<PAGE>
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K

<TABLE>
<C>        <S>
/X/        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
           SECURITIES AND EXCHANGE ACT OF 1934
</TABLE>

                 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR

<TABLE>
<C>        <S>
   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
           SECURITIES AND EXCHANGE ACT OF 1934
</TABLE>

                       FOR THE TRANSITION PERIOD FROM TO

                         COMMISSION FILE NUMBER 0-22922

                         AMERICAN COUNTRY HOLDINGS INC.
             (Exact Name of Registrant as specified in its charter)

<TABLE>
<S>                                              <C>
                   DELAWARE                                        06-0995978
        (State or other jurisdiction of               (I.R.S. Employer Identification No.)
        incorporation or organization)

           222 NORTH LASALLE STREET
               CHICAGO, ILLINOIS                                   60601-1105
   (Address of principal executive offices)                        (Zip Code)
</TABLE>

                                 (312) 456-2000
              (Registrant's telephone number including area code)

          Securities registered pursuant to Section 12(g) of the Act:

<TABLE>
<S>                                              <C>
              TITLE OF EACH CLASS                   NAME OF EACH EXCHANGE ON WHICH REGISTERED
-----------------------------------------------  -----------------------------------------------
         Common Stock, $.01 par value                       NASDAQ (Small Cap Market)
        Common Stock Purchase Warrants                      NASDAQ (Small Cap Market)
   Entitling holders to purchase 2.19 shares
          of Common Stock per warrant
</TABLE>

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

    Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

    Yes /X/

No / /

    The aggregate number of shares of the Registrant's Common Stock, $.01 par
value, outstanding March 13, 2000 was 32,097,371.

    The aggregate market value of the voting stock (Common Stock, $.01 par
value) held by non-affiliates of the Registrant was $5,406,146 on March 13,
2000, based on the closing sales price of the Common Stock on such date.

                      DOCUMENTS INCORPORATED BY REFERENCE:

    Portions of the Registrant's definitive Proxy Statement for the 2000 Annual
Meeting of Stockholders (incorporated by reference under Part III).

    This Report contains a total of 71 pages, excluding exhibits. The Exhibit
Index appears on page 71.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                         AMERICAN COUNTRY HOLDINGS INC.

                      INDEX TO ANNUAL REPORT ON FORM 10-K

                      FISCAL YEAR ENDED DECEMBER 31, 1999

<TABLE>
<S>                                                           <C>
PART I......................................................       2

    ITEM 1.  BUSINESS.......................................       2

    ITEM 2.  PROPERTIES.....................................      20

    ITEM 3.  LEGAL PROCEEDINGS..............................      21

    ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
     HOLDERS................................................      21

PART II.....................................................      21

    ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND
             RELATED SECURITY HOLDER MATTERS................      21

    ITEM 6.  SELECTED FINANCIAL DATA........................      22

    ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
             FINANCIAL CONDITION AND RESULTS OF
             OPERATIONS.....................................      23

    ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....      31

    ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
             ON ACCOUNTING AND FINANCIAL DISCLOSURE.........      32

PART III....................................................      33

    ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE
     REGISTRANT.............................................      33

    ITEM 11.  EXECUTIVE COMPENSATION........................      34

    ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
              OWNERS AND MANAGEMENT.........................      34

    ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED
     TRANSACTIONS...........................................      34

PART IV.....................................................      35

    ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND
              REPORTS ON FORM 8-K...........................      35

    ITEM 14(a)(1) AND (2), (c), AND (d)
    LIST OF FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....     F-1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................    F-19

SIGNATURES..................................................      36

EXHIBIT INDEX...............................................      37
</TABLE>
<PAGE>
                                     PART I

ITEM 1. BUSINESS.

GENERAL

    American Country Holdings Inc. ("ACHI" or "the Company") 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 certain of American
Country's customers.

    American Country is an Illinois domestic insurance company that specializes
in the underwriting and marketing of commercial property and casualty insurance
for a focused book of business. American Country concentrates on types of
insurance in which it has expertise: transportation, hospitality and other
commercial lines. American Country previously wrote a nominal amount of personal
lines automobile and homeowners insurance. This business will not be renewed and
is currently being run-off. Although American Country's specialty public
transportation coverages (taxicab and limousine) are primarily written on risks
in the City of Chicago and the surrounding suburbs, American Country has begun
to extend its geographic coverage as part of its expansion program. American
Country is licensed in the states of Connecticut, Illinois, Indiana, Iowa,
Massachusetts, Michigan, Minnesota, New York, Pennsylvania, Wisconsin, and in
the District of Columbia and has applications pending in California and New
Jersey. 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).

    American Country writes transportation, hospitality, other commercial and
personal lines insurance coverage. Transportation lines, which include
automobile liability and physical damage coverages for taxicabs and limousines,
accounted for 65.4% of total gross premiums written in 1999. Other commercial
lines, which include multi-peril risks, workers' compensation and automobile
liability and physical damage, accounted for 22.9% of total gross premiums
written in 1999. Hospitality lines, which include coverage for restaurants,
taverns and banquet halls, accounted for 11.6% of total gross premiums written
in 1999. Personal lines, which include both automobile and homeowners'
coverages, accounted for less than 1% of total gross premiums written in 1999.
American Country's business is written by in-house salaried employees and
through approximately 40 independent insurance producers located in the states
in which American Country is licensed. A discussion of operating segments is
contained in Note 14 of the financial statements that are included in Item 14 of
this Report on Form 10-K.

    American Country is the successor to an insurance company that was organized
in 1978 under the name Calumet Insurance Company. In 1997, American Country
entered into a transaction with The Western Systems Corp. (Western Systems) in
which a subsidiary of Western Systems acquired substantially all of the assets
and assumed substantially all of the liabilities of American Country Insurance
Company (American Country) and its wholly owned subsidiary, American Country
Financial Services Corp. (Financial Services) for a purchase price of
$40,300,000 (the "Acquisition"). Western Systems has sold its business
operations in early 1997 and subsequently until the Acquisition its business
consisted primarily of managing its cash and cash equivalents as a publicly
owned shell corporation. As a non-operating entity with only monetary assets and
liabilities, Western Systems was actively seeking a business combination with an
operating business that could use its available cash. In connection with the
Acquisition, Western Systems sold 24 million shares of its common stock
(approximately 75% of the shares outstanding) to three investors. Mr. Martin
Solomon, Mr. Wilmer J. Thomas, Jr. and Frontier Insurance Group each acquired
8 million shares, or approximately 25% of the shares outstanding. Financing for
the Acquisition was provided by Western Systems' cash on hand, the issuance of
Western Systems common stock, and a line-of-credit agreement. Following the
Acquisition, Western Systems changed its name to American

                                       2
<PAGE>
Country Holdings Inc. (ACHI or the Company) to better reflect the fact that its
business operations consisted of the property and casualty and premium finance
businesses of American Country.

    For financial reporting purposes, the Acquisition has been accounted for as
a reverse Acquisition whereby American Country was deemed to be the acquirer of
the Company. Paragraph 70 of APB 16 provides that presumptive evidence of the
acquiring corporation in business combinations effected by an exchange of stock
is obtained by identifying the former common stockholder interests of a
combining company which either retain or receive the larger portion of the
voting rights in the combined corporation. As described above, Messrs. Solomon
and Thomas received a 50% interest in the Company in connection with the
Acquisition, which was the larger portion of the voting rights of the Company.
Moreover, Messrs. Solomon and Thomas had served on the Board of Directors of the
previous parent of American Country and continued to serve on the board of the
Company with Mr. Solomon serving as the Chairman of the Board and the Chief
Executive Officer of the Company. American Country, the Company's primary
operating entity, continued the same business after the Acquisition and
maintained an executive management staff virtually identical to the management
of American Country prior to the Acquisition, which provides additional support
for accounting for the Acquisition as a reverse acquisition.

    Because Western Systems was a non-operating entity, with only monetary
assets and liabilities, historical book value was deemed to equal fair value,
and no goodwill or other intangible assets were recorded as a result of the
Acqusition. Because American Country was deemed to be the accounting acquirer,
the financial statements for the Company for periods prior to the business
combination date (July 29, 1997), are those of American Country. The Acquisition
was accounted for by the purchase method.

INSURANCE LINES

    American Country currently writes business in three areas of insurance:
transportation, hospitality and other commercial lines. American Country's major
insurance niche markets include taxicabs and limousines, workers' compensation,
multi-peril, automobile and umbrella coverages for specific risks, primarily
artisan contractors and restaurants. Due to underwriting losses in its personal
lines, American Country decided to exit the personal lines market and focus its
resources on its other specialty niches and expand them geographically.

    The following table sets forth the gross and net premiums for the principal
lines of insurance written by American Country and the related percentages of
the total gross and net premiums written for the year ended December 31, 1999:

<TABLE>
<CAPTION>
                                     GROSS PREMIUMS WRITTEN     NET PREMIUMS WRITTEN
                                     -----------------------   ----------------------
                                      DOLLARS     PERCENTAGE    DOLLARS    PERCENTAGE
                                     ----------   ----------   ---------   ----------
                                          (IN THOUSAND)            (IN THOUSAND)
<S>                                  <C>          <C>          <C>         <C>
Transportation.....................   $50,908        65.4%      $48,590       65.7%
Hospitality........................     9,116        11.6         7,930       10.7
Other Commercial...................    17,853        22.9        17,388       23.5
Personal...........................        78         0.1            75        0.1
                                      -------       -----       -------      -----
Total..............................   $77,955       100.0%      $73,983      100.0%
                                      =======       =====       =======      =====
</TABLE>

TRANSPORTATION

    American Country's transportation business is comprised of liability and
physical damage insurance for taxis, limousines, ground shuttle, other
commercial vehicles and para-transit fleets used to transport individuals to
health care providers. American Country's largest taxi fleets in Illinois are
written on a direct basis by salaried employees of American Country. The
remainder of American Country's transportation business is written by
independent insurance producers who specialize in this type of business in their
geographic regions.

                                       3
<PAGE>
    American Country was originally organized primarily to provide insurance for
the Yellow Cab Company in Chicago, which is the largest taxicab company in the
United States. Transportation lines continue to be a major part of American
Country's business, accounting for over $50.9 million or 65.4% of American
Country's total gross premiums written in 1999. In 1999, 1998 and 1997, the
Yellow Cab Company accounted for 14%, 17% and 16%, respectively, and Checker
Taxi Association in Chicago accounted for 8%, 10% and 11%, respectively, of
American Country's total gross premiums written. American Country or its
predecessors have provided insurance to Yellow Cab Company and Checker Taxi
Association for 30 and 70 years, respectively. 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.

    Transportation business in the Chicago metropolitan area ranged from 41-47%
of American Country's gross premiums written in the last three fiscal years.
Although American Country believes that insuring taxicabs and limousines in the
Chicago metropolitan area provides diversity in exposure and spread of risk
between urban and suburban environments, having a large portion of the
transportation business centered in one geographic area exposes American Country
to certain risks, including rate competition from other insurers in the same
metropolitan area and the impact of state and local regulation and judicial
decisions affecting that area.

    American Country also provides liability coverage to taxicab associations
(other than Yellow and Checker), limousine fleets, ground fleets, para-transit
fleets and individual taxicab and limousine owners and operators in Chicago,
surrounding communities and downstate Illinois. In late 1997 American Country
extended its taxicab insurance business to Michigan, Pennsylvania and Wisconsin.
American Country continued its expansion in 1998 into the states of Indiana,
Minnesota, Pennsylvania and New Jersey. In 1999, American Country began
providing transportation coverage in New York and Connecticut. It is seeking to
expand its transportation business in these areas in order to proportionally
decrease its reliance on the Chicago metropolitan market.

HOSPITALITY

    Hospitality lines, which consist of coverages for restaurants, taverns and
banquet halls, accounted for $9.1 million or 11.6% of the total gross premiums
written by American Country in 1999. American Country's restaurant program is
primarily designed for "white tablecloth" establishments, but does accommodate
other types of restaurants, including fast food outlets. In addition to offering
commercial property damage, workers compensation and commercial auto coverages,
American Country also offers specialized coverages for its hospitality
customers, which include liquor liability, food spoilage, boiler and machinery
and employment practices liability. American Country also offers a separate
tavern policy which is tailored to neighborhood establishments rather than
nightclubs.

OTHER COMMERCIAL

    Other commercial lines accounted for 22.9% or $17.9 million of 1999 total
gross premiums written. American Country writes general liability, workers'
compensation, multi-peril, and umbrella excess for artisan contractors and other
low hazard businesses, primarily in Illinois and Wisconsin. The commercial
business is written by independent agents specializing in these targeted
classes.

    American Country's artisan contractors program offers coverages for
plumbing, electrical, painting and carpentry contractors, but avoids roofing
operations. The artisan contractor program targets operations of at least 10
employees and up to $5 million in payroll.

                                       4
<PAGE>
PERSONAL

    Personal lines represent both standard and preferred risks for homeowners,
private passenger automobile liability and private passenger automobile physical
damage coverages. Personal lines premium accounted for $78,000 or one-tenth of
1% (0.1%) of 1999 total gross premiums written. In late 1997, American Country
began to significantly reduce its personal lines business and, on January 13,
1998, entered into a reinsurance agreement with Ohio Casualty Insurance Company
("Ohio Casualty"), pursuant to which Ohio Casualty reinsured American Country's
personal lines business. Under the terms of this agreement, Ohio Casualty
reinsures one hundred percent (100%) of the net liability of American Country
for accidents and losses occurring on or after January 1, 1998 with respect to
American Country's personal lines business in force on such date. The
reinsurance remains in full force and effect until the expiration of all
liabilities under the policies reinsured by Ohio Casualty. The agreement
provides that in the event Ohio Casualty breaches or is in default with respect
to any of its obligations under the agreement, American Country remains
obligated and liable with respect to the reinsured policies. The agreement with
Ohio Casualty is retroactive to January 1, 1998 and included an interim service
agreement on the part of American Country. Upon expiration of the policies
subject to this reinsurance agreement, American Country did not seek to renew
the business, but rather encouraged Ohio Casualty to write the business on a
direct basis. American Country's exit from the personal lines market is part of
American Country's overall business plan to refocus its marketing concentration
on its specialty underwriting niches, which include public transportation,
primarily taxicabs and limousines, the hospitality industry and artisan
contractors.

REINSURANCE

    American Country reinsures a portion of its exposure by ceding to reinsurers
a portion of the premiums received on the policies that are reinsured. Insurance
is ceded primarily to reduce the net liability on individual risks and to
protect against catastrophic losses. Although reinsurance does not legally
discharge an insurer from its primary liability for the full amount of coverage,
it does make the assuming reinsurer liable to the insurer to the extent of the
losses reinsured. American Country seeks to maintain its risk exposure at
appropriate levels by setting maximum coverage limits by class and type of
business. American Country's current reinsurance program is divided into two
main sections: Specialty Transportation Business and Commercial and Personal
Lines. A detailed chart of American Country's reinsurance program is set forth
below.

    For the first half of 1999, American Country's business was primarily
reinsured by Motors Insurance Corporation (rated "A" by A.M. Best), Kemper
Reinsurance Company (rated "A" by A.M. Best), Hannover Ruckversicherungs A G
(rated "A+" by A.M. Best), Underwriters Reinsurance Company (rated "A+" by A.M.
Best), Ohio Casualty Insurance Company (rated "A+" by A.M. Best) and various
Syndicates at Lloyds of London.

    Effective July 1, 1999, American Country's business is reinsured by General
Reinsurance Corporation (rated "A++" by A.M. Best). The decision to change
reinsurers was based on General Reinsurance Corporation's A.M. Best rating,
lower pricing for the reinsurance and the administrative advantages of
transacting with a single reinsurer.

    Ratings for the industry range from "A++" (Superior) to "F" (In Liquidation)
and some companies are not rated. Publications of A.M. Best indicate that "A+"
rating is assigned to companies which have, on balance, superior financial
strength, operating performance and market profile when compared to the
standards established by A.M. Best Company and, in its opinion, have a very
strong ability to meet their ongoing obligations to policyholders. 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 of time. In evaluating a
company's financial and operating performance, A.M. Best reviews the

                                       5
<PAGE>
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.

SPECIALTY TRANSPORTATION REINSURANCE

    American Country currently purchases excess of loss reinsurance protection
for its transportation business. Excess of loss reinsurance requires that a
company retain a predetermined dollar amount of loss, known as the "retention."
The insurance company is indemnified by the reinsurer for losses which exceed
this dollar amount up to the limit of the reinsurance agreement. Any portion of
the loss exceeding the agreement limit is either paid by the company or by other
reinsurance agreements. Under its excess of loss program for its transportation
business, American Country has a retention of $350,000 and reinsurance coverage
of up to $4 million per occurrence.

COMMERCIAL AND PERSONAL LINES REINSURANCE

    American Country's commercial and personal lines business is reinsured on a
multi-line, multi-layer excess of loss basis. Reinsurance coverage under the
current treaty is as follows:

<TABLE>
<S>                                        <C>
All Property Business....................  The reinsurer pays up to $3,650,000 in
                                           excess of American Country's retention of
                                           $350,000 per risk.

All Casualty Business
  (including workers' compensation)......  The reinsurer pays up to $3,650,000 in
                                           excess of American Country's retention of
                                           $350,000 per occurrence. A supplemental
                                           reinsurance agreement provides coverage
                                           of an additional $8,000,000 per
                                           occurrence and per claimant on American
                                           Country's Workers' compensation program.
</TABLE>

    Property catastrophe reinsurance also is in force, which provides American
Country with $3,750,000 of protection after a retention of $350,000 per
catastrophic loss occurrence.

    Excess (umbrella) liability business is reinsured under a separate
reinsurance agreement which provides coverage to American Country of up to
$5,000,000 per occurrence in excess of $1,000,000 per occurrence in excess of
primary limits. American Country's retention is 5% ($50,000) of the first
$1,000,000 excess layer.

    For the period January 1 through December 31, 1998, substantially all of
American Country's personal lines business was reinsured by Ohio Casualty
pursuant to a reinsurance agreement. This agreement was not renewed in 1999, as
American Country did not seek renewal of the personal lines policies reinsured
under the treaty.

    The following table details American Country's reinsurance program,
including the types of reinsurance and amounts reinsured with each named company
for each of American Country's lines of insurance.

                                       6
<PAGE>
                         AMERICAN COUNTRY HOLDINGS INC.
                         1999 CEDED REINSURANCE PROGRAM
                     FOR THE PERIOD 1/1/99 THROUGH 6/30/99
                                    ($000)*
<TABLE>
<CAPTION>
CONTRACT                           COVERAGE             COMPANY RETENTION            REINSURANCE LIMIT
--------                     --------------------  ---------------------------  ---------------------------
<S>                          <C>                   <C>                          <C>
First Multi-Line             Excess of Loss        $250                         $250 in excess of $250
                                                                                retention
Term: 7/1/96-6/30/99                                                            $750 per risk on property
                                                                                claims

Second Multi-Line            Excess of Loss        N/A                          Casualty: $600 excess of
                                                                                $500 covered by First
                                                                                Multi-Line
Term: 7/1/96-6/30/99                                                            Property: $500 excess of
                                                                                $500 covered by First
                                                                                Multi-Line
                                                                                Max: $1,500/risk

Third Casualty Excess        Excess of Loss        N/A                          $3,000 excess of $1,100
                                                                                covered by First and Second
                                                                                Multi-Line
Term: 7/1/96-6/30/99
                                                                                Workers' Comp only:
                                                                                Follow Form

First Per Claimant           Workers' Comp Excess  N/A                          $8,000 excess of $4,100
                                                                                covered by First and Second
                                                                                Multi-Line and Third
                                                                                Casualty Excess
Term: Continuous from                                                           Term limitation: $15,000
  7/1/96

First Per Occurrence         Workers' Comp Excess  N/A                          $8,000 excess of $4,100
Term: Continuous from                                                           covered by First and Second
  7/1/96                                                                        Multi-Line and Third
                                                                                Casualty Excess
                                                                                Max any one life: $4,100

<CAPTION>
CONTRACT                               PREMIUM                    REINSURERS              %
--------                     ---------------------------  ---------------------------  --------
<S>                          <C>                          <C>                          <C>
First Multi-Line             6.0% Provisional             MIC Re Corp. (Motors Ins        50%
                             8.0% Maximum                 Corp)
Term: 7/1/96-6/30/99         2.0% Minimum                 Kemper Re Ins. Co.              40%
                                                          Chartwell Reinsurance            7%
                                                          Company
                                                          Republic Western Ins Co.         3%
Second Multi-Line            4.00%                        MIC Re Corp. (Motors Ins.       50%
                             Profit sharing:              Corp)                             %
                             50% of losses and 15%        Kemper Re Ins. Co               40
                             Reinsurers expenses
Term: 7/1/96-6/30/99                                      Chartwell Reinsurance
                                                          Company                          7%

                                                          Republic Western Ins Co          3%
Third Casualty Excess        2.15%                        Underwriters Re                 30%

                                                          Kemper Re Ins. Co.              30%
Term: 7/1/96-6/30/99         Subject to one               GIO (New South Wales)           15%
                             reinstatement per 12 mos.
                                                          Hanover                         13%
                             Pro rata as to amount 100%   Chartwell Reinsurance Co         7%
                             as to time
                                                          Republic Western                 5%
First Per Claimant           0.334%                       Northwestern Nat'l Life         50%
                                                          Duncanson & Holt                30%

Term: Continuous from                                     Amer Accident Grp I and II
  7/1/96
                                                          Reinsurance Mgnt Services
                                                          Pinehurst Accident & Re         20%
First Per Occurrence         0.270%                       Northwestern Nat'l Life         50%
Term: Continuous from                                     Duncanson & Holt                30%
  7/1/96                                                  Amer Accident Grp I & II

                                                          Reinsurance Mgnt Services       20%
                                                          Pinehurst Accident & Re
</TABLE>

                                       7
<PAGE>
                         AMERICAN COUNTRY HOLDINGS INC.
                         1999 CEDED REINSURANCE PROGRAM
                     FOR THE PERIOD 1/1/99 THROUGH 6/30/99
                                    ($000)*
<TABLE>
<CAPTION>
CONTRACT                           COVERAGE             COMPANY RETENTION            REINSURANCE LIMIT
--------                     --------------------  ---------------------------  ---------------------------
<S>                          <C>                   <C>                          <C>
Third Property Excess        Excess per Risk       N/A                          $1,000 excess of $1,000
                                                                                covered by First and
Term: Continuous from                                                           Second Multi-Line
  7/1/96
Premium rate change
effective 7/1/97

Fourth Property Excess       Excess per Risk       N/A                          $2,000 excess of $2,000
                                                                                covered by First and
Term: Continuous from                                                           Second Multi-Line and Third
  7/1/96                                                                        Property Excess

Excess Liability             Umbrella              All business:                All business:
                             95% Quota Share       5% first $1,000              95% first $1,000
Term: Continuous from                              N/A next $3,000              100% next $3,000
  7/1/96

Excess Property Catastrophe                        $250/occurrence              $250 excess of
                                                                                $250/occurrence
Term: 7/1/97-6/30/99

First Excess Property                              5% / $3,500 ($175) exce      ss 95% / $3,500 ($3,325)
Catastrophe                                        of $500                      excess of $500
Term: 7/1/96-6/30/99

Second Excess Property                             5% of $4,000 ($200)          95% of $4,000 ($3,800)
Catastrophe                                        excess of $4,000             excess of $4,000
Term: 7/1/97-6/30/99

<CAPTION>
CONTRACT                               PREMIUM                    REINSURERS              %
--------                     ---------------------------  ---------------------------  --------
<S>                          <C>                          <C>                          <C>
Third Property Excess        1.83% of Subject Earned      First City Ins Brokers
                             Premium                      Limited:
Term: Continuous from                                     Lloyd's of London & London
  7/1/96                                                  Cos                             53%
Premium rate change                                       Hanover Ruck                    25%
effective 7/1/97                                          Vesta Fire Ins. Corp            15%
                                                          Chartwell Reinsurance
                                                          Company                          7%
Fourth Property Excess       Based on property value      First City Ins Brokers
                                                          Limited:
Term: Continuous from                                     Lloyd's of London & London
  7/1/96                                                  Cos                             53%
                                                          Hanover Ruck                    25%
                                                          Vesta Fire Ins. Corp            15%
                                                          Chartwell Reinsurance
                                                          Company                          7%
Excess Liability             95% of premium on first      Underwriters Reins Co           65%
                             $1,000                       Kemper Reinsurance Company      20%
Term: Continuous from        100% of premium on $3,000    Hanover Ruck/Eisen              15%
  7/1/96
                             in excess of first $1,000
                             27.5% Commission
                             30% Contingent Profit
                             Sharing after 20%
                             reinsurers margin
Excess Property Catastrophe  $50                          First City Insurance
                                                          Brokers Limited:
Term: 7/1/97-6/30/99         One full reinstatement of    Lloyd's of London              100%
                             the limit; 100% as to time
First Excess Property        3.00%                        Transatlantic Reinsurance     92.5%
                                                          Co
Catastrophe                                               Republic Western Insurance
                                                          Co                             7.5%
                             One free reinstatement:
Term: 7/1/96-6/30/99         each annual period, with
                             a maximum of 2
Second Excess Property       1.34%                        First City Insurance
Catastrophe                                               Brokers Limited:
                             One reinstatement: Pro       Lloyd's of London               85%
Term: 7/1/97-6/30/99         rata to amount 100% as       Vesta Fire Ins Co               15%
                             to time
</TABLE>

                                       8
<PAGE>
                         AMERICAN COUNTRY HOLDINGS INC.
                         1999 CEDED REINSURANCE PROGRAM
                     FOR THE PERIOD 1/1/99 THROUGH 6/30/99
                                    ($000)*
<TABLE>
<CAPTION>
CONTRACT                           COVERAGE             COMPANY RETENTION            REINSURANCE LIMIT
--------                     --------------------  ---------------------------  ---------------------------
<S>                          <C>                   <C>                          <C>
OTHER PROGRAMS:
YELLOW CAB COMPANY
  (AFFILIATION)

Special Cover (Affiliation)  Taxi Excess           $150                         $150 excess of $350
                                                                                retention

Contingent Auto Excess       Taxi Excess           N/A                          $3,600 excess of $500
                                                                                covered by Special Cover
Term: 7/1/96-6/30/99
(Yellow Cab Company only)                                                       Reinstatement charge
                                                                                (One only)

LIMO PROGRAM
Special Facultative          Excess Liability      $350                         $150 excess of $350
                                                                                retention
                                                   $350                         $650 excess of $350
                                                                                retention
                                                   $350                         $1,150 excess of $350
                                                                                retention

SPECIAL NONTREATY
Ohio Casualty Company        Schedulized Personal  N/A                          None, subject to recoveries
                             Lines                                              under SeRe Agreements
100% Quota Share Agree.      Policies
Term: 12/31/98

<CAPTION>
CONTRACT                               PREMIUM                    REINSURERS              %
--------                     ---------------------------  ---------------------------  --------
<S>                          <C>                          <C>                          <C>
OTHER PROGRAMS:
YELLOW CAB COMPANY
  (AFFILIATION)
Special Cover (Affiliation)  $135. /per cab, per year     General Reinsurance            100%
                                                          Corporation
Contingent Auto Excess       $317 per cab                 Hanover Ruck/Eisen              20%
                             $657 annual deposit          Kemper Reinsurance Company    22.5%
Term: 7/1/96-6/30/99         $624 annual minimum
(Yellow Cab Company only)    Pro rata as to amount        Republic Western Insurance
                                                          Co                             7.5%
                             100% as to amount            GIO of New South Wales          25%
                             15% No claims bonus/yr       First City Insurance
                                                          Brokers Limited
                                                          Lloyd's of London               25%
                             See Run-off terms
LIMO PROGRAM
Special Facultative          See Underwriting for         General Re (formerly
                             pricing
                             schedule                     National)                      100%
SPECIAL NONTREATY
Ohio Casualty Company        100% of Net Subject          Ohio Casualty Company          100%
                             Premiums
100% Quota Share Agree.
Term: 12/31/98
</TABLE>

----------------------------------
*  All amounts, except percentages, are in thousands (000).

                                       9
<PAGE>
                         AMERICAN COUNTRY HOLDINGS INC.
                         1999 CEDED REINSURANCE PROGRAM
                     FOR THE PERIOD 7/1/99 THROUGH 12/31/99
                                    ($000)*
<TABLE>
<CAPTION>
CONTRACT                        COVERAGE             COMPANY RETENTION        REINSURANCE LIMIT             PREMIUM
--------                 -----------------------  -----------------------  -----------------------  -----------------------
<S>                      <C>                      <C>                      <C>                      <C>
First Multi-Line         Excess of Loss           $350                     $150 excess of $350      3.22% All Property
                                                                           retention                4.29% Non-Taxi
                                                                                                    Commercial
Term: 7/1/99-6/30/01                                                                                Auto Liability 4.64%
                                                                                                    All other liability,
                                                                                                    excluding workers comp
                                                                                                    1.03% Other Taxi
                                                                                                    1.46% Workers
                                                                                                    Compensation

Second Multi-Line        Excess of Loss           N/A                      Casualty: $500 excess    Profit-sharing: 60% of
                                                                           of $500 covered by       losses and 15%
                                                                           First Multi-Line         reinsurer's expenses
                                                                                                    3.77% All Property
                                                                                                    4.55% Non-Taxi
                                                                                                    Commercial
                                                                                                    Auto Liability
Term: 7/1/99-6/30/01                                                       Property: $500 excess    6.95% All other
                                                                           of $500 covered by       liability, excluding
                                                                           First Multi-Line         workers comp
                                                                                                    .86% Other Taxi
                                                                                                    1.35% Workers
                                                                                                    Compensation

Third Casualty Excess    Excess of Loss           N/A                      $3,000 excess of $1,000  .86% All Casualty
                                                                           covered by First and     excluding taxi and
                                                                           Second Multi-Line        workers comp
Term: 7/1/99-6/30/01                                                       Workers' Comp only:      .93% Workers
                                                                           Follow Form              Compensation .49% Other
                                                                                                    Taxi

First Per Claimant/Per   Workers' Comp Excess     N/A                      $8,000 excess of $4,000  Subject to one
  Occurrence                                                               covered by First and     reinstatement per 12
                                                                           Second Multi-Line and    mos.
                                                                           Third Casualty Excess    Pro rata as to amount
                                                                                                    100% as to time
                                                                                                    1.19%
Term: Continuous from                                                      Term limitation:
  7/1/99                                                                   $15,000
                                                                           Max any one life:
                                                                           $4,000

<CAPTION>
CONTRACT                   REINSURERS COMPANY        %
--------                 -----------------------  --------
<S>                      <C>                      <C>
First Multi-Line         General Reinsurance         100%
                         Corporation
Term: 7/1/99-6/30/01
Second Multi-Line        General Reinsurance         100%
                         Corporation
Term: 7/1/99-6/30/01
Third Casualty Excess    General Reinsurance         100%
                         Corporation
Term: 7/1/99-6/30/01
First Per Claimant/Per   General Reinsurance         100%
  Occurrence             Corporation
Term: Continuous from
  7/1/99
</TABLE>

                                       10
<PAGE>
                         AMERICAN COUNTRY HOLDINGS INC.
                         1999 CEDED REINSURANCE PROGRAM
                     FOR THE PERIOD 7/1/99 THROUGH 12/31/99
                                    ($000)*
<TABLE>
<CAPTION>
CONTRACT                        COVERAGE             COMPANY RETENTION        REINSURANCE LIMIT             PREMIUM
--------                 -----------------------  -----------------------  -----------------------  -----------------------
<S>                      <C>                      <C>                      <C>                      <C>
Third Property Excess    Excess per Risk          N/A                      $3,000 excess of $1,000  3.0781% of Gross Net
                                                                           covered by First and     Earned Premium
                                                                           Second Multi-Line
Term: Continuous from    Umbrella 95% Quota       All business:            All business:            95% of premium on first
  7/1/99                 Share                    5% first $1,000          95% first $1,000 100%    $1,000 100% of premium
  Premium rate change                             N/A next $4,000          next $4,000              on next $4,000
  effective 7/1/01                                                                                  27.5%Commission 30%
  Excess Liability                                                                                  Contingent Profit
  Term: Continuous from                                                                             Sharing after 20%
  7/1/99                                                                                            reinsurers margin

Excess Property                                   $350/occurrence          $3,750 excess of         3.38%
  Catastrophe                                                              $350/occurrence          Minimum: $132
                                                                                                    Maximum: $137
Term: 7/1/99-6/30/01                                                                                One full reinstatement
                                                                                                    of the limit; 100% as
                                                                                                    to time

OTHER PROGRAMS:
  YELLOW CAB COMPANY
  (AFFILIATION)

Special Cover            Taxi Excess              $350                     $150 excess of $350      $140 /per cab, per year
  (Affiliation)                                                            retention
Contingent Auto Excess   Taxi Excess              N/A                      $3,500 excess of $500    $381 per cab
                                                                           covered by Special
                                                                           Cover
Term: 7/1/99-6/30/01                                                       Reinstatement charge     One full reinstatement
  (Yellow Cab Company                                                      (One only)               as to the limit;
  only)                                                                                             100% as to amount
                                                                                                    15% No claims bonus/
                                                                                                    year

<CAPTION>
CONTRACT                   REINSURERS COMPANY        %
--------                 -----------------------  --------
<S>                      <C>                      <C>
Third Property Excess    General Reinsurance         100%
                         Corporation
Term: Continuous from    General Reinsurance         100%
  7/1/99                 Corporation
  Premium rate change
  effective 7/1/01
  Excess Liability
  Term: Continuous from
  7/1/99
Excess Property          General Reinsurance         100%
  Catastrophe            Corporation
Term: 7/1/99-6/30/01
OTHER PROGRAMS:
  YELLOW CAB COMPANY
  (AFFILIATION)
Special Cover            General Reinsurance         100%
  (Affiliation)          Corporation
Contingent Auto Excess   General Reinsurance         100%
                         Corporation
Term: 7/1/99-6/30/01
  (Yellow Cab Company
  only)
</TABLE>

------------------------------

*  All amounts, except percentages, are in thousands (000).

                                       11
<PAGE>
ASSUMED REINSURANCE

    In October 1999, American Country and Fairfield Insurance Company
("Fairfield") entered into a service agreement and a 100% quota share
reinsurance agreement. Pursuant to the terms of the reinsurance agreement,
American Country, as the reinsurer, assumes 100% of the premiums and losses of
each insurance policy that Fairfield cedes to American Country. The types of
policies ceded by Fairfield to American Country consist of transportation lines
and hospitality lines. These agreements allow American Country to write business
in states where licenses are pending.

    The service agreement permits American Country to underwrite, issue and
service on behalf of Fairfield, certain commercial auto liability policies for
taxi and livery and commercial multi-peril policies for restaurants in the
states of Maryland, New Jersey and Rhode Island. American Country received
premiums of $329,947 in 1999 for the Fairfield policies it reinsured. American
Country reinsures the business it assumes from Fairfield on the same basis as it
reinsures the policies it writes directly.

    In April 1998, American Country and Mutual Services Casualty Insurance
Company ("MSI") entered into a service agreement and a 100% quota share
reinsurance agreement. Pursuant to the terms of the reinsurance agreement
between MSI and American Country, American Country, as the reinsurer, assumed
100% of the premiums and losses of each insurance policy that MSI ceded to
American Country. The types of policies ceded by MSI to American Country
consisted of transportation lines and hospitality lines. These agreements
allowed American Country to write business in states where licenses are pending.

    The service agreement permitted American Country to underwrite, issue and
service on behalf of MSI, certain commercial auto liability policies for taxi
and livery and commercial multi-peril policies for restaurants in the states of
Connecticut, Minnesota, Michigan and New Jersey. American Country received
premiums of $1,249,399 in 1999 for the MSI policies it reinsured. American
Country reinsures the business it assumes from MSI on the same basis as it
reinsures the policies it writes directly. The quota-share reinsurance and
service agreements were cancelled in October 1999.

MARKETING

    American Country is licensed in Connecticut, Illinois, Indiana, Iowa,
Massachusetts, Michigan, Minnesota, New York, Pennsylvania, Wisconsin and the
District of Columbia. Applications are pending in California and New Jersey.
American Country also is authorized to act as an excess and surplus lines
insurer in 21 states. American Country markets its insurance products through
multiple distribution sources consisting of independent insurance producers,
managing general agents and directly through salaried employees of American
Country. American Country relies on both in-house personnel and independent
insurance producers to produce its Yellow Cab, Checker Taxi and other Chicago
taxicab associations' liability insurance, and on approximately 40 producers and
two managing general agents to market its other insurance products. American
Country selects agents based on their comprehensive knowledge of the industries
to which American Country provides coverages and the geographic market in which
the agent operates.

    American Country's current marketing plan is to extend its transportation
lines by writing business in additional states. American Country began writing
taxicab business in Michigan and Wisconsin in 1997. In 1998, American Country
wrote a substantial share (25%) of the insurance coverage for independent taxi
cab operators in Philadelphia and taxi fleets throughout the state of
Pennsylvania. American Country also continued its geographic expansion in the
states of Indiana, Michigan, Minnesota and Wisconsin by providing insurance for
taxicabs and limousines. Additionally, through a 100% quota share reinsurance
agreement with MSI, American Country assumed insurance coverage for taxicabs and
limousines in New Jersey.

                                       12
<PAGE>
    In 1998 American Country was licensed to write business in the state of New
York and began providing coverage for New York City Yellow Medallion taxi cabs
in February of 1999. In 1999, American Country also began providing
transportation coverage in Connecticut.

    American Country also expanded its insurance programs for restaurants into
the states of Michigan, Minnesota, New Jersey and Pennsylvania during 1998.
American Country's restaurant program in these states was written through an
agreement with MSI through October 1999, and subsequently through Fairfield,
which both produced the business consistent with American Country's underwriting
and rating guidelines and filed rates.

    The following tables set forth for the three years ended December 31, 1999,
the gross and net premiums written, whether produced directly by American
Country employees or by independent agents:

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                ---------------------------------------------------------------
                                                       1999                  1998                  1997
                                                -------------------   -------------------   -------------------
                                                PREMIUMS   PERCENT    PREMIUMS   PERCENT    PREMIUMS   PERCENT
                                                WRITTEN    OF TOTAL   WRITTEN    OF TOTAL   WRITTEN    OF TOTAL
                                                --------   --------   --------   --------   --------   --------
                                                                 (DOLLAR AMOUNTS IN THOUSANDS)
<S>                                             <C>        <C>        <C>        <C>        <C>        <C>
GROSS PREMIUMS
  Transportation..............................  $50,908      65.4%    $35,303      51.9%    $29,285      42.8%
  Hospitality.................................    9,116      11.6       7,424      10.9       4,654       6.8
  Other Commercial............................   17,853      22.9      22,391      32.9      25,348      37.1
  Personal....................................       78       0.1       2,952       4.3       9,129      13.3
                                                -------     -----     -------     -----     -------     -----
    Total.....................................  $77,955     100.0%    $68,070     100.0%    $68,416     100.0%
                                                =======     =====     =======     =====     =======     =====

NET PREMIUMS
  Transportation..............................  $48,590      65.7%    $33,694      59.3%    $28,297      47.1%
  Hospitality.................................    7,930      10.7       6,489      11.4       3,495       5.8
  Other Commercial............................   17,388      23.5      19,270      33.9      19,974      33.2
  Personal....................................       75       0.1      (2,593)     (4.6)      8,312      13.8
                                                -------     -----     -------     -----     -------     -----
    Total.....................................  $73,983     100.0%    $56,861     100.0%    $60,078     100.0%
                                                =======     =====     =======     =====     =======     =====
</TABLE>

OPERATING RATIOS

STATUTORY COMBINED RATIO

    American Country's statutory combined ratio expresses losses and expenses as
a percentage of premium revenues and is the traditional measure of underwriting
experience. Losses and loss adjustment expenses incurred are expressed as a
percentage of net premiums earned. Acquisition and underwriting expenses are
expressed as a percentage of net premiums written, with the aggregate sum of
those percentages equaling the combined ratio. The GAAP ratio expresses all
percentages as a percentage of net premiums earned. Generally speaking, if the
statutory combined ratio is below 100%, an insurance company has an underwriting
profit, and if it is above 100%, the insurer has an underwriting loss.

                                       13
<PAGE>
    The following table reflects the loss ratios, expense ratios and combined
ratios of American Country, determined in accordance with statutory accounting
practices, for the years indicated:

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                           ----------------------------------------------------
                                                             1999       1998       1997       1996       1995
                                                           --------   --------   --------   --------   --------
<S>                                                        <C>        <C>        <C>        <C>        <C>
STATUTORY COMBINED RATIO
Loss and loss expense ratio..............................    91.3%      79.6%      88.8%      80.7%      79.6%
Expense ratio............................................    19.4%      21.3%      20.8%      21.1%      20.7%
                                                            -----      -----      -----      -----      -----
    Combined ratio.......................................   110.7%     100.9%     109.6%     101.8%     100.3%
                                                            =====      =====      =====      =====      =====
</TABLE>

    During 1999, American Country posted an additional $3.5 million in Workers'
Compensation loss reserves in excess of management's original estimate due to
continuing adverse development in prior years. The main reasons for the adverse
development are rising medical costs and increased length of disabilities
covered under these policies.

PREMIUM-TO-SURPLUS RATIO

    While there are no statutory provisions governing premium-to-surplus ratios,
regulatory authorities regard this ratio as an important indicator since the
lower the ratio, the greater the insurer's ability to withstand abnormal loss
experience. The following table sets forth the ratio of net premiums written
during the year to statutory-basis capital and surplus at the end of the year
for American Country for the years indicated:

<TABLE>
<CAPTION>
                                             1999        1998        1997        1996        1995
                                           ---------   ---------   ---------   ---------   ---------
<S>                                        <C>         <C>         <C>         <C>         <C>
Net premiums written during the
  year...................................  $  73,983   $  56,861   $  60,078   $  60,760   $  57,544
Statutory-basis capital and surplus
  at end of year.........................     37,173      39,083      34,555      34,080      31,288
Ratio....................................  1.99 to 1   1.45 to 1   1.74 to 1   1.78 to 1   1.84 to 1
</TABLE>

RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

    American Country maintains reserves for the payment of losses and loss
adjustment expenses ("LAE") for all lines of business. The determination of
reserves for losses and LAE is based on information reported to it regarding
claims and the historical loss experience of the business. The vast majority of
losses are reported to American Country by its insureds in a timely fashion;
however, there is always a certain percentage of losses which occurred but have
not been reported ("IBNR") to American Country at any given time. American
Country establishes reserves for IBNR claims, and this reserve also includes
amounts for the potential adverse development of losses known to American
Country (in other words, subsequent developments may occur that require that
previously established reserves be increased). Upon receipt of a claim, American
Country establishes a reserve, which is an estimate of the amount which will be
paid upon conclusion of the claim. The reserves for the known losses, IBNR
reserve and the loss adjustment expense reserve, represent the total amount
American Country estimated will be needed to satisfy all losses (known and
unknown) which may be paid by American Country. These reserves are reflected as
liabilities on American Country's balance sheet.

    There can be a significant period of time between the occurrence of an
insured loss, the reporting of the loss to American Country, and the payment of
such loss. Liability claims have a greater period of time elapsing between the
occurrence of a loss and payment than property claims. General liability claims
have the longest time lag between the occurrence and final payment of the loss.
Many factors are considered when establishing the IBNR reserve for a particular
line of business, and the lag time between the occurrence and final payment of
the loss is an important component.

                                       14
<PAGE>
    Most claims are investigated, supervised, and adjusted by personnel of
American Country. In-house counsel for American Country handle the defense of
most cases for insureds located in the Chicago Metropolitan Area. All outside
counsel are chosen by American Country, and American Country's staff monitors
all cases and grants settlement authority on all files.

    Automobile property damage and physical damage reserves are established on a
formula case reserve basis. Automobile theft losses and total losses are
reserved for book value of the vehicle as of the time of the loss. All other
lines of business are reserved based on an analysis of each individual case. The
case basis reserve is an estimate of the amount of ultimate payment projected by
the personnel of American Country based upon their knowledge of similar cases.
All bodily injury claims are reviewed and reserves adjusted thirty days after
the file is opened and every six months thereafter for the life of the file.
Adjustments are made to reserves at these mandatory intervals or whenever the
known exposure changes.

    The following table sets forth a reconciliation of the beginning and ending
losses and LAE reserve balances, net of reinsurance ceded for the past three
years:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Net reserves for losses and LAE, beginning of year..........  $ 80,465   $83,973    $79,450
Incurred losses and LAE for claims relating to:
  Current year..............................................    59,227    44,244     53,613
  Prior years...............................................     4,389       434       (464)
                                                              --------   -------    -------
Total net claims incurred...................................    63,616    44,678     53,149
                                                              --------   -------    -------
Losses and LAE payments for claims relating to:
  Current year..............................................    18,368    15,231     19,624
  Prior years...............................................    34,364    32,955     29,002
                                                              --------   -------    -------
Total net claims paid.......................................    52,732    48,186     48,626
                                                              --------   -------    -------
Net reserves for losses and LAE, end of year................    91,349    80,465     83,973
Total reinsurance recoverable on unpaid losses and LAE......    13,144    11,952     15,114
                                                              --------   -------    -------
Gross reserves for losses and LAE, end of year..............  $104,493   $92,417    $99,087
                                                              ========   =======    =======
</TABLE>

    The $4,389,000 increase in prior years' reserves during 1999 is attributable
to reserve strengthening, including additional reserves for Workers'
Compensation of $3,500,000, for losses incurred in calendar years 1998 and
prior. This is primarily due to increased medical costs and longer duration
disabilities covered under these policies.

    The $434,000 increase in prior years' reserves during 1998 are attributable
to reserve strengthening for losses incurred in calendar years 1997 and prior.
This is due primarily to increased medical costs and longer duration
disabilities covered under these policies.

    The $464,000 decrease in the prior years' reserves in 1997 is attributable
to American Country's overall favorable development for the period, particularly
in the transportation lines. This is attributable to favorable weather
conditions in the Midwest, which resulted in both a lower frequency and severity
of transportation claims. This was slightly offset by higher settlements on
personal lines claims, which is due to increased real and personal property
values. Additionally, the commercial lines claims were marginally higher than
expected.

    As referred to throughout this document, the commercial lines insurance
industry has suffered from a prolonged soft market. Pricing pressures have
resulted in premium revenue that is inadequate to cover the losses incurred. As
a result, American Country has recorded losses that are substantially higher
than management's original estimate. Consequently, in 1999, American Country
increased its reserves for Workers' Compensation by $3.5 million over its
original 1999 estimate. The bulk of this reserve increase related to 1996 and
1997.

                                       15
<PAGE>
    The following table reflects American Country's losses and LAE reserve
development, net of estimated salvage and subrogation recoveries, through
December 31, 1999, for each of the preceding ten years:
<TABLE>
<CAPTION>
                                                      CUMULATIVE REDUNDANCY (DEFICIENCY)
                                                                 (000'S ONLY)
                                                           YEAR ENDED DECEMBER 31,
                                  --------------------------------------------------------------------------
                                    1989       1990       1991       1992       1993       1994       1995
                                  --------   --------   --------   --------   --------   --------   --------
<S>                               <C>        <C>        <C>        <C>        <C>        <C>        <C>
Reserve for loss and loss
  expenses net of reinsurance
  recoverables..................  $43,263    $49,526    $57,846    $62,234    $64,274    $66,494    $74,582
Reserve re-estimate as of:......
One year later..................   48,501     50,580     56,684     63,751     65,868     66,665     75,577
Two years later.................   48,041     54,584     60,869     66,607     63,759     67,693     78,628
Three years later...............   50,100     57,120     62,717     63,744     65,559     69,172     79,634
Four years later................   51,944     58,592     60,875     64,040     66,524     68,541     79,624
Five years later................   52,724     57,072     61,207     64,770     65,670     68,186
Six years later.................   52,219     57,484     61,554     64,553     65,497
Seven years later...............   52,770     57,803     61,484     64,658
Eight years later...............   52,999     57,704     61,633
Nine years later................   53,075     57,776
Ten years later.................   53,296
Cumulative redundancy
  (deficiency)..................  (10,033)    (8,250)    (3,787)    (2,424)    (1,223)    (1,692)    (5,042)
Percentage......................    (23.2)%    (16.7)%     (6.5)%     (3.9)%     (1.9)%     (2.5)%     (6.8)%
Reserve for claims and expenses,
  gross.........................                                    75,780     73,922     73,209     81,633
Reinsurance recoverables........                                    13,546      9,652      6,716      7,051
                                  -------    -------    -------    -------    -------    -------    -------
Reserve for claims and expenses,
  net...........................                                   $62,234    $64,270    $66,493    $74,582
                                  =======    =======    =======    =======    =======    =======    =======

<CAPTION>
                                     CUMULATIVE REDUNDANCY (DEFICIENCY)
                                                (000'S ONLY)
                                           YEAR ENDED DECEMBER 31,
                                  -----------------------------------------
                                    1996       1997       1998       1999
                                  --------   --------   --------   --------
<S>                               <C>        <C>        <C>        <C>
Reserve for loss and loss
  expenses net of reinsurance
  recoverables..................  $79,450    $83,973    $80,465    $91,349
Reserve re-estimate as of:......
One year later..................   78,988     84,407     84,854
Two years later.................   82,604     91,015
Three years later...............   86,277
Four years later................
Five years later................
Six years later.................
Seven years later...............
Eight years later...............
Nine years later................
Ten years later.................
Cumulative redundancy
  (deficiency)..................   (6,827)    (7,042)    (4,389)
Percentage......................     (8.6)%     (8.4)%     (5.5)%
Reserve for claims and expenses,
  gross.........................   90,965     99,087     92,417    104,493
Reinsurance recoverables........   11,515     15,114     11,952     13,144
                                  -------    -------    -------    -------
Reserve for claims and expenses,
  net...........................  $79,450    $83,973    $80,465    $91,349
                                  =======    =======    =======    =======
</TABLE>
<TABLE>
<CAPTION>
                                                                       PAID LOSSES
                                                                      (000'S ONLY)
                                                                 YEAR ENDED DECEMBER 31,
                                  -------------------------------------------------------------------------------------
                                    1989       1990       1991       1992       1993       1994       1995       1996
                                  --------   --------   --------   --------   --------   --------   --------   --------
<S>                               <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Cumulative amount of losses
  paid, net of Reinsurance
  recoverables through:
One year later..................  $14,687    $16,626    $17,141    $21,331    $23,271    $22,495    $25,938    $29,002
Two years later.................   25,226     26,858     31,753     37,778     37,843     38,161     43,579     50,707
Three years later...............   31,836     37,389     44,070     48,653     48,178     48,658     59,041     64,768
Four years later................   39,850     46,088     51,495     56,212     54,636     57,939     68,066
Five years later................   47,138     51,321     57,099     58,792     60,174     62,953
Six years later.................   49,834     55,374     58,481     61,695     63,016
Seven years later...............   51,567     56,112     59,652     63,056
Eight years later...............   51,905     56,752     60,702
Nine years later................   52,334     57,024
Ten years later.................   52,737
Eleven years later

<CAPTION>
                                           PAID LOSSES
                                           (000'S ONLY)
                                     YEAR ENDED DECEMBER 31,
                                  ------------------------------
                                    1997       1998       1999
                                  --------   --------   --------
<S>                               <C>        <C>        <C>
Cumulative amount of losses
  paid, net of Reinsurance
  recoverables through:
One year later..................  $32,949    $34,364
Two years later.................   54,663
Three years later...............
Four years later................
Five years later................
Six years later.................
Seven years later...............
Eight years later...............
Nine years later................
Ten years later.................
Eleven years later
</TABLE>

                                       16
<PAGE>
INVESTMENTS

    Funds, including reserve funds, are invested until required for American
Country's operations, subject to restrictions on permissible investments
established by applicable state insurance codes. American Country's investment
policy is to maximize after-tax income while generally limiting investments to
investment grade securities with high liquidity. American Country's investment
portfolio is managed solely by BlackRock Financial Management, Inc

    The following table contains information concerning American Country's
investment portfolio at December 31, 1999:

<TABLE>
<CAPTION>
                                                 AMORTIZED     FAIR     AMOUNT REFLECTED ON   PERCENT
                                                   COST       VALUE        BALANCE SHEET      OF TOTAL
                                                 ---------   --------   -------------------   --------
                                                                    (IN THOUSANDS)
<S>                                              <C>         <C>        <C>                   <C>
Available-for-sale securities
  Fixed maturity securities:
U.S. Treasury securities and obligations of
  U.S. Government corporations and agencies....  $ 12,750    $ 12,641        $ 12,641           10.0%
Obligations of states and political
  subdivisions.................................    30,620      30,233          30,233           23.9%
Foreign governments............................     1,299       1,261           1,261            1.0%
Corporate securities...........................    48,203      46,781          46,781           36.9%
Mortgage-backed securities.....................    36,654      35,381          35,381           27.9%
                                                 --------    --------        --------          -----
  Total fixed maturity securities..............   129,526     126,297         126,297           99.7%
  Equity securities............................       353         367             367            0.3%
                                                 --------    --------        --------          -----
  Total available-for-sale securities..........  $129,879    $126,664        $126,664          100.0%
                                                 ========    ========        ========          =====
</TABLE>

    The following table sets forth a profile of American Country's fixed
maturity investment portfolio by rating at December 31, 1999:

<TABLE>
<CAPTION>
                                                              FAIR     PERCENT
S&P/MOODY'S RATING(1)                                        VALUE     OF TOTAL
---------------------                                       --------   --------
                                                              (IN THOUSANDS)
<S>                                                         <C>        <C>
AAA/Aaa (including U.S. Treasuries of $8,476).............  $ 69,569     55.1%
AA/Aa.....................................................    17,340     13.7%
A/A.......................................................    25,807     20.4%
BBB/Ba....................................................     9,959      7.9%
All other.................................................     3,622      2.9%
                                                            --------    -----
  Total...................................................  $126,297    100.0%
                                                            ========    =====
</TABLE>

------------------------

(1) Ratings are as assigned primarily by Standard & Poor's Corporation, with
    remaining ratings as assigned by Moody's Investors Service Inc.

                                       17
<PAGE>
    The following table sets forth a profile of American Country's fixed
maturity investment portfolio by maturity at December 31, 1999:

<TABLE>
<CAPTION>
                                                              FAIR     PERCENT
MATURITY                                                     VALUE     OF TOTAL
--------                                                    --------   --------
                                                              (IN THOUSANDS)
<S>                                                         <C>        <C>
Due in one year or less...................................  $  1,808      1.4%
Due after one year through five years.....................    34,891     27.6%
Due after five years through ten years....................    34,081     27.0%
Due after ten years.......................................    20,136     15.9%
Mortgage-backed securities................................    35,381     28.0%
                                                            --------    -----
Total fixed maturity securities...........................  $126,297    100.0%
                                                            ========    =====
</TABLE>

    The following table summarizes the Company's investment results for the five
years ended December 31, 1999:

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                    ----------------------------------------------------------------
                                                      1999          1998          1997          1996          1995
                                                    --------      --------      --------      --------      --------
                                                                             (IN THOUSANDS)
<S>                                                 <C>           <C>           <C>           <C>           <C>
Total net investment income...................       $7,618        $7,134        $7,025        $7,032        $6,465
Average annual pre-tax yield..................          6.1%          6.0%          6.4%          6.7%          6.7%
Average annual after-tax yield................          4.7%          4.4%          4.6%          4.6%          4.7%

Effective federal income tax on investment
  income......................................         25.0%         25.0%         31.1%         25.3%         24.9%
</TABLE>

REGULATION

    American Country is subject to varying degrees of regulation and supervision
in the jurisdictions in which it transacts business under statutes which
delegate regulatory, supervisory and administrative powers to state insurance
commissioners. Such regulation is designed to protect policyholders rather than
investors and relates to such matters as standards of solvency, which must be
met and maintained; the licensing of insurers and their agents and producers;
the nature of and examination of the affairs of insurance companies, which
includes periodic financial and market conduct examinations by the regulatory
authorities; annual and other reports, prepared on a statutory accounting
principles basis, required to be filed on the financial condition of insurers or
for other purposes. In general, American Country must file all rates for
insurance directly underwritten with the insurance department of each state in
which it operates on an admitted basis; reinsurance generally is not subject to
state regulation. Further, state insurance statutes typically place limitations
on the amount of dividends or other distributions payable by insurance companies
in order to protect their solvency. Illinois, the domicile state of American
Country, requires that dividends be paid only out of earned surplus, and limits
the annual amount payable without prior approval of the Department to the
greater of 10% of policyholders' surplus or the amount of the prior year's
statutory net income.

    American Country is also subject to statutes governing insurance holding
company systems in various jurisdictions. Such statutes require American Country
to file an annual Holding Company System Registration statement with the state
insurance regulatory authorities, which includes information concerning its
capital structure, ownership, financial condition and general business
operation. Under the terms of applicable state statutes, any person or entity
desiring to purchase more than a specified percentage (commonly 10%) of American
Country's outstanding voting securities is required to obtain regulatory
approval for the purchase of such voting securities. Section 131.2 of the
Illinois Insurance Code relating to holding companies, to which American Country
is subject, requires disclosure of transactions between American Country and its
subsidiaries and affiliates. Such transactions must satisfy certain standards,
including that they be fair, equitable and reasonable and that certain material
transactions be specifically

                                       18
<PAGE>
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 facilitates the
regulation of multi-state companies through uniform reporting requirements,
standardized procedures for financial examinations, and uniform regulatory
procedures embodied in model acts and regulations. Current developments address
the reporting and regulation of the adequacy of capital and surplus. The NAIC
has a risk-based capital model act for property/casualty companies, which
calculates a minimum required statutory policyholders' surplus based on the
underwriting, investment, credit loss reserve and other business risks
applicable to the insurance company's operations. At December 31, 1999, American
Country's required risk-based capital was $7.3 million; and its reported
statutory capital and surplus was $37.2 million, so that at December 31, 1999,
American Country substantially exceeded the risk-based capital requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Regulation" for additional information.

COMPETITION

    The property and casualty insurance business is highly competitive on the
basis of both price and service. In recent years, the property and casualty
insurance industry has been characterized by relatively high levels of
competition and aggressive pricing and marketing.

    American Country faces its most active competition in public transportation
lines from captive insurance programs that are put together by agents and
reinsurers using an insurance company that writes the insurance business as a
fronting carrier and then reinsures substantially all of the business with the
reinsurer. Many of these programs are short-lived, but they generally are priced
aggressively. Besides creating instability, they generally do not provide
continuity of claims practices and settlements, which adversely affects future
pricing for property and casualty insurance generally. Presently, there are two
national carriers still pursuing taxi/livery business through general agents,
but both of these carriers have reduced their presence in certain geographic
areas (Midwest, California, New Jersey). A few smaller regional carriers remain
that continue to target smaller accounts.

    In Illinois, the competition for coverage of artisan contractors is
primarily from national carriers, regional carriers and mono-line workers'
compensation carriers. The competition for restaurants is mainly from regional
carriers.

    American Country benefits in all classes of its business by maintaining long
term agency relationships. In addition, American Country's agents have
specialized in these classes of business for many years. American Country
believes it has been able to compete successfully by underwriting specialty
coverages for niche areas in which American Country has expertise.

ENVIRONMENTAL ISSUES

    American Country believes that it has extremely limited risk of claims
arising from environmental exposures. The underwriting philosophy of American
Country excludes writing insurance for business which presents possible
environmental exposures. Its liability policies contain an absolute pollution
coverage exclusion and a lead paint exclusion. The industry, however, has seen a
dramatic increase in the number of environmental claims being presented to
insurers for defense and indemnification, and recent court cases have diminished
the protection granted by the absolute pollution exclusion

PREMIUM FINANCING

    Financial Services operates principally as a premium finance company under
the regulations of the Illinois Department of Insurance, financing commercial
insurance premiums, and also offers secured loans

                                       19
<PAGE>
to some of American Country's larger customers. Professional Services operates
principally as a finance company providing collateral loan financing to members
of certain taxi associations. All loans are secured either through unearned
premiums on insurance policies or, by taxicab medallions and equipment assets.
For the year ended December 31, 1999, Financial Services and Professional
Services had combined net income of $109,000 a 26% decrease from 1998. This
decrease is due primarily to a reduction in the financing being provided by
Financial Services and greater operating expenses for both Financial Services
and Professional Services.

YEAR 2000

    The Company has successfully managed the transition from one century to the
next. Although some internal systems and third parties experienced minor
problems, these were quickly resolved and had no significant effect on the
Company's clients, businesses or results of operations. The following
information is provided in order to update prior disclosures with respect to
this matter.

    Early in 1999, the Company completed Year 2000 renovation and validation for
all of its critical information technology systems, including those provided by
third parties. The Company also completed during 1999, the necessary remediation
of other infrastructure items or developed contingency plans to allow critical
functions to continue in the event of infrastructure problems.

    The estimated total cost for the Company's Year 2000 compliance is $66,000 .
This estimate includes the cost of software modification and/or replacement as
well as hardware and software implementation and testing.

    Although no problems that have had or are expected to have a material effect
on the Company have become apparent, the Company continues to monitor its own
systems and those of third parties as they perform required functions for the
first time in the Year 2000. It is also possible that as yet undetected Year
2000 problems with the systems of important vendors, insurance agents and
brokers and clients may emerge as the year progresses, and the Company continues
to monitor for issues of this type as well.

EMPLOYEES

    As of December 31, 1999, American Country employed approximately 150 full
time employees, 8 of whom are executive management, and 8 part-time employees.
American Country is not a party to any collective bargaining agreement.

ITEM 2. PROPERTIES.

    The Company leases office space at 222 N. LaSalle Street, Chicago, Illinois,
for its executive offices and insurance operations. The 39,000 square feet
facility has a monthly rental of approximately $63,000. The current lease
expires in May 2002.

    The Company leases space at two additional locations in the Chicago area for
purposes of storage and claim handling. The aggregate monthly rental is
approximately $6,600.

    The Company believes that it currently has adequate space for expansion at
its existing facilities.

                                       20
<PAGE>
ITEM 3.  LEGAL PROCEEDINGS.

    There are no pending material legal proceedings to which the Company or its
subsidiaries is a party or of which any of the properties of the Company or its
subsidiaries is subject, except as noted below. The Company is subject to claims
arising in the ordinary course of business. Most of these lawsuits involve
claims under insurance policies issued by American Country. These lawsuits are
considered by American Country in estimating the reserves for losses and loss
adjustment expenses.

    On May 20, 1999, Frontier Insurance Group, Inc. (which owns approximately
25% of the outstanding shares of the Company) filed a purported shareholder
derivative action in Delaware Chancery Court against the Company's directors and
the Company itself as a nominal defendant. The complaint seeks a declaration
that certain amendments to the Company's Stock Option Plan, which were approved
at the Company's Annual Meeting on May 18, 1999 are void or, alternatively,
should be rescinded. The complaint further challenges the grant of options to
purchase 1.1 million shares (approximately 3% of the Company's total shares
outstanding) to certain of its officers and directors. The individual defendants
have advised the Company that they believe that they have substantial defenses
to the claims asserted by Frontier Insurance Group, Inc.

    In the opinion of management, the ultimate resolution of such litigation
will not have a material effect on the financial condition of the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

    There were no matters submitted to a vote of security holders during the
fourth quarter of 1999.

                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
         MATTERS.

    The Company's Common Stock is traded on the NASDAQ (Small Cap Market) under
symbol ("ACHI") and the Company's Warrants are traded on the NASDAQ (Small Cap
Market) under the symbol ("ACHIW"). The following table sets forth the high and
low bid prices as reported on NASDAQ for the Company's Common Stock during the
quarters indicated. The prices reported reflect inter-dealer quotations and may
not represent actual transactions and do not include retail mark-ups, markdowns
or commissions.

                                  COMMON STOCK

<TABLE>
<CAPTION>
QUARTER ENDED                                                   HIGH       LOW
-------------                                                 --------   --------
<S>                                                           <C>        <C>
March 31, 1999..............................................   $1.47      $1.37
June 30, 1999...............................................    1.25       1.22
September 30, 1999..........................................    1.12       1.07
December 31, 1999...........................................    1.03       0.93
March 31, 1998..............................................    2.50       1.94
June 30, 1998...............................................    1.97       1.66
September 30, 1998..........................................    1.94       1.06
December 31, 1998...........................................    1.88       1.06
</TABLE>

    At March 13, 2000, there were approximately 250 holders of record of the
Company's Common Stock. This number does not include an indeterminate number of
stockholders whose shares are held by brokers in "street name." The Company has
not paid any cash dividends on the Common Stock since it became publicly traded.
(See "Business Regulation" for restrictions on the payment of dividends by the
Company's insurance subsidiary.)

                                       21
<PAGE>
WARRANTS

    The following table sets forth the high and low bid prices as reported on
NASDAQ for the Company's Common Warrants during the quarters indicated. The
prices reported reflect inter-dealer quotations and may not represent actual
transactions and do not include retail markups, markdowns or commissions.

                                COMMON WARRANTS

<TABLE>
<CAPTION>
QUARTER ENDED                                                   HIGH       LOW
-------------                                                 --------   --------
<S>                                                           <C>        <C>
March 31, 1999..............................................    $.35       $.33
June 30, 1999...............................................    0.25       0.19
September 30, 1999..........................................    0.16       0.14
December 31, 1999...........................................    0.33       0.33
March 31, 1998..............................................    1.38       1.00
June 30, 1998...............................................    0.72       0.50
September 30, 1998..........................................    0.50       0.38
December 31, 1998...........................................    0.56       0.50
</TABLE>

    At March 13, 2000, the Company had 2,054,129 warrants outstanding. The
warrants give the warrant holder the right to purchase 2.19 shares of the
Company's Common Stock at a price of $1.83 per share through August 31, 2000.

ITEM 6.  SELECTED FINANCIAL DATA.

    The following selected financial data are derived from the Company's
consolidated financial statements. The data should be read in conjunction with
the consolidated financial statements, related notes and other financial
information included elsewhere in this report.

                         AMERICAN COUNTRY HOLDINGS INC.
                            SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                   1999       1998       1997       1996       1995
                                                 --------   --------   --------   --------   --------
<S>                                              <C>        <C>        <C>        <C>        <C>
INCOME STATEMENT DATA:
Revenues:
  Gross premiums written.......................  $77,955    $68,070    $68,416    $67,828    $64,898
                                                 =======    =======    =======    =======    =======
  Net premiums written.........................  $73,983    $56,861    $60,078    $60,760    $57,544
                                                 =======    =======    =======    =======    =======
  Net premiums earned..........................  $69,677    $56,135    $59,814    $60,550    $56,909
  Net investment income........................    7,618      7,134      7,025      7,032      6,465
  Realized capital gains (losses)..............     (342)     1,479      1,613        915        222
  Other income.................................      215        315        331        219        150
                                                 -------    -------    -------    -------    -------
      Total revenues...........................   77,168     65,063     68,783     68,716     63,746
Expenses:
  Losses and loss adjustment expenses..........   63,617     44,679     53,149     48,845     45,305
  Amortization of policy acquisition costs,
    underwriting, and other expenses...........   14,009     12,932     12,911     12,860     11,185
                                                 =======    =======    =======    =======    =======
  Interest expense.............................      584        491        161          0          0
                                                 -------    -------    -------    -------    -------
      Total expenses...........................   78,210     58,102     66,221     61,705     56,490
                                                 -------    -------    -------    -------    -------
Income before income taxes.....................   (1,042)     6,961      2,562      7,011      7,256
Income taxes...................................     (967)     1,585        493      1,986      2,287
                                                 =======    =======    =======    =======    =======
  Net Income (loss)............................  $   (75)     5,376      2,069      5,025      4,969
                                                 =======    =======    =======    =======    =======
Net income per share: basic....................  $  0.00    $  0.17    $  0.06    $  0.14    $  0.14
                                                 =======    =======    =======    =======    =======
Net income per share: diluted..................  $  0.00    $  0.17    $  0.06    $  0.14    $  0.14
                                                 =======    =======    =======    =======    =======
Cash dividends declared per share(1)...........  $  0.00    $  0.00    $  0.00    $  0.07    $  0.08
                                                 =======    =======    =======    =======    =======
</TABLE>

                                       22
<PAGE>

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                            ----------------------------------------------------
                                              1999       1998       1997       1996       1995
                                            --------   --------   --------   --------   --------
<S>                                         <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Total investments.........................  $129,385   $126,028   $121,098   $114,237   $113,687
Total assets..............................   176,033    168,305    162,661    151,790    140,627
Liabilities for gross unpaid losses and
  loss adjustment expenses................   104,493     92,417     99,087     90,965     81,633
Notes payable.............................    11,150      9,300      4,800          0          0
Total liabilities.........................   139,323    127,183    127,521    111,353    100,560
Total shareholders' equity................    36,710     41,122     35,140     40,437     40,067
Book value per share......................  $   1.14   $   1.28   $   1.10   $   1.14   $   1.13
Statutory Combined Ratio..................     110.7%     100.9%     109.6%     101.8%     100.3%
GAAP Combined Ratio.......................     111.4%     102.6%     109.9%     101.3%      98.8%
</TABLE>

------------------------

(1) Cash dividends declared are those of American Country. Dividends per share
    declared by Western Systems prior to the Acquisition were $0 for each year
    presented.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

    The following discussion and analysis should be read in conjunction with the
1999 Consolidated Financial Statements and notes thereto.

OVERVIEW

    American Country Holdings Inc. (the "Company") is engaged in the specialty
property and casualty insurance and premium finance business through its
subsidiaries American Country Insurance Company ("American Country"), American
Country Financial Services Corp. ("Financial Services") and American Country
Professional Services Corp. ("ACPS").

    American Country is a property and casualty insurance carrier domiciled in
the State of Illinois. American Country and its predecessor has been a writer of
commercial and personal lines of business, specializing in public transportation
risks, principally taxicabs and limousines, for nearly twenty years.

    American Country is the successor to an insurance company that was organized
in 1978 under the name Calumet Insurance Company. In 1997, American Country
entered into a transaction with The Western Systems Corp. ("Western Systems") in
which a subsidiary of Western Systems acquired substantially all the assets and
assumed substantially all the liabilities of American Country and its wholly
owned subsidiary, Financial Services, for a purchase price of $40.3 million (the
"Acquisition"), and contemporaneously Western Systems sold 24 million shares of
its common stock to three investors, two of whom were shareholders of the parent
company of American Country. Following the Acquisition, Western Systems changed
its name to American Country Holdings Inc. to better reflect its property and
casualty and premium finance business.

    American Country and Financial Services experienced non-recurring costs
related to the Acquisition of approximately $1 million in late 1996 and the
first nine months of 1997 which did not impact future operations. Subsequent to
the Acquisition in July, 1997, American Country no longer pays annual management
fees and administrative fees in excess of $1 million. Since the Acquisition,
American Country has been repositioning and refocusing its strategic philosophy
to expand its transportation and restaurant and hospitality products, eliminate
its personal lines business (which had an underwriting loss of $1.7 million for
1997), implement plans to improve operating efficiencies and reduce the costs of
managing its business. At the end of 1997, American Country decided not to
market any personal lines business and not to accept any new personal lines
business from independent agents. As a result of these efforts, American

                                       23
<PAGE>
Country recorded a charge of approximately $400,000 in 1997 primarily for
termination benefits that were paid in 1997 that is estimated to result in
future annual savings in salaries and benefits. In addition, fixed income
advisors have been engaged to enhance the quality and yield on the portfolio of
invested assets.

    In 1999, American Country continue the run-off of its personal lines
business. Due to the expiration of the expense-sharing component of the
reinsurance agreement with Ohio Casualty, American Country has recognized
expenses in 1999 that were previously shared under the agreement. Additionally,
American Country increased loss and loss adjustment reserves for its Workers
Compensation line by $3.5 million over management's original estimate. The
reserve increase is attributable to prior years, primarily 1996 through 1998,
and is the result of increasing medical costs and extended length of disability
experienced by workers covered under these policies. In addition, American
Country continues to be adversely affected by the continuing pricing pressures
in the commercial insurance market.

THE CALENDAR YEAR 1999 COMPARED TO THE CALENDAR YEAR 1998

    The following table sets forth the net premiums earned by the principal
lines or products of insurance underwritten by American Country for the periods
indicated and the dollar amount and percentage of change therein from year to
year:

NET PREMIUMS EARNED:

<TABLE>
<CAPTION>
                                                                                       INCREASE
                                                                YEAR ENDED            (DECREASE)
                                                               DECEMBER 31,          1999 TO 1998
                                                            -------------------   -------------------
                                                              1999       1998      AMOUNT       %
                                                            --------   --------   --------   --------
<S>                                                         <C>        <C>        <C>        <C>
Transportation lines......................................  $45,246    $31,028    $14,218      45.8%
Other Commercial lines....................................   17,221     19,677     (2,456)    (12.5)
Hospitality lines.........................................    7,116      5,133      1,983      38.6
Personal lines............................................       94        297       (203)    (68.3)
                                                            -------    -------    -------     -----
  Totals..................................................  $69,677    $56,135    $13,542      24.1%
                                                            =======    =======    =======     =====
</TABLE>

    Transportation lines, which consists of taxi and limousine liability and
physical damage programs, grew during 1999 as a result of American Country's
geographic expansion into additional states. Total premium revenues generated by
transportation lines grew 45.8% to $45.2 million in 1999 as compared to
$31.0 million in 1998. In 1999, revenues generated outside of Illinois increased
from 8.6% or $2.7 million in 1998 to 25.8% or $11.7 million in 1999. This
increase is attributable to growth of new programs established in 1998 in
Pennsylvania, Michigan, Minnesota, New Jersey, Wisconsin, and in 1999 in New
York and Connecticut.

    Premium revenues for American Country's hospitality lines increased 38.6% to
$7.1 million in 1999 as compared to $5.1 million in 1998. The hospitality
program continued its significant growth outside of Illinois by expanding into
the states of Minnesota and New Jersey.

    Premium revenues generated from American Country's other commercial lines
decreased by approximately 12.5% in 1999 to $17.2 million from $19.7 million for
1998. This decrease is primarily attributable to American Country's
re-underwriting program as well as continuing pricing pressures in the industry.
American Country realized a small amount of return premium from its reinsurers,
which resulted in additional earned premium for this line not attributable to
existing policies.

    Premium revenues for personal lines decreased from $297,000 for 1998 to
$94,000 for 1999, a increase of 68.3%. The decrease is attributable to the
reinsurance agreement entered into at the beginning of 1998, pursuant to which
nearly all of American Country's personal lines business was reinsured by Ohio
Casualty and to American Country's decision to cease marketing personal lines
business and to cease accepting personal lines business from independent agents.

                                       24
<PAGE>
    Net investment income increased 6.8% during 1999. Income earned on invested
assets amounted to $7.6 million during 1999 as compared to $7.1 million for
1998. Although invested assets increased $1.2 million during the period,
declining yields resulted in only a modest increase in earned investment income.
Realized gains for 1999 decreased $1.8 million, a 123.1% decrease from 1998.
Upon the appointment of professional investment advisors in late 1997, the
Company's portfolio of invested assets was restructured to achieve stated
guidelines, and as a result, significant gains were realized in 1998. These
gains did not continue in 1999. Investment expenses for 1999 were $670,000 as
compared to $702,000 in 1998, which resulted in savings of $32,000 in 1999,
primarily the result of lower market values of bonds held.

    Other income, which consists of interest and fees earned on premium
financing activities decreased from $315,000 in 1998 to $215,000 in 1999, a
31.7% decrease. The decrease is the result of the lower volume of premium
finance contracts entered into in 1999.

    The following table sets forth American Country's Statutory Combined Ratio
and GAAP Combined Ratio for the periods indicated:

<TABLE>
<CAPTION>
                                                                   STATUTORY               GAAP
                                                                   COMBINED              COMBINED
                                                                     RATIO                 RATIO
                                                                     YEAR                  YEAR
                                                                     ENDED                 ENDED
                                                                 DECEMBER 31,          DECEMBER 31,
                                                              -------------------   -------------------
                                                                1999       1998       1999       1998
                                                              --------   --------   --------   --------
<S>                                                           <C>        <C>        <C>        <C>
Losses......................................................    74.1%      64.8%      74.1%      64.8%
Loss Adjustment Expenses (LAE)..............................    17.2       14.8       17.2       14.8
                                                               -----      -----      -----      -----
Losses and LAE..............................................    91.3       79.6       91.3       79.6
Policy acquisition, other Underwriting expenses.............    19.4       21.3       20.1       23.0
                                                               -----      -----      -----      -----
  Total combined ratio......................................   110.7%     100.9%     111.4%     102.6%
                                                               =====      =====      =====      =====
</TABLE>

    Loss and loss adjustment expenses for 1999 increased from 79.6% of premium
revenues during 1998 to 91.3% for 1999. This increase is attributable to higher
claims activity, particularly in the commercial lines, and includes the
$3.5 million reserve adjustment for prior years' Workers Compensation losses.

    Transportation lines loss ratios increased during 1999, with a loss and loss
adjustment expense ratio of 80.3% as compared to 79.6% for 1998. This increase
is attributable to higher claims frequency and a conservative reserving
philosophy in American Country's new markets.

    The ratio for losses and LAE for hospitality lines increased from 75.2% in
1998 to 92.7% in 1999. Claims activity increased during 1999 due to the
geographic and market expansion of this program. Additionally, the loss ratio
increased due to three substantial fire losses.

    The ratio of losses and LAE for other commercial lines increased to 115.0%
in 1999 from 82.1% in 1998. Much of this increase is the result of the
continuing prior years' adverse development of the Workers' Compensation line,
which resulted in American Country posting additional reserves for this line of
$3.5 million over management's initial estimate. Additionally, the poor results
of the commercial line are attributable to continuing pricing pressures
commonplace throughout the industry.

    Losses and LAE for personal lines during 1999 increased to $861,000 compared
to ($48,000) in 1998, primarily due to the expiration of the expense-sharing
component of the reinsurance agreement with Ohio Casualty, as well as the
reduced premium base of this line.

    Policy acquisition costs increased $1.6 million or 17.9% during 1999.
However, when expressed as a percentage of premium revenues, policy acquisition
costs decreased from 15.7% in 1998 to 14.8% for 1999. This indicates that the
increase in policy acquisition costs is attributable to substantial premium
growth rather than increased commission rates paid to producers.

                                       25
<PAGE>
    Administrative and general expenses decreased 12.0% in 1999 as a result of
lower general expenses incurred in connection with the operating activities of
the Company. The decrease is attributable to cost saving initiatives begun
during the fourth quarter of 1997 and continued through 1999, primarily due to
higher productivity per employee. The number of full-time employees increased by
only 5.6%, as compared to an 18.6% increase in revenue for 1999. Interest
expense for 1999 increased by $93,000 to $584,000, due to increased borrowings.

THE CALENDAR YEAR 1998 COMPARED TO THE CALENDAR YEAR 1997

    The following table sets forth the net premiums earned by the principal
lines or products of insurance underwritten by American Country for the periods
indicated and the dollar amount and percentage of change therein from year to
year:

NET PREMIUMS EARNED:

<TABLE>
<CAPTION>
                                                                                        INCREASE
                                                                 YEAR ENDED            (DECREASE)
                                                                DECEMBER 31,          1998 TO 1997
                                                             -------------------   -------------------
                                                               1998       1997      AMOUNT       %
                                                             --------   --------   --------   --------
<S>                                                          <C>        <C>        <C>        <C>
Transportation lines.......................................  $31,028    $28,056    $ 2,972      10.6%
Other Commercial lines.....................................   19,677     19,802       (125)     (0.6)
Hospitality lines..........................................    5,133      3,379      1,754      51.9
Personal lines.............................................      297      8,577     (8,278)    (96.5)
                                                             -------    -------    -------     -----
    Totals.................................................  $56,135    $59,814    $(3,679)     (6.2)%
                                                             =======    =======    =======     =====
</TABLE>

    Transportation lines, which consists of taxi and limousine liability and
physical damage programs, grew during 1998 as a result of American Country's
geographic expansion into additional states. Total premium revenues generated by
transportation lines grew 10.6% to $31.0 million in 1998 as compared to
$28.1 million in 1997. In 1998, revenues generated outside of Illinois increased
from 1.5% in 1997 to 8.6% in 1998. This increase is attributable to the
establishment of new programs in Pennsylvania, Michigan, Minnesota, New Jersey,
Wisconsin.

    American Country's hospitality lines experienced the largest percentage
growth in premium revenues over other lines, increasing nearly 52% to
$5.1 million in 1998 as compared to $3.4 million in 1997. The hospitality
program accomplished its significant growth outside of Illinois by expanding
into the states of Minnesota and New Jersey.

    Premium revenues generated from American Country's other commercial lines
decreased slightly in 1998 to $19.7 million from $19.8 million for 1997, a 0.6%
decrease. This decrease is attributable to American Country's re-underwriting
program as well as the continuing pricing competition industry-wide for
commercial lines. American Country also realized additional savings by
renegotiating reinsurance costs for its commercial lines.

    Premium revenues for personal lines decreased from $8.6 million for 1997 to
$297,000 for 1998, a decrease of 96.5%. The decrease is attributable to the
reinsurance agreement entered into at the beginning of 1998, pursuant to which
nearly all of American Country's personal lines business was reinsured by Ohio
Casualty and to American Country's decision to cease marketing personal lines
business and to cease accepting personal lines business from independent agents.

    Net investment income increased nominally during 1998. Income earned on
invested assets amounted to $7.1 million during 1998 as compared to
$7.0 million for 1997. Although invested assets increased 3.6% during the
period, declining yields resulted in only a 1.6% increase in earned investment
income. Realized gains for 1998 decreased $134,000, an 8.3% decrease from 1997.
Upon the appointment of professional

                                       26
<PAGE>
investment advisors in late 1997, the Company's portfolio of invested assets was
restructured to achieve stated guidelines, and as a result, significant gains
were realized. Investment expenses for 1998 were $702,000 as compared to
$1.1 million in 1997, which resulted in savings of $423,000 in 1998, primarily
the result of the appointment of professional investment advisors.

    Other income, which consists of interest and fees earned on premium
financing activities decreased from $331,000 in 1997 to $315,000 in 1998, a 4.8%
decrease. The decrease is the result of the lower volume of premiums finance
contracts entered into in 1998.

    The following table sets forth American Country's Statutory Combined Ratio
and GAAP Combined Ratio for the periods indicated:

<TABLE>
<CAPTION>
                                                                   STATUTORY               GAAP
                                                                   COMBINED              COMBINED
                                                                     RATIO                 RATIO
                                                                  YEAR ENDED            YEAR ENDED
                                                                 DECEMBER 31,          DECEMBER 31,
                                                              -------------------   -------------------
                                                                1998       1997       1998       1997
                                                              --------   --------   --------   --------
<S>                                                           <C>        <C>        <C>        <C>
Losses......................................................    64.8%      72.0%      64.8%      72.0%
Loss Adjustment Expenses (LAE)..............................    14.8       16.8       14.8       16.8
                                                               -----      -----      -----      -----
Losses and LAE..............................................    79.6       88.8       79.6       88.8
Policy acquisition, other Underwriting expenses.............    21.3       20.8       23.0       21.1
                                                               -----      -----      -----      -----
    Total combined ratio....................................   100.9%     109.6%     102.6%     109.9%
                                                               =====      =====      =====      =====
</TABLE>

    Loss and loss adjustment expenses for 1998 decreased from 88.8% of premium
revenues during 1997 to 79.6% for 1998. This decrease is attributable to lower
claims activity in all lines and also reflects cost reductions effected in late
1997 primarily through savings in payments to staff and legal support.

    Transportation lines loss ratios continued to improve during 1998, with a
loss and loss adjustment expense ratio of 79.6% as compared to 81.5% for 1997.
This decrease is attributable to savings in loss adjustment expense realized
through staff reductions effected in the fourth quarter of 1997.

    The ratio for losses and LAE for hospitality lines declined slightly to
75.2% in 1998 from 76.0% in 1997. Although claims activity increased during 1998
due to the geographic and market expansion of this program, loss ratios remained
relatively constant during the year.

    The ratio of losses and LAE for other commercial lines decreased to 82.1% in
1998 as compared to 99.0% in 1997. Although it is impossible to determine how
much of this improvement is the result of the re-underwriting program,
management believes the impact was significant. Additionally, the commercial
lines experienced a lower severity in claims during the year. Workers'
compensation and multi-peril liability and property coverages were the lines
most responsible for effecting this improvement.

    The ratio of losses and LAE for personal lines during 1998 decreased to
-8.4% compared to 94.4% in 1997, primarily due to the reinsurance agreement with
Ohio Casualty and the decision to cease marketing this business and accepting
personal lines business from independent agents.

    Policy acquisition costs decreased $300,000 or 3.3% during 1998. However,
when expressed as a percentage of premium revenues, policy acquisition costs
increased from 15.2% in 1997 to 15.7% for 1998. The increase is attributable to
additional acquisition expenses being incurred in connection with American
Country's geographical expansion into new states and increased costs, primarily
commissions paid to producers.

    Administrative and general expenses increased 16% in 1998 as a result of
higher corporate expenses incurred in connection with acquisition and financing
activities of the Company. Expenses of the operating companies decreased to
$6.6 million as compared to $6.7 million in 1997. The decrease is attributable
to

                                       27
<PAGE>
cost saving initiatives begun during the fourth quarter of 1997, primarily staff
reductions. Interest expense for 1998 increased by $330,000 to $491,000, due to
increased borrowings and to a full period of interest expense.

ASSET PORTFOLIO REVIEW

    At December 31, 1999, the Company's total assets of $176 million was
comprised of the following: Cash and investments, 76.3%; reinsurance
recoverables, 8.6%, premiums receivable, 7.4%; deferred expenses (policy
acquisition costs and deferred taxes) 5.6%; fixed assets, .5%; and other assets,
1.6%.

    The Company generally invests in securities with fixed maturities with the
objective of providing reasonable returns while limiting liquidity and credit
risk. As a result, its investment portfolio consists primarily of fixed income
debt securities which are rated as investment grade with a carrying value of
$126.6 million and constituting 98% of the Company's fixed maturity investments.

    At December 31, 1999 and 1998, the Company's fixed asset maturity securities
included mortgage-backed bonds of $35.4 million and $25.7 million, respectively,
which are subject to risks associated with variable prepayments of the
underlying mortgage loans. Prepayments can cause those securities to have
different actual maturities than that expected at the time of purchase.
Securities that have an amortized cost greater than par that are backed by
mortgages that prepay faster than expected will incur a reduction in yield or
loss, while securities that have an amortized cost less than par that are backed
by mortgages that prepay faster than expected will generate an increase in gain
or yield. The degree to which a security is susceptible to either gains or
losses is influenced by the difference between its amortized cost and par, the
relative sensitivity of the underlying mortgages backing the assets to
prepayments in a changing interest rate environment and the repayment priority
of the securities in the overall securitization structure.

    At December 31, 1999, the following table provides a profile of the
Company's fixed maturity investment portfolio by rating:

<TABLE>
<CAPTION>
                                                               AMOUNT
                                                               MARKET    PERCENT OF
S&P/MOODY'S RATING                                             VALUE     PORTFOLIO
------------------                                            --------   ----------
<S>                                                           <C>        <C>
AAA/Aaa (including US Treasuries of $8,476).................  $ 69,569       55.1%
AA/Aa.......................................................    17,340       13.7%
A/A.........................................................    25,807       20.4%
BBB/Ba......................................................     9,959        7.9%
All other...................................................     3,622        2.9%
                                                              --------      -----
    Total...................................................  $126,297      100.0%
                                                              ========      =====
</TABLE>

    The Company does not own or utilize derivative financial instruments for the
purpose of hedging, enhancing the overall return of its investment portfolio, or
reducing the cost of its debt obligations. The Company employs traditional
investment management tools and techniques to address the yield and valuation
exposures of its invested assets. The long term fixed maturity investment
portfolio is managed so as to limit various risks inherent in the bond market.
Credit risk is addressed through adequate diversification and the purchase of
investment grade securities. Reinvestment rate risk is controlled by
concentrating on non-callable issues, and through asset-liability matching
practices. Purchases of mortgage and asset backed securities, which have
variable principal prepayment options, are generally avoided. Market value risk
is limited through the purchase of bonds of intermediate maturity. The
combination of these investment management tenets generally provides a more
stable long term fixed maturity investment portfolio that is not subject to
extreme interest rate sensitivity and principal deterioration. The market value
of the Company's long term fixed maturity investment portfolio is sensitive,
however, to fluctuations in the level of interest rates, but not materially
affected by changes in anticipated cash flows caused by any prepayments. The
impact of interest rates movements on the long term fixed maturity investment
portfolio

                                       28
<PAGE>
generally affects net realized gains or losses when securities are sold. With a
market value of approximately $126.3 million, the long term fixed maturity
investment portfolio has an average maturity of 5.8 years and an indicated
duration of 3.7. This implies that a 100 basis point parallel increase in
interest rates from current levels would result in a possible decline in the
market value of the long term fixed maturity investment portfolio of
approximately 3.9%, or $4.8 million. These possible declines in values for bond
and stock portfolios would affect negatively the common stockholders' equity at
any point in time, but would not necessarily result in the recognition of
realized investment losses as long as operating cash flow and the ongoing
emergence of bond maturities continued to provide sufficient funds to meet
obligations to policyholders and claimants, as well as debt service and cash
dividend requirements at the holding company level.

LIQUIDITY AND CAPITAL RESOURCES

    As a holding company, the Company receives cash principally through fees and
dividends from subsidiaries and borrowings, certain of which are subject to
dividend restrictions and regulatory approval. The ability of insurance
companies to underwrite insurance is based on maintaining liquidity and capital
resources sufficient to pay claims and expenses as they become due. The primary
sources of liquidity for American Country are funds generated from insurance
premiums, investment income, commissions and fee income, and proceeds from the
sales and maturities of portfolio investments. The principal expenditures are
for payment of losses and LAE, operating expenses, commissions and dividends to
stockholders. The Company believes its sources of liquidity are sufficient to
meet its cash requirements.

    The Company maintains a liquid operating position and follows investment
guidelines that are intended to provide acceptable return on investment while
preserving capital, maintaining sufficient liquidity to meet obligations and
maintaining a sufficient margin of capital and surplus to ensure American
Country's unimpaired ability to write insurance.

    Cash flow generated from operations for the year ended December 31, 1999 and
1998 was $3.3 million and $390,000 respectively, which amounts were adequate to
meet all obligations during the periods. The increase in cash flow for the year
ended December 31, 1999 compared to the year ended December 31, 1998 is
primarily related to the increase in premiums and to an increase in loss
reserves.

    On July 28, 1997, the Company obtained a $7 million revolving loan credit
facility under which it borrowed $4.8 million at an initial rate of 7.5% based
upon LIBOR, payable quarterly, to fund a portion of the $40.3 million paid in
connection with the Acquisition.

    On April 30, 1998 the Company negotiated a $15 million revolving line of
credit facility with a new lender bearing a maturity date of April 30, 2001.
Interest on the borrowings under the facility may be based on the prime rate
minus one percent (1%), Eurodollar loan or the Federal Funds rate. At
December 31, 1999, the unused portion of the line of credit was $3.8 million.
The weighted average interest rate on the outstanding line of credit for 1999
was 6.0%. Total interest expense in 1999 and 1998 was $584,000 and $491,000
respectively. Repayment of this debt is expected to be funded by dividends from
the operating subsidiaries.

    On October 5, 1999, the Board of Directors approved a loan proposal from
Northern Trust wherein the line of credit was converted to an $8.0 million four
year term loan and a $7.0 million 364 day revolving credit. Under the $8.0
million term loan, the first installment of $2.0 million is due April 30, 2001.
The interest rate on the term loan may be based upon LIBOR + 1%, the New York
Federal Funds rate +1%, or the prime rate minus 1%.

    The $7.0 million revolving credit agreement has a maturity of 364 days, with
a Commitment Fee of .25% per annum on the unused portion.

                                       29
<PAGE>
    The line of credit agreement contains various debt covenants including
conditions for prepayment and certain financial covenants, the most restrictive
covenant being the ratio of debt to equity. American Country was in compliance
with all covenants of the agreement as of December 31, 1999.

INCOME TAXES

    The Company's federal income tax returns for all periods prior to the
Acquisition were consolidated with those of its former owner. Income tax
expenses were computed on a separate company basis.

    For the period April 17, 1997, through July 29, 1997, American Country and
Financial Services filed a consolidated return with its previous parent,
American Country Holdings Corp.

    Effective with the Acquisition on July 29, 1997, the Company files a
consolidated return with its subsidiaries, and accordingly the Company has
executed a tax sharing agreement, which requires the subsidiaries to pay the
Company amounts equal to the federal income tax that would be payable if the
subsidiaries filed on a stand-alone basis.

    Management believes that it is more likely than not that the current
temporary differences will reverse during the periods in which the Company
generates net taxable income. There are, however, no assurances that the Company
will generate any earnings or any specific level of continuing earnings in
future years. Certain tax planning strategies could be implemented to supplement
income from operations to fully utilize recorded tax benefits.

REGULATION

    In its ongoing effort to improve solvency regulation, the NAIC and
individual states have enacted certain laws and financial statement changes. The
NAIC has adopted Risk-Based Capital ("RBC") requirements for property and
casualty insurance companies to evaluate the adequacy of statutory capital and
surplus in relation to investment and insurance risks such as asset quality,
mortality and morbidity, asset and liability matching, benefit and loss reserve
adequacy, and other business factors. The RBC formula is used by state insurance
regulators as an early warning tool to identify, for the purpose of initiating
regulatory action, insurance companies that potentially are inadequately
capitalized. In addition, the formula defines new minimum capital standards that
supplement the current system of low fixed minimum capital and surplus
requirements on a state-by-state basis. Regulatory compliance is determined by a
ratio of the company's regulatory total adjusted capital, as defined by the
NAIC, to its authorized control level RBC, as defined by the NAIC. Companies
below specific trigger points or ratios are classified within certain levels,
each of which requires specific corrective action. The levels and ratios are as
follows:

<TABLE>
<CAPTION>
                                                   RATIO OF TOTAL ADJUSTED CAPITAL TO
                                                      AUTHORIZED CONTROL LEVEL RBC
REGULATORY EVENT                                        (LESS THAN OR EQUAL TO)
----------------                                   ----------------------------------
<S>                                                <C>
Company action level.............................                   2*
Regulatory action level..........................                  1.5
Authorized control level.........................                    1
Mandatory control level..........................                  0.7
</TABLE>

------------------------

*   Or, 2.5 with negative trend.

    The ratios of total adjusted capital to authorized control level RBC for
American Country were in excess of their required amounts at both December 31,
1999 and 1998.

    The NAIC recently completed its process of recodifying statutory accounting
practices ("codification"), the result of which is the only source of
"prescribed" statutory accounting practices after adoption by the state of
domicile. It is expected that codification will be adopted by the State of
Illinois and be

                                       30
<PAGE>
implemented in 2001, which will likely change, to some extent, prescribed,
statutory accounting practices, and may result in changes in the Company's
insurance subsidiary's statutory surplus.

    The purpose of these regulatory efforts at all levels is to improve the
solvency of insurers. These regulatory initiatives, and the overall focus on
solvency, may intensify the restructuring and consolidation of the insurance
industry. While the impact of these regulatory efforts on the Company's
operations cannot be quantified until enacted, the Company believes it will be
adequately capitalized to compete in an environment of more stringent
regulation.

IMPACT OF INFLATION

    Property and casualty insurance premiums are established before the amount
of losses and LAE, or the extent to which inflation may affect such expenses,
are known. Consequently, American Country attempts, in establishing its
premiums, to anticipate the potential impact of inflation. However, for
competitive and regulatory reasons, American Country may be limited in raising
its premiums commensurate with anticipated inflation, in which event American
Country, rather than its insureds, would absorb inflation costs. Inflation also
affects the rate of investment return on American Country's investment portfolio
with a corresponding effect on American Country's investment income.

FORWARD LOOKING STATEMENTS

    The Company cautions readers regarding certain forward-looking statements
contained in the foregoing sections and elsewhere and in any other statements
made by, or on behalf of, the Company, whether or not in future filings with the
Securities and Exchange Commission. Forward-looking statements are statements
not based on historical facts. In particular, statements using verbs such as
"expect," "intend," "plan," "anticipate," "believe" or similar words generally
involve forward-looking statements. Forward-looking statements include but may
not be limited to, statements relating to future plans, targets and objectives,
financial results, cyclical industry conditions, government and regulatory
policies, the uncertainties of the reserving process and the competitive
environment in which the Company operates.

    Forward-looking statements are based upon estimates and assumptions that are
subject to significant business, economic and competitive uncertainties, many of
which are beyond the Company's control and subject to change. These
uncertainties can affect actual results and could cause actual results to differ
materially from those expressed in any forward-looking statements. Whether or
not actual results differ materially from forward-looking statements may depend
on numerous foreseeable and unforeseeable events or developments, some of which
may be national in scope, such as general economic conditions and interest
rates. Some of these events or developments may be related to the insurance
industry generally, such as pricing competition, regulatory developments and
industry consolidation. Others may relate to the Company specifically, such as
credit, volatility and other risks associated with the Company's investment
portfolio, and other factors. Investors are also directed to consider other
risks and uncertainties discussed in documents filed by the Company with the
SEC, including Exhibit 99 to the Annual Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1999. The Company
disclaims any obligation to update forward-looking information.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

    See Index to Financial Statements on Page F-1.

                                       31
<PAGE>
                               SUPPLEMENTAL DATA

         Unaudited Quarterly Results of American Country Holdings Inc. and
                                  Subsidiaries

    The following is a summary of unaudited quarterly results of operations for
1999 and 1998 (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                         1999                                        1998
                                       -----------------------------------------   -----------------------------------------
                                       MARCH 31   JUNE 30    SEPT. 30   DEC. 31    MARCH 31   JUNE 30    SEPT. 30   DEC. 31
                                       --------   --------   --------   --------   --------   --------   --------   --------
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Net premiums earned..................  $14,552    $17,758    $17,707    $19,660    $13,129    $13,876    $14,054    $15,076
Total net investment income..........    1,836    $ 1,830      1,918      2,033      1,747      1,841      1,709      1,837
Income before income tax.............      437        389        456     (2,324)     1,654      1,572        929      1,810
Net income (loss)....................      525        358        181    ($1,139)     1,180        969      1,034      2,193
Per share data: Basic earnings per
  common share.......................      .02        .01        .01       (.04)      0.04       0.03       0.03       0.07
Diluted earnings per common share....      .02        .01        .01       (.04)      0.04       0.03       0.03       0.07
</TABLE>

                                       32
<PAGE>
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE.

    On January 15, 1998 the Board of Directors of the Company, upon the advice
of its Audit Committee, elected to not retain Ernst & Young LLP as its
independent auditors, effective for fiscal year 1998. The decision to change
accountants was based upon a cost analysis of services provided. There were no
disagreements between management of the Company and the former accountants on
any matters of accounting principles or practices, financial statement
disclosures, or auditing scope or procedures during any period through the date
of dismissal. The accountant's reports on the financial statements of the
Company for the 1997 fiscal year was unqualified, not modified as to
uncertainty, audit scope or accounting principles, and did not express any
adverse opinion or disclaimer of opinion.

    In addition, on January 15, 1998, the Audit Committee recommended, and the
Board of Directors approved, the appointment of Coopers & Lybrand L.L.P. (now
PricewaterhouseCoopers LLP) as the Company's new independent accountants,
effective for fiscal year 1998. The selection of PricewaterhouseCoopers was
through a request for proposal process with no consideration requested or made
on the application of accounting principles, the type of audit opinion that
might be rendered on the financial statements, or any other factor for reaching
a decision as to accounting, auditing or financial reporting issues.

                                       32
<PAGE>
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

    The following table lists each director and each executive officer of the
Company, together with their respective age and office(s) held:

<TABLE>
<CAPTION>
NAME                                          AGE                        OFFICE
----                                        --------   ------------------------------------------
<S>                                         <C>        <C>
Martin L. Solomon.........................     63      Chairman of the Board, President, CEO and
                                                       Director
Edwin W. Elder III........................     56      Exec. Vice President, COO and Director
William J. Barrett........................     60      Director
Karla M. Violetto.........................     32      Vice President and Chief Financial Officer
Wilmer J. Thomas, Jr......................     73      Director
John G. McMillian.........................     72      Director
Ronald Jay Gold...........................     58      Secretary
</TABLE>

    MARTIN L. SOLOMON has been the Chairman and Chief Executive Officer and a
director of the Company since July 1997. He has been a Private investor since
1990. From 1988 to 1990 he was a Managing Director and general partner of Value
Equity Associates, I, L.P., an investment partnership. From 1985 to 1987,
Mr. Solomon was an investment analyst and portfolio manager with Steinhardt
Partners, an investment partnership. From 1985 to 1996, Mr. Solomon was a
Director and Vice-Chairman of the Board of Great Dane Holdings, Inc., a company
engaged in the manufacture of transportation equipment, automobile stamping, the
leasing of taxis and insurance. Since 1990, Mr. Solomon has been a Director of
XTRA Corp., a lessor of truck trailers, marine containers, and intermodal
equipment. In May 1996 he was appointed a Director of Hexel Corp. and, since
June 1997, Mr. Solomon has been a Director of Telephone and Data Systems, Inc.,
a diversified telecommunications service company with established wireless and
wireline operations. Effective March 1999, Mr. Solomon was named a director of
MFN Financial Corporation, a consumer finance company. Mr. Solomon is also a
director of various privately held corporation and civic organizations.

    EDWIN W. ELDER has been President and a director of American Country since
1993. From 1985 to 1993, he served as Senior Vice President of Operations for
Employer's Health Insurance Company and IDS Property Casualty. Mr. Elder has
29 years of experience in the insurance industry and started his career with
State Farm Insurance Company after leaving the United States Army, where he
attained the rank of Captain. He is a CPCU and an FLMI. Mr. Elder has served as
a director of the Company since July 1997.

    WILLIAM J. BARRETT served as a director of The Western Systems Corp. and,
subsequent to the Acquisition, the Company, since January 1992. Mr. Barrett has
been employed as a Senior Vice President of Janney Montgomery Scott Inc., an
investment banking firm, for more than five years. Mr. Barrett is a director of
the following publicly held corporations: Supreme Industries, Inc., a
specialized truck body manufacturer; Fredericks of Hollywood, Inc., an apparel
marketing company; Shelter Components Corporation, a supplier to the
manufactured housing and recreation vehicle industries and a manufacturer of
bathrooms products; and TGC Industries, Inc., a provider of geophysical services
to the oil and gas industries. Mr. Barrett served as the Secretary of the
Company until from August 1992 until March 9, 1999.

    KARLA M. VIOLETTO was appointed Vice President and Chief Financial Officer
of American Country in March, 2000, succeeding James P. Byrne, who served as
Vice President and Controller of American Country from 1988 through 1999.
Ms. Violetto has 11 years of experience in the insurance industry. Prior to
joining American Country as Manager, Corporate Reporting and Financing in July
of 1999, Ms. Violetto was a senior associate at PricewaterhouseCoopers, LLP.
Ms. Violetto received her bachelor's degree in accountancy from De Paul
University in 1989 and is a certified public accountant.

                                       33
<PAGE>
    WILMER J. THOMAS, JR.  is a private investor and financial consultant. He
has served as a director of the Company since July 1997. From 1989 to 1996,
Mr. Thomas was a director and Vice President of Great Dane Holdings Inc. (former
parent of American Country), formerly in the business of manufacturing truck
trailers and automobile stampings, leasing taxis, and through American Country,
property and casualty insurance. Mr. Thomas is a director of Moore Medical
Corp., a publicly held pharmaceutical and surgical supply company.

    JOHN G. MCMILLIAN  In 1973, Mr. McMillian founded Northwest Energy Company,
a natural gas supplier, and from 1973 through 1983 served as its first chairman
and chief executive officer. From 1987 to 1995, Mr. McMillian was also the
chairman, president and chief executive officer of Allegheny & Western Energy
Corporation, an oil and gas company. Mr. McMillian is currently the chairman and
chief executive officer of Chapparal Resources, Inc., a gas and oil exploration
and production company.He also serves on the board of directors of Excalibur
Technologies Corp., a designer of knowledge retrieval software products, the
U.S. Ski Team Foundation and the Steadman Hawkins Sports Medicine Foundation.

    RONALD J. GOLD  became Secretary of the Company on March 9, 1999. Mr. Gold
has been an attorney in the legal department of American Country since 1968.
Since 1993, he has served as the Secretary of American Country and the senior
attorney in American Country's legal department.

    All directors hold office until the next annual meeting of stockholders and
until their successors are elected and qualified. Officers are elected annually
and serve at the pleasure of the Board of Directors, subject to rights, if any,
under contracts of employment.

ITEM 11.  EXECUTIVE COMPENSATION.

    For information regarding executive compensation, reference is made to the
Registrant's definitive proxy statement for its Annual Meeting of Stockholders
to be held on June 20, 2000, which will be filed with the Securities and
Exchange Commission within 120 days after December 31, 1999, which is
incorporated by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

    For information regarding security ownership of certain beneficial owners
and management, reference is made to the Registrant's definitive proxy statement
for its Annual Meeting of Stockholders to be held on June 20, 2000, which will
be filed with the Securities and Exchange Commission within 120 days after
December 31, 1999, which is incorporated by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

    For information regarding certain relationships and related transactions,
reference is made to the Registrant's definitive Proxy Statement for its annual
meeting of stockholders to be held on June 20, 2000, which will be filed with
the Securities and Exchange Commission within 120 days after December 31, 1999
which is incorporated herein by reference.

                                       34
<PAGE>
                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K.

    List of documents filed as part of this report.

<TABLE>
<S>     <C>
(a)(1)  Financial Statements and Schedules.
        See List of Financial Statements and Financial Statement
        Schedules on page F-1.

(a)(2)  The following consolidated financial statement schedules of
        the Company listed below are contained in the index to
        Financial Statement Schedules on page F-1 herein:
        Schedule II Condensed Financial Information of Registrant
        Schedule IV Reinsurance
        Schedule V Valuation and Qualifying Accounts
        Schedule VI Supplemental Information concerning
        Property/Casualty Insurance Operations

(b)     Reports on Form 8-K.
        There were no reports on Form 8-K filed in the fourth
        quarter of 1999.

(c)     Exhibits. See Exhibit Index immediately following financial
        statement schedules.

(d)     Financial statements, fifty percent or less owned persons.
        Not applicable.
</TABLE>

                                       35
<PAGE>
                           ANNUAL REPORT ON FORM 10-K

                      ITEM 14(A)(1) AND (2), (C), AND (D)
              LIST OF FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         FINANCIAL STATEMENT SCHEDULES
                          YEAR ENDED DECEMBER 31, 1999

                         AMERICAN COUNTRY HOLDINGS INC.
                               CHICAGO, ILLINOIS

ITEM 14.

<TABLE>
<S>                     <C>                                                           <C>
Report of Independent Accountants on Financial Statement Schedules..................     F-2
Schedule II             Condensed Balance Sheet.....................................     F-4
                        Condensed Statement of Income...............................     F-5
                        Condensed Statement of Cash Flows...........................     F-6
                        Condensed Statement of Stockholders' Equity.................     F-7
Schedule IV             Reinsurance.................................................     F-8
Schedule V              Valuation and Qualifying Accounts...........................     F-9

                        Supplemental Information Concerning Property/Casualty
Schedule VI.....        Insurance Operations........................................    F-10
Reports of Independent Accountants..................................................    F-12
Consolidated Balance Sheets.........................................................    F-14
Consolidated Statements of Income...................................................    F-15
Consolidated Statements of Stockholders' Equity.....................................    F-16
Consolidated Statements of Cash Flows...............................................    F-17
Notes to Consolidated Financial Statements..........................................    F-18
</TABLE>

                                      F-1
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULES

Board of Directors
American Country Holdings Inc.

    Our audits of the consolidated financial statements referred to in our
report dated March 29, 2000 appearing under Item 14(a)(1) of this Form 10-K also
included audits of the financial statement schedules listed in Item 14(a)(2) of
this Form 10-K, as of December 31, 1999 and 1998 and for the years then ended.
In our opinion, these financial statement schedules present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. The financial statement
schedules of the Company for the year ended December 31, 1997 were audited by
other independent accountants whose report dated February 24, 1998 expressed an
unqualified opinion on those financial statement schedules.

                                          /s/ PricewaterhouseCoopers LLP
                                          PRICEWATERHOUSECOOPERS LLP

Chicago, Illinois
March 29, 2000

                                      F-2
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULES

Report of Ernst & Young LLP, Independent Auditors

Board of Directors and Stockholders

American Country Holdings Inc.

    We have audited the consolidated financial statements of American Country
Holdings Inc. and subsidiaries for the year ended December 31, 1997, and have
issued our report thereon dated February 24, 1998 (included elsewhere in this
Form 10-K). Our audit also included the financial statement schedules listed in
the Index at Item 14(a). These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audit.

    In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

                                          /s/ ERNST & YOUNG LLP

Chicago, Illinois

February 24, 1998

                                      F-3
<PAGE>
                                  SCHEDULE II

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                         AMERICAN COUNTRY HOLDINGS INC.

                            CONDENSED BALANCE SHEET

                             (PARENT COMPANY ONLY)

                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
<S>                                                           <C>        <C>
ASSETS
Cash and cash equivalents...................................  $   202    $    22
Investments in subsidiaries:
  American Country Insurance Company........................   44,147     47,769
  American Country Financial Services Corp..................    1,931      1,806
  American Country Professional Services Corp...............       (8)        10
Deferred Income Taxes.......................................       --        506
Income taxes recoverable....................................                  --
Due from subsidiaries.......................................    1,441        977
Prepaid Expenses............................................       47         28
                                                              -------    -------
    Total assets............................................  $47,760    $51,118
                                                              =======    =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accrued expenses............................................  $   159    $   187
Income taxes payable........................................     (333)       411
Notes payable--from subsidiary..............................       --         97
Deferred income taxes.......................................       74         --
Note payable................................................   11,150      9,300
                                                              -------    -------
    Total liabilities.......................................   11,050      9,995
                                                              =======    =======

Stockholders' equity:
Common stock--$.01 par value. Authorized 60,000 shares
  Issued and outstanding: 1999--32,097,371;
    1998--32,045,214........................................      320        320
Preferred stock
  Authorized--2,000,000 shares Issued and outstanding
    shares: 0...............................................       --         --
Additional paid in capital..................................   36,864     36,864
Accumulated other comprehensive income......................   (1,784)     2,553
Retained earnings (deficit).................................    1,310      1,385
                                                              -------    -------
    Total equity............................................   36,710     41,122
                                                              -------    -------
    Total liabilities and stockholders' equity..............  $47,760    $51,118
                                                              =======    =======
</TABLE>

                  See notes to condensed financial statements.

                                      F-4
<PAGE>
                                  SCHEDULE II

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                         AMERICAN COUNTRY HOLDINGS INC.

                         CONDENSED STATEMENTS OF INCOME

                             (PARENT COMPANY ONLY)

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                            PERIOD
                                                          YEAR ENDED      YEAR ENDED       JULY 29-
                                                         DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                             1999            1998            1997
                                                         -------------   -------------   -------------
<S>                                                      <C>             <C>             <C>
REVENUES
Net investment income..................................      $  39          $    3           $    7
Management fees from subsidiaries......................        900             900              250
                                                             -----          ------           ------
    Total Revenues.....................................        939             903              257
                                                             -----          ------           ------
EXPENSES
General and administrative expenses....................        580             737              186
Interest expense.......................................        584             579              171
                                                             -----          ------           ------
    Total Expenses.....................................      1,164           1,316              357
                                                             -----          ------           ------
Loss before income tax benefit and equity in
  undistributed income of subsidiaries.................       (225)           (414)            (100)
Income tax expense.....................................       (114)           (649)             (47)
                                                             -----          ------           ------
Income (Loss) before equity in undistributed income of
  subsidiaries.........................................       (339)            235              (53)
Undistributed income of subsidiaries...................        264           5,141            1,344
                                                             -----          ------           ------
Net income (Loss)......................................      $ (75)         $5,376           $1,291
                                                             =====          ======           ======
</TABLE>

                  See notes to condensed financial statements.

                                      F-5
<PAGE>
                                  SCHEDULE II

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                         AMERICAN COUNTRY HOLDINGS INC.

                       CONDENSED STATEMENT OF CASH FLOWS

                             (PARENT COMPANY ONLY)

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                             PERIOD
                                                           YEAR ENDED      YEAR ENDED       JULY 29-
                                                          DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                              1999            1998            1997
                                                          -------------   -------------   -------------
<S>                                                       <C>             <C>             <C>
Net cash provided by (used in) operating activities.....     (1,670)         $(4,667)       $    361
Investing Activities:
  Business combination--net of cash acquired............         --               --         (31,862)
  Capitalization of subsidiary..........................         --              (10)             --
                                                             ------          -------        --------
Net cash provided by (used in) investing activities.....         --              (10)        (31,862)
Financing activities:
  Proceeds from note payable............................      1,850            4,500           4,800
  Issuance of common stock..............................         --               --          26,667
  Exercise of options and warrants......................         --               16             217
                                                             ------          -------        --------
Net cash provided by financing activities...............      1,850            4,516          31,684
                                                             ------          -------        --------
Net increase (decrease) in cash.........................        180             (161)            183
Cash at beginning of year...............................         22              183              --
                                                             ------          -------        --------
Cash at end of year.....................................     $  202          $    22        $    183
                                                             ======          =======        ========
</TABLE>

                  See notes to condensed financial statements.

                                      F-6
<PAGE>
                                  SCHEDULE II

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                         AMERICAN COUNTRY HOLDINGS INC.

                  CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
                             (PARENT COMPANY ONLY)

                                 (IN THOUSANDS)
             FOR THE PERIOD JULY 29, 1997 THROUGH DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                                      ACCUMULATED
                                                   NUMBER               ADDITIONAL       OTHER        RETAINED        TOTAL
                                                     OF       COMMON     PAID-IN     COMPREHENSIVE    EARNINGS    STOCKHOLDERS'
                                                   SHARES     STOCK      CAPITAL         INCOME       (DEFICIT)      EQUITY
                                                  --------   --------   ----------   --------------   ---------   -------------
<S>                                               <C>        <C>        <C>          <C>              <C>         <C>
BALANCE AT BEGINNING OF PERIOD:
July 29, 1997 pre-acquisition...................    7,903      $ 79      $10,205        $     0        $(1,548)      $ 8,736
Adjustment for reverse acquisition..............        0         0            0          3,398         (3,734)         (336)
Issuance of additional shares...................   24,001       240       26,427              0              0        26,667
                                                   ------      ----      -------        -------        -------       -------
Adjusted beginning balance at July 29, 1997.....   31,904       319       36,632          3,398         (5,282)       35,067
Comprehensive income, net of tax:
Net income (for period from July 29, 1997 to
  December 31, 1997)............................        0         0            0              0          1,291         1,291
Change in net unrealized investment gains (net
  of applicable income tax of $(207))...........        0         0            0           (403)             0          (403)
Less: Elimination of realized gains included in
  income as reported (net of applicable income
  tax of $(548))................................        0         0            0         (1,065)             0        (1,065)
Other...........................................        0         0            0             33              0            33
                                                                                                                     -------
Total comprehensive income......................                                                                        (144)
Issuance of additional shares upon exercise of
  options and warrants..........................      132         1          216              0              0           217
                                                   ------      ----      -------        -------        -------       -------
BALANCE AT DECEMBER 31, 1997....................   32,036      $320      $36,848        $ 1,963        $(3,991)      $35,140
Comprehensive income, net of tax:
Net income......................................        0         0            0              0          5,376         5,376
Change in net unrealized investment gains (net
  of applicable income tax of $862).............        0         0            0          1,558              0         1,558
Less: Elimination of realized gains included in
  income as reported (net of applicable income
  tax of $(503))................................        0         0            0           (976)             0          (976)
Other...........................................        0         0            0              8              0             8
                                                                                                                     -------
Total comprehensive income......................                                                                       5,966
Issuance of additional shares upon exercise of
  options and warrants..........................        9         0           16              0              0            16
                                                   ------      ----      -------        -------        -------       -------
BALANCE AT DECEMBER 31, 1998....................   32,045      $320      $36,864        $ 2,553        $ 1,385       $41,122
Comprehensive income, net of tax:
Net income......................................        0         0            0              0            (75)          (75)
Change in net unrealized investment gains (net
  of applicable income tax of ($2,160)).........        0         0            0         (4,522)             0        (4,522)
Less: Elimination of realized gains included in
  income as reported (net of applicable income
  tax of $116)..................................        0         0            0            226              0           226
Other...........................................        0         0            0            (41)             0           (41)
                                                                                                                     -------
Total comprehensive income......................                                                                      (4,412)
Issuance of additional shares upon exercise of
  options and warrants..........................        0         0            0              0              0             0
                                                   ------      ----      -------        -------        -------       -------
BALANCE AT DECEMBER 31, 1999....................   32,045      $320      $36,864        ($1,784)       $ 1,310       $36,710
                                                   ======      ====      =======        =======        =======       =======
</TABLE>

                See Notes to Consolidated Financial Statements.

                                      F-7
<PAGE>
                                  SCHEDULE II

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                         AMERICAN COUNTRY HOLDINGS INC.

                             (PARENT COMPANY ONLY)

                    NOTES TO CONDENSED FINANCIAL STATEMENTS

    1. These condensed financial statements should be read in conjunction with
the consolidated financial statements and notes thereto.

    2. As discussed in Note 1 to the consolidated financial statements, on
July 29, 1997, the Registrant entered into a business combination with American
Country Insurance Company ("American Country") that was accounted for as a
reverse acquisition (the "Acquisition"). As a result, the historical financial
statements of the Registrant prior to July 29, 1997 are those of American
Country. The Registrant is the parent company of American Country only from the
date of the Acquisition. Accordingly, the condensed financial statements of the
parent company only included herein reflect the period from July 29, 1997
through December 31, 1999. The Company has presented a condensed statement of
stockholders' equity for purposes of disclosing the beginning equity balances of
the Registrant when it became the parent company of American Country.

                                      F-8
<PAGE>
                            SCHEDULE IV--REINSURANCE
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 COL. C                        COL. E
                                                         ----------------------              ----------
                                                             A           B         COL. D    PERCENTAGE
COL. A                                         COL. B    CEDED TO     ASSUMED     --------   OF AMOUNT
------                                        --------     OTHER     FROM OTHER     NET       ASSUMED
DESCRIPTION                                    DIRECT    COMPANIES   COMPANIES     AMOUNT      TO NET
-----------                                   --------   ---------   ----------   --------   ----------
<S>                                           <C>        <C>         <C>          <C>        <C>
Year ended December 31, 1999
  Premiums written..........................  $76,027     $ 3,972      $1,928     $73,983        2.6%

Year ended December 31, 1998
  Premiums written..........................  $65,180     $11,210      $2,891     $56,861        5.1%

Year ended December 31, 1997
  Premiums written..........................  $67,576     $ 8,338      $  840     $60,078        1.4%
</TABLE>

                                      F-9
<PAGE>
                                   SCHEDULE V

                       VALUATION AND QUALIFYING ACCOUNTS

                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                             COL. A       COL. B       COL. C       COL. D       COL. E
                                           ----------   ----------   ----------   ----------   ----------
                                                                     CHARGED TO
                                           BALANCE AT   CHARGED TO     OTHER         (A)       BALANCE AT
                                           BEGINNING    COSTS AND     ACCOUNTS    DEDUCTIONS     END OF
DESCRIPTION                                OF PERIOD     EXPENSES    (DESCRIBE)   (DESCRIBE)     PERIOD
-----------                                ----------   ----------   ----------   ----------   ----------
<S>                                        <C>          <C>          <C>          <C>          <C>
Year ended December 31, 1999
  Reserves and allowances deducted from
    asset accounts:
    Allowance for bad debts..............     $(262)       $(120)                    $  34        $(348)
Year ended December 31, 1998
  Reserves and allowances deducted from
    asset accounts:
    Allowance for bad debts..............     $(265)       $ (96)                    $  99        $(262)
Year ended December 31, 1997.............     $(155)       $ (94)                    $ (16)       $(265)
  Reserves and allowances deducted from
    asset accounts:
    Allowance for bad debts..............     $ (22)       $ (84)                    $ (49)       $(155)
</TABLE>

------------------------

(A) Amounts charged off less recoveries.

                                      F-10
<PAGE>
                      SCHEDULE VI--SUPPLMENTAL INFORMATION

               CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS

                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                        DECEMBER 31,                                 YEAR ENDED DECEMBER 31,
                       -----------------------------------------------   -----------------------------------------------
       COL. A            COL. B        COL. C      COL. D      COL. E     COL. F      COL. G             COL. H
---------------------  -----------   ----------   ---------   --------   --------   ----------   -----------------------
                                      RESERVES    DISCOUNT,                                       LOSS AND       LOSS
                                     FOR UNPAID    IF ANY,                                       ADJUSTMENT    EXPENSES
                                      LOSS AND    DEDUCTED                                       ----------   ----------
                        DEFERRED       CLAIM         IN                             TOTAL NET     INCURRED    RELATED TO
                         POLICY      ADJUSTMENT    COLUMN     UNEARNED    EARNED    INVESTMENT    CURRENT       PRIOR
PERIOD                 ACQUISITION    EXPENSES        C       PREMIUMS   PREMIUMS     INCOME        YEAR         YEAR
------                 -----------   ----------   ---------   --------   --------   ----------   ----------   ----------
<S>                    <C>           <C>          <C>         <C>        <C>        <C>          <C>          <C>
1999
Transportation.......     $1,296      $ 61,023        --      $ 8,557    $45,246      $3,429      $36,568       $  (211)
Hospitality..........        868         7,553        --        3,915      7,116         513        5,973           625
Commercial...........      1,084        33,248        --        6,244     17,221       1,779       16,415         3,385
Other................          3         2,669        --           12         94         140          271           590
Not allocated........          0             0        --            0          0       1,757            0             0
                          ------      --------       ---      -------    -------      ------      -------       -------
Totals...............      3,251       104,493        --       18,728     69,677       7,618       59,227         4,389
                          ======      ========                =======    =======      ======      =======       =======

1998
Transportation.......        406        49,357        --        2,982     31,028       2,878       23,399           813
Hospitality..........        629         4,092        --        3,124      5,133         832        4,390          (292)
Commercial...........      1,314        35,565        --        8,032     19,677       3,253       16,023           298
Other................          7         3,403        --          323        297         171          432          (384)
Not allocated........          0             0        --            0          0         200            0             0
                          ------      --------       ---      -------    -------      ------      -------       -------
Totals...............      2,356        92,417        --       14,461     56,135       7,134       44,244           434
                          ======      ========                =======    =======      ======      =======       =======

1997
Transportation.......         --        46,473        --          278     28,056       2,810       22,471           394
Hospitality..........        362         3,027        --        1,762      4,313         819        2,716           567
Commercial...........      1,434        43,696        --        8,453     18,869       2,900       21,205        (1,726)
Other................        748         5,891        --        2,920      8,576         239        7,221           301
Not allocated........          0             0        --            0          0         257            0             0
                          ------      --------       ---      -------    -------      ------      -------       -------
Totals...............     $2,544      $ 99,087        --      $13,413    $59,814      $7,025      $53,613       $  (464)
                          ======      ========                =======    =======      ======      =======       =======

<CAPTION>
                             YEAR ENDED DECEMBER 31,
                       ------------------------------------
       COL. A             COL. I        COL. J      COL. K
---------------------  ------------   ----------   --------

                       AMORTIZATION      PAID
                       OF DEFERRED      LOSSES
                          POLICY       AND LOSS
                       ACQUISITION    ADJUSTMENT   PREMIUMS
PERIOD                    COSTS        EXPENSES    WRITTEN
------                 ------------   ----------   --------
<S>                    <C>            <C>          <C>
1999
Transportation.......    $  5,761      $29,095     $48,590
Hospitality..........       1,170        3,382       7,930
Commercial...........       3,441       18,916      17,388
Other................           5        1,337          75
Not allocated........           0            0           0
                         --------      -------     -------
Totals...............      10,377       52,730      73,983
                         ========      =======     =======
1998
Transportation.......       3,141       21,880      33,694
Hospitality..........       1,228        2,817       6,489
Commercial...........       3,694       20,502      19,270
Other................         741        2,988      (2,592)
Not allocated........           0            0           0
                         --------      -------     -------
Totals...............       8,804       48,187      56,861
                         ========      =======     =======
1997
Transportation.......       2,324       20,756      28,297
Hospitality..........         907        1,926       4,395
Commercial...........       3,804       18,971      19,074
Other................       2,069        6,973       8,312
Not allocated........           0            0           0
                         --------      -------     -------
Totals...............    $  9,104      $48,626     $60,078
                         ========      =======     =======
</TABLE>

    Investment income is allocated to segments based on each segment's
percentage of insurance reserves. Investment income not allocated to segments
includes investment income allocable to capital and surplus and realized gains
and losses.

                                      F-11
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors and Stockholders
American Country Holdings Inc.

    In our opinion, the accompanying consolidated balance sheets as of
December 31, 1999 and 1998, and the related consolidated statements of income,
stockholders' equity, and cash flows for the years then ended present fairly, in
all material respects, the financial position of American Country Holdings Inc.
and its subsidiaries (the "Company") at December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States.
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 of these statements in accordance with
auditing standards generally accepted in the United States which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above. The consolidated statements of income,
stockholders' equity, and cash flows of the Company for the year ended
December 31, 1997 were audited by other independent accountants whose report
dated February 24, 1998 expressed an unqualified opinion on those statements.

                                          PRICEWATERHOUSECOOPERS LLP

Chicago, Illinois
March 29, 2000

                                      F-12
<PAGE>
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors and Stockholders

American Country Holdings Inc.

    We have audited the accompanying consolidated statements of income,
stockholders' equity, and cash flows for the year ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 amount and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of American
Country Holdings Inc. and Subsidiaries for the year ended December 31, 1997, in
conformity with accounting principles generally accepted in the United States.

                                          /s/ ERNST & YOUNG LLP

Chicago, Illinois

February 24, 1998

                                      F-13
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
ASSETS
Investments (NOTES 2 AND 3):
Available-for-sale:
  Fixed maturities--At fair value (amortized cost: 1999
    $129,526,000; 1998--$122,010,000).......................  $126,297   $125,086
  Equity securities--At fair value (cost: 1999 $353,000;
    1998--$353,000).........................................       367        402
Collateral loans (at amortized cost, which approximates fair
  value)....................................................     2,721        540
                                                              --------   --------

Total investments...........................................   129,385    126,028
Cash and cash equivalents...................................     4,973     10,353
Premiums receivable (net of allowance: 1999 $348,000;
  1998--$262,000)...........................................    13,048      7,378
Reinsurance recoverable.....................................    15,233     13,402
Deferred income taxes.......................................     6,535      3,624
Deferred policy acquisition costs...........................     3,251      2,355
Accrued investment income...................................     1,772      1,705
Property and equipment......................................       832        820
Other assets................................................       929      2,640
                                                              --------   --------
Total assets................................................  $175,958   $168,305
                                                              ========   ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Unpaid losses and loss adjustment expenses................  $104,493   $ 92,417
  Unearned premiums.........................................    18,728     14,461
  Note payable (NOTE 8).....................................    11,150      9,300
  Accrued expenses..........................................     3,179      3,854
  Premium deposits..........................................         9      2,894
  Drafts outstanding........................................     2,023      3,792
  Income taxes payable......................................      (334)       465
                                                              --------   --------
Total liabilities...........................................   139,248    127,183
Commitments and contingent liabilities (NOTES 11 AND 12)
Stockholders' equity (NOTES 1 AND 7):
  Common Stock--$.01 par value. Authorized--60,000,000
    shares
    Issued and outstanding shares: 1999 32,045,214; 1998
    32,045,214..............................................       320        320
  Preferred Stock Authorized--2,000,000 shares
    Issued and outstanding shares: 0........................
  Additional paid-in capital................................    36,864     36,864
  Accumulated other comprehensive income (loss).............    (1,784)     2,553
  Retained earnings.........................................     1,310      1,385
                                                              --------   --------
Total stockholders' equity..................................    36,710     41,122
                                                              --------   --------
                                                              $175,958   $168,305
                                                              ========   ========
</TABLE>

                See notes to consolidated financial statements.

                                      F-14
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
                                                                      (IN THOUSANDS,
                                                                  EXCEPT PER SHARE DATA)
<S>                                                           <C>        <C>        <C>
REVENUES
Premiums earned.............................................  $69,677    $56,135    $59,814
Net investment income.......................................    7,618      7,134      7,025
Net realized gains (losses) on investments..................     (342)     1,479      1,613
Other income................................................      215        315        331
                                                              -------    -------    -------
Total revenues..............................................   77,168     65,063     68,783
LOSSES AND EXPENSES
Losses and loss adjustment expenses.........................   63,617     44,679     53,149
Amortization of deferred policy acquisition costs...........   10,377      8,804      9,104
Administrative and general expenses.........................    4,216      4,619      3,968
                                                              -------    -------    -------
Total losses and expenses...................................   78,210     58,102     66,221
                                                              -------    -------    -------
Income (loss) before income taxes...........................   (1,042)     6,961      2,562
Provision for income tax (NOTE 5):
  Current...................................................      125      1,374      4,163
  Deferred..................................................   (1,092)      2110     (3,670)
                                                              -------    -------    -------
                                                                 (967)     1,585        493
                                                              -------    -------    -------
Net income (loss)...........................................  $   (75)   $ 5,376    $ 2,069
                                                              =======    =======    =======
Basic and dilutive earnings per share.......................  $   .00    $   .17    $   .06
                                                              =======    =======    =======
</TABLE>

                See notes to consolidated financial statements.

                                      F-15
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                  ACCUMULATED
                                                                    ADDITIONAL       OTHER       RETAINED        TOTAL
                                             NUMBER OF    COMMON     PAID-IN     COMPREHENSIVE   EARNINGS    STOCKHOLDERS'
                                              SHARES      STOCK      CAPITAL        INCOME       (DEFICIT)      EQUITY
                                             ---------   --------   ----------   -------------   ---------   -------------
<S>                                          <C>         <C>        <C>          <C>             <C>         <C>
Balance at December 31, 1996...............    35,557       356            0           919         39,162        40,437

Comprehensive income, net of tax:
Net Income.................................         0         0            0             0          2,069         2,069
Change in net unrealized investment gains
  (net of applicable income taxes of
  $904)....................................         0         0            0         2,076              0         2,076
Less: Elimination of realized gains
  included in income as reported (net of
  applicable income tax of $(548)).........         0         0            0        (1,065)             0        (1,065)
Other......................................         0         0            0            33              0            33
                                                                                                                -------
Total comprehensive income.................                                                                       3,113
Redemption of shares recognized as part of
  reverse acquisition......................   (35,557)     (356)           0             0        (39,894)      (40,250)
Acquisition of Western Systems.............     7,903        79       10,205             0         (5,328)        4,956
Issuance of additional shares..............    24,001       204       26,427             0              0        26,667
Issuance of additional shares upon exercise
  of options and warrants..................       132         1          216             0              0           217
                                              -------      ----       ------        ------        -------       -------
Balance at December 31, 1997...............    32,036       320       36,848         1,963         (3,991)       35,140
Comprehensive income, net of tax:
Net Income.................................         0         0            0             0          5,376         5,376
Change in net unrealized investment gains
  (net of applicable income taxes of
  $862)....................................         0         0            0         1,558              0         1,558
Less: Elimination of realized gains
  included in income as reported (net
  applicable income tax of $(503)).........         0         0            0          (976)             0          (976)
Other......................................         0         0            0             8              0             8
                                                                                                                -------
Total comprehensive income.................                                                                       5,966
Issuance of additional shares upon exercise
  of options and warrants..................         9         0           16                            0            16
                                              -------      ----       ------        ------        -------       -------
Balance at December 31, 1998...............    32,045       320       36,864         2,553          1,385        41,122

Comprehensive income, net of tax:
Net Income.................................         0         0            0             0            (75)          (75)
Change in net unrealized investment gains
  (net of applicable income taxes of
  $(2,160))................................         0         0            0        (4,522)             0        (4,522)
Less: Elimination of realized gains
  included in income as reported (net of
  applicable income tax of $116)...........         0         0            0           226              0           226
Other......................................         0         0            0           (41)                         (41)
                                                                                                                -------
Total comprehensive income.................                                                                      (4,412)
Issuance of additional shares upon exercise
  of options and warrants..................         0         0            0             0              0             0
                                              -------      ----       ------        ------        -------       -------
Balance at December 31, 1999...............    32,045       320       36,864        (1,784)         1,310        36,710
                                              =======      ====       ======        ======        =======       =======
</TABLE>

                                      F-16
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
OPERATING ACTIVITIES
Net income..................................................  $    (75)  $  5,376   $  2,069
Adjustments to reconcile net income to net cash provided by
  operating activities:
Change in premiums receivables and reinsurance
  recoverables..............................................    (7,499)     2,495     (4,613)
Change in reserve for unpaid losses and loss adjustment
  expenses..................................................    12,076     (6,670)     8,122
Change in reserve for unearned premiums.....................     4,267      1,048        170
Amortization of deferred policy acquisition costs...........    10,377      8,804      9,104
Deferred policy acquisition costs capitalized...............   (11,273)    (8,614)    (8,782)
Net realized losses (gains) on investments..................       342     (1,479)    (1,613)
Provision for depreciation..................................       475        315        308
Change in accrued expenses..................................    (5,383)      (647)      (893)
Change in income taxes payable..............................      (724)    (2,229)     2,329
Change in other assets and liabilities......................       758      1,991     (2,245)
                                                              --------   --------   --------
Net cash provided by operating activities...................     3,300        390      3,956
                                                              --------   --------   --------
INVESTING ACTIVITIES
Fixed maturities Available-for-sale:
Purchases...................................................  (155,717)  (193,727)  (141,633)
Sales.......................................................   133,926    174,614    109,758
Maturities, calls, and prepayments..........................    13,803     15,855     10,038
Equity securities...........................................        --         --         --
Available-for-sale:
Purchases...................................................        --         --     (1,968)
Sales.......................................................        --         --     10,646
Maturities, calls, and prepayments..........................        --      1,238         --
Fixed maturities Held-to-maturity:
Purchases...................................................        --         --
Maturities, calls, and prepayments..........................                           4,715
Net sales of short-term investments.........................        --          7      1,230
Sale or maturity of other investments.......................       564        262      2,562
Net issuance of collateral loans............................    (3,106)    (1,301)      (496)
Business combination Net of cash acquired...................        --         --    (31,862)
                                                              --------   --------   --------
Net cash used by investing activities.......................   (10,530)    (3,052)   (37,009)
                                                              --------   --------   --------
FINANCING ACTIVITIES
Proceeds from note payable..................................     1,850      4,500      4,800
Issuance of common stock....................................        --         --     26,667
Options and warrants exercised..............................        --         16        217
Dividends paid to stockholders..............................        --         --         --
                                                              --------   --------   --------
Net cash and cash equivalents provided by financing
  activities................................................     1,850      4,516     31,684
                                                              --------   --------   --------
Net increase (decrease) in cash and cash equivalents........    (5,380)     1,854     (1,369)
Cash and cash equivalents at beginning of year..............    10,353      8,499      9,868
                                                              --------   --------   --------
Cash and cash equivalents at end of year....................  $  4,973   $ 10,353   $  8,499
                                                              ========   ========   ========
</TABLE>

                See notes to consolidated financial statements.

                                      F-17
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  ORGANIZATION.

BUSINESS COMBINATION

    American Country is the successor to an insurance company that was organized
in 1978 under the name Calumet Insurance Company. In 1997, American Country
entered into a transaction with The Western Systems Corp. (Western Systems) in
which a subsidiary of Western Systems acquired substantially all the assets and
assumed substantially all the liabilities of American Country Insurance Company
(American Country) and its wholly owned subsidiary, American Country Financial
Services Corp. (Financial Services) for a purchase price of $40,300,000 (the
"Acquisition"). Western Systems had sold its business operations in early 1997
and subsequently until the Acquisition its business consisted primarily of
managing its cash and cash equivalents as a publicly owned shell corporation. As
a non-operating entity with only monetary assets and liabilities, Western
Systems was actively seeking a business combination with an operating business
that could use its available cash. In connection with the Acquisition, Western
Systems sold 24 million shares of its common stock (approximately 75% of the
shares outstanding) to three investors. Mr. Martin Solomon, Mr. Wilmer J.
Thomas, Jr. and Frontier Insurance Group each acquired 8 million shares, or
approximately 25% of the shares outstanding. Financing for the Acquisition was
provided by Western Systems' cash on hand, the issuance of Western Systems
common stock, and a line-of-credit agreement. Following the Acquisition, Western
Systems changed its name to American Country Holdings Inc. (ACHI or the Company)
to better reflect the fact that its business operations consisted of the
property and casualty and premium finance businesses of American Country.

    For financial reporting purposes, the Acquisition has been accounted for as
a reverse Acquisition whereby American Country was deemed to be the acquirer of
the Company. Paragraph 70 of APB 16 provides that presumptive evidence of the
acquiring corporation in business combinations effected by an exchange of stock
is obtained by identifying the former common stockholder interests of a
combining company which either retain or receive the larger portion of the
voting rights in the combined corporation. As described above, Messrs. Solomon
and Thomas received a 50% interest in the Company in connection with the
Acquisition, which was the larger portion of the voting rights of the Company.
Moreover, Messrs. Solomon and Thomas had served on the Board of Directors of the
previous parent of American Country and continued to serve on the board of the
Company with Mr. Solomon serving as the Chairman of the Board and the Chief
Executive Officer of the Company. American Country, the Company's primary
operating entity, continued the same business after the Acquisition, which
provides additional support for accounting for the Acquisition as a reverse
acquisition.

    Because Western Systems was a non-operating entity, with only monetary
assets and liabilities, historical book value was deemed to equal fair value,
and no goodwill or other intangible assets were recorded as a result of the
Acquisition. Because American Country was deemed to be the accounting acquirer,
the financial statements for the Company for periods prior to the business
combination date (July 29, 1997), are those of American Country. The Acquisition
was accounted for by the purchase method.

    The following pro forma data is presented as if the Acquisition had occurred
on January 1, 1997:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED
                                                                DECEMBER 31
                                                              ----------------
                                                                    1997
                                                              ----------------
                                                               (IN THOUSANDS,
                                                              EXCEPT PER SHARE
                                                                   DATA)
<S>                                                           <C>
Revenues....................................................        $68,783
Net income..................................................          1,769
Basic and dilutive earnings per share.......................            .05
</TABLE>

                                      F-18
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1.  ORGANIZATION. (CONTINUED)
NATURE OF OPERATIONS

    American Country is a property and casualty insurance company, domiciled in
the State of Illinois, which underwrites and markets specialty transportation,
commercial, and personal lines of insurance. Transportation lines, principally
liability and collision coverage for taxicabs and limousine companies, accounted
for approximately 65.4% of American Country's 1999 gross premiums written. Other
commercial lines, principally workers' compensation, multiperil and auto
liability and physical damage accounted for approximately 22.9% of American
Country's gross premiums written in 1999. Hospitality lines, which include
coverage for restaurants, taverns and banquet halls accounted for 11.6% of total
gross premiums written in 1999. Personal lines, primarily auto and homeowners'
policies, accounted for the balance. American Country Financial Services Corp.
operates principally as a premium finance company. Formed in 1998, American
Country Professional Services Corp. (Professional Services) is a finance company
that provides collateral loans to American Country's larger customers. The
Company's business segments are defined in Note 14.

    Yellow Cab Company was an affiliate of American Country prior to
December 31, 1996, and accounted for $11,250,000, $11,953,000 and $10,972,000 of
premiums earned in 1999, 1998 and 1997, respectively. In addition, included in
premiums earned is $6,231,000, $7,088,000 and $7,447,000 in 1999, 1998 and 1997,
respectively, related to Checker Taxi members. The segment reporting of this
income is under Transportation lines.

    Prior to January 3, 1997, Western Systems primarily operated under a
franchise agreement with Transmedia Network, Inc. (Transmedia) which granted
Western Systems the right to operate a franchise in California, Washington,
Oregon, and certain parts of Nevada. The franchise provided the rights to
receive food and beverage credits from restaurants that accept the Transmedia
restaurant card. On January 3, 1997, Western Systems sold its Transmedia
franchise. At July 29, 1997, Western Systems had no operating activities and its
business consisted primarily of managing the cash and cash equivalents of
Western Systems. Prior to the Acquisition, Western Systems was a public shell
actively seeking a business combination with an operating business that would
use its available cash.

2.  SIGNIFICANT ACCOUNTING POLICIES.

BASIS OF PRESENTATION

    The accompanying consolidated financial statements of the Company have been
prepared in conformity with generally accepted accounting principles (GAAP) and
include the accounts and operations of ACHI and its wholly owned subsidiaries,
American Country, Financial Services and Professional Services. Significant
intercompany accounts and transactions have been eliminated. American Country
maintains its records in accordance with accounting practices prescribed or
permitted by the Illinois Department of Insurance. In consolidating American
Country, adjustments have been made to conform its accounts to GAAP.

USE OF ESTIMATES AND CONCENTRATION OF RISK

    The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions,
which include the reserves for losses and loss adjustment expenses and fair
market value of financial instruments, could change in the future as more
information becomes

                                      F-19
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2.  SIGNIFICANT ACCOUNTING POLICIES. (CONTINUED)
known which could impact the amounts reported and disclosed herein. American
Country has a concentration of risk that is both geographic and customer-based
in Chicago.

PREMIUM REVENUE

    Premiums are earned pro rata over the terms of the policies. The reserve for
unearned premiums is determined on a daily basis.

LOSSES AND LOSS ADJUSTMENT EXPENSES

    Losses and loss adjustment expenses (LAE) represent the estimated ultimate
net cost of all reported and unreported losses incurred through December 31. The
reserves for unpaid losses and LAE are estimated using individual case-basis
valuations and statistical analyses and are not discounted. Those estimates are
subject to the effects of trends in loss severity and frequency. Although
considerable variability is inherent in the estimates of reserves for losses and
LAE, management believes that the reserves for losses and LAE are adequate. The
estimates are continually reviewed and adjusted as necessary as experience
develops or new information becomes known; such adjustments are included in
current operations. Salvage and subrogation recoveries are accrued when the
related losses are incurred.

REINSURANCE

    Reinsurance premiums, losses, and LAE are accounted for on a basis
consistent with those used in accounting for the original policies issued and
the terms of the reinsurance contracts. Premiums earned and losses incurred
ceded to other companies have been reported as a reduction of premium revenue
and losses and LAE. Commissions allowed by reinsurers on business ceded have
been accounted for as a reduction of the related policy acquisition costs.
Reinsurance recoverables are reported relating to the portion of reserves and
paid losses and LAE that are ceded to other companies. The Company remains
contingently liable for all loss payments, in the event of failure to collect
from the reinsurers.

DEFERRED POLICY ACQUISITION COSTS

    Costs of acquiring new business, principally commissions and premium taxes,
are deferred, subject to recoverability, and amortized as the related premium is
earned. The Company considers anticipated investment income in determining
whether a premium deficiency relating to short duration contracts exists.

INVESTMENTS

    The Company follows Financial Accounting Standards Board (FASB) Statement
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
which requires categorization of fixed maturities either as held to maturity,
available for sale, or trading and equity securities as available for sale or
trading.

    Fixed maturities (bonds and redeemable preferred stocks) that the Company
has both the positive intent and ability to hold to maturity are carried at
amortized cost. Fixed maturities that the Company does not have the positive
intent and ability to hold to maturity and all equity securities (common stocks
and nonredeemable preferred stocks) are classified as available-for-sale and are
reported at fair value. Unrealized gains and losses on fixed maturities
available for sale and equity securities are excluded from income and are
recorded directly to stockholders' equity as accumulated other comprehensive
income, net

                                      F-20
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2.  SIGNIFICANT ACCOUNTING POLICIES. (CONTINUED)
of related deferred income taxes. The Company has not classified any fixed
maturity or equity securities as trading.

    FASB Statement No. 115 allows companies to transfer securities between
categories for events that are isolated, nonrecurring, and unusual that could
not have been reasonably anticipated. Accordingly, in connection with the
Acquisition, the Company chose to reclassify all held to maturity securities to
available for sale. As a result, the Company transferred securities with
amortized costs of $23,000,000 of held-to-maturity fixed maturities to available
for sale resulting in a $300,000 increase to unrealized investment gains. The
Company no longer holds any fixed maturities as held-to-maturity.

    Collateral loans are carried at amortized cost. Short-term investments are
carried at cost, which approximates fair value, and include investments with
maturities of less than one year at the date of acquisition.

    Net investment income consists primarily of interest and dividends less
expenses. Interest on fixed maturities and mortgage loans, adjusted for any
amortization of discount or premium, is recorded as income when earned and
includes adjustments resulting from anticipated prepayments of collateralized
mortgage obligations. Investment expenses are accrued as incurred. Realized
investment gains or losses are computed using specific costs of securities sold,
and include write-downs on investments having an other-than-temporary decline in
value.

INCOME TAXES

    American Country's federal income tax return was consolidated with Great
Dane Holdings Inc. and subsidiaries for the period January 1, 1997 to April 16,
1997. Income tax expense during those periods was computed on a separate company
basis.

    For the period April 17, 1997 through July 29, 1997, American Country has
filed a consolidated return with its then Parent, American Country Holdings
Corp. Effective with the Acquisition the Company files its tax return on a
consolidated basis with its subsidiaries.

    Deferred income tax has been provided for the effects of temporary
differences between financial reporting and tax bases of assets and liabilities
and has been measured using the enacted marginal tax rates and laws that are
currently in effect.

PROPERTY AND EQUIPMENT

    Property and equipment, primarily data processing equipment and leasehold
improvements, are reported at depreciated cost, with depreciation recorded on a
straight-line basis with lives of five years for data processing equipment and a
range of six to eleven years for leasehold improvements. Accumulated
depreciation amounted to $3,447,000 and $3,123,000 at December 31, 1999 and
1998, respectively. Depreciation expense amounted to $346,000, $315,000 and
$308,000 for the years 1999, 1998 and 1997 respectively.

STOCK OPTIONS

    The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," (APB 25) and related
interpretations in accounting for its employee stock options rather than the
alternative fair value accounting provided for under Financial Accounting
Standards Board (FASB) Statement No. 123, "Accounting for Stock-Based
Compensation." Under

                                      F-21
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2.  SIGNIFICANT ACCOUNTING POLICIES. (CONTINUED)
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

EARNINGS PER SHARE

    In 1999 and 1998, basic earnings per share is computed based on the
weighted-average number of common shares outstanding, excluding any dilutive
effect of options and warrants. In calculating basic earnings per share for
1997, the number of shares used is based on the number of shares received by
American Country in the transaction. Each 22.5% shareholder received 8,000,000
and each 27.5% shareholder received 9,778,000 shares, for a total of 35,557
shares. In a reverse acquisition, the historical shareholder's equity of the
acquirer prior to the merger is retroactively restated (a recapitalization) for
the equivalent number of shares received in the merger after giving effect to
any difference in par value of the issuers and acquirer's stock by an offset to
paid in capital. Dilutive earnings per share is computed based on the
weighted-average number of common shares outstanding plus the dilutive effects
of options and warrants. The dilutive effect of options and warrants is
calculated under the treasury stock method using the average market price for
the period. Earnings per share is calculated as follows (in thousands, except
per share data):

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Net income..................................................      (75)   $ 5,376    $ 2,069
                                                              =======    =======    =======
Weighted average basic shares outstanding...................   32,045     32,043     34,028
Shares for options and warrants.............................       36        247        431
                                                              -------    -------    -------
Dilutive shares outstanding.................................   32,081     34,459     35,557
                                                              =======    =======    =======
Basic earnings per share....................................  $   .00    $   .17    $   .06
                                                              =======    =======    =======
Dilutive earnings per share.................................  $   .00    $   .17    $   .06
                                                              =======    =======    =======
</TABLE>

CASH FLOWS

    Short-term investments, consisting principally of commercial paper which
have a maturity of 90 days or less at date of purchase, are considered cash
equivalents.

FINANCIAL INSTRUMENTS

    Fair value for fixed maturity and equity securities is based on quoted
market prices or, if they are not actively traded, on estimated values obtained
from independent pricing services. Fair values of other financial instruments
approximate their carrying values.

RECLASSIFICATION

    Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform to the 1999 presentation.

                                      F-22
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3.  INVESTMENTS

    The components of net investment income are as follows:

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31
                                                      ------------------------------
                                                        1999       1998       1997
                                                      --------   --------   --------
<S>                                                   <C>        <C>        <C>
Fixed maturities....................................   $7,568     $7,313     $6,724
Equity securities...................................       30         64        524
Short-term investments..............................      456        331        678
Other...............................................      232        128        224
Gross investment income.............................    8,286      7,836      8,150
Investment expenses.................................      668        702      1,125
Net investment income...............................   $7,618     $7,134     $7,025
</TABLE>

    Realized gains (losses) on investments are as follows:

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31
                                                      ------------------------------
                                                        1999       1998       1997
                                                      --------   --------   --------
                                                              (IN THOUSANDS)
<S>                                                   <C>        <C>        <C>
Fixed maturities:
  Gross gains.......................................   $  760     $1,661     $1,053
  Gross losses......................................   (1,102)      (286)      (213)
  Equity securities:
  Gross gains.......................................       --        111        904
  Gross losses......................................       --         (7)      (131)
Net realized gains (losses) on investments..........   $ (342)    $1,479     $1,613
</TABLE>

    The components of net unrealized investment gains, included in other
comprehensive income, are as follows:

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                 --------------------------------
                                                   1999        1998        1997
                                                 --------   ----------   --------
                                                          (IN THOUSANDS)
<S>                                              <C>        <C>          <C>
Fixed maturities available-for-sale............  $(3,230)     $3,077      $1,934
Equity securities available-for-sale...........       14          48         135
Deferred tax credit (charge)...................    1,431        (613)       (139)
Net unrealized investment gains (losses).......  $(1,785)     $2,512      $1,930
</TABLE>

    In connection with the Acquisition, the tax basis of certain assets and
liabilities changed. As a result, the deferred tax charges related to the net
unrealized investment gains at December 31, 1999, 1998 and 1997 do not represent
the corporate federal income tax rate of 34%, because the tax basis of these
securities was changed to equal the market value on the Acquisition date. As
these securities are sold or mature, the deferred taxes will approach the
federal income tax rate of 34%.

                                      F-23
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3.  INVESTMENTS (CONTINUED)
    The changes in net unrealized investment gains (losses) are as follows:

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31
                                                     ------------------------------
                                                       1999       1998       1997
                                                     --------   --------   --------
                                                             (IN THOUSANDS)
<S>                                                  <C>        <C>        <C>
Fixed maturities available-for-sale................  $(6,306)    $1,028     $  870
Equity securities available-for-sale...............      (35)       (87)      (215)
Deferred tax credit (charge).......................    2,044       (359)       356
                                                     -------     ------     ------
Total..............................................  $(4,297)    $  582     $1,011
                                                     =======     ======     ======
</TABLE>

    There were no held-to-maturity securities in 1999 or 1998. The change in net
unrealized investment gains (losses) on fixed maturities held-to-maturity was,
$(596,000) for the year ended December 31, 1997.

    The following is a summary of available-for-sale securities:

<TABLE>
<CAPTION>
                                                                        GROSS UNREALIZED
                                                          --------------------------------------------
                                                          AMORTIZED
                                                            COST       GAINS      LOSSES    FAIR VALUE
                                                          ---------   --------   --------   ----------
                                                                         (IN THOUSANDS)
<S>                                                       <C>         <C>        <C>        <C>
DECEMBER 31, 1999
AVAILABLE-FOR-SALE SECURITIES
Fixed maturities:
  U.S. government.......................................  $ 12,750     $   82     $  191     $ 12,641
  States and political subdivision......................    30,620        164        552       30,233
  Foreign governments...................................     1,299          2         40        1,261
  Corporate securities..................................    48,203        204      1,627       46,781
  Mortgage-backed securities............................    36,654          1      1,273       35,381
                                                          --------     ------     ------     --------
Total fixed maturities..................................   129,526        452      3,682      126,297
Equity securities.......................................       353         39         25          367
                                                          --------     ------     ------     --------
Total...................................................  $129,879     $  491     $3,707     $126,664
                                                          ========     ======     ======     ========
DECEMBER 31, 1998
AVAILABLE-FOR-SALE SECURITIES
Fixed maturities:
  U.S. government.......................................  $ 15,626     $  519     $   13     $ 16,132
  States and political subdivision......................    37,513      1,194         10       38,697
  Foreign governments...................................     1,068         --          5        1,062
  Corporate securities..................................    42,124      1,373         40       43,457
  Mortgage-backed securities............................    25,679        230        172       25,738
                                                          --------     ------     ------     --------
Total fixed maturities..................................   122,010      3,316        240      125,086
Equity securities.......................................       353         48         --          402
                                                          --------     ------     ------     --------
Total...................................................  $122,363     $3,364     $  240     $125,488
                                                          ========     ======     ======     ========
</TABLE>

                                      F-24
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3.  INVESTMENTS (CONTINUED)
    The amortized cost and fair value of fixed maturities by contractual
maturity at December 31, 1999, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                          AMORTIZED     FAIR
                                                            COST       VALUE
                                                          ---------   --------
                                                             (IN THOUSANDS)
<S>                                                       <C>         <C>
Due in one year or less.................................  $  1,799    $  1,808
Due after one year through five years...................    35,333      34,891
Due after five years through ten years..................    35,202      34,081
Due after ten years.....................................    20,538      20,136
Mortgage-backed-securities..............................    36,654      35,381
                                                          --------    --------
                                                          $129,526    $126,297
                                                          ========    ========
</TABLE>

    At December 31, 1999, investments in fixed maturities with an admitted asset
value of $2,299,000 were on deposit with state insurance departments to satisfy
regulatory requirements.

4.  REINSURANCE.

    American Country reinsures a portion of its exposure by ceding to reinsurers
a portion of the premiums received on the policies that are reinsured. Insurance
is ceded primarily to reduce the net liability on individual risks and to
protect against catastrophic losses. Although reinsurance does not legally
discharge an insurer from its primary liability for the full amount of coverage,
it does make the assuming reinsurer liable to the insurer to the extent of the
losses reinsured. American Country seeks to maintain its risk exposure at
appropriate levels by setting maximum coverage limits by class and type of
business. These agreements also provide American Country with increased capacity
to write larger risks and to maintain it exposure to loss within its capital
resources.

SPECIALTY TRANSPORTATION REINSURANCE

    American Country currently purchases excess of loss reinsurance protection
for its transportation business. Excess of loss reinsurance requires that a
company retain a predetermined dollar amount of loss, known as the "retention."
The insurance company is indemnified by the reinsurer for losses which exceed
this dollar amount up to the limit of the reinsurance agreement. Any portion of
the loss exceeding the agreement limit is either paid by the company or by other
reinsurance agreements. Under its excess of loss program for its transportation
business, American Country has a retention of $350,000 and reinsurance coverage
of up to $4 million per occurrence.

                                      F-25
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4.  REINSURANCE. (CONTINUED)
COMMERCIAL AND PERSONAL LINES REINSURANCE

    American Country's commercial and personal lines business is reinsured on a
multi-line, multi-layer excess of loss basis. Reinsurance coverage under the
current treaty is as follows:

<TABLE>
<S>                                         <C>
All Property Business                       The reinsurer pays up to $3,650,000 in excess of
                                            American Country's retention of $350,000 per risk.

All Casualty Business                       The reinsurer pays up to $3,650,000 in excess of
(including workers' compensation)           American Country's retention of $350,000 per occurrence.
                                            A supplemental reinsurance agreement provides coverage
                                            of $8,000,000 per occurrence and per claimant on
                                            American Country's Workers' compensation program.
</TABLE>

    Property catastrophe reinsurance also is in force, which provides American
Country with $3,750,000 of protection after a retention of $350,000 per
catastrophic loss occurrence.

    Excess (umbrella) liability business is reinsured under a separate
reinsurance agreement which provides coverage to American Country of up to
$5,000,000 per occurrence in excess of $1,000,000 per occurrence in excess of
primary limits. American Country's retention is 5% ($50,000) of the first
$1,000,000 excess layer.

    For the period January 1 through December 31, 1998, substantially all of
American Country's personal lines business was reinsured by Ohio Casualty
pursuant to a reinsurance agreement. This agreement was not renewed in 1999, as
American Country did not seek renewal of the personal lines policies reinsured
under the treaty.

    Assumed and ceded reinsurance arrangements are summarized as follows:

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31
                                                      ------------------------------
                                                        1999       1998       1997
                                                      --------   --------   --------
<S>                                                   <C>        <C>        <C>
ASSUMED REINSURANCE
Premiums written....................................   $1,928     $2,890     $  840
Premiums earned.....................................    2,352      1,870        862
Losses and LAE......................................    2,385      1,437        598
Losses and LAE reserves*............................    4,503      3,097      2,575
Unearned premium reserves*..........................      860      1,284        264
CEDED REINSURANCE
Premiums written....................................    3,972     11,210      8,338
Premiums earned.....................................    4,011     10,888      8,432
Losses and LAE......................................    7,116      5,300      6,261
Losses and LAE reserves*............................   13,141     11,952     15,114
Unearned premium reserves*..........................      986      1,025        703
</TABLE>

------------------------

*   As of year-end.

    The Company remains obligated for amounts reinsured in the event that
reinsurers do not meet their obligations. On June 1, 1998, an endorsement to the
Company's first excess multi-line reinsurance treaty was executed, which
effectively changed the treaty from a flat-rated contract with a contingent
profit

                                      F-26
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4.  REINSURANCE. (CONTINUED)
sharing provision to a swing-rated contract. A swing rated contract is based on
the Company's loss experience, i.e., there is a maximum premium rate and a
minimum premium rate, whereas a flat rated contract has a set rate, regardless
of results. The change from a flat rated contract to a swing rated contract in
the 1996 through 1998 years resulted in a decrease in ceded premium because the
rate charged under the swing rated contract was lower than the flat rate. This
was due to the Company's reinsurance loss experience which resulted in a premium
rate under the swing rated contract that was lower than the premium rate under
the previous flat rated contract. The reduction in ceded premium resulted in an
increase in net earned premium of $776,000, net of tax. Under this changed
agreement, the effects of subsequent changes in either actual or estimated
development are accounted for by adjusting the previously deferred amount to the
balance that would have existed had the revised estimate been available at the
inception of the reinsurance transactions, with a corresponding charge or credit
to income.

    The largest balance of ceded premiums by American Country to any one
reinsurer during 1999 was $4,133,000, or 5.3% of gross premiums written. This
amount represents the placing of nearly all of the treaty reinsurance with
General Reinsurance Corporation effective July 1, 1999. Although American
Country remains ultimately responsible for the payment of losses and loss
expenses, management does not believe that this presents an excess concentration
of credit risk. The largest net amount recoverable from any one reinsurer was
$4.2 million, or 2.4% of total assets. Although there may be a concentration of
risk element in existence at December 31, 1999, the Company believes that this
risk is manageable and not excessive as of that date.

5. FEDERAL INCOME TAXES.

    The Company recognized a total income tax benefit of $967,040. This amount
is comprised of current tax expense of $124,800 and deferred tax benefit of
$1,091,840.

    Reconciliation of the corporate federal income tax rate to the Company's
effective income tax rates are as follows:

<TABLE>
<CAPTION>
                                                                        YEAR ENDED
                                                                       DECEMBER 31
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Corporate federal income tax rate...........................     34%        34%        34%
Nontaxable investment income................................     44        (17)       (15)
Prior Year Return to Provision Adjustment...................     14         --         --
State income taxes..........................................     --          6         --
Other.......................................................     --         --         --
Effective income tax rate...................................     92%        23%        19%
</TABLE>

    In connection with the Acquisition in 1997, the tax basis of certain assets
and liabilities changed. The current tax provision increased while the deferred
tax provision decreased as a result of the change in tax basis.

                                      F-27
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5.  FEDERAL INCOME TAXES. (CONTINUED)

    Significant components of the Company's deferred tax liabilities and assets
are as follows:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Deferred tax assets:
  Insurance reserves........................................  $ 5,509    $ 4,406
  Unrealized investment losses..............................    1,430         --
  Pension liability.........................................      389        405
  Loss and Credit Carryforwards.............................      305         --
  Other.....................................................      461        351
                                                              -------    -------
Total deferred tax assets...................................    8,094      5,162
Deferred tax liabilities:
  Policy acquisition costs..................................   (1,105)      (801)
  Unrealized investment gains...............................       --       (613)
  Other.....................................................     (454)      (124)
                                                              -------    -------
Total deferred tax liabilities..............................   (1,559)    (1,538)
                                                              -------    -------
Net deferred tax assets.....................................  $ 6,535    $ 3,624
                                                              =======    =======
</TABLE>

    The nature of the Company's deferred tax assets and liabilities is such that
the reversal pattern for these temporary differences should generally result in
realization of the deferred tax assets. Accordingly, management has determined
that no valuation allowance is necessary.

    A net operating loss carryforward of $465,000, which was generated in 1999,
will expire in 2018. An alternative minimum tax credit of $145,800 was also
generated in 1999.

                                      F-28
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6.  LOSSES AND LOSS ADJUSTMENT EXPENSES.

    The following table provides a reconciliation of the beginning and ending
reserve balances for losses and LAE:

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Balance at January 1........................................  $ 92,417   $99,087    $90,965
  Less reinsurance recoverables.............................    11,952    15,114     11,515
                                                              --------   -------    -------
Net balance at January 1....................................    80,465    83,973     79,450
Add net incurred claims related to:
  Current year..............................................    59,227    44,244     53,613
  Prior years...............................................     4,389       434       (464)
                                                              --------   -------    -------
Total net claims incurred...................................    63,616    44,678     53,149
Deduct net claims paid related to:
  Current year..............................................    18,368    15,231     19,624
  Prior years...............................................    34,364    32,955     29,002
                                                              --------   -------    -------
Total net claims paid.......................................    52,732    48,186     48,626
                                                              --------   -------    -------
Net balance at December 31..................................    91,349    80,465     83,973
  Plus reinsurance recoverables.............................    13,144    11,952     15,114
                                                              --------   -------    -------
Balance at December 31......................................  $104,493   $92,417    $99,087
                                                              ========   =======    =======
</TABLE>

    The $4,389,000 increase in prior years' reserves during 1999 is attributable
to reserve strengthening, including additional reserves for Workers'
Compensation reserves of $3,500,000, for losses incurred in calendar years 1997
and prior. This is primarily due to increased medical costs and longer duration
disabilities covered under these policies.

7.  STOCKHOLDERS' EQUITY.

    Statutory accounting practices prescribed or permitted for American Country
by regulatory authorities differ from generally accepted accounting principles.
American Country's statutory-basis capital and surplus was $37,173,000 and
$39,083,000 at December 31, 1999 and 1998, respectively, and American Country's
statutory-basis net income was $(2,036,115), $5,218,000 and $2,590,000 for the
years ended December 31, 1999, 1998, and 1997, respectively.

    Property/casualty insurance companies are subject to certain Risk-Based
Capital (RBC) requirements as specified by the National Association of Insurance
Commissioners. Under those requirements, the amount of statutory capital and
surplus maintained by a property/casualty insurance company is to be determined
based on the various risk factors. At December 31, 1999, American Country
exceeds the RBC requirements.

    The maximum amount of dividends that can be paid from American Country to
ACHI without regulatory approval is the greater of net income or 10% of capital
and surplus, each as of the preceding December 31. Accordingly, the maximum
total dividend amount available in 1999 is $3,717,000. American Country did not
declare or pay dividends to ACHI during 1999.

                                      F-29
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7.  STOCKHOLDERS' EQUITY. (CONTINUED)
    In July 1997, the Company changed the par value of its common stock to $.01
per share from $.60 per share. The change in the par value of the common stock
resulted in a decrease to common stock and a corresponding increase in
additional paid-in capital and has been recorded retroactively in the
accompanying consolidated balance sheets.

    In connection with the Acquisition, the Company sold and issued 16,000,000
shares of its common stock to certain former shareholders of the former Parent
of American Country and 8,000,000 shares of its common stock to Frontier
Insurance Group. The proceeds from the issuance of the common stock were
$26,700,000.

    At December 31, 1999, the Company had 2,054,000 warrants outstanding. The
warrants allow the warrant holder to purchase 2.19 shares of common stock at a
price of $1.83 per share through August 31, 2000.

    Accumulated other comprehensive income at December 31, 1999 and 1998
consists of the following components (in thousands):

<TABLE>
<CAPTION>
                                                                1999       1998
                                                              --------   --------
<S>                                                           <C>        <C>
Unrealized gain (loss) on securities........................   (1,784)    2,512
Other.......................................................       --        41
                                                               ------     -----
Accumulated other comprehensive income......................   (1,784)    2,553
                                                               ======     =====
</TABLE>

8.  DEBT.

    On April 30, 1998 the Company negotiated a $15 million revolving credit
facility with a new lender, bearing a maturity date of April 30, 2001. Interest
on the borrowings under the facility may be based on the prime rate minus one
percent (1%), Eurodollar loan or the Federal Funds rate. At December 31, 1999,
the unused portion of the line of credit was $3.8 million. The weighted average
interest rate on the outstanding line of credit for 1999 was 6.0%. Total
interest expense in 1999 and 1998 was $584,000 and $491,000 respectively. The
amount of interest paid in 1999 and 1998 was $530,000 and $491,000 respectively.

    The line of credit agreement contains various debt covenants including
conditions for prepayment and certain financial covenants. The most restrictive
covenant is the ratio of debt to equity. The Company is in compliance with all
covenants of the agreement as of December 31, 1999. In addition, there is a
commitment fee of .25 per annum charged for the unused portion of the total
credit facility.

9.  EMPLOYEE BENEFITS.

RETIREMENT PLAN

    Substantially all salaried employees of the Company who are at least
21 years of age are eligible to participate in a 401(k) retirement plan.
Employees may contribute from 1% to 15% of their eligible compensation to the
plan. The Company matches 50% of employee contributions up to a maximum of 8% of
eligible compensation. Total contributions by the Company to the plan were
$368,000, $135,000 and $83,000 in 1999, 1998, and 1997, respectively.

                                      F-30
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.  EMPLOYEE BENEFITS. (CONTINUED)
PENSION PLAN

    Prior to December 4, 1996, substantially all salaried employees of the
Company were covered by a defined-benefit pension plan sponsored by its former
Parent. Benefits were based on the employee's length of service and wages and
minimum benefits, as defined by the plan. The former Parent's funding policy of
the plan was generally to contribute amounts required to maintain minimum
funding standards in accordance with the Employee Retirement Income Security
Act. Pension cost allocated to the Company amounted to $53,000, $60,000 and
$224,000 in 1999, 1998 and 1997.

    Effective December 31, 1997, upon resolution by the board of directors, the
plan was frozen.

POST-RETIREMENT BENEFITS

    In addition to the defined benefit plan and the 401(k) retirement plan,
substantially all salaried employees of the Company are covered by a
postretirement benefit plan. The plan is noncontributory and provides medical
and life insurance benefits for employees who retire after attaining age 62 with
25 years of service. The net periodic postretirement benefit costs during 1999,
1998 and 1997 were $77,000, $71,000 and $70,000 respectively. The accumulated
postretirement benefit costs at December 31, 1999, 1998 and 1997 were $793,000,
$716,000 and $645,000 respectively.

    The changes in the projected benefit obligation are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                 PENSION BENEFITS                  OTHER BENEFITS
                                                                   YEARS ENDED                      YEARS ENDED
                                                                   DECEMBER 31,                     DECEMBER 31,
                                                          ------------------------------   ------------------------------
                                                            1999       1998       1997       1999       1998       1997
                                                          --------   --------   --------   --------   --------   --------
<S>                                                       <C>        <C>        <C>        <C>        <C>        <C>
Projected benefit obligation at beginning of year:......   $2,617     $2,677     $2,519      $638       $609       $570
Increases (decreases) during the year attributable to:
  Service cost..........................................        0          0        258        33         29         28
  Interest cost.........................................      183        174        192        44         42         42
  Actuarial (gains) losses..............................       98       (130)       259        (8)       (17)        (8)
  Benefits paid.........................................     (150)      (104)       (76)      (25)       (25)       (23)
  Effect of curtailment.................................        0          0       (475)        0          0          0
Net (decrease) increase for year........................      131        (60)       158        44         29         39
Projected benefit obligation at end of year.............   $2,748     $2,617     $2,677      $682       $638       $609
</TABLE>

                                      F-31
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.  EMPLOYEE BENEFITS. (CONTINUED)
    The changes in the fair value of net assets available for plan benefits are
as follows (in thousands):

<TABLE>
<CAPTION>
                                                                   PENSION BENEFITS                  OTHER BENEFITS
                                                                     YEARS ENDED                      YEARS ENDED
                                                                     DECEMBER 31,                     DECEMBER 31,
                                                            ------------------------------   ------------------------------
                                                              1999       1998       1997       1999       1998       1997
                                                            --------   --------   --------   --------   --------   --------
<S>                                                         <C>        <C>        <C>        <C>        <C>        <C>
Fair value of net assets available for plan benefits at
  beginning of the year...................................   $1,560     $1,397     $1,250       0          0          0
Increases (decreases) during the year attributable to:
  Actual return on plan assets............................       (2)       104        117       0          0          0
  Sponsor contributions...................................      196        163        106       0          0          0
  Benefits paid...........................................     (150)      (104)       (76)      0          0          0
Net increase for year.....................................       44        163        147       0          0          0
Fair value of net assets available for plan benefits at
  the end of the year.....................................   $1,604     $1,560     $1,397       0          0          0
</TABLE>

    A reconciliation of the funded status of the plans is as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                 PENSION BENEFITS                  OTHER BENEFITS
                                                                   DECEMBER 31,                     DECEMBER 31,
                                                          ------------------------------   ------------------------------
                                                            1999       1998       1997       1999       1998       1997
                                                          --------   --------   --------   --------   --------   --------
<S>                                                       <C>        <C>        <C>        <C>        <C>        <C>
Projected benefit obligations in excess of Plan
  Assets................................................   $1,144     $1,057     $1,294      $705       $638       $609
Unrecognized prior service cost.........................        0          0          0         0          8         25
Unrecognized net gain...................................        0        135          0        88          0          0
Unfunded accrued pension liability recognized in the
  consolidated balance sheet............................   $1,144     $1,192     $1,294      $793       $630       $584
</TABLE>

    Because the Pension Plan was frozen on December 31, 1997, American Country
did not recognize service cost for 1999 or 1998. The components of annual net
periodic benefit cost for the plans consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                     PENSION BENEFITS                  OTHER BENEFITS
                                                                       YEARS ENDED                      YEARS ENDED
                                                                       DECEMBER 31,                     DECEMBER 31,
                                                              ------------------------------   ------------------------------
                                                                1999       1998       1997       1999       1998       1997
                                                              --------   --------   --------   --------   --------   --------
<S>                                                           <C>        <C>        <C>        <C>        <C>        <C>
Service cost................................................    $  0       $  0       $258       $33        $29        $28
Interest cost...............................................     183        174        192        44         42         42
Expected return on plan assets..............................    (130)      (114)      (101)        0          0          0
Amortization of unrecognized transition liability...........       0          0         25         0          0          0
Curtailment gain............................................       0          0       (150)        0          0          0
Net cost....................................................    $ 53       $ 60       $224       $77        $71        $70
</TABLE>

                                      F-32
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.  EMPLOYEE BENEFITS. (CONTINUED)
    The projected benefit obligations for the plans were determined using the
following weighted-average assumptions at the dates shown:

<TABLE>
<CAPTION>
                                                                 PENSION BENEFITS                  OTHER BENEFITS
                                                                   YEARS ENDED                      YEARS ENDED
                                                                   DECEMBER 31,                     DECEMBER 31,
                                                          ------------------------------   ------------------------------
                                                            1999       1998       1997       1999       1998       1997
                                                          --------   --------   --------   --------   --------   --------
<S>                                                       <C>        <C>        <C>        <C>        <C>        <C>
Settlement discount rates...............................    7.00%      7.00%      7.00%      7.00%      7.00%      7.00%
Rates of compensation increase..........................      --         --       3.00%        --         --         --
Long-term rates of return on assets.....................    8.00%      8.00%      8.00%        --         --         --
</TABLE>

    The assumed health care trend rates for 1999 that were used to measure the
expected cost of the benefits covered by the plan are 9.0% for individuals age
65 and younger and 8.0% for individuals age 64 and older. The trend rates are
expected to decrease every year through 2006, when the expected rates are 5.5%
for individuals age 65 and younger and 5.0% for individuals age 66 and older.

    The effect of a one-percentage point increase and decrease in the health
care trend rates for each future year will result in the following:

<TABLE>
<CAPTION>
                                                               1-PERCENTAGE     1-PERCENTAGE
                                                              POINT INCREASE   POINT DECREASE
                                                              --------------   --------------
<S>                                                           <C>              <C>
Increase (decrease) of total service and interest cost
  components of post-retirement benefit expense.............          97             (97)
Increase (decrease) of post-retirement benefit obligation...         782            (782)
</TABLE>

10.  STOCK OPTION PLAN.

    Effective with the Acquisition, the Company currently maintains a Stock
Option Plan (the Plan), as amended, under which options to purchase up to a
maximum of 750,000 shares of common stock may be granted to officers and other
key employees. Stock options granted under this Plan, which may be either
incentive stock-options or nonqualified stock options for federal income tax
purposes, expire up to ten years after the date of grant.

    As part of the business combination with Western Systems, the Company
assumed the fully vested stock option plan of Western Systems. At the time of
the Acquisition, options to purchase 474,000 shares were outstanding. Because
the Acquisition was accounted for as a reverse acquisition, financial data
presented for periods prior to the Acquisition is that of American Country.

    In January 1998, additional stock options were granted to employees of the
Company. These additional options have five-year terms and vest at 20% per year
and become fully exercisable five years after the date of grant. In
January 1999, additional stock options were granted to employees of the company.
These additional options have five-year terms and vest at 20% per year and
become fully exercisable five years after the date of grant. In May, 1999, the
stockholders of the Company approved an amendment of the Company's Stock Option
Plan, whereby options to purchase 1.1 million shares were granted to certain
directors and officers of the Company. 100,000 of these additional options have
a ten-year term and vest at 33 1/3% per year and become fully exercisable three
years after the date of grant. The remaining 1,000,000 options were fully
exercisable at the date of grant, and also have a 10 year term.

                                      F-33
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10.  STOCK OPTION PLAN. (CONTINUED)
    Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123. For the purposes of pro forma disclosures,
the estimated fair value of the options at the date of grant is amortized to
expense over the options vesting period.

    As a result of the Plan amendment whereby the options were 100% vested prior
to the Acquisition, there is no pro-forma effect on net income and earnings per
share for the Company, as any pro forma income statement impact would have been
recorded by Western Systems prior to the Acquisition. Accordingly, the activity
of the Western Systems Plan for the period of January 1 through July 29, 1997 is
not presented.

    The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1998: dividend yield of 0; expected volatility of
66%; risk-free interest rate of 5.6%; and expected life of 5 years. For 1999,
the following weighted average assumptions were used for grants: dividend yield
of 0, annualized standard deviation of 81.1%, risk free interest rate of 5.9%,
and expected life of 9.6 years. A summary of the status of the Company's stock
option plan as of December 31, 1999 and 1998, and changes during the years
ending on those dates is presented below:

<TABLE>
<CAPTION>
                                                     1999                    1998                   1997
                                             ---------------------   --------------------   --------------------
                                                         WEIGHTED               WEIGHTED               WEIGHTED
                                                          AVERAGE                AVERAGE                AVERAGE
                                                         EXERCISED              EXERCISED              EXERCISED
FIXED OPTIONS                                 SHARES       PRICE      SHARES      PRICE      SHARES      PRICE
-------------                                ---------   ---------   --------   ---------   --------   ---------
<S>                                          <C>         <C>         <C>        <C>         <C>        <C>
Outstanding at the beginning of the year...    529,968    $  2.23    390,000     $  2.43    474,000      $2.24
Granted....................................  1,205,000       1.24    175,982        1.81         --         --
Exercised..................................         --         --         --          --    (56,000)      1.39
Forfeited..................................    (28,075)      1.75    (16,014)       1.81          0         --
Expired....................................          0         --    (20,000)       2.75    (28,000)      1.34
                                             ---------               -------                -------
Outstanding at the end of the year.........  1,706,893       1.54    529,968        2.23    390,000       2.43
                                             =========               =======                =======
Options Exercisable at year end............  1,479,090         --    401,994          --    390,000         --
                                             =========               =======                =======
Weighted average grant date fair value of
  options granted during the year..........  $  1.0020               $1.1445
</TABLE>

    The following table summarizes information about stock options outstanding
at December 31, 1999:

<TABLE>
<CAPTION>
                                                 OPTIONS OUTSTANDING                   OPTIONS EXERCISABLE
                                     -------------------------------------------   ----------------------------
                                                     WEIGHTED
                                                     AVERAGE/
                                       NUMBER       REMAINING                        NUMBER
                                     OUTSTANDING     AVERAGE         WEIGHTED      EXERCISABLE      WEIGHTED
             RANGE OF                   AS OF      CONTRACTUAL       AVERAGE           AT           AVERAGE
          EXERCISE PRICES             12/31/99     LIFE (YEARS)   EXERCISE PRICE    12/31/99     EXERCISE PRICE
          ---------------            -----------   ------------   --------------   -----------   --------------
<S>                                  <C>           <C>            <C>              <C>           <C>
$0.60..............................      45,000        2.5             $0.60           45,000         $0.60
1.19-2.75..........................   1,441,893        7.9              1.35        1,166,714          1.28
2.76-3.75..........................     220,000        1.5              2.97          220,000          2.97
                                      ---------                                     ---------
$.60-3.75..........................   1,706,893        6.9              1.54        1,431,714          1.52
                                      =========                                     =========
</TABLE>

                                      F-34
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10.  STOCK OPTION PLAN. (CONTINUED)
    The Company applies APB Opinion 25 and related interpretations in accounting
for its plan. Accordingly, no compensation cost has been recognized for its
stock option plan. Had compensation cost for the Company's stock-based
compensation been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of FASB Statement 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below (in thousands):

<TABLE>
<CAPTION>
                                                                       1999       1998       1997
                                                                     --------   --------   --------
<S>                                                     <C>          <C>        <C>        <C>
Net Income............................................  As Reported   $  (75)    $5,376     $2,069
                                                         Pro Forma    $ (795)    $5,349     $2,069
Basic EPS.............................................  As Reported   $ 0.00     $ 0.17     $ 0.06
                                                         Pro Forma    $(0.02)    $ 0.17     $ 0.06
Diluted EPS...........................................  As Reported   $ 0.00     $ 0.17     $ 0.06
                                                         Pro Forma    $(0.02)    $ 0.17     $ 0.06
</TABLE>

11.  COMMITMENTS.

    American Country leases office space and equipment under noncancelable
operating leases expiring in various years through 2002. Certain of those leases
provide for escalation based on increases in operating expenses and the Consumer
Price Index. Rent expense was $851,000, 843,000 and $870,000, in 1999, 1998, and
1997, respectively.

    At December 31, 1999, future rental commitments under those leases are as
follows (in thousands):

<TABLE>
<S>                                                           <C>
2000........................................................      878
2001........................................................      884
2002........................................................      719
                                                               ------
                                                               $2,481
                                                               ======
</TABLE>

12.  CONTINGENCIES.

    The Company is named as defendant in various legal actions arising
principally from claims made under insurance policies and contracts. Those
actions are considered by the Company in estimating the reserves for losses and
LAE. The Company's management believes that the resolution of those actions will
not have a material adverse effect on the Company's financial position or
results of operations.

    On May 20, 1999, Frontier Insurance Group, Inc. (which owns approximately
25% of the outstanding shares of the Company) filed a purported shareholder
derivative action in Delaware Chancery Court against the Company's directors and
the Company itself as a nominal defendant. The complaint seeks a declaration
that certain amendments to the Company's Stock Option Plan, which were approved
at the Company's Annual Meeting on May 18, 1999 are void or, alternatively,
should be rescinded. The complaint further challenges the grant of options to
purchase 1.1 million shares (approximately 3% of the Company's total shares
outstanding) to certain of its officers and directors. The individual defendants
have advised the Company that they believe that they have substantial defenses
to the claims asserted by Frontier Insurance Group, Inc. In the opinion of
management, the ultimate resolution of such litigation will not have a material
effect on the financial condition of the Company.

                                      F-35
<PAGE>
t

                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12.  CONTINGENCIES. (CONTINUED)

    Pursuant to the assumption reinsurance agreement entered into with Mutual
Services Casualty Insurance Company, the Company is required to fund the
liability for loss and loss expense reserves and unearned premium reserves with
a letter of credit.

13.  FAIR VALUE OF FINANCIAL INSTRUMENTS.

    Accounting standards require the disclosure of fair values for certain
financial instruments. The fair value disclosures are not intended to encompass
the majority of claim liabilities, various other nonfinancial instruments, or
other assets related to the Company's business. Accordingly, care should be
exercised in deriving conclusions about the Company's business or financial
condition based on the fair value disclosures.

    The Company does not have any financial instruments held or issued for
trading purposes. The carrying value and fair value of certain of the Company's
financial instruments are as follows:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31
                                         ---------------------------------------------------------------
                                                1999                  1998                  1997
                                         -------------------   -------------------   -------------------
                                         CARRYING     FAIR     CARRYING     FAIR     CARRYING     FAIR
                                          VALUE      VALUE      VALUE      VALUE      VALUE      VALUE
                                         --------   --------   --------   --------   --------   --------
                                                                 (IN THOUSANDS)
<S>                                      <C>        <C>        <C>        <C>        <C>        <C>
ASSETS
Fixed maturities and equity securities
  (NOTE 3).............................  $126,664   $126,664   $125,488   $125,488   $121,098   $121,098
Collateral loans.......................  $  2,721   $  2,721        540        540         --         --
Cash and cash equivalents and
  receivables..........................  $ 18,021   $ 18,021     17,731     17,731     15,520     15,520
Accrued investment income..............  $  1,772   $  1,772      1,705      1,705      1,765      1,765
LIABILITIES
Loan Payable...........................  $ 11,150   $ 11,150      9,300      9,300      4,800      4,800
</TABLE>

14.  BUSINESS SEGMENTS.

    The Company through American Country is engaged primarily as a property and
casualty insurance carrier, providing automobile liability and physical damage,
workers' compensation, multiple peril liability and property damage, among other
coverage in four key niche markets: transportation, hospitality, other
commercial and personal lines. In addition, the Company through its other
subsidiaries provides premium and other financing services through secured loans
to certain larger customers. All revenues are derived from markets in the United
States.

                                      F-36
<PAGE>
                AMERICAN COUNTRY HOLDINGS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14.  BUSINESS SEGMENTS. (CONTINUED)
    Segment revenues for the years ended December 31, 1999, 1998 and 1997 were
(in thousands):

<TABLE>
<CAPTION>
                                                                1999       1998       1997
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
SEGMENT REVENUES
Transportation..............................................   48,675     34,115     31,148
Hospitality.................................................    7,629      5,955      4,078
Other commercial............................................   19,000     22,843     23,097
Personal lines..............................................      234        469      8,748
Other.......................................................      215        357        381
                                                               ------     ------     ------
    Total Segment revenues..................................   75,753     63,739     67,452
Other Reconciling Items:
Investment and other income not attributable to segments....    1,415      1,324      1,331
                                                               ------     ------     ------
Total revenues..............................................   77,168     65,063     68,783
                                                               ======     ======     ======
</TABLE>

    Segment Operating Profit for the years ended December 31, 1999, 1998 and
1997 were (in thousands):

<TABLE>
<CAPTION>
                                                                1999       1998       1997
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
SEGMENT OPERATING PROFIT
Transportation..............................................    5,030      5,298      5,290
Hospitality.................................................     (151)       765       (324)
Other commercial............................................   (4,827)     1,710     (1,714)
Personal lines..............................................     (426)      (212)    (1,705)
Other.......................................................      156        304        369
                                                              -------     ------     ------
    Total Segment Operating Profit..........................     (218)     7,865      1,916
                                                              =======     ======     ======
Other Reconciling Items:
Investment and other income not attributable to segments....    1,415      1,324      1,331
General corporate expenses..................................     (580)      (730)      (180)
Interest and other expenses, net............................   (1,659)    (1,498)      (505)
                                                              -------     ------     ------
Total Adjustments...........................................     (824)      (904)       646
                                                              -------     ------     ------
    Total Operating Profit..................................  $(1,042)    $6,961     $2,562
                                                              =======     ======     ======
</TABLE>

    Asset information by reportable segment is not reported since the Company
does not produce such information internally. Segment Operating Profit is net of
depreciation expense of $346,000, $315,000 and $308,000 for the years 1999, 1998
and 1997, respectively.

                                      F-37
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

<TABLE>
<S>                                                    <C>  <C>
                                                       AMERICAN COUNTRY HOLDINGS INC.

                                                       BY:            /S/ MARTIN L. SOLOMON
                                                            -----------------------------------------
                                                                        Martin L. Solomon
                                                                    CHAIRMAN OF THE BOARD AND
                                                                     CHIEF EXECUTIVE OFFICER
</TABLE>

Date: March 30, 2000

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report on Form 10-K has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                      SIGNATURE                                   TITLE                    DATE
                      ---------                                   -----                    ----
<C>                                                    <S>                          <C>
                /s/ MARTIN L. SOLOMON                  Chairman Of The Board,
     -------------------------------------------         Chief Executive Officer      March 30, 2000
                  Martin L. Solomon                      And Director

                                                       Vice President, Chief
                /s/ KARLA M. VIOLETTO                    Financial Officer and
     -------------------------------------------         Principal Accounting         March 30, 2000
                  Karla M. Violetto                      Officer

               /s/ WILLIAM J. BARRETT
     -------------------------------------------       Director                       March 30, 2000
                 William J. Barrett

                 /s/ EDWIN W. ELDER
     -------------------------------------------       Director                       March 30, 2000
                   Edwin W. Elder

              /s/ WILMER J. THOMAS, JR.
     -------------------------------------------       Director                       March 30, 2000
                Wilmer J. Thomas, Jr.

                /s/ JOHN G. MCMILLIAN
     -------------------------------------------       Director                       March 30, 2000
                  John G. McMillian
</TABLE>

                                       36
<PAGE>
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO.                                     DESCRIPTION
-----------             ------------------------------------------------------------
<C>                     <S>
         3              ARTICLES OF INCORPORATION AND BY-LAWS

         3.1            Amended and Restated Articles of Incorporation of the
                        Company were filed with the Commission as Exhibit 3.1 to the
                        Company's Report on Form 10-K for the year ended December
                        31, 1997 and are incorporated herein by reference.

         3.2            Amended and Restated By-Laws of the Company were filed with
                        the Commission as Exhibit 3.2 to the Company's Report on
                        Form 10-K for the year ended December 31, 1997 and are
                        incorporated herein by reference.

         4              INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
                        INCLUDING INDENTURES

         4.1            Credit Agreement dated as of July 29, 1997 between the
                        Company and The First National Bank of Chicago, individually
                        and as agent, was filed with the Commission as Exhibit 4 to
                        the Company's Report on Form 8-K dated August 31, 1997 and
                        is incorporated herein by reference.

         4.2            Form of Warrant Certificate was filed with the Commission as
                        Exhibit 4(b) to The Western Systems Corp.'s Registration
                        Statement on Form S-1 (File No. 33-84234) and is
                        incorporated herein by reference.

         4.3            Warrant Agreement, dated as of June 25, 1993, between the
                        Company and American Stock Transfer & Trust Company, as
                        Warrant Agent, was filed with the Commission as
                        Exhibit 4(c) to The Western Systems Corp.'s Registration
                        Statement on Form S- 1 (File No. 33-84234) and is
                        incorporated herein by reference.

         4.4            Warrant Agreement Amendment No. 4, dated as of July 31, 1998
                        between the Company and American Stock Transfer & Trust
                        Company, as Warrant Agent, was filed with the Commission as
                        Exhibit 4 to the Company's Report on Form 10-K for the year
                        ended December 31, 1998 and is incorporated herein by
                        reference.

         4.5            Warrant Agreement Amendment No. 5, dated as of July 30, 1999
                        between the Company and American Stock Transfer & Trust
                        Company, as Warrant Agent, was filed with the Commission as
                        Exhibit 4.5 to the Company's Report on Form 10-Q for the
                        quarter ended September 30, 1999 and is incorporated herein
                        by reference.

        21              SUBSIDIARIES OF THE REGISTRANT

        21              Subsidiaries of American Country Holdings Inc.

        23              CONSENTS OF EXPERTS AND COUNSEL

        23.1            Consent of PricewaterhouseCoopers LLP

        23.2            Consent of Ernst & Young LLP

        27              FINANCIAL DATA SCHEDULE

        27              Financial Data Schedule

        99              ADDITIONAL EXHIBITS

        99              American Country Holdings Inc. Safe Harbor Statement
</TABLE>

                                       37
<PAGE>
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                                       38