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As filed with the Securities and Exchange Commission on September 30, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SUMMIT LIFE CORPORATION
(Exact name of Registrant as specified in its charter)
OKLAHOMA
(State or other jurisdiction of incorporation or organization)
6311 73-1448244
(Primary Standard Industrial (I.R.S. Employer Identification No.)
Classification Code Number)
3021 Epperly Dr.
P.O. Box 15808
Oklahoma City, Oklahoma 73155
(405) 677-0781
(Address, including zip code, and telephone number, including area code, of
Registrants' principal executive offices)
Charles L. Smith
President and Chief Operating Officer
Summit Life Corporation
3021 Epperly Dr.
P.O. Box 15808
Oklahoma City, Oklahoma 73155
(405) 677-0781
(Name, address, including zip code, and telephone number, including
area code, of agents for service)
COPIES TO:
JEANETTE C. TIMMONS, ESQ.
Day Edwards Federman Propester & Christensen, P.C.
2900 Oklahoma Tower
210 Park Avenue
Oklahoma City, Oklahoma 73102
(405) 239-2121
Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.[_]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.[_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration 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.[_]
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CALCULATION OF REGISTRATION FEE
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Amount to be Proposed Maximum Proposed Maximum Aggregate Amount of
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED Offering Price per Share Offering Price REGISTRATION FEE (1)
REGISTERED
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Common Stock, $0.01 par value per share 1,000,000 $5.00 $5,000,000 $1,475
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(1) The registration fee was calculated pursuant to Rule 457(c), as $295 per $1 million.
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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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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[RED HERRING LANGUAGE]
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 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.
SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1998
[LOGO]
SUMMIT LIFE CORPORATION
1,000,000 SHARES
COMMON STOCK
Summit Life Corporation (the "Company") is hereby offering a minimum
140,000 shares, and a maximum 1,000,000 shares, of its common stock, $.01 par
value per share (the "Common Stock"). Prior to this offering (the "Offering"),
there has been no public market for the Common Stock, and there can be no
assurance that an active market will develop. The initial public offering price
of the shares will be $5.00 per share. The public offering price was determined
by the Company, and should not be assumed to bear any relationship to the
Company's asset value, net worth or other generally accepted criteria of value.
See "DETERMINATION OF OFFERING PRICE" FOR A DISCUSSION OF THE FACTORS CONSIDERED
IN DETERMINING THE OFFERING PRICE. ALTHOUGH THE COMPANY INTENDS TO MAKE
APPLICATION TO THE NASDAQ STOCK MARKET, INC. TO LIST THE COMMON STOCK ON THE
NASDAQ SMALLCAP MARKET (THE "NASDAQ") AS SOON AS PRACTICABLE, THERE CAN BE NO
ASSURANCE THAT SUCH APPLICATION, WHEN AND IF MADE, WILL BE APPROVED.
__________________________
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SECTION ENTITLED "RISK
FACTORS" BEGINNING ON PAGE 6 HEREOF CONCERNING THE COMMON STOCK, BUSINESS AND
THIS OFFERING. PROSPECTIVE INVESTORS ALSO SHOULD CONSIDER THE FACT THAT THEIR
INVESTMENT WILL RESULT IN IMMEDIATE SUBSTANTIAL DILUTION. SEE "DILUTION."
__________________________
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 PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
__________________________
These securities are speculative and involve a high degree of risk.
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UNDERWRITING DISCOUNTS
PRICE TO INVESTORS AND COMMISSIONS PROCEEDS TO COMPANY (1)
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Per share........................... $ 5.00 -0- $ 5.00
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Total Minimum....................... $ 700,000 -0- $ 700,000
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Total Maximum....................... $5,000,000 -0- $5,000,000
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(1) Before deducting expenses estimated at $105,000 payable by the Company.
The shares are being offered, subject to prior sale, when, as and if
delivered to and accepted by the Company and subject to approval of certain
legal matters by counsel and subject to certain other conditions. The Company
reserves the right to withdraw, cancel or modify the Offering without notice and
to reject any order, in whole or in part. It is expected that delivery of
Common Stock certificates will be made against payment therefor at the offices
of the Company in Oklahoma City, Oklahoma on or about , 1998.
__________________________
The date of this Prospectus is , 1998.
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ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company has filed with the Securities and Exchange Commission (the "Commission")
a Registration Statement on Form SB-2 (including any amendments thereto, the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and the Common Stock,
reference is made to the Registration Statement and the exhibits and schedules
thereto. Statements made in this Prospectus regarding the contents of any
contract or document filed as an exhibit to the Registration Statement are not
necessarily complete and, in each instance, reference is hereby made to the copy
of such contract or document so filed. Each such statement is qualified in its
entirety by such reference. The Registration Statement and the exhibits and the
schedules thereto filed with the Commission may be inspected, without charge, at
the Commission's public reference facilities located at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the public
reference facilities in the Commission's regional offices located at:
Northwestern Atrium Center, 500 West Madison Street, Room 1400, Chicago,
Illinois 60661; and Suite 1300, Seven World Trade Center, New York, New York
10048. Copies of such materials also may be obtained at prescribed rates by
writing to the Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission at http://www.sec.gov.
As a result of this Offering, the Company will become subject to the
reporting requirements of the Exchange Act, and in accordance therewith will
file periodic reports, proxy statements and other information with the
Commission. The Company will furnish its stockholders with annual reports
containing audited consolidated financial statements certified by independent
public accountants following the end of each fiscal year, proxy statements and
quarterly reports containing unaudited consolidated financial information for
the first three quarters of each fiscal year following the end of such fiscal
quarter.
The Company intends to make application, as soon as practicable, for
listing of the Common Stock on the Nasdaq. Reports, proxy statements and other
information concerning the Company will be available for inspection at the
principal office of the Nasdaq at 1735 K Street, N.W., Washington, D.C. 20006.
This Prospectus contains certain forward-looking statements concerning the
Company. Also, documents subsequently filed by the Company with the Commission
will contain forward-looking statements. Such forward-looking statements are
based on the beliefs of the Company's management as well as on assumptions made
by and information currently available to the Company at the time such
statements are made. When used in this Prospectus, the words "anticipate,"
"believe," "estimate," "expect," "intends" and similar expressions, as they
relate to the Company are intended to identify forward-looking statements.
Actual results could differ materially from those projected in the forward-
looking statements as a result of the risk factors set forth under "RISK
FACTORS," the matters set forth or incorporated in this Prospectus generally and
certain economic and business factors, some of which may be beyond the control
of the Company. The Company cautions the reader, however, that this list of
factors may not be exhaustive, particularly with respect to future filings with
the Commission. In analyzing an investment in the Common Stock offered hereby,
prospective investors should carefully consider, along with the other matters
referred to herein, the risk factors set forth under "RISK FACTORS."
Additionally, the forward-looking statements included in this Prospectus under
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" have not been examined or compiled by the independent accountants of
the Company nor have such accountants applied any procedures thereto.
Accordingly, such accountants do not express an opinion or any other form of
assurance on them. Given these uncertainties, stockholders are cautioned not to
place undue reliance on such forward-looking statements.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all financial
information and share data in this Prospectus reflect a 5 to 2 stock split
approved on April 28, 1998 and effected September 25, 1998.
THE COMPANY
Summit Life Corporation (the "Company") is a specialized financial services
holding company which operates in various segments of the insurance and
financial services industry. The Company's subsidiaries include Summit Life and
Annuity Company ("SLAC"), an Oklahoma corporation which underwrites, markets and
distributes various life insurance type products and annuities to residents of
Oklahoma; Family Benefit Life Insurance Company ("FBLIC"), a Texas corporation
which underwrites, markets and distributes various life insurance type products
and annuities to residents of Texas; and Benefit Capital Life Insurance Company
("BCLIC"), a Louisiana corporation which underwrites, markets and distributes
various life insurance type products to residents of Louisiana. Although the
Company's primary focus is its life insurance operations, it also provides
residential mortgage loan processing services to individuals and financing to
medical accounts receivable factoring entities.
The Company's growth to date has been fueled primarily through
acquisitions. In September 1994, the Company made its first acquisition, of
Edmond National Life Insurance Company (renamed Summit Life and Annuity Company
after the acquisition), an Oklahoma-domiciled life insurance company. Since
then, the Company has continued to expand in both territory and product line,
now offering annuities and life insurance in Texas and Oklahoma and life
insurance only in Louisiana. The Company's premiums and deposits have increased
from $25,000 in 1994 to over $1 million in 1997, with assets growing from
approximately $1,032,000 as of December 31, 1994 to approximately $8,400,000 as
of June 30, 1998. See "BUSINESS." According to A.M. Best (Best's Review January
1998), in 1996 industry-wide individual annuity direct premiums and fund
deposits, similar to those offered by the Company, totaled over $85 billion, and
represented approximately 25% of overall premium dollars. The Company believes
that this niche of the insurance industry will continue to grow as a percentage
of total premium dollars and that this growth, coupled with the current
consolidation of the insurance industry, presents the Company with good
opportunities to achieve its operating strategy and make profitable
acquisitions.
The Company's operating strategy is to continue to make acquisitions of
small, marginally profitable or unprofitable insurance companies, consolidate
and streamline the administrative functions of these small companies, improve
their investment yields through active asset management by a centralized
investment operation and eliminate their unprofitable products and distribution
channels. The Company believes that it is particularly well suited to make such
acquisitions and to capitalize on the cost savings which can be realized by
consolidating the administrative functions of the acquired companies. The
Company plans to use a portion of the proceeds of this Offering to pursue more
small company acquisitions and purchases of profitable blocks of business.
The Company markets its products primarily through small independent
property and casualty agencies and independent personal producing general agents
("PPGA's"). The companies acquired by the Company generally have in place
PPGA's who are capable and qualified to generate the sales desired by the
Company, thereby eliminating part of the expense of recruiting and training a
new agency force. However, the Company plans to use a portion of the net
proceeds of this Offering to add additional distribution channels for SLAC,
FBLIC and BCLIC throughout their marketing territories.
The Company's principal office is located at 3021 Epperly Dr., P.O. Box
15808, Oklahoma City, Oklahoma, 73155, and its telephone number is (405) 677-
0781.
3
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RECENT DEVELOPMENTS
On January 13, 1998, the Company completed the acquisition of the
outstanding capital stock of BCLIC in exchange for the issuance by the Company
of 40,000 shares of Common Stock (the "BCLIC Acquisition"). The acquisition was
accounted for under the purchase method of accounting. For the year ended
December 31, 1997, BCLIC reported total assets of approximately $1.7 million and
stockholder's equity of approximately $547,000. BCLIC reported net income for
the year ended December 31, 1997 of approximately $29,000. See "UNAUDITED PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS."
THE OFFERING
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Common Stock offered by the Company:
Maximum........................ 1,000,000 shares
Minimum........................ 140,000 shares
Shares of Common Stock to be
outstanding after the Offering..... 3,054,478 shares assuming the maximum offering is sold
2,194,478 shares assuming the minimum offering is sold
Use of Proceeds..................... To increase surplus of the Company's insurance
subsidiaries, repay debt, recruit agents, make
acquisitions and for working capital and general
corporate purposes. See "USE OF PROCEEDS."
Conditions to Offering.............. The Offering will be terminated and all subscriptions
funds will be returned promptly to subscribers unless, on
or before April 30, 1999, the Company has accepted
subscriptions and payment in full for a minimum of
140,000 shares. If the minimum number of shares is sold,
the Company thereafter may terminate the Offering at any
time and at less than the maximum offering. In no event
will the Offering extend beyond September 30, 1999.
Until a minimum of 140,000 shares is sold, all
subscribers' funds will be placed in a segregated escrow
account. After the minimum offering is sold,
subscribers' funds will be released from the escrow
account and be available for use by the Company. Any
subscription proceeds accepted after receipt and
acceptance of subscription proceeds for 140,000 shares
but before termination of the Offering will not be
deposited in escrow but will be available for immediate
use by the Company. The minimum purchase per subscriber
is 100 shares. See "PLAN OF DISTRIBUTION." All
subscription agreements received by us are irrevocable.
Nasdaq SmallCap Market Symbol....... Although the Company intends to make application to the
Nasdaq Stock Market, Inc. to list the Common Stock on the
Nasdaq as soon as practicable, there can be no assurance
that such application, when and if made, will be approved.
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RISK FACTORS
Investment in the Common Stock offered hereby involves a high degree of risk
and immediate substantial dilution. See "RISK FACTORS" and "DILUTION."
4
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SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial information is qualified by reference to,
and should be read in conjunction with, the Company's financial statements and
related notes thereto and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" contained elsewhere herein. The selected
financial information presented below is not necessarily indicative of the
future results of operations or financial performance of the Company. See "RISK
FACTORS." The selected financial information as of and for the years ended
December 31, 1996 and 1997 is derived from the audited financial statements of
the Company, and the selected financial information as of and for the six months
ended June 30, 1997 and 1998 has been derived from the unaudited financial
statements of the Company. In the opinion of management of the Company, the
unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the information set
forth herein. The pro forma financial information gives effect to the
acquisition of BCLIC described under "UNAUDITED PRO FORMA CONSOLIDATED STATEMENT
OF OPERATION." This historical and pro forma financial data should be read in
conjunction with the Consolidated Financial Statements of the Company and the
related notes thereto and the pro forma financial information included elsewhere
in this Prospectus.
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YEARS ENDED DECEMBER 31,
PRO SIX MONTHS
HISTORICAL FORMA(1) ENDED JUNE 30,
---------- ------- --------------
1996 1997 1997 1997 1998
---- ---- ---- ---- ----
(in thousands, except per share data)
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STATEMENT OF OPERATIONS DATA:
Total revenues................. $ 1,270 $ 782 $ 1,021 $ 444 $ 397
Loss before income taxes and
Minority interest........... (374) (270) (557) (121) (341)
Net loss....................... (297) (269) (556) (122) (341)
Net loss per share............. (.18) (.14) (.28) (.07) (.17)
Shares used in computation
(2)............................ 1,638,235 1,893,367 1,993,367 1,850,745 2,039,890
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AS OF DECEMBER 31, 1997 AS OF JUNE 30,
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HISTORICAL PRO FORMA (1) 1997 1998
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(in thousands) <C>
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BALANCE SHEET DATA:
Invested assets............................... $4,039 $4,853 $4,416 $5,329
Total assets.................................. 6,279 8,330 6,336 8,388
Total policy liabilities...................... 4,445 5,402 4,287 5,957
Stockholders' equity.......................... 339 1,338 422 1,021
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________________________
(1) The amounts presented "pro forma" are calculated as if the BCLIC
acquisition was completed as of January 1, 1997 for the statement of
operations data and December 31, 1997 for the balance sheet data.
(2) All share amounts used in computation of per share data reflect the 5-for-2
stock split effected in September 1998.
5
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RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider the following factors in evaluating the
Company and its business before purchasing any of the shares of Common Stock
offered hereby.
ABILITY TO COMPLETE AND INTEGRATE ACQUISITIONS; RISKS RELATING TO GROWTH
STRATEGY. A significant portion of the Company's strategy is to pursue and
complete acquisitions of companies and in force life insurance business that
meet its acquisition criteria. The Company has acquired and seeks to acquire
companies and blocks of in force insurance policies to enhance the Company's
stockholder value utilizing the Company's operations, management and access to
capital. The Company's ability to grow by acquisition is dependent upon, and
may be limited by, the availability of suitable acquisition opportunities at
values deemed advantageous and capital and regulatory constraints. To the
extent that cash generated internally is not sufficient to provide the capital
required for acquisitions, the Company will require additional debt and/or
equity financing in order to provide for such capital. Future debt financing,
if available, will result in increased interest and amortization expenses,
increased leverage and decreased income available to fund acquisitions and
expansion, and may limit the Company's ability to withstand competitive
pressures and render the Company more vulnerable to business downturns. Future
equity financings may dilute the equity interests of existing stockholders.
Growth by acquisition also involves risks that could adversely affect the
Company's operating results, including difficulties in integrating the
operations and personnel of acquired companies, eliminating duplicative costs
and reducing overhead, and the potential loss of key employees and customers of
acquired companies or lapse or surrender of acquired insurance policies. In
addition, although the Company performs a due diligence investigation of each
business that it acquires, there may nevertheless be liabilities of an acquired
business that the Company fails or is unable to discover during its due
diligence investigation and for which the Company, as a successor owner, may be
responsible.
The BCLIC Acquisition represents the Company's largest acquisition to date
and there can be no assurance that the Company will successfully operate BCLIC's
business. In addition, there can be no assurance that the Company will be able
to obtain the capital necessary to pursue its growth strategy, consummate
acquisitions on satisfactory terms or, if any such acquisitions are consummated,
successfully integrate such acquired businesses into the Company and remedy any
undiscovered liabilities of any acquired companies. See "BUSINESSAcquisitions
and Consolidations."
RELATIONSHIP WITH SMITH AGENCY; CONFLICTS OF INTEREST. The Company has
been dependent upon the James L. "Jim" Smith & Associates, Inc. (the "Smith
Agency"), an insurance agency owned by Charles L. Smith and James L. Smith, for
originating a substantial portion of its newly-issued life insurance policies
and annuity contracts. Until recently, the Company has not operated a
significant internal marketing function or obtained significant amounts of
business from non-affiliated insurance agencies. There can be no assurance that
the Smith Agency will maintain its current level of business or successfully
increase its sales volume. The Smith Agency's inability to maintain its current
level of business would have a material adverse effect on the Company.
In addition, because the Smith Agency is under common control with the
Company, situations could arise in which the Smith Agency's interests and the
Company's interests could conflict. Examples of such potential conflicts
include the amount of commissions paid to the Smith Agency and the determination
of cost sharing arrangements between the Smith Agency and the Company with
respect to various matters. If any of the potential conflict of interest issues
were changed from existing arrangements, the effect on the Company's operations
could be material and adverse. There can be no assurance that any such
conflicts would be resolved to the benefit of the Company. The Smith Agency was
paid $5,800 and $4,000 in sales commissions during the year ended December 31,
1997 and the six months ended June 30, 1998, respectively. See "BUSINESS" and
"CERTAIN TRANSACTIONS."
REGULATION. Insurance companies are subject to comprehensive regulation in
the jurisdictions in which they do business by state insurance commissioners.
Such regulation relates to, among other things: prior approval of the
acquisition of a controlling interest in an insurance company; standards of
solvency which must be met and maintained; licensing of insurers and their
agents; nature and limitations of investments; deposits of securities for the
benefit of policyholders; approval of policy forms; triennial examinations of
insurance companies; annual and other reports required to be filed on the
financial condition of insurers or for other purposes; and requirements
6
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regarding reserves for unearned premiums, losses and other matters. The Company
is subject to this type of regulation in any state in which it is licensed to do
business. Such regulation could create costs and restrict operations. The
Company is currently subject to regulation in the states of Oklahoma, Texas and
Louisiana. Intercorporate transfers of assets and dividend payments from the
Company's insurance subsidiaries are subject to prior notice and approval if
they are deemed "extraordinary" under these statutes. The Company is required
to file detailed annual reports with the state insurance regulatory body of each
state in which it is licensed, and the business and accounts of insurance
subsidiaries of the Company are subject to examination by such regulatory
bodies. See "BUSINESSRegulation and Taxation."
PERSISTENCY. Persistency is the extent to which policies sold remain in
force. Policy lapses over those actuarially anticipated could have an adverse
effect on the financial performance of the Company. Policy acquisition costs
are deferred and expensed over the premium paying period of a policy. Excess
policy lapses, however, cause the immediate expensing or amortizing of deferred
policy acquisition costs. Provided the Company maintains lapse and surrender
rates within its pricing assumptions for its insurance policies, the Company
believes that the present lapse and surrender rate should not have a material
adverse effect on the Company's financial results. For the years ended December
31, 1996 and 1997 and the six months ended June 30, 1998, the Company's lapse
ratio on ordinary business was 1%, 1% and 3.3%, respectively.
COMPETITION. The life insurance business is highly competitive and
consists of a number of companies, many of which have greater financial
resources, longer business histories and more diversified lines of insurance
products than the Company. The Company may encounter increased competition from
existing competitors or new market entrants, some of which may be significantly
larger and have greater business resources. In addition, to the extent that
existing or future competitors seek to gain or retain market share by reducing
prices, the Company might be compelled to lower its prices, thereby adversely
affecting operating results. See "BUSINESSCompetition."
IMPORTANCE OF RATINGS. Ratings with respect to claims-paying ability and
financial strength have become an increasingly important factor in establishing
the competitive position of insurance companies. Claims-paying and financial
strength ratings are based upon factors relevant to policyowners and are not
directed toward protection of stockholders. The Company realizes the importance
to policyholders of ratings and sought in 1996 to begin the arduous task of
filing with the rating agencies. However, the Company is still too small to
obtain a letter rating, and currently is rated by A. M. Best Company as "FPR 4"
(fair). See "GLOSSARY OF SELECTED TERMS" under the caption A.M. Best.
ECONOMIC STATE OF THE INSURANCE INDUSTRY. In the past decade, there have
been instances where the United States insurance industry, as a whole, has
suffered substantial losses on investments, which has reduced the financial
stability of several insurance companies. Management believes that the
principal causes of industry losses have been inappropriate investment in high
yield bonds and real estate. The Company has only minimal holdings in high
yield bonds and real estate. Management believes that these factors leave the
Company with a relatively lower investment loss risk compared to that to which
the industry as a whole is exposed.
INTEREST RATE VOLATILITY; INVESTMENT SPREAD RISKS. Much of the
profitability in the insurance industry is affected by fluctuations in interest
rates. Of prime importance in achieving profitability is an insurance company's
ability to invest premiums at a higher interest rate than the interest rate
credited to existing policies. Rapid decreases or increases in interest rates
may affect an insurance company's ability to maintain a positive spread between
the yield on invested assets and the assumed interest rate credited to policy
reserves. Rapid interest rate changes could cause increased lapses of policies
in force, although management believes the effect of such rate changes would be
minimal.
Interest rate fluctuations may also have an impact on policyholder
behavior. To the extent that the fixed rate annuity policies created by the
Company may subsequently carry lower fixed rates than those generally available
in the market place, then there may be a tendency by certain policyholders to
surrender their policies. While this surrender would likely be mitigated by
surrender charges under annuity contracts, over the longer term such action may
reduce the Company's future income. There are significant surrender charges
which serve to discourage policyholders from surrendering policies. The
Company's ability to pay policyholder benefits with operating and investment
cash flows and cash on hand may be impaired by substantial interest rate
fluctuations.
7
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ADEQUACY OF RESERVES. It is anticipated that the products of the life
insurance subsidiaries will provide readily determinable benefits pursuant to
fixed commitments for payments of the fixed rate annuity policies. These fixed
benefits therefore generally are not subject to increase as a result of
inflation. A material inadequacy in future policy benefits reserves could have
a material adverse effect upon the business, results of operations, and
financial condition of the Company. Any inadequacy in reserves would result in
additional expenses when the Company incurs such benefits or when the Company
becomes aware of the inadequacy and increases the future policyholder benefits
reserve.
DEPENDENCE ON KEY PERSONNEL. The Company's future performance and
development will depend, to a significant extent, upon the efforts and abilities
of members of senior management, particularly Charles L. Smith, President, Chief
Operating Officer and a director, and James L. Smith, Chairman of the Board and
Chief Executive Officer. The loss of services of one or more members of senior
management could have a material adverse effect on the Company's business. The
Company's future success also will depend on its ability to attract, train and
retain skilled personnel in all areas of its business. The Company currently
has employment contracts with Charles L. Smith and James L. Smith, and maintains
key man insurance of $1 million on each of such individuals. See "MANAGEMENT."
CONTROL BY EXISTING STOCKHOLDERS. Following completion of the Offering,
the Company will continue to be effectively controlled by Messrs. Charles L. and
James L. Smith, each of whom are also executive officers and directors of the
Company, and who together currently own an aggregate of 1,366,370 shares of
Common Stock, which constitute approximately 66.50% of the 2,054,478 shares of
Common Stock issued and outstanding immediately prior to this Offering. If all
of the 1,000,000 shares of Common Stock offered hereby are sold, the Smiths'
ownership interest in the Company (assuming no purchase by them of the shares
offered hereby) will constitute approximately 44.73% of the then issued and
outstanding shares of Common Stock. Such ownership interest will more than
likely enable them to continue to have the power to control the Company, to
elect the Board of Directors, and to approve any action requiring stockholder
approval, including adopting amendments to the Company's Certificate of
Incorporation and approving or disapproving mergers and sales of all or
substantially all of the assets of the Company. Because they will control the
election of the Board of Directors of the Company, they will be able to control
most, if not all, of the Company's policy decisions. See "PRINCIPAL
STOCKHOLDERS."
PRODUCT ASSUMPTIONS. In reliance upon its actuarial consultants, the
Company's life insurance subsidiaries make certain assumptions as to expected
mortality, lapse rates, investments results and other factors in developing the
pricing and other terms of its products. The assumptions concerning such
factors are generally based upon industry experience, and influence marketing
success and profitability. However, the Company itself has had only limited
experience with determining the terms of the life insurance products which it
markets and sells. Variation of actual experience from that assumed by the
Company in developing such policy terms may affect the products' profitability
and marketability.
POTENTIAL FLUCTUATIONS AND OPERATING RESULTS. Due to the relatively low
capitalization of the Company's life insurance subsidiaries, their operating
results are significantly impacted by the amount of fixed rate annuity policies
sold, as well as the level of death and other policyholder benefits in any one
reporting period. The annual investment returns and overhead costs will also
affect the subsidiaries' operating results.
Additionally, The Company's revenues and operating results have
historically varied significantly from quarter to quarter and are expected to
continue to fluctuate in the future. Historically, operating results have been
seasonally lower during the first fiscal quarter than during the other quarters
of the fiscal year. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
ANTI-TAKEOVER PROVISIONS. The Company's Amended and Restated Certificate
of Incorporation (the "Certificate of Incorporation) and Amended and Restated
Bylaws (the "Bylaws") include provisions that may delay, defer or prevent a
takeover attempt that may be in the best interest of the Company's stockholders.
These provisions include a classified Board of Directors, pursuant to which
directors are divided into three classes with three-year staggered terms. The
classified board provision could increase the likelihood that, in the event an
outside party acquired a controlling block of the Company's stock, incumbent
directors nevertheless would retain their positions for a substantial period,
which may have the effect of discouraging, delaying or preventing a change in
control of the
8
<PAGE>
Company. In addition, the Certificate of Incorporation provide for the ability
of the Board of Directors to issue up to 5,000,000 shares of Preferred Stock
without any further stockholder approval, a provision under which only the Board
of Directors or holders of at least two-thirds of the outstanding shares may
call meetings of stockholders, a requirement that any stockholder action without
a meeting be pursuant to unanimous written consent and certain advance notice
procedures for nominating candidates for election to the Board of Directors and
putting other proposals to a vote of stockholders. Issuance of Preferred Stock
also could discourage bids for the Common Stock at a premium as well as create a
depressive effect on the market price of the Common Stock. In addition, under
certain conditions, Section 1090.3 of the Oklahoma General Corporation Act, as
amended (the "OGCA"), would prohibit the Company from engaging in a "business
combination" with an "interested stockholder" (in general, a stockholder owning
15% or more of the Company's outstanding voting shares) for a period of three
years. The possible impact of these provisions on takeover attempts could
adversely affect the price of the Common Stock. See "DESCRIPTION OF CAPITAL
STOCK."
Additionally, the Company is an insurance holding company and, as such, is
subject to Oklahoma state law governing insurance holding companies. Under the
provisions of Oklahoma insurance law and regulations, any person or entity
desiring to acquire more than a specified percentage of the Company's
outstanding voting securities will be required to obtain approval of the
Oklahoma State Insurance Department. These, as well as certain other factors,
may be expected to have the effect of delaying or preventing a change in control
of the Company. See "BUSINESSRegulation and Taxation."
NO ASSURANCE OF MARKET FOR COMMON STOCK. There currently is no public
market for the Common Stock being offered, and no assurance can be given that a
market will develop. The Company will apply to list the Common Stock on the
Nasdaq. If a trading market does develop for the Common Stock, the prices may
be highly volatile. In addition, if a market for the Common Stock does develop,
and the Common Stock is traded below certain prices, many brokerage firms may
not effect transactions in the Common Stock, and sales of the Common Stock will
be subject to Commission Rule 15g-9. In the event that the Company is unable to
meet the Nasdaq's listing requirements, trading in the Common Stock, if any,
could be limited to the OTC Bulletin Board or the "pink sheets" used by members
of the National Association of Securities Dealers, Inc. If a market does not
develop for the Common Stock, it may be difficult or impossible for purchasers
to resell the Common Stock. There can be no assurance that any of the Common
Stock can ever be sold at the offered price or at any price.
SHARES ELIGIBLE FOR FUTURE SALE. Upon consummation of the Offering, and
assuming the maximum number of shares offered is sold, the Company will have
outstanding an aggregate of 3,054,478 shares of Common Stock. Of such shares,
the 1,000,000 shares sold pursuant to the Offering will be tradable without
restriction by persons other than "affiliates" of the Company. The remaining
2,054,478 shares of Common Stock to be outstanding after the Offering are
"restricted securities" within the meaning of Rule 144 under the Securities Act
of 1933, as amended (the "Securities Act") and may not be publicly resold,
except in compliance with the registration requirements of the Securities Act or
pursuant to an exemption from registration, including that provided by Rule 144
promulgated under the Securities Act.
Future sales of substantial amounts of Common Stock (including shares
issued upon the exercise of stock options) by the Company's current stockholders
after the Offering, or the perception that such sales could occur, could
adversely affect the market price of the Common Stock. In addition, the Company
has the authority to issue additional shares of Common Stock and shares of one
or more series of Preferred Stock. The Company also intends to register on Form
S-8 under the Securities Act an aggregate of 300,000 shares of Common Stock for
future issuance under the Stock Option Plan as soon as practicable following the
consummation of the Offering. The future issuance of such shares could result
in the dilution of the voting power of the shares of Common Stock purchased in
the Offering and could have a dilutive effect on earnings per share. No
prediction can be made as to the effect, if any, that future sales of shares, or
the availability of shares for future sale, will have on the market price of the
Common Stock. The Company currently has no plans to designate or issue any
shares of Preferred Stock. See "PRINCIPAL STOCKHOLDERS," DESCRIPTION OF CAPITAL
STOCK" and "SHARES ELIGIBLE FOR FUTURE SALE"
POSSIBLE NEED FOR FUTURE FINANCING. The Company believes that the proceeds
of this Offering will enable it to accomplish the purposes set forth under
"BUSINESS," although there can be no assurance that this will be the case. If
the proceeds of this Offering are not sufficient, the Company would be required
to seek additional
9
<PAGE>
financing to enable it to conduct its business operations. There can be no
assurance that the Company will be able to obtain such financing on acceptable
terms, or at all. Any such additional equity financing may entail substantial
dilution of the equity of the then-existing stockholders of the Company.
Although the Company currently has a $150,000 bank line of credit, it funds
most of its activity directly from internally generated funds. The Company has
not entered into any additional arrangements to obtain alternate financing, and
there can be no assurance of the availability of any financing on acceptable
terms.
ARBITRARY DETERMINATION OF OFFERING PRICE. The public offering price for
the Common Stock offered hereby was determined by the Company, and should not be
assumed to bear any relationship to the Company's asset value, net worth or
other generally accepted criteria of value. Recent history relating to the
market prices of newly public companies indicates that the market price of the
Common Stock following this Offering may be highly volatile.
PAYMENT OF DIVIDENDS. The Company has never paid cash dividends on the
Common Stock, and does not anticipate that it will pay cash dividends in the
foreseeable future. The payment of dividends by the Company will depend on its
earnings, financial condition and such other factors, as the Board of Directors
of the Company may consider relevant. The Company currently plans to retain any
earnings to provide for the development and growth of the Company. See
"DIVIDEND POLICY."
IMMEDIATE SUBSTANTIAL DILUTION. The Company's current stockholders
acquired their shares of Common Stock at a cost substantially below the price at
which such shares are being offered in this Offering. In addition, the initial
public offering price of the shares of Common Stock in this Offering will be
substantially higher than the current book value per share of Common Stock.
Consequently, investors purchasing shares of Common Stock in this Offering will
incur an immediate and substantial dilution of their investment based upon the
resulting book value of Common Stock after completion of this Offering. See
"DILUTION."
USE OF PROCEEDS
Assuming all of the Common Stock offered is sold, the Company intends to
use the net proceeds of the Offering approximately as follows: (i) approximately
$2,500,000 (51.07%) will be used to increase surplus of the Company's insurance
subsidiaries; (ii) approximately $1,100,000 (22.47%) will be used to repay
substantially all outstanding debt of the Company; (iii) approximately $150,000
(3.06%) will be used to recruit additional agents; and (iv) approximately
$1,145,000 (23.39%) will be used for working capital and general corporate
purposes, including possible acquisitions of insurance companies and in force
insurance policies consistent with the Company's business strategies. If only
the minimum $700,000 is sold, the net proceeds of the Offering will be used as
follows: (i) approximately $395,000 (66.39%) will be used to increase surplus
of the Company's insurance subsidiaries; (ii) approximately $100,000 (16.81%)
will be used to repay indebtedness; (iii) approximately $50,000 (8.40%) will be
used to recruit additional agents; and (iv) approximately $50,000 (8.40%) will
be used for working capital and general corporate purposes.
The following table summarizes the Company's intended uses of the net
proceeds of this Offering:
<TABLE>
<CAPTION>
MINIMUM OFFERING MAXIMUM OFFERING
----------------- -------------------
USE OF NET PROCEEDS (1) AMOUNT PERCENT AMOUNT PERCENT
------------------- -------- ------- -------- -------
<S> <C> <C> <C> <C>
Increase surplus $395,000 66.39% $2,500,000 51.08%
Repayment of indebtedness 100,000 16.81% 1,100,000 22.47%
Recruitment of agents 50,000 8.40% 150,000 3.06%
Working capital and general corporate purposes 50,000 8.40% 1,145,000 23.39%
-------- ------ ---------- ------
Total $595,000 100.00% $4,895,000 100.00%
======== ====== ========== ======
</TABLE>
________________________________
(1) After deducting expenses of the Offering estimated at $105,000 payable by
the Company.
10
<PAGE>
The Company intends to utilize a portion of the net proceeds of the
Offering to repay indebtedness. At June 30, 1998, the indebtedness owed by the
Company consisted of the following :
<TABLE>
<CAPTION>
DESCRIPTION OF INDEBTEDNESS PRINCIPAL BALANCE
--------------------------- -----------------
<S> <C>
Uncollateralized note payable to individual, interest payable annually at 8%; due April 18, 2000 $ 75,000
Note payable to bank, payable in monthly installments of $600 through March 1999, including interest at
10.5%; collateralized by vehicle 30,759
Uncollateralized note payable to stockholder, interest payable annually at 7.75%; due September 15, 1998 30,000
Note payable to individual, interest payable semiannually at 8%; due July 1, 1998; collateralized by U.S.
Treasury securities 30,000
Uncollateralized note payable to Charles L. Smith, interest payable semiannually at 8%; due March 17, 1998 50,000
Uncollateralized note payable to stockholder, interest payable annually at 6.75%; due February 1, 1998 50,000
10% Notes payable to individuals, the majority of which are stockholders, interest payable either
semiannually or allowed to compound, maturing primarily in 1999; collateralized by a portfolio of medical
accounts receivable 909,743
----------
TOTAL INDEBTEDNESS $1,175,502
==========
</TABLE>
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations, that the proceeds from the Offering, together with
projected cash flow from operations, will be sufficient to meet estimated
capital expenditures through 1999. If cash flows do not develop as anticipated,
or if the Company's proposed plans or the basis for its assumptions change, the
company may be required to obtain additional sources of capital.
The Company plans to use a substantial amount of the proceeds from the
Offering to increase the surplus of its insurance subsidiaries, which will
enable the company to increase its sales of insurance products. The actual
allocation of net proceeds, however, will depend on the Company's success in its
recruitment activities. If results do not meet the Company's requirements, it
may reallocate the proceeds among the other contemplated uses of proceeds. The
Company may use a portion of the net proceeds to acquire the assets of other
insurance companies. Any decision to make an acquisition will be dependent on
consideration of a variety of factors, including business prospects, purchase
price and financial terms of the transaction. The Company has no agreements,
understandings or arrangements with respect to any acquisition at this time.
see "BUSINESS."
Pending application by the Company of the net proceeds of this Offering,
the Company may invest the net proceeds in interest-bearing accounts at insured
institutions, U.S. Government and agency obligations, certificates of deposit or
other investment grade short-term, interest-bearing securities.
11
<PAGE>
DETERMINATION OF OFFERING PRICE
The public offering price for the Common Stock offered hereby was
determined by the Company, and should not be assumed to bear any relationship to
the Company's asset value, net worth or other generally accepted criteria of
value. Recent history relating to the market prices of newly public companies
indicates that the market price of the Common Stock following this Offering may
be highly volatile.
DIVIDEND POLICY
The Company does not anticipate paying dividends on the Common Stock at any
time in the foreseeable future. The Company's Board of Directors plans to
retain earnings for the development and expansion of the Company's business.
The Board of Directors also plans to regularly review the Company's dividend
policy. The Company's ability to pay dividends will be dependent, in large
measure, on its ability to receive dividends and management fees from its life
insurance subsidiaries. The ability of these corporations to pay dividends and
management fees, in turn, is limited pursuant to the insurance laws of the
states in which the Company's insurance subsidiaries are domiciled. Generally,
such laws provide that dividends may be paid only from the earned surplus
arising from the insurance company's business and must receive the prior
approval of the Insurance Commissioner to pay a dividend if such dividend would
exceed certain statutory limitations. Current statutory limitations in each of
the states in which SLAC and FBLIC operate are the greater of (i) 10% of the
Subsidiary's statutory capital and surplus as of the preceding year end or (ii)
the gain from operations for the previous calendar year. Current statutory
limitations in the state in which BCLIC operates are the lesser of (i) 10% of
BCLIC's statutory capital and surplus as of the preceding year or (ii) the gain
from operations for the previous calendar year.
Any future determination as to the payment of dividends will be at the
discretion of the Board of Directors of the Company and will depend on a number
of factors, including future earnings, capital requirements, financial condition
and such other factors as the Board of Directors may deem relevant.
DILUTION
As of June 30, 1998, the Company reported a net tangible stockholders'
equity of $895,186, or $.43 per share of Common Stock. The net tangible
stockholders' equity of the Company is the aggregate amount of its tangible
assets less its total liabilities. The net tangible stockholders' equity per
share represents the net tangible stockholders' equity divided by the number of
shares of Common Stock outstanding. After giving effect to the sale of the
minimum and maximum number of shares of Common Stock offered hereby, at an
assumed offering price of $5.00 per share, and the application of the estimated
net proceeds therefrom, the pro forma net tangible stockholders' equity per
share would increase from $.43 to $.68 and $1.89, respectively. This represents
an immediate increase in net tangible stockholders' equity of $.25 and $1.46 per
share, respectively, to current stockholders and an immediate dilution of $4.32
and $3.11 per share, respectively, to new investors, as illustrated in the
following table:
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
OFFERING OFFERING
-------- --------
<S> <C> <C>
Initial public offering per share..................................... $5.00 $5.00
Pro forma net tangible book value per share after this Offering....... .68 1.89
----- -----
Dilution per share to new investors................................... $4.32 $3.11
===== =====
</TABLE>
12
<PAGE>
The following table summarizes, as of June 30, 1998, the number of shares of
Common Stock issued by the Company, the total consideration received by the
Company and the average consideration attributable to shares held by existing
stockholders and new investors purchasing shares in this Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------------- ----------------------------
CONSIDERATION
NUMBER Percent AMOUNT PERCENT PER SHARE
---------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Current Stockholders.. 2,054,478 67.3% $2,100,234 29.6% $1.02
New investors......... 1,000,000 32.7% 5,000,000 70.4% $5.00
--------- ----- ---------- -----
Total........... 3,054,478 100.0% $7,100,234 100.0%
========= ===== ========== =====
</TABLE>
CAPITALIZATION
The following table sets forth (i) the historical capitalization of the
Company as of June 30, 1998; and (ii) the pro forma capitalization of the
Company as adjusted to give effect to the sale of a minimum of 140,000 shares,
and a maximum of 1,000,000 shares, of Common Stock at an assumed public offering
price of $5.00 per share and the application of the estimated net proceeds as
described under "Use of Proceeds." This table should be read in conjunction
with "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------------------------------------
As Adjusted AS ADJUSTED
Actual MINIMUM OFFERING MAXIMUM OFFERING
------ ---------------- ----------------
<S> <C> <C> <C>
LIABILITIES:
Policy reserves and policyholder funds.......................... $5,957,486 $5,957,486 $ 5,957,486
Accounts payable................................................ 15,138 15,138 15,138
Accrued liabilities............................................. 182,678 182,678 182,678
Notes Payable................................................... 1,175,502 1,075,502 75,502
Deferred income taxes........................................... 40,000 40,000 40,000
Other liabilities............................................... (3,679) (3,679) (3,679)
---------- ---------- -----------
Total liabilities...................................... 7,367,125 7,267,125 6,267,125
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value:
5,000,000 shares authorized, 2,054,478 issued and
outstanding, 2,194,478 as adjusted for the minimum
aggregate Offering, 3,054,478 as adjusted for the
maximum aggregate Offering....................................... 20,547 21,947 30,547
Additional paid-in capital...................................... 2,079,687 2,673,287 6,964,687
Common stock subscribed......................................... 39,130 39,130 39,130
Net unrealized investment gains (losses)........................ 35,141 35,141 35,141
Accumulated deficit............................................. (1,114,512) (1,114,512) (1,114,512)
Less stock subscriptions receivable.................... (39,130) (39,130) (39,130)
---------- ---------- -----------
Total stockholders' equity............................. 1,020,863 1,615,863 5,915,863
---------- ---------- -----------
Total capitalization.................................. $8,387,988 $8,882,988 $12,182,988
========== ========== ===========
</TABLE>
13
<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected financial information is qualified by reference to,
and should be read in conjunction with, the Company's financial statements and
related notes thereto and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" contained elsewhere herein. The selected
financial information presented below is not necessarily indicative of the
future results of operations or financial performance of the Company. See "RISK
FACTORS." The selected financial information as of and for the years ended
December 31, 1996 and 1997 is derived from the audited financial statements of
the Company, and the selected financial information presented as of and for the
six months ended June 30, 1997 and 1998 is derived from the unaudited financial
statements of the Company. In the opinion of management of the Company, the
unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the information set
forth herein. The pro forma financial information gives effect to the
acquisition of BCLIC described under "UNAUDITED PRO FORMA CONSOLIDATED STATEMENT
OF OEPRATIONS." This historical and pro forma financial data should be read in
conjunction with the Consolidated Financial Statements of the Company and the
related notes thereto and the pro forma financial information included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
------------------------------------------
HISTORICAL PRO FORMA (1) ENDED JUNE 30,
---------- ------------- --------------
1996 1997 1997 1997 1998
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.................... $ 1,270 $ 782 $ 1,021 $ 444 $ 397
Loss before income taxes and
minority interest.............. (374) (270) (557) (121) (341)
Net loss.......................... (297) (269) (556) (122) (341)
Net loss per share................ (.18) (.14) (.28) (.07) (.17)
Shares used in computation (2).... 1,638,235 1,893,367 1,993,367 1,850,745 2,039,890
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997 AS OF JUNE 30,
------------------------------------ ---------------------------
Historical PRO FORMA (1) 1997 1998
----------- -------------- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Invested assets...................... $4,039 $4,853 $4,416 $5,329
Total assets......................... 6,279 8,330 6,336 8,388
Total policy liabilities............. 4,445 5,402 4,287 5,957
Stockholders' equity................. 339 1,338 422 1,021
</TABLE>
________________________
(1) The amounts presented "pro forma" are calculated as if the BCLIC
acquisition was completed as of January 1, 1997 for the statement of
operations data and December 31, 1997 for the balance sheet data.
(2) All share amounts used in computation of per share data reflect the 5-for-2
stock split effected in September 1998.
14
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The following unaudited pro forma consolidated statement of operations
gives effect to the acquisition of BCLIC as if the acquisition had occurred as
of January 1, 1997. This statement is based on available information and on
assumptions management believes are reasonable and that reflect the effects of
the transaction described above. Such statement is provided for informational
purposes only and should not be construed to be indicative of the Company's
consolidated results of operations had this transaction been consummated on the
date assumed and does not in any way represent a projection or forecast of the
Company's consolidated results of operations for any future date or period. The
unaudited pro forma consolidated statement of operations should be read in
conjunction with the notes thereto, the audited Consolidated Financial
Statements of the Company, together with the related notes and report thereon,
the unaudited consolidated statements of the Company included elsewhere in this
Prospectus and with the information set forth under "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION" and "BUSINESS."
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
-------------------------
SUMMIT LIFE
CORPORATION
AND PRO FORMA
SUBSIDIARIES BCLIC ADJUSTMENTS PRO FORMA
----------- ------------ -------------- ---------
<S> <C> <C> <C> <C>
Revenues
Insurance premiums and other considerations $ 8,108 $ 164,503 $ - $ 172,611
Investment income 490,184 72,713 - 562,897
Net realized gains on sale of investments 14,275 1,368 - 15,643
Mortgage loan closing and funding income and
related fees 237,610 - - 237,610
Other 31,819 - - 31,819
---------- ---------- ----------- ---------
781,996 238,584 - 1,020,580
Benefits, losses, and expenses
Policy benefits - 168,739 - 168,739
Increase (decrease) in policy reserves 263,318 (358,259) 95,000(1) 59
Interest expense 131,052 - - 131,052
Mortgage loan closing, and related expenses 60,357 - - 60,357
Taxes, licenses, and fees 18,572 - - 18,572
Depreciation and amortization 69,151 - - 69,151
Amortization of deferred policy acquisition costs
and value of purchased insurance business - 93,599 220,000(1) 313,599
General, administrative, and other operating 509,871 305,794 -(2) 815,665
---------- ---------- ----------- ---------
1,052,321 209,873 315,000 1,577,194
---------- ---------- ---------- ---------
Earnings (loss) before income taxes (270,325) 28,711 (315,000) (556,614)
Income tax provision 968 - - (3) 968
---------- ---------- ----------- ---------
NET EARNINGS (LOSS) $ (269,357) $ 28,711 $ (315,000) $(555,646)
========== ========== =========== =========
Basic and fully diluted loss per common share $(.14) $(.28)
========== =========
Weighted average common shares outstanding (5) 1,893,367 100,000(4) 1,993,367
========== ============= =========
</TABLE>
15
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(1) Reflects reduction in BCLIC's policy reserve decrease and amortization of
value of purchased insurance business assuming purchase accounting
assumptions were applied to policies in force at January 1, 1997.
(2) No pro forma adjustments have been made to give effect to actions taken by
management after the acquisition of BCLIC; however, certain employee and
consulting arrangement terminations are expected to reduce general,
administrative, and other operating expenses by approximately $69,000,
annually.
(3) Due to losses and net operating loss carryforwards, no income tax benefits
have been included.
(4) To reflect the issuance of 40,000 shares of Class A Common Stock (100,000
shares, as adjusted for the 5-for-2 stock split, discussed below) in
exchange for 100% of the outstanding common stock of BCLIC.
(5) Adjusted for a 5-for-2 stock split effected in September 1998.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The following discussion and analysis reviews the Company's operations for
the years ended December 31, 1996 and 1997 and for the six months ended June 30,
1997 and 1998. Certain statements contained in this discussion are not based on
historical facts, but are forward-looking statements that are based upon
numerous assumptions about future conditions which may ultimately prove to be
inaccurate and actual events and results may materially differ from anticipated
results described in such statements. The Company's ability to achieve such
results is subject to certain risks and uncertainties discussed in "RISK
FACTORS" section herein. The following discussion and analysis should be read
in conjunction with the discussion about such risk factors and the financial
statements of the Company and the notes related thereto included elsewhere in
this Prospectus.
Although the Company's primary focus is its life insurance operations, it
also provides residential mortgage loan processing services to individuals and
financing to medical accounts receivable factoring entities. Each of these
operations is reported as a separate business segment in the Company's financial
statements included elsewhere in this Prospectus.
OPERATING DATA
The following table sets forth selected information regarding operating
results for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------- -------------------------------------
1996 1997 1997 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
(in thousands)
STATEMENT OF OPERATIONS DATA:
Revenues $1,269 $ 782 $ 444 $ 397
Benefits, losses and expenses 1,643 1,052 565 749
Net loss (297) (269) (122) (341)
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1988
-------------------------------------------------------------------
AS ADJUSTED (1)
Actual MINIMUM OFFERING MAXIMUM OFFERING
------ ---------------- ----------------
<S> <C> <C> <C>
(in thousands)
BALANCE SHEET DATA:
Cash and cash equivalents $1,754 $2,249 $ 5,549
Total assets 8,388 8,883 12,183
Total liabilities 7,367 7,267 6,267
Stockholders' equity 1,021 1,616 5,916
</TABLE>
_________________________
(1) Gives effect to the sale of the minimum and maximum number of shares of
Common Stock offered hereby, and the application of the estimated proceeds
therefrom. See "USE OF PROCEEDS" and "CAPITALIZATION."
RESULTS OF OPERATIONS
Recent Developments
In the fourth quarter of 1997, the Company signed a definitive agreement to
acquire BCLIC from a third party. As a result of the acquisition, which was
consummated in January 1998, the Company now markets its insurance products in
the State of Louisiana.
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In the fourth quarter of 1997, the Company merged Equity Mortgage Services,
Inc. ("Equity Mortgage") with and into the Company. Prior to the merger, Equity
Mortgage was a wholly owned subsidiary of the Company which engaged in mortgage
brokerage activities. Subsequent to the merger, the Company sold Equity
Mortgage's building and related real estate, resulting in a deferred gain of
approximately $70,000, and downsized the personnel associated with the Company's
mortgage brokerage activities. The merger, downsizing, and building sale are
expected to result in annual savings of over $60,000 in expenses.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Assets/Liabilities/Stockholders' Equity. Total assets increased 18% for
the period ended December 31, 1997 over the comparable period 1996. Total
assets were $6,278,701 at December 31, 1997 compared to $5,336,026 at December
31, 1996. The increases were due to a continuing growth in the sales of the
Company's annuity and life products.
Total liabilities (primarily insurance reserves for future benefits)
increased 21% for the period ended December 31, 1997 over the comparable period
ending December 31, 1996. Total liabilities for the periods were $5,939,266 and
$4,894,033 respectively. A significant part of these increases represented
annuity reserves.
Total stockholders' equity decreased 23% for the period ended December 31,
1997 over the same period ended 1996, from $441,993 at December 31, 1996 to
$339,435 at December 31, 1997, respectively. The decrease was partially due to
increases in reserves and the Company's losses from downsized operations.
Revenue. Revenues attributable to the mortgage segment of operations
decreased 65% for the period ended December 31, 1997 compared to the same period
ended December 31, 1996 primarily due to the Company downsizing its unprofitable
mortgage brokerage operations. The mortgage operation generated approximately
$681,523 in revenues during 1996 but generated only $237,610 in 1997 due to the
restructuring of the Company's mortgage operations and the general fluctuations
in the mortgage industry overall.
Revenues attributable to the life insurance segment decreased from $124,901
to $8,108 for the period ended December 31, 1997, compared to the same period
ended December 31, 1996. The decrease was due mainly to the change in the types
of insurance products sold by the Company, that is, premiums received on
deferred annuities and annuities without life contingencies (i.e., investment
contracts) are recorded as deposits into the policyholder's account balance,
rather than as revenues. Revenues relating to these contracts consist primarily
of withdrawal and administrative charges. Premiums for certain annuities with
life contingencies, including selection of annuity settlement options with life
contingencies, are recognized as revenues when due. During 1997, the majority of
the insurance products sold by the Company consisted of deferred annuities; the
increase in premiums and deposits to policyholder account balances from $958,121
to $1,178,983 for the comparable period reflects the increase in the Company's
sales of deferred annuity products. The Company expects increased sales of
existing products through newly recruited agents.
Costs and Expenses. Total expenses decreased 36% from $1,643,677 to
$1,052,321 for the periods ended December 31, 1996 and 1997, respectively. These
reductions were a result of the Company's continued efforts to lower costs of
operations, and was accomplished primarily as a result of the downsizing of the
Company's mortgage operations, which reduced the related expenses by 69%
($250,000 in 1997 versus $800,000 in 1996). The Company anticipates higher
expenses in the first half of 1998 due to its acquisition of BCLIC, although
Management believes it can subsequently realize substantial cost savings over
prior BCLIC management through consolidation of back-office operations and
elimination of redundant administrative personnel.
Losses. The Company reported a decrease in loss before income tax of 28%,
reporting a loss before income tax of $270,325 for the year ended December 31,
1997, compared to a loss before income tax of $373,957 for the year ended
December 31, 1996. The net loss of $269,357 for the 1997 fiscal year reflected a
9% decrease from the net loss of $297,078 reported for the 1996 fiscal year. The
decrease in net loss was due in part to the Company's continued growth in
investment income and reduction of overhead costs.
The Company's loss per share decreased to $0.14 per share for the period
ended December 31, 1997, compared to a loss of $0.18 per share for the year
ended December 31, 1996. The weighted average shares
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outstanding for each period, taking into the account the 5-for-2 stock split
effected in September 1998, were 1,893,367 for 1997 and 1,638,235 for 1996.
Six Months Ended June 1998 Compared to Six Months Ended June 1997
Assets/Liabilities/Stockholders' Equity. Total assets were $6,335,850 at
June 30, 1997 compared to $8,387,988 at June 30, 1998, reflecting an increase of
32%. The increase was due primarily to continuing growth in the sales of the
Company's products and the acquisition of BCLIC.
Total liabilities (primarily insurance reserves for future benefits) were
$5,913,498 at June 30, 1997 and $7,367,125 at June 30, 1998, reflecting an
increase of 25%.
Total stockholders' equity at June 30, 1998 was $1,020,863, compared to
$422,352 at June 30, 1997, reflecting an increase of approximately 142%. The
increase was attributable primarily to the Company's acquisition of BCLIC in
January 1998.
Revenue. Revenues decreased 8% to $407,964 for the six months ended June
30, 1998 compared to $444,372 for the six months ended June 30, 1997, due
primarily to the Company downsizing its unprofitable mortgage brokerage
operations to better control costs. Although revenues from the Company's
mortgage brokerage operations decreased for the six months ended June 30, 1998
compared to the previous comparable period, such operations, due to the
restructuring, returned to profitability for the six months ended June 30, 1998.
Costs and Expenses. Total expenses increased 32% to $749,288 for the six
months ended June 30, 1998 compared to $565,513 for the previous comparable
period, due to costs related to the Company's acquisition of BCLIC. The Company
used the purchase method of accounting in its acquisition of BCLIC, which
requires that the Company allocate a portion of the acquisition cost to value of
purchased insurance business. These costs are amortized over the life of the
policies acquired and resulted in amortization expense of nearly $150,000 for
the first six months of 1998. Management does not believe this amortization
expense is representative of BCLIC's ability to retain its present book of
business and expects this expense to be substantially reduced in the future.
BCLIC has improved policy retention substantially with a decrease of in force
policies of 3% in the first six months of 1998, compared to a 19% decrease for
all of 1997. Excluding the BCLIC-associated costs, the Company's expenses
actually decreased slightly.
Net Loss. The Company reported a net loss of $340,793 for the six months
ended June 30, 1998, compared to a net loss of $122,058 for the comparative
period in 1997. The increase in net loss was due primarily to costs associated
with the acquisition of BCLIC. Management expects such costs to be reduced or
non-recurring, as noted elsewhere in this analysis.
The Company's net loss per share increased to $0.17 per share for the six
months ended June 30, 1998, compared to a net loss of $0.07 per share in the
comparable period of 1997. The weighted average shares for each period, taking
into the account the 5-for-2 stock split effected in September 1998, were
2,039,890 at June 30, 1998 and 1,850,745 at June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Although the Company has a $150,000 bank line of credit, it currently funds
most of its activity directly from internally generated funds. There can be no
assurance of the availability of any funding or financing on terms acceptable to
the Company.
The Company believes that the net proceeds of this Offering will allow it
to continue to grow its asset base while maintaining surplus/liability ratios
within acceptable industry norms. The level of additional activity to be
achieved will be dependent upon the Company's ability to continue to generate
income internally or to generate capital from outside sources.
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The Company successfully converted $155,000 (100%) of its 8% Convertible
Debentures at a price of $6.50 per share (pre-split) in 1997. The Company has
not paid dividends to date and will not do so until declared by its Board of
Directors.
The Company has made and intends to make substantial capital expenditures
in connection with its subsidiaries' marketing programs. Historically, the
Company has funded these expenditures from internally generated funds.
YEAR 2000 READINESS
The "Year 2000" or "Y2K" problem is the result of computer programs being
written using two digits (rather than four) to define the applicable year. Many
existing computer programs use only two digits to identify a year in date field.
These programs were designed and developed without considering the impact of the
upcoming change in the century. If not corrected, this could result in a system
failure or calculations of erroneous results by or at the year 2000.
The Company purchased its current information technology in 1997 after
extensive research, analysis and compliance testing, and believes that such
system is "Y2K compliant." Additionally, as part of the Company's assessment of
its readiness to manage Year 2000 issues, it has communicated with significant
customers and suppliers to determine the extent to which the Company's
operations are vulnerable to third parties' failure to correct their own Year
2000 issues. Based on the overall assessment performed, the Company is not
aware of any material impact on their systems relating to the transition to the
Year 2000. The Company's total cost of Year 2000 related issues is not expected
to a have a material adverse effect on the Company's consolidated results of
operations.
BUSINESS
Certain statements contained herein relating to the Company's proposed
business strategy and expansion plans are not based on historical facts, but are
forward-looking statements that are based upon numerous assumptions about future
conditions which may ultimately prove to be inaccurate and actual events and
results may materially differ from anticipated results described in such
statements. The Company's ability to achieve such results is subject to certain
risks and uncertainties, such as those inherent generally in the insurance
industry, the impact of competition and pricing, changing market conditions, the
risks detailed in the sections entitled "RISK FACTORS" and other risks detailed
throughout this Prospectus. These forward-looking statements represent the
Company's judgment as of the date of this Prospectus. The Company disclaims,
however, any intent or obligation to update these forward-looking statements.
As a result, the reader is cautioned not to place reliance on these forward-
looking statements.
GENERAL
The Company is an Oklahoma corporation formed in 1994. The Company
specializes in various segments of the insurance and financial services
industry. Through its three operating subsidiaries, the Company offers
individual life insurance and annuity products. The Company's subsidiaries
include SLAC, an Oklahoma corporation which underwrites, markets and distributes
various life insurance type products and annuities to residents of Oklahoma;
FBLIC, a Texas corporation which underwrites, markets and distributes various
life insurance type products and annuities to residents of Texas; and Benefit
Capital Life Insurance Company BCLIC, a Louisiana corporation which underwrites,
markets and distributes various life insurance type products to residents of
Louisiana. SLAC was acquired by the Company in September 1994 for cash
consideration of $435,000. FBLIC was acquired by the Company in October 1995 for
cash consideration of $165,000. BCLIC was acquired by the Company in January
1998, in exchange for 100,000 shares of Common Stock, in a business combination
accounted for as a purchase. Because the Company's common stock was not traded,
its fair value was not reliably measurable. Therefore, the cost of the
acquisition was estimated through measuring directly the fair values of BCLIC's
assets and liabilities. The total cost of the acquisition, as estimated, was
approximately $998,000.
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As of June 30, 1998, the Company had approximately 670 life insurance
policies and annuity contracts outstanding and individual life insurance in
force of approximately $27 million. As of June 30, 1998, the Company had total
assets of approximately $8.4 million and total stockholders' equity of
approximately $1 million.
In addition, the Company provides residential mortgage loan processing
services to individuals and also provides financing to certain medical
receivable factoring entities.
OPERATIONS
Insurance Products
General
Through its insurance subsidiaries, the Company offers a portfolio of
permanent and term life products as well as flexible premium and single premium
annuities designed to meet the needs of its customers for supplemental
retirement income, estate planning and protection from unexpected death. The
target market is middle income individuals, families and small businesses
throughout its marketing territory. The Company objective is to price each of
its products to earn an adequate margin between the return to the policyholder
and the return earned by the Company on its investments.
Fixed Rate Annuities
Annuities are long term savings vehicles that are particularly attractive
to customers over the age of 50 who are or may be planning for retirement and
seek a secure, tax deferred savings product. The individual annuity business is
a growing segment of the savings and retirement market and among the fastest
growing segments of the life insurance industry. Annuity products currently
enjoy an advantage over certain other retirement savings products, because the
payment of federal income taxes on interest credited on annuity policies is
deferred during the investment accumulation period.
The Company and its subsidiaries market, issue and administer a variety of
fixed rate deferred annuity products, including single premium and flexible
premium deferred annuities. In a fixed rate deferred annuity, the insurance
company assumes the risk of interest fluctuations and pays a minimum fixed rate
of interest, usually 3% to 4% per year, with an excess amount payable based on
investment yields of its investment portfolio. Single premium deferred
annuities (`SPDAs'), in general, are savings vehicles in which the policyholder
makes a single premium payment to an insurance company. The insurance company
credits the account of the annuitant with earnings at an interest rate (the
"crediting rate"), which is declared by the insurance company from time to time
and may exceed but may not be lower than any contractually guaranteed minimum
crediting rate. All of the Company's annuities have a minimum guaranteed
crediting rate. The Company also offers flexible premium deferred annuities
("FPDAs"). FPDAs are deferred annuities in which the policyholder may elect to
make more than one premium payment. The Company currently does not offer
variable annuity products.
The Company periodically establishes an interest crediting rate for its new
annuity policies. In determining the Company's interest crediting rate on new
policies, management considers the competitive position of the Company,
prevailing market rates and the profitability of the annuity product. The
Company maintains the initial crediting rate for a minimum period of one year.
Thereafter, the Company may adjust the crediting rate at its discretion,
although historically such adjustments have generally been made on a quarterly
basis. In establishing renewal crediting rates, the Company primarily considers
the anticipated yield on its investment portfolio. Interest rates credited on
the Company's in force annuity policies ranged from 5.45% to 8.45% at December
31, 1997. All of the Company's annuity products have minimum guaranteed
crediting rates of 3.0% for the life of the policy. At December 31, 1997, less
than 40% of the Company's in force annuity policies had rates credited for a
multi year period.
Certain of the Company's annuity policies have a bonus crediting rate for
the first year of the policy, which typically exceeds the annual crediting rate
by 1% to 3%. The bonus and the base crediting rates are fully disclosed in the
annuity contract. The Company incorporates a number of features in its annuity
products designed to reduce the early withdrawal or surrender of the policies
and to partially compensate the Company for lost investment
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opportunities and costs if policies are withdrawn early. Certain of the
Company's deferred annuity contracts provide for penalty free partial
withdrawals, typically up to 10% of the accumulation value annually. Surrender
charge periods on annuity policies currently range from five years to the term
of the policy, with the majority of such policies being issued with a surrender
charge period of more than seven years. The average length of the surrender
period on the Company's deferred annuity policies issued during 1997 was eight
years. The initial surrender charge on annuity policies generally is 8% of the
premium and decreases over the surrender charge period (of up to nine years). At
December 31, 1997, 100% of the Company's annuity liabilities were subject to a
surrender charge of 6% or more.
Tax Qualified Annuities
The Company also markets tax qualified retirement annuities that meet the
requirements of Section 403(b) of the Internal Revenue Code of 1986 ("TSAs") to
employees of public schools and certain other tax exempt organizations.
Teachers, school employees and employees of other tax exempt organizations
purchase TSAs through automatic payroll deductions. TSA products tend to be
purchased by customers who are younger than purchasers of the Company's other
annuity products. Therefore, the Company's specialty TSA products tend to
incorporate features that are attractive to customers in this younger age
bracket who have longer to accumulate before retirement, such as combining a
competitive crediting interest rate with a longer surrender charge period. The
Company believes that the market for TSAs is attractive because TSAs broaden its
customer base and provide an ongoing source of premium renewals. Additionally,
because of their tax features and transfer restrictions, TSAs are less likely to
be surrendered, making them a more stable and dependable source of profits for
the Company. In addition to TSAs, the Company also sells other tax qualified
retirement annuities such as Individual Retirement Annuities and Simplified
Employee Pension Plans. Tax qualified retirement annuity values totaled almost
$1,050,000 or approximately 25% of the total annuities sold by the Company since
inception.
Favorable Tax Treatment
Under the Internal Revenue Code ("Code"), income taxes otherwise payable on
investment earnings are deferred on earnings unpaid during the accumulation
period of certain life insurance and annuity policies. This favorable tax
treatment may give the Company's annuity policies a competitive advantage over
other retirement products that do not offer this benefit. To the extent that
the Code may be revised to eliminate or reduce the tax deferred status of life
deferred payment annuity products, or to establish a tax deferred status to any
competing policies, the Company's competitive advantage may be adversely
affected.
Life Insurance
Term Life. The Company's subsidiaries offer a low cost 10 year level term
life insurance product utilizing a low indeterminate premium structure afforded
to it by its primary reinsurance company. The Company generally retains a small
fixed portion of the insurance risk then sells or cedes a portion of its risks
to its reinsurer, who in turn pays an additional allowance or commission to the
Company. This allows the Company to lay off its risk and continue to grow its
premium revenues and surplus. This term product is designed for and sold to
individuals ages 20 through 60 and terminates at age 70. While term life
normally is bought very inexpensively by consumers, it also is priced by
companies using historical data that illustrates a certain amount of these
coverages will not be maintained, thereby negating the risk to the Company.
Whole Life. The Company's subsidiaries market low cost guaranteed premium
products in which premiums are payable for the life of the insured and insurance
protection (upon certain conditions being met) is afforded for the insured's
lifetime. The Company generally holds all cash values and if a death occurs it
pays death claims then collects from the reinsurer to recover the excess of its
retention limits and benefits paid.
Reinsurance
Consistent with the general practice of the life insurance industry, the
Company's subsidiaries reinsure portions of the coverage provided by their
insurance products with other insurance companies under agreements of indemnity
reinsurance.
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Indemnity reinsurance agreements are intended to limit a life insurer's
maximum loss on a large or unusually hazardous risk or to obtain a greater
diversification of risk. Indemnity reinsurance does not discharge the original
insurer's primary liability to the insured. The Company's reinsured business is
ceded to numerous reinsurers; the amount of business ceded to any one reinsurer
is not material. The Company believes the assuming companies are able to honor
all contractual commitments, based on the Company's periodic reviews of their
financial statements, insurance industry reports and reports filed with state
insurance departments.
As of June 30, 1998, the policy risk retention limit of the Company's
subsidiaries on the life of any one individual did not exceed $10,000;
reinsurance ceded by the Company's subsidiaries represented 70% of gross
combined life insurance in force. At June 30, 1998, the Company's largest
reinsurer accounted for approximately 49% of total insurance in force.
Insurance Underwriting
The Company follows detailed, uniform underwriting practices and procedures
in its insurance business which are designed to assess risks before issuing
coverage to qualified applicants. The Company has professional underwriters who
evaluate policy applications on the basis of information provided by applicants
and others. Management believes that its actual mortality results compare
favorably to those of others in the industry. The Company believes that its
favorable mortality results are attributable to, among other things, the
geographic location of its customer base in rural and suburban areas (as opposed
to urban areas), as well as its consistent application of appropriate
underwriting criteria to the processing of new customer applications.
Mortgage Loan Processing Services
The Company acts as a broker and performs the marketing and sourcing
functions of loan origination, while the "upstream" companies which actually
fund the mortgage loans perform the underwriting function.
Medical Receivable Financing
The Company also provides financing to medical receivable factoring
entities. Medical receivables factoring involves the purchase of accounts
receivable from doctors, hospitals, and other health care organizations. These
accounts receivable are due from major insurance companies, and are purchased by
factoring entities which specialize in the making of such investments, at prices
equal to some discounted percentage of their face amount. The Company only
makes secured loans to such factoring entities, which are collateralized by the
medical accounts receivable.
Medical receivables factoring is a specialty type of financing which
provides high yields and requires specialized expertise and systems. The
Company considers the market for this type of financing to be relatively broad,
and to extend beyond the local markets served by the Company's life insurance
and mortgage services operations.
INVESTMENTS
Investment activities are an integral part of the Company's business;
investment income is a significant component of the Company's total revenues.
Upon the purchase by a policyholder of an annuity or life contract and payment
of the premium, the policy is issued and delivered to the new policyholder. The
funds are then invested as the Company determines based on certain guidelines
including those set by the National Association of Insurance Commissioners
("NAIC") as to the percentage of investment that are placed in any one category
of investments. The Company has historically invested a majority of its
available assets in securities that are issued, secured, guaranteed or backed by
federal, state or local governments, their agencies or instrumentalities.
Profitability is significantly affected by spreads between interest yields
on investments and rates credited on insurance liabilities. Although all
credited rates on single premium deferred annuities and flexible premium
deferred annuities may be changed as often as quarterly, after their first year,
changes in credited rates may not be sufficient to maintain targeted investment
spreads in all economic and market environments. In addition, competition and
other factors, including the impact of the level of surrenders and withdrawals,
may limit the
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Company's ability to adjust or to maintain crediting rates at levels necessary
to avoid narrowing of spreads under certain market conditions. As of December
1997, the average gross yield of the Company's invested assets was approximately
7.88% and the average credited rate was 5.75%.
The Company balances the duration of its invested assets with the expected
duration of benefit payments arising from insurance liabilities. At June 30,
1998, the adjusted modified duration of debt securities and short-term
investments was 6.8 years. At June 30, 1998, the duration of the Company's
insurance liabilities was 7.1 years.
For information regarding the composition and diversification of the
investment portfolio of the Company, subsidiaries, see Note B to the Company's
Consolidated Financial Statements.
ACQUISITIONS AND CONSOLIDATIONS
General
The Company's operating strategy is to continue to make acquisitions of
small, marginally profitable or unprofitable insurance companies, consolidate
and streamline the administrative functions of these small companies, improve
their investment yields through active asset management by a centralized
investment operation and eliminate their unprofitable products and distribution
channels. Because of their small size, such companies are often overlooked as
potential acquisition candidates. The Company believes that it is particularly
well suited to make such acquisitions and to capitalize on the cost savings
which can be realized by consolidating the administrative functions of the
acquired companies. The Company plans to use a portion of the proceeds of this
Offering to pursue more small company acquisitions and purchases of profitable
blocks of business.
Since 1994, the Company has acquired three life insurance companies. The
Company intends to continue its strategy of pursuing similar acquisitions of
blocks of insurance business and small insurance companies and other insurance-
related opportunities. Management believes that such acquisitions will lower
unit costs by increasing the number of policies and the amount of premiums over
which fixed expenses are spread.
Historical Acquisitions
The Company's growth to date has been fueled primarily through
acquisitions. In September 1994, the Company made its first acquisition, of
Edmond National Life Insurance Company (now SLAC), an Oklahoma-domiciled life
insurance company. Since then, the Company has continued to expand in both
territory and product line, now offering annuities and life insurance in Texas
and Oklahoma and life insurance only in Louisiana. The Company's premiums and
deposits have increased from $25,000 in 1994 to over $1 million in 1997, with
assets growing from $1,032,000 in 1994 to approximately $8,400,000 at June 30,
1998. According to A.M. Best (Best's Review January 1998), in 1996 industry-
wide individual annuity direct premiums and fund deposits, similar to those
offered by the Company, totaled over $85 billion, and represented approximately
25% of overall premium dollars. The Company believes that this niche of the
insurance industry will continue to grow as a percentage of total premium
dollars and that this growth, coupled with the current consolidation of the
insurance industry, presents the Company with good opportunities to achieve its
operating strategy and make profitable acquisitions.
Targeted Future Acquisitions
The Company has typically sought companies that are underdeveloped, overly
burdened with expenses or owned by financially troubled companies. The Company
believes that the small insurance company marketplace is highly fragmented and
faces numerous hurdles to its survival and growth over the coming years. Some
of those hurdles include the Year 2000 problem, need for additional capital and
surplus due to the changing regulatory environment and lack of sufficient exit
strategies for owners of small, closely-held companies. The Company believes
that these factors have created acquisition opportunities often overlooked by
the large insurance companies. The Company intends to capitalize on these
opportunities as it continues to execute its growth plans.
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Operations and Administration
The Company has realized very low entry costs in its purchases of small
insurance companies. The Company minimizes operating expenses by centralizing,
standardizing and more efficiently performing many functions common to most life
insurance companies. The operations performed by the Company include
underwriting and policy administration, accounting and financial reporting,
marketing, regulatory compliance, actuarial services and asset management. The
Company believes that it is currently utilizing less than 10% of its information
technology systems capability in the administration of these back office
operations.
MARKETING
The Company's target markets are individuals in the middle and lower income
brackets and small businesses in the states of Oklahoma, Texas and Louisiana.
The Company believes that this market is severely underserved as more major
companies target their products and agency force toward the upper income and
large policy sales. Many large companies no longer offer insurance in face
amounts under $100,000. Although the Company does write multi-million dollar
policies, its average life policy is approximately $40,000.
The pricing of the Company's products is generally determined by reference
to actuarial calculations and statistical assumptions principally relating to
mortality, persistency, investment yield assumptions, estimates of expenses and
management's judgment as to market and competitive conditions. The premiums and
deposits received, together with assumed investment earnings, are designed to
cover policy benefits, expenses and policyowner dividends plus return a profit
to the Company. These profits arise from the margin between mortality charges
and insurance benefits paid, the margin between actual investment results and
the investment income credited to policies (either directly or through dividends
to policyowners) and the margin between expense charges and actual expenses.
The level of profits also depends on persistency because policy acquisition
costs, particularly agent commissions, are recovered over the life of the
policy. Dividends and interest credited on policies may vary from time to time
reflecting changes in investment, mortality, persistency, expenses and other
factors. Interest rate fluctuations have an effect on investment income and may
have an impact on policyowner behavior. Increased lapses in policies may be
experienced if the Company does not maintain interest rates and dividend scales
that are competitive with other products in the marketplace.
The Company markets its products primarily through small independent
property and casualty agencies and "personal producing general agents"
("PPGA's"), including the Company's founders and principal stockholders, James
L. Smith and Charles L. Smith. James L. Smith and Charles L. Smith are the sole
stockholders of the Smith Agency, which undertakes life insurance and financial
planning for estates, trusts, and corporation and is presently a general agent
for several insurance companies. The Smith Agency has sold a majority of the
Company's deferred annuities since the Company's inception. Additionally, the
companies acquired by the Company generally have in place PPGA's who are capable
and qualified to generate the sales desired by the Company, thereby eliminating
part of the expense of recruiting and training a new agency force. However, the
Company plans to use a portion of the net proceeds of this Offering to add
additional distribution channels for SLAC, FBLIC and BCLIC throughout their
marketing territories. See "USE OF PROCEEDS."
COMPETITION
The insurance business is highly competitive with numerous companies
offering similar products through comparable marketing and distribution systems.
Companies typically compete for policyholders on the basis of benefits, rates,
financial strength and customer service and compete for agents and brokers on
the basis of commissions, financial strength and customer service. The
Company, although smaller than most of its competitors, provides competitive
benefits and rates. The Company believes that its ability to administer its
functions at a much reduced rate allows it to maintain low internal cost
products.
The Company has identified additional areas where it has very little
competition due to the size of the Company as well as the size of its targets.
That area is the consolidation field. The Company's strategy has been to
consolidate and streamline the administrative functions of small life insurance
companies. Most large life companies have high fixed costs when performing
acquisitions restricting them in the minimum size of purchase
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they can pursue. The Company believes that the consolidation of the industry
will continue, and the Company intends to participate in the process.
The Company realizes the importance to policyholders of ratings and sought
in 1996 to begin the arduous task of filings with the rating agencies and has
since been upgraded by A. M. Best Company to a FPR 4. The Company is still too
small to obtain a letter rating.
REGULATION AND TAXATION
The Company's insurance subsidiaries are subject to regulation and
supervision by the states in which they transact business. The laws of these
jurisdictions generally establish agencies with broad regulatory authority,
including powers to: (i) grant and revoke licenses to transact business; (ii)
regulate and supervise trade practices and market conduct; (iii) establish
guaranty associations; (iv) license agents; (v) approve policy forms; (vi)
approve premium rates for some lines of business; (vii) establish reserve
requirements; (viii) prescribe the form and content of required financial
statements and reports; (ix) determine the reasonableness and adequacy of
statutory capital and surplus; and (x) regulate the type and amount of permitted
investments.
Most states also have enacted legislation which regulates insurance holding
company systems, including acquisitions, extraordinary dividends, the terms of
surplus debentures, the terms of affiliate transactions, and other related
matters. Currently, the Company and its insurance subsidiaries have registered
as holding company systems pursuant to such legislation in Texas, Oklahoma, and
Louisiana.
The federal government does not directly regulate the insurance business.
However, federal legislation and administrative policies in several areas,
including pension regulation, age and sex discrimination, financial services
regulation and federal taxation, do affect the insurance business. Recently,
increased scrutiny has been placed upon the insurance regulatory framework, and
a number of state legislatures have considered or enacted legislative proposals
that alter, and in many cases increase, the authority of state agencies to
regulate insurance companies and holding company systems. In addition,
legislation has been introduced from time to time in recent years which, if ever
enacted, could result in the federal government assuming a more direct role in
the regulation of the insurance industry.
State insurance regulators and the NAIC are continually re-examining
existing laws and regulations and their application to insurance companies.
From time to time the NAIC has adopted, and recommended to the states for
adoption and implementation, several regulatory initiatives designed to decrease
the risk of insolvency of insurance companies in general. These initiatives
include risk-based capital ("RBC") requirements for determining the levels of
capital and surplus an insurer must maintain in relation to its insurance and
investment risks. The NAIC regulatory initiatives also impose restrictions on
an insurance company's ability to pay dividends to its stockholders. These
initiatives may be adopted by the various states in which the Company's
subsidiaries are licensed, but the ultimate content and timing of any statutes
and regulations to be adopted by the states cannot be determined at this time.
It is not possible to predict the future impact of changing state and federal
regulation on the operations of the Company, and there can be no assurance that
existing insurance related laws and regulations will not become more restrictive
in the future or that laws and regulations enacted in the future will not be
more restrictive.
Most states have enacted legislation or adopted administrative regulations
which affect the acquisition of control of insurance companies as well as
transactions between insurance companies and persons controlling them. The
nature and extent of such legislation and regulations vary from state to state.
Most states, however, require administrative approval of: (i) the acquisition
of 10 percent or more of the outstanding shares of an insurance company
incorporated in the state; or (ii) the acquisition of 10 percent or more of the
outstanding stock of an insurance holding company whose insurance subsidiary is
incorporated in the state. The acquisition of 10 percent of such shares is
generally deemed to be the acquisition of control for the purpose of the holding
company statutes. It requires not only the filing of detailed information
concerning the acquiring parties and the plan of acquisition, but also the
receipt of administrative approval prior to the acquisition. In many states, an
insurance authority may find that control does not, in fact, exist in
circumstances in which a person owns or controls 10 percent or a greater amount
of securities.
26
<PAGE>
Under the solvency or guaranty laws of most states in which they do
business, the Company's insurance subsidiaries also may be required to pay
assessments (up to certain prescribed limits) to fund policyholder losses or the
liabilities of insolvent or rehabilitated insurance companies. These
assessments may be deferred or forgiven under most guaranty laws if they would
threaten an insurer's financial strength. In certain instances, the assessments
may be offset against future premium taxes. The Company's subsidiaries
historically have not been required to pay assessments in any significant
amounts.
The likelihood and amount of any future assessments cannot be estimated, as
they are beyond the control of the Company.
As part of their routine regulatory oversight process, insurance
departments approximately once every three years conduct periodic detailed
examinations ("Triennial Examinations") of the books, records and accounts of
insurance companies domiciled in their states. Such Triennial Examinations are
generally conducted in cooperation with the departments of two or three other
states, under guidelines promulgated by the NAIC.
FEDERAL INCOME TAXATION
The annuity and life insurance products marketed and issued by the
Company's subsidiaries generally provide the policyholder with an income tax
advantage, as compared to other saving investments such as certificates of
deposit and bonds, in that income taxation on the increase in value of the
product is deferred until receipt by the policyholder. With other savings
investments, the increase in value is taxed as earned. Annuity benefits and
life insurance benefits which accrue prior to the death of the policyholder are
generally not taxable until paid. Life insurance death benefits are generally
exempt from income tax, but not estate tax. Also, benefits received on
immediate annuities (other than structured settlements) are recognized as
taxable income ratably as opposed to the economic accrual methods, which tend to
accelerate taxable income into earlier years and which are required for other
investments. The tax advantage for annuities and life insurance is provided in
the Internal Revenue Code (the "Code"), and is generally followed in all states
and other United States taxing jurisdictions. Accordingly, it is subject to
change by Congress and the legislatures of the respective taxing jurisdictions.
The Company's insurance company subsidiaries are taxed under the life
insurance company provisions of the Code. Provisions in the Code require a
portion of the expenses incurred in selling insurance products to be deducted
over a period of years, as opposed to immediate deduction in the year incurred.
This provision increases the tax for statutory accounting purposes which
reduces statutory surplus and, accordingly, decreases the amount of cash
dividends that may be paid by the life insurance subsidiaries.
FACILITIES
The Company's administrative, marketing and production facilities consist
of approximately 3,000 square feet at a single location in Oklahoma City,
Oklahoma. The Company owns and occupies this facility and the approximate
30,000 square feet of raw land adjacent to the property. This facility will
provide room for possible expansion which will likely be utilized within the
next few years.
EMPLOYEES
As of June 30, 1998, the Company had six employees, most of which perform
both managerial duties and administrative functions. It can be anticipated that
the Company will have a need for more employees as the size of its business
grows. None of the Company's employees are represented by a labor union.
Management believes that the Company's relations with its employees are good.
The Company's employees also perform services for SLAC, FBLIC and BCLIC.
LEGAL PROCEEDINGS
The Company is involved from time-to-time in various legal proceedings and
claims incident to the normal conduct of its business. The Company believes that
such legal proceedings and claims, individually and in the aggregate, are not
likely to have a material adverse effect on its financial condition or results
of operations.
27
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and key managers of the Company and their
ages as of August 31, 1998, are as follows:
<TABLE>
<CAPTION>
NAME Age Position
---- --- --------
<S> <C> <C>
James L. Smith................. 59 Chairman of the Board of Directors and Chief
Executive Officer
Charles L. Smith............... 39 President, Chief Operating Officer and Director
Quinton L. Hiebert............. 37 Vice President, Chief Financial Officer and
Secretary
Gary L. Ellis.................. 53 Vice President, Mortgage Operations
Randel Beach................... 43 Director and President of BCLIC
Dean Brown..................... 70 Director
Thomas D. Sanders.............. 57 Director
</TABLE>
James L. Smith served as Chairman of the Board, President and Chief
Executive Officer from the Company's inception in 1994 until April 1998, at
which time he was elected Chairman of the Board and Chief Executive Officer.
Mr. Smith has served as Chairman of the Board and President of the Smith Agency,
an Oklahoma licensed insurance agency since 1980. Mr. Smith earned the
designation of Chartered Life Underwriter and Chartered Financial Consultant
from the American College in Bryn Mwar, Pennsylvania, and is registered with the
NASD as a registered representative. Mr. Smith is the father of Charles L.
Smith.
Charles L. Smith served as Director, Vice President, Secretary and
Treasurer from the Company's inception in 1994 until April 1998, at which time
he was elected President, Chief Operating Officer and a director. Mr. Smith
served as Chairman and President of Charles L. Smith and Associates, Inc. from
1989 until April 1994, when it merged with the Smith Agency. Mr. Smith is Vice
President and a director of the Smith Agency. Mr. Smith has been involved in
the insurance industry for over 16 years. Mr. Smith is also registered with the
NASD as a registered representative. Mr. Smith is the son of James L. Smith.
Quinton L. Hiebert has been employed by the Company as Chief Financial
Officer since March 1996, and was additionally elected Vice President in April
1998. From October 1989 to March 1996, he was employed as Chief Financial
Analyst at the Oklahoma Department of Insurance. Mr. Hiebert holds a bachelors
degree from Bethel College, Kansas and earned his MBA from Emporia State
University, Kansas. Mr. Hiebert is a CPA.
Gary L. Ellis has, since 1994, served the Company in several positions.
From 1994 until the merger of Equity Mortgage into the Company in 1997, he
served variously as Equity Mortgage's Vice President and President. Subsequent
to the Equity Mortgage merger, he was appointed the Company's Vice
PresidentMortgage Operations. Since 1988, Mr. Ellis has also owned and operated
Gary L. Ellis & Associates, which provides tax and accounting services. Mr.
Ellis graduated from Oklahoma University with a bachelors degree.
Randal M. Beach has served the Company as director since January 1998.
Since November 1995, he has served as President of BCLIC. From April 1992 to
January 1995, Mr. Beach was the Deputy Commissioner for Receivership for the
Louisiana Department of Insurance. Subsequent to his tenure with the Louisiana
Department of Insurance and prior to his employment by BCLIC, Mr. Beach was
engaged in the private practice of law. He earned his bachelors degree from
Louisiana State University and received a Juris Doctor from Southern University
School of Law.
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<PAGE>
M. Dean Brown has served as director since 1996. For at least five years
prior to his retirement in December 1997, he practiced law at the law firm of
Green, Brown and Stark, an Oklahoma City law firm. He holds a bachelors degree
from the University of Oklahoma and earned his Juris Doctor from Oklahoma City
University. Mr. Brown is also a CPA.
Thomas D. Sanders has served as director since 1996. He served as the
Executive Vice President of Marketing for the Lomas Life Group from 1986 to 1990
and as Executive Vice President for Union Life Insurance Company between 1978
and 1990. Mr. Sanders currently serves as Chief Executive Officer and Director
of ReUnion Marketing, Inc. He is a graduate from Oklahoma State University.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee's functions include: (i) reviewing and recommending to the
Board of Directors (subject to stockholder approval) the independent auditors
selected to audit the Company's financial statements, including the review and
approval of the fees charged for all services by the independent auditors; (ii)
reviewing the scope of the annual audit plan; (iii) reviewing the audited
financial statements of the Company; (iv) reviewing the management letter
comments from the Company's independent auditors, including management's
responses and plans of action; (v) reviewing from time to time the Company's
general policies and procedures with respect to auditing, accounting and the
application of resources; (vi) reviewing any other matters and making special
inquiries and investigations referred to it by the Board of Directors; and (vii)
making other recommendations to the Board of Directors as the committee may deem
appropriate. The Compensation Committee's functions include determining base
salaries, annual incentive bonus awards and other compensation awards to the
executive officers of the Company. The members of both the Audit Committee and
Compensation Committee are M. Dean Brown, James L. Smith and Thomas D. Sanders.
DIRECTOR COMPENSATION
Each member of the Board is paid an annual stipend of $1200 and a fee of
$100 for each Board of Directors meeting attended. All directors will receive
reimbursement of reasonable expenses incurred in attending Board and Committee
meetings and otherwise carrying out their duties.
EXECUTIVE COMPENSATION
Set forth in the following table is information as to the compensation paid
to the Company's Chief Executive Officer for each of the three years ended
December 31, 1997. No officer or director of the Company received, during any
of such periods, total compensation in excess of $100,000.
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Name and Principal Position Year Salary Other
- --------------------------- --- ------ -----
<S> <C> <C> <C>
James L. Smith, Chairman of the Board
and Chief Executive Officer 1997 $9,770 $3,000 (2)
1996 -- (1) --
1995 -- (1) --
</TABLE>
(1) During 1995 and 1996, Mr. Smith was not paid a salary for his services as
the then President and Chief Executive Officer of the Company.
(2) Represents country club dues.
29
<PAGE>
EMPLOYMENT AGREEMENTS
In April 1997, the Company entered into employment agreements with James L.
Smith and Charles L. Smith, the Company's Chief Executive Officer and President,
respectively. The employment agreements provide, among other things, for six-
year terms, base and maximum salaries, increases to base salaries subject to
Board of Director approval, annual bonuses, and benefits. For 1998, the Board
of Directors has approved base salaries to James L. Smith of $12,000, and to
Charles L. Smith of $72,000.
The agreements may be terminated by mutual agreement, by the Company at its
sole discretion without cause, or by the Company for cause, as defined. If the
agreements are terminated for cause, as defined, severance payments of $50,000
are payable to each employee. If the agreements are terminated without cause,
severance payments to each employee will be equivalent to the maximum salary
over the term of the agreement less amounts previously paid, but not less than
$360,000 for Charles L. Smith and $450,000 for James L. Smith.
CERTAIN TRANSACTIONS
The Company pays sales commissions to the Smith Agency, an insurance agency
owned by Charles L. Smith and James L. Smith, in connection with sales made by
such agency of life insurance policies and annuity contracts. Such commissions
totaled less than $6,000 for each of the year ended December 31, 1997 and the
six months ended June 30, 1998, respectively.
The Company and FBLIC share office space with SLAC, which owns the building
at the Company's principal place of business. The building was originally
purchased from Charles L. Smith in 1995 for $75,000, and was paid through the
settlement of debt owed by Mr. Smith to the Company as well as the issuance to
Mr. Smith of 2,000 shares of Class A Common Stock.
In April 1995, the Company acquired 100% of the outstanding stock of CLS
Enterprises, Inc. ("CLS Enterprises"), an entity owned by James L. Smith and
Charles L. Smith, for an aggregate consideration of $142,000, of which $122,000
was paid through the issuance to such stockholders of $122,000 principal amount
of certain convertible debentures issued by the Company. The Company believes
that the consideration paid for the stock of CLS Enterprises was fair and that
the stock purchase agreement for the acquisition of CLS Enterprises was on terms
no less favorable to the Company than the Company could have obtained from non-
affiliated parties. In June 1996, Messrs. James L. Smith and Charles L. Smith
exercised their conversion rights associated with the debentures and were issued
an aggregate 40,664 shares of Class A Common Stock. CLS Enterprises was merged
into the Company effective December 31, 1996.
Both James L. Smith and Charles L. Smith, as the original founders of the
Company, are considered "promoters" of the Company as such term is defined under
the Securities Act.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of August 31, 1998, and as
adjusted to reflect the sale of the minimum and maximum number of shares of
Common Stock offered hereby, concerning the beneficial ownership of Common Stock
by each of the Company's directors, each executive officer named in the table
under the heading "MANAGEMENT-Directors, Executive Officers and Key Employees,"
and all directors and executive officers of the Company as a group, and by each
person who is known by the Company to own more than 5% of the outstanding shares
of Common Stock. Unless otherwise indicated, the beneficial owner has sole
voting and investment power with respect to such stock.
<TABLE>
<CAPTION>
PERCENT OF CLASS BENEFICIALLY OWNED
------------------------------------------------------
AFTER OFFERING
----------------------------------
NAME AND ADDRESS SHARES
OF BENEFICIAL HOLDER(1) BENEFICIALLY OWNED PRIOR TO OFFERRING MINIMUM MAXIMUM
- ----------------------- ------------------ ------------------ ------- -------
<S> <C> <C> <C> <C>
James L. Smith* (2) 683,185 33.25% 31.13% 22.37%
Charles L. Smith* (2) 683,185 33.25% 31.13% 22.37%
Randall M. Beach * 820 0.04% 0.04% 0.03%
Dean Brown * 100,963 4.91% 4.60% 3.31%
Gary L. Ellis 1,533 0.07% 0.07% 0.05%
Quinton L. Hiebert 4,750 0.23% 0.22% 0.16%
Thomas D. Sanders * 2,318 0.11% 0.11% 0.08%
All executive officers
and directors as a group 1,476,754 71.86% 67.30% 48.37%
(7 persons)
</TABLE>
__________________________
* Director
(1) Unless otherwise noted, the Company believes that each person named in the
table has sole voting and investment power with respect to all shares
beneficially owned by such person.
(2) Address is c/o Summit Life Corporation, 3021 Epperly Drive, P.O. Box 15808,
Oklahoma City, Oklahoma 73155.
DESCRIPTION OF CAPITAL STOCK
In September 1998, the Company amended its Certificate of Incorporation to
give effect to certain matters approved by the Company's Board of Directors in
April 1998. The amendment, among other things, eliminated the Class B Common
Stock, redesignated the Class A Common Stock as, simply, "Common Stock," changed
the par value of the Common Stock from $.50 to $.01 per share and increased the
authorized number of shares of Common Stock from 2,000,000 to 5,000,000.
Additionally, the Certificate of Incorporation was further amended to create a
new class of preferred stock. The authorized capital stock of the Company
subsequent to the amendments consists of (i) 5,000,000 shares of Common Stock,
having a par value of $.01 per share, and (ii) 5,000,000 shares of Preferred
Stock, having a par value of $.001 per share. Immediately prior to this
Offering, 2,054,478 shares of Common Stock were issued and outstanding, and no
shares of Preferred Stock were issued and outstanding. At June 30, 1998, there
were approximately 30 stockholders of record of the Common Stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders. There is no cumulative voting with
respect to the election of directors. Accordingly, holders of a majority of the
shares entitled to vote in any election of directors may elect all of the
directors standing for election. Subject to preferences that may be applicable
to any then outstanding class of preferred stock, the holders of
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<PAGE>
Common Stock are entitled to receive such dividends, if any, as may be declared
by the Board of Directors from time to time out of legally available funds. Upon
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets of the Company that are
legally available for distribution, after payment of all debts and other
liabilities and subject to the prior rights of holders of any class of preferred
stock then outstanding. The holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. The rights, preferences and
privileges of holders of Common Stock are subject to the rights of the holders
of shares of any series of preferred stock that the Company may issue in the
future.
PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time in one or more
series with such designations, voting powers, if any, preferences and relative,
participating, optional or other special rights, and such qualifications,
limitations and restrictions thereof, as are determined by resolution of the
Board of Directors of the Company. The issuance of preferred stock, while
providing flexibility in connection with possible financings, acquisitions and
other corporate purposes, could, among other things, adversely affect the voting
power of holders of Common Stock and, under certain circumstances, be used as a
means of discouraging, delaying or preventing a change in control of the
Company. Currently, the Company has no shares of Preferred Stock outstanding.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and By-
laws may be deemed to have anti-takeover effects and may delay, defer or prevent
a tender offer or takeover attempt that a stockholder might consider to be in
such stockholder's best interest, including those attempts that might result in
a premium over the market price for the shares held by stockholders.
Classified Board. The Company's By-laws provide that (i) the Board of
Directors is divided into three classes of as equal size as possible, (ii) the
number of directors is to be fixed from time to time by the Board of Directors,
and (iii) the term of office of each class expires in consecutive years so that
each year only one class is elected. These provisions may render more difficult
a change in control of the Company or the removal of incumbent management.
No Stockholder Action by Written Consent; Special Meetings. The Company's
Certificate of Incorporation provides that no action shall be taken by
stockholders except at an annual or special meeting of stockholders, and
prohibits action by written consent in lieu of a meeting. The Company's By-laws
provides that, unless otherwise proscribed by law, special meetings of
stockholders can only be held pursuant to a resolution of the Board of
Directors.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The By-laws establish an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors as well as for other
stockholder proposals to be considered at stockholders' meetings.
Notice of stockholder proposals and director nominations must be timely
given in writing to the Secretary of the Company prior to the meeting at which
the matters are to be acted upon or Directors are to be elected. In all cases,
to be timely, notice must be received at the principal executive offices of the
Company not less than 40 days before the meeting, or, if on the day notice of
the meeting is given to the stockholders less than 45 days remain until the
meeting, (i) five days after notice is given but not less than five days prior
to the meeting in the case of stockholder proposals, and (ii) 10 days after
notice is given in the case of director nominations.
Notice to the Company from a stockholder who proposes to nominate a person
at a meeting for election as a director must contain all information about that
person as would be required to be included in a proxy statement soliciting
proxies for the election of the proposed nominee (including such person's
written consent to serve as a Director if so elected) and certain information
about the stockholder proposing to nominate that person. Stockholder proposals
must also include certain specified information.
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<PAGE>
These limitations on stockholder proposals do not restrict a stockholder's
right to include proposals in the Company's annual proxy materials pursuant to
rules promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
Section 1090.3 of the OGCA. Section 1090.3 of the OGCA prohibits a
publicly held Oklahoma corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless (i)
prior to the date of the business combination, the transaction is approved by
the board of directors of the corporation, or (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (iii) on or after such date the business combination is
approved by the board of directors and by the affirmative vote of at least 66-
2/3% of the outstanding voting stock which is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. The effect of such statute may be to discourage
certain types of transactions involving an actual or potential change in control
of the Company.
TRANSFER AGENTS, WARRANT AGENT AND REGISTRAR
The transfer agent for the Common Stock is BancFirst, Oklahoma City,
Oklahoma.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering described in this Prospectus, and assuming
the maximum number of shares offered is sold, the Company will have outstanding
3,054,478 shares of Common Stock. Of these shares all of the 1,000,000 shares
sold in the Offering (assuming the maximum number of shares offered is sold)
will be freely transferable by persons other than affiliates (as defined in
regulations under the Securities Act), without restriction or further
registration under the Securities Act.
The remaining 2,054,478 shares of Common Stock outstanding are "Restricted
Securities" within the meaning of Rule 144 under the Securities Act and may not
be sold in the absence of registration under the Securities Act, unless an
exemption from registration is available, including the exemption provided by
Rule 144. Under Rule 144 as currently in effect, none of such shares are
currently eligible for sale.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated for purposes of Rule 144) who beneficially owns
Restricted Securities with respect to which at least two years have elapsed
since the later of the date the shares were acquired from the Company or from an
affiliate of the Company, is entitled to sell, within any three month period, a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock of the Company, or (ii) the average weekly
trading volume in Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain manner-of-sale
provisions and notice requirements, and to the availability of current public
information about the Company. A person who is not an affiliate, has not been
an affiliate within 90 days prior to sale and who beneficially owns Restricted
Securities with respect to which at least two years have elapsed since the later
of the date the shares were acquired from the Company or from an affiliate of
the Company, is entitled to sell such shares under Rule 144(k) without regard to
any of the volume limitations or other requirements described above.
The Company can make no prediction as to the effect, if any, that sales of
shares of Common Stock or the availability of shares for sale will have on the
market price of Common Stock. Nevertheless, sales of significant amounts of
Common Stock could adversely affect the prevailing market price of Common Stock,
as well as impair the ability of the Company to raise capital through the
issuance of additional equity securities. There currently is no public market
for the Common Stock being offered, and no assurance can be given that a market
will develop. The Company will apply to list the Common Stock on the Nasdaq.
If a trading market does develop for the Common Stock, the prices may be highly
volatile. In addition, if a market for the Common Stock does develop, and the
Common Stock is traded below certain prices, many brokerage firms may not effect
transactions in the Common Stock, and sales of the Common Stock will be subject
to Commission Rule 15g-9. In the event that the Company is unable to meet the
Nasdaq's listing requirements, trading in the Common Stock, if any, could be
limited to the OTC
33
<PAGE>
Bulletin Board or the "pink sheets" used by members of the National Association
of Securities Dealers, Inc. If a market does not develop for the Common Stock,
it may be difficult or impossible for purchasers to resell the Common Stock.
There can be no assurance that any of the Common Stock can ever be sold at the
offered price or at any price.
PLAN OF DISTRIBUTION
GENERAL
The Company is offering for sale a minimum of 140,000 shares and a maximum
of 1,000,000 shares of its Common Stock at a price of $5.00 per share. No
person or entity may purchase fewer than 100 shares of Common Stock in the
Offering, unless the Company, in its sole discretion, accepts a subscription for
a lesser number of shares. The Common Stock has not been registered for sale in
any states other than Oklahoma and Louisiana. Consequently, the Common Stock
may not be offered or sold in any states other than Oklahoma and Louisiana.
Subscriptions to purchase shares of Common Stock will be received until
midnight, Oklahoma City, Oklahoma time, on September 30, 1999, unless all of the
shares to be offered are earlier sold or a minimum of at least 140,000 shares
has not been sold by April 30, 1999. . If the minimum number of shares is sold,
the Company thereafter may terminate the Offering at any time and at less than
the maximum offering. In no event, however, will the Offering extend beyond
September 30, 1999. See "Conditions to the Offering and Release of Funds"
below.
Following acceptance by the Company, subscriptions are binding on
subscribers and may not be revoked by subscribers except with the consent of the
Company. In addition, the Company reserves the right to cancel accepted
subscriptions at any time and for any reason until the proceeds of the Offering
are released from escrow (as discussed in greater detail in "Conditions to the
Offering and Release of Funds" below), and the Company reserves the right to
reject, in whole or in part and in its sole discretion, any subscription. The
Company may, in its sole discretion, allocate shares of Common Stock among
subscribers in the event of an over-subscription for the shares to be offered in
the Offering.
The shares of Common Stock are being offered directly to potential
subscribers on a best efforts basis through certain directors and executive
officers of the Company, none of whom will receive any commissions or other form
of remuneration in connection with the sale of shares.
Certificates representing shares of Common Stock, duly authorized and fully
paid, will be issued as soon as practicable after subscription funds are
released to the Company from the subscription escrow account.
CONDITIONS TO THE OFFERING AND RELEASE OF FUNDS
Subscription proceeds accepted by the Company for the first 140,000 shares
subscribed for in the Offering will be promptly deposited in an escrow account
with BancFirst, Oklahoma City, Oklahoma (the "Escrow Agent"), until the
conditions to the Offering have been satisfied or the Offering has been
otherwise terminated. The Offering will be terminated, no shares will be issued
and no subscription proceeds will be released from escrow to the Company unless
on or before April 30, 1999, the Company has accepted subscriptions and payment
in full for an aggregate of at least 140,000 shares. If a minimum of at least
140,000 shares has not been sold by April 30, 1999, the Company will promptly
return all investors' funds, with interest. Interest on subscriptions is not
otherwise payable. Notwithstanding anything to the contrary contained herein,
any subscription proceeds accepted after the Company has accepted subscriptions
for the initial 140,000 shares, but before this Offering is terminated, will not
be deposited in the escrow account but will be available for immediate use by
the Company. If the minimum number of shares is sold, the Company thereafter
may terminate the Offering at any time and at less than the maximum offering.
In no event, however, will the Offering extend beyond September 30, 1999.
The Escrow Agent has not investigated the desirability or advisability of
an investment in shares of Common Stock by prospective investors and has not
approved, endorsed or passed upon the merits of an investment in such shares.
The Company may direct the Escrow Agent to invest subscription funds held in
escrow in short-term United States Treasury securities, banker's acceptances,
federal funds, insured or fully collateralized certificates of deposit and/or
insured money market accounts (including those of the Escrow Agent) until
released from escrow. In
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<PAGE>
no event will the subscription proceeds held in escrow be invested in
instruments that would mature after the termination of the Offering. Management
presently expects that all subscription funds held in escrow will be invested in
short-term United States Treasury securities.
HOW TO SUBSCRIBE
Shares may be subscribed for by mailing or delivering a completed and
executed Subscription Agreement in the form attached hereto as Exhibit A, to the
Company. If mailed, completed and executed Subscription Agreements, along with
the proper form of payment, as discussed herein, should be sent first class mail
postage prepaid, to Summit Life Corporation , P.O. Box 15808, Oklahoma City,
Oklahoma, 73155. If delivered by hand, completed and executed Subscription
Agreements, along with the proper form of payment, should be delivered to the
Company at 3021 Epperly Drive, Oklahoma City, Oklahoma, 73155. Subscribers
should retain a copy of the completed Subscription Agreement and form of payment
for their records. The subscription price is due and payable when the
Subscription Agreement is mailed or delivered to the Company. Payment must be
made in United States dollars by cash or by check, bank draft or money order
drawn to the order of "Summit Life Corporation" in the amount of $5.00
multiplied by the number of shares subscribed for. Any subscriber who intends
to purchase shares through a self-directed retirement plan should contact the
Company at (405) 677-0781 for directions as to how to subscribe and pay for
shares.
LEGAL OPINIONS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Day, Edwards, Federman, Propester &
Christensen, P.C., Oklahoma City, Oklahoma.
EXPERTS
The financial statements of Summit Life Corporation and Subsidiaries and
Benefit Capital Life Insurance Company, as of and for the year ended December
31, 1997, included in this prospectus have been audited by Grant Thornton LLP,
independent certified public accountants, as stated in their reports appearing
herein. The financial statements of Summit Life Corporation and Subsidiaries,
except Equity Mortgage Services, Inc., as of and for the year ended December 31,
1996, included in this prospectus have been audited by Grant Thornton LLP as
stated in their report appearing herein. Such financial statements are included
herein in reliance upon the authority of such firm as experts in accounting and
auditing in giving such reports.
35
<PAGE>
GLOSSARY OF SELECTED TERMS
As used in this Prospectus, the terms defined below have the meanings
assigned them in this section.
A.M. BEST. A.M. Best Company, Inc. A.M. Best financial condition ratings are
opinions of an insurance company's financial strength, operating performance and
ability to meet its obligations to policyowners. Such ratings are based upon a
comprehensive review of a company's financial performance, which is supplemented
by certain data, including responses to A.M. Best's questionnaires, quarterly
NAIC filings, state insurance department examination reports, loss reserve
reports, annual reports and reports filed with state insurance departments.
A.M. Best undertakes a quantitative evaluation based on profitability, leverage
and liquidity and a qualitative evaluation based upon the composition of a
company's book of business or spread of risk, the amount, appropriateness and
soundness of reinsurance, the quality, diversification and estimated market
value of its assets, the adequacy of its loss reserves and policyowners' surplus
and the experience and competence of its management. A.M. Best Company, Inc.
assigns two types of rating opinions, Best's Ratings (letter scale) and Best's
FPR (numerical scale). Although both ratings involve a quantitative and
qualitative evaluation of a company's financial strength, operating performance
and market profile, the analysis performed for assigning a Best's FPR is not as
rigorous as it is for assigning a Best's Rating. The FPR is assigned to small
or new companies which do not met the criteria required for a Best's Rating.
Both ratings provide an overall opinion of an insurance company's ability to
meet its obligations to policyholders. A.M. Best Company, Inc. uses the
following rating scale:
<TABLE>
<CAPTION>
BEST'S RATINGS BEST'S FPR
----------------- ----------
<S> <C>
A++ and A+.................... Superior FPR 9................ Very Strong
A and A-...................... Excellent FPR 8 and 7.......... Strong
B++ and B+.................... Very Good FPR 6 and 5.......... Good
B and B-...................... Fair FPR 4................ Fair
C++ and C+.................... Marginal FPR 3................ Marginal
C and C-...................... Weak FPR 2................ Weak
D............................. Poor FPR 1................ Poor
E............................. Under Regulatory Supervision
F............................. In Liquidation
S............................. Rating Suspended
</TABLE>
ANNUITY. A contract that pays a periodic income benefit for the life of a
person (the annuitant), the lives of two or more persons or a specific period of
time.
CAPITAL AND SURPLUS. Generally consists of capital stock, paid - in or
contributed surplus, special surplus funds, and unassigned surplus determined in
accordance with statutory insurance accounting practices.
CREDITING RATES. Interest rates applied to life insurance policies and annuity
contracts, whether contractually guaranteed or currently declared for a
specified period.
FIXED RATE DEFERRED ANNUITY. A tax deferred accumulation contract which pays a
fixed interest rate established by the insurance company on premiums paid.
FLEXIBLE PREMIUM DEFERRED ANNUITIES. Annuities that permit the regular addition
of premium payments by the policyowner.
GAAP. United States generally accepted accounting principles.
LAPSE OR LAPSATION. The expiration or forfeiture of an insurance policy by non
payment of the premium due.
NAIC. The National Association of Insurance Commissioners, an association of
the chief insurance supervisory officials of each state, territory and insular
possession of the United States.
36
<PAGE>
MORTALITY. The relative incidence of death of life insureds or annuitants.
PERSONAL PRODUCING GENERAL AGENTS OR PPGA'S. Independent agents who sell
products directly to the consumer and write business directly with insurance
companies and who are compensated primarily for personal production.
POLICY ACQUISITION COSTS. Costs incurred in the acquisition of new and renewal
insurance contracts. Acquisition costs include those costs that vary with and
are primarily related to the acquisition of insurance contracts (for example,
agent and broker commissions, certain underwriting and policy issue costs, and
medical and inspection fees). These costs are referred to as Deferred
Acquisition Costs (DAC) and although immediately expensed in statutory
accounting, they are realized as an asset account under generally accepted
accounting principles and amortized over the life of the policies.
PREMIUM. Payments and considerations received on insurance policies and annuity
contracts issued or reinsured by an insurance company. Under GAAP, premiums on
deferred annuity contracts are not accounted for as revenues.
REINSURANCE. An arrangement under which one insurance company, referred to as
the reinsurer, for consideration, agrees to indemnify another insurance company,
referred to as the ceding company, against all or part of a loss which the
ceding company may incur under certain policies of insurance for which it has
liability. Reinsurance provides a primary insurer with three major benefits: it
reduces net liability on individual risks; it helps to protect against
catastrophic losses; and it helps to maintain acceptable surplus and reserve
ratios. Reinsurance provides a primary insurer with additional underwriting
capacity in that the primary insurer can accept larger risks and can expand the
volume of business it writes without increasing its capital base. The ceding
company remains liable on its obligations under the policies reinsured if the
reinsurer fails to pay claims on a reinsured policy.
RESERVES. For life insurance policies, liabilities established to reflect the
estimated discounted present value of costs of claims, payments or contract
liabilities and the related expenses that the insurer will ultimately be
required to pay in respect of insurance it has written; for annuities without
life contingencies, liabilities established for amounts deposited by
policyholders plus interest credited, less withdrawals and administrative
charges; for annuities with life contingencies, liabilities established for
future policy benefits computed as the present value of future benefit payments,
including assumptions as to investment yields and mortality.
SINGLE PREMIUM DEFERRED ANNUITIES. Annuities that require a one - time lump sum
premium payment upon the issuance of the contract.
STATUTORY ACCOUNTING. Statutory accounting practices prescribed or permitted by
state insurance regulatory authorities. Statutory accounting emphasizes
solvency rather than matching revenues and expenses during an accounting period
and is liquidation/solvency based rather than profit based.
SURPLUS. As determined in accordance with statutory accounting practices, the
amount remaining after all liabilities, including loss reserves, are subtracted
from assets allowable for statutory accounting.
SURRENDER CHARGE. The substantial penalty imposed for the early termination of
a life insurance or annuity contract.
UNDERWRITING. The insurer's process of examining, accepting or rejecting
insurance risks, and classifying those accepted, in order to charge the
appropriate premium for each accepted risk.
WHOLE LIFE INSURANCE OR WHOLE LIFE POLICIES. Insurance that may be kept in
force for a person's entire life by paying one or more premiums. It is paid for
in one of three different ways: (i) ordinary life insurance (premiums are
payable as long as the insured lives), (ii) limited payment life insurance
(premiums are payable over a specified number of years), and (iii) single
premium life insurance (a lump sum amount paid at the inception of the policy).
The insurance policy pays a benefit (contractual amount adjusted for items such
as policy loans and dividends, if any) at the death of the insured. Whole life
insurance may also build up cash values.
37
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Summit Life Corporation
<S> <C>
Summit Life Corporation's Unaudited Consolidated Financial Statements as of and
for the Six Months Ended June 30, 1997 and 1998
Consolidated Balance Sheets (Unaudited)......................................................... F-2
Consolidated Statements of Operations (Unaudited)............................................... F-4
Consolidated Statements of Cash Flows (Unaudited)............................................... F-5
Notes to Unaudited Consolidated Financial Statements............................................ F-6
Summit Life Corporation's Consolidated Financial Statements as of and for the
Years Ended December 31, 1996 and 1997
Report of Independent Certified Public Accountants.............................................. F-9
Consolidated Balance Sheets..................................................................... F-10
Consolidated Statements of Operations........................................................... F-12
Consolidated Statement of Stockholders' Equity.................................................. F-13
Consolidated Statements of Cash Flows........................................................... F-14
Notes to Consolidated Financial Statements...................................................... F-16
Benefit Capital Life Insurance Company
Benefit Capital Life Insurance Company's Financial Statements as of and for the
Year Ended December 31, 1997
Report of Independent Certified Public Accountants.............................................. F-29
Balance Sheet................................................................................... F-30
Statement of Operation.......................................................................... F-31
Statement of Stockholder's Equity............................................................... F-32
Statement of Cash Flows......................................................................... F-33
Notes to Financial Statements................................................................... F-34
</TABLE>
F-1
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS JUNE 30,
-------------------------------
1997 1998
-------------- -------------
<S> <C> <C>
INVESTMENTS
Debt securities - held to maturity $ 3,319,685 $ -
Debt securities - available for sale - 3,932,536
Equity securities - available for sale 6,963 84,586
Notes receivable 1,089,394 1,231,240
Short-term investments - -
Policy loans - 5,118
Investment real estate, net of depreciation
- 75,968
-------------- --------------
4,416,042 5,329,448
CASH AND CASH EQUIVALENTS 977,481 1,754,307
RECEIVABLES
Accrued investment income 169,268 208,053
Other 6,527 30,599
-------------- --------------
175,795 238,652
PROPERTY AND EQUIPMENT - AT COST
Building and improvements 327,520 270,272
Furniture and equipment 76,183 132,582
Automobiles 45,275 45,275
-------------- --------------
448,978 448,129
Less accumulated depreciation (28,058) (45,359)
-------------- --------------
420,920 402,770
Land 78,800 86,847
-------------- --------------
499,720 489,617
OTHER ASSETS
Cost in excess of net assets of businesses acquired,
less accumulated amortization 163,193 125,677
Value of purchased insurance business - 330,885
Other 103,619 119,402
-------------- --------------
266,812 575,964
-------------- --------------
$ 6,335,850 $ 8,387,988
============== ==============
</TABLE>
F-2
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY JUNE 30,
-------------------------------
1997 1998
------------- -------------
<S> <C> <C>
LIABILITIES
Policy reserves and policyholder funds $ 4,287,180 $ 5,957,486
Accounts payable and accrued liabilities 136,348 197,816
Notes payable 1,483,833 1,175,502
Other liabilities 6,137 36,321
----------- -----------
5,913,498 7,367,125
STOCKHOLDERS' EQUITY (NOTE D)
Common stock, $.01 par value 19,282 20,547
Additional paid-in capital 1,028,243 2,079,687
Common stock subscribed - 39,130
Accumulated other comprehensive income - 35,141
Accumulated deficit (625,173) (1,114,512)
Less stock subscriptions receivable - (39,130)
----------- -----------
422,352 1,020,863
=========== ===========
$ 6,335,850 $ 8,387,988
=========== ===========
</TABLE>
The accompanying notes are an integral part of these interim
financial statements.
F-3
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1997 1998
------------- ------------
<S> <C> <C>
REVENUES
Insurance premiums and other considerations $ - $ 65,552
Investment income 248,816 277,928
Net realized gains (losses) on sale of investments 498 1,712
Mortgage loan closing and funding income 181,505 57,170
Other 13,553 5,602
----------- ----------
444,372 407,964
BENEFITS, LOSSES AND EXPENSES
Policy benefits 60,636 65,045
Increase in policy reserves 45,570 95,408
Interest expense 53,484 49,956
Mortgage loan closing expenses 37,688 547
Taxes, licenses and fees 18,632 14,942
Depreciation and amortization 37,694 190,406
General, administrative and other operating expenses 311,809 332,984
----------- ----------
565,513 749,288
----------- ----------
(121,141) (341,324)
Loss before income taxes
INCOME TAX PROVISION
Current (expense) benefit
(917) 531
----------- ----------
NET LOSS $ (122,058) $ (340,793)
========== ==========
Basic and diluted loss per common share (note D) $ (.07) $ (.17)
========== ==========
Weighted average outstanding common shares,
basic and diluted (note D) 1,850,745 2,039,890
========== ==========
</TABLE>
The accompanying notes are an integral part of these interim
financial statements.
F-4
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (122,058) $ (340,793)
Adjustments to reconcile net loss to cash provided by (used in) operating activities
Depreciation and amortization 37,694 190,406
Interest credited to policyholder account balances 170,581 145,756
Gain on sale of investment securities - (1,379)
(Increase) decrease in
Accrued investment income (74,100) (51,844)
Other receivables 32,574 (26,513)
Other assets 4,755 (10,622)
Increase (decrease) in
Accounts payable (14,438) (10,462)
Accrued liabilities 16,905 56,949
Other liabilities (932) 35,262
Policy reserves - 12,190
------------- -------------
Net cash provided by (used in) operating activities 50,981 (1,050)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities (1,216,857) (1,572,493)
Proceeds from disposition or maturities of investment securities 467,353 1,253,445
Issuance of notes receivable - (120,000)
Payments received on notes receivable - 8,032
Proceeds from sale of real estate - 7,000
Cash provided by purchase of Benefit Capital Life Insurance Co. - 630,764
------------- -------------
Net cash provided by (used in) investing activities (749,504) 206,748
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits to policyholder account balances 969,880 505,983
Withdrawals from policyholder account balances (60,636) (102,109)
Payments on notes payable (100,000) (165,885)
Proceeds from issuance of notes payable 75,000 -
Proceeds from stock subscriptions receivable 72,100 2,953
Proceeds from sale of common stock 2,422 14,210
------------- -------------
Net cash provided by financing activities 958,766 255,152
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 260,243 460,850
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD
717,238 1,293,457
------------- -------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 977,481 $ 1,754,307
============= =============
</TABLE>
The accompanying notes are an integral part of these interim
financial statements.
F-5
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the consolidated
annual financial statements and footnotes thereto for the year ended December
31, 1997.
NOTE B - PURCHASE OF BENEFIT CAPITAL LIFE INSURANCE COMPANY
On January 13, 1998, in exchange for 100,000 shares of common stock (as
adjusted - see Note D), the Company acquired 100% of the outstanding common
stock of Benefit Capital Life Insurance Company ("BCLIC") in a business
combination accounted for as a purchase. BCLIC is primarily engaged in the sale
of life insurance products and is licensed in the State of Louisiana. The
results of operations of BCLIC are included in the accompanying financial
statements since the date of acquisition. Because the Company's common stock was
not traded, its fair value was not reliably measurable. Therefore, the cost of
the acquisition was estimated through measuring directly the fair values of
BCLIC's assets and liabilities. The total cost of the acquisition, as estimated,
was approximately $998,000.
NOTE C - SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANC-ING ACTIVITIES
In conjunction with the acquisition of BCLIC, assets were acquired and
liabilities were assumed as follows:
Fair value of assets acquired, including cash of $630,764 $2,051,746
Liabilities assumed (1,053,291)
-----------
Estimated fair value of common stock issued $ 998,455
===========
NOTE D - STOCKHOLDERS' EQUITY
Total comprehensive income for the six months ended June 30, 1998 was a
loss of approximately $353,000.
On September 21, 1998, in conjunction with an initial public offering of
common stock, the following changes in capital structure were approved and
effected:
Each share of outstanding Class B common stock was exchanged for one
share of Class A common stock and Class B common stock was eliminated.
F-6
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - STOCKHOLDERS' EQUITY - CONTINUED
Class A common stock was redesignated as, simply, common stock.
The par value of the common stock was changed from $.50 to $.01 and the
authorized number of shares was increased from 2,000,000 to 5,000,000.
A 5-for-2 stock split on common stock was effected.
5,000,000 shares of $.001 par value preferred stock with rights and
preference to be determined by the Board of Directors was created.
These changes have been given retroactive effect in the accompanying financial
statements.
F-7
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors
Summit Life Corporation
We have audited the accompanying consolidated balance sheets of Summit Life
Corporation and Subsidiaries, as of December 31, 1996 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the 1996 financial
statements of Equity Mortgage Services, Inc., a consolidated subsidiary, which
statements reflect total assets and total revenues constituting 6% and 54%,
respectively, of the related 1996 consolidated totals. Those statements were
audited by other auditors whose report has been furnished to us and our opinion,
insofar as it relates to the amounts included for Equity Mortgage Services,
Inc., as of and for the year ended December 31, 1996, is based solely on the
report of the other auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Summit Life
Corporation and Subsidiaries, as of December 31, 1996 and 1997, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
Oklahoma City, Oklahoma
April 3, 1998, except for Note D, as to which the
date is September 21, 1998
F-9
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
ASSETS 1996 1997
---------- ----------
<S> <C> <C>
INVESTMENTS (notes A4 and B)
Debt securities - held to maturity $2,278,884 $ -
Debt securities - available for sale - 2,968,901
Equity securities - available for sale 3,538 34,860
Notes receivable 1,071,294 959,743
Short-term investments 299,381 -
Investment real estate, net of accumulated depreciation of $575 - 75,968
---------- ----------
3,653,097 4,039,472
CASH AND CASH EQUIVALENTS (note A3) 717,238 1,293,457
RECEIVABLES
Stock subscriptions receivable 71,550 -
Accrued investment income 95,168 156,209
Other 39,101 4,086
---------- ----------
205,819 160,295
PROPERTY AND EQUIPMENT - AT COST
(notes A5 and N)
Building and improvements 323,053 334,320
Furniture and equipment 104,639 119,795
Automobiles 13,275 45,275
---------- ----------
440,967 499,390
Less accumulated depreciation 45,221 40,927
---------- ----------
395,746 458,463
Land 73,800 73,800
---------- ----------
469,546 532,263
OTHER ASSETS
Cost in excess of net assets of businesses acquired, less
accumulated amortization of $48,287 in 1996 and 85,805 in
1997 (note A6) 181,952 144,434
Deferred policy acquisition costs (note A8) - 14,179
Deferred income taxes (notes A7 and E) 71,943 71,943
Other 36,431 22,658
---------- ----------
290,326 253,214
---------- ----------
$5,336,026 $6,278,701
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
F-10
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
December 31,
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1997
---------- ----------
<S> <C> <C>
LIABILITIES
Policy reserves and policyholder funds (note A9) $3,270,656 $4,445,490
Accounts payable 24,563 25,600
Accrued liabilities 109,318 125,729
Notes payable (note C) 1,483,394 1,341,388
Other liabilities 6,102 1,059
---------- ----------
4,894,033 5,939,266
COMMITMENTS AND CONTINGENCIES (notes G and I) - -
STOCKHOLDERS' EQUITY (notes C and D)
Common stock, $.01 par value - authorized, 5,000,000 shares; issued and
outstanding, 1,825,022 shares in 1996 and 1,939,780
shares in 1997 18,250 19,398
Additional paid-in capital 854,757 1,044,992
Common stock subscribed 72,100 42,383
Accumulated other comprehensive income (loss) (350) 47,166
Accumulated deficit (502,764) (772,121)
---------- ----------
441,993 381,818
Less stock subscriptions receivable - 42,383
---------- ----------
441,993 339,435
---------- ----------
$5,336,026 $6,278,701
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
F-11
<PAGE>
Summit Life Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Revenues
Insurance premiums and other considerations (note A9) $ 124,901 $ 8,108
Investment income 446,867 490,184
Net realized gains on sale of investments 5,558 14,275
Mortgage loan closing and funding income and related fees 681,523 237,610
Other 10,871 31,819
---------- ----------
1,269,720 781,996
Benefits, losses, and expenses
Policy benefits 4,000 -
Increase in policy reserves 246,422 263,318
Interest expense 217,107 131,052
Mortgage loan closing, and related expenses 131,763 60,357
Taxes, licenses, and fees 35,506 18,572
Depreciation and amortization 66,874 69,151
General, administrative, and other operating 942,005 509,871
---------- ----------
1,643,677 1,052,321
---------- ----------
Loss before income taxes and minority interest (373,957) (270,325)
Income tax provision (notes A7 and E)
Current (expense) benefit (1,047) 968
Deferred benefit 45,191 -
---------- ----------
44,144 968
---------- ----------
Loss before minority interest (329,813) (269,357)
Minority interest in loss of consolidated subsidiary 32,735 -
---------- ----------
NET LOSS $ (297,078) $ (269,357)
========== ==========
Basic and diluted loss per common share (note A11) $ (.18) $ (.14)
========== ==========
Weighted average outstanding common shares, basic and diluted (note A11) 1,638,235 1,893,367
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
F-12
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (NOTE D)
Years ended December 31, 1996 and 1997
<TABLE>
<CAPTION>
Common stock Additional Common
---------------------
Shares Par paid-in stock
Total outstanding value capital subscribed
--------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 152,314 1,583,000 $ 15,830 $ 342,170 $ -
Conversion of convertible notes 121,992 101,660 1,017 120,975 -
Conversion of other notes payable 70,000 25,000 250 69,750 -
Sale of stock 214,830 76,725 767 214,063 -
Conversion of minority interest in preferred stock of CLS 108,185 38,637 386 107,799 -
Common stock subscriptions 72,100 - - - $ 72,100
Comprehensive income
Net loss (297,078) - - - -
Other comprehensive income
Unrealized loss on investments (350)
---------
Comprehensive income (297,428)
--------- --------- -------- ---------- ---------
Balance at December 31, 1996 441,993 1,825,022 18,250 854,757 72,100
Conversion of convertible notes (note C) 112,613 86,625 866 111,747 42,383
Common stock issued 6,670 28,133 282 78,488 (72,100)
Comprehensive income
Net loss (269,357) - - - -
Other comprehensive income
Unrealized gain on investments 47,516
---------
Comprehensive income (221,841)
--------- --------- -------- ---------- ---------
Balance at December 31, 1997 $ 339,435 1,939,780 $ 19,398 $1,044,992 $ 42,383
========= ========= ======== ========== =========
<CAPTION>
Accumulated
other Stock
comprehensive Accumulated subscribed
income deficit receivable
------------- ----------- ----------
<S> <C> <C> <C>
Balance at January 1, 1996 $ - $(205,686) $ -
Conversion of convertible notes - - -
Conversion of other notes payable - - -
Sale of stock - - -
Conversion of minority interest in preferred stock of CLS - - -
Common stock subscriptions - - -
Comprehensive income
Net loss - (297,078) -
Other comprehensive income
Unrealized loss on investments (350)
Comprehensive income
--------- --------- ---------
Balance at December 31, 1996 (350) (502,764) -
Conversion of convertible notes (note C) - - (42,383)
Common stock issued - - -
Comprehensive income
Net loss - (269,357) -
Other comprehensive income
Unrealized gain on investments 47,516
Comprehensive income
--------- --------- ---------
Balance at December 31, 1997 $ 47,166 $(772,121) $ (42,383)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-13
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1996 1997
------------ -----------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net loss $ (297,078) $ (269,357)
Adjustments to reconcile net loss to cash provided by (used in)
operating activities
Depreciation and amortization 66,874 69,151
Deferral of policy acquisition costs - (15,270)
Amortization of deferred policy acquisition costs - 1,091
Accrued interest income rolled into notes receivable (176,294) -
Accrued interest expense rolled into notes payable 176,294 -
Interest credited to policyholder account balances 131,000 259,000
Minority interest in loss of consolidated subsidiary (32,735) -
Gain on sale of investment securities (5,558) (14,275)
Other 2,124 (381)
(Increase) decrease in
Accrued investment income (65,620) (65,041)
Other receivables (7,056) 39,015
Other assets (396) 7,804
Deferred income taxes (45,191) -
Increase (decrease) in
Accounts payable 808 1,037
Accrued liabilities 60,818 16,411
Other liabilities 1,729 (5,043)
Policy reserves - 94
------------ -----------
Net cash provided by (used in) operating activities (190,281) 24,236
Cash flows from investing activities
Purchases of investment securities (1,824,456) (1,726,849)
Proceeds from disposition or maturities of investment securities 480,208 1,366,724
Issuance of notes receivable - (50,000)
Payments received on notes receivable 650,000 161,551
Purchase of investment real estate - (76,544)
Purchase of property and equipment (138,452) (55,467)
Acquisition of remaining 40% interest in Equity (52,500) -
------------ -----------
Net cash used in investing activities (885,200) (380,585)
Cash flows from financing activities
Deposits to policyholder account balances 958,121 1,178,983
Withdrawals from policyholder account balances (96,919) (263,243)
Payments on notes payable (237,750) (229,010)
Proceeds from issuance of notes payable 177,100 155,000
Proceeds from stock subscriptions receivable - 71,550
Proceeds from sale of common stock 215,372 19,288
------------ -----------
Net cash provided by financing activities 1,015,924 932,568
------------ -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (59,557) 576,219
Cash and cash equivalents at beginning of year 776,795 717,238
------------ -----------
Cash and cash equivalents at end of year $ 717,238 $ 1,293,457
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-14
<PAGE>
SUBMIT LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended December 31,
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Cash paid (received) during the year for:
- ----------------------------------------
Interest $ 170,000 $ 92,000
Income taxes $ (1,000) $ 2,000
Noncash investing and financing activities:
- ------------------------------------------
Purchase of an automobile by the incurrence of a note payable $ - $ 32,000
Common stock subscriptions receivable $ 71,550 $ 42,383
Conversion of convertible notes and other notes payable to common stock $ 192,000 $ 99,996
Conversion of minority interest in preferred stock of CLS to common stock $ 100,000 $ -
</TABLE>
The accompanying notes are an integral part of these statements.
F-15
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1997
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
1. Basis of Consolidation and Nature of Operations
The consolidated financial statements include the accounts of Summit Life
Corporation (SLC) and its wholly-owned subsidiaries (collectively, the
Company). Wholly-owned subsidiaries include Summit Life and Annuity Company
(SLAC), Family Benefit Life Insurance Company (FBLIC), CLS Enterprises, Inc.
(CLS), and Equity Mortgage Services, Inc. (Equity). Effective December 31,
1996, CLS was merged into SLC. Prior to December 31, 1996, SLC held a 60%
interest in Equity. On December 31, 1996, SLC acquired the remaining 40% of
Equity. Minority interest in loss of consolidated subsidiary includes the
40% of Equity's operations prior to acquisition by SLC. Effective December
31, 1997, Equity was merged into SLC. Intercompany transactions and balances
have been eliminated.
SLC is a holding company which specializes in the sale of annuity products
through its life insurance subsidiaries, SLAC and FBLIC. Additionally, SLC
provides financing to certain medical receivable factoring entities. SLAC is
licensed in Oklahoma and FBLIC is licensed in Texas. The annuity products
consist primarily of tax-sheltered annuities (TSAs), individual retirement
accounts (IRAs), and other individual nontax-qualified annuities. Equity
primarily provides residential mortgage loan application processing services
to individuals.
2. Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures;
accordingly, actual results could differ from those estimates.
3. Cash and Cash Equivalents
-------------------------
Cash equivalents include time deposits, certificates of deposit, and money
market funds.
The Company maintains its cash and cash equivalents in accounts which may
not be federally insured. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk on
such accounts.
4. Investments
-----------
The Company accounts for certain investments in debt and equity securities
as follows:
. Debt securities that the Company has the positive intent and ability to
hold to maturity are classified as held-to-maturity securities and
reported at amortized cost.
. Debt and equity securities that are bought and held principally for the
purpose of selling in the near term are classified as trading securities
and reported at fair value, with unrealized gains and losses included in
operations.
. Debt and equity securities not classified as either held to maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported as other comprehensive income.
F-16
<PAGE>
SUMMIT LIFE COPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1997
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED
4. Investments - Continued
-----------------------
Declines in the fair value of individual securities below cost or amortized
cost that are other than temporary result in write-downs included in
operations. The specific identification method is followed in determining
the cost of securities sold.
Notes receivable are stated at the aggregate of the unpaid balances less
estimated uncollectible amounts.
Short-term investments consist primarily of U.S. Treasury obligations and
are carried at cost, which approximates market.
Investment real estate is carried at depreciated cost.
5. Property and Equipment
----------------------
Depreciation is provided in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated useful lives on the
straight-line method. Useful lives range from five to forty years.
6. Cost in Excess of Net Assets of Businesses Acquired
---------------------------------------------------
Cost in excess of net assets of businesses acquired is amortized on the
straight-line method over fifteen years for insurance company acquisitions
and five years for other acquisitions.
On an ongoing basis, management reviews the valuation and amortization of
cost in excess of net assets of businesses acquired. As part of this review,
the Company estimates the value and future benefits of the net income to be
generated by the related subsidiaries to determine whether impairment has
occurred. At December 31, 1997, management believes no impairment has
occurred.
7. Income Taxes
------------
SLC and each of its subsidiaries file separate income tax returns.
The Company recognizes current tax expense (benefit) based on estimated
amounts payable or refundable on tax returns for the year.
Deferred tax liabilities or assets are recognized for the estimated future
tax effects attributable to temporary differences and carryforwards based on
provisions of the enacted tax law. Primary temporary differences relate to
the deferral of policy acquisition costs and policy liabilities.
Deferred tax assets are reduced by a valuation allowance if it is more
likely than not that some portion or all of the deferred tax assets will not
be realized.
F-17
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1997
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED
8. Deferred Policy Acquisition Costs
---------------------------------
The costs of writing new business, consisting primarily of commissions and
certain costs of policy issuance, are deferred. Deferred policy acquisition
costs for immediate annuities with life contingencies are amortized over the
estimated lives of the policies. Deferred policy acquisition costs for
investment products, principally single premium deferred annuities, are
amortized with interest in relation to the present value of the expected
gross profits, based on estimated investment yields, mortality, persistency,
and surrender changes, over the lives of the policies. Deferred policy
acquisition costs are reviewed periodically to insure that the unamortized
balance does not exceed those amounts recoverable from future profits.
During 1996, the Company did not incur significant acquisition costs;
therefore, such costs were expensed as incurred.
9. Revenues and Policy Reserves and Policyholder Funds
---------------------------------------------------
Premiums received on deferred annuities and annuities without life
contingencies (i.e., investment contracts) are recorded as deposits into the
policyholder's account balance. Revenues relating to these contracts consist
primarily of withdrawal and administrative charges. Premiums for certain
annuities with life contingencies, including selection of annuity settlement
options with life contingencies, are recognized as revenues when due.
Policyholder account balances include amounts deposited by policyholders
plus interest credited, less withdrawals and any administrative charges
deducted by the Company. The liabilities for future policy benefits for
annuities with life contingencies are computed as the present value of
future benefit payments, including assumptions as to investment yields and
mortality.
10. Long-Lived Assets
-----------------
Long-lived assets to be held and used, including investment real estate, are
reviewed for impairment whenever events or changes in circumstances indicate
that the related carrying amount may not be recoverable. When required,
impairment losses are recognized based upon the estimated fair value of the
asset.
11. Loss Per Common Share
---------------------
Weighted average outstanding common shares have been adjusted retroactively
for all periods presented to reflect the changes in capital structure
discussed in Note D. Conversion rights and convertible notes, discussed in
Note C, were antidilutive; therefore, basic and dilutive loss per common
share are the same.
12. Other Comprehensive Income
--------------------------
Accumulated other comprehensive income consists solely of net unrealized
investment gains (losses).
13. Reclassifications
-----------------
Certain reclassifications have been made to the 1996 financial statements to
conform to the 1997 presentation.
F-18
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1997
NOTE B - INVESTMENTS
The amortized cost of debt securities and the cost of equity securities,
together with their estimated fair values, are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------
Cost/ Gross Gross Estimated
amortized unrealized unrealized fair
Type of investment cost gains losses value
------------------------------------------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Debt securities - held to maturity
U.S. Treasury and other U.S. government
corporations and agencies $ 599,205 $ 3,840 $ (14,670) $ 588,375
Mortgage-backed securities 1,679,679 17,949 (2,630) 1,694,998
--------- -------- --------- ---------
Total debt securities $ 2,278,884 $ 21,789 $ (17,300) $ 2,283,373
========= ======== ======== =========
Equity securities - available for sale $ 3,888 $ - $ (350) $ 3,538
=========== ========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------------
Cost/ Gross Gross Estimated
amortized unrealized unrealized fair
Type of investment cost gains losses value
------------------------------------------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Debt securities - available for sale
U.S. Treasury and other U.S. government
corporations and agencies $ 299,721 $ 466 $ - $ 300,187
Mortgage-backed securities 2,522,959 43,130 - 2,566,089
Industrial and miscellaneous 98,750 3,875 - 102,625
----------- --------- --------- -----------
$ 2,921,430 $ 47,471 $ - $ 2,968,901
=========== ========= ========= ==========
Equity securities - available for sale $ 35,289 $ 1,146 $ (1,575) $ 34,860
=========== ========= ========= ===========
</TABLE>
The amortized cost and estimated fair values of debt securities, by
contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1997
------------------------------
Amortized Estimated
cost fair value
----------- -----------
<S> <C> <C>
Due within one year or less $ 199,811 $ 200,250
Due after ten years 198,660 202,562
---------- ----------
398,471 402,812
Mortgage-backed securities 2,522,959 2,566,089
--------- ---------
$2,921,430 $2,968,901
========= =========
</TABLE>
F-19
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1997
NOTE B - INVESTMENTS - CONTINUED
During the fourth quarter of 1997, the Company sold certain held-to-maturity
securities with amortized cost of $300,000, which resulted in net realized
gains of $1,000. As a result of these sales, all securities in the
held-to-maturity category at December 31, 1997 (amortized cost of $2,921,430
and unrealized gains of $47,471) were transferred to the available-for-sale
category. The decision to sell and transfer such securities was based
primarily on changes in the availability of and yield on alternative
investments.
Proceeds from sales of available-for-sale securities were approximately
$276,000 for 1996 and $284,000 for 1997. Gross gains of $5,400 for 1996 and
$9,200 for 1997 and gross losses of $300 for 1996 and $3,500 for 1997 were
realized on those sales.
Notes receivable include $1,071,294 for 1996 and $909,743 for 1997 of loans
made to entities which purchase, administer, and collect medical accounts
receivable. The notes provide for interest at 20% payable semiannually and
maturity dates primarily in 1999. These notes are collateralized by a
portfolio of medical accounts receivable maintained by an escrow agent. The
collateral for these notes also collateralizes certain of the Company's
notes payable (see Note C).
NOTE C - NOTES PAYABLE
Notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
-------------- -----------
<S> <C> <C>
Mortgage payable to bank, payable in monthly installments of
$2,292 through November 2006, including interest at
9.4%; collateralized by real estate $ 177,100 $ 164,645
Uncollateralized note payable to individual, interest payable
annually at 8%; due April 18, 2000 - 75,000
Note payable to bank, payable in monthly installments of $600
through March 1999, including interest at 10.5%;
collateralized by vehicle - 32,000
Uncollateralized note payable to stockholder, interest payable
annually at 7.75%; due September 15, 1998 - 30,000
Note payable to individual, interest payable semiannually at
8%; due July 1, 1998; collateralized by U.S. Treasury securities 30,000 30,000
Uncollateralized note payable to stockholder, interest payable
semiannually at 8%; due March 17, 1998 50,000 50,000
</TABLE>
F-20
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1997
NOTE C - NOTES PAYABLE - CONTINUED
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Uncollateralized note payable to stockholder, interest payable
annually at 6.75%; due February 1, 1998 - 50,000
8% convertible notes due June 30, 1997 (1) 155,000 -
10% notes payable to individuals, the majority of which are stockholders,
interest payable either semiannually or allowed to compound, maturing
primarily in 1999; collateralized by a portfolio of medical accounts
receivable (see Note B) 1,071,294 909,743
--------- ---------
$1,483,394 $1,341,388
========== =========
</TABLE>
(1) Convertible notes totaling $100,000 were converted into 76,920
common shares at the rate of $1.30 per share (as adjusted - see
Note D) on June 30, 1997.
Upon maturity, June 30, 1997, the holder of a $55,000 convertible
note (convertible into approximately 42,307 shares of common stock
at $1.30 per share) did not wish to convert. The Company, in an
effort to raise additional capital, acquired the convertible note
for $55,000 then offered the related conversion rights to existing
stockholders on a basis consistent with their then-current
ownership percentage. Conversion rights not otherwise accepted by
existing stockholders were ultimately accepted by certain Company
officers who are also stockholders. These officers accepted the
conversion rights by issuing noninterest-bearing promissory notes
payable in July 1998, thereby committing to purchase 34,512 shares
of common stock at $1.30 per share. These promissory notes and the
Company's requirement to issue the related Class A common stock
have been reflected in the accompanying consolidated financial
statements as stock subscriptions receivable and common stock
subscribed. Through December 31, 1997, 9,705 common shares have
been issued under this arrangement for $12,617 and at December 31,
1997, 32,602 common shares are subscribed under notes receivable
of $42,383.
The aggregate maturities of notes payable for years subsequent to December
31, 1997 are as follows:
Year ending December 31
1998 $ 177,000
1999 951,000
2000 90,000
2001 16,000
2002 18,000
Thereafter 89,388
----------
$1,341,388
=========
F-21
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1997
NOTE D - STOCKHOLDERS' EQUITY
On September 21, 1998, in conjunction with an initial public offering of
common stock, the following changes in capital structure were approved and
effected:
Each share of outstanding Class B common stock was exchanged for one
share of Class A common stock and Class B common stock was eliminated.
Class A common stock was redesignated as, simply, common stock.
The par value of the common stock was changed from $.50 to $.01 and the
authorized number of shares was increased from 2,000,000 to 5,000,000.
A 5-for-2 stock split on common stock was effected.
5,000,000 shares of $.001 par value preferred stock with rights and
preference to be determined by the Board of Directors was created.
These changes have been given retroactive effect in the accompanying
financial statements.
NOTE E - INCOME TAXES
The components of net deferred tax assets are as follows at December 31:
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Total deferred tax assets, primarily relating to net operating
loss carryforwards $ 87,477 $101,574
Total valuation allowance for deferred tax assets (12,874) (28,456)
Total deferred tax liabilities, relating to depreciation (2,660) (1,175)
--------- ---------
Net deferred tax assets $ 71,943 $ 71,943
======== ========
Increase in valuation allowance for the year $ 12,874 $ 15,582
======== ========
A reconciliation of income tax benefit at the statutory rate to the
Company's effective rate is as follows:
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Expected statutory rate 34% 34%
Small life insurance company deduction (20) (20)
Increase in valuation allowance (3) (6)
Other 1 (8)
---- ----
12% -%
===== =====
</TABLE>
At December 31, 1997, the following operating loss carryforwards, which
begin expiring in 2010, were available for tax purposes:
SLC $540,000
SLAC 4,000
F-22
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1997
NOTE F - RELATED PARTY TRANSACTIONS
Management fees of $8,000 were paid to a stockholder's company during 1996.
Included in other receivables at December 31, 1996 is a note due from a
company controlled by a stockholder of $27,500. This note was exchanged
during 1997 for services performed by the stockholder's company.
During 1997, commissions of approximately $5,800 were paid to a
stockholder's company.
NOTE G - COMMITMENTS AND CONTINGENCIES
Under its annuity contracts, the Company is committed to credit interest on
policyholder account balances at guaranteed rates. The first policy year,
the guaranteed rates range up to 8.5%. After the first year, the lowest
guaranteed rate is 3%.
Most states have established guaranty fund associations to ensure that
policyholders receive the benefit of the insurance products they have
purchased. The guaranty funds receive their funding through assessments to
companies which write business in the respective states. The Company is
liable for such mandatory assessments upon notification by the states;
however, such assessments may be partially recovered through a reduction in
future premium taxes.
NOTE H - STATUTORY CAPITAL AND SURPLUS
SLC's insurance company subsidiaries prepare their statutory-basis financial
statements in accordance with accounting practices prescribed or permitted
by the domiciliary state insurance department. "Prescribed" statutory
accounting practices include state laws, regulations, and general
administrative rules, as well as a variety of publications of the National
Association of Insurance Commissioners (NAIC). "Permitted" statutory
accounting practices encompass all accounting practices that are not
prescribed; such practices may differ from state to state, may differ from
company to company within a state, and may change in the future. The NAIC
currently is in the process of codifying statutory accounting practices, the
result of which is expected to constitute the only source of "prescribed"
statutory accounting practices. Accordingly, that project will likely
change, to some extent, prescribed statutory accounting practices, and may
result in changes to the accounting practices that insurance enterprises use
to prepare their statutory financial statements; however, the expected
completion date for this project is unknown.
SLAC is required to maintain statutory capital and surplus of at least
$250,000 and, at December 31, 1996 and 1997, its statutory capital and
surplus amounted to $396,000 and $375,000, respectively. SLAC cannot declare
dividends which exceed the greater of 10% of statutory capital and surplus
or the gain from operations of the preceding twelve months without the prior
consent of the Oklahoma Commissioner of Insurance. The maximum dividend
which may be paid in 1998 under this formula without prior consent is
$37,000.
F-23
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1997
NOTE H - STATUTORY CAPITAL AND SURPLUS - CONTINUED
FBLIC is required to maintain statutory capital and surplus of at least
$100,000 and, at December 31, 1996 and 1997, its statutory capital and
surplus amounted to $151,000 and $160,000, respectively. FBLIC cannot
declare dividends which exceed the greater of 10% of statutory capital and
surplus or the gain from operations of the preceding twelve months without
the prior consent of the Texas Commissioner of Insurance. Certain other
restrictions apply which are used only for stipulated premium companies. The
maximum dividend which may be paid in 1998 under this formula without prior
consent is $16,000.
NOTE I - REGULATORY MATTERS
At periodic intervals, the domiciliary state insurance department routinely
examines the insurance company subsidiaries' statutory financial statements
as part of their legally prescribed oversight of the insurance industry.
Based on these examinations, the regulators can direct that the
subsidiaries' statutory financial statements be adjusted in accordance with
their findings.
NOTE J - REINSURANCE
The Company reinsures that portion of insurance risk which is in excess of
its retention limits for its term life insurance business. Through December
31, 1997, the Company's term life business has not been significant with
$3,695,000 in force and $3,660,000 reinsured. Retention limits range up to
$5,000.
Reinsurance does not discharge or diminish the primary liability of the
Company on the risks reinsured; however, it does serve to limit the
Company's maximum loss on risks. The Company would be liable for the
reinsurance risks ceded to other companies in the event that reinsurers were
unable to meet their obligations.
Reinsurance recoverables on policy reserves were approximately $4,000 at
December 31, 1997.
NOTE K - EMPLOYMENT AGREEMENTS
Effective April 1, 1997, the Company entered into employment agreements with
the Company's President and Executive Vice President, both Company
stockholders. The employment agreements provide, among other things, for
six-year terms, base and maximum salaries, increases to base salaries
subject to Board of Director approval, annual bonuses, and benefits.
The agreements also provide each employee the right to purchase shares of
common stock at a specified price per share during the first three years of
the agreement. The number of shares available to the employees under this
agreement is subject to grant by the Board of Directors; however, the
difference between the option price and market price of all such shares must
not be less than $5,000 each. At December 31, 1997, the Board of Directors
had not granted any shares relating to this agreement.
F-24
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1997
NOTE K - EMPLOYMENT AGREEMENTS - CONTINUED
The agreements may be terminated by mutual agreement, by the Company at its
sole discretion without cause, or by the Company for cause, as defined. If
the agreements are terminated for cause, as defined, severance payments of
$50,000 are payable to each employee. If the agreements are terminated
without cause, severance payments to each employee will be equivalent to the
maximum salary over the term of the agreement less amounts previously paid,
but not less than $360,000 for the Executive Vice President and $450,000 for
the President.
NOTE L - SEGMENT INFORMATION
The Company has the following three reportable segments: mortgage services,
life insurance, and corporate. The mortgage services segment provides
residential mortgage loan processing services to individuals. The life
insurance segment sells primarily annuity products. The corporate segment
provides support to the Company's operating subsidiaries and provides
financing to certain medical receivable factoring entities. The accounting
policies used to develop segment information correspond to those described
in the summary of significant accounting policies. The reportable segments
are distinct business units. Revenues from customers are all attributed to
the United States. The following information about the three segments is for
the years ended December 31, 1996 and 1997.
<TABLE>
<CAPTION>
Mortgage Life
1996 services insurance Corporate Totals
----------------------------------------------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues from customers $681,523 $ 124,901 $ - $ 806,424
Intersegment revenues - 26,876 5,380 32,256
Investment income, including net realized
gains on sale of investments 304 179,389 272,732 452,425
Interest expense 15,555 - 201,552 217,107
Depreciation and amortization 18,914 3,188 44,772 66,874
Income tax expense (benefit) (36,547) 27,571 (35,168) (44,144)
Segment loss 81,838 43,998 203,977 329,813
Segment assets 336,025 3,686,468 1,514,139 5,536,632
Expenditures for segment assets - 138,452 - 138,452
Reconciliation to Consolidated Amounts
--------------------------------------
Revenues
--------
Total revenues for reportable segments
Revenues from customers $ 806,424
Intersegment revenues 32,256
Investment income, including net realized gains on sale of investments 452,425
----------
1,291,105
Other revenues 10,871
Elimination of interesegment revenues (32,256)
----------
Total consolidated revenues $1,269,720
==========
Assets
Total assets for reportable segments $5,536,632
Elimination of intersegment assets (200,606)
----------
$5,336,026
==========
</TABLE>
F-25
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1997
NOTE L - SEGMENT INFORMATION - CONTINUED
<TABLE>
<CAPTION>
Mortgage Life
1997 services insurance Corporate Totals
----------------------------------------------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues from customers $237,610 $ 8,108 $ - $ 245,718
Intersegment revenues - 12,627 26,424 39,051
Investment income, including net realized
gains on sale of investments 2 304,239 200,218 504,459
Interest expense 15,612 - 115,440 131,052
Depreciation and amortization 5,627 11,248 52,276 69,151
Income tax expense (benefit) 16,327 (694) (16,601) (968)
Segment loss 28,439 67,175 173,743 269,357
Segment assets 268,088 4,844,814 1,381,662 6,494,564
Expenditures for segment assets 9,467 - 46,000 55,467
Reconciliation to Consolidated Amounts
Revenues
Total revenues for reportable segments
Revenues from customers $ 245,718
Intersegment revenues 39,051
Investment income, including net realized gains on sale of investments 504,459
----------
789,228
Other revenues 31,819
Elimination of interesegment revenues (39,051)
----------
Total consolidated revenues $ 781,996
==========
Assets
Total assets for reportable segments $6,494,564
Elimination of intersegment assets (215,863)
----------
$6,278,701
==========
</TABLE>
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments as of December 31, 1996 and 1997 as
required by Statement of Financial Accounting Standards No. 107, Disclosure
About Fair Value of Financial Instruments" (SFAS No. 107). Such information,
which pertains to the Company's financial instruments, is based upon the
requirements of SFAS No. 107 and does not purport to represent the aggregate net
fair value of the Company. The carrying amounts in the table are the amounts at
which the financial instruments are reported in the financial statement.
F-26
<PAGE>
SUMMIT LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1997
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
All of the Company's financial instruments are held for purposes other than
trading. The fair values of debt and equity securities are estimated based
on quoted market prices for those or similar investments. The carrying value
of notes receivable approximates fair value due to nominal interest rate
changes subsequent to issuance. The carrying amounts of cash, cash
equivalents, short-term investments, and receivables approximate fair values
because of the short maturity of those assets. Cash surrender value is used
in determining the fair value of annuity contracts. Estimated fair value of
notes payable is the discounted amount of future cash flows using the
Company's current incremental rate of borrowing for similar liabilities.
<TABLE>
<CAPTION>
1996 1997
------------------------- -------------------------
Carrying Fair Carrying Fair
amount value amount value
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets
Debt securities - held to maturity $2,278,884 $2,283,373 $ - $ -
Debt securities - available for sale - - 2,968,901 2,968,901
Equity securities - available for sale 3,538 3,538 34,860 34,860
Notes receivable 1,071,294 1,071,294 959,743 959,743
Short-term investments 299,381 299,381 - -
Cash and cash equivalents 717,238 717,238 1,293,457 1,293,457
Receivables 205,819 205,819 160,295 160,295
Financial liabilities
Policy reserves and policyholders funds 3,270,656 3,091,031 4,445,490 4,019,538
Notes payable 1,483,394 1,430,628 1,341,388 1,296,770
</TABLE>
NOTE N - SUBSEQUENT EVENTS
On January 5, 1998, the Company sold a building and related land with a
carrying amount of $209,000. The Company received cash of $10,000; an 8%,
$240,000 first mortgage payable over ten years; and an 8%, $50,000 note and
second mortgage payable over ten years. The transaction resulted in a gain
of approximately $91,000, which will be deferred and recognized on the
installment method until adequate down payment has been received.
On January 13, 1998, in exchange for 100,000 shares of common stock (as
adjusted - see Note D), the Company acquired 100% of the outstanding common
stock of Benefit Capital Life Insurance Company (BCLIC) in a business
combination accounted for as a purchase. BCLIC is primarily engaged in the
sale of life insurance products and is licensed in the state of Louisiana.
The results of operations of BCLIC will be included with the results of the
Company for periods subsequent to acquisition. Because the Company's common
stock was not traded, its fair value was not reliably measurable. Therefore,
the cost of the acquisition was estimated through measuring directly the
fair values of BCLIC's assets and liabilities. The total cost of the
acquisition, as estimated, was approximately $998,000. The following
summarized pro forma (unaudited) information assumes the acquisition
occurred as of January 1, 1997:
Revenues $1,020,580
Net loss (555,646)
Basic and diluted loss per common share (.28)
F-27
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-28
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Benefit Capital Life Insurance Company
We have audited the accompanying balance sheet of Benefit Capital Life Insurance
Company, as of December 31, 1997, and the related statements of operations,
stockholder's equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Benefit Capital Life Insurance
Company, as of December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
Oklahoma City, Oklahoma
April 3, 1998
F-29
<PAGE>
BENEFIT CAPITAL LIFE INSURANCE COMPANY
BALANCE SHEET
December 31, 1997
<TABLE>
ASSETS
<S> <C> <C>
INVESTMENTS
Debt securities - available for sale (notes A1, B, and G) $ 705,257
Short-term investments (notes A1 and G) 103,186
Policy loans 5,118 $ 813,561
----------
CASH AND CASH EQUIVALENTS (note A5) 527,578
RECEIVABLES
Accrued investment income 15,461
Reinsurance recoverable on loss payments 18,233 33,694
----------
PROPERTY AND EQUIPMENT - AT COST (notes A2 and G)
Building and improvements 232,843
Electronic data processing equipment 22,491
----------
255,334
Less accumulated depreciation 84,032
----------
171,302
Land 25,847 197,149
----------
OTHER ASSETS
Deferred policy acquisition costs (note A3) 133,506
Other 1,350 134,856
---------- ----------
$1,706,838
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policy reserves and policyholder funds (notes A4 and E) $1,156,706
Accrued and other liabilities 3,225 $1,159,931
----------
COMMITMENTS AND CONTINGENCIES (note G) -
STOCKHOLDER'S EQUITY
Common stock - $1 par value; authorized, 100,000 shares;
issued and outstanding, 100,000 shares 100,000
Additional paid-in capital 487,669
Accumulated deficit (40,762) 546,907
---------- ----------
$1,706,838
==========
</TABLE>
The accompanying notes are an integral part of this statement
F-30
<PAGE>
BENEFIT CAPITAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
Year ended December 31, 1997
<TABLE>
<S> <C> <C>
Revenues
Insurance premiums and other considerations (note A3) $ 164,503
Net investment income 72,713
Net realized gains on sale of investments 1,368 $ 238,584
---------
Benefits, losses, and expenses
Policy benefits 168,739
Decrease in policy reserves (358,259)
Amortization of deferred policy acquisition costs 93,599
General, administrative, and other operating 305,794 209,873
--------- ---------
NET EARNINGS $ 28,711
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-31
<PAGE>
BENEFIT CAPITAL LIFE INSURANCE COMPANY
STATEMENT OF STOCKHOLDER'S EQUITY
Year ended December 31, 1997
<TABLE>
<CAPTION>
Additional
Common paid-in Accumulated
stock capital deficit Total
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $100,000 $487,669 $ (69,473) $518,196
Net earnings - - 28,711 28,711
-------- -------- --------- --------
Balance at December 31, 1997 $100,000 $487,669 $ (40,762) $546,907
======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-32
<PAGE>
BENEFIT CAPITAL LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
Year ended December 31, 1997
<TABLE>
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net earnings $ 28,711
Adjustments to reconcile net earnings to cash used in operating activities
Depreciation and amortization 11,280
Amortization of deferred policy acquisition costs 93,599
Gain on sale of investment securities (1,368)
Other 19,649
Increase in
Accrued investment income (2,179)
Other receivables (18,233)
Other assets (967)
Decrease in
Accrued and other liabilities (6,497)
Policy reserves and policyholder funds (390,034)
---------
Net cash used in operating activities (266,039)
Cash flows from investing activities
Purchases of investments (103,186)
Proceeds from maturities of investments 304,680
Increase in policy loans (5,118)
Purchase of property and equipment (2,092)
---------
Net cash provided by investing activities 194,284
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (71,755)
Cash and cash equivalents at beginning of year 599,333
---------
Cash and cash equivalents at end of year $ 527,578
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-33
<PAGE>
BENEFIT CAPITAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
Benefit Capital Life Insurance Company (formerly Cajun National Life
Insurance Company) (the Company), a Louisiana corporation, is a wholly-owned
subsidiary of Benefit Capital Investment Corporation (BCIC); however, see
Note H for change of control subsequent to December 31, 1997. The Company
specializes in the sale of life insurance products in Louisiana.
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows.
1. Investments
-----------
The Company accounts for investments in debt and equity securities as
follows:
. Debt securities that the Company has the positive intent and ability to
hold to maturity are classified as held-to-maturity securities and
reported at amortized cost.
. Debt and equity securities that are bought and held principally for the
purpose of selling in the near term are classified as trading securities
and reported at fair value, with unrealized gains and losses included in
earnings.
. Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of equity.
Declines in the fair value of individual securities below cost or
amortized cost that are other than temporary result in write-downs included
in operations. The specific identification method is followed in determining
the cost of securities sold.
Short-term investments consist primarily of certificates of deposit and are
carried at cost, which approximates market.
2. Property and Equipment
----------------------
The Company's building is depreciated on the straight-line method over 31.5
years. Other building improvements are depreciated on the straight-line
method over 5 to 31.5 years. Subsequent to December 31, 1997, the Company
relocated operations to rented facilities in New Orleans, Louisiana, and
currently its real estate is held for sale.
Electronic data processing equipment is depreciated on the straight-line
method over five to seven years.
Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the related carrying amount
may not be recoverable. When required, impairment losses are recognized
based upon the estimated fair value of the asset.
F-34
<PAGE>
BENEFIT CAPITAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED
3. Recognition of Premium Revenues and Acquisition Costs
-----------------------------------------------------
Life insurance premiums are reported as earned when due.
The costs of writing new business, consisting primarily of commissions and
certain costs of policy issuance, are deferred. Deferred policy acquisition
costs are amortized over the estimated lives of the policies. Deferred
policy acquisition costs are reviewed periodically to insure that the
unamortized balance does not exceed those amounts recoverable from future
profits.
4. Policy Reserves and Policyholder Funds
--------------------------------------
Policy reserves are computed using assumptions as to investment yields,
mortality, morbidity, withdrawals, and other assumptions based on the
Company's experience, modified as necessary to give effect to anticipated
trends and to include provisions for possible unfavorable deviations.
Reserve interest assumptions are graded and range from 8% to 7.5%. Such
liabilities are, for some plans, graded to equal statutory values or cash
values at or prior to maturity. Policy benefit claims are charged to expense
in the period that the claims are incurred. All insurance-related benefits,
losses, and expenses are reported net of reinsurance ceded.
Policyholder funds represent policy account balances before applicable
surrender charges, if any.
5. Cash and Cash Equivalents
-------------------------
Cash equivalents include money market funds and other highly liquid debt
instruments purchased with a maturity of three months or less.
The Company maintains its cash and cash equivalents in accounts which may
not be federally insured. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk on
such accounts.
6. Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures;
accordingly, actual results could differ from those estimates.
F-35
<PAGE>
BENEFIT CAPITAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED
7. Capital Surplus Requirements
----------------------------
The Company prepares its statutory-basis financial statements in accordance
with accounting practices prescribed or permitted by the domiciliary state
insurance department. "Prescribed" statutory accounting practices include
state laws, regulations, and general administrative rules, as well as a
variety of publications of the National Association of Insurance
Commissioners (NAIC). "Permitted" statutory accounting practices encompass
all accounting practices that are not prescribed; such practices may differ
from state to state, may differ from company to company within a state, and
may change in the future. The NAIC currently is in the process of codifying
statutory accounting practices, the result of which is expected to
constitute the only source of "prescribed" statutory accounting practices.
Accordingly, that project will likely change, to some extent, prescribed
statutory accounting practices, and may result in changes to the accounting
practices that insurance enterprises use to prepare their statutory
financial statements; however, the expected completion date for this project
is unknown.
Statutory accounting practices differ in some respects from generally
accepted accounting principles (GAAP). Some of the more significant of these
differences are as follows:
. Aggregate reserves for life policies and contracts are based on
statutorily-allowed mortality and interest assumptions, which differ
from reserves valued according to GAAP which are based on expected
assumptions, including provisions for adverse deviations.
. Policy acquisition costs, such as commissions, underwriting, and
other costs incurred in connection with acquiring new business, are
charged to operations as incurred. Under GAAP, these costs are
deferred and amortized over the policy term.
. Certain assets designated as "nonadmitted", if any, are charged to
surplus.
. Deferred income taxes are not provided on temporary differences
between the tax bases of assets and liabilities and their amounts for
reporting purposes. Under GAAP, deferred taxes, if any, are provided
on these differences.
. Bonds are generally carried at amortized cost for statutory purposes,
while GAAP generally requires classification of bonds into
held-to-maturity, available-for-sale, and trading categories. Trading
securities would be carried at fair value, with unrealized gains and
losses included in earnings; available-for-sale securities would be
carried at fair value with unrealized gains and losses excluded from
earnings and reported in a separate component of stockholders equity,
net of tax effects; and held-to-maturity securities would be carried
at amortized cost.
The amount of statutory capital and surplus necessary to satisfy regulatory
requirements was $300,000 at December 31, 1997 and, at December 31, 1997,
its statutory capital and surplus amounted to $472,000.
The Company cannot declare dividends which exceed the lesser of 10% of
statutory capital and surplus or the net gain from operations of the
preceding twelve months without the prior consent of the Insurance
Department of the State of Louisiana.
F-36
<PAGE>
BENEFIT CAPITAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED
8. Income Taxes
------------
The Company files a consolidated federal income tax return with BCIC. The
Company recognizes current tax expense (benefit) on a separate company basis
on estimated amounts payable or refundable on tax returns for the year.
Deferred tax liabilities or assets are recognized for the estimated future
tax effects attributable to temporary differences and carryforwards based on
provisions of the enacted tax law. Primary temporary differences relate to
policy liabilities and the deferral of policy acquisition costs.
Deferred tax assets are reduced by a valuation allowance if it is more
likely than not that some portion or all of the deferred tax assets will not
be realized.
NOTE B - INVESTMENTS
The amortized cost and estimated market value of debt securities are as
follows at December 31, 1997:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Debt securities - available for sale
U.S. Treasury and other U.S. government
corporations and agencies $605,257 $ - $ - $605,257
Mortgage-backed securities 100,000 - - 100,000
-------- --------- --------- --------
$705,257 $ - $ - $705,257
======== ========= ========= ========
</TABLE>
The amortized cost and estimated market value of debt securities, by
contractual maturity, are shown below at December 31, 1997:
<TABLE>
<CAPTION>
Estimated
Amortized market
cost value
--------- ---------
<S> <C> <C>
Due after one year through five years $100,584 $100,584
Due after five years through ten years 504,673 504,673
-------- --------
605,257 605,257
Mortgage-backed securities 100,000 100,000
-------- --------
$705,257 $705,257
======== ========
</TABLE>
F-37
<PAGE>
BENEFIT CAPITAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
NOTE B - INVESTMENTS - CONTINUED
Proceeds from sales of equity securities during 1997 were approximately
$4,700. Gross losses of $100 were realized on those sales.
Debt securities carried at approximately $100,000 were on deposit with
regulatory authorities in accordance with statutory requirements at December
31, 1997.
NOTE C - RELATED PARTY TRANSACTIONS
During 1997, the Company paid BCIC approximately $20,000 relating to
management services.
NOTE D - REGULATORY MATTERS
At periodic intervals, the Insurance Department of the State of Louisiana
routinely examines the Company's statutory financial statements as part of
their legally prescribed oversight of the insurance industry. Based on these
examinations, the regulators can direct that the Company's statutory
financial statements be adjusted in accordance with their findings.
NOTE E - REINSURANCE
The Company reinsures that portion of insurance risk which is in excess of
its retention limits. Retention limits range up to $20,000 on life policies.
Reinsurance does not discharge or diminish the primary liability of the
Company on the risks reinsured; however, it does serve to limit the
Company's maximum loss on risks. The Company would be liable for the
reinsured risks ceded to other companies in the event that reinsurers were
unable to meet their obligations.
At December 31, 1997, reinsurance recoverables on policy reserves were not
significant.
NOTE F - INCOME TAXES
The amounts for deferred tax assets and liabilities are as follows at
December 31, 1997:
<TABLE>
<S> <C>
Total deferred tax assets $ 45,266
Valuation allowance for deferred tax assets (41,054)
Total deferred tax liabilities (4,212)
---------
Net $ -
=========
Decrease in valuation allowance for the year $ 809
=========
</TABLE>
The Company's effective income tax rate for 1997 is zero primarily because
of the small life insurance company deduction and the decrease in valuation
allowance.
F-38
<PAGE>
BENEFIT CAPITAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
NOTE F - INCOME TAXES - CONTINUED
At December 31, 1997, the Company had operating loss carryforwards of
approximately $492,000, which begin expiring in 2011, and will be subject to
annual utilization limitations due to the change in control discussed in
Note H.
NOTE G - COMMITMENTS AND CONTINGENCIES
Most states have established guaranty fund associations to ensure that
policyholders receive the benefit of the insurance products they have
purchased. The guaranty funds receive their funding through assessments to
companies which write business in the respective states. The Company is
liable for such mandatory assessments upon notification by the states;
however, such assessments may be partially recovered through a reduction in
future premium taxes.
The Company is involved in various legal actions relating to its operation.
Management believes that losses, if any, arising from such actions will not
be material to the Company's financial statements.
Certain policies issued are considered "registered" policies and require
that assets, to the extent of the reserves, be pledged to the Insurance
Department of the State of Louisiana. At December 31, 1997, debt securities
available for sale, short-term investments, and real estate carried at
approximately $505,000, $103,000, and $184,000, respectively, were pledged.
NOTE H - SUBSEQUENT EVENTS
On January 13, 1998, 100% of the Company's common stock was acquired by
Summit Life Corporation (SLC), an Oklahoma corporation. SLC is an insurance
holding company that specializes in the sale of annuity products through two
life insurance subsidiaries.
F-39
<PAGE>
================================================================================
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES OR AN OFFER, TO, OR A SOLICITATION OF, ANY PERSON
IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
__________________________
TABLE OF CONTENTS
PAGE
----
Additional Information................................................ 2
Prospectus Summary.................................................... 3
Risk Factors.......................................................... 6
Use of Proceeds....................................................... 10
Determination of Offering Price....................................... 12
Dividend Policy....................................................... 12
Dilution.............................................................. 12
Capitalization........................................................ 13
Selected Financial Information........................................ 14
Unaudited Pro Forma Consolidated Statement of Operations.............. 16
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 18
Business.............................................................. 21
Management............................................................ 29
Certain Transactions.................................................. 31
Principal Stockholders................................................ 32
Description of Capital Stock.......................................... 32
Shares Eligible for Future Sale....................................... 34
Plan of Distribution.................................................. 35
Legal Matters......................................................... 36
Experts............................................................... 36
Glossary of Selected Terms............................................ 37
Index to Financial Statements......................................... F-1
1,000,000 SHARES
[LOGO OF SUMMIT LIFE CORPORATION]
SUMMIT LIFE CORPORATION
COMMON STOCK
__________________
PROSPECTUS
___________________
_________________, 1998
================================================================================
<PAGE>
SUMMIT LIFE CORPORATION
REGISTRATION STATEMENT ON FORM SB-2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 1006(B)(7) of the General Corporation Act of the State of Oklahoma
(the "OGCA") authorizes a corporation in its certificate of incorporation to
eliminate or limit the personal liability of members of its board of directors
to the corporation or its stockholders for monetary damages for violations of a
director's fiduciary duty of care, including acts constituting gross negligence.
Such a provision would have no effect on the availability of equitable remedies,
such as an injunction or rescission, for breach of fiduciary duty. In addition,
no such provision may eliminate or limit the liability of a director for
breaching his duty of loyalty to the corporation or its shareholders, failing to
act in good faith, engaging in intentional misconduct or knowingly violating a
law, paying an unlawful dividend or approving an illegal stock repurchase, or
executing any transaction from which the director obtained an improper personal
benefit.
Section 1031 of the OGCA empowers a corporation to indemnify any person who
was or is a party to or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation), 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, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. With respect to actions or suits by or in the right of
the corporation, such indemnification is limited to expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit. Further, no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper. Additionally, a corporation is required to indemnify its
directors and officers against expenses to the extent that such directors or
officers have been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to above or in defense of any claim, issue
or matter therein.
An indemnification can be made by the corporation only upon a determination
made in the manner prescribed by the statute that indemnification is proper in
the circumstances because the party seeking indemnification has met the
applicable standard of conduct as set forth in the OGCA. The indemnification
provided by the OGCA shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors, or otherwise. A corporation also
has the power to purchase and maintain insurance on behalf of any person
covering any liability incurred by such person in his capacity as a director,
officer, employee or agent of the corporation, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability. The indemnification provided by the OGCA shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
II-1
<PAGE>
THE REGISTRANT'S CHARTER AND BYLAW PROVISIONS
The Registrant's First Amended and Restated Certificate of Incorporation
(i) limits its directors' liability for monetary damages to the Registrant and
its shareholders for breach of fiduciary duty except under the circumstances
outlined in Section 1006(B)(7) of the OGCA as described above, (ii) provides for
elimination or limitation of liability to the fullest extent permitted should
the OGCA be amended to authorize corporation action further eliminating or
limiting the personal liability of directors and (iii) provides for
indemnification to the fullest extent permitted by Section 1031 of the OGCA.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered. All expenses of
registration of the Shares will be borne by the Company. All of the amounts
shown are estimates, except the registration fee.
Securities and Exchange Commission registration fee........... $ 1,475.00
Legal fees and expenses....................................... $70,000.00
Accounting fees and expenses.................................. $20,000.00
Printing and engraving expenses............................... $ 8,000.00
Blue sky fees and expenses.................................... $ 3,950.00
----------
TOTAL EXPENSES $ 103,425
==========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following sets forth certain information regarding sales of securities
of the Company issued within the past three years, which were not registered
pursuant to the Securities Act of 1933, as amended (the "Securities Act").
There were no sales of securities of the Company in 1995. In September
1996, the Company offered for sale 142,857 shares of Class A common stock, par
value $0.50 per share (the "Class A Common Stock"), at a price of $7.00 per
share, pursuant to Section 4(2) of the Securities Act and Regulation D
promulgated thereunder (the "1996 Offering"). Pursuant to the 1996 Offering, the
Company sold for cash 51,943 shares of Class A Common Stock to 15 subscribers.
Each subscriber made the following representations: (a) his overall commitment
to investments which are not readily marketable is reasonable in relation to his
net worth; (b) he is willing and able to bear the economic risk of his
investment in the Company, has no need for liquidity in his investment, and is
able to sustain a loss of his investment; he has read the Offering Memorandum
for purposes of evaluating the risks of investing in the Company; (d) he is
purchasing the shares of Class A Common Stock for his own account, for
investment and not with a view to resale; (e) that he understands that the
securities purchase have not been registered under the Securities Act, or the
securities laws of any state in which they may be sold and that their transfer
or sale is restricted; and (f) that he understands that the Company's
Certificate of Incorporation restricts the sale or transfer of the Class A
Common Stock and gives the Company the right of first refusal in the event the
owner receives an offer for said shares. No sales commissions were paid in
connection with such issuance. The securities were issued in reliance on the
exemption from registration provided by Section 4(2) and Regulation D of the
Securities Act.
II-2
<PAGE>
Additionally, in June 1996, pursuant to the provisions of certain
convertible debentures of the Company (the "Convertible Debentures"), James L.
Smith and Charles L. Smith were issued an aggregate of 40,664 shares of Class A
Common Stock (121,992 shares taking into account the 5 for 2 stock split
effected in September 1998). In December 1996, George Leger was issued 15,455
shares of Class A Common Stock for one share of Preferred Stock of CLS
Enterprises. In January 1997, Mr. Leger was issued 10,000 shares of Class A
Common Stock for the George Leger IRA account. No sales commissions were paid in
connection with the above issuances and the securities were issued in reliance
on the exemption from registration provided by Section 4(2) of the Securities
Act.
In June 1997, pursuant to the provisions of the Convertible Debentures,
James L. Smith and Charles L. Smith issued a promissory note in favor of the
Company for the purchase of an aggregate of 34,650 shares of Class A Common
Stock. No sales commissions were paid in connection with such issuance. The
securities were issued in reliance on the exemption from registration provided
by Section 4(2) of the Securities Act.
On January 13, 1998, pursuant to the terms of that certain acquisition
agreement between the Company and Benefit Capital Life Investment Corporation, a
Louisiana corporation, the Company issued 40,000 shares of Class A Common Stock
for all of the issued and outstanding stock of BCLIC. In April 1998, pursuant
to the provisions of the Convertible Debentures, Quinton Hiebert was issued
1,200 shares of Class A Common Stock. No sales commissions were paid
in connection with such issuance. The securities were issued in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act.
In April 1998, the following directors, as compensation for services
rendered to the Company, were issued the following shares of Class A Common
Stock: (i) 200 shares to Dean Brown; (ii) 228 to Gary Ellis; (iii) 542 to Thomas
Sanders; (iv) 228 to Gary Skibicki; (v) 557 to Charles L. Smith; and (vi) 557 to
James L. Smith; (vii) 328 to Randal Beach; and (viii) 114 to Russell Graham.
In February 1998, the following directors, as compensation for services rendered
to the Company, were issued the following shares of Class A Common Stock: (i)
185 shares to Dean Brown; (ii) 385 to Gary Ellis; (iii) 385 to Thomas Sanders;
(iv) 200 to Gary Skibicki; (v) 385 to Charles L. Smith; (vi) 385 to James L.
Smith. No sales commissions were paid in connection with such issuances. The
securities were issued in reliance on the exemption from registration provided
by Section 4(2) of the Securities Act.
II-3
<PAGE>
ITEM 27. EXHIBITS.
EXHIBIT NAME OF EXHIBIT
---------------
NUMBER
------
3.1 First Amended and Restated Certificate of Incorporation
3.2 First Amended and Restated Bylaws
4.1* Specimen Certificate of the Common Stock
4.2 See Articles V and X of the Company's Certificate of Incorporation and
Article VI of the Company's Bylaws (included herein as Exhibits 3.1
and 3.2, respectively)
5.1 Opinion of Day, Edwards, Federman, Propester & Christensen, P.C. as to
the legality of the securities being registered
10.1 Employment Agreement by and between the Company and James L. Smith
10.2 Employment Agreement by and between the Company and Charles L. Smith
10.3 Stock Purchase Agreement by and between the Company and BCLIC
10.5* Escrow Agreement
11.1* Statement re: computation of per share earnings
21.1 List of subsidiaries
23.1 Consent of Grant Thornton LLP, Independent Accountants
23.3 Consent of Day, Edwards, Federman, Propester & Christensen, P.C.
(included in Exhibit 5.1)
27.1 Financial Data Schedule
99.1 Subscription Agreement
* TO BE FILED BY AMENDMENT.
II-4
<PAGE>
ITEM 28. UNDERTAKINGS.
1. The undersigned Registrant hereby undertakes:
(a) That, for the purpose of determining any liability under the
Securities Act, treat the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act as part of this Registration Statement as
of the time the Commission declared it effective.
(b) That, for the purpose of determining any liability under the
Securities Act, treat each post-effective amendment that contains a form of
prospectus as a new registration statement of the securities offered in the
registration statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
(c) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) reflect in the Prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) include any additional or changed material information on the
plan of distribution.
(d) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the termination or end of the offering.
2. 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 Securities and Exchange
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 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
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements of filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereon duly authorized
in the City of Oklahoma City, State of Oklahoma, on September 30, 1998.
SUMMIT LIFE CORPORATION
an Oklahoma corporation
By: /s/ Charles L. Smith
-------------------------------------------
Charles L. Smith, President
POWER OF ATTORNEY
The officers and directors of Summit Life Corporation whose signature
appears below, hereby constitute and appoint Charles L. Smith and James L.
Smith, and each of them (with full power to each of them to act alone), the true
and lawful attorney-in-fact to sign and execute, on behalf of the undersigned,
any amendment(s) to this registration statement, and each of the undersigned
does hereby ratify and confirm all that said attorneys shall do or cause to be
done by virtue thereof.
Pursuant to the requirement of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated:
NAME AND TITLE DATE
-------------- ----
/s/ James L. Smith September 30, 1998
- ----------------------------------------------
James L. Smith,
Chairman of the Board of Directors and
Chief Executive Officer
/s/ Charles L. Smith September 30, 1998
- ----------------------------------------------
Charles L. Smith,
President, Chief Operating Officer and
Director
/s/ Randel Beach September 30, 1998
- ----------------------------------------------
Randel Beach
Director and President of BCLIC
/s/ Dean Brown September 30, 1998
- ----------------------------------------------
Dean Brown,
Director
/s/ Thomas D. Sanders September 30, 1998
- ----------------------------------------------
Thomas D. Sanders
Director
II-6
<PAGE>
/s/ Quinton L. Hiebert September __, 1998
- ----------------------------------------------
Quinton L. Hiebert,
Vice President, Chief Financial Officer
and Secretary
II-7
<PAGE>
EXHIBIT 3.1
FIRST AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SUMMIT LIFE CORPORATION
TO THE SECRETARY OF STATE OF OKLAHOMA:
Summit Life Corporation, which was originally incorporated in the State of
Oklahoma by filing its Certificate of Incorporation with the Secretary of State
of Oklahoma on April 12, 1994, hereby further amends and restates its
Certificate of Incorporation in accordance with a resolution adopted by the
Board of Directors of this Corporation on September 21, 1998 and approved by the
stockholders on September 21, 1998, all in accordance with Title 18, Sections
1077 and 1080 of the Oklahoma General Corporation Act, Okla. Stat. tit. 18,
(S)1001 et seq. (the "Oklahoma General Corporation Act"), to read in full as
follows:
ARTICLE I
Name
----
The name of this Corporation is: SUMMIT LIFE CORPORATION.
ARTICLE II
Registered Agent
----------------
The address of the registered office of the Corporation in the State of
Oklahoma is , 3021 Epperly, Oklahoma City, Oklahoma 73115, and the name of the
registered agent of the Corporation at such address is Charles L. Smith.
ARTICLE III
Duration
--------
The duration of the Corporation is perpetual.
1
<PAGE>
ARTICLE IV
Purposes
--------
The objectives and purposes for which the Corporation is organized is for
any lawful act or activity for which a corporation may be organized under the
Oklahoma General Corporation Act.
ARTICLE V
Authorized Capital
------------------
Section 1. The amount of total authorized capital stock of the Corporation
is 10,000,000 shares, of which 5,000,000 shares shall be Common Stock, having a
par value of $.01 per share ("Common Stock"), and 5,000,000 shares shall be
Preferred Stock, having a par value of $.001 per share ("Preferred Stock").
Section 2. Except for and subject to those rights expressly granted to the
holders of Preferred Stock, or any series thereof, by the Board of Directors of
the Corporation (the "Board of Directors"), pursuant to the authority hereby
vested in the Board of Directors or as provided by the laws of the State of
Oklahoma, the holders of the Corporation's Common Stock shall have exclusively
all rights of stockholders and shall possess exclusively all voting power. Each
holder of Common Stock of the Corporation shall be entitled, on each matter
submitted for a vote to holders of Common Stock, to one vote for each share of
Common Stock standing in such holder's name on the books of the Corporation.
Section 3. The Board of Directors is hereby expressly authorized, at any
time and from time to time by a resolution or resolutions, to divide the shares
of Preferred Stock into one or more series, to issue from time to time in whole
or in part the shares of Preferred Stock or the shares of any series thereof,
and to fix and determine in the resolution or resolutions providing for the
issue of shares of Preferred Stock of a particular series the voting rights, if
any, of the holders of shares of such series, the designations, preferences and
relative, participating, optional and other special rights of such series, and
the qualifications, limitations and restrictions thereof, to the fullest extent
now or hereafter permitted by the laws of the State of Oklahoma. The voting
rights, if any, of each such series and the preferences and relative,
participating, optional and other special rights of each such series, and the
qualifications, limitations and restrictions thereof, if any, may differ from
those of any and all other series. Unless otherwise provided in the resolution
or resolutions of the Board of Directors providing for the issuance thereof,
shares of any series of Preferred Stock that shall be issued and thereafter
acquired by the Corporation through purchase, redemption, exchange, conversion
or otherwise shall return to the status of authorized but unissued Preferred
Stock.
2
<PAGE>
Without limiting the generality of the foregoing authority of the Board of
Directors, the Board of Directors from time to time may (if otherwise
permitted under the Oklahoma General Corporation Act):
(a) designate a series of Preferred Stock, which may be distinguished by
number, letter or title from other Preferred Stock of the Corporation;
(b) fix and thereafter increase or decrease (but not below the number of
shares thereof then outstanding) the number of shares of Preferred Stock
that shall constitute such series;
(c) provide for dividends on shares of Preferred Stock of such series and,
if provisions are made for dividends, determine the dividend rate and the
times at which holders of shares of Preferred Stock of such series shall be
entitled to receive the dividends, whether the dividends shall be
cumulative and, if so, from what date or dates, and the other conditions,
if any, including rights of priority, if any, upon which the dividends
shall be paid;
(d) determine the rights, if any, to which holders of the shares of
Preferred Stock of such series shall be entitled in the event of any
liquidation, dissolution or winding up of the Corporation;
(e) provide for the redemption or purchase of shares of Preferred Stock of
such series and, if provisions are made for redemption, determine the time
or times and the price or prices at which the shares of Preferred Stock of
such series shall be subject to redemption in whole or in part, and the
other terms and conditions, if any, on which shares of Preferred Stock of
such series may be redeemed or purchased;
(f) provide for a sinking fund or purchase fund for the redemption or
purchase of shares of Preferred Stock of such series and, if any such fund
is so provided for the benefit of such shares of Preferred Stock, the
amount of such fund and the manner of its application;
(g) determine the extent of the voting rights, if any, of the shares of
Preferred Stock of such series, including but not limited to the right of
the holders of such shares to vote as a separate class acting alone or with
the holders of one or more other series of Preferred Stock and the right to
have more (or less) than one vote per share;
(h) provide whether or not the shares of Preferred Stock of such series
shall be convertible into, or exchangeable for, shares of any other class
or classes of capital stock, or any series thereof, of the Corporation and,
if so convertible or exchangeable, determine the conversion or exchange
price or rate, the adjustments thereof and the other terms and conditions,
if any, on which such shares of Preferred Stock shall be so convertible or
exchangeable; and
3
<PAGE>
(i) provide for any other preferences, any relative, participating,
optional or other special rights, any qualifications, limitations or
restrictions thereof, or any other terms or provisions of shares of
Preferred Stock of such series as the Board of Directors may deem
appropriate or desirable.
Section 4. Shares of Common Stock or Preferred Stock may be issued by the
Corporation from time to time for such consideration, having a value of not less
than the par value, if any, thereof, as is determined from time to time by the
Board of Directors. Any and all shares issued and for which full consideration
has been paid or delivered shall be deemed fully paid stock and the holder
thereof shall not be liable for any further payment thereon.
Section 5. The Corporation may issue rights and options to purchase shares
of Common Stock or Preferred Stock of the Corporation to directors, officers or
employees of the Corporation or any affiliate thereof, and no stockholder
approval or ratification of any such issuance of rights and options shall be
required.
ARTICLE VI
Board of Directors
------------------
Section 1. The powers of the Corporation shall be exercised by or under
the authority of, and the business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors. Subject to such
rights of holders of shares of one or more outstanding series of Preferred Stock
to elect one or more directors of the Corporation under circumstances as shall
be provided by or established pursuant to the Certificate of Incorporation, the
number of directors of the Corporation that shall constitute the Board of
Directors shall not be less than three (3) nor more than nine (9) and shall be
specified from time to time by resolution adopted by the affirmative vote of a
majority of the directors in office at the time of adoption of such resolution.
Whenever the holders of any one or more classes or series of Preferred Stock
issued by the Corporation shall have the right, voting separately by class or
series, to elect directors at an Annual or Special Meeting of Stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Certificate of
Incorporation, or the resolution or resolutions adopted by the Board of
Directors creating such class or series, as the case may be, applicable thereto,
and such directors so elected shall not be divided into classes pursuant to this
Article unless expressly provided by such terms.
Section 2. The Board of Directors shall be divided into 3 classes: Class
I, Class II and Class III. The terms of office of the directors initially
classified shall be as follows: that of Class I shall expire at the next annual
meeting of stockholders in 1999, Class II at the second succeeding annual
meeting of stockholders in 2000, and Class III at the third succeeding annual
meeting of the
4
<PAGE>
stockholders in 2001. At each succeeding annual meeting of stockholders,
successors to the class of directors whose terms expire at that annual meeting
shall be elected for three-year terms.
If the number of directors changes, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional director of any class
elected to fill a vacancy resulting from an increase in such class shall hold
office for a term that shall coincide with the remaining term of that class, but
in no case will a decrease in the number of directors shorten the term of any
incumbent director. A director shall hold office until the annual meeting for
the year in which his or her term expires and until his or her successor shall
be elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal for cause from office.
Section 3. Except as otherwise required by law, or by any provisions
established pursuant to the Certificate of Incorporation with respect to the
rights of holders of shares of one or more outstanding series of Preferred
Stock, newly created directorships resulting from any increase in the authorized
number of directors of the Corporation and any vacancies on the Board of
Directors resulting from death, resignation, retirement, disqualification or
removal for cause from office of a director of the Corporation shall be filled
only by the affirmative vote of at least a majority of the remaining directors
of the Corporation then in office, even if such remaining directors constitute
less than a quorum of the Board of Directors, or by the sole remaining director.
Section 4. Any director may be removed from office only for cause and only
by the affirmative vote of not less than 66 2/3% of the then-outstanding shares
of stock of the Corporation entitled to vote in the election of directors,
voting together as a single class, given at a meeting of the stockholders for
that purpose.
ARTICLE VII
Adoption, Amendment or Repeal of Bylaws
---------------------------------------
The Board of Directors of the Corporation is expressly authorized to adopt,
amend or repeal the Bylaws of the Corporation. The stockholders of the
Corporation may not adopt, amend or repeal the Bylaws of the Corporation other
than by the affirmative vote of 66 2/3% of the combined voting power of all
outstanding voting securities of the Corporation entitled to vote generally in
the election of directors of the Board of Directors of the Corporation ("Voting
Power"), voting together as a single class. In addition to any affirmative vote
required by applicable law and in addition to any vote of the holders of any
series of Preferred Stock provided for or fixed pursuant to the provisions of
Article V of this Certificate of Incorporation, any alteration, amendment or
repeal relating to this Article VII must be approved by the affirmative vote of
the holders of at least 66 2/3% of the Voting Power, voting together as a single
class.
5
<PAGE>
ARTICLE VIII
Action by Written Consent
-------------------------
No action that is required or permitted to be taken by the stockholders of
the Corporation at any annual or special meeting of stockholders may be effected
by written consent of stockholders in lieu of a meeting of stockholders, unless
the action to be effected by written consent of stockholders and the taking of
such action by such written consent have expressly been approved in advance by
the Board of Directors.
In addition to any affirmative vote required by applicable law and in
addition to any vote of the holders of any series of Preferred Stock provided
for or fixed pursuant to the provisions of Article V of this Certificate of
Incorporation, any alteration, amendment or repeal relating to this Article VIII
must be approved by the affirmative vote of the holders of at least 66 2/3% of
the Voting Power, voting together as a single class.
ARTICLE IX
Indemnification
---------------
Section 1. Any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that he is or was a
director or officer of the Corporation or, while a director or officer of the
Corporation, is or was serving at the request of the Corporation as a director
or officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified by the Corporation
(funds paid or required to be paid to any person as a result of the provisions
of this Article IX shall be returned to the Corporation or reduced, as the case
may be, to the extent that such person receives funds pursuant to an
indemnification from any such other corporation or organization) against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
the defense or settlement of such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Any
such person who could be indemnified pursuant to the preceding sentence except
for the fact that the subject action or suit is or was by or in the right of the
Corporation shall be indemnified by the Corporation against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit, except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and only to the
extent that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability
6
<PAGE>
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, hearing or other matter, whether civil, criminal,
administrative, arbitrative, or investigative, any appeal in such an action,
suit, hearing or other matter, and any inquiry or investigation that could lead
to such an action, suit, hearing or other matter.
Section 2. To the extent that a director or officer of the Corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1 of this Article IX, or in defense of any
claim, issue or matter therein, including the dismissal of an action without
prejudice, he shall be indemnified by the Corporation against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith without the necessity of any action being taken by the
Corporation other than the determination, in good faith, that such defense has
been successful. In all other cases wherein indemnification is provided by this
Article IX, unless ordered by a court, indemnification shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper under the circumstances
because he has met the applicable standard of conduct specified in this Article
IX. Such determination shall be made (a) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (b) if such a quorum is not obtainable, or, even if
obtainable, a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (c) by the holders of a majority of the shares
of capital stock of the Corporation entitled to vote thereon.
Section 3. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person seeking
indemnification did not act in good faith and in a manner which he reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful. Entry of a judgment by consent as part
of a settlement shall not be deemed a final adjudication of liability for
negligence or misconduct in the performance of duty, nor of any other issue or
matter.
Section 4. Expenses (including attorneys' fees) incurred by an officer or
director in defending any action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors in the specific case upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article IX.
Section 5. The indemnification and advancement of expenses hereby provided
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of
7
<PAGE>
expenses may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in an official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director or officer, and shall
inure to the benefit of the heirs, executors and administrators of such person.
Section 6. By action of the Board of Directors, notwithstanding any
interest of the directors in the action, the Corporation, at its expense, may
purchase and maintain insurance, in such amounts as the Board of Directors deems
appropriate, on behalf of any person who is or was a director or officer of the
Corporation, or, while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, employee or
agent (including trustee) of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article IX or under the provisions
of the Oklahoma General Corporation Act.
Section 7. All rights to indemnification and advancement of expenses under
this Article IX shall be deemed to be provided by contract between the
Corporation and the director or officer who serves in such capacity at any time
while this Article IX and other relevant provisions of the Oklahoma General
Corporation Act and other applicable law, if any, are in effect.
Section 8. Any repeal or modification of the foregoing paragraphs by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director or officer of the Corporation existing at the time of
such repeal or modification.
Section 9. The Corporation may additionally indemnify any employee or
agent of the Corporation to the fullest extent permitted by law.
ARTICLE X
Compromise or Arrangement by Corporation
----------------------------------------
with Creditors or Stockholders
------------------------------
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Oklahoma, on the application in a summary way of this Corporation
or of any creditor or stockholder thereof or on the application of any receiver
or receivers appointed for this Corporation under the provisions of Section 1106
of the Oklahoma General Corporation Act or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of Section 1100 of the Oklahoma General Corporation Act, may
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
to be summoned in
8
<PAGE>
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agrees to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all of the
creditors or class of creditors, and/or on all of the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
ARTICLE XI
Exculpatory Provisions
----------------------
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty to the Corporation 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 1053 of the Oklahoma General Corporation
Act, as the same exists at the time this Certificate of Incorporation becomes
effective or as the same hereafter may be amended, or (d) for any transaction
from which the director derived an improper personal benefit. If the Oklahoma
General Corporation Act is amended after the date of filing of this Certificate
of Incorporation to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
Corporation shall be limited to the fullest extent permitted by the amended
Oklahoma General Corporation Act. Any repeal or modification of this Article XI
by the stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation existing at the time of such repeal or modification.
ARTICLE XII
Amendment and Repeal
--------------------
The Corporation reserves the right to amend and repeal any provision
contained in this Certificate of Incorporation in the manner from time to time
prescribed by the laws of the State of Oklahoma. All rights herein conferred
are granted subject to this reservation.
9
<PAGE>
IN WITNESS WHEREOF, said Corporation has caused this certificate to be
signed by its President and attested by it Secretary this __ day of September,
1998.
________________________________________
Charles L. Smith, President
VERIFIED:
_____________________________
Quinton Hiebert, Secretary
[SEAL]
10
<PAGE>
EXHIBIT 3.2
AMENDED
AND
RESTATED
BYLAWS
OF
SUMMIT LIFE CORPORATION
DATED SEPTEMBER 21, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
Article I -- Offices
<S> <C>
Section 1 Registered Office............................................ 1
Section 2 Other Offices................................................ 1
Article II -- Stockholders
1
Section 1 Annual Meeting............................................... 1
Section 2 Special Meetings............................................. 1
Section 3 Notice of Meetings........................................... 2
Section 4 List of Stockholders......................................... 2
Section 5 Quorum....................................................... 2
Section 6 Organization................................................. 3
Section 7 Order of Business and Procedure.............................. 3
Section 8 Voting....................................................... 3
Section 9 Inspectors................................................... 3
Section 10 Proxies...................................................... 4
Section 11 No Action by Consent......................................... 4
Section 12 Advance Notice of Stockholders' Proposals
Article III -- Directors
5
Section 1 General Powers of Board...................................... 6
Section 2 Number of Directors and Term of Office....................... 6
Section 3 Election of Directors........................................ 6
Section 4 Nominations of Directors..................................... 6
Section 5 Chairman of the Board........................................ 6
Section 6 Resignations................................................. 7
Section 7 Vacancies.................................................... 7
Section 8 Removal of Directors......................................... 7
Section 9 Regular Meetings............................................. 7
Section 10 Special Meetings............................................. 7
Section 11 Notice....................................................... 8
Section 12 Quorum and Organization of Meetings.......................... 8
Section 13 Action by Unanimous Consent.................................. 8
Section 14 Telephonic Participation..................................... 8
Section 15 Committees of Directors...................................... 9
Section 16 Minutes of Committee Meetings................................ 9
Section 17 Compensation of Directors.................................... 9
</TABLE>
i
<PAGE>
TABLE OF CONTENTS (continued)
<TABLE>
<CAPTION>
Article IV -- Notices
<S> <C>
Section 1 Method..................................................... 9
Section 2 Waiver..................................................... 9
Article V -- Officers
Section 1 Election................................................... 10
Section 2 President.................................................. 10
Section 3 Vice Presidents............................................ 10
Section 4 Treasurer.................................................. 10
Section 5 Secretary.................................................. 11
Section 6 Other Officers............................................. 11
Section 7 Compensation............................................... 11
Article VI -- Capital Stock
Section 1 Certificates............................................... 11
Section 2 Facsimile Signatures....................................... 12
Section 3 Transfer Agents and Registrars............................. 12
Section 4 Lost Certificates.......................................... 12
Section 5 Transfer of Shares......................................... 12
Section 6 Fixing Record Date......................................... 13
Section 7 Registered Stockholders.................................... 13
Article VII -- General Provisions
Section 1 Dividends.................................................. 13
Section 2 Reserves................................................... 13
Section 3 Checks..................................................... 14
Section 4 Execution of Proxies....................................... 14
Article VIII -- Amendments
Section 1 Amendments................................................. 14
</TABLE>
ii
<PAGE>
BYLAWS
OF
SUMMIT LIFE CORPORATION
("hereinafter called the Corporation")
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of the Corporation
shall be in the State of Oklahoma, address: 3021 Epperly, Del City, Oklahoma
73115.
SECTION 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Oklahoma as the Board of
Directors may from time to time determine as the business of the Corporation may
require. The corporate headquarters of the Corporation shall be in Del City,
Oklahoma.
ARTICLE II
STOCKHOLDERS
SECTION 1. Annual Meeting. An annual meeting of stockholders for the
purpose of electing directors and of transacting such other business as may come
before it shall be held each year at such date, time, and place, either within
or without the State of Oklahoma, as may be specified by the Board of Directors.
SECTION 2. Special Meetings. Unless otherwise proscribed by law, special
meetings of stockholders for any purpose or purposes may be held at any time
only upon call of a majority of the Board of Directors, at such time and place
either within or without the State of Oklahoma as may be stated in the notice
(as described herein at Section 3 of this Article II).
SECTION 3. Notice of Meetings. (a) Unless waived, a notice of each
annual or special meeting, stating the date, hour and place and the purpose or
purposes for which the meeting is called, shall be given to each stockholder of
record entitled to vote or entitled to notice, not more than sixty (60) days nor
less than ten (10) days before the date of any such meeting, unless a different
period is prescribed by law. If mailed, such notice shall be directed to a
stockholder at his or her address as the same appears on the records of the
Corporation. If a meeting is adjourned to another time or place and such
adjournment is for 30 days or less and no new record date is fixed for the
adjourned meeting, no further notice as to such adjourned meeting need be given
if the time and place to which it is adjourned are fixed and announced at such
meeting. In the event of a transfer of shares after notice has been given and
prior to the holding of the meeting, it shall not be necessary to serve notice
on the transferee. If the adjournment is for more than 30 days or, after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
(b) A written waiver of any such notice signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute
a waiver of notice of such meeting, except when the person attends the
meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
<PAGE>
SECTION 4. List of Stockholders. The officer who has charge of the stock
ledger of the Corporation shall prepare and make available, at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
SECTION 5. Quorum. Except as otherwise provided by law or in the
Certificate of Incorporation or these Bylaws, at any meeting of stockholders,
the holders of a majority of shares issued and outstanding of each class
entitled to vote, shall be present or represented by proxy in order to
constitute a quorum for the transaction of business. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, a
majority in voting interest of the stockholders present in person or represented
by proxy, or, in the absence of a decision by the majority, any officer entitled
to preside at such meeting, shall have power to adjourn the meeting from time to
time, without notice other than an announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present or represented.
At any such adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
SECTION 6. Organization. The Chairman of the Board, if any, or, in his
absence, the Vice Chairman, if any, or, in their absence, the President, shall
call to order meetings of stockholders and shall act as Chairman of such
meetings. The Board of Directors or, if the Board fails to act, the
stockholders may appoint any stockholder, director, or officer of the
Corporation to act as Chairman of any meeting in the absence of the Chairman of
the Board, the Vice Chairman, and the President. The Secretary of the
Corporation, or, if the Secretary of the Corporation not be present, the
Assistant Secretary, or if the Secretary and the Assistant Secretary not be
present, any person whom the Chairman of the meeting shall appoint, shall act as
Secretary of the meeting.
SECTION 7. Order of Business and Procedure. The order of business at all
meetings of the stockholder and all matters relating to the manner of conducting
the meeting shall be determined by the Chairman of the meeting. Meetings shall
be conducted in a manner designed to accomplish the business of the meeting in a
prompt and orderly fashion and to be fair and equitable to all stockholders, but
it shall not be necessary to follow any manual of parliamentary procedure.
SECTION 8. Voting. Except for the election of directors, at any meeting
duly called and held at which a quorum is present, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any questions brought before such meeting, unless the
question is one upon which by express provision of law or of the Certificate of
Incorporation or these Bylaws, a greater vote is required, in which case such
express provision shall govern and control the decision of such question. At
any meeting duly called and held for the election of directors at which a quorum
is present,
2
<PAGE>
directors shall be elected by a plurality of the votes cast by the
holders (acting as such) of shares of stock of the Corporation entitled to elect
such directors.
SECTION 9. Inspectors. The Board of Directors in advance of any
stockholders? meeting may appoint one or more inspectors to act at the meeting
or any adjournment thereof. If inspectors are not so appointed, the person
presiding at a stockholders? meeting may, and on the request of any stockholder
entitled to vote thereat shall, appoint one or more inspectors. In case any
person appointed as inspector fails to appear or act, the vacancy may be filled
by the Board of Directors in advance of the meeting or at the meeting by the
persons present thereat. Each inspector, before entering upon the discharge of
his duties, shall take and sign an oath faithfully to discharge the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability.
SECTION 10. Proxies. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall, at every meeting of the stockholders, be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
SECTION 11. No Action by Consent. No action that is required or permitted
to be taken by stockholders of the Corporation at any annual or special meeting
of stockholders may be effected by written consent of stockholder in lieu of a
meeting of stockholders, unless the action to be effected by written consent of
stockholders and the taking of such action by such written consent have
expressly been approved in advance by the Board of Directors. Except as
otherwise provided herein, no action shall be taken by stockholders except at an
annual or special meeting of stockholders.
SECTION 12. Advance Notice of Stockholders? Proposals. (a) At an annual or
special meeting of the stockholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before a meeting, business must be (i) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Board of Directors,
(ii) brought before the meeting by or at the direction of the Board of
Directors, (iii) properly brought before an annual meeting by a stockholder or
(iv) if, and only if, the notice of a special meeting provides for business to
be brought before the meeting by stockholders, properly brought before the
meeting by a stockholder. For business to be properly brought before the meeting
by a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed by first class United States mail, postage
prepaid, and received at the principal executive offices of the Corporation not
less than forty (40) days prior to the meeting; provided, however, that in the
event less than forty-five (45) days? notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received no later than the fifth day following the day
on which such notice of the date of the meeting was mailed or such disclosure
was made, but not less than five (5) days prior to the meeting.
(b) A stockholder's notice to submit business to a meeting of
stockholders shall set forth (i) the name and address, as they appear on
the Corporation's books, of the stockholder proposing such business, (ii)
the class and number of shares of the Corporation which are beneficially
owned by the stockholder, (iii) a representation that the stockholder
intends to appear at the meeting in person or by proxy to submit the
business specified in such notice, (iv) any material interest of the
stockholder in such business, and (v) a brief description of the business
desired to be brought before the meeting
3
<PAGE>
and the reasons for conducting such business at the meeting, including the
complete text of any resolutions to be presented at the annual meeting, and
the reasons for conducting such business at the meeting. In addition, the
stockholder making such proposal shall promptly provide any other
information reasonably requested by the Corporation. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at
a meeting except in accordance with the procedures set forth in this
Section 12. The Chairman of a meeting shall, if the facts warrant,
determine that business was not properly brought before the meeting and in
accordance with the provisions of this Section 12, and, if he should so
determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
(c) In addition to the information required above to be given by a
stockholder who intends to submit business to a meeting of stockholders, if
the business to be submitted is the nomination of a person or persons for
election to the Board of Directors then such stockholder's notice must also
set forth, as to each person whom the stockholder proposes to nominate for
election as a director, (i) the name, age, business address and, if known,
residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of stock of
the Corporation which are beneficially owned by such person, (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors or is otherwise required
by the rules and regulations of the Securities and Exchange Commission
promulgated under the Securities Exchange Act of 1934, as amended, (v) the
written consent of such person to be named in the proxy statement as a
nominee and to serve as a director if elected and (vi) a description of all
arrangements or understandings between such stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by such stockholder.
Nominations, other than those made by the Board of Directors or its
designated committee, must comply with the procedures set forth in this
Section 12, and no person nominated by a stockholder shall be eligible for
election as a director unless nominated in accordance with the terms of
this Section 12. The Chairman of a meeting shall, if the facts warrant,
determine that a nomination was not properly made in accordance with the
foregoing procedures of this Section 12, and, if he should so determine, he
shall so declare to the meeting and the defective nomination disregarded.
(d) Notwithstanding the foregoing provisions of this Section 12, a
stockholder who seeks to have any proposal included in the corporation's
proxy statement shall comply with the requirements of Regulation 14A under
the Securities Exchange Act of 1934, as amended.
ARTICLE III
DIRECTORS
SECTION 1. General Powers of Board. The business of the Corporation shall
be managed by or under the direction of its Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
SECTION 2. Number of Directors and Term of Office. The Board of Directors
shall consist of at least three (3) and not more than nine (9) directors;
provided, however, that the Board of Directors, by
4
<PAGE>
resolution adopted by vote of a majority of the then authorized number of
directors, may increase or decrease the number of directors within such minimum
and maximum limitations. The Board of Directors shall be divided into three
classes, as nearly equal in number as reasonably possible, with the terms of
office of the first class to expire at the 1999 annual meeting of stockholders,
the term of office of the second class to expire at the 2000 annual meeting of
stockholders and the term of office of the third class to expire at the 2001
annual meeting of stockholders. At each annual meeting of stockholder following
such initial classification and election, directors elected to succeed those
directors whose terms expire shall be elected for a term of office to expire at
the third succeeding annual meeting of stockholders after their election.
Directors need not be stockholders nor residents of the United States or the
State of Oklahoma.
SECTION 3. Election of Directors. The directors shall be elected by the
holders of shares entitled to vote thereon at the annual meeting of
stockholders, and each shall serve as provided herein and until his respective
successor has been elected and qualified. At each meeting of the stockholders
for the election of directors, the persons receiving the greatest number of
votes shall be the directors.
SECTION 4. Nominations of Directors. Nomination of persons for election to
the Board of Directors may be made by the Board of Directors, or any committee
designated by the Board of Directors, or by any stockholder entitled to vote for
the election of directors at the applicable meeting of stockholders. Such
nominations, if not made by the Board of Directors, shall be made by timely
notice in writing to the Secretary of the Corporation and comply with the
provisions of Article II, Section 12, herein.
SECTION 5. Chairman of the Board. The Board of Directors may elect one of
their members to be Chairman of the Board. The Chairman of the Board shall be
subject to the control of and may be removed by the Board of Directors. If he
is present, the Chairman of the Board shall preside at all meetings of the Board
of Directors and of the stockholders, and he shall have and perform such other
duties as from time to time may be assigned to him by the Board of Directors.
SECTION 6. Resignations. Any director of the Corporation may resign at
any time by giving written notice to the Chairman of the Board, if any, or the
Secretary of the Corporation. Such resignation shall take effect at the time
specified therein, and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 7. Vacancies. In the event that any vacancy shall occur in the
Board of Directors, whether because of death, resignation, removal, newly
created directorships resulting from any increase in the authorized number of
directors, the failure of the stockholders to elect the whole authorized number
of directors, or any other reason, such vacancy may be filled by the vote of a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next annual election or until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute.
SECTION 8. Removal of Directors. Unless the director's term is expiring,
a director may be removed at any annual or special stockholders' meeting only
for cause and shall receive a copy of the charges against him, delivered to him
personally or by mail at his last known address at least ten (10) days prior to
the date of the stockholders' meeting.
5
<PAGE>
SECTION 9. Regular Meetings. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Oklahoma. Regular meetings of the Board of Directors may be held at such
time and at such place as shall from time to time be determined by the Board of
Directors. After such determination and notice thereof has been once given to
each person then a member of the Board of Directors, regular meetings may be
held at such intervals and time and place without further notice being given.
SECTION 10. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President or by a majority of
directors then in office and shall be held at such time and place as shall be
designated in the notice of the meeting.
SECTION 11. Notice. Notice of each special meeting or, where required,
each regular meeting, of the Board of Directors shall be given to each director
either by being mailed on at least the third day prior to the date of the
meeting or by being telegraphed, faxed or given personally or by telephone on at
least 24 hours notice prior to the date of meeting. Such notice shall specify
the place, date and hour of the meeting and, if it is for a special meeting, the
purpose or purposes for which the meeting is called. At any meeting of the Board
of Directors at which every director shall be present, even though without such
notice, any business may be transacted. Any acts or proceedings taken at a
meeting of the Board of Directors not validly called or constituted may be made
valid and fully effective by ratification at a subsequent meeting which shall be
legally and validly called or constituted. Notice of any regular meeting of the
Board of Directors need not state the purpose of the meeting and, at any regular
meeting duly held, any business may be transacted. If the notice of a special
meeting shall state as a purpose of the meeting the transaction of any business
that may come before the meeting, then at the meeting any business may be
transacted, whether or not referred to in the notice thereof. A written waiver
of notice of a special or regular meeting, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed the equivalent of such notice, and attendance of a director at a
meeting shall constitute a waiver of notice of such meeting except when the
director attends the meeting and prior to or at the commencement of such meeting
protests the lack of proper notice.
SECTION 12. Quorum and Organization of Meetings. At all meetings of the
Board of Directors, a majority shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specially provided by statute or by the Certificate of
Incorporation. If a quorum shall not be present at the meeting of the Board of
Directors, a majority of the directors present may adjourn the meeting to
another time and place, and the meeting may be held as adjourned without further
notice or waiver other than an announcement at the meeting, until a quorum shall
be present. Meetings shall be presided over by the Chairman of the Board, if
any, or, in his absence, by the Vice Chairman, if any, or, in the absence of
both, the President. The Secretary of the Corporation shall act as secretary of
the meeting, but, in his absence, the Chairman of the meeting may appoint any
person to act as secretary of the meeting.
SECTION 13. Action by Unanimous Consent. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting, if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors or committee.
6
<PAGE>
SECTION 14. Telephonic Participation. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors
may participate in a meeting of the Board of Directors, or any committee, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
SECTION 15. Committees of Directors. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the power or authority of the Board of Directors
in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders a dissolution of the Corporation
or a revocation of a dissolution, or amending the Bylaws of the Corporation;
and, unless the resolution or the Certificate of Incorporation expressly so
provides, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors.
SECTION 16. Minutes of Committee Meetings. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
SECTION 17. Compensation of Directors. No stated salary shall be paid
directors as such for their services. However, by resolution of the Board of
Directors, a fixed sum may be allowed for annual service and a sum may be
allowed for attendance at regular or special meetings of the Board of Directors;
provided, however, that nothing herein contained shall be construed to preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor. The Corporation may reimburse directors for out-of-
pocket expenses for attendance at regular or special meetings of the Board of
Directors.
ARTICLE IV
NOTICES
SECTION 1. Method. Whenever, unless the provisions of any statutes or of
the Certificate of Incorporation or of these Bylaws provide otherwise, notice is
required to be given to any director or stockholder, it shall be construed to
mean personal notice, but such notice may be given in writing, by mail,
addressed to such director or stockholder, at his address as it appears on the
records of the Corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail or delivered to the custody of a commercial courier service. Notice
to directors may also be given by telephone or facsimile.
7
<PAGE>
SECTION 2. Waiver. Whenever any notice is required to be given under the
provisions of any statute or of the Certificate of Incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
SECTION 1. Election. The officers of the Corporation shall be chosen by
the Board of Directors. Each officer shall hold office for such term as may be
prescribed by the Board of Directors from time to time. It shall not be
necessary for any officer to be a director, and any number of offices may be
held by the same person.
SECTION 2. President. The President shall be the chief executive officer
of the Corporation, unless the Board of Directors elects another person to serve
as chief executive officer. The President shall preside at all meetings of the
stockholders and the Board of Directors (unless the Chairman of the Board shall
attend such meeting, in which event the Chairman of the Board shall preside),
shall have general and active management of the business of the Corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. He shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the Corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the Corporation.
SECTION 3. Vice Presidents. In the absence of the President or in the
event of his inability or refusal to act, the Vice President, if any (or in the
event there be more than one Vice President, the Vice Presidents in the order
designated by the Board of Directors, or in the absence of any designation, then
in the order of their election), shall perform the duties of the President and,
when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. The Vice Presidents shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
SECTION 4. Treasurer. The Treasurer shall be the chief financial officer
of the corporation, unless the Board of Directors elects another person to serve
as chief financial officer. The Treasurer shall have the custody of the
corporate funds and securities, shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all monies and other valuable effects in the same and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and the Board of Directors, at its regular meetings, or
when the Board of Directors so requires, an account of all his transactions as
treasurer and of the financial condition of the Corporation. If required by the
Board of Directors, he shall give the Corporation a bond (which shall be renewed
every six years) in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
8
<PAGE>
SECTION 5. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and meetings of the Board of Directors,
where required by these Bylaws or the Certificate of Incorporation, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the Corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature.
SECTION 6. Other Officers. The Board of Directors may elect to appoint
such other officers as is may deem necessary or desirable (for example, chief
operating officer, controller, assistant treasurer, assistant secretary).
Should the Board of Directors elect to appoint such positions, it shall also
define the rights, duties and obligations inherent to such positions
SECTION 7. Compensation. The salaries and other compensation of all
officers of the Corporation shall be fixed by the Board of Directors.
ARTICLE VI
CAPITAL STOCK
SECTION 1. Certificates. Every holder of stock in the Corporation shall
be entitled to have a certificate signed in the name of the Corporation by the
Chairman or Vice-Chairman of the Board of Directors, or the President, or a Vice
President and the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of shares owned by
him in the Corporation. If the Corporation shall be authorized to issue more
than one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, option or other special
rights of each class of stock or series thereof and the qualification,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificates which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided under the General Corporation Law of
Oklahoma, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock, a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
SECTION 2. Facsimile Signatures. The signatures of the officers upon the
certificate may be facsimiles if the certificate is countersigned by a Transfer
Agent or registered by a registrar other than the Corporation or its employee.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
9
<PAGE>
SECTION 3. Transfer Agents and Registrars. The Board of Directors may, in
its discretion, appoint one or more banks or trust companies in such city or
cities as the Board of Directors may deem advisable, from time to time, to act
as Transfer Agents and Registrars of the shares of stock of the Corporation;
and, upon such appointments being made, no certificate representing shares shall
be valid until countersigned by one of such Transfer Agents and registered by
one of such Registrars.
SECTION 4. Lost Certificates. In case any certificate representing shares
shall be lost, stolen or destroyed, the Board of Directors, or any officer or
officers authorized by the Board of Directors, may authorize the issue of a
substitute certificate in place of the certificate so lost, stolen or destroyed,
and, if the Corporation shall have a Transfer Agent and Registrar, may cause or
authorize such substitute certificate to be countersigned by the appropriate
Transfer Agent and registered by the appropriate Registrar. In each such case,
the applicant for a substitute certificate shall furnish to the Corporation and
to such of its Transfer Agents and Registrars as may require the same, evidence
to their satisfaction, in their discretion, of the loss, theft or destruction of
such certificate and of the ownership thereof, and also such security or
indemnity as may by them be required.
SECTION 5. Transfer of Shares. Transfers of shares shall be made on the
books of the Corporation only (i) by the person named in the certificate or by
his attorney lawfully constituted in writing, (ii) upon surrender and
cancellation of a certificate or certificates of a like number of shares, with
duly executed assignment and power of transfer endorsed thereon or attached
thereto, and (iii) with such proof of the authenticity of the signatures as the
Corporation or its agents may reasonably require. Upon the surrender to the
Corporation or the transfer agent of the Corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignation, or
authority to transfer, it shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
SECTION 6. Fixing Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or to receive payment of any dividend or
other distribution or allotment of any rights, or to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new date for the adjourned
meeting.
SECTION 7. Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares (a) to receive dividends, (b) to vote as such owner, and (c) to be
held liable for calls and assessments. The Corporation shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the law.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors as and when
10
<PAGE>
they deem expedient at any regular or special meeting, out of funds legally
available thereof pursuant to law. Dividends may be paid in cash, in property,
or in shares of the Corporation's capital stock, subject to the provisions of
the Certificate of Incorporation.
SECTION 2. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meeting contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
SECTION 3. Checks. All checks or demands for money, notes or other
evidence of indebtedness of the Corporation shall be signed by such officer or
officers or such other person or persons as the Board of Directors may from time
to time designate by resolution.
SECTION 4. Execution of Proxies. The Chairman of the Board or the
President, or in the absence or disability of the Chairman of the Board and the
President, a Vice President, may authorize from time to time the signature and
issuance of proxies to vote upon shares of stock of other corporations standing
in the name of the Corporation or authorize the execution of consents to action
taken or to be taken by such other corporation. All such proxies and consents
shall be signed in the name of the Corporation by the Chairman of the Board or
the President or a Vice President and by the Secretary or an Assistant
Secretary.
ARTICLE VIII
AMENDMENTS
SECTION 1. Amendments. These Bylaws may be altered, amended or repealed,
and new Bylaws may be adopted by the Board of Directors. The stockholders of
the Corporation may not adopt, amend or repeal these Bylaws other than by the
affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the combined
voting power of all outstanding voting securities of the Corporation entitled to
vote generally in the election of directors of the Board of Directors of the
Corporation, voting together as a single class.
The undersigned, the Chairman of the Board of Directors of Summit Life
Corporation, a Oklahoma corporation, hereby certifies the foregoing to be a true
and complete copy of the Bylaws of such corporation.
DATED: September 21, 1998
------------------------------------
James L. Smith, Chairman
Verified:
_________________________
Secretary
11
<PAGE>
CERTIFICATE OF ADOPTION
OF
BYLAWS
OF
SUMMIT LIFE CORPORATION
The undersigned, being the Board of Directors of Summit Life Corporation,
hereby certify that the foregoing Bylaws were adopted on the 21st day of
September, 1998, by unanimous written consent.
CHAIRMAN OF THE BOARD:
----------------------
JAMES L. SMITH
<PAGE>
EXHIBIT 5.1
[Letterhead of Day, Edwards, Federman, Propester & Christensen, P.C.]
DRAFT
September 30, 1998
Summit Life Corporation
3021 Epperly Dr.
P.O. Box 15808
Oklahoma City, Oklahoma 73155
Re: Summit Life Corporation
Registration Statement on Form SB-2
Gentlemen:
We have acted as counsel to Summit Life Corporation (the "Company") in
connection with the registration under the Securities Act of 1933, as amended
(the "Act"), of an aggregate of 1,000,000 shares (the "Shares") of the Company's
common stock, par value $0.01 per share (the "Common Stock"), to be sold by the
Company upon the terms and subject to the conditions set forth in the Company's
registration statement on Form SB-2, File No. 333- (the
"Registration Statement").
In connection therewith, we have examined copies of the Company's Amended
and Restated Certificate of Incorporation, Amended and Restated Bylaws, the
corporate proceedings with respect to the offering of shares, and such other
documents and instruments as we have deemed necessary or appropriate for the
expression of the opinions contained herein. In such examination, we have
assumed the genuineness of all signatures, the authenticity and completeness of
all documents submitted to us as originals, the conformity to the original
documents of all documents submitted to us as copies and the correctness of all
statements of fact contained in such documents.
Based on the foregoing, and having regard for such legal considerations as
we have deemed relevant, we are of the opinion that the Shares to be sold by
means of the Registration Statement, when sold in accordance with the terms and
conditions set forth in the Registration Statement, will be duly and validly
issued, fully paid and nonassessable.
We are members of the Bar of the State of Oklahoma and we express no
opinion as to the laws of any jurisdiction other than the laws of the State of
Oklahoma and the federal laws of the United States of America. This opinion is
for the benefit of the Company and this opinion may not be relied upon in any
manner whatsoever by any other person or entity.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus included as part of the Registration Statement.
Very truly yours,
DAY, EDWARDS, FEDERMAN, PROPESTER & CHRISTENSEN, P.C.
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
--------------------
This Agreement made as of this 1st day of April, 1997, by and between JAMES
L. SMITH, residing in the City of Midwest City, State of Oklahoma, herein
referred to as "Employee" and SUMMIT LIFE CORPORATION, an Oklahoma corporation,
or its successors, organized and existing under the laws of the State of
Oklahoma, with its principal place of business located in Del City, Oklahoma,
herein referred to as "SUMMIT LIFE CORPORATION' or "Company" in consideration of
the mutual covenants and conditions contained herein SUMMIT LIFE CORPORATION and
Employee agree as follows:
1. Employment. SUMMIT LIFE CORPORATION hereby employs Employee in an
----------
executive capacity as its President, Corporate Development and Marketing, and
Employee accepts such employment with SUMMIT LIFE CORPORATION., subject to the
terms and conditions of this Agreement.
2. Term of Employment. This Agreement and the employment hereunder shall
------------------
be for an initial term of six (6) years and shall commence on the 1st day of
April, 1997, and continue until the end of the 2003 fiscal period of SUMMIT LIFE
CORPORATION ending after the date of this Agreement, or as otherwise terminated
herein.
3. Duties of Employee. Employee will serve SUMMIT LIFE CORPORATION
------------------
faithfully as its President (P) and such other duties as shall be assigned to
him by the Board of Directors on behalf of the Company and/or its affiliates,
and to the best of his ability under direction of and subject to the Board of
Directors of SUMMIT LIFE CORPORATION Employee will devote all of his time,
energy and skill during regular business hours to such employment. Further,
during said employment timespan, the Majority Shareholders and Directors of
SUMMIT LIFE CORPORATION agree that Employee will be a full member of the Board
of Directors of SUMMIT LIFE CORPORATION during the initial term hereof and any
renewal or extension term.
4. Compensation
------------
(a) Base Salary. Employee's initial base salary shall be at the rate
------------
of Twelve Thousand Dollars ($12,000.00) per year from the 1st day of April,
1997, and ending upon termination of this Agreement, unless sooner amended,
modified or extended and paid in accordance with normal Company payment
policies.
(b) Notwithstanding Employee's current salary level, Employee shall
be entitled, at Employee's discretion from time to time, subject to Board of
Directors approval, to an increase in annual base salary compensation, not to
exceed One Hundred Fifty Thousand Dollars ($150,000) annually.
<PAGE>
(c) In the event of a substantial reduction in Employee's present
level of responsibility, Employee may elect to treat such reduction as a
termination by SUMMIT LIFE CORPORATION under Paragraph 9(c) of this Agreement.
Any termination pursuant to Paragraph 9(c ) shall obligate the Company
to continue to pay Employee the salary described herein for the balance of the
term of this Agreement.
Notwithstanding any termination pursuant to Paragraph 9(c ), if
employee will remain an employee for the purpose of the benefits provided herein
under Paragraph 7 hereof for the remaining term. of this Agreement. If Employee
is not vested at the end of the term of this Agreement, Employee shall receive a
cash payment in the amount of the actuarial equivalent of Employee's personal
benefits accrued to end of the term of this Agreement.
(d) Car Allowance. Company shall provide Employee with a company car
-------------
and shall be responsible for the payment of all expenses and upkeep, including
insurance and gas.
(e ) Bonus. In addition to the compensation as set forth in paragraph
-----
(a) and (b) above, Employee shall he paid an annual bonus no later than the
fifteenth day of the 2nd month following the end of a year. (Commencing with the
year ending December 31, 1997.)
(f) Stock Option. Employee shall have the right to purchase, at any
------------
time during the first three (3) years of employment, additional shares of Class
A Company stock at the option price of $5.00 per share so that at the time of
exercise of such option, by written notice to SUMMIT LIFE CORPORATION, the
difference between the option price and market price for all but not less than
all shares subject to the option shall not be less than Five Thousand Dollars
($5,000).
(g) Employer will also, during the term of this Agreement, procure,
maintain and pay for Employee a life insurance policy in the face amount of
$100,000.00.
- -----------
5. Reimbursement for Expenses. SUMMIT LIFE CORPORATION shall reimburse
--------------------------
Employee for reasonable out of pocket expenses which Employee shall incur in
connection with his services for SUMMIT LIFE CORPORATION contemplated hereby on
presentation by Employee of appropriate vouchers therefore to SUMMIT LIFE
CORPORATION.
6. Employee Serves as Director. Employee shall during the term hereof,
---------------------------
serve as a Director of SUMMIT LIFE CORPORATION or any parent, subsidiary or
corporation affiliated
2
<PAGE>
with SUMMIT LIFE CORPORATION. Employee shall receive the same compensation paid
to other directors of such Company for their services as directors.
7. Fringe Benefits. Employee shall be entitled to participate with other
---------------
employees of SUMMIT LIFE CORPORATION in all fringe benefits or incentive
compensation plans that may be authorized and adopted from time to time by
SUMMIT LIFE CORPORATION, including, without limitation, the following: a
pension or profit sharing plan, medical reimbursement plan, group life insurance
plan, disability income plan, group health plan. However, Employee shall, upon
execution of this Agreement, be entitled to same medical and dental coverage for
Employee and his immediate dependents as is given to the other top corporate
officers.
8. Vacations. On the condition that Employee shall faithfully keep and
---------
perform all of the obligations to be performed under the terms of this
Employment Agreement, Employee shall be entitled to a paid vacation of four (4)
weeks each year.
9. Termination. This Agreement and the obligations of the parties
-----------
hereunder as follows:
(a) By mutual agreement of the parties consented to in writing and
signed by both SUMMIT LIFE CORPORATION and Employee.
(b) By expiration of the term as set forth in Paragraph 2, unless
extended or modified in writing and signed by both SUMMIT LIFE CORPORATION and
Employee.
(c) By termination without cause, at the sole discretion of SUMMIT
LIFE CORPORATION.
(d) By termination with cause as determined by SUMMIT LIFE
CORPORATION and subject to the provisions of subparagraph (i) to this Paragraph
(d).
(i) For purposes of this paragraph, "cause" shall mean the
final conviction of any felony or the final conviction of any
crime of moral turpitude.
10. Compensation to Employee Upon Termination.
-----------------------------------------
(a) If this Employment Agreement is terminated for cause as set forth
above, SUMMIT LIFE CORPORATION shall provide a severance payment to Employee of
Fifty
3
<PAGE>
Thousand Dollars ($50,000) within thirty (30) days of termination.
(b) If this Employment Agreement is terminated without cause as
provided above, SUMMIT LIFE CORPORATION shall provide a severance payment to
Employee in an amount equal to the difference between greatest base salary
compensation payable to date of severance and the balance of the greatest base
salary due Employee under this Agreement for the balance of the term of the
Agreement, but not less than three (3) years compensation [paragraph 4(b)]
together with any accrued but unpaid bonus. As of the date of severance, all
other benefits due Employee shall terminate subject to settlement of any accrued
benefits due Employee.
(c) If Employee shall fail or be unable to perform the services
required hereunder, because of any physical or mental infirmity, and such
failure or inability shall continue for four (4) consecutive months, or for six
(6) months during any twelve (12) consecutive month period, SUMMIT LIFE
CORPORATION shall have the right to terminate this Agreement thirty (30) days
after delivering written notice thereof to Employee; provided, however, that
Employee shall continue to receive his full compensation hereunder to the date
of termination, notwithstanding any such infirmity.
11. Modification. This Agreement shall not be amended or modified except
------------
by an agreement in writing signed by both of the parties hereto.
12. Binding Effect. This Agreement shall be binding upon the parties
--------------
hereto, their successors, assigns, heirs and administrators.
13. Governing Law. This Agreement shall be governed and construed
-------------
according to the laws of the State of Oklahoma.
SUMMIT LIFE CORPORATION
BY: _______________________________
Vice President
"EMPLOYEE"
___________________________________
4
<PAGE>
State of Oklahoma
County of Oklahoma
Subscribed and sworn to before me this _____ day of ____________, 199___.
_________________________________
Notary Public
My Commission Expires: ______________________ SEAL
5
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
--------------------
This Agreement made as of this 1st day of April, 1997, by and between
CHARLES L. SMITH, residing in the City of Oklahoma City, State of Oklahoma,
herein referred to as "Employee" and SUMMIT LIFE CORPORATION, an Oklahoma
corporation, or its successors, organized and existing under the laws of the
State of Oklahoma, with its principal place of business located in Del City,
Oklahoma, herein referred to as "SUMMIT LIFE CORPORATION" or "Company."
In consideration of the mutual covenants and conditions contained herein
SUMMIT LIFE CORPORATION and Employee agree as follows:
1. Employment. SUMMIT LIFE CORPORATION hereby employs Employee in an
----------
executive capacity as its Executive Vice President, Corporate Development and
Marketing, and Employee accepts such employment with SUMMIT LIFE CORPORATION,
subject to the terms and conditions of this Agreement.
2. Term of Employment. This Agreement and the employment hereunder shall
------------------
be for an initial term of six (6) years and shall commence on the 1st day of
April, 1997, and continue until the end of the 2003 fiscal period of SUMMIT LIFE
CORPORATION ending after the date of this Agreement, or as otherwise terminated
herein.
3. Duties of Employee. Employee will serve SUMMIT LIFE CORPORATION
------------------
faithfully as its Executive Vice President (EVP) and such other duties as shall
be assigned to him by the Board of Directors on behalf of the Company and/or its
affiliates, and to the best of his ability under direction of and subject to the
Board of Directors of SUMMIT LIFE CORPORATION Employee will devote all of his
time, energy and skill during regular business hours to such employment.
Further, during said employment timespan, the Majority Shareholders and
Directors of SUMMIT LIFE CORPORATION agree that Employee will be a full member
of the Board of Directors of SUMMIT LIFE CORPORATION during the initial term
hereof and any renewal or extension term.
4. Compensation.
-------------
(a) Base Salary. Employee's initial base salary shall be at the rate
-----------
of Forty-eight Thousand Dollars ($48,000.00) per year from the 1st day of April,
1997, and ending upon termination of this Agreement, unless sooner amended,
modified or extended and paid in accordance with normal Company payment
policies.
(b) Notwithstanding Employee's current salary level, Employee shall
be entitled,
<PAGE>
at Employee's discretion from time to time, subject to Board of Directors
approval, to an increase in annual base salary compensation, not to exceed One-
Hundred Twenty Thousand Dollars ($120,000) annually.
(c) In the event of a substantial reduction in Employee's present
level of responsibility, Employee may elect to treat such reduction as a
termination by SUMMIT LIFE CORPORATION under Paragraph 9(c ) of the Agreement.
Any termination pursuant to Paragraph 9(c ) shall obligate the Company to
continue to pay Employee the salary described herein for the balance of the term
of this Agreement.
Notwithstanding any termination pursuant to Paragraph 9(c ), Employee will
remain an employee for the purpose of the benefits provided herein under
Paragraph 7 hereof for the remaining term of this Agreement. If Employee is not
vested at the end of the term of this Agreement, Employee shall receive a cash
payment in the amount of the actuarial equivalent of Employee's personal
benefits accrued to end of the term of this Agreement.
(d) Car Allowance. Company shall provide Employee with a company car
-------------
and shall be responsible for the payment of. all expenses and upkeep, including
insurance and gas.
(e) Bonus. In addition to the compensation as set forth in paragraph
-----
(a) and (b) above, Employee shall be paid an annual bonus no later than the
fifteenth day of the 2nd month following the end of a year. (Commencing with the
year ending December31, 1997.)
(f) Stock Option. Employee shall have the right to purchase, at any
------------
time during the first three (3) years of employment, additional shares of Class
A Company stock at the option price of $5.00 per share so that at the time of
exercise of such option, by written notice to SUMMIT LIFE CORPORATION, the
difference between the option price and market price for all but not less than
all shares subject to the option shall not be less than Five Thousand Dollars
($5,000)
(g ) Employer will also, during the term of this Agreement, procure,
maintain and pay for Employee a life insurance policy in the face amount of
$100,000.00.
- -----------
5. Reimbursement for Expenses. SUMMIT LIFE CORPORATION shall reimburse
--------------------------
Employee for reasonable out of pocket expenses which Employee shall incur in
connection with his services for SUMMIT LIFE CORPORATION contemplated hereby on
presentation by Employee of appropriate vouchers therefore to SUMMIT LIFE
CORPORATION.
2
<PAGE>
6. Employee Serves as Director. Employee shall, during the term hereof,
---------------------------
serve as a Director of SUMMIT LIFE CORPORATION or any parent, subsidiary or
corporation affiliated with SUMMIT LIFTS CORPORATION. Employee shall receive the
same compensation paid to other directors of such Company for their services as
directors.
7. Fringe Benefits. Employee shall be entitled to participate with other
---------------
employees of SUMMIT LIFE CORPORATION in all fringe benefits or incentive
compensation plans that may be authorized and adopted from time to time by
SUMMIT LIFE CORPORATION, including, without limitation, the following: a
pension or profit sharing plan, medical reimbursement plan, group life insurance
plan, disability income plan, group health plan. However, Employee shall, upon
execution of this Agreement, be entitled to same medical and dental coverage for
Employee and his immediate dependants as is given to the other top corporate
officers.
8. Vacations. On the condition that Employee shall faithfully keep and
---------
perform all of the obligations to be performed under the terms of this
Employment Agreement, Employee shall be entitled to a paid vacation of four (4)
weeks each year.
9. Termination. This Agreement and the obligations of the parties
-----------
hereunder may be terminated as follows:
(a) By mutual agreement of the parties consented to in writing and
signed by both SUMMIT LIFE CORPORATION and Employee.
(b) By expiration of the term as set forth in Paragraph 2, unless
extended or modified in writing and signed by both SUMMIT LIFE CORPORATION and
Employee.
(c) By termination without cause, at the sole discretion of SUMMIT
LIFE CORPORATION.
(d) By termination with cause as determined by SUMMIT LIFE
CORPORATION and subject to the provisions of Subparagraph (i) to this Paragraph
(d).
(i) For purposes of this paragraph, "cause" shall mean the
final conviction of any felony or the final conviction of any
crime of moral turpitude.
3
<PAGE>
10. Compensation to Employee upon Termination
-----------------------------------------
(a) If this Employment Agreement is terminated for cause as set forth
above, SUMMIT LIFE CORPORATION shall provide a severance payment to Employee of
Fifty Thousand Dollars ($50,000) within thirty (30) days of termination.
(b) If this Employment Agreement is terminated without cause as
provided above, SUMMIT LIFE CORPORATION shall provide a severance payment to
Employee in an amount equal to the difference between greatest base salary
compensation payable to date of severance and the balance of the greatest base
salary due Employee under this Agreement for the balance of the term of the
Agreement, but not less than three (3) years compensation [paragraph 4 (b)]
together with any accrued but unpaid bonus. As of the date of severance, all
other benefits due Employee shall terminate subject to settlement of any accrued
benefits due Employee.
(c) If Employee shall fail or be unable to perform the services
required hereunder, because of any physical or mental infirmity, and such
failure or inability shall continue for four (4) consecutive months, or for six
(6) months during any twelve (12) consecutive month period, SUMMIT LIFE
CORPORATION shall have the right to terminate this Agreement thirty (30) days
after delivering written notice thereof to Employee; provided, however, that
Employee shall continue to receive his full compensation hereunder to the date
of termination, notwithstanding any such infirmity.
11. Modification. This Agreement shall not be amended or modified except
------------
by an agreement in writing signed by both of the parties hereto.
12. Binding Effect. This Agreement shall not be binding upon the parties
--------------
hereto, their successors, assigns, heirs and administrators.
13. Governing Law. This Agreement shall be governed and construed
-------------
according to the laws of the State of Oklahoma.
SUMMIT LIFE CORPORATION
BY: _______________________________
President
4
<PAGE>
"EMPLOYEE"
___________________________________
State of Oklahoma
County of Oklahoma
Subscribed and sworn to before me this _____ day of ____________, 199___.
_________________________________
Notary Public
My Commission Expires: ______________________ SEAL
5
<PAGE>
EXHIBIT 10.3
STOCK PURCHASE AGREEMENT
BETWEEN
BENEFIT CAPITAL INVESTMENT CORPORATION
SELLER
AND
SUMMIT LIFE CORPORATION
BUYER
DECEMBER 1, 1997
<PAGE>
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into effective the 15th' day of
November, 1997, by and among SUMMIT LIFE CORPORATION, an Oklahoma Corporation
(the "Buyer"), together with BENEFIT CAPITAL INVESTMENT CORPORATION, a Louisiana
Corporation, (the "Seller").
WITNESSETH:
The Seller owns all of the issued and outstanding capita stock of Benefit
Capital Life Insurance Company ("Benefit") a Louisiana Corporation.
The Buyer wishes to purchase and the Seller wishes to sell all of the
issued and outstanding. stock of Benefit.
In consideration of the mutual promises set forth in this Agreement; the
parties agree as follows:
I. SALE OF THE SHARES
1.01 Description of the Shares.
-------------------------
A. There is presently authorized 100,000 shares of $1.00 par value
common stock of benefit with 100,000 common shares issued and outstanding, which
shares are owned as follows: (copies of the certificate of which are attached
hereto. together with copies of the Articles and Bylaws, as Exhibit "1"). The
rights, duties, obligations and preferences of the various classes of stock are
set forth in the Articles as shown on Exhibit "1".
2
<PAGE>
SHAREHOLDER: BENEFIT CAPITAL INVESTMENT CORPORATION
100,000 COMMON SHARES
-------
1.02 Sale and Purchase of the Shares of the Benefit.
----------------------------------------------
Subject to all the terms and conditions hereof, and in reliance upon the
representations and warranties of the Buyer contained herein, the Seller hereby
agrees to sell 100% of all of the authorized and issued shares of capital stock
of Benefit, which, heretofore, have been authorized and/or issued, to the Buyer
at the closing herein, and the Buyer, subject to all the terms and conditions
hereof; and in specific reliance upon the representations and warranties of the
Seller contained herein, fully agrees to purchase the shares of Benefit from the
Seller for the Purchase Price and in the manner set forth below.
II. TERMS OF THE TRANSACTION
2.01 Purchase Price.
---------------
A. The Purchase Price for the stock to be purchased pursuant to
this Agreement shall be an amount equal to Two Hundred Eighty Thousand
($280,000) Dollars to be paid by the transfer of Forty thousand (40,000) shares
of class 'A' common stock of Summit Life Corporation ("SLC") as agreed between
Buyer and Seller at Closing.
B. Earnest Money Deposit. Notwithstanding the Purchase Price
---------------------
payment as set forth in paragraph (A) above., Buyer shall place the sum of
Twenty Five Thousand ($25,000) Dollars with Derryberry, Quigley, Solomon &
Naifeh as earnest money deposit., to he held for
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the benefit of Seller. Should the sale fail to close through Buyers breach, in
such case the earnest money shall be forfeited to Seller as Seller's sole remedy
for any breach of said Agreement. If the sale closes, the earnest money deposit
shall be returned to Buyer and the Purchase Price shall be paid as provided
above. The earnest money deposit shall be invested as agreed between Buyer and
Seller and all interest earned thereon shall belong to Buyer.
2.02 Payment of the Purchase Price. The Purchase Price as set forth
------------------------------
in Paragraph 2.01 shall be paid by the Buyer as follows: Forty thousand (40,000)
shares of SLC class "A" common stock shall be paid at Closing.
2.03 Financial Statement. As a condition precedent to Closing, Seller
-------------------
shall provide Buyer with the most recent unaudited financial Statements current
to the month preceding Closing, specifically setting forth the capital and
surplus of Benefit according to the Statutory method of accounting. (Exhibit 2)
2.04 Conditions Precedent to Closing. As a condition precedent to
-------------------------------
Closing:
A. Buyer shall have had a period sixty (60) days from November 15,
1997, in which to examine all of the books, records, and documents of Benefit
together with all Exhibits as set forth in this Agreement which are to be
provided by Seller to Buyer for Buyer's review in which to satisfy itself as to
the condition of Benefit.
(i) Buyer shall have the right to notify Seller of any reasons, in
Buyer's sole inspection period for terminating this contract by written notice
to Seller.
(ii) In the event Seller is unwilling to correct such objections to
the sale or in the event Buyer, in its sole discretion, terminates this
Agreement for any reason during the inspection period, the earnest money shall
be returned to Buyer and all respective rights and
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obligations of the parties shall cease.
2.05 Closing Contingencies.
A. The Closing of this transaction shall be specifically contingent
upon the Buyer receiving approval as Buyer by the Insurance Department of the
State of Louisiana as provided by Title 22 Louisiana Statutes Annotated and all
applicable rules and regulations promulgated thereunder. The Buyer shall, prior
to December 1 1997. make diligent application to the Insurance Department of the
State of Louisiana for its approval of this transaction and shall comply with
such reasonable requirements of the Insurance Department of the State of
Louisiana for its approval. Seller agrees to assist and cooperate with Buyer
in the application process.
B. If this agreement is not approved by the Insurance Department of
the State of Louisiana through no fault of Buyer, then at Buyer's option this
Agreement may be canceled and all negotiations of both parties shall terminate
without further obligation.
C. If the Insurance Department of the State of Louisiana has not
approved the purchase contemplated herein within six (6) months from December 1,
1997, Seller may terminate this agreement by written notice to Buyer.
III. CLOSING
3.01 Time and Place and Obligations to Close. The Closing of the
---------------------------------------
sale and purchase of the Shares will take place on the Thirtieth (30th) business
day after the final approval of this transaction by the Louisiana Department of
Insurance. Closing shall be held at the Offices of Derryberry, Quigley, Solomon
& Naifeh Law Offices, 4800 N. Lincoln Boulevard,
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Oklahoma City. Oklahoma, 73105, at 2:00 p.m., or at such other time and place as
the parties may mutually agree upon.
3.02 Deliveries by the Seller. At the Closing, the Seller will
------------------------
deliver to the Buyer the following:
A. Certificates representing the Shares accompanied by stock powers
duly executed :n blank and otherwise in form acceptable for transfer on the
books of Company.
B. The stock books, stock ledgers. minute books and corporate seal
of Benefit, together with all other records, books and documents of Benefit
which are located in or without the corporate premises of Benefit.
C. Resignations of all officers and directors of Benefit.
D. Certificates of compliance with this Agreement under Paragraph
5.01 hereof.
3.03 Deliveries by the Buyer. At the Closing, the Buyer will deliver
-----------------------
to the Seller the following:
A. The Buyer's Stock Certificate for the Purchase Price due at
Closing, duly executed and otherwise in form acceptable for recordation on the
books of Buyer and containing the restrictive legend as follows.
"The Securities represented by this Certificate have not been registered
under the Securities Act of 1933 or the Oklahoma Securities Act. The
Securities have been acquired for investment and may not be sold or
transferred in the absence of an effective registration of them under he
Securities Act of 1933 and/or the Oklahoma Securities Act, or an opinion of
counsel satisfactory to the issuer that such registration is not required
under such Act or Acts.
Article IX of the Certificate Of incorporation.. reference to which should
be made, gives the corporation the right of first refusal in the event the
holder hereof receives an offer for the purchase of his stock."
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IV. RESTRICTIONS ON THE CONDUCT PENDING CLOSING
During the period pending Closing, the Seller agrees that except as
otherwise consented to by the Buyer in writing, the Seller will comply with the
following as regards Benefit:
4.01 Mortgage, Pledge, etc. The Seller will not permit or allow any
---------------------
of the properties or assets, real, personal, or mixed, tangible or intangible,
of Benefit to be mortgaged, pledged. or subjected to any lien or encumbrance.
4.02 Waived Rights. Etc. The Seller will not cancel or allow any
------------------
other debts or claims, or waive any rights of substantial value, or sell or
transfer any of Benefit's properties or assets, real, personal, or mixed.
tangible, or intangible, except in the ordinary course of business and
consistent with past practice.
4.03 Compensation The Seller will not grant or allow, any general
------------
uniform increase in the compensation of Benefit's employees (including, without
limitation, any increase pursuant to any bonus, pension, profit-sharing, or
other plan or commitment), or any increase in any compensation payable or to
become payable to any officer or employee, and no such increase (whether general
or otherwise) is required by any agreement, plan, statute, or regulation.
4.04 Capital Expenditures. The Seller will not make or allow any
--------------------
capital expenditures or commitments by Benefit.
4.05 Accounting. The Seller will not make any material change in any
----------
method of accounting or accounting practice for Benefit except as otherwise
required by law.
4.06 Pavments to Officers. The Seller will not pay, loan, or advance
--------------------
any amount to, or sell, transfer, or lease any properties or assets (real,
personal, or mixed, tangible or intangible) to, or enter into any agreement or
arrangement with the Benefit's Officers or
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directors or any "affiliate" or "associate" of any such officers or directors
(as such terms are defined in the rules and regulations of the Securities and
Exchange Commission under the Securities Act of 1933. as amended), except for
compensation to officers, and reimbursement of expenses incurred by employees in
connections with their employment, nor will it allow any such occurrences.
except in the ordinary course of business and disclosed to Buyer.
4.07 Dividends. The Seller will not declare or pay any dividend, or
---------
declare or make any distribution on, or directly or indirectly redeem, purchase.
or otherwise acquire, any Shares of Benefit's outstanding capital stock, nor
will it allow any such occurrence.
4.08 Reinsurance. The Seller will provide Buyer with copies of all
-----------
reinsurance agreements or treaties currently in force, together with all
changes, addendums and endorsements.
4.09 Agents. The Seller will he required to keep all agent's
------
contractual relationship with Benefit and shall renew any such arrangements so
needing prior to Closing.
4.10 Corporate Existence. The Seller will maintain, renew, and keep
-------------------
in full force and effect Benefit's corporate existence, rights and Franchises.
The Seller will not amend Benefit's charter or bylaws and duly comply with all
laws, rules, and regulations applicable to the Benefit and to the conduct of its
business.
4.11 Merger Etc. The Seller will not merge or consolidate Benefit
----------
with any other person or acquire any new business through the Benefit or in any
manner which involves the assets of the Benefit other than proper insurance
sales.
4.12 Changes. The seller will not suffer any damage, destruction or
-------
loss (whether or not covered by insurance) affecting Benefit's properties.
business or prospects, or waive any rights of substantial value.
8
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V. CONDITIONS OF THE BUYER'S OBLIGATIONS
All obligations of the Buyer are subject to the fulfillment as an absolute
condition precedent to performance hereunder, prior to or at the Closing, of
each of the following conditions by the Seller:
5.01 Performance. The Seller shall have performed and complied with
------------
all agreements obligations, and conditions required by this Agreement to be so
performed or complied with and a certificate signed by the Seller to such effect
shall be delivered to the Buyer at the Closing.
5.02 Consents. All consents from third parties required to
--------
consummate the transactions contemplated by this Agreement shall have been
obtained.
5.03 Resignations. The Buyer shall have received the undated
------------
resignations of all of the Benefit's directors and officers.
5.04 Financial Condition. That Buyer shall have satisfied itself of
-------------------
financial condition of he Benefit which is accurately reflected in the financial
statement attached as Exhibit "2," and shall be satisfied that there has been no
material change in the Financial condition of the Company as reflected in the
financial statement through the Closing.
5.05 Approval On or before the date of Closing, the Commissioner of
--------
Insurance of Louisiana has given his consent and approval to the consummation of
this Agreement.
5.06 Special Representations. The Buyer shall have received from
-----------------------
Seller, a special representation, acceptable to the Buyer. to the effect that:
9
<PAGE>
(a) Seller is a corporation duly organized and existing in good
standing under the laws of the State of Louisiana. and is entitled to own or
lease its properties and to carry on its business as and in the places where
such properties are now owned, leased or operated and such business is now
conducted.
(b) The Seller has full power and authority to convey, assign,
transfer and deliver the shares of stock to be transferred hereunder.
(c) The Certificates of Benefit to be transferred hereunder are the
sole and only validly issued and outstanding shares of capital stock of Benefit
and represent One hundred percent of Seller to be conveyed pursuant to this
Agreement.
(d) All corporate acts of Seller and other proceedings required to
be taken by or on the part of Seller to authorize it to carry on this Agreement
have been properly taken and Seller's Stockholders have approved the transaction
contemplated by this Agreement.
(e) The persons executing this Agreement on behalf of Seller have
been duly authorized and have full power to execute this Agreement on behalf of
Seller.
(f) The Officers and Directors of Benefit as set forth in the
Certificate of Incumbency (Exhibit "10") are the sole, only and duly elected
officers and directors of Benefit.
(g) To the best of' Sellers knowledge, after due inquiry, the
execution delivery and performance of this Agreement by Seller, will not violate
any provisions of Seller's Articles of Incorporation or By-Laws.
(h) There arc no lawsuits pending and to knowledge of Seller, none
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threatened against Seller which would, if successful, result in any claim or
lien against the shares.
(i) The Minute Book and related files containing the minutes of the
Company accurately and truly reflect the records and actions of the Company.
VI. REPRESENTATION AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants as follows:
6.0 Title to the Shares. It owns, and will transfer to the Buyer at
-------------------
the Closing, good, valid, and marketable title to all of the Shares of stock of
Benefit, free and clear of all liens, claims, options. changes encumbrances
whatsoever except as described on Exhibit "3", if any, and that the Seller owns
all issued and outstanding Shares of the Benefit. At the time of Closing, there
will be no outstanding options, warrants, or rights to purchase or acquire any
of the stock Benefit.
6.02 Valid and Binding Agreement. This Agreement constitutes a valid
---------------------------
and binding Agreement of the Seller, enforceable in accordance with its terms,
and neither the execution and delivery of this Agreement nor, subject to the
receipt of approval of the respective Insurance Commissioner of Louisiana, the
consummation by the Seller of the transactions contemplated hereby (a) violates
or will violate the certificate of incorporation or by-laws of benefit, or any
statute or law or any rule, regulation or order of any court or governmental
authority, or (b) violates or will violate, or conflicts with or will conflict
with, or constitutes a default under or will constitute a default under, any
contract. commitment. agreement, understanding. arrangement, or restriction of
any kind to which the Seller or Benefit is a party, or by which any of such
parties is bound.
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<PAGE>
6.03 Organization of Benefit.
-----------------------
A. Benefit is a corporation duly organized. validly existing, and
in good standing under the laws of Louisiana and has the corporate power and
authority to carry on its business as presently conducted in all slates where it
is licensed or admitted to do business or is doing business.
B. Copies of the charter (Articles of Incorporation) and all
amendments thereto, of Benefit not previously provided, as certified by the
proper governmental office of the domiciliary state, and of its by-laws, as
amended to date, as certified by its Secretary (all of which will be delivered
to the Buyer at least one week in advance of Closing), are complete and correct
copies of the charter and by-laws of Benefit, as amended and in effect on the
date thereof
6.04 Capitalization of the Company.
-----------------------------
A. The authorized capital stock of Benefit consists of 100,000
shares of Common Stock, $1.00 par value of which 100,000 shares are duly
authorized, validly issued and outstanding, fully paid and non-assessable.
B. Except for pre-emptive rights, if any, there are no outstanding
options, warrants. or rights to purchase or acquire any issued, unissued, or
treasury shares of capital stock or other securities of the Benefit, and no
unissued or treasury shares of capital stock or other securities of the Benefit
are reserved for issuance for any purpose and there are no contracts,
commitments, agreements understandings, arrangements, or restrictions to which
any of the Benefit, or any of the Seller is a party or by which any of them is
bound relating to any shares of common stock or other securities of the Benefit,
whether or not outstanding.
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C. The current financial condition of Benefit is accurately
reflected in its financial statements attached as Exhibit "2", and there has
been no material change in the financial condition of the Benefit as reflected
in those financial statements, and there are no other debts, known or unknown
liabilities, or obligations of the Benefit, whether accrued, absolute,
contingent, or otherwise due or to become due (including without limitations.
liabilities for taxes of any kind whatsoever) or arising out of transactions
occurring, or any state of facts existing, on or prior to the date of such
statements. to the date of Closing.
6.05 Tax Returns. Benefit has duly filed all tax reports and returns
-----------
required to be led by it and has duly paid al taxes and other charges clue or
claimed to be due from it by Federal, State or Local taxing authorities
(including. without limitation, those due in respect of its properties, income,
franchise, licenses, sales, and payrolls).
6.06 Leases. If required Exhibit "4" hereto contains an accurate and
------
complete description of the terms of (i) all leases pursuant to which Benefit
leases real or personal property owned by the Benefit. All such leases are, as
of the date hereof, valid, enforceable in accordance with their terms, and in
Full Force and effect without any default thereunder.
6.07 Litigation. Except as set forth in Exhibit "5" hereto, there are
----------
no actions, proceedings, or investigations pending, or (to the best knowledge
and belief of the Seller) threatened against Benefit, including, without
limitations, all matters involving claims or disputes with Benefit's agents, all
matters arising out of reinsurance contracts arid treaties, or any matters
relating to or arising out of the insurance regulatory authority of any state:
and neither Benefit nor the Seller know of has any reason to know if any basis
for any such action, proceeding, or investigation. There is no event or
condition of any kind or character pertaining to
13
<PAGE>
the business or assets of the Benefit that may materially and adversely affect
any such business or assets.
6.08 Bank Accounts. At least one week prior to Closing the Seller
-------------
will deliver to the Buyer copies of all records, including all signature or
authorization cards pertaining to such bank accounts.
6.09 No Outstanding Contract. Benefit has (i) no outstanding
-----------------------
contracts that are not cancelable by it on notice not more than thirty (30) days
and without liability, penalty, or premium, except those identified in Exhibit
"6" or other Exhibits attached hereto, (ii) nor any collective bargaining
agreements, or (iii) any agreements that contain any severance or termination
pay liability or obligations.
6.10 No Powers of Attorney. Benefit has not given any power of
---------------------
attorney to any person, firm. or corporation For any purpose whatsoever other
than in connection with the issuance of Notary undertakings. The amount and
numbers given to each agent are contained in Exhibit "7" attached hereto.
6.11 Compliance with Applicable Law. Benefit has duly complied. in
------------------------------
respect of its operations, real property., equipment, all other property,
practices, and all other aspects of its business, with all applicable laws
(whether statutory or otherwise), rules, regulations, orders, ordinances,
judgments and decrees of all governmental authorities (Federal\\,\\ State, Local
or otherwise).
6.12 Assets Necessary to Business. Benefit has good, valid, absolute
----------------------------
and marketable title to all of its properties and assets, real. personal, and
mixed. tangible and intangible, held in each case subject to no lease, mortgage,
pledge, lien, charge, security interest,
14
<PAGE>
encumbrance, or restriction whatsoever, except as set forth in the financial
statements attached hereto as Exhibit "2". The furniture. fixtures, and
equipment of the Benefit, if any, are in good condition and repair, reasonable
wear and tear excepted, as described in the inventory dated __________, a copy
of which is attached hereto as Exhibit "8".
6.13 Unpaid Claims. Except as reflected in the financial statement in
-------------
Exhibit "2" there were, as of the date of such balance sheet, no unpaid claims
or other obligations due or owed with respect to any insurance policy or
underwriting contract issued or reinsured by such company other than unreported
claims and claims in process incurred in the ordinary course of business
consistent with the past practice of such company.
6.14 Reinsurance Agreement. Benefit's sole reinsurance agreements or
---------------------
treaties to which it is a party is as set forth and described on Exhibit "9"
hereto, which is, on the date hereof, a valid and binding agreement of such
company, enforceable in accordance with their terms, and in full force and
effect, without any defaults thereunder. Benefit has no knowledge nor any reason
to believe that a party to such reinsurance agreements or treaties, is or will
be unable to fully satisfy any claims, liabilities, obligations or expense which
might arise thereunder.
6.15 No Compensation. Neither the Seller or Benefit has paid or
---------------
agreed to pay any fee, commission, compensation or other valuable consideration
whatsoever to any director, officer, agent of the Company, or employees, in any
manner, aiding, promoting, or assisting in the consummation of the transactions
contemplated by this Agreement.
6.16 Disclosure. No representation or warranty by the Seller in this
----------
15
<PAGE>
Agreement. or in any writing attached hereto, contains or will contain any
untrue statement of material fact or omits or will omit to state any material
fact (of which any of the Seller or any of their directors or stockholders has
knowledge or notice) required to make the statements herein or therein contained
not misleading.
6.17 Employment Contracts. There will be at Closing no employment
--------------------
contracts or agreements, written or verbal or any commitment, with any employee,
officer or director of the Seller extending Sellers obligations beyond Closing.
6.18 Executive Compensation. Except as disclosed on Exhibit "6",
----------------------
there are no executive or employee compensation plans, bonus or deferred
compensation plans, stock appreciation rights, phantom stock plans or any
employee pension benefit plans. as such terms arc defined under "ERISA",
including but not limited to life insurance, health insurance, disability
benefits, vacation pay, day care and legal services plans qualified and non-
qualified, and all other forms of types of benefit plans.
6.19 Investment Intent. Seller is acquiring the shares of SLC for its
-----------------
own account and for investment and not with a view to any resale, distribution,
subdivisions, or fractionalization thereof, within the meaning of the Securities
Act of 1933, as amended.
VII. REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants as follows:
7.01 Organization of the Buyer. The Buyer is Summit Life
-------------------------
Corporation, an Oklahoma corporation.
7.02 Authorization. The execution and delivery of this Agreement by
-------------
the
16
<PAGE>
Buyer and the consummation by the Buyer of the transactions contemplated hereby
has been duly authorized.
7.03 Valid and Binding Agreement. This Agreement constitutes a valid
---------------------------
and binding agreement of the Buyer, enforceable in accordance with its terms.
7.04 No Violation. Neither the execution and delivery Of this
------------
Agreement nor, subject to the receipt of approval of the Insurance Commissioner
of the State of Louisiana, the consummation by the Buyer of the transactions
contemplated hereby violates or will violate, or conflicts with or will conflict
with, or constitutes a default under or will constitute a default under any
contract, commitment, agreement, indenture, understanding, arrangement, or
restriction of any kind to which the Buyer is a party. or by which the Buyer is
bound.
7.05 Investment Intent. The Buyer is acquiring the Shares of Benefit
-----------------
for its own account and for investment and not with a view to any resale,
distribution, subdivisions, or fractionalization thereof; within the meaning of
the Securities Act of 1933, as amended.
VIII. OBLIGATIONS OF THE PARTIES
Pending the Closing, and except as otherwise consented to by the Buyer in
writing, the Seller will cause the Company to, and Company will, comply with the
following:
8.01 Full Access. The Seller and Benefit will permit the Buyer and
-----------
its counsel, accountants, actuaries, and other representatives full access to
its plants, properties, books and records in order that the Buyer may have full
opportunity to make such investigations as it shall desire to make of the
affairs of Benefit; and the officers of Benefit will furnish the Buyer with such
additional financial and operating data and other information as to its business
17
<PAGE>
and property as the Buyer shall, from time to time, reasonably request,
including, without limitation, information required for inclusion on any
application or statement to be made to any governmental or regulatory body in
connection with the transactions contemplated by this Agreement.
8.02 Approvals. As promptly as is practicable but not later than
---------
December 1, l997, the Buyer shall make application for, diligently prosecute
each application when made, and use its best efforts to obtain, all
authorizations and approvals of regulatory bodies or officials, and all consents
of third parties necessary to permit the consummation of the transactions
contemplated hereby: and the Seller shall cooperate with and assist the Buyer,
as requested, in the prosecution by it of all obligations, approvals and
consents.
8.03 Supplemental Information. From time to time prior to the
------------------------
Closing, the Seller will deliver to the Buyer supplemental information
concerning events subsequent to the date hereof for inclusion in any Exhibit
required to be delivered by the Buyer by the Seller or Benefit hereunder, in
order that any statement, representation, or warranty made in this Agreement, or
in any such Exhibit, shall continue to be true, complete, and correct in all
respects.
8.04 Fiinancia1 Statements. The Seller will deliver to the Buyer such
---------------------
interim unaudited financial statements of Company as the Buyer may reasonably
request.
IX. CONDITIONS OF THE SELLER'S OBLIGATIONS
All obligations of the Seller under this Agreement are subject to the
fulfillment, prior to or at the Closing of each of the following conditions:
18
<PAGE>
9.01 Performance. The Buyer shall have performed and complied with
-----------
all agreements, obligations. and conditions required by this Agreement.
X. MISCELLANEOUS
10.01. Materiality. Unless otherwise specified, the word "material" as
-----------
used herein to limit or quality any provision hereof shall mean:
A. Either liability to or liability of Company in an amount of more
than Five Thousand Dollars ($5,000.00) as to each such item so limited or
qualified, and in an amount of more than Ten Thousand Dollars ($10,000.00) as to
all such items so limited or qualified in the aggregate: or
B. Of such a nature as to have an effect on the business or
operations of Company to the extent that:
1. It would cause the revocation. suspension, limitation, or
attempted or limitation of any of Benefit's licenses or other necessary
regulatory in any state where the Company is now licensed; or
2. The costs to the Buyer, including fines, penalties, and
attorney's fees, of correcting or eliminating such effect exceed the amount set
forth above.
10.02 Nature and Survival Representations and Warranties. The
--------------------------------------------------
representations and warranties contained in and made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and all inspections,
examinations, and audits made at any time by or on behalf of any of the parties.
10.03 Indemnifications.
-----------------
19
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A. Indemnification of Buyer. Seller hereby assumes and agrees to
------------------------
defend, indemnify, protect, save and keep harmless Buyer from and against any
and all losses, damages, injuries, claims demands and expenses, including legal
expenses, of whatsoever kind and nature arising on account of or in any way
relating to:
1. Any breach or default by Seller in the performance of its
obligations hereunder, or under any other agreement instrument or document
executed in connection herewith or therewith;
2. Any material inaccurate representation by Seller in this
Agreement; or
3. Any breach of Seller of a warranty or representation made
by them in this Agreement. It is understood and agreed, however, that Buyer
shall give Seller reasonably prompt written notice of any claim or liability
hereby indemnified against and that Seller shall be entitled to control the
defense thereof.
B. Indemnification of Sellers. Buyer hereby assumes and agrees to
--------------------------
defend, indemnify, protect, save and keep harmless Seller from and against any
and all losses, damages, injuries, claims, demands and expenses, including legal
expenses, of whatsoever kind and nature arising on account of or in any way
relating to:
1. Any breach or default by Buyer in the performance of its
obligations hereunder. or under any other agreement, instrument or document
executed in connection herewith or therewith;
2. Any material inaccurate representation by Buyer in this
20
<PAGE>
Agreement; or
3. Any breach of Buyer of a warranty or representation made by
them in this Agreement. It is understood and agreed, however, that Seller shall
give Buyer reasonably prompt written notice of any claim or liability hereby
indemnified against and that Buyer shall be entitled to control the defense
thereof.
10.04 Termination.
-----------
A. The Buyer shall have the right to terminate during the period
from the date hereof to the Closing Date, if Buyer learns of any fact or
condition with respect to Benefit which is at variance with one or more of the
warranties or representations of the Seller set forth in this Agreement.
B. Either the Buyer or Seller may, at its election, waive any of
its rights to terminate this Agreement under the foregoing provisions, and shall
be deemed to have waived such rights upon completion of the closing under this
Agreement.
C. If the transaction under this Agreement shall not have closed by
the above date because of the inability of the Seller or the Buyer by reason of
causes beyond its respective control to carry out performance as contemplated by
this Agreement, neither the Buyer, on the one hand, nor the Seller, on the
other, shall be liable to the other for any loss, damage, or expense, and the
only remedy of either shall be to terminate this Agreement by notice to the
other.
D. In the event of Seller's failure to timely close this
transaction, Seller agrees. in addition to any damages for which Seller may be
liable, to reimburse Buyer for all of its out-of-pocket costs in preparing,
negotiating and executing this Agreement.
21
<PAGE>
E. In the event any right of termination of Buyer is exercised, as
provided herein, the earnest money deposit held as provided herein, shall be
returned to Buyer.
10.05. Commissions. the Seller and the Buyer acknowledge that there are
-----------
no claims by any party for brokerage commissions or finder's fees in connection
with the transactions contemplated by this Agreement except to Irene Lee, doing
business as Acquisition Network, who will be paid by SLC under separate
agreement. Seller and Buyer hereto will indemnify and bold harmless the other
from and against any and all claims or liabilities for brokerage commissions or
finder's fees incurred by reason of any action taken by such other party.
10.06. Expenses. All fees and expenses incurred by the Seller in
--------
connection with the transactions contemplated by this Agreement shall be borne
by the Seller and all fees and expenses incurred by the Buyer in connection with
the transactions contemplated by this agreement shall be borne by the Buyer.
10.07. Further Assurances. The Seller agrees that it will, without
------------------
further consideration, and at its own expense, execute and deliver such other
documents, and take such other action, as may reasonably be requested in order
to more effectively consummate the transactions contemplated hereby.
10.08. Parties in Interest. All the terms and provisions of this
-------------------
Agreement shall be binding upon, shall inure to the benefit of, and shall be
enforceable by the representative personnel and legal representatives.
successors, and assigns of the parties hereto.
10.09. Entire Agreement; Amendments. This Agreement, including the
----------------------------
Exhibits, schedules, lists and other documents referred to herein which form a
part hereof,
22
<PAGE>
contains the entire understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises,
warranties, covenants, or undertakings other than those expressly set forth
herein. This Agreement may be amended only by a written instrument duly executed
by the parties hereto or their respective successors or assigns. Any condition
to a party's obligation hereunder may be waived by such party in writing.
10.10. Headings. The Section and Paragraph headings contained in this
--------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretations of this Agreement.
10.11. Notices. All notices requests, demands. and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or mailed, registered or certified mail, return receipt requested.
postage prepaid:
If to the Seller: Randal M. Beach. President
Benefit Capital Investment
704 Mandeville Street
New Orleans. LA 70117
With a copy to: James G. Cooley. Chairman
Benefit Capital Investment Corporation
703 Bayou Lane
Thibodaux, LA 70301
If to the Buyer Summit Life Corporation
P.O. Box 15808
Del City, Oklahoma 73155
Attn: James Smith
With a Copy to: Donald B. Nevard
4800 N. Lincoln Blvd.
Oklahoma City, Oklahoma 73105
10.12. Assignment. The Buyer shall have the right to sell, assign, or
----------
transfer this
23
<PAGE>
Agreement without prior consent of Seller to an affiliated entity under common
control with Buyer at any time during the term of this Agreement, and any such
assignee shall acquire all of the rights and assume all of the obligations of
the Buyer under this Agreement. Any other assignment shall require approval of
Seller, which approval shall not be unreasonably withheld.
10.13. Attorney's Fees. If at law or in equity, including an action
----------------
for declaratory relief, is brought to enforce or interpret the provisions of
this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys fees from the other party, which fees may be set by the court in the
trial of such action or may be enforced in a separate action brought for that
purpose, and which fees shall be in addition to any other relief which may be
awarded.
10.14. Governing Law. This Agreement. the terms and conditions and
-------------
obligations hereunder shall be governed and construed according to the laws of
the State of Oklahoma.
10.15. Counterpart Execution. This Agreement may be executed in two or
----------------------
more counterparts, each of which shall be deemed an original,. but all of which
together shall constitute but one and the same instrument.
10.16. Gender. A1l personal pronouns used in this Agreement shall
-------
include the other genders whether used in the mascu1~ne or feminine or neuter
gender, and the singular shall include the plural whenever and as often as may
be appropriate.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on the date adjacent to their signatures.
SELLER: BENEFIT CAPITAL INVESTMENT CORPORATION
By: __________________________________________
Title: _______________________________________
Attest: Dated: _______________________________________
_______________________
BUYER: SUMMIT LIFE CORPORATION
By: __________________________________________
Title: _______________________________________
Attest: Dated: _______________________________________
_______________________
25
<PAGE>
EXHIBITS
--------
EXHIBIT "1" Stock Certificates, Articles of Incorporation, Minutes and By-laws
EXHIBIT "2" Financial Statements
EXHIBIT "3" Liens, Claims Options, Changes, and Encumbrances
EXHIBIT "4" Leases
EXHIBIT "5" Litigation
EXHIBIT "6" Outstanding Contracts
EXHIBIT "7" Powers of Attorney
EXHIBIT "8" Inventory
EXHIBIT "9" Reinsurance Agreements
EXHIBIT "10" Incumbency Certificate
26
<PAGE>
BENEFIT CAPITAL INVESTMENT CORPORATION
CERTIFICATE OF COMPLIANCE
Pursuant to the requirements of paragraphs 3.02 D and 5.01 of the STOCK PURCHASE
AGREEMENT BETWEEN BENEFIT CAPITAL INVESTMENT CORPORATION, SELLER, AND SUMMIT
LIFE CORPORATION, BUYER, dated December 1, 1997 ("Agreement"):
BENEFIT CAPITAL INVESTMENT CORPORATION, SELLER, HEREBY
CERTIFIES THAT IT HAS PERFORMED AND COMPLIED WITH ALL AGREEMENTS,
OBLIGATIONS, AND CONDITIONS REQUIRED BY THE AGREEMENT TO BE SO PERFORMED
AND COMPLIED WITH.
_________________________________
Randal M. Beach, President
Benefit Capital Investment Corporation
January ____, 1998
_________________________________
Russell G. Graham, Secretary
Benefit Capital Investment Corporation
27
<PAGE>
EXHIBIT 3
BENEFIT CAPITAL INVESTMENT CORPORATION
LIENS, CLAIMS, OPTIONS, CHANGES, AND ENCUMBRANCES
The undersigned hereby certifies that there are no liens, claims, options,
changes, or encumbrances affecting the stock of BENEFIT CAPITAL LIFE INSURANCE
COMPANY.
____________________________________
Randal M. Beach, President
Benefit Capital Investment Corporation
January ____, 1998
_____________________________________
Russell G. Graham, Secretary
Benefit Capital Investment Corporation
28
<PAGE>
EXHIBIT 4
BENEFIT CAPITAL LIFE INSURANCE COMPANY
LEASES
The undersigned hereby certify that there are no leases to others of property
owned by BENEFIT CAPITAL LIFE INSURANCE COMPANY.
____________________________________
Randal M. Beach, President
Benefit Capital Investment Corporation
January ____, 1998
_____________________________________
Russell G. Graham, Secretary
Benefit Capital Investment Corporation
29
<PAGE>
EXHIBIT 5
BENEFIT CAPITAL LIFE INSURANCE COMPANY
LITIGATION
The undersigned hereby certify that there is no pending litigation involving
BENEFIT CAPITAL LIFE INSURANCE COMPANY, other than the Burgo case, of which
-----
Summit Life Corporation has been apprised, and no other litigation is threatened
at this time.
____________________________________
Randal M. Beach, President
Benefit Capital Life Insurance Company
January ____, 1998
_____________________________________
Russell G. Graham, Secretary
Benefit Capital Life Insurance Company
30
<PAGE>
EXHIBIT 6
BENEFIT CAPITAL LIFE INSURANCE COMPANY
OUTSTANDING CONTRACTS
The undersigned hereby certify that BENEFIT CAPITAL LIFE INSURANCE COMPANY has
no outstanding contracts that are not cancelable by it on notice of not more
than 30 days and without liability, penalty or premium, other than: (1)
Certificates of Deposit at the former Acadian Bank, now Union Planters Bank, in
Thibodaux; and, (2) a 24-month lease of office space located at 203 Carondelet
Street, Suite 717, New Orleans, LA, signed on January 2, 1998, effective
February 1, 1998.
There are no collective bargaining agreements.
There are no agreements tht contain any severance or termination pay liability
or obligations, other than the Personnel Policies and Procedures, which provide
for a minimum severance pay of 40 hours (1 week) pay for Ruby Maggio, and 16
hours (2 days) pay for Charlene Yates. Randa1 Beach has no severance or
termination pay agreement.
____________________________________
Randal M. Beach, President
Benefit Capital Life Insurance Company
January ____, 1998
_____________________________________
Russell G. Graham, Secretary
Benefit Capital Life Insurance Company
31
<PAGE>
EXHIBIT 7
BENEFIT CAPITAL LIFE INSURANCE COMPANY
POWERS OF ATTORNEY
The undersigned hereby certify that BENEFIT CAPITAL LIFE INSURANCE COMPANY has
no outstanding Powers of Attorney issued to any person, firm, corporation or
other entity.
____________________________________
Randal M. Beach, President
Benefit Capital Life Insurance Company
January ____, 1998
_____________________________________
Russell G. Graham, Secretary
Benefit Capital Life Insurance Company
32
<PAGE>
EXHIBIT 8
BENEFIT CAPITAL LIFE INSURANCE CO.
INVENTORY
COMPUTER EQUIPMENT:
- ------------------
(2) HP Laserjet 4 printers
(1) Panasonic KXP1524 printer
(1) Okidata Microline 320 printer
(1) 486-100 w/16mb & l.6gbhdd; monitor
(1) 486-100 w/8mb & 52mbhdd; monitor
(1) 486-33 w/8mb & 52mbhdd; monitor
(I) Pentium 100 w/16mb & 812mbhdd; monitor
(1) 486-100 w/l2mb & 1.6gbhdd; monitor
OTHER EQUIPMENT:
- ----------------
(1) Panasonic KX-F1050 fax machine
(1) Canon NP3050 copier
(1) FP 5L postage scale
(1) Powershred PS40 paper shredder
(2) Boston Air cleaners
(1) GE microwave oven
(1) laminating machine
(2) binding machines
(1) water cooler
(4) electronic calculators
(1) electronic typewriter
(1) refrigerator
(1) bank draft encoder
(1) pro-type machine
(1) Universal multi-serve telephone system
(1) Meridian receptionist telephone
(3) Meridian office telephones
(1) coffeepot
FURNITURE:.
- ----------
(1) executive desk (bullet top, bridge, credenza)
(1) executive swivel desk chair
33
<PAGE>
(8) swivel conference chairs
(1) 8-fr. conference table
(2) 48" modular computer workstations
(2) 36" modular computer workstations
(2) modular peninsulas
(1) nodular corner connector
(1) steno chair
(2) modular 2-drawer file cabinets
(2) room divider panels, 72"x48"
(1) fax machine stand
(2) 6-ft. metal storage cabinets
(8) modular stacking lateral file drawers
(1) modular 2-drawer locking file cabinet
(2) 7-ft. bookcases
(3) 4-drawer standard file cabinets
SUPPLIES:
Standard array of supplies, including staplers, tape dispensers, calendars,
pencil sharpener, hole punch, reference books, etc.
____________________________________
Randal M. Beach, President
Benefit Capital Life Insurance Company
January ____, 1998
_____________________________________
Russell G. Graham, Secretary
Benefit Capital Life Insurance Company
34
<PAGE>
EXHIBIT 10
BENEFIT CAPITAL LIFE INSURANCE COMPANY
CERTIFICATE OF INCUMBENCY
The current Officers and Directors of Benefit Capital Life Insurance Company are
as follows:
OFFICERS
RANDAL BEACH, PRESIDENT
RUSSELL GRAHAM, SECRETARY
RUBY MAGGIO, ASSISTANT SECRETARY
DIRECTORS
JAMES COOLEY, CHAIRMAN
RUSSELL GRAHAM, SECRETARY
RANDAL BEACH
EDWIN HARLAN
KIRK KLIEBERT
BOBBY WARREN
CADE WILLIAMS
____________________________________
Randal M. Beach, President
Benefit Capital Life Insurance Company
January ____, 1998
_____________________________________
Russell G. Graham, Secretary
Benefit Capital Life Insurance Company
35
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
OF
SUMMIT LIFE CORPORATION
The following are subsidiaries of Summit Life Corporation:
Benefit Capital Life Insurance Company, a Louisiana corporation;
Summit Life and Annuity Company, an Oklahoma corporation;
Family Benefit Life Insurance Company, a Texas corporation; and
Summit Property Management, Inc., an Oklahoma corporation.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 3, 1998, except for Note D as to which the
date is September 21, 1998, for Summit Life Corporation and Subsidiaries and our
report dated April 3, 1998 for Benefit Capital Life Insurance Company
accompanying the respective financial statements contained in the Registration
Statement and Prospectus. We consent to the use of the aforementioned reports
in the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts".
GRANT THORNTON LLP
Oklahoma City, Oklahoma
September 29, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1996 JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1996 DEC-31-1997 JUN-30-1998
<CASH> 717,238 1,293,457 1,754,307
<SECURITIES> 3,353,716 3,963,504 5,248,362
<RECEIVABLES> 205,819 160,295 238,652
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 299,381 0 5,118
<PP&E> 514,767 649,733 610,944
<DEPRECIATION> (45,221) (41,502) (45,359)
<TOTAL-ASSETS> 5,336,626 6,278,701 8,387,988
<CURRENT-LIABILITIES> 189,983 202,388 284,137
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 18,250 19,398 20,547
<OTHER-SE> 423,743 320,037 1,000,316
<TOTAL-LIABILITY-AND-EQUITY> 5,336,026 6,278,701 8,387,988
<SALES> 0 0 0
<TOTAL-REVENUES> 1,269,720 781,996 407,964
<CGS> 0 0 0
<TOTAL-COSTS> 0 0 0
<OTHER-EXPENSES> 1,426,570 991,964 699,332
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 217,107 60,357 49,956
<INCOME-PRETAX> (373,957) (270,325) (341,324)
<INCOME-TAX> 44,144 968 531
<INCOME-CONTINUING> (329,813) (269,357) (340,793)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (297,678) (269,357) (340,793)
<EPS-PRIMARY> .18 (.14) (.17)
<EPS-DILUTED> .18 (.14) (.17)
</TABLE>
<PAGE>
EXHIBIT 99.1
EXHIBIT A
SUBSCRIPTION ORDER FORM
General
This form is to be completed and returned to SUMMIT LIFE CORPORATION (the
"Company") by all persons electing to subscribe for shares of Common Stock of
the Company. Before completing this subscription order form, you are urged to
read carefully the prospectus mailed to you with this form, and, if you have any
questions, to refer to the accompanying "Questions and Answers" supplement. IF
YOU DO NOT COMPLETE AND SIGN THIS SUBSCRIPTION ORDER FORM PROPERLY, IT MAY BE
REJECTED.
The Company will terminate the Offering unless on or before _________, the
Company has accepted subscriptions and payment in full for an aggregate of at
least 140,000 shares. If a minimum of at least 140,000 shares has not been sold
by ______, 1999, the Company will promptly return all investors' funds, with
interest. Interest on subscriptions is not otherwise payable.
--------------------------------------------------
- --------------------------------------------------------------------------------
Number of Shares
Fill in the number of shares you wish to purchase (which must be a whole number
and which must be at least 100):
NUMBER OF SHARES TO BE PURCHASED X SUBSCRIPTION PRICE = AMOUNT DUE
===============================================================================
===============================================================================
--------------------------------------------------
Payment
If you are purchasing shares, you must enclose a check or money order in U.S.
dollars representing "good funds" payable to "Summit Life Corporation" for the
total amount of your purchase, as indicated above.
When you have completed this Subscription Order Form, please mail the form with
your check or money order in the postage-paid envelope provided. Your
Subscription Order Form and payment in full must be received by the Company by
midnight, Oklahoma City time, on __________________, 1999. If the postage-paid
envelope is lost, your Subscription Order Form and payment in full should be
returned by mail to Summit Life Corporation, P.O. Box 15808, Oklahoma City,
Oklahoma 73155. If delivered by hand, express mail or overnight courier,
deliver to Summit Life Corporation, 3021 Epperly Drive, Oklahoma City, Oklahoma
73155. Stock certificates will be mailed to you within 10 days after the
closing of the Offering.
--------------------------------------------------
Page 1 of Subscription Order Form
<PAGE>
Stock Registration
(PLEASE PRINT CLEARLY)
Please indicate the name(s) in which your stock should be registered and check
the appropriate box for the form in which your stock should be registered. You
may make any corrections to your name and address (from that shown at the top of
this form) on the lines provided.
Name:
- ----
- --------------------------------------------------------------------------------
(First Name) (M.I.) (Last Name) (Social Security # or Tax ID #)
(stock certificate will show this number)
- --------------------------------------------------------------------------------
(First Name) (M.I.) (Last Name) (Social Security # or Tax ID #)
(stock certificate will show this number)
Street Address:
- ---------------
- ------------------------------------------------------------------
(City) (State) (Zip Code)
Form of Stock Ownership (check one):
- -----------------------------------
/ / Corporation
/ / Partnership
/ / Individual
/ / Joint Tenants with Right of Survivorship
/ / Tenants in Common
/ / Individual Retirement Account (IRA)
/ / Keogh Plan
/ / As Custodian for _________________ under Uniform Gift to Minors Act
of the State of ________________
/ / As Trustee for _________________
Date of Trust __________________
/ / As Executor ____________________
/ / Other: _________________________________________________________________
--------------------------------------------------
Page 2 of Subscription Order Form
<PAGE>
Telephone Numbers
Please provide a phone number at which you can be reached in the event that we
have questions regarding the information that you have supplied:
Daytime ( )
-----------------------------
Evening ( )
-----------------------------
---------------------------------------------------
Acknowledgments and Signature
In order for you to purchase shares of the Company's Common Stock in the
Offering, you must sign this Subscription Order Form and date it.
Please sign exactly as you have printed your name in this Form. If you have
listed more than one name in this Form, all those listed must sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
your full title as such. If signing for a corporation, sign by an authorized
officer and indicate title. If a partnership, sign in the name of an authorized
person.
I (WE) ACKNOWLEDGE RECEIPT OF THE PROSPECTUS AND MY (OUR) OFFER TO PURCHASE
SHARES, AS SET FORTH ON THIS SUBSCRIPTION ORDER FORM. UNDER PENALTIES OF
PERJURY, I (WE) CERTIFY THAT (1) THE SOCIAL SECURITY NUMBER OR TAX ID NUMBERS
GIVEN ABOVE IS (ARE) CORRECT; AND (2) I (WE) AM (ARE) NOT SUBJECT TO BACKUP
WITHHOLDING TAX (YOU MUST CROSS OUT #2 IF YOU HAVE BEEN NOTIFIED BY THE INTERNAL
REVENUE SERVICE THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING BECAUSE OF REPORTING
INTEREST OR DIVIDENDS ON YOUR TAX RETURN).
SIGNATURE: DATE:
- ------------------------------------------ ----------------------------
SIGNATURE: (IF SECOND SIGNATURE REQUIRED) DATE:
- ------------------------------------------ ----------------------------
IF YOU HAVE ANY QUESTIONS, PLEASE CALL THE COMPANY AT (405) 677-0781.
Page 3 of Subscription Order Form
<PAGE>
EXHIBIT B
[LOGO OF SUMMIT LIFE CORPORATION APPEARS HERE]
OFFERING OF COMMON STOCK
$5.00 PER SHARE
QUESTIONS AND ANSWERS
Summit Life Corporation (the "Company"), the parent company of Summit Life
and Annuity Company, Family Benefit Life Insurance Company and Benefit Capital
Life Insurance Company, is "going public." One million (1,000,000) shares of
the Company's Common Stock will be offered to the public. If all shares offered
are sold, purchasers in this Offering will own approximately 33% of the
outstanding Common Stock of the Company. The following information is designed
to answer several basic questions about the Offering and the transactions to be
completed by the Company in going public. Please refer to the Prospectus for a
detailed explanation of the Offering. If you have any questions, please contact
the Company at 1-405-677-0781.
1. WHAT IS THE OFFERING?
The Offering is the transaction by which the Company is offering to sell
its Common Stock to the public.
2. AM I ELIGIBLE TO PARTICIPATE IN THE OFFERING IF I AM ALSO A POLICYHOLDER
WITH ONE OF THE COMPANY'S SUBSIDIARY LIFE INSURANCE COMPANIES?
Yes. Being a policyholder with one of the Company's life insurance
subsidiaries does not preclude you from purchasing shares in this Offering.
3. WILL THE COMPANY'S OFFERING AFFECT MY INSURANCE POLICY?
No. The Offering will not, in any way, change premiums or reduce policy
values, guarantees or any other obligations of any of the life insurance
subsidiaries to its policyowners.
4. HOW MANY SHARES OF COMMON STOCK CAN I BUY AND WHAT IS THE PRICE?
You may subscribe for a minimum of 100 shares, at a per share subscription
price of $5 (the "Subscription Price").
5. ARE THERE ANY RISKS ASSOCIATED WITH AN INVESTMENT IN THE COMMON STOCK?
As with any stock, there are certain risks inherent in an investment in the
Common Stock. These risks are discussed in detail in the "Risk Factors"
section of the Prospectus beginning on page __ of the Prospectus and in
other areas of the Prospectus. As a potential investor, you should carefully
consider the "Risk Factors" section and other information in the Prospectus
prior to making an investment decision regarding the Common Stock.
Questions and Answers-Page 1
<PAGE>
6. HOW DO I SUBSCRIBE FOR SHARES?
(1) Complete and sign the enclosed Subscription Order Form related to the
Offering;
(2) Mail the Form with a check or money order (a certified check is
acceptable, but not required) for the number of shares in the enclosed
envelope. The envelope is for United States Postal Service Priority
Mail. It is pre-addressed and postage-paid. You can send it by (1)
dropping it off at your local post office or (2) placing it in a
mailbox.
If you misplace the envelope, mail your Form and payment to:
Summit Life Corporation
P.O. Box 15808
Oklahoma City, Oklahoma 73155
or, if delivery is by hand, express mail or overnight courier, use the
following address:
Summit Life Corporation
3021 Epperly Dr.
Oklahoma City, Oklahoma 73155
Note: Your check must be in "good funds" meaning that: it must be drawn
on a U.S. bank, payable in U.S. dollars; a check returned for
insufficient funds is not "good funds"--at the option of the Company it
may be returned to the sender with no attempt to redeposit. A money
order must be payable in U.S. dollars.
7. WHAT IS THE SUBSCRIPTION ORDER FORM?
The Subscription Order Form is the document that you must complete, sign and
return to the Company in order to purchase shares in the Offering. The
document requires certain important information, such as your name, address
and social security number, or Taxpayer Identification Number, as
appropriate. The Subscription Order Form also requires you to confirm that
you have received the Prospectus. A Subscription Order Form is included in
this Subscription Package. Photocopies of the Subscription Order Form may be
returned to the Company, but must include your original signature.
8. WHAT FORM OF PAYMENT SHOULD I USE WHEN I RETURN THE SUBSCRIPTION ORDER
FORM?
Payment may be made only by check or money order. Cash or credit card
payments will not be accepted. Upon receipt of your Subscription Order Form
by the Company, your check or money order will be deposited by the Company
in an account with the Escrow Agent, for safekeeping until the earlier of
(i) the release of funds from escrow, upon the obtaining of subscriptions
for at least 140,000 shares, or (ii) the termination of the Offering, if the
Company has not accepted subscriptions and payment in full for an aggregate
of at least 140,000 shares by _________, 1999.
9. WHO SHOULD BE THE PAYEE ON MY CHECK OR MONEY ORDER?
Your check or money order should be made payable to "Summit Life
Corporation." Please ensure your name is on your check or shown as the
remitter on a money order.
10. HOW SHOULD I RETURN MY SUBSCRIPTION ORDER FORM?
Return your fully completed and signed Subscription Order Form along with
your check or money order to the Company in the enclosed envelope. If you
lose the envelope, the address is listed in Question 6.
Questions and Answers-Page 2
<PAGE>
11. WILL I EARN INTEREST ON FUNDS SUBMITTED TO PURCHASE SHARES IN THE OFFERING?
Funds you submit to purchase shares in the Offering will not earn interest
unless the Offering is terminated, under the circumstances described in
Question 8. That is, if a minimum of at least 140,000 shares has not been
sold by ______, 1999, the Company will promptly return all investors' funds,
with interest.
Interest on subscriptions is not otherwise payable.
--------------------------------------------------
12. WHAT IS THE DEADLINE TO SUBMIT MY SUBSCRIPTION ORDER FORM AND CHECK FOR
GOOD FUNDS TO THE COMPANY?
The Company must accept subscriptions and payment in full for at least
140,000 shares by ________________, 1999. Otherwise, the Company will
terminate the Offering and return all investors' funds, with interest. If
the minimum number of shares is received by such date, the Company will
continue the Offering until ____________________.
13. CAN I FIND OUT IF MY SUBSCRIPTION ORDER FORM HAS BEEN RECEIVED BY THE
COMPANY PRIOR TO THE CLOSING OF THE OFFERING?
Yes, an acknowledgment of receipt will be mailed by the Company to you.
14. MAY I REVOKE MY SUBSCRIPTION ORDER FORM ONCE IT HAS BEEN RECEIVED BY THE
COMPANY?
No. Once your Subscription Order Form has been received by the Company, it
is irrevocable. After the Company has gone public, you can buy/sell shares
as with any other publicly traded stock.
15. IF I SUBMIT MY CHECK OR MONEY ORDER FOR GOOD FUNDS TOGETHER WITH A PROPERLY
COMPLETED AND SIGNED SUBSCRIPTION ORDER FORM, WILL I DEFINITELY BECOME A
STOCKHOLDER OF THE COMPANY?
Not necessarily. As stated above in answer to Question 12, the Company
will terminate the Offering if it does not accept subscriptions and payment
in full for at least 140,000 shares by ________________, 1999. If this
occurs, your funds would be returned in full, with interest.
16. WHEN CAN I EXPECT TO RECEIVE THE STOCK CERTIFICATE FOR MY COMMON STOCK?
It is expected that the Offering will close in _____________, 1999, unless
terminated at an earlier date. A stock certificate for your shares and any
refund check, if applicable, will be mailed to you within 10 days
thereafter.
17. HOW MANY STOCK CERTIFICATES WILL I RECEIVE FOR MY SHARES OF COMMON STOCK?
You will receive one stock certificate representing all shares of Common
Stock purchased by you in the Offering.
18. WHAT IF MY ADDRESS CHANGES EITHER DURING THE SUBSCRIPTION OFFERING OR
BEFORE I RECEIVE MY STOCK CERTIFICATE?
The stock certificate will be mailed to the address provided in the
Subscription Order Form. Therefore, it is your responsibility to provide
appropriate forwarding instructions to your post office, or, when
completing your Subscription Order Form, provide an address where you will
be sure your mail will be safely received.
19. WILL I BE CHARGED A COMMISSION ON THE PURCHASE OF THE COMMON STOCK IN THE
OFFERING?
No brokerage commission will be charged on the sale of shares in the
Offering.
Questions and Answers-Page 3
<PAGE>
20. CAN I PURCHASE SHARES OF COMMON STOCK IN THE OFFERING THROUGH MY BROKER?
No. Shares offered in the Offering may be purchased only through the
subscription process described in the Prospectus and in the Subscription
Order Form. After the Company has gone public, its Common Stock can be
bought/sold like any other common stock.
22. WHAT STOCK EXCHANGE WILL THE COMMON STOCK BE TRADED ON AND WHAT WILL THE
TICKER SYMBOL BE?
The Company intends to apply to the Nasdaq Stock Market to have its shares
of Common Stock authorized for listing on the Nasdaq SmallCap Market.
Because its shares are not currently listed, the Company does not yet have a
ticker symbol for the Common Stock. The Company believes that the
consummation of this Offering (assuming the sale of the maximum 1,000,000
shares) will enable it to meet the listing requirements for its Common Stock
to be listed on the Nasdaq SmallCap Market. However, even if the Company is
not able immediately to become listed on the Nasdaq SmallCap Market, the
Company will file quarterly, annual and other reports with the Securities
and Exchange Commission. The availability to the public of such information
should enable the Company's Common Stock to be tradable even in the absence
of an exchange listing. Securities which are not listed on any stock
exchange but which are publicly traded are said to be "over the counter"
securities. The Company's preference is to have its Common Stock listed as
soon as possible on the Nasdaq SmallCap Market. However, until such time as
the Common Stock is listed on the Nasdaq or any other recognized stock
exchange, the Company will undertake to make publicly available whatever
information is necessary in order that its Common Stock may at least be
traded in the "over-the-counter" market.
23. CAN I CALL THE COMPANY WITH ANY QUESTIONS?
You may call the Company at 1-405-677-0781.
September __, 1998
THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY STOCK.
THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
Questions and Answers-Page 4
