As Filed with the Securities and Exchange Commission on May 11, 1998
Registration No. 333-
======================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
_____________________
AMERICAN COUNTRY HOLDINGS INC.
(Exact name of registrant as specified in its charter)
___________________
DELAWARE 36-3525574
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 N. LASALLE STREET
CHICAGO, ILLINOIS 60601
(312) 456-2000
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
EDWIN W. ELDER
EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER
AMERICAN COUNTRY HOLDINGS INC.
222 N. LASALLE STREET
CHICAGO, ILLINOIS 60601
(312) 456-2000
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
PLEASE ADDRESS A COPY OF ALL COMMUNICATIONS TO:
STUART L. GOODMAN, ESQ.
SCHIFF HARDIN & WAITE
7300 SEARS TOWER
CHICAGO, ILLINOIS 60606
(312) 258-5711
____________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE
SECURITIES TO THE PUBLIC: As soon as practicable after the effective
date of this Registration Statement.<PAGE>
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans, please
check the following box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box. [X]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act of 1933,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for
the same offering. [ ] _______________
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
[ ] ______________
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
____________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Maximum
Offering Proposed
Amount Price Maximum Amount of
Title of Each Class Of Securities to be to be Per Share or Aggregate Registration
Registered Registered(1) Warrant Offering Price Fee
--------------------------------------- ------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value ("Common
Stock"), underlying Redeemable Common
Stock Purchase Warrants 3,153,600 -- -- --(2)
Class A Redeemable Common Stock
Purchase Warrants 3,153,600 -- -- --(3)
Common Stock underlying Class A
Redeemable Common Stock Purchase Warrants 3,153,600 $3.25 $10,249,200.00 $3,023.51
Total $10,249,200.00 $3,023.51
(1) Estimated, solely for purposes of calculating the registration fee in accordance with Rule 457, based on the
maximum number of shares of Common Stock and Class A Redeemable Common Stock Purchase Warrants that may be
issued in connection with the offer.
(2) A filing fee of $2,573.43 was previously paid in connection with the registration of such shares of Common
Stock underlying the Redeemable Common Stock Purchase Warrants on the registrant's Registration Statement on
Form S-1 (Reg. No. 33-68884).
(3) In accordance with Rule 457(g), no fee is required since the Class A Redeemable Common Stock Purchase
Warrants are being registered contemporaneously with the Common Stock underlying such warrants.
(4) Based upon the exercise price of the Class A Redeemable Common Stock Purchase Warrants, pursuant to Rule
457(g).<PAGE>
</TABLE>
PURSUANT TO THE PROVISIONS OF RULE 429 OF THE SECURITIES ACT OF
1933, THE OFFERING CIRCULAR-PROSPECTUS CONTAINED IN THIS REGISTRATION
STATEMENT ALSO RELATES TO AN AGGREGATE OF 4,583,306 SHARES OF COMMON
STOCK UNDERLYING THE REGISTRANT'S REDEEMABLE COMMON STOCK PURCHASE
WARRANTS COVERED BY A POST-EFFECTIVE AMENDMENT TO THE REGISTRANT'S
REGISTRATION STATEMENT ON FORM S-3 AMENDING THE REGISTRANT'S
REGISTRATION STATEMENT ON FORM S-1 (REG. NO. 33-68884).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF
1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
======================================================================<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS OFFERING CIRCULAR-
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN
ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
Offering Circular Prospectus Subject to Completion
May 11, 1998
AMERICAN COUNTRY HOLDINGS INC.
OFFER TO EXCHANGE ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT AND
$4.00 CASH FOR 2.19 SHARES OF COMMON STOCK AND 2.19
CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
THIS OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE ON __________,
1998 AT 5:00 P.M., NEW YORK CITY TIME, UNLESS EXTENDED.
American Country Holdings Inc. (the "Company") hereby offers (the
"Offer") to the holders of its issued and outstanding Redeemable
Common Stock Purchase Warrants (the "Old Warrants") the opportunity to
exchange each Old Warrant and $4.00 in cash for 2.19 shares of the
Company's common stock, $.01 par value ("Common Stock"), and 2.19
Class A Redeemable Common Stock Purchase Warrants ("Class A Warrants")
beginning on the date hereof and ending on __________, 1998, unless
extended on the terms hereinafter described. No more than 1,440,000
Old Warrants (approximately 70% of the Old Warrants outstanding at
April 24, 1998) will be accepted for exchange pursuant to the Offer.
In the event that holders of the Old Warrants (the "Old
Warrantholders") tender more than 1,440,000 Old Warrants, the Company
intends to accept Old Warrants tendered on a pro rata basis,
disregarding fractions, according to the number of Old Warrants
properly tendered by each holder.
____________________
THE COMMON STOCK AND CLASS A WARRANTS OFFERED HEREBY INVOLVE A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 9.
____________________
This Offer is being made on the following terms (See "The Offer"
for a more complete description of the terms of this Offer):
An exchanging warrantholder who tenders Old Warrants together
with four dollars ($4.00) per Old Warrant (the "Old Warrant Exercise
Price") will receive for each Old Warrant tendered 2.19 shares of
Common Stock and 2.19 Class A Warrants.
- 1 -<PAGE>
Each Class A Warrant to be issued will entitle the holder thereof
to purchase one share of the Company's Common Stock at an exercise
price of $3.25 through and including August 31, 2001. The Company may
redeem the Class A Warrants at $0.50 per warrant upon 30 days prior
written notice if the closing bid price of the Company's Common Stock
exceeds $5.00 for 30 consecutive trading days. The exercise price of
the Class A Warrants was arbitrarily determined by the Company's Board
of Directors and is not necessarily related to the Company's assets,
earnings, book value or other generally accepted criteria of value.
The exercise of Old Warrants pursuant to this Offer may be
withdrawn by the holder thereof prior to 5:00 p.m., New York City
time, on __________, 1998 (the "Expiration Date") (or the latest time
and date at which this Offer, as extended by the Company, shall
expire). Thereafter, such exercises are irrevocable, except that they
may be withdrawn after __________, 1998 unless theretofore accepted
for exercise as provided in this Offering Circular-Prospectus. This
Offer is subject to a number of customary conditions, any or all of
which may be waived by the Company, but is not conditioned upon the
exercise of a minimum number of Old Warrants. The Company also
reserves the right to extend this Offer. See "The Offer -- Expiration
Date; Extensions" and "--Conditions of the Offer."
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS OFFERING CIRCULAR-PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
____________________
The date of this Offering Circular - Prospectus is ____________, 1998.
Warrantholders who desire to exercise their Old Warrants should
(a) complete and submit the accompanying Letter of Transmittal and
their Old Warrant Certificate, together with (i) a certified or
official bank check in the amount of the aggregate Old Warrant
Exercise Price made payable to American Country Holdings Inc.; or (ii)
a wire transfer to American Stock Transfer & Trust Company (the
"Exchange Agent") in the amount of the aggregate Old Warrant Exercise
Price for the benefit of the Company, and any other required documents
to the Exchange Agent, or (b) request a broker or bank to effect the
transaction for him or her. Holders of Old Warrants registered in the
name of a broker, dealer, bank, trust or nominee should instruct such
institutions to exercise their Old Warrants. The Company does not
intend to pay broker-dealers solicitation fees for the exercise of its
Old Warrants. See "The Offer--Procedure for Tendering Old Warrants."
If a holder of Old Warrants does not want to tender his or her
Old Warrants pursuant to the terms of this Offer, he or she may
- 2 -<PAGE>
exercise such Old Warrants under the present terms of the Old
Warrants. Each Old Warrant entitles the registered holder to purchase
2.19 shares of Common Stock at an exercise price of $1.83 per share
through and including August 31, 1998, after which date unexercised
Old Warrants will expire.
The Common Stock and Old Warrants are currently traded on the
Nasdaq SmallCap Market under the symbols "ACHI" and "ACHIW,"
respectively. On May 7, 1998, the closing sale prices of the Common
Stock and the Old Warrants were $2.12 and $1.37, respectively. The
Company has applied for listing of the Class A Warrants on the Nasdaq
SmallCap Market.
Questions and requests for assistance or for additional copies of
this Offering Circular-Prospectus may be made by calling James P.
Byrne, Chief Financial Officer of the Company, at (312) 456-2000, or
by writing to American Country Holdings Inc., 222 N. LaSalle Street,
Chicago, Illinois 60601.
RESTRICTION IN CERTAIN STATES
THE OFFER TO OLD WARRANTHOLDERS WITH RESPECT TO THE CLASS A
WARRANTS AND THE COMMON STOCK TO BE ISSUED UPON THE TENDER OF THE OLD
WARRANTS AND CASH IS EXPECTED TO BE QUALIFIED OR IS BELIEVED TO BE
EXEMPT FROM QUALIFICATION IN THE FOLLOWING JURISDICTIONS:
________________________________________________________________
___________________________________. TENDERS OF OLD WARRANTS AND CASH
BY RESIDENTS OF OTHER JURISDICTIONS WILL NOT BE ACCEPTED BY THE
COMPANY UNLESS AND UNTIL THE COMPANY QUALIFIES THE CLASS A WARRANTS
AND THE COMMON STOCK UNDERLYING THE OLD WARRANTS TO BE ISSUED UPON THE
ACCEPTANCE OF SUCH TENDERS IN SUCH JURISDICTIONS OR SATISFIES ITSELF
THAT SUCH ISSUANCE IS EXEMPT FROM QUALIFICATION.
- 3 -<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information may be inspected or
copies obtained by mail upon payment of the Commission's prescribed
rates at the public reference facilities maintained by the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission:
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and Seven World Trade Center, New York, New York
10048. Copies of such material may also be obtained at the prescribed
rates from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition,
the Company is required to file electronic versions of these documents
with the Commission through the Commission's Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system. The Commission
maintains a World Wide Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
The Common Stock and the Old Warrants are listed on the Nasdaq
SmallCap Market, and reports, proxy statements and other information
filed by the Company can be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, Washington,
D.C.
The Company has filed with the Commission a Registration
Statement on Form S-3 (together with all amendments, supplements and
exhibits thereto, the "Registration Statement") under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Common Stock and Class A Warrants to be offered hereby, as
well as a Schedule 13E-4 Issuer Tender Offer Statement (the "Schedule
13E-4") under the Exchange Act. This Offering Circular-Prospectus
does not contain all information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the
rules and regulations of the Commission, or the Schedule 13E-4 and the
exhibits thereto, to which reference is made. The Registration
Statement, the Schedule 13E-4 and any amendments thereto, including
exhibits filed as a part thereof, are available for inspection and
copying as set forth above. Statements contained in this Offering
Circular-Prospectus as to the contents of any contract or other
document referred to herein are not necessarily complete, and
reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, such statement being
qualified in all respects by such reference.
- 4 -<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference into this
Offering Circular-Prospectus:
1. the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, filed with the Commission on March 31,
1998;
2. the Company's Current Report on Form 8-K, filed with the
Commission on January 22, 1998;
3. the Company's Current Report on Form 8-K/A, filed with the
Commission on April 9, 1998;
4. the Company's Current Report on Form 8-K/A, filed with the
Commission on April 17, 1998; and
5. the description of the Common Stock contained in the
Registration Statement on Form 8-A, filed with the
Commission on November 23, 1993, as amended by the
description of the change in par value of the Common Stock
contained in the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, filed with the
Commission on November 14, 1997.
All documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the
filing of a post-effective amendment hereto indicating that all
securities offered hereby have been issued or which deregisters all
such securities then remaining unissued, shall be deemed to be
incorporated by reference in this Offering Circular-Prospectus and to
be a part hereof from the respective dates of filings of such
documents.
Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Offering
Circular-Prospectus to the extent that a statement contained herein or
in any other subsequently filed document which is also incorporated by
reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Offering
Circular-Prospectus.
THE COMPANY SHALL PROVIDE WITHOUT CHARGE, TO EACH PERSON TO WHOM
A COPY OF THIS OFFERING CIRCULAR-PROSPECTUS IS DELIVERED, UPON ORAL OR
WRITTEN REQUEST, A COPY (WITHOUT EXHIBITS, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO THE INFORMATION THAT THIS
OFFERING CIRCULAR-PROSPECTUS INCORPORATES) OF ANY AND ALL INFORMATION
THAT HAS BEEN INCORPORATED BY REFERENCE IN THIS OFFERING
- 5 -<PAGE>
CIRCULAR-PROSPECTUS. REQUESTS SHOULD BE DIRECTED TO JAMES P. BYRNE,
CHIEF FINANCIAL OFFICER, 222 N. LASALLE STREET, CHICAGO, ILLINOIS
60601, TELEPHONE NUMBER (312) 456-2000.
- 6 -<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN
THIS OFFERING CIRCULAR - PROSPECTUS AND THE ACCOMPANYING LETTER OF
TRANSMITTAL.
THE COMPANY
American Country Holdings Inc. (the "Company") is an insurance
holding company which, through its direct subsidiaries, American
Country Insurance Company ("American Country") and American Country
Financial Services Corp. ("Financial Services"), conducts business as
a specialty property and casualty insurer (primarily transportation,
commercial and contractor lines) and provides premium financing for
its insurance customers.
The Company was incorporated in Delaware. The Company's
principal executive offices are located at 222 North LaSalle Street,
Chicago, Illinois 60601, and its telephone number at such offices is
(312) 456-2000.
- 7 -<PAGE>
THE OFFER
The Offer . . . . . . . Each holder of the Company's Redeemable
Common Stock Purchase Warrants (the "Old
Warrants") may exchange one Old Warrant
and $4.00 cash (the "Old Warrant
Exercise Price") for 2.19 shares of the
Company's common stock, par value $.01
per share (the "Common Stock"), and 2.19
Class A Redeemable Common Stock Purchase
Warrants ("Class A Warrants"). No more
than 1,440,000 Old Warrants
(approximately 70% of the Old Warrants
outstanding at April 24, 1998) will be
accepted for exchange pursuant to the
Offer. See "The Offer -- Terms of the
Offer."
No Fractional Shares
or Warrants . . . . . No certificate representing fractional
shares of Common Stock or fractional
Class A Warrants shall be issued
pursuant to the Offer. Cash shall be
issued in lieu of fractional shares of
Common Stock, if any. Fractional Class
A Warrants that otherwise would be
issued in connection with the Offer will
be rounded up to the nearest whole Class
A Warrant. See "The Offer -- No
Fractional Shares or Warrants."
Expiration Date . . . . 5:00 p.m., New York City time, on
_____________, 1998, unless extended
(the "Expiration Date"). See "The Offer
-- Expiration Date; Extensions."
Withdrawal Rights . . . Acceptance of the Offer may be withdrawn
by any Old Warrantholder at any time
prior to 5:00 p.m., New York City time,
on the Expiration Date. Thereafter,
such exercises are irrevocable, except
that they may be withdrawn after
_____________, 1998 unless theretofore
accepted for exercise as provided in
this Offering Circular-Prospectus. See
"The Offer -- Withdrawal Rights."
Risk Factors . . . . . Holders of Old Warrants (the "Old
Warrantholders") who elect to exercise
their Old Warrants and receive Common
Stock and Class A Warrants should
- 8 -<PAGE>
consider certain factors regarding the
Company. See "Risk Factors."
Class A Warrant Terms . Each Class A Warrant will entitle the
holder to purchase one share of Common
Stock for $3.25 through and including
August 31, 2001. See "Description of
Securities -- Warrants."
Effect of the Offer on
Non-Exercising Old
Warrantholders . . . The Old Warrants are exercisable through
and including August 31, 1998, after
which date they will expire. In
addition, prior to their expiration, the
reduced number of outstanding Old
Warrants as a result of the acceptance
of the Offer may limit the trading
market for the Old Warrants and may
adversely affect their liquidity and
market price. See "Risk Factors --
Adverse Effect of Offer on Non-
Exercising Warrantholders" and "--
Requirements for Maintaining Listing of
Securities on the Nasdaq Small Cap
Market."
Use of Proceeds . . . . It is anticipated that all of the
estimated net proceeds of the Offer of
up to $5,760,000 will be used by the
Company to reduce the outstanding
balance due under a credit agreement.
See "Use of Proceeds."
Acceptance of the Old
Warrants . . . . . . The Company will accept up to 1,440,000
Old Warrants duly exercised and not
properly withdrawn on the Expiration
Date, subject to certain conditions.
See "The Offer--Conditions of the
Offer." In the event that holders of
Old Warrants tender more than 1,440,000
Old Warrants pursuant to the Offer prior
to the Expiration Date, the Company
intends to accept Old Warrants tendered
pro rata, disregarding fractions,
according to the number of Old Warrants
properly tendered by each warrantholder.
At April 24, 1998, 2,055,129 Old
Warrants were outstanding.
- 9 -<PAGE>
Conditions of the
Offer . . . . . . . . The Offer is subject to a number of
customary conditions, any or all of
which may be waived by the Company. See
"The Offer--Acceptance of the Warrants;
Delivery of Common Stock and Class A
Warrants" and "--Conditions of the
Offer."
How to Tender the Old
Warrants . . . . . . Any holder of Old Warrants desiring to
accept the Offer should either (a)
complete and submit the accompanying
Letter of Transmittal and his or her Old
Warrant certificate and forward same
together with (i) a certified or
official bank check in the amount of the
aggregate Warrant Exercise Price made
payable to American Country Holdings
Inc.; or (ii) a wire transfer to
American Stock Transfer & Trust Company
(the "Exchange Agent") in the amount of
the Old Warrant Exercise Price and any
other required documents to the Exchange
Agent; or (b) request a broker or bank
to effect the transaction for him or
her. Holders of Old Warrants registered
in the name of a broker, dealer, bank or
nominee should instruct such
institutions to accept the Offer. See
"The Offer--Procedure for Tendering
Warrants."
Certain Income Tax
Consequences . . . . The tax consequences of the Offer are
uncertain under federal income tax law,
and Old Warrantholders are urged to
consult their own tax advisors regarding
this matter. Acceptance of the Offer by
an Old Warrantholder should not result
in the recognition of taxable gain or
loss. See "The Offer--Certain Federal
Income Tax Consequences."
Delivery of
Securities . . . . . The Exchange Agent will deliver the
certificates for shares of Common Stock
and Class A Warrants and cash, if any,
in lieu of fractional shares of Common
Stock, as soon as practicable after the
Expiration Date. See "The Offer --
Acceptance of Old Warrants; Delivery of
- 10 -<PAGE>
Common Stock, Class A Warrants and Cash
in Lieu of Fractional Shares."
Common Stock
Outstanding Before
and After Offering . As of April 24, 1998, there were
32,009,438 shares of Common Stock
outstanding.(1) Assuming the acceptance
of the Offer by holders of at least 70%
of the Old Warrants, there will be
approximately 35,163,038 shares of
Common Stock outstanding following the
completion of the Offer.(2)
Market Prices . . . . . As of May 7, 1998, the last reported
sales prices of the Common Stock and the
Old Warrants on the Nasdaq SmallCap
Market were $2.12 and $1.37,
respectively. The Company has applied
for listing of the Class A Warrants on
the Nasdaq SmallCap Market. See "Price
Range of Common Stock and Old Warrants."
__________________________
(1) Does not include (i) up to 4,500,733 shares of Common Stock
issuable upon exercise of the Old Warrants, (ii) up to 3,153,600
shares of Common Stock reserved for issuance upon exercise of the
Class A Warrants to be issued in the Offer and (iii) 405,199
shares of Common Stock reserved for issuance upon exercise of
options granted or to be granted under the Company's 1992 Stock
Option Plan.
(2) Does not include (i) up to 1,347,133 shares of Common Stock
issuable upon exercise of the remaining Old Warrants, (ii) up to
3,153,600 shares of Common Stock reserved for issuance upon
exercise of the Class A Warrants to be issued in the Offer and
(iii) 405,199 shares of Common Stock reserved for issuance upon
exercise of options granted or to be granted under the Company's
1992 Stock Option Plan.
- 11 -<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(dollar amounts in thousands, except per share data)
The following summary consolidated income statement data for each
of the five years in the period ended December 31, 1997 and selected
consolidated balance sheet data as of December 31, 1997, 1996, 1995,
1994 and 1993 are derived from the consolidated financial statements
of the Company, and should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto included
elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
INCOME STATEMENT DATA: 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
REVENUES:
<S> <C> <C> <C> <C> <C>
Gross premiums written $68,416 $67,828 $64,898 $57,635 $46,085
======= ======= ======= ======= =======
Net premiums written $60,078 $60,760 $57,544 $50,652 $40,732
======= ======= ======= ======= =======
Net premiums earned $59,814 $60,550 $56,909 $48,312 $40,836
Net investment income 7,025 7,032 6,465 5,600 6,462
Realized capital gains 1,613 915 222 282 476
Other income 331 219 150 107 0
Total revenues 68,783 68,716 63,746 54,301 47,774
EXPENSES:
Losses and loss adjustment expenses 53,149 48,845 45,305 38,925 32,739
Amortization of policy acquisition
costs, underwriting, and other
expenses 12,911 12,860 11,185 9,639 9,823
Interest expense 161 0 0 0 0
------- ------- ------- ------- -------
Total expenses 66,221 61,705 56,490 48,564 42,562
------- ------- ------- ------- -------
Income before income taxes 2,562 7,011 7,256 5,737 5,212
Income taxes 493 1,986 2,287 1,472 1,353
------- ------- ------- ------- -------
Net income $ 2,069 $ 5,025 $ 4,969 $ 4,265 $ 3,859
======= ======= ======= ======= =======
Net income per share - basic $ 0.06 $ 0.14 $ 0.14 $ 0.12 $ 0.11
======= ======= ======= ======= =======
Net income per share - diluted $ 0.06 $ 0.14 $ 0.14 $ 0.12 $ 0.11
======= ======= ======= ======= =======
Cash dividends declared per share(1) $ 0.00 $ 0.07 $ 0.08 $ 0.08 $ 0.08
======= ======= ======= ======= =======
- 12 -<PAGE>
December 31,
------------------------------------------------------------------------
BALANCE SHEET DATA: 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Total investments $122,098 $114,237 $113,687 $ 91,094 $ 90,837
Total assets 162,661 151,790 140,627 123,173 126,980
Liabilities for gross unpaid losses and 99,087 90,965 81,633 73,209 71,179
loss adjustment expenses
Notes payable 4,800 0 0 0 0
Total liabilities 127,521 111,353 100,560 89,322 92,261
Total shareholders' equity 35,140 40,437 40,067 33,851 34,719
Book value per share $1.10 $1.14 $1.13 $0.95 $0.98
Statutory Combined Ratio 109.6% 101.8 100.3 100.1 103.4%
GAAP Combined Ratio 109.9% 101.3% 98.8 101.9% 105.4%
_____________________
(1) Cash dividends declared are those of American Country. Dividends per share declared by Western Systems prior
to the Acquisition (see "THE COMPANY") were $0 for each year presented.
</TABLE>
- 13 -<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
FACTORS, AS WELL AS OTHER INFORMATION CONTAINED IN THIS OFFERING
CIRCULAR-PROSPECTUS.
REGULATION
American Country is subject to varying degrees of regulation and
supervision in the jurisdictions in which it transacts business under
statutes which delegate regulatory, supervisory and administrative
powers to state insurance commissioners. Such regulation is designed
to protect policyholders rather than investors and relates to such
matters as standards of solvency, which must be met and maintained;
the licensing of insurers and their agents and producers; the nature
of and examination of the affairs of insurance companies, which
includes periodic financial and market conduct examinations by the
regulatory authorities; annual and other reports, prepared on a
statutory accounting principles basis, required to be filed on the
financial condition of insurers or for other purposes; establishment
and maintenance of reserves for unearned premiums, losses and loss
adjustment expenses; and requirements regarding numerous other
matters. In general, American Country must file all rates for
insurance directly underwritten with the insurance department of each
state in which it operates on an admitted basis; reinsurance generally
is not subject to state regulation. Further, state insurance statutes
typically place limitations on the amount of dividends or other
distributions payable by insurance companies in order to protect their
solvency. Illinois, the domicile state of American Country, requires
that dividends be paid only out of earned surplus, and limits the
annual amount payable without prior approval of the Department to the
greater of 10% of policyholders' surplus or the amount of the prior
years statutory net income.
American Country is also subject to statutes governing insurance
holding company systems in various jurisdictions. Such statutes
require American Country to file an annual Holding Company System
Registration statement with the state insurance regulatory
authorities, which includes information concerning its capital
structure, ownership, financial condition and general business
operation. Under the terms of applicable state statutes, any person
or entity desiring to purchase more than a specified percentage
(commonly 10%) of American Country's outstanding voting securities is
required to obtain regulatory approval for the purchase of such voting
securities. Section 131.2 of the Illinois Insurance Code relating to
holding companies, to which American Country is subject, requires
disclosure of transactions between American Country and its
subsidiaries and affiliates. Such transactions must satisfy certain
standards, including that they be fair, equitable and reasonable and
that certain material transactions be specifically non-disapproved by
the Director of Insurance. Further, prior approval by the Director is
required of affiliated sales, purchases, exchanges, loans or
- 14 -<PAGE>
extensions of credit, or investments, any of which involve 10% or more
of American Country's admitted assets as of the preceding December
31st.
The National Association of Insurance Commissioners ("NAIC")
facilitates the regulation of multi-state companies through uniform
reporting requirements, standardized procedures for financial
examinations, and uniform regulatory procedures embodied in model acts
and regulations. Current developments address the reporting and
regulation of the adequacy of capital and surplus. The NAIC has
finalized its risk- based capital model act for property/casualty
companies, which calculates a minimum required statutory
policyholders' surplus based on the underwriting, investment, credit
loss reserve and other business risks applicable to the insurance
company's operations. At December 31, 1997, American Country's
required risk-based capital was $6.4 million; and its reported capital
and surplus was $34.6 million, so that at December 31, 1997, American
Country substantially exceeded the risk-based capital requirements.
COMPETITION
The property and casualty insurance business is highly
competitive on the basis of both price and service. In recent years,
the property and casualty insurance industry has been characterized by
relatively high levels of competition and aggressive pricing and
marketing.
American Country faces its most active competition in public
transportation lines from captive insurance programs that are put
together by agents and reinsurers using an insurance company that
writes the insurance business as a fronting carrier and then reinsures
all of the business with the reinsurer. Many of these programs are
short-lived but they generally enter the market with extremely
aggressive pricing. Besides creating instability, they generally do
not provide continuity of claims practices and settlements, which
adversely affects future pricing for property and casualty insurance.
Presently, there are two national carriers still pursuing taxi/livery
business through general agents, but both of these carriers have
reduced their presence in certain geographic areas (Midwest,
California, New Jersey). A few smaller regional carriers remain that
continue to target smaller accounts.
In Illinois, the competition for coverage of artisan contractors
is primarily from national carriers, regional carriers and mono-line
workers' compensation carriers. The competition for restaurants is
mainly from regional carriers.
American Country benefits in both classes of its business by
maintaining long term agency relationships. In addition, American
Country's agents have specialized in these classes of business for
many years. American Country believes it has been able to compete
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successfully by underwriting specialty coverages for niche areas in
which American Country has expertise.
ADEQUACY OF LOSS RESERVES
The liabilities for unpaid losses and loss adjustment expenses
are estimated by management utilizing methods and procedures which
they believe are reasonable. These liabilities are necessarily subject
to the impact of future changes in claim severity and frequency, as
well as numerous other factors. Although management believes that the
estimated liabilities for losses and loss adjustment expenses are
reasonable, because of the extended period of time over which such
losses are reported and settled, the subsequent development of these
liabilities may not conform to the assumptions inherent in their
determination and, accordingly, may vary significantly from the
estimated amounts included in the accompanying financial statements.
To the extent that the actual emerging loss experience varies from the
assumptions used in the determination of these liabilities, the
liabilities are adjusted to reflect actual experience. Such
adjustments, to the extent they occur, are reported in the period
recognized.
RATINGS
Increased public and regulatory concerns with the financial
stability of insurers have resulted in greater emphasis by
policyholders upon insurance company ratings, with a resultant
potential competitive advantage for carriers with higher ratings.
American Country currently is rated "A-" (Excellent) by A.M. Best
Company, Inc. ("A.M. Best"). In addition, Standard & Poor's has given
American Country an Insurer Claims-Paying Ability Rating of "BBBq"
(Adequate). There can be no assurance, however, that American Country
will maintain its ratings; any downgrade could materially adversely
affect its operations. A.M. Best's and Standard & Poor's ratings are
based on an analysis of the financial condition and operations of
American Country as they relate to the industry in general, and are
not designed for the protection of investors.
MARKETING
Becoming licensed as an authorized insurer and writing business
in additional states is one of the foundations of American Country's
growth strategy. American Country's ability to enter and write new
business in these markets is contingent upon its becoming licensed by
the insurance department of each jurisdiction. Each jurisdiction has
its own licensing requirements and it may be difficult for American
Country to obtain a license in the particular jurisdiction in which it
applies.
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REINSURANCE
The majority of American Country's reinsurance is placed with a
limited number of reinsurers. American Country is required to obtain
reinsurance in a competitive marketplace and a contingent liability
exists to the extent that American Country's reinsurers are unable to
meet their contractual obligations.
FLUCTUATIONS IN INDUSTRY RESULTS
The financial results of property and casualty insurers
historically have been subject to significant fluctuations.
Profitability is affected significantly by volatile and unpredictable
developments (including catastrophes), changes in loss reserves
resulting from changing legal environments as different types of
claims arise and judicial interpretations develop relating to the
scope of insurers' liability, fluctuations in interest rates and other
changes in the investment environment which affect returns on invested
capital, and inflationary pressures that affect the size of losses.
Further, underwriting results have been cyclical in the property and
casualty insurance industry, with protracted periods of overcapacity
adversely impacting premium rates, resulting in higher combined
ratios, followed by periods of under capacity and escalating premium
rates, resulting in lower combined ratios.
DEPENDENCE ON INVESTMENT INCOME
American Country, similar to other property and casualty
insurance companies, depends primarily on interest income from its
investment portfolio for a substantial portion of its earnings. A
significant decline in investment yields could have a material adverse
effect on American Country's financial results.
DEPENDENCE ON MANAGEMENT
The Company is dependent upon its executive management and upon
its ability to attract and retain qualified employees.
CONTROL BY PRINCIPAL STOCKHOLDERS
Certain of the executive officers and directors of the Company
and members of their immediate families beneficially own approximately
53%, in the aggregate, of the outstanding shares of Common Stock.
Consequently, such officers and directors are able to control the
outcome of matters submitted to a vote of the Company's stockholders,
such as the election of the Company's Board of Directors, and control
the direction and future operations of the Company. Such
concentration of ownership may also have the effect of discouraging,
delaying or preventing a change in control of the Company.
- 17 -<PAGE>
DETERMINATION OF TERMS OF THE OFFER
The terms of the Offer, including the exercise price of the Class
A Warrants, were arbitrarily determined by the Company's Board of
Directors and do not necessarily bear any direct relationship to the
Company's assets, earnings, book value or other generally accepted
criteria of value.
POSSIBLE INABILITY TO EXERCISE WARRANTS
The Old Warrants and the Class A Warrants to be issued in the
Offer may not be exercised unless at the time of exercise there is a
current prospectus under an effective registration statement covering
shares of Common Stock issuable upon exercise of such warrants and
such shares have been registered or qualified or deemed to be exempt
under the securities laws of the state of residence of the holder
thereof. The Company will use its best efforts to have a current
registration statement in effect and to have all such shares of Common
Stock so registered or qualified at any time when the holders of the
Old Warrants and the Class A Warrants may exercise their warrants,
although no assurance can be given that the Company will be able to do
so. The issuance of Class A Warrants and Common Stock upon the tender
of Old Warrants and cash pursuant to the Offer is qualified or exempt
from qualification under the securities laws of the states named on
the inside cover page of this Offering Circular-Prospectus. Holders
of Old Warrants who live in other states who tender Old Warrants and
cash pursuant to the Offer will not have their tender accepted by the
Company unless and until the Company qualifies the issuance of the
Class A Warrants and the Common Stock underlying the Old Warrants in
such states or satisfies itself that an exemption with respect to such
issuance is available in such states. In addition, following the
Offer, purchasers may buy Class A Warrants in the secondary market or
may move to jurisdictions in which the securities issuable upon
exercise of the Class A Warrants are not qualified or exempt. In this
event, the Company would be unable to issue securities to those
persons upon exercise of such warrants unless and until the securities
issuable upon exercise of such warrants are qualified for sale or
exempt from qualifications in such jurisdictions. No assurance can be
given that the Company will be able to effect any required
registration or qualification. The value of the Class A Warrants
could be adversely affected if a then current prospectus covering the
securities issuable upon exercise of such warrants is not available
pursuant to an effective registration statement or if such securities
are not qualified for sale or exempt from qualification in the
jurisdictions in which the holders of such warrants reside. Further,
under the terms of the agreement under which the Class Warrants will
be issued, the Company is not permitted to redeem the Class A Warrants
unless a current prospectus is available at the time of notice of
redemption and at all subsequent times to and including the date of
redemption.
- 18 -<PAGE>
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF CLASS A WARRANTS
The Class A Warrants to be issued in the Offer may be redeemed by
the Company at any time prior to their expiration, at a price of $0.50
per warrant upon at least 30 days notice if the closing bid price of
the Common Stock has exceeded $5.00 per share for a period of 30
consecutive trading days. Redemption of the Class A Warrants could
force the holders (i) to exercise the Class A Warrants and pay the
exercise price at a time when it may be disadvantageous for the
holders to do so, (ii) to sell the Class A Warrants at the
then-current market price when they might otherwise wish to hold the
warrants, or (iii) to accept the redemption price, which may be
substantially less than the market value of the Class A Warrants at
the time of redemption.
ADVERSE EFFECT OF OFFER ON NON-EXERCISING OLD WARRANTHOLDERS
The effect of the Offer on non-exercising Old Warrantholders may
be significant since, to the extent that the Offer is accepted and Old
Warrants are exercised, the trading market for unexercised Old
Warrants will become more limited, and their price is likely to be
adversely affected.
ABSENCE OF PRIOR TRADING MARKET FOR THE CLASS A WARRANTS
Prior to the Offer, there will be no public market for the Class
A Warrants. Although the Company has applied for the inclusion of the
Class A Warrants on the Nasdaq SmallCap Market, there can be no
assurance that such application will be approved. Furthermore, if
such application is approved, there can be no assurance that an active
trading market will develop for the Class A Warrants or, if one
develops, that it will be maintained. There can also be no assurance
as to the prices at which the Class A Warrants will trade. Until the
Class A Warrants are fully distributed and a stable market develops,
the prices at which the Class A Warrants trade may fluctuate
significantly. Prices for the Class A Warrants will be determined in
the marketplace and may be influenced by many factors, including the
depth and liquidity of the market for the Class A Warrants, investor
perception of the Company and the business in which it operates, the
results of the Company's operations and general economic and market
conditions.
REQUIREMENTS FOR MAINTAINING LISTING OF SECURITIES ON THE NASDAQ
SMALLCAP MARKET
The Common Stock and the Old Warrants are listed on, and an
application has been filed for the Class A Warrants to be listed on,
the Nasdaq SmallCap Market. The rules of the Nasdaq SmallCap Market
establish criteria for continued listing of securities on such market.
There can be no assurance that the Company will be able to maintain
the standards for continued listing and it is possible that the Common
Stock, the Old Warrants and, if listed, the Class A Warrants could be
- 19 -<PAGE>
de-listed by the Nasdaq SmallCap Market due to the Company's inability
to satisfy such market's continued listing requirements, and the
market for the Common Stock, the Old Warrants or the Class A Warrants,
as the case may be, may be affected adversely and holders may be
unable to sell their shares of Common Stock, Old Warrants or Class A
Warrants, as the case may be. In the event that the Common Stock, the
Old Warrants or the Class A Warrants are de-listed from the Nasdaq
SmallCap Market, the Company intends to make an application to qualify
such de-listed securities for quotation in the over-the-counter market
in the "pink sheets" or on the OTC Electronic Bulletin Board, although
no assurance can be given that any such application will be approved,
and if approved, an investor may find it more difficult to dispose of,
and in the case of the "pink sheets," to obtain accurate quotations as
to the price of, the de-listed securities.
- 20 -<PAGE>
THE OFFER
TERMS OF THE OFFER
The Company hereby offers to the holders of its issued and
outstanding Old Warrants the opportunity to exchange each Old Warrant
and $4.00 cash for 2.19 shares of the Company's Common Stock and 2.19
Class A Warrants, beginning on the date hereof and ending at 5:00
p.m., New York City time, on ___________, 1998 (the "Expiration Date")
unless extended, subject to the terms and conditions set forth herein.
No more than 1,440,000 Old Warrants (approximately 70% of the Old
Warrants outstanding at April 24, 1998) will be accepted for exchange
pursuant to the Offer. In the event that warrantholders tender more
than 1,440,000 Old Warrants pursuant to the Offer prior to the
Expiration Date, the Company intends to accept Old Warrants properly
tendered on a pro rata basis, disregarding fractions, according to the
number of Old Warrants properly tendered by each warrantholder. The
Company's obligation to consummate the Offer is not subject to the
exercise of any minimum number of Old Warrants. At April 24, 1998,
2,055,129 Old Warrants were outstanding.
In accordance with this Offer, the Company will issue Common
Stock, Class A Warrants and the cash to be received, if any, in lieu
of the issuance of fractional shares of Common Stock (see "No
Fractional Shares or Warrants" below) for outstanding Old Warrants
effectively exercised, and not withdrawn, on the Expiration Date or as
soon as practicable after such Expiration Date, subject to certain
conditions set forth herein. See "Conditions of the Offer" below.
An exchanging warrantholder who tenders Old Warrants together
with four dollars ($4.00) per Old Warrant will receive for each Old
Warrant tendered 2.19 shares of Common Stock and 2.19 Class A
Warrants.
Each Class A Warrant to be issued will entitle the holder thereof
to purchase one share of the Company's Common Stock at a purchase
price of $3.25 through and including August 31, 2001. The Company may
redeem the Class A Warrants at a price of $0.50 per warrant upon 30
days prior written notice if the closing bid price of the Company's
Common Stock exceeds $5.00 for 30 consecutive trading days. The
exercise price of the Class A Warrants was arbitrarily determined by
the Company's Board of Directors and is not necessarily related to the
Company's assets, earnings, book value or other generally accepted
criteria of value.
If a holder of Old Warrants does not want to tender his or her
Old Warrants pursuant to the terms of this Offer, he or she may
exercise such Old Warrants under the present terms of the Old
Warrants. Each Old Warrant entitles the registered holder to purchase
2.19 shares of Common Stock at an exercise price of $1.83 per share
through and including August 31, 1998.
- 21 -<PAGE>
NO FRACTIONAL SHARES OR WARRANTS
No certificate or scrip representing fractional shares of Common
Stock will be issued in connection with the Offer, and fractional
share interests that result from the exchange of Old Warrants and cash
for Common Stock and Class A Warrants will not entitle the owner
thereof to vote or to any rights of a stockholder of the Company. In
lieu of any fractional shares of Common Stock, the Exchange Agent will
pay, subject to deduction and withholding requirements, to each
exchanging warrantholder who otherwise would be entitled to receive a
fractional share of Common Stock, an amount of cash determined by
multiplying (i) the last reported sale price of the Common Stock on
the Nasdaq Small Cap Market on the Expiration Date, or, if no such
sale is made on such date, the average of the closing bid and asked
prices for such day on the Nasdaq Small Cap Market, and (ii) the
fraction of a share of Common Stock to which such holder would
otherwise be entitled. In no event shall interest be paid or accrued
on any such cash payments. The cash amount to be paid to Old
Warrantholders for such fractional shares shall be rounded up to the
nearest cent.
No certificate or scrip representing fractional Class A Warrants
will be issued in connection with the Offer. Fractional Class A
Warrants that otherwise would be issued in exchange for Old Warrants
and cash pursuant to the Offer will be rounded up to the nearest whole
Class A Warrant.
EXPIRATION DATE; EXTENSIONS
Subject to the terms and conditions as set forth herein, the
Company will accept up to 1,440,000 Old Warrants tendered under the
terms of this Offer which are not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. The Company at its sole option
may extend this Offer for an additional period of time by giving
written notification of such extension to the Exchange Agent. In
addition, the Company may at its election cause notice of any
extension of the Offer to be published in THE NEW YORK TIMES, THE WALL
STREET JOURNAL or any other newspaper selected by the Company.
The Company has no present intention to extend this Offer beyond
the Expiration Date. If, however, the Company does extend this Offer
beyond such date, the Company intends that such extension will not
exceed an additional ten business days. Any extension or expiration of
the Offer will be followed as soon as practicable, but in no event
later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date, by public announcement
thereof, and any amendment of the Offer will be followed as soon as
practicable by public announcement. Without limiting the manner by
which the Company may choose to make such public announcement, the
Company shall not, unless otherwise required by law, have any
obligation to publish, advertise or otherwise communicate any such
- 22 -<PAGE>
public announcement other than by making a release to the Dow Jones
News Service.
If the Company decides to waive, modify or amend a material
provision of this Offer, it may do so at any time, provided that it
gives notice thereof in the manner specified above and extends the
Offer to the extent required by the Exchange Act. With respect to an
increase or decrease in the percentage of the class of securities
being tendered for or a change in the consideration offered, Rule
13e-4(f)(1) of the Exchange Act generally requires that a tender offer
remain open for at least ten business days from the date the notice of
such change is first published or sent or given to security holders.
The minimum period during which the Offer must remain open following
other material changes in the terms of the Offer will depend on the
facts and circumstances, including the relative materiality of the
change in the terms of information concerning the Offer. Any amendment
to the Offer will apply to all Old Warrants exercised pursuant
thereto, regardless of when or in what order the Old Warrants are
exercised.
PROCEDURE FOR TENDERING OLD WARRANTS
To accept the Offer and tender the Old Warrants, the accompanying
Letter of Transmittal ("Letter of Transmittal") must be completed and
executed as indicated therein and the Letter of Transmittal and the
Old Warrants must be accompanied by payment of the aggregate Old
Warrant Exercise Price by certified or official bank check made
payable to American Country Holdings Inc. or by wire transfer to the
Exchange Agent for the benefit of the Company, together with any other
required documents. The foregoing materials must be delivered to and
received by the Exchange Agent at one of its addresses set forth on
the back cover of this Offering Circular-Prospectus on or before the
Expiration Date. However, in lieu of the foregoing, a warrantholder
may either (i) exercise the Old Warrants pursuant to the procedure for
book-entry exercise set forth below (and a confirmation of such
book-entry exercise must be received by the Exchange Agent on or
before the Expiration Date) or (ii) comply with the guaranteed
delivery procedure set forth below. The beneficial holders of Old
Warrants that are held by or registered in the name of a broker,
dealer, commercial bank, trust Company or other nominee or custodian
are urged to contact such entity promptly if they wish to accept the
Offer. Letters of Transmittal, payment of the aggregate Old Warrant
Exercise Price, and Old Warrants should not be sent to the Company.
The method of delivery of Letters of Transmittal, Old Warrants,
the aggregate Old Warrant Exercise Price and all other required
documents to the Exchange Agent is at the election and risk of the
holder, but if such delivery is by mail, it is suggested that the
holder use properly insured, registered mail with return receipt
requested, and that the mailing be made sufficiently in advance of the
Expiration Date to permit delivery to the Exchange Agent on or prior
to the Expiration Date.
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Within two business days after the date hereof, the Exchange
Agent will establish accounts with respect to the Old Warrants at The
Depository Trust Company (the "Book-Entry Transfer Facility") for
purposes of the Offer. Any financial institution that is a participant
in a Book-Entry Transfer Facility's system may make book-entry
delivery of Old Warrants by causing the Book-Entry Transfer Facility
to transfer the same into the Exchange Agent's account at the
Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedure for such transfer and to confirm such
transfer to the Exchange Agent in writing. Although delivery of the
Old Warrants may be effected through book-entry transfer, either (i) a
properly completed Letter of Transmittal (or facsimile thereof)
executed by the holder of record, together with the proper signature
guarantees, and the certified or official bank check made payable to
American Country Holdings Inc. or a wire transfer for the benefit of
the Company, together with all other documents required, must be
transmitted to and received by the Exchange Agent at one of its
addresses set forth on the back cover page of this Offering
Circular-Prospectus on or before the Expiration Date or (ii) the
guaranteed delivery procedure set forth below must be complied with.
Delivery of documents to the Book-Entry Transfer Facility in
accordance with the Book-Entry Transfer Facility's procedure does not
constitute delivery to the Exchange Agent.
Except as otherwise provided below, each signature on the Letter
of Transmittal, Old Warrant certificate or instrument of transfer must
be guaranteed by a firm or other entity that is a member in good
standing of the Security Transfer Agent's Medallion Program, the New
York Stock Exchange Medallion Program or the Stock Exchange Medallion
Program (singularly, an "Eligible Institution"). Signatures on a
Letter of Transmittal need not be guaranteed (i) if the Letter of
Transmittal is signed by the registered holder of the Old Warrants
tendered and the holder has not completed the box titled "Special
Payment Instructions" or "Special Issuance Instructions" on the
Letters of Transmittal; or (ii) if such Old Warrants are tendered for
the account of an Eligible Institution.
If the certificates for Old Warrants are registered in the name
of a person other than the person exercising such Old Warrants, or if
Old Warrants that are not accepted for exercise pursuant to the Offer
are to be returned to a person other than the registered owner, then
the certificates for such Old Warrants must be endorsed or accompanied
by an appropriate instrument of transfer, signed exactly as the name
of the registered owner appears on the certificates, with the
signatures on the certificates or instruments of transfer guaranteed
by an Eligible Institution.
The issuance of Common Stock, Class A Warrants and cash, if any,
in lieu of fractional shares of Common Stock in exchange for cash and
Old Warrants exercised pursuant to the Offer will be made only after
timely receipt by the Exchange Agent of the Letters of Transmittal and
certificates for such Old Warrants (or a confirmation of a book-entry
- 24 -<PAGE>
transfer of such Old Warrants into the Exchange Agent's account at the
Book-Entry Transfer Facility as described above) and the certified or
official bank check or the wire transfer, together with all other
documents required. If less than the number of Old Warrants evidenced
by a submitted certificate are to be exercised, the exercising
warrantholder should indicate on the Letter of Transmittal the number
of whole Old Warrants being exercised. The number of Old Warrants
represented by the certificates for Old Warrants delivered to the
Exchange Agent and accompanied by a Letter of Transmittal and the
aggregate Old Warrant Exercise Price will be deemed to have been
exercised.
All questions as to the validity, form, eligibility (including
time of receipt) and acceptance of the Old Warrants or payments of the
aggregate Old Warrant Exercise Price tendered will be determined by
the Company, which determination shall be final and binding. The
Company reserves the absolute right to reject any or all tenders of
any particular Old Warrants and payments of the aggregate Old Warrant
Exercise Price not properly tendered or the acceptance of which would,
in the opinion of the Company, be unlawful. The Company also reserves
the right to waive any irregularities or conditions of tender as to
any particular Old Warrants, and the Company's interpretation of the
terms and conditions of this Offer (including the instructions and
Letter of Transmittal) shall be final and binding. Any irregularities
in connection with the tenders, unless waived, must be cured within
such time as the Company shall determine, which time may be extended
beyond the Expiration Date. Neither the Company nor the Exchange Agent
shall be under any duty to give notification of defects in such
tenders or incur any liability for failure to give such notification.
Tenders of the Old Warrants and payments of the aggregate Old Warrant
Exercise Price received by the Exchange Agent that are not properly
tendered and as to which the irregularities have not been cured or
waived will be returned (without interest on the cash payment or
deduction therefrom) by the Exchange Agent to the appropriate Old
Warrantholder as soon as practicable.
GUARANTEED DELIVERY PROCEDURE
If a holder of Old Warrants desires to exercise such Old Warrants
pursuant to the Offer but is unable either to (i) deliver his
certificates, the certified or official bank check or the wire
transfer and all other required documents to the Exchange Agent on or
before the Expiration Date or (ii) comply with the procedure for
book-entry exercise on a timely basis, such Warrants may nevertheless
be exercised pursuant to the Offer, provided that all of the following
conditions are satisfied:
(i) such exercises are made by or through an Eligible
Institution;
(ii) prior to the Expiration Date, a properly completed
and duly executed Notice of Guaranteed Delivery
- 25 -<PAGE>
(by telegram, telex, facsimile transmission, mail
or hand delivery) setting forth the name and
address of the warrantholder and the number of Old
Warrants exercised, stating that the exercise is
being made thereby and guaranteeing that within
three trading days after the Expiration Date, the
Old Warrants and the certified or official bank
check or the wire transfer, together with all
other documents required, will be deposited by the
Eligible Institution with the Exchange Agent; and
(iii) the certificates for all exercised Old Warrants in
proper form for transfer (or a written
confirmation of book-entry transfer into the
Exchange Agent's account at the Book-Entry
Transfer Facility as described above), a properly
completed and duly executed Letter of Transmittal
and the certified or official bank check or the
wire transfer, together with all other documents
required, are received by the Exchange Agent
within three trading days after the Expiration
Date.
WITHDRAWAL RIGHTS
Any exercise of Old Warrants pursuant to the Offer may be
withdrawn subject to the procedures described below, at any time prior
to the Expiration Date. Thereafter, such exercises are irrevocable,
except that they may be withdrawn after _______ __, 1998 unless
theretofore accepted for exercise as provided in this Offering
Circular-Prospectus. If the Company extends the period of time during
which the Offer is open, is delayed in its acceptance of the Old
Warrants for exercise or is unable to accept the Old Warrants for
exercise for any reason, then, without prejudice to the Company's
rights under the Offer, the Exchange Agent may, on behalf of the
Company, retain all Old Warrants exercised, and such Old Warrants may
not be withdrawn except as provided herein, subject to Rule
13E-4(f)(5) under the Exchange Act, which provides that the person
making an issuer exchange offer shall either pay the consideration
offered or return tendered securities, promptly after the termination
or withdrawal of the offer.
For a withdrawal to be effective, a written, telegraphic or
facsimile transmission notice of withdrawal must (i) be timely
received by the Exchange Agent at one of its addresses on the back
cover of this Offering Circular-Prospectus before the Exchange Agent
receives notice of acceptance by the Company of the Old Warrants, (ii)
set forth the name of the tendering warrantholder, (iii) if the Old
Warrants have been deposited with or otherwise identified to the
Exchange Agent, contain the description of the Old Warrants to be
withdrawn and indicate the certificate numbers shown on the
certificates evidencing such Old Warrants (except in the case of
- 26 -<PAGE>
book-entry exercise), and (iv) be executed by the warrantholder in the
same manner as the original Old Warrant certificate tendered or be
accompanied by evidence satisfactory to the Company that the person
withdrawing the exercise pursuant to this Offer has succeeded to the
beneficial ownership of the Old Warrants. In the case of Old Warrants
tendered by book-entry transfer, a notice of withdrawal must specify,
in lieu of certificate numbers, the name and number of the account at
one of the Book-Entry Transfer Facilities to be credited with the
withdrawn Old Warrants. All questions as to the validity (including
the time of receipt) of notices of withdrawal will be determined by
the Company, whose determination shall be final and binding. Old
Warrants and payments withdrawn in the manner specified above will not
be considered to have been duly tendered. However, withdrawn Old
Warrants may be re-exercised at any time prior to the Expiration Date.
No interest shall be paid on any amount returned to an Old
Warrantholder pursuant to a proper withdrawal or otherwise, regardless
of any delay in the Offer.
ACCEPTANCE OF OLD WARRANTS; DELIVERY OF COMMON STOCK, CLASS A WARRANTS
AND CASH IN LIEU OF FRACTIONAL SHARES
Upon the terms and subject to the conditions of this Offer, Old
Warrants tendered for exercise and not properly withdrawn will be
accepted for exercise on the Expiration Date. For purposes of this
Offer, the Company will be deemed to have accepted for exercise
properly tendered Old Warrants when, as and if the Company has given
oral or written notice thereof to the Exchange Agent. All exercising
Old Warrantholders will be deemed to have waived any right to receive
notice of the acceptance of their Old Warrants.
THE ISSUANCE OF CLASS A WARRANTS AND COMMON STOCK UPON THE TENDER
OF OLD WARRANTS AND CASH PURSUANT TO THE OFFER IS QUALIFIED OR EXEMPT
FROM QUALIFICATION UNDER THE SECURITIES LAWS OF THE STATES NAMED ON
THE INSIDE COVER PAGE OF THIS OFFERING CIRCULAR-PROSPECTUS. HOLDERS
OF OLD WARRANTS WHO LIVE IN OTHER STATES WHO TENDER OLD WARRANTS AND
CASH PURSUANT TO THE OFFER WILL NOT HAVE THEIR TENDER ACCEPTED BY THE
COMPANY UNLESS AND UNTIL THE COMPANY QUALIFIES THE ISSUANCE OF THE
CLASS A WARRANTS AND THE COMMON STOCK UNDERLYING THE OLD WARRANTS IN
SUCH STATES OR SATISFIES ITSELF THAT AN EXEMPTION WITH RESPECT TO SUCH
ISSUANCE IS AVAILABLE IN SUCH STATES.
The Exchange Agent will act as agent for the exercising holders
of Old Warrants for the purposes of receiving from the Company the
Common Stock, Class A Warrants, cash, if any, to be paid in lieu of
fractional shares, and Old Warrants not accepted for exercise, and
transmitting such securities and, if applicable, cash, to the Old
Warrantholders. Tendered Old Warrants not accepted for exercise by the
Company will be returned (or, in the case of Old Warrants exercised by
book-entry transfer through the Book-Entry Transfer Facility, will be
credited to an account maintained with the Book-Entry Transfer
- 27 -<PAGE>
Facility) without expense to the exercising holders as promptly as
practicable following the Expiration Date.
If the Company extends the period during which the Offer is open,
is delayed in its acceptance for exercise or is unable to accept for
exercise any Old Warrants pursuant to the Offer for any reason, then,
without prejudice to the Company's rights hereunder, the Exchange
Agent, at the request of the Company, may nevertheless retain Old
Warrants exercised together with any certified or official bank check
or wire transfer and any other required documents subject to the
withdrawal rights of holders thereof as set forth herein and
applicable securities laws.
Delivery of the Common Stock, Class A Warrants and cash in lieu
of fractional shares, if any, in exchange for Old Warrants and
payments validly tendered and accepted by the Company will be made as
soon as practicable after the Expiration Date. All deliveries will be
made through the Exchange Agent.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of certain of the
anticipated federal income tax consequences of the acceptance of the
Offer. No discussion is included regarding any applicable state,
local or foreign tax laws. This summary is limited to warrantholders
who hold the Old Warrants as "capital assets" (generally, property
held for investment) within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code"). The tax
consequences to any particular Old Warrantholder may be affected by
matters not discussed below. In addition, the Company has not sought
a ruling from the Internal Revenue Service or an opinion of counsel
with respect to such tax consequences. Accordingly, each Old
Warrantholder is advised to consult with his, her or its own tax
advisor regarding the tax consequences of holding or exercising the
Old Warrants.
TAX CONSEQUENCES TO WARRANTHOLDERS. Although the matter is
not free from doubt, acceptance of this Offer should not result in
immediate recognition of gain or loss for tax purposes. The exchange
of Old Warrants for Class A Warrants should constitute a tax-free
recapitalization of the Company. Accordingly, the adjusted tax basis
of the Class A Warrants should equal the adjusted tax basis of the Old
Warrants surrendered. The holding period of the Class A Warrants
includes the period Old Warrantholders held the Old Warrants.
The acceptance of the Offer should not result in the
recognition of taxable gain or loss by an Old Warrantholder to the
extent the Old Warrantholder pays cash to the Company in exchange for
Common Stock. The adjusted tax basis of the Common Stock should equal
the amount of cash paid in exchange for such stock. The holding
period of the Common Stock should begin on the date of the acceptance
of the Offer. Cash issued in lieu of fractional shares of Common
- 28 -<PAGE>
Stock should be a deemed issuance of a fractional share of Common
Stock followed by a redemption of the fractional share of Common Stock
for cash. Such redemption should be treated as payment in exchange
for Common Stock taxable as a capital gain or loss, as the case may
be.
Assuming the acceptance of the Offer does not result in the
recognition of taxable gain or loss, upon exercise of the Class A
Warrants, no taxable gain or loss should be recognized by the
warrantholders. The adjusted tax basis in the Common Stock received
upon exercise equals the aggregate of the basis of the Class A
Warrants and the exercise price of the Class A Warrants paid to the
Company. The holding period of the Common Stock acquired upon
exercise of the Class A Warrants should include the holding period of
the Class A Warrants. Taxable gain or loss is recognized only when
the Common Stock is disposed of in a taxable transaction.
TAX CONSEQUENCES TO THE COMPANY. The Company will not
recognize gain nor loss upon the issuance of either Class A Warrants
or Common Stock. Furthermore, no gain or loss will be recognized by
the Company upon subsequent exercise of the Class A Warrants.
EFFECT ON NON-EXERCISING OLD WARRANTHOLDERS
THE EFFECT OF THE OFFER ON NON-EXERCISING OLD WARRANTHOLDERS MAY
BE SIGNIFICANT SINCE, TO THE EXTENT THAT THE OFFER IS ACCEPTED AND OLD
WARRANTS ARE EXERCISED, THE TRADING MARKET FOR UNEXERCISED OLD
WARRANTS WILL BECOME MORE LIMITED, AND THEIR PRICE IS LIKELY TO BE
ADVERSELY AFFECTED.
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, the Company may
cancel, modify or terminate the Offer and is not required to accept
for exercise any Old Warrants pursuant to the Offer if prior to the
Expiration Date:
(i) there shall be pending, instituted or threatened
any legal action or administrative proceeding
before any court or governmental agency, by any
governmental agency or any other person,
prohibiting, restricting or delaying the Offer;
(ii) any statute, rule or regulation shall have been
enacted, or any action shall have been taken by
any governmental authority, which would prohibit
or materially restrict or delay consummation of
the Offer; or
(iii) there shall have occurred (and the adverse effect
of such occurrence will be continuing): (a) any
general suspension of, or limitation on prices for
- 29 -<PAGE>
trading on, the Nasdaq SmallCap Market or in the
other over-the-counter markets; (b) a declaration
of a banking moratorium by United States or New
York authorities; or (c) a commencement of a war,
armed hostilities or other international or
national calamity directly or indirectly involving
the United States of America which would
reasonably be expected to affect materially and
adversely (or to delay materially) the
consummation of the Offer.
If the Company terminates the Offer pursuant to any of the
conditions set forth above, the Exchange Agent will promptly return
the applicable Old Warrants and funds for the aggregate Old Warrant
Exercise Price to the holders thereof.
The Company reserves the absolute right to waive satisfaction of
any conditions and compliance with any terms of the Offer. The Company
further reserves the absolute right to reject any and all exercises
not in proper form. On the Expiration Date, the Company will accept
any and all Old Warrants which are properly exercised, subject to the
conditions stated herein.
LISTING OF THE CLASS A WARRANTS
The Company has applied for listing of the Class A Warrants on
the Nasdaq SmallCap Market. However, the Class A Warrants may not meet
the initial listing requirements, and even if initially listed, there
can be no assurance that the Class A Warrants will meet the
requirements for continued inclusion and continue to be listed on the
Nasdaq SmallCap Market. See "RISK FACTORS -- Absence of Prior Trading
Market for the Class A Warrants" and "-- Requirements for Maintaining
Listing of Securities on the Nasdaq SmallCap Market."
POSITION OF THE BOARD OF DIRECTORS
Assuming the exercise of all of the Old Warrants sought in this
Offer, the Board of Directors of the Company believes the Company will
benefit from the receipt of net cash proceeds of up to approximately
$5,760,000 and the possible receipt of additional funds in the future
from the exercise of the Class A Warrants of up to approximately
$10,225,000. However, the Board of Directors is not making any
recommendations to the holders of the Old Warrants as to whether they
should exchange or refrain from exchanging any or all of their Old
Warrants. Each Old Warrantholder must make his or her own decision as
to whether to exchange all or any portion of the Old Warrants owned.
PAYMENT OF FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent a fee of $3,500
to act in such capacity and will reimburse the Exchange Agent for its
reasonable out-of-pocket expenses in connection therewith. The Company
- 30 -<PAGE>
will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of this Offering Circular-Prospectus and related
documents to the beneficial owners of the Old Warrants, and in
handling or forwarding tenders for their customers. However, the
Company will not make any other payments to brokers, dealers or others
soliciting tenders of Old Warrants. Employees of the Company may
solicit tenders of Old Warrants, for which they will receive no
additional compensation.
MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES
Any warrantholder whose Old Warrant certificates have been
mutilated, lost, stolen or destroyed should contact the Company at its
address set forth below for further information.
REQUESTS FOR ASSISTANCE
Requests for additional copies of this Offering
Circular-Prospectus or the Letter of Transmittal or assistance in
completing an exchange should be made by calling James P. Byrne, Chief
Financial Officer of the Company, at (312) 456-2000, or by mail to the
Company as follows:
American Country Holdings Inc.
222 N. LaSalle Street
Chicago, Illinois 60601
- 31 -<PAGE>
THE COMPANY
The Company is an insurance holding company which through its
direct subsidiaries, American Country and Financial Services, conducts
business as a specialty property and casualty insurer and provides
premium financing for its insurance customers. Financial Services
also provides secured loans for certain of American Country's larger
customers.
American Country is an Illinois domestic insurance company that
specializes in the underwriting and marketing of commercial property
and casualty insurance for a focused book of business. American
Country concentrates on types of insurance in which it has expertise:
transportation, restaurant and artisan contractor lines. American
Country also writes personal lines auto and homeowners insurance.
Although American Country's specialty public-transportation coverages
(taxicab and limousine) are primarily written on risks in the City of
Chicago and the surrounding suburbs, American Country has begun to
extend its geographic coverage as part of its expansion program.
American Country is licensed in the states of Illinois, Indiana, Iowa,
Pennsylvania, Wisconsin and the District of Columbia and has
applications pending in Connecticut, Michigan and New York. American
Country also is admitted as an excess and surplus lines carrier in 26
states. American Country currently maintains an A.M. Best rating of
"A-" (Excellent).
American Country writes transportation, commercial and personal
lines insurance coverage. Transportation lines, which include
automobile liability, physical damage and workers' compensation
coverages for taxicabs and limousines, accounted for 43% of total
gross premiums written in 1997. Commercial lines, which include
multi-peril risks, workers' compensation and automobile liability and
physical damage, accounted for 44% of total gross premiums written in
1997. Personal lines, which include both automobile and homeowners'
coverages, accounted for 13% of total gross premiums written in 1997.
American Country's business is written by in-house salaried employees
and through approximately 70 independent agents located in the states
in which American Country is licensed.
American Country is the successor to an insurance company that
was organized in 1978 under the name Calumet Insurance Company. In
1997, American Country entered into a transaction with The Western
Systems Corp. ("Western Systems") in which a subsidiary of Western
Systems acquired substantially all the assets and assumed
substantially all the liabilities of American Country and its wholly
owned subsidiary, Financial Services, for a purchase price of $40.3
million (the "Acquisition"). In connection with the Acquisition,
Western Systems sold 24 million shares of its common stock
(approximately 75% of the shares outstanding) to three investors, two
of which were shareholders of the parent company of American Country.
Following the Acquisition, Western Systems changed its name to
- 32 -<PAGE>
American Country Holdings Inc. to better reflect its property and
casualty and premium finance businesses.
For financial reporting purposes, because two former shareholders
of the previous parent of American Country acquired a 50% interest in
the Company as a result of purchasing shares of common stock that were
issued in connection with the Acquisition, the Acquisition has been
accounted for as a reverse acquisition whereby American Country was
deemed to have acquired the Company. Financial statements for the
Company for periods prior to the Acquisition (July 29, 1997) are those
of American Country.
Prior to January 3, 1997, Western Systems primarily operated
under a franchise agreement with Transmedia Network, Inc.
("Transmedia") which granted Western Systems the rights to receive
food and beverage credits from restaurants in California, Washington,
Oregon and certain parts of Nevada that accepted the Transmedia
restaurant card. On January 3, 1997, Western Systems sold its
Transmedia franchise and had no remaining operating activities; there-
after until the Acquisition, its business consisted primarily of
managing its cash and cash equivalents as a publicly owned shell
corporation actively seeking a business combination with an operating
business that could use its available cash.
The Company was incorporated under the laws of the State of
Delaware on May 30, 1978. The Company's principal executive offices
are located at 222 N. LaSalle Street, Chicago, Illinois 60601 and the
Company's phone number at such offices is (312) 456-2000.
- 33 -<PAGE>
USE OF PROCEEDS
The Company estimates that the net proceeds from the exercise of
the 1,440,000 Old Warrants, assuming the exercise of all outstanding
Old Warrants (after deducting the estimated expenses of the Offer
payable by the Company), will be $5,760,000. The Company anticipates
that it will use all of such estimated net proceeds to reduce the
outstanding balance due under a credit agreement (the "Credit
Agreement") which the Company entered into with a bank on April 30,
1998. The Credit Agreement was entered into to (i) provide up to an
aggregate of $7,000,000 to fund future acquisitions and (ii) pay the
outstanding balance due under a $7,800,000 interim bank loan (the
"Bank Loan") which was incurred by the Company on March 30, 1998 to
repay the outstanding amount due under a revolving credit agreement
which had been entered into to fund a portion of the Acquisition.
$7,800,000 was outstanding under the Credit Agreement on May 7, 1998,
on which interest accrued at a rate of 6.47% per annum.
The Company is from time to time engaged in ongoing discussions
with respect to acquisitions, and expects to continue to pursue such
acquisition opportunities actively. As of the date of this Offering
Circular-Prospectus, the Company does not have any agreements with
respect to any material acquisitions but is involved in ongoing
discussions with a company and is continuing to assess this and other
acquisition opportunities.
- 34 -<PAGE>
PRICE RANGE OF COMMON STOCK AND OLD WARRANTS
The Common Stock and Old Warrants are traded on the Nasdaq
SmallCap Market under the symbols "ACHI" and "ACHIW," respectively.
The following table sets forth the high and low closing sales prices
of the Common Stock and the Old Warrants for the periods indicated
below:
Common Stock Old Warrant
Price Range Price Range
------------ -----------
High Low High Low
---- --- ---- ---
1998
----
First Quarter $2.56 $1.75 $1.62 $0.75
Second Quarter 2.25 2.00 1.50 1.12
(through
May 7, 1998
1997
----
First Quarter $2.06 $0.81 $0.38 $0.19
Second Quarter 2.75 1.44 1.81 0.25
Third Quarter 2.81 1.81 2.50 0.88
Fourth Quarter 2.94 1.50 1.50 0.16
1996
----
First Quarter $2.50 $1.00 $0.50 $0.25
Second Quarter 2.62 1.50 0.50 0.25
Third Quarter 2.18 1.12 0.50 0.25
Fourth Quarter 1.37 0.75 0.25 0.03
All of the foregoing prices reflect interdealer quotations,
without retail mark-up, mark-downs or commissions and may not
necessarily represent actual transactions in the Common Stock or the
Old Warrants.
On May 7, 1998, the last reported sales prices of the Common
Stock and the Old Warrants as quoted by the Nasdaq SmallCap Market,
were $2.12 and $1.37 per share and warrant, respectively. On May 7,
1998 there were approximately 237 and 53 record holders of the Common
Stock and the Old Warrants, respectively. These numbers do not
include an indeterminate number of stockholders and warrantholders
whose shares and warrants, respectively, are held by brokers in
"street name."
- 35 -<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(dollar amounts in thousands, except per share data)
The following selected consolidated income statement data for
each of the five years in the period ended December 31, 1997 and
selected consolidated balance sheet data as of December 31, 1997,
1996, 1995, 1994 and 1993 are derived from the consolidated financial
statements of the Company, and should be read in conjunction with the
Company's Consolidated Financial Statements and the notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
INCOME STATEMENT DATA: 1997 1996 1995 1994 1993
--------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
REVENUES:
Gross premiums written $68,416 $67,828 $64,898 $57,635 $46,085
======= ======= ======= ======= =======
Net premiums written $60,078 $60,760 $57,544 $50,652 $40,732
======= ======= ======= ======= =======
Net premiums earned $59,814 $60,550 $56,909 $48,312 $40,836
Net investment income 7,025 7,032 6,465 5,600 6,462
Realized capital gains 1,613 915 222 282 476
Other income 331 219 150 107 0
------- ------- ------- ------- -------
Total revenues 68,783 68,716 63,746 54,301 47,774
------- ------- ------- ------- -------
EXPENSES:
Losses and loss adjustment expenses 53,149 48,845 45,305 38,925 32,739
Amortization of policy acquisition
costs, underwriting, and other expenses 12,911 12,860 11,185 9,639 9,823
Interest expense 161 0 0 0 0
------- ------- ------- ------- -------
Total expenses 66,221 61,705 56,490 48,564 42,562
------- ------- ------- ------- -------
Income before income taxes 2,562 7,011 7,256 5,737 5,212
Income taxes 493 1,986 2,287 1,472 1,353
------- ------- ------- ------- -------
Net income $ 2,069 $ 5,025 $ 4,969 $ 4,265 $ 3,859
======= ======= ======= ======= =======
Net income per share - basic $ 0.06 $ 0.14 $ 0.14 $ 0.12 $ 0.11
======= ======= ======= ======= =======
Net income per share - diluted $ 0.06 $ 0.14 $ 0.14 $ 0.12 $ 0.11
======= ======= ======= ======= =======
Cash dividends declared per share(1) $ 0.00 $ 0.07 $ 0.08 $ 0.08 $ 0.08
======= ======= ======= ======= =======
- 36 -<PAGE>
DECEMBER 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Total investments $122,098 $114,237 $113,687 $ 91,094 $ 90,837
Total assets 162,661 151,790 140,627 123,173 126,980
Liabilities for gross unpaid losses and
loss adjustment expenses 99,087 90,965 81,633 73,209 71,179
Notes payable 4,800 0 0 0 0
Total liabilities 127,521 111,353 100,560 89,322 92,261
Total shareholders' equity 35,140 40,437 40,067 33,851 34,719
Book value per share $1.10 $1.14 $1.13 $0.95 $0.98
Statutory Combined Ratio 109.6% 101.8% 100.3% 100.1% 103.4%
GAAP Combined Ratio 109.9% 101.3% 98.8% 101.9% 105.4%
____________________
(1) Cash dividends declared are those of American Country. Dividends per share declared by Western Systems prior
to the Acquisition (see "THE COMPANY") were $0 for each year presented.
</TABLE>
- 37 -<PAGE>
DESCRIPTION OF SECURITIES
Pursuant to the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation"), the authorized
capital stock of the Company consists of 60,000,000 shares of Common
Stock, par value $.01 per share, and 2,000,000 shares of preferred
stock, par value $.10 per share (the "Preferred Stock"). The
following description of certain of the Company's securities is a
summary, does not purport to be complete or to give effect to
applicable statutory or common law, and is subject in all respects to
the applicable provisions of the Certificate of Incorporation.
COMMON STOCK
The holders of outstanding shares of Common Stock are entitled to
share ratably on a share-for-share basis with respect to any dividends
when, as and if declared by the Board of Directors, out of funds
legally available therefor. Each holder of Common Stock is entitled to
one vote for each share held of record. The Common Stock is not
entitled to conversion or preemptive rights and is not subject to
redemption. Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in
the net assets legally available for distribution. All outstanding
shares of Common Stock have been fully paid and are nonassessable. As
of April 24, 1998, 32,009,438 shares of Common Stock were outstanding.
PREFERRED STOCK
The Preferred Stock may be issued from time to time without
stockholder approval in one or more classes or series, and the Board
of Directors is authorized to fix the dividend rights, dividend rates,
conversion rights, rights of exchange, voting rights, rights and terms
or redemption (including sinking fund provisions), redemption prices,
liquidation preferences and any other rights, preferences, privileges
and restrictions of any class or series of Preferred Stock as well as
the number of shares constituting such class or series and the
designation thereof. The shares of any class or series of Preferred
Stock need not be identical. Depending upon the rights of such
Preferred Stock, the issuance of Preferred Stock could have an adverse
effect on holders of Common Stock by delaying or preventing a change
in control of the Company, making removal of the present management
more difficult, or resulting in restrictions upon the payment of
dividends and other distributions to the holders of Common Stock.
There are currently no shares of Preferred Stock outstanding.
WARRANTS
Each Old Warrant entitles the registered holder thereof to
purchase 2.19 shares of Common Stock at an exercise price of $1.83 per
share, subject to adjustment, at any time prior to the close of
- 38 -<PAGE>
business on August 31, 1998, subject to earlier redemption. As of
April 24, 1998, 2,055,129 Old Warrants were outstanding.
Each Class A Warrant to be issued in connection with the Offer
will entitle the registered holder thereof to purchase one share of
Common Stock at an exercise price of $3.25, subject to adjustment, at
any time prior to the close of business on August 31, 2001, subject to
earlier redemption.
The Old Warrants and the Class A Warrants are redeemable by the
Company on 30 days' prior written notice at a redemption price of
$1.00 per warrant and $0.50 per warrant, respectively, provided the
average of the closing bid prices of the Common Stock for 30
consecutive trading days exceeds $5.00 per share. All Old Warrants
must be redeemed if any are redeemed, and all Class A Warrants must be
redeemed if any are redeemed. Old Warrants and Class A Warrants that
are not redeemed and are unexercised upon expiration will be exchanged
for shares of Common Stock in the ratio of one share of Common Stock
for 500 expired Old Warrants and one share of Common Stock for 1000
expired Class A Warrants, respectively. Upon notice to the Old
Warrantholders or Class A Warrantholders, the Company has the right to
reduce the exercise price or extend the expiration date of the Old
Warrants or the Class A Warrants, as the case may be.
In December 1997, the Company extended the expiration date of the
Old Warrants from December 31, 1997 to August 31, 1998.
The exercise price of the Old Warrants and the Class A Warrants
and the number and kind of shares of Common Stock or other securities
and property issuable upon exercise of the Old Warrants and the Class
A Warrants are subject to adjustment in certain circumstances,
including a stock split of, stock dividend on, or a subdivision,
combination or capitalization of, the Common Stock or, in the case of
the Old Warrants, the sale of Common Stock at less than the market
price of the Common Stock. The 2.19 shares of Common Stock currently
issuable upon exercise of an Old Warrant and the current exercise
price of $1.83 per share give effect to an adjustment resulting from
the issuance by the Company of 24,001,029 shares of Common Stock for
$26,700,000 in July 1997.
The Old Warrants have been issued, and the Class A Warrants will
be issued, pursuant to separate warrant agreements between the Company
and American Stock Transfer & Trust Company, the warrant agent (the
"Warrant Agent"), and are and will be evidenced, respectively, by
warrant certificates in registered form. The Old Warrants do not
confer, and the Class A Warrants will not confer, upon the holders
thereof any voting or any other rights of a stockholder of the
Company.
The Old Warrants and the Class A Warrants may be exercised upon
surrender of the warrant certificate evidencing such respective
warrants on or prior to the respective expiration dates (or earlier
- 39 -<PAGE>
redemption dates) of such warrants at the offices of the Warrant Agent
with the form of "Election to Purchase" on the reverse side of the
warrant certificate completed and executed as indicated, accompanied
by payment of the full exercise price (by certified check payable to
the order of the Warrant Agent) for the number of warrants being
exercised.
The Old Warrants and the Class A Warrants are not exercisable by
a holder if (i) the shares issuable on exercise of such Old Warrants
or Class A Warrants, as the case may be, have not been registered
under the securities or blue sky laws of the state of residence of
such holder or (ii) a current prospectus meeting the requirements of
the laws of such state cannot be lawfully delivered by or on behalf of
the Company. Pursuant to the terms of the respective warrant
agreements, the Company has agreed to use reasonable efforts to
register such shares in states in which holders of warrants or Class A
Warrants are known to reside and to maintain a current prospectus
relating thereto.
TRANSFER AGENT AND OLD WARRANT AGENT
American Stock Transfer & Trust Company, New York, New York, is
the transfer and warrant agent for the Common Stock, the Old Warrants
and the Class A Warrants.
- 40 -<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the issuance of the securities
offered hereby have been passed upon for the Company by Schiff Hardin
& Waite, Chicago, Illinois.
EXPERTS
The consolidated financial statements of the Company at December 31,
1997 and 1996 and for each of the three years in the period ended
December 31, 1997 included in this Offering Circular-Prospectus and in
the Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included in
this Offering Circular-Prospectus and in the Registration Statement,
and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
FORWARD LOOKING STATEMENTS
The Company cautions readers regarding certain forward-looking
statements contained in the foregoing and elsewhere and in any other
statements made by, or on behalf of, the Company, whether or not in
future filings with the Commission. Forward-looking statements are
statements not based on historical facts. In particular, statements
using verbs such as "expect," "intend," "plan," "anticipate,"
"believe" or similar words generally involve forward-looking
statements. Forward-looking statements include but may not be limited
to, statements relating to future plans, targets and objectives,
financial results, cyclical industry conditions, government and
regulatory policies, the uncertainties of the reserving process and
the competitive environment in which the Company operates.
Forward-looking statements are based upon estimates and
assumptions that are subject to significant business, economic and
competitive uncertainties, many of which are beyond the Company's
control and subject to change. These uncertainties can affect actual
results and could cause actual results to differ materially from those
expressed in any forward-looking statements. Whether or not actual
results differ materially from forward-looking statements may depend
on numerous foreseeable and unforeseeable events or developments, some
of which may be national in scope, such as general economic conditions
and interest rates. Some of these events or developments may be
related to the insurance industry generally, such as pricing
competition, regulatory developments and industry consolidation.
Others may relate to the Company specifically, such as credit,
volatility and other risks associated with the Company's investment
portfolio, and other factors. Investors are also directed to consider
other risks and uncertainties discussed in documents filed by the
Company with the Commission. The Company disclaims any obligation to
update forward-looking information.
- 41 -<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Stockholders' Equity . . . . . . . . . F-6
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . F-7
Notes to Audited Consolidated Financial Statements . . . . . . . F-9
F-1<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
American Country Holdings Inc.
We have audited the accompanying consolidated balance sheets of
American Country Holdings Inc. and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of American Country Holdings Inc. at December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
February 24, 1998
F-2<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments (NOTES 2 AND 3):
Available-for-sale:
Fixed maturities - At fair value (amortized cost: 1997 -
$117,542,000; 1996 - $71,961,000) $119,476 $ 73,025
Equity securities - At fair value (amortized cost: 1997 -
$1,487,000; 1996 - $9,393,000) 1,622 9,743
Fixed maturities held-to-maturity - At amortized cost
(fair value: 1996 - $27,895,000) - 27,677
Mortgage loans - 2,500
Collateral loans - 62
Short-term investments - 1,230
-------- --------
Total investments 121,098 114,237
Cash and cash equivalents 8,499 9,868
Premiums receivable (net of allowance: 1997 - $265,000; 7,021 5,762
1996 - $155,000)
Reinsurance recoverable 16,254 12,900
Deferred income taxes 3,899 3,319
Deferred policy acquisition costs 2,544 2,866
Accrued investment income 1,765 1,917
Property and equipment 882 694
Other assets 699 227
-------- --------
Total assets $162,661 $151,790
======== ========
Liabilities and stockholders' equity
Liabilities:
Unpaid losses and loss adjustment expenses $ 99,087 $ 90,965
Unearned premiums 13,413 13,243
Note payable (NOTE 8) 4,800 -
Accrued expenses 4,388 4,404
Income taxes payable 2,694 365
Other liabilities 3,139 2,376
-------- --------
Total liabilities 127,521 111,353
Commitments and contingent liabilities (NOTES 11 AND 12)
F-3<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
DECEMBER 31
1997 1996
---- ----
(IN THOUSANDS)
Stockholders' equity (NOTES 1 AND 7):
Common stock - $.01 par value:
Authorized - 60,000,000 shares
Issued and outstanding - shares: 1997 - 32,036,000; 320 356
1996 - 35,557,000
Preferred stock: Authorized - 2,000,000 shares;
Issued and outstanding - 0 shares
Additional paid-in capital 36,848 621
Net unrealized investment gains 1,930 919
Unfunded pension loss (854) (887)
Retained earnings (deficit) (3,104) 39,428
-------- --------
Total stockholders' equity 35,140 40,437
-------- --------
$162,661 $151,790
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-4<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
1997 1996 1995
---- ---- ----
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
REVENUES
Premiums earned $59,814 $60,550 $56,909
Net investment income 7,025 7,032 6,465
Net realized gains on investments 1,613 915 222
Other income 331 219 150
------ ------ ------
Total revenues 68,783 68,716 63,746
LOSSES AND EXPENSES
Losses and loss adjustment expenses 53,149 48,845 45,305
Amortization of deferred policy
acquisition costs 9,104 8,993 8,119
Insurance and general expenses 3,968 3,867 3,066
------ ------ ------
Total losses and expenses 66,221 61,705 56,490
------ ------ ------
Income before income taxes 2,562 7,011 7,256
Provision for income tax (NOTE 5):
Current 4,163 2,320 2,195
Deferred (credit) (3,670) (334) 92
------ ------ ------
493 1,986 2,287
------ ------ ------
Net income $ 2,069 $ 5,025 $ 4,969
======= ======= =======
Basic and dilutive earnings per share $ .06 $ .14 $ .14
======= ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET
ADDI- UNREALIZED TOTAL
TIONAL UNFUNDED INVESTMENT RETAINED STOCK-
NUMBER COMMON PAID-IN PENSION GAINS EARNINGS HOLDERS'
OF SHARES STOCK CAPITAL LOSS (LOSSES) (DEFICIT) EQUITY
--------- ----- ------- ---- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 2,500 $2,500 $ 621 $ - $(2,060) $32,790 $33,851
Adjusted for reverse
acquisition (NOTE 1) 33,057 (2,144) - - - 2,144 -
Net income - - - - - 4,969 4,969
Change in net unrealized
investment gains - - - - 4,247 - 4,247
Dividends to stockholder - - - - - (3,000) (3,000)
------ ------ ------ ------ ------ ------ ------
Balance at December 31, 1995 35,557 356 621 - 2,187 36,903 40,067
Net income - - - - - 5,025 5,025
Change in net unrealized
investment gains - - - - (1,268) - (1,268)
Dividends to stockholder - - - - - (2,500) (2,500)
Pension liability, net of deferred - - - (887) - - (887)
taxes (NOTE 9) ------ ------ ------ ------ ------ ------- -------
Balance at December 31, 1996 35,557 356 621 (887) 919 39,428 40,437
Redemption of shares recognized
as part of reverse Acquisition (35,557) (356) (621) - - (39,273) (40,250)
Acquisition of Western Systems 7,903 79 10,205 - - (5,328) 4,956
Issuance of additional shares 24,001 240 26,427 - - - 26,667
Issuance of additional shares upon
exercise of options and warrants 132 1 216 - - - 217
Net income - - - - - 2,069 2,069
Change in net unrealized
investment gains - - - - 1,011 - 1,011
Change in pension liability, net of - - - 33 - - 33
deferred taxes (NOTE 9) ------ ------ ------- ------ ------ ------- -------
Balance at December 31, 1997 32,036 $ 320 $36,848 $(854) $1,930 $(3,104) $35,140
====== ====== ======= ====== ====== ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-6<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,069 $ 5,025 $ 4,969
Adjustments to reconcile net income to net
cash provided by operating activities:
Change in premiums receivables and
reinsurance recoverables (4,613) (6,203) 717
Change in reserve for unpaid losses and
loss adjustment expenses 8,122 9,332 8,424
Change in reserve for unearned premiums 170 274 459
Amortization of deferred policy
acquisition costs 9,104 8,993 8,119
Deferred policy acquisition costs capitalized (8,782) (8,888) (8,831)
Net realized gains on investments (1,613) (915) (222)
Provision for depreciation 309 252 502
Other (810) (440) (823)
------- ------- -------
Net cash provided by operating activities 3,956 7,430 13,314
INVESTING ACTIVITIES
Fixed maturities - Available-for-sale:
Purchases (141,633) (22,924) (24,211)
Sales 109,759 592 208
Maturities, calls, and prepayments 10,038 5,965 1,338
Equity securities - Available-for-sale:
Purchases (1,968) (2,595) (1,817)
Sales 10,646 5,193 6,884
Fixed maturities - Held-to-maturity:
Purchases - (482) (3,388)
Maturities, calls, and prepayments 4,715 8,252 8,680
Net sales of short-term investments 1,230 3,314 166
Sale or maturity of other investments 2,562 1,066 1,706
Property and equipment and other (496) (55) (380)
Business combination - Net of cash acquired (31,862) - -
------- ------- -------
Net cash provided (used) by investing activities (37,009) (1,674) (10,814)
F-7<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
YEAR ENDED DECEMBER 31
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
FINANCING ACTIVITIES
Proceeds from note payable 4,800 - -
Issuance of common stock 26,667 - -
Issuance of options and warrants 217 - -
Dividends paid to stockholder - (2,500) (3,000)
------- ------- -------
Net cash provided (used) by financing activities 31,684 (2,500) (3,000)
------- ------- -------
Net increase (decrease) in cash (1,369) 3,256 (500)
Cash and cash equivalents at beginning of year 9,868 6,612 7,112
------- ------- -------
Cash and cash equivalents at end of year $ 8,499 $ 9,868 $ 6,612
======= ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-8<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
BUSINESS COMBINATION
On July 29, 1997, The Western Systems Corp. (Western Systems) acquired
substantially all the assets and assumed substantially all the
liabilities of American County Insurance Company (American County) and
its wholly owned subsidiary, American Country Financial Services Corp.
for a purchase price of $40,300,000. Financing for the Acquisition
was provided by Western Systems' cash on hand, the issuance of Western
Systems common stock, and a line-of-credit agreement. Following the
Acquisition, Western Systems changed its name to American Country
Holdings Inc. (ACHI or the Company) to better reflect its core
property and casualty and premium finance business.
For financial reporting purposes, because certain former shareholders
of the previous Parent of American Country acquired a 50% interest in
the Company as a result of purchasing shares of common stock that were
issued in connection with the Acquisition, the business combination
has been accounted for as a reverse Acquisition whereby American
Country was deemed to have acquired the Company. Financial statements
for the Company for periods prior to the business combination date
(July 29, 1997), are those of American Country. The operations of the
Company are included in the accompanying financial statements from the
date of the business combination.
The valuation of ACHI assets and liabilities were recorded at fair
market value that is consistent with their historical book value based
on the nature of the transaction. The following pro forma data is
presented as if the acquisition had occurred on January 1, 1996:
YEAR ENDED DECEMBER 31
1997 1996
-------------- --------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Revenues $68,783 $68,716
Net income 2,069 4,528
Net income per share .06 .14
F-9<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION (CONTINUED)
NATURE OF OPERATIONS
American Country is a property and casualty insurance company,
domiciled in the State of Illinois, which underwrites and markets
specialty transportation, commercial, and personal lines of insurance.
Transportation lines, principally liability and collision coverage for
taxicabs and limousine companies in the city of Chicago and
surrounding suburbs, accounted for approximately 43% of American
County's 1997 direct premiums. Commercial lines, principally workers'
compensation, multiperil and auto liability and physical damage
accounted for approximately 44% of American Country's direct premiums
written in 1997, and the related policies were marketed to artisan
contractors and distributors, restaurants, and transportation
companies. Personal lines, primarily auto and homeowners' policies,
accounted for the balance. American County Financial Services Corp.
operates principally as a premium finance company.
Yellow Cab Company was an affiliate of American Country prior to
December 31, 1996, and accounted for $10,972,000, $11,299,000, and
$11,080,000 in 1997, 1996, and 1995, respectively, of premiums earned.
In addition, included in premiums earned is $7,447,000, $7,590,000,
and $6,179,000 in 1997, 1966, and 1995, respectively, related to
Checker Taxi members.
Prior to January 3, 1997, Western Systems primarily operated under a
franchise agreement with Transmedia Network, Inc. (Transmedia) which
granted Western Systems the right to operate a franchise in
California, Washington, Oregon, and certain parts of Nevada. The
franchise provided the Rights to Receive food and beverage credits
from restaurants that accept the Transmedia restaurant card. On
January 3, 1997, Western Systems sold its Transmedia franchise. At
July 29, 1997, Western Systems had no operating activities and its
business consisted primarily of managing the cash and cash equivalents
of Western Systems. Prior to the Acquisition, Western Systems was a
public shell actively seeking a business combination with an operating
business that would use all of its available cash.
F-10<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying consolidated financial statements of the Company have
been prepared in conformity with generally accepted accounting
principles and include the accounts and operations of ACHI and its
wholly owned subsidiaries, American Country and ACFS. Significant
intercompany accounts and transactions have been eliminated.
Use of Estimates
----------------
The preparation of financial statements of insurance companies
requires management to make estimates and assumptions that affect
amounts reported in the financial statements and accompanying notes.
Such estimates and assumptions could change in the future as more
information becomes known which could impact the amounts reported and
disclosed herein.
Premium Revenue
---------------
Premiums are earned pro rata over the terms of the policies. The
reserve for unearned premiums is determined on a daily basis.
Losses and Loss Adjustment Expenses
-----------------------------------
Losses and loss adjustment expenses (LAE) represent the estimated
ultimate net cost of all reported and unreported losses incurred
through December 31. The reserves for unpaid losses and LAE are
estimated using individual case-basis valuations and statistical
analyses and are not discounted. Those estimates are subject to the
effects of trends in loss severity and frequency. Although
considerable variability is inherent in the estimates of reserves for
losses and LAE, management believes that the reserves for losses and
LAE are adequate. The estimates are continually reviewed and adjusted
as necessary as experience develops or new information becomes known;
such adjustments are included in current operations. Salvage and
subrogation recoveries are accrued when the related losses are
incurred.
F-11<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reinsurance
-----------
Reinsurance premiums, losses, and LAE are accounted for on bases
consistent with those used in accounting for the original policies
issued and the terms of the reinsurance contracts. Premiums earned
and losses incurred ceded to other companies have been reported as a
reduction of premium revenue and losses and LAE. Commissions allowed
by reinsurers on business ceded have been accounted for as a reduction
of the related policy acquisition costs. Reinsurance recoverables are
reported relating to the portion of reserves and paid losses and LAE
that are ceded to other companies.
Deferred Policy Acquisition Costs
---------------------------------
Costs of acquiring new business, principally commissions and premium
taxes, are deferred and amortized as the related premium is earned.
Investments
-----------
The Company follows Financial Accounting Standards Board (FASB)
Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which requires categorization of fixed maturities
either as held to maturity, available for sale, or trading and equity
securities as available for sale or trading.
Fixed maturities (bonds and redeemable preferred stocks) that the
Company has both the positive intent and ability to hold to maturity
are carried at amortized cost. Fixed maturities that the Company does
not have the positive intent and ability to hold to maturity and all
equity securities (common stocks and nonredeemable preferred stocks)
are classified as available-for-sale and are reported at fair value.
Unrealized gains and temporary unrealized losses on fixed maturities
available for sale and equity securities are excluded from income and
are recorded directly to stockholders' equity, net of related deferred
income taxes. The Company has not classified any fixed maturity or
equity securities as trading.
FASB Statement No. 115, allows companies to transfer securities
between categories for events that are isolated, nonrecurring, and
unusual for the reporting enterprise that could not have been
reasonably anticipated. Accordingly, in connection with the
Acquisition, the Company chose to reclassify all held to maturity
F-12<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
securities to available for sale. As a result, the Company
transferred its $23,000,000 to held to maturity fixed maturities to
available for sale resulting in a $300,000 increase to unrealized
investment gains. The Company no longer holds any fixed maturities as
held to maturity.
Mortgage and collateral loans are carried at amortized cost. Short-
term investments are carried at cost, which approximates fair value,
and include investments with maturities of less than one year at the
date of acquisition.
Net investment income consists primarily of interest and dividends
less expenses. Interest on fixed maturities and mortgage loans,
adjusted for any amortization of discount or premium, is recorded as
income when earned and includes adjustments resulting from anticipated
prepayments of collateralized mortgage obligations. Investment
expenses are accrued as incurred. Realized investment gains or losses
are computed using specific costs of securities sold, and include
write-downs on investments having an other-than-temporary decline in
value.
Income Taxes
------------
American Country's federal income tax return for 1996 was consolidated
with Great Dane Holdings Inc. and subsidiaries for the year ending
December 31, 1996, and for the period January 1, 1997 to April 16,
1997. American Country's federal income tax return for 1995 was
consolidated with Great Dane Holdings Inc. and subsidiaries. Income
tax expense is computed on a separate company basis.
For the period April 17, 1997 through July 29, 1997, American Country
will file a consolidated return with its Parent, during that period
American Country Holdings Corp. Effective with the Acquisition the
Company will file its tax return on a consolidated basis with its
subsidiaries.
Deferred income tax has been provided for the effects of temporary
differences between financial reporting and tax bases of assets and
liabilities and has been measured using the enacted marginal tax rates
and laws that are currently in effect.
F-13<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
----------------------
Property and equipment, primarily data processing equipment and
leasehold improvements, are reported at depreciated cost, with
depreciation recorded on a straight-line basis with lives of five
years for data processing equipment and a range of six to eleven years
for leasehold improvements. Accumulated depreciation amounted to
$2,853,000 and $2,545,000 at December 31, 1997 and 1996, respectively.
Stock Options
-------------
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," (APB 25) and
related interpretations in accounting for its employee stock options
rather than the alternative fair value accounting provided for under
Financial Accounting Standards Board (FASB) Statement No. 123,
"Accounting for Stock-Based Compensation." Under APB 25, because the
exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Earnings Per Share
------------------
Basic earnings per share is computed based on the weighted-average
number of common shares outstanding, excluding any dilutive effect of
options and warrants. Dilutive earnings per share is computed based
on the weighted-average number of common shares outstanding plus the
dilutive effects of options and warrants. The dilutive effect of
options and warrants is calculated under the treasury stock method
using the average market price for the period. Earnings per share is
calculated as follows in thousands, except per share data:
F-14<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Year ended December 31
1997 1996 1995
---- ---- ----
Net income $ 2,069 $ 5,025 $ 4,969
======= ======= =======
Basic shares outstanding $34,028 $35,557 $35,557
Shares for options and warrants 431 - -
------- ------- -------
Dilutive shares outstanding $34,459 $35,557 $35,557
======= ======= =======
Basic and dilutive earnings per share .06 .14 .14
======= ======= =======
Cash Flows
----------
Short-term investments, consisting principally of commercial paper
which have a maturity of 90 days or less at date of purchase, are
considered cash equivalents.
Financial Instruments
---------------------
Fair value for fixed maturity and equity securities is based on quoted
market prices or, if they are not actively traded, on estimated values
obtained from independent pricing services. Fair values of other
financial instruments approximate their carrying values.
Accounting Changes
------------------
In 1997, the FASB issued Statement No. 128, "Earnings Per Share." The
Company adopted this statement in its December 31, 1997 financial
statements and has restated prior periods presented as required.
Implementation of this Statement did not have any effect on the
Company's financial statements.
In 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for reporting and
classifying components of comprehensive income in the financial
F-15<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
statements and requires that the accumulated balance of other
comprehensive income be displayed separately from retained earnings
and additional paid-in capital in the equity section of a balance
sheet.
The FASB also issued Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information," in 1997. This Statement
establishes standards for providing disclosures related to products
and services, geographic area, and major customers. The Company
anticipates adopting these statements in its 1998 financial statements
as required. Implementation of these statements is not expected to
have a material effect on the Company's financial statements.
Reclassification
----------------
Certain amounts in the prior years' consolidated financial statements
have been reclassified to conform to the 1997 presentation.
F-16<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
The components of net investment income are as follows:
YEAR ENDED DECEMBER 31
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
Fixed maturities $6,724 $6,496 $5,719
Equity securities 524 695 768
Short-term investments 678 356 473
Other 224 299 424
------ ------ ------
Gross investment income 8,150 7,846 7,384
Investment expenses 1,125 814 919
------ ------ ------
Net investment income $7,025 $7,032 $6,465
====== ====== ======
Realized gains on investments are as follows:
YEAR ENDED DECEMBER 31
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
Fixed maturities:
Gross gains $1,053 $ 61 $ 100
Gross losses (213) (7) (82)
Equity securities:
Gross gains 904 991 560
Gross losses (131) (130) (356)
------ ------ ------
$1,613 $ 915 $ 222
====== ====== ======
F-17<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The components of net unrealized gains (losses) are as follows:
YEAR ENDED DECEMBER 31
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
Fixed maturities available-for-sale $1,934 $1,064 $2,665
Equity securities available-for-sale 135 350 700
Deferred tax charge (139) (495) (1,178)
------ ------ ------
Net unrealized investment gains (losses) $1,930 $ 919 $2,187
====== ====== =====
In connection with the Acquisition, the tax basis of certain assets
and liabilities changed. As a result, the deferred tax charge related
to the net unrealized investment gains at December 31, 1997 of
$139,000 does not represent the corporate federal income tax rate of
34%.
The changes in net unrealized investment gains (losses) are as
follows:
YEAR ENDED DECEMBER 31
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
Fixed maturities available-for-sale $ 870 $(1,601) $4,221
Equity securities available-for-sale (215) (350) 2,399
Deferred tax credit (charge) 356 683 (2,373)
------ ------- ------
Total $1,011 $(1,268) $4,247
====== ======= ======
The change in net unrealized investment gains (losses) on fixed
maturities held-to-maturity was $(218,000), $(596,000), and $2,359,000
for the years ended December 31, 1997, 1996, and 1995, respectively.
F-18<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The following is a summary of held-to-maturity securities and
available-for-sale securities:
GROSS UNREALIZED
-----------------
AMORTIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
(In Thousands)
DECEMBER 31, 1997
AVAILABLE-FOR-SALE SECURITIES
Fixed maturities:
U.S. government $ 21,105 $ 233 $ 10 $ 21,328
States and political subdivision 37,001 775 76 37,700
Foreign governments 249 11 - 260
Corporate securities 43,659 1,223 103 44,779
Mortgage-backed securities 15,528 149 268 15,409
Total fixed maturities 117,542 2,391 457 119,476
-------- ------ ---- --------
Equity securities 1,487 137 2 1,622
-------- ------ ---- --------
Total $119,029 $2,528 $459 $121,098
======== ====== ==== ========
DECEMBER 31, 1996
AVAILABLE-FOR-SALE SECURITIES
Fixed maturities:
States and political subdivisions $ 19,501 $ 310 $ 37 $ 19,774
Foreign governments 248 5 - 253
Corporate and other 52,212 1,234 448 52,998
-------- ------ ---- --------
Total fixed maturities 71,961 1,549 485 73,025
Equity securities 9,393 568 218 9,743
-------- ------ ---- --------
Total $ 81,354 $2,117 $703 $ 82,768
======== ====== ==== ========
F-19<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
GROSS UNREALIZED
-----------------
AMORTIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
(In Thousands)
HELD-TO-MATURITY SECURITIES
Fixed maturities:
U.S. government and agencies $ 3,313 $ 124 $ 14 $ 3,423
States and political subdivisions 8,304 64 13 8,355
Corporate and other 16,002 173 118 16,057
Mortgage-backed securities 58 2 - 60
------- ------ ---- --------
Total $ 27,677 $ 363 $145 $ 27,895
======== ====== ==== ========
The amortized cost and fair value of fixed maturities by contractual
maturity at December 31, 1997, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with our without call or
prepayment penalties.
AMORTIZED FAIR
COST VALUE
---- -----
(IN THOUSANDS)
Due in one year or less $ 1,584 $ 1,596
Due after one year through five years 46,137 46,816
Due after five years through ten years 28,075 28,573
Due after ten years 26,218 27,082
Mortgage-backed-securities 15,528 15,409
-------- --------
$117,542 $119,476
======== ========
At December 31, 1997, investments in fixed maturities with an admitted
asset value of $2,718,000 were on deposit with state insurance
departments to satisfy regulatory requirements.
F-20<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REINSURANCE
Certain premiums and losses and LAE are assumed from, and ceded to,
other insurance companies under various reinsurance agreements. Those
agreements principally provide the Company with increased capacity to
write larger risks and to maintain its exposure to loss within its
capital resources.
Assumed and ceded reinsurance arrangements are summarized as follows:
YEAR ENDED DECEMBER 31
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
ASSUMED REINSURANCE
Premiums written $ 840 $ 1,206 $2,037
Premiums earned 862 1,344 1,921
Losses and LAE 598 495 1,165
Losses and LAE reserves* 2,575 2,769 3,332
Unearned premium reserves * 264 286 424
CEDED REINSURANCE
Premiums written 8,338 7,067 7,354
Premiums earned 8,432 7,004 7,530
Losses and LAE 6,261 7,184 3,929
Losses and LAE reserves* 15,114 11,515 7,051
Unearned premium reserves* 703 797 733
*As of year-end.
The Company remains obligated for amounts reinsured in the event that
reinsurers do not meet their obligations.
F-21<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. FEDERAL INCOME TAXES
Reconciliation of the corporate federal income tax rate to the
Company's effective income tax rates are as follows:
Year ended December 31
1997 1996 1995
---- ---- ----
Corporate federal income tax rate 34% 35% 35%
Nontaxable investment income (15) (9) (8)
State income taxes - 5 4
Other - (3) -
--- --- ---
Effective income tax rate 19% 28% 31%
=== === ===
Significant components of the Company's deferred tax liabilities and
assets are as follows:
DECEMBER 31
1997 1996
---- ----
(IN THOUSANDS)
Deferred tax assets:
Insurance reserves $4,497 $4,433
Pension liability 440 478
Other - Net 274 338
----- -----
Total deferred tax assets 5,211 5,249
===== =====
Deferred tax liabilities:
Policy acquisition costs 865 1,003
Unrealized investment gains 139 495
Other - Net 308 432
----- -----
Total deferred tax liabilities 1,312 1,930
----- ------
Net deferred tax assets $3,899 $3,319
====== ======
F-22<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. FEDERAL INCOME TAXES (CONTINUED)
The nature of the Company's deferred tax assets and liabilities is
such that the reversal pattern for these temporary differences should
generally result in realization of the deferred tax assets.
Accordingly, no valuation allowance is considered necessary.
Taxes paid amounted to $1,410,000, $1,550,000, and $1,796,000 for
1997, 1996, and 1995, respectively.
F-23<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LOSSES AND LOSS ADJUSTMENT EXPENSES
The following table provides a reconciliation of the beginning and
ending reserve balances for losses and LAE:
YEAR ENDED DECEMBER 31
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
Balance at January 1 $90,965 $81,633 $73,209
Less reinsurance recoverables 11,515 7,051 6,716
------ ------ ------
Net balance at January 1 79,450 74,582 66,493
Add net incurred claims related to:
Current year 53,613 47,878 48,382
Prior years (464) 967 (3,077)
------ ------ ------
Total net claims incurred 53,149 48,845 45,305
Deduct net claims paid related to:
Current year 19,624 18,044 14,709
Prior years 29,002 25,933 22,507
------ ------ ------
Total net claims paid 48,626 43,977 37,216
------ ------ ------
Net balance at December 31 83,973 79,450 74,582
Plus reinsurance recoverables 15,114 11,515 7,051
------ ------ ------
Balance at December 31 $99,087 $90,965 $81,633
======= ======= =======
F-24<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDER'S EQUITY
Statutory accounting practices prescribed or permitted for American
Country by regulatory authorities differ from generally accepted
accounting principles. American Country's statutory-basis capital and
surplus was $34,555,000 and $34,080,000 at December 31, 1997 and 1996,
respectively, and American Country's statutory-basis net income was
$2,590,000, $4,088,000, and $3,905,000 for the years ended
December 31, 1997, 1996, and 1995, respectively.
Property/casualty insurance companies are subject to certain Risk-
Based Capital (RBC) requirements as specified by the National
Association of Insurance Commissioners. Under those requirements, the
amount of statutory capital and surplus maintained by a
property/casualty insurance company is to be determined based on the
various risk factors. At December 31, 1997, American Country exceeds
the RBC requirements.
The maximum amount of dividends that can be paid from American Country
to ACHI without regulatory approval is the greater of net income or
10% of capital and surplus, each as of the preceding December 31.
Accordingly, the maximum total dividend amount available in 1998 is
$3,455,000. American Country did not declare or pay dividends to ACHI
during 1997.
In July 1997, the Company changed the par value of its common stock to
$.01 per share from $.60 per share. The change in the par value of
the common stock resulted in a decrease to common stock and a
corresponding increase in additional paid-in capital and has been
recorded retroactively in the accompanying consolidated balance
sheets.
In connection with the Acquisition, the Company sold and issued
16,000,000 shares of its common stock to certain former shareholders
of the former Parent of American Country and 8,000,000 shares of its
common stock to Frontier Insurance Group. The proceeds from the
issuance of the common stock were $26,700,000.
At December 31, 1997, the Company had 2,058,000 warrants outstanding.
The warrants allow the warrant holder to purchase 2.19 shares of
common stock at a price of $1.83 per share through August 31, 1998.
F-25<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. DEBT
In connection with the Acquisition, the Company entered into a line-
of-credit agreement with a bank. Under the terms of the agreement,
the Company may borrow up to $7,000,000 at a floating rate of
interest. The amount of funds that may be borrowed under the
agreement is reduced to $4,667,000 at July 2000, $2,333,000 at July
2001, and expires in July 2002. At December 31, 1997, the unused
portion of the line of credit is $2,200,000. The weighted-average
interest rate on the outstanding line of credit is 7.5% as of December
31, 1997. Total interest expense and interest paid in 1997 was
$161,000 and $129,000, respectively.
The line-of-credit agreement contains various debt covenants including
certain financial covenants and commitments fees, which are .3870% per
annum of the unused line of credit.
F-26<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFITS
Retirement Plan
---------------
Substantially all salaried employees of the Company who are at least
21 years of age are eligible to participate in a 401(k) retirement
plan. Employees may contribute from 1% to 15% of their eligible
compensation to the plan. The Company matches 25% of employee
contributions up to a maximum of 8% of eligible compensation. Total
contributions by the Company to the plan were $83,000, $76,000, and
$73,000 in 1997, 1996, and 1995, respectively.
Pension Plan
------------
Prior to December 4, 1996, substantially all salaried employees of the
Company were covered by a defined-benefit pension plan sponsored by
its former Parent. Benefits were based on the employee's length of
service and wages and benefits, as defined by the plan. The former
Parent's funding policy of the plan was generally to contribute
amounts required to maintain funding standards in accordance with the
Employee Retirement Income Security Act. Pension cost allocated to
the Company amounted to $265,000 and $175,000 in 1996 and 1995,
respectively.
In connection with the change in ownership discussed in Note 1, the
plan was split up and a separate defined-benefit pension plan for the
Company was established. Accordingly, effective December 4, 1996,
substantially all salaried employees of the Company were covered by a
defined-benefit pension plan sponsored by the Company. Benefits and
funding for the new plan are consistent with the plan in which
employees were previously participants.
A summary of the components of the net periodic pension cost for this
new plan, at December 31, 1997, is as follows (in thousands):
Service cost $258
Interest cost 192
Actual return on plan assets (101)
Net amortized and deferral 24
----
Net periodic pension cost $373
====
F-27<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFITS (CONTINUED)
The Company recognized a net accrued pension liability of $1,294,000
and $1,365,000 at December 31, 1997 and 1996, respectively,
representing the unfunded portion of the separate plan as a result of
the split up of the previous pension plan. The net accrued pension
liability also resulted in a decrease of $854,000 and $887,000 in 1997
and 1996, respectively, in stockholders' equity and a deferred tax
asset of $440,000 and $478,000 at December 31, 1997 and 1996,
respectively.
Effective December 31, 1997, upon resolution by the board of
directors, the plan is frozen.
The following table sets forth the funded status and amounts
recognized in the consolidated balance sheets as of December 31 for
the Company's defined-benefit pension plan:
1997 1996
---- ----
(IN THOUSANDS)
Actuarial present value of benefit obligations:
Vested benefit obligation $2,336 $1,902
====== ======
Accumulated benefit obligation $2,677 $2,208
====== ======
Projected benefit obligation $2,677 $2,518
Plan assets (principally guaranteed investment
contracts with insurance companies) 1,383 1,247
------ ------
Projected benefit obligation in excess
of plan assets 1,294 1,271
Unrecognized net gain - (23)
Unrecognized prior service cost - (9)
Unrecognized net transition obligation - 126
------ ------
Accrued pension liability $1,294 $1,365
====== ======
F-28<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFITS (CONTINUED)
The unrecognized net gain, prior service cost, and transition
obligation are being amortized over a 15-year period. Other
assumptions used in the calculation of the actuarial present value of
the projected benefit obligation were as follows:
1997 1996
---- ----
Assumed discount rate 7.00% 7.50%
Rate of compensation increase 3.00 3.00
Expected long-term rate of return on plan assets 8.00 9.00
Postretirement Benefits Other Than Pensions
-------------------------------------------
In addition to the defined-benefit plan and the 401(k) retirement
plan, substantially all salaried employees of the Company are covered
by a postretirement benefit plan. The plan is noncontributory and
provides medical and life insurance benefits for employees who retire
after attaining age 62 with 25 years of service. The net periodic
postretirement benefit cost was $70,000, $73,000, and $76,000 during
1997, 1996, and 1995, respectively. The accumulated postretirement
benefit cost at December 31, 1997 and 1996, was $584,000 and $537,000,
respectively.
F-29<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLAN
Effective with the Acquisition, the Company obtained a Stock Option
Plan (the Plan), as amended, under which options to purchase up to a
maximum of 750,000 shares of common stock may be granted to officers
and other key employees. Stock options granted under this Plan, which
may be either incentive stock options or nonqualified stock options
for federal income tax purposes, expire up to ten years after date of
grant and become exercisable over a three-year period. Employees who
have left the Company have 90 days to exercise their options. In
December 1996, the stockholders agreed to an amendment to the Plan,
whereby all options outstanding would become immediately exercisable,
without regard to vesting provisions, upon the sale of the assets of
the Company.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123. For the purposes of pro forma
disclosures, the estimated fair value of the options is amortized to
expense over the options vesting period. As a result of the Plan
amendment whereby the options were 100% vested prior to the
Acquisition, there is no pro forma effect on net income and earnings
per share for the Company, as any pro forma income statement impact
would have been recorded by Western Systems prior to the Acquisition.
A summary of the Company's stock option activity and related
information for the year ended December 31, 1997, consists of the
following (in thousands):
F-30<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLAN (CONTINUED)
WEIGHTED-
AVERAGE
EXERCISE
OPTIONS PRICE
------- -----
July 29, 1997 - Obtained through Acquisition 474 2.24
Canceled (28) 1.34
Exercised (56) 1.72
--- ----
Outstanding at end of year 390 2.43
=== ====
A summary of options outstanding and options exercisable at December
31, 1997, is as follows (in thousands):
Weighted-Average Weighted-
Range of Shares Remaining Life Average Exercise
Exercise Prices Outstanding (Years) Price
---------------- ----------- ------ -----
$.60 45 5.6 $ .60
1.76 - 2.75 125 3.2 2.31
2.76 - 3.75 220 5.9 3.20
----------- --- --- -----
$.60 - 3.75 390 4.3 $2.59
=========== === === =====
All of the shares outstanding at December 31, 1997, are exercisable.
F-31<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS
American Country leases office space and equipment under noncancelable
operating leases expiring in various years through 2002. Certain of
those leases provide for escalation based on increases in operating
expenses and the Consumer Price Index. Rent expense was $870,000,
$816,000, and $821,000 in 1997, 1996, and 1995, respectively.
At December 31, 1997, future rental commitments under those leases are
as follows (in thousands):
1998 $ 841
1999 873
2000 878
2001 884
2002 719
Thereafter -
------
$4,195
======
12. CONTINGENCIES
The Company is named as defendant in various legal actions arising
principally from claims made under insurance policies and contracts.
Those actions are considered by the Company in estimating the reserves
for losses and LAE. The Company's management believes that the
resolution of those actions will not have a material adverse effect on
the Company's financial position or results of operations.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounting standards require the disclosure of fair values for certain
financial instruments. The fair value disclosures are not intended to
encompass the majority of claim liabilities, various other
nonfinancial instruments, or other assets related to the Company's
business. Accordingly, care should be exercised in deriving
conclusions about the Company's business or financial condition based
on the fair value disclosures.
The Company does not have any financial instruments held or issued for
trading purposes. The carrying value and fair value of certain of the
Company's financial instruments are as follows:
F-32<PAGE>
AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities and equity securities (NOTE 3) $121,099 $121,099 $110,445 $110,663
Mortgage loans on real estate - - 2,500 2,500
Collateral loans - - 62 62
Cash, receivables, and short-term investments 15,520 15,520 16,860 16,860
Accrued investment income 1,765 1,765 1,917 1,917
LIABILITIES
Accrued expenses 4,356 4,356 4,404 4,404
</TABLE>
F-33<PAGE>
<TABLE>
<CAPTION>
<S> <C>
=============================================== ===============================================
No dealer, salesman, or any other THE EXCHANGE AGENT:
person has been authorized to give any
information or to make any representations AMERICAN STOCK TRANSFER & TRUST COMPANY
other than those contained in this Offering REORGANIZATION DEPARTMENT
Circular-Prospectus in connection with the 40 Wall Street
offering herein contained and, if given or 46th Floor
made, such information or representations must New York, New York 10005
not be relied upon as having been authorized by
the Company. This Offering Circular-Prospectus
does not constitute an offer to sell, or a
solicitation of an offer to buy, the securities Offer to Exchange One Redeemable
offered hereby in any jurisdiction to any Common Stock Purchase Warrant and
person to whom it is unlawful to make an offer $4.00 Cash for 2.19 Shares of Common
or solicitation. Neither the delivery of this Stock and 2.19 Class A Redeemable
Offering Circular-Prospectus nor any sale made Common Stock Purchase Warrants
hereunder shall, under any circumstances,
create an implication that there has been no
change in the facts herein set forth since the
date hereof.
____________________
TABLE OF CONTENTS American Country Holdings Inc.
Page
----
Available Information . . . . . . . . . . . . 4
Incorporation of Certain Information
by Reference . . . . . . . . . . . . . . . 5
Summary . . . . . . . . . . . . . . . . . . . 7
Risk Factors . . . . . . . . . . . . . . . . 14
The Offer . . . . . . . . . . . . . . . . . . 21
The Company . . . . . . . . . . . . . . . . . 32
Use of Proceeds . . . . . . . . . . . . . . . 34 __________________________________________
Price Range of Common Stock OFFERING CIRCULAR - PROSPECTUS
and Old Warrants . . . . . . . . . . . . . 35 __________________________________________
Selected Consolidated Financial Data . . . . 36
Description of Securities . . . . . . . . . . 38
Legal Matters . . . . . . . . . . . . . . . . 41
Experts . . . . . . . . . . . . . . . . . . . 41
Forward Looking Statements . . . . . . . . . 41
Index to Consolidated Financial
Statements . . . . . . . . . . . . . . . . F-1 ________, 1998
=============================================== ===============================================<PAGE>
</TABLE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTIONS.
Set forth below is an estimate of the approximate amount of fees
and expenses payable by the Registrant in connection with the issuance
and distribution of the securities to be registered pursuant to the
Offering Circular-Prospectus contained in this Registration Statement.
APPROXIMATE
AMOUNT
-----------
Securities and Exchange Commission $ 2,589.05
registration fee . . . . . . . . . . .
Nasdaq SmallCap Market listing fee . . 13,735.00
Accountants' fees and expenses . . . . 3,000.00
Blue Sky fees and expenses . . . . . . *
Legal fees and expenses . . . . . . . . *
Exchange Agent fees and expenses . . . 3,500.00
Printing and engraving expenses . . . . *
Miscellaneous . . . . . . . . . . . . . *
----------
Total . . . . . . . . . . . . . . $ *
==========
_____________
* To be completed by amendment.
II-1<PAGE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of the Registrant provides that
(i) any person may be indemnified against all expenses and liabilities
to the fullest extent permitted by the General Corporation Law of the
State of Delaware (the "DGCL") and (ii) the liability of directors may
be limited or eliminated to the fullest extent permitted by the DGCL
except for liability (a) for any breach of a director's duty of
loyalty to the Company or its stockholders, (b) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL or (d) for any
transactions from which a director derived an improper personal
benefit.
Section 145 of the DGCL, the law of the state in which the
Registrant is incorporated, empowers a corporation within certain
limitations to indemnify any person against expenses, including
attorney's fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with any suit or
proceeding to which he is a party by reason of the fact that he is or
was a director, officer, employee or agent of the corporation or is or
was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, as long as he acted in good faith and in a
manner which he reasonably believed to be in, or not opposed to, the
best interests of the corporation. With respect to any criminal
proceeding, he must have had no reasonable cause to believe his
conduct was unlawful.
The Registrant also has in effect directors' and officers'
liability insurance.
II-2<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The following documents are filed as a part of this
Registration Statement:
Exhibit Document
------- --------
4.1 Specimen Common Stock Certificate.*
4.2 Warrant Agreement, dated as of June 25, 1993,
between the Registrant and American Stock Transfer
& Trust Company, as Warrant Agent (incorporated by
reference to Exhibit 4(c) to the Registrant's
Registration Statement on Form S-1 (Reg. No. 33-
84234) (the "Form S-1")).
4.3 Form of Amendment to Warrant Agreement
(incorporated by reference to Exhibit 4(d) to the
Form S-1).
4.4 Form of Warrant Certificate (incorporated by
reference to Exhibit 4(b) to the Form S-1).
4.5 Form of Class A Warrant Agreement.
4.6 Form of Class A Warrant Certificate.*
5.1 Opinion of Schiff Hardin & Waite.*
12.1 Statement of Computation of Earnings to Fixed
Charges (incorporated by reference to Exhibit 12
to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997).
23.1 Consent of Ernst & Young LLP.
23.4 Consent of Schiff Hardin & Waite (included in
Exhibit 5.1).*
24.1 Power of Attorney (included on page II-4).
99.1 Letter of Transmittal.
___________
* To be filed by amendment.
(b) Financial Statement Schedules
None.
II-3<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
Registration Statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA
FIDE offering thereof; and
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act, each
filing of the Registrant's annual report pursuant to Section 13(a) or
15(d) of the Exchange Act (and, where applicable, each filing of any
employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering
thereof
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
II-4<PAGE>
ITEM 17. UNDERTAKINGS (CONTINUED)
the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-3
and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, State of Illinois, on the 8th day of May, 1998.
AMERICAN COUNTRY HOLDINGS INC.
By: /s/ Edwin W. Elder
-----------------------------
Edwin W. Elder
EXECUTIVE VICE PRESIDENT AND
CHIEF OPERATING OFFICER
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature
appears below constitutes and appoints Martin L. Solomon and Edwin W.
Elder and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities (including
his capacity as a director and officer of the Registrant) to sign any
and all amendments (including post-effective amendments) to this
Registration Statement and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-
in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each said
attorney-in-fact and agent, or their or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof. This Power of
Attorney may be signed in several counterparts.
II-6<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Martin L. Solomon President, Chairman of the May 8, 1998
--------------------------- Board, Chief Executive Officer
Martin L. Solomon and Director (Principal Executive
Officer)
/s/ Edwin W. Elder Executive Vice President, Chief May 8, 1998
--------------------------- Operating Officer and Director
Edwin W. Elder
/s/ James P. Byrne Treasurer, Chief Financial Officer May 8, 1998
--------------------------- and Vice President (Principal
James P. Byrne Financial and Accounting
Officer)
/s/ William J. Barrett Director May 8, 1998
--------------------------
William J. Barrett
/s/ Herbert M. Gardner Director May 8, 1998
--------------------------
Herbert M. Gardner
/s/ Wilmer J. Thomas, Jr. Director May 8, 1998
--------------------------
Wilmer J. Thomas, Jr.
/s/ Peter H. Foley Director May 8, 1998
--------------------------
Peter H. Foley
</TABLE>
II-7<PAGE>
EXHIBIT INDEX
Exhibit Document
------- --------
4.1 Specimen Common Stock Certificate.*
4.2 Warrant Agreement, dated as of June 25, 1993, between
the Registrant and American Stock Transfer & Trust
Company, as Warrant Agent (incorporated by reference
to Exhibit 4(c) to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-84234) (the "Form
S-1")).
4.3 Form of Amendment to Warrant Agreement (incorporated
by reference to Exhibit 4(d) to the Form S-1).
4.4 Form of Warrant Certificate (incorporated by reference
to Exhibit 4(b) to the Form S-1).
4.5 Form of Class A Warrant Agreement.
4.6 Form of Class A Warrant Certificate.*
5.1 Opinion of Schiff Hardin & Waite.*
12.1 Statement of Computation of Earnings to Fixed Charges
(incorporated by reference to Exhibit 12 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997).
23.1 Consent of Ernst & Young LLP.
23.4 Consent of Schiff Hardin & Waite (included in Exhibit
5.1).*
24.1 Power of Attorney (included on page II-4).
99.1 Letter of Transmittal.
___________
* To be filed by amendment.
EXHIBIT 4.5
-----------
WARRANT AGREEMENT
-----------------
AGREEMENT, dated as of the ____ day of ______, 1998, by and
among AMERICAN COUNTRY HOLDINGS INC., a Delaware corporation (the
"Company"), and AMERICAN STOCK TRANSFER & TRUST COMPANY, as Warrant
Agent (the "Warrant Agent").
W I T N E S S E T H
-------------------
WHEREAS, the Company plans to make an offer (the "Offer") to
the holders of its Redeemable Common Stock Purchase Warrants (the "Old
Warrants") to exchange each of their Old Warrants (up to a maximum
aggregate number to be determined by the Company) and $4.00 in cash
for 2.19 shares of the Company's common stock, par value $.01 per
share (the "Common Stock"), and 2.19 new Class A Redeemable Common
Stock Purchase Warrants (the "Class A Warrants"), as more fully
described in an Offering Circular - Prospectus contained in a
Registration Statement on Form S-3 (Reg. No. 333-____) filed with the
Securities and Exchange Commission; and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in
connection with the issuance, registration, transfer, exchange and
redemption of the Class A Warrants, the issuance of certificates
representing the Class A Warrants, the exercise of the Class A
Warrants, and the rights of the holders thereof.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth and for the purpose of
defining the terms and provisions of the Class A Warrants and the
certificates representing the Class A Warrants and the respective
rights and obligations thereunder of the Company, the holders of
certificates representing the Class A Warrants and the Warrant Agent,
the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following
terms shall have the following meanings, unless the context shall
otherwise require:
(a) "Class A Warrant Expiration Date" shall mean 5:00 P.M.
(New York time) on August 31, 2001, or the Redemption Date as defined
in Section 8, whichever is earlier; provided that if such date shall
in the State of New York be a holiday or a day on which banks are
authorized or required to close, then 5:00 P.M. (New York time) on the
next following day which in the State of New York is not a holiday or
a day on which banks are authorized or required to close. Upon notice
to all Class A Warrantholders the Company shall have the right to
extend the Class A Warrant Expiration Date.
<PAGE>
(b) "Class A Warrant Proceeds" shall have the meaning set
forth in Section 4(a) below.
(c) "Class A Warrants" shall have the meaning set forth in
the recitals above.
(d) "Common Stock" shall have the meaning set forth in the
recitals above.
(e) "Company" shall have the meaning set forth in the
preface above.
(f) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal
business shall be administered, which office is located at the date
hereof at 40 Wall Street, New York, New York 10005.
(g) "Exercise Date" shall mean, as to any Class A Warrant,
the date on which the Warrant Agent shall have received both (i) the
Class A Warrant Certificate representing such Class A Warrant, with
the exercise form thereon duly executed by the Registered Holder
thereof or his, her or its attorney duly authorized in writing, and
(ii) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United
States of America equal to the applicable Purchase Price.
(h) "Initial Class A Warrant Exercise Date" shall mean,
with respect to any Class A Warrant, the date of issuance thereof by
the Warrant Agent pursuant to Section 2(b) of this Agreement.
(i) "Market Price" shall have the meaning set forth in
Section 8(a) below.
(j) "Offer" shall have the meaning set forth in the
recitals above.
(k) "Old Warrants" shall have the meaning set forth in the
recitals above.
(l) "Purchase Price" shall mean the purchase price per
share of Common Stock to be paid upon exercise of each Class A Warrant
in accordance with the terms hereof, which price shall be $3.25 per
share for each Class A Warrant exercised on and after the Initial
Class A Warrant Exercise Date, subject to adjustment from time to time
pursuant to the provisions of Section 9 hereof, and subject to the
Company's right to reduce the Purchase Price, without the consent of
any Class A Warrantholders, upon at least 15-days' prior notice to all
Class A Warrantholders.
(m) "Redemption Date" shall have the meaning set forth in
Section 8(c) below.
2<PAGE>
(n) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Class A Warrants, in accordance
with the terms hereof, which price shall be $0.50 per Class A Warrant.
(o) "Registered Holder" shall mean as to any Class A
Warrant and as of any particular date, the person in whose name the
certificate representing the Class A Warrant shall be registered on
the date on the books maintained by the Warrant Agent pursuant to
Section 6.
(p) "Target Price" shall have the meaning set forth in
Section 8(a) below.
(q) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized
successor, as such.
(r) "Warrant Agent" shall have the meaning set forth in the
preface above.
SECTION 2. CLASS A WARRANTS AND ISSUANCE OF CLASS A
WARRANT CERTIFICATES.
(a) A Class A Warrant initially shall entitle the
Registered Holder of the Class A Warrant to purchase one share of
Common Stock upon the exercise thereof, in accordance with the terms
hereof, subject to modification and adjustment as provided in Section
9.
(b) Class A Warrant Certificates representing the number of
Class A Warrants to be issued pursuant to the Offer shall be executed
by the Company and delivered to the Warrant Agent. Upon written order
of the Company signed by its President or any Vice President and by
its Secretary or an Assistant Secretary, the Class A Warrant
Certificates shall be countersigned, issued and delivered by the
Warrant Agent.
(c) From time to time, up to the Class A Warrant Expiration
Date, the Transfer Agent shall countersign and deliver stock
certificates in required whole number denominations representing one
share of Common Stock for each Class A Warrant exercised, subject to
adjustment as described herein, upon the exercise of Class A Warrants
in accordance with this Agreement.
(d) From time to time, up to the Class A Warrant Expiration
Date, the Warrant Agent shall countersign and deliver Class A Warrant
Certificates in required whole number denominations to the persons
entitled thereto in connection with any transfer or exchange permitted
under this Agreement; provided that no Class A Warrant Certificates
shall be issued except (i) those initially issued hereunder, (ii)
those issued on or after the Initial Class A Warrant Exercise Date,
upon the exercise of fewer than all Class A Warrants represented by
any Class A Warrant Certificate, to evidence any unexercised Class A
Warrants held by the exercising Registered Holder, (iii) those issued
3<PAGE>
upon any transfer or exchange pursuant to Section 6; (iv) those issued
in replacement of lost, stolen, destroyed or mutilated Class A Warrant
Certificates pursuant to Section 7; and (v) at the option of the
Company, in such form as may be approved by its Board of Directors, to
reflect any adjustment or change in the Purchase Price, the number of
shares of Common Stock purchasable upon exercise of the Class A
Warrants or the Redemption Price therefor made pursuant to Section 9
hereof.
SECTION 3. FORM AND EXECUTION OF CLASS A WARRANT
CERTIFICATES.
(a) The Class A Warrant Certificates shall be substantially
in the form annexed hereto as Exhibit A (the provisions of which are
hereby incorporated herein) and may have such letters, numbers or
other marks of identification or designation and such legends,
summaries or endorsements printed, lithographed or engraved thereon as
the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Class A Warrants
may be listed, or to conform to usage or to the requirements of
Section 2 (b). The Class A Warrant Certificates shall be dated the
date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen, or destroyed Class A
Warrant Certificates) and issued in registered form. Class A Warrant
Certificates shall be numbered serially with the letters [____].
(b) Class A Warrant Certificates shall be executed on
behalf of the Company by its President or any Vice President and by
its Secretary or an Assistant Secretary, by manual signatures or by
facsimile signatures printed thereon, and shall have imprinted thereon
a facsimile of the Company's seal. Class A Warrant Certificates shall
be manually countersigned by the Warrant Agent and shall not be valid
for any purpose unless so countersigned. In case any officer of the
Company who shall have signed any of the Class A Warrant Certificates
shall cease to be an officer of the Company or to hold the particular
office referenced in the Class A Warrant Certificate before the date
of issuance of the Class A Warrant Certificates or before
countersignature by the Warrant Agent and issue and delivery thereof,
such Class A Warrant Certificates may nevertheless be countersigned by
the Warrant Agent, issued and delivered with the same force and effect
as though the person who signed such Class A Warrant Certificates had
not ceased to be an officer of the Company or to hold such office.
After countersignature by the Warrant Agent, Class A Warrant
Certificates shall be delivered by the Warrant Agent to the Registered
Holder without further action by the Company, except as otherwise
provided by Section 4 hereof.
SECTION 4. EXERCISE.
(a) Each Class A Warrant may be exercised by the Registered
Holder thereof at any time on or after the Initial Class A Warrant
4<PAGE>
Exercise Date, but not after the Class A Warrant Expiration Date, upon
the terms and subject to the conditions set forth herein and in the
applicable Class A Warrant Certificate. A Class A Warrant shall be
deemed to have been exercised immediately prior to the close of
business on the Exercise Date and the person entitled to receive the
securities deliverable upon such exercise shall be treated for all
purposes as the holder of those securities upon the exercise of the
Class A Warrant as of the close of business on the Exercise Date. As
soon as practicable on or after the Exercise Date the Warrant Agent
shall deposit the proceeds received from the exercise of a Class A
Warrant and shall notify the Company in writing of the exercise of the
Class A Warrants. Promptly following, and in any event within five
days after the date of such notice from the Warrant Agent, the Warrant
Agent, on behalf of the Company, shall cause to be issued and
delivered by the Transfer Agent, to the person or persons entitled to
receive the same, a certificate or certificates for the securities
deliverable upon such exercise (plus a certificate for any remaining
unexercised Class A Warrants of the Registered Holder), unless prior
to the date of issuance of such certificates the Company shall
instruct the Warrant Agent to refrain from causing such issuance of
certificates pending clearance of checks received in payment of the
Purchase Price pursuant to such Class A Warrants. Upon the exercise
of any Class A Warrant and clearance of the funds received, the
Warrant Agent shall promptly remit the payment received for the Class
A Warrant (the "Class A Warrant Proceeds") to the Company or as the
Company may direct in writing, subject to the provisions of Section 4
hereof.
(b) In the event that Class A Warrants have not been
exercised or redeemed on or before the Class A Warrant Expiration
Date, the Company promptly shall issue to the Registered Holders of
such Class A Warrants shares of Common Stock in exchange for such
expired Class A Warrants in the ratio of one (1) share of Common Stock
for each one thousand (1000) expired Class A Warrants. The Company
shall not be required to issue fractions of shares of Common Stock and
shall not be required to pay cash in lieu thereof under this paragraph
(b) in respect of amounts of Class A Warrants less than one thousand
(1000).
SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF
TAXES; ETC. (a) The Company covenants that it will at all times
reserve and keep available out of its authorized Common Stock, solely
for the purpose of issue upon exercise of Class A Warrants, such
number of shares of Common Stock as shall then be issuable upon the
exercise of all outstanding Class A Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise
of the Class A Warrants shall, at the time of delivery, be duly and
validly issued, fully paid, nonassessable and free from all taxes,
liens and charges with respect to the issue thereof (other than those
which the Company shall promptly pay or discharge), and that upon
issuance such shares shall be listed on each national securities
exchange or eligible for inclusion in each automated quotation system,
if any, on which the other shares of outstanding Common Stock of the
Company are then listed or eligible for inclusion.
5<PAGE>
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Class A Warrants hereunder
require registration with, or approval of, any governmental authority
under any federal securities law before such securities may be validly
issued or delivered upon such exercise, then the Company will in good
faith and as expeditiously as reasonably possible, endeavor to secure
such registration or approval. The Company will use reasonable
efforts to obtain appropriate approvals or registrations under state
"blue sky" securities laws. With respect to any such securities,
however, Class A Warrants may not be exercised by, or shares of Common
Stock issued to, any Registered Holder in any state in which such
exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect
to the issuance of Class A Warrants, or the issuance, or delivery of
any shares upon exercise of the Class A Warrants; provided, however,
that if the shares of Common Stock are to be delivered in a name other
than the name of the Registered Holder of the Class A Warrant
Certificate representing any Class A Warrant being exercised, then no
such delivery shall be made unless the person requesting the same has
paid to the Warrant Agent the amount of transfer taxes or charges
incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for
certificates representing shares of Common Stock issuable upon
exercise of the Class A Warrants, and the Company will authorize the
Transfer Agent to comply with all such proper requisitions. The
Company will file with the Warrant Agent a statement setting forth the
name and address of the Transfer Agent of the Company for shares of
Common Stock issuable upon exercise of the Class A Warrants if the
Transfer Agent is other than that named in Section 1(q).
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER.
(a) Class A Warrant Certificates may be exchanged for other
Class A Warrant Certificates representing an equal aggregate number of
Class A Warrants of the same class or may be transferred in whole or
in part. Class A Warrant Certificates to be exchanged shall be
surrendered to the Warrant Agent at its Corporate Office, and upon
satisfaction of the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in
exchange therefor the Class A Warrant Certificate or Certificates
which the Registered Holder making the exchange shall be entitled to
receive.
(b) The Warrant Agent shall keep at its office books in
which, subject to such reasonable regulations as it may prescribe, it
shall register Class A Warrant Certificates and the transfer thereof
in accordance with its regular practice. Upon due presentment for
registration of transfer of any Class A Warrant Certificate at such
office, the Company shall execute and the Warrant Agent shall issue
and deliver to the transferee or transferees a new Class A Warrant
6<PAGE>
Certificate or Certificates representing an equal aggregate number of
Class A Warrants.
(c) With respect to all Class A Warrant Certificates
presented for registration or transfer, or for exchange or exercise,
the subscription form on the reverse thereof shall be duly endorsed,
or be accompanied by a written instrument or instruments of transfer
and subscription, in form satisfactory to the Company and the Warrant
Agent, duly executed by the Registered Holder or his attorney-in-fact
duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent
for any exchange or registration of transfer of Class A Warrant
Certificates. In addition, the Company may require payment by such
holder of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
(e) All Class A Warrant Certificates surrendered for
exercise or for exchange in case of mutilated Class A Warrant
Certificates shall be promptly cancelled by the Warrant Agent and
thereafter retained by the Warrant Agent until termination of this
Agreement or resignation as Warrant Agent, or, disposed of or
destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Class A Warrant Certificate as the absolute
owner thereof and of each Class A Warrant represented thereby
(notwithstanding any notations of ownership or writing thereon made by
anyone other than a duly authorized officer of the Company or the
Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
(g) Notwithstanding anything to the contrary in this
Agreement, until such time as any Class A Warrant and the shares of
Common Stock issuable upon the exercise of such Class A Warrant have
been sold pursuant to an effective registration statement under the
Securities Act of 1933, as amended, such Class A Warrant and the share
of Common Stock issuable upon the exercise of such Class A Warrant
shall not be sold, transferred, assigned, hypothecated or otherwise
disposed of, in whole or in part, except pursuant to an opinion of
counsel reasonably satisfactory to the Company to the effect that an
exemption from registration under the Securities Act of 1933, as
amended, is available.
(h) The Company agrees to use its reasonable best efforts
to maintain the effectiveness of a current registration statement and
prospectus under the Securities Act of 1933, as amended, covering the
shares of Common Stock issuable upon the exercise of the Class A
Warrants for a period of at least two years from the date of the
original issuance of the Class A Warrants.
SECTION 7. LOSS OR MUTILATION. Upon receipt by the
Company and the Warrant Agent of evidence satisfactory to them of the
7<PAGE>
ownership of and loss, theft, destruction or mutilation of any Class A
Warrant Certificate and (in case of loss, theft or destruction) of
indemnity satisfactory to them, and (in the case of mutilation) upon
surrender and cancellation thereof, the Company shall execute and the
Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Class A Warrant Certificate has been acquired
by a bona fide purchaser) countersign and deliver to the Registered
Holder in lieu thereof a new Class A Warrant Certificate of like tenor
representing an equal aggregate number of Class A Warrants.
Applicants for a substitute Class A Warrant Certificate shall comply
with such other reasonable regulations and pay such other reasonable
charges as the Warrant Agent may prescribe.
SECTION 8. REDEMPTION.
(a) The Class A Warrants may be redeemed in whole at the
Company's option at a price of $0.50 per Class A Warrant upon thirty
days' written notice following a period of thirty (30) consecutive
trading days (ending the third day prior to the date such notice is
given) during which period the Market Price of the Common Stock
receivable upon exercise of such Class A Warrant shall be at least
$5.00 (the "Target Price"), subject to adjustment as set forth in
Section 8(f), below. "Market Price" for the purpose of this Section 8
shall mean the closing price of publicly traded shares of Common Stock
on the national securities exchange on which the Common Stock is
listed (if the Common Stock is so listed) or the average of the high
closing bid prices of the Common Stock on The Nasdaq National Market
or The Nasdaq SmallCap Market (if the Common Stock is regularly quoted
thereon), or, if not so listed or regularly quoted, the average of the
high closing bid prices of publicly traded shares of Common Stock in
the over-the-counter market, or, if such bid prices shall not be
available, as reported by the National Quotation Bureau, Inc. or any
other nationally recognized quotation service selected by the Company.
(b) If the conditions set forth in Section 8(a) are met,
and the Company desires to exercise its right to redeem the Class A
Warrants, it shall mail a notice of redemption to each of the
Registered Holders of the Class A Warrants to be redeemed, first
class, postage prepaid, not later than the thirtieth day before the
date fixed for redemption, at their last address as shall appear on
the records maintained pursuant to Section 6(b). Any notice mailed in
the manner provided herein shall be conclusively presumed to have been
duly given whether or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the
Redemption Price, (ii) the date fixed by the Company for the
redemption of the Class A Warrants (the "Redemption Date"), (iii) the
place where the Class A Warrant Certificates shall be delivered and
(iv) that the right to exercise the Class A Warrant shall terminate at
5:00 P.M. (New York time) on the business day immediately preceding
the Redemption Date. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity of the
proceedings for such redemption except as to a Registered Holder (i)
to whom notice was not mailed or (ii) whose notice was defective. An
8<PAGE>
affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of the Company that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(d) Any right to exercise a Class A Warrant shall terminate
at 5:00 P.M. (New York time) on the business day immediately preceding
the Redemption Date. On and after the Redemption Date, holders of the
Class A Warrants shall have no further rights except to receive, upon
surrender of the Class A Warrants, the Redemption Price.
(e) From and after the Redemption Date, the Company shall,
at the place specified in the notice of redemption, upon presentation
and surrender to the Company by or on behalf of the Registered Holder
thereof of one or more Class A Warrant Certificates evidencing Class A
Warrants to be redeemed, deliver or cause to be delivered to or upon
the written order of such Registered Holder a sum in cash equal to the
Redemption Price of each such Class A Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company
of a sum sufficient to redeem the Class A Warrants when called for
redemption, such Class A Warrants shall expire and become void and all
rights hereunder and under the Class A Warrant Certificates, except
the right to receive payment of the Redemption Price, shall cease.
(f) If the Common Stock is subdivided or combined into a
greater or smaller number of shares of Common Stock, the Target Price
shall be proportionally adjusted by the ratio which the total number
of shares of Common Stock outstanding immediately prior to such event
bears to the total number of shares of Common Stock to be outstanding
immediately after such event.
SECTION 9. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF
SHARES OF COMMON STOCK OR CLASS A WARRANTS.
(a) In case of any reclassification, capital reorganization
or other change of outstanding shares of Common Stock, or in case of
any consolidation or merger of the Company with or into another
corporation (other than a consolidation or merger in which the Company
is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of
outstanding shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as,
or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause
effective provision to be made so that each holder of a Class A
Warrant then outstanding shall have the right thereafter, by
exercising such Class A Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance by a holder of the
number of shares of Common Stock that might have been purchased upon
exercise of such Class A Warrant immediately prior to such
reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance. Any such provision shall
9<PAGE>
include provision for adjustments that shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Section
9. The Company shall not effect any such consolidation, merger or
sale unless prior to or simultaneously with the consummation thereof
the successor (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing assets or other
appropriate corporation or entity shall assume, by written instrument
executed and delivered to the Warrant Agent, the obligation to deliver
to the holder of each Class A Warrant such shares of stock, securities
or assets as, in accordance with the foregoing provisions, such
holders may be entitled to purchase and the other obligations under
this Agreement. The foregoing provisions shall similarly apply to
successive reclassifications, capital reorganizations and other
changes of outstanding shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(b) Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Common Stock purchasable
upon exercise of the Class A Warrants, the Class A Warrant
Certificates theretofore and thereafter issued shall, unless the
Company shall exercise its option to issue new Class A Warrant
Certificates pursuant to Section 2(d) hereof, continue to express the
Purchase Price per share, the number of shares purchasable thereunder
and the Redemption Price therefor as the Purchase Price per share, and
the number of shares purchasable and the Redemption Price therefore
were expressed in the Class A Warrant Certificates when the same were
originally issued.
(c) After each adjustment of the Purchase Price pursuant to
this Section 9, the Company will promptly prepare a certificate signed
by the President or any Vice President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, of the
Company setting forth: (i) the Purchase Price as so adjusted, (ii) the
number of shares of Common Stock purchasable upon exercise of each
Class A Warrant after such adjustment, and, if the Company shall have
elected to adjust the number of Class A Warrants, the number of Class
A Warrants to which the registered holder of each Class A Warrant
shall then be entitled, and the adjustment in Redemption Price
resulting therefrom, and (iii) a brief statement of the facts
accounting for such adjustment. The Company will promptly file such
certificate with the Warrant Agent and cause a brief summary thereof
to be sent by ordinary first class mail to each Registered Holder of
Class A Warrants at his, her or its last address as it shall appear on
the registry books of the Warrant Agent. No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect
the validity thereof except as to the holder to whom the Company
failed to mail such notice, or except as to the holder whose notice
was defective. The affidavit of an officer of the Warrant Agent or
the Secretary or an Assistant Secretary of the Company that such
notice has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(d) For purposes of Section 9(a) hereof, no adjustment of
the Purchase Price shall be made unless such adjustment would require
10<PAGE>
an increase or decrease of at least $0.10 in such price; provided that
any adjustments which by reason of this clause (d) are not required to
be made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with any
adjustment(s) so carried forward, shall require an increase or
decrease of at least $0.10 in the Purchase Price then in effect
hereunder.
(e) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 9,
or as to the amount of any such adjustment, if required, shall be
binding upon the holders of the Class A Warrants and the Company if
made in good faith by the Board of Directors of the Company.
SECTION 10. FRACTIONAL CLASS A WARRANTS AND FRACTIONAL
SHARES.
(a) If the number of shares of Common Stock purchasable
upon the exercise of each Class A Warrant is adjusted pursuant to
Section 9 hereof, the Company nevertheless shall not be required to
issue fractions of shares, upon exercise of the Class A Warrants or
otherwise, or to distribute certificates that evidence fractional
shares. With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Registered Holder an
amount in cash equal to such fraction multiplied by the current market
value of such fractional share, determined as follows:
(i) If the Common Stock is listed on a national
securities exchange or on The Nasdaq National Market or The
Nasdaq SmallCap Market, the current value shall be the last
reported sale price of the Common Stock on such exchange or
on The Nasdaq National Market or The Nasdaq SmallCap Market
on the last business day prior to the date of exercise of
the Class A Warrant or if no such sale is made on such day,
the average of the closing bid and asked prices for such day
on such exchange or on The Nasdaq National Market or The
Nasdaq SmallCap Market; or
(ii) If the Common Stock is not listed on a national
securities exchange or listed for trading on The Nasdaq
National Market or The Nasdaq SmallCap Market, the current
value shall be the average of the last reported bid and
asked prices reported by the National Quotation Bureau, Inc.
on the last business day prior to the date of the exercise
of the Class A Warrant; or
(iii) If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid and asked
prices are not so reported, the current value shall be an
amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
SECTION 11. CLASS A WARRANTHOLDERS NOT DEEMED
STOCKHOLDERS. No holder of Class A Warrants shall, as such, be
11<PAGE>
entitled to vote or to receive dividends or be deemed the holder of
Common Stock that may at any time be issuable upon exercise of such
Class A Warrants for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon the holder of Class A
Warrants, as such, any of the rights of a stockholder of the Company
or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any
recapitalization, issue or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger or
conveyance or otherwise), or to receive notice of meetings, or to
receive dividends or subscription rights, until such holder shall have
exercised such Class A Warrants and been issued shares of Common Stock
in accordance with the provisions hereof.
SECTION 12. RIGHTS OF ACTION. All rights of action with
respect to this Agreement are vested in the respective Registered
Holders of the Class A Warrants, and any Registered Holder of a Class
A Warrant, without consent of the Warrant Agent or of the holder of
any other Class A Warrant, may, in his, her or its own behalf and for
his, her or its own benefit, enforce against the Company such
Registered Holder's right to exercise his, her or its Class A Warrants
for the purchase of shares of Common Stock in the manner provided in
the Class A Warrant Certificate and this Agreement.
SECTION 13. AGREEMENT OF CLASS A WARRANTHOLDERS. Every
holder of a Class A Warrant, by such holder's acceptance thereof,
consents and agrees with the Company, the Warrant Agent and every
other holder of a Class A Warrant that:
(a) The Class A Warrants are transferable only on the
registry books of the Warrant Agent by the Registered Holder thereof
in person or by his, her or its attorney duly authorized in writing
and only if the Class A Warrant Certificates representing such Class A
Warrants are surrendered at the office of the Warrant Agent, duly
endorsed or accompanied by a proper instrument of transfer
satisfactory to the Warrant Agent and the Company in their sole
discretion, together with payment of any applicable transfer taxes;
and
(b) The Company and the Warrant Agent may deem and treat
the person in whose name the Class A Warrant Certificate is registered
as the Registered Holder and as the absolute, true and lawful owner of
the Class A Warrants represented thereby for all purposes, and neither
the Company nor the Warrant Agent shall be affected by any notice or
knowledge to the contrary, except as otherwise expressly provided in
Section 6 hereof.
SECTION 14. CANCELLATION OF CLASS A WARRANT CERTIFICATES.
If the Company shall purchase or acquire any Class A Warrant or Class
A Warrants, the Class A Warrant Certificate or Class A Warrant
Certificates evidencing the same shall thereupon be delivered to the
Warrant Agent and cancelled by it and retired. The Warrant Agent
shall also cancel the Class A Warrant Certificates following exercise
12<PAGE>
of any or all of the Class A Warrants represented thereby or delivered
to it for transfer, split-up, combination or exchange.
SECTION 15. CONCERNING THE WARRANT AGENT. The Warrant
Agent acts hereunder as agent and in a ministerial capacity for the
Company, and its duties shall be determined solely by the provisions
hereof. The Warrant Agent shall not, by issuing and delivering Class
A Warrant Certificates or by any other act hereunder be deemed to make
any representations as to the validity, value or authorization of the
Class A Warrant Certificates or the Class A Warrants represented
thereby or of any securities or other property delivered upon exercise
of any Class A Warrant or whether any stock issued upon exercise of
any Class A Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Class A Warrant Certificates to make
or cause to be made any adjustment of the Purchase Price or the
Redemption Price provided in this Agreement, or to determine whether
any fact exists which may require any such adjustments, or with
respect to the nature or extent of any such adjustment, when made, or
with respect to the method employed in making the same. It shall not
(a) be liable for any recital or statement of facts contained herein
or for any action taken, suffered or omitted by it in reliance on any
Class A Warrant Certificate or other document or instrument believed
by it in good faith to be genuine and to have been signed or presented
by the proper party or parties, (b) be responsible for any failure on
the part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in any Class A Warrant
Certificate, or (c) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful
misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall
incur no liability or responsibility for any action taken, suffered or
omitted by it in good faith in accordance with the opinion or advice
of such counsel.
Any notice, statement, instruction, request, direction,
order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the President, any Vice President, its Secretary,
or Assistant Secretary (unless other evidence in respect thereof is
herein specifically prescribed). The Warrant Agent shall not be
liable for any action taken, suffered or omitted by it in accordance
with such notice, statement, instruction, request, direction, order or
demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; it further agrees to indemnify the
Warrant Agent and save it harmless against any and all losses,
expenses and liabilities, including judgments, costs and counsel fees,
for anything done or omitted by the Warrant Agent in the execution of
its duties and powers hereunder except losses, expenses and
13<PAGE>
liabilities arising as a result of the Warrant Agent's negligence or
wilful misconduct.
The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities
arising as a result of the Warrant Agent's own negligence or wilful
misconduct), after giving 30 days' prior written notice to the
Company. At least 15 days prior to the date such resignation is to
become effective, the Warrant Agent shall cause a copy of such notice
of resignation to be mailed to the Registered Holder of each Class A
Warrant Certificate at the Company's expense. Upon such resignation,
or any inability of the Warrant Agent to act as such hereunder, the
Company shall appoint a new warrant agent in writing. If the Company
shall fail to make such appoint within a period of 15 days after it
has been notified in writing of such resignation by the resigning
Warrant Agent, then the Registered Holder of any Class A Warrant
Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether
appointed by the Company or by such a court, shall be a bank or trust
company having a capital and surplus, as shown by its last published
report to its stockholders, of not less than $10,000,000 or a stock
transfer company. After acceptance in writing of such appointment by
the new warrant agent is received by the Company, such new warrant
agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the
Warrant Agent, without any further assurance, conveyance, act or deed;
but if for any reason it shall be necessary or expedient to execute
and deliver any further assurance, conveyance, act or deed, the same
shall be done at the expense of the Company and shall be legally and
validly executed and delivered by the resigning Warrant Agent. Not
later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall
forthwith cause a copy of such notice to be mailed to the Registered
Holder of each Class A Warrant Certificate.
Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting
from any consolidation to which the Warrant Agent or any new warrant
agent shall be a party or any corporation succeeding to the trust
business of the Warrant Agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation
is eligible for appointment as successor to the Warrant Agent under
the provisions of the preceding paragraph. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent
to be mailed to the Company and to the Registered Holder of each Class
A Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any
of its or their officers or directors, may buy and hold or sell Class
A Warrants or other securities of the Company and otherwise deal with
the Company in the same manner as to the same extent and with like
effects as though it were not Warrant Agent. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for the
Company or for any other legal entity.
14<PAGE>
SECTION 16. MODIFICATION OF AGREEMENT. Subject to the
provisions of Section 4(b), the Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this
Agreement (a) that they shall deem appropriate to cure any ambiguity
or to correct any defective or inconsistent provision or manifest
mistake or error herein contained; or (b) that they may deem necessary
or desirable and which shall not adversely affect the interests of the
holders of Class A Warrant Certificates; provided, however, that this
Agreement shall not otherwise be modified, supplemented or altered in
any respect except with the consent in writing of the Registered
Holders of Class A Warrant Certificates representing not less than 50%
of the Class A Warrants then outstanding; and provided, further, that
no change in the number or nature of the securities purchasable upon
the exercise of any Class A Warrant, or the Purchase Price therefor,
or the acceleration of the Class A Warrant Expiration Date, shall be
made without the consent in writing of the Registered Holder of the
Class A Warrant Certificate representing such Class A Warrant, other
than such changes as are specifically prescribed by this Agreement as
originally executed or are made in compliance with applicable law.
SECTION 17. NOTICES. All notices, requests, consents and
other communications hereunder shall be in writing and shall be deemed
to have been made when delivered or mailed first class registered or
certified mail, postage prepaid as follows: if to the Registered
Holder of a Class A Warrant Certificate, at the address of such holder
as shown on the registry books maintained by the Warrant Agent; if to
the Company, at 222 N. LaSalle Street, Chicago, Illinois 60601,
Attention: President, with a copy to Schiff Hardin & Waite, 7300 Sears
Tower, Chicago, Illinois 60606, Attention: Stuart L. Goodman, Esq., or
at such other address as may have been furnished to the Warrant Agent
in writing by the Company; and, if to the Warrant Agent, at its
Corporate Office.
SECTION 18. GOVERNING LAW. This Agreement shall be
governed by and construed in accordance with the laws of the State of
New York, without reference to principles of conflict of laws.
SECTION 19. BINDING EFFECT. This Agreement shall be
binding upon and inure to the benefit of the Company and the Warrant
Agent and their respective successors and assigns, and the holders
from time to time of Class A Warrant Certificates. Nothing in this
Agreement is intended or shall be construed to confer upon any other
person any right, remedy or claim, in equity or at law, or to impose
upon any other person any duty, liability or obligation.
SECTION 20. TERMINATION. This Agreement shall terminate
at the close of business on the Expiration Date of all the Class A
Warrants or such earlier date upon which all Class A Warrants have
been exercised, except that the Warrant Agent shall account to the
Company for cash held by it and the provisions of Section 4(b) and 15
hereof shall survive such termination.
15<PAGE>
SECTION 21. COUNTERPARTS. This Agreement may be executed
in several counterparts, which take together shall constitute a single
document.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
AMERICAN COUNTRY HOLDINGS INC.
By:_________________________________________
Name:
Title:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:_________________________________________
Name:
Title:
16
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated February 24, 1998 in the
Registration Statement (Form S-3) and related Offering Circular-
Prospectus of American Country Holdings Inc. for the offer to exchange
each Redeemable Common Stock Purchase Warrant together with $4.00 cash
for 2.19 shares of Common Stock and 2.19 Class A Redeemable Common
Stock Purchase Warrants.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
Chicago, Illinois
May 8, 1998
EXHIBIT 99.1
------------
LETTER OF TRANSMITTAL
TO ACCOMPANY REDEEMABLE COMMON STOCK PURCHASE WARRANTS
("WARRANTS") AND CASH TENDERED TO AMERICAN COUNTRY HOLDINGS,
INC. PURSUANT TO THE OFFERING CIRCULAR-PROSPECTUS DATED
___________, 1998
THIS OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE ON _______________,
1998 AT 5:00 P.M., NEW YORK CITY TIME, UNLESS EXTENDED
---------------------------------------------------------------------
TO: AMERICAN STOCK TRANSFER & TRUST COMPANY, EXCHANGE AGENT
<TABLE>
<CAPTION>
<S> <C> <C>
By Hand or Mail: Facsimile Transmission: By Overnight Courier:
American Stock Transfer & Trust Company (718) 234-5001 American Stock Transfer & Trust
Reorganization Department (for Eligible Institutions Company
40 Wall Street Only) Reorganization Department
46th Floor Confirm by Telephone: 6201 15th Avenue
New York, New York 10005 (718) 921-8222 3rd Floor
Brooklyn, New York 11219
</TABLE>
<TABLE>
<CAPTION>
Number of Old Number
Old Warrant Warrants of Old
Name(s) and Address(es) of Registered Holder(s) Certificate Represented by Warrants
(Please fill in exactly as name(s) appear(s) on Certificate(s)) Number* Certificate Tendered**
<S> <C> <C> <C>
Total Old Warrants Tendered: ____________
</TABLE>
* Need not be completed by Old Warrantholders tendering by book-
entry transfer.
** The number of Old Warrants evidenced by certificates delivered to
the Exchange Agent and accompanied by the aggregate Old Warrant
Exercise Price are deemed tendered. See Instruction 3.
----------------------------------------------------------------------
Each Old Warrant tendered must be accompanied by Four
Dollars and no/cents ($4.00) (the "Old Warrant Exercise Price") in the
form of certified or official bank check made payable to American<PAGE>
Country Holdings Inc. or by wire transfer to the Exchange Agent for
the benefit of the Company.
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER
OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL
SHOULD BE READ CAREFULLY BEFORE THE LETTER OF TRANSMITTAL IS
COMPLETED.<PAGE>
This Letter of Transmittal is to be used if certificates for
Old Warrants and the certified or official bank check or the wire
transfer in payment of the aggregate Old Warrant Exercise Price are to
be forwarded herewith or if delivery of Old Warrant certificates is to
be made by book-entry transfer to the Exchange Agent's account at The
Depository Trust Company ("DTC") (hereinafter referred to as the
"Book-Entry Transfer Facility") pursuant to the procedures set forth
in the section of the accompanying Offering Circular-Prospectus of the
Company dated _______________, 1998 (the "Offering Circular-
Prospectus") titled "The Offer--Procedure for Tendering Old Warrants."
All capitalized terms herein shall have the same meanings ascribed to
them in the Offering Circular-Prospectus.
Old Warrantholders who are unable to deliver their
certificates for Old Warrants, the certified or official bank check or
the wire transfer in payment of the aggregate Old Warrant Exercise
Price and all other documents required hereby to the Exchange Agent by
the Expiration Date (or who cannot comply with the book-entry transfer
procedures on a timely basis), may tender their Old Warrants pursuant
to the guaranteed delivery procedure set forth in the section of the
Offering Circular-Prospectus titled "The Offer--Guaranteed Delivery
Procedure." See Instruction 1. Delivery of documents to the Company
or to the Book-Entry Transfer Facility does not constitute a valid
delivery.
<TABLE>
<CAPTION>
(BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY)
<S> <C>
__ CHECK HERE IF TENDERED OLD WARRANTS ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE EXCHANGE
AGENT'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ___________________________________________________________________
Account No. _____________________________________________________________________________________
Transaction Code No. ____________________________________________________________________________
__ CHECK HERE IF TENDERED OLD WARRANTS ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name(s) of Tendering Old Warrantholder(s) _______________________________________________________
Date of Execution of Notice of Guaranteed Delivery_______________________________________________
Name of Institution that Guaranteed Delivery ____________________________________________________
If delivery is by book-entry transfer:___________________________________________________________
Name of Tendering Institution ___________________________________________________________________
Account No._____________________________________________________________________________________
Transaction Code No._____________________________________________________________________________
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to American Country Holdings
Inc., a Delaware corporation (the "Company"), the above-described
Redeemable Common Stock Purchase Warrants (the "Old Warrants") to
purchase shares of Common Stock of the Company, together with a
certified or official bank check made payable to American Country
Holdings Inc. or by wire transfer to the account of the Exchange Agent
specified in Instruction 6 hereof, in the amount of Four Dollars and
no/cents ($4.00) (the "Old Warrant Exercise Price") for every Old
Warrant tendered. Such amounts must be tendered in accordance with the
terms and conditions of the Offer as set forth in the accompanying
Offering Circular-Prospectus of the Company dated ___________, 1998
("Offering Circular-Prospectus") and this Letter of Transmittal,
receipt of which is hereby acknowledged. The undersigned acknowledges
that in the event that Old Warrantholders tender more than 1,440,000
Old Warrants in the aggregate pursuant to the Offer, the undersigned
agrees that the Company may (i) accept Old Warrants on a pro rata
basis, disregarding fractions, according to the number of Old Warrants
properly tendered by each Old Warrantholder and (ii) return to the
undersigned all or any part of the Old Warrants not accepted by the
Company. The Old Warrants (cusip #02527811) are referred to in the
accompanying Offering Circular-Prospectus as the Old Warrants solely
for clarity and to avoid confusion with the Class A Redeemable Common
Stock Purchase Warrants ("Class A Warrants") being delivered pursuant
to the Offer.
The undersigned understands that no certificate or scrip
representing fractional shares of Common Stock will be issued in
connection with the Offer, and fractional share interests, if any,
that result from the exchange of Old Warrants and cash for Common
Stock and Class A Warrants will not entitle the undersigned to vote or
to any rights of a stockholder of the Company. In lieu of any
fractional shares of Common Stock, the Exchange Agent will pay,
subject to deduction and withholding requirements, to each exchanging
warrantholder who otherwise would be entitled to receive a fractional
share of Common Stock an amount of cash determined by multiplying (i)
the last reported sale price of the Common Stock on the Nasdaq Small
Cap Market on the expiration date of the Offer, or, if no such sale is
made on such date, the average of the closing bid and asked prices for
such day on the Nasdaq Small Cap Market, and (ii) the fraction of a
share of Common Stock to which such holder would otherwise be
entitled. In no event shall interest be paid or accrued on any such
cash payments. The cash amount to be paid to the undersigned for such
fractional shares, if any, shall be rounded up to the nearest cent.
The undersigned also understands that no certificate or
scrip representing fractional Class A Warrants will be issued in
connection with the Offer. Fractional Class A Warrants that otherwise
would be issued in exchange for Old Warrants and cash pursuant to the
Offer will be rounded up to the nearest whole Class A Warrant.
Subject to, and effective upon, acceptance of the Old
Warrants tendered herewith in accordance with the terms and conditions<PAGE>
of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to, or upon the order
of, the Company all right, title and interest in and to the Old
Warrants being tendered hereby and constitutes and appoints the
Exchange Agent its true and lawful attorney-in-fact with respect to
such Old Warrants with full power of substitution to (i) deliver
certificates for such Old Warrants or transfer the ownership of such
Old Warrants on the account books maintained by Book-Entry Transfer
Facility and the required payment of the aggregate Old Warrant
Exercise Price together with all accompanying evidences of authority,
to or upon the order of the Company and (ii) tender such Old Warrants
for registration and transfer on the books of the Company.
The undersigned represents and warrants that he, she or it
has full authority to sell and to transfer the tendered Old Warrants
and that the Company will acquire good, marketable and unencumbered
title thereto, free and clear of all liens, claims, restrictions,
charges and encumbrances, and the same will not be subject to any
adverse claims. The undersigned will, upon request, execute any
additional documents necessary to complete the sale and transfer of
the tendered Old Warrants. All authority conferred or agreed to be
conferred in this Letter of Transmittal shall be binding upon the
successors, assigns, heirs, executors, administrators and legal
representatives of the undersigned and shall not be affected by and
shall survive the death or incapacity of the undersigned. Except as
stated in the section of the Offering Circular-Prospectus titled "The
Offer--Withdrawal Rights," this tender is irrevocable.
The undersigned understands that the tender of Old Warrants
pursuant to any one of the procedures described in the section of the
Offering Circular-Prospectus titled "The Offer--Procedure for
Exercising Old Warrants" will constitute the undersigned's acceptance
of the terms and conditions of the Offer. The Company's acceptance of
Old Warrants tendered pursuant to the Offer will constitute a binding
agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Offer.<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
SEE INSTRUCTIONS 4 AND 5
To be completed ONLY if the certificates for Common Stock and
Class A Warrants and/or the certificates for Old Warrants not tendered
or not accepted for exercise are to be issued in the name of someone
other than the undersigned.
Issue certificates to:
Name__________________________________________________________________
(Please Print)
Address_______________________________________________________________
(Include Zip Code)
______________________________________________________________________
(Taxpayer Identification or Social Security No.)
[ ] Credit Old Warrants not tendered or not accepted by book-
entry transfer to the Book-entry Transfer Facility account
set forth below:
______________________________________________________________________
Book Entry Transfer Facility Account Number, if applicable<PAGE>
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if the certificates for Common Stock and
Class A Warrants and/or the certificates for Old Warrants tendered or
not accepted for exercise are to be mailed to someone other than the
undersigned or to the undersigned at an address other than that shown
below the undersigned's signature(s).
Mail certificates to:
Name__________________________________________________________________
(Please Print)
Address_______________________________________________________________
______________________________________________________________________
(Include Zip Code)
SIGN HERE
X______________________________________________________________
X______________________________________________________________
Signature(s) of Old Warrantholder(s)
(Must be signed by registered holder(s) as name(s) appear(s) on
Old Warrant certificate(s) or by person authorized to become
registered holder(s) by certificates and documents transmitted.
If signing is by executor, administrator, trustee, guardian,
attorney, agent or other person acting in a fiduciary or
representative capacity, please set forth full title. (See
Instruction 1.)
Dated_________________________________________________________
Name(s)________________________________________________________
_______________________________________________________________
(Please print)
Capacity (full title)__________________________________________
Address________________________________________________________
Area Code and Telephone No.____________________________________
Tax I.D. No. or Soc. Sec. No.__________________________________<PAGE>
GUARANTEE OF SIGNATURE(S), IF REQUIRED
(SEE INSTRUCTIONS 1 AND 4)
Name of Firm
_______________________________________________________________
Authorized Signature __________________________________________
Dated _________________________________________________________<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided
below, all signatures on this Letter of Transmittal must be guaranteed
by a firm or other entity that is a member in good standing of the
Security Transfer Agent's Medallion Program, the New York Stock
Exchange Medallion Program or the Stock Exchange Medallion Program (an
"Eligible Institution"). Signatures on this Letter of Transmittal need
not be guaranteed (a) if this Letter of Transmittal is signed by the
registered holder(s) of the Old Warrants (which term, for purposes of
this document, shall include any participant in the Book-Entry
Transfer Facility whose name appears on a security position listing as
the owner of Old Warrants) tendered herewith and such holder(s) have
not completed the box entitled "Special Issuance Instructions" or the
box entitled "Special Delivery Instructions" on this Letter of
Transmittal or (b) if such Old Warrants are tendered for the account
of an Eligible Institution. See Instruction 4.
2. DELIVERY OF LETTER OF TRANSMITTAL, AGGREGATE OLD
WARRANT EXERCISE PRICE AND OLD WARRANT CERTIFICATES; GUARANTEED
DELIVERY PROCEDURES. This Letter of Transmittal is to be used either
if certificates for Old Warrants and the certified or official bank
check or the wire transfer in payment of the aggregate Old Warrant
Exercise Price are to be forwarded herewith or if delivery of Old
Warrant certificates is to be made by book-entry transfer pursuant to
the procedures set forth in the section of the Offering Circular-
Prospectus titled "The Offer--Procedure for Tendering Old Warrants."
Certificates for all physically delivered Old Warrants, or a
confirmation of a book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility of all Old Warrants
delivered electronically, as well as a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), and the
certified or official bank check or the wire transfer and any other
documents required by this Letter of Transmittal, must be received by
the Exchange Agent at one of its addresses set forth on the front page
of this Letter of Transmittal on or prior to the Expiration Date.
Old Warrantholders who cannot deliver their certificates and
the certified or official bank check or the wire transfer and all
other required documents to the Exchange Agent on or prior to the
Expiration Date (or who cannot comply with the book-entry transfer
procedures on a timely basis) may tender their Old Warrants pursuant
to the guaranteed delivery procedure set forth in the section of the
Offering Circular-Prospectus titled "The Offer--Guaranteed Delivery
Procedure." Pursuant to such procedure: (a) such tender must be made
by or through an Eligible Institution, (b) on or prior to the
Expiration Date, a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company
(with any required signature guarantees) must be received by the
Exchange Agent and (c) the certificates for all physically delivered
Old Warrants, or a confirmation of a book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility of all<PAGE>
Old Warrants delivered electronically, as well as a properly completed
and duly executed Letter of Transmittal (or facsimile thereof) and the
certified or official bank check or the wire transfer and any other
documents required by this Letter of Transmittal, must be received by
the Exchange Agent within three New York Stock Exchange, Inc. trading
days after the Expiration Date, all as provided in the section of the
Offering Circular-Prospectus titled "The Offer--Guaranteed Delivery
Procedure."
THE METHOD OF DELIVERY OF OLD WARRANTS, THE AGGREGATE OLD
WARRANT EXERCISE PRICE AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE TENDERING OLD WARRANTHOLDER. IF DELIVERY IS
SENT BY MAIL, IT IS RECOMMENDED THAT THE OLD WARRANTHOLDER USE
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, AND
THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION
DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
By executing this Letter of Transmittal (or facsimile
thereof), the tendering Old Warrantholder waives any right to receive
any notice of the acceptance for exercise of the Old Warrants.
3. PARTIAL TENDERS (NOT APPLICABLE TO OLD WARRANTHOLDERS
WHO TENDER BY BOOK-ENTRY TRANSFER). If fewer than all the Old Warrants
evidenced by any certificates submitted are to be tendered, write in
the number of whole Old Warrants which are to be tendered in the box
which is entitled "Old Warrants Tendered." In such case, a new
certificate for the remainder of the Old Warrants which were evidenced
by your old certificate(s) will be sent to you unless otherwise
provided in the "Special Issuance Instructions" or "Special Delivery
Instructions" boxes on this Letter of Transmittal as soon as
practicable after the Expiration Date. The number of Old Warrants
represented by the certificates for Old Warrants listed and
accompanied by the aggregate Old Warrant Exercise Price are deemed to
have been tendered.
4. SIGNATURES ON LETTER OF TRANSMITTAL; ASSIGNMENTS AND
ENDORSEMENTS. If this Letter of Transmittal is signed by the
registered holder(s) of the Old Warrants tendered hereby, the
signature(s) must correspond with the name(s) as written on the face
of the certificates without alteration, enlargement or any change
whatsoever.
If any of the Old Warrants tendered hereby are held of
record by two or more persons, all such persons must sign this Letter
of Transmittal.
If any of the Old Warrants tendered hereby are registered in
different names on different certificates, it will be necessary to
complete, sign and submit as many separate Letters of Transmittal as
there are different registrations of certificates.
If this Letter of Transmittal is signed by the registered
holder(s) of the Old Warrants tendered hereby, no endorsements or<PAGE>
instruments of transfer are required unless Old Warrants not tendered
or not accepted for exercise are to be registered in the name of any
person other than the registered holder(s). Signatures on any such
certificates or instruments of transfer must be guaranteed by an
Eligible Institution. See Instruction 1.
If this Letter of Transmittal is signed by a person other
than the registered holder(s) of the Old Warrants tendered hereby,
certificates must be endorsed on the reverse side thereof or
accompanied by appropriate evidence of assignment, in either case,
signed exactly as the name(s) of the registered holder(s) appear(s) on
the certificates for such Old Warrants. Signature(s) on any such
certificates or assignments must be guaranteed by an Eligible
Institution. See Instruction 1.
If this Letter of Transmittal or any certificate or
instrument of transfer is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such
person should so indicate when signing, and proper evidence
satisfactory to the Company of the authority of such person so to act
must be submitted.
5. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If any
certificates for shares of Common Stock and Class A Warrants or for
Old Warrants not tendered or not accepted for exercise are to be
returned to a person other than the person(s) signing this Letter of
Transmittal or if the certificates for shares of Common Stock and
Class A Warrants or for Old Warrants not tendered or not accepted are
to be mailed to someone other than the person(s) signing this Letter
of Transmittal or to an address other than that shown above in the box
captioned "Description of Old Warrants Tendered," then the boxes
captioned "Special Issuance Instructions" and/or "Special Delivery
Instructions" on this Letter of Transmittal should be completed.
Warrantholders tendering Old Warrants by book-entry transfer will have
any Old Warrants not accepted for exercise returned by crediting the
account maintained by such Old Warrantholder at the Book-Entry
Transfer Facility.
6. PAYMENTS OF THE AGGREGATE OLD WARRANT EXERCISE PRICE.
The applicable payments representing the aggregate Old Warrant
Exercise Price to accompany the Old Warrants tendered must be made by
certified or official bank check, payable in United States dollars to
the order of American Country Holdings Inc., or by wire transfer to
the Exchange Agent for the benefit of the Company. Wire transfers must
be made to the following account according to the following
instructions:<PAGE>
Chase Manhattan Bank, N.A.
ABA# 021000021
Attn: American Stock Transfer & Trust Company
Acct: 610093045
American Country Holdings Old Warrants
Attn: Henry Reinhold
Tel: (718) 921-8238
7. NO CONDITIONAL TENDERS. No alternative, conditional,
irregular or contingent tenders will be accepted.
8. INADEQUATE SPACE. If the space provided herein is
inadequate, the certificate numbers and number of Old Warrants should
be listed on a separate signed schedule to be affixed hereto.
9. WAIVER OF CONDITIONS. The Company reserves the absolute
right to waive any of the specified conditions in the Offer in the
case of any Old Warrants tendered.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions
and requests for assistance or additional copies of the Offering
Circular-Prospectus and the Letter of Transmittal may be directed to
the Company as set forth below:
American Country Holdings Inc.
222 N. LaSalle Street
Chicago, Illinois 60601
Attention: James P. Byrne, Chief Financial Officer
(312) 456-2000<PAGE>
