<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1998
REGISTRATION NO.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
THE WMA CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 6311 58-2179041
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
S. HUBERT HUMPHREY, JR.
PRESIDENT & CHIEF EXECUTIVE OFFICER
11315 JOHNS CREEK PARKWAY 11315 JOHNS CREEK PARKWAY
DULUTH, GEORGIA 30097 DULUTH, GEORGIA 30097
(770) 248-3311 (770) 453-9300
(Name, address, including zip code, and (Name, address, including zip code, and
telephone number, including area code, of telephone number, including area code, of agent
registrant's principal executive offices) for service)
</TABLE>
---------------------
with copies to:
CLAIR W. LANGMAID, ESQ.
MERRITT & TENNEY, LLP
200 GALLERIA PARKWAY, N.W.
SUITE 500
ATLANTA, GEORGIA 30339-3183
(770) 952-6550
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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,
check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value..... Shares $ $37,500,000 $11,062.50
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</TABLE>
(1) Estimated pursuant to Rule 457 solely for the purposes of calculating the
registration fee.
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 HIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
THE WMA CORPORATION
CROSS REFERENCE SHEET
(PURSUANT TO ITEM 501 OF REGULATION S-K SHOWING THE
LOCATION IN THE PROSPECTUS OF THE RESPONSES TO THE ITEMS
OF PART I OF FORM S-1)
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FORM S-1
ITEM NO. LOCATION IN PROSPECTUS
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<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover
Cover Pages of Prospectus................ Inside Front Cover Page;
Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page; How to Subscribe
6. Dilution................................... Dilution
7. Selling Security Holders................... Not Applicable
8. Plan of Distribution....................... How to Subscribe
9. Description of Securities to be
Registered............................... Description of Capital Stock
10. Interests of Named Experts and Counsel..... Experts
11. Information with Respect to the
Registrant............................... Prospectus Summary; Risk Factors; The
Company; Dividend Policy; Capitalization;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain Transactions
and Relationships; Principal Stockholders;
Description of Capital Stock; Shares
Eligible for Future Sale; Financial
Statements;
12. Disclosure of Commission's Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
</TABLE>
ii
<PAGE> 3
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
PRELIMINARY PROSPECTUS DATED JUNE 9, 1998
SHARES
(LOGO WMA)
COMMON STOCK
---------------------
All of the shares of common stock, $.001 par value (the "Common
Stock") offered hereby (the "Subscription Offering") are being offered on a
non-underwritten, best efforts, minimum-maximum basis by The WMA Corporation
(the "Company") until termination or the maximum offering has been achieved. The
Subscription Offering is being made directly and exclusively to: (i) certain
independent sales agents contractually affiliated with World Marketing Alliance,
Inc. ("Agent Subscribers"); (ii) certain employees of World Marketing Alliance,
Inc. and its affiliated companies ("Employee Subscribers"); (iii) individual
retirement accounts, simplified employee plans, and Keogh Plans (collectively,
the "Pension Plans") of Agent Subscribers and Employee Subscribers; and (iv)
certain other investors acceptable to the Company. The term "Subscribers" refers
to all Agent Subscribers, Employee Subscribers, their Pension Plans and other
investors who receive directly from the Company a copy of this Prospectus and a
Subscription Agreement on which the Subscriber's name and mailing address is
preprinted. See "How to Subscribe" for a description of the procedures to be
followed in order to subscribe in the Subscription Offering.
To date, there is no public market for shares of Common Stock of the
Company. The subscription price per share of Common Stock is $ (the
"Subscription Price"). The Subscription Price was set by the Company after
consultation with , its financial advisor for the Subscription
Offering. See "How to Subscribe -- Determination of Offering Price". The minimum
subscription is 50 shares or $ . All subscription funds received will be
held in escrow pending receipt and acceptance of subscription agreements to
purchase a minimum of $5,250,000 of Common Stock (the "Minimum Offering"). See
"How to Subscribe -- Subscription Agent and Escrow Arrangements" for a
description of the escrow arrangements. The Subscription Offering will terminate
on October 30, 1998, if the Company fails to receive and accept by that date
subscription agreements between Subscribers and the Company (the "Subscription
Agreements") for the Minimum Offering.
SUBSCRIPTION AGREEMENTS TOGETHER WITH PAYMENT FOR THE NUMBER OF SHARES FOR
WHICH THE SUBSCRIBER WISHES TO SUBSCRIBE MUST BE RECEIVED BY AMERICAN STOCK
TRANSFER & TRUST COMPANY, THE COMPANY'S SUBSCRIPTION AGENT (THE "SUBSCRIPTION
AGENT"), PRIOR TO THE EXPIRATION TIME ("EXPIRATION TIME") WHICH SHALL BE THE
EARLIER OF (I) OCTOBER 30, 1998 IF THE MINIMUM OFFERING IS NOT ATTAINED BY THAT
DATE (II) RECEIPT AND ACCEPTANCE BY THE COMPANY OF SUBSCRIPTION AGREEMENTS TO
PURCHASE A MAXIMUM OF $37,500,000 OF COMMON STOCK, OR (III) MARCH 31, 1999
UNLESS SUCH DATE IS EXTENDED BY THE COMPANY TO NO LATER THAN DECEMBER 31, 1999,
OR (IV) TERMINATION OF THE SUBSCRIPTION OFFERING BY THE COMPANY AFTER THE
MINIMUM OFFERING HAS BEEN ATTAINED. THE COMPANY RESERVES THE RIGHT, IN ITS SOLE
DISCRETION, TO INCREASE THE MAXIMUM NUMBER OF SHARES OFFERED TO NO MORE THAN
. THE COMPANY MAY ACCEPT SUBSCRIPTION AGREEMENTS AFTER ATTAINING THE
MINIMUM OFFERING UNTIL THE EXPIRATION TIME. Subscribers are urged to act
promptly in returning their completed Subscription Agreements and payments to
the Subscription Agent prior to the Expiration Time. See "How to Subscribe --
Expiration Time". ALL SUBSCRIPTION AGREEMENTS RECEIVED BY THE SUBSCRIPTION AGENT
ARE IRREVOCABLE.
The Company has applied to the National Association of Securities Dealers
Automatic Quotation System ("NASDAQ") National Market to have the Company's
Common Stock approved for quotation under the symbol "WMAC". It is anticipated
that such quotation will become effective on or before October 30, 1998, if the
Company has received the Minimum Offering by that date.
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN RISK FACTORS TO BE TAKEN INTO
CONSIDERATION IN DETERMINING WHETHER TO INVEST IN THE COMPANY'S COMMON STOCK.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY THE SECURITIES COMMISSION OF ANY STATE, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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SUBSCRIPTION PROCEEDS TO
PRICE COMPANY(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share...................................................... $ $37,500,000
- -------------------------------------------------------------------------------------------------------------------
Total................................ Minimum(2) $ $ 5,250,000
- -------------------------------------------------------------------------------------------------------------------
Maximum(3) $ $37,500,000
===================================================================================================================
</TABLE>
(1) Before deducting expenses of the Subscription Offering payable by the
Company, estimated to be $750,000.
(2) Assumes shares are sold in the Subscription Offering at the
Subscription Price.
(3) Assumes all shares are sold in the Subscription Offering at the Subscription
Price. The Company reserves the right in its sole discretion to increase the
maximum number of shares of Common Stock available in the Subscription
Offering to no more than .
The shares of Common Stock offered in the Subscription Offering are subject
to the receipt and acceptance of properly completed Subscription Agreements
accompanied by proper payment of the total purchase price in good funds and
subject to the Company's right to terminate the Subscription Offering at any
time in its absolute discretion. The Company may reject any Subscription
Agreement in whole or in part for any reason. Funds received by the Subscription
Agent will be placed in an escrow account and will remain the property of the
Subscribers pending acceptance by the Company of the Minimum Offering. Escrowed
subscription funds relating to Subscription Agreements which the Company has not
accepted within one month after the Expiration Time will be returned promptly
thereafter to Subscribers. See "How to Subscribe -- Subscription Agent and
Escrow Arrangements". It is expected that delivery of certificates representing
the Common Stock will be made no later than sixty days after the Expiration
Time.
---------------------
THE DATE OF THIS PROSPECTUS IS JUNE , 1998.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information herein and the
Company's Consolidated Financial Statements, including the notes thereto,
appearing elsewhere in this Prospectus. As used in this Prospectus, (i) all
financial data relating to the Company have been prepared using generally
accepted accounting principles in the United States ("GAAP"), (ii) "Company"
means The WMA Corporation and, unless the context requires otherwise, its
wholly-owned subsidiary, WMA Life Insurance Company Limited, a Bermuda life
insurance company ("WMA Life"), and (iii) "WMA Agency" means World Marketing
Alliance, Inc., an insurance agency, WMA Securities, Inc., a securities broker,
and certain related persons that are involved in the marketing and sale of life
insurance, annuities and other financial services. The Company does not have any
investment in WMA Agency and the Common Stock offered in the Subscription
Offering represents no interest in WMA Agency. Certain information contained in
this summary and elsewhere in this Prospectus, including information with
respect to the Company's plans and strategy, are forward-looking statements. For
a discussion of important factors which could cause actual results to differ
materially from the forward-looking statements contained herein, see "Risk
Factors". See "Glossary of Insurance Terms" for definitions of certain insurance
terms used herein.
THE COMPANY
The Company, through WMA Life, provides reinsurance for certain life
insurance companies on variable universal life insurance ("VUL") and variable
annuity products sold through WMA Agency. Through 1997, the Company primarily
reinsured mortality risks on VUL products, but it has recently expanded its most
significant reinsurance relationship to assume more of the benefits and risks
associated with the underlying policies. For the year ended December 31, 1997,
the Company earned $1.5 million on revenues of $6.8 million. Total assets and
stockholders' equity at December 31, 1997 were $25.1 million and $22.1 million,
respectively. As of December 31, 1997, the Company reinsured approximately
150,000 policies and had life reinsurance in force with an aggregate face value
of $4.2 billion.
For the three months ended March 31, 1998, the Company earned $314,000 on
revenues of $2.1 million. Total assets and stockholders' equity at March 31,
1998 were $27.2 million and $22.4 million, respectively. As of March 31, 1998,
the Company reinsured approximately 167,200 policies and had life reinsurance in
force with an aggregate face value of nearly $4.7 billion.
The Company benefits from the ongoing support of WMA Agency, an
international sales and marketing organization which markets life insurance,
annuities and other financial services. WMA Agency is authorized to sell life
insurance and annuity products in all 50 states and in other jurisdictions. WMA
Agency has a large network of independent insurance agents ("WMA Sales
Associates"). The Company's Chief Executive Officer, S. Hubert Humphrey, Jr.,
owns substantially all of the common stock of World Marketing Alliance, Inc. and
the related companies constituting WMA Agency.
The Company was formed in 1995, principally to provide an opportunity for
WMA Sales Associates to participate indirectly in certain of the business
produced by WMA Agency. In a non-underwritten offering initiated in December,
1995, the Company offered shares of its Common Stock to certain WMA Sales
Associates and employees of WMA Agency. The Company believes that WMA Sales
Associates who have an equity interest in the Company have a greater incentive
to place profitable and persistent business with life insurers that are
reinsured by the Company. As of March 31, 1998, WMA Sales Associates and
employees of WMA Agency owned substantially all of the outstanding Common Stock
of the Company. The Company has entered into an agreement with WMA Agency which
provides that WMA Agency will use its best efforts to cause the life insurance
companies with which it has selling agreements to enter into reinsurance
agreements with the Company covering the life insurance and annuity products
sold through WMA Agency. See "Certain Relationships and Related
Transactions -- WMA Agency Agreement."
The Company currently has reinsurance agreements with the three following
life insurance companies (hereinafter collectively referred to as the "Ceding
Life Companies"):
- Western Reserve Life Assurance Company of Ohio ("Western Reserve"), a
member of the AEGON international insurance group.
1
<PAGE> 5
- Kemper Investors Life Insurance Company ("Kemper"), a member of the
Zurich international insurance group.
- American Skandia Life Assurance Corporation ("American Skandia"), a
member of the Skandia international insurance group.
The Company's most significant reinsurance relationship is currently with
Western Reserve.
The Company recently entered into new reinsurance agreements with Western
Reserve on certain VUL and variable annuity products which will enable the
Company to participate in earnings arising principally from mortality and
expense charges, costs of insurance charges, sales charges associated with
surrenders, credited interest rate spreads, administrative charges and asset
based allowances. These new reinsurance agreements provide that Western Reserve
will reinsure on a coinsurance and modified coinsurance basis with the Company,
during 1998, 20% of certain of its VUL policies and 40% of certain of its
variable annuity products sold through WMA Agency. In subsequent years, the
Company and Western Reserve will jointly determine the quota share percentages
applicable to new VUL and variable annuity business written through WMA Agency.
This determination will be based, upon (i) the total new premiums collected by
Western Reserve written through WMA Agency, and (ii) the total new VUL and
variable annuity business written by WMA Agency with all insurance companies
during a given year. As the premium volume of new business of Western Reserve's
VUL and variable annuity business written through WMA Agency increases in
subsequent years, the Company's quota-share percentage of reinsurance of this
business may also increase up to a maximum of 40% of Western Reserve's VUL
production written through WMA Agency and 50% for such variable annuity
production. These quota-share percentages may be less with regard to new
business, if scheduled Western Reserve market share percentages of WMA Agency's
total VUL and variable annuity production are not attained. See
"Business -- Reinsurance Agreements".
BUSINESS STRATEGY. The Company's ability to achieve growth and
profitability will depend upon the marketing and sales efforts of WMA Agency and
upon the successful implementation of the Company's business strategy. The
principal elements of this strategy are:
Expand Reinsurance Coverages. By broadening its current reinsurance
coverages beyond mortality risks, the Company seeks to diversify its
exposure and participate more fully in earnings generated by life insurance
and annuity products sold through WMA Agency. The new reinsurance
agreements with Western Reserve are significant steps taken to implement
the Company's strategy. The Company will seek to enter into similar
agreements with certain other life insurance companies whose products are
sold through WMA Agency.
Continue to Leverage the Relationship with WMA Agency. The ability of
WMA Agency to market and sell life insurance and annuity products for the
Ceding Life Companies is the basis of all of the Company's reinsurance
relationships and has enabled the Company to negotiate its new reinsurance
agreements with Western Reserve. The Company will seek to continue its
close relationship with WMA Agency and to utilize this relationship to
negotiate reinsurance agreements favorable to the Company.
Strengthen the Relationship with WMA Sales Associates. Through
investments in the Company, WMA Sales Associates have the opportunity to
participate in earnings generated by certain life insurance and annuities
sold through WMA Agency. As a result of their equity interest in the
Company, WMA Sales Associates have a greater incentive to place profitable
and persistent business with the Ceding Life Companies, which benefits the
Company through its reinsurance agreements with the Ceding Life Companies.
Pursue Strategic Opportunities and Acquisitions. The Company will
consider acquisitions and other opportunities designed to enable the
Company to further benefit from its relationship with WMA Agency. The
Company over time may expand and diversify its operations into businesses
related to the sale and administration of life insurance, annuities and
other financial services sold through WMA Agency.
RISK FACTORS. Prospective Subscribers should carefully consider the
factors set forth herein under the caption "Risk Factors" and are urged to read
this Prospectus in its entirety.
2
<PAGE> 6
FORWARD-LOOKING STATEMENTS. Certain statements in this Prospectus Summary
and under the captions "Risk Factors", "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Business" and elsewhere in this
Prospectus constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements include, but
are not limited to, statements relating to increases in revenues and net income
by expanding reinsurance capacity and writing different types of reinsurance,
such as coinsurance and modified coinsurance. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements.
(corporate structure)
THE OFFERING
Common Stock offered in the
Subscription
Offering(1).............. shares
Common Stock to be
outstanding after the
Subscription
Offering(1).............. shares
Use of Proceeds............ The amount of proceeds from the Subscription
Offering will vary depending upon, among other
things, the total number of shares subscribed for
in the Subscription Offering. It is anticipated
that the proceeds of the Subscription Offering will
be applied to make additional contributions to the
capital of WMA Life. WMA Life shall use a
significant portion of the proceeds to make
payments of reinsurance allowances to Western
Reserve.
Proposed NASDAQ National
Market Symbol............ WMAC
- ---------------
(1) Assumes all shares offered in the Subscription Offering are sold at the
Subscription Price. The Company, however, reserves the right, in its sole
discretion, to increase the maximum number of shares being offered to no
more than and to extend the Expiration Time to no later than
December 31, 1999.
3
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents summary historical financial data derived from
the Consolidated Financial Statements of the Company for the period March 9,
1995 through December 31, 1995, the years ended December 31, 1996 and 1997, and
for the three month periods ended March 31, 1997 and 1998. The summary
historical financial data as of and for the years ended December 31, 1996 and
1997 have been derived from the Consolidated Financial Statements of the Company
audited by KPMG Peat Marwick LLP, independent auditors, whose report thereon
appears elsewhere in this Prospectus. The financial data as of and for the
period ended December 31, 1995 have been derived from the Consolidated Financial
Statements of the Company audited by Snyder, Camp, Stewart & Company, LLP,
independent auditors, whose report thereon appears elsewhere in this Prospectus.
This information should be read in conjunction with the Consolidated Financial
Statements of the Company and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
YEAR OR PERIOD ENDED
DECEMBER 31,
-------------------------- THREE MONTHS
FROM ENDED MARCH 31,
MARCH 9, ---------------
1995 1996 1997 1997 1998
-------- ------ ------ ------ ------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
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OPERATING DATA:
Premiums........................................... $ 0 $2,007 $5,217 $1,068 $1,729
Net investment income.............................. 6 627 1,088 257 250
Total revenues..................................... 6 2,634 6,800 1,325 2,138
Total benefits and expenses........................ 361 1,977 4,465 797 1,662
Net income (loss) before income taxes.............. (355) 657 2,335 528 476
Net income (loss) after income taxes............... (355) 544 1,519 323 314
Basic and diluted income (loss) per share.......... $(0.87) $ 0.44 $ 0.63 $ 0.14 $ 0.13
Weighted average common shares outstanding......... 408 1,247 2,395 2,386 2,497
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, MARCH 31,
--------------------------------- -----------------------
1995 1996 1997 1997 1998
------- ---------- ---------- ---------- ----------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
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BALANCE DATA SHEET:
Total investments..................... $ 0 $ 16,157 $ 18,413 $ 16,857 $ 17,836
Total assets.......................... 782 19,270 25,066 20,542 27,159
Total liabilities..................... 887 917 2,990 1,070 4,709
Total stockholders' equity
(deficit).......................... (105) 18,353 22,076 19,472 22,450
OTHER DATA:
Life reinsurance business in force.... $ 0 $2,673,000 $4,162,000 $2,983,000 $4,660,000
Actual shares outstanding............. 500 2,306 2,498 2,412 2,496
</TABLE>
4
<PAGE> 8
RISK FACTORS
An investment in the Company's Common Stock involves certain significant
risks. Prospective Subscribers should carefully consider the factors set forth
below, as well as other information contained in or incorporated by reference
into this Prospectus before purchasing the shares offered hereby.
RELIANCE ON WMA AGENCY AND WMA SALES ASSOCIATES
All life insurance and annuities reinsured by the Company were written by
the Ceding Life Companies through WMA Agency. The Company's growth is, and for
the foreseeable future will continue to be, completely dependent on (i) WMA
Agency's ability to market and sell life insurance and annuity products, and
(ii) WMA Agency's agreement and ability to use its influence to encourage the
life insurance companies with which it places business to reinsure a portion of
such business with the Company. Management believes that the ability of WMA
Agency to market and sell life insurance and annuity products could be affected
by many factors, including the following: the ability of WMA Agency to recruit,
train, motivate and retain successful WMA Sales Associates; the degree of market
acceptance of the products offered through WMA Agency; the loss of the services
of Mr. Humphrey; a change in control of WMA Agency; the relationship between WMA
Agency and Western Reserve and the other life insurance companies with which WMA
Agency currently places, or may in the future place, business; the failure of
WMA Agency or WMA Sales Associates to comply with federal, state and National
Association of Securities Dealers ("NASD") regulatory requirements applicable to
the sale of insurance and investment products; adverse publicity concerning WMA
Agency; the ability of WMA Agency to meet its debt obligations; and competition
from other financial services companies in the sale of insurance and investment
products. See "-- Certain WMA Agency Regulatory Matters".
The Company's growth will depend largely on the efforts of WMA Sales
Associates, who are independent contractors of WMA Agency. WMA Sales Associates
can voluntarily terminate their contracts with WMA Agency at any time. Future
growth in the Company's business will depend largely upon either an increase in
the productivity of existing WMA Sales Associates or growth in the number of
productive WMA Sales Associates. Since WMA Sales Associates are contracted by
WMA Agency and not by the Company, the Company is not in a position to direct or
oversee the activities of WMA Sales Associates. Due to competition among
insurance companies and insurance marketing organizations for successful
producers, there can be no assurance that WMA Agency will be able to retain some
or all of the top producing members of its significant sales teams. The loss of
one or more of the top producing sales teams within WMA Agency could have a
material, adverse effect upon the Company.
CERTAIN WMA AGENCY REGULATORY MATTERS
The VUL and variable annuity products marketed by WMA Agency are treated as
securities under federal and state securities laws. In order to sell these
products, the WMA Sales Associates must be individually licensed by the NASD and
must become affiliated with a registered securities broker-dealer. WMA
Securities, Inc. ("WMAS") is a registered broker-dealer having common ownership
with WMA Agency. All of the WMA Sales Associates who are licensed to sell VUL
and variable annuity products are registered representatives of WMAS.
As a registered broker-dealer, WMAS's operations are subject to periodic
examination and review by both the NASD and the Securities and Exchange
Commission ("SEC"), a federal agency. In September, 1997, the Atlanta District
Office of the SEC examined the operations of WMAS. On February 3, 1998, WMAS
received a letter from the SEC setting forth certain alleged deficiencies and
violations of the Securities Exchange Act of 1934 pertaining to net capital
requirements, record keeping and other compliance matters. In response to this
letter, WMAS subsequently engaged a consultant to make recommendations to WMAS
on how to improve its compliance practice and has notified the SEC in its
response that it plans to implement the consultant's recommendations.
Implementation of these recommendations is underway and will involve significant
capital expenditures by WMAS and could lead to a temporary disruption of WMAS's
business.
5
<PAGE> 9
The Company understands that it is not the current policy of the SEC to
issue any written advice as to whether the steps taken by a recipient of a
deficiency letter to address alleged deficiencies are adequate or satisfactory;
therefore, it is unlikely that WMAS will receive any indication from the SEC
regarding the adequacy of the corrective action that it has taken or intends to
take, until the SEC conducts a subsequent examination of the operations of WMAS
and the alleged deficiencies contained in the current deficiency letter are no
longer found to exist. WMAS cannot determine when or if the SEC will conduct a
subsequent examination of its operations nor can it predict the outcome of such
examination should it occur.
If the SEC believes that the alleged deficiencies contained in the above
deficiency letter rise to the level of a potential violation of the federal
securities laws, the SEC, through its Enforcement Division, may initiate further
investigation. If such a further investigation reveals one or more violations of
the federal securities laws, the Enforcement Division may recommend the
imposition of sanctions against WMAS. These sanctions, should they be imposed,
could take various forms, including but not limited to, the imposition of
monetary penalties which can be quite substantial depending upon the nature and
severity of the violation, heightened regulatory scrutiny by the SEC and NASD,
and the temporary suspension or permanent revocation of WMAS's registration or
of the licenses of WMA Sales Associates, resulting in the broker-dealer's
inability to continue operations.
There can be no assurance that the SEC, through its Enforcement Division,
after an investigation, will not seek to impose sanctions against WMAS, which if
substantial could impair the financial and operating condition of WMAS. If WMA
Sales Associates are no longer able to maintain their licenses with WMAS, a
disruption of the sale of new VUL and variable annuity products would result
until the WMA Sales Associates could become registered with another
broker-dealer. There can be no assurance, however, that WMA Sales Associates
could register with another broker-dealer. Consequently, such a disruption could
cause a significant interruption in the production of new business reinsured by
the Company due to the Company's dependence upon WMA Agency and WMA Sales
Associates for the marketing of new VUL and variable annuity policies which the
Company may then reinsure.
DEPENDENCE ON CEDING LIFE COMPANIES
Through March 31, 1998, the Company derived substantially all of its life
insurance reinsurance revenue from VUL policies issued by Western Reserve and
substantially all of its annuity reinsurance revenues from variable annuities
issued by American Skandia. The termination of the Company's reinsurance
relationships with either of these life insurance companies would have a
material adverse effect on the operating results and prospects of the Company.
The Company will have significant reinsurance balances due from the Ceding Life
Companies, in particular Western Reserve, and, as a result, will be exposed to
risk associated with the collection of these balances.
Policies reinsured by the Company are administered by the Ceding Life
Companies. The Ceding Life Companies provide the Company with the information
necessary for managing the reinsurance business. Since the Company does not
participate in the underwriting or any of the direct administration of the
reinsured policies and has not independently reviewed the administrative
practices of the Ceding Life Companies, management may not have sufficient
information to evaluate the quality of or the administration of the business
reinsured by the Company or the accuracy of the information provided by the
Ceding Life Companies. See "Business -- Policy Administration".
LIMITED OPERATING AND PRODUCT HISTORY
The Company, formed in 1995, did not commence its reinsurance operations
until the end of the second quarter of 1996. Accordingly, it has been engaged in
the reinsurance business for a relatively short period of time and has a limited
history of operations. No assurance can be given that the future operations of
the Company will be profitable.
The Company's operating results are based on certain assumptions involving
persistency, mortality, investment yields, expenses and other material
characteristics of the reinsured policies. In view of the limited history of
these policies, there can be no assurance that the assumptions made by the
Company will prove to
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be appropriate. To the extent that actual product performance varies from the
Company's assumptions, the Company may be required to make adjustments that may
have a material adverse effect on the operating results and financial condition
of the Company in future periods.
DEPENDENCE UPON VARIABLE PRODUCTS
The Company currently reinsures only VUL and variable annuity policies sold
through WMA Agency. No assurance can be given that VUL and variable annuity
policies will continue to be accepted in the marketplace or that the Company
will be able to reinsure other insurance products in the future. See "Federal
Tax Proposals" and "Business -- Reinsurance Agreements".
LIMITED MANAGEMENT STAFF EXPERIENCE
Most of the officers of the Company have limited experience or expertise in
operating a reinsurance business. The Company has historically relied upon WMA
Agency, the Ceding Life Companies and other third party providers for all
managerial and administrative services. During the second quarter of 1998, the
Company hired four employees, all of whom had previously been employees of WMA
Agency. The Company will continue to rely on third party providers for many
services. There can be no assurance that the Company will have sufficient
resources and skills to operate its reinsurance business in a profitable manner
or that it will be able to obtain or retain appropriate services from third
party providers.
CONFLICTS OF INTEREST
Mr. Humphrey, the Company's President, currently owns 20% of the Company's
outstanding Common Stock. Mr. Humphrey has also recently been granted stock
options to purchase another shares of Common Stock. In the event of his
exercise of these stock options, Mr. Humphrey would own % of the Company's
Common Stock after the Subscription Offering. See "Management -- Executive
Compensation". WMA Agency is also controlled by Mr. Humphrey and is, therefore,
an affiliate of the Company. In addition, Mr. Humphrey and certain directors and
officers of the Company are also employees of WMA Agency. The Company has and
may continue to enter into transactions from time to time with WMA Agency, Mr.
Humphrey, other officers or directors of the Company or their affiliates. Such
transactions necessarily involve conflicts of interest, and the terms of such
transactions may not necessarily be equivalent to the terms of transactions
entered into between unrelated parties pursuant to arms length negotiations.
The Company's officers do not, and are not required to, devote their time
exclusively to the business of the Company, nor are they subject to
noncompetition agreements. As a consequence, they could legally engage in
activities which could be adverse to the best interests of the Company, subject
to their fiduciary obligations to the Company under applicable corporate law.
See "Certain Relationships and Related Transactions".
In view of the substantial relationships among the Company, WMA Agency and
Mr. Humphrey, conflicts of interest will exist or arise with respect to existing
and future business dealings, including, without limitation: the terms of WMA
Agency's selling agreements (including commission arrangements) and the
Company's reinsurance relationships with life insurance companies; the relative
commitment of time and energy of Mr. Humphrey and the other common executive
officers of WMA Agency and the Company; agreements between the Company and WMA
Agency; potential acquisitions of properties or businesses; the issuance of
additional securities by the Company; the election of the Company's directors;
and the payment of dividends by the Company. The Company's Board of Directors
recently amended the Company's by-laws to require transactions in which a
director or executive officer has a direct or indirect material interest to be
approved by a majority of the Board of Directors, including a majority of
disinterested directors, after full disclosure, or by the vote of the holders of
a majority of the shares of Common Stock outstanding. There can be no assurance
that any conflicts of interest will be resolved in favor of the Company. See
"Certain Relationships and Related Transactions".
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MATERIAL RISKS IN THE COMPANY'S REINSURANCE BUSINESS
The Company faces certain specialized risks common to all life reinsurance
companies. The Company's profitability will depend on the successful management
of these material business risks, which are typically similar to the risks that
the Ceding Life Companies face. Because of the Company's reliance on the Ceding
Life Companies, the Company has less control over certain of these risks than
the Ceding Life Companies or other life insurance companies. These risks
include: adverse insurance experience; miscellaneous and external events;
investment risk; and disintermediation, which are summarized as follows:
Adverse Insurance Experience is the risk of mispricing the contingency
being insured against. Items that typically make up the components of
pricing include mortality, expenses, persistency (lapses and surrenders)
and investment income. Although the Company does not participate in the
selection of pricing assumptions or methodologies used in pricing the
Ceding Life Company products, it does evaluate these elements in pricing
the reinsurance agreements.
- Mortality is the relative incidence of death experienced by insured
lives as a group. Risk exists that the mortality on the lives
reinsured by WMA Life may be above the mortality assumed in pricing
its reinsurance or by the Ceding Life Companies in pricing the
underlying policies, in which case profitability will be adversely
affected.
- Expenses typically consist of reinsurance expense allowances and
internal operating expenses of the Company. Reinsurance expense
allowances typically reimburse the Ceding Life Companies for
commissions, issue expenses and administrative expenses that are
associated with the reinsured policies. In general, the Company is not
at risk for variance in the Ceding Life Companies' actual expenses
from those agreed upon under the reinsurance agreements. However,
operating expenses of the Company do represent a critical element in
profitability. Risk exists that the expenses actually incurred will
exceed expenses assumed by the Company in establishing the pricing of
the reinsurance by the Company or by the Ceding Life Companies in
pricing the underlying policies.
- Persistency is the extent to which insurance policies are maintained
by the policyholder. Policyholders sometimes do not pay premiums, thus
causing their policies to lapse, or policyholders may choose to
surrender their policies for their cash surrender value. Actual
persistency is a factor in determining whether new business is
profitable to insurance companies. If the actual experience is
different from the initial assumptions, a loss could result. Depending
on the nature of the reinsurance, and that of the underlying policy, a
lapse or surrender may result in surrender charge revenue. The
surrender charge revenue may be less than, or greater than,
unamortized acquisition expenses. Accordingly, current period revenue
may either increase or decrease. In addition, often during the first
policy year, a refund of certain reinsurance allowances may occur upon
policy lapse or surrender. The refund is intended to recover certain
reinsurance expense allowances paid to the Ceding Life Companies.
Nonetheless, all policy lapses and surrenders will result in lost
future revenues and possibly profitability associated with the
business reinsured. If persistency is worse than assumed in pricing
the reinsurance product, profitability is likely to be adversely
affected.
- Investment income is based on the rate of return on invested cash.
Assumptions regarding the amount of investment income affect the
pricing of the reinsurance offered by the Company. Risk exists that
the Company will not earn sufficient investment income to support the
pricing of products or reinsurance.
Miscellaneous and External Events are business risks that are
difficult to estimate prior to their occurrence, including such items as
litigation, governmental and regulatory changes, tax law changes, product
acceptance, epidemics, catastrophic events, market trends, a significant
drop in the U.S. securities markets or a general economic downturn. Any
such development could have a material adverse effect upon the Company.
Investment Risk includes credit risk, interest rate risk and the risk
of a diminishing rate of return on invested assets. Credit risk may include
asset depreciation caused by asset default or credit deterioration
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on fixed income securities. Interest rate risk is associated with changes
in asset values due to changes in interest rates. Although changes in
interest rates will cause the market value of fixed income securities to
change, the gain or loss associated with the change will not be realized
unless the asset is sold. Aside from temporary fluctuations, the risk
associated with the rate of return on investment assets is determined by
the ability of the Company to achieve a net investment yield on its
investments that is at least as great as that assumed in pricing its
reinsurance agreements over the life of the business.
Unlike insurance regulations in the United States, Bermuda insurance
regulations do not impose any restrictions on the Company's investments
other than the requirement that investments must be made for the "potential
benefit" of the company. Thus, other than provisions of reinsurance
agreements that may require that the investments be of a certain quality,
the Company has discretion to make any type of investment. While the
Company has developed specific investment guidelines for its investment
manager, these guidelines are subject to change at the discretion of the
Company. Furthermore, the investment advisor has absolute discretion in
making investment portfolio decisions and selections within the Company's
guidelines. The ability of the Company to select investments without
regulatory restrictions may increase the risks of asset default or
impairment and could negatively affect the Company's results of operations.
See "Business -- Investments".
Disintermediation is the risk that interest rates rise and policy
loans and surrenders increase. The Company may have to sell assets at a
loss to fund these cash outflows.
LIQUIDITY REQUIREMENTS
As a result of the new reinsurance agreements with Western Reserve on a
coinsurance and modified coinsurance basis and similar agreements that the
Company may enter into in the future, the Company will require substantially
greater amounts of cash to pay reinsurance expense allowances to the Ceding Life
Companies than it has been required to make under its monthly renewable term
reinsurance arrangements. During the first year in which a policy is reinsured
on a coinsurance basis, the Company is required to reimburse the Ceding Life
Company for acquisition costs, including initial commissions and issuance
expense. The reimbursements made by the Company to the ceding company under
these arrangements are expected to be a substantial proportion of the amount of
premiums received by the Company during the first year a policy is in effect.
The Company believes that its existing sources of cash and the net proceeds
from the Subscription Offering will be sufficient to meet the Company's cash
obligations under the new reinsurance agreement with Western Reserve through the
second quarter of 1999 provided the $37,500,000 of proceeds are raised in the
Subscription Offering. Depending on the aggregate amount of proceeds raised in
the Subscription Offering and the Company's future cash requirements, the
Company may have to resort to other methods of raising the necessary capital to
fund required payments to the Ceding Life Companies, such as borrowing from
financial institutions or the sale of additional common stock or securities in
subsequent private or underwritten public offerings. There can be no assurance
that such alternative sources of financing will be available to the Company at
an acceptable cost, if at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources".
FEDERAL TAX PROPOSALS
WMA Life's reinsurance agreements involve VUL policies and variable
annuities which receive favorable tax treatment compared to many investment
alternatives. Any material change in such income tax treatment, or the adoption
of a "flat tax" or national sales tax in place of the current federal income tax
structure in the United States, may have a material adverse effect on the market
for such products.
In February of this year, the Clinton Administration proposed several
changes in the existing income tax law which, if enacted, would make variable
life insurance policies and variable annuities materially less attractive to
potential purchasers. One proposal would repeal the tax-free treatment of any
exchange of a life insurance, endowment or annuity contract for a variable form
of a life insurance or annuity contract. A second proposal would tax any gain
realized upon the transfer by a policyholder among the various types of
investment
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options available in variable life insurance and variable annuity products. Such
transfers are presently tax-free. A third proposal would reduce the
policyholder's tax basis in a life insurance or annuity contract by an amount
equal to specified mortality and expense charges.
DEPENDENCE ON KEY PERSONNEL
The success of the Company will depend to a significant extent on the
continued services of the key executive officers of the Company, including S.
Hubert Humphrey, Jr., Thomas W. Montgomery and Edward F. McKernan. The Company
does not have employment agreements with any of these executive officers. The
loss or unavailability of such key executive officers, or the inability to
attract or retain key officers or employees in the future, could have a material
adverse effect upon the Company's operations. See "Management -- Executive
Officers and Directors".
GEOGRAPHIC CONCENTRATION
The Company estimates that approximately 45% of the VUL and approximately
29% of the variable annuity premiums received by WMA Agency on business
reinsured by the Company in 1997 was issued by the Ceding Life Companies in
California. As a result, the Company's results of operations may be
significantly affected by regulatory, economic, demographic and other conditions
specific to California as they may relate to WMA Agency, the Ceding Life
Companies or the Company.
COMPETITION
The Company could not continue to write reinsurance or compete in the
reinsurance industry without its relationship with WMA Agency. The Company is
dependent upon the ability of WMA Agency to compete effectively in a highly
competitive industry with other marketing organizations and financial service
companies in the sale of insurance and investment products. Many of the
financial service companies with which WMA Agency competes have significantly
greater financial resources and marketing capabilities than WMA Agency. See
"Business -- Marketing-WMA Agency".
ABSENCE OF FINANCIAL RATING
The Company is not currently rated by any insurance company rating service
such as A.M. Best Company, Inc. Growth in the Company's business may be affected
by the absence of a rating.
HOLDING COMPANY STRUCTURE; DIVIDEND RESTRICTIONS
The WMA Corporation is a holding company with no direct operations, and its
principal asset is the capital stock of WMA Life, a Bermuda life insurance
company. The Company relies, and will rely, primarily on funds retained at the
holding company level and potential dividends from WMA Life to meet ongoing cash
requirements of the holding company. The ability of WMA Life to pay dividends to
The WMA Corporation is subject to, among other things, regulatory restrictions
under the insurance laws of Bermuda. See "Business -- Regulation". No assurance
can be given that more restrictive regulations governing the payment of
dividends by WMA Life will not be adopted in the future. Inability on the part
of WMA Life to pay dividends to The WMA Corporation, in an amount sufficient to
enable the Company to meets its cash requirements at the holding company level,
could have a material adverse effect on the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
REGULATION
WMA Life is a registered Bermuda insurance company and is subject to
regulation and supervision in Bermuda. Generally, Bermuda's statutes and
regulations applicable to insurance companies are less restrictive than those of
any state in the United States. Among other things, the Bermuda statutes and
regulations require WMA Life to maintain minimum levels of capital and surplus,
prescribe solvency standards, limit transfers of ownership of its capital
shares, and provide for the performance of certain periodic examinations of WMA
Life's financial condition. Furthermore, Bermuda statutes limit the ability of
WMA Life to pay dividends.
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These statutes and regulations may, to some extent, restrict the ability of WMA
Life to write reinsurance policies and distribute funds to the Company. These
statutes and regulations are for the benefit of policyholders of insurance
companies and not investors.
In general, reinsurers domiciled outside the United States ("alien
reinsurers") are not subject to substantial direct regulation in the United
States. However, most, if not all, states of the United States, do not permit
ceding insurance companies to take credit on their statutory financial
statements for reinsurance obtained from unlicensed or unadmitted reinsurers,
such as the Company, unless appropriate security measures exist. In order for
the Ceding Life Companies to receive credit for reinsurance written, WMA Life
has had to post acceptable letters of credit with the Ceding Life Companies
whose policies it reinsures. If WMA Life should encounter difficulty in
obtaining such letters of credit in the future, its ability to operate and
expand its business would be severely limited.
There can be no assurance that inquiries or challenges to WMA Life's
reinsurance activities will not be raised in the future, or that WMA Life's
location, regulatory status or restrictions on its activities resulting
therefrom will not adversely affect WMA Life. In the past decade, the insurance
and reinsurance industry in the United States has become subject to increased
regulatory scrutiny. In the past, there have been Congressional and other
initiatives in the United States at both the federal and state levels regarding
increased supervision and regulation of the insurance and reinsurance industry,
including proposals to supervise and regulate alien reinsurers. If WMA Life were
to become subject to any insurance laws of the United States or any state
thereof or of any other jurisdiction at any time in the future, there can be no
assurance that WMA Life would be in compliance with such laws or that coming
into compliance with such laws would not have a material adverse effect on WMA
Life. See "Business -- Regulation".
SIGNIFICANT CONTROL BY MR. HUMPHREY
Mr. Humphrey is the President and Chairman of the Company and currently
owns 20.0% of the outstanding Common Stock of the Company. Mr. Humphrey also
owns stock options to purchase an additional shares of Common Stock. WMA
Agency holds proxies to vote 402,836 shares of the Common Stock of the Company
or 16.1% of the outstanding shares. These proxies were given by WMA Sales
Associates and senior executives of WMA Agency who obtained loans from WMA
Agency to enable them to purchase these shares from the Company in its previous
non-underwritten public offering. Since Mr. Humphrey owns substantially all of
the outstanding shares of common stock of WMA Agency, such proxies effectively
vest more than 36.1% of voting control in Mr. Humphrey during the period such
loans are outstanding. Through his ownership and management positions, Mr.
Humphrey will continue to have significant influence over the affairs of the
Company.
Mr. Humphrey had pledged his 500,000 shares of the Company's Common Stock
to Money Services, Inc., a subsidiary of AEGON USA, Inc., in connection with
loans made to WMA Agency and Mr. Humphrey. Mr. Humphrey's shares were recently
released from this pledge by the lender.
Mr. Humphrey intends to purchase shares of Common Stock from the
Company in a private transaction at the Subscription Price.
IMMEDIATE AND SUBSTANTIAL DILUTION
Subscribers in the Subscription Offering will experience immediate and
substantial dilution in the net tangible book value of their shares from the
price per share they will pay in the Subscription Offering. See "Dilution".
NO PUBLIC MARKET FOR COMMON STOCK
There is presently no public market for shares of the Common Stock. There
can be no assurance that an active trading market for the Common Stock will
develop or be sustained following the completion of the Subscription Offering or
that the market price of the Common Stock will not decline below the
Subscription Price after the Subscription Offering. Until such a market develops
for the Common Stock, Subscribers in the
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Subscription Offering may not be able to quickly liquidate their investment.
This lack of an active public market may significantly limit the ability to
sell, and adversely affect the price, of the Common Stock.
The U.S. equity securities markets have from time to time experienced
significant price and volume fluctuations, which have affected the market prices
of stocks in a particular business sector (e.g., insurance companies) and which
may be unrelated to the operating performance of a specific company in such
business sector. Factors such as limited demand for the Common Stock, actual or
anticipated operating results, growth rates, changes in estimates by analysts,
market conditions in the industry, announcements by competitors, regulatory
action and the general economy could have a material adverse effect on the
market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Common Stock in the public market
following the Offering, or the perception that such sales could occur, could
adversely affect the market price of the Common Stock and make it more difficult
for the Company to sell its equity securities in the future at a time and price
which it deems appropriate. The currently outstanding shares of Common Stock
are, and upon completion of the Subscription Offering the shares sold in the
Subscription Offering will be, freely transferable without restrictions on
resale, except that those shares held by "affiliates" (as defined in Rule 144
promulgated under the Securities Act of 1933) will not be freely tradable until
certain holding periods and trading volume limitations of Rule 144 are
satisfied. The Company recently established a stock option plan for its
directors, officers and employees and authorized the issuance of warrants to
purchase Common Stock to key management employees of WMA Agency. The shares of
Common Stock issuable upon the exercise of the stock options and warrants will
not be freely transferable and will be subject to restrictions on resale. See
"Management -- Executive Compensation" and "Shares Eligible for Future Sale".
YEAR 2000 COMPLIANCE
The Company is dependent on the data processing systems of the Ceding Life
Companies for the year 2000 and beyond. There can be no assurance that these
systems will be able to properly process information relating to the year 2000
and beyond. The failure of these systems to be Year 2000 compliant could have a
material adverse effect upon the Company.
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THE COMPANY
The Company provides reinsurance to life insurance companies whose policies
are sold through WMA Agency. To fund its reinsurance operations, the Company
raised an aggregate of $20.5 million of proceeds in an offering of Common Stock
and warrants to certain agents and employees of WMA Agency in late 1995 and 1996
and upon the exercise of such warrants in 1996 and 1997. As of March 31, 1998,
WMA Sales Associates and employees of WMA Agency, including Mr. Humphrey, owned
substantially all of the Company's outstanding Common Stock. All warrants from
the 1995 offering have been exercised.
The Company was incorporated in Delaware in March, 1995 under the name WMA
International Corporation. On March 3, 1998, the Company's stockholders approved
the change of its name to The WMA Corporation. The Company is a holding company,
owning all of the outstanding stock of WMA Life, a reinsurance corporation
formed under the laws of Bermuda in August, 1995. The Company's executive office
address is 11315 Johns Creek Parkway, Duluth, Georgia 30097, and its telephone
number is 770-248-3311.
Inquiries regarding this Subscription Offering should be directed to the
Company's Information Line at 1-800-741-5279.
HOW TO SUBSCRIBE
GENERAL
You should have received with this Prospectus the following documents:
(i) A preprinted card containing the Subscription Agreement(1); and
(ii) A postage paid envelope for returning your completed Subscription
Agreement and your payment to the Subscription Agent through the U.S.
Postal Service.
To become a Subscriber in the Subscription Offering, you must enclose in
the postage paid envelope:
(i) your check or money order for the $ Subscription Price
multiplied by the number of shares you intend to purchase (the "Aggregate
Purchase Price") payable to THE WMA CORPORATION; and
(ii) the properly completed and signed Subscription Agreement
indicating the number of shares to which you are subscribing.
Your check and the properly completed and signed Subscription Agreement
must be mailed so that they will be received by the Subscription Agent no later
than the Expiration Time which is the earlier of (i) October 30, 1998 if the
Minimum Offering is not attained by that date, (ii) the date on which the
Company has received and accepted Subscription Agreements to purchase the
maximum of $37,500,000 of Common Stock, (iii) March 31, 1999 unless such date is
extended by the Company to no later than December 31, 1999, or (iv) the date of
termination of the Subscription Offering by the Company after the Minimum
Offering is attained. No other documents should be included in the return
envelope. The minimum number of shares to which you may subscribe is 50. Except
as discussed in the following paragraph, the maximum number of shares to which
you may subscribe is shares.
Since the number of shares of Common Stock available in the Subscription
Offering is limited, the number of shares you will be entitled to purchase may
be less than the number of shares to which you subscribed. If there are not
sufficient shares to fully allocate to all Subscribers in accordance with their
Subscription Agreements, certain Subscribers may have the number of shares to
which they subscribed reduced on a pro-rata basis unless the Company, in its
sole discretion, increases the maximum number of shares available in the
Subscription Offering. See "-- Allocation and Acceptance of Subscription
Agreements".
- ---------------
1 A second card is enclosed if you intend for a Pension Plan to subscribe for
shares. Subscription cards for Pension Plans may be obtained from the Company
upon request.
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COMPLETION AND MAILING OF SUBSCRIPTION AGREEMENTS
Your properly completed Subscription Agreement and a check or money order
in the amount of the Aggregate Purchase Price payable to The WMA Corporation
should be mailed to the Subscription Agent as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, N.Y. 10005
Subscription Agreements will be rejected by the Subscription Agent if:
(i) the Subscription Agreement is improperly completed or unsigned;
(ii) the Subscription Agreement is sent without an accompanying check
or money order;
(iii) the Subscription Agreement accompanied by a check or money order
for the Aggregate Purchase Price in good funds is not received by the
Subscription Agent by the Expiration Time; or
(iv) the Subscription Agreement is accompanied by a check or money
order for Aggregate Purchase Price not in good funds.
Subscription Agreements will also be rejected if the Subscription Offering
has been fully subscribed or the Subscription Offering has been terminated. In
addition, Subscription Agreements may also be rejected in whole or in part for
any reason. See "-- Termination of Subscription Offering".
The Subscription Agent will promptly deposit all checks and money orders
for Subscription Agreements that have not been rejected into an escrow account
maintained by the Subscription Agent. See "-- Subscription Agent and Escrow
Arrangements".
ALLOCATION AND ACCEPTANCE OF SUBSCRIPTION AGREEMENTS
The Company has agreed to follow the recommendation of WMA Agency for the
allocation and acceptance of Subscription Agreements. Prior to acceptance by the
Company, all properly completed Subscription Agreements received with good funds
prior to the Expiration Time will be divided into three separate levels based
upon a priority system established by WMA Agency relating to production levels
and other factors. Subscribers in the first and second priority levels will have
their Subscription Agreements preprinted with an allotted number of shares.
Subscribers in these priority levels may subscribe for more or less than the
preprinted allotted number of shares, but not less than the minimum number of
shares nor more than the maximum number of shares to which a Subscriber may
subscribe. Subscribers in the first and second priority levels will have their
Subscription Agreements filled for the lesser of the number of shares subscribed
or the allotted number of shares preprinted on their Subscription Agreements.
Subscriptions for shares in excess of the allotted number of shares preprinted
on their Subscription Agreements, if any, shall then be subject to proration in
the third priority level. Those Subscribers in the first and second priority
levels will have their Subscription Agreements filled for no more than the
allotted number of shares preprinted on their Subscription Agreements. The
preprinted number of shares allotted to Subscribers in the first and second
priority levels will be reserved only through the earlier of termination of the
Subscription Offering of the Company or October 30, 1998. After October 30,
1998, assuming there has been no termination, reserved but unsubscribed shares
will be made available to Subscribers in the third priority level.
Subscribers in the third priority level, which may include Subscribers in
the first two priority levels, will then have their Subscription Agreements
filled for the maximum number of shares they indicate on their completed
Subscription Agreements, subject to the share maximum subscription for a
Subscriber, including his or her Pension Plan. If there are not sufficient
shares to fully allocate to all of the shares subscribed for in the third
priority level, all shares subscribed for in the third priority level will be
reduced on a pro-rata basis, unless the Company determines, in its sole
discretion, to increase the maximum number of shares of Common Stock available
in the Subscription Offering prior to accepting Subscription Agreements from
this priority level. Shares subscribed for in the first two priority levels up
to the allotted number of shares
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preprinted on their Subscription Agreements will not be subject to proration. In
no event shall the number of shares reduced by proration be less than 50.
After shares have been allocated to Subscription Agreements in the above
manner, the Company may then accept the Subscription Agreements, subject to all
of its rights to accept or reject any Subscription Agreement or any portion
thereof for any reason.
METHOD OF PAYMENT
Only checks and money orders will be accepted as payment. Cash, credit card
numbers and other forms of payment should not be sent and will not be accepted.
The check or money order must be payable to THE WMA CORPORATION in U.S. dollars
and drawn on a bank in the United States. The check must be cashed upon initial
deposit; no attempt will be made to redeposit any dishonored checks. Due to
legal and other restrictions, if shares are being purchased directly by a
Pension Plan, the Company will only accept checks drawn directly on the Pension
Plan.
EXPIRATION TIME
Your properly completed Subscription Agreement, along with a check or money
order for the Aggregate Purchase Price must be received by the Subscription
Agent prior to the Expiration Time, which is the earlier of (i) October 30, 1998
if the Minimum Offering is not attained by that date, (ii) the date on which the
Company has received and accepted Subscription Agreements to purchase the
maximum of $37,500,000 of Common Stock (or such greater amount as the Company
may determine not to exceed $ in the aggregate), (iii) March 31, 1999,
unless such date is extended by the Company to no later than December 31, 1999
or (iv) the date of termination of the Subscription Offering by the Company
after the Minimum Offering is attained. You are strongly urged to allow
sufficient time to ensure that your completed Subscription Agreement and payment
are received by the Subscription Agent prior to the Expiration Time.
ELIGIBILITY REQUIREMENTS; ONE SUBSCRIPTION AGREEMENT PER SUBSCRIBER
To be eligible to subscribe in the Subscription Offering, you must (i) be
an independent sales agent or employee of WMA Agency or its affiliated
companies, or an investor acceptable to the Company, and/or a Pension Plan of
such agent, employee or other investor, (ii) have received this Prospectus
addressed to you from the Company and (iii) have your name preprinted on the
enclosed Subscription Agreement.
You may subscribe for shares by submitting the completed Subscription
Agreement, together with your check or money order, using one or both of the
following options for registering the shares:
(i) Registration may be in your individual name ("Individual Name"),
or in your and your spouse's names together, as joint tenants with right of
survivorship or as tenants in common ("Joint Name"). You may not submit
Subscription Agreements in both an Individual Name and Joint Name.
(ii) Registration may be in the name of your Pension Plan ("Pension
Plan Name").
You may submit one or two Subscription Agreements, as described in
subparagraphs (i) and (ii) above. If you submit additional Subscription
Agreements, all Subscription Agreements from you will be rejected and returned
to you, along with your check or money order. Subscription Agreements seeking
forms of registration other than those listed above, including trusts other than
Pension Plans, will be rejected and returned to you, along with your check or
money order.
Subscribers who wish to have the shares which they purchased pursuant to
this Subscription Agreement registered in the name of a trust other than a
Pension Plan, should subscribe individually and transfer the shares to such
trust after they have received their stock certificate for the shares purchased
in the Subscription Offering.
ALL SUBSCRIPTION AGREEMENTS, ONCE RECEIVED BY THE SUBSCRIPTION AGENT, ARE
IRREVOCABLE.
15
<PAGE> 19
ACCEPTED SUBSCRIPTION AGREEMENTS
Unless the Subscription Offering is terminated or the Company rejects a
Subscription Agreement for any reason, Subscription Agreements meeting the
subscription requirements discussed above under "-- Eligibility Requirements;
One Subscription Agreement Per Subscriber," which are received by the
Subscription Agent prior to the Expiration Time will be accepted by the Company.
Promptly after the Company accepts your Subscription Agreement but no later than
sixty days after the Expiration Time, the Company will cause the Subscription
Agent to forward to each investor whose Subscription Agreement or portion
thereof has been accepted:
(i) A certificate representing the number of shares of Common Stock
for which the Subscription Agreement has been accepted; and
(ii) A check in the amount of the refund required in the event of a
pro-rata share reduction.
No Subscription Agreements will be formally accepted by the Company until
after the Company has received or accepted the Minimum Offering. Therefore,
Subscribers will not be notified if and to what extent their Subscription
Agreements have been accepted, and should not expect to receive certificates
representing their shares of Common Stock, until after your Subscription
Agreement has been accepted by the Company but no later than sixty days after
the Expiration Time. Pending attainment of the minimum Subscription Offering,
all funds will be held in an escrow account maintained by the Subscription
Agent. See "-- Subscription Agent and Escrow Arrangements".
TERMINATION OF SUBSCRIPTION OFFERING
The Subscription Offering will be automatically terminated if the Company
fails to attain the Minimum Offering by October 30, 1998, in which case all
funds received by the Company will be returned without interest. The
Subscription Offering may also be terminated by the Company at any time in its
sole discretion for any reason. If the Subscription Offering is terminated for
any reason other than the failure to attain the Minimum Offering, all amounts
received from Subscribers whose Subscription Agreements have not been accepted
by the Company will be promptly refunded after such termination date, with
interest from the date the Minimum Offering is attained, but in no event will be
sent later than sixty days after such date. Interest on such funds will be paid
as described under "-- Subscription Agent and Escrow Arrangements".
RETURNED SUBSCRIPTION AGREEMENTS AND FUNDS
If a Subscription Agreement is rejected by the Subscription Agent because
(i) the Subscription Agreement was improperly completed or unsigned, (ii) the
Subscription Agreement was sent without an accompanying check or money order,
(iii) the Subscription Agreement accompanied by a check or money order for the
Aggregate Purchase Price was not received by the Subscription Agent by the
Expiration Time, (iv) the Subscription Agreement was accompanied by a check or
money order not in good funds, or (v) the Subscription Offering has been
terminated as described under "-- Termination of Subscription Offering", then
the Subscription Agent will promptly refund all funds that accompanied the
rejected Subscription Agreement. If the full amount of shares subscribed and
paid for was not accepted by the Company, the Subscription Agent will promptly
refund any excess Aggregate Purchase Price received. No interest will be paid on
checks or money orders that have not been deposited into the escrow account or
that have been deposited, but are not in good funds.
SUBSCRIPTION AGENT AND ESCROW ARRANGEMENTS
American Stock Transfer & Trust Company has been engaged to serve as
Subscription Agent. The Subscription Agent has caused copies of this Prospectus
and Subscription Agreement materials to be delivered to prospective Subscribers
as directed by the Company. Following receipt of Subscription Agreements from
prospective Subscribers, the Subscription Agent will verify that (i) the
submitted checks and money orders are for good funds, (ii) the Subscription
Agreement has been fully and properly completed and signed, and (iii) the
Subscribers have not previously submitted a Subscription Agreement. All
16
<PAGE> 20
Subscription Agreements which the Subscription Agent is not able to so verify
will be rejected and returned to the prospective Subscribers.
All amounts received from Subscribers whose Subscription Agreements are not
rejected will be promptly deposited into an escrow account maintained by the
Subscription Agent. Escrowed funds will be invested in short-term securities
issued or guaranteed by the U.S. Government. If the Minimum Offering is
attained, funds will be released from the escrow account to the Company to
purchase Common Stock, or refunded to Subscribers whose Subscription Agreements
are rejected. Subscribers whose Subscription Agreements have been accepted by
the Company, in whole or in part, will not be entitled to any interest,
including any interest on any amounts refunded. Escrowed subscription funds
relating to Subscription Agreements which the Company has not accepted within
one month after the Expiration Time will be returned promptly thereafter to
Subscribers. No interest will be paid if the Minimum Offering is not attained.
In addition, no interest will be paid on funds held in escrow unless: (i) the
Subscription Offering is terminated by the Company after the Minimum Offering is
attained, or (ii) a properly submitted Subscription Agreement is not accepted by
the Company for any reason. In any such case, the Subscription Agent will
promptly remit to each Subscriber an amount equal to the Aggregate Purchase
Price plus a pro rata amount of the interest accrued from the date the Company
has received and accepted the Minimum Offering. There can be no assurance,
however, of the rate of interest earned on your funds. Neither the Company nor
the Subscription Agent will have any liability or responsibility with respect to
amounts in the escrow account.
PENSION PLANS
Pension Plans include individual retirement accounts ("IRAs"), simplified
employee plans ("SEPs") and Keogh Plans. Pension Plans which purchase Common
Stock in the Subscription Offering will be subject to the provisions of ERISA
which are extremely complex. Competent professional counsel should determine the
application of these complex provisions. The purchase of shares of Common Stock
by a Pension Plan may constitute a "prohibited transaction" in violation of
ERISA and corresponding Internal Revenue Code sections. Common stock purchased
pursuant to the Subscription Offering by a Pension Plan with borrowed funds may
subject the Pension Plan to income taxes pursuant to Internal Revenue Code
Section 512, Unrelated Business Taxable Income. Consequently, owners of Pension
Plans should consult with their legal counsel regarding the tax and fiduciary
consequences of a purchase of securities pursuant to the Subscription Offering
including concepts related to acquisition indebtedness, unrelated debt-financed
income, and prohibited transactions. No opinion of counsel has been obtained by
the Company with respect to the application of ERISA to purchases by Pension
Plans of securities pursuant to the Subscription Offering. Violation of ERISA
and the corresponding Internal Revenue Code sections can result in the
imposition of income and excise taxes, penalties and disqualification of a
Pension Plan.
DETERMINATION OF OFFERING PRICE
The offering price of $ per share of Common Stock has been determined
by the Company in consultation with its financial advisor. Many factors were
considered including, but not limited to, the price of its earlier successful,
non-underwritten offering initiated in 1995 ($10.00 per share), the perceived
public demand for additional shares of Common Stock, and the enhanced value of a
share of Common Stock since its last offering due to the Company's financial and
operating performance to date.
QUESTIONS-INFORMATION LINE
You should refer to the Subscription Offering Questions and Answers
included in the back of this Prospectus which the Company believes will answer
questions that Subscribers may have regarding the Subscription Offering. The
Company has also created a toll free telephone "Information Line" to answer
questions that Subscribers may have regarding the Subscription Offering and the
procedures outlined in this Prospectus. The number is 1-800-741-5279 and is
available between 9:00 a.m. and 6:00 p.m., Eastern Daylight Savings Time, Monday
through Friday until the Subscription Offering is terminated or successfully
completed.
17
<PAGE> 21
USE OF PROCEEDS
The minimum and maximum net proceeds to the Company from the sale of Common
Stock offered hereby, after payment of expenses by the Company of approximately
$750,000, are estimated to be $4,500,000 and $36,750,000, respectively. The net
proceeds, if any, will be used by the Company to make additional contributions
to the capital of WMA Life, a significant portion of which will be used by WMA
Life to make payments of reinsurance expense allowances to Western Reserve and
other Ceding Life Companies. See "Business -- Reinsurance Agreements", "Risk
Factors -- Liquidity Requirements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources".
DIVIDEND POLICY
The Company has not paid any dividends and does not anticipate declaring or
paying any dividends in the foreseeable future. The Company intends to retain
earnings, if any, for the purpose of financing WMA Life's reinsurance business
and to be available for other strategic opportunities that may develop. Future
dividend policy will be subject to the discretion of the Board of Directors, and
will be contingent upon the Company's future earnings, if any, the Company's
financial condition and capital requirements, regulatory restrictions, general
business conditions and other factors.
The payment of dividends by the Company in the future will be largely
dependent on the Company's receipt of dividends from WMA Life. The payment of
dividends by WMA Life to the Company is restricted under Bermuda insurance law
and regulations. See "Business -- Regulation -- Bermuda Payment of Dividends".
DILUTION
At March 31, 1998, the net tangible book value of the Company was $22.33
million, or $8.95 per share. Net tangible book value per share represents the
amount of total tangible assets (including deferred acquisition costs) less
total liabilities, divided by the total number of shares of Common Stock
outstanding. After giving effect to the sale of all of the shares of Common
Stock offered in the Subscription Offering, at the Subscription Price, the pro
forma net tangible book value of the Company at March 31, 1998 would have been
approximately $ million or $ per share (after deducting estimated
Subscription Offering expenses). This represents an immediate increase in net
tangible book value of $ per share to the existing stockholders and an
immediate dilution in net tangible book value of $ per share to Subscribers
purchasing shares of Common Stock in the Subscription Offering. The following
table illustrates this dilution on a per share basis:
<TABLE>
<S> <C>
Subscription Price.......................................... $
Net tangible book value before the Subscription Offering.... 8.95
Increase in net tangible book value per share attributable
to Subscribers............................................
Pro forma net tangible book value per share after the
Subscription Offering.....................................
Dilution per share to Subscribers...........................
</TABLE>
The following table summarizes the investments of the existing stockholders
and new Stockholders after giving effect to the sale of all of the shares of
Common Stock offered hereby at the Subscription Price.
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED ------------------------------------
-------------------- AVERAGE
PERCENT PERCENT PRICE
AMOUNT SHARES AMOUNT INVESTED PER SHARE
---------- ------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.......... 2,495,710 % $20,705,100 % $8.30
New Stockholders...............
Total................
</TABLE>
18
<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1998 and as adjusted to give effect to (i) the sale of all shares of Common
Stock being offered by the Company in the Subscription Offering at the
Subscription Price and the application of the maximum estimated net proceeds to
the Company of $36,750,000 and (ii) the sale of shares of Common Stock being
offered by the Company in the Subscription Offering representing $5,250,000 and
the application of the minimum estimated net proceeds to the Company of
$4,500,000. See "Use of Proceeds". The information presented below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1998
---------------------------------------
AS ADJUSTED(1) AS ADJUSTED
-------------- ------------
MAXIMUM MINIMUM
ACTUAL SUBSCRIPTION SUBSCRIPTION
------- -------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short and Long Term Debt.................................... $ 0 $ 0 $ 0
Stockholders' Equity:
Common stock, par value $.001 par value; 10,000,000 shares
authorized; 2,500,000 shares issued -- actual
shares issued, as adjusted, maximum; and
shares issued, as adjusted, minimum.......... 2
Additional paid-in capital................................ 20,229
Retained earnings......................................... 2,023 2,023 2,023
Unrealized gain (loss) on securities available for sale,
net.................................................... 238 238 238
Treasury stock, at cost; 4,290 shares actual and
shares, as adjusted.................................... (42) (42) (42)
------- ------- -------
Total Stockholders' Equity........................ 22,450 59,200 26,950
------- ------- -------
Total Capitalization.............................. $22,450 $59,200 $26,950
======= ======= =======
</TABLE>
- ---------------
(1) Does not include (i) 600,000 shares reserved for issuance upon exercise of
warrants issued or to be issued to a limited number of key management
employees of WMA Agency, or (ii) 900,000 shares reserved for issuance upon
exercise of stock options granted or to be granted to officers, directors
and employees of the Company. See "Management -- Executive Compensation" and
"Certain Relationships and Related Transactions -- WMA Agency Agreement".
19
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents summary historical financial data derived from
the Consolidated Financial Statements of the Company for the period March 9,
1995 through December 31, 1995, the years ended December 31, 1996 and 1997, and
for the three month periods ended March 31, 1997 and 1998. The summary
historical financial data as of and for the years ended December 31, 1996 and
1997 have been derived from the Consolidated Financial Statements of the Company
audited by KPMG Peat Marwick LLP, independent auditors, whose report thereon
appears elsewhere in this Prospectus. The financial data as of and for the
period ended December 31, 1995 have been derived from the Consolidated Financial
Statements of the Company audited by Snyder, Camp, Stewart & Company, LLP,
independent auditors, whose report thereon appears elsewhere in this Prospectus.
This information should be read in conjunction with the Consolidated Financial
Statements of the Company and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
YEAR OR PERIOD
ENDED DECEMBER 31,
---------------------------- THREE MONTHS
FROM ENDED MARCH 31,
MARCH 9, ----------------
1995 1996 1997 1997 1998
-------- ------ -------- ------ -------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Premiums........................................ $ 0 $2,007 $ 5,217 $1,068 $ 1,729
Deposits and other considerations............... 0 0 30,099 0 20,708
Modco and coinsurance reserve adjustment........ 0 0 (29,904) 0 (20,549)
Other income.................................... 0 0 300 0 0
Net investment income........................... 6 627 1,088 257 250
------ ------ -------- ------ -------
Total revenues.......................... 6 2,634 6,800 1,325 2,138
Benefits, claims and settlement expenses........ 0 977 2,409 394 875
Reinsurance premium allowances, net............. 0 576 1,454 304 472
Amortization of deferred acquisition costs...... 0 6 121 (2) 125
Other expenses.................................. 361 418 481 101 190
------ ------ -------- ------ -------
Total benefits and expenses............. 361 1,977 4,465 797 1,662
------ ------ -------- ------ -------
Net income (loss) before income taxes... (355) 657 2,335 528 476
Income tax expense.............................. 0 113 816 205 162
------ ------ -------- ------ -------
Net income (loss) after income taxes.... $ (355) $ 544 $ 1,519 $ 323 $ 314
====== ====== ======== ====== =======
Basic and diluted income (loss) per share....... $(0.87) $ 0.44 $ 0.63 $ 0.14 $ 0.13
Weighted average common shares outstanding...... 408 1,247 2,395 2,386 2,497
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, MARCH 31,
-------------------------------- -----------------------
1995 1996 1997 1997 1998
------ ---------- ---------- ---------- ----------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE DATA SHEET:
Total investments..................... $ 0 $ 16,157 $ 18,413 $ 16,857 $ 17,836
Total assets.......................... 782 19,270 25,066 20,542 27,159
Future policy benefits................ 0 614 1,294 546 1,499
Total liabilities..................... 887 917 2,990 1,070 4,709
Total stockholders' equity
(deficit).......................... (105) 18,353 22,076 19,472 22,450
OTHER DATA:
Life reinsurance business in force.... $ 0 $2,673,000 $4,162,000 $2,983,000 $4,660,000
Actual shares outstanding............. 500 2,306 2,498 2,412 2,496
</TABLE>
20
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the consolidated results of operations and
financial condition of The WMA Corporation should be read in conjunction with
the Company's Consolidated Financial Statements and the notes thereto, included
elsewhere herein.
OVERVIEW
The Company is a holding company, owning all of the outstanding capital
stock of WMA Life, a Bermuda life insurance corporation. WMA Life commenced
reinsurance operations at the end of the second quarter of 1996. WMA Life is
presently engaged in providing reinsurance to certain insurance companies with
respect to VUL and variable annuity policies sold through WMA Agency. See
"Business -- Reinsurance Agreements".
Under a reinsurance agreement, the economic consequences of certain
insurance risks are transferred from the ceding company to the reinsurer.
Depending upon the type of reinsurance agreement, these risks may include
mortality, persistency, expense and investment. Key considerations in evaluating
the risks include industry experience, the ceding company's pricing and
assumptions, the type of product, the ceding company's underwriting practices
and procedures, the type of distribution system, the ceding company's recent
experience and the market for the product.
The Ceding Life Companies retain responsibility for the payment of all
surrender values, commissions and expenses involved in issuing and maintaining
the policies. In addition, the Ceding Life Companies administer the reinsurance
contracts and, on a monthly basis, provide WMA Life with information regarding
premiums, reserves, benefits, claims and settlement expenses for policies
reinsured. Financial activity between the Ceding Life Companies and WMA Life is
settled on either a monthly or quarterly basis.
MRT REINSURANCE
Through the first quarter of 1998, WMA Life's reinsurance indemnity
agreements included two agreements relating to VUL policies. The reinsurance of
the VUL policies includes business previously and currently being sold through
WMA Agency and issued by Western Reserve and Kemper. The Western Reserve and
Kemper reinsurance agreements provide for the reinsurance of a portion of all
individual VUL policies sold by WMA Agency on a Monthly Renewable Term basis
("MRT"), a variation of Yearly Renewable Term reinsurance. Under the MRT
reinsurance agreements with Western Reserve and Kemper, WMA Life assumes a
portion of the mortality risk related to the VUL policies written by the ceding
companies. At March 31, 1998, WMA Life's reinsurance inforce constituted 167,204
life insurance policies with an aggregate face amount of $4.66 billion.
COINSURANCE AND MODIFIED COINSURANCE REINSURANCE
Under a coinsurance arrangement, WMA Life assumes a proportionate share of
the insurance risks and expenses and receives a proportionate share of the
premiums or revenues associated with the underlying policies. The insurance
risks include mortality, lapses, cash surrenders and investment risks.
Additionally, under coinsurance, WMA Life must establish a proportionate share
of the policy reserves. Under a modified coinsurance arrangement, the reserves
and assets related to the reserves are retained by the Ceding Life Companies.
In July of 1997, WMA Life executed a reinsurance agreement with American
Skandia on a modified coinsurance basis, a variation of coinsurance. This
agreement provides for the reinsurance of a portion of all Imperium variable
annuity policies sold by WMA Agency commencing as of January 1, 1997. The
Imperium policies are products exclusively distributed and sold by WMA Agency.
Effective January 1, 1998, WMA Life commenced reinsurance on a coinsurance
and modified coinsurance basis with Western Reserve of all Freedom Wealth
Creator variable annuity policies sold through WMA Agency. This agreement will
enable the Company to participate in revenues arising principally from mortality
21
<PAGE> 25
and expense charges, sales charges associated with surrenders, credited interest
rate spreads, administrative charges and asset based allowances.
As of March 31, 1998, WMA Life had reinsurance inforce for 3,352 variable
annuity policies with reinsured annuity contract benefits of $55.47 million.
Commencing April 1, 1998, WMA Life is also reinsuring on a coinsurance and
modified coinsurance basis with Western Reserve all Financial Freedom Builder
VUL policies sold through the WMA Agency. This new agreement will enable the
Company to participate in revenues arising principally from mortality and
expense charges, cost of insurance charges, sales charges associated with
surrenders, credited interest rate spreads, administrative charges and asset
based allowances. Coincidental with this new agreement, WMA Life will cease
reinsuring Financial Freedom Builder VUL policies sold after March 31, 1998 on a
MRT reinsurance basis.
ACCOUNTING
WMA Life recognizes premiums as earned on MRT reinsurance for the mortality
risk reinsured. WMA Life reflects premiums and deposits relating to its
proportionate share of the coinsured policies in Deposits and other
considerations on the Consolidated Financial Statements. Increases in
policyholder account balances on reinsured policies, plus incurred policy
benefits and claims, less investment gains and losses of the reinsured policies'
separate account funds are reflected in the Modco and coinsurance reserve
adjustment on the Consolidated Financial Statements.
The netting of Deposits and other considerations and the Modco and
coinsurance reserve adjustment equals revenues of $159,000 for the period ended
March 31, 1998. This netting equals the policy mortality and expense charges,
policy administration charges, asset based allowances and deferred sales charges
that have been assessed against the reinsured policy account balances.
Net investment income is the gross income earned from the invested assets
less the investment management expenses and custodial fees.
Life insurance claims settled and the change in the liability for future
policy benefits relating to MRT reinsured VUL policies are recorded as Benefits,
claims and settlement expenses on the Consolidated Financial Statements. The
liability for future policy benefits was recorded on the balance sheet at $1.50
million at March 31, 1998. The liability for future policy benefits includes the
liability for the fixed account portion of the Western Reserve variable annuity
policies under the new agreement. The change in the liability for the fixed
account portion of such policies is recorded in the Modco and coinsurance
reserve adjustment.
WMA Life also recognizes costs that are directly associated with the
acquisition of the reinsured policies. These costs include actuarial, legal and
accounting fees, and salaries and expenses incurred directly by WMA Life, and
reinsurance allowances paid to the Ceding Life Companies in accordance with the
reinsurance agreements. These expenses are deferred to the extent that such
costs are deemed recoverable from future policy revenues in accordance with GAAP
and are recorded as deferred acquisition costs on the balance sheet. Deferred
acquisition costs are amortized over the lives of the underlying policies (with
regard to the terms of the reinsurance agreement), in proportion to the ratio of
revenues collected during the then current period to total anticipated revenues.
Deferred acquisition costs increased $2.06 million during the first three months
of 1998 to $6.56 million at March 31, 1998. Amortization of deferred acquisition
costs is recorded on the Consolidated Statements of Operations.
Professional fees, management fees and other expenses include expenses
incurred for actuarial, legal, and accounting services received. Amortization of
deferred organization costs, interest expense and miscellaneous operating
expenses are also included.
RESULTS OF OPERATIONS
Since the Company did not commence reinsurance operations until the end of
the second quarter of 1996, no meaningful comparisons can be made with respect
to results of operations in years prior to 1996.
22
<PAGE> 26
Additionally, results of operations for 1997 include twelve months of
operations, while results of operations for 1996 include only six and one-half
months of operations.
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997.
Revenues. The Company's revenues increased by $813,000, or 61%, to $2.14
million in 1998 from $1.33 million in 1997. The increase was attributable
primarily to the growth in premiums associated with the Western Reserve MRT
agreement. Further, a revenue increase of $159,000 was attributable to the
coinsurance and modified coinsurance agreements WMA Life entered into with
American Skandia during 1997 and with Western Reserve in 1998.
Premiums. Premiums increased by $661,000, or 62%, to $1.73 million in 1998
from $1.07 million in 1997. The increase was attributable primarily to the
growth in premiums associated with a MRT reinsurance agreement WMA Life entered
into with Western Reserve during the second quarter of 1996, and to a much
lesser extent to a MRT agreement executed during the fourth quarter of 1996 with
Kemper. The increase in premiums was due to an increase in the number and
reinsured amount of VUL policies sold by WMA Agency.
Net Investment Income. Net investment income decreased by $7,000 to
$250,000 in 1998 from $257,000 in 1997. Investment income is earned from the
investment in securities (fixed income and equity) and cash equivalents. The
decrease was primarily the result of a decrease in the Company's invested asset
portfolio by approximately $82,000. Investment expenses of $17,000 and $8,000
for 1998 and 1997, respectively, related to investment advisor fees and
custodial fees which were netted with gross investment income. Controlling
interest in the Company's outside investment advisor and manager recently
changed and, consequently, in May of 1998, the Company's engagement will cease
to continue. The Company expects to retain a new manager coincidental with the
termination of its current manager.
Benefits, Claims and Settlement Expenses. Benefits, claims and settlement
expenses increased by $481,000, or 122%, to $875,000 in 1998 from $394,000 in
1997. This increase primarily resulted from an increase in volume of in force
business. The amount of business inforce at March 31, 1998, was $4.66 billion as
compared to $2.98 billion at March 31, 1997, which represented a $1.68 billion,
or 56% increase.
Reinsurance Premium Allowances, Net. Net reinsurance premium allowances
increased by $168,000, or 55%, to $472,000 in 1998 from $304,000 in 1997. Gross
reinsurance premium allowances represent a portion of reinsurance premiums paid
or allowed by WMA Life to the ceding companies for each policy reinsured. A
certain portion of the gross reinsurance allowances related to the production of
new business was primarily related to the Company's share of commissions,
certain development costs and other expenses related to the production of new
business. These amounts have been deferred to the extent that such costs are
deemed recoverable from future policy revenue in accordance with GAAP. The
balance of those amounts not deferred are reflected as net reinsurance premium
allowances and are often a level percentage of individual policy revenues (e.g.,
renewal reinsurance allowances). Similar to the increase in benefits, claims and
settlement expenses, the increase in net reinsurance premium allowances was due
to an increase in the volume of business in force and placement of the reinsured
variable annuity business.
Professional Fees, Management Fees and Other Expenses. Professional fees,
management fees and other expenses increased by $89,000, or 88%, to $190,000 in
1998 from $101,000 in 1997. The increase in expenses was primarily associated
with an increase in the amount of reinsurance business activities and expenses
relating to the administration of the Company.
Amortization of Deferred Acquisition Costs. Amortization of deferred
acquisition costs increased by $127,000 to $125,000 in 1998. The increase in
amortization of deferred acquisition costs was attributable primarily to
increased revenues associated with business reinsured and with the placement of
new business.
Income Taxes. Income taxes decreased by $43,000 to $162,000 in 1998 from
$205,000 in 1997. The Company's effective tax rate was 34% in 1998 and 39% in
1997. The higher effective tax rate in 1997 was due to the reversal of a
valuation allowance for deferred tax assets.
23
<PAGE> 27
Net Income. As a result of the foregoing, net income for the quarter ended
March 31, 1998, was $314,000 compared to $323,000 for the quarter ended March
31, 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996.
Revenues. The Company's revenues increased by $4.17 million, or 159%, to
$6.80 million in 1997 from $2.63 million in 1996. The increase was attributable
primarily to the growth in premiums associated with the Western Reserve MRT
agreement. Additional revenue increases of $195,000 and $300,000 were
attributable to the modified coinsurance agreement WMA Life entered into with
American Skandia during 1997, and to a one-time payment to the Company from
Western Reserve to compensate the Company for delays in a product introduction
that is reinsured under the MRT agreement. An increase in investment income of
$461,000 also contributed to the increase in revenue.
Premiums. Premiums increased by $3.21 million, or 160%, to $5.22 million
in 1997 from $2.01 million in 1996. The increase was attributable primarily to
the growth in premiums associated with the MRT reinsurance agreement WMA Life
entered into with Western Reserve during the second quarter of 1996, and to a
much lesser extent to the MRT agreement executed during the fourth quarter of
1996 with Kemper. The increase in Western Reserve premiums was due to a full
year of operations in 1997, and an increase in the number and reinsured amount
of VUL policies sold by WMA Agency for Western Reserve.
Net Investment Income. Net investment income increased by $461,000, or
74%, to $1.09 million in 1997 from $627,000 in 1996. Investment income is earned
from the investment in securities (fixed income and equity) and cash
equivalents. Investment income in 1997 from securities was $1.04 million and
$117,000 from cash equivalents, in comparison to $277,000 and $385,000 in 1996,
respectively. The increase was the result of a majority of the Company's assets
being invested in fixed income securities during 1997, as compared to 1996 when
the Company's assets were invested primarily in cash or cash equivalent
securities for ten months of the year. In November of 1996, the Company engaged
an outside investment advisor and manager, that redirected the Company's
investment portfolio into longer term fixed income and some equity securities.
Investment expenses of $65,000 and $35,000 for 1997 and 1996, respectively
related to investment advisor fees and custodial fees which were netted with
gross investment income.
Benefits, Claims and Settlement Expenses. Benefits, claims and settlement
expenses increased by $1.43 million, or 146%, to $2.41 million in 1997 from
$977,000 in 1996. This increase primarily resulted from an increase in volume of
in force business and a full year of reinsurance operations in 1997, which
lengthened the exposure period for reinsured policies from six and one-half
months in 1996. The amount of business in force at December 31, 1997, was $4.16
billion as compared to $2.67 billion at December 31, 1996, which represented a
$1.49 billion, or 56% increase. As of December 31, 1996, WMA Life's death
benefit exposure on business reinsured through the Western Reserve MRT agreement
commenced with each policy's monthiversary occurring during the month of June,
for all policies in force on June 30, 1996.
Reinsurance Premium Allowances, Net. Net reinsurance premium allowances
increased by $878,000, or 152%, to $1.45 million in 1997 from $576,000 in 1996.
Similar to the increase in benefits, claims and settlement expenses, the
increase in net reinsurance premium allowances was due to an increase in the
length of the exposure period, and an increase in the volume of business in
force.
Professional Fees, Management Fees and Other Expenses. Professional fees,
management fees and other expenses increased by $63,000, or 15%, to $480,000 in
1997 from $417,000 in 1996. The increase in expenses was primarily associated
with an increase in the amount of reinsurance business, as well as a full year
of operations in 1997 as compared to six and one-half months in 1996. Expenses
relating to the administration of the Company also contributed to the increase.
Future periods will reflect an increase in salary expenses and a decrease in
management fees.
Amortization of Deferred Acquisition Costs. Amortization of deferred
acquisition costs increased by $115,000 to $121,000 in 1997 from $6,000 in 1996.
The increase in deferred acquisition costs was attributable primarily to: (i) a
full year of operations in 1997 as compared to only six and one-half months
reported for 1996, and (ii) an increase in business assumed.
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<PAGE> 28
Income Taxes. Income taxes increased by $703,000 to $816,000 in 1997 from
$113,000 in 1996. The Company's effective tax rate was 34.9% in 1997 and 17.2%
in 1996. The increase in effective tax rate is due to the reversal of a
valuation allowance for deferred tax assets in 1997.
Net Income. As a result of the foregoing, net income for the year ended
December 31, 1997, was $1.52 million compared to $545,000 for the year ended
December 31, 1996, which represented an increase of $975,000.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the principal sources of the Company's cash flow have been
premiums, investment income, maturing investments and proceeds from sales of
invested assets and the Company's Common Stock. In addition to the need for cash
flow to meet operating expenses, the liquidity requirements of the Company
relate primarily to the payment of gross reinsurance allowances, operating
expenses and claims.
The Company's cash requirements for operating expenses will consist of
salary and benefits; management service fees; investment management and
custodial account fees; accounting and consulting services fees; expenses
related to regulatory issues and compliance with corporate and tax matters; and
other incidental administrative expenses. Prior to 1998, the Company incurred no
expense for salary and benefits because it had no employees. The Company has
hired several employees during the second quarter of 1998. The Company incurred
no capital expenditures in 1997 or the first quarter of 1998.
The Company has no assets other than the stock of WMA Life and invested
assets. The Company will rely on income from its invested assets, proceeds of
the Subscription Offering retained at the holding company and dividends from WMA
Life to meet holding company cash requirements.
The Company's primary source of liquidity was $1.99 million in cash and
cash equivalents at March 31, 1998, a decrease of $183,000 from the prior
comparable period. As a result of the American Skandia and new Western Reserve
agreement, WMA Life has repositioned its investment portfolio to meet the
liquidity requirements of these agreements. The effective duration of the
Company's fixed income portfolio is just over four years, with over 95% of the
fixed income securities having a maturity of less than 10 years. The Company's
fixed income portfolio represents over 96% of the total invested assets, and has
an average quality rating of Aa2 by Moody's.
As a result of the new reinsurance agreements with Western Reserve, the
Company will require substantially greater amounts of cash to make payments to
Western Reserve than it has been required to make under its MRT agreement.
During the first year in which a policy is reinsured on a coinsurance basis, the
Company is required to reimburse Western Reserve for acquisition costs,
including first year commissions and issuance expenses.
In recognition of these liquidity requirements, during the first quarter of
1998, the Company contributed additional capital to WMA Life through a transfer
of assets, and corresponding due and accrued investment income, with an
amortized cost of approximately $10.16 million.
The Company believes that its existing sources of cash and the net proceeds
from the maximum Subscription Offering will be sufficient to meet the Company's
cash needs for its current business, including the new Western Reserve
agreements through the second quarter of 1999. The Company is exploring
additional methods of raising the necessary capital to finance its growth, such
as borrowing from financial institutions or the sale of additional securities in
other private or public offerings. There can be no assurance that such
alternatives would be available to the Company at an acceptable cost, if at all.
The Company's reinsurance agreements provide security to the Ceding Life
Companies through a letter of credit ("LOC") for the benefit of the Ceding Life
Companies. WMA Life has previously secured a LOC of $2,000,000 in favor of
Western Reserve and a LOC of $30,000 in favor of Kemper. The LOCs were issued by
IBJ Schroder, the Company's custodian, and collateralized by the Company's
assets held with the custodian. If determined to be necessary, WMA Life will
develop facilities for future LOCs and trust arrangements in support of
additional reinsurance agreements.
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The Company has reviewed its internal business systems and believes its
systems, primarily its computer systems, will process date information
accurately and without interruption when required to process dates in the year
1999 and beyond. The Company has discussed the year 2000 issue with the Ceding
Life Companies and the steps they have taken to address the situation. The
Company believes its operations will not be affected. The Company has not been
required to expend significant resources to address the year 2000 issue and does
not anticipate any significant expenditures.
The Company is dependent on the data processing systems of the Ceding Life
Companies and for the year 2000 and beyond. There can be no assurance that these
systems will be able to properly process information relating to the year 2000
and beyond. The failure of these systems to be year 2000 compliant could have a
material adverse effect upon the Company.
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BUSINESS
The Company, through WMA Life, provides reinsurance for certain life
insurance companies on variable universal life insurance ("VUL") and variable
annuity products sold through WMA Agency. Through 1997, the Company primarily
reinsured mortality risks on VUL products, but it has recently expanded its most
significant reinsurance relationship to assume more of the benefits and risks
associated with the underlying policies. For the year ended December 31, 1997,
the Company earned $1.5 million on revenues of $6.8 million. Total assets and
stockholders' equity at December 31, 1997 were $25.1 million and $22.1 million,
respectively. As of December 31, 1997, the Company reinsured approximately
150,000 policies and had life reinsurance in force with an aggregate face value
of $4.2 billion.
For the three months ended March 31, 1998, the Company earned $314,000 on
revenues of $2.1 million. Total assets and stockholders' equity at March 31,
1998 were $27.2 million and $22.4 million, respectively . As of March 31, 1998,
the Company reinsured approximately 167,200 policies and had life reinsurance in
force with an aggregate face value of nearly $4.7 billion.
The Company benefits from the ongoing support of WMA Agency, an
international sales and marketing organization which markets life insurance,
annuities and other financial services. WMA Agency is authorized to sell life
insurance and annuity products in all 50 states and in other jurisdictions. WMA
Agency has a large network of independent insurance agents ("WMA Sales
Associates"). The Company's Chief Executive Officer, S. Hubert Humphrey, Jr.,
owns substantially all of the common stock of World Marketing Alliance, Inc. and
the related companies constituting WMA Agency.
The Company was formed in 1995, principally to provide an opportunity for
WMA Sales Associates to participate indirectly in certain of the business
produced by WMA Agency. In a non-underwritten offering initiated in December,
1995, the Company offered shares of its Common Stock to certain WMA Sales
Associates and employees of WMA Agency. The Company believes that WMA Sales
Associates who have an equity interest in the Company have a greater incentive
to place profitable and persistent business with life insurers that are
reinsured by the Company. As of March 31, 1998, WMA Sales Associates and
employees of WMA Agency owned substantially all of the outstanding Common Stock
of the Company. The Company has entered into an agreement with WMA Agency which
provides that WMA Agency will use its best efforts to cause the life insurance
companies with which it has selling agreements to enter into reinsurance
agreements with the Company covering the life insurance and annuity products
sold through WMA Agency. See "Certain Relationships and Related
Transactions -- WMA Agency Agreement".
The Company currently has reinsurance agreements with the three following
life insurance companies (hereinafter collectively referred to as the "Ceding
Life Companies"):
- Western Reserve Life Assurance Company of Ohio ("Western Reserve"), a
member of the AEGON international insurance group.
- Kemper Investors Life Insurance Company ("Kemper"), a member of the
Zurich international insurance group.
- American Skandia Life Assurance Corporation ("American Skandia"), a
member of the Skandia international insurance group.
The Company's most significant reinsurance relationship is currently with
Western Reserve.
The Company recently entered into new reinsurance agreements with Western
Reserve on certain VUL and variable annuity products which will enable the
Company to participate in earnings arising principally from mortality and
expense charges, costs of insurance charges, sales charges associated with
surrenders, credited interest rate spreads, administrative charges and asset
based allowances. These new reinsurance agreements provide that Western Reserve
will reinsure on a coinsurance and modified coinsurance basis with the Company,
during 1998, 20% of certain of its VUL policies and 40% of certain of its
variable annuity products sold through WMA Agency. In subsequent years, the
Company and Western Reserve will jointly determine the quota share percentages
applicable to new VUL and variable annuity business written through WMA Agency.
This determination will be based, upon (i) the total new premiums collected by
Western
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<PAGE> 31
Reserve written through WMA Agency, and (ii) the total new VUL and variable
annuity business written by WMA Agency with all insurance companies during a
given year. As the premium volume of new business of Western Reserve's VUL and
variable annuity business written through WMA Agency increases in subsequent
years, the Company's quota-share percentage of reinsurance of this business may
also increase up to a maximum of 40% of Western Reserve's VUL production written
through WMA Agency and 50% for such variable annuity production. These
quota-share percentages may be less with regard to new business, if scheduled
Western Reserve market share percentages of WMA Agency's total VUL and variable
annuity production are not attained. See "Business -- Reinsurance Agreements".
BUSINESS STRATEGY. The Company's ability to achieve growth and
profitability will depend upon the marketing and sales efforts of WMA Agency and
upon the successful implementation of the Company's business strategy. The
principal elements of this strategy are:
Expand Reinsurance Coverages. By broadening its current reinsurance
coverages beyond mortality risks, the Company seeks to diversify its
exposure and participate more fully in earnings generated by life insurance
and annuity products sold through WMA Agency. The new reinsurance
agreements with Western Reserve are significant steps taken to implement
the Company's strategy. The Company will seek to enter into similar
agreements with certain other life insurance companies whose products are
sold through WMA Agency.
Continue to Leverage the Relationship with WMA Agency. The ability of
WMA Agency to market and sell life insurance and annuity products for the
Ceding Life Companies is the basis of all of the Company's reinsurance
relationships and has enabled the Company to negotiate its new reinsurance
agreements with Western Reserve. The Company will seek to continue its
close relationship with WMA Agency and to utilize this relationship to
negotiate reinsurance agreements favorable to the Company.
Strengthen the Relationship with WMA Sales Associates. Through
investments in the Company, WMA Sales Associates have the opportunity to
participate in earnings generated by certain life insurance and annuities
sold through WMA Agency. As a result of their equity interest in the
Company, WMA Sales Associates have a greater incentive to place profitable
and persistent business with the Ceding Life Companies, which benefits the
Company through its reinsurance agreements with the Ceding Life Companies.
Pursue Strategic Opportunities and Acquisitions. The Company will
consider acquisitions and other opportunities designed to enable the
Company to further benefit from its relationship with WMA Agency. The
Company over time may expand and diversify its operations into businesses
related to the sale and administration of life insurance, annuities and
other financial services sold through WMA Agency.
POLICIES REINSURED
The Company currently reinsures only VUL and variable annuity policies.
- VUL is a flexible premium adjustable life insurance plan that offers a
form of permanent insurance to the policyholder, but also enables the
policyholder, within certain limitations, to change the face amount or
death benefit of the policy and the timing of the premium payments to
meet the policyholder's situation, even after the policy is written. The
death benefits and cash values in VUL policies vary to reflect investment
experience of the policy's fixed or separate accounts (i.e., a separate
pool of assets, typically mutual funds). The policyholder may specify,
within limits and from time to time, where the assets in the separate
account are to be invested. The policy has a guaranteed minimum death
benefit, while cash values vary with the investment performance of the
fixed and separate accounts. In a VUL policy, the investment risk of the
separate account is passed on to the policyholder. From the premium paid
by the policyholder, the insurance company deducts charges for the cost
of the mortality risk and administrative expenses. The balance is placed
in the fixed or separate account for investment in accordance with the
policyholder's direction. The net amount of risk on a
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VUL policy is the difference between the specified face amount of
insurance and the value of the assets in the fixed and separate accounts
at any given time.
- Variable annuity contracts provide for flexible premium payments and
guarantee that the contract holder will receive a series of periodic
payments commencing at a specified date. The amount of the deferred
annuity cash values will vary in accordance with the investment
experience of the policy's fixed and separate accounts much in the same
manner as a VUL policy. Variable annuities may provide a guaranteed
minimum death benefit prior to the commencement of annuity benefit
payments.
REINSURANCE TYPES
The Company currently writes three types of reinsurance: Monthly Renewable
Term ("MRT"), Coinsurance and Modified Coinsurance ("ModCo").
Monthly Renewable Term. MRT, also referred to as risk premium reinsurance,
is a plan of reinsurance in which the premium rates are not directly related to
the premium rates on the original plan of insurance. Under MRT reinsurance, the
Ceding Life Company reinsures the mortality risk with the Company. The amount
reinsured in any one month is not based on the face amount of the policy, but
rather on a net amount of risk. The net amount of risk in any policy month is
mutually agreed upon in advance, based upon a formula or table of values. The
Ceding Life Company retains responsibility for establishing the policy reserves
as well as for the payment of all policy benefits, commissions and expenses
involved in issuing and maintaining the business.
The Company is also subject to a persistency risk, although it is not part
of the risk transferred. Persistency risk is associated with the possibility
that the Company may not be able to recover its acquisition expenses during the
life of the policies. MRT reinsurance involves limited investment risk, no cash
surrender risk, no policy loans, and little surplus strain compared to other
forms of reinsurance.
Coinsurance. Coinsurance is applicable to any type of insurance: life,
disability, medical or annuity. Under coinsurance arrangements, reinsurance risk
is ceded to the reinsurer on essentially the same basis as that of the
underlying policy. The Company receives a proportionate share of gross premiums
from the Ceding Life Companies. The Company then provides an expense allowance
to the Ceding Life Companies in recognition of commissions and other expenses
associated with the underlying policy. These other expenses relate to costs
associated with underwriting, marketing, policy issue and maintenance. The
reinsurer pays a proportionate share of policy benefits and establishes a
proportionate share of the policy reserves.
Modified Coinsurance. ModCo is a variation of coinsurance. Modified
coinsurance is similar to coinsurance except that reserves and assets related to
the reserves that would otherwise be recorded and held by the Company are
retained by the ceding company. ModCo reinsurance is used primarily for products
that develop cash values which allows the ceding company to retain the
associated assets for investment purposes.
REINSURANCE AGREEMENTS
The Company provides reinsurance for VUL and variable annuity policies
issued by the Ceding Life Companies and sold through WMA Agency. The following
table indicates the names and types of insurance products currently reinsured by
the Company, the Ceding Life Companies that issue the policies underlying the
reinsurance, and the type of reinsurance applicable to each.
<TABLE>
<CAPTION>
REINSURANCE
NAME OF PRODUCT PRODUCT INITIAL POLICY COMMENCEMENT
COMPANY REINSURED TYPE REINSURANCE TYPE ISSUE DATES DATE
------- ------------------------- ---------------- ---------------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Western Reserve Freedom Equity Protector VUL Monthly Renewable Term 1992 to present 6/96
Western Reserve Financial Freedom Builder VUL Monthly Renewable Term 8/97 to 3/98 8/97
Western Reserve Financial Freedom Builder VUL Coinsurance and ModCo 4/98 to present 4/98
Western Reserve Freedom Wealth Creator Variable Annuity Coinsurance and ModCo 1/98 to present 1/98
American Skandia Imperium Variable Annuity ModCo 1/97 to present 1/97
Kemper Power VUL VUL Monthly Renewable Term 10/96 to present 10/96
</TABLE>
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<PAGE> 33
New Western Reserve Agreements. The Company recently entered into two new
reinsurance agreements with Western Reserve. The reinsurance to be written by
the Company will be on a coinsurance basis, except the separate accounts of such
policies which are reinsured on a modified coinsurance basis. Western Reserve
will initially cede to WMA Life:
- 20% quota share of the Financial Freedom Builder VUL policies
effective April 1, 1998, and
- 40% quota share of the Freedom Wealth Creator variable annuities
policies effective January 1, 1998.
The percentage of reinsurance to be ceded in subsequent years will be
determined before the close of each calendar year. This determination will be
based upon two factors: (i) the expected new or "first year" VUL "target"
premium and variable annuity premium to be collected by Western Reserve written
through WMA Agency for the ensuing calendar year, and (ii) total first year VUL
"target" premiums and variable annuity premium written through WMA Agency with
all insurance companies during a given year. The latter factor is used to
determine Western Reserve's market share of the total new VUL and variable
annuity premium volume in a given year. VUL "target" premium is an amount,
specific to the insurance product, which varies by issue age, sex and issue
class, that provides for basic insurance benefits coverage.
The Company's VUL reinsurance percentages will be 20%, 25%, 30%, 35% or 40%
based on expected first year VUL collected target premium levels of $50-149
million, $150-199 million, $200-249 million, $250-599 million, or $600 million
or more, respectively. These reinsurance percentages will be reduced if the
percentage of Western Reserve's "market share" of WMA Agency first year VUL
collected target premium falls below certain thresholds. Western Reserve's
market share is measured by first year VUL target premium collected by Western
Reserve to total first year VUL target premium written by WMA Agency. These
market share thresholds are 90%, 85%, 80%, 75% and 70% for first year VUL
collected target premium levels of $50-149 million, $150-199 million, $200-249
million, $250-349 million, and $350 million or more, respectively.
The reinsurance percentages may be reduced 5% for each full 10% of realized
market share below the thresholds above. The VUL reinsurance percentages may
also be reduced to the extent WMA Agency's VUL first year target premium
production attributed to any insurance company, other than Western Reserve, is
greater than 10% of total VUL first year target premium written by WMA Agency.
The reinsurance percentage may be reduced 5% for each full 5% in excess of the
10% limitation.
The Company's variable annuity reinsurance percentages will be 40% or 50%
based on expected first year variable annuity collected premium levels of
$100-249 million or $250 million or more, respectively. These reinsurance
percentages may be reduced if the percentage of Western Reserve's market share
of WMA Agency first year variable annuity collected premium falls below certain
thresholds. Western Reserve's market share is measured by first year variable
annuity premiums collected by Western Reserve to total first year variable
annuity premiums written by WMA Agency. These market share thresholds are 45%
and 30% for first year variable annuity collected premium amounts of $100-249
million and $250 million or more, respectively. The reinsurance percentages may
be reduced 5% for each full 5% of realized market share below the thresholds
above, subject to a minimum reinsurance percentage of 25%. The variable annuity
reinsurance percentage may also be reduced 5% if WMA Agency's first year
variable annuity premium growth rate is 0% or less.
The agreement requires the Company, as a non-authorized foreign reinsurer,
to provide irrevocable, automatically renewable, LOCs acceptable to the state
regulators and Western Reserve in an amount at any given time sufficient to
offset Western Reserve's ceded statutory reserves and liabilities and any
outstanding losses, if reinsurance credits are not otherwise available.
As to reinsurance in force, the agreements are unlimited as to its duration
and shall remain in effect for so long as the reinsured policies in force. As to
the reinsurance of new business, the agreements have a five year term.
Thereafter, the agreements may be canceled as to the reinsurance of any new
business (i) immediately upon notice by one party if the other party becomes
insolvent, dissolves, ceases to legally exist, or otherwise ceases to be legally
authorized to act as a reinsurer or insurer; (ii) upon thirty (30) days written
notice by a party if the other party has materially breached the agreement and
has failed to cure such breach within such
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<PAGE> 34
thirty (30) days; and (iii) when and as agreed upon by the parties in writing.
Either party can also cancel the agreement for any reason after the initial five
year term, upon giving the other party three hundred sixty five (365) days
advance written notice of cancellation.
None of the policies reinsured under the new agreements are subject to
recapture until after a policy has been in force for thirty-five (35) years
after its issuance, except any annuity contract that has gone into pay-out
status or annuitizes, in which event the Company must pay the reinsured an
amount equal to the annuity contract's annuity value reduced by contingent
deferred sales charges specified in the annuity contract.
MARKETING-WMA AGENCY
All of the Company's reinsurance business is generated by the marketing
efforts of the WMA Agency which places business with the Ceding Life Companies.
As a consequence, the Company is dependent upon WMA Agency to market those
products which the Company reinsures. WMA Agency is separate from the Company,
and the shares being offered hereby do not represent any interest in WMA Agency.
The Company does not use reinsurance intermediaries or engage in any direct
marketing activities.
WMA Agency, which began operations in January of 1991, and its affiliates
have 325 employees housed in a new 100,000 square foot office building, located
in Duluth, Georgia, a northern suburb of Atlanta. WMA Agency currently markets a
variety of life insurance and annuity products in addition to VUL and variable
annuities. These products include ordinary life, term life, variable life,
universal life, fixed annuities, equity indexed annuities, long term care,
disability and health insurance. WMA Agency markets products for numerous life
insurance and annuity companies, among them Kemper, Western Reserve, American
Skandia, Fortis Benefits Investors, Inc., The Midland Life Insurance Company and
Pacific Life Insurance Company.
WMA Agency emphasizes recruiting and team building as a means for WMA Sales
Associates to build their own independent sales organizations. WMA Agency
stresses a "turnkey" approach to building teams and making sales. WMA Agency
provides all new WMA Sales Associates with business material such as the
Business Format System(C), which includes manuals, videos and tapes instructing
WMA Sales Associates on how to build a large sales organization.
WMA Agency's best selling product is VUL, which is an insurance product in
which cash values can accumulate on a tax-deferred basis, typically in the
separate accounts of a life insurance company. The separate accounts are managed
by outside fund managers. WMA Agency believes that the middle-income market for
this product in the U.S. has been largely overlooked by the industry and that
VUL is the best life and retirement product for this market segment. WMA Agency
has developed a proprietary software program containing all of WMA Agency's
recruiting material, sales illustrations and product data for all of its
preferred insurance carriers. This software includes the Financial Lifestyles
Strategy(C) program, which is a needs-based analysis program designed to address
a client's particular financial situation and incorporates multiple cross-
selling opportunities for WMA Sales Associates. WMA Agency also markets
insurance products in Mexico, Canada, Philippines, Taiwan, Puerto Rico and Guam.
WMA Agency's senior management team consists of S. Hubert Humphrey, Jr.,
President and Chief Executive Officer, Thomas W. Montgomery, Executive
Vice-President, and Susan Davies, Senior Vice President of Agency Operations.
Mr. Humphrey directs the overall marketing focus of the sales force. Two
advisory groups meet with Mr. Humphrey quarterly. One is comprised of the seven
senior sales leaders, while the other is comprised of 34 top level WMA Sales
Associates (including the seven senior sales leaders). Mr. Humphrey relies upon
these advisory groups and their experience, knowledge and relationships with
their sales teams when developing marketing strategies for WMA Agency.
WMA Agency sales force is organized into numerous sales teams, each headed
by a Marketing Director ("MD"). The MDs and intermediate managers earn override
commissions upon sales made by WMA Sales Associates in their teams and have
corresponding supervisory authority and responsibility. A WMA Sales Associate
rises to the Marketing Director level in stages, qualifying for each successive
stage by meeting goals for number of policies sold, number of new agents
recruited and achieving certain training, educational and licensing
requirements. An MD must sign a Marketing Director agreement which places
additional
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<PAGE> 35
responsibilities upon him or her for the WMA Sales Associates recruited who
comprise his or her sales team. An MD's responsibilities include the training,
supervision and motivation of his or her WMA Sales Associates, as well as the
financial liability for commissions advanced to those WMA Sales Associates.
Independent field offices are managed by MDs, and multiple MDs may be located in
one office. These offices are not under the direct control of WMA Agency;
however, WMA Agency contractually controls all marketing and recruiting
literature, pays commissions to WMA Sales Associates and provides training
programs and product materials to these offices. WMA Agency also sponsors
marketing meetings throughout the year, an annual convention, incentive trips
and recognition awards throughout the WMA sales teams. The WMA Agency broadcasts
a one and one-half hour motivational and training program weekly to numerous MD
offices throughout the United States via the Echostar(R) satellite network. Many
product providers participate in these broadcasts.
Existing WMA Sales Associates recruit both experienced agents and also
individuals without prior experience in the life insurance business.
Newly-licensed agents typically remain at their previous occupations until they
acquire sales experience and develop an established insurance income. As a
result, a large portion of the newly-appointed WMA Sales Associates are
initially part-time agents.
Upon joining WMA Agency, a new WMA Sales Associate is required to enter an
agency training program which includes a number of courses related to product
training, sales compliance issues and financial service related topics. Each
level of sales promotion up to the MD level requires additional courses and
training. Pre-licensing classes for various state insurance licenses and
securities licensing classes are provided by independent parties approved by WMA
Agency.
UNDERWRITING
As an automatic reinsurer, the Company relies upon the underwriting of the
Ceding Life Companies on the policies the Company reinsures. The Company reviews
and monitors the underwriting standards and procedures of the Ceding Life
Companies, including rules used for policy continuations, changes, reentries,
reinstatements, and conversions. See "-- Policy Administration".
POLICY ADMINISTRATION
Policies reinsured by the Company are administered by the Ceding Life
Companies. The Ceding Life Companies provide the Company with all information
necessary for processing the reinsurance. Management may not have sufficient
information to properly evaluate the administration of the business reinsured by
the Company or the accuracy of the information provided by the Ceding Life
Companies, since it has only conducted a limited review of the administrative
practices of the Ceding Life Companies.
The Company's reinsurance agreements give the Company the right to
periodically audit the books and records of the Ceding Life Companies to ensure
that all business is being properly ceded and administered. To date, the Company
has not conducted any such audit of these companies, but it expects to exercise
this right in the future.
FUTURE POLICY BENEFITS
The provision for future policy benefits reflected in the Company's
Consolidated Financial Statements included herein are calculated based on GAAP.
Liabilities for future policy benefits under the MRT agreements include
provisions for expected future claims, claims in the course of settlement, and
claims incurred but not reported. The liability is estimated using methods that
include assumptions, such as estimates of expected investment yields, mortality,
terminations and expenses applicable at the time the reinsurance contract is
executed including provision for the risk of adverse deviation. Liabilities for
future policy benefits under the coinsurance agreements equal policyholder
account balances.
Liabilities for future policy benefits reflected in the Company's
Consolidated Financial Statements included herein are based on information
provided by the Ceding Life Companies. The reserves established by the Company
with respect to individual risks or classes of business may be greater or less
than those
32
<PAGE> 36
established by the Ceding Life Companies, due to the use of different mortality
and other assumptions. Actual mortality experience in a particular period may be
greater than expected mortality experience and, consequently, may adversely
affect the Company's operating results for such period.
Since the majority of the Company's business is relatively new, no
meaningful experience analysis has been developed. However, results from 1996
and 1997 indicate claim experience has been favorable.
RETROCESSION
As of March 31, 1998, the Company has not reinsured ("retroceded") any of
its reinsurance. However, the Company will retrocede portions of the mortality
risk in excess of its retention limits due to the new reinsurance agreements
with Western Reserve. Under its retrocession agreement, the Company in most
instances will retain the first $100,000 of its mortality risk on any one
insured life, with the excess being retroceded.
INVESTMENTS
The Company's investments are selected with the objective of maximizing
investment returns consistent with appropriate credit, diversification, tax and
regulatory considerations, while providing sufficient liquidity to enable the
Company to meet its obligations as a reinsurance company on a timely basis.
The Company had engaged an independent investment advisor and manager to
invest the Company's assets in accordance with the Company's investment
guidelines. The performance of, and the fees paid to, its investment advisor are
reviewed periodically by the Board of Directors of the Company. The fees paid to
its investment advisor during 1997 were $50,000. The Company's current
investment manager was recently acquired and notified the Company that its
engagement with the Company would terminate in May, 1998. The Company expects to
engage a new investment manager and advisor to take over its investment
portfolio upon termination of the current manager.
The state insurance laws in the United States restricting the investments
of insurance companies are not applicable to WMA Life. Unlike insurance
regulations in the United States, Bermuda law does not limit or regulate
investments of WMA Life provided that such investments are made for the
Company's potential benefit. The Company has, however, developed specific
investment guidelines which stress diversification of risks, conservation of
principal and liquidity. The Company's investments, however, will be subject to
market risks and fluctuations, as well as to risks inherent in particular
securities. The guidelines are subject to change at the discretion of the
Company's Board of Directors.
The following table summarizes the Company's investment results for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------- -------------------
1996 1997 1997 1998
------- ------- -------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C>
Total cash and investments(1)..................... $11,838 $19,218 $18,967 $19,559
Net investment income(2).......................... $ 627 $ 1,088 $ 257 $ 250
Average annual yield.............................. 5.30% 5.66% 5.42% 5.11%
Net realized investment gains..................... $ 0 $ 0 $ 0 $ 0
</TABLE>
- ---------------
(1) Average of the aggregate invested amounts at book value as of the beginning
of the period, as of June 30 and as of the end of the period.
(2) After investment expenses, excluding realized and unrealized investment
gains or losses.
33
<PAGE> 37
The Company classifies all fixed maturity securities and equity securities
as "available for sale". The following table summarizes the Company's invested
assets at book value and market value as of March 31, 1998.
<TABLE>
<CAPTION>
BOOK VALUE MARKET VALUE(1)
--------------- ---------------
TOTAL % TOTAL %
------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturities:
United States Government and agencies..................... $ 5,270 30.1% $ 5,325 29.9%
Commercial and industrial................................. 8,790 50.3 8,826 49.5
Public utilities.......................................... 798 4.6 801 4.5
Mortgage backed securities................................ 2,137 12.2 2,170 12.1
------- ----- ------- -----
Total invested assets............................. 16,995 97.2 17,122 96.0
Equity securities(2)........................................ 488 2.8 714 4.0
------- ----- ------- -----
Total invested assets............................. $17,483 100.0% $17,836 100.0%
======= ===== ======= =====
</TABLE>
- ---------------
(1) The company's fixed maturities and equity securities are carried at market
value. Market value represents the closing sales prices of marketable
securities as of March 31, 1998.
(2) Consists of 6,500 shares of Standards & Poor's Deposit Receipts.
All of the Company's fixed maturity investments are investment grade. The
following table indicates by rating the composition of the Company's fixed
maturities portfolio as of March 31, 1998:
<TABLE>
<CAPTION>
BOOK VALUE MARKET VALUE
--------------- ---------------
RATING(1) TOTAL % TOTAL %
- --------- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Aaa................................................. $ 7,993 47.0% $ 8,087 47.3%
Aa.................................................. 2,086 12.3 2,125 12.4
A................................................... 6,411 37.7 6,441 37.6
Baa................................................. 505 3.0 469 2.7
------- ----- ------- -----
Total fixed maturities.................... $16,995 100.0% $17,122 100.0%
======= ===== ======= =====
</TABLE>
- ---------------
(1) Ratings are those assigned by Moody's when available, with remaining ratings
as assigned by Standard and Poor's Corporation or the NAIC and converted to
a generally comparable Moody's rating.
The scheduled maturities of the Company's fixed maturities as of March 31,
1998 were as follows:
<TABLE>
<CAPTION>
BOOK VALUE MARKET VALUE
--------------- ---------------
SCHEDULED MATURITY TOTAL % TOTAL %
- ------------------ ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less............................. $ 995 5.8% $ 995 5.8%
Due after one year through five years............... 6,116 36.0 6,152 35.9
Due after five years through ten years.............. 7,423 43.7 7,511 43.9
Due after ten years................................. 324 1.9 294 1.7
Mortgage-backed securities.......................... 2,137 12.6 2,170 12.7
------- ----- ------- -----
Total fixed maturities.................... $16,995 100.0% $17,122 100.0%
======= ===== ======= =====
</TABLE>
The Company's fixed maturity investment portfolio at March 31, 1998, is
comprised primarily of debt securities of the U.S. Government, public utilities
and other corporations, mortgage-backed and asset-backed securities. The
Company's asset-backed securities are included in the investment tables as
mortgage-backed securities. The Company's investments in mortgage-backed
securities include collateralized mortgage obligations ("CMOs") and
mortgage-backed pass-through securities. All of the Company's mortgage-backed
securities are collateralized by mortgages issued by the Government National
Mortgage Association ("GNMA"), an agency of the U.S. Government. GNMA mortgages
are backed by the full faith and credit of
34
<PAGE> 38
the U.S. Government. Credit risk generally is not a consideration when investing
in GNMA mortgage-backed securities.
COMPETITION
The Company is dependent upon WMA Agency for marketing the VUL and variable
annuity products the Company reinsures. WMA Agency faces intense competition in
the sale of these products from the agency forces and marketing organizations of
major life insurance companies, as well as from companies marketing investment
related products such as mutual funds. Many of WMA Agency's competitors have
substantially greater financial and marketing resources than WMA Agency. The
Company believes that many large insurance companies have begun devoting
significant resources to the development and marketing of VUL and variable
annuities products that directly compete with those products sold through WMA
Agency which are reinsured by the Company.
Competition for sales agents with demonstrated ability is also intense.
However, the Company believes that WMA Agency has been, and will continue to be,
able to attract, motivate and retain productive, independent sales agents by
providing innovative products and quality service.
REGULATION
Bermuda
WMA Life is registered as a long-term insurer under the Insurance Act 1978,
as Amended, (the "Insurance Act"), which, among other things, imposes on Bermuda
insurance companies solvency and liquidity standards and auditing and reporting
requirements and grants to the Minister of Finance (the "Minister") powers to
supervise, investigate and intervene in the affairs of insurance companies. A
long-term insurer is one which issues life, annuity or accident and disability
contracts for periods of not less than five years. WMA Life's Certificate of
Registration is conditioned upon (i) maintaining the relevant solvency margins
and other ratios applicable under Bermuda law and (ii) not writing any "general
business" without obtaining the prior written approval of the Minister. General
business is any business that is not long-term. Other significant aspects of the
Bermuda insurance regulatory framework are set forth below.
Cancellation of Insurer's Registration. An insurer's registration may be
canceled by the Minister on certain grounds specified in the Insurance Act,
including failure of the insurer to comply with its obligations under the
Insurance Act. The registration may also be canceled, if, in the opinion of the
Minister, the insurer has not been carrying on business in accordance with sound
insurance principles.
Independent Approved Auditor. Every registered insurer must appoint an
independent auditor who will annually audit and report on the Statutory
Financial Statements and the Statutory Financial Return of the insurer, both of
which, in the case of WMA Life, are required to be filed annually with the
Registrar of Companies (the "Registrar"), who is the chief administrative
officer under the Insurance Act. The auditor must be approved by the Minister as
the independent auditor of the insurer. The approved auditor may be the same
person or firm which audits the insurer's financial statements and reports for
presentation to its stockholders. WMA Life's auditor is KPMG Peat Marwick,
(Hamilton, Bermuda), the Bermuda "tenant" of KPMG Peat Marwick LLP.
Approved Actuary. WMA Life must appoint an actuary approved by the
Minister and file with the Annual Statutory Financial Return an actuarial
certificate in the prescribed form. Mr. Edward F. McKernan, an officer of the
Company and WMA Life, was approved August 7, 1995, by the Minister of Finance as
WMA Life's Actuary.
Statutory Financial Statements. An insurer must prepare Annual Statutory
Financial Statements. The Insurance Act prescribes rules for the preparation and
substance of such Statutory Financial Statements (which include, in statutory
form, a balance sheet, income statement, statement of capital and surplus and
detailed notes thereto). The insurer is required to give detailed information
and analysis regarding premiums, claims, reinsurance and investments. The
Statutory Financial Statements are not prepared in accordance with United States
GAAP and are distinct from financial statements prepared for presentation to the
insurer's
35
<PAGE> 39
shareholders under the Companies Act 1981 of Bermuda, which may be prepared in
accordance with GAAP. WMA Life is required to submit the Annual Statutory
Financial Statements as part of the Statutory Financial Return.
Annual Financial Return. WMA Life is required to file with the Registrar a
Statutory Financial Return no later than four months from the insurer's
financial year end (unless specifically extended). The Statutory Financial
Return includes, among other matters, a report of an approved independent
auditor on the Annual Statutory Financial Statements of the insurer; a solvency
certificate; the Annual Statutory Financial Statements themselves; and the
opinion of the approved Actuary. The solvency certificate must be signed by the
Principal Representative and at least two directors of the insurer who are
required to certify (among other matters) whether the minimum solvency margin
has been met. The approved independent auditor is required to state its opinion
it was reasonable for them to so certify.
Minimum Capital and Surplus and Solvency Margin. The Insurance Act
requires WMA Life to have a minimum level of statutory capital and surplus of
$250,000. At December 31, 1997, WMA Life's statutory capital and surplus was
$6,407,578. In addition, the Insurance Act provides that the statutory assets of
WMA Life must exceed its statutory liabilities by at least $250,000. Statutory
assets and liabilities refer to those assets and liabilities established in
conformity with the requirements of the Insurance Act for the statutory balance
sheet.
Supervision, Investigation and Intervention. The Minister may appoint an
inspector with extensive powers to investigate the affairs of an insurer if the
Minister believes that an investigation is required in the interest of the
insurer's policyholders or persons who may become policyholders. In order to
verify or supplement information otherwise provided to him, the Minister may
direct an insurer to produce documents or information relating to matters
connected with the insurer's business.
If it appears to the Minister that there is a risk that an insurer may
become insolvent or that it is in breach of the Insurance Act or any conditions
imposed upon its registration, the Minister may (among other things) direct the
insurer not to take on any new insurance business; not to vary any insurance
contract if the effect would be to increase the insurer's liabilities; not to
make certain investments; to sell certain investments; to maintain in Bermuda,
or transfer to the custody of a Bermuda bank, certain assets; not to declare or
pay any dividends or other distributions or to restrict the making of such
payments; and to limit its premium income.
Principal Representative. An insurer is required to maintain a principal
office in Bermuda and to appoint and maintain a Principal Representative in
Bermuda. For the purpose of the Insurance Act, WMA Life's Principal
Representative and principal office is CFM Insurance Managers, Ltd., 3rd Floor,
44 Church Street, Hamilton HM 12, Bermuda. Without a reason acceptable to the
Minister, an insurer may not terminate the appointment of its Principal
Representative, and the Principal Representative may not cease to act as such,
unless 30 days' notice in writing to the Minister is given of the intention to
do so. It is the duty of the Principal Representative, within 30 days of his
reaching the view that there is a likelihood of the insurer for which he acts
becoming insolvent or its coming to his knowledge, or his having reason to
believe, that a reportable "event" has, to the Principal Representative's
knowledge, occurred, to make a report in writing to the Minister setting out all
the particulars of the case that are available to him. Examples of such a
reportable "event" include failure by the reinsurer to comply substantially with
a condition imposed upon the reinsurer by the Minister relating to a solvency
margin or a liquidity or other ratio.
Payment of Dividends. The payment of dividends by WMA Life to the Company
is restricted by Bermuda regulations. Under the Insurance Act, no long-term
insurer may declare or pay a dividend to any person other than a policyholder
unless the value of the assets of its long-term business fund, as certified by
the insurer's approved actuary, exceeds the liabilities of the insurer's
long-term business by the margin prescribed by The Insurance Act; and the amount
of any such dividend shall not exceed the aggregate of (i) that excess, and (ii)
any other funds properly available for the payment of dividend, such as funds
arising out of the business of the insurer other than long-term business. As a
Bermuda company, WMA Life will also be subject to the provisions of the Bermuda
Companies Act of 1981. Under that Act, WMA Life may not declare or pay a
dividend or make a distribution out of contributed surplus if there are
reasonable grounds for believing that (i) WMA Life is, or would after the
payment be, unable to pay its liabilities as they become due; or (ii) the
36
<PAGE> 40
realizable value of WMA Life's assets would thereby be less than the aggregate
of its liabilities and its issued share capital and share premium accounts.
As an "exempted company," WMA Life is exempt from Bermuda laws restricting
the percentage of share capital that may be held by non-Bermudians, but as an
exempted company it may not participate in certain business transactions,
including (i) the acquisition or holding of land in Bermuda (except that
required for their business and held by way of lease or tenancy for terms of not
more than 21 years) without the express authorization of the Bermuda
legislature, (ii) the taking of mortgages on land in Bermuda to secure an amount
in excess of $50,000 without the consent of the Minister, (iii) the acquisition
of any bonds or debentures secured by any land in Bermuda, other than certain
types of Bermuda government securities, or (iv) the carrying on of business of
any kind in Bermuda, including insuring domestic risks, except in furtherance of
their business carried on outside Bermuda.
United States
The insurance laws of each state of the United States generally do not
directly regulate the sale of reinsurance within their jurisdictions by non-U.S.
insurers, such as WMA Life. Nevertheless, the sale of reinsurance by alien
reinsurers, such as WMA Life, to insurance companies domiciled or licensed in
United States jurisdictions is indirectly regulated by state "credit for
reinsurance" laws that operate to deny statutory financial statement credit to
ceding insurers unless the non-admitted alien reinsurer posts acceptable
security for ceded liabilities and agrees to certain contract provisions.
From time to time, there have been Congressional and other initiatives in
the United States regarding the supervision and regulation of the insurance
industry, including proposals to supervise and regulate alien reinsurers. While
none of these proposals has been adopted to date on either the Federal or state
level, there can be no assurance that federal or state legislation will not be
enacted subjecting WMA Life to supervision and regulation in the United States,
which could have a material adverse effect on WMA Life. In addition, no
assurance can be given that if WMA Life were to become subject to any laws of
the United States or any state thereof or of any other country at any time in
the future, it would be in compliance with such laws.
TAXATION
Bermuda. Under current Bermuda law, there is no income tax or capital
gains tax on the earnings of WMA Life, nor is there any withholding tax on
dividends paid by WMA Life to the Company. WMA Life has received from the
Minister an assurance under The Exempted Undertakings Tax Protection Act, 1966
of Bermuda, to the effect that in the event of there being enacted in Bermuda
any legislation imposing tax computed on profits or income, or computed on any
capital asset, gain or appreciation, or any tax in the nature of estate duty or
inheritance tax, then the imposition of any such tax shall not be applicable to
WMA Life, or to any of its operations or the shares, debentures or other
obligations of WMA Life, until 2016.
United States. The Company files a Federal income tax return as a domestic
U.S. corporation and is taxed at an effective rate of 34%. WMA Life has been in
existence for less than five tax years; therefore, the Company may not yet elect
to file a life/non-life Federal consolidated income tax return.
WMA Life has elected to be taxed under Section 953(d) as a domestic
insurance company for all parts of the Internal Revenue Code. Under Section
816(a), due to the fact that more than 50% of WMA Life's reserves are mortality
reserves, WMA Life is taxed as a life insurance company under Section 801. WMA
Life also qualifies under Section 806 for the small life insurance company
deduction of 60% of life insurance company taxable income ("LICTI"). The small
life insurance company deduction is available to all life insurance companies
which have assets of $500 million or less and taxable income of $3 million or
less. Once LICTI, prior to taking into account the small life insurance company
deduction, exceeds $3 million, the benefit of the small life insurance company
deduction gradually decreases by 15% of the excess over $3 million until LICTI
reaches $15 million when the benefit is eliminated. The benefit of the small
life insurance company deduction is mitigated somewhat by the fact that such
benefit results in WMA Life paying alternative minimum tax ("AMT"). WMA Life's
effective tax rate, taking into account the full benefit of the small life
insurance company deduction, was 19% in 1997 after taking into account the AMT.
The small life
37
<PAGE> 41
insurance company deduction decreases and WMA Life's effective tax rate
increases as LICTI increases above $3 million. The effective tax rate increase
will not be as great as the rate of decrease of the small life insurance company
deduction due to utilization of an AMT credit accumulated during the years of
maximum benefit of the small life insurance company deduction. Ultimately as WMA
Life is no longer eligible for the small life insurance company deduction and
the accumulated AMT credit is utilized, WMA Life's statutory tax rate will
increase to 34% or 35% depending upon its taxable income.
Certain other major adjustments are made to book income in determining
LICTI prior to taking into account the small life insurance company deduction.
Such adjustments include: (i) an adjustment to compute mortality reserves under
Section 807(c)(1) resulting in an addback to LICTI, and (ii) an adjustment to
add back a certain percentage of net premiums. The percentage is based upon the
type of business written or reinsured by WMA Life. The rates vary from a low of
1.75% for non-tax qualified annuity premiums and 2.05% for group life to a high
of 7.7% for all other types of non-tax qualified premiums. This addback is to
then be amortized over a 120 month period. In general, net premiums for purposes
of this calculation are defined under Regulation section 1.848-2 as gross
premiums and other considerations (other than amounts on reinsurance agreements)
and the net positive considerations for any reinsurance agreement reduced by the
sum of return premiums and the net negative considerations for any reinsurance
agreement.
In general, the net consideration determined by a reinsurer for a
reinsurance agreement equals (i) the gross amount of premiums and other
considerations incurred by the ceding company with respect to the reinsurance
agreement, less (ii) the gross amount incurred with respect to the reinsurance
agreement, including any ceding commissions, reinsurance expense allowances,
reimbursement of claims and benefits, modified coinsurance reserve adjustments,
experience-rated adjustments and termination payments.
EMPLOYEES
During the second quarter of 1998, the Company hired four employees. Two of
the Company's employees are part-time employees who are also employed by WMA
Agency. The Company believes its employee relations are good.
The four employees of the Company are expected to be paid an aggregate of
$200,000 during 1998 in the form of salary and incentive compensation.
PROPERTIES
The Company currently subleases on a triple net basis approximately 1,500
square feet of office space in Duluth, Georgia from WMA Agency through January
20, 2008, at a base annual rental rate of $12.45 per square foot for the first
five years of the lease term, which is equivalent to the rate being paid by WMA
Agency to its lessor. This rate will increase by approximately 13.5% during the
last five years of the term. The annual rental for this space during the first
five years is $18,675. The Company does not own or lease any other properties.
LEGAL PROCEEDINGS
The Company is not a party to, and is not aware of, any litigation or
arbitration, that is likely to have a material adverse effect on the Company's
consolidated financial position or results of operations.
38
<PAGE> 42
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
S. Hubert Humphrey, Jr.................... 55 President and Director of the Company and
President of WMA Life
Thomas W. Montgomery...................... 49 Executive Vice President, Secretary and
Director of the Company and Vice President
of WMA Life
Edward F. McKernan........................ 42 Senior Vice President, Chief Financial
Officer, Actuary and Director of the
Company, and Vice President and Actuary of
WMA Life
C. Simon Scupham.......................... 44 Director
Joseph F. Barone.......................... 62 Director
</TABLE>
The following is certain additional information concerning each of the
executive officers and directors of the Company.
Mr. Humphrey became President and a Director of the Company in March, 1995
and President of WMA Life in August, 1995. He has also been the President and
Chief Executive Officer of WMA Agency since its founding in January, 1991. Mr.
Humphrey has been involved in the financial services field for 19 years. Prior
to 1991, Mr. Humphrey had been a Regional Vice President and National Sales
Director of A. L. Williams & Associates, Inc., a nationwide financial services
company that was acquired by Primerica Financial Services, Inc. in 1989, and a
Vice President of the A. L. Williams Corporation, an affiliated life reinsurance
company.
Mr. Montgomery has been the Executive Vice President, Secretary and a
Director of the Company since March, 1995 and a Vice President of WMA Life since
August, 1995. He has also been the Executive Vice President of WMA Agency since
March, 1994. Mr. Montgomery is a certified public accountant and is a former
audit and tax partner in the accounting firms of Richter & Company, P.C. and
Davis, Crittenden, Richter & Fletcher, where he worked from 1973 to 1994.
Mr. McKernan became Senior Vice President and Actuary of the Company in
April, 1996 and was elected a Director of the Company in August, 1997. He was
named Chief Financial Officer of the Company in December, 1997. Mr. McKernan has
been Vice President and Actuary of WMA Life since April, 1996. He has also been
Senior Vice President and Actuary of WMA Agency since April, 1996. Immediately
prior to joining the Company and WMA Agency, Mr. McKernan had been a Senior
Manager for three years in the Life Actuarial Consulting Practice of KPMG Peat
Marwick LLP. From August, 1990 through September, 1993, Mr. McKernan was the
Marketing Actuary of U.S. Operations for Seaboard Life Insurance Company. Prior
to his tenure with this firm, Mr. McKernan was employed by Tillinghast, a Towers
Perrin company, which is an international actuarial consulting firm. He is a
Fellow of the Society of Actuaries (1988) and a Member of the American Academy
of Actuaries (1985).
Mr. Scupham was elected a Director of the Company in April, 1996. He is the
President of CFM Insurance Managers, Ltd., a Bermuda corporation that provides
professional management services to international companies operating in
Bermuda. He is a qualified Chartered Accountant (CA) and Associate Fellow of the
Institute of Mathematics and its Applications. Mr. Scupham is also President of
Mutual Risk Management (Bermuda) Ltd., the parent company of CFM Insurance
Managers, Ltd., and Shoreline Mutual Management (Bermuda) Ltd. Prior to joining
CFM, Mr. Scupham served as the director of Bermuda operations for the Kemper
Group.
Mr. Barone became a Director of the Company in June , 1998. Since July,
1997, he has been Managing Director -- Research of The Firemark Group of
Morristown, New Jersey, a private merchant
39
<PAGE> 43
banking firm. From January, 1992 through June, 1997, he was associated with
Swiss Re Insurance as a Senior Vice President. From 1981 through 1991, he was a
Managing Director of Investment Banking for the insurance industry at Bear
Stearns & Company, Inc. Mr. Barone is a member of the New York Society of
Security Analysts and the Association of Insurance and Financial Analysts. He is
a Chartered Financial Analyst.
EXECUTIVE COMPENSATION
Stock Options
On June , 1998, the Company's Board of Directors, subject to ratification
of the stockholders of the Company at its 1998 annual meeting, authorized a 1998
stock option plan for the directors, officers and employees of the Company (the
"Plan") that contemplates the issuance of up to 900,000 shares of the Company's
authorized, but unissued, Common Stock upon the exercise of options granted
under the Plan. Such options are non-transferable (except by will or the laws of
descent and distribution in the event of death), shall have a term of five (5)
years, and become exercisable on the third anniversary of an optionee's date of
hire, appointment or election, provided the optionee at that time has been a
director, officer or employee of the Company for at least one year after the
date of grant. Upon termination of an optionee's service as a director, officer
or employee of the Company for reasons other than retirement, death or permanent
and total disability, the option and the optionee's rights thereunder shall
terminate. Options become immediately exercisable upon a change in control of
the Company, as defined in the Plan. The per share exercise price of options
granted under the Plan is the fair market value of a share of Common Stock on
the date of grant. The Plan will be administered by the Audit and Compensation
Committee created by the Board of Directors on the above date.
On the above date, the Board of Directors also authorized the grant of
options under the Plan to purchase up to shares of Common Stock to
several directors, officers and employees of the Company, including
shares to Mr. Humphrey. The 1998 options granted have an exercise price
equal to the Subscription Price. The shares owned by the option holders upon
exercise of their options will not be registered in the Subscription Offering or
otherwise and shall be considered restricted shares which may only be resold
pursuant to an effective registration statement, an exemption from registration,
or Rule 144.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Humphrey, the Company's Chief Executive Officer, is the beneficial
owner of approximately 20% of the Company's Common Stock outstanding prior to
the Subscription Offering. Mr. Humphrey, together with his wife, Norma P.
Humphrey, owns substantially all the outstanding shares of World Marketing
Alliance, Inc., and certain affiliated entities constituting WMA Agency which
recruit, train and supervise the sales force responsible for selling life
insurance and annuity contracts reinsured by the Company. Certain directors and
executive officers of the Company are also directors and/or executive officers
of WMA Agency and certain of its affiliates. See "Management -- Executive
Officers and Directors".
WMA AGENCY AGREEMENT
On June , 1998, the Company entered into an agreement with WMA Agency
which provides that WMA Agency will use its best efforts to cause any life
insurance company with which WMA Agency has selling agreements ("Life
Companies") to enter into reinsurance agreements with the Company covering the
life insurance products sold through WMA Agency (the "WMA Agency Agreement"). As
partial consideration for WMA Agency's agreement, the Company agreed to
authorize the issuance of warrants to purchase 600,000 shares of the Company's
Common Stock ("Warrants") to key management employees of WMA Agency designated
by WMA Agency. Warrants to purchase 250,000 shares were issued on June , 1998,
exercisable at the Subscription Price with respect to 20% of the shares issuable
under the warrant in each of the five years after the first anniversary of the
date of issuance. The exercise price of any future warrants issued will be equal
to fair market value of the Company's Common Stock as of the date of warrant
issue. Such Warrants are subject to ratification by the Company's stockholders
and the Company's achieving specified
40
<PAGE> 44
annual premium production levels during the exercise period. Pursuant to the
terms of the WMA Agency Agreement: (i) WMA Agency may not enter into a selling
agreement with a Life Company prior to allowing the Company the opportunity to
provide the terms and conditions of reinsurance which the Company desires to
include in such selling agreement; and (ii) WMA Agency must give the Company 120
days' notice of the termination of any selling agreement with a Life Company or
of its intention to discontinue the sale of any life insurance product. The WMA
Agency Agreement expires after the earlier of: (A) ten years; (B) material
breach by either party; or (C) the occurrence of any circumstance that adversely
affects the ability of WMA agency or the Company to perform its obligations
under the agreement.
The Company believes that this agreement will give it the ability to
continue its existing arrangement with the existing Life Companies and enable it
to have the opportunity to provide reinsurance to life insurance companies with
whom WMA Agency may enter into sales agreements in the future. The agreement
also provides through the exercise of Warrants an opportunity to certain key
management employees of WMA Agency to acquire and increase their stock ownership
in the Company.
CONFLICTS WITH WMA AGENCY
Commissions for sales of life insurance and annuity contracts reinsured by
the Company are paid to WMA Agency and WMA Sales Associates by the Ceding Life
Companies. Mr. Humphrey and Mr. Montgomery receive income from WMA Agency which
is far in excess of the compensation each receives from the Company. In
addition, Mr. Humphrey, Mr. Montgomery and certain of the directors are also
executive officers and employees of companies constituting WMA Agency. As a
result of such relationships, the interests of WMA Agency with respect to the
commissions received on life insurance sales by WMA Agency from the Ceding Life
Companies (and indirectly under coinsurance agreements from the Company) may
conflict with the interests of the Company in negotiating reinsurance agreements
beneficial to the Company.
MANAGEMENT AND RELATED SERVICES
The Company has had a management agreement with WMA Management, which is
owned 100% by Mr. Humphrey, who is its director and President. WMA Management
has been responsible for the day-to-day activities of the Company and WMA Life.
For these services, WMA Management received a fee in 1997 of $120,000, and
$100,000 in 1996. Due to the Lease Agreement and the Corporate Services
Agreement with WMA Agency described below and the Company's employment of its
own personnel, this agreement is no longer necessary and was terminated as of
December 31, 1997. Effective as of April 1, 1998, the Company entered into a
Corporate Services Agreement with WMA Agency pursuant to which WMA Agency will
provide incidental office supplies and services to the Company for a fixed
monthly fee of $2,250, adjustable annually, plus a monthly payroll allocation
based on personnel assignments during the month and such other amounts as the
parties may mutually agree.
The Company has previously received certain management and consulting
services from WMA Agency. During the years ended December 31, 1996 and 1997, the
Company paid $76,875 and $110,714, respectively, to WMA Agency for these
services. During 1995, WMA Agency funded certain expenditures incurred for the
organization of the Company and for the related 1995 public offering. The
Company has reimbursed all amounts paid by WMA Agency for such expenditures.
PRINCIPAL REPRESENTATIVE AGREEMENT
On August 2, 1995, WMA Life entered into an agreement with CFM Insurance
Managers, Ltd. ("CFM"), a Bermuda corporation providing professional management
services to international companies operating in Bermuda. Pursuant to this
agreement, CFM acts as, among other things, the Principal Representative for WMA
Life in Bermuda. This agreement is for an unlimited duration, but may be
terminated by either party upon 90 days prior written notice or upon 30 days
prior written notice under specified circumstances. The Company pays to CFM a
$5,000 monthly fee pursuant to its agreement with the Company.
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<PAGE> 45
LEASE AGREEMENT WITH WMA AGENCY
As of January 21, 1998, the Company entered into an agreement with WMA
Agency to sublease on a triple net basis approximately 1,500 square feet of
office space for the Company's offices in Duluth, Georgia. The initial term of
the sublease is ten years at an annual base rent of $18,675 for the first five
years of the lease term, which annual base rent will increase by approximately
13.5% thereafter.
OTHER WMA AGENCY MATTER
WMA Agency recently entered into discussions with AEGON USA, Inc. ("AEGON")
regarding the possible restructuring of WMA Agency in a manner which would more
fully utilize the resources of AEGON. These discussions have centered around the
possible separation of the administrative functions of WMA Agency into a
separate administrative services corporation. It is contemplated that AEGON
would become a majority owner in this new administrative services corporation.
Also discussed was the possibility of AEGON taking a minority position in WMA
Agency (which would then be a marketing entity only) and the creation of a WMA
Agency stock incentive program for key WMA Sales Associates and employees of WMA
Agency. WMA Agency's management feels that such a restructuring would greatly
enhance its ability to recruit and retain quality sales associates and
employees, provide WMA Sales Associates with additional incentive to produce a
greater volume of profitable business and make available AEGON resources to WMA
Agency.
These discussions are at a very preliminary stage; however, management
intends to begin negotiations with representatives of AEGON toward achieving an
agreement in principal and eventually a definitive agreement. There can be no
assurance that any negotiations that may be undertaken between WMA Agency and
AEGON will lead to a definitive agreement encompassing the restructuring of WMA
Agency in a manner envisioned by the preliminary discussions or otherwise, nor
can it be determined at this time, how such an agreement, if achieved, will
affect the Company.
FUTURE CONFLICTS OF INTEREST
The Company has in the past and may from time to time in the future enter
into other transactions with WMA Agency and other affiliates of its directors
and officers, provided that the terms thereof are, in the view of the Board of
Directors, no less favorable to the Company than could be obtained from a third
party.
The Company recently amended its by-laws to provide that any transaction
involving the Company in which a director or executive officer has a material,
direct or indirect, interest must be approved by a majority vote of the Board of
Directors as well as by two independent and disinterested directors, upon full
disclosure of all relevant facts, or by vote of the holders of a majority of the
outstanding shares of Common Stock entitled to vote.
LACK OF SEPARATE LEGAL REPRESENTATION
Counsel for the Company, Merritt & Tenney, LLP, of Atlanta, Georgia, also
represents WMA Agency and Mr. Humphrey.
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<PAGE> 46
PRINCIPAL STOCKHOLDERS
As of March 31, 1998, the Company had 2,495,710 shares of Common Stock
issued and outstanding and approximately 800 stockholders of record. Upon
completion of the Subscription Offering, assuming all shares are subscribed for,
there will be shares of Common Stock outstanding.
The following table indicates the number of shares of Common Stock
beneficially owned by the directors and executive officers of the Company and by
persons known to the Company to beneficially own more than 5% of any class of
the Company's Common Stock as of March 31, 1998.
<TABLE>
<CAPTION>
BEFORE SUBSCRIPTION OFFERING AFTER SUBSCRIPTION OFFERING
-------------------------------------- -----------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES(1) PERCENT OF CLASS NUMBER OF SHARES PERCENT OF CLASS
- ------------------------------------ ------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
S. Hubert Humphrey, Jr............ 500,000(2) 20.02% X X
Thomas W. Montgomery.............. 9,908 0.40 X X
Edward F. McKernan................ 5,000........ 0.20 X X
Richard L. Thawley................ 200,000(3) 8.00 X X
1110 W. Kettleman Lane
Suite 24
Lodi, CA 95240
Monte Holm........................ 153,500(4) 6.21 X X
2004 Calle de Espana
Las Vegas, NV 89102
All directors and executive officers
as a Group (6 persons).......... 514,908 20.62 X X
</TABLE>
- ---------------
(1) All shares are owned individually of record unless otherwise indicated
below.
(2) In addition to the above shares of Common Stock, WMA Agency (of which Mr.
Humphrey is the principal stockholder) holds proxies with respect to 402,836
shares of Common Stock.
(3) Mr. Thawley owns 108,200 shares individually of record. An IRA rollover
trust for the benefit of Mr. Thawley and his wife owns 91,800 shares.
(4) Mr. Holm owns 3,500 shares individually of record, and 40,000 shares jointly
of record with his wife. 110,000 shares are held of record by seven trusts
created by Mr. Holm and his wife.
Mr. Humphrey intends to purchase shares of Common Stock from the
Company in a private transaction at the Subscription Price. These shares will be
considered restricted shares which may only be resold pursuant to an effective
registration statement, an exemption from registration, or Rule 144.
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<PAGE> 47
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The authorized capital stock of the Company consists of common stock, $.001
par value per share, of which the Company is authorized to issue 10,000,000
shares. As of March 31, 1998, 2,495,710 shares of Common Stock were issued and
outstanding. On June , 1998, the Company's Board of Directors authorized an
amendment to the Company's Certificate of Incorporation which will, subject to
stockholder's approval at the 1998 Annual Meeting, increase the number of
authorized shares of Common Stock to 50,000,000. The holders of shares of Common
Stock are entitled to one vote for each share held of record on each matter
submitted to a vote of stockholders and have the sole right and power to vote on
all matters on which a vote of stockholders is taken, except as otherwise
provided by statute.
The shares of Common Stock do not have cumulative voting rights, which
means that the holders of a majority of the shares voting for the election of
directors can elect all of the directors then standing for election, if they
choose to do so, and in such event the holders of the remaining shares voting
for the election of directors will not be able to elect any directors.
Holders of shares of Common Stock are entitled to receive such dividends as
may be declared by the Board of Directors out of funds legally available
therefore and, in the event of liquidation, dissolution or winding up of the
Company, are entitled to share ratably in all assets remaining after payment of
liabilities. Holders of Common Stock have no preemptive or conversion rights,
and there is no redemption right with respect to the Common Stock. The
outstanding Common Stock is, and the Common Stock to be outstanding upon
completion of this Subscription Offering, when issued, will be fully paid and
nonassessable.
DELAWARE BUSINESS COMBINATION STATUTE
As a Delaware corporation, the Company is subject to Section 203, which
restricts certain transactions and business combinations between a corporation
and an "interested stockholder" (as defined in Section 203 as any person who is
the beneficial owner of 15% or more of the corporation's outstanding voting
stock) for a period of three years from the date the stockholder becomes an
interested stockholder. Under Section 203, subject to certain exceptions, the
approval of the Board of Directors and the holders of at least 66 2/3% of the
outstanding voting stock of the Company (excluding shares held by the interested
stockholder) would be required for significant business transactions such as a
merger with, disposition of assets to, or receipt of disproportionate financial
benefits by the interested stockholder, or any other transaction that would
increase the interested stockholder's proportionate ownership of any class or
series of the Company's capital stock. The statutory ban will not apply if, upon
consummation of the transaction in which any person becomes an interested
stockholder, the interested stockholder will own at least 85% of the outstanding
voting stock of the Company (excluding shares held by (i) persons who are both
directors and officers and (ii) certain employee stock plans).
Mr. Humphrey is an "interested stockholder" as defined in Section 203;
however, since he became an interested stockholder on March 9, 1995, the three
year holding period set forth in Section 203 has been satisfied. The
restrictions set forth in Section 203 no longer apply to transactions and
business combinations between Mr. Humphrey and the Company. The Section would
apply however, to others who may subsequently become "interested stockholders"
in the Company.
TRANSFER AGENT AND REGISTRAR
The Company has secured the services of American Stock Transfer and Trust
Company as its transfer agent and registrar for its Common Stock. Their address
is 40 Wall Street, New York, New York 10005 and their telephone number is
212-936-5100.
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<PAGE> 48
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Subscription Offering, the Company will have
shares of Common Stock outstanding unless the Company in its sole
discretion, increases the maximum offering to shares, in which
event the number of shares outstanding after completion of the Subscription
Offering will be . Such shares will be freely tradable without
restriction or further registration under the Securities Act, except by
"affiliates" of the Company, as defined under the Securities Act. Generally
officers and directors of the Company and stockholders of more than 10% of the
outstanding Common Stock are deemed to be "affiliates" or "control persons" and,
subject to the agreement mentioned in the following paragraph, their shares will
be eligible for resale pursuant to Rule 144 under the Securities Act which
contains certain limitations based upon volume, holding period, manner of sale
and notice upon any such resales.
In connection with its agreement with WMA Agency, the Company agreed to
authorize the issuance of warrants to designated key management employees of WMA
Agency to purchase 600,000 shares of Common Stock (the "Warrants") exercisable
with respect to 20% of the shares issuable under the warrant in each of the five
years of the exercise period commencing on the first anniversary of the date of
grant. Pursuant to this agreement, Warrants have been issued to key management
employees of WMA Agency to purchase 250,000 shares of Common Stock exercisable
at the Subscription Price beginning on the first anniversary of the date of
issuance over the ensuing five year period. The exercise of the Warrants is also
subject to the warrant holder being employed of WMA Agency at the time of
exercise and the Company achieving specified annual premium production levels
during each of the years in the exercise period. Neither the Warrants nor the
Common Stock to be issued upon exercise of the Warrants will be registered. The
Common Stock shall be considered restricted shares which may only be resold
pursuant to an effective registration statement, an exemption from registration,
or Rule 144. See "Certain Relationships and Related Transactions -- WMA Agency
Agreement".
The Company has adopted a 1998 stock option plan pursuant to which it can
grant nontransferable options to purchase up to 900,000 shares of its Common
Stock to officers, directors and employees of the Company, which options may not
be exercised until three years after the date on which the optionee became a
director, officer or employee of the Company but no earlier than one year after
the date of the grant. Options to purchase shares of Common Stock
at the Subscription Price have been granted pursuant to this Plan, including
options for shares to Mr. Humphrey. The shares owned by the
option holders upon exercise of their options will not be registered in the
Subscription Offering and shall be considered restricted shares which may only
be resold pursuant to an effective registration statement, an exemption from
registration, or Rule 144. See "Management -- Executive Compensation".
Both the Plan and the Warrants will be submitted to the stockholders of the
Company at its 1998 Annual Meeting for ratification and are subject to obtaining
such ratification.
No prediction can be made of the effect that the sale or availability for
sale of shares of Common Stock will have on the market price of the Common
Stock. Nevertheless, sales of substantial amounts of such shares in the public
market, or the perception that such sales could occur, could adversely affect
the market price of the Common Stock and could impair the Company's future
ability to raise capital through an offering of its equity securities.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Merritt & Tenney, LLP, 200 Galleria Parkway, Suite 500,
Atlanta, Georgia 30339.
EXPERTS
The Consolidated Financial Statements of the Company for the years ended
December 31, 1997 and 1996, appearing in this Prospectus and Registration
Statement have been audited by KPMG Peat Marwick LLP, independent certified
public accountants, as set forth in their report thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
report and upon the authority of said firm as experts in accounting and
auditing.
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<PAGE> 49
The Consolidated Financial Statements of the Company for the period March
9, 1995 through December 31, 1995 included in this Prospectus have been audited
by Snyder, Camp, Stewart & Co., LLP ("Snyder Camp"), independent certified
public accountants, as stated in their report appearing elsewhere herein and in
the Registration Statement are included in reliance upon such report given upon
the authority of said firm as experts in accounting and auditing.
Snyder Camp was previously the principal accountant for the Company. On
December 4, 1996, that firm's appointment as principal accountant was
terminated, and KPMG Peat Marwick LLP was engaged as principal accountant. The
decision to change accountants was approved by the Board of Directors.
In connection with the audit of the period from inception (March 9, 1995)
through December 31, 1995, and the subsequent interim period through December 4,
1996, there were no disagreements with Snyder Camp on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements if not resolved to their satisfaction would have
caused them to make reference in connection with their opinion to the subject
matter of the disagreement.
The audit report of Snyder Camp on the financial statements of the Company
as of December 31, 1995 and for the period from inception (March 9, 1995)
through December 31, 1995, did not contain any adverse opinion or disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 ("Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), and the
rules promulgated thereunder, with respect to the Common Stock. This Prospectus,
which is part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits and
financial schedules thereto. For further information concerning the Company and
the Common Stock, reference is made to the Registration Statement and the
exhibits and schedules filed therewith, which may be examined without charge at,
or copies obtained upon payment of prescribed fees from, the Commission and its
regional offices at the locations listed below. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company may be examined without charge at, or copies obtained upon payment of
prescribed fees from, the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and are
also available for inspection and copying at the regional offices of the
Commission located at Seven World Trade Center, Suite 1300, New York, New York
10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
The Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding the Company.
REPORTS TO STOCKHOLDERS
The Company furnishes its stockholders with annual reports containing
audited financial statements and makes available quarterly reports for the first
three quarters of each fiscal year containing unaudited financial information.
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<PAGE> 50
SUBSCRIPTION OFFERING -- QUESTIONS & ANSWERS
The WMA Corporation (the "Company") has decided to offer shares of its
Common Stock to certain independent sales agents and employees of World
Marketing Alliance, Inc. ("WMA Agency"), their Pension Plans, and other
investors in this subscription offering (the "Subscription Offering"). The
following questions and answers are intended to assist you in subscribing in the
Subscription Offering.
1. WHAT IS THE SUBSCRIPTION OFFERING WHICH IS BEING MADE?
The Subscription Offering is an offering of the Company's Common Stock to
certain agents and employees of WMA Agency, their Pension Plans, and other
investors acceptable to the Company. Up to shares of Common Stock
are being offered in the Subscription Offering. Subscription Agreements must be
received by the Company by the Expiration Time, which is the earlier of (i)
October 30, 1998 if the Minimum Offering is not attained by that date, (ii) the
date on which the Company has received and accepted Subscription Agreements to
purchase the maximum of $37,500,000 of Common Stock (or such greater amount as
the Company may hereafter determine not to exceed $ in the aggregate),
(iii) March 31, 1999, unless such date is extended by the Company to no later
than December 31, 1999 or (iv) the date of termination of the Subscription
Offering by the Company after the Minimum Offering is attained.
2. HOW MANY SHARES CAN I BUY AND WHAT IS THE PRICE?
The minimum subscription is for 50 shares. As discussed in the answer to
Question 16, the actual number of shares that you can buy will be determined
based on priority levels of Subscribers. Subscribers the first and second
priority level may subscribe for more or less than the preprinted allotted
number of shares shown on the Subscription Agreement enclosed with this
Prospectus, subject to minimum and maximum limitations. These Subscribers who
subscribe for shares in excess of their preprinted allocation will be subject to
proration in the third priority level for such excess. The maximum subscription
for all Subscribers, including their Pension Plans, is shares. The purchase
price per share is $ (the "Subscription Price"). See "How to
Subscribe -- Allocation and Acceptance of Subscription Agreements". The
Aggregate Purchase Price is the total amount that you must pay as a Subscriber
and is determined by multiplying the Subscription Price by the number of shares
to which you wish to subscribe.
3. HOW MANY SUBSCRIPTION AGREEMENTS CAN I SUBMIT?
You may submit only one Subscription Agreement, unless you also want your
Pension Plan to subscribe, in which event you can submit two Subscription
Agreements.
You may subscribe for shares by submitting the completed Subscription Agreement,
together with your check or money order, using one or both of the following
options for registering the shares:
(i) Registration may be in your individual name, or in your and your
spouse's names together, as joint tenants with right of survivorship or
as tenants in common. You may not submit Subscription Agreements in
both an individual name and joint name.
(ii) Registration may be in the name of your Pension Plan.
You may submit one or two Subscription Agreements, as described above. If you
submit additional Subscription Agreements, all Subscription Agreements from you
will be rejected and returned to you, along with your check or money order.
Subscription Agreements seeking forms of registration other than those listed
above, including trusts other than Pension Plans, will be rejected and returned
to you, along with your check or money order.
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<PAGE> 51
4. CAN MORE THAN ONE PERSON PER HOUSEHOLD SUBSCRIBE FOR SHARES IN THE
SUBSCRIPTION OFFERING?
Yes. You and your spouse can subscribe jointly provided that the total number of
shares subscribed from a single household does not exceed the maximum number of
shares to which you are entitled to subscribe. You cannot, however, divide your
subscription between individual and joint ownership.
5. WHO IS QUALIFIED TO INVEST IN THE SUBSCRIPTION OFFERING?
Only individual WMA Sales Associates, employees of WMA Agency and its affiliated
companies, other investors and their respective spouses, if subscribing jointly,
and their Pension Plans, who have received from the Company a copy of the
Prospectus and a preprinted Subscription Agreement may purchase shares in the
Subscription Offering. A Pension Plan for the purposes of the Subscription
Offering is an individual retirement plan ("IRA"), a simplified employee plan
("SEP") or a Keogh plan.
If you wish to acquire shares for a family trust or another entity other than a
Pension Plan, you must first subscribe individually and after you have received
your stock certificates arrange with the Company's transfer agent to transfer
the shares acquired according to your instructions.
6. HOW DO I SUBSCRIBE?
To subscribe, complete and sign the preprinted Subscription Agreement included
with this Prospectus and make a check or money order payable to THE WMA
CORPORATION for the Aggregate Purchase Price in good funds. Mail both the
completed Subscription Agreement and your check (described below) to American
Stock Transfer & Trust Company, the Company's Subscription Agent, in the
pre-addressed envelope enclosed with this Prospectus, no later than the
Expiration Time. (See Question #1). "Good funds" mean checks or money orders
payable in U.S. dollars, drawn on a bank in the United States that are cashed by
such bank upon initial deposit (a certified check is not required). Checks drawn
on an IRA, SEP or a Keogh account will not be accepted unless they are in
payment for shares being purchased directly by a Pension Plan. Specifically, a
returned check is not good funds; it will be returned to the sender with no
attempt to redeposit.
7. WHAT IS THE SUBSCRIPTION AGREEMENT?
The preprinted Subscription Agreement that you must complete, sign and return to
the Subscription Agent in order to qualify as a Subscriber in the Subscription
Offering was enclosed with the copy of the Prospectus that you received from the
Company. The document requires certain information, such as your name, address
and social security number. The Subscription Agreement also requires you to
confirm that you are a qualified investor (see Question #5) and that you have
received the Prospectus. A copy of the Subscription Agreement is also included
as Exhibit A to the Prospectus on page A-1. Photocopies of the Subscription
Agreement will not be accepted by the Subscription Agent.
8. TO WHOM SHOULD I MAKE MY CHECK OR MONEY ORDER PAYABLE?
Please make your check or money order payable to "THE WMA CORPORATION".
9. HOW SHOULD I RETURN MY SUBSCRIPTION AGREEMENT?
Return your fully completed and signed Subscription Agreement, along with your
check or money order for the Aggregate Purchase Price, to American Stock
Transfer and Trust Company (the "Subscription Agent") in the enclosed envelope.
Please be sure to allow adequate mailing time for your Subscription Agreement
and check or money order to be received by the Subscription Agent no later than
the Expiration Time. (See Question #1). The reply address for delivery by U.S.
Postal Service or overnight courier is included in the Prospectus under "How to
Subscribe -- Completion and Mailing of Subscription Agreements". If your Pension
Plan is also subscribing, it is your responsibility to insure that the Plan's
Subscription Agreement is properly completed and received by the Subscription
Agent on or before the Expiration Time.
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<PAGE> 52
10. WHAT FORM OF PAYMENT SHOULD I USE WHEN I RETURN MY SUBSCRIPTION AGREEMENT?
Payment may only be made by check or money order. Please do not send cash or
credit card numbers. The check or money order must be payable to THE WMA
CORPORATION in U.S. dollars and drawn on a U.S. bank. Due to legal and other
restrictions, the Subscription Agent will not accept checks drawn on IRAs, SEPs
or Keogh accounts unless they are in payment for shares being purchased directly
by the Pension Plan upon which the check is drawn.
11. WILL I EARN ANY INTEREST ON MY FUNDS BEFORE THE SUBSCRIPTION OFFERING
CLOSES?
It depends. Upon receipt of your Subscription Agreement by the Subscription
Agent, your check or money order will be deposited by the Subscription Agent in
an escrow account for safe keeping until the earlier of (i) the date on which
the Company has received and accepted the Minimum Offering (ii) at the option of
the Company, the termination of the Subscription Offering, or (iii) October 30,
1998, if the Minimum Offering is not attained by such date. No interest will be
paid if the Minimum Offering is not attained. If the Minimum Offering is
attained, Subscribers whose Subscription Agreements have been accepted, in whole
or in part, will not be entitled to any interest, including any interest on any
amounts refunded. In addition, no interest will be paid on funds held in escrow
unless (i) the Subscription Offering is terminated by the Company after the
Minimum Offering is attained, or (ii) a properly submitted Subscription
Agreement is not accepted by the Company for any reason. If you are entitled to
interest, a pro rata amount of interest on all funds held in escrow accrued from
the date on which the Company has received and accepted the Minimum Offering,
will be refunded to you. There can be no assurance, however, of the rate of
interest earned on your funds.
12. WHAT IS THE DEADLINE TO SUBMIT MY SUBSCRIPTION AGREEMENT AND CHECK FOR GOOD
FUNDS TO THE SUBSCRIPTION AGENT?
The deadline (or Expiration Time) by which all completed and signed
Subscription Agreements accompanied by checks or money orders for good funds (as
described in Question #6) MUST BE RECEIVED by the Subscription Agent to be
considered for acceptance by the Company is the earlier of the (i) October 30,
1998 if the Minimum Offering is not attained, (ii) date on which the Company has
received and accepted Subscription Agreements to purchase the maximum of
$37,500,000 of Common Stock (or such greater amount as the Company may hereafter
determine not to exceed $ in the aggregate), (iii) March 31, 1999 unless
such date is extended by the Company to no later than December 31, 1999, or (iv)
termination of the Subscription Offering by the Company after the Minimum
Offering is attained. The Subscription Offering will be automatically terminated
on October 30, 1998, if the Minimum Offering is not attained by that date.
13. WHEN WILL MY SUBSCRIPTION AGREEMENT BE ACCEPTED BY THE COMPANY?
No Subscription Agreements will be formally accepted by the Company until after
the Company has received and accepted Subscription Agreements to purchase a
minimum of $5,250,000 of Common Stock. The Company at any time in its absolute
discretion may decide to terminate the Subscription Offering, in which event
refunds will be made to Subscribers whose Subscription Agreements have not been
accepted by the Company. The Company expects it will begin accepting
Subscription Agreements no later than October 30, 1998. As a consequence, you
may not receive a certificate representing the shares until several months after
your Subscription Agreement has been accepted, but in no event later than sixty
days after the Expiration Time.
14. CAN I FIND OUT IF MY SUBSCRIPTION AGREEMENT HAS BEEN RECEIVED BY THE
SUBSCRIPTION AGENT PRIOR TO THE CLOSING OF THE SUBSCRIPTION OFFERING?
Yes, you can obtain information regarding the status of your Subscription
Agreement by calling the Company's toll-free Information Line at 1-800-741-5279.
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<PAGE> 53
15. MAY I REVOKE MY SUBSCRIPTION AGREEMENT ONCE IT HAS BEEN RECEIVED BY THE
SUBSCRIPTION AGENT?
No. Once your Subscription Agreement has been received by the Subscription
Agent, it is irrevocable.
16. IF I SUBMIT MY CHECK OR MONEY ORDER FOR GOOD FUNDS TOGETHER WITH A PROPERLY
COMPLETED AND SIGNED SUBSCRIPTION AGREEMENT, WILL I DEFINITELY BE ABLE TO
PURCHASE SHARES IN THE SUBSCRIPTION OFFERING?
Not necessarily. The Subscription Offering is initially limited in size to
shares of Common Stock and Subscription Agreements will generally
be accepted in a three step process established by WMA Agency. Subscribers in
the first and second priority levels will be allocated the lesser of the shares
to which they have subscribed, or the allotted number of shares, subject to
minimum and maximum share limitations, timely receipt, and the Company's
acceptance of the Subscription Agreements. To be assured of being able to
subscribe to the maximum number of shares allocated to Subscribers in the first
and second priority levels, such Subscribers must return their properly
completed Subscription Agreements by the earlier of the termination date of the
Subscription Offering by the Company or October 30, 1998. Subject to the maximum
per Subscriber share limitations, Subscribers in the third and final priority
level, which may include Subscribers in the first two levels, will have their
Subscription Agreements filled for the maximum number of shares indicated on
their completed Subscription Agreements to which they have subscribed provided
they are received in a timely manner and there are sufficient shares available
to do so after the first and second levels' subscriptions have been filled. If
there are not sufficient shares remaining to fill all of the subscriptions in
the third level, all subscriptions in the third level may be reduced on a
pro-rata basis, unless the Company determines, in its sole discretion, to
increase the maximum number of shares of Common Stock available in the
Subscription Offering for this level. If the Subscription Offering is terminated
or your Subscription Agreement is rejected, your funds will be refunded to you.
See Question #11 and "How to Subscribe -- Returned Subscription Agreements and
Funds".
17. HOW MANY STOCK CERTIFICATES WILL I RECEIVE FOR MY SHARES?
If your Subscription Agreement is accepted by the Company, you will receive one
stock certificate representing your shares. A separate stock certificate will be
sent to your Pension Plan custodian, if it was a Subscriber. Unfortunately, you
may not request additional certificates for smaller denominations of shares.
After you have received your initial stock certificate, however, you may at your
own expense, request the Company's transfer agent to issue new certificates in
smaller denominations or to transfer ownership to a family trust or other form
of ownership.
18. WHAT IF MY ADDRESS CHANGES EITHER DURING THE SUBSCRIPTION OFFERING OR BEFORE
I RECEIVE MY STOCK CERTIFICATE?
The stock certificate representing your purchase, and any refund check will be
mailed to the address provided in the Subscription Agreement. It is expected
that these items will be mailed at the same time in one envelope. Therefore, it
is your responsibility to provide appropriate forwarding instructions to your
post office or, alternatively, when completing your Subscription Agreement,
providing an address where you will be sure your mail will be safely received.
19. WILL I BE CHARGED A COMMISSION ON THE PURCHASE OF SHARES IN THE SUBSCRIPTION
OFFERING?
No brokerage commission will be charged on the sale of shares in the
Subscription Offering.
20. CAN I PURCHASE SHARES IN THE SUBSCRIPTION OFFERING THROUGH MY BROKER?
No. Shares offered in the Subscription Offering may be purchased only through
the Subscription Agreement process described in this Prospectus. See "How to
Subscribe".
50
<PAGE> 54
21. ON WHICH STOCK EXCHANGE WILL THE SHARES BE TRADED, AND WHAT WILL THE TICKER
SYMBOL BE?
The Company has applied for listing of the shares on the NASDAQ National Market
under the symbol "WMAC", subject to official notice of issuance.
22. CAN I CALL THE COMPANY OR THE SUBSCRIPTION AGENT WITH ANY QUESTIONS?
The Company has established a toll-free "Information Line" 1-800-741-5279, to
answer any questions that you may have after you have read these "Questions and
Answers." The Subscription Agent will be unable to answer your questions. As a
courtesy to other Subscribers having questions, Subscribers are urged to keep
"Information Line" calls to a minimum. The "Information Line" may not be used
for any other Company business.
51
<PAGE> 55
GLOSSARY OF INSURANCE TERMS
Acquisition Cost means the reinsurer's acquisition cost in the form of
commission normally paid by a reinsurer to the ceding company and other expenses
incurred by the reinsurer in connection with writing new business. If a
reinsurance broker is used, the acquisition cost also includes the reinsurance
broker's commission.
Annuity means 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 specified
period of time.
Automatic Reinsurance means reinsurance under which the reinsurer is
obligated to accept or assume risks which meet certain specific criteria based
on the ceding company's underwriting.
Capacity means the amount of insurance or reinsurance available from a
company based on its internal policy, financial strength and the market in
general.
Cede; Ceding Company; Cession means the process by which an insurance
company reinsures its liability with another by passing a portion of the risk
exposure and related premium to a reinsurer, is thereby deemed to "cede"
business and is referred to as a "ceding company." A "cession" is the amount of
liability or premium passed to a reinsurer or other institution.
Coinsurance means a form of reinsurance with respect to which the risk
generally is reinsured on the same basis as that of the original policy. The
reinsurer receives a part of the gross premium charged to the policyholder on
the reinsured part of the policy less expense allowances granted the ceding
company by the reinsurer. The reinsurer maintains policy reserves and is liable
for its share of death claims and other policy benefits. See Modified
Coinsurance.
Deferred Acquisition Costs ("DAC") means commissions and other selling
expenses which vary with and are directly related to the production of business.
These acquisition costs are often deferred and amortized in conformity with
GAAP.
Deposits means all payments and other considerations received on certain
contracts, principally universal and investment type contracts. These amounts
are not included in revenues under GAAP but are included directly in policy
account balances.
Disintermediation means the risk to a financial institution of a loss due
to the movement of customer's funds at book value (i.e., without a market value
adjustment) when interest rates are higher than at contract inception.
ERISA means Employee Retirement Income Security Act of 1974 found in Volume
29 United States Code, Section 1001 and following.
Fixed Annuity means a contract that provides for annuity premiums to be
deposited in a fixed account backed by a general obligation of the insurance
company.
Generally Accepted Accounting Principles ("GAAP") means United States
generally accepted accounting principles as defined by the American Institute of
Certified Public Accountants and the Financial Accounting Standards Board.
Insurance In Force means the total face amount of insurance coverage under
contracts that have not expired.
Lapse means termination of a policy because of surrender, failure to pay a
premium or lack of sufficient cash value to maintain in force status.
Modified Coinsurance ("ModCo") means a form of reinsurance which differs
from coinsurance only in that reserves are retained by the ceding company while
the risk remains with the reinsurer. The ceding company normally pays interest
to replace the interest the reinsurer would have earned if it had held the
assets corresponding to the reserves in its own investment portfolio.
Mortality means the relative incidence of death.
52
<PAGE> 56
Ordinary Life Insurance means a life insurance policy that remains in full
force and effect for the life of the insured, with premium payments being made
for the same period.
Persistency means the maintenance of insurance policies in full force until
completion of the term for which the policy was written (with respect to life
insurance this includes death or maturity). The term may also refer to
continuance and renewal of insurance and annuity contracts.
Policy Fees and Charges means those policy charges for the cost of
insurance, policy administration and surrenders that have been assessed against
policy account balances during the period.
Premiums, Gross means total premiums received from all sources, including
premiums ceded to retrocessionaires.
Premiums, Net means gross premiums less premiums ceded to
retrocessionaires.
Quota Share means a form of reinsurance whereby the reinsurer accepts a
stated percentage of each and every risk within a defined category of business
on a pro-rata basis.
Recapture means the practice of a ceding company recapturing or taking back
some of the reinsurance on a policy, once automatically ceded reinsurance has
been in force for a given period of time.
Reinsurance means the practice whereby the reinsurer, in consideration of
premiums received, agrees to indemnify the ceding company or reinsured, for all
or a portion of the liability under a policy or policies of insurance issued by
the ceding company.
Reinsurance Expense Allowance means an amount paid by the reinsurer to the
ceding company for part or all of a ceding company's acquisition costs, other
overhead costs (including premium taxes) and in certain cases a profit factor.
Reinsurance Premium means the premium paid by the ceding company to the
reinsurer in consideration of the liability assumed by the reinsurer.
Reinsurer means the insurer that assumes all or a part of the insurance or
reinsurance risk written by another insurer.
Reserves means liabilities established by insurers to reflect the estimated
discounted present value of cost of claims payments or contract liabilities and
related expenses that the insurer will ultimately be required to pay in respect
of insurance or annuities it has written.
Retention means the amount or portion of risk that an insurer retains for
its own account. Claims and other policy benefits in excess of the retention are
paid by the reinsurer or retrocessionaire.
Retrocession means the contractual transfer from one reinsurer to another
of all or a portion of the ceding company's reinsurance risk.
Retrocessionaire means an insurance company that assumes reinsurance from a
reinsurer.
Statutory Accounting Practices means the accounting practices prescribed or
permitted by state insurance regulatory authorities, usually the domiciliary
state or country of a particular insurer or reinsurer.
Statutory Capital and Surplus means the excess of statutory admitted assets
over statutory liabilities.
Surrender means the act of terminating a contract during the accumulation
period where the contract-holder receives the contract's account value less any
applicable surrender charges (cash surrender value).
Term Life Insurance means life insurance offering protection during a
certain number of years, but expiring without policy cash value if the insured
survives the stated period.
Universal Life Insurance means life insurance under which (i) premiums
generally are flexible, (ii) the level of death benefits may be adjusted and
(iii) expenses and other charges specifically are disclosed to a purchaser. This
policy is sometimes referred to as unbundled life insurance because its three
basic elements
53
<PAGE> 57
(investment earnings, cost of insurance and expense charges) are separately
identified both in the policy and in an annual report to the policyholder.
Variable Annuity means an annuity in which premium payments may be used to
purchase accumulation units of separate accounts. The value of a unit fluctuates
in accordance with the investment experience of the related separate account.
Variable annuity contracts may include a general account guaranteed interest
investment option. At the time of benefit payments to the annuitant, the
annuitant can generally elect from a number of payment options which provide
either fixed or variable benefit payments.
Variable Life Insurance means a form of permanent life insurance in which
the death benefit and cash values are determined by the market value of the
assets in the separate account into which a portion of the premiums are
deposited.
Variable Universal Life Insurance ("VUL") means a form of variable life
insurance in which the premium payments and death benefit can also be adjusted
from time to time to suit the policyholder's needs.
Whole Life Insurance means permanent life insurance offering guaranteed
death benefits and guaranteed cash values.
Yearly Renewable Term means a form of reinsurance in which the reinsurer
assumes, for a premium that varies each year, the risks associated with the
mortality of the underlying life insurance policyholders, but not the risks
associated with the policy cash values. The premium for the reinsurance varies
with age, sex and policy duration.
54
<PAGE> 58
EXHIBIT A
Nontransferable Individual Subscription Card ALLOTMENT
THE WMA CORPORATION
VOID UNLESS DELIVERED IN ACCORDANCE WITH THE TERMS OF
THE PROSPECTUS BEFORE THE EXPIRATION TIME SET FORTH IN THE PROSPECTUS
Please enter in Box (1) below, the number of shares you wish to purchase,
which may be more or less than the allotment indicated in the upper right hand
corner of this card and the total amount due. If your subscription is not
accepted because the Offering is terminated, the Offering is fully subscribed,
or your subscription is rejected, as provided in the Prospectus, refunds will be
made by the Subscription Agent. If no allotment is indicated, enter the number
of shares you wish to purchase in Box (1) below.
<TABLE>
<CAPTION>
(1) (2)
-----------------------------------------------
Shares Subscribed Amount Due*
-----------------------------------------------
<S> <C> <C>
-----------------------------------------------
50 Shares Minimum * -- # in box (1) x $
</TABLE>
BE SURE TO COMPLETE BOTH SIDES OF THIS CARD BEFORE MAILING
RETURN TO THE SUBSCRIPTION AGENT:
To exercise your subscription rights, complete both sides of this card and
return with full payment payable to The WMA Corporation in the enclosed
envelope. Delivery must be made before the Expiration Time set forth in the
Prospectus. By signing below, you confirm that you are a qualified investor and
that you have received a copy of the Prospectus.
<TABLE>
<S> <C> <C>
I (we) hereby subscribe for the number of shares of the
common stock of The WMA Corporation, as indicated in Box
(1) of this subscription card and in accordance with the
terms specified in the Prospectus, receipt of which is
hereby acknowledged.
--------------------------- ---------------------------
Signature of Shareholder Signature of Shareholder
(if jointly held)
---------------------------------------------------------
TAX ID #
PLEASE INDICATE BELOW THE NAME OF YOUR SPOUSE, IF
SUBSCRIBING JOINTLY.
---------------------------------------------------------
NAME OF SPOUSE
</TABLE>
A-1
<PAGE> 59
THE WMA CORPORATION
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Snyder, Camp, Stewart & Co., LLP.................. F-2
Report of KPMG Peat Marwick LLP............................. F-3
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-4
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996 and for the period March 9,
1995 through December 31, 1995............................ F-5
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997 and 1996 and for the period
March 9, 1995 through December 31, 1995................... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996 and for the period March 9,
1995 through December 31, 1995............................ F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 60
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The WMA Corporation
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of The WMA Corporation (formerly known as
WMA International Corporation) for the period from inception (March 9, 1995)
through December 31, 1995. 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 consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of The WMA Corporation (formerly known as WMA International Corporation)
for the period from inception (March 9, 1995) through December 31, 1995, in
conformity with generally accepted accounting principles.
SNYDER, CAMP, STEWART & CO., LLP
Atlanta, Georgia
March 14, 1996
F-2
<PAGE> 61
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The WMA Corporation:
We have audited the accompanying consolidated balance sheets of The WMA
Corporation (formerly known as WMA International Corporation) as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The WMA
Corporation (formerly known as WMA International Corporation) as of December 31,
1997 and 1996, and the results of their operations and their cash flows, for the
years then ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 6, 1998
F-3
<PAGE> 62
THE WMA CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Fixed maturity securities -- available for sale (amortized
cost of $17,686,390 and $15,860,123 for 1997 and 1996,
respectively)............................................. $17,782,055 $15,678,474
Equity securities -- available for sale (cost of $487,733
for 1997 and 1996)........................................ 630,929 479,016
----------- -----------
Total investments................................. 18,412,984 16,157,490
Cash and cash equivalents................................... 1,469,663 1,980,201
Investment income due and accrued........................... 257,629 181,265
Reinsurance receivables..................................... 183,524 30,396
Deferred acquisition costs.................................. 4,503,338 732,329
Deferred organization costs (net of accumulated amortization
of $62,128 and $25,692 at December 31, 1997 and 1996,
respectively)............................................. 124,741 161,177
Other assets................................................ 114,026 26,861
----------- -----------
Total assets...................................... $25,065,905 $19,269,719
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Future policy benefits.................................... $ 1,293,917 $ 614,477
Reinsurance balances payable.............................. 434,443 --
Accrued expenses.......................................... 173,735 141,983
Accounts payable.......................................... 107,024 96,695
Due to stockholders....................................... -- 15,418
Deferred tax liability.................................... 980,411 48,083
----------- -----------
Total liabilities................................. 2,989,530 916,656
----------- -----------
Stockholders' equity:
Common stock, par value $.001, 10,000,000 authorized;
2,500,000 and 2,305,550 shares issued in 1997 and 1996,
respectively........................................... 2,500 2,306
Additional paid-in capital................................ 20,228,973 18,286,667
Unrealized gain (loss) on securities available for sale,
net of taxes........................................... 157,670 (125,641)
Retained earnings......................................... 1,709,232 189,731
Treasury stock, at cost (2,200 shares).................... (22,000) --
----------- -----------
Total stockholders' equity........................ 22,076,375 18,353,063
----------- -----------
Commitments (note 9)
Total liabilities and stockholders' equity........ $25,065,905 $19,269,719
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 63
THE WMA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR THE
PERIOD MARCH 9, 1995 THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ---------- ---------
<S> <C> <C> <C>
Revenues:
Premiums............................................... $ 5,217,365 $2,007,391 $ --
Deposits and other considerations...................... 30,098,974 -- --
Modified coinsurance reserve adjustment................ (29,903,850) -- --
Net investment income.................................. 1,087,465 626,635 6,661
Other income........................................... 300,000 -- --
------------ ---------- ---------
Total revenue.................................. 6,799,954 2,634,026 6,661
------------ ---------- ---------
Benefits and expenses:
Benefits, claims, and settlement expenses.............. 2,408,842 976,635 --
Reinsurance premium allowances, net.................... 1,454,204 576,297 --
Amortization of deferred acquisition costs............. 121,283 6,414 --
Professional, management, and other expenses........... 480,381 417,520 361,282
------------ ---------- ---------
Total benefits and expenses.................... 4,464,710 1,976,866 361,282
------------ ---------- ---------
Net income (loss) before income taxes.......... 2,335,244 657,160 (354,621)
Income tax expense....................................... 815,743 112,808 --
------------ ---------- ---------
Net income (loss) after income taxes........... $ 1,519,501 $ 544,352 $(354,621)
============ ========== =========
Basic and diluted income (loss) per share................ $ 0.63 $ 0.44 $ (0.87)
============ ========== =========
Weighted-average common shares outstanding............... 2,394,769 1,246,500 408,219
============ ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 64
THE WMA CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR THE
PERIOD MARCH 9, 1995 THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
ADDITIONAL UNREALIZED TOTAL
NUMBER COMMON PAID-IN LOSS IN ACCUMULATED TREASURY STOCKHOLDERS'
OF SHARES STOCK CAPITAL INVESTMENTS EQUITY (DEFICIT) STOCK EQUITY (DEFICIT)
--------- ------ ----------- ----------- ---------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 9, 1995.... -- $ -- $ -- $ -- $ -- $ -- $ --
Common stock issued....... 500,000 500 249,500 -- -- -- 250,000
Net loss.................. -- -- -- -- (354,621) -- (354,621)
--------- ------ ----------- --------- ---------- -------- -----------
Balance, December 31,
1995.................... 500,000 500 249,500 -- (354,621) -- (104,621)
Common stock issued....... 1,805,550 1,806 18,553,694 -- -- -- 18,555,500
Net income................ -- -- -- -- 544,352 -- 544,352
Unrealized loss in
investments............. -- -- -- (125,641) -- -- (125,641)
Deferred offering costs... -- -- (516,527) -- -- -- (516,527)
--------- ------ ----------- --------- ---------- -------- -----------
Balance, December 31,
1996.................... 2,305,550 2,306 18,286,667 (125,641) 189,731 -- 18,353,063
Common stock issued....... 194,450 194 1,944,306 -- -- -- 1,944,500
Net income................ -- -- -- -- 1,519,501 -- 1,519,501
Unrealized gain (loss) in
investments............. -- -- -- 283,311 -- -- 283,311
Purchase of treasury stock
(2,200 shares and 2,000
warrants)............... -- -- (2,000) -- -- (22,000) (24,000)
--------- ------ ----------- --------- ---------- -------- -----------
Balance, December 31,
1997.................... 2,500,000 $2,500 $20,228,973 $ 157,670 $1,709,232 $(22,000) $22,076,375
========= ====== =========== ========= ========== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 65
THE WMA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR THE
PERIOD MARCH 9, 1995 THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 1,519,501 $ 544,352 $(354,621)
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization....................................... 157,719 32,106 --
Deferred tax expense............................... 815,743 112,808 --
Change in:
Investment income due and accrued................ (76,364) (181,265) --
Reinsurance receivables.......................... (153,128) (30,396) --
Deferred acquisition costs....................... (3,892,292) (738,743) --
Other assets..................................... (87,165) (26,861) --
Future policy benefits........................... 679,440 614,477 --
Reinsurance balances payable..................... 434,443 -- --
Accrued expenses................................. 31,752 141,983 --
Accrued interest................................. -- (12,995) 12,995
Accounts payable................................. 10,329 (28,181) 65,095
----------- ------------ ---------
Net cash (used in) provided by operating
activities.................................. (560,022) 427,285 (276,531)
----------- ------------ ---------
Cash flows from investing activities:
Proceeds from sales of available-for-sale
securities......................................... 5,363,904 4,783,000 --
Purchase of available-for-sale securities............. (7,219,502) (21,130,856) --
----------- ------------ ---------
Net cash used in investing activities......... (1,855,598) (16,347,856) --
----------- ------------ ---------
Cash flows from financing activities:
Issuance of common stock.............................. 1,944,500 18,555,500 250,000
Purchase of treasury stock and warrants............... (24,000) -- --
Proceeds from borrowings under note payable........... -- -- 750,000
Repayments of borrowings under note payable........... -- (748,679) (1,321)
Offering costs........................................ -- (217,989) (298,538)
Organization costs.................................... -- (10,512) (116,576)
(Decrease) increase in due to stockholders............ (15,418) 15,418 --
----------- ------------ ---------
Net cash provided by financing activities..... 1,905,082 17,593,738 583,565
----------- ------------ ---------
Net (decrease) increase in cash and cash
equivalents................................. (510,538) 1,673,167 307,034
Cash and cash equivalents at beginning of year.......... 1,980,201 307,034 --
----------- ------------ ---------
Cash and cash equivalents at end of year................ $ 1,469,663 $ 1,980,201 $ 307,034
=========== ============ =========
Supplemental disclosure of cash flow
information -- interest paid.......................... $ 10,971 $ 56,032 $ 16,406
=========== ============ =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 66
THE WMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) ORGANIZATION
The WMA Corporation (formerly known as WMA International Corporation) is an
insurance holding company originally formed March 9, 1995.
The consolidated financial statements include the assets, liabilities, and
results of operations of The WMA Corporation ("WMA Corporation") and its wholly
owned subsidiaries, WMA Life Holding, Ltd. ("Holding"), a Bermuda domiciled
insurance holding company, and WMA Life Insurance Company Limited ("WMA Life"),
a Bermuda domiciled life reinsurance company (collectively, the "Company").
The Company provides reinsurance for certain national life insurance
companies on life insurance and annuity policies sold by World Marketing
Alliance, Inc. ("WMA"), a sales and marketing organization. Such policies are
sold throughout the United States. A major shareholder of WMA Corporation owns a
controlling interest in WMA and WMA Management Services, Inc. ("WMA
Management"), which provide operating assistance to the Company for a fee. WMA
Management is primarily responsible for the maintenance of the financial records
of the Company.
Reinsurance is an arrangement under which an insurance company, the
"reinsurer," agrees to indemnify another insurance company, the ceding company,
for all or a portion of the insurance risks underwritten by the ceding company.
The reinsurer, in turn, assumes a portion of the underwritten risk in exchange
for a portion of the premium collected. The Company currently assumes portions
of mortality and other risks relating to life insurance and annuity policies in
order to share in the net profits generated through the sale of such policies by
WMA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Basis of Presentation. The consolidated financial
statements of the Company have been prepared in accordance with generally
accepted accounting principles prescribed for stock life insurance companies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the reported amounts
of revenues and expenses during the reporting period. Accounts that the Company
deems to be sensitive to changes in estimates include deferred policy
acquisition costs and future policy benefits. In all instances, actual results
could differ from estimates.
The accompanying financial statements consolidate the accounts of WMA
Corporation and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Investments. The Company classifies all fixed maturity securities and
equity securities as "available for sale." Such securities are reported at fair
value. Fixed maturities available for sale are so classified based upon the
possibility that such securities could be sold prior to maturity if that action
enables the Company to execute its investment philosophy and appropriately match
investment results to operating and liquidity needs.
Although no impairments in value have occurred which would require
adjustment to the carrying value of securities, any such impairment identified
in the future would result in a reduction of the carrying value and reflection
of a corresponding realized capital loss in the consolidated statements of
operations. The Company's policy is to recognize such an impairment when the
projected cash flows of these securities have been reduced on other than a
temporary basis so that the realizable value is reduced to an amount less than
the carrying value.
Investment income is recognized as it accrues or is legally due. Income on
mortgage-backed securities includes amortization and accretion of purchase
premiums and discounts using a method that approximates a level yield, taking
into consideration assumed prepayment patterns. The retrospective adjustment is
used to
F-8
<PAGE> 67
THE WMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adjust for prepayment activity. Realized gains and losses on sales of
investments are included in net income, as are write-downs of securities where
declines in value are deemed to be other than temporary in nature. The cost of
investment securities sold is determined based upon the specific identification
method. Unrealized gains and losses on marketable equity securities and fixed
maturity securities available for sale, less applicable deferred income taxes,
are reported as a separate component of stockholders' equity.
The Company does not participate in investments defined as derivatives
under Statement of Financial Accounting Standards No. 119, Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments.
Fair Value Disclosures. The carrying values of cash and cash equivalents,
reinsurance receivables and payables, accrued expenses and accounts payable
approximate their fair values due to the short-term nature of these accounts.
The carrying value of future policy benefits approximates its fair value as
credited interest approximates current market rates. See note 3 for fair value
information covering the Company's investment portfolio.
Additional Information Regarding Statements of Cash Flows. Cash and cash
equivalents include cash on hand and on deposit purchased with an original
maturity of three months or less.
Deferred Policy Acquisition Costs. Costs of acquiring new business, which
vary with and are primarily related to the production of new business, have been
deferred to the extent that such costs are deemed recoverable from future
premiums. Such costs include commissions, expense allowances and certain other
underwriting costs.
Deferred acquisition costs are amortized over the lives of the underlying
policies (with regard to the terms of the reinsurance agreement), in proportion
to the ratio of revenues collected during the then current period to total
anticipated revenues. On those policies under a monthly renewable term
reinsurance agreement, revenues represent premiums recognized for the mortality
risk reinsured. Such total anticipated premium revenues are estimated using the
same assumptions used for computing liabilities for future policy benefits. For
policies under a modified coinsurance agreement, revenues represent gross
profits associated with mortality charges, investment margins, surrender
charges, and expense loads.
Reinsurance Premium Allowances. Allowances represent a percentage of each
reinsurance premium which is paid or allowed by WMA Life to the ceding company
for each policy reinsured. Allowances are shown net of amounts deferred as
policy acquisition costs.
Future Policy Benefits. Liabilities for future benefits on life policies
are established in an amount adequate to meet the estimated future obligations
on policies in force. Liabilities for future policy benefits under long-term
life insurance policies have been computed based upon expected investment
yields, mortality and withdrawal rates, and other assumptions including
estimates for incurred but not reported losses. These assumptions include a
margin for adverse deviation and vary with the characteristics of the plan of
insurance, year of issue, age of insured, and other appropriate factors.
Interest rates range from 6.0% to 7.0%. The mortality and withdrawal assumptions
are based on industry experience and standards. Policy and contract reserves are
included in future policy benefits on the consolidated balance sheet.
Liabilities for future policy benefits under the modified coinsurance
agreement equal policy holder account balances.
Income Taxes. The Company uses the asset and liability method to record
deferred income taxes. Accordingly, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases, using enacted tax rates expected to apply when such
temporary differences are expected to reverse.
F-9
<PAGE> 68
THE WMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Recognition of Revenues and Related Expenses. Reinsurance premiums
received under the monthly renewable term agreements are recognized as revenue
over the premium paying periods of the reinsured policies. Benefits and expenses
are associated with earned premiums so that profits are recognized over the life
of the related contract. This association is accomplished through the provision
for future policy benefits and the amortization of deferred policy acquisition
costs.
Deposits and Other Considerations. Deposits and other considerations
represent gross premiums and other considerations received on policies subject
to modified coinsurance agreements between the Company and the national life
insurance companies (the ceding companies) from which the Company assumes
reinsurance. Under such agreements, future policy benefit reserves and related
assets supporting such reserves are maintained by the ceding companies. Other
consideration received includes surrender charges, maintenance and expense
charges, and other administrative charges.
Modified Coinsurance Reserve Adjustment. The modified coinsurance reserve
adjustment recorded by the Company represents the increase in policy benefit
reserves allocated to the ceding company under modified coinsurance agreements.
The adjustment consists of the increase or decrease in benefit reserves held by
the ceding company, plus benefits and less interest earned on benefit reserve
amounts. The modified coinsurance reserve adjustment is shown as an offset to
deposits and other considerations in the accompanying statement of operations.
Income Per Share. Basic income per share is computed based on the
weighted-average number of common shares outstanding during the period, in
accordance with Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share. The Company has no dilutive potential common shares
outstanding, and thus basic and diluted income per share are the same.
Deferred Offering Costs. Costs relating to the common stock offering were
deferred at December 31, 1995 and were offset against the proceeds of the
offering during 1996.
Deferred Organization Costs. Costs of organizing the Company have been
capitalized and are being amortized over five years on the straight-line method.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, Reporting Comprehensive Income. This statement establishes standards
for reporting and displaying comprehensive income and its components in a full
set of general purpose financial statements. SFAS No. 130 requires all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed in
equal prominence with the other financial statements. The term "comprehensive
income" is used in the statement to describe the total of all components of
comprehensive income including net income. "Other comprehensive income" refers
to revenues, expenses, gains, and losses that are included in comprehensive
income but excluded from earnings under current accounting standards. Currently,
"other comprehensive income" for the Company consists of items recorded directly
in equity under SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities. SFAS No. 130 is effective for both interim and annual periods
beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131 establishes new standards
for the disclosures made by public business enterprises to report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for years
beginning after December 15, 1997. The Company does not have any separate
segments that are considered material.
F-10
<PAGE> 69
THE WMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassification. The Company has reclassified the presentation of certain
1996 information to conform with the 1997 presentation.
(3) INVESTMENTS
Major categories of net investment income consist of the following:
<TABLE>
<CAPTION>
PERIODS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
---------- -------- ------
<S> <C> <C> <C>
Fixed maturity securities............................... $1,035,453 $276,693 $ --
Short-term investments.................................. 117,035 384,997 6,661
---------- -------- ------
1,152,488 661,690 6,661
Investment expense...................................... (65,023) (35,055) --
---------- -------- ------
Net investment income......................... $1,087,465 $626,635 $6,661
========== ======== ======
</TABLE>
The amortized cost, unrealized gains and losses, and estimated fair values
of investments in fixed maturity securities at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1997
Available for sale:
Fixed maturities:
U.S. Government and agencies........ $ 5,846,323 $ 50,622 $ -- $ 5,896,945
Commercial and industrial........... 8,813,657 103,456 59,698 8,857,415
Public utilities.................... 797,949 11,300 6,554 802,695
Mortgage-backed securities.......... 2,228,461 26,960 30,421 2,225,000
----------- -------- -------- -----------
17,686,390 192,338 96,673 17,782,055
Equity securities........................ 487,733 143,196 -- 630,929
----------- -------- -------- -----------
$18,174,123 $335,534 $ 96,673 $18,412,984
=========== ======== ======== ===========
1996
Available for sale:
Fixed maturities:
U.S. Government and agencies........ $ 6,558,639 $ 221 $ 30,382 $ 6,528,478
Commercial and industrial........... 7,998,112 -- 127,322 7,870,790
Public utilities.................... 797,718 -- 17,044 780,674
Mortgage-backed securities.......... 505,654 -- 7,122 498,532
----------- -------- -------- -----------
15,860,123 221 181,870 15,678,474
Equity securities........................ 487,733 -- 8,717 479,016
----------- -------- -------- -----------
$16,347,856 $ 221 $190,587 $16,157,490
=========== ======== ======== ===========
</TABLE>
There were no investments in any entity in excess of 10% of stockholders'
equity at December 31, 1997, other than investments issued or guaranteed by the
U.S. Government. Fixed maturity securities are valued based upon quoted market
prices.
F-11
<PAGE> 70
THE WMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1997, the contracted maturities of investments in fixed
maturity securities were as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Available for sale:
Due after one year through five years..................... $ 9,283,473 $ 9,334,185
Due after five years through ten years.................... 5,849,646 5,929,302
Due after ten years....................................... 324,810 293,568
Mortgage-backed securities................................ 2,228,461 2,225,000
----------- -----------
$17,686,390 $17,782,055
=========== ===========
</TABLE>
Expected maturities will differ from contractual maturities because some
issuers have the right to call or prepay obligations with or without call or
prepayment penalties.
Changes in net unrealized gains and losses were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996
--------- ----------
<S> <C> <C>
Fixed maturity securities available for sale................ $277,314 $(181,649)
Equity securities........................................... 151,913 (8,717)
-------- ---------
$429,227 $(190,366)
======== =========
</TABLE>
(4) REINSURANCE
Retrocession reinsurance contracts do not relieve the Company from its
obligations to ceding companies. Failure of retrocessionaires to honor their
obligations could result in losses to the Company; consequently, allowances
would be established for amounts deemed uncollectible. At December 31, 1997 and
1996, there were no retrocession agreements.
The Company has entered into several reinsurance contracts. As of December
31, 1997, the majority of the reinsurance assumed is written through two
contracts, a monthly renewable term agreement with Western Reserve Life
Assurance Co. of Ohio ("WRL"), and a modified coinsurance agreement with
American Skandia Life Assurance Corporation ("Skandia"). As of December 31,
1996, the majority of the reinsurance assumed was written through WRL. There was
no reinsurance activity for the period ended December 31, 1995.
Policies reinsured under these contracts are administered by WRL and
Skandia (the ceding companies). The ceding companies provide the Company with
all information necessary for processing the reinsurance, including claims.
The effect of reinsurance on premiums and amounts earned is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Reinsurance assumed......................................... $5,217,365 $2,007,391
Reinsurance ceded........................................... -- --
---------- ----------
Net premiums and amounts earned............................. $5,217,365 $2,007,391
========== ==========
</TABLE>
F-12
<PAGE> 71
THE WMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effect of reinsurance on policyholder claims and other policy benefits
is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996
------------ ----------
<S> <C> <C>
Direct...................................................... $ -- $ --
Reinsurance assumed......................................... 2,408,842 976,635
Reinsurance ceded........................................... -- --
---------- --------
Net policyholder claims and benefits........................ $2,408,842 $976,635
========== ========
</TABLE>
The impact of reinsurance on life insurance in force is shown in the
following schedule (in millions):
<TABLE>
<CAPTION>
ASSUMED/
LIFE INSURANCE IN FORCE DIRECT ASSUMED CEDED NET NET %
- ----------------------- ------ ------- ----- ------ --------
<S> <C> <C> <C> <C> <C>
December 31, 1997.............................. $ -- $4,162 $ -- $4,162 100%
December 31, 1996.............................. -- 2,673 -- 2,673 100
</TABLE>
(5) DEFERRED POLICY ACQUISITION COSTS
The following reflects the amounts of policy acquisition costs deferred and
amortized:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996
------------ ----------
<S> <C> <C>
Deferred acquisition cost:
Assumed................................................ $4,503,338 $732,329
Retroceded............................................. -- --
---------- --------
Net............................................... $4,503,338 $732,329
========== ========
Beginning of year........................................... $ 732,329 $ --
Capitalized:
Assumed................................................ 3,892,292 738,743
Retroceded............................................. -- --
Amortized:
Assumed................................................ (121,283) (6,414)
Retroceded............................................. -- --
---------- --------
End of year....................................... $4,503,338 $732,329
========== ========
</TABLE>
(6) INCOME TAX
Under current Bermuda law, WMA Life is not required to pay any taxes in
Bermuda on either income or capital gains. WMA Life has received an undertaking
from the Minister of Finance in Bermuda that in the event of any such taxes
being imposed, WMA Life will be exempted from taxation until the year 2016.
The Company determined its income tax expense and liability in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.
Effective January 1, 1996, WMA Life made an irrevocable election under
section 953(d) of the Internal Revenue Code of 1986, as amended, to be treated
as a domestic insurance company for United Stated Federal income tax purposes.
As a result of this "domestic" election, WMA Life is subject to U.S. taxation on
its worldwide income as if it were a U.S. corporation.
F-13
<PAGE> 72
THE WMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total income taxes (benefit) for the years ended December 31, 1997 and 1996
were allocated as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Tax attributable to:
Income from continuing operations......................... $815,743 $112,808
======== ========
Unrealized gains (losses) on securities available for
sale................................................... $145,948 $(64,725)
======== ========
</TABLE>
The Federal income tax expense from continuing operations for the years
ended December 31, 1997, 1996, and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current................................................ $ 29,363 $ -- $ --
Deferred............................................... 786,380 112,808 --
-------- -------- --------
Total........................................ $815,743 $112,808 $ --
======== ======== ========
</TABLE>
The income tax expense from continuing operations for the years ended
December 31, 1997, 1996, and 1995 differed from the amounts computed by applying
the U.S. Federal income tax rate of 34 percent to income before income taxes as
a result of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Computed expected tax expense........................ $793,983 $ 223,434 $(120,571)
Change in valuation allowance........................ -- (117,307) 117,307
Other, net........................................... 21,760 6,681 3,264
-------- --------- ---------
Total...................................... $815,743 $ 112,808 $ --
======== ========= =========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying values of assets and liabilities for financial reporting
purposes and Federal income tax purposes. The net deferred tax liability at
December 31, 1997 and 1996 is composed of the following amounts:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
----------- ---------
<S> <C> <C>
Deferred tax assets:
Policy acquisition costs.................................. $ -- $ 12,903
Deferred organizational costs............................. 5,888 20,673
Net operating loss carry forward.......................... 731,423 166,615
Unrealized losses on securities held for sale............. -- 64,724
---------- --------
Gross deferred tax assets:........................ 737,311 264,915
-- --
---------- --------
Less valuation allowance
Net deferred tax assets........................... 737,311 264,915
---------- --------
Deferred tax liabilities:
Policy benefit reserves................................... 105,363 64,006
Deferred acquisition costs................................ 1,531,135 248,992
Unrealized gains on securities held for sale.............. 81,224 --
---------- --------
Gross deferred tax liabilities.................... 1,717,722 312,998
---------- --------
Net deferred tax liabilities...................... $ 980,411 $ 48,083
========== ========
</TABLE>
F-14
<PAGE> 73
THE WMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
There were no valuation allowances for deferred tax assets as of December
31, 1997 and 1996 since it is management's belief that it is more likely than
not that the deferred tax assets will be realized. However, the amount of the
deferred tax asset could be reduced in the near term if estimates of future
taxable income are reduced.
(7) RELATED PARTY TRANSACTIONS
The Company receives certain management and consulting services from WMA
and WMA Management, an affiliate of WMA. During the years ended December 31,
1997 and 1996, the Company paid $110,714 and $76,875, respectively, to WMA for
these services. During the years ended December 31, 1997 and 1996, the Company
paid $120,000 and $47,805, respectively, to WMA Management for these services. A
portion of amounts paid to WMA Management were deferred as policy acquisition
costs. During 1995, WMA funded certain expenditures incurred for the
organization of the Company and for the related public offering. The Company has
reimbursed all amounts paid by WMA for such expenditures.
(8) STATUTORY RESTRICTIONS
WMA Corporation's subsidiary, WMA Life, is a Bermuda-domiciled insurance
company, and as such, is subject to the restrictions of the Bermuda Insurance
Act of 1978. The most significant of these restrictions is that WMA Life must
maintain a minimum of $250,000 capital and surplus. In addition, WMA Life must
maintain a solvency margin, defined as the excess of statutory assets over
statutory liabilities, of at least $250,000. Through funding from WMA
Corporation, WMA Life met this restriction.
(9) CAPITAL INFUSION
Pursuant to a registration statement filed with the Securities and Exchange
Commission, the Company had sold as of December 31, 1996, 2,305,550 shares of
common stock ($0.001 par value) for $10 a share. This resulted in $18,805,500
raised at December 31, 1996, which when netted against deferred offering costs
of $516,527, resulted in total common stock and paid-in capital of $18,288,973.
An additional 194,450 shares were sold during the year ended December 31, 1997.
(10) COMMITMENTS AND CONTINGENT LIABILITIES
From time to time, the Company may be subject to reinsurance-related
litigation and arbitration in the normal course of business. Management does not
believe that the Company is a party to any such pending litigation or
arbitration which would have a material adverse effect on its future operations.
The Company has obtained letters of credit in favor of unaffiliated
insurance companies from which the Company assumes business. The posting of a
letter of credit allows the ceding company to take statutory reserve credit for
reinsurance ceded which would otherwise not be available as WMA Life is not
"authorized" (essentially licensed) by the ceding company's state of domicile.
At December 31, 1997, the amount of the outstanding letters of credit was
$2,030,000. Within the terms of the agreement, the Company has pledged the fixed
maturity securities as collateral for the letters of credit.
F-15
<PAGE> 74
THE WMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company currently leases office space from WMA under a lease agreement
which expires in 2008. The agreement requires the Company to pay during the
first five years of the lease term an amount equivalent to the rate paid by WMA
to its lessor. The rate paid is subject to increase during the last five years
of the lease term. The following is a schedule of future minimum lease payments
as of December 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1998........................................................ $ 18,675
1999........................................................ 18,675
2000........................................................ 18,675
2001........................................................ 18,675
2002........................................................ 18,675
Thereafter.................................................. 93,375
--------
$186,750
========
</TABLE>
F-16
<PAGE> 75
THE WMA CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets as of March 31, 1998 and 1997
(Unaudited)............................................... F-18
Consolidated Statements of Operations for the three months
ended March 31, 1998, 1997 and 1996 (Unaudited)........... F-19
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998, 1997 and 1996 (Unaudited)........... F-20
Notes to Consolidated Financial Statements (Unaudited)...... F-21
</TABLE>
F-17
<PAGE> 76
THE WMA CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Fixed maturity securities -- available for sale (amortized
cost of $16,995,247 and $16,942,853 for 1998 and 1997,
respectively)............................................. $17,121,692 $16,364,373
Equity securities -- available for sale (cost of $487,733
for 1998 and 1997)........................................ 714,597 492,583
----------- -----------
Total investments................................. 17,836,289 16,856,956
Cash and cash equivalents................................... 1,991,275 2,174,115
Investment income due and accrued........................... 259,414 244,955
Prepaid expenses............................................ 387,766 43,889
Deferred acquisition costs.................................. 6,558,706 1,033,939
Deferred organization costs (net of accumulated amortization
of $71,238 and $34,801 at March 31, 1998 and 1997
respectively)............................................. 115,632 152,068
Other assets................................................ 9,600 36,090
----------- -----------
Total assets...................................... $27,158,682 $20,542,012
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Future policy benefits.................................... $ 1,498,899 $ 545,511
Reinsurance balances payable.............................. 1,396,536 80,307
Accrued expenses.......................................... 228,501 224,679
Accounts payable.......................................... 400,920 71,810
Deferred tax liability.................................... 1,184,242 147,421
----------- -----------
Total liabilities................................. 4,709,098 1,069,728
Stockholders' equity:
Common stock, par value $.001, 10,000,000 authorized:
2,500,000 and 2,411,742 shares issued in 1998 and
1997, respectively..................................... 2,500 2,412
Additional paid-in capital................................ 20,228,973 19,348,481
Accumulated other comprehensive income.................... 238,212 (395,773)
Retained earnings......................................... 2,022,799 517,164
Treasury stock, at cost (4,290 shares).................... (42,900) --
----------- -----------
Total stockholders' equity........................ 22,449,584 19,472,284
----------- -----------
Total liabilities and stockholders' equity........ $27,158,682 $20,542,012
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 77
THE WMA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
1998 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums............................................... $ 1,728,837 $1,067,902 $ --
Deposits and other considerations...................... 20,708,126 -- --
Modco and coinsurance reserve adjustment............... (20,549,169) -- --
Net investment income.................................. 250,201 256,714 54,941
------------ ---------- ----------
Total revenue.................................. 2,137,995 1,324,616 54,941
Benefits and expenses:
Benefits, claims and settlement expenses................. 875,417 393,588 --
Reinsurance premium allowances, net...................... 472,505 303,442 --
Amortization of deferred acquisition costs............... 124,573 (1,657) --
Professional, management, and other expenses............. 189,595 101,259 --
------------ ---------- ----------
Total benefits and expenses.................... 1,662,090 796,632 99,214
------------ ---------- ----------
Net income (loss) before income taxes.......... 475,905 527,984 (44,273)
Income tax (expense) benefit................... (162,339) (205,152) 10,893
------------ ---------- ----------
Net income (loss) after income taxes........... $ 313,566 $ 322,832 $ (33,380)
============ ========== ==========
Basic and diluted income per (loss) share................ $ 0.13 $ 0.14 $ (0.03)
============ ========== ==========
Weighted-average common shares outstanding............... 2,497,452 2,385,558 1,065,068
============ ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 78
THE WMA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $ 313,566 $ 322,832 $ (33,380)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operations
Amortization....................................... 133,682 7,452 70,184
Deferred tax expense............................... 162,339 205,152 (10,893)
Change in:
Investment income due and accrued................ (1,786) (63,691) --
Reinsurance receivables.......................... 183,524 30,396 --
Deferred acquisition costs....................... (2,179,941) (299,953) --
Prepaid expenses................................. (274,523) (17,523) (10,574)
Other assets..................................... (8,816) (35,306) --
Future policy benefits........................... 204,982 (68,966) --
Reinsurance balances payable..................... 962,093 80,307 --
Accrued expenses................................. 52,851 (16,054) --
Accrued interest................................. -- -- (60)
Accounts payable................................. 295,812 24,885 (65,913)
----------- ----------- -----------
Net cash provided by (used in) operating
activities.................................... (156,217) 169,242 50,636
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sales of available-for-sale
securities......................................... 698,729 974,858 --
Purchase of available-for-sale securities............. -- (2,050,266) (7,263,005)
----------- ----------- -----------
Net cash provided by (used in) investing
activities.................................... 698,729 (1,075,408) (7,263,005)
----------- ----------- -----------
Cash flows from financing activities:
Issuance of common stock.............................. -- 1,061,920 7,500,000
Purchase of treasury stock............................ (20,900) -- --
Repayments of borrowings under note payable........... -- -- (1,350)
Offering costs and organization costs................. -- -- (136,544)
Increase in due to stockholders....................... -- 38,160 5,604,239
----------- ----------- -----------
Net cash provided by (used in) financing activities... (20,900) 1,100,080 12,966,345
----------- ----------- -----------
Net increase in cash and cash equivalents........ 521,612 193,914 5,652,704
Cash and cash equivalents at beginning of period...... 1,469,663 1,980,201 307,034
----------- ----------- -----------
Cash and cash equivalents at end of period............ $ 1,991,275 $ 2,174,115 $ 5,959,738
=========== =========== ===========
Supplemental disclosure of cash flow
Information -- interest paid....................... $ -- $ -- $ 16,377
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE> 79
THE WMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-QSB of Regulation
S-B. 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.
(2) STOCK SUBSCRIPTIONS
As of March 31, 1998, there were 2,495,710 shares of common stock
outstanding. The aggregate market value of the common stock held by
non-affiliates computed on the basis of the price at which the stock was sold
was $19,957,100. All warrants previously issued in 1995 have been exercised.
There is no established market for the shares of common stock.
(3) DEFERRED TAX
Deferred income tax liabilities and related expenses are determined in
accordance with Statement of Financial Accounting Standard No. 109 (SFAS No.
109) using an effective federal tax rate of 34%. SFAS No. 109 specifically
excludes recognition of the "small life insurance company deduction" available
under Section 806 of the Internal Revenue Code for qualifying life insurance
companies. This special deduction, for which management believes the Company
will qualify for a number of years, can reduce the effective federal income tax
rate from 34% to less than 20% depending upon the amount of taxable income.
Consequently, the effective tax rate on the Company's earnings may ultimately
prove to be less than the deferred income tax liabilities and related expenses
determined under SFAS No. 109, at March 31, 1998.
(4) ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (Statement 130). Statement 130 establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements. The Company adopted Statement 130
effective January 1, 1998. The primary component of the differences between net
income and comprehensive income for the Company is unrealized gains on
securities. Total comprehensive income for the three months ended March 31, 1998
was $394,108 compared to $52,700 for the three months ended March 31, 1997. In
June 1997, the FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (Statement
131). Statement 131 is effective for financial statements for years ending after
December 15, 1997. The Company does not have any separate segments that are
considered material.
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS RELATES SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR ITS AFFILIATES SINCE THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 1
Summary Consolidated Financial Data... 4
Risk Factors.......................... 5
The Company........................... 13
How to Subscribe...................... 13
Use of Proceeds....................... 18
Dividend Policy....................... 18
Dilution.............................. 18
Capitalization........................ 19
Selected Consolidated Financial
Data................................ 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 27
Management............................ 39
Certain Relationships and Related
Transactions........................ 40
Principal Stockholders................ 43
Description of Capital Stock.......... 44
Shares Eligible for Future Sale....... 45
Legal Matters......................... 45
Experts............................... 45
Available Information................. 46
Subscription Offering -- Questions and
Answers............................. 47
Glossary of Insurance Terms........... 52
Financial Statements.................. F-1
</TABLE>
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SUBSCRIPTION OFFERING
SHARES
OF COMMON STOCK
OF
(LOGO WMA)
======================================================
<PAGE> 81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Fees and expenses incurred by the Registrant in connection with the
Subscription Offering are as follows:
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SEC registration fees....................................... $ *
Accounting fees and expenses................................ *
Printing and engraving costs................................ *
Legal fees and expenses..................................... *
Advisory fees............................................... *
State "Blue Sky" Fees and Expenses.......................... *
NASDAQ filing and listing fees.............................. *
Escrow Agents fee........................................... *
Subscription Agent fees..................................... *
Registry and Transfer Agents fees........................... *
Miscellaneous fees and expenses............................. *
--------
Total............................................. $
========
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* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VII, Section 7, of the Registrant's By-laws provide for
indemnification of the Registrant's officers, directors, employees and agents to
the extent permitted by the General Corporation Law of Delaware.
Section 145 ("Section 145") of the Delaware General Corporation Law
("DGCL"), in summary, empowers a Delaware corporation, within certain
limitations, to indemnify its officers, directors, employees and agents against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, actually and reasonably incurred by them in connection with any suit
or proceeding other than by or on behalf of the corporation, if they acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interest of the corporation, and, with respect to a criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.
With respect to actions by or on behalf of the corporation, Section 145
permits a corporation to indemnify its officers, directors, employees and agents
against expenses (including attorneys' fees) actually and reasonably incurred in
connection with the defense or settlement of such action or suit, provided such
person meets the standard of conduct described in the preceding paragraph,
except that no indemnification is permitted in respect of any claim where such
person has been found liable to the corporation, unless the Court of Chancery or
the court in which such action or suit was brought approves such indemnification
and determines that such person is fairly and reasonably entitled to be
indemnified.
Because of these provisions, the Company and its shareholders may have a
more limited right of action against a director than they would have absent
these provisions. To the extent these provisions may purport to provide
indemnification for violations of federal securities laws, it is the opinion of
the Securities and Exchange Commission that such indemnification is against
public policy and therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM
REGISTERED SECURITIES
In late December, 1997, the Company issued 88,258 shares of its common
stock to ten agents of WMA Agency who exercised warrants that they had purchased
from the Company pursuant to a registration statement, which became effective
December 22, 1995. The Company received $882,580 in cash upon the exercise of
these warrants, which funds were used for general working capital purposes. The
shares issued by the Company upon exercise of these warrants were also included
in the above registration statement.
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<PAGE> 82
On June , 1998, the Company's Board of Directors, subject to ratification
of the stockholders of the Company at its 1998 annual meeting, authorized a 1998
stock option plan for the directors, officers and employees of the Company (the
"Plan") that contemplates the issuance of up to 900,000 shares of the Company's
authorized, but unissued, Common Stock upon the exercise of options granted
under the Plan. Such options are non-transferable (except by will or the laws of
descent and distribution in the event of death), shall have a term of five (5)
years, and become exercisable on the third anniversary of an optionee's date of
hire, appointment or election, provided the optionee at that time has been a
director, officer or employee of the Company for at least one year after the
date of grant. Upon termination of an optionee's service as a director, officer
or employee of the Company for reasons other than retirement, death or permanent
and total disability, the option and the optionee's rights thereunder shall
terminate. Options become immediately exercisable upon a change in control of
the Company, as defined in the Plan. Except as to the option granted in 1998
(see below). Except for options granted in 1998, the per share exercise price of
options granted under the Plan is the fair market value of a share of Common
Stock on the date of grant. The Plan will be administered by the Audit and
Compensation Committee created by the Board of Directors on the above date.
On the above date, the Board of Directors also authorized the grant of
options under the Plan to purchase up to shares of Common Stock to several
directors, officers and employees of the Company, including shares to Mr.
Humphrey. The 1998 options granted have an exercise price equal to the
Subscription Price. The Company does not intend to register the shares of Common
Stock to be issued upon exercise of these options since the options will only be
issued in private transactions to accredited investors and no more than 35
non-accredited investors.
The Board of Directors of the Company, also on June , 1998, authorized
the issuance of six year non-transferrable warrants to purchase up to 600,000
shares of Common Stock. The warrants are exercisable with respect to twenty
percent (20%) of the shares issuable under the warrant in each of the five (5)
years after the first anniversary of the date of issuance. The exercise price
for warrants issued in 1998 is the Subscription Price. The exercise price of all
warrants issued thereafter will be the fair market value of the Common Stock on
the date of issuance. The exercise of warrants is also subject to the warrant
holder being employed by WMA Agency at the time of exercise and the Company
achieving specified annual premium production levels during each of the years in
the exercise period. Warrants to purchase 250,000 shares of Common Stock have
been issued to key management employees of WMA Agency as partial consideration
for its agreement to use its "best efforts" to cause any life insurance company
with which WMA Agency has selling agreements to reinsure life insurance and
annuities sold through WMA Agency with the Company. Both the option plan and the
warrants will be submitted to the stockholders of the Company at its 1998 Annual
Meeting for ratification.
The Company, in granting the options, will rely upon the Commission's
interpretation or practice not to consider options granted in voluntary,
non-contributory corporate employee plans to be a security. See Part II, Section
A.2.c. of Release No. 33 -- 6188. The Company has relied upon the exemption from
registration in Section 4(2) of the Securities Act of 1933, as amended, in
issuing the warrants. The Company will rely upon the applicable provisions of
Regulation D with respect to the issuance of Common Stock upon the exercise of
the options and the warrants.
ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
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3.1 -- Articles of Incorporation (1)
3.2 -- Amendment to Articles of Incorporation changing the name of
the Company to "The WMA Corporation".(2)
3.2 -- By-Laws(1)
3.3 -- Amendment to By-Laws re Related Party Transactions*
4.1 -- Specimen Stock Certificate(3)
</TABLE>
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
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<S> <C> <C>
4.2 -- 1998 Stock Option Plan*
4.3 -- Form of Warrant*
5.1 -- Opinion re legality (Filed herewith)
10 -- Material contracts
10.1 -- Loan Agreement with Money Services, Inc. and WMA Agency(4)
10.2 -- Modification of Loan & Security Agreement between Money
Services, Inc. and WMA Agency(2)
10.3 -- Automatic Reinsurance Agreement No. 1 between Western
Reserve Life Assurance Company of Ohio and WMA Life
Insurance Company Limited dated July 9, 1996.(2)
10.4 -- Automatic Variable Annuity Reinsurance Agreement between
Western Reserve Life Assurance Company of Ohio and WMA Life
Insurance Company Limited effective January 1, 1998.*
10.5 -- Automatic Variable Universal Life Reinsurance Agreement
between Western Reserve Life Assurance Company of Ohio and
WMA Life Insurance Company Limited effective April 1, 1998.*
10.6 -- Agreement dated June , 1998 between WMA Agency and The WMA
Corporation.*
16.1 -- Letter re change in certifying accountant(5)
21.1 -- Subsidiaries of the registrant (Filed herewith)
23 -- Consents of experts and counsel
23.1 -- Consent of KPMG Peat Marwick LLP (Filed herewith)
23.2 -- Consent of Merritt & Tenney LLP (Filed herewith)
23.3 -- Consent of Snyder, Camp, Stewart & Co., LLP (Filed herewith)
24.1 -- Power of attorney
27.1 -- Financial Data Schedule (for SEC use only)(2)(6)
99 -- Additional Exhibits
99.1 -- Subscription Agent Agreement with American Stock Transfer
Company*
99.2 -- Subscription Agreement*
</TABLE>
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(1) Filed on June 28, 1995 as an exhibit to Registration Statement and
incorporated herein by reference pursuant to Rule 12b-23.
(2) Filed on May 15, 1998 as an exhibit to Quarterly Report of Form 10-QSB and
incorporated herein by reference pursuant to Rule 12b-23.
(3) Filed on September 22, 1995 as an exhibit to Registration Statement and
incorporated herein by reference pursuant to Rule 12b-23.
(4) Filed on November 17, 1995 as an exhibit to Registration Statement and
incorporated herein by reference pursuant to Rule 12b-23.
(5) Filed on December 21, 1995 as an exhibit to Registration Statement and
incorporated herein by reference pursuant to Rule 12b-23.
(6) Filed on March 31, 1998 as an Exhibit to Annual Report on Form 10-KSB and
incorporated herein by reference pursuant to Rule 12b-23.
* To be filed by Amendment
(b) Financial Statement Schedules
Not Applicable
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<PAGE> 84
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company 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
Company will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Company pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be the initial bona fide offering thereof.
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<PAGE> 85
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Duluth, and the State of Georgia, on June 2, 1998.
THE WMA CORPORATION
(Registrant)
By: /s/ S. HUBERT HUMPHREY, JR.
------------------------------------
S. Hubert Humphrey, Jr.
President and Director
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints S. Hubert
Humphrey, Jr. as his true and lawful attorney-in-fact and agent with full power
of substitution, for him and in his name, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to the S-1 Registration
Statement filed by The WMA Corporation, to file the same with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by the virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
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SIGNATURE TITLE DATE
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<C> <S> <C>
/s/ S. HUBERT HUMPHREY, JR. President and Director June 2, 1998
- -----------------------------------------------------
S. Hubert Humphrey, Jr.
/s/ THOMAS W. MONTGOMERY Executive Vice President, June 2, 1998
- ----------------------------------------------------- Secretary and Director
Thomas W. Montgomery
/s/ EDWARD F. MCKERNAN Senior Vice President, June 2, 1998
- ----------------------------------------------------- Chief Financial Officer
Edward F. McKernan and Director
/s/ C. SIMON SCUPHAM Director June 3, 1998
- -----------------------------------------------------
C. Simon Scupham
/s/ JOSEPH F. BARONE Director June 3, 1998
- -----------------------------------------------------
Joseph F. Barone
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EXHIBIT 5.1
MERRITT & TENNEY LLP
ATTORNEYS AT LAW
SUITE 500
200 GALLERIA PARKWAY, N.W.
ATLANTA, GEORGIA 30330-3151
----
TELEPHONE (770) 952-6550
FACSIMILE (770) 952-0028
June 4, 1998
U.S. Securities and Exchange Commission
Division of Corporate Finance
Washington, D.C. 20549
Re: The WMA Corporation
Form S-1 Registration Statement
All shares of the common stock of The WMA Corporation being offered
pursuant to Subscription Offering referred to in the captioned Form S-1
Registration Statement shall, upon sale and issuance in accordance with the
terms of the Subscription Offering, be legally issued, fully paid and
non-assessable.
The law firm of Merritt & Tenney consents to be named in the captioned
Form S-1 Registration Statement and further consents to the use of this opinion
and consent in the captioned Form S-1 Registration Statement.
/s/ MERRITT & TENNEY
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MERRITT & TENNEY
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of The WMA Corporation (Registrant)
1. WMA Life Insurance Company Limited, a Bermuda life insurance company,
100% owned by Registrant.
2. WMA Life Holding, Ltd., a Bermuda holding company, 100% owned by
Registrant.
<PAGE> 1
EXHIBIT 23.1
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The Board of Directors
The WMA Corporation:
We consent to the use of our report dated March 6, 1998 on the
consolidated financial statements of The WMA Corporation as of December 31, 1997
and 1996 and for each of the years in the two-year period then ended included
herein and to the reference to our firm under the heading "Experts" in the
prospectus.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
June 5, 1998
<PAGE> 1
EXHIBIT 23.3
SNYDER, CAMP, STEWART & CO., LLP
CERTIFIED PUBLIC ACCOUNTS
3850 HOLCOMB BRIDGE ROAD
SUITE 210
NORCROSS, GEORGIA 30092
(770) 263-9666
TELECOPIER (770) 441-1880
Independent Auditors' Consent
We consent to the inclusion in this Registration Statement on Form S-1 of our
report dated March 14, 1996 on our examination of the financial statements of
the WMA Corporation (formerly known as WMA International Corporation) for the
period from inception (March 9, 1995) through December 31, 1995. We also
consent to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ Synder, Camp, Stewart & Co., LLP
------------------------------------
SNYDER, CAMP, STEWART & CO., LLP
Atlanta, Georgia
April 17, 1998
