLAN

         CASH DISTRIBUTION

               To the holders of Senior Notes other than CSFB (defined below),
              cash payments totaling approximately $15.2 million, which are
              equal to the total Allowed 11% Senior Note Claims (as defined in
              the Plan) held by creditors other than Credit Suisse First Boston
              Corporation ("CSFB"), will be distributed subject to completion of
              the exchange of securities as contemplated by the Plan. In order
              to provide the Company with sufficient funds to make the cash
              distribution to the holders of the Allowed 11% Senior Notes under
              the Plan, an affiliate of CSFB (the "CSFB Affiliate") purchased
              all of the shares of the New Preferred Stock which were not
              otherwise distributed under the Plan.

         ISSUANCE OF NEW SECURITIES

         Pursuant to the Plan and the purchase of New Preferred  Stock on the 
         Effective  Date,  6,500,000  shares of New Common Stock and 23,257 
         shares of New Preferred  Stock were issued on the Effective Date
         as follows:

               To holders of general unsecured claims and Convertible Notes as
              of December 10, 1998 and current management, 6,110,000 shares, or
              94%, of the New Common Stock issued on the Effective Date, subject
              to the completion of the exchange requirements as contemplated by
              the Plan. Holders of general unsecured claims and Convertible
              Notes will receive their first distribution of shares in partial
              satisfaction and discharge of their allowed claims beginning in
              April 1999. The remaining shares of New Common Stock are held for
              future distributions to such holders pending the final resolution
              of disputed claims.

               To holders of Old Preferred Stock, 260,000 shares as of December
              10, 1998, or 4%, of the New Common Stock issued on the Effective
              Date and Warrants ("New Warrants") to purchase an additional
              277,505 shares, or 2%, of the number of shares of New Common Stock
              issued and outstanding on the Effective Date, on a fully diluted
              basis, subject to the completion of the exchange of securities as
              contemplated by the Plan.

               To holders of Old Common Stock, 130,000 shares as of December 10,
              1998, or 2%, of the New Common Stock issued on the Effective Date
              and New Warrants to purchase an additional 693,761 shares, or 5%,
              of the number of shares of New Common Stock issued and outstanding
              on the Effective Date, on a fully diluted basis, subject to the
              completion of the exchange of securities as contemplated by the
              Plan. Fractional shares of New Common Stock will not be issued in
              connection with the Plan. As a result of this provision, many
              holders of Old Common Stock will receive no distribution of New
              Common Stock or New Warrants under the Plan.

               To the CSFB Affiliate, in respect of the Senior Notes owned by
              CSFB as of December 10, 1998, 8,090 shares of New Preferred Stock
              which, together with the 15,167 additional shares of New Preferred
              Stock purchased by the CSFB Affiliate as described above, are
              convertible into 4,765,165 shares of the New Common Stock at an
              initial conversion price of $4.88 per share. As a result of the
              New Preferred Stock received by the CSFB Affiliate, together with
              the 3,093,998 shares of New Common Stock to be received by the
              CSFB Affiliate in respect of the Convertible Notes owned by CSFB,
              the CSFB affiliate will own approximately 56.6% of the New Common
              Stock on an as converted basis.

         RESERVATION OF ADDITIONAL NEW COMMON STOCK

               In connection with the New Warrants described above, 971,266
              shares of New Common Stock are reserved for issuance upon the
              exercise of New Warrants. The New Warrant are exercisable at an
              initial exercise price $9.04 per share of New Common Stock and
              will expire on March 24, 2004.

               Pursuant to the Plan, up to 1,251,685 shares, or 10%, of the
              fully diluted number of shares of New Common Stock issued and
              outstanding on the Effective Date are reserved for issuance to
              employees and directors, and up to 387,119 shares, or 3%, of the
              fully diluted number of shares of New Common Stock issued and
              outstanding on the Effective Date are reserved for issuance to the
              Company's marketing agents under the Company's 1999 Stock Option
              Plan.

OTHER MATTERS

      In connection with the approval and effectiveness of the Plan, the Company
     settled a putative class action brought on behalf of certain purchasers and
     sellers of Westbridge's Convertible Notes and Old Common Stock during the
     period October 31, 1996 through October 31, 1997.

     See NOTES 6 and 11 regarding the status of the Company's financing
     arrangements and Insurance Subsidiaries.

In connection with the reorganization, the Company will realize a non-taxable
gain from the extinguishment of certain indebtedness for tax purposes, since the
gain results from a reorganization under the Bankruptcy Code. However, the
Company will be required during 1999 to reduce certain tax attributes related to
Westbridge, exclusive of its operating subsidiaries, including (i) net operating
loss carryforwards ("NOLs"), (ii) certain tax credits and (iii) tax bases in
assets in an amount equal to such a gain on extinguishment.

In accordance with the American Institute of Certified Public Accountants'
Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," the Company will adopt fresh start
reporting. For accounting purposes, the Effective Date is deemed to be March 31,
1999. In fresh start reporting, a reorganization value will be assigned to the
Company's New Preferred Stock and New Common Stock. The reorganization value
will be allocated to the fair value of assets and liabilities similar to the
purchase method of accounting under APB 16. As a result of the application of
fresh start reporting, the Company's financial statements issued subsequent to
the adoption of fresh start reporting will not be comparable with those prepared
before emergence, including the historical financial statements in this annual
report.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS

PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of Westbridge Capital Corp. ("the Company"), and its six wholly owned
subsidiaries: National Foundation Life Insurance Company ("NFL"), National
Financial Insurance Company ("NFIC"), Westbridge Management Corp. ("WBMC"),
NationalCare Marketing(R), Inc. ("NCM"), Westbridge Printing Services, Inc.
("WPS"), and Foundation Financial Services, Inc. ("FFS"). In addition, the
consolidated financial statements include the accounts of the Company's
indirect, wholly owned subsidiaries: (a) Freedom Life Insurance Company of
America ("FLICA") is a wholly owned subsidiary of Freedom Holding Company
("FHC"), and FHC is a wholly owned subsidiary of NFL, (b) American Insurance
Company of Texas ("AICT") is a wholly owned subsidiary of NFIC, and (c) NCM owns
100% of Westbridge Funding Corporation ("WFC"), Precision Dialing Services, Inc.
("PDS"), Senior Benefits, LLC ("Senior Benefits"), LifeStyles Marketing Group,
Inc. ("LifeStyles Marketing"), American Senior Security Plans, LLC ("ASSP"), and
Westbridge Financial Corp. The consolidated financial statements also include
the accounts of the Company's 80%-owned subsidiary Health Care-One Marketing
Group, Inc. ("HCO Marketing") as well as the Company's 50%-owned subsidiary,
Health Care-One Insurance Agency, Inc. ("Health Care-One"). The Company's
decision to consolidate the accounts of Health Care-One is based on the extent
to which the Company exercises control over Health Care-One. The Company has
agreed to provide 100% of the financing required to support the marketing
efforts of Health Care-One and also has significant input in its management. All
significant intercompany accounts and transactions have been eliminated.

NATURE OF OPERATIONS. The Company, through its subsidiaries and affiliates, is
licensed to market accident and health insurance products in 40 states and the
District of Columbia. The major underwritten product lines currently marketed by
the Company are Medical Expense products and Specified Disease products. In the
past, the Company also underwrote a significant amount of Medicare Supplement
products. The Company also markets certain managed care and senior products,
which are underwritten by other non-affiliated managed care organizations.

ACCOUNTING PRINCIPLES AND REGULATORY MATTERS. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP"). These principles differ from statutory accounting
principles, which must be used by NFL, FLICA, NFIC and AICT (together, the
"Insurance Subsidiaries") when reporting to state insurance departments. The
Insurance Subsidiaries are subject to oversight by the state insurance
departments of Delaware, Mississippi, Texas and other states in which they are
authorized to conduct business. These regulators perform periodic examinations
of the Insurance Subsidiaries' statutory financial statements and, as a result,
may propose adjustment to such statements.

CASH EQUIVALENTS. Cash equivalents consist of highly liquid instruments with
maturities at the time of acquisition of three months or less. Cash equivalents
are stated at cost, which approximates market.

INVESTMENTS. The Company's fixed maturity portfolio is classified as
available-for-sale and is carried at estimated market value. Equity securities
(common and nonredeemable preferred stocks) are also carried at estimated market
value. Changes in aggregate unrealized appreciation or depreciation on fixed
maturities and equity securities are reported directly in stockholders' equity,
net of applicable deferred income taxes and, accordingly, have no effect on
current operations. The Company's 40% equity investment in FHC was accounted for
on the equity basis (i.e., cost adjusted for equity in post-acquisition earnings
and amortization of excess cost) until May 31, 1996 and on a consolidated basis
for the periods subsequent to the acquisition of the remaining 60% of FLICA's
parent FHC. Mortgage loans on real estate and policy loans are carried at the
unpaid principal balance. Realized gains and losses on sales of investments are
recognized in current operations on the specific identification basis.

CONCENTRATIONS OF CREDIT RISK. Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash and cash
equivalents, investments and receivables from agents. The Company maintains cash
and investments with various major financial institutions. The Company performs
periodic evaluations of the relative credit standing of these financial
institutions. Concentrations of credit risk with respect to receivables from
agents are limited due to the large number of agents and their dispersion across
many geographic areas. The Company establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific agents,
historical trends and other information. The Company's historical experience in
collection of these receivables falls within the recorded allowances. Due to
these factors, no additional credit risk beyond the amounts provided for
collection losses is believed inherent in the Company's receivables from agents.

DEFERRED POLICY ACQUISITION COSTS ("DPAC"). Policy acquisition costs consisting
of commissions and other policy issue costs, which vary with and are primarily
related to the production of new business, are deferred and amortized over
periods not to exceed the estimated premium-paying periods of the related
policies. Also included in DPAC is the cost of insurance purchased on acquired
business. The amortization of these costs is based on actuarially estimated
future premium revenues, and the amortization rate is adjusted periodically to
reflect actual experience. Projected future levels of premium revenue are
estimated using assumptions as to interest, mortality, morbidity and withdrawals
consistent with those used in calculating liabilities for future policy
benefits.

LEASEHOLD IMPROVEMENTS AND EQUIPMENT. Leasehold improvements and equipment are
stated at cost less accumulated depreciation and amortization. Depreciation of
equipment is computed using the straight-line method over the estimated useful
lives (three to seven years) of the assets. Leasehold improvements are amortized
over the estimated useful lives of the related assets or the period of the
lease, whichever is shorter. Maintenance and repairs are expensed as incurred,
and renewals and betterments which materially extend the useful life of the
underlying assets are capitalized.

FUTURE POLICY BENEFITS AND CLAIMS. Liabilities for future policy benefits not
yet incurred are computed primarily using the net level premium method including
actuarial assumptions as to investment yield, mortality, morbidity and
withdrawals. Claim reserves represent the estimated liabilities on claims
reported plus claims incurred but not yet reported. These liabilities are
subject to the impact of future changes in claim experience and, as adjustments
become necessary, they are reflected in current operations.

RECOGNITION OF REVENUE. Accident and health premiums are recognized as revenue
when earned. Benefits and expenses are associated with related premiums so as to
result in a proper matching of revenues with expenses. Fee and service income
and investment income are recognized when earned.

USE OF ESTIMATES. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

INCOME TAXES. The Company records income taxes based on the asset and liability
approach, which requires the recognition of deferred tax liabilities and assets
for the expected future tax consequence of temporary differences between the
carrying amounts and the tax basis of assets and liabilities.

EARNINGS PER SHARE. In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share," ("SFAS 128") that revises the standards for computing
earnings per share previously found in APB Opinion No. 15, "Earnings Per Share."
The SFAS 128 established two measures of earnings per share: "basic earnings per
share" and "diluted earnings per share." Basic earnings per share is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding during the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were converted or exercised. The SFAS 128
requires dual presentation of basic and diluted earnings per share on the face
of the income statement for all entities with potential dilutive securities
outstanding. Diluted weighted average shares exclude all convertible securities
for loss periods.

The Statement also requires a reconciliation of the numerator and denominator of
the basic earnings per share computation to the numerator and denominator of the
diluted earnings per share computation. The Company adopted SFAS No. 128 for the
year ended December 31, 1997 and has restated the earnings per share
computations for 1996 to conform to this pronouncement.

The following table reflects the calculation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                    -------------------------------------------------
                                                                        1998              1997             1996
                                                                    --------------    -------------    --------------
                                                                      (Amounts in 000's, except per share amounts)
<S>                                                                 <C>               <C>              <C>        
BASIC:
     (Loss) income available to common shareholders                 $    (22,805)     $   (98,716)     $     6,611
                                                                    ==============    =============    ==============
     Average weighted shares outstanding                                   6,640             6,143           5,978
                                                                    ==============    =============    ==============
     Basic earnings per share                                       $      (3.43)     $    (16.07)     $      1.11
                                                                    ==============    =============    ==============

DILUTED:
     (Loss) income available to common shareholders                 $    (22,805)     $   (98,716)     $     6,611
     Adjustment for conversion of Old Preferred Stock                          -                 -           1,650
                                                                    --------------    -------------    --------------
     Adjusted (loss) income available to common shareholders        $    (22,805)     $   (98,716)     $     8,261
                                                                    ==============    =============    ==============

     Average weighted shares outstanding                                   6,640             6,143           5,978
     Adjustment for conversion of Old Preferred Stock                          -                 -           2,378
     Adjustment for restricted stock                                           -                 -               4
     Adjustment for options and warrants                                       -                 -             117
                                                                    --------------    -------------    --------------
     Adjusted average weighted shares outstanding                          6,640             6,143           8,477
                                                                    ==============    =============    ==============

     Diluted earnings per share                                     $      (3.43)     $    (16.07)     $      0.97
                                                                    ==============    =============    ==============
</TABLE>


RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS. On January 1, 1998, the Company
adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130").
Comprehensive income (loss) equals the total of net income (loss) and all other
non-owner changes in equity. This pronouncement requires comprehensive income
(loss) and its components to be reported either in a separate financial
statement, combined and included with the statement of income or included in a
statement of changes in stockholders' equity. The Company has elected to present
its comprehensive income (loss) as a separate financial statement.

For the Company, comprehensive income (loss) equals its reported consolidated
net income (loss) plus the change in the unrealized appreciation (depreciation)
of marketable securities from the previously reported period. Currently, this
accumulated other comprehensive income, net of tax, is reported in the Company's
Consolidated Balance Sheets as a separate component of stockholders' equity.

Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). This pronouncement, also
effective for calendar year 1998 financial statements, requires companies to
report segment information consistent with the way executive management of an
entity disaggregates its operations internally to assess performance and make
decisions regarding resource allocations. Among the information to be disclosed,
SFAS 131 requires an entity to report a measure of segment profit or loss,
certain specific revenue and expense items and segment assets. SFAS 131 also
requires reconciliations of total segment revenues, total segment profit or loss
and total segment assets to the corresponding amounts shown in the entity's
consolidated financial statements. Under SFAS 131, the Company will continue to
have only one reportable segment, Accident and Health insurance.

In December 1997, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position ("SOP") 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments," which provides guidance on
accounting for insurance-related assessments. The Company will adopt SOP 97-3 on
a prospective basis. The adoption of SOP 97-3 is not expected to have a material
impact on the Company's results of operations, liquidity or financial position.

In March 1998, AcSEC issued SOP 98-1, "Accounting for the Costs of Software
Developed or Obtained for Internal Use," which requires capitalization of
certain costs after the date of adoption in connection with developing or
obtaining software for internal use. The Company will adopt SOP 98-1 on a
prospective basis. The Company has not yet determined the impact of adopting
this SOP.

In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
the Codification of Statutory Accounting Principles guidance, which will replace
the current Accounting Practices and Procedures manual as the NAIC's primary
guidance on statutory accounting. The NAIC is now considering amendments to the
Codification guidance that would also be effective upon implementation. The NAIC
has recommended an effective date of January 1, 2001. The Codification provides
guidance for areas where statutory accounting has been silent and changes
current statutory accounting in certain areas. It is not known whether the
insurance departments of the state of domicile of the Company's Insurance
Subsidiaries will adopt the Codification or whether those insurance departments
will make any changes to that guidance. The Company has not estimated the
potential effect of the Codification guidance if adopted. However, the actual
effect of adoption could differ as changes are made to the Codification
guidance, prior to its recommended effective date of January 1, 2001.

RECLASSIFICATIONS. Certain reclassifications have been made to 1997 and 1996
amounts in order to conform to 1998 financial statement presentation.


NOTE 3 - INVESTMENTS

Major categories of investment income are summarized as follows:

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                             --------------------------------------------------
                                                                 1998               1997              1996
                                                             --------------     --------------    -------------
                                                                              (in thousands)
<S>                                                          <C>                <C>               <C>         
Fixed maturities                                             $      8,754       $      8,268      $      6,607
Short-term investments and certificates of deposit                    708                891               513
Interest on receivables from agents                                 2,511              1,633             1,201
Other                                                                 351                468               646
                                                             --------------     --------------
                                                                                                  -------------
                                                                   12,324             11,260             8,967
   Less: Investment expenses                                          313                237               231
                                                             ==============     ==============    =============
   Net investment income                                     $     12,011       $     11,023      $      8,736
                                                             ==============     ==============    =============
</TABLE>


Realized gains (losses) on investments are summarized as follows:

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                             --------------------------------------------------
                                                                 1998               1997              1996
                                                             --------------     --------------    -------------
                                                                              (in thousands)

<S>                                                           <C>               <C>               <C>         
Fixed maturities                                              $        403      $        535      $      (146)
Equity securities                                                    1,555              (385)              238
Other                                                                  184               (66)                4
                                                             ==============     ==============    =============
Realized gains on investments                                 $      2,142       $        84      $         96
                                                             ==============     ==============    =============
</TABLE>



Unrealized appreciation on investments is reflected directly in stockholders'
equity as a component of accumulated other comprehensive income and is
summarized as follows:

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                         ----------------------------------
                                                                             1998                1997
                                                                         --------------     ---------------
                                                                                  (in thousands)
<S>                                                                      <C>                <C>         
Balance at beginning of year                                             $      4,649       $      1,057
Unrealized appreciation, net

   of tax, on fixed maturities available-for-sale                                  54              2,816
Unrealized (depreciation) appreciation, net of
   tax, on equity securities and other investments                               (792)               776
                                                                         ==============     ===============
Balance at end of year                                                   $      3,911       $      4,649
                                                                         ==============     ===============
</TABLE>


Estimated market values represent the closing sales prices of marketable
securities. The amortized cost and estimated market values of investments in
fixed maturities at December 31, 1998 and 1997, are summarized by category as
follows:

<TABLE>
<CAPTION>
                                                                       Gross              Gross            Estimated
                                                  Amortized          Unrealized         Unrealized          Market
1998 Available-for-Sale                             Cost               Gains              Losses             Value
-------------------------------------------    ----------------    ---------------    ---------------    --------------
                                                                           (in thousands)
<S>                                            <C>                 <C>                <C>                <C>          
U.S. Government and governmental
    agencies and authorities                   $      11,145       $        644       $          13      $      11,776
States, municipalities, and political
    subdivisions                                       1,490                 96                   -              1,586
Finance companies                                     30,441              1,549                  71             31,919
Public utilities                                      12,745                801                 125             13,421
Mortgage-backed securities                             7,834                284                   8              8,110
All other corporate bonds                             53,216              3,346                 510             56,052
                                               ================    ===============    ===============    ==============
Balance at December 31, 1998                   $     116,871       $      6,720       $         727      $     122,864
                                               ================    ===============    ===============    ==============
</TABLE>



<TABLE>
<CAPTION>
                                                                       Gross              Gross            Estimated
                                                  Amortized          Unrealized         Unrealized          Market
1997 Available-for-Sale                             Cost               Gains              Losses             Value
-------------------------------------------    ----------------    ---------------    ---------------    --------------
                                                                           (in thousands)
<S>                                            <C>                 <C>                <C>                <C>          
U.S. Government and governmental
    agencies and authorities                   $      11,331       $        347       $          10      $      11,668
States, municipalities, and political
    subdivisions                                         997                 74                   -              1,071
Finance companies                                     32,073              1,512                   4             33,581
Public utilities                                      10,854                430                  11             11,273
Mortgage-backed securities                            10,237                265                  28             10,474
All other corporate bonds                             57,348              3,552                 218             60,682
                                               ================    ===============    ===============    ==============
Balance at December 31, 1997                   $     122,840       $      6,180       $         271      $     128,749
                                               ================    ===============    ===============    ==============
</TABLE>



The amortized cost and estimated market value of investments in
available-for-sale fixed maturities as of December 31, 1998, are shown below, in
thousands, summarized by year to contractual maturity. Mortgage-backed
securities are listed separately. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without penalties.

<TABLE>
<CAPTION>
                                                                                                   Estimated
                                                                           Amortized                Market
                                                                             Cost                    Value
                                                                       ------------------      ------------------
                                                                                    (in thousands)

<S>                                                                    <C>                     <C>             
Due in one year or less                                                $          1,882        $          1,889
Due after one year through five years                                            31,417                  32,254
Due after five years through ten years                                           39,748                  41,959
Due after ten years                                                              35,990                  38,652
Mortgage-backed securities                                                        7,834                   8,110
                                                                       ------------------      ------------------
                                                                       $        116,871        $        122,864
                                                                       ==================      ==================
</TABLE>


A summary of unrealized appreciation on investments in fixed maturities
available-for-sale, which is reflected directly in stockholders' equity as a
component of accumulated other comprehensive income, is as follows:

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                         ----------------------------------
                                                                             1998                1997
                                                                         --------------     ---------------
                                                                                  (in thousands)
<S>                                                                      <C>                <C>         
Amortized cost                                                           $    116,871       $    122,840
Estimated market value                                                        122,864            128,749
                                                                         --------------     ---------------
Excess of market value to amortized cost                                        5,993              5,909
Estimated tax                                                                   2,098              2,068
                                                                         --------------     ---------------
Unrealized appreciation, net of tax                                             3,895       $      3,841
                                                                         ==============     ===============
</TABLE>


Proceeds from sales and maturities of investments in fixed maturity securities
were approximately $25.1 million in 1998 and $34.0 million in 1997. Gross gains
of $0.8 million and gross losses of $0.4 million were realized on fixed maturity
investment sales during 1998. Gross gains of $0.7 million and gross losses of
$0.1 million were realized on fixed maturity investment sales during 1997.

Included in fixed maturities at December 31, 1998 and 1997, are high-yield,
unrated or less than investment grade corporate debt securities comprising less
than 3.2% and 1.6% of total cash and invested assets at December 31, 1998 and
1997, respectively.

Investment securities on deposit with insurance regulators in accordance with
statutory requirements at December 31, 1998 and 1997 had a par value totaling
$28.2 million and $28.3 million, respectively.

At December 31, 1998, the Company had restricted cash and investments totaling
$2.5 million and $1.9 million, respectively, related to its receivables
financing program (see NOTE 6 - "Financing Activities") and to a collateralized
letter of credit ("LOC") for the purpose of potential future capital
contributions to NFIC and AICT. The collateralized LOC expires in June 1999 and
future draws upon this LOC are subject to certain provisions regarding NFIC's
and AICT's statutory capital and surplus levels.

NOTE 4 - ACQUISITIONS

ACQUISITION OF REMAINING INTEREST OF FHC

On May 31, 1996, the Company completed its acquisition of the remaining 60%
equity interest in Freedom Holding Company ("FHC"). FHC is a holding company
which owns 100% of FLICA, a Mississippi domiciled insurer. The purchase price
was $6.3 million in cash, and the transaction was accounted for under the
purchase method. Prior to the acquisition, the Company accounted for its 40%
investment in FHC using the equity method. The Company's portion of FHC's
earnings prior to the acquisition in 1996 accounted for using the equity method
was $74,000.

Beginning June 1, 1996, the results of operations of FHC have been reflected in
the Company's Consolidated Statements of Operations and of Cash Flows. The
present value of future profits associated with the purchase are being amortized
in relation to premium revenues over the remaining life of the business. At the
time of the acquisition, the Company, through NFL, reinsured the majority of
business underwritten by FLICA. Subsequent to the acquisition of the remaining
interest of FHC, the coinsurance agreements between FLICA and NFL were canceled.
The acquisition did not have a material pro-forma impact on operations.

NOTE 5 - FUTURE POLICY BENEFITS

Future policy benefits for Accident and Health insurance products have been
calculated using assumptions (which generally contemplate the risk of adverse
deviation) for withdrawals, interest, mortality and morbidity appropriate at the
time the policies were issued. The more material assumptions are as follows:

Withdrawals       Issues through 1980 are based on industry experience; 1981
                  through 1996 issues are based on industry experience and
                  Company experience, where available. Policies acquired in
                  acquisitions are based on recent experience of the blocks
                  acquired.

Interest          Issues through 1980 are 6% graded to 4.5% in 25 years; most
                  1981 through 1992 issues are 10% graded to 7% in 10 years
                  except for certain NationalCare and Supplemental Hospital
                  Income issues which are 8% graded to 6% in 8 years and
                  LifeStyles Products which are 9% graded to 7% in 10 years.
                  1993 and later issues are 7% level. Policies acquired from AII
                  in 1992 are 6.4% level. Policies acquired from LHI in 1993 and
                  DNL in 1994 are 6% level. Policies acquired in the Acquisition
                  of NFIC and AICT are 7% level.

Mortality         Issues through 1980 use the 1955-1960 Ultimate Table; issues
                  subsequent to 1980 through 1992 use the 1965-1970 Ultimate
                  Table. 1993 and later issues use the 1975-1980 Ultimate Table.
                  Policies acquired in acquisitions use the 1965-1970 Ultimate
                  Table.

Morbidity         Based on industry tables published in 1974 by Tillinghast, 
                  Nelson and Warren, Inc., as well as other population 
                  statistics and morbidity studies.






NOTE 6 - FINANCING ACTIVITIES

CREDIT ARRANGEMENT

The Company finances the majority of its obligations to make commission advances
through Westbridge Funding Corporation ("WFC"), an indirect wholly owned
subsidiary. On June 6, 1997, WFC entered into a Credit Agreement dated as of
such date with LaSalle National Bank (the "Credit Agreement"). See NOTE 15 -
"Extraordinary Item." This Credit Agreement provides WFC with a three-year,
$20.0 million revolving loan facility (the "Receivables Financing"), the
proceeds of which are used to purchase agent advance receivables from the
Insurance Subsidiaries and certain affiliated marketing companies. WFC's
obligations under the Credit Agreement are secured by liens upon substantially
all of WFC's assets. As of December 31, 1998, $6.2 million was outstanding under
the Credit Agreement (interest rate of 8.375%). The Company incurs a commitment
fee on the unused portion of the Credit Agreement at a rate of 0.50% per annum.
The Credit Agreement terminates on June 5, 2000, at which time the outstanding
principal and interest thereunder will be due and payable.

WFC's obligations under the Credit Agreement have been guaranteed by Westbridge
under the Guaranty Agreement, and the Company has pledged all of the issued and
outstanding shares of the capital stock of WFC, NFL and NFIC as collateral for
that guaranty. As of December 31, 1998, the Company had placed $2.5 million of
cash in a cash collateral account in connection with this Credit Agreement. The
maintenance of this cash collateral account allows WFC to borrow against the
Credit Agreement and purchase agent advance receivables at face value.

As of the Effective Date, there were no events of default under the Guaranty or
Credit Agreements, which were amended to reflect the recapitalization of the
Company.

Prior to the Effective Date of the Plan (see NOTE 1), the Company had the
following debt securities outstanding:

SENIOR NOTES

During the first quarter of 1995, the Company issued $20.0 million aggregate
principal amount of its Senior Notes, due 2002, in an underwritten public
offering. The Senior Notes were issued at par, less an underwriting discount of
4%. Contractual interest on the Senior Notes was payable in monthly
installments. In November 1997, the Company suspended the scheduled monthly
interest payments on these Senior Notes.

Accrued but unpaid interest on the Senior Notes through the Petition Date was
approximately $2.1 million. The Plan required the continued accrual of interest
on the Senior Notes from the Petition Date to the Effective Date. Accrued but
unpaid interest on the Senior Notes from the Petition Date to December 31, 1998
totaled approximately $0.6 million.

Contractual interest continued to accrue at a rate of $6,111 per day from
January 1, 1999 through the Effective Date.

As of the Effective Date, these Senior Notes were canceled, extinguished and
retired. As more fully described in NOTE 1, holders of Allowed 11% Senior Note
Claims held by creditors other than CSFB received cash payments totaling $15.2
million, subject to completion of the exchange of securities as contemplated by
the Plan.

As more fully described in NOTE 8, in order to provide Westbridge with
sufficient funds to make the cash distributions to the holders of the Allowed
11% Senior Notes under the Plan, the Company entered into a Stock Purchase
Agreement with CSFB, a significant noteholder, pursuant to which CSFB, subject
to the conditions contained therein, purchased all of the shares of the New
Preferred Stock which were not otherwise distributed under the Plan.

CONVERTIBLE NOTES

During the second quarter of 1997, the Company completed the sale of $70.0
million aggregate principal amount of its Convertible Notes, due 2004, in an
underwritten public offering. Contractual interest on the Convertible Notes was
payable in semi-annual installments on May 1 and November 1 of each year,
commencing November 1, 1997. In November 1997, the Company suspended the
scheduled interest payments on these Convertible Notes. At the Petition Date,
approximately $7.3 million of unpaid interest was accrued. The Company did not
accrue interest on its Convertible Notes after the Petition Date as it was
unlikely such interest would be paid under the Plan. The amount of contractual
interest that would have otherwise been accrued from the Petition Date to
December 31, 1998 totaled $2.7 million, and such contractual interest would have
continued to accrue at $14,583 per day from January 1, 1999 until the Effective
Date.

As of the Effective Date, these Convertible Notes were canceled, extinguished
and retired. Holders of the Convertible Notes and allowed general unsecured
creditors will receive their pro rata share of 94% of the New Common Stock
issued on the Effective Date, subject to the completion of the exchange
requirements as contemplated by the Plan.

NOTE 7 - CLAIM RESERVES

The following table provides a reconciliation of the beginning and ending claim
reserve balances, on a gross-of-reinsurance basis, for 1998, 1997 and 1996, to
the amounts reported in the Company's balance sheet:
<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                      -----------------------------------------------------
                                                          1998                1997                1996
                                                      --------------      --------------      -------------
                                                                         (in thousands)

<S>                <C>                                <C>                 <C>                 <C>         
Balance at January 1 (Gross)                          $     51,784        $     39,186        $     39,063
   Less: reinsurance recoverables on
     claim reserves                                          2,955               1,456               3,419
                                                      --------------      --------------      -------------
Net balance at January 1                                    48,829              37,730              35,644
Incurred related to:
   Current year                                             98,203             111,459              80,821
   Prior years                                                 (95)             22,512              14,242
                                                      --------------      --------------      -------------
     Total incurred                                         98,108             133,971              95,063
                                                      --------------      --------------      -------------
Current year reserves acquired                                   -                   -                 788
Paid related to:
  Current year                                              67,911              77,168              68,199
  Prior years                                               36,675              45,704              25,297
  Current year acquired business                                 -                   -                 269
                                                      --------------      --------------      -------------
     Total paid                                            104,586             122,872              93,765
                                                      --------------      --------------      -------------
Balance at December 31                                      42,351              48,829              37,730
  Plus:  reinsurance recoverables
     on claim reserves                                       1,765               2,955               1,456
                                                      --------------      --------------      -------------
Balance at December 31 (Gross)                        $     44,116        $     51,784        $     39,186
                                                      ==============      ==============      =============
</TABLE>


Included in reinsurance recoverables on claim reserves is approximately $0.7
million and $1.9 million relating to paid claims as of December 31, 1998 and
1997, respectively.

NOTE 8 - PREFERRED STOCK

NEW PREFERRED STOCK

Pursuant to the Plan, the Company authorized 40,000 shares of non-voting New
Preferred Stock, of which 23,257 shares are owned by CSFB (See NOTE 1).

The following summarizes the significant terms of the New Preferred Stock:

     Stated value of $1,000 share.

     Cumulative  annual  dividend rate of $102.50 per share payable  annually in
     arrears  on the last day of  January  in each year by  issuance  of cash or
     additional shares of New Preferred Stock.

     Each share of New Preferred  Stock is convertible at any time into 204.8897
     shares of New  Common  Stock at an  initial  conversion  price of $4.88 per
     share, subject to customary anti-dilution adjustments.

     The right to designate one additional  director prior to June 24, 1999, and
     the right to elect one director if dividends are in arrears.

The New Preferred Stock is mandatorily redeemable in cash on the fifth
anniversary of the Effective Date in an amount equal to the stated value per
share plus all accrued and unpaid dividends thereon to the date of redemption.

Prior to the Effective Date of the Plan (see NOTE 1), the Company had the
following preferred stock securities outstanding:

OLD PREFERRED STOCK

On April 12, 1994, the Company issued 20,000 shares of Old Preferred Stock, at a
price of $1,000 per share. The Old Preferred Stock was issued in a private
placement and was subsequently registered with the Securities and Exchange
Commission under a registration statement, which was declared effective in
October 1994. The following summarizes the significant terms of the Old
Preferred Stock:

     Cumulative  annual  dividend  rate of 8.25%,  subject to increase to 9.25%,
     upon non-compliance by the Company with certain restrictions.

     Seven thousand  sixty-five  (7,065) shares of the Old Preferred  Stock were
     converted  into shares of Old Common Stock  during the year ended  December
     31, 1998.  The  converted  shares of Old  Preferred  Stock had an aggregate
     liquidation preference of $7,065,000 and were converted into 840,071 shares
     of Old Common Stock.  Old Preferred  Stock was  convertible  into 1,419,144
     shares of Common  Stock as of December  31, 1998 at a  conversion  price of
     $8.41 per share.

In November 1997, the Company suspended the scheduled dividend payments on its
Old Preferred Stock. The failure to declare and pay the scheduled dividend on
the Old Preferred Stock constituted an event of non-compliance under the terms
of the Old Preferred Stock Agreement and resulted in an immediate increase from
8.25% to 9.25% in the rate at which dividends accrued on the Old Preferred
Stock. At the Petition Date, approximately $1.3 million of cumulative, unpaid
dividends were accrued. The Company did not accrue dividends on its Old
Preferred Stock after the Petition Date as it was unlikely such dividends would
be paid under the Plan. The amount of contractual dividends that would have
otherwise been accrued from the Petition Date to December 31, 1998 totaled $0.6
million, and such contractual dividends would have continued to accrue at $3,067
per day from January 1, 1999 until the Effective Date.

As of the Effective Date, shares of Old Preferred Stock were canceled,
extinguished and retired. Holders of Old Preferred Stock will receive their pro
rata share of 4% of the New Common Stock issued on the Effective Date and New
Warrants to purchase their pro rata share of up to 2% of the number of shares of
New Common Stock issued and outstanding on the Effective Date, on a fully
diluted basis, subject to the completion of the exchange of securities
contemplated by the Plan.

NOTE 9 - DEFERRED POLICY ACQUISITION COSTS ("DPAC")

A summary of DPAC follows (in thousands):

<TABLE>
<CAPTION>
                                                 1998                      1997                       1996
                                            ---------------          -----------------           ----------------
<S>                                           <C>                        <C>                         <C>      
Balance at beginning
   of year                                    $  19,165                  $  83,871                   $  56,977
Deferrals:
   Commissions                                    3,339                     27,933                      39,853
   Issue costs                                    1,032                      3,186                       5,285
                                            ---------------          -----------------           ----------------
                                                 23,536                    114,990                     102,115
Cost of insurance purchased                           -                          -                       4,663
Recognition of premium
   deficiency                                    (4,948)                   (64,952)                          -
Amortization expense                             (4,411)                   (30,873)                    (22,907)
                                            ===============          =================           ================
Balance at end of year                        $  14,177                  $  19,165                   $  83,871
                                            ===============          =================           ================
</TABLE>

The cost of insurance purchased in 1996 is related to the acquisition of the
remaining 60% ownership interest in FHC and its wholly owned insurance
subsidiary, FLICA. This amount is being amortized in relation to premium revenue
over the remaining life of the business. Interest accrues on the unamortized
balance at 7% per year. Amortization of this cost of insurance purchased was
approximately $0.8 million and $0.6 million in 1998 and 1997, respectively, net
of interest accretion of $0.3 million and $0.2 million.

In connection with the Company's acquisition of NFIC and AICT in 1994 and prior
to the recognition of a premium deficiency as described below, the related cost
of insurance purchased was amortized in relation to premium revenues over the
remaining life of the business. Interest accrued on the unamortized balance at
7% per year. Amortization of this cost of insurance purchased was approximately
$0, $1.5 million and $1.8 million in 1998, 1997 and 1996, respectively, net of
the respective interest accretion of $0, $0.3 million and $0.5 million.

RECOGNITION OF PREMIUM DEFICIENCY. During 1997, policy persistency declined in
connection with the implementation of certain rate increases together with
intensified competitor solicitation of the Company's policyholders. These events
affected the future profit margins available to absorb amortization of DPAC. As
a result of these adverse changes, the Company undertook a revaluation of the
recoverability of DPAC in the fourth quarter of 1997. Based on the results of
this review and the impact of future projected premium revenues and the
discontinuance of certain lines of business, the Company determined that a
premium deficiency for certain old lines of business existed as of December 31,
1997.

A premium deficiency occurs when the projected present value of future premiums
associated with these policies will not be adequate to cover the projected
present value of future payments for benefits and related amortization of DPAC.
GAAP requires the immediate recognition of a premium deficiency by charging the
unamortized DPAC to expense. Accordingly, for the quarter and year ended
December 31, 1997, the Company recorded a non-cash charge to expense of
approximately $65.0 million and incurred a significant loss for the year ended
December 31, 1997. This adjustment had no impact on the Company's cash position
at December 31, 1997 nor did it affect the statutory capital and surplus of the
Insurance Subsidiaries.

During 1998, the Company continued to experience adverse loss ratios and
declining persistency on its old Medical Expense and Medicare Supplement
products, although the loss ratios for 1998 reflected an improvement over 1997.
As a result of these factors, the Company undertook a further revaluation of the
recoverability of DPAC in the third quarter of 1998. Based on the results of
this review, the Company determined that an additional premium deficiency
existed and recorded a non-cash charge to expense of approximately $5.0 million
in the third quarter of 1998. This adjustment had no impact on the Company's
cash position or on the statutory capital and surplus of the Insurance
Subsidiaries.

NOTE 10 - INCOME TAXES

The provision for (benefit from) income taxes is calculated as the amount of
income taxes expected to be payable for the current year plus (or minus) the
deferred income tax expense (or benefit) represented by the change in the
deferred income tax accounts at the beginning and end of the year. The effect of
changes in tax rates and federal income tax laws are reflected in income from
continuing operations in the period such changes are enacted.

The tax effect of future taxable temporary differences (liabilities) and future
deductible temporary differences (assets) are separately calculated and recorded
when such differences arise. A valuation allowance, reducing any recognized
deferred tax asset, must be recorded if it is determined that it is more likely
than not that such deferred tax asset will not be realized.

The Company and its wholly owned subsidiaries, other than NFIC, AICT and FLICA,
file a consolidated federal income tax return. NFIC, AICT and FLICA file
separate federal income tax returns.

The provision for (benefit from) U.S. federal income taxes charged to continuing
operations was as follows:

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                  --------------------------------------------------
                                                                      1998              1997              1996
                                                                  -------------     -------------    ---------------
                                                                                   (in thousands)

<S>                                                              <C>                <C>              <C>         
Current                                                                    231      $      (926)     $      (804)
Deferred                                                                     -          (12,342)            5,214
                                                                  -------------     -------------    ---------------
Total provision for (benefit from) income taxes                   $        231      $   (13,268)     $      4,410
                                                                  =============     =============    ===============
</TABLE>


Provision has not been made for state and foreign income tax expense since such
expense is minimal. In addition, as described in NOTE 15 - "Extraordinary Item,"
the Company recognized an extraordinary loss of approximately $1.0 million for
the year ended December 31, 1997. This amount has been reflected in the
accompanying financial statements, net of approximately $0.5 million in deferred
taxes.

The differences between the effective tax rate and the amount derived by
multiplying the (loss) income before income taxes by the federal income tax rate
for the Company's last three years was as follows:

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                                              -----------------------------
                                                              1998         1997        1996
                                                             ------       ------      ------
                                                                      (in thousands)

<S>                                                            <C>          <C>          <C>
Statutory tax rate                                             (34%)        (34%)        34%
Unutilized loss carryforwards                                   31%          22%          -
Other items, net                                                 4%           -           1%
                                                                 -            -           -
Effective tax rate                                               1%         (12%)        35%
                                                             =======      ======      ======
</TABLE>


Deferred taxes are recorded for temporary differences between the financial
reporting basis and the federal income tax basis of the Company's assets and
liabilities. The sources of these differences and the estimated tax effect of
each are as follows:

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                         ----------------------------------
                                                                             1998                1997
                                                                         --------------     ---------------
                                                                                  (in thousands)
<S>                                                                       <C>                <C>        
Deferred Tax Liabilities
   Unrealized gain on investments                                         $     2,761        $     2,410
   Other deferred tax liabilities                                               1,620              1,118
                                                                         --------------     ---------------
     Total deferred tax liability                                         $     4,381        $     3,528
                                                                         --------------     ---------------

Deferred Tax Assets:
   Deferred policy acquisition costs                                      $     5,035        $     3,662
   Policy reserves                                                              2,921              3,514
   Net operating loss carryforwards                                            28,149             24,640
   Tax credit carryforwards                                                         -                 11
   Other deferred tax assets                                                    4,725                429
   Valuation allowance                                                        (36,449)           (28,728)
                                                                         --------------     ---------------
     Total deferred tax asset                                                   4,381        $     3,528
                                                                         ==============     ===============
Net deferred tax liability                                                $         -        $         -
                                                                         ==============     ===============
</TABLE>

A valuation allowance of approximately $36.4 million and $28.7 million has been
provided for the year ended December, 31, 1998 and 1997, respectively, for the
tax effect of the Company's net operating loss carryovers and other deductible
temporary differences since it appears more likely than not that such benefits
will not be realized. The change in the valuation allowance for 1998 relates
primarily to the increase in net operating losses and decrease in DPAC.

Under the provisions of pre-1984 life insurance tax regulations, NFL was taxed
on the lesser of taxable investment income or income from operations, plus
one-half of any excess of income from operations over taxable investment income.
One-half of the excess (if any) of the income from operations over taxable
investment income, an amount which was not currently subject to taxation, plus
special deductions allowed in computing the income from operations, were placed
in a special memorandum tax account known as the policyholders' surplus account.
The aggregate accumulation in the account at December 31, 1998, approximated
$2.5 million. Federal income taxes will become payable on this account at the
then current tax rate when and to the extent that the account exceeds a specific
maximum, or when and if distributions to stockholders, other than stock
dividends and other limited exceptions, are made in excess of the accumulated
previously taxed income. The Company does not anticipate any transactions that
would cause any part of the amount to become taxable and, accordingly, deferred
taxes which would approximate $0.9 million have not been provided on such
amount.

At December 31, 1998, NFL has approximately $7.8 million in its shareholders
surplus account from which it could make distributions to the Company without
incurring any federal tax liability. The amount of dividends which may be paid
by NFL to the Company is limited by statutory regulations.

At December 31, 1998, the Company and its wholly owned subsidiaries have
aggregate net operating loss carryforwards of approximately $80.4 million and
$71.9 million for regular tax and alternative minimum tax purposes,
respectively, which expire in 2003 through 2014. However, the Company's
emergence from its Chapter 11 Case on March 24, 1999 is expected to
significantly limit the availability of such net loss operating carryforwards to
offset future taxable income.

NOTE 11 - STATUTORY CAPITAL AND SURPLUS

Under applicable Delaware law, NFL must maintain minimum aggregate statutory
capital and surplus of $550,000. Under applicable Texas law, NFIC and AICT must
each maintain minimum aggregate statutory capital and surplus of $1.4 million.
Under Mississippi law, FLICA is required to maintain minimum capital and surplus
of $1.0 million. The State of Georgia requires licensed out-of-state insurers to
maintain minimum capital of $1.5 million, and the Commonwealth of Kentucky
requires minimum surplus of $2.0 million. These levels are higher than the
requirements of any other states in which the Insurance Subsidiaries are
currently licensed. Accordingly, the minimum aggregate statutory capital and
surplus which NFL, NFIC and FLICA must each maintain is $3.5 million. AICT must
maintain a minimum of $1.5 million. At December 31, 1998, aggregate statutory
capital and surplus for NFL, NFIC, AICT and FLICA was $15.9 million, $2.1
million, $2.8 million and $11.5 million, respectively. Although NFIC's capital
and surplus is below $3.5 million at December 31, 1998, NFIC voluntarily ceased
writing new business effective December 15, 1997. Moreover, NFIC's capital and
surplus exceeds the minimum requirements for its state of domicile, Texas.
Statutory net (losses) income for NFL, NFIC, AICT and FLICA for the year ended
December 31, 1998, were $(5.9) million, $(3.3) million, $(2.0) million and $0.6
million, respectively. FLICA through its parent FHC, is wholly owned by NFL, and
AICT is wholly owned by NFIC. Accordingly, statutory capital and surplus of the
parent includes the statutory capital and surplus of the respective subsidiary.

Dividends paid by the Insurance Subsidiaries are determined by and subject to
the regulations of the insurance laws and practices of the insurance departments
of their respective state of domicile. NFL, a Delaware domestic company, may not
declare or pay dividends from any source other than earned surplus without the
Delaware Insurance Commissioner's approval. The Delaware Insurance Code defines
earned surplus as the amount equal to the unassigned funds as set forth in NFL's
most recent statutory annual statement including surplus arising from unrealized
gains or revaluation of assets. Delaware insurance companies may generally pay
ordinary dividends or make distributions of cash or other property within any
twelve month period with a fair market value equal to or less than the greater
of 10% of surplus as regards policyholders as of the preceding December 31 or
the net gain from operations for the twelve month period ending on the preceding
December 31. During 1999, NFL is precluded from paying dividends without the
prior approval of the Delaware Insurance Commissioner as its earned surplus is
negative. Further, NFL has agreed to obtain prior approval for any future
dividends.

NFIC and AICT, Texas domestic companies, may make dividend payments from surplus
profits or earned surplus arising from its business. The Texas Insurance Code
defines earned surplus as unassigned surplus excluding any unrealized gains.
Texas life insurance companies may generally pay ordinary dividends or make
distributions of cash or other property within any twelve month period with a
fair market value equal to or less than the greater of 10% of surplus as regards
policyholders as of the preceding December 31 or the net gain from operations
for the twelve month period ending on the preceding December 31. Any dividend
exceeding the applicable threshold is considered extraordinary and requires
prior approval of the Texas Insurance Commissioner. NFIC's and AICT's earned
surplus is negative, and as such, each company is precluded from paying
dividends during 1999 without the prior approval of the Texas Insurance
Commissioner.

FLICA, a Mississippi domestic company, may make dividend payments only from its
actual net surplus computed as required by law in its statutory annual
statement. Mississippi life insurance companies may generally pay ordinary
dividends or make distributions of cash or other property within any twelve
month period with a fair market value not exceeding the lesser of 10% of surplus
as regards policyholders as of the preceding December 31 or the net gain from
operations for the twelve month period ending on the preceding December 31. Any
dividend exceeding the applicable threshold amount requires prior approval of
the Mississippi Insurance Commissioner. FLICA is precluded from paying dividends
to NFL during 1999 without the prior approval of the Mississippi Insurance
Commissioner as it recorded a net loss from operations for the year ending
December 31, 1998.

Generally, all states require insurance companies to maintain statutory capital
and surplus that is reasonable in relation to their existing liabilities and
adequate to their financial needs. Delaware, Texas and Mississippi also maintain
discretionary powers relative to the declaration and payment of dividends based
upon an insurance company's financial position. In light of the statutory losses
incurred by the Insurance Subsidiaries during 1997 and 1998, the Company does
not expect to receive any dividends from its Insurance Subsidiaries for the
foreseeable future.

In December 1992, the NAIC adopted the Risk-Based Capital for Life and/or Health
Insurers Model Act ("the Model Act"). The Model Act provides a tool for
insurance regulators to determine the levels of statutory capital and surplus an
insurer must maintain in relation to its insurance and investment risks and
whether there is a need for possible regulatory attention. The Model Act (or
similar legislation or regulation) has been adopted in states where the
Insurance Subsidiaries are domiciled. The Model Act provides four levels of
regulatory attention, varying with the ratio of the insurance company's total
adjusted capital (defined as the total of its statutory capital and surplus,
asset valuation reserve and certain other adjustments) to its risk-based capital
("RBC"). If a company's total adjusted capital is less than 100 percent but
greater than or equal to 75 percent of its RBC, or if a negative trend (as
defined by the NAIC) has occurred and total adjusted capital is less than 125
percent of RBC (the "Company Action Level"), the company must submit a
comprehensive plan aimed at improving its capital position to the regulatory
authority proposing corrective actions. If a company's total adjusted capital is
less than 75 percent but greater than or equal to 50 percent of its RBC (the
"Regulatory Action Level"), the regulatory authority will perform a special
examination of the company and issue an order specifying the corrective actions
that must be followed. If a company's total adjusted capital is less than 50
percent but greater than or equal to 35 percent of its RBC (the "Authorized
Control Level"), the regulatory authority may take any action it deems
necessary, including placing the company under regulatory control. If a
company's total adjusted capital is less than 35 percent of its RBC (the
"Mandatory Control Level"), the regulatory authority must place the company
under its control. The NAIC's requirements are effective on a state by state
basis if, and when, they are adopted by the regulators in the respective states.
The Insurance Departments of the States of Delaware and Mississippi have each
adopted the NAIC's Model Act. At December 31, 1998, total adjusted capital for
NFL, a Delaware domiciled company, and FLICA, a Mississippi domiciled company,
exceeded the respective Company Action Levels.

The Texas Department of Insurance ("TDI") has adopted its own RBC requirements,
the stated purpose of which is to require a minimum level of statutory capital
and surplus to absorb the financial, underwriting and investment risks assumed
by an insurer. Texas' RBC requirements differ from those adopted by the NAIC in
two principal respects: (i) they use different elements to determine minimum RBC
levels in their calculation formulas and (ii) they do not stipulate "Action
Levels" (like those adopted by the NAIC) where corrective actions are required.
However, the Commissioner of the TDI does have the power to take similar
corrective actions if a company does not maintain the required minimum level of
statutory capital and surplus. NFIC and AICT are domiciled in Texas and must
comply with Texas RBC requirements. At December 31, 1998, AICT's RBC exceeded
the minimum level prescribed by the TDI; however, NFIC's RBC was below the
minimum level prescribed by the TDI.

In December 1990, the Company and NFL entered into an agreement under which NFL
issued a surplus certificate to the Company in the principal amount of
$2,863,000 in exchange for $2,863,000 of the Company's assets. The unpaid
aggregate principal under the surplus certificate bears interest at an agreed
upon rate not to exceed 10% and is repayable, in whole or in part, upon (i)
NFL's surplus exceeding $7,000,000, exclusive of any surplus provided by any
reinsurance agreements and (ii) NFL receiving prior approval for repayment from
the Delaware Insurance Commissioner. During 1993 and 1994, NFL received such
approval and repaid $2,086,000 to the Company. No principal payments have been
made subsequent to 1994. The unpaid aggregate principal under this surplus
certificate totaled $777,000 as of December 31, 1998 and 1997.

As a result of the statutory losses sustained by the Insurance Subsidiaries
since 1997, material transactions are subject to the approval by the department
of insurance in each domiciliary state. In December 1997, NFIC, in response to
these losses as well as the projected inability to meet RBC requirements, took
appropriate steps to voluntarily cease the sale and underwriting of new
business. In the second quarter of 1998, AICT significantly reduced the level of
sales and underwriting of new business. NFIC and AICT have also entered into a
voluntary consent order, pursuant to Article 1.32 of the Texas Insurance Code,
providing for the continued monitoring of the operations of NFIC and AICT by the
TDI. The Company has no current plans to underwrite new products in NFIC.

The statutory financial statements of the Insurance Subsidiaries are prepared
using accounting methods which are prescribed or permitted by the insurance
department of the respective companies' state of domicile. Prescribed statutory
accounting practices include a variety of publications of the NAIC as well as
state laws, regulations and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so prescribed.

NOTE 12 - EMPLOYEE BENEFIT PLANS

In September 1986, the Company established a retirement savings plan for its
employees. The plan permits all employees who have been with the Company for at
least one year to make contributions by salary reduction pursuant to section
401(k) of the Internal Revenue Code. The plan allows employees to defer up to 3%
of their salary with partially matching discretionary Company contributions
determined by the Company's Board of Directors. Employee contributions are
invested in any of ten investment funds at the discretion of the employee. Until
July 1998, Company contributions were in the form of Old Common Stock.
Subsequent to July 1998, the Company began making cash contributions. The
Company's contributions to the plan in 1998, 1997 and 1996 approximated $80,000,
$106,000 and $102,000, respectively.

The Company's incentive stock option plans adopted as of July 1, 1982, September
5, 1985, and March 26, 1992, and the Company's restricted stock plan adopted as
of April 19, 1996, have been canceled as of the Effective Date. All outstanding
grants of stock options or restricted stock have been extinguished as
contemplated by the terms of the Plan.

1999 STOCK OPTION PLAN

Pursuant to the Plan, on March 24, 1999, the Company's Board of Directors
adopted the 1999 Stock Option Plan (the "1999 Plan") in order to further and
promote the interest of the Company, its subsidiaries and its shareholders by
enabling the Company and its subsidiaries to attract, retain and motivate
employees, non-employee directors and consultants (including marketing agents)
or those who will become employees, non-employee directors and consultants
(including marketing agents), and to align the interests of those individuals
and the Company's shareholders. To do this, the 1999 Plan offers equity-based
opportunities providing such employees and consultants with a proprietary
interest in maximizing the growth, profitability and overall success of the
Company and its subsidiaries.

The 1999 Plan became effective on the date of its adoption by the Company and
will remain in effect until December 31, 2008, except with respect to awards (as
that term is defined in the 1999 Plan) then outstanding, unless terminated or
suspended by the Board of Directors at that time. After such date no further
awards shall be granted under the 1999 Plan.

NOTE 13 - REINSURANCE

The Insurance Subsidiaries cede insurance to other insurers and reinsurers on
both life and accident and health business. Reinsurance agreements are used to
limit maximum losses and provide greater diversity of risk. The Company remains
liable to policyholders to the extent the reinsuring companies are unable to
meet their treaty obligations. Total accident and health premiums of $2.8
million, $3.6 million and $4.1 million, were paid to reinsurers in 1998, 1997,
and 1996, respectively. Face amounts of life insurance in force approximated
$37.5 million, $53.1 million and $87.0 million at December 31, 1998, 1997 and
1996, respectively. In 1998, NFL entered into an excess of loss reinsurance
agreement on a closed block of annually renewable term life insurance. NFL's
retention limit is $25,000 per year, and $22,046 of premiums were paid to the
reinsurer for the year ended December 31, 1998. No other life insurance products
were reinsured during 1998, 1997 or 1996.


<PAGE>


The Company, through NFL and FLICA, entered into a 90% Coinsurance Funds
Withheld Reinsurance Agreement (the "Agreement") with a reinsurer effective July
1, 1996 on the in force Specified Disease business. The Agreement provided an
initial ceding commission of $10.5 million, of which $8.4 million was received
in cash. This ceding commission allowance was to be repaid, inclusive of
interest at 12.5%, as statutory profits emerged from the reinsured block of
business. For the year ended December 31, 1996, the repayment was $1.9 million.
The ceding allowance payable for the year ended December 31, 1996 was $8.6
million. The Company exercised its option to terminate and recapture this
Agreement on April 1, 1997 consisting of approximately $9.0 million in total
recapture costs calculated at an interest rate of 15% less approximately $2.0
million in unearned premium reserves due to NFL and FLICA. See NOTE 15 -
"Extraordinary Item."

In late 1993, NFL entered into a coinsurance treaty with FLICA. FLICA is a
wholly owned subsidiary of FHC. Under the terms of the treaty, NFL assumed a 90%
pro-rata share of certain Specified Disease business. For the years ended
December 31, 1998, 1997 and 1996, $0, $0 and $2.3 million, respectively, of
assumed premiums under this coinsurance treaty are included as premium revenue
in the consolidated financial statements. This coinsurance treaty was canceled
subsequent to the acquisition of the remaining interest of FLICA's parent FHC,
on May 31, 1996.

In May 1987, NFL entered into a coinsurance treaty with FLICA. Under the terms
of the treaty, NFL assumed a 50% pro-rata share of all insurance business
written by FLICA from January 1, 1987 through December 31, 1988. In November
1988, the coinsurance treaty was amended to extend through 1997. For the years
ended December 31, 1998, 1997 and 1996, $0, $0 and $1.7 million, respectively,
of assumed premiums under the coinsurance treaty are included as revenue in the
consolidated financial statements. This coinsurance treaty was canceled
subsequent to the acquisition of the remaining interest of FLICA's parent FHC,
on May 31, 1996.

NOTE 14 - COMMITMENTS AND CONTINGENCIES

The Company's future minimum lease payments for non-cancelable operating leases,
relating primarily to office facilities and data processing equipment having a
remaining term in excess of one year, at December 31, 1998, aggregated $6.7
million. The amounts due by year are as follows: 1999-$2.3 million; 2000-$1.4
million; 2001-$1.1 million; 2002-$1.0 million; 2003-$0.4 million; and
thereafter-$0.5 million. Aggregate rental expense included in the consolidated
financial statements for all operating leases approximated $3.2 million, $4.4
million and $4.2 million in 1998, 1997 and 1996, respectively.

In the normal course of their business operations, the Insurance Subsidiaries,
continue to be involved in various claims, lawsuits (alleging actual as well as
substantial exemplary damages) and regulatory matters. In the opinion of
management, the disposition of these or any other legal matters will not have a
material adverse effect on the Company's business, consolidated financial
position or results of operations.


<PAGE>


The Company's Insurance Subsidiaries are subject to extensive governmental
regulation and supervision at both federal and state levels. Such regulation
includes premium rate levels, premium rate increases, policy forms, minimum loss
ratios, dividend payments, claims settlement, licensing of insurers and their
agents, capital adequacy, transfer of control, and amount and type of
investments. Additionally, there are numerous health care reform proposals and
regulatory initiatives under consideration which if enacted could have
significant impact on the Company's results of operations.

NOTE 15 - EXTRAORDINARY ITEM

For the year ended December 31, 1997, the Company recognized an aggregate of
$1.0 million in extraordinary losses, net of taxes. Of this amount, (i) $0.6
million resulted from the recognition of unamortized financing fees associated
with the prepayment and refinancing of the Company's revolving credit facility
with Fleet National Bank (See NOTE 6 "Financing Activities"); and (ii) $0.4
million resulted from the termination and recapture of the block of reinsured
policies referred to in NOTE 13 - "Reinsurance."

NOTE 16 - RECONCILIATION TO STATUTORY REPORTING

A reconciliation of net (loss) income as reported by the Insurance Subsidiaries
under practices prescribed or permitted by regulatory authorities and that
reported herein by the Company on a consolidated GAAP basis is as follows:

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                  --------------------------------------------------
                                                                      1998              1997              1996
                                                                  -------------     -------------    ---------------
                                                                                   (in thousands)
<S>                                                               <C>               <C>              <C>         
Net (loss) income as reported by the Insurance
   Subsidiaries on a statutory basis                              $    (8,108)      $   (49,618)     $        870
Additions to (deductions from) statutory basis:
   Future policy benefits and claims                                       806             2,493           (2,016)
   FHC pre-acquisition statutory earnings                                    -                 -           (1,388)
   Deferred policy acquisition costs,
     net of amortization                                                  (41)               735           22,434
   Deferred, uncollected and advance premiums                            (104)                44           (1,719)
   Coinsurance Funds Withheld reinsurance treaty                             -             8,575           (7,336)
   Recognition of premium deficiency                                   (4,948)          (64,952)                -
   Extraordinary item, net of tax                                            -           (1,007)                -
   Income taxes                                                          1,250            13,970           (4,214)
   Subsidiary companies, eliminations,
     and other adjustments                                            (10,776)           (6,664)            2,001
   Other, net                                                            (364)             (720)             (371)
                                                                  -------------     -------------    ---------------
Consolidated net (loss) income as reported
   herein on a GAAP basis                                         $   (22,285)      $   (97,144)     $      8,261
                                                                  =============     =============    ===============
</TABLE>



A reconciliation of the statutory capital and surplus reported by the Insurance
Subsidiaries under regulatory practices to stockholders' (deficit) equity as
reported herein by the Company on a consolidated GAAP basis is as follows:

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                  --------------------------------------------------
                                                                      1998              1997              1996
                                                                  -------------     -------------    ---------------
                                                                                   (in thousands)
<S>                                                               <C>               <C>              <C>         
Capital and surplus as reported by the Insurance
   Subsidiaries on a statutory basis                              $     17,937      $     21,592     $     18,648
Deductions from (additions to) a statutory basis:
   Future policy benefits and claims                                    (9,521)          (10,147)              10
   Deferred policy acquisition costs                                    14,177            19,165           83,871
   Nonadmitted assets                                                    2,123               832            4,818
   Coinsurance Funds Withheld reinsurance treaty                             -                 -           (8,831)
   Income taxes                                                              -            (1,037)         (13,242)
   Deferred, uncollected and advance premiums                              136               249          (12,651)
   Asset valuation reserve                                                 796             1,049            1,157
   Interest maintenance reserve                                          1,380             1,499            1,475
   Unrealized appreciation on investments,
     net of tax                                                          3,037             3,446            1,054
   Other, net                                                              727               342            3,088
                                                                  -------------     -------------    ---------------

Combined insurance subsidiaries stockholders'
   equity on a GAAP basis                                               30,792            36,990           79,397

Combined non-insurance subsidiaries
   stockholders' equity (deficit) on a GAAP basis                        7,887               477           (1,409)

Eliminations and other adjustments                                    (100,759)          (82,885)         (30,085)
                                                                  -------------     -------------    ---------------

Consolidated stockholders' (deficit) equity as
   reported herein on a GAAP basis                                $    (62,080)      $   (45,418)     $    47,903
                                                                  =============     =============    ===============
</TABLE>


<PAGE>


NOTE 17 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Summarized quarterly financial information for each of the Company's last two
years of operations is as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                                  Quarter Ended
                                                         -----------------------------------------------------------------
1998                                                        March            June           September          December
-----------------------------------------------------    -------------    ------------    ---------------    -------------

<S>                                                      <C>              <C>             <C>                <C>        
Premium income                                           $   37,439       $    35,251     $    33,278        $    29,749
Net investment income                                         3,166             3,192           2,929              2,724
Net realized gains on investments                               262               267           1,576                 37
Fee, service and other income                                 4,062             4,037           4,085              4,007
Benefits, claims and other expenses                          50,654            46,376          48,531             42,554
Loss before income taxes                                     (5,725)           (3,629)         (6,663)            (6,037)
Preferred stock dividend                                        471               (62)            111                  -
Loss applicable to common stockholders                   $   (5,437)      $    (3,087)     $   (7,018)       $    (7,263)
Earnings per share:
  Basic                                                  $    (0.88)      $     (0.48)     $    (1.01)       $     (1.05)
  Diluted                                                $    (0.88)      $     (0.48)     $    (1.01)       $     (1.05)
</TABLE>



<TABLE>
<CAPTION>
                                                                                  Quarter Ended
                                                         -----------------------------------------------------------------
1997                                                        March            June           September          December
-----------------------------------------------------    -------------    ------------    ---------------    -------------

<S>                                                      <C>              <C>             <C>                <C>        
Premium income                                           $   40,820       $    41,022     $    40,450        $    38,805
Net investment income                                         2,226             2,530           3,207              3,060
Net realized (losses) gains on investments                      (60)              192             223               (271)
Fee, service and other income                                 3,502             4,106           4,525              4,567
Benefits, claims and other expenses                          43,826            57,329          79,125            118,029
Income (loss) before income taxes and
     extraordinary items                                      1,730            (6,161)        (19,968)           (71,738)
Extraordinary loss, net of tax                                    -            (1,007)              -                  -
Preferred stock dividend                                        396               392             392                392
Income (loss) applicable to common stockholders          $    1,334       $    (7,560)        (20,360)       $   (72,130)
Earnings per share:
  Basic:
     Income (loss) before extraordinary item             $     0.22       $     (1.07)     $    (3.29)       $    (11.64)
     Extraordinary loss                                  $        -       $     (0.16)     $        -        $         -
       Net income (loss)                                 $     0.22       $     (1.23)     $    (3.29)       $    (11.64)
  Diluted:
     Income (loss) before extraordinary item             $     0.20       $     (1.07)     $    (3.29)       $    (11.64)
     Extraordinary loss                                  $        -       $     (0.16)     $        -        $         -
       Net income (loss)                                 $     0.20       $     (1.23)     $    (3.29)       $    (11.64)
</TABLE>





<PAGE>


                                   SCHEDULE II

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                    WESTBRIDGE CAPITAL CORP. (PARENT COMPANY)

                 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                -----------------------------------------------------
                                                                     1998               1997               1996
                                                                ---------------     --------------    ---------------

<S>                                                             <C>                 <C>               <C>        
Net investment income                                           $       1,090       $     1,579       $        62
Realized gains on investments                                             475               984                 -
Intercompany income derived from:
  Interest on Surplus Certificates                                         78                78                78
  Rental of leasehold improvements and equipment                          397             1,926             1,703
Interest on advances to subsidiaries                                      254               266               192
Other income                                                              121               228               106
                                                                ---------------     --------------    ---------------
                                                                        2,415             5,061             2,141
                                                                ---------------     --------------    ---------------

General and administrative expenses                                     2,319             4,349             2,128
Reorganization expense                                                  7,856             1,324                 -
Taxes, licenses and fees                                                   45               164                90
Interest expense                                                        5,933             5,846             2,496
                                                                ---------------     --------------    ---------------
                                                                       16,153            11,683             4,714
                                                                ---------------     --------------    ---------------
Loss before income taxes and equity in undistributed
  net earnings of subsidiaries and FHC                                (13,738)           (6,622)           (2,573)
  (Benefit from) provision for income taxes                              (235)            3,939              (432)
                                                                ---------------     --------------    ---------------
                                                                      (13,503)          (10,561)           (2,141)
Equity in undistributed net (losses) earnings of
  subsidiaries and FHC                                                 (8,782)          (86,419)           10,402
                                                                ---------------     --------------    ---------------
(Loss) income before extraordinary item                               (22,285)          (96,980)            8,261

Extraordinary loss (1)                                                      -               164(1)              -
                                                                ---------------     --------------    ---------------
     Net (loss) income                                                (22,285)          (97,144)            8,261

Preferred stock dividends                                                 520             1,572             1,650
                                                                ---------------     --------------    ---------------

(Loss) income applicable to common stockholders                       (22,805)          (98,716)            6,611

Retained (deficit) earnings at beginning of year                      (81,530)           17,186            10,575
                                                                ---------------     --------------    ---------------
Retained (deficit) earnings at end of year                      $    (104,335)      $   (81,530)      $    17,186
                                                                ===============     ==============    ===============
</TABLE>


(1)   From early extinguishment of debt, net of income tax benefit of $85.




The  condensed  financial  information  should be read in  conjunction  with the
Westbridge Capital Corp.  consolidated  financial  statements as of December 31,
1998 and notes thereto.


<PAGE>


                                   SCHEDULE II

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                    WESTBRIDGE CAPITAL CORP. (PARENT COMPANY)

                                 BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                                ---------------------------------------------------
                                                                        1998                        1997
                                                                ----------------------     ------------------------
<S>                                                             <C>                        <C>                
Assets:
   Cash and other short-term investments                        $              985         $             3,317
   Fixed maturities, at market value                                        10,433                      15,198
   Equity securities, at market value                                        1,010                       1,038
   Investment real estate                                                        -                         566
   Investment in consolidated subsidiaries                                  39,584                      38,224
   Accrued investment income                                                   213                         288
   Leasehold improvements and equipment, net                                     -                         960
   Advances due from subsidiaries                                            2,107                       4,219
   Receivable from subsidiary on Surplus Certificate                           777                         777
   Other assets                                                              3,088                       4,580
                                                                ----------------------     ------------------------
     Total Assets                                               $           58,197         $            69,167
                                                                ======================     ========================
Liabilities:
   Senior subordinated notes, net                               $           19,523         $            19,447
   Convertible subordinated notes                                           70,000                      70,000
   Payable to subsidiaries                                                       -                          36
   Interest and dividends payable                                           11,315                       4,861
   Other liabilities                                                         7,504                       1,241
                                                                ----------------------     ------------------------
     Total Liabilities                                                     108,342                      95,585
                                                                ----------------------     ------------------------

Redeemable Preferred Stock                                                  11,935                      19,000
                                                                ----------------------     ------------------------

Stockholders' Equity:
   Common stock                                                                703                         620
   Capital in excess of par value                                           37,641                      30,843
   Accumulated other comprehensive income,
     net of tax                                                              3,911                       4,649
   Deficit                                                                (104,335)                    (81,530)
                                                                ----------------------     ------------------------

     Total Stockholders' Deficit                                           (62,080)                    (45,418)
                                                                ----------------------     ------------------------

       Total Liabilities, Redeemable Preferred Stock

         and Stockholders' Deficit                              $           58,197         $            69,167
                                                                ======================     ========================
</TABLE>


The  condensed  financial  information  should be read in  conjunction  with the
Westbridge Capital Corp.  consolidated  financial  statements as of December 31,
1998 and notes thereto.


<PAGE>


                                   SCHEDULE II

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                    WESTBRIDGE CAPITAL CORP. (PARENT COMPANY)

                             STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                               ---------------------------------------------------------
                                                                    1998                 1997                 1996
                                                               ---------------      ---------------      ---------------
<S>                                                             <C>                  <C>                   <C>       
Cash Flows From Operating Activities:
   (Loss) income applicable to common stockholders              $   (22,805)         $   (98,716)          $    6,611
   Adjustments to reconcile net (loss) income to cash
     provided by (used for) operating activities:
   Equity in undistributed net loss (income) of subsidiaries          8,782               86,419              (10,402)
   Depreciation expense                                                  89                  422                  452
   Accrued investment income                                             75                 (238)                 (16)
   Decrease (increase) in other assets                                1,043                   51                   (7)
   Advances (due from) due to subsidiaries, net                      (2,105)              (2,536)               1,471
   Increase (decrease) in other liabilities                           6,263                  665                 (137)
   Increase (decrease) in interest and dividend payable               6,454                4,446                   (1)
   Other, net                                                           595                2,980                  457
                                                               ---------------      ---------------      ---------------
     Net Cash Used For Operating Activities                          (1,609)              (6,507)              (1,572)
                                                               ---------------      ---------------      ---------------

Cash Flows From Investing Activities:

   Proceeds from sale of investments                                  5,176               42,268                    -
   Cost of investments acquired                                           -              (57,366)                   -
   Additions to leasehold improvements and equipment,
     net of retirements                                                 (27)                (349)                (165)
   (Increase) decrease in other assets                                 (283)                 288                  158
   Investment in subsidiaries                                        (6,321)             (43,105)               1,038
                                                               ---------------      ---------------      ---------------
     Net Cash (Used For) Provided by Investing Activities            (1,455)             (58,264)               1,031
                                                               ---------------      ---------------      ---------------

Cash Flows From Financing Activities:
   Decrease (increase) in other assets                                  732               (1,914)                 218
   Issuance of convertible notes                                          -               70,000                    -
   (Retirement) issuance of note payable                                  -               (1,103)                 103
   Issuance of common stock                                               -                  140                  140
   Purchase and cancellation of common stock                              -                 (276)                (125)
                                                               ---------------      ---------------      ---------------
     Net Cash Provided By Financing Activities                          732               66,847                  336
                                                               ---------------      ---------------      ---------------
     (Decrease) increase in Cash and Short-Term
       Investments During the Year                                   (2,332)               2,076                 (205)
     Cash and Other Short-Term Investments at
       Beginning of Year                                              3,317                1,241                1,446
                                                               ===============      ===============      ===============
     Cash and Other Short-Term Investments at End of Year       $       985          $     3,317           $    1,241
                                                               ===============      ===============      ===============
</TABLE>






The  condensed  financial  information  should be read in  conjunction  with the
Westbridge Capital Corp.  consolidated  financial  statements as of December 31,
1998 and notes thereto.


<PAGE>





                                  SCHEDULE III

                            WESTBRIDGE CAPITAL CORP.

                       SUPPLEMENTARY INSURANCE INFORMATION
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                    Other
                                                    Policy
                               Deferred             Claims                        Benefits Amortization
                                Policy    Future     and                  Net       and    of Policy    Other
                              Acquisition Policy   Benefits    Premium  Investment Claims  Acquisition  Operating  Premiums
Segment                         Costs     Benefits  Payable    Revenue   Income    Expense    Costs     Expenses   Written*
-----------------------------  --------  ---------  -------   --------- ---------  -------   --------    -------   --------
<S>                             <C>       <C>       <C>       <C>        <C>       <C>        <C>       <C>        <C>     
YEAR ENDED DECEMBER 31, 1998:
Insurance operations            $14,177   $53,871   $44,116   $135,717   $ 8,314   $ 99,419   $ 4,411   $ 44,447   $ 31,216
Other activities                   --        --        --         --       2,607       --        --       23,828    =======
Corporate (parent company)         --        --        --         --       1,090       --        --       16,009
                                =======   =======   =======    =======   =======    =======   =======    ========
     Total                      $14,177   $53,871   $44,116   $135,717   $12,011   $ 99,419   $ 4,411   $ 84,284
                                =======   =======   =======    =======   =======    =======   =======    ========


YEAR ENDED DECEMBER 31, 1997:
Insurance operations            $19,165   $55,811   $51,784   $161,097   $ 7,325   $136,866   $30,873   $ 91,633   $ 73,611
Other activities                   --        --        --         --       1,547       --        --       27,564    =======
Corporate (parent company)         --        --        --         --       2,151       --        --       11,373
                                =======   =======   =======    =======   =======    =======   =======    ========
     Total                      $19,165   $55,811   $51,784   $161,097   $11,023   $136,866   $30,873   $130,570
                                =======   =======   =======    =======   =======    =======   =======    ========


YEAR ENDED DECEMBER 31, 1996:
Insurance operations            $83,871   $54,204   $39,186   $156,780   $ 6,514   $ 94,187   $22,907   $ 16,385   $107,149
Other activities                   --        --        --         --       1,784       --        --       24,433    =======
Corporate (parent company)         --        --        --         --         438       --        --        4,637
                                =======   =======   =======    =======   =======    =======   =======    ========
     Total                      $83,871   $54,204   $39,186   $156,780   $ 8,736   $ 94,187   $22,907   $ 45,455
                                =======   =======   =======    =======   =======    =======   =======    ========
</TABLE>





*Premiums Written--Amounts do not apply to life insurance.


<PAGE>



                            WESTBRIDGE CAPITAL CORP.

                                   SCHEDULE IV

                                   REINSURANCE

                       (IN THOUSANDS, EXCEPT PERCENTAGES)

<TABLE>
<CAPTION>
                                                                           Assumed                            Percentage
                                                       Ceded to             From                               of Amount
                                      Gross              Other              Other              Net              Assumed
                                      Amount           Companies          Companies           Amount            to Net
                                  ---------------    --------------     --------------    ---------------    --------------
<S>                               <C>                <C>                <C>               <C>                     <C>      
YEAR ENDED DECEMBER 31, 1998:
Life insurance in force           $     44,815       $     7,275        $          -      $     37,540                 -
                                  ===============    ==============     ==============    ===============
Premiums:
   Life                           $        664       $        22        $          -      $        642                 -
   Accident and health                 136,291             2,812               1,596           135,075             1.18%
                                  ---------------    --------------     --------------    ---------------
       Total premiums             $    136,955       $     2,834        $      1,596      $    135,717             1.18%
                                  ===============    ==============     ==============    ===============

YEAR ENDED DECEMBER 31, 1997:
Life insurance in force           $     53,065       $         -        $          -      $     53,065                 -
                                  ===============    ==============     ==============    ===============
Premiums:
   Life                           $        832       $         -        $          -      $        832                 -
   Accident and health                 161,865             3,635               2,035           160,265             1.27%
                                  ---------------    --------------     --------------    ---------------
       Total premiums             $    162,697       $     3,635        $      2,035      $    161,097             1.26%
                                  ===============    ==============     ==============    ===============

YEAR ENDED DECEMBER 31, 1996:
Life insurance in force           $     86,978       $         -        $          -      $     86,978                 -
                                  ===============    ==============     ==============    ===============
Premiums:
   Life                           $        889       $         -        $          -      $        889                 -
   Accident and health                 155,952             4,063               4,002           155,891             2.57%
                                  ---------------    --------------     --------------    ---------------
       Total premiums             $    156,841       $     4,063        $      4,002      $    156,780             2.55%
                                  ===============    ==============     ==============    ===============
</TABLE>


<PAGE>


                                   SCHEDULE V

                            WESTBRIDGE CAPITAL CORP.

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                     Additions
                                                                      Charged                                 Balance
                                                Balance at              to                                       at
                                                 Beginning           Costs and          Deductions             End of
                                                 of Period           Expenses          (Charge Offs)           Period
                                              ----------------    ----------------    ----------------     ---------------
<S>                                             <C>                 <C>                 <C>                  <C>       
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful agents' balances         $    4,531          $      645          $        -           $    5,176
                                              ================    ================    ================     ===============

YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful agents' balances         $    1,729          $    2,802          $        -           $    4,531
                                              ================    ================    ================     ===============

YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful agents' balances         $    1,187          $    1,462          $     (920)          $    1,729
                                              ================    ================    ================     ===============
</TABLE>









<PAGE>


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information relating to directors is incorporated herein by reference to
"Election of Directors" from the Company's definitive proxy statement for the
1999 Annual Meeting of Stockholders, which will be filed on or before April 30,
1999. Information relating to executive officers is contained under the heading
"Executive Officers" in PART I hereof.

ITEM 11.  EXECUTIVE COMPENSATION

Executive Compensation is incorporated herein by reference to "Election of
Directors -- Executive Compensation" from the Company's definitive proxy
statement for the 1999 Annual Meeting of Stockholders, which will be filed on or
before April 30, 1999.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information pertaining to security ownership of certain beneficial owners and
management is incorporated herein by reference to "Principal Stockholders" and
"Election of Directors -- Security Ownership of Management" from the Company's
definitive proxy statement for the 1999 Annual Meeting of Stockholders, which
will be filed on or before April 30, 1999.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information pertaining to certain relationships and related transaction is
incorporated herein by reference to "Principal Stockholders" and "Election of
Directors" from the Company's definitive proxy statement for the 1999 Annual
Meeting of Stockholders, which will be filed on or before April 30, 1999.


<PAGE>


                                     PART IV

ITEM 14.  FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K

(a)      The documents set forth below are filed as part of this report.

(1)  FINANCIAL STATEMENTS:

Reference is made to ITEM 8, "Index to Financial Statements and Financial
Statement Schedules."

(2)  FINANCIAL STATEMENT SCHEDULES:

Reference is made to ITEM 8, "Index to Financial Statements and Financial
Statement Schedules."

All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the financial
statements or notes thereto.

(3)  EXHIBITS:

The following exhibits are filed herewith. Exhibits incorporated by reference
are indicated in the parentheses following the description.

2.1  First  Amended Plan of  Reorganization  of Westbridge  Capital Corp.  Under
     Chapter  11  of  the  Bankruptcy   Code,  dated  as  of  October  30,  1998
     (incorporated  by reference to Exhibit 2 to the Company's Form 8-K filed on
     September 21, 1998).

2.2  Amended  Disclosure  Schedule   Accompanying  the  First  Amended  Plan  of
     Reorganization  of  Westbridge  Capital  Corp.  under  Chapter  11  of  the
     Bankruptcy  Code  (incorporated  by reference to Exhibit 2 to the Company's
     Form 8-K filed on September 21, 1998).

2.3  Findings  of Fact,  Conclusions  of Law,  and  Order  confirming  the First
     Amended Plan of  Reorganization  of Westbridge  Capital Corp. dated October
     30,  1998,  as  modified  (incorporated  by  reference  to Exhibit 2 to the
     Company's Form 8-K filed on December 29, 1998).

3.1  Second  Amended and Restated  Certificate of  Incorporation  of the Company
     filed  with  the   Secretary  of  State  of  Delaware  on  March  24,  1999
     (incorporated  by reference to Exhibit 3.1 to the Company's  Form 8-A filed
     on March 25, 1999).

3.2  Amended and Restated By-Laws of the Company, effective as of March 24, 1999
     (incorporated  by reference to Exhibit 3.2 to the Company's  Form 8-A filed
     on March 25, 1999).

4.1  Form of Common Stock Certificate  (incorporated by reference to Exhibit 4.1
     to the Company's Form 8-A filed on March 25, 1999).

4.2  Form of Warrant  Certificate,  included  in the Form of  Warrant  Agreement
     (incorporated  by reference to Exhibit 4.2 to the Company's  Form 8-A filed
     on March 25, 1999).

4.3  Form of Warrant  Agreement dated as of March 24, 1999,  between the Company
     and LaSalle  National Bank, as warrant agent  (incorporated by reference to
     Exhibit 4.3 to the Company's Form 8-A filed on March 25, 1999).

4.4* Form of Preferred Stock Certificate.


<PAGE>


10.1 Credit  Agreement  dated  as of June 6,  1997  between  Westbridge  Funding
     Corporation and LaSalle National Bank (incorporated by reference to Exhibit
     10.1 to the Company's  Quarterly  Report on Form 10-Q for the quarter ended
     June 30, 1997).

10.2 Guaranty  Agreement dated as of June 6, 1997 by Westbridge Capital Corp. in
     favor of LaSalle  National Bank  (incorporated by reference to Exhibit 10.2
     to the Company's  Quarterly  Report on Form 10-Q for the quarter ended June
     30, 1997).

10.3 Pledge  Agreement  dated as of June 6, 1997  between  Westbridge  Marketing
     Corporation and LaSalle National Bank (incorporated by reference to Exhibit
     10.3 to the Company's  Quarterly  Report on Form 10-Q for the quarter ended
     June 30, 1997).

10.4 Security  Agreement  dated as of June 6, 1997  between  Westbridge  Funding
     Corporation  for the  benefit of LaSalle  National  Bank  (incorporated  by
     reference to Exhibit 10.4 to the  Company's  Quarterly  Report on Form 10-Q
     for the quarter ended June 30, 1997).

10.5 Second Amended and Restated Receivables Purchase and Sale Agreement,  dated
     as of June 6, 1997 between  National  Foundation  Life  Insurance  Company,
     National Financial Insurance Company,  American Insurance Company of Texas,
     Freedom  Life  Insurance  Company  of  America,   and  Westbridge   Funding
     Corporation  (incorporated  by reference  to Exhibit 10.5 to the  Company's
     Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).

10.6 Amended and Restated Non-Insurance Company Sellers Receivables Purchase and
     Sale Agreement,  dated as of June 6, 1997 between  American Senior Security
     Plans, L.L.C.,  Freedom Marketing,  Inc., Health Care-One Insurance Agency,
     Health Care-One  Marketing  Group,  Inc.,  LSMG,  Inc.,  Senior Benefits of
     Texas,  Inc.,  and  Westbridge  Marketing   Corporation   (incorporated  by
     reference to Exhibit 10.6 to the  Company's  Quarterly  Report on Form 10-Q
     for the quarter ended June 30, 1997).

10.7 Lock-Up Agreement, dated as of September 16, 1998, by and among the Company
     and Credit Suisse First Boston  Corporation  (incorporated  by reference to
     Exhibit 10.1 to the Company's Form 8-K filed on September 21, 1998).

10.8 Stock  Purchase  Agreement,  dated as of September  16,  1998,  between the
     Company  and  Credit  Suisse  First  Boston  Corporation  (incorporated  by
     reference to Exhibit 10.2 to the Company's  Form 8-K filed on September 21,
     1998).

10.9 Employment  Agreement,  dated as of September  15,  1998,  by and among the
     Company,   Westbridge   Management   Corp.  and  Mr.  Patrick  J.  Mitchell
     (incorporated  by reference to Exhibit 10.3 to the Company's Form 8-K filed
     on September 21, 1998).

10.10Employment  Agreement  dated as of  September  15,  1998,  by and among the
     Company,   Westbridge   Management   Corp.   and  Mr.  Patrick  H.  O'Neill
     (incorporated  by reference to Exhibit 10.4 to the Company's Form 8-K filed
     on September 21, 1998).

10.11* First Amendment and Waiver to Credit Agreement among  Westbridge  Funding
     Corporation, Westbridge Capital Corp. and LaSalle National Bank dated as of
     September 8, 1998.

10.12* First Amendment to Guaranty  Agreement dated as of March 24, 1999 between
     Westbridge Capital Corp. in favor of LaSalle National Bank.

10.13*  Registration  Rights  Agreement  dated as of March 24, 1999  between the
     Company and Special Situations Holdings, Inc. - Westbridge.

10.14* 1999 Stock Option Plan dated as of March 24, 1999.

21.1* List of Subsidiaries of Ascent Assurance, Inc.

24.1* Consent of PricewaterhouseCoopers LLP

27.1* Financial Data Schedule.

(b)      REPORT ON FORM 8-K.

          The  Registrant  filed a Report  on Form 8-K dated  March 25,  1999 in
          response to Item 5, Other Events, to report its emergence on March 24,
          1999 from the Chapter 11 Case commenced on September 16, 1998.

          The  Registrant  filed a Report on Form 8-K dated December 29, 1998 in
          response  to  Item  3,  Bankruptcy  or  Receivership,  to  report  the
          confirmation of its First Amended Plan of Reorganization  (the "Plan")
          under Chapter 11 of Title 11 of the United States  Bankruptcy Court in
          the District of Delaware. In conjunction with this filing, the Company
          submitted a copy of the Confirmation Order with accompanying exhibits,
          including a copy of the Plan as confirmed.

------------------------
*        Filed Herewith.


<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 29th day of March,
1999.


                                             ASCENT ASSURANCE, INC.
                                            (FORMERLY, WESTBRIDGE CAPITAL CORP.)

                                            /S/ PATRICK J. MITCHELL
                                               (Patrick J. Mitchell,
                                                Chairman of the Board and
                                                Chief Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.


<TABLE>
<CAPTION>
SIGNATURE                                        TITLE                                      DATE
------------------------------------------------ ------------------------------------------ ----------------

<S>                                              <C>                                       <C> 
 /S/ PATRICK J. MITCHELL                         Director, Chairman of the Board            March 29, 1999
(Patrick J. Mitchell)                            and Chief Executive Officer
                                                 (Principal Executive Officer)
                                                 (Principal Financial and Accounting

                                                 Officer)

 /S/ JOHN H. GUTFREUND                           Director                                   March 29, 1999
(John H. Gutfreund)

 /S/ RICHARD H. HERSHMAN                         Director                                   March 29, 1999
(Richard H. Hershman)

 /S/ MICHAEL A. KRAMER                           Director                                   March 29, 1999
(Michael A. Kramer)

 /S/ ROBERT A. PEISER                            Director                                   March 29, 1999
(Robert A. Peiser)

 /S/ JAMES K. STEEN                              Director                                   March 29, 1999
(James K. Steen)
</TABLE>


<PAGE>


                                INDEX OF EXHIBITS

Exhibit
NUMBER   DESCRIPTION OF EXHIBIT

4.4*            Form of Preferred Stock Certificate.

10.11*          First Amendment and Waiver to Credit  Agreement among Westbridge
                Funding  Corporation,  Westbridge  Capital Corp. and LaSalle 
                National Bank dated as of September 8, 1998.

10.12*          First Amendment to Guaranty Agreement dated as of March 24, 1999
                between Westbridge Capital Corp. in favor of LaSalle National
                Bank.

10.13*          Registration Rights Agreement dated as of March 24, 1999 between
                the Company and Special Situations Holdings, Inc. - Westbridge.

10.14*          1999 Stock Option Plan dated as of March 24, 1999.

21.1*           List of Subsidiaries of Ascent Assurance, Inc.

24.1*           Consent of PricewaterhouseCoopers LLP

27.1*           Financial Data Schedule.

* Filed Herewith


<PAGE>


                                  EXHIBIT 21.1

                     SUBSIDIARIES OF ASCENT ASSURANCE, INC.
                      (FORMERLY, WESTBRIDGE CAPITAL CORP.)

<TABLE>
<CAPTION>
             PERCENTAGE SUBSIDIARY                                                                  OWNERSHIP

<S>                                                                                                    <C> 
  1.         National Foundation Life Insurance Company (Delaware)                                     100%

  2.         American Insurance Company of Texas (Texas)                                               100%

  3.         National Financial Insurance Company (Texas)                                              100%

  4.         Freedom Life Insurance Company of America (Mississippi)                                   100%

  5.         Freedom Holding Company (Kentucky)                                                        100%

  6.         Ascent Funding, Inc. (Delaware)                                                           100%
             (formerly, Westbridge Funding Corporation)

  7.         Foundation Financial Services, Inc. (Nevada)                                              100%

  8.         NationalCare(R) Marketing, Inc. (Delaware)                                                100%
             (formerly, Westbridge Marketing Corporation)

  9.         Westbridge Printing Services, Inc. (Delaware)                                             100%

10.          Ascent Management, Inc. (Delaware)                                                        100%
             (formerly, Westbridge Management Corp.)

11.          Ascent Financial, Inc. (Delaware)                                                         100%
             (formerly, Westbridge Financial Corp.)

12.          Precision Dialing Services, Inc. (Delaware)                                               100%

13.          Senior Benefits, LLC (Arizona)                                                            100%

14.          American Senior Security Plans, LLC (Delaware)                                            100%

15.          Health Care-One Marketing Group, Inc. (Texas)                                              80%

16.          LifeStyles Marketing Group, Inc. (Delaware)                                               100%

17.          Health Care-One Insurance Agency, Inc. (California)                                        50%
</TABLE>





<PAGE>


                                  EXHIBIT 24.1

                       CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 (No. 33-55192) of Westbridge Capital Corp. and its
subsidiaries of our report dated March 29, 1999, appearing on page 40 of this
Form 10-K.

 /S/ PRICWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP
Dallas, Texas
March 29, 1999


<PAGE>

                                                                     EXHIBIT 4.4

NY1:#3209613v1


                           Incorporated under the Laws
                            of the State of Delaware

                             ASCENT ASSURANCE, INC.

                SERIES A CONVERTIBLE PREFERRED STOCK CERTIFICATE

                  This certifies that ______________ is the owner of __________
fully paid and non-assessable shares of the Series A Convertible Preferred Stock
of the par value of $0.01 per share of Ascent Assurance, Inc. (hereinafter
called the "Corporation") transferable on the books of the Corporation in person
or by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and
shall be held subject to all the provisions of the Certificate of Incorporation
and By-Laws of the Corporation and the amendments from time to time made
thereto, copies of which are or will be on file at the principal office of the
Corporation, to all of which the holder by acceptance hereof assents.

                  WITNESS the facsimile seal of the Corporation and the
facsimile signatures of its duly authorized officers.

                                                        ASCENT ASSURANCE, INC.

                                                   By  /S/ PATRICK J. MITCHELL
                                                        Chairman of the Board

Attest:

 /S/ PATRICK H. O'NEILL
         Secretary
<PAGE>


THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER, UPON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES
THEREOF AUTHORIZED TO BE ISSUED AND THE QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS OF SUCH PREFERENCES AN/OR RIGHTS. ANY SUCH REQUEST MAY BE ADDRESSED
TO THE SECRETARY OF THE CORPORATION.

         The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM -as tenants in common           UNIF GIFT MIN ACT - ....Custodian...
TEN ENT -as by the entireties                             (Cust)       (Minor)
JT TEN  -as joint tenants with right of           under Uniform Gifts to Minors
         Survivorship and not as tenants          Act.........................
         in common                                          (State)

    Additional abbreviations may also be used though not in the above list.

  For Value Received, ___________________ hereby sell, assign and transfer unto

   PLEASE INSERT SOCIAL SECURITY OR OTHER
         IDENTIFYING NUMBER OF ASSIGNEE



------------------------------------------------------------------------------
            (Please print or typewrite name and address of Assignee)

------------------------------------------------------------------------------

_________________________________________________Shares of the stock represented
by the within Certificate, and do hereby irrevocably constitute and appoint
___________________ ____________________________Attorney to transfer the said
stock on the books of the within named Corporation with full power of
substitution in the premises.

Dated _________________________

Signature(s) Guaranteed             ___________________________________________

                                            Notice:   The Signature to this
                                                      Assignment must correspond
                                                      with the name as written
                                                      upon the Fact of the
                                                      Certificate, in every
                                                      particular, without
                                                      alteration or enlargement,
                                                      or any change whatever.

By______________________________

The Signature should be guaranteed by an eligible guarantor
institution (Banks, Stockbrokers, savings and loan
associations and credit unions with membership in an
approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17 Ad-15.
<PAGE>

                                                                   EXHIBIT 10.11

                               FIRST AMENDMENT AND
                           WAIVER TO CREDIT AGREEMENT
                      AMONG WESTBRIDGE FUNDING CORPORATION,
                       WESTBRIDGE CAPITAL CORPORATION, AND
                              LASALLE NATIONAL BANK

                             Dated September 8, 1998

         The First Amendment and Waiver ("Amendment") to that certain Credit
Agreement, dated as of June 6, 1997, as amended from time to time (collectively,
"Credit Agreement"), by and between LaSalle National Bank ("Bank") and
Westbridge Funding Corporation ("Borrower") is entered into as of the date
stated above by the Borrower, the Bank and Westbridge Capital Corporation (the
"Guarantor"). Capitalized terms used herein without definition shall have the
respective meanings assigned thereto in the Credit Agreement.

                                   WITNESSETH:

     WHEREAS, the Bank and the Borrower are parties to the Credit Agreement; and

     WHEREAS,  as condition to the Credit  Agreement,  the Guarantor  issued its
Guaranty  to the  Bank of all of the  Obligations  of the  Borrower  to the Bank
pursuant to the Credit Agreement and the related Loan Documents;

     WHEREAS,  the  Borrower  and the  Guarantor  have advised the Bank that the
Guarantor  intends to file a voluntary  petition for relief in the United States
Bankruptcy Court, District of Delaware, pursuant to Chapter 11 of the Bankruptcy
Code (the "Proceeding") on or about September 10, 1998; and

     WHEREAS,  pursuant  to  the  Credit  Agreement,  the  commencement  of  the
Proceeding constitutes one or more Events of Default; and

     WHEREAS, upon the occurrence of any Event of Default, the Bank may exercise
various  rights  and  remedies  provided  to it in  the  Loan  Documents,  or by
applicable law or in equity,  including,  without  limitation,  terminating  the
Commitment,  declaring  all  amounts  owing  under the  Credit  Agreement  to be
forthwith due and payable,  and  exercising  any and all rights that it may have
with  respect  to the  Collateral  (as  such  term is  defined  in the  Security
Agreement); and

     WHEREAS,  the  Borrower  and  Guarantor  have  requested,  and the Bank has
agreed,  subject to the terms and conditions herein, to waive the occurrence and
continuance  of the  Events of Default  occasioned  by the  commencement  of the
Proceeding; and

     WHEREAS,  the  Borrower  has also  requested,  and the Bank has agreed,  to
modify and amend certain  provisions of the Credit  Agreement to more accurately
reflect certain obligations actually incurred from time to time by the Borrower;

     NOW,  THEREFORE,  for good and  valuable  consideration,  the  receipt  and
adequacy  and  sufficiency  of which are  hereby  acknowledged,  the  Bank,  the
Borrower and the Guarantor hereby agree as follows:

     1.   WAIVER OF EVENTS OF  DEFAULT.  Subject to the terms  hereof,  the Bank
          hereby  waives  the Events of  Default  occasioned  as a result of the
          commencement  of the  Proceeding  by the  Guarantor.  Such  Waiver  is
          limited to the Events of Default occasioned by the commencement of the
          Proceeding and it is not a waiver with respect to any other Default or
          Event of Default  which has or may occur  pursuant to the terms of the
          Credit  Agreement  generally.  In particular,  during the term of this
          Waiver,  the Bank hereby waives any Event of Default arising under the
          following provisions of the Credit Agreement, insofar as they apply to
          the  Guarantor  and  are  occasioned  by  the   commencement   of  the
          Proceeding:  (i) Section 8.1(c);  (ii) Section  8.1(e),  to the extent
          relating to compliance with Sections 6.3, 6.4 and 6.9 of the Guaranty,
          or Section 9(ii) of the Pledge Agreement, or to the extent performance
          of other  provisions  thereof by the  Guarantor is  prohibited  by the
          pendency of the  Proceeding;  (iii) Section  8.1(j);  and (iv) Section
          8.1.(k).

     2.   WAIVER FEE; TERM OF WAIVER. In addition to the conditions set forth in
          Section 4 hereof,  this Amendment and the  effectiveness of the waiver
          herein  contained is  conditioned  upon the payment by Borrower to the
          Bank of a waiver fee on the date hereof in the amount of  $50,000.  In
          consideration of such fee, and subject to the conditions precedent set
          forth in Section 4 hereof,  the waiver herein  granted shall  continue
          from  the  date of the  commencement  of the  Proceeding  through  and
          including  March  9,  1999.  Thereafter,  in the  event  that a final,
          non-applicable  order of confirmation  has not yet been entered in the
          Proceeding,  in the sole  discretion  of the  Bank,  and so long as no
          Default  or Event of  Default  other  than  those  waived  hereby  has
          occurred  and is  continuing,  the Bank may elect to extend the waiver
          for one or more 30-day  periods,  upon the payment by the  Borrower to
          the Bank of an extension fee for each such 30-day period in the amount
          of $15,000. Nothing herein contained shall obligate the Bank to extend
          the waiver beyond March 9, 1999, or to grant any additional extensions
          after such date.  Notwithstanding anything contained in this Section 2
          to the  contrary,  in the  event  that  Guarantor  in any way seeks to
          modify the  treatment of the LaSalle  Claim form that  provided for in
          the Plan (as herein defined) without the Bank's consent,  or should an
          order  of  confirmation  be  entered  with  respect  to  any  plan  of
          reorganization  which would have the effect of  impairing  the LaSalle
          Claim without the Bank's consent,  the waiver  contained  herein shall
          immediately and automatically terminate.

     3.   AMENDMENT TO CREDIT AGREEMENT.  Section 1.1 of the Credit Agreement is
          hereby amended, effective as of June 30, 1998, by deleting the defined
          term  "INTEREST  COVERAGE  RATIO" and  inserting  the following in its
          stead:

          "INTEREST  COVERAGE  RATIO" at the end of any fiscal quarter means the
          ratios of (i) an amount equal to the sum of (a) consolidated GAAP EBIT
          of the Borrower and all  Subsidiaries  for the  immediately  preceding
          four fiscal quarters (ending on such date) PLUS (b) Deferred  Revenues
          for the  immediately  preceding four fiscal  quarters  (ending on such
          date),  to  (2)  total  Interest  Expense  of  the  Borrower  and  its
          Subsidiaries  on a consolidated  basis for the  immediately  preceding
          four fiscal quarters (ending on such date).

     4.   CONDITIONS  PRECEDENT.  This Amendment and the waiver herein contained
          is subject to the satisfaction of the following condition precedent:

     i.   The  Guarantor  shall  file  a  plan  of  reorganization  and  related
          disclosure  statement  substantially  in  the  form  delivered  by the
          Guarantor's counsel to the Bank on August 25, 1998 (the "Plan").

     5.   COVENANTS OF  GUARANTOR.  So long as the  Proceeding  shall  continue,
          Guarantor hereby covenants and agrees to deliver to the Bank, promptly
          following  their  delivery  to  the  Court,  copies  of  all  filings,
          pleadings,  financial reports,  budgets, studies and the like filed in
          the Proceeding.  All such  deliveries  shall be in addition to any and
          all reporting requirements set forth in the Credit Agreement.

     6.   REAFFIRMATION.  The Borrower hereby reaffirms to the Bank that, except
          as modified hereby, the Credit Agreement and all of the Loan Documents
          remain in full force and effect  and have not been  otherwise  waived,
          modified or amended.

     7.   GOVERNING LAW AND INTERPRETATION. This Amendment has been delivered in
          Chicago,   Illinois,  and  shall  be  governed  by  and  construed  in
          accordance  with the  provisions of the Credit  Agreement and the laws
          and  decisions of the State of Illinois  without  giving effect to the
          conflict of law principles thereunder.

     8.   COUNTERPARTS.   This   Amendment  may  be  executed  in  one  or  more
          counterparts,  each of which shall be deemed an  original,  but all of
          which together shall  constitute one and the same  instrument.  One or
          more counterparts of this waiver may be delivered by telecopier,  with
          the  intention  that they  shall have the same  effect as an  original
          counterpart thereof.

         IN WITNESS WHEREOF, each of the parties hereto has caused this Waiver
to be duly executed and delivered as of the day and year first above written.

                                      BANK:

                                      LASALLE NATIONAL BANK

                                      By:  /S/ JANET R. GATES
                                      Its:  FIRST VICE PRESIDENT

                                      BORROWER:
  
                                      WESTBRIDGE FUNDING CORPORATION

                                      By:  /S/ PATRICK J. MITCHELL
                                      Its:  PRESIDENT

                                      GUARANTOR:

                                      WESTBRIDGE CAPITAL CORP.

                                      By:  /S/ PATRICK J. MITCHELL
                                      Its:  PRESIDENT
<PAGE>


                                                                   EXHIBIT 10.12

                      FIRST AMENDMENT TO GUARANTY AGREEMENT

         This FIRST AMENDMENT TO GUARANTY AGREEMENT (this "Amendment") dated as
of March 24, 1999, is made by Westbridge Capital Corp., a Delaware corporation
(the "Guarantor") for the benefit of LaSalle National Bank (the "Bank"), its
successors and assigns and any and all other Beneficiaries. Capitalized terms
used herein without definition shall have the respective meanings assigned to
them in that certain Guaranty Agreement made by Guarantor in favor of Bank and
dated as of June 26, 1997 (the "Guaranty Agreement").

                                 R E C I TA L S

     A. Pursuant to that certain Credit  Agreement dated as of June 6, 1997 (the
"Credit  Agreement")  between Westbridge Funding  Corporation (the "Debtor") and
the Bank, the Bank agreed,  on certain terms and  conditions,  to make revolving
loans to the Debtor from time to time in an  aggregate  principal  amount at any
one time outstanding not to exceed $20,000,000 (the "Revolving Loans").

     B. The Debtor is an indirect wholly-owned subsidiary of the Guarantor.

     C. As a condition to making the Revolving Loans, the Bank required that the
Guarantor execute and deliver the Guaranty Agreement.

     D. On September 16, 1998, Guarantor filed its voluntary petition for relief
pursuant to Chapter 11 of the  Bankruptcy  Code in the United States  Bankruptcy
Court, District of Delaware, Case No. 98-2105 (the "Proceeding").

     E. Pursuant to the Credit  Agreement,  the  commencement  of the Proceeding
constitutes one or more Events of Default.

     F. Pursuant to that certain First Amendment and Waiver to Credit  Agreement
dated as of September 8, 1998 among  Debtor,  Guarantor  and the Bank,  the Bank
agreed to waive the Events of Default occasioned as a result of the commencement
of the  Proceeding,  on the  condition,  among other things,  that the Guarantor
agree  to  restate  and  reaffirm  the  Guaranty  Agreement  and  certain  other
agreements between Guarantor and the Bank, including,  without limitation,  that
certain Pledge  Agreement  dated as of June 26, 1997, made by Guarantor in favor
of the Bank,  all pursuant to a Plan of  Reorganization  acceptable  to the Bank
(the "Plan").

     G. On December 17, 1998,  a  confirmation  hearing was held with respect to
Guarantor's Plan, and such Plan was approved in all respects.


<PAGE>


         NOW, THEREFORE, the Guarantor hereby agrees as follows:

1.       AMENDMENTS TO GUARANTY AGREEMENT.

     1.1  GENERAL.  Each ARTICLE of the Guaranty  Agreement is hereby renumbered
          so as to be in proper  numerical  sequence,  commencing with ARTICLE 1
          and ending with ARTICLE 7.

     1.2  DEFINITIONS.  The defined term "Consolidated GAAP Net Worth" contained
          in Section 1.2 of the Guaranty Agreement is hereby amended by deleting
          the parenthetical phrase contained in subsection (d) and inserting the
          following in its stead:

               "(without   giving   effect  to  any   increase  or  decrease  to
               Consolidated  GAAP Net Worth  attributable  to the application of
               SFAS Nos. 115 and 130)".

     1.3  FINANCIAL COVENANTS.

          (a)  Section  6.3 of the  Guaranty  Agreement  is  hereby  amended  by
               deleting the  reference to  "$62,500,000"  contained  therein and
               inserting "$45,000,000" in its stead.

          (b)  Section 6.4 of the Guaranty  Agreement  is hereby  deleted in its
               entirety and INTENTIONALLY DELETED is inserted in its stead.

          (c)  Section  6.6 of the  Guaranty  Agreement  is  hereby  amended  by
               deleting the first  sentence  thereof and inserting the following
               in its stead:

               "At any time that the Obligations remain outstanding,  permit the
               RBC Ratio of any Insurance Subsidiary (excluding NFIC) to be less
               than 105%."

          (d)  Section 6.7 of the Guaranty  Agreement  is hereby  deleted in its
               entirety and INTENTIONALLY  DELETED is inserted in its stead, and
               the Bank hereby  consents to any Insurance  Subsidiary  having an
               A.M. Best Rating of NR.

          (e)  SCHEDULE 6.8 to the Guaranty  Agreement is hereby  deleted in its
               entirety and SCHEDULE 6.8 attached  hereto is  substituted in its
               stead.

     1.4  AMENDMENT TO  OFFICER'S  CERTIFICATE.  Attachment  4 to the  Officer's
          Certificate  attached as Exhibit A to the Guaranty Agreement is hereby
          deleted  in  its  entirety  and   Attachment  4  attached   hereto  is
          substituted in its stead.


<PAGE>


     2.   CONSENT TO CHANGE OF NAME. The Bank hereby consents to the Guarantor's
          change of its name to Ascent  Assurance,  Inc.  effective  on or about
          March 24, 1999.

     3.   CONDITIONS PRECEDENT. This Amendment is subject to the satisfaction of
          the following condition precedent, and thereupon shall be effective as
          of March 24, 1999:

          (i)  The confirmation of the Guarantor' s Plan shall be come final and
               non-appealable,  and shall in all respects be satisfactory to the
               Bank.

     4.   REAFFIRMATION OF PLEDGE  AGREEMENT.  The Guarantor hereby reaffirms to
          the Bank that the Pledge  Agreement is hereby restated in its entirety
          and  remains in full  force and  effect as it relates to the  Guaranty
          Agreement as hereby amended.

     5.   REAFFIRMATION OF GUARANTY AGREEMENT. The Guarantor hereby reaffirms to
          the Bank that,  except as modified hereby,  the Guaranty  Agreement is
          hereby restated in its entirety and remains in full force and effect.

     6.   GOVERNING LAW. This Amendment has been delivered in Chicago,  Illinois
          and  shall  be  governed  by and  construed  in  accordance  with  the
          provisions of the laws and decisions of the State of Illinois, without
          giving effect to the conflict of law principles thereunder.

     7.   COUNTERPARTS.   This   Amendment  may  be  executed  in  one  or  more
          counterparts,  each of which shall be deemed an  original,  but all of
          which together shall  constitute one and the same  instrument.  One or
          more  counterparts  of this  Amendment may be delivered by telecopier,
          with the intention that they shall have the same effect as an original
          counterpart thereof.


<PAGE>

                                                                   EXHIBIT 10.12
     IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
be duly executed and delivered as of the day and year first above written.

                                          BANK:

                                          LASALLE NATIONAL BANK

                                          By:  /S/ JANET R. GATES
                                          Its: SENIOR VICE PRESIDENT

                                          GUARANTOR:

                                          ASCENT ASSURANCE, INC.
                                          (FORMERLY, WESTBRIDGE CAPITAL CORP.)

                                          By:  /S/ PATRICK J. MITCHELL
                                          Its: CHAIRMAN AND CEO


<PAGE>
                                                                   EXHIBIT 10.12

                                  SCHEDULE 6.8

                     MINIMUM STATUTORY SURPLUS REQUIREMENTS
                                 (in million $)



     INSURANCE SUBSIDIARY                       1999
-------------------------------------------------------------
NFL                                             $13.5
-------------------------------------------------------------
NFIC                                            $ 1.4
-------------------------------------------------------------
AIC                                             $ 1.4
-------------------------------------------------------------
FLICA                                           $ 9.5
-------------------------------------------------------------


<PAGE>
EXHIBIT 10.12


                                  Attachment 4
                                       to
                              Officer's Certificate

                          Computations and Information
                             Showing Compliance with
                               Sections 6.3 to 6.9
                                     of the
                               Guaranty Agreement

<TABLE>
<CAPTION>
Except as otherwise defined herein, terms used herein shall have the meanings
set forth in the Guaranty Agreement.

<S>                                                                            <C>                                      
SECTION 6.3.  MINIMUM CONSOLIDATED GAAP NET WORTH

1.       Consolidated GAAP Net Worth as of the Guarantor
the fiscal quarter  ending  ______________, 199__.                              = ________________

2. Consolidated positive Net Income of the Guarantor for each fiscal quarter
following the fiscal quarter ending _________________ was:

         [INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE]

2a.      The sum of the positive Net Income for each of the quarters
set forth in Line 2 above                                                       = ________________

2b.      50% of line 2a                                                         = ________________

3.       100% of proceeds resulting from any issuance by Guarantor of its
capital stock                                                                   = ________________

4.       The sum of $45,000,000 and line 2b and line 3                          = ________________

5.       Line 1 is not less than line 4.
</TABLE>


<PAGE>
                                                                   EXHIBIT 10.12



SECTION 6.4.  INTENTIONALLY DELETED

SECTION 6.5.  INVESTMENT GRADE ASSETS.

1.       Total consolidated Investment of  the Insurance
Subsidiaries and Eligible Non-Insurance Company Sellers
in Investment Grade Securities:                               = ________________

2.       Total Invested Assets:                               = ________________

3.       The ratio of line 1 to line 2:                       = ___ : ___

4.       The ratio in line 3 is at least .95 to 1.00.


SECTION 6.6.  RBC RATIO.



                                                       NFL     AIC     FLICA
------------------------------------------------------------------------------
1. Adjusted Capital and Surplus as of the fiscal
[quarter/year] ending [_____,], 199_:

------------------------------------------------------------------------------
2. Authorized Control Level RBC as of the fiscal
year ending [_____,], 199_:

------------------------------------------------------------------------------
3. The ratio of line 1 to line 2.

------------------------------------------------------------------------------
4. The ratio in line 3 is at least 1.05 to 1.0.
------------------------------------------------------------------------------



SECTION 6.7.  INTENTIONALLY DELETED


<PAGE>



SECTION 6.8.  MINIMUM STATUTORY SURPLUS OF INSURANCE SUBSIDIARIES


                                       NFL       NFIC       AIC        FLI
-------------------------------------------------------------------------------
1 Positive Statutory Capital 
and Surplus of Insurance
Subsidiary as of the fiscal 
quarter ending ___________

------------------------------------------------- --------------- -------------
2 Positive Statutory Net Income
for each fiscal quarter
following the fiscal 
quarter ending ______________
was

[INCLUDE DATA FOR EACH 
QUARTER, AS APPLICABLE]

------------------------------------------------- --------------- -------------
2.a The sum of positive Statutory
Net Income for each of
the quarters set forth in line 
2 above

------------------------------------------------- --------------- -------------
2.b  50% of line 2.a.

------------------------------------------------- --------------- -------------
3 Contributions to surplus 
made by Debtor to any
Insurance Subsidiary with 
Positive Statutory Net Income
during each fiscal quarter were:

[INCLUDE DATA FOR EACH 
QUARTER, AS APPLICABLE]

------------------------------------------------- --------------- -------------
3.a The sum of the contributions
to surplus for each of the
quarters

------------------------------------------------- --------------- -------------
4 Applicable Annual Base Statutory
  Surplus from Schedule 6.8

------------------------------------------------- --------------- -------------
5 The sum of line 2.b.,
line 3.a. and line 4

------------------------------------------------- --------------- -------------
6 Line 1 is not less
 than line 5

-------------------------------------------------------------------------------
<PAGE>
                                                                   EXHIBIT 10.12

SECTION 6.9  FUNDED DEBT RATIO

1.       Funded Debt                                               _____________

2.       Consolidated GAAP Net Worth                               _____________

3.       Total Capitalization (the sum of line
         1 and line 2)                                             _____________

4.       The ratio of line 1 to line 3                             _____________

5.       The ratio in line 4 is not greater than .65 to 1.0.       _____________



<PAGE>

                                                                   EXHIBIT 10.13


                          REGISTRATION RIGHTS AGREEMENT

         This Registration Rights Agreement, dated as of March 24, 1999, among
Ascent Assurance, Inc. (formerly Westbridge Capital Corp.), a Delaware
corporation (the "COMPANY") and the holders of Common Stock and the holders of
New Convertible Preferred Stock of the Company listed on Schedule I hereto (the
"INITIAL HOLDERS").

                              W I T N E S S E T H:

         WHEREAS, pursuant to Section VII.A. of the First Amended Plan of
Reorganization of the Company under Chapter 11 of the Bankruptcy Code dated
October 30, 1998, as the same may have been amended or supplemented from time to
time prior to the date hereof (the "PLAN"), as of the Effective Date (as defined
in the Plan) the Company is obligated to enter into a registration rights
agreement substantially in the form of Exhibit "B" thereto; and

         WHEREAS, the parties hereto have agreed that the execution and delivery
by the Company and the Initial Holders of this Agreement will satisfy such
obligation under the Plan;

         NOW, THEREFORE, in consideration of the premises and of the mutual
promises and agreements set forth herein, the parties hereby agree as follows:

1.  DEFINITIONS.

         (a) Capitalized terms used in this Agreement but not otherwise defined
herein shall have the meanings given to them in the Plan. Each reference herein
to an agreement, document or instrument shall mean that agreement, document or
instrument as from time to time amended, modified or supplemented in accordance
with its terms, including in each case all exhibits, annexes and schedules to
such agreement, document or instrument, all of which are incorporated by
reference to such agreement, document or instrument. The use herein of the word
"or" shall not be deemed exclusive.

         (b) As used in this Exhibit, the following capitalized terms shall have
the meanings ascribed to them below:

          "COMMON  STOCK" means the Common Stock,  par value $.01 per share,  of
     the Company being issued and sold pursuant to the Plan.

          "EFFECTIVE DATE" means the effective date as defined in the Plan.

          "EXCHANGE ACT" means the Securities  Exchange Act of 1934, as amended,
     or any  similar  federal  statute  then in  effect,  and a  reference  to a
     particular  section  thereof  shall be deemed to include a reference to the
     comparable section, if any, of any such similar federal statute.

          "HOLDER" means a registered holder of Registrable Securities who is an
     Initial Holder .

          "PERSON" means an individual,  partnership, limited liability company,
     joint  venture,   corporation,   trust,   unincorporated   organization  or
     government or any department or agency thereof.

          "PREFERRED STOCK" means the Series A Cumulative Convertible Redeemable
     Preferred  Stock,  par value $.01 per share,  of the Company  being  issued
     pursuant to the Plan.

          "PROSPECTUS"  means  the  prospectus   included  in  any  Registration
     Statement,  as amended or  supplemented  by any prospectus  supplement with
     respect to the terms of the  offering  of any  portion  of the  Registrable
     Securities  covered by such Registration  Statement or any other amendments
     and  supplements  to such  prospectus,  including  without  limitation  any
     preliminary prospectus,  any pre-effective or post-effective  amendment and
     all material incorporated by reference in any prospectus.

          "REGISTRABLE  SECURITIES"  means (i) the shares of Common Stock issued
     to any Initial  Holder  pursuant to the Plan,  (ii) the shares of Preferred
     Stock  issued  to any  Initial  Holder  pursuant  to the Plan or the  Stock
     Purchase  Agreement  dated as of September 16, 1998 between the Company and
     Credit Suisse First Boston  Corporation  (the "Stock Purchase  Agreement"),
     (iii) any  shares of  Common  Stock  issued  upon  conversion  of shares of
     Preferred  Stock issued to any Initial  Holder  pursuant to the Plan or the
     Stock  Purchase  Agreement  and (iv) any  securities  issued or issuable in
     respect  of or in  exchange  for  any of the  shares  of  Common  Stock  or
     Preferred  Stock referred to in clause (i), (ii) or (iii) by way of a stock
     dividend or other distribution,  stock split,  reverse stock split or other
     combination   of  shares,   recapitalization,   reclassification,   merger,
     consolidation   or  exchange  offer.  As  to  any  particular   Registrable
     Securities,  once issued  such  securities  shall  cease to be  Registrable
     Securities  when (i) a  Registration  Statement with respect to the sale of
     such  securities  shall have become  effective under the Securities Act and
     such securities shall be eligible to be disposed of in accordance with such
     Registration  Statement,  (ii) such securities shall (x) have been sold, or
     (y) with  respect to any  Registrable  Securities  held by any Holder,  all
     Registrable  Securities  then  owned  by  such  Holder  can be  sold in any
     three-month  period,  in either case pursuant to Rule 144 (or any successor
     provision)  under the  Securities Act ("RULE 144"),  (iii) such  securities
     shall  have  been  otherwise  transferred  and new  certificates  for  such
     securities  not bearing a legend  restricting  further  transfer shall have
     been delivered by the Company or (iv) such securities  shall have ceased to
     be outstanding. Shares of Common Stock available upon the conversion of the
     Preferred Stock shall not constitute "REGISTRABLE  SECURITIES" for purposes
     of  this   Agreement  and  shall  not  be  available  for  inclusion  in  a
     Registration  Statement to be filed pursuant to Section 2 or 5 hereof until
     such shares are actually obtained upon conversion of the Preferred Stock.

          "REGISTRATION EXPENSES" has the meaning set forth in Section 4 hereof.

          "REGISTRATION  STATEMENT"  means  any  registration  statement  of the
     Company which covers Registrable  Securities  pursuant to the provisions of
     this Registration Rights Agreement,  all amendments and supplements to such
     Registration  Statement,   including  post-effective  amendments,  and  all
     exhibits and all material  incorporated  by reference in such  Registration
     Statement.

          "SEC"  means  the  Securities  and  Exchange  Commission  or any other
     federal agency at the time administering the Securities Act or the Exchange
     Act.

          "SECURITIES ACT" means the Securities Act of 1933, as amended,  or any
     similar  federal  statute  then in effect,  and a reference to a particular
     section  thereof  shall be deemed to include a reference to the  comparable
     section, if any, of any such similar federal statute.

2.  DEMAND REGISTRATION.

         (a) REQUESTS FOR REGISTRATION. Subject to the provisions of paragraphs
(b), (c) and (d) of this Section 2, at any time during the period beginning on
the Effective Date and ending on the first date on which there are no
Registrable Securities (the "DEMAND REGISTRATION PERIOD"), any Holder or group
of Holders holding at least 10% of any class of the aggregate Registrable
Securities still outstanding on a fully-diluted basis may make a written request
for registration under the Securities Act of all or any part of such Holder's or
Holders' Registrable Securities (a "DEMAND REGISTRATION"). Such request shall
specify the amount of Registrable Securities to be registered and the intended
method or methods of disposition. Within 10 days after receipt of such request,
the Company shall send written notice of such request to all Holders and shall,
subject to the provisions of paragraphs (b), (c) and (d) of this Section 2,
include in such Demand Registration all Registrable Securities with respect to
which the Company receives written requests (specifying the amount of
Registrable Securities to be registered and the intended method or methods of
disposition) for inclusion therein within 30 days after such notice is sent. The
Company shall file with the SEC a Registration Statement, registering all
Registrable Securities that any Holders have requested the Company to register,
for disposition in accordance with the intended method or methods set forth in
their notices to the Company, and the Company shall use good faith efforts to
make such filing within 30 days of such request. The Company shall use its best
efforts to cause such Registration Statement to be declared effective as soon as
practicable after filing and to remain effective until the earlier of (i) 90
days following the date on which it was declared effective and (ii) the date on
which all of the Registrable Securities covered thereby are disposed of in
accordance with the method or methods of disposition stated therein.

         (b) NUMBER OF REGISTRATIONS. The Holders shall be entitled to request
an aggregate of five (5) Demand Registrations during the Demand Registration
Period; PROVIDED, HOWEVER, that the Company will not be obligated to comply with
any such request unless (i) such request is made by Persons holding at least 10%
of the aggregate amount of any class of Registrable Securities at the time
outstanding and (ii) the Company has not effected another Demand Registration in
accordance with the provisions of this Agreement within the previous six months.

         (c) SUSPENSION OF REGISTRATION. The Company shall have the right to
delay the filing or effectiveness of a Registration Statement for any Demand
Registration and to require the Holders not to sell under any such Registration
Statement, during one or more periods aggregating not more than 60 days in each
twelve-month period during the Demand Registration Period in the event that (i)
the Company would, in accordance with the advice of its counsel, be required to
disclose in the Prospectus information not otherwise then required by law to be
publicly disclosed and (ii) in the judgment of the Company, there is a
reasonable likelihood that such disclosure, or any other action to be taken in
connection with the Prospectus, would materially and adversely affect any
existing or prospective material business situation, transaction or negotiation
or otherwise materially and adversely affect the Company.

         (d) OFFERING BY THE COMPANY. The Company may include in any Demand
Registration additional shares of capital stock to be sold for the Company's
account pursuant to such registration; PROVIDED, HOWEVER, that if the managing
underwriter for a Demand Registration that involves an underwritten offering
shall advise the Company that, in its opinion, the inclusion of the amount and
kind of shares of capital stock to be sold for the Company's account would
adversely affect the success of the offering for the selling Holders, then the
number and kind of shares of capital stock to be sold for the Company's account
shall be reduced (and may be reduced to zero) in accordance with the managing
underwriter's recommendation.

         (e) SUSPENSION OF EFFECTIVENESS. In the event that a Demand
Registration which has been declared or ordered effective in accordance with the
rules of the SEC is not kept effective for the period of time contemplated by
Section 2(a) (after taking into account any suspensions and extensions thereof),
then such Demand Registration shall not be counted as a Demand Registration for
purposes of Section 2(b).

3.  REGISTRATION PROCEDURES.

         (a) THE COMPANY TO USE BEST EFFORTS. In connection with the Company's
Demand Registration obligations pursuant to Section 2 hereof, the Company shall
use its best efforts to effect such registrations to permit the sale of such
Registrable Securities in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company shall use its best
efforts:

                  (i) to prepare and file with the SEC a Registration Statement
         relating to each Demand Registration on any appropriate form under the
         Securities Act, and to cause such Registration Statement to become
         effective as soon as practicable and to remain continuously effective
         for the time period required by the provisions of this Agreement to the
         extent permitted under the Securities Act, PROVIDED that as far in
         advance as practical before filing such Registration Statement or any
         amendment thereto, the Company will furnish to the Holders copies of
         reasonably complete drafts of all such documents proposed to be filed
         (including exhibits), and the Holders shall have the opportunity to (i)
         object to any information pertaining solely to the Holders that is
         contained therein and the Company will make the corrections reasonably
         requested by the Holders with respect to such information and (ii)
         comment on any other information contained therein and the Company will
         in good faith consider whether any changes or corrections are required,
         in each case, prior to filing any such Registration Statement or
         amendment;

                  (ii) to prepare and file with the SEC such amendments and
         post-effective amendments to each Registration Statement as may be
         necessary to keep such Registration Statement effective for the
         applicable period set forth in paragraph (a) of Section 2; and to cause
         the related Prospectus to be supplemented by any required Prospectus
         supplement, and as so supplemented to be filed in accordance with the
         Securities Act and any rules and regulations promulgated thereunder;
         and otherwise to comply with the provisions of the Securities Act as
         may be necessary to facilitate the disposition of all Registrable
         Securities covered by such Registration Statement during the applicable
         period in accordance with the intended method or methods of disposition
         by the selling Holders thereof set forth in such Registration Statement
         or such Prospectus or Prospectus supplement;

                  (iii) to notify the selling Holders and the managing
         underwriters, if any, promptly if at any time (A) any Prospectus,
         Registration Statement or amendment or supplement thereto is filed, (B)
         any Registration Statement, or any post-effective amendment thereto,
         becomes effective, (C) the SEC requests any amendment or supplement to,
         or any additional information in respect of, any Registration Statement
         or Prospectus, (D) the SEC issues any stop order suspending the
         effectiveness of a Registration Statement or initiates any proceedings
         for that purpose, (E) the representations and warranties of the Company
         contemplated by subclause (B) of clause (xii) of this paragraph (a)
         cease to be true and correct, (F) the Company receives any notice that
         the qualification of any Registrable Securities for sale in any
         jurisdiction has been suspended or that any proceeding has been
         initiated for the purpose of suspending such qualification, or (G) any
         event occurs which requires that any changes be made in such
         Registration Statement or any related Prospectus so that such
         Registration Statement or Prospectus will not contain any untrue
         statement of a material fact or omit to state any material fact
         required to be stated therein or necessary to make the statements
         therein not misleading;

                  (iv) to make every reasonable effort to obtain the withdrawal
         of any order suspending the effectiveness of a Registration Statement,
         or the qualification of any Registrable Securities for sale in any
         jurisdiction, at the earliest possible moment;

                  (v) to furnish to each selling Holder and each managing
         underwriter, if any, one signed copy of the applicable Registration
         Statement and any post-effective amendment thereto, including all
         financial statements and schedules thereto, all documents incorporated
         therein by reference and all exhibits thereto (including exhibits
         incorporated by reference) as promptly as practicable after filing such
         documents with the SEC;

                  (vi) to deliver to each selling Holder and each underwriter,
         if any, as many copies of the Prospectus or Prospectuses (including
         each preliminary Prospectus) and any amendment or supplement thereto as
         such Persons may reasonably request; and to consent to the use of such
         Prospectus or any amendment or supplement thereto by each such selling
         Holder and underwriter, if any, in connection with the offering and
         sale of the Registrable Securities covered by such Prospectus,
         amendment or supplement;

                  (vii) prior to any public offering of Registrable Securities,
         to register or qualify, or to cooperate with the selling Holders, the
         underwriters, if any, and their respective counsel in connection with
         the registration or qualification of such Registrable Securities, for
         offer and sale under the securities or blue sky laws of such
         jurisdictions as may be requested by the Holders of a majority of the
         Registrable Securities included in such Registration Statement; to keep
         each such registration or qualification effective during the period set
         forth in paragraph (a) of Section 2 that the applicable Registration
         Statement is required to be kept effective; and to do any and all other
         acts or things necessary to enable the disposition in such
         jurisdictions of the Registrable Securities covered by such
         Registration Statement; PROVIDED, HOWEVER, that the Company will not be
         required to qualify generally to do business in any jurisdiction where
         it is not then so qualified or to take any action which would subject
         it to taxation or general service of process in any jurisdiction where
         it is not then so subject;

                  (viii) to cooperate with the selling Holders and the
         underwriters, if any, in the preparation and delivery of certificates
         representing the Registrable Securities to be sold, such certificates
         to be in such denominations and registered in such names as such
         selling Holders or managing underwriters may request at least three
         Business Days prior to any sale of Registrable Securities represented
         by such certificates;

                  (ix) to cause the Registrable Securities covered by the
         applicable Registration Statement to be registered with or approved by
         such other governmental agencies or authorities as may be necessary to
         enable the seller or sellers thereof or the underwriters, if any, to
         consummate the sale of such Registrable Securities in conformity with
         federal law and the laws of the jurisdictions in which such Registrable
         Securities shall be registered or qualified pursuant to clause (viii)
         of this paragraph (a);

                  (x) upon the occurrence of any event described in subclause
         (C) or (G) of clause (iii) of this paragraph (a), promptly to prepare
         and file a supplement or post-effective amendment to the applicable
         Registration Statement or Prospectus or any document incorporated
         therein by reference, and any other required document, either in
         accordance with the request of the SEC, or so that such Registration
         Statement and Prospectus will not thereafter contain an untrue
         statement of a material fact or omit to state any material fact
         necessary to make the statements therein not misleading, as the case
         may be, and to cause such supplement or post-effective amendment to
         become effective as soon as practicable;

                  (xi) to cause all Registrable Securities covered by such
         Registration Statement to be listed or included on any securities
         exchange (or on any quotation system operated by a national securities
         association) on which such Registrable Securities are then listed or
         included, if any; to enter into customary agreements with any such
         securities exchange or system, including, if necessary, a listing
         application and indemnification agreement in customary form; and to
         provide a transfer agent for such Registrable Securities no later than
         the effective date of such Registration Statement;

                  (xii) to take all other actions in connection therewith as are
         reasonably necessary or desirable in order to expedite or facilitate
         the disposition of the Registrable Securities included in such
         Registration Statement and, in the case of an underwritten offering:
         (A) to enter into an underwriting agreement in customary form for the
         managing underwriters with respect to issuers of similar market
         capitalization and reporting and financial histories; (B) to make
         representations and warranties to each Holder participating in such
         offering and to each of the underwriters, in such form, substance and
         scope as are customarily made to the managing underwriters by issuers
         of similar market capitalization and reporting and financial histories
         and to confirm the same to the extent customary if and when requested;
         (C) to obtain opinions of counsel to the Company (which may be the
         Company's inside counsel) and updates thereof addressed to each Holder
         participating in such offering and to each of the underwriters, such
         opinions and updates to be in customary form to cover the matters
         customarily covered in opinions obtained in underwritten offerings by
         the managing underwriters for issuers of similar market capitalization
         and reporting and financial histories; (D) to obtain "comfort" letters
         and updates thereof from the Company's independent certified public
         accountants addressed to each of the underwriters, such letters to be
         in customary form and to cover matters of the type customarily covered
         in "comfort" letters to the managing underwriters in connection with
         underwritten offerings by them for issuers of similar market
         capitalization and reporting and financial histories; (E) to provide,
         in the underwriting agreement to be entered into in connection with
         such offering, indemnification provisions and procedures no less
         favorable than those set forth in Section 6 hereof with respect to all
         parties to be indemnified pursuant to such Section 6; and (F) to
         deliver such customary documents and certificates as may be reasonably
         requested by Holders of a majority of the Registrable Securities
         included in such Registration Statement and the managing underwriters
         to evidence compliance with clause (B) of this paragraph (xii) and with
         any customary conditions contained in the underwriting agreement
         entered into by the Company in connection with such offering;

                  (xiii) in the case of any offering other than an underwritten
         offering: (A) to make representations and warranties to each Holder
         participating in such offering, in such form, substance and scope as
         are customarily made in such offerings by issuers of similar market
         capitalization and reporting and financial histories and to confirm the
         same if and when requested, (B) to obtain "comfort" letters and updates
         thereof from the Company's independent certified public accountants,
         such letters to be in customary form and to cover the matters of the
         type customarily covered in "comfort" letters in such offerings for
         issuers of similar market capitalization and reporting and financial
         histories, (C) to obtain an opinion of counsel to the Company (which
         may be the Company's inside counsel) at the time of effectiveness of
         such Registration Statement covering such offering and an update
         thereof at the time of effectiveness of any post-effective amendment to
         such Registration Statement (other than by reason of incorporation by
         reference of documents filed with the SEC) addressed to each Holder of
         any Registrable Securities covered by such Registration Statement,
         covering matters customarily covered in opinions obtained in
         underwritten offerings by issuers with similar market capitalization
         and reporting and financial histories; and (D) to deliver a certificate
         of a senior executive officer of the Company at the time of
         effectiveness of such Registration Statement and, upon the request of
         Holders of a majority of the Registrable Securities included in such
         Registration Statement, updates thereof, such certificates to cover
         matters customarily covered in officers' certificates delivered in
         connection with underwritten offerings by issuers with similar market
         capitalization and reporting and financial histories;

                  (xiv) to make available for inspection by representatives of
         the Holders of Registrable Securities being sold pursuant to any Demand
         Registration and of the underwriters, if any, participating in such
         sale all financial and other records, pertinent corporate documents and
         properties of the Company, and to cause the Company's officers,
         directors and employees to supply all information reasonably requested
         by any such representatives, in connection with such Demand
         Registration; PROVIDED, HOWEVER, that all information regarding such
         records, documents and properties shall be subject to customary
         confidentiality agreements to be entered into by such Persons with the
         Company;

                  (xv) to comply with all applicable rules and regulations of
         the SEC relating to such Registration Statement and the distribution of
         the securities being offered or otherwise necessary in order to perform
         the Company's obligations under this paragraph (a);

                  (xvi) to cooperate and assist in any filings required to be
         made with the National Association of Securities Dealers, Inc. and in
         the performance of any customary or required due diligence
         investigation by any underwriter; and

                  (xvii) to take all other reasonable steps necessary and
         appropriate to effect such registration in the manner contemplated by
         the provisions of this Agreement.

         (b) HOLDERS' OBLIGATION TO FURNISH INFORMATION. The Company may
require, as a condition precedent to the Company's obligations under this
Section 3, each Holder of Registrable Securities as to which any registration is
being effected to furnish to the Company such information regarding the
distribution of such securities as the Company may from time to time reasonably
request.

         (c) SUSPENSION OF SALES PENDING AMENDMENT OF PROSPECTUS. Each Holder
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in subclause (C), (D), (E), (F) or (G) of clause
(iii) of paragraph (a) of this Section 3, such Holder will forthwith forego or
delay the disposition of any Registrable Securities covered by such Registration
Statement or Prospectus until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by clause (x) of such paragraph
(a), or until it is advised in writing by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any additional
or supplemental filings which are incorporated by reference in such Prospectus,
and, if so directed by the Company, such Holder will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such Holder's possession of any Prospectus covering such Registrable Securities.
If the Company shall have given any such notice during a period when a Demand
Registration is in effect, the 90-day period described in clause (i) of
paragraph (a) of Section 3 shall be extended by the number of days from and
including the date of the giving of such notice to and including the date when
each Holder of Registrable Securities covered by such Registration Statement
shall have received the copies of the supplemented or amended Prospectus
contemplated by clause (x) of such paragraph (a) or shall have been advised in
writing by the Company that the use of the applicable Prospectus may be resumed.

4.  REGISTRATION EXPENSES.

         All expenses incident to the Company's performance of or compliance
with its obligations under the provisions of this Agreement shall be borne by
the Company, including without limitation all (i) registration and filing fees,
(ii) fees and expenses of compliance with securities or blue sky laws, (iii)
printing expenses (including expenses of printing Prospectuses), (iv) messenger
and delivery expenses, (v) internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), (vi) fees and disbursements of its counsel and its
independent certified public accountants (including the expenses of any special
audit or "comfort" letters required by or incident to such performance or
compliance), (vii) securities acts liability insurance (if the Company elects to
obtain such insurance), (viii) reasonable fees and expenses of any special
experts retained by the Company in connection with any registration hereunder,
(ix) reasonable fees and expenses of other Persons retained by the Company, and
(x) reasonable fees and expenses of one counsel for the Holders of Registrable
Securities covered by each Registration Statement, with such counsel to be
selected by Holders of a majority of such Registrable Securities (all such
expenses being herein referred to as "REGISTRATION EXPENSES"); PROVIDED,
HOWEVER, that Registration Expenses shall not include any underwriting
discounts, commissions, fees or expenses or transfer taxes attributable to the
sale of the Registrable Securities.

5.  PIGGYBACK REGISTRATION.

         (a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If at any time during the
Demand Registration Period the Company proposes to register any Registrable
Securities under the Securities Act, whether or not for sale for its own account
(other than a registration on Form S-4 or Form S-8, or any successor or similar
forms), in a manner that would permit registration of Registrable Securities of
the same class for sale to the public under the Securities Act, it will each
such time promptly give written notice to all Persons who hold of record any
Registrable Securities of the same class of its intention to do so and of the
intended method of disposition of the shares being registered, of the
registration form of the SEC that has been selected by the Company and of rights
of Holders under this Section 5 (the "SECTION 5 NOTICE"). The Company will use
its best efforts to include in the proposed registration (and, if such
registration involves an underwritten offering, in the underwriting) all
Registrable Securities of the same class that the Company is requested in
writing, within 15 days after the Section 5 Notice is given, to register by the
Holders thereof; PROVIDED, HOWEVER, that (i) if, at any time after giving
written notice of its intention to register any Registrable Securities and prior
to the effective date of the registration statement filed in connection with
such registration, the Company shall determine for any reason not to register
such Registrable Securities, the Company may, at its election, give written
notice of such determination to all Persons who hold of record any Registrable
Securities of the same class and, thereupon, shall be relieved of its obligation
to register any Registrable Securities of the same class in connection with such
abandoned registration, without prejudice, however, to the rights of Holders
under Section 2 hereof and (ii) in case of a determination by the Company to
delay registration of its Registrable Securities, the Company shall be permitted
to delay the registration of such Registrable Securities of the same class for
the same period as the delay in registering such Registrable Securities. No
registration effected under this Section 5 shall relieve the Company of its
obligations to effect registrations upon request under Section 2 and,
notwithstanding anything to the contrary in Section 2, no Holder shall have the
right to require the Company to register any Registrable Securities pursuant to
Section 2 until the later of (A) the completion of the distribution of the
securities offered and registered pursuant to the Section 5 Notice and (B) 90
days after the date each registration statement described in the first sentence
of this paragraph (a) is declared effective.

         (b) EXPENSES. The Company shall pay all Registration Expenses in
connection with each registration of Registrable Securities of the same class
requested pursuant to this Section 5; PROVIDED, HOWEVER, that each Holder shall
pay all underwriting discounts, commissions, fees or expenses or transfer taxes,
if any, relating to the sale or disposition of such Holder's Registrable
Securities of the same class pursuant to a Registration Statement effected
pursuant to this Section 5.

         (c) PRIORITY IN INCIDENTAL REGISTRATION. If the managing underwriter
for a registration pursuant to this Section 5 that involves an underwritten
offering shall advise the Company that, in its opinion, the inclusion of the
amount of Registrable Securities of the same class to be sold for the account of
Holders would adversely affect the success of the offering for the Company, then
the number of Registrable Securities of the same class to be sold for the
account of such Holders shall be reduced (and may be reduced to zero) in
accordance with the managing underwriter's recommendation. In the event that the
number of Registrable Securities of the same class to be included in any
registration is reduced (but not to zero), the number of such Registrable
Securities of the same class included in such registration shall be allocated
pro rata among all requesting Holders, on the basis of the relative number of
shares of such Registrable Securities of the same class each such Holder has
requested to be included in such registration. If, as a result of the proration
provisions of this paragraph (c), any Holder shall not be entitled to include
all Registrable Securities of the same class in a registration pursuant to this
Section 5 that such Holder has requested be included, such Holder may elect to
withdraw its Registrable Securities of the same class from the registration;
PROVIDED, HOWEVER, that such withdrawal election shall be irrevocable and, after
making a withdrawal election, a Holder shall no longer have any right to include
Registrable Securities of the same class in the registration as to which such
withdrawal election was made.

         (d) MERGER, CONSOLIDATION, ETC. Notwithstanding anything in this
Section 5 to the contrary, Holders shall not have any right to include their
Registrable Securities in any distribution or registration of equity securities
by the Company, which is a result of a merger, consolidation, acquisition,
exchange offer, recapitalization, other reorganization, dividend reinvestment
plan, stock option plan or other employee benefit plan, or any similar
transaction having the same effect.

6.  INDEMNIFICATION.

         (a) INDEMNIFICATION BY THE COMPANY. In the event of any registration of
any securities of the Company under the Securities Act pursuant to Section 2 or
5 hereof, the Company will, and hereby does, indemnify and hold harmless, to the
extent permitted by law, the seller of any Registrable Securities covered by any
Registration Statement filed to effect such registration, its directors and
officers or general and limited partners (and the directors and officers
thereof), each other Person who participates as an underwriter, if any, in the
offering or sale of such securities and each other Person, if any, who controls
such seller or any such underwriter within the meaning of the Securities Act,
against any and all losses, claims, damages or liabilities, joint or several,
and expenses (including any amounts paid in any settlement effected with the
Company's consent, which consent shall not be unreasonably withheld) to which
such seller or any such director, officer, general or limited partner,
underwriter or controlling Person may become subject under the Securities Act,
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement under which such securities were
registered under the Securities Act or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary Prospectus, together
with the documents incorporated by reference therein (as amended or supplemented
if the Company shall have filed with the SEC any amendment thereof or supplement
thereto), if used prior to the effective date of such Registration Statement, or
contained in the Prospectus, together with the documents incorporated by
reference therein (as amended or supplemented if the Company shall have filed
with the SEC any amendment thereof or supplement thereto), or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading or (iii) any violation
by the Company of any federal, state or common law rule or regulation applicable
to the Company and relating to action required of or inaction by the Company in
connection with any such registration, and the Company will reimburse such
seller and each such director, officer, general or limited partner, underwriter
and controlling Person for any legal or any other expenses reasonably incurred
by any of them in connection with investigating or defending any such loss,
claim, liability, action or proceeding; PROVIDED, HOWEVER, that the Company
shall not be liable to any such seller or any such director, officer, general or
limited partner, underwriter or controlling Person in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in such
Registration Statement or amendment thereof or supplement thereto or in any such
preliminary, final or summary Prospectus in reliance upon and in conformity with
written information furnished to the Company by or on behalf of any such seller
or any such director, officer, general or limited partner, underwriter or
controlling Person, for use in the preparation thereof; and PROVIDED FURTHER,
that the Company will not be liable to any Person who participates as an
underwriter in any underwritten offering or sale of Registrable Securities, or
to any Person who is a seller in any non-underwritten offering or sale of
Registrable Securities, or any other Person, if any, who controls such
underwriter or seller within the meaning of the Securities Act, under the
indemnity agreement in this paragraph (a) with respect to any preliminary
Prospectus or the final Prospectus (including any amended or supplemented
preliminary or final Prospectus), as the case may be, to the extent that any
such loss, claim, damage or liability of such underwriter, seller or controlling
Person results from the fact that such underwriter or seller sold Registrable
Securities to a person to whom there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the final Prospectus or of the
final Prospectus as then amended or supplemented, whichever is most recent, if
the Company has previously furnished copies thereof to such underwriter or
seller and such final Prospectus, as then amended or supplemented, has corrected
any such misstatement or omission. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such seller or
any such director, officer, general or limited partner, underwriter or
controlling Person and shall survive the transfer of such securities by such
underwriter or seller.

         (b) INDEMNIFICATION BY THE SELLERS. In consideration of the Company's
including any Registrable Securities in any Registration Statement filed in
accordance with Section 2 or 5 hereof, the prospective seller of such
Registrable Securities hereby agrees to indemnify and hold harmless (in the same
manner and to the same extent as set forth in paragraph (a) of this Section 6)
the Company and its directors and officers and each person controlling the
Company within the meaning of the Securities Act and all other prospective
sellers and their directors, officers, general and limited partners and
respective controlling Persons with respect to any statement or alleged
statement in or omission or alleged omission from such Registration Statement,
any preliminary, final or summary Prospectus contained therein, or any amendment
or supplement, but only to the extent such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company or its representatives by or on
behalf of such seller for use in the preparation of such Registration Statement,
preliminary, final or summary Prospectus or amendment or supplement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any of the prospective sellers or any of
their respective directors, officers, general or limited partners or controlling
Persons and shall survive the transfer of such securities by such seller. Any
Holder's liability hereunder shall be limited to the amount of proceeds received
by such Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.

         (c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified
party hereunder of written notice of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 6, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; PROVIDED, HOWEVER, that the failure
of any indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding paragraphs of this
Section 6, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. If any such claim or action shall be
brought against an indemnified party, and it shall notify the indemnifying party
thereof, the indemnifying party shall be entitled to participate therein, and,
to the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party; PROVIDED, HOWEVER, that if, in any
indemnified party's reasonable judgment, a conflict of interest between such
indemnified party and the indemnifying party exists in respect of such claim,
then such indemnified party shall have the right to participate in the defense
of such claim and to employ one firm of attorneys at the indemnifying party's
expense to represent such indemnified party. Once the indemnifying party has
assumed the defense of any claim, no indemnified party will consent to entry of
any judgment or enter into any settlement without the indemnifying party's
consent to such judgment or settlement, which shall not be unreasonably
withheld.

         (d) OTHER INDEMNIFICATION. Indemnification similar to that specified in
the preceding paragraphs of this Section 6 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any state securities and "blue sky" laws.

         (e) CONTRIBUTION. If the indemnification provided for in this Section 6
is unavailable or insufficient to hold harmless an indemnified party under
paragraph (a), (b) or (d) of this Section 6, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of the losses, claims, damages or liabilities referred to in such paragraph (a),
(b) or (d) in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and the indemnified party on the other
hand in connection with statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statements or omission. The Company agrees, and
the Holders (in consideration of the Company's including any Registrable
Securities in any Registration Statement filed in accordance with Section 2 or 5
hereof) shall be deemed to have agreed, that it would not be just and equitable
if contributions pursuant to this paragraph (e) were to be determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the first sentence of this
paragraph (e). The amount paid by an indemnified party as a result of the
losses, claims, damages or liabilities referred to in the first sentence of this
paragraph (e) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any action or claim (which shall be limited as provided in paragraph (c) of this
Section 6 if the indemnifying party has assumed the defense of any such action
in accordance with the provisions thereof) which is the subject of this
paragraph (e). No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Promptly after receipt by an indemnified party under this
paragraph (e) of notice of the commencement of any action against such party in
respect of which a claim for contribution may be made against an indemnifying
party under this paragraph (e), such indemnified party shall notify the
indemnifying party in writing of the commencement thereof if the notice
specified in paragraph (c) of this Section 6 has not been given with respect to
such action; PROVIDED, HOWEVER, that the omission so to notify the indemnifying
party shall not relieve the indemnifying party from any liability which it may
have to any indemnified party otherwise under this paragraph (e), except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. Notwithstanding anything in this paragraph (e) to the contrary, no
indemnifying party (other than the Company) shall be required pursuant to this
paragraph (e) to contribute any amount in excess of the proceeds received by
such indemnifying party from the sale of Registrable Securities in the offering
to which the losses, claims, damages or liabilities of the indemnified parties
relate.

         (f)  SURVIVAL. The provisions of this Section 6 will survive 
indefinitely, notwithstanding any transfer of the Registrable Securities by 
any Holder.

7.  RULES 144 AND 144A.

         The Company shall file the reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder, and shall take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Securities Act within
the limitations of the exemptions provided by Rule 144. Upon the request of any
Holder, the Company shall deliver to such Holder a written statement stating
whether it has complied with such information and requirements. Upon request,
the Company shall furnish to each Holder such information as shall be reasonably
required pursuant to Rule 144A(d)(4)(i) to permit such Holder to dispose of its
Registrable Securities in a transaction pursuant to Rule 144A.

8.  UNDERWRITTEN REGISTRATIONS.

         (a) SELECTION OF UNDERWRITERS. If any of the Registrable Securities
covered by any Demand Registration are to be sold in an underwritten offering,
the underwriter or underwriters and managing underwriter or managing
underwriters that will administer the offering shall be selected by, and the
terms of any underwriting agreement and other underwriting arrangements shall be
approved by, the Company; PROVIDED, HOWEVER, that such underwriters and managing
underwriters shall be subject to the approval of the Holders of a majority in
aggregate amount of Registrable Securities included in such offering, which
approval shall not be unreasonably withheld.

         (b) AGREEMENTS OF SELLING HOLDERS. No Holder shall sell any of its
Registrable Securities in any underwritten offering pursuant to a registration
hereunder unless such Holder (i) agrees to sell such Registrable Securities on
the basis provided in any underwriting agreement or other underwriting
arrangements approved by the Persons entitled hereunder to approve such
agreements or arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting agreements or other underwriting
arrangements.

9.  CERTAIN COMPANY REPRESENTATIONS, WARRANTIES AND COVENANTS.

         (a) NO EXISTING AGREEMENTS. The Company represents and warrants to the
Initial Holders that there is not in effect on the date hereof any agreement by
the Company (other than this Agreement) pursuant to which any holders of the
securities of the Company to be issued pursuant to the Plan have a right to
cause the Company to register or qualify such securities under the Securities
Act or any securities or blue sky laws of any jurisdiction.

         (b) FUTURE AGREEMENTS. Without the prior consent of each Holder that
holds Registrable Securities, the Company shall not hereafter agree with the
holders of any securities issued or to be issued by the Company to register or
qualify such securities under the Securities Act or any securities or blue sky
laws of any jurisdiction unless the rights so granted, if exercised, would not
materially conflict with, be materially inconsistent with or violate the
provisions of this Agreement.

         (c) TRANSFERS; REMOVAL OF LEGEND. Following the Closing Date, upon
delivery to the Company by a Holder of a certificate, in form and substance
reasonably satisfactory to the Company and duly executed by an authorized
officer of the Holder, to the effect that the Registrable Securities have been
transferred (i) pursuant to a registration statement that has been declared
effective by the SEC and was, at the time of such sale or other transfer,
effective under the Securities Act or (ii) without registration pursuant to a
transaction which complies with the requirements of Rule 144, the Company will,
or will instruct its transfer agent to, issue upon surrender of the certificates
representing such Registrable Securities, one or more new certificates
evidencing the Registrable Securities so transferred, which new certificates
will not bear a restrictive legend to the effect that the securities represented
by such certificates have not been registered under the Securities Act and
applicable state securities laws and may not be sold or otherwise transferred in
the absence of such registration or an exemption therefrom. Other than with
respect to any sale or other transfer for which any such certificate has been
received by the Company or for which the Company has received a reasonably
satisfactory opinion of counsel to the effect that such sale or other transfer
is not required to be registered under the Securities Act or applicable state
securities laws, the Company or the Company's transfer agent at the Company's
instruction may refuse to transfer Registrable Securities on the transfer books
of the Company and any such transfer shall be null and void. The holder of
certificates representing Registrable Securities bearing a restrictive legend
shall also be entitled to receive certificates not bearing such legend, upon
furnishing the Company with a reasonably satisfactory opinion of counsel to the
effect that such legend may be removed under the Securities Act and applicable
state securities laws.

10.  HOLDBACK AGREEMENTS.

         (a) RESTRICTIONS ON PUBLIC SALES BY HOLDERS. To the extent not
inconsistent with applicable law, each Holder that is timely notified in writing
by the managing underwriter or underwriters shall not effect any public sale or
distribution (including a sale pursuant to Rule 144) of any of their shares of
Common Stock if any other shares of Common Stock (or any securities of the
Company convertible into or exchangeable for or exercisable for shares of Common
Stock) are being registered by the Company for sale in an underwritten offering
(other than pursuant to an employee stock option, stock purchase, stock bonus or
similar plan, pursuant to a merger, an exchange offer or a transaction of the
type specified in Rule 145(a) under the Securities Act or pursuant to a "shelf"
registration), except as part of such registration, during the 10-day period
prior to the effective date of the applicable registration statement, or during
the period beginning on such effective date and ending on the later of (i) the
completion of the distribution of such securities pursuant to such offering and
(ii) 90 days after such effective date (or such shorter time period as the
managing underwriter or underwriters shall deem appropriate).

         (b) RESTRICTIONS ON PUBLIC SALES BY THE COMPANY. The Company shall not
effect any public sale or distribution of any shares of Common Stock (other than
pursuant to an employee stock option, stock purchase, stock bonus or similar
plan, pursuant to a merger, exchange offer or a transaction of the type
specified in Rule 145(a) under the Securities Act or pursuant to a "shelf"
registration), or any securities of the Company convertible into or exchangeable
or exercisable for shares of Common Stock, except as part of such registration,
during the 10-day period prior to the effective date of a Demand Registration to
be effected as an underwritten offering, or during the period beginning on such
effective date and ending on the later of (i) the completion of the distribution
of such securities pursuant to such offering and (ii) 90 days after such
effective date (or such shorter time period as the managing underwriter or
underwriters shall deem appropriate).

11.  MISCELLANEOUS.

         (a) AMENDMENTS AND WAIVERS. The provisions of this Agreement may be
amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company shall
have obtained the written consent to such amendment, action or omission to act,
of the Holders of a majority of the Registrable Securities then outstanding.
Holders shall be bound from and after the date of the receipt of a written
notice from the Company setting forth such amendment or waiver by any consent
authorized by this paragraph (a), whether or not the certificates representing
such Registrable Securities shall have been marked to indicate such consent.

         (b) SUCCESSORS, ASSIGNS AND TRANSFEREES. The provisions of this
Agreement shall be binding upon and shall inure to the benefit of the Company,
the Holders and their respective successors, assigns and transferees.

         (c) INTEGRATION. The provisions of this Agreement and the documents
referred to herein or delivered pursuant hereto that form a part hereof contain
the entire understanding of the Company and the Initial Holders with respect to
its subject matter. There are no restrictions, agreements, promises,
representations, warranties, covenants or undertakings with respect to the
subject matter hereof other than those expressly set forth herein. The
provisions of this Agreement supersede all prior agreements and understandings
between the Company and the Initial Holders with respect to its subject matter.

         (d) NOTICES. All notices and other communications provided for
hereunder shall be in writing and shall be sent by first class mail, telex,
telecopier or hand delivery:

         if to the Company, to:

                  Ascent Assurance, Inc.
                  110 West Seventh Street

                  Suite #300
                  Fort Worth, Texas  76102
                  Attention:  General Counsel
                  Telecopier:  (817) 878-3672

         with a copy to:

                  Milbank, Tweed, Hadley & McCloy
                  1 Chase Manhattan Plaza
                  New York, New York  10005
                  Attention:  Robert S. Reder, Esq.
                  Telecopier:  (212) 530-5219

         If to any Holder, to the address of such Holder as shown in the stock
record books of the Company.

         All such notices and communications shall be deemed to have been given
or made (i) when delivered by hand, (ii) five Business Days after being
deposited in the mail, postage prepaid, (iii) when telexed answer-back received
or (iv) when telecopied, receipt acknowledged.

         (e) DESCRIPTIVE HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit, expand or otherwise affect
the meaning of the provisions hereof.

         (f) SEVERABILITY. In the event that any one or more of the provisions,
paragraphs, subparagraphs, sentences, clauses, subclauses, phrases or words
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability thereof in every other respect and of the remaining
provisions, paragraphs, subparagraphs, sentences, clauses, subclauses, phrases
and words hereof shall not be in any way impaired, it being intended that all
rights, powers and privileges of the Company and the Holders hereunder shall be
enforceable to the fullest extent permitted by law.

         (g) GOVERNING LAW. The provisions of this Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
Delaware, without regard to the principles of conflicts of laws thereof, as if
it were a contract between the Company and the Initial Holders made and to be
performed entirely within that State.

         (h) TERMINATION. The provisions of this Agreement shall terminate, and
thereby become null and void, at the end of the Demand Registration Period;
PROVIDED, HOWEVER, that the provisions of Section 6 shall survive the
termination of the provisions of this Agreement.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.

                                          ASCENT ASSURANCE, INC.

                                          By: /S/ PATRICK J. MITCHELL
                                          Name:  Patrick J. Mitchell
                                          Title:  Chairman & CEO

          SPECIAL SITUATIONS HOLDINGS, INC. -- WESTBRIDGE

                                           By: /S/ DAVID J. MATLIN
  
                                           Name:  David J. Matlin
                                           Title:  Managing Director


<PAGE>

                                                                      Schedule I



                                 INITIAL HOLDERS

                             Initial Number of Shares  Initial Number of Shares
                               OF NEW COMMON STOCK      OF NEW PREFERRED STOCK

Special Situations Holdings,       3,093,999*                  23,257
Inc.-- Westbridge






* This  represents  the  number of  shares of New  Common  Stock  which  Special
Situations Holdings,  Inc. - Westbridge will receive on the Initial Distribution
Date (as defined in the Plan). This number will be automatically adjusted upward
to include any New Common Stock received as surplus on the Distribution Date (as
defined in the Plan).

<PAGE>


                                                                   EXHIBIT 10.14

NY2:#4259609v5



                             ASCENT ASSURANCE, INC.

                             1999 STOCK OPTION PLAN

                                    * * * * *


     1.  PURPOSE.  The purpose of the 1999 Stock  Option Plan (the "Plan") is to
further and promote the interests of Ascent  Assurance,  Inc., its  Subsidiaries
and its  shareholders  by enabling the Company and its  Subsidiaries to attract,
retain and motivate employees, non-employee directors and consultants (including
marketing agents) or those who will become employees,  non-employee directors or
consultants  (including  marketing agents),  and to align the interests of those
individuals  and  the  Company's  shareholders.  To do  this,  the  Plan  offers
equity-based  opportunities  providing  such  employees and  consultants  with a
proprietary interest in maximizing the growth, profitability and overall success
of the Company and its Subsidiaries.

     2.  DEFINITIONS.  For purposes of the Plan, the following  terms shall have
the meanings set forth below:

          2.1  "AWARD"  means  an award or  grant  made to a  Participant  under
     Section 6 of the Plan.

          2.2 "AWARD AGREEMENT" means the agreement  executed by the Company and
     a  Participant  pursuant to Sections 3.2 and 12.7 of the Plan in connection
     with the granting of an Award.

          2.2  "BOARD"  means  the  Board  of  Directors  of  the  Company,   as
     constituted from time to time.

          2.3 "CODE" means the Internal  Revenue Code of 1986,  as in effect and
     as amended from time to time, or any successor  statute  thereto,  together
     with any rules,  regulations and interpretations  promulgated thereunder or
     with respect thereto.

          2.4  "COMMITTEE"  means  the  committee  of the Board  established  to
     administer the Plan, as described in Section 3 of the Plan.

          2.5 "COMMON  STOCK" means the Common Stock,  par value $.01 per share,
     of the  Company or any  security  of the  Company  issued by the Company in
     substitution or exchange therefor.

          2.6 "COMPANY" means Ascent Assurance, Inc., a Delaware corporation, or
     any successor corporation to Ascent Assurance, Inc..

          2.7 "DISABILITY" means disability as defined in the Participant's then
     effective employment  agreement,  or if the participant is not then a party
     to an  effective  employment  agreement  with  the  Company  which  defines
     disability, "Disability" means disability as determined by the Committee in
     accordance  with  standards  and  procedures  similar  to those  under  the
     Company's long-term  disability plan, if any. Subject to the first sentence
     of this  Section  2.7,  at any time that the  Company  does not  maintain a
     long-term  disability plan,  "Disability" shall mean any physical or mental
     disability  which is  determined  to be total and  permanent by a physician
     selected in good faith by the Company.

          2.8 "EXCHANGE  ACT" means the  Securities  Exchange Act of 1934, as in
     effect and as amended from time to time, or any successor  statute thereto,
     together  with  any  rules,  regulations  and  interpretations  promulgated
     thereunder or with respect thereto.

          2.9  "FAIR  MARKET  VALUE"  means on, or with  respect  to,  any given
     date(s),  the last reported sale price or, in case no such sale takes place
     on such day,  the average of the closing bid and asked prices of the Common
     Stock, in either case as reported in the principal consolidated transaction
     reporting  system with respect to securities  listed or admitted to trading
     on the principal national  securities exchange on which the Common Stock is
     listed or  admitted  to trading  or, if the  Common  Stock is not listed or
     admitted to trading on any national  securities  exchange,  the last quoted
     sale price or, if not so quoted,  the average of the high bid and low asked
     prices  in  the  over-the-counter  market,  as  reported  by  the  National
     Association of Securities Dealers, Inc. Automated Quotations System or such
     other  system then in use,  or, if on any such date the Common Stock is not
     quoted by any such  organization,  the average of the closing bid and asked
     prices as furnished by a  professional  market maker making a market in the
     Common Stock  selected by the Board of Directors of the Company.  If at any
     time the Common Stock is not so traded, the Fair Market Value of a share of
     the Common Stock shall be determined in good faith by the Board.

          2.10 "INCENTIVE  STOCK OPTION" means any stock option granted pursuant
     to the  provisions  of  Section  6 of the  Plan  (and  the  relevant  Award
     Agreement)  that is intended to be (and is  specifically  designated as) an
     "incentive stock option" within the meaning of Section 422 of the Code.

          2.11  "NON-QUALIFIED  STOCK  OPTION"  means any stock  option  granted
     pursuant to the provisions of Section 6 of the Plan (and the relevant Award
     Agreement)  that is not (and is  specifically  designated  as not being) an
     Incentive Stock Option.

          2.12  "PARTICIPANT"  means any individual who is selected from time to
     time under Section 5 to receive an Award under the Plan.

          2.13 "PLAN" means Ascent  Assurance,  Inc.  1999 Stock Option Plan, as
     set  forth  herein  and as in  effect  and as  amended  from  time  to time
     (together with any rules and regulations  promulgated by the Committee with
     respect thereto).

          2.14  "RETIREMENT"  means the voluntary  retirement by the Participant
     from active  employment  with the Company and its  Subsidiaries on or after
     the attainment of (i) age 65, or (ii) 60, with the consent of the Board.

          2.15 "SUBSIDIARY(IES)"  means any corporation (other than the Company)
     or other  entity of which a majority of the  outstanding  capital  stock or
     other  equity  interests  having  ordinary  voting power in the election of
     directors or similar officials is owned, directly or indirectly through one
     or more corporations or other entities, by the Company.

     3. ADMINISTRATION.

          3.1 THE COMMITTEE.  The Plan shall be  administered  by the Committee.
     The Committee  shall be appointed  from time to time by the Board and shall
     be  comprised  of not less than three (3) of the then  members of the Board
     who are Non-Employee Directors (within the meaning of SEC Rule 16b-3(b)(3))
     of the  Company  and  "outside  directors"  (within  the meaning of Section
     162(m) of the Code). Consistent with the Bylaws of the Company,  members of
     the  Committee  shall  serve at the  pleasure  of the Board and the  Board,
     subject to the  immediately  preceding  sentence,  may at any time and from
     time to time remove members from, or add members to, the Committee.

          3.2 PLAN ADMINISTRATION AND PLAN RULES. The Committee is authorized to
     construe and interpret the Plan and to promulgate,  amend and rescind rules
     and  regulations   relating  to  the  implementation,   administration  and
     maintenance  of the Plan.  Subject to the terms and conditions of the Plan,
     the Committee shall make all determinations  necessary or advisable for the
     implementation,  administration  and  maintenance  of the  Plan  including,
     without  limitation,  (a)  selecting  the Plan's  Participants,  (b) making
     Awards in such  amounts  and form as the  Committee  shall  determine,  (c)
     imposing such  restrictions,  terms and conditions  upon such Awards as the
     Committee  shall  deem  appropriate,   and  (d)  correcting  any  technical
     defect(s)  or  technical   omission(s),   or   reconciling   any  technical
     inconsistency(ies),  in the Plan and/or any Award Agreement.  The Committee
     may designate  persons other than members of the Committee to carry out the
     day-to-day ministerial administration of the Plan under such conditions and
     limitations  as it may  prescribe,  except  that the  Committee  shall  not
     delegate its authority  with regard to the selection for  participation  in
     the Plan and/or the granting of any Awards to Participants. The Committee's
     determinations  under  the  Plan  need  not be  uniform  and  may  be  made
     selectively  among  Participants,  whether  or not  such  Participants  are
     similarly situated. Any determination,  decision or action of the Committee
     in  connection  with  the  construction,  interpretation,   administration,
     implementation  or maintenance  of the Plan shall be final,  conclusive and
     binding upon all Participants  and any person(s)  claiming under or through
     any Participants. The Company shall effect the granting of Awards under the
     Plan, in  accordance  with the  determinations  made by the  Committee,  by
     execution of written agreements and/or other instruments in such form as is
     approved by the Committee.

          3.3 LIABILITY LIMITATION. Neither the Board nor the Committee, nor any
     member of either,  shall be liable for any act,  omission,  interpretation,
     construction  or  determination  made in good faith in connection  with the
     Plan  (or any  Award  Agreement),  and the  members  of the  Board  and the
     Committee shall be entitled to  indemnification  and  reimbursement  by the
     Company  in  respect of any  claim,  loss,  damage or  expense  (including,
     without limitation,  attorneys' fees) arising or resulting therefrom to the
     fullest  extent  permitted by law and/or under any  directors  and officers
     liability insurance coverage which may be in effect from time to time.

     4. TERM OF PLAN/COMMON STOCK SUBJECT TO PLAN.

          4.1 TERM. The Plan shall  terminate on December 31, 2008,  except with
     respect to Awards then outstanding. After such date no further Awards shall
     be granted under the Plan.

          4.2 COMMON  STOCK.  The  maximum  number of shares of Common  Stock in
     respect  of which  Awards may be granted  under the Plan to  employees  and
     non-employee directors, in the aggregate, subject to adjustment as provided
     in Section 10.2 of the Plan, shall not exceed 1,251,685 shares. The maximum
     number of shares of Common  Stock in respect of which Awards may be granted
     under the Plan to  consultants  (including  marketing  agents),  subject to
     adjustment  as  provided  in  Section  10.2 of the Plan,  shall not  exceed
     387,119 shares. In the event of a change in the Common Stock of the Company
     that is limited to a change in the  designation  thereof to "Capital Stock"
     or other similar  designation,  or to a change in the par value thereof, or
     from par value to no par value,  without increase or decrease in the number
     of issued shares, the shares resulting from any such change shall be deemed
     to be the Common Stock for purposes of the Plan.  Common Stock which may be
     issued  under  the Plan may be either  authorized  and  unissued  shares or
     issued shares which have been reacquired by the Company (in the open-market
     or in private transactions) and which are being held as treasury shares. No
     fractional shares of Common Stock shall be issued under the Plan.

          4.3 COMPUTATION OF AVAILABLE SHARES. If any Awards expire  unexercised
     or are forfeited, surrendered,  cancelled, terminated or settled in cash in
     lieu of Common  Stock,  the shares of Common  Stock which were  theretofore
     subject (or  potentially  subject) to such Awards  shall again be available
     for  Awards  under the Plan to the extent of such  expiration,  forfeiture,
     surrender, cancellation, termination or settlement of such Awards.

     5.  ELIGIBILITY.  Individuals  eligible  for  Awards  under the Plan  shall
consist  of all  salaried  employees,  non-employee  directors  and  consultants
(including   marketing  agents),  or  those  who  will  become  such  employees,
non-employee  directors  and  consultants  (including  marketing  agents) of the
Company and/or its Subsidiaries  who are responsible for the management,  growth
and protection of the business of the Company and/or its  Subsidiaries  or whose
performance or contribution,  in the sole discretion of the Committee,  benefits
or will benefit the Company.

     6. STOCK OPTIONS.

          6.1 TERMS AND  CONDITIONS.  Stock options granted under the Plan shall
     be in  respect of Common  Stock and may be in the form of either  Incentive
     Stock  Options  or  Non-Qualified  Stock  Options  (sometimes  referred  to
     collectively herein as the "Stock  Option(s))".  However, in no event may a
     non-employee director or a consultant (including a marketing agent) receive
     a grant of Incentive  Stock Options under the Plan.  Stock Options shall be
     subject  to the terms and  conditions  set forth in this  Section 6 and any
     additional terms and conditions,  not  inconsistent  with the express terms
     and  provisions  of the  Plan,  as the  Committee  shall  set  forth in the
     relevant Award Agreement.

          6.2 GRANT. Stock Options may be granted under the Plan in such form as
     the Committee may from time to time approve. Special provisions shall apply
     to  Incentive  Stock  Options  granted to any employee who owns (within the
     meaning of Section  422(b)(6)  of the Code) more than ten percent  (10%) of
     the total  combined  voting power of all classes of stock of the Company or
     its parent corporation or any subsidiary of the Company, within the meaning
     of Sections 424(e) and (f) of the Code (a "10% Shareholder").

          6.3  EXERCISE  PRICE.  The  exercise  price per share of Common  Stock
     subject to a Stock Option shall be determined by the Committee,  including,
     without  limitation,  a determination  based on a formula determined by the
     Committee;  PROVIDED,  HOWEVER,  that,  except  with  respect  to the Stock
     Options  which,  in  accordance  with the  Company's  First Amended Plan of
     Reorganization  under Chapter 11 of the Bankruptcy  Code, are being granted
     with an exercise price of $.01 per share of Common Stock, in no event shall
     any Stock Option  granted  pursuant to this Plan have an exercise  price of
     less than $4.39 per share of Common Stock; PROVIDED, FURTHER, HOWEVER, that
     the exercise price of an Incentive  Stock Option shall not be less than one
     hundred  percent (100%) of the Fair Market Value of the Common Stock on the
     date of the  grant  of such  Incentive  Stock  Option;  PROVIDED,  FURTHER,
     HOWEVER,  that, in the case of a 10% Shareholder,  the exercise price of an
     Incentive  Stock  Option  shall not be less than one  hundred  ten  percent
     (110%) of the Fair Market Value of the Common Stock on the date of grant.

          6.4 TERM.  The term of each Stock  Option shall be such period of time
     as is fixed by the Committee; PROVIDED, HOWEVER, that the term of any Stock
     Option  shall not exceed ten (10) years (five (5) years,  in the case of an
     Incentive  Stock  Option  granted  to a 10%  Shareholder)  after  the  date
     immediately preceding the date on which the Stock Option is granted.

          6.5 METHOD OF EXERCISE.  A Stock Option may be exercised,  in whole or
     in part,  by giving  written  notice of  exercise to the  Secretary  of the
     Company, or the Secretary's designee, specifying the number of shares to be
     purchased.  Such  notice  shall be  accompanied  by  payment in full of the
     exercise  price in cash,  by  certified  check,  bank draft or money  order
     payable to the order of the Company or, if permitted by the  Committee  (in
     its sole  discretion)  and  applicable  law,  by delivery  of,  alone or in
     conjunction with a partial cash or instrument payment,  (a) a fully-secured
     promissory  note or notes,  (b) shares of Common Stock already owned by the
     Participant for at least six (6) months,  or (c) some other form of payment
     acceptable to the  Committee.  The  Committee may also permit  Participants
     (either on a selective or group  basis) to  simultaneously  exercise  Stock
     Options and sell the shares of Common Stock thereby acquired, pursuant to a
     "cashless exercise" arrangement or program,  selected by and approved of in
     all  respects in advance by the  Committee.  Payment  instruments  shall be
     received by the Company subject to collection. The proceeds received by the
     Company  upon  exercise of any Stock  Option may be used by the Company for
     general corporate purposes. Any portion of a Stock Option that is exercised
     may not be exercised again.

          6.6  EXERCISABILITY.  In respect of any Stock Option granted under the
     Plan,  unless  otherwise  (a)  determined  by the  Committee  (in its  sole
     discretion)  at any time and from time to time in respect of any such Stock
     Option,  or (b)  provided in the Award  Agreement  or in the  Participant's
     employment agreement in respect of any such Stock Option, such Stock Option
     shall become  exercisable  as to the  aggregate  number of shares of Common
     Stock underlying such Stock Option,  as determined on the date of grant, as
     follows:

                  *        33%, on the first anniversary of the date of
                           grant of the Stock Option, provided the Participant
                           is then employed by or providing services to the
                           Company and/or one of its Subsidiaries;

                  *        66%, on the second anniversary of the date of
                           grant of the Stock Option, provided the Participant
                           is then employed by or providing services to the
                           Company and/or one of its Subsidiaries; and

                  *        100%, on the third anniversary of the date of grant
                           of the Stock Option, provided the Participant is then
                           employed by or providing services to the Company
                           and/or one of its Subsidiaries.

Notwithstanding anything to the contrary contained in this Section 6.6, such
Stock Option shall become one hundred percent (100%) exercisable as to the
aggregate number of shares of Common Stock underlying such Stock Option upon the
death, Disability or Retirement of the Participant or upon a Change in Control.
For the purpose of this Plan, "Change in Control" shall mean:

          6.6.1 The  acquisition,  after the  effective  date of the Plan, by an
     individual,  entity or group  (within  the  meaning of Section  13(d)(3) or
     14(d)(2) of the Exchange Act) of beneficial  ownership  (within the meaning
     of Rule 13d-3  promulgated under the Exchange Act) of 34% or more of either
     (a) the outstanding  shares of the Common Stock  (excluding any acquisition
     by  Credit  Suisse  First  Boston  Corporation  ("CSFB")  or any  Permitted
     Subsidiary  (as  defined  below) of 34% or more of the  Common  Stock  upon
     conversion of the shares of Series A Convertible  Preferred  Stock received
     by CSFB or CSFB's  wholly-owned  subsidiary,  Special Situations  Holdings,
     Inc.-  Westbridge,  pursuant to the  effectiveness  of the Company's  First
     Amended Plan of  Reorganization  under  Chapter 11 of the  Bankruptcy  Code
     dated October 30, 1998, as modified),  or (b) the combined  voting power of
     the voting  securities  of the Company  entitled to vote  generally  in the
     election of directors (the "Voting  Securities");  PROVIDED,  HOWEVER, that
     the following  -------- -------  acquisitions shall not constitute a Change
     in Control:  (x) any  acquisition by any employee  benefit plan (or related
     trust)  sponsored  or  maintained  by the  Company  or any person or entity
     controlling,  controlled  by or under  common  control with the Company (an
     "Affiliate"),  or (y) any acquisition by any  corporation  if,  immediately
     following such acquisition, more than 66% of the then outstanding shares of
     common stock of such  corporation and the combined voting power of the then
     outstanding  voting  securities  of  such  corporation  (entitled  to  vote
     generally in the election of directors), is beneficially owned, directly or
     indirectly,  by all or  substantially  all of the  individuals and entities
     who,  immediately prior to such acquisition,  were the beneficial owners of
     the  Common  Stock and the  Voting  Securities  in  substantially  the same
     proportions,  respectively,  as their ownership,  immediately prior to such
     acquisition, of the Common Stock and Voting Securities; or

          6.6.2 Individuals who, on the 30th day after the effective date of the
     Plan,  constitute the Board (the "Incumbent Board") cease for any reason to
     constitute at least a majority of the Board;  PROVIDED,  HOWEVER,  that any
     individual becoming a director subsequent to the effective date of the Plan
     whose election,  or nomination for election by the Company's  shareholders,
     was approved by a vote of at least a majority of the directors then serving
     and  comprising  the  Incumbent  Board shall be  considered  as though such
     individual were a member of the Incumbent  Board,  but excluding,  for this
     purpose, any such individual whose initial assumption of office occurs as a
     result of either an actual or  threatened  election  contest (as such terms
     are used in Rule 14a-11 of Regulation  14A  promulgated  under the Exchange
     Act) or other actual or threatened  solicitation of proxies or consents; or
     6.6.3  Approval by the  shareholders  of the  Company of a  reorganization,
     merger  or   consolidation,   other  than  a   reorganization,   merger  or
     consolidation  with  respect  to  which  all  or  substantially  all of the
     individuals and entities who were the beneficial owners,  immediately prior
     to such  reorganization,  merger or consolidation,  of the Common Stock and
     Voting Securities  beneficially  own,  directly or indirectly,  immediately
     after such  reorganization,  merger or consolidation,  more than 66% of the
     then  outstanding  common  stock and voting  securities  (entitled  to vote
     generally in the election of directors) of the  corporation  resulting from
     such  reorganization,  merger or consolidation  in  substantially  the same
     proportions  as  their  respective  ownership,  immediately  prior  to such
     reorganization, merger or consolidation, of the Common Stock and the Voting
     Securities;  or 6.6.4 Approval by the  shareholders of the Company of (a) a
     complete  liquidation  or  dissolution  of the Company,  or (b) the sale or
     other disposition of all or substantially all of the assets of the Company,
     other than to a Subsidiary,  wholly-owned,  directly or indirectly,  by the
     Company. For purposes of Section 6.6.1, a "Permitted Subsidiary" shall mean
     Special  Situations  Holdings,  Inc.-  Westbridge and any other directly or
     indirectly  wholly-owned  subsidiary of Credit Suisse Group,  a corporation
     organized and existing  under the laws of  Switzerland,  to which shares of
     Series A Convertible Preferred Stock are transferred for tax, regulatory or
     other general corporate purposes, but excluding any subsidiary which either
     (i) is or  intends  to be  engaged  in any line of  business  in which  the
     Company  is  engaged  as of the date of such  conversion,  (ii)  becomes  a
     subsidiary  after the  Effective  Date through any  acquisition,  merger or
     similar transaction, or (iii) intends to become, or becomes, engaged in the
     day to day  management of the Company's  business to such an extent that it
     alters the control of the Company's operations.

          6.7 AUTOMATIC  GRANTS.  Any shares underlying Stock Options granted to
     consultants  who are marketing  agents and which are  forfeited  during any
     calendar  year  pursuant  to  Section  8  (the  "Forfeited  Shares")  shall
     automatically become the subject of new Stock Options automatically granted
     under  and  pursuant  to  the  terms  of  this  Section  6.7  to all of the
     consultants  who are marketing  agents in good standing with the Company on
     January 2 of the calendar year  immediately  following the calendar year in
     which the  forfeiture(s)  occurred.  Each such marketing  agent  consultant
     shall promptly  receive a new Stock Option to acquire a number of shares of
     Common Stock equal to the aggregate  number of Forfeited  Shares in respect
     of such calendar  year,  multiplied  by a fraction,  the numerator of which
     shall  be  the  aggregate   commissions  earned  by  such  marketing  agent
     consultant  during such Calendar Year and the denominator of which shall be
     the aggregate  commissions  earned by all such marketing agent  consultants
     during such calendar  year, as determined by the  Committee.  The per share
     exercise price of such new Stock Options shall be equal to 100% of the Fair
     Market Value of the Common Stock on such  January 2 of such  calendar  year
     and the term of the new Stock  Options  shall be ten years from the date of
     grant.  The new Stock Options shall become  exercisable in accordance  with
     Section 6.6 of the Plan.

          7. MAXIMUM YEARLY AWARDS.  All  Participants  in the aggregate may not
     receive  in any  calendar  year  Awards  of  Options,  exceeding  1,638,804
     underlying  shares of Common Stock.  Each  individual  Participant  may not
     receive in any calendar year Awards of Options exceeding 819,402 underlying
     shares of Common  Stock.  The maximum  annual  Common Stock amounts in this
     Section 7 are subject to  adjustment  under Section 10.2 and are subject to
     the Plan maximum under Section 4.2.
  
          8. TERMINATION OF EMPLOYMENT.

               8.1 GENERAL.  Except as is otherwise provided (a) in the relevant
          Award   Agreement  as   determined  by  the  Committee  (in  its  sole
          discretion),  or (b) in the  Participant's  then effective  employment
          agreement,  if any, the following terms and conditions  shall apply as
          appropriate and as not inconsistent with the terms and conditions,  if
          any,   contained  in  such  Award  Agreement  and/or  such  employment
          agreement:

               8.1.1  OPTIONS.  Subject to any  determination  of the  Committee
          pursuant to Section  6.6 of the Plan,  if a  Participant's  employment
          with or  provision  of services  to the  Company and its  Subsidiaries
          terminates for any reason any then  unexercisable  Stock Options shall
          be  forfeited  and  cancelled  by the  Company.  Except  as  otherwise
          provided in this Section 8.1.1, if a Participant's  employment with or
          provision of services to the Company and its  Subsidiaries  terminates
          for any reason,  such  Participant's  rights,  if any, to exercise any
          then exercisable  Stock Options shall terminate ninety (90) days after
          the date of such  termination  (but not beyond the stated  term of any
          such Stock Option as determined under Section 6.4) and thereafter such
          Stock Options  shall be forfeited  and  cancelled by the Company.  The
          Committee,  in its  sole  discretion,  may  determine  that  any  such
          Participant's  Stock  Options  to the extent  exercisable  immediately
          prior to any  termination of employment  with or provision of services
          to the Company,  (other than a termination due to death, Retirement or
          Disability) may remain  exercisable  for an additional  specified time
          period after such ninety (90) day period expires (subject to any other
          applicable  terms and  provisions  of the Plan and the relevant  Award
          Agreement),  but not beyond the stated term of any such Stock  Option.
          If any  termination of employment with or provision of services to the
          Company is due to death, Retirement or Disability,  a Participant (and
          such  Participant's  estate,  designated  beneficiary  or other  legal
          representative, as the case may be and as determined by the Committee)
          shall  have the right to  exercise  such  Stock  Options,  at any time
          within  the one (1) year  period  following  such  termination  due to
          death,  Retirement or Disability  (but not beyond the term of any such
          Stock Option as determined under Section 6.4).

          9.  NON-TRANSFERABILITY  OF AWARDS.  Unless otherwise  provided in the
     Award  Agreement,  no Award under the Plan or any Award  Agreement,  and no
     rights  or  interests  herein  or  therein,   shall  or  may  be  assigned,
     transferred,   sold,   exchanged,   encumbered,   pledged,   or   otherwise
     hypothecated or disposed of by a Participant or any beneficiary(ies) of any
     Participant,  except by testamentary  disposition by the Participant or the
     laws of  intestate  succession.  No  such  interest  shall  be  subject  to
     execution,   attachment  or  similar  legal  process,  including,   without
     limitation, seizure for the payment of the Participant's debts, judgements,
     alimony,  or separate  maintenance.  Unless otherwise provided in the Award
     Agreement,  during  the  lifetime  of  a  Participant,  Stock  Options  are
     exercisable only by the Participant.

          10. CHANGES IN CAPITALIZATION AND OTHER MATTERS.

               10.1 NO CORPORATE ACTION RESTRICTION.  The existence of the Plan,
          any Award  Agreement  and/or the Awards  granted  hereunder  shall not
          limit,  affect or  restrict in any way the right or power of the Board
          or the  shareholders  of the  Company  to  make or  authorize  (a) any
          adjustment,  recapitalization,  reorganization  or other change in the
          Company's or any Subsidiary's  capital structure or its business,  (b)
          any merger, consolidation or change in the ownership of the Company or
          any Subsidiary, (c) any issue of bonds, debentures, capital, preferred
          or prior preference  stocks ahead of or affecting the Company's or any
          Subsidiary's  capital stock or the rights thereof, (d) any dissolution
          or  liquidation  of the  Company  or any  Subsidiary,  (e) any sale or
          transfer  of all or any  part  of the  Company's  or any  Subsidiary's
          assets or business,  or (f) any other  corporate  act or proceeding by
          the Company or any  Subsidiary.  No  Participant,  beneficiary  or any
          other person  shall have any claim  against any member of the Board or
          the  Committee,  the  Company  or any  Subsidiary,  or any  employees,
          officers  or agents of the Company or any  subsidiary,  as a result of
          any such action.

               10.2 RECAPITALIZATION  ADJUSTMENTS. In the event of any change in
          capitalization  affecting the Common Stock of the Company,  including,
          without limitation,  a stock dividend or other non-cash  distribution,
          stock split,  reverse  stock split,  recapitalization,  consolidation,
          subdivision, split-up, spin-off, split-off, combination or exchange of
          shares or other form of  reorganization  or  recapitalization,  or any
          other change affecting the Common Stock, the Board shall authorize and
          make  such  proportionate  adjustments,  if any,  as the  Board  deems
          appropriate  to reflect such change,  including,  without  limitation,
          with respect to the aggregate number of shares of the Common Stock for
          which  Awards in respect  thereof may be granted  under the Plan,  the
          maximum  number of shares of the Common  Stock which may be granted or
          awarded to any  Participant,  the number of shares of the Common Stock
          covered by each outstanding Award, and the exercise price per share of
          Common Stock in respect of outstanding Awards.

               10.3 CERTAIN MERGERS.

               10.3.1 If the  Company  enters into or is involved in any merger,
          reorganization or other business combination with any person or entity
          (such  merger,  reorganization  or other  business  combination  to be
          referred  to herein as a "Merger  Event")  and as a result of any such
          Merger Event the Company will be or is the  surviving  corporation,  a
          Participant shall be entitled,  as of the date of the execution of the
          agreement  evidencing the Merger Event (the "Execution Date") and with
          respect to both exercisable and unexercisable  Stock Options (but only
          to the extent not previously  exercised),  to receive substitute stock
          options in respect of the shares of the surviving  corporation on such
          terms  and  conditions,  as to  the  number  of  shares,  pricing  and
          otherwise,  which shall  substantially  preserve the value, rights and
          benefits of any affected  Stock  Options  granted  hereunder as of the
          date of the consummation of the Merger Event. Notwithstanding anything
          to the contrary in this Section 10.3, if any Merger Event occurs,  the
          Company shall have the right,  but not the obligation,  to pay to each
          affected Participant an amount in cash or certified check equal to the
          excess of the Fair Market  Value of the Common  Stock  underlying  any
          affected  unexercised  Stock Options as of the Execution Date (whether
          then  exercisable  or not) over the aggregate  exercise  price of such
          unexercised Stock Options.

               10.3.2  If, in the case of a Merger  Event in which  the  Company
          will not be, or is not,  the  surviving  corporation  and the  Company
          determines not to make the cash or certified  check payment  described
          in Section  10.3.1 of the Plan, the Company shall compel and obligate,
          as a condition of the  consummation of the Merger Event, the surviving
          or resulting  corporation  and/or the other party to the Merger Event,
          as  necessary,  or any parent,  subsidiary  or  acquiring  corporation
          thereof,  to grant, with respect to both exercisable and unexercisable
          Stock  Options  (but only to the  extent  not  previously  exercised),
          substitute  stock  options in respect of the shares of common or other
          capital stock of such surviving or resulting corporation on such terms
          and  conditions,  as to the number of shares,  pricing and  otherwise,
          which shall  substantially  preserve the value, rights and benefits of
          any affected Stock Options previously granted hereunder as of the date
          of the consummation of the Merger Event.

               10.3.3 Upon receipt by any affected Participant of any such cash,
          certified  check, or substitute  stock options as a result of any such
          Merger Event, such Participant's affected Stock Options for which such
          cash,  certified  check or  substitute  awards was  received  shall be
          thereupon  cancelled without the need for obtaining the consent of any
          such affected Participant.

               10.3.4 The foregoing adjustments and the manner of application of
          the foregoing provisions,  including, without limitation, the issuance
          of any  substitute  stock options shall be determined in good faith by
          the Committee in its sole discretion.  Any such adjustment may provide
          for the elimination of fractional shares.

          11. AMENDMENT, SUSPENSION AND TERMINATION.

               11.1 IN GENERAL.  The Board may suspend or terminate the Plan (or
          any  portion  thereof)  at any time and may amend the Plan at any time
          and from time to time in such respects as the Board may deem advisable
          to insure that any and all Awards conform to or otherwise  reflect any
          change in applicable laws or regulations,  or to permit the Company or
          the  Participants  to benefit  from any change in  applicable  laws or
          regulations,  or in any other  respect the Board may deem to be in the
          best interests of the Company or any  Subsidiary.  No such  amendment,
          suspension or termination  shall (x) materially  adversely  effect the
          rights of any Participant under any outstanding Stock Options, without
          the  consent of such  Participant,  or (y) make any change  that would
          disqualify  the  Plan,  or  any  other  plan  of  the  Company  or any
          Subsidiary  intended to be so  qualified,  from the benefits  provided
          under Section 422 of the Code, or any successor provisions thereto.

               11.2 AWARD  AGREEMENT  MODIFICATIONS.  The  Committee may (in its
          sole discretion) amend or modify at any time and from time to time the
          terms and provisions of any outstanding  Stock Options,  in any manner
          to the extent that the Committee under the Plan or any Award Agreement
          could have initially determined the restrictions, terms and provisions
          of such Stock  Options,  including,  without  limitation,  changing or
          accelerating  the date or dates as of which such Stock  Options  shall
          become exercisable.  No such amendment or modification shall, however,
          materially  adversely  affect the rights of any Participant  under any
          such Award without the consent of such Participant.

          12. MISCELLANEOUS.

               12.1 TAX WITHHOLDING.  The Company shall have the right to deduct
          from any  payment or  settlement  under the Plan,  including,  without
          limitation,  the  exercise  of any  Stock  Option,  or  the  delivery,
          transfer or vesting of any Common Stock, any federal,  state, local or
          other taxes of any kind which the Committee,  in its sole  discretion,
          deems  necessary  to be  withheld  to comply  with the Code and/or any
          other  applicable  law, rule or regulation.  If the Committee,  in its
          sole discretion,  permits shares of Common Stock to be used to satisfy
          any such tax  withholding,  such Common Stock shall be valued based on
          the Fair Market Value of such stock as of the date the tax withholding
          is required to be made,  such date to be determined by the  Committee.
          The Committee may establish  rules limiting the use of Common Stock to
          meet  withholding  requirements  by  Participants  who are  subject to
          Section 16 of the Exchange Act.

               12.2 NO RIGHT TO  EMPLOYMENT.  Neither the  adoption of the Plan,
          the granting of any Award,  nor the execution of any Award  Agreement,
          shall  confer upon any employee of the Company or any  Subsidiary  any
          right to continued  employment with the Company or any Subsidiary,  as
          the case may be, nor shall it interfere in any way with the right,  if
          any, of the Company or any  Subsidiary to terminate the  employment of
          any employee at any time for any reason.

               12.3  UNFUNDED  PLAN.  The Plan shall be unfunded and the Company
          shall not be required to segregate any assets in  connection  with any
          Awards under the Plan. Any liability of the Company to any person with
          respect to any Award  under the Plan or any Award  Agreement  shall be
          based solely upon the contractual obligations that may be created as a
          result of the Plan or any such award or agreement.  No such obligation
          of the  Company  shall be  deemed  to be  secured  by any  pledge  of,
          encumbrance  on, or other  interest  in, any  property or asset of the
          Company or any Subsidiary.  Nothing contained in the Plan or any Award
          Agreement shall be construed as creating in respect of any Participant
          (or  beneficiary  thereof  or any other  person)  any  equity or other
          interest of any kind in any assets of the Company or any Subsidiary or
          creating a trust of any kind or a fiduciary  relationship  of any kind
          between the Company,  any Subsidiary and/or any such Participant,  any
          beneficiary thereof or any other person.

               12.4 PAYMENTS TO A TRUST. The Committee is authorized to cause to
          be  established  a trust  agreement  or several  trust  agreements  or
          similar  arrangements  from which the  Committee  may make payments of
          amounts due or to become due to any Participants under the Plan.

               12.5 OTHER COMPANY BENEFIT AND  COMPENSATION  PROGRAMS.  Payments
          and other  benefits  received  by a  Participant  under an Award  made
          pursuant  to the Plan  shall not be  deemed a part of a  Participant's
          compensation  for purposes of the  determination of benefits under any
          other  employee  welfare or  benefit  plans or  arrangements,  if any,
          provided by the Company or any Subsidiary unless expressly provided in
          such other plans or arrangements,  or except where the Board expressly
          determines  in  writing  that  inclusion  of an Award or portion of an
          Award   should  be  included   to   accurately   reflect   competitive
          compensation  practices or to recognize that an Award has been made in
          lieu of a portion  of  competitive  annual  base  salary or other cash
          compensation.  Awards  under the Plan may be made in  addition  to, in
          combination  with, or as alternatives  to, grants,  awards or payments
          under  any  other  plans  or   arrangements  of  the  Company  or  its
          Subsidiaries.  The existence of the Plan notwithstanding,  the Company
          or any Subsidiary may adopt such other  compensation plans or programs
          and  additional  compensation  arrangements  as it deems  necessary to
          attract, retain and motivate employees.

               12.6 LISTING,  REGISTRATION AND OTHER LEGAL COMPLIANCE. No Awards
          or shares of the  Common  Stock  shall be  required  to be  granted or
          issued  under the Plan unless legal  counsel for the Company  shall be
          satisfied  that such grant or issuance will be in compliance  with all
          applicable  federal and state  securities laws and regulations and any
          other applicable laws or regulations.  The Committee may require, as a
          condition of any payment or share issuance,  that certain  agreements,
          undertakings,  representations,  certificates,  and/or information, as
          the Committee may deem necessary or advisable, be executed or provided
          to the Company to assure  compliance  with all such applicable laws or
          regulations.  Certificates  for shares of Common Stock delivered under
          the Plan may be subject to such  stock-transfer  orders and such other
          restrictions  as the  Committee  may deem  advisable  under the rules,
          regulations,  or other  requirements  of the  Securities  and Exchange
          Commission,  any stock  exchange  upon which the Common  Stock is then
          listed,  and any  applicable  federal  or  state  securities  law.  In
          addition,  if, at any time specified herein (or in any Award Agreement
          or  otherwise)  for (a) the making of any Award,  or the making of any
          determination, (b) the issuance or other distribution of Common Stock,
          or (c) the payment of amounts to or through a Participant with respect
          to any Award,  any law, rule,  regulation or other  requirement of any
          governmental authority or agency shall require either the Company, any
          Subsidiary or any Participant (or any estate,  designated  beneficiary
          or  other  legal  representative   thereof)  to  take  any  action  in
          connection with any such  determination,  any such shares to be issued
          or  distributed,   any  such  payment,  or  the  making  of  any  such
          determination,  as the  case  may be,  shall be  deferred  until  such
          required  action is taken.  With respect to persons subject to Section
          16 of the Exchange  Act,  transactions  under the Plan are intended to
          comply with all applicable conditions of SEC Rule 16b-3. To the extent
          any provision of the Plan or any action by the  administrators  of the
          Plan fails to so comply  with such rule,  it shall be deemed  null and
          void,  to the  extent  permitted  by law and deemed  advisable  by the
          Committee.

               12.7 AWARD AGREEMENTS.  Each Participant receiving an Award under
          the Plan shall  enter into an Award  Agreement  with the  Company in a
          form specified by the Committee.  Each such Participant shall agree to
          the restrictions,  terms and conditions of the Award set forth therein
          and in the Plan.

               12.8  DESIGNATION  OF  BENEFICIARY.  Each  Participant to whom an
          Award has been made  under the Plan may  designate  a  beneficiary  or
          beneficiaries  to exercise any option or to receive any payment  which
          under  the  terms of the Plan and the  relevant  Award  Agreement  may
          become exercisable or payable on or after the Participant's  death. At
          any time, and from time to time, any such  designation  may be changed
          or  cancelled  by the  Participant  without  the  consent  of any such
          beneficiary. Any such designation, change or cancellation must be on a
          form  provided  for that  purpose  by the  Committee  and shall not be
          effective until received by the Committee.  If no beneficiary has been
          designated   by  a  deceased   Participant,   or  if  the   designated
          beneficiaries have predeceased the Participant,  the beneficiary shall
          be the Participant's  estate. If the Participant  designates more than
          one  beneficiary,  any payments  under the Plan to such  beneficiaries
          shall be made in equal shares  unless the  Participant  has  expressly
          designated otherwise,  in which case the payments shall be made in the
          shares designated by the Participant.

               12.9 LEAVES OF  ABSENCE/TRANSFERS.  The Committee  shall have the
          power to promulgate rules and regulations and to make  determinations,
          as it deems  appropriate,  under the Plan in  respect  of any leave of
          absence from the Company or any  Subsidiary  granted to a Participant.
          Without  limiting the generality of the  foregoing,  the Committee may
          determine whether any such leave of absence shall be treated as if the
          Participant  has  terminated  employment  with the Company or any such
          Subsidiary.  If a Participant  transfers within the Company,  or to or
          from any  Subsidiary,  such  Participant  shall  not be deemed to have
          terminated employment as a result of such transfers.

               12.10  LOANS.  Subject  to  applicable  law,  the  Committee  may
          provide,  pursuant to Plan rules, for the Company or any Subsidiary to
          make loans to  Participants to finance the exercise price of any Stock
          Options,  as well as the withholding  obligation under Section 12.1 of
          the  Plan  and/or  the  estimated  or  actual  taxes  payable  by  the
          Participant  as a result of the  exercise of such Stock Option and the
          Committee may prescribe the terms and conditions of any such loan.

               12.11  GOVERNING  LAW. The Plan and all actions taken  thereunder
          shall be governed by and construed in accordance  with the laws of the
          State of Delaware,  without reference to the principles of conflict of
          laws  thereof.  Any  titles  and  headings  herein  are for  reference
          purposes only, and shall in no way limit,  define or otherwise  affect
          the meaning,  construction or  interpretation of any provisions of the
          Plan.

               12.12  EFFECTIVE  DATE.  The  Plan  shall be  effective  upon its
          approval  by the Board and  adoption  by the  Company,  subject to the
          approval of the Plan by the Company's  shareholders in accordance with
          Sections 162(m) and 422 of the Code.

                  IN WITNESS WHEREOF, this Plan is adopted by the Company on
this 24th day of March, 1999.

                                              ASCENT ASSURANCE, INC.

                                              By:   /S/ PATRICK J. MITCHELL

                                              Name:  Patrick J. Mitchell
                                              Title:  Chairman and CEO