AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 2002
Registration No. 333-99415
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 2
TO THE
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
AMERICAN LIFE HOLDING COMPANY, INC.
(Name of Small Business Issuer in Its Charter)
Florida 6411 52-2177342
------- ---- ----------
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) Identification No.)
4823 Old Kingston Pike
Suite 125
Knoxville, Tennessee 37919
865-588-8228
(Address and Telephone Number of Principal Executive Offices)
_________________________
Mr. Stanley P. Brown,
III President
American Life Holding Company, Inc.
4823 Old Kingston Pike
Suite 125
Knoxville, Tennessee 37919
865-588-8228
(Name, Address and Telephone Number of Agent For Service)
______________________________
Copies of all communications to:
Roxanne K. Beilly, Esq.
Katz, Barron, Squitero & Faust, P.A.
100 N.E. Third Avenue
Suite 280
Fort Lauderdale, FL 33301
Telephone: (954) 522-3636
Facsimile No. (954) 522-5119
Approximate Date of Proposed Sale to the Public: As soon as practicable after
the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of Each Maximum Maximum
Class of Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered Per Security Offering Price Registration Fee
Common stock, par value
$.01 per share(1) 147,724 $5.00 $738,620 $68
Total Registration Fee $68
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933 (the "Securities
Act").
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
ii
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion dated December 17, 2002
PROSPECTUS
AMERICAN LIFE HOLDING COMPANY, INC.
147, 724 Shares of Common Stock
This prospectus relates to 147,724 shares of our common stock which may
be offered by certain selling security holders.
There is presently no public market for our shares. The selling
security holders will offer and sell the shares of common stock at a range from
$4.50 to $5.00 per share until our shares are quoted in the over-the-counter
market or on an exchange, and thereafter at prevailing market prices or
privately negotiated prices. See "Risk Factors" beginning on page 3.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR
INVESTMENT. PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is ____________, 2002
PROSPECTUS SUMMARY
We are a reinsurer of single premium deferred annuity and flexible
premium deferred annuity contracts for tax qualified and non-qualified
investments. Annuity contracts guarantee the holder a series of fixed-amount
payments paid by the insurer at regular intervals over the specified period of
the annuity. Deferred annuity contracts, the type that we reinsure, delays the
payments of income, installments or lump sum until the holder elects to receive
them. Purchasers of single premium deferred annuity contracts pay the purchase
price (or premium) of the contract at the time of purchase, while purchasers of
flexible premium deferred annuity contracts pay the premium over a specified
period of time. The annuity contracts which we reinsure are subject to
discretionary surrender or withdrawal by our customers. These policies and
contracts represent assumed reinsurance, primarily with Allianz Life Insurance
Company of North America. Reinsurance is a procedure used by insurance companies
to reduce the outright risks associated with underwritten policies by spreading
risks across alternative companies, such as ours, much like buying an insurance
policy for an insurance policy. On our behalf Allianz invests premiums and
deposits to provide cash flow that we use to fund future benefits and expenses.
When used in this prospectus, the terms "American Life Holding," " we,"
"our," and "us" refers to American Life Holding Company, Inc. a Florida
corporation, and our subsidiary, the American Life and Annuity Company, Inc. , a
Tennessee corporation. When used in this prospectus, the term "American Life"
refers to our subsidiary.
Our offices are located at 4823 Old Kingston Pike, Suite 125,
Knoxville, Tennessee 37919, and our telephone number is 865-588-8228. Our fiscal
year is December 31.
The Offering
Common Stock Offered by
Selling Security holders 147,724 shares
Common Stock Outstanding:
Prior to the Offering 391,449 shares
After the Offering 391,449 shares
2
SELECTED CONSOLIDATED FINANCIAL DATA
The following summary financial information has been derived from the
financial statements that are included in this prospectus.
STATEMENT OF OPERATIONS DATA:
American Life Holding
American Life Holding American Life American Life Holding Proforma Nine
Nine months ended Year ended January 1, 2002 to Year Ended months Ended
September 30, December 31, June 22, December 31, September 30,
2002 2001 2001 2000 2002(1) 2001 2002
---- ---- ---- ---- ------- ---- ----
Revenues $ 483,859 $ 235,065 $ 449,887 $ 344,410 $ -- $ -- $ 483,859
Expenses 499,242 247,830 431,439 320,659 250,000 -- 748,242
Other income (expense) (1,686) (5,086) (7,242) (4,454) -- -- (1,686)
Net income (loss) $ (13,769) $ (14,051) $ 9,006 $ 15,997 $(250,000) $ -- $(263,769)
Basic earnings (loss) per share $ (0.04) $ (0.04) $ 0.03 $ 0.05 $ (6.69) $ 0 $ (0.71)
Diluted earning (loss) per share (2) $ (2) $ 0.03 $ 0.05 (2) (2) (2)
Weighted average shares
outstanding 346,044 315,349 315,361 315,349 37,379 150 369,400
Diluted weighted average
shares outstanding (2) (2) 338,021 338,021 (2) (2) (2)
BALANCE SHEET DATA:
American Life Holding American Life
September 30, 2002 December 31,
------------------ ------------
(unaudited) 2001 2000
Cash $ 102,489 $ 7,835 $ 71,447
Available-for sale securities $ 2,298,024 $ 2,221,625 $ 2,168,362
Funds withheld at interest
subject to restrictions (3) $ 9,282,624 $ 9,460,220 $ 2,926,436
Total assets $12,333,473 $12,350,651 $ 5,528,510
Contractholder deposits $ 9,612,881 $ 9,787,275 $ 3,024,771
Total liabilities $ 9,694,039 $ 9,787,331 $ 3,103,026
Total stockholders' equity $ 2,639,434 $ 2,563,320 $ 2,425,484
(1) The $250,000 of expenses incurred during the period of January 1, 2002 to
June 22, 2002 reflect non-recurring costs incurred in connection with the then
pending reorganization. Please see the discussion regarding these items which
appears later in this prospectus under Management's Discussion and Analysis of
Financial Condition and Result of Operations beginning on page 9.
(2) Due to the loss incurred during the period presented, potential common
shares are anti-dilutive.
(3) Funds withheld at interest subject to restrictions represents balances owing
to us from Allianz and Hanover Re, the ceding companies under the terms of our
reinsurance agreements with these companies. Under these agreements, we have
assumed the primary liability for annuity policies we have acquired from these
ceding companies. We are initially credited for liability balances assumed, less
our pro-rata share of acquisition costs. As the policies mature, we earn
interest at determined rates on our asset, the "Funds withheld at interest
subject to restrictions," and our liabilities are increased by interest credited
to contract holders, as adjusted for amounts attributable to surrender charges.
3
RISK FACTORS
Before you invest in our securities, you should be aware that there are
various risks. Additional risks and uncertainties not presently known to us or
that we currently believe to be immaterial may also adversely affect our
business. You should consider carefully these risk factors, together with all of
the other information included in this prospectus before you decide to purchase
our securities. If any of the following risks and uncertainties develop into
actual events, our business, financial condition or results of operations could
be materially adversely affected.
WE HAVE REPORTED LIMITED REVENUES TO DATE AND WE REPORTED A NET LOSS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002. THERE ARE NO ASSURANCES THAT WE
WILL BE PROFITABLE IN FUTURE QUARTERS OR BE ABLE TO INCREASE OUR REVENUES IN
FUTURE PERIODS.
We reported revenues of $449,887 and $344,410 for the fiscal years
ended December 31, 2001 and 2000, respectively, and revenues of $483,859 for the
nine months ended September 30, 2002. While we reported net income of $9,006 and
$15,997 for the years ended December 31, 2001 and 2000, respectively, we
reported a net loss of $13,769 for the nine months ended September 30, 2002. Our
operating expenses have increased and we will likely continue to incur operating
losses in the future. Our liquidity will continue to be diminished in the event
of continuing operating losses. Other than the line of credit which has been
extended to us by Dr. Bishop, our Chairman and principal shareholder, we
currently have no outside sources of liquidity. We believe that this line of
credit is sufficient to provide working capital to us based upon our present
level of operations until such time as we can generate sufficient profits from
our current operations.
Our future profitability will depend on substantial increases in
revenues from operations. Our total revenues include revenues from investment
income and realized investment gains or losses, which includes gains or losses
from the trading of our available for sale securities. In order to increase our
revenues, we will need to increase our capital and surplus in order to provide
funds available to purchase additional blocks of annuity contracts . Because we
presently have no additional sources of capital and surplus, other than the
$250,000 credit line extended to us by Dr. Bishop, there can be no assurance
that our future revenues will grow sufficiently to generate a positive cash flow
or otherwise enable us to be profitable. As discussed below, there are no
guarantees that we will be able raise additional capital as needed, in which
event it is unlikely that we will ever be able to increase our revenues,
consistently report profits on our operations or grow our business.
WE FACE A VARIETY OF RISKS RELATED TO FLUCTUATING INTEREST RATES,
INCLUDING NOT EARNING SUFFICIENT INVESTMENT INCOME, THE MAJORITY OF WHICH ARE
BEYOND OUR CONTROL. IF INTEREST RATES CONTINUE TO DECLINE, OUR CAPITAL AND
SURPLUS COULD ALSO DECLINE. IN THIS EVENT, WE WOULD BE REQUIRED TO REDUCE THE
AMOUNT OF ANNUITY
4
CONTRACTS WE REINSURE WHICH WILL ALSO REDUCE OUR REVENUES AND POTENTIALLY RESULT
IN OPERATING LOSSES.
Our total revenues include revenues from investment income and realized
investment gains or losses, which includes gains or losses from the trading of
our available for sale securities. Significant changes in interest rates exposes
us to the risk of not earning income or experiencing losses based on the
difference between the interest rates earned on investments and the credited
interest rates paid on outstanding reinsurance contracts. Both rising and
declining interest rates can negatively affect the income we derive from these
interest rate spreads. During periods of falling interest rates, our investment
earnings will be lower because new investments in fixed maturity securities will
likely bear lower interest rates. During periods of rising interest rates, we
may be unable to take full advantage of the spread between earnings on our
investments and costs associated with annuity contracts because our contract
holders may elect to terminate the existing contracts and obtain replacement
contracts with higher guaranteed yield contracts. Therefore, we may not be able
to fully offset the decline in investment earnings with lower crediting rates on
our annuity contracts. The annuity contracts which have been ceded to us
generally guarantee a minimum annual interest rate of 2.5% which we pay to the
contract holders. If the amount of revenues we generate from investment income,
which includes the funds withheld by the ceding companies that are included in
their investment portfolios which are generally invested in high grade corporate
bonds and government securities as well as investment income earned on our
available for sale securities, are not sufficient to pay the interest to the
contract holders our revenues would be adversely affected, our liquidity will
suffer and we would be required to use a portion of our surplus to pay whatever
deficiency existed in the amount payable to the contract holder. While we have
never experienced a deficiency to date and our revenues have been sufficient to
pay the interest to the contract holders, given the recent declines in interest
rates we cannot guarantee you that a deficiency will not occur in the future.
If, however, we were unable to generate sufficient revenues to pay the interest
to our contract holders, we would be required to use a portion of our capital
and surplus to pay this interest. Depending upon the amounts necessary, which we
are unable to predict at this time given the hypothetical nature of this
assumption, we may not have sufficient capital and surplus to continue the
amount of annuity contracts we presently reinsure. In that event, our future
revenues would decline, we could suffer operating losses and the future
viability of our company would be at risk.
WE DO NOT MAINTAIN CONTROL OF THE INVESTED ASSETS UNDERLYING OUR
ANNUITY CONTRACTS. POOR MANAGEMENT OF THE INVESTED ASSETS BY THE CEDING
COMPANIES WILL RESULT IN OPERATING LOSSES FOR US IN FUTURE PERIODS AND THESE
ASSETS COULD BE AT RISK IN THE EVENT OF THE INSOLVENCY OF THE CEDING COMPANY.
We have entered into reinsurance agreements with two companies in which
the ceding insurance company retains the assets supporting the ceded annuity
contracts and manages them for our account. As of September 30, 2002
approximately
5
$9,282,000 of assets where held by ceding companies and are reflected on our
balance sheet as funds withheld at interest subject to restrictions. Although
the ceding companies must adhere to general standards agreed to by us for the
management of these assets, we do not control the selection of the specific
investments or the timing of the purchase or sale of investments made by the
ceding company. Accordingly, we may be at risk if the ceding company selects
investments that deviate from our agreed standards or if the ceding company
performs poorly in the purchase, sale and management of those assets. If the
ceding company should either select investments which deviate from our agreed
standards or perform poorly in the management of these assets, because revenues
from these investments represents a significant portion of our total revenues,
it is likely that we would report losses from operations in future periods. In
addition, these assets are not segregated from the ceding companies' other
assets, and we may not be able to recover all of these assets in the event of
the insolvency of the ceding insurers. Any inability on our part to recover all
of these assets would likewise result in our insolvency, in which event we would
be required to cease operations.
WE WILL NEED ADDITIONAL CAPITAL TO INCREASE OUR REVENUES. WE MAY NOT BE
ABLE TO OBTAIN THIS ADDITIONAL CAPITAL ON ACCEPTABLE TERMS. ANY INABILITY TO
RAISE ADDITIONAL CAPITAL WHEN NEEDED COULD ADVERSELY AFFECT OUR ABILITY TO
INCREASE OUR REVENUES AND GROW OUR COMPANY.
As discussed above, our ability to increase our revenues is dependent
upon our ability to increase the amount of capital and surplus we have available
to acquire additional annuity contracts. Unless we increase the amount of
capital and surplus which is available to us, we will not be able to increase
our revenues. It is, therefore, likely that we will seek to raise additional
capital, possibly through the issuance of long- term or short-term indebtedness
or the issuance of equity securities in private or public transactions, to
provide additional capital and surplus. If we raise additional capital through
the issuance of debt, this will result in increased interest expense. If we
raise additional funds through the issuance of equity or convertible debt
securities, the percentage ownership of our existing shareholders will be
reduced and those shareholders will experience dilution. In addition, new
securities may contain certain rights, preferences or privileges that are senior
to those of our common stock. We cannot assure you that acceptable financing can
be obtained on suitable terms, if at all. If we are unable to obtain sufficient
financing if and when needed, it is unlikely that we will be able to increase
our revenues. If we are unable to increase our revenues, it is unlikely that we
will ever attain any consistent level of profitability or otherwise grow our
business.
WE AGREED TO A VARIETY OF RESTRICTIVE COVENANTS IN THE ISSUANCE OF
SHARES OF OUR SERIES A CONVERTIBLE PREFERRED STOCK WHICH MAY PREVENT US FROM
TAKING CERTAIN ACTIONS WHICH MAY BENEFIT OUR COMPANY OR OUR COMMON SHAREHOLDERS.
THESE RESTRICTIVE COVENANTS PERMIT OUR PRINCIPAL SHAREHOLDER WHO IS ALSO
CHAIRMAN OF OUR BOARD MEMBERS TO EXERCISE SIGNIFICANT CONTROL OVER OUR ACTIONS.
6
In August 2002 we issued Dr. Archer W. Bishop, Jr., our chairman and
principal shareholder, 250,000 shares of our newly created Series A Convertible
Preferred Stock. So long as shares of our Series A Convertible Preferred Stock
are outstanding, we have agreed not to take certain actions without the consent
of Dr. Bishop. The actions generally include actions related to the issuance of
additional securities and other matters related to our capitalization. These
negative covenants generally give Dr. Bishop significant control over certain
actions related to our company. There are no guarantees that we will be able to
obtain any necessary consents in the future if we should wish to enter into
transactions which we believe are in our best interests, but which may not
necessarily be in the best interests of Dr. Bishop. Any inability on our part to
secure Dr. Bishop's consent to such transactions could have the result of
restricting the growth of our business. See "Description of Securities - Series
A Convertible Preferred Stock".
PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS MAY DELAY OR
PREVENT A TAKE-OVER WHICH MAY NOT BE IN THE BEST INTERESTS OF OUR COMMON
SHAREHOLDERS.
Provisions of our articles of incorporation and bylaws may be deemed to
have anti-takeover effects, which include when and by whom special meetings of
our shareholders may be called, and may delay, defer or prevent a takeover
attempt. In addition, certain provisions of the Florida Business Corporation Act
also may be deemed to have certain anti-takeover effects which include that
control of shares acquired in excess of certain specified thresholds will not
possess any voting rights unless these voting rights are approved by a majority
of a corporation's disinterested directors. In addition, our articles of
incorporation authorize the issuance of up to 5,000,000 shares of preferred
stock with such rights and preferences as may be determined from time to time by
our board of directors, of which 250,000 shares are currently issued and
outstanding. Our board of directors may, without shareholder approval, issue
additional series of preferred stock with dividends, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of our common stock.
BECAUSE THERE IS NO PUBLIC MARKET FOR OUR COMMON STOCK, YOU MAY FIND IT
EXTREMELY DIFFICULT OR IMPOSSIBLE TO RESELL OUR SHARES. EVEN IF A PUBLIC MARKET
IS ESTABLISHED, WE CANNOT GUARANTEE YOU THAT THERE WILL EVER BE ANY LIQUIDITY IN
OUR COMMON STOCK.
There is no public market for our common stock, and although we intend
to seek quotation of our common stock in the over-the-counter market or the
Bulletin Board Exchange (BBX) at such time as we meet the listing standards,
there can be no assurance that a public market will ever be established.
Purchasers of our shares of common stock will face significant obstacles if they
wish to resell the shares. Absent a public market for our common stock, an
investment in our shares should be considered illiquid. In the future we may
attempt to establish a public market for our common stock. We cannot guarantee
you that we will be successful. Even if a public market is
7
established, it is unlikely a liquid market will develop. Because of our
relatively small size and limited revenues, the investment community may show
little or no interest in our securities and investors may not be readily able to
liquidate their investment, if at all. Investors seeking liquidity in a security
should not purchase our shares of common stock.
IF WE EVER ESTABLISH A PUBLIC MARKET FOR OUR COMMON STOCK, THE
TRADEABILITY IN OUR COMMON STOCK WILL BE LIMITED UNDER THE PENNY STOCK
REGULATIONS WHICH MAY CAUSE THE HOLDERS OF OUR COMMON STOCK DIFFICULTY SHOULD
THEY WISH TO SELL THE SHARES.
In the event we seek to establish a public market for our common stock,
and the trading price of our common stock is less than $5.00 per share, our
common stock would be considered a "penny stock," and trading in our common
stock would be subject to the requirements of Rule 15g-9 under the Securities
Exchange Act. Under this rule, broker/dealers who recommend low-priced
securities to persons other than established customers and accredited investors
must satisfy special sales practice requirements. The broker/dealer must make an
individualized written suitability determination for the purchaser and receive
the purchaser's written consent prior to the transaction.
SEC regulations also require additional disclosure in connection with
any trades involving a "penny stock," including the delivery, prior to any penny
stock transaction, of a disclosure schedule explaining the penny stock market
and its associated risks. These requirements severely limit the liquidity of
securities in the secondary market because few broker or dealers are likely to
undertake these compliance activities and this limited liquidity will make it
more difficult for an investor to sell his shares of our common stock in the
secondary market should the investor wish to liquidate the investment. In
addition to the applicability of the penny stock rules, other risks associated
with trading in penny stocks could also be price fluctuations and the lack of a
liquid market. A market in our common stock may never develop due to these
factors. Because there is no guarantee that a market for our common stock will
ever develop, an investment in our company should be considered illiquid and you
should not purchase shares of our common stock unless you can afford to hold an
illiquid investment indefinitely.
OUR CHAIRMAN IS THE SOLE HOLDER OF OUR SERIES A CONVERTIBLE PREFERRED
STOCK WHICH GIVES HIM VOTING CONTROL OF OUR COMPANY. THE SALES OF SHARES OF OUR
COMMON STOCK BY DR. BISHOP WILL NOT AFFECT HIS ABILITY TO CONTROL OUR COMPANY.
Holders of shares of our Series A Convertible Preferred Stock have 75
votes per share and holders of our shares of common stock have one vote per
share on all matters submitted to a vote of our shareholders, and these two
classes of our voting securities vote together on all matters submitted to a
vote of our shareholders. Dr. Bishop, our Chairman, is the sole holder of our
Series A Convertible Preferred Stock.
8
As a result of these voting rights, notwithstanding that our common shareholders
are entitled to vote on matters submitted to our shareholders, Dr. Bishop has
the power to elect all of our directors and to otherwise control our company.
Dr. Bishop currently has voting control over approximately 99% of our
voting securities, which includes all 250,000 shares of our Series A Convertible
Preferred Stock described above and 232,051 shares of our common stock, of which
19,000 shares are included in this prospectus. In the event Dr. Bishop should
sell all 19,000 shares of our common stock included in this prospectus, he would
still control over approximately 98% of our voting securities as a result of the
voting rights attributable to our Series A Convertible Preferred Stock, and he
would still be entitled to elect all of our directors and otherwise control the
operations of our company.
IF OUR OFFICERS AND DIRECTORS WERE TO SELL THE SHARES OF COMMON STOCK
OWNED OR CONTROLLED BY THEM WHICH ARE INCLUDED IN THIS PROSPECTUS, WHILE THEY
HAVE INDICATED THAT THEY WILL REMAIN AS OUR MANAGEMENT, THEIR INTERESTS WOULD
NOT BE AS CLOSELY TIED TO OUR SHAREHOLDERS AS THEY ARE NOW.
This prospectus covers the resale of 46,317 shares of our common stock
which are owned or controlled by members of our management. Each of these
individuals has advised us that they have no present intention to leave their
positions with our company at such time as they sell the shares of our common
stock owned by them which are included in this prospectus. However, following
such sales because they would either no longer be our shareholders or their
shareholdings would be reduced, while they would still be responsible for our
day to day operations, their interests may not be as closely linked to our
shareholders' interests as they would be if they remained our shareholders.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
Some of the information in this prospectus may contain forward-looking
statements. These statements can be identified by the use of forward-looking
words such as "may," "will," "expect," "anticipate," "estimate," "continue" or
other similar words. These statements discuss future expectations, contain
projections of results of operations or financial conditions or state other
"forward-looking" information. When considering such forward-looking statements,
you should keep in mind the risk factors and other cautionary statements in this
prospectus. The risk factors noted in this section could cause our actual
results to differ materially from those contained in any forward-looking
statement.
9
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
2002 which gives effect to the share exchange with the American Life
shareholders and the closing of the private placement. The table should be read
in conjunction with the financial statements and related notes included
elsewhere in this prospectus.
September 30, 2002
(unaudited)
Long-term liabilities $ 70,777
Stockholder's equity:
Preferred stock, $.10 stated value,
5,000,000 shares authorized,
250,000 shares issued and outstanding 25,000
Common stock, $.001 par value,
100,000,000 shares authorized,
391,449 shares issued and
outstanding 392
Additional paid-in capital 2,938,650
Accumulated deficit (429,314)
Accumulated other comprehensive income 104,706
Total stockholders' equity $ 2,639,434
Total capitalization $ 2,710,211
USE OF PROCEEDS
We will not receive any proceeds upon the sale of shares by the selling
security holders.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
INTRODUCTION
In June 2002 we closed a share exchange with American Life in which the
holders of 100% of its issued and outstanding capital stock exchanged their
shares for shares of our company. Prior to this share exchange, we had no
business or operations. Contemporaneously with the closing of the share
exchange, we closed a private placement of our common stock in which we sold
21,500 shares of our common
10
stock to accredited investors resulting in gross proceeds to us of $107,500. The
closing of the private placement was conditioned upon the prior closing of the
share exchange. Both the share exchange and private placement are described in
greater detail elsewhere in this prospectus. As a result of the share exchange,
American Life became our subsidiary, its officers and directors became our
officers and directors, and its business and operations became our business and
operations. The following summary financial information has been derived from
the financial statements that are included in this prospectus. The historical
financial statements are those of our American Life subsidiary as a result of
the share exchange, but the capital structure is ours in accordance with U.S.
generally accepted accounting principles. See Note 1 to our financial statements
included elsewhere in this prospectus. As a stand-alone entity, we had no
operations prior to January 1, 2002 or during the period from the closing date
of the share exchange on June 22, 2002.
TRANSACTIONS WHICH OCCURRED PRIOR TO SHARE EXCHANGE
Because of the accounting treatment discussed above, during the period
of January 1, 2002 and June 22, 2002, the date the share exchange closed and our
operations became those of our American Life subsidiary, certain transactions
which effected our financial statements are not reflected in the consolidated
financial statements for the nine months ended September 30, 2002. These
transactions include:
* In February 2002 we issued an aggregate of 50,000 shares of
our common stock as compensation for services being rendered
to us in connection with the pending reorganization by an
individual who was then serving as our president and to an
accounting firm that was providing consulting services. We
valued these shares at $5.00 each which equals the price per
share paid by third party investors in our private placement
which closed immediately after the share exchange. Our
Statement of Operations for the period of January 1, 2002
until June 22, 2002 which is included in our stand-alone
financial statements that appear elsewhere in this prospectus
reflects this expense, however, because the transaction
occurred prior to the share exchange this expense is not
reflected in the Consolidated Statement of Operations for the
nine months ended September 30, 2002 which only reflects the
operations of the combined companies subsequent to June 22,
2002.
* During the period of January 1, 2002 until September 30, 2002
certain additional expenses were incurred in connection with
the pending reorganization for legal, accounting and related
fees which totaled $106,587. Of this amount, $101,237 was
incurred prior to June 22, 2002. Under U.S. generally accepted
accounting principles, we are permitted to charge these costs
directly against our paid-in capital to the extent of cash
($107,500) received by us in connection with the
recapitalization. The
11
balance of $913 is reflected on our Balance Sheet at September
30, 2002 in our stockholders' equity, and on the Consolidated
Statement of Stockholders' Equity at September 30, 2002 as an
increase in stockholders' equity.
OUR OPERATIONS
Our operations are currently through our American Life subsidiary, and
are limited to the reinsurance of annuity contracts which we obtain from larger
insurance companies through reinsurance agreements. As is customary in the
industry and because of our small size, the insurance companies that cede to us
our share of the annuity contracts retain our pro-rata portion of the net
proceeds from the sales of the annuities. We include our share of the retained
proceeds in our balance sheet under the caption "Funds withheld at interest
subject to restrictions." We customarily refer to these amounts as "funds
withheld" and our reinsurance agreements are customarily referred to as
"coinsurance agreements on a funds withheld basis." As is commonplace in the
industry, the ceding company retains the management and custody of the assets on
our behalf, which in our case is comprised principally of government securities
and high grade corporate bonds. This is advantageous to us in that the larger
ceding companies have the ability to buy large blocks of qualified securities
and manage them at more cost effective levels than we currently can because of
our small size. The balance of the funds held represents the statutory reserves
portion. The funds withheld are liquidated in the normal course of business to
pay claims and maturities on the annuities.
We can also liquidate the funds withheld and receive any excess in statutory
reserves by ceding the annuity contracts to other reinsurers, a process known in
the insurance industry as retroceding. No approval to retrocede any annuity
contracts we own to another reinsurer to liquidate our funds withheld at
interest subject to restrictions is required if the amount of the contracts does
not exceed 5% of our total assets. If we should wish to retrocede any of our
contracts to another reinsurer to liquidate our funds withheld at interest
subject to restrictions in an amount which exceeds this 5% limitation, we must
first obtain regulatory approval from the State of Tennessee. To institute this
approval process, we would be required to file a prescribed form with the
Insurance Commissioner's office describing the transaction and including the
name of the reinsurer. The Insurance Commissioner's office has access to the
financial information of licensed insurance companies throughout the United
States through the NAIC system which acts to facilitate the transfer request. By
statute, the Insurance Commissioner's office must approve or deny the
transaction within 30 days. Although we have yet to enter into any agreements to
retrocede any contracts, and we do not anticipate that we will enter into any
such agreements in the foreseeable future, we have been orally advised by the
Insurance Commissioner's office that the approval process in State of Tennessee
for these types transactions are currently significantly less than the statutory
30 day maximum. The funds withheld by the ceding companies are included in their
investment portfolios which they generally invest in high grade corporate bonds
and government securities.
12
The ceding companies credit our funds withheld accounts with our pro-rata share
of the net earnings on those investments. We also earn investment income from
our available for sale securities which we own and manage ourselves. These
securities, principally high grade corporate bonds and government securities,
approximate our required minimum statutory capital and surplus. Our primary
expenses are our pro-rata share of the interest that is credited to the contract
holders of the annuities and general insurance expenses. Credited interest rates
on the annuity contracts during the nine months ended September 30, 2002 ranged
from 3.83% to 6.90%. General insurance expenses consist of our general and
administrative salaries, expenses, professional fees including actuarial costs,
and amortization of our pro-rata share of contract acquisition costs.
RESULTS OF OPERATIONS
HOW WE GENERATE REVENUES
Our total revenues include revenues from investment income and realized
investment gains or losses, which includes gains or losses from the trading of
our available for sale securities. Investment income includes our share of
earnings credited to us as a result of the funds withheld relationship with the
larger insurance companies that have ceded to us the annuity contracts, and
available for sale securities that are part of our required regulatory capital
and surplus. The following table sets forth the approximate weighted average
investment balance and approximate weighted average return earned for the
periods specified:
Nine Months Ended Fiscal Year Ended
September 30, December 31,
2002 2001 2001 2000
Approximate weighted average
investment balance $ 11,377,000 $ 5,138,000 $ 8,378,000 $ 5,095,000
Approximate weighted average
return earned 5.66% 6.08% 5.4% 6.8%
The approximate annualized corresponding yields in the foregoing table
reflects declining interests rates primarily as a result of U.S. monetary policy
and market conditions.
At September 30, 2002 and December 31, 2001 the ceded portion of the
contracts we reinsure was $9,621,881 and $9,787,275, respectively. These
contracts, which generally provide for a minimum guaranteed rate of 2.5% per
annum, feature variable rates after the first year of issuance and all the
contracts we presently reinsure are over one year old. For the years ended
December 31, 2001 and 2000 the credited interest rates on these contracts ranged
from 3.83% to 6.90% and from 4.4% to 7.05%, respectively. Amounts credited to
the contract holders are determined by the ceding company and are a function of
competitive market conditions.
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NINE MONTHS ENDED SEPTEMBER 30, 2002 AS COMPARED TO SEPTEMBER 30, 2001
Our total revenues for the nine months ended September 30, 2002
increased approximately 106% from the comparable period in fiscal 2001. Included
in these results was an increase of approximately 111%, or approximately
$246,000, in revenues from investment income which results from the increase in
October 2001 in annuity contracts we assumed on a funds withheld basis, and an
increase of approximately 54% ($3,103) in revenues from realized investment
gains or losses resulting from trading losses. Because our current capital
levels limit our ability to acquire any appreciable amounts of newly ceded
annuity contracts, and as a result of declining interest rates, we expect a
slight decline in our investment income for the last two quarters of our fiscal
year of 2002.
Our total expenses for the nine months ended September 30, 2002
increased $251,412, or approximately 101%, from the nine months ended September
30, 2001. Included in this increase is an increase of approximately $279,000, or
approximately 322%, in interest paid to our contract holders which reflects the
additional annuity contracts we acquired in October 2001. General insurance
expenses, which include our general and administrative salaries, expenses,
professional fees including actuarial costs and amortization of our pro-rata
share of contract acquisition costs, decreased approximately $24,000, or 16%,
for the nine months ended September 30, 2002 as compared to the nine months
ended September 30, 2001 as a result in the reduction in consulting fees paid.
As discussed above, during the balance of fiscal 2002 we do not expect to
acquire any significant amount of new annuity contracts and therefore we expect
the interest expense we credit to contract holders for the balance of fiscal
2002 to remain near the level as incurred during the nine months ended September
30, 2002. However, we do anticipate a slight decrease as a result of falling
interest rates. We expect that general insurance expenses will increase during
the balance of fiscal 2002 due to expenses related to the recapitalization. We
estimate approximately an additional $25,000 will be incurred during the balance
of fiscal 2002 for these expenses. We expect the remaining general insurance
expenses to remain comparable to levels incurred during the nine months ended
September 30, 2002.
Other income (expense), which represents interest paid on amounts
loaned to us by our principal shareholder, decreased approximately 67% for the
nine months ended September 30, 2002 from the comparable period in fiscal 2001,
as a result of the conversion of certain amounts owed into equity in the fourth
quarter of fiscal 2001. We expect that during the balance of fiscal 2002, we
will incur an increase in interest expense related to the line of credit
extended to us by our majority shareholder, Dr. Bishop, in connection with the
issuance of 250,000 shares of our Series A Convertible Preferred Stock discussed
elsewhere in this prospectus.
14
FISCAL YEAR ENDED DECEMBER 31, 2001 AS COMPARED TO THE FISCAL YEAR ENDED
DECEMBER 31, 2000
Our total revenues for fiscal 2001 increased approximately 31% from
fiscal 2000. Included in these results was an increase of approximately 25% in
revenues from investment income which is attributable to our share of earnings
credited to us as a result of the funds withheld by our ceding insurance
companies on the annuity contracts and interest on our available for sale
securities. We also had an increase of approximately $20,000, or approximately
903%, in revenues from realized investment gains resulting from profits on the
trading of our available for sale securities.
Our total expenses for fiscal 2001 increased approximately 35% from
fiscal 2000. Included in this increase is an increase of approximately $120,000,
or approximately 100%, in interest paid to our contract holders. General
insurance expenses decreased by approximately $13,000, or approximately 7%, in
fiscal 2001 from fiscal 2000 as a result of a general cost containment measure
undertaken by management. Taxes, licenses and other expenses increased
approximately $4,000, or approximately 61%, principally due to additional state
franchise taxes. .
Interest expense increased approximately $2,800, or approximately 63%,
in fiscal 2001 from fiscal 2000 due to the additional amount of borrowings from
our majority shareholder that were outstanding during most of 2001.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities for the nine months ended
September 30, 2002 was $64,416 as compared to $2,297 during the comparable nine
month period in fiscal 2001. This change was primarily attributable an
approximate $191,000 increase in reinsurance and other receivables and an
approximate $156,000 decrease in contract holder funds, coupled with an decrease
of approximately $105,000 in accounts payable and accrued expenses. Net cash
used in investing activities was $19,207 for the nine months ended September 30,
2002 as compared to net cash provided by investing activities of $15,700 for the
comparable period in fiscal 2001. This decrease is the result of a net spread of
$14,663 between sale and maturities of our securities over our purchases of
securities compared to a net spread of $68,249 for the comparable period in
fiscal 2001. Net cash provided by financing activities was $178,277 for the nine
months ended September 30, 2002 as compared to $5,086 for the nine months ended
September 30, 2001. This change is primarily attributable to $107,500 of gross
proceeds we received from the private placement of our securities in June 2002
that was conditioned upon the closing of the share exchange with American Life
together with a loan to us from our principal shareholder.
Our cash and cash equivalents at September 30, 2002 increased to
$102,489 from $7,835 at December 31, 2001 as a result of the foregoing.
Likewise, our available for sale securities increased from $2,221,625 at
December 31, 2001 to $2,298,024 at September 30, 2002 due primarily to the
increase in their market value. We are required to maintain this approximate
amount of securities for regulatory purposes which represents our capital and
surplus.
15
We face certain uncertainties which may have an adverse impact on our
liquidity in future periods, including:
* The annuity contracts which have been ceded to us generally
guarantee a minimum annual interest rate of 2.5% which we pay
to the contract holders. If the amount of revenues we generate
from investment income are not sufficient to pay the interest
to the contract holders, we will be required to use our cash
and cash equivalents, including our capital and surplus, to
make up any shortfall in the guaranteed yield to the contract
holder,
* If the ceding company should either select investments which
deviate from our agreed standards or perform poorly in the
management of these assets, our investment income will be
adversely affected,
* During periods of rising interest rates, we may be unable to
take full advantage of the spread between earnings on our
investments and costs associated with annuity contracts
because our contract holders may elect to terminate the
existing contracts and obtain replacement contracts with
higher guaranteed yield contracts, and
* While our funds withheld at interest subject to restrictions
are held in long-term investments with maturities layered to
anticipate the surrender of the corresponding annuity
policies, during periods of rising interest rates when
contract holders may elect to terminate the existing contacts
and obtain replacement contracts with higher guaranteed yields
we may not have sufficient liquidity in these investments and
would be required to utilize a portion of our capital and
surplus to fund these early surrenders.
We believe, however, that the specific risk of funds withheld being
insufficient to cover surrendered policies is minimal in that the conditions of
the annuity contracts provide for surrender charges in an amount sufficient to
cover the deferred policy acquisition costs incurred in connection with the
ceded risk.
We have incurred cumulative losses through September 30, 2002. At
September 30, 2002 we have an accumulated deficit of $433,664. We may continue
to incur losses during the future. We do not have any present commitments for
capital expenditures. Dr. Bishop, our principal shareholder, has historically
advanced us funds from time to time for operating expenses. Dr. Bishop has
provided us with a $250,000 working capital line, of which $70,777 was
outstanding at September 30, 2002, which represented approximately $25,000 due
him for a note payable that was outstanding and approximately $46,000 in
accounts payable. This note is not callable nor can it be cancelled prior to its
August 2004 maturity date. We believe that available borrowings under this
credit line will be sufficient to fund any working capital deficits we may incur
for the next 12 months based upon our current level of operations. However, if
we wish
16
to expand our operations, we will need additional working capital beyond the
commitment from our principal shareholder. We cannot guarantee you that we will
be successful in obtaining capital upon terms acceptable to us, if at all. Our
failure to secure necessary financing could have a material adverse effect on
our financial condition and results of operations.
OUR BUSINESS
OUR HISTORY
We were formed in Florida in May 1998 originally under the name B&B
Capital Group, Inc. Roxanne K. Beilly, Esq. was our sole officer, director and
shareholder from our formation until April 30, 2001. Ms. Beilly, who
incorporated our company as a shelf corporation, or a privately-held corporation
which has no business, operations or assets to be made available to her clients
for use in possible business combinations as part of her legal practice, was
issued 150 shares of our common stock as compensation for her services in
founding our company. These shares were issued in reliance on an exemption from
registration provided by Section 4(2) of the Securities Act.
In April 2001 T. Lynn Tarpy, Esq. was elected our sole officer and
director, and Ms. Beilly resigned her positions with our company. Mr. Tarpy
served in these capacities from April 2001 until the closing of our transaction
with American Life in June 2002 described below. As compensation for his
services to us, in February 2002 Mr. Tarpy was issued 25,000 shares of our
common stock. These shares were issued in reliance on an exemption from
registration provided by Section 4(2) of the Securities Act.
In June 2002 the shareholders of American Life exchanged a total of
319,799 shares of common stock, which was 100% of the issued and outstanding
shares American Life common stock, for 319,799 shares of our common stock. Under
the terms of the share exchange, the American Life shareholders received one
share of our common stock for each share of American Life owned by them prior to
the transaction. This share exchange, which was structured to be a tax-free
exchange under the Internal Revenue Code of 1987, as amended, resulted in a
change in our control. Mr. Tarpy, our then sole officer and director resigned at
the closing of the share exchange and our current officers and directors, who
were the officers and directors of American Life, were appointed. No individuals
or entities received any compensation, including finder's fees, in connection
with the share exchange. Following the share exchange, in July 2002 we changed
our name to American Life Holding Company, Inc.
American Life, which is now a wholly-owned subsidiary, was established
as a Tennessee corporation in 1992. Between its founding and November 1997,
American Life's activities were limited to pre-operating matters such as
obtaining capital and the appropriate licenses from the State of Tennessee to
conduct its proposed business activities. In November 1997 it was issued a
Certificate of Authority by the Tennessee
17
Department of Commerce and Insurance allowing it to accept life, health and
annuity insurance risks on either a primary or reinsurance basis. American
Life's activities are currently focused on the reinsurance of fixed rate annuity
insurance products.
Contemporaneously with the closing of the share exchange with American
Life, in June 2002 we sold an aggregate of 21,500 shares of our common stock to
21 accredited investors in a private transaction exempt from registration under
the Securities Act in reliance on Rule 506 and Regulation D of the act. We
received gross proceeds of $107,500 from this offering. The closing of this
offering was conditioned upon the closing of the share exchange, and the funds
received by subscribers were deposited into an escrow account pending the
satisfaction of this condition precedent. Upon the closing of the share
exchange, the subscriptions were accepted by us and the private placement
closed. We used those proceeds for working capital.
OUR BUSINESS
We are a reinsurer of single premium deferred annuity and flexible
premium deferred annuity contracts for tax qualified and non-qualified
investments. The annuity contracts which we reinsure are subject to
discretionary surrender or withdrawal by our customers. These policies and
contracts represent assumed reinsurance with Allianz Life Insurance Company of
North America and Hannover Life Reassurance Company of America. When an
insurance company agrees to assume the insurance risk of another insurance
company, this transfer of liability is known as assumed reinsurance. The
assuming insurance company, or the reinsurer, puts its assets at risk for the
opportunity to participate in the earnings of the assumed policies. Under our
arrangement with these companies, we accepted a portion of the liability under
these annuity policies and in return received a proportionate amount of the
asset of those policies. On our behalf these companies invest premiums and
deposits to provide cash flow that we use to fund future benefits and expenses.
When the policies are sold by the insurance company, the purchasers of
those policies pay for the policy on the front end, and depending upon the
policy purchased, are either guaranteed a fixed or variable return over the life
of the policy. Our total revenues include revenues generated from investment
income which are handled on a funds withheld basis by Allianz Life or Hannover
Life. When an insurance company holds the assets of another insurance company,
and the revenues generated by those assets, those assets and revenues are held
on a funds withheld basis. Generally, a larger insurance company, such as
Allianz Life or Hannover Life, will hold the assets for smaller, less
creditworthy insurance company, such as ours. This arrangement allows the
smaller company to participate in reinsurance transactions and also permits it
to participate in the larger insurance company's bond selection and portfolio
management.
Under our agreements with Allianz Life and Hannover Life, we pay our
pro-rata share of the acquisition costs of the annuity contracts and put the
assets, represented by the ceded portion of the annuity contracts, at risk. If
the gross investment income
18
from these assets is not sufficient to pay the guaranteed return, we are at risk
for the difference. In turn, any surplus between these two amounts represents
investment spread to us.
When we acquire an annuity contract from the ceding company, the amount
of the liability which appears on our financial statements equals the face
amount of the annuity contract acquired. The corresponding asset is equal to the
total of the amount of the invested funds held by the ceding company and the
deferred acquisition cost paid to the ceding insurance company, which is
typically 5% to 7% of the contract amount. For example, if we acquire a block of
annuity contracts which represent $1,000,000 in the face amount of the contracts
and we agree to pay a 5% deferred acquisition cost, we book a liability of
$1,000,000, which is reflected as contract holder deposits on our balance sheet,
and a total of $1,000,000 of assets on our balance sheet. These assets include
$950,000 in funds withheld at interest subject to restrictions and $50,000
unamortized policy acquisition cost.
When we acquire an annuity contract, we defer a portion of the related
acquisition costs by establishing a deferred acquisition cost asset on our
balance sheet. This asset is amortized over the expected term of the acquired
annuity contract based on certain assumptions related to the contract. To the
extent surrender, withdrawal or recapture activity is greater than we assumed,
we may incur a non-cash charge to write down the deferred acquisition costs
asset, which may be partially offset by recapture and surrender
Although we are licensed by the State of Tennessee to accept life,
health and annuity insurance risks on either a primary or reinsurance basis, our
operations have historically been limited to assuming a ceded portion of
liabilities under annuity policies which have been issued by Allianz Life. We
currently reinsure single premium and flexible premium fixed annuity contracts.
Under the terms of these contracts, the contract holders can terminate the
contract at any time. We are then required to return the principal together with
any accrued but unpaid interest to the contract holder. Because we have incurred
costs in acquiring these annuity contracts, the annuity contracts impose
penalties against principal and interest to offset contract termination in the
initial policy years. The penalties are calculated in advance of the initial
policy sale and are sufficient to cover the acquisition costs.
We have acquired all of our existing business from Allianz Life or
Hannover Life. These contracts were primarily sold by those companies under
Allianz Life's Ultima Annuity System, a personal computer application that
produced point of sale illustrations for over 1700 annuity contracts and
included a comprehensive personal computer based network to support the initial
issuance and ongoing administration of these annuity contracts. In 2001 Allianz
Life discontinued this program based upon an internal refocus of its marketing
efforts. We do not presently have any plans to expand our business beyond the
purchase of blocks of reinsurance risk related to annuity contracts.
19
As discussed elsewhere in this prospectus, we do not have sufficient
capital and surplus to purchase additional blocks of reinsurance risk. We
believe that once we have additional capital and surplus available to us that we
will have no difficulty purchasing additional reinsurance blocks in the
secondary market. While there is no assurance that our company will be able to
purchase any suitable blocks of reinsurance risks in the future, we have
contacts with a number of intermediaries and brokers who have indicated that
they will seek to find blocks of reinsurance risks for us to purchase.
If potentially suitable blocks of reinsurance are located, and assuming
we have additional capital and surplus available to us, of which there is no
guarantee, our management with the assistance of our actuary will test these
blocks of risk to determine if they have acceptable levels of profit. If we find
blocks of risk which exhibit acceptable levels of profit, we may agree to
purchase or reinsure these blocks of risk. Purchase prices on blocks we will
consider will generally not be less than $500,000 or greater than $5 million.
REINSURANCE OPERATIONS IN GENERAL
Reinsurance is the business in which a reinsuror agrees to indemnify a
"primary" or "ceding" insuror against all or part of the risks assumed by the
primary insuror under a policy or policies it has issued. Among its benefits,
reinsurance offers primary insurors the opportunity to increase underwriting
capacity, write larger individual risks, reduce financial leverage, stabilize
operating results, enter new markets with shared underwriting risk, protect
against catastrophic losses and obtain consultative underwriting and risk
management services.
Treaty reinsurance refers to automatic reinsurance coverage for all or
a portion of a specified class of risks ceded by the primary insuror, while
facultative reinsurance involves underwriting of individual risks. Pro rata, or
proportional reinsurance, describes all forms of reinsurance in which the
reinsuror shares in a proportional part of the original premiums and losses of
the business ceded by the primary company. Excess, or non-proportional
reinsurance, refers to reinsurance which indemnifies the primary company for
that portion of the loss that exceeds an agreed-upon amount of "retention."
The reinsurance industry's overall profitability has historically been
subject to cyclicality, principally due to the insurance industry's underwriting
cycle, overall economic conditions, investment returns, industry capital levels
and insured catastrophic events. The reinsurance industry, both domestically and
globally, has recently experienced consolidation, as reinsurors seek to expand
their markets, obtain critical mass in certain markets and further diversify
their risks. In addition, there has been a shift in recent years in primary
insurors, reinsurance purchases toward better capitalized and more creditworthy
reinsurors.
20
FIXED RATE ANNUITY PRODUCTS
Many life insurance companies and other insurors issue fixed rate
annuities similar to those reinsured by our company. Purchasers of an annuity
generally pay a lump sum premium to the insurance company issuing the annuity.
The annuity contract provides that the premium will accumulate interest at a
fixed or guaranteed rate. The interest accrues tax free until the owner of the
annuity makes withdrawals. The annuity contract provides that a death benefit is
paid if the owner dies before annuity payments commence. A commission is
normally paid to the agency or agent selling an annuity. Average commissions can
range from 5% to 8% of the total premium paid for the annuity. The balance of
the premium is invested by the issuer of the annuity. The issuer of the annuity
bears all investment risk, since the annuity contract guarantees a fixed rate of
interest to the purchaser of the annuity. The issuer of the annuity protects
against interest rate risk by purchasing fixed rate investments with the annuity
premium. The investments are generally high grade corporate and government
bonds. These investments normally have an interest rate payable to the issuer
which exceeds the guaranteed or contract rate in the annuity contract by between
1% and 2.50%. This is possible since the annuity contract guaranteed rate is a
tax-deferred rate. Purchasers will therefore accept a lower rate guarantee in
the annuity than they would if they were purchasing a similar fixed rate
investment which was taxable.
The difference between the guaranteed rate in an annuity contract and
the rate obtained by the issuer of the annuity on its investments is generally
considered to be the "spread" on the annuity contract. Issuers of annuities
collect large amounts of premiums and then invest the premiums in large blocks
of corporate and government fixed rate bonds. These investments generally have a
maturity similar to the underlying maturity of the annuity contracts which
generated the premiums involved. The "spread" on these investments represents
the issuer's profit from the transaction. The "spread" is earned annually, since
most annuities are multi-year contracts.
There are certain risks, however, associated with the investment of the
premiums in the bond market. Potential bond defaults present a major concern.
Defaults on bonds in which the insurance company's assets and premiums are
invested represent a reduction in any insurance company's ability to acquire and
retain insurance premiums - a source of revenue for the company. Since these
companies earn interest from the premiums, any reduction in the company's
ability to retain premiums lowers the profit of the company. Bond defaults can
also represent a decrease in the insurance company's capital and surplus
accounts, and the additional loss of earned interest income associated with the
defaulted bonds. Many insurance companies, such as ours, seek to lower this risk
by investing only in high grade corporate and government bonds.
When a reinsuror like our company agrees to reinsure a portion of a
fixed-rate annuity contract, it assumes a proportionate risk on the underlying
contract. Nonetheless, it also owns a portion of the premiums which have been
invested in the fixed-rate securities. It is therefore generally protected from
interest rate risk, since the fixed-rate investments normally have a term to
maturity equivalent to the underlying
21
annuity contract and generally bear a fixed interest rate higher than the
guaranteed rate in the underlying annuity contract.
REINSURANCE TREATIES
We are a party to reinsurance treaties, or contracts, with Allianz
Life, the North American representative of one of the 10 largest insurance
organizations in the world, and Hannover Life Reassurance Company of America.
Under these agreements, the reinsured ceded to us 15% of its liability under
certain annuity policies, not to exceed the State of Tennessee's statutory limit
based upon our then available capital and surplus. The reinsurance is
facilitated through a funds withheld co-insurance agreement wherein Allianz Life
or Hannover Life (depending upon where we acquired the policies) withholds the
portion of the annuity funds which are to be reinsured by us and invests them in
fixed-rate investments on our behalf. While these funds are maintained and
invested by Allianz Life or Hannover Life, they are our assets. These funds are
invested in fixed-rate products such as investment grade corporate and
government bonds which will guarantee a return to us which exceed the interest
rate payable on the underlying fixed-rate annuity contract. In general, the
difference or spread between the invested funds and the underlying annuity
contract ranged from 3.83% to 6.90% for the nine months ended September 30,
2002, from 3.83% to 6.90% for the fiscal year ended December 31, 2001 and from
4.40% to 7.05% for the fiscal year ended December 31, 2000.
As indicated previously, these reinsurance treaties are done on a
"funds withheld coinsurance basis." Under this approach, the appropriate share
of premiums on each annuity is invested by Allianz Life or Hannover Life on our
behalf in investment grade fixed-income securities. This portion of the premiums
is held in an account on our behalf and Allianz Life or Hannover Life actually
establishes a liability on its books for the amounts of investments owned by us
and the balance in our funds withheld account is adjusted by the reinsured on a
monthly basis. The monthly adjustment is computed by deducting the total amount
of the statutory reserves on the last day of the preceding month on the portions
of the policies subject to the reinsurance agreement from the total amount of
the statutory reserves on the last day of the current month on the portions of
the policies reinsured thereunder. The reinsured also credits investment income
to us monthly on that portion of the investments subject to the agreement. We
carry the portion of the securities held on our behalf by Allianz Life or
Hannover Life as an asset on our financial books and records.
We entered into the agreement with Allianz Life effective December 1,
1996. We reimburse Allianz Life for certain acquisition costs incurred by it
related to the policies we reinsure, including commissions ranging from 2.25% to
5.25% depending upon the type of policy written, together with administrative
allowances in amounts ranging from 0.85% for the first $25,000,000 of premiums
collected to 0.625% for all premium collected in excess of $50,000,000. These
amounts are reflected on our balance sheet as "Deferred acquisition costs" and
are expensed by us over the life of
22
the annuity contracts. We also reimburse Allianz Life for any state premium
taxes or any state guaranty fund assessments which it may be required to pay on
that portion of the annuity contracts reinsured by us. This agreement can be
terminated by either party upon 90 days prior written notice with respect to
reinsurance not yet in place. After any termination of the agreement, we will
still remain responsible on all reinsurance placed under the agreement until the
termination or expiry of the insurance reinsured. Allianz may also terminate
this agreement upon 90 days written notice with respect to policies which have
attained the fifteenth or any subsequent anniversary of having been reinsured
under the agreement.
We entered into the agreement with Hannover Life effective April 1,
1998. Under the terms of this agreement, we pay Hannover Life a commission of
6.25% related to the annuity contracts we reinsure. We also pay it an
administrative allowance on those annuity contracts which includes an
acquisition allowance ranging from 0.55% for the first $20,000,000 of premiums
collected up to 0.35% for all premiums collected in excess of $200,000,000, a
maintenance allowance ranging from zero to 0.0075% of the amount of the policy
and a override allowance of 0.0125% of the amount of the policy. As with the
fees and expenses paid to Allianz Life, these amounts are reflected on our
balance sheet as "Deferred acquisition costs" and expensed by us over the life
of the annuity contract. This agreement can be terminated by either party upon
30 days prior written notice with respect to reinsurance not yet in place. After
any termination of the agreement, we will still remain responsible on all
reinsurance placed under the agreement until the termination or expiry of the
insurance reinsured, unless Hannover recaptures the reinsured policies.
COMPETITION
There are virtually no barriers to entry to reinsurance industry and
competitors may be domestic or foreign, licensed or unlicensed. We compete with
a number of other reinsurance companies, including:
* Vesta Insurance Group,
* Americo Life Group,
* Central United Group,
* Independence Holding Group,
* London Life Reinsurance Company,
* Standard Management Group,
* Swiss Reinsurance Group, and
* NGL Insurance Group.
Reinsurors compete on the basis of reliability, financial strength and
stability, ratings, underwriting consistency, service, business ethics, price,
performance, capacity, terms and conditions. The majority of our competitors
have greater access to capital, longer operating histories, and a more
substantial infrastructure. We cannot guarantee you that we will ever
effectively compete within our industry segment.
23
GOVERNMENT REGULATION
Our American Life subsidiary is subject to regulations of the State of
Tennessee, the jurisdiction in which it is licensed or authorized to do
business. Insurance laws and regulations, among other things, establish minimum
capital requirements and limit the amount of dividends, distributions, and
intercompany payments affiliates can make without prior regulatory approval.
None of these requirements apply to American Life Holding. As set forth below,
the minimum capital requirements in the State of Tennessee are $1,000,00 in
capital plus $1,000,000 in surplus and at each of December 31, 2001 and
September 30, 2002 American Life's capital and surplus exceeded these minimum
amounts. Under the insurance laws of the State of Tennessee, our American Life
subsidiary cannot pay dividends nor make distributions without the prior
approval of the Tennessee Insurance Department. American Life has never paid any
dividends nor made any distributions since inception and we do not anticipate
that it will ever seek the approval of the Tennessee Insurance Department to do
so. Intercompany transactions between American Life and American Life Holding
are subject to the following standards:
* the terms must be fair and reasonable;
* charges or fees for services performed must be reasonable;
* expenses incurred and payment received which is allocated to
American Life must be in conformity with customary insurance
practices;
* the books, accounts and records of each party to all
transactions must be maintained so as to clearly and
accurately disclose the nature and details of the
transactions, including accounting information to support the
reasonableness of the charges or fees; and
* American Life's surplus as regards to policyholders following
any dividends or distributions to shareholder affiliates must
be reasonable in relation to its outstanding liabilities and
adequate to its financial needs. However, as set forth above,
we do not foresee that American Life will ever pay any
dividends or make any distributions.
In addition, in the event American Life should wish to enter into certain
intercompany transactions described below, it must notify the Tennessee
Insurance Department at least 30 days prior to the expected date of the
transaction(s) and providing the State Insurance Commissioner does not
disapprove of such transaction(s) within this 30 day period, it is then free to
consummate such transaction(s). The types of intercompany transactions which
fall into this notification process include:
* sales, purchases, exchanges, loans, extensions of credit,
guarantees or investments if such transactions equal or exceed
3% of American Life's admitted assets or 25% of its surplus;
* loans or extensions of credit to any person who is not an
affiliate if American Life makes the loan or extensions of
credit with the
24
understanding that the proceeds of the transactions will be
used to make loans or extensions of credit to, to purchase
assets of, or to make investments in, any affiliate of
American Life if such transactions equal or exceeds 3% of
American Life's admitted assets or 25% of its surplus;
* reinsurance agreements in which the reinsurance premium or a
change in American Life's liabilities equals or exceeds 5% of
its surplus;
* management agreements, service contracts and all cost-sharing
arrangements other than cost allocations based on generally
accepted accounting principles; and
* any material transaction which the State Insurance
Commissioner may determine adversely affects the interests of
American Life's policyholders.
American Life is in compliance with all of the foregoing regulations.
Tennessee law also imposes restrictions on the amounts and type of
investments insurance companies like American Life may hold. These regulations
generally restrict the investments to government and high grade corporate bonds,
common and preferred stock issued by U.S. corporations which meet certain
guidelines specified in the regulations, promissory notes secured by the pledge
of bonds or other securities, obligations of certain specified federal agencies,
bonds issued or guaranteed by certain specified banks, shares of federally
insured savings and loan associations, loans secured by mortgages, loans or
investments in real estate and certain other specified investments. The amount
of funds which can be invested in these permissible investments is limited to a
percentage of the insurance company's assets for certain of the categories
described above, including common and preferred stock, bonds issued or
guaranteed by certain specified banks, shares of federally insurance savings and
loan associations and loans investments in real estate.
GENERAL
The insurance laws and regulations, as well as the level of supervisory
authority that may be exercised by the various insurance departments, vary by
jurisdiction, but generally grant broad powers to supervisory agencies or
regulators to examine and supervise insurance companies and insurance holding
companies with respect to every significant aspect of the conduct of the
insurance business, including approval or modification of contractual
arrangements. These laws and regulations generally require insurance companies
to meet certain solvency standards and asset tests, to maintain minimum
standards of business conduct, and to file certain reports with regulatory
authorities, including information concerning their capital structure,
ownership, and financial condition, and subject insurers to potential
assessments for amounts paid by guarantee funds.
American Life prepares its statutory financial statements in conformity
with accounting practices prescribed or permitted by the State of Tennessee.
American Life is required to file annual, semi-annual, or quarterly statutory
financial statements in the
25
State of Tennessee. Prescribed statutory accounting practices include a variety
of publications of the National Association of Insurance Commissioners ("NAIC"),
as well as state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not otherwise
prescribed. Any permitted statutory accounting practices that American Life
follows do not have a significant impact on statutory surplus or statutory net
income.
Additionally, American Life is subject to periodic examination by the
insurance department of the State of Tennessee in which it is licensed. The most
recent examination of American Life by the Tennessee Department of Insurance was
completed for the year ended December 31, 2001. The report on this examination
contained no material adverse findings.
Although some of the rates and policy terms of U.S. direct insurance
agreements are regulated by state insurance departments, the rates, policy
terms, and conditions of reinsurance agreements generally are not subject to
regulation by any regulatory authority. However, the NAIC Model Law on Credit
for Reinsurance, which has been adopted in most states, imposes certain
requirements for an insurer to take reserve credit for reinsurance ceded to a
reinsurer. Generally, the reinsurer is required to be licensed or accredited in
the insurer's state of domicile, or security must be posted for reserves
transferred to the reinsurer in the form of letters of credit or assets placed
in trust.
In recent years, the NAIC and insurance regulators increasingly have
been re-examining existing laws and regulations and their application to
insurance companies. In particular, this re-examination has focused on insurance
company investment and solvency issues, and, in some instances, has resulted in
new interpretation of existing law, the development of new laws, and the
implementations of non-statutory guidelines. The NAIC's codification initiative
has produced a comprehensive guide of revised statutory accounting principles.
While the NAIC approved a January 1, 2001 implementation date for the newly
developed guidance, companies must adhere to the implementation date adopted by
their state of domicile. In 2001 the State of Tennessee, American Life's state
of domicile, completed its review of the codification to determine its effect on
existing state laws and regulations. As a result, the State of Tennessee adopted
the codification with an effective date of January 1, 2001. The requirements did
not have a material impact on the statutory surplus of American Life.
CAPITAL REQUIREMENTS
We are required by the State of Tennessee to maintain minimum capital
and surplus of $1,000,000 each. Our statutory capital at both December 31, 2001
and September 30, 2002 was $1,134,176. Our statutory surplus at December 31,
2001 and September 30, 2002 was $1,301,741 and $1,226,421, respectively. In
addition, valuation reserves are imposed by Tennessee state statute which has
restrictions on
26
retained earnings. Restrictions of retained earnings under these valuation
reserves were approximately $8,700 and $29,000 at each of December 31, 2001 and
September 30, 2002.
Under the laws of the State of Tennessee, the types of instruments in
which we may invest our capital and surplus are limited to government
securities, bonds and certain equity securities. At September 30, 2002 our
capital and surplus are invested in:
* corporate debt securities with a fair market value of
$1,020,788 and amortized cost of $964,243;
* obligations of states and political subdivisions with a fair
market value of $1,120,812 and amortized cost of $1,046,462;
and
* debt instruments of utility companies with a fair market value
of $156,424 and amortized cost of $151,511.
In July 1997, we entered into an agreement with Martin & Company, L.P.
to provide investment advisory services to us in the supervision and management
of our assets in its investment account. Under this agreement, Martin & Company,
L.P. has discretion to direct the investment of our funds. For its services, we
pay Martin & Company, L.P. an annual fee on fixed income accounts of 0.30% of
the first $5 million under management, and 0.25% of all additional funds over $5
million.
EMPLOYEES
As of November 30, 2002, we had one full time employee, our president
and CEO Mr. Brown. Mr. Brown devotes all of his time and attention to our
business. As we continue to implement our business plan, we anticipate hiring
additional full-time employees. None of our employees is represented by union or
other collective bargaining groups. We believe our relationship with our
employees is good, and we do not currently foresee a shortage of qualified
personnel needed to operate our business.
PROPERTY
We rent approximately 530 square feet of commercial office space at
4823 Old Kingston Pike, Suite 125, Knoxville, Tennessee on a month to month
basis from an unaffiliated third party for $700.00 per month. This office space
is sufficient for our foreseeable needs. In the event we were required to
relocate our offices, we do not believe we would have any difficultly in
securing similar facilities at a comparable price.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
27
CHARGES IN AMERICAN LIFE'S CERTIFYING ACCOUNTANT
In conjunction with the audit of American Life's financial statements
for the year ended December 31, 2001, on December 6, 2001 American Life
dismissed Rodefer, Moss & Co PLLC, its then principal independent accountant.
The report of Rodefer, Moss & Co PLLC on American Life's financial statements
for the year ended December 31, 2001 did not contain an adverse opinion or
disclaimer of opinion, nor was it modified as to uncertainty, audit scope, or
accounting principles. During the two most recent fiscal years and the
subsequent interim period through the date of dismissal, there were no
disagreements between American Life and Rodefer, Moss & Co PLLC on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which, if not resolved to Rodefer, Moss & Co PLLC's
satisfaction, would have caused it to make reference to the subject matter of
the disagreement(s) in connection with its report.
On January 3, 2002 American Life engaged Henderson Hutcherson &
McCullough, PLLC to act as its principal independent accountant. Prior to such
engagement, American Life did not consult with Henderson Hutcherson & McCullough
PLLC regarding the application of accounting principles to a specific completed
or contemplated transaction, or the type of audit opinion that might be rendered
on its financial statements. The change in our principal independent accountants
from Rodefer, Moss & Co PLLC to Henderson Hutcherson & McCullough PLLC was
approved by American Life's board of directors.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Name Age Positions
Archer W. Bishop, Jr., M.D. 58 Chairman of the Board
Stanley P. Brown, III 51 President, CEO and director
Lila K. Pfleger 42 Secretary, Treasurer and director
Oscar R. Scofield 61 Director
John H. Bell, M.D. 68 Director
DR. ARCHER W. BISHOP, JR. Dr. Bishop has served as our chairman since
June 2002, and has served as chairman of the board of our American Life
subsidiary since its inception in 1992. Dr. Bishop, an orthopedic surgeon,
practiced from 1968 until retiring in 2000. Dr. Bishop also serves as chairman
of the Board of the Thompson Cancer Survival Center, chairman of the Covenant
Health Board Accountable Health Committee and a director of the Lucille Thompson
Family Foundation. Dr. Bishop received his Bachelor of Science degree from the
University of Tennessee, Knoxville in 1965 and this Doctor of Medicine degree
from the University of Tennessee Medical School in 1968.
28
STANLEY P. BROWN, III. Mr. Brown has served as our president and a
member of our board of directors since June 2002, and has held the same
positions at our American Life subsidiary since its inception in 1992. From 1990
to 1992 Mr. Brown was director of operations at DeRoyal Life Insurance Company,
Knoxville, Tennessee. Prior to joining DeRoyal Life Insurance Company, Mr. Brown
was a senior underwriter for various insurance companies. Mr. Brown holds a
Series 7 Registered Representative's license issued by the NASD, which is
currently on file with Lanrick Securities, LLC in Knoxville, Tennessee. Mr.
Brown received both a Bachelor of Arts and a Bachelor of Science degree from the
University of Tennessee in 1973.
LILA K. PFLEGER, CPA. Ms. Pfleger has served as our secretary,
treasurer and a member of our board of directors since June 2002, and has served
in the same capacities at our American Life subsidiary since 1992. Since 1988
Ms. Pfleger has served as business manager for TABCO, a Knoxville, Tennessee
company involved in family wealth management, and since 1988 she has also served
as executive director for the Lucille S. Thompson Family Foundation, a
Knoxville, Tennessee based private foundation where Ms. Pfleger is involved in
community and grants management. Prior to joining TABCO, Ms. Pfleger was also
employed as a tax supervisor for Coopers & Lybrand and a staff accountant for
Lawson & Synder, P.C. Ms. Pfleger, who has been a certified public accountant
since 1984, is a member of the American Institute of Certified Public
Accountants and the Tennessee Society of Certified Public Accountants. She
received her Bachelor of Science with a major in accounting from the University
of Tennessee in 1982.
OSCAR R. SCOFIELD. Mr. Scofield has been a member of our board of
directors since June 2002, and has served as a member of the board of directors
of our American Life subsidiary since 1995. Since September 2000 Mr. Scofield
has served as president of Scottish Re (U.S.), Inc., a Charlotte, North Carolina
based subsidiary of Scottish Annuity & Life Holdings, Ltd. (NYSE: SCT) which
provides reinsurance solutions to reinsurance markets throughout the world and
issues customized variable life and annuity products for high net worth
individuals, families and institutions. Mr. Scofield has been a member of the
board of directors of Scottish Re (U.S.), Inc. since December 2000. From 1995
until September 2000 Mr. Scofield was a principal of Chapfield Corporation, a
North Carolina-based reinsurance broker. Prior to founding Chapfield
Corporation, Mr. Scofield served in various upper management positions with
insurance companies. Mr. Scofield received a Bachelor of Arts in Social Studies
from Wartburg College in 1963, and has performed post-graduate work at the
University of Northern Iowa, completed the American Management Association's
Senior Management Program, and completed various taxation, reinsurance and
financial analysis courses offered by Booke & Company.
JOHN H. BELL, M.D. Dr. Bell has been a member of our board of directors
since June 2002, and has served as a member of the board of directors of our
American Life subsidiary since 1992. Dr. Bell, a retired orthopedic surgeon, is
a member of the American Academy of Orthopaedic Surgeons, the America College of
Surgeons and
29
the State of Tennessee Medical Society. Dr. Bell received both his A.B.
degree and Doctor of Medicine from Duke University.
There are no family relationship between any of the executive officers
and directors. Each director is elected at our annual meeting of shareholders
and holds office until the next annual meeting of shareholders, or until his
successor is elected and qualified.
COMMITTEE OF THE BOARD OF DIRECTORS
In August 2002 we established an audit committee of our board of
directors. The audit committee recommends the appointment of our independent
auditors, reviews our internal accounting procedures and financial statements
and consults with and reviews the services provided by our internal and
independent auditors, including the results and scope of their audit. The
members of the audit committee are Ms. Pfleger, Dr. Bell and Mr. Scofield.
EMPLOYMENT AGREEMENTS
We are not a party to any employment agreements. In the future we may
seek to enter into employment agreements with one or more parties to secure
their services to us. If we should enter into any employment agreements in the
future, we believe that the terms of those employment agreements will be
reasonably fair to us.
EXECUTIVE COMPENSATION
Cash Compensation
The following table summarizes all compensation recorded by us in each
of the last two fiscal years for our Chief Executive Officer and each other
executive officers serving as such whose annual compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
- --------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
- ----------------- ------- ----------------------------------- ----------------------------- ----------- ---------------------
Name and Year Salary Bonus Other Annual Restricted Securities LTIP All Other
Principal ($) ($) Compensation Stock Underlying Payouts Compensation
Position ($) Award(s) Options/SARs
($) (#)
- ----------------- ------- ---------- ---------- ---------------- ------------ ----------------- ----------- -----------------
Stanley P. 2001 55,000 $10,532
Brown III (1)
- ----------------- ------- ---------- ---------- ---------------- ------------ ----------------- ----------- -----------------
2000 57,292 $ 5,000
- ----------------- ------- ---------- ---------- ---------------- ------------ ----------------- ----------- -----------------
1999 46,875 $ 5,000
- ----------------- ------- ---------- ---------- ---------------- ------------ ----------------- ----------- -----------------
T. Lynn Tarpy
(2) 2001 - - - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
30
(1) Mr. Brown has served as our president since June 2002 following the share
exchange with our the shareholders of our American Life subsidiary. He has
served as president of American Life since its inception in 1992. The amounts
reflected as his salary reflect the amounts paid by American Life. All other
compensation includes $5,417 for car allowance and $5,115 for health insurance
and disability coverage for fiscal 2001, and $5,000 for a car allowance for each
of fiscal 2000 and 1999.
(2) Mr. Tarpy served as our president from April 2001 until June 2002. In
February 2002 we issued him 25,000 shares of our common stock as compensation
for services in connection with the reorganization. For accounting purposes we
have valued those shares at $5.00 per share which equals the price we sold
shares at in a subsequent private placement.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- ---------------------------------------------------------------------------------------------------------------------
Individual Grants
- ----------------------------------------------------------------------------------------------------------------------
Name Number of % of Total Exercise or Base Expiration
Securities Options/SARs Price ($/Sh) Date
Underlying Granted to
Options/SARs Employees in Fiscal
Granted (#) Year
- ----------------------- ----------------------- -------------------------- -------------------------- ----------------
Stanley P. 0 - - -
Brown, III
- ----------------------- ----------------------- -------------------------- -------------------------- ----------------
T. Lynn Tarpy (2) 0 - - -
- ----------------------- ----------------------- -------------------------- -------------------------- ----------------
AGGREGATE OPTION/SAR EXERCISES IN FISCAL YEAR 2001 AND FY-END OPTION/SAR VALUES
- ------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised In-the-
Underlying Unexercised Money Options/SARs at FY End
Options/SARs at FY-End ($)
(#)
- ----------------------------------------------- --------------------------------- --------------------------------------
Name Shares Value Exercisable Unexercisable Exercisable Unexercisable
Acquired Realized
on ($)
Exercise
(#)
- ---------------- ------------- ------------- ----------------- ------------------ ---------------- ------------------
Stanley P. 0 - - - - -
Brown, III
- ---------------- ------------- ------------- ----------------- ------------------ ---------------- ------------------
T. Lynn 0 - - - - -
Tarpy
- ---------------- ------------- ------------- ----------------- ------------------ ---------------- ------------------
31
2002 STOCK OPTION PLAN
Our 2002 Stock Option Plan was adopted by our Board of Directors and
the holders of a majority of issued and outstanding capital stock in August
2002. Under the plan, we have reserved an aggregate of 2,000,000 shares of
common stock for issuance pursuant to options granted under the plan. As of the
date of this prospectus, there are options outstanding to purchase 11,000 shares
of our common stock at an exercise price of $10.00 per share.
The stated purpose of the plan is to increase our employees',
advisors', consultants' and non-employee directors' proprietary interest in the
company, and to align more closely their interests with the interests of our
shareholders, as well as to enable us to attract and retain the services of
experienced and highly qualified employees and non-employee directors. The plan
is administered by our Board of Directors who will determine, from time to time,
those of our officers, directors, employees and consultants to whom options will
be granted, the terms and provisions of the respective options, the dates such
options will become exercisable, the number of shares subject to each option,
the purchase price of such shares and the form of payment of such purchase
price. All questions relating to the administration of the plan, and the
interpretation of its provisions are to be resolved at the sole discretion of
the Board of Directors.
Options to purchase common stock may be issued under the Plan. Options
granted under the plan may either be options qualifying as incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended, or
options that do not so qualify. In addition, the plan also allows for the
inclusion of a reload option provision which permits an eligible person to pay
the exercise price of the plan option with shares of common stock owned by the
eligible person and receive a new plan option to purchase shares of common stock
equal in number to the tendered shares. Any incentive stock option granted under
the plan must provide for an exercise price of not less than 100% of the fair
market value of the underlying shares on the date of such grant, but the
exercise price of any incentive stock option granted to an eligible employee
owning more than 10% of our common stock must be at least 110% of such fair
market value as determined on the date of the grant.
The term of each plan option and the manner in which it may be
exercised is determined by the Board of Directors, provided that no plan option
may be exercisable more than 10 years after the date of its grant and, in the
case of an incentive stock option granted to an eligible employee owning more
than 10% of our common stock, no more than five years after the date of the
grant. In any case, the exercise price of any incentive stock option granted
under the plan will not be less than the fair market value of the common stock
on the date of grant, or less than 110% of fair market value on the date of
grant for options granted to an eligible employee owning more than 10% of our
common stock. The exercise price of non-qualified options will be determined by
the Board of Directors.
The per share purchase price of shares subject to plan options granted
under the plan may be adjusted in the event of certain changes in our
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of plan options granted under the plan.
Our officers, directors and employees of and consultants to our company and our
subsidiaries will be eligible to receive non-qualified
32
options under the plan. Only our officers, directors and employees who are
employed by us or by any subsidiary are eligible to receive incentive stock
options.
All plan options are non-assignable and non-transferable, except by
will or by the laws of descent and distribution, and during the lifetime of the
optionee, may be exercised only by the optionee. If an optionee's employment is
terminated for any reason, other than optionee's death or disability or
termination for cause, or if an optionee is not our employee but is a member of
our Board of Directors and optionee's service as a director is terminated for
any reason, other than death or disability, the plan option granted to the
optionee will lapse to the extent unexercised on the date of termination, unless
otherwise provided for at the time of grant. If the optionee dies during the
term of his or her employment, the plan option granted to the optionee will
lapse to the extent unexercised on the earlier of the expiration date of the
plan option or the date one year following the date of the optionee's death. If
the optionee is permanently and totally disabled within the meaning of Section
422(c)(6) of the Internal Revenue Code, the plan option granted to him or her
lapses to the extent unexercised on the earlier of the expiration date of the
option or one year following the date of the disability.
The Board of Directors may amend, suspend or terminate the plan at any
time, except that no amendment shall be made which:
* increases the total number of shares subject to the plan or
changes the minimum purchase price thereof (except in either
case in the event of adjustments due to changes in our
capitalization),
* affects outstanding plan options or any exercise right
thereunder,
* extends the term of any plan option beyond 10 years, or
* extends the termination date of the plan.
Unless the plan has been suspended or terminated by the Board of
Directors, the plan will terminate on 10 years from the date of the plan's
adoption. Any such termination of the plan will not affect the validity of any
plan options previously granted thereunder.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
As authorized by the Florida Business Corporation Law, our articles of
incorporation provide that none of our directors shall be personally liable to
us or our shareholders for monetary damages for breach of fiduciary duty as a
director, except liability for:
o any breach of the director's duty of loyalty to our company or
its shareholders;
o acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
o unlawful payments of dividends or unlawful stock redemptions
or repurchases; and
o any transaction from which the director derived an improper
personal benefit.
33
This provision limits our rights and the rights of our shareholders to
recover monetary damages against a director for breach of the fiduciary duty of
care except in the situations described above. This provision does not limit our
rights or the rights of any shareholder to seek injunctive relief or rescission
if a director breaches his duty of care. These provisions will not alter the
liability of directors under federal securities laws. Our by-laws require us to
indemnify directors and officers against, to the fullest extent permitted by
law, liabilities which they may incur under the circumstances described above.
Our articles of incorporation further provide for the indemnification
of any and all persons who serve as our director, officer, employee or agent to
the fullest extent permitted under Florida law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons
according to the foregoing provisions, or otherwise, we have been advised that
in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Roxanne K. Beilly, Esq. incorporated our company in May 1998 and
received 150 shares of our common stock, valued at our par value of $0.001 per
share, as consideration for her services in connection with the formation. Ms.
Beilly was our sole officer, director and shareholder from May 1998 until April
30, 2001 during which period no activities occurred. Ms. Beilly formed our
company as a shelf corporation, or a privately-held corporation which has no
business, operations or assets, to be made available to her clients for use in
possible business combinations as part of her legal practice. In April 2001 T.
Lynn Tarpy, Esq. was elected our sole officer and director, and Ms. Beilly
resigned her positions with our company.
Mr. Tarpy served as our sole officer and director from April 2001 until
the closing of our transaction with American Life described elsewhere in this
prospectus. As compensation for his services to us, in February 2002 he was
issued 25,000 shares of our common stock. While no other issuances of our
securities had occurred since the original issuance to Ms. Beilly which would
have resulted in an increase the fair market value of our common stock from par
value, in conjunction with the preparation of the financial statements contained
in this prospectus we elected to value the shares issued to Mr. Tarpy at $5.00
per share which equaled the price paid by investors in our private placement
which closed contemporaneously with the American Life share exchange.
Both Ms. Beilly and Mr. Tarpy are considered "promoters" of our
company. The rules and regulations of the SEC define a promoter to include any
person who, acting alone or in conjunction with one or more other persons,
directly or indirectly takes initiative in founding and organizing the business
or enterprise of an issuer or any person who, in connection with the founding
and organizing of the business or enterprise of an issuer, directly or
indirectly receives in consideration of services or
34
property, or both services and property, 10% or more of any class of securities
of the issuer or 10% or more of the proceeds from the sale of any class of such
securities. Other than the stock issuance described above, there were no other
transactions between our company and either of Ms. Beilly or Mr. Tarpy during
their respective tenures as our officers and directors. Ms. Beilly, through the
law firms with which she has practiced, has represented us since January 2002.
We have paid or agreed to pay these firms an aggregate of $45,000 for their
legal services in connection with the share exchange with American Life and the
registration statement of which this prospectus forms a part. Other than these
customary legal fees, we are not providing any additional compensation to Ms.
Beilly.
From time to time Dr. Bishop has advanced us funds for operating
expenses and to provide additional capital. During 2000 we borrowed $72,184 from
Dr. Bishop in exchange for a demand note payable with interest at 10% per annum.
At December 31, 2001 this amount, plus an additional $10,000 of borrowings and
accrued interest of $6,816, was converted by Dr. Bishop into 4,450 shares of
common stock of our American Life subsidiary, which he subsequently exchanged
for shares of our common stock in the June 2002 share exchange described earlier
in this prospectus.
In August, 2002 we issued Dr. Bishop 250,000 shares of our newly
created Series A Convertible Preferred Stock as consideration for the granting
to us by him of a $250,000 line of credit. Under the terms of the credit line,
we may borrow up to the maximum amount of the line in one or more draws. This
aggregate principal amount of $70,777.26 previously advanced to us by Dr. Bishop
which remained outstanding as of June 30, 2002 is included in the amount
advanced to us by Dr. Bishop and shall be included in the sums due him under the
line of credit. These draws will bear interest at the rate of one percent over
prime, adjusted quarterly, with the current interest rate set at 5.75%.
Beginning on December 31, 2002 and thereafter payable quarterly, we will make a
payment of interest accrued to the date of such payment. We can repay the
amounts due under the credit life at any time without premium of penalty in
whole or in part and if not sooner paid, the entire unpaid principal balance
hereof and accrued interest thereon shall be due and payable in August 2004,
subject to renewal by Dr. Bishop. The Series A Convertible Preferred Stock
carries super majority voting rights and is designed to ensure Dr. Bishop's
continued control of our company. A description of the designations, rights and
preferences of the Series A Convertible Preferred Stock is contained later in
this prospectus under "Description of Securities."
Oscar Scofield, a member of our board of directors, has provided
consulting services to us on a monthly basis from 1999 until February 2002.
These services were provided by his company, The Chapfield Corporation, from
January 1999 until August 2000, and individually from September 2000 until
February 2002. We paid a monthly consulting fee of $2,000 from January 1999
until October 2001, when the monthly fee was reduced to $416.67.
The wife of Stanley P. Brown, III, our president and a member of our
board of directors, provides secretarial services to us from time to time. We
paid Mrs. Brown $7,612.50 and $7,937.50 for fiscal 2000 and fiscal 2001,
respectively.
In December 2001 we engaged Rodefer Moss & Co, PLLC, who had formerly
served as the independent auditors of our American Life subsidiary, to provide
certain
35
consulting services to us in connection with the share exchange and the
registration statement of which this prospectus forms a part. For their
services, we issued RM Consulting LLC, an affiliate of Rodefer Moss & Co, PLLC,
25,000 shares of our common stock. As with the shares issued to Mr. Tarpy which
are described above, we valued the shares issued to RM Consulting LLC at $5.00
per share which equaled the offering price of the shares sold in our private
placement which closed in June 2002.
PRINCIPAL SHAREHOLDERS
At November 30, 2002 there were 391,449 shares of our common stock and
250,000 shares of our Series A Convertible Preferred Stock issued and
outstanding. Our common stock and Series A Convertible Preferred Stock are the
classes of our voting securities. The following table sets forth, as of November
30, 2002, information known to us relating to the beneficial ownership of these
shares by:
- each person who is the beneficial owner of more than 5% of the
outstanding shares of the class of stock;
- each director;
- each executive officer; and
- all executive officers and directors as a group.
Unless otherwise indicated, the address of each beneficial owner in the
table set forth below is care of 4823 Old Kingston Pike, Suite 125, Knoxville,
Tennessee 37919.
We believe that all persons named in the table have sole voting and
investment power with respect to all shares of beneficially owned by them. Under
securities laws, a person is considered to be the beneficial owner of securities
he owns and that can be acquired by him within 60 days from the date of this
prospectus upon the exercise of options, warrants, convertible securities or
other understandings. We determine a beneficial owner's percentage ownership by
assuming that options, warrants or convertible securities that are held by him,
but not those held by any other person and which are exercisable within 60 days
of November 30, 2002, have been exercised or converted.
Title of Name of Amount and Nature of Percentage Percent of
Class Beneficial Owner Beneficial Ownership of Class Voting Control (1)
- ----- ---------------- -------------------- -------- ------------------
Common Stock
- ------------
Dr. Archer W. Bishop (2) 232,051 59.2% 99.2%
Stanley P. Brown, III (6) 44,018 10.2% *
Lila Pfleger, CPA (7) 7,759 2.0% *
Oscar R. Scofield (8) 5,100 1.3% *
Dr. John H. Bell (3) 41,674 10.6% *
All officers and directors
as a group (five persons)(2)(3)(6)(7)(8) 330,602 75.1% 99.4%
RM Consulting LLC (4) 25,000 6.4% *
Ella Chesnutt (5) 22,500 5.7% *
Series A Convertible Preferred Stock
- ------------------------------------
Dr. Archer W. Bishop (2) 250,000 100% 99.2%
Stanley P. Brown, III 0 -- --
Lila Pfleger, CPA 0 -- --
Oscar R. Scofield 0 --
Dr. John H. Bell (3) 0 -- --
All officers and directors
as a group (five persons)(2)(3) 250,000 100% 99.4%
36
* represents less than 1%
(1) Percentage of Voting Control is based upon the number of issued and
outstanding shares of our common stock and shares of our Series A
Convertible Preferred Stock at November 30, 2002. At November 30, 2002
the holders of our outstanding shares of common stock and Series A
Convertible Preferred Stock were entitled to an aggregate of 19,141,449
votes at any meeting of our shareholders, which includes 391,449 votes
attributable to the outstanding shares of common stock and 18,750,000
votes attributable to the outstanding shares of Series A Convertible
Preferred Stock. Each share of Series A Convertible Preferred Stock
entitles the holder to 75 votes at any meeting of our shareholders and
such shares will vote together with our common shareholders.
(2) Dr. Bishop's beneficial ownership of common stock includes 25,000
shares of common stock owned by the Archer W. Bishop Irrevocable Trust,
25,000 shares of common stock owned by the Baker O. Bishop Irrevocable
Trust, 25,000 shares of common stock owned by the Kristin K. Bishop
Irrevocable Trust and 25,000 shares of common stock owned by the
Thompson A. Bishop Irrevocable Trust. Dr. Bishop serves as co-trustee
for each of these trusts. As described elsewhere herein, we have
included 19,000 shares of our common stock owned or controlled by Dr.
Bishop in this prospectus. If Dr. Bishop should sell all 19,000 shares
of common stock covered by this prospectus, his Percentage of Voting
Control would be reduced to 98%.
(3) Dr. Bell's beneficial ownership of common stock includes 40,174 shares
of common stock held for the benefit of his wife, Jane P. Bell, over
which Dr. Bell has voting control.
(4) RM Consulting LLC's address is 1729 Midpark Road, Suite C-200,
Knoxville, Tennessee 37921. Rick Swafford, CPA is a control person of
RM Consulting LLC.
(5) Mrs. Chesnutt's address is 6200 Devon Drive, Columbia, Maryland 21044.
(6) Includes 42,000 shares of our common stock underlying common stock
purchase warrants exercisable at $10.00 per share.
(7) Includes 1,650 shares of our common stock underlying options granted
under our 2002 Stock Option Plan exercisable at $10.00 per share.
(8) Includes 5,000 shares of our common stock underlying options granted
under our 2002 Stock Option Plan exercisable at $10.00 per share.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 100,000,000 shares of common
stock, $.001 par value per share, and 5,000,000 shares of preferred stock, par
value $.001 per share, of which 250,000 shares have been designated as Series A
Convertible Preferred Stock. The remaining 4,750,000 shares of our preferred
stock remain without designation. As of the date of this prospectus, there are
391,449 shares of common stock and 250,000 shares of Series A Convertible Stock
issued and outstanding.
COMMON STOCK
Holders of common stock are entitled to one vote for each share on all
matters submitted to a shareholder vote. Holders of common stock do not have
cumulative voting rights. Holders of common stock are entitled to share in all
dividends that the
37
board of directors, in its discretion, declares from legally available funds. In
the event of our liquidation, dissolution or winding up, subject to the
preferences of the Series A Convertible Preferred Stockholders, each outstanding
share entitles its holder to participate in all assets that remain after payment
of liabilities and after providing for each class of stock, if any, having
preference over the common stock.
Holders of common stock have no conversion, preemptive or other
subscription rights, and there are no redemption provisions for the common
stock. The rights of the holders of common stock are subject to any rights that
may be fixed for holders of preferred stock, when and if any preferred stock is
authorized and issued. All outstanding shares of common stock are duly
authorized, validly issued, fully paid and non-assessable.
PREFERRED STOCK
Our board of directors, without further shareholder approval, may issue
preferred stock in one or more series from time to time and fix or alter the
designations, relative rights, priorities, preferences, qualifications,
limitations and restrictions of the shares of each series. The rights,
preferences, limitations and restrictions of different series of preferred stock
may differ with respect to dividend rates, amounts payable on liquidation,
voting rights, conversion rights, redemption provisions, sinking fund provisions
and other matters. Our board of directors may authorize the issuance of
preferred stock which ranks senior to our common stock for the payment of
dividends and the distribution of assets on liquidation. In addition, our board
of directors can fix limitations and restrictions, if any, upon the payment of
dividends on our common stock to be effective while any shares of preferred
stock are outstanding.
The rights granted to the holders of any series of preferred stock
could adversely affect the voting power of the holders of common stock and
issuance of preferred stock may delay, defer or prevent a change in our control.
SERIES A CONVERTIBLE PREFERRED STOCK
In July 2002 our board of directors created a series of 250,000 shares
of our preferred stock and designated that series as Series A Convertible
Preferred Stock. The designations, rights and preferences of the Series A
Convertible Preferred Stock include:
* the stated value of each share is $0.10,
* the shares are not redeemable without the consent of the
holders of a majority of the issued and outstanding shares of
Series A Convertible Preferred Stock,
* each share of Series A Convertible Preferred Stock is
convertible into shares of our common stock at our option at a
conversion rate to be mutually agreed upon at the time of
conversion,
* the shares of Series A Convertible Preferred Stock do not pay
any dividends,
38
* each share of Series A Convertible Preferred Stock carries
voting rights equal to 75 votes. As a result, the holders of
our Series A Convertible Preferred Stock have sufficient votes
to elect all of the directors, and
* so long as the shares of Series A Convertible Preferred Stock
are outstanding, we cannot take certain actions without the
approval of the holders of a majority of the issued and
outstanding shares, including:
- sell, convey, or otherwise dispose of or encumber all
or substantially all of our property or business or
merge into or consolidate with any other corporation
(other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related
transactions in which more than 50% of our voting
power is transferred or disposed of;
- alter or change the rights, preferences or privileges
of shares of Series A Convertible Preferred Stock;
- increase or decrease the total number of authorized
shares of Series A Convertible Preferred Stock;
- authorize or issue, or obligate our company to issue,
any other equity security, including any other
security convertible into or exercisable for any
equity security having rights, preferences or
privileges over, or being on a parity with or similar
to, the Series A Convertible Preferred Stock;
- redeem, purchase or otherwise acquire (or pay into or
set aside for a sinking fund for such purpose) any of
our securities;
- amend our articles of incorporation or bylaws;
- change the authorized number of our directors;
- declare, order or pay any dividends on any class of
securities.
In August 2002 we issued all 250,000 shares of this Series A
Convertible Preferred Stock to Dr. Bishop in connection with the granting by him
to us of a $250,000 line of credit which is described elsewhere in this
prospectus.
WARRANTS
In October 2002 we issued warrants to purchase an aggregate of 44,500
shares of our common stock to two individuals, including a member of our
management, in exchange for warrants they held in our American Life subsidiary.
Each of these warrants is exercisable in perpetuity at $10.00 per share, and
include certain anti- dilution protection in the event of stock split and
recapitalizations.
39
TRANSFER AGENT
Our transfer agent is Florida Atlantic Stock Transfer, Inc., 7130 Nob
Hill Road, Tamarac, Florida 33321. Its telephone number is 954-725-4954.
SELLING SECURITY HOLDERS
The following table sets forth
o the name of each selling security holder,
o the number of shares owned, and
o the number of shares being registered for resale by each
selling security holder.
We may amend or supplement this prospectus from time to time to update
the disclosure set forth herein. All of the shares owned by the selling security
holders may be offered hereby. Because the selling security holders may sell
some or all of the shares owned by them, and because there are currently no
agreements, arrangements or understandings with respect to the sale of any of
the shares, no estimate can be given as to the number of shares that will be
held by the selling security holders upon termination of any offering made
hereby. If all the shares offered hereby are sold, the selling security holders
will not own any shares after the offering.
Number Percentage Shares Shares to Percentage
of shares owned before to be be owned owned after
Name of selling security holder owned offering offered after offering offering
- ------------------------------- ----- -------- ------- -------------- --------
M. Jane Ashworth 500 * 500 0 --
Anthony J. Begley, Sr. 500 * 500 0 --
J. Garrett Begley 500 * 500 0 --
Roxanne K. Beilly (7) 150 * 150 0 --
Dr. John H. Bell (1) 1,500 * 1,500 0 --
Dr. John H. Bell f/b/o Jane P. Bell 40,174 10.3% 19,000 21,174 5.4%
Henry F. Bertelkamp, Jr. 1,000 * 1,000 0 --
John T. Bible 2,500 * 2,500 0 --
Dr. Archer W. Bishop, Jr.(2) 232,051 59.3% 19,000 213,551 54.4%
Stanley P. Brown, III (3) 2,018 * 2,018 0 --
Stanley P. Brown, Jr. and
Kathryn M. Brown 1,000 * 1,000 0 --
Ronnie D. Callihan 1,000 * 1,000 0 --
J. Ed Campbell III 1,000 * 1,000 0 --
Ella Chesnutt 22,500 5.7% 19,000 3,500 *
David W. Dickey III 10,046 2.3% 10,046 0 --
Robert C. Eldridge, Jr. 500 * 500 0 --
Ronald Emery 1,000 * 1,000 0 --
Bruce D. Fox 3,053 * 3,053 0 --
Bruce Fox, TTEE Ridenour &
Ridenour KEOGH 1,000 * 1,000 0 --
John Hodor 1,000 * 1,000 0 --
Larry L. Johnson (9) 3,035 * 3,035 0 --
Chadwick S. Lange 1,480 * 1,480 0 --
James P. Lowe 3,050 * 3,050 0 --
Lesa P. McCulley 500 * 500 0 --
James F. McDonough 10,000 2.6% 10,000 0 --
Patrick McMullen 500 * 500 0 --
James F. Oakes 500 * 500 0 --
Lila K. Pfleger(4) 6,109 1.6% 6,109 0 --
40
Avis A. Phillips 500 * 500 0 --
D.R. Phillips 500 * 500 0 --
Loretta W. Phillips 500 * 500 0 --
William T. Phillips, Jr. 500 * 500 0 --
Judy R. Powell (10) 3,061 * 3,061 0 --
Marc P. Powell 4,500 1.1% 4,500 0 --
RM Consulting LLC (5) 25,000 6.4% 19,000 6,000 1.5%
Ronald V. Reel 500 * 500 0 --
Homer L. Riley, Jr 500 * 500 0 --
Shelley P. Rodefer 500 * 500 0 --
Oscar R. Scofield and Ann Scofield (6) 100 * 100 0 --
T. Lynn Tarpy (8) 2,500 * 2,500 0 --
Reese K. Thomas 500 * 500 0 --
William M. Thomas 500 * 500 0 --
John Wesley Trammell 500 * 500 0 --
Charles F. Troutt 1,000 * 1,000 0 --
Amanda L. Williams (11) 1,122 * 1,122 0 --
Lindsay Young 1,000 * 1,000 0 --
------- -------
391,449 147,724
* represents less than 1%
(1) Dr. Bell is a director of our company.
(2) The number of shares beneficially owned and offered by Dr. Bishop includes
25,000 shares of common stock owned by the Archer W. Bishop Irrevocable Trust,
25,000 shares of common stock owned by the Baker O. Bishop Irrevocable Trust,
25,000 shares of common stock owned by the Kristin K. Bishop Irrevocable Trust
and 25,000 shares of common stock owned by the Thompson A. Bishop Irrevocable
Trust. Dr. Bishop serves as co-trustee for each of these trusts. Dr. Bishop is a
director of our company.
(3) Mr. Brown is an officer and director of our company. Excludes 42,000 shares
of our common stock underlying common stock purchase warrants exercisable at
$10.00 per share.
(4) Ms. Pfleger is an officer and director of our company. Excludes 1,650 shares
of our common stock underlying options granted under our 2002 Stock Option Plan
exercisable at $10.00 per share.
(5) RM Consulting LLC's address is 1729 Midpark Road, Suite C-200, Knoxville,
Tennessee 37921. Rick Swafford, CPA is a control person of RM Consulting LLC.
(6) Mr. Scofield is a director of our company. Excludes 5,000 shares of our
common stock underlying options granted under our 2002 Stock Option Plan
exercisable at $10.00 per share.
(7) Ms. Beilly served as our sole officer and director from May 1998 until April
2001. See "Certain Relationships and Related Transactions."
(8) Mr. Tarpy served as our sole officer and director from April 2001 until June
2002. See "Certain Relationships and Related Transactions."
(9) Excludes 2,500 shares of our common stock underlying common stock purchase
warrants exercisable at $10.00 per share.
(10) Excludes 900 shares of our common stock underlying options granted under
our 2002 Stock Option Plan exercisable at $10.00 per share.
(11) Excludes 450 shares of our common stock underlying options granted under
our 2002 Stock Option Plan exercisable at $10.00 per share.
None of the selling security holders are broker-dealers or affiliates
of broker- dealers. None of the selling security holders has, or within the past
three years has had, any position, office or other material relationship with us
or any of our predecessors or affiliates, other than as described previously in
this section.
41
We have agreed to pay full costs and expenses, incentives to the
issuance, offer, sale and delivery of the shares, including all fees and
expenses in preparing, filing and printing the registration statement and
prospectus and related exhibits, amendments and supplements thereto and mailing
of those items. We have estimated these expenses to be approximately $104,000.
We will not pay selling commissions and expenses associated with any sale by the
selling security holders.
PLAN OF DISTRIBUTION
The selling security holders may offer and sell their shares at prices
between $4.50 and $5.00 per share until our shares are quoted in the
over-the-counter market or on a national securities exchange and thereafter at
prevailing market prices or privately negotiated prices. This initial offering
price of $4.50 to $5.00 per share was arrived at based upon our private
placement in June 2002 in which we sold shares of our common stock at $5.00 per
share. Our common stock is presently not traded on any market or securities
exchange. Following such time as our shares of common stock are quoted in the
over-the-counter market or on a national securities exchange, the selling
security holders may sell our common stock in the over-the-counter market, or on
any securities exchange on which our common stock is or becomes listed or
traded, in negotiated transactions, at market prices existing at the time of
sale, at prices related to existing market prices, through Rule 144 transactions
or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the selling security holders in
connection with sales of securities. The shares will not be sold in an
underwritten public offering.
The selling security holders may sell the securities in one or more of
the following methods:
* in the "pink sheets" or in the over-the-counter market or on
such exchanges on which our shares may be listed from
time-to-time, in transactions which may include special
offerings, exchange distributions and/or secondary
distributions, pursuant to and in accordance with the rules of
such exchanges, including sales to underwriters who acquire
the shares for their own account and resell them in one or
more transactions or through brokers, acting as an agent; or
* in transactions other than on such exchanges or in the
over-the-counter market, or a combination of such
transactions, including sales through brokers, acting as an
agent, sales in privately negotiated transactions, or
dispositions for value by any selling security holder to its
partners or members, subject to rules relating to sales by
affiliates.
In making sales, brokers or dealers used by the selling security
holders may arrange for other brokers or dealers to participate. The selling
security holders, our affiliates and others through whom such securities are
sold may be "underwriters" within the meaning of the Securities Act for the
securities offered, and any profits realized or commission received may be
considered underwriting compensation.
At the time a particular offer of the securities is made by or on
behalf of a selling security holder, to the extent required, a prospectus is
required to be delivered. The prospectus will include the number of shares of
common stock being offered and the
42
terms of the offering, including the name or names of any underwriters, dealers
or agents, the purchase price paid by any underwriter for the shares of common
stock purchased from the selling security holder, and any discounts, commissions
or concessions allowed or reallowed or paid to dealers, and the proposed selling
price to the public.
We have told the selling security holders that the anti-manipulative
rules under the Securities Exchange Act of 1934, including Regulation M, may
apply to their sales in the market. With certain exceptions, Regulation M
precludes any selling security holders, any affiliated purchasers and any
broker-dealer or other person who participates in the distribution from bidding
for or purchasing, or attempting to induce any person to bid for or purchase any
security which is the subject of the distribution until the entire distribution
is complete. Regulation M also prohibits any bids or purchase made in order to
stabilize the price of a security in connection with an at the market offering
such as this offering. We have provided each of the selling security holders
with a copy of these rules. We have also told the selling security holders of
the need for delivery of copies of this prospectus in connection with any sale
of securities that are registered by this prospectus. All of the foregoing may
affect the marketability of our common stock.
Special considerations related to penny stock rules
Shares of our common stock may be subject to rules adopted by the SEC
that regulate broker-dealer practices in connection with transactions in "penny
stocks". Penny stocks are generally equity securities with a price of less than
$5.00 (other than securities registered on certain national securities exchanges
or quoted on the Nasdaq Stock Market, provided that current price and volume
information with respect to transactions in those securities is provided by the
exchange or system). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from those rules, to deliver a
standardized risk disclosure document which contains the following:
* a description of the nature and level of risk in the market
for penny stocks in both public offerings and secondary
trading;
* a description of the broker's or dealer's duties to the
customer and of the rights and remedies available to the
customer with respect to violation to these duties or other
requirements of securities laws;
* a brief, clear, narrative description of a dealer market,
including "bid" and "ask" prices for penny stocks and the
significance of the spread between the "bid" and "ask" price;
* a toll-free telephone number for inquiries on disciplinary
actions;
* definitions of significant terms in the disclosure document or
in the conduct of trading in penny stocks; and
* other information as the SEC may require by rule or
regulation.
43
Prior to effecting any transaction in a penny stock, the broker-dealer
also must provide the customer the following:
* the bid and offer quotations for the penny stock;
* the compensation of the broker-dealer and its salesperson in
the transaction;
* the number of shares to which such bid and ask prices apply,
or other comparable information relating to the depth and
liquidity of the market for such stock; and
* monthly account statements showing the market value of each
penny stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from those rules, the broker-dealer must
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written acknowledgment
of the receipt of a risk disclosure statement, a written agreement to
transactions involving penny stocks, and a signed and dated copy of a written
statement. These disclosure requirements may have the effect of reducing the
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. At such time as a public market is established for our common
stock, holders of shares of our common stock may have difficulty selling those
shares because our common stock may be subject to the penny stock rules.
SHARES ELIGIBLE FOR FUTURE SALE
At the date of this prospectus, we have 391,449 shares of common stock
issued and outstanding, all of which are restricted securities, and warrants to
purchase 49,500 shares of our common stock. These shares and warrants are held
by 50 record holders. We have included 147,724 shares of our common stock for
resale by this prospectus. We cannot predict the effect, if any, that market
sales of these shares of common stock will have on the market price of the
shares from time to time. Nevertheless, the possibility that substantial amounts
of common stock may be sold in the public market could adversely affect market
prices for the common stock, at such time as we establish a public market for
our common stock, and could damage our ability to raise capital through the sale
of our equity securities. There are no guarantees that a market for our common
stock will ever be established.
LEGAL MATTERS
The validity of the securities offered by this prospectus will be
passed upon for us by Katz, Barron, Squitero & Faust, P.A., 100 N.E. Third
Avenue, Suite 280, Fort Lauderdale, FL 33301. Roxanne K. Beilly, Esq. who is of
counsel to this firm, owns 150 shares of our common stock and such shares are
included in this prospectus.
EXPERTS
The financial statements of American Life Holding Company, Inc. and
subsidiary as of and for the year ended December 31, 2001 included in this
prospectus and the
44
balance sheet of B&B Capital Group, Inc. as of December 31, 2001 included in the
prospectus have been audited by Henderson Hutcherson & McCullough, PLLC,
independent certified public accountants, as indicated in their report with
respect thereto, and have been so included in reliance upon the report of such
firm given on their authority as experts in accounting and auditing.
The financial statements of The American Life and Annuity Company, Inc.
as of and for the year ended December 31, 2000 included in this prospectus have
been audited by Rodefer, Moss & Co, PLLC, independent certified public
accountants, as indicated in their report with respect thereto, and have been so
included in reliance upon the report of such firm given on their authority as
experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the SEC the registration statement on Form SB-2
under the Securities Act for the common stock offered by this prospectus. This
prospectus, which is a part of the registration statement, does not contain all
of the information in the registration statement and the exhibits filed with it,
portions of which have been omitted as permitted by SEC rules and regulations.
For further information concerning us and the securities offered by this
prospectus, we refer to the registration statement and to the exhibits filed
with it. Statements contained in this prospectus as to the content of any
contract or other document referred to are not necessarily complete. In each
instance, we refer you to the copy of the contracts and/or other documents filed
as exhibits to the registration statement.
The registration statement, including all exhibits, may be inspected
without charge at the SEC's Public Reference Room at 450 Fifth Street, N.W.
Washington, D.C. 20549. Copies of these materials may also be obtained from the
SEC's Public Reference upon the payment of prescribed fees. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, registration statements and other filings made with
the SEC through its Electronic Data Gathering, Analysis and Retrieval (EDGAR)
system are publicly available through the SEC's site located at
http//www.sec.gov.
Following the effective date of the registration statement relating to
this prospectus, we will become subject to the reporting requirements of the
Exchange Act and in accordance with these requirements, will file annual,
quarterly and special reports, and other information with the SEC. We also
intend to furnish our shareholders with annual reports containing audited
financial statements and other periodic reports as we think appropriate or as
may be required by law.
45
AMERICAN LIFE HOLDING COMPANY, INC.
(FORMERLY B & B CAPITAL GROOUP, INC.) AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors Report, 2001 F-2
Independent Auditors Report, 2000 F-3
Consolidated Balance Sheets as of September 30, 2002 (unaudited)
and December 31, 2001 and 2000 F-4
Consolidated Statements of Operations for the nine months ended September 30, 2002 and
2001 (unaudited) and for the years ended December 31, 2001 and 2000 F-5
Consolidated Statements of Stockholders' Equity for the nine months September 30, 2002
(unaudited) and for the years ended December 31, 2001 and 2000 F-6
Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and
2001 (unaudited) and for the years ended December 31, 2001 and 2000 F-7
Notes to Consolidated Financial Statements F-8
F-1
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
American Life Holding Company, Inc.
Knoxville, Tennessee
We have audited the accompanying consolidated balance sheet of American Life
Holding Company, Inc. (formerly B & B Capital Group, Inc.) and Subsidiary (The
American Life and Annuity Company, Inc.) as of December 31, 2001 and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended. 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 audit. The financial statements of The
American Life and Annuity Company, Inc. as of December 31, 2000, were audited by
other auditors, whose report dated August 2, 2001 expressed an unqualified
opinion on those financial statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Life Holding Company,
Inc. and Subsidiary as of December 31, 2001, and the results of their operations
and cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
HENDERSON HUTCHERSON & MCCULLOUGH, PLLC
Chattanooga, Tennessee
May 7, 2002, except for Note 1,
as to which the date is June 22, 2002
F-2
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
The American Life and Annuity Company, Inc.
Knoxville, Tennessee
We have audited the accompanying balance sheet of The American Life and Annuity
Company, Inc. as of December 31, 2000, and the related statements of operations,
changes in stockholders' equity and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The American Life and Annuity
Company, Inc. as of December 31, 2000, and the results of its operations and
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States.
Rodefer Moss & Co, PLLC
Knoxville, Tennessee
August 2, 2001
F-3
AMERICAN LIFE HOLDING COMPANY, INC.
(FORMERLY B & B CAPITAL GROOUP, INC.) AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 2002 (Unaudited) and December 31, 2001 and 2000
(Unaudited)
2002 2001 2000
---------------- ---------------- ----------------
ASSETS
Cash and investments:
Cash $ 102,489 $ 7,835 $ 71,447
Available-for-sale securities,
at market (Amortized cost -$2,162,216,
$2,168,289 and $2,166,856) 2,298,024 2,221,625 2,168,362
---------------- ---------------- ----------------
2,400,513 2,229,460 2,239,809
Accrued investment income 28,223 41,357 43,714
Funds withheld at interest subject to restrictions 9,282,624 9,460,220 2,926,436
Prepaid loan fees 24,479 -- --
Property and Equipment, net 2,391 3,025 4,717
Unamortized policy acquisition costs 517,243 498,389 206,434
Deferred tax asset 78,000 93,200 107,400
Other assets -- 25,000 -
---------------- ---------------- ----------------
$ 12,333,473 $ 12,350,651 $ 5,528,510
================ ================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Contractholder deposits $ 9,621,881 $ 9,787,275 $ 3,024,771
Note payable 70,777 -- 72,184
Accounts Payable and Accrued expenses 1,381 56 6,071
---------------- ---------------- ----------------
Total Liabilities 9,694,039 9,787,331 3,103,026
Preferred stock, $0.10 stated value; authorized
5,000,000 shares, 250,000 issued and outstanding 25,000 -- --
Common stock, $0.001 par value; 100,000,000 shares
authorized; issued and outstanding, 391,449,
319,799 and 315,349 shares 392 320 315
Additional paid-in capital 2,938,650 2,937,809 2,848,814
Accumulated deficit (429,314) (415,545) (424,551)
Accumulated other comprehensive income 104,706 40,736 906
---------------- ---------------- ----------------
2,639,434 2,563,320 2,425,484
---------------- ---------------- ----------------
$ 12,333,473 $ 12,350,651 $ 5,528,510
================ ================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
AMERICAN LIFE HOLDING COMPANY, INC.
(FORMERLY B & B CAPITAL GROUP, INC.) AND SUBSIDIARY
Consolidated Statements of Operations
Nine Months Ended September 30, 2002 and 2001 (Unaudited) and Years
Ended December 31, 2001 and 2000
(Unaudited)
September 30,
2002 2001 2001 2000
------------- ------------- ------------ ------------
Revenues
Investment income $ 475,067 $ 229,376 $ 429,613 $ 344,188
Realized investment gains (losses) 8,792 5,689 20,274 222
------------- ------------- ------------ ------------
483,859 235,065 449,887 344,410
Expenses
Interest to contract holders 365,284 86,622 239,339 119,375
General insurance expenses 126,428 150,670 181,561 194,740
Taxes, licenses and other 7,530 10,538 10,539 6,544
------------- ------------- ------------ ------------
499,242 247,830 431,439 320,659
Other income (expense)
Interest (1,686) (5,086) (7,242) (4,454)
------------- ------------- ------------ ------------
Net income (loss) before (17,069) (17,851) 11,206 19,297
income taxes
Income tax benefit (expense) 3,300 3,800 (2,200) (3,300)
------------- ------------- ------------ ------------
Net Income (loss) $ (13,769) $ (14,051) $ 9,006 $ 15,997
============= ============= ============ ============
Basic earnings (loss) per share $ (0.04) $ (0.04) $ 0.03 $ 0.05
============= ============= ============ ============
Diluted earnings per share $ n/a $ n/a $ 0.03 $ 0.05
============= ============= ============ ============
Weighted average shares outstanding 346,044 315,349 315,361 315,349
============= ============= ============ ============
Diluted weighted average shares outstanding n/a n/a 338,021 338,009
============= ============= ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
AMERICAN LIFE HOLDING COMPANY, INC.
(FORMERLY B & B CAPITAL GROUP, INC.) AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Nine Months Ended September 30, 2002 (Unaudited) and
Years Ended December 31, 2001 and 2000
Preferred Stock Common Stock Additional
---------------------------- ---------------------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
-------------- ------------ -------------- ------------- ------------- -------------
Balance, January 1, 2000 - $ - 315,349 $ 315 $ 2,848,814 $ (440,548)
Net income 15,997
Unrealized gain on available-for-sale
securities, net of tax of $16,600
(Total Comprehensive Income
$81,426)
------------- ------------- ----------- ------------- ------------- --------------
Balance December 31, 2000 - $ - 315,349 $ 315 $ 2,848,814 $ (424,551)
Shares issued in payment of note 4,450 5 88,995
Net income 9,006
Unrealized gain on available-for-sale
securities, net of tax of $12,000
(Total Comprehensive Income
$48,836)
------------- ------------- ----------- ------------- ------------- --------------
Balance December 31, 2001 - $ - 319,799 $ 320 $ 2,937,809 $ (415,545)
Shares issued for acquisition (Note 1) 71,650 72 841
Shares issued to secure financing
arrangement 250,000 25,000 250,000 25,000
Net loss (13,769)
Unrealized gain on available-for-sale
securities, net of tax of $18,500
(Total Comprehensive Income
$50,201)
------------- ------------- ----------- ------------- ------------- --------------
Balance September 30, 2002 250,000 $ 25,000 391,449 $ 392 $ 2,938,650 $ (429,314)
============= ============= =========== ============= ============= ==============
[restubbed table]
Accumulated
Other
Comprehensive
Income (Loss) Total
----------------- ------------
Balance, January 1, 2000 $ (64,523) $ 2,344,058
Net income 15,997
Unrealized gain on available-for-sale
securities, net of tax of $16,600 65,429 65,429
(Total Comprehensive Income
$81,426)
---------------- -------------
Balance December 31, 2000 $ 906 $ 2,425,484
Shares issued in payment of note 89,000
Net income 9,006
Unrealized gain on available-for-sale
securities, net of tax of $12,000 39,830 39,830
(Total Comprehensive Income
$48,836)
---------------- -------------
Balance December 31, 2001 $ 40,736 $ 2,563,320
Shares issued for acquisition (Note 1) 913
Shares issued to secure financing
arrangement 25,000
Net loss (13,769)
Unrealized gain on available-for-sale
securities, net of tax of $18,500 63,970 63,970
(Total Comprehensive Income
$50,201)
---------------- -------------
Balance September 30, 2002 $ 104,706 $ 2,639,434
================ =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
AMERICAN LIFE HOLDING COMPANY, INC.
(FORMERLY B & B CAPITAL GROUP, INC.) AND SUBSIDIARY
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2002 and 2001 (Unaudited) and Years
Ended December 31, 2001 and 2000
(Unaudited)
September 30, December 31,
2002 2001 2001 2000
----------- ----------- ----------- -----------
OPERATING ACTIVITIES:
Net income (loss) $ (13,769) $ (14,051) $ 9,006 $ 15,997
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization 16,371 7,494 10,650 10,285
Deferred taxes (3,300) (3,800) 2,200 3,300
Stock issued in payment of interest to stockholder -- -- 6,816 --
Realized gains on investment securities (10,732) (12,990) (26,189) (1,086)
Realized losses on investment securities 1,940 7,301 5,915 864
Changes in operating assets and liabilities net
of effects of purchase of subsidiary:
Funds withheld at interest 202,596 11,207 (6,533,784) (251,520)
Accrued investment income 13,134 12,362 2,357 3,427
Contractholder funds (165,394) (9,726) 6,762,504 178,727
Accounts payable and accrued expenses (105,262) (94) (6,015) 3,498
----------- ----------- ----------- -----------
Net Cash Provided by (Used in) Operating (64,416) (2,297) 233,460 (36,508)
Activities
INVESTING ACTIVITIES:
Contract acquisition costs (33,870) (52,549) (299,691) (18,419)
Purchases of furnishings and equipment -- -- -- (2,383)
Proceeds from the sale of investments 340,497 534,089 620,899 223,469
Proceeds from maturities of investments 125,000 570,000 670,000 300,000
Purchase of other asset -- -- (25,000) --
Purchase of investment securities (450,834) (1,035,840) (1,273,280) (565,322)
----------- ----------- ----------- -----------
Net Cash Provided by (Used in) Investing (19,207) 15,700 (307,072) (62,655)
Activities
FINANCING ACTIVITIES:
Net cash acquired in acquisition 107,500 -- -- --
Proceeds from stockholder note 70,777 5,086 10,000 72,184
----------- ----------- ----------- -----------
Net Cash Provided by Financing Activities 178,277 5,086 10,000 72,184
----------- ----------- ----------- -----------
Increase (Decrease) in Cash 94,654 18,489 (63,612) (26,979)
Cash, Beginning of Period 7,835 71,447 71,447 98,426
----------- ----------- ----------- -----------
Cash, End of Period $ 102,489 89,936 $ 7,835 $ 71,447
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
AMERICAN LIFE HOLDING COMPANY, INC.
(FORMERLY B & B CAPITAL GROUP, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - FORMATION AND BASIS OF PRESENTATION
- ------ -----------------------------------
These consolidated financial statements include the accounts of
American Life Holding Company, Inc. ("ALH," formerly B&B Capital Group,
Inc.) and the accounts of its subsidiary, The American Life & Annuity
Company, Inc. ("ALAC"), since the date of its acquisition, June 22,
2002. All inter-company balances have been eliminated in consolidation.
On June 22, 2002, the shareholders of ALH exchanged a total of 319,799
shares of its common stock for a like number of common shares in ALAC
which was 100% of ALAC's then issued and outstanding shares. This
resulted in ALAC being a wholly-owned subsidiary of ALH.
This share exchange, which was structured to be a tax-free exchange
under the Internal Revenue Code of 1987, as amended, resulted in a
change in control of ALH. ALH's sole officer and director resigned at
the closing of the share exchange and ALH's current officers and
directors, who were the officers and directors of ALAC were appointed.
Following the share exchange, the former shareholders of ALAC as a
group retained or received the larger portion of the voting rights in
ALH, and the governing body and management of ALH are those of ALAC.
Since at the time of the acquisition, ALH had no significant
operations, liabilities or assets, the beginning equity balances of
ALAC have been presented as a recapitalization of ALAC whereby 319,799
(post reverse split - see note 2) common shares are accounted for as
the subsequent issuance of 71,650 shares for the net assets of ALH. As
a result, the historical financial statements of ALAC are the
continuing historical financial statements of the resulting company
("the Company"). The principal purpose of the merger is to permit the
combined entities to become an organization whose shares may be traded
on a public exchange. It is the intent of management to seek additional
capital in the future from public markets to facilitate further growth
of the Company's reinsurance operations.
ALH was formed as B & B Capital Group, Inc. in May 1998 and issued 150
shares of its $.001 par value to its incorporator. Its purpose was to
seek, develop and/or acquire an operational company. It had no
operations through December 31, 2001. In February 2002, it issued
50,000 shares of its common stock valued at $250,000 ($5 per share) for
services in connection with the transaction discussed above and for
ongoing capital structure matters. In connection with the share
exchange in June 2002, B & B Capital Group, Inc. changed its name to
American Life Holding Company, Inc. and sold an aggregate of 21,500
shares of its common stock to 20 accredited investors in a private
transaction exempt from registration under the Securities Act in
reliance on Rule 506 of Regulation D of the act. ALH received gross
proceeds of $107,500 from this offering.
Costs incurred through September 30,2002 (unaudited) in connection with
the recapitalization and share exchange total $106,587. To the extent
of cash acquired in the recapitalization, these expenses are charged
against additional paid-in capital.
ALAC was established as a Tennessee corporation in 1992. In November
1997 it was issued a Certificate of Authority by the Tennessee
Department of Commerce and Insurance allowing it to accept life, health
and annuity insurance risks on either a primary or reinsurance basis.
ALAC's activities are currently focused on the reinsurance of fixed
rate annuity insurance products.
F-8
AMERICAN LIFE HOLDING COMPANY, INC.
(FORMERLY B & B CAPITAL GROUP, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - FORMATION AND BASIS OF PRESENTATION Continued
- ------ -----------------------------------
The consolidated balance sheet at September 30, 2002 (unaudited)
includes the effects of the recapitalization. Prior to February 2002,
there were no operations in B&B Capital Group, Inc. Accordingly,
pro-forma information is only presented for the nine month period ended
September 30, 2002. Giving effect to the above transactions as of
January 1, 2002, the Company's condensed pro-forma consolidated income
statement would appear as follows:
American B&B Pro-forma
Life Capital Total
--------- --------- ---------
Investment Income $ 474,940 $ 127 $ 475,067
Other 8,792 8,792
--------- --------- ---------
483,732 127 483,859
Interest to contractholders 365,284 -- 365,284
General insurance expenses 126,428 -- 126,428
Recapitalization expense -- 250,000 250,000
Other expense 8,315 901 9,216
--------- --------- ---------
500,027 250,774 750,928
--------- --------- ---------
Net loss before income taxes (16,295) (250,774) (267,069)
Income tax benefit 3,300 -- 3,300
Net loss (comprehensive loss, $199,799) $ (12,295) $(250,774) $(263,769)
========= ========= =========
Basic and diluted loss per share $ (0.04) $ (5.06) $ (0.71)
========= ========= =========
Weighted average shares outsanding 319,799 37,379 357,178
========= ========= =========
All potentially dilutive securities in 2002 are anti-dilutive due to
the net loss from operations for the pro-forma nine months ended
September 30, 2002.
As a result of the change of control in B&B Capital, management does
not expect the Company to receive any benefit from the net operating
loss in B&B Capital for the period from January 1 to June 22, 2002.
Accordingly, the above presentation includes no provision for income
tax benefit.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------ ------------------------------------------
Nature of Operations
--------------------
Annuity contract policies reinsured by the Company are subject to
discretionary surrender or withdrawal by customers, subject to
applicable surrender charges. These policies and contracts represent
assumed reinsurance, primarily with a subsidiary of one of the five
largest insurance holding companies in the world (see Note 10) which
invests premiums and deposits to provide cash flows that will be used
to fund future benefits and expenses.
The Company monitors economic and regulatory developments which have
the potential to impact its business. The market for deferred annuities
is enhanced by the tax incentives available under current law. Any
legislative changes which lessen these incentives are likely to
negatively impact the demand for these products.
F-9
AMERICAN LIFE HOLDING COMPANY, INC.
(FORMERLY B & B CAPITAL GROUP, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
- ------ ------------------------------------------
Statutory Financial Information
-------------------------------
The Company prepares its statutory financial statements in accordance
with accounting principles and practices prescribed or permitted by the
Tennessee Department of Insurance. Prescribed statutory accounting
practices include a variety of publications of the National Association
of Insurance Commissioners ("NAIC"), as well as state laws, regulations
and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices permitted by the Tennessee
Department of Insurance but not so prescribed. Any permitted statutory
accounting practices that the Company follows do not have a significant
impact on statutory surplus or statutory net income.
The NAIC's codification's initiative has produced a comprehensive guide
of revised statutory accounting principles. The NAIC approved a January
1, 2001, implementation date for the newly developed guidance, but
companies must adhere to the implementation date adopted by their state
of domicile. In 2001, the Company's state of domicile, Tennessee,
completed its review of the codification to determine its effect on
existing state laws and regulations. As a result, Tennessee adopted the
codification with an effective date of January 1, 2001. The
requirements did not have a material impact on the statutory surplus of
the Company.
Revenue Recognition
-------------------
Reinsurance assumed on annuity business generates investment income
over time on the assets held on our behalf by ceding companies. The
company recognizes investment income from ceding companies and interest
on its bond portfolio as interest income when the interest and
investment income becomes due and its collection is reasonably assured.
Investments
-----------
Management determines the appropriate classification of investment
securities at the time they are acquired and evaluates the
appropriateness of such classifications at each balance sheet date. The
Company's securities are accounted for as available-for-sale to reflect
management's intent with respect to the Company's debt securities
portfolio. These securities are carried at fair value, with unrealized
gains and losses, net of taxes, reported as a component of
stockholders' equity. The Company uses the specific identification
method to determine the cost of securities sold.
Funds Withheld at Interest Subject to Restrictions
--------------------------------------------------
Funds withheld at interest subject to restrictions are funds held by
ceding companies under coinsurance agreements whereby we receive the
interest income earned on the funds. The balance of funds held
represents the statutory reserves of the ceding companies.
The availability of these funds to us is subject to certain
restrictions. The Company can liquidate the funds withheld and receive
any excess in statutory reserves by ceding the annuity contracts to
other reinsurers, a process known in the insurance industry as
retroceding. Although no approval to retrocede any annuity contracts to
another reinsurer is required if the amount of the contracts does not
exceed 5% of the Company's total assets, if the Company should wish to
retrocede any of our contracts to another reinsurer to liquidate our
funds withheld at interest in an amount which exceeds this 5%
limitation, the Company must first obtain regulatory approval from the
State of Tennessee. To institute this approval process, the Company
would be required to file a prescribed form with the Insurance
Commissioner's office describing the transaction and including the name
of the reinsurer. The Insurance Commissioner's office has access to the
financial information of licensed insurance companies throughout the
United States through the NAIC system, which acts to facilitate the
transfer request. By statute, the Insurance Commissioner's office must
approve or deny the transaction within 30 days.
Deferred Policy Acquisition Costs
---------------------------------
Deferred policy acquisition costs represent those costs which vary with
and are primarily related to the production of new business. These
acquisition expenses are deferred and charged against income through
amortization. Amortization is computed using proportional methods for
each block of contracts based on the ratio of individual period gross
profits to expected total gross profits arising from the contracts over
the estimated lives of the related contracts, currently estimated to be
twenty years for the Company's existing annuity contracts. In
estimating such lives, management principally utilizes the experience
of the ceding companies which generally take into account the frequency
of early surrenders of contracts and the average term to complete
annuitization of the contracts. Annuitization refers to when the
contract holder asks for payment, either in a series of payments or in
a lump sum. The contracts have no specified date that requires the
holder to annuitize. However, current US tax laws require holders to
annuitize upon reaching a certain age or suffer adverse tax
consequences.
At each reporting date, unamortized policy acquisition costs are
subjected to tests to determine whether the cost of business acquired
remains recoverable, and the cumulative amortization is re-estimated
and adjusted by a cumulative charge to current operations when
applicable. As a means for making such estimates, the Company generally
relies on data obtained from the ceding companies regarding economic
lives, attrition, trends and pattern of payments.
Until a contract reaches the annuitization phase, they are considered
to be in the accumulation phase. The Company's ceded contracts in force
are primarily in the accumulation phase. Amortization expense for 2001
and 2000 totaled $7,736 and $5,592, respectively.
Stock Warrants
--------------
The Company measures its equity transactions with non-employees using
the fair value based method of accounting prescribed by Statement of
Financial Accounting Standards No. 123. The Company continues to use
the intrinsic value approach as prescribed by APB Opinion No. 25 in
measuring equity transactions with employees. Accordingly, no
compensation cost has been recognized for the stock option plan with
employees.
F-10
AMERICAN LIFE HOLDING COMPANY, INC.
(FORMERLY B & B CAPITAL GROUP, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
- ------ ------------------------------------------
Use of Estimates
----------------
The preparation of consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect
the amounts reported on the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Our most significant assumptions are for assumed reinsurance
liabilities and deferred acquisition costs. We review and revise these
estimates as appropriate. Any adjustments made to these estimates are
reflected in the period the estimates are revised.
Cash and Cash Equivalents
-------------------------
The Company considers cash on hand, deposits in banks, certificates of
deposit and investments with original maturities of three months or
less to be cash and cash equivalents.
Income Taxes
------------
Deferred income taxes are provided for temporary differences in
reporting income for financial statement and tax purposes arising
primarily from differences in the methods of accounting for policy
acquisition costs and net operating losses.
Goodwill and Intangible Assets
------------------------------
In June 2001, the Company adopted Statement of Financial Accounting
Standards (SFAS) 141, Business Combinations, and SFAS 142, Goodwill and
Other Intangible Assets. SFAS 141 requires business combinations
initiated after June 30, 2001 to be accounted for using the purchase
method of accounting. It also specifies the types of acquired
intangible assets that are required to be recognized and reported
separately from goodwill. SFAS 142 requires that goodwill and certain
intangibles no longer be amortized, but instead tested for impairment
at least annually. SFAS 142 is required to be applied starting with
fiscal years beginning after December 15, 2001, with early application
permitted in certain circumstances. Adoption of SFAS 141 and 142 did
not have a material effect on the Company's financial position or
results of operation.
New Accounting Standards
------------------------
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 143, Accounting for
Asset Retirement Obligations. SFAS 143 requires that the fair value of
a liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value
can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. In August 2001,
the FASB issued SFAS 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS 144 supercedes SFAS 121 which addressed
accounting for the impairment of long lived assets and for long-lived
assets to be disposed of. SFAS 144 retains much of the requirements of
SFAS 121 and provides for resolution of implementation issues. It also
removes goodwill from its scope and, therefore, eliminates the
requirement of SFAS 121 to allocate goodwill to long-lived assets to be
tested for impairment. In April 2002, the FASB issued SFAS 145,
Rescission of FASB Statements No.4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. SFAS 145 eliminates the
inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease
modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS 145 also makes various technical
corrections to existing pronouncements to clarify meanings, or describe
their applicability. In June 2002, the FASB issued SFAS 146, Accounting
for Costs Associated with Exit or Disposal Activities. SFAS 146
requires that a liability for a cost associated with an exit or
disposal activity be recognized when the Liability is incurred rather
than at the date of an entity's commitment to an exit plan as was
required under prior pronouncements. SFAS 143 is effective for
financial statements issued for fiscal years beginning after June 30,
F-11
AMERICAN LIFE HOLDING COMPANY, INC.
(FORMERLY B & B CAPITAL GROUP, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
- ------ ------------------------------------------
New Accounting Standards Continued
------------------------
2002 with earlier application encouraged. SFAS 144 is effective for
financial statements issued for fiscal years beginning after December
15, 2001, and interim periods within those fiscal years, with early
application encouraged. SFAS 145 is effective for fiscal years
beginning after May 15, 2002 for provisions related to the rescission
of Statement 4, is effective for transactions occurring after May 15,
2002 for certain provisions related to amendment of Statement 13, and
for financial statements issued after May 15, 2002 for all other
provisions of SFAS 145. Early application of SFAS 145 is encouraged for
all of its provisions. SFAS 146 is effective for exit or disposal
activities that are initiated after December 31, 2002, with early
application encouraged.
The issuance of SFAS No.'s 143 through 146 does not currently affect
the Company. The Company plans to adopt SFAS No's 143 through 146 in
fiscal year 2002, and the Company does not anticipate any material
effect on its financial statements as a result of their adoption.
Concentration of Risk
---------------------
The Company maintains its cash on deposit at a financial institution
which provides $100,000 in deposit insurance.
Income Per Share
----------------
As discussed in Note 1, the historical financial statements are those
of ALAC. However, in accordance with generally accepted accounting
principles, the capital structure represents that of ALH. In December
2001, holders of all of the then outstanding preferred shares (235,053
post split) in ALAC elected to convert them into an equal number of
common shares in ALAC. Also, just prior to the share exchange discussed
in Note 1, ALAC effected a 1 for 10 reverse split of its shares. All
share information presented gives retroactive effect to the conversion
and stock split.
Basic EPS is calculated as income available to common stockholders
divided by the weighted average number of common shares outstanding
during the period.
Diluted EPS is calculated using the "if converted" method for
convertible securities and the treasury stock method for options and
warrants.
A reconciliation of common shares outstanding with diluted shares
outstanding for the years ended December 31, 2001 and 2000 is as
follows:
2001 2000
-------- --------
Weighted average common shares outstanding 315,361 315,349
Assumed conversion of warrants 55,500 55,500
Less: Treasury stock assumed repurchased with
proceeds of warrants (32,840) (32,840)
-------- --------
Diluted shares outstanding 338,021 338,009
======== ========
F-12
AMERICAN LIFE HOLDING COMPANY, INC.
(FORMERLY B & B CAPITAL GROUP, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
- ------ ------------------------------------------
Reclassifications
-----------------
Certain amounts in the 2000 financial statements have been reclassified
to conform to the presentation in subsequent periods.
NOTE 3 - UNAUDITED FINANCIAL INFORMATION
- ------ --------------------------------
The accompanying financial statements as of and for the nine months
ended September 30, 2002 and 2001 have been prepared in accordance with
the instructions in Regulation S-X for unaudited interim financial
statements for filings more than 134 days after fiscal year end. In
accordance with those instructions, these unaudited interim financial
statements are presented in condensed format and do not include all of
the information and disclosures required by accounting principles
generally accepted in the US for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. These unaudited interim financial statements should be read
in conjunction with the financial statements and notes thereto as of
and for the years ended December 31, 2001 and 2000.
NOTE 4 - STATEMENT OF CASH FLOWS SUPPLEMENTARY DISCLOSURE
- ------ ------------------------------------------------
Interest paid in 2001 and 2000 was $426 and $4,184, respectively. No
income taxes were paid in any period presented. In a non-cash
transactions in 2000, a note in the amount of $89,000 was paid through
the issuance of 4,450 shares of common stock. Also in a non-cash
transaction in 2001, liabilities of $101,237 were assumed in the
acquisition as discussed in note 1.
NOTE 5 - INVESTMENTS
- ------ -----------
Major categories of investment income are summarized as follows at
September 30, 2002 and 2001 (unaudited) and December 31, 2001 and 2000:
September, 2002 September, 2001
(Unaudited) (Unaudited 2001 2000
--------- --------- --------- ---------
Fixed maturities $ 94,901 $ 94,890 $ 128,812 $ 132,424
Interest bearing cash 347 4,695 5,161 4,873
Gross investment
income credited by
reinsured 386,952 138,193 306,868 215,466
--------- --------- --------- ---------
482,200 237,778 440,841 352,763
Investment expenses (7,133) (8,402) (11,228) (8,575)
--------- --------- --------- ---------
Total $ 475,067 $ 229,376 $ 429,613 $ 344,188
========= ========= ========= =========
F-13
AMERICAN LIFE HOLDING COMPANY, INC.
(FORMERLY B & B CAPITAL GROUP, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INVESTMENTS - Continued
- ------ -----------
The amortized cost and estimated fair values of investments in bonds at
December 31, 2001, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with and without
prepayment penalties.
Amortized
Cost Fair Value
---- ----------
Due in one year or less $ -- $ --
Due after one year through five years 1,158,978 1,190,867
Due after five years through ten years 957,415 978,360
Thereafter 51,896 52,398
---------- ----------
Total $2,168,289 $2,221,625
========== ==========
The aggregate fair value, gross unrealized holding gains, gross
unrealized holding losses, and amortized cost for securities by major
security type at December 31, 2001 and 2000 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
2001 Cost Gains Losses Value
---- ----------- ----------- ----------- -----------
Obligations of states and
political subdivisions $ 1,241,710 $ 34,928 $ (1,638) $ 1,275,000
Utilities 100,000 2,822 -- 102,822
Corporate debt securities 826,579 19,379 (2,155) 843,803
----------- ----------- ----------- -----------
$ 2,168,289 $ 57,129 $ (3,793) $ 2,221,625
=========== =========== =========== ===========
2000
----
Obligations of states and
political subdivisions $ 1,347,373 $ 497 $ (15,374) $ 1,332,496
Corporate debt securities 819,483 24,275 (7,892) 835,866
----------- ----------- ----------- -----------
$ 2,166,856 $ 24,772 $ (23,266) $ 2,168,362
=========== =========== =========== ===========
Proceeds from sales of investments in bonds for the years ended
December 31, 2001 and 2000 were $1,290,899 and $523,469, respectively.
Realized on those sales in 2001 and 2000 were gross gains of $20,274
and $222, respectively.
NOTE 6 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
- ------ -----------------------------------------------------
The following methods and assumptions were used to estimate the fair
value (see Note 5) of each class of financial instrument for which it
is practicable to estimate that value:
Cash and short-term investments are carried at cost which is a
reasonable estimate of fair value. Amount due from reinsurer is stated
at settlement value, which approximates fair value because of its
short-term maturity. For investment securities (bonds), fair values are
based on quoted market prices or dealer quotes. If a quoted price is
not available, fair value is estimated by management using quoted
market prices for similar securities.
F-14
AMERICAN LIFE HOLDING COMPANY, INC.
(FORMERLY B & B CAPITAL GROUP, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - PROPERTY AND EQUIPMENT
- ------ ----------------------
Significant classes of property and equipment are presented below:
2001 2000
---- ----
Office furniture and fixtures $12,329 $12,329
Less: accumulated depreciation (9,304) (7,612)
------- ------
$ 3,025 $ 4,717
======= =======
NOTE 8 - CONTRACTHOLDER DEPOSITS
- ------ -----------------------
Contractholder deposits are equal to deposits received and interest
credited to the benefit of the contract holder less withdrawals and
administrative expenses. In 2001 and 2000, credited interest rates on
contract liabilities ranged from 3.83% to 6.90% and from 4.4% to 7.05%,
respectively for the Company's contracts, which feature variable rates
after the first year.
The composition of these liabilities at December 31, 2001 is presented
below:
Cash Value
Years of Annuities of Contract
Issue In Force Liability
----- -------- ---------
1997 $1,694,051 $1,617,819
1998 5,115,241 4,839,287
1999 2,671,327 2,503,033
2000 302,989 281,910
2001 3,667 3,667
---------- ----------
$9,787,275 $9,245,716
========== ==========
NOTE 9 - RELATED PARTY TRANSACTIONS
- ------ --------------------------
During 2000, the Company borrowed $72,184 from its principal
stockholder in exchange for a demand note payable at 10% per annum. In
2001, the Company exchanged 4,450 shares of its common stock for the
note plus additional borrowings of $10,000 and accrued interest of
$6,816. As of September 30, 2002, $70,777 was owed the principal
stockholder under a demand note with interest at one percent over
prime, adjusted quarterly, with the current interest rate set at 5.75.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
- ------- -----------------------------
The Company rents its facility under an operating lease calling for
payments of $8,400 annually. The lease expired in October 2001. The
Company currently rents on a month-to-month basis under the same terms
and conditions.
The Company has operational commitments under two primary agreements: a
reinsurance agreement and a general agency and marketing agreement.
In 1997, with an effective date of December, 1996, the Company entered
into an automatic reinsurance agreement on a modified coinsurance basis
with Allianz Life Insurance Company of North America (Allianz), one of
the top fifty life insurers in North America and a subsidiary of one of
the five largest insurance holding
F-15
AMERICAN LIFE HOLDING COMPANY, INC.
(FORMERLY B & B CAPITAL GROUP, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND CONTINGENCIES - Continued
- ------- -----------------------------
companies in the world. Allianz has agreed to cede reinsurance on 15%
of all Ultima annuities sold by it and 40% of all annuities sold by the
Company's agencies, subject to statutory limitations. The agreement
calls for the Company to pay its pro-rata share of the acquisition
costs for the specified annuity business and to put its assets at risk.
The agreement calls for the establishment of a funds withheld account
for the benefit of the
Company. Monthly, the funds withheld account is adjusted by deducting
statutory reserves on the last day of the preceding month from
statutory reserves on the last day of the current month. Allianz is to
retain the gross investment income derived from assets, which it is to
hold but to pay monthly interest at a calculated rate applied to
average balances in the funds withheld account.
In 1998, the provisions of the Allianz agreement discussed above were
effectively extended to include a 15% retrocession of Allianz policies
sold by Reassurance Company of Hannover (Hannover) and ceded 100% to
Hannover by Allianz. Terms of the Hannover Retrocession agreement are
substantially similar to the Allianz agreement.
Effective October 1, 2001, the Company assumed, on a funds withheld
basis, approximately $6.5 million dollars in annuity business
representing the previously unceded portions of Ultima annuities
originating from Allianz or Company sales efforts. In exchange for this
block of business, the Company agreed to a crediting interest rate 60
basis points less than that applied to business previously assumed from
Allianz.
Under these two agreements, funds held for the benefit of the Company,
$9,460,220 and $2,926,436 and the related obligations of $9,787,275 and
$3,024,771 at December 31, 2001 and 2000, respectively, are included on
the accompanying balance sheets under the captions "Funds withheld at
interest subject to restrictions" and "Contractholder deposits."
The general agency and marketing agreement calls for the Company to
recruit, train and manage general agents in the solicitation of
policies throughout the United States. The Company receives a 1.20%
compensation allowance on new policies and an additional .0042% monthly
on policies in force thirteen months or longer.
The Company's business is subject to the effects of a changing social,
economic and regulatory environment. Public and regulatory initiatives
have varied and have included employee benefit regulation, controls on
medical care costs, tax law changes affecting the taxation of insurance
companies, tax treatment of insurance products and its impact on the
relative desirability of various personal investment vehicles, and
proposed legislation to prohibit the use of gender in determining
insurance rates and benefits. Any ultimate or eventual effects to the
Company of these initiatives are uncertain.
NOTE 11 - INCOME TAXES
- ------- ------------
The Company provides deferred income tax assets and liabilities using
the liability method for temporary differences between book and taxable
income.
The provisions for income taxes for the years ended December 31, 2001
and 2000 are comprised as follows:
2001 2000
---- ----
Currently payable $ -- $ --
Deferred federal tax expense 1,600 2,310
Deferred state tax expense 600 990
------ ------
$2,200 $3,300
====== ======
F-16
AMERICAN LIFE HOLDING COMPANY, INC.
(FORMERLY B & B CAPITAL GROUP, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES - Continued
- ------- ------------
Income tax benefit (expense) attributable to income (loss) before
income taxes differed from the amounts computed by applying the United
States of America federal income tax rate of 34% to income (loss)
before income taxes as a result of the following:
2001 2000
---- ----
Computed expected income tax expense $3,810 $6,561
Reversals of temporary differences
at lower than expected rates (2,282) (2,867)
State taxes 672 (394)
------ ------
$2,200 $3,300
====== ======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities at December 31, 2001 are as
follows:
2001
----
Net operating loss carryforwards $121,800
Unrealized holding gain on
available for sale securities (28,600)
--------
$ 93,200
========
Deferred taxes are determined based on the difference between the
financial statement and tax bases of assets and liabilities as measured
by the enacted tax rates which are expected to be in effect when these
differences reverse. Deferred tax benefit is the result of changes in
deferred tax assets, net of the tax effects on the unrealized gain or
loss on available for sale securities, assigned to other comprehensive
income.
The Company had available, to offset taxable income, cumulative net
operating loss carryforwards arising from the periods since the year
ended December 31, 1992 of approximately $600,000 at December 31, 2001.
The carryforwards begin expiring in 2012.
NOTE 12 - STOCKHOLDERS' EQUITY
- ------- --------------------
The Company's authorized capital stock consists of 100,000,000 shares
of common stock, $.001 par value per share, and 5,000,000 shares of
preferred stock, par value $.001 per share, of which 250,000 shares
have been designated as Series A Preferred Stock. The remaining
4,750,000 shares of the preferred stock remain without designation.
ALAC is required by statute of the State of Tennessee, its domiciliary
state, to maintain minimum capital and surplus of $1,000,000 each.
Statutory capital at September 30, 2002, and December 31, 2001 and 2000
was $1,119,281, $1,119,281 and $1,103,706, and statutory surplus was
$1,226,421, $1,301,741 and $1,134,176, at September 30, 2002 and
December 31, 2001 and 2000, respectively. Generally, deferred
acquisition costs are not admitted as assets for statutory purposes,
and therefore, equity balances under statutory accounting principles do
not reflect any value for deferred acquisition costs.
Restrictions of retained earnings under these valuation reserves were
approximately $8,700 and $11,400 at December 31, 2001 and 2000,
respectively.
Risk based capital (RBC) requirements promulgated by the National
Association of Insurance Commissioners (NAIC) became effective for life
insurance companies in 1994. RBC requires life insurance carriers to
maintain minimum capitalization levels based on a four-part formula. As
of December 31, 2001 and 2000, the Company's total adjusted surplus
exceeded its authorized control level RBC.
The ability of ALAC to pay dividends is dependent on obtaining prior
written approval of the Tennessee Department of Insurance.
F-17
AMERICAN LIFE HOLDING COMPANY, INC.
(FORMERLY B & B CAPITAL GROUP, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCKHOLDERS' EQUITY Continued
- ------- --------------------
The Company has outstanding warrants to employees and non-employees
allowing the purchase of stock at a price of $10.00 per share. The
warrants, originally issued by ALAC, became exercisable into ALH shares
as a result of the share exchange as discussed in note 1. None of the
13,500 non-employee warrants or the 42,000 employee warrants, all of
whose exercise price exceeded market value as of the date of the grant,
have been exercised.
All warrants were issued prior to 2000 and were fully vested upon
issuance. Therefore, their issuance had no pro-forma effect on earnings
in any period presented.
Information regarding the warrants for 2001 and 2000 is as follows:
2001 2000
------------------------ -------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
Options outstanding,
beginning of year 55,500 $ 10.00 55,500 $ 10.00
Options canceled -- n/a -- n/a
Options exercised -- n/a -- n/a
Options granted -- $ 10.00 -- $ 10.00
------ ------
Options outstanding,
end of year 55,500 $ 10.00 55,500 $ 10.00
====== ======
Options exercisable,
end of year 55,500 $ 10.00 55,500 $ 10.00
====== ======
Option price range,
end of year $ 10.00 $ 10.00
Option price range,
exercised shares n/a n/a
Options available for
grant at end of year 0 0
Weighted average fair
value of options
granted during
the year $ n/a $ n/a
NOTE 13 - SUBSEQUENT EVENTS (UNAUDITED)
- ------- -----------------------------
In July, 2002 the Company's board of directors created a series of
250,000 shares of preferred stock and designated that series as Series
A Preferred Stock. The designations, rights and preferences of the
Series A Preferred Stock include:
* the stated value of each share is $.10,
* the shares are not redeemable without the consent of the
holders of a majority of the issued and outstanding shares of
Series A Preferred Stock,
F-18
AMERICAN LIFE HOLDING COMPANY, INC.
(FORMERLY B & B CAPITAL GROUP, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - SUBSEQUENT EVENTS (UNAUDITED) Continued
- ------- -----------------------------
* each share of Series A Preferred Stock is convertible into
shares of common stock at the Company's option at a conversion
rate to be mutually agreed upon at the time of conversion,
* the shares of Series A Preferred Stock do not pay any
dividends,
* each share of Series A Preferred Stock carries voting rights
equal to 75 votes, and
* so long as the shares of Series A Preferred Stock are
outstanding, the Company cannot take certain actions without
the approval of the holders of a majority of the issued and
outstanding shares, including:
- sell, convey, or otherwise dispose of or encumber all
or substantially all of its property or business or
merge into or consolidate with any other corporation
(other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related
transactions in which more than 50% of voting power
is transferred or disposed of;
- alter or change the rights, preferences or privileges
of shares of Series A Preferred Stock;
- increase or decrease the total number of authorized
shares of Series A Preferred Stock;
- authorize or issue, or obligate to issue, any other
equity security, including any other security
convertible into or exercisable for any equity
security having rights, preferences or privileges
over, or being on a parity with or similar to, the
Series A Preferred Stock;
- redeem, purchase or otherwise acquire (or pay into or
set aside for a sinking fund for such purpose) any of
its securities;
- amend its articles of incorporation or bylaws;
- change the authorized number of its directors;
- declare, order or pay any dividends on any class of
securities.
In August, 2002 the Company issued all 250,000 shares of this Series A
Preferred Stock to Dr. Bishop in connection with the granting by him to
the Company of a $250,000 line of credit which is described elsewhere
in this prospectus.
The Company has recorded as an asset, deferred financing costs, for the
value of the shares, $25,000 or $.10 per share, and is amortizing the
cost over the two year term of the line of credit.
F-19
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations other than those contained in
this prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by the company or any of the
underwriters. This prospectus does not constitute an offer of any securities
other than those to which it relates or an offer to sell, or a solicitation of
any offer to buy, to any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this prospectus nor any
sale made hereunder shall, under any circumstances, create an implication that
the information set forth herein is correct as of any time subsequent to the
date hereof.
Until _________, 2003 (90 days after the date of this Prospectus), all dealers
effecting trans actions in the registered securities, whether or not
participating in this distribution, may be re quired to deliver a Prospectus.
This delivery requirement is in addition to the obligations of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold al lotments or subscriptions.
TABLE OF CONTENTS
AMERICAN LIFE HOLDING
Page COMPANY, INC.
----
Prospectus Summary.......................... 1
Risk Factors................................ 4
Capitalization.............................. 10
Use of Proceeds............................. 10
Management's Discussion and
Analysis or Plan of Operation............. 10
Business.................................... 17 PROSPECTUS
Management.................................. 28
Certain Relationships and
Related Transactions.................... 34
Principal Shareholders...................... 36
Description of Securities................... 37 ________________, 2002
Selling Security Holders.................... 40
Plan of Distribution ....................... 42
Shares Eligible for Future Sale
Legal Matters............................... 44
Experts..................................... 44
Additional Information...................... 45
Financial Statements........................ F-1 147,224 SHARES
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act allows us to indemnify each of our
officers and directors who are made a party to a proceeding if
(a) the officer or director conducted himself or herself in good faith;
(b) his or her conduct was in our best interests, or if the conduct was
not in an official capacity, that the conduct was not opposed to our best
interests; and
(c) in the case of a criminal proceeding, he or she had no reasonable
cause to believe that his or her conduct was unlawful. We may not indemnify our
officers or directors in connection with a proceeding by or in our right, where
the officer or director was adjudged liable to us, or in any other proceeding,
where our officer or director are found to have derived an improper personal
benefit.
Our by-laws require us to indemnify directors and officers against, to
the fullest extent permitted by law, liabilities which they may incur under the
circumstances described above.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as express in the act and is therefore
unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by American Life in connection with the
distribution of the securities being registered are as follows:
SEC Registration and Filing Fee.............................. $ 68
Legal Fees and Expenses*..................................... 45,000
Accounting Fees and Expenses*................................ 52,000
Financial Printing*.......................................... 5,000
Transfer Agent Fees*......................................... 1,500
Blue Sky Fees and Expenses*.................................. 0
Miscellaneous*............................................... 432
TOTAL.............................................. $ 104,000
* Estimated
None of the foregoing expenses are being paid by the selling security holders.
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In May 1998 in connection with the organization of our company we
issued 150 shares of our common stock to our founder who is an accredited
investor in a private transaction exempt from registration under the Securities
Act in reliance on an exemption provided by Section 4(2) of the act. The
certificate evidencing the shares that were issued contained a legend
restricting their transferability absent registration under the Securities Act
or the availability of an applicable exemption therefrom.
Between April and November 1992 American Life sold an aggregate of
33,200 shares of its common stock to 13 investors at a purchase price of $10.00
per share in private transactions exempt from registration under the Securities
Act in reliance on exemptions provided by Section 4(2) of the act. All of these
investors were unaffiliated third parties except for two purchasers who were
members of American Life's board of directors who also became members of our
board of directors following the share exchange in June 2002 described below.
The purchasers were either accredited investors or non-accredited investors who
had such knowledge and experience in financial, investment and business matters
that they were capable of evaluating the merits and risks of the prospective
investment in American Life's securities. No general solicitation or advertising
was used in connection with these transactions, and the participants had access
to business and financial information concerning American Life.
In June 1994 American Life sold 1,000 shares of its common stock to an
accredited investor at $10.00 per share in a private transaction exempt from
registration under the Securities Act in reliance on an exemption provided by
Section 4(2) of the act. The purchaser was a member of American Life's board of
directors and became a member of our board of directors following the share
exchange in June 2002 described below. No general solicitation or advertising
was used in connection with this transaction, and the purchaser had access to
business and financial information concerning American Life.
In August 1996 American Life sold an aggregate of 300 shares of its
common stock to two investors at a purchase price of $10.00 per share in private
transactions exempt from registration under the Securities Act in reliance on
exemptions provided by Section 4(2) of the act. The purchasers were either
accredited investors or non- accredited investors who had such knowledge and
experience in financial, investment and business matters that they were capable
of evaluating the merits and risks of the prospective investment in American
Life's securities. No general solicitation or advertising was used in connection
with these transactions, and the participants had access to business and
financial information concerning American Life.
Between November 1995 and April 1996 American Life sold an aggregate of
4,500 shares of its common stock to one investor at a purchase price of $10.00
per share in a private transaction exempt from registration under the Securities
Act in reliance on an exemption provided by Section 4(2) of the act. The
purchaser was an accredited investor. No general solicitation or advertising was
used in connection with these transactions, and the participant had access to
business and financial information concerning American Life.
In November 1996, 10 American Life shareholders who had previously lent
American Life an aggregate of $397,125 converted those notes into 39,713 shares
of American Life's common stock. The shareholders were either accredited
investors or non-accredited investors who had such knowledge and experience in
financial,
II-2
investment and business matters that they were capable of evaluating the merits
and risks of the prospective investment in American Life's securities. Included
in these converting note holders were four members of American Life's board of
directors who also became members of our board of directors following the share
exchange in June 2002 described below. The shares were issued in reliance on an
exemption provided by Section 4(2) of the Securities Act.
In November 1996 American Life sold 250,000 shares of its Series A
Preferred Stock and in February 1997 it sold an aggregate of 1,850,000 shares of
its Series A Preferred Stock, all at a purchase price of $1.00 per share, to six
purchasers in private transactions exempt from registration under the Securities
Act in reliance on an exemption provided by Section 4(2) of that act. The
purchasers, all of whom were accredited investors, were two members of American
Life's board of directors, both of whom became members of our board of directors
in connection with the share exchange in June 2002 described below, and four
trusts for which one of the board members is the trustee.
In December 1999 American Life sold an aggregate of 1,579 shares of its
common stock at a purchase price of $16.90 per share to two individuals in
private transactions exempt from registration under the Securities Act in
reliance on exemptions provided by Section 4(2) of the act. The purchasers were
either accredited investors or non-accredited investors who had such knowledge
and experience in financial, investment and business matters that they were
capable of evaluating the merits and risks of the prospective investment in
American Life's securities. Included in the purchasers was one member of
American Life's board of directors who also became a member of our board of
directors in connection with the share exchange in June 2002 described below. No
general solicitation or advertising was used in connection with these
transactions, and the participants had access to business and financial
information concerning American Life.
Between July and December 1998 American Life sold an aggregate of
231,868 shares of its Series A Preferred Stock at a purchase price of $1.00 per
share to two purchasers in private transactions exempt from registration under
the Securities Act in reliance on an exemption provided by Section 4(2) of that
act. The purchasers, both of whom were accredited investors, were two members of
American Life's board of directors, both of whom became members of our board of
directors in connection with the share exchange in June 2002 described below.
In December 1999 American Life sold an additional 18,657 shares of its
Series A Preferred Stock at a purchase price of $16.90 per share to an
accredited investor who was a member of its board of directors and who also
became a member of our board of directors in connection with the share exchange
in June 2002 described below. This transaction was a private transaction exempt
from registration under the Securities Act in reliance on an exemption provided
by Section 4(2) of that act.
In December 2001 a member of American Life's board of directors who had
lent that company $89,000 converted the loan into 4,450 shares of American
Life's common stock in a private transaction exempt from registration under the
Securities Act in reliance on an exemption provided by Section 4(2) of that act.
II-3
In December 2001 the holders of 2,350,525 shares of American Life's
Series A Preferred Stock, which represented all the issued and outstanding
shares of that class, converted those shares into 235,053 shares of its common
stock. The converting shareholders were two members of American Life's board of
directors, both of whom became members of our board of directors in connection
with the share exchange in June 2002 described below, and four trusts for which
one of the board members is the trustee.
In February 2002 we issued 25,000 shares of our common stock to our
then president and sole director, who is an accredited investor, as compensation
for services in connection with the pending reorganization in a private
transaction exempt from registration under the Securities Act in reliance on an
exemption provided by Section 4(2) of the act. The certificate evidencing the
shares that were issued contained a legend restricting their transferability
absent registration under the Securities Act or the availability of an
applicable exemption therefrom.
In February 2002 we also issued 25,000 shares of our common stock to a
company as compensation for consulting services provided to us in a private
transaction exempt from registration under the Securities Act in reliance on an
exemption provided by Section 4(2) of the act. The certificate evidencing the
shares that were issued contained a legend restricting their transferability
absent registration under the Securities Act or the availability of an
applicable exemption therefrom.
In June 2002 we issued 319,799 shares of our common stock to 25
individuals or entities under the terms of a Share Exchange Agreement dated June
22, 2002. The persons or entities receiving shares in this transaction were:
Dr. John H. Bell
Dr. John H. Bell f/b/o Jane P. Bell
Henry F. Bertelkamp, Jr.
John T. Bible
Dr. Archer W. Bishop, Jr.
Archer W. Bishop Irrevocable Trust
Baker O. Bishop Irrevocable Trust
Kristin K. Bishop Irrevocable Trust
Thompson A. Bishop Irrevocable Trust
Stanley P. Brown, III
Stanley P. Brown, Jr. and Kathryn M. Brown
Ronnie D. Callihan
Dr. David W. Dickey III Bruce D. Fox
Bruce Fox, TTEE Ridenour & Ridenour KEOGH
Larry L. Johnson
Chadwick S. Lange
James P. Lowe
Lila K. Pfleger
Marc P. Powell
Judy R. Powell
Oscar R. Scofield and Ann Scofield
Charles F. Troutt
Amanda L. Williams
Lindsay Young
II-4
This transaction, which resulted in American Life becoming a majority owned
subsidiary of our company, was exempt from registration under the Securities Act
in reliance on an exemption provided by Section 4(2) of that Act. The
participants were either accredited investors or non-accredited investors who
had such knowledge and experience in financial, investment and business matters
that they were capable of evaluating the merits and risks of the prospective
investment in our securities. No general solicitation or advertising was used in
connection with this transaction, and the certificates evidencing the shares
that were issued contained a legend restricting their transferability absent
registration under the Securities Act or the availability of an applicable
exemption therefrom. The participants had access to business and financial
information concerning our company and they each represented to us that they
were acquiring the shares for investment purposes only, and not with a view
towards distribution or resale except in compliance with applicable securities
laws.
In June 2002 we sold an aggregate of 21,500 shares of our common stock
to 21 accredited investors in a private transaction exempt from registration
under the Securities Act in reliance on Rule 506 and Regulation D of the act. We
received gross proceeds of $107,500 from this offering, and we paid no
commissions in connection with the offering. No general solicitation or
advertising was used in connection with this transaction, and the certificates
evidencing the shares that were issued contained a legend restricting their
transferability absent registration under the Securities Act or the availability
of an applicable exemption therefrom. The purchasers had access to business and
financial information concerning our company. Each purchaser was an accredited
investor, as defined by Rule 501 of Regulation D, and the purchaser represented
that he was acquiring the shares for investment purposes only, and not with a
view towards distribution or resale except in compliance with applicable
securities laws.
In August 2002 we issued 250,000 shares of our Series A Convertible
Preferred Stock to Dr. Archer W. Bishop, Jr. as consideration for the granting
to us by Dr. Bishop of a $250,000 line of credit. The shares were issued in a
private transaction exemption from registration under Section 4(2) of the
Securities Act. As described elsewhere in this registration statement, we are
using the proceeds of this line of credit for general working capital. Dr.
Bishop is an accredited investor and he represented that he was acquiring the
shares for investment purposes only, and not with a view towards distribution or
resale except in compliance with applicable securities laws. No general
solicitation or advertising was used in connection with this transaction, and
the certificates evidencing the shares that were issued contained a legend
restricting their transferability absent registration under the Securities Act
or the availability of an applicable exemption therefrom.
In October 2002 we issued warrants to purchase 44,500 shares of our
common stock at an exercise price of $10.00 per share to two individuals,
including a member of our board of directors, in private transactions exemption
from registration under Section 4(2) of the Securities Act. We also granted
options under our 2002 Stock Option Plan to purchase 11,000 shares of our common
stock at an exercise price of $10.00 per share to four other individuals,
including two members of our board of directors, also in private transactions
exempt from registration under the Securities Act in reliance on an exemption
provided by Section 4(2) of said act. Neither the options nor the warrants
II-5
have been exercised as of the date of this registration statement. The
recipients were either accredited investors or non-accredited investors who had
such knowledge and experience in financial, investment and business matters that
they were capable of evaluating the merits and risks of the prospective
investment in our securities. No general solicitation or advertising was used in
connection with these transactions.
No underwriters or broker-dealers participated in any of the
transactions described in this Item 26. and no commissions or other fees were
paid to any third parties in connection with any of these sales or issuances.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit No. Description of Document
3.1 Articles of Incorporation*
3.2 Amended and Restated Articles of Incorporation*
3.3 Articles of Amendment to the Amended and Restated Articles of
Incorporation*
3.4 By-Laws*
3.5 Articles of Amendment to the Amended and Restated Articles of
Incorporation **
4.1 Form of Common Stock Purchase Warrant *
5.1 Opinion of Katz, Barron, Squitero & Faust, P.A. **
10.1 Share Exchange Agreement dated June 22, 2002**
10.2 Reinsurance Agreement with Allianz Life Insurance Company of
North American, and addendums *
10.3 Annuity Retrocession Agreement with Hanover Reassurance
Company of North America*
10.4 Unsecured Revolving Credit Note in the principal amount of
$250,000*
10.5 American Life Holding Company, Inc. 2002 Stock Option Plan*
10.6 [DELETED]
10.7 [DELETED]
10.8 Agreement between The American Life and Annuity Company, Inc.
and Martin & Company, L.P.*
16.1 Letter from Rodefer Moss & Co PLLC regarding change of
certifying accountants**
21 Subsidiaries of the registrant*
23.1 Consent of Henderson Hutcherson & McCullough PLLC**
23.2 Consent of Rodefer, Moss & Co, PLLC**
23.3 Consent of Katz, Barron, Squitero & Faust, P.A. (included in
Exhibit 5)**
* previously filed
** filed herewith
II-6
ITEM 28. UNDERTAKINGS
The undersigned registrant also undertakes:
(1) To file, during any period in which offers or sales are being made,
a post- effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospects filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in the volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and
(iii) Include any additional or changed material information
on the plan of distribution.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or preceding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Knoxville, Tennessee on December 16, 2002.
AMERICAN LIFE HOLDING COMPANY, INC.
By: /s/ Stanley P. Brown, III
Stanley P. Brown, III, President,
Principal Executive Officer, and
Principal Accounting and Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to Form SB-2 registration statement has been signed by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Dr. Archer W. Bishop, Jr. Chairman December 16, 2002
- ----------------------------
Dr. Archer W. Bishop, Jr.
/s/ Stanley P. Brown, III President, CEO, December 16, 2002
- ---------------------------- Principal Executive,
Stanley P. Brown, III Principal Accounting
and Financial Officer
and director
/s/ Lila K. Pfleger Secretary, Treasurer December 16, 2002
- ---------------------------- and director
Lila K. Pfleger
/s/ Oscar R. Scofield Director December 16, 2002
- ----------------------------
Oscar R. Scofield
/s/ Dr. John H. Bell Director December 16, 2002
- ----------------------------
Dr. John H. Bell
II-8
EXHIBIT INDEX
Exhibit No. Description of Document
3.5 Articles of Amendment to the Amended and Restated Articles of
Incorporation
5.1 Opinion of Katz, Barron, Squitero & Faust, P.A.
10.1 Share Exchange Agreement dated June 22, 2002
16.1 Letter from Rodefer Moss & Co PLLC regarding change of
certifying accountants
23.1 Consent of Henderson Hutcherson & McCullough PLLC
23.2 Consent of Rodefer, Moss & Co, PLLC