California Code of Regulations
Title 10 - Investment
Chapter 5 - Insurance Commissioner
Subchapter 4 - Insurer Securities Permits
Article 13 - Forms and Addenda
Section 2613.04 - Application by Domestic Corporation for Organizational Permit

A. Applicant can obtain adequate office quarters on the 15th floor of No. 1 Market Street, in the City of San Francisco, Applicant will retain (if it is successful in its stock sales and in obtaining a certificate of authority) the firm of White and Black as consulting actuaries who will supervise the setting up of Applicant's books and records and the operation of Applicant's internal office procedure, accounting and financial reporting until Applicant develops sufficient skilled personnel of its own to take over these functions.

B. Applicant will operated on the American Agency System through individual life and disability agents compensated by commissions in the usual manner, such agents to be supervised by general agents and home office personnel.

C. Applicant intends to transact only through duly licensed life and disability agents and will, if it is granted a certificate of authority by the Insurance Commissioner, initially appoint only experienced agents. It expects to recruit such agents from among the personal friends and acquaintances of its officers, directors, and key managerial personnel who have extensive acquaintance in the life insurance industry.

D. A sample General Agent's Contract form, and sample Agent's Contract form, each complete with commission schedules, are attached hereto, marked Exhibits D-1 and D-2, respectively.

E. Applicant expects to develop its business from the following sources: from such leads as its agents and others connected with the company can furnish; from vital statistics publicized in the press; from automobile registration lists, and other merchandising information that can be obtained readily; and by cold canvassing.

F. Applicant expects its agents to sell policies only by personal interview and advertising through the press; no solicitation by mail is planned. Agents will not be provided with "canned" sales talks; rather, agents will be instructed to sell directly from the policy or policies concerned. Applicant will use no "gimmicks" or trick devices in the sale of its policies.

G. No institutional advertising is presently planned; and any and all advertising proposed to be used by general agents or individual agents must first be submitted to and approved by the Company, as may be seen by reference to the contracts alluded to in paragraph D above. It is expected that Applicant ultimately will develop and provide its agents with certain brochures, advertising, and sales kits, all of which will be patterned after those employed by the Red, White and Blue Life Insurance Company of Sacramento, California, which Applicant is informed and believes, and therefore alleges, is a nationally known, reputable life insurer whose advertising conforms with all applicable California laws.

H. Applicant has reserved the right to supervise and control the sales techniques employed by its agents and general agents; reference may be made to the contract forms attached hereto as Exhibits D-1 and D-2.

I. Death claims will be paid either by mail or by local agents of Applicant upon receipt at Applicant's home office of acceptable proof of death of a policyholder; no compensation for such service will be paid to Applicant's agents. Claims under the disability supplements to individual life policies will be handled through Applicant's home office.

J. The salaries Applicant initially proposes to pay its officers are set forth in a schedule, marked Exhibit E, attached hereto. Directors will receive no salaries or fees for attending meetings during the first two years; however, it is proposed that their traveling expenses, if any, will be paid.

K. Applicant's investments will be managed by its Executive Vice-President who, as may be seen by referring to his biography in Exhibit C to this application, has had extensive experience in the investment field and is himself a financier of substantial means. Said individual is fully familiar with Insurance Code Sections 1153, 1153.5, 1170- 1202 and with California Administrative Code Sections 2279 to and including 2283, such investment duties will be part of said officer's regular duties and will entail no extra compensation.

L. No officer, director, trustee, investment committee member, medical director, or actuary of the company, will receive directly or indirectly a commission on any business written for this Applicant.

M. Applicant has a procedure for ascertaining whether there will be any conflict of interest between the business of the Company and the private interests of its officers and directors. This consists of a confidential questionnaire answered under oath in writing by each such officer and director. A copy of the form thereof marked Exhibit F is attached hereto. Said questionnaire inquiries into all relevant financial business, stock and property interests and corporate directorships which might be affected within the scope of Insurance Code Section 1101 by any and all business which the Company transacts or will transact.

VI

Applicant's leading policy form is attached hereto as Exhibit G. It is a non-standard reducing term policy with a return-of-premium clause and a rider providing double indemnity for accidental death of either the policyholder or his beneficiary.

There is attached hereto, marked Exhibit H, an actuarial computation made and signed by a Fellow of the Society of Actuaries computing the reserves under Applicant's leading policy, Exhibit G, and demonstrating the actuarial soundness of the rates attached thereto.

Other policies which Applicant expects to sell initially are attached hereto, marked Exhibits I-1 and I-2. They are standard policies with no novel provisions.

VII

There is attached hereto, marked Exhibit J, a financial projection, based on reasonable and practicable assumptions as to volume of business expected to be transacted year by year, showing separately (1) all elements of income, (2) all elements of estimated expense, including reserves and premium taxes, and (3) unassigned surplus at the end of each year. Such projection assumes that 70 per cent of Applicant's business will be transacted on its leading policy, Exhibit G, and 15 per cent each on policy forms I-1 and I-2. There are separate exhibits attached hereto, marked Exhibits K and L, showing respectively the revenue expected to be developed under policies I--1 and I-2. Based on the actuarial results of the three policies from the business reasonably expected to be written, and adjusted for the volume to be written on each policy, the projection marked Exhibit J shows, at the end of the eighth year of production, that Applicant should make a small net gain from operations, excluding capital gains and losses. There will be no dividends to policyholders. Last said exhibit also shows that such net gain should increase during the ninth and tenth years of operation. It also shows that Applicant's net expenditure of surplus should not exceed $2,400,000 during its first eight years of operation and that it will, therefore, based on these estimates, be in a solvent condition at all times up to and including the end of its eighth year of operation, retaining its paid-in capital unimpaired at all times and at all times during the first five years of its operation having an unassigned surplus of not less than $500,000 and not less than $250,000 at all times after its first five years of operation. Such results are expected to be obtained without the sale of additional stock at any time during the period covered by said financial projection.

VIII

Attached hereto as Exhibit M are copies of the bids of three reinsurers, together with their sample contracts and an actuarial analysis of such bids. Applicant has tentatively elected to accept the reinsurance arrangements offered by XYZ Reinsurance Company. Its contract, if entered into, will embody the terms set forth in its sample contract included in Exhibit M.

IX

Applicant expects to sell stock through the personal solicitation of Applicant's President, Vice-President, and Agency Director, all of whom have had prior experience in selling insurance securities, as may be seen by reference to their biographies included in Exhibit C to this application. No commission will be paid to those individuals for selling the shares of Applicant's capital stock. Applicant's organizers, officers and original directors have executed an agreement conforming to Section 2613.08 I.S.P.R. whereby they agree to purchase 14,000 shares of applicant's capital stock for$700,000 cash, lawful money of the United States, before any shares are offered to the public. Said agreement, marked Exhibit N, is attached hereto and is by this reference incorporated herein and made a part hereof. It is expected that the remainder of Applicant's total stock offering of $4,000,000 will be purchased by members of the general public.

X

Applicant proposes to sell 80,000 shares of its $10.00 par value capital stock at a price of $50.00 per share. All expenses of incorporation, organization, promotion and stock selling, including, but not limited to governmental filing fees, legal fees, and actuarial fees from incorporation up to and including the obtaining of a certificate of authority from the Insurance Commissioner, if such certificate of authority is issued in response to due application therefor, will not exceed 10 per cent of the total amount paid for Applicant's capital stock. A detailed analysis of the expected fees, costs and expenses is attached hereto as Exhibit O.

XI

As of the date of this application, Applicant has no assets and no liabilities. A pro forma balance sheet showing Applicant's estimated paid-in capital, liabilities, unassigned surplus and surplus to policyholders as of the commencement of business is attached hereto as Exhibit P. Said balance sheet is compiled on the basis of the following assumptions: that the sale of Applicant's shares will be completed as planned; that Applicant will apply for and receive a certificate of authority; and that Applicant's Board of Directors will vote to pay, and the Treasurer will pay, all duly supported expense vouchers presented by the organizers and promoters.

XII

An originally signed letter of acceptance by ABC Bank and Trust Company of San Francisco agreeing to act as impound agent herein is attached hereto, marked Exhibit Q-1. A copy of said bank's agreement with applicant is marked Exhibit Q-2.

XIII

A draft of a prospectus which Applicant desires to use in the sale of its stock is attached hereto, marked Exhibit R. Applicant herewith submits the same for the Insurance Commissioner's authorization in the permit applied for. A copy of the proposed stock subscription form is attached hereto, marked Exhibit S. At the present time, Applicant does not plan to use any other written description of the stock proposed to be sold or any other written solicitation for the purchase thereof.

XIV

Attached hereto, marked Exhibits T-1 and T-2, are certified true copies of the minutes of the organizational meeting of Applicant's Board of Directors and of a special meeting of its Board authorizing the proposed stock sale and this application, respectively.

XV

Applicant expects to complete the sale of stock contemplated by this application in a period of six months from the date the permit is issued. No stock will be sold except within the state of California, and there will be no registration with the Securities and Exchange Commission.

* * *

WHEREFORE, Applicant respectfully requests that the Insurance Commissioner grant its application for a permit, extending six months from the date of issue thereof, authorizing Applicant to sell 14,000 shares of its capital stock to the persons described in Paragraph IX hereof, at $50 per share cash, and to sell not to exceed 66,000 shares of its $10.00 par value capital stock at a price of $50.00 per share, cash, lawful money of the United States, to the general public in this state; and requests that the proposed prospectus and the subscription form attached to this application be authorized for use by Applicant.

Dated at __________, California, this __________ day of __________, 19__________.