-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LTz5Jw+r1DkM0q3j542n098RkhZU9rsoFl3h56jqvXdYwgmTZR1+KYrP/zwmEyUC 6anGiKu1vWjIDSTVKr1vhw== 0000895813-01-000021.txt : 20010123 0000895813-01-000021.hdr.sgml : 20010123 ACCESSION NUMBER: 0000895813-01-000021 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001229 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN COUNTRY HOLDINGS INC CENTRAL INDEX KEY: 0000315411 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 060995978 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-22922 FILM NUMBER: 1507947 BUSINESS ADDRESS: STREET 1: 222 N LASALLE STREET STREET 2: C/O JOHN DE ELORZA CITY: CHICAGO STATE: IL ZIP: 60601-1105 BUSINESS PHONE: 3124562000 MAIL ADDRESS: STREET 1: 222 N LASALLE STREET CITY: CHICAGO STATE: IL ZIP: 60601-1105 FORMER COMPANY: FORMER CONFORMED NAME: WESTERN SYSTEMS CORP DATE OF NAME CHANGE: 19970326 FORMER COMPANY: FORMER CONFORMED NAME: WESTERN TRANSMEDIA CO INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: VIGILANCE SYSTEMS CORP DATE OF NAME CHANGE: 19920202 8-K 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) December 29, 2000 ----------------- AMERICAN COUNTRY HOLDINGS INC. --------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 0-22922 06-0995978 ---------------------------------------------------------------------- (State or other (Commission (IRS Employer jurisdiction of File Number) Identification No.) 222 N. LaSalle Street, Chicago, Illinois 60601-1105 ---------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (312) 456-2000 -------------- Item 5. Other Events. On November 30, 2000, American Country Holdings Inc. (the "Company") entered into an agency agreement with Janney Montgomery Scott LLC ("JMS"), as supplemented on December 21, 2000, for JMS to act as placement agent in connection with the Company's offer and sale of approximately $5,500,000 of units and preferred stock under Rule 506 of Regulation D (the "Offering"). Pursuant to the Offering, the Company sold 814,286 units, each comprised of one share of common stock, $.01 par value per share ("Common Stock"), and a five year common stock purchase warrant to purchase one share of Common Stock (the "Warrants" collectively, with the Common Stock, the "Units") at $1 per unit. Each Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $1.925 on or prior to December 29, 2005. In addition, the Company sold 405,000 shares of newly- created Series A Convertible Preferred Stock, par value $.10 per share (the "Preferred Stock") at a stated value of ten dollars ($10) per share. The Company has received net proceeds, after deduction of the selling concessions and estimated offerings expenses, of approximately $5,245,000. According to the terms of the Unit Subscription Agreement and the Preferred Stock Subscription Agreement the Company is obligated to file a registration statement under the Securities Act of 1933, as amended, to register the Common Stock, the Warrants and the Common Stock underlying the Warrants included in the Units and the Common Stock underlying the Preferred Stock as soon as practicable but in no event later than January 29, 2001. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a)-(b) Not applicable. (c) Exhibits. 4.1 Certificate of Designations, Preferences, and Rights of Series A Convertible Preferred Stock 99.1 Private Placement Memorandum SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. AMERICAN COUNTRY HOLDINGS INC. (Registrant) /s/ JOHN A. DORE --------------------------------------- By: John A. Dore Co-Chairman and Chief Executive Officer Date: January 12, 2001 EX-4 2 0002.txt EXHIBIT 4.1 ----------- CERTIFICATE OF DESIGNATIONS, PREFERENCES, AND RIGHTS of SERIES A CONVERTIBLE PREFERRED STOCK of AMERICAN COUNTRY HOLDINGS INC. (Pursuant to Section 151 of the Delaware General Corporation Law) AMERICAN COUNTRY HOLDINGS INC., a corporation organized and existing under the Delaware General Corporation Law (the "Corporation"), hereby certifies that the following resolutions were adopted by the Board of Directors of the Corporation on December 15, 2000 pursuant to authority of the Board of Directors as required by Section 151 of the Delaware General Corporation Law ("DGCL"): RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (the "Board of Directors" or the "Board") in accordance with the provisions of its Certificate of Incorporation, the Board of Directors hereby authorizes a series of the Corporation's preferred stock, par value $.10 per share (the "Preferred Stock"), and hereby states the designation and number of shares, and fixes the relative rights, preferences, privileges, powers and restrictions thereof as follows: I. DESIGNATION AND AMOUNT The designation of this series, which consists of 500,000 shares of Preferred Stock, is Series A 6% Convertible Preferred Stock (the "Series A Preferred Stock") and the stated value shall be Ten Dollars ($10) per share (the "Stated Value"). II. RANK The Series A Preferred Stock shall rank senior to (i) the Corporation's common stock, par value $.01 per share (the "Common Stock") and (ii) on parity with any class or series of capital stock of the Corporation hereafter created (unless, with the consent of the holders of Series A Preferred Stock obtained in accordance with Article VIII hereof, such class or series of capital stock specifically, by its terms, ranks senior to the Series A Preferred Stock) (the "Pari Passu Securities") in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary. The definition of Pari Passu Securities shall also include any rights or options exercisable for or convertible into any of the Pari Passu Securities. III. VOTING RIGHTS A. Right to Vote as a Single Class with the Common Stock. The holders of Series A Preferred Stock shall be entitled to vote on all matters submitted to a vote of stockholders of the Corporation at all stockholders meetings and in all actions by written consent of stockholders of the Corporation. Each holder of Series A Preferred Stock shall be entitled to (i) such number of votes as such holder would be entitled to cast if such holder had converted all of its shares of Series A Preferred Stock into Common Stock pursuant to Article VII hereof immediately prior to the record date for such stockholders meeting or action by written consent and (ii) notice of any stockholders meeting in accordance with the Certificate of Incorporation and By-laws of the Corporation. B. Right to Designate Directors. In the event that the Corporation shall have failed to pay in full dividends on the Series A Preferred Stock for a period of twelve consecutive months ("Default"), then in addition to any other rights that may otherwise be available to the holders of the Series A Preferred Stock pursuant to this Certificate of Designation or otherwise, the total number of directors of the Corporation shall be increased by two, and the holders of the Series A Preferred Stock, voting together as a single class, shall by an affirmative vote of holders of a plurality of the total number of shares of Series A Preferred Stock voting thereon, be entitled to elect to the Board of Directors, at a meeting of such stockholders or by written consent in lieu thereof, two additional directors ("Default Directors") who shall be required to satisfy any qualifications existing under applicable law and shall be entitled to all rights of voting and participation as are directors of the Corporation generally, and shall be entitled by affirmative vote of holders of a majority of the total number of shares of Series A Preferred Stock then outstanding or by written consent in lieu thereof, at any time to remove a director so elected. No Default Director may be removed except in accordance with this Section. Vacancies among the Default Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled at any time, but only by the affirmative vote of holders of a plurality of the total number of shares of Series A Preferred Stock then outstanding, voting together as a single class, or by written consent in lieu thereof, and any director so chosen shall hold office for a term expiring on the date the term of office of the director such newly-elected director shall have replaced would have expired. At any time during which the holders of the Series A Preferred Stock are entitled to elect Default Directors, in the event the Corporation pays all theretofore unpaid dividends then the term of the Default Directors then in office shall be deemed to have expired as of the time such payments are made, and the total number of directors of the Corporation shall be reduced by the number of Default Directors then in office whose term shall have expired and the holders of the Series A Preferred Stock shall cease to have any rights hereunder to elect Default Directors unless and until a Default shall recur. IV. DIVIDENDS The holders of the Series A Preferred Stock shall be entitled to receive dividends on a semi-annual basis at a rate of 6% per annum per 2 share, payable out of any assets or funds legally available for that purpose and payable on July 1 and January 1, commencing July 1, 2001. Such dividends shall be cumulative and shall accrue, whether or not declared by the Board of Directors, but shall be payable only when, as and if declared by the Board of Directors. Accrued but unpaid dividends will be paid upon conversion of the Series A Preferred Stock. The Corporation shall have the option to pay such dividends on the Series A Preferred Stock in additional Series A Preferred Stock or in cash. In no event, so long as any Series A Preferred Stock shall remain outstanding, shall any dividend whatsoever be declared or paid upon, nor shall any distribution be made upon any Pari Passu Securities, nor shall any such securities be purchased or redeemed by the Corporation nor shall any moneys be paid to or made available for a sinking fund for the purchase or redemption of any such securities (other than a distribution of Pari Passu Securities), without, in each such case, the written consent of the holders of a majority of the outstanding shares of Series A Preferred Stock, voting together as a class. V. LIQUIDATION PREFERENCE A. Liquidation Event. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation (a "Liquidation"), each of the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders an amount in cash equal to the Series A Liquidation Preference with respect to each share of Series A Preferred Stock held by such holder on the date fixed for Liquidation, before any payment or distribution of the assets of the Corporation (whether capital or surplus) shall be made to or set apart for the holders of Pari Passu Securities. If the assets of the Corporation available for distribution to the holders of Series A Preferred Stock and the Pari Passu Securities shall be insufficient to permit payment in full to such holders of the sums which such holders are entitled to receive in a Liquidation, then all of the assets available for distribution to the holders of Series A Preferred Stock and Pari Passu Securities shall be distributed among and paid to such holders ratably in proportion to the amounts that would be payable to such holders if such assets were sufficient to permit payment in full. Immediately prior to a Liquidation of the Corporation, to the extend funds of the Corporation are legally available for the payment of dividends, the Corporation shall declare for payment all accrued and unpaid dividends with respect to the Series A Preferred Stock and any Pari Passu Securities ratably in accordance with the respective amounts that would be payable on such shares of Series A Preferred Stock and any such other Pari Passu Securities if all amounts payable thereon were paid in full. After payment in full of the Series A Liquidation Preference, the holders of the Series A Preferred Stock will not be entitled to any further participation in any distribution of assets by the Corporation. 3 B. Remaining Assets. Upon any such Liquidation, after the holders of Series A Preferred Stock shall have been paid in full the Liquidation Preference, the remaining assets of the Corporation shall be distributed to the holders of the Pari Passu Securities. C. Liquidation Preference. For purposes hereof, the "Liquidation Preference" with respect to each share of the Series A Preferred Stock shall mean an amount equal to the sum of (i) the Stated Value thereof plus (ii) an amount (the "Premium Amount") equal to all accrued but unpaid dividends as set forth in Article IV for the period beginning on the date of issuance of the Series A Preferred Stock (the "Issue Date") and ending on the date of final distribution to the holder thereof (prorated for any portion of such period). The liquidation preference with respect to any Pari Passu Securities shall be as set forth in the Certificate of Designation filed in respect thereof. VI. REDEMPTION A. Optional Redemption The outstanding shares of Series A Preferred Stock may be redeemed at the option of the Corporation (the "Optional Redemption"), in whole or in part, at any time and from time to time after the issuance thereof, out of funds legally available therefor. The Corporation may redeem the Series A Preferred Stock by payment in cash, for each share of Series A Preferred Stock to be redeemed, in an amount (the "Series A Redemption Amount") equal to the Series A Stated Amount, plus the Premium Amount. The date on which the Series A Redemption Amount is payable is referred to herein as the "Series A Redemption Date." If less than all of the outstanding shares of Series A Preferred Stock are to be redeemed, the Corporation shall redeem a pro rata portion of the shares of Series A Preferred Stock held by each holder. B. Notice of Redemption A notice of redemption shall be provided by the Corporation to the Holder in writing not less than ten nor more than 15 days prior to the Redemption Date and such notice shall refer to this Section. VII. CONVERSION AT THE OPTION OF THE HOLDER A. Optional Conversion (1) Conversion Amount. Each holder of shares of Series A Preferred Stock may, at its option at any time and from time to time, upon surrender of the certificates therefor, convert any or all of its shares of Series A Preferred Stock into Common Stock as set forth below (an "Optional Conversion"). Each share of Series A Preferred Stock shall be convertible into such number of fully paid and nonassessable shares of Common Stock as such Common Stock exists on 4 the Issue Date, or any other shares of capital stock or other securities of the Corporation into which such Common Stock is thereafter changed or reclassified, as is determined by dividing (a) the total Stated Value per share to be converted plus (i) the Premium Amount per share to be converted by (b) the then effective Conversion Price (as defined below). B. Conversion Price. The "Conversion Price" as used herein, shall initially be equal to the high bid price of the Common Stock on the Issue Date per share and shall be subject to adjustment as set forth in this Certificate. All such adjustments shall be successive. C. Adjustments to Conversion Price. The Conversion Price shall be subject to the following provisions: (1) Adjustment to Conversion Price Due to Stock Split, Stock Dividend, Etc. If at any time when Series A Preferred Stock is issued and outstanding, the number of outstanding shares of Common Stock is increased or decreased by a stock split, stock dividend, combination, reclassification, to all holders of Common Stock or other similar event, then the Conversion Price shall be calculated giving appropriate effect to the stock split, stock dividend, Combination, reclassification, or other similar event. (2) Adjustment Due to Merger, Consolidation, Etc. If, at any time when Series A Preferred Stock is issued and outstanding and prior to the conversion of all Series A Preferred Stock, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Corporation shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Corporation or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Corporation other than in connection with a plan of complete liquidation of the Corporation (each, a "Change of Control Transaction"), then the holders of Series A Preferred Stock shall thereafter have the right to receive upon conversion of the Series A Preferred Stock, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the holders of Series A Preferred Stock would have been entitled to receive in such transaction had the Series A Preferred Stock been converted in full immediately prior to such transaction (without regard to any limitations on conversion contained herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the holders of Series A Preferred Stock to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion of Series A Preferred Stock. 5 (3) Adjustment Due to Distribution. Subject to Article IV, if the Corporation shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Corporation's shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a "Distribution"), then the holders of Series A Preferred Stock shall be entitled, upon any conversion of shares of Series A Preferred Stock after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the holder with respect to the shares of Common Stock issuable upon such conversion had such holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. (4) Antidilution Provisions. The Conversion Price shall be subject to adjustment from time to time as provided below: (a) Adjustment of Conversion Price. If and whenever on or after the Issue Date, the Corporation is deemed to have issued or sold, any shares of Common Stock for no consideration or for less than the then effective Conversion Price (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) (a "Dilutive Issuance"), then immediately upon the Dilutive Issuance, the Conversion Price will be adjusted to a price determined by multiplying the Conversion Price in effect immediately prior to the Dilutive Issuance by a fraction, (I) the numerator of which is an amount equal to the sum of (x) the number of shares of Common Stock actually outstanding immediately prior to the Dilutive Issuance, plus (y) the quotient of the aggregate consideration, calculated as set forth in subsection (b) below, received by the Corporation upon such Dilutive Issuance divided by the Conversion Price in effect immediately prior to the Dilutive Issuance, and (II) the denominator of which is the total number of shares of Common Stock actually outstanding immediately prior to the Dilutive Issuance plus the number of shares of Common Stock issued or to be issued in the Dilutive Issuance. (b) Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price, the following will be applicable: (i) Issuance of Rights or Options. If the Corporation in any manner issues or grants any warrants, rights or options, whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock ("Convertible Securities") (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as "Options") and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price, then the Conversion Price 6 shall be adjusted in the manner set forth in subsection (4)(a) above. For purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon the exercise of such Options" is determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options. (ii) Issuance of Convertible Securities. If the Corporation in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options) and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price, then the Conversion Price shall be adjusted in the manner set forth in subsection (4)(a) above. For the purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon such conversion or exchange" is determined by dividing (a) the total amount, if any, received or receivable by the Corporation as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (b) the number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. (iii) Change in Option Price or Conversion Rate. If there is a change at any time in (a) the amount of additional consideration payable to the Corporation upon the exercise of any Options; (b) the amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange of any Convertible Securities; or (c) the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock (other than under or by reason of provisions designed to protect against dilution or to automatically adjust for stock splits, stock dividends, combinations, reclassifications or other similar events), the Conversion Price in effect at the time of such change will be readjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed 7 additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. (iv) Treatment of Expired Options and Unexercised Convertible Securities. If, in any case, the total number of shares of Common Stock issuable upon exercise of any Option or upon conversion or exchange of any Convertible Securities is not, in fact, issued and the rights to exercise such Option or to convert or exchange such Convertible Securities shall have expired or terminated, the Conversion Price then in effect will be readjusted to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination (other than in respect of the actual number of shares of Common Stock issued upon exercise or conversion thereof) never been issued. (v) Exceptions to Adjustment of Conversion Price. No adjustment to the Conversion Price will be made (a) upon the exercise of any warrants, options or convertible securities granted, issued and outstanding on the Issue Date, including the Series A Preferred Stock or any Convertible Securities outstanding as of the Issue Date including the Warrants; (b) upon the payment of any dividends on the Series A Preferred Stock and any conversions thereof; or (c) upon the grant or exercise of any stock or options which may hereafter be granted or exercised under any employee benefit plan of the Corporation now existing or to be implemented in the future, so long as in the case of any grant in the future the issuance of such stock or options is approved by a majority of the independent members of the Board of Directors of the Corporation or a majority of the members of a committee of independent directors established for such purpose. D. Mechanics of Conversion. In order to convert Series A Preferred Stock into full shares of Common Stock, a holder of Series A Preferred Stock shall: (a) submit a copy of the fully executed notice of conversion ("Notice of Conversion") to the Corporation by facsimile dispatched prior to Midnight, New York City time (the "Conversion Notice Deadline") on the date specified therein as the Conversion Date (as defined below) (or by other means resulting in, or reasonably expected to result in, notice to the Corporation on the Conversion Date) to the office of the Corporation, which notice shall specify the number of shares of Series A Preferred Stock to be converted, the Conversion Price and a calculation of the number of shares of Common Stock issuable upon such conversion (together with a copy of the first page of each certificate to be converted); and (b) surrender the original certificates representing the Series A Preferred Stock being converted (the "Preferred Stock Certificates"), duly endorsed, along with a copy of the Notice of Conversion to the office of the Corporation as soon as practicable thereafter. The Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion, unless either the Preferred Stock Certificates are delivered to the Corporation as provided above, or 8 the holder notifies the Corporation that such certificates have been lost, stolen or destroyed (subject to the requirements of subparagraph (i) below). (1) Lost or Stolen Certificates. Upon receipt by the Corporation of evidence of the loss, theft, destruction or mutilation of any Series A Preferred Stock Certificates, and (in the case of loss, theft or destruction) of indemnity reasonably satisfactory to the Corporation, and upon surrender and cancellation of the Series A Preferred Stock Certificate(s), if mutilated, the Corporation shall execute and deliver new Series A Preferred Stock Certificate(s) of like tenor and date. (2) Delivery of Common Stock Upon Conversion. Upon the surrender of certificates as described above together with a Notice of Conversion, the Corporation shall issue and, within five (5) business days after such surrender (or, in the case of lost, stolen or destroyed certificates, after provision of agreement and indemnification pursuant to subparagraph (1) above) (the "Delivery Period"), deliver to or upon the order of the holder (a) that number of shares of Common Stock for the portion of the shares of Series A Preferred Stock converted as shall be determined in accordance herewith and (b) a certificate representing the balance of the shares of Series A Preferred Stock not converted, if any. (3) No Fractional Shares. If any conversion of Series A Preferred Stock would result in a fractional share of Common Stock or the right to acquire a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon Conversion of the Series A Preferred Stock shall be rounded down to the next highest number of shares. (4) Conversion Date. The "Conversion Date" shall be the date specified in the Notice of Conversion, provided that the Notice of Conversion is submitted by facsimile (or by other means resulting in, or reasonably expected to result in, notice) to the Corporation before 12:00 noon, New York City time, on the date so specified, otherwise the Conversion Date shall be the first business day after the date so specified on which the Notice of Conversion is actually received by the Corporation. The person or persons entitled to receive the shares of Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such securities as of the Conversion Date and all rights with respect to the shares of Series A Preferred Stock surrendered shall forthwith terminate except the right to receive the shares of Common Stock or other securities or property issuable on such conversion and except that the holders preferential rights as a holder of Series A Preferred Stock shall survive to the extent the Corporation fails to deliver such securities. (5) Reservation of Shares. A number of shares of the authorized but unissued Common Stock sufficient to provide for the 9 conversion of the Series A Preferred Stock outstanding (based on the Conversion Price then in effect) shall at all times be reserved by the Corporation, free from preemptive rights, for such conversion or exercise. As of the date of issuance of the Series A Preferred Stock, 2,000,000 authorized and unissued shares of Common Stock have been duly reserved for issuance upon conversion of the Series A Preferred Stock (the "Reserved Amount"). If the Corporation shall issue any securities or make any change in its capital structure which would change the number of shares of Common Stock into which each share of the Series A Preferred Stock shall be convertible, the Corporation shall at the same time also make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Series A Preferred Stock. E. Notice of Conversion Price Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Article VII, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (a) such adjustment or readjustment, (b) the Conversion Price at the time in effect and (c) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of a share of Series A Preferred Stock. F. Status as Stockholders. Upon submission of a Notice of Conversion by a holder of Series A Preferred Stock, (a) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such holder's allocated portion of the Reserved Amount) shall be deemed converted into shares of Common Stock and (b) the holder's rights as a holder of such converted shares of Series A Preferred Stock shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such holder because of a failure by the Corporation to comply with the terms of this Certificate of Designation. Notwithstanding the foregoing, if a holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Delivery Period with respect to a conversion of shares of Series A Preferred Stock for any reason, then (unless the holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Corporation) the holder shall regain the rights of a holder of such shares of Series A Preferred Stock with respect to such unconverted shares of Series A Preferred Stock and the Corporation shall, as soon as practicable, return such unconverted shares of Series A Preferred Stock to the holder or, if such shares of Series A Preferred Stock have not been 10 surrendered, adjust its records to reflect that such shares of Series A Preferred Stock have not been converted. VIII. PROTECTIVE PROVISIONS So long as shares of Series A Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by the DGCL) of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock: (a) alter, amend or repeal (whether by merger, consolidation or otherwise) the rights, preferences or privileges of the Series A Preferred Stock or any capital stock of the Corporation so as to affect adversely the Series A Preferred Stock; (b) create any new class or series of capital stock having a preference over the Series A Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Corporation ("Senior Securities"); (c) create any new class or series of capital stock ranking pari passu with the Series A Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Corporation (as previously defined in Article II hereof, "Pari Passu Securities"); (d) increase the authorized number of shares of Series A Preferred Stock; (e) issue any Senior Securities or Pari Passu Securities; (f) increase the par value of the Common Stock, or (g) do any act or thing not authorized or contemplated by this Certificate of Designation which would result in taxation of the holders of shares of the Series A Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any comparable provision of the Internal Revenue Code as hereafter from time to time amended). IX. SINKING FUND The Series A Preferred Stock shall not be subject to the operation of a sinking fund. 11 X. MISCELLANEOUS A. Register. The Corporation shall keep at its principal office a register in which the Corporation shall provide for the registration of the Series A Preferred Stock. Upon any transfer of the Series A Preferred Stock in accordance with the provisions hereof, the Corporation shall register such transfer on the register of Series A Preferred Stock. B. Withholding. To the extent required by law, the Corporation may withhold amounts for or on account of any taxes imposed or levied by or on behalf of any taxing authority in the United States having jurisdiction over the Corporation from any payments made pursuant to the Series A Preferred Stock. C. Headings. The headings of the Articles and Sections of the Certificate of Designation are inserted for convenience only and do not constitute a part of this Certificate of Designation. D. Severability. If any provision of this Certificate of Designation or the application thereof to any person or entity or any circumstances is invalid or unenforceable, a suitable and equitable provision shall be substituted therefore in order to carry out so far as may be valid and enforceable the intent and purpose of this Certificate of Designation and the application of such provision to other persons, entities or circumstances shall not be affected by such invalidity or enforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. [REMAINDER OF PAGE LEFT BLANK INTENTIONALLY] 12 IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Corporation this 15th day of December 2000. AMERICAN COUNTRY HOLDINGS INC. By: /s/ John A. Dore --------------------------------- John A. Dore Co-Chairman and Chief Executive Officer 13 EX-99 3 0003.txt EXHIBIT 99.1 ------------ CONFIDENTIAL BUSINESS DESCRIPTION MEMORANDUM AMERICAN COUNTRY HOLDINGS INC. Janney Montgomery Scott LLC William J. Barrett David J. DiPaolo 212/510-0688 212/510-0661 THE PREFERRED STOCK AND THE UNITS OFFERED HEREBY (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE THESE AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. IN MAKING AN INVESTMENT DECISION, YOU MUST RELY ON YOUR OWN EXAMINATION OF US AND THE TERMS OF THIS OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE INFORMATION PRESENTED IN THIS MEMORANDUM WAS PREPARED BY US AND IS BEING FURNISHED BY THE PLACEMENT AGENT SOLELY FOR YOUR USE IN CONNECTION WITH THIS OFFERING. THE PLACEMENT AGENT MAKES NO REPRESENTATIONS AS TO OUR FUTURE PERFORMANCE. THE PLACEMENT AGENT EXPRESSLY DISCLAIMS ANY REPRESENTATION RESPECTING ANY PROJECTIONS CONCERNING OUR FUTURE OPERATING RESULTS THAT ARE INCLUDED IN THIS MEMORANDUM. THIS MEMORANDUM (TOGETHER WITH ANY AMENDMENTS OR SUPPLEMENTS AND ANY OTHER INFORMATION THAT MAY BE FURNISHED TO YOU BY US) INCLUDES OR MAY INCLUDE CERTAIN STATEMENTS, ESTIMATES AND FORWARD-LOOKING PROJECTIONS WITH RESPECT TO OUR ANTICIPATED FUTURE PERFORMANCE. SUCH STATEMENTS, ESTIMATES AND FORWARD-LOOKING PROJECTIONS REFLECT VARIOUS ASSUMPTIONS OF OUR MANAGEMENT THAT MAY OR MAY NOT PROVE TO BE CORRECT AND INVOLVE VARIOUS RISKS AND UNCERTAINTIES. THE PLACEMENT AGENT HAS NOT PARTICIPATED IN THE PREPARATION OF, AND TAKES NO RESPONSIBILITY FOR, THESE STATEMENTS, ESTIMATES OR PROJECTIONS. THIS MEMORANDUM DOES NOT PURPORT TO BE ALL-INCLUSIVE OR CONTAIN ALL INFORMATION THAT YOU MAY DESIRE IN INVESTIGATING US. YOU MUST RELY ON YOUR OWN EXAMINATION OF US AND THE TERMS OF THIS OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED IN MAKING AN INVESTMENT DECISION WITH RESPECT TO THE SECURITIES. PRIOR TO MAKING AN INVESTMENT DECISION REGARDING THE SECURITIES, YOU SHOULD CONSULT YOUR OWN COUNSEL, ACCOUNTANTS AND OTHER ADVISORS AND CAREFULLY REVIEW AND CONSIDER THIS ENTIRE MEMORANDUM. THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL TO, OR A SOLICITATION OF AN OFFER TO BUY FROM, ANYONE IN ANY STATE OR IN ANY OTHER JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED. EXCEPT AS OTHERWISE INDICATED, THIS MEMORANDUM SPEAKS AS OF THE DATE INDICATED ABOVE. NEITHER THE DELIVERY OF THIS MEMORANDUM NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS AFTER THE DATE INDICATED ABOVE. PRIOR TO YOUR PURCHASE OF THE SECURITIES, YOU WILL HAVE THE OPPORTUNITY TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, ONE OF OUR REPRESENTATIVES AT OUR PRINCIPAL OFFICE DURING BUSINESS HOURS, CONCERNING THE TERMS AND CONDITIONS OF THIS OFFERING AND TO OBTAIN ANY ADDITIONAL INFORMATION WHICH WE POSSESS OR CAN ACQUIRE WITHOUT UNREASONABLE EFFORT OR EXPENSE THAT IS NECESSARY TO VERIFY THE ACCURACY OF INFORMATION FURNISHED IN THIS MEMORANDUM. IF YOU WISH TO OBTAIN ANY SUCH INFORMATION, PLEASE CONTACT KARLA VIOLETTO, CHIEF FINANCIAL OFFICER, AMERICAN COUNTRY HOLDINGS INC., 222 NORTH LASALLE STREET, SUITE 1600, CHICAGO, ILLINOIS 60601, TELEPHONE 312-456-2000. NO OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS MEMORANDUM, AND, IF SUCH INFORMATION OR REPRESENTATIONS ARE GIVEN, THEY MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US OR THE PLACEMENT AGENT. ANY ADDITIONAL INFORMATION OR REPRESENTATIONS GIVEN OR MADE BY US OR THE PLACEMENT AGENT IN CONNECTION WITH THIS OFFERING, WHETHER ORAL OR WRITTEN, ARE QUALIFIED IN THEIR ENTIRETY BY THE INFORMATION SET FORTH IN THIS MEMORANDUM, INCLUDING, BUT NOT LIMITED TO, THE RISK FACTORS SET FORTH IN THIS MEMORANDUM. PLEASE SEE "RISK FACTORS." YOU SHOULD NOT CONSTRUE ANY STATEMENTS MADE IN THIS MEMORANDUM AS TAX OR LEGAL ADVICE. YOU AND YOUR INVESTMENT, TAX OR OTHER ADVISORS, ACCOUNTANTS AND LEGAL COUNSEL, IF ANY, SHOULD REVIEW THIS MEMORANDUM AND ITS EXHIBITS. THE INFORMATION CONTAINED IN THIS MEMORANDUM IS CONFIDENTIAL AND PROPRIETARY TO US AND IS BEING SUBMITTED TO YOU SOLELY FOR YOUR CONFIDENTIAL USE WITH THE EXPRESS UNDERSTANDING THAT, WITHOUT OUR PRIOR EXPRESS WRITTEN PERMISSION, YOU WILL NOT RELEASE THIS MEMORANDUM OR DISCUSS THE INFORMATION CONTAINED IN IT OR MAKE REPRODUCTIONS OF OR USE THIS MEMORANDUM FOR ANY PURPOSE OTHER THAN EVALUATING A POTENTIAL INVESTMENT IN THE SECURITIES. BY ACCEPTING DELIVERY OF THIS MEMORANDUM, YOU AGREE TO PROMPTLY RETURN TO THE PLACEMENT AGENT OR US THIS MEMORANDUM AND ANY OTHER DOCUMENTS OR INFORMATION FURNISHED BY OR ON BEHALF OF THE PLACEMENT AGENT OR US IF YOU ELECT NOT TO PURCHASE THE SECURITIES. THE SALE OF THE SECURITIES IS SUBJECT TO THE PROVISIONS OF A SUBSCRIPTION AGREEMENT AND OTHER RELATED AGREEMENTS, WHICH YOU WILL BE REQUIRED TO EXECUTE IF YOU PURCHASE SECURITIES. THE TERMS OF THE SECURITIES WILL BE SET FORTH IN OUR ARTICLES OF INCORPORATION, AS AMENDED, OR BY RESOLUTION OF OUR BOARD OF DIRECTORS PURSUANT TO AUTHORITY CONTAINED IN OUR ARTICLES OF INCORPORATION. YOU SHOULD NOT PURCHASE SECURITIES UNLESS YOU HAVE COMPLETELY AND THOROUGHLY REVIEWED THE PROVISIONS OF THE SUBSCRIPTION AGREEMENT AND OTHER RELATED AGREEMENTS AND OUR ARTICLES OF INCORPORATION. IN THE EVENT THAT ANY OF THE TERMS, CONDITIONS OR OTHER PROVISIONS OF THE AGREEMENTS OR OUR ARTICLES OF INCORPORATION ARE INCONSISTENT WITH OR CONTRARY TO THE INFORMATION PROVIDED IN THIS MEMORANDUM, THE AGREEMENTS AND OUR ARTICLES OF INCORPORATION WILL CONTROL. WE RESERVE THE RIGHT, IN OUR SOLE DISCRETION AND FOR ANY REASON, TO CHANGE AND/OR WITHDRAW SOME OR ALL OF THE OFFERING AND/OR ACCEPT OR REJECT SOME OR ALL OF ANY PROSPECTIVE INVESTMENT IN THE SECURITIES OR TO ALLOT TO YOU LESS THAN THE NUMBER OF SECURITIES THAT YOU DESIRE TO PURCHASE. WE WILL HAVE NO LIABILITY TO ANY INVESTOR OR RECIPIENT OF THIS MEMORANDUM IN THE EVENT THAT WE TAKE ANY OF THESE ACTIONS. ADDITIONAL INFORMATION We are subject to the information requirements of the Securities Exchange Act of 1934, as amended, and, in accordance therewith, file reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission" or the "SEC"). Such reports, proxy statements and other information can be inspected and copies can be made at the Public Reference Room of the Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional office at Seven World Trade Center, 500 West Madison Street, Suite 1300, New York, NY 10048. Copies of this material can also be obtained from the Commission's site on the Internet located at www.sec.gov. CONFIDENTIAL BUSINESS DESCRIPTION MEMORANDUM THIS MEMORANDUM SHOULD BE READ IN CONJUNCTION WITH THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS APPEARING IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999. THIS MEMORANDUM CONTAINS FORMS OF FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS MEMORANDUM, THE WORDS "BELIEVE," "EXPECT," "ANTICIPATE," "ESTIMATE" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS, WHICH ARE IDENTIFIED AND DESCRIBED IN THE "RISK FACTORS" SECTION BELOW. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY FROM THOSE ANTICIPATED, ESTIMATED, OR PROJECTED AND THE VARIATIONS MAY BE MATERIAL. WE CAUTION YOU NOT TO PLACE ANY RELIANCE ON ANY SUCH FORWARD-LOOKING STATEMENTS. AMERICAN COUNTRY HOLDINGS INC. CONFIDENTIAL BUSINESS DESCRIPTION MEMORANDUM American Country Holdings Inc. is an insurance holding company which, through its direct subsidiaries American Country Insurance Company ("American Country"), American Country Financial Services Corp. ("Financial Services") and American Country Professional Services Corp. ("Professional Services"), conducts business as a specialty property and casualty insurer and provides premium financing and third-party administrator claims processing services for its insurance customers. Financial Services and Professional Services also provide secured loans for select American Country customers. ACHI became a public company through a merger in 1997 with Western Systems Inc. (a company that had liquidated its business for cash). American Country is an Illinois domestic insurance company that specializes in the underwriting and marketing of commercial property and casualty insurance and concentrates on types of insurance in which it has expertise: transportation, hospitality and other commercial lines. American Country previously wrote a nominal amount of personal lines, automobile and homeowners insurance which has not been renewed and is currently being run off. Although historically American Country's specialty public transportation coverages (taxicab and limousine) were primarily written on risks in the City of Chicago and surrounding suburbs, American Country has extended its geographic coverage as part of its expansion program. American Country is licensed in the states of Connecticut, Illinois, Indiana, Iowa, Massachusetts, Michigan, Minnesota, New York, Pennsylvania, Wisconsin, and in the District of Columbia and intends to pursue licenses in Missouri, Nevada, Maryland, Ohio and Virginia. American Country also is admitted as an excess and surplus lines carrier in 21 states. American Country currently maintains an A.M. Best Company, Inc. ("A.M. Best") rating of "A-" (Excellent). ACHI's Chicago cab business has been highly profitable. The strategy of the Company is to take this expertise into other geographic markets; accordingly, the Company has entered the New York, Indiana, Wisconsin, Connecticut, Minnesota, Michigan, and Pennsylvania markets during the past three years. ACHI's experience with these markets has generally been good and the business is forecasted to grow at a 10% annual rate through 2005. In August 2000, John Dore joined the Board of Directors and contemporaneously was elected Co-Chairman of the Board and Chief Executive Officer. Mr. Dore is an experienced insurance executive who will become sole Chairman and Chief Executive Officer in early January 2001. The Board of Directors believes that Mr. Dore's experience in managing insurance company operations will enable the Company to improve its profitability. See "Action Plan" below. Mr. Dore's resume is attached as Exhibit A. PROPOSED OFFERING Up to $5 million of equity securities in two traunches. The attached term sheets outline the two separate proposed financing structures (a) a 6% convertible preferred stock and (b) a unit consisting of one share of common stock and a five-year warrant to purchase an additional share of common stock. Board members have committed to purchase in excess of $2.25 million of these securities. USE OF PROCEEDS To maintain its A.M. Best "A-" rating, the Company believes that it should increase its equity by a minimum of $4 million. The proceeds of the offering will be invested by ACHI as additional equity into American Country. A.M. Best has a series of financial tests which must be met to retain ratings. The equity increase, coupled with the implementation of the action plan, should enable the Company to comply with these ratio tests. ACTION PLAN In December 2000, Mr. Dore presented an action plan to the Board to increase profitability and enhance operations. The key points of this plan are to: 1. continue the geographic and local expansion of its profitable core transportation business; 2. eliminate certain unprofitable hospitality lines and substantially all other commercial lines including workman's compensation (except for Chicago cabs); 3. change the focus of the commercial artisan contractor business to a commission basis where ACHI will earn fees for marketing, underwriting and claims handling functions; 4. enhance the return on the Company's portfolio currently managed by Black Rock; 5. conduct an extensive review of operating costs, including commission expenses; 6. increase selective premiums; and 7. revise investment strategy to include higher yielding securities, including convertible notes, convertible preferreds and medallion loans. Based upon a successful implementation of the action plan, the Company expects to achieve the following premiums earned: 2 Business Line FYE December 31 --------------- 2000 2001 ---- ---- Transportation $46.5 $50.9 Hospitality 8.1 8.4 Other Commercial 16.5 14.9 Total $71.1 $74.2 $$ in millions Management estimates pre tax profits of $5 - $6 million in 2001. Upon signing a confidentiality agreement, ACHI will provide detailed forecasted financial statements. RISK FACTORS (See Exhibit B) Recent Operating Results ACHI has reported a loss for the nine months ended September 30, 2000 after recognizing a $930,000 reinsurance return premium relating to prior year periods. Although the transportation business line remains strong, recent operating results have been unfavorable primarily due to prior years' poor results of workers compensation and year-2000 non-Illinois hospitality business. As a result, the Company has been required by its actuaries to increase its reserves for these lines. Management expects the fourth quarter to have a loss caused principally by a $500,000 portfolio loss, and 2001 results to be in a pre-tax range of $5.0 million to $6.0 million. Based upon achieving these 2001 forecasted results and a tax rate of 18%, earnings per share on a diluted basis (all existing warrants and options are non-dilutive) would be $0.42 to $0.51 after giving effect to the issuance of the new securities. A.M.Best Rating While the Company presently is rated as "A-" by Best, there can be no assurance that Best, based upon its rating criteria, will not attempt to downgrade the Company. However, management presently believes that, with the $4 million - $5 million of new capital, together with increased profitability and a temporary reinsurance arrangement, the A- rating will be retained. Dilution of Book Value The securities will be sold at a discount to the September 30, 2000, $4.77 book value per share, based on equity of $38.5 million and 8.06 million outstanding shares. 3 INVESTMENT RATIONALE The majority of the property and casualty insurance industry has reported poor operating results for the last three years. ACHI believes that commencing in 2001 it will be able to achieve significantly improved operating results for the reasons enumerated in the action plan developed by its new Chief Executive Officer. If the forecasted results are achieved, the Company believes that its equity value will be significantly enhanced. INVESTOR PROCEDURE The Company will make available to interested parties its action plan which contains detailed financial projections. Management is available to fully discuss the plan and future Company prospects. The Company would like to close or receive binding commitments on or before December 31, 2000. EXHIBITS ATTACHED Exhibit A Resume of John Dore Exhibit B Proposed Term Sheets Exhibit C Risk Factors AVAILABLE PROCEDURE All public filings are available on request to prospective investors. EXHIBIT B As discussed, the Company is selling a total $5 million of securities in two traunches: a) Units and b) Convertible Preferred Stock. It is anticipated that $2.5 million convertible preferred will be sold to officers and directors. Investors may participate in either or both traunches. Unit Offering ------------- Form: Units, each to consist of one share of common stock and a five-year warrant to purchase one share of common stock. Pricing: Units at the high bid price of common stock at closing. Warrant exercise price up 10% from the Unit price. During the past six months, the common stock has traded at a high of 4-1/2 and a low of 2 5/32. Registration Rights: Common stock and warrants have immediate registration rights. 4 Terms of Warrants: Customary terms with standard anti-dilution provisions (no ratchet-down provisions). CONVERTIBLE PREFERRED OFFERING Form: 6% Convertible Preferred Stock. Dividend: 6% of offering price paid quarterly commencing April 1, 2001. Offering Price: $10 per share. Convertible: Into common stock at any time at the following conversion rate: $10 divided by the high bid price of common stock at closing. Protected against dilution. LIQUIDATION Preference: $10 per share. Votes: Equal to the amount of common equivalent votes as if converted. REGISTRATION Rights: Underlying shares to have immediate registration rights. Sinking Fund: None. Callable: At any time at $10 per share plus accrued dividends. Terms of Convertible: Customary terms with standard anti-dilution provisions. 5 EXHIBIT C --------- RISK FACTORS Before investing you should carefully consider the following factors, as well as other information contained in this memorandum. References to "we," "us," "our," "ACHI" or the "Company" refer to American Country Holdings Inc. and its subsidiaries. COMPETITION The property and casualty insurance business is highly competitive on the basis of both price and service. In recent years, the property and casualty insurance industry has been characterized by relatively high levels of competition and aggressive pricing and marketing. Continued or increased levels of highly competitive conditions could have a material adverse effect on our subsidiary, American Country Insurance Company ("American Country"). American Country faces active competition in public transportation lines from captive insurance programs that are put together by agents and reinsurers using an insurance company that writes the insurance business as a fronting carrier and then reinsures all of the business with the reinsurer. Many of these programs are short-lived but they generally enter the market with extremely aggressive pricing. Besides creating instability, they generally do not provide continuity of claims practices and settlements, which adversely affects future pricing for property and casualty insurance. However, American Country's long-term agreements with the taxi companies tend to mitigate this circumstance. Presently, there are two national carriers still pursuing taxi/livery business through general agents, but both of these carriers have reduced their presence in certain geographic areas (Midwest, California, New Jersey). A few smaller regional carriers remain that continue to target smaller accounts. In Illinois, the competition for coverage of artisan contractors is primarily from national carriers, regional carriers and mono-line workers' compensation carriers. The competition for restaurants is mainly from regional carriers. Competition for workers' compensation insurance (American Country's largest commercial lines product) resulted in a decrease in average premiums for 1999. Due to this competition, American Country believes that the commercial lines products are currently under-priced and therefore American Country has decided to restrict writings in this market and refocus its underwriting efforts in the public transportation lines. We benefit in both classes of our business by maintaining long-term agency relationships. In addition, our agents have specialized in these classes of business for many years. We believe that we have been able to compete successfully by underwriting specialty coverages for niche areas in which we have expertise. 6 ADEQUACY OF LOSS RESERVES The liabilities for unpaid losses and loss adjustment expenses are estimated by American Country management utilizing methods and procedures which they believe are reasonable. These liabilities are necessarily subject to the impact of future changes in claim severity and frequency, judicial theories of liability and numerous other factors. Although management believes that the estimated liabilities for losses and loss adjustment expenses are reasonable, because of the extended period of time over which such losses are reported and settled, the subsequent development of these liabilities may not conform to the assumptions inherent in their determination and has in the past and may in the future vary significantly from the estimated amounts included in the accompanying financial statements. To the extent that the actual loss experience varies from the assumptions used in the determination of these liabilities, the liabilities are adjusted to reflect actual experience. Such adjustments, to the extent they occur, are reported in the period recognized and may materially adversely affect American Country's reported financial results. For the years ended December 31, 1998, 1997 and 1996, American Country had cumulative reserve redundancies (deficiencies) of $(4,389), ($7,042) and $(6,827), respectively. FLUCTUATIONS IN FINANCIAL RESULTS The financial results of American Country, similar to those of many other property and casualty insurers, have been subject to significant fluctuations. Profitability is affected significantly by volatile and unpredictable developments (including catastrophes), changes in loss reserves resulting from changing legal environments as different types of claims arise and judicial interpretations develop relating to the scope of insurers' liability, fluctuations in interest rates and other changes in the investment environment which affect returns on invested capital, and inflationary pressures that affect the size of losses. Further, underwriting results have been cyclical in the property and casualty insurance industry, with protracted periods of overcapacity adversely impacting premium rates, resulting in higher combined ratios, followed by periods of under capacity and escalating premium rates, resulting in lower combined ratios. An insurance company's statutory combined ratio (its loss plus its expense ratio) expresses losses and expenses as a percentage of premium revenues and is the traditional measure of underwriting experience. Generally speaking, if the statutory combined ratio is below one hundred percent (100%), an insurance company has an underwriting profit and if it is above one hundred 100%, the insurance company has an underwriting loss. For 1999, 1998 and 1997, American Country's combined ratio was 110.7%, 100.9%, and 109.6%, respectively. 7 DEPENDENCE ON MANAGEMENT We are dependent upon our executive management and upon our ability to attract and retain qualified employees. DEPENDENCE ON INVESTMENT INCOME American Country, similar to many other property and casualty insurers, has experienced underwriting losses on its insurance business and depends primarily on interest income from its investment portfolio for a substantial portion of its earnings. Its statutory combined ratio for the years ended December 31, 1999, 1998 and 1997 was 110.7%, 100.9% and 109.6%, respectively. A significant decline in investment yields could have a material adverse effect on American Country's financial results. HOLDING COMPANY STRUCTURE; INSURANCE REGULATION; PAYMENT OF CASH DIVIDENDS We are a holding company whose principal asset is all of the outstanding Common Stock of American Country, which is an insurance company organized under the laws of the State of Illinois. Our ability to pay expenses and pay cash dividends to our stockholders depends primarily on our ability to obtain dividends and other payments from American Country. Illinois permits insurance companies to pay dividends only out of earned surplus, and limits the annual amount payable without prior approval of the Department of Insurance to the greater of 10% of policyholders' surplus or the amount of the prior year's statutory net income. American Country's surplus as of December 31, 1999 was $37.2 million, and its statutory net income for 1999 was $(2.0) million. American Country is subject to varying degrees of regulation and supervision in the jurisdictions in which it transacts business under statutes which delegate regulatory, supervisory and administrative powers to state insurance commissioners. Such regulation is designed to protect policyholders rather than investors and relates to such matters as standards of solvency, which must be met and maintained; the licensing of insurers and their agents and producers; the nature and amount of insurance the company can write; the examination of the affairs of insurance companies, which includes periodic financial and market conduct examinations by the regulatory authorities; annual and other reports, prepared on a statutory accounting principles basis, required to be filed on the financial condition of insurers or for other purposes; establishment and maintenance of reserves for unearned premiums, losses and loss adjustment expenses; and requirements regarding numerous other matters. In general, American Country must file all rates for insurance directly underwritten with the insurance department of each state in which it operates on an admitted basis. Accordingly, state regulation may adversely affect American Country. 8 American Country is also subject to statutes governing insurance holding company systems in various jurisdictions. Such statutes require American Country to file an annual Holding Company System Registration Statement with the state insurance regulatory authorities, which includes information concerning its capital structure, ownership, financial condition and general business operation. Under the terms of applicable state statutes, any person or entity desiring to purchase more than a specified percentage (commonly 10%) of American Country's outstanding voting securities is required to obtain regulatory approval for the purchase of such voting securities. Section 131.2 of the Illinois Insurance Code relating to holding companies, to which American Country is subject, requires disclosure of transactions between American Country and its subsidiaries and affiliates. Such transactions must satisfy certain standards, including that they be fair, equitable and reasonable and that certain material transactions be specifically non-disapproved by the Director of Insurance. Further, prior approval by the Director is required of affiliated sales, purchases, exchanges, loans or extensions of credit, or investments, any of which involve 10% or more of American Country's admitted assets as of the preceding December 31st. The National Association of Insurance Commissioners ("NAIC") facilitates the regulation of multi-state companies through uniform reporting requirements, standardized procedures for financial examinations, and uniform regulatory procedures embodied in model acts and regulations. The NAIC has developed Property-Casualty Risk-Based Capital (RBC) standards that relate an insurer's reported statutory capital and surplus to the risks inherent in its overall operations. The RBC formula uses the capital and surplus reported in the statutory annual statement to calculate the minimum indicated capital level to support asset (investment and credit) risk and underwriting (loss reserves, premiums written, and unearned premium) risk. The NAIC model law calls for various levels of regulatory action based on the magnitude of an indicated RBC capital deficiency, if any. At December 31, 1999, American Country's reported capital and surplus was $37.2 million and its required risk-based capital and surplus was $7.3 million. RATINGS Increased public and regulatory concerns with the financial stability of insurers have resulted in greater emphasis by policyholders upon insurance company ratings, with a resultant potential competitive advantage for carriers with higher ratings. American Country currently is rated "A-" (Excellent) by A.M. Best Company, Inc. ("A.M. Best"). Ratings for the industry range from "A++" (Superior) to "F" (In Liquidation) and some companies are not rated. The "A" and "A-" (Excellent) ratings are assigned to those companies that in A.M. Best's opinion have achieved excellent overall performance when compared to the standards established by A.M. Best and have a strong ability to meet their obligations to policyholders over a long period 9 of time. In evaluating a company's financial and operating performance, A.M. Best reviews the company's profitability, leverage and liquidity, as well as the company's spread of risk, the quality and appropriateness of its reinsurance, the quality and diversification of its assets, the adequacy of its policy or loss reserves, the adequacy of its surplus, its capital structure and the experience and objectives of its management. A.M. Best's ratings are based on factors relevant to policyholders, agents, insurance brokers and intermediaries and are not directed to the protection of investors." In addition, Standard & Poor's has given American Country a rating of "BBBpi" (Rated Good). Standard & Poor's ratings range from "AAA" (Extremely Strong) to "CC" (situations where a default is expected imminently on any financial obligation). The "BBB" rating is assigned to companies with good financial security characteristics, but capacity to meet policyholder obligations is susceptible to adverse economic and underwriting conditions. (the "pi" subscript indicates that the rating is based solely on publicly available financial information and was not requested by the Company). There can be no assurance that American Country will maintain its ratings; any downgrade could materially adversely affect its operations. A.M. Best's and Standard & Poor's ratings are based on an analysis of the financial condition and operations of American Country as they relate to the industry in general, and are not designed for the protection of investors. DEPENDENCE ON KEY CUSTOMERS In 1999, 1998 and 1997, the Yellow Cab Company accounted for 14%, 17% and 16%, respectively, and Checker Taxi Association (located in Chicago) accounted for 8%, 10% and 11%, respectively, of American Country's total gross premiums written. The loss of this business could have a material adverse impact on American Country. American Country anticipates that the percentage of its business from Yellow Cab Company and Checker Taxi Association will become less significant as American Country expands its transportation business into additional geographic areas. EXPANSION INTO NEW GEOGRAPHIC MARKETS Becoming licensed as an authorized insurer and writing business in additional states is one of the foundations of American Country's growth strategy. American Country intends on pursuing licenses in Missouri, Nevada, Maryland, Ohio and Virginia. American Country's ability to enter and write new business in these markets is contingent upon its becoming licensed by the insurance department of each jurisdiction. Each jurisdiction has its own licensing requirements and it may be difficult for American Country to obtain a license in a particular jurisdiction in which it applies. 10 REINSURANCE The majority of American Country's reinsurance is placed with a limited number of reinsurers. The availability and cost of reinsurance affect American Country's ability to write additional insurance and the profitability of that insurance and are subject to prevailing market conditions that are beyond the control of American Country. A contingent liability exists to the extent that American Country's reinsurers may be unable to meet their contractual obligations. CONTROL BY PRINCIPAL STOCKHOLDERS; EFFECT ON MARKET FOR COMMON STOCK Our executive officers and directors, together with Frontier Insurance Group, Inc. (a principal stockholder), beneficially own approximately 80%, in the aggregate, of the outstanding shares of common stock, par value $.01 ("Common Stock"). Consequently, such officers, directors and stockholder could, by acting together, control the outcome of matters submitted to a vote of our stockholders, such as the election of our board of directors and our direction and future operations. The concentration of ownership of Common Stock could also have the effect of discouraging, delaying or preventing a change in control and may impair the liquidity of the Common Stock by adversely affecting the ability of an active market to develop for the Common Stock on the Nasdaq Small Cap Market or otherwise due to the relatively small number of shares of Common Stock that are publicly held by our other stockholders. 11 -----END PRIVACY-ENHANCED MESSAGE-----