File No. 333-41361
As filed with the Securities and Exchange Commission on September 14, 1998.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
1st ATLANTIC GUARANTY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Maryland
(State or other Jurisdiction of Incorporation or Organization)
6726
(Primary Standard Industrial Classification Code Number)
52-2064471
(I.R.S. Employer Identification Number)
4847 Cordell Avenue, Suite 200
Bethesda, MD 20814
(301) 215-7515
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
John J. Lawbaugh
4847 Cordell Avenue, Suite 200
Bethesda, MD 20814
(301) 215-7515
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
COPIES TO:
Richard T. Choi, Esq.
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, Suite 825
Washington, D.C. 20036
(202) 457-5142
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Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until 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 Commission, acting pursuant to said Section
8(a), may determine.
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SUBJECT TO COMPLETION
1ST ATLANTIC GUARANTY CORPORATION
Preliminary Prospectus
________, 1998
This Prospectus describes five types of face-amount certificates
("Certificates") currently offered by 1st Atlantic Guaranty Corporation ("1st
Atlantic Guaranty" or "Company"):
* Accumulator Certificates
* Growth Certificates
* Reserve Certificates
* Premier Certificates
* Cornerstone Certificates
You can use the Certificates to lock-in competitive interest rates, guaranteed
by the Company, for one or more renewable terms of varying length to suit your
needs. SEE "The Certificates." Like any securities investment, the
Certificates involve certain risks that you should consider. SEE "Special Risk
Considerations."
Please read this Prospectus carefully before you invest and keep it for future
reference. No one has the authority to change the terms and conditions of the
Certificate as described in this Prospectus, or to bind the Company by any
statement not in it.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY CHANGE.
THE COMPANY HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ("SEC") A
REGISTRATION STATEMENT RELATING TO THE SECURITIES DESCRIBED IN THIS
PROSPECTUS. NO ONE MAY SELL OR ACCEPT OFFERS TO BUY THE SECURITIES DESCRIBED
IN THIS PROSPECTUS UNTIL THE REGISTRATION STATEMENT, AS AMENDED, BECOMES
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL, NOR A SOLICITATION TO BUY,
ANY SECURITIES IN ANY JURISDICTION WHERE SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL.
NEITHER THE SEC NOR ANY STATE REGULATOR HAS APPROVED OR DISAPPROVED THE
SECURITIES DESCRIBED IN THIS PROSPECTUS OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE CERTIFICATES ARE BACKED BY THE ASSETS OF THE COMPANY. THEY ARE NOT INSURED
OR GUARANTEED BY THE FEDERAL GOVERNMENT OR ANY GOVERNMENT AGENCY.
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TABLE OF CONTENTS
GLOSSARY.....................................................................4
QUESTIONS AND ANSWERS........................................................6
SPECIAL RISK CONSIDERATIONS..................................................7
THE CERTIFICATES.............................................................8
AT A GLANCE................................................................8
ACCUMULATOR CERTIFICATES...................................................9
GROWTH CERTIFICATES.......................................................10
RESERVE CERTIFICATES......................................................10
PREMIER CERTIFICATES......................................................11
CORNERSTONE CERTIFICATES..................................................11
GENERAL TERMS AND CONDITIONS................................................12
FACE-AMOUNT...............................................................12
ACCOUNT VALUE.............................................................12
PRINCIPAL INVESTMENTS.....................................................12
ADDITIONAL INVESTMENTS....................................................13
INTEREST RATES............................................................13
GUARANTEE PERIODS.........................................................14
MATURITY DATE.............................................................15
FEES AND CHARGES..........................................................15
OTHER TERMS AND CONDITIONS................................................15
PERFORMANCE.................................................................16
HOW TO BUY CERTIFICATES.....................................................16
THROUGH THE COMPANY.......................................................16
THROUGH AUTHORIZED SELLERS................................................16
AFFINITY GROUPS...........................................................16
INVESTMENT AMOUNTS........................................................17
CANCELING YOUR ORDER......................................................17
APPLICATION ACCEPTANCE....................................................17
ACCESSING YOUR ACCOUNT VALUE................................................17
INTEREST WITHDRAWALS......................................................17
PRINCIPAL WITHDRAWALS AND LOANS...........................................18
WITHDRAWAL AMOUNTS........................................................18
PENALTY FOR EARLY WITHDRAWAL..............................................18
AFFECT ON INTEREST RATES..................................................19
REQUESTING A WITHDRAWAL...................................................19
ACCOUNT TRANSACTIONS........................................................19
TRANSFERRING OWNERSHIP....................................................19
EXCHANGING CERTIFICATES...................................................19
TAX MATTERS.................................................................20
THE COMPANY.................................................................20
ORGANIZATION AND OPERATIONS...............................................20
DIRECTORS AND OFFICERS....................................................21
MANAGEMENT..................................................................22
BOARD OF DIRECTORS........................................................22
COMMITTEES OF THE BOARD OF DIRECTORS......................................23
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INVESTMENT ADVISER........................................................23
ATLANTIC CAPITAL FUNDING CORPORATION......................................24
RELATED PARTY TRANSACTIONS................................................24
RESERVES....................................................................25
INVESTMENTS.................................................................25
TYPES OF INVESTMENTS......................................................25
INVESTMENT POLICIES.......................................................27
INVESTOR SERVICES...........................................................28
AUTOMATIC INVESTMENTS.....................................................28
DIRECT DEPOSITS...........................................................28
INQUIRIES.................................................................28
REPORTS...................................................................28
INDEPENDENT AUDITORS........................................................28
FINANCIAL STATEMENTS........................................................29
EXPERTS.....................................................................29
THE COMPANY AND ITS SERVICE PROVIDERS........................[back cover page]
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GLOSSARY
The following is a glossary of terms frequently used in this Prospectus:
ACCOUNT VALUE - your principal investments(s), plus accrued interest, less
withdrawals and applicable fees, charges, and penalties.
CERTIFICATE - one of the five different Certificates currently offered by this
Prospectus, namely, the Accumulator, Cornerstone, Growth, Reserve, and Premier
Certificates.
CERTIFICATE ANNIVERSARY - each 12-month period following the Effective Date of
your Certificate.
COMPANY - 1st Atlantic Guaranty Corporation.
EFFECTIVE DATE - generally the first or fifteenth day of any given month,
depending on when we accept your application to purchase a Certificate.
Applications accepted after the first day of the month will have an Effective
Date of the fifteenth day of that month; applications accepted after the
fifteenth day of the month will have an Effective Date of the first day of the
following month.
FACE-AMOUNT - the amount that you invest at the time you purchase your
Certificate, or, in the case of the Accumulator Certificate, the sum of the
installments you agree to make during the life of the Certificate. You select
the face-amount subject to certain minimum and maximum limitations.
GUARANTEE PERIOD - a time period that you select to lock in the interest rate
applicable to your principal investment for that period.
INTEREST RATE - the rate of interest that you earn on your Certificate. We
guarantee the interest rate for the Guarantee Periods that you select.
Interest compounds monthly, based on a 30-day month and a 360-day year.
INTEREST RATE DATE - the date on which we set the interest rate available
under the Certificates, generally, the first and fifteenth day of each month.
MATURITY DATE - the date on which the Certificate matures. Each Certificate
matures 20 years after its Effective Date.
MINIMUM INTEREST RATE - the minimum annual rate of interest you will earn on
your principal investment during any Guarantee Period, currently 3.5% for each
Certificate.
OUR, US, WE - 1st Atlantic Guaranty Corporation.
PRINCIPAL, PRINCIPAL INVESTMENT - the amount of your initial and any
subsequent investment (Accumulator and Growth Certificates only). For purposes
of these definitions, we treat interest
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that has accrued during a Guarantee Period as principal for the next Guarantee
Period to which it is applied.
CLIENT CARE DEPARTMENT - the department of 1st Atlantic Guaranty Corporation
responsible for administering and servicing the Certificates. The address and
telephone numbers of our Client Care Department are 4847 Cordell Avenue, Suite
200, Bethesda, MD 20814 (1-888-74-YIELD or 301-215-7515).
SURRENDER VALUE - the amount of your Account Value immediately prior to
surrender, less any applicable fees, withdrawal charge and early withdrawal
penalty assessable at the time of surrender.
YOU, YOUR -- a current or prospective Certificate owner.
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QUESTIONS AND ANSWERS
WHO IS 1ST ATLANTIC GUARANTY? 1st Atlantic Guaranty is a Maryland corporation
registered with the SEC as a face-amount certificate company, which is a type
of investment company. Like other investment companies, 1st Atlantic Guaranty
invests the monies that it receives from investors in a portfolio of
securities issued by other companies. It also invests in other types of
assets, including, for example, real estate and real estate loans. SEE "The
Company" and "Investments."
WHAT ARE THE CERTIFICATES? The Certificates are basically guaranteed
fixed-income securities. When you buy a Certificate, you are buying a
guarantee by the Company, backed solely by its assets, to pay you the amount
of your principal investment (known as the "face-amount"), plus accrued
interest (less any withdrawals and applicable fees and charges), when your
Certificate matures. Each Certificate matures 20 years after its Effective
Date. We currently offer five different Certificates that you can select from
to suit your needs. SEE "The Certificates" and "General Terms and Conditions."
WHAT ASSETS BACK THE COMPANY'S GUARANTEES? The Company maintains reserves to
meet its guarantees under the Certificates. These reserves consist primarily
of income-producing instruments such as government and corporate bonds,
preferred stock, and real estate mortgages. SEE "Reserves" and "Other Terms
and Conditions" under "General Terms and Conditions."
WHY BUY A CERTIFICATE? We offer Certificate interest rates that are generally
higher than those available through bank certificates of deposits ("CDs") or
U.S. Treasury obligations ("Treasuries"). SEE "Interest Rates" under "General
Terms and Conditions." The Certificates also have several features that can
give you more investment flexibility than are available through CDs and
Treasuries. SEE "The Certificates" and "General Terms and Conditions." SEE
ALSO "Special Risk Considerations."
HOW IS INTEREST PAID? You can elect to withdraw the interest earned on your
Certificate on a monthly, quarterly, or annual basis during the life of your
Certificate. You can also allow your interest to accumulate up to the Maturity
Date of your Certificate. Interest compounds monthly. SEE "Interest
Withdrawals" under "Accessing Your Account Value."
WHAT FACTORS AFFECT THE INTEREST I CAN EARN? The amount of interest you can
earn will depend on the type of Certificate you select, the amount you invest,
the available interest rates, and the length of time you decide to lock in the
interest rate. You can lock in interest rates for Guarantee Periods of 1, 3,
5, and 10 years (5 or 10 years in the case of the Cornerstone Certificates).
You will always earn at least the Minimum Interest Rate for each Certificate,
subject to the terms and conditions described herein. SEE "The Certificates"
and "General Terms and Conditions."
WHO MANAGES THE COMPANY? The Board of Directors ("Board") of the Company is
primarily responsible for the management of the Company. The Board has
established an Investments Committee, which oversees the investment activities
of the Company. Key Asset Management,
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Inc. ("Adviser" or "Key Asset Management"), manages the Company's securities
portfolio. As of December 31, 1997, the Adviser managed over $60 billion in
assets, including $20 billion in investment company assets. The Company's
wholly-owned subsidiary, Atlantic Capital Funding Corporation ("Atlantic
Capital" or "ACFC"), manages the Company's real estate loan portfolio. SEE
"Management."
HOW DO I BUY, REDEEM, OR EXCHANGE CERTIFICATES? You can purchase and redeem
Certificates, and, except for the Cornerstone Certificates, exchange one
Certificate for another, by contacting our Client Care Department. SEE "How to
Buy Certificates," "Accessing Your Account Value," and "Account Transactions."
Certain minimum and maximum investment requirements apply to each Certificate.
SEE "At A Glance" under "The Certificates." For a description of fees and
charges that may apply, SEE "Fees and Charges under "General Terms and
Conditions" and "Penalty for Early Withdrawal" under "Accessing Your Account
Value."
ARE THERE ANY FEES AND PENALTIES UNDER THE CERTIFICATES? We assess a service
fee to process payments of accrued interest. We also assess a maximum
withdrawal charge of 5% on any Account Values withdrawn prior to your 5th
Certificate Anniversary. This charge does not apply to scheduled withdrawals
of interest or to systematic withdrawals under the Reserve Certificate. In
addition, we impose an early withdrawal penalty equal to 12 months accrued
interest on principal amounts withdrawn prior to your 5th Certificate
Anniversary or prior to the end of a Guarantee Period. After your 5th
Certificate Anniversary, the early withdrawal penalty applies only if you
withdraw principal prior to the end of a Guarantee Period. SEE "Fees and
Charges" and "Penalty for Early Withdrawal" under "Accessing Your Account
Value" for details.
SHOULD I BUY A CERTIFICATE? Before purchasing a Certificate, you should
consider whether the Certificate suits your financial objectives, particularly
in light of the amount of your purchase and the long-term nature of the
Certificates. You should not rely on the Certificates for short-term financial
needs. The Certificates are intended to be part of a well-balanced,
comprehensive investment program. SEE "Special Risk Considerations,"
immediately below.
SPECIAL RISK CONSIDERATIONS
As with any security that you buy, you bear certain risks when you invest in a
Certificate. We highlight below certain risks that you may find prudent to
consider before investing in a Certificate.
OPERATING HISTORY. The Company is newly formed, which means it has no
operating history or "track record." This fact is common to all new investment
companies.
PORTFOLIO INVESTMENTS. We expect to meet our obligations under the
Certificates through earnings on our portfolio investments. Because our
guarantees under the Certificates are backed only by our assets, you bear a
number of portfolio investment risks.
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These risks include, for example, (i) market risk (I.E., the risk that the
market value of one or all of our investments might decline), (ii) credit risk
(I.E., the risk that an issuer of a security that we purchased might default),
(iii) liquidity risk (I.E., the risk that one or more of our investments might
not be liquid at the time necessary to meet our payment obligations), (iv)
interest rate risk (I.E., the risk that interest rates might move in a
direction that causes an adverse effect on our investments), and (v) valuation
risk (I.E., the risk that one or more of our investments might be overvalued).
We will try to minimize these risks by adhering to certain reserve
requirements and investment guidelines established by federal law and
administered by the SEC. SEE "Reserves" and Investments." However, a failure
of the Company's portfolio investments to generate adequate earnings may limit
our ability to pay competitive interest rates and could conceivably prevent
the Company from meeting its obligations (I.E., default) under the
Certificates, including the payment of principal and interest.
YEAR 2000 CONSIDERATIONS. Like other companies, the Company is taking steps to
address the so-called "Year 2000 problem." The problem exists because many
computer programs use only the last two digits to refer to a year and may not
properly recognize a year that begins with a "20" instead of a "19." The
Company believes that its computer systems are Year 2000 compliant. In
addition, the Company has sought assurances from its third party service
providers regarding the steps they are taking to address the Year 2000 problem
so as to enable them to continue to provide uninterrupted services to the
Company. Nevertheless, as a practical matter, the Company cannot predict with
certainty what affect the Year 2000 problem may have on its operations.
COMPETITIVE FACTORS. There are but a handful of face-amount certificate
companies in existence today. One company, IDS Certificate Company, dominates
the face-amount certificate industry. In addition, there exist a number of
financial products, such as CDs and insurance products, which offer investors
a guaranteed fixed rate of return. Our principal means of competing is by
offering attractive interest rates on our Certificates and responsive customer
service.
THE CERTIFICATES
AT A GLANCE
The chart below provides an overview of the five different types of
Certificates we offer. For more detailed information, please refer to the
remainder of this section. SEE ALSO "General Terms and Conditions" for
additional information about common features of the Certificates.
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<TABLE>
<CAPTION>
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Name of Certificate
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ACCUMULATOR Growth Reserve Premier Cornerstone
------------------------------------------------------------------------------------------------------------
CERTIFICATE TYPE Installment Fully Paid Fully Paid Fully Paid Fully Paid
------------------------------------------------------------------------------------------------------------
MINIMUM INVESTMENT $250* $2,500 $25,000 $250,000 $1,000
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MINIMUM ADDITIONAL INVESTMENT $50* $250** None None None
Permitted Permitted Permitted
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MAXIMUM INVESTMENT $1.5 million $250,000 $2.5 $2.5 $2.5
million million million
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GUARANTEE PERIODS 1, 3, 5 or 10 years 5 or 10 years
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MATURITY DATE 20 years from Effective Date
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BENCHMARKS FOR 1, 3, 5 YEAR GUARANTEE PERIODS: the HIGHER of (i) the average rate
for CDs of comparable maturities as quoted on the Bank Rate
Monitor National Index and (ii) the yield on Treasuries of
comparable maturities, on a given Interest Rate Date.
FOR 10 YEAR GUARANTEE PERIODS: the yield on 10-year Treasury notes bonds
on a given Interest Rate Date.
FOR THE CORNERSTONE CERTIFICATES: the rate for the 11TH District Cost of
Funds Index.
SEE "Interest Rates" under "General Terms and Conditions."
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INTEREST RATE TARGET*** 0.5% to 2.5% above benchmark****
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MINIMUM INTEREST RATE 3.5% for all Certificates
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<FN>
* The minimum face-amount for any Accumulator Certificate is $5,000.
** You may make additional contributions to your Growth Certificate in an aggregate amount up to 15% of
your initial investment, subject to the maximum of $37,500.
*** The Company reserves the right to set an interest rate target above the target stated above.
**** Interest rates generally will be higher for larger investments.
------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
ACCUMULATOR CERTIFICATES
WHO SHOULD INVEST? Accumulator Certificates are designed for investors who
want to save for retirement, or save to meet college or other long-term
expenses, by systematically investing in a fixed-income investment that offers
competitive interest rates.
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INVESTMENT AMOUNTS. You can invest up to the face-amount of your Accumulator
Certificate in monthly or quarterly installments, which is why these
Certificates are sometimes referred to as "installment certificates." You can
select how much you would like to invest on an installment basis, subject to
the limits described above. PLEASE NOTE THAT FAILURE TO MAKE A SCHEDULED
PAYMENT FOR YOUR ACCUMULATOR CERTIFICATE MAY RESULT IN THE LAPSE OF YOUR
CERTIFICATE. SEE "Lapse and Reinstatement," immediately below.
LAPSE AND REINSTATEMENT. All scheduled payments for Accumulator Certificates
are due on the first day of the month. If we do not receive your scheduled
payment within 10 days of its due date, your Certificate will be in default,
and will lapse.
You can reinstate your Accumulator Certificate by paying the missed payment,
plus an administrative fee equal to the higher of 5% of the missed payment or
$5.00, within six months from the original due date of the missed payment. We
will apply any missed payments that we receive to the current Guarantee Period
to which you have applied your Account Value. Any missed payment will earn
interest commencing on the date we apply it to such Guarantee Period.
Alternatively, you can elect to surrender your lapsed Certificate for its
Surrender Value, or convert it to a "fully paid" Certificate in an amount
equal to its then Surrender Value. Your fully paid Certificate will have the
same Maturity Date as your lapsed Certificate, and your Account Value will be
applied automatically to the Guarantee Period that ends closest to the
Maturity Date of the Certificate, without extending past such Maturity Date,
at the interest rate applicable to such Guarantee Period.
If, within six months from the original due date of your missed payment, you
have not notified the Company of your decision to reinstate, surrender or
convert your lapsed Accumulator Certificate, the Company will automatically
convert your lapsed Accumulator Certificate into a fully paid Certificate as
described above.
GROWTH CERTIFICATES
WHO SHOULD INVEST? Growth Certificates are designed for investors seeking
competitive interest rates on a single lump-sum investment, but who do not
have the amount necessary to purchase a Premier Certificate, which normally
offers a higher rate of interest.
INVESTMENT AMOUNTS. You can purchase Growth Certificates with a single
principal investment or "lump sum," subject to the limits described above.
Because these Certificates do not require any additional payments, they are
sometimes referred to as "fully paid" Certificates. You have the option,
however, of making one or more additional principal investments in amounts
ranging from $250 up to an aggregate maximum of 15% of your initial
investment, subject to a maximum of $37,500. SEE "Additional Investments"
under "General Terms and Conditions."
RESERVE CERTIFICATES
WHO SHOULD INVEST? Reserve Certificates are designed for investors seeking a
high rate of current income. Because of the Reserve Certificate's unique
systematic withdrawal feature, the
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Certificate may be ideal for retired persons who need to receive disbursements
from their retirement accounts either to meet IRS requirements for minimum
disbursements from their tax-qualified plan or to fund retirement living.
INVESTMENT AMOUNTS. You can purchase Reserve Certificates with a single
principal investment ranging from $25,000 to $2.5 million. Like the Growth
Certificates, Reserve Certificates are sometimes referred to as "fully paid"
Certificates. We do not accept additional principal investments under the
Reserve Certificates.
SYSTEMATIC WITHDRAWAL. Reserve Certificates allow you to make systematic
withdrawals of both principal and accrued interest, without incurring any
withdrawal charge or early withdrawal penalty. To take advantage of the
systematic withdrawal feature, you must maintain, at all times, a minimum
Account Value equal to 50% of your original principal investment. You can
choose to make systematic withdrawals either monthly or quarterly. The minimum
amount you may withdraw at any time is $150. We will treat withdrawals as
coming first from accrued interest earned on your principal investment, and
then from principal. Systematic withdrawals will reduce the amount of your
Account Value, and may result in the application of a lower interest rate. SEE
"Affect on Interest Rates" under "Accessing Your Account Value."
PREMIER CERTIFICATES
WHO SHOULD INVEST? Premier Certificates are designed for investors seeking
competitive interest rates on large investments. Interest rates on Premier
Certificates normally will be the most favorable of all of the Certificates
offered by this Prospectus.
INVESTMENT AMOUNTS. You can purchase Premier Certificates with a single
principal investment, subject to the limits described above. Like the Growth
Certificates, Premier Certificates are sometimes referred to as "fully paid"
Certificates. We do not accept additional principal investments under the
Premier Certificates.
CORNERSTONE CERTIFICATES
WHO SHOULD INVEST? Cornerstone Certificates are designed for investors seeking
competitive interest rates on a single lump-sum investment, who also have an
interest in providing much needed capital to the religious community.
WHAT MAKES THIS CERTIFICATE DIFFERENT? 1st Atlantic Guaranty will invest at
least 35% of the proceeds it receives from the sale of the Cornerstone
Certificates in loans used to purchase, construct, or renovate places of
worship and related educational facilities. 1st Atlantic Guaranty will apply
the balance of the proceeds to other types of investments, such as government
and corporate bonds, preferred stock, and real estate loans.
INVESTMENT AMOUNTS. You can purchase Cornerstone Certificates with a single
principal investment or "lump-sum," subject to the limits described above.
Like the Growth Certificates,
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these Certificates are sometimes referred to as "fully paid" Certificates. We
do not accept additional principal investments under the Cornerstone
Certificate.
GENERAL TERMS AND CONDITIONS
The following terms and conditions apply to each type of Certificate described
in this Prospectus, unless otherwise specifically noted. We reserve the right
to issue other Certificates with different terms and conditions. The terms and
conditions of your Certificate may not be changed except by mutual agreement.
FACE-AMOUNT
The face-amount of your Certificate equals the amount you invest when you
purchase your Certificate, or, in the case of the Accumulator Certificate, the
amount you agree to invest during the life of the Certificate. The face-amount
will remain the same during the life of your Certificate.
ACCOUNT VALUE
Your Account Value initially will equal the face-amount of your Certificate
(except for Accumulator Certificates, in which case it will equal the amount
of your first scheduled principal investment). Periodically, we will adjust
your Account Value to reflect increases due to additional principal
investments (Accumulator and Growth Certificates only) and accrued interest,
and decreases due to withdrawals and fees and charges or penalties. SEE
"Reports" under "Shareholder Services" for information on the types of reports
we will provide to you.
PRINCIPAL INVESTMENTS
The amount that you invest in your Certificate constitutes your principal
investment. We also treat interest that has accrued on your Certificate during
a Guarantee Period and that you apply to another Guarantee Period as principal
for that period. We will credit your principal investment and issue your
Certificate on its Effective Date, which generally will be either the first or
fifteenth day of a given month, depending on the date we accept your
application.
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ADDITIONAL INVESTMENTS
Growth Certificate owners may make additional unscheduled principal
investments during the life of their Certificates, subject to the minimum and
maximum limits described above. Please note that we will credit additional
principal investments only on the first day of each month coinciding with or
following the date we receive your payment. We will not accept additional
principal investments for any Cornerstone, Premier, or Reserve Certificate.
However, you can purchase more than one Certificate of the same type, in which
case we will aggregate your principal investments under all Certificates for
purposes of determining the applicable interest rate on the additional
Certificates you purchase. SEE "Applicable Interest Rate." Accumulator
Certificate owners are required to make the principal investments according to
the agreed upon schedule to avoid a lapse of their Certificate.
INTEREST RATES
WHEN WE CALCULATE INTEREST RATES. We calculate the Certificate interest rates
for each Guarantee Period generally at the beginning and middle of each month
(each an "Interest Rate Date"). We may calculate the interest rates more
frequently or at different times, in our sole discretion, and, from time to
time, we may offer special promotional rates on the Certificates. SEE
"Applicable Interest Rate" below for a discussion of the interest rate that
will apply to your Guarantee Period.
HOW WE CALCULATE INTEREST RATES. We calculate the interest rates in our sole
discretion, primarily in response to changes in market conditions, as
generally reflected in the benchmarks that we use. On any given Interest Rate
Date, the interest rates available for each Guarantee Period will be the
HIGHER of (i) the Minimum Interest Rate and (ii) our Interest Rate Target for
that Guarantee Period. The Minimum Interest Rate for each Certificate is 3.5%.
The Interest Rate Target for each Guarantee Period will equal the benchmark
for that Period, plus a margin generally ranging from 0.50% to 2.5%. At no
time will the margin that we apply be less than 0.50%.
When determining the Interest Rate Target for the one, three, and five year
Guarantee Periods under each Certificate (other than the Cornerstone
Certificate), the benchmark will be the HIGHER of: (i) the average rate for
CDs of comparable maturity quoted on the Bank Rate Monitor National Index
("BRM Index"), and (ii) the yield for Treasuries of comparable maturity, on a
given Interest Rate Date. The average rates set out in the BRM Index are based
on a weekly survey of the 50 largest banks and the 50 largest thrift
institutions in the 10 largest metropolitan areas in the United States. The
BRM Index is a publication of the Bank Rate Monitor, an organization that
collects and disseminates information about bank rates and the banking
industry. The BRM Index does not include an average rate for 10 year CDs.
Accordingly, we use the yield on 10 year Treasury bonds as the benchmark for
the 10 year Guarantee Period.
The benchmark for the 5 and 10 year Guarantee Periods under the Cornerstone
Certificates is the 11th District Cost of Funds Index, which is a weighted
average of the costs of borrowing by
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member banking institutions of the Federal Home Loan Bank of San Francisco
(the 11th District). The index rate tends to lag market interest rate
adjustments and tends to be relatively stable because institutions borrow
money for varying terms and do not pay market rates for all of their
borrowings. The Index is reported monthly, but generally lags behind two
months (e.g. January's index is reported in March, February's index is
reported in April, etc.)
We reserve the right to use, in our sole discretion, an index other than the
BRM Index or 11th District Cost of Funds Index should such indexes cease to
exist.
APPLICABLE INTEREST RATE. The applicable interest rate for your initial
Guarantee Period will be the rate in effect on the date we accept your
application and receive your principal investment at our offices. We will send
you a confirmation of the interest rate that applies to your Certificate. For
subsequent principal investments made under the Growth Certificate, we will
apply the interest rate in effect for the current Guarantee Period in which
you are invested. You will begin earning interest on the Effective Date of
your Certificate or, in the case of any subsequent principal investment
permitted under the Growth Certificates, on the first day of the month
following the date we receive the payment. Prior to the end of each Guarantee
Period, we will notify you of the interest rates available under your
Certificate for the subsequent Guarantee Periods. The interest rate that
applies to your Guarantee Period will remain the same throughout that
Guarantee Period and will not be affected by changes in Certificate interest
rates that may occur after you lock in your interest rate for that Period.
If you already own a Certificate and purchase another of the same type, we
will calculate the interest rate on the new Certificate based on the aggregate
Account Values that you maintain in each Certificate of that type.
INFORMATION ON INTEREST RATES. We will publish quotations of the available
interest rates from time to time. Also, you can find out what the available
interest rates are on any given day by calling us at 1-888-74-YIELD or
301-215-7515. Interest rates for future Guarantee Periods may be greater or
less than the interest rates for the current Guarantee Period that you select.
GUARANTEE PERIODS
You can lock in the interest rates available under your Certificate for
Guarantee Periods of 1, 3, 5 and 10 years (5 and 10 years only in the case of
the Cornerstone Certificates). Your initial Guarantee Period begins on the
Effective Date. Generally, the longer the Guarantee Period you select, the
higher the interest rate you will earn. At the end of each Guarantee Period,
you can select another Guarantee Period of the same or different length. We
will notify you at least 15 days prior to the expiration of each Guarantee
Period. For convenience, unless you specify otherwise prior to the end of your
current Guarantee Period, we will automatically apply your Account Value to
another Guarantee Period of equal length, using the then applicable interest
rate.
14
<PAGE>
You may continue to select successive Guarantee Periods up until the
Certificate's Maturity Date. SEE "Maturity Date," immediately below. You may
not select a Guarantee Period that would carry the Certificate past its
Maturity Date. If you select a Guarantee Period that would end after your
Certificate's Maturity Date, we will instead apply your Account Value to the
next shortest Guarantee Period that ends at or prior to your Certificate's
Maturity Date, using that Period's then applicable interest rate
MATURITY DATE
The Maturity Date for all 1st Atlantic Guaranty Certificates is 20 years from
the Effective Date. On the Maturity Date, we will pay you your Account Value,
which equals the face-amount of your Certificate, plus any subsequent
principal investments, plus all accrued interest, less any withdrawals
previously taken and less applicable fees, charges, and penalties previously
assessed.
FEES AND CHARGES
SERVICE FEES. We charge a per payment fee of $5.00 to process regular monthly,
quarterly, or annual payments of accrued interest that you have elected to
withdraw and $25.00 to process any unscheduled interest payment requests. We
will deduct the fee from each payment you receive. This charge does not apply
to systematic withdrawals under the Reserve Certificates.
WITHDRAWAL CHARGE. If you withdraw some or all of your Account Value prior to
your fifth Certificate Anniversary, we will assess a withdrawal charge from
your remaining Account Value or, in the case of a complete surrender, the
amount withdrawn, according to the following schedule:
AS A % OF AMOUNT WITHDRAWN: 5% 4% 3% 2% 1% 0%
# OF CERTIFICATE ANNIVERSARIES: 1 2 3 4 5 Over 5
This charge does not apply to scheduled withdrawals of interest or to
systematic withdrawals under the Reserve Certificates. In addition to a
withdrawal charge, you may be subject to an early withdrawal penalty. SEE
"Penalty for Early Withdrawal" under "Accessing Your Account Value."
OTHER TERMS AND CONDITIONS
The Certificates carry no voting rights and are not entitled to participate in
any dividends that may be declared by the Board of Directors. The Certificates
are not secured by any particular asset of the Company; however, as required
by federal law, the Company maintains reserves with its custodian to support
its obligations under the Certificates. SEE "Reserves."
15
<PAGE>
PERFORMANCE
From time to time, we may quote current and historical yields on our
Certificates in advertisements and in sales literature. The availability of
the current yields quoted will depend on when you purchase your Certificate
and how much you invest. Quotations of historical yields are not indicative of
future yields. We also may compare our yields to those offered by competing
products, such as CDs and Treasuries, as well as other fixed-income
securities.
HOW TO BUY CERTIFICATES
You can buy Certificates through one of the methods described below. You must
complete an application and submit it, along with payment, at the time of
purchase. WE RESERVE THE RIGHT TO ACCEPT OR REJECT ANY APPLICATION IN OUR SOLE
DISCRETION.
THROUGH THE COMPANY
BY MAIL. You can buy Certificates directly from the Company by sending a
completed application, along with a check, to 1st Atlantic Guaranty
Corporation, 4847 Cordell Avenue, Suite 200, Bethesda, MD 20814.
BY WIRE. You may also wire payments for Certificates to the Company's wire
bank account. Before wiring funds, please call us at 1-888-74-YIELD or
301-215-7515 to advise us of your investment and to receive instructions as to
how and where to wire your investment. The minimum amount you may wire is
$1,000. Please remember to return your completed application to us at the
address above.
THROUGH AUTHORIZED SELLERS
You can buy Certificates through broker-dealers that have selling group
agreements with our principal underwriters, CI Investments, Inc. and Summit
Brokerage Services, Inc. (each, an "Underwriter"). Each Underwriter has agreed
to use its best efforts to promote the sale of Certificates. For its services,
each Underwriter receives compensation that will not exceed the maximum
withdrawal charge and penalty for early withdrawal. Each Underwriter may
re-allow a portion of its compensation to broker-dealers with whom it has a
selling group agreement. Please call us at 1-888-74-YIELD or 301-215-7515 to
find out whether your broker-dealer is on our list of authorized sellers. We
will pay any compensation to authorized sellers out of our general funds, so
that all of your money will be invested in your Certificate.
AFFINITY GROUPS
From time to time, we may seek to introduce our Certificates to members of
affinity groups, including service organizations, non-profit associations, and
other types of membership organizations (collectively, "affinity groups").
Although affinity groups are not permitted to sell
16
<PAGE>
Certificates, they may provide us with mailing lists and other information to
enable us to market Certificates to their members. For their cooperation, we
may compensate affinity groups an amount that we mutually agreed upon. Please
call us at 1-888-74-YIELD or 301-215-7515 for the current list of affinity
groups with whom we have arrangements.
INVESTMENT AMOUNTS
For an explanation of the minimum and maximum investments in each type of
Certificate, SEE "The Certificates." Certain additional restrictions may apply
under if you use the Certificates to fund your Individual Retirement Account
("IRA") or other qualified retirement plan account.
CANCELING YOUR ORDER
You can, without penalty or withdrawal charge, cancel your investment in a
Certificate within 10 days after we receive your application. Simply call us
at the same telephone number or write to us. You will not earn any interest on
Certificates that you cancel under this provision. We will process your
cancellation request on the business day we receive it and, if applicable,
will send out a check to you generally within 10 business days.
APPLICATION ACCEPTANCE
All applications to purchase Certificates are subject to acceptance or
rejection by us in our sole discretion. If we accept your application to
purchase a Certificate, you will receive a confirmation of such acceptance.
You will also receive a quarterly statement reflecting all account activity.
SEE "Reports." We do not issue paper certificates to evidence the purchase of
Certificates. Instead, we will register your purchase on our books, thereby
relieving you of the responsibility for the safekeeping of paper certificates
and the need to deliver them to us upon redemption. Please refer to the
Certificate Terms and Conditions attached to your application for detailed
information about your Certificate.
ACCESSING YOUR ACCOUNT VALUE
You can access all or any part of your Certificate's Account Value at any
time, subject to the terms and conditions described below.
INTEREST WITHDRAWALS
You can schedule regular withdrawals of interest that has accrued under your
Certificate on a monthly, quarterly, or annual basis. Each accrued interest
withdrawal will be subject to a small service fee. Unscheduled interest
withdrawals are subject to a higher fee and may be subject to a withdrawal
charge. SEE "Fees and Charges" under "General Terms and Conditions."
17
<PAGE>
PRINCIPAL WITHDRAWALS AND LOANS
You can also withdraw some or all of your principal investments in your
Certificate prior to maturity. However, a withdrawal charge and an early
withdrawal penalty may apply upon withdrawal, other than for systematic
withdrawals under the Reserve Certificates. SEE "Withdrawal Charge" under
"Fees and Charges," and "Penalty for Early Withdrawal," below.
To avoid incurring a withdrawal charge and the penalty for early withdrawal,
you may request a temporary principal withdrawal or "loan" of up to 50% of
your Account Value for a term not to exceed the earlier of five years or the
Maturity Date of your Certificate. You will not earn interest on the amount
you withdraw from your Certificate. Loans are subject to an annual interest
charge not to exceed 6% of the amount withdrawn. If you decide not to reinvest
your temporary principal withdrawal, we will treat it as a permanent
withdrawal and will assess against your remaining Account Value the penalty
for early withdrawal that would have applied at the time of the withdrawal.
Temporary principal withdrawals are not available for Accumulator
Certificates. Withdrawals of principal may cause your Certificate to fall into
a lower interest rate category. SEE "Affect on Interest Rates," below.
WITHDRAWAL AMOUNTS
The minimum amount that you may withdraw at any time from your Certificate is
$100 ($150 in the case of the Reserve Certificates), provided, however, that
the remaining Account Value under your Certificate (other than Reserve
Certificate) does not fall below the stated minimum investment amounts. We
will notify you and seek additional instructions from you if the amount of
your withdrawal request would cause your Account Value to fall below that
minimum. If you fail to respond and your withdrawal would cause your Account
Value to fall below that minimum, we will treat your request as one for a
complete surrender of your Certificate.
PENALTY FOR EARLY WITHDRAWAL
If you withdraw some or all of your principal investments on or before your
fifth Certificate Anniversary or prior to the end of a Guarantee Period, we
will deduct a penalty from your remaining Account Value, or, in the case of a
complete surrender, from the amount withdrawn, equal to 12 months interest
payable on the amount withdrawn. After your fifth Certificate Anniversary, the
penalty will apply only if you withdraw prior to the end of a Guarantee
Period.
The foregoing penalty does not apply to systematic withdrawals under the
Reserve Certificate. In addition, the penalty does not apply if the withdrawal
is due to the need to meet unexpected expenses from your death, disability, or
hospitalization.
We assess the foregoing penalty largely because of the negative impact that
early withdrawals of principal investments may have on our reserves and our
ability to offer competitive interest rates to our customers. You may be
subject to additional penalties if you withdraw amounts held in a Certificate
from an IRA or other tax-qualified plan. Please consult your tax adviser.
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<PAGE>
AFFECT ON INTEREST RATES
A withdrawal will cause a reduction in the Account Value under your
Certificate. If the reduction puts your Account Value in a lower category of
applicable interest rates, we will apply the lower interest rate from the date
of the withdrawal, even if it occurs prior to the end of a Guarantee Period.
REQUESTING A WITHDRAWAL
You may submit written requests for a withdrawal to the Company at our Client
Care Department. We will treat withdrawal requests as coming first from
accrued interest, and then from your principal investment. We will process
withdrawal requests on the business day that we receive them, and will send
out a check to you generally within 10 business days.
We may take longer to process your request if you recently purchased or, in
the case of Growth Certificates, added to a Certificate with a check that has
not yet cleared. In addition, we reserve the right to defer payments for up to
30 days, in which case we will pay interest on the deferred payment at the
Minimum Interest Rate. For our mutual protection, we may require a signature
guarantee if:
* you seek to withdraw an amount in excess of $50,000,
* you ask us to pay redemption proceeds to someone other than the
registered owners,
* you ask us to send redemption proceeds to an address other than
the address of record, a preauthorized bank account, or a
preauthorized brokerage firm account,
* we receive instructions from an agent, not the registered owners,
or
* we believe a signature guarantee would protect us against
potential claims based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You can
obtain a signature guarantee from certain banks, brokers or other eligible
guarantors. YOU SHOULD VERIFY THAT THE INSTITUTION IS AN ELIGIBLE GUARANTOR
PRIOR TO SIGNING. A NOTARIZED SIGNATURE IS NOT SUFFICIENT.
ACCOUNT TRANSACTIONS
TRANSFERRING OWNERSHIP
You may transfer ownership of your Certificate by submitting a completed
transfer request form to our Client Care Department. Please note that
transfers of ownership from a tax-qualified plan may have adverse tax
consequences. Please consult your tax adviser.
EXCHANGING CERTIFICATES
You may exchange one Certificate for another, provided you meet the minimum
investment threshold for the new Certificate. This exchange privilege does not
apply to Cornerstone
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<PAGE>
Certificates. Exchanges will become effective on the first day of the next
Guarantee Period following the date we receive your exchange request.
Withdrawal charges and penalties do not apply upon the exchange of one
Certificate for another; however, they may apply to withdrawals from the new
Certificate, depending on how long you have held the exchanged Certificate. To
effect an exchange, please call us at 1-888-74-YIELD or 301-215-7515 to
receive instructions.
TAX MATTERS
All interest that you earn on your Certificate is taxable to you in the year
in which it accrues, regardless of whether you elect to receive it during that
year. We will send you a report showing all reportable income under your
Certificate.
If you are using your Certificate to fund an IRA or other tax-qualified plan,
you generally will pay no federal income taxes on your interest until you
begin taking withdrawals. However, withdrawals from IRAs and qualified plans
generally are subject to a federal income tax penalty of 10% if made before
age 59 1/2.
We are required to withhold federal income taxes on IRA withdrawals unless you
tell us not to. We are also required to withhold 20% on most other
distributions from tax-qualified plans, unless the distribution is directly
rolled over to another tax-qualified plan or IRA.
If you are using your Certificate to fund a Roth IRA, your contributions will
not be tax deductible; however, the distributions from your Roth IRA may be
tax free depending on how and when you withdraw your money from the account.
Subject to certain income limitations, you may make a rollover contribution
from a non-Roth IRA to a Roth IRA. The rollover will be taxable currently, but
future distributions from the Roth IRA may be tax free as in the preceding
sentence. The maximum contribution to a Roth IRA is $2,000, not counting
rollover contributions, and contributions may be made beyond age 70 1/2. The
maximum yearly contribution to all IRA's combined is still $2,000.
The foregoing is only a brief summary of certain federal income tax matters
relevant to an investment in a Certificate. It is not intended as tax advice.
Please consult a qualified tax adviser for information about any tax
consequences with regard to your individual circumstances.
THE COMPANY
ORGANIZATION AND OPERATIONS
The Company was organized as a Maryland corporation on October 1, 1997. It is
registered with the SEC as a face-amount certificate company, which is a type
of investment company. The Company's capitalization consists solely of
14,500,000 shares of authorized common stock, par value $0.01 per share
("common stock"). On August 27, 1998, John J. Lawbaugh, the
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<PAGE>
Company's Chairman, President and Treasurer, and Brian P. Smith, the Company's
Secretary, contributed the initial capitalization of the Company, and as of
that date, owned all of the issued and outstanding shares of the Company's
common stock. As of the date of this Prospectus, the Company has capital in
excess of the minimum amount required by the rules and regulations of the SEC
and the Investment Company Act of 1940 ("1940 Act"). The Company believes that
its capital is adequate for its business activities.
The Company's business activities currently consist entirely of the issuance
and servicing of Certificates and the investment of the proceeds received from
the sale of its Certificates in securities and other assets. The profitability
of the Company's operations is determined by the difference between (1) the
amount of the Company's earnings on its investment portfolio and (2) the
expenses the Company incurs (E.G., the interest it agrees to pay, taxes, and
its investment and operating expenses, such as investment advisory fees,
brokerage costs, custodial expenses, disinterested director fees, and
distribution fees). The Company, through it wholly-owned subsidiary, Atlantic
Capital, manages its real estate loan portfolio, which supports its
obligations under the Certificates. SEE "Atlantic Capital" under "Management."
DIRECTORS AND OFFICERS
Certain information about the Company's directors and officers, including
their principal occupations for the past five years, is set out below. Members
of the Board who are considered "interested persons" of the Company under the
1940 Act are indicated by an asterisk (*). The Company has no employees, and
all of the directors and officers, other than directors who are not interested
persons of the Company, serve in such capacities without compensation.
Officers are appointed annually at the annual meeting of the Company's Board
of Directors.
<TABLE>
<CAPTION>
Positions with Principal Occupations
Name and Age the Company During the Past Five Years
<S> <C> <C>
Donald N. Briggs Director President, Briggs Associates, Inc. (brokerage and
(54) appraisals); President, Don Briggs & Co. (commercial
leasing)
James F. Cole Director General Treasurer of the International Association of
(59) Bridge, Structural, Ornamental & Reinforcing Iron
Workers Union
J. Donald Elam Director President of Trinity Financial Group (fund raising and
(65) planned giving consultants)
Nancy Hopkinson Director Currently Retired (since 1996); prior to that, Teacher
(56) and Administrator, Montgomery County Public
Schools
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Positions with Principal Occupations
Name and Age the Company During the Past Five Years
<S> <C> <C>
John J. Lawbaugh Chairman of the President, Atlantic Pension & Trust (private pension
(29)*+ Board, fund management); President, Atlantic Capital Funding
President and Corporation; President, Commercial Finance Group
Treasurer (commercial and residential mortgage banking)
Brian Murphy (54) Director Partner, Berenson & Murphy (law firm) (formerly,
Griffin, Berenson & Murphy)
Greg Nichols (45)+ Director Principal, Nichols & Associates (wholesale retail
business development); Principal, U.S. Estate Group
(estate and financial planning)
Brian P. Smith Director and Operations Manager, Atlantic Pension & Trust (private
(44)* Secretary pension fund management); Operations Manager,
Atlantic Capital Funding Corporation (commercial and
residential mortgage banking) since 1996; prior to that
Operations Manager, Enterprise Network Applications
(computer software company)
Willard R. Stinson Director Chief Financial Officer, Shepherd Group of Companies
(62) (financial planning firm since 1996); prior to that,
Financial Planner, Shepherd Group of Companies, and
Financial Planner, First Financial Planners, Inc. (since
1995); prior to that, Vice President and Comptroller,
General Public Utilities (electric utility company)
<FN>
--------------
+ Messrs. Lawbaugh and Nichols are brothers-in-law.
</FN>
</TABLE>
MANAGEMENT
BOARD OF DIRECTORS
The Board of Directors ("Board") is responsible for managing the Company's
business affairs. Directors are elected annually at the Company's annual
meeting of shareholders. Each Director who is not an interested person of the
Company receives an annual retainer of $500, plus a $750 fee for each regular
or special Board meeting he or she attends. The Directors also receive
reimbursement for their expenses incurred in attending any meeting of the
Board. The Board generally meets quarterly.
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<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee and an Executive Committee. The duties of
each Committee and its present membership are as follows:
AUDIT COMMITTEE: The members of the Audit Committee consult with the Company's
independent auditors if the auditors deem it desirable, and meet with the
Company's independent auditors at least once annually to discuss the scope and
results of the annual audit of the Company and such other matters as the
Committee members deem appropriate or desirable. Directors Briggs, Cole, Elam,
Hopkinson, Murphy, Nichols, and Stinson are members of the Audit Committee.
EXECUTIVE COMMITTEE: During intervals between meetings of the Board, the
Executive Committee possesses and may exercise all of the powers of the Board
in the management of the Company except as to those matters that specifically
require action by the Board. Directors Hopkinson, Lawbaugh, and Murphy are
members of the Executive Committee.
INVESTMENTS COMMITTEE: The members of the Investments Committee oversee the
investment activities of the Adviser, which manages the Company's securities
portfolio, and the activities of the Company's wholly-owned subsidiary,
Atlantic Capital, which manages the Company's real estate loan portfolio.
Directors Briggs, Cole, and Lawbaugh are members of the Investments Committee.
INVESTMENT ADVISER
Key Asset Management serves as the Company's investment adviser pursuant to an
investment advisory agreement ("Advisory Agreement"). Subject to the
supervision of the Board, the Adviser is responsible under the Advisory
Agreement for selecting and managing the Company's securities investments to
ensure that the Company has, in cash or qualified investments, as that term is
defined in Section 28(b) of the 1940 Act, assets having an aggregate value not
less than that required by applicable law. The Adviser also is responsible for
placing orders for the purchase and sale of the Company's securities
investments with brokers and dealers that the Adviser selects.
In addition, pursuant to the Advisory Agreement, the Adviser has agreed to
render regular reports to the Board regarding its investment decisions and
brokerage allocation practices for the Company, to assist the Company's
custodian in valuing portfolio securities and computing the Company's
reserves, and to furnish the Company with the assistance, cooperation, and
information necessary for it to meet various legal requirements regarding
registration and reporting. The Adviser also has agreed to furnish to the
Company adequate facilities and personnel necessary for the Directors and
officers of the Company to manage the affairs and conduct of the Company's
business. The Adviser, located at 127 Public Square, Cleveland, Ohio,
44114-1306, is a registered investment adviser with over $60 billion of assets
under management as of the date of this Prospectus. For its services, the
Adviser receives a quarterly fee payable in
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<PAGE>
arrears based on the annual percentage, set forth below, of the average daily
net asset value of the Company's assets that it manages:
Large Cap Equities and Convertible Securities:
<TABLE>
<CAPTION>
Assets Annual Fee
------ ----------
<S> <C>
Up to $25,000,000 0.45%
Next $25,000,000 0.40%
Above $50,000,000 0.35%
</TABLE>
Small Cap and Mid Cap Equities:
<TABLE>
<CAPTION>
Assets Annual Fee
------ ----------
<S> <C>
Up to $10,000,000 0.90%
Next $15,000,000 0.70%
Next $25,000,000 0.55%
Above $50,000,000 0.45%
</TABLE>
ATLANTIC CAPITAL FUNDING CORPORATION
Atlantic Capital is a Maryland corporation newly created by the Company for
the purpose of managing its real estate loan portfolio. ACFC, which is a
wholly-owned by the Company, performs all of the underwriting, closing and
servicing of mortgage investments for 1st Atlantic. ACFC may originate and
process loans directly as well as offer its loan programs to outside mortgage
brokers on a wholesale basis. In the latter case, outside brokers will
originate and process loans and ACFC will underwrite and close the loans that
meet its investment requirements. ACFC may enter into agreements with select
outside mortgage brokers to service certain types of mortgages that may
require special servicing treatment because of various factors, such as the
unique features of the underlying real estate or the credit quality of the
borrowers.
RELATED PARTY TRANSACTIONS
The Company has agreed to purchase furnishings and other office equipment from
Building Ventures, Ltd. ("Building Ventures"), a corporation wholly owned by
John Lawbaugh and Brian Smith, the Company's President and Secretary,
respectively. The Company will acquire these assets at cost, which is not
expected to exceed $ 120,000. The Company also intends to lease its principal
office space from Building Ventures at cost, for a monthly rent of $10,000.
On September 16, 1998, Messrs. Lawbaugh and Smith contributed the common stock
of ACFC to 1st Atlantic Guaranty for no consideration.
24
<PAGE>
RESERVES
Federal law requires us to maintain a portion of the payments that we receive
under the Certificates as reserves. The purpose of these reserves is to ensure
that we have enough assets to meet our obligations under the Certificates.
Federal law also requires that we invest our reserves in "qualified
investments," which are investments of a kind that life insurance companies
can invest in or hold under the provisions of the laws of the District of
Columbia or those otherwise approved for investment by the SEC. SEE "Types of
Investments" and "Investment Policies" under "Investments." In addition,
federal law prohibits us from declaring or paying dividends to our
shareholders in excess of certain limits unless we meet our reserve
requirements.
We maintain our reserves with our custodian, Key Trust Company of Ohio, 127
Public Square, Cleveland, Ohio, 44114 ("Custodian"). Pursuant to its Custody
Agreement with us, the Custodian is responsible for the safekeeping of our
assets, and, among other things, is authorized to take certain remedial steps
should we fail to make a payment when due or otherwise default on any of our
obligations under the Certificates. The Custodian is an affiliate of the
Adviser.
INVESTMENTS
As noted above, we are permitted to invest our reserves only in assets that
constitute "qualified investments" under the laws of the District of Columbia
and such other assets as the SEC may permit. Set out below is a summary of the
types of investments in which we expect to invest as well as a description of
certain investment policies established by our Board of Directors.
TYPES OF INVESTMENTS
We expect to invest our reserves, as well as the amount that we hold in excess
of the reserves, primarily in the types of securities and other investments
described below. Except as specifically noted, we may invest our reserves in
such investments without limitation. In addition, except as specifically
noted, the limitations described below apply only at the time of investment.
The assets that we hold in excess of reserves are not subject to the
limitations described below.
BANK OBLIGATIONS. We may invest in CDs, bankers' acceptances, and other
short-term debt obligations of banks. CDs are short-term obligations that
commercial banks issue for a specified period of time and at a specified
interest rate. Banker's acceptances are time drafts drawn on a commercial bank
by a borrower, usually in connection with international commercial
transactions.
COMMERCIAL PAPER AND OTHER CORPORATE DEBT. We may invest in commercial paper
issued by companies that meet the criteria for investment by life insurance
companies under the laws of the District of Columbia ("qualified
corporations"). Commercial paper consists of short-term unsecured promissory
notes that qualified corporations issue to finance short-term credit needs. We
also may invest in longer-term debt obligations of qualified corporations. We
will not invest more than two percent of our reserves in any one issue of such
obligations of any one qualified
25
<PAGE>
corporation. In addition, we do not intend to invest in any debt securities
rated below investment grade by any nationally recognized statistical rating
organization.
EQUIPMENT RELATED INSTRUMENTS. We may invest in equipment trust certificates
and similar instruments (collectively, "equipment related instruments") that
are secured by transportation equipment (e.g., railroad cars, trucks, and
airplanes) that has been sold or leased to a common carrier. Equipment related
instruments are a means of financing the acquisition of equipment. A trustee,
such as a bank, holds the title to the equipment, collects purchase or lease
payments from the purchaser, and, in turn, makes principal and interest
payments to the instrument holders for a specified term. In case of default,
the trustee is authorized to sell the equipment to protect the instrument
holders. We will not invest more than two percent of our reserves in any one
issue of an equipment-related instrument by any one qualified corporation.
MUNICIPAL SECURITIES. We may invest in various types of municipal securities,
which are debt securities issued by a state, its political subdivisions,
agencies, authorities, school districts, and other governmental
instrumentalities for various public purposes, including, for example, the
construction of public facilities, hospitals, highways, and schools. We will
only invest in municipal securities that (i) represent direct and general
obligations of the issuing governmental entity, or (ii) are payable from
designated revenues pledged to the payment of the principal and interest on
such securities.
PREFERRED AND COMMON STOCK. We may invest in preferred and common stock of
qualified corporations. Preferred stock has priority over common stock as to
income and generally as to the assets of an issuer, but usually has limited
voting rights. We may invest in the common stocks of qualified corporations
whose debt and preferred stock, if any, also meet our criteria for investment.
We will not invest more than one percent of our reserves in the preferred or
common stock of any single qualified corporation.
REAL ESTATE AND REAL ESTATE LOANS. We may invest directly in real estate or in
real estate loans. We generally will only purchase or hold real estate if it
is income producing. We may, however, also receive real estate in satisfaction
of debts owed to us, and may improve or develop any real estate that we
acquire. We will not invest or agree to invest in real estate if such
investment would cause us to: (i) invest more than two percent of our reserves
in real estate or improvements thereon during any period of 12 consecutive
months; (ii) invest or hold more than five percent of our reserves in real
estate or improvements thereon for the purpose of producing income; or (iii)
hold more than 10% of our reserves in real estate. We also may invest in real
estate loans secured by a first lien on the real estate, PROVIDED such loan is
worth at least 33 1/3% more than the amount loaned.
U.S. GOVERNMENT SECURITIES. We may invest in direct obligations of the U.S.
Government ("U.S. Government securities"). These include bills (which have
maturities of one year or less), notes (which have maturities of between 2 and
10 years), and bonds (which have maturities greater than 10 years) issued by
the U.S. Treasury ("Treasury"). The market value of U.S. Government securities
will fluctuate with changes in interest rate levels. Thus, if interest rates
26
<PAGE>
increase from the time the security was purchased, the market value of the
security will decrease. Conversely, if interest rates decrease, the market
value of the security will increase.
U.S. GOVERNMENT AGENCY SECURITIES. We may invest in securities issued by
certain federal agencies that are (i) backed by the full faith and credit of
the United States, (ii) guaranteed by the Treasury, (iii) or are supported by
the agency's right to borrow from the Treasury. Issuing agencies may include,
for example, the Government National Mortgage Association ("GNMA" or Ginnie
Mae"), Federal National Mortgage Association ("FNMA" or "Fannie Mae"), or
Federal Home Loan Mortgage Corporation ("FHLMC" or " Freddie Mac"). Although
their close relationship with the U.S. Government is believed to make them
high-quality securities with minimal credit risks, the U.S. Government is not
obligated by law to support either FNMA or FHLMC.
INVESTMENT POLICIES
The Company's Board has established the investment policies set out below. The
Board may change these policies at any time without Certificate owner
approval.
BORROWING. We may borrow money to a limited extent from banks (including the
Company's custodian bank) as we deem necessary or appropriate to our business.
We currently do not intend to borrow amounts equal to more than 25% of our
total assets (including the amount borrowed). We will not buy securities on
margin or sell securities short.
COMMODITIES. We do not currently intend to engage in the purchase or sale of
commodities.
CONCENTRATION. We maintain no restrictions on the amount of securities that we
may invest in any industry or group of industries. However, we do not
currently intend to concentrate our securities investments in any industry.
LOANS. In addition to real estate loans, described above, we may make loans of
varying terms to broker-dealers and other financial institutions in amounts up
to 85% of the value of the securities pledged as collateral for the loans at
the time we make the loans. The securities pledged as collateral must be of a
type in which we can invest.
PORTFOLIO TURNOVER. We will buy, sell, or hold our assets in the manner that
we deem prudent, without regard to the impact on the turnover rate of our
portfolio.
SENIOR SECURITIES. We are restricted by law from issuing any securities other
than face-amount certificates, common stock, and promissory notes or other
paper related to our borrowings.
UNDERWRITING SECURITIES. We do not intend to act as an underwriter of
securities issued by other persons. We may, however, be deemed to be an
underwriter when we purchase and later sell unregistered securities.
27
<PAGE>
INVESTOR SERVICES
AUTOMATIC INVESTMENTS
You can automatically make periodic investments in your Accumulator or Growth
Certificates subject to applicable limits. SEE "At A Glance" under "The
Certificates." To establish your automatic investment plan, please call
1-888-74-YIELD or 1-301-215-7515.
DIRECT DEPOSITS
You can arrange for your investment in your Certificates to be deposited
directly out of your payroll or government check. To establish your direct
deposit arrangement, please call 1-888-74-YIELD or 301-215-7515.
INQUIRIES
1st Atlantic Guaranty has a dedicated staff of individuals that are available
each business day to assist you with questions you may have about the
Certificates or your account. Please call 1-888-74-YIELD between the hours of
9:00 and 5:00 on any business day.
REPORTS
Each quarter we will send you an account statement showing your Certificate's
Account Value, your Certificate's Surrender Value, and all account activity
for the preceding quarter, including the amount and rate of interest you
earned, the amount of any principal investments you made, and the amount of
any fees and charges assessed. In addition, we will send you annual reports
that include audited financial statements for the Company's fiscal year ending
September 30.
We file quarterly and annual reports with the SEC. You may read and copy, at
prescribed rates, these reports and any other materials that we file with the
SEC at the SEC's Public Reference Room, located at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information about the SEC's Public
Reference Room by calling the SEC at 1-800-SEC-0330. You also may obtain
reports and other information about us by visiting the SEC's Internet site
(www.sec.gov).
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, located at 2300 Clarendon Blvd, Suite 200, Arlington,
VA 22201, serve as the independent auditors of the Company. Their auditing
services include rendering an opinion on the financial statements of the
Company.
28
<PAGE>
FINANCIAL STATEMENTS
We had no material operations prior to the date of this Prospectus. An audited
balance sheet for the Company, as of August 27, 1998, and the report of the
Company's independent auditors thereon, appears on the next page.
EXPERTS
The Company has included the audited balance sheet in this Prospectus in
reliance upon the report of KPMG Peat Marwick LLP, independent auditors, and
upon the authority of said firm as experts in accounting and auditing.
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
1st Atlantic Guaranty Corporation:
We have audited the accompanying balance sheet of 1st Atlantic Guaranty
Corporation as of August 27, 1998. This financial statement is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit of a balance sheet includes examining, on a
test basis, evidence supporting the amounts and disclosures in that balance
sheet. Our procedures included confirmation of the opening cash deposit on
August 27, 1998, by correspondence with the bank. An audit of a balance sheet
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of 1st Atlantic Guaranty Corporation
as of August 27, 1998, in conformity with generally accepted accounting
principles.
/s/KPMG PEAT MARWICK LLP
Washington, D.C.
August 28, 1998
<PAGE>
1ST ATLANTIC GUARANTY CORPORATION
BALANCE SHEET
AUGUST 27, 1998
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS:
<S> <C>
Cash $ 250,000
----------
TOTAL QUALIFIED ASSETS 250,000
----------
TOTAL ASSETS 250,000
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Total Liabilities -
----------
Stockholders' Equity:
Common Stock, $.01 par value, 14.5 million 100,000
shares authorized - 10 million shares
issued
Additional paid-in-capital 150,000
----------
Total Stockholders' Equity 250,000
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $250,000
==========
</TABLE>
SEE NOTES TO BALANCE SHEET.
<PAGE>
1ST ATLANTIC GUARANTY CORPORATION
NOTES TO THE BALANCE SHEET
AUGUST 27, 1998
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
1st Atlantic Guaranty Corporation (the "Company") is a Maryland
corporation organized on October 1, 1997. The Company is registered with
the Securities and Exchange Commission as a face-amount certificate
company under the Investment Company Act of 1940. The Company is in the
business of issuing face-amount investment certificates. The
certificates offered by the Company are not insured. The Company's
certificates will be sold through the Company and authorized sellers.
The Company's management, together with Key Asset Management Inc., the
Company's selected investment adviser, will be responsible for managing
the Company's investments.
The Company currently offers five types of certificates each with a
specified maturity of twenty years. Within their specified maturity,
four certificates have interest rate terms of either one, three, five,
or ten years and one certificate has interest rate terms of either five
or ten years. The Company guarantees a fixed rate of return for each
interest rate term, subject to fees and penalties for early withdrawal.
The Company's gross income is derived primarily from the interest and
dividends generated by its investments. The Company's net income is
determined by deducting from such gross income its interest payments on
the certificates and other expenses, including, but not limited to,
taxes, the fees paid for investment advisory services, custodial
services, and distribution fees.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF BALANCE SHEET PRESENTATION
The accompanying balance sheet is presented in accordance with generally
accepted accounting principles.
The preparation of the balance sheet in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities during the period.
Actual results could differ from those estimates.
<PAGE>
THE COMPANY AND ITS SERVICE PROVIDERS
THE COMPANY:
1st Atlantic Guaranty Corporation
Bethesda Metro Center, Suite 700
Bethesda, MD 20814
INVESTMENT ADVISER:
Key Asset Management, Inc.
127 Public Square
Cleveland, OH 44114
CUSTODIAN:
Key Trust Company of Ohio
127 Public Square
Cleveland, OH 44114
INDEPENDENT AUDITORS:
KPMG Peat Marwick LLP
2300 Clarendon Blvd
Suite 200
Arlington, VA 22201
LEGAL COUNSEL:
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, Suite 825
Washington, D.C. 20036
[back cover page]
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC Registration Fee $ 0
State Fees 7,500
Printing Fees 10,000
Legal fees 150,000
Accounting Fees 15,000
Miscellaneous 7,500
Total: $ 190,000
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 2-418 of Maryland General Corporation Law, a corporation
may indemnify certain Directors, officers, employees, or agents. Consistent
with Maryland law, Article Seventh(E)(viii) of Registrant's Articles of
Incorporation ("Articles") permits it to indemnify its Directors and officers
to the fullest extent permitted by law. In addition, Article X of Registrant's
By-Laws permits it to insure and indemnify its Directors, officers, employees
and agents to the fullest extent permitted by law. The above-cited provisions
of Registrant's Articles and By-Laws, which have been filed as exhibits to
this Registration Statement, are incorporated by reference into this Item to
the extent necessary to respond to this item.
Various agreements that Registrant has entered or will enter into
contain provisions for the indemnification of Registrant's officers and
directors to the extent permitted by applicable law. These agreements have
been filed as exhibits to this Registration Statement, and are hereby
incorporated by reference into this Item to the extent necessary to respond to
this item.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The disclosure set forth under the heading "The Company - Organization
and Operations" in the Prospectus contained herein is hereby incorporated by
reference in response to this item. Registrant issued the shares described
therein in reliance upon the exemption set forth in Section 4(2) of the
Securities Act of 1933 for transactions not involving a public offering.
1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
Exhibit Description of Exhibits (filed herewith unless
No. otherwise indicated)
------- ------------------------------------------------------
(1)(a) Form of Distribution Agreement by and between
Registrant and CI Investments, Inc.
(b) Form of Distribution Agreement by and between
Registrant and Summit Brokerage Services, Inc.
(2) Not applicable.
(3)(a)(i) Articles of Incorporation of 1st Atlantic Guaranty
Corporation (previously filed).
(a)(ii) Articles of Amendment.
(3)(b) By-laws of 1st Atlantic Guaranty Corporation
(previously filed).
(4)(a) Form of Application.
(b) Form of Account Statement.
(5) Opinion and Consent of Counsel.
(6)-(9) Not applicable.
(10)(a) Form of Investment Advisory Agreement by and between
Registrant and Key Asset Management, Inc.
(10)(b) Form of Custody Agreement by and between Registrant
and Key Trust Company of Ohio.
(10)(c)(1) Subscription Agreement by and between Registrant and
John J. Lawbaugh.
(c)(2) Subscription Agreement by and between Registrant and
Brian P. Smith.
(11)-(20) Not applicable.
2
<PAGE>
(21) Subsidiaries of 1st Atlantic Guaranty Corporation,
incorporated by reference to the disclosure under the
captions "The Company - Organization and Operations"
and "Management - Atlantic Capital" in the Prospectus
contained herein.
(22) Not applicable.
(23) Consent of Independent Auditors.
(24) Powers of attorney of Directors Briggs, Cole, Elam,
Hopkinson, Murphy, Nichols, and Stinson.
(25)-(26) Not applicable.
(27) Financial Data Schedule.
(b) Financial Statement Schedules:
Not applicable.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under Securities Act
of 1933 (the "1933 Act") may be permitted to Directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the 1933 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 a controlling precedent, submit to a court of appropriate
jurisdiction the question of whether indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
ITEM 18. FINANCIAL STATEMENTS AND SCHEDULES.
Not applicable.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this amended Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Bethesda and State
of Maryland, on the 14th day of September, 1998.
1st ATLANTIC GUARANTY COMPANY
By: /s/JOHN J. LAWBAUGH
---------------------------
John J. Lawbaugh, President
Pursuant to the requirements of the Securities Act of 1933, the following
persons have signed the Registration Statement in the capacities indicated as
of the 14th day of September, 1998.
Signature Capacity
/s/JOHN J. LAWBAUGH President, Treasurer, and Director
------------------- (Principal Executive, Financial, and
John J. Lawbaugh Accounting Officer)
/s/BRIAN P. SMITH Director and Secretary
-----------------
Brian P. Smith
/s/DONALD N. BRIGGS* Director
--------------------
Donald N. Briggs
/s/JAMES F. COLE* Director
-----------------
James F. Cole
/s/J. DONALD ELAM* Director
------------------
J. Donald Elam
/s/NANCY HOPKINSON* Director
-------------------
Nancy Hopkinson
/s/BRIAN MURPHY* Director
----------------
Brian Murphy
/s/GREG NICHOLS* Director
----------------
Greg Nichols
/s/WILLARD R. STINSON* Director
----------------------
Willard R. Stinson
4
<PAGE>
*By: /s/BRIAN P. SMITH
-----------------
Brian P. Smith
Attorney-in-fact pursuant to powers of attorney filed herewith.
5
EXHIBIT 1(a)
DISTRIBUTION AGREEMENT
Distribution Agreement ("Agreement") made this ___ day of September,
1998, by and between 1st Atlantic Guaranty Corporation, a Maryland corporation
(the "Company"), and CI Investments, Inc., a Georgia corporation
("Distributor") (collectively, the "Parties").
WHEREAS, the Company is organized and intends to operate as a
face-amount certificate company and is so registered under the Investment
Company Act of 1940, as amended, (the "Act"), and has registered or will
register the face-amount certificates it issues under the Securities Act of
1933 ("1933 Act"), to the extent required thereby, on Form S-1 ("Registration
Statement"); and
WHEREAS, the Board of Directors of the Company ("Board") has established
and authorized the issuance of those types of face-amount certificates listed
on Schedule A hereto (each, a "Certificate" and collectively, the
"Certificates"), as the same may be amended from time to time by mutual
written agreement of the Parties ("Schedule A"); and
WHEREAS, Distributor desires to act as a principal underwriter and a
distributor of the Certificates; and
WHEREAS, Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934 ("1934 Act") and a member of the National Association of
Securities Dealers, Inc. ("NASD"); and
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the Parties agree as follows:
1. APPOINTMENT AND OBLIGATION OF UNDERWRITER.
The Company hereby appoints Distributor as a principal underwriter
and a distributor for the sale of the Certificates and Distributor hereby
accepts such appointment. Distributor shall be obligated to perform the
services for the Company as described in this Agreement. By accepting this
appointment, Distributor represents and warrants that it is a business
corporation duly organized, validly existing, and in good standing under the
laws of the State of Georgia and has full corporate power, authority and legal
right to execute, deliver, and perform its duties and comply with its
obligations under this Agreement. Distributor further represents and warrants
that it is and at all times will be qualified to serve as a principal
underwriter for an investment company registered under the Act, and that none
of its directors, officers or employees
<PAGE>
are or will be subject to disqualification under the Act if Distributor serves
as principal underwriter of the Company.
2. SALE OF CERTIFICATES.
2.1 AVAILABILITY OF CERTIFICATES. The Company agrees to issue such
Certificates as Distributor may sell in accordance with the terms and
conditions set forth herein and the disclosure in the Company's Registration
Statement.
2.2 BEST EFFORTS. Distributor agrees to use its best efforts to
promote the sale of Certificates, but is not obligated to sell any specific
number of Certificates.
2.3 REJECTION OR SUSPENSION OF SALES; CORPORATE ACTIONS.
Notwithstanding anything herein to the contrary:
(a) Distributor may temporarily suspend its efforts to
effectuate sales of Certificates at any time when in its opinion no
sales should be made because of market or other economic considerations
or abnormal circumstances of any kind; and
(b) the Company may, at any time, reject for any reason any
order to purchase any Certificate. In addition, the Board may suspend or
terminate the offering of any Certificate, if such action is required by
law, judicial order, or by regulatory authorities having jurisdiction,
or if the Board, in its sole discretion, acting in good faith and in
light of its fiduciary duties under applicable law, determines that such
action is in the best interests of the Company's shareholders. Further,
the Company reserves the right at all times to take any corporate
actions, including, but not limited to, the dissolution, merger, and
sale of its assets, solely upon the authorization of its Board.
2.4 PURCHASE PAYMENTS. Distributor shall accept purchase payments for
Certificates as described in the Company's then effective prospectus relating
to the Certificates as it may be amended or supplemented from time to time
("Prospectus," unless the context otherwise requires).
2.5 MANNER OF OFFERING. Distributor shall offer the Certificates for
sale in the manner described in the Company's Prospectus, and only in those
jurisdictions where Distributor is legally able to offer or sell such
Certificates.
2.6 COMPENSATION. As compensation for services rendered hereunder,
Distributor shall be entitled to payment of compensation on the sale of
Certificates in accordance with Schedule A.
2.7 ORDER AND PAYMENT PROCESSING. Distributor shall immediately
transmit to the Company any order to purchase Certificates. Such order shall
consist of a completed application to purchase a Certificate, accompanied by a
check made payable to the Company, or any other
2
<PAGE>
form of payment deemed acceptable by the Company. The Company, in its sole
discretion, reserves the right to reject, for any reason, any application for
the purchase of a Certificate.
2.8 PURCHASES FOR OWN ACCOUNT. Distributor shall not purchase
Certificates for its own account for purposes of resale to the public.
Distributor, to the extent disclosed in the Prospectus, may purchase such
Certificates for its own investment account upon its written assurance to the
Company that the purchase is for investment purposes only and that such
Certificates will not be resold.
2.9 SELLING GROUP AGREEMENTS. Distributor may, from time to time,
effect offers and sales of the Certificates through unaffiliated
broker-dealers that are registered under the 1934 Act, that are members of the
NASD, and that have entered into an appropriate selling group agreement with
Distributor, each of which shall be approved by the Company prior to its
implementation. Distributor may allow these broker-dealers such commissions or
discounts as are authorized and approved by the Company.
2.10 NON-EXCLUSIVITY. Notwithstanding anything herein to the contrary,
the Company may appoint other entities in addition to Distributor to serve as
a principal underwriter and/or a distributor of the Company's Certificates.
3. WITHDRAWAL, SURRENDER, AND EXCHANGE REQUESTS.
Distributor shall immediately forward any withdrawal or surrender
request, or a request to exchange one type of Certificate for another, that it
receives to the Company. All such requests shall be provided in a manner
deemed acceptable by the Company. Payments of withdrawal and surrender
proceeds will be made by the Company directly to the Certificate holder.
4. ALLOCATION OF EXPENSES.
Except as set forth herein, each Party shall bear all expenses of
fulfilling its duties and obligations under this Agreement. However, the
Company may bear some of Distributor's initial costs in selling the
Certificates, as the Parties may mutually agree from time to time.
5. MARKETING MATERIALS.
5.1 PREPARATION, PRINTING, AND DISTRIBUTION. Distributor, at its sole
cost, shall be responsible for preparing, printing, and distributing, or
causing the same to be done, all marketing materials to be used in connection
with its offer and sale of Certificates, including but not limited to, all
such materials used in connection with Distributor's efforts to effect offers
and sales of Certificates directly or through unaffiliated broker-dealers. As
used herein, "marketing materials" shall include any "advertisement" or "sales
literature," as those terms are defined in Section 2210(a) of the NASD's
Conduct Rules, as amended from time to time, and shall include any so-
3
<PAGE>
called "dealer only" materials, as well as any Prospectuses, periodic reports
to shareholders ("Reports"), and other materials sent to persons other than
the then current Certificate holders (except that the Company shall bear the
cost of preparing, printing, and distributing any Prospectuses, Reports, and
other materials specified in paragraph 6.3, below). All marketing materials
created by Distributor in connection with the sale of the Certificates shall
be the sole property of the Company, and the Company is entitled to use such
marketing materials at any time in its sole discretion without consent of
Distributor.
5.2 COMPANY APPROVAL. Distributor shall submit definitive copies of
all marketing materials to the Company for its approval, which shall not be
unreasonably withheld, at least ten (10) business days prior to their first
use. The Company shall be deemed to have granted its approval of such
marketing materials unless it objects within such ten (10) business day
period.
5.3 REGULATORY APPROVALS. Distributor shall, to the extent required,
file in a timely manner all marketing materials with the NASD, the Securities
and Exchange Commission ("SEC"), or any other regulatory body, as appropriate,
and shall obtain any necessary approval of these regulatory bodies of any
marketing materials.
6. NON-MARKETING MATERIALS.
6.1 SHAREHOLDER CORRESPONDENCE. Distributor, at its sole cost, shall
be responsible for preparing, printing, and distributing, or causing the same
to be done, all correspondence with Certificate holders in its capacity as a
principal underwriter or a distributor, except for correspondence prepared,
printed, and distributed by Distributor at the Company's request. Distributor
shall, from time to time, make such correspondence available to the Company
for review upon request.
6.2 CONFIRMATIONS. Distributor, at its sole cost, shall be responsible
for preparing, printing, and distributing in a timely manner, or causing the
same to be done, confirmations of Certificate holder transactions required to
be delivered pursuant to applicable law.
6.3 PROSPECTUSES, REPORTS, ETC. The Company, at its sole cost, shall
be responsible for preparing, printing, and distributing, or causing the same
to be done, all Prospectuses, Reports, proxy materials, and other documents
required by applicable law to be provided to Certificate holders of each
Portfolio, and for filing such materials with the NASD, SEC or any other
regulatory body, as appropriate, and shall obtain any necessary approval of
these regulatory bodies of these materials.
7. CONDUCT OF BUSINESS.
7.1 GENERAL. Distributor shall be subject to the direction and control
of the Company in the sale of the Certificates. In selling Certificates,
Distributor shall comply in all respects with the requirements of all federal
and state laws and regulations and the regulations of the NASD, relating to
the sale of the Certificates. Neither Distributor nor any other person is
authorized by the
4
<PAGE>
Company to give any information or to make any representations, other than
those contained in the Company's Registration Statement or Prospectus, and any
marketing materials authorized by responsible officers of the Company.
7.2 INDEPENDENT CONTRACTOR. Distributor shall undertake and discharge
its obligations hereunder as an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Company in any way and shall not be deemed to be an employee of
the Company. Distributor shall be responsible for its own conduct and the
employment, control and conduct of its agents and employees, and for injury to
such agents or employees or to others through its agents or employees.
Distributor shall assume full responsibility for its agents and employees
under applicable statutes and agrees to pay all employer taxes thereunder.
7.3 NON-EXCLUSIVE SERVICES. Distributor's services pursuant to this
Agreement shall not be deemed to be exclusive, and Distributor may render
similar services and act as an underwriter, distributor or dealer for other
face-amount certificate companies in the offering of their face-amount
certificates, consistent with its best efforts obligations set forth herein.
7.4 RECORDS. Distributor shall maintain and preserve such records as
are necessary or appropriate to record its transactions with the Company, as
required by applicable law. Distributor shall promptly return to the Company
all records relating to the Company, free from any claim or retention of
rights by Distributor and without charge by Distributor except for its direct
expense. Distributor shall also maintain and preserve records listing each
unaffiliated broker-dealer or any individuals contacted by Distributor with
respect to the Certificates, including all lists of potential contacts
purchased from others in this regard. All such records and lists shall be
deemed property of the Company, and made available for inspection and copying
upon request.
7.5 NOTICE. Distributor shall promptly provide notice to the Company
of any inquiry or investigation with respect to Distributor's activities
initiated or conducted by the NASD, Securities and Exchange Commission, or any
other federal or state regulatory entity.
8. INDEMNIFICATION.
8.1 GENERAL. Distributor shall indemnify and hold harmless the Company
and each of its Directors and officers (or former Directors and officers) and
each person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act (collectively, "Indemnitees") against any loss, liability,
claim, damage, or expense (including the reasonable cost of investigating and
defending against the same and any counsel fees reasonably incurred in
connection therewith) incurred by any Indemnitee under the 1933 Act or under
common law or otherwise, which arise out of or are based upon:
(a) any untrue or alleged untrue statement of a material fact
contained in information furnished to the Company by Distributor for use
in the Company's Registration Statement, Prospectus, Reports or other
documents sent to its Certificate holders,
5
<PAGE>
(b) any omission or alleged omission to state a material fact in
connection with information furnished to the Company by Distributor for
use in the Company's Registration Statement, Prospectus, Reports or
other documents sent to its Certificate holders, which fact is required
to be stated in any of such documents or necessary to make such
information not misleading,
(c) any misrepresentation or omission or alleged
misrepresentation or omission to state a material fact on the part of
Distributor or any agent or employee of Distributor or any other person
for whose acts Distributor is responsible, unless such misrepresentation
or omission or alleged misrepresentation or omission was made in
reliance on written information furnished by the Company, or
(d) the willful misconduct or failure to exercise reasonable
care and diligence on the part of Distributor or any agent or employee
of Distributor or any other person for whose acts Distributor is
responsible with respect to services rendered under this Agreement. This
indemnity provision, however, shall not operate to protect any officer
or Director of the Company from any liability to the Company or any
Certificate holder by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of his or her duties.
8.2 LIMITATIONS; NOTICE OF CLAIM; ASSUMPTION OF DEFENSE. In case any
action shall be brought against any Indemnitee, Distributor shall not be
liable under its indemnity agreement contained in paragraph 8.1, above, with
respect to any claim made against any Indemnitee, unless the Indemnitee shall
have notified Distributor in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon the Indemnitee (or after the Indemnitee
shall have received notice of such service on any designated agent), but
failure to notify Distributor of any such claim shall not relieve it from
liability to the Indemnitees against whom such action is brought otherwise
than on account of paragraph 8.1, above. Distributor shall be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if
Distributor elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Indemnitees that are defendants
in the suit. In the event Distributor elects to assume the defense of any such
suit and retain such counsel, the Indemnitees that are defendants in the suit
shall bear the fees and expenses of any additional counsel retained by them,
but, in case Distributor does not elect to assume the defense of any such
suit, Distributor will reimburse the Indemnitees that are defendants in the
suit for the reasonable fees and expenses of any counsel retained by them.
Distributor shall promptly notify the Company of the commencement of any
litigation or proceedings in connection with the issuance or sales of the
Certificates.
9. TERM AND TERMINATION.
9.1 TERM. This Agreement shall become effective upon the date first
written above and shall remain in force for one year from such date, and shall
continue annually thereafter but only so long as such continuance is
specifically approved by a majority of the Board who are not parties to
6
<PAGE>
this Agreement, or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval.
9.2 TERMINATION. This Agreement may be terminated at any time without
the payment of any penalty, by the Company or by Distributor, on sixty days'
written notice to the other party.
10. DEFINITIONS.
As used herein the terms "investment company," "face-amount certificate
company," "principal underwriter," "interested person," and "affiliated
person" shall have the meanings set forth in the 1933 Act or the Act, and the
rules and regulations thereunder. Nothing herein contained shall require the
Company to take any action contrary to any provision of its Articles of
Incorporation, By-Laws, or any applicable statute or regulation.
11. NOTICES.
Any notice under this Agreement shall be in writing, addressed and
delivered, or mailed postage prepaid, to the other party at such address as
the other party may designate for the receipt of notices. Until further notice
to the other party, it is agreed that the address of the Company shall be 4847
Cordell Avenue, Suite 200, Bethesda, Maryland 20814, and the address for
Distributor shall be ________________________________________________________.
12. SEVERABILITY.
If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule, or otherwise, the remainder of this Agreement
shall not be affected thereby.
13. CONFIDENTIALITY.
Distributor shall not disclose or use any records or information
obtained pursuant to this Agreement, pursuant to its relationship with the
Company, or in the course of discharging its obligations hereunder, in any
manner whatsoever except as expressly authorized by this Agreement or in a
writing by the Company, or as expressly required by applicable federal or
state regulatory authorities.
14. APPLICABLE LAW.
This Agreement shall be governed by the laws of the State of Maryland,
notwithstanding any conflict of laws provisions thereof, and shall be
construed to promote the operation of the Company as a face-amount certificate
company.
7
<PAGE>
15. PARTIES TO COOPERATE.
The Company and Distributor agree to fully cooperate with each other in
assuring compliance under this Agreement with all federal and state laws and
regulations.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as
of the date first written above.
1st ATLANTIC GUARANTY COMPANY
By: ________________________
John J. Lawbaugh
President
Attest: ________________________
CI INVESTMENTS, INC.
By: __________________________
Attest: ________________________
8
<PAGE>
SCHEDULE A
This Schedule A is an integral part of the Agreement to which it is
attached. Capitalized terms used herein have the same meaning as given to them
in the Agreement, except as otherwise noted. This Schedule A sets out the
names of the types of Certificates covered by the Agreement and the
compensation of Distributor for the services rendered with respect thereto.
NAMES OF CERTIFICATES
Accumulator Certificates Cornerstone Certificates Growth Certificates
Premier Certificates Reserve Certificates
COMPENSATION
For its services rendered pursuant to the Agreement, Distributor shall
be entitled to receive, as full compensation therefor, the following sales
commissions (subject to any scheduled variations or eliminations of commission
as set forth in the Company's Prospectus):
COMMISSION SCHEDULE
All commissions due upon the sale of any Certificate are calculated as a
percentage of the initial purchase payment for such Certificate, EXCEPT that
with respect to the sale of the Accumulator Certificate, the commission
payable shall be calculated as a percentage of the total purchase payments
scheduled to be paid during the first year of any such Accumulator
Certificate. Commissions rates are as follows:
A. For direct sales by Distributor
* applicable to Certificates with guarantee periods of one (1) to
five (5) years.....................____ %
* applicable to Certificates with guarantee periods of ten (10)
years..............................____ %
B. For sales by Distributor through Selling Group Agreements
* applicable to Certificates with guarantee periods of one (1) to
five (5) years.....................0.25 %
* applicable to Certificates with guarantee periods of ten (10)
years..............................0.25 %
A commission becomes payable only upon acceptance, by the Company, of
the application to purchase a Certificate, and after payment for such
Certificate is made. The Company will make payment of all commissions then
payable on the 15th and last day of each calendar month.
In the event an Accumulator Certificate is surrendered prior to the end
of the first Certificate year, Distributor shall immediately return to the
Company any commission paid with respect to scheduled purchase payments that
the Certificate holder failed to pay.
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<PAGE>
If any Certificate is tendered to the Company for surrender within seven
(7) business days after the Company's acceptance of the original purchase
order for such Certificate, Distributor shall immediately return to the
Company the full sales commission paid to Distributor on the original sale.
The Company shall notify Distributor, or cause Distributor to be notified, of
such surrender within 10 days of the day on which the Company receives notice
of such surrender.
2
EXHIBIT 1(b)
DISTRIBUTION AGREEMENT
Distribution Agreement ("Agreement") made this ___ day of September,
1998, by and between 1st Atlantic Guaranty Corporation, a Maryland corporation
(the "Company"), and Summit Brokerage Services, Inc., a Florida corporation
("Distributor") (collectively, the "Parties").
WHEREAS, the Company is organized and intends to operate as a
face-amount certificate company and is so registered under the Investment
Company Act of 1940, as amended, (the "Act"), and has registered or will
register the face-amount certificates it issues under the Securities Act of
1933 ("1933 Act"), to the extent required thereby, on Form S-1 ("Registration
Statement"); and
WHEREAS, the Board of Directors of the Company ("Board") has established
and authorized the issuance of those types of face-amount certificates listed
on Schedule A hereto (each, a "Certificate" and collectively, the
"Certificates"), as the same may be amended from time to time by mutual
written agreement of the Parties ("Schedule A"); and
WHEREAS, Distributor desires to act as a principal underwriter and a
distributor of the Certificates; and
WHEREAS, Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934 ("1934 Act") and a member of the National Association of
Securities Dealers, Inc. ("NASD"); and
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the Parties agree as follows:
1. APPOINTMENT AND OBLIGATION OF UNDERWRITER.
The Company hereby appoints Distributor as a principal underwriter and a
distributor for the sale of the Certificates and Distributor hereby accepts
such appointment. Distributor shall be obligated to perform the services for
the Company as described in this Agreement. By accepting this appointment,
Distributor represents and warrants that it is a business corporation duly
organized, validly existing, and in good standing under the laws of the State
of Florida and has full corporate power, authority and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement. Distributor further represents and warrants that it is and at all
times will be qualified to serve as a principal underwriter
<PAGE>
for an investment company registered under the Act, and that none of its
directors, officers or employees are or will be subject to disqualification
under the Act if Distributor serves as principal underwriter of the Company.
2. SALE OF CERTIFICATES.
2.1 AVAILABILITY OF CERTIFICATES. The Company agrees to issue such
Certificates as Distributor may sell in accordance with the terms and
conditions set forth herein and the disclosure in the Company's Registration
Statement.
2.2 BEST EFFORTS. Distributor agrees to use its best efforts to
promote the sale of Certificates, but is not obligated to sell any specific
number of Certificates.
2.3 REJECTION OR SUSPENSION OF SALES; CORPORATE ACTIONS.
Notwithstanding anything herein to the contrary:
(a) Distributor may temporarily suspend its efforts to
effectuate sales of Certificates at any time when in its opinion no
sales should be made because of market or other economic considerations
or abnormal circumstances of any kind; and
(b) the Company may, at any time, reject for any reason any
order to purchase any Certificate. In addition, the Board may suspend or
terminate the offering of any Certificate, if such action is required by
law, judicial order, or by regulatory authorities having jurisdiction,
or if the Board, in its sole discretion, acting in good faith and in
light of its fiduciary duties under applicable law, determines that such
action is in the best interests of the Company's shareholders. Further,
the Company reserves the right at all times to take any corporate
actions, including, but not limited to, the dissolution, merger, and
sale of its assets, solely upon the authorization of its Board.
2.4 PURCHASE PAYMENTS. Distributor shall accept purchase payments for
Certificates as described in the Company's then effective prospectus relating
to the Certificates as it may be amended or supplemented from time to time
("Prospectus," unless the context otherwise requires).
2.5 MANNER OF OFFERING. Distributor shall offer the Certificates for
sale in the manner described in the Company's Prospectus, and only in those
jurisdictions where Distributor is legally able to offer or sell such
Certificates.
2.6 COMPENSATION. As compensation for services rendered hereunder,
Distributor shall be entitled to payment of compensation on the sale of
Certificates in accordance with Schedule A.
2.7 ORDER AND PAYMENT PROCESSING. Distributor shall immediately
transmit to the Company any order to purchase Certificates. Such order shall
consist of a completed application
2
<PAGE>
to purchase a Certificate, accompanied by a check made payable to the Company,
or any other form of payment deemed acceptable by the Company. The Company, in
its sole discretion, reserves the right to reject, for any reason, any
application for the purchase of a Certificate.
2.8 PURCHASES FOR OWN ACCOUNT. Distributor shall not purchase
Certificates for its own account for purposes of resale to the public.
Distributor, to the extent disclosed in the Prospectus, may purchase such
Certificates for its own investment account upon its written assurance to the
Company that the purchase is for investment purposes only and that such
Certificates will not be resold.
2.9 SELLING GROUP AGREEMENTS. Distributor may, from time to time,
effect offers and sales of the Certificates through unaffiliated
broker-dealers that are registered under the 1934 Act, that are members of the
NASD, and that have entered into an appropriate selling group agreement with
Distributor, each of which shall be approved by the Company prior to its
implementation. Distributor may allow these broker-dealers such commissions or
discounts as are authorized and approved by the Company.
2.10 NON-EXCLUSIVITY. Notwithstanding anything herein to the contrary,
the Company may appoint other entities in addition to Distributor to serve as
a principal underwriter and/or a distributor of the Company's Certificates.
3. WITHDRAWAL, SURRENDER, AND EXCHANGE REQUESTS.
Distributor shall immediately forward any withdrawal or surrender
request, or a request to exchange one type of Certificate for another, that it
receives to the Company. All such requests shall be provided in a manner
deemed acceptable by the Company. Payments of withdrawal and surrender
proceeds will be made by the Company directly to the Certificate holder.
4. ALLOCATION OF EXPENSES.
Except as set forth herein, each Party shall bear all expenses of
fulfilling its duties and obligations under this Agreement. However, the
Company may bear some of Distributor's initial costs in selling the
Certificates, as the Parties may mutually agree from time to time.
5. MARKETING MATERIALS.
5.1 PREPARATION, PRINTING, AND DISTRIBUTION. Distributor, at its sole
cost, shall be responsible for preparing, printing, and distributing, or
causing the same to be done, all marketing materials to be used in connection
with its offer and sale of Certificates, including but not limited to, all
such materials used in connection with Distributor's efforts to effect offers
and sales of Certificates directly or through unaffiliated broker-dealers. As
used herein, "marketing materials"
3
<PAGE>
shall include any "advertisement" or "sales literature," as those terms are
defined in Section 2210(a) of the NASD's Conduct Rules, as amended from time
to time, and shall include any so-called "dealer only" materials, as well as
any Prospectuses, periodic reports to shareholders ("Reports"), and other
materials sent to persons other than the then current Certificate holders
(except that the Company shall bear the cost of preparing, printing, and
distributing any Prospectuses, Reports, and other materials specified in
paragraph 6.3, below). All marketing materials created by Distributor in
connection with the sale of the Certificates shall be the sole property of the
Company, and the Company is entitled to use such marketing materials at any
time in its sole discretion without consent of Distributor.
5.2 COMPANY APPROVAL. Distributor shall submit definitive copies of
all marketing materials to the Company for its approval, which shall not be
unreasonably withheld, at least ten (10) business days prior to their first
use. The Company shall be deemed to have granted its approval of such
marketing materials unless it objects within such ten (10) business day
period.
5.3 REGULATORY APPROVALS. Distributor shall, to the extent required,
file in a timely manner all marketing materials with the NASD, the Securities
and Exchange Commission ("SEC"), or any other regulatory body, as appropriate,
and shall obtain any necessary approval of these regulatory bodies of any
marketing materials.
6. NON-MARKETING MATERIALS.
6.1 SHAREHOLDER CORRESPONDENCE. Distributor, at its sole cost, shall
be responsible for preparing, printing, and distributing, or causing the same
to be done, all correspondence with Certificate holders in its capacity as a
principal underwriter or a distributor, except for correspondence prepared,
printed, and distributed by Distributor at the Company's request. Distributor
shall, from time to time, make such correspondence available to the Company
for review upon request.
6.2 CONFIRMATIONS. Distributor, at its sole cost, shall be responsible
for preparing, printing, and distributing in a timely manner, or causing the
same to be done, confirmations of Certificate holder transactions required to
be delivered pursuant to applicable law.
6.3 PROSPECTUSES, REPORTS, ETC. The Company, at its sole cost, shall
be responsible for preparing, printing, and distributing, or causing the same
to be done, all Prospectuses, Reports, proxy materials, and other documents
required by applicable law to be provided to Certificate holders of each
Portfolio, and for filing such materials with the NASD, SEC or any other
regulatory body, as appropriate, and shall obtain any necessary approval of
these regulatory bodies of these materials.
4
<PAGE>
7. CONDUCT OF BUSINESS.
7.1 GENERAL. Distributor shall be subject to the direction and control
of the Company in the sale of the Certificates. In selling Certificates,
Distributor shall comply in all respects with the requirements of all federal
and state laws and regulations and the regulations of the NASD, relating to
the sale of the Certificates. Neither Distributor nor any other person is
authorized by the Company to give any information or to make any
representations, other than those contained in the Company's Registration
Statement or Prospectus, and any marketing materials authorized by responsible
officers of the Company.
7.2 INDEPENDENT CONTRACTOR. Distributor shall undertake and discharge
its obligations hereunder as an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Company in any way and shall not be deemed to be an employee of
the Company. Distributor shall be responsible for its own conduct and the
employment, control and conduct of its agents and employees, and for injury to
such agents or employees or to others through its agents or employees.
Distributor shall assume full responsibility for its agents and employees
under applicable statutes and agrees to pay all employer taxes thereunder.
7.3 NON-EXCLUSIVE SERVICES. Distributor's services pursuant to this
Agreement shall not be deemed to be exclusive, and Distributor may render
similar services and act as an underwriter, distributor or dealer for other
face-amount certificate companies in the offering of their face-amount
certificates, consistent with its best efforts obligations set forth herein.
7.4 RECORDS. Distributor shall maintain and preserve such records as
are necessary or appropriate to record its transactions with the Company, as
required by applicable law. Distributor shall promptly return to the Company
all records relating to the Company, free from any claim or retention of
rights by Distributor and without charge by Distributor except for its direct
expense. Distributor shall also maintain and preserve records listing each
unaffiliated broker-dealer or any individuals contacted by Distributor with
respect to the Certificates, including all lists of potential contacts
purchased from others in this regard. All such records and lists shall be
deemed property of the Company, and made available for inspection and copying
upon request.
7.5 NOTICE. Distributor shall promptly provide notice to the Company
of any inquiry or investigation with respect to Distributor's activities
initiated or conducted by the NASD, Securities and Exchange Commission, or any
other federal or state regulatory entity.
5
<PAGE>
8. INDEMNIFICATION.
8.1 GENERAL. Distributor shall indemnify and hold harmless the Company
and each of its Directors and officers (or former Directors and officers) and
each person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act (collectively, "Indemnitees") against any loss, liability,
claim, damage, or expense (including the reasonable cost of investigating and
defending against the same and any counsel fees reasonably incurred in
connection therewith) incurred by any Indemnitee under the 1933 Act or under
common law or otherwise, which arise out of or are based upon:
(a) any untrue or alleged untrue statement of a material fact
contained in information furnished to the Company by Distributor for use
in the Company's Registration Statement, Prospectus, Reports or other
documents sent to its Certificate holders,
(b) any omission or alleged omission to state a material fact in
connection with information furnished to the Company by Distributor for
use in the Company's Registration Statement, Prospectus, Reports or
other documents sent to its Certificate holders, which fact is required
to be stated in any of such documents or necessary to make such
information not misleading,
(c) any misrepresentation or omission or alleged
misrepresentation or omission to state a material fact on the part of
Distributor or any agent or employee of Distributor or any other person
for whose acts Distributor is responsible, unless such misrepresentation
or omission or alleged misrepresentation or omission was made in
reliance on written information furnished by the Company, or
(d) the willful misconduct or failure to exercise reasonable
care and diligence on the part of Distributor or any agent or employee
of Distributor or any other person for whose acts Distributor is
responsible with respect to services rendered under this Agreement. This
indemnity provision, however, shall not operate to protect any officer
or Director of the Company from any liability to the Company or any
Certificate holder by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of his or her duties.
8.2 LIMITATIONS; NOTICE OF CLAIM; ASSUMPTION OF DEFENSE. In case any
action shall be brought against any Indemnitee, Distributor shall not be
liable under its indemnity agreement contained in paragraph 8.1, above, with
respect to any claim made against any Indemnitee, unless the Indemnitee shall
have notified Distributor in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon the Indemnitee (or after the Indemnitee
shall have received notice of such service on any designated agent), but
failure to notify Distributor of any such claim shall not relieve it from
liability to the Indemnitees against whom such action is brought otherwise
than on account of paragraph 8.1, above. Distributor shall be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if
Distributor elects to assume the defense, such defense shall be conducted by
counsel chosen by it
6
<PAGE>
and satisfactory to the Indemnitees that are defendants in the suit. In the
event Distributor elects to assume the defense of any such suit and retain
such counsel, the Indemnitees that are defendants in the suit shall bear the
fees and expenses of any additional counsel retained by them, but, in case
Distributor does not elect to assume the defense of any such suit, Distributor
will reimburse the Indemnitees that are defendants in the suit for the
reasonable fees and expenses of any counsel retained by them. Distributor
shall promptly notify the Company of the commencement of any litigation or
proceedings in connection with the issuance or sales of the Certificates.
9. TERM AND TERMINATION.
9.1 TERM. This Agreement shall become effective upon the date first
written above and shall remain in force for one year from such date, and shall
continue annually thereafter but only so long as such continuance is
specifically approved by a majority of the Board who are not parties to this
Agreement, or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval.
9.2 TERMINATION. This Agreement may be terminated at any time without
the payment of any penalty, by the Company or by Distributor, on sixty days'
written notice to the other party.
10. DEFINITIONS.
As used herein the terms "investment company," "face-amount certificate
company," "principal underwriter," "interested person," and "affiliated
person" shall have the meanings set forth in the 1933 Act or the Act, and the
rules and regulations thereunder. Nothing herein contained shall require the
Company to take any action contrary to any provision of its Articles of
Incorporation, By-Laws, or any applicable statute or regulation.
11. NOTICES.
Any notice under this Agreement shall be in writing, addressed and
delivered, or mailed postage prepaid, to the other party at such address as
the other party may designate for the receipt of notices. Until further notice
to the other party, it is agreed that the address of the Company shall be 4847
Cordell Avenue, Suite 200, Bethesda, Maryland 20814, and the address for
Distributor shall be 200 S. Harbor Blvd., Suite 501, Melbourne, Florida 32901.
12. SEVERABILITY.
If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule, or otherwise, the remainder of this Agreement
shall not be affected thereby.
7
<PAGE>
13. CONFIDENTIALITY.
Distributor shall not disclose or use any records or information
obtained pursuant to this Agreement, pursuant to its relationship with the
Company, or in the course of discharging its obligations hereunder, in any
manner whatsoever except as expressly authorized by this Agreement or in a
writing by the Company, or as expressly required by applicable federal or
state regulatory authorities.
14. APPLICABLE LAW.
This Agreement shall be governed by the laws of the State of Maryland,
notwithstanding any conflict of laws provisions thereof, and shall be
construed to promote the operation of the Company as a face-amount certificate
company.
15. PARTIES TO COOPERATE.
The Company and Distributor agree to fully cooperate with each other in
assuring compliance under this Agreement with all federal and state laws and
regulations.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as
of the date first written above.
1st ATLANTIC GUARANTY COMPANY
By: ________________________
John J. Lawbaugh
President
Attest: ________________________
SUMMIT BROKERAGE SERVICES, INC.
By: __________________________
Attest: ________________________
8
<PAGE>
SCHEDULE A
This Schedule A is an integral part of the Agreement to which it is
attached. Capitalized terms used herein have the same meaning as given to them
in the Agreement, except as otherwise noted. This Schedule A sets out the
names of the types of Certificates covered by the Agreement and the
compensation of Distributor for the services rendered with respect thereto.
NAMES OF CERTIFICATES
Accumulator Certificates Cornerstone Certificates Growth Certificates
Premier Certificates Reserve Certificates
COMPENSATION
For its services rendered pursuant to the Agreement, Distributor shall
be entitled to receive, as full compensation therefor, the following sales
commissions (subject to any scheduled variations or eliminations of commission
as set forth in the Company's Prospectus):
COMMISSION SCHEDULE
All commissions due upon the sale of any Certificate are calculated as a
percentage of the initial purchase payment for such Certificate, EXCEPT that
with respect to the sale of the Accumulator Certificate, the commission
payable shall be calculated as a percentage of the total purchase payments
scheduled to be paid during the first year of any such Accumulator
Certificate. Commissions rates are as follows:
A. For direct sales by Distributor
* applicable to Certificates with guarantee periods of one (1) to
five (5) years.....................____ %
* applicable to Certificates with guarantee periods of ten (10)
years..............................____ %
B. For sales by Distributor through Selling Group Agreements
* applicable to Certificates with guarantee periods of one (1) to
five (5) years.....................0.25 %
* applicable to Certificates with guarantee periods of ten (10)
years..............................0.25 %
A commission becomes payable only upon acceptance, by the Company, of
the application to purchase a Certificate, and after payment for such
Certificate is made. The Company will make payment of all commissions then
payable on the 15th and last day of each calendar month.
In the event an Accumulator Certificate is surrendered prior to the end
of the first Certificate year, Distributor shall immediately return to the
Company any commission paid with respect to scheduled purchase payments that
the Certificate holder failed to pay.
If any Certificate is tendered to the Company for surrender within seven
(7) business days after the Company's acceptance of the original purchase
order for such Certificate, Distributor shall immediately return to the
Company the full sales commission paid to Distributor on the original sale.
The Company shall notify Distributor, or cause Distributor to be notified, of
such surrender within 10 days of the day on which the Company receives notice
of such surrender.
2
EXHIBIT 3(a)(ii)
1ST ATLANTIC GUARANTY CORPORATION
ARTICLES OF AMENDMENT
1st Atlantic Guaranty Corporation, a corporation organized and existing
under and by virtue of the Maryland General Corporation Law of the State of
Maryland (hereinafter, "Corporation"), does hereby certify to the State
Department of Assessments and Taxation of Maryland that:
FIRST: In accordance with Section 2-607 of the Maryland General
Corporation Law, this Amendment to the Articles of Incorporation of the
Corporation as set forth below was approved by a majority of the entire Board
of Directors of the Corporation, and no stock entitled to be voted on this
matter was outstanding or subscribed for at the time of approval.
SECOND: The Articles of Incorporation of the Corporation are hereby
amended by changing Article FOURTH thereof so that, as amended, said Article
shall be and read as follows:
"FOURTH: The address of the principal office of the Corporation in the
State of Maryland is: 1st Atlantic Guaranty Corporation, 4847 Cordell
Avenue, Suite 200, Bethesda, MD 20814. The name and address of the
resident agent of the Corporation in the State of Maryland is John J.
Lawbaugh, 4847 Cordell Avenue, Suite 200, Bethesda, MD 20814. The
resident agent resides in, and is a citizen of, the State of Maryland."
THIRD: The Articles of Incorporation of the Corporation are hereby
amended by changing Article FIFTH (A) thereof to increase the authorized stock
of the Corporation, all of which is designated as Common Stock, from a total
of Ten Million (10,000,000) shares, par value of One Cent ($0.01) per share,
such shares having an aggregate par value of One Hundred Thousand Dollars
($100,000), to Fourteen Million, Five Hundred Thousand (14,500,000) shares,
par value of One Cent ($0.01) per share, such shares having an aggregate par
value of One Hundred Forty-Five Thousand Dollars ($145,000), so that, as
amended, said Article shall be and read as follows:
"(A) GENERAL. The total number of shares of stock which the Corporation,
by resolution or resolutions of the Board of Directors, shall have
authority to issue is Fourteen Million, Five Hundred Thousand
(14,500,000) shares, par value of One Cent ($0.01) per share, such
shares having an aggregate par value of One Hundred Forty-Five Thousand
Dollars ($145,000). All such shares are herein classified as "Common
Stock," subject, however, to the authority hereinafter granted to the
Board of Directors to classify or reclassify any such shares that are
issued in accordance with subparagraph (B) below."
<PAGE>
IN WITNESS WHEREOF, in accordance with Sections 1-301 and 1-302 of the
Maryland General Corporation Law, the Corporation has caused these Articles of
Amendment to be signed and acknowledged in its name and on its behalf by its
President, and witnessed by its Secretary, and the undersigned President of
the Corporation acknowledges these Articles of Amendment to be the corporate
act of the Corporation and states that to the best of his knowledge,
information and belief, the matters and facts set forth herein with respect to
the authorization and approval hereof are true in all material respects and
that this statement is made under the penalties for perjury.
ATTEST: 1ST ATLANTIC GUARANTY
CORPORATION
/s/BRIAN P. SMITH Date: 9-10-98 /s/JOHN J. LAWBAUGH Date: 9-10-98
----------------- ------------- ------------------- -------------
Brian P. Smith John J. Lawbaugh
Secretary President
EXHIBIT 4(a)
PRESS HARD ON APPLICATION TO ENSURE LEGIBILITY OF ALL COPIES
FORM OF
1st ATLANTIC GUARANTY CERTIFICATE APPLICATION
[Logo 1st Atlantic Guaranty]
Sales Representative _________________
Date _________________________________ Application Type [ ] New [ ] Amended
-----------------------------------------------------------------------------
Personal Profile
APPLICANT
Name ________________________________________________________________________
Address _____________________________________________________________________
_____________________________________________________________________________
E-Mail Address ______________________________________________________________
Marital Status ___________________ Tax ID # _________________________________
Date of Birth (m/d/y) _______________________________________________________
Citizenship [ ] U.S. Citizen [ ] Non-U.S. Citizen
Telephone Home (_____)__________________________________________
Numbers Business (_____)__________________________________________
Fax (_____)__________________________________________
Occupation __________________________________________________________________
Employer ____________________________________________________________________
Employer Address ____________________________________________________________
Spouse's Name _______________________________________________________________
Spouse's Employer
(if client unemployeed) _____________________________________________________
Primary Bank Address ________________________________________________________
-----------------------------------------------------------------------------
JOINT APPLICANT
Name ________________________________________________________________________
Address _____________________________________________________________________
_____________________________________________________________________________
E-Mail Address ______________________________________________________________
Marital Status ___________________ Tax ID # _________________________________
Date of Birth (m/d/y) _______________________________________________________
Relationship to Applicant ___________________________________________________
Citizenship [ ] U.S. Citizen [ ] Non-U.S. Citizen
Telephone Home (_____)__________________________________________
Numbers Business (_____)__________________________________________
Fax (_____)__________________________________________
Occupation __________________________________________________________________
Employer ____________________________________________________________________
Employer Address ____________________________________________________________
Spouse's Name _______________________________________________________________
Spouse's Employer
(if client unemployeed) _____________________________________________________
Primary Bank Address ________________________________________________________
-----------------------------------------------------------------------------
Ownership
Type of ownership (check one).
[ ] Individual
[ ] Joint Tenants with right of survivorship
[ ] Tenants by the entirety
(Available only in AR, DE, DC, FL, HI, MD, MA, MI, MO, PA, TN, VT, WY)
[ ] Other ___________________________________________________________________
(Trust Corporate, UGMA, UTMA)
[ ] Tenants in common. Complete the following for each participant:
NAME OF INTEREST IN
PARTICIPANT THE ACCOUNT
________________________________________________________________ __________%
________________________________________________________________ __________%
________________________________________________________________ __________%
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DEPENDENT(S):
FIRST NAME
__________________________________________________________________________(1)
__________________________________________________________________________(2)
__________________________________________________________________________(3)
__________________________________________________________________________(4)
DATE OF BIRTH (m/d/y)
__________________________________________________________________________(1)
__________________________________________________________________________(2)
__________________________________________________________________________(3)
__________________________________________________________________________(4)
Name of CPA _________________________________________________________________
Name of Attorney ____________________________________________________________
Do You Have A Will? [ ] yes [ ] no
CURRENT ASSETS
Savings $________________________________________________
Certificates of Deposit $________________________________________________
Money Market Funds $________________________________________________
Municipal Bonds $________________________________________________
Mutual Funds $________________________________________________
Stocks $________________________________________________
Real Estate $________________________________________________
Annuities $________________________________________________
Options $________________________________________________
Collectables $________________________________________________
Life Ins. (cash value) $________________________________________________
Qualified Retire. Plans $________________________________________________
RETIREMENT PLAN
[ ] IRA [ ] 403(b)
[ ] SEP/SARSEP [ ] __________________________________________
[ ] 401(k) [ ] __________________________________________
[ ] Profit Sharing [ ] __________________________________________
[ ] Qualified Pension Plan
[ ] Money Purchase Plan
-----------------------------------------------------------------------------
Objective
Investment Objective (Please select one):
[ ] Preservation of capital [ ] Income [ ] Income & Growth
[ ] Long-Term Growth
-----------------------------------------------------------------------------
Financial Profile
Approx. annual earnings (,000)
[ ]<$50 [ ]$50-$99 [ ]$100-$199 [ ]$200-$299 [ ]$300-$499 [ ]>$500
-----------------------------------------------------------------------------
Total annual income (all sources (,000)
[ ]<$50 [ ]$50-$99 [ ]$100-$199 [ ]$200-$299 [ ]$300-$499 [ ]>$500
-----------------------------------------------------------------------------
Approx. liquid net worth (,000)
[ ]<$100 [ ]$101-$499 [ ]$500-$999 [ ]$1,000-$5,000 [ ]$5,000-$9,999
[ ]>$10,000
-----------------------------------------------------------------------------
Approx. total net worth (,000)
[ ]<$100 [ ]$101-$499 [ ]$500-$999 [ ]$1,000-$5,000 [ ]$5,000-$9,999
[ ]>$10,000
-----------------------------------------------------------------------------
Certificates
ACCUMULATOR CERTIFICATE
Initial Purchase Installment $____________________________________
(Minimum $250, maximum $1.5 million)
Additional Investments $__________________
(Minimum $50)
Frequency of Payment [ ]Annually [ ]Semi-Annually [ ]Quarterly [ ]Monthly
Desired Target Maturity Value $_______________ Number of Years ______________
Initial Guarantee Period: Please Indicate Term [ ]1 [ ]3 [ ]5 [ ]10 years
-----------------------------------------------------------------------------
GROWTH CERTIFICATE
Principal Investment $__________________________________
(Minimum $2,500, maximum $250,000)
Additional Investments $__________________
(Minimum $250)
Please indicate how interest income is to be disbursed:
[ ]Reinvest [ ]Paid Annually [ ]Paid Semi-Annually [ ]Paid Quarterly
[ ]Paid Monthly [ ]Partially Paid
$_________________________________
Amount
Initial Guarantee Period: Please Indicate Term [ ]1 [ ]3 [ ]5 [ ]10 years
-----------------------------------------------------------------------------
PREMIER CERTIFICATE
Principal Investment $________________________________________
(Minimum $250,000, maximum $2.5 million)
Please indicate how interest income is to be disbursed:
[ ]Reinvest [ ]Paid Annually [ ]Paid Semi-Annually [ ]Paid Quarterly
[ ]Paid Monthly [ ]Partially Paid
$_________________________________
Amount
Initial Guarantee Period: Please Indicate Term [ ]1 [ ]3 [ ]5 [ ]10 years
-----------------------------------------------------------------------------
RESERVE CERTIFICATE
Principal Investment $_______________________________________
(Minimum $25,000, maximum $2.5 million)
Desired Withdrawal Amount $__________________
[ ]Monthly [ ]Quarterly [ ]Semi-Annually [ ]Annually
Initial Guarantee Period: Please Indicate Term [ ]1 [ ]3 [ ]5 [ ]10 years
-----------------------------------------------------------------------------
CORNERSTONE CERTIFICATE
Principal Investment $______________________________________
(Minimum $1,000, maximum $2.5 million)
Please indicate how interest income is to be disbursed:
[ ]Reinvest [ ]Paid Annually [ ]Paid Semi-Annually [ ]Paid Quarterly
[ ]Paid Monthly [ ]Partially Paid
$_________________________________
Amount
Initial Guarantee Period: Please Indicate Term [ ]5 [ ]10 years
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RECEIPT OF PROSPECTUS; SUITABILITY
I have received, read, and agree to the terms of the current prospectus
for each Certificate for which I am applying. I have the authority and
legal capacity to purchase the Certificate(s), am of legal age in my
state, and believe each investment is suitable for me.
CANCELING MY ORDER
I understand that I may cancel, without penalty, my investment in a
Certificate within 10 days after the date of purchase. I understand that
I will not earn any interest on any canceled Certificate. I also
understand that it is 1ST Atlantic Guaranty Corporation's policy to
return my canceled investment within 30 days of my cancellation request.
ACCEPTANCE OF APPLICATION
I understand that acceptance of my application is at the sole discretion
of 1ST Atlantic Guaranty Corporation and that you may reject my
application for any reason.
TELEPHONE INSTRUCTIONS
I do __ do not ___ authorize 1ST Atlantic Guaranty Corporation, its
affiliates and agents to act on any telephone instructions believed to
be genuine. I understand that 1ST Atlantic Guaranty Corporation will
employ reasonable procedures to confirm that instructions communicated
by telephone are genuine, and agree that if it does, neither it nor its
affiliates and agents shall be liable for any claims, losses, or
expenses (including legal fees) for acting on any instructions believed
genuine. I acknowledge that all telephone instructions given pursuant to
this authorization are subject to the conditions set forth in the
prospectus for each Certificate.
--------------------------- ---------------------------
Applicant's Signature Joint Applicant's Signature
-----------------------------------------------------------------------------
W-9 Certification
Substitute W-9 Certification
Under penalties of perjury, I certify by signing below that:
(i) On this application, I provided you with my correct Taxpayer
Identification Number; and
(ii) I am not subject to backup withholding - because
(a) I have not been notified by the IRS that I am subject to backup
withholding due to under reporting of interest or dividents; or
(b) the IRS has notified me that I am no longer subject to backup
withholding
I certify that the information on this page is accurate and complete. I agree
to be bound by the terms and conditions on the reverse side of this page.
-----------------------------------------------------------------------------
RETURN TO 1ST ATLANTIC GUARANTY
REPRESENTATIVE CERTIFICATION
By signing below, the Registered Rep/ Agent certifies that:
(a) The questions contained in this application were asked of the
applicant and the answers duly recorded: that this application is
complete and true to the best of my knowledge and belief;
(b) and I am NASD registered and state licensed for Investment Company
Products where this application is written and delivered;
(c) Clients provided $____________________ as the initial purchase
payment.
--------------------------- ---------------------------
Representatives Name (Please Print) Name of Broker/ Dealer
--------------------------- ---------------------------
Representative's Signature Representative's Phone #
Application accepted by 1st Atlantic Guaranty Corporation: ____yes ____ no
By:___________________________________
Authorized Officer
<PAGE>
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1ST ATLANTIC GUARANTY CORPORATION
CERTIFICATE TERMS AND CONDITIONS
-----------------------------------------------------------------------------
If we accept your application, the following terms and conditions will
govern the face-amount certificate ("Certificate") that we register for
your account on our books. We will not issue a paper certificate
represneting your purchase.
1. DEFINITIONS
As used herein, the terms "you" and "your" refer to the owner of the
Certificate; the terms "we," "us", our" and the "Company" refer to 1st
Atlantic Guaranty Corporation. Unless otherwise provided herein, all
other capitalized terms used herein have the meaning ascribed to them in
the Company's prospectus, as currently in effect ("prospectus"), which
describes the Certificate. In the event of any conflict between the
information contained herein and the prospectus, these terms and
conditions shall control.
2. FACE-AMOUNT
The face-amount of your Certificate equals the amount of your principal
investment or, for Accumulator Certificates, the amount you have agreed
to invest.
3. EFFECTIVE DATE
We will credit your initial principal investment and issue your
Certificate on the date we accept your application ("Effective Date").
4. ADDITIONAL PRINCIPAL INVESTMENTS
Except for Accumulator and Growth Certificates, we do not accept
additional principal investments under your Certificate. SEE "Special
Provisions" under Section 16 below.
5. MATURITY DATE
The maturity date ("Maturity Date") of your Certificate is 20 years from
its Effective Date. On the Maturity Date, we will pay you the account
value ("Account Value") of your Certificate. At any time, your Account
Value equals your principal investments, plus all accrued interest, less
any withdrawals previously taken and less applicable fees, charges and
penalties previously assessed pursuant to Section 8 below.
6. GUARANTEE PERIODS
You may select successive guarantee periods ("Guarantee Periods") of 1,
3, 5 or 10 years (5 and 10 years only in the case of Cornerstone
Certificates) during which to lock in the interest rate applicable to
your principal investment for each Period. You may not select a
Guarantee Period that would carry your Certificate past its Maturity
Date. If you select a Guarantee Period that would end after your
Certificate's Maturity Date, we will instead apply your Account Value to
the next shortest Guarantee Period that ends at or prior to your
Certificate's Maturity Date, using that Period's then applicable
interest rate.
7. INTEREST
We will credit interest monthly on the amount of interest that accrues
on your Account Value. Accrued interest will compound monthly based on a
30-day month and a 360-day year. The minimum interest rate ("Minimum
Interest Rate") that we will credit to your Certificate is 3.5% per
year. The interest rate applicable to your Certificate will vary from
Guarantee Period to Guarantee Period. The applicable interest rate for
your initial Guarantee Period will be the rate in effect on the date we
accept your application and receive your principal investment at our
offices. For any subsequent principal investments made, we will apply
the interest rate in effect for the current Guarantee Period in which
you are invested. You will begin earning interest on the Effective Date
of your Certificate or, in the case of any subsequent principal
investment, on the first day of the month following the date we receive
your payment. Withdrawals that put your Account Value in a lower
category of applicable interest rates will result in the application of
the lower interest rate from the date of the withdrawal, even if it
occurs prior to the end of a Guarantee Period.
We will establish the interest rates applicable to your Certificate from
time to time in our sole discretion, provided, however, that the
interest rate for each Guarantee Period will always be the HIGHER of (I)
the Minimum Interest Rate and (ii) our interest rate target ("Interest
Rate Target") for that Guarantee Period. The Interest Rate Target for
each Guarantee Period will equal the benchmark for that Period, plus a
margin that we set in our sole discretion. At no time will the margin
that we apply be less than 0.50%. When determining the Interest Rate
Target for the 1, 3, and 5 year Guarantee Periods under each
Certificate, the benchmark will be the HIGHER of: (i) the average rate
for certificates of deposits ("CDs") of comparable maturity quoted on
the Bank Rate Monitor National Index ("BRM Index"), and (ii) the yield
for U.S. Treasury securities of comparable maturity, on any given date
that we establish interest rates (each, an "Interest Rate Date"). The
BRM Index does not include an average rate for 10 year CDs. Accordingly,
we will use the yield on 10 year U.S. Treasury bonds as the benchmark
for the 10 year Guarantee Period. We reserve the right to use, in our
sole discretion, an index other than the BRM Index should such index
cease to be published.
If you already own a Certificate and purchase another certificate of the
same type, we will calculate the interest rate on the new Certificate
based on the aggregate Account Values that you maintain in each
Certificate of that type.
8. WITHDRAWALS AND SURRENDER
You can schedule regular withdrawals of accrued interest on a monthly,
quarterly, or annual basis, or such other intervals as we may, from time
to time, permit. We reserve the right to assess service fees for
scheduled and unscheduled withdrawals of accrued interest. In addition,
we will assess a withdrawal charge if you withdraw some or all of your
Account Value prior to your fifth certificate anniversary ("Certificate
Anniversary"). We will deduct the charge from your remaining Account
Value or, in the case of a complete surrender, the amount withdrawn,
according to the following schedule:
As a % of amount withdrawn: 5% 4% 3% 2% 1% 0%
--------------------------
# of Certificate Anniversaries: 1 2 3 4 5 Over 5
------------------------------
The withdrawal charge does not apply to scheduled withdrawals of
interest. You may also withdraw some or all of your principal
investments in your Certificate prior to maturity, provided, however,
that any withdrawals of principal that occur before your fifth
Certificate Anniversary or prior to the end of a Guarantee Period will
be subject to a penalty for early withdrawal equal to 12 months accrued
interest payable on the amount withdrawn. We will deduct the penalty
from your remaining Account Value, or, in the case of a complete
surrender, from the amount withdrawn. We will waive the penalty if the
withdrawal is due to the need to meet unexpected expenses from your
death, disability, or hospitalization. Withdrawal amounts are subject to
the minimums shown on your application. We will treat withdrawal
requests as coming first from accrued interest, then from your principal
investments. We will treat withdrawals that cause your Account Value to
fall below the minimum investment amount as a request for a complete
surrender of your Certificate.
9. SURRENDER VALUE
Upon surrender of your Certificate prior to its maturity, we will pay
you your Certificate's surrender value ("Surrender Value"), which, at
any time, equals your Account Value immediately prior to surrender, less
any applicable fees, charges and penalties assessable at the time of
surrender. In no event will your Surrender Value be less than the
minimum amount prescribed by Section 28 of the Investment Company Act of
1940, as amended (the "Act").
10. LOANS
You may borrow up to 50% of your Account Value for a term of up to 5
years or the Maturity Date of your Certificate, whichever is earlier.
Loans are subject to an annual interest charge of up to 6% of the amount
withdrawn, but are not subject to the withdrawal charge or early
withdrawal penalty. You will not earn interest on the amount borrowed.
We will treat a loan that you do not repay as a permanent withdrawal. We
will assess the penalty for early withdrawal that would have applied at
the time of withdrawal. This loan feature does not apply to Accumulator
Certificates.
11. DEFERRED PAYMENT
We may, at our option, defer any payment to you for a period of not more
than 30 days and, in that event, interest shall accrue on any payment or
payments due to you for the period of such deferment at the Minimum
Interest Rate.
12. MAINTENANCE OF RESERVES
Your Certificate is not secured by any particular asset of the Company.
However, to support our obligations under your Certificate and all other
Certificates that we issue, we maintain reserves in the amount and in
assets of the type prescribed by the Act. For purposes of computing the
reserves under your Certificate, the minimum maturity amount of your
Certificate equals the face-amount of your Certificate. No interest is
payable or deemed payable until actually earned and credited.
13. EXCHANGING CERTIFICATES
Upon completion of your Certificate's current Guarantee Period, you may
exchange your Certificate for any other Certificate, other than a
Cornerstone Certificate, provided you meet the minimum investment
threshold for the new Certificate. We will effect your exchange request
on the first day of the next Guarantee Period you select following the
date we receive your request. The withdrawal charge and early withdrawal
penalty do not apply to exchanges. In addition, for purposes of
computing the withdrawal charge and penalty for early withdrawals on the
new Certificate, we will treat you as having held the new Certificate
from the Effective Date of your exchanged Certificate. This exchange
feature does not apply to Cornerstone Certificates.
14. TRANSFERRING OWNERSHIP
To transfer ownership of your Certificate, you must submit a completed a
transfer request to us in proper form. The transfer will be effective
upon the completion of our processing of your request.
15. MISCELLANEOUS
Your Certificate carries no voting rights and is not entitled to
participate in any dividends that our Board of Directors may declare.
The minimum and maximum amounts applicable to your principal
investment(s) and withdrawals appear on your Certificate application.
The minimum maturity or face-amount of your Certificate, your Account
Value, your Surrender Value and other relevant data will appear on the
periodic account statements that we will send to you. These account
statements are incorporated herein to the extent necessary to comply
with applicable law.
16. SPECIAL PROVISIONS
Notwithstanding the above, the following special provisions apply to the
Certificates noted below:
FOR GROWTH CERTIFICATES ONLY:
Growth Certificate owners may make additional principal investments in
the same Certificate up to an aggregate amount equal to the lesser of
15% of your initial principal investment or $37,500. We will credit any
additional principal investments only on the first day of the month
coinciding with or following the date we receive such investments.
FOR ACCUMULATOR CERTIFICATES ONLY:
Accumulator Certificate owners must make additional principal
investments in accordance with the schedule selected on the Certificate
application. All scheduled payments for Accumulator Certificates are due
on the first day of the month. If we do not receive your scheduled
payment within 10 days of its due date, your Certificate will be in
default, and will lapse.
You can reinstate your Certificate by paying the missed payment, plus an
administrative fee equal to the higher of 5% of the missed payment or
$5.00, within six months from the original due date of the missed
payment. We will apply any missed payments that we receive to the
current Guarantee Period to which you have applied your Account Value,
as defined below. Any missed payment will earn interest commencing on
the date we apply it to such Guarantee Period. Alternatively, you can
elect to surrender your lapsed Certificate for its Surrender Value or
convert it to one of our fully paid Certificates in an amount equal to
its then applicable Surrender Value. Your fully paid Certificate will
have the same Maturity Date as your lapsed Certificate, and we will
automatically apply your Account Value to the Guarantee Period that ends
closest to the Maturity Date of the Certificate, without extending past
such Maturity Date, at the interest rate applicable to such Guarantee
Period. If, within six months from the original due date of your missed
payment, you have not notified us of your decision to reinstate,
surrender or convert your lapsed Accumulator Certificate, we will
automatically convert your lapsed Accumulator Certificate into a fully
paid Certificate as described above.
FOR RESERVE CERTIFICATES ONLY:
You can schedule systematic withdrawals of both principal and accrued
interest, without incurring any withdrawal charge or penalty for early
withdrawal, provided you maintain, at all times, a minimum Account Value
equal to 50% of your original principal investment. You can schedule
systematic withdrawals on a monthly or quarterly basis, or such other
intervals as we may, from time to time, permit. The minimum amount you
may withdraw at any time is set out in your Certificate application. We
will treat withdrawals under this plan as coming first from accrued
interest and then from principal.
FOR CORNERSTONE CERTIFICATES ONLY:
The benchmark for the 5 and 10 year Guarantee Periods under Cornerstone
Certificates is the 11th District Cost of Funds Index, which is a
weighted average of the costs of borrowing by member banking
institutions of the Federal Home Loan Bank of San Francisco (the 11th
District). We reserve the right to use, in our sole discretion, an index
other than the 11th District Cost of Funds Index should such index cease
to be published.
1st ATLANTIC GUARANTY CORPORATION
Statement Date:______
Page __ of __
Form of
ACCOUNT STATEMENT
for period
______________ through _____________
Client: _____________________________ Account #:_______________
Tax ID Number: ______________________
Certificate Type: _____________
Face-Amount: _____________
Effective Date: _____________
Maturity Date: _____________
Minimum Interest Rate: _____________
Beginning of Current Guarantee Period: _____________
End of Current Guarantee Period: _____________
Interest Rate (Current Guarantee Period): _____________
Transactions this Period:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Principal Ending Ending
Interest Payments Loan Charges Account Surrender
Date Credited Received* Withdrawals Repayments Applied Value Value**
--------------------------------------------------------------------------------------
| | | | | | | |
--------------------------------------------------------------------------------------
| | | | | | | |
--------------------------------------------------------------------------------------
| | | | | | | |
--------------------------------------------------------------------------------------
| | | | | | | |
--------------------------------------------------------------------------------------
</TABLE>
* Required for Accumulator Certificates; optional for Growth Certificates;
not applicable for others.
** Does not reflect early withdrawal penalty equal to 12 months interest
that may apply to amounts withdrawn period to the end of a Guarantee Period.
For questions about this statement, please call us at 1-888-74-YIELD (in
Maryland, 301-215-7515). Or, you may write to us at 4847 Cordell Avenue, Suite
200, Bethesda, MD 20814, Attention: Customer Service. We are available
Monday-Friday 9:00 a.m. to 5:00 p.m. Eastern Standard Time.
PLEASE REFER TO THE REVERSE SIDE FOR ADDITIONAL INFORMATION
<PAGE>
Your Account Statements, together with your Certificate Application, define
the terms of your Certificate. Please keep this Statement for future
reference. The following are definitions of terms used in your statement.
ACCOUNT VALUE - your principal investments(s), plus accrued interest, less
withdrawals and applicable fees and charges.
CERTIFICATE - one of the face-amount certificates that we currently offer.
EFFECTIVE DATE - the date we accepted your application to purchase the
Certificate.
FACE-AMOUNT - the amount that you invested at the time you purchased your
Certificate, or, in the case of the Accumulator Certificate, the sum of the
installments you agreed to make during the life of the Certificate.
GUARANTEE PERIOD - a time period that you selected to lock in the interest
rate applicable to your principal investment for that period.
INTEREST RATE - the rate of interest that you earn on your Certificate. We
guarantee the interest rate for the Guarantee Periods that you select.
Interest compounds monthly, based on a 30-day month and a 360-day year.
MATURITY DATE - the date on which your Certificate matures. Your Certificate
matures 20 years after its Effective Date.
MINIMUM INTEREST RATE - the minimum annual rate of interest you will earn on
your principal investment during any Guarantee Period.
OUR, US, WE - 1st Atlantic Guaranty Corporation.
PRINCIPAL- the amount of your investment and, if you have an Accumulator or
Growth Certificate, any subsequent investment.
SURRENDER VALUE - the amount of your Account Value imediately prior to
surrender, less any applicable withdrawal charge and early withdrawal penalty
assessable at the time of surrender.
YOU, YOUR - the Certificate owner.
Law Offices
Freedman, Levy, Kroll & Simonds
Washington Square, 1050 Connecticut Ave., N.W.
Washington, D.C. 20036-5366
(202) 457-5100
Cable "Attorneys"
Telecopier: 202-457-5151
September 14, 1998
OPINION AND CONSENT OF COUNSEL
1st Atlantic Guaranty Corporation
4847 Cordell Avenue, Suite 200
Bethesda, Maryland 20814
Executives:
We are giving this opinion in connection with the filing with the
Securities and Exchange Commission ("SEC") by 1st Atlantic Guaranty
Corporation, a Maryland corporation ("Company"), of Amendment No. 1 under the
Securities Act of 1933 ("1933 Act") to the Company's Registration Statement on
Form S-1 (File No. 333-41361) ("Registration Statement"). The Registration
Statement under the 1933 Act relates to five types of face-amount
certificates, namely the Accumulator, Cornerstone, Growth, Premier and Reserve
Certificates (collectively, "Certificates"), to be offered by the Company.
We have examined the Company's Articles of Incorporation and Amendment
thereto; the Company's By-Laws; certain Board of Directors' resolutions; the
Registration Statement as originally filed with the SEC under the 1933 Act on
December 1, 1997, including Amendment No. 1 to the Registration Statement
under the 1933 Act, substantially in the form in which it is to be filed with
the SEC; a Certificate of Good Standing as issued by the Maryland State
Department of Assessments and Taxation on September 14, 1998; pertinent
provisions of the laws of Maryland; and such corporate and other records,
certificates, representations, documents, and statutes that we have deemed
relevant in order to render the opinion expressed herein.
Based on such examination, we are of the opinion that:
1. The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Maryland;
and
2. The Certificates to be offered for sale by the Company, when
issued and paid for in the manner contemplated by the Registration
Statement, as amended, will be legally issued, fully-paid, and
<PAGE>
1st Atlantic Guaranty Corporation
September 14, 1998
Page 2
non-assessable and will constitute legally binding obligations of the
Company enforceable against the Company in accordance with their terms.
This letter expresses our opinion as to the Maryland General Corporation
Law, addressing matters such as due formation and the authorization and
issuance of the Certificates, but does not extend to the securities or "Blue
Sky" laws of Maryland or to federal securities or other laws.
We consent to the use of this opinion as an Exhibit to the Registration
Statement, as amended. In giving this consent we do not admit that we come
within the category of persons whose consent is required under section 7 of
the 1933 Act or the rules and regulations of the SEC thereunder.
Very truly yours,
/s/FREEDMAN, LEVY, KROLL & SIMONDS
----------------------------------
FREEDMAN, LEVY, KROLL & SIMONDS
EXHIBIT 10(a)
FORM OF
INVESTMENT ADVISORY AGREEMENT
Investment Advisory Agreement ("Agreement") made this ____ day of
September, 1998 between 1st ATLANTIC GUARANTY CORPORATION., a Maryland
corporation (the "Company"), and KEY ASSET MANAGEMENT INC., a New York
corporation (the "Adviser") (collectively, the "Parties").
WHEREAS, the Company is organized and intends to operate as a
face-amount certificate investment company and is so registered under the
Investment Company Act of 1940, as amended, (the "Act"); and
WHEREAS, the Company has registered, or will register, certain
face-amount certificates ("Certificates") under the Securities Act of 1933, as
amended, ("1933 Act"), to the extent required thereby; and
WHEREAS, the Company has issued or will issue shares of capital stock in
accordance with the Act; and
WHEREAS, the assets of the Company will be used to support the Company's
obligations under the Certificates to the extent required by the Act; and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, and is engaged principally in the business of
rendering investment advisory services; and
WHEREAS, the Company desires to have the Adviser perform the investment
advisory services described herein, and the Adviser desires to provide these
services to the Company.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration the receipt of which is
hereby acknowledged, the Parties agree as follows:
1. APPOINTMENT OF THE ADVISER.
(a) The Company hereby appoints the Adviser, and the Adviser hereby
accepts such appointment, to act as the investment adviser to the Company for
the period and on the terms herein set forth, for the compensation provided on
Schedule A hereto.
<PAGE>
(b) The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, except as expressly provided or authorized
(whether herein or otherwise), have no authority to act for or represent the
Company in any way or otherwise be deemed an agent of the Company.
2. SERVICES TO BE PROVIDED BY THE ADVISER.
The Adviser, at its own expense or pursuant to arrangements with others
to bear the expenses, shall furnish the services described below to the
Company subject to the overall supervision and review of the Company's Board
of Directors ("Board") and in accordance with, as in effect from time to time,
the provisions of the Company's Articles of Incorporation ("Articles"),
By-Laws, registration statements, and applicable law (including, without
limitation, the Act, the 1933 Act, and the Internal Revenue Code). The Adviser
shall give the Company the benefit of its best judgment and efforts in
rendering its services as investment adviser.
(a) INVESTMENT PROGRAM. The Adviser shall continuously furnish an
investment program for the Company. In connection therewith, the Adviser
shall:
(i) manage the assets of the Company that it receives from the
Company, from time to time, to ensure that the Company has, in cash or
qualified investments (as that term is defined by Section 28(b) of the
Act), assets having an aggregate value not less than that required by
applicable law;
(ii) determine, consistent with guidelines provided from time to time
by the Company, what investments the Company shall purchase, hold, sell,
or exchange and what portion, if any, of the Company's assets shall
remain uninvested, and shall take such steps as may be necessary to
implement the same;
(iii) determine, to whatever extent necessary, the manner in which to
exercise any voting rights, rights to consent to corporate action, or
other rights pertaining to the Company's investment securities; and
(iv) render regular reports to the Company, at regular meetings of its
Board and at such other times as may be reasonably requested by the
Board, of (x) the decisions which it has made with respect to the
investment of the assets of the Company and the purchase and sale of its
investment securities, (y) the reasons for such decisions, and (z) the
extent to which it has implemented those decisions.
(b) PORTFOLIO SECURITIES TRANSACTIONS. The Adviser, subject to and in
accordance with any directions that the Company's Board may issue from time to
time, shall place orders for the execution of the Company's securities
transactions. When placing orders, the Adviser shall seek to obtain the best
net price and execution ("best execution") for the Company, but this
requirement shall not be deemed to obligate the Adviser to place any order
solely on the basis of obtaining the lowest commission rate if the other
2
<PAGE>
standards set forth in this section have been satisfied. The Parties recognize
that there are likely to be many cases in which different brokers are equally
able to provide best execution and that, in selecting among such brokers with
respect to particular trades, it may be desirable to choose those brokers who
furnish research, statistical, quotations and other information to the
Company, as well as the Adviser, in accordance with the standards set forth
below. Moreover, to the extent that it continues to be lawful to do so and so
long as the Board determines that the Company will benefit, directly or
indirectly, by doing so, the Adviser may place orders with a broker who
charges a commission for a securities transaction which is in excess of the
amount of commission that another broker would have charged for effecting that
transaction, provided that the excess commission is reasonable in relation to
the value of "brokerage and research services" (as defined in Section 28(e)(3)
of the Securities Exchange Act of 1934) provided by that broker. Accordingly,
the Company and the Adviser agree that the Adviser shall select brokers for
the execution of the Company's transactions from among:
(i) those brokers and dealers who provide quotations and other
services to the Company, specifically including the quotations necessary
to determine the aggregate assets of the Company, in such amount of
total brokerage as may reasonably be required in light of such services;
and
(ii) those brokers and dealers who supply research, statistical and
other data to the Adviser or its affiliates, which the Adviser or its
affiliates may lawfully and appropriately use in their investment
advisory capacities, which relate directly to securities, actual or
potential, of the Company, or which place the Adviser in a better
position to make decisions in connection with the management of the
Company's assets, whether or not such data may also be useful to the
Adviser and its affiliates in managing other portfolios or advising
other clients, in such amount of total brokerage as may reasonably be
required.
The Adviser shall render regular reports to the Company, not less frequently
than quarterly, of how much total brokerage business has been placed by the
Adviser with brokers falling into each of the categories referred to above and
the manner in which the allocation has been accomplished. The Adviser agrees
that no investment decision will be made or influenced by a desire to provide
brokerage for allocation in accordance with the foregoing, and that the right
to make such allocation of brokerage shall not interfere with the Adviser's
paramount duty to obtain the best execution for the Company.
(c) TENDER OFFER SOLICITATION FEES. The Adviser shall use its best
efforts to recapture all available tender offer solicitation fees in
connection with tenders of the securities of the Company, and any similar
payments, provided, however, that neither the Adviser, nor any affiliate of
the Adviser shall be required to register as a broker-dealer for this purpose.
The Adviser shall advise the Board of any fees or payments of whatever type
that it may be possible for the Adviser or an affiliate of the Adviser to
receive in connection with the purchase or sale of investment securities for
the Company.
3
<PAGE>
(d) VALUATION OF INVESTMENTS. The Adviser shall value the investments
of the Company as often as necessary to en able the Company to continually
meet the stock and minimum certificate reserve requirements required by the
Act. The Company shall provide, or arrange for others to provide, all
necessary information for the calculation of the aggregate value of the
Company's assets.
(e) ASSISTANCE WITH REGULATORY MATTERS. The Adviser shall provide such
assistance, cooperation, and information to the Company or its designee, as
the same may reasonably request from time to time, to enable the Company to:
(i) prepare, amend, file, and/or deliver its registration statements,
regulatory reports, periodic reports to shareholders and other documents
(including tax returns) required by applicable law in a timely manner;
and
(ii) develop, implement, maintain, and monitor a compliance program for
assuring compliance with all federal and state securities law matters.
The Parties acknowledge that the Company or its designee shall have primary
responsibility for the foregoing matters.
(f) INFORMATION, RECORDS, AND CONFIDENTIALITY.
(i) The Company or its designee shall provide timely information to
the Adviser regarding such matters as cash received from the issuance of
the Certificates, and all other information as may be reasonably
necessary or appropriate for the Adviser to perform its responsibilities
hereunder.
(ii) The Company shall own and control all records maintained hereunder
by the Adviser on the Company's behalf and, upon request of the Company
or in the event of termination of this Agreement for any reason, the
Adviser shall promptly return to the Company all such records, free from
any claim or retention of rights by the Adviser and without charge by
the Adviser except for the Adviser's direct expenses.
(iii) The Adviser shall not disclose or use any records or information
obtained pursuant hereto except as expressly authorized herein, and
shall keep confidential any information obtained pursuant hereto, and
disclose such information only if the Company has authorized such
disclosure, or if such disclosure is expressly required by applicable
federal or state regulatory authorities.
(g) PERSONNEL. The Adviser shall compensate all Directors, officers
and employees of the Company who are directors, officers, stockholders, or
employees of the Adviser or its affiliates.
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<PAGE>
(h) DELEGATION TO SUB-ADVISERS. Subject to the approval of the Board
and the shareholders of the Company, the Adviser may delegate to a sub-adviser
certain of its duties herein, provided that the Adviser shall continue to
supervise the performance of any such sub-adviser.
3. EXPENSES OF THE COMPANY.
Except for expenses that the Adviser expressly assumes pursuant to this
Agreement, the Company shall bear, or cause others to bear, all expenses for
its operations and activities, and shall cause the Adviser to be reimbursed,
by the Company or others, for any such expense that the Adviser incurs on
behalf of the Company. The expenses borne by the Company include, without
limitation:
(a) fees and expenses paid to the Adviser as provided herein;
(b) expenses of all audits by independent public accountants;
(c) expenses of transfer or dividend disbursing agent, registrar,
custodian, or depository appointed for safekeeping of the Company's cash,
securities, and other property;
(d) expenses of obtaining quotations which assist in calculating the
value of the assets of the Company;
(e) salaries and other compensation of executive officers of the
Company who are not directors, officers, stockholders or employees of the
Adviser or its affiliates;
(f) all taxes levied against the Company, including issuance and
transfer taxes, and corporate fees payable by the Company to federal, state or
other governmental agencies;
(g) brokerage fees and commissions in connection with the purchase and
sale of securities for the Company , and similar fees and charges for the
acquisition, disposition, lending or borrowing of such securities;
(h) costs, including the interest expense, of borrowing money;
(i) costs incident to meetings of the Board and shareholders of the
Company (exclusive of costs of those Directors and employees of the Company
who are "interested persons" of the Company within the meaning of the Act);
(j) fees and expenses of Directors who are not "interested persons" of
the Company within the meaning of the Act;
5
<PAGE>
(k) legal fees, including the legal fees related to the registration
and continued qualification of the Certificates for sale;
(l) costs and expense of registering and maintaining the registration
of the Company and the Certificates under federal and any applicable state
laws;
(m) the preparation, setting in type, printing in quantity and
distribution of materials distributed to current and prospective Certificate
holders of the Company, such as prospectuses, supplements thereto, and any
other communications pertaining to the Certificate holders;
(n) the preparation, setting in type, printing in quantity and
distribution of materials distributed to the shareholders of the Company, such
as periodic reports, proxy materials (including proxy statements and proxy
cards) relating to the Company and the processing, including tabulation, of
the results of voting instruction and proxy solicitations, and any other
communications pertaining to the shareholders;
(o) the fees and expenses involved in the preparation of all reports
as required by federal or state law;
(p) postage;
(q) extraordinary or non-recurring expenses, such as legal claims and
liabilities and litigation costs and indemnification payments by the Company
in connection therewith;
(r) trade association dues for the Investment Company Institute or
similar organizations; and
(s) any errors and omissions or other liability insurance premiums
covering the Directors, officers, and employees of the Company.
4. COMPENSATION OF THE ADVISER.
As compensation to the Adviser for services rendered furnished
hereunder, the Company shall pay the Adviser a fee in the amount and manner
set forth in Schedule A. The fee shall be reduced by any tender solicitation
fees received by the Adviser, or any affiliated person of the Adviser, in
connection with the tender of investments of the Company or any similar
payments (less any direct expenses incurred by the Adviser, or any affiliated
person of the Adviser, in connection with such fees or payments).
6
<PAGE>
5. ACTIVITIES OF THE ADVISER.
The services of the Adviser to the Company under this Agreement are not
exclusive, and the Adviser and any of its affiliates shall be free to render
similar services to others, so long as its services hereunder are not impaired
thereby. Subject to and in accordance with the Company's Articles of
Incorporation and By-Laws, the Articles of Incorporation and By-Laws of the
Adviser, and any applicable requirements of the Act, it is understood that
Directors, officers, agents, shareholders, and Certificate holders of the
Company are or may be interested persons of the Adviser or its affiliates as
directors, officers, agents, or stockholders, or otherwise; that directors,
officers, agents, or stockholders of the Adviser or its affiliates are or may
be interested persons of the Company as Directors, officers, agents,
shareholders or otherwise; that the Adviser or its affiliates may be
interested in the Company as shareholders or otherwise; and the effect of such
interest shall be governed by the Act.
6. LIABILITIES OF THE ADVISER.
The Adviser shall indemnify and hold harmless the Company and each of
its Directors and officers (or former Directors and officers) and each person,
if any, who controls the Company within the meaning of Section 15 of the 1933
Act (collectively, "Indemnitees") from all loss, cost, liability, claim,
damage, or expense (including the reasonable cost of investigating and
defending against the same and any counsel fees reasonably incurred in
connection therewith) (collectively, "Loss") incurred by any Indemnitees under
the 1933 Act or under common law or otherwise which arise out of or are based
upon or are a result of (i) the Adviser's willful misfeasance, bad faith, or
negligence in the performance of its duties, or (ii) the reckless disregard of
its obligations and duties under this Agreement, or that of its officers,
agents, and employees, in the performance of this Agreement.
In no event shall Adviser be liable to any Indemnitee for any Loss that
does not arise out of or is not based upon or is not a result of (i) the
Adviser's willful misfeasance, bad faith, or negligence in the performance of
its duties, or (ii) the reckless disregard of its obligations and duties under
this Agreement, or that of its officers, agents, and employees, in the
performance of this Agreement.
In case any action shall be brought against any Indemnitee, the Adviser
shall not be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against any Indemnitee, unless the Indemnitee
shall have notified the Adviser in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon the Indemnitee (or after the Indemnitee
shall have received notice of such service on any designated agent), but
failure to notify the Adviser of any such claim shall not relieve it from
liability to the Indemnitees against whom such action is brought otherwise
than on account of this Section 6. The Adviser shall be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the
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<PAGE>
Adviser elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Indemnitees that are defendants
in the suit. In the event the Adviser elects to assume the defense of any such
suit and retain such counsel, the Indemnitees that are defendants in the suit
shall bear the fees and expenses of any additional counsel retained by them,
but, in case the Adviser does not elect to assume the defense of any such
suit, the Adviser will reimburse the Indemnitees that are defendants in the
suit for the reasonable fees and expenses of any counsel retained by them. The
Adviser shall promptly notify the Company of the commencement of any
litigation or proceedings in connection with the issuance or sales of the
shares
7. TERM AND TERMINATION.
(a) TERM. This Agreement shall become effective on the date hereof.
Unless terminated as herein provided, this Agreement shall remain in full
force and effect until _____________, 1999, and shall continue in full force
and effect thereafter so long as such continuance is approved at least
annually (a) by either the Directors of the Company or by vote of a majority
of the Company's outstanding voting securities, and (b) in either event by the
vote of a majority of the Directors of the Company who are not parties to this
Agreement or "interested persons" of any such party, cast in person at a
meeting called for the purpose of voting on such approval.
(b) TERMINATION. This Agreement:
(i) may at any time be terminated by the Company without the payment
of any penalty, either by vote of the Board or by vote of a majority of
the Company's outstanding voting securities, on 60 days' written notice
to the Adviser;
(ii) shall automatically and immediately terminate in the event of its
assignment; and
(iii) may be terminated by the Adviser on 60 days' written notice to the
Company.
As used in this Section 7, the terms "assignment," "interested persons," and
"vote of a majority of the outstanding voting securities" shall have the
meanings set forth for any such terms in the Act.
8. NOTICE. Any notice under this Agreement shall be given in writing
addressed and delivered, or mailed post-paid, to the other party at any office
of such party.
9. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
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<PAGE>
10. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Maryland.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
effective as of the date first written above.
1st ATLANTIC GUARANTY
CORPORATION
By:____________________________
ATTEST
By:________________________________
KEY ASSET MANAGEMENT INC.
By:____________________________
ATTEST
By:________________________________
9
<PAGE>
SCHEDULE A
This schedule is an integral part of the Agreement to which it is
attached. Capitalized terms used herein have the same meaning as given to them
in the Agreement, except as otherwise noted. This schedule sets out the
compensation of the Adviser for services rendered with respect the Company.
COMPENSATION
For its services during the term of this Agreement, Adviser shall
receive a quarterly fee payable in arrears based on the annual percentage, set
forth below, of the average daily net asset value of the Company's assets that
it manages:
<TABLE>
<CAPTION>
Large Cap Equities and Convertible Securities
---------------------------------------------
Assets Annual Fee
------ ----------
<S> <C> <C>
Up to $25,000,000 0.45%
Next $25,000,000 0.40%
Above $50,000,000 0.35%
Small Cap and Midcap Equities
-----------------------------
Assets Annual Fee
------ ----------
Up to $10,000,000 0.90%
Next $15,000,000 0.70%
Next $25,000,000 0.55%
Above $50,000,000 0.45%
</TABLE>
Adopted: ___________, 1998
Last Amended: Not applicable
10
EXHIBIT 10(b)
FORM OF
CUSTODY AGREEMENT
CUSTODY AGREEMENT ("Agreement") made this ____ day of September, 1998,
between 1st Atlantic Guaranty Corporation, a Maryland corporation ("1ST
ATLANTIC"), and Key First Company of Ohio ("CUSTODIAN") (collectively,
"Parties").
WITNESSETH:
WHEREAS, 1ST ATLANTIC is registered with the Securities and Exchange
Commission ("SEC") as a face-amount certificate company within the meaning of
Section 4(1) of the Investment Company Act of 1940 ("1940 Act"); and
WHEREAS, 1ST ATLANTIC proposes to issue face-amount certificates
("Certificates") and will register the same under the Securities Act of 1933
("1933 Act"), to the extent required thereby; and
WHEREAS, CUSTODIAN has the qualifications prescribed in Section 26(a)(1)
of the 1940 pursuant to Section 28(c) of the 1940 Act.
NOW THEREFORE, in consideration of the mutual covenants and agreements
made herein, the Parties agree as follows:
I. APPOINTMENT OF CUSTODIAN;
ASSETS COVERED BY THIS AGREEMENT
A. EMPLOYMENT
1ST ATLANTIC hereby employs CUSTODIAN to serve as the custodian of the
cash, securities and other assets (collectively, "assets") that it delivers to
CUSTODIAN pursuant to this Agreement. CUSTODIAN agrees to hold, maintain, and
dispose of the assets that it receives from 1ST ATLANTIC in accordance with
the terms of this Agreement.
<PAGE>
B. REQUIRED RESERVES
1ST ATLANTIC shall, from time to time, deliver to and maintain with
CUSTODIAN (and, in 1ST ATLANTIC's sole discretion, one or more additional
custodians) qualified investments having at all times an aggregate value at
least equal to the amount 1ST ATLANTIC is required to maintain as reserves
pursuant to Section 28(a) of the 1940 Act ("required reserves"), which amounts
shall be set out in reports submitted by 1ST ATLANTIC to CUSTODIAN pursuant to
Section IV.B.1. hereof.
CUSTODIAN acknowledges that 1ST ATLANTIC may, pursuant to the terms of
this Agreement, withdraw any of its assets held hereunder at any time by
substituting qualified investments of equal or greater value, or without such
substitution, to the extent the aggregate value of the qualified investments
held hereunder exceeds the required reserves.
C. QUALIFIED INVESTMENTS; CERTIFICATES
1. QUALIFIED INVESTMENTS. For purposes of this Agreement, "qualified
investments" shall have the meaning given to it by Section 28(b) of the 1940
Act, as administered by the SEC. Qualified investments shall be valued, for
the purpose of determining compliance with the deposit requirements of Section
28 of the 1940 Act, in accordance with the District of Columbia Code, where
applicable, and otherwise as prescribed by the SEC. Any asset deposited with
CUSTODIAN shall be accompanied by a statement made by an Authorized Person
from 1ST ATLANTIC (as defined below) giving the value of the assets and
stating that Authorized Person's opinion that the asset is a qualified
investment.
2. CERTIFICATES. Whenever used in this Agreement, the term
"Certificate" shall mean a "face-amount certificate" as that term is defined
in Section 2(a)(15) of the 1940 Act, unless otherwise expressly noted.
II. SAFEKEEPING OF ASSETS
A. DUTIES OF CUSTODIAN WITH RESPECT TO SECURITIES
1. HOLDING OF SECURITIES. CUSTODIAN shall hold and physically
segregate for the account of 1ST ATLANTIC all securities delivered by 1ST
ATLANTIC pursuant to this Agreement; PROVIDED, however, that CUSTODIAN may,
pursuant to Section II.A.4. of this Agreement, maintain such securities in a
clearing agency that acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury and certain federal agencies
(each, a "Securities System").
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<PAGE>
2. DELIVERY OF SECURITIES. CUSTODIAN shall release and deliver
securities held by it or in its account with a Securities System (i) only upon
receipt of Proper Instructions, as defined below, from 1ST ATLANTIC, (ii) only
where there would remain in its custody, after the release and delivery of
such securities, an amount of qualified investments sufficient to meet 1ST
ATLANTIC's reserve requirements at the time, and (iii) only in the following
cases:
a) Upon sale of such securities for the account of 1ST ATLANTIC and
receipt of payment therefor;
b) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section II.A.4. hereof;
c) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; PROVIDED
that, in any such case, the cash or other consideration is to be
delivered to CUSTODIAN;
d) To the issuer thereof, or its agent, for transfer into the name of
1ST ATLANTIC or into the name of any nominee or nominees of
CUSTODIAN; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; PROVIDED that, in any such case,
the new securities are to be delivered to CUSTODIAN;
e) Upon the sale of such securities for the account of 1ST ATLANTIC,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom;
f) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or
pursuant to any deposit agreement; PROVIDED that, in any such
case, the new securities and cash, if any, are to be delivered to
CUSTODIAN;
g) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; PROVIDED that, in
any such case, the new securities and cash, if any, are to be
delivered to CUSTODIAN;
h) For delivery in connection with any loans of securities made by
1ST ATLANTIC, BUT ONLY against receipt of adequate collateral as
the Parties may mutually agree in writing, which collateral may be
in the form of cash or obligations issued by the United States
government, its agencies or instrumentalities;
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<PAGE>
i) For delivery as security in connection with any borrowings by 1ST
requiring a pledge of assets by 1ST ATLANTIC, BUT ONLY against
receipt of amounts borrowed;
j) For delivery in accordance with the provisions of any agreement
among 1ST ATLANTIC, CUSTODIAN and a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by 1ST ATLANTIC;
k) Upon receipt of Proper Instructions from 1ST ATLANTIC to the
extent 1ST ATLANTIC substitutes securities or other qualified
investments of equal or greater value, or without such
substitution, to the extent the aggregate value of the qualified
investments held hereunder exceeds the required reserves.
l) For any other proper corporate purpose, BUT ONLY upon receipt of,
in addition to Proper Instructions from 1ST ATLANTIC, a certified
copy of a resolution of the Board of Directors or of the Executive
Committee of the Board signed by an officer of 1ST ATLANTIC and
certified by the Secretary or an Assistant Secretary, specifying
the securities of 1ST ATLANTIC to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such
purpose to be a proper purpose, and naming the person or persons
to whom delivery of such securities shall be made.
In delivering any securities pursuant to this Section, CUSTODIAN shall
credit to the account of 1ST ATLANTIC the cash or other property
received therefor, except to the extent that CUSTODIAN may be instructed
otherwise by certified resolution meeting the requirements of paragraph
(l) of this Section.
3. REGISTRATION OF SECURITIES. Securities held by CUSTODIAN (other
than bearer securities) shall be registered in the name of 1ST ATLANTIC or in
the name of any nominee of 1ST ATLANTIC or of any nominee of CUSTODIAN that
1ST ATLANTIC acknowledges in writing to be acceptable. CUSTODIAN shall clearly
note on its records "1ST ATLANTIC" for each security of 1ST ATLANTIC it holds.
All securities accepted by CUSTODIAN on behalf of 1ST ATLANTIC under the terms
of this Agreement shall be in "street name" or other good delivery form.
4
<PAGE>
4. DEPOSIT OF SECURITIES IN SECURITIES SYSTEMS. CUSTODIAN may deposit
and/or maintain securities owned by 1ST ATLANTIC in a Securities System,
subject to the following provisions:
a) CUSTODIAN may keep securities of 1ST ATLANTIC in a Securities
System provided that such securities are represented in an account
("Account") of CUSTODIAN in the Securities System which shall not
include any assets of CUSTODIAN other than assets held as a
fiduciary, custodian or otherwise for customers;
b) The records of CUSTODIAN with respect to securities of 1ST
ATLANTIC that are maintained in a Securities System shall identify
by book-entry those securities belonging to 1ST ATLANTIC;
c) CUSTODIAN shall pay for securities purchased for the account of
1ST ATLANTIC upon (i) receipt of written or electronically
accessible advice from the Securities System that such securities
have been transferred to the Account, and (ii) the making of an
entry on the records of CUSTODIAN to reflect such payment and
transfer for the account of 1ST ATLANTIC. CUSTODIAN shall transfer
securities sold for the account of 1ST ATLANTIC upon (i) receipt
of written or electronically accessible advice from the Securities
System that payment for such securities has been transferred to
the Account, and (ii) the making of an entry on the records of
CUSTODIAN to reflect such transfer and payment for the account of
1ST ATLANTIC. Copies of all advices from the Securities System of
transfers of securities for the account of 1ST ATLANTIC shall
identify 1ST ATLANTIC, be maintained for 1ST ATLANTIC by CUSTODIAN
and be provided to 1ST ATLANTIC at its request. Upon request,
CUSTODIAN shall furnish 1ST ATLANTIC confirmation of each transfer
to or from the account of 1ST ATLANTIC in the form of a written
advice or notice and shall furnish to 1ST ATLANTIC copies of daily
transaction sheets reflecting each day's transactions in the
Securities System for the account of 1ST ATLANTIC. CUSTODIAN shall
also comply with all requirements of Rule 17f-4 under the 1940
Act;
d) CUSTODIAN shall provide 1ST ATLANTIC with any report obtained by
CUSTODIAN on the Securities System's accounting system, internal
accounting controls and procedures for safeguarding securities
deposited in the Securities System. CUSTODIAN shall send to 1ST
ATLANTIC such reports automatically whenever there is a material
change in any such systems;
e) Notwithstanding any other provision of this Agreement, CUSTODIAN
shall be liable to 1ST ATLANTIC for any loss or damage resulting
from use of the Securities System by reason of any negligence,
misfeasance or misconduct of CUSTODIAN or any of its agents or of
any of its or their employees or from failure of CUSTODIAN or any
5
<PAGE>
such agent to use reasonable efforts to enforce such rights as it
may have against the Securities System or any guarantee or
insurance fund; at the election of 1ST ATLANTIC, it shall be
entitled to be subrogated to the rights of CUSTODIAN or any agent
with respect to any claim against the Securities System or any
other person or fund which CUSTODIAN or agent may have as a
consequence of any such loss or damage if and to the extent that
1ST ATLANTIC has not been made whole for any such loss or damage.
B. DUTIES WITH RESPECT TO CASH AND PAYMENT OF MONIES
1. BANK ACCOUNTS
CUSTODIAN shall open and maintain in the name of CUSTODIAN a separate
bank account or accounts in banks or trust companies in the United States in
the name of 1ST ATLANTIC, subject only to draft or order by CUSTODIAN acting
pursuant to the terms of this Agreement, and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from or
for the account of 1ST ATLANTIC. Funds held by CUSTODIAN for 1ST ATLANTIC may
be deposited by it to its credit as CUSTODIAN in such banks or trust companies
(including, without limitation, affiliates of CUSTODIAN) as it may in its
discretion deem necessary or desirable; PROVIDED, however, that every such
bank or trust company shall be qualified to act as a custodian under Section
26(a) of the 1940 Act and that each such bank or trust company and funds to be
deposited with each such bank or trust company shall be approved by vote of a
majority of the Board of Directors of 1ST ATLANTIC. Such funds shall be
deposited by CUSTODIAN in its capacity as CUSTODIAN and shall be withdrawable
by CUSTODIAN only in that capacity; PROVIDED, however that depositing such
funds shall not relieve CUSTODIAN of its responsibilities or liabilities
hereunder.
2. PAYMENT OF MONIES
Upon receipt of Proper Instructions from 1ST ATLANTIC, CUSTODIAN
shall pay out monies in the following cases only:
a) Upon the purchase of securities for the account of 1ST ATLANTIC
but only (i) against the delivery of such securities to CUSTODIAN
registered in the manner required for such instruments to be held
pursuant to this Agreement or in proper form for transfer; or (ii)
in the case of a purchase effected through a Securities System, in
accordance with the conditions set forth in Section II.A.4.
hereof;
b) In connection with conversion, exchange or surrender of securities
owned by 1ST ATLANTIC;
c) For the redemption or repurchase of Certificates issued by 1ST
ATLANTIC;
6
<PAGE>
d) For the payment of any expense or liability incurred by 1ST
ATLANTIC, including but not limited to the following payments for
the account of 1ST ATLANTIC: interest, taxes, management,
accounting and legal fees, and operating expenses of 1ST ATLANTIC;
and
e) Upon withdrawal of monies to the extent the aggregate value of
qualified investments held hereunder exceed the required reserves;
f) For any other proper purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions from 1ST ATLANTIC on behalf of 1ST
ATLANTIC, a certified copy of a resolution of the Board of
Directors or of the Executive Committee of 1ST ATLANTIC signed by
an officer of 1ST ATLANTIC and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
C. DUTIES OF CUSTODIAN WITH RESPECT TO REAL ESTATE AND REAL ESTATE RELATED
INVESTMENTS
1. MORTGAGES, TRUST DEEDS, ETC.
Any mortgage, trust deed, or other security instrument (collectively,
"Instrument") evidencing a secured interest in real estate and/or improvement
thereon (collectively, "Property") that 1ST ATLANTIC delivers to CUSTODIAN
pursuant to this Agreement shall be accompanied by the following additional
documents:
a) Any note or bond secured thereby, duly endorsed.
b) If such Instrument does not secure a note or bond, an assignment
of the Instrument, with the name of the assignee left blank.
c) An attorney's opinion as to title, or a certificate or policy
issued by a title insurance company, stating or showing as of the
date thereof such Instrument to be a first lien upon the real
estate described therein.
d) A certificate of insurance adequately protecting against any
reasonably foreseeable hazard, showing the amount of such
insurance, the hazards insured against, and the expiration date or
dates of such policy.
e) Whenever the delivery of any Instrument to the CUSTODIAN is
required by the terms of this Agreement and such Instrument is on
file pursuant to or is required to be filed with a public officer
by the statutes of any state, a copy of such Instrument, duly
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certified by any officer of 1ST ATLANTIC to be a true copy
thereof, may be delivered in lieu of such original Instrument.
For purposes of this Section II.C.1., an Instrument shall not be deemed
to be other than a first lien upon the property covered thereby by reason of
the existence of taxes or assessments that are not delinquent, instruments
creating or reserving mineral, oil, or timber rights, rights of way, joint
driveways, sewer rights, rights in walls, nor by reason of building
restrictions or other restrictive covenants, nor when such real estate is
subject to lease in whole or in part whereby rents or profits are reserved to
the owner.
2. MODIFICATIONS TO INSTRUMENTS
1ST ATLANTIC and the owner of any real estate subject to any Instrument
being maintained with CUSTODIAN may at any time before sale at foreclosure of
the real estate described therein, whether such Instrument be in default or
otherwise, by agreement in writing, change or modify the terms thereof in
respect to, among other things, the rate of interest, the time or manner of
the payment of principal or interest, whether in default or thereafter
becoming due, and the amount of principal. A copy of any such agreement shall
be filed forthwith with the CUSTODIAN.
3. TAXES
1ST ATLANTIC agrees to pay and discharge any and all taxes, assessments
and other governmental charges (collectively, "Taxes") levied upon or against
any real estate covered by any Instrument maintained with CUSTODIAN, if not
paid by the person or corporation under the primary duty of paying the same,
within six months after the same become delinquent. If any Taxes are not paid
within six months after they become delinquent, CUSTODIAN is hereby authorized
to pay and discharge the same; PROVIDED, however, if 1ST ATLANTIC shall notify
CUSTODIAN in writing that it or the owner of the real estate involved desires
to contest the validity of the Tax or the amount thereof, CUSTODIAN shall not
pay and discharge the same until the validity or amount thereof has been
determined by final judgment of a court of competent jurisdiction.
4. POSSESSION; SALE OR EXCHANGE OF PROPERTY
1ST ATLANTIC shall be entitled to the possession of any Property
maintained with CUSTODIAN, with full right to manage, repair, improve and
lease the same and to receive and retain the rents and income therefrom. In
the event 1ST ATLANTIC desires to sell any Property maintained with CUSTODIAN
hereunder, or exchange the same for any other qualified investment maintained
by CUSTODIAN, CUSTODIAN shall execute any instrument or instruments necessary
or appropriate to consummate such sale or exchange, and shall forward the same
to the person or persons that 1ST ATLANTIC shall designate; PROVIDED, however,
that if, as a result of the sale or exchange, the amount being maintained with
CUSTODIAN would fall below the amount of the required reserves, ATLANTIC
shall, before or at the time such sale or exchange is consummated, deliver,
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<PAGE>
transfer or convey to CUSTODIAN additional assets so that upon the
consummation of the sale or exchange the amount being maintained with
CUSTODIAN shall equals or exceeds the required reserves.
D. DUTIES OF CUSTODIAN WITH RESPECT TO OTHER ASSETS
Unless and until CUSTODIAN receives contrary Proper Instructions from
1ST ATLANTIC, CUSTODIAN shall:
1. Detach from and present at the proper time for payment all coupons
and other income items that require presentation and that are held by
CUSTODIAN hereunder. All items of income from dividends and interest on
securities that are depository eligible (i.e., depositable with
Depository Trust Company and/or Federal Reserve Book Entry) shall be
credited to 1ST ATLANTIC's account and made available in federal funds
on the date succeeding the date such items are payable without regard to
actual receipt by CUSTODIAN; income on non-eligible securities,
physically held in CUSTODIAN's vault, shall be credited to 1ST
ATLANTIC's account upon receipt of funds from the paying agent.
CUSTODIAN, at its own expense, shall undertake such procedures as may be
necessary to collect such items of income as are not actually received
by CUSTODIAN and the credit of such items to 1ST ATLANTIC's account
shall be subject to final payment; provided, however, that 1ST ATLANTIC
shall collect all interest and principal payments made on mortgages and
real estate properties.
2. Present for payment all securities which may mature or be called,
redeemed, retired or which may otherwise become payable and credit the
proceeds thereof, and any other principal payments, to the account of
1ST ATLANTIC and furnish 1ST ATLANTIC with a description of the source
of each such payment. 1ST ATLANTIC shall be credited, and federal funds
made available, on the maturity date of short-term securities
customarily settled on a "same-day" basis. Redemptions shall be credited
to the account of 1ST ATLANTIC upon collection and federal funds made
available on the next business day.
E. PROTECTION AGAINST CLAIMS BY CUSTODIAN'S CREDITORS
CUSTODIAN shall take all reasonable and appropriate steps to help
protect 1ST ATLANTIC's assets against claims by CUSTODIAN's creditors in the
event of CUSTODIAN's insolvency, bankruptcy or similar circumstances,
including the daily investment of cash advances in temporary overnight
investments, as directed by 1ST ATLANTIC's investment adviser.
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III. PROCEDURES IN CASE OF DEFAULT BY 1ST ATLANTIC
A. COLLATERAL SECURITY
The assets maintained with CUSTODIAN shall be held, subject to 1ST
ATLANTIC's right of withdrawal, by CUSTODIAN so long as any liability exists
upon any of the Certificates secured thereby. Such assets shall be deemed
delivered to CUSTODIAN as collateral security for the payment by 1ST ATLANTIC
to Certificate holders of cash payments due under the terms and conditions of
such Certificates.
B. CURING DEFAULTS
If 1ST ATLANTIC fails to make any cash payment provided in any
outstanding Certificate, CUSTODIAN shall, upon the written request of the
holder, and after giving thirty days' written notice of its intention to do
so, use so much of the assets maintained with it as is necessary to pay and
discharge the liability if not cured by the end of the thirty day period. To
that end, CUSTODIAN shall have the right to sell any asset then held by it and
not due at probate sale, or at public auction, giving 1 ATLANTIC at least ten
days' written notice of the time, place, and manner of sale; to collect any
asset then due or which becomes due during the continuance of said default,
with or without suit, and to foreclose any asset then subject to foreclosure
in CUSTODIAN's name or in that of 1ST ATLANTIC, giving to 1ST ATLANTIC at
least five days' written notice of the time and place of the sale. CUSTODIAN
shall apply the proceeds realized, or so much as shall be necessary, to the
discharge of the liability in default. If 1ST ATLANTIC in good faith disputes
the right of any person under any Certificate to receive it or the amount
claimed and so notifies CUSTODIAN in writing thereof, no default, for the
purposes of this section, shall be deemed to arise until such dispute is
settled between the parties thereto or is determined by final judgment of a
court of competent jurisdiction.
C. NOTIFICATION
If CUSTODIAN shall determine to apply any asset maintained with it to
the discharge of a default by the collection, sale or foreclosure of the same,
it shall forthwith notify 1ST ATLANTIC in writing of its intention so to do,
identifying the asset or assets, and shall thereafter be entitled to all then
unpaid interest, dividends or other income due or to become due thereon,
PROVIDED that if any of said assets be not sold, collected or foreclosed, 1ST
ATLANTIC, upon the discharge of the default, shall become entitled to any such
interest, dividends or other income not applied in the discharge of such
default.
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D. ATTORNEY-IN-FACT
For the purpose of realizing the amount necessary to discharge the
default, 1ST ATLANTIC does hereby irrevocably make, constitute and appoint
CUSTODIAN its attorney-in-fact in respect to assets maintained with it to
complete and to make or execute any assignments, transfers, endorsements,
cancellations, satisfactions, collections, and settlements, in the name of 1ST
ATLANTIC or otherwise, and to do any and all acts consistent with CUSTODIAN's
obligations under this Agreement.
E. BANKRUPTCY
Should 1ST ATLANTIC be adjudged a bankrupt under the Federal Bankruptcy
Act or insolvent by final judgment or decree of any court of competent
jurisdiction, and a trustee in bankruptcy or a general receiver be appointed,
CUSTODIAN shall, in and when authorized by an order of the court, surrender
and deliver all assets then maintained with it hereunder, subject to any legal
claims which it may have thereon for compensation for services or for
reimbursement for unpaid expenses or advancements, to such trustee or
receiver, and shall thereupon be relieved of any and all further duties in
respect thereto; PROVIDED, however, that such surrender and delivery shall be
without prejudice to any rights which Certificate holders may have in said
assets to have them applied according to the usual rules and principles of law
applicable to collateral security.
IV. REPORTS AND INSPECTIONS
A. BY AND OF CUSTODIAN
1. ACTIVITY REPORTS
CUSTODIAN shall furnish to 1ST ATLANTIC daily activities advices
including projected settlement reports as well as fail control reports and
trades processed reports. CUSTODIAN shall furnish a monthly statement of
account reflecting all activity during the previous month and a priced asset
listing of all assets held at the end of the month. CUSTODIAN will also
furnish an inventory of assets at such reasonable times as requested by 1ST
ATLANTIC.
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2. CONTROL ACCOUNTS
CUSTODIAN shall maintain control accounts for the assets of 1ST ATLANTIC
and shall update the control records of these accounts for all securities
payments.
3. INVENTORY AND INSPECTION OF ASSETS
Upon 1ST ATLANTIC's written request, CUSTODIAN shall furnish 1ST
ATLANTIC or 1ST ATLANTIC's public accountants or other examiners with a
certified inventory of all assets then held hereunder at CUSTODIAN's premises
or on its agents, premises and/or make assets available for inspection in
connection with 1ST ATLANTIC's annual audits or other periodic examinations,
other than assets that are placed with a Securities System as permitted
hereby.
In addition, CUSTODIAN shall provide 1ST ATLANTIC at such times as 1ST
ATLANTIC may reasonably request, with reports by CUSTODIAN or by independent
public accountants on CUSTODIAN's own accounting system, internal accounting
control and procedures for safeguarding securities, including securities
deposited and/or maintained in a Securities System, relating to the services
provided by CUSTODIAN under this Agreement. Such reports shall be of
sufficient scope and in sufficient detail as may reasonably be required by 1ST
ATLANTIC to provide reasonable assurance that any material inadequacies would
be disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state. CUSTODIAN shall provide such reports automatically
whenever there is a material change in any such system.
4. INSURANCE; FINANCIAL CONDITION
CUSTODIAN shall furnish to 1ST ATLANTIC upon request information
concerning the insurance or bonding coverage applicable to 1ST ATLANTIC's
assets. In addition, CUSTODIAN will promptly inform 1ST ATLANTIC in the event
of any material adverse change in its financial condition or any loss of the
assets of 1ST ATLANTIC.
5. RECORDS AND INSPECTION OF RECORDS
CUSTODIAN shall create and maintain all records relating to its
activities and obligations under this Agreement in such manner as will meet
the obligations of 1ST ATLANTIC under 1940 Act, with particular attention to
Section 31 thereof and the rules thereunder. All such records shall be the
property of 1ST ATLANTIC and shall at all times during the regular business
hours of CUSTODIAN be open for inspection by duly authorized officers,
employees or agents of 1ST ATLANTIC and employees and agents of the SEC.
6. MORTGAGE-RELATED DOCUMENTS
1st ATLANTIC may from time to time request access to mortgage-related
documents on deposit with CUSTODIAN and may temporarily borrow them from
CUSTODIAN for copying, examination, title searches and similar purposes. 1ST
ATLANTIC shall leave written evidence of such borrowing with CUSTODIAN, signed
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by two officers of 1ST ATLANTIC, and shall promptly return such documents when
it has finished using them.
B. BY AND OF 1ST ATLANTIC
1. MONTHLY REPORTS
1ST ATLANTIC shall make monthly reports to CUSTODIAN stating, as of the
last day of the preceding month:
a) the aggregate value of qualified investments on deposit with
CUSTODIAN, and
b) the aggregate amount of reserves required to be maintained in
respect of all outstanding Certificates.
The first monthly statement every year shall be made and certified by an
independent public accountant and the others shall be verified by an
authorized person from 1ST ATLANTIC. CUSTODIAN may conclusively rely upon such
statements, unless it has knowledge or notice that such statements are not
true.
CUSTODIAN shall promptly examine the monthly reports submitted by 1ST
ATLANTIC and compare the amount of required reserves to the value of assets
actually on deposit with it. If it appears that the amount of assets on
deposit with CUSTODIAN are less than required hereunder, it shall within 30
days of ascertaining such fact notify 1ST ATLANTIC and the SEC in writing of
such deficiency.
2. CERTIFICATIONS
1st ATLANTIC shall, from time to time, provide CUSTODIAN with written
certifications of such information and data as CUSTODIAN shall reasonably
request to permit CUSTODIAN to discharge its duties and responsibilities under
this Agreement, which information may include, without limitation, the reports
specified in Section IV.B.1. above. CUSTODIAN shall be entitled to rely on the
information and data set out in the written certifications provided by 1st
ATLANTIC until such time as 1st ATLANTIC files a subsequent certification with
CUSTODIAN, unless it has knowledge or notice that such certification is not
true.
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V. PROXIES
CUSTODIAN shall deliver immediately to 1ST ATLANTIC all proxies, notices
and communications relating to securities held by it hereunder, which it may
receive from sources other than 1ST ATLANTIC. Unless otherwise directed in
writing by an Authorized Person of 1ST ATLANTIC, CUSTODIAN shall cause such
proxies to be executed in blank by the registered holder of such securities,
if the securities are registered in the name of CUSTODIAN or its nominee,
without indicating the manner in which such proxies are to be voted.
1ST ATLANTIC hereby authorizes CUSTODIAN to provide 1ST ATLANTIC's name,
address, and share position to requesting companies whose securities 1ST
ATLANTIC owns.
VI. CUSTODIAN FEES
1ST ATLANTIC shall pay to CUSTODIAN the fees and charges set forth in
Exhibit A of this Agreement, as amended in writing from time to time by the
Parties. CUSTODIAN agrees that it shall have no lien at any time upon any
assets held by it pursuant to this Agreement.
VII. STANDARD OF CARE
CUSTODIAN shall not be liable on account of any action or omission in
connection with the investments of 1ST ATLANTIC, except for CUSTODIAN's own
negligence or willful misconduct, PROVIDED that in any and every case where
CUSTODIAN makes payment for the purchase of securities for the account of 1ST
ATLANTIC in advance of receipt of the securities purchased in the absence of
specific written instructions from 1ST ATLANTIC to so pay in advance,
CUSTODIAN shall be absolutely liable to 1ST ATLANTIC for such securities to
the same extent as if the securities had been received by CUSTODIAN.
Except as may arise from CUSTODIAN's own negligence or willful
misconduct or that of its agents or employees, or as otherwise provided in
this Agreement, CUSTODIAN shall be without liability to 1ST ATLANTIC for any
loss, liability, claim or expense resulting from or caused by: (i) events or
circumstances beyond the reasonable control of CUSTODIAN or Securities System
or any agent or nominee of any of the foregoing, including, without
limitation, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions,
acts of war or terrorism, riots, revolutions, work stoppages, natural
disasters or other similar events or acts; (ii) errors by 1ST ATLANTIC or its
investment adviser in their instructions to CUSTODIAN provided such
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instructions have been in accordance with this Agreement; (iii) the insolvency
of or acts or omissions by a Securities System, except as provided in Section
II.A.4. hereof; (iv) delays or inability to perform its duties due to any
disorder in market infrastructure with respect to any particular security or
Securities System, except as provided pursuant to Sections II.A.4. hereof; and
(v) compliance with any provision of any present or future law or regulation
or order of the United States of America, or any state thereof, or any other
country, or political subdivision thereof or of any court of competent
jurisdiction.
VIII. NAMES AND SIGNATURES OF AUTHORIZED PERSONS
A. AUTHORIZED PERSONS
1ST ATLANTIC shall, from time to time, provide CUSTODIAN with a
certified list designating the persons authorized to act hereunder for and on
behalf of 1ST ATLANTIC along with specimen signatures and the title of said
persons (each, an "Authorized Person"). CUSTODIAN is authorized to rely and
act upon Proper Instructions signed by such Authorized Person or Persons in
the form described in paragraph B, as were so designated in the most recent
certified list from 1ST ATLANTIC which has been delivered to CUSTODIAN and
received by it.
B. PROPER INSTRUCTIONS
"Proper Instructions" as used throughout this Agreement means a writing
signed or initialed by one or more Authorized Person or Persons as the Board
of Directors of 1ST ATLANTIC shall have from time to time authorized. Each
such writing shall set forth the specific transaction or type of transaction
involved, including a specific statement of the purpose for which such action
is requested. Oral instructions will be considered Proper Instructions if
CUSTODIAN reasonably believes them to have been given by a person authorized
to give such instructions with respect to the transaction involved; PROVIDED,
however, that in no event may CUSTODIAN rely on oral instructions where the
speaker fails to identify him or herself using the pre-established
identification code, which the Parties shall establish for this purpose prior
to CUSTODIAN's reliance on any oral instruction. 1ST ATLANTIC shall cause all
oral instructions to be confirmed in writing by either telecopier or telex.
Upon receipt of a certificate of the Secretary or an Assistant Secretary as to
the authorization by the Board of Directors of 1ST ATLANTIC, accompanied by a
detailed description of procedures approved by the Board of Directors, Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board of Directors
and CUSTODIAN are satisfied that such procedures afford adequate safeguards
for 1ST ATLANTIC's assets.
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IX. TERM AND TERMINATION OF AGREEMENT
The term of the Agreement shall begin on __________, 1998, and shall
continue until terminated in accordance with the terms thereof, PROVIDED that
this Agreement shall not become effective or continue in effect unless
initially approved or continued at least annually, as the case may be, by the
vote of a majority of directors of 1ST ATLANTIC, including a majority of those
directors who are not parties to this Agreement or "interested persons" of any
party to the Agreement, within the meaning of the 1940 Act. 1ST ATLANTIC may
terminate this Agreement at any time by written notice thereof and appoint a
successor CUSTODIAN. The written notice of termination must be delivered
together with a copy of the resolution of 1ST ATLANTIC's Board of Directors
authorizing such termination, and certified by the Secretary and Assistant
Secretary of 1ST ATLANTIC, by registered mail to CUSTODIAN.
CUSTODIAN may resign as custodian by giving 1ST ATLANTIC sixty days'
written notice of such termination by registered mail addressed to 1ST
ATLANTIC at its principal place of business. 1ST ATLANTIC shall use its best
efforts to appoint a successor CUSTODIAN within six months of receiving the
notice of resignation. If 1ST ATLANTIC fails to so appoint a successor,
CUSTODIAN may petition any competent court for the appointment of a successor
custodian. If the appointee and 1ST ATLANTIC fail to agree upon the
compensation to be paid to the appointee, the court may fix the amount.
No substitution or resignation shall become effective until a successor
CUSTODIAN has been appointed and has accepted such appointment. Upon service
of written notice of such appointment and acceptance, CUSTODIAN shall deliver
all securities and other assets belonging to 1ST ATLANTIC held by it to the
successor custodian.
Any successor CUSTODIAN appointed hereunder shall meet the
qualifications of Section 26(a)(1) of the 1940 Act, as administered by the
SEC.
Upon termination hereof, 1ST ATLANTIC shall pay to CUSTODIAN such
compensation as may be due as of the date of such termination.
X. SUCCESSOR CUSTODIAN
A. AUTOMATIC SUCCESSION
Any bank or trust company into which CUSTODIAN or any successor
custodian may be merged or converted or with which it or any successor
custodian may be consolidated or any bank or trust company resulting from any
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merger, conversion or consolidation to which CUSTODIAN or any successor
custodian shall be a party or any bank or trust company succeeding to the
business of CUSTODIAN or any successor custodian, shall be substituted as
successor custodian under this Agreement without the execution of any
instrument or any further act on the part of 1ST ATLANTIC or CUSTODIAN or any
successor custodian.
B. POWERS
Any such successor custodian shall have all powers, duties, and
obligations of the preceding CUSTODIAN under this Agreement and any amendments
thereof. CUSTODIAN shall, upon termination, deliver to such successor
custodian at the office of CUSTODIAN, duly endorsed and in the form for
transfer, all securities and other assets of 1ST ATLANTIC then held by it or
its agents, and shall transfer to an account of the successor custodian all of
the securities of 1ST ATLANTIC held in a Securities System.
XI. DISCLOSURE OF INFORMATION
1ST ATLANTIC and CUSTODIAN agree that the information communicated by
either Party to this Agreement to the other will be regarded as having been
disclosed in confidence and that neither Party will use such information
except in rendering the services covered in this Agreement and except as may
be disclosed pursuant to an inspection of documents and/or securities or
response to a request for information made pursuant to an order of a court of
competent jurisdiction or made by a governmental agency.
XII. CONSTRUCTION OF AGREEMENT
CUSTODIAN and 1ST ATLANTIC acknowledge that they have read this
Agreement, including Exhibit A, physically attached and made a part hereof,
and agree that this Agreement constitutes the entire understanding, agreement
and contract between them and supersedes any and all prior or contemporaneous
oral or written communications or representations with respect to their rights
and obligations and the subject matter hereof, and any and all such prior or
contemporaneous oral or written communications or representations are merged
herein. This Agreement shall not be modified, interpreted, supplemented or
amended or in any way revised or altered, except by an instrument in writing
signed by the duly authorized officers of the parties hereto. It is understood
that this Agreement shall be governed by and construed in accordance with the
laws of the State of Maryland.
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XIII. NOTICES
All notices, requests, or other communications ("notices") herein
required or provided for hereunder shall be in writing and shall be deemed to
have been duly given four days after mailing, if mailed by United States
certified or registered mail, postage prepaid, return receipt requested, to
the Parties or their representatives at the following addresses:
For CUSTODIAN:
Attn:
For 1ST ATLANTIC: 1ST ATLANTIC GUARANTY CORPORATION
4847 Cordell Avenue, Suite 200
Bethesda, MD 20814
Attn: John J. Lawbaugh
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed on their behalf by their duly authorized officers named below as of
the day and year first above written.
ATTEST:
_____________________________ By_____________________________
Title__________________________
ATTEST: 1ST ATLANTIC GUARANTY CORPORATION
_____________________________ By_____________________________
Title__________________________
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EXHIBIT A
SCHEDULE OF FEES
[To be negotiated, from time to time.]
19
EXHIBIT 10(c)(1)
SUBSCRIPTION AGREEMENT
This Subscription Agreement ("Agreement") between 1st Atlantic Guaranty
Corporation ("Company"), a corporation organized under the laws of the State
of Maryland, and John J. Lawbaugh ("undersigned"), an individual residing at
22200 Whites Ferry Road, Dickerson Maryland 20842 (collectively, "Parties").
In consideration of the mutual promises set forth herein, the Parties
agree as follows:
1. The Company agrees to sell to the undersigned, and the undersigned
agrees to purchase, 7,500,000 shares of common stock of the Company
("Shares") at a price of two and one-half cents ($.025) per Share, for a
total of $187,500 for all such Shares to be paid for in cash, on a date
to be specified by the Company, prior to the effective date of the
Company's Form S-1 Registration Statement under the Securities Act of
1933 ("1933 Act").
2. The undersigned represents and warrants to the Company that the Shares
are being acquired solely for investment purposes and not with a view
towards resale or disposition of all or any part thereof, and that he
has no present plan or intention to sell or otherwise dispose of the
Shares or any part thereof.
3. The undersigned represents and warrants that he has such knowledge and
experience of financial and business matters to evaluate the merits and
risks of the prospective investment and to make an informed decision.
4. The undersigned acknowledges that the Shares have not been registered
under any state or federal securities laws and that, therefore, the
Company is relying on certain exemptions therein from such registration
requirements, including exemptions dependent on the intent of the
undersigned in acquiring the Shares.
5. The undersigned represents and warrants that the sale of any of the
Shares will only be made directly to the Company and not by a transfer
to any third party.
6. The Parties agree that the Company is not obligated to repurchase any
Shares from the undersigned to the extent that the Company, in its sole
discretion, determines that such sale could have a material adverse
effect on the Company, either in terms of maintaining the minimum level
of capital or reserves required by law, or otherwise.
7. The undersigned agrees not to otherwise dispose of the Shares or any
part thereof unless a registration statement with respect to such Shares
is then in effect under the 1933 Act and under any applicable state
securities laws or unless the undersigned shall have delivered to the
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Company an opinion of counsel, in form and substance acceptable to the
Company, that no such registration is necessary.
8. The undersigned acknowledges that he is aware that in issuing and
selling these Shares, the Company is relying upon the representations,
warranties and acknowledgments contained herein.
IN WITNESS WHEREOF, the Parties hereto have executed this agreement on this
27th day of August, 1998.
/s/JOHN J. LAWBAUGH
-------------------
John J. Lawbaugh
1ST ATLANTIC GUARANTY CORPORATION
BY: /s/BRIAN P. SMITH
-----------------
2
EXHIBIT 10(c)(2)
SUBSCRIPTION AGREEMENT
This Subscription Agreement ("Agreement") between 1st Atlantic Guaranty
Corporation ("Company"), a corporation organized under the laws of the State
of Maryland, and Brian P. Smith ("undersigned"), an individual residing at
20720 Beallsville Road, Dickerson Maryland 20842 (collectively, "Parties").
In consideration of the mutual promises set forth herein, the Parties
agree as follows:
1. The Company agrees to sell to the undersigned, and the undersigned
agrees to purchase, 2,500,000 shares of common stock of the Company
("Shares") at a price of two and one-half cents ($.025) per Share, for a
total of $62,500 for all such Shares to be paid for in cash, on a date
to be specified by the Company, prior to the effective date of the
Company's Form S-1 Registration Statement under the Securities Act of
1933 ("1933 Act").
2. The undersigned represents and warrants to the Company that the Shares
are being acquired solely for investment purposes and not with a view
towards resale or disposition of all or any part thereof, and that he
has no present plan or intention to sell or otherwise dispose of the
Shares or any part thereof.
3. The undersigned represents and warrants that he has such knowledge and
experience of financial and business matters to evaluate the merits and
risks of the prospective investment and to make an informed decision.
4. The undersigned acknowledges that the Shares have not been registered
under any state or federal securities laws and that, therefore, the
Company is relying on certain exemptions therein from such registration
requirements, including exemptions dependent on the intent of the
undersigned in acquiring the Shares.
5. The undersigned represents and warrants that the sale of any of the
Shares will only be made directly to the Company and not by a transfer
to any third party.
6. The Parties agree that the Company is not obligated to repurchase any
Shares from the undersigned to the extent that the Company, in its sole
discretion, determines that such sale could have a material adverse
effect on the Company, either in terms of maintaining the minimum level
of capital or reserves required by law, or otherwise.
7. The undersigned agrees not to otherwise dispose of the Shares or any
part thereof unless a registration statement with respect to such Shares
is then in effect under the 1933 Act and under any applicable state
securities laws or unless the undersigned shall have delivered to the
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Company an opinion of counsel, in form and substance acceptable to the
Company, that no such registration is necessary.
8. The undersigned acknowledges that he is aware that in issuing and
selling these Shares, the Company is relying upon the representations,
warranties and acknowledgments contained herein.
IN WITNESS WHEREOF, the Parties hereto have executed this agreement on this
27th day of August, 1998.
/s/BRIAN P. SMITH
-----------------
Brian P. Smith
1ST ATLANTIC GUARANTY CORPORATION
BY: /s/JOHN J. LAWBAUGH
-------------------
2
EXHIBIT 24
POWER OF ATTORNEY
STATE OF:
COUNTY OF:
Know all persons by these presents that the undersigned Director of 1st
Atlantic Guaranty Corporation, a Maryland corporation ("Company"), constitutes
and appoints John J. Lawbaugh and Brian P. Smith, and each of them, as my true
and lawful attorney-in-fact and agent, with full power of substitution, for
me, and in my name, place and stead, in any and all capacities to sign
registration statements of the Company on Form S-1, or any successor form of
registration statement of the Securities and Exchange Commission, filed under
the Securities Act of 1933, and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or appropriate in
connection therewith, and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or
his substitute, may lawfully do or cause to be done by virtue hereof.
/s/DONALD N. BRIGGS 3/12/98
----------------------------- -----------------------------
Name: Donald N. Briggs Date
Director
On this 12th day of March 1998, before me E. Jerlean Eader, the undersigned
Notary Public, personally appeared Donald N. Briggs, known to me to be the
person whose name is subscribed to the above Power of Attorney, and
acknowledged that s/he executed it.
WITNESS my hand and official seal
/s/E. JERLEAN EADER
-------------------------
Notary Public
Montgomery County, MD
My Commission Expires 7/1/2000
<PAGE>
POWER OF ATTORNEY
STATE OF:
COUNTY OF:
Know all persons by these presents that the undersigned Director of 1st
Atlantic Guaranty Corporation, a Maryland corporation ("Company"), constitutes
and appoints John J. Lawbaugh and Brian P. Smith, and each of them, as my true
and lawful attorney-in-fact and agent, with full power of substitution, for
me, and in my name, place and stead, in any and all capacities to sign
registration statements of the Company on Form S-1, or any successor form of
registration statement of the Securities and Exchange Commission, filed under
the Securities Act of 1933, and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or appropriate in
connection therewith, and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or
his substitute, may lawfully do or cause to be done by virtue hereof.
/s/JAMES E. COLE August 31, 1998
----------------------------- -----------------------------
Name: James E. Cole Date
Director
On this 31st day of Auguest 1998, before me Janice L. Passero, the undersigned
Notary Public, personally appeared James E. Cole, known to me to be the person
whose name is subscribed to the above Power of Attorney, and acknowledged that
s/he executed it.
WITNESS my hand and official seal
/s/JANICE L. PASSERO
-------------------------
Notary Public
Anne Arundel County, MD
My Commission Expires April 1, 2002
<PAGE>
POWER OF ATTORNEY
STATE OF:
COUNTY OF:
Know all persons by these presents that the undersigned Director of 1st
Atlantic Guaranty Corporation, a Maryland corporation ("Company"), constitutes
and appoints John J. Lawbaugh and Brian P. Smith, and each of them, as my true
and lawful attorney-in-fact and agent, with full power of substitution, for
me, and in my name, place and stead, in any and all capacities to sign
registration statements of the Company on Form S-1, or any successor form of
registration statement of the Securities and Exchange Commission, filed under
the Securities Act of 1933, and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or appropriate in
connection therewith, and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or
his substitute, may lawfully do or cause to be done by virtue hereof.
/s/J. DONALD ELAM 3/12/98
----------------------------- -----------------------------
Name: J. Donald Elam Date
Director
On this 12th day of March 1998, before me E. Jerlean Eader, the undersigned
Notary Public, personally appeared J. Donald Elam, known to me to be the
person whose name is subscribed to the above Power of Attorney, and
acknowledged that s/he executed it.
WITNESS my hand and official seal
/s/E. JERLEAN EADER
-------------------------
Notary Public
Montgomery County, MD
My Commission Expires 7/1/2000
<PAGE>
POWER OF ATTORNEY
STATE OF:
COUNTY OF:
Know all persons by these presents that the undersigned Director of 1st
Atlantic Guaranty Corporation, a Maryland corporation ("Company"), constitutes
and appoints John J. Lawbaugh and Brian P. Smith, and each of them, as my true
and lawful attorney-in-fact and agent, with full power of substitution, for
me, and in my name, place and stead, in any and all capacities to sign
registration statements of the Company on Form S-1, or any successor form of
registration statement of the Securities and Exchange Commission, filed under
the Securities Act of 1933, and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or appropriate in
connection therewith, and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or
his substitute, may lawfully do or cause to be done by virtue hereof.
/s/NANCY L. HOPKINSON 3/8/98
----------------------------- -----------------------------
Name: Nancy L. Hopkinson Date
Director
On this 8th day of March 1998, before me Elizabeth D. Painter, the undersigned
Notary Public, personally appeared Nancy L. Hopkinson, known to me to be the
person whose name is subscribed to the above Power of Attorney, and
acknowledged that s/he executed it.
WITNESS my hand and official seal
/s/ELIZABETH D. PAINTER
-------------------------
Notary Public
Montgomery County, MD
My Commission Expires 4/1/98
<PAGE>
POWER OF ATTORNEY
STATE OF: DISTRICT OF COLUMBIA
COUNTY OF:
Know all persons by these presents that the undersigned Director of 1st
Atlantic Guaranty Corporation, a Maryland corporation ("Company"), constitutes
and appoints John J. Lawbaugh and Brian P. Smith, and each of them, as my true
and lawful attorney-in-fact and agent, with full power of substitution, for
me, and in my name, place and stead, in any and all capacities to sign
registration statements of the Company on Form S-1, or any successor form of
registration statement of the Securities and Exchange Commission, filed under
the Securities Act of 1933, and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or appropriate in
connection therewith, and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or
his substitute, may lawfully do or cause to be done by virtue hereof.
/s/BRIAN P. MURPHY March 10, 1998
----------------------------- -----------------------------
Name: Brian P. Murphy Date
Director
On this 10th day of March 1998, before me Jan E. Cartron, the undersigned
Notary Public, personally appeared Brian P. Murphy, known to me to be the
person whose name is subscribed to the above Power of Attorney, and
acknowledged that s/he executed it.
WITNESS my hand and official seal
/s/JAN E. CARTRON
-------------------------
Notary Public
District of Columbia
My Commission Expires
November 14, 2001
<PAGE>
POWER OF ATTORNEY
STATE OF:
COUNTY OF:
Know all persons by these presents that the undersigned Director of 1st
Atlantic Guaranty Corporation, a Maryland corporation ("Company"), constitutes
and appoints John J. Lawbaugh and Brian P. Smith, and each of them, as my true
and lawful attorney-in-fact and agent, with full power of substitution, for
me, and in my name, place and stead, in any and all capacities to sign
registration statements of the Company on Form S-1, or any successor form of
registration statement of the Securities and Exchange Commission, filed under
the Securities Act of 1933, and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or appropriate in
connection therewith, and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or
his substitute, may lawfully do or cause to be done by virtue hereof.
/s/GREGORY S. NICHOLS 3/12/98
----------------------------- -----------------------------
Name: Gregory S. Nichols Date
Director
On this 12th day of March 1998, before me E. Jerlean Eader, the undersigned
Notary Public, personally appeared Gregory Nichols, known to me to be the
person whose name is subscribed to the above Power of Attorney, and
acknowledged that s/he executed it.
WITNESS my hand and official seal
/s/E. JERLEAN EADER
-------------------------
Notary Public
Montgomery County, MD
My Commission Expires 7/1/2000
<PAGE>
POWER OF ATTORNEY
STATE OF:
COUNTY OF:
Know all persons by these presents that the undersigned Director of 1st
Atlantic Guaranty Corporation, a Maryland corporation ("Company"), constitutes
and appoints John J. Lawbaugh and Brian P. Smith, and each of them, as my true
and lawful attorney-in-fact and agent, with full power of substitution, for
me, and in my name, place and stead, in any and all capacities to sign
registration statements of the Company on Form S-1, or any successor form of
registration statement of the Securities and Exchange Commission, filed under
the Securities Act of 1933, and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or appropriate in
connection therewith, and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or
his substitute, may lawfully do or cause to be done by virtue hereof.
/s/WILLARD R. STINSON 8-31-98
----------------------------- -----------------------------
Name: Willard R. Stinson Date
Director
On this 31st day of August 1998, before me Karen J. Champagn, the undersigned
Notary Public, personally appeared Willard R. Stinson, known to me to be the
person whose name is subscribed to the above Power of Attorney, and
acknowledged that s/he executed it.
WITNESS my hand and official seal
/s/KAREN J. CHAMPAGN
-------------------------
Notary Public
Montgomery County, TN
Commission Expires 5-14-02
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001050123
<NAME> 1ST ATLANTIC GUARANTY CORPORATION
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> AUG-27-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 250,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 250,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 150,000
<SHARES-COMMON-STOCK> 100,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 250,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,000,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0.025
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
The Board of Directors and Shareholders
1st Atlantic Guaranty Corporation:
We consent to the use of our report included in the Form S-1 Registration
Statement, as amended, of 1st Atlantic Guaranty Corporation (File No.
333-41361) and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/KPMG PEAT MARWICK LLP
------------------------
KPMG PEAT MARWICK LLP
Washington, DC
September 14, 1998
