AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY __, 2003
REGISTRATION NO. 333-98651
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMERIFIRST FUND I, LLC
(Exact name of registrant as specified in its charter)
Florida 6189 16-1628-844
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employee
Classification Code Number) Identification number)
1712-H Osborne Rd.
St. Marys, Georgia 31558
(912) 673-9100
(Name, address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
John Tooke
AmeriFirst Fund I, LLC
1712-H Osborne Rd.
St. Marys, Georgia 31558
(912) 673-9100
Facsimile: (912) 673-8434
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies of all communications to:
Elliot H. Lutzker, Esq.
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158-0125
(212) 687-3860
Facsimile: (212) 949-7052
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement has been effective.
If any of the securities registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. |X|
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OFFERING AGGREGATE AMOUNT OF
OF SECURITIES AMOUNT TO PRICE OFFERING REGISTRATION
TO BE REGISTERED BE REGISTERED PER UNIT PRICE FEE
Units...................... 100,000 Units (1) $1,000 $100,000,000 $9,200
(1) The registrant is offering units at $1,000 per Unit. Units will initially be
sold at a minimum of one hundred (100) Unit(s) with additional purchases in
multiples of $1,000. The registrant will issue and sell up to $100 million in
Units.
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 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
-ii-
The information in this prospectus is not complete and may be changed. These
securities may not be sold 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 January __, 2003
PROSPECTUS MAXIMUM -- $100,000,000 of Units
MINIMUM -- $2,500,000 of Units
MINIMUM INVESTMENT: $100,000
AMERIFIRST FUND I, LLC, ISSUER
The units offered by AmeriFirst Fund I, LLC, a newly formed Florida
limited liability company (the "Fund"), evidence fractional, pro rata beneficial
interests in the Fund. The Fund's income will be generated from a pool of life
insurance policies which we intend to purchase through AmeriFirst Funding Group,
Inc., an affiliated insurance provider. The Fund is not a mutual fund or any
other type of investment company within the meaning of the Investment Company
Act of 1940 and is not subject to regulation thereunder. No trading market
currently exists or will exist for the units offered hereby and transfer
restrictions prevent assignment.
Price to Selling Proceeds to
Net Proceeds to the Fund Investors Commissions(1) Issuer
- ------------------------ --------- -------------- ------
Per Unit............................ $1,000 $100 $900
Total Maximum....................... $100,000,000 $10,000,000 $90,000,000
Total Minimum....................... $2,500,000 $250,000 $2,250,000
(Footnote on following page)
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE UNITS OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
An investment in the Fund involves a high degree of risk. Prospective
investors should consider the following factors, among others, set forth under
"Risk Factors" commencing on page 11.
no guarantee of a return on investment
no guarantees in estimates of timing when the policy matures
lack of liquidity
no actual experience by John Tooke in the life settlements business
dependence on John Tooke as controlling person of our manager, provider and
underwriter for the proposed investment program
lack of operating history, assets or established financing sources
independent physicians providing services to us do not personally examine the
insured
the proceeds have not been committed to any identifiable insurance policies
conflicts between the Fund, our manager, provider and underwriter including, the
payment of substantial fees and expenses, non arms-length agreements and
competition for the time and services of John Tooke
substantial doubt raised by accountants as to our ability to continue as a going
concern
lack of ownership interest in our manager and provider which are controlled by
John Tooke
up to 5% of the face amount of insurance policies may be paid to our provider
for origination fees, and 7.5% to our manager to service the life settlements
and the investors
limited ability to invest in insurance contracts if only the minimum is reached
the incentive fee structure could result in our manager recommending riskier or
more speculative investments
risks associated with the fact that we have no assets our investment policies
and strategies may be changed without unitholder consent
investors will be allocated income for tax purposes, but may not receive cash
distributions with which to pay associated taxes
up to 10% of the gross proceeds of this offering to be paid as selling
commissions to our underwriter and up to 1/2% to AmeriFirst, Inc. for expense
reimbursement.
AMERIFIRST CAPITAL CORP.
The date of this prospectus is ____________ __, 2003.
-iii-
- -------------
(1) Units will be offered and sold by broker-dealers registered with the
Securities and Exchange Commission and licensed by the NASD to sell the
units. We expect to complete the registration of our underwriter,
AmeriFirst Capital Corp., with the NASD prior to the effective date of
this prospectus. Our underwriter may also engage other NASD
broker-dealers and foreign dealers who agree to abide by the NASD's
rules to sell our units. Our underwriter will receive selling
commissions of up to 10% of the gross proceeds of the sale of units by
the underwriter and may negotiate fees to be paid to selected dealers on
units sold by them.
We are offering and selling to the public a minimum of 2,500 units and up to a
maximum of 100,000 units at $1,000 per unit, with an initial minimum investment
of one hundred (100) units at $100,000, although our underwriter reserves the
right to accept subscriptions of less than $100,000. All subscriptions are
non-cancellable and irrevocable. The units are being distributed on a "best
efforts" basis by AmeriFirst Capital Corp. The proceeds of this offering will be
held in escrow with SouthTrust Bank,110 Office Park Drive, 2nd Floor,
Birmingham, Alabama, 35223 until the $2,500,000 minimum amount is received, and
promptly returned to investors, if the minimum amount is not received by
____________, 2003 [six months from the date of this prospectus unless
extended].
AmeriFirst, Inc., the holding company controlled by John Tooke, will pay all
organizational and offering expenses including without limitation, legal and
accounting expenses, photocopy costs, selling expenses, and filing fees paid to
the Securities and Exchange Commission and state securities commissions,
estimated to be approximately $250,000. AmeriFirst, Inc. will receive up to 1/2%
of the gross proceeds of the sale of the units to cover all or a portion of
these actual expenses.
Currently we intend to offer the units for sale in California, Colorado,
Connecticut, Florida, Georgia, Hawaii, Illinois, Michigan, Nevada, New Jersey
and New York. We will end this offering in these states on ____________, 2003
[12 months from the date of this prospectus unless extended] or at such earlier
time that all $100 million of units are sold. If we desire to extend this
offering up until ____________ 2004 [24 months from the date of the prospectus],
each of these states requires us to file the appropriate documents with such
state's agency and we will provide investors in these states with written notice
of such extension. We may register in additional states to sell the units and
will comply with applicable state "blue sky" laws to extend the offering.
If we do not receive acceptable subscriptions for $2,500,000 or more of
units by ____________ 2003 [six months from the date of this prospectus unless
extended], we will notify you in writing and the escrow agent will promptly
return all subscription amounts together with interest earned while the funds
were held in escrow to you and the other subscribers. You will earn interest on
the funds held in the escrow account as soon as your funds clear at an average
money market rate of approximately 1-2%, according to market rates. You will not
be a member of the Fund while your funds are held in the subscription escrow
account and you will only become a member once we accept your subscription and
transfer your funds out of the subscription escrow and into the Fund's own
operating escrow account. After the minimum offering amount has been raised, we
will accept or reject all subscriptions within five business days after receipt
and will instruct the escrow agent promptly to release the funds of the accepted
subscriptions to us and to refund the funds of any rejected subscriptions. We
may terminate this offering at any time and refund any subscriptions that we
have not accepted. Unless you are an insured who also purchases units offered
hereby, you will not know the identity of the insured.
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
-iv-
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.
WHERE YOU CAN FIND MORE INFORMATION
We will file reports, proxy statements and other information with the
SEC. You may read and copy any document we file at the Public Reference Room of
the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the Regional Offices of the SEC at 233 Broadway, New York, New York 10048 and
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Please
call 1-800-SEC-0330 for further information concerning the Public Reference
Room. Our filings will be available to the public from the SEC's website at
www.sec.gov. We will distribute to our members annual reports containing audited
financial statements.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance, or achievements.
-v-
TABLE OF CONTENTS
Page
----
WHERE YOU CAN FIND MORE INFORMATION.........................................-v-
SUMMARY OF THE OFFERING.......................................................1
ORGANIZATIONAL CHART.........................................................10
RISK FACTORS.................................................................11
FORWARD-LOOKING STATEMENTS...................................................28
INVESTOR SUITABILITY STANDARDS...............................................28
USE OF PROCEEDS..............................................................31
CAPITALIZATION OF AMERIFIRST FUND I, LLC.....................................33
TERMS OF THE OFFERING........................................................33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF AMERIFIRST FUND I, LLC........................36
NOTICE TO CALIFORNIA RESIDENTS...............................................37
BUSINESS.....................................................................38
DESCRIPTION OF THE UNITS.....................................................62
DESCRIPTION OF VIATICAL
SETTLEMENT CONTRACTS.................................................69
OTHER OPERATING POLICIES.....................................................70
OUR MANAGER AND ITS AFFILIATES...............................................71
COMPENSATION OF OUR MANAGER AND ITS AFFILIATES...............................74
CONFLICTS OF INTEREST........................................................76
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................78
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT................................................79
-vi-
FIDUCIARY RESPONSIBILITIES OF OUR MANAGER....................................80
ERISA CONSIDERATIONS.........................................................81
FEDERAL INCOME TAX CONSEQUENCES..............................................82
SUMMARY OF OPERATING AGREEMENT...............................................87
PLAN OF DISTRIBUTION.........................................................91
INVESTMENT COMPANY ACT OF 1940...............................................93
LEGAL PROCEEDINGS............................................................94
LEGAL OPINIONS...............................................................94
EXPERTS......................................................................94
ADDITIONAL INFORMATION.......................................................94
SIGNATURES.................................................................II-4
EXHIBITS
A. Form of Subscription Agreement
B. Operating Agreement
-vii-
SUMMARY OF THE OFFERING
The following information is only a brief summary of the units being
offered for sale in this prospectus. We recommend that you thoroughly read this
prospectus. This summary is not as complete or accurate as the longer
descriptions you will find in the main body of this prospectus.
Fund............................ AmeriFirst Fund I, LLC, is a Florida Limited
Liability Company which was recently formed
to engage in this offering. We are offering
membership interests in the Fund which will
entitle you to a fractional pro rata
beneficial interest in the income to be
generated from individual life insurance
policies which we intend to purchase at a
discount to face value to create a "pool."
The Fund was formed to provide a return on
investment to our investors. However, we will
also provide financial benefits to terminally
ill and chronically ill (a continuing disease
which may or may not become terminal) persons
of all ages and senior citizens, age 65 and
older, with estimated life expectancies based
solely on actuarial tables (collectively,
defined as "life settlements"). Under our
operating agreement, attached hereto as
Exhibit B, our existence ends on December 31,
2027, unless liquidated sooner. Our offices,
as well as those of our provider are located
at 1712-H Osborne Rd., St. Marys, Georgia
31558; Tel: (912) 673-9100.
Our provider and underwriter are regulated by
different agencies under different rules and
regulations and will have employees and
operations independent of each other, as
described in this prospectus. The Fund and
its financial accounts and statements are
separate and apart from the regulated
entities. Each entity is controlled by John
Tooke, who has experience with selling
mortgage backed and other securities, but has
no actual experience purchasing and
securitizing life settlements. He has
researched the life settlements industry
starting in April 2001 and conducted all
organizational activities necessary for the
Fund.
Provider........................ The provider for the Fund is AmeriFirst
Funding Group, Inc., a Delaware corporation
recently formed by John Tooke. Our provider
will originate policy purchases either
directly from the insured, when it is
licensed, from other providers, or from an
unaffiliated broker network. Our provider has
agreed in writing to transfer all policies
which it purchases to the Fund, except those
it sells on non-securitized basis to
unaffiliated third parties. Our provider will
be managed by two persons who have been hired
to report to John Tooke, both for policy
1
origination. Our provider is in compliance
with the laws of the State of Georgia to
conduct life settlement business and will
comply with the laws of all other states
which regulate the purchase and/or sale of
insurance policies.
Manager/Servicer................ Our manager of the Fund is AmeriFirst
Financial Services, Inc., a Delaware
corporation recently formed by John Tooke.
Our manager will be responsible for making
all investment decisions on behalf of the
Fund and dealing directly with investors in
the Fund. In addition, our manager currently
intends to service the insurance policies
purchased by the Fund, however, our manager
may decide to outsource any or all non-
financial services to a third party.
Approximately 12 experienced employees have
been hired by our manager and its parent
company AmeriFirst Inc. to handle these
responsibilities. Investment decisions for
the Fund will be made by the management of
our manager who has substantial prior
experience with securities, but not with life
settlements. The service function will be
managed by a chief information officer,
in-house legal staff, accounting staff,
insurance review, medical review, policy
administration, computer and data processing
personnel, customer service and medical
administration. We have not entered into any
other agreements with a third party servicer.
Our manager has entered into consulting
agreements with three unaffiliated medical
review service companies to determine
estimated life expectancies. In addition, we
have contracted with an affiliate of one of
those companies to monitor or track the
medical status and location of an insured and
file the claim to the insurer once a policy
has matured. The principal offices of our
manager and underwriter are located at 814
North Highway A1A, Suite 300, Ponte Vedra
Beach, Florida 32082; tel: (904) 373-3034;
although our manager expects to also have
office space at the Fund's facility in St.
Marys, Georgia.
Use of Proceeds................. The net proceeds of the offering will be used
to purchase life insurance policies for less
than the face amount of the policy. This
ownership interest carries with it the right
to secure the insurance proceeds when the
policy matures. It also generally carries
with it the obligation to make premium
payments.
Return on Investment............ We are offering pro rata interests in the
income to be generated primarily from
individual life insurance policies which we
will purchase to create a pool. The pool is
intended to reduce risk by purchasing a large
number of policies from a diverse group of
terminally ill and chronically ill persons of
all ages, and senior citizens, age 65 and
older, with estimated life expectancies based
solely on actuarial tables. The pool of life
2
insurance policies will range from face
values of $25,000 to $2 million or more. Life
settlements help relieve the financial burden
of terminally ill and chronically ill (the
disease has persisted for a long period of
time) persons who are often faced with
enormous stress resulting from loss of
employment and extraordinary medical
expenses. The pool will provide a blended
rate of return closer to the estimated rate
of return, rather than if you were to
purchase a single life insurance policy. We
will attempt to purchase insurance policies
at a discount to face value based on our
estimates of life expectancies. The discount
is directly connected with life expectancy
and will increase along with estimated life
expectancy. A one-year life expectancy may
have a relatively small discount of perhaps
10%, while a 10-year life expectancy may have
a 50% discount. The amount of the discount to
the insured is negotiated and varies
depending upon the nature of the life
insurance policy, the stability of the
insurer, prevailing interest rates, the
estimated premiums to be paid by our manager
for the policy over the expected life of the
insured, the insured's estimated life
expectancy and certain other costs of the
life settlement. In any event, we do not
intend to purchase any policy that is
expected to yield to the Fund an annual rate
of return of less than 10% based on the
purchase price and estimated life expectancy.
Only when we acquire the proceeds from life
insurance policies will you receive a
distribution consisting of your "pro rata
share" of such proceeds. The estimated rate
of return on the purchase price of a life
insurance policy is inclusive of all fees
associated with the purchase. It is projected
by dividing the aggregate return by the
insured's estimated life expectancy
determined by medical and insurance
underwriting and actuarial tables. See
"Business - Description of Return on
Investment -- Estimated Life Expectancy"
Table for a hypothetical example of how
returns on investment will be calculated.
The actual return to investors is paid only
at maturity of a policy and you will not know
the actual rate of return until the insurance
policy matures. Since the pool of insurance
policies will have different maturity dates,
an investor in the Fund receives an
indeterminate cash flow. Upon cash payment of
insurance proceeds to the Fund, a
distribution will be paid to members
consisting of your "pro rata share" of such
proceeds. Accordingly, the greater the total
investments, the smaller your ownership
interest in the Fund will be since your
ownership
3
interest will be diluted; however, your rate
of return will remain the same. The actual
return on investment to members is determined
by subtracting the discounted amount paid for
each policy purchased (including all fees and
policy premiums paid), as well as any capital
calls paid, from the face value of such
policy when the policy matures. When all
insurance policies have matured, the Fund's
existence will end. We cannot guarantee you
the full return of your investment. See the
Fund's operating agreement attached as
Exhibit B to this prospectus and "Summary of
the Operating Agreement" in this prospectus
for the precise definition of "pro rata
share."
Minimum and Maximum
Offering........................ We must receive a minimum of $2.5 million
from investors before funds will be released
from the subscription escrow account and we
can begin our operations and acquire the
first life settlements. Each investor must
subscribe to purchase units in denominations
of $1,000 for a minimum of one hundred (100)
units or $100,000 and integral multiples of
$1,000 in excess of such minimum
denomination. Our underwriter reserves the
right to accept subscriptions of less than
$100,000.
If the minimum amount of subscriptions has
been timely received, then, with two days
prior notice, the escrow agent shall release
to the Fund, funds equal to units in the same
principal amount. The funds shall be put in
the Fund's operating escrow account earning
money market rates until the purchase of life
settlement policies. At the time of purchase
of life settlement policies, funds equal to
the purchase price of policies available for
purchase will be sent to our provider in
exchange for ownership or an irrevocable
beneficial interest in the policies. In
addition, funds equal to the premiums based
on life expectancy of the insured will be
placed in the premium escrow account. Each of
the three escrow accounts shall be maintained
at SouthTrust Bank, Birmingham, Alabama.
After the minimum offering amount has been
raised, we will accept or reject all
subscriptions within five business days of
receipt. If we do not receive and accept $2.5
million in subscriptions by
_________________, 2003 [six months from the
date of this prospectus unless extended], we
will notify investors in writing that we are
terminating this offering and your funds,
together with the interest or other income
earned thereon will promptly be returned to
you by the escrow agent. Until we receive a
total of $2.5 million, any payments received
from you or other subscribers will be held in
an interest-
4
bearing escrow account. All subscriptions are
non-cancellable and irrevocable during this
period. After we issue the first $2.5 million
or more in units, we intend to continue to
offer and sell the units until __________
2003, [12 months from the date of this
prospectus unless extended] or, until a total
of l00,000 units for $100 million are sold.
In the event that the entire $100 million of
units are sold, our underwriter will receive
up to $10 million in sales commissions and
AmeriFirst, Inc., the parent holding company,
will receive up to 1/2% of the gross
proceeds, or up to $500,000 for reimbursement
of actual offering expenses, which are
estimated to be $250,000.
Currently we intend to offer the units for
sale in California, Colorado, Connecticut,
Florida, Georgia, Hawaii, Illinois, Michigan,
Nevada, New Jersey and New York. If we elect
to extend this offering up until __________
2004 [24 months from the date of this
prospectus], each of these states requires us
to file the appropriate documents with such
state's securities commission and we will
provide investors in those states with
written notice of such extension. We may
register in additional states to sell the
units and will comply with applicable "blue
sky" laws to extend the offering. We may
terminate this offering at any time by
written notice to investors and refund any
subscriptions that we have not accepted. If
we terminate this offering, our manager will
promptly prepare a form of notice and furnish
our underwriter and selected dealers, if any,
with copies to distribute to all persons who
have received this prospectus either directly
from our underwriter or from a selected
dealer. See "Plan of Distribution."
Permitted Life Settlement Fees.. Origination Fee. The fee to be paid by the
Fund to AmeriFirst Funding Group, Inc., our
provider, or an unaffiliated provider in the
secondary market, will be up to a maximum of
5% of the face amount of the policy. This is
exclusive of fees which the insured is
obligated to pay to the independent broker
selling the insured's policy to our provider.
Our Manager's and/or Servicer's Fees. The
fees to be paid by the Fund to our manager,
who also currently intends to service the
policies, will be up to a maximum of 7.5% of
the face amount of the policy. We believe
that the fees paid to our manager are
consistent with fees paid to third parties.
If we outsource to a third party we will
enter into a servicing agreement. The
services to be provided include the following
steps: (a) due diligence review, which
includes evaluating the terms of each policy
with the assistance of a medical review
5
service company, which has contracted with
independent medical specialists, who will
estimate the life expectancy of the insured;
(b) closing the transaction, which includes
obtaining releases of prior beneficiaries and
designation and recording of the Fund as
beneficiary, as well as payment of the
purchase price to the insured; (c) servicing
the insurance policies on an ongoing basis,
and (d) monitoring the life status of the
insured. See "Compensation of our Manager and
its Affiliates."
Sinking Fund.................... Our Manager shall escrow 10% of the net
proceeds of this offering as a sinking fund
intended to be used in the event of insurance
company policy payout failure(s), policy
termination and policy lapses, to replenish
the premium escrow account and/or for
operating expenses (collectively, a
"default"). Such sum shall provide pro rata
redemption to the Fund's members in case of a
default. Upon final liquidation of the Fund,
the sinking fund remainder balance shall be
distributed to our manager including all
interest accrued in any manner permitted by
law.
Conflicts of Interest........... Certain relationships exist among the Fund,
our provider, our underwriter, our manager
and John Tooke, who through a Delaware
holding company, AmeriFirst, Inc., owns a
majority of the equity of each such entity,
which could result in various conflicts of
interest including, but not limited to,
payment of substantial fees and expenses,
purchase of life insurance policies from our
provider, non arms-length agreements,
competition for the time and services of John
Tooke and the lack of separate
representation. See "Conflicts of Interest."
Membership Interests............ You will not be a member of the Fund while
your funds are held in escrow and you will
only become a member once we accept your
subscription and transfer your funds out of
the subscription escrow and into the Fund's
operating escrow account upon completion of
the minimum offering. Your rights as a member
are described in the Fund's operating
agreement, attached hereto as Exhibit B, and
are also governed by Florida law.
Units........................... The units will represent membership interests
in the Fund which will represent fractional
pro rata beneficial interests in the income
to be generated primarily from a pool of life
insurance policies. The units do not
represent interests in, or obligations of,
our manager, our provider, or any affiliate
thereof. The units are not insured or
guaranteed by any federal or state
governmental agency.
Cash............................ Funds held by the fund after the minimum
offering has been completed that have not yet
been used to purchase life
6
insurance policies and to pay policy premiums
will be temporarily deposited by our manager
in interest-bearing bank accounts, money
market funds or used to purchase short-term
U.S. Treasury bills. It is our present
intention to have three money market accounts
each paying money market rates of 1-2%
according to market fluctuations. The first
account is the operating escrow account in
which funds are transferred to our provider's
escrow account to purchase life insurance
policies, the second is the premium escrow
account to make premium payments, and the
third account is the sinking fund to provide
for redemption to members in the event of a
default. Investors will be entitled to a
pro-rata share of the short-term interest
earned in the operating escrow account.
Tax Considerations.............. The Fund will elect to be taxed as a
partnership for federal income tax purposes
and for purposes of any state or local tax if
such election is recognized by the state and
local taxing authorities. Accordingly, in the
opinion of our counsel, Snow Becker Krauss
P.C., there will be no company level tax in
any jurisdiction that recognizes that
election. Most, if not all, of the return
paid to you from the interest we earn on the
life settlements will be taxed as ordinary
income to you if you are subject to federal
income tax. If we have more than 100 members
and the membership interests are "publicly
traded" as that term is used in the Internal
Revenue Code (and defined under "Federal
Income Tax Consequences" in this prospectus),
then the Fund will be taxed as a corporation
and therefore, will incur double taxation.
Our operating agreement provides that no
transfer will be permitted if it results in
our being a publicly traded partnership;
however, there can be no assurance that we
will be able to identify transfers that would
result in the Internal Revenue Service
determining that there has been a secondary
market in the stock and that would result in
such determination. Under partnership tax
rules, you will report on your federal income
tax for each year during which you are a
partner, your distributive share of the items
of income gain, loss, deduction and credit of
the partnership, irrespective of whether you
receive a distribution.
Risk Factors.................... An investment in the Fund involves a high
degree of risk. You should consider the risk
factors commencing on page 11 including,
among others:
o no actual experience by John Tooke in the
life settlements business
o dependence on John Tooke as controlling
person of our manager, provider and
underwriter for the proposed
7
investment program
o no trading market for securities will
exist and transfer restrictions prevent
assignment
o conflicts between the Fund, our manager,
provider and our underwriter including,
the payment of substantial fees and
expenses, non arms-length agreements and
competition for the time and services of
John Tooke
o lack of operating history, assets or
established financing sources
o substantial fees to be paid to affiliates
of the Fund for origination and servicing
of life insurance policies may create
conflicts of interest among such parties
Investor Suitability Standards.. To purchase units you must have at least
either a net worth, exclusive of home, home
furnishings and automobiles, of at least
$150,000 and a minimum annual gross income of
at least $100,000; or a minimum net worth of
at least $250,000, in accordance with NASAA
guidelines with respect to Asset Backed
Securities and Viatical Settlements.
Additionally, you will have to make
additional representations to us before we
determine that the investment is suitable for
you. See "Investor Suitability Standards."
Limited Right to Resell......... There will be no public market for resale of
the units. To resell or transfer your units
in a private transaction, you must first
obtain the approval of our manager, which it
is not required to grant. In addition, our
manager may not approve a resale, if as a
result, the Fund would become a "publicly
traded partnership" or which would otherwise
cause the Fund to be taxable as a corporation
or which will violate any federal or state
securities laws.
Limited Right to Withdraw....... You may only withdraw or partially withdraw
from the Fund and obtain the return of all or
part of your capital account commencing one
year after you purchase your units and
receive back 85% of the face amount of your
investment, less any distributions paid to
such date, within 90 days after you deliver
written notice of withdrawal to our manager.
Notwithstanding the foregoing, we can only
make cash payments in return for outstanding
capital amounts from net proceeds and capital
contributions.
Reports to Members.............. Once every year the financial statements of
the Fund will be audited by independent
public accountants and the statements will be
made available to members. Additionally, a
semi- annual members statement and an annual
members tax statement will be sent to each
member. Our quarterly, annual and other
reports that we file with the SEC will also
be
8
accessible to you at the SEC's public reading
rooms or on the SEC's website. See "Summary
of Operating Agreement-- Reports and
Records."
To Purchase Units............... To purchase units, you must complete and sign
the subscription agreement, attached as
Exhibit A to this prospectus, and deliver it
to our underwriter or the selected dealer who
has solicited your investment, together with
your payment for the number of units as
specified in the subscription agreement. We
may accept or reject your subscription in
whole or in part. Our acceptance of your
subscription is effective when the
subscription agreement is signed by our
manager.
The units offered are subject to cancellation or modification of the
offering without notice. Our manager reserves the right, in its discretion, to
reject subscriptions in whole or in part for the purchase of units offered
hereby, notwithstanding the tender of payment by check or otherwise.
No 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 representations must not be relied upon as having been
authorized by our manager. This prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any securities other than the units, or an
offer or solicitation of any person in any jurisdiction in which such offer or
solicitation would be unlawful.
The Fund will be taxed as a partnership and your tax information will be
furnished to you on Form K-1, a partner information return. These returns, which
we will distribute to you, will contain information regarding the income items
and expense items of the Fund. If you have not received K- 1s from other
investments, you may find that preparing your tax return may require additional
time, or it may be necessary for you to retain an accountant or other tax
preparer, at an additional expense to you, to assist you in the preparation of
your return.
9
ORGANIZATIONAL CHART
AmeriFirst, Inc.
(Delaware) Parent Holding Company
55% of the equity owned by John Tooke,
Chairman, CEO and Director
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- ------------------------- ----------------------- -------------------------
AmeriFirst Financial AmeriFirst Capital Corp. AmeriFirst Funding
Services, Inc. (Florida) Group, Inc.
(Delaware) (Delaware)
Manager of the Fund Underwriter of the Fund Provider of the Fund
A wholly-owned subsidiary A wholly-owned subsidiary A wholly-owned subsidiary
of AmeriFirst, Inc. of AmeriFirst, Inc. of AmeriFirst, Inc.
John Tooke: President, John Tooke, President, John Tooke, President,
Chief Executive Officer Chief Executive Officer Chief Executive Officer
and Director and Director and Director
- ------------------------- ----------------------- -------------------------
| | |
| | |
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|
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AmeriFirst Fund I, LLC
(Florida) Issuer
10
RISK FACTORS
You should be aware that an investment in the Fund involves a high
degree of risk. You should carefully consider the following risk factors and
other information in this prospectus before purchasing units. We also caution
you that this prospectus includes forward-looking statements that are based upon
our beliefs and assumptions and on information currently available to us. You
should carefully consider the following risk factors and other information in
this prospectus before purchasing units.
Risks Related to Our Business and Industry
We may not have a viable business because of our lack of an operating history.
The Fund and our provider were recently incorporated in 2002, and
together with our manager have no operating history. At September 30, 2002, the
Fund had no assets and our provider had assets of $10,000. In addition, the Fund
had total liabilities of $218,100 owed to AmeriFirst, Inc. as of September 30,
2002. Furthermore, the life settlements industry is relatively new. There can be
no assurance that life settlements will remain a viable industry or that the
Fund will be able to compete in this industry. See "Business - Competition."
There is little, if any, precedent for a public company engaged in the life
settlements industry.
There are very few, if any, public companies engaged in the life
settlements industry. Therefore, there are no models for investors to view in
which to compare the operations and future performance of the Fund.
The inability of our manager to purchase policies will have a material adverse
effect on the Fund.
The Fund will depend upon our manager for the acquisition of life
settlement policies on behalf of the Fund from our provider, either directly
from the insured when it is licensed, from other providers, or from an
unaffiliated broker network. There can be no assurance that our manager will be
able to purchase a sufficient amount of insurance policies to utilize the entire
net proceeds which may be raised from this offering of units. If AmeriFirst
Funding Group, Inc. were to cease acting as our provider of insurance policies,
this would be expected to have a material adverse effect on our manager's
ability to purchase life insurance policies.
The loss of services of John Tooke could adversely affect the business and
operations of our manager, underwriter and provider.
John Tooke is the president and controlling shareholder of our manager,
underwriter and our provider. Mr. Tooke has no actual experience in the purchase
of life settlements, although he has researched the industry since at least
April 2001. Since an investment in the Fund is substantially dependent on the
efforts and expertise of John Tooke, he is currently irreplaceable. Our
underwriter has a non-compete provision in its employment contract with John
Tooke,
11
which prevents him from engaging in any business which is competitive with the
business of our manager and soliciting any past or present customer or employee
of our manager. Neither the Fund nor any of its affiliated entities maintains
key man life insurance on John Tooke's life and the loss of his services would
be expected to cause us to cease operations unless a replacement could be found.
The loss of Mr. Tooke's services would be expected to adversely affect the
Fund's business and its affiliated entities' ability to perform their duties and
obligations in connection with this offering. Under our operating agreement we
will indemnify our manager from any liability and related expense incurred in
dealing with the Fund, investors or third parties. See "Our Manager and Its
Affiliates."
Our manager has no prior track record relating to the sale of life settlements.
We are relying on our manager to conduct our business. John Tooke, the
controlling shareholder of our manager, has experience with the placement of
investor funds in mortgage backed financing. We do not believe that Mr. Tooke's
prior performance in real estate is a good indication of the future performance
of the Fund. Mr. Tooke has no experience selling life settlements and we cannot
present a track record for our manager.
You are relying entirely on our manager to direct the Fund without independent
review.
You will have no right or power to take part in the operations of the
Fund except through the exercise of your limited voting rights described in the
operating agreement. However, the investment and operating policies of the Fund
may change without a vote of unitholders. You should not purchase units unless
you are willing to trust our manager to direct the Fund.
We do not have any of our own employees or facilities and are relying
completely on those of our manager, our provider and our underwriter. Our
manager is our sole managing member and we have no ownership interest in our
manager. Nobody has the responsibility of making an independent review for us of
our manager's performance of its duties.
Our manager has limited assets and will primarily fund its operations from fees
it earns in the purchase of life settlements.
Our manager has nominal capitalization and intends to fund its
operations from fees it earns in life settlements.
Conflicts of interests may arise among our manager, our provider, our
underwriter, the Fund and John Tooke, which could adversely affect the
operations of the Fund.
The selection, purchase and servicing of our policies are controlled by
our manager, all of whose stock is owned by AmeriFirst, Inc., a Delaware holding
company, 55% of whose stock is beneficially owned by John Tooke. Our manager
will purchase policies on behalf of the Fund from our provider, AmeriFirst
Funding Group, Inc., which is also owned by AmeriFirst, Inc. either buying
directly from the insured, when it is licensed, or from other providers
utilizing an unaffiliated broker network. While our manager has agreed to act
within the best interest of the Fund and its members, the potential value of the
Fund's portfolio of policies will be affected by
12
our manager's selection of policies. Our provider will have conflicts between
its duty to the Fund and its own interests. Our provider has agreed to sell
policies it purchases to the Fund. However, our provider may sell, on a
non-securitized basis, the life insurance policies it purchases to other
companies that have similar objectives of the Fund and our provider may have
conflicts of interest in determining which client will purchase the life
insurance policy purchased by our provider. As beneficial owner of our manager
and our provider, circumstances may arise from time to time which make it more
advantageous to AmeriFirst, Inc., and, in turn, John Tooke, to act in the best
interest of either our manager or our provider, rather than in the best interest
of the Fund and its members.
The Fund will not have its own staff and is completely dependent upon
its manager for management, administration and servicing the polices. Our
manager believes it has a sufficient staff to be capable of discharging its
responsibility to us. However, there may arise a time in which we are handling a
high volume of policies, and our manager may not be able to service the policies
on a timely basis. Any delays in servicing our policies could have an adverse
effect upon our operations.
Our manager, provider and underwriter will receive substantial fees in
connection with the transactions described herein. Although we believe that such
fees are reasonable, these fees are not the result of arm's length negotiations
and may create conflicts of interest among such parties. See "Use of Proceeds,"
"Compensation of Our Manager and Its Affiliates" and "Conflicts of Interest."
Our inability to accurately predict estimated life expectancies would adversely
affect our financial results and may lead to payment delays or losses.
The Fund's operations and financial results are dependent on the ability
of our manager, with the assistance of unaffiliated medical review service
companies to conduct medical reviews through independent physicians, to
accurately predict the estimated life expectancies of the insureds. Life
expectancy is a significant factor in our determination of the purchase price of
an insurance policy. Insureds can live significantly beyond the predicted life
expectancy. Unanticipated delays in the collection of policies, whether caused
by underestimating an insured's life expectancy, or otherwise, could have a
material adverse effect on the Fund's financial results and will reduce your
rate of return. See "Business - Description of Return on Investment"
Inaccurate forecasting of an insured's life expectancy by our manager
could result from, among other things:
o advances in medical treatment resulting in deaths occurring
later than forecasted;
o inaccurate diagnosis or prognosis on terminally ill insureds;
o improved living habits resulting in better health; or
o fraud or misrepresentation by the insured.
13
We may not have a commercially viable business as a result of competition from
other life settlement companies.
The market for the purchase of life settlements is highly competitive.
There are few substantial barriers to prevent new competitors from entering this
market. The Fund expects to face additional competition from existing
competitors and new market entrants in the future. As a result, we may not be
able to compete on a commercially viable basis. Many competitors may have
substantially greater financial, technical and marketing resources, longer
operating histories, greater name recognition and more established relationships
in the industry than the Fund is expected to have. As a result, some of these
competitors may be able to:
o develop and expand their service offerings more rapidly;
o take advantage of institutional financing and other financing
opportunities more readily;
o devote greater resources to the marketing and sales of their
service, and
o adopt more aggressive pricing policies.
We may face additional competition from benefits offered by insurance
companies. Other companies could choose to enter the Fund's target market and
devote greater resources and capital to the acquisition of insurance policies
from insureds. In addition, many major insurance companies now offer terminally
ill policyholders "accelerated benefits" options with their existing or
newly-acquired policies which provide a way for terminally ill policyholders to
draw on their life insurance benefits before death. The life insurance industry
may become more aggressive in offering such benefits to terminally ill and
chronically ill persons and senior citizens, although we believe insurance
companies have generally offered accelerated death benefits on terms more
restrictive than the terms of life settlements. See "Business--Competition."
Regulation as an investment company may terminate the Fund.
While the Fund may be considered similar to an investment company, it
does not intend to register as such under the Investment Company Act of 1940.
Accordingly, the provisions of such Act, which, among other matters, require
investment companies to have a majority of disinterested directors and regulate
the relationship between the investment advisers and the investment company,
will not be applicable in the opinion of Snow Becker Krauss P.C., which is
included as an exhibit to the registration statement of which this prospectus
forms a part. If the Fund is deemed to be an investment company, our manager may
terminate the Fund and distribute its assets which will affect the Fund's
profitability. See "Investment Company Act of 1940."
The Fund has no proprietary information or rights to give us a competitive
advantage.
Except for information represented by the existing business
relationships of the Fund's management, the Fund will have no protected or
proprietary information. This means that the Fund will not enjoy a competitive
advantage on any protected basis over other potential industry
14
entrants or over existing life settlement companies. The Fund is applying to
register its name or a depiction thereof under the federal trademark laws to
enjoy protected "brand" recognition for the securities offered in this offering.
Risks Related to this Offering
You may experience a loss in excess of your initial investment.
The Fund will purchase life insurance policies based on the estimated
life expectancy of the individual policy holder. If the insured lives beyond the
estimated life expectancy, the return on investment can become as low as the
initial investment and investors may experience a loss in excess of their
initial investment. This would occur if the premium escrow account and sinking
fund is exhausted and there are insufficient proceeds from any maturing life
insurance policies. The Fund would have to make a capital call from all
investors to prevent policies from lapsing. Once the capital calls exceed the
return an investor is to receive, the overall return would be less than an
initial investment and you may experience a loss in excess of your initial
investment.
Our underwriter's lack of experience could adversely effect the business and
operations of the Fund.
Our underwriter is a newly formed broker-dealer with no prior operating
experience. Furthermore, the management of our underwriter have no experience in
the offer and sale of units relating to life settlements. Our underwriter
expects to complete the registration process with the NASD prior to the
effective date of this prospectus, but there can be no assurance of its ability
to do so. Our underwriter may also engage other NASD broker-dealers and foreign
dealers who agree to abide by the NASD's rules to sell our units. However,
neither we, nor our underwriter has identified any brokers or dealers which will
participate in this offering and neither of us has any agreement, arrangement or
understanding with any such broker or dealer.
A reduced supply of life insurance policies could adversely affect your rate of
return.
Changes in the economy and other changed circumstances may result in a
reduced supply of life insurance policies and could result from, among other
things:
o improvement in the economy, generating higher investment returns
to individuals from their investment portfolios;
o improvements in health insurance coverage, limiting the need of
insureds to use the funds received to pay the cost of their
medical treatment;
o a change in law that requires our manager to apply more
stringent credit standards in purchasing life insurance
policies; or
o the introduction into the market of less reputable third party
brokers who submit inaccurate information to the provider on
behalf of insureds.
15
If our provider is not licensed or able to comply with state insurance laws, we
must purchase policies from unaffiliated brokers, none of which are obligated to
sell to us.
Our provider is required to be licensed in the states requiring a
license before it can be permitted to purchase life insurance policies. In
addition, it must comply with the laws of each state which regulates the
purchase and/or sale of insurance policies. Our provider is in compliance with
the laws of the State of Georgia which regulates the sale of insurance policies
as a security through the Division of Securities and Business Regulation. Our
provider will seek to comply with the insurance laws of all other states which
regulate the purchase and/or sale of life insurance policies. However, our
provider may not be able to comply with every state's laws, or to renew or
prevent revocation of a previously issued license or approval. Our provider may
be precluded from doing business in any state in which it is unable to obtain or
otherwise maintain a required license or otherwise comply with the insurance or
securities laws of that state. In the event our provider is not licensed or
approved to do business, it may only purchase polices referred by other licensed
providers or referring brokers.
Newly issued life insurance policies carry special risks which could decrease
the return on your investment.
An insurance company may contest the payment of a death benefit or
cancel the life insurance policy should the insured die within a certain time
period or under certain conditions, or should the policy have been obtained
fraudulently. Typically, the time period in which an insurance company can
contest an insurance policy is two years. In the event that an insurance company
successfully contested a policy and did not pay death benefits, the Fund would
incur a loss which would decrease your return on investment. Examples of reasons
to cancel a policy would be if the insured did not truthfully answer a question
on the policy application, or if the insured commits suicide within the two-year
contestability period. The Fund intends to only purchase life insurance policies
which are beyond their contestability periods. See "Business --- Evaluating the
Insured and the Insurance Policy."
General risks of types of policies purchased.
Our portfolio will consist mainly of the following types of life
insurance policies: whole life insurance, universal life insurance, variable
adjustable life insurance, Retired Federal Employees Group Life Insurance
(FEGLI) and term policies.
o Whole life insurance offers protection for the life of the
insured based on a fixed premium payment. Policies may provide
coverage on a single life or joint lives, either first to die or
survivorship. The greatest risk lies with the purchase of whole
life contracts from insureds who may outlive their estimated
maturity dates.
o Adjustable whole life and combination whole life/term rider
policies can have limited guaranteed protection periods, or in
the case of combination policies, the term portion decreases. In
both cases, dividends are used to extend the coverage period or
purchase paid-up whole life to replace the decrease in the
amount of
16
term insurance. The dividends are not guaranteed and the risk is
that the insurance carrier would fail to make a dividend
payment.
o Flexible premium universal life and variable adjustable life
policies are designed to mature or expire at 95 and beyond for
specific amounts. Policies may provide coverage on a single life
or joint lives, either first to die or survivorship. Insurance
costs may become prohibitive at higher ages and there is the
possibility of the insured outliving the coverage.
o The only group life insurance which the Fund intends to purchase
is Retired Federal Employees Group Life Insurance (FEGLI)
policies which provide coverage for the life of the insured
without any termination or decrease in death benefits. Our
manager will need to reimburse the insured on a quarterly or
semi- annual basis for premium payments as payroll deduction is
the only mode available. There is a risk that either the
government could discontinue this insurance program and
terminate the policy or the premiums could increase
significantly. Either of these factors could adversely affect
the Fund's investment performance.
o Term policies are issued for a specific period and generally
expire without a death benefit at ages from 90 to 100. The risks
are that premiums become prohibitive and the possibility of the
insured outliving the coverage.
If only the minimum funds are raised, we will not create a diverse pool of life
insurance policies and your rate of return will be lower.
Our ability to reduce risk by creating a pool of life insurance policies
will be limited by the amount of funds we raise. If only the minimum $2.5
million is raised, we will be able to acquire only a few insurance policies and
your return on investment may be low if we do not predict accurately the life
expectancies of the insureds. Also, we would not necessarily be able to follow
the diversification requirements and strategies described under "Business -
General Description of Different Types of Insurance Policies to be Purchased by
the Fund and Investment Strategies." The pool of life insurance policies will
have different maturity dates and you will receive your proportionate share of
an indeterminate cash flow.
We may lack funds to pay policy premiums and you may need to make capital calls
to prevent the lapse of policies.
The Fund will establish a premium escrow account at SouthTrust Bank with
proceeds of this offering equal to l50% of the premiums for the estimated life
expectancy of the individual insureds, which is believed to be appropriate and
necessary to cover anticipated premiums owed. However, if a policy lapses, the
Fund will suffer a loss equal to the purchase price of the insurance policy. If
the premium escrow account is depleted for any reason, our manager has the
discretion to replenish the premium escrow account with a portion of the sinking
funds if not exhausted. If such funds are unavailable at such time, the Fund
will not be able to pay premiums on outstanding policies.
17
If the Fund is unable to make any premium payments or meet any other
operating expenses to preserve the Fund, then our manager will make a capital
call (of up to 6 months of premiums) whereby the members will need to make a pro
rata capital contribution to the Fund. A capital call will not result in higher
revenue for the Fund. Such a contribution would result in lower returns to you.
If enough additional capital is not contributed to cover additional premiums
required, the individual policy on the insured's life will lapse. If less than
all of the members contribute to the capital call, those members who contribute
to the capital call will receive a premium to be determined by our manager of
the membership interest attributable to the defaulted capital contribution.
Those who do not contribute to the capital call will have a reduced membership
interest in the Fund and their return on investment will be reduced. See
"Description of the Units - Capital Calls."
We can only estimate and cannot guarantee your rate of return.
Your actual annualized rate of return can only be determined at the
maturity of the individual policies. We can only estimate and cannot predict or
guarantee your rate of return. The estimated rate of return is based on the
insured's estimated life expectancy. This estimate is based on medical and
insurance underwriting and actuarial tables. Factors affecting the accuracy of
our estimate include the experience and qualifications of the medical personnel
estimating the life expectancy, the nature and progress of the insured's illness
and the future developments in treatments and cures. If an insured passes away
before the estimated life expectancy, the actual rate of return will be more
than the estimated rate of return, but if the insured dies after the estimated
life expectancy, the actual rate of return will be less than the estimated life
expectancy. Furthermore, we are attempting to securitize a diverse pool of
terminally ill and chronically ill persons of all ages and senior citizens, age
65 and older, with estimated life expectancies based solely on actuarial tables.
There is little, if any, precedent as a public company, there can be no
meaningful historical data regarding the life expectancies of an undetermined
pool. We have no historical data regarding losses experienced with life
settlements and/or delays experienced in collecting amounts due under life
insurance policies. See "Business - Description of Return on Investment."
Your rate of return may be lower than expected if the third party information we
receive to predict life expectancy is not accurate.
Your rate of return is highly dependent on our ability to predict
accurately the life expectancy of the insured. In a pool of life insurance
policies, you cannot monitor the insured's medical progress on your own. The
Fund and our manager must rely on third party information to assess the accuracy
and validity of life insurance policy information. We must rely on third party
medical and actuarial information when estimating the life expectancies of the
insureds. We will rely on life expectancy estimates of independent physicians
who may not have sufficient data available.
We will depend on third party information to predict estimated life
expectancies.
The independent physicians on whom we will rely to assist us in
estimating the life expectancies of the insureds who are terminally or
chronically ill do not personally examine any
18
of the insureds. The independent physicians working for the medical review
service companies with whom we have contracted will rely instead on the
insured's medical records and the reports provided to them by the attending
physician with whom they can communicate, as well as on certain actuarial
assumptions. See "Business - Description of Return on Investment."
Cures and advances in medical treatments for terminal illnesses will reduce your
rate of return and the number of persons seeking life settlements.
The development of a cure for, or vaccine against, terminal and chronic
illnesses, or the development of new drugs or other treatments which extend the
life expectancy of individuals with such illnesses could have a material adverse
effect on your rate of return. In addition, such medical developments would
likely reduce the number of individuals seeking life settlements. Substantial
reductions in the cost of treating terminal illnesses, including reductions from
the development of less costly treatments, may also reduce the number of
individuals seeking life settlements.
Our working capital reserves may not be adequate to meet our obligations.
We intend to maintain small working capital reserves to meet our
obligations, including operating expenses. We will, however, maintain a premium
escrow account to pay life insurance premiums. If we do not have adequate cash
reserves, we could suffer a loss of our investment unless we make a capital
call. In the event our manager cannot or does not pay our operating costs or
have funds available in the sinking fund, it will be necessary to borrow funds,
and there can be no assurance that such borrowing will be on acceptable terms or
even available to us. Such a result may require us to liquidate our investments
and abandon our activities unless we are able to successfully raise the
necessary funds in a capital call.
We will depend on an unaffiliated broker network, but will have no contractual
rights to policies.
Our provider can only purchase policies referred by other providers or
sourcing brokers unless it becomes a licensed broker. None of the sourcing
brokers is under a contractual agreement to refer policies to our provider, and
none is prohibited from referring policies to our competitors. Sourcing brokers
tend to be relatively small independent businesses with limited capital
resources. Therefore, no assurance can be given that relationships with sourcing
brokers or other referral sources can be established or that existing sourcing
brokers will remain in business. In the event that our provider is not licensed
or our provider's relationships with the sourcing brokers are not established or
cease, our operations could be adversely affected.
We will have limited assets other than insurance policies.
The Fund does not have any assets nor will it purchase any insurance
policies prior to completing this offering. The Fund will not be permitted to
have any assets other than interests in life insurance policies and temporary
investments. Therefore, you must rely on policies beneficially owned by the Fund
maturing and paying proceeds in order to receive distributions.
19
The failure of an insurance company to pay proceeds will reduce distributions to
you.
The value of the collateral of the Fund, which are assignments of life
insurance policies and beneficial interests in the proceeds of such policies, is
directly dependent upon the financial stability of the life insurance companies.
While the Fund intends to purchase life insurance policies only from life
insurance companies rated A- or better by A.M. Best, an established insurance
company may fail or not have enough money to pay the Fund the proceeds upon the
death of the insured. The number of life insurance company insolvencies has been
increasing in recent years, mainly due to poor investment results, inadequate
underwriting or reinsurance, a lack of diversified investments and fraud. If the
insurance company that has issued a policy acquired by the Fund becomes bankrupt
or otherwise defaults in payment to the Fund, the Fund would have less income to
make distributions. Most states have insurance guaranty funds to help liquidate
the obligations of a terminated insurance company, but there can be no assurance
that those funds will be adequate in any one instance. The Fund has established
a sinking fund to make payment to you in the event of a default, however, there
can be no assurance such funds will be sufficient.
Delays in payment and non-payment of policy proceeds will reduce your potential
profits and distributions.
A number of arguments may be addressed by former beneficiaries under a
life insurance policy or by the insurance company issuing a policy to deny or
delay payment to the Fund of the proceeds of a policy following an insured's
death, including arguments related to lack of mental capacity of the insured or
applicable periods of contestability or suicide provisions. Delays for any
reason in the Fund's collection of the face value of a life insurance policy
following the death of the insured could have an adverse effect on the Fund's
profits and distributions. If the death of an insured cannot be verified and no
death certificate can be produced, the insurance company may not pay the
proceeds of a policy until after the passage of a statutory period (usually five
to seven years) for the presumption of death without proof.
Negative effect of increase in interest rates will reduce our profitability.
Changes in interest rates and expectations about changing interest rates
will affect the Fund's business. The Fund's profitability is dependent to a
significant degree on the difference or the spread between the cost of the life
settlements and the face value of its portfolio of policies. An increase in
interest rates may affect the price that our manager is willing to pay for the
life insurance policies. Any substantial increase in interest rates will result
in either a decrease in the purchase price that our manager is willing to pay
for insurance policies or a lower spread. If the Fund's purchase prices were to
become significantly lower than its competitor's purchase prices, the number of
policies available to the Fund could decrease. In addition, due to current and
proposed regulations in several states which provide minimum purchase prices for
life insurance policies, our manager may be unable to decrease its purchase
prices to fully account for the increase in interest rates.
20
Our compliance with minimum purchase price requirements may significantly reduce
our profitability.
A few states have either adopted or are seriously considering the
adoption of legislation that regulates the minimum purchase prices to be paid
for life settlements. The Fund and our manager will comply with any and all
legislation enacted. Compliance with minimum purchase price requirements may
significantly reduce the Fund's profitability and ability to make distributions.
Because minimum purchase price requirements may prevent the Fund from earning an
acceptable profit margin on the life settlements in its portfolio, such
requirements may force the Fund not to purchase life insurance policies in
states imposing such restrictions.
Delays in purchasing life settlements will reduce our profitability and the
return to investors.
The net proceeds raised from this offering will be invested in low risk
eligible investments until utilized to purchase life settlements. Such
investments are expected to yield 1- 2% per annum, or a substantially lower rate
of return than the Fund anticipates can be obtained through our procurement of
life settlements. Therefore, the Fund believes that any delay in fully investing
funds allocated to the purchase of life settlements will reduce our
profitability and the return to the members.
Our inability to track the insured may adversely affect the Fund's financial
performance.
After the Fund has purchased a life settlement with an insured, through
our provider, it must monitor or "track" the insured until he passes away and
obtain documents establishing the insured's death in order to collect under the
life insurance policy. Our manager will require each insured to furnish
information that should enable adequate tracking and that obligates such insured
to inform our medical review service company periodically of changes in his
health status, and immediately notify our manager of any change in the insured's
residence. Nevertheless, there is a risk that an insured with whom the provider
has entered into a contract may become "missing," or that there may be a delay
in ascertaining that an insured has passed away or in obtaining required
documentation needed to claim the insured's death benefit. Either could have a
material adverse effect on the Fund's financial performance. Where permitted by
law, our manager has hired a consultant to track each insured on a monthly
basis. However, some states further limit the frequency with which the Fund
through its tracking firm may contact the insured or obtain his medical records.
Possible costs relating to and delays attributable to government regulation will
reduce our profitability.
Our provider will be required to comply with the laws of each state
which regulates the purchase of life insurance policies as described in this
prospectus. In addition, our underwriter expects to complete the registration
process with the NASD prior to the effective date of this prospectus and will be
regulated by the NASD.
The life settlements industry has been tainted by fraud. Accordingly,
industry groups including the National Association of Insurance Commissioners
(NAIC) and the North American
21
Securities Administrators Association (NASAA) perceived there to be an industry
void and passed a Viatical Settlements Model Act and subsequent Guidelines
Regarding Viatical Investments. A summary of the provisions of the Viatical
Settlements Model Act appear in this prospectus under the heading
"Business-Government Regulation of Life Settlements." In addition to the states
which adopt the NASAA guidelines, other states which license insurance purchases
follow many of the provisions of the Viatical Settlements Model Act. Since the
Securities and Exchange Commission does not regulate life settlements, except in
an offering such as this one in which the policies are securitized, some states
treat the sale of life settlements to individuals as the sale of securities and
require registration in such states.
In any event, we will comply with any and all applicable rules and
regulations. At present, we have no reason to believe that we will not be able
to comply with the regulatory and licensing requirements of any particular
jurisdiction. There can be no assurance that in the future there will not be
periods when we are not in compliance with state regulations. Most states
regulate life settlements through their insurance departments, while some states
regulate life settlements through securities administrations. As the Fund enters
the marketplace in states having such regulations, it will incur significant
compliance costs. See "Business-Government Regulation of Life Settlements."
Our failure to comply with federal or state securities laws could have a
material adverse effect on the Fund.
Almost all state securities regulators have begun to regulate interests
in life settlements as securities. Some state securities regulators have taken
the position that the sale of an interest in a life settlement is an "investment
contract" that falls within the definition of a "security" under state
securities acts. Some state legislatures have amended state securities acts to
specifically add viatical settlements to the definition of a "security."
With respect to federal law, the D.C. circuit, as well as certain other
circuits, held that interests in viatical and other life settlements are not
securities because profits do not derive predominantly from the efforts of
people other than the investors themselves. S.E.C. v. Life Partners, Inc., 87
F.3d 536 (D.C. Cir. l996). However, by our forming a pool of insurance policies
and offering an undivided interest in the pool, rather than reselling the life
insurance policy itself, we believe the units offered in this offering would be
deemed to be a security. Our failure to comply with applicable federal or state
securities laws may have a material adverse impact on the Fund. Securities
regulators may impose civil fines or penalties on the Fund and, under certain
circumstances, may require it to make a rescission offer to some or all of its
investors, as a result of which the Fund's financial position could be
materially adversely affected.
Privacy laws and other factors may limit the information the Fund receives about
the insured.
Federal and state privacy laws may limit the information the Fund
receives about the insured after your investment, such as the insured's current
medical condition. In addition, other factors, such as the insured's
unwillingness to cooperate, may limit the information the Fund receives after
your investment.
22
Being a beneficiary of a policy and not also an owner carries special risks.
The person who buys a life insurance policy is the owner of the policy
and decides who the beneficiaries of the policy will be, that is, who will
receive the death benefit when the owner dies. If the owner sells that policy to
our provider who then assigns it to the Fund, the investors become the owners
and therefore, are entitled to receive the death benefit when the insured dies.
Some states however, will only allow a provider to directly purchase a life
insurance policy and become the owner of the policy, whereby the Fund would
become an irrevocable beneficiary of the policy.
Group policies carry special risks.
A group policy insures the members of a specific group of people,
usually the employees of a company. The biggest risk for someone who invests in
a group policy is that the policy can be terminated by the employer or the
insurance company. The Fund intends to only purchase group policies of retired
Federal Employees Group Life Insurance (FEGLI).
Sale and transfer of the units is severely restricted and may cause you to
forego use of your invested funds.
You are not permitted to sell your units and you will only be permitted
to withdraw your investment from the Fund commencing one year after you close at
a 15% discount to the face amount of your investment. Accordingly, you must be
prepared to forego your use of the invested funds until we return your
investment to you. We cannot make any distributions to you prior to the maturity
of any life insurance policy which will affect your liquidity. The timing and
frequency of distributions will depend on the size and scope of the pool of life
insurance policies. Transfer of the units is restricted by the operating
agreement. You may not transfer the units:
o to persons who do not meet the investor suitability requirements
described in this prospectus;
o unless the transfer is approved by our manager in its sole
discretion; or
o in violation of the securities laws or if the transfer would
cause the Fund to be a publicly traded partnership.
You cannot revoke your subscription and will not have use of your invested
funds.
Once you sign the subscription documents and forward such documents
together with payment for a unit, you will not be able to revoke your
subscription. The offering period can be held open until ____________, 2003 [six
months from the date of this prospectus unless extended] without any
subscriptions being accepted if subscriptions in the amount of the minimum
offering are not achieved before then. Accordingly, if you subscribe before we
close on the minimum offering, your subscription amount will be held in escrow,
earning a low rate of return and will not be available to you.
No public market exists for the units and transfer restrictions prevent
assignment of the units.
23
There is no public market for the units. Therefore, it may not be
possible for you to liquidate your investment in the Fund. In addition, you
cannot privately sell, gift, pledge or otherwise transfer your units without the
prior written consent of our manager. See "Terms of the Offering -- Restrictions
on Transfer; Permitted Transferees." Although you will be permitted to withdraw
your investment at a 15% reduction to the principal amount of your investment
(less any distributions paid to you) commencing one year after you close on your
investment, you will not be able prior to such one year period to sell your
units promptly in the event of a financial emergency or at the price you want
and you may not be able to use your units as collateral for a loan. You should
purchase the units only with the intent of holding the units until we return
your investment to you.
Risk of fraud by insureds may adversely affect our operating results.
Although we are required to conduct certain due diligence in advance to
buying a life insurance policy, there is a risk that we will be defrauded. Among
other types of fraud that may exist, an insured may misrepresent the status of
his illness, may fail to disclose all beneficiaries or may sell a policy to more
than one purchaser. In the event that brokers submit inaccurate life settlement
information to our provider, we may not be able to uncover the presence of
defects through our due diligence. There will be no provisions in the viatical
settlement contracts for any repurchases of policies owned by the Fund and we
may incur losses as a result of such breaches of warranties. If the Fund is
subject to such fraud, our operating results may be adversely affected.
Some decisions will be approved, whether or not you agree, by less than all
members of the Fund.
You may be outvoted by other members of the Fund on some key decisions.
Set forth below are actions that require the approval of members, but, except as
indicated, do not require unanimous approval. There may accordingly be
significant changes in our capital structure or management of which you do not
approve.
o Amendment to the operating agreement requires the approval of
members with aggregate capital accounts that are a majority of
the capital accounts of all members, except for (i) admission of
additional members on the terms this offering, which does not
require the approval of the members, or (ii) changes that would
increase your liabilities or decrease your interest in the Fund's
income, gains or distributions, and (iii) early termination of
the Fund, which require approval of all the members.
o Removal of our manager in the case of commission of a felony,
gross negligence or willful misconduct requires the approval of
members with aggregate capital accounts that are a majority of
the capital accounts of all members, or removal of our manager
after our manager has received distributions from the Fund that
equal 125% of the aggregate expenses incurred by our manager and
its affiliates requires the approval of members whose capital
accounts exceed two-thirds of all members' capital accounts.
24
o Approval of the recapitalization, sale of substantially all of
the Fund's assets, restructuring of the Fund or merger of the
Fund with or into another entity, that in each case adversely
affects the members requires a vote of the members whose total
capital accounts exceed two-thirds of the total of all members'
capital accounts at such time.
o Election of a successor manager, after a manager has been
removed or has resigned requires the approval of members with
aggregate capital accounts that are a majority of the capital
accounts of all members. See "Summary of Operating Agreement."
Our manager can dissolve the Fund at any time, even if the insurance policies
are sold below cost.
Our manager can dissolve the Fund at any time. You could lose a
significant part of your investment if our manager decides to terminate the Fund
when many of the insurance policies are still outstanding. Our manager will sell
the insurance policies to be able to distribute cash to the members and it may
have to sell the insurance policies at significant losses.
Tax Risk Factors
General tax risks.
Before you make a decision to invest, you should assess the tax risks
and your willingness and ability to comply with ongoing federal income tax
filing and compliance requirements described under "Federal Income Tax
Consequences." In particular, you may be allocated income but may not receive
cash distributions in connection therewith with which to pay any associated
income taxes. See "Federal Income Tax Consequences-Taxation of the Fund and its
Members. The tax consequences mentioned in this prospectus are general in
nature. Each potential investor should consult with his/her/its own tax
professional to assess the tax impact of an investment in the Fund.
There are risks of loss of tax benefits by investment of IRA funds in exchange
for units.
Investing money held in an Individual Retirement Account ("IRA")
involves special risks. We offer investors the option of using funds from their
IRAs to purchase interests in life settlements. Section 408(a)(3) of the
Internal Revenue Code of 1986, as amended, requires that "no part of the trust
[IRA] funds will be invested in life insurance contracts." We are not aware of
any ruling or judicial decision concerning the investment of IRA funds in life
settlements. Therefore, because the question is not settled, there is the
possibility that the Internal Revenue Service ("IRS") will not allow investors
the tax benefits of their IRA on funds invested in life settlements. There is
also the possibility that the IRS would not allow investors the tax benefits of
any portion of their IRA accounts if any part of the IRA funds are invested in
viatical or senior settlements.
25
In addition, there are certain IRS rules pertaining to minimum
distributions from IRAs for persons who are age 70 1/2 or older. The Internal
Revenue Code requires that persons begin receiving distributions from their IRAs
by a "required beginning date" (April l following the calendar year in which a
person reaches age 70 1/2 ) and then again by December 31 of the same year and
every year thereafter. The minimum distribution is calculated on the aggregate
value of all IRA accounts; however, the minimum total amount may be distributed
from any one account rather than from each individual account. Because death
benefits under a life insurance policy are not payable until the insured dies,
investors with large percentages of their IRA funds invested in life settlements
may not have sufficient funds in any other IRA account(s) from which they may
satisfy the Internal Revenue Code requirements while awaiting the payment of
death benefits. Substantial penalties may be assessed if these minimum
distribution requirements are not met.
If we lose our "partnership" status we would be taxed as a corporation and
deductions otherwise available won't be deductible.
Our legal counsel, Snow Becker Krauss P.C., has given the opinion
included as Exhibit 8.1 to the registration statement of which this prospectus
forms a part, that we will be treated as a "partnership" for federal income tax
purposes and that we will not be treated as an association taxable as a
corporation subject to the publicly-traded partnership rules discussed below. If
we were to be reclassified as an association taxable as a corporation because we
have more than 100 members and were a publicly traded partnership or for any
other reason, we would be taxed on our taxable income at rates of up to 35% for
federal income tax purposes and would thus incur double taxation. If the
provisions in the Fund's operating agreement are enforced, they would prevent us
from being a publicly traded partnership and it is unlikely that we will be
subject to tax other than as a partnership. All items of our income, gain, loss,
deduction and credit would be reflected only on our tax returns and would not be
passed through to you. If we were treated as a corporation, distributions to you
would be ordinary dividend income to the extent of our earnings and profits, and
the payment of such dividends would not be deductible by us.
The IRS may challenge our allocations of income, gain, loss, and deduction.
The Fund's operating agreement provides for the allocation of income,
gain, loss and deduction among the members. The rules regarding partnership
allocations are complex. It is possible that the IRS could successfully
challenge the allocations in the operating agreement and reallocate items of
income, gain, loss or deduction in a manner which reduces benefits or increases
income allocable to you.
You may be taxed on income which exceeds the cash distributions made to you.
In any year in which we report income or gain in excess of expenses, you
will be required to report your share of such net income on your personal income
tax returns even though you may have received total cash distributions which are
less than the amount of net income you must report.
26
The state or locality in which you are a resident or in which we own properties
may impose income or other taxes on us or on your share of our taxable income.
Although we have been advised by our tax counsel that we should be taxed
as a partnership for federal income tax purposes, some jurisdictions in which we
may do business may impose an entity based tax on our operations. Also, many
states have implemented or are implementing programs to require entities taxed
as partnerships to withhold and pay state income taxes owed by nonresident
members. We may be required to withhold state taxes from cash distributions
otherwise payable to you. These collection and filing requirements at the state
or local level, and the possible imposition of state or local income, franchise
or other taxes on the Fund, may result in increases in our administrative
expenses which would reduce cash available for distribution to you. Your tax
return filing obligations and expenses may also be increased as a result of
expanded state and local filing obligations. We encourage you to consult with
your own tax advisor on the impact of applicable state and local taxes and state
tax withholding requirements.
All losses from "passive activities" are generally not deductible by a
non-corporate taxpayer, a Subchapter S corporation or a personal service
corporation, except against income derived from "passive activities" of the tax
payer. "Passive activities" are those business activities in which a taxpayer
does not materially participate. A member's investment in the Fund would be
treated as a "passive activity" for purposes of this limitation. Accordingly, so
long as the member maintains his investment in the Fund, such member's share of
the Fund's losses will not be deductible against his salary, active business
income, income from dividends, interest, royalties, and capital gains from
non-business properties. However, Fund losses, if any, generally will be
deductible from such a member's gain and income from the Fund or from other
passive activities.
You may deduct losses only to the extent of amounts "At Risk."
Under section 465 of the Internal Revenue Code, losses from certain
activities may be deducted by a taxpayer only to the extent to which the
taxpayers is "at risk" in the activity. Accordingly, the "at risk" rules will
apply to a member's share of the losses from the Fund. Each member initially
will be "at risk" only to the extent of the amount of capital that he
contributes to the Fund. In future years, such amount will be increased to the
extent the member recognizes income from his investment in the Fund or
contributes additional cash to the Fund, and reduced to the extent he has
deducted losses or receives cash distributions from the Fund. See "Federal
Income Tax Consequences - Limitations on Deductibility of Losses from Passive
Activities."
You will receive partner information tax return on Form K-1 which could increase
the complexity of your tax return.
The partner information tax returns on Form K-1 which we will distribute
to you will contain information regarding the income items and expense items of
the Fund. If you have not received K-1s from other investments, you may find
that preparing your tax return may require additional time, or it may be
necessary for you to retain an accountant or other tax preparer, at an
additional expense to you, to assist you in the preparation of your return.
27
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks
and uncertainties. These statements relate to future events or our future
financial performance. In some cases, you can identify forward-looking
statements by terminology including "could," "may," "will," "should," "expect,"
"intend," "plan," "anticipate," "believe," "estimate," "predict," "potential,"
"continue," or "opportunity," the negative of these terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks described above and in other parts
of this prospectus. These factors may cause our actual results to differ
materially from any forward-looking statements. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance, or
achievements.
INVESTOR SUITABILITY STANDARDS
You should only purchase units if you have adequate financial means,
desire a relatively long term investment, and are prepared to forego use of the
invested funds until the Fund returns your investment. We have established these
standards based on the NASAA Guidelines with respect to Asset Backed Securities
and Viatical Settlements, for two reasons: (1) to exclude investors who clearly
do not have the necessary liquidity to place funds in a long-term investment
that cannot be readily sold, and (2) to exclude investors who clearly do not
have sufficient assets to afford a loss of a significant portion of their
investment.
Minimum Investor Suitability Standards
We have established minimum investor suitability standards because of
the non- transferability of units, the lack of a trading market for the units
and general lack of liquidity of your investment. These standards require that
you have the following, however, states may require higher investor suitability
standards as set forth in further detail below.
o a minimum net worth, either individually or jointly with your
spouse (exclusive of home, home furnishings and automobiles) of $150,000 and
had, during the immediately preceding tax year, gross income in excess of
$100,000, or
o irrespective of annual gross income, a net worth of $250,000
(exclusive of home, home furnishings and automobiles). If a trust, corporation,
partnership or other organization was specifically formed for the purpose of
acquiring units in the Fund, each of the equity owners of such trust,
corporation, partnership or other organization must meet the foregoing investor
suitability standards.
States may require higher suitability standards as a condition of
registration in such state. For example, if you are a resident of the State of
California, you must have: (i) an annual income of at least $100,000 and a
liquid net worth of at least $250,000, or (ii) a liquid net worth of at least
$500,000, regardless of annual income, and no investor residing in the State of
California may purchase units of more than 10% of his or her net worth. If you
are a resident of the State of
28
New Jersey you must meet the standards of an accredited investor as such term is
defined under Regulation D of the Securities Act of 1933, as amended. For
example, if you are a natural person, you must have either: (i) an individual
net worth, or joint net worth with your spouse, in excess of $1 million; or (ii)
an individual income in excess of $200,000 in each of the two most recent years
or joint income with your spouse in excess of $300,000 and reasonably expect the
same level in the current year. If you are an individual that resides in a state
that has higher suitability standards, we will not accept your subscription
unless you satisfy such higher standards.
We do not intend to qualify this offering in all states, and you will
not be permitted to purchase units if you reside in a state in which this
offering is not qualified.
You will be required to represent in writing to us that you or the
fiduciary account for which you are purchasing meet the applicable investor
suitability standards
Our underwriter and any other participating broker dealers will make
certain that every prospective investor complies with the investor suitability
standards. We will not accept subscriptions from you if you are unable to
represent in your subscription agreement that you meet such standards. Under the
laws of certain states, any transferees may be required to comply with the
suitability standards set forth herein as a condition to substitution as a
member. We will require certain assurances that such standards are met before
agreeing to any transfer of the units, including the resale of units.
Minimum Purchase Amount
The minimum investment we will accept is $100,000 for 100 units,
although we reserve the right to accept initial subscriptions of less than
$100,000. We may accept subscriptions in excess of $100,000 in increments of
$1,000. Your return will depend on the size of your investment.
IRA Investors and ERISA Plans
IRA Investors. One hundred units in a minimum amount of $100,000 may be
purchased, transferred, assigned or retained by an Individual Retirement Account
and incremental amounts in excess thereof for spousal IRA's established under
Section 408 of the Internal Revenue Code of 1986, as amended. You should be
aware however, that an investment in the Fund will not, in and of itself, create
an IRA for you and that, in order to create an IRA, you must comply with the
provisions of Section 408 of the Internal Revenue Code.
ERISA Investors. The investment objectives and policies of the Fund have
been designed to make the units suitable investments for employee benefit plans
under current law. In this regard, the Employee Retirement Income Security Act
of 1974 ("ERISA") provides a comprehensive regulatory scheme for "plan assets."
In accordance with final regulations published by the Department of Labor in the
Federal Register on November 13, 1986, our manager will manage the Fund so as to
assure that an investment in the Fund by a qualified plan will not, solely by
reason of such investment, be considered to be an investment in the
29
underlying assets of the Fund so as to make the assets of the Fund "plan
assets." The final regulations are also applicable to an IRA.
We are not permitted to allow the purchase of units with assets of any
qualified plans if we (i) have investment discretion with respect to the assets
of the qualified plan invested in the Fund, or (ii) regularly give
individualized investment advice that serves as the primary basis for the
investment decisions made with respect to such assets. This prohibition is
designed to prevent violation of certain provisions of ERISA.
Subscription Agreement Warranties
If you choose to purchase units, you will be submitting to us a signed
subscription agreement with power of attorney and you will pay the purchase
price of the units to the escrow agent until the completion of the minimum
offering and thereafter directly to our underwriter. Payment should be made by
check or by wire transfer in accordance with the subscription agreement
instructions.
The subscription agreement is included in full as Exhibit A attached to
this prospectus. The subscription agreement requires you to make representations
to us and our manager about your knowledge of the Fund, your financial ability
to invest and your understanding of the investment procedures. The following is
a short description of some key representations:
You acknowledge that your subscription may be rejected in whole
or in part by our manager in its sole and absolute discretion,
and that this offering may be terminated at any time by our
manager.
In making this investment you are relying only on the information
contained in this prospectus.
You or the fiduciary account for which you are purchasing meet
the applicable investor suitability standards set forth in this
prospectus.
You understand that there will be no public market for resale of
the units and you cannot privately sell, gift, pledge or
otherwise transfer the units without the prior written consent of
our manager, and therefore, it may not be possible for you to
liquidate your investment in the Fund
You acknowledge that you have been advised to read the "Risk
Factors" set forth in this prospectus commencing on page 12.
You understand that the Fund intends to be taxed as an
association (partnership) and not as a corporation, and that,
among other things, this may result in taxes being payable by you
even though the Fund may not have distributed cash to you.
You understand that counsel representing the Fund, our manager
and their affiliates, does not and will not represent you in any
respect
30
The purpose of the representations is to ensure that you fully
understand the terms of our offering, the risks of an investment with us and
that you have the capacity to enter into a subscription agreement. Our manager,
on behalf of the Fund, intends to rely on the representations in accepting your
subscription. In any claim or action against our manager or the Fund, our
manager and the Fund may use the representations against you as a defense or
basis for seeking indemnity from you.
Subscription Procedure
If you want to purchase units, you should complete the subscription
agreement. A copy of the subscription agreement will be provided by our
underwriter or selected dealer that offered you the units. You should return the
subscription agreement and full payment for the units being purchased to such
dealer, who will tell you whether to make your payment to " SouthTrust Bank, as
Escrow Agent" or, to "AmeriFirst Fund I, LLC". You may obtain additional copies
of the subscription agreement from AmeriFirst Capital Corp., whose address is
814 North Highway A1A, Suite 300, Ponte Vedra Beach, Florida 32082; telephone
number (904) 373-3034.
We may accept or reject your subscription in whole or in part. If we do
not accept your subscription, your purchase payment will be returned to you
promptly without interest. If we accept your subscription agreement, you will be
the owner of the units and a member of the Fund. We will mail to you a
countersigned subscription agreement evidencing your membership interest in the
Fund. By signing the subscription agreement and power of attorney, you are
giving our manager the authority to sign the operating agreement of the Fund on
your behalf and to sign amendments to the operating agreement which either do
not require your consent, or to which your consent was given. Our manager is
also given the authority to sign on your behalf in your capacity as a member of
the Fund, if necessary, certain government filings, that will not change the
business or legal terms of your investment.
Neither our underwriter, nor any other securities brokerage firm, will
permit sales to discretionary accounts without prior specific written approval
of the owner of the account.
USE OF PROCEEDS
In the event that maximum offering proceeds are received, the Fund will
receive net proceeds of approximately $89,750,000 after the payment of up to 10%
selling commissions and reimbursement of up to 1/2% (or up to $500,000) of the
gross proceeds of the sale of the units to cover actual offering expenses, which
is estimated to be $250,000. In the event that minimum offering proceeds are
received, the Fund will receive net proceeds of approximately $2,237,500 after
the payment of up to 10% selling commissions and reimbursement of up to 1/2% of
the gross proceeds of the sale of the units to cover a portion of the offering
expenses.
The following table summarizes the estimated principal uses of net
proceeds received from the sale of the units, assuming the minimum and maximum
amount is received:
31
Amount of Proceeds
------------------
Minimum Offering Maximum Offering
---------------- ----------------
Purchase of life insurance policies (1) $1,594,219 $63,946,875
Provider's fees (2) 167,812 (3) 6,731,250 (3)
Manager's fees (4) 251,719 (3) 10,096,875 (3)
Sinking fund (5) 223,750 8,975,000
----------
Total ....................................... $2,237,500 $89,750,000
========== ===========
- --------------
(1) From the net proceeds from the sale of the units, we will purchase
policies, at a discount to face value, which will be negotiated between
the insured and our provider. It is expected that the minimum and
maximum net proceeds described in the above table used to purchase life
insurance policies will purchase $3,356,000 and $134,625,000 face amount
of policies, respectively. Included in these amounts are the funds which
will be placed in the premium escrow account, which will be used
exclusively to pay policy premiums, which are expected to equal 150% of
the premiums for the estimated life expectancy of the individual
insureds.
(2) We will pay to our provider or to an unaffiliated provider for
origination of each policy, up to 5% of the face amount of each policy.
(3) The estimated fees in the above table are based on the minimum
$3,356,000 and maximum $134,625,000 face amount of life insurance
policies set forth in Note (1), above.
(4) We will pay to our manager, as servicer, or to a third party for
servicing such policy, a fee of up to a maximum of 7.5% of the face
amount of such policy.
(5) We intend to escrow 10% of the net proceeds of the offering available to
purchase life insurance policies as a sinking fund in the event of a
default by an insurance carrier to replenish the premium escrow account,
and, if needed for operating expenses. These funds will be distributed
to members upon a default, but otherwise distributed to our manager upon
liquidation of the Fund.
See "Business - Description of Return on Investment" for a hypothetical
example of the purchase of a life insurance policy by the Fund.
A minimum of $2.5 million must be raised in this offering prior to the
funding or acquisition of the first life settlement. The Fund expects to
purchase existing life settlements from our provider, who will purchase
policies, either directly from insureds or by utilizing an independent broker
network or from other licensed providers. However, neither us nor our provider
has any commitments or agreements to acquire any life insurance policies.
We will not proceed with an identified life settlement that cannot be
closed on or before ____________, 2003 [12 months from the effective date of
this prospectus].
32
Funds held by us that have not yet been used to purchase life insurance
policies will be deposited in interest-bearing bank escrow accounts, with
SouthTrust Bank, Birmingham, Alabama, money market funds or used to purchase
short-term U.S. Treasury bills. These funds will earn interest at short-term
interest rates. Our present intention is to have two money market accounts, both
paying overnight money market rates of approximately 1-2% according to market
fluctuations. The first account, the operating escrow account, will be used to
purchase life insurance policies. The second account is the premium escrow
account used to pay premiums on all policies purchased by the Fund. Investors
will be entitled to a pro rata portion of the short- term interest earned,
including interest earned on your funds while they were held in the subscription
escrow account prior to the first closing.
CAPITALIZATION OF AMERIFIRST FUND I, LLC
The following table sets forth the capitalization of the Fund as of
September 30, 2002, and as adjusted to give pro forma effect to the sale of the
minimum and maximum amount of units offered hereby after deducting up to 10%
sales commissions and reimbursement of up to 1/2% of the gross proceeds for
actual offering expenses:
As Adjusted for As Adjusted for
Actual Minimum Offering Maximum Offering
------ ---------------- ----------------
Capital Contributions
from Unit Members -- $2,237,500 $89,750,000
TERMS OF THE OFFERING
This offering is made only to persons that meet the investor suitability
standards described in this prospectus. The minimum subscription we will accept
is one hundred thousand dollars ($100,000) for one hundred units, and units will
be issued in higher initial denominations in multiples of $1,000, although our
underwriter reserves the right to accept subscriptions of less than $100,000.
Minimum-Maximum Offering
Units will be offered and sold by sales representatives licensed by the
NASD Inc. to sell the units and similar securities. Units may also be sold by
officers of the Fund who may receive commissions where permitted. Some of the
sales representatives are employed by our underwriter, AmeriFirst Capital Corp.,
which expects to be registered with the NASD as a broker-dealer prior to the
effective date of this prospectus. Currently, we intend to offer the units for
sale in California, Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois,
Michigan, Nevada, New Jersey and New York. We will end this offering on _______
, 2003 [12 months from the date of this prospectus unless extended], or at such
earlier time that all $100 million of units are sold. All subscriptions are
non-cancellable and irrevocable.
If we desire to extend this offering up until ________ 2004 [24 months
from the date of this prospectus], each of these states requires us to file the
appropriate documents with such state's agency and we will provide investors in
these states with written notice of such extension.
33
We may register in additional states to sell the units and will comply with
applicable state "blue sky" laws to extend the offering. All subscriptions will
be held in a subscription escrow account at SouthTrust Bank, 110 Office Park
Drive, 2nd Floor, Birmingham, Alabama 35223, which will serve as escrow agent
until the $2.5 million minimum amount is received. If we do not receive
acceptable subscriptions for $2.5 million or more of units by __________ 2003
[six months from the effective date of this prospectus unless extended], the
escrow agent will return all subscription amounts together with interest earned
while the funds were held in escrow to you and to the other subscribers. You
will earn interest on the funds held in the subscription escrow account as soon
as your funds clear. You will not be a member of the Fund while your funds are
held in the subscription escrow account and you will only become a member once
we accept your subscription and transfer your funds out of escrow and into the
Fund's own account. After the minimum offering amount has been raised, we will
accept or reject all subscriptions within five business days after receipt and
will instruct the escrow agent promptly to release the funds of the accepted
subscriptions to us. We may terminate this offering at any time and refund any
subscriptions that we have not accepted. If we terminate this offering, our
manager will promptly prepare a form of notice and furnish our underwriter and
selected dealers, if any, with copies to distribute to all persons who have
received this prospectus either directly from our underwriter or from a selected
dealer.
Subscription Agreements
By executing a subscription agreement, an investor unconditionally and
irrevocably agrees to purchase a unit with the denomination shown thereon on a
"when-issued basis." Accordingly, upon executing a subscription agreement, an
investor is not yet an owner of the units or a member of the Fund. Units will be
issued when the subscription agreement is accepted by our manager. Subscription
agreements are non-cancellable and irrevocable. Subscription funds are
non-refundable for any reason, unless the $2.5 million minimum amount of units
are not sold or our manager decides not to accept the subscription.
Our manager reserves the right at any time to cease soliciting for the
sale of the units and to stop accepting subscription agreements if it believes,
in its sole discretion, that suitable loan opportunities are not available or
for any other business reason.
Restrictions on Transfer; Permitted Transferees
There will be no public market for the resale of the units. In addition,
you cannot privately sell, gift, pledge or otherwise transfer your unit without
the prior written consent of our manager. Our manager is required to withhold
consent if the sale or transfer of the unit or our admission of the intended
purchaser or transferee of the unit as a member would:
o cause the Fund to be treated as an association taxable as a
corporation for Federal income tax purposes either because it would be a
"publicly traded partnership" within the meaning of Section 7704 of the Internal
Revenue Code of 1986, as amended, or for any other reason; or
o violate or cause the Fund to violate federal or state securities
law.
34
Notwithstanding the foregoing, you may withdraw or partially withdraw
from the Fund and obtain the return of all or part of your capital account
commencing one year after you purchase your units and receive back 85% of the
face amount of your investment, less any distributions paid to such date, within
90 days after you deliver written notice of withdrawal to our manager.
Notwithstanding the foregoing, we can only make cash payments in return for
outstanding capital amounts from net proceeds and capital contributions.
In addition, our manager may, in its sole discretion, withhold its
consent to any sale or transfer. In granting a consent to a sale or transfer,
our manager may require a legal opinion from our lawyer that the sale or
transfer does not violate federal or state securities laws or cause the Fund to
be treated as an association taxable as a corporation for Federal income tax
purposes. In addition, our manager intends to require reasonable documentation
of the sale or transfer, acceptance by the purchaser or transferee of the
operating agreement and certain additional representations of the purchaser or
transferee, including the representation by the transferee that it is acquiring
the unit for its own account and not with a view to distribution. Certain states
may require that the purchaser or transferee satisfy the same investor
suitability standards as a purchaser of the units. We will require certain
assurances that such standards are met before agreeing to any transfer of the
units, including the resale of the units.
You may transfer your right to receive distributions and allocations of
profits and losses and other economic benefits under the Fund's operating
agreement to the following persons:
(i) your spouse, children, siblings or grandchildren or a trust of which
one or more of these family members are the sole beneficiaries;
(ii) if you are a partnership, corporation or limited liability company,
to your partners, shareholders, members, directors, executive officers or
managers or members of their family of the type described above;
(iii) if you invest through a trust, the beneficiaries of the trust; or
(iv) another member.
Our manager is not required to admit such transferee as a substitute or
additional member of the Fund.
A notice substantially in the form set forth below will be set forth in
the subscription agreement distributed to all unitholders, including units that
are issued in connection with a permitted sale or transfer.
THIS UNIT MAY NOT BE SOLD, TRANSFERRED, OR ASSIGNED TO ANY PERSON EXCEPT
IN ACCORDANCE WITH THE TERMS OF THE FUND'S OPERATING AGREEMENT, AS AMENDED FROM
TIME TO TIME, A COPY OF WHICH IS ON FILE AT THE FUND'S OFFICES.
35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF AMERIFIRST FUND I, LLC
Twelve Month Plan of Operation
As of September 30, 2002, the Fund had no assets and had not commenced
commercial operations. The Fund had total liabilities of $218,100 for
organizational and offering expenses owed to AmeriFirst, Inc., the holding
company controlled by John Tooke. During the next 12 months, if we raise at
least $2,500,000, we plan to purchase a pool of life insurance policies, created
by the purchase of insurance policies at a discount from the face amount of the
policies from terminally ill and chronically ill persons of all ages and senior
citizens, age 65 and older, with estimated life expectancies based solely on
actuarial tables. Upon raising $2.5 million and the release of such funds from
escrow, our manager will create a pool of life insurance policies. John Tooke,
president and controlling shareholder of our manager, provider and underwriter,
has extensive experience in investment banking and selling mortgage backed
securities. Although he has no actual experience in purchasing life settlement
policies, he has researched the life settlements industry since at least April
2001 and conducted all organizational activities necessary for the Fund. Our
manager intends to service the insurance policies with experienced employees it
has hired, as described below. However, our manager may outsource any or all of
the non-financial services of servicing the life insurance policies to an
unaffiliated third party servicer to assist us in reviewing each policy, closing
the purchases of such policies, monitoring life status of the insureds and
filing death benefit claims. Our manager has entered into agreements with three
unaffiliated organizations to conduct its medical due diligence review (See
"Business - Medical and Insurance Due Diligence Review") to determine estimated
life expectancies and with one of such companies to track the status of the
insured. Neither the Fund nor its affiliates has entered into any other
arrangements, agreements or understandings with any third parties to act as our
servicer. If it did enter into such an agreement, the Fund would be dependent
upon the services of third parties for its overall success.
We do not anticipate hiring any employees or acquiring any fixed assets
like office equipment or furniture, or incurring material office expenses during
the next twelve (12) months because we will be utilizing our manager's and its
affiliate's personnel and office equipment. As of January 13, 2003, our manager
and its affiliate employed 12 persons, including John Tooke, chief executive
officer, a chief information officer, in-house legal staff, accounting staff,
insurance review, medical review, policy administration, computer and data
processing personnel, customer service and medical administration. Our manager
occupies approximately 7,349 square feet of office space in Florida, and also
occupies space at the Fund's offices in St. Marys, Georgia. This facility is
equipped with office furniture, telephones, fax machines, photo copiers,
multiple computers in a server system and whatever else will be needed to
operate. See "Business-Our Servicer" for additional information on our back-up
computer system. The fees which we will pay our manager as compensation will be
in lieu of all other payments for operating expenses. See "Compensation of Our
Manager and its Affiliates."
The Fund has not committed itself to purchase any life insurance
policies, and has not entered into any arrangements or other transactions other
than with the underwriter of this offering and other affiliates, and three
unaffiliated medical review service companies, the latter of which are
terminable without penalty after 90 days. We do not intend to incur any
indebtedness at the commencement of our operations, although we may later
establish a line of credit for future use.
36
NOTICE TO CALIFORNIA RESIDENTS
All unit holders resulting from any offer or sale in California will
receive the following restrictive notice:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFORE, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
37
BUSINESS
General
The Fund was organized to offer membership interests which will
represent fractional pro rata beneficial interests in the income to be generated
primarily from individual life insurance policies which we intend to purchase at
a discount to face value to create a "pool." The Fund will provide financial
benefits to terminally ill and chronically ill (a continuing disease which may
or may not become terminal) persons of all ages and to senior citizens, age 65
and older, with estimated life expectancies based solely on actuarial tables, in
exchange for ownership of their life insurance policies. A life settlement is
the payment of cash in return for an assignment of ownership or beneficial
interest in, and the right to receive the face value of, a life insurance
policy. The amount paid for an insurance policy is negotiated by our provider or
other providers based on various factors, including the estimated life
expectancy of the insured, the estimated premiums payable under the policy over
the expected life of the insured, certain other costs of the life settlement and
what our manager advises our provider is the maximum amount budgeted.
Our provider will identify on behalf of the Fund insurance policies that
fit the criteria for our manager to review. We will use our provider buying
directly from the insured, when it is licensed, or from other providers, or from
an unaffiliated broker network, to obtain policies and assign them to the Fund.
A typical client will contact a broker after being diagnosed with a
terminal or chronic illness from persons of all ages or a senior citizen
policyholder, who is age 65 and older. This person desires to obtain as much
money as possible from their life insurance policy today to assist him in
financial expenses during his remaining years.
Our provider is only permitted to purchase life insurance policies
through licensed brokers unless it becomes licensed as a broker. The broker will
obtain information on the insured including copies of his medical records and a
copy of the insurance policy. The broker is paid his commission by the
policyholder. The broker will contact a number of companies in order to get the
highest bid for its client. We will attempt to establish strong broker
relationships across the United States. We will succeed only if we are able to
establish our reputation of fast turnaround time in processing an application
and are able to successfully complete and fund transactions on a timely basis.
We currently intend to service the insurance policies directly with the
experienced staff our manager has hired. However, if the staff is unable to
effectively handle the volume of work or our manager otherwise decides it does
not wish to service the insurance policies, our manager may outsource any or all
non-financial services to an unaffiliated third party servicer. Our manager has
contracted with three unaffiliated third party medical review service companies,
described below, to conduct its medical due diligence review, to monitor or
"track" the lives of the insureds, and file claims for proceeds when the insured
passes away on behalf of investors to ensure that all policy proceeds are
properly disbursed to investors. Other than these three agreements, no
arrangements, agreements or understandings have been made, as of the date of
this prospectus, with any third party to act as our servicer.
38
Our manager will service the insurance policies which will involve: (a)
conducting a due diligence review, which includes evaluating the terms of each
policy and, with the assistance of a medical review service company which has
contracted with independent medical specialists, estimating the life expectancy
of the insured; (b) closing the transaction, which includes obtaining releases
of prior beneficiaries, designation and recording of the Fund as beneficiary, as
well as payment of the purchase price to the insured, and (c) servicing the
policies on an ongoing basis.
The fees to be paid by the Fund to our provider will be up to 5% of the
face amount of the policy. The fee to be paid by the Fund to our manager, which
intends to service the Fund's policies, but may outsource all non-financial
services to an unaffiliated third party, will be a one time fee of up to 7.5% of
the face amount of the policy. In the event we outsource non-financial services
to a third party, the fees of up 7.5% of the face amount of the policy will be
paid to such third party rather than to our manager.
Related Parties Involved in this Offering
AmeriFirst Financial Services, Inc., our manager, AmeriFirst Funding
Group, Inc., our provider, and AmeriFirst Capital Corp., our underwriter, are
three separate entities involved in the offer and sale of the units in the Fund,
as described below. Our provider and underwriter operate and are regulated by
different agencies and are subject to different rules and regulations. All of
the capital stock of our manager, provider and underwriter is owned by
AmeriFirst, Inc., a Delaware holding company of which John Tooke owns 55% of its
common stock. Accordingly, each of our manager, provider and underwriter is
controlled by John Tooke, who is also the president, chief executive officer and
a director of each of these companies. Mr. Tooke has experience with selling
mortgage backed securities and other securities, but has no actual experience
purchasing and securitizing life settlements.
Our manager is responsible for making all investment decisions on behalf
of the Fund and dealing directly with investors in the Fund. In addition, our
manager currently intends to act as servicer of the insurance policies acquired
by us from our provider. Our manager has contracted with three medical review
service companies to conduct medical evaluations and determine life expectancies
of prospective insureds. Our manager will not engage in the insurance business
except as permitted. See "Business --Our Manager" and "Business--Our Servicer."
Our provider will originate policy purchases either directly from the
insured, when it is licensed, or from other providers, or from an unaffiliated
broker network and assign them to the Fund. Our provider will comply with the
laws of each state in which it intends to conduct life settlement business which
regulates the purchase and/or sale of life insurance policies. Employees of our
provider involved in the purchasing of the polices will not engage in the
offering of units of the Fund. See "Business---Our Provider."
Our underwriter is solely responsible for the offer and sale of units in
the Fund. Our underwriter will be licensed by the NASD prior to the effective
date of this prospectus.
The rules and regulations governing each entity governs who can be
employed by the entities and their respective books and records and reporting
requirements. The Fund's finances
39
and its financial statements on behalf of the investors must be separate and
apart from the regulated entities and is audited as a separate entity.
The Life Settlements Market
The life settlements market is an extension of the viatical market that
became popular in the late 1980s. Then, the focus was on buying policies of
terminally ill people (particularly AIDS patients) who had a life expectancy of
less than three years and needed money before their death. The focus has
expanded to currently include senior citizens with a limited life expectancy who
have insurance policies they no longer need or who require more liquidity.
Historically, the only option available for people who either did not want or
could not afford to pay premiums on a policy was to surrender it for cash value.
Life settlement firms, such as the Fund, will pay significantly more than the
cash surrender value.
Another option available to senior citizens is to use their accelerated
death benefit option on their policy if it is an option. See "Competition."
While these are not for every policyholder, they are a valuable option.
According to Senior Market Advisor, senior advisors should be aware of the
benefits of the life settlements. Seniors in the United States hold life
insurance policies worth nearly half a trillion dollars, according to insurance
industry experts. More than $100 billion of this amount is eligible for sale as
life settlements.
Seniors may have purchased large insurance policies when they had young
families and then, when they reached older age and their children became adults,
no longer needed the life insurance coverage that was necessary when they were
younger. In many cases, seniors might simply have stopped paying premiums and
allowed their policies to lapse. Senior settlements relieve seniors of the
obligation to pay insurance premiums, which on some types of policies may be
quite high for older insureds, and permit them to obtain a portion of their
policy limits to use while they are alive.
According to the National Center for Health Statistics and Center for
Disease Control in a report issued August 6, 1999, Americans have a longer life
expectancy in the twenty-first century due to the advancements in medical
technology and treatment. However, despite our remarkable progress, heart
disease and stroke remain leading causes of disability and death, especially in
older adults and seniors. In addition, declines in heart disease and stroke
mortality mask important differences in rates of decline by race/ethnicity, sex
socioeconomic status and geographic region. Also, according to American Cancer
Society, Surveillance Research, 2002, cancer is the second leading cause of
death in the United States, exceeded only by heart disease. Although many trends
have been positive, trends for some important indicators have not improved
substantially, have leveled off, or are reversing.
Life settlement companies have shifted their focus away from HIV
insureds to other "dread diseases" such as heart attack, life-threatening
cancer, stroke, or kidney failure. Many companies have also eliminated HIV
policies from their portfolios due to inconsistencies of the life expectancies
in the past. We believe this is a positive development for investors in life
settlement contracts due to a more accurate life expectancy rate for the
policies which they are purchasing.
40
The Fund
The Fund was formed in the State of Delaware in April 2002 and
reincorporated in Florida in September 2002. We plan to engage solely for the
restricted, limited purpose of purchasing life insurance policies from our
provider, either directly from the insured, when our provider is licensed as a
broker, or by using other providers or from an unaffiliated broker network. The
Fund has no operating history and has only nominal capital and will not have any
assets prior to the commencement of this offering. John Tooke, the President and
controlling shareholder of our manager, provider and our underwriter, may be
deemed to be a founder and/or promoter of the Fund. Mr. Tooke has not received
and will not receive anything of value from the Fund, although our manager,
provider and underwriter, all of which are controlled by Mr. Tooke, will receive
substantial fees from the proceeds of the offering. See "Compensation of Our
Manager and Its Affiliates."
Our provider will enter into viatical settlement contracts, as described
above, with the insureds. In accordance with the terms of such agreements, our
provider will (a) transfer, assign, and convey to the Fund all of our provider's
right, title and interest in and to the insurance policies, or (b) in states
which prohibit an assignment of the insurance policy to anyone other than a
provider, our provider will be the owner and the Fund will hold an irrevocable
beneficial interest in the policy, and (c) take all actions that are required
under state law to establish the Fund's ownership interest in and to the
insurance policies. See "Description of Viatical Settlement Contracts."
Our Provider
The provider of our life settlements will be AmeriFirst Funding Group,
Inc., although the Fund may also use other licensed providers to obtain policies
in each instance utilizing an unaffiliated broker network. If our provider is
licensed as a broker it may purchase policies directly from an insured. Our
provider was formed in the State of Delaware in August 2002 and is in compliance
with the laws of the State of Georgia to conduct life settlement business. It
will comply with the insurance and/or securities laws of all states which
regulate the purchase and/or sale of life insurance policies. John Tooke,
president and chief executive officer of our manager, is also chief executive
officer of our provider. Our provider has no operating history and only nominal
capital. Our provider will purchase insurance policies on behalf of the Fund,
although it may also sell policies to others on a non-securitized basis. Our
provider's address is 1712-H Osborne Road, Suite 107, St. Marys, Georgia 31558.
Its telephone number is (912) 673-9100.
Our provider intends to be a nationwide specialty financial services
company that purchases insurance policies from terminally ill and chronically
ill persons of all ages and senior citizens, age 65 and older with estimated
life expectancies based solely on actuarial tables, in order to aggregate the
policies into a pool of policies, as we are offering hereby. Our provider
intends to enter into agreements to purchase insurance policies directly from
insureds where it is licensed as a broker, from other providers, or from a
nationwide network of unaffiliated life settlement brokers. Virtually all states
require an insured to be represented by an independent third party or a broker.
Since most states also require brokers to be licensed, the names of these
brokers are readily available. Our provider intends to establish its reputation
through strategies of compliance, integrity and due diligence.
41
We will make payments for the purchase of policies from an operating
escrow account, maintained at SouthTrust Bank, as escrow agent, located at 110
Office Park Drive, 2nd Floor, Birmingham, Alabama 35223. The insured will
receive a settlement check or wire transfer upon closing of the life settlement.
Our provider and the broker will be paid for services to their clients.
Brokers are typically paid a fee based on the face value of the policy
by the insured upon the funding of the policy. This is exclusive of the fees
which the Fund will pay to our provider. Our provider does not intend to pay
referral fees to doctors, lawyers or other professionals to whom our provider is
prohibited by applicable law from paying a referral fee and will not do business
with referral sources which our manager does not believe to be reputable.
Brokers and certain other referral sources also handle other administrative
functions, such as collecting applications from potential clients and collecting
medical and insurance records.
Our Manager
Our manager of our Fund will be AmeriFirst Financial Services, Inc. Our
manager was initially formed in the State of Delaware in September 2002 and is
qualified to do business in Florida and Georgia. Our manager's main office is in
Florida, but it also maintains an office at the Fund's and our provider's
Georgia location. AmeriFirst, Inc., a Delaware holding company, 55% of whose
capital stock is beneficially owned by John Tooke, owns all of the capital stock
of our manager. Our manager currently intends to service the insurance policies
and investors directly by its staff of 7 persons as well as 5 employees of
AmeriFirst, Inc, as of January 13, 2003. However, our manager may outsource any
and all non-financial services, as set forth below, to an unaffiliated third
party. Our manager's responsibilities on behalf of the Fund will include
identification of potential policy purchases through our provider and a
nationwide network of unaffiliated life settlement brokers. Our manager will
have sole fiduciary responsibility over all investor funds once obtained from
the escrow agent and thereafter directly from investors and the purchase of life
settlements.
Under the Fund's operating agreement, our manager may be removed for
cause (as defined in the Fund's operating agreement), for default (as defined in
the Fund's operating agreement), or otherwise after our manager has received
distributions that equal or exceeds 125% of the aggregate expenses of this
offering, including sales commissions. Such removal without cause may be
effected by the members holding at least 2/3 in interest of the Units.
Our Servicer
Our manager intends to act as servicer and service the life insurance
policies directly, but it may outsource all non-financial services to a third
party. As of the date of this prospectus, we have no agreements, arrangements or
understandings with any third party to act as our servicer, although our manager
has contracted with three unaffiliated medical review service companies to
determine estimated life expectancies and monitor the lives of the insureds. Our
manager and its affiliate employed 12 persons as of January 13, 2003, to
initially conduct such operations. Our manager would need to hire additional
employees, or outsource non-financial services, if we acquire a large number of
life insurance policies or is otherwise warranted. Current employees include a
chief information officer, in-house legal staff, accounting staff, insurance
review, medical review, policy administration, computer and data processing
personnel and customer service.
Our servicer, who is also our manager, has a computer system which
consists of a web server, mail server, database server, two firewalls, network
attached storage, an integrated T-1 for our web server, and an integrated T-1
for servers. Our servicer uses DVD backup that is taken off the premises in a
fire safe to back up our programs and information concerning the individual
insureds and policyholders. Windows XP workstations are located throughout the
offices attached to the servers.
42
The range of fees, which will be paid by the Fund to our servicer, who
is also our manager, is expected to be up to 7.5% of the face amount of the
policy. In the event that we determine to use the services of an unaffiliated
third party, we expect to enter into a servicing agreement. Servicing the
insurance policies involves monitoring the life status of the insured, tracking
the maturing of the policy and filing claims for proceeds when the policy
matures.
Upon the closing of the provider's purchase of the policy, our servicer
will evaluate and process the life settlements. Our provider will then sell the
insurance policies, without recourse, to the Fund. Our provider will execute an
assignment of the life insurance policy to the Fund where permitted, or
otherwise name the Fund as irrevocable beneficiary of such insurance policy.
Our manager will undertake to service and administer the insurance
policies and to collect payments due under the insurance policies in accordance
with customary and usual servicing procedures and it shall have full power and
authority, acting alone or through any party properly designated by it to do any
and all things in connection with such servicing and administration which it may
deem necessary or desirable. Our manager is authorized and empowered, unless
such power and authority is revoked by the Fund on account of the occurrence of
a default by our manager, to execute and deliver, on behalf of the Fund for the
benefit of its members, any and all instruments of satisfaction or cancellation,
or of part or full release or discharge, and all other comparable instruments,
with respect to the insurance policies. Our manager will obtain any powers of
attorney and other documents reasonably necessary or appropriate to enable our
servicer to carry out its servicing and administrative duties.
Our manager is not obligated to use separate servicing procedures,
offices or employees for servicing the insurance policies from where it may
service other insurance policies, if any; provided, however, that our servicer
is at all times required to be able to accurately reflect the status of
collections and shall maintain separate accounts. Our servicer is not required
to maintain fidelity bond coverage insuring against losses through wrongdoing of
its officers and employees who are involved in the servicing of the insurance
policies.
Our manager's business will involve the following principal steps which
are described in further detail below:
o due diligence review, which includes evaluating the terms of
each policy, reviewing insurance and final underwriting for
proposed policies and with the assistance of an independent
medical review service company, estimating the life expectancy
of the insured;
o closing the transaction, which includes obtaining releases of
all beneficiaries and an insurance policy assignment, or
irrevocable change of beneficiary, as well as payment of the
purchase price of the policy;
o monitoring the policy; and
o collecting the policy proceeds following the policy's maturity.
In addition, our manager will also provide the following functions:
o review financial analysis of each policy and its relationship to
the aggregate pool of policies;
o audit integrity of financial model on a periodic basis;
o maintain data on pool characteristics;
o audit premium calendar database; and
o prepare reports as agreed.
43
Evaluating the Insured and the Insurance Policy
The due diligence review process is designed to obtain accurate
information regarding both the insured and the life insurance policy (a) to
determine whether our provider will offer to purchase the policy and, if so, the
price it will offer and (b) to ensure that certain criteria are met to minimize
challenges by former beneficiaries or by an insurance company to payment of the
face value of the policy.
The insurance review is our process of evaluating life insurance
policies and their suitability for purchase. Our provider will obtain an
insurance policy directly from the insured when it is licensed as a broker, or
from other providers, or from an unaffiliated broker network. Our provider will
utilize our manager, as our servicer, to execute the following procedures to
verify that it purchases a complete insurance policy.
The insurance review process includes:
o review of the broker's application for required identification
and personal information for the insured;
o examination of company records for previous policies on the life
of the insured;
o review of all insurance applications associated with the policy
and comparison of answers to any medical questions;
o ensuring the insurance company rating is A- or better;
o examination of the policy to make sure it is complete,
including, among other things, that it is non-contestable and
not a group policy (other than a Retired Federal Employees'
Group Life Insurance, FEGLI);
o determination of the amount of death benefit available for
purchase;
o thorough review of the insurance contract terms;
o escrowing sufficient premiums to fund the policy death benefit
until the maturity date;
o verification of coverage by the insurance company or
administrator;
o ensuring the file is complete before forwarding to the bidding
department; and
o granting final approval for purchase once the bid has been
accepted.
44
The purpose of the insurance review is to ensure the amount of benefit
purchased will be available to the Fund upon maturity for distribution to its
members. In accomplishing this goal, the insurance review declines policies with
unacceptable risks and accepts only policies of the highest quality.
Once a potential insured contacts our provider, an application and
consent form permitting our provider to obtain medical and insurance coverage
information of the insured will be sent to the potential client. All information
obtained by our provider in connection with policy purchases, including the
identities of the insureds, will be held in confidence and access thereto will
be restricted by our provider to its employees and other representatives. Upon
receipt of the completed application, it will be reviewed to determine the
overall medical status and a preliminary estimated life expectancy. The file
will also be reviewed to determine whether the beneficiary can be changed to the
Fund rather than the insured or his family, and whether the insurance company
which issued the policy is of a credit quality deemed acceptable by our manager.
If it appears from the application that the policy is one the Fund would
be interested in purchasing, our provider will obtain from the broker the
insured's attending physician's medical information which usually includes
several years' worth of laboratory reports and physicians' notes and a written
letter of competency signed by the attending physician. Our manager will forward
such documentation to an independent medical review service company, consisting
of a panel of specialists. Our manager has contracted with three different
unaffiliated third party organizations to provide independent medical
consultants as described below. In evaluating the life expectancy of the
insured, the medical consultant will review the file and other information
forwarded by our provider. We will make a decision to bid on the life insurance
policy based, in part, on the review of the medical review service company. See
"Risk Factors - We will depend on third party information to predict an
estimated life expectancy," and "Business--Medical Due Diligence Review."
Simultaneously, our provider, using the insured's consent form, will
obtain verification of insurance coverage and other policy information from the
insurance company, the employer or the group administrator. The insurance
documents will be reviewed to determine the type of policy, and any provisions
which may effectively reduce the face value of the policy, (i.e., loan against
the policy), and to ensure, among other things, that:
o the policy under consideration is past any contestability
periods, (i.e., the periods during which the insurance company
may deny payment for various reasons, including suicide and a
misstatement of material fact);
o all current primary beneficiaries are willing to execute
releases with respect to any present or future claims they may
have with respect to the policy;
o the Fund is able to obtain ownership of or became the
irrevocable beneficiary of the policy and the associated policy
proceeds. Our provider will not purchase a policy if a minor is
a named beneficiary at the time of purchase. Our provider will
also review the policy premium schedule and determine whether
the policy contains a disability waiver of premium rider which
impacts future premium payments. Our provider will attempt to
ensure that the policy is compatible with
45
the Fund's portfolio in terms of cash on hand. The review
process for the insurance documents generally will take one to
three weeks, depending on the extent of cooperation received
from third parties; and
o our provider will not purchase policies of insureds who are not
residents of the United States or whose insurance companies are
not domiciled in the United States.
Some of the documentation gathering described above, including
collection of necessary medical, personal and insurance information, may be
performed prior to submission of the application to our provider, but the
determination of the insured's life expectancy and compatibility with investment
criteria, review of insurance documents and determination of legal and
contractual issues will be made by our manager.
Medical Due Diligence Review
Our manager intends to utilize the services of three unaffiliated
medical review service companies, named below, to conduct a medical evaluation
of terminally ill and chronically ill (a continuing disease which may or may not
become terminal) persons of all ages prior to our provider purchasing the life
insurance policies. These firms were selected on the basis of the quality of
their services, background of experienced underwriters and their panel of
medical specialists. However, each agreement is for only a 90 day initial term
and can be replaced by our manager at its discretion at any time. Each firm uses
a panel of physicians consisting of many specialities including, but not limited
to, oncology, geriatrics and infectious diseases. These specialists all have
extensive backgrounds in clinical practice and/or research.
Depending on the insured's medical condition, the life expectancy review
is accomplished through independent reviewing physicians. The life expectancy
review includes a review of the insured's medical records and related forms. The
insured's medical records may be furnished by the sourcing broker or requested
by our provider.
The following medical records will be used by the servicer and/or our
medical review service companies in their medical review process of evaluating
the insured:
o progress notes from the primary care provider and physician
specialists;
o laboratory results;
o x-ray reports and other diagnostic tests;
o surgical reports;
o communications with insured's attending physicians
o hospital admit/discharge summaries;
o pathology reports;
o previous and current therapy/treatment;
o lifestyle risk factors;
o functional impairments; and
o psychological parameters.
46
The above components are necessary to establish an accurate overall view
of the health status of the insured. After this evaluation is reviewed, our
manager then decides if the policy meets the Fund's objectives.
Continuous insight into new medical advancements, treatments and
medications is important for the medical review process. We will incorporate
this information into each medical file reviewed and it is a vital part of
maintaining the high standards necessary for our medical review department.
Medical Consulting Services
Our manager entered into three separate consulting agreements with
medical service companies. These include Fasano & Associates Inc. of Washington,
D.C., Systems for Advanced Risk Analysis, L.P., of San Antonio, Texas and 21st
Services of Minneapolis, Minnesota (collectively, the "Consultants"). The
Consultants have no relationship to the Fund or its affiliates or to the
insureds themselves or the brokers representing the insureds. Each agreement is
on a non-exclusive basis for an initial 90-day term. The Consultant is paid
approximately $225 to $250 for each evaluation. The terms of such relationships
are industry standard and were negotiated on an arm's length basis. A form of
such agreement, each of which is substantially the same, has been filed as an
exhibit to the registration statement of which this prospectus forms a part.
The Consultants are experienced medical review companies used by our
manager for evaluating and determining an estimated life expectancy. The
Consultants have state of the art medical underwriters and a panel of medical
physicians who rely on extensive clinical and research experience to make their
determinations of estimated life expectancy. The specialists include
cardiologists, oncologists, hospice specialists, geriatric specialists,
infectious disease specialists and internists. Many of the physicians hold
positions as medical directors of major institutions. The Consultants provide a
comprehensive review of medical records and a mortality profile on the
terminally ill or chronically ill (a continuing disease which may or may not
become terminal) individuals of all ages. Our manager is to submit life
settlement files, including all medical and other information needed to produce
a life expectancy estimate. Our manager must warrant that the information is
accurate and complete. The Consultant is permitted to contact attending
physicians of the insured to obtain clarification or verbal updates, but does
not examine or speak directly with the insured. Life expectancy estimates may be
based on underwriting mortality tables converted into life expectancy by using
statistical studies and clinical judgment or by a combination of the foregoing.
Factors influencing each Consultant's determination or an insured's life
expectancy may include the specialist's own clinical experience, peer review,
rigorous analysis of medical journals, library, non-public information
concerning clinical trials, investigational new drugs, and statistical
information.
The medical review process involves conducting an evaluation of
available medical records that confirm the existence of a terminal illness,
including the stage, progression and overall status of that illness. The
eligibility for the Fund's purchase will then be established.
47
Purchase of Policies
If our manager determines that the policy meets the Fund's criteria,
including due diligence review and investment criteria, our manager will
instruct our provider to make an offer to the insured to purchase the policy.
The purchase price will be based upon the face value of the policy, our medical
review service company's estimate of the insured's life expectancy, the premiums
estimated to be paid under the policy over the insured's estimated life
expectancy, and certain other costs of the policy. If the insured accepts the
offer, purchase documents are prepared from forms generated by our manager's
management information system. The documents include a viatical settlement
contract, a consent to change of beneficiary and authorization to release
medical information of the insured, each of which has been filed as an exhibit
to the registration statement of which this prospectus forms a part. The process
by which our provider will purchase the policies on behalf of the Fund and
accordingly enter into a viatical settlement contract is set forth in detail
beginning on page 69 under "Description of Viatical Settlement Contracts."
The Fund will become the owner of an individual policy, or absolute
assignee of the insured's rights in a group policy, by filing a change of
ownership or absolute assignment form and an irrevocable change of beneficiary
form with the applicable insurance company, employer or plan administrator.
Following receipt of appropriate acknowledgment of the receipt of such changes,
a closing occurs and funds are disbursed as directed by the insured. Our manager
anticipates that the closing process will take one to three weeks and the entire
purchase process, from application to closing will take from four to eight
weeks. Our provider will provide a rescission option through which the insured
may, for any reason, return the disbursed funds and any premium payments made by
the Fund in the interim, and be unconditionally released from the viatical
settlement contract. The rescission period is at least 15 days from receipt of
the purchase price and is longer (i.e., 30 days), if required by applicable law.
See "Business -- Government Regulation of Life Settlements."
48
Monitoring
When the funds from this offering are released from escrow, a premium
escrow account will be established with SouthTrust Bank equal to l50% of the
funds expected to pay the premiums during the estimated life expectancy of the
insureds. We will attempt to pay premiums up front when possible or establish a
bank draft for automatic payment to avoid frequent monitoring of the premium
escrow account. At all times, however, an internal accountant will monitor the
premium escrow account to maintain required balances. We are also developing a
custom software application to house information regarding the policies,
insureds, brokers, agents, money market accounts and any other aspect that needs
to be monitored internally.
We will also attempt to maximize returns on investment by increasing the
death benefit where the insurance policy continually permits benefit increases.
The insured will be regularly monitored by the servicer to obtain timely
information concerning the insured so that proceeds may be collected as promptly
as possible following the maturity of the policy.
Our manager will monitor the policy to ensure it does not lapse because
of a failure to timely pay premiums. Some protection against the failure to pay
premiums is provided by statutory or policy provisions that require insurance
companies to provide written notice before terminating a policy for failure to
pay premiums. As owner of record of the policy, or as absolute assignee of all
of the insured's rights under the policy, the Fund generally receives such
notice directly.
Our manager has contracted with an independent third party,
49
21st Holdings, LLC, an affiliate of 21st Services, to be responsible for
monitoring the insureds' whereabouts and/or ongoing medical condition. They will
monitor the insureds through their attending physician's office when possible.
They will make quarterly calls to the insured's physician to determine when the
insured was last seen or the insured's next scheduled appointment. All records
will be kept in the insured's file and on a monthly basis all updates will be
sent to us for our files. If the insured does not regularly visit his physician
then his personal references will be contacted and if they cannot be reached,
then the insured itself will be contacted unless precluded by state or federal
rules or regulation. 21st Holdings, LLC will also be responsible to notify the
insurance company of the insured's death and will file the claim for benefits.
Representatives of our manager in our Georgia office will receive all notices of
change in status of the insurance policy, a change in premium payments, annual
statements, or any reduction in death benefits. For all of the above services of
monitoring the insured, 21st Services will be paid a one-time set up fee of
$15.00 and monthly fee of $15.00 for each life settlement policy until the
policy matures.
Collection of Policy Proceeds
Once a policy matures, one of the Consultants which is monitoring the
life status of the insured will file a request for a copy of the death
certificate in the appropriate governmental office. Often the insured's family
or companion will also submit a copy of the death certificate to the insurance
company. The Consultant will then file the death certificate with the insurance
company and request payment of the policy proceeds. The Consultant will monitor
the collection status until the Fund receives the face value of the policy.
Monitoring the collection status will be assisted by our servicer's management
information system, which will reflect the filing of the death certificates, the
filing of claim forms with the insurance companies by our servicer and provide
for a status update until the claims have been paid. Insurance companies have an
incentive to pay promptly on policies because most states require insurance
companies to pay interest on claims which take more than 30 days to settle.
Actual collections will generally occur within 30 to 55 days following the
maturity of the policy. However, in certain states (i.e., New York), actual
collections may take a longer period of time due to delays in processing of
documents by state authorities.
Description of Return on Investment
We are offering pro rata beneficial interests in the income to be
generated primarily from individual life insurance policies which we will
purchase to create a pool. The pool is intended to reduce risk by purchasing a
large number of policies from a diverse group of terminally ill and chronically
ill (the disease has persisted for a long period of time and may or may not
become terminal) persons of all ages and senior citizens, age 65 and older with
estimated life expectancies based solely on actuarial tables. The pool of life
insurance policies will range from face values between $25,000 and $2 million or
more. In addition, the pool will provide a blended rate of return closer to the
estimated rate of return, rather than if you were to purchase a single life
insurance policy.
We will attempt to purchase insurance policies at a discount to the face
value of the policy based on our estimates of life expectancies. The discount is
directly connected with life expectancy and will increase along with estimated
life expectancy. A one-year life expectancy may have a relatively small discount
of about 10%, while a 10-year life expectancy may have a 50% discount. The
amount of the discount to the insured is negotiated and varies depending upon
the nature of the life insurance policy, the stability of the insurer,
prevailing interest rates, the estimated premiums to be paid by our manager for
the policy over the expected life of the insured, the insured's estimated life
expectancy and certain other costs of the life settlement. In any event, we do
not intend to purchase any policy that is expected to yield to the Fund an
annual rate of return of less than 10% based on the purchase price and estimated
life expectancy.
50
Only when we receive the proceeds from insurance policies at maturity
will you receive a distribution consisting of your pro rata share of such
proceeds. After the policy is underwritten and medical and actuarial tables are
examined, our manager will estimate the maturity of the policy. The estimated
rate of return on the purchase price of a life insurance policy is inclusive of
all fees connected with the purchase. Once we have determined the estimated
maturity of the policy, the estimated rate of return can be determined by
dividing the aggregate return by the insured's estimated life expectancy
determined by medical and insurance underwriting and actuarial tables. The
actual rate of return can only be determined at the time the policy matures. The
actual return on investment to investors is determined by subtracting the
discounted amount paid for each policy purchased (including all fees and policy
premiums paid or escrowed), as well as any capital calls paid, from the face
value of such policy when the policy matures. Our manager has the right to use a
portion of the proceeds from any insurance policies at maturity to replenish the
premium escrow account prior to the Fund making a capital call.
For illustrative purposes only, set forth below is a hypothetical of how
a $66,666 investment might be used to purchase a 100% interest in a $100,000
face amount of a universal life insurance policy from a 50 year old terminally
ill insured with a five-year life expectancy. This would be required in order to
provide the desired return on investment. In this example, if a $100,000 policy
is purchased for $66,666 inclusive of all fees, and if the insured were in fact
to pass away in five years, the aggregate return on investment would be $33,334
(or 50%) divided by the $66,666 purchase price, or a return on investment of 10%
per annum.
Expenditure Amount
----------- ------
Payment to seller and independent broker of policy (1) $40,000
Provider's commission (2) $ 5,000
Manager's and servicer's fee (3) $ 7,500
Deposit to premium escrow account (4) $ 7,500
Deposit to sinking fund (5) $ 6,666
-------
Total: $66,666
=======
- -------
(1) Payment to Seller and Independent Broker of Policy. The price paid to an
insured for a life insurance policy is based primarily on the life expectancy of
the insured and the estimated premiums payable by the Fund over the expected
life of the insured. Competitive bidding (i.e., offers made on the same policies
by other life settlement companies) also influences the percentage of the face
value that will be paid for the policy. Generally, the shorter the life
expectancy of the insured, the greater the price paid for the policy. This is an
arm's length negotiation between the buyer and seller and depends totally on
market conditions. The seller of the policy is responsible for paying fees to
his broker.
(2) Origination Fee. The fee to be paid to the provider, which may be our
provider or another provider in the secondary market, will be up to a maximum of
5% of the face amount of
51
the policy which percentage we have assumed in the above table. This is
exclusive of fees which the insured is obligated to pay to the broker selling
his policy to our provider.
(3) Our Manager's and/or Third Party Outsourcing Fees. The fees to be paid to
our manager, who intends to service the policies and monitor the insureds on
behalf of the Fund, will be negotiated and determined by our manager, and will
be up to 7.5% of the face amount of the policy, as assumed in the above table.
Services provided by our manager will include: due diligence and policy review,
independent medical review for estimating the life expectancy of the insured,
closing costs, which include legal fees, administering the policy and the
investors and monitoring the life status of the insured.
(4) Deposit to Premium Escrow Account. The funds in the premium escrow account,
which will be used exclusively to pay policy premiums, are expected to equal
l50% of the premiums for the estimated life expectancy of the individual insured
for each of five-years life expectancy in the above example. Such escrowed funds
will be invested in interest bearing bank accounts, money market funds, or used
to purchase U.S. Treasury Bills.
(5) Deposit to Sinking Fund. We intend to escrow 10% of the net proceeds of this
offering available as a sinking fund in the event of a default, by an insurance
carrier, to replenish the premium escrow account, if needed, and for operating
expenses of the Fund in the event our manager is unable to pay such expenses.
These funds will be distributed for the above stated reasons, but otherwise
distributed to our manager upon liquidation of the Fund.
The following table illustrates how returns on investment will be
calculated. This chart is not based on any source of information, but is merely
management's estimate and is being presented in this prospectus merely as a
hypothetical example. The goal of the pool is to provide a blended rate of
return closer to the estimated rate of return, rather than if you were to
purchase a single life insurance policy. If an insured passes away at his
estimated life expectancy (equal to actual maturity) the annual rate of return
is 10.0%. If he passes away sooner, the rate of return is higher and if he lives
longer it is lower. In any event, however, we can only estimate and cannot
predict or guarantee your rate of return.
52
Estimated Life Expectancy
- ---------------------------------------------------------------------------------------------------------------------------------
Years 1 2 3 4 5 6 7 8 9 10
A
----------------------------------------------------------------------------------------------------------------------------
c 1 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00%
----------------------------------------------------------------------------------------------------------------------------
t 2 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00% 50.00%
----------------------------------------------------------------------------------------------------------------------------
u 3 3.33% 6.67% 10.00% 13.33% 16.67% 20.00% 23.33% 26.67% 30.00% 33.33%
----------------------------------------------------------------------------------------------------------------------------
a 4 2.50% 5.00% 7.50% 10.00% 12.50% 15.00% 17.50% 20.00% 22.50% 25.00%
----------------------------------------------------------------------------------------------------------------------------
l 5 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% 20.00%
----------------------------------------------------------------------------------------------------------------------------
6 1.67% 3.33% 5.00% 6.67% 8.33% 10.00% 11.67% 13.33% 15.00% 16.67%
----------------------------------------------------------------------------------------------------------------------------
M 7 1.43% 2.86% 4.29% 5.71% 7.14% 8.57% 10.00% 11.43% 12.86% 14.29%
----------------------------------------------------------------------------------------------------------------------------
a 8 1.25% 2.50% 3.75% 5.00% 6.25% 7.50% 8.75% 10.00% 11.25% 12.50%
----------------------------------------------------------------------------------------------------------------------------
t 9 1.11% 2.22% 3.33% 4.44% 5.56% 6.67% 7.78% 8.89% 10.00% 11.11%
----------------------------------------------------------------------------------------------------------------------------
u 10 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00%
----------------------------------------------------------------------------------------------------------------------------
r 11 0.91% 1.82% 2.73% 3.64% 4.55% 5.45% 6.36% 7.27% 8.18% 9.09%
----------------------------------------------------------------------------------------------------------------------------
i 12 0.83% 1.67% 2.50% 3.33% 4.17% 5.00% 5.83% 6.67% 7.50% 8.33%
----------------------------------------------------------------------------------------------------------------------------
t 13 0.77% 1.54% 2.31% 3.08% 3.85% 4.62% 5.38% 6.15% 6.92% 7.69%
----------------------------------------------------------------------------------------------------------------------------
y 14 0.71% 1.43% 2.14% 2.86% 3.57% 4.29% 5.00% 5.71% 6.43% 7.14%
----------------------------------------------------------------------------------------------------------------------------
15 0.67% 1.33% 2.00% 2.67% 3.33% 4.00% 4.67% 5.33% 6.00% 6.67%
----------------------------------------------------------------------------------------------------------------------------
16 0.63% 1.25% 1.88% 2.50% 3.13% 3.75% 4.38% 5.00% 5.63% 6.25%
----------------------------------------------------------------------------------------------------------------------------
17 0.59% 1.18% 1.76% 2.35% 2.94% 3.53% 4.12% 4.71% 5.29% 5.88%
----------------------------------------------------------------------------------------------------------------------------
18 0.56% 1.11% 1.67% 2.22% 2.78% 3.33% 3.89% 4.44% 5.00% 5.56%
----------------------------------------------------------------------------------------------------------------------------
19 0.53% 1.05% 1.58% 2.11% 2.63% 3.16% 3.68% 4.21% 4.74% 5.26%
----------------------------------------------------------------------------------------------------------------------------
20 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00%
- ---------------------------------------------------------------------------------------------------------------------------------
53
General Description of Different Types of Insurance Policies to be Purchased by
the Fund and Investment Strategies
Our portfolio will consist mainly of the following types of life
insurance policies: whole life insurance, adjustable whole life, universal life
insurance, variable adjustable life insurance, Retired Federal Employees' Group
Life Insurance (FEGLI) and term policies.
Whole life insurance offers protection for the life of the insured based
on a fixed premium payment. Policies may provide coverage on a single life or
joint lives, either first to die or survivorship.
Adjustable whole life and combination whole life/term rider policies can
have limited guaranteed protection periods, or in the case of combination
policies, the term portion decreases. In both cases, dividends are used to
extend the coverage period or purchase paid-up whole life to replace the
decrease in the amount of term insurance.
Flexible premium universal life and variable adjustable life policies
are designed to mature or expire at 95 and beyond for specific amounts. Policies
may provide coverage on a single life or joint lives, either first to die or
survivorship.
Term policies are issued for a specific period and generally expire
without a death benefit at ages from 90 to 100. We will purchase only those
policies with coverage periods at least three times the insured's life
expectancy. All term policies must be convertible or exchangeable, without
medical evidence and reinstatement of contestability or suicide provisions.
The only group life insurance which the Fund intends to purchase is
Retired Federal Employees Group Life Insurance (FEGLI) policies which provide
coverage for the life of the insured without any termination or decrease in
death benefits. An absolute assignment will be made so that the Fund will be the
only person able to make changes on the policy or terminate the policy. Our
manager will need to reimburse the insured for premium payments, on a quarterly
or semi-annual basis as payroll deductions are the only mode available and an
insured will be required to mail paystubs to the Fund.
Our manager intends to follow the following policy origination
guidelines in purchasing life insurance policies through our provider depending
on the type of life insurance policy purchased, as described above. An
explanation of the A.M. Best ratings appears following these guidelines.
Policy Origination Guidelines
Types of Policies
1. Whole Life (including joint and survivorship)
2. Retired Federal Employees Group Life Insurance (FEGLI)
3. Adjustable Whole Life and Combination Whole Life/Term Rider
54
4. Flexible Premium Universal Life and Variable Adjustable Life
(including joint and survivorship)
5. Term Policies (must be convertible or exchangeable).
Strategies
Our provider will follow the criteria described below when originating
policies. The number and scope of life insurance policies in the pool that we
intend to create will increase with the amount of proceeds we obtain. Our goal
is to create a diverse pool of between 250 and 500 life insurance policies owned
by terminally ill and chronically ill persons of all ages and senior citizens,
age 65 and over with life expectancies of less than 10 years to be determined by
medical and insurance underwriting and based on actuarial tables. In any event,
our manager which is controlled by John Tooke will have sole discretion to
oversee these strategies. We intend to use the following strategies.
o All insurance carriers in the Fund covering the life settlements
must be rated A- or better by A.M. Best as discussed in further
detail below.
o We will not purchase more than 25% of policies from one
insurance company.
o We will only purchase policies where the estimated life
expectancy of the insured is between one and ten years.
o We will only purchase policies beyond the contestable and
suicide periods.
o We will only purchase group insurance policies from Federal
Employees' Group Life Insurance (Retired).
o The Acquired Immune Deficiency Syndrome is the end stage of HIV
infection, characterized by opportunistic infections or a
specific blood test, CD4 count of less than 200/mm.,
malignancies, generalized wasting and profound loss of the
immune system as defined by the Center for Disease Control. We
will not purchase policies from individuals who have been
diagnosed HIV positive only; the insured must have been
diagnosed as having the terminal illness of Acquired Immune
Deficiency Syndrome.
o We will require an outside medical review to establish the
estimated life expectancy for all terminally and chronically ill
(a continuing disease which may or may not become terminal)
insureds.
o No more than 20% of the face value of the pool will be invested
in policies from seniors, age 65 and older with life
expectancies based solely on actuarial tables. The purchase of
Acquired Immune Deficiency Syndrome polices will be limited to
20% of the face value of the pool and no more than 40% of the
face value of the pool will be invested in one specific terminal
or chronic illness. To the extent that we sell less than $100
million of units, at any given time we will use our best efforts
to, but may not be able to stay in line with these strategies.
55
o The maximum policy size for terminally and chronically ill
insureds of all ages and seniors, age 65 and older with a life
expectancy based solely on actuarial tables is two million
dollars. For insureds with Acquired Immune Deficiency Syndrome
the maximum policy size we will accept is $500,000.
o The maximum policy size for terminally and chronically ill
insureds of all ages and seniors, age 65 and older with a life
expectancy based solely on actuarial tables, is $2 million
dollars. For insureds with Acquired Immune Deficiency Syndrome
the maximum policy size we will accept is $500,000.
o For seniors, age 65 and older, we have the right to base the
estimated life expectancy solely on actuarial tables for whole
life policies only. Mortality projections for Senior Life
Settlements (65 years or older) are based on the 2001 CSO
Mortality Tables for females and males.
o We will not purchase Universal Life policies that terminate
before the insured is age 95 or Term policies that terminate
prior to age 95 and cannot be converted or exchanged to extend
the death benefit to age 95. All Universal Life and Term
policies must have a coverage period of a minimum of three times
the insured's estimated life expectancy based on their age at
the time the policy is purchased by the fund until the
termination date of the policy, or a minimum coverage period of
10 years prior to the termination date, whichever is greater.
A.M. Best's Ratings
The objective of the A.M. Best rating system is to provide an overall
opinion of an insurer/insurance company's ability to meet its obligations to
policyholders.
According to A.M. Best, their company ratings are based on three main
factors used to measure an insurer's financial strength and ability to meet
obligations to policyholders, as compared with industry composites. The factors
are:
1. Balance Sheet Strength
2. Operating Performance
3. Business Profile
Balance sheet strength is determined by measurement of growth in
underwriting, ratio of premiums written to capital and surplus, capital adequacy
ratio, ratio of capital and surplus to liabilities, ratio of re-insurance
expenses to capital and surplus funds, annual change in capital, capital
structure of holding companies, quality and appropriateness of reinsurance,
adequacy of policy reserves, quality and diversification of assets and various
liquidity tests.
Operating performance is centered around the insurer's profitability
from insurance operations, using various tests such as benefits paid as a
percentage of net premiums, commissions and expenses incurred as a percentage of
net premiums written, and return on equity.
56
Business profile issues analyze the diversification of an insurer as to
how the book of business is spread geographically, by product and distribution.
In addition, A.M. Best analyzes the insurer's market position, management,
revenue composition, insurance market risk, and event risk.
The range of A.M. Best ratings are as follows:
A.M. Best Ratings
---- ------------
A++, A+ Superior
A, A- Excellent
B++, B+ Very Good
B, B- Fair
C++, C+ Marginal
C, C- Weak
D Poor
E Under Regulatory Supervision
F In Liquidation
S Rating Suspended
An A.M. Best rating may be lowered or withdrawn entirely by A.M. Best
if, in its judgment, circumstances so warrant.
Ratings of A+ to A++ are assigned to insurance companies which have, on
balance, superior financial strength, operating performance and market profile
when compared to the standards established by A.M. Best. A.M. Best believes that
these companies have a very strong ability to meet their ongoing obligations to
policyholders. Ratings of A- to A are assigned to insurance companies which
have, on balance, excellent financial strength, operating performance and market
profile when compared to the standards established by A.M. Best. A.M. Best
believes that these companies have a strong ability to meet their ongoing
obligations to policyholders. Ratings of B+ to B++ are assigned to insurance
companies which have, on balance, very good financial strength, operating
performance and market profile when compared to the standards established by
A.M. Best. A.M. Best believes these companies have a good ability to meet their
ongoing obligations to policyholders.
Competition
Our manager believes potential insureds distinguish insurance settlement
companies based on three principal factors:
o price;
o response time; and
o sensitivity and professionalism in dealing with the insured and
his friends and relatives.
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An insurance settlement company typically determines the price that it
is willing to pay for a life insurance policy principally based upon its
estimate of the life expectancy of the insured and the present value of such
policy discounted at a rate as determined by such life expectancy. Response time
is affected by the provider's internal ability to meet demand, the cooperation
received from the potential client's insurance company and the insured's doctor
and, ultimately, the provider's access to capital to fund its purchase of a
policy.
Our manager believes that approximately 50 to 60 life settlement
companies currently operate in the United States. Although lack of traditional
funding sources and high financing costs have limited the industry's growth in
the past, competition has recently increased. The increased competition has
contributed to higher purchase prices and lower original estimated annual
yields.
Most insurance companies also offer some form of accelerated death
benefits to holders of their policies with terminal illnesses, but the costs
thereof vary substantially among such companies. A recent article appearing on
The Northwestern Mutual Life Insurance Company website, states that while
insurers began developing accelerated death benefits only a few years ago, today
more than 200 companies offer people with terminal and chronic illnesses
accelerated benefits, protecting over 18 million policyholders. As with any new
product, there are substantial variations in design, cost and coverage.
According to "Gay Money Magazine," accelerated benefits or acceleration often
requires a special rider on your life insurance policy in order to pay part or
all of the policy face amount directly through separate life settlement
companies from the insurer if your doctor signs a statement certifying the
insured's life expectancy is less than 6 or 12 months. Also, most insurers allow
acceleration on only part of policy, often only 25-50%. This is a reflection of
this industry's assumption that life insurance is for those left, not the
living. Of course, this varies among insurers.
An article from insure.com on April 17, 2001, states that most companies
require that the insured's life expectancy be 12 months or less from the time
the insureds applies for accelerated death benefits. Most policies specify that
the insured has a "dread disease" such as a heart attack, life-threatening
cancer, stroke, coronary artery bypass surgery or kidney failure. Some policies
charge the insured a higher premium for the option of accelerating your death
benefit. However, there are others that charge only if the benefit is
accelerated, while others do not charge at all. Most life insurance companies
limit the amount of the insured's death benefit he can accelerate, either by
restricting the percentage of his death benefit or the dollar amount that the
insured can receive.
Our manager believes that insurance companies, on an industry-wide
basis, have not aggressively participated in the market for terminally ill,
chronically ill and senior citizen life settlements or related products or
services primarily because of the undeveloped nature of the market and the
potential for public relations problems for the insurance industry resulting
from insurance companies redeeming policies for less than the death benefit
promised to their policyholders.
Given the restrictions typically imposed on the availability of
accelerated death benefits, life settlements have, to date, been an attractive
alternative to accelerated death benefits for insureds. Life settlements can
also offer some people with terminal illnesses the opportunity to
58
pursue lifelong goals while they are still relatively healthy. Although our
manager believes that insurance companies may continue to be reluctant to enter
the terminally ill and chronically ill markets of all ages and seniors, age 65
and older, with estimated life expectancies based solely on actuarial tables,
insurance companies may reduce their restrictions applicable to accelerated
death benefits, may begin to provide life settlements directly or through
separate settlement companies or may offer other competing products or services
on a broader basis.
Our manager believes that the Fund will be well-positioned within the
life settlements industry to compete. The Fund intends to establish a reputation
in the industry for providing life settlements in a professional, efficient and
responsible manner. In addition, our manager believes that it will be able to
establish relationships with other providers which will provide it with a
competitive advantage. Our manager also believes that the confidentiality
afforded the insureds by having their policies beneficially owned by the Fund,
which will not disclose any confidential information, will be an additional
incentive for them to do business with our provider rather than sell their
policies to persons who will hold the policies directly and know confidential
information. Finally, if this offering is successful, the proceeds from this
offering will allow our provider to have significant financial flexibility in
such a fragmented market since it will have more resources which will allow it
to purchase more insurance policies at more favorable prices than if it was only
purchasing policies on an individual basis for one investor rather than for a
pool of investors.
Government Regulation of Life Settlements
We will monitor the progress of new legislation and regulations in each
state in which we purchase policies. However, given the emerging nature of life
settlement regulations, there may be periods in which we may not be in
compliance, or are unable to comply with the effective provisions of each
applicable, statute and regulation.
The Viatical Settlements Model Act was developed by the National
Association of Insurance Commissioners (NAIC) to encourage states to adopt
uniform standards to regulate the life settlements industry. Viatical and life
settlements are regulated by state laws of either the departments of insurance
or securities departments. A number of states have adopted the NAIC Model Act
and others have implemented certain provisions of the NAIC Model Act in the
regulations they have enacted. Accordingly, a generic form of viatical
settlement contract, which includes much of the NAIC Model Act, has been filed
as an exhibit to the registration statement of which this prospectus forms a
part. Set forth below are all material provisions of the NAIC Model Act, as well
as any material state variations, as follows:
o requires life settlement providers, brokers or investment agents
to be in compliance with state insurance laws in the state of
residence of the insured, and specifies the requirements for
obtaining a license, where applicable, and circumstances under
which state regulators may refuse to issue, suspend or revoke a
license.
o requires that life settlement contracts and related disclosure
statements be submitted and approved by the state insurance
regulator prior to use.
59
o requires the licensee to file an annual statement with each
state's insurance regulator and gives the regulator flexibility
regarding the form and content of that statement. The reporting
requirements for Texas are believed to be the most extensive and
require an annual report of all viatical or life settlement
transactions in Texas, and a separate complete and accurate
annual report of all viatical or life settlement transactions
for all states in the aggregate. The reports shall contain the
information set forth in paragraphs as follows: for each
viatical or life settlement contracted during the reporting
period; the date the settlement contract was signed by all
necessary parties; insurance carriers name, age, life expectancy
in months, insured's state of residence, face amount of policy,
net death purchased, estimated total premium to keep policy in
force for total life expectancy or not applicable because the
policy is paid up or no premiums are due. Net amount paid to the
owner, source of policy, type of policy, age of the policy at
the time of contract, primary diagnostic code at time of
settlement contract, type of funding, status as of ending date,
death if applicable; sold if sold, appoint if appointed to
another provider or broker. Where death occurred, unique
identifying number, date contract signed, age and life
expectancy, insured's state or residence, net death benefit
collected, total amount of premiums paid, net amount paid to
owner, primary diagnostic code, date of death, difference
between the actual number of months the insured lived after the
date the contract was signed, and total life expectancy used by
the reporting provider, name and address of each provider,
representative, or broker, from which the reporting provider was
referred a policy; name and address of any person from which the
reporting provider was referred a policy for which a fee was
given for referral; name and address of each provider or broker
to whom the reporting provider referred a policy; number of
policies reviewed and rejected, secondary market purchases as
percentage of total policies purchased, name and address of any
person whom the provider utilizes to perform medical evaluations
of any kind relating to life settlors, the name and address or
any provider or broker that the provider utilizes to track a
life settlor's health status after a settlement contract has
been signed by all necessary parties, and payment has been made
to the owner, or to indicate tracking performed by in house
employees. The report shall not include any confidential
information. For those states which require financial
responsibility, the provider's net capital will have to be
verified each year and a bond kept in place.
o prohibits any person, including the licensee, in the context of
a life settlement transaction, with the knowledge of an
insured's identity, from disclosing that identity or the
insured's financial or medical information, to any person,
unless an exception applies, such as when such information is
directly related to and necessary to be disclosed for the
completion of the life settlement contract following the death
of the insured.
o maintains broad procedures whereby state insurance regulators
can examine and investigate licensees in the life settlement
business and requires licensees to keep all records for a period
of 5 years.
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o requires disclosure of information to the insured, including,
but not limited to: (i) disclose to insured that his or her
medical, financial or personal information, as given to the life
settlement provider or broker, may be disclosed to others in
order to effectuate the life settlement, (ii) possible
alternatives to life settlement contracts, (iii) implications of
proceeds received from the life settlement (i.e. creditors
rights to proceeds, any effect on insured's eligibility to
receive some form of governmental benefit, taxes on proceeds),
(iv) name, address and telephone number of the life settlement
provider, and (v) the amount and method of calculating the
broker's compensation.
o requires disclosure of information to potential investors (not
including investors who are accredited investors, a financing
entity, a special purpose entity, a related provider trust or a
licensee under the NAIC Model Act), including, but not limited
to: (i) annual rate of return, (ii) the risks involved in this
investment, including no returns will be received until the
insured dies and investor will lose all benefits or received
substantially reduced benefits if the insurer goes out of
business during the term of the viatical investment, (iii) type
of policy being viaticated, its current status and any
additional benefits in the policy, (iv) whether the policy is
contestable, and (v) information with respect to monitoring the
insured's condition and the frequency of such monitoring.
o list general rules relating to the procedure for entering into a
life settlement contract, and provisions regarding advertising
and fraud.
Approximately one-half of the regulated states have enacted statutes or
adopted or proposed regulations that establish minimum purchase prices to be
paid to the insured according to the insured's life expectancy.
Most states have statutes that regulate conducting a life settlement
business. Many states regulate the life settlement business through their
respective departments of insurance, while others, regulate through their
respective securities departments. Our provider is in compliance with the laws
of the State of Georgia which regulates the sale of insurance polices as a
security through the Division of Securities and Business Regulation. Most other
states regulate the purchase, rather than the sale, of life settlement policies.
Our provider will seek to become licensed where required or otherwise comply
with the laws of all other states which regulate the purchase and/or sale of
life settlement policies. However, our provider may not be able to obtain a
license in every state when required, or to renew or prevent revocation of a
previously issued license or approval. Our provider may be precluded from doing
business in any state in which it is unable to obtain or maintain a required
license or otherwise comply with the insurance or securities laws. In the event
our provider is not licensed or approved to do business, in a limited number of
states it may purchase policies referred by other licensed providers.
Although we are not aware of any judicial authority interpreting whether
the life settlement business constitutes conducting an insurance business, some
states may consider life settlements to be an insurance company and preclude the
Fund, which is not an insurance company, from operating in those states. See
"Risk Factors--Possible Costs of and Delays Attributable to Government
Regulation Will Affect Our Profitability."
61
Employees
As of January 13, 2003, our manager employed 7 persons, and AmeriFirst,
Inc., our controlling shareholder, employed 5 persons, all of whom are full-time
employees. They include, John Tooke, the founder and principal of the Fund, an
executive assistant, a chief information officer, in-house legal and accounting
staff, insurance review, medical review, policy administration, computer and
data processing personnel, customer service and medical review. Our provider
employed two managers exclusive of John Tooke. Our underwriter employed two
persons in broker-dealer operations exclusive of John Tooke. None of our
manager's employees is covered by a collective bargaining agreement.
Facilities
Our manager and underwriter sublease their executive offices, located at
814 North Highway A1A, Suite 300, Ponte Vedra Beach, Florida 32082; telephone
number (904) 373- 3034, at a monthly rental of $15,000. The sublease is from
Life Settlements Service Corp., a Florida foreign corporation. The sublease is
for 18 months ending on July 28, 2004. The facility consists of approximately
7,349 square feet of office space.
The Fund and our provider lease their offices located at 1712-H Osborne
Road, St. Marys, Georgia 31558; tel no. 912-673-9100, at a monthly rental of
$900. The lease is with Century 21 Tri City Realty for five years ending on
December 31, 2008. The facility consists of approximately 1,440 square feet of
office space.
Legal proceedings
The company is not currently subject to any legal proceedings.
DESCRIPTION OF THE UNITS
The Fund's Assets
The units issued in connection with this offering will evidence
fractional undivided interests in the Fund. The units in the aggregate will
represent a 100% interest in the Fund's assets up until the final maturity
dates. Each unit will represent the right to receive your pro rata share of
proceeds from collections attributable to payments by insurance companies
pursuant to the insurance policies. See "Description of the Units -- Investor
Accounts and Allocation of Collections." The Fund's assets will consist
primarily of:
o an irrevocable beneficial interest in the insurance policies;
o monies due or to become due under the insurance policies;
o monies received from insurance companies in payment of the
insurance policies;
62
o monies on deposit in bank accounts of the Fund or other
permitted investments as described under "Use of Proceeds,"
inclusive of interest earned or accrued on the funds deposited
in said accounts; and
o all right, title, and interest with respect to the insurance
policies, including, but not limited to, an assignment of such
policies where permitted or designation as irrevocable
beneficiary, and any supporting documentation or agreements
related to the insurance policies.
Distributions will be made by check mailed or electronic deposit to each
of the members as it appears on the register maintained by the Fund, or its
designee. The final payment on any unit, however, subject to deduction of
applicable withholding taxes, will be made only upon presentation and surrender
of such unit at the office or agency specified in the notice of final
distribution to members. The Fund will provide such notice to registered members
not later than the 5th day prior to the final distribution.
The Units
The units will be issued in the minimum denomination of $1,000 with an
initial minimum investment of one hundred units, or $100,000; however, our
underwriters reserves the right to accept initial subscriptions of less than
$100,000, and integral multiples of $1,000 in excess thereof equal to the
original principal amount for which each investor subscribed to purchase. The
Fund shall have five (5) days from the tender of a subscription agreement to
accept or reject an investor's funds promptly following each closing date of
this offering. The Fund shall deliver countersigned subscription agreements and
any evidence of book entry of the units to the members against payment to the
Fund of the subscription proceeds for such units, net of any sales commissions
and offering expenses.
Registration, Transfer and Exchange of Units
Our manager shall cause a listing of the units to be kept at the office
or agency to be maintained by the transfer agent and registrar in which, subject
to such reasonable regulations as it may prescribe, the transfer agent and
registrar shall provide for the registration of the units and of transfers and
exchanges of the units. Our manager is initially appointed the transfer agent
and registrar, but shall be permitted to resign as transfer agent and registrar
upon 30 days written notice to the Fund, in which event, the Fund shall appoint
a successor transfer agent and registrar.
Upon surrender for registration of transfer of any unit at any office or
agency of the transfer agent and registrar for this purpose, the Fund shall
execute, and our manager shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new units in authorized
denominations of like aggregate principal amount. The transfer agent and
registrar will maintain at its expense, in Florida, an office or offices or
agency or agencies where units may be surrendered for registration of transfer
or exchange.
63
Every unit presented or surrendered for registration of transfer or
exchange shall be accompanied by a written instrument of transfer in a form
satisfactory to the transfer agent and registrar duly executed by the member
thereof or his attorney duly authorized in writing. No service charge to the
member shall be made for any registration of transfer or exchange of units, but
the transfer agent and registrar may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer or exchange of units. All units surrendered for registration of
transfer or exchange shall be cancelled in a manner satisfactory to our manager
and the transfer agent and registrar.
Prior to presentation of a unit for registration of transfer, our
manager, the transfer agent and registrar and any agent of any of them may treat
the person in whose name any unit is registered as the owner of such unit for
the purpose of receiving distributions and for all other purposes whatsoever,
and neither the Fund, our manager, the transfer agent and registrar, nor any
agent of any of them, shall be affected by any notice of the contrary.
Our manager shall make all withdrawals, deposits and payments and shall
have revocable power to transfer funds among investor accounts and make
distributions to members from the operating escrow account.
List of Members
Our manager will furnish or cause to be furnished by the transfer agent
and registrar, if other than our manager, to the Fund within five business days
after receipt by our manager of a request therefor from the Fund, in writing, a
list in such form as the Fund may reasonably require, of the names and addresses
of the members as of the most recent record date for payment of distributions to
members. Members holding an aggregate amount of not less than 10% of the units
then outstanding may apply in writing to our manager that they desire to
communicate with other members with respect to their rights under the Fund's
operating agreement. If such request is accompanied by a copy of the
communication which such applicant proposes to transmit, then our manager, after
having been adequately indemnified by such applicant for its costs and expenses,
shall afford or shall cause the transfer agent and registrar if other than our
manager, to afford such applicant access during normal business hours to the
most recent list of members held by our manager. The list shall be as of a date
not more than 45 days prior to the date of receipt of such applicant's request
and shall give our manager notice that such request has been made, within five
business days after the receipt of such application. Every member, by receiving
and holding units, agrees with our manager that neither our manager, the
transfer agent and registrar, if other than our manager, nor any of their
respective agents shall be held accountable by reason of the disclosure of the
names and addresses of the members, regardless of the source from which such
information was obtained.
Investor Accounts and Allocation of Collections
The Fund's assets shall include investor accounts which consist of the
operating escrow account, premium escrow account, and a sinking fund, each of
which shall be established and maintained by the Fund with SouthTrust Bank for
the benefit of the members only upon the completion of the minimum offering and
the release of funds from the subscription escrow account.
64
Operating Escrow Account. The operating escrow account shall be
established and maintained by our manager as a segregated, interest-bearing
money market account and it shall bear a designation clearly indicating that the
funds deposited therein are held in escrow for the benefit of the members and
shall be subject to distribution in accordance with the Fund's operating
agreement. The operating escrow account shall contain collections attributable
to insurance policies and funds on hand from this offering to purchase life
insurance policies, transfer funds to the premium escrow account, sinking fund
and fees to our manager and provider. All funds will be deposited into the
operating escrow account after the minimum offering is completed.
Premium Escrow Account. The premium escrow account shall be established
and maintained by our manager as a segregated interest bearing escrow account.
It shall bear a description clearly indicating that the funds deposited therein
are held in escrow solely to pay premiums for all policies purchased by the
Fund. The amount of premium payments set aside for each policy shall generally
be equal to 150% of the annual premiums for the estimated life expectancies of
the insureds. Upon liquidation of the Fund, the remaining premium escrow account
shall be transferred in whole to our manager together with accrued interest
thereon.
Sinking Fund. Our manager shall escrow ten (10%) percent of the net
proceeds of this offering as a sinking fund intended to be used as a mechanism
in the event of insurance company policy payout failure(s), policy termination,
and policy lapses, to replenish the premium escrow account, and if needed, for
operating expenses of the Fund in the event our manager is unable to meet the
Fund's operating expenses (collectively, a "default").
The sinking fund, administered by our manager, will provide redemption
to the Fund's members based on their pro rata share of the designated face
amount of the policy in the case of an insurance company default. The sinking
fund will also distribute funds as needed for the premium escrow account or used
to pay for operating expenses directly from this account. The act of redemption
shall occur no later than twelve (12) months following written notice of default
from the insurer. The insurer by definition is the insurance company named on
the purchased insurance policy or its accepted assignee. Redemption shall be
deemed by the managing member to be in the best interests of all members.
Upon final liquidation of the Fund, the sinking fund remainder balance
shall be distributed to our manager including all interest accrued in any manner
permitted by law. At the option of our manager, prior to final Fund liquidation,
our manager may elect to purchase the face amount of all outstanding policies by
directing that the sinking fund remainder be transferred to pay the members for
their pro rata interest in such remaining policies. In the event our manager
does not purchase the outstanding policies, upon liquidation of the Fund, the
remaining sinking fund shall be transferred in whole to our manager together
with accrued interest thereon as a result of the elimination of the sinking
fund's purpose and intent.
Distributions from Investor Accounts. Our manager shall have the
revocable authority to make withdrawals and distributions from, or transfers
between, the investor accounts. Funds on deposit in the operating escrow account
and the premium escrow account and/or the stop loss sinking fund may at all
times be invested in permitted investments, including interest-bearing bank
accounts, money market funds or short-term U.S. treasury bills, provided that
any investment shall mature and the funds shall be available for withdrawal on
or prior to the purchase of any life insurance policy from an insured. Our
manager shall hold for the benefit of
65
the members the negotiable instruments or securities, if any, evidencing the
permitted investments from the time of purchase until the time of sale or
maturity. Subject to the maturity restrictions set forth above, the Fund shall
instruct the escrow agent, in writing as to the investment from the time of
purchase until the time of sale or maturity. Subject to the maturity
restrictions set forth above the Fund shall instruct the escrow agent, in
writing, as to the investment of funds on deposit in the operating escrow
account and the premium escrow account. If, for any reason, the Fund does not
provide investment instructions to our escrow agent, then the availability of
funds or the balances in the operating escrow account and the premium escrow
account, all investment earnings on the funds shall be deemed not to be
available or on deposit. Our manager shall not be responsible for any losses
incurred in connection with any permitted investments.
Our manager is required to deposit immediately or cause to be deposited
in the operating escrow account all collections which it receives.
Priority of Payments
Upon the maturity of a life insurance policy, a claim is filed with the
insurance company. Once a claim has been paid to the Fund, our manager shall
deposit the funds into the operating escrow account. Our manager will then
withdraw from the operating escrow account, to the extent funds are available,
funds for payment to each member's capital contribution and interest based on
their pro rata share of proceeds from life insurance policies.
Capital Calls
In the event that sufficient funds are unavailable to pay any premium on
an insurance policy and an insurance policy would thereby lapse, our manager
shall have the right to require of the Fund's all members to make additional
capital contributions (e.g., a "capital call") of up to six months premiums to
insure that no policy lapses. Our manager also has the discretion to make a
capital call to cover litigation costs and any other expenses to preserve the
Fund and for which there are insufficient funds on hand. The members will make
the capital call in proportion to their membership interests in the Fund.
Capital contributions pursuant to this provision shall be made within 30 days
after receipt of notice from our manager of the amount of the contributions. If
a member shall default in making any such capital contribution, the other
members shall have, with respect to the defaulted contribution, the right to
contribute pro rata and receive a substantial premium (expected to equal at
least 150%) of the membership interest attributable to the defaulted capital
contribution.
Return on Investment
With respect to the return on investment, with the maturity of each
insurance policy and the payment of the proceeds to the Fund, our manager shall
withdraw from the operating escrow account, proceeds attributable to insurance
policies which are on deposit in the operating account for payment to the Fund's
members.
With respect to the final maturity of the last insurance policy, our
manager shall withdraw from the amount deposited in the operating escrow account
an amount equal to the outstanding amount of principal of the units as of the
end of the day on the preceding record date. If the
66
amounts on deposit in the operating escrow account at the time of maturity of
the last insurance policy and the payment are less than the outstanding amount
of principal of the units as of the end of the day on the preceding record date,
our manager will withdraw from the stop loss sinking fund, if available, the
amount of the deficiency and deposit same in the operating escrow account for
payment to the Fund's members.
Additional Rights upon the Occurrence of a Bankruptcy Event
The Fund has no intention of filing a voluntary petition under the
United States Bankruptcy Code or any applicable state law so long as the Fund is
solvent and does not reasonably foresee becoming insolvent.
The voluntary or involuntary application for relief under the United
States Bankruptcy Code or any comparable state law with respect to our manager
should not necessarily result in a similar voluntary application with respect to
the Fund so long as the Fund is solvent and does not reasonably foresee becoming
insolvent by reason of our manager's insolvency or otherwise. The Fund believes
that:
o a voluntary application for relief under the United States
Bankruptcy Code or any similar applicable state law with respect
to the Fund may not lawfully be filed without the prior consent
of all members of the Fund, and
o subject to the assumption that separateness and corporate
formalities are observed by our manager and the Fund, the assets
and liabilities of the Fund should not be substantively
consolidated with the assets and liabilities of our manager in
the event of an application for relief under the United States
Bankruptcy Code with respect to our manager.
If the Fund voluntarily seeks, consents to or acquiesces in the benefit
or benefits of any debtor relief law or becomes party to, or is made the subject
of, any proceeding provided for by any debtor relief law, other than as a
creditor or claimant, and, in the event the proceeding is involuntary, and the
petition instituting same is not dismissed within 90 days after its filing, the
Fund shall on the date of the bankruptcy event immediately cease to acquire any
additional insurance policies within l5 days of the bankruptcy event. Our
manager shall then (a) publish a notice in the authorized newspapers that a
bankruptcy event has occurred and that our manager intends to sell, dispose of
or otherwise liquidate the insurance policies in a commercially reasonable
manner and (b) send written notice to the members describing the proceeding and
requesting instructions from the members. No sale, disposition or liquidation,
whether in whole or in part, of the insurance policies shall be consummated
until and unless our manager shall have first received written instructions, or
other written response or affirmative refusal to provide a written response from
members representing in excess of 51% of the principal amount of the units then
outstanding.
67
Matters Relating to the Liability of the Fund
Scope of Liability. The Fund shall be liable for the obligations
specifically undertaken by the Fund under its operating escrow agreement.
Neither the Fund, nor any of our manager, officers, employees or agents of the
Fund, shall be under any liability to the members or any other legal person for
taking any action or for refraining from taking any action under the operating
agreement whether arising from express or implied duties under the operating
agreement. However, this limitation on liability shall not protect the Fund or
any manager, officer, employee or agent of the Fund against any liability which
would otherwise be imposed by reason of willful malfeasance, bad faith or gross
negligence in the performance of duties or by reason of its willful misconduct
under the operating agreement.
Indemnification. The Fund has indemnified and held harmless our manager
in the Fund's operating agreement from and against any loss, liability, expense,
damage or injury suffered or sustained by reason of any acts, omissions or
alleged acts or omissions arising out of activities of our manager in connection
with the offering of units hereto or any agreement executed or delivered in
connection thereto or in any way relating to or arising out of the transactions
related thereto, including, but not limited to, any judgment, award, settlement,
reasonable attorneys' fees and other costs or expenses incurred in connection
with the defense of any actual or threatened action, proceeding or claim.
However, although the Fund shall indemnify our manager if such acts, omissions
or alleged acts or omissions constitute ordinary negligence, the Fund shall not
indemnify our manager if such acts, omissions or alleged acts or omissions
constitute willful malfeasance, bad faith or gross negligence by our manager.
The Fund shall not indemnify our manager or the members as to any losses, claims
or damages incurred by any of them in their capacities as investors. The Fund
shall not indemnify our manager or the members with respect to any federal,
state or local income or franchise taxes, or any interest or penalties with
respect thereto, required to be paid by the members to any taxing authority,
which taxes shall be the sole obligation of our manager and the members. Any
indemnification shall only be from assets of the Fund.
Matters Relating to the Liability of Our Manager
Scope of Liability. Our manager shall be liable for the obligations
specifically undertaken by our manager pursuant to this prospectus and under the
Fund's operating agreement. Neither our manager, its officers, employees or
agents shall be under any liability to the members, the Fund or any other legal
person for taking any action or for refraining from taking any action under the
operating agreement, whether arising from express or implied duties under the
operating agreement or this prospectus. However, this limitation on liability
shall not protect our manager, or any officer, employee or agent of our manager
against any liability which would otherwise be imposed by reason of willful
malfeasance, bad faith or gross negligence in the performance of duties or by
reason of its willful misconduct under the operating agreement. Our manager
shall not be under any obligation to appear in, prosecute or defend any legal
action which is not incidental to its duties to service the insurance policies
and which in its reasonable opinion may involve our manager in any expense or
liability.
Indemnification. Our manager shall indemnify and hold harmless the Fund
from and against any loss, liability, expense, damage or injury suffered or
sustained by reason of any acts,
68
omissions or alleged acts or omissions arising out of activities of our manager
in connection with the offering of units hereby or any agreement executed or
delivered in connection thereto or in any way relating to or arising out of the
transactions related thereto, including, but not limited to, any judgment,
award, settlement, reasonable attorneys' fees and other costs or expenses
incurred in connection with the defense of any actual or threatened action,
proceeding or claim. However, although our manager shall indemnify the Fund if
such acts, omissions or alleged acts or omissions constitute ordinary
negligence, our manager shall not indemnify the Fund, if such acts, omissions or
alleged acts or omissions constitute willful malfeasance, bad faith or gross
negligence by the Fund. Our manager shall not indemnify any members for any
liabilities, costs or expenses of the Fund with respect to any action taken at
the request of the members. Our manager shall not indemnify the Fund or the
members as to any losses, claims or damages incurred by any of them in their
capacities as investors. Our manager shall not indemnify the Fund or the members
with respect to any federal, state or local income or franchise taxes, or any
interest or penalties with respect thereto, required to be paid by the Fund or
the members to any taxing authority, which taxes shall be the sole obligation of
the Fund and the members. Any indemnification shall only be from assets of our
manager.
DESCRIPTION OF VIATICAL SETTLEMENT CONTRACTS
Viatical Settlement Contract
Our provider will originate policy purchases on behalf of the Fund
either directly from the insured when it is licensed, or from other licensed
providers, or from an unaffiliated broker network pursuant to a "viatical
settlement contract," a form of which is filed as an exhibit to this
registration statement of which this prospectus forms a part. Each viatical
settlement contract may vary depending upon each state's applicable laws. Our
provider has agreed in writing to sell all policies which it purchases to the
Fund except those it sells on non-securitized basis to unaffiliated third
parties. Under the viatical settlement contract, our provider will acquire from
the insured all of his right, title and interest in and to such policy.
In addition to the viatical settlement contract, the insured will be
required to provide to our provider all documents required by our provider and
the insurer to effectuate the transfer of the insured's interest in and to the
policy to our provider and the original policy including, but not limited to:
(i) "disclosure statement" which discloses to the insured various risks relating
to entering into a life settlement, (ii) "authorization to release medical
information" of the insured to our provider, (iii) "release and consent to
change of beneficiary" of the policy to the Fund, (iv) "medical certification of
mental competency" of the insured, (v) "personal references" of the insured, and
(v) "distribution directions" which indicates how the insured wishes to receive
the life settlement proceeds of the policy, all of which will be attached as an
exhibit to the viatical settlement contract and deemed to be a part of viatical
settlement contract.
The viatical settlement contract, together with any and all additional
documents required to effectuate the transfer from the insured to our provider
shall become null and void at any time if it is determined that the policy was
purchased from the insured, issued by the issuer or sold by the insured to our
provider under fraudulent circumstances and/or the insured is in breach of the
representations and warranties provided in the viatical settlement contract or
any other documents provided by insured in connection therewith. If the viatical
settlement contract is
69
deemed null and void, the insured shall return to our provider, within up to
thirty (30) days from the date of cancellation, the life settlement proceeds
paid to the insured for the policy and premiums paid by the Fund or our
provider, together with interest.
Sale or Transfer of the Insurance Policies
Our provider will sell, transfer, assign, and convey to the Fund all its
right, title and interest in and to each insurance policy being transferred. In
any state which does not permit an assignment of a policy to the Fund, but only
to a licensed provider, the Fund will become the irrevocable beneficiary of the
policy. The Fund will purchase insurance policies with the proceeds of this
offering by forwarding the purchase price to the provider's escrow account
simultaneously with the execution of the agreement by the insured. Upon request
of the Fund, our provider will notify the Fund of the amount of insurance
policies available for purchase. After funds are received by the Fund they are
transferred to our provider for the purchase of life insurance policies. The
monies advanced by the Fund with respect to any one insurance policy shall not
exceed an amount agreed upon between our provider and the Fund as to the
discount from the face amount of the insurance policy, excluding our provider's
fees. Such advance will be payable to our provider in cash or in some other form
of payment in which funds will be immediately available.
In connection with the sale and transfer of the insurance policies to
the Fund, our provider will indicate in its computer's master file that the
insurance policies have been sold to the Fund by our provider. In addition, our
provider will furnish to the Fund a computer printout readable by the Fund
containing a true and complete list of all such insurance policies, identified
by account number and by the total outstanding face amount upon the purchase of
each life insurance policy. Furthermore, our provider will direct the insurers
to send all policy proceeds payments to the operating escrow account, which will
be owned by the Fund.
The Fund will not engage in any activities except acquiring insurance
policies from our provider or other licensed providers or through the
independent broker network, and engaging in activities incidental to, or
necessary or convenient to accomplish the foregoing.
OTHER OPERATING POLICIES
o We do not intend to issue any additional securities with rights
that are senior to your rights as a member. Our manager will be
the only member of the Fund other than the purchasers of units.
o Except for the purchase of life insurance policies in our usual
business, we do not intend to invest in the securities of
similar life settlement companies or other issuers for the
purpose of exerting control or for any other purpose.
o We do not intend to underwrite securities of other life
settlement funds, life insurance companies or any other issuers.
70
o We may issue units in exchange for life insurance policies that
satisfy our investment policies, but we will not issue
securities in exchange for any other property.
o We do not intend to purchase or otherwise re-acquire our units
or other securities, except that we will apply the principal
returned to us on the payment of insurance policy proceeds to
return your investment to you and we will also return any funds
that are not invested in life insurance policies on or before
_______, 2003 [12 months from the date of this prospectus].
o We intend to provide the periodic reports to you that are
described in the Summary of the operating agreement in this
prospectus.
OUR MANAGER AND ITS AFFILIATES
Management
Our manager was incorporated in Delaware on September 4, 2002, under the
name AmeriFirst Financial Services, Inc. The address and telephone number for
our manager is 814 North Highway A1A, Suite 300, Ponte Vedra Beach, Florida,
32082, telephone number (904) 373-3034. Our manager has qualified to do business
in Georgia and maintains office space at our provider's facility. The management
of our manager is described below.
Our provider is AmeriFirst Funding Group, Inc., a Delaware corporation,
an affiliate of our manager, which will operate as a life settlement provider in
the State of Georgia. The address and telephone number for our provider is
1712-H Osborne Road, St. Marys, Georgia 31558; telephone number (912) 673-9100.
Our provider is in compliance with the laws of the State of Georgia to conduct
life settlement business and will comply with the laws of all other states which
regulate the purchase and/or sale of life insurance policies. Our provider will
purchase insurance policies directly from the insured when it is licensed, or
from other providers or from an unaffiliated nationwide broker network. Our
provider, together with the assistance of our manager, as servicer, will
evaluate and choose the life insurance policies in which we will purchase in
accordance with the policies described in this prospectus. John Tooke is the
sole director of our provider.
Our manager will manage and control our affairs and have responsibility
and final authority in almost all matters affecting our business. In addition,
our manager currently intends to act as our servicer and service the policies we
purchase; however, we may outsource any or all non-financial services to a third
party. The Fund does not have its own employees or offices. The employees of our
manager and provider and their parent, AmeriFirst, Inc., will carry out our
operations at their offices or will outsource and oversee the services performed
by a third party servicer. See "Management's Discussion and Analysis of
Financial Condition of AmeriFirst Fund I, LLC." The duties of our manager and/or
our servicer will include:
dealings with members;
accounting, tax and legal matters;
communications and filings with regulatory agencies;
71
deciding what agreements we will enter into and whether we
will enter into joint ventures with other companies to
invest in life insurance policies;
due diligence review of the insured and the life insurance
policy, estimate the life expectancy of the insured with
the assistance of medical review service companies, close
the transaction, monitor the life status of the insured
and status of the policy, and file claims for proceeds
when the insured passes away; and
managing our other operations, if any.
Sole Executive Officer and Director of our Manager
The following person is the sole executive officer and director of our
manager.
Name Age Office
---- --- ------
John Tooke 61 Chief Executive Officer, President and Director
John Tooke has been Chief Executive Officer, President, Director and
through AmeriFirst, Inc., controlling shareholder of our manager since its
predecessor's formation in June 2002. Since April 2002, when the predecessor of
our provider was formed, Mr. Tooke has been Chief Executive Officer, President
and director of our provider, AmeriFirst Funding Group, Inc. Mr. Tooke has been
engaged in negotiations and start-up activities for the Fund and researching the
life settlements industry commencing in April 2001. From 1996, when Mr. Tooke
formed the predecessor to Global Express Securities, Inc. (previously known as
First Florida Securities, Inc.), a member of the NASD, until he sold it in March
2002, he was president and a director of Global Express Securities, Inc. This
firm is a regional NASD regulated broker-dealer originally located in Florida
which relocated to Nevada in 1999. The firm specializes in the placement of high
yield collateralized investment products through the sale of public and private
securities both to the retail market and to individual clients. The firm's sole
public offering was a best efforts offering under the name Global Express
Capital Real Estate Investment Fund I, LLC, of fractional units in a fund to
make loans, or purchase entire or fractional interest in loans secured by
mortgages or deeds of trust.
From 1991-1996, Mr. Tooke was employed as a private investor in
commercial real estate projects as a principal for his own account. While he was
an investment banker, Mr. Tooke originated and produced commercial mortgages and
sold them to investors. From 1989 to 1991, Mr. Tooke was Senior Vice President
of Security Pacific Merchant Bank, responsible for the entire
investment banking group, which originated and securitized product for the bank.
From 1985 to 1989, Mr. Tooke was Senior Vice President of Sales and Trading for
Drexel Burnham Lambert which sold and traded multi-family and commercial
mortgages and portfolios in the secondary markets. From 1984 to 1985, Mr. Tooke
was Vice President of Sales and Trading of Morgan Stanley & Co. where he worked
in all aspects of mortgage finance proposals such as CMO's, mortgage backed
bonds and private placements. From 1981 to 1984, Mr. Tooke was a Vice President
of Sales and Trading of Merrill Lynch where he traded whole loans, participation
and conventional mortgage backed securities and analyzed and structured all
securitized products. Mr. Tooke holds NASD Series 7, Series 24, Series 28 and
Series 63 securities licenses. Mr. Tooke is a qualified securities principal. In
addition, he is licensed in Nevada, California and Florida for the sale of real
estate mortgages and securities.
72
All of the capital stock of our manager, provider and underwriter is
owned by AmeriFirst, Inc., a Delaware holding company. John Tooke owns 55% of
the common stock, and Irving Strickstein and Denise Mugerdichian Lachman each
beneficially own 22 1/2 of the common stock. See "Certain Relationships and
Related Transactions."
The following persons are the officers and directors of AmeriFirst, Inc.
Name Age Officer
- ---- --- -------
John Tooke 61 Chairman, Chief Executive Officer, President and Director
Brittany Ellis 28 Secretary and Director
Dawn Arnett 27 Director; Senior V.P., AmeriFirst Funding Group, Inc., and
Managing Director of AmeriFirst Capital Corp.
Thomas M. Kann 56 Director; Senior V.P., AmeriFirst Funding Group, Inc., and
Managing Director of AmeriFirst Capital Corp.
Irving Strickstein 74 Director
Denise Mugerdichian
Lachman 47 Director
See "Sole Executive Officer and Director of Our Manager" above for
biographical information on John Tooke, Chairman, Chief Executive Officer,
President and Director of AmeriFirst, Inc.
Brittany M. Ellis has served as the Director of Legal and Compliance,
Secretary and a director of AmeriFirst Inc. since its inception in August 2002.
She is responsible for obtaining insurance licenses in all fifty states. In
addition, Ms. Ellis is Secretary and a member of the Boards of Directors of
AmeriFirst Financial Services, Inc., AmeriFirst Funding Group, Inc., and
AmeriFirst Capital Corp. Ms. Ellis graduated from Florida Coastal School of Law
in May 2002 and is a member of the Florida bar. Ms. Ellis received her Bachelors
degree from the University of Southern Mississippi in 1997. Prior to her legal
career, she worked in managed services for the Aramark Corporation and Maidpro,
Inc. in Massachusetts.
Dawn N. Arnett has served as a director of AmeriFirst, Inc. since
November 2002. She is also serving as the compliance officer and Managing
Director for our underwriter AmeriFirst Capital Corp. since October 2002. Ms.
Arnett is also Senior Vice President of our provider, AmeriFirst Funding Group,
Inc., since November 2002, where she will manage policy origination for the
Fund. From April 2002 to October 2002, Ms. Arnett worked as a registered sales
representative for Vestin Capital, Las Vegas, Nevada, a securities company
specializing in real estate investments. From March 2001 to April 2002, Ms.
Arnett acted as compliance officer and registered representative for Global
Express Securities, Inc., Las Vegas, Nevada, a securities company also
specializing in real estate investments. From January 2000 until February 2001,
she served as a research assistant at John Quillen East Tennessee State
University Medical School. From August 1999 until January 2000, Ms. Arnett was a
Registered Sales Representative with Prudential Securities. From September 1997
until August 1998, Ms. Arnett served as an investment Associate and Marketing
Representative with Merrill Lynch, where she received her securities licenses to
manage investor relationships for new and existing clients. Ms. Arnett holds
Series 7, Series 24 and Series 66 securities licenses and will be licensed in
each state in which the Fund intends to sell its securities. In 1997, Mrs.
Arnett received her Bachelors Degree in Economics and Biology from Simmons
College in Boston, Massachusetts.
73
From 1993 to 1997, she worked at Harvard Medical School doing clinical research
where she had several papers published. At that same time, Mrs. Arnett was
interning at Walden Capital Management, a socially-responsible investment firm.
Thomas M. Kann has served as a director of AmeriFirst, Inc. since
November 2002. He is also serving as Managing Director of AmeriFirst Capital
Corp. since October 2002, and as Senior Vice President of AmeriFirst Funding
Group since November, 2002. Prior thereto, from April 2001 to March 2002, he was
a registered sales representative of Global Express Securities, Inc., Las Vegas,
Nevada. From October 1992 to October 2001, Mr. Kann was founder and President of
World Access Telecom, Inc., a full-service telecommunications business, from the
startup stages through full development. His experience as President of World
Access Telecom, as well as Raleigh Enterprises, spans the international sector
having serviced clients in over 50 countries. His more than 25 years' of
experience on Wall Street encompass expertise as a trader and institutional
salesman in fixed income securities with UBS Securities, Morgan Stanley & Co.,
Smith Barney, Loeb Rhoades, Shearson, First Interstate Bank of California and
Bache & Co. Mr. Kann holds NASD Series 7, Series 22, Series 24 and Series 63
securities licenses and will be licensed in each state in which the Fund intends
to sell its securities. Mr. Kann received his Bachelor of Arts Degree in Finance
from Colorado Alpine College. In addition to being a charter member of the
Republican Presidential Task Force since 1989, he is a fluent speaker of
Hungarian, his native language.
Irving Y. Strickstein has been a director and shareholder of AmeriFirst,
Inc. since November 2002. Since February 1954, Mr. Strickstein has been a
part-owner, officer and director of National Lumber Company in Warren, Michigan.
Denise Mugerdichian Lachman has been a director and shareholder of
AmeriFirst, Inc. since November 2002. Since 1991, Ms. Lachman has owned Nolet
Associates, an interior design and flooring company.
COMPENSATION OF OUR MANAGER AND ITS AFFILIATES
Set forth below is a description of the compensation that the Fund may
pay our manager, as servicer, our provider and AmeriFirst, Inc., the holding
company controlled by John Tooke. No other compensation will be paid to our
manager, provider, AmeriFirst, Inc. or John Tooke in connection with the Fund.
These compensation arrangements have been established by our manager and the
Fund and are not the result of arms-length negotiations. Our manager has
compared its compensation arrangements to those of unrelated parties providing
the same services. They have determined the following compensation levels are
fair and reasonable. In their view, our manager has:
o analyzed the compensation arrangement in other offerings,
o spoken to other professionals in the industry including issuers,
promoters and broker dealers,
o examined rates from A.M. Best which set forth the rates being
charged by those institutions for the same or similar services,
and
o collected data regarding compensation from trade association
meetings and/or other relevant periodicals. The amounts are
approximately equivalent to those which would customarily be
paid to unrelated parties for the same services.
74
The exact amount of future compensation payable to our manager and its
affiliates cannot be precisely determined. The compensation to be received by
our manager, as servicer, is based upon the total amounts of units sold and the
face amounts of the life insurance policies purchased. The sales commissions and
expense allowance paid to our underwriter is based on the number of units sold.
If all $100 million of units are sold, AmeriFirst Capital Corp. would receive up
to $10,000,000 of commissions and AmeriFirst, Inc. would receive reimbursement
of all actual offering expenses of up to 1/2% (a maximum of $500,000) which are
estimated to be $250,000. All other fees are based on the face amount of life
insurance policies purchased, which cannot at this time be determined since the
purchase price is a policy by policy decision negotiated between our provider
and the independent broker for the insured. Based upon our manager's current
knowledge of the industry and upon its review of similar programs and upon
certain assumptions made as set forth below, our manager estimated the range of
fees it and its affiliates will receive.
The amount of fees to be paid to our manager or its affiliates will vary
from those estimated below due to varying economic factors, over which our
manager has no control, including, but not limited to, the state of the economy
and competition in the area of life settlement contracts. We will be subject to
public reporting requirements and the Fund will file quarterly and annual
reports with the SEC. These reports will be available to you and will set forth,
among other things, the exact amount of compensation and/or fees being paid to
our manager and its affiliates.
The relationships among our manager and its affiliates referred to
herein are described under the caption "Our Manager and Its Affiliates."
OFFERING STAGE
Entity Receiving Form and Method of
Compensation Compensation Estimated Amount
-------------- -------------- ----------------
AmeriFirst, Inc. AmeriFirst, Inc., the holding company Legal............. $150,000
controlled by John Tooke, will pay all Accounting........ $35,000
organizational and offering expenses including Printing.......... $15,000
but not limited to, those set forth herein. Such Federal/State/
entity will be paid an amount equal to up to1/2% NASD
of the gross proceeds of this offering to cover Filing Fees..... $39,700
all or a portion of these expenses, or between Miscellaneous..... $10,300
$12,500 and $500,000 for reimbursement of --------
such offering expenses which are, estimated to $250,000
be $250,000. See "Plan of Distribution."
OPERATIONAL STAGE
Entity Receiving Form and Method of
Compensation Compensation
- ------------------ ------------------
Provider Policy origination or brokerage commissions up to a maximum
of 5% of the face value of each life insurance policy,
depending upon market conditions. The fees will be paid one
time on each policy to the entity acting as a qualified
75
Entity Receiving Form and Method of
Compensation Compensation
- ------------------ ------------------
provider which will either be our provider or other
providers. This is exclusive of fees which the insured is
obligated to pay to the broker selling his policy to the
Fund.
Manager The fees to be paid to our manager for servicing the
and/or Servicer policies and monitoring the insureds on behalf of the
Fund will be up to 7.5% of the face amount of the policy
and will include: a fee for due diligence, which includes
evaluating the terms of each policy; medical consultant's
review fee for estimating the life expectancy of the
insured; fees for closing the transaction, which includes
obtaining releases of prior beneficiaries and designation
and recording the Fund as beneficiary; and a fee for
servicing the insurance policies on an ongoing basis.
John Tooke AmeriFirst Inc. is paying John Tooke $8,000 per month which
will not be reimbursed from proceeds of this offering.
Mr. Tooke is employed by the underwriter under a 3-year
employment agreement ending July 31, 2005, pursuant to
which he agreed not to compete with the underwriter or its
affiliates for a two-year period following termination of
employment.
LIQUIDATION STAGE
Upon the dissolution of the Fund, our manager shall proceed, within a
reasonable time, to sell or otherwise liquidate the assets of the Fund. Our
manager may elect to either purchase outstanding life insurance policies owned
by the Fund and direct that the sinking fund remainder be transferred to pay the
members their pro rata interest in such remaining policies or elect to receive
the remainder of the sinking fund. Our manager shall also be entitled to receive
the remaining funds with interest accrued thereon in the premium escrow account
upon liquidation. After paying or making due provision by the setting up of
reserves for all liabilities to creditors of the Fund, the remaining assets will
be distributed to the members, pro rata, in accordance with the positive balance
in their respective capital accounts, without the payment of any fees to any
affiliates of the Fund.
CONFLICTS OF INTEREST
The relationships among the Fund, our manager, provider, underwriter,
and John Tooke, may result in various conflicts of interest. Our manager,
provider and underwriter are each controlled by John Tooke. Our manager and its
officers and directors, in their capacity as such, are required to exercise
their fiduciary duties to us and to you in a manner they believe will preserve
and protect your rights as a member. Mr. Tooke has no intention to purchase life
settlements for his own account or for the account of others, other than the
Fund.
The paragraphs below describe material conflicts of interest of which we
are aware that may arise in the course of the Fund's operation of our business.
76
1. Payment of Fees and Expenses. Our manager, provider, underwriter and
AmeriFirst, Inc. will receive substantial fees in connection with this offering
and our ongoing operations which are described above under the caption
"Compensation of Our Manager and its Affiliates."
2. Purchase of Life Insurance Policies from our Provider. The officers and
directors of our manager, which is controlled by John Tooke through AmeriFirst,
Inc., a Delaware holding company, will make all final decisions regarding the
life insurance policies we will purchase. Our provider is also controlled by
John Tooke through AmeriFirst, Inc. Accordingly, although a purchase will be
made on terms no more favorable to our provider or its affiliates than to other
persons, we may face a conflict of interest in determining whether a life
insurance policy is appropriate for our portfolio. We will acquire many of our
life insurance policies from or through our provider, AmeriFirst Funding Group,
Inc., either directly from insureds, when it is licensed, or from other licensed
providers, or from an unaffiliated broker network. Our provider is in compliance
with the laws of the State of Georgia to conduct life settlement business and
will comply with the laws of all other states which regulate the purchase and/or
sale of insurance policies by the Fund. Our provider and the brokers will earn
brokerage fees, described above, on life insurance policies we purchase through
them or from them. Accordingly, since John Tooke controls our manager and our
provider, he will face a conflict of interest in determining whether the life
insurance policies meet our guidelines and are appropriate investments.
3. Non-Arm's Length Agreements. Our agreements and arrangements for compensating
our manager, provider and underwriter and the interest of our manager as
managing member of the Fund are not the result of arm's-length negotiations.
Additionally, none of the directors of our manager, provider and underwriter are
independent.
4. Competition for the Time and Services of John Tooke. We will rely on our
manager, provider and underwriter and their directors and officers for the
management of our operations. The directors and officers of our manager,
provider and underwriter will devote such time to our affairs and as they
determine in good faith and in compliance with their fiduciary obligations to us
and to our members, to be necessary for our benefit.
Our manager believes it has sufficient staff to be capable of
discharging its responsibility to us. Our manager and its affiliate, AmeriFirst,
Inc., had an aggregate of 12 employees as of January 13, 2003, including Mr.
Tooke, a chief information officer, an executive assistant, in-house legal
staff, accounting staff, insurance review, medical review, policy
administration, computer and data processing personnel, customer service and
medical administration, all of whom are full-time employees. Mr. Tooke has in
excess of 25 years of experience in selling mortgage backed securities and other
securities. He began to research the life settlement industry in April 2001 (see
"Our Manager and Its Affiliates" above), however, he has no actual experience in
purchasing and securitizing life settlement policies. The staff of our manager
includes one person with 33 years of insurance experience, a nurse with 36 years
of experience in the medical industry and three other persons with between four
and six years of experience in the life settlements industry. Virtually all of
our manager's employees will devote all of their business time to the Fund's
affairs until such time as the offering is completed.
5. Provider Resells the Life Insurance Policies. Our provider may also retain or
sell existing life insurance policies purchased by our provider for itself, or
to other clients on a non-securitized basis,
77
because this satisfies the objectives of our provider, or such other clients of
our provider objectives of the Fund. Our provider will base the decision on
factors such as the amount of funds available for investment, yield, portfolio
diversification between terminally ill, chronically ill and senior citizens,
insurance carriers, or other transaction terms. The Fund and our provider have
entered into an agreement, a copy of which is attached as an exhibit to the
registration statement of which this prospectus forms a part, that our provider
will only sell policies to entities other than our Fund on a non-securitized
basis.
6. Lack of Separate Representation. We are represented by the same counsel as
our manager and its affiliates and we anticipate that this multiple
representation by our attorneys will continue in the future. If a dispute arises
between us and our manager or any of its affiliates, our manager or its
affiliates will either obtain separate counsel or facilitate our retaining
separate counsel for such matters. However, we do not anticipate obtaining
separate counsel should there be a need in the future to negotiate or prepare
contracts or other agreements between us and our manager for services including
those contemplated by this prospectus, and as a result these agreements will not
reflect arm's length bargaining.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AmeriFirst, Inc. is a Delaware holding company incorporated on August
19, 2002, 55% of whose capital stock is owned by John Tooke, 22.5% is
beneficially owned by Irving Strickstein and 22.25% is owned by Denise
Mugerdichian Lachman. AmeriFirst, Inc. owns all of the capital stock of (a)
AmeriFirst Funding Group Inc., a Delaware corporation formed on August 28, 2002,
to be a qualified provider of the Fund; (b) AmeriFirst Capital Corp., a Florida
corporation formed in October 2002, to be the underwriter of this offering upon
registration with the NASD; and (c) AmeriFirst Financial Services, Inc., a
Delaware corporation formed on September 4, 2002, to be our manager/servicer of
this offering. See "Security Ownership of Certain Beneficial Owners and
Management."
On October 28, 2002, Irving Strickstein, through his corporation, I.Y.S.
III, LLC entered into a loan agreement with AmeriFirst Inc. evidenced by a
promissory note in the principal amount of $500,000. In consideration of the
loan, I.Y.S. received 450 shares (22.5%) of the common stock of AmeriFirst and a
pro rata equity interest in any affiliates or subsidiaries of AmeriFirst, but
not the net operating income of the Fund.
On October 28, 2002, Denise Mugerdichian, through her corporation Dow
Ridge Associates, LLC, entered into a loan agreement with AmeriFirst, Inc.
evidenced by a promissory note in the principal amount of $500,000. In
consideration of the loan, Dow Ridge received 450 shares (22.5%) of the common
stock of AmeriFirst and a pro rata equity interest in any affiliates or
subsidiaries of AmeriFirst, but not the net operating income of the Fund.
As of November 1, 2002, John Tooke entered into loan agreements with
AmeriFirst, Inc. evidenced by promissory notes in the principal amount of
$500,000. In consideration of the loan, Mr. Tooke shall receive 22.5% of the net
operating income of AmeriFirst and any affiliate or subsidiaries of AmeriFirst,
but not the net operating income of the Fund. The payment of principal and
interest of all notes are to be re-paid solely from the net operating income of
AmeriFirst Inc., as it becomes
78
available and based on the discretion of John Tooke and the ongoing capital
reserve requirements of AmeriFirst Inc. All notes bear interest at 1% over the
prime rate charged by Comerica Bank. Mr. Tooke's note is subordinate to Mr.
Strickstein and Ms. Mugerdichian's notes.
Although each of our manager, provider and underwriter will have their
own independent employees, John Tooke is the sole director of each entity. Only
the parent company of each entity, AmeriFirst, Inc. has independent directors
serving on its board of directors.
See "Conflicts of Interest" for information concerning conflicts of
interest among the Fund, our manager, provider and underwriter, including the
payment of substantial fees and expenses, non-arm's length agreements and
compensation for the time and services of John Tooke.
See "Our Manager and its Affiliates" for information concerning the
relationship among the Fund, our manager, provider and underwriter and
biographical information of the management of our manager and AmeriFirst, Inc.
See "Compensation of Our Manager and its Affiliates" for information
concerning the fees to be paid by the Fund to our manager, provider and
underwriter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table indicates the security ownership of persons known to
be the beneficial owner of units of the Fund and giving effect to the sale of
the minimum amount and maximum amount of units in this offering.
After this offering After this offering
Before this offering Minimum Amount Maximum Amount
-------------------- -------------- --------------
Name Unit Unit Unit
- ---- Dollar Percent of Dollar Percent of Dollar Percent of
Amount Units Amount Units Amount Units
Beneficially Beneficially Beneficially Beneficially Beneficially Beneficially
Owned Owned Owned Owned Owned Owned
----- ----- ----- ----- ----- -----
Investors in the aggregate -0- -0- $2,500,000 100% $100,000,00 100%
All of the capital stock of our manager, provider and underwriter is
beneficially owned by AmeriFirst, Inc. AmeriFirst, Inc. was formed in Delaware
on August 19, 2002. John Tooke owns 55% of the common stock and Irving
Strickstein and Denise Mugerdichian each beneficially own 22 1/2 of the common
stock of AmeriFirst, Inc.
79
FIDUCIARY RESPONSIBILITIES OF OUR MANAGER
Our manager is accountable to you and the Fund as a fiduciary. This
requires our manager to exercise good faith and integrity in handling our
affairs. Our manager has fiduciary responsibility for the safekeeping and use of
all of our funds, property and assets, whether or not in its control, and shall
not employ or permit another to employ such funds, property or assets in any
manner except as otherwise expressly set forth in the Fund's operating agreement
or for our benefit.
The Fund's operating agreement requires us to indemnify our manager and
its affiliates from any loss, reasonable legal expenses, damage or claim arising
by reason of any act or omission performed or omitted by our manager in good
faith on behalf of the Fund and in a manner reasonably believed to be within the
scope of authority conferred on our manager by the operating agreement. This
right of indemnification includes the right to advance payments or to reimburse
our manager and its affiliates for the reasonable expenses incurred from being
threatened to be made a named defendant or respondent in a proceeding. Indemnity
payments will be made only from our assets. You are not required to make
payments from your separate assets. In accordance with Florida limited liability
company law, we will not indemnify persons or advance payments if such manager
was material to the cause of action and constituted either:
1. A violation of criminal law, unless our manager had no
reasonable cause to believe such conduct was unlawful;.
2. A transaction where our manager derived an improper personal
benefit;
3. An improper distribution whereby the Fund became insolvent; or
4. Willful misconduct or conscious disregard for the best interests
of the Fund in a proceeding by or in the right of the Fund to
procure a judgment in its interest or in a proceeding by or in
the right of a member of the Fund.
The Fund's operating agreement provides that except as otherwise
provided by applicable law, the debts, obligations and liabilities of the Fund,
whether arising in contract, tort or otherwise, shall be solely the debts,
obligations and liabilities of the Fund; neither our manager nor any member nor
any person affiliated with our manager or any member shall be obligated
personally for any such debt, obligation or liability of the Fund solely by
reason of being a manager or member or being a person affiliated with either of
them.
Our manager may be removed for cause and as otherwise specifically
provided in the Fund's operating agreement. "Cause" means our manager (i) has
been convicted of a felony, (ii) has committed fraud against the Fund or (iii)
has acted or omitted to take action on behalf of the Fund, which act or omission
constitutes gross negligence or willful misconduct. Such removal shall be
automatically effective upon a final determination by a court of competent
jurisdiction that an event or circumstances constituting cause has occurred or
exists; provided that any removal of our manager for cause shall be effectuated
by a vote of the members whose aggregate capital accounts exceed 50% of the
aggregate of all members' capital accounts at such time.
80
Our manager will not be indemnified against liabilities arising under
the Securities Act of 1933 unless we succeed in defending against the claims or
the indemnification is approved by the court. The court will be advised that the
Securities and Exchange Commission believes that indemnification for violations
of securities law violates the Securities Act of 1933. In the opinion of the
Securities and Exchange Commission, indemnification for liabilities arising
under the Securities Act of 1933 is against public policy and therefore
unenforceable.
This is a rapidly changing and developing area of law. If you have
questions concerning the duties of our manager, you should consult with your own
legal counsel.
ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974 ("ERISA") contains
strict fiduciary responsibility rules governing the actions of "fiduciaries" of
employee benefit plans. It is anticipated that some investors will be corporate
pension or profit-sharing plans and Individual Retirement Accounts, or other
employee benefit plans that are subject to ERISA. In these situations, the
person making the investment decision concerning the purchase of the units will
be a "fiduciary" of such plan and will be required to conform to ERISA's
fiduciary responsibility rules. Persons making investment decisions for employee
benefit plans (i.e., "fiduciaries") must discharge their duties with the care,
skill and prudence which a prudent man familiar with such matters would exercise
in like circumstances. In evaluating whether the purchase of units is a
"prudent" investment under this rule, fiduciaries should consider all of the
risk factors set forth in this prospectus. Fiduciaries should also carefully
consider the possibility and consequences of unrelated business taxable income
(see "Federal Income Tax Consequences"), as well as the percentage of plan
assets which will be invested in the Fund insofar as the diversification
requirements of ERISA are concerned. An investment in the Fund is relatively
illiquid, and fiduciaries must not rely on an ability to convert an investment
in the Fund into cash in order to meet liabilities to plan participants who may
be entitled to distributions.
DUE TO THE COMPLEX NATURE OF ERISA, EACH PROSPECTIVE INVESTOR IS URGED
TO CONSULT HIS OWN TAX ADVISOR OR PENSION CONSULTANT TO DETERMINE THE
APPLICATION OF ERISA TO HIS/HER/ITS PROSPECTIVE INVESTMENT.
Plan Asset Regulations
In order to avoid application of the U.S. Department of Labor's plan
asset regulations, the Fund will limit subscriptions for units from ERISA plan
investors such that, immediately after each sale of units, ERISA plan investors
will hold less than 25% of the total outstanding membership interests in the
Fund.
Annual Valuation
Fiduciaries of plans subject to ERISA are required to determine annually
the fair market value of the assets of such plans as of the close of any such
plan's fiscal year. Although our manager will
81
provide annually upon the written request of an investor, an estimate of the
value of the units based upon, among other things, outstanding life insurance
policies, it may not be possible to value the units adequately from year to year
because there will be no market for them.
FEDERAL INCOME TAX CONSEQUENCES
The following section describes the material United States federal
income tax considerations which are relevant to a prospective investor. The
federal tax considerations discussed below are necessarily general and may vary
depending upon a member's particular circumstances. The tax aspects of this
offering are complex and certain of them are not free from doubt.
The discussion which follows assumes that a prospective investor is a
citizen or resident of the United States, is not a tax-exempt organization and
will become a member with a view towards economic profit apart form the tax
benefits, if any, which may arise as a result of investment in the Fund.
This discussion is based on the facts described herein. Any alteration
of the facts may adversely affect the discussion. Furthermore, the discussion is
based on existing law and applicable current and proposed Treasury Regulations
and current published administrative positions of the service and judicial
decisions, all of which are subject to change either prospectively or
retroactively. The tax opinions set forth in the Federal Income Tax Consequences
discussion are the opinions of counsel Snow Becker Krauss P.C. For the reasons
set forth below in Classification as a Partnership for Tax Purposes, it is
counsel's opinion that the Fund will be subject to tax as a Partnership for
Federal Income Tax purposes.
EACH INVESTOR SHOULD SEEK, AND MUST DEPEND UPON, THE ADVICE OF HIS TAX
ADVISOR, TAX COUNSEL OR ACCOUNTANT WITH RESPECT TO THIS INVESTMENT IN THE FUND,
AND EACH INVESTOR WILL BE RESPONSIBLE FOR THE FEES OF SUCH ADVISORS, TAX COUNSEL
AND ACCOUNTANTS. INVESTORS SHOULD BE AWARE THAT THE INTERNAL REVENUE SERVICE MAY
NOT AGREE WITH ALL TAX POSITIONS TAKEN BY THE FUND AND THAT LEGISLATION,
ADMINISTRATION OR COURT DECISIONS MAY REDUCE OR ELIMINATE ANY ANTICIPATED TAX
BENEFITS TO AN INVESTOR.
Taxation of the Fund and its Members
Under Federal Income Tax Regulations, a business entity formed as a
limited liability company, such as the Fund, may elect to be taxed for Federal
income tax purposes as either a partnership or a corporation. The Fund will
elect to be taxed as a partnership. Therefore, it is counsel's opinion that
pursuant to the Income Tax Regulations, it will be subject to taxation as a
partnership. A partnership is not subject to federal income taxation. Each
member reports on his federal income tax return his distributive share of the
Fund's income, gains, credits, losses and deductions, whether or not actual
distributions of cash or property is made to such member with respect to the
member's taxable year. A member may realize taxable income in excess of his cash
distributions if the Fund retains cash to meet its needs and distributes no cash
or cash in an amount less than taxable income.
82
Classification as a Partnership for Tax Purposes
As noted above, the Income Tax Regulations make it possible for an
unincorporated entity such as the Fund to elect to be taxed either as a
partnership or a corporation. The Fund intends to elect to be taxed as a
partnership. Notwithstanding such election, the Internal Revenue Code of 1986,
as amended (the "Code"), provides that a publicly traded partnership is treated
as a corporation. The Code provides that a partnership is publicly traded if
there are more than 100 partners and the interests in the partnership (i.e.,
membership interests in the Fund) are (1) traded on an established securities
market or (2) readily tradable on a secondary market or the substantial
equivalent thereof. Based upon the Fund's intention to limit the members to 100
or fewer the Fund should not be taxed as a corporation.
It is the opinion of counsel that the membership interests in the Fund
will not be traded on an established securities market for income tax purposes.
The Income Tax Regulations provide that interests in a partnership are not
readily tradable on a secondary market or the substantial equivalent if (i) all
interests in the partnership were issued in a transaction (or transactions) that
was not required to be registered under the Securities Act of 1933; and (ii) the
partnership does not have more than 100 partners at any time during the taxable
year.
The Fund intends that the number of members will be limited to 100 or
fewer as calculated pursuant to the Income Tax Regulations. Moreover, the Fund's
operating agreement precludes recognizing transfers of membership interests if
the effect of such transfer will be to cause the Fund to be treated as a
publicly traded partnership. It is the opinion of counsel that such limitation
will be respected for income tax purposes. Accordingly, since the Fund intends
to enforce the provisions in the operating agreement, it is counsel's opinion
that the Fund will not be subject to tax other than as a partnership.
Administrative and Judicial Proceedings at Partnership Level
In an administrative or judicial proceeding concerning partnership
items, the determination of the tax treatment of partnership items is made at
the partnership level, in a single administrative proceeding, rather than in
separate proceedings with each partner. Special rules governing proceedings that
must be conducted at the partnership level for the assessment and collection of
tax deficiencies or for tax refunds arising out of the partner's distributive
shares of income, deduction, credits, etc.
Notice of the beginning of administrative proceedings and, in general,
the resulting final partnership administrative adjustments must be given to all
partners (whose names and addresses are furnished to the IRS). However, a group
of partners having an aggregate profits interest of 5% or more may request
notice to be mailed to a designated partner. Each partnership is supposed to
name a "tax matters partner" who is to receive notice on behalf of small
partners not entitled to notice and to keep all partners informed of all
administrative and judicial proceedings at the partnership level. Settlement
agreements may be entered into between the tax matters partner and the IRS that
bind the parties to the agreement and may extend to other partners who request
to enter into consistent settlement agreements. AmeriFirst Financial Services,
Inc. will be the "tax matters partner."
Consistency Requirement
83
Each partner is required to treat partnership items on his return in a
manner consistent with the treatment of such items on the partnership return and
may be penalized for intentional disregard of the consistency requirement. The
consistency requirement may be waived if the partner files a statement (Form
8082) identifying the inconsistency or shows that it resulted from an incorrect
schedule furnished by the partnership.
Tax Basis
The tax basis to a member of his membership interest will be determined
initially by the amount of his capital contribution. Such basis will be
increased by the member's cumulative distributable share of Fund income and
share of nonrecourse debt, if any. Such basis is decreased by a member's
cumulative shares of the Fund's losses and distributions.
If the basis of a member in his membership interest should be reduced to
zero, the amount of any distributions to him in excess of his share of Fund
taxable income for any year would be treated as a gain from the sale of his
membership interest which could be treated as an ordinary gain or as a capital
gain depending on the facts existing at that time. A member cannot, on an annual
basis, use losses from the Fund in excess of his basis in his membership
interest. Such excess losses may be carried forward and used when such member
has sufficient basis. It is anticipated that the members will have sufficient
basis in the membership interests for losses, if any, generated by the Fund.
Tax Treatment on Liquidations of the Fund
Upon the liquidation of the Fund, liquidating cash distributions will be
made to the members in accordance with their positive capital accounts. On
dissolution, the Fund may distribute assets in kind or sell its assets and
distribute cash. If cash is distributed, it may result in capital gain (or
ordinary gain to the extent of substantially appreciated inventory) to the
members. If property is distributed, there may be no immediate taxable income to
members.
Amounts "At Risk"
Under Section 465 of the Code, losses from certain activities may be
deducted by a taxpayer only to the extent to which the taxpayer is "at risk" in
the activity. Accordingly, the "at risk" rules will apply to a members' share of
the losses from the Fund. Each member initially will be "at risk" to the extent
of the amount of capital that he contributes to the Fund. In future years, such
amount will be increased to the extent the member recognizes income from his
investment in the Fund or contributes additional cash to the Fund, and reduced
to the extent that he has deducted losses or received cash distributions from
the Fund.
Limitations on Deductibility of Losses from Passive Activities
All losses from "passive activities" are generally not deductible by a
non-corporate taxpayer, a Subchapter S corporation, or a personal service
corporation, except against income derived from "passive activities" of the
taxpayer. "Passive activities" are those business activities in which a taxpayer
does not materially participate. Thus, for those whose only activity is an
investment in the Fund their participation would be treated as a "passive
activity" for purposes of this limitation. Accordingly, so long as the member
maintains his investment in the Fund, such member's share of the
84
Fund's losses will not be deductible against his salary, active business income,
income from dividends, interest, and royalties, and capital gains from
nonbusiness properties. However, Fund losses, if any, generally will be
deductible from such a member's gain and income from the Fund or from other
passive activities. Investors should note that interest earned on the funds of
the Fund may be considered "portfolio income" rather than passive income and,
therefore, may not be offset by passive losses such as those that may result
from the operations of the Fund.
Losses from a passive activity which are not allowed in a taxable year
may be carried forward indefinitely and be allowed against income from passive
activities in subsequent years. Furthermore, losses from such an activity would
be allowed in full to offset any income of the taxpayer when the taxpayer
disposes of his entire interest in the activity (in a taxable disposition).
Accordingly, any current or carried forward losses of a member with respect to
the Fund will be deductible in full upon the liquidation of the Fund or upon a
taxable disposition by a member of all of his membership interest in the Fund.
The Treasury Department has broad regulatory authority with respect to
the implementation of the limitation on losses from passive activities.
Furthermore, the Code places a modified limitation on the deductibility of such
losses by "closely held" corporations. Investors are therefore urged to consult
their tax advisors as to the application and effect of the passive loss
limitation with respect to their respective tax situations.
Life Insurance Contracts
The assets of the Fund are expected to be a pool of life insurance
policies on the lives of the terminally ill and chronically ill of all ages and
senior citizens, age 65 and older with life expectancies based solely on
actuarial tables.
The Code provides that, with certain exceptions, gross income of a
taxpayer does not include amounts received under a life insurance contract if
such amounts are paid by reason of the death of the insured. One exception to
this rule provides that if a life insurance contract or any interest in it is
transferred for valuable consideration, the exclusion from gross income is
limited to an amount equal to the sum of the actual value of the consideration
and the other amount subsequently paid by the Fund after it acquires the policy.
Accordingly, it is the opinion of counsel, that in the usual case, any income of
the Fund upon the maturity of a life insurance contract will be taxed as
ordinary business income.
Fees and Other Payments
The Fund intends to take the position that the payment of management
fees, legal fees, accounting fees and fees to other service providers, to the
extent deducted, represents a reasonable expense amortizable over the period
benefitted or an "ordinary and necessary" business expense payable for services
rendered or obligations undertaken for the benefit of the Fund.
The Code provides that organization expenses of the Fund are not
deductible in the year paid. It provides that the Fund may elect to deduct
ratably over a period of not less than 60 months, amounts paid or incurred in
organizing a business, such as the Fund. This period begins with the month in
which the Fund begins to do business. Organization expenses for this purpose are
85
expenditures which are incident to the Fund's creation, chargeable to its
capital account and of a character which, if expended in connection with the
creation of a Fund having an ascertainable life, would be amortized over such
life. In addition to such costs, another provision of the Code allows a taxpayer
to elect to amortize over a 60-month period "start-up expenditures" in any
amount (1) paid or incurred in connection with (a) investigating the creation or
acquisition of an active trade or business, or (b) creating an active trade or
business, or (c) any activity engaged in for profit and for the production of
income before the day on which the active trade or business begins, anticipation
of such activity becoming an active trade or business, and (2) which, if paid or
incurred in connection with the operation of an existing active trade or
business (in the same field as the trade or business referred to in (1)), would
be allowable as a deduction for the taxable year in which paid or incurred.
Neither the Fund nor any member is entitled to deduct amounts paid or
incurred to promote the sale of (or sell) an interest in the Fund. Also, the
Income Tax Regulations set forth the following examples of expenses which are
not organization expenses: expenses connected with acquiring assets of the Fund,
expenses connected with a contract relating to the operation of the Fund's trade
or business even where the contract is between the Fund and one of its members
and syndication expenses.
Allocation of Profits and Losses to Partners
The Code provides that allocations of income, gain, loss, deduction or
credit among partners will be controlled by the partnership agreement (i.e., the
Fund's operating agreement) if the allocation has "substantial economic effect."
The legislative history of this provision indicates that an allocation will be
deemed to have substantial economic effect if the allocation will actually
affect the dollar amount of the partner's shares of total partnership income or
loss independently of tax consequences. If an allocation made by the partnership
agreement does not have substantial economic effect, a member's shares of
income, gain, loss, deduction or credit (or item thereof) will be determined in
accordance with the partner's "interest in the partnership" taking into account
all facts and circumstances. According to the legislative history, among the
relevant factors to be considered are the partners' respective interests in cash
flow and distributions upon liquidation, as well as their interests in
partnership profits and losses (if different from that in taxable income or
loss).
The Fund's operating agreement provides that the Fund's profits and
losses are allocated in accordance with members' capital accounts and that cash
distributions will generally be made in accordance with the allocation of
profits and losses. It is of the opinion of counsel that such allocations have
substantial economic effect.
Cash Distributions
Cash distributions to the members from the Fund may not be equal to Fund
income as determined for Federal income tax purposes. If cash distributions to a
member by the Fund in any year are less than his share of taxable income, the
member may be required to pay the income taxes attributable to his share of Fund
income from funds not associated with his investment in the Fund. If cash
distributions to a member by the Fund in any year exceed his share of the Fund's
taxable income for that year, the excess will not be reportable as taxable
income by the member for Federal income tax purposes, although it will reduce
the tax basis of his membership interests. If the tax basis of a member in his
membership interests is reduced to zero, his share of any subsequent cash
distributions
86
for any year, including his share in any reduction in nonrecourse liabilities,
in excess of his shares of taxable income for such year, will be taxable to him
as though it were a gain on the sale or exchange of his membership interest.
Alternative Minimum Tax
All taxpayers are subject to a minimum tax at a rate of 21% (20% for
corporations) in lieu of the regular income tax where the alternative minimum
tax exceeds taxpayer's regular income tax for a taxable year. A taxpayer's
alternative minimum taxable income, computed for purposes of the regular tax, in
significant ways. Depending on a member's particular tax situation, the
alternative minimum tax could reduce the after-tax economic benefit of an
investment in the Fund. Also, the alternative minimum tax is taken into account
for purposes of computing estimated tax liability. Each prospective member
should consult and depend upon his personal tax advisor with respect to the
possible effects on him of tax preference items.
Fund Not a Tax Shelter
Certain provisions of the Code apply to tax shelters. For this purpose,
tax shelter means an entity including a limited liability company such the Fund
if the principal purpose of the entity, plan, or arrangement, based on objective
evidence, is the avoidance or evasion of Federal income tax. The principal
purposes of an entity, plan or arrangement is the avoidance or evasion of
Federal income tax if that purpose exceeds any other purpose. Typical of tax
shelters are transactions structured with little or no motive for the
mismatching of income and deductions, overvalued assets, nonrecourse financing
or financing techniques which do not conform to standard commercial business
practices. The Fund represents an effort to obtain a rate of return in a manner
consistent with commercial practices in this area. Accordingly, it is the
opinion of counsel that the investment should not be treated as a "tax shelter"
for Federal Income Tax purposes.
State Taxation
The foregoing disclosure does not discuss the State tax consequences of
an investment in the Fund. Potential investors should discuss possible State tax
ramifications of an investment in the Fund with their tax advisors. Since the
business will be principally carried on in the State of Florida, nonresidents of
Florida should consider the availability of tax credits in their state of
residence in determining the state tax impact on their investment.
SUMMARY OF OPERATING AGREEMENT
The following is a summary of the operating agreement for the Fund dated
as of September 25, 2002 and is qualified in its entirety by the terms of the
operating agreement itself. You are urged to read the entire operating
agreement, which is set forth as Exhibit B to this prospectus.
Rights and Liabilities of Members
Your rights, duties and powers as a member, will be governed by the
operating agreement and by the Florida Limited Liability Company Act ("FLLCA").
87
If you become a member in the Fund by purchasing units in this offering,
you will not be responsible for the obligations of the Fund and will be liable
only to the extent of the purchase price you pay for the units, which is your
capital contribution to the Fund. You may be liable for any return of capital
plus interest, if necessary, to discharge liabilities existing at the time of
such return. Any cash distributed to you may constitute, wholly or in part, a
return of capital.
You and other members will have no control over the management of the
Fund except that in some cases, members who own together the percentages
indicated on the table below of the capital accounts of the Fund may approve any
of the following matters, generally subject to the approval of our manager as
well:
Percentage of
the Capital Accounts to be
Action held by Consenting
------ Members for
Approval of Action
------------------
Amendment to the operating agreement (except for admission of
additional members on the terms of this offering, which does not
require the approval of the members)..................................... 51%
Amendment to the operating agreement that would increase your
liabilities or decrease your interest in the Fund's income, gains or
distributions............................................................ 100%
Removal of our manager in the case of commission of a felony, gross
negligence or willful misconduct......................................... 51%
Removal of our manager after our manager has received distributions
from the Fund that exceed 125% of the aggregate expenses incurred
by our manager and its affiliates in making this offering and in
operating the Fund in the ordinary course................................ 66 2/3%
Removal of our manager in the case of a default by our manager
or waiver of our manager's default....................................... 51%
Election of a successor manager.......................................... 51%
Recapitalization of the Fund, sale of substantially all of the Fund's
assets, restructuring of the Fund or merger of the Fund with or into
another entity, in each case which adversely affects the members......... 66 2/3%
Dissolution and termination of the Fund, if the Fund is not terminated
in accordance with the operating agreement............................... 100%
88
Term of the Fund
The Fund will cease operating on December 31, 2027. The Fund is self
liquidating and will dissolve sooner upon the maturity of all life insurance
policies purchased by the Fund. The Fund may dissolve earlier if AmeriFirst
Financial Services, Inc. ceases serving as our manager and the members cannot
agree on a new manager within six months.
The Fund Contributions
Units, which represent ownership interests in the Fund, will be sold in
multiples of $1,000, and no person may initially invest less than $100,000 with
additional purchases in multiples of $1,000, although our underwriter reserves
the right to accept subscriptions for less than $100,000. To purchase units you
must deliver to the Fund a subscription agreement in the form attached to this
prospectus as Exhibit A, together with your contribution. Contributions shall be
made in cash, payable by check or wire transfer, or through a rollover of assets
from a qualified plan, such as an IRA.
Rights, Powers and Duties of Manager
Subject to the rights of members to vote on specified matters, our
manager will have complete charge of our business. Our manager is not required
to devote its full resources to our business and affairs but only such resources
as shall be necessary or useful to manage and operate our business and affairs
in a proper and efficient manner. Our manager acting alone, has the power and
authority to act for and bind the Fund.
Our manager is granted the special power of attorney of each member for
the purpose of executing amendments to the operating agreement and confirming
amendments to the Articles of Organization and any other governmental filings
required as a result of these changes.
Profits and Losses
Our net income and net losses for each fiscal year will be allocated to
the members and to our manager generally in the manner set forth below. In the
event of a permitted transfer of a unit, the transferee will have the same pro
rata share as the transferor.
1. Net income of the Fund shall be allocated to the members on their pro
rata share.
2. All net losses shall be allocated to the members on their pro rata
share.
Distributions
We intend to make distributions to members only of their pro rata share
of the proceeds paid on life insurance policies after the deduction of premiums
and replenishment of the premium escrow account. A member's pro rata share will
entitle him to a return in proportion to his investment of the total amount of
investments in the Fund. Any cash or other property, other than life insurance
policies and contributions that have not been invested, remaining after
distribution of the sinking fund, if any, to our manager, shall be distributed
to members of the Fund.
89
Assignment and Transfer of Units
Your rights to sell or transfer units are limited. There is no public
trading market in which you may sell your units and we do not expect a public
market to emerge anytime in the future. You may transfer your units using a form
approved by our manager and must obey all relevant laws when you are permitted
to transfer your units. Any person who buys the units from you must meet the
investor suitability requirements described in this prospectus. Our manager must
approve any new member and all transfers that would cause us to be classified as
a publicly traded partnership under the Internal Revenue Code.
Repurchase of Units, Withdrawal from the Fund
You may withdraw or partially withdraw from the Fund and obtain the
return of all or part of your capital account within 90 days after you deliver
written notice of withdrawal to our manager, subject to the following
conditions:
o You should not expect to be able to withdraw from the Fund until
one year after you purchased the units.
o Commencing one year after your purchase of the units, you may
obtain all or part of your investment and receive back 85% of
the face amount of your investment less all distributions paid
to date.
o We can only make cash payments in return of an outstanding
capital account from net proceeds and capital contributions.
o We are not required to sell any portion of our assets to fund a
withdrawal.
o Our manager will not reinvest net proceeds for a period of up to
90 days after receiving a withdrawal notice from you if we do
not have sufficient funds available to distribute to you all of
your capital account in cash.
o The amount to be distributed to you depends solely on your
capital account on the date of distribution, even if this is not
the same as your proportionate share of the fair market value of
the Fund's assets.
o If your capital account is reduced below $100,000 due to any
withdrawal payment, we may distribute all remaining amounts in
your capital account to you in cancellation of your units and
you will then cease to be a member.
o All payments to meet request for withdrawal are on a
"first-come, first-served" basis. If the sums needed to fund
withdrawals in any particular month exceed the amount of cash
available for withdrawals, funds will be distributed first to
the member whose request we received first, until his withdrawal
request is paid in full.
Meetings and Action by Written Consent
Our manager may call meetings of members or any class or series thereof,
on reasonable notice, for such purposes as our manager shall determine. Meetings
may be called upon not less than 7 days notice to the members. In lieu of a
meeting, members may give any approval or consent under the operating agreement
in writing and delivered to our manager with the required percentage of
interests in the Fund, followed by notice to all members. If not otherwise
specified in the operating agreement, the members shall vote in accordance with
the percentage that their capital accounts represent of the aggregate of all
capital accounts of members. Our manager may establish such
90
additional and reasonable procedures (in the form of by-laws or otherwise)
relating to notice of the time, place or purpose of a meeting of the members,
the waiver of any such notice, action by consent without a meeting, the
establishment of a record date, quorum requirements, voting by proxy or any
other matter with respect to the exercise of any such right to vote.
Reports and Records
Our manager is required to deliver to the Fund (i) at least 2 days prior
to each purchase of life insurance policies, an officer's certificate setting
forth the amount of insurance policies to be purchased on such closing date;
(ii) a quarterly certificate regarding, among other things, the aggregate amount
of collections processed by our manager and the amount of insurance policies for
such period; and (iii) annual subservicing reports of the Fund prepared by
independent public accountants in accordance with the Fund's operating
agreement, a copy of which may be obtained by any member upon request in
writing.
Our manager shall prepare and forward to each member of the Fund, every
six months, a statement setting forth certain information regarding
distributions paid and payable, including information regarding the funds
deposited in the premium escrow account. In addition, our manager will forward
annually to each member an annual tax statement prepared by independent public
accountants containing certain information that our manager deems necessary to
enable the members to prepare their respective tax returns.
Dissolution of the Fund
The Fund shall be dissolved upon the earliest to occur of the following:
(a) payment to the Fund of all proceeds of all life insurance
policies;
(b) the express written consent of our manager;
(c) the entry of a decree of judicial dissolution of the Fund; or
(d) the unanimous consent of the members.
The outside date for termination of the Fund is December 31, 2027.
Upon the dissolution of the Fund, our manager shall proceed, within a
reasonable time, to sell or otherwise liquidate the remaining non-cash assets,
if any, and, after paying or making due provision by the setting up of reserves
for all liabilities to creditors of the Fund, and distribution of the remaining
sinking fund to our manager and/or provider, to distribute the remaining assets
to the members, pro rata, in accordance with the positive balance in their
respective capital accounts.
PLAN OF DISTRIBUTION
AmeriFirst Capital Corp., our underwriter, is using this prospectus to
offer units on a "best efforts" $2,500,000 or none basis to the public on our
behalf. The Fund will pay our underwriter,
91
which has applied for registration as an NASD member, compensation of up to a
maximum of 10% of the gross proceeds of this offering for selling the units and
for managing selected dealers. In addition, AmeriFirst, Inc., a holding company
controlled by John Tooke, shall pay all organizational and offering expenses of
this offering and be reimbursed up to 1/2 % of the gross proceeds from the sale
of the units for reimbursement of actual expenses. The underwriter may engage
non-affiliated securities brokerage firms that are members of the NASD to act as
selected dealers to sell units to the public. Units may also be sold by officers
of the Fund, who may receive commissions, where permitted.
Our underwriter is a newly formed Florida broker-dealer, all of whose
stock is owned by AmeriFirst, Inc., the an affiliate of the Fund. Mr. Tooke
expects to complete the broker-dealer registration of our underwriter with the
NASD prior to the effective date of this prospectus. The principal business of
our underwriter will be to sell the securities to be registered under this
offering. Our underwriter does not intend to commence operations prior to
commencement of this offering.
Our underwriter has not identified any brokers or dealers which will
participate in the offering and has no agreement, arrangement or understanding
with any broker or dealer. Our manager expects to pay to our underwriter and
officers of the Fund (if permitted), even if it does not engage other selected
dealers a fee of up to 10% of the gross proceeds from the sale of the units. Our
underwriter, at its own expense, will negotiate fees of up to 10% of the gross
proceeds of this offering to selected dealers on their respective sales of
units.
We will be reviewing subscription applications as they are received. We
will indicate our acceptance of your subscription agreement by countersigning it
and indicating the amount of units that we will issue to the subscriber.
Subscriptions are non-cancellable and irrevocable. We will place all proceeds
from the sale of units in a segregated subscription escrow account until at
least $2,500,000 in units have been sold. The escrow account will be with
SouthTrust Bank, whose address is 1100 Office Park Drive, 2nd Floor, Birmingham,
Alabama 35223. We have entered into escrow agreement with the escrow agent which
you can find as an exhibit to the registration statement of which this
prospectus forms a part.
If we sell $2,500,000 in units by ___________, 2003 [six months from the
date of this prospectus unless extended], the escrow account will be closed and
the proceeds, after deduction of the escrow agent's fees, together with amounts
earned as interest on those proceeds, will be delivered to us. If we have not
sold $2,500,000 in units on or before ___________, 2003, the escrow agent will
promptly return to all investors the amounts they have paid to buy units, with
interest earned thereon less the escrow agents fees. We will then stop selling
units and the subscription agreements will be canceled, regardless of whether or
not previously accepted.
Neither the Fund, our manager nor any of their affiliates intend to
purchase units in this offering. However, our manager may accept in lieu of cash
from any one other than an affiliate of itself or the Fund, an interest in a
life insurance policy.
We will continue to sell units to the public through our underwriter and
selected dealers. We will seek to sell a total of 100,000 units for
$100,000,000. Currently, we intend to offer the units for sale in California,
Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Michigan, Nevada, New
Jersey and New York, and we will end this offering in these states on _______,
2003 [12 months
92
from the date of this prospectus unless extended] or at such earlier time that
all $100,000,000 of units are sold. If we desire to extend this offering up
until ___________, 2004, [24 months from the date of this prospectus], each of
these states requires us to file the appropriate documents with such state's
agency and we will provide investors in these states with written notice of such
extension. We may register in additional states to sell the units and will
comply with applicable state "blue sky" laws to extend the offering. We may
terminate this offering at any time by written notice to the investors and
refund any subscriptions that we have not accepted.
Your purchase of units in the Fund entitles you to receive a return in
proportion to your investment over the total amount of investments made in the
Fund. Accordingly, the greater the total investments, the smaller your ownership
interest in the Fund will be since your ownership interest will be diluted;
however, your rate of return will remain the same. You are entitled to receive,
to the extent we receive proceeds on each life insurance policy that we acquire,
a current return equal to your proportionate share of the face amount of the
life insurance policy.
There is no established public trading market and no comparable
securities for reference purposes, nor are there expected to be a market for
comparable securities following this offering.
The underwriting agreement provides for reciprocal indemnification
between the Fund and our underwriter against certain liabilities in connection
with the registration statement of which this prospectus forms a part, including
liabilities under the Securities Act of 1933. To the extent this section may
purport to provide exculpation from possible liabilities arising under the
federal securities laws, it is the opinion of the SEC that such indemnification
is against public policy and is therefore unenforceable.
If you want to purchase units, you should complete the subscription
agreement, which you can find at Exhibit A to this prospectus and which will be
provided by our underwriter or selected dealer that offered you the units. You
should return the subscription agreement and full payment for the units being
purchased to that dealer. You may obtain additional copies of the subscription
agreement from AmeriFirst Capital Corp., whose address is 814 North Highway
A1A, Suite 300, Ponte Vedra Beach, FL 32082; telephone: (904) 373-3034.
INVESTMENT COMPANY ACT OF 1940
The Investment Company Act of 1940 (the "Act") applies to investment
companies as defined by the Act.
Section 3(b)(i) of the Act provides that an investment company does not
include "Any issuer primarily engaged, directly or through a wholly-owned
subsidiary or subsidiaries, in a business or businesses other than that of
investing, reinvesting, owning, holding or trading in securities." Since
insurance policies generally are not deemed to be investment securities as
defined in the Act, the Fund should be considered as being primarily engaged in
an activity other than investing, reinvesting, owning, holding or trading in
securities. Accordingly, in the opinion of Snow Becker Krauss P.C., the Fund is
not and its proposed activities will not result in it becoming an investment
company. In order to maintain its exemption from registration as an investment
company under the Act, the Fund will not purchase any insurance policy, such as
a variable annuity, which may be deemed an investment
93
security under the Act. However, the Securities and Exchange Commission has not
passed upon any issues presented by the Act
LEGAL PROCEEDINGS
In the normal course of business we may become involved in various types
of legal proceedings concerning life insurance policies, such as collecting the
proceeds of policies or otherwise protect or recoup our investment in such
policies. As of the date hereof, we are not involved in any legal proceedings.
LEGAL OPINIONS
Certain legal, federal income tax and Investment Company Act matters in
connection with the units offered hereby will be passed upon for the Fund by
Snow Becker Krauss P.C., 605 Third Avenue, New York, NY 10158. Such counsel does
not represent the members in connection with the units offered hereby.
EXPERTS
The balance sheet of the Fund at September 30, 2002 and the statements
of stockholder's equity and cash flows of the Fund for the period from inception
through September 30, 2002, the balance sheet of our manager at October 31, 2002
and the statements of revenue and expense, members' equity and cash flow of our
manager, all included in this prospectus have been examined by Marcum & Kliegman
LLP, independent certified public accountants, as set forth in their report,
which includes an explanatory paragraph as to an uncertainty with respect to the
Fund's and our manager's ability to continue as a going concern, thereon
appearing elsewhere herein and have been included herein in reliance on such
reports and the authority of such firm as experts in accounting and auditing.
The statements under the caption "Federal Income Tax Consequences" have
been reviewed by Snow Becker Krauss P.C. and are included herein in reliance
upon the authority of that firm as experts thereon.
ADDITIONAL INFORMATION
The Fund has filed with the Securities and Exchange Commission, 450 5th
Street, N.W., Washington, D.C. 20549, a registration statement on Form S-1 under
the Securities Act of 1933, as amended, with respect to the units offered
pursuant to this prospectus. For further information, reference is made to the
registration statement and to the exhibits thereto which are available for
inspection at no fee in the Office of the Commission in Washington, D.C., 450
5th Street, N.W., Washington, D.C. 20549. Photostatic copies of the material
containing this information may be obtained from the Commission upon paying of
the fees prescribed by the rules and regulations at the Washington office only.
Additionally, the Commission maintains a website that contains reports,
94
proxy and information statements and other information regarding registrants,
such as the Fund, that file electronically. The address of the Commission's
website is http://www.sec.gov.
95
AMERIFIRST FUND I, LLC
(A Development Stage Company)
FINANCIAL STATEMENTS
For the Period April 22, 2002 (Inception)
Through September 30, 2002
AMERIFIRST FUND I, LLC
(A Development Stage Company)
CONTENTS
- --------------------------------------------------------------------------------
Page
----
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations and Member's Deficit 3
Statement of Cash Flows 4
NOTES TO FINANCIAL STATEMENTS 5-7
INDEPENDENT AUDITORS' REPORT
To the Member
Amerifirst Fund I, LLC
We have audited the accompanying balance sheet of Amerifirst Fund I, LLC (the
"Fund") (a development stage company) as of September 30, 2002, and the related
statements of operations and member's deficit and cash flows for the period
April 22, 2002 (Inception) through September 30, 2002. These financial
statements are the responsibility of the Fund'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 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 Amerifirst Fund I, LLC as of
September 30, 2002, and the results of its operations and its cash flows for the
period April 22, 2002 (Inception) through September 30, 2002, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Fund
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Fund is a development stage company and has not yet begun
operations nor raised any funds to fund such operations. These conditions raise
substantial doubt about the Fund's ability to continue as a going concern. The
financial statements do not include any disclosures that might result from the
outcome of this uncertainty.
/s/ Marcum & Kliegman LLP
January 2, 2003
New York, NY
1
AMERIFIRST FUND I LLC.
(A Development Stage Company)
BALANCE SHEET
September 30, 2002
- --------------------------------------------------------------------------------
ASSETS
Current assets $ --
Deferred offering costs 183,718
---------
TOTAL ASSETS $ 183,718
=========
LIABILITIES AND MEMBER'S DEFICIT
Due to related party $ 218,100
---------
TOTAL LIABILITIES 218,100
COMMITMENTS AND CONTINGENCIES
MEMBER'S DEFICIT (34,382)
---------
TOTAL LIABILITIES AND MEMBER'S DEFICIT $ 183,718
=========
The accompany notes are an integral part of these financial statements.
2
AMERIFIRST FUND I LLC.
(A Development Stage Company)
STATEMENT OF OPERATIONS AND MEMBER'S DEFICIT
For the Period April 22, 2002 (Inception) through September 30, 2002
- --------------------------------------------------------------------------------
REVENUES FROM POLICIES HELD IN TRUST $ --
EXPENSES 34,382
---------
NET LOSS (34,382)
MEMBER'S DEFICIT - Beginning --
---------
MEMBER'S DEFICIT - Ending $ (34,382)
=========
The accompany notes are an integral part of these financial statements.
3
AMERIFIRST FUND I LLC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
For the Period April 22, 2002 (Inception) through September 30, 2002
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (34,382)
---------
Net Cash used in Operating Activities (34,382)
---------
CASH FLOWS FROM INVESTING ACTIVITIES --
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Advance from related party $ 218,100
Deferred offering costs (183,718)
---------
Net Cash Provided by Financing Activities 34,382
---------
CASH AND CASH EQUIVALENTS - Beginning --
---------
CASH AND CASH EQUIVALENTS - Ending $ --
=========
The accompany notes are an integral part of these financial statements.
4
AMERIFIRST FUND I, LLC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - Formation, Nature of Business, and Management Plans
Formation, Nature of Business and Management's Plans
AmeriFirst Fund I, LLC (the "Fund") was organized on April 22, 2002 to
offer units in a securitized pool of life insurance policies. The Fund
will provide living benefits to terminally ill and chronically ill persons
of all ages and senior citizens, age 65 and older with life expectancies
based solely on actuarial tables in exchange for ownership of their life
insurance policies. A life settlement is the payment of cash in return for
an assignment of ownership or beneficial interest in, and the right to
receive the face value of, a life insurance policy. The Fund will acquire
life insurance policies from Amerifirst Funding Group, Inc. our
("Provider"), a related party (see Note 3). Amerifirst Funding Group, Inc.
will assign and/or transfer beneficial interest to the Fund.
The Provider is a wholly owned subsidiary of Amerifirst, Inc. (see Note
3). The Provider will originate policy purchases directly from the insured
if licensed as a broker, through other providers, or through an
unaffiliated broker network and transfer ownership or irrevocable
beneficial interest to the Fund. In addition, the Fund's principal offices
will be located at the Provider's offices.
Amerifirst Financial Services, Inc. (the "Manager"), along with our
Provider or other licensed providers, will determine the amount paid for
an insurance policy based on various factors, including the estimated life
expectancy of the insured, the estimated premiums payable under the policy
over the expected life of the insured and certain other costs of the life
settlement. The Fund's existence ends on December 31, 2027, unless
liquidated sooner.
The Fund has not commenced principal operations as of December, 2002. The
Fund will be offering and selling to the public a minimum of 2,500 units
and up to a maximum of 100,000 units at $1,000 per unit, with an initial
minimum investment of one hundred units totaling $100,000. The units are
being distributed on a "best efforts" basis by Amerifirst Capital Corp.
(See Note 3). The proceeds of this offering will be held in escrow with a
Bank until the $2,500,000 minimum amount is received. If the minimum
amount is not received within six months from the effective date of the
offering, then all subscription amounts (including interest), will be
returned to all subscribers. These factors raise substantial doubt as to
the Fund's ability to continue as a going concern. The ability of the Fund
to continue as a going concern is dependent upon the success of the Fund
to raise the $2,500,000 minimum subscription needed within the specified
time pursuant to the Fund's operating agreement. The financial statements
do not include any disclosures that might be necessary should the Fund be
unable to continue as a going concern.
5
AMERIFIRST FUND I, LLC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - Summary of Significant Accounting Principles
Fiscal Year End
The Fund's fiscal year end is September 30, 2002.
Revenue Recognition for Purchased Insurance Policies
Revenue and cost of revenue will be recognized upon the maturity of a
policy (death of the insured). The cost of a policy includes the initial
purchase price, insurance premiums, and other direct expenditures paid by
the Fund for the purchase and maintenance of the policy. Revenues are
accounted for as "Gross Revenues" (i.e., before deduction of costs) and as
"Net Revenues" (after deduction of costs). Net Revenues are combined with
revenues from other business operations, if any, in calculating the Fund's
"Total Net Revenues." The ability to recognize matured policy revenue
during the period in which a policy matures depends on the Fund's
receiving notification of its maturity from a representative of the
insured. In some instances, notification may not occur until significantly
after the insured's death and after the financial statements have been
finalized for the period in which the policy matured. To the extent policy
maturities cannot be recorded in the period the policy matures, the
revenue and cost related to the maturity are recognized in the statement
of operations after the maturity of the policy.
Income Taxes
The members of a limited liability company are taxed on their
proportionate share of the Fund's taxable income. Accordingly, no
provision or liability for Federal and State income taxes are included in
the accompanying financial statements.
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Deferred Offering Costs
Deferred offering costs in the amount of $183,718 include incremental
costs directly attributable to the public offering discussed in Note 1.
These costs will be charged directly to member's deficit against the gross
proceeds of the offering. If the offering is not completed then the Fund
will charge the costs to its operations.
6
AMERIFIRST FUND I, LLC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - Related Parties
As discussed in Note 1, Amerifirst, Inc. through its wholly owned
subsidiaries, Amerifirst Funding Group, Inc. and Amerifirst Financial
Services, Inc., will be the Fund's Provider of insurance policies and
Manager, respectively. The Provider will originate policy purchases
directly from the insured if licensed as a broker, through other
providers, or through an unaffiliated broker network and transfer
ownership or irrevocable beneficial interest to the Fund. The Manager will
negotiate the Provider's fees for providing policies to the Fund at the
time of each transaction.
In addition, Amerifirst, Inc. formed Amerifirst Capital Corp. Upon the
registration with the National Association of Securities Dealers,
Amerifirst Capital Corp. will become the underwriter of the Fund. There
can be no assurances the Amerifirst Capital Corp. will become a registered
broker dealer.
During the three months ended September 30, 2002, Amerifirst, Inc.
advanced the Fund approximately $218,100 in cash for offering costs,
professional fees and administrative expenses. These advances are
noninterest bearing and are expected to be repaid with the proceeds from
the public offering (see Note 1).
7
EXHIBIT A
AMERIFIRST FUND I, LLC
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT INSTRUCTIONS
A. Completion of Subscription Agreement: Please read carefully pages A-1 through
A-23 and Appendix A to this Subscription Agreement.
If Investor is an exiting member of AmeriFirst Fund I, LLC and wishes to
purchase additional units, skip to number 5 below of these instructions.
1. Subscription and related undertakings, representations and
warranties:
o Initial each representation contained in Section 4 on pages
A-4 to A-5.
o Indicate how Investor will own the Units in Section 12 on page
A-7.
2. Investment Account Application
o If Investor is an "Individual," complete Section 13 on pages
A-8 to A-10.
o If Investor is a "Trust" (i.e., trust, estate,
conservatorship), complete Section 14 on page A-11 to A-12.
Complete also Section 13 on pages A-8 to A-10, if required.
o If Investor is a "Legal Entity" (i.e., corporation,
partnership, etc.), complete Section 15 on pages A-13 to A-14.
o If Investor is a "Retirement Plan" (i.e., Employee Benefit
Plan, Keogh Plan, IRA), complete Section 16 on pages A-15 to
A-17. Complete also Section 13 on pages A-8 to A-10, if
required.
o
3. Registration Information for the Units.
o All Investors must complete the information requested in
Section 17 on page A-18
4. Signature Page.
o All Investors must complete, sign and date, as applicable,
Section 18 on pages A-19 to A-20.
A-1
5. Additional Subscription Request (Existing Members Only)
o If Investor is an existing member of AmeriFirst Fund, LLC and
wishes to purchase additional units, complete only "Additional
Subscription Request" on pages A-21 to A-22.
B. Payment. Initial subscriptions should be for at least 100 units at $100,000.
Additional subscriptions may be made in integral multiples of $1,000 per unit.
(AmeriFirst Fund I, LLC reserves the right to accept initial subscriptions of
less than $100,000).
If Investor is purchasing If Investor is purchasing
during the course of following the period of
the Minimum Offering the Minimum Offering
----------------------------- ----------------------------
Payment by Bank Check
or Certified Check:............... Make payable to the order of Make payable to the order of
"SouthTrust Bank" "AmeriFirst Fund I, LLC"
Payment by Wire Transfer:......... SouthTrust Bank SouthTrust Bank
ABA No. ____________ ABA No.___________
SouthTrust Bank AmeriFirst Fund I, LLC
Account No. ___________ Account No._____________
Re: Escrow No. _________
Attn: ___________
C. Questions. If Investor has any questions when completing this Subscription
Agreement, please call AmeriFirst Capital Corp. at (904) 373-3034.
D. Return of Documents. This Subscription Agreement should be returned to the
following address:
AmeriFirst Capital Corp.
814 North Highway A1A, Suite 300
Ponte Vedra Beach, FL 32082
A-2
AMERIFIRST FUND I, LLC
SUBSCRIPTION AGREEMENT
BY EXECUTING THIS SUBSCRIPTION AGREEMENT, AN INVESTOR IS
NOT WAIVING ANY RIGHTS UNDER THE FEDERAL SECURITIES LAWS
1. SUBSCRIPTION. The undersigned investor ("Investor") hereby applies to become
a member in AmeriFirst Fund I, LLC, a Florida limited liability company (the
"Fund"). Investor hereby subscribes $__________________ for the purchase of
_____________________ units (the "Units") of limited liability interest in the
Fund, the price being $1,000.00 per Unit. Investor agrees to purchase the number
of Units stated above in accordance with the terms and conditions of the Fund's
operating agreement (the "Operating Agreement"), a copy of which is attached as
Exhibit A to the Fund's prospectus (the "Prospectus") to which this Subscription
Agreement forms a part. The Units which Investor offers to purchase shall not be
deemed issued to, or owned by, Investor until: (a) Investor has fully paid by
certified or bank check or by wire transfer for such Units, or in exchange for
the units has contributed an entire or fractional interest in a life insurance
policy, subject to the Manager's (as defined herein) consent, and (b) the Fund's
manager, AmeriFirst Capital Corp. (the "Manager") has, in its sole discretion,
accepted all or any portion of Investor's subscription herein.
2. PAYMENT OF SUBSCRIPTION. The amount of Investor's subscription set forth
above either (a) has already been delivered by wire transfer to the appropriate
account set forth in this Subscription Agreement, or (b) is enclosed with this
Subscription Agreement in the form of a certified or bank check. At the
discretion of the Manager, Investor may contribute entire or fractional
interests in life insurance policies in exchange for the Units, provided that
such life insurance policy is in effect at the time of contribution and
satisfies the Fund's purchasing guidelines of life insurance policies. The
number of Units Investor shall receive in exchange for such a contribution shall
be equal to the face amount of the purchase price of the life insurance policy
(or a proportionate share of such life insurance policy with respect to the
contribution of a fractional interest), rounded to the nearest whole unit.
3. ACCEPTANCE. Investor acknowledges that the Manager, in its sole discretion,
can accept or reject all or any part of Investor's subscription, and that this
offering may be terminated at any time by the Manager. Investor understands that
Investor's subscription will be held in escrow with SouthTrust Bank until the
minimum $2.5 million is raised in this offering and thereafter deposited into
the Fund's operating escrow account where it will earn interest at money market
rates until such funds are withdrawn to purchase life insurance policies or for
other proper purposes as provided in the Prospectus. The Fund will continue to
seek to distribute a total of 100,000 Units for $100,000,000. If Investor's
subscription is rejected in part or in whole, the funds delivered herewith by
Investor, to the extent the application is so rejected, will be returned to
Investor as soon as practicable without interest or deduction, except to the
extent of any interest actually earned. If any part of Investor's subscription
is accepted, the Manager will return a countersigned copy of this Subscription
Agreement to Investor, which copy will evidence Investor's purchase of the
number Units indicated therein.
A-3
4. REPRESENTATIONS BY INVESTOR. The Units as an investment involve a high degree
of risk. Please read the "Risk Factors" beginning on page 11 of the Prospectus.
In connection with Investor's investment described in Section 1 of this
Subscription Agreement, Investor hereby represents and warrants to the Fund, the
Manager and any relevant broker-dealers the following:
PLEASE CONFIRM THE REPRESENTATIONS SET FORTH BELOW BY PLACING YOUR
INITIALS IN THE BLANKS FOLLOWING EACH REPRESENTATION.
(a) Investor has received the Prospectus five (5) days prior to the date
of this Subscription Agreement, and has read and understands the
Prospectus, and in making this investment is relying solely on the
information contained in the Prospectus. ________
(b) Investor acknowledges that no federal or state agency has made any
finding or determination as to the fairness for public investment
in, nor any recommendation nor endorsement of, the Units.__________
(c) Investor acknowledges that there will be no public market for resale
of the Units and Investor cannot privately sell, gift, pledge or
otherwise transfer Investor's Units without the prior written
consent of the Manager, and therefore, it may not be possible for
Investor to liquidate Investor's investment in the Fund. _________
(d) Investor meets the suitability standards set forth in the Prospectus
on page __under the heading "Investor Suitability Standards.
__________
(e) Investor, if an individual, has attained the age of majority (as
established in the state in which domiciled) and Investor has full
power, capacity and authority to enter into a contractual
relationship with the Fund, (i) on behalf of himself or herself, if
Investor is an individual, or (ii) if Investor is acting in a
fiduciary capacity for a corporation, partnership, trust or other
entity, or as custodian or agent for any person or entity, on behalf
of such person or entity. _________
(f) Investor acknowledges that Investor has been advised to read the
"Risk Factors" set forth in the Prospectus beginning on page 11.
__________
(g) Investor understands that the Fund intends to be taxed as an
association (partnership) and not as a corporation, and that, among
other things, this may result in taxes being payable by Investor
even though the Fund may not have distributed cash to Investor.
__________
(h) Investor understands that an investment in the Fund will not, in
itself, create a retirement plan (as defined in the Internal Revenue
Code of 1986, as amended) for any investor and that, in order to
create a retirement plan, an investor must comply with all
applicable provisions of the Code. ___________
A-4
(i) Investor understands that counsel representing the Fund, the Manager
and their affiliates does not and will not represent Investor in any
respect. __________
5. PURCHASE BY FIDUCIARY. If Investor is purchasing the Units subscribed for
hereby in a fiduciary capacity, the above representations and warranties are to
be deemed to have been made on behalf of the person(s) for whom Investor is so
purchasing, except that such person(s) need not be over 18 years of age.
6. ADOPTION OF OPERATING AGREEMENT. Investor hereby adopts, accepts, and agrees
to be bound by all terms and provisions of the Operating Agreement and to
perform all obligations therein imposed upon a member with respect to the Units
to be purchased.
7. LIMITATION ON ASSIGNMENT. Investor acknowledges that the Units may be
assigned only as provided in the Operating Agreement, and Investor further
acknowledges the restrictions set forth in the Operating Agreement and as
described in the Prospectus relating to Investor's ability to resell, transfer,
or assign the Units.
8. SPECIAL POWER OF ATTORNEY.
A. Investor hereby makes, constitutes, and appoints the Manager to be
Investor's true and lawful attorney-in-fact, with full power of substitution, in
Investor's name, place and stead, to make, execute, sign, acknowledge, verify,
deliver, record, publish and file on Investor's behalf the following, as is
necessary or appropriate:
(i) the Operating Agreement and the Articles of Organization, as
well as any and all amendments thereto required under the laws of
the State of Florida or of any other state or which the Manager
deems advisable to prepare, execute and file;
(ii) any other certificate, instrument or document which may be
required to be filed by the Fund by any governmental agency or by
the laws of any state or other jurisdiction in which the Fund is
doing or intends to do business, or which the Manager deems
advisable to prepare, execute and file; and
(iii) any documents which may be required to effect the continuation
of the Fund, the admission of an additional or substituted member,
or the dissolution and termination of the Fund, provided such
continuation, admission, or dissolution and termination are in
accordance with the terms of the Operating Agreement.
B. Investor acknowledges and agrees that the foregoing grant of power of
attorney:
(i) is a Special Power of Attorney coupled with an interest, is
irrevocable, survives the death of Investor and shall not be
affected by the subsequent incapacity of Investor;
(ii) may be exercised by the Manager for Investor by a facsimile
signature of or on behalf of the Manager or by listing all of the
members of the Fund and by executing any instrument with a single
signature of or on behalf of the Manager, acting as
A-5
attorney-in-fact for all of them; and
(iii) shall survive the delivery of an assignment by a member of the
Fund of the whole or any portion of such member's interest, except
that where the assignee thereof has been approved by the Manager for
admission in the Fund as a substituted member, the Special Power of
Attorney shall survive the delivery of such assignment for the sole
purpose of enabling such person to execute, acknowledge, and file
any instrument necessary to effect such substitution.
9. OPERATING AGREEMENT GOVERNS. In the event of any conflict between the
provisions of the Operating Agreement and any instrument or document executed,
acknowledged, filed or recorded by the Manager pursuant to the Special Power of
Attorney set forth in Section 8 of this Subscription Agreement, the Operating
Agreement shall govern.
10. INDEMNIFICATION. Investor agrees to fully indemnify and hold harmless the
Fund, the Manager and their affiliates, from any and all claims, actions, causes
of action, damages and expenses (including legal fees and expenses) whatsoever
which may result from (i) any false statement, omission or misrepresentation
furnished by Investor in this Subscription Agreement, or (ii) any breach of any
of the representations by Investor contained in Section 4 of this Subscription
Agreement.
11. NOTICE TO MANAGER. Investor agrees to notify the Manager immediately if any
of the foregoing statements made herein shall become untrue.
A-6
12. TYPE OF OWNERSHIP: (CHECK ONE)
1. |_| SINGLE PERSON (I) *12. |_| INDIVIDUAL RETIREMENT ACCOUNT (IRA)
(Investor and Trust Custodian must sign)
2. |_| MARRIED PERSON--SEPARATE PROPERTY (I-2) *13. |_| IRA/SEP (SEP)
(Investor and Trust Custodian must sign)
*3. |_| COMMUNITY PROPERTY WITH *14. |_| ROLLOVER IRA (ROI)
RIGHTS OF SURVIVORSHIP (COM) (Investor and Trust Custodian must sign)
*4. |_| TENANTS IN COMMON (T) 15. |_| KEOGH (H.R.10) (K)
(All parties must sign) (Custodian signature required)
*5. |_| JOINT TENANTS WITH RIGHTS OF SURVIVORSHIP (J) 16. |_| PARTNERSHIP (P)
(All parties must sign) (Authorized Party must sign)
6. |_| CORPORATION (C): 17. |_| NON-PROFIT ORGANIZATION (NP)
(Authorized party must sign) (Authorized Party must sign)
7. |_| TRUST (TR) 18. |_| CUSTODIAN (CU)
(Trustee signature required) (Custodian signature required)
|_| Taxable
|_| Tax Exempt
8. |_| PENSION PLAN (PP) 19. |_| CUSTODIAN/UGMA (UGM)
(Trustee signature required) (Custodian signature required)
9. |_| PROFIT SHARING PLAN (PSP) 20. |_| OTHER (Explain)
(Trustee signature required)
_____________________________________
*10. |_| ROTH IRA (RRA)
(Investor and Trust Custodian must sign) _____________________________________
*11. |_| Rollover ROTH IRA (RRI) ______________________________________
(Investor and Trust Custodian must sign)
- ----------------
* Two or more signatures required. Complete Sections 1 through 6 where
applicable.
A-7
13. INDIVIDUAL INVESTOR: Complete this Section 13 if Investor is an Individual.
Name:______________________________________________ Co-Subscriber's Name:_______________________________________________
Address:___________________________________________ Address (if different):_____________________________________________
City:_____________ State:__________ Zip:__________ City:____________________________________ State:______ Zip:_____
Social Security #:________ - _______ - ________ Co-Subscriber's Social Security #:_________ - _______ -_____________
Home Phone:)_______________________________________ Co-Subscriber's Home Phone:_________________________________________
Business Phone: __________________________________ Co-Subscriber's Business Phone: ___________________________________
E-Mail:_________________ Fax:_____________________ Co-Subscriber's E-mail:__________________ Fax:______________________
Date of Birth:_____________________________________ Co-Subscriber's Date of Birth:______________________________________
Marital Status (check one): Single |_| Married |_| Co-Subscriber's Marital Status (check one): Single |_| Married |_|
Country of Citizenship: U.S. |_| Other:____________ Co-Subscriber's County of Citizenship: U.S. |_|
(Attach proof of Country of Citizenship) Other ________________
(Attach proof of Country of Citizenship)
If other than U.S. citizen: _______________________ If other than U.S. citizen: __________________________
(Indicate Passport#, alien#, or government ID#) (Indicate Passport#, alien#, or government ID#)
Country of Legal Residence: ______________________ Co-Subscriber's Country of Legal Residence :____
(if different than mailing address) _______________________
(if different than mailing address)
Employer: ________________________________________ Co-Subscriber's Employer: __________________________________________
Business Address: _________________________________ Co-Subscriber's Business Address: __________________________________
___________________________________________________ ____________________________________________________________________
Occupation:________________________________________ Co-Subscriber's Occupation:_________________________________________
Is Subscriber's employer a registered broker/dealer? Is Co-Subscriber's employer a registered broker/dealer?
|_| No |_| Yes |_| No |_| Yes
If Yes, see your compliance officer for written approval, which we must receive
prior to opening your account.
Investment Objective: Preservation of Capital/Income: |_|
Other: |_| Describe: ______________________________________________________
A-8
Describe Investor's investments in the last five years and discuss who made the
relevant investment decisions (you, your financial adviser, broker, accountant,
attorney, etc.): _______________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Please provide any other information that would help the Manager determine
whether Investor has sufficient knowledge and experience in financial and
business matters to evaluate the merits and risks of an investment in Units.
________________________________________________________________________________
________________________________________________________________________________
Is Investor subject to any regulatory or other constraints that may preclude or
limit Investor's participation in any potential company investment?
|_| Yes |_| No
If yes, please explain:_________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Is Investor associated with another member of the NASD? ____YES ____NO
A-9
Investor Financial Status and Suitability:
Tax Bracket: |_| <15% |_| 15%-30% |_| 30% or higher
(If joint account, check box based on combined tax bracket)
Investor's Net Worth, exclusive of home, furnishings, and automobile (check
appropriate range):
|_| under $45,000 |_| $45,000-$49,999 |_| $50,000-$59,999
|_| $60,000-$64,999 |_| $65,000-$124,999 |_| $125,000-$149,999
|_| $150,000-$199,999 |_| $200,000-$224,999 |_| $225,000-$249,999
|_| $250,000- or greater
Investor's Annual Income (check appropriate range):
|_| under $45,000 |_| $45,000-$49,999 |_| $50,000-$59,999
|_| $60,000-$64,999 |_| $65,000-$124,999 |_| $125,000-$149,999
|_| $150,000-$199,999 |_| $200,000-$224,999 |_| $225,000-$249,999
|_| $250,000- or greater
Investment Experience and Knowledge (write in the number of years)
____Life Settlements ____Trust Deeds/Real Estate ____Options
____Stocks ____Mutual Funds ____Bonds
____Variable Annuities ____Fixed Annuities ____Commodities
A-10
14. TRUST: Complete this Section 14 if Investor is a trust, estate,
conservatorship, etc.
Name of Investor (i.e., full legal name of trust, estate,
conservatorship):_______________________________________________________________
(Attach copy of certificate of trust or similar document)
Name of Trustee, Grantor, Executor or Conservator executing this agreement on
behalf of Investor:_____________________________________________________________
Address:__________________________ City:_______________State:______ Zip:________
Phone:_________________________Fax:______________________Email:_________________
Date of Formation of Investor:__________________________________________________
Jurisdiction in which Investor Formed: _________________________________________
Tax I.D. of Investor: _____________ - ____________ - ______________
Total Assets of Investor: $_________________________________________________
Investment Objective: Preservation of Capital/Income: |_|
Other: |_| Describe: ________________________________
Describe Investor's investments in the last five years and discuss who made the
relevant investment decisions (trustee, beneficiary, financial adviser, broker,
accountant, attorney, etc.): __________________________________
________________________________________________________________________________
________________________________________________________________________________
Please provide any other information that would help the Manager determine
whether Investor has sufficient knowledge and experience in financial and
business matters to evaluate the merits and risks of an investment in the Units.
________________________________________________________________________________
________________________________________________________________________________
Is Investor subject to any regulatory or other constraints that may preclude or
limit Investor's participation in any potential company investment?
|_| Yes |_| No
If yes, please explain:_________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Is Investor associated with another member of the NASD? ____YES ____NO
A-11
If Investor is a Trust, is the Trust a revocable grantor Trust in which the
grantor may revoke the Trust at any time without the consent or approval of any
other person and the grantor retains sole investment control over the assets of
the Trust?
|_| Yes |_| No
If yes, each grantor of the Trust must complete Section 13 on pages A-8 to A-10.
A-12
15. LEGAL ENTITY: Complete this Section 15 if Investor is a sole proprietorship,
corporation, partnership, limited liability company, etc.
Check One:
|_| Sole Proprietorship |_| Corporation |_| Partnership |_| Limited Liability
Company
|_| Unincorporated Organization |_| Other____________
Name of Investor (Company Name):________________________________________________
Business Address:___________________ City:_______________State:_____ Zip:_______
Phone:_________________________Fax:______________________Email:_________________
Tax Identification #:__________________________
Date of incorporation or organization:__________________________________________
(Attach a copy of a certified copy of the Certificate of Incorporation, Articles
of Organization, or similar document)
Jurisdiction of incorporation or organization:__________________________________
Tax Year End:___________________________________
Individual executing this agreement on behalf of Investor:
Name of Authorized Person or Officer:______________________________
Title of Authorized Person: ______________________________________
Total Assets of Investor (as indicated on most recent balance sheet): $_________
Investment Objective: Preservation of Capital/Income: |_|
Other: |_| Describe: _____________________________
Describe Investor's investments in the last five years and discuss who made the
relevant investment decisions (director, officer, manager, partner, financial
adviser, broker, accountant, attorney, etc.):___________________________________
________________________________________________________________________________
________________________________________________________________________________
Please provide any other information that would help the Manager determine
whether Investor has sufficient knowledge and experience in financial and
business matters to evaluate the merits and risks of an investment in the Units.
________________________________________________________________________________
________________________________________________________________________________
A-13
Is Investor subject to any regulatory or other constraints that may preclude or
limit Investor's participation in any potential company investment?
|_| Yes |_| No
If yes, please explain:_________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Is Investor associated with another member of the NASD? ____YES ____NO
A-14
16. RETIREMENT PLAN: Complete this Section 16 if Investor is an employee benefit
plan, Keogh Plan, Individual Retirement Account (IRA), etc.
Name of Investor (provide the full legal name of the retirement plan,
"the Plan"):____________________________________________________________________
Individual executing this Agreement on behalf of the Plan (i.e., Administrator,
Custodian, etc.) ("Administrator"):
Name:____________________________________________
Title:___________________________________________
Address:________________City:_______________State:_____ Zip:________
Phone Number:_________________ Fax:_________________ Email:_______________
Date of Formation: ___________________________________________
Jurisdiction of Formation: ____________________________________
Investment Objective:
Preservation of capital and monthly income distributions ________(check)
Other (please explain)________________________________________
Total assets of the Plan (as indicated on most recent balance sheet): $_________
Does this investment exceed 10% of the Plan's assets? |_| YES |_| NO
Is the Plan an "employee benefit plan" within the meaning of Title I of the
Employment Retirement Income Security Act of 1974, as amended ("ERISA") with a
fiduciary as defined in Section 3(21) of ERISA which is either a bank, savings
and loan association, insurance company or registered investment advisor (other
than an affiliate of the Manager), which fiduciary will decide whether to
purchase the Units?
|_| YES |_| NO
If yes, please explain:_________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Is the Plan an employee benefit plan other than an ERISA plan (i.e., IRA, Keogh,
etc.)?
|_| YES |_| NO
If yes, provide details as to the nature (IRA, Keogh, etc.) and the person
making investment decisions on behalf of the Plan?______________________________
________________________________________________________________________________
________________________________________________________________________________
A-15
Does the Plan permit participants to direct the investment of the contributions
made to the Plan on their behalf?
|_| YES |_| NO
If yes, each participant of the Plan must complete Section 13 on pages A-8 to
A-10.
Does the Manager or any of its employees or affiliates manage any part of the
Plan's investment portfolio on a discretionary basis?
|_| YES |_| NO
Does the Manager or any of its employees or affiliates regularly give investment
advice to the Plan?
|_| YES |_| NO
Does the Manager or any of its employees or affiliates have an agreement or
understanding, written or unwritten, with the investment director of the Plan
under which the latter receives information, recommendations and advice
concerning investments which are used as a primary basis for the Plan's
investment decision?
|_| YES |_| NO
Does the Manager or any of its employees or affiliates have an agreement or
understanding, written or unwritten, with the investment director of the Plan
under which the latter receives individualized investment advice concerning the
Plan's assets?
|_| YES |_| NO
IF THE ANSWER TO ANY OF THE QUESTIONS ABOVE IN SECTION 16 OF THIS SUBSCRIPTION
AGREEMENT IS "YES," INDICATE WHETHER ALL OF THE REPRESENTATIONS AND WARRANTIES
BELOW ARE TRUE BY INITIALING BELOW.
Additional Plan Representations and Warranties:
The undersigned authorized signatory of the Plan hereby represents and warrants
on behalf of the Plan that the answers to the following questions are true:
The Administrator of the Plan has studied the Prospectus and has made an
independent decision to purchase the Units solely on the basis thereof and
without reliance on any other information or statements as to the
appropriateness of this investment for the Plan.
All the obligations and requirements of ERISA, including prudence and
diversification, with respect to the investment of "plan assets" in a certain
company (the "Plan Company") have been considered by the Administrator of the
Plan.
The Administrator and, if different, authorized signatory of the Plan
understand that neither the Manager nor any of its affiliates: (a) has exercised
any investment discretion or control with respect to the Plan's purchase of the
security, (b) have authority, responsibility to give, or have given
individualized investment advice with respect to the Plan's purchase of any
securities, or (c) are employers maintaining or contributing to such Plan.
An investment in the Plan Company conforms in all respects to the
governing documents of the Plan.
A-16
The person executing this Subscription Agreement on behalf of the Plan is
a "fiduciary" of such Plan and trust and/or custodial account (within the
meaning of Section 3(21)(A) of ERISA); the execution and delivery of this
Subscription Agreement with respect to the Plan and trust and/or custodial
account have been duly authorized; and investment in the Plan Company conforms
in all respect to laws applicable to the Plan and the Plan documents; and in
making this investment, the Plan, its fiduciaries and its Administrator are
aware of, and have taken into consideration, among other things, risk return
factors and the anticipated effect of an investment in the Plan Company on the
diversification, liquidity and cash flow needs of the Plan and the projected
effect of the investment in meeting the Plan's funding objectives and have
concluded that this investment is a prudent one.
The Plan's governing documents do not prohibit the Plan Company from
investing in specific securities or issues, including, but not limited to,
securities which would be deemed to be "employer securities" with respect to the
Plan as defined in Section 407 of ERISA.
The Plan's proxy voting guidelines do not apply to securities held by the
Plan Company.
The Plan, its Administrator and, if different, the person executing this
Subscription Agreement fully understand the tax considerations and risks of this
investment.
ARE THE FOREGOING REPRESENTATIONS AND WARRANTIES TRUE?
______YES ______NO
-----------------------------------
Authorized Signatory of the Plan
Print Name:
Print Title:
Please provide any other information that would help the Manager determine
whether Investor has sufficient knowledge and experience in financial and
business matters to evaluate the merits and risks of an investment in Units.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-17
17. REGISTRATION INFORMATION FOR THE UNITS
Subscriber Name(s)______________________________________________________________
Co-Subscriber Name (if applicable):_____________________________________________
Subscription Amount: $_________________________________________________________
Check One: |_| Initial Investment |_| Additional Investment
The full address to which any communications, distribution checks, and
redemption checks, if applicable, should be sent (if different from registered
address furnished in response to Sections 13, 14 , 15 or 16 of this Subscription
Agreement) is:
Name(s)_________________________________________________________________________
Address:________________________ City:_____________ State:_____________Zip:_____
Telephone:____________________Fax:______________________ Email: ________________
If the proceeds of distributions or redemptions, if any, are to be
electronically transferred rather than sent by check, provide the account
information to which such proceeds should be electronically transferred is:
Name of Financial Institution:__________________________________________________
Routing ABA Number-if bank:_____________________________________________________
Account Name:___________________________________ Account Number:____________
Address of Financial Institution:_______________________________________________
Telephone:________________________________________Fax:__________________________
Name of Contact Person at Financial Institution:________________________________
A-18
18. SIGNATURE PAGE
Investor hereby certifies that the information provided by Investor in this
Subscription Agreement is true, accurate and complete as of the date hereof, and
further agrees to notify the Manager immediately if any of the statements made
in this Subscription Agreement shall become untrue.
INDIVIDUAL(S)
Investor's primary residence is in _____________________________________________
___________________________ _______________________ Date:____________________
Signature of Subscriber Print Name
___________________________ _______________________ Date:____________________
Signature of Co-Subscriber Print Name
TRUST (i.e., Trust, Estate, Conservatorship, etc.)
- --------------------------------------
Print Legal Name of Trust
__________________________________ ______________________ Date:_____________
Signature of Authorized person Print Name and Title
(i.e., Trustee)
__________________________________ ______________________ Date:_____________
Signature of Other Authorized Print Name and Title
Signatory
LEGAL ENTITY (i.e., Corporation, Partnership, etc.)
- --------------------------------------------------------------
Print Name of Legal Entity (name of company)
By:___________________________________________________________ Date:__________
Signature of Authorized Signatory
- --------------------------------------------------------------
Print Name and Title of Signatory
By: __________________________________________________________ Date:__________
Signature of Required Authorized Co-Signatory
- --------------------------------------------------------------
Print Name and Title of Co-Signatory
A-19
RETIREMENT PLAN (i.e., Employee Benefit Plan, Keogh Plan, IRA, etc.)
- --------------------------------------------------------------
Print Legal Name of Retirement Plan
________________________________________ ________________________ Date:_______
Signature of Individual Plan Participant Print Name
________________________________________ ________________________ Date:_______
Signature of Authorized Signatory Print Name and Title
(i.e., Administrator or Custodian)
________________________________________ ________________________ Date:_______
Signature of Other Authorized Print Name and Title
Co-Signatory
================================================================================
FOR USE BY THE COMPANY ONLY
Subscription has been: |_| Accepted |_| Accepted in Part |_| Rejected |_| Other
Subscription Amount Accepted: $____________________________
Dated: __________________________
AmeriFirst Fund I, LLC
By: AmeriFirst Financial Services, Inc., Manager
By:_______________________________________
Name:_____________________________________
Title:____________________________________
A-20
ADDITIONAL SUBSCRIPTION REQUEST
(TO BE COMPLETED BY ONLY BY EXISTING INVESTORS OF AMERIFIRST FUND I, LLC)
Name(s) of Subscriber (s):______________________________________________________
Additional Subscription Amount:_________________________________________________
The undersigned hereby subscribes for the additional amount set forth
above upon the terms and conditions described in the Prospectus. The
undersigned restates all of the covenants, representations and warranties
made in the undersigned's original Subscription Agreement as if they were
made on the date hereof and certifies that all of the financial
information set forth in the undersigned's original Subscription Agreement
remains accurate and complete on the date hereof.
INDIVIDUAL(S)
Investor's primary residence is in _____________________________________________
____________________________ _____________________________ Date:_________
Signature of Subscriber Print Name
_____________________________ _____________________________ Date:_________
Signature of Co-Subscriber Print Name
TRUST (i.e., Trust, Estate, Conservatorship, etc.)
- --------------------------------------
Print Legal Name of Trust
___________________________________ _________________________ Date:_________
Signature of Authorized person Print Name and Title
(i.e., Trustee)
___________________________________ _________________________ Date:_________
Signature of Other Authorized Print Name and Title
Signatory
LEGAL ENTITY (i.e., Corporation, Partnership, etc.)
- --------------------------------------------------------------
Print Name of Legal Entity (name of company)
By:_______________________________________________________ Date:_____________
Signature of Authorized Signatory
- ----------------------------------------------------------
Print Name and Title of Signatory
By:_______________________________________________________ Date:_____________
Signature of Required Authorized Co-Signatory
- ----------------------------------------------------------
Print Name and Title of Co-Signatory
A-21
RETIREMENT PLAN (i.e., Employee Benefit Plan, Keogh Plan, IRA, etc.)
- --------------------------------------------------------------
Print Legal Name of Retirement Plan
_____________________________________ ________________________ Date:_________
Signature of Individual Plan Print Name
Participant
_____________________________________ ________________________ Date:_________
Signature of Authorized Signatory Print Name and Title
(i.e., Administrator or Custodian)
_____________________________________ ________________________ Date:_________
Signature of Other Authorized Print Name and Title
Co-Signatory
================================================================================
FOR USE BY THE COMPANY ONLY
Subscription has been: |_| Accepted |_| Accepted in Part |_| Rejected |_| Other
Subscription Amount Accepted: $____________________________
Dated:__________________________
AmeriFirst Fund I, LLC
By: AmeriFirst Financial Services, Inc., Manager
By:_________________________________
Name:_______________________________
Title:______________________________
A-22
20. ACCEPTANCE
This Subscription Agreement will not be an effective agreement until it or
a facsimile is signed by AmeriFirst Fund I, LLC.
(Office Use Only)
Account #: _____________________________________________________________________
Investor Check Date: ___________________________________________________________
Check Amount: __________________________________________________________________
Check #: _______________________________________________________________________
Entered by: ____________________________________________________________________
Checked by: ____________________________________________________________________
Date Entered: __________________________________________________________________
Subscription has been: ____Accepted ____Accepted in Part ____Rejected ____Other
Subscription Amount: $________________________ Dated:_____________________
AmeriFirst Fund I, LLC
By: AmeriFirst Financial Services, Inc., Manager
By:________________________________________
John Tooke, President
By:________________________________________ Date:______________________
Registered NASD Representative
By:________________________________________ Date:______________________
Principal
By:________________________________________ Date:______________________
Principal
A-23
APPENDIX A
RESTRICTIONS ON TRANSFER SET FORTH
IN RULE 260.141.11 OF
THE CALIFORNIA CODE OF REGULATIONS TITLE 10, CHAPTER 3 (the "Code")
(a) The issuer of any security upon which a restriction on transfer has been
imposed pursuant to Section 260.141.10 or 260.534 shall cause a copy of
this section to be delivered to each issuee or transferee of such
security.
(b) It is unlawful for the holder of any such security to consummate a sale or
transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed
pursuant to Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the
Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse or any custodian
or trustee for the account of the transferor or the transferor's
ancestors, descendants or spouse; or to a transferee by a trustee or
custodian for the account of the transferee or the transferee's ancestors,
descendants or spouse;
(5) to the holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting
as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal transaction,
or as an underwriter or member of an underwriting syndicate or group;
(9) if the interest sold or transferred is a pledge or other lien given by
the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule is not
required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113, or
25121 of the Code, of the securities to be transferred, provided that no
order under Section 25140 or Subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or
by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112, or 25113
of the Code, provided that no order under Section 25140 or Subdivision (a)
of Section 25148 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are
neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or to
the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or to
the administrator of the unclaimed property law of another state, if, in
either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities; or
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102; provided that any such transfer is on
the condition that any certificate evidencing the security issued to such
transferee shall contain the legend required by this section.
(c) The certificate representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any
transfer thereof, shall bear on their face a legend, prominently stamped
or printed thereon in capital letters of not less than 10-point size,
reading as follows:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFORE, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
EXHIBIT B
OPERATING AGREEMENT
OF
AMERIFIRST FUND I, LLC
(A FLORIDA LIMITED LIABILITY COMPANY)
DATED AS OF SEPTEMBER 25, 2002
TABLE OF CONTENTS
Page
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ARTICLE I: INTERPRETATION ..................................................................... B - 1
SECTION 1.1 DEFINITIONS ............................................................. B - 1
SECTION 1.2 TERMS DEFINED ELSEWHERE ................................................. B - 5
SECTION 1.3 CAPTIONS ................................................................ B - 5
SECTION 1.4 CONSTRUCTION ............................................................ B - 5
ARTICLE II: THE COMPANY AND ITS BUSINESS ...................................................... B - 6
SECTION 2.1 FORMATION OF COMPANY .................................................... B - 6
SECTION 2.2 NAME .................................................................... B - 6
SECTION 2.3 TERM OF COMPANY ......................................................... B - 6
SECTION 2.4 PURPOSES OF COMPANY ..................................................... B - 6
SECTION 2.5 REGISTERED OFFICE AND REGISTERED AGENT AND PRINCIPAL BUSINESS
OFFICE ............................................................................... B - 6
SECTION 2.6 FILINGS ................................................................. B - 6
SECTION 2.7 NAMES OF MEMBERS ........................................................ B - 7
SECTION 2.8 RECAPITALIZATION, ACQUISITIONS, RESTRUCTURING
AND MERGERS .......................................................................... B - 7
ARTICLE III: COMPANY INTERESTS AND CAPITALIZATION ............................................. B - 7
SECTION 3.1 CAPITAL CONTRIBUTION OF THE MANAGER ..................................... B - 7
SECTION 3.2 CAPITAL CONTRIBUTIONS OF MEMBERS ........................................ B - 7
SECTION 3.3 RESERVE ACCOUNT; CAPITAL CALL ........................................... B - 8
SECTION 3.4 NO WITHDRAWAL OF CAPITAL CONTRIBUTIONS; RETURN OF CAPITAL
CONTRIBUTIONS ........................................................................ B - 8
SECTION 3.5 NO OBLIGATION TO RESTORE NEGATIVE BALANCES IN CAPITAL
ACCOUNTS ............................................................................. B - 8
SECTION 3.6 LIABILITY OF MANAGER AND MEMBERS AND THEIR AFFILIATES ................... B - 9
SECTION 3.7 CONTRIBUTIONS OF LIFE INSURANCE POLICIES ................................ B - 9
ARTICLE IV: ALLOCATIONS OF PROFITS, LOSSES AND CAPITAL ACCOUNTS ............................... B - 9
SECTION 4.1 ALLOCATION OF NET INCOME AND NET LOSS ................................... B - 9
SECTION 4.2 OTHER ALLOCATION PROVISIONS ............................................. B - 9
SECTION 4.3 ALLOCATIONS FOR INCOME TAX PURPOSES ..................................... B - 13
SECTION 4.4 WITHHOLDING ............................................................. B - 13
SECTION 4.5 CAPITAL ACCOUNTS ........................................................ B - 13
ARTICLE V: DISTRIBUTIONS ...................................................................... B - 13
SECTION 5.1 DISTRIBUTIONS ........................................................... B - 13
SECTION 5.2 CERTAIN STATE AND LOCAL TAXES ........................................... B - 14
SECTION 5.3 TIMING OF DISTRIBUTIONS ................................................. B - 14
SECTION 5.4 LIMITATIONS ON DISTRIBUTIONS ............................................ B - 14
SECTION 5.5 RESERVES ................................................................ B - 14
SECTION 5.6 TAX DISTRIBUTIONS ....................................................... B - 15
TABLE OF CONTENTS
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SECTION 5.7 INCORRECT DISTRIBUTIONS ................................................. B - 15
SECTION 5.8 DISTRIBUTIONS IN KIND ................................................... B - 15
ARTICLE VI: MANAGEMENT ........................................................................ B - 15
SECTION 6.1 MANAGEMENT POWERS OF THE MANAGER ........................................ B - 15
SECTION 6.2 MANAGER'S OBLIGATIONS ................................................... B - 17
SECTION 6.3 PROCEDURES .............................................................. B - 17
SECTION 6.4 MANAGER'S DUTY TO DEVOTE TIME ........................................... B - 18
SECTION 6.5 CONDUCT OF MANAGER; LIMITED LIABILITY OF THE MANAGER .................... B - 18
SECTION 6.6 INDEMNIFICATION ......................................................... B - 18
SECTION 6.7 CERTAIN TRANSACTIONS BETWEEN THE COMPANY AND THE
MANAGING MEMBER AND ITS AFFILIATES ................................................... B - 18
SECTION 6.8 DEFAULT OF MANAGER ...................................................... B - 19
SECTION 6.9 REMOVAL OF MANAGER; SUCCESSOR ........................................... B - 21
SECTION 6.10 BORROWING .............................................................. B - 21
ARTICLE VII: BOOKS, RECORDS, TAXES AND REPORTS ................................................ B - 21
SECTION 7.1 BOOKS OF ACCOUNT ........................................................ B - 21
SECTION 7.2 BANK ACCOUNTS ........................................................... B - 21
SECTION 7.3 TAX RETURNS ............................................................. B - 21
SECTION 7.4 TAX MATTERS PARTNER ..................................................... B - 22
SECTION 7.5 RECORDS ................................................................. B - 22
SECTION 7.6 CLOSING DATE REPORTS .................................................... B - 23
SECTION 7.7 MANAGER'S QUARTERLY CERTIFICATE ......................................... B - 23
SECTION 7.8 MANAGER'S ANNUAL CERTIFICATE ............................................ B - 23
SECTION 7.9 ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SUBSERVICING REPORTS ............. B - 24
SECTION 7.10 REPORTS TO MEMBERS ..................................................... B - 24
ARTICLE VIII: ADMISSION OF MEMBERS ............................................................ B - 25
SECTION 8.1 ADMISSION OF MEMBERS .................................................... B - 25
ARTICLE IX: TRANSFERS OF INTERESTS OF MEMBERS ................................................. B - 26
SECTION 9.1 GENERAL PROHIBITION ..................................................... B - 26
SECTION 9.2 GENERAL CONDITIONS TO PERMITTED TRANSFER ................................ B - 26
SECTION 9.3 VOID TRANSFERS .......................................................... B - 27
SECTION 9.4 PERMITTED TRANSFERS ..................................................... B - 28
SECTION 9.5 LEGENDS ................................................................. B - 28
ARTICLE X: DEATH, LEGAL INCOMPETENCY, OR WITHDRAWAL OF A MEMBER ............................... B - 28
SECTION 10.1 EFFECT OF DEATH OR LEGAL INCOMPETENCY OF A MEMBER OF
THE COMPANY .......................................................................... B - 28
SECTION 10.2 RIGHTS OF PERSONAL REPRESENTATIVE ...................................... B - 29
SECTION 10.3 WITHDRAWAL OF MEMBERS OTHER THAN MANAGERS .............................. B - 29
TABLE OF CONTENTS
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ARTICLE XI: BANKRUPTCY, DISSOLUTION AND TERMINATION ........................................... B - 30
SECTION 11.1 BANKRUPTCY ............................................................. B - 30
SECTION 11.2 DISSOLUTION ............................................................ B - 30
SECTION 11.3 LIQUIDATION ............................................................ B - 31
SECTION 11.4 TERMINATION ............................................................ B - 31
ARTICLE XII: AMENDMENT OF AGREEMENT AND POWER OF ATTORNEY ..................................... B - 31
SECTION 12.1 AMENDMENTS ............................................................. B - 31
SECTION 12.2 AMENDMENT OF ARTICLE OF ORGANIZATION ................................... B - 32
SECTION 12.3 POWER OF ATTORNEY ...................................................... B - 32
ARTICLE XIII: MISCELLANEOUS PROVISIONS ........................................................ B - 32
SECTION 13.1 NOTICES ................................................................ B - 32
SECTION 13.2 SEVERABILITY ........................................................... B - 33
SECTION 13.3 COUNTERPARTS ........................................................... B - 33
SECTION 13.4 ENTIRE AGREEMENT ....................................................... B - 33
SECTION 13.5 FURTHER ASSURANCES ..................................................... B - 33
SECTION 13.6 SUCCESSORS AND ASSIGNS ................................................. B - 33
SECTION 13.7 WAIVER OF ACTION FOR PARTITION ......................................... B - 33
SECTION 13.8 CREDITORS .............................................................. B - 33
SECTION 13.9 REMEDIES ............................................................... B - 33
SECTION 13.10 WRITING REQUIREMENT ................................................... B - 33
SECTION 13.11 WAIVER ................................................................ B - 34
SECTION 13.12 APPLICABLE LAW ........................................................ B - 34
SECTION 13.13 SIGNATURES ............................................................ B - 34
MEMBER SIGNATURE PAGE ......................................................................... B - 35
SCHEDULE A .................................................................................... B - 36
OPERATING AGREEMENT
OF
AMERIFIRST FUND I, LLC
OPERATING AGREEMENT, dated as of September 25, 2002 (the "Agreement"), by
AmeriFirst Financial Sevices, Inc., and each of the Members (as defined below)
listed on Schedule A, annexed hereto, as the same shall be updated by the
Manager from time to time, and that have executed this Agreement by signing one
of the counterpart signature pages annexed hereto.
RECITALS
WHEREAS, AmeriFirst Fund I, LLC (the "Company") was formed on September
20, 2002, as a Florida limited liability company pursuant to Florida Limited
Liability Company Act, 608 Fla.C.Section 608.401, et seq., as amended from time
to time (the "Florida Act");
WHEREAS, the Company has been established for the purpose of acquiring
life insurance policies ("Life Insurance Policies") for less than the face
amount of the Life Insurance Policy by providing living benefits to terminally
ill and chronically ill persons and senior citizens in exchange for an
assignment of, and an irrevocable beneficial interest in, and right to receive
the face value of, such Life Insurance Policy ("Life Settlements"); and
WHEREAS, the Manager shall be the Manager of the Company and without
limiting any other rights, powers or duties specified in this Agreement, shall
have all of the rights, powers and duties specified under the Florida Act.
NOW THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Member(s) agree(s) as follows:
ARTICLE I: INTERPRETATION
SECTION 1.1 DEFINITIONS. Unless otherwise expressly provided herein or
unless the context clearly requires otherwise, the following terms as used in
this Agreement shall have the following meanings:
"AFFILIATE." (i) Any officer, member, partner, director or controlling
shareholder of the Person in question; (ii) any Person controlling, controlled
by or under common control with any Person described in (i) above; (iii) any
officer, member, director, trustee or general partner of
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any Person described in (i) or (ii) above; and (iv) any Person who is a member,
other than as a limited partner, with any Person described in (i) or (ii) above
in a joint venture, limited liability company, general partnership or similar
form of unincorporated business association. For purposes of this definition,
the term `control' shall also mean the control or ownership of 10% or more of
the beneficial interest in the Person to whom referred.
"ARTICLES OF ORGANIZATION." The Articles of Organization of the Company,
and any amendments thereto, executed and filed in accordance with the Florida
Act.
"CAPITAL ACCOUNT." With respect to each Member, a single account
established and maintained for such Member in accordance with the principles of
Sections 1.704-1(b)(2)(iv) and 1.704-2 of the Regulations. Subject to the
preceding sentence, each Capital Account will initially equal the amount of the
Capital Contribution made by such Member at the time such Member is admitted as
a Member in the Company and, throughout the term of the Company, will be (i)
increased by the amount of (A) Net Income and income and gains allocated to such
Member pursuant to Article IV and (B) the amount of any cash and the Value of
any property (net liabilities secured by the property that the Company is
considered to assume or take subject to pursuant to the provisions of Section
752 of the Code) subsequently contributed by such Member to the Company and (ii)
decreased by the amount of (A) Net Losses and deductions and expenditures
described in Section 705(a)(2)(B) of the Code, allocated to such Member pursuant
to Article IV and (B) the amount of cash and the Value of (net of liabilities
secured by the property that the Member is considered to assume or take subject
to pursuant to the provisions of Section 752 of the Code) of any property
distributed to such Member pursuant to Articles V and IX.
"CAPITAL CONTRIBUTIONS." Any contributions made to the Company pursuant to
Article III by the Members or any one Member, as the case may be (or the
predecessor holders of the Interests of such Members).
"CODE." The Internal Revenue Code of 1986, as amended, and as may be
amended from time to time.
"FISCAL YEAR." The fiscal year of the Company as determined in accordance
with Section 6.1 of this Agreement.
"INDEMNIFIED PERSON." Any Member; any Affiliate of a Member; any officer,
director, manager, shareholder, partner, member, employee, representative or
agent of any Member; and any employee or agent of the Company.
"INSURED." Any individual named as the insured in the Life Insurance
Policy.
"INTEREST." The ownership interest of a Member in the Company as reflected
in the records maintained by the Company at its offices, as the same may, from
time to time, be
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required to be amended (which shall be considered personal property for all
purposes), consisting of such Member's share in allocations and distributions.
"Life Settlements Account." A separate, interest-bearing account, for
which funds deposited therein are held for the benefit of the Members and shall
be subject to distribution in accordance with this Agreement and the Servicing
Agreement.
"MANAGER." AmeriFirst Financial Services, Inc. or any Person replacing
AmeriFirst Financial Services, Inc.
"MATURITY." The time at which the proceeds of a Life Insurance Policy
become due (i.e., upon the death of the Insured).
"MEMBER." An owner of the Units in the Company, unless the instruments
through which the Units were Transferred to the owner did not also convey the
transferor's status as a Member.
"NASD." NASD, Inc.
"NET INCOME OR NET LOSS." respectively, for any period means the income or
loss of the Company for such period as determined in accordance with the method
of accounting followed by the Company for Federal income tax purposes,
including, for all purposes, any income exempt from tax and any expenditures of
the Company which are described in Section 705(a)(2)(B) of the Code; provided,
however, that in determining Net Income and Net Loss and every item entering
into the computation thereof, solely for the purpose of adjusting the Capital
Accounts of the Members (and not for tax purposes), (i) any income, gain, loss
or deduction attributable to the taxable disposition of any of the Company's
assets shall be computed as if the adjusted basis of such asset of the Company
on the date of such disposition equaled its book value as of such date, (ii) if
any of the Company's assets is distributed in kind to a Member, the difference
between its Value and its book value at the time of such distribution shall be
treated as gain or loss, and (iii) any depreciation, cost recovery and
amortization as to any of the Company's assets shall be computed by assuming
that the adjusted basis of such asset of the Company equaled its book value
determined under the methodology described in Section 1.704-1(b)(2)(iv)(g)(3) of
the Regulations; provided, further, that any item (computed with the adjustments
in the preceding provision) allocated under Section 4.2 hereof shall be excluded
from the computation of Net Income and Net Loss.
"NET PROCEEDS." The net proceeds paid from the Life Insurance Policies at
Maturity.
"PERSON." An individual, corporation, partnership, limited liability
company, trust, unincorporated organization, association or other entity.
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"PRESUMED TAX LIABILITY." For any Member for any Fiscal Year, an amount
equal to the product of (a) the amount of taxable income allocated to such
Member for that Fiscal Year and (b) the Presumed Tax Rate.
"PRESUMED TAX RATE." The highest effective combined Federal and state
income tax rate applicable during such Fiscal Year to a natural person residing
in one of the States in which individual Members reside, based on the highest
marginal Federal income tax rate and the highest marginal state income tax rates
(after giving effect to the Federal income tax deduction for such state taxes
and disregarding the effects of Section 67 and 68 of the Code).
"PRO RATA SHARE." A proportionate share equal to the Capital Account of
the Member divided by the aggregate Capital Accounts of all Members.
"PROSPECTUS." The final prospectus filed with the Securities and Exchange
Commission for the public offering of the Units.
"REGULATIONS." The Treasury Regulations promulgated under the Code as such
regulations may be amended from time to time (including the corresponding
provisions of succeeding regulations.)
"RETURN." The amount actually received, in proportion to such Member's Pro
Rata Share, on a Life Insurance Policy at Maturity.
"SERVICING AGREEMENT." The agreement entered into between the Company and
a third party servicer, in connection with the servicing of the Life Insurance
Policies, in the form attached as an exhibit to the Prospectus.
"SUBSCRIPTION AGREEMENT." The document that is an exhibit to and part of
the Prospectus that every Person who buys Units of the Company must execute and
deliver with full payment for the Units and which, among other provisions,
contains the written consent of each Member to the adoption of this Agreement.
"SUBSTITUTED MEMBER." Person admitted to the Company as a substituted
Member under Article IX.
"TRANSFER/TRANSFERRED." The mortgage, pledge, hypothecation, transfer,
sale, assignment, gift or other disposition, in whole or in part, of an
Interest, whether voluntarily, by operation of law or otherwise.
"UNITS." Represent fractional undivided beneficial Interests in the income
to be generated from Life Insurance Policies acquired by the Company and that
are (a) issued to Members upon their admission to the Company under the
Subscription Agreement and the Prospectus, or (b) Transferred to those who
become Substituted Members.
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"VALUE." Fair market value.
SECTION 1.2 TERMS DEFINED ELSEWHERE. The following terms have been defined
in the locations set forth below.
DEFINED TERM LOCATION
Adjusted Capital Account ................................... Section 4.2(c)
Agreement................................................... Caption
Capital Call................................................ Section 3.3
Company..................................................... 1st Recital
Company Counsel............................................. Section 6.7(d)
Family Member .............................................. Section 10.4(b)(i)
Florida Act................................................. 1st Recital
Life Insurance Policies..................................... 2nd Recital
Life Settlements............................................ 2nd Recital
Manager Default............................................. Section 6.8
Permitted Transferee........................................ Section 9.4(b)
Rules....................................................... Section 6.7(d)
Special Reserve Escrow Account.............................. Section 3.3
TMP......................................................... Section 8.4
SECTION 1.3 CAPTIONS. The captions used in this Agreement are inserted for
convenience and identification only and are in no way intended to define or
limit the scope, extent or intent of this Agreement or any of the provisions
hereof.
SECTION 1.4 CONSTRUCTION. Unless the context otherwise requires, the terms
defined in Sections 1.1 and 1.2 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms defined herein. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation." The use of the neuter gender herein shall be deemed to
include the masculine and feminine genders wherever necessary or appropriate;
the use of the masculine gender shall be deemed to include the neuter and
feminine genders wherever necessary or appropriate and the use of the feminine
gender shall be deemed to include the neuter and masculine genders wherever
necessary or appropriate.
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ARTICLE II: THE COMPANY AND ITS BUSINESS
SECTION 2.1 FORMATION OF COMPANY. The Company has been organized as a
Florida limited liability company pursuant to the provisions of the Florida Act.
The rights and liabilities of the Members, the management of the affairs of the
Company and the conduct of its business shall be as provided in the Florida Act,
except as herein otherwise expressly provided.
SECTION 2.2 NAME. The name of the Company shall be AmeriFirst Fund I, LLC,
but the Manager, in its discretion, may change the name of the Company at any
time and from time to time upon written notice to the Members.
SECTION 2.3 TERM OF COMPANY. The existence of the Company shall be deemed
to have commenced as of the date of the initial filing of the Articles of
Organization with the office of the Department of State of the State of Florida
on September 20, 2002 and shall terminate on December 31, 2027, unless earlier
dissolved or terminated in accordance with Article XI of this Agreement or as
provided by law.
SECTION 2.4 PURPOSES OF COMPANY. The Company may engage in any lawful act
or activity for which limited liability companies may be formed under the
Florida Act and engage in any and all activities necessary or incidental.
SECTION 2.5 REGISTERED OFFICE AND REGISTERED AGENT AND PRINCIPAL BUSINESS
OFFICE. The registered office of the Company required by the Florida Act to be
maintained in the State of Florida shall be at such place as set forth in the
Articles of Organization, or at such other location as may hereafter be
determined by the Manager. The registered agent of the Company in the State of
Florida shall be the initial registered agent named in the Articles of
Organization or such other Person or Persons as the Manager may designate from
time to time. The principal office of the Company shall be at 814 Highway A1A,
Suite 300, Ponte Vedra Beach, Florida 32082 or at such other place as the
Manager may designate from time to time, and the Company shall maintain records
as such place as required by the Florida Act.
SECTION 2.6 FILINGS. (a) The Manager is authorized to execute, file and
record all such certificates and documents, including amendments to the Articles
of Organization, and to do such other acts as may be appropriate to comply with
all requirements for the formation, continuation and operation of a limited
liability company, the ownership of property, and the conduct of business under
the laws of the State of Florida and any other jurisdiction in which the Company
may own property or conduct business, including, without limitation,
qualification of the Company as a foreign limited liability company in any state
in which such qualification is required. The Manager is authorized to execute,
file and publish, or cause to be filed and published, with the proper
authorities in each jurisdiction where the Company conducts business, such
certificates or documents in connection with the conduct of business pursuant to
a fictitious name or similar statute.
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(b) The Members from time to time shall execute, acknowledge, verify,
file, record and publish all such applications, certificates and other
documents, and do or cause to be done all such other acts as the Manager may
deem necessary or appropriate to comply with the requirements of law for the
formation, qualification and operation of the Company as a limited partnership
in all jurisdictions in which the Company shall desire to conduct business.
SECTION 2.7 NAMES OF MEMBERS. The name of each Member is set forth on the
signature pages hereto and the name, address and Capital Contribution of each
Member are set forth on the records maintained by the Company at its offices for
such purpose. If necessary, such records shall from time to time be amended to
reflect any changes to the information set forth therein.
SECTION 2.8 RECAPITALIZATION, ACQUISITIONS, RESTRUCTURING AND MERGERS. The
Company may participate in or be a party to any recapitalization, sale of
substantially all of its assets, restructuring or merger in accordance with and
as allowed by the Florida Act and subject to any other applicable terms of this
Agreement and the Florida Act; provided, however, that no recapitalization, sale
of substantially all of its assets, restructuring or merger which adversely
affects the Members shall proceed without the approval of Members with Capital
Accounts that are more than two-thirds of the Capital Account of all Members.
ARTICLE III: COMPANY INTERESTS AND CAPITALIZATION
SECTION 3.1 CAPITAL CONTRIBUTION OF THE MANAGER. (a) The Manager has
contributed $10.00 to the capital of the Company in cash or property and is a
Member of the Company.
(b) The Manager shall not be required to contribute any additional capital
to the Company or, except as expressly set forth in this Agreement, to lend any
funds to the Company.
SECTION 3.2 CAPITAL CONTRIBUTIONS OF MEMBERS. The Members shall acquire
Units in accordance with the terms of the Subscription Agreement or any future
subscription material approved by the Manager. The names, addresses, date of
admissions and Capital Contributions of the Members shall be set forth in a
schedule maintained by the Manager in the form attached hereto as Schedule A.
The Manager shall update the schedule to reflect the then current ownership of
Units without any further need to obtain the consent of any Member, and the
schedule, as revised from time to time by the Manager, shall be presumed correct
absent manifest error. Any Member shall have a right to inspect such schedule
upon written request to the Manager.
"Capital Contribution" shall include cash contributions or otherwise,
including contributions of entire or fractional interest in Life Insurance
Policies, or a rollover of assets from a qualified plan, such as an Individual
Retirement Account.
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SECTION 3.3 RESERVE ACCOUNT; CAPITAL CALL. (a) The Company shall establish
a special reserve escrow account (the "Special Reserve Escrow Account")to pay
premiums on all Life Insurance Policies. The Special Reserve Escrow Account
shall equal approximately 150% of the annual premiums for the estimated life
expectancies of the individual insureds in the pool of Life Insurance Policies.
(b) In the event that sufficient funds are unavailable to pay the premiums
on the Life Insurance Policies and a Life Insurance Policy would lapse, the
Manager shall have the right, in its sole discretion, to require all Members to
make additional Capital Contributions ("Capital Call") of up to six (6) months
premiums to insure that no Life Insurance Policy lapses. The Members will make
the Capital Call in proportion to their Interests in the Company. Capital Calls
made pursuant to this provision shall be made within thirty (30) days after
receipt of notice from the Manager. If a Member shall default in making any such
Capital Call, then the other Members shall have, with respect to the defaulted
Capital Contribution, the right to contribute, pro rata, and receive a premium
to be determined by the Manager of the Interest attributable to the defaulted
Capital Contribution.
(c) In connection with any expenses incurred by the Company, not in the
ordinary course of business (i.e., costs in servicing Life Insurance Policies or
litigation costs), the Manager may, at its sole direction establish a
contingency reserve to cover such expenses. If the funds in such contingency
reserve are inadequate to cover such expenses, the Manager may require Members
to make a Capital Call to such reserve in proportion to their Interests in the
Company. Upon the termination of the Company, the balance of the Special Reserve
Escrow Account shall be distributed, pro rata to the contributing Members
adjusted to take into account any premiums set forth in subparagraph (b) above.
SECTION 3.4 NO WITHDRAWAL OF CAPITAL CONTRIBUTIONS; RETURN OF CAPITAL
CONTRIBUTIONS. (a) No Member shall be entitled to withdraw, reduce or demand any
part of its Capital Contribution or to receive any distributions from the
Company, except as expressly provided in Article V and Section 10.3 of this
Agreement. No Member shall have the right to receive interest on its Capital
Contribution.
(b) None of the Members, nor any of their respective Affiliates, nor any
officer, member, director, shareholder, employee or agent of the Members or
their Affiliates, shall be personally liable for the return or repayment of any
Capital Contribution.
SECTION 3.5 NO OBLIGATION TO RESTORE NEGATIVE BALANCES IN CAPITAL
ACCOUNTS. No Member shall have an obligation, at any time during the term of the
Company or upon its liquidation, to pay to the Company or any other Member or
third party an amount equal to the negative balance in such Member's Capital
Account.
SECTION 3.6 LIABILITY OF MANAGER AND MEMBERS AND THEIR AFFILIATES. Except
as otherwise provided by applicable law, the debts, obligations and
B-8
liabilities of the Company, whether arising in contract, tort or otherwise,
shall be solely the debts, obligations and liabilities of the Company; neither
the Manager nor any Member nor any Affiliate of the Manager or any Member shall
be obligated personally for any such debt, obligation or liability of the
Company solely by reason of being a Manager or Member or being an Affiliate of
either of them.
SECTION 3.7 CONTRIBUTIONS OF LIFE INSURANCE POLICIES. The Manager, in its
sole discretion, may accept, in lieu of cash, from anyone other than an
Affiliate of the Manager or the Company, as an initial Capital Contribution in
exchange for Units in the Company, an entire or fractional interest in Life
Insurance Policies.
ARTICLE IV: ALLOCATIONS OF PROFITS, LOSSES AND CAPITAL ACCOUNTS
SECTION 4.1 ALLOCATION OF NET INCOME AND NET LOSS. Except as provided in
Section 4.2, the Company's Net Income or Net Loss, as the case may be, and each
item of income, loss and deduction entering into the computation thereof, for
each Fiscal Year shall be allocated as follows:
(a) Net Income and Net Loss for such Fiscal Year shall be allocated as
follows:
(i) Net Income of the Company shall be allocated to the Members on
their Pro Rata Share.
(ii) All Net Losses shall be allocated to the Members on their Pro
Rata Share after reimbursement to the parent of the Manager of .5% of the gross
proceeds of the Offering of Units to cover a portion of the expenses of the
offering.
(b) Notwithstanding the provisions of Sections 4.1 (a) hereof, in the
Fiscal Year in which the Company is liquidated, the Manager shall allocate Net
Income, Net Loss and items of income, gain, loss and deduction to the extent
possible to cause distributions to the Members, to equal the distributions the
Members would have received were liquidating distributions effected pursuant to
Article V hereof.
SECTION 4.2 OTHER ALLOCATION PROVISIONS. (a) Items of tax expense payable
by the Company or withheld on income received by the Company shall be included
in the computation of Net Income and Net Loss and allocated pursuant to Section
4.1 hereof, provided, that where an item of tax expense payable by the Company
or where a withholding tax on income or payments received by the Company is
allocated, under applicable law, with respect to income allocable to some (but
not all) of the Members or to the extent income allocable to some of the Members
is exempt from tax in the hands of the Company, such tax expense or withholding
shall be allocated, as reasonably determined by the Manager, only to such
Members to whom allocations of income are subject to tax in the hands of the
Company and distributions to the Members shall be adjusted appropriately.
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(b) If there is a net decrease in "Company minimum gain" (within the
meaning of Section 1.704-2(d) of the Regulations) for a Fiscal Year, then there
shall be allocated to each Member items of income and gain for that Fiscal Year
equal to that Member's share of the net decrease in "Company minimum gain"
(within the meaning of Section 1.704-2(g)(2)of the Regulations) subject to the
exceptions set forth in Sections 1.704-2(f)(2), (3) and (5) of the Regulations,
provided, that if the Company has any discretion as to an exception set forth
pursuant to Section 1.704-2(f)(5)of the Regulations, the Manager may exercise
such discretion on behalf of the Company. The Manager shall, if the application
of the "minimum gain chargeback" requirement pursuant to Section 1.704-2(f)(4)
of the Regulations would cause a distortion in the economic arrangement among
the Members, ask the Commissioner of the Internal Revenue Service to waive the
"minimum gain chargeback" requirement. The foregoing is intended to be a
"minimum gain chargeback" provision as described in Section 1.704-2(f) of the
Regulations and shall be interpreted and applied in all respects accordingly.
If during the Fiscal Year there is a net decrease in Member nonrecourse
debt minimum gain (as determined in accordance with Section 1.704-2(i)(3) of the
Regulations), then, in addition to the amounts, if any, allocated pursuant to
the preceding paragraph, any Member with a share of that Member nonrecourse debt
minimum gain (determined in accordance, with Section 1.704-2(i)(5)-2 of the
Regulations as of the beginning of the Fiscal Year shall, subject to exceptions
set forth in Section 1.704-2(i)(4)of the Regulations (provided, that if the
Company has any discretion as to an exception, the Manager may exercise such
discretion on behalf of the Company) shall be allocated items of income and gain
for the Fiscal Year (and, if necessary, for succeeding Fiscal Years) equal to
that Member's share of the net decrease in the Member nonrecourse debt minimum
gain. The Manager shall, if the application of the Member nonrecourse debt
minimum gain chargeback requirement would cause a distortion in the economic
arrangement among the Members, ask the Commissioner of the Internal Revenue
Service to waive the minimum gain chargeback requirement pursuant to Sections
1.704-2(f)(4) and 1-704-2(i)(4)of the Regulations. The foregoing is intended to
be the "chargeback of Member nonrecourse debt minimum gain" required by Section
1.704-2(i)(4) of the Regulations and shall be interpreted and applied in all
respects accordingly.
(c) If during any Fiscal Year a Member unexpectedly receives an
adjustment, allocation or distribution described in Sections
1.704-1(b),(2)(ii)(d), (5) or (6) of the Regulations, which causes or increases
a deficit balance in the Member's Adjusted Capital Account, there shall be
allocated to the Member items of income and gain (consisting of a pro rata
portion of each item of Company income, including gross income, and gain for
such year) in an amount and manner sufficient to eliminate such deficit as
quickly as possible. The foregoing is intended to be a "qualified income offset"
provision as set forth in Section 1.704-1 (b)(2)(ii)(d) of the Regulations and
shall be interpreted and applied in all respects accordingly.
A Member's "Adjusted Capital Account", at any time, shall equal the
Member's Capital Account at such time (x) increased by the sum of (A) the amount
of the Member's share of
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Company minimum gain (as defined in Sections 1.704-2(g)(1) and (3) of the
Regulations, (B) the amount of the Member's share of Member nonrecourse debt
minimum gain (as defined in Section 1.704-2(i)(5) of the Regulations), and (C)
any amount of the deficit balance in its Capital Account the Member is obligated
to restore on liquidation of the Company or other amount that the Member is
treated as obligated to restore pursuant to Sections 1.704-1 (b)(2)(ii)(c) and
(y) of the Regulations, decreased by reasonably expected adjustments,
allocations and distributions set forth in Sections 1.704-1(b)(2)(ii)(d)(4), (5)
and (6)of the Regulations. This definition shall be interpreted consistently
with Section 1.704-1 (b)(2)(ii)(d)of the Regulations.
(d) If any Member has a deficit in its Adjusted Capital Account, such
Member shall be specially allocated items of Company income and gain in the
amount of such deficit as rapidly as possible, provided, that an allocation
pursuant to this Section 4.2(d). shall be made if and only to the extent that
such Member would have a deficit in its Adjusted Capital Account after all other
allocations provided for in this Agreement have been tentatively made as if this
Section 4.2(d) were not in this Agreement.
(e) Notwithstanding anything to the contrary in this Article
(i) Company losses, deductions or expenditures described in Section
705(a)(2)(b) of the Code, that are attributable to a particular Member
nonrecourse liability shall be allocated to the Member that bears the economic
risk of loss for the liability in accordance with the rules of Section
1.704-2(i) of the Regulations; and,
(ii) Company losses, deductions or expenditures described in Section
705(a)(2)(b) of the Code, that are attributable to Company nonrecourse
liabilities shall be allocated to the Members in proportion to their Capital
Contributions.
(f) Notwithstanding any provision of Section 4.1 hereof, no allocation of
Net Losses, shall be made to a Member if it would cause the Member to have a
negative balance in its Adjusted Capital Account. Allocations of Net Losses that
would be made to a Member but for this Section 4.2(f) shall instead be made to
other Members pursuant to Section 4.1 to the extent not inconsistent with this
Section 4.2(f). To the extent allocations of Net Losses cannot be made to any
Member because of this Section 4.2(f), such allocations shall be made to the
Members in accordance with Section 4.1 hereof notwithstanding this Section
4.2(f).
(g) To the extent that any item of income, gain, loss or deduction has
been specially allocated pursuant to Paragraphs (c), (d), (f) or (h) of this
Section 4.2 and such allocation is inconsistent with the way in which the same
amount otherwise would have been allocated under Section 4.1, subsequent
allocations under Section 4.1 shall be made, to the extent possible and without
duplication, in a manner consistent with Paragraphs (b), (c), (d), (f), and
(h) of Section 4.2 hereof, which negate as rapidly as possible the effect of all
such inconsistent allocations under said Paragraphs (c), (d), (f) and (h).
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(h) Except to the extent otherwise required by the Code and Regulations,
if an Interest in the Company or part thereof is Transferred in any Fiscal Year,
the Net Income, Net Loss and items of income, gain, loss, deduction and credit
allocable to the Interest in the Company for such Fiscal Year shall be
apportioned between the transferor and the transferee in proportion to the
number of days in such Fiscal Year that such Interest is held by each of them,
except that, if they agree between themselves and so notify the Manager within
thirty (30) days after the Transfer, then at their option and expense, (i) all
items or (ii) extraordinary items, including capital gains and losses, may be
allocated to the Person who held the Interest on the date such items were
realized or incurred by the Company.
(i) In determining the Members' share of the excess nonrecourse
liabilities of the Company, if any, for purposes of Section 1.752-3(a)(3) of the
Regulations, the Members' share of Company profits shall be proportional to the
Members' Capital Contributions.
(j) Any allocations made pursuant to this Article IV shall be made in the
following order:
(i) Section 4.2(b);
(ii) Section 4.2(c);
(iii) Section 4.2(e);
(iv) Section 4.2(g);
(v) Section 4.2(a);
(vi) Section 4. 1; and
(vii) Section 4.2(d).
These provisions shall be applied as if all distributions and allocations
were made at the end of the Fiscal Year. Where any provision depends on the
Capital Account of any Member, that Capital Account shall be determined after
the operation of all preceding provisions for the Fiscal Year. These allocations
shall be made consistently with the requirements of Section 1.704-2(j)of the
Regulations.
(k) The Manager may vary the allocations provided for in this Article IV
to the extent it believes it reasonably necessary to comply with the
requirements of Sections 1-704-1(b)and 1.704-2 of the Regulations, provided,
that any variations in the amounts allocated to a Member shall not materially
affect the amounts distributed to such Member.
SECTION 4.3 ALLOCATIONS FOR INCOME TAX PURPOSES. The income, gains,
losses, deductions and credits of the Company shall be allocated in the same
manner as the items
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entering into the computation of Net Income and Net Loss were allocated under
Section 4.1 and 4.2; provided, however, that solely for Federal, state and local
income and franchise tax purposes not for book or Capital Account
purposes--income, gain, loss and deduction with respect to any property properly
carried, on the Company's books at a book value other than the tax basis of such
property shall be allocated in a manner determined in the Manager's discretion,
so as to take into account (consistently with Section 704(c) of the Code and
Section 1.704-3 of the Regulations) the difference between such property's book
value and its tax basis.
SECTION 4.4 WITHHOLDING. The Company shall comply with withholding
requirements under Federal, state and local laws and shall remit amounts
withheld to and file required forms with the applicable jurisdictions. To the
extent the Company is required to withhold and pay over any amounts to any
authority with respect to distributions or allocations to any Member, the amount
withheld shall be deemed to be a distribution in the amount of the withholding
to that Member. In the event of any claimed over-withholding, Members shall be
limited to an action against the applicable jurisdiction. If the amount withheld
has not been withheld from actual distributions, the Company may, at its option,
(i) require the Member to reimburse the Company for such withholding, which
reimbursement shall be treated as a reduction in the deemed distribution to the
Members referred to in the previous sentence by such Member, or (ii) reduce any
subsequent distributions by the amount of such withholding. Each Member agrees
to furnish the Company with any representations and forms as shall reasonably be
requested by the Company to assist it in determining the extent of, and in
fulfilling, its withholding obligations.
SECTION 4.5 CAPITAL ACCOUNTS. The Company shall establish and maintain a
separate Capital Account for each Member and its legal representatives,
successors and permitted assigns in accordance with the definition of "Capital
Account" in Article I above.
ARTICLE V: DISTRIBUTIONS
SECTION 5.1 DISTRIBUTIONS. Except for any distributions expressly required
or permitted to be made under this Article V and subject to Sections 5.4 and
5.5, the amount and timing of all distributions of cash and of property other
than cash, will be at the discretion of the Manager; provided, however, no
distribution is permitted, if after the distribution, the Company would be
insolvent. All distributions pursuant to this Section 5.1 will be made to the
Members as follows:
(a) An amount equal to the Net Proceeds, less all amounts previously
distributed to the Members, shall be distributed to the Members in proportion to
their respective Pro Rata Share; and
(b) Any cash or other property, other than Life Insurance Policies and
Capital Contributions that have not been invested, remaining after the
distributions set forth in Paragraph (a) above and after retention of any
reserves deemed appropriate by the Manager, in its sole discretion, shall be
distributed to the Manager.
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SECTION 5.2 CERTAIN STATE AND LOCAL TAXES. Notwithstanding Section 5.1
above, if the Manager, or any direct or indirect shareholder or other equity
owners of the Manager (other than a C corporation or an individual) is required
to recognize state or local income or franchise taxes, in the state of Florida
or any other state or interest or penalties in respect thereof, with respect to
any allocations or distributions made to the Members with respect to any Fiscal
Year, the Company shall distribute to the Manager an amount which, after
deducting all Federal, state and local income taxes payable by the Manager as a
result of receiving the distribution (taking into account the deductibility of
state and local income taxes against Federal income tax and the deductibility,
if any, of local income taxes against state taxes) shall equal the amount of
such state or local income or franchise taxes or interest or penalties, and the
distributions to the Member's shall be reduced to the extent of the
distributions hereunder.
SECTION 5.3 TIMING OF DISTRIBUTIONS. Unless as otherwise provided in this
Agreement, the Manager shall use reasonable efforts to make the distributions
provided in Sections 5.1(a) and (b) above promptly after the Company receives
Life Insurance Policy proceeds at Maturity but not later than the last business
day of the following month after receipt. In any event, such Life Insurance
Policy proceeds will be immediately deposited in an interest bearing account
upon receipt by the Manager. All other distributions shall be made in at the
sole discretion of the Manager.
SECTION 5.4 LIMITATIONS ON DISTRIBUTIONS. Notwithstanding anything herein
contained to the contrary, no distribution under this Agreement shall be made if
such distribution would violate the Florida Act. A Member who receives a
distribution in violation of the Florida Act shall be liable to return the
distribution to the Company if the Member knew that, immediately after giving
effect to the distribution, all liabilities of the Company, other than
liabilities for which the recourse of creditors is limited to specified property
of the Company, exceed the Value of the assets of the Company (except that the
Value of property that is subject to a liability for which recourse of creditors
is limited shall be included in the assets of the Company only to the extent
that the Value of that property exceeds that liability). A manager and managing
member who votes for or assents to a distribution in violation of this Agreement
or the Florida Act shall be personally liable to the Company for the amount of
the distribution that exceeds what could have been distributed without such
violation if it is established that person did not meet their duties as set
forth in the Florida Act. In addition, no distribution shall be made to any
Member to the extent that such Member has not satisfied any outstanding capital
call as set forth in Section 3.3 herein.
SECTION 5.5 RESERVES. In connection with any distribution to a Member
under this Article V, the Manager shall cause the Company to establish such
reserves as it deems reasonably necessary for any contingent or unforeseen
Company liabilities, and, at the expiration of such period as shall be deemed
advisable by the Manager, the balance shall be distributed to such Member (or
such Member's legal representative).
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SECTION 5.6 TAX DISTRIBUTIONS. For each Fiscal Year, the Company shall,
during such Fiscal Year or the immediately subsequent Fiscal Year, but no later
than sixty (60) days following the end of such Fiscal Year, use its best efforts
to distribute to each Member, with respect to such Fiscal Year, if a
distribution equal to or exceeding such amount has not been previously made, an
amount equal to such Member's Presumed Tax Liability for such Fiscal Year. Any
amount distributed pursuant to this Section 5.6 shall be deemed to be advance
distributions of amounts otherwise distributable to the Members pursuant to
Section 5.1 and shall reduce the amounts that would subsequently otherwise be
distributable to the Members pursuant to Section 5.1 in the order they would
otherwise have been distributable.
SECTION 5.7 INCORRECT DISTRIBUTIONS. To the extent distributions pursuant
to this Article V were incorrectly made, as determined by the financial
statements of the Company, the recipients shall promptly repay all incorrect
payments and the Company shall have the right to set off any current or future
sums owing to such recipients against any such incorrectly paid amount.
SECTION 5.8 DISTRIBUTIONS IN KIND. In the event any proceeds available for
distribution consist of items other than cash, the Members shall be entitled to
their shares of each such asset in the same proportions as if such distribution
were cash distributions in an amount equal to the Value thereof.
ARTICLE VI: MANAGEMENT
SECTION 6.1 MANAGEMENT POWERS OF THE MANAGER. (a) The Manager shall manage
the Company, and without limiting any other rights, powers or duties specified
in this Agreement, shall have all of the rights, powers and duties specified
under the Florida Act. Except as expressly limited by the provisions of this
Agreement and the Florida Act, the Manager shall have the full, exclusive and
absolute right, power and authority to manage and control the Company and the
property, assets, affairs and business thereof. Except as so expressly limited,
the Manager shall have all of the rights, powers and authority conferred upon it
by law or under the provisions of this Agreement. Except as expressly provided
herein or as otherwise required by the Florida Act, the Members shall have no
voice or participation in the management of the Company's business, and no power
to bind the Company or to act on behalf of the Company in any manner whatsoever.
However, a majority in interest of the Members shall designate, appoint, elect,
and replace the manager by a vote in person or by consent.
(b) The Manager shall have the power and authority to effectuate the
purposes of the Company as set forth in this Agreement. The Manager shall not
permit the Company to undertake any activity that would cause the Company to be
an investment company required to be registered under the Investment Company Act
of 1940, as amended, or cause some or all of the Company's assets to be "plan
assets" or the trading and investment activity of the Company to constitute
"prohibited transactions" under the Code and the Employee Retirement Income
Security Act of 1974, as may be amended.
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(c) Without limiting the generality of the foregoing Sections 6.1(a) and
(d) the Manager shall have the power on behalf of the Company to:
(i) authorize and engage in transactions and dealings on behalf of
the Company, including transactions and dealings with any Member or any
Affiliate of any Member;
(ii) call meetings of Members or any class or series thereof, on
reasonable notice, for such purposes as the Manager shall determine, and, in the
Manager's sole discretion, permit Members to vote by proxy at such meetings; the
Members with capital accounts that constitute a majority of the capital accounts
of all Members or class of Members for whom the meeting is called shall
constitute a quorum at any such meeting;
(iii) determine and make distributions, in cash or otherwise, on
Interests, in accordance with the provisions of this Agreement and the Florida
Act;
(iv) establish a record date with respect to all actions to be taken
hereunder that require a record date to be established, including with respect
to allocations, dividends and voting rights;
(v) redeem, repurchase or exchange, on behalf of the Company,
Interests which may be so redeemed, repurchased or exchanged;
(vi) appoint (and dismiss from appointment) attorneys and agents on
behalf of the Company, and employ (and dismiss from employment) any and all
persons providing legal, accounting or financial services to the Company, or
such other employees or agents as the Manager deems necessary or desirable for
the management and operation of the Company, including any Member or any
Affiliate of any Member;
(vii) open accounts and deposit, maintain and withdraw funds in the
name of the Company in banks, savings and loan associations, brokerage firms or
other financial institutions;
(viii) effect a dissolution of the Company and act as liquidating
trustee or the Person winding up the Company's affairs, all in accordance with
the provisions of this Agreement and the Florida Act;
(ix) bring and defend, on behalf of the Company, actions and
proceedings, at law or in equity, before any court or governmental,
administrative or other regulatory agency, body or commission or otherwise;
(x) prepare and cause to be prepared reports, statements and other
relevant information for distribution to Members, as may be required or
determined to be necessary or desirable by the Manager from time to time;
B-16
(xi) effect: (a) a sale or exchange of all or substantially all of
the assets of the Company, (b) a merger or consolidation or similar transaction
of the Company (whether the Company or another Person is the surviving entity of
such transaction), (c) a sale of all of the Interests of the Company, or (d) any
similar transaction; provided, however, that if any transaction set forth in
(a), (b), (c) or (d) above adversely affects the Members, the vote of the
Members whose aggregate Capital Accounts equal or exceed two-thirds of the
aggregate of all Members' Capital Accounts shall be required to effect any such
transaction;
(xii) prepare and file all necessary returns and statements and pay
all taxes, assessments and other impositions applicable to the assets of the
Company; and
(xiii) execute all other documents or instruments, perform all
duties and powers and do all things for and on behalf of the Company in all
matters necessary or desirable or incidental to the foregoing.
The expression of any power or authority of the Manager in this Agreement
shall not in any way limit or exclude any other power or authority which is not
specifically or expressly set forth in this Agreement.
SECTION 6.2 MANAGER'S OBLIGATIONS. The Manager shall operate the business
of the Company in the ordinary course of business, including without limitation,
identifying potential life insurance policies for the Company to acquire,
management of cash and cash equivalents, providing office space as necessary and
telephones and any other necessary telecommunications and office support and
supplies. In addition, the Manager shall service the Life Insurance Policies,
monitor the Insured and conduct medical and insurance due diligence review of
the Life Insurance Policies, or outsource such responsibilities to a third
party.
SECTION 6.3 PROCEDURES. Any action requiring the affirmative approval or
vote of Members under this Agreement, unless otherwise specified herein, may be
taken by vote at a meeting called upon not less than seven (7) days notice to
the Members or, in lieu thereof, by consent of Members delivered to the Manager
with the required percentage of the Interests in the Company, followed by notice
to all the Members. To the extent any vote of the Members not covered by this
Agreement may be required under the Florida Act or any other law, the Members
shall vote in accordance with the percentage that their Capital Accounts
represent of the aggregate of all Capital Accounts of Members. The Manager may
establish such additional and reasonable procedures (in the form of By-laws or
otherwise) relating to notice of the time, place or purpose of a meeting of the
Members, the waiver of any such notice, action by consent without a meeting, the
establishment of a record date, quorum requirements, or any other matter with
respect to the exercise of any such right to vote and with respect to the
replacement of lost Certificates.
SECTION 6.4 MANAGER'S DUTY TO DEVOTE TIME. The Manager shall be
responsible for the conduct of the business of the Company as set forth in this
Agreement in such a manner as to maximize the value of the Company's assets, and
the Manager shall devote such
B-17
resources to the Company business as shall be necessary or useful to manage and
supervise the Company's business and affairs in a proper and efficient manner.
SECTION 6.5 CONDUCT OF MANAGER; LIMITED LIABILITY OF THE MANAGER. (a) The
Manager shall perform its duties hereunder in accordance with the applicable
provisions (and any successor provision) of the Florida Act.
(b) The liability of the Manager shall be eliminated and limited to the
maximum extent permitted by the Florida Act and any other applicable law.
(c) The Manager shall have fiduciary responsibility for the safekeeping
and use of all funds, property and assets of the Company, whether or not in its
control, and shall not employ, or permit another to employ, such funds, property
or assets in any manner except as otherwise expressly set forth herein or for
the benefit of the Company.
SECTION 6.6 INDEMNIFICATION.
(a) To the fullest extent permitted by applicable law, an Indemnified
Person shall be entitled to indemnification from the Company for any loss,
damage or claim incurred by such Indemnified Person by reason of any act or
omission performed or omitted by such Indemnified Person in good faith on behalf
of the Company and in a manner reasonably believed to be within the scope of
authority conferred on such Indemnified Person by this Agreement; provided,
however, that any indemnity under this Section 6.6 shall be provided out of and
to the extent of company assets only, and no Member shall have any personal
liability on account thereof. The right of indemnification pursuant to this
Section 6.6 shall include the right to be paid, in advance, or reimbursed by the
Company for the reasonable expenses incurred by an Indemnified Person who was,
is, or is threatened to be made a named defendant or respondent in a proceeding.
(b) The Manager shall have the power to purchase and maintain insurance in
reasonable amounts on behalf of itself and each of the employees and agents of
the Company against any liability incurred by them in their capacities as such,
whether or not the Company has the power to indemnify them against such
liability.
SECTION 6.7 CERTAIN TRANSACTIONS BETWEEN THE COMPANY AND THE MANAGING
MEMBER AND ITS AFFILIATES.
(a) Nothing herein shall preclude the Manager and its Affiliates from
receiving any of the fees for due diligence review, medical review, processing,
administering, monitoring, closing and filing claims for the Life Insurance
Policies, as more fully described in the Prospectus, provided, that such
compensation does not reduce the Returns paid to the Members.
(b) Counsel to the Company may also be counsel to the Manager or any
Affiliate of the Manager. The Manager may execute on behalf of the Company and
the Members any consent to the representation of the Company that counsel may
request pursuant to any applicable rules of
B-18
professional conduct or similar rules ("Rules"). The law firm engaged as legal
counsel to the Company in connection with the formation of the Company and the
offer and sale of Units ("Company Counsel") is not involved in the underwriting,
documentation or routine servicing of the Life Insurance Policies acquired by
the Company. Each Member acknowledges that Company Counsel does not and will not
represent any Member, and that in the absence of a clear and explicit written
agreement, Company Counsel shall owe no duties directly to any Member.
Notwithstanding any adversity that may develop, in the event any dispute or
controversy arises between any Member and the Company, or between any Member or
the Company, on the one hand, and the Manager or its Affiliate, on the other
hand, then each Member agrees that Company Counsel may represent either the
Company or such Manager or its Affiliate, or both, in any such dispute or
controversy to the extent permitted by the Rules, and each Member hereby
consents to such representation.
(c) Each Member further acknowledges that Company Counsel has represented
only the interests of the Manager and not the Members in connection with the
formation of the Company and the preparation and negotiation of this Agreement,
and each Member acknowledges that it has been afforded the opportunity to
consult with independent counsel with regard thereto.
SECTION 6.8 DEFAULT OF MANAGER. (a) Upon the occurrence of a Manager
Default (as defined below), the Manager shall give prompt written notice of the
Manager Default to the Company and the Company shall give written notice to the
Members at the addresses appearing in list of Members prepared in accordance
with Section 7.5(b) below. If the Manager fails to cure the Manager Default or
is incapable of curing the Manager Default, the Members whose aggregate Capital
Accounts exceed 50% of the aggregate of all Members' Capital Account at such
time, may (a) terminate all of the rights and obligations of the Manager, or (b)
elect to waive the Manager Default; provided, however, a Manager Default in
connection with the Manager's failure to make any required deposits or payments
may not be waived. Upon any waiver of a past Manager Default, the Manager
Default shall cease to exist, and any Manager Default arising therefrom shall be
deemed to have been remedied for every purpose. No waiver shall extend to any
subsequent or other Manager Default or impair any right of the Members in
connection with the Servicing Agreement except to the extent expressly so
waived.
Upon receipt by the Manager of a termination notice, the Manager shall
continue to perform all servicing functions under the Servicing Agreement until
the date specified in the termination notice or as otherwise specified by the
Company in writing or, if no date is specified in the termination notice, until
a date agreed upon by the Company.
(b) A Manager Default refers to any one of the following events which
shall occur and be continuing:
(i) any failure by the Manager to report or give instructions or
notice to the Company on or before the date occurring five (5) business days
after the date the report or the instruction or notice is required to be given,
as the case may be; or
B-19
(ii) failure on the part of the Manager to observe or perform in any
material respect any other covenants or agreements which has a material adverse
effect on the Members and which continues unremedied for a period of thirty (30)
days after the date on which written notice of the failure requiring the same to
be remedied shall have been given to the Manager by the Company, or to by the
Members whose aggregate Capital Accounts exceed 50% of the aggregate of all
Members' Capital Account at such time; or
(iii) the Manager's delegation of its duties; or
(iv) any representation, warranty or certification made by the
Manager in the agreements comprising the Servicing Agreement(s), shall prove to
have been incorrect when made, which has a material adverse effect on the rights
of the Members and which continues to be incorrect in any material respect for a
period of thirty (30) days after the date on which written notice of the failure
requiring the same to be remedied shall have been given to the Manager by the
Company, or by the Members whose aggregate Capital Accounts exceed 50% of the
aggregate of all Members' Capital Account at such time; or
(v) the Manager shall:
o become insolvent,
o fail to pay its debts generally as they become due,
o voluntarily seek, consent to, or acquiesce in the
benefit or benefits of any debtor relief law, or
o become a party to, or be made the subject of, any
proceeding provided by any debtor relief law, other than
as a creditor or claimant, and, in the event the
proceeding is involuntary, the petition instituting same
is not dismissed within ninety (90) days after its
filing.
(c) In the event the Manager is terminated as a result of a Manager
Default, the Company may appoint any established financial institution whose
regular business includes purchasing Life Insurance Policies to act as successor
manager. Upon its appointment, the successor manager shall be the successor in
all respects to the Manager and shall be subject to all the responsibilities,
duties and liabilities placed on the Manager. All power and authority of the
Manager shall pass to and vest in the successor manager, and, without
limitation, the successor manager shall execute and deliver all documents and
other instruments required of the Manager to be executed or delivered, and to do
and accomplish all other acts or things necessary or appropriate to effect the
purposes of the transfer of servicing rights to the successor manager.
SECTION 6.9 REMOVAL OF MANAGER; SUCCESSOR. (a) The Manager may be removed
from the Company for Cause (as defined below) and as otherwise specifically
provided
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in Section 6.8 or this Section 6.9. For purposes of this Agreement, "Cause"
shall mean the Manager (i) has been convicted of a felony, (ii) has committed
fraud against the Company or (iii) has acted or omitted to take action on behalf
of the Company which act or omission constitutes gross negligence or wilful
misconduct. Such removal shall be automatically effective upon a final
determination by a court of competent jurisdiction that an event or
circumstances constituting Cause has occurred or exists, provided, that any
removal of the Manager for Cause shall be effected by a vote of the Members
whose aggregate Capital Accounts exceed 50% of the aggregate of all Members'
Capital Accounts at such time. The Manager may also be removed, other than for
Cause, after the Manager has received distributions from the Company that equal
or exceed 125% of the aggregate expenses, including without limitation, expenses
of, and commissions payable, in connection with the public offering of Interests
in the Company, incurred by the Manager and its Affiliates in connection with
the business of the Company, provided, that any removal of the Manager pursuant
to this Section 6.9 other than for Cause may be effected by a vote of the
Members whose aggregate Capital Accounts equal or exceed two-thirds of the
aggregate of all Members' Capital Accounts. In the event of the removal or
resignation of the Manager, nominations for a successor Manager may be made by
Members whose aggregate Capital Accounts exceed ten percent (10%) of the
aggregate of all Members' Capital Accounts at such time. Appointment of a
successor Manager shall be effected by a vote of the Members whose aggregate
Capital Accounts exceed 50% of the aggregate of all Members' Capital Accounts at
such time.
(b) If the Manager is removed from the Company pursuant to Section 6.8 or
this Section 6.9 or otherwise withdraws or resigns as Manager, the Manager will
have none of the powers of a Manager.
SECTION 6.10 BORROWING. The Company may borrow money and may borrow up to
100% of the principal amount of the Life Settlements Accounts.
ARTICLE VII: BOOKS, RECORDS, TAXES AND REPORTS
SECTION 7.1 BOOKS OF ACCOUNT. Complete books of account shall be kept by
the Manager at the principal office of the Company or at such other office as
the Manager may designate. The Fiscal Year of the Company shall begin on January
1 and end on December 31 or such other month as may hereafter be determined by
the Manager; provided, however, that the last Fiscal Year of the Company shall
end on the date the Company is terminated.
SECTION 7.2 BANK ACCOUNTS. The Company shall maintain one or more bank
accounts for such funds of the Company as it shall choose to deposit therein,
and withdrawals therefrom shall be made upon such signature or signatures as the
Manager shall determine.
SECTION 7.3 TAX RETURNS. The Company shall prepare income tax returns for
the Company and shall further cause such returns to be timely filed with the
appropriate authorities. It is contemplated that the Company will be classified
as a "partnership" for federal, state and local income tax purposes. The Company
and its Members will take such reasonable action as
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may be necessary or advisable, as determined by the Manager, including the
amendment of this Agreement to cause or ensure that the Company shall be treated
as a "partnership" for federal, state and local income tax purposes. All
elections by the Company for Federal income tax or other tax purposes shall be
made by the Manager.
SECTION 7.4 TAX MATTERS PARTNER. The Manager shall act as the "tax matters
partner" ("TMP") of the Company, as such term is defined in Section 6231(a)(7)
of the Code, and shall have all the powers and duties assigned to the TMP under
Sections 6221 through 6232 of the Code and the Regulations thereunder. The
Members agree to perform all acts necessary under Section 6231 of the Code and
the Regulations thereunder to designate the Manager as TMP.
SECTION 7.5 RECORDS. (a) The Manager shall cause the Company to keep the
following records, which shall be maintained at the Company's principal place of
business and shall be available for inspection and copying by, and at the sole
expense of, the Members, or their duly authorized representatives, during
reasonable business hours and upon at least five (5) business days' prior
written notice to the Manager:
(i) A copy of the Articles of Organization and any and all
amendments thereto, together with executed copies of any powers of attorney
pursuant to which the Articles of Organization or any amendments thereto have
been executed;
(ii) Copies of the Company's federal, state, and local income tax or
information returns and reports, if any, for the three (3) most recent taxable
years;
(iii) A copy of this Agreement and any and all amendments thereto,
together with executed copies of any powers of attorney pursuant to which this
Agreement or any amendments thereto have been executed for the three (3) most
recent fiscal years;
(iv) Copies of the financial statements of the Company, if any, for
the three (3) most recent Fiscal Years; and
(v) The Company's books and records as they relate to the internal
affairs of the Company for at least the current and past three (3) Fiscal Years,
including a list of all Members and Managers and their last known residence,
business or mailing address.
(b) The Manager shall furnish or cause to be furnished by the transfer
agent and registrar, if other than the Manager, to the Company within five (5)
business days after receipt by the Manager of a request therefor from the
Company, in writing, a list in such form as the Company may reasonably require,
of the names and addresses of the Members as of the most recent record date for
payment of distributions to Members. Members may apply in writing to the
Manager, that they desire to communicate with other Members with respect to
their rights under the servicing agreement or under the units. If such request
is accompanied by a copy of the communication which such applicants propose to
transmit, then the Manager, after having been
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adequately indemnified by such applicants for its costs and expenses, shall
afford or shall cause the transfer agent and registrar, if other than the
Manager, to afford such applicants access during normal business hours to the
most recent list of Members held by the Manager. The list shall be as of a date
not more than forty-five (45) days prior to the date of receipt of such
applicants' request and shall give the Manager notice that such request has been
made, within five (5) business days after the receipt of such application. Every
Member, by receiving and holding units, agrees with the Manager that neither the
Manager, the transfer agent and registrar, if other than the Manager, nor any of
their respective agents shall be held accountable by reason of the disclosure of
the names and addresses of the Members, regardless of the source from which such
information was obtained.
SECTION 7.6 CLOSING DATE REPORTS. The Manager shall prepare and deliver to
the Company at least two (2) business days prior to each closing date an
officer's certificate setting forth the amount of Life Insurance Policies to be
purchased on the closing date as measured by the Life Settlements purchase price
to be expended therefor and by their face value.
SECTION 7.7 MANAGER'S QUARTERLY CERTIFICATE. The Manager shall prepare and
forward quarterly to the Company, if someone other than the Manager, a Manager's
certificate setting forth:
o the aggregate amount of collections processed during the preceding
three months;
o the aggregate amount of Life Insurance Policies and the balance on
deposit in the Life Settlements Account, with respect to collections
processed as of the end of the last day of the preceding three
months;
o the aggregate amount, if any, of withdrawals from the Company
required to be made on the next succeeding closing date;
o the aggregate amount of funds, if any, to be deposited in the
Company on the next succeeding closing date;
o the three months Member statement; and
o the interest and earnings, net of losses and investment expenses,
from the Life Settlements Account for the preceding three months.
SECTION 7.8 MANAGER'S ANNUAL CERTIFICATE. In addition to the closing date
reports and the Manager's quarterly certificate, the Manager shall deliver to
the Company on or before April 15th of each calendar year, beginning with April
15, 2003, an officer's certificate stating that (1) a review of the activities
and the performance of the Manager during the preceding calendar year and was
made under the supervision of the officer signing the certificate and (2) to the
best of the officer's knowledge, based on the review, the Manager has fully
performed all its obligations throughout such year. If there has been a default
in the performance
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of any obligation, specifying each the default known to the officer and the
nature and status thereof. A copy of the certificate may be obtained by any
Member by a request in writing to the Company.
SECTION 7.9 ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SUBSERVICING REPORTS.
The Manager, at the sole expense of the Company, shall undertake to cause annual
reports to be prepared by independent public accountants for the Company, which
reports will be available for inspection by the Members at the offices of the
Manager during normal business hours. On or before April 15th of each calendar
year, beginning with April 15, 2003, the Manager shall cause, at cost and
expense of the Company, a firm of nationally recognized independent public
accountants to furnish a report to the Manager covering the preceding annual
period to the effect that the accountants have applied agreed-upon procedures to
documents and records relating to the servicing of the Life Insurance Policies,
compared the information contained in the Manager's units delivered during the
period covered by the report with the documents and records and that no matters
came to the attention of such accountants that caused them to believe that the
servicing was not conducted in compliance with the Servicing Agreement, except
for exceptions as the firm shall believe to be immaterial and other exceptions
as shall be set forth in such statement. In addition, each report shall set
forth the agreed upon procedures performed. A copy of the report may be obtained
by any Member by a request in writing to the Manager. In addition, on or before
April 15th of each calendar year, beginning with April 15, 2003, the Manager
shall also, at the Company's sole cost and expense, cause a firm of nationally
recognized independent public accountants to furnish a report to the Company to
the effect that they have compared the mathematical calculations of each amount
set forth in the Manager's quarterly certificates forwarded by the Manager
during the period covered by the report, which shall be the period from January
1, or the date which is the initial closing date, to and including December 31,
or the date which is the final Maturity date, of the calendar year, with the
Manager's computer reports which were the source of the amounts and that on the
basis of the comparison, the accountants are of the opinion that the amounts are
in agreement, except for the exceptions as they believe to be immaterial and the
other exceptions as shall be set forth in the statement. A copy of the report or
any other report described in this section may be obtained by any Member by a
request in writing to the Manager at no cost to the Member.
SECTION 7.10 REPORTS TO MEMBERS. (a) The Manager shall prepare and
distribute to each Member, semi-annually, a statement, which shall include the
following information stated on an original principal amount of $10,000 per
Unit:
(i) the original capital contribution to date;
(ii) the amount of principal and interest previously paid to
all Members on Life Insurance Policies;
(iii) the aggregate amount of funds on deposit for the Company
as of the date of this distribution.
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(iv) the amount of accrued but unpaid interest on funds on
deposit.
(b) On or before January 31 of each calendar year, beginning with
calendar year 2003, the Company will furnish to each person who at any time
during the preceding calendar year was a Member, an annual Member's tax
statement prepared by an independent public accounting firm containing the
information required to be contained in the regular semi-annual report to
Members, as set forth in subparagraph (d) above, aggregated for the calendar
year or the applicable portion thereof during which the person was a Member,
together with the other customary information, consistent with the Company's tax
treatment of the Units, as the Company and the Manager deem necessary or
desirable to enable the Members to prepare their respective tax returns. The
obligations of the Company shall be deemed to have been satisfied to the extent
that the Company provides information which is substantially comparable to
information which is required by applicable requirements of the Code, as from
time to time in effect.
ARTICLE VIII: ADMISSION OF MEMBERS
SECTION 8.1 ADMISSION OF MEMBERS. (a) Subject to paragraph (b) of this
Section 8.1, the Manager, at its option and in its sole discretion, may, on such
terms as it shall determine in its sole discretion, at any time and from time to
time, admit one or more Persons as Members. The Company shall only accept
initial Capital Contributions from Members in an amount not less than $10,000.
(b) Notwithstanding the provisions of paragraph (a) of this Section 8.1,
no Person may be admitted as an Member if such admission would (i) cause the
Company to be treated as an association taxable as a corporation for Federal
income tax purposes, (ii) cause the Company to be treated as a "publicly traded
Company" within the meaning of Section 7704 of the Code, (iii) violate or cause
the Company to violate any applicable Federal or state law, rule or regulation
including, without limitation, the Securities Act of 1933, as amended, or any
other applicable Federal or state securities laws, rules or regulations.
(c) Each Member shall automatically be bound by all of the terms and
conditions of this Agreement applicable to a Member. Each Member shall execute
such documentation as requested by the Manager pursuant to which such Member
agrees to be bound by the term and provisions of this Agreement.
(d) The Manager shall reflect each admission authorized under this Article
VIII by preparing an amendment to Schedule A attached hereto, to reflect such
admission.
ARTICLE IX: TRANSFERS OF INTERESTS OF MEMBERS
SECTION 9.1 GENERAL PROHIBITION. Except as otherwise expressly provided
for in this Agreement or as otherwise provided in the Florida Act, a Member may
not Transfer its Interest without the prior written consent of the Manager,
which consent may be granted or
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denied in its sole discretion. The Manager shall withhold consent to such
Transfer where required under the terms of this Agreement and may do so without
any liability or accountability to any Member or Person.
SECTION 9.2 GENERAL CONDITIONS TO PERMITTED TRANSFER. (a) No Transfer of
an Interest shall be effective unless permitted by the terms of this Agreement.
Notwithstanding any other provisions of this Article IX, no interest of a Member
may be Transferred or assigned to any Person, nor may such transferee or
assignee be admitted as an Member if such Transfer, assignment or admission
would (i) cause the Company to be treated as an association taxable as a
corporation for Federal income tax purposes, (ii) cause the Company to be
treated as a "publicly traded partnership" within the meaning of Section 7704 of
the Code, (iii) violate or cause the Company to violate any applicable Federal
or state law, rule or regulation including, without limitation, the Securities
Act of 1933, as amended, or any other applicable Federal or state securities
laws, rules or regulations. In addition, no Transfer shall be permitted unless
the following conditions are satisfied.
(i) such Transfer shall have been consented to in writing by the
Manager in accordance with the provisions of Section 8.1 hereof;
(ii) the transferee shall accept and adopt in writing, by an
instrument in form and substance satisfactory to the Manager, all of the terms
and provisions of this Agreement, as the same may be amended from time to time,
and shall have expressly assumed all of the obligations of the transferring
Member;
(iii) the transferee shall pay all filing, publication and recording
fees, if any, and all reasonable expenses, including, without limitation,
reasonable counsel fees and expenses incurred by the Company in connection with
such transaction;
(iv) the transferee shall execute such other documents or
instruments as counsel to the Company may require (or as may be required by law)
in order to effect the admission of such Person as a Member;
(v) the transferee shall execute a statement that it is acquiring
the Interest for its own account for investment and not with a view to the
distribution thereof and that it will Transfer the acquired Interest only to a
Person who so similarly represents and warrants;
(vi) if required by the Manager, the Company receives an opinion of
counsel (who may be counsel for the Company), in form and substance satisfactory
to the Manager, that such Transfer does not violate federal or state securities
laws or any representation or warranty of such transferring Member given in
connection with the acquisition of its Interest; and
(vii) if required by the Manager, Company Counsel delivers to the
Company an opinion that such Transfer (a) will not result in a termination of
the Company under Section 708 of the Code; (b) will not cause the Company to
lose its status as a partnership for United States
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federal income tax purposes; and (c) will not cause the Company to become
subject to the Investment Company Act of 1940.
(b) No Transfer of an Interest, where permitted by the terms of this
Agreement, shall be binding on the Company until all of the conditions to such
Transfer have been fulfilled. Upon the admission of a substitute or additional
Member, the Manager shall promptly cause any necessary documents or instruments
to be filed, recorded or published, wherever required, showing the substitution
or addition, as applicable, of the transferee as a substitute Member.
(c) A transferee of an Interest shall be entitled to receive distributions
of cash or other property from the Company attributable to the Interest acquired
by reason of such Transfer from and after the effective date of the Transfer of
such Interest to it; provided, however, that anything herein to the contrary
notwithstanding, the Company and the Manager shall be entitled to treat the
transferor of such Interest as the absolute owner thereof in all respects, and
shall incur no liability for allocations of income, gain, losses, credits,
deductions or distributions that are made in good faith to such transferor until
such time as all of the conditions of such Transfer have been fulfilled, the
written instrument of Transfer has been received by the Company and the
effective date of Transfer has passed.
(d) The effective date of a permitted Transfer of an Interest shall be no
earlier than the last day of the calendar month following receipt of notice of
assignment and such documentation as the Manager determines is required.
(e) The transferring Member shall cease to be a Member, and the transferee
shall become a Substituted Member, as to the Interest so Transferred as of the
effective date, and thereafter the transferring Member shall have no rights or
obligations with respect to the Company insofar as the Interest Transferred is
concerned.
SECTION 9.3 VOID TRANSFERS. Notwithstanding anything to the contrary in
this Agreement, any Transfer of an Interest in violation of the provisions of
this Agreement shall be void and shall not bind the Company.
SECTION 9.4 PERMITTED TRANSFERS. (a) A Member may Transfer its right to
receive distributions and allocations of Net Income and Net Loss and other
economic benefits under this Agreement to any Permitted Transferee (as defined
below); provided, however, that in no event shall any such transferee be
admitted as a substitute or additional Member of the Company or be entitled to
any other right of a Member under this Agreement (including, but not limited to,
the right to vote or consent) without the prior written consent of the Manager,
which consent may be withheld in its sole and absolute discretion; provided,
further, that if required by the Manager, a Transfer to a Permitted Transferee
may be conditioned upon the receipt of an opinion from Company Counsel.
(b) A "Permitted Transferee" means:
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(i) a Member's spouse, children (including adopted children),
siblings or grandchildren (a "Family Member") or a trust of which one or more
Family Members are the sole beneficiaries;
(ii) with respect to a Member which is a partnership, corporation or
limited liability company, such Member's partners, shareholders, members,
directors, executive officers or managers, as the case may be, and to a Family
Member of any such person;
(iii) with respect to a Member which is a trust, the beneficiaries
of such trust; or
(iv) another Member.
SECTION 9.5 Notice.
Appropriate notice, including the following, under applicable
securities laws shall be provided to purchasers in other states.
NOTICE TO CALIFORNIA RESIDENTS
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY
INTEREST THEREIN OR TO RECEIVE ANY CONSIDERATION THEREFORE, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
ARTICLE X: DEATH, LEGAL INCOMPETENCY, OR WITHDRAWAL OF A MEMBER
SECTION 10.1 EFFECT OF DEATH OR LEGAL INCOMPETENCY OF A MEMBER OF THE
COMPANY. The death or legal incompetency of a Member shall not cause a
dissolution of the Company or entitle the Member or his estate to a return of
his Capital Account.
SECTION 10.2 RIGHTS OF PERSONAL REPRESENTATIVE. On the death or legal
incompetency of a Member, his personal representative shall have all the rights
of that Member for purposes of settling his estate or managing his property,
including the rights of assignment and withdrawal.
SECTION 10.3 WITHDRAWAL OF MEMBERS OTHER THAN MANAGERS. (a) With the sole
discretion of the Manager reasonably exercised, the Manager may modify,
eliminate or waive any such limitation on the withdrawal rights of a Member as
set forth below, on a case by case basis, so long as the modifying, waiving, or
elimination of the limitation does not: (a) adversely effect rights of the other
Members as a whole; or (b) results in the Company being classified as a
"publicly traded partnership" within the meaning of Section 7704(b) of the
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Code and the Regulations thereunder. To withdraw or partially withdraw from the
Company, a Member must give written notice thereof to the Manager and may
thereafter obtain the Return in cash of his Capital Account, or the portion
thereof, as to which he requests withdrawal, within ninety (90) days after the
written notice of withdrawal is delivered to the Manager, subject to the
following limitations:
(i) Except with regard to the right of the personal representative
of a deceased Member, no notice of withdrawal shall be honored and no withdrawal
shall be made, of or for any Units, until the expiration of at least one year
from the date of purchase of those Units.
(ii) To assure that the payments to a Member or his representative
do not impair the capital or the operation of the Company, any cash payments in
return of an outstanding Capital Account shall be made by the Company only from
Net Proceeds and Capital Contributions.
(iii) A Member shall have the right to receive distributions in cash
from his Capital Account only to the extent that cash from Net Proceeds and
Capital Contributions are available. The Manager shall not be required to (i)
establish a reserve fund for the purpose of making a cash distribution of any
Capital Account; (ii) use any other sources of the Company's funds other than
cash from Net Proceeds and Capital Contributions; (iii) sell or otherwise
liquidate any portion of the Company's investments in Life Insurance Policies or
any other asset in order to make a cash distribution of any Capital Account.
(iv) During the ninety (90) days following receipt of written notice
of withdrawal from a Member, the Manager shall not reinvest any Net Proceeds or
Capital Contributions in new Life Insurance Policies or other non-liquid
investments unless and until the Company has sufficient funds available in cash
to distribute to the withdrawing Member the amount that he is withdrawing from
his Capital Account.
(v) Subject to the restrictions on withdrawal contained in this
Agreement, the amount to be distributed to any withdrawing Member shall be an
amount equal to the amount of the Member's Capital Account as of the date of the
distribution, as to which the Member has given a notice of withdrawal under this
Section 10.3, notwithstanding that the amount may be greater or lesser than the
Member's proportionate share of the current Value of the Company's net assets.
(vi) Requests by Members for withdrawal will be honored in the order
in which the Manager receives them. If any request may not be honored, due to
any limitations imposed by this Section 10.3 (except the one year holding
limitation set forth in Subparagraph (i) of this Section 10.3), the Manager will
notify the requesting Member in writing, whose request, if not withdrawn by the
Member, will be honored if and when the limitation no longer is imposed; and
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(vii) If a Member's Capital Account would have a balance of less
than ten thousand dollars ($10,000) following a requested withdrawal, the
Manager, at its discretion, may distribute to the Member the entire balance in
the account.
(b) Subject to all of the limitations set forth in Paragraph (a) above, a
Member may withdraw or partially withdraw as a member of the Company commencing
one year after becoming a Member and obtain a Return of all or part of your
Capital Account and receive back 85% of the face amount of your Capital
Contribution, less any distributions paid to such date.
ARTICLE XI: BANKRUPTCY, DISSOLUTION AND TERMINATION
SECTION 11.1 BANKRUPTCY. If the Company voluntarily seeks, consents to or
acquiesces in the benefit or benefits of any debtor relief law or becomes party
to, or is made the subject of, any proceeding provided for by any debtor relief
law, other than as a creditor or claimant, and, in the event the proceeding is
involuntary, and the petition instituting same is not dismissed within ninety
(90) days after its filing, the Company shall within fifteen (15) days after the
date of the bankruptcy event (a) publish a notice in the authorized newspapers
that a bankruptcy event has occurred and that the Manager intends to sell,
dispose of or otherwise liquidate the insurance policies in a commercially
reasonable manner and (b) send written notice to the Members describing the
proceeding and requesting instructions from the Members. No sale, disposition or
liquidation, whether in whole or in part, of the Life Insurance Policies shall
be consummated until and unless the Manager shall have first received written
instructions, or other written response, or affirmative refusal to provide a
written response from Members whose aggregate Capital Accounts exceed 50% of the
aggregate of all Members' Capital Accounts at such time.
SECTION 11.2 DISSOLUTION. The Company shall be dissolved upon the earliest
to occur of the following:
(a) payment to the Company of all proceeds of all Life Insurance Policies;
or
(b) the express written consent of the Manager; or
(c) the unanimous consent of the Members; or
(d) the termination of the Company in accordance with Section 2.3; or
(e) sale of all or substantially all of the assets of the Company; or
(f) the entry of a decree of judicial dissolution of the Company; or
(g) the withdrawal, removal, dissolution or bankruptcy of the Manager,
unless, if there is no remaining manager, a majority of the Members agree in
writing to continue the business of the Company and, within six (6) months after
the last remaining manager has ceased
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to be a manager, admit one or more managers who agree to such election and join
the Company as managers.
SECTION 11.3 LIQUIDATION. (a) Upon the dissolution of the Company, the
Manager shall proceed, within a reasonable time, to sell or otherwise liquidate
the assets of the Company and, after paying or making due provision by the
setting up of reserves for all liabilities to creditors of the Company to
distribute the remaining assets to the Members, pro rata, in accordance with the
positive balance in their respective Capital Accounts.
(b) Upon dissolution, the Members shall look solely to the assets of the
Company for the return of their Capital Contributions. The winding up of the
affairs of the Company and the distribution of its assets shall be conducted
exclusively by the Manager, who hereby is authorized to do any and all acts and
things authorized by law for these purposes.
SECTION 11.4 TERMINATION. The Company shall terminate when all property
owned by the Company shall have been disposed of and the assets, after payment
of, or due provision has been made for, and liabilities to Company creditors
shall have been distributed as provided in this Agreement. Upon such
termination, the Manager shall execute and cause to be filed a certificate of
discontinuance of the Company and any and all other documents necessary in
connection with the termination of the Company.
ARTICLE XII: AMENDMENT OF AGREEMENT AND POWER OF ATTORNEY
SECTION 12.1 AMENDMENTS. Amendments to this Agreement which do not
adversely affect the right of any Member in any material respect may be made by
the Manager without the consent of any Member through use of the Power of
Attorney, if those amendments are for the purpose of admitting Members or
Substituted Members as permitted by this Agreement, including, without
limitation, amendments to Schedule A hereto to reflect the admission of such
Additional and Substituted Members and to reflect changes in the Capital
Contributions of the Members. Amendments to this Agreement other than those
described in the foregoing sentence may be made only if embodied in an
instrument signed by the Manager and by Members with Capital Accounts that
exceed 50% of the aggregate Capital Accounts of all Members; provided, however,
that, unless otherwise specifically contemplated by this Agreement, no amendment
to this Agreement shall, without the prior consent of each of the Members
adversely affected thereby, (i) increase the liability of any Member, (ii)
decrease any Member's interest in Net Income or items of income or gain and
distributions or (iii) increase any Member's interest in Net Loss or items of
deduction or loss. The Manager shall send to each Member a copy of any amendment
to this Agreement.
SECTION 12.2 AMENDMENT OF ARTICLES OF ORGANIZATION. In the event this
Agreement shall be amended under Section 12.1, the Manager shall amend the
Articles of Organization or any other governmental filings of the Company, to
the to reflect such change if it deems, such amendments to be necessary or
appropriate.
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SECTION 12.3 POWER OF ATTORNEY. Each Member hereby irrevocably constitutes
and appoints the Manager as its true and lawful attorney-in-fact, with full
power of substitution, in its name, place and stead to make, execute, sign,
acknowledge (including swearing to), verify, deliver, record and file, on its
behalf the following: (i) any amendment to this Agreement which complies with
the provisions of this Agreement and (ii) the Articles of Organization and any
other governmental filings and any amendment thereto required because this
Agreement is amended, including, without limitation, an amendment to effectuate
any change in the membership of the Company or in the Capital Contributions of
the Members. This power-of-attorney is a special power-of-attorney and is
coupled with an interest in favor of the Manager and as such (i) shall be
irrevocable and continue in full force and effect notwithstanding the subsequent
death or incapacity of any party granting this power-of-attorney, regardless of
whether the Company or the Manager shall have had notice thereof, (ii) may be
exercised for a Member by a facsimile signature of the Manager or, after listing
all of the Members, including such Member, by a single signature of the Manager
acting as attorney-in-fact for all of them, and (iii) shall survive the delivery
of an assignment by a Member of the whole or any portion of its Interest in the
Company, except that where the assignee thereof has been approved by the Manager
for admission to the Company as a Substituted Member, this power-of-attorney
given by the assignor shall survive the delivery of such assignment for the sole
purpose of enabling the Manager to execute, acknowledge, and file any instrument
necessary to effect such substitution.
ARTICLE XIII: MISCELLANEOUS PROVISIONS
SECTION 13.1 NOTICES. (a) All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
addressed to the Members at their addresses set forth on Schedule A or in the
records maintained by the Company or to such other addresses as may have been
specified in a written notice duly given to the other.
(b) Any notices addressed as aforesaid shall be deemed to have been given
(i) on the date of delivery, if delivered by hand or overnight courier, (ii) on
the date of transmission, if transmitted by facsimile, provided, that if
transmitted by facsimile such transmittal is confirmed, and (iii) three (3) days
after the deposit of same in the United States certified mail, return receipt
requested.
SECTION 13.2 SEVERABILITY. If any covenant, condition, term or provision
of this Agreement is illegal, or if the application thereof to any Person or in
any circumstance shall to any extent be judicially determined to be invalid or
unenforceable, the remainder of this Agreement, or the application of such
covenant, condition, term or provision to Persons or in circumstances other than
those to which it is held invalid or unenforceable shall not be affected
thereby, and each covenant, condition, term and provision of this Agreement
shall be valid and enforceable to the full extent permitted by law.
SECTION 13.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall, for all purposes, be deemed an original and
all of such counterparts, taken together, shall constitute one and the same
Agreement.
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SECTION 13.4 ENTIRE AGREEMENT. This Agreement, the Exhibits hereto, and
any Subscription Agreement or other documents executed in connection herewith
represent the complete and entire agreement and understanding of the parties
hereto with respect to the matters covered therein and supersede any and all
previous written or oral negotiations, undertakings and commitments in writing
of any nature whatsoever.
SECTION 13.5 FURTHER ASSURANCES. The Members will execute and deliver such
further instruments and do such further acts and things as may be required by
the Company to carry out the intent and purposes of this Agreement.
SECTION 13.6 SUCCESSORS AND ASSIGNS. Subject in all respects to the
limitations on transferability contained herein, this Agreement shall be binding
upon, and shall inure to the benefit of, the heirs, administrators, personal
representatives, successors and permitted assigns of the respective parties
hereto.
SECTION 13.7 WAIVER OF ACTION FOR PARTITION. Each of the parties hereto
irrevocably waives, during the term of the Company and during the period of its
liquidation following any dissolution, any right that it may have to maintain
any action for partition with respect to any of the assets of the Company.
SECTION 13.8 CREDITORS. None of the provisions of this Agreement shall be
for the benefit of or enforceable by any of the creditors of the Company or any
other Person not a party to this Agreement.
SECTION 13.9 REMEDIES. The rights and remedies of the Members hereunder
shall not be mutually exclusive, and the exercise by any Member of any right to
which it is entitled shall not preclude the exercise of any other right it may
have.
SECTION 13.10 WRITING REQUIREMENT. Except as otherwise provided in this
Agreement, this Agreement may not be amended nor shall any waiver, change,
modification, consent or discharge be effected except by an instrument in
writing executed by or on behalf of the party seeking or against whom
enforcement of any amendment, waiver, change, modification, consent or discharge
is sought.
SECTION 13.11 WAIVER. No waiver or any breach or condition of this
Agreement shall be deemed to be a waiver of any other condition or subsequent
breach whether of the like or different nature.
SECTION 13.12 APPLICABLE LAW. This Agreement and the rights of the parties
hereto shall be interpreted in accordance with the laws of the State of Florida
without giving effect to principles of conflict of laws.
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SECTION 13.13 SIGNATURES. The signature of the Manager shall be sufficient
to bind the Company to any agreement or on any document, including, but not
limited to, documents drawn or agreements made in connection with the
acquisition, financing or disposition of any assets; provided, however, that the
action being taken in connection therewith shall be authorized under the terms
of this Agreement.
IN WITNESS WHEREOF, the undersigned have duly executed this Operating
Agreement the day and year first above written.
AMERIFIRST FINANCIAL SERVICES, INC.
By: /s/ John Tooke
------------------------
John Tooke, President
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MEMBER SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned has caused this Operating Agreement of
AmeriFirst Fund I, LLC to be duly executed and delivered as of the date set
forth below.
NAME OF MEMBER: ADDRESS FOR NOTICE (Please Print):
(Exact Name to appear on Certificate)
________________________________________ ____________________________________
____________________________________
____________________________________
____________________________________
SIGNATURE: _____________________________ Attention:__________________________
By: ____________________________________ Telecopy:___________________________
Printed Name:___________________________ Tax Identification #:_______________
Title:__________________________________
Dollar Amount of Capital Contribution: $_____________________
Dated:__________________________________
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SCHEDULE A
AMERIFIRST FUND I, LLC
MEMBERS
AMOUNT OF
NAME AND ADDRESS CAPITAL CONTRIBUTION
- ---------------- --------------------
AmeriFirst Financial Services, Inc. $10
TOTAL $____________
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================================================================================
$100,000,000 -- MAXIMUM
$2,500,000 -- MINIMUM
AMERIFIRST FUND I, LLC, ISSUER
----------
PROSPECTUS
----------
AMERIFIRST CAPITAL CORP.
__________ __, 2003
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND, MANAGER OR THE UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
UNTIL _____________________ , _____ 2003 (90 DAYS AFTER THE DATE OF THIS
PROSPECTUS) ALL DEALERS EFFECTING TRANSACTION IN THE UNITS, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
96
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Securities and Exchange Commission Registration Fee ................. $ 9,200
NASD Registration Fee ............................................... 10,500
Blue Sky Fees ....................................................... 20,000
Accounting Fees and Expenses ........................................ 35,000
Legal Fees and Expenses ............................................. 150,000
Printing Fees and Expenses .......................................... 15,000
Mailing ............................................................. 5,300
Miscellaneous ....................................................... 7,300
--------
Total ....................................................... $250,000
Item 14. Indemnification of Directors and Officers.
Pursuant to Section 608.4229 of the Florida Limited Liability Company
Act, a Florida limited liability company may and shall have the power to
indemnify and hold harmless any member or manager or other person from and
against any and all claims and demands whatsoever, subject to such standards and
restrictions, if any, as are set forth in its limited liability company
agreement.
Our operating agreement requires us to indemnify our manager and its
affiliates from any loss, reasonable legal expenses, damage or claim arising by
reason of any act or omission performed or omitted by our manager in good faith
on behalf of us and in a manner reasonably believed to be within the scope of
authority conferred on our manager by our operating agreement. This right of
indemnification includes the right to advance payments or to reimburse our
manager and its affiliates for the reasonable expenses incurred from being
threatened to be made a named defendant or respondent in a proceeding. Indemnity
payments will be made only from our assets. No member is required to make
payments from his/her separate assets. We will not indemnify persons or advance
payments for acts or omissions which are established to be intentional
misconduct, fraud or a knowing violation of the law and was material to the
cause of action.
Our operating agreement further gives our manager the power to purchase
and maintain insurance in reasonable amounts on behalf of itself and each of the
employees and agents of the Fund against any liability incurred by them in their
capacities as such, whether or not the Fund has the power to indemnify them
against such liability.
In addition, our operating agreement provides that except as otherwise
provided by applicable law, the debts, obligations and liabilities of the Fund,
whether arising in contract, tort or otherwise, shall be solely the debts,
obligations and liabilities of the Fund; neither our manager nor any member nor
any person affiliated with our manager or any member shall be obligated
personally for any such debt, obligation or liability of the Fund solely by
reason of being a manager or member or being a person affiliated with either of
them.
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Item 15. Recent Sales of Unregistered Securities.
None.
Item 16. Exhibits and Financial Statement Schedules.
(A) Exhibits.
1.1 Form of Underwriting Agreement *
3.1 Articles of Organization *
4.1 Form of Subscription Agreement (included as Exhibit A to the
Prospectus)*
4.2 Operating Agreement of AmeriFirst Fund I, LLC, dated as of September
25, 2002 (included as Exhibit B to the Prospectus)*
5.1 Opinion of Snow Becker Krauss P.C. with respect to legality of the
securities*
8.1 Opinion of Snow Becker Krauss P.C. with respect to federal income tax
matters *
10.1 Subscription Escrow Agreement*
10.2 Employment Agreement between AmeriFirst Capital Corp. and John Tooke (1)
10.3 Form of Viatical Settlement Contract*
10.4 Sublease Agreement effective September 4, 2002 by and between Life
Settlements Service Corp. and AmeriFirst Capital Corp.*
10.5 Form of Consulting Agreement*
10.6 Letter Agreement between the Registrant and AmeriFirst Funding Group,
Inc. dated December 26, 2002*
23.1 Consent of Snow Becker Krauss P.C. (included in the opinion filed as
Exhibit 5.1 to this Registration Statement)*
23.2 Consent of Marcum & Kliegman LLP*
99.1 Opinion of Snow Becker Krauss P.C. with respect to Investment Company
Act of 1940*
- ----------
* Filed with this amendment
(1) Filed with registrant's registration statement on Form S-1, filed on
August 23, 2002.
(B) Financial Statement Schedules.
Item 17. Undertakings
The undersigned registrant hereby undertake to provide to the
underwriter on each closing date as specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
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(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. 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 prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(5) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 Securities and Exchange
Commission such indemnification is against public policy as expressed in the 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 proceeding) 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 Act and will be governed by the final adjudication of
such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 2 to the registration statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of St Marys, State of Georgia on January 15, 2003.
AMERIFIRST FUND I, LLC
By: AMERIFIRST FINANCIAL SERVICES, INC.,
MANAGER
/s/ John Tooke
--------------------------------------------
John Tooke
President and Chief Executive Officer
(Principal Executive Officer,
Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ John Tooke President and Chief Executive January 15, 2003
- ------------------- Officer of AmeriFirst Financial
John Tooke Services, Inc. Manager of
AmeriFirst Fund I, LLC
II-4