-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QYt/uX3sXmXsTaVQ9PSa1C1et/7rRUiw7+8jE2jsEM1CPY5g9ylBxmdmZx9mOheP JMh2NiySSR/9FxTORN0hNA== 0000950114-97-000286.txt : 19970602 0000950114-97-000286.hdr.sgml : 19970602 ACCESSION NUMBER: 0000950114-97-000286 CONFORMED SUBMISSION TYPE: 10SB12G PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19970530 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIFIED HOLDINGS INC CENTRAL INDEX KEY: 0001033926 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 351797759 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10SB12G SEC ACT: 1934 Act SEC FILE NUMBER: 000-22629 FILM NUMBER: 97617064 BUSINESS ADDRESS: STREET 1: 429 N PENNSYLVANIA ST. CITY: INDIANAPOLIS STATE: IN ZIP: 46204 BUSINESS PHONE: 2176343300 MAIL ADDRESS: STREET 1: 429 N PENNSYLVANIA ST CITY: INDIANAPOLIS STATE: IN ZIP: 46204 10SB12G 1 UNIFIED HOLDINGS, INC. FORM 10-SB 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-SB GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 Unified Holdings, Inc. - ------------------------------------------------------------------------------ (Name of Small Business Issuer in its charter) Delaware 35-1797759 - ------------------------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 429 North Pennsylvania Street, Indianapolis, Indiana 46204-1873 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (317) 634-3301 ------------------------------- Securities to be registered under Section 12(b) of the Act: Title of each class Name of each exchange on which to be so registered each class is to be registered Not Applicable - ------------------------------------ -------------------------------- - ------------------------------------ -------------------------------- Securities to be registered under Section 12(g) of the Act: Common Stock, $.01 par value - ------------------------------------------------------------------------------ (Title of class) Preferred Stock, $.01 par value - ------------------------------------------------------------------------------ (Title of class) 2 UNIFIED HOLDINGS, INC. FORM 10 S-B TABLE OF CONTENTS
Page ---- PART I ------ Item 1. Description of Business 1 ----------------------- Item 2. Management's Discussion and Analysis or Plan of Operation 26 --------------------------------------------------------- Item 3. Description of Property 29 ----------------------- Item 4. Security Ownership of Certain Beneficial Owners and Management 30 -------------------------------------------------------------- Item 5. Directors, Executive Officers, Promoters and Control Persons 36 ------------------------------------------------------------ Item 6. Executive Compensation 37 ---------------------- Item 7. Certain Relationships and Related Transactions 39 ---------------------------------------------- Item 8. Description of Securities 39 ------------------------- PART II ------- Item 1. Market Price of and Dividends on the Registrant's Common -------------------------------------------------------- Equity and Other Stockholder Matters 44 ------------------------------------ Item 2. Legal Proceedings 45 ----------------- Item 3. Changes In and Disagreements with Accountants 45 --------------------------------------------- Item 4. Recent Sales of Unregistered Securities 45 --------------------------------------- Item 5. Indemnification of Officers and Directors 45 ----------------------------------------- PART F/S 47 -------- PART III -------- Item 1. Index to Exhibits 110 ----------------- Item 2. Description of Exhibits 110 -----------------------
- i - 3 PART I ------ ITEM 1. DESCRIPTION OF BUSINESS ----------------------- CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this Registration Statement are or may constitute forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. GENERAL Unified Holdings, Inc., a Delaware corporation ("Unified" or the "Company"), was organized December 7, 1989. At March 31, 1997, Unified owned all of the capital stock of Unified Management Corporation ("UMC"), Indianapolis, Indiana, a licensed National Association of Securities Dealers, Inc. ("NASD") broker-dealer, and Unified Advisers, Inc. ("UAI"), Indianapolis, Indiana, a registered investment adviser and transfer agent. Reference in this filing to the "Company" includes Unified and its wholly owned subsidiaries. The Company's principal business is providing management services and equipment for its two wholly owned subsidiaries which, in turn, concentrate their services over seven major lines of business in the financial services industry: mutual fund services and distribution; brokerage and securities services; investment advisory and asset management services for all asset management categories; mutual fund consolidations, tax-free reorganizations and start-ups; certain non-bank custodial services; retirement services; and internal and external proprietary product and systems development. Through its subsidiaries, these services are provided primarily to third party financial services institutions, predominantly mutual funds. As a result of Unified's ten percent (10%) stock ownership in and affiliation with Vintage Advisers, Inc. ("VAI"), a Delaware corporation, the Company's subsidiaries provide services for the affiliated Vintage Funds, a family of eight no-load mutual funds, sponsored by VAI (hereinafter referred to as the "Vintage Funds"). Currently, the Company serves as transfer agent, administrative services agent, distributor, fund accountant and/or stockholder services agent for ten mutual fund families consisting of approximately 50 different portfolios, including the eight Vintage Funds portfolios, and performs other clerical functions for the Vintage Funds in addition to the typical mutual fund services. The Company receives revenues for the management of the Vintage Funds along with certain commissions attributable to distribution of fund shares as well as mutual fund and clerical services fees. Since October of 1995, the Vintage Funds have grown to over $66,000,000 in combined assets as of March 31, 1997, most of which are from UMC's brokerage sweep accounts. Of the approximately $135,000,000 of Unified's clients' assets invested in mutual funds, nearly half of those assets are invested in the affiliated Vintage Funds. The Vintage Funds portfolios include: The Vintage Starwood Strategic Fund; The Vintage Asset Allocation Fund; The Vintage Aggressive Growth Fund; The Vintage Laidlaw Fund; The Vintage First Lexington Balanced Fund; The Vintage Taxable Fixed Income Fund; The Vintage Tax-Free Money Market Fund; and The Vintage Taxable Money Market Fund. UMC, the Company's broker-dealer subsidiary, functions as the distributor to the Vintage Funds and also provides specialty services, such as retirement services, for certain customers of the - 1 - 4 Vintage Funds in addition to its discount brokerage activities. The brokerage subsidiary clears, on a fully-disclosed basis, through Pershing, a division of Donaldson, Lufkin & Jenrette Securities Corporation. As of May 26, 1997, Unified had outstanding (i) 600,000 shares of its common stock, $.01 par value (the "Common Stock"), and (ii) 17,069 shares of its preferred stock, $.01 par value (the "Preferred Stock"), of which 8,486 of such shares are designated as "Series A 8% Cumulative Preferred Stock" and 8,583 of such shares are designed as "Series B 8% Cumulative Preferred Stock." As of March 31, 1997, the Company reported, on a consolidated basis, total assets of $1,930,479 and stockholders' equity of $964,905. On February 6, 1997, Unified's Board of Directors (the "Board") approved a 2 for 1 stock split raising the number of outstanding shares of Common Stock to 600,000 and approved an amendment to the Company's Certificate of Incorporation (the "Certificate of Incorporation") that authorizes the issuance of up to 25,000,000 shares of Common Stock. The amendment to the Certificate of Incorporation was effective May 12, 1997. All of the Company's 25,000,000 authorized shares of Common Stock and the 1,000,000 authorized shares of Preferred Stock are to be registered pursuant to this Form 10 Registration Statement, pursuant to Section 12(g) of the Securities Act of 1934, as amended (the "1934 Act"). The shares of Common Stock currently are owned: 76.76% (460,574 shares) by the Unified Holding, Inc. Management and Employee Retention Plan ("M.E.R.P.") (a non-qualified plan), with all such plan share awards granted to date in the form of options; 16.72% (100,294 shares) by the Unified Holdings, Inc. Restricted Stock Option Plan (the "Stock Option Plan") (a non-qualified plan); and 6.52% (39,132 shares) by the Unified Regional Prototype 401(k) Profit Sharing Plan ("401(k) Plan") (a qualified plan). Mr. Timothy L. Ashburn, the Company's Chief Executive Officer and Chairman, votes, at the direction of the M.E.R.P. Committee and the Stock Option Plan Committee, the shares of Common Stock held by the M.E.R.P. and the Stock Option Plan, respectively, and Mr. Lynn E. Wood, the Company's President, Chief Operating Officer and a Director, votes, at the direction of the Board and the 401(k) Plan Committee, the shares held by the 401(k) Plan. As of March 31, 1997, the total number of shares of Preferred Stock that were authorized was 1,000,000, of which 20,000 shares have been designated as follows:
SHARES SHARES ISSUED AND STATED PAR DESIGNATED OUTSTANDING VALUE VALUE ---------- ----------- ------ ----- Series A 8% Cumulative Preferred Stock 10,000 8,486 $100 $.01 Series B 8% Cumulative Preferred Stock 10,000 8,583 100 .01
Dividend payments on the Preferred Stock are cumulative at 8% per annum of the stated value. Without the consent of the holders of not less than a majority of the then outstanding shares of Preferred Stock, the Company may not create any additional class or series of stock ranking or having a parity as to payment of dividends or as to liquidation preference over or with the Series A or Series B Preferred Stock. In the event of non-payment of the cumulative preferred dividends, the holders of Preferred Stock shall be entitled to vote on all matters coming to the attention of the Company, as provided in the Certificate of Incorporation. - 2 - 5 Unified's principal executive offices are located at 429 North Pennsylvania Street, Indianapolis, Indiana 46204, and its telephone number is (317) 634-3301. THE COMPANY'S SUBSIDIARIES AND OPERATIONS The Company has two wholly owned subsidiaries, both Indiana corporations, through which it conducts its operations: Unified Advisers, Inc., a registered investment advisor and licensed, registered transfer agent, which was organized on February 1, 1990; and Unified Management Corporation, a NASD and SIPC member broker-dealer, which was organized on November 20, 1952 as Unified Underwriters and commenced operations as Unified Management Corporation effective February 25, 1976. UNIFIED ADVISERS, INC. UAI is a complete mutual fund financial services company specializing in the development, support, maintenance, shareholder servicing, management and investment advisory of mutual funds. UAI was formed in 1990 as a sister company to UMC in a strategic move to separate and segregate the brokerage services employees (and brokerage account activities) from the mutual fund services employees (and mutual fund account activities). UAI is a highly automated and tiered transfer agent and registered stock transfer agent, that presently provides transfer agency, fund accounting, administrative and/or compliance services for nine different third-party, unaffiliated mutual fund families consisting of nearly $3 billion in mutual fund assets, approximately 50 different portfolios and 125,000 different shareholders. Additionally, as a registered investment adviser, UAI has approximately $135 million of assets under management, all of which are invested in mutual funds, with approximately $60 million of its $135 million invested in the Vintage Funds. UAI's primary services include: mutual fund transfer agency and shareholder recordkeeping; shareholder services plan support; mutual fund start-up services; administration; fund accounting; compliance; asset allocation services; statement processing; tax-free reorganizations; qualified plan services, support and constructs; fulfillment; and investment advisory services. UAI performs the Vintage Funds' internal mutual fund services on a fixed, basis points arrangement, such that profits on the services (and the expenses from the Vintage Funds' perspective) are "locked in" and therefore calculable. UAI has experience and expertise in all of the necessary business units to transact tax-free mutual fund reorganizations, mergers and acquisitions. Through its systems group, full-service capacity and its link to a brokerage affiliate, UAI has the capability of converting assets on a tax-free basis from existing funds into Unified's affiliated mutual fund family, the Vintage Funds. Additionally, Unified Advisers has the capability and flexibility to create or modify funds specifically individualized to the client and the transaction. As a mutual fund service provider for third party mutual funds, UAI generally is responsible for all of a fund's business activities, including distribution (through UMC) and investment management. The Company believes that these services are an extension of distribution, that high quality servicing is critical to retaining shareholder accounts and that quality of service directly impacts the growth of mutual fund assets. Therefore, UAI strives to create an error-free operating environment based on stringent standards established by the Company. - 3 - 6 UAI's service responsibilities may be divided into five major services: * shareholder recordkeeping - encompasses all mutual fund shareholders' transactions, including taking purchase and redemption orders, entering orders into the transfer agency system and forwarding information regarding trade activity to the portfolio managers and fund accountants as specified; * fund accounting - provides the daily recordkeeping for each fund, including calculations of net asset value per share, dividend rates per share and the maintenance of all books, records and financial reports required by the Securities and Exchange Commission (the "SEC") and other regulatory agencies. This service also includes preparation of quarterly financial statements, shareholder reports and board reports for each portfolio, participation in the periodic updating of prospectuses, preparation of federal, state and local tax returns, payment of all costs and expenses of the fund, and the maintenance of the official books and records of each fund; * cash management - ensures timely receipts and disbursements on shareholders activity for effective asset management, including cash availability for investment, reconciliation of accounts, cash movement and activity, processing of fees, and tax withholding and reporting; * fund administration and legal compliance; and * investment advisory services. UAI, as the primary servicing agent for various mutual funds, including the Vintage Funds, receives fees from the funds for providing such services. As such, UAI is economically dependent on these funds and their respective contracts (and renewals) for a substantial portion of its revenue. UNIFIED MANAGEMENT CORPORATION. UMC was formed in 1952 as Unified Underwriters and is a regional discount brokerage firm with a unique link to mutual fund assets via its brokerage account services. A licensed NASD broker-dealer since 1976, UMC founded the first mutual fund in the state of Indiana in 1963 while operating as Unified Underwriters, and specializes in mutual fund distribution and shareholder servicing liaison providing such services as: mutual fund distribution, distribution services and support; mutual fund conversion support for broker-dealer requirements; mutual fund trades; individual retirement account ("IRA") custodial services; 12b-1 maintenance, accounting and marketing support; securities (stock and bond) brokerage; brokerage clearing and execution services; consolidated brokerage statement processing; mutual fund and brokerage software development; asset allocation and performance measurement services and statement processing; and retirement account record keeping. UMC, as a fund distributor and broker-dealer of record, has created a beneficial synergy by uniquely linking brokerage accounts with funds and providing a proprietary brokerage sweep relationship through the Vintage money market funds. UMC also utilizes its brokerage services as an important component in the tax-free conversion (re-organization) of mutual fund assets from small third-party mutual funds into the Vintage Funds. UMC clears through Pershing and provides a full range of brokerage products, including an Internet home page which is scheduled for availability in June of 1997. - 4 - 7 THE COMPANY'S AFFILIATED MUTUAL FUNDS The Company currently owns a 10% interest in VAI, a registered investment adviser that manages and sponsors the Vintage Funds, a no-load family of mutual funds consisting of eight portfolios. As of March 31, 1997, the Vintage Funds maintained approximately $66 million in total net assets, predominantly in its two money market portfolios, and features its proprietary property, V.O.I.C.E. (Vision for Ongoing Investment in Charity - - - - and Education)(SM) and several other innovative products to the financial - services industry. The Vintage Funds' mission, largely due to its relationship with VAI and Unified, is to capture existing small fund assets via: tax-free reorganizations; acquisitions; asset mergers; construction of Vintage portfolios for certain R.I.A.s; and the marketing of its V.O.I.C.E. concept. The Vintage Funds were established by VIA as a platform for five primary visions: (i) As a proving ground for the V.O.I.C.E. program, and establishing V.O.I.C.E. as a niche in the industry, highlighting its philanthropic nature and its contributions to not-for-profit organizations, especially in the area of education; (ii) To provide a more attractive and more efficient home for small, third party mutual funds thereby growing the Vintage Funds' assets by: tax-free reorganizations due to its affiliation with Unified; the attraction of the V.O.I.C.E. program; and stock-for-stock acquisitions; (iii) To create an efficient, no-load investment environment, with industry mid-point expense ratios and free expense privileges; (iv) To provide the opportunities and diversity attributable to selected fund-of-funds; and (v) To create a complete mutual fund service environment with a special focus on the gathering and maintenance of retirement plans. Three of the Vintage Fund's five equity portfolios and its fixed income portfolio are fund-of-funds. The Vintage Funds feature the unique mutual fund investment advisory services and marketing programs of VAI and Unified. Both the Vintage Funds and the Company enjoy a fixed basis point services structure that protects and "locks in" both profitability and expenses. THE PHILANTHROPIC V.O.I.C.E. (VISION FOR ONGOING INVESTMENT IN - - - CHARITY AND EDUCATION)(SM) PROGRAM. - - - The Company oversees and manages the V.O.I.C.E. program for its affiliate, VAI, exclusively for the Vintage Funds. V.O.I.C.E. is a unique and innovative philanthropic program through which individuals and institutions can cause contributions to be made to educational, charitable and philanthropic "not-for-profit" organizations at no expense to the Vintage Fund or to the shareholder. VAI makes the contributions from its own revenue to certain accredited college or university endowments or general scholarship funds designated by qualifying shareholders. - 5 - 8 Philanthropic institutions outside the area of education may be accepted, at the discretion of VAI. The V.O.I.C.E. program, the only one of its kind in the mutual fund industry, is the proprietary property of VAI. In 1996, VAI entered into a limited licensing arrangement with Star Bank of Cincinnati, Ohio that allows Star Bank to use the V.O.I.C.E. idea for certain bank products within the state of Ohio in exchange for a five basis point royalty on any assets attracted by the V.O.I.C.E. program. The license agreement expires in January of 1998. REGULATION OF THE COMPANY'S BUSINESS Under the Investment Company Act of 1940 (the "1940's Act"), the advisory, sub-advisory and distribution agreements between the Vintage Funds and the Company's subsidiaries are reviewed annually and renewed accordingly by the Board of Trustees of the Vintage Funds (the "Board of Trustees"). There are no assurances that the Company's subsidiaries will be able to continue the contracts with the Vintage Funds. If the Company or the Company's subsidiaries are unable to successfully renew those agreements with the Vintage Funds, the cancellation of those agreements could have a material adverse effect on the Company's business. The service agreements with mutual funds and the behavior of the Company and its subsidiaries supporting those agreements require regulation by the NASD, SEC, independent auditors and counsel, and often require the approval of the Board of Trustees and, in certain cases, the shareholders of the Vintage Funds. Although no assurances can be made, the Company believes that such approval will be granted and that the mutual fund services agreements will be renewed. The securities industry, including broker-dealer, investment advisory and transfer agency firms in the United States, are subject to extensive regulation under federal and state laws. Much of the regulation of broker-dealers has been delegated to self-regulatory organizations, principally the NASD. The regulations to which broker-dealers are subjected cover all aspects of the securities business, including sales methods, trade practices, capital structure of securities firms, recordkeeping and the conduct of directors, officers and employees. Additional state and federal legislation, changes in rules promulgated by the SEC and by self-regulatory organizations, or changes in the interpretation or enforcement of existing laws and rules often directly affect the methods of operation and profitability of money managers, broker-dealers and transfer agents. Investment-related firms also are subject to regulation and licensing by state securities commissions in the states in which they transact business. The SEC, state securities administrators and the self-regulatory organizations may conduct administrative proceedings that can result in censure, fine, suspension or expulsion of a broker-dealer, its officers or employees. The principal purpose of regulation and discipline of broker-dealers, investment advisors and stock transfer agents is the protection of customers and the securities markets rather than protection of creditors and shareholders of such firms. INDUSTRY REGULATIONS The Company is subject to extensive regulation as to its duties, affiliations, conduct and limitations on fees. Section 22(b) of the 1940's Act provides that a securities association registered under Section 15A of the 1934 Act may adopt rules prohibiting its members from receiving a commission, discount, spread or fees except in accordance with a method or methods, and within such limitations as to the relation thereof to said public offering price, as such rules may prescribe in order that the price at which such security is offered or sold to the public shall not include an excessive sales load but shall allow for reasonable compensation for sales personnel, broker-dealers and underwriters, and for reasonable sales loads to investors. Section 22(c) of the 1940's Act further states that the SEC may make rules and regulations applicable to registered investment companies and to principal underwriters of, and dealers in, - 6 - 9 the redeemable securities of any registered investment company, whether or not members of any securities association. Any rules and regulations so made by the SEC, to the extent that they may be inconsistent with the rules of any securities association, shall, so long as they remain in force, supersede the rules of the association and be binding upon its members as well as all other underwriters and dealers to whom they may be applicable. The Company's wholly owned, broker-dealer subsidiary, UMC, is a NASD member. The NASD, a securities association registered pursuant to Section 15A of the 1934 Act has prescribed rules (Section 26 of the NASD Rules of Fair Practice) with respect to maximum commissions, charges and fees related to investment in any open-end investment company registered under the 1940's Act. The Company's 10% affiliate, VAI, is a registered investment adviser and serves as the adviser to the Vintage Funds. It is unlawful for any investment adviser to: (1) employ any device, scheme or artifice to defraud any client or prospective client; (2) engage in any transaction, practice or course of business that operates as a fraud or deceit upon any client or prospective client; or (3) engage in any act, practice or course of business which is fraudulent, deceptive or manipulative. The Board of Trustees is presently sixty percent (60%) "disinterested" as defined under the 1940's Act. The Vintage Funds, VAI and the Board of Trustees have initiated a plan to become 75% disinterested in order to affect tax-free reorganizations of third party mutual funds in the future, a business that the Vintage Funds, due to its affiliation with Unified, aggressively pursues. The 75% disinterested trustee arrangement will be an important component in the Company's business plan as such plan relates to tax-free reorganizations of third party funds and to the Company's anticipated plans to acquire other registered investment advisers to other mutual fund families. An investment adviser can transfer control of an investment company only under the provision that at least seventy-five (75%) percent of the directors of the investment company are independent of the new and old investment adviser, and provided no unfair burden is imposed on the investment company as a result of the sale. The effect of such transfer results in the termination of the old investment adviser agreement and requires the new agreement to be approved by both the Board of Trustees and the Vintage Funds' shareholders. Directors and the investment adviser also are defined as fiduciaries; accordingly, the SEC is authorized to initiate an action to enjoin a breach of fiduciary duties involving personal misconduct by officers, directors, investment advisers and principal underwriters. Shareholders or the SEC also may bring an action against the officers, directors and investment adviser for breach of fiduciary duty in establishing the compensation paid the investment adviser. An investment adviser to a fund, its principals and its employees, also may be subject to proceedings initiated by the SEC to impose remedial sanctions for violation of any provision of the federal securities laws and the regulations adopted thereunder, and the SEC may preclude such investment adviser to an investment company from continuing to act in the capacity of investment adviser. Investment companies such as the Vintage Funds are subject to considerable substantive regulation. Such companies must comply with periodic reporting requirements. Proxy solicitations are subject to the general proxy rules as well as to special proxy rules applicable only to investment companies. Shares of investment companies can only be offered at a uniform public offering price based upon the current share net asset value plus the sales load. No more than sixty percent (60%) of the directors can be interested persons, defined to include, among others, persons affiliated with the management company or underwriter, and a majority of the directors must not be affiliated with the underwriter (distributor). The management agreement initially must have been approved by a majority of the outstanding shares and, after two years, must be annually approved, either by the board or by the outstanding voting shares. The management agreement must automatically terminate in the event of assignment and must be subject to termination upon 60 days notice by the board or by a vote of the majority of the outstanding voting shares. The underwriting or distribution agreement also must be - 7 - 10 annually approved by the board or by a vote of a majority of the outstanding voting shares, and must provide for automatic termination in event of assignment. Transactions between the investment company and an affiliate can be entered into only if approved by the SEC, after notice and opportunity for hearing. NET CAPITAL REQUIREMENTS As a broker-dealer, and as a member of the NASD, UMC is subject to the SEC's minimum net capital rule (Rule 15c3-1), which provides that a broker-dealer doing business with the public must maintain certain minimum net capital and shall not permit its aggregate indebtedness to exceed certain specified limitations. The rule is designed to measure a firm's financial integrity and liquidity. A broker-dealer may be required to reduce its business and restrict withdrawal of subordinated capital if its net capital drops below specified levels, and also may be prohibited from expanding its business or declaring cash dividends. In addition, failure to maintain the required net capital may subject a broker-dealer to disciplinary actions by the SEC, the NASD and state securities administrators, including fines, censure, suspension or expulsion. Rule 15c3-1 may limit UMC's uses of its capital. UMC was required to maintain minimum net capital, as defined, of 6 2/3% of aggregate indebtedness or $50,000 at December 31, 1996 and 1995, whichever was greater, and a ratio of aggregate indebtedness to net capital of not more than 15 to 1. At December 31, 1996, UMC had net capital of $137,894, which was $87,894 in excess of its required net capital of $50,000, and a net capital ratio of 2.28 to 1. At December 31, 1995, UMC had net capital of $203,377 which was $153,377 in excess of its required net capital of $50,000, and a net capital ratio of 1.33 to 1. Factors that affect UMC's net capital include the general investment climate as well as the ability of the Company to obtain any liquid assets necessary to contribute equity capital to its subsidiaries. Although UMC currently has sufficient net capital, should the Company's liquidity be impaired substantially as a result of any factor, including potential demands for cash created by a rescission offer, and additional net capital becomes necessary, the continued operation of UMC and the Company could be restricted or suspended. Rule 15c3-1 requires the ratio of aggregate indebtedness, as defined, to net capital not exceed 15 to 1, and imposes certain restrictions on operations. In computing net capital, various adjustments to net worth are made with a view to excluding assets that are not readily convertible into cash and with a view to a conservative statement of other assets, such as a firm's position in securities. UMC may not allow withdrawal of subordinated capital if minimum net capital would thereafter be less than 5% of aggregate debit items as defined under Rule 15c3-1. Further, UMC may not permit equity capital to be withdrawn, whether by payment of dividends, repurchase of stock or other means, if its net capital would thereafter be less than 5% of aggregate debit items as defined under Rule 15c3-1. Compliance with Rule 15c3-1 may limit those operations of a firm (such as UMC) that may require the use of its capital. REGULATORY PENALTIES FOR FAILURE TO MAINTAIN MINIMUM NET CAPITAL REQUIREMENTS Rule 15c3-1 imposes minimum financial requirements for broker-dealers. A decrease below minimum net capital required for UMC could force the broker-dealer to suspend activities pending recovery of net capital. Factors that affect UMC's net capital include the general investment climate as well as the ability of the Company to obtain any assets necessary to contribute equity capital to UMC. Although UMC currently has sufficient net capital, should the Company's liquidity be impaired substantially as a result of any factor, and additional net capital become necessary, the continued operation of UMC could be restricted or suspended. - 8 - 11 The Company's asset management, mutual fund services, mutual fund management and broker-dealer businesses are subject to various risks and contingencies, many of which are beyond the ability of the Company to control. These risks include: economic conditions generally and in particular those affecting bond and securities markets, interest rates and discretionary income available for investment; customer inability to meet payment or delivery commitments; customer fraud; and employee misconduct and error. COMPLIANCE REQUIREMENTS AND REGULATORY PENALTIES FOR NONCOMPLIANCE Various aspects of the Company's business are subject to federal and state regulation as well as "self regulatory" authorities that, depending on the nature of any noncompliance, may result in the suspension or revocation of licenses or registration, including broker-dealer, investment advisor and transfer agent licenses and registrations, as well as the imposition of civil fines and criminal penalties. Failure by the Company or any of its employees to comply with such regulations or with any of the laws, rules or regulations of federal, state or industry authorities (principally the NASD and SEC) could result in censure, imposition of fines or other sanctions, including revocation of the Company's right to do business or in suspension or expulsion from the NASD. Any of the foregoing would have a material adverse effect upon the Company. Such regulations are designed primarily for the protection of the investing customers of securities firms rather than the Company's stockholders. Finally, there is no assurance that the Company, along with other fund sellers, administrators and managers will not be subjected to additional stringent regulation and publicity that may adversely affect its business. In the securities industry, in recent years, there has been an increased incidence of litigation, including court litigation, arbitration and enforcement or disciplinary proceedings by regulators. COMPETITION Since its inception, the Company has directly competed primarily with a number of larger, more established mutual fund service organizations and securities firms. Competition is influenced by various factors, including breadth, quality of service and price. All aspects of the Company's business are competitive, including competition for mutual fund assets to manage. Large national firms have much greater marketing capabilities, offer a broader range of financial services and compete not only with the Company and among themselves but also with commercial banks, insurance companies and others for retail and institutional clients. The Company's affiliated mutual funds are subject to competition from nationally and regionally distributed funds offering equivalent financial products with returns equal to or greater than those offered by the Vintage Funds. The Company is focused on the niche area of tax-free reorganizations and consolidations of small mutual funds into the Vintage Funds family and its proprietary products, such as V.O.I.C.E. Competition for assets under management is intense from both national and regional based firms. Access to local investment and the population of the region by modern communication systems is so efficient that the Company's geographical position cannot be deemed an advantage. The Company's investment management operations compete with a large number of other investment management firms, commercial banks, insurance companies, broker-dealers and other financial service firms. Most of these firms are larger and have access to greater resources than the Company. The investment advisory industry is characterized by relatively low cost of entry and the formation of new investment advisory entities that may compete directly with the Company is a frequent occurrence. The Company directly competes with as many as several hundred firms that are of similar or larger size. The Company's ability to increase and retain clients' assets could be materially adversely affected if client accounts under-perform the market. The ability of the Company's investment management subsidiary to complete with other investment management firms also is dependent, in part, on the relative attractiveness of their investment philosophies and methods under prevailing market conditions. A large number of mutual funds are sold to the public by investment management firms, broker-dealers, insurance companies - 9 - 12 and banks in competition with the Vintage Funds. Many of the Company's competitors apply substantial resources to advertising and marketing their mutual funds, which may adversely affect the ability of the Vintage Funds to attract new assets. The Company expects that there will be increasing pressures among mutual fund sponsors to obtain and hold market shares. Although the Company may expand the financial services it can render to its customers, it does not now offer as broad a range of financial services as national stock exchange member firms, commercial banks, insurance companies and others. POTENTIAL BANK COMPETITION The Glass-Steagall Act, among other things, prohibits banks from engaging in the underwriting, public sale or principal distribution of and dealing in securities. Bank holding companies (either directly or through their bank or non-bank subsidiaries), however, are generally permitted to purchase and sell securities, as agent, upon the order and for the account of their customers. Federal bank regulatory agencies, including the Office of the Comptroller of the Currency (the "OCC"), have by regulatory interpretations, allowed banks to provide a wide variety of services to mutual funds, including investment advisory, administration, shareholder servicing, custodial and transfer agency services. If current restrictions under the Glass-Steagall Act were relaxed and banks were authorized to organize, sponsor and distribute shares of an investment company, it is possible that national, regional or local banks would consider the possibility of performing some or all of the services presently provided by the Company. Should such an event occur, it could have a material adverse effect on the Company's business operations. DEPENDENCE ON KEY CLIENTS The Company presently provides mutual fund services, transfer agency, fund accounting, administration and distribution services to ten mutual fund families consisting of approximately 50 different portfolios. Eight of those portfolios, the Vintage Funds, originally were organized and are sponsored by VAI. The Vintage Funds and those of the remaining parties, have entered into contracts with the Company which typically expire within one to three years. No assurance can be made that any of these third party funds or the Vintage Funds will remain clients of the Company upon expiration or termination of the various administration and distribution agreements. The loss by the Company of such mutual fund clients, especially the Vintage Funds, would have a material adverse effect on the Company. Additionally, UMC has entered into clearing agreements with its introduced broker-dealer clients that represent a substantial portion of the assets in the Vintage Funds through the use of the Vintage Taxable and Tax-Free Money Market Funds as their brokerage sweep facility. The introduced broker-dealer relationships also represent a significant portion of UMC's revenues from trading commissions. The loss of clearing clients would have a material adverse effect on the Vintage Funds and the Company. VAI receives management fees from the Vintage Funds. As the Vintage Funds' manager and advisor, VAI, and, therefore, the Company, are economically dependent on the Vintage Funds for a substantial portion of their revenue. The contractual division of responsibilities between the Company, its merger companies and the affiliated funds track the main services and functions of a mutual fund. Contacts for portfolio management performed by VAI in the case of the Vintage Funds are awarded annually by review and approval of the independent Boards of Trustee of the various Vintage Funds (the "Boards"). The Boards consists of six trustees, four of whom are independent, and two, Timothy L. Ashburn and Jack R. Orben, who are affiliated with the Company. These Boards are also responsible for awarding the Company's - 10 - 13 subsidiaries the various service agreements for the Vintage Funds (mutual fund regulations limit certain agreements to one year and others are typically one to three year contracts). Distribution and administrative services contracts are generally terminable by a fund's Board for "cause" (as defined in the contracts). DEPENDENCE ON KEY PERSONALS The Company is dependent in a large part on the personal efforts of Timothy L. Ashburn, the Chief Executive Officer and Chairman of the Board, as well as a group of senior management personnel. The loss or unavailability of any of these persons could have a material adverse effect on the Company. The Company's success will also depend on its ability to attract and retain highly skilled personnel in all areas of its business. There can be no assurance that the Company will be able to attract and retain personnel on acceptable terms in the future. Loss of any of these individual's services would likely have a material adverse effect on the Company's business. The Company intends to purchase a key man insurance policy on Mr. Ashburn in the amount of $1,000,000 naming the Company as the beneficiary. EMPLOYEES As of March 31, 1997, the Company and its subsidiaries had 35 employees, of which 33 were full time employees. RECENT DEVELOPMENTS On April 25, 1997, the Company entered into an agreement to acquire Health Financial, Inc. ("Health Financial"), located in Lexington, Kentucky. Health Financial is an investment adviser providing services to trusts, retirement plans, businesses and individuals located primarily in Kentucky. As of March 31, 1997, Health Financial reported total assets of $842,293 and shareholders' equity of $817,293. On April 25, 1997, the Company entered into an agreement to acquire First Lexington Trust Company ("First Lexington"), located in Lexington, Kentucky. First Lexington is a non-bank affiliated trust company that is regulated by the Department of Financial Institutions, Commonwealth of Kentucky. As of March 31, 1997, First Lexington reported total assets of $1,022,345 and shareholders' equity of $992,548. On May 8, 1997, the Company entered into an agreement to acquire VAI, located in Indianapolis, Indiana. VAI is a registered investment advisor under the 1940's Act and is the advisor to the Vintage Funds. As of March 31, 1997, VAI reported total assets of $607,800 and stockholders' equity of $50,700. PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following unaudited pro forma combined consolidated balance sheet gives effect to proposed acquisitions of Health Financial, First Lexington and VAI as if each of the acquisitions were consummated on December 31, 1996. The following pro forma combined consolidated income statements for the three months ended March 31, 1997 and 1996 and for the years ended December 31, 1996, 1995 and 1994 set forth the - 11 - 14 results of operations of the Company combined with the results of operations of Health Financial, First Lexington and VAI as if the proposed acquisitions had occurred as of the first day of the period presented. The unaudited pro forma combined consolidated financial statements should be read in conjunction with the accompanying Notes to the Pro Forma Combined Consolidated Financial Statements and with the historical financial statements of the Company, Health Financial, First Lexington and VAI. The historical interim financial information for the three months ended March 31, 1997 and 1996, used as a basis for the pro forma combined consolidated financial statements, include all necessary adjustments, which, in management's opinion, are necessary to present the data fairly. These pro forma combined consolidated financial statements may not be indicative of the results of operations that actually would have occurred if the proposed acquisitions had been consummated on the dates assumed above or of the results of operations that may be achieved in the future. VAI has a November 30 fiscal year end. For purposes of the following pro forma combined consolidated financial statements, VAI information at or for the year ended November 30 and the three months ended February 28/29 is reported as December 31 and March 31 data, respectively. VAI was incorporated on December 12, 1994 and, as such, does not have operating results as of or for the year ended November 30, 1994. - 12 - 15 UNIFIED HOLDINGS, INC. PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET MARCH 31, 1997 (UNAUDITED)
UNIFIED FIRST HEALTH ADJUSTMENTS & ELIMINATIONS CONSOLIDATED VAI LEXINGTON FINANCIAL COMBINED DEBIT CREDIT CONSOLIDATED ------------ -------- --------- --------- -------- -------------------------- ------------ ASSETS - ------ CASH AND CASH EQUIVALENTS $ 339,096 $ 25,631 $ 99,762 $104,123 $ 568,612 $ $ $ 568,612 SECURITIES OWNED, AT MARKET VALUE Debt securities 802,970 802,970 802,970 Mutual funds (affiliated) 197,848 54,793 252,641 252,641 Mutual funds 177,915 177,915 177,915 INVESTMENTS Investment in Affiliated Company 430,879 430,879 0 430,879 0 ACCOUNTS RECEIVABLE Receivables 491,615 40,555 71,231 322,454 925,855 0 127,714 798,141 Allowance for bad debts (2,041) (2,041) (2,041) LOANS RECEIVABLE 50,000 40,113 90,113 0 50,000 40,113 OTHER ASSETS Prepaid and sundry assets 120,929 6,046 3,424 130,399 130,399 Organization cost, net 175,049 9,000 184,049 184,049 Cash surrender value on life insurance policy 0 0 Deferred development cost 305,764 305,764 305,764 FIXED ASSETS Property, furniture and equipment, net 213,656 35,958 197,688 447,302 447,302 Capitalized lease, net 88,497 88,497 88,497 ---------- -------- ---------- -------- ---------- --------- -------- ---------- TOTAL ASSETS $1,930,479 $607,838 $1,022,345 $842,293 $4,402,955 $ 0 $608,593 $3,794,362 ========== ======== ========== ======== ========== ========= ======== ========== See notes to pro forma combined consolidated financial statements. - 13 - 16 UNIFIED FIRST HEALTH ADJUSTMENTS & ELIMINATIONS CONSOLIDATED VAI LEXINGTON FINANCIAL COMBINED DEBIT CREDIT CONSOLIDATED ------------ --------- --------- --------- -------- -------------------------- ------------ LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ LIABILITIES CURRENT LIABILITIES Current portion of lease obligations $ 36,205 $ $ $ $ 36,205 $ $ $ 36,205 Note payable 135,000 135,000 50,000 0 85,000 Accounts payable and accrued expenses 332,598 184,290 5,657 25,000 547,545 127,714 0 419,831 Accrued compensation 109,652 223,125 332,777 332,777 Income taxes payable 2,465 2,465 2,465 Deferred income taxes 15,076 15,076 15,076 Other liabilities 462,765 4,789 467,554 57,081 0 410,473 ---------- --------- ---------- -------- ---------- ---------- -------- ---------- Total current liabilities 941,220 542,415 27,987 25,000 1,536,622 234,795 0 1,301,827 ---------- --------- ---------- -------- ---------- ---------- -------- ---------- LONG-TERM LIABILITIES Long-term portion of lease obligations 24,354 24,354 24,354 Deferred income taxes 1,810 1,810 1,810 ---------- --------- ---------- -------- ---------- ---------- -------- ---------- Total liabilities 965,574 542,415 29,797 25,000 1,562,786 234,795 0 1,327,991 ---------- --------- ---------- -------- ---------- ---------- -------- ---------- COMMITMENTS SHAREHOLDERS' EQUITY Common Stock 1,696 300 8,295 9,300 19,591 8,391 11,200 Preferred A 8,486 8,486 8,486 Preferred B 8,583 8,583 8,583 Additional paid-in capital 1,126,543 599,700 821,705 46,510 2,594,458 997,374 1,597,084 Retained earnings (accumulated deficit) (176,870) (476,094) 162,548 761,483 271,067 631,967 903,034 Unrealized gain/(loss) on investments (3,533) (58,483) (62,016) (62,016) Treasury stock 0 0 ---------- --------- ---------- -------- ---------- ---------- -------- ---------- Total shareholders' equity 964,905 65,423 992,548 817,293 2,840,169 1,005,765 631,967 2,466,371 ---------- --------- ---------- -------- ---------- ---------- -------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,930,479 $ 607,838 $1,022,345 $842,293 $4,402,955 $1,240,560 $631,967 $3,794,362 ========== ========= ========== ======== ========== ========== ======== ========== See notes to pro forma combined consolidated financial statements.
- 14 - 17 UNIFIED HOLDINGS, INC. PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
UNIFIED FIRST HEALTH ADJUSTMENTS & ELIMINATIONS CONSOLIDATED VAI LEXINGTON FINANCIAL COMBINED DEBIT CREDIT CONSOLIDATED ------------ -------- --------- --------- -------- -------------------------- ------------ REVENUE Brokerage $ 421,441 $ 82,572 $ $ $ 421,441 $ $ $ 421,441 Investment advisor fees 4,032 86,604 86,604 Fund services 284,486 284,486 27,315 0 257,171 Trustee fees 59,481 348,547 408,028 408,028 Administration fees 12,222 300 12,522 12,522 Valuation system fees 0 0 Trail commission and load fees 238,525 238,525 238,525 Retirement fees 116,044 116,044 116,044 Software and program fees 47,198 47,198 47,198 Interest income 30,976 128 1,615 950 33,669 33,669 Other 1,127 23,746 24,873 24,873 ---------- -------- ------- --------- ---------- ------- ------ ---------- Gross revenue 1,142,702 82,700 74,445 373,543 1,673,390 27,315 0 1,646,075 ---------- -------- ------- --------- ---------- ------- ------ ---------- COST OF SALES Brokerage revenue charges 270,892 270,892 270,892 Trail commission revenue charges 165,003 165,003 165,003 Fund reimbursement 0 0 Sub-Advisor fees 2,416 2,416 2,416 ---------- -------- ------- --------- ---------- ------- ------ ---------- Cost of sales 438,311 438,311 0 0 438,311 ---------- -------- ------- --------- ---------- ------- ------ ---------- Gross Profits 704,391 82,700 74,445 373,543 1,235,079 27,315 0 1,207,764 ---------- -------- ------- --------- ---------- ------- ------ ---------- EXPENSES Employee compensation & benefits 312,397 45,403 16,760 435,969 810,529 810,529 Investment advisory fees 5,210 10,202 15,412 15,412 Administration fees 15,349 15,349 15,349 Software maintenance fees 0 0 Related party employee, supplies and operating expenses reimbursed 0 0 Brokerage operating charges 69,957 69,957 69,957 Fund services operating charges 56,999 56,999 56,999 Market quotes 11,367 11,367 11,367 Mail and courier service 8,143 52 783 1,461 10,439 10,439 Telephone 30,484 50 933 869 32,336 32,336 Equipment rental/maintenance 19,810 19,810 19,810 See notes to pro forma combined consolidated financial statements. - 15 - 18 UNIFIED FIRST HEALTH ADJUSTMENT & ELIMINATIONS CONSOLIDATED VAI LEXINGTON FINANCIAL COMBINED DEBIT CREDIT CONSOLIDATED ------------ -------- --------- --------- -------- ------------------------- ------------ Insurance 6,017 1,655 10,049 3,695 21,416 21,416 Professional fees 7,425 10,823 3,137 7,125 28,510 28,510 Occupancy 47,317 1,875 1,034 50,226 50,226 Depreciation and amortization 35,048 19,849 2,000 11,250 68,147 68,147 Office supplies 8,555 1,374 7,805 17,734 17,734 Travel and entertainment 14,068 6,238 20,306 20,306 Taxes (other than payroll) 14,035 1,367 15,402 15,402 Temporary help 13,308 13,308 13,306 Advertising and conventions 3,876 3,876 3,876 Doubtful accounts 0 0 Interest expense 1,317 3,412 4,729 4,729 All other 7,260 19,646 1,170 2,079 30,155 0 27,315 2,840 ---------- -------- ------- --------- ---------- ------- ------- ---------- Total expenses 663,507 112,371 58,640 481,489 1,316,007 0 27,315 1,288,692 ---------- -------- ------- --------- ---------- ------- ------- ---------- Results before gain/(loss) on securities, and income taxes 40,884 (29,671) 15,805 (107,946) (80,928) 27,315 27,315 (80,928) Realized gain/(loss) on securities 0 0 Unrealized gain/(loss) on securities (5,192) (2,729) (7,921) (7,921) Equity in affiliates (14,414) (14,414) 0 14,414 0 ---------- ------- ------- --------- ---------- ------- ------- ---------- Results before income taxes 21,278 (32,400) 15,805 (107,946) (103,263) 27,315 41,729 (88,849) Income taxes 4,275 4,275 0 4,275 0 ---------- -------- ------- --------- ---------- ------- ------- ---------- Net results $ 21,278 $(32,400) $11,530 $(107,946) $ (107,538) $27,315 $46,004 $ (88,849) ========== ======== ======= ========= ========== ======= ======= ========== See notes to pro forma combined consolidated financial statements.
- 16 - 19 UNIFIED HOLDINGS, INC. PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
UNIFIED FIRST HEALTH ADJUSTMENT & ELIMINATIONS CONSOLIDATED VAI LEXINGTON FINANCIAL COMBINED DEBIT CREDIT CONSOLIDATED ------------ ------ --------- --------- -------- ------------------------- ------------ REVENUE Brokerage $ 485,476 $ $ $ $ 485,476 $ $ $ 485,476 Investment advisor fees 3,203 46,635 49,838 49,838 Fund services 380,814 380,814 380,814 Trustee fees 40,806 383,502 424,308 424,308 Administration fees 3,085 3,085 3,085 Valuation system fees 0 0 Trail commission and load fees 276,569 276,569 276,569 Retirement fees 3,092 3,092 3,092 Software and program fees 47,228 47,228 47,228 Interest income 11,333 17 14,890 6,516 32,756 32,756 Other 780 1,587 20,381 22,748 20,381 0 2,367 ---------- ------- ------- -------- ---------- ------- ------- ---------- Gross revenue 1,208,495 46,652 60,368 410,399 1,725,914 20,381 0 1,705,533 ---------- ------- ------- -------- ---------- ------- ------- ---------- COST OF SALES Brokerage revenue charges 273,562 273,562 273,562 Trail commission revenue charges 173,167 173,167 173,167 Fund reimbursement 5,717 5,717 5,717 Sub-Advisor fees 1,922 1,922 1,922 ---------- ------- ------- -------- ---------- ------- ------- ---------- Cost of sales 448,651 5,717 454,368 0 0 454,368 ---------- ------- ------- -------- ---------- ------- ------- ---------- Gross Profits 759,844 40,935 60,368 410,399 1,271,546 20,381 0 1,251,165 ---------- ------- ------- -------- ---------- ------- ------- ---------- EXPENSES Employee compensation and benefits 343,242 3,335 16,500 352,831 715,908 0 20,381 695,527 Investment advisory fees 1,517 12,493 14,010 14,010 Administration fees 4,131 1,831 5,962 5,962 Software maintenance fees 0 0 Related party employee, supplies and operating expenses reimbursed 0 0 Brokerage operating charges 92,068 92,068 92,068 Fund services operating charges 59,672 59,672 59,672 Market quotes 10,489 10,489 10,489 Mail and courier service 9,712 65 124 1,496 11,397 11,397 Telephone 24,863 941 1,173 945 27,922 27,922 Equipment rental/maintenance 43,162 1,744 44,906 44,906 See notes to pro forma combined consolidated financial statements. - 17 - 20 UNIFIED FIRST HEALTH ADJUSTMENTS & ELIMINATIONS CONSOLIDATED VAI LEXINGTON FINANCIAL COMBINED DEBIT CREDIT CONSOLIDATED ------------ ------- --------- --------- -------- -------------------------- ------------ Insurance 6,617 3,413 2,653 12,683 12,683 Professional fees 8,496 12,474 3,818 777 25,565 25,565 Occupancy 50,615 1,250 328 52,193 52,193 Depreciation and amortization 35,438 13,297 2,501 4,420 55,656 55,656 Office supplies 6,954 213 6,591 13,758 13,758 Travel and entertainment 13,270 4,018 17,288 17,288 Taxes (other than payroll) 14,632 1,119 15,751 15,751 Temporary help 2,537 2,537 2,537 Advertising and conventions 5,583 5,583 5,583 Doubtful accounts 0 0 Interest expense 2,097 3,262 5,359 5,359 All other 7,735 410 1,570 7,432 17,147 17,147 -------- -------- ------- -------- ---------- ------- ------- ---------- Total expenses 731,599 46,461 35,997 391,797 1,205,854 0 20,381 1,185,473 -------- -------- ------- -------- ---------- ------- ------- ---------- Results before gain/(loss) on securities, and income taxes 28,245 (5,526) 24,371 18,602 65,692 20,381 20,381 65,692 Realized gain/(loss) on securities 0 0 Unrealized gain/(loss) on securities (6,449) (12,303) (18,752) (18,752) Equity in affiliates (7,869) (7,869) 0 7,869 0 -------- -------- ------- -------- ---------- ------- ------- ---------- Results before income taxes 13,927 (17,829) 24,371 18,602 39,071 20,381 28,250 46,940 Income taxes 7,500 7,500 7,500 0 -------- -------- ------- -------- ---------- ------- ------- ---------- Net results $ 13,927 $(17,829) $16,871 $ 18,602 $ 31,571 $20,381 $35,750 $ 46,940 ======== ======== ======= ======== ========== ======= ======= ========== See notes to pro forma combined consolidated financial statements.
- 18 - 21 UNIFIED HOLDINGS, INC. PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
UNIFIED FIRST HEALTH ADJUSTMENTS & ELMINATIONS CONSOLIDATED VAI LEXINGTON FINANCIAL COMBINED DEBIT CREDIT CONSOLIDATED ------------ --------- --------- --------- -------- ------------------------- ------------ REVENUE Brokerage $1,846,201 $ $ $ $1,846,201 $ $ $1,846,201 Investment advisor fees 17,887 248,090 1,661,841 1,927,818 1,927,818 Fund services 1,968,384 1,968,384 500,313 0 1,468,071 Trustee fees 176,825 176,825 176,825 Administration fees 12,341 66,000 78,341 66,000 0 12,341 Valuation system fees 2,000 2,000 2,000 Trail commission and load fees 995,318 995,318 995,318 Retirement fees 246,139 246,139 246,139 Software and program fees 190,445 4,181 194,626 194,626 Interest income 66,730 64 59,561 1,966 128,321 128,321 Other (40,714) 100 163 15,525 (24,926) (24,926) ---------- --------- -------- ---------- ---------- -------- -------- ---------- Gross revenue 5,290,390 248,254 255,071 1,745,332 7,539,047 566,313 0 6,972,734 ---------- --------- -------- ---------- ---------- -------- -------- ---------- COST OF SALES Brokerage revenue charges 1,141,291 1,141,291 1,141,291 Trail commission revenue charges 653,595 653,595 653,595 Fund reimbursement 65,560 65,560 65,560 Sub-Advisor fees 11,586 11,586 11,586 ---------- --------- -------- ---------- ---------- -------- -------- ---------- Cost of sales 1,806,472 65,560 1,872,032 0 0 1,872,032 ---------- --------- -------- ---------- ---------- -------- -------- ---------- Gross Profits 3,483,918 182,694 255,071 1,745,332 5,667,015 566,313 0 5,100,702 ---------- --------- -------- ---------- ---------- -------- -------- ---------- EXPENSES Employee compensation and benefits 1,331,272 181,835 1,411,323 2,924,430 314,500 2,609,930 Investment advisory fees 0 0 Administration fees 12,341 4,250 16,591 16,591 Software maintenance fees 4,181 4,181 4,181 Related party employee, supplies and operating expenses reimbursed 66,000 66,000 66,000 0 Brokerage operating charges 332,508 332,508 332,508 Investment adviser expenses 6,066 49,972 56,038 56,038 Fund services operating charges 233,500 233,500 233,500 Market quotes 41,721 41,721 41,721 Mail and courier service 57,528 276 5,983 63,787 63,787 Telephone 66,500 2,549 4,690 3,779 77,518 77,518 Equipment rental/maintenance 105,122 3,909 2,237 111,268 111,268 See notes to pro forma combined consolidated financial statements. - 19 - 22 ADJUSTMENTS & UNIFIED FIRST HEALTH ADJUSTMENTS & ELIMINATIONS CONSOLIDATED VAI LEXINGTON FINANCIAL COMBINED DEBIT CREDIT CONSOLIDATED ------------ --------- --------- --------- -------- -------------------------- ------------ Insurance 25,535 5,501 13,652 10,612 55,300 55,300 Professional fees 55,921 92,263 15,273 3,108 166,565 166,565 Occupancy 195,869 5,000 2,782 203,651 203,651 Depreciation and amortization 167,382 53,189 10,002 17,680 248,253 248,253 Office supplies 37,175 386 497 26,365 64,423 64,423 Travel and entertainment 43,898 20,536 7,615 72,049 72,049 Taxes (other than payroll) 70,958 3,705 1,776 1,312 77,751 77,751 Temporary help 13,388 13,388 13,388 Advertising and conventions 874 13,854 14,728 14,728 Doubtful accounts 0 0 0 Interest expense 4,993 14,119 19,112 19,112 All other 28,037 186,207 2,272 22,409 238,925 185,813 53,112 ---------- --------- -------- ---------- ---------- -------- -------- ---------- Total expense 2,812,181 578,329 143,987 1,567,190 5,101,687 0 566,313 4,535,374 ---------- --------- -------- ---------- ---------- -------- -------- ---------- Results before gain/(loss) on securities, and income taxes 671,737 (395,635) 111,084 178,142 565,328 566,313 566,313 565,328 Realized gain/(loss) on securities 25,588 (3,353) 24,096 46,331 46,331 Unrealized gain/(loss) on securities 1,659 (55,754) (54,095) (54,095) Equity in affiliates (151,108) (151,108) 151,108 0 ---------- --------- -------- ---------- ---------- -------- -------- ---------- Results before income taxes 547,876 (454,742) 111,084 202,238 406,456 566,313 717,421 557,564 Income taxes 30,000 30,000 30,000 0 ---------- --------- -------- ---------- ---------- -------- -------- ---------- Net results $ 547,876 $(454,742) $ 81,084 $ 202,238 $ 376,456 $566,313 $747,421 $ 557,564 ========== ========= ======== ========== ========== ======== ======== ========== See notes to pro forma combined consolidated financial statements.
- 20 - 23 UNIFIED HOLDINGS, INC. PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
UNIFIED FIRST HEALTH ADJUSTMENTS & ELIMINATIONS CONSOLIDATED VAI LEXINGTON FINANCIAL COMBINED DEBIT CREDIT CONSOLIDATED ------------ -------- --------- --------- -------- -------------------------- ------------ REVENUE Brokerage $2,363,345 $ $ $ $2,363,345 $ $ $2,363,345 Investment advisor fees 10,434 27,207 108,429 1,307,531 1,453,601 1,453,601 Fund services 1,395,782 1,395,782 199,275 0 1,196,507 Trail commission and load fees 540,950 540,950 540,950 Retirement fees 163,044 163,044 163,044 Software and program fees 213,755 213,755 213,755 Interest income 21,258 811 55,946 78,015 78,015 Other 243 16,591 16,834 16,834 ---------- -------- -------- ---------- ---------- -------- -------- ---------- Gross revenue 4,708,811 28,018 164,375 1,324,122 6,225,326 199,275 0 6,025,051 ---------- -------- -------- ---------- ---------- -------- -------- ---------- COST OF SALES Brokerage revenue charges 1,244,893 1,244,893 1,244,893 Trail commission revenue charges 130,281 130,281 130,281 Fund reimbursement 24,922 24,922 24,922 Sub-advisor fees 9,266 9,266 9,266 ---------- -------- -------- ---------- ---------- -------- -------- ---------- Cost of sales 1,384,440 24,922 1,409,362 0 0 1,409,362 ---------- -------- -------- ---------- ---------- -------- -------- ---------- Gross Profits 3,324,371 3,096 164,375 1,324,122 4,815,964 199,275 0 4,616,689 ---------- -------- -------- ---------- ---------- -------- -------- ---------- EXPENSES Employee compensation and benefits 1,368,077 1,024,876 2,392,953 0 198,000 2,194,953 Brokerage operating charges 577,373 577,373 577,373 Investment advisor expenses 55,701 45,561 101,262 101,252 Administration fees 3,050 3,050 3,050 Software maintenance fees 0 0 Related party employee, supplies and operating expenses reimbursed 0 0 Fund services operating charges 170,395 170,395 170,395 Market quotes 73,445 73,445 73,445 Mail and courier service 73,044 108 3,478 76,630 76,630 Telephone 152,380 199 913 2,507 155,999 155,999 Equipment rental/maintenance 151,787 151,787 151,787 Insurance 56,502 10,562 7,686 74,750 74,750 Professional fees 73,711 6,827 12,349 1,200 94,087 94,087 Occupancy 212,418 5,000 2,984 220,402 220,402 Depreciation and amortization 142,797 26,594 532 5,992 175,915 175,915 See notes to pro forma combined consolidated financial statements. - 21 - 24 UNIFIED FIRST HEALTH ADJUSTMENTS & ELIMINATIONS CONSOLIDATED VAI LEXINGTON FINANCIAL COMBINED DEBIT CREDIT CONSOLIDATED ------------ -------- --------- --------- -------- -------------------------- ------------ Office supplies 41,212 36 19,435 60,683 60,683 Travel and entertainment 47,835 7,122 7,933 62,890 62,890 Taxes (other than payroll) 71,528 387 2,668 1,310 75,893 75,893 Temporary help 46,414 46,414 46,414 Advertising and promotion 3,209 281 3,490 3,490 Doubtful accounts (3,475) (3,475) (3,475) Interest expense 7,429 5,450 12,879 12,879 All other 6,213 661 244 12,179 19,297 0 1,275 18,022 ---------- -------- -------- ---------- ---------- -------- -------- ---------- Total expense 3,269,085 50,557 88,286 1,138,191 4,546,119 0 199,275 4,346,844 ---------- -------- -------- ---------- ---------- -------- -------- ---------- Results before gain/(loss) on securities, and income taxes 55,286 (47,461) 76,089 185,931 269,845 199,275 199,275 269,845 Realized gain/(loss) on securities 26 35,356 35,382 35,382 Unrealized gain/(loss) on securities 0 0 Equity in earnings of subsidiary (1,599) (1,599) 0 1,599 0 ---------- -------- -------- ---------- ---------- -------- -------- ---------- Results before income taxes 53,687 (47,435) 76,089 221,287 303,628 199,275 200,874 305,227 Income taxes 19,354 19,354 19,354 0 ---------- -------- -------- ---------- ---------- -------- -------- ---------- Net results $ 53,687 $(47,435) $ 56,735 $ 221,287 $ 284,274 $199,275 $220,228 $ 305,227 ========== ======== ======== ========== ========== ======== ======== ========== See notes to pro forma combined consolidated financial statements.
- 22 - 25 UNIFIED HOLDINGS, INC. PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994 (UNAUDITED)
UNIFIED FIRST HEALTH ADJUSTMENTS & ELIMINATIONS CONSOLIDATED VAI LEXINGTON FINANCIAL COMBINED DEBIT CREDIT CONSOLIDATED ------------ -------- --------- --------- -------- -------------------------- ------------ REVENUE Brokerage $2,905,597 $ $ $ $2,905,597 $ $ $2,905,597 Investment advisor fees 15,266 507,526 522,792 522,792 Fund services 979,155 979,155 979,155 Trail commission and load fees 605,774 605,774 605,774 Retirement fees 194,416 194,416 194,416 Software and program fees 224,386 224,386 224,386 Interest income 38,577 38,577 38,577 Other 150,721 16,552 167,273 167,273 ---------- -------- ------- -------- ---------- -------- -------- ---------- Gross revenue 5,060,049 0 53,843 524,078 5,637,970 0 0 5,637,970 ---------- -------- ------- -------- ---------- -------- -------- ---------- COST OF SALES Brokerage revenue charges 1,664,496 1,664,496 1,664,496 Trail commission revenue charges 104,437 104,437 104,437 Sub-advisor fees 0 0 ---------- -------- ------- -------- ---------- -------- -------- ---------- Cost of sales 1,768,933 0 1,768,933 0 0 1,768,933 ---------- -------- ------- -------- ---------- -------- -------- ---------- Gross Profit 3,291,116 0 53,843 524,078 3,869,037 0 0 3,869,037 ---------- -------- ------- -------- ---------- -------- -------- ---------- EXPENSES Employee compensation and benefits 1,470,542 393,908 1,864,450 1,864,450 Brokerage operating charges 651,291 651,291 651,291 Investment advisor expenses 17,940 17,940 17,940 Administration fees 2,450 2,450 2,450 Fund services operating charges 114,181 114,181 114,181 Market quotes 72,444 72,444 72,444 Mail and courier service 134,340 2,064 136,404 136,404 Telephone 145,647 863 1,730 148,240 148,240 Equipment rental/maintenance 112,069 112,069 112,069 Insurance 58,580 7,943 5,759 72,282 72,282 Professional fees 38,604 3,379 800 42,783 42,783 Occupancy 170,833 5,000 2,017 177,850 177,850 Depreciation and amortization 134,069 234 9,076 143,379 143,379 Office supplies 7,577 12,106 19,683 19,683 Travel and entertainment 55,832 3,860 59,692 59,692 See notes to pro forma combined consolidated financial statements. - 23 - 26 UNIFIED FIRST HEALTH ADJUSTMENTS & ELIMINATIONS CONSOLIDATED VAI LEXINGTON FINANCIAL COMBINED DEBIT CREDIT CONSOLIDATED ------------ -------- --------- --------- -------- -------------------------- ------------ Taxes (other than payroll) 53,745 2,612 56,357 56,357 Temporary help 0 0 Advertising 265 265 265 Doubtful accounts 5,616 5,616 5,616 Interest expense 0 0 All other 84,832 11,931 7,903 104,666 104,666 ---------- -------- ------- -------- ---------- -------- -------- ---------- Total expense 3,302,625 0 37,192 462,225 3,802,042 0 0 3,802,042 ---------- -------- ------- -------- ---------- -------- -------- ---------- Results before gain/(loss) on securities, and income taxes (11,509) 0 16,651 61,853 66,995 0 0 66,995 Realized gain/(loss) on securities 81 81 81 Unrealized gain/(loss) on securities 0 0 Equity in affiliates 0 0 ---------- -------- ------- -------- ---------- -------- -------- ---------- Results before income taxes (11,509) 0 16,651 61,934 67,076 0 0 67,076 Income taxes 3,452 3,452 0 3,452 0 ---------- -------- ------- -------- ---------- -------- -------- ---------- Net results $ (11,509) $ 0 $13,199 $ 61,934 $ 63,624 $ 0 $ 3,452 $ 67,076 ========== ======== ======= ======== ========== ======== ======== ========== See notes to pro forma combined consolidated financial statements.
- 24 - 27 UNIFIED HOLDINGS, INC. NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) Represents the Company's historical consolidated financial statements. (2) Acquisition of VAI with 120,000 shares of Common Stock, based upon an exchange ratio of 1.2 shares of Common Stock for each outstanding share of VAI common stock. The acquisition of VAI will be accounted for as a pooling-of-interests. (3) Acquisition of First Lexington with 320,000 shares of Common Stock, based upon an exchange ratio of 38.5775 shares of Common Stock for each outstanding share of First Lexington common stock. The acquisition of First Lexington will be accounted for as a pooling-of-interests. (4) Acquisition of Health Financial with 80,000 shares of Common Stock, based upon an exchange ratio of 9.644 shares of Common Stock for each outstanding share of Health Financial common stock. The acquisition of Health Financial will be accounted for as a pooling-of-interests. (5) Elimination of the Company's investment and equity in earnings of VAI. (6) Elimination of intercompany receivables and payables in consolidation. (7) Elimination of intercompany revenue and expense in consolidation. (8) Elimination of income tax effect which is offset by net operating loss carry-forward from the Company. - 25 - 28 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION --------------------------------------------------------- The following presents management's discussion and analysis of the Company's consolidated financial condition and results of operations as of the dates and for the periods indicated. This discussion should be read in conjunction with the other information set forth in this registration statement, including the Company's audited consolidated financial statements and the accompanying notes thereto. OVERVIEW The Company's business consists, primarily, of mutual fund management, mutual fund administrative services and brokerage operations, which are conducted through the Company's wholly owned subsidiaries, UAI and UMC. UAI is a complete mutual fund financial services company specializing in the development, support, maintenance, shareholder servicing, management and investment advisory of mutual funds. UAI was formed in 1990 as a sister company to UMC in a strategic move to separate and segregate the brokerage services employees (and brokerage account activities) from the mutual fund services employees (and mutual fund account activities). UAI is highly automated and is registered with the SEC as a transfer agent and registered stock transfer agent. UAI has total back-office mutual fund service capabilities and presently provides transfer agency, fund accounting, administrative and/or compliance services for nine different third-party, unaffiliated mutual fund families consisting of nearly $3 billion in mutual fund assets, approximately 50 different portfolios and 125,000 different shareholders. Additionally, as a registered investment adviser, UAI has $135 million of assets under management, all of which are invested in mutual funds, with approximately $60 million of its $135 million invested in the Vintage Funds. UMC is a regional discount brokerage firm with a unique link to mutual fund assets via its brokerage account services. A licensed NASD broker-dealer since 1976, UMC specializes in mutual fund distribution and shareholder servicing liaison providing such services as: mutual fund distribution, distribution services and support; mutual fund conversion support for requirements; mutual fund trades; IRA custodial services; 12b-1 maintenance, accounting and marketing support; securities (stock and bond) brokerage; brokerage clearing and execution services; consolidated brokerage statement processing; mutual fund and brokerage software development; asset allocation and performance measurement services and statement processing; and retirement account record keeping. The Company expects a continuation in reductions in annual gross revenues from its brokerage services business, but expects long-term increases in UMC's revenues based upon the Company's new business strategies for brokerage, including asset allocation and wrap products and programs, coupled with an increased selling effort and expansion of its introduced clearing customer base. The Company expects that any reductions in brokerage services revenues will be offset by anticipated increases in mutual fund services revenues, although there can be no assurances that the Company will be able to accomplish such increases or that the Company will not experience or be able to prevent unexpected reductions in its revenues or unexpected increases in its expenses. The Company's business strategy over the next twelve months includes: continuing and expanding its mutual fund services and brokerage services contracts and relationships; and increasing its assets under management through its typical relationships, marketing, resources and activities. In addition to its core brokerage and mutual fund services businesses, the Company expects to implement: (i) a stock- - 26 - 29 for-stock acquisition program in which the Company intends to acquire a trust company and a registered investment adviser (see "Recent Developments"), and (ii) an aggressive tax-free reorganization program with small mutual fund families to increase assets under management in the Company's affiliated mutual funds, the Vintage Funds. COMPARISON OF RESULTS FOR CALENDAR YEARS ENDED DECEMBER 31, 1996 AND 1995 The Company's gross revenues increased by $581,579 to $5,290,390 in 1996 from $4,708,811 in 1995. This improvement in gross revenues resulted from a significant increase in mutual fund administrative services revenues. This increase was somewhat offset by a $422,032 cost of sales increase to $1,806,472 in 1996 from $1,384,440 in 1995. This cost of sales increase was predominantly due to increased trailing commission expenses at the brokerage subsidiary level and was partially attributable to the Company's assistance in the formation of and growth in its affiliated mutual fund family, the Vintage Funds. Mutual fund services and brokerage services margins both increased with higher volumes. Gross profit increased by $159,546 over the prior year to $3,483,918 in 1996 from $3,324,372 in 1995 directly related to higher volumes in the mutual fund administrative services business; however, overall percentage of gross profit to total revenue decreased to 65.85% in 1996 from 70.59% in 1995 due to a higher cost of sales. Operating expenses decreased by $414,905 (12.7%) over the prior year to $2,812,181 from $3,269,086, primarily due to reduced expenses reflecting lower operating costs related to communications and improved productivity of the Company's employees. Total net income from operations increased by $671,737 (1,150%) in 1996, compared to $55,286 for the prior year, principally due to the increase in mutual fund administrative services revenues and lower operating expenses. 1996 consolidated net income increased $494,189 to $547,876 compared to $53,687 for the prior year. Consolidated net income calculations include a charge for losses incurred at an affiliate of $151,108 and $1,599 for 1996 and 1995, respectively. Administrative salaries, employee compensation and benefits decreased slightly in 1996 to $1,331,372 from $1,368,077. The Company does not have any pending litigation of a material nature and is not aware of any potential litigation or claims in the future. The Company's legal expenses decreased slightly over the prior year, but the Company expects a slight increase in professional fees in 1997 based upon legal work related to this registration statement and pending acquisitions, as well as anticipated public reporting requirements. Capital expenditures for 1997 include the purchase of computer equipment and software to further support the Company's mutual fund and brokerage services businesses. Such expenditures are not expected to exceed $180,000, and the Company currently can provide its own source of funds or lending to sufficiently absorb such expenditures so as to not endanger the liquidity or financial condition of the Company. The Company does not expect to need to raise additional capital to satisfy its cash requirements but will attempt to raise working capital to expand its business and products and to retire - 27 - 30 its Preferred Stock. Except with respect to the proposed acquisitions of Health Financial, First Lexington and VAI, there are no expected purchases or sales of plant or significant equipment during the next twelve months, and the Company does not expect, anticipate or have any plans for any significant changes in its number of employees. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity historically have been and continues to be cash flow from operating activities and available borrowing capacity for capitalized leases. At December 31, 1996, the Company reported working capital of $244,087, or a working capital ratio of 1.26 to 1. Significant portions of the Company's computer and communication equipment and software are purchased through capitalized leases. The Company expects to be able to repay its borrowings for such capitalized leases over the respective lease periods. Historically, cash expended in investing activities has supported the Company's affiliated mutual funds and brokerage services business through investments in VAI, of which the Company owns 10% of the outstanding capital stock, and the Vintage Funds, the Company's affiliated mutual fund family. There can be no assurances that such investments in the future will continue to produce positive effects on the Company's liquidity or working capital, and, such investments, or unexpected increases in capitalized leases, could have a negative affect on the Company's liquidity or working capital. SENSITIVITY TO CHANGES IN MARKET CONDITIONS The Company's revenues, like those of other firms in the asset management, fund management, fund services and mutual fund brokerage industries, are directly related to fluctuations in assets and price levels of funds under management. A significant portion of the Company's earnings are generated from fees based on the average daily market value of the assets the Company administers for its clients. A rapid change in interest rates or a sudden decline in the bond markets, among other factors, could influence an investor's decision whether to invest or maintain an investment in a bond based mutual fund. As a result, fluctuations may occur in assets that the Company has under service or management due to changes in interest rates and other investment considerations. A significant investor trend seeking alternatives to mutual fund investments and/or to assets under management could have a negative impact on the Company's revenues by reducing the assets it manages, services and administers. Additionally, from time to time, the Company has waived, and in the future for competitive reasons, may waive certain fees normally charged to mutual funds to which it provides services. ECONOMIC BUSINESS RISKS OUTSIDE THE COMPANY'S CONTROL The Company's asset management, mutual fund services, mutual fund management and broker-dealer businesses are subject to various risks and contingencies, many of which are beyond the ability of the Company to control. These risks include economic conditions generally and in particular those affecting bond and securities markets, interest rates, discretionary income available for investment, customer inability to meet payment or delivery commitments, customer fraud and employee misconduct and error. - 28 - 31 ITEM 3. DESCRIPTION OF PROPERTY ----------------------- The Company, through its subsidiary, UMC, leases its corporate headquarters and administrative office facilities located at 429 North Pennsylvania Street, Indianapolis, Indiana, approximately 11,086 square feet, and has operating leases expiring in 2001 for such corporate office facilities and equipment. The Company's current administrative offices are considered adequate to serve the Company's foreseeable needs. Other than the administrative offices lease and the equipment and capital leases listed herein, the Company has no other significant property holdings. Lease obligations are allocated between the Company and its two subsidiaries based upon estimated usage. The leases include clauses for adjustment of operating costs and real estate taxes that are not reflected as part of the minimum obligations. The aggregate minimum rental commitments required under operating leases and noncancelable subleases for office space and equipment at December 31, 1996 were as follows:
YEAR ENDED DECEMBER 31 LEASE COMMITMENTS ---------------------- ----------------- 1997 $204,831 1998 198,987 1999 187,026 2000 167,280 Thereafter 111,520 -------- Total $869,644 ========
The Company's capitalized lease obligations are payable over a 36-month period. The following is a summary of future minimum lease payments under capitalized lease obligations as of December 31, 1996:
YEAR ENDING DECEMBER 31 AMOUNT ----------------------- ------ 1997 $43,292 1998 25,605 1999 10,077 ---- ------- Total 78,974 Less amount representing interest 7,628 ------- Net present value $71,346 =======
The Company also acquired equipment through a capital lease obligation in the amount of $35,063 during 1996 and $80,218 during 1995. The Company, as of December 31, 1996, had equipment and furniture, net, of $218,838, and capitalized leased equipment, net, of $99,876, totaling $318,714 in equipment and furniture. The $318,714 was comprised of: major computer equipment, $240,858; minor computer equipment, $29,537; major operation equipment $3,100; major telecommunications equipment, $41,401; and office furniture and fixtures, $3,818. As of December 31, 1996, the net value of the equipment and furniture for financial accounting was $475,992. The current value of these assets was based upon two accounting methods. The first method was to obtain current values from suppliers from the major assets owned, which calculated to the $318,714 figure (net equipment, furniture and capitalized leased equipment). - 29 - 32 The second method was to determine the potential stream of income over the estimated economic life (7 years) of the assets. The revenue in billing was estimated to be 110 percent of cost including depreciation. The resulting annual revenue attributable to the use of equipment was projected to be $180,000. The costs of maintenance, use insurance and property taxes were estimated annually at $54,000. This net cash flow was discounted at 15% recognizing a higher risk to arrive at a current value of $395,864 (gross equipment, furniture and capitalized leased equipment). Since the value is minimally different than the financial value, no tax cost has been considered. The percentage of gross annual rentals represented by such leases is: 1997 81.67% 1998 84.07 1999 89.44 2000 100.00 Thereafter 100.00
For purposes of depreciation, the federal tax basis, rate, method and life claimed with respect to such properties is set forth as follows: Book Depreciation: With the exception of the 1989 computer equipment, which is depreciated on the sum-year-digits method, the properties are depreciated on a 3-10 year straight-line method, with a 5-year life for minor equipment and a 10-year life for major equipment. Tax Depreciation: For assets purchased prior to 1992, depreciation is calculated by double declining balance with five to seven year lives. Purchases after 1991 are depreciated on a straight-line method with 3-10 year lives, following regulations of the Internal Revenue Service. ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- The following table sets forth certain information with respect to the beneficial ownership of the outstanding Common Stock and Class B Preferred Stock: (i) by each person who is known by the Company to own beneficially more than five percent of the Common Stock and/or Class B Preferred Stock; (ii) by each of the Company's directors and executive officers; and (iii) by all current directors and executive officers as a group. No director or executive officer owns any shares of Class A Preferred Stock.
NUMBER OF SHARES NUMBER OF SHARES OF COMMON STOCK PERCENT OF PREFERRED STOCK PERCENT NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS BENEFICIALLY OWNED OF CLASS - ------------------------ ----------------------- -------- ------------------ -------- Timothy L. Ashburn 560,868 93.5% 5,204 60.6% Jack R. Orben -- -- 188 2.2 Weaver H. Gaines -- -- 50 Thomas G. Napurano -- -- 943 11.0 Lynn E. Wood 39,132 6.5 377 4.4 All directors and executive officers (6 persons) 600,000 100.0 6,762 78.8 - ------------------------------------------ Unless otherwise indicated, no person has voting and investment powers over such shares, subject to community property laws, other than Timothy L. Ashburn, as the trustee for the M.E.R.P. and the Stock Option Plan, respectively. - 30 - 33 Mr. Ashburn votes the shares for such plans solely at the direction of the respective plan committees and the Board. Absent such direction, the trustee may not vote. Lynn Wood is the trustee for the 401(k) Plan and votes the shares for such plan. There are no holders of the Common Stock, other than the three plans. Includes 460,574 and 100,294 shares of Common Stock held by the M.E.R.P. and the Stock Option Plan, respectively, of which Mr. Ashburn, as the trustee, has sole voting power. Of the 460,574 shares of Common Stock issued in the name of the M.E.R.P., options to acquire 52,476, 18,000, 18,000, 49,744, 53,076 and 218,748 shares have been granted to Messrs. Ashburn, Orben, Gaines, Napurano and Wood and all directors and executive officers as a group, respectively. Of the 100,294 shares of Common Stock issued in the name of the Stock Option Plan, 23,000, 5,000, 5,000, 23,000, 23,000 and 100,294 shares have been granted to Messrs. Ashburn, Orben, Gaines, Napurano and Wood and all directors and executive officers as a group, respectively. Includes 300 shares owned by Mr. Ashburn's IRA. Less than one percent. Such shares are issued in the name of the 401(k) Plan, of which Mr. Wood, as the trustee, has sole voting power. Of the 39,132 shares of Common Stock issued in the name of the 401(k) Plan, 3420.278, 4,039.822, 3,407.104 and 13,197.746 shares are held for the benefit of Messrs. Ashburn, Napurano and Wood and all directors, and executive officers as a group, respectively.
THE MANAGEMENT AND EMPLOYEE RETENTION PLAN (M.E.R.P.) As of February 7, 1995, the Company established the M.E.R.P. to: (a) retain officers and employees of the Company, and/or its subsidiaries, with experience and ability in key positions, by providing such key employees with a proprietary interest in the Company as compensation for their contributions to the Company and as an incentive to continue to make such contributions in the future through the issuance of plan share awards ("Awards") in the form of grants ("Grants"); (b) promote the interests of the Company and its stockholders by affording an incentive to certain key employees to remain in the employ of the Company and in attracting, maintaining and developing capable personnel of a caliber required to ensure the continued success of the Company by means of an offer to such persons of an opportunity to acquire or increase their proprietary interest in the Company through the Awards by the granting of options to purchase the Company's stock pursuant to the terms of the M.E.R.P. by means of Stock Option Agreements as the stock incentive portion of the Plan ("Options"); and (c) to compensate directors for their contributions to the Company and to provide an incentive for their continued contributions as Directors in the future by means of the Awards and Options. The Plan is administered by a committee (the "Committee"), appointed by the Board, and whose membership is determined and reviewed from time to time by the Board. The Committee must consist of three members of the Board, and at least one of the three members of the Committee must not be an officer or employee of the Company, and/or of its subsidiaries, but may, however, own Common Stock and/or Preferred Stock. The Committee has the full power and authority to construe, interpret and administer the M.E.R.P. and may adopt such rules, procedures, guidelines and regulations for carrying out the M.E.R.P. as it may deem proper, appropriate and in the best interests of the Company and in keeping with the objectives of the M.E.R.P. for the conduct of its affairs. This power includes: (a) establishing all Award terms and conditions and adopting modifications, amendments, forms and procedures as may be necessary to comply with provisions of any applicable regulatory rulings; (b) selecting the employees to whom Awards shall be granted; (c) determining the number of shares of Common Stock subject to each Award; (d) determining the time or times when Awards will be granted; (e) fixing such other provisions of the Awards as it may deem necessary or desirable consistent with the terms of the M.E.R.P.; and (f) determining all other questions relating to the administration of the M.E.R.P. The interpretation and construction by the Committee of any provisions of the M.E.R.P., including the administering of the M.E.R.P., and any Awards granted under the M.E.R.P. are final, conclusive and binding upon all persons, - 31 - 34 and the officers of the Company shall place into effect and cause the Company to perform its obligations under the M.E.R.P. in accordance with the Committee's determinations in administering the M.E.R.P. The M.E.R.P. and all amendments to the M.E.R.P. have been approved by the stockholders of the M.E.R.P. The M.E.R.P., prior to the February 6, 1997 two for one stock split, was initially funded with 240,000 shares of Common Stock, and has the right to utilize up to 80% of the Company's capital stock into the M.E.R.P. for Awards. As of this date, after the affects of the two for one stock split, 460,574 shares are funded into the M.E.R.P. of the Company's 600,000 total outstanding shares of Common Stock. Only employees and directors of the Company are eligible to participate in the M.E.R.P. To date, every employee and director has received Awards, and the M.E.R.P. is deemed to be "broad based" in that it is not reserved for executives but reaches every level of the Company's employee base. Awards are granted based upon eligibility criteria that were initially established by the employees in conjunction with management and the Board. Employees and directors must have at least two years of continuous service or five years of cumulative service in order to be able to exercise Options or vest grants. All eligible Award recipients commence vesting on January 1, 2000. Vesting may be accelerated under any of the following events and circumstances: (a) a change in control as defined under the M.E.R.P.; (b) registration of the Company's shares; or (c) termination of the M.E.R.P. In order for an employee or director to receive shares under the Awards pursuant to the M.E.R.P., the employee or director must be an employee at the time of vesting or a member of the Board at the time of vesting. Employees who are terminated or leave the Company's employ or directors who are not reelected to the Board at the time of the vesting are not entitled to the shares and the shares are reallocated for distribution according to the M.E.R.P. Directors receive 500 shares of per year. All directors have served continuously since the inception of the M.E.R.P. There are no voting rights for Award recipients under the M.E.R.P. until the recipient is the beneficial owner of the shares, after vesting. There are adjustments for capital provisions in the M.E.R.P. There will be no dividends paid into the M.E.R.P. until the Preferred Stock has been redeemed, and, to date, only Options (and not Grants) have been granted each at a fair market value of $0.1314 per share. The Trustee for the M.E.R.P. is Timothy L. Ashburn, the Company's Chairman and Chief Executive Officer. Mr. Ashburn votes the shares of the M.E.R.P. at the direction of the Board and the Committee and, absent such direction, may not vote on behalf of the M.E.R.P. The M.E.R.P. will terminate upon the registration of the Company's shares, pursuant to a Form 10 filing in favor of a similar M.E.R.P. that will provide for no more than 20% of the outstanding capital stock of the Company to be utilized by the M.E.R.P. Any Stock Option Agreement granted under the M.E.R.P. shall not be exercisable until the optionee has had cumulative employment (or directorship) of at least five (5) years or continuous employment (or directorship) with the Company for a period of at least two (2) years after the date such Stock Option Agreement is granted and any and all options must be exercised, if at all, within ten (10) years after the date such Stock Option Agreement is granted. Pursuant to the M.E.R.P., each year directors receive an option to acquire 3,000 shares of Common Stock, subject to the same terms and conditions as those granted to employees of the Company. Notwithstanding the foregoing, should an optionee's employment with the Company, or tenure as a director, terminate due to the death of the optionee, all options shall immediately become fully vested provided the optionee has had continuous service with the Company for two (2) years, and the optionee's successor in interest shall have sixty (60) days after the optionee's date of death to exercise - 32 - 35 such option; provided, however, that such option must be exercised within ten (10) years after the date such option is granted in accordance with the terms hereof. Any such exercisable option is hereinafter referred to as a Vested Option. All other options held on the date of termination shall expire automatically as of the date of termination. Except as otherwise provided herein, no option granted under the M.E.R.P. may be exercised unless the optionee is at the time of such exercise an employee (or director) of the Company or its subsidiaries. The M.E.R.P. shall remain in effect until the earlier of: (1) twenty-one (21) years from the Effective Date; (2) termination by the Board; or (3) the distribution to recipients and beneficiaries of all assets of the Trust. If the M.E.R.P. is terminated by the Board, no Awards may be issued after the effective date of such termination but, subject to the preceding sentence, previously issued Awards shall remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of the M.E.R.P. Notwithstanding the foregoing, no options shall be granted under the M.E.R.P. after the effective date of termination, but any Stock Option Agreements granted prior thereto may be exercised in accordance with their terms. The M.E.R.P. and all Awards granted pursuant to it are subject to all laws, approvals, requirements and regulations of any governmental authority that may be applicable thereto and, notwithstanding any provisions of the M.E.R.P. or its Awards, the holder of a Stock Option Agreement shall not be entitled to exercise the option nor shall the Company be obligated to issue any shares to the holder if such exercise or issuance would violate any of the provisions of the M.E.R.P. THE RESTRICTED STOCK OPTION PLAN Effective July 22, 1996, the Company adopted the Stock Option Plan to: promote the interests of the Company by affording an incentive to certain key members of the Board and certain key employees of the Company and its subsidiaries; encourage key employees to remain in the employ of the Company and its subsidiaries and to use their best efforts in its behalf; encourage key members of the Board to remain as directors and to continue to use their best efforts in the Company's behalf; further aid the Company and its subsidiaries by means of an offer to such persons of an opportunity to acquire or increase their proprietary interest in the Company through the granting of options to purchase the Company's stock pursuant to the terms and conditions of the Stock Option Plan. The Stock Option Plan is administered and interpreted by a committee (the "Stock Option Plan Committee"), appointed by the Board, and whose membership is determined and reviewed from time to time by the Board. The Stock Option Plan Committee consists of not less than three (3) members of the Board and at least one of the three members of the Stock Option Plan Committee cannot be an officer or employee of the Company and/or its subsidiaries. Stock Option Plan Committee members may own Common and/or Preferred Stock of the Company. The Stock Option Plan Committee has any and all power and authority (including discretion with respect to that power and authority) which is necessary, properly advisable, desirable or convenient to enable it to carry out its duties under the Stock Option Plan. Subject to the express provisions and limitations of the Stock Option Plan, the Stock Option Plan Committee has full power and authority to construe, interpret and administer the Stock Option Plan and may from time to time adopt such rules, procedures, guidelines and regulations for carrying out the Stock Option Plan as it may deem proper, appropriate and in the best interests of the Company and in keeping with the objectives of the Stock Option Plan for the conduct of its affairs. This power includes, but is not limited to, establishing all terms and conditions of any options granted and adopting modifications, amendments, forms and - 33 - 36 procedures as may be necessary to comply with provisions of any applicable regulatory rulings. The Stock Option Plan Committee may delegate part or all of its administrative authority granted under the Stock Option Plan to one or more of its members, as the members by unanimous consent deem appropriate. Subject to the terms, provisions and conditions of the Stock Option Plan, the Stock Option Plan Committee has exclusive jurisdiction: (i) to select the employees to whom options shall be granted; (ii) to determine the number of shares of Common Stock subject to each option; (iii) to determine the time or times when options will be granted; (iv) to fix such other provisions of the option agreement as it may deem necessary or desirable consistent with the terms of the Stock Option Plan; and (v) to determine all other questions relating to the administration of the Stock Option Plan. The interpretation and construction by the Stock Option Plan Committee of any provisions of the Stock Option Plan (including the administration of the Stock Option Plan and/or any stock options granted thereunder is final, conclusive and binding upon all persons, and the officers of the Company shall place into effect and shall cause the Company to perform its obligations under the Stock Option Plan in accordance with the determinations of the Stock Option Plan Committee in administering the Stock Option Plan. Key employees and directors of the Company are eligible to receive options under the Stock Option Plan. That an employee has been granted an option under this Stock Option Plan shall not in any way affect or qualify the right of the Company to terminate his employment at any time, subject to the terms and conditions of any employment agreement that may then be in effect. Nothing contained in the Stock Option Plan is construed to limit the right of the Company to grant options otherwise than under the Stock Option Plan for any proper and lawful corporate purpose, including but not limited to options granted to key employees. Key employees to whom options may be granted under the Stock Option Plan will be those elected by the Stock Option Plan Committee from time to time who, in the sole discretion of the Stock Option Plan Committee, have contributed in the past or who may be expected to contribute materially in the future to the successful performance of the Company. That a director has been granted an option under the Stock Option Plan shall not in any way affect or qualify the right of the Company's stockholders, pursuant to its by-laws, to terminate a director's position on the Board, nor is it to be construed as any implied or suggested term of directorship, as such term is solely the decision of the stockholders of the Company. Unless otherwise modified by the Committee in the individual stock option agreement, any options granted under the Stock Option Plan shall not be exercisable until: (a) the optionee has had cumulative employment (or directorship) of at least five (5) years; or (b) the optionee has had continuous employment (or directorship) with the Company for a period of at least two (2) years after the date such stock option is granted. Any and all options must be exercised, if at all, within ten (10) years after the date such option is granted. Except as otherwise provided herein, no option granted under the Stock Option Plan may be exercised unless the optionee is at the time of such exercise an employee (or director) of the Company or its subsidiaries. Should an optionee's employment with the Company, or tenure as a director, terminate due to the death or disability of the optionee, all options shall immediately become fully vested provided the optionee has had continuous service with the Company for two (2) years, and the optionee's successor in interest shall have sixty (60) days after the optionee's date of termination to exercise such option (provided, however, that such option must be exercised within ten (10) years after the date such option is granted) in accordance with the terms hereof. Any such exercisable option is hereinafter referred to as a "Vested Option." - 34 - 37 The aggregate number of shares available for distribution pursuant to the Stock Option Plan and the number of shares to which any options granted thereunder shall be proportionately adjusted for any increase or decrease in the total number of outstanding shares of Common Stock issued subsequent to the effective date of the Stock Option Plan resulting from any split, subdivision or consolidation of shares or other capital adjustment, or other increase or decrease in such shares effected without receipt or payment of consideration by the Company. In the event of a capital adjustment in the Common Stock resulting from a stock dividend, stock split, reorganization, merger, consolidation or a combination or exchange of shares, the number of shares of Common Stock subject to this Stock Option Plan and the number of Shares affected by the options granted thereunder shall be automatically adjusted to take into account such capital adjustment. By virtue of such a capital adjustment, the price of any share of Common Stock under a Stock Option Agreement shall be adjusted so that there will be no charge in the aggregate purchase price payable upon exercise of any such Option. In the event the Company merges or consolidates with another entity, or all or a substantial portion of the Company's assets or outstanding capital stock are acquired (whether by merger, purchase or otherwise) by another entity (such other entry being the "Successor"), the kind of shares that shall be subject to the Stock Option Plan and to each outstanding Stock Option Agreement shall, automatically by virtue of such merger, consolidation or acquisition, be converted into and replaced by shares of common stock or such other class of securities having rights and preferences no less favorable than the Shares of the Successor, and the number of Shares subject to any Options and the purchase price per share upon exercise of the Option shall be correspondingly adjusted, so that, by virtue of such merger, consolidation or acquisition, each optionee shall have the right to purchase (a) that number of shares of common stock of the Successor that have a book value equal, as of the date of such merger, conversion or acquisition, to the book value, as of the date of such merger, conversion or acquisition, of the Shares theretofore subject to the optionee's option, (b) for a purchase price that, when multiplied by the number of shares of common stock of the Successor subjected to the option, shall equal the aggregate exercise price at which the optionee could have acquired all of the Shares theretofore optioned to the optionee. The granting of an option pursuant to the Stock Option Plan shall not affect in any way the right and power of the Company to make adjustments, reorganizations, reclassifications or changes of its capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets. Timothy L. Ashburn has been appointed by the Board to be the trustee for the Stock Option Plan. The Stock Option Plan Committee consists of Timothy L. Ashburn, Weaver H. Gaines and Jack R. Orben. The Trustee of the Stock Option Plan votes the shares on behalf of the Stock Option Plan participants pursuant to and only at the direction of the Stock Option Plan Committee and the Board. Absent such direction, the Trustee may not vote the shares on behalf of the Stock Option Plan participants. After the affects of the February 6, 1997 two for one stock split, the Stock Option Plan has granted options totaling 100,294 of shares of Common Stock, representing 16.72% of the Company's outstanding shares. The 100,294 shares of granted Options are held as follows: Timothy L. Ashburn, Thomas G. Napurano and Lynn E. Wood, 23,000 shares each, respectively, David A. Bogaert 21,294 shares and Weaver H. Gaines and Jack R. Orben 5,000 shares each. - 35 - 38 THE UNIFIED REGIONAL PROTOTYPE 401(K) AND PROFIT SHARING PLAN The Company provides a defined contribution retirement plan that covers substantially all employees of the Company and its subsidiaries. Contributions to the 401(k) Plan are determined by the Board. During 1996 and 1995, a consolidated expense of $14,356 and $16,392, respectively, was provided in anticipation of contributions to be paid in 1996 and 1995, respectively. In 1996, the Company amended the 401(k) Plan to include matching for funds contributed into the Vintage Funds or Series B Preferred Stock. The Company will match the employee's contribution up to fifty percent of the first six percent of the employee's before-tax contribution. After the affects of the February 6, 1997 two for one stock split, the 401(k) Plan presently holds 39,132 shares of Common Stock, representing 6.52% of the outstanding shares. The Board has appointed Lynn E. Wood to be the 401(k) Plan's Trustee and Mr. Wood votes the shares on behalf of the 401(k) Plan participants. ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS ------------------------------------------------------------ DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth various information with respect to the Company's executive officers and members of the Board, including the names and ages of all executive officers and directors of the Company, all positions and offices with the Company held by each such person and each person's term of office as a director. TIMOTHY L. ASHBURN: (Age 46) Chairman since 1989; Chief Executive Officer 1989-1992 and 1994-present; 401(k) Plan Committee since 1994; M.E.R.P. Committee since 1994; Stock Option Plan Committee since 1995; Trustee for M.E.R.P. and Stock Option Plan since 1994; executive committee member since 1989; operating committee member since 1989. Mr. Ashburn was employed by the Vine Street Trust Company, Lexington, Kentucky, a wholly owned subsidiary of Cardinal Bancshares, a Kentucky bank holding company for the two-year period from April 1992 through March 1994, and was responsible for the operations of the bank's trust department and for investment management. Mr. Ashburn has been Chairman of the Board and Chief Executive Officer of VAI since December of 1994 and is Chairman of the Board of Trustees, President and Chief Executive Officer of the Vintage Funds. He also is a portfolio manager for the Vintage Funds' Asset Allocation portfolio. Mr. Ashburn is on the Plan Committees for the VAI Management Retention Plan and Non-Qualified Restricted Stock Option Plan and votes all of the shares within those plans subject to direction from the Plan Committee and the Board. He may not vote any plan shares without direction from the Plan Committee. JACK R. ORBEN: (Age 58) Director since 1989; Plan Committee Member for 401(k) Plan, M.E.R.P. and Stock Option Plan since inception of each such Plan. He also serves on the Plan Committees for the VAI Management and Employee Region Plan and Non-Qualified Restricted Stock Option Plan. Mr. Orben has been the Chairman and an executive officer of Fiduciary Counsel, an investment counsel firm, located at 40 Wall Street, New York, New York since 1979. Fiduciary Counsel is a sub-advisor for several portfolios of the Company's affiliated mutual funds, the Vintage Funds. Mr. Orben is also Chairman and an executive officer of AFS Group, a 53% owner of Fiduciary Counsel, which owns 100% of Starwood Company, an investment counsel firm. Starwood is a sub-adviser for the Starwood Strategic portfolio of the Company's affiliated mutual funds, the Vintage Funds. Mr. Orben - 36 - 39 is a director of VAI and chairs its investment committee and is on the Board of Trustees and is a member of the executive committee for the Vintage Funds. WEAVER H. GAINES: (Age 53) Director 1990-1992, 1993-present; Plan Committee Member for 401(k) Plan, M.E.R.P. and Stock Option Plan since inception of Plans. He also serves on the Plan Committee for the VAI Management and Employee Retention Plan and Non-Qualified Restricted Stock Option Plan. Since 1993, Mr. Gaines has been Chairman and Chief Executive Officer for Ixion Biotechnology, Inc., founding and managing the development-stage biotechnology company. From 1985 until 1992, Mr. Gaines was Executive Vice President and General Counsel for the Mutual Life Insurance Company of New York Life (MONY) and a member of its executive committee and management of MONY's investment services subsidiaries. In 1988 and 1989, Mr. Gaines was president of UMC, then a wholly owned subsidiary of MONY. Mr. Gaines has been a director of Voyeta Technologies, Inc. from 1996, AquaGene, Inc. from 1997 and the University of Florida Biotechnology Advisory Board from 1994. THOMAS G. NAPURANO: (Age 55) Director since 1989; Chief Financial Officer since 1989; Executive Vice President since 1989; executive committee member since 1989; operating committee member since 1989, office of the President 1992. Mr. Napurano is also a director and the chief financial officer for VAI and is the treasurer for the Vintage Funds. LYNN E. WOOD: (Age 50) Director since 1992; President and Chief Operating Officer since 1993; Trustee for 401(k) Plan; executive committee member since 1992; operating committee member since 1992. Mr. Wood also is a director and the president and chief operating officer for VAI and is the assistant secretary to the Vintage Funds. Mr. Wood is the portfolio manager of the Vintage Funds' Aggressive Growth portfolio. DAVID A. BOGAERT: (Age 33) Executive Vice President and Executive Committee member since 1995; operating committee member since 1992; national sales and marketing director since 1995; Telephone Service Representative, Brokerage Services Supervisor, Institutional Sales Representative and Assistant Vice President 1986-1992, employee since 1986. All directors were re-elected in December 1996 for one year terms. Each director serves until the next annual meeting of the stockholders or until his successor is duly elected and qualified. Officers serve at the discretion of the Board. The Company has no audit, nominating or compensation committees of the Board or any committees that perform similar functions. The Company does have a 401(k) Plan Committee, M.E.R.P. Committee and a Stock Option Plan Committee that oversee and govern the Company's qualified and non-qualified plans. - 37 - 40 ITEM 6. EXECUTIVE COMPENSATION ---------------------- EXECUTIVE COMPENSATION The following table summarizes compensation earned or awarded to the Company's Chief Executive Officer, who was the only executive officer whose aggregate annual salary and bonus exceeded $100,000 during 1996: SUMMARY COMPENSATION TABLE
SECURITIES UNDERLYING FISCAL OPTIONS ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS /SARS COMPENSATION - --------------------------- ------ -------- ----- ---------- ---------------- Timothy L. Ashburn, Chairman 1996 $100,000 $0 23,000 $39,259.02 and Chief Executive Officer 1995 100,000 0 0 49,765.49 1994 100,000 0 0 47,491.90 - ------------------------ Represents dividends/return of capital with respect to Series B Preferred Stock holdings in Mr. Ashburn's Individual Retirement Account. Gives effect to February 6, 1997 two for one stock split.
The following table summarizes options granted during 1996, and the values of options outstanding on December 31, 1996, for the executive officer named above: OPTION/SAR GRANTS IN LAST FISCAL YEAR
NUMBER OF PERCENT OF TOTAL SECURITIES OPTIONS/SARS UNDERLYING GRANT TO EXERCISE OPTIONS/SARS EMPLOYEES IN OR BASE EXPIRATION NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE ---- ------------ ---------------- ------------ ---------- Timothy L. Ashburn 23,000 22.9% $0.1314 July 25, 2006 - ------------------------- Gives effect to February 6, 1997 two for one stock split.
The following table sets forth information concerning the aggregate dollar value realized upon exercise of options during 1996, the number of securities underlying options outstanding at year-end 1996 and the value of options outstanding at year-end 1996 having an exercise price lower than the market price of the Common Stock ("in-the-money" options), held by the individual named in the Summary Compensation Table. As of December 31, 1996, no SARs were outstanding. - 38 - 41 AGGREGATED OPTION EXERCISED IN LAST FISCAL YEAR AND FY-END OPTIONS
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY SHARES OPTIONS AT FISCAL OPTIONS AT FISCAL ACQUIRED VALUE YEAR-END YEAR-END ON EXERCISE REALIZED (#) EXERCISABLE/ ($) EXERCISABLE/ (#) ($) UNEXERCISABLE UNEXERCISABLE ------------ -------- ----------------- ------------------ Timothy L. Ashburn 0 $0 0/23,000 $0/$71,728 - ------------------------ Based on a price per share of $3.25, being the book value per share of Common Stock as of December 31, 1996.
COMPENSATION OF DIRECTORS Directors are not compensated as such, except for reimbursements for reasonable expenses related to attendance at meetings of the Board. Regularly scheduled board meetings are conducted quarterly on the third Wednesday in January, April, July and October of each year, unless otherwise changed, and the annual meeting of the Company's stockholders is conducted in January of each year, generally at the time of the January quarterly meeting of the Board. Directors do benefit, however, from plan share awards in the form of stock grants and/or stock options as participants in the M.E.R.P. The present plan share award for directors is 500 shares per year. Each director receives 500 shares in the form of options and/or grants from the M.E.R.P. upon acceptance of his position as director. The directors' plan share awards are exercisable commencing January vesting over a five-year period, or, immediately upon a change of control, registration of the Company's shares or termination of the M.E.R.P. The awards expire ten years after vesting date. If a director is not reelected to the Board or if for any reason, other than death or disability, does not maintain his/her status as a director, all plan share awards in the form of grants and unexercised options are immediately forfeited back to the plan to be reutilized at the Plan Committee and Board's discretion. ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- During the years ended December 31, 1996 and 1995, no transactions occurred between the Company and its affiliates that require disclosure pursuant to Item 404 of Regulation S-B. ITEM 8. DESCRIPTION OF SECURITIES ------------------------- GENERAL The authorized capital stock of the Company consists of 25,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock. The Company is authorized to issue its Preferred Stock in one or more series, with the number of shares, dividends and other rights, preferences, limitations and terms of each series to be determined and fixed by the Board without any further action by the stockholders of the Company. The Company has designated and issued certain shares of its Preferred - 39 - 42 Stock. At May 26, 1997, (i) 8,486 shares of Series A 8% Cumulative Preferred Stock were issued and outstanding, (ii) 8,583 shares of Series B 8% Cumulative Preferred Stock were issued and outstanding, and (iii) 600,000 shares of Common Stock were issued and outstanding. PREFERRED STOCK Dividends. Required dividend payments on the Preferred Stock are cumulative at 8% per annum of the stated value. In the event of non-payment of the cumulative preferred dividends, the preferred stockholders shall be entitled to vote on all matters coming to the attention of the Company as provided for in the Certificate of Incorporation. To the extent that funds of the Company are legally available, the Board shall declare and the Company shall then pay to the holders of Series A and Series B Preferred Stock, out of the assets of the Company available for the payment of dividends under the Delaware General Company Law (the "DGCL"), the preferential Preferred Stock dividend at the time and in the amount due and no more. The dividend is calculated cumulatively (but does not compound) on a daily basis on each share at the rate of 8% per annum (based on 365/366-day year) of the stated value ($100). Dividends are paid quarterly as soon as practicable after the declaration of the dividend at the quarterly meeting of the Board. Since the issuance of the Preferred Stock on December 30, 1993, the Company has declared and paid a dividend with respect to the Series A and Series B Preferred Stock in each of thirteen consecutive quarters, and, the Company is current with all dividend payments to date. Liquidation. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the Series A and Series B Preferred Stock are entitled, before any distribution or payment is made upon any junior securities ("Junior Securities") of the Company, to be paid out of the assets of the Company available for distribution to its stockholders, whether from capital, surplus or earnings, an amount in cash equal to the aggregate liquidation value ("Liquidation Value") of all shares of the Series A and Series B Preferred Stock and the holders of the Preferred Stock are not entitled to any further payment. If the assets of the Company are insufficient to permit payment to the holders of the Series A Preferred Stock, then the entire remaining assets of the Company shall be distributed to the holders of the Series A Preferred Stock ratably based upon the aggregate Liquidation Value of the shares of Series A Preferred Stock held by them. If any assets remain after the holders of the Series A Preferred Stock have been paid in full the amounts to which they shall be entitled, the remaining assets of the Company may be distributed to the holders of the Junior Securities of the Company, with the holders of Series B Preferred Stock having priority over the remaining Junior Securities. Series A takes priority over Series B in all respects, and Series B takes priority over the remaining Junior Securities. Neither the consolidation or merger of the Company into or with any other corporation or corporations, nor the sale, exchange or transfer by the Company of less than substantially all of its assets, nor any reduction of the capital of the Company, shall of itself be deemed to be a liquidation, dissolution or winding up of the Company. The Company may, at its sole discretion, redeem on any quarterly dividend date ("Dividend Reference Date") any whole number of shares of Series A or Series B Preferred Stock, provided that the Series A is paid ahead of the Series B, that all dividends are current, the Company has funds legally available to effect the redemption, and that the shares of the Preferred Stock shall be redeemed from the holder on a pro rata basis, based upon the number of shares of Preferred Stock owned by each such holder as a proportion of the total number of shares of Preferred Stock then outstanding, with the Series A Preferred Stock having priority over the Series B Preferred Stock. The Company shall redeem all of the issued and outstanding shares of Preferred Stock on January 25, 2014 at Liquidation Value. - 40 - 43 Insufficient Funds. If on January 25, 2014, the funds of the Company legally available for a redemption shall be insufficient to redeem all shares of Series A and Series B Preferred Stock required to be redeemed, funds to the maximum extent legally available for such purpose shall be utilized by the Company to redeem the maximum number of shares of Series A, then Series B Preferred Stock, on a pro rata basis. If, because sufficient funds are not legally available, the Company shall fail to redeem all of the issued and outstanding shares of Series A and/or Series B Preferred Stock at such time, the Company will redeem such shares as promptly as practicable after funds are legally available. Restrictions. For as long as the Preferred Stock shall be outstanding, the Company shall not, without the written consent of a majority of the then outstanding holders: (a) create any class or series of stock ranking as to payment of dividends or as to liquidation preference, having priority over or on a parity with the Preferred Stock; (b) amend, alter or repeal the Certificate of Incorporation or by-laws in a manner adversely affecting any of the Preferred Stock holders' powers, preferences and rights; or (c) declare or pay any distribution, including dividends or redemptions, to any Junior Securities unless all Preferred Stock Dividends are current. Voting Rights. No vote or consent of the holders of the Series A or Series B Preferred Stock is required for the authorization, including an increase in the authorized number of shares of any Junior Securities, or issuance of any Junior Securities of the Company, so long as the Company does not issue any Junior Securities which have class voting rights beyond those required by law, except upon the prior written consent of a majority of the then outstanding shares of Preferred Stock. The holders of the Preferred Stock are not entitled to vote on matters coming before the stockholders of the Company unless the Company defaults ("Payment Default") and fails to cure such default. Upon the occurrence of a Payment Default and the Company's failure to cure such default, a formula for calculating the voting rights of the holders of the Preferred Stock is incorporated into the Preferred Stock Agreements, such that the Preferred Stockholders are entitled to vote, under the formula, on any matters coming to the attention of the Company's stockholders until such time as the dividend is made current. COMMON STOCK Dividends. The holders of Common Stock are entitled to share ratably in dividends thereon when, as and if declared by the Board from funds legally available therefor, after full cumulative dividends have been paid or declared and funds sufficient for the payment thereof set apart, on all series of Preferred Stock ranking superior as to dividends to the Common Stock. Voting Rights. Each holder of Common Stock has one vote for each share held on matters presented for consideration by the holders. The holders of Common Stock do not have cumulative voting rights in the election of directors. Preemptive Rights. The holders of Common Stock have no preemptive right to acquire any additional unissued shares or treasury shares of the Company. Liquidation Rights. In the event of liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of Common Stock will be entitled to share ratably in any of its assets or funds that are available for distribution to its common stockholders after the satisfaction of its liabilities (or after adequate provision is made therefor) and after preferences on any outstanding Preferred Stock. - 41 - 44 ASSESSMENT AND REDEMPTION. Shares of Common Stock currently outstanding are fully paid and non-assessable. Such shares do not have any redemption or sinking fund provisions. CHANGE OF CONTROL PROVISIONS The two non-qualified plans, the M.E.R.P. and the Stock Option Plan, provide the following change of control provisions: (i) all plan shares subject to a plan share award held by a recipient will be deemed to be earned in the event of a "Change in Control" of the Company or a threatened Change in Control if such Change in Control or threatened Change in Control occurs prior to the earlier of registration of the Common Stock or January 1, 2005. In the event that such Change in Control or threatened Change in Control should occur, all plan shares subject to a plan share awards will be deemed to be earned and shall be distributed as soon as practicable thereafter; provided, however, that no awards will be distributed prior to six months from the date of grant of the plan share award; and (ii) all plan shares subject to a Stock Option Agreement held by a recipient (optionee), upon a Change in Control or a threatened Change in Control as defined herein, shall become immediately and fully exercisable or payable according to the terms of the respective plan and of the Stock Option Agreement and according to the following additional terms: (i) Any outstanding and unexercised options shall become immediately and fully exercisable, and shall remain exercisable until it would otherwise expire by reason of lapse of time. (ii) During the six month and seven day period from and after a Change in Control (the "Exercise Period"), unless the Committee shall determine otherwise at the time of grant, a recipient shall have the right, in lieu of the payment of the base price of the shares being purchased under the Stock Option Agreement and by giving notice to the Committee, to elect (within the exercise period) in lieu of exercise thereof, subject to Section 6 therein, to surrender all or part of the Stock Option Agreement to the Company and to receive in cash, within 30 days of such notice, an amount equal to the amount by which the change in control price per share on the date of such election shall exceed the base price per share under the Stock Option Agreement multiplied by the number of shares granted under the Stock Option Agreement as to which the right shall have been exercised. Notwithstanding the foregoing, the change in control price shall not exceed the market price of a share to the extent required pursuant to Section 422 of the Internal Revenue Code of 1986, as amended, on the date of surrender thereof. For the purposes of the two non-qualified plans, a Change in Control of the Company shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 20 percent or more of either (A) the then outstanding shares of Common Stock (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control: (C) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (D) any acquisition by the Company, (E) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation - 42 - 45 controlled by the Company or (F) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, the conditions described in clauses (A), (B) and (C) of paragraph (iii) of this subsection (c) are satisfied; or (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Approval by the stockholders of the Company of a reorganization, merger, or consolidation, in each case, unless, following such reorganization, merger or consolidation, (A) more than fifty percent (50%) of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, twenty percent (20%) or more of the Outstanding Company Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation, entitled to vote generally in the election of directors and (C) at least "A Majority" of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) Approval by the stockholders of the Company of (A) a complete liquidation or dissolution of the Company or (B) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (I) more than fifty percent (50%) of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the - 43 - 46 beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (II) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, twenty percent (20%) or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (III) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company; or (v) Notwithstanding the provisions of (i) through (iv) above, a Change in Control shall not be deemed to have occurred (A) if before the occurrence of a transaction which otherwise would constitute a Change in Control, a majority of the Board votes to accept, approve or recommend such transaction, or (B) by reason of the acquisition of Plan Shares pursuant to this Plan. PART II ------- ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY --------------------------------------------------------------- AND OTHER STOCKHOLDER MATTERS ------------------------------ There currently is no established public trading market for the Common Stock. Shares of Common Stock have been issued by the Company to the 401(k) Plan and purchased from participants in such plan upon termination of their employment. Management of the Company is not aware of any other transfers of Common Stock. The Company has not paid any dividends with respect to the Common Stock.
SALES PRICE ----------------------- HIGH LOW -------- --------- 1995 ---- First Quarter $ -- $ -- Second Quarter -- -- Third Quarter -- -- Fourth Quarter -- -- 1996 ---- First Quarter .2628 .2628 Second Quarter -- -- Third Quarter -- -- Fourth Quarter -- -- 1997 ---- First Quarter 3.9237 3.9237 - 44 - 47 Second Quarter -- --
As of March 31, 1997, the Company reported three stockholders of record: the M.E.R.P; the Stock Option Plan; and the 401(k) Plan. ITEM 2. LEGAL PROCEEDINGS ----------------- The Company is from time to time a party to various legal actions arising in the normal course of business. Management believes that there are no proceedings threatened or pending against the Company or its subsidiaries, which, if determined adversely, would have a material effect on the business or financial position of the Company or its subsidiaries. ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS --------------------------------------------- This item is not applicable as the Company has had no change in its principal independent accountants during the Company's two most recent fiscal years. ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES --------------------------------------- For the three years ending December 31, 1996 and through the date of this Form 10-SB filing, the only sales of the Company's securities have been 476 shares of Series B Preferred Stock for $47,600. Timothy L. Ashburn's IRA purchased 311 shares for $31,100; Joan Inman purchased 100 shares for $10,000; Weaver H. Gaines' IRA purchased 50 shares for $5,000; and Anthony Ghoston purchased 15 shares for $1,500. There have been no sales of Common Stock, as all shares of Common Stock are held in the three employee benefit plans. There have been no sales of Series A Preferred Stock. ITEM 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS ----------------------------------------- Section 145 of the DGCL provides generally and in pertinent part that a Delaware corporation may indemnify its directors and officers against expenses, judgments, fines and settlements actually and reasonably incurred by them in connection with any civil suit or action, except actions by or in the right of the corporation, or any administrative or investigative proceeding if, in connection with the matters in issue, they acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interest of the corporation, and in connection with any criminal suit or proceeding, if in connection with the matters in issue, they had no reasonable cause to believe their conduct was unlawful. Section 145 further permits a Delaware corporation to grant its directors and officers additional rights of indemnification through bylaw provisions and otherwise and to purchase indemnity insurance on behalf of its directors and officers. Article 7 of the Certificate of Incorporation provides that a director of the Company shall not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived any improper personal benefit. - 45 - 48 The by-laws of the Company provide that a director, in performing his duties, shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by: (a) one or more officers or employees of the Company whom the director reasonably believes to be reliable and competent in the matters presented; (b) counsel, public accountants or other persons as to matters which the directors reasonably believe to be within such person's professional or expert competence; or (c) a committee of the Board upon which he does not serve, duly designated in accordance with a provision of the Certificate of Incorporation or the by-laws, as to matters within its designated authority, which committee the director reasonably believes to merit confidence. A director shall not be considered to be acting in good faith if he had knowledge concerning the matter in question that would cause such reliance described above to be unwarranted. The Company maintains a liability insurance policy, with total limits at $1,000,000, that indemnifies directors, officers, employees and agents of the Company. - 46 - 49 PART F/S -------- CONSOLIDATED FINANCIAL STATEMENTS INDEX -----
PAGE ---- INDEPENDENT AUDITORS' REPORT 50 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION OF THE COMPANY AS OF MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996 AND 1995 51 CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1996 AND 1995 53 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY OF THE COMPANY FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED) AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 54 CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE COMPANY FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1996 AND 1995 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 56 INDEPENDENT AUDITORS' REPORT 64 BALANCE SHEETS OF HEALTH FINANCIAL AS OF DECEMBER 31, 1996, 1995 AND 1994 65 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS OF HEALTH FINANCIAL FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 67 STATEMENTS OF CASH FLOW OF HEALTH FINANCIAL FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 68 NOTES TO FINANCIAL STATEMENTS 69 - 47 - 50 INDEPENDENT AUDITORS' REPORT 72 BALANCE SHEET OF FIRST LEXINGTON AS OF DECEMBER 31, 1996 73 STATEMENT OF OPERATIONS AND RETAINED EARNINGS OF FIRST LEXINGTON FOR THE YEAR ENDED DECEMBER 31, 1996 75 STATEMENTS OF CASH FLOW OF FIRST LEXINGTON FOR THE YEAR ENDED DECEMBER 31, 1996 76 NOTES TO FINANCIAL STATEMENTS 77 INDEPENDENT AUDITOR'S REPORT 82 BALANCE SHEETS OF FIRST LEXINGTON AS OF DECEMBER 31, 1995 AND 1994 83 STATEMENTS OF INCOME AND RETAINED EARNINGS OF FIRST LEXINGTON FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE TEN MONTH PERIOD ENDED DECEMBER 31, 1994 85 NOTES TO FINANCIAL STATEMENTS 86 INDEPENDENT AUDITORS' REPORT 89 STATEMENTS OF FINANCIAL CONDITION OF VAI AS OF FEBRUARY 28, 1997 (UNAUDITED) AND NOVEMBER 30, 1996 AND 1995 90 STATEMENTS OF OPERATIONS OF VAI FOR THE THREE MONTHS ENDED FEBRUARY 28/29, 1997 AND 1996 (UNAUDITED) AND THE YEARS ENDED NOVEMBER 30, 1996 AND 1995 92 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY OF VAI FOR THE THREE MONTHS ENDED FEBRUARY 28, 1997 (UNAUDITED) AND FOR THE YEARS ENDED NOVEMBER 30, 1996 AND 1995 93 STATEMENTS OF CASH FLOWS OF VAI FOR THE THREE MONTHS ENDED FEBRUARY 28/29, 1997 AND 1996 (UNAUDITED) AND THE YEARS ENDED NOVEMBER 30, 1996 AND 1995 94 NOTES TO FINANCIAL STATEMENTS 95 - 48 - 51 BALANCE SHEET OF HEALTH FINANCIAL AS OF MARCH 31, 1997 (UNAUDITED) 100 STATEMENTS OF OPERATIONS OF HEALTH FINANCIAL FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) 102 STATEMENTS OF CASH FLOWS OF HEALTH FINANCIAL FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) 103 NOTE TO FINANCIAL STATEMENTS (UNAUDITED) 104 BALANCE SHEET OF FIRST LEXINGTON AS OF MARCH 31, 1997 (UNAUDITED) 105 STATEMENTS OF OPERATIONS OF FIRST LEXINGTON FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) 107 STATEMENTS OF CASH FLOWS OF FIRST LEXINGTON FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) 108 NOTE TO FINANCIAL STATEMENTS (UNAUDITED) 109
- 49 - 52 INDEPENDENT AUDITORS' REPORT ---------------------------- We have audited the accompanying consolidated statements of find condition of Unified Holdings, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supposing the amounts and disclosures in the consolidated 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, such consolidated financial statements present fairly, in all material respects, the financial position of Unified Holdings, Inc. and subsidiaries at December 31, 1996 and 1995, and the results of their operations, and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Larry E. Nunn & Associates, L.L.C. Columbus, Indiana February 25, 1997 - 50 - 53 UNIFIED HOLDINGS, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996 AND 1995 ASSETS ------
DECEMBER 31, MARCH 31, ---------------------------- 1997 1996 1995 ---------- ---------- ---------- (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 339,096 $ 323,177 $ 350,560 Investment in affiliated mutual fund 197,848 203,040 -- Note receivable - affiliated company 50,000 50,000 65,888 Accounts receivable (net of allowance for doubtful accounts of $2,041) 491,615 485,593 352,422 Prepaid assets and deposit 120,929 127,430 127,718 ---------- ---------- ---------- Total current assets 1,197,447 1,189,240 896,588 ---------- ---------- NON-CURRENT ASSETS Equity in and investment in affiliate 430,879 445,293 196,401 ---------- ---------- ---------- FIXED ASSETS, AT COST Equipment and furniture (net of accumulated depreciation of $795,371, $767,773 and $694,112, respectively) 213,656 218,838 392,709 Capitalized leased equipment (net of accumulated depreciation of $75,508, $68,058 and $37,299, respectively) 88,497 99,876 100,127 ---------- ---------- ---------- Total fixed assets 302,153 318,714 492,836 ---------- ---------- ---------- Total non-current assets 733,032 764,007 689,237 ---------- ---------- ---------- TOTAL ASSETS $1,930,479 $1,953,247 $1,585,825 ========== ========== ========== See accompanying notes and independent auditors' report. -51 - 54 LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ DECEMBER 31, MARCH 31, ---------------------------- 1997 1996 1995 ---------- ---------- ---------- (Unaudited) CURRENT LIABILITIES Current portion of capital lease obligations $ 36,205 $ 38,651 $ 44,637 Accounts payable and accrues expenses 332,598 334,111 405,046 Accrued compensation and benefits 109,652 139,730 144,265 Payable to broker/dealers 170,881 124,489 140,905 Other liabilities 291,884 308,172 253,999 ---------- ---------- ---------- Total current liabilities 941,220 945,153 988,852 ---------- ---------- ---------- LONG-TERM LIABILITIES Long-term capitals lease obligations, net of current portion 24,354 32,695 41,264 ---------- ---------- ---------- Total long-term liabilities 24,354 32,695 41,264 ---------- ---------- ---------- TOTAL LIABILITIES 965,574 977,848 1,030,116 ---------- ---------- ---------- STOCKHOLDERS' EQUITY Preferred stock Series A 8,486 8,486 8,486 Preferred stock Series B 8,583 8,583 8,583 Common stock, par value $.01 per share 1,696 1,599 1,577 Additional paid-in capital 1,126,543 1,124,087 1,115,661 Retained earnings (deficit) (176,870) (169,015) (578,598) Unrealized gain on investments (3,533) 1,659 -- ---------- ---------- ---------- Total stockholders' equity 964,905 975,399 555,709 ---------- ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,930,479 $1,953,247 $1,585,825 ========== ========== ==========
- 52 - 55 UNIFIED HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1996 AND 1995
MARCH 31, DECEMBER 31, ---------------------------- ---------------------------- 1997 1996 1996 1995 ---------- ---------- ---------- ---------- (Unaudited) REVENUE: Revenue from broker/dealer operations $ 421,441 $ 485,476 $1,846,201 $2,363,345 Revenue from fund service operations 284,486 380,814 1,968,384 1,395,782 Trailing commissions 238,525 276,569 995,318 540,950 Custody and retirement fees 116,044 3,092 246,139 163,044 Software and retirement fees 47,198 47,228 190,445 213,755 Net investment and other income 35,008 15,316 43,903 31,935 ---------- ---------- ---------- ---------- Total revenue 1,142,702 1,208,495 5,290,390 4,708,811 COST OF SALES: Brokerage revenue charges 270,892 273,562 1,141,291 1,244,893 Trailing commissions contra 165,003 173,167 653,595 130,281 Investment fees 2,416 1,922 11,586 9,266 Total cost of sales 438,311 448,651 1,806,472 1,384,440 ---------- ---------- ---------- ---------- Gross profit 704,391 759,844 3,483,918 3,324,371 ---------- ---------- ---------- ---------- EXPENSES: Employee compensation and benefits 312,397 343,242 1,331,272 1,368,077 Brokerage operating charges 69,957 92,068 332,508 577,373 Fund services operating charges 56,999 59,672 233,500 170,395 Mail and courier service 8,143 9,712 57,528 73,044 Telephone 30,484 24,863 66,500 152,380 Equipment rental and maintenance 19,810 43,162 105,122 431,216 Occupancy 47,317 50,615 195,869 212,418 Depreciation 35,048 35,438 167,382 142,797 Other 130,669 72,827 322,500 141,385 ---------- ---------- ---------- ---------- Total expenses 663,507 731,599 2,812,181 3,269,085 ---------- ---------- ---------- ---------- INCOME FROM OPERATIONS BEFORE GAIN ON SECURITIES $40,884 $28,245 $671,737 $55,286 UNREALIZED GAIN ON SECURITIES (5,192) (6,449) 1,659 -- REALIZED GAIN (LOSS) ON SECURITIES -- -- 25,588 -- EQUITY IN AFFILIATES (14,414) (7,869) (151,108) (1,599) ---------- ---------- ---------- ---------- NET INCOME $ 21,278 $ 13,927 $ 547,876 $ 53,687 ========== ========== ========== ========== See accompanying notes and independent auditors' report.
- 53 - 56 UNIFIED HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1996 AND 1995
UNREALIZED PREFERRED PREFERRED ADDITIONAL RETAINED GAIN (LOSS) COMMON COMMON CLASS A CLASS B PAID-IN EARNINGS ON TREASURY STOCK STOCK STOCK CAPITAL (DEFICIT) INVESTMENTS STOCK TOTAL ------ --------- --------- ------------ --------- ----------- ----------- --------- BALANCE December 31, 1994 $1,577 $8,486 $8,107 $ 3,313,707 $(578,598) $ -- $(2,166,100) $591,179 1995 Net Income -- -- -- -- 53,687 -- -- 53,687 Non-qualified option plan 1,500 shares -- -- -- (2,166,100) -- -- 2,166,100 -- Sales of Preferred Stock -- -- 476 47,124 -- -- -- 47,600 Return of capital on Preferred Stock -- -- -- (83,070) (53,687) -- -- (136,757) BALANCE December 31, 1995 1,577 8,486 8,583 1,115,661 (578,598) -- -- 555,709 1996 Net Income -- -- -- -- 547,876 -- -- 547,876 Unrealized gain (loss) on investments -- -- -- -- (1,659) 1,659 -- -- Common Stock issued 22 -- -- 8,426 -- -- -- 8,448 Return of capital/dividend on Preferred Stock -- -- -- -- (136,634) -- -- (136,634) BALANCE December 31, 1996 $1,599 $8,486 $8,583 $ 1,124,087 $(169,015) $ 1,659 $ 975,399 1997 Net Income -- -- -- -- 26,470 (5,192) -- 21,278 Common Stock Issued 97 -- -- 2,456 -- -- -- 2,553 Return of capital/dividend on Preferred Stock -- -- -- -- (34,325) -- -- (34,325) BALANCE March 31, 1997 $1,696 $8,486 $8,583 $ 1,126,543 $(176,870) $(3,533) -- $964,905 See accompanying notes and independent auditors' report.
- 54 - 57 UNIFIED HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1996 AND 1995
MARCH 31, DECEMBER 31, -------------------------- --------------------------- 1997 1996 1996 1995 -------- --------- --------- --------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 21,278 $ 13,927 $ 547,876 $ 53,687 Adjustments to reconcile net income to net cash provided (used) in operating activities: Provision for depreciation and amortization 35,048 35,438 167,382 142,797 Unrealized gain (loss) on investments 5,192 6,449 (1,659) -- Results of affiliated company 14,414 7,869 151,108 1,599 Book value of fixed assets disposed -- -- 41,859 -- (Increase) decrease in operating assets: Receivables (3,981) (74,494) (133,171) 147,352 Prepaid and sundry assets 6,501 (1,936) 288 25,034 Increase (decrease) in liabilities: Accounts payable and accrued expenses (1,513) (84,027) (70,935) (126,735) Accrued compensation and benefits (30,078) (34,529) (4,535) 36,082 Payable to broker/dealers 46,392 10,652 (16,416) (15,694) Other liabilities (16,288) 195,729 54,173 97,015 -------- --------- --------- --------- Net cash provided by operating activities 76,965 75,078 735,970 361,137 -------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of equipment (18,487) -- (57) (2,836) Proceeds from sale of fixed assets -- -- -- 200 Equity in affiliate -- -- (400,000) (198,000) Investment in affiliated equity mutual funds -- (201,382) (201,381) -- -------- --------- --------- --------- Net cash used by investing activities (18,487) (201,382) (601,438) (200,636) -------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Return of capital to preferred stockholders (34,325) (34,405) (136,634) (136,757) Issuance of common stock - profit sharing plan 2,553 -- 8,448 -- Proceeds from preferred stock Series B issuances -- -- -- 47,600 Repayment of borrowing -- -- -- (78,010) Repayment of capitalized lease obligations (10,787) (5,031) (49,617) (38,907) Note receivable from affiliate -- -- 15,888 (65,888) -------- --------- --------- --------- Net cash used by financing activities (42,559) (39,436) (161,916) (271,962) -------- --------- --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS 15,919 (165,740) (27,383) (111,461) CASH AND CASH EQUIVALENTS Beginning of year 323,177 350,560 350,560 462,021 End of year 339,096 184,820 323,177 350,560 -------- --------- --------- --------- SUPPLEMENTARY INFORMATION Interest paid during year $ 1,317 $ 2,097 $ 4,993 $ 10,703 ======== ========= ========= =========
- 55 - 58 UNIFIED HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 Note 1 - NATURE OF OPERATIONS The consolidated financial statements include the accounts of Unified Holdings, Inc. (the "Company"), a Delaware corporation, and its wholly owned subsidiaries, Unified Management Corp. ("Management") and Unified Advisers, Inc. ("Advisers"). Management, an Indiana corporation, is a registered broker/dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. Advisers is incorporated in Indiana and is a registered investment adviser under the Investment Advisers Act of 1940 and provides investment advisory, transfer agent, dividend disbursing, transfer agency system software licensing and fund accounting services to investment companies. 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - --------------------- The consolidated financial statements include the accounts of Unified Holdings, Inc., Unified Management Corp., and Unified Advisers, Inc. All intercompany transactions and balances between the Company and its subsidiaries have been eliminated. Fees and Commissions - -------------------- The Company provides administrative and investment services to investment companies and separate accounts. The Company records revenue as it is earned per month based on accounts and account balances. In connection with this, the Company earns income on the accounts established to transfer these funds for customers. Commissions and clearing revenue are recorded on the settlement date of the related security transaction. This does not materially differ from recording commissions based upon the trade date. Depreciation - ------------ Depreciation of fixed assets including capital leased equipment is provided on the straight-line and accelerated methods over the estimated useful lives of the assets. Income Taxes - ------------ The Company files a consolidated federal income tax return with its subsidiaries. The Company has adopted Statement of Financial Accounting Standards No. 109 ("SFAS 109") accounting for income taxes. The Statement requires use of the liability method of accounting for deferred income taxes. - 56 - 59 UNIFIED HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Use of Estimates - ---------------- The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Statement of Cash Flows - ----------------------- For purposes of the statement of cash flows, the Company considers all liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents included money market investments of $321,124 which are not insured by the FDIC. Financial Statement Presentation - -------------------------------- Certain amounts in the 1995 financial statements have been recertified to conform to the 1996 presentation. Options - ------- The Company applies APB Opinion 25 and related interpretations in accounting for its' Management and Employee Retention Plan. Shares were issued at fair market at the date granted to the employee. There is no significant effect on the Company's net income under this plan consistent with the method of FASB Statement 123. 3 - COMMITMENTS The Company has operating leases expiring in 2001 for office facilities and equipment. The leases include clauses for adjustment of operating costs and real estate taxes. Such obligations are allocated between Advisers, Holdings, and Management based on estimated usage. The aggregate minimum rental commitments required under operating leases for office space and equipment at December 31, 1996 are as follows:
Lease Year Ended December 31 Commitments ---------------------- ----------- 1997 $204,831 1998 198,987 1999 187,026 2000 167,280 2001 and Thereafter 111,520 -------- Total $869,644 ========
Total rental expense was $195,869 and $212,419 for the years ended December 31, 1996 and 1995. - 57 - 60 UNIFIED HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 Note 4 - TRANSACTIONS WITH RELATED PARTIES The Company provided administrative services to Vintage Advisers, Inc. during the year. The revenue for these services was $500,313 and $199,275 for 1996 and 1995, respectively. At December 31, 1996 and 1995, the receivable from this affiliated company was $100,592 and $4,160, respectively. The Company loaned Vintage Adviser, Inc. $65,888 to reimburse the Vintage funds for an outstanding obligation. The promissory note is due on demand with interest payable at prime plus two percent per annum. The note receivable at December 31, 1996 is $50,000. Interest received during the year ended December 31, 1996 was $5,029. 5 - EMPLOYEE BENEFIT PLANS The Company provides a defined contribution retirement plan which covers substantially all employees. Contributions to the plans are determined by the Board of Directors. The plan covers Holdings, Management and Advisers. During 1996 and 1995, expenses of $14,356 and $16,392 were provided in anticipation of contributions to be paid in 1996 and 1997. In 1996, the Company amended the 401(k) plan to include matching for funds contributed into the Vintage Funds or Preferred B Stock on Unified Holdings, Inc. The Company will match the employee's contribution up to fifty percent of the first six percent of the employee's pre-tax contribution. 6 - FEDERAL INCOME TAXES Consolidated net operating loss carryforwards at December 31, 1996 amounted to approximately $14,900,000 expiring through 2008. However, due to a limitation in the Internal Revenue Code, only approximately $90,000 of such loss carryforward amounts incurred prior to December 31, 1989 are available for use in any one year. The remainder of the loss carryforward amounts of approximately $8,300,000 incurred subsequent to 1989 are fully available to offset taxable income. Consolidated estates net operating loss carryforwards at December 31, 1996 amounted to approximately $13,400,000 and expire through 2008. The Company utilized approximately $515,000 and $74,000 of net operating loss carryforwards during 1996 and 1995 to reduce current consolidated income tax expense of $175,423 and $13,582 to zero. - 58 - 61 UNIFIED HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 Note 7 - CAPITALIZED LEASE OBLIGATIONS Capitalized lease obligations are payable over a 36-month period. The following is a summary of future minimum lease payment under capitalized lease obligations as of December 31, 1996:
Year Ending December 31, Amount ------------------------ ------- 1997 $43,292 1998 25,605 1999 10,077 ------- Total 78,974 Less amount representing interest 7,628 ------- Net present value $71,346 =======
8 - NON-CASH INVESTMENT AND FINANCIAL ACTIVITY The Company acquired equipment through a capital lease obligation in the amount of $35,063 during 1996 and $80,218 during 1995. 9 - CASH SEGREGATED UNDER FEDERAL REGULATION Pursuant to the Securities and Exchange Commission's Rule 15c3-3, the Company calculates its reserve requirement and segregates cash and/or securities for the exclusive benefit of the customers on a periodic basis. The reserve requirement calculated by the Company was $-0-, at December 31, 1996 and 1995. Balances segregated in excess of reserve requirements are not restricted. 10 - NET CAPITAL REQUIREMENTS Management is subject to the Securities and Exchange Commission's "Uniform Net Capital Rule" (Rule 15c3-1), which requires the maintenance of minimum net capital, as defined, of 6-2/3% of aggregate indebtedness or $50,000 at December 31, 1996 and 1995, whichever is greater, and a ratio of aggregate indebtedness to net capital of not more than 15 to 1. At December 31, 1996 and 1995, management had net capital of $137,894 and $203,377, respectively, which was in excess of its required net capital of $50,000, and a net capital ratio of 2.28 to 1 at December 31, 1996 and 1.33 to 1 at December 31, 1995. - 59 - 62 UNIFIED HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 Note 11 - MAJOR CLIENT AND VENDOR Total revenue generated from major clients during 1996 and 1995 were approximately 14% and 26% of total revenue and accounts receivable from these clients were approximately $62,000 and $50,000 at December 31, 1996 and 1995, respective. Total expenses from major vendors during 1996 and 1995 were approximately 12% and 31% of total expenses. Accounts payable to these vendors at December 31, 1996 and 1995 were $-0-. 12 - SUBSEQUENT EVENT On February 6, 1997, the Board authorized the payment of the preferred stock dividend of 8% for Class A and Class B preferred shares for the three month period ended January 31, 1997, payable March 1, 1997. 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and estimated fair values of the Company's financial instruments at December 31, 1996 and 1995. FASB Statement No. 107, Disclosures About Fair Value of Financial Instruments, defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. - 60 - 63 UNIFIED HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 Note 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
1996 1995 --------------------- --------------------- Carrying Fair Carrying Fair ($ in thousands) Amount Value Amount Value -------- ----- -------- ----- Financial assets Cash and cash equivalents $ 323 $ 323 $ 351 $ 351 Investment in affiliated mutual fund 203 203 -- -- Notes receivable from affiliated Company 50 50 66 66 Receivables (trade) 486 486 352 352 Investment in affiliates 445 445 196 196 Prepaid and sundry assets 127 127 128 128 Financial liabilities Current liabilities (987) (987) (989) (989) Long-term capitalized lease obligations (33) (33) (41) (41)
The carrying amounts shown in the above table are included in the statement of financial position under the indicated captions. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents, receivables, and current liabilities: --------------------------------------------------------------- The carrying amounts approximate fair value because of the short maturity of those instruments. Investment in money market mutual funds are treated as cash equivalents with maturity under 90 days. Long-term capitalized lease obligations: The fair value of --------------------------------------- the Company's long-term capitalized lease obligations is estimated based on the quoted market prices for similar issues. Investment in Affiliated Mutual Funds: The carrying amount ------------------------------------- is determined by the NAV daily pricing sheets as of the close of the markets on December 31. - 61 - 64 UNIFIED HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 Note 14 - EQUITY IN AND INVESTMENT IN AFFILIATE The Company invested $400,000 in November 1996 for 4,756 shares and $198,000 in December 1995 for 5,244 shares of common stock of Vintage Advisers, Inc., a registered investment advisor under the Investment Advisers Act of 1940. The Company's share of equity investment in affiliate is $32,575 and $50,804 at December 31, 1996 and 1995, respectively. The Company used the equity method of accounting for its investment in affiliate for years ended December 31, 1996 and 1995. Audited results of operations for the years November 30, 1996 and 1995 are as follows:
Audited Audited 1996 1995 ------- ------- Total assets $ 622,493 $ 344,630 Total equity 97,823 152,656 Operating revenue 248,254 5,100 Net (loss) (454,742) (7,724) Unified Holdings - share of net (loss) (151,108) (1,599)
15 - COMMON AND PREFERRED STOCK The total preferred shares authorized for the Company is 1,000,000 with a par value of $.01 per share of which 20,000 shares have been designated as follows:
Shares Shares Issued and Stated Par Designated Outstanding Value Value ---------- ----------- ------ ------ Preferred Stock Series A 10,000 8,486 $100 $.01 Preferred Stock Series B 10,000 8,583 $100 $.01
Required dividend payments on the Preferred Stock are cumulative at 8% per annum of the stated value. The Company may not create any additional class or series of stock ranking or having a parity as to payment of dividends or as to liquidation preference, over or with the Series A or Series B Preferred Stock. In the event of non-payment of the cumulative preferred dividends, the preferred stockholders shall be entitled to vote on all matters coming to the attention of the Company as provided for in the respective Preferred Stock Agreements. - 62 - 65 UNIFIED HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 Note 15 - COMMON AND PREFERRED STOCK (continued) During 1996, the Company issued 2,153 shares of common stock for approximately $3.92 per share, which resulted in an increase of additional paid-in-capital of $8,426. During 1995, the Company authorized an increase in the capitalization of the Company from 3,000 common shares to 300,000 common shares and declared a 100 for 1 stock split on outstanding shares. During 1995, the Board authorized the issuance of 476 shares of Series B Preferred Stock to certain members of the Board of Directors and employees upon payment of cash of $100 per share. The Company instituted a Management and Employee Retention Plan (the "Plan") and authorized that 230,287 common shares of the Company, 150,000 shares previously held in Treasury, to fund the Plan. The Company also instituted a Non-qualified Restricted Stock Option Plan and authorized that 50,147 common shares of the Company to fund the Plan. The shares have not been registered under the Securities Act of 1933 nor under the Securities laws of any state and have been issued under exemptions that depend, in part, on the intent of the stockholder not to sell or transfer such shares in any manner not permitted by such laws. The combined total of 280,434 shares are held in trust and have been designated. The Plan shares shall be granted to the recipient (1) at the time that the Plan shares are registered under the Securities Act of 1933 or the 1934 Act; or (2) if such Plan shares have not been registered by January 1, 2000, the Plan shares subject to the award shall be earned by employee at the rate of twenty percent as of each January 1 following. - 63 - 66 To the Stockholders and Board of Directors Health Financial, Inc. 3320 Tates Creek Road, Suite 101 Lexington, Kentucky INDEPENDENT AUDITORS REPORT --------------------------- We have audited the balance sheets of Health Financial, Inc. as of December 31, 1996, December 31, 1995 and December 31, 1994, and the related statements of operations and retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We were not engaged to audit the financial statements of Health Financial, Inc. as of December 31, 1993, but we performed procedures on the balance sheet as of December 31, 1993 for the purpose of providing us a basis to express an opinion on the statements of operations and retained earnings, and cash flows for the year ended December 31, 1994. We conducted our audit in accordance with generally accepted accounting standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of Health Financial, Inc. as of December 31, 1996, December 31, 1995 and December 31, 1994 and the results of its operations and its cash flow for the years then ended in conformity with generally accepted accounting principles. /s/ Larry E. Nunn & Associates, L.L.C. Columbus, Indiana February 19, 1997 - 64 - 67 HEALTH FINANCIAL, INC. BALANCE SHEETS December 31, 1996, 1995 & 1994
ASSETS December 31, 1996 December 31, 1995 December 31, 1994 ------ ------------------- ------------------- -------------------- CURRENT ASSETS Cash: Bank $ 26,360 $ 22,378 $ 5,838 Mutual Fund money market 76,678 $103,038 51,048 $ 73,426 52,969 $ 58,807 -------- -------- -------- Accounts receivable: Trade 429,864 320,594 153,836 Other 4,755 434,619 18,629 339,223 15,820 169,656 -------- -------- -------- Marketable investments 177,915 156,621 108,817 Notes receivable, Current balances 30,113 0 0 -------- -------- -------- 745,685 569,270 337,280 -------- -------- -------- INVESTMENTS IN DEBT SECURITIES 0 0 0 -------- -------- -------- PROPERTY AND EQUIPMENT: Land 20,252 20,252 20,252 Building & signs 121,154 121,154 121,154 Office equipment & furniture 94,898 65,831 50,776 -------- -------- -------- 236,304 207,237 192,182 Less accumulated depreciation 43,752 26,072 17,048 -------- -------- -------- 192,552 181,165 175,134 -------- -------- -------- OTHER ASSETS Notes receivable, net of Current maturities 11,262 0 0 -------- -------- -------- TOTAL ASSETS $949,499 $750,435 $512,414 ======== ======== ======== See accompanying notes and independent auditors' report
- 65 - 68 HEALTH FINANCIAL, INC. BALANCE SHEETS December 31, 1996, 1995 & 1994
LIABILITIES & STOCKHOLDERS' EQUITY December 31, 1996 December 31, 1995 December 31, 1994 - ---------------------------------- ------------------- ------------------- -------------------- CURRENT LIABILITIES: Accounts payable, trade $ 19,627 $ 24,107 $ 8,367 Accrued property and franchise taxes 2,980 3,001 2,228 Accrued local taxes 1,653 326 105 Accrued income taxes 0 0 0 -------- -------- -------- 24,260 27,434 10,700 LONG-TERM LIABILITIES: Deferred income taxes 0 0 0 -------- -------- -------- Total liabilities 24,260 27,434 10,700 -------- -------- -------- COMMITMENTS & CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, $1.00 par value 10,000 shares authorized 8,295 shares issued and outstanding 9,300 9,300 9,300 Paid-in capital 46,510 46,510 46,510 -------- -------- -------- Total stock investment 55,810 55,810 55,810 Retained Earnings 869,429 667,191 445,904 -------- -------- -------- Total stockholders' equity 925,239 723,001 501,714 -------- -------- -------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $949,499 $750,435 $512,414 ======== ======== ======== See accompanying notes and independent auditors' report
- 66 - 69 HEALTH FINANCIAL, INC. STATEMENTS OF OPERATIONS AND RETAINED EARNINGS Years ended December 31, 1996, 1995 and 1994
1996 1995 1994 ------------------- ------------------- ------------------ REVENUES: Advisory fees $1,661,841 95.3% $1,307,531 98.7% $507,526 96.8% Administration fee reimbursement 66,000 3.8 0 0.0 0 0.0 Rental income 15,500 0.9 15,500 1.2 15,500 3.0 Other 25 0.1 1,091 0.2 1,052 0.3 ---------- ----- ---------- ----- -------- ----- Total revenue 1,743,366 100.0 1,324,122 100.0 524,078 100.0 ---------- ----- ---------- ----- -------- ----- DIRECT SUPPLIER COSTS Investment advisory fees 49,972 2.9 45,561 3.4 17,940 3.4 Administration fees 4,250 0.2 3,050 0.2 2,450 0.5 Regulatory fees 3,075 0.2 2,440 0.2 855 0.2 ---------- ----- ---------- ----- -------- ----- Total supplier costs 57,297 3.3 51,051 3.9 21,245 4.1 ---------- ----- ---------- ----- -------- ----- Total operating profit 1,686,069 96.7 1,273,071 96.1 502,833 95.9 ---------- ----- ---------- ----- -------- ----- OPERATING EXPENSES: Personnel salaries & wages 1,340,614 76.9 968,975 73.2 349,220 66.6 Payroll taxes 31,289 1.8 20,924 1.6 10,741 2.1 Pension expense 39,420 2.3 34,977 2.6 33,947 6.5 Depreciation 17,680 1.0 5,992 0.5 9,076 1.7 Office supplies 26,365 1.5 19,435 1.5 12,106 2.3 Postage 5,983 0.3 3,478 0.3 2,064 0.4 Telephone 3,779 0.2 2,507 0.2 1,730 0.3 Insurance 10,612 0.6 7,686 0.6 5,759 1.1 Travel 7,615 0.4 7,933 0.6 3,860 0.7 Publication & subscriptions 14,680 0.8 3,124 0.2 2,815 0.5 Legal & professional services 3,108 0.2 1,200 0.1 800 0.2 Property taxes 1,312 0.1 1,310 0.1 2,612 0.5 Real estate maintenance and association fees 2,782 0.2 2,984 0.2 2,017 0.4 Licenses & fees 1,138 0.1 0.0 0.0 Contributions 1,175 0.2 1,050 0.2 1,100 0.3 Other 2,341 0.1 5,565 0.4 3,133 0.6 ---------- ----- ---------- ----- -------- ----- Total operating expenses 1,509,893 86.6 1,087,140 82.1 440,980 84.1 ---------- ----- ---------- ----- -------- ----- Income from operations 176,176 10.1 185,931 14.0 61,853 11.8 OTHER INCOME (EXPENSES) Investment income 24,096 1.4 35,356 2.7 81 0.0 Capital gains and interest income 1,966 0.1 0 0.0 0 0.0 ---------- ----- ---------- ----- -------- ----- INCOME BEFORE INCOME TAXES 202,238 11.6 221,287 16.7 61,934 11.8 INCOME TAXES: 0 0.0 0 0.0 0 0.0 ---------- ----- ---------- ----- -------- ----- NET INCOME 202,238 11.6% 221,287 16.7% 61,934 11.8% ===== ===== ===== RETAINED EARNINGS, BEGINNING OF YEAR 667,191 445,904 383,970 ---------- ---------- -------- RETAINED EARNINGS, END OF YEAR 869,429 667,191 445,904 ========== ========== ======== See accompanying notes and independent auditors' report
- 67 - 70 HEALTH FINANCIAL, INC. STATEMENTS OF CASH FLOW Years ended December 31, 1996, 1995 and 1994
1996 1995 1994 ------------------ ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $202,238 $221,287 $ 61,934 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes 0 0 0 Depreciation 17,680 5,992 9,076 Amortization Gain on sale of assets (Increase) decrease in assets: Accounts receivable: (95,396) (169,567) (10,375) Marketable investments (21,294) (47,804) (26,473) Notes receivable, Current balances (25,000) 0 0 Increase (decrease) in liabilities: Accounts payable, trade (4,480) 15,740 5,784 Accrued property and franchise taxes (21) 773 1,302 Accrued local taxes 1,327 221 0 Accrued income taxes 0 0 0 -------- -------- -------- Net cash provided by (used in) operating activities 75,054 26,642 41,248 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase for property & equipment (29,067) (12,023) (13,671) Purchase of notes receivable (16,517) Proceeds on note receivable 142 -------- -------- -------- Net cash provided by (used in) investing activities (45,442) (12,023) (13,671) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Long-term debt Proceeds from the sale of Company stock 0 0 0 -------- -------- -------- Net cash provided by (used in) financing activities 0 0 0 -------- -------- -------- NET INCREASE(DECREASE) IN CASH 29,612 14,619 27,577 CASH AT BEGINNING OF YEAR 73,426 58,807 31,230 -------- -------- -------- CASH AT END OF YEAR $103,038 $ 73,426 $ 58,807 ======== ======== ======== SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION Cash paid during period for - interest $ 0 $ 0 $ 0 - income taxes 0 0 0 See accompanying notes and independent auditors' report
- 68 - 71 HEALTH FINANCIAL, INC. NOTES TO FINANCIAL STATEMENTS Note 1 - Nature of Business Operations The Company, incorporated in the State of Kentucky, is an investment advisory business providing services to trusts, retirement plans, businesses and individuals located primarily in Kentucky. Note 2 - Summary of Significant Accounting Policies Revenues and Investment Advisory Fees - The revenues investment advisory fees as well as the investment advisory fees earned by third party advisors are recorded on the accrual basis. The fees earned by the Company and paid to the sub advisors are based on established fees schedules and contracts. The Company generally has the right to collect fees from the invested assets, thus collection of the fees is reasonably certain. Property And Equipment - The property and equipment is stated at cost. Depreciation is computed on the straight-line method over the estimated useful life of the assets for financial statement purposes. Marketable Securities and Investments - The investments designated as "Held to Maturity" are recorded at cost and amortized over the period to maturity for the premium or discount from par value under generally accepted accounting principles. Other marketable investments are recorded and adjusted to the fair market value as of the date of the financial statements. Organizational Costs - Costs relating to the organization of the Company have been capitalized and are not being amortized for financial statement purposes. Income Taxes - The Company with the consent of its stockholders, elected to be taxes as an S-Corporation, therefore, Federal and state taxable income and losses are passed through to the stockholders. Deferred tax assets and liabilities are and will be recognized in the event of the S-Corporation status termination for the future tax consequence attributable to difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases under the assets and liabilities method of Financial Accounting Standards Statement No. 109 ("SFAS 109"). Deferred assets and liabilities are measured using differences expected to be recovered or settled. Under this SFAS 109, the effect of deferred tax assets and liabilities of a change in tax rates is and will be recognized in income in the period that includes the enactment date. Use of Estimates - The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. - 69 - 72 Statement of Cash Flows - For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Note 3 - MUTUAL FUND - CASH & MARKETABLE SECURITIES The cash accounts and the marketable securities in a mutual fund and the summary of income and gains or losses as of December 31, 1996, 1995, and 1994 and the years then ended are as follows:
1996 1995 1994 ---------------------------- ---------------------------- ----------------------------- Market Market Market Shares Cost Value Shares Cost Value Shares Cost Value ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- Money Market Accounts VMMR-Prime Portfolio 76,677.910 $ 76,678 $ 76,678 51,047.560 $ 51,048 $ 51,048 52,969.060 $ 52,969 $ 52,969 -------- -------- -------- -------- -------- -------- Marketable Investments VFISF-Long Term Corporate 2,511.331 20,477 22,075 2,300.984 18,626 21,813 2,143.763 17,238 17,257 VMBF-Long Term Portfolio 593.783 6,289 6,502 561.499 5,938 6,227 530.885 5,613 5,245 VTMF-Balanced Portfolio 1,066.295 10,834 13,777 1,036.101 10,497 12,278 1,015.408 10,171 9,941 Wellesley Income Fund 201.695 3,754 4,137 184.963 3,418 3,781 172.009 3,167 2,933 Vanguard Wellington Fund 1,221.089 27,281 31,931 1,124.952 24,793 27,483 1,066.305 23,435 20,676 Vanguard Equity Income 269.915 3,626 4,945 252.393 3,312 4,212 240.185 3,124 3,067 Index-500 Portfolio 376.816 12,832 26,061 368.260 12,265 21,212 359.154 11,775 15,433 Vanguard Windsor II 218.496 3,795 5,207 202.942 3,429 4,193 190.897 3,185 3,020 Horizon Global Asset Allocation 553.912 5,583 5,866 509.444 5,115 5,334 0.000 0 0 Horizon Global Equity 515.911 5,201 6,108 501.841 5,035 5,284 0.000 0 0 Vanguard International Growth 264.191 3,609 4,349 252.533 3,423 3,793 224.237 3,040 3,012 Index-Extended Market 236.612 5,535 6,197 218.918 5,079 5,269 0.000 0 0 Vanguard Explorer Fund 757.207 29,965 40,760 715.559 27,747 35,742 658.721 24,954 28,233 -------- -------- -------- -------- -------- -------- Total Marketable Investments 138,781 177,915 128,677 156,621 105,702 108,817 -------- -------- -------- -------- -------- -------- Total Mutual Fund Investments $215,459 $254,593 $179,725 $207,669 $158,671 $161,786 ======== ======== ======== ======== ======== ======== Current Accumulated Current Accumulated Current Accumulated Year Year Year -------- -------- -------- -------- -------- -------- Unrealized Gain (Losses) Accumulated $ 11,190 $ 39,134 $ 24,829 $ 27,944 $ (6,174) $ 3,115 -------- -------- -------- -------- -------- -------- Current Year Realized Gains (Losses) - - - -------- -------- -------- -------- -------- -------- Total Gain (Losses) 11,190 $ 39,134 24,829 $ 27,944 (6,174) $ 3,115 -------- ======== -------- ======== -------- ======== Investment Income Ordinary income 7,501 6,835 4,322 Short-term capital gain 678 922 39 Long-term capital gain 4,323 2,444 1,913 Tax-exempt income 337 326 151 -------- -------- -------- Total investment income 12,839 10,527 6,425 -------- -------- -------- Total Investment Increase (Decrease) $ 24,029 $ 35,356 $ 251 ======== ======== ========
- 70 - 73 Note 4 - RENT & RELATED PARTY TRANSACTIONS The Company leases part of its office to First Lexington Trust Company, a related party, and other entities under a renewable one year agreement, which amounted to $15,500 per year for 1996, 1995 and 1994 The Company was reimbursed by First Lexington Trust Company for the use of supplies, equipment and employees costs and benefits expended in connection with the Company's operations which amounted to $66.000 for the year ended December 31, 1996. In 1995, the Company received advisory fee revenue amounting to $47,734 from First Lexington Trust Company for services rendered on trusts maintained by First Lexington Trust. In 1994 and 1996, the fees were received from the investments or trust sponsors. Note 5 - CONTINGENCIES The Company maintains bank accounts which periodically exceed the FDIC guarantee limit during the years. As of December 31, 1996, 1995 and 1994 the Company did not have any bank accounts which were in excess of the FDIC limit. Note 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and estimated fair values of the Company's financial instruments at December 31, 1996, 1995 and 1994. FASB Statement No. 107, Disclosures About Fair Value of Financial Instruments, defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.
December 31, 1996 December 31, 1995 December 31, 1994 ----------------- ----------------- ----------------- Carrying Fair Carrying Fair Carrying Fair CURRENT ASSETS Amount Value Amount Value Amount Value -------- -------- -------- -------- -------- -------- Cash and cash equivalents $ 76,678 $ 76,678 $ 51,048 $ 51,048 $ 52,969 $ 52,969 Accounts receivable 434,619 434,619 339,223 339,223 169,656 169,656 Notes receivable, Current balances 41,375 41,375 - - - - Marketable investments 177,915 177,915 156,621 156,621 108,817 108,817 Current liabilities 24,260 24,260 27,434 27,434 10,700 10,700
The carrying amounts shown in the table are included in the balance sheet under the indicated captions. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents, receivables. and current liabilities: The carrying amounts approximate fair value because of the short maturity of those instruments. Investments in money market funds are treated as cash equivalents with maturity under 90 days. Marketable securities, investments, notes receivable and debt obligations: The fair value of the Company's marketable securities, investments and notes receivable are estimated based on the quoted market price or interest rates for the issue or similar issues. Long-term debt obligations are estimated by discounting expected cash flows at the rates currently offered to the Company for debt of the same remaining maturities. - 71 - 74 To the Stockholders and Board of Directors First Lexington Trust Company 3320 Tates Creek Road, Suite 101 Lexington, Kentucky INDEPENDENT AUDITORS' REPORT ---------------------------- We have audited the balance sheet of First Lexington Trust Company as of December 31, 1996 and the related statements of operations and retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of First Lexington Trust Company as of December 31, 1995 were audited by other auditors whose report dated February 27, 1996 expressed an unqualified opinion on these statements. We conducted our audit in accordance with generally accepted accounting standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of First Lexington Trust Company as of December 31, 1996 and the results of its operations and its cash flow for the year then ended in conformity with generally accepted accounting principles. /s/ Larry E. Nunn & Associates, L.L.C. Columbus, Indiana February 19, 1997 - 72 - 75 FIRST LEXINGTON TRUST COMPANY BALANCE SHEET December 31, 1996 -----------------
ASSETS ------ CURRENT ASSETS Cash: Bank $10,573 Mutual Fund money market 10,000 Mutual Fund Trust account 15,034 Brokerage money market 76,208 $ 111,815 ------- Accounts receivable: Fee income 48,430 Mutual Fund Trust account 5,965 54,395 ------- Accrued interest income receivable 4,801 Prepaid expenses 3,424 ---------- 174,435 ---------- INVESTMENT IN DEBT SECURITIES 802,970 ---------- PROPERTY AND EQUIPMENT: Office equipment 3,334 Software 45,392 ---------- 48,726 Less accumulated depreciation 10,768 ---------- 37,958 ---------- OTHER ASSETS Organization costs 9,000 ---------- TOTAL ASSETS $1,024,363 ========== See accompanying notes and independent auditors' report. - 73 - 76 STATEMENT 1 LIABILITIES & STOCKHOLDERS' EQUITY ---------------------------------- CURRENT LIABILITIES Accounts payable, trade $ 8,604 Accrued advisory fees 4,253 Accrued income taxes 9,200 Deferred income 3,248 Deferred income taxes 15,653 ---------- 40,958 LONG-TERM LIABILITIES: Deferred income taxes 2,387 ---------- Total liabilities 43,345 ---------- COMMITMENTS & CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $1.00 par value 10,000 shares authorized 8,295 shares issued and outstanding 8,295 Paid-in capital 821,705 ---------- Total stock investment 830,000 Retained Earnings 151,018 ---------- Total stockholders' equity 981,018 ---------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $1,024,363 ========== See accompanying notes and independent auditors' report.
- 74 - 77 STATEMENT 2 FIRST LEXINGTON TRUST COMPANY STATEMENT OF OPERATIONS AND RETAINED EARNINGS December 31, 1996 ----------------- REVENUES: Trustee fees $176,825 90.5% Administration fees 12,341 6.3 Valuation system fees 2,000 1.0 Software maintenance fees 4,181 2.2 -------- ----- Total revenue 195,347 100.0 -------- ----- DIRECT SUPPLIER COSTS Investment advisory fees 6,066 3.1 Plan administration fees 12,341 6.3 Software maintenance fees 4,181 2.1 Related party employee, supplies and operating expenses reimbursed 66,000 33.8 -------- ----- Total supplier costs 88,588 45.3 -------- ----- TOTAL GROSS PROFIT 106,759 54.7 -------- ----- OPERATING EXPENSES: Computer software expenses 2,237 1.1 Insurance 13,652 7.0 Legal & professional services 15,273 7.8 Depreciation 10,002 5.1 Office supplies & postage 497 0.3 Rent 5,000 2.6 Telephone 4,690 2.4 Publication & subscriptions 810 0.4 Property taxes 1,776 0.9 Licenses & fees 1,421 0.7 Other 41 0.1 -------- ----- Total operating expenses 55,399 28.4 -------- ----- INCOME FROM OPERATIONS 51,360 26.3 -------- ----- OTHER INCOME (EXPENSES) Investment interest income 59,561 30.5 Capital gains and other income 163 0.1 -------- ----- INCOME BEFORE INCOME TAXES 111,084 56.9 -------- ----- INCOME TAXES: Current 20,400 10.5 Deferred 9,600 4.9 -------- ----- NET INCOME 81,084 41.5% ===== RETAINED EARNINGS, BEGINNING OF YEAR 69,934 -------- RETAINED EARNINGS, END OF YEAR 151,018 ======== See accompanying notes and independent auditors' report.
- 75 - 78 STATEMENT 3 FIRST LEXINGTON TRUST COMPANY STATEMENT OF CASH FLOW December 31, 1996 ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 81,084 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes 9,600 Depreciation 10,002 Amortization Gain on sale of assets (Increase) decrease in assets: Accounts receivable (25,590) Accrued interest income receivable 197 Prepaid expenses (1,054) Increase (decrease) in liabilities; Accounts payable, trade (20,114) Accrued advisory fees (10,149) Accrued income taxes (4,341) Deferred income 2,172 -------- Net cash provided by (used in) operating activities 41,807 -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase for property & equipment (9,307) Purchase of investments 103,339 Proceeds from the sale of investments (64,647) -------- Net cash provided by (used in) investing activities 29,385 -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Long-term debt Purchase of treasury stock Proceeds from the sale of Company stock 1,000 Net cash provided by (used in) financing activities 1,000 -------- NET INCREASE (DECREASE) IN CASH 72,192 CASH AT BEGINNING OF YEAR 39,623 -------- CASH AT END OF YEAR $111,815 ======== SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION Cash paid during period - interest - income taxes $ 24,741 See accompanying notes and independent auditors' report. - 76 - 79 FIRST LEXINGTON TRUST COMPANY NOTES TO FINANCIAL STATEMENTS December 31, 1996 ----------------- Note 1 - NATURE OF OPERATIONS The Company, First Lexington Trust Company, incorporated in March, 1994 is a non-bank affiliated trust company regulated by the Department of Financial Institutions, Commonwealth of Kentucky. The Company received its Trust Charter in March, 1994. The majority of trust assets as of December 31, 1996 totaling approximately $21.5 million are invested in no-load mutual funds under the direction of the trust investment committee. 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenues and Investment Advisory Fees - ------------------------------------- The revenues representing trust and investment advisory fees as well as the investment advisory fees earned by third party advisors are recorded on the accrual basis. The fees earned by the Company and paid to the sub advisors are based on established fees schedules and contracts. The Company as the trustee has the right to collect fees from the trust assets, thus collection of the fees is reasonably certain. Property and Equipment - ---------------------- Property and equipment are stated at cost. Depreciation is computed on the straight-line method over the estimated useful life of the assets for financial statement purposes. Investments - ----------- The investments designated as "Held to Maturity" are recorded at cost and amortized over the period to maturity for the premium or discount from par value under generally accepted accounting principles. Other marketable investments are recorded and adjusted to the fair market value as of the date of the financial statements. Organizational Costs - -------------------- Costs relating to the organization of the Company have been capitalized and are not being amortized for the financial statement purposes. Income Taxes - ------------ Deferred tax assets and liabilities are recognized for the future tax consequence attributable to difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases under the assets and liabilities method of Financial Accounting Standards Statement No. 109 ("SFAS 109"). Deferred assets and liabilities are measured using differences expected to be recovered or settled. Under this SFAS 109, the effect of deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. - 77 - 80 FIRST LEXINGTON TRUST COMPANY NOTES TO FINANCIAL STATEMENTS December 31, 1996 ----------------- Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Use of Estimates - ---------------- The presentation of financial statements if conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Statement of Cash Flows - ----------------------- For purposes of the statement of cash flow, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. 3 - INVESTMENTS IN DEBT SECURITIES The Company is required by the Kentucky Department of Financial Institutions to maintain a minimum of $800,000 capital while trust assets under management do not exceed $100,000,000. When trust assets under management exceed the $100,000,000, the capital requirement will be increased by $350,000. It is the Company's intention to hold the investments in debt securities to conform with this requirement. The marketable investments in debt securities are classified as "Held to Maturity" and the amortized cost and fair market value of the investments as of December 31, 1996 are as follows:
Maturity Date Amortized Unrealized Market Debt Security MO DY YR Face Value Cost Gain(loss) Value ------------- --------- ---------- --------- ---------- ------ Federal Home Loan Mortgage Corporation REMIC 1675-P 10 15 2023 $100,000 $ 94,313 $ (6,652) $ 87,661 REMIC 1646-N 03 15 2023 200,000 189,355 (2,697) 186,658 REMIC 1681-B 11 15 2023 220,000 211,465 (2,551) 208,914 Federal National Mortgage Association REMIC 94-23-0 10 25 2007 97,000 89,005 490 89,495 Note 03 06 2006 70,000 70,325 (1,225) 69,100 Federal Home Loan Bank Note 12 29 2003 25,000 24,487 (167) 24,320 U.S. Treasury Note 02 28 1996 70,000 -- -- -- Note 02 28 1999 100,000 99,020 105 99,125 Tennessee Valley Authority Subordinated Debenture 04 24 2002 25,000 25,000 -- 25,000 -------- -------- -------- -------- Totals $907,000 $802,970 $(12,697) $790,273 ======== ======== ======== ========
- 78 - 81 FIRST LEXINGTON TRUST COMPANY NOTES TO FINANCIAL STATEMENTS December 31, 1996 ----------------- Note 4 - RELATED PARTY TRANSACTIONS The Company leases its office space from Health Financial, Inc., a related party, under a renewable one year agreement, which amounted to $5,000 for the year ended December 31, 1996. Additionally, the Company reimburses Health Financial, Inc. for the use of supplies, equipment and employees costs and benefits expended in connection with the Company's operations which amounted to $66,000 for the year ended December 31, 1996. 5 - DEFERRED INCOME TAX As discussed in Note 2, the Company records income taxes in accordance with SFAS 109. The Company reports revenue and expenses on the cash basis while tax depreciation is deducted using accelerated methods. Organizational costs being amortized using the straight line method over 60 months. The deferred tax liability in the financial statements as of December 31, 1996 is as follows: Deferred tax asset $ 1,040 Deferred tax liability 19,080 -------- Net Deferred tax asset (liability) $ 18,040 ========
The components of income tax expense for the year ended December 31, 1996 are as follows: Current Income Tax Federal $ 14,925 State and Local 5,475 -------- Total current 20,400 -------- Deferred Income Tax Federal 7,025 State and Local 2,575 -------- Total deferred 9,600 -------- Total Income Tax $ 30,000 ========
- 79 - 82 FIRST LEXINGTON TRUST COMPANY NOTES TO FINANCIAL STATEMENTS December 31, 1996 ----------------- Note 6 - CONTINGENCIES The Company maintains bank accounts which periodically exceed the FDIC guarantee limit during the year. At December 31, 1996 the Company had bank accounts which were in excess of the FDIC limit by approximately $16,440. The Company maintains a Trust Cash Fund with a no load mutual fund for the deposit of funds for customer investments and disbursement with the mutual fund. The following represents the account as of December 31, 1996: Total account balance $837,102 Due to customers or investment 822,068 -------- Company balance in fund $ 15,034 ========
7 - FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and estimated fair values of the Corporation's financial instruments at December 31, 1996. FASB Statement No. 107, Disclosures About Fair Value of Financial Instruments, defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties
1996 ----------------------- Carrying Fair Amount Value --------- ----- Financial Assets Cash and cash equivalents $118,815 $118,815 Receivables 56,196 56,196 Investments in debt securities 802,970 790,274 Current liabilities 40,958 40,958
The carrying amounts shown in the table are included in the balance sheet under the indicated captions. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents, receivables, and current -------------------------------------------------- liabilities: The carrying amounts approximate fair ----------- value because of the short maturity of those instruments. Investments in money market funds are treated as cash equivalents with maturity under 90 days. - 80 - 83 FIRST LEXINGTON TRUST COMPANY NOTES TO FINANCIAL STATEMENTS December 31, 1996 ----------------- Investments and debt obligations: The fair value of -------------------------------- the Company's investments are estimated based on the quoted market price for similar issues. Long-term debt obligation is the estimate of borrowing required to provide for the purchase of the various entities planned purchase. - 81 - 84 [LETTERHEAD OF BARR - ANDERSON - ROBERTS] First Lexington Trust 3320 Tates Creek Road, Suite 101 Lexington, Kentucky Independent Auditor's Report ---------------------------- We have audited the accompanying balance sheets of First Lexington Trust Company (a Corporation) as of December 31, 1995 and 1994, and the related statements of income and retained earnings, and cash flows for the year ended December 31, 1995 and for the ten month period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First Lexington Trust Company as of December 31, 1995 and 1994, and the results of its operations and cash flows for the year ended December 31, 1995 and ten month period ended December 31, 1994 in conformity with generally accepted accounting principles. /s/ Barr, Anderson & Roberts, P.S.C. Barr, Anderson & Roberts, P.S.C. Lexington, Kentucky February 27, 1996 - 82 - 85 FIRST LEXINGTON TRUST COMPANY BALANCE SHEETS DECEMBER 31, 1995 AND 1994
1995 1994 -------- -------- ASSETS ------ Current assets Cash $ 39,623 $ 32,866 Accounts receivable 28,805 6,971 Accrued interest receivable 4,998 4,825 Prepaid insurance 2,370 2,232 -------- -------- Total current assets 75,796 46,894 -------- -------- Investments in debt securities - Note B 841,662 791,367 -------- -------- Equipment and software - Note A Office equipment 3,334 3,334 Software 36,085 0 Accumulated depreciation (766) (234) -------- -------- Net equipment and software 38,653 3,100 -------- -------- Organization costs - Note A 9,000 9,000 -------- -------- Total assets $965,111 $850,361 ======== ======== The accompanying notes are an integral part of these financial statements. - 83 - 86 FIRST LEXINGTON TRUST COMPANY BALANCE SHEETS DECEMBER 31, 1995 AND 1994 (CONTINUED) 1995 1994 -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 28,718 $ 864 Accrued liabilities 14,402 2,500 Deferred income 1,076 1,346 Income taxes payable - Notes A and D 13,541 450 Deferred income taxes - Notes A and D 6,453 1,990 -------- -------- Total current liabilities 64,190 7,150 Deferred income taxes - Notes A and D 1,987 1,012 -------- -------- Total liabilities 66,177 8,162 -------- -------- Stockholders' equity Common stock, $1.00 par value, 829,000 829,000 10,000 shares authorized and 8,290 shares issued and outstanding Retained earnings 69,934 13,199 -------- -------- Total stockholders' equity 898,934 842,199 -------- -------- Total liabilities and stockholders' equity $965,111 $850,361 ======== ======== The accompanying notes are an integral part of these financial statements.
- 84 - 87 FIRST LEXINGTON TRUST COMPANY STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE TEN MONTH PERIOD ENDED DECEMBER 31, 1994
1995 % 1994 % -------- -------- Revenues Trustee and advisory fees $108,429 100.0 $ 15,266 100.0 -------- -------- Total revenues 108,429 100.0 15,266 100.0 -------- -------- Expenses Investment advisory fees - Note C 55,701 51.4 0 0.0 Advertising and promotion 281 0.3 265 1.7 Insurance 10,562 9.7 7.943 52.0 Publications and subscriptions 238 0.2 9,838 64.4 Seminars and expositions 0 0.0 2,075 13.6 Professional fees 8,474 7.8 3,379 22.1 Plan administration fees 3,875 3.6 0 0.0 Taxes and licenses 2,668 2.5 0 0.0 Rent - Note C 5,000 4.6 5,000 32.8 Telephone 913 0.8 863 5.7 Office supplies 36 0.0 7,577 49.6 Commissions 6 0.0 18 0.1 Depreciation - Note A 532 0.5 234 1.5 -------- -------- Total expenses 88,286 81.4 37,192 243.6 -------- -------- Net income (loss) from operations 20,143 (21,926) Other revenues Interest income 55,946 51.6 38,577 252.7 -------- -------- Net income before income taxes 76,089 70.2 16,651 109.1 Income taxes - Notes A and D 19,354 17.8 3,452 22.6 -------- -------- Net income 56,735 52.3 13,199 86.5 Beginning retained earnings 13,199 0 -------- -------- Ending retained earnings $ 69,934 $ 13,199 ======== ======== The accompanying notes are an integral part of these financial statements. - 85 - 88 First Lexington Trust Company Notes to Financial Statements Note A - Summary of Significant Accounting Policies - --------------------------------------------------- Business Activity - The Company is a non-bank affiliated trust ----------------- company regulated by the Department of Financial Institutions, Commonwealth of Kentucky. The Company manages trust assets of approximately $11.2 and $4.1 million as of December 31, 1995 and 1994, respectively. The majority of the trust assets, over ninety five percent (95%), are invested in no-load mutual funds under the direction of the trust investment committee. Fees are charged based on the Company's fee schedule. These fees are recorded on the accrual basis. The trustee has the right to collect fees from trust assets, thus collection of fees is reasonably certain. Equipment and Software - Equipment and software are carried at ---------------------- cost. Depreciation of equipment is provided using the straight-line method for financial reporting purposes at rates based on estimated useful lives. Depreciation is computed for federal income tax purposes using the modified accelerated cost recovery system. Amortization of software will begin when placed in service during 1996. Organization Costs - Costs relating to the organization of the ------------------ Company have been capitalized and are being amortized using the straight-line method over a sixty month period for income tax purposes. Income Taxes - Deferred tax assets and liabilities are ------------ recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases under the asset and liability method of Statement 109. Deferred tax assets and liabilities are measured using differences expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Note B - Investments in Debt Securities - --------------------------------------- The Company is required by the Kentucky Department of Financial Institutions to maintain a minimum of $800,000 capital while trust assets under management do not exceed $100,000,000. When trust assets under management exceed $100,000,000 the capital requirement will be increased by $350,000. It is the Company's intention to hold the investments in debt securities to conform with this requirement. - 86 - 89 First Lexington Trust Company Notes to Financial Statements Note B - Investments in Debt Securities (Continued) - -------------------------------------------------- The marketable debt securities are classified as "Held to Maturity". The amortized cost and fair value of the investments as of December 31, 1995 and 1994, are as follows:
1995 ----
Due to Amortized Unrealized Debt Security Mature Cost Gain(Loss) Fair Value - --------------------- --------- --------- ---------- ---------- Federal Home Loan Mortgage Corporation 10/15/23 $ 94,241 $(2,031) $ 92,210 Federal Home Loan Mortgage Corporation 03/15/23 189,219 1,957 191,176 Federal Home Loan Mortgage Corporation 11/15/23 211,364 8,475 219,839 Federal Home Loan Mortgage Corporation 12/29/03 24,427 370 24,797 Federal National Mortgage Association 10/25/97 88,812 3,376 92,188 U. S. Treasury Notes 02/29/96 69,869 65 69,934 U. S. Treasury Notes 02/28/99 98,730 1,926 100,656 General Electric Capital Corporation 12/08/06 40,000 1,190 41,190 Toyota Motor Credit Corporation 04/24/02 25,000 319 25,319 -------- ------- -------- Total $841,662 $15,647 $857,309 ======== ======= ========
1994 ----
Due to Amortized Unrealized Debt Security Mature Cost Gain(Loss) Fair Value - --------------------- --------- --------- ---------- ---------- Federal Home Loan Mortgage Corporation 10/15/23 $ 94,175 ($18,068) $ 76,107 Federal Home Loan Mortgage Corporation 03/15/23 189,093 (24,321) 164,772 Federal Home Loan Mortgage Corporation 11/15/23 211,270 (26,934) 184,336 Federal National Mortgage Association 10/25/07 88,630 (8,689) 79,941 U. S. Treasury Notes 02/29/96 69,744 (1,888) 67,856 U. S. Treasury Notes 02/28/99 98,455 (6,611) 91,844 General Electric Capital Corporation 12/08/06 40,000 (400) 39,600 -------- -------- --------- -------- Total $791,367 ($86,911) $704,456 ======== ======== ========
- 87 - 90 First Lexington Trust Company Notes to Financial Statements Note C - Related Party Transactions - ----------------------------------- Lease - The Company leases office space from Health Financial, Inc., ----- a related party, under renewable one year agreements. Rent expense under this lease was $5,000 for 1995 and 1994. Investment Advisory Fees - There were no advisory fees incurred in ------------------------ 1994. The Company incurred investment advisory fees to the following related parties in 1995: Health Financial, Inc. $47,734 Protrust Capital 5,184 Commonwealth Investment Services 1,556 Non-related party 1,227 ------- Total $55,701
======= Note D - Income Taxes - --------------------- As discussed in Note A, the Company records income taxes in accordance with Statement 109. The net deferred tax liability in the accompanying balance sheet includes the following amounts of deferred tax assets and liabilities:
1995 1994 ------- ------ Deferred tax asset $ 5,779 $1,024 Deferred tax liability 14,239 4,026 ------- ------ Net deferred tax liability $ 8,440 $3,002 ======= ======
The deferred tax liability results from the use of accelerated methods of depreciation which reduce the tax basis of equipment, payables and receivables not recognized in the current year for tax purposes, and prepaid insurance fully deducted for tax purposes. The deferred tax asset results from unearned revenue included in income for tax purposes. The components of income tax expense are as follows:
Current Deferred Total --------------- ---------------- ----------------- 1995 1994 1995 1994 1995 1994 ------- ----- ------ ------ -------- ------- U. S. Federal $11,190 $450 $4,013 $2,047 $15,203 $2,497 State and local 2,726 0 1,425 955 4,151 55 ------- ---- ------ ------ ------- ------ Total $13,916 $450 $5,438 $3,002 $19,354 $3,452 ======= ==== ====== ====== ======= ======
- 88 - 91 To the Board of Directors and Stockholder of Vintage Advisers, Inc. INDEPENDENT AUDITORS' REPORT ---------------------------- We have audited the accompanying statements of financial condition of Vintage Advisers, Inc. as of November 30, 1996 and 1995, and the related statements of operations, changes in stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of Vintage's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Vintage Advisers as of November 30, 1996 and 1995, and the results of its operations, changes in stockholders' equity and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Larry E. Nunn & Associates, L.L.C. Columbus, Indiana January 24, 1997 - 89 - 92 VINTAGE ADVISERS, INC. STATEMENTS OF FINANCIAL CONDITION For the Three Months Ended February 28, 1997 (Unaudited) and For the Years Ended November 30, 1996 and 1995 ---------------------------------------------- ASSETS ------
November 30, February 28, -------------------------------- 1997 1996 1995 ------------ -------- -------- (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 25,631 $ 27,123 $ 3,135 Investment in affiliated mutual fund (cost approximates market) 54,793 40,023 86,280 Receivable from affiliated mutual funds 35,555 23,585 15,864 Other receivables 5,000 30,000 -- Prepaid insurance 6,046 1,100 -- -------- -------- -------- Total current assets 127,025 121,831 105,279 -------- -------- -------- OTHER ASSETS Organization cost, net of $90,896, $79,783 and $26,594, respectively, accumulated amortization 175,049 186,162 239,351 Deferred development cost, net of $8,736, $0 and $0, respectively, accumulated depreciation 305,764 314,500 -- -------- -------- -------- Total other assets 480,813 500,662 239,351 -------- -------- -------- TOTAL ASSETS $607,838 $622,493 $344,630 ======== ======== ======== - 90 - 93 LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ November 30, February 28, --------------------------------- 1997 1996 1995 ------------ --------- --------- (Unaudited) CURRENT LIABILITIES Loan payable to stockholder $ 10,000 $ 10,000 $ 10,000 Loan payable to stockholder 75,000 75,000 75,000 Loan payable to stockholder 50,000 50,000 -- Payable to affiliated companies 127,714 117,177 98,103 Accounts payable and accrued liabilities 279,701 272,493 8,962 --------- --------- --------- Total current liabilities 542,415 524,670 192,065 --------- --------- --------- TOTAL LIABILITIES 542,415 524,670 192,065 --------- --------- --------- CONTINGENCIES AND COMMITMENTS STOCKHOLDERS' EQUITY Common stock, par value, $.01 per share, 100,000 shares authorized 300 300 252 Paid-in capital 599,700 599,700 199,748 Retained earnings (deficit) (476,094) (446,423) (47,435) Unrealized (loss) on securities (58,483) (55,754) -- --------- --------- --------- Total stockholders' equity 65,423 97,823 152,565 --------- --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 607,838 $ 622,493 $ 344,630 ========= ========= ========= See accompanying notes and independent auditors' report.
- 91 - 94 VINTAGE ADVISERS, INC. STATEMENTS OF OPERATIONS Three Months Ended February 28/29, 1997 and 1996 (Unaudited) and Years Ended November 30, 1996 and 1995 ------------------------------------------
February 28/29, November 30, ----------------------- --------------------------------- 1997 1996 1996 1995 -------- -------- --------- -------- REVENUE: Investment adviser fees from affiliated companies $ 82,572 $ 46,635 $ 248,090 $ 27,207 Miscellaneous income -- -- 100 -- Interest income 128 17 64 811 -------- -------- --------- -------- Total revenue 82,700 46,652 248,254 28,018 -------- -------- --------- -------- COST OF SALES: Reimbursement -- (5,717) (65,560) (24,922) -------- -------- --------- -------- Total cost of sales -- (5,717) (65,560) (24,922) -------- -------- --------- ------- Gross profit 82,700 40,935 182,694 3,096 -------- -------- --------- ------- EXPENSES: Wages and payroll taxes 45,403 3,335 181,835 -- Professional fees 10,823 12,474 92,263 6,827 Printing, brochures, marketing expenses -- -- 13,854 3,209 Telephone -- 941 2,549 199 Courier 50 65 276 108 License fees -- -- 565 290 Insurance 1,655 -- 5,501 -- Taxes 1,367 1,119 3,705 387 Travel and entertainment 6,238 4,018 20,536 7,122 Interest expense 3,412 3,262 14,119 5,450 Amortization 19,849 13,297 53,189 26,594 Equipment -- 1,744 3,909 -- Office supplies -- 213 386 -- All other 23,574 5,993 185,642 371 -------- -------- --------- -------- Total expenses 112,371 46,461 578,329 50,557 -------- -------- --------- -------- Income from operations before gain (loss) on securities (29,671) (5,526) (395,635) (47,461) Realized gain (loss) on securities -- -- (3,353) -- Unrealized gain (loss) on securities (2,729) (12,303) -------- -------- --------- -------- NET INCOME (LOSS) $(32,400) $(17,829) $(398,988) $(47,435) ======== ======== ========= ======== See accompanying notes and independent auditors' report.
- 92 - 95 VINTAGE ADVISERS, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Three Months Ended February 28, 1997 (Unaudited) and Years Ended November 30, 1996 and 1995 ------------------------------------------
Common Stock Common Paid-in Retained Shares Stock Capital Deficit Total ------ ------ ------- -------- -------- Initial Incorporation 20,000 $ 200 $ 1,800 $ -- $ 2,000 Unified Holdings, Inc. Investment 5,244 52 197,948 -- 198,000 Net income (loss) -- -- -- (47,435) (47,435) ------ ----- -------- --------- --------- Balance, Nov. 30, 1995 25,244 252 199,748 (47,435) 152,565 Unified Holdings, Inc. Investment 4,756 48 399,952 -- 400,000 Unrealized gain (loss) on securities -- -- -- (55,754) (55,754) Net income (loss) -- -- -- (398,988) (398,988) ------ ----- -------- --------- --------- Balance, Nov. 30, 1996 30,000 300 $599,700 $(502,177) $ 97,823 Unified Holdings, Inc. Investment Unrealized gain (loss) on securities -- -- -- (2,729) (2,729) Net income (loss) -- -- -- (29,671) (29,671) ------ ----- -------- --------- --------- Balance, February 28, 1997 (Unaudited) 30,000 300 $599,700 $(534,577) $ 65,423 ====== ===== ======== ========= ========= See accompanying notes and independent auditors' report.
- 93 - 96 VINTAGE ADVISERS, INC. STATEMENTS OF CASH FLOWS For the Three Months Ended February 28/29, 1997 and 1996 (Unaudited) and Years Ended November 30, 1996 and 1995 ------------------------------------------
February 28/29, November 30, ----------------------- --------------------------------- 1997 1996 1996 1995 -------- -------- --------- --------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES NET INCOME (LOSS) $(32,400) $(17,829) $(398,988) $ (47,435) Adjustment to reconcile net income to net cash provided (used) in operating activities: Amortization 19,849 13,297 53,189 26,594 Loss on sale of securities -- -- 3,353 -- (Increase) decrease in operating assets: Prepaid insurance (4,946) -- (1,100) Receivable from affiliated mutual fund (11,970) -- (7,721) (15,864) Receivable from other 25,000 (14,242) (30,000) Increase (decrease) in liabilities: Payable to affiliated companies 10,537 -- 84,962 98,103 Accounts payable and accrued liabilities 7,208 (52,338) 263,531 8,962 -------- -------- --------- --------- Net cash (used) provided by operating activities 16,007 (58,809) (32,774) 70,360 -------- -------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Organization cost -- -- -- (265,945) Deferred development cost -- -- (314,500) -- Investment in affiliated mutual funds (17,499) (7,749) (12,850) (86,280) -------- -------- --------- --------- Net cash used by investing activities (17,499) (32,749) (327,350) (352,225) -------- -------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Loan proceeds -- 90,888 -- 85,000 Repayment of loan to Unified Holdings, Inc. -- -- (15,888) -- Issuance of common stock -- -- 400,000 200,000 -------- -------- --------- --------- Net cash provided by financing activities -- 90,888 384,112 285,000 -------- -------- --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS (1,492) (670) 23,988 3,135 CASH AND CASH EQUIVALENTS, Beginning of year 27,123 3,135 3,135 -- -------- -------- --------- --------- CASH AND CASH EQUIVALENTS, End of year $ 25,631 $ 2,465 $ 27,123 $ 3,135 ======== ======== ========= ========= NON-CASH ITEMS: During 1996, reclass of accounts payable to loan payable to Unified Holdings, Inc. $65,888 Operating activities reflect cash paid for: - Interest $ 3,412 $ 3,262 $ 14,119 $ 5,450 -------- -------- --------- --------- See accompanying notes and independent auditors' report.
- 94 - 97 VINTAGE ADVISERS, INC. NOTES TO FINANCIAL STATEMENTS November 30, 1996 and 1995 -------------------------- Note 1 - ORGANIZATION AND CAPITALIZATION Vintage Advisers, Inc. (the "Company"), was incorporated in Delaware on December 12, 1994 and registered to do business in Indiana for the purpose of being the Adviser to the Vintage Mutual Funds (the "Funds"). The Company is a registered investment advisor under the Investment Advisers Act of 1940. Since incorporation, the Company authorized an increase in the capitalization of the Company from 1,000 shares to 100,000 shares and declared a 100 to 1 stock split on outstanding shares. On November 30, 1995, Unified Holdings, Inc. subscribed to invest $198,000 for 5,244 shares of common stock. This transaction was completed in December 1995. On October 22, 1996, Unified Holdings, Inc. invested $400,000 for 4,756 shares of common stock. The Company instituted a Management and Employee Retention Plan (the "Plan") and authorized that 60,000 common shares of the Company fund the plan. The shares have not been registered under the Securities Act of 1933 nor under the Securities laws of any state and have been issued under exemptions that depend, in part, on the intent of the stockholder not to sell or transfer such shares in any manner not permitted by such laws. Of the 60,000 common shares held in trust, 25,760 shares have been designated. The Plan shares shall be granted to the recipient (1) at the time that the Plan Shares are registered under the Securities Act of 1933 or the 1934 Act: or, (2) if such Plan Shares have not been registered by January 1, 2000, the Plan Shares subject to the award shall be earned by the Employee at the rate of twenty percent as of each January 1 following subject to a cross purchase agreement. The Company applies APB Opinion 25 and related interpretations in accounting for this plan, accordingly, no compensation cost has been recognized. Had compensation cost been determined, based on the fair market value at the grant dates of the awards under this plan consistent with the method of FASB Statement 123, the Company's net income (loss) would be reduced to the proforma amounts indicated:
Year Ended Year Ended November 30, 1996 November 30, 1995 ----------------- ----------------- Net income (loss), as reported $(398,988) $(47,435) Proforma $(406,693) $(55,140)
The Company authorized 10,000 common shares for an option to a significant stockholder for the V.O.I.C.E. (tm) program. This option has not been issued as of November 30, 1996. - 95 - 98 VINTAGE ADVISERS, INC. NOTES TO FINANCIAL STATEMENTS November 30, 1996 and 1995 -------------------------- Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash Equivalents - ---------------- Investments in Affiliated Money Market mutual funds are treated as cash equivalents with maturity under 90 days. Securities Owned - ---------------- Investments in mutual funds are valued at their respective net asset value and recorded on a trade date basis. The Company considers these as short-term investments in its operations. Fees - ---- The Company provides investment advisory services to the Vintage mutual funds and records revenue on the accrual basis of accounting. Organization and Development Costs - ---------------------------------- The organizational costs for the Company were capitalized and will be charged to earnings over a sixty-month period on a straight-line basis. These costs were an integral part of the process of organizing the Company and various fees and expenses of the funds which will benefit future periods. The development costs for the Company were capitalized and will be charged to earnings over a one hundred and twenty month period on a straight-line basis. Use of Estimates - ---------------- The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Flows - ---------- For purposes of the statement of cash flows, the Company considers all liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents included money market investments of $1,620 for 1996 and $1,556 for 1995 which are not insured by the FDIC. Income Taxes - ------------ The Company has adopted Statement of Financial Accounting Standards NO. 109 ("SFAS 109") accounting for income taxes. The statement requires use of the liability method of accounting for deferred income taxes. - 96 - 99 VINTAGE ADVISERS, INC. NOTES TO FINANCIAL STATEMENTS November 30, 1996 and 1995 -------------------------- Note 3 - LOANS PAYABLE The Company has borrowed from three of the principal stockholders on a demand basis during 1996 and 1995. The Company provides interest at prime plus two percent (2%). Interest is paid periodically until the loan is repaid. 4 - TRANSACTIONS WITH RELATED PARTIES The Company provides investment advisory and affiliated companies provide administrative services to the Vintage Mutual funds. Fees for such services are based on the net assets under management for each fund in accordance with the terms of the respective fund prospectus. Such fees may be limited by regulatory or Prospectus expense limitations. During December 1995, the Company has committed to repay the Funds for the initial registration and organization cost of the funds which were $65,888. During October 1996, the Company reimbursed the Funds $84,717. Under the agreement, the Company is obligated to repay the funds to the extent of fees earned for the annual fiscal year expenses incurred by the funds are in excess of expense limits imposed by securities laws and regulations. The following is a summary of these transactions:
December 1, 1995 September 1, 1995 to November 30, 1996 to November 30, 1995 -------------------- -------------------- Fees earned $248,090 $ 27,207 Funds excess expenses 65,560 24,922 -------- -------- Total $182,530 $ 2,285 ======== ========
The funds excess expenses could increase or decrease based upon the actual expenses of the funds for their fiscal year, which ended on September 30, 1996. Management and administrative services are provided by an affiliated Company, Unified Holdings, Inc. and its subsidiaries as the Company does not currently have paid employees through November 30, 1995. During fiscal 1995, the Company was invoiced $198,000 for various services included in the funds registration and organization cost and $13,915 for expenses and organization cost. During fiscal 1996, the Company was invoiced $500,000 for expenses incurred of which $314,500 was capitalized as a deferred development cost. At November 30, 1996 and 1995, the Company owed $115,856 and $4,160 to this affiliated Company, respectively. - 97 - 100 VINTAGE ADVISERS, INC. NOTES TO FINANCIAL STATEMENTS November 30, 1996 and 1995 -------------------------- Note 5 - PROVISION FOR INCOME TAXES During two years of operations, the Company has incurred taxable losses. No tax benefit has been reflected in accordance with the Financial Accounting Standards Board Statement No. 96, Accounting for Income Taxes (SFAS 96). The Company does not expect a material impact on the Company's results of operations because of the tax benefit. 6 - COMMITMENTS Vintage Advisers, Inc. has an obligation with the Vintage mutual funds to provide the Company's V.O.I.C.E. (tm) program. This program will cause the Company to pay twenty-five basis points to approved designated charitable organizations on behalf of each stockholder of the Vintage funds which have invested an average of twenty-five thousand dollars or more quarterly. The payment will be quarterly. During 1996, the Company has licensed the V.O.I.C.E. (tm) program to a regional bank. This Agreement should provide future on-going revenue. 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and estimated fair values of the Corporation's financial instruments at November 30, 1996 and 1995. FASB Statement No. 107, Disclosures About Fair Value of Financial Instruments, defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.
1996 1995 -------------------- -------------------- Carrying Fair Carrying Fair ($ in thousands) Amount Value Amount Value -------- ------- -------- ----- Financial assets Cash and cash equivalents $ 27.1 $ 27.1 $ 3.1 $ 3.1 Receivables 53.5 53.5 15.8 15.8 Investments 40.0 40.0 86.2 86.2 Financial liabilities Payables (trade) (272.4) (272.4) 8.9 8.9 (affiliated company) 117.2 117.2 (98.1) (98.1)
- 98 - 101 VINTAGE ADVISERS, INC. NOTES TO FINANCIAL STATEMENTS November 30, 1996 and 1995 -------------------------- Note 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) The carrying amounts shown in the table are included in the statement of financial condition under the indicated captions. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash, receivables, and payables: The carrying amounts ------------------------------- approximate fair value because of the short maturity of those instruments. Investments: The carrying amounts have been adjusted to ----------- fair value according to the daily NAV prices at the close of the markets on November 30 for each respective year. -99 - 102 HEALTH FINANCIAL, INC. BALANCE SHEET March 31, 1997 (Unaudited)
ASSETS - ------ CURRENT ASSETS Cash: Bank $ 28,445 Mutual Fund money market 75,678 -------- Accounts receivable: Trade 317,699 Other 4,755 -------- Marketable investments 177,915 Notes receivable, Current balances 28,851 -------- 633,343 INVESTMENTS IN DEBT SECURITIES 0 -------- PROPERTY AND EQUIPMENT: Land 20,252 Building & signs 121,154 Office equipment & furniture 111,284 -------- 252,690 Less accumulated depreciation 55,002 -------- 197,680 -------- OTHER ASSETS Notes receivable, net of Current maturities 11,262 TOTAL ASSETS $842,293 ======== See accompanying notes and independent auditors' report - 100 - 103 LIABILITIES & STOCKHOLDERS' EQUITY - ---------------------------------- CURRENT LIABILITIES: Accounts payable, trade 20,347 Accrued property and franchise taxes 3,000 Accrued local taxes 1,653 Accrued income taxes 0 -------- 25,000 LONG-TERM LIABILITIES: Deferred income taxes 0 -------- Total liabilities 25,000 -------- COMMITMENTS & CONTINGENCIES STOCKHOLDERS' EQUITY Loan on stock, $1.00 par value 10,000-shares authorized 8,295 shares issued and outstanding 9,300 Paid-in capital 46,510 -------- Total stock investment 55,810 Retained Earnings 761,483 -------- Total stockholders' equity 817,293 -------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $842,293 ======== See accompanying notes and independent auditors' report
- 101 - 104 HEALTH FINANCIAL, INC. STATEMENTS OF OPERATIONS Three Months ended March 31, 1997 and 1996 (Unaudited)
1997 1996 --------- -------- REVENUES: Advisory Fees $ 348,547 $383,502 Administration fee reimbursement 300 -- Rental income -- -- Other 246 20,381 --------- -------- Total revenue 349,093 403,883 DIRECT SUPPLIER COSTS Investment advisory fees 10,202 12,493 Administration fees -- 1,831 Regulatory fees -- -- --------- -------- Total supplier costs 10,202 14,324 --------- -------- Total operating profit 338,891 389,559 --------- -------- OPERATING EXPENSES: Personnel salaries & wages 415,960 337,300 Payroll taxes 10,000 7,531 Pension expense 10,000 8,000 Depreciation 111,250 4,420 Office supplies 71,805 6,591 Postage 1,461 1,496 Telephone 869 946 Insurance 3,695 2,653 Travel -- -- Publication & subscriptions 1,500 1,500 Legal & professional services 7,125 777 Property taxes 400 200 Real estate maintenance and association fees 634 128 Licenses & fees 220 -- Contributions -- -- Other 359 5,932 --------- -------- Total operating expenses 471,287 377,473 --------- -------- Income from operations (132,396) 12,086 OTHER INCOME (EXPENSES) Investment income 950 6,516 Capital gains and interest income 23,500 -- --------- -------- INCOME BEFORE INCOME TAXES (107,946) 18,602 INCOME TAXES: -- -- --------- -------- NET INCOME (107,946) 18,602 RETAINED EARNINGS, BEGINNING OF YEAR 869,429 667,191 --------- -------- RETAINED EARNINGS, END OF YEAR $ 761,483 $685,793 ========= ======== See accompanying notes and independent auditors' report
- 102 - 105 HEALTH FINANCIAL, INC. STATEMENTS OF CASH FLOWS Three Months ended March 31, 1997 and 1996 (Unaudited)
1997 1996 --------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $(107,946) $18,602 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes -- -- Depreciation 11,250 4,420 Amortization -- -- Gain on sale of assets -- -- (Increase) decrease in assets: Accounts receivable 112,165 -- Marketable investments -- -- Notes receivable, Current balances 1,262 -- Increase (decrease) in liabilities: Accounts payable, trade 720 -- Accrued property and franchise taxes 20 -- Accrued local taxes -- -- Accrued income taxes -- -- --------- ------- Net cash provided by (used in) operating activities 17,471 23,022 --------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase for property & equipment (16,386) -- Purchase of notes receivable -- -- Proceeds on note receivable -- -- --------- ------- Net cash provided by (used in) investing activities (16,386) -- --------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt -- -- Proceeds from the sale of Company stock -- -- --------- ------- Net cash provided by (used in) financing activities -- -- --------- ------- NET INCREASE (DECREASE) IN CASH 1,085 23,022 CASH AT BEGINNING OF YEAR 103,038 73,426 --------- ------- CASH AT END OF YEAR $ 104,123 $96,448 ========= ======= SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION Cash paid during period for - interests 0 0 - income taxes 0 0 See accompanying notes and independent auditors' report
- 103 - 106 HEALTH FINANCIAL, INC. Note to Financial Statements Three Months ended March 31, 1997 (Unaudited) NOTE A -- BASIS OF PRESENTATION The unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. - 104 - 107 FIRST LEXINGTON TRUST COMPANY BALANCE SHEET March 31, 1997 (Unaudited)
ASSETS ------ CURRENT ASSETS Cash: Bank $ 10,520 Mutual Fund money market 10,000 Mutual Fund Trust account 15,034 Brokerage money market 64,208 ---------- 99,762 ---------- Accounts receivable: Fee income 60,430 Mutual Fund Trust account 6,000 ---------- 66,430 ---------- Accrued interest income receivable 4,801 Prepaid expenses 3,424 ---------- 174,417 ---------- INVESTMENT IN DEBT SECURITIES 802,970 ---------- PROPERTY AND EQUIPMENT: Office equipment 3,334 Software 45,392 ---------- 48,726 Less accumulated depreciation 12,768 ---------- 35,958 ---------- OTHER ASSETS Organization costs 9,000 ---------- TOTAL ASSETS $1,022,345 ========== See accompanying notes and independent auditors' report. - 105 - 108 LIABILITIES & STOCKHOLDERS' EQUITY ---------------------------------- CURRENT LIABILITIES Accounts payable, trade 3,198 Accrued advisory fees 4,000 Accrued income taxes 2,465 Deferred income 3,248 Deferred income taxes 15,076 ---------- 27,987 LONG-TERM LIABILITIES: Deferred income taxes 1,810 ---------- Total liabilities 29,797 ---------- COMMITMENTS & CONTINGENCIES -- STOCKHOLDERS' EQUITY: Common stock, $1.00 par value 10,000 shares authorized 8,295 shares issued and outstanding 8,295 Paid-in capital 821,705 ---------- Total stock investment 830,000 Retained Earnings 162,548 ---------- Total stockholders' equity 992,548 ---------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $1,022,345 ==========
- 106 - 109 FIRST LEXINGTON TRUST COMPANY STATEMENTS OF OPERATIONS Three Months ended March 31, 1997 and 1996 (Unaudited)
1997 1996 -------- ------- REVENUES: Trustee fees $ 59,481 $40,806 Administration fees 12,222 3,085 Valuation system fees -- -- Software maintenance fees 1,127 1,587 -------- ------- Total revenue 72,830 45,478 -------- ------- DIRECT SUPPLIER COSTS Investment advisory fees 5,210 1,517 Plan administration fees 15,349 4,131 Software maintenance fees -- -- Related party employee, supplies and operating expenses reimbursed 16,760 16,500 -------- ------- Total supplier costs 37,319 22,148 -------- ------- TOTAL GROSS PROFIT 35,511 23,330 -------- ------- OPERATING EXPENSES: Computer software expenses -- -- Insurance 10,049 3,413 Legal & professional services 3,137 3,818 Depreciation 2,000 2,501 Office supplies & postage 1,374 -- Rent 1,875 1,250 Telephone 933 1,173 Property taxes 250 250 Licenses & fees 500 500 Other 1,203 944 -------- ------- Total operating expenses 21,321 13,849 -------- ------- INCOME FROM OPERATIONS 14,190 9,481 OTHER INCOME (EXPENSES) Investment interest income 1,615 14,890 Capital gains and other income -- -- -------- ------- INCOME BEFORE INCOME TAXES 15,805 24,371 INCOME TAXES Current 4,275 7,500 Deferred -- -- -------- ------- NET INCOME 11,530 16,871 RETAINED EARNINGS, BEGINNING OF YEAR 151,018 69,934 -------- ------- RETAINED EARNINGS, END OF YEAR $162,548 $86,805 ======== ======= See accompanying notes and independent auditors' report.
- 107 - 110 FIRST LEXINGTON TRUST COMPANY STATEMENTS OF CASH FLOWS Three Months ended March 31, 1997 and 1996 (Unaudited)
1997 1996 -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 11,530 $16,871 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes (1,154) -- Depreciation 2,000 2,501 (Increase) decrease in assets: Accounts receivable (12,035) -- Accrued interest income receivable -- -- Prepaid expenses -- -- Increase (decrease) in liabilities: Accounts payable, trade (5,406) -- Accrued advisory fees (253) -- Accrued income taxes (6,735) -- Deferred income -- -- -------- ------- Net cash provided by (used in) operating activities (12,053) 19,372 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase for property & equipment -- -- Purchase of investments -- -- Proceeds from the sale of investments -- -- -------- ------- Net cash provided by (used in) investing activities -- -- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Long-term debt -- -- Purchase of treasury stock -- -- Proceeds from the sale of Company stock -- -- -------- ------- Net cash provided by (used in) financing activities -- -- -------- ------- NET INCREASE (DECREASE) IN CASH (12,053) 19,372 CASH AT BEGINNING OF YEAR 111,815 39,623 -------- ------- CASH AT END OF YEAR $ 99,762 $58,995 ======== ======= SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION Cash paid during period - interest -- -- - income taxes $ 6,735 -- ======== ======= See accompanying notes and independent auditors' report.
- 108 - 111 FIRST LEXINGTON TRUST COMPANY NOTE TO FINANCIAL STATEMENTS Three Months ended March 31, 1997 (Unaudited) NOTE A -- BASIS OF PRESENTATION The unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. - 109 - 112 PART III -------- ITEM 1. INDEX TO EXHIBITS ----------------- See Exhibit Index hereto. ITEM 2. DESCRIPTION OF EXHIBITS ----------------------- See Exhibit Index hereto. - 110 - 113 SIGNATURES ---------- In accordance with Section 12 of the Securities Exchange Act of 1934, the registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. UNIFIED HOLDINGS, INC. By /s/ Timothy L. Ashburn --------------------------------------------- Timothy L. Ashburn, Chairman of the Board and Chief Executive Officer - 111 - 114 EXHIBIT INDEX
Exhibit Number Description Page - ------- ----------- ---- 2.1 Agreement and Plan of Merger dated April 25, 1997 by and among the Company, HFI Acquisition Corporation, Health Financial, Inc. and Dr. Gregory W. Kasten. 2.2 Amended and Restated Agreement and Plan of Merger dated as of April 25, 1997 by and among the Company, FLTC Acquisition Corporation, First Lexington Trust Company and Dr. Gregory W. Kasten. 2.3 Agreement and Plan of Merger dated as of May 8, 1997 by and among the Company, VAI Acquisition Corporation, Vintage Advisers, Inc. and Timothy L. Ashburn. 3.1 Certificate of Incorporation, as amended and currently in effect. 3.2 By-laws. 10.1 Unified Holdings, Inc. Management and Employee Retention Plan. 10.2 Unified Holdings, Inc. Restricted Stock Option Plan. 21.1 List of Subsidiaries. 27.1 Financial Data Schedule.
- 112 - EX-2.1 2 AGREEMENT AND PLAN OF MERGER 1 ================================================================================ AGREEMENT AND PLAN OF MERGER between UNIFIED HOLDINGS, INC., a Delaware corporation and HFI ACQUISITION CORPORATION, a Kentucky corporation, as Buyers, and HEALTH FINANCIAL, INC., a Kentucky corporation, as Seller Dated April 25, 1997 ================================================================================ 2
TABLE OF CONTENTS Page ARTICLE I - --------- THE MERGER. . . . . . . . . . . . . . . . . . . . . . 1 1.01. The Merger. . . . . . . . . . . . . . . . . . . . . . 1 1.02. Closing . . . . . . . . . . . . . . . . . . . . . . . 1 1.03. Effective Time. . . . . . . . . . . . . . . . . . . . 1 1.04. Additional Actions. . . . . . . . . . . . . . . . . . 2 1.05. Articles of Incorporation and Bylaws. . . . . . . . . 2 1.06. Boards of Directors and Officers. . . . . . . . . . . 2 1.07. Conversion of Securities. . . . . . . . . . . . . . . 2 1.08. Exchange Procedures . . . . . . . . . . . . . . . . . 3 1.09. Dissenting Shares . . . . . . . . . . . . . . . . . . 3 1.10. Closing of Stock Transfer Books . . . . . . . . . . . 4 1.11. Anti-Dilution Adjustments . . . . . . . . . . . . . . 4 1.12. Material Adverse Effect . . . . . . . . . . . . . . . 4 ARTICLE II - ---------- REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER . 5 2.01. Organization and Authority. . . . . . . . . . . . . . 5 2.02. Subsidiaries. . . . . . . . . . . . . . . . . . . . . 5 2.03. Capitalization. . . . . . . . . . . . . . . . . . . . 5 2.04. Authorization . . . . . . . . . . . . . . . . . . . . 5 2.05. Seller Financial Statements.. . . . . . . . . . . . . 7 2.06. Seller Reports. . . . . . . . . . . . . . . . . . . . 7 2.07. Title to and Condition of Assets. . . . . . . . . . . 7 2.08. Real Property . . . . . . . . . . . . . . . . . . . . 8 2.09. Taxes . . . . . . . . . . . . . . . . . . . . . . . . 8 2.10. Material Adverse Effect . . . . . . . . . . . . . . . 9 2.11. Loans, Commitments and Contracts. . . . . . . . . . . 9 2.12. Absence of Defaults . . . . . . . . . . . . . . . . . 10 2.13. Litigation and Other Proceedings. . . . . . . . . . . 10 2.14. Directors' and Officers' Insurance. . . . . . . . . . 10 2.15. Compliance with Laws. . . . . . . . . . . . . . . . . 11 2.16. Labor . . . . . . . . . . . . . . . . . . . . . . . . 12 2.17. Material Interests of Certain Persons . . . . . . . . 12 2.18. Employee Benefit Plans. . . . . . . . . . . . . . . . 12 2.19. Conduct of Seller to Date . . . . . . . . . . . . . . 13 2.20. Absence of Undisclosed Liabilities. . . . . . . . . . 14 2.21. Proxy Statement, Etc. . . . . . . . . . . . . . . . . 14 2.22. Registration Obligations. . . . . . . . . . . . . . . 15 2.23. Tax and Regulatory Matters. . . . . . . . . . . . . . 15 2.24. Intellectual Property; Patents; Trademarks; Trade Names . . . . . . . . . . . . . . . . . . . . . 15 2.25. Bank Accounts . . . . . . . . . . . . . . . . . . . . 15 2.26. Transactions with Affiliates. . . . . . . . . . . . . 15 2.27. Brokers and Finders . . . . . . . . . . . . . . . . . 15 2.28. Accuracy of Information . . . . . . . . . . . . . . . 16 3 ARTICLE III - ----------- REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYERS . 16 3.01. Organization and Authority. . . . . . . . . . . . . . 16 3.02. Capitalization of Unified . . . . . . . . . . . . . . 16 3.03. Authorization . . . . . . . . . . . . . . . . . . . . 17 3.04. Unified Financial Statements. . . . . . . . . . . . . 17 3.05. Unified Reports . . . . . . . . . . . . . . . . . . . 18 3.06. Material Adverse Effect . . . . . . . . . . . . . . . 18 3.07. Legal Proceedings or Other Adverse Facts. . . . . . . 18 3.08. Proxy Statement, Etc. . . . . . . . . . . . . . . . . 18 3.09. Brokers and Finders . . . . . . . . . . . . . . . . . 18 3.10. Accuracy of Information . . . . . . . . . . . . . . . 18 ARTICLE IV - ---------- CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME . . 19 4.01. Conduct of Businesses Prior to the Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . 19 4.02. Forbearances of Seller. . . . . . . . . . . . . . . . 19 4.03. Forbearances of Buyers. . . . . . . . . . . . . . . . 20 ARTICLE V - --------- ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . 21 5.01. Access and Information. . . . . . . . . . . . . . . . 21 5.02. Registration Statement; Regulatory Matters. . . . . . 21 5.03. Shareholder Approval. . . . . . . . . . . . . . . . . 21 5.04. Current Information . . . . . . . . . . . . . . . . . 22 5.05. Environmental Reports . . . . . . . . . . . . . . . . 22 5.06. Agreements of Affiliates. . . . . . . . . . . . . . . 22 5.07. Expenses. . . . . . . . . . . . . . . . . . . . . . . 22 5.08. Miscellaneous Agreements. . . . . . . . . . . . . . . 22 5.09. Employee Agreements and Benefits. . . . . . . . . . . 23 5.10. Press Releases. . . . . . . . . . . . . . . . . . . . 23 5.11. State Takeover Statutes . . . . . . . . . . . . . . . 23 5.12. Directors' and Officers' Indemnification. . . . . . . 24 5.13. Tax Opinion Certificates. . . . . . . . . . . . . . . 24 ARTICLE VI - ---------- CONDITIONS. . . . . . . . . . . . . . . . . . . . . . 24 6.01. Conditions to Each Party's Obligation to Effect the Merger. . . . . . . . . . . . . . . . . . . . . . 24 6.02. Conditions to Obligations of Seller to Effect the Merger. . . . . . . . . . . . . . . . . . . . . . 25 6.03. Conditions to Obligations of Buyers to Effect the Merger. . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE VII - ----------- TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . 26 7.01. Termination . . . . . . . . . . . . . . . . . . . . . 26 7.02. Effect of Termination . . . . . . . . . . . . . . . . 27 7.03. Amendment . . . . . . . . . . . . . . . . . . . . . . 27 7.04. Waiver. . . . . . . . . . . . . . . . . . . . . . . . 27 - ii - 4 ARTICLE VIII - ------------ INDEMNIFICATION . . . . . . . . . . . . . . . . . . . 27 8.01. Indemnification of Buyers . . . . . . . . . . . . . . 27 8.02. Indemnification of Shareholder. . . . . . . . . . . . 29 8.03. Payment of Claims for Indemnification . . . . . . . . 29 8.03. Survival of Indemnification . . . . . . . . . . . . . 29 ARTICLE IX - ---------- GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . 30 9.01. Non-Survival of Representations, Warranties and Agreements. . . . . . . . . . . . . . . . . . . . . . 30 9.02. No Assignment; Successors and Assigns . . . . . . . . 30 9.03. No Implied Waiver . . . . . . . . . . . . . . . . . . 30 9.04. Headings. . . . . . . . . . . . . . . . . . . . . . . 30 9.05. Entire Agreement. . . . . . . . . . . . . . . . . . . 30 9.06. Counterparts. . . . . . . . . . . . . . . . . . . . . 31 9.07. Notices . . . . . . . . . . . . . . . . . . . . . . . 31 9.08. Severability. . . . . . . . . . . . . . . . . . . . . 31 9.09. Governing Law . . . . . . . . . . . . . . . . . . . . 32
LIST OF EXHIBITS Exhibit A Shareholder Tax Certificate Exhibit B Officer/Director Tax Certificate Exhibit C Form of Opinion of Counsel of Buyer Exhibit D Form of Opinion of Counsel of Seller Exhibit E Form of Employment Agreement LIST OF SCHEDULES Schedule 2.01 Articles/Bylaws/Lists of Shareholders Schedule 2.02 Equity Securities Schedule 2.04(b) Events of Default Schedule 2.05(a) Financial Statements Schedule 2.08(a) Owned Real Property/Leased Real Property Schedule 2.11(a) Contracts Schedule 2.11(b) Insurance Schedule 2.13 Litigation Schedule 2.18(a) Employee Benefit Plans Schedule 2.24 Intellectual Property; Patents; Trademarks; Trade Names Schedule 2.25 Bank Accounts Schedule 2.26 Transactions with Affiliates Schedule 5.06 Affiliates - iii - 5 AGREEMENT AND PLAN OF MERGER ---------------------------- This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered into on April 25, 1997, by and among UNIFIED HOLDINGS, INC., a Delaware corporation ("Unified"), HFI ACQUISITION CORPORATION, a Kentucky corporation and wholly owned subsidiary of Unified ("Merger Sub" and, collectively with Unified, the "Buyers"), and HEALTH FINANCIAL, INC., a Kentucky corporation ("Seller"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the respective Boards of Directors of Unified, Merger Sub and Seller have approved the merger (the "Merger") of Merger Sub with and into Seller pursuant to the terms and subject to the conditions of this Agreement; and WHEREAS, each of Unified and Seller believe that such proposed Merger, and the conversion of shares of Seller Common Stock (as defined in Section 1.07 hereof) into shares of Unified Common Stock (as defined in Section 1.07 hereof) in the manner provided in this Agreement is desirable and in the best interests of their respective stockholders and shareholders, as the case may be; and WHEREAS, Unified and Seller intend that the Merger constitute a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"), and that the conversion of Seller Common Stock into Unified Common Stock in connection with the Merger will not give rise to gain or loss to the shareholders of Seller with respect to such conversion; and WHEREAS, the parties desire to provide for certain undertakings, conditions, representations, warranties and covenants in connection with the transactions contemplated by this Agreement. NOW THEREFORE, in consideration of the premises and the representations, warranties and agreements herein contained, the parties agree as follows: ARTICLE I --------- THE MERGER 1.01. The Merger. Subject to the terms and ---------- conditions of this Agreement, Merger Sub shall be merged with and into Seller in accordance with Chapter 271B of the Kentucky Business Corporation Act (the "Kentucky Statute"), and the separate corporate existence of Merger Sub shall cease. Seller shall be the surviving corporation of the Merger (sometimes referred to herein as the "Surviving Corporation") and shall continue to be governed by the laws of the State of Kentucky. 1.02. Closing. The closing (the "Closing") of the ------- Merger shall take place at 10:00 a.m., local time, on the date that the Effective Time (as defined in Section 1.03) occurs (the "Closing Date"), or at such other time, and at such place, as Buyers and Seller shall agree. 1.03. Effective Time. The Merger shall become -------------- effective (the "Effective Time") upon the filing of articles of merger with the Office of the Secretary of State of the State of Kentucky. Unless otherwise mutually agreed in writing by Buyers and Seller, subject to the terms and conditions of this Agreement, the Effective Time shall occur on such date as Buyers shall notify Seller in writing (such notice to be at least five business days in advance of the Effective Time) but (i) not earlier than the satisfaction of all conditions set forth in Section 6.01(a) and 6.01(b) (the "Approval Date") and (ii) not 6 later than the first business day of the first full calendar month commencing at least five business days after the Approval Date. 1.04. Additional Actions. If, at any time after the ------------------ Effective Time, Unified or the Surviving Corporation shall consider or be advised that any further deeds, assignments or assurances or any other acts are necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in the Surviving Corporation, all right, title or interest in, to or under any of the rights, properties or assets of Seller or Merger Sub or (b) otherwise carry out the purposes of this Agreement, Seller and Merger Sub and each of their respective officers and directors, shall be deemed to have granted to the Surviving Corporation an irrevocable power of attorney to execute and deliver all such deeds, assignments or assurances and to do all acts necessary or desirable to vest, perfect or confirm title and possession to such rights, properties or assets in the Surviving Corporation and otherwise to carry out the purposes of this Agreement, and the officers and directors of the Surviving Corporation are authorized in the name of Seller or otherwise to take any and all such action. 1.05. Articles of Incorporation and Bylaws. The ------------------------------------ Articles of Incorporation and Bylaws of Seller in effect immediately prior to the Effective Time shall be the Articles of Incorporation and Bylaws of the Surviving Corporation following the Merger, until otherwise amended or repealed. 1.06. Boards of Directors and Officers. At the -------------------------------- Effective Time, the directors and officers of Seller immediately prior to the Effective Time shall be the directors and officers, respectively, of the Surviving Corporation following the Merger, and such directors and officers shall hold office in accordance with the Surviving Corporation's Bylaws and applicable law; provided, however, as of the Effective Time of the Merger, Surviving Corporation shall take any and all actions necessary to add Timothy L. Ashburn as a member of the Board of Directors of Surviving Corporation. 1.07. Conversion of Securities. At the Effective ------------------------ Time, by virtue of the Merger and without any action on the part of Buyers, Seller or the holder of any of the following securities: (a) Each share of the common stock, no par value, of Merger Sub that is issued and outstanding immediately prior to the Effective Time shall, without any action on the part of the holder thereof, be converted into one fully paid and nonassessable share of Common Stock of the Surviving Corporation, which shall upon such conversion be validly issued and outstanding, fully paid and nonassessable and shall not be liable to any further call, nor shall the holder thereof be liable for any further payments with respect thereto; and (b) Subject to Sections 1.09, 1.10 and 1.12 hereof, the shares of common stock, no par value, of Seller ("Seller Common Stock") issued and outstanding at the Effective Time shall cease to be outstanding and shall be converted into and become the right to receive 320,000 shares (the "Exchange Ratio") of common stock, no par value, of Unified ("Unified Common Stock"), in the aggregate (the "Merger Consideration"). Shares of Seller Common Stock held by Seller, or by Unified or any of its wholly owned "Subsidiaries" (as defined in Rule 1-02 of Regulation S-X promulgated by the Securities and Exchange Commission (the "SEC")), in each case other than in a fiduciary capacity or as a result of debts previously contracted, shall be cancelled and shall not be exchanged after the Effective Time for the Merger Consideration. In addition, no Dissenting Shares (as defined in Section 1.09 of this Agreement) shall be converted pursuant to this Section 1.07 but shall be treated in accordance with the procedures set forth in Section 1.09 of this Agreement. - 2 - 7 1.08. Exchange Procedures. ------------------- (a) Within two (2) days following the Closing Date, Unified shall mail or cause to be mailed to holders of record of certificates representing shares of Seller Common Stock (the "Certificates"), as identified on the Seller Shareholder List, as provided pursuant to Section 1.11 hereof, letters advising them of the effectiveness of the Merger and instructing them to tender such Certificates to Unified, or in lieu thereof, such evidence of lost, stolen or mutilated Certificates and such surety bond or other security as Unified may reasonably require (the "Required Documentation"). (b) Subject to Section 1.11, after the Effective Time, each previous holder of a Certificate that surrenders such Certificate or in lieu thereof, the Required Documentation, to Unified, with a properly completed and executed letter of transmittal with respect to such Certificate, will be entitled to a certificate or certificates representing the Merger Consideration. (c) Each outstanding Certificate, until duly surrendered to Unified, shall be deemed to evidence ownership of the Merger Consideration into which the stock previously represented by such Certificate shall have been converted pursuant to this Agreement. (d) After the Effective Time, holders of Certificates shall cease to have rights with respect to the stock previously represented by such Certificates, and their sole rights shall be to exchange such Certificates for the Merger Consideration issuable in the Merger. After the closing of the transfer books as described in Section 1.11 hereof, there shall be no further transfer on the records of Seller of Certificates, and if such Certificates are presented to Seller for transfer, they shall be cancelled against delivery of the Merger Consideration. Neither Buyer nor the Surviving Corporation shall be obligated to deliver the Merger Consideration to which any former holder of Seller Common Stock is entitled as a result of the Merger until such holder surrenders the Certificates or furnishes the Required Documentation as provided herein. No dividends or distributions declared after the Effective Time on the Unified Common Stock will be remitted to any person until such person surrenders the Certificate representing the right to receive such Unified Common Stock or furnishes the Required Documentation, at which time such dividends or declarations shall be remitted to such person, without interest and less any taxes that may have been imposed thereon. Certificates surrendered for exchange by an affiliate shall not be exchanged until Unified has received a written agreement from such affiliate as required pursuant to Section 5.06 hereof. Neither Unified nor any party to this Agreement nor any affiliate thereof shall be liable to any holder of stock represented by any Certificate for any Merger Consideration issuable in the Merger that is paid to a public official pursuant to applicable abandoned property, escheat or similar laws. 1.09. Dissenting Shares. ----------------- (a) "Dissenting Shares" means any shares held by any holder who becomes entitled to payment of the fair value of such shares under Chapter 271, Subtitle 13 of the Kentucky Statute. Any holders of Dissenting Shares shall be entitled to payment for such shares only to the extent permitted by and in accordance with the provisions of such law, - 3 - 8 and Unified shall cause the Surviving Corporation to pay such consideration with funds provided by Unified. (b) Each party hereto shall give the other prompt notice of any written demands for the payment of the fair value of any shares, withdrawals of such demands and any other instruments served pursuant to the Kentucky Statute received by such party, and Seller shall give Unified the opportunity to participate in all negotiations and proceedings with respect to such demands. Seller shall not voluntarily make payment with respect to any demands for payment of fair value and shall not, except with the prior written consent of Unified, which consent shall not be unreasonably withheld, settle or offer to settle any such demands. 1.10. Closing of Stock Transfer Books. ------------------------------- (a) The stock transfer books of Seller shall be closed at the end of business on the business day immediately preceding the Closing Date. In the event of a transfer of ownership of Seller Common Stock which is not registered in the transfer records prior to the closing of such record books, the Merger Consideration issuable with respect to such stock may be delivered to the transferee, if the Certificate or Certificates representing such stock is presented to Unified accompanied by all documents required to evidence and effect such transfer and all applicable stock transfer taxes are paid. (b) At the Effective Time, Seller shall provide Unified with a complete and verified list of registered holders of Seller Common Stock based upon its stock transfer books as of the closing of said transfer books, including the names, addresses, certificate numbers and taxpayer identification numbers of such holders (the "Seller Shareholder List"). Buyers shall be entitled to rely upon the Seller Shareholder List to establish the identity of those persons entitled to receive the Merger Consideration specified in this Agreement, which list shall be conclusive with respect thereto. In the event of a dispute with respect to ownership of stock represented by any Certificate, Buyers shall be entitled to deposit any Merger Consideration represented thereby in escrow with an independent third party and thereafter be relieved with respect to any claims thereto. 1.11. Anti-Dilution Adjustments. Other than for the ------------------------- two-for-one stock split with respect to the Unified Common Stock, which is to be effected prior to the Effective Time, if between the date of this Agreement and the Effective Time a share of Unified Common Stock shall be changed into a different number of shares of Unified Common Stock or a different class of shares by reason of reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or if a stock dividend thereon shall be declared with a record date within such period, then appropriate and proportionate adjustment or adjustments will be made to the Exchange Ratio such that each shareholder of Seller shall be entitled to receive such number of shares of Unified Common Stock or other securities as such shareholder would have received pursuant to such reclassification, recapitalization, split-up, combination, exchange of shares or readjustment or as a result of such stock dividend had the record date therefor been immediately following the Effective Time. 1.12. Material Adverse Effect. As used in this ----------------------- Agreement, the term "Material Adverse Effect" with respect to an entity means any condition, event, change or occurrence that has or may reasonably be expected to have a material adverse effect on the condition (financial or otherwise), properties, business or results of operations, of such entity and its Subsidiaries, taken as a whole as reflected in the Seller Financial Statements (as defined in Section 2.05(b)) or the Unified Financial - 4 - 9 Statements (as defined in Section 3.04), as the case may be; it being understood that a Material Adverse Effect shall not include: (i) a change with respect to, or effect on, such entity and its Subsidiaries resulting from a change in law, rule, regulation, generally accepted accounting principles or regulatory accounting principles; or (ii) a change disclosed in the Seller Financial Statements or the Unified Financial Statements, as the case may be. ARTICLE II ---------- REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER As an inducement to Buyers to enter into and perform their respective obligations under this Agreement, and notwith- standing any examination, inspection, audit or any other investiga- tion made by Buyers, Seller represents and warrants to and covenants with Buyers as follows: 2.01. Organization and Authority. Seller is a -------------------------- corporation duly organized, validly existing and in good standing under the laws of the State of Kentucky, is duly qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and has corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted. Seller is a registered investment advisor under the Investment Advisers Act of 1940, as amended. True and complete copies of the Articles of Incorporation and Bylaws of Seller are attached hereto as Schedule 2.01. Also ------------- attached hereto as Schedule 2.01 are true and complete lists of the ------------- shareholders of Seller, as of a date hereof. 2.02. Subsidiaries. Schedule 2.02 sets forth, a ------------ ------------- complete and correct list of all outstanding Equity Securities (as defined in Section 2.03) owned by Seller. Seller does not own, directly or indirectly, any Subsidiaries. Seller does not own beneficially, directly or indirectly, any shares of any class of Equity Securities or similar interests of any corporation, bank, business trust, association or organization, or any interest in a partnership or joint venture of any kind, other than those identified in Schedule 2.02 hereof. ------------- 2.03. Capitalization. The authorized capital stock -------------- of Seller consists of 2,000 shares of Seller Common Stock, of which, as of the date hereof, 1,200 shares were issued and outstanding, all of which are held beneficially and of record by Dr. Gregory W. Kasten, the sole shareholder of Health Financial (the "Shareholder"). There are no other Equity Securities of Seller outstanding. "Equity Securities" of an issuer means capital stock or other equity securities of such issuer, options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, shares of any capital stock or other equity securities of such issuer, or contracts, commitments, understand- ings or arrangements by which such issuer is or may become bound to issue additional shares of its capital stock or other equity securities of such issuer, or options, warrants, scrip or rights to purchase, acquire, subscribe to, calls on or commitments for any shares of its capital stock or other equity securities. All of the issued and outstanding shares of Seller Common Stock are validly issued, fully paid and nonassessable, and have not been issued in violation of any preemptive right of any shareholder of Seller. 2.04. Authorization. ------------- (a) Seller has the corporate power and authority to enter into this Agreement and, subject to the approval of this Agreement by the shareholders of Seller and Regulatory Authorities (as defined in Section 2.06), to carry out its obligations - 5 - 10 hereunder. The only shareholder vote required for Seller to approve this Agreement is the affirmative vote of (i) the holders of a majority of the outstanding shares of Seller Common Stock entitled to vote at a meeting called for such purpose and (ii) any shareholder and director (or trustee) approvals required by the Investment Company Act of 1940, as amended, and the rules and regulations thereunder (the "1940 Act") in connection with any advisory and sub-advisory agreements of Seller (collectively, the "Shareholder Approvals"). The execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby in accordance with and subject to the terms of this Agreement have been duly authorized by the Board of Directors of Seller. Subject to the approval of Seller's shareholders and subject to the receipt of such approvals of the Regulatory Authorities as may be required by statute or regulation, this Agreement is a valid and binding obligation of Seller enforceable against Seller in accordance with its terms. (b) Except as disclosed in Schedule 2.04(b), ---------------- neither the execution nor delivery nor performance by Seller of this Agreement, nor the consummation by Seller of the transactions contemplated hereby, nor compliance by Seller with any of the provisions hereof, will (i) violate, conflict with, or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any lien, claim, charge, option, encumbrance, agreement, mortgage, pledge, security interest or restriction (a "Lien") upon any of the properties or assets of Seller under any of the terms, conditions or provisions of (x) its Articles of Incorporation or Bylaws or (y) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Seller is a party or by which it may be bound, or to which Seller or any of the properties or assets of Seller may be subject, or (ii) subject to compliance with the statutes and regulations referred to in subsection (c) of this Section 2.04 violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Seller or any of its respective properties or assets; other than violations, conflicts, breaches, defaults, terminations, accelerations or Liens which would not have a Material Adverse Effect on Seller. (c) Other than in connection or in compliance with the provisions of the Kentucky Statute, the Securities Act of 1933, as amended, and the rules and regulations thereunder (the "Securities Act"), the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the "Exchange Act"), the securities or blue sky laws of the various states, the 1940 Act, or filings, consents, reviews, authorizations, approvals or exemptions required of any other governmental agencies or governing boards having regulatory authority over Seller, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any public body or authority is necessary for the consummation by Seller of the transactions contemplated by this Agreement. - 6 - 11 2.05. Seller Financial Statements. --------------------------- (a) Attached hereto as Schedule 2.05(a) are ---------------- copies of the following documents: (i) Seller's audited balance sheet, income statement, statement of changes in shareholders' equity and cash flow as of or for the year ended December 31, 1996; and (ii) Seller's unaudited balance sheet, income statement, statement of changes in shareholders' equity and cash flow as of or for the three months ended March 31, 1997; (b) The financial statements contained in the document referenced in Schedule 2.05(a) are referred to ---------------- collectively as the "Seller Financial Statements." The Seller Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP"), and present fairly the consolidated financial position of Seller at the dates thereof and the consolidated results of operations, changes in shareholders' equity and cash flows of Seller for the periods stated therein. (c) Seller has prepared, kept and maintained through the date hereof true, correct and complete financial and other books and records of its affairs which fairly reflect its financial conditions, results of operations, changes in shareholders' equity and cash flows. 2.06. Seller Reports. Since January 1, 1994, Seller -------------- has timely filed all material reports, registrations and statements, together with any required amendments thereto, that it was required to file with (i) the SEC, (ii) National Association of Securities Dealers, Inc. (the "NASD"), (iii) any federal, state, municipal or local government, securities, banking, insurance and other governmental or regulatory authority, and the agencies and staffs thereof (the entities in the foregoing clauses (i) through (iii) being referred to herein collectively as the "Regulatory Authorities" and individually as a "Regulatory Authority"), having jurisdiction over the affairs of it. All such material reports and statements filed with any such Regulatory Authority are collectively referred to herein as the "Seller Reports." As of each of their respective dates, the Seller Reports complied in all material respects with all the rules and regulations promulgated by the applicable Regulatory Authority. With respect to Seller Reports filed with the Regulatory Authorities, there is no material unresolved violation, criticism or exception by any Regulatory Authority with respect to any report or statement filed by, or any examinations of, Seller. 2.07. Title to and Condition of Assets. -------------------------------- (a) Except as may be reflected in the Seller Financial Statements and with the exception of all "Real Property" (which is the subject of Section 2.08 hereof) Seller has, and at the Closing Date will have, good and marketable title to its owned properties and assets, including, without limitation, those reflected in the Seller Financial Statements (except those disposed of in the ordinary course of business since the date thereof), free and clear of any Lien, except for Liens for (i) taxes, assessments or other governmental charges not yet delinquent and (ii) as set forth or described in the Seller Financial Statements or any subsequent Seller Financial Statements delivered to Buyers prior to the Effective Time. (b) No material properties or assets that are reflected as owned by Seller in the Seller Financial Statements as of December 31, 1996 have been sold, leased, transferred, assigned or otherwise disposed of since such date, except in the ordinary course of business. - 7 - 12 (c) All furniture, fixtures, vehicles, machinery and equipment and computer software owned or used by Seller, including any such items leased as a lessee (taken as a whole as to each of the foregoing with no single item deemed to be of material importance) are in good working order and free of known defects, subject only to normal wear and tear. The operation by Seller of such properties and assets is in compliance in all material respects with all applicable laws, ordinances and rules and regulations of any governmental authority having jurisdiction over such use. 2.08. Real Property. ------------- (a) The legal description of each parcel of real property owned by Seller is set forth in Schedule 2.08(a) ---------------- under the heading "Owned Real Property" (such real property being herein referred to as the "Owned Real Property"). The legal description of each parcel of real property leased by Seller is also set forth in Schedule 2.08(a) under the ---------------- heading "Leased Real Property" (such real property being herein referred to as the "Leased Real Property"). Collectively, the Owned Real Property and the Leased Real Property is herein referred to as the "Real Property." (b) There is no pending action involving Seller as to the title of or the right to use any of the Real Property. (c) Seller has no interest in any other real property. (d) None of the buildings, structures or other improvements located on the Real Property encroaches upon or over any adjoining parcel of real estate or any easement or right-of-way or "setback" line in any material respect and all such buildings, structures and improvements are in all material respects located and constructed in conformity with all applicable zoning ordinances and building codes. (e) None of the buildings, structures or improvements located on the Owned Real Property are the subject of any official complaint or notice by any governmental authority of violation of any applicable zoning ordinance or building code, and there is no zoning ordinance, building code, use or occupancy restriction or condemnation action or proceeding pending, or, to the best knowledge of Seller, threatened, with respect to any such building, structure or improvement. The Owned Real Property is in generally good condition for its intended purpose, ordinary wear and tear excepted, and has been maintained in accordance with reasonable and prudent business practices applicable to like facilities. (f) Except as may be reflected in the Seller Financial Statements or with respect to such easements, Liens, defects or encumbrances as do not individually or in the aggregate materially adversely affect the use or value of the parcel of Owned Real Property, Seller has, and at the Closing Date will have, good and marketable title to the Owned Real Properties. 2.09. Taxes. Seller has timely filed or will timely ----- file (including extensions) all material tax returns required to be filed at or prior to the Closing Date ("Seller Returns"). Seller has paid, or set up adequate reserves on the Seller Financial Statements for the payment of, all taxes required to be paid in respect of the periods covered by such Seller Returns and has set up adequate reserves on the most recent Seller Financial Statements for the payment of all taxes anticipated to be payable in respect of all - 8 - 13 periods up to and including the latest period covered by such Seller Financial Statements. Seller has no liability material to the Condition of Seller for any such taxes in excess of the amounts so paid or reserves so established, and no material deficiencies for any tax, assessment or governmental charge have been proposed, asserted or assessed (tentatively or definitely) against Seller which would not be covered by existing reserves. Seller is not delinquent in the payment of any tax, assessment or governmental charge, nor has it requested any extension of time within which to file any tax returns in respect of any fiscal year which have not since been filed and no requests for waivers of the time to assess any tax are pending. No federal or state income tax return of Seller has been audited by the Internal Revenue Service (the "IRS") or any state tax authority for the seven (7) most recent full calendar years. There is no deficiency or refund litigation or, to the best knowledge of Seller, matter in controversy with respect to Seller Returns. Seller has not extended or waived any statute of limitations on the assessment of any tax due that is currently in effect. 2.10. Material Adverse Effect. Since December 31, ----------------------- 1996, there has been no Material Adverse Effect on Seller. 2.11. Loans, Commitments and Contracts. -------------------------------- (a) Except as listed on Schedule 2.11(a), as ---------------- of the date hereof Seller is not a party to or is not bound by any: (i) agreement, contract, arrangement, understanding or commitment with any labor union; (ii) franchise or license agreement; (iii) written employment, severance, termination pay, agency, consulting or similar agreement or commitment in respect of personal services; (iv) material agreement, arrangement or commitment (A) not made in the ordinary course of business, and (B) pursuant to which Seller is or may become obligated to invest in or contribute to and agreements relating to joint ventures or partnerships set forth in Schedule -------- 2.02, true and complete copies of which have ---- been furnished to Buyers; (v) agreement, indenture or other instrument not disclosed in the Seller Financial Statements relating to the borrowing of money by Seller or the guarantee by Seller of any such obligation (other than trade payables or instruments related to transactions entered into in the ordinary course of business by Seller; (vi) contract containing covenants which limit the ability of Seller to compete in any line of business or with any person or which involves any restrictions on the geographical area in which, or method by which, Seller may carry on its business (other that as may be required by law or any applicable Regulatory Authority); (vii) contract or agreement which is a "material contract" within the meaning of Item 601(b)(10) of Regulation S-K as promulgated by the SEC to be - 9 - 14 performed after the date of this Agreement that has not been filed or incorporated by reference in the Seller Reports; (viii) lease with annual rental payments aggregating $10,000 or more; (ix) loans or other obligations payable or owing to any officer, director or employee except salaries, wages and directors' fees or other compensation incurred and accrued in the ordinary course of business; (x) other agreement, contract, arrangement, understanding or commitment involving an obligation by Seller of more than $25,000 and extending beyond six months from the date hereof that cannot be cancelled without cost or penalty upon notice of 30 days or less; or (xi) investment advisory agreements (within the meaning of the 1940 Act). (b) Seller carries property, liability, director and officer errors and omissions, products liability and other insurance coverage as set forth in Schedule 2.11(b) under the heading "Insurance." ---------------- (c) True, correct and complete copies of the agreements, contracts, leases, insurance policies and other documents referred to in Sections 2.11(a) and (b) ------------------------ have been included with Schedule 2.11(a) hereto. ---------------- (d) To the best knowledge of Seller, each of the agreements, contracts, leases, insurance policies and other documents referred to in Schedules 2.11 (a) and (b) -------------------------- is a valid, binding and enforceable obligation of the parties sought to be bound thereby, except as the enforceability thereof against the parties thereto (other than Seller) may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws now or hereafter in effect relating to the enforcement of creditors' rights generally, and except that equitable principles may limit the right to obtain specific performance or other equitable remedies. 2.12. Absence of Defaults. Seller is not in ------------------- violation of its charter documents or Bylaws or in default under any material agreement, commitment, arrangement, lease, insurance policy or other instrument, whether entered into in the ordinary course of business or otherwise and whether written or oral, and there has not occurred any event that, with the lapse of time or giving of notice or both, would constitute such a default, except, in all cases, where such violation or default would not have a Material Adverse Effect on Seller. 2.13. Litigation and Other Proceedings. Except as -------------------------------- set forth on Schedule 2.13 or otherwise disclosed in the Seller ------------- Financial Statements, Seller is not a party to any pending or, to the best knowledge of Seller, threatened claim, action, suit, investigation or proceeding, or is subject to any order, judgment or decree, except for matters which, in the aggregate, will not have, or reasonably could not be expected to have, a Material Adverse Effect on Seller. 2.14. Directors' and Officers' Insurance. Seller has ---------------------------------- taken or will take all requisite action (including, without limitation, the making of claims and the giving of notices) pursuant to its directors' and officers' liability insurance policy or policies in order to preserve all rights thereunder with respect - 10 - 15 to all matters (other than matters arising in connection with this Agreement and the transactions contemplated hereby) occurring prior to the Effective Time that are known to Seller, except for such matters which, individually or in the aggregate, will not have and reasonably could not be expected to have a Material Adverse Effect on Seller. 2.15. Compliance with Laws. -------------------- (a) To the best knowledge of Seller, Seller has all permits, licenses, authorizations, orders and approvals of, and have made all filings, applications and registrations with, all Regulatory Authorities that are required in order to permit it to own or lease its properties and assets and to carry on its business as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and no suspension or cancellation of any of them is threatened; and all such filings, applications and registrations are current; in each case except for permits, licenses, authorizations, orders, approvals, filings, applications and registrations the failure to have (or have made) would not have a Material Adverse Effect on Seller. (b) (i) Seller has complied with all laws, regulations and orders (including, without limitation, zoning ordinances, building codes, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and securities, tax, environmental, civil rights, and occupational health and safety laws and regulations including, without limitation, all statutes, rules, regulations and policy statements pertaining to the exercise of trust powers) and governing instruments applicable to it and to the conduct of its business, except where such failure to comply would not have a Material Adverse Effect on Seller, and (ii) Seller is not in default under, and no event has occurred which, with the lapse of time or notice or both, could result in the default under, the terms of any judgment, order, writ, decree, permit, or license of any Regulatory Authority or court, whether federal, state, municipal or local, and whether at law or in equity, except where such default would not have a Material Adverse Effect on Seller. (c) Seller is not subject to or reasonably likely to incur a liability as a result of its ownership, operation, or use of any Property (as defined below) of Seller (A) that is contaminated by or contains any hazardous waste, toxic substance or related materials, including, without limitation, asbestos, PCBs, pesticides, herbicides and any other substance or waste that is hazardous to human health or the environment (collectively, a "Toxic Substance"), or (B) on which any Toxic Substance has been stored, disposed of, placed or used in the construction thereof; and which, in each case, reasonably could be expected to have a Material Adverse Effect on Seller. "Property" shall include all property (real or personal, tangible or intangible) owned or controlled by Seller, including, without limitation, property in which any venture capital or similar unit of Seller has an interest and, to the best knowledge of Seller, property held by Seller in its capacity as a trustee. No claim, action, suit or proceeding is pending and no material claim has been asserted against Seller relating to Property of Seller before any court or other Regulatory Authority or arbitration tribunal relating to Toxic Substances, pollution or the environment, and there is no outstanding judgment, order, writ, injunction, decree or award against or affecting Seller with respect to the same. Except for statutory or regulatory restrictions of general application, no Regulatory Authority has placed any restriction on the business of Seller which reasonably could be expected to have a Material Adverse Effect on Seller. - 11 - 16 (d) Since December 31, 1994, Seller has not received any notification or communication which has not been resolved from any Regulatory Authority (i) asserting that any Seller is not in substantial compliance with any of the statutes, regulations or ordinances that such Regulatory Authority enforces, except with respect to matters which reasonably could not be expected to have a Material Adverse Effect on Seller (ii) threatening to revoke any license, franchise, permit or governmental authorization that is material to the Condition of Seller, (iii) requiring or threatening to require Seller, or indicating that Seller may be required, to enter into a cease and desist order, agreement or memorandum of understanding or any other agreement restricting or limiting or purporting to direct, restrict or limit in any manner the operations of Seller including, without limitation, any restriction on the payment of dividends. No such cease and desist order, agreement or memorandum of understanding or other agreement is currently in effect. 2.16. Labor. No work stoppage involving Seller is ----- pending or, to the best knowledge of Seller, threatened. Seller is not involved in, or, to the best knowledge of Seller, threatened with or affected by, any labor dispute, arbitration, lawsuit or administrative proceeding which reasonably could be expected to have a Material Adverse Effect on Seller. None of the employees of Seller are represented by any labor union or any collective bargaining organization. 2.17. Material Interests of Certain Persons. No ------------------------------------- officer or director of Seller, or any "associate" (as such term is defined in Rule 14a-1 under the Exchange Act) of any such officer or director, has any interest in any contract or property (real or personal, tangible or intangible), used in, or pertaining to the business of, Seller, which in the case of Seller would be required to be disclosed by Item 404 of Regulation S-K promulgated by the SEC. 2.18. Employee Benefit Plans. ---------------------- (a) Schedule 2.18(a) lists all pension, ---------------- retirement, supplemental retirement, stock option, stock purchase, stock ownership, savings, stock appreciation right, profit sharing, deferred compensation, consulting, bonus, medical, disability, workers' compensation, vacation, group insurance, severance and other employee benefit, incentive and welfare policies, contracts, plans and arrangements, and all trust agreements related thereto, maintained by or contributed to by Seller in respect of any of the present or former directors, officers, or other employees of and/or consultants to Seller (collectively, "Seller Employee Plans"). Seller has furnished Buyers with the following documents with respect to each Seller Employee Plan: (i) a true and complete copy of all written documents comprising such Seller Employee Plan (including amendments and individual agreements relating thereto) or, if there is no such written document, an accurate and complete description of the Seller Employee Plan; (ii) the most recently filed Form 5500 or Form 5500-C/R (including all schedules thereto), if applicable; (iii) the most recent financial statements and actuarial reports, if any; (iv) the summary plan description currently in effect and all material modifications thereof, if any; and (v) the most recent IRS determination letter, if any. (b) All Seller Employee Plans have been maintained and operated in all material respects in accordance with their terms and the requirements of all applicable statutes, orders, rules and final regulations, including, without limitation, to the extent applicable, ERISA and the Code. All contributions required to be made to Seller Employee Plans have been made or reserved. - 12 - 17 (c) With respect to each of the Seller Employee Plans which is a pension plan (as defined in Section 3(2) of ERISA) (the "Pension Plans"): (i) each Pension Plan which is intended to be "qualified" within the meaning of Section 401(a) of the Code has been determined to be so qualified by the IRS and such determination letter may still be relied upon, and each related trust is exempt from taxation under Section 501(a) of the Code; (ii) the present value of all benefits vested and all benefits accrued under each Pension Plan which is subject to Title IV of ERISA did not, in each case, as of the last applicable annual valuation date (as indicated on Schedule 2.18(a)), exceed ---------------- the value of the assets of the Pension Plan allocable to such vested or accrued benefits; (iii) there has been no "prohibited transaction," as such term is defined in Section 4975 of the Code or Section 406 of ERISA, which could subject any Pension Plan or associated trust, or Seller, to any tax or penalty; (iv) no Pension Plan or any trust created thereunder has been terminated, nor has there been any "reportable events" with respect to any Pension Plan, as that term is defined in Section 4043 of ERISA since January 1, 1989; and (v) no Pension Plan or any trust created thereunder has incurred any "accumulated funding deficiency", as such term is defined in Section 302 of ERISA (whether or not waived). No Pension Plan is a "multiemployer plan" as that term is defined in Section 3(37) of ERISA. (d) Seller has no liability for any post- retirement health, medical or similar benefit of any kind whatsoever, except as required by statute or regulation. (e) Seller has no material liability under ERISA or the Code as a result of its being a member of a group described in Sections 414(b), (c), (m) or (o) of the Code. (f) Neither the execution nor delivery of this Agreement, nor the consummation of any of the transactions contemplated hereby, will (i) result in any payment (including, without limitation, severance, unemployment compensation or golden parachute payment) becoming due to any director or employee of Seller from any of such entities, (ii) increase any benefit otherwise payable under any of the Seller Employee Plans or (iii) result in the acceleration of the time of payment of any such benefit. Seller shall use its best efforts to insure that no amounts paid or payable by Seller, or Buyers to or with respect to any employee or former employee of Seller will fail to be deductible for federal income tax purposes by reason of Section 280G of the Code. 2.19. Conduct of Seller to Date. From and after ------------------------- December 31, 1996 through the date of this Agreement, except as set forth in the Seller Financial Statements: (i) Seller has conducted its business in the ordinary and usual course consistent with past practices; (ii) Seller has not issued, sold, granted, conferred or awarded any of its Equity Securities, or any corporate debt securities which would be classified under GAAP as long-term debt on the balance sheets of Seller; (iii) Seller has not effected any stock split or adjusted, combined, reclassified or otherwise changed its capitalization; (iv) Seller has not declared, set aside or paid any dividend (other than its regular quarterly dividends) or other distribution in respect of its capital stock, or purchased, redeemed, retired, repurchased or exchanged, or otherwise acquired or disposed of, directly or indirectly, any of its Equity Securities, whether pursuant to the terms of such Equity Securities or otherwise; (v) Seller has not incurred any obligation or liability (absolute or contingent), except liabilities incurred in the ordinary course of business, or subjected to Lien any of its assets or properties other than in the ordinary course of business consistent with past practice; (vi) Seller has not discharged or satisfied any Lien or paid any obligation or liability (absolute or contingent), other than in the ordinary course of business; (vii) Seller has not sold, assigned, transferred, leased, exchanged, or otherwise disposed of any of its properties or assets other than for a fair consideration in the ordinary course of business; (viii) except as required by contract or law, Seller has - 13 - 18 not (A) increased the rate of compensation of, or paid any bonus to, any of its directors, officers, or other employees, except in accordance with existing policy, (B) entered into any new, or amended or supplemented any existing, employment, management, consulting, deferred compensation, severance, or other similar contract, (C) entered into, terminated, or substantially modified any of the Seller Employee Plans or (D) agreed to do any of the foregoing; (ix) Seller has not suffered any material damage, destruction, or loss, whether as the result of fire, explosion, earthquake, accident, casualty, labor trouble, requisition, or taking of property by any Regulatory Authority, flood, windstorm, embargo, riot, act of God or the enemy, or other casualty or event, and whether or not covered by insurance; (x) Seller has not cancelled or compromised any debt; and (xi) Seller has not entered into any material transaction, contract or commitment outside the ordinary course of its business. 2.20. Absence of Undisclosed Liabilities. ---------------------------------- (a) As of the date of this Agreement, Seller has no debts, liabilities or obligations equal to or exceeding $5,000, individually or $25,000 in the aggregate, whether accrued, absolute, contingent or otherwise and whether due or to become due, which are required to be reflected in the Seller Financial Statements or the notes thereto in accordance with GAAP except: (i) liabilities and obligations reflected on the Seller Financial Statements; (ii) operating leases reflected on Schedule 2.11; and ------------- (iii) debts, liabilities or obligations incurred since December 31, 1996 in the ordinary and usual course of their respective businesses, none of which are for breach of contract, breach of warranty, torts, infringements or lawsuits and none of which have a Material Adverse Effect on Seller. (b) Seller was not as of December 31, 1996, and since such date to the date hereof, has not become a party to, any contract or agreement, which had, has or may be reasonably expected to have a Material Adverse Effect on Seller. 2.21. Proxy Statement, Etc. None of the information --------------------- regarding Seller to be supplied by Seller for inclusion or included in (i) the Proxy Statement to be mailed to Seller's shareholders in connection with the meeting to be called to consider this Agreement and the Merger (the "Proxy Statement"), (ii) the Registration Statement (as defined in Section 5.02 hereof) or (iii) any other documents to be filed with any Regulatory Authority in connection with the transactions contemplated hereby will, at the respective times such documents are filed with any Regulatory Authority and, with respect to the Proxy Statement, when mailed, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the meeting of Seller's shareholders referred to in Section 5.03, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for such meeting. All documents which Seller is responsible for filing with any Regulatory Authority in connection with the Merger will comply as to form in all material respects with the provisions of applicable law. - 14 - 19 2.22. Registration Obligations. Seller is not under ------------------------ any obligation, contingent or otherwise, which will survive the Effective Time by reason of any agreement to register any transaction involving any of its securities under the Securities Act. 2.23. Tax and Regulatory Matters. Seller has not -------------------------- taken or agreed to take any action or has any knowledge of any fact or circumstance that would (i) prevent the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code or (ii) materially impede or delay receipt of any approval referred to in Section 6.01(b) or the consummation of the transactions contemplated by this Agreement. 2.24. Intellectual Property; Patents; Trademarks; ------------------------------------------- Trade Names. All patents, trademarks, service marks, trade names - ----------- or copyrights owned by or used or proposed to be used by Seller and all applications or registrations therefor ("Intellectual Property") and all contracts, agreements, commitments and understandings relating to the use or license of technology, know- how or processes by Seller (the "Intellectual Property Licenses") are listed in Schedule 2.24. Except as disclosed in Schedule 2.24: ------------- ------------- (a) Seller owns, or has the sole and exclusive right to use, all Intellectual Property, whether under Intellectual Property Licenses or otherwise, used in or necessary for the ordinary conduct of its business; (b) the consummation of the transactions contemplated by this Agreement will not alter or impair any such rights; and (c) no Intellectual Property owned, licensed or used by Seller, or Intellectual Property License of Seller is the subject of a lawsuit or any other proceeding, nor has any party challenged or, to the best of Seller's knowledge, threatened to challenge Seller's right to use such Intellectual Property or Intellectual Property License or application for any of the foregoing; and, to the best of Seller's knowledge, there is no basis for any such challenge. 2.25. Bank Accounts. Schedule 2.25 lists all bank, ------------- ------------- money market, savings and similar accounts and safe deposit boxes of Seller, specifying the account numbers and the authorized signatories or persons having access to them. 2.26. Transactions with Affiliates. Except as ---------------------------- disclosed in Schedule 2.26, no shareholder of Seller or any person ------------- controlled by some combination of any shareholder of Seller, no officer or director of Seller, or any "affiliate" or "associate" (as such terms are defined in the rules and regulations of the SEC under the Securities Act) of any of the foregoing: (a) has been a party to any lease, sublease, contract, agreement, commitment, understanding or other arrangement of any kind whatsoever, involving any such person and Seller that is not disclosed in Schedule 2.26; ------------- (b) owns directly or indirectly, in whole or in part, any property that Seller uses or otherwise has rights in respect of; or (c) has any cause of action or other claim whatsoever against, or owes any amount to, Seller other than (i) for compensation (including fringe benefits) to officers and employees of Seller and for the reimbursement of ordinary and necessary expenses incurred in connection with employment by Seller and (ii) as otherwise disclosed pursuant to this Agreement. 2.27. Brokers and Finders. Neither Seller nor any of ------------------- its officers, directors or employees has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder's fees, and no broker or finder has acted directly or indirectly for Seller in connection with this Agreement or the transactions contemplated hereby. - 15 - 20 2.28. Accuracy of Information. The statements ----------------------- contained in this Agreement, the Schedules and any other written document executed and delivered by or on behalf of Seller pursuant to the terms of this Agreement are true and correct as of the date hereof or as of the date delivered in all material respects, and such statements and documents do not omit any material fact necessary to make the statements contained therein not misleading. ARTICLE III ----------- REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYERS As an inducement to Seller to enter into and perform its obligations under this Agreement, and notwithstanding any examina- tion, inspection, audit or other investigation made by Seller, Buyers jointly and severally represent and warrant to and covenant with Seller as follows: 3.01. Organization and Authority. Buyer and Merger -------------------------- Sub are each corporations duly organized, validly existing and in good standing under the laws of the States of Delaware and Kentucky, respectively, are each qualified to do business and are each in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and has corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted, except where the failure to be so qualified would not have a Material Adverse Effect on Unified and its Subsidiaries, taken as a whole. 3.02. Capitalization of Unified. The authorized ------------------------- capital stock of Unified consists of (i) 300,000 shares of Unified Common Stock and (ii) 1,000,000 shares of preferred stock, $0.01 par value ("Unified Preferred Stock"). As of the date hereof, 17,069 shares of Unified Preferred Stock were issued and outstanding and, as of the Closing Date, excluding shares of Unified Common Stock to be issued in connection with any possible acquisition transaction by Unified, 300,000 shares of Unified Common Stock will be issued and outstanding. Unified has designated 10,000 shares of Unified Preferred Stock as "Series A 8% Cumulative Preferred Stock," of which 8,486 shares are issued and outstanding, and 10,000 shares of Unified Preferred Stock as "Series B 8% Cumulative Preferred Stock," of which 8,583 shares were issued and outstanding. As of the date hereof, Unified had no shares of Unified Common Stock reserved for issuance under various Unified employee and/or director stock option, incentive and/or benefit plans ("Unified Employee/Director Stock Grants"). Seller hereby acknowledges that Unified anticipates filing with the Secretary of State of the State of Delaware, prior to the Effective Time, documents to effect (i) a change of the par value of the Unified Common Stock to $0.01, (ii) an increase in the number of shares of Unified Common Stock authorized to 25,000,000 and (iii) a possible reduction in the number of shares of Unified Preferred Stock authorized to a number equal to or greater than the number currently outstanding. In addition, Seller hereby acknowledges that Unified may effect a two-for-one stock split prior to the Effective Time, which split would increase the number of shares of Unified Common Stock then issued and outstanding to 600,000. Unified continually evaluates possible acquisitions and may prior to the Effective Time enter into one or more agreements providing for, and may consummate, the acquisition by it of another company (or the assets thereof) for consideration that may include Equity Securities. In addition, prior to the Effective Time, Unified may, depending on market conditions and other factors, otherwise determine to issue equity, equity-linked or other securities for financing purposes or repurchase its outstanding Equity Securities. Notwithstanding the foregoing, neither Unified nor any Unified Subsidiary has taken or agreed to take any action or has any knowledge of any fact or circumstance and neither Unified nor Merger Sub will take any action that would (i) prevent the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code or (ii) materially - 16 - 21 impede or delay receipt of any approval referred to in Section 6.01(b) or the consummation of the transactions contemplated by this Agreement. Except as set forth above, there are no other Equity Securities of Unified outstanding. All of the issued and outstanding shares of Unified Common Stock are validly issued, fully paid, and nonassessable, and have not been issued in violation of any preemptive right of any shareholder of Unified. At the Effective Time, the Unified Common Stock to be issued in the Merger will be duly authorized, validly issued, fully paid and nonassessable, will not be issued in violation of any preemptive right of any shareholder of Unified. 3.03. Authorization. ------------- (a) Unified and Merger Sub each have the corporate power and authority to enter into this Agreement and to carry out their respective obligations hereunder. The execution, delivery and performance of this Agreement by Unified and Merger Sub and the consummation by Unified and Merger Sub of the transactions contemplated hereby have been duly authorized by all requisite corporate action of Unified and Merger Sub. Subject to the receipt of such approvals of the Regulatory Authorities as may be required by statute or regulation, this Agreement is a valid and binding obligation of Unified and Merger Sub enforceable against each in accordance with its terms. (b) Neither the execution, delivery and performance by Unified and Merger Sub of this Agreement, nor the consummation by Unified and Merger Sub of the transactions contemplated hereby, nor compliance by Unified and Merger Sub with any of the provisions hereof, will (i) violate, conflict with or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any Lien upon any of the properties or assets of Unified or Merger Sub under any of the terms, conditions or provisions of (x) their respective Articles of Incorporation or Bylaws, or (y) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Unified or Merger Sub is a party or by which they may be bound, or to which Unified or Merger Sub or any of their respective properties or assets may be subject, or (ii) subject to compliance with the statutes and regulations referred to in subsection (c) of this Section 3.03, violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Unified or Merger Sub or any of their respective properties or assets; other than violations, conflicts, breaches, defaults, terminations, accelerations or Liens which would not have a Material Adverse Effect on Unified and its Subsidiaries, taken as a whole. (c) Other than in connection with or in compliance with the provisions of the Kentucky Statute, the Securities Act, the Exchange Act, the 1940 Act, the securities or blue sky laws of the various states or any required approvals of any other Regulatory Authority, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any public body or authority is necessary for the consummation by Unified and Merger Sub of the transactions contemplated by this Agreement. 3.04. Unified Financial Statements. The consolidated ---------------------------- balance sheet of Unified and its Subsidiaries as of December 31, 1996 and 1995 and related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996, together with the notes thereto, audited by Larry E. Nunn Associates, L.L.C. (collectively, the - 17 - 22 "Unified Financial Statements"), have been prepared in accordance with GAAP, present fairly the consolidated financial position of Unified and its Subsidiaries at the dates thereof and the consolidated results of operations, changes in shareholders' equity and cash flows of Unified and its Subsidiaries for the periods stated therein and are derived from the books and records of Unified and its Subsidiaries, which are complete and accurate in all material respects and have been maintained in accordance with good business practices. Neither Unified nor any of its Subsidiaries has any material contingent liabilities that are not described in the Unified Financial Statements. 3.05. Unified Reports. Since January 1, 1994, each --------------- of Unified and its Subsidiaries has filed all reports, registra- tions and statements, together with any required amendments thereto, that it was required to file with any Regulatory Authority. All such reports and statements filed with any such Regulatory Authority are collectively referred to herein as the "Unified Reports." As of its respective date, each Unified Report complied in all material respects with all the rules and regulations promulgated by the applicable Regulatory Authority and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.06. Material Adverse Effect. Since December 31, ----------------------- 1996, there has been no Material Adverse Effect on Unified and its Subsidiaries, taken as a whole. 3.07. Legal Proceedings or Other Adverse Facts. ---------------------------------------- Except as otherwise disclosed in the Unified Financial Statements, neither Unified nor any of its Subsidiaries is a party to any pending or, to the best knowledge of Unified, threatened claim, action, suit, investigation or proceeding, or is subject to any order, judgment or decree, except for matters which, in the aggregate, will not have, or reasonably could not be expected to have, a Material Adverse Effect on Unified and its Subsidiaries, taken as a whole. 3.08. Proxy Statement, Etc. None of the information -------------------- regarding Unified or any of its Subsidiaries to be supplied by Buyers for inclusion or included in (i) the Proxy Statement or (ii) any other documents to be filed with any Regulatory Authority in connection with the transactions contemplated hereby will, at the respective times such documents are filed with any Regulatory Authority and, with respect to the Proxy Statement, when mailed, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the meeting of shareholders referred to in Section 5.03, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for such meeting. All documents which Unified or Merger Sub are responsible for filing with any Regulatory Authority in connection with the Merger will comply as to form in all material respects with the provisions of applicable law. 3.09. Brokers and Finders. Neither Unified, Merger ------------------- Sub nor any of their respective officers, directors or employees has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder's fees, and no broker or finder has acted directly or indirectly for Unified or Merger Sub in connection with this Agreement or the transactions contemplated hereby. 3.10. Accuracy of Information. The statements ----------------------- contained in this Agreement, the Schedules and in any other written document executed and delivered by or on behalf of Buyers pursuant to the terms of this Agreement are true and correct in all material respects, and such statements and - 18 - 23 documents do not omit any material fact necessary to make the statements contained herein or therein not misleading. ARTICLE IV ---------- CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME 4.01. Conduct of Businesses Prior to the Effective -------------------------------------------- Time. During the period from the date of this Agreement to the - ---- Effective Time, Seller shall, conduct its business according to the ordinary and usual course consistent with past practices and shall use its best efforts to maintain and preserve its business organization, employees and advantageous business relationships and retain the services of its officers and key employees. 4.02. Forbearances of Seller. Except to the extent ---------------------- required by law, regulation or Regulatory Authority, or with the prior written consent of Buyers (unless otherwise specifically noted in this Section 4.02), during the period from the date of this Agreement to the Effective Time, Seller shall not: (a) declare, set aside or pay any dividends or other distributions, directly or indirectly, in respect of its capital stock, other than cash dividends paid to the Shareholder prior to the Effective Time; (b) enter into or amend any employment, severance or similar agreement or arrangement with any director, officer or employee, or materially modify any of the Seller Employee Plans or grant any salary or wage increase or materially increase any employee benefit (including incentive or bonus payments), except (i) normal individual increases in compensation to employees consistent with past practice, (ii) as required by law or contract and (iii) such increases of which Seller notifies Buyers in writing and which Buyers do not disapprove within 10 days of the receipt of such notice; (c) authorize, recommend, propose or announce an intention to authorize, recommend or propose, or enter into an agreement in principle with respect to, any merger, consolidation or business combination (other than the Merger), any acquisition of a material amount of assets or securities, any disposition of a material amount of assets or securities or any release or relinquishment of any material contract rights; (d) propose or adopt any amendments to its Articles of Incorporation or other charter document or Bylaws; (e) issue, sell, grant, confer or award any of its Equity Securities or effect any stock split or adjust, combine, reclassify or otherwise change its capitalization as it existed on the date of this Agreement; (f) purchase, redeem, retire, repurchase or exchange, or otherwise acquire or dispose of, directly or indirectly, any of its Equity Securities, whether pursuant to the terms of such Equity Securities or otherwise; (g) directly or indirectly (including through its officers, directors, employees or other representatives) (i) initiate, solicit or encourage any discussions, inquiries or - 19 - 24 proposals with any third party (other than Buyers) relating to the disposition of any significant portion of the business or assets of Seller or the acquisition of Equity Securities of Seller or the merger of Seller with any person (other than Buyers) or any similar transaction (each such transaction being referred to herein as an "Acquisition Transaction"), or (ii) provide any such person with information or assistance or negotiate with any such person with respect to an Acquisition Transaction, and Seller shall promptly notify Buyers orally of all the relevant details relating to all inquiries, indications of interest and proposals which it may receive with respect to any Acquisition Transaction; (h) take any action that would (A) materially impede or delay the consummation of the transactions contemplated by this Agreement or the ability of Buyers or Seller to obtain any approval of any Regulatory Authority required for the transactions contemplated by this Agreement or to perform its covenants and agreements under this Agreement or (B) prevent or impede the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code; (i) other than in the ordinary course of business consistent with past practice, incur any indebtedness for borrowed money or assume, guarantee, endorse or otherwise as an accommodation become responsible or liable for the obligations of any other individual, corporation or other entity; (j) agree in writing or otherwise to take any of the foregoing actions or engage in any activity, enter into any transaction or intentionally take or omit to take any other act which would make any of the representations and warranties in Article II of this Agreement untrue or incorrect in any material respect if made anew after engaging in such activity, entering into such transaction, or taking or omitting such other act. 4.03. Forbearances of Buyers. During the period from ---------------------- the date of this Agreement to the Effective Time, Buyers shall not, and shall not permit any of their respective Subsidiaries to, without the prior written consent of Seller, agree in writing or otherwise engage in any activity, enter into any transaction or take or omit to take any other action: (a) that would (i) materially impede or delay the consummation of the transactions contemplated by this Agreement or the ability of Buyers or Seller to obtain any approval of any Regulatory Authority required for the transactions contemplated by this Agreement or to perform its covenants and agreements under this Agreement or (ii) prevent or impede the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code; or (b) which would make any of the representa- tions and warranties of Article III of this Agreement untrue or incorrect in any material respect if made anew after engaging in such activity, entering into such transaction, or taking or omitting such other action. - 20 - 25 ARTICLE V --------- ADDITIONAL AGREEMENTS 5.01. Access and Information. Buyers and Seller ---------------------- shall each afford to the other, and to the other's accountants, counsel and other representatives, full access during normal business hours, during the period prior to the Effective Time, to all their respective properties, books, contracts, commitments and records and, during such period, each shall furnish promptly to the other (i) a copy of each report, schedule and other document filed or received by it during such period pursuant to the requirements of federal and state securities laws and (ii) all other information concerning its business, properties and personnel as the other may reasonably request. Each party shall, and shall cause its advisors and representatives to, (A) hold confidential all information obtained in connection with any transaction contemplated hereby with respect to the other party and its Subsidiaries which is not otherwise public knowledge, (B) in the event of a termination of this Agreement, return all documents (including copies thereof) obtained hereunder from the other party or any of its Subsidiaries to it and (C) use their respective best efforts to cause all of such party's confidential information obtained pursuant to this Agreement or in connection with the negotiation of this Agreement to be treated as confidential and not use, or knowingly permit others to use, any such information unless such information becomes generally available to the public. 5.02. Registration Statement; Regulatory Matters. ------------------------------------------ (a) On or before May 31, 1997, Unified shall prepare and file with the SEC a Registration Statement on Form 10 or Form 10-SB, as the case may be, with respect to the shares of Unified Common Stock (the "Registration Statement"), and shall use its best efforts to cause the Registration Statement to become effective by no later than August 31, 1997. Unified shall prepare and, subject to the review and consent of Seller with respect to matters relating to Seller, use its best efforts to file as soon as is reasonably practicable an application for approval of the Merger with each such Regulatory Authority as may require an application. Unified shall also take any action required to be taken under any applicable state blue sky or securities laws in connection with the issuance of such shares, and Seller shall furnish Unified all information concerning Seller and the shareholders thereof as Unified may reasonably request in connection with any such action. Upon the effectiveness of the Registration Statement, Unified shall use its best efforts, to the extent practicable, to have the Unified Common Stock traded over-the-counter with quotes published by the National Quotation Bureau, Inc. Daily Quotation System. (b) Seller and Buyers shall cooperate and use their respective best efforts to prepare all documentation, to effect all filings and to obtain all permits, consents, approvals and authorizations of all third parties and Regulatory Authorities necessary to consummate the transactions contemplated by this Agreement, provided that such actions do not: (i) materially impede or delay the receipt of any approval referred to in Section 6.01(b); (ii) prevent or impede the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code; or (iii) the consummation of the transactions contemplated by this Agreement. 5.03. Shareholder Approval. Seller shall call a -------------------- meeting of its shareholders to be held as soon as practicable after the date hereof for the purpose of voting upon this Agreement and the Merger. In connection with such meeting, Seller shall prepare, subject to the review and consent of - 21 - 26 Unified, the Proxy Statement and mail the same to the shareholders of Seller. The Board of Directors of Seller shall submit for approval of Seller's shareholders the matters to be voted upon at such meeting. The Board of Directors of Seller hereby does and shall recommend this Agreement and the transactions contemplated hereby to shareholders of Seller and use its reasonable best efforts to obtain any vote of Seller's shareholders necessary for the approval of this Agreement. Seller and Shareholder shall use their best efforts to obtain all other Shareholder Approvals. 5.04. Current Information. During the period from ------------------- the date of this Agreement to the Effective Time, each party shall promptly furnish the other with copies of all interim financial statements as the same become available and shall cause one or more of its designated representatives to confer on a regular and frequent basis with representatives of the other party. Each party shall promptly notify the other party of the following events immediately upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken by the affected party with respect thereto: (a) an event which would cause any representation or warranty of such party or any Schedule, statement, report, notice, certificate or other writing furnished by such party to be untrue or misleading in any material respect; (b) any Material Adverse Effect to it; (c) the issuance or commencement of any governmental complaint, investigation or hearing (or any communication indicating that the same may be contemplated); or (d) the institution or threat of material litigation involving such party, and shall keep the other party fully informed of such events. 5.05. Environmental Reports. Seller shall provide to --------------------- Buyers, as soon as reasonably practical, but not later than forty- five (45) days after the date hereof, a phase one environmental investigation report (prepared by a firm reasonably acceptable to Buyers) on all real property owned, leased or operated by Seller as of the date hereof and within ten (10) days after the acquisition or lease of any real property acquired or leased by Seller after the date hereof. If required by the phase one investigation, in Buyers' reasonable opinion, Seller shall provide to Buyers a phase two investigation report (prepared by a firm reasonably acceptable to Buyers) on properties requiring such additional study. Buyers shall have fifteen (15) business days from the receipt of any such phase two investigation report to notify Seller of any dissatisfaction with the contents of such report. Should the cost of taking all remedial or other corrective actions and measures (i) required by applicable law, or (ii) recommended or suggested by such report or reports or prudent in light of serious life, health or safety concerns, in the aggregate, exceed the sum of Ten Thousand Dollars ($10,000), as reasonably estimated by such environmental consulting firm, or if the cost of such actions and measures cannot be so reasonably estimated by such firm to be such amount or less with any reasonable degree of certainty, Buyers shall have the right pursuant to Section 7.01(f) hereof, for a period of fifteen (15) business days following receipt of such estimate or indication that the cost of such actions and measures can not be so reasonably estimated, to terminate this Agreement. 5.06. Agreements of Affiliates. Set forth as ------------------------ Schedule 5.06 is a list (which includes individual and beneficial - ------------- ownership) of all persons whom Seller believes to be "affiliates" of Seller, as such term if defined for purposes of the Securities Act. Prior to the Effective Time, and via letter, Seller shall amend and supplement Schedule 5.06. ------------- 5.07. Expenses. Each party hereto shall bear its own -------- expenses incident to preparing, entering into and carrying out this Agreement and to consummating the Merger. 5.08. Miscellaneous Agreements. ------------------------ (a) Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its respective best efforts to take, or cause to be taken, all action, - 22 - 27 and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as expeditiously as possible, including, without limitation, using its respective best efforts to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby. Each party shall use its best efforts to obtain consents of all third parties and Regulatory Authorities necessary or, in the opinion of Buyers, desirable for the consummation of the transactions contemplated by this Agreement. (b) Seller, prior to the Effective Time, shall (i) consult and cooperate with Buyers regarding the implementation of those policies and procedures established by Buyers for its governance including, without limitation, policies and procedures pertaining to the accounting, audit, human resources, treasury and legal functions, and (ii) at the reasonable request of Buyers, conform Seller's existing policies and procedures in respect of such matters to Buyers' policies and procedures or, in the absence of any existing Seller policy or procedure regarding any such function, introduce Buyers' policies or procedures in respect thereof, unless to do so would cause Seller to be in violation of any law, rule or regulation of any Regulatory Authority having jurisdiction over Seller. 5.09. Employee Agreements and Benefits. -------------------------------- (a) Following the Effective Time, Buyers shall cause the Surviving Corporation to honor in accordance with their terms all employment, severance and other compensation contracts set forth on Schedule 2.11(b) ---------------- between Seller and any current or former director, officer, employee or agent thereof, and all provisions for vested benefits or other vested amounts earned or accrued through the Effective Time under the Seller Employee Plans. (b) The provisions of the Seller Stock Plans and any other plan, program or arrangement providing for the issuance or grant of any other interest in respect of the Equity Securities of Seller shall be deleted and terminated as of the Effective Time, and Seller shall ensure that following the Effective Time no participant in any Seller Stock Plan shall have any right thereunder to acquire any securities of Seller. (c) Except as set forth in Section 5.09(b) hereof, the Seller Employee Plans shall not be terminated by reason of the Merger but shall continue thereafter as plans of the Surviving Corporation until such time as the employees of Seller are integrated into Unified's employee benefit plans that are available to other employees of Unified and its Subsidiaries, subject to the terms and conditions specified in such plans and to such changes therein as may be necessary to reflect the consummation of the Merger. 5.10. Press Releases. Except as may be required by -------------- law, Seller and Unified shall consult and agree with each other as to the form and substance of any proposed press release relating to this Agreement or any of the transactions contemplated hereby. 5.11. State Takeover Statutes. Seller will take all ----------------------- steps necessary to exempt the transactions contemplated by this Agreement and any agreement contemplated hereby from, and if necessary challenge the validity of, any applicable state takeover law. - 23 - 28 5.12. Directors' and Officers' Indemnification. ---------------------------------------- Unified agrees that the Merger shall not affect or diminish any of the duties and obligations of indemnification of Seller existing as of the Effective Time in favor of employees, agents, directors or officers of Seller arising by virtue of its Articles of Incorporation, Charter or Bylaws in the form in effect at the date of this Agreement or arising by operation of law or arising by virtue of any contract, resolution or other agreement or document existing at the date of this Agreement, and such duties and obligations shall continue in full force and effect for so long as they would (but for the Merger) otherwise survive and continue in full force and effect. To the extent that Seller's existing directors' and officers' liability insurance policy would provide coverage for any action or omission occurring prior to the Effective Time, Seller agrees to give proper notice to the insurance carrier and to Unified of a potential claim thereunder so as to preserve Seller's rights to such insurance coverage. 5.13. Tax Opinion Certificates. Seller shall use its ------------------------ reasonable best efforts to cause such of its executive officers, directors and/or holders of one percent (1%) or more of the Seller Common Stock (including shares beneficially held) as may be requested by Thompson Coburn to timely execute and deliver to Thompson Coburn certificates substantially in the form of Exhibit A or Exhibit B hereto, as the case may be. --------- --------- 5.14 Election to Close Books for Taxes. Unified and --------------------------------- the Shareholder shall jointly elect to have the provisions of Code Section 1362(e)(3) apply to the termination of Seller's subchapter S election caused by the Merger. ARTICLE VI ---------- CONDITIONS 6.01. Conditions to Each Party's Obligation to Effect ----------------------------------------------- the Merger. The respective obligations of each party to effect the - ---------- Merger shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following conditions: (a) This Agreement shall have received the requisite Shareholder Approvals of Seller at the meeting of shareholders called pursuant to Section 5.03 of this Agreement and those required by the 1940 Act. (b) All requisite approvals of this Agreement and the transactions contemplated hereby shall have been received from the Regulatory Authorities, and all waiting periods after such approvals required by law or regulation have been satisfied. (c) Neither Seller nor Buyers shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the Merger. (d) Each of Buyers and Seller shall have received from Thompson Coburn an opinion (which opinion shall not have been withdrawn at or prior to the Effective Time) reasonably satisfactory in form and substance to it to the effect that the Merger will constitute a reorganization within the meaning of Section 368 of the Code and to the effect that, as a result of the Merger, assuming that such Seller Common Stock is a capital asset in the hands of the holder thereof at the Effective Time, (i) holders of Seller Common Stock who receive Unified Common Stock in the Merger will not recognize gain or loss for federal income tax purposes on the receipt of such stock, (ii) the basis - 24 - 29 of such Unified Common Stock will equal the basis of the Seller Common Stock for which it is exchanged and (iii) the holding period of such Unified Common Stock will include the holding period of the Seller Common Stock for which it is exchanged. 6.02. Conditions to Obligations of Seller to Effect --------------------------------------------- the Merger. The obligations of Seller to effect the Merger shall - ---------- be subject to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (a) Representations and Warranties. The ------------------------------ representations and warranties of Buyers set forth in Article III of this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time (as though made on and as of the Effective Time, except (i) to the extent such representations and warranties are by their express provisions made as of a specified date, (ii) where the facts which caused the failure of any representation or warranty to be so true and correct have not resulted, and are not likely to result, in a Material Adverse Effect on Unified and its Subsidiaries, taken as a whole, and (iii) for the effect of transactions contemplated by this Agreement, and Seller shall have received a certificate of the Chairman and Chief Executive Officer of Unified, signing solely in his capacity as an officer of Unified, to such effect. (b) Performance of Obligations. Buyers shall -------------------------- have performed in all material respects all obligations required to be performed by it under this Agreement prior to the Effective Time, and Seller shall have received a certificate of the Chairman and Chief Executive Officer of Unified, signing solely in his capacity as an officer of Unified, to that effect. (c) Permits, Authorizations, etc. Buyers ----------------------------- shall have obtained any and all material permits, authorizations, consents, waivers and approvals required for the lawful consummation of the Merger. (d) No Material Adverse Effect. Since the -------------------------- date of this Agreement, there shall have been no Material Adverse Effect on Unified and its Subsidiaries, taken as a whole. (e) Opinion of Counsel. Unified shall have ------------------ delivered to Seller an opinion of Unified's counsel dated as of the Closing Date or a mutually agreeable earlier date in substantially the form set forth as Exhibit C to this Agreement. --------- (f) Registration Statement. The Registration ---------------------- Statement shall have been declared effective and shall not be subject to a stop order or any threatened stop order. 6.03. Conditions to Obligations of Buyers to Effect --------------------------------------------- the Merger. The obligations of Buyers to effect the Merger shall - ---------- be subject to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (a) Representations and Warranties. The ------------------------------ representations and warranties of Seller set forth in Article II of this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time (as though made on and as of the Effective Time, except (i) to the extent such representations and warranties are by their express provisions made as of a specific date, (ii) where the facts - 25 - 30 which caused the failure of any representation or warranty to be so true and correct have not resulted, and are not likely to result, in a Material Adverse Effect on Seller, and (iii) for the effect of transactions contemplated by this Agreement) and Buyers shall have received a certificate of the President of Seller, signing solely in his capacity as an officer of Seller, to such effect. (b) Performance of Obligations. Seller shall -------------------------- have performed in all material respects all obligations required to be performed by it under this Agreement prior to the Effective Time, and Buyers shall have received a certificate of the President of Seller signing solely in his capacity as an officer of Seller, to that effect. (c) Permits, Authorizations, etc. Seller ----------------------------- shall have obtained any and all material permits, authorizations, consents, waivers and approvals required for the lawful consummation by it of the Merger. (d) No Material Adverse Effect. Since the -------------------------- date of this Agreement, there shall have been no Material Adverse Effect on Seller. (e) Opinion of Counsel. Seller shall have ------------------ delivered to Buyers an opinion of Seller's counsel dated as of the Closing Date or a mutually agreeable earlier date in substantially the form set forth as Exhibit D to this Agreement. --------- (f) Employment Agreement. Dr. Gregory W. -------------------- Kasten shall have executed an employment agreement with Seller for a two-year term commencing at the Effective Time in the form attached hereto as Exhibit E. --------- (g) Opinion of Accountant. Unified shall have --------------------- received an opinion letter, dated as of the Closing Date, from its independent public accountants, to the effect that the Merger will qualify for pooling-of-interests accounting treatment under Accounting Principles Board Opinion No. 16 if closed and consummated in accordance with this Agreement. ARTICLE VII ----------- TERMINATION, AMENDMENT AND WAIVER 7.01. Termination. This Agreement may be terminated ----------- at any time prior to the Effective Time, whether before or after approval by Seller's shareholders: (a) by mutual consent by the Boards of Directors of Unified and Seller; (b) by the Board of Directors of Unified or the Board of Directors of Seller at any time after October 31, 1997 if the Merger shall not theretofore have been consummated (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein); (c) by the Board of Directors of Unified or the Board of Directors of Seller if any Regulatory Authority whose approval is required for the consummation of the transactions contemplated hereby has denied approval of the Merger and such denial has - 26 - 31 become final and nonappealable or (ii) the shareholders of Seller shall not have approved this Agreement at the meeting referred to in Section 5.03; (d) by the Board of Directors of Unified, on the one hand, or by the Board of Directors of Seller, on the other hand, in the event of a material volitional breach by the other party to this Agreement of any representation, warranty or agreement contained herein, which breach is not cured within 30 days after written notice thereof is given to the breaching party by the non-breaching party or is not waived by the non-breaching party during such period; (e) by the Board of Directors of Unified pursuant to and in accordance with the provisions of Section 5.05 hereof; or (f) by the Board of Directors of Seller in the event Unified shall have failed to either (i) file the Registration Statement with the SEC by May 31, 1997 or (ii) have the Registration Statement declared effective by August 31, 1997. 7.02. Effect of Termination. In the event of termin- --------------------- ation of this Agreement as provided in Section 7.01 hereof, this Agreement shall forthwith become void and there shall be no liability on the part of Buyers or Seller or their respective officers or directors except as set forth in the second sentence of Section 5.01 and in Section 5.08 and Article 8, and except that no termination of this Agreement pursuant to Section 7.01(e) shall relieve the breaching party of any liability to the non-breaching party hereto arising from the intentional, deliberate and willful non-performance of any covenant contained herein, after giving notice to such breaching party and an opportunity to cure as set forth in Section 7.01(e). 7.03. Amendment. This Agreement, the Exhibits and --------- the Schedules hereto may be amended by the parties hereto, by action taken by or on behalf of the respective Boards of Directors of Unified or Seller, at any time before or after approval of this Agreement by the shareholders of Seller; provided, however, that after any such approval by the shareholders of Seller no such modification shall (A) alter or change the amount or kind of Merger Consideration to be received by holders of Seller Common Stock as provided in this Agreement or (B) adversely affect the tax treatment to Seller shareholders as a result of the receipt of the Merger Consideration. This Agreement, the Exhibits and the Schedules hereto may not be amended except by an instrument in writing signed on behalf of each of Buyers and Seller. 7.04. Waiver. Any term, condition or provision of ------ this Agreement may be waived in writing at any time by the party which is, or whose stockholders or shareholders, as the case may be, are, entitled to the benefits thereof. ARTICLE VIII ------------ INDEMNIFICATION 8.01. Indemnification of Buyers. By execution of ------------------------- this Agreement, the Shareholder hereby acknowledges that Unified shall be entitled to full indemnification by Shareholder of the following: (a) any and all loss, liability or damage (including judgments and settlement payments) incurred by Seller or Unified incident to, arising in connection with or - 27 - 32 resulting from any misrepresentation, breach, nonperformance or inaccuracy of any representation, warranty or covenant (to the extent such covenant is to be performed prior to the Closing Date) by Seller made or contained in this Agreement or in any Exhibit, Schedule, certificate or other document executed and delivered to Unified by Shareholder or by or on behalf of Seller under or pursuant to this Agreement or the transactions contemplated herein; (b) any and all loss, liability or damage relating to taxes which arise from or relate to (i) Seller's activities prior to the Closing Date, (ii) tax periods ending on or prior to the Closing Date or (iii) the Merger, in each case except to the extent that any specific amount for any such tax was recorded on the Seller's books; (c) Seller's obligations with respect to any employees of Seller under any pension, profit sharing or retirement plan, collective bargaining agreement, consulting agreement, life insurance or other employee welfare benefit plan or vacation policy relating to any time prior to the Closing Date, and in particular, obligations for medical or life insurance benefits of any former or retired employees of Seller or their dependents; (d) except to the extent of payments actually received by Unified pursuant to any insurance policies under which Seller is insured, any and all loss, liability or damage (including judgments and settlement payments) incurred by them incident to, arising in connection with or resulting from any act or failure to act by Shareholder or by Seller or its employees prior to the Closing Date; and (e) any and all costs, expenses and all other actual damages incurred in claiming, contesting or remedying any breach, misrepresentation, nonperformance or inaccuracy described above, or in enforcing their rights to indemnification hereunder, including, by way of illustration and not limitation, all legal and accounting fees, other professional expenses and all filing fees and collection costs incident thereto and all such fees, costs and expenses incurred in defending claims which, if successfully prosecuted, would have resulted in loss, liability, costs, expense or other damage. In case a claim shall be made or any action shall be brought in respect of which recovery through indemnity will lie against Shareholder pursuant to any provision of this Agreement, Unified shall promptly notify Shareholder in writing, and Shareholder shall promptly assume the defense thereof, including with the consent of Unified, which consent shall not be unreasonably withheld, the employment of counsel, the payment of all expenses and the right to negotiate and consent to settlement. Unified shall have the right to employ separate counsel with respect to any such claim or in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of Unified unless the employment of such counsel has been specifically authorized in writing by Shareholder or there is a conflict of interest that would prevent counsel for Shareholder from adequately representing both Shareholder, on the one hand, and Seller and Unified on the other hand, or would prevent counsel for Seller from adequately representing both Seller and Unified. Shareholder shall not be liable for any settlement of any such action effected without their written consent, but if settled with the written consent of Shareholder or if there be a final judgment for the plaintiff in any such action for which Shareholder is required hereunder to assume the defense, Shareholder agrees to indemnify and hold harmless Unified and Seller from and against any loss or liability by reason of such settlement or judgment. - 28 - 33 8.02. Indemnification of Shareholder. By execution ------------------------------ of this Agreement, Unified hereby acknowledges that Shareholder shall be entitled to full indemnification by Unified of the following: (a) any and all loss, liability or damage (including judgments and settlement payments) incurred by Shareholder incident to, arising in connection with or resulting from any misrepresentation, breach, nonperformance or inaccuracy of any representation, warranty or covenant by Unified made or contained in this Agreement or in any Exhibit, Schedule, certificate or other document executed and delivered to Shareholder by Unified; and (b) any and all costs, expenses and all other actual damages incurred in claiming, contesting or remedying any breach, misrepresentation, nonperformance or inaccuracy described above, or in enforcing its rights to indemnification hereunder, including, by way of illustration and not limitation, all legal and accounting fees, other professional expenses and all filing fees and collection costs incident thereto and all such fees, costs and expenses incurred in defending claims which, if successfully prosecuted, would have resulted in loss, liability, cost, expense or other damages. In case a claim shall be made or any action shall be brought in respect of which recovery through indemnity will lie against Unified pursuant to any provision of this Agreement, Shareholder shall promptly notify Unified in writing, and Unified shall promptly assume the defense thereof, including with the consent of Shareholder, which consent shall not be unreasonably withheld, the employment of counsel, the payment of all expenses and the right to negotiate and consent to settlement. Shareholder shall have the right to employ separate counsel with respect to any such claim or in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of Shareholder unless the employment of such counsel has been specifically authorized in writing by Unified or there is a conflict of interest that would prevent counsel for Unified from adequately representing both Seller and Unified, on the one hand, and Shareholder, on the other hand. Unified shall not be liable for any settlement of any such action effected without its written consent, but if settled with the written consent of Unified or if there be a final judgment for the plaintiff in any such action for which Unified is required hereunder to assume the defense, Unified agrees to indemnify and hold harmless Shareholder from and against any loss or liability by reason of such settlement or judgment. 8.03. Payment of Claims for Indemnification. Any ------------------------------------- amounts to be indemnified to Unified shall be the responsibility of Shareholder and shall be paid promptly upon notice of Unified to Shareholder of incurrence of such loss, liability, cost, expense or damage and an explanation of the losses for Unified's demand for indemnification under Article 8 of this Agreement. Any amounts payable to Shareholder pursuant to the provisions of Section 8.02 of this Agreement shall be the responsibility of Unified and shall be paid promptly upon notice of Shareholder to Unified of incurrence of such loss, liability, cost, expense or damage and an explanation of the losses for Shareholder' demand for indemnification under Section 8.02 of this Agreement. 8.03. Survival of Indemnification. Any other --------------------------- provision hereof to the contrary notwithstanding, the parties agree that the representations and warranties of the parties contained in this Agreement and any certificates delivered pursuant to this Agreement shall survive for a period of twelve (12) months after the Closing Date for purposes of this Article 8, regardless of any investigation made by either party prior to the date hereof or prior to the Closing Date. Unified and Shareholder shall only be entitled to indemnification under this Article 8 for breaches of representations and warranties if a written notice describing the claim for which indemnification is sought is signed by the Chairman, President or any Vice President of the Unified not later than twelve months following the Closing Date. Any claim for indemnification pursuant to this Article 8 for breaches of representations and warranties - 29 - 34 not made prior to the expiration of such twelve month period shall be extinguished, and all representations and warranties with respect to which no claim is made prior to the expiration of such twelve month period shall expire and be of no further force and effect. ARTICLE IX ---------- GENERAL PROVISIONS 9.01. Non-Survival of Representations, Warranties and ----------------------------------------------- Agreements. No investigation by the parties hereto made heretofore - ---------- or hereafter shall affect the representations and warranties of the parties which are contained herein and each such representation and warranty shall survive such investigation. Except as set forth below in this Section 9.01, all representations, warranties and agreements in this Agreement of Buyers and Seller or in any instrument delivered by Buyers or Seller pursuant to or in connection with this Agreement shall expire at the Effective Time or upon termination of this Agreement in accordance with its terms. In the event of consummation of the Merger, the agreements contained in or referred to in Sections 1.07-1.11, 5.02(b), 5.06, 5.08, 5.09, 5.12, 5.13 and 5.14 and Article 8 shall survive the Effective Time. In the event of termination of this Agreement in accordance with its terms, the agreements contained in or referred to in the second sentence of Section 5.01 and Sections 5.08 and 7.02 shall survive such termination. 9.02. No Assignment; Successors and Assigns. This ------------------------------------- Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, but neither this Agreement nor any right or obligation set forth in any provision hereof may be transferred or assigned by any party hereto without the prior written consent of the other party, and any purported transfer or assignment in violation of this Section 9.02 shall be void and of no effect. There shall not be any third party beneficiaries of any provisions hereof except for Sections 1.08, 5.08, 5.09 and 5.12 and Article 8, which may be enforced against Buyers or Seller by the parties therein identified. 9.03. No Implied Waiver. No failure or delay on the ----------------- part of either party hereto to exercise any right, power or privilege hereunder or under any instrument executed pursuant hereto shall operate as a waiver nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 9.04. Headings. Article, section, subsection and -------- paragraph titles, captions and headings herein are inserted only as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Agreement or the intent or meaning of any provision hereof. 9.05. Entire Agreement. This Agreement, the Exhibits ---------------- and the Schedules hereto constitute the entire agreement between the parties with respect to the subject matter hereof, supersede all prior negotiations, representations, warranties, commitments, offers, letters of interest or intent, proposal letters, contracts, writings or other agreements or understandings, whether written or oral, with respect thereto. - 30 - 35 9.06. Counterparts. This Agreement may be executed ------------ in one or more counterparts, and any party to this Agreement may execute and deliver this Agreement by executing and delivering any of such counterparts, each of which when executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. 9.07. Notices. All notices and other communications -------- hereunder shall be in writing and shall be deemed to be duly received (i) on the date given if delivered personally or (ii) upon confirmation of receipt, if by facsimile transmission or (iii) on the date received if mailed by registered or certified mail (return receipt requested), to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Buyers: Unified Holdings, Inc. 429 North Pennsylvania Street Indianapolis, Indiana 46204 Attention: President Telecopy: (317) 632-7805 Copies to: Mr. Timothy L. Ashburn, Chairman 1104 Buttonwood Court Lexington, Kentucky 40515 and Thompson Coburn One Mercantile Center St. Louis, Missouri 63101 Attention: Charles H. Binger, Esq. Telecopy: (314) 552-7000 (ii) if to Seller: Health Financial, Inc. 3320 Tates Creek Road Lexington, Kentucky 40502 Attention: Dr. Gregory Kasten, President Telecopy: (606) 266-5211 9.08. Severability. Any term, provision, covenant or ------------ restriction contained in this Agreement held by a court or a Regulatory Authority of competent jurisdiction to be invalid, void or unenforceable, shall be ineffective to the extent of such invalidity, voidness or unenforceability, but neither the remaining terms, provisions, covenants or restrictions contained in this Agreement nor the validity or enforceability thereof in any other jurisdiction shall be affected or impaired thereby. Any term, provision, covenant or restriction contained in this Agreement that is so found to be so broad as to be unenforceable shall be interpreted to be as broad as is enforceable. - 31 - 36 9.09. Governing Law. This Agreement shall be ------------- governed by and controlled as to validity, enforcement, interpretation, effect and in all other respects by the internal laws of the State of Delaware, without regards to its conflict of laws principles. [remainder of this page intentionally left blank] - 32 - 37 IN WITNESS WHEREOF, Buyers and Seller have caused this Agreement to be signed and, by such signature, acknowledged by their respective officers thereunto duly authorized, and such signatures to be attested to by their respective officers thereunto duly authorized, all as of the date first above written. "BUYERS" UNIFIED HOLDINGS, INC. ATTEST: /s/ William C. Presson By: /s/ Timothy L. Ashburn - ------------------------------ ---------------------------------- Timothy L. Ashburn, Chairman and Chief Executive Officer /s/ Carol J. Highsmith By: /s/ Lynn E. Wood - ------------------------------ ---------------------------------- Lynn E. Wood, President and Chief Operating Officer HFI ACQUISITION CORPORATION ATTEST: /s/ William C. Presson By: /s/ Timothy L. Ashburn - ------------------------------ ---------------------------------- Timothy L. Ashburn, President and Chief Executive Officer "SELLER" HEALTH FINANCIAL, INC. ATTEST: /s/ William C. Presson By: /s/ Dr. Gregory W. Kasten - ------------------------------ ---------------------------------- Dr. Gregory W. Kasten, President "SHAREHOLDER" /s/ Dr. Gregory W. Kasten ------------------------------------- Dr. Gregory W. Kasten - 33 - EX-2.2 3 AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER 1 =============================================================================== AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER between UNIFIED HOLDINGS, INC., a Delaware corporation and FLTC ACQUISITION CORPORATION, a Kentucky corporation, as Buyers, and FIRST LEXINGTON TRUST COMPANY, a Kentucky corporation, as Seller Dated as of April 25, 1997 =============================================================================== 2
TABLE OF CONTENTS Page ARTICLE I THE MERGER. . . . . . . . . . . . . . . . . . . . . . 1 1.01. The Merger. . . . . . . . . . . . . . . . . . . . . . 1 1.02. Closing . . . . . . . . . . . . . . . . . . . . . . . 1 1.03. Effective Time. . . . . . . . . . . . . . . . . . . . 1 1.04. Additional Actions. . . . . . . . . . . . . . . . . . 2 1.05. Articles of Incorporation and Bylaws. . . . . . . . . 2 1.06. Boards of Directors and Officers. . . . . . . . . . . 2 1.07. Conversion of Securities. . . . . . . . . . . . . . . 2 1.08. Exchange Procedures . . . . . . . . . . . . . . . . . 3 1.09. Dissenting Shares . . . . . . . . . . . . . . . . . . 3 1.10. No Fractional Shares. . . . . . . . . . . . . . . . . 4 1.11. Closing of Stock Transfer Books . . . . . . . . . . . 4 1.12. Anti-Dilution Adjustments . . . . . . . . . . . . . . 4 1.13. Material Adverse Effect . . . . . . . . . . . . . . . 5 ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. . . . . . . . . . . . . . . . . . . . . . . . 5 2.01. Organization and Authority. . . . . . . . . . . . . . 5 2.02. Subsidiaries. . . . . . . . . . . . . . . . . . . . . 5 2.03. Capitalization. . . . . . . . . . . . . . . . . . . . 5 2.04. Authorization . . . . . . . . . . . . . . . . . . . . 6 2.05. Seller Financial Statements.. . . . . . . . . . . . . 7 2.06. Seller Reports. . . . . . . . . . . . . . . . . . . . 7 2.07. Title to and Condition of Assets. . . . . . . . . . . 7 2.08. Real Property . . . . . . . . . . . . . . . . . . . . 8 2.09. Taxes . . . . . . . . . . . . . . . . . . . . . . . . 8 2.10. Material Adverse Effect . . . . . . . . . . . . . . . 9 2.11. Loans, Commitments and Contracts. . . . . . . . . . . 9 2.12. Absence of Defaults . . . . . . . . . . . . . . . . . 10 2.13. Litigation and Other Proceedings. . . . . . . . . . . 10 2.14. Directors' and Officers' Insurance. . . . . . . . . . 10 2.15. Compliance with Laws. . . . . . . . . . . . . . . . . 11 2.16. Labor . . . . . . . . . . . . . . . . . . . . . . . . 12 2.17. Material Interests of Certain Persons . . . . . . . . 12 2.18. Employee Benefit Plans. . . . . . . . . . . . . . . . 12 2.19. Conduct of Seller to Date . . . . . . . . . . . . . . 13 2.20. Absence of Undisclosed Liabilities. . . . . . . . . . 14 2.21. Proxy Statement, Etc. . . . . . . . . . . . . . . . . 14 2.22. Registration Obligations. . . . . . . . . . . . . . . 15 2.23. Tax and Regulatory Matters. . . . . . . . . . . . . . 15 2.24. Intellectual Property; Patents; Trademarks; Trade Names . . . . . . . . . . . . . . . . . . . . . 15 2.25. Bank Accounts . . . . . . . . . . . . . . . . . . . . 15 2.26. Transactions with Affiliates. . . . . . . . . . . . . 15 2.27. Brokers and Finders . . . . . . . . . . . . . . . . . 15 2.28. Accuracy of Information . . . . . . . . . . . . . . . 16 3 ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYERS. . . . . . . . . . . . . . . . . . . . . . . . 16 3.01. Organization and Authority. . . . . . . . . . . . . . 16 3.02. Capitalization of Unified . . . . . . . . . . . . . . 16 3.03. Authorization . . . . . . . . . . . . . . . . . . . . 17 3.04. Unified Financial Statements. . . . . . . . . . . . . 17 3.05. Unified Reports . . . . . . . . . . . . . . . . . . . 18 3.06. Material Adverse Effect . . . . . . . . . . . . . . . 18 3.07. Legal Proceedings or Other Adverse Facts. . . . . . . 18 3.08. Proxy Statement, Etc. . . . . . . . . . . . . . . . . 18 3.09. Brokers and Finders . . . . . . . . . . . . . . . . . 18 3.10. Accuracy of Information . . . . . . . . . . . . . . . 18 ARTICLE IV CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME. . . . . . . . . . . . . . . . . . . . . . . . . 19 4.01. Conduct of Businesses Prior to the Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . 19 4.02. Forbearances of Seller. . . . . . . . . . . . . . . . 19 4.03. Forbearances of Buyers. . . . . . . . . . . . . . . . 20 ARTICLE V ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . 20 5.01. Access and Information. . . . . . . . . . . . . . . . 20 5.02. Registration Statement; Regulatory Matters. . . . . . 21 5.03. Shareholder Approval. . . . . . . . . . . . . . . . . 21 5.04. Current Information . . . . . . . . . . . . . . . . . 22 5.05. Environmental Reports . . . . . . . . . . . . . . . . 22 5.06. Agreements of Affiliates. . . . . . . . . . . . . . . 22 5.07. Expenses. . . . . . . . . . . . . . . . . . . . . . . 22 5.08. Miscellaneous Agreements. . . . . . . . . . . . . . . 22 5.09. Employee Agreements and Benefits. . . . . . . . . . . 23 5.10. Press Releases. . . . . . . . . . . . . . . . . . . . 23 5.11. State Takeover Statutes . . . . . . . . . . . . . . . 23 5.12. Directors' and Officers' Indemnification. . . . . . . 23 5.13. Tax Opinion Certificates. . . . . . . . . . . . . . . 24 ARTICLE VI CONDITIONS. . . . . . . . . . . . . . . . . . . . . . 24 6.01. Conditions to Each Party's Obligation to Effect the Merger. . . . . . . . . . . . . . . . . . . . . . 24 6.02. Conditions to Obligations of Seller to Effect the Merger. . . . . . . . . . . . . . . . . . . . . . 25 6.03. Conditions to Obligations of Buyers to Effect the Merger. . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE VII TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . 26 7.01. Termination . . . . . . . . . . . . . . . . . . . . . 26 7.02. Effect of Termination . . . . . . . . . . . . . . . . 27 7.03. Amendment . . . . . . . . . . . . . . . . . . . . . . 27 7.04. Waiver. . . . . . . . . . . . . . . . . . . . . . . . 27 - ii - 4 ARTICLE VIII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . 27 8.01. Indemnification of Buyers . . . . . . . . . . . . . . 27 8.02. Indemnification of Seller's Shareholders. . . . . . . 28 8.03. Payment of Claims for Indemnification . . . . . . . . 29 8.04. Survival of Indemnification . . . . . . . . . . . . . 29 ARTICLE IX GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . 30 9.01. Non-Survival of Representations, Warranties and Agreements. . . . . . . . . . . . . . . . . . . . . . 30 9.02. No Assignment; Successors and Assigns . . . . . . . . 30 9.03. No Implied Waiver . . . . . . . . . . . . . . . . . . 30 9.04. Headings. . . . . . . . . . . . . . . . . . . . . . . 30 9.05. Entire Agreement. . . . . . . . . . . . . . . . . . . 30 9.06. Counterparts. . . . . . . . . . . . . . . . . . . . . 30 9.07. Notices . . . . . . . . . . . . . . . . . . . . . . . 30 9.08. Severability. . . . . . . . . . . . . . . . . . . . . 31 9.09. Governing Law . . . . . . . . . . . . . . . . . . . . 31 LIST OF EXHIBITS Exhibit A Shareholder Tax Certificate Exhibit B Officer/Director Tax Certificate Exhibit C Form of Opinion of Counsel of Buyer Exhibit D Form of Opinion of Counsel of Seller LIST OF SCHEDULES Schedule 2.01 Articles/Bylaws/Lists of Shareholders Schedule 2.02 Equity Securities Schedule 2.04(b) Events of Default Schedule 2.05(a) Financial Statements Schedule 2.08(a) Owned Real Property/Leased Real Property Schedule 2.11(a) Contracts Schedule 2.11(b) Insurance Schedule 2.13 Litigation Schedule 2.18(a) Employee Benefit Plans Schedule 2.24 Intellectual Property; Patents; Trademarks; Trade Names Schedule 2.25 Bank Accounts Schedule 2.26 Transactions with Affiliates Schedule 5.06 Affiliates
- iii - 5 AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER ---------------------------- This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered into as of the 25th day of April 1997, by and among UNIFIED HOLDINGS, INC., a Delaware corporation ("Unified"), and FLTC ACQUISITION CORPORATION, a Kentucky corporation and wholly owned subsidiary of Unified ("Merger Sub" and, collectively with Unified, the "Buyers"), on the one hand, and FIRST LEXINGTON TRUST COMPANY, a Kentucky corporation ("Seller"), and Dr. Gregory W. Kasten, a shareholder of Seller (the "Principal Shareholder"), on the other hand. W I T N E S S E T H: - - - - - - - - - - WHEREAS, the respective Boards of Directors of Unified, Merger Sub and Seller have approved the merger (the "Merger") of Merger Sub with and into Seller pursuant to the terms and subject to the conditions of this Agreement; and WHEREAS, each of Unified and Seller believe that such proposed Merger, and the conversion of shares of Seller Common Stock (as defined in Section 1.07 hereof) into shares of Unified Common Stock (as defined in Section 1.07 hereof) in the manner provided in this Agreement is desirable and in the best interests of their respective stockholders and shareholders, as the case may be; and WHEREAS, Unified and Seller intend that the Merger constitute a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"), and that the conversion of Seller Common Stock into Unified Common Stock in connection with the Merger will not give rise to gain or loss to the shareholders of Seller with respect to such conversion; and WHEREAS, the parties desire to provide for certain undertakings, conditions, representations, warranties and covenants in connection with the transactions contemplated by this Agreement. NOW THEREFORE, in consideration of the premises and the representations, warranties and agreements herein contained, the parties agree as follows: ARTICLE I --------- THE MERGER 1.01. The Merger. Subject to the terms and ---------- conditions of this Agreement, Merger Sub shall be merged with and into Seller in accordance with Chapter 271B of the Kentucky Business Corporation Act (the "Kentucky Statute"), and the separate corporate existence of Merger Sub shall cease. Seller shall be the surviving corporation of the Merger (sometimes referred to herein as the "Surviving Corporation") and shall continue to be governed by the laws of the State of Kentucky. 1.02. Closing. The closing (the "Closing") of the ------- Merger shall take place at 10:00 a.m., local time, on the date that the Effective Time (as defined in Section 1.03) occurs (the "Closing Date"), or at such other time, and at such place, as Buyers and Seller shall agree. 1.03. Effective Time. The Merger shall become -------------- effective (the "Effective Time") upon the filing of articles of merger with the Office of the Secretary of State of the State of Kentucky. Unless otherwise mutually agreed in writing by Buyers and Seller, subject to the terms and conditions of this Agreement, the Effective Time shall occur on such date as Buyers shall notify Seller in writing (such 6 notice to be at least five business days in advance of the Effective Time) but (i) not earlier than the satisfaction of all conditions set forth in Section 6.01(a) and 6.01(b) (the "Approval Date") and (ii) not later than the first business day of the first full calendar month commencing at least five business days after the Approval Date. 1.04. Additional Actions. If, at any time after the ------------------ Effective Time, Unified or the Surviving Corporation shall consider or be advised that any further deeds, assignments or assurances or any other acts are necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in the Surviving Corporation, all right, title or interest in, to or under any of the rights, properties or assets of Seller or Merger Sub or (b) otherwise carry out the purposes of this Agreement, Seller and Merger Sub and each of their respective officers and directors, shall be deemed to have granted to the Surviving Corporation an irrevocable power of attorney to execute and deliver all such deeds, assignments or assurances and to do all acts necessary or desirable to vest, perfect or confirm title and possession to such rights, properties or assets in the Surviving Corporation and otherwise to carry out the purposes of this Agreement, and the officers and directors of the Surviving Corporation are authorized in the name of Seller or otherwise to take any and all such action. 1.05. Articles of Incorporation and Bylaws. The ------------------------------------ Articles of Incorporation and Bylaws of Seller in effect immediately prior to the Effective Time shall be the Articles of Incorporation and Bylaws of the Surviving Corporation following the Merger, until otherwise amended or repealed. 1.06. Boards of Directors and Officers. At the -------------------------------- Effective Time, the directors and officers of Seller immediately prior to the Effective Time shall be the directors and officers, respectively, of the Surviving Corporation following the Merger, and such directors and officers shall hold office in accordance with the Surviving Corporation's Bylaws and applicable law; provided, however, as of the Effective Time of the Merger, Surviving Corporation shall take any and all actions necessary to add Timothy L. Ashburn as a member of the Board of Directors of Surviving Corporation. 1.07. Conversion of Securities. At the Effective ------------------------ Time, by virtue of the Merger and without any action on the part of Buyers, Seller or the holder of any of the following securities: (a) Each share of the common stock, no par value, of Merger Sub that is issued and outstanding immediately prior to the Effective Time shall, without any action on the part of the holder thereof, be converted into one fully paid and nonassessable share of Common Stock of the Surviving Corporation, which shall upon such conversion be validly issued and outstanding, fully paid and nonassessable and shall not be liable to any further call, nor shall the holder thereof be liable for any further payments with respect thereto; and (b) Subject to Sections 1.09, 1.10 and 1.12 hereof, the shares of common stock, no par value, of Seller ("Seller Common Stock") issued and outstanding at the Effective Time shall cease to be outstanding and shall be converted into and become the right to receive 80,008 shares (the "Exchange Ratio") of common stock, no par value, of Unified ("Unified Common Stock"), in the aggregate (the "Merger Consideration"). Shares of Seller Common Stock held by Seller, or by Unified or any of its wholly owned "Subsidiaries" (as defined in Rule 1-02 of Regulation S-X promulgated by the Securities and Exchange Commission (the "SEC")), in each case other than in a fiduciary capacity or as a result of debts previously contracted, shall be cancelled and shall not be exchanged after the Effective Time for the Merger Consideration. In addition, no Dissenting Shares (as defined in Section 1.09 of this Agreement) shall be converted pursuant - 2 - 7 to this Section 1.07 but shall be treated in accordance with the procedures set forth in Section 1.09 of this Agreement. 1.08. Exchange Procedures. ------------------- (a) Within two (2) days following the Closing Date, Unified shall mail or cause to be mailed to holders of record of certificates representing shares of Seller Common Stock (the "Certificates"), as identified on the Seller Shareholder List, as provided pursuant to Section 1.11 hereof, letters advising them of the effectiveness of the Merger and instructing them to tender such Certificates to Unified, or in lieu thereof, such evidence of lost, stolen or mutilated Certificates and such surety bond or other security as Unified may reasonably require (the "Required Documentation"). (b) Subject to Section 1.11, after the Effective Time, each previous holder of a Certificate that surrenders such Certificate or in lieu thereof, the Required Documentation, to Unified, with a properly completed and executed letter of transmittal with respect to such Certificate, will be entitled to a certificate or certificates representing the Merger Consideration. (c) Each outstanding Certificate, until duly surrendered to Unified, shall be deemed to evidence ownership of the Merger Consideration into which the stock previously represented by such Certificate shall have been converted pursuant to this Agreement. (d) After the Effective Time, holders of Certificates shall cease to have rights with respect to the stock previously represented by such Certificates, and their sole rights shall be to exchange such Certificates for the Merger Consideration issuable in the Merger. After the closing of the transfer books as described in Section 1.11 hereof, there shall be no further transfer on the records of Seller of Certificates, and if such Certificates are presented to Seller for transfer, they shall be cancelled against delivery of the Merger Consideration. Neither Buyer nor the Surviving Corporation shall be obligated to deliver the Merger Consideration to which any former holder of Seller Common Stock is entitled as a result of the Merger until such holder surrenders the Certificates or furnishes the Required Documentation as provided herein. No dividends or distributions declared after the Effective Time on the Unified Common Stock will be remitted to any person until such person surrenders the Certificate representing the right to receive such Unified Common Stock or furnishes the Required Documentation, at which time such dividends or declarations shall be remitted to such person, without interest and less any taxes that may have been imposed thereon. Certificates surrendered for exchange by an affiliate shall not be exchanged until Unified has received a written agreement from such affiliate as required pursuant to Section 5.06 hereof. Neither Unified nor any party to this Agreement nor any affiliate thereof shall be liable to any holder of stock represented by any Certificate for any Merger Consideration issuable in the Merger that is paid to a public official pursuant to applicable abandoned property, escheat or similar laws. 1.09. Dissenting Shares. ----------------- (a) "Dissenting Shares" means any shares held by any holder who becomes entitled to payment of the fair value of such shares under Chapter 271, Subtitle 13 of the - 3 - 8 Kentucky Statute. Any holders of Dissenting Shares shall be entitled to payment for such shares only to the extent permitted by and in accordance with the provisions of such law, and Unified shall cause the Surviving Corporation to pay such consideration with funds provided by Unified. (b) Each party hereto shall give the other prompt notice of any written demands for the payment of the fair value of any shares, withdrawals of such demands and any other instruments served pursuant to the Kentucky Statute received by such party, and Seller shall give Unified the opportunity to participate in all negotiations and proceedings with respect to such demands. Seller shall not voluntarily make payment with respect to any demands for payment of fair value and shall not, except with the prior written consent of Unified, which consent shall not be unreasonably withheld, settle or offer to settle any such demands. 1.10. No Fractional Shares. Notwithstanding any -------------------- other provision of this Agreement, neither certificates nor scrip for fractional shares of Unified Common Stock shall be issued in the Merger. Each holder who otherwise would have been entitled to a fraction of a share of Unified Common Stock shall receive in lieu thereof one share of Unified Common Stock for the fractional share interest to which such holder would otherwise be entitled. 1.11. Closing of Stock Transfer Books. ------------------------------- (a) The stock transfer books of Seller shall be closed at the end of business on the business day immediately preceding the Closing Date. In the event of a transfer of ownership of Seller Common Stock which is not registered in the transfer records prior to the closing of such record books, the Merger Consideration issuable with respect to such stock may be delivered to the transferee, if the Certificate or Certificates representing such stock is presented to Unified accompanied by all documents required to evidence and effect such transfer and all applicable stock transfer taxes are paid. (b) At the Effective Time, Seller shall provide Unified with a complete and verified list of registered holders of Seller Common Stock based upon its stock transfer books as of the closing of said transfer books, including the names, addresses, certificate numbers and taxpayer identification numbers of such holders (the "Seller Shareholder List"). Buyers shall be entitled to rely upon the Seller Shareholder List to establish the identity of those persons entitled to receive the Merger Consideration specified in this Agreement, which list shall be conclusive with respect thereto. In the event of a dispute with respect to ownership of stock represented by any Certificate, Buyers shall be entitled to deposit any Merger Consideration represented thereby in escrow with an independent third party and thereafter be relieved with respect to any claims thereto. 1.12. Anti-Dilution Adjustments. Other than for the ------------------------- two-for-one stock split with respect to the Unified Common Stock, which is to be effected prior to the Effective Time, if between the date of this Agreement and the Effective Time a share of Unified Common Stock shall be changed into a different number of shares of Unified Common Stock or a different class of shares by reason of reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or if a stock dividend thereon shall be declared with a record date within such period, then appropriate and proportionate adjustment or adjustments will be made to the Exchange Ratio such that each shareholder of Seller shall be entitled to receive such number of shares of Unified Common Stock or other securities as such shareholder would have received pursuant to such reclassification, recapitalization, split-up, combination, - 4 - 9 exchange of shares or readjustment or as a result of such stock dividend had the record date therefor been immediately following the Effective Time. 1.13. Material Adverse Effect. As used in this ----------------------- Agreement, the term "Material Adverse Effect" with respect to an entity means any condition, event, change or occurrence that has or may reasonably be expected to have a material adverse effect on the condition (financial or otherwise), properties, business or results of operations, of such entity and its Subsidiaries, taken as a whole as reflected in the Seller Financial Statements (as defined in Section 2.05(b)) or the Unified Financial Statements (as defined in Section 3.04), as the case may be; it being understood that a Material Adverse Effect shall not include: (i) a change with respect to, or effect on, such entity and its Subsidiaries resulting from a change in law, rule, regulation, generally accepted accounting principles or regulatory accounting principles; or (ii) a change disclosed in the Seller Financial Statements or the Unified Financial Statements, as the case may be. ARTICLE II ---------- REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER As an inducement to Buyers to enter into and perform their respective obligations under this Agreement, and notwith- standing any examination, inspection, audit or any other investiga- tion made by Buyers, Seller represents and warrants to and covenants with Buyers as follows: 2.01. Organization and Authority. Seller is a -------------------------- corporation duly organized, validly existing and in good standing under the laws of the State of Kentucky, is duly qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and has corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted. Seller has been granted, and currently possesses, the requisite authority from the Kentucky Commissioner of Banking to act as a trust company in the State of Kentucky. True and complete copies of the Articles of Incorporation and Bylaws of Seller are attached hereto as Schedule 2.01. ------------- Also attached hereto as Schedule 2.01 are true and complete lists of ------------- the shareholders of Seller, as of a date hereof. 2.02. Subsidiaries. Schedule 2.02 sets forth, a ------------ ------------- complete and correct list of all outstanding Equity Securities (as defined in Section 2.03) owned by Seller. Seller does not own, directly or indirectly, any Subsidiaries. Seller does not own beneficially, directly or indirectly, any shares of any class of Equity Securities or similar interests of any corporation, bank, business trust, association or organization, or any interest in a partnership or joint venture of any kind, other than those identified in Schedule 2.02 hereof. ------------- 2.03. Capitalization. The authorized capital stock -------------- of Seller consists of 10,000 shares of Seller Common Stock, of which, as of the date hereof, 8,295 shares were issued and outstanding. There are no other Equity Securities of Seller outstanding. "Equity Securities" of an issuer means capital stock or other equity securities of such issuer, options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, shares of any capital stock or other equity securities of such issuer, or contracts, commitments, understand- ings or arrangements by which such issuer is or may become bound to issue additional shares of its capital stock or other equity securities of such issuer, or options, warrants, scrip or rights to purchase, acquire, subscribe to, calls on or commitments for any shares of its capital stock or other equity securities. All of the issued and outstanding shares of Seller Common Stock are validly issued, fully paid and - 5 - 10 nonassessable, and have not been issued in violation of any preemptive right of any shareholder of Seller. 2.04. Authorization. ------------- (a) Seller has the corporate power and authority to enter into this Agreement and, subject to the approval of this Agreement by the shareholders of Seller and Regulatory Authorities (as defined in Section 2.06), to carry out its obligations hereunder. The only shareholder vote required for Seller to approve this Agreement is the affirmative vote of (i) the holders of a majority of the outstanding shares of Seller Common Stock entitled to vote at a meeting called for such purpose and (ii) any shareholder and director (or trustee) approvals required by the Investment Company Act of 1940, as amended, and the rules and regulations thereunder (the "1940 Act") in connection with any advisory and sub-advisory agreements of Seller (collectively, the "Shareholder Approvals"). The execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby in accordance with and subject to the terms of this Agreement have been duly authorized by the Board of Directors of Seller. Subject to the approval of Seller's shareholders and subject to the receipt of such approvals of the Regulatory Authorities as may be required by statute or regulation, this Agreement is a valid and binding obligation of Seller enforceable against Seller in accordance with its terms. (b) Except as disclosed in Schedule 2.04(b), ---------------- neither the execution nor delivery nor performance by Seller of this Agreement, nor the consummation by Seller of the transactions contemplated hereby, nor compliance by Seller with any of the provisions hereof, will (i) violate, conflict with, or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any lien, claim, charge, option, encumbrance, agreement, mortgage, pledge, security interest or restriction (a "Lien") upon any of the properties or assets of Seller under any of the terms, conditions or provisions of (x) its Articles of Incorporation or Bylaws or (y) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Seller is a party or by which it may be bound, or to which Seller or any of the properties or assets of Seller may be subject, or (ii) subject to compliance with the statutes and regulations referred to in subsection (c) of this Section 2.04 violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Seller or any of its respective properties or assets; other than violations, conflicts, breaches, defaults, terminations, accelerations or Liens which would not have a Material Adverse Effect on Seller. (c) Other than in connection or in compliance with the provisions of the Kentucky Statute, Chapter 287 of the Kentucky Revised Statutes ("Chapter 287"), the Securities Act of 1933, as amended, and the rules and regulations thereunder (the "Securities Act"), the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the "Exchange Act"), the securities or blue sky laws of the various states, the 1940 Act, or filings, consents, reviews, authorizations, approvals or exemptions required of any other governmental agencies or governing boards having regulatory authority over Seller, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any public body or authority is necessary for the consummation by Seller of the transactions contemplated by this Agreement. - 6 - 11 2.05. Seller Financial Statements. --------------------------- (a) Attached hereto as Schedule 2.05(a) are ---------------- copies of the following documents: (i) Seller's audited balance sheet, income statement, statement of changes in shareholders' equity and cash flow as of or for the year ended December 31, 1996; and (ii) Seller's unaudited balance sheet, income statement, statement of changes in shareholders' equity and cash flow as of or for the three months ended March 31, 1997; (b) The financial statements contained in the document referenced in Schedule 2.05(a) are referred to ---------------- collectively as the "Seller Financial Statements." The Seller Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP"), and present fairly the consolidated financial position of Seller at the dates thereof and the consolidated results of operations, changes in shareholders' equity and cash flows of Seller for the periods stated therein. (c) Seller has prepared, kept and maintained through the date hereof true, correct and complete financial and other books and records of its affairs which fairly reflect its financial conditions, results of operations, changes in shareholders' equity and cash flows. 2.06. Seller Reports. Since January 1, 1994, Seller -------------- has timely filed all material reports, registrations and statements, together with any required amendments thereto, that it was required to file with (i) the SEC, (ii) National Association of Securities Dealers, Inc. (the "NASD"), (iii) any federal, state, municipal or local government, securities, banking, insurance and other governmental or regulatory authority, and the agencies and staffs thereof (the entities in the foregoing clauses (i) through (iii) being referred to herein collectively as the "Regulatory Authorities" and individually as a "Regulatory Authority"), having jurisdiction over the affairs of it. All such material reports and statements filed with any such Regulatory Authority are collectively referred to herein as the "Seller Reports." As of each of their respective dates, the Seller Reports complied in all material respects with all the rules and regulations promulgated by the applicable Regulatory Authority. With respect to Seller Reports filed with the Regulatory Authorities, there is no material unresolved violation, criticism or exception by any Regulatory Authority with respect to any report or statement filed by, or any examinations of, Seller. 2.07. Title to and Condition of Assets. -------------------------------- (a) Except as may be reflected in the Seller Financial Statements and with the exception of all "Real Property" (which is the subject of Section 2.08 hereof) Seller has, and at the Closing Date will have, good and marketable title to its owned properties and assets, including, without limitation, those reflected in the Seller Financial Statements (except those disposed of in the ordinary course of business since the date thereof), free and clear of any Lien, except for Liens for (i) taxes, assessments or other governmental charges not yet delinquent and (ii) as set forth or described in the Seller Financial Statements or any subsequent Seller Financial Statements delivered to Buyers prior to the Effective Time. (b) No material properties or assets that are reflected as owned by Seller in the Seller Financial Statements as of December 31, 1996 have been sold, leased, transferred, assigned or otherwise disposed of since such date, except in the ordinary course of business. - 7 - 12 (c) All furniture, fixtures, vehicles, machinery and equipment and computer software owned or used by Seller, including any such items leased as a lessee (taken as a whole as to each of the foregoing with no single item deemed to be of material importance) are in good working order and free of known defects, subject only to normal wear and tear. The operation by Seller of such properties and assets is in compliance in all material respects with all applicable laws, ordinances and rules and regulations of any governmental authority having jurisdiction over such use. 2.08. Real Property. ------------- (a) The legal description of each parcel of real property owned by Seller is set forth in Schedule 2.08(a) ---------------- under the heading "Owned Real Property" (such real property being herein referred to as the "Owned Real Property"). The legal description of each parcel of real property leased by Seller is also set forth in Schedule 2.08(a) under the ---------------- heading "Leased Real Property" (such real property being herein referred to as the "Leased Real Property"). Collectively, the Owned Real Property and the Leased Real Property is herein referred to as the "Real Property." (b) There is no pending action involving Seller as to the title of or the right to use any of the Real Property. (c) Seller has no interest in any other real property. (d) None of the buildings, structures or other improvements located on the Real Property encroaches upon or over any adjoining parcel of real estate or any easement or right-of-way or "setback" line in any material respect and all such buildings, structures and improvements are in all material respects located and constructed in conformity with all applicable zoning ordinances and building codes. (e) None of the buildings, structures or improvements located on the Owned Real Property are the subject of any official complaint or notice by any governmental authority of violation of any applicable zoning ordinance or building code, and there is no zoning ordinance, building code, use or occupancy restriction or condemnation action or proceeding pending, or, to the best knowledge of Seller, threatened, with respect to any such building, structure or improvement. The Owned Real Property is in generally good condition for its intended purpose, ordinary wear and tear excepted, and has been maintained in accordance with reasonable and prudent business practices applicable to like facilities. (f) Except as may be reflected in the Seller Financial Statements or with respect to such easements, Liens, defects or encumbrances as do not individually or in the aggregate materially adversely affect the use or value of the parcel of Owned Real Property, Seller has, and at the Closing Date will have, good and marketable title to the Owned Real Properties. 2.09. Taxes. Seller has timely filed or will timely ----- file (including extensions) all material tax returns required to be filed at or prior to the Closing Date ("Seller Returns"). Seller has paid, or set up adequate reserves on the Seller Financial Statements for the payment of, all taxes required to be paid in respect of the periods covered by such Seller Returns and has set up adequate reserves on the most recent Seller Financial Statements for the payment of all taxes anticipated to be payable in respect of all - 8 - 13 periods up to and including the latest period covered by such Seller Financial Statements. Seller has no liability material to the Condition of Seller for any such taxes in excess of the amounts so paid or reserves so established, and no material deficiencies for any tax, assessment or governmental charge have been proposed, asserted or assessed (tentatively or definitely) against Seller which would not be covered by existing reserves. Seller is not delinquent in the payment of any tax, assessment or governmental charge, nor has it requested any extension of time within which to file any tax returns in respect of any fiscal year which have not since been filed and no requests for waivers of the time to assess any tax are pending. No federal or state income tax return of Seller has been audited by the Internal Revenue Service (the "IRS") or any state tax authority for the seven (7) most recent full calendar years. There is no deficiency or refund litigation or, to the best knowledge of Seller, matter in controversy with respect to Seller Returns. Seller has not extended or waived any statute of limitations on the assessment of any tax due that is currently in effect. 2.10. Material Adverse Effect. Since December 31, ----------------------- 1996, there has been no Material Adverse Effect on Seller. 2.11. Loans, Commitments and Contracts. -------------------------------- (a) Except as listed on Schedule 2.11(a), as ---------------- of the date hereof Seller is not a party to or is not bound by any: (i) agreement, contract, arrangement, understanding or commitment with any labor union; (ii) franchise or license agreement; (iii) written employment, severance, termination pay, agency, consulting or similar agreement or commitment in respect of personal services; (iv) material agreement, arrangement or commitment (A) not made in the ordinary course of business, and (B) pursuant to which Seller is or may become obligated to invest in or contribute to and agreements relating to joint ventures or partnerships set forth in Schedule -------- 2.02, true and complete copies of which have ---- been furnished to Buyers; (v) agreement, indenture or other instrument not disclosed in the Seller Financial Statements relating to the borrowing of money by Seller or the guarantee by Seller of any such obligation (other than trade payables or instruments related to transactions entered into in the ordinary course of business by Seller; (vi) contract containing covenants which limit the ability of Seller to compete in any line of business or with any person or which involves any restrictions on the geographical area in which, or method by which, Seller may carry on its business (other that as may be required by law or any applicable Regulatory Authority); (vii) contract or agreement which is a "material contract" within the meaning of Item 601(b)(10) of Regulation S-K as promulgated by the SEC to be - 9 - 14 performed after the date of this Agreement that has not been filed or incorporated by reference in the Seller Reports; (viii) lease with annual rental payments aggregating $10,000 or more; (ix) loans or other obligations payable or owing to any officer, director or employee except salaries, wages and directors' fees or other compensation incurred and accrued in the ordinary course of business; (x) other agreement, contract, arrangement, understanding or commitment involving an obligation by Seller of more than $25,000 and extending beyond six months from the date hereof that cannot be cancelled without cost or penalty upon notice of 30 days or less; or (xi) investment advisory agreements (within the meaning of the 1940 Act). (b) Seller carries property, liability, director and officer errors and omissions, products liability and other insurance coverage as set forth in Schedule 2.11(b) under the heading "Insurance." ---------------- (c) True, correct and complete copies of the agreements, contracts, leases, insurance policies and other documents referred to in Sections 2.11(a) and (b) ------------------------ have been included with Schedule 2.11(a) hereto. ---------------- (d) To the best knowledge of Seller, each of the agreements, contracts, leases, insurance policies and other documents referred to in Schedules 2.11 (a) and (b) -------------------------- is a valid, binding and enforceable obligation of the parties sought to be bound thereby, except as the enforceability thereof against the parties thereto (other than Seller) may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws now or hereafter in effect relating to the enforcement of creditors' rights generally, and except that equitable principles may limit the right to obtain specific performance or other equitable remedies. 2.12. Absence of Defaults. Seller is not in ------------------- violation of its charter documents or Bylaws or in default under any material agreement, commitment, arrangement, lease, insurance policy or other instrument, whether entered into in the ordinary course of business or otherwise and whether written or oral, and there has not occurred any event that, with the lapse of time or giving of notice or both, would constitute such a default, except, in all cases, where such violation or default would not have a Material Adverse Effect on Seller. 2.13. Litigation and Other Proceedings. Except -------------------------------- as set forth on Schedule 2.13 or otherwise disclosed in the Seller ------------- Financial Statements, Seller is not a party to any pending or, to the best knowledge of Seller, threatened claim, action, suit, investigation or proceeding, or is subject to any order, judgment or decree, except for matters which, in the aggregate, will not have, or reasonably could not be expected to have, a Material Adverse Effect on Seller. 2.14. Directors' and Officers' Insurance. Seller ---------------------------------- has taken or will take all requisite action (including, without limitation, the making of claims and the giving of notices) pursuant to its directors' and officers' liability insurance policy or policies in order to preserve all rights thereunder with respect - 10 - 15 to all matters (other than matters arising in connection with this Agreement and the transactions contemplated hereby) occurring prior to the Effective Time that are known to Seller, except for such matters which, individually or in the aggregate, will not have and reasonably could not be expected to have a Material Adverse Effect on Seller. 2.15. Compliance with Laws. -------------------- (a) To the best knowledge of Seller, Seller has all permits, licenses, authorizations, orders and approvals of, and have made all filings, applications and registrations with, all Regulatory Authorities that are required in order to permit it to own or lease its properties and assets and to carry on its business as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and no suspension or cancellation of any of them is threatened; and all such filings, applications and registrations are current; in each case except for permits, licenses, authorizations, orders, approvals, filings, applications and registrations the failure to have (or have made) would not have a Material Adverse Effect on Seller. (b) (i) Seller has complied with all laws, regulations and orders (including, without limitation, zoning ordinances, building codes, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and securities, tax, environmental, civil rights, and occupational health and safety laws and regulations including, without limitation, all statutes, rules, regulations and policy statements pertaining to the exercise of trust powers) and governing instruments applicable to it and to the conduct of its business, except where such failure to comply would not have a Material Adverse Effect on Seller, and (ii) Seller is not in default under, and no event has occurred which, with the lapse of time or notice or both, could result in the default under, the terms of any judgment, order, writ, decree, permit, or license of any Regulatory Authority or court, whether federal, state, municipal or local, and whether at law or in equity, except where such default would not have a Material Adverse Effect on Seller. (c) Seller is not subject to or reasonably likely to incur a liability as a result of its ownership, operation, or use of any Property (as defined below) of Seller (A) that is contaminated by or contains any hazardous waste, toxic substance or related materials, including, without limitation, asbestos, PCBs, pesticides, herbicides and any other substance or waste that is hazardous to human health or the environment (collectively, a "Toxic Substance"), or (B) on which any Toxic Substance has been stored, disposed of, placed or used in the construction thereof; and which, in each case, reasonably could be expected to have a Material Adverse Effect on Seller. "Property" shall include all property (real or personal, tangible or intangible) owned or controlled by Seller, including, without limitation, property in which any venture capital or similar unit of Seller has an interest and, to the best knowledge of Seller, property held by Seller in its capacity as a trustee. No claim, action, suit or proceeding is pending and no material claim has been asserted against Seller relating to Property of Seller before any court or other Regulatory Authority or arbitration tribunal relating to Toxic Substances, pollution or the environment, and there is no outstanding judgment, order, writ, injunction, decree or award against or affecting Seller with respect to the same. Except for statutory or regulatory restrictions of general application, no Regulatory Authority has placed any restriction on the business of Seller which reasonably could be expected to have a Material Adverse Effect on Seller. - 11 - 16 (d) Since December 31, 1994, Seller has not received any notification or communication which has not been resolved from any Regulatory Authority (i) asserting that any Seller is not in substantial compliance with any of the statutes, regulations or ordinances that such Regulatory Authority enforces, except with respect to matters which reasonably could not be expected to have a Material Adverse Effect on Seller (ii) threatening to revoke any license, franchise, permit or governmental authorization that is material to the Condition of Seller, (iii) requiring or threatening to require Seller, or indicating that Seller may be required, to enter into a cease and desist order, agreement or memorandum of understanding or any other agreement restricting or limiting or purporting to direct, restrict or limit in any manner the operations of Seller including, without limitation, any restriction on the payment of dividends. No such cease and desist order, agreement or memorandum of understanding or other agreement is currently in effect. 2.16. Labor. No work stoppage involving Seller is ----- pending or, to the best knowledge of Seller, threatened. Seller is not involved in, or, to the best knowledge of Seller, threatened with or affected by, any labor dispute, arbitration, lawsuit or administrative proceeding which reasonably could be expected to have a Material Adverse Effect on Seller. None of the employees of Seller are represented by any labor union or any collective bargaining organization. 2.17. Material Interests of Certain Persons. No ------------------------------------- officer or director of Seller, or any "associate" (as such term is defined in Rule 14a-1 under the Exchange Act) of any such officer or director, has any interest in any contract or property (real or personal, tangible or intangible), used in, or pertaining to the business of, Seller, which in the case of Seller would be required to be disclosed by Item 404 of Regulation S-K promulgated by the SEC. 2.18. Employee Benefit Plans. ---------------------- (a) Schedule 2.18(a) lists all pension, ---------------- retirement, supplemental retirement, stock option, stock purchase, stock ownership, savings, stock appreciation right, profit sharing, deferred compensation, consulting, bonus, medical, disability, workers' compensation, vacation, group insurance, severance and other employee benefit, incentive and welfare policies, contracts, plans and arrangements, and all trust agreements related thereto, maintained by or contributed to by Seller in respect of any of the present or former directors, officers, or other employees of and/or consultants to Seller (collectively, "Seller Employee Plans"). Seller has furnished Buyers with the following documents with respect to each Seller Employee Plan: (i) a true and complete copy of all written documents comprising such Seller Employee Plan (including amendments and individual agreements relating thereto) or, if there is no such written document, an accurate and complete description of the Seller Employee Plan; (ii) the most recently filed Form 5500 or Form 5500-C/R (including all schedules thereto), if applicable; (iii) the most recent financial statements and actuarial reports, if any; (iv) the summary plan description currently in effect and all material modifications thereof, if any; and (v) the most recent IRS determination letter, if any. (b) All Seller Employee Plans have been maintained and operated in all material respects in accordance with their terms and the requirements of all applicable statutes, orders, rules and final regulations, including, without limitation, to the extent applicable, ERISA and the Code. All contributions required to be made to Seller Employee Plans have been made or reserved. - 12 - 17 (c) With respect to each of the Seller Employee Plans which is a pension plan (as defined in Section 3(2) of ERISA) (the "Pension Plans"): (i) each Pension Plan which is intended to be "qualified" within the meaning of Section 401(a) of the Code has been determined to be so qualified by the IRS and such determination letter may still be relied upon, and each related trust is exempt from taxation under Section 501(a) of the Code; (ii) the present value of all benefits vested and all benefits accrued under each Pension Plan which is subject to Title IV of ERISA did not, in each case, as of the last applicable annual valuation date (as indicated on Schedule 2.18(a)), exceed ---------------- the value of the assets of the Pension Plan allocable to such vested or accrued benefits; (iii) there has been no "prohibited transaction," as such term is defined in Section 4975 of the Code or Section 406 of ERISA, which could subject any Pension Plan or associated trust, or Seller, to any tax or penalty; (iv) no Pension Plan or any trust created thereunder has been terminated, nor has there been any "reportable events" with respect to any Pension Plan, as that term is defined in Section 4043 of ERISA since January 1, 1989; and (v) no Pension Plan or any trust created thereunder has incurred any "accumulated funding deficiency", as such term is defined in Section 302 of ERISA (whether or not waived). No Pension Plan is a "multiemployer plan" as that term is defined in Section 3(37) of ERISA. (d) Seller has no liability for any post- retirement health, medical or similar benefit of any kind whatsoever, except as required by statute or regulation. (e) Seller has no material liability under ERISA or the Code as a result of its being a member of a group described in Sections 414(b), (c), (m) or (o) of the Code. (f) Neither the execution nor delivery of this Agreement, nor the consummation of any of the transactions contemplated hereby, will (i) result in any payment (including, without limitation, severance, unemployment compensation or golden parachute payment) becoming due to any director or employee of Seller from any of such entities, (ii) increase any benefit otherwise payable under any of the Seller Employee Plans or (iii) result in the acceleration of the time of payment of any such benefit. Seller shall use its best efforts to insure that no amounts paid or payable by Seller, or Buyers to or with respect to any employee or former employee of Seller will fail to be deductible for federal income tax purposes by reason of Section 280G of the Code. 2.19. Conduct of Seller to Date. From and after ------------------------- December 31, 1996 through the date of this Agreement, except as set forth in the Seller Financial Statements: (i) Seller has conducted its business in the ordinary and usual course consistent with past practices; (ii) Seller has not issued, sold, granted, conferred or awarded any of its Equity Securities, or any corporate debt securities which would be classified under GAAP as long-term debt on the balance sheets of Seller; (iii) Seller has not effected any stock split or adjusted, combined, reclassified or otherwise changed its capitalization; (iv) Seller has not declared, set aside or paid any dividend (other than its regular quarterly dividends) or other distribution in respect of its capital stock, or purchased, redeemed, retired, repurchased or exchanged, or otherwise acquired or disposed of, directly or indirectly, any of its Equity Securities, whether pursuant to the terms of such Equity Securities or otherwise; (v) Seller has not incurred any obligation or liability (absolute or contingent), except liabilities incurred in the ordinary course of business, or subjected to Lien any of its assets or properties other than in the ordinary course of business consistent with past practice; (vi) Seller has not discharged or satisfied any Lien or paid any obligation or liability (absolute or contingent), other than in the ordinary course of business; (vii) Seller has not sold, assigned, transferred, leased, exchanged, or otherwise disposed of any of its properties or assets other than for a fair consideration in the ordinary course of business; (viii) except as required by contract or law, Seller has - 13 - 18 not (A) increased the rate of compensation of, or paid any bonus to, any of its directors, officers, or other employees, except in accordance with existing policy, (B) entered into any new, or amended or supplemented any existing, employment, management, consulting, deferred compensation, severance, or other similar contract, (C) entered into, terminated, or substantially modified any of the Seller Employee Plans or (D) agreed to do any of the foregoing; (ix) Seller has not suffered any material damage, destruction, or loss, whether as the result of fire, explosion, earthquake, accident, casualty, labor trouble, requisition, or taking of property by any Regulatory Authority, flood, windstorm, embargo, riot, act of God or the enemy, or other casualty or event, and whether or not covered by insurance; (x) Seller has not cancelled or compromised any debt; and (xi) Seller has not entered into any material transaction, contract or commitment outside the ordinary course of its business. 2.20. Absence of Undisclosed Liabilities. ---------------------------------- (a) As of the date of this Agreement, Seller has no debts, liabilities or obligations equal to or exceeding $5,000, individually or $25,000 in the aggregate, whether accrued, absolute, contingent or otherwise and whether due or to become due, which are required to be reflected in the Seller Financial Statements or the notes thereto in accordance with GAAP except: (i) liabilities and obligations reflected on the Seller Financial Statements; (ii) operating leases reflected on Schedule 2.11; and ------------- (iii) debts, liabilities or obligations incurred since December 31, 1996 in the ordinary and usual course of their respective businesses, none of which are for breach of contract, breach of warranty, torts, infringements or lawsuits and none of which have a Material Adverse Effect on Seller. (b) Seller was not as of December 31, 1996, and since such date to the date hereof, has not become a party to, any contract or agreement, which had, has or may be reasonably expected to have a Material Adverse Effect on Seller. 2.21. Proxy Statement, Etc. None of the information --------------------- regarding Seller to be supplied by Seller for inclusion or included in (i) the Proxy Statement to be mailed to Seller's shareholders in connection with the meeting to be called to consider this Agreement and the Merger (the "Proxy Statement"), (ii) the Registration Statement (as defined in Section 5.02 hereof) or (iii) any other documents to be filed with any Regulatory Authority in connection with the transactions contemplated hereby will, at the respective times such documents are filed with any Regulatory Authority and, with respect to the Proxy Statement, when mailed, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the meeting of Seller's shareholders referred to in Section 5.03, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for such meeting. All documents which Seller is responsible for filing with any Regulatory Authority in connection with the Merger will comply as to form in all material respects with the provisions of applicable law. - 14 - 19 2.22. Registration Obligations. Seller is not ------------------------ under any obligation, contingent or otherwise, which will survive the Effective Time by reason of any agreement to register any transaction involving any of its securities under the Securities Act. 2.23. Tax and Regulatory Matters. Seller has not -------------------------- taken or agreed to take any action or has any knowledge of any fact or circumstance that would (i) prevent the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code or (ii) materially impede or delay receipt of any approval referred to in Section 6.01(b) or the consummation of the transactions contemplated by this Agreement. 2.24. Intellectual Property; Patents; Trademarks; ------------------------------------------- Trade Names. All patents, trademarks, service marks, trade names - ----------- or copyrights owned by or used or proposed to be used by Seller and all applications or registrations therefor ("Intellectual Property") and all contracts, agreements, commitments and understandings relating to the use or license of technology, know- how or processes by Seller (the "Intellectual Property Licenses") are listed in Schedule 2.24. Except as disclosed in Schedule 2.24: ------------- ------------- (a) Seller owns, or has the sole and exclusive right to use, all Intellectual Property, whether under Intellectual Property Licenses or otherwise, used in or necessary for the ordinary conduct of its business; (b) the consummation of the transactions contemplated by this Agreement will not alter or impair any such rights; and (c) no Intellectual Property owned, licensed or used by Seller, or Intellectual Property License of Seller is the subject of a lawsuit or any other proceeding, nor has any party challenged or, to the best of Seller's knowledge, threatened to challenge Seller's right to use such Intellectual Property or Intellectual Property License or application for any of the foregoing; and, to the best of Seller's knowledge, there is no basis for any such challenge. 2.25. Bank Accounts. Schedule 2.25 lists all bank, ------------- ------------- money market, savings and similar accounts and safe deposit boxes of Seller, specifying the account numbers and the authorized signatories or persons having access to them. 2.26. Transactions with Affiliates. Except as ---------------------------- disclosed in Schedule 2.26, no shareholder of Seller or any person ------------- controlled by some combination of any shareholder of Seller, no officer or director of Seller, or any "affiliate" or "associate" (as such terms are defined in the rules and regulations of the SEC under the Securities Act) of any of the foregoing: (a) has been a party to any lease, sublease, contract, agreement, commitment, understanding or other arrangement of any kind whatsoever, involving any such person and Seller that is not disclosed in Schedule 2.26; ------------- (b) owns directly or indirectly, in whole or in part, any property that Seller uses or otherwise has rights in respect of; or (c) has any cause of action or other claim whatsoever against, or owes any amount to, Seller other than (i) for compensation (including fringe benefits) to officers and employees of Seller and for the reimbursement of ordinary and necessary expenses incurred in connection with employment by Seller and (ii) as otherwise disclosed pursuant to this Agreement. 2.27. Brokers and Finders. Neither Seller nor ------------------- any of its officers, directors or employees has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder's fees, and no broker or finder has acted directly or indirectly for Seller in connection with this Agreement or the transactions contemplated hereby. - 15 - 20 2.28. Accuracy of Information. The statements ----------------------- contained in this Agreement, the Schedules and any other written document executed and delivered by or on behalf of Seller pursuant to the terms of this Agreement are true and correct as of the date hereof or as of the date delivered in all material respects, and such statements and documents do not omit any material fact necessary to make the statements contained therein not misleading. ARTICLE III ----------- REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYERS As an inducement to Seller to enter into and perform its obligations under this Agreement, and notwithstanding any examina- tion, inspection, audit or other investigation made by Seller, Buyers jointly and severally represent and warrant to and covenant with Seller as follows: 3.01. Organization and Authority. Buyer and Merger -------------------------- Sub are each corporations duly organized, validly existing and in good standing under the laws of the States of Delaware and Kentucky, respectively, are each qualified to do business and are each in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and has corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted, except where the failure to be so qualified would not have a Material Adverse Effect on Unified and its Subsidiaries, taken as a whole. 3.02. Capitalization of Unified. The authorized ------------------------- capital stock of Unified consists of (i) 300,000 shares of Unified Common Stock and (ii) 1,000,000 shares of preferred stock, $0.01 par value ("Unified Preferred Stock"). As of the date hereof, 17,069 shares of Unified Preferred Stock were issued and outstanding and, as of the Closing Date, excluding shares of Unified Common Stock to be issued in connection with the Merger, the pending acquisition of Health Financial, Inc. and any acquisition transaction by Unified that is announced after the date hereof, 300,000 shares of Unified Common Stock will be issued and outstanding. Unified has designated 10,000 shares of Unified Preferred Stock as "Series A 8% Cumulative Preferred Stock," of which 8,486 shares are issued and outstanding, and 10,000 shares of Unified Preferred Stock as "Series B 8% Cumulative Preferred Stock," of which 8,583 shares were issued and outstanding. As of the date hereof, Unified had no shares of Unified Common Stock reserved for issuance under various Unified employee and/or director stock option, incentive and/or benefit plans ("Unified Employee/Director Stock Grants"). Seller hereby acknowledges that Unified anticipates filing with the Secretary of State of the State of Delaware, prior to the Effective Time, documents to effect (i) a change of the par value of the Unified Common Stock to $0.01, (ii) an increase in the number of shares of Unified Common Stock authorized to 25,000,000 and (iii) a possible reduction in the number of shares of Unified Preferred Stock authorized to a number equal to or greater than the number currently outstanding. In addition, Seller hereby acknowledges that Unified may effect a two- for-one stock split prior to the Effective Time, which split would increase the number of shares of Unified Common Stock then issued and outstanding to 600,000. Unified continually evaluates possible acquisitions and may prior to the Effective Time enter into one or more agreements providing for, and may consummate, the acquisition by it of another company (or the assets thereof) for consideration that may include Equity Securities. In addition, prior to the Effective Time, Unified may, depending on market conditions and other factors, otherwise determine to issue equity, equity-linked or other securities for financing purposes or repurchase its outstanding Equity Securities. Notwithstanding the foregoing, neither Unified nor any Unified Subsidiary has taken or agreed to take any action or has any knowledge of any fact or circumstance and neither Unified nor Merger Sub will take any action that would (i) prevent the transactions contemplated hereby - 16 - 21 from qualifying as a reorganization within the meaning of Section 368 of the Code or (ii) materially impede or delay receipt of any approval referred to in Section 6.01(b) or the consummation of the transactions contemplated by this Agreement. Except as set forth above, there are no other Equity Securities of Unified outstanding. All of the issued and outstanding shares of Unified Common Stock are validly issued, fully paid, and nonassessable, and have not been issued in violation of any preemptive right of any shareholder of Unified. At the Effective Time, the Unified Common Stock to be issued in the Merger will be duly authorized, validly issued, fully paid and nonassessable, will not be issued in violation of any preemptive right of any shareholder of Unified. 3.03. Authorization. ------------- (a) Unified and Merger Sub each have the corporate power and authority to enter into this Agreement and to carry out their respective obligations hereunder. The execution, delivery and performance of this Agreement by Unified and Merger Sub and the consummation by Unified and Merger Sub of the transactions contemplated hereby have been duly authorized by all requisite corporate action of Unified and Merger Sub. Subject to the receipt of such approvals of the Regulatory Authorities as may be required by statute or regulation, this Agreement is a valid and binding obligation of Unified and Merger Sub enforceable against each in accordance with its terms. (b) Neither the execution, delivery and performance by Unified and Merger Sub of this Agreement, nor the consummation by Unified and Merger Sub of the transactions contemplated hereby, nor compliance by Unified and Merger Sub with any of the provisions hereof, will (i) violate, conflict with or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any Lien upon any of the properties or assets of Unified or Merger Sub under any of the terms, conditions or provisions of (x) their respective Articles of Incorporation or Bylaws, or (y) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Unified or Merger Sub is a party or by which they may be bound, or to which Unified or Merger Sub or any of their respective properties or assets may be subject, or (ii) subject to compliance with the statutes and regulations referred to in subsection (c) of this Section 3.03, violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Unified or Merger Sub or any of their respective properties or assets; other than violations, conflicts, breaches, defaults, terminations, accelerations or Liens which would not have a Material Adverse Effect on Unified and its Subsidiaries, taken as a whole. (c) Other than in connection with or in compliance with the provisions of the Kentucky Statute, Chapter 287, the Securities Act, the Exchange Act, the 1940 Act, the securities or blue sky laws of the various states or any required approvals of any other Regulatory Authority, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any public body or authority is necessary for the consummation by Unified and Merger Sub of the transactions contemplated by this Agreement. 3.04. Unified Financial Statements. The consolidated ---------------------------- balance sheet of Unified and its Subsidiaries as of December 31, 1996 and 1995 and related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, - 17 - 22 1996, together with the notes thereto, audited by Larry E. Nunn Associates, L.L.C. (collectively, the "Unified Financial Statements"), have been prepared in accordance with GAAP, present fairly the consolidated financial position of Unified and its Subsidiaries at the dates thereof and the consolidated results of operations, changes in shareholders' equity and cash flows of Unified and its Subsidiaries for the periods stated therein and are derived from the books and records of Unified and its Subsidiaries, which are complete and accurate in all material respects and have been maintained in accordance with good business practices. Neither Unified nor any of its Subsidiaries has any material contingent liabilities that are not described in the Unified Financial Statements. 3.05. Unified Reports. Since January 1, 1994, each --------------- of Unified and its Subsidiaries has filed all reports, registra- tions and statements, together with any required amendments thereto, that it was required to file with any Regulatory Authority. All such reports and statements filed with any such Regulatory Authority are collectively referred to herein as the "Unified Reports." As of its respective date, each Unified Report complied in all material respects with all the rules and regulations promulgated by the applicable Regulatory Authority and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.06. Material Adverse Effect. Since December 31, ----------------------- 1996, there has been no Material Adverse Effect on Unified and its Subsidiaries, taken as a whole. 3.07. Legal Proceedings or Other Adverse Facts. ---------------------------------------- Except as otherwise disclosed in the Unified Financial Statements, neither Unified nor any of its Subsidiaries is a party to any pending or, to the best knowledge of Unified, threatened claim, action, suit, investigation or proceeding, or is subject to any order, judgment or decree, except for matters which, in the aggregate, will not have, or reasonably could not be expected to have, a Material Adverse Effect on Unified and its Subsidiaries, taken as a whole. 3.08. Proxy Statement, Etc. None of the information --------------------- regarding Unified or any of its Subsidiaries to be supplied by Buyers for inclusion or included in (i) the Proxy Statement or (ii) any other documents to be filed with any Regulatory Authority in connection with the transactions contemplated hereby will, at the respective times such documents are filed with any Regulatory Authority and, with respect to the Proxy Statement, when mailed, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the meeting of shareholders referred to in Section 5.03, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for such meeting. All documents which Unified or Merger Sub are responsible for filing with any Regulatory Authority in connection with the Merger will comply as to form in all material respects with the provisions of applicable law. 3.09. Brokers and Finders. Neither Unified, Merger ------------------- Sub nor any of their respective officers, directors or employees has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder's fees, and no broker or finder has acted directly or indirectly for Unified or Merger Sub in connection with this Agreement or the transactions contemplated hereby. 3.10. Accuracy of Information. The statements ----------------------- contained in this Agreement, the Schedules and in any other written document executed and delivered by or on behalf of Buyers pursuant to the terms of this Agreement are true and correct in all material respects, and such statements and - 18 - 23 documents do not omit any material fact necessary to make the statements contained herein or therein not misleading. ARTICLE IV ---------- CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME 4.01. Conduct of Businesses Prior to the Effective -------------------------------------------- Time. During the period from the date of this Agreement to the - ---- Effective Time, Seller shall, conduct its business according to the ordinary and usual course consistent with past practices and shall use its best efforts to maintain and preserve its business organization, employees and advantageous business relationships and retain the services of its officers and key employees. 4.02. Forbearances of Seller. Except to the extent ---------------------- required by law, regulation or Regulatory Authority, or with the prior written consent of Buyers (unless otherwise specifically noted in this Section 4.02), during the period from the date of this Agreement to the Effective Time, Seller shall not: (a) declare, set aside or pay any dividends or other distributions, directly or indirectly, in respect of its capital stock; (b) enter into or amend any employment, severance or similar agreement or arrangement with any director, officer or employee, or materially modify any of the Seller Employee Plans or grant any salary or wage increase or materially increase any employee benefit (including incentive or bonus payments), except (i) normal individual increases in compensation to employees consistent with past practice, (ii) as required by law or contract and (iii) such increases of which Seller notifies Buyers in writing and which Buyers do not disapprove within 10 days of the receipt of such notice; (c) authorize, recommend, propose or announce an intention to authorize, recommend or propose, or enter into an agreement in principle with respect to, any merger, consolidation or business combination (other than the Merger), any acquisition of a material amount of assets or securities, any disposition of a material amount of assets or securities or any release or relinquishment of any material contract rights; (d) propose or adopt any amendments to its Articles of Incorporation or other charter document or Bylaws; (e) issue, sell, grant, confer or award any of its Equity Securities or effect any stock split or adjust, combine, reclassify or otherwise change its capitalization as it existed on the date of this Agreement; (f) purchase, redeem, retire, repurchase or exchange, or otherwise acquire or dispose of, directly or indirectly, any of its Equity Securities, whether pursuant to the terms of such Equity Securities or otherwise; (g) directly or indirectly (including through its officers, directors, employees or other representatives) (i) initiate, solicit or encourage any discussions, inquiries or proposals with any third party (other than Buyers) relating to the disposition of any - 19 - 24 significant portion of the business or assets of Seller or the acquisition of Equity Securities of Seller or the merger of Seller with any person (other than Buyers) or any similar transaction (each such transaction being referred to herein as an "Acquisition Transaction"), or (ii) provide any such person with information or assistance or negotiate with any such person with respect to an Acquisition Transaction, and Seller shall promptly notify Buyers orally of all the relevant details relating to all inquiries, indications of interest and proposals which it may receive with respect to any Acquisition Transaction; (h) take any action that would (A) materially impede or delay the consummation of the transactions contemplated by this Agreement or the ability of Buyers or Seller to obtain any approval of any Regulatory Authority required for the transactions contemplated by this Agreement or to perform its covenants and agreements under this Agreement or (B) prevent or impede the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code; (i) other than in the ordinary course of business consistent with past practice, incur any indebtedness for borrowed money or assume, guarantee, endorse or otherwise as an accommodation become responsible or liable for the obligations of any other individual, corporation or other entity; (j) agree in writing or otherwise to take any of the foregoing actions or engage in any activity, enter into any transaction or intentionally take or omit to take any other act which would make any of the representations and warranties in Article II of this Agreement untrue or incorrect in any material respect if made anew after engaging in such activity, entering into such transaction, or taking or omitting such other act. 4.03. Forbearances of Buyers. During the period from ---------------------- the date of this Agreement to the Effective Time, Buyers shall not, and shall not permit any of their respective Subsidiaries to, without the prior written consent of Seller, agree in writing or otherwise engage in any activity, enter into any transaction or take or omit to take any other action: (a) that would (i) materially impede or delay the consummation of the transactions contemplated by this Agreement or the ability of Buyers or Seller to obtain any approval of any Regulatory Authority required for the transactions contemplated by this Agreement or to perform its covenants and agreements under this Agreement or (ii) prevent or impede the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code; or (b) which would make any of the representa- tions and warranties of Article III of this Agreement untrue or incorrect in any material respect if made anew after engaging in such activity, entering into such transaction, or taking or omitting such other action. ARTICLE V --------- ADDITIONAL AGREEMENTS 5.01. Access and Information. Buyers and Seller ---------------------- shall each afford to the other, and to the other's accountants, counsel and other representatives, full access during normal business hours, - 20 - 25 during the period prior to the Effective Time, to all their respective properties, books, contracts, commitments and records and, during such period, each shall furnish promptly to the other (i) a copy of each report, schedule and other document filed or received by it during such period pursuant to the requirements of federal and state securities laws and (ii) all other information concerning its business, properties and personnel as the other may reasonably request. Each party shall, and shall cause its advisors and representatives to, (A) hold confidential all information obtained in connection with any transaction contemplated hereby with respect to the other party and its Subsidiaries which is not otherwise public knowledge, (B) in the event of a termination of this Agreement, return all documents (including copies thereof) obtained hereunder from the other party or any of its Subsidiaries to it and (C) use their respective best efforts to cause all of such party's confidential information obtained pursuant to this Agreement or in connection with the negotiation of this Agreement to be treated as confidential and not use, or knowingly permit others to use, any such information unless such information becomes generally available to the public. 5.02. Registration Statement; Regulatory Matters. ------------------------------------------ (a) On or before May 31, 1997, Unified shall prepare and file with the SEC a Registration Statement on Form 10 or Form 10-SB, as the case may be, with respect to the shares of Unified Common Stock (the "Registration Statement"), and shall use its best efforts to cause the Registration Statement to become effective by no later than August 31, 1997. Unified shall prepare and, subject to the review and consent of Seller with respect to matters relating to Seller, use its best efforts to file as soon as is reasonably practicable an application for approval of the Merger with each such Regulatory Authority as may require an application. Unified shall also take any action required to be taken under any applicable state blue sky or securities laws in connection with the issuance of such shares, and Seller shall furnish Unified all information concerning Seller and the shareholders thereof as Unified may reasonably request in connection with any such action. Upon the effectiveness of the Registration Statement, Unified shall use its best efforts, to the extent practicable, to have the Unified Common Stock traded over-the-counter with quotes published by the National Quotation Bureau, Inc. Daily Quotation System. (b) Seller and Buyers shall cooperate and use their respective best efforts to prepare all documentation, to effect all filings and to obtain all permits, consents, approvals and authorizations of all third parties and Regulatory Authorities necessary to consummate the transactions contemplated by this Agreement, provided that such actions do not: (i) materially impede or delay the receipt of any approval referred to in Section 6.01(b); (ii) prevent or impede the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code; or (iii) the consummation of the transactions contemplated by this Agreement. 5.03. Shareholder Approval. Seller shall call a -------------------- meeting of its shareholders to be held as soon as practicable after the date hereof for the purpose of voting upon this Agreement and the Merger. In connection with such meeting, Seller shall prepare, subject to the review and consent of Unified, the Proxy Statement and mail the same to the shareholders of Seller. The Board of Directors of Seller shall submit for approval of Seller's share- holders the matters to be voted upon at such meeting. The Board of Directors of Seller hereby does and shall recommend this Agreement and the transactions contemplated hereby to shareholders of Seller and use its reasonable best efforts to obtain any vote of Seller's shareholders necessary for the approval of this Agreement. Seller and the Principal Shareholder shall use their best efforts to obtain all other Shareholder Approvals. - 21 - 26 5.04. Current Information. During the period from ------------------- the date of this Agreement to the Effective Time, each party shall promptly furnish the other with copies of all interim financial statements as the same become available and shall cause one or more of its designated representatives to confer on a regular and frequent basis with representatives of the other party. Each party shall promptly notify the other party of the following events immediately upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken by the affected party with respect thereto: (a) an event which would cause any representation or warranty of such party or any Schedule, statement, report, notice, certificate or other writing furnished by such party to be untrue or misleading in any material respect; (b) any Material Adverse Effect to it; (c) the issuance or commencement of any governmental complaint, investigation or hearing (or any communication indicating that the same may be contemplated); or (d) the institution or threat of material litigation involving such party, and shall keep the other party fully informed of such events. 5.05. Environmental Reports. Seller shall provide to --------------------- Buyers, as soon as reasonably practical, but not later than forty- five (45) days after the date hereof, a phase one environmental investigation report (prepared by a firm reasonably acceptable to Buyers) on all real property owned, leased or operated by Seller as of the date hereof and within ten (10) days after the acquisition or lease of any real property acquired or leased by Seller after the date hereof. If required by the phase one investigation, in Buyers' reasonable opinion, Seller shall provide to Buyers a phase two investigation report (prepared by a firm reasonably acceptable to Buyers) on properties requiring such additional study. Buyers shall have fifteen (15) business days from the receipt of any such phase two investigation report to notify Seller of any dissatisfaction with the contents of such report. Should the cost of taking all remedial or other corrective actions and measures (i) required by applicable law, or (ii) recommended or suggested by such report or reports or prudent in light of serious life, health or safety concerns, in the aggregate, exceed the sum of Ten Thousand Dollars ($10,000), as reasonably estimated by such environmental consulting firm, or if the cost of such actions and measures cannot be so reasonably estimated by such firm to be such amount or less with any reasonable degree of certainty, Buyers shall have the right pursuant to Section 7.01(f) hereof, for a period of fifteen (15) business days following receipt of such estimate or indication that the cost of such actions and measures can not be so reasonably estimated, to terminate this Agreement. 5.06. Agreements of Affiliates. Set forth as ------------------------ Schedule 5.06 is a list (which includes individual and beneficial - ------------- ownership) of all persons whom Seller believes to be "affiliates" of Seller, as such term if defined for purposes of the Securities Act. Prior to the Effective Time, and via letter, Seller shall amend and supplement Schedule 5.06. ------------- 5.07. Expenses. Each party hereto shall bear its own -------- expenses incident to preparing, entering into and carrying out this Agreement and to consummating the Merger. 5.08. Miscellaneous Agreements. ------------------------ (a) Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its respective best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as expeditiously as possible, including, without limitation, using its respective best efforts to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby. Each party shall use its best efforts to obtain consents of all third parties and - 22 - 27 Regulatory Authorities necessary or, in the opinion of Buyers, desirable for the consummation of the transactions contemplated by this Agreement. (b) Seller, prior to the Effective Time, shall (i) consult and cooperate with Buyers regarding the implementation of those policies and procedures established by Buyers for its governance including, without limitation, policies and procedures pertaining to the accounting, audit, human resources, treasury and legal functions, and (ii) at the reasonable request of Buyers, conform Seller's existing policies and procedures in respect of such matters to Buyers' policies and procedures or, in the absence of any existing Seller policy or procedure regarding any such function, introduce Buyers' policies or procedures in respect thereof, unless to do so would cause Seller to be in violation of any law, rule or regulation of any Regulatory Authority having jurisdiction over Seller. 5.09. Employee Agreements and Benefits. -------------------------------- (a) Following the Effective Time, Buyers shall cause the Surviving Corporation to honor in accordance with their terms all employment, severance and other compensation contracts set forth on Schedule 2.11(b) ---------------- between Seller and any current or former director, officer, employee or agent thereof, and all provisions for vested benefits or other vested amounts earned or accrued through the Effective Time under the Seller Employee Plans. (b) The provisions of the Seller Stock Plans and any other plan, program or arrangement providing for the issuance or grant of any other interest in respect of the Equity Securities of Seller shall be deleted and terminated as of the Effective Time, and Seller shall ensure that following the Effective Time no participant in any Seller Stock Plan shall have any right thereunder to acquire any securities of Seller. (c) Except as set forth in Section 5.09(b) hereof, the Seller Employee Plans shall not be terminated by reason of the Merger but shall continue thereafter as plans of the Surviving Corporation until such time as the employees of Seller are integrated into Unified's employee benefit plans that are available to other employees of Unified and its Subsidiaries, subject to the terms and conditions specified in such plans and to such changes therein as may be necessary to reflect the consummation of the Merger. 5.10. Press Releases. Except as may be required -------------- by law, Seller and Unified shall consult and agree with each other as to the form and substance of any proposed press release relating to this Agreement or any of the transactions contemplated hereby. 5.11. State Takeover Statutes. Seller will take ----------------------- all steps necessary to exempt the transactions contemplated by this Agreement and any agreement contemplated hereby from, and if necessary challenge the validity of, any applicable state takeover law. 5.12. Directors' and Officers' Indemnification. ---------------------------------------- Unified agrees that the Merger shall not affect or diminish any of the duties and obligations of indemnification of Seller existing as of the Effective Time in favor of employees, agents, directors or officers of Seller arising by virtue of its Articles of Incorporation, Charter or Bylaws in the form in effect at the date of this Agreement or arising by operation of law or arising by virtue of any contract, resolution or other agreement or document existing at the date of this Agreement, and such duties and obligations shall continue in full force and effect for - 23 - 28 so long as they would (but for the Merger) otherwise survive and continue in full force and effect. To the extent that Seller's existing directors' and officers' liability insurance policy would provide coverage for any action or omission occurring prior to the Effective Time, Seller agrees to give proper notice to the insurance carrier and to Unified of a potential claim thereunder so as to preserve Seller's rights to such insurance coverage. 5.13. Tax Opinion Certificates. Seller shall use ------------------------ its reasonable best efforts to cause such of its executive officers, directors and/or holders of one percent (1%) or more of the Seller Common Stock (including shares beneficially held) as may be requested by Thompson Coburn to timely execute and deliver to Thompson Coburn certificates substantially in the form of Exhibit A or Exhibit B hereto, as the case may be. --------- --------- ARTICLE VI ---------- CONDITIONS 6.01. Conditions to Each Party's Obligation to Effect ----------------------------------------------- the Merger. The respective obligations of each party to effect the - ---------- Merger shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following conditions: (a) This Agreement shall have received the requisite Shareholder Approvals of Seller at the meeting of shareholders called pursuant to Section 5.03 of this Agreement and those required by the 1940 Act. (b) All requisite approvals of this Agreement and the transactions contemplated hereby shall have been received from the Regulatory Authorities, and all waiting periods after such approvals required by law or regulation have been satisfied. (c) Neither Seller nor Buyers shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the Merger. (d) Each of Buyers and Seller shall have received from Thompson Coburn an opinion (which opinion shall not have been withdrawn at or prior to the Effective Time) reasonably satisfactory in form and substance to it to the effect that the Merger will constitute a reorganization within the meaning of Section 368 of the Code and to the effect that, as a result of the Merger, assuming that such Seller Common Stock is a capital asset in the hands of the holder thereof at the Effective Time, (i) holders of Seller Common Stock who receive Unified Common Stock in the Merger will not recognize gain or loss for federal income tax purposes on the receipt of such stock, (ii) the basis of such Unified Common Stock will equal the basis of the Seller Common Stock for which it is exchanged and (iii) the holding period of such Unified Common Stock will include the holding period of the Seller Common Stock for which it is exchanged. - 24 - 29 6.02. Conditions to Obligations of Seller to Effect --------------------------------------------- the Merger. The obligations of Seller to effect the Merger shall - ---------- be subject to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (a) Representations and Warranties. The ------------------------------ representations and warranties of Buyers set forth in Article III of this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time (as though made on and as of the Effective Time, except (i) to the extent such representations and warranties are by their express provisions made as of a specified date, (ii) where the facts which caused the failure of any representation or warranty to be so true and correct have not resulted, and are not likely to result, in a Material Adverse Effect on Unified and its Subsidiaries, taken as a whole, and (iii) for the effect of transactions contemplated by this Agreement, and Seller shall have received a certificate of the Chairman and Chief Executive Officer of Unified, signing solely in his capacity as an officer of Unified, to such effect. (b) Performance of Obligations. Buyers shall -------------------------- have performed in all material respects all obligations required to be performed by it under this Agreement prior to the Effective Time, and Seller shall have received a certificate of the Chairman and Chief Executive Officer of Unified, signing solely in his capacity as an officer of Unified, to that effect. (c) Permits, Authorizations, etc. Buyers ----------------------------- shall have obtained any and all material permits, authorizations, consents, waivers and approvals required for the lawful consummation of the Merger. (d) No Material Adverse Effect. Since the -------------------------- date of this Agreement, there shall have been no Material Adverse Effect on Unified and its Subsidiaries, taken as a whole. (e) Opinion of Counsel. Unified shall have ------------------ delivered to Seller an opinion of Unified's counsel dated as of the Closing Date or a mutually agreeable earlier date in substantially the form set forth as Exhibit C to this Agreement. --------- (f) Registration Statement. The Registration ---------------------- Statement shall have been declared effective and shall not be subject to a stop order or any threatened stop order. 6.03. Conditions to Obligations of Buyers to Effect --------------------------------------------- the Merger. The obligations of Buyers to effect the Merger shall - ---------- be subject to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (a) Representations and Warranties. The ------------------------------ representations and warranties of Seller set forth in Article II of this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time (as though made on and as of the Effective Time, except (i) to the extent such representations and warranties are by their express provisions made as of a specific date, (ii) where the facts which caused the failure of any representation or warranty to be so true and correct have not resulted, and are not likely to result, in a Material Adverse Effect on Seller, and (iii) for the effect of transactions contemplated by this Agreement) and Buyers shall have - 25 - 30 received a certificate of the President of Seller, signing solely in his capacity as an officer of Seller, to such effect. (b) Performance of Obligations. Seller shall -------------------------- have performed in all material respects all obligations required to be performed by it under this Agreement prior to the Effective Time, and Buyers shall have received a certificate of the President of Seller signing solely in his capacity as an officer of Seller, to that effect. (c) Permits, Authorizations, etc. Seller ----------------------------- shall have obtained any and all material permits, authorizations, consents, waivers and approvals required for the lawful consummation by it of the Merger. (d) No Material Adverse Effect. Since the -------------------------- date of this Agreement, there shall have been no Material Adverse Effect on Seller. (e) Opinion of Counsel. Seller shall have ------------------ delivered to Buyers an opinion of Seller's counsel dated as of the Closing Date or a mutually agreeable earlier date in substantially the form set forth as Exhibit D to this Agreement. --------- (f) Opinion of Accountant. Unified shall have --------------------- received an opinion letter, dated as of the Closing Date, from its independent public accountants, to the effect that the Merger will qualify for pooling-of-interests accounting treatment under Accounting Principles Board Opinion No. 16 if closed and consummated in accordance with this Agreement. ARTICLE VII ----------- TERMINATION, AMENDMENT AND WAIVER 7.01. Termination. This Agreement may be terminated ----------- at any time prior to the Effective Time, whether before or after approval by Seller's shareholders: (a) by mutual consent by the Boards of Directors of Unified and Seller; (b) by the Board of Directors of Unified or the Board of Directors of Seller at any time after October 31, 1997 if the Merger shall not theretofore have been consummated (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein); (c) by the Board of Directors of Unified or the Board of Directors of Seller if any Regulatory Authority whose approval is required for the consummation of the transactions contemplated hereby has denied approval of the Merger and such denial has become final and nonappealable or (ii) the shareholders of Seller shall not have approved this Agreement at the meeting referred to in Section 5.03; (d) by the Board of Directors of Unified, on the one hand, or by the Board of Directors of Seller, on the other hand, in the event of a material volitional breach by the other party to this Agreement of any representation, warranty or agreement contained herein, which breach is not cured within 30 days after written notice thereof is given to - 26 - 31 the breaching party by the non-breaching party or is not waived by the non-breaching party during such period; (e) by the Board of Directors of Unified pursuant to and in accordance with the provisions of Section 5.05 hereof; or (f) by the Board of Directors of Seller in the event Unified shall have failed to either (i) file the Registration Statement with the SEC by May 31, 1997 or (ii) have the Registration Statement declared effective by August 31, 1997. 7.02. Effect of Termination. In the event of termin- --------------------- ation of this Agreement as provided in Section 7.01 hereof, this Agreement shall forthwith become void and there shall be no liability on the part of Buyers or Seller or their respective officers or directors except as set forth in the second sentence of Section 5.01 and in Section 5.08 and Article 8, and except that no termination of this Agreement pursuant to Section 7.01(e) shall relieve the breaching party of any liability to the non-breaching party hereto arising from the intentional, deliberate and willful non-performance of any covenant contained herein, after giving notice to such breaching party and an opportunity to cure as set forth in Section 7.01(e). 7.03. Amendment. This Agreement, the Exhibits and --------- the Schedules hereto may be amended by the parties hereto, by action taken by or on behalf of the respective Boards of Directors of Unified or Seller, at any time before or after approval of this Agreement by the shareholders of Seller; provided, however, that after any such approval by the shareholders of Seller no such modification shall (A) alter or change the amount or kind of Merger Consideration to be received by holders of Seller Common Stock as provided in this Agreement or (B) adversely affect the tax treatment to Seller shareholders as a result of the receipt of the Merger Consideration. This Agreement, the Exhibits and the Schedules hereto may not be amended except by an instrument in writing signed on behalf of each of Buyers and Seller. 7.04. Waiver. Any term, condition or provision of ------ this Agreement may be waived in writing at any time by the party which is, or whose stockholders or shareholders, as the case may be, are, entitled to the benefits thereof. ARTICLE VIII ------------ INDEMNIFICATION 8.01. Indemnification of Buyers. By execution of ------------------------- this Agreement, the Principal Shareholder hereby acknowledges that Unified shall be entitled to full indemnification by the Principal Shareholder of the following: (a) any and all loss, liability or damage (including judgments and settlement payments) incurred by Seller or Unified incident to, arising in connection with or resulting from any misrepresentation, breach, nonperformance or inaccuracy of any representation, warranty or covenant (to the extent such covenant is to be performed prior to the Closing Date) by Seller made or contained in this Agreement or in any Exhibit, Schedule, certificate or other document executed and delivered to Unified by the Principal Shareholder or by or on behalf of Seller under or pursuant to this Agreement or the transactions contemplated herein; - 27 - 32 (b) any and all loss, liability or damage relating to taxes which arise from or relate to (i) Seller's activities prior to the Closing Date, (ii) tax periods ending on or prior to the Closing Date or (iii) the Merger, in each case except to the extent that any specific amount for any such tax was recorded on the Seller's books; (c) Seller's obligations with respect to any employees of Seller under any pension, profit sharing or retirement plan, collective bargaining agreement, consulting agreement, life insurance or other employee welfare benefit plan or vacation policy relating to any time prior to the Closing Date, and in particular, obligations for medical or life insurance benefits of any former or retired employees of Seller or their dependents; (d) except to the extent of payments actually received by Unified pursuant to any insurance policies under which Seller is insured, any and all loss, liability or damage (including judgments and settlement payments) incurred by them incident to, arising in connection with or resulting from any act or failure to act by the Principal Shareholder or by Seller or its employees prior to the Closing Date; and (e) any and all costs, expenses and all other actual damages incurred in claiming, contesting or remedying any breach, misrepresentation, nonperformance or inaccuracy described above, or in enforcing their rights to indemnification hereunder, including, by way of illustration and not limitation, all legal and accounting fees, other professional expenses and all filing fees and collection costs incident thereto and all such fees, costs and expenses incurred in defending claims which, if successfully prosecuted, would have resulted in loss, liability, costs, expense or other damage. In case a claim shall be made or any action shall be brought in respect of which recovery through indemnity will lie against the Principal Shareholder pursuant to any provision of this Agreement, Unified shall promptly notify the Principal Shareholder in writing, and the Principal Shareholder shall promptly assume the defense thereof, including with the consent of Unified, which consent shall not be unreasonably withheld, the employment of counsel, the payment of all expenses and the right to negotiate and consent to settlement. Unified shall have the right to employ separate counsel with respect to any such claim or in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of Unified unless the employment of such counsel has been specifically authorized in writing by the Principal Shareholder or there is a conflict of interest that would prevent counsel for the Principal Shareholder from adequately representing both the Principal Shareholder, on the one hand, and Seller and Unified on the other hand, or would prevent counsel for Seller from adequately representing both Seller and Unified. The Principal Shareholder shall not be liable for any settlement of any such action effected without their written consent, but if settled with the written consent of the Principal Shareholder or if there be a final judgment for the plaintiff in any such action for which the Principal Shareholder is required hereunder to assume the defense, the Principal Shareholder agrees to indemnify and hold harmless Unified and Seller from and against any loss or liability by reason of such settlement or judgment. 8.02. Indemnification of Seller's Shareholders. ---------------------------------------- By execution of this Agreement, Unified hereby acknowledges that each shareholder of Seller as set forth on the Seller Shareholder List (collectively, the "Shareholders") shall be entitled to full indemnification by Unified of the following: (a) any and all loss, liability or damage (including judgments and settlement payments) incurred by the Shareholders incident to, arising in connection with or - 28 - 33 resulting from any misrepresentation, breach, nonperformance or inaccuracy of any representation, warranty or covenant by Unified made or contained in this Agreement or in any Exhibit, Schedule, certificate or other document executed and delivered to the Shareholders by Unified; and (b) any and all costs, expenses and all other actual damages incurred in claiming, contesting or remedying any breach, misrepresentation, nonperformance or inaccuracy described above, or in enforcing its rights to indemnification hereunder, including, by way of illustration and not limitation, all legal and accounting fees, other professional expenses and all filing fees and collection costs incident thereto and all such fees, costs and expenses incurred in defending claims which, if successfully prosecuted, would have resulted in loss, liability, cost, expense or other damages. In case a claim shall be made or any action shall be brought in respect of which recovery through indemnity will lie against Unified pursuant to any provision of this Agreement, the Shareholders shall promptly notify Unified in writing, and Unified shall promptly assume the defense thereof, including with the consent of the Shareholders, which consent shall not be unreasonably withheld, the employment of counsel, the payment of all expenses and the right to negotiate and consent to settlement. The Shareholders shall have the right to employ separate counsel with respect to any such claim or in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Shareholders unless the employment of such counsel has been specifically authorized in writing by Unified or there is a conflict of interest that would prevent counsel for Unified from adequately representing both Seller and Unified, on the one hand, and the Shareholders, on the other hand. Unified shall not be liable for any settlement of any such action effected without its written consent, but if settled with the written consent of Unified or if there be a final judgment for the plaintiff in any such action for which Unified is required hereunder to assume the defense, Unified agrees to indemnify and hold harmless the Shareholders from and against any loss or liability by reason of such settlement or judgment. 8.03. Payment of Claims for Indemnification. Any ------------------------------------- amounts to be indemnified to Unified shall be the responsibility of the Principal Shareholder and shall be paid promptly upon notice of Unified to the Principal Shareholder of incurrence of such loss, liability, cost, expense or damage and an explanation of the losses for Unified's demand for indemnification under Article 8 of this Agreement. Any amounts payable to the Shareholders pursuant to the provisions of Section 8.02 of this Agreement shall be the responsibility of Unified and shall be paid promptly upon notice of the Shareholders to Unified of incurrence of such loss, liability, cost, expense or damage and an explanation of the losses for the Shareholders' demand for indemnification under Section 8.02 of this Agreement. 8.04. Survival of Indemnification. Any other --------------------------- provision hereof to the contrary notwithstanding, the parties agree that the representations and warranties of the parties contained in this Agreement and any certificates delivered pursuant to this Agreement shall survive for a period of twelve (12) months after the Closing Date for purposes of this Article 8, regardless of any investigation made by either party prior to the date hereof or prior to the Closing Date. Unified and the Shareholders shall only be entitled to indemnification under this Article 8 for breaches of representations and warranties if a written notice describing the claim for which indemnification is sought is signed by the party claiming indemnification not later than twelve months following the Closing Date. Any claim for indemnification pursuant to this Article 8 for breaches of representations and warranties not made prior to the expiration of such twelve month period shall be extinguished, and all representations and warranties with respect to which no claim is made prior to the expiration of such twelve month period shall expire and be of no further force and effect. - 29 - 34 ARTICLE IX ---------- GENERAL PROVISIONS 9.01. Non-Survival of Representations, Warranties ------------------------------------------- and Agreements. No investigation by the parties hereto made heretofore - -------------- or hereafter shall affect the representations and warranties of the parties which are contained herein and each such representation and warranty shall survive such investigation. Except as set forth below in this Section 9.01, all representations, warranties and agreements in this Agreement of Buyers and Seller or in any instrument delivered by Buyers or Seller pursuant to or in connection with this Agreement shall expire at the Effective Time or upon termination of this Agreement in accordance with its terms. In the event of consummation of the Merger, the agreements contained in or referred to in Sections 1.07-1.11, 5.02(b), 5.06, 5.08, 5.09, 5.12 and 5.13 and Article 8 shall survive the Effective Time. In the event of termination of this Agreement in accordance with its terms, the agreements contained in or referred to in the second sentence of Section 5.01 and Sections 5.08 and 7.02 shall survive such termination. 9.02. No Assignment; Successors and Assigns. ------------------------------------- This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, but neither this Agreement nor any right or obligation set forth in any provision hereof may be transferred or assigned by any party hereto without the prior written consent of the other party, and any purported transfer or assignment in violation of this Section 9.02 shall be void and of no effect. There shall not be any third party beneficiaries of any provisions hereof except for Sections 1.08, 5.08, 5.09 and 5.12 and Article 8, which may be enforced against Buyers or Seller by the parties therein identified. 9.03. No Implied Waiver. No failure or delay ----------------- on the part of either party hereto to exercise any right, power or privilege hereunder or under any instrument executed pursuant hereto shall operate as a waiver nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 9.04. Headings. Article, section, subsection and -------- paragraph titles, captions and headings herein are inserted only as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Agreement or the intent or meaning of any provision hereof. 9.05. Entire Agreement. This Agreement, the ---------------- Exhibits and the Schedules hereto constitute the entire agreement between the parties with respect to the subject matter hereof, supersede all prior negotiations, representations, warranties, commitments, offers, letters of interest or intent, proposal letters, contracts, writings or other agreements or understandings, whether written or oral, with respect thereto, including that certain Agreement and Plan of Merger dated as of the date hereof by and among Unified, Merger Sub, Seller and the Principal Shareholder. 9.06. Counterparts. This Agreement may be executed ------------ in one or more counterparts, and any party to this Agreement may execute and deliver this Agreement by executing and delivering any of such counterparts, each of which when executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. 9.07. Notices. All notices and other communications ------- hereunder shall be in writing and shall be deemed to be duly received (i) on the date given if delivered personally or (ii) upon confirmation of receipt, if by facsimile transmission or (iii) on the date received if mailed by registered or certified mail (return receipt requested), to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): - 30 - 35 (i) if to Buyers: Unified Holdings, Inc. 429 North Pennsylvania Street Indianapolis, Indiana 46204 Attention: President Telecopy: (317) 632-7805 Copies to: Mr. Timothy L. Ashburn, Chairman 1104 Buttonwood Court Lexington, Kentucky 40515 and Thompson Coburn One Mercantile Center St. Louis, Missouri 63101 Attention: Charles H. Binger, Esq. Telecopy: (314) 552-7000 (ii) if to Seller or Principal Shareholder: First Lexington Trust Company 3320 Tates Creek Road Lexington, Kentucky 40502 Attention: Dr. Gregory Kasten, President Telecopy: (606) 266-5211 9.08. Severability. Any term, provision, covenant ------------ or restriction contained in this Agreement held by a court or a Regulatory Authority of competent jurisdiction to be invalid, void or unenforceable, shall be ineffective to the extent of such invalidity, voidness or unenforceability, but neither the remaining terms, provisions, covenants or restrictions contained in this Agreement nor the validity or enforceability thereof in any other jurisdiction shall be affected or impaired thereby. Any term, provision, covenant or restriction contained in this Agreement that is so found to be so broad as to be unenforceable shall be interpreted to be as broad as is enforceable. 9.09. Governing Law. This Agreement shall ------------- be governed by and controlled as to validity, enforcement, interpretation, effect and in all other respects by the internal laws of the State of Delaware, without regards to its conflict of laws principles. [remainder of this page intentionally left blank] - 31 - 36 IN WITNESS WHEREOF, Buyers and Seller have caused this Agreement to be signed and, by such signature, acknowledged by their respective officers thereunto duly authorized, and such signatures to be attested to by their respective officers thereunto duly authorized, all as of the date first above written. "BUYERS" UNIFIED HOLDINGS, INC. ATTEST: /s/ William C. Presson By: /s/ Timothy L. Ashburn - ------------------------------ ---------------------------------- Timothy L. Ashburn, Chairman and Chief Executive Officer /s/ Carol J. Highsmith By: /s/ Lynn E. Wood - ------------------------------ ---------------------------------- Lynn E. Wood, President and Chief Operating Officer FLTC ACQUISITION CORPORATION ATTEST: /s/ William C. Presson By: /s/ Timothy L. Ashburn - ------------------------------ ---------------------------------- Timothy L. Ashburn, President and Chief Executive Officer "SELLER" FIRST LEXINGTON TRUST COMPANY ATTEST: /s/ William C. Presson By: /s/ Dr. Gregory W. Kasten - ------------------------------ ---------------------------------- Dr. Gregory W. Kasten, President "PRINCIPAL SHAREHOLDER" /s/ Dr. Gregory W. Kasten ------------------------------------- Dr. Gregory W. Kasten - 32 - EX-2.3 4 AGREEMENT AND PLAN OF MERGER 1 ======================================================================= AGREEMENT AND PLAN OF MERGER between UNIFIED HOLDINGS, INC., a Delaware corporation and VAI ACQUISITION CORPORATION, a Delaware corporation, as Buyers, and VINTAGE ADVISERS, INC., a Delaware corporation, as Seller Dated May 8, 1997 ======================================================================= 2
TABLE OF CONTENTS Page ARTICLE I THE MERGER. . . . . . . . . . . . . . . . . . . . . . 1 1.01. The Merger. . . . . . . . . . . . . . . . . . . . . . 1 1.02. Closing . . . . . . . . . . . . . . . . . . . . . . . 1 1.03. Effective Time. . . . . . . . . . . . . . . . . . . . 1 1.04. Additional Actions. . . . . . . . . . . . . . . . . . 2 1.05. Certificate of Incorporation and Bylaws . . . . . . . 2 1.06. Boards of Directors and Officers. . . . . . . . . . . 2 1.07. Conversion of Securities. . . . . . . . . . . . . . . 2 1.08. Exchange Procedures . . . . . . . . . . . . . . . . . 3 1.09. Dissenting Shares . . . . . . . . . . . . . . . . . . 4 1.10. No Fractional Shares. . . . . . . . . . . . . . . . . 4 1.11. Closing of Stock Transfer Books . . . . . . . . . . . 4 1.12. Anti-Dilution Adjustments . . . . . . . . . . . . . . 4 1.13. Reservation of Right to Revise Transaction. . . . . . 5 1.14. Material Adverse Effect . . . . . . . . . . . . . . . 5 ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. . . . . . . . . . . . . . . . . . . . . . . . 5 2.01. Organization and Authority. . . . . . . . . . . . . . 5 2.02. Subsidiaries. . . . . . . . . . . . . . . . . . . . . 5 2.03. Capitalization. . . . . . . . . . . . . . . . . . . . 6 2.04. Authorization . . . . . . . . . . . . . . . . . . . . 6 2.05. Seller Financial Statements.. . . . . . . . . . . . . 7 2.06. Seller Reports. . . . . . . . . . . . . . . . . . . . 8 2.07. Title to and Condition of Assets. . . . . . . . . . . 8 2.08. Real Property . . . . . . . . . . . . . . . . . . . . 8 2.09. Taxes . . . . . . . . . . . . . . . . . . . . . . . . 9 2.10. Material Adverse Effect . . . . . . . . . . . . . . . 10 2.11. Loans, Commitments and Contracts. . . . . . . . . . . 10 2.12. Absence of Defaults . . . . . . . . . . . . . . . . . 11 2.13. Litigation and Other Proceedings. . . . . . . . . . . 11 2.14. Directors' and Officers' Insurance. . . . . . . . . . 11 2.15. Compliance with Laws. . . . . . . . . . . . . . . . . 12 2.16. Labor . . . . . . . . . . . . . . . . . . . . . . . . 13 2.17. Material Interests of Certain Persons . . . . . . . . 13 2.18. Employee Benefit Plans. . . . . . . . . . . . . . . . 13 2.19. Conduct of Seller to Date . . . . . . . . . . . . . . 15 2.20. Absence of Undisclosed Liabilities. . . . . . . . . . 15 2.21. Proxy Statement, Etc. . . . . . . . . . . . . . . . . 16 2.22. Registration Obligations. . . . . . . . . . . . . . . 16 2.23. Tax and Regulatory Matters. . . . . . . . . . . . . . 16 2.24. Intellectual Property; Patents; Trademarks; Trade Names . . . . . . . . . . . . . . . . . . . . . 16 2.25. Bank Accounts . . . . . . . . . . . . . . . . . . . . 17 2.26. Transactions with Affiliates. . . . . . . . . . . . . 17 2.27. Brokers and Finders . . . . . . . . . . . . . . . . . 17 2.28. Accuracy of Information . . . . . . . . . . . . . . . 17 3 ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYERS. . . . . . . . . . . . . . . . . . . . . . . . 17 3.01. Organization and Authority. . . . . . . . . . . . . . 17 3.02. Capitalization of Unified . . . . . . . . . . . . . . 18 3.03. Authorization . . . . . . . . . . . . . . . . . . . . 18 3.04. Unified Financial Statements. . . . . . . . . . . . . 19 3.05. Unified Reports . . . . . . . . . . . . . . . . . . . 19 3.06. Material Adverse Effect . . . . . . . . . . . . . . . 19 3.07. Legal Proceedings or Other Adverse Facts. . . . . . . 20 3.08. Proxy Statement, Etc. . . . . . . . . . . . . . . . . 20 3.09. Brokers and Finders . . . . . . . . . . . . . . . . . 20 3.10. Accuracy of Information . . . . . . . . . . . . . . . 20 ARTICLE IV CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME. . . . . . . . . . . . . . . . . . . . . . . . . 20 4.01. Conduct of Businesses Prior to the Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . 20 4.02. Forbearances of Seller. . . . . . . . . . . . . . . . 20 4.03. Forbearances of Buyers. . . . . . . . . . . . . . . . 22 ARTICLE V ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . 22 5.01. Access and Information. . . . . . . . . . . . . . . . 22 5.02. Registration Statement; Regulatory Matters. . . . . . 23 5.03. Stockholder Approval. . . . . . . . . . . . . . . . . 23 5.04. Current Information . . . . . . . . . . . . . . . . . 23 5.05. Environmental Reports . . . . . . . . . . . . . . . . 24 5.06. Agreements of Affiliates. . . . . . . . . . . . . . . 24 5.07. Expenses. . . . . . . . . . . . . . . . . . . . . . . 24 5.08. Miscellaneous Agreements. . . . . . . . . . . . . . . 24 5.09. Employee Agreements and Benefits. . . . . . . . . . . 25 5.10. Press Releases. . . . . . . . . . . . . . . . . . . . 25 5.11. State Takeover Statutes . . . . . . . . . . . . . . . 25 5.12. Directors' and Officers' Indemnification. . . . . . . 25 5.13. Tax Opinion Certificates. . . . . . . . . . . . . . . 26 5.14. Employee Stock Options. . . . . . . . . . . . . . . . 26 ARTICLE VI CONDITIONS. . . . . . . . . . . . . . . . . . . . . . 26 6.01. Conditions to Each Party's Obligation to Effect the Merger. . . . . . . . . . . . . . . . . . . . . . 26 6.02. Conditions to Obligations of Seller to Effect the Merger. . . . . . . . . . . . . . . . . . . . . . 27 6.03. Conditions to Obligations of Buyers to Effect the Merger. . . . . . . . . . . . . . . . . . . . . . 28 ARTICLE VII TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . 29 7.01. Termination . . . . . . . . . . . . . . . . . . . . . 29 7.02. Effect of Termination . . . . . . . . . . . . . . . . 29 7.03. Amendment . . . . . . . . . . . . . . . . . . . . . . 29 7.04. Waiver. . . . . . . . . . . . . . . . . . . . . . . . 30 - ii - 4 ARTICLE VIII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . 30 8.01. Indemnification of Buyers . . . . . . . . . . . . . . 30 8.02. Indemnification of the Stockholders . . . . . . . . . 31 8.03. Payment of Claims for Indemnification . . . . . . . . 32 8.04. Survival of Indemnification . . . . . . . . . . . . . 32 ARTICLE IX GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . 32 9.01. Non-Survival of Representations, Warranties and Agreements. . . . . . . . . . . . . . . . . . . . . . 32 9.02. No Assignment; Successors and Assigns . . . . . . . . 32 9.03. No Implied Waiver . . . . . . . . . . . . . . . . . . 33 9.04. Headings. . . . . . . . . . . . . . . . . . . . . . . 33 9.05. Entire Agreement. . . . . . . . . . . . . . . . . . . 33 9.06. Counterparts. . . . . . . . . . . . . . . . . . . . . 33 9.07. Notices . . . . . . . . . . . . . . . . . . . . . . . 33 9.08. Severability. . . . . . . . . . . . . . . . . . . . . 34 9.09. Governing Law . . . . . . . . . . . . . . . . . . . . 34
LIST OF EXHIBITS Exhibit A Stockholder Tax Certificate Exhibit B Officer/Director Tax Certificate Exhibit C Form of Opinion of Counsel of Buyer Exhibit D Form of Opinion of Counsel of Seller LIST OF SCHEDULES Schedule 2.01 Articles/Bylaws/Lists of Stockholders Schedule 2.02 Subsidiaries/Equity Securities Schedule 2.03 Seller Stock Plans Schedule 2.04(b) Events of Default Schedule 2.05(a) Financial Statements Schedule 2.08(a) Owned Real Property/Leased Real Property Schedule 2.11(a) Contracts Schedule 2.11(b) Insurance Schedule 2.13 Litigation Schedule 2.18(a) Employee Benefit Plans Schedule 2.24 Intellectual Property; Patents; Trademarks; Trade Names Schedule 2.25 Bank Accounts Schedule 2.26 Transactions with Affiliates Schedule 5.06 Affiliates - iii - 5 AGREEMENT AND PLAN OF MERGER ---------------------------- This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered into as of the 8th day of May 1997, by and among UNIFIED HOLDINGS, INC., a Delaware corporation ("Unified"), and VAI ACQUISITION CORPORATION, a Delaware corporation and wholly owned subsidiary of Unified ("Merger Sub" and, collectively with Unified, the "Buyers"), on the one hand, and VINTAGE ADVISERS, INC., a Delaware corporation ("Seller"), and Timothy L. Ashburn, a stockholder of Seller (the "Principal Stockholder"), on the other hand. W I T N E S S E T H: - - - - - - - - - - WHEREAS, the respective Boards of Directors of Unified, Merger Sub and Seller have approved the merger (the "Merger") of Merger Sub with and into Seller pursuant to the terms and subject to the conditions of this Agreement; and WHEREAS, each of Unified and Seller believe that such proposed Merger, and the conversion of shares of Seller Common Stock (as defined in Section 1.07 hereof) into shares of Unified Common Stock (as defined in Section 1.07 hereof) in the manner provided in this Agreement is desirable and in the best interests of their respective stockholders; and WHEREAS, Unified and Seller intend that the Merger constitute a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"), and that the conversion of Seller Common Stock into Unified Common Stock in connection with the Merger will not give rise to gain or loss to the stockholders of Seller with respect to such conversion; and WHEREAS, the parties desire to provide for certain undertakings, conditions, representations, warranties and covenants in connection with the transactions contemplated by this Agreement. NOW THEREFORE, in consideration of the premises and the representations, warranties and agreements herein contained, the parties agree as follows: ARTICLE I --------- THE MERGER 1.01. The Merger. Subject to the terms and conditions of ---------- this Agreement, Merger Sub shall be merged with and into Seller in accordance with the Delaware General Corporation Law (the "Delaware Statute"), and the separate corporate existence of Merger Sub shall cease. Seller shall be the surviving corporation of the Merger (sometimes referred to herein as the "Surviving Corporation") and shall continue to be governed by the laws of the State of Delaware. 1.02. Closing. The closing (the "Closing") of the Merger ------- shall take place at 10:00 a.m., local time, on the date that the Effective Time (as defined in Section 1.03) occurs (the "Closing Date"), or at such other time, and at such place, as Buyers and Seller shall agree. 1.03. Effective Time. The Merger shall become effective (the -------------- "Effective Time") upon the filing of a certificate of merger with the Office of the Secretary of State of the State of Delaware. Unless otherwise mutually agreed in writing by Buyers and Seller, subject to the terms and conditions - 1 - 6 of this Agreement, the Effective Time shall occur on such date as Buyers shall notify Seller in writing (such notice to be at least five business days in advance of the Effective Time) but (i) not earlier than the satisfaction of all conditions set forth in Section 6.01(a) and 6.01(b) (the "Approval Date") and (ii) not later than the first business day of the first full calendar month commencing at least five business days after the Approval Date. 1.04. Additional Actions. If, at any time after the ------------------ Effective Time, Unified or the Surviving Corporation shall consider or be advised that any further deeds, assignments or assurances or any other acts are necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in the Surviving Corporation, all right, title or interest in, to or under any of the rights, properties or assets of Seller or Merger Sub or (b) otherwise carry out the purposes of this Agreement, Seller and Merger Sub and each of their respective officers and directors, shall be deemed to have granted to the Surviving Corporation an irrevocable power of attorney to execute and deliver all such deeds, assignments or assurances and to do all acts necessary or desirable to vest, perfect or confirm title and possession to such rights, properties or assets in the Surviving Corporation and otherwise to carry out the purposes of this Agreement, and the officers and directors of the Surviving Corporation are authorized in the name of Seller or otherwise to take any and all such action. 1.05. Certificate of Incorporation and Bylaws. The --------------------------------------- Certificate of Incorporation and Bylaws of Seller in effect immediately prior to the Effective Time shall be the Certificate of Incorporation and Bylaws of the Surviving Corporation following the Merger, until otherwise amended or repealed. 1.06. Boards of Directors and Officers. At the Effective -------------------------------- Time, the directors and officers of Seller immediately prior to the Effective Time shall be the directors and officers, respectively, of the Surviving Corporation following the Merger, and such directors and officers shall hold office in accordance with the Surviving Corporation's Bylaws and applicable law; provided, however, as of the Effective Time of the Merger, Surviving Corporation shall take any and all actions necessary to add Timothy L. Ashburn as a member of the Board of Directors of Surviving Corporation. 1.07. Conversion of Securities. At the Effective Time, by ------------------------ virtue of the Merger and without any action on the part of Buyers, Seller or the holder of any of the following securities: (a) Each share of the common stock, no par value, of Merger Sub that is issued and outstanding immediately prior to the Effective Time shall, without any action on the part of the holder thereof, be converted into one fully paid and nonassessable share of Common Stock of the Surviving Corporation, which shall upon such conversion be validly issued and outstanding, fully paid and nonassessable and shall not be liable to any further call, nor shall the holder thereof be liable for any further payments with respect thereto; and (b) Subject to Sections 1.09, 1.10 and 1.12 hereof, each share of common stock, $1.00 par value, of Seller ("Seller Common Stock") issued and outstanding at the Effective Time shall cease to be outstanding and shall be converted into and become the right to receive 1.2 shares (the "Exchange Ratio") of common stock, no par value, of Unified ("Unified Common Stock") (the "Merger Consideration"); provided, however, in no event shall the aggregate number of shares of Unified Common Stock issued in the Merger exceed 120,000 (which number is inclusive of shares of Unified Common Stock to be issued upon the exercise of outstanding Seller Employee Stock Options (as hereinafter defined). - 2 - 7 Shares of Seller Common Stock held by Seller, or by Unified or any of its wholly owned "Subsidiaries" (as defined in Rule 1-02 of Regulation S-X promulgated by the Securities and Exchange Commission (the "SEC")), in each case other than in a fiduciary capacity or as a result of debts previously contracted, shall be cancelled and shall not be exchanged after the Effective Time for the Merger Consideration. In addition, no Dissenting Shares (as defined in Section 1.09 of this Agreement) shall be converted pursuant to this Section 1.07 but shall be treated in accordance with the procedures set forth in Section 1.09 of this Agreement. 1.08. Exchange Procedures. ------------------- (a) Within two (2) days following the Closing Date, Unified shall mail or cause to be mailed to holders of record of certificates representing shares of Seller Common Stock (the "Certificates"), as identified on the Seller Stockholder List, as provided pursuant to Section 1.11 hereof, letters advising them of the effectiveness of the Merger and instructing them to tender such Certificates to Unified, or in lieu thereof, such evidence of lost, stolen or mutilated Certificates and such surety bond or other security as Unified may reasonably require (the "Required Documentation"). (b) Subject to Section 1.11, after the Effective Time, each previous holder of a Certificate that surrenders such Certificate or in lieu thereof, the Required Documentation, to Unified, with a properly completed and executed letter of transmittal with respect to such Certificate, will be entitled to a certificate or certificates representing the Merger Consideration. (c) Each outstanding Certificate, until duly surrendered to Unified, shall be deemed to evidence ownership of the Merger Consideration into which the stock previously represented by such Certificate shall have been converted pursuant to this Agreement. (d) After the Effective Time, holders of Certificates shall cease to have rights with respect to the stock previously represented by such Certificates, and their sole rights shall be to exchange such Certificates for the Merger Consideration issuable in the Merger. After the closing of the transfer books as described in Section 1.11 hereof, there shall be no further transfer on the records of Seller of Certificates, and if such Certificates are presented to Seller for transfer, they shall be cancelled against delivery of the Merger Consideration. Neither Buyer nor the Surviving Corporation shall be obligated to deliver the Merger Consideration to which any former holder of Seller Common Stock is entitled as a result of the Merger until such holder surrenders the Certificates or furnishes the Required Documentation as provided herein. No dividends or distributions declared after the Effective Time on the Unified Common Stock will be remitted to any person until such person surrenders the Certificate representing the right to receive such Unified Common Stock or furnishes the Required Documentation, at which time such dividends or declarations shall be remitted to such person, without interest and less any taxes that may have been imposed thereon. Certificates surrendered for exchange by an affiliate shall not be exchanged until Unified has received a written agreement from such affiliate as required pursuant to Section 5.06 hereof. Neither Unified nor any party to this Agreement nor any affiliate thereof shall be liable to any holder of stock represented by any Certificate for any Merger Consideration issuable in the Merger that is paid to a public official pursuant to applicable abandoned property, escheat or similar laws. - 3 - 8 1.09. Dissenting Shares. ----------------- (a) "Dissenting Shares" means any shares held by any holder who becomes entitled to payment of the fair value of such shares under Section 262 of the Delaware Statute. Any holders of Dissenting Shares shall be entitled to payment for such shares only to the extent permitted by and in accordance with the provisions of such law, and Unified shall cause the Surviving Corporation to pay such consideration with funds provided by Unified. (b) Each party hereto shall give the other prompt notice of any written demands for the payment of the fair value of any shares, withdrawals of such demands and any other instruments served pursuant to the Delaware Statute received by such party, and Seller shall give Unified the opportunity to participate in all negotiations and proceedings with respect to such demands. Seller shall not voluntarily make payment with respect to any demands for payment of fair value and shall not, except with the prior written consent of Unified, which consent shall not be unreasonably withheld, settle or offer to settle any such demands. 1.10. No Fractional Shares. Notwithstanding any other -------------------- provision of this Agreement, neither certificates nor scrip for fractional shares of Unified Common Stock shall be issued in the Merger. Each holder who otherwise would have been entitled to a fraction of a share of Unified Common Stock shall receive in lieu thereof one share of Unified Common Stock for the fractional share interest to which such holder would otherwise be entitled. 1.11. Closing of Stock Transfer Books. ------------------------------- (a) The stock transfer books of Seller shall be closed at the end of business on the business day immediately preceding the Closing Date. In the event of a transfer of ownership of Seller Common Stock which is not registered in the transfer records prior to the closing of such record books, the Merger Consideration issuable with respect to such stock may be delivered to the transferee, if the Certificate or Certificates representing such stock is presented to Unified accompanied by all documents required to evidence and effect such transfer and all applicable stock transfer taxes are paid. (b) At the Effective Time, Seller shall provide Unified with a complete and verified list of registered holders of Seller Common Stock based upon its stock transfer books as of the closing of said transfer books, including the names, addresses, certificate numbers and taxpayer identification numbers of such holders (the "Seller Stockholder List"). Buyers shall be entitled to rely upon the Seller Stockholder List to establish the identity of those persons entitled to receive the Merger Consideration specified in this Agreement, which list shall be conclusive with respect thereto. In the event of a dispute with respect to ownership of stock represented by any Certificate, Buyers shall be entitled to deposit any Merger Consideration represented thereby in escrow with an independent third party and thereafter be relieved with respect to any claims thereto. 1.12. Anti-Dilution Adjustments. Other than for the two-for- ------------------------- one stock split with respect to the Unified Common Stock, which is to be effected prior to the Effective Time, if between the date of this Agreement and the Effective Time a share of Unified Common Stock shall be changed into a different number of shares of Unified Common Stock or a different class of shares by reason of reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or if a stock - 4 - 9 dividend thereon shall be declared with a record date within such period, then appropriate and proportionate adjustment or adjustments will be made to the Exchange Ratio such that each stockholder of Seller shall be entitled to receive such number of shares of Unified Common Stock or other securities as such stockholder would have received pursuant to such reclassification, recapitalization, split-up, combination, exchange of shares or readjustment or as a result of such stock dividend had the record date therefor been immediately following the Effective Time. 1.13. Reservation of Right to Revise Transaction. Buyers may ------------------------------------------ at any time change the method of effecting the acquisition of Seller by Buyers (including, without limitation, the provisions of this Article I) if and to the extent Buyers deem such change to be desirable, including, without limitation, to provide for (i) a merger of Seller with and into Merger, in which Merger Sub is the surviving corporation, or (ii) a merger of Seller directly into Unified, in which Unified is the surviving corporation; provided, however, that no such change shall (A) alter or change the amount or kind of the Merger Consideration to be received by the stockholders of Seller in the Merger, (B) adversely affect the tax treatment to Seller stockholders, as generally described in Section 6.01(d) hereof, as a result of receiving the Merger Consideration, or (C) materially impede or delay receipt of any approvals, referred to in Section 6.01(b) or the consummation of the transactions contemplated by this Agreement. 1.14. Material Adverse Effect. As used in this Agreement, ----------------------- the term "Material Adverse Effect" with respect to an entity means any condition, event, change or occurrence that has or may reasonably be expected to have a material adverse effect on the condition (financial or otherwise), properties, business or results of operations, of such entity and its Subsidiaries, taken as a whole as reflected in the Seller Financial Statements (as defined in Section 2.05(b)) or the Unified Financial Statements (as defined in Section 3.04), as the case may be; it being understood that a Material Adverse Effect shall not include: (i) a change with respect to, or effect on, such entity and its Subsidiaries resulting from a change in law, rule, regulation, generally accepted accounting principles or regulatory accounting principles; or (ii) a change disclosed in the Seller Financial Statements or the Unified Financial Statements, as the case may be. ARTICLE II ---------- REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER As an inducement to Buyers to enter into and perform their respective obligations under this Agreement, and notwithstanding any examination, inspection, audit or any other investigation made by Buyers, Seller represents and warrants to and covenants with Buyers as follows: 2.01. Organization and Authority. Seller is a corporation -------------------------- duly organized, validly existing and in good standing under the laws of the State of Delaware, is duly qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and has corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted. Seller is registered as an investment advisor under the Investment Advisors Act of 1940, as amended. True and complete copies of the Certificate of Incorporation and Bylaws of Seller are attached hereto as Schedule 2.01. Also attached hereto as ------------- Schedule 2.01 are true and complete lists of the stockholders of Seller, - ------------- as of a date hereof. 2.02. Subsidiaries. Schedule 2.02 sets forth, a complete and ------------ ------------- correct list of all of Seller's Subsidiaries; each a "Seller Subsidiary" and, collectively, the "Seller Subsidiaries"), all outstanding Equity Securities (as defined in Section 2.03) of each, all of which are owned directly or indirectly by - 5 - 10 Seller. Except as disclosed in Schedule 2.02, all of the outstanding ------------- shares of capital stock of the Seller Subsidiaries owned directly or indirectly by Seller are validly issued, fully paid and nonassessable and are owned free and clear of any lien, claim, charge, option, encumbrance, agreement, mortgage, pledge, security interest or restriction (a "Lien") with respect thereto. Each of the Seller Subsidiaries is a corporation duly incorporated or organized and validly existing under the laws of its jurisdiction of incorporation or organization, and has corporate power and authority to own or lease its properties and assets and to carry on its business as it is now being conducted. Each of the Seller Subsidiaries is duly qualified to do business in each jurisdiction where its ownership or leasing of property or the conduct of its business requires it so to be qualified, except where the failure to so qualify would not have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. Neither Seller nor any Seller Subsidiary owns beneficially, directly or indirectly, any shares of any class of Equity Securities or similar interests of any corporation, bank, business trust, association or organization, or any interest in a partnership or joint venture of any kind, other than those identified as Seller Subsidiaries in Schedule 2.02 hereof. ------------- 2.03. Capitalization. The authorized capital stock of Seller -------------- consists of 100,000 shares of Seller Common Stock, of which, as of the date hereof, all shares were issued and outstanding. As of the date hereof, Seller had no shares of Seller Common Stock reserved for issuance under Seller's stock option and incentive plans, a list of which is set forth on Schedule 2.03 (the "Seller Stock Plans"); provided, however, an option - ------------- ("Seller Employee Stock Options") covering 10,000 shares of Seller Common Stock was outstanding as of the date hereof with respect to shares issued in the name of Seller's Non-Qualified Restricted Stock Option Plan. There are no other Equity Securities of Seller outstanding. "Equity Securities" of an issuer means capital stock or other equity securities of such issuer, options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, shares of any capital stock or other equity securities of such issuer, or contracts, commitments, understandings or arrangements by which such issuer is or may become bound to issue additional shares of its capital stock or other equity securities of such issuer, or options, warrants, scrip or rights to purchase, acquire, subscribe to, calls on or commitments for any shares of its capital stock or other equity securities. All of the issued and outstanding shares of Seller Common Stock are validly issued, fully paid and nonassessable, and have not been issued in violation of any preemptive right of any stockholder of Seller. 2.04. Authorization. ------------- (a) Seller has the corporate power and authority to enter into this Agreement and, subject to the approval of this Agreement by the stockholders of Seller and Regulatory Authorities (as defined in Section 2.06), to carry out its obligations hereunder. The only stockholder vote required for Seller to approve this Agreement is the affirmative vote of (i) the holders of a majority of the outstanding shares of Seller Common Stock entitled to vote at a meeting called for such purpose and (ii) any stockholder or director (or trustee) approvals required by the Investment Company Act of 1940, as amended, and the rules and regulations thereunder (the "1940 Act") in connection with any advisory or subadvisory agreements of Seller and/or the Seller Subsidiaries (the actions required by (i) and (ii) hereof are collectively referred to as the "Stockholder Approvals"). The execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby in accordance with and subject to the terms of this Agreement have been duly authorized by the Board of Directors of Seller. Subject to the approval of Seller's stockholders and subject to the receipt of such approvals of the Regulatory Authorities as may be required - 6 - 11 by statute or regulation, this Agreement is a valid and binding obligation of Seller enforceable against Seller in accordance with its terms. (b) Except as disclosed in Schedule 2.04(b), neither ---------------- the execution nor delivery nor performance by Seller of this Agreement, nor the consummation by Seller of the transactions contemplated hereby, nor compliance by Seller with any of the provisions hereof, will (i) violate, conflict with, or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any Lien upon any of the properties or assets of Seller or any of the Seller Subsidiaries under any of the terms, conditions or provisions of (x) its Certificate or Articles of Incorporation, as the case may be, or Bylaws or (y) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Seller or any of the Seller Subsidiaries is a party or by which it may be bound, or to which Seller or any of the Seller Subsidiaries or any of the properties or assets of Seller or any of the Seller Subsidiaries may be subject, or (ii) subject to compliance with the statutes and regulations referred to in subsection (c) of this Section 2.04 violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Seller or any of the Seller Subsidiaries or any of their respective properties or assets; other than violations, conflicts, breaches, defaults, terminations, accelerations or Liens which would not have a Material Adverse Effect on Seller and Seller Subsidiaries, taken as a whole. (c) Other than in connection or in compliance with the provisions of the Delaware Statute, the Securities Act of 1933, as amended, and the rules and regulations thereunder (the "Securities Act"), the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the "Exchange Act"), the securities or blue sky laws of the various states, the 1940 Act, or filings, consents, reviews, authorizations, approvals or exemptions required of any other governmental agencies or governing boards having regulatory authority over Seller or any Seller Subsidiary, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any public body or authority is necessary for the consummation by Seller of the transactions contemplated by this Agreement. 2.05. Seller Financial Statements. --------------------------- (a) Attached hereto as Schedule 2.05(a) are copies of ---------------- the following documents: (i) Seller's audited balance sheet, income statement, statement of changes in stockholders' equity and cash flow as of or for the year ended December 31, 1996; and (ii) Seller's unaudited balance sheet, income statement, statement of changes in stockholders' equity and cash flow as of or for the three months ended March 31, 1997; (b) The financial statements contained in the document referenced in Schedule 2.05(a) are referred to ---------------- collectively as the "Seller Financial Statements." The Seller Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP"), and present fairly the consolidated financial position of Seller and the Seller Subsidiaries at the dates thereof and the consolidated results of operations, changes in stockholders' equity and cash flows of Seller and the Seller Subsidiaries for the periods stated therein. - 7 - 12 (c) Seller and the Seller Subsidiaries have each prepared, kept and maintained through the date hereof true, correct and complete financial and other books and records of their affairs which fairly reflect their respective financial conditions, results of operations, changes in stockholders' equity and cash flows. 2.06. Seller Reports. Since January 1, 1994, each of Seller -------------- and the Seller Subsidiaries has timely filed all material reports, registrations and statements, together with any required amendments thereto, that it was required to file with (i) the SEC, (ii) National Association of Securities Dealers, Inc. (the "NASD"), (iii) any federal, state, municipal or local government, securities, banking, insurance and other governmental or regulatory authority, and the agencies and staffs thereof (the entities in the foregoing clauses (i) through (iii) being referred to herein collectively as the "Regulatory Authorities" and individually as a "Regulatory Authority"), having jurisdiction over the affairs of it. All such material reports and statements filed with any such Regulatory Authority are collectively referred to herein as the "Seller Reports." As of each of their respective dates, the Seller Reports complied in all material respects with all the rules and regulations promulgated by the applicable Regulatory Authority. With respect to Seller Reports filed with the Regulatory Authorities, there is no material unresolved violation, criticism or exception by any Regulatory Authority with respect to any report or statement filed by, or any examinations of, Seller or any of the Seller Subsidiaries. 2.07. Title to and Condition of Assets. -------------------------------- (a) Except as may be reflected in the Seller Financial Statements and with the exception of all "Real Property" (which is the subject of Section 2.08 hereof) Seller and the Seller Subsidiaries have, and at the Closing Date will have, good and marketable title to their owned properties and assets, including, without limitation, those reflected in the Seller Financial Statements (except those disposed of in the ordinary course of business since the date thereof), free and clear of any Lien, except for Liens for (i) taxes, assessments or other governmental charges not yet delinquent and (ii) as set forth or described in the Seller Financial Statements or any subsequent Seller Financial Statements delivered to Buyers prior to the Effective Time. (b) No material properties or assets that are reflected as owned by Seller or any of the Seller Subsidiaries in the Seller Financial Statements as of December 31, 1996 have been sold, leased, transferred, assigned or otherwise disposed of since such date, except in the ordinary course of business. (c) All furniture, fixtures, vehicles, machinery and equipment and computer software owned or used by Seller or the Seller Subsidiaries, including any such items leased as a lessee (taken as a whole as to each of the foregoing with no single item deemed to be of material importance) are in good working order and free of known defects, subject only to normal wear and tear. The operation by Seller or the Seller Subsidiaries of such properties and assets is in compliance in all material respects with all applicable laws, ordinances and rules and regulations of any governmental authority having jurisdiction over such use. 2.08. Real Property. ------------- (a) The legal description of each parcel of real property owned by Seller or any of the Seller Subsidiaries (other than real property acquired in foreclosure or in lieu of foreclosure in the course of the collection of loans and being held by Seller or a Seller - 8 - 13 Subsidiary for disposition as required by law) is set forth in Schedule 2.08(a) under the heading "Owned Real Property" (such ---------------- real property being herein referred to as the "Owned Real Property"). The legal description of each parcel of real property leased by Seller or any of the Seller Subsidiaries is also set forth in Schedule 2.08(a) under the heading "Leased ---------------- Real Property" (such real property being herein referred to as the "Leased Real Property"). Collectively, the Owned Real Property and the Leased Real Property is herein referred to as the "Real Property." (b) There is no pending action involving Seller or any of the Seller Subsidiaries as to the title of or the right to use any of the Real Property. (c) Neither Seller nor any of the Seller Subsidiaries has any interest in any other real property except interests as a mortgagee, and except for any real property acquired in foreclosure or in lieu of foreclosure and being held for disposition as required by law. (d) None of the buildings, structures or other improvements located on the Real Property encroaches upon or over any adjoining parcel of real estate or any easement or right-of-way or "setback" line in any material respect and all such buildings, structures and improvements are in all material respects located and constructed in conformity with all applicable zoning ordinances and building codes. (e) None of the buildings, structures or improvements located on the Owned Real Property are the subject of any official complaint or notice by any governmental authority of violation of any applicable zoning ordinance or building code, and there is no zoning ordinance, building code, use or occupancy restriction or condemnation action or proceeding pending, or, to the best knowledge of Seller, threatened, with respect to any such building, structure or improvement. The Owned Real Property is in generally good condition for its intended purpose, ordinary wear and tear excepted, and has been maintained in accordance with reasonable and prudent business practices applicable to like facilities. (f) Except as may be reflected in the Seller Financial Statements or with respect to such easements, Liens, defects or encumbrances as do not individually or in the aggregate materially adversely affect the use or value of the parcel of Owned Real Property, Seller and the Seller Subsidiaries have, and at the Closing Date will have, good and marketable title to their respective Owned Real Properties. 2.09. Taxes. Seller and each Seller Subsidiary have timely ----- filed or will timely file (including extensions) all material tax returns required to be filed at or prior to the Closing Date ("Seller Returns"). Each of Seller and the Seller Subsidiaries has paid, or set up adequate reserves on the Seller Financial Statements for the payment of, all taxes required to be paid in respect of the periods covered by such Seller Returns and has set up adequate reserves on the most recent Seller Financial Statements for the payment of all taxes anticipated to be payable in respect of all periods up to and including the latest period covered by such Seller Financial Statements. Neither Seller nor any Seller Subsidiary has any liability material to the Condition of Seller and the Seller Subsidiaries, taken as a whole, for any such taxes in excess of the amounts so paid or reserves so established, and no material deficiencies for any tax, assessment or governmental charge have been proposed, asserted or assessed (tentatively or definitely) against Seller or any of the Seller Subsidiaries which would not be covered by existing reserves. Neither Seller nor any of the Seller Subsidiaries is delinquent in the payment of any tax, assessment or - 9 - 14 governmental charge, nor has it requested any extension of time within which to file any tax returns in respect of any fiscal year which have not since been filed and no requests for waivers of the time to assess any tax are pending. No federal or state income tax return of Seller or any Seller Subsidiaries has been audited by the Internal Revenue Service (the "IRS") or any state tax authority for the seven (7) most recent full calendar years. There is no deficiency or refund litigation or, to the best knowledge of Seller, matter in controversy with respect to Seller Returns. Neither Seller nor any of the Seller Subsidiaries has extended or waived any statute of limitations on the assessment of any tax due that is currently in effect. 2.10. Material Adverse Effect. Since December 31, 1996, ----------------------- there has been no Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. 2.11. Loans, Commitments and Contracts. -------------------------------- (a) Except as listed on Schedule 2.11(a), as of the ---------------- date hereof neither Seller nor any of the Seller Subsidiaries is a party to or is bound by any: (i) agreement, contract, arrangement, understanding or commitment with any labor union; (ii) franchise or license agreement; (iii) written employment, severance, termination pay, agency, consulting or similar agreement or commitment in respect of personal services; (iv) material agreement, arrangement or commitment (A) not made in the ordinary course of business, and (B) pursuant to which Seller or any of the Seller Subsidiaries is or may become obligated to invest in or contribute to any Seller Subsidiary and agreements relating to joint ventures or partnerships set forth in Schedule 2.02, true and complete copies ------------- of which have been furnished to Buyers; (v) agreement, indenture or other instrument not disclosed in the Seller Financial Statements relating to the borrowing of money by Seller or any of the Seller Subsidiaries or the guarantee by Seller or any of the Seller Subsidiaries of any such obligation (other than trade payables or instruments related to transactions entered into in the ordinary course of business by Seller or any of the Seller Subsidiaries); (vi) contract containing covenants which limit the ability of Seller or any of the Seller Subsidiaries to compete in any line of business or with any person or which involves any restrictions on the geographical area in which, or method by which, Seller or any of the Seller Subsidiaries may carry on their respective businesses (other that as may be required by law or any applicable Regulatory Authority); (vii) contract or agreement which is a "material contract" within the meaning of Item 601(b)(10) of Regulation S-K as promulgated by the SEC to be performed after the date of this Agreement that has not been filed or incorporated by reference in the Seller Reports; - 10 - 15 (viii) lease with annual rental payments aggregating $10,000 or more; (ix) loans or other obligations payable or owing to any officer, director or employee except salaries, wages and directors' fees or other compensation incurred and accrued in the ordinary course of business; (x) other agreement, contract, arrangement, understanding or commitment involving an obligation by Seller or any of the Seller Subsidiaries of more than $25,000 and extending beyond six months from the date hereof that cannot be cancelled without cost or penalty upon notice of 30 days or less; or (xi) investment advisory agreements (within the meaning of the 1940 Act). (b) Seller and/or the Seller Subsidiaries carry property, liability, director and officer errors and omissions, products liability and other insurance coverage as set forth in Schedule 2.11(b) under the heading "Insurance." ---------------- (c) True, correct and complete copies of the agreements, contracts, leases, insurance policies and other documents referred to in Sections 2.11(a) and (b) have been ------------------------ included with Schedule 2.11(a) hereto. ---------------- (d) To the best knowledge of Seller, each of the agreements, contracts, leases, insurance policies and other documents referred to in Schedules 2.11 (a) and (b) is a valid, -------------------------- binding and enforceable obligation of the parties sought to be bound thereby, except as the enforceability thereof against the parties thereto (other than Seller or any of the Seller Subsidi- aries) may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws now or hereafter in effect relating to the enforcement of creditors' rights generally, and except that equitable principles may limit the right to obtain specific performance or other equitable remedies. 2.12. Absence of Defaults. Neither Seller nor any of the ------------------- Seller Subsidiaries is in violation of its charter documents or Bylaws or in default under any material agreement, commitment, arrangement, lease, insurance policy or other instrument, whether entered into in the ordinary course of business or otherwise and whether written or oral, and there has not occurred any event that, with the lapse of time or giving of notice or both, would constitute such a default, except, in all cases, where such violation or default would not have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. 2.13. Litigation and Other Proceedings. Except as set forth -------------------------------- on Schedule 2.13 or otherwise disclosed in the Seller Financial Statements, ------------- neither Seller nor any of the Seller Subsidiaries is a party to any pending or, to the best knowledge of Seller, threatened claim, action, suit, investigation or proceeding, or is subject to any order, judgment or decree, except for matters which, in the aggregate, will not have, or reasonably could not be expected to have, a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. 2.14. Directors' and Officers' Insurance. Each of Seller and ---------------------------------- the Seller Subsidiaries has taken or will take all requisite action (including, without limitation, the making of claims and the giving of notices) pursuant to its directors' and officers' liability insurance policy or policies in order to preserve all rights thereunder with respect to all matters (other than matters arising in connection with this - 11 - 16 Agreement and the transactions contemplated hereby) occurring prior to the Effective Time that are known to Seller, except for such matters which, individually or in the aggregate, will not have and reasonably could not be expected to have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. 2.15. Compliance with Laws. -------------------- (a) To the best knowledge of Seller, Seller and each of the Seller Subsidiaries have all permits, licenses, authorizations, orders and approvals of, and have made all filings, applications and registrations with, all Regulatory Authorities that are required in order to permit them to own or lease their respective properties and assets and to carry on their respective businesses as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and no suspension or cancellation of any of them is threatened; and all such filings, applications and registrations are current; in each case except for permits, licenses, authorizations, orders, approvals, filings, applications and registrations the failure to have (or have made) would not have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. (b) (i) Each of Seller and the Seller Subsidiaries has complied with all laws, regulations and orders (including, without limitation, zoning ordinances, building codes, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and securities, tax, environmental, civil rights, and occupational health and safety laws and regulations including, without limitation, in the case of any Seller Subsidiary that is a trust company, all statutes, rules, regulations and policy statements pertaining to the exercise of trust powers) and governing instruments applicable to it and to the conduct of its business, except where such failure to comply would not have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole, and (ii) neither Seller nor any of the Seller Subsidiaries is in default under, and no event has occurred which, with the lapse of time or notice or both, could result in the default under, the terms of any judgment, order, writ, decree, permit, or license of any Regulatory Authority or court, whether federal, state, municipal or local, and whether at law or in equity, except where such default would not have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. (c) Neither Seller nor any of the Seller Subsidiaries is subject to or reasonably likely to incur a liability as a result of its ownership, operation, or use of any Property (as defined below) of Seller (A) that is contaminated by or contains any hazardous waste, toxic substance or related materials, including, without limitation, asbestos, PCBs, pesticides, herbicides and any other substance or waste that is hazardous to human health or the environment (collectively, a "Toxic Substance"), or (B) on which any Toxic Substance has been stored, disposed of, placed or used in the construction thereof; and which, in each case, reasonably could be expected to have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. "Property" shall include all property (real or personal, tangible or intangible) owned or controlled by Seller or any of the Seller Subsidiaries, including, without limitation, property in which any venture capital or similar unit of Seller or any of the Seller Subsidiaries has an interest and, to the best knowledge of Seller, property held by Seller or any of the Seller Subsidiaries in its capacity as a trustee. No claim, action, suit or proceeding is pending and no material claim has been asserted against Seller or any of the Seller Subsidiaries - 12 - 17 relating to Property of Seller or any of the Seller Subsidiaries before any court or other Regulatory Authority or arbitration tribunal relating to Toxic Substances, pollution or the environment, and there is no outstanding judgment, order, writ, injunction, decree or award against or affecting Seller or any of the Seller Subsidiaries with respect to the same. Except for statutory or regulatory restrictions of general application, no Regulatory Authority has placed any restriction on the business of Seller or any of the Seller Subsidiaries which reasonably could be expected to have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. (d) Since December 31, 1994, neither Seller nor any of the Seller Subsidiaries has received any notification or communication which has not been resolved from any Regulatory Authority (i) asserting that any Seller or any of the Seller Subsidiaries is not in substantial compliance with any of the statutes, regulations or ordinances that such Regulatory Authority enforces, except with respect to matters which reasonably could not be expected to have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole, (ii) threatening to revoke any license, franchise, permit or governmental authorization that is material to the Condition of Seller and the Seller Subsidiaries, taken as a whole, (iii) requiring or threatening to require Seller or any of the Seller Subsidiaries, or indicating that Seller or any of the Seller Subsidiaries may be required, to enter into a cease and desist order, agreement or memorandum of understanding or any other agreement restricting or limiting or purporting to direct, restrict or limit in any manner the operations of Seller or any of the Seller Subsidiaries, including, without limitation, any restriction on the payment of dividends. No such cease and desist order, agreement or memorandum of understanding or other agreement is currently in effect. 2.16. Labor. No work stoppage involving Seller or any of the ----- Seller Subsidiaries is pending or, to the best knowledge of Seller, threatened. Neither Seller nor any of the Seller Subsidiaries is involved in, or, to the best knowledge of Seller, threatened with or affected by, any labor dispute, arbitration, lawsuit or administrative proceeding which reasonably could be expected to have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. None of the employees of Seller or the Seller Subsidiaries are represented by any labor union or any collective bargaining organization. 2.17. Material Interests of Certain Persons. No officer or ------------------------------------- director of Seller or any of the Seller Subsidiaries, or any "associate" (as such term is defined in Rule 14a-1 under the Exchange Act) of any such officer or director, has any interest in any contract or property (real or personal, tangible or intangible), used in, or pertaining to the business of, Seller or any of the Seller Subsidiaries, which in the case of Seller and each of the Seller Subsidiaries would be required to be disclosed by Item 404 of Regulation S-K promulgated by the SEC. 2.18. Employee Benefit Plans. ---------------------- (a) Schedule 2.18(a) lists all pension, retirement, ---------------- supplemental retirement, stock option, stock purchase, stock ownership, savings, stock appreciation right, profit sharing, deferred compensation, consulting, bonus, medical, disability, workers' compensation, vacation, group insurance, severance and other employee benefit, incentive and welfare policies, contracts, plans and arrangements, and all trust agreements related thereto, maintained by or contributed to by Seller or any of the Seller Subsidiaries in respect of any of the present or former directors, officers, or other employees of and/or consultants to Seller or any of the Seller Subsidiaries (collectively, "Seller Employee - 13 - 18 Plans"). Seller has furnished Buyers with the following documents with respect to each Seller Employee Plan: (i) a true and complete copy of all written documents comprising such Seller Employee Plan (including amendments and individual agreements relating thereto) or, if there is no such written document, an accurate and complete description of the Seller Employee Plan; (ii) the most recently filed Form 5500 or Form 5500-C/R (including all schedules thereto), if applicable; (iii) the most recent financial statements and actuarial reports, if any; (iv) the summary plan description currently in effect and all material modifications thereof, if any; and (v) the most recent IRS determination letter, if any. (b) All Seller Employee Plans have been maintained and operated in all material respects in accordance with their terms and the requirements of all applicable statutes, orders, rules and final regulations, including, without limitation, to the extent applicable, ERISA and the Code. All contributions required to be made to Seller Employee Plans have been made or reserved. (c) With respect to each of the Seller Employee Plans which is a pension plan (as defined in Section 3(2) of ERISA) (the "Pension Plans"): (i) each Pension Plan which is intended to be "qualified" within the meaning of Section 401(a) of the Code has been determined to be so qualified by the IRS and such determination letter may still be relied upon, and each related trust is exempt from taxation under Section 501(a) of the Code; (ii) the present value of all benefits vested and all benefits accrued under each Pension Plan which is subject to Title IV of ERISA did not, in each case, as of the last applicable annual valuation date (as indicated on Schedule 2.18(a)), exceed the ---------------- value of the assets of the Pension Plan allocable to such vested or accrued benefits; (iii) there has been no "prohibited transaction," as such term is defined in Section 4975 of the Code or Section 406 of ERISA, which could subject any Pension Plan or associated trust, or Seller or any of the Seller Subsidiaries, to any tax or penalty; (iv) no Pension Plan or any trust created thereunder has been terminated, nor has there been any "reportable events" with respect to any Pension Plan, as that term is defined in Section 4043 of ERISA since January 1, 1989; and (v) no Pension Plan or any trust created thereunder has incurred any "accumulated funding deficiency", as such term is defined in Section 302 of ERISA (whether or not waived). No Pension Plan is a "multiemployer plan" as that term is defined in Section 3(37) of ERISA. (d) Neither Seller nor any of the Seller Subsidiaries has any liability for any post-retirement health, medical or similar benefit of any kind whatsoever, except as required by statute or regulation. (e) Neither Seller nor any of the Seller Subsidiaries has any material liability under ERISA or the Code as a result of its being a member of a group described in Sections 414(b), (c), (m) or (o) of the Code. (f) Neither the execution nor delivery of this Agreement, nor the consummation of any of the transactions contemplated hereby, will (i) result in any payment (including, without limitation, severance, unemployment compensation or golden parachute payment) becoming due to any director or employee of Seller or any of the Seller Subsidiaries from any of such entities, (ii) increase any benefit otherwise payable under any of the Seller Employee Plans or (iii) result in the acceleration of the time of payment of any such benefit. Seller shall use its best efforts to insure that no amounts - 14 - 19 paid or payable by Seller, the Seller Subsidiaries or Buyers to or with respect to any employee or former employee of Seller or any of the Seller Subsidiaries will fail to be deductible for federal income tax purposes by reason of Section 280G of the Code. 2.19. Conduct of Seller to Date. From and after December 31, ------------------------- 1996 through the date of this Agreement, except as set forth in the Seller Financial Statements: (i) Seller and the Seller Subsidiaries have conducted their respective businesses in the ordinary and usual course consistent with past practices; (ii) neither Seller nor any of the Seller Subsidiaries has issued, sold, granted, conferred or awarded any of its Equity Securities (except shares of Seller Common Stock upon exercise of Seller Employee Stock Options), or any corporate debt securities which would be classified under GAAP as long-term debt on the balance sheets of Seller or the Seller Subsidiaries; (iii) Seller has not effected any stock split or adjusted, combined, reclassified or otherwise changed its capitalization; (iv) Seller has not declared, set aside or paid any dividend (other than its regular quarterly dividends) or other distribution in respect of its capital stock, or purchased, redeemed, retired, repurchased or exchanged, or otherwise acquired or disposed of, directly or indirectly, any of its Equity Securities, whether pursuant to the terms of such Equity Securities or otherwise; (v) neither Seller nor any of the Seller Subsidiaries has incurred any obligation or liability (absolute or contingent), except liabilities incurred in the ordinary course of business, or subjected to Lien any of its assets or properties other than in the ordinary course of business consistent with past practice; (vi) neither Seller nor any of the Seller Subsidiaries has discharged or satisfied any Lien or paid any obligation or liability (absolute or contingent), other than in the ordinary course of business; (vii) neither Seller nor any of the Seller Subsidiaries has sold, assigned, transferred, leased, exchanged, or otherwise disposed of any of its properties or assets other than for a fair consideration in the ordinary course of business; (viii) except as required by contract or law, neither Seller nor any of the Seller Subsidiaries has (A) increased the rate of compensation of, or paid any bonus to, any of its directors, officers, or other employees, except in accordance with existing policy, (B) entered into any new, or amended or supplemented any existing, employment, management, consulting, deferred compensation, severance, or other similar contract, (C) entered into, terminated, or substantially modified any of the Seller Employee Plans or (D) agreed to do any of the foregoing; (ix) neither Seller nor any Seller Subsidiary has suffered any material damage, destruction, or loss, whether as the result of fire, explosion, earthquake, accident, casualty, labor trouble, requisition, or taking of property by any Regulatory Authority, flood, windstorm, embargo, riot, act of God or the enemy, or other casualty or event, and whether or not covered by insurance; (x) neither Seller nor any of the Seller Subsidiaries has cancelled or compromised any debt; and (xi) neither Seller nor any of the Seller Subsidiaries has entered into any material transaction, contract or commitment outside the ordinary course of its business. 2.20. Absence of Undisclosed Liabilities. ---------------------------------- (a) As of the date of this Agreement, neither Seller nor any of the Seller Subsidiaries has any debts, liabilities or obligations equal to or exceeding $5,000, individually or $25,000 in the aggregate, whether accrued, absolute, contingent or otherwise and whether due or to become due, which are required to be reflected in the Seller Financial Statements or the notes thereto in accordance with GAAP except: (i) liabilities and obligations reflected on the Seller Financial Statements; (ii) operating leases reflected on Schedule 2.11; ------------- and (iii) debts, liabilities or obligations incurred since December 31, 1996 in the ordinary and usual course of their respective businesses, none of which are - 15 - 20 for breach of contract, breach of warranty, torts, infringements or lawsuits and none of which have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. (b) Neither Seller nor any of the Seller Subsidiaries was as of December 31, 1996, and since such date to the date hereof, has become a party to, any contract or agreement, which had, has or may be reasonably expected to have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. 2.21. Proxy Statement, Etc. None of the information --------------------- regarding Seller or any of the Seller Subsidiaries to be supplied by Seller for inclusion or included in (i) the Proxy Statement to be mailed to Seller's stockholders in connection with the meeting to be called to consider this Agreement and the Merger (the "Proxy Statement"), (ii) the Registration Statement (as defined in Section 5.02 hereof) or (iii) any other documents to be filed with any Regulatory Authority in connection with the transactions contemplated hereby will, at the respective times such documents are filed with any Regulatory Authority and, with respect to the Proxy Statement, when mailed, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the meeting of Seller's stockholders referred to in Section 5.03, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communica- tion with respect to the solicitation of any proxy for such meeting. All documents which Seller or any of the Seller Subsidiaries is responsible for filing with any Regulatory Authority in connection with the Merger will comply as to form in all material respects with the provisions of applicable law. 2.22. Registration Obligations. Neither Seller nor any of ------------------------ the Seller Subsidiaries is under any obligation, contingent or otherwise, which will survive the Effective Time by reason of any agreement to register any transaction involving any of its securities under the Securities Act. 2.23. Tax and Regulatory Matters. Neither Seller nor any of -------------------------- the Seller Subsidiaries has taken or agreed to take any action or has any knowledge of any fact or circumstance that would (i) prevent the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code or (ii) materially impede or delay receipt of any approval referred to in Section 6.01(b) or the consummation of the transactions contemplated by this Agreement. 2.24. Intellectual Property; Patents; Trademarks; Trade ------------------------------------------------- Names. All patents, trademarks, service marks, trade names or copyrights - ----- owned by or used or proposed to be used by Seller and all applications or registrations therefor ("Intellectual Property") and all contracts, agreements, commitments and understandings relating to the use or license of technology, know-how or processes by Seller (the "Intellectual Property Licenses") are listed in Schedule 2.24. Except as disclosed in Schedule 2.24: ------------- ------------- (a) Seller owns, or has the sole and exclusive right to use, all Intellectual Property, whether under Intellectual Property Licenses or otherwise, used in or necessary for the ordinary conduct of its business; (b) the consummation of the transactions contemplated by this Agreement will not alter or impair any such rights; and (c) no Intellectual Property owned, licensed or used by Seller, or Intellectual Property License of Seller is the subject of a lawsuit or any other proceeding, nor has any party challenged or, to the best of Seller's knowledge, threatened to challenge Seller's right to use such Intellectual Property or Intellectual Property License or application for any of the foregoing; and, to the best of Seller's knowledge, there is no basis for any such challenge. - 16 - 21 2.25. Bank Accounts. Schedule 2.25 lists all bank, money ------------- ------------- market, savings and similar accounts and safe deposit boxes of Seller, specifying the account numbers and the authorized signatories or persons having access to them. 2.26. Transactions with Affiliates. Except as disclosed in ---------------------------- Schedule 2.26, no stockholder of Seller or any person controlled by some - ------------- combination of any stockholder of Seller, no officer or director of Seller, or any "affiliate" or "associate" (as such terms are defined in the rules and regulations of the SEC under the Securities Act) of any of the foregoing: (a) has been a party to any lease, sublease, contract, agreement, commitment, understanding or other arrangement of any kind whatsoever, involving any such person and Seller that is not disclosed in Schedule 2.26; ------------- (b) owns directly or indirectly, in whole or in part, any property that Seller uses or otherwise has rights in respect of; or (c) has any cause of action or other claim whatsoever against, or owes any amount to, Seller other than (i) for compensation (including fringe benefits) to officers and employees of Seller and for the reimbursement of ordinary and necessary expenses incurred in connection with employment by Seller and (ii) as otherwise disclosed pursuant to this Agreement. 2.27. Brokers and Finders. Neither Seller nor any of the ------------------- Seller Subsidiaries nor any of their respective officers, directors or employees has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder's fees, and no broker or finder has acted directly or indirectly for Seller or any of the Seller Subsidiaries in connection with this Agreement or the transactions contemplated hereby. 2.28. Accuracy of Information. The statements contained in ----------------------- this Agreement, the Schedules and any other written document executed and delivered by or on behalf of Seller pursuant to the terms of this Agreement are true and correct as of the date hereof or as of the date delivered in all material respects, and such statements and documents do not omit any material fact necessary to make the statements contained therein not misleading. ARTICLE III ----------- REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYERS As an inducement to Seller to enter into and perform its obligations under this Agreement, and notwithstanding any examination, inspection, audit or other investigation made by Seller, Buyers jointly and severally represent and warrant to and covenant with Seller as follows: 3.01. Organization and Authority. Buyer and Merger Sub are -------------------------- each corporations duly organized, validly existing and in good standing under the laws of the State of Delaware, are each qualified to do business and are each in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and has corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted, except where the failure to be so qualified would not have a Material Adverse Effect on Unified and its Subsidiaries, taken as a whole. - 17 - 22 3.02. Capitalization of Unified. The authorized capital ------------------------- stock of Unified consists of (i) 300,000 shares of Unified Common Stock and (ii) 1,000,000 shares of preferred stock, $0.01 par value ("Unified Preferred Stock"). As of the date hereof, 17,069 shares of Unified Preferred Stock were issued and outstanding and, as of the Closing Date, excluding shares of Unified Common Stock to be issued in connection the Merger, the pending acquisitions of Health Financial, Inc. and First Lexington Trust Company and any possible acquisition transaction by Unified that is announced after the date hereof, 300,000 shares of Unified Common Stock will be issued and outstanding. Unified has designated 10,000 shares of Unified Preferred Stock as "Series A 8% Cumulative Preferred Stock," of which 8,486 shares are issued and outstanding, and 10,000 shares of Unified Preferred Stock as "Series B 8% Cumulative Preferred Stock," of which 8,583 shares were issued and outstanding. As of the date hereof, Unified had no shares of Unified Common Stock reserved for issuance under various Unified employee and/or director stock option, incentive and/or benefit plans ("Unified Employee/Director Stock Grants"). Seller hereby acknowledges that Unified anticipates filing with the Secretary of State of the State of Delaware, prior to the Effective Time, documents to effect (i) a change of the par value of the Unified Common Stock to $0.01, (ii) an increase in the number of shares of Unified Common Stock authorized to 25,000,000 and (iii) a possible reduction in the number of shares of Unified Preferred Stock authorized to a number equal to or greater than the number currently outstanding. In addition, Seller hereby acknowledges that Unified may effect a two-for-one stock split prior to the Effective Time, which split would increase the number of shares of Unified Common Stock then issued and outstanding to 600,000. Unified continually evaluates possible acquisitions and may prior to the Effective Time enter into one or more agreements providing for, and may consummate, the acquisition by it of another company (or the assets thereof) for consideration that may include Equity Securities. In addition, prior to the Effective Time, Unified may, depending on market conditions and other factors, otherwise determine to issue equity, equity- linked or other securities for financing purposes or repurchase its outstanding Equity Securities. Notwithstanding the foregoing, neither Unified nor any Unified Subsidiary has taken or agreed to take any action or has any knowledge of any fact or circumstance and neither Unified nor Merger Sub will take any action that would (i) prevent the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code or (ii) materially impede or delay receipt of any approval referred to in Section 6.01(b) or the consummation of the transactions contemplated by this Agreement. Except as set forth above, there are no other Equity Securities of Unified outstanding. All of the issued and outstanding shares of Unified Common Stock are validly issued, fully paid, and nonassessable, and have not been issued in violation of any preemptive right of any stockholder of Unified. At the Effective Time, the Unified Common Stock to be issued in the Merger will be duly authorized, validly issued, fully paid and nonassessable, will not be issued in violation of any preemptive right of any stockholder of Unified. 3.03. Authorization. ------------- (a) Unified and Merger Sub each have the corporate power and authority to enter into this Agreement and to carry out their respective obligations hereunder. The execution, delivery and performance of this Agreement by Unified and Merger Sub and the consummation by Unified and Merger Sub of the transactions contemplated hereby have been duly authorized by all requisite corporate action of Unified and Merger Sub. Subject to the receipt of such approvals of the Regulatory Authorities as may be required by statute or regulation, this Agreement is a valid and binding obligation of Unified and Merger Sub enforceable against each in accordance with its terms. (b) Neither the execution, delivery and performance by Unified and Merger Sub of this Agreement, nor the consummation by Unified and Merger Sub of the - 18 - 23 transactions contemplated hereby, nor compliance by Unified and Merger Sub with any of the provisions hereof, will (i) violate, conflict with or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any Lien upon any of the properties or assets of Unified or Merger Sub under any of the terms, conditions or provisions of (x) their respective Certificate of Incorporation or Bylaws, or (y) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Unified or Merger Sub is a party or by which they may be bound, or to which Unified or Merger Sub or any of their respective properties or assets may be subject, or (ii) subject to compliance with the statutes and regulations referred to in subsection (c) of this Section 3.03, violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Unified or Merger Sub or any of their respective properties or assets; other than violations, conflicts, breaches, defaults, terminations, accelerations or Liens which would not have a Material Adverse Effect on Unified and its Subsidiaries, taken as a whole. (c) Other than in connection with or in compliance with the provisions of the Delaware Statute, the Securities Act, the Exchange Act, the 1940 Act, the securities or blue sky laws of the various states or any required approvals of any other Regulatory Authority, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any public body or authority is necessary for the consummation by Unified and Merger Sub of the transactions contemplated by this Agreement. 3.04. Unified Financial Statements. The consolidated balance ---------------------------- sheet of Unified and its Subsidiaries as of December 31, 1996 and 1995 and related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996, together with the notes thereto, audited by Larry E. Nunn Associates, L.L.C. (collectively, the "Unified Financial Statements"), have been prepared in accordance with GAAP, present fairly the consolidated financial position of Unified and its Subsidiaries at the dates thereof and the consolidated results of operations, changes in stockholders' equity and cash flows of Unified and its Subsidiaries for the periods stated therein and are derived from the books and records of Unified and its Subsidiaries, which are complete and accurate in all material respects and have been maintained in accordance with good business practices. Neither Unified nor any of its Subsidiaries has any material contingent liabilities that are not described in the Unified Financial Statements. 3.05. Unified Reports. Since January 1, 1994, each of --------------- Unified and its Subsidiaries has filed all reports, registrations and statements, together with any required amendments thereto, that it was required to file with any Regulatory Authority. All such reports and statements filed with any such Regulatory Authority are collectively referred to herein as the "Unified Reports." As of its respective date, each Unified Report complied in all material respects with all the rules and regulations promulgated by the applicable Regulatory Authority and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.06. Material Adverse Effect. Since December 31, 1996, ----------------------- there has been no Material Adverse Effect on Unified and its Subsidiaries, taken as a whole. - 19 - 24 3.07. Legal Proceedings or Other Adverse Facts. Except as ---------------------------------------- otherwise disclosed in the Unified Financial Statements, neither Unified nor any of its Subsidiaries is a party to any pending or, to the best knowledge of Unified, threatened claim, action, suit, investigation or proceeding, or is subject to any order, judgment or decree, except for matters which, in the aggregate, will not have, or reasonably could not be expected to have, a Material Adverse Effect on Unified and its Subsidiaries, taken as a whole. 3.08. Proxy Statement, Etc. None of the information --------------------- regarding Unified or any of its Subsidiaries to be supplied by Buyers for inclusion or included in (i) the Proxy Statement or (ii) any other documents to be filed with any Regulatory Authority in connection with the transactions contemplated hereby will, at the respective times such documents are filed with any Regulatory Authority and, with respect to the Proxy Statement, when mailed, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the meeting of stockholders referred to in Section 5.03, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for such meeting. All documents which Unified or Merger Sub are responsible for filing with any Regulatory Authority in connection with the Merger will comply as to form in all material respects with the provisions of applicable law. 3.09. Brokers and Finders. Neither Unified, Merger Sub nor ------------------- any of their respective officers, directors or employees has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder's fees, and no broker or finder has acted directly or indirectly for Unified or Merger Sub in connection with this Agreement or the transactions contemplated hereby. 3.10. Accuracy of Information. The statements contained in ----------------------- this Agreement, the Schedules and in any other written document executed and delivered by or on behalf of Buyers pursuant to the terms of this Agreement are true and correct in all material respects, and such statements and documents do not omit any material fact necessary to make the statements contained herein or therein not misleading. ARTICLE IV ---------- CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME 4.01. Conduct of Businesses Prior to the Effective Time. ------------------------------------------------- During the period from the date of this Agreement to the Effective Time, Seller shall, and shall cause each of the Seller Subsidiaries to, conduct their respective businesses according to the ordinary and usual course consistent with past practices and shall, and shall cause each such Seller Subsidiary to, use its best efforts to maintain and preserve its business organization, employees and advantageous business relationships and retain the services of its officers and key employees. 4.02. Forbearances of Seller. Except to the extent required ---------------------- by law, regulation or Regulatory Authority, or with the prior written consent of Buyers (unless otherwise specifically noted in this Section 4.02), during the period from the date of this Agreement to the Effective Time, Seller shall not and shall not permit any of the Seller Subsidiaries to: - 20 - 25 (a) declare, set aside or pay any dividends or other distributions, directly or indirectly, in respect of its capital stock (other than dividends from any of the Seller Subsidiaries to Seller or to another of the Seller Subsidiaries); (b) enter into or amend any employment, severance or similar agreement or arrangement with any director, officer or employee, or materially modify any of the Seller Employee Plans or grant any salary or wage increase or materially increase any employee benefit (including incentive or bonus payments), except (i) normal individual increases in compensation to employees consistent with past practice, (ii) as required by law or contract and (iii) such increases of which Seller notifies Buyers in writing and which Buyers do not disapprove within 10 days of the receipt of such notice; (c) authorize, recommend, propose or announce an intention to authorize, recommend or propose, or enter into an agreement in principle with respect to, any merger, consolida- tion or business combination (other than the Merger), any acquisition of a material amount of assets or securities, any disposition of a material amount of assets or securities or any release or relinquishment of any material contract rights; (d) propose or adopt any amendments to its Certificate or Articles of Incorporation, as the case may be, or other charter document or Bylaws; (e) issue, sell, grant, confer or award any of its Equity Securities (except shares of Seller Common Stock issued upon exercise of Seller Employee Stock Options outstanding on the date of this Agreement) or effect any stock split or adjust, combine, reclassify or otherwise change its capitalization as it existed on the date of this Agreement; (f) purchase, redeem, retire, repurchase or exchange, or otherwise acquire or dispose of, directly or indirectly, any of its Equity Securities, whether pursuant to the terms of such Equity Securities or otherwise; (g) directly or indirectly (including through its officers, directors, employees or other representatives) (i) initiate, solicit or encourage any discussions, inquiries or proposals with any third party (other than Buyers) relating to the disposition of any significant portion of the business or assets of Seller or any of the Seller Subsidiaries or the acquisition of Equity Securities of Seller or any of the Seller Subsidiaries or the merger of Seller or any of the Seller Subsidiaries with any person (other than Buyers) or any similar transaction (each such transaction being referred to herein as an "Acquisition Transaction"), or (ii) provide any such person with information or assistance or negotiate with any such person with respect to an Acquisition Transaction, and Seller shall promptly notify Buyers orally of all the relevant details relating to all inquiries, indications of interest and proposals which it may receive with respect to any Acquisition Transaction; (h) take any action that would (A) materially impede or delay the consummation of the transactions contemplated by this Agreement or the ability of Buyers or Seller to obtain any approval of any Regulatory Authority required for the transactions contemplated by this Agreement or to perform its covenants and agreements under this Agreement or (B) prevent or impede the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code; - 21 - 26 (i) other than in the ordinary course of business consistent with past practice, incur any indebtedness for borrowed money or assume, guarantee, endorse or otherwise as an accommodation become responsible or liable for the obligations of any other individual, corporation or other entity; (j) agree in writing or otherwise to take any of the foregoing actions or engage in any activity, enter into any transaction or intentionally take or omit to take any other act which would make any of the representations and warranties in Article II of this Agreement untrue or incorrect in any material respect if made anew after engaging in such activity, entering into such transaction, or taking or omitting such other act. 4.03. Forbearances of Buyers. During the period from the ---------------------- date of this Agreement to the Effective Time, Buyers shall not, and shall not permit any of their respective Subsidiaries to, without the prior written consent of Seller, agree in writing or otherwise engage in any activity, enter into any transaction or take or omit to take any other action: (a) that would (i) materially impede or delay the consummation of the transactions contemplated by this Agreement or the ability of Buyers or Seller to obtain any approval of any Regulatory Authority required for the transactions contemplated by this Agreement or to perform its covenants and agreements under this Agreement or (ii) prevent or impede the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code; or (b) which would make any of the representations and warranties of Article III of this Agreement untrue or incorrect in any material respect if made anew after engaging in such activity, entering into such transaction, or taking or omitting such other action. ARTICLE V --------- ADDITIONAL AGREEMENTS 5.01. Access and Information. Buyers and Seller shall each ---------------------- afford to the other, and to the other's accountants, counsel and other representatives, full access during normal business hours, during the period prior to the Effective Time, to all their respective properties, books, contracts, commitments and records and, during such period, each shall furnish promptly to the other (i) a copy of each report, schedule and other document filed or received by it during such period pursuant to the requirements of federal and state securities laws and (ii) all other information concerning its business, properties and personnel as the other may reasonably request. Each party shall, and shall cause its advisors and representatives to, (A) hold confidential all information obtained in connection with any transaction contemplated hereby with respect to the other party and its Subsidiaries which is not otherwise public knowledge, (B) in the event of a termination of this Agreement, return all documents (including copies thereof) obtained hereunder from the other party or any of its Subsidiaries to it and (C) use their respective best efforts to cause all of such party's confidential information obtained pursuant to this Agreement or in connection with the negotiation of this Agreement to be treated as confidential and not use, or knowingly permit others to use, any such information unless such information becomes generally available to the public. - 22 - 27 5.02. Registration Statement; Regulatory Matters. ------------------------------------------ (a) On or before May 31, 1997, Unified shall prepare and file with the SEC a Registration Statement on Form 10 or Form 10-SB, as the case may be, with respect to the shares of Unified Common Stock (the "Registration Statement"), and shall use its best efforts to cause the Registration Statement to become effective by no later than August 31, 1997. Unified shall prepare and, subject to the review and consent of Seller with respect to matters relating to Seller, use its best efforts to file as soon as is reasonably practicable an application for approval of the Merger with each such Regulatory Authority as may require an application. Unified shall also take any action required to be taken under any applicable state blue sky or securities laws in connection with the issuance of such shares, and Seller and the Seller Subsidiaries shall furnish Unified all information concerning Seller and the Seller Subsidiaries and the stockholders thereof as Unified may reasonably request in connection with any such action. Upon the effectiveness of the Registration Statement, Unified shall use its best efforts, to the extent practicable, to have the Unified Common Stock traded over-the-counter with quotes published by the National Quotation Bureau, Inc. Daily Quotation System. (b) Seller and Buyers shall cooperate and use their respective best efforts to prepare all documentation, to effect all filings and to obtain all permits, consents, approvals and authorizations of all third parties and Regulatory Authorities necessary to consummate the transactions contemplated by this Agreement and, as and if directed by Unified, to consummate such other transactions by and among Unified's Subsidiaries and the Seller Subsidiaries concurrently with or following the Effective Time, provided that such actions do not: (i) materially impede or delay the receipt of any approval referred to in Section 6.01(b); (ii) prevent or impede the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code; or (iii) the consummation of the transactions contemplated by this Agreement. 5.03. Stockholder Approval. Seller shall call a meeting of -------------------- its stockholders to be held as soon as practicable after the date hereof for the purpose of voting upon this Agreement and the Merger. In connection with such meeting, Seller shall prepare, subject to the review and consent of Unified, the Proxy Statement and mail the same to the stockholders of Seller. The Board of Directors of Seller shall submit for approval of Seller's stockholders the matters to be voted upon at such meeting. The Board of Directors of Seller hereby does and shall recommend this Agreement and the transactions contemplated hereby to stockholders of Seller and use its reasonable best efforts to obtain any vote of Seller's stockholders necessary for the approval of this Agreement. Seller and the Principal Stockholder shall use their best efforts to obtain all other Stockholder Approvals. 5.04. Current Information. During the period from the date ------------------- of this Agreement to the Effective Time, each party shall promptly furnish the other with copies of all interim financial statements as the same become available and shall cause one or more of its designated representatives to confer on a regular and frequent basis with representatives of the other party. Each party shall promptly notify the other party of the following events immediately upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken by the affected party with respect thereto: (a) an event which would cause any representation or warranty of such party or any Schedule, statement, report, notice, certificate or other writing furnished by such party to be untrue or misleading in any material respect; (b) any Material Adverse Effect to it; (c) the issuance or commencement of any governmental complaint, investigation or hearing (or any communication indicating that the same may be contemplated); - 23 - 28 or (d) the institution or threat of material litigation involving such party, and shall keep the other party fully informed of such events. 5.05. Environmental Reports. Seller shall provide to Buyers, --------------------- as soon as reasonably practical, but not later than forty-five (45) days after the date hereof, a phase one environmental investigation report (prepared by a firm reasonably acceptable to Buyers) on all real property owned, leased or operated by Seller or any of Seller Subsidiaries as of the date hereof and within ten (10) days after the acquisition or lease of any real property acquired or leased by Seller or any of Seller Subsidiaries after the date hereof. If required by the phase one investigation, in Buyers' reasonable opinion, Seller shall provide to Buyers a phase two investigation report (prepared by a firm reasonably acceptable to Buyers) on properties requiring such additional study. Buyers shall have fifteen (15) business days from the receipt of any such phase two investigation report to notify Seller of any dissatisfaction with the contents of such report. Should the cost of taking all remedial or other corrective actions and measures (i) required by applicable law, or (ii) recommended or suggested by such report or reports or prudent in light of serious life, health or safety concerns, in the aggregate, exceed the sum of Ten Thousand Dollars ($10,000), as reasonably estimated by such environmental consulting firm, or if the cost of such actions and measures cannot be so reasonably estimated by such firm to be such amount or less with any reasonable degree of certainty, Buyers shall have the right pursuant to Section 7.01(f) hereof, for a period of fifteen (15) business days following receipt of such estimate or indication that the cost of such actions and measures can not be so reasonably estimated, to terminate this Agreement. 5.06. Agreements of Affiliates. Set forth as Schedule 5.06 ------------------------ ------------- is a list (which includes individual and beneficial ownership) of all persons whom Seller believes to be "affiliates" of Seller, as such term if defined for purposes of the Securities Act. Prior to the Effective Time, and via letter, Seller shall amend and supplement Schedule 5.06. ------------- 5.07. Expenses. Each party hereto shall bear its own -------- expenses incident to preparing, entering into and carrying out this Agreement and to consummating the Merger. 5.08. Miscellaneous Agreements. ------------------------ (a) Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its respective best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as expeditiously as possible, including, without limitation, using its respective best efforts to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby. Each party shall, and shall cause each of its respective Subsidiaries to, use its best efforts to obtain consents of all third parties and Regulatory Authorities necessary or, in the opinion of Buyers, desirable for the consummation of the transactions contemplated by this Agreement. (b) Seller, prior to the Effective Time, shall (i) consult and cooperate with Buyers regarding the implementation of those policies and procedures established by Buyers for its governance and that of its Subsidiaries including, without limitation, policies and procedures pertaining to the accounting, audit, human resources, treasury and legal functions, and (ii) at the reasonable request of Buyers, conform Seller's existing policies and procedures in respect of such matters to Buyers' policies and procedures or, in the absence of any existing Seller policy or procedure regarding any such function, - 24 - 29 introduce Buyers' policies or procedures in respect thereof, unless to do so would cause Seller or any of the Seller Subsidiaries to be in violation of any law, rule or regulation of any Regulatory Authority having jurisdiction over Seller and/or the Seller Subsidiary affected thereby. 5.09. Employee Agreements and Benefits. -------------------------------- (a) Following the Effective Time, Buyers shall cause the Surviving Corporation to honor in accordance with their terms all employment, severance and other compensation contracts set forth on Schedule 2.11(b) between Seller, any of the Seller ---------------- Subsidiaries, and any current or former director, officer, employee or agent thereof, and all provisions for vested benefits or other vested amounts earned or accrued through the Effective Time under the Seller Employee Plans. (b) Subject to Section 5.14, the provisions of the Seller Stock Plans and any other plan, program or arrangement providing for the issuance or grant of any other interest in respect of the Equity Securities of Seller or any of the Seller Subsidiaries shall be deleted and terminated as of the Effective Time, and Seller shall ensure that following the Effective Time no holder of Seller Employee Stock Options or any participant in any Seller Stock Plan shall have any right thereunder to acquire any securities of Seller or any of the Seller Subsidiaries. (c) Except as set forth in Section 5.09(b) hereof, the Seller Employee Plans shall not be terminated by reason of the Merger but shall continue thereafter as plans of the Surviving Corporation until such time as the employees of Seller and the Seller Subsidiaries are integrated into Unified's employee benefit plans that are available to other employees of Unified and its Subsidiaries, subject to the terms and conditions specified in such plans and to such changes therein as may be necessary to reflect the consummation of the Merger. 5.10. Press Releases. Except as may be required by law, -------------- Seller and Unified shall consult and agree with each other as to the form and substance of any proposed press release relating to this Agreement or any of the transactions contemplated hereby. 5.11. State Takeover Statutes. Seller will take all steps ----------------------- necessary to exempt the transactions contemplated by this Agreement and any agreement contemplated hereby from, and if necessary challenge the validity of, any applicable state takeover law. 5.12. Directors' and Officers' Indemnification. Unified ---------------------------------------- agrees that the Merger shall not affect or diminish any of the duties and obligations of indemnification of Seller or any of the Seller Subsidiaries existing as of the Effective Time in favor of employees, agents, directors or officers of Seller or any of the Seller Subsidiaries arising by virtue of its Certificate or Articles of Incorporation, as the case may be, Charter or Bylaws in the form in effect at the date of this Agreement or arising by operation of law or arising by virtue of any contract, resolution or other agreement or document existing at the date of this Agreement, and such duties and obligations shall continue in full force and effect for so long as they would (but for the Merger) otherwise survive and continue in full force and effect. To the extent that Seller's existing directors' and officers' liability insurance policy would provide coverage for any action or omission occurring prior to the Effective Time, Seller agrees to give proper notice to the insurance carrier and to Unified of a potential claim thereunder so as to preserve Seller's rights to such insurance coverage. - 25 - 30 5.13. Tax Opinion Certificates. Seller shall use its ------------------------ reasonable best efforts to cause such of its executive officers, directors and/or holders of one percent (1%) or more of the Seller Common Stock (including shares beneficially held) as may be requested by Thompson Coburn to timely execute and deliver to Thompson Coburn certificates substantially in the form of Exhibit A or Exhibit B hereto, as the case may be. --------- --------- 5.14. Employee Stock Options. ---------------------- (a) At the Effective Time, all rights with respect to Seller Common Stock pursuant to Seller Employee Stock Options that are outstanding at the Effective Time, whether or not then exercisable, shall be converted into and become rights with respect to Unified Common Stock, and Unified shall assume all Seller Employee Stock Options in accordance with the terms of the Seller Stock Plan under which it was issued and the Seller Employee Stock Option Agreement by which it is evidenced. From and after the Effective Time, (i) each Seller Employee Stock Option assumed by Unified shall be exercised solely for shares of Unified Common Stock, (ii) the number of shares of Unified Common Stock subject to each Seller Employee Stock Option shall be equal to the number of shares of Seller Common Stock subject to such Seller Employee Stock Option immediately prior to the Effective Time multiplied by the Exchange Ratio and (iii) the per share exercise price under each Seller Employee Stock Option shall be adjusted by dividing the per share exercise price under such Seller Employee Stock Option by the Exchange Ratio and rounding down to the nearest cent; provided, however, except for that certain two-for-one stock split with respect to the Unified Common Stock, which is to be effected prior to the Effective Time, that the terms of each Seller Employee Stock Option shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, stock dividend, recapitalization or other similar transaction subsequent to the Effective Time. It is intended that the foregoing assumption shall be undertaken in a manner that will not constitute a "modification" as defined in the Code, as to any Seller Employee Stock Option that is an "incentive stock option" as defined under the Code. (b) The shares of Unified Common Stock covered by the stock options to be issued pursuant to Section 5.14(a) shall be duly authorized, validly issued and in compliance with all applicable federal and state securities laws, fully paid and nonassessable and not subject to or in violation of any preemptive rights. Unified shall at and after the Effective Time have reserved sufficient shares of Unified Common Stock for issuance with respect to such options. Unified shall also take any action required to be taken under any applicable state blue sky or securities laws in connection with the issuance of such shares. ARTICLE VI ---------- CONDITIONS 6.01. Conditions to Each Party's Obligation to Effect the --------------------------------------------------- Merger. The respective obligations of each party to effect the Merger - ------ shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following conditions: (a) This Agreement shall have received the requisite Stockholders Approvals at the meeting of stockholders called pursuant to Section 5.03 of this Agreement and those required by the 1940 Act. -26 - 31 (b) All requisite approvals of this Agreement and the transactions contemplated hereby shall have been received from the Regulatory Authorities, and all waiting periods after such approvals required by law or regulation have been satisfied. (c) Neither Seller nor Buyers shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the Merger. (d) Each of Buyers and Seller shall have received from Thompson Coburn an opinion (which opinion shall not have been withdrawn at or prior to the Effective Time) reasonably satisfactory in form and substance to it to the effect that the Merger will constitute a reorganization within the meaning of Section 368 of the Code and to the effect that, as a result of the Merger, assuming that such Seller Common Stock is a capital asset in the hands of the holder thereof at the Effective Time, (i) holders of Seller Common Stock who receive Unified Common Stock in the Merger will not recognize gain or loss for federal income tax purposes on the receipt of such stock, (ii) the basis of such Unified Common Stock will equal the basis of the Seller Common Stock for which it is exchanged and (iii) the holding period of such Unified Common Stock will include the holding period of the Seller Common Stock for which it is exchanged. 6.02. Conditions to Obligations of Seller to Effect the ------------------------------------------------- Merger. The obligations of Seller to effect the Merger shall be subject - ------ to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (a) Representations and Warranties. The ------------------------------ representations and warranties of Buyers set forth in Article III of this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time (as though made on and as of the Effective Time, except (i) to the extent such representations and warranties are by their express provisions made as of a specified date, (ii) where the facts which caused the failure of any representation or warranty to be so true and correct have not resulted, and are not likely to result, in a Material Adverse Effect on Unified and its Subsidiaries, taken as a whole, and (iii) for the effect of transactions contemplated by this Agreement, and Seller shall have received a certificate of the Chairman and Chief Executive Officer of Unified, signing solely in his capacity as an officer of Unified, to such effect. (b) Performance of Obligations. Buyers shall have -------------------------- performed in all material respects all obligations required to be performed by it under this Agreement prior to the Effective Time, and Seller shall have received a certificate of the Chairman and Chief Executive Officer of Unified, signing solely in his capacity as an officer of Unified, to that effect. (c) Permits, Authorizations, etc. Buyers shall have ----------------------------- obtained any and all material permits, authorizations, consents, waivers and approvals required for the lawful consummation of the Merger. (d) No Material Adverse Effect. Since the date of -------------------------- this Agreement, there shall have been no Material Adverse Effect on Unified and its Subsidiaries, taken as a whole. - 27 - 32 (e) Opinion of Counsel. Unified shall have delivered ------------------ to Seller an opinion of Unified's counsel dated as of the Closing Date or a mutually agreeable earlier date in substan- tially the form set forth as Exhibit C to this Agreement. --------- (f) Registration Statement. The Registration ---------------------- Statement shall have been declared effective and shall not be subject to a stop order or any threatened stop order. 6.03. Conditions to Obligations of Buyers to Effect the ------------------------------------------------- Merger. The obligations of Buyers to effect the Merger shall be subject - ------ to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (a) Representations and Warranties. The ------------------------------ representations and warranties of Seller set forth in Article II of this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time (as though made on and as of the Effective Time, except (i) to the extent such representations and warranties are by their express provisions made as of a specific date, (ii) where the facts which caused the failure of any representation or warranty to be so true and correct have not resulted, and are not likely to result, in a Material Adverse Effect on Seller and its Subsidiaries, taken as a whole, and (iii) for the effect of transactions contemplated by this Agreement) and Buyers shall have received a certificate of the President of Seller, signing solely in his capacity as an officer of Seller, to such effect. (b) Performance of Obligations. Seller shall have -------------------------- performed in all material respects all obligations required to be performed by it under this Agreement prior to the Effective Time, and Buyers shall have received a certificate of the President of Seller signing solely in his capacity as an officer of Seller, to that effect. (c) Permits, Authorizations, etc. Seller shall have ----------------------------- obtained any and all material permits, authorizations, consents, waivers and approvals required for the lawful consummation by it of the Merger. (d) No Material Adverse Effect. Since the date of -------------------------- this Agreement, there shall have been no Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. (e) Opinion of Counsel. Seller shall have delivered ------------------ to Buyers an opinion of Seller's counsel dated as of the Closing Date or a mutually agreeable earlier date in substantially the form set forth as Exhibit D to this Agreement. --------- (f) Opinion of Accountant. Unified shall have --------------------- received an opinion letter, dated as of the Closing Date, from its independent public accountants, to the effect that the Merger will qualify for pooling-of-interests accounting treatment under Accounting Principles Board Opinion No. 16 if closed and consummated in accordance with this Agreement. - 28 - 33 ARTICLE VII ----------- TERMINATION, AMENDMENT AND WAIVER 7.01. Termination. This Agreement may be terminated at any ----------- time prior to the Effective Time, whether before or after approval by Seller's stockholders: (a) by mutual consent by the Boards of Directors of Unified and Seller; (b) by the Board of Directors of Unified or the Board of Directors of Seller at any time after October 31, 1997 if the Merger shall not theretofore have been consummated (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein); (c) by the Board of Directors of Unified or the Board of Directors of Seller if any Regulatory Authority whose approval is required for the consummation of the transactions contemplated hereby has denied approval of the Merger and such denial has become final and nonappealable or (ii) the stockholders of Seller shall not have approved this Agreement at the meeting referred to in Section 5.03; (d) by the Board of Directors of Unified, on the one hand, or by the Board of Directors of Seller, on the other hand, in the event of a material volitional breach by the other party to this Agreement of any representation, warranty or agreement contained herein, which breach is not cured within 30 days after written notice thereof is given to the breaching party by the non-breaching party or is not waived by the non-breaching party during such period; (e) by the Board of Directors of Unified pursuant to and in accordance with the provisions of Section 5.05 hereof; or (f) by the Board of Directors of Seller in the event Unified shall have failed to either (i) file the Registration Statement with the SEC by May 31, 1997 or (ii) have the Registration Statement declared effective by July 31, 1997. 7.02. Effect of Termination. In the event of termination of --------------------- this Agreement as provided in Section 7.01 hereof, this Agreement shall forthwith become void and there shall be no liability on the part of Buyers or Seller or their respective officers or directors except as set forth in the second sentence of Section 5.01 and in Section 5.08 and in Article 8, and except that no termination of this Agreement pursuant to Section 7.01(e) shall relieve the breaching party of any liability to the non- breaching party hereto arising from the intentional, deliberate and willful non-performance of any covenant contained herein, after giving notice to such breaching party and an opportunity to cure as set forth in Section 7.01(e). 7.03. Amendment. This Agreement, the Exhibits and the --------- Schedules hereto may be amended by the parties hereto, by action taken by or on behalf of the respective Boards of Directors of Unified or Seller, at any time before or after approval of this Agreement by the stockholders of Seller; provided, however, that after any such approval by the stockholders of Seller no such modification shall (A) alter or change the amount or kind of Merger Consideration to be received by holders of Seller Common Stock as provided in this Agreement or (B) adversely affect the tax treatment to Seller stockholders as a result of the receipt of the Merger Consideration. This Agreement, the Exhibits and - 29 - 34 the Schedules hereto may not be amended except by an instrument in writing signed on behalf of each of Buyers and Seller. 7.04. Waiver. Any term, condition or provision of this ------ Agreement may be waived in writing at any time by the party which is, or whose stockholders are, entitled to the benefits thereof. ARTICLE VIII ------------ INDEMNIFICATION 8.01. Indemnification of Buyers. By execution of this ------------------------- Agreement, the Principal Stockholder hereby acknowledges that Unified shall be entitled to full indemnification by the Principal Stockholder of the following: (a) any and all loss, liability or damage (including judgments and settlement payments) incurred by Seller or Unified incident to, arising in connection with or resulting from any misrepresentation, breach, nonperformance or inaccuracy of any representation, warranty or covenant (to the extent such covenant is to be performed prior to the Closing Date) by Seller made or contained in this Agreement or in any Exhibit, Schedule, certificate or other document executed and delivered to Unified by the Principal Stockholder or by or on behalf of Seller under or pursuant to this Agreement or the transactions contemplated herein; (b) any and all loss, liability or damage relating to taxes which arise from or relate to (i) Seller's activities prior to the Closing Date, (ii) tax periods ending on or prior to the Closing Date or (iii) the Merger, in each case except to the extent that any specific amount for any such tax was recorded on the Seller's books; (c) Seller's obligations with respect to any employees of Seller under any pension, profit sharing or retirement plan, collective bargaining agreement, consulting agreement, life insurance or other employee welfare benefit plan or vacation policy relating to any time prior to the Closing Date, and in particular, obligations for medical or life insurance benefits of any former or retired employees of Seller or their dependents; (d) except to the extent of payments actually received by Unified pursuant to any insurance policies under which Seller is insured, any and all loss, liability or damage (including judgments and settlement payments) incurred by them incident to, arising in connection with or resulting from any act or failure to act by the Principal Stockholder or by Seller or its employees prior to the Closing Date; and (e) any and all costs, expenses and all other actual damages incurred in claiming, contesting or remedying any breach, misrepresentation, nonperformance or inaccuracy described above, or in enforcing their rights to indemnification hereunder, including, by way of illustration and not limitation, all legal and accounting fees, other professional expenses and all filing fees and collection costs incident thereto and all such fees, costs and expenses incurred in defending claims which, if successfully prosecuted, would have resulted in loss, liability, costs, expense or other damage. - 30 - 35 In case a claim shall be made or any action shall be brought in respect of which recovery through indemnity will lie against the Principal Stockholder pursuant to any provision of this Agreement, Unified shall promptly notify the Principal Stockholder in writing, and the Principal Stockholder shall promptly assume the defense thereof, including with the consent of Unified, which consent shall not be unreasonably withheld, the employment of counsel, the payment of all expenses and the right to negotiate and consent to settlement. Unified shall have the right to employ separate counsel with respect to any such claim or in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of Unified unless the employment of such counsel has been specifically authorized in writing by the Principal Stockholder or there is a conflict of interest that would prevent counsel for the Principal Stockholder from adequately representing both the Principal Stockholder, on the one hand, and Seller and Unified on the other hand, or would prevent counsel for Seller from adequately representing both Seller and Unified. The Principal Stockholder shall not be liable for any settlement of any such action effected without their written consent, but if settled with the written consent of the Principal Stockholder or if there be a final judgment for the plaintiff in any such action for which the Principal Stockholder is required hereunder to assume the defense, the Principal Stockholder agrees to indemnify and hold harmless Unified and Seller from and against any loss or liability by reason of such settlement or judgment. 8.02. Indemnification of the Stockholders. By execution of ----------------------------------- this Agreement, Unified hereby acknowledges each stockholder of Seller as set forth on the Seller Stockholder List (collectively, the "Stockholders") shall be entitled to full indemnification by Unified of the following: (a) any and all loss, liability or damage (including judgments and settlement payments) incurred by the Stockholders incident to, arising in connection with or resulting from any misrepresentation, breach, nonperformance or inaccuracy of any representation, warranty or covenant by Unified made or contained in this Agreement or in any Exhibit, Schedule, certificate or other document executed and delivered to Stockholder by Unified; and (b) any and all costs, expenses and all other actual damages incurred in claiming, contesting or remedying any breach, misrepresentation, nonperformance or inaccuracy described above, or in enforcing its rights to indemnification hereunder, including, by way of illustration and not limitation, all legal and accounting fees, other professional expenses and all filing fees and collection costs incident thereto and all such fees, costs and expenses incurred in defending claims which, if successfully prosecuted, would have resulted in loss, liability, cost, expense or other damages. In case a claim shall be made or any action shall be brought in respect of which recovery through indemnity will lie against Unified pursuant to any provision of this Agreement, the Stockholders shall promptly notify Unified in writing, and Unified shall promptly assume the defense thereof, including with the consent of the Stockholders, which consent shall not be unreasonably withheld, the employment of counsel, the payment of all expenses and the right to negotiate and consent to settlement. The Stockholders shall have the right to employ separate counsel with respect to any such claim or in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Stockholders unless the employment of such counsel has been specifically authorized in writing by Unified or there is a conflict of interest that would prevent counsel for Unified from adequately representing both Seller and Unified, on the one hand, and the Stockholders, on the other hand. Unified shall not be liable for any settlement of any such action effected without its written consent, but if settled with the written consent of Unified or if there be a final judgment for the plaintiff in any such action for which Unified is required hereunder to assume the defense, Unified agrees to - 31 - 36 indemnify and hold harmless the Stockholders from and against any loss or liability by reason of such settlement or judgment. 8.03. Payment of Claims for Indemnification. Any amounts to ------------------------------------- be indemnified to Unified shall be the responsibility of the Principal Stockholder and shall be paid promptly upon notice of Unified to the Principal Stockholder of incurrence of such loss, liability, cost, expense or damage and an explanation of the losses for Unified's demand for indemnification under Article 8 of this Agreement. Any amounts payable to the Stockholders pursuant to the provisions of Section 8.02 of this Agreement shall be the responsibility of Unified and shall be paid promptly upon notice of the Stockholders to Unified of incurrence of such loss, liability, cost, expense or damage and an explanation of the losses for the Stockholders' demand for indemnification under Section 8.02 of this Agreement. 8.04. Survival of Indemnification. Any other provision --------------------------- hereof to the contrary notwithstanding, the parties agree that the representations and warranties of the parties contained in this Agreement and any certificates delivered pursuant to this Agreement shall survive for a period of twelve (12) months after the Closing Date for purposes of this Article 8, regardless of any investigation made by either party prior to the date hereof or prior to the Closing Date. Unified and the Stockholders shall only be entitled to indemnification under this Article 8 for breaches of representations and warranties if a written notice describing the claim for which indemnification is sought is signed by the party claiming indemnification not later than twelve months following the Closing Date. Any claim for indemnification pursuant to this Article 8 for breaches of representations and warranties not made prior to the expiration of such twelve month period shall be extinguished, and all representations and warranties with respect to which no claim is made prior to the expiration of such twelve month period shall expire and be of no further force and effect. ARTICLE IX ---------- GENERAL PROVISIONS 9.01. Non-Survival of Representations, Warranties and ----------------------------------------------- Agreements. No investigation by the parties hereto made heretofore or - ---------- hereafter shall affect the representations and warranties of the parties which are contained herein and each such representation and warranty shall survive such investigation. Except as set forth below in this Section 9.01, all representations, warranties and agreements in this Agreement of Buyers and Seller or in any instrument delivered by Buyers or Seller pursuant to or in connection with this Agreement shall expire at the Effective Time or upon termination of this Agreement in accordance with its terms. In the event of consummation of the Merger, the agreements contained in or referred to in Sections 1.07-1.11, 5.02(b), 5.06, 5.08, 5.09, 5.12, 5.13 and 5.14 and Article 8 shall survive the Effective Time. In the event of termination of this Agreement in accordance with its terms, the agreements contained in or referred to in the second sentence of Section 5.01 and Sections 5.08 and 7.02 shall survive such termination. 9.02. No Assignment; Successors and Assigns. This Agreement ------------------------------------- shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, but neither this Agreement nor any right or obligation set forth in any provision hereof may be transferred or assigned by any party hereto without the prior written consent of the other party, and any purported transfer or assignment in violation of this Section 9.02 shall be void and of no effect. There shall not be any third party beneficiaries of any provisions hereof except for Sections 1.08, 5.08, 5.09, 5.12 and 5.14, which may be enforced against Buyers or Seller by the parties therein identified. - 32 - 37 9.03. No Implied Waiver. No failure or delay on the part of ----------------- either party hereto to exercise any right, power or privilege hereunder or under any instrument executed pursuant hereto shall operate as a waiver nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 9.04. Headings. Article, section, subsection and paragraph -------- titles, captions and headings herein are inserted only as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Agreement or the intent or meaning of any provision hereof. 9.05. Entire Agreement. This Agreement, the Exhibits and the ---------------- Schedules hereto constitute the entire agreement between the parties with respect to the subject matter hereof, supersede all prior negotiations, representations, warranties, commitments, offers, letters of interest or intent, proposal letters, contracts, writings or other agreements or understandings, whether written or oral, with respect thereto. 9.06. Counterparts. This Agreement may be executed in one ------------ or more counterparts, and any party to this Agreement may execute and deliver this Agreement by executing and delivering any of such counterparts, each of which when executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. 9.07. Notices. All notices and other communications hereunder ------- shall be in writing and shall be deemed to be duly received (i) on the date given if delivered personally or (ii) upon confirmation of receipt, if by facsimile transmission or (iii) on the date received if mailed by registered or certified mail (return receipt requested), to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Buyers: Unified Holdings, Inc. 429 North Pennsylvania Street Indianapolis, Indiana 46204 Attention: President Telecopy: (317) 632-7805 Copies to: Mr. Timothy L. Ashburn, Chairman 1104 Buttonwood Court Lexington, Kentucky 40515 and Thompson Coburn One Mercantile Center St. Louis, Missouri 63101 Attention: Charles H. Binger, Esq. Telecopy: (314) 552-7000 - 33 - 38 (ii) if to Seller: Vintage Advisers, Inc. 429 North Pennsylvania Street Indianapolis, Indiana 46204 Attention: Lynn E. Wood, President Telecopy: (317) 632-7805 Copies to: Mr. Timothy L. Ashburn, Chairman 1104 Buttonwood Court Lexington, Kentucky 40515 9.08. Severability. Any term, provision, covenant or ------------ restriction contained in this Agreement held by a court or a Regulatory Authority of competent jurisdiction to be invalid, void or unenforceable, shall be ineffective to the extent of such invalidity, voidness or unenforceability, but neither the remaining terms, provisions, covenants or restrictions contained in this Agreement nor the validity or enforceability thereof in any other jurisdiction shall be affected or impaired thereby. Any term, provision, covenant or restriction contained in this Agreement that is so found to be so broad as to be unenforceable shall be interpreted to be as broad as is enforceable. 9.09. Governing Law. This Agreement shall be governed by and ------------- controlled as to validity, enforcement, interpretation, effect and in all other respects by the internal laws of the State of Delaware, without regards to its conflict of laws principles. [remainder of this page intentionally left blank] - 34 - 39 IN WITNESS WHEREOF, Buyers and Seller have caused this Agreement to be signed and, by such signature, acknowledged by their respective officers thereunto duly authorized, and such signatures to be attested to by their respective officers thereunto duly authorized, all as of the date first above written. "BUYERS" UNIFIED HOLDINGS, INC. ATTEST: /s/ Barbara Ashburn By: /s/ Timothy L. Ashburn - ------------------------------ ---------------------------------- Timothy L. Ashburn, Chairman and Chief Executive Officer /s/ Carol J. Highsmith By: /s/ Lynn E. Wood - ------------------------------ ---------------------------------- Lynn E. Wood, President and Chief Operating Officer VAI ACQUISITION CORPORATION ATTEST: /s/ Barbara Ashburn By: /s/ Timothy L. Ashburn - ------------------------------ ---------------------------------- Timothy L. Ashburn, President and Chief Executive Officer "SELLER" VINTAGE ADVISERS, INC. ATTEST: /s/ Carol J. Highsmith By: /s/ Lynn E. Wood - ------------------------------ ---------------------------------- Lynn E. Wood, President and Chief Operating Officer "PRINCIPAL STOCKHOLDER" /s/ Timothy L. Ashburn ------------------------------------- Timothy L. Ashburn - 35 - EX-3.1 5 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF UNIFIED HOLDINGS, INC. 1. The name of the corporation is: UNIFIED HOLDINGS, INC. 2. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. 3. The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 4. The total number of shares of stock which the corporation shall have authority to issue is Three Thousand (3,000) all of such shares shall be without par value. 5. The board of directors is authorized to make, alter or repeal the by-laws of the corporation. Election of directors need not be by written ballot. 6. The name and mailing address of the incorporator is: M. C. Kinnamon Corporation Trust Center 1209 Orange Street Wilmington Delaware 19801 7. A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of Delaware, do make this certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 7th day of December, 1989. /s/ M. C. Kinnamon ------------------- M. C. Kinnamon 2 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF UNIFIED HOLDINGS, INC. =============================== Unified Holdings, Inc., (the "Company"), a corporation organized and existing under the General Corporation Law of the State of Delaware (the "General Corporation Law"), does hereby certify: FIRST: That on December 29, 1993, resolutions were duly adopted by the Board of Directors of the Company with respect to an amendment to the Company's Certificate of Incorporation, as follows: RESOLVED, that Article 4 of the Certificate of Incorporation of the Company hereby is deleted in its entirety and replaced with the following provision: 4. The authorized capital stock of the corporation shall consist of (a) One Million (1,000,000) shares of Preferred Stock, par value $0.01 per share; and (b) Three Thousand (3,000) shares of Common Stock, without par value. The Board of Directors, by adoption of an authorizing resolution, may cause Preferred Stock to be issued from time to time in one or more series. The Board of Directors, by adoption of an authorizing resolution, may with regard to the shares of any series of Preferred Stock: (i) Fix the distinctive serial designation of the shares; (ii) Fix the dividend rate, if any; (iii) Fix the date from which dividends on shares issued before the date for payment of the first dividend shall be cumulative, if any; (iv) Fix the redemption price and terms of redemption, if any; (v) Fix the amounts payable per share in the event of dissolution or liquidation of the corporation, if any; (vi) Fix the terms and amounts of any sinking fund to be used for the purchase or redemption of shares, if any; (vii) Fix the terms and conditions under which the shares may be converted, if any; (viii) Provide whether such shares shall be non-voting, or shall have full or limited voting rights, and the rights, if any, of such shares to vote as a class on some or all matters on which such shares may be entitled to vote; and 3 (ix) Fix such other preferences, qualifications, limitations, restrictions and special or relative rights not required by law." SECOND: That the foregoing plan for conversion of outstanding shares was approved, in accordance with Section 228 of the General Corporation Law, by written consent of holders of the common stock of the Company (being the only class of stock of the Company outstanding) having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, and that written notice has been given as provided in such Section. THIRD: That the foregoing amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law. FOURTH: That this Certificate of Amendment shall become effective upon the filing thereof with the Secretary of State of the State of Delaware pursuant to the provision of Section 103(d) of the General Corporation Law. IN WITNESS WHEREOF, said Unified Holdings, Inc. has caused this certificate to be signed and attested by its duly authorized officers and its corporate seal affixed hereto this 31st day of December, 1993. UNIFIED HOLDINGS, INC. BY: /s/ Lynn E. Wood ------------------------ Lynn E. Wood, President ATTEST: /s/ Janice Hayles ------------------------ U.C.L.C. 4 CERTIFICATE OF DESIGNATIONS, PREFERENCES, AND RELATIVE RIGHTS, QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF THE SERIES A 8% CUMULATIVE PREFERRED STOCK OF UNIFIED HOLDINGS, INC. ----------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware ----------------------- Unified Holdings, Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware, certifies as follows: FIRST: The Certificate of Incorporation of the Corporation authorizes the issuance of 1,000,000 shares of Preferred Stock, par value $0.01 per share (the "Preferred Stock"), and, further, authorizes the Board of Directors of the Corporation, by resolution or resolutions, at any time and from time to time, to divide and establish any or all of the unissued shares of Preferred Stock not then allocated to any series of Preferred Stock into one or more series and, without limiting the generality of the foregoing, to fix and determine the designation of each such share, the number of shares which shall constitute such series and certain powers, preferences and relative participating, optional or other special rights and qualifications, limitations and restrictions of the shares of each series so established. SECOND: By unanimous written consent of the Board of Directors of the Corporation dated December 29, 1993, the following resolution was adopted setting forth the designations, powers, preferences and rights, and the qualifications, limitations or restrictions of a certain series of said Preferred Stock: RESOLVED: Pursuant to Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors designates 10,000 shares of the Preferred Stock as Series A 8% Cumulative Preferred Stock (the "Series A Preferred Stock"). The designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof, in respect of the Series A Preferred Stock of the Corporation shall be as follows: 1. Definitions. ----------- As used herein, the following terms shall have the respective meanings ascribed to them: "Board" shall mean the Board of Directors of the Corporation. 5 "Business Day" shall mean any day which is not a Saturday or a Sunday or a day on which banks are permitted to close in St. Louis, Missouri. If any action otherwise required hereunder is scheduled for a day other than a Business Day, then such action may be taken on the next successive Business Day. "Common Stock" shall mean the Common Stock of the Corporation, without par value. "Corporation" shall mean Unified Holdings, Inc., a Delaware corporation. "Dividend Reference Date" shall mean the 25th day of January, April, July and October of each year commencing April 25, 1994, and continuing through and including January 25, 2014. "GCL" shall mean the General Corporation Law of the State of Delaware, as amended. "Junior Security" shall mean any equity security of any kind which the Corporation shall at any time issue or be authorized to issue other than the Series A Preferred Stock, including but not limited to the Series B Preferred Stock. "Liquidation Value" of any share of Series A Preferred Stock as of any particular date shall be equal to the sum of (i) the Stated Value plus ----- (ii) an amount equal to any accrued and unpaid dividends on such share. "Payment Default" shall mean (i) any time at which the aggregate unpaid dividends on both the Series A Preferred Stock and the Series B Preferred Stock equal or exceed two (2) times the amount of the then regular quarterly dividend payment with respect to all then outstanding shares of each of such series of Preferred Stock, and (ii) any time after January 25, 2014, until the Corporation has redeemed all shares of Series A Preferred Stock as required by paragraph 4(c) hereof. "Person" shall mean any individual, partnership, limited partnership, corporation, trust, joint venture, unincorporated organization and a government or any department or agency thereof. "Preferred Stock" shall mean the Preferred Stock, par value $0.01 per share, authorized to be issued by the Corporation pursuant to its Certificate of Incorporation. "Redemption Date" shall mean (i) the Dividend Reference Date specified in a Redemption Notice for a redemption of shares of Series A Preferred Stock pursuant to paragraph 4(b) hereof, and (ii) January 25, 2014 for a redemption of shares of Series A Preferred Stock pursuant to paragraph 4(c) hereof. "Redemption Notice" shall mean the notice specified in paragraph 4(d) below. - 2 - 6 "Series A Preferred Stock" shall mean the Series A 8% Cumulative Preferred Stock established pursuant to this resolution of the Board. "Series B Preferred Stock" shall mean the Series B 8% Cumulative Preferred Stock established pursuant to a resolution of the Board adopted concurrently herewith. "Sinking Fund" shall mean the sinking fund established by the Corporation pursuant to paragraph 4(a) below. "Sinking Fund Payment" shall mean an amount, calculated with respect to each fiscal quarter of the Corporation, equal to the lesser of (a) Applicable Percentage of the aggregate stated value of Series A Preferred Stock and Series B Preferred Stock issued and outstanding as of the end of the fiscal quarter for which such Sinking Fund Payment is being determined, and (b) the Net Account Income determined with respect to such fiscal quarter. The Applicable Percentage shall be 0.04375 (4.375%) with regard to the first and second Sinking Fund Payments, which are due April 25, 1994 and July 25, 1994, respectively; 0.0425 (4.25%) with regard to the third and fourth Sinking Fund Payments, which are due October 25, 1994 and January 25, 1995, respectively; and shall continue to decline by one-eighth of one percentage point (.125%) with regard to each subsequent pair of successive Sinking Fund Payments until it shall become 0.0375 (3.75%) with regard to the Sinking Fund Payments that are due on October 25, 1996 and January 25, 1997. The Applicable Percentage shall be 0.0375 (3.75%) with regard to all Sinking Fund Payments due on or after January 25, 1997. "Net Account Income" shall mean the excess of (i) Gross Account Income, over (ii) Account Expenses. "Gross Account Income" shall mean the sum of (i) the Service Income attributable to Accounts invested from the four Unified Family of Funds and the three Liquid Green Funds into the Quest for Value/Oppenheimer Capital Funds pursuant to certain transactions closing on or about January 23, 1993, and (ii) forty percent (40%) of the Service Income attributable to any other Accounts (including zero balance Accounts). "Account" or "Accounts" shall mean any customer accounts documented on the records of Management at any time on or between January 1, 1990 and January 31, 1993. "Service Income" shall mean Distribution Assistance Fees (including 12(b)-(1) fees, as may from time to time be amended or recodified by the Securities Exchange Commission) received by Management for services and expenses incurred in connection with the assets transferred pursuant to acquisition agreements executed among the various Unified Funds and Liquid Green Trusts and comparable funds managed by Quest for Value Advisors. Notwithstanding anything to the contrary, Service Income shall not mean or include transfer agency fees, fund accounting fees, administration and compliance fees, brokerage fees, or commissions associated with servicing the Accounts. "Account Expenses" shall mean any commissions or fees due to introducing broker/dealers in connection with any Account. "Stated Value" of any share of Series A Preferred Stock shall mean One Hundred Dollars ($100.00). 2. Dividends. --------- (a) General Dividend Obligation. To the extent funds of the --------------------------- Corporation are legally available therefor, the Board shall declare that the Corporation shall pay to the holders - 3 - 7 of the Series A Preferred Stock, out of the assets of the Corporation available for the payment of dividends under the GCL, preferential dividends at the times and in the amounts provided for in this paragraph 2 and no more. Dividends shall be paid by mailing the Corporation's good check in the proper amount to each holder of the Series A Preferred Stock to such holder (or the designee of such holder) at such holder's address (or designee's address) as it appears on the Corporation's register on or prior to the due date of each dividend or by transferring funds to such holder (or designee) by wire transfer or otherwise so as to be received by such holder (or designee) on the due date of such dividend. (b) Calculation of Dividends. Dividends on each share of Series ------------------------ A Preferred Stock shall be calculated cumulatively on a daily basis at the rate and in the manner prescribed herein from (but not including) the date of issuance of such share to and including the date on which the Liquidation Value of such share is paid pursuant to the provisions hereof, whether or not such dividends shall have been declared and whether or not there shall be (at the time such dividends are calculated or become payable or at any other time) profits, surplus or other funds of the Corporation legally available for the payment of dividends. For purposes of this paragraph 2(b), the date on which the Corporation shall initially issue any share of Series A Preferred Stock shall be deemed to be its "date of issuance" regardless of the number of times transfer of such share shall be made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be originally issued to evidence such share (whether by reason of transfer of such share or for any other reason). (c) Dividend Rate and Payment. Dividends shall be calculated ------------------------- cumulatively (but shall not compound) on a daily basis on each share of Series A Preferred Stock at the rate of eight percent (8.0%) per annum (based on a 365/366-day year) of the Stated Value thereof. Dividends shall be paid to the holders of the shares of Series A Preferred Stock on each Dividend Reference Date commencing March 31, 1994. Each of such dividend payments on each such Dividend Reference Date shall be in an amount equal to the dividends calculated from (but not including) the preceding Dividend Reference Date (or from, but not including, the original date of issuance of the Series A Preferred Stock in the case of the initial Dividend Reference Date). Notwithstanding the foregoing, in no event shall the Corporation be required to pay any such dividend to the extent the payment of such dividend would violate any provision of the GCL. Any dividends not paid on their respective Dividend Reference Dates shall continue to accumulate (and shall not compound) until paid. (d) Distribution of Partial Dividend Payments. If on any ----------------------------------------- Dividend Reference Date the Corporation shall pay less than the total amount of dividends then calculated on the Series A Preferred Stock, such payment shall be distributed among the holders of the Series A Preferred Stock so that an equal amount shall be paid with respect to each outstanding share. 3. Liquidation. Upon any liquidation, dissolution or winding ----------- up of the Corporation, whether voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled, before any distribution or payment is made upon any Junior Securities of the Corporation, to be paid out of the assets of the Corporation available for distribution to its stockholders (whether from capital, surplus or earnings) an amount in cash equal to the aggregate Liquidation Value of all shares of Series A Preferred Stock outstanding, and the - 4 - 8 holders of the Series A Preferred Stock shall not be entitled to any further payment. If upon such liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets of the Corporation to be distributed among the holders of the Series A Preferred Stock shall be insufficient to permit payment to the holders of Series A Preferred Stock of the amount which they are entitled to be paid as aforesaid, then the entire remaining assets of the Corporation shall be distributed to the holders of the Series A Preferred Stock ratably based upon the aggregate Liquidation Value of the shares of Series A Preferred Stock held by them. Upon any such liquidation, dissolution or winding up of the Corporation, after the holders of the Series A Preferred Stock shall have been paid in full the amounts to which they shall be entitled, the remaining assets of the Corporation may be distributed to the holders of Junior Securities of the Corporation. Written notice of such liquidation, dissolution or winding up, stating a payment date, the amount of the payment and the place where the amounts distributable shall be payable, shall be mailed by the Corporation by certified or registered mail, return receipt requested, not less than thirty (30) days prior to the payment date stated therein, to each record holder of any share of Series A Preferred Stock at the address of such record holder shown on the Corporation's records. Neither the consolidation or merger of the Corporation into or with any other corporation or corporations, nor the sale, exchange or transfer by the Corporation of less than substantially all of its assets, nor any reduction of the capital of the Corporation, shall of itself be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of any of the provisions of this paragraph 3. 4. Sinking Fund; Redemption by Corporation. --------------------------------------- (a) No later than the 20th day of each January, April, July and October, the Corporation shall transfer and set aside into a separate fund (the "Sinking Fund") an amount of cash equal to the Sinking Fund Payment computed for the fiscal quarter ending on the immediately preceding Dividend Reference Date. The amounts held from time to time in the Sinking Fund shall be used solely for the payment of dividends and the cost of redemption of the Series A Preferred Stock and the Series B Preferred Stock. (b) The Corporation may, at its sole option and discretion, redeem on any Dividend Reference Date any whole number of shares of Series A Preferred Stock, provided that (i) all accrued dividends on the Series A Preferred Stock then have been paid, (ii) the balance of the Sinking Fund is sufficient to effect such redemption, and (iii) the Corporation has funds (including the amounts held in the Sinking Fund) legally available to effect such redemption. The price at which such shares of Series A Preferred Stock may be redeemed shall be an amount per share equal to the Liquidation Value. The shares of Series A Preferred Stock which the Corporation elects to redeem pursuant to this paragraph 4(b) shall be redeemed from the holders of such shares on a pro rata basis, based on the number of shares of Series A Preferred Stock owned by each such holder as a proportion of the total number of shares of Series A Preferred Stock then outstanding. (c) Subject to paragraph 5 below, the Corporation shall redeem all of the issued and outstanding shares of Series A Preferred Stock on January 25, 2014, at an amount per share equal to the Liquidation Value. - 5 - 9 (d) Not more than sixty (60) days and not less than thirty (30) days prior to any Dividend Reference Date on which the Corporation desires to redeem any shares of Series A Preferred Stock pursuant to paragraph 4(b), the Corporation shall mail to each holder of shares of Series A Preferred Stock a written notice of redemption (the "Redemption Notice") at his post office address last shown on the stock register of the Corporation. The Redemption Notice shall: (i) Identify the number of shares of Series A Preferred Stock which are outstanding and the total number of such shares to be redeemed; (ii) State the date on which such shares are to be redeemed and the Liquidation Value as of such date; and (iii) State that any holder of shares of Series A Preferred Stock to be redeemed shall surrender to the Corporation, in the manner and at the place designated, the certificate or certificates representing the shares of Series A Preferred Stock to be redeemed. (e) In connection with a redemption pursuant to paragraph 4(b) or 4(c), the Corporation shall give irrevocable instructions and authority to the appropriate officers of the Corporation to set apart and pay from the Sinking Fund (or any other funds legally available therefor, in the event of a redemption under paragraph 4(c) hereof), on or after the Redemption Date, the Liquidation Value to the respective record holders upon the surrender of their share certificates. In the event less than all of the shares represented by any such certificate are redeemed, the Corporation shall issue a new certificate representing the unredeemed shares. From and after the Redemption Date, the shares of Series A Preferred Stock so redeemed shall no longer be outstanding and dividends shall cease to accrue (except as provided in the last sentence of paragraph 5 below), and the holders thereof shall cease to be stockholders with respect thereto and shall have no further rights regarding the shares so redeemed except the right to receive payment of the Liquidation Value of such shares, without interest, upon surrender of their certificates therefor. Any monies so set apart and unclaimed at the end of two years (or any longer period required by law) from the Redemption Date shall no longer be set aside and shall become unallocated assets of the Corporation, and thereafter the holders of shares who were entitled to such monies shall, subject to applicable laws, look to the Corporation for payment of the Liquidation Value thereof. 5. Insufficient Funds. If on January 25, 2014, the funds of ------------------ the Corporation legally available for a redemption shall be insufficient to redeem all shares of Series A Preferred Stock required to be redeemed under paragraph 4(c) hereof, (whether due to the provisions of the GCL or otherwise), funds to the maximum extent legally available for such purpose shall be utilized by the Corporation to redeem the maximum number of shares of Series A Preferred Stock on such date which may be redeemed from such funds. Such redemption shall be made on a pro rata basis to the holders of shares of Series A Preferred Stock. If, because sufficient funds are not legally available, the Corporation shall fail to redeem all of the issued and outstanding shares of Series A Preferred Stock at such time, the Corporation shall redeem such - 6 - 10 shares as promptly as practicable after funds are legally available therefor as shown by the Corporation's quarterly or annual financial statements. 6. Status of Shares. Shares of Series A Preferred Stock ---------------- redeemed, purchased or otherwise acquired for value by the Corporation, including by redemption in accordance with paragraph 4, shall, after such acquisition, have the status of authorized and unissued shares of Preferred Stock and may be reissued by the Corporation at any time as shares of any series of Preferred Stock. 7. Restrictions. ------------ (a) So long as any Series A Preferred Stock shall be outstanding, the Corporation shall not, except with the written consent of the holders of not less than a majority of the then outstanding shares of Series A Preferred Stock, create any class or series of stock ranking as to payment of dividends or as to liquidation preference, having a priority over or on a parity with the Series A Preferred Stock. (b) So long as any Series A Preferred Stock shall remain outstanding, the Corporation shall not, except with the written consent of the holders of not less than a majority of then outstanding shares of Series A Preferred Stock, amend, alter or repeal the Corporation's Certificate of Incorporation (or any certificate amendatory or supplementary thereto) or by-laws in a manner adversely affecting any of the powers, preferences and rights set forth herein. (c) So long as any Series A Preferred Stock shall remain outstanding, no dividend shall be declared or paid, nor shall any other distribution (including but not limited to a distribution in redemption) be made, upon any Junior Securities by the Corporation, except (i) distributions pursuant to the written consent of the holders of not less than a majority of all then outstanding shares of Series A Preferred Stock, and (ii) distributions in redemption of outstanding shares of Series B Preferred Stock, provided that immediately following such redemption of shares of Series B Preferred Stock, the ratio of the number of shares of Series B Preferred Stock outstanding after such redemption to the maximum number of shares of Series B Preferred Stock that were outstanding at any time will be equal to or greater than the ratio of the number of shares of Series A Preferred Stock then outstanding to the maximum number of shares of Series A Preferred Stock that were outstanding at any time. Notwithstanding the immediately preceding sentence, in no event shall the Corporation pay any dividend or make any other distribution upon any Junior Securities unless all dividends and other payments (including but not limited to redemption payments) theretofore required to be paid by the Corporation with respect to the Series A Preferred Stock have been paid in full. 8. Voting Rights. ------------- (a) Except as otherwise expressly provided herein or as required under Delaware law, the holders of shares of Series A Preferred Stock shall not be entitled to vote on matters coming before the stockholders of the Corporation. - 7 - 11 (b) At such time as there occurs a Payment Default, and thereafter at each annual and special meeting (or action by written consent in lieu of a meeting) of stockholders of the Corporation during which a Payment Default continues to exist, the holders of Series A Preferred Stock shall be entitled to vote on all matters coming to the attention of the stockholders of the Corporation, such shares to be voted together with the holders of the Common Stock, and not as a class. Such voting right shall continue until no dividend arrearages exist with respect to the Series A Preferred Stock or the Series B Preferred Stock and dividends on both the Series A Preferred Stock and the Series B Preferred Stock have been timely paid in full for two consecutive quarters (or if such voting right occurs as a result of the Corporation's failure to redeem the Series A Preferred Stock on January 25, 2014 then until all shares of Series A Preferred Stock have been redeemed). The number of votes per share of Series A Preferred Stock which the holder thereof shall be entitled to cast at any time during the continuance of a Payment Default shall be equal to (i) two (2) times the number of votes represented by all then outstanding ----- Junior Securities having voting rights, divided by (ii) the sum of the number ---------- of outstanding shares of Series A Preferred Stock and the number of outstanding shares of Series B Preferred Stock. (c) No vote or consent of the holders of the Series A Preferred Stock shall be required for the authorization (including an increase in the authorized number of shares of any Junior Securities) or issuance of any Junior Securities of the Corporation; provided, however, that the Corporation shall not issue any Junior Securities which have class voting rights beyond those required by law, except upon the prior written consent of the holders of a majority of the then outstanding shares of Series A Preferred Stock. 9. Closing of Books. The Corporation will not close its books ---------------- against the transfer of any share of Series A Preferred Stock. 10. Registration of Transfer. The Corporation shall keep at its ------------------------ principal office in the State of Indiana (or at such other place as the Corporation reasonably designates) a register for the registration of shares of Series A Preferred Stock. Upon the surrender of any certificate representing shares of Series A Preferred Stock at such place, the Corporation shall, at the request of the registered holder of such certificate, execute and deliver a new certificate or certificates in exchange therefor representing in the aggregate the number of Shares of Series A Preferred Stock represented by the surrendered certificate (and the Corporation forthwith shall cancel such surrendered certificate), subject to the requirements of applicable securities laws. Each such new certificate shall be registered in such name and shall represent such number of shares of Series A Preferred Stock as shall be requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate; and dividends shall be calculated cumulatively on a daily basis on the shares of Series A Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on the shares represented by the surrendered certificate at the rate and in the manner applicable to such surrendered certificate. The issuance of new certificates shall be made without charge to the holders of the surrendered certificates for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such issuance; provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved - 8 - 12 in the issuance and delivery of any certificate in a name other than that of the holder of the surrendered certificate. 11. Replacement. ----------- (a) Upon receipt of evidence reasonably satisfactory to the Corporation of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing one or more shares of Series A Preferred Stock and, in the case of any such loss, theft or destruction, upon receipt of indemnity and/or a bond reasonably satisfactory to the Corporation, or, in the case of any such mutilation, upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of Series A Preferred Stock represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, on which dividends shall be calculated cumulatively on a daily basis from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate at the rate and in the manner applicable to such certificate. (b) The term "outstanding" when used herein with reference to shares of Series A Preferred Stock as of any particular time shall not include any such shares represented by any certificate in lieu of which a new certificate has been executed and delivered by the Corporation in accordance with paragraph 10 or this paragraph 11, but shall include only those shares represented by such new certificate. 12. Amendment and Waiver. No amendment, modification or waiver -------------------- of any provision hereof shall extend to or affect any obligation not expressly amended, modified or waived or impair any right consequent thereon. No course of dealing, and no failure to exercise or delay in exercising any right, remedy, power of privilege granted hereby shall operate as a waiver, amendment or modification of any provision hereof. IN WITNESS WHEREOF, Unified Holdings, Inc. has caused this Certificate to be signed by its President this 31 day of December, 1993. UNIFIED HOLDINGS, INC. By: /s/ Lynn E. Wood ------------------------ President Attest: /s/ Janice Hayles ------------------------ Janice Hayles, Secretary - 9 - 13 CERTIFICATE OF DESIGNATIONS, PREFERENCES, AND RELATIVE RIGHTS, QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF THE SERIES B 8% CUMULATIVE PREFERRED STOCK OF UNIFIED HOLDINGS, INC. ----------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware ----------------------- Unified Holdings, Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware, certifies as follows: FIRST: The Certificate of Incorporation of the Corporation authorizes the issuance of 1,000,000 shares of Preferred Stock, par value $0.01 per share (the "Preferred Stock"), and, further, authorizes the Board of Directors of the Corporation, by resolution or resolutions, at any time and from time to time, to divide and establish any or all of the unissued shares of Preferred Stock not then allocated to any series of Preferred Stock into one or more series and, without limiting the generality of the foregoing, to fix and determine the designation of each such share, the number of shares which shall constitute such series and certain powers, preferences and relative participating, optional or other special rights and qualifications, limitations and restrictions of the shares of each series so established. SECOND: By unanimous written consent of the Board of Directors of the Corporation dated December 29, 1993, the following resolution was adopted setting forth the designations, powers, preferences and rights, and the qualifications, limitations or restrictions of a certain series of said Preferred Stock: RESOLVED: Pursuant to Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors designates 10,000 shares of the Preferred Stock as Series B 8% Cumulative Preferred Stock (the "Series B Preferred Stock"). The designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof, in respect of the Series B Preferred Stock of the Corporation shall be as follows: 1. Definitions. ----------- As used herein, the following terms shall have the respective meanings ascribed to them: "Board" shall mean the Board of Directors of the Corporation. 14 "Business Day" shall mean any day which is not a Saturday or a Sunday or a day on which banks are permitted to close in St. Louis, Missouri. If any action otherwise required hereunder is scheduled for a day other than a Business Day, then such action may be taken on the next successive Business Day. "Common Stock" shall mean the Common Stock of the Corporation, without par value. "Corporation" shall mean Unified Holdings, Inc., a Delaware corporation. "Dividend Reference Date" shall mean the last day of January, April, July and October of each year commencing April 25, 1994, and continuing through and including January 25, 2014. "GCL" shall mean the General Corporation Law of the State of Delaware, as amended. "Junior Security" shall mean any equity security of any kind which the Corporation shall at any time issue or be authorized to issue other than the Series A Preferred Stock and the Series B Preferred Stock. "Liquidation Value" of any share of Series B Preferred Stock as of any particular date shall be equal to the sum of (i) the Stated Value plus ---- (ii) an amount equal to any accrued and unpaid dividends on such share. "Payment Default" shall mean (i) any time at which the aggregate unpaid dividends on both the Series A Preferred Stock and the Series B Preferred Stock equal or exceed two (2) times the amount of the then regular quarterly dividend payment with respect to all then outstanding shares of each of such series of Preferred Stock, and (ii) any time after January 25, 2014, until such time as the Corporation has redeemed all shares of Series B Preferred Stock as required by paragraph 4(c) hereof. "Person" shall mean any individual, partnership, limited partnership, corporation, trust, joint venture, unincorporated organization and a government or any department or agency thereof. "Preferred Stock" shall mean the Preferred Stock, par value $0.01 per share, authorized to be issued by the Corporation pursuant to its Certificate of Incorporation. "Redemption Date" shall mean (i) the Dividend Reference Date specified in a Redemption Notice for a redemption of shares of Series B Preferred Stock pursuant to paragraph 4(b) hereof, and (ii) January 25, 2014 for a redemption of shares of Series B Preferred Stock pursuant to paragraph 4(c) hereof. "Redemption Notice" shall mean the notice specified in paragraph 4(d) below. - 2 - 15 "Series A Preferred Stock" shall mean the Series A 8% Cumulative Preferred Stock established pursuant to a resolution of the Board adopted concurrently herewith. "Series B Preferred Stock" shall mean the Series B 8% Cumulative Preferred Stock established pursuant to this resolution of the Board. "Sinking Fund" shall mean the sinking fund established by the Corporation pursuant to paragraph 4(a) below. "Sinking Fund Payment" shall mean an amount, calculated with respect to each fiscal quarter of the Corporation, equal to the lesser of (a) Applicable Percentage of the aggregate stated value of Series A Preferred Stock and Series B Preferred Stock issued and outstanding as of the end of the fiscal quarter for which such Sinking Fund Payment is being determined, and (b) the Net Account Income determined with respect to such fiscal quarter. The Applicable Percentage shall be 0.04375 (4.375%) with regard to the first and second Sinking Fund Payments, which are due April 25, 1994 and July 25, 1994, respectively; 0.0425 (4.25%) with regard to the third and fourth Sinking Fund Payments, which are due October 25, 1995 and January 25, 1995, respectively; and shall continue to decline by one-eighth of one percentage point (.125%) with regard to each subsequent pair of successive Sinking Fund Payments until it shall become 0.0375 (3.75%) with regard to the Sinking Fund Payments that are due on October 25, 1996 and January 25, 1997. The Applicable Percentage shall be 0.0375 (3.75%) with regard to all Sinking Fund Payments due on or after January 25, 1997. "Net Account Income" shall mean the excess of (i) Gross Account Income, over (ii) Account Expenses. "Gross Account Income" shall mean the sum of (i) the Service Income attributable to Accounts invested from the four Unified Family of Funds and the three Liquid Green Funds into the Quest for Value/Oppenheimer Capital Funds pursuant to certain transactions closing on or about January 23, 1993, and (ii) forty percent (40%) of the Service Income attributable to any other Accounts (including zero balance Accounts). "Account" or "Accounts" shall mean any customer accounts documented on the records of Management at any time on or between January 1, 1990 and January 31, 1993. "Service Income" shall mean Distribution Assistance Fees (including 12(b)-(1) fees, as may from time to time be amended or recodified by the Securities Exchange Commission) received by Management for services and expenses incurred in connection with the assets transferred pursuant to acquisition agreements executed among the various Unified Funds and Liquid Green Trusts and comparable funds managed by Quest for Value Advisors. Notwithstanding anything to the contrary, Service Income shall not mean or include transfer agency fees, fund accounting fees, administration and compliance fees, brokerage fees, or commissions associated with servicing the Accounts. "Account Expenses" shall mean any commissions or fees due to introducing broker/dealers in connection with any Account. "Stated Value" of any share of Series B Preferred Stock shall mean One Hundred Dollars ($100.00). 2. Dividends. --------- (a) General Dividend Obligation. To the extent funds of the --------------------------- Corporation are legally available therefor, the Board shall declare that the Corporation shall pay to the holders - 3 - 16 of the Series B Preferred Stock, out of the assets of the Corporation available for the payment of dividends under the GCL, preferential dividends at the times and in the amounts provided for in this paragraph 2 and no more. Dividends shall be paid by mailing the Corporation's good check in the proper amount to each holder of the Series B Preferred Stock to such holder (or the designee of such holder) at such holder's address (or designee's address) as it appears on the Corporation's register on or prior to the due date of each dividend or by transferring funds to such holder (or designee) by wire transfer or otherwise so as to be received by such holder (or designee) on the due date of such dividend. (b) Calculation of Dividends. Dividends on each share of Series ------------------------ B Preferred Stock shall be calculated cumulatively on a daily basis at the rate and in the manner prescribed herein from (but not including) the date of issuance of such share to and including the date on which the Liquidation Value of such share is paid pursuant to the provisions hereof, whether or not such dividends shall have been declared and whether or not there shall be (at the time such dividends are calculated or become payable or at any other time) profits, surplus or other funds of the Corporation legally available for the payment of dividends. For purposes of this paragraph 2(b), the date on which the Corporation shall initially issue any share of Series B Preferred Stock shall be deemed to be its "date of issuance" regardless of the number of times transfer of such share shall be made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be originally issued to evidence such share (whether by reason of transfer of such share or for any other reason). (c) Dividend Rate and Payment. Dividends shall be calculated ------------------------- cumulatively (but shall not compound) on a daily basis on each share of Series B Preferred Stock at the rate of eight percent (8.0%) per annum (based on a 365/366-day year) of the Stated Value thereof. Dividends shall be paid to the holders of the shares of Series B Preferred Stock on each Dividend Reference Date commencing April 25, 1994. Each of such dividend payments on each such Dividend Reference Date shall be in an amount equal to the dividends calculated from (but not including) the preceding Dividend Reference Date (or from, but not including, the original date of issuance of the Series B Preferred Stock in the case of the initial Dividend Reference Date). Notwithstanding the foregoing, in no event shall the Corporation be required to pay any such dividend to the extent the payment of such dividend would violate any provision of the GCL. Any dividends not paid on their respective Dividend Reference Dates shall continue to accumulate (and shall not compound) until paid. (d) Distribution of Partial Dividend Payments. If on any ----------------------------------------- Dividend Reference Date the Corporation shall pay less than the total amount of dividends then calculated on the Series B Preferred Stock, such payment shall be distributed among the holders of the Series B Preferred Stock so that an equal amount shall be paid with respect to each outstanding share. 3. Liquidation. Upon any liquidation, dissolution or winding ----------- up of the Corporation, whether voluntary or involuntary, the holders of the Series B Preferred Stock shall be entitled, after all liquidating distributions have been made with respect to the then outstanding shares of Series A Preferred Stock and before any distribution or payment is made upon any Junior Securities of the Corporation, to be paid out of the assets of the Corporation remaining available for distribution to its stockholders (whether from capital, surplus or earnings) an - 4 - 17 amount in cash equal to the aggregate Liquidation Value of all shares of Series B Preferred Stock outstanding, and the holders of the Series B Preferred Stock shall not be entitled to any further payment. If upon such liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets of the Corporation to be distributed among the holders of the Series B Preferred Stock, after all liquidating distributions have been made with respect to the then outstanding shares of Series A Preferred Stock, shall be insufficient to permit payment to the holders of Series B Preferred Stock of the amount which they are entitled to be paid as aforesaid, then the entire remaining assets of the Corporation shall be distributed to the holders of the Series B Preferred Stock ratably based upon the aggregate Liquidation Value of the shares of Series B Preferred Stock held by them. Upon any such liquidation, dissolution or winding up of the Corporation, after the holders of the Series B Preferred Stock shall have been paid in full the amounts to which they shall be entitled, the remaining assets of the Corporation may be distributed to the holders of Junior Securities of the Corporation. Written notice of such liquidation, dissolution or winding up, stating a payment date, the amount of the payment and the place where the amounts distributable shall be payable, shall be mailed by the Corporation by certified or registered mail, return receipt requested, not less than thirty (30) days prior to the payment date stated therein, to each record holder of any share of Series B Preferred Stock at the address of such record holder shown on the Corporation's records. Neither the consolidation or merger of the Corporation into or with any other corporation or corporations, nor the sale, exchange or transfer by the Corporation of less than substantially all of its assets, nor any reduction of the capital of the Corporation, shall of itself be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of any of the provisions of this paragraph 3. 4. Sinking Fund; Redemption by Corporation. --------------------------------------- (a) No later than the 20th day of each January, April, July and October, the Corporation shall transfer and set aside into a separate fund (the "Sinking Fund") an amount of cash equal to the Sinking Fund Payment computed for the fiscal quarter ending on the immediately preceding Dividend Reference Date. The amounts held from time to time in the Sinking Fund shall be used solely for the payment of dividends and the cost of redemption of the Series A Preferred Stock and the Series B Preferred Stock. (b) The Corporation may, at its sole option and discretion, redeem on any Dividend Reference Date any whole number of shares of Series B Preferred Stock, provided that (i) all accrued dividends on the Series A Preferred Stock and Series B Preferred Stock then have been paid, (ii) the balance of the Sinking Fund is sufficient to effect such redemption, (iii) immediately following such redemption of shares of Series B Preferred Stock, the ratio of the number of shares of Series B Preferred Stock outstanding after such redemption to the maximum number of shares of Series B Preferred Stock that were outstanding at any time will be equal to or greater than the ratio of the number of shares of Series A Preferred Stock then outstanding to the maximum number of shares of Series A Preferred Stock that were outstanding at any time, and (iv) the Corporation has funds (including the amounts held in the Sinking Fund) legally available to effect such redemption. The price at which such shares of Series B Preferred Stock may be redeemed shall be an amount per share equal to the Liquidation Value. The shares of Series B Preferred Stock which the Corporation elects to redeem pursuant to this paragraph 4(b) - 5 - 18 shall be redeemed from the holders of such shares on a pro rata basis, based on the number of shares of Series B Preferred Stock owned by each such holder as a proportion of the total number of shares of Series B Preferred Stock then outstanding. (c) Subject to paragraph 5 below, the Corporation shall redeem all of the issued and outstanding shares of Series B Preferred Stock on January 25, 2014, at an amount per share equal to the Liquidation Value. (d) Not more than sixty (60) days and not less than thirty (30) days prior to any Dividend Reference Date on which the Corporation desires to redeem any shares of Series B Preferred Stock pursuant to paragraph 4(b), the Corporation shall mail to each holder of shares of Series B Preferred Stock a written notice of redemption (the "Redemption Notice") at his post office address last shown on the stock register of the Corporation. The Redemption Notice shall: (i) Identify the number of shares of Series B Preferred Stock which are outstanding and the total number of such shares to be redeemed; (ii) State the date on which such shares are to be redeemed and the Liquidation Value as of such date; and (iii) State that any holder of shares of Series B Preferred Stock to be redeemed shall surrender to the Corporation, in the manner and at the place designated, the certificate or certificates representing the shares of Series B Preferred Stock to be redeemed. (e) In connection with a redemption pursuant to paragraph 4(b) or 4(c), the Corporation shall give irrevocable instructions and authority to the appropriate officers of the Corporation to set apart and pay from the Sinking Fund (or any other funds legally available therefor, in the event of a redemption under paragraph 4(c) hereof), on or after the Redemption Date, the Liquidation Value to the respective record holders upon the surrender of their share certificates. In the event less than all of the shares represented by any such certificate are redeemed, the Corporation shall issue a new certificate representing the unredeemed shares. From and after the Redemption Date, the shares of Series B Preferred Stock so redeemed shall no longer be outstanding and dividends shall cease to accrue (except as provided in the last sentence of paragraph 5 below), and the holders thereof shall cease to be stockholders with respect thereto and shall have no further rights regarding the shares so redeemed except the right to receive payment of the Liquidation Value of such shares, without interest, upon surrender of their certificates therefor. Any monies so set apart and unclaimed at the end of two years (or any longer period required by law) from the Redemption Date shall no longer be set aside and shall become unallocated assets of the Corporation, and thereafter the holders of shares who were entitled to such monies shall, subject to applicable laws, look to the Corporation for payment of the Liquidation Value thereof. 5. Insufficient Funds. If on January 25, 2014, the funds of ------------------ the Corporation legally available for a redemption shall be insufficient to redeem all shares of Series B Preferred - 6 - 19 Stock required to be redeemed under paragraph 4(c) hereof (whether due to the provisions of the GCL or otherwise), funds to the maximum extent legally available for such purpose shall be utilized by the Corporation, first, to redeem the maximum number of shares of Series A Preferred Stock on such date which may be redeemed from such funds, and second, to redeem the maximum number of shares of Series B Preferred Stock on such date which may be redeemed from such funds. Such redemption shall be made following the redemption of outstanding shares of Series A Preferred Stock and on a pro rata basis to the holders of shares of Series B Preferred Stock. If, because sufficient funds are not legally available, the Corporation shall fail to redeem all of the issued and outstanding shares of Series B Preferred Stock at such time, the Corporation shall redeem such shares as promptly as practicable following the redemption of all outstanding shares of Series A Preferred Stock and after funds are legally available therefor as shown by the Corporation's quarterly or annual financial statements. 6. Status of Shares. Shares of Series B Preferred Stock ---------------- redeemed, purchased or otherwise acquired for value by the Corporation, including by redemption in accordance with paragraph 4, shall, after such acquisition, have the status of authorized and unissued shares of Preferred Stock and may be reissued by the Corporation at any time as shares of any series of Preferred Stock. 7. Restrictions. ------------ (a) So long as any Series B Preferred Stock shall be outstanding, the Corporation shall not, except with the written consent of the holders of not less than a majority of the then outstanding shares of Series B Preferred Stock, create any class or series of stock ranking as to payment of dividends or as to liquidation preference, having a priority over or on a parity with the Series B Preferred Stock, except only (i) shares of Series A Preferred Stock, and (ii) shares of any series of Preferred Stock issued in replacement or exchange for outstanding shares of Series A Preferred Stock, provided that the aggregate liquidation preference and the dividend rate of such series is not more than the aggregate liquidation preference and dividend rate of the Series A Preferred Stock immediately prior to such exchange or replacement. (b) So long as any Series B Preferred Stock shall remain outstanding, the Corporation shall not, except with the written consent of the holders of not less than a majority of then outstanding shares of Series B Preferred Stock, amend, alter or repeal the Corporation's Certificate of Incorporation (or any certificate amendatory or supplementary thereto) or by-laws in a manner adversely affecting any of the powers, preferences and rights set forth herein. (c) So long as any Series B Preferred Stock shall remain outstanding, no dividend shall be declared or paid, nor shall any other distribution (including but not limited to a distribution in redemption) be made, upon any Junior Securities by the Corporation, except distributions pursuant to the written consent of the holders of not less than a majority of all then outstanding shares of Series B Preferred Stock. Notwithstanding the immediately preceding sentence, in no event shall the Corporation pay any dividend or make any other distribution upon any Junior Securities unless all dividends and other payments (including but not limited to - 7 - 20 redemption payments) theretofore required to be paid by the Corporation with respect to the Series A Preferred Stock and Series B Preferred Stock have been paid in full. 8. Voting Rights. ------------- (a) Except as otherwise expressly provided herein or as required under Delaware law, the holders of shares of Series B Preferred Stock shall not be entitled to vote on matters coming before the stockholders of the Corporation. (b) At such time as there occurs a Payment Default, and thereafter at each annual and special meeting (or action by written consent in lieu of a meeting) of stockholders of the Corporation during which a Payment Default continues to exist, the holders of Series B Preferred Stock shall be entitled to vote on all matters coming to the attention of the stockholders of the Corporation, such shares to be voted together with the holders of the Common Stock, and not as a class. Such voting right shall continue until no dividend arrearages exist with respect to the Series A Preferred stock or the Series B Preferred Stock and the dividends on both the Series A Preferred Stock and the Series B Preferred stock have been timely paid in full for two consecutive quarters (or if such voting right occurs as a result of the Corporation's failure to redeem the Series B Preferred stock on January 25, 2014, then until all shares of Series B Preferred Stock have been redeemed). The number of votes per share of Series B Preferred Stock which the holder thereof shall be entitled to cast at any time during the continuance of a Payment Default shall be equal to (i) two (2) times the number of votes represented by all then outstanding ----- Junior Securities having voting rights, divided by (ii) the sum of the number ---------- of outstanding shares of Series A Preferred Stock and the number of outstanding shares of Series B Preferred Stock. (c) No vote or consent of the holders of the Series B Preferred Stock shall be required for the authorization (including an increase in the authorized number of shares of any Junior Securities) or issuance of any Junior Securities of the Corporation; provided, however, that the Corporation shall not issue any Junior Securities which have class voting rights beyond those required by law, except upon the prior written consent of the holders of a majority of the then outstanding shares of Series B Preferred Stock. 9. Closing of Books. The Corporation will not close its books ---------------- against the transfer of any share of Series B Preferred Stock. 10. Registration of Transfer. The Corporation shall keep at its ------------------------ principal office in the State of Indiana (or at such other place as the Corporation reasonably designates) a register for the registration of shares of Series B Preferred Stock. Upon the surrender of any certificate representing shares of Series B Preferred Stock at such place, the Corporation shall, at the request of the registered holder of such certificate, execute and deliver a new certificate or certificates in exchange therefor representing in the aggregate the number of Shares of Series B Preferred Stock represented by the surrendered certificate (and the Corporation forthwith shall cancel such surrendered certificate), subject to the requirements of applicable securities laws. Each such new certificate shall be registered in such name and shall represent such number of shares of Series B Preferred Stock as shall be requested by the holder of the surrendered - 8 - 21 certificate and shall be substantially identical in form to the surrendered certificate; and dividends shall be calculated cumulatively on a daily basis on the shares of Series B Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on the shares represented by the surrendered certificate at the rate and in the manner applicable to such surrendered certificate. The issuance of new certificates shall be made without charge to the holders of the surrendered certificates for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such issuance; provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the surrendered certificate. 11. Replacement. ----------- (a) Upon receipt of evidence reasonably satisfactory to the Corporation of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing one or more shares of Series B Preferred Stock and, in the case of any such loss, theft or destruction, upon receipt of indemnity and/or a bond reasonably satisfactory to the Corporation, or, in the case of any such mutilation, upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of Series B Preferred Stock represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, on which dividends shall be calculated cumulatively on a daily basis from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate at the rate and in the manner applicable to such certificate. (b) The term "outstanding" when used herein with reference to shares of Series B Preferred Stock as of any particular time shall not include any such shares represented by any certificate in lieu of which a new certificate has been executed and delivered by the Corporation in accordance with paragraph 10 or this paragraph 11, but shall include only those shares represented by such new certificate. 12. Amendment and Waiver. No amendment, modification or waiver -------------------- of any provision hereof shall extend to or affect any obligation not expressly amended, modified or waived or impair any right consequent thereon. No course of dealing, and no failure to exercise or delay in exercising any right, remedy, power of privilege granted hereby shall operate as a waiver, amendment or modification of any provision hereof. - 9 - 22 IN WITNESS WHEREOF, Unified Holdings, Inc. has caused this Certificate to be signed by its President this 31 day of December, 1993. UNIFIED HOLDINGS, INC. By: /s/ Lynn E. Wood --------------------------------- President Attest: /s/ Janice Hayles --------------------------------- Janice Hayles, Secretary - 10 - 23 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION ============================ * UNIFIED HOLDINGS, INC., a corporation organized and existing by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: * FIRST: That at a meeting of the Board of Directors of Unified Holdings, Inc. on April 26, 1995, resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of this Corporation be amended by changing the Article number "4" so that, as amended, said Article shall read as follows: "The total number of shares of common stock which the corporation shall have authority to issue is Three Hundred Thousand (300,000). All of such shares shall be without par value." * SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. * THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. * FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendment. * IN WITNESS WHEREOF, said Unified Holdings, Inc. has caused this certificate to be signed by Lynn E. Wood, its President, and Timothy L. Ashburn, its Secretary, this 26th Day of April, 1995. BY: /s/ Lynn E. Wood ------------------------------- Lynn E. Wood, President BY: /s/ Timothy L. Ashburn ------------------------------- Timothy L. Ashburn, Secretary 24 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION ============================ * UNIFIED HOLDINGS, INC., a corporation organized and existing by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: * FIRST: That at a meeting of the Board of Directors of Unified Holdings, Inc. on February 6, 1997, resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of this Corporation be amended by changing the Article number "4" so that, as amended, said Article shall read as follows: "The authorized capital stock of the corporation shall consist of (a) One Million (1,000,000) shares of Preferred Stock, par value $0.01 per share; and (b) Twenty-Five Million (25,000,000) shares of Common Stock, par value $0.01 per share. The Board of Directors, by adoption of an authorizing resolution, may cause Preferred Stock to be issued from time to time in one or more series. The Board of Directors, by adoption of an authorizing resolution, may with regard to the shares of any series of Preferred Stock: (i) Fix the distinctive serial designation of the shares; (ii) Fix the dividend rate, if any; (iii) Fix the date from which dividends on shares issued before the date for payment of the first dividend shall be cumulative, if any; (iv) Fix the redemption price and terms of redemption, if any; (v) Fix the amounts payable per share in the event of dissolution or liquidation of the corporation, if any; (vi) Fix the terms and amounts of any sinking fund to be used for the purchase or redemption of shares, if any; (vii) Fix the terms and conditions under which the shares may be converted, if any; (viii) Provide whether such shares shall be non-voting, or shall have full or limited voting rights, and the rights, if any, of such shares to vote as a class on some or all matters on which such shares may be entitled to vote; and (ix) Fix such other preferences, qualification, limitations, restrictions and special or relative rights not required by law." * SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. * THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. * FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendment. * IN WITNESS WHEREOF, said Unified Holdings, Inc. has caused this certificate to be signed by Lynn E. Wood, its President, and Carol J. Highsmith, its Secretary, this 6th Day of February, 1997. BY: /s/ Lynn E. Wood ------------------------------- Lynn E. Wood, President BY: /s/ Carol J. Highsmith ------------------------------- Carol J. Highsmith, Secretary EX-3.2 6 BY-LAWS 1 EXHIBIT 3.2 BY-LAWS OF UNIFIED HOLDINGS, INC. ARTICLE I --------- Meeting of Shareholders SECTION 1. Annual Meeting. The annual meeting of the shareholders -------------- of this corporation shall be held at the time and place designated by the Board of Directors of the corporation, in the month of January of each year. Business transacted at the annual meeting shall include the election of directors of this corporation. SECTION 2. Special Meeting. Special meetings of the shareholders --------------- shall be held when directed by the President, Vice-President, or the Board of Directors, or when requested in writing by the holders of not less than fifty (50%) percent of all the shares entitled to vote at the meeting. A meeting requested by the shareholders shall be called for a date not less than ten (10) or more than sixty (60) days after the request is made, unless the shareholders requesting the meeting designate a later date. The call for the meeting shall be issued by the Secretary, unless the President or Board of Directors or shareholders requesting the meeting shall designate another person to do so. SECTION 3. Place. Meetings of shareholders may be held within or ----- without the State of Indiana. SECTION 4. Notice. Written notice stating the place, day and hour ------ of the meeting and in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the meeting, either personally or by first class mail, by or at the discretion of the President, the Secretary, or the officer or person calling the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. SECTION 5. Notice of Adjourned Meetings. When a meeting is ---------------------------- adjourned to another time or place, it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned is taken, and at the adjourned meeting any business may be transacted that might have been transacted on the original date of the meeting. If, however, after the adjournment the Board of Directors fixes a new record date for the adjourned meeting, a notice of the adjourned meeting shall be given as provided in this section to each shareholder of record on the new record date entitled to vote at such meeting. SECTION 6. Closing of Transfer Books and Fixing Record Date. For ------------------------------------------------- the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournments thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other purpose, the Board of Directors may provide that the stock transfer books shall be closed for a state period but not to exceed, in any case, sixty (60) days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any determination of shareholders, such date in any case to be not more than sixty (60) days and, in case of a meeting of shareholders, not less than ten (10) days prior to the date on which the particular action requiring such determination of shareholders is to be taken. 2 If the stock transfer books are not closed and no record date is fixed for the termination of shareholders entitled to notice or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record ate for such determination of shareholders. When a determination of shareholders entitled to vote at an meeting of shareholders has been made as provided in this Section, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date for the adjourned meeting. SECTION 7. Voting Record. At least ten (10) days before each -------------- meeting of shareholders, the Secretary, officers or agent having charge of shareholder records shall compile a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, with the address of and the number and class and series, if any, of shares held by each. The list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the corporation, at the principal place of business of the corporation or at the office of the transfer agent or registrar of the corporation and any shareholders shall be entitled to inspect the list at any time during usual business hours. The list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder a any time during the meeting. If the requirements of this section have not been substantially complied with, the meeting, on demand of any shareholder, in person or by proxy, shall be adjourned until the requirements are complied with. If no such demand is made, failure to comply with the requirements of this section shall not affect the validity of any action taken at such meeting. SECTION 8. Shareholder Quorum and Voting. A majority of the ----------------------------- shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. When a specified item of business is required to be voted on by a class or series of stock, a majority of the shares of such class or series shall constitute a quorum for the transaction of such item of business by the class or series. If a quorum is present, the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders unless otherwise provided by law. After a quorum has been established at a shareholders' meeting, the subsequent withdrawal of shareholders, so as to reduce the number of shareholders entitled to vote at the meeting below the number required for a quorum, shall not affect the validity of any action taken at the meeting or adjournment thereof SECTION 9. Voting of Shares. Each outstanding share, regardless of ---------------- class, shall be entitled to one (1) vote on each matter submitted to a vote at a meeting of shareholders. Treasury shares, share of stock of this corporation owned by another corporation the majority of the voting stock of which is owned or controlled by this corporation, and shares of stock of this corporation held by it in a fiduciary capacity shall not be counted in determining the total number of outstanding shares at any given time. A shareholder may vote either in person or by proxy executed in writing by the shareholder or his duly authorized attorney-in-fact. At each election for directors every shareholder entitled to vote at such election shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be 3 elected at that time and for whose election he has a right to vote, or to cumulate his votes by giving one candidate as many votes as the number of directors to be elected at that time multiplied by the number of his shares, or by distributing such votes ???? The same principal among any number of such candidates. Shares standing in the name of another corporation, domestic or foreign, may be voted by the officer, agent or proxy designated by the bylaws of the corporate shareholders; or, in the absence of any applicable bylaw, by such person as the Board of Directors of the corporate shareholders may designate. Proof of such designation may be made by presentation of a certified copy of the bylaws or other instrument of the corporate shareholders. In the absence of any such designation, or in case of conflicting designation by the corporate shareholder, the Chairman of the Board, President, any Vice-President, Secretary and Treasurer of the corporate shareholder shall be presumed to possess, in that order, authority to vote such shares. Shares held by a personal representative, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a Trustee may be voted by him, either in person or by proxy, but no Trustee shall be entitled to vote shares held by him without a transfer of such shares in to his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee or his nominee shall be entitled to vote the shares so transferred. On or after the date on which written notice of redemption of redeemable shares has been mailed to the holders thereof and a sum sufficient to redeem such shares has been deposited with a bank or trust company with irrevocable instruction and authority to pay the redemption price to the holders thereof upon surrender of certificates therefor, such shares shall not be entitled to vote on any matter and shall riot be deemed to be outstanding shares. SECTION 10. Proxies. Every shareholder entitled to vote at a ------- meeting of shareholders or to express consent or dissent without a meeting or a shareholder's duly authorized attorney-in-fact may authorize another person or persons to act for him by proxy. Every proxy must be signed by the shareholder or his attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the shareholder executing it, except as otherwise provided by law. The authority of the holder of a proxy to act shall not be revoked by the incompetence or death of the shareholder who executed the proxy unless, before the authority is exercised, written notice of an adjudication of such incompetence or of such death is received by the corporation officer responsible for maintaining the list of shareholders. If a proxy for the same shares confers authority upon two (2) or more persons and does not otherwise provide, a majority of them present at the meeting, or if only one is present then that one, may exercise all the powers conferred by the proxy; but if the proxy holders present at the meeting are equally divided as to the right and manner of voting in any particular case, the voting of such shares shall be pro-rated. If a proxy expressly provides, any proxy holder may appoint in writing a substitute to act in his place. 4 SECTION 11. Voting Trusts. Any number of shareholders of this ------------- corporation may create a voting trust for the purpose of conferring upon a Trustee or Trustees the right to vote or otherwise represent their shares, as provided by law. Where the counterpart of a voting trust agreement and the copy of the record of the holders of voting trust certificates has been deposited with the corporation as provided by law, such documents shall be subject to the same right of examination by a shareholder of the corporation, in person or by agent or attorney, as are the books and records of the corporation, and such counterpart and such copy of such record shall be subject to examination by an holder of record of voting trust certificates either in person or by agent or attorney, at any reasonable time for any proper purpose. SECTION 12. Shareholders' Agreements. Two (2) or more shareholders ------------------------ of this corporation may enter into an agreement providing for the exercise of voting rights in the manner provided in the agreement or relating to any phase of the affairs of the corporation as provided by law. Nothing therein shall impair the right of this corporation to treat the shareholders of record as entitled to vote the shares standing in their names. SECTION 13. Action by Shareholders Without a Meeting. Any ---------------------------------------- action required by law, these bylaws, or the articles of incorporation of this corporation to be taken at any annual or special meeting of shareholders of the corporation, or any action which may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and votes. If any class of shares is entitled to vote thereon as a class, such written consent shall be required of the holders of a simple majority of the shares of each class of shares entitled to vote as a class thereon and of the total shares entitled to vote thereon. Within ten (10) days after obtaining such authorization by written consent, notice shall be given to those shareholders who have not consented in writing. The notice shall fairly summarize the material features of the authorized action and, if the action be a merger, consolidation or sale or exchange of assets for which dissenters rights are provided under this act, the notice shall contain a clear statement of the right of the shareholders dissenting therefrom to be paid the fair value of their shares upon compliance with further provisions of this act regarding the rights of dissenting shareholders. SECTION 14. Procedure. Robert's Rules of Order shall control the --------- proceedings of the meeting of shareholders in the absence of any provision to the contrary provided for herein. ARTICLE II ---------- Directors SECTION 1. Function. All corporate powers shall be exercised -------- by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of the Board of Directors. SECTION 2. Qualification. Directors need not be residents of ------------- the State of Indiana or shareholders of this corporation. SECTION 3. Compensation. The Board of Directors shall have authority ------------ to fix the compensation of directors. SECTION 4. Duties of Directors. A director shall perform his ------------------- duties as a director, including his duties as a member of any committee of the board upon which he may serve, in good faith, in a manner he reasonable believes to 5 be in the best interest of the corporation, and with such care as an ordinarily prudent person in a like position would use under similar circumstances. In performing his duties, a director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by: (a) one or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented, (b) counsel, public accountants or other persons as to matters which the directors reasonably believe to be within such person's professional or expert competence, or (c) a committee of the board upon which he does not serve, duly designated in accordance with a provision of the articles of incorporation or the bylaws, as to matters within its designated authority, which committee the director reasonably believes to merit confidence. A director shall not be considered to be acting in good faith if he had knowledge concerning the matter in question that would cause such reliance described above to be unwarranted. A person who performs his duties in compliance with this section shall have no liability by reason of being or having been a director of the corporation. SECTION 5. Presumption of Assent. A director of the --------------------- corporation who is present at a meeting of its Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless he votes against such action or abstains from voting in respect thereto because of an asserted conflict of interest. SECTION 6. Number. This corporation shall have at least one ------ (1) but no more than eight (8) directors. The number of directors may be increased or decreased from time to time by amendment to these bylaws, but no decrease shall have the effect of shortening the terms of any incumbent director. SECTION 7. Election and Term. Each person named in the ----------------- organizational meeting of the corporation as a member of the initial Board of Directors shall hold office until the first annual meeting of the shareholders, and until his successor shall have been elected and qualified or until his earlier resignation, removal from office or death. At the first annual meeting of shareholders and at each annual meeting thereafter, the shareholders shall elect directors to hold office until the next succeeding annual meeting. Each director shall hold office for the term for which he is elected and until his successor shall have been elected and qualified or until his earlier resignation, removal from office or death. SECTION 8. Vacancies. Any vacancy occurring in the Board of --------- Directors, including any vacancy created by reason of an increase in the number of directors, may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. A director elected to fill a vacancy shall hold office only until the next election of directors by the shareholders. SECTION 9. Removal of Directors. At a meeting of shareholders -------------------- called expressly for the purpose, any director or the entire Board of Directors may be removed, with or without cause, by a vote of the holders of a majority of the shares then entitled to vote at an election of directors. 6 SECTION 10. Quorum and Voting. A majority of the number of ----------------- directors fixed by these bylaws shall constitute a quorum for the transaction of business. The majority act of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. SECTION 11. Director Conflicts of Interest. No contract or ------------------------------ other transaction between this corporation and one or more of its directors or any other corporation, firm association or entity inn which one or more of the directors are directors or officers are financially interested, shall be either void or voidable because of such relationship or interest or because such director or directors are present at the meeting of the Board of Directors or a committee thereof which authorizes, approves or ratifies such contract or transaction or because his or their votes are counted for such purpose, if: (a) the fact of such relationship or interest is disclosed or known to the Board of Directors or committee which authorizes, approves or ratifies the contract or transaction by a vote or consent sufficient for the purpose without counting the votes or consents of such interested directors; or (b) the fact of such relationship or interest is disclosed or known to the shareholders entitled to vote and they authorize, approve or ratify such contract or transaction by vote or written consent; or (c) the contract or transaction is fair and reasonable as to the corporation at the time it is authorized by the Board, a committee or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or a committee thereof which authorizes, approves or ratifies such contract or transaction. SECTION 12. Executive and Other Committees. The Board of Directors, ------------------------------ by resolution adopted by a majority of the full Board of Directors, may designate from among its members an executive committee and one or more other committees each of which, to the extent provided in such resolution, shall have and may exercise all the authority of the Board of Directors, except that no committee shall have the authority to: (a) approve or recommend to shareholders action or proposals required by law to be approved by shareholders; (b) designate candidates for the office of director, for purposes of proxy solicitation or otherwise; (c) fill vacancies on the Board of Directors or any committee thereof; (d) amend the bylaws; (e) authorize or approve the reacquisition of shares unless pursuant to a general formula or method specified by the Board of Directors; or (f) authorize or approve the issuance or sale of, or any contract to issue or sell, shares or designate the terms of a series of a class of shares, except that the Board of Directors, having acted regarding general authorization for the issuance of sales of shares, or any contract therefor, and, in the case of a series, the designation thereof, may, pursuant to a general formula or method specified by the Board of Directors, by resolution or by adoption of a stock option or other plan, authorize a committee to fix the terms upon which such shares may be issued or sold, including, without limitation, the price, the rate or manner of payment of dividends, provisions for redemption, sinking funds, 7 other features of a class of shares, or a series of a class of shares, with full power in such committee to adopt any final resolution setting forth all the terms of a series for filing with the Department of State. The Board of Directors, by resolution adopted in accordance with this section, may designate one or more directors as alternate members of any such committee, who may act in the place and stead of any absent member or members at any meeting of such committee. SECTION 13. Place of Meetings. Regular and special meetings by the ----------------- Board of Directors may be held within or without the State of Indiana. SECTION 14. Time, Notice and Call of Meetings. Regular meetings of --------------------------------- the Board of Directors shall be held with notice, quarter-annually, at the call of the President. Written notice of the time and place of special meetings of the Board of Directors shall be given to each director by either personal deliver, telegram or cablegram at least two (2) days before the meeting or by notice mailed to the director at least five (5) days before the meeting. Notice of a meeting of the Board of Directors need not be given to any director who signs a waiver of notice either before or after the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting and waiver of any and all obligations to the place of the meeting, the time of the meeting, or the manner in which it has been called or convened, except when a director states, at the beginning of the meeting, any objection to the transaction of business because the meeting is not lawfully called or convened. The business to be transacted at, and the purpose of, and special meeting of the Board of Directors shall be specified in the notice of such meeting. A majority of the directors present, whether or not a quorum exists, may adjourn any meeting of the Board of Directors to another time and place. Notice of any such adjourned meeting shall be given to the directors who were not present at the time of the adjournment and, unless the time and place of the adjourned meeting are announced at the time of the adjournment, to the other directors. Meetings of the Board of Directors may be called by the chairman of the Board, by the President of the corporation, or by any two (2) directors. Members of the Board of Directors may participate in a meeting of such board by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. SECTION 15. Action Without a Meeting. Any action required to ------------------------ be taken at a meeting of the directors of the corporation, or any action which may be taken at a meeting of the directors or a committee thereof, may be taken without a meeting if a consent in writing, setting forth the action so to be taken, signed by all of the directors, or all the members of the committee, as the case may be, if filed in the minutes of the proceeding of the board or of the committee. Such consent shall have the same effect as a unanimous vote. SECTION 16. Conduct of Meetings Via Telephone or Similar -------------------------------------------- Communications Equipment. Members of the Board of Directors, or any - ------------------------ committee designated by the Board, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear and speak to each other at the same time, and participation in a meeting by such means shall constitute presence in person at the meeting. SECTION 17. Procedure. Roberts' Rules of Order shall --------- control the proceedings of the Board of Directors in the absence any provision to the contrary provided for herein. 8 ARTICLE III ----------- Officers SECTION 1. Officers. The officers of this corporation shall -------- consist of a President, Executive Vice-President, Secretary and Treasurer, each of whom shall be elected by the Board of Directors at the first meeting of directors immediately following the annual meeting of shareholders of this corporation, and shall serve until their successors are chosen and qualify. Such other officers and assistant officers and agents as may be deemed necessary may be elected or appointed by the Board of directors -from time to time. any two (2) or more may be held by the same person. The failure to elect a President, Executive Vice-President, Secretary of Treasurer shall not affect the existence this corporation. SECTION 2. Duties of Officers. The duties and powers of the ------------------ officers of the corporation shall be as follows and as shall hereafter be set by resolution of the Board of directors: President: A. The President shall preside at all meetings of the Board of Directors. He shall also preside at all meetings of the shareholders. B. He shall present at each annual meeting of the shareholders and directors a report of the condition of the business of the corporation. C. He shall cause to be called regular and special meeting of the shareholders and directors in accordance with the requirements of the statute and these Bylaws. D. He shall appoint, discharge, and fix the compensation of all employees and agents of the corporation other than the duly elected officers, subject to the approval of the Board of Directors. E. He shall sign and execute all contracts in the name of the corporation, and all notes, drafts or other orders for the payment of money, subject to the approval of the Board of Directors. F. He shall sign all certificates representing shares. G. He shall cause all books, reports, statments, and certificates to be properly kept and filed as required by law. H. He shall enforce these bylaws and perform all the duties incident to his office and which are required by law, and, generally, he shall supervise and control the business and affairs of the corporation. Vice President: During the absence or incapacity of the President, the Vice President shall perform the duties of the President, and when so acting, he shall have all the powers and be subject to all the responsibilities of the office of the President and shall perform such duties and functions as the Board may prescribe. Secretary: 9 A. The Secretary shall keep the minutes of the meetings of the Board of Directors and of the shareholders in appropriate books. B. He shall attend to the giving of notice of special meetings of the Board of Directors and of all the meetings of the shareholders of the corporation. C. He shall be custodian of the records and seal of the corporation and shall affix the seal to the certificates representing shares and other corporation papers when required. D. He shall keep at the principal office of the corporation a book or record containing the name, alphabetically arranged, of all persons who are shareholders of the corporation, showing their places of residence, the number and class of shares held by them, respectively, and the dates when they respectively became the owners of record thereof. He shall keep such book or record and the minutes of the proceedings of its shareholders open daily during the usual business hours, for inspection, within the limits prescribed by law, by any person duly authorized to inspect such records. At the request of the person entitled to an inspection thereof, he shall prepare and make available a current list of the officers and directors of the corporation and their resident addresses. E. He shall sign all certificates representing shares and affix the corporate seal thereto. F. He shall attend to all correspondence and present to the Board of Directors at its meetings all official communications received by him. G. He shall perform all the duties incident to the office of Secretary of the corporation. Treasurer: A. The Treasurer shall have the care and custody of and be responsible for all the funds and securities of the corporation, and shall deposit such funds and securities in the name of the corporation in such banks or safe deposit companies as the Board of Directors may designate. B. He shall make, sign, and endorse in the name of the corporation all checks, drafts, notes, and other orders for the payment of money, and pay out and dispose of such under the direction of the President or the Board of Directors. C. He shall keep at the principal office of the corporation accurate books of account of all its business and transactions and shall at all reasonable hours exhibit books and accounts to any director upon application at the office of the corporation during business hours. D. He shall render a report of the condition of the finance of the corporation at each regular meeting of the Board of Directors and at such other times as shall be required by him, and he shall make a full financial report at the annual meeting of the shareholders. E. He shall further perform all duties incident to the office of Treasurer of the corporation. F. If required by the Board of Directors, he shall give such bond as it shall determine appropriate for the faithful performance of his duties. Other Officers: 10 Other officers shall perform such duties and have such powers as may be assigned to them by the Board of Directors. SECTION 3. Removal of Officers. Any officer or agent elected ------------------- or appointed by the Board of Directors may be removed by the Board whenever in its judgment the best interests of the corporation will be served thereby. Any officer or agent elected by the shareholders may be removed only by vote of the shareholders, unless the shareholders shall have authorized the directors to remove such officer or agent. Any vacancy, however occurring, in any office may be filled by the Board of Directors, unless the bylaws shall have expressly reserved such power to the shareholders. 11 Removal of any officer shall be without prejudice to the contract rights, if any, of the person so removed; however, election or appointment of any officer or agent shall not itself create contract rights. ARTICLE IV ---------- Stock Certificates SECTION 1. Issuance. Every holder of shares in the corporation -------- shall be entitled to have a certificate, representing all shares to which he is entitled. No certificate shall be issued for any share until such share is fully paid. SECTION 2. Form. Certificates representing shares of this ---- corporation shall be signed by the President or Executive Vice-President and the Secretary or an Assistant Secretary and may be sealed with the seal of this corporation or a facsimile thereof. The signature of the president or Executive Vice-President and the Secretary or Assistant Secretary may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar, other than the corporation itself or an employee of the corporation. In case any officer who signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issuance. Every certificate representing shares issued by this corporation shall set forth or fairly summarize upon the face or back of the certificate, or shall state that the corporation will furnish to any shareholder upon request and without charge a full statement of, the designations, preferences, limitations and relative rights of the shares of each class or series authorized to be issued, and the variations in the relative rights and preferences between the shares of each series so far as the same have been fixed and determined, and the authority of the Board of Directors to fix and determine the relative rights and preferences of subsequent series. Every certificate representing shares which are restricted as to the sale, disposition or other transfer of such shares shall state that such shares are restricted as to transfer and shall set forth or fairly summarize upon the certificate, or shall state that the corporation will furnish to any shareholder upon request and without charge a full statement of, such restrictions. Each certificate representing shares shall state upon the face thereof: the name of the corporation, that the corporation is organized under the law of the State of Delaware; the name of the person or persons to whom issued; the number and class of shares, and the designation of the series, if any, which such certificate represents; and the par value of each share represented by such certificate, or a statement that the shares are without par value. SECTION 3. Transfer Stock. The corporation shall -------------- register a stock certificate presented to it for transfer if the certificate is properly endorsed by the holder of record or by his duly authorized attorney, and the signature of such person has been guaranteed by a commercial bank or trust company or by a member of the New York or American Stock Exchange. SECTION 4. Lost, Stolen or Destroyed Certificates. The -------------------------------------- corporation shall issue a new stock certificate in the place of any certificate previously issued if the holder of the record of the certificate (a) makes proof in affidavit form that it has been lost, destroyed or wrongfully taken; (b) requests the issue of a new certificate before corporation has notice that the certificates has been acquired by a purchaser for value in good faith and without notice of any adverse claim; (c) gives bond in such form as the corporation may direct, to indemnify the corporation, the transfer agent, and registrar against any claim that may be made on account of the alleged loss, destruction or theft of a certificate; and (d) satisfies any other reasonable requirements imposed by the corporation. 12 SECTION 5. Fractional Shares. This corporation shall ----------------- not issue fractional shares should the division of interests in the corporation require such action. ARTICLE V --------- Books and Records SECTION 1. Books and Records. This corporation shall ----------------- keep correct and complete books and records of account and shall keep minutes of the proceedings of its shareholders, Board of Directors and committees of directors. This corporation shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders, and the number, class and series, if any, of the shares held by each. Any books, records and minutes may be in written form or in any other form capable of being converted into written form within a reasonable time. SECTION 2. Shareholders' Inspection Rights. Any person ------------------------------- who shall have a holder of record of shares or of voting trust certificates therefor at least six (6) months immediately preceding his demand or shall be the holder of record of, or the holder of record of voting trust certificates for, at least five (5%) percent of the outstanding shares of any class or series of the corporation, upon written demand stating the purpose thereof, shall have the right to examine, in person or by agent or attorney, at any reasonable time or times, for any proper purpose its relevant books and records of accounts, minutes and records of shareholders and to make extracts therefrom. SECTION 3. Financial Information. Not later than four --------------------- (4) months after the close of each fiscal year, this corporation shall prepare a balance sheet showing in reasonable detail the financial condition of the corporation as of the close of its fiscal year, and a profit and loss statement showing the results of the operation of the corporation during its fiscal year. Upon the written request of any shareholder or holder of voting trust certificates for shares of the corporation, the corporation shall mail to such shareholder or holder of voting trust certificates a copy of the most recent such balance sheet and profit and loss statement. The balance sheets and profit and loss statements shall be filed in the principal business office of the corporation in the State of Indiana, shall be kept for at least five (5) years, and shall be subject to inspection during business hours by any shareholder or holder of voting trust certificates, in person or by agent. ARTICLE VI ---------- Dividends The Board of Directors of this corporation may, from time to time, declare and the corporation may pay dividends on its shares in cash, property or its own shares, except when the corporation is insolvent or when the declaration or payment thereof would be contrary to any restrictions contained in the Articles of Incorporation, subject to the following provisions: (a) Dividends in cash or property may be declared and paid, except as otherwise provided in this section, only out of the unreserved and unrestricted earned surplus of the corporation or out of capital surplus, howsoever arising but each dividend paid out to capital surplus shall be identified as a distribution of capital surplus, and the amount per 13 share paid from such surplus, shall be disclosed to the shareholders receiving the same concurrently with the distribution. (b) Dividends may be declared and paid in the corporation's own treasury shares. (c) Dividends may be declared and paid in the corporation's own authorized but unissued shares out of any unreserved and unrestricted surplus of the corporation upon the following conditions. 1. If a dividend is payable in shares having a par value, such shares shall be issued at not less than the par value thereof and there shall be transferred to stated capital at the time such dividend is paid an amount of surplus equal to the aggregate par value of the shares to be issued as a dividend. 2. If a dividend is payable in shares without par value, such shares shall be issued at such stated value as shall be fixed by the Board of Directors by resolution adopted at the time such dividend is declared, and there shall be transferred to stated capital at the time such dividend is paid an amount of surplus equal to the aggregate stated value so fixed in respect of such shares; and the amount per share so transferred to stated capital shall be disclosed to the shareholders receiving such dividends concurrent with the payment thereof. (d) No dividend payable in shares of any class shall be paid to the holders of shares of any other class unless the articles of incorporation so provide or such payment is authorized by the affirmative vote or the written consent of the holders of at least a majority of the outstanding shares of the class in which the payment is to be made. (e) A split-up or division of the issued shares of any class into a greater number of shares of the same class without increasing the stated capital of the corporation shall not be construed to be a share dividend within the meaning of this section. ARTICLE VII ----------- Corporate Seal The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the following: UNIFIED HOLDINGS, INC. 1989 DELAWARE ARTICLE VIII ------------ Amendments SECTION 1. Manner of Amending. These Bylaws may be altered, ------------------ amended, repealed, or added to by the affirmative vote of the holders of a simple majority of the shares provided that a written notice shall have been sent to each shareholder or record entitled to vote at such meeting at his last known post office address at least ten (10) days before the date of such annual or special meeting, which notice shall state the alterations, amendments, additions, or changes which are proposed to be made in such Bylaws. Only such changes shall be made as have been specified in the notice. The Bylaws may also be altered, amended, repealed, or new Bylaws adopted by the unanimous vote of the 14 entire Board of Directors at a regular or special meeting of the Board. However, any Bylaws adopted by the Board may be altered, amended, or repealed by the shareholder. EX-10.1 7 MANAGEMENT AND EMPLOYEE RETENTION PLAN 1 EXHIBIT 10.1 MANAGEMENT AND EMPLOYEE RETENTION PLAN AND TRUST AGREEMENT FOR THE BENEFIT OF UNIFIED HOLDINGS, INC. ARTICLE I ESTABLISHMENT OF THE PLAN AND TRUST 1.01 Unified Holdings, Inc. (the "Corporation") hereby establishes a Management and Employee Retention Plan (the "Plan") and Trust (the "Trust"), effective as of February 7, 1995, (the "Effective Date") upon the terms and conditions hereinafter stated in this Management and Employee Retention Plan and Trust Agreement (the "Agreement"). 1.02 The Trustee hereby accepts this Trust and agrees to hold the Trust assets existing on the date of this Agreement and all additions and accretions thereto upon the terms and conditions hereinafter stated. ARTICLE II PURPOSE OF THE PLAN 2.01 The purpose of the Plan is to: (a) retain officers and employees of the Corporation, and/or its subsidiaries, with experience and ability in key positions by providing such key employees of the Corporation, and/or its subsidiaries, with a proprietary interest in the Corporation as compensation for their contributions to the Corporation, and/or its subsidiaries, and as an incentive to continue to make such contributions in the future through the issuance of Plan Share Awards, or Grants; (b) ----------------- ------ promote the interests of the Corporation and its shareholders by affording an incentive to certain key employees to remain in the employ of the Corporation and/or its subsidiaries and in attracting, maintaining and developing capable personnel of a caliber required to ensure the continued success of the Corporation and its subsidiaries by means of an offer to such persons of an opportunity to acquire or increase their proprietary interest in the Corporation through the granting of options to purchase the Corporation's stock pursuant to the terms of this Plan by means of Stock Option Agreements as the stock incentive portion of the Plan; and (c) to compensate Directors for their contributions to the Corporation, and/or its subsidiaries, and to provide an incentive for their continued contributions as Directors in the future by means of the Plan Share Awards and Stock Option Agreements (See Section 9.10 below). ARTICLE III DEFINITIONS The following words and phrases when used in this Agreement with an initial capital letter, unless the context clearly indicates otherwise, shall have the meanings set forth below. Wherever appropriate, the masculine pronouns shall include the feminine pronouns and the singular shall include the plural. 3.01 "Award" means a Plan Share Award or Stock Option Agreement granted under the Plan. 3.02 "Beneficiary" means the person or persons designated by a Recipient to receive any benefits payable under the Plan in the event of such Recipient's death. Such person or persons shall be designated in writing on forms provided for this purpose by the Committee and may be changed from time to time by similar written notice to the Committee. In the absence of a written designation, the Beneficiary shall be the Recipient's surviving spouse, if any, or, if none, his estate. 3.03 "Board" means the Board of Directors of Unified Holdings, Inc., and "Director" shall mean any sitting member of the Board. 3.04 "Common Stock" means shares of the common stock of Unified Holdings, Inc.. 2 3.05 "Corporation" means Unified Holdings, Inc.. 3.06 "Disability" means any physical or mental impairment which qualifies an Employee for disability benefits under the applicable long-term disability plan maintained by the Corporation, or, if no such plan applies, which would qualify such Employee for disability benefits under the Federal Social Security System. 3.07 "Employee" means any person, who is employed by the Corporation, and/or its subsidiaries, including officers. 3.08 "Plan Shares" or "Shares" means shares of Common Stock held in the Trust which may be distributed to a Recipient pursuant to the Plan by means of Plan Share Awards or granted in the form of a stock option to acquire Plan Shares by means of a Stock Option Agreement. 3.09 "Plan Share Award" means a right granted under this Plan to receive a distribution of Plan Shares upon completion of the service requirements described herein. 3.10 "Privately Held" means that the Common Stock of the Corporation has not been registered in such a manner so as to be placed into a publicly-traded marketplace on an accredited exchange. 3.11 "Recipient" or "Participant" means an Employee (or a Director) who receives a Plan Share Award or a Stock Option Agreement under the Plan. 3.12 "Registration" means the time that the Plan Shares shall be registered under the Securities Act of 1933, as amended, or the 1934 Act and/or any pertinent state securities laws relative to such registration. 3.13 "Stock Option Agreement" or "Option" means a grant of an option to acquire Plan Shares reserved under the Plan under the terms and conditions set forth in the Plan and in the Stock Option Agreement, attached hereto as Exhibit "B" ("Options") pursuant to the Plan, more fully described herein. 3.14 "Trustee" means that person or entity appointed by the Board to hold legal title to the Plan assets for the purposes set forth herein. ARTICLE IV ADMINISTRATION OF THE PLAN 4.01 Role of the Committee. The Plan shall be administered and --------------------- interpreted by a committee (the "Committee"), appointed by the Board, and whose membership shall be determined and reviewed from time to time by the Board. The Committee shall consist of three members of the Board, and at least one of the three members of the Committee shall not be an officer or employee of the Corporation, and/or its subsidiaries. Committee members may, however, own Common and/or Preferred Stock of the Corporation. The Committee shall have all of the powers granted to it in this and other Sections of the Plan. The Committee shall have any and all power and authority (including discretion with respect to that power and authority) which shall be necessary, properly advisable, desirable or convenient to enable it to carry out its duties under the Plan. Subject to the express provisions and limitations of the Plan, the Committee shall have full power and authority to construe, interpret and administer the Plan and may from time to time adopt such rules, procedures, rules, guidelines and regulations for carrying out the Plan as it may deem proper, appropriate, and in the best interests of the Corporation and in keeping with the objectives of the Plan for the conduct of its affairs. This power includes, but is not limited to, establishing all Award terms and conditions and adopting modifications, amendments, forms and procedures, including subplans and the like, as may be necessary to comply with provisions of any applicable regulatory rulings. The Committee may delegate part or all of its administrative authority granted hereunder to one or more of 2 3 its members, as the members by unanimous consent deem appropriate. Subject to the terms, provisions and conditions of the Plan, the Committee shall have exclusive jurisdiction: (i) to select the employees to whom awards (Plan Share Awards and/or Stock Option Agreements) (the "Awards") shall be granted; (ii) to determine the number of shares of Commons Stock subject to each Award; (iii) to determine the time or times when Awards will be granted; (iv) to fix such other provisions of the Plan Share Awards Agreement and the Stock Option Agreement as it may deem necessary or desirable consistent with the terms of the Plan; and (v) to determine all other questions relating to the administration of the Plan. The interpretation and construction by the Committee of any provisions of the Plan (including the administering of the Plan) and/or any Plan Share Award or Stock Option Agreement granted hereunder shall be final, conclusive, and binding upon all persons, and the officers of the Corporation shall place into effect and shall cause the Corporation to perform its obligations under the Plan in accordance with the determinations of the Committee in administering the Plan. Any member of the Committee shall resign his or her membership immediately upon receiving notice that a majority of the members of the Board have voted in favor of such resignation. The Committee shall act by vote or written consent of a majority of its members. The Committee shall determine the type of award to be granted to each participant, either in the from of a Plan Share Award or a Stock Option Agreement, and such awards may be granted singly, in combination or in tandem. Awards may be made in combination or in tandem with, in replacement of or substitution for, as alternatives to, or as the payment form for grants or rights under any other employee or compensation plan of the Corporation, including the plan of any acquired entity. The types of Awards that may be granted under this Plan are: (a) Plan Share Awards. A right granted under this Plan to ----------------- receive a distribution of Plan Shares upon completion of the service requirements described herein. (b) Stock Option Agreements. A grant of a right to purchase a ----------------------- specified number of Shares during a specified period as determined by the Committee. The purchase price per Share for each Stock Option Agreement shall be not less than 100% of the fair market value, as determined by the Committee and more fully described herein, on the date of the grant, except that, in the case of a stock option granted retroactively in tandem with or as a substitution for another Award (Plan Share Awards), the exercise or designated price may be no lower than the fair market value of a share on the date such other Award was granted. The Stock Option portion of this Plan, (and, therefore, the Stock Option Agreement) is in the form of an Incentive Stock Option which, in addition to being subject to applicable terms, conditions and limitations established by the Committee, complies with Section 422 of the Code. The price at which the Shares of Common Stock may be purchased under a Stock Option Agreement shall be paid in full at the time of the exercise in cash or such other method permitted by the Committee. Notwithstanding the foregoing, Options under this Plan shall not be exercisable for a period of at least six months following the date of the grant. Award Agreements (Plan Share Awards and Stock Option Agreements) (see Exhibits A and B attached hereto) shall be evidenced by agreements that set forth the terms, conditions and limitations for each Award which may include the term of an Award (except that in no event shall the term of a Stock Option Agreement exceed a period of ten years from the date of its grant), the provisions applicable in the event the participant's employment (or directorship) terminates, and the Committee's authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind any Award. The Committee may, but need not, require the execution of any such agreement, in which case acceptance of the Award by the respective participant shall constitute agreement to the terms of the Award. Payments of Awards may be in the form of cash, Shares, other Awards or combinations thereof as the Committee shall determine, and with such restrictions as it may impose. The Committee also may require or permit participants to elect to defer the issuance of Shares or the settlement of Awards in cash under such rules and procedures as it may establish under the Plan. It also may provide that deferred settlements include the payment or crediting of interest on the deferred amounts, or the payment or crediting of dividend equivalents where the deferral amounts are denominated in Shares. 4.02 Limitation on Liability. No member of the Board or the ----------------------- Committee shall be liable for any determination made in good faith with respect to the Plan or any Plan Shares or Plan Share Awards or Stock Option Agreements granted under it. If a member of the Board or the Committee is a party to or is 3 4 threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of anything done or not done by him in such capacity under or with respect to the Plan, the Corporation shall indemnify such member against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. ARTICLE V CONTRIBUTIONS 5.01 Amount and Timing of Contributions. Subject to the ---------------------------------- limitations set forth in Section 5.02 and the second sentence of Section 5.03 hereof, the Board shall determine the amount (or the method of computing the amount) and timing of any contributions by the Corporation to the Trust established under this Plan. Such amounts may be paid in cash or in shares of Common Stock and shall be paid to the Trust at the designated time of contribution. No contributions by Employees shall be permitted. 5.02 Initial Funding and Investment of Trust Assets. The Trust ---------------------------------------------- shall be initially funded with Common Stock of the Corporation or with cash. In the event that the initial funding is in the form of Common Stock of the Corporation, the Committee shall determine which Employees will be granted Plan Share Awards and the number of Shares covered by each Plan Share Award and shall additionally determine which employees will be granted Stock Option Agreements and the number of shares covered by each Stock Option Agreement. The Trust shall then hold Shares no less than an amount equal to the number of Shares covered by the Plan Share Awards and Stock Option Agreements and no more than 80% of the authorized Shares of the Common Stock, subject to Section 9.01 herein, that representing, as of the date first written, 240,000 of the Company's 300,000 authorized Shares. In the event that the initial funding is in cash, such cash shall be invested by the Trustee in such interest-bearing accounts as the Trustee shall determine to be appropriate; providing however, that as soon as practicable, the Trustee shall invest all of the cash assets of the Trust exclusively in Common Stock of the Corporation. The Trustee may invest additional Trust assets (as may be contributed by the Corporation) in Common Stock provided that the Trustee shall not purchase, in the aggregate, an amount of Common Stock which would exceed 80% of the amount of authorized Common Stock of the Corporation, that being 240,000, as of the date first written, pursuant to Section 9.01 herein; and, provided further that the Trustee shall only make such additional investments of Trust assets after the Committee has determined: (a) which of the Employees will be granted Plan Share Awards and/or Stock Option Agreements, and (b) the number of Shares covered by each Plan Share Award and/or Stock Option Agreement. Any Shares issued under the Plan may consist in whole or in part of authorized and unissued Shares or of treasury Shares, and no fractional Shares shall, under normal circumstances, be issued under the Plan. Cash may be paid in lieu of any fractional Shares in settlement of Awards under this Plan. Any cash earnings received with respect to Common Stock held in the Trust shall be held in an interest-bearing account on behalf of each recipient. 5.03 Creation of Plan Share Reserves. Immediately upon the ------------------------------- formation of the Trust, the Corporation shall initially fund the Trust with Two Hundred Forty Thousand (240,000) Shares of Common Stock, thereby establishing a Plan Share Reserve of Two Hundred Forty Thousand (240,000) Shares. Such Reserve shall be maintained until the Committee has granted Plan Share Awards and/or Stock Option Agreements equal to the amount of the Reserve. Subject to the provisions of Section 9.01 herein, the shares to be delivered upon the earning of of Plan Share Awards or the exercise of Stock Option Agreements granted under the Plan shall be made available, at the discretion of the Board, from the authorized unissued shares of the Corporation's no par value common stock. Unless the context indicates otherwise, as used herein, Common Stock shall refer to 4 5 shares of the no par value common stock of the Corporation, or the common stock of securities of a Successor of the Corporation that have been substituted therefor under Section 9.01 of the Plan. Subject to adjustments and substitutions made pursuant to the provisions of Section 9.01 herein, the aggregate number of shares that may be issued upon exercise of all options from Stock Option Agreements that may be granted under the Plan and/or the Plan Share Awards that may be granted under the Plan shall not exceed 80% of the Corporation's authorized shares of common stock, that being 240,000 shares, as of the date first written, subject to Section 9.01 herein. If any Stock Option Agreement or Plan Share Award granted under the Plan expires or terminates for any reason whatsoever without having been earned or exercised in full in accordance with the terms of the Plan, the shares of Common Stock subject to, but not delivered under, such Stock Option Agreement or Plan Share Award shall become available for any lawful corporate purpose, including for issuance pursuant to other Plan Share Awards and/or Stock Option Agreements granted to the same employee or other employees without decreasing the aggregate number of shares of Common Stock that may be granted under the Plan. For the purposes of this Section 5, the following shall apply: (i) "Forfeited" shares means any Shares issued pursuant to Awards made under this Plan which are forfeited to the Corporation pursuant to Award terms and conditions; and (ii) "Tendered" shares means any Shares which have been exchanged, either actually or by attestation, by a person as full or partial payment made to the Corporation on or after the effective date of a Plan in connection with any Award under the Plan. More than one Stock Option Agreement and/or Plan Share Award may be granted to an employee or director pursuant to this Plan. ARTICLE VI ELIGIBILITY; ALLOCATIONS 6.01 Eligibility. Plan Share Awards and Stock Option Agreements ----------- may be made to such Employees as is determined by the Committee. The Committee may, but is not required to, request written recommendations from the Chief Executive Officer. The Chief Executive Officer, at his discretion, may implement certain procedures for presenting recommendations to him to be further introduced before the Committee. Additionally, pursuant to Section 9.10 herein, Directors may be participants in the Plan and Recipients of Awards under the terms and conditions more fully described in Section 9.10 herein.. 6.02 Allocations. Effective as of the initial funding of the ----------- Trust, the Committee shall grant Plan Share Awards and/or Stock Option Agreements to those Employees (and Directors) listed in Exhibits A and B respectively hereto, in the amounts designated for those Employees (and Directors). The number of Shares covered by such Plan Share Awards and Stock Option Agreements shall, to the extent practicable, equal the number of Shares held by the Trust immediately prior to the grant of such Plan Share Awards and/or Stock Option Agreements, provided, however, that in no event shall any Plan Share Awards or Stock Option Agreements be made which will violate the Articles of Incorporation, Charter, or By-Laws of the Corporation or any applicable Federal or state law or regulation. In the event Shares are forfeited for any reason, the Committee shall, as soon as practicable, determine which of the Employees will be granted additional Plan Share Awards and/or Stock Option Agreements based upon such forfeited prior Plan Share Awards and/or unexercised and forfeited Stock Option Agreements. In selecting those Employees to whom Plan Share Awards and/or Stock Option Agreements will be granted and the number of Shares covered by such Awards and/or Options, the Committee shall consider the position and responsibilities of the eligible Employees, their years of service, their contributions as supervisors, officers, key committee-members, their contribution to the Company's profitability, the value of their services to the Corporation, and any other factors the Committee may deem relevant. The Committee may, but shall not be required to, request the written recommendation of the Chief Executive Officer of the Corporation. 6.03 Form of Allocation. As promptly as practicable after a ------------------ determination is made pursuant to Section 6.02 that an Award (Plan Share Award or Stock Option Agreement) is to be granted, the Committee shall notify the Recipient in writing of the grant of the Award, the number of Plan Shares 5 6 covered by the Award, and the terms upon which the Plan Shares subject to the Award shall be distributed to the Employee. Such terms shall be reflected in a written agreement with the Employee. The date on which the Committee so notifies the Recipient shall be considered the date of grant of the Plan Share Award and/or Stock Option Agreement. The Committee shall maintain records as to all grants of Plan Share Awards and Stock Option Agreements under the Plan. 6.04 Stock Option Agreement. Each Stock Option Agreement ---------------------- granted under this Plan shall be evidenced by such Stock Option Agreement being signed by a member of the Committee on behalf of the Corporation. A Stock Option Agreement shall constitute a binding contract between the Corporation and the optionee, and every optionee, upon acceptance of such Stock Option Agreement, shall be bound by the terms and restrictions of this Plan and of the Stock Option Agreement. The terms of the Stock Option Agreement shall be in accordance with this Plan, but may include additional provisions and restrictions, provided that the same are not, as determined by the Committee, inconsistent with the Plan. 6.05 Option Price. The price at which a Share of Common Stock ------------ may be purchased under a Stock Option Agreement pursuant to this Plan shall be set by the grant but shall in no instance be less than fair market value on the date of the grant. The fair market value, until such time as the Shares are registered shall be determined by the Committee, in good faith, after such fair market value has been determined by the Chief Financial Officer of the Corporation. Unless circumstances arise that justify a different fair market value than that determined by the Chief Financial Officer, the Committee shall use such fair market value as determined by him. The Committee, however, reserves the right at its sole discretion, to determine a different fair market value than that of the Chief Financial Officer. If the Common Stock is traded on the over-the-counter market, the fair market value shall be the average of the closing bid and asked quotations or the closing high bid quotation, whichever is available, for the Common Stock in the over-the-counter market, as reported by the National Association of Securities Dealers Automated Quotation System, but not exceeding the average of the final closing price of the Common Stock on the twenty business days immediately preceding the grant of the Stock Option Agreement. If the Common Stock is listed on a national securities exchange, the fair market value shall be the average of the closing prices of the Common Stock on the Composite Tape for the ten (10) consecutive trading days immediately preceding such given date. The option price shall be subject to adjustments in accordance with the provisions of Section 9.01 herein. 6.06 Exercise of Options. Any Stock Option Agreement granted ------------------- under the Plan shall not be exercisable until the optionee has had cumulative employment (or directorship) of at least five (5) years and continuous employment (or directorship) with the Corporation for a period of at least two (2) years after the date such Stock Option Agreement is granted and any and all options must be exercised, if at all, within ten (10) years after the date such Stock Option Agreement is granted. Notwithstanding the foregoing, should an optionee's employment with the Corporation, or tenure as a director, terminate due to the death of the optionee, all options shall immediately become fully vested provided the optionee has had continuous service with the Corporation for two (2) years, and the optionee's successor in interest shall have sixty (60) days after the optionee's date of death to exercise such option (provided, however, that such option must be exercised within ten (10) years after the date such option is granted) in accordance with the terms hereof. Any such exercisable option is hereinafter referred to as a "Vested Option". Subject to the terms and conditions of any applicable Stock Option Agreement, any option granted under the Plan may be exercised in whole or in part in installments at such time or times as the Committee may prescribe in the applicable Stock Option Agreement. Except as otherwise provided herein, no option granted under this Plan may be exercised unless the optionee is at the time of such exercise an employee (or director) of the Corporation or its subsidiaries. 6 7 6.07 Issuance of Shares. No Shares of Common Stock shall be issued ------------------ pursuant to the exercise of an option until: (a) The requirements of such laws and regulations as may be deemed by the Committee to be applicable are satisfied including appropriate disclosure obligations; (b) Any documents counsel for the Corporation deems necessary are delivered by the optionee, including a letter evidencing the optionee's investment intent in acquiring such shares; (c) The optionee pays, or makes satisfactory arrangements to pay, the option price for the shares to be issued; and (d) Provision has been made for the payment of any and all federal, state, and local taxes that may be required to be paid as a result of the exercise of such option or the issuance of such shares. No optionee, or legal representative, legatee, or distributee of an optionee, shall be deemed to be the holder of any shares of Common Stock subject to any option unless and until the certificate or certificates for them have been issued. Nothing contained in this Plan or any Stock Option Agreement shall obligate the Corporation to cause the Corporation's Common Stock to be listed with any securities exchange or other regulatory agency. Any shares issued under this Plan will be restricted stock and shall be appropriately legended to restrict sale or transfer until the Corporation shall have received a satisfactory opinion of legal counsel that such sale or transfer is in accordance with all applicable securities laws. If the Corporation's Common Stock becomes publicly traded on a national securities exchange, then any shares issued under this Plan shall include any additional restrictions imposed on the Corporation's Common Stock by such exchange. If an optionee's employment (or directorship) by the Corporation is terminated for any reason whatsoever, including death, such optionee or the optionee's successor in interests shall have sixty (60) days after the date of termination to exercise any Vested Option held by such optionee at the time of his termination, provided that such option is exercised within ten (10) years from after the date such option is granted. All other options held on the date of termination shall expire automatically as of the date of termination. The Committee shall be entitled to make such rules, regulations and determinations as it deems appropriate under the Plan in respect of any leave of absence taken by or disability of any optionee. Without limiting the generality of the foregoing, the Committee shall be entitled to determine: (i) whether or not any such leave of absence or disability shall constitute a termination of employment within the meaning of the Plan, and (ii) the impact, if any, of any such leave of absence or disability on Awards under this Plan theretofore made to any optionee who takes such leave of absence or becomes disabled. 6.08 Dividends and Dividend Equivalents. ---------------------------------- The Committee may provide than any Awards under the Plan earn dividends or dividend equivalents. Such dividends or dividend equivalents may be paid currently or may be credited to a participant's account. Any crediting of dividends or dividend equivalents may be subject to such restrictions and conditions as the Committee may establish, including reinvestment in additional Shares or share equivalents. (a) Plan Share Award Dividends. Dividends received with respect -------------------------- to Plan Shares held by the Trustee shall be paid to the Employees (or Directors, if applicable) for whose benefit such Plan Shares are held, as soon as practicable after the Trustee receives such dividends. Dividends received with respect to Plan Shares which have not been the subject of a Plan Share Award at the time a dividend is received shall, as the Committee in it sole discretion shall determine, be either (i) retained by the Trustee and paid to an Employee (or Director, if applicable) at such time as he receives an Award of such Plan Shares or (ii) reinvested by the Trustee in additional shares of Common Stock which shall be held by the Trustee as a part of the Trust. 7 8 (b) Stock Option Agreement Dividends. In the event of a -------------------------------- stock dividend, stock split or any other change which might affect the Shares or the price of the Shares, the proportionate adjustments, if any, may be made by the Committee in its discretion that it deems appropriate to reflect the change shall be made with respect to (i) the aggregate number of Shares that may be issued under this Plan; (ii) each outstanding Stock Option Agreement granted under this Plan; and (iii) the exercise price per share for any outstanding Stock Option Agreements under this Plan. Cash dividends shall be paid only on Shares owned and fully vested, but the committee reserves the right, but is not obligated, to invest such cash dividends into additional Shares at the Fair Market Value on the date of the dividend. 6.09 Allocations Not Required to any Specific Employee. ------------------------------------------------- Notwithstanding anything to the contrary in Sections 6.01 and 6.02, no Employee shall have any right or entitlement to receive a Plan Share Award and/or Stock Option Agreement hereunder, such awards being at the total discretion of the Committee. Furthermore, that an employee has been granted an Award or Option under this Plan shall not in any way affect or qualify the right of the Corporation to terminate his employment at any time, subject to the terms and conditions any employment agreement that may then be in effect. Nothing contained in this Plan shall be construed to limit the right of the Corporation to grant options or awards otherwise than under the Plan for any proper and lawful corporate purpose, including but not limited to options or awards granted to key employees. Key employees to whom Options or Awards may be granted under the Plan will be those elected by the Committee from time to time who, in the sole discretion of the Committee, have contributed in the past or who may be expected to contribute materially in the future to the successful performance of the Corporation. ARTICLE VII EARNING AND DISTRIBUTION OF PLAN SHARES UNDER PLAN SHARE AWARDS; GRANTING AND DISTRIBUTION OF PLAN SHARES UNDER STOCK OPTION AGREEMENTS; VOTING RIGHTS 7.01 Earning Plan Shares; Forfeitures; Tendered. ------------------------------------------- (a) General Rules. -------------- (i) Unless the Committee shall specifically state to the contrary at the time a Plan Share Award is granted, Plan Shares subject to a Plan Share Award shall be earned by a Recipient: (1) at the time that the Plan Shares shall be registered under the Securities Act of 1933, as amended, or the 1934 Act and/or any pertinent state securities laws relative to such registration (the "Registration"); or (2) if such Plan Shares have not been registered by January 1, 2000, the Plan Shares subject to an award shall be earned by Employee at the rate of twenty-percent (20%) of the aggregate number of shares subject to an Award granted under the Plan as of each January 1 following the January 1, 2000 date. If the employment of a Recipient is terminated prior to Registration or prior to the fifth (5th) January 1 following the January 1, 2000 date for any reason (except as specifically provided in subsections "b" below), the Recipient shall forfeit the right to any Shares subject to the Award which have not theretofore been earned, with no further action required on the part of the Corporation. In determining the number of Plan Shares which are to be earned under a Plan Share Award, fractional Shares, if any, shall be rounded down to the nearest whole number, provided that such fractional Shares shall be aggregated and distributed on the fifth (5th) January 1 following the January 1, 2000 date, or at the time of Registration, whichever is the later. (ii) Unless the Committee shall specifically state to the contrary at the time a Stock Option Agreement is granted, the optionee may, subject to Article VI herein, exercise the Option at any time 8 9 provided for in and pursuant to the Stock Option Agreement, understanding that, except as otherwise provided for herein, Stock Option Agreements may not be exercised unless the optionee is either an employee or a director of the Corporation. Furthermore, Plan Shares eligible under a Stock Option Agreement may only be issued pursuant to: the terms and conditions of this Plan, Article VI herein; the Stock Option Agreement at the time the Option is exercised; and when the Plan Shares are fully paid. If the employment of a Recipient is terminated prior to Registration or prior to the fifth (5th) January 1 following the January 1, 2000 date for any reason (except as specifically provided in subsections "b" below), the Recipient shall forfeit the right to any Shares subject to the Award (Option) which have not theretofore been exercised, with no further action required on the part of the Corporation. (b) Exception for Terminations Due to Death or Disability. ----------------------------------------------------- Unless the Committee shall specifically state to the contrary, at the time the Plan Share Award is granted and notwithstanding the general rule contained in Section 7.01 (a) above, all Plan Shares subject to a Plan Share Award held by a Recipient whose employment with the Corporation ends due to his death or Disability, shall be deemed earned upon Registration, and shall be distributed as soon as practicable thereafter. Unless the Committee shall specifically state to the contrary, at the time a Stock Option Agreement is granted and notwithstanding the general rule contained in Section 7.01 (a) above, all Plan Shares subject to a Stock Option Agreement held by a Recipient (optionee) whose employment (or Directorship) with the Corporation ends due to his death or Disability, the optionee's successor in interests shall have sixty (60) days after the date of termination to exercise any Vested Option held by such optionee at the time of his termination, provided that such option is exercised within ten (10) years from after the date such option is granted. All other unexercised Options held on the date of termination shall expire automatically as of the date of termination. (c) Exception for Terminations after a Change in Control. ---------------------------------------------------- Notwithstanding the general rule contained in Section 7.01 (a) above, all Plan Shares subject to a Plan Share Award held by a Recipient shall be deemed to be earned in the event of a "Change in Control" of the Corporation or a threatened Change in Control if such Change in Control or threatened Change in Control occurs prior to the earlier of Registration or January 1, 2005. In the event that such Change in Control or threatened Change in Control should occur, all Plan Shares subject to a Plan Share Award shall be deemed to be earned and shall be distributed as soon as practicable thereafter; provided, however, that no Awards shall be distributed prior to six months from the date of grant of the Plan Share Award. Notwithstanding the general rule contained in Section 7.01 (a) above, all Plan Shares subject to a Stock Option Agreement held by a Recipient (optionee), upon a Change in Control or a threatened Change in Control as defined herein, shall become immediately and fully exercisable or payable according to the terms of this Plan and of the Stock Option Agreement and according to the following additional terms: (i) Any outstanding and unexercised Options shall become immediately and fully exercisable, and shall remain exercisable until it would otherwise expire by reason of lapse of time. (ii) During the six month and seven day period from and after a Change in Control (the "Exercise Period"), unless the Committee shall determine otherwise at the time of grant, a Recipient shall have the right, in lieu of the payment of the Base Price of the Shares being purchased under the Stock Option Agreement and by giving notice to the Committee, to elect (within the Exercise Period) in lieu of exercise thereof, subject to Section 6 herein, to surrender all or part of the Stock Option Agreement to the Corporation and to receive in cash, within 30 days of such notice, an amount equal to the amount by which the Change in Control Price per Share on the date of such election shall exceed the Base Price per Share under the Stock Option Agreement multiplied by the number of Shares granted under the Stock Option Agreement as to which the right granted in Section 7.01 (c) (ii) herein shall have been exercised. Notwithstanding the foregoing, the Change in Control Price shall not exceed the market price of a Share to the extent required pursuant to Section 422 of the Internal Revenue Code of 1986, as amended, on the date of surrender thereof. The Committee shall provide in the Stock Option Agreement for the treatment to be given to any Shares awarded pursuant to this Plan which have not expired or been forfeited or tendered before the occurrence of a Change in Control. 9 10 (d) Definition of Change in Control. ------------------------------- For the purposes of this Plan, a CHANGE IN CONTROL of the Corporation shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either (A) the then outstanding shares of common stock of the Corporation (the "Outstanding Corporation Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control: (C) any acquisition directly from the Corporation (excluding an acquisition by virtue of the exercise of a conversion privilege), (D) any acquisition by the Corporation, (E) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation or (F) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, the conditions described in clauses (A), (B) and (C) of paragraph (iii) of this subsection (c) are satisfied; or (ii) Individuals who, as the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Approval by the shareholders of the Corporation of a reorganization, merger, or consolidation, in each case, unless, following such reorganization, merger or consolidation, (A) more than fifty percent (50%) of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporate Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Corporation Stock and Outstanding Corporation Voting Securities, as the case may be, (B) no Person (excluding the Corporation, any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, twenty percent (20%) or more of the Outstanding Corporation Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation, entitled to vote generally in the election of directors and (C) at least "A Majority" of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) Approval by the shareholders of the Corporation of (A) a complete liquidation or dissolution of the Corporation or (B) the sale or other disposition of all or substantially all of the assets of the Corporation, other than to a corporation, with respect to which following such sale or other disposition, (I) more than fifty percent (50%) of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation 10 11 entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be, (II) no Person (excluding the Corporation and any employee benefit plan (or related trust) of the Corporation or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, twenty percent (20%) or more of the Outstanding Corporation Common Stock or Outstanding Corporation Voting Securities, as the case may be) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (III) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Corporation. (v) Notwithstanding the provisions of (i) through (iv) above, a Change in Control shall not be deemed to have occurred (A) if before the occurrence of a transaction which otherwise would constitute a Change in Control, a majority of the Board votes to accept, approve or recommend such transaction, or (B) by reason of the acquisition of Plan Shares pursuant to this Plan. 7.02 Distribution of Plan. -------------------- (a) Timing of Distributions. Plan Shares shall be distributed ----------------------- to a Recipient or his Beneficiary, as the case may be, as soon as practicable after they have been earned (in the event of a Plan Share Award) or exercised subject to the terms of the Stock Option Agreement, provided, however, that no Plan Shares shall be distributed to a Recipient or Beneficiary pursuant to a Plan Share Award or Stock Option Agreement within six months from the date on which that Plan Share Award or Stock Option Agreement was granted to such person. No Plan Shares shall be distributed unless and until all of the requirements of law and of all regulatory agencies having jurisdiction over the issuance and delivery of the Plan Shares shall have been fully complied with. (b) Form of Distributions. All Plan Shares, together with --------------------- any Shares representing stock dividends, shall be distributed in the form of Common Stock. One share of Common Stock shall be given for each Plan Share earned and distributable. Payments representing cash dividends which have not been reinvested in Common Stock shall be made in cash. (c) Withholding. The Trustee may withhold from any cash payment ----------- or Common Stock distribution made under this Plan sufficient amounts to cover any applicable withholding and employment taxes, and, if the amount of a cash payment is insufficient, the Trustee may require the Recipient or Beneficiary to pay to the Trustee the amount required to be withheld as a condition of delivering the Plan Shares. The Trustee shall pay over to the Corporation which employs or employed such Recipient any such amount withheld from or paid by the Recipient or Beneficiary. Additionally, the Company shall have the right to deduct from any settlement of an Award made under this Plan, including the delivery or vesting of Shares, a sufficient amount to cover withholding of any federal, state, or local taxes required by law, or to take such other action as may be necessary to satisfy any such withholding obligations. The Committee may permit Shares to be used to satisfy required tax withholding and such Shares shall be valued at the Fair market Value as of the settlement date of the applicable Award. Any election by a person subject to Section 16 of the Act to have Shares withheld from the payment of an Award hereunder to satisfy tax withholding obligations shall be made as soon as practicable, as contemplated by Rule 16b-3. (d) Restrictions on Selling of Plan Shares. The Committee -------------------------------------- may require the Recipient or his Beneficiary, as the case may be, to agree not to sell or otherwise dispose of his Plan Shares except in 11 12 accordance with all then applicable federal and state securities laws, and the Committee may cause a legend to be placed on the stock certificate(s) representing the Plan Shares in order to restrict the transfer of the Plan Shares for such period of time or under such circumstances as the Committee, upon the advice of counsel, may deem appropriate. The Recipient or his Beneficiary shall agree to hold the Plan Shares for such time period as may be required under applicable laws and regulations and a restrictive legend to such effect shall be placed upon the stock certificate(s) evidencing the Plan Shares. The Recipient shall have no right to require the Corporation to register any Plan Shares under the Securities Act of 1933, as amended, or the 1934 Act or any state securities laws. 7.03 Voting of Plan Shares. All shares of Common Stock held by the --------------------- Trustee shall be voted by the Trustee in his/her/its sole discretion. Trustee, however, shall not vote any shares of the Common stock which he/she/it holds without consultation with the Committee. In the absence of any such consultation with the Committee, the Trustee shall not vote any shares of Common stock which it holds. The Trustee shall vote all unearned or unissued shares funded into the Plan, including those shares which, at the time of the requirement of said vote, have not been granted. The Trustee for the Plan, by request of the Board and the Committee, shall be the Company's Chairman and Chief Executive Officer, unless otherwise changed by the unanimous vote of the Committee. All earned Shares and those Shares issued pursuant to exercised Stock Option Agreements shall be voted by the respective owner of said Shares, pursuant to the terms and conditions provided for herein. ARTICLE VIII TRUST 8.01 Trust. The Trustee shall receive, hold, administer invest ----- and make distributions and disbursements from the Trust in accordance with the provisions of the Plan and Trust and the applicable directions, rules, regulations procedures and policies established by the Committee pursuant to the Plan. 8.02 Management of Trust. It is the intent of this Plan and ------------------- Trust that the Trustee shall have complete authority and discretion with respect to the arrangement, control and investment of the Trust, and that the Trustee shall invest all assets of the Trust in Common Stock to the fullest extent practicable, and except to the extent that the Trustee determines that the holding of monies in cash or cash equivalents is necessary to meet the obligations of the Trust. In performing its duties, the Trustee shall have the power to do all things and execute such instruments as may be deemed necessary or proper, including the following powers: (a) To invest up to one hundred percent (100%) of all Trust assets in Common Stock without regard to any law now or hereafter in force limiting investments for trustees or other fiduciaries. The investment authorized herein may constitute the only investment of the Trust, and in making such investment, the Trustee is authorized to purchase Common Stock from the Corporation or from any other source, and such Common Stock so purchased may be outstanding, newly issued, or treasury shares. (b) To invest any Trust assets not otherwise invested in accordance with (a) above, in such deposit accounts and certificates of deposit, obligations of the United States government or its agencies or such other investments as shall be considered the equivalent of cash. (c) To Sell, exchange or otherwise dispose of any property at any time held or acquired by the Trust. (d) To cause stocks, bonds or other securities to be registered in the name of a nominee, without the addition of words indication that such security is an assets of the Trust (but accurate records shall be maintained showing that such security is an asset of the Trust). 12 13 (e) To hold cash without interest in such amounts as may in the opinion of the Trustee be reasonable for the proper operation of the Plan and Trust. (f) To employ brokers, agents, custodians, consultants and accountants. (g) To hire counsel to render advice with respect to its rights, duties and obligations hereunder, and such other legal services or representation as it may deem desirable. (h) To hold funds and securities representing the amount to be distributed to a Recipient or his Beneficiary as a consequence of a dispute as to the disposition thereof whether in a segregated account or held in common with other assets of the Trust. (i) To borrow or raise money for the purposes of the Trust in such amount, and upon such terms and conditions, as the Trustee shall deem advisable; and , for any sum so borrowed, to issue its promissory note as Trustee and, in its sole discretion, to secure the repayment thereof by pledging all or any part of the assets of the Trust. No person lending money to the Trustee shall be bound to see the application of the money lent or inquire into the validity, expediency or propriety of any such borrowing. Notwithstanding the foregoing, the Trustee shall not be required to make any inventory, appraisal or settlement or report to any court, or to secure any order of court for the exercise of any power herein contained, or give bond. 8.03 Records and Accounts. The Trustee shall maintain accurate -------------------- and detailed records and accounts of all transactions of the Trust, which shall be available at all reasonable times for inspection by any legally entitled person or entity to the extent required by applicable law, or any other person determined by the Committee. 8.04 Expenses. All costs and expenses incurred in the operation -------- and administration of this Plan shall be borne by the Corporation. 8.05 Indemnification. Subject to the Corporation's By-Laws and --------------- the applicable provisions of Delaware law, the Corporation shall indemnify, defend and hold the Trustee harmless against all claims, expenses and liabilities arising out of or related to the exercise of the Trustee's powers and the discharge of its duties hereunder, unless the same shall be due to the Trustee's gross negligence or misconduct. ARTICLE IX MISCELLANEOUS 9.01 Adjustments for Capital Changes. The aggregate number of ------------------------------- Plan Shares available for distribution pursuant to Awards (Plan Share Awards and/or Stock Option Agreements) and the number of Shares to which any Award relates shall be proportionately adjusted for any increase or decrease in the total number of outstanding shares of Common Stock issued subsequent to the effective date of the Plan resulting from any split, subdivision or consolidation of shares or other capital adjustment, or other increase or decrease in such shares effected without receipt or payment of consideration by the Corporation. Any stock dividend declared in respect of a Plan Share held by the Trust will be held by the Trust on behalf of the Recipient until earned by the Recipient and such stock dividend shall be treated as the other Plan Shares held by the Trust under this Plan. In the event of a capital adjustment in the Common Stock resulting from a stock dividend, stock split, reorganization, merger, consolidation, or a combination or exchange of shares, the number of shares of Common Stock subject to this Plan and the number of Shares affected by Plan Share Awards and Stock Option Agreements shall be automatically adjusted to take into account such capital adjustment. By virtue of such a capital adjustment, the price of any Share under a Stock Option Agreement shall be adjusted so that there will be no change in the aggregate purchase price payable upon exercise of any such Option. 13 14 In the event the Corporation merges or consolidates with another entity, or all or a substantial portion of the Corporation's assets or outstanding capital stock are acquired (whether by merger, purchase or otherwise) by another entity (such other entity being the "Successor"), the kind of Shares that shall be subject to the Plan and to each outstanding Plan Share Award and Stock Option Agreement shall, automatically by virtue of such merger, consolidation or acquisition, be converted into and replaced by shares of common stock, or such other class of securities having rights and preferences no less favorable than the Shares of the Successor, and the number of Shares subject to any Options and the purchase price per share upon exercise of the Option shall be correspondingly adjusted, so that, by virtue of such merger, consolidation or acquisition, each optionee shall have the right to purchase [a] that number of shares of common stock of the Successor that have a book value equal, as of the date of such merger, conversion or acquisition, to the book value, as of the date of such merger, conversion or acquisition, of the Shares theretofore subject to the optionee's option, [b] for a purchase price that, when multiplied by the number of shares of common stock of the Successor subjected to the option, shall equal the aggregate exercise price at which the optionee could have acquired all of the Shares theretofore optioned to the optionee. The granting of an option pursuant to this Plan shall not affect in any way the right and power of the Corporation to make adjustments, reorganizations, reclassifications, or changes of its capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets. In the event of any stock dividend, stock split, combination or exchange of Shares, merger, consolidation, spin-off, recapitalization or other distribution (other than normal cash dividends) of the Corporation's assets to stockholders, or any other change affecting Shares or the price of Shares, such proportionate adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change shall be made with respect to [a] the aggregate number of Shares that may be issued under the Plan; [b] each outstanding Award made under the Plan; and [c] the exercise price per Share for any outstanding stock options or similar Awards under the Plan. 9.02 Amendment and Termination of the Plan. The Board shall ------------------------------------- have the right, at any time, by resolution, to amend, suspend or terminate the Plan in any respect that it may deem to be in the best interest of the Corporation or to better achieve the purpose of the Plan, provided, however, that no amendments shall be made in the Plan that would cause a modification, extension or renewal to the terms of an Award granted hereunder within the meaning of Section 424 (h) of the Internal Revenue Code of 1986, as amended. Furthermore, any amendment that would cause the Plan not to comply with either Rule 16b-3, or any successor rule, under the Act or Section 162(m) of the Code shall not become effective without the approval of the Corporation's shareholders. Notwithstanding the foregoing, upon termination of the Plan, all Plan Shares granted under Plan Share Awards will be distributed to the Recipients regardless of whether or not such Plan Shares had otherwise been earned under the service requirements set forth in Article VII, and all granted Stock Option Agreements shall be fully exercisable under their terms; provided, however, that no Plan Shares shall be distributed prior to six months from the date of grant of the Plan Share Award or Stock Option Agreement unless otherwise provided for herein. 9.03 Nontransferable. Plan Share Awards, Stock Option --------------- Agreements and rights to Plan Shares shall not be transferable by a Recipient, and during the lifetime of the Recipient, Plan Shares may only be earned by, exercised by and/or paid to a Recipient who was notified in writing of an Award by the Committee pursuant to Section 6.03. No Recipient or Beneficiary shall have any right in or claim to any assets of the Plan or Trust, nor shall the Corporation be subject to any claim for benefits hereunder. A Stock Option Agreement granted under the Plan may not be transferred by the optionee otherwise than by will or the laws of descent and distribution, and during the lifetime of the optionee to whom granted, may be exercised only by such optionee. 9.04 Future and Employment Rights. Neither the Plan nor any ---------------------------- grant of a Plan Share Award, Stock Option Agreement or Plan Shares hereunder nor any action taken by the Trustee, the Committee or the Board in connection with the Plan shall create any right on the part of any Employee to continue in the employ of the Corporation. 14 15 No person shall have any claim or rights to be granted an Award under the Plan, and no participant shall have any rights under the Plan to be retained in the employ or the Corporation or as a director. Furthermore, unless otherwise specifically determined by the Committee, settlements of Awards received by participants under the Plan shall not be deemed a part of a participant's regular, recurring compensation for purposes of calculating payments from or benefits under any of the Corporation's benefit plans, severance programs, or severance pay laws of any country. Further, the Corporation may adopt other compensation programs, plans or arrangements as it deems appropriate or necessary. 9.05 Voting, Dividend and Shareholder Rights. No Recipient --------------------------------------- shall have any voting or dividend rights or other rights of a stockholder in respect to any Plan Shares covered by a Plan Share Award or Stock Option Agreement, except as expressly provided in Sections 7.02 and 7.03 above, prior to the time said Plan Shares are actually earned or exercised and distributed to him. Furthermore, a participant shall have no rights as a shareholder with respect to an Award until the participant actually becomes a holder of record of Shares distributed with respect thereto. 9.06 Governing Law. The validity, construction and effect of ------------- the Plan and Trust and any action taken or relating to the Plan, shall be determined in accordance with and shall be governed by the laws of the State of Indiana and applicable federal law. The invalidity or unenforceability of any provision of this Plan or any Award granted pursuant to this Plan shall not effect the validity and enforceability of the remaining provisions of this Plan and the Awards granted hereunder, and such invalid or unenforceable provision shall be stricken to the extent necessary to preserve the validity and enforceability of this Plan and the Awards granted hereunder. 9.07 Effective Date. This Plan shall be effective as of -------------- December 14, 1994 conditional upon its approval by the Board and by the Shareholders of the Corporation. 9.08 Term of Plan. This Plan shall remain in effect until the ------------ earlier of : (1) twenty-one (21) years from the Effective Date, (2) termination by the Board, or (3) the distribution to Recipients and Beneficiaries of all assets of the Trust. This Plan shall be subject to the approval by the shareholders of the Corporation, but if that approval has not been obtained before June 14, 1996, the Plan shall be void, and any Awards issued thereunder shall be void. If the Plan is terminated by the Board, no Awards may be issued after the effective date of such termination, but, subject to the preceding sentence, previously issued Awards shall remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of this Plan. Notwithstanding the foregoing, no options shall be granted under the Plan after the effective date of termination, but any Stock Option Agreements granted prior thereto may be exercised in accordance with their terms. The Plan and all Awards granted pursuant to it are subject to all laws, approvals, requirements and regulations of any governmental authority that may be applicable thereto and, notwithstanding any provisions of the Plan or its Awards, the holder of a Stock Option Agreement shall not be entitled to exercise the option nor shall the Corporation be obligated to issue any Shares to the holder if such exercise or issuance would violate any of the provisions of the Plan. 9.09 Tax Status of Trust. It is intended that the Trust ------------------- established hereby be treated as a Grantor Trust of the Corporation under the provisions of Section 671 et seq. of the Internal Revenue Code of 1986, as ------ amended. 9.10 Director Participation. Notwithstanding any of the ----------------------- foregoing, each member of the Board of Directors shall receive Five Hundred Shares (500 shares) per year in Plan Share Awards. Such Plan Share Awards shall be subject to the same terms and conditions as Employee Plan Share Awards, including but not limited to the forfeiture of Shares if for reasons other than death or disability a Director were not to serve on the Board at the time of Registration. Unless otherwise stated, Directors who are also employees, shall receive their Five Hundred Shares (500 shares) of Plan Share Awards as part of their employee Plan Share Awards. Directors which are non-employees shall receive their Five Hundred (500) shares in a separate Plan Share Award. 15 16 Directors which are non-employees shall be listed along with their Plan Share Awards as part of Exhibit "A" attached hereto. Additionally, each Director shall receive One Thousand Shares (1,000 shares) of Stock Option Agreements per year. Such Stock Option Agreements shall be subject to the same terms and conditions as those granted to Employees, including but not limited to the forfeiture of unexercised Options if, for reasons other than death or disability, a Director were not to serve on the Board at the time of Registration or his termination. Directors shall not be subject to approval or any voting by the Committee on their Plan Share Awards and/or Stock Option Agreements, as such Awards are limited and shall be automatically awarded annually pursuant to the terms herein, and shall not be subject to the Committee's vote. Directors which are non-employees may not receive Awards under this Plan in excess of the fixed, limited amounts provided for in this Section 9.10 herein. For the purposes of the terms and conditions which apply to Directors participation pursuant to this Plan, the word "Employee" may be substituted with the word "Director" herein for clarification purposes. 9.11 Designation of Beneficiaries. A participant may designate in ---------------------------- writing a beneficiary or beneficiaries to receive any distribution under the Plan which is made after the participant's death, provided, however, that if at any time such distribution is due, there is no designation of a beneficiary in force or if any person (other than a trustee or trustees) as to whom a beneficiary designation was in force at the time of the participant's death shall have died before the payment became due and the participant has failed to provide in such beneficiary designation for any person or persons to take in lieu of such deceased person, the person or persons entitled to receive such distribution (or part thereof, as the case may be) shall be the participant's executor or administrator. 9.12 Notices. All notices or other communications made or ------- given pursuant to this Plan shall be in writing and shall be sufficiently made or given if hand delivered, or if mailed by certified mail, addressed to the participant at the address contained in the records of the Corporation or to the Corporation at its principal office, as applicable. Furthermore, in the event that an offer is made to shareholders or to the Corporation whereby a Change in Control may or will occur, the Corporation, upon receipt of notice of said offer, shall promptly provide notice to all optionees and Plan Share Award Recipients. Notwithstanding anything to the contrary herein, upon receipt of notice of an intended Change in Control, the optionee shall have the right to exercise any options granted hereunder and to the extent permitted by applicable state and federal law, thereafter to fully exercise his or her rights as a shareholder of the Corporation. 9.13 Successors and Assigns. The Plan, and its Plan Share Awards and ---------------------- Stock Option Agreements, shall be binding on all successors and assigns of a participant, including, without limitation, the estate of such participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the participant's creditors. 9.14 Assignment and Encumbrances. The right to receive an Award, and --------------------------- the right to receive payment with respect to any Award under this Plan are not assignable or transferable and shall not be subject to any encumbrances, liens, pledges or charges of the participant or to claims of the participant's creditors. Any attempt to assign, transfer, hypothecate or attach any rights with respect to or derived from any Award, or any rights with respect to or derived from an Award, shall be null and void and of no force and effect whatsoever. 16 EX-10.2 8 RESTRICTED STOCK OPTION PLAN 1 EXHIBIT 10.2 UNIFIED HOLDINGS, INC. RESTRICTED STOCK OPTION PLAN 1. Purpose. The purpose of the Unified Holdings, Inc. ------- Restricted Stock Option Plan (hereinafter called the "Plan") is to promote the interests of Unified Holdings, Inc., a Delaware corporation (hereinafter called the "Corporation"), by affording an incentive to certain key members of the Board of Directors of the Corporation and its subsidiaries and to certain key employees of the Corporation and its subsidiaries to remain in the employ of the Corporation and its subsidiaries and to use their best efforts in its behalf; and to further aid the Corporation and its subsidiaries in attracting, maintaining and developing capable personnel and directors of a caliber required to ensure the continued success of the Corporation and its subsidiaries by means of an offer to such persons of an opportunity to acquire or increase their proprietary interest in the Corporation through the granting of options to purchase the Corporation's stock pursuant to the terms and conditions of this Plan. 2. Shares Subject to Plan. ---------------------- A. Subject to the provisions of Section 11, the shares to be delivered upon exercise of options granted under the Plan shall be made available, at the discretion of the Board of Directors, from the authorized unissued shares of the Corporation's no par value common stock. Unless the context indicates otherwise, as used herein, Common Stock shall refer to shares of the no par value common stock of the Corporation, or the common stock or securities of a Successor of the Corporation that have been substituted therefor under Section 11 of the Plan. B. Subject to adjustments and substitutions made pursuant to the provisions of Section 11, the aggregate number of shares that may be issued upon exercise of all options that may be granted under the Plan shall not exceed sixty thousand (60,000) shares of the Corporation's authorized shares of Common Stock. C. If any option granted under the Plan expires or terminates for any reason whatsoever without having been exercised in full in accordance with the terms of the Plan, the shares of Common Stock subject to, but not delivered under, such option shall become available for any lawful corporate purpose, including for issuance pursuant to other options granted to the same employee or other employees without decreasing the aggregate number of shares of Common Stock that may be granted under the Plan. D. More than one option may be granted to an optionee pursuant to this Plan. 3. Option Agreements. ----------------- A. Each option granted under the Plan shall be evidenced by an option agreement signed by a member of the Plan Committee (as hereinafter defined) on behalf of the Corporation and by the optionee. B. An option agreement shall constitute a binding contract between the Corporation and the optionee, and every optionee, upon acceptance of such option agreement, shall be bound by the terms and restrictions of this Plan and of the option agreement. C. The terms of the option agreement shall be in accordance with this Plan, but may include additional provisions and restrictions, provided that the same are not, as determined by the Plan Committee, inconsistent with the Plan. 4. Administration. The Plan shall be administered and interpreted -------------- by a committee (the "Plan Committee"), appointed by the Board of Directors, and whose membership shall be determined and reviewed from time to time by the Corporation's Board of Directors. The Plan Committee shall consist of not less than three (3) members of the Board of Directors unless and until the Board of Directors votes to alter the composition of the Plan Committee, and at least one of the three members of the Committee shall not be an officer or employee of the Corporation, and/or its subsidiary. Committee members may, however, own Common and/or Preferred Stock of the Corporation. 2 The Committee shall have all of the powers granted to it in this and other Sections of the Plan. The Committee shall have any and all power and authority (including discretion with respect to that power and authority) which shall be necessary, properly advisable, desirable or convenient to enable it to carry out its duties under the Plan. Subject to the express provisions and limitations of the Plan, the Committee shall have full power and authority to construe, interpret and administer the Plan and may from time to time adopt such rules, procedures, rules, guidelines and regulations for carrying out the Plan as it may deem proper, appropriate, and in the best interests of the Corporation and in keeping with the objectives of the Plan for the conduct of its affairs. This power includes, but is not limited to, establishing all terms and conditions of any options granted and adopting modifications, amendments, forms and procedures as may be necessary to comply with provisions of any applicable regulatory rulings. The Committee may delegate part or all of its administrative authority granted hereunder to one or more of its members, as the members by unanimous consent deem appropriate. Subject to the terms, provisions and conditions of the Plan, the Committee shall have exclusive jurisdiction: (i) to select the employees to whom options shall be granted; (ii) to determine the number of shares of Commons Stock subject to each option; (iii) to determine the time or times when options will be granted; (iv) to fix such other provisions of the option agreement as it may deem necessary or desirable consistent with the terms of the Plan; and (v) to determine all other questions relating to the administration of the Plan. The interpretation and construction by the Committee of any provisions of the Plan (including the administering of the Plan) and/or any stock options granted hereunder shall be final, conclusive, and binding upon all persons, and the officers of the Corporation shall place into effect and shall cause the Corporation to perform its obligations under the Plan in accordance with the determinations of the Committee in administering the Plan. Any member of the Plan Committee shall resign his or her membership immediately upon receiving notice that a majority of the members of the Board of Directors ha voted in favor of such resignation. 5. Eligibility. Key employees and directors of the Corporation ----------- shall be eligible to receive options under the Plan. That an employee has been granted an option under this Plan shall not in any way affect or qualify the right of the Corporation to terminate his employment at any time, subject to the terms and conditions of any employment agreement that may then be in effect. Nothing contained in the Plan shall be construed to limit the right of the Corporation to grant options otherwise than under the Plan for any proper and lawful corporate purpose, including but not limited to options granted to key employees. Key employees to whom options may be granted under the Plan will be those elected by the Plan Committee from time to time who, in the sole discretion of the Plan Committee, have contributed in the past or who may be expected to contribute materially in the future to the successful performance of the Corporation. That a director has been granted an option under this Plan shall not in any way affect or qualify the right of the Corporation's shareholders, pursuant to its by-laws, to terminate a director's position on the Corporation's Board of Directors, nor shall it be construed as any implied or suggested term of directorship, as such term is solely the decision of the shareholders of the Corporation. 6. Option Price. The price at which a Share of Common Stock may ------------ be purchased under an option granted pursuant to the Plan shall be set by the grant but shall in no instance be less than fair market value on the date of grant, determined by: [i] If the Common Stock is traded on the over-the-counter market, the fair market value shall be the average of the final closing price of the Common Stock on the twenty business days immediately preceding the grant of the Stock Option Agreement, as reported by the National Association of Securities Dealers Automated Quotation System. [ii] If the Common Stock is listed on a national securities exchange, the fair market value shall be he average of the closing prices of the Common Stock on the Composite Tape for the ten (10) consecutive trading days immediately preceding such given date. [iii] If the Common Stock is neither traded on the over-the-counter market nor listed on a national securities exchange, such fair market value as the Plan Committee, in good faith, shall determine. Such fair market value shall not be determined without consultation with the chief financial officer of the Corporation. 2 3 The option price shall be subject to adjustments in accordance with the provisions of Section 11 herein. 7. Exercise of Options. Unless otherwise modified by the ------------------- Committee in the individual stock option agreement, any options granted under the Plan shall not be exercisable until: (a) the optionee has had cumulative employment (or directorship) of at least five (5) years; or (b) the optionee has had continuous employment (or directorship) with the Corporation for a period of at least two (2) years after the date such stock option is granted. Any and all options must be exercised, if at all, within ten (10) years after the date such option is granted. Subject to the terms and conditions of any applicable stock option agreement, any option granted under the Plan may be exercised in whole or in part in installments at such time or times as the Committee may prescribe in the applicable stock option agreement. Except as otherwise provided herein, no option granted under this Plan may be exercised unless the optionee is at the time of such exercise an employee (or director) of the Corporation or its subsidiaries. 8. Issuance of Shares. No shares of Common Stock shall be ------------------ issued pursuant to the exercise of an option until: (a) The requirements of such laws and regulations as may be deemed by the Committee to be applicable are satisfied including appropriate disclosure obligations; (b) Any documents counsel for the Corporation deems necessary are delivered by the optionee, including a letter evidencing the optionee's investment intent in acquiring such shares; (c) The optionee pays, or makes satisfactory arrangements to pay, the option price for the shares to be issued; and (d) Provision has been made for the payment of any and all federal, state, and local taxes that may be required to be paid as a result of the exercise of such option or the issuance of such shares. No optionee, or legal representative, legatee, or distributee of an optionee, shall be deemed to be the holder of any shares of Common Stock subject to any option unless and until the certificate or certificates for them have been issued. Nothing contained in this Plan or any stock option agreement shall obligate the Corporation to cause the Corporation's Common Stock to be listed with any securities exchange or other regulatory agency. Any shares issued under this Plan will be restricted stock and shall be appropriately legended to restrict sale or transfer until the Corporation shall have received a satisfactory opinion of legal counsel that such sale or transfer is in accordance with all applicable securities laws. If the Corporation's Common Stock becomes publicly traded on a national securities exchange, then any shares issued under this Plan shall include any additional restrictions imposed on the Corporation's Common Stock by such exchange. 9. Effect of Termination of Service. -------------------------------- Notwithstanding the foregoing, should an optionee's employment with the Corporation, or tenure as a director, terminate due to the death or disability of the optionee, all options shall immediately become fully vested provided the optionee has had continuous service with the Corporation for two (2) years, and the optionee's successor in interest shall have sixty (60) days after the optionee's date of termination to exercise such option (provided, however, that such option must be exercised within ten (10) years after the date such option is granted) in accordance with the terms hereof. Any such exercisable option is hereinafter referred to as a "Vested Option". 10. Leaves of Absence and Disability. The Plan Committee shall be -------------------------------- entitled to make such rules, regulations and determinations as it deems appropriate under the Plan in respect of any leave of absence taken by or disability of any optionee. Without limiting the generality of the foregoing, the Committee shall be entitled to determine: (i) whether or not any such leave of absence or disability shall constitute a termination of employment within the meaning of the Plan, and (ii) the impact, if any, of any such leave of absence or disability on options granted under this Plan theretofore made to any optionee who takes such leave of absence or becomes disabled. 3 4 11. Capital Adjustments Affecting Stock. The aggregate ----------------------------------- number of Shares available for distribution pursuant to the Plan and the number of Shares to which any options granted hereunder relate shall be proportionately adjusted for any increase or decrease in the total number of outstanding shares of Common Stock issued subsequent to the effective date of the Plan resulting from any split, subdivision or consolidation of shares or other capital adjustment, or other increase or decrease in such shares effected without receipt or payment of consideration by the Corporation. In the event of a capital adjustment in the Common Stock resulting from a stock dividend, stock split, reorganization, merger, consolidation, or a combination or exchange of shares, the number of shares of Common Stock subject to this Plan and the number of Shares affected by the options granted hereunder shall be automatically adjusted to take into account such capital adjustment. By virtue of such a capital adjustment, the price of any Share under a stock option agreement shall be adjusted so that there will be no change in the aggregate purchase price payable upon exercise of any such Option. In the event the Corporation merges or consolidates with another entity, or all or a substantial portion of the Corporation's assets or outstanding capital stock are acquired (whether by merger, purchase or otherwise) by another entity (such other entity being the "Successor"), the kind of Shares that shall be subject to the Plan and to each outstanding stock option agreement shall, automatically by virtue of such merger, consolidation or acquisition, be converted into and replaced by shares of common stock, or such other class of securities having rights and preferences no less favorable than the Shares of the Successor, and the number of Shares subject to any Options and the purchase price per share upon exercise of the Option shall be correspondingly adjusted, so that, by virtue of such merger, consolidation or acquisition, each optionee shall have the right to purchase [a] that number of shares of common stock of the Successor that have a book value equal, as of the date of such merger, conversion or acquisition, to the book value, as of the date of such merger, conversion or acquisition, of the Shares theretofore subject to the optionee's option, [b] for a purchase price that, when multiplied by the number of shares of common stock of the Successor subjected to the option, shall equal the aggregate exercise price at which the optionee could have acquired all of the Shares theretofore optioned to the optionee. The granting of an option pursuant to this Plan shall not affect in any way the right and power of the Corporation to make adjustments, reorganizations, reclassifications, or changes of its capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets. In the event of any stock dividend, stock split, combination or exchange of Shares, merger, consolidation, spin-off, recapitalization or other distribution (other than normal cash dividends) of the Corporation's assets to stockholders, or any other change affecting Shares or the price of Shares, such proportionate adjustments, if any, as the Plan Committee in its discretion may deem appropriate to reflect such change shall be made with respect to [a] the aggregate number of Shares that may be issued under the Plan; [b] each outstanding option granted under the Plan; and [c] the exercise price per Share for any outstanding stock options under the Plan. 12. Amendment, Suspension, or Termination. The Board shall have ------------------------------------- the right, at any time, to amend, suspend or terminate the Plan in any respect that it may deem to be in the best interests of the Corporation, provided, however, no amendments shall be made in the Plan that would cause a modification, extension or renewal to the terms of an option granted hereunder within the meaning of Section 424 (h) of the Internal Revenue Code of 1986, as amended. 13. Effective Date, Term and Approval. This Plan shall become --------------------------------- effective upon its approval by the Board of Directors and its shareholders on the date first above written. This Plan shall terminate ten (10) years after the effective date of the Plan and no options may be granted under the Plan after such time, but any option granted prior thereto may be exercised in accordance with its terms. The Plan and all options granted pursuant to it are subject to all laws, approvals, requirements and regulations of any governmental authority that may be applicable thereto and, notwithstanding any provisions of the Plan or option agreement, the holder of an option shall not be entitled to exercise the option nor shall the Corporation be obligated to issue any shares to the holder if such exercise or issuance would violate any of the provisions of the Plan, including paragraph 8 of the Plan. 14. Transferability of Options. An option granted under the Plan -------------------------- may not be transferred by the optionee otherwise than by will or the laws of descent and distribution, and during the lifetime of the optionee to whom granted, may be exercised only by such optionee. 4 5 15. Governing Law; Severability. This Plan shall be governed ---------------------------- by the laws of the State of Indiana. The invalidity or unenforceability of any provision of this Plan or any option granted pursuant to this Plan shall not affect the validity and enforeceability of the remaining provisions of the Plan and the options granted hereunder, and such invalid or unenforceability provision shall be stricken to the extent necessary to preserve the validity and enforceability of this Plan and the options granted hereunder. 16. Sale or Business Combination. In the event that an offer is made ---------------------------- to shareholders or to the Corporation whereby a change of control of the Corporation may or will occur, the Corporation, upon receipt of notice of said offer, shall promptly provide notice to all optionees. Notwithstanding anything to the contrary herein, upon receipt of notice of an intended change of control of the Corporation, the optionee shall have the right to exercise any options granted hereunder and to the extent permitted by applicable state and federal law, thereafter to fully exercise his or her rights as a shareholder of the Corporation. Upon a Change in Control or a threatened Change in Control as defined herein, all options granted hereunder shall become immediately and fully exercisable or payable according to the terms of this Plan and of the stock option agreement and according to the following additional terms: (i) Any outstanding and unexercised Options shall become immediately and fully exercisable, and shall remain exercisable until it would otherwise expire by reason of lapse of time. (ii) During the six month and seven day period from and after a Change in Control (the "Exercise Period"), unless the Committee shall determine otherwise at the time of grant, a Recipient shall have the right, in lieu of the payment of the Base Price of the Shares being purchased under the stock option agreement and by giving notice to the Plan Committee, to elect (within the Exercise Period) in lieu of exercise thereof, subject to the Plan terms, to surrender all or part of the option to the Corporation and to receive in cash, within 30 days of such notice, an amount equal to the amount by which the Change in Control Price per Share on the date of such election shall exceed the Base Price per Share under the stock option agreement multiplied by the number of Shares granted under the stock option agreement as to which the right granted herein shall have been exercised. Notwithstanding the foregoing, the Change in Control Price shall not exceed the market price of a Share to the extent required pursuant to Section 422 of the Internal Revenue Code of 1986, as amended, on the date of surrender thereof. The Plan Committee shall provide in the Stock Option Agreement for the treatment to be given to any Shares pursuant to this Plan which have not expired or been forfeited or tendered before the occurrence of a Change in Control. For purposes of this subsection, "Base Price" means a price fixed by the Plan Committee which shall not be less than 100% of the Fair Market Value of a share of Stock on the date of grant of the stock option agreement, and "Change of Control" shall mean the higher of (A) (I) of or any period during which the Stock shall not be listed for trading on a national securities exchange, but when prices for the Stock shall be reported by the National Market System of the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), the highest price per share as quoted by the Nation Market System of NASDAQ, (II) for any period during which the Stock shall not be listed for trading on a national securities exchange or its price reported by the National Market System of NASDAQ, but when prices for the Stock shall be reported by NASDAQ, the highest average of the high bid and low asked prices as reported by the NASDAQ, (III) for any period during which the Stock shall be listed for trading on a national securities exchange, the highest closing price per share of Stock on such exchange as of the close of such trading day or (IV) the highest market price per share of Stock as determined by a nationally recognized investment banking firm selected by the Board of Directors in the event neither (I), (II), or (III) above shall be applicable, in each case during the 60-day period prior to and ending on the date of the Change of Control and (B) if the Change of Control is the result of a transaction or series of transactions described in section 11 herein, the highest price per share of Stock paid in such transaction or series of transactions (which in the case of section 11 shall be the highest price per share of the Stock as reflected in a Schedule 13D by the person having made the acquisition); provided, however, that the Change of Control Price shall not exceed the market price of a share of Stock (to the extent required pursuant to Section 422 of the Code) on the date of surrender thereof. (d) Definition of Change in Control. ------------------------------- For the purposes of this Plan, a CHANGE IN CONTROL Of the Corporation shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") (a "Person") of beneficial ownership (within 5 6 the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either (A) the then outstanding shares of common stock of the Corporation (the "Outstanding Corporation Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control: (C) any acquisition directly from the Corporation (excluding an acquisition by virtue of the exercise of a conversion privilege), (D) any acquisition by the Corporation, (E) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation or (F) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation the conditions described in clauses (A), (B) and (C) of paragraph (iii) of this subsection (c) are satisfied; or (ii) Individuals who, as the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (such threatened election contest or threatened solicitation of proxies or consents constituting a threatened Change of Control for purposes of this Plan); or (iii) Approval by the shareholders of the Corporation of a reorganization, merger, or consolidation, in each case, unless, following such reorganization, merger or consolidation, (A) more than fifty percent (50%) of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporate Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Corporation Stock and Outstanding Corporation Voting Securities, as the case may be, (B) no Person (excluding the Corporation, any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, twenty percent (20%) or more of the Outstanding Corporation Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation, entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) Approval by the shareholders of the Corporation of (A) a complete liquidation or dissolution of the Corporation or (B) the sale or other disposition of all or substantially all of the assets of the Corporation, other than to a corporation, with respect to which following such sale or other disposition, (I) more than fifty percent (50%) of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be, (II) no Person (excluding the Corporation and any employee benefit plan (or related trust) of the Corporation or such corporation and any Person 6 7 beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, twenty percent (20%) or more of the Outstanding Corporation Common Stock or Outstanding Corporation Voting Securities, as the case may be) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (III) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Corporation. (v) Notwithstanding the provisions of (i) through (iv) above, a Change in Control shall not be deemed to have occurred (A) if before the occurrence of a transaction which otherwise would constitute a Change in Control, a majority of the Board votes to accept, approve or recommend such transaction, or (B) by reason of the acquisition of Plan Shares pursuant to this Plan. 17. Assignment and Encumbrances. Payments with respect to any options --------------------------- granted under this Plan are not assignable or transferable and shall not be subject to any encumbrances, liens, pledges or charges of the participant or to claims of the participant's creditors. Any attempt to assign, transfer, hypothecate or attach any rights with respect to or derived from any options granted hereunder or any rights with respect to or derived from an option granted hereunder, shall be null and void and of no force and effect whatsoever. 7 EX-21.1 9 LIST OF SUBSIDIARIES 1 Exhibit 21.1 LIST OF SUBSIDIARIES
Corporation State ----------- ----- Unified Management Corporation Indiana Unified Advisers, Inc. Indiana HFI Acquisition Corporation Kentucky FLTC Acquisition Corporation Kentucky VAI Acquisition Corporation Delaware
EX-27.1 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AND THE CONSOLIDATED STATEMENTS OF OPERATIONS OF UNIFIED HOLDINGS, INC. FILED AS A PART OF THE COMPANY'S REGISTRATION STATEMENT ON FORM 10-SB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REGISTRATION STATEMENT. 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 339,096 197,848 543,656 2,041 0 1,197,447 1,173,032 870,879 1,930,479 941,220 0 1,128,239 17,069 0 (180,403) 1,930,479 0 1,142,702 0 438,311 683,113 2,041 1,317 21,278 0 21,278 0 0 0 21,278 (.022) (.022)
EX-27.2 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AND THE CONSOLIDATED STATEMENTS OF OPERATIONS OF UNIFIED HOLDINGS, INC. FILED AS A PART OF THE COMPANY'S REGISTRATION STATEMENT ON FORM 10-SB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REGISTRATION STATEMENT. YEAR DEC-31-1997 JAN-01-1996 DEC-31-1996 323,177 203,040 537,634 2,041 0 1,189,240 1,154,545 835,831 1,953,247 945,153 0 1,125,686 17,069 0 167,356 1,953,247 0 5,290,390 0 1,806,472 2,936,042 2,041 4,993 547,876 0 547,876 0 0 0 547,876 .685 .685
EX-27.3 12 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AND THE CONSOLIDATED STATEMENTS OF OPERATIONS OF UNIFIED HOLDINGS, INC. FILED AS A PART OF THE COMPANY'S REGISTRATION STATEMENT ON FORM 10-SB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REGISTRATION STATEMENT. YEAR DEC-31-1997 JAN-01-1995 DEC-31-1995 350,560 0 420,351 2,041 0 896,588 1,224,247 731,411 1,585,825 988,852 0 1,117,238 17,069 0 (578,598) 1,585,825 0 4,708,811 0 1,384,440 3,269,085 2,041 10,703 53,687 0 53,687 0 0 0 53,687 (.138) (.138)
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